The ACIT, Circle-8, Ahmedabad V. M/s. Vishal Export Overseas Ltd., Ahmedabad

ITA 2177/AHD/2005

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6603 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-05-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 06-10-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N S DAYAM
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Opportunity of being heard; Cost of acquisition
• Section: 80HHC

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI M.K. SHRAWAT, JM AND D.C.AGRAWAL, AM ASSTT. CIT, CIRCLE-8, AHMEDABAD. VS. M/S VISHAL EXPORT OVERSEAS LTD., OPP. SALES INDIA, ASHRAM ROAD, AHMEDABAD- 09. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI N. S. DAYAM, CIT, DR RESPONDENT BY:- SHRI S. N. SOPARKAR, SR.ADVOCATE. O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS :- (1) THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETIN G THE DISALLOWANCE OF RS.6,08,326/- BEING EXCHANGE RATE D IFFERENCE PERTAINING TO EARLIER YEARS FOR THE PURPOSE OF EXPO RT TURNOVER. (2) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE COST OF GOODS ESTIMATED BY THE AO IN THE ASSESSMENT ORDE R. (3) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE DISCLAIMER AMOUNT OF RS.4,76,10,309/- WORKED OUT BY THE A.O. FOR ELIGIBLE DEDUCTION OF 80 HHC. (4) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING TO ALLOW FREIGHT EXPENSES BEYOND CUSTOM POINT AMOUNTIN G TO RS.32,87,842/-. ITA NO.2177/AHD/2005 ASST. YEAR 2002-03 ITA NO.2177/AHD/2005 ASST. YEAR 2002-03 2 (5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. (6) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ORDER OF THE AO BE RESTOR ED TO THE ABOVE EXTENT. 2. THE ASSESSEE IS AN EXPORTER OF VARIOUS ITEMS SUC H AS CATER OIL, GARMENTS, BALL PENS, RICE, WHEAT, SUGAR ETC. IT IS ALSO SELLING THESE ITEMS IN DOMESTIC MARKET. THE FIRST ISSUE RELATES TO DISALLO WANCE, AS EXPORT TURNOVER, OF ADDITIONAL SUM RECEIVED BY THE ASSESSE E IN FOREIGN EXCHANGE AMOUNTING TO RS.6,08,326/- ON ACCOUNT OF FAVOURABLE EXCHANGE RATE FLUCTUATION. THE ASSESSEE HAS RECEIVED THIS SUM BEI NG THE DIFFERENCE BETWEEN THE BOOKED AMOUNT OF EXPORT IN THE PREVIOUS YEAR AND HIGHER REALIZATION THIS YEAR. THE ASSESSEE CLAIMED THIS AS PART OF EXPORT TURNOVER OF THE CURRENT YEAR BUT THE AO HELD THAT THIS REALI ZATION RELATED TO EXPORTS IN THE PREVIOUS YEAR AND HENCE IT IS NOT PART OF TH E EXPORT PROFIT OF THE CURRENT YEAR AND TREATED THE SAME AS INCOME FROM OT HER SOURCES. 3. THE LD. CIT(A) FOLLOWING THE DECISION IN THE CAS E OF WOLKEM INDIA LTD. VS. DCIT 65 TTJ (JP) 59 AND SHARP CREDIT LTD. VS. DCIT 83 TTJ (DEL) 1056 HELD THAT ADDITIONAL SUM RECEIVED ON ACC OUNT OF FAVOURABLE FOREIGN EXCHANGE FLUCTUATION IS PART OF EXPORT PROF ITS AND CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. HE ACCORDINGL Y DIRECTED TO DELETE THE DISALLOWANCE. ITA NO.2177/AHD/2005 ASST. YEAR 2002-03 3 4. WE HAVE HEARD THE PARTIES. THE LD. DR HAD SUBMIT TED THAT THIS SUM WOULD BELONG TO PREVIOUS YEAR AND ASSESSMENT OF THE PREVIOUS YEAR CAN BE RECTIFIED U/S 153(13). THE LD. AR SUBMITTED THAT IT HAS NO OBJECTION IF ALLOWANCE IS MADE IN PREVIOUS YEAR. ACCORDINGLY, WE DIRECT THE AO TO RESORT TO RECTIFICATION U/S 155(13) AND ALLOW THE C LAIM OF DEDUCTION U/S 80 HHC FOR THAT YEAR TO WHICH THE EXPORTS RELATES AND IN RESPECT OF WHICH ASSESSEE HAD RECEIVED ADDITIONAL SUM. ACCORDINGLY, THIS GROUND OF REVENUE IS ALLOWED AS NO DEDUCTION IS THEREFORE, RE QUIRED IN THE CURRENT YEAR. 5. THE SECOND GROUND RELATES TO ESTIMATION OF COST OF GOODS BY THE AO. IN ORDER TO DETERMINE THE EXPORT PROFIT FOR THE PURPOSES OF ALLOWING DEDUCTION U/S 80 HHC, THE AO HAS TO IDENTIFY THE DI RECT COST OF PURCHASES. THE ASSESSEE HAD NOT KEPT SEPARATE ACCOU NT FOR DOMESTIC AND EXPORT BUSINESS. THEREFORE, THE ASSESSEE HAD WORKED OUT THE DIRECT COST OF PURCHASES OF ITEMS EXPORTED AND SOLD IN DOMESTIC MA RKET ON PRO-RATA BASIS I.E. TOTAL PURCHASES OF EACH SUCH ITEMS WHETHER SOL D IN DOMESTIC MARKET OR EXPORTED BY DIVIDING THE VALUE OF TOTAL ITEMS PURCH ASED BY QUANTITY OF ITEMS PURCHASED AND ON THAT BASIS THE ASSESSEE WORK ED OUT THE COST OF ITEMS EXPORTED AND COST OF ITEMS SOLD IN THE DOMEST IC MARKET. THE AO, HOWEVER, DID NOT AGREE. ACCORDING TO HIM THERE IS N O UNIFORM BASIS OF ITEMS PURCHASED BY THE ASSESSEE AS SOME ITEMS ARE I N PIECES AND SOME ITA NO.2177/AHD/2005 ASST. YEAR 2002-03 4 ITEMS ARE IN KG. OR SOME IN METRES. FURTHER ASSESSE E HAS PAID JOB WORK CHARGES, TRANSPORTATION CHARGES ON CERTAIN ITEMS. N O SEPARATE DETAILS ARE KEPT ABOUT THE COST OF PURCHASES AND OTHER DIRECT C OST INVOLVED. HE ACCORDINGLY WORKED OUT THE TOTAL SALES INCLUDING EX PORT SALES AND LOCAL SALES, ALSO WORKED OUT SEPARATELY TOTAL COST OF PUR CHASES FOR EXPORT SALES AND DOMESTIC SALES AND THEN DETERMINED DIFFERENCE B ETWEEN THE TWO, AS PROFIT ON EXPORT SALES AND LOCAL SALES PUT TOGETHER . THIS COMBINED PROFIT WAS DIVIDED ON PRO-RATA OF SALE BASIS TO WORK OUT P ROFIT ON EXPORT AND PROFIT ON DOMESTIC SALES. THEREAFTER HE DIVIDED TOT AL DIRECT COST ON PRO- RATA SALES BASIS. HE HAS DONE THE WORKING AS UNDER :- A) GARMENTS TOTAL EXPORT SALES RS.185,90,22,091 % 48.15 TOTAL LOCAL SALES RS.200,16,42.825 % 51.85 RS.386,06,64,916 % 100 TOTAL COST OF PURCHASE OF GARMENTS FOR EXPORT SALES AS WELL AS DOMESTIC SALES AS PER ASSESSEE RS.338,41,62,462 PROFIT ON EXPORT AND LOCAL SALE OF GARMENTS RS.17, 65,02,454 PROPORTIONATE PROFIT ON EXPORT OF GARMENTS IN PROPORTION TO SALE 48.15 X 476502454 = 190 RS.24,70,66,522 THEREFORE, DIRECT COST OF EXPORTS RELEVANT TO GARME NTS IS WORKED OUT AT RS.162,95,86,159/- (I.E. 185,90,22,091 RS.22,94,3 5,932) AS AGAINST ASSESSEES CLAIM OF RS.72,49,51,625/- B) SOYABEAN TOTAL EXPORT SALES RS.58,39,11,556 % 22.98 TOTAL LOCAL SALES RS.195,70,49,530 % 77.02 TOTAL SALES RS.254,09,61,086 % 100 TOTAL COST OF PURCHASE OF SOYABEAN FOR EXPORT SALES AS WELL AS DOMESTIC SALES AS PER ASSESSEE. RS.257,40,77,375/- LOSS ON EXPORT AND LOCAL SALE OF GARMENTS (-) RS.3,31,16,243/- PROPORTIONATE LOSS ON EXPORT OF SOYABEAN IN ITA NO.2177/AHD/2005 ASST. YEAR 2002-03 5 PROPORTION TO SALE 22.98 X 33116243 = (-) 100 RS.76,10,112/- PROPORTIONATE LOSS ON TRADING OF SOYABEAN IN LOCAL SALES 77.02 X 33116243 100 RS.2,55,06,130/- THEREFORE DIRECT COST OF EXPORTS RELEVANT TO SOYABE AN IS WORKED OUT AT (-) RS.59,15,21,688 (I.E. RS.58,39,11,556 (-) RS.76 ,10,112) AS AGAINST ASSESSEES CLAIM OF RS.64,72,11,238/- C) RICE TOTAL LOCAL SALES RS.118,63,56,563 % 97.54 TOTAL LOCAL SALES RS.3,00,32,028 % 2.46 TOTAL SALES RS.121,63,88,591 % 100 TOTAL COST OF PURCHASE OF RICE FOR EXPORT SALES AS WELL AS DOMESTIC SALES AS PER ASSESSEE RS.121,34,33,229/- PROFIT ON EXPORT AND LOCAL SALE OF RICE RS.29,55,4 06/- PROPORTIONATE PROFIT ON EXPORT OF RICE 2.46 X 2955406 = 100 RS.72,703/- PROPORTIONATE PROFIT ON TRADING OF RICE IN LOCAL SALES: 97.54 X 2955406 = 100 RS.28,82,703/- THEREFORE, DIRECT COST OF EXPORTS RELEVANT TO RICE IS WORKED OUT AT RS.2,99,59,325/- (I.E. RS.30032028 RS.72703) AS AGAINST ASSESSEES CLAIM OF RS.3,77,11,244/-. THEREFORE, ON ACCOUNT OF THE ABOVE, TOTAL DIRECT CO ST OF TRADING GOODS WORKS OUT TO AS UNDER : COST OF TRADING GOODS FOR EXPORT ON ACCOUNT OF NINE ITEMS EXCLUSIVELY TRADED FOR EXPORT BUSINESS RS.241,06,28,216/- ADD: 1) COST OF TRADING GOODS FOR EXPORT GARMENT RS.162,95,86,159/- 2) COST OF TRADING GOODS FOR EXPORT SOYABEAN RS.59,15,21,674/- 3) COST OF TRADING GOODS FOR EXPORT RICE RS.2,99,5 9,325/- TOTAL: RS.466,16,95,374/- FURTHER GIVING EFFECT TO ASSESSEES CLAIM OF CANCEL LATION OF WHEAT EXPORT OF 12,97,19,645/- THE DIRECT COST WAS WORKED OUT TO RS .4,53,19,75,729/- (RS.4,66,16,95,374/- - RS.12,97,19,645/-).. THIS RESULTED IN REDUCTION OF DEDUCTION U/S 80 HHC. THE LD. CIT(A) DID NOT AGREE WITH THE ABOVE WORKING OF THE AO AND UPHE LD THE BASIS ADOPTED ITA NO.2177/AHD/2005 ASST. YEAR 2002-03 6 BY THE ASSESSEE IN WORKING OUT THE COST ON THE BASI S OF PURCHASE MADE BY IT RATHER THAN DIVIDING ON THE BASIS OF SALES. 6. WE HAVE HEARD THE PARTIES AND CAREFULLY CONSIDER ED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). THE REASONS ARE THAT THE BASIS BEING THE SALES IN DOMESTIC MARKET AND EXPORT ADOPTED BY THE AO IS NOT LOGICAL. THE DIRECT COST RELATES TO PURCHASES AND, THEREFORE, PURCHASE COST HAS TO BE A REASONABLE BASIS. IT IS NOT IDENTIFIED THAT DISTINC T TYPES OF PURCHASES WERE MADE FOR EXPORT AND FOR DOMESTIC SALE. IF PURCHASES ARE MADE TOGETHER BOTH FOR EXPORT AND DOMESTIC SALES THEN DIRECT COST OF THE PURCHASES HAS TO BE ON PRO-RATA BASIS OF PURCHASES FOR BOTH THE SALE S I.E. DOMESTIC SALES AND EXPORT SALES. THERE CAN BE SEVERAL REASONS FOR GETT ING MORE PROFITS IN EITHER DOMESTIC SALES OR IN EXPORT SALES AND, THERE FORE, SALES CANNOT BE A REASONABLE BASIS FOR WORKING OUT DIRECT COST OF PUR CHASES. ONCE THERE ARE UNIFORM PURCHASES THEN THIS BASIS IS REASONABLE AND CORRECT. WE ACCORDINGLY UPHOLD THE ORDER OF LD. CIT(A) AND DISM ISS THE GROUND OF THE REVENUE. 7. THE THIRD GROUND RELATES TO DELETING THE AMOUNT RELATING TO DISCLAIMER AMOUNTING RS.4.76 CRORES. THE FACTS REL ATING TO THIS GROUND ARE THAT ASSESSEE IS MAKING BOTH EXPORT SALES AS WE LL AS DOMESTIC SALES. IT IS TRANSFERRING CERTAIN EXPORTS TO OTHER PARTIES AN D DISCLAIMING DEDUCTION ITA NO.2177/AHD/2005 ASST. YEAR 2002-03 7 UNDER SECTION 80HHC AS PER THAT SECTION. SUCH DISCL AIMER CERTIFICATES ARE ISSUED TO SUPPORTING MANUFACTURERS. IT WAS NOTICED BY THE AO THAT SUCH DISCLAIMER CERTIFICATES ARE ISSUED ENTIRELY IN RELA TION TO EXPORT OF MARINE PRODUCTS AMOUNTING TO RS.188.07 CRORES. THESE MARIN E PRODUCTS WERE EXPORTED THROUGH ASSESSEE COMPANY AND, THEREFORE, S UCH DISCLAIMER CERTIFICATES ARE ISSUED. ACCORDING TO THE AO, SINCE ASSESSEE HAD NOT SHOWN ANY INCOME FROM TRADING BUSINESS OF MARINE PR ODUCTS EXCEPT INCOME FROM DEPB LICENCE, WHICH IS ALREADY HELD AS INCOME, THEREFORE, ISSUANCE OF DISCLAIMER CERTIFICATE BY THE ASSESSEE WAS NOT CORRECT. THE AO ACCORDINGLY WORKED OUT DEDUCTION IN THE HANDS OF TH E ASSESSEE COMPANY BASED ON SUCH DISCLAIMER ISSUED AS UNDER :- EXPORT PROFITS ON TRADING BUSINESS X DISCLAIMER AMO UNT EXPORT TURNOVER = 114580852 X 2003282954 = RS.4,76,10,309/- 4821179910 THEREFORE, DEDUCTION U/S 80HHC IS FURTHER REDUCED B Y A SUM OF RS.4,76,10,309/- ON ACCOUNT OF THE ABOVE NOTED REMARKS. IT IS COMPUTED AS UNDER : ELIGIBLE DEDUCTION U/S 80HHC AS COMPUTED AS ABOVE : RS.11,45,80,852/- LESS: DISCLAIMER ISSUED AS DISCUSSED ABOVE RS.4,76,10,309/- ---------------- ------- RS.6,69,70,543/- 8. THE LD. CIT(A) FOLLOWED HIS ORDER FOR ASST. YEAR 1999-2000 AND DIRECTED THE AO TO CONSIDER THE DIVISION-WISE PROFI TABILITY AND PROPORTIONATE REDUCTION IN THE DEDUCTION U/S 80HHC( 1) IN THE RATIO OF DISCLAIMER TURNOVER TO TOTAL TURNOVER OF SUCH TRADI NG GOODS AND WHEREIN ITA NO.2177/AHD/2005 ASST. YEAR 2002-03 8 NO SUCH DIVISION-WISE PROFITABILITY CAN BE ASCERTAI NED THEN PROFIT U/S 80HHC(3) WOULD BE DEDUCED IN THE RATIO OF DISCLAIME R TURNOVER. HIS OBSERVATION IN THIS REGARD ARE AS UNDER :- 11.2 I HAVE CAREFULLY CONSIDERED THE FACTS O F THE CASE AND THE SUBMISSIONS AS ADVANCED BY THE APPELLANT. I FIND THAT MY PREDECESS OR HAS HELD IN THE ORDER FOR ASST. YEAR 99-00 AS UNDER :- I AM INCLINED TO SAY THAT THE EXPORT PROFIT DEFINE D IN CBDT CIRCULAR NO.636 DTD.31.8.1992 AND AS HELD IN CASE OF APPEAL NO.CIT( A) DC. SR17597-98 IN CASE OF ADANI EXPORTS LTD. FOR ASST. YEAR 1994-95, DOES NOT INCLUDE EXPORT INCENTIVES FOR THE PURPOSE OF CALCULATING PROFITS R EDUCING IN CASE OF DISCLAIMER CERTIFICATES ARE ISSUED AGAINST EXPORT TURNOVER. I APPRECIATE THE USE OF WORD SUCH TRADING GOODS IN PROVISO TO SUB-SECTION 80 H HC(1). THE AFORESAID CIRCULAR BRINGS A CLEAR DIFFERENCE BETWEEN THE EXPO RT PROFIT AND THE EXPORT INCENTIVES AND THEREFORE, I DIRECT TO CONSIDER DIVI SION WISE EXPORTS PROFITABILITY IN LIGHT OF AFORESAID CIRCULAR. IT WAS SUBMITTED BY APPELLANT COMPANY THAT SEPARATE SET OF RECORDS HAS BEEN MAINTAINED FOR THE IR MARINE DIVISION. IN ABSENCE OF ANY ADVERSE OBSERVATIONS OF AO AGAINST S UCH TURNOVER AND PROFITABILITY, I DIRECT TO CONSIDER DIVISION WISE P ROFITABILITY AND PROPORTIONATE REDUCTION IN DEDUCTION U/S 80HHC(1) IN RATIO OF DIS CLAIMER TURNOVER TO TOTAL OF SUCH TRADING GOODS AND WHEREIN NO SUCH DIVISION WIS E PROFITABILITY IS TO BE ASCERTAINED PROFIT OF SEC.80HHC(3) WOULD BE REDUCED IN RATIO OF DISCLAIMED TURNOVER EXCLUDING SUMMATION OF DIVISION WAS DISCLA IMED TURNOVER TO TOTAL EXPORT TURNOVER EXCLUDING SUMMATION OF DIVISION WAS DISCLAIMED TURNOVER TO TOTAL EXPORT TURNOVER EXCLUDING SUMMATION OF DIVISI ON WISE TOTAL EXPORT TURNOVER. AS SIMILAR FACTS ARE INVOLVED FOR THIS YEAR ALSO, F OLLOWING THE ORDER OF MY PREDECESSOR, I DIRECT THE AO TO CONSIDER DIVISION WISE PROFITABI LITY AND PROPORTIONATE REDUCTION IN DEDUCTION U/S 80 HHC(1) IN RATIO OF DISCLAIMER TURN OVER TO TOTAL TURNOVER OF SUCH TRADING GOODS AND WHEREIN NO SUCH DIVISION WISE PRO FITABILITY IS TO BE ASCERTAINED PROFIT OF SECTION 80 HHC(3) WOULD BE REDUCED IN RAT IO OF DISCLAIMED TURNOVER EXCLUDING SUMMATION OF DIVISION WAS DISCLAIMED TURN OVER TO TOTAL EXPORT TURNOVER EXCLUDING SUMMATION OF DIVISION WISE TOTAL EXPORT T URNOVER. 9. THE LD. DR SUBMITTED THAT SIMILAR ISSUE FOR ASST . YEAR 1999-00 HAS BEEN SET ASIDE BY THE TRIBUNAL TO THE FILE OF AO TO WORK OUT DEDUCTION UNDER SECTION 80HHC IN ACCORDANCE WITH WORKING DONE IN EARLIER YEARS. THE TRIBUNAL IN ITA NO.1683/AHD/2004 ASST. YEAR 199 9-00 IN THE CASE ITA NO.2177/AHD/2005 ASST. YEAR 2002-03 9 OF ACIT VS. VISHAL EXPORTS OVERSEAS LTD. & ITA NO.1 698/AHD/2004 ASST. YEAR 2000-01 IN THE CASE OF VISHAL EXPORTS OV ERSEAS LTD. VS. ACIT, PRONOUNCED ON 24.12.2010, HELD AS UNDER :- 9. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. ADMITTEDLY, THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 80HHC IN THE PRECEDING AS W ELL AS SUBSEQUENT YEARS. HOWEVER, WHETHER IN THOSE YEARS, THE DEDUCTION WAS CLAIMED/ALLOWED ON DIVISION-WISE TURNOVER/PROFIT OR IT WAS ALLOWED ON THE TOTAL TURNOVER/PROFIT OF ALL THE DIVISION IS NOT CLEAR. NEITHER, THE ASSESS EE NOR THE REVENUE CAN TAKE DIFFERENT STAND IN DIFFERENT YEARS, IF THE FACTS RE MAIN THE SAME. WHILE TAKING THIS VIEW, WE DERIVE SUPPORT FROM THE DECISION OF THE HO NBLE APEX COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT, (1992) 193 ITR 0321. IN VIEW OF THE ABOVE, WE DEEM IT PROPER TO SET ASIDE THE ORDER OF THE AUTHORITIES BELOW ON THIS POINT ALSO AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER. WE DIRECT HIM TO RE-ADJUDICATE THE ISSUE CONSIDERING T HE STAND TAKEN BY THE ASSESSEE/DEPARTMENT IN THE PRECEDING AS WELL AS SUB SEQUENT YEAR. HE WILL ALSO TAKE INTO ACCOUNT THE VARIOUS JUDICIAL PRONOUNCEMEN TS RELIED UPON BY BOTH THE SIDES BEFORE US. NEEDLESS TO MENTION THAT, HE WILL ALLOW ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WHILE RE-ADJUDICATIN G THE ISSUE. 10. THE LD. AR SUBMITTED THAT THIS ISSUE CONSISTED OF TWO ASPECTS ONE IS ABOUT DIVISION OF PROFITABILITY AND THE OTHER IS AB OUT DISCLAIMER. THE REVENUE HAS CHALLENGED ONLY DISCLAIMER AND NOT ABOU T DIVISION OF PROFITABILITY, THEREFORE, REVENUE CANNOT NOW ASK FO R SETTING ASIDE THE MATTER. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE DIVISION OF T HE ISSUE INTO TWO ONE THE DIVISION OF PROFITABILITY AND THE OTHER THE DIS CLAIMER IS INTER-RELATED AND CANNOT BE DISSECTED. ULTIMATE OBJECT IS WORKING OF ALLOWABLE DEDUCTION UNDER SECTION 80HHC BY EXCLUDING DISCLAIM ER PART. THIS CAN ITA NO.2177/AHD/2005 ASST. YEAR 2002-03 10 BE ACHIEVED ONLY BY CONSIDERING THE DIVISION OF PRO FITABILITY RELATING TO TRADING ITEMS AND EXPORTED ITEMS AND BETWEEN EXPORT ED ITEMS IN THE MARIN DIVISION AND OTHER DIVISION. WE ACCORDINGLY FOLLOW THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASST. YEAR 1999 -00 AS PER PARA REFERRED TO ABOVE AND RESTORE THE MATTER TO THE FIL E OF THE AO FOR WORKING OUT THE DEDUCTION U/S 80HHC CONSIDERING THE DIVISIO N-WISE PROFITABILITY ON THE BASIS OF TURNOVER/PROFIT AS ADOPTED IN EARLI ER YEARS AND THEN CONSIDERING THE DISCLAIMER AMOUNT WORK OUT THE AVAI LABLE DEDUCTION U/S 80HHC. AS A RESULT, THIS GROUND OF REVENUE IS ALLOW ED FOR STATISTICAL PURPOSES. 12. GROUND NO.4 RELATES TO ALLOWING FREIGHT EXPENSE S BEYOND CUSTOMS POINT. THE FACTS RELATING TO THIS ISSUE ARE THAT AS SESSEE CLAIMED AN AMOUNT OF RS.32,87,842/- AND RS.1,89,82,039/- AS FREIGHT O N EXPORT TOTALING TO RS.2,22,69,882/-. THE AO POINTED OUT THAT SUM OF RS .1.89 CRORES IS EXPENDITURE BEYOND THE CUSTOMS CLEARANCE POINT AND THIS AMOUNT HAS TO BE REDUCED FROM THE DIRECT EXPENSES. HOWEVER, THE A O FURTHER NOTICED A SUM OF RS.32,87,842/- IS THE FREIGHT PAID ON EXPORT UPTO THE CUSTOMS CLEARANCE POINT AND HENCE THIS WAS NOT TO BE REDUCE D FROM DIRECT EXPENSES. THE LD. CIT(A) EXAMINED THE ISSUE AFRESH AND FOUND THAT SUM OF RS.32,87,842/- IS ALSO THE FREIGHT ON EXPORT BEY OND THE CUSTOMS CLEARANCE POINT AND THE SAME SHOULD BE TREATED AT P AR WITH OTHER SUM I.E. ITA NO.2177/AHD/2005 ASST. YEAR 2002-03 11 RS.1.89 CRORES. HE ACCORDINGLY DIRECTED THE AO TO G IVE RELIEF TO THE ASSESSEE ON THIS POINT. 13. WE HAVE HEARD THE PARTIES. THE LD. DR SUPPORTED THE ORDER OF AO WHEREAS THE LD. AR POINTED OUT THAT THERE IS APPARE NT CONFUSION IN THE MIND OF THE AO. AS PER EXPLANATION (B) BELOW SECTIO N 80 HHC(4C) THE EXPENSES ON GOODS OR MERCHANDISE BEYOND THE CUSTOMS POINT ARE TO BE EXCLUDED FROM THE EXPORT TURNOVER AND NOT FROM THE DIRECT COST. THE DIRECT COST WOULD INCLUDE COST ATTRIBUTABLE TO THE TRADING OF GOODS OUT OF INDIA, INCLUDING THE PURCHASE PRICE OF SUCH GOODS AS PER E XPLANATION BELOW SECTION 80HHC(3). SINCE CHARACTERISTICS OF BOTH THE SUMS I.E. RS.1.89 CRORES AND RS.32.87 LACS IS THE SAME THEY HAD TO BE GIVEN THE SAME TREATMENT FOR WORKING OUT EXPORT TURNOVER AND NOT T O BE REDUCED FROM THE DIRECT COST. THE AO SEEMS TO BE CONFUSED AS TO WHET HER RS.32.87 LACS IS THE COST UPTO CUSTOMS CLEARANCE POINT OR BEYOND IT, WHICH HAS BEEN CLARIFIED BY LD. CIT(A) WHO HAS GIVEN THE CORRECT D ECISION BY DIRECTING TO WORK OUT NECESSARY RELIEF BY HOLDING THAT THIS SUM IS ALSO INCURRED BEYOND CUSTOMS CLEARANCE POINT. THE LD. DR HAS NOT POINTED OUT AS TO HOW THE DECISION OF LD. CIT(A) IS INCORRECT. WE ACCORDINGLY DISMISS THIS GROUND OF REVENUE. 14. GROUND NOS.5 & 6 ARE GENERAL AND THEY REQUIRE N O SPECIFIC ADJUDICATION. ITA NO.2177/AHD/2005 ASST. YEAR 2002-03 12 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 13/5/11. SD/- SD/- (M. K. SHRAWAT) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 13/5/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 4/5/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 6/5/2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..