The Jt Cit Sr-I, Ahmedabad V. M/S Adani Exports Ltd, Ahmedabad

ITA 2330/AHD/2000

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73137 (ITAT-AHMEDABAD)
• Duration Of Justice: 13 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-01-2014
• Assessment Year: 1995-1996
• Appeal Filed On: 13-11-2000
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P VAISHNAV
• Section: 80HHC

Judgement Text

1 , , , , B, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, B BENCH . .. . . . . . , , , , ! ! ! ! ' #$ ' #$ ' #$ ' #$ , , , , % % % % BEFORE S/SHRI N.S. SAINI, ACCOUNTANT MEMBER AND KUL BHARAT, JUDICIAL MEMBER) ITA NO.1840/AHD/1999 AND 2330/AHD/2000 [ASSTT.YEAR : 1995-1996] JT. CIT, SPL.RANGE-1 AHMEDABAD. /VS. ADANI EXPORTS LTD. ADANI HOUSE NR.MITHAKHALI SIX ROADS NAVRANGPURA,AHMEDABAD-9. ( (( ('( '( '( '( / APPELLANT) ( (( ()*'( )*'( )*'( )*'( / RESPONDENT) +$ , - / ASSESSEE BY : SHRI S.N. SOPARKAR, WITH SHRI P.M. MEHTA / , - / REVENUE BY : SHRI O.P. VAISHNAV, CIT-DR '0 , $1/ DATE OF HEARING : 24 TH JANUARY, 2014 234 , $1/ DATE OF PRONOUNCEMENT : 21-3-2014 5 / O R D E R PER N.S. SAINI, ACCOUNTANT MEMEBR: ITA NO.2330/AHD/2000 IS FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A ) DATED 11.8.2000 AND ITA NO.1840/AHD/1999 IS FILED BY THE REVENUE AGAINS T THE ORDER OF THE CIT(A) DATED 30.6.1999. BOTH THESE APPEALS ARE DISP OSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.1840/AHD/1999 AND 2330/AHD/2000 2 2. IN THE APPEAL OF THE REVENUE IN ITA NO.2330/AHD/ 2000, THE SOLE GROUND OF THE APPEAL READS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING DEDUCTION U/S.80HHC OF RS.19,47,29,477/- INSTEAD OF RS.18,38,55,952/- 3. THE RELEVANT FINDINGS OF THE LEARNED CIT(A) IS A S UNDER: 3.4 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE A PPELLANTS CASE AND I FINDS THAT THE AO HAS NOT PROPERLY CARRIED OUT TH E DIRECTIONS IN THE APPELLATE ORDER DATED 30.6.99. I APPRECIATE THAT A FTER CONSIDERING THE VARIOUS ADDITIONS/DISALLOWANCES IN THE ASSESSMENT O RDER WHICH ARE CONFIRMED IN APPEAL, THE DEDUCTION FOR GENERAL DIVI SION U/S.80HHC WOULD WORK OUT TO RS.19,47,29,477/- AS PER APPELLAN TS CALCULATION. THIS SUBMISSION OF THE APPELLANT IS FOUND TO BE IN ORDER. I, THEREFORE, DIRECT THE AO TO ALLOW THE DEDUCTION AFTER CONSIDER ING THE ADDITIONS MADE IN THE ASSESSMENT ORDER WHICH ARE CONFIRMED. 4. BEFORE US, THE LEARNED DR COULD NOT POINT OUT AN Y ERROR IN THE FINDINGS OF THE LEARNED CIT(A). IN THE ABSENCE OF THE SAME, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). THEREFORE, THIS GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. 5. IN ITA NO.1840/AHD/1999 THE FIRST GROUND OF THE APPEAL READS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO ALLOW DEDUCTION U/S.80HHC ON MARINE DIVISION FOR RS .13,58,18,560/- AS AGAINST DEDUCTION OF RS.31,85,714/- AS ALLOWED T O THE EXTENT OF GROSS TOTAL INCOME FROM MARINE DIVISION, THOUGH ASS ESSEE HAS WORKED OUT DEDUCTION U/S.80HHC CONSIDERING SEPARATE DIVISI ON VISE TOTAL TURNOVER AND PROFIT CLAIMING THAT EVERY DIVISION IS WORKING INDEPENDENTLY. 6. THE RELEVANT FINDINGS OF THE LEARNED CIT(A) IS A S UNDER: ITA NO.1840/AHD/1999 AND 2330/AHD/2000 3 3.3 I HAVE EXAMINED THE IMPUGNED ORDER DATED 18.1. 1999, THE APPELLATE ORDER DATED 30.9.1998 AND THE ARGUMENTS A DVANCED BY THE AR ON BEHALF OF THE APPELLANT. I HAVE ALSO EXAMINE D THE ORIGINAL ASSESSMENT ORDER DATED 31.3.1998 PASSED U/S.143(3). ON PERUSAL OF THE ALL THESE RECORDS, IT IS SEEN THAT IN SO FAR AS THE DEDUCTION U/S.80HHC IS CONCERNED FOR MARINE DIVISION, IN THE ORIGINAL ASSESSMENT ORDER ITSELF THE AO HAD DENIED THE DEDUC TION ON THE GROUND THAT THERE IS NO SUFFICIENT PROFIT AND THAT TOO IT HAS BEEN DISCLAIMED IN MARINE DIVISION AND, THEREFORE, THE A PPELLANT WAS NOT ENTITLED TO DEDUCTION CLAIMED BY IT IN RESPECT OF T HE SAID DIVISION. THIS ARGUMENT OF THE AO WAS VERY WELL CONSIDERED IN THE APPELLATE ORDER. THE CIT(A) HAD AFTER DISCUSSING THE SAID ISSUES GIV EN CLEAR DIRECTIONS THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S.80H HC ON THE AMOUNT OF INCENTIVES. THUS, THE QUESTION AS TO WHETHER TH E ASSESSEE SHOULD BE GIVEN DEDUCTION U/S.80HHC IN RESPECT OF THE MARINE DIVISION, IS ALREADY CONCLUDED BY THE DIRECTION OF THE CIT(A) AN D WHILE DOING SO HE HAS ALREADY QUANTIFIED THE RELIEF U/S.80HHC. TH E AOS ACTION IN THE IMPUGNED ORDER IS TO DENY A RELIEF WHICH IS GRA NTED BY THE APPELLANT AUTHORITY AND SUCH ACTION IS NOT WITHIN H IS POWER. ON THIS ASPECT ITSELF, I DIRECT THE AO TO ALLOW THE DEDUCTI ON U/S.80HHC FOR THE MARINE DIVISION TO THE APPELLANT WITH REFERENCE TO THE INCOME BY WAY OF INCENTIVES AS COMPUTED BY HIM AT RS.13,58,18,560 AND DEDUCT THE SAME AMOUNT FROM THE GROSS TOTAL INCOME. THIS ISSU E HAS BEEN DISCUSSED BY CIT(A) IN HIS ORDER NO.CIT(A)/DCSR-I/7 5/97-98 DATED 11.8.97 FOR A.Y.1994-95 IN PARA 8.1 OF THE ORDER ON PAGE 18. THE AO IS DIRECTED TO CONSIDER THE DEDUCTION U/S.80HHC AS COMPUTED BY CIT(A) IN A.Y.1994-95 IN PARA 8.1. HOWEVER, THE CL AIM SHALL BE RESTRICTED TO THE GROSS TOTAL INCOME OF THE APPELLA NT AS REDUCED BY DEDUCTION U/S.80HHC ALLOWED FOR THE TRADING DIVISIO N. 7. BOTH THE PARTIES BEFORE US AGREED THAT THE FACTS AND ISSUES INVOLVED ARE SIMILAR AS WERE IN THE ASSESSMENT YEAR 1994-95. IN A.Y.1994-95, IN ITA NO. ITA NO.2405 AND 2435/AHD/1998, WE HAVE HELD AS UNDE R: 36. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IN ITS MARINE DIVISION SUFFERED LOSS OF RS 13,50,71,719/- ON EXPORT OF TRADING GOODS AND ITA NO.1840/AHD/1999 AND 2330/AHD/2000 4 EARNED EXPORT INCENTIVES OF RS 13,70,45,917/-. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF RS 13,70,45,917/- ON THE GROUND THAT IN RESPECT OF EXPORT TURNOVER IT HAS CLAIMED DEDUCTION U/S 80HHC BY ISSUING CERTIFICATE TO THE SUPPORTING MANUFACTURER IN RESPECT OF ENTIRE EXPORT TURNOVER. THE ASSESSING OFFICER DISALLOWED THE ENTIRE CLAIM ON THE GROUND THAT THERE WAS LOSS ON EXPORT OF TRADING GOODS AND ON THE GROUND THAT THE REQUIRED CERTIFICATE OF THE AUDITOR WAS NOT FURNISHED ALONG WITH RETURN OF INCOME. 37. ON APPEAL, THE LD. CIT(A) HELD THAT FURNISHING OF AUDITORS CERTIFICATE DURING THE COURSE OF ASSESSMENT PROCEEDINGS WAS SUFFICIENT COMPLIANCE. 38. FURTHER, THE LD. CIT(A) HELD THAT WHILE COMPUTING EXPORT PROFIT, THE LOSS IS TO BE IGNORED AND AFTER IGNORING THE LOSS AS THE ASSESSEE HAD EXPORT INCENTIVES OF RS 13,70,95,917/-, THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80HHC SUBJECT TO THE CONDITION THAT SUCH DEDUCTION SHOULD NOT EXCEED THE GROSS TOTAL INCOME AS REDUCED BY DEDUCTION U/S 80HHC ALLOWED FOR TRADING DIVISION. 39. BEFORE US, THE LD. DR CONTENDED THAT AS THERE WAS LOSS ON EXPORT OF TRADING GOODS U/S 80HHC(3)(B), THE ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION U/S 80HHC IN RESPECT OF MARINE DIVISION. 40. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT AND SUBMITTED THAT AS THE ASSESSEE ISSUED A DISCLAIMER CERTIFICATE IN RESPECT OF EXPORT TURNOVER AND THEREFORE, THE LOSS ON EXPORT OF TRADING GOODS IS TO BE IGNORED AND THE LD. CIT(A) WAS JUSTIFIED IN GRANTING DEDUCTION U/S 80HHC IN RESPECT OF EXPORT INCENTIVE. HE RELIED UPON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MMTC VS. JCIT (2007) 112 TTJ 15 (DELHI). 41. WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATORY LIMITED VS. DCIT (2004) 135 TAXMANN 594 (SC) HELD AS UNDER: ITA NO.1840/AHD/1999 AND 2330/AHD/2000 5 15. IT WAS NEXT SUBMITTED THAT EVEN WHEN THE PROFITS ARE TO BE REDUCED BY THE LOSSES IN CASES WHERE AN EXPORT HOUSE HAS DISCLAIMED ITS TURNOVER IN FAVOUR OF A SUPPORTING MANUFACTURER, THE TURNOVER OF THE EXPORTER GETS REDUCED TO THE EXTENT DISCLAIMED. IT IS SUBMITTED THAT AS THE TURNOVER, WHICH IS DISCLAIMED, IS REDUCED IT CANNOT THEN BE TAKEN INTO CONSIDERATION FOR THE PURPOSES OF COMPUTING PROFITS UNDER SUB-SECTION 3(C)( II). IN OUR VIEW THIS IS AN ARGUMENT WHICH MERELY NEEDS TO BE STATED TO BE REJECTED. IF SUCH AN ARGUMENT IS ACCEPTED IT WOULD LEAD TO AN ABSURD RESULT. IT WOULD MEAN WHEN IF THERE WAS NO DISCLAIMER THE EXPORT HOUSE WOULD NOT BE ENTITLED TO ANY DEDUCTION IN CASES WHERE THERE IS A LOSS BUT BECAUSE DISCLAIMER HAS BEEN MADE BOTH THE EXPORT HOUSE AND THE SUPPORTING MANUFACTURER WOULD BECOME ENTITLED TO DEDUCTIONS. THE PROVISO TO SUB-SECTION (3) OF SECTION 80HHC ENABLES A DISCLAIMER ONLY TO ENABLE THE EXPORT HOUSE TO PASS ON DEDUCTIONS. IT IN NO WAY REDUCES THE TURNOVER OF THE EXPORT HOUSE. IN COMPUTING TOTAL INCOME, THE ENTIRE TURNOVER IS TAKEN INTO ACCOUNT EVEN THOUGH THERE IS A DISCLAIMER. THUS EVEN THOUGH THE DISCLAIMER IS MADE THE TAXABLE INCOME OF RS. 4.39 CRORES HAS BEEN ARRIVED AT BY THE APPELLANTS AFTER TAKING INTO ACCOUNT THE ENTIRE TURNOVER FROM EXPORT OF TRADING GOODS. IN ARRIVING AT THE FIGURE OF RS. 4. 39 CRORES ADMITTEDLY THE LOSS OF RS. 6.86 CRORES HAS BEEN TAKEN INTO ACCOUNT. EVEN AFTER DISCLAIMER THE TURNOVER HAS REMAINED THE TURNOVER OF THE EXPORT HOUSE, I.E., THE APPELLANTS. THE DISCLAIMER IS ONLY FOR PURPOSES OF ENABLING THE EXPORT HOUSE TO PASS ON THE DEDUCTION WHICH IT WOULD HAVE GOT TO THE SUPPORTING MANUFACTURER. IT FOLLOWS THAT IF NO DEDUCTION IS AVAILABLE, BECAUSE THERE IS A LOSS, THEN THE EXPORT HOUSE CANNOT PASS ON OR GIVE CREDIT OF SUCH NON- EXISTING DEDUCTION TO A SUPPORTING MANUFACTURER. THUS, IN OUR CONSIDERED VIEW, THE LOSS OF RS 13,50,71,719/- SUFFERED ON EXPORT OF TRADING GOODS CANNOT BE IGNORED ON THE GROUND THAT A DISCLAIMER CERTIFICATE WAS ISSUED IN RESPECT OF RELEVANT EXPORT TURNOVER TO THE SUPPORTING MANUFACTURER. ITA NO.1840/AHD/1999 AND 2330/AHD/2000 6 42. FURTHER, WE FIND THAT THE HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS. MEREENA CREATIONS 189 TAXMANN 71 (DEL.) HELD AS UNDER: 15. AFTER READING THE JUDGMENT OF THE SUPREME COURT IN IPCA LABORATORY LTD.S CASE (SUPRA), IT CLEARLY EMERGES: NO DOUBT, UNLESS THERE IS A POSITIVE PROFIT, THE BENEFIT OF SECTION 80HHC WOULD NOT BE GIVEN. THE COURT INTERPRETED IT TO MEAN THAT IF THE RE IS A LOSS THEN NO DEDUCTION WOULD BE AVAILABLE. HOWEVER, HOW THE TEST FOR DETERMINING THE FIGURE OF POSITIVE PROFIT IS APPLIED IS STATED AS FOLLOWS: 'IN ARRIVING AT THE FIGURE OF POSITIVE PROFIT, BOTH THE PROFITS AND THE LOSSES WILL HAVE TO BE CONSIDERED. IF THE NET FIGURE IS A POSITIVE PROFIT THEN THE ASSESSEE WILL BE ENTITLED TO A DEDUCTION. IF THE NET FIGURE I S A LOSS THEN THE ASSESSEE WILL NOT BE ENTITLED TO A DEDUCTION.' IT IS CLEAR FROM THE ABOVE THAT WHILE COMPUTING EXPORT PROFIT THE RESULT OF TWO ACTIVITIES IS TO BE NETTED. WHILE DOING SO, EXPORT INCENTIVES ARE ALSO TO BE TAKEN INTO CONSIDERATION. 43. WE FIND THAT THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF MMTC (SUPRA) IS NOT APPLICABLE IN THE INSTANT CASE IN AS MUCH AS IN THE INSTANT CASE, THERE IS LOSS IN EXPORT OF TRADING GOODS WHICH COULD NOT BE PASSED ON TO SUPPORTING MANUFACTURER BY ISSUING DISCLAIMER CERTIFICATE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATORY (SUPRA). IN VIEW OF THE ABOVE DECISION OF THE HONBLE DELHI HIGH COURT, WE FIND THAT AFTER TAKING INTO CONSIDERATION 90% OF EXPORT INCENTIVE, THERE WAS A POSITIVE PROFIT OF RS 20,24,198/- IN THE INSTANT CASE. THEREFORE, THE ASSESSEE WAS ENTITLED FOR DEDUCTION U/S 80HHC IN RESPECT OF RS 20,24,198/- ONLY. WE, THEREFORE, MODIFY THE ORDER OF THE LD. CIT(A) TO THE ABOVE EXTENT. THUS, THE GROUND OF APPEAL OF REVENUE IS PARTLY ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE A.Y.1 994- 95, WE DIRECT THE AO TO ALLOW DEDUCTION UNDER SECTI ON ITA NO.1840/AHD/1999 AND 2330/AHD/2000 7 80HHC FOR RS.22,33,190/- I.E. (90% OF EXPORT INCENT IVE OF RS.13,58,18,560/- MINUS LOSS IN TRADING ACTIVITY IN MARINE DIVISION RS.13,34,85,370/-). THUS, THIS GROU ND OF THE REVENUE IS PARTLY ALLOWED. FOLLOWING THE ABOVE ORDER OF THIS TRIBUNAL FOR A.Y. 1994-95, WE DIRECT THE AO TO ALLOW DEDUCTION U/S.80HHC FOR MARINE DIVISION AFTER REDUCING THE TRADING LOSS IN MARINE DIVISION FROM 90% OF THE EXP ORT INCENTIVE RECEIVED BY THE ASSESSEE IN MARINE DIVISION. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED. 8. THE GROUND NO.2 OF THE REVENUES APPEAL READS AS UNDER: 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO ALLOW ADDITIONAL DEDUCTION U/S.80HHC FOR GENERAL EX PORT DIVISION ON ADDITION AND DISALLOWANCE MADE IN ASSESSMENT ORDER THOUGH CLAIM OF DEDUCTION U/S.80HHC FOR GENERAL EXPORT DIVISION IS FOR TRADING EXPORT ONLY AND FOR WORKING OUT DEDUCTION U/S.80HHC ON PRO FIT FROM TRADING EXPORT AMOUNT OF PROFIT OF THE BUSINESS UNDER THE H EAD PROFITS & GAIN OF THE BUSINESS HAS NO RELEVANCE BUT JUST FIGURE OF EXPORT TURNOVER, DIRECT COST, INDIRECT COST EXPORT INCENTIVE AND TOT AL TURNOVER ARE ONLY RELEVANT. 9. THE RELEVANT FINDING OF THE LEARNED CIT(A) IS AS UNDER: 4.1 AS REGARDS THE CLAIM FOR GENERAL DIVISION, IT WAS FOUND THAT THE APPELLANT HAS CLAIMED DEDUCTION AT RS.17,73,76,972. BUT, THE DEDUCTION WOULD DEPEND UPON THE TOTAL INCOME FINALL Y COMPUTED UNDER THE PROVISIONS OF THE IT ACT, AND HENCE, IT IS THE FINAL ASSESSED INCOME WHICH IS TO BE CONSIDERED FOR ALLOWING THE DEDUCTIO N AND NOT THE COMPUTATION MADE BY THE APPELLANT. THIS ISSUE IS A LSO PUT AT REST BY THE TRIBUNALS ORDER IN THE APPELLANTS OWN CASE AS DISCUSSED ABOVE. THE TRIBUNAL HAS ALREADY HELD THAT THE EXPENSES DIS ALLOWED UNDER THE HEAD BUSINESS WILL FORM PART OF THE BUSINESS INCO ME, AND THEREFORE, THE CLAIM OF DEDUCTION U/S.80HHC HAVE TO BE RE-WORK ED. ACCORDINGLY, THE AO IS DIRECTED TO ADOPT THE CLAIM AFTER GIVING EFFECT TO CIT(A)S ORDER AND THAT 9NCOME SHOULD BE TAKEN A S BASE FOR ARRIVING AT DEDUCTION U/S.80HHC. ITA NO.1840/AHD/1999 AND 2330/AHD/2000 8 10. THE LEARNED DR COULD NOT POINT OUT ANY ERROR IN THE FINDINGS OF THE CIT(A). IN THE ABSENCE OF THE SAME, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), AND THEREFO RE THIS GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. 11. IN THE RESULT, THE ITA NO.2330/AHD/2000 IS DISM ISSED AND THE ITA NO.1840/AHD/1999 IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( ' #$ ' #$ ' #$ ' #$ /KUL BHARAT /JUDICIAL MEMBER . .. . . . . . /N.S. SAINI /ACCOUNTANT MEMBER C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD