Sri R.Prakash, Kollam V. DCIT, Kollam

ITA 242/COCH/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64743 (ITAT-COCHIN)
• Duration Of Justice: 5 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 23-07-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 23-03-2007
• Court: TRIBUNAL
• Department Lawyers: PRADUMNA KUMAR SINGH
• Assessee Lawyers: T V HARIHARAN
• Section: 80HHC; 80IB; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 242 & 243/COCH/2007 ASSESSMENT YEARS: 2002-03 & 2003-04 SHRI R.PRAKASH, PROP. PRAKASH EXPORTS, KOCHUPILAMOODU, KOLLAM. [PAN:ABFPN 4424P] VS. THE DEPUTY COMMISSIONER OF INCOME- TAX, CENTRAL CIRCLE, KOLLAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) I.T.A. NOS. 381 & 382/COCH/2007 ASSESSMENT YEARS: 2002-03 & 2003-04 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, KOLLAM. VS. SHRI R.PRAKASH, PROP. PRAKASH EXPORTS, KOCHUPILAMOODU, KOLLAM. [PAN:ABFPN 4424P] (REVENUE-APPELLANT) (ASSESSEE -R ESPONDENT) ASSESSEE BY SHRI T.V.HARIHARAN, CA REVENUE BY SHRI PRADUMNA KUMAR SINGH, JR. DR DATE OF HEARING 26/07/2012 DATE OF PRONOUNCEMENT 10/08/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE RESPEC TIVE ORDERS PASSED BY LD CIT(A)-I, KOCHI AND THEY RELATE TO THE ASSESSMENT YEARS 2002- 03 AND 2003-04. SINCE MOST OF THE ISSUES URGED IN THESE APPEALS ARE IDENTICAL IN NATU RE, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAK E OF CONVENIENCE. I.T.A. NOS.242,243,381 & 382 /COCH/2007 2 2. THE FACTS RELATING TO THE CASE ARE SET OUT IN BRIEF. THE ASSESSEE IS A MANUFACTURER AND EXPORTER OF CASHEW KERNELS. HE IS ALSO HAVING A BUSINESS OF MANUFACTURE OF CARTON BOXES REQUIRED FOR PACKING THE CASHEW KERNELS. THE ENTIRE SALES OF THE CARTON BOXES UNIT WERE MADE TO THE SISTER CONCERNS OF THE ASSESS EE. WHILE COMPLETING THE ASSESSMENT FOR BOTH THE YEARS UNDER CONSIDERATION, THE AO MADE VARIOUS TYPES OF ADDITIONS. THE ASSESSEE PREFERRED APPEALS BEFORE L D CIT(A), BUT THEY WERE ALLOWED PARTLY. HENCE BOTH THE PARTIES ARE IN APPEAL BEFOR E US ON THE POINTS DECIDED AGAINST EACH OF THEM. 3. WE SHALL TAKE UP THE APPEALS FILED BY THE AS SESSEE FIRST. FOLLOWING ISSUES ARE COMMON IN BOTH THE YEARS. (A) ASSESSMENT OF DEPB BENEFITS. (B) ADDITION ON ACCOUNT OF SALES MADE TO SISTER C ONCERNS. (C) ADDITION MADE IN RESPECT OF CARTON BUSINESS. (E) DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80IB O F THE ACT. 4. THE FIRST COMMON ISSUE RELATES TO THE ASSESS MENT OF DEPB BENEFITS. THIS ISSUE HAS SINCE BEEN SETTLED BY HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT REPORTED IN (2012)(247 CTR (SC) 353) (345 ITR 5 57) AND ACCORDINGLY THE LD A.R PRAYED THAT THIS ISSUE MAY BE SET ASIDE TO THE FILE OF AO FOR FRESH CONSIDERATION IN TERMS OF THE DECISION OF HONBLE SUPREME COURT REFERRED S UPRA. THE LD D.R ALSO DID NOT OBJECT TO THE SAID PLEA MADE BY LD A.R. ACCORDINGLY, WE S ET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF AO W ITH THE DIRECTION TO EXAMINE THE ISSUE OF TAXABILITY OF DEPB IN ACCORDANCE WITH THE DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF TOP MAN EXPORTS REFERRED SUPRA. 5. THE NEXT COMMON ISSUE RELATES TO THE ADDITION IN RESPECT OF SALES MADE TO SISTER CONCERNS. THE AO NOTICED THAT THE ASSESSEE HAD SOL D KERNELS TO HIS SISTER CONCERNS AT A PRICE, WHICH WAS LOWER THAN THE COST OF PRODUCTION. THE AO TOOK THE VIEW THAT THERE WAS UNDER PRICING IN RESPECT OF SALES MADE TO SISTE R CONCERNS AND ACCORDINGLY ADDED THE I.T.A. NOS.242,243,381 & 382 /COCH/2007 3 DIFFERENCE IN BOTH THE YEARS TO THE TOTAL INCOME OF THE ASSESSEE. THE LD CIT(A) CONFIRMED THE SAID ADDITION. 6. BEFORE US, THE LD A.R SUBMITTED THAT THE CO- ORDINATE BENCH OF THIS TRIBUNAL CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF SMT. P RIYA PRAKASH IN ITA NO.241/COCH/2007 RELATING TO ASSESSMENT YEAR 2003-0 4 AND THE TRIBUNAL, VIDE ITS ORDER DATED 25-07-2011 SET ASIDE THIS MATTER TO THE FILE OF THE LD CIT(A) FOR CONSIDERING THE SAME AFRESH. HE FURTHER SUBMITTED THAT THE TRIBUNA L HAD FOLLOWED THE ORDER DATED 18.3.2011 PASSED BY THE CO-ORDINATE BENCH IN THE CA SE OF T.C. USHA IN ITA NO.559/COCH/2007 RELATING TO THE ASSESSMENT YEAR 20 04-05 FOR THE SAID PURPOSE. HOWEVER, ON IDENTICAL SET OF FACTS, THIS BENCH OF T HE TRIBUNAL HAS CONFIRMED SIMILAR ADDITION MADE IN THE CASE OF SHRI PRATAP R. NAIR IN I.T.A. NOS. 485, 312 & 486/COCH/2007 VIDE ITS ORDER DATED 04/05/2012. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW RELEVANT OBSERVATIONS:- 8. THE NEXT ISSUE RELATES TO THE ADDITION MAD E ON ACCOUNT OF UNDER PRICING MADE IN RESPECT OF SALES EFFECTED TO THE SISTER CO NCERNS. THE AO NOTICED THAT THE AVERAGE SALE PRICE OF CASHEW KERNEL SOLD TO TH E SISTER CONCERNS WAS RS.186.93 PER KG, WHERE AS THE AVERAGE COST OF PRO DUCTION FOR THE ASSESSEE WORKED OUT TO RS.194/- PER KG. THUS THE ASSESSEE INCURRED A LOSS OF RS.7.07 PER KG OF CASHEW KERNEL SOLD TO HIS SISTER CONCERNS. THE AO TOOK THE VIEW THAT NO BUSINESSMAN WILL SELL HIS PRODUCTS AT A PRICE WHIC H IS LESS THAN THE COST OF PRODUCTION, EVEN IF THE SALE WAS MADE TO THE SISTE R CONCERNS. ACCORDINGLY, THE AO WORKED OUT THE UNDER PRICING OF SALES AT RS.23, 41,202/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE LD CIT(A ) CONFIRMED THE SAID ADDITION WITH THE FOLLOWING OBSERVATIONS:- I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. FIRST OF ALL, I AM OF THE VIEW THAT THE CONTENTION OF THE APPELLANT THAT THE COST OF PRODUCTION COULD BE KNOWN ONLY AT THE YEAR END CANNOT BE ACCEPTED. IF THAT I S THE CASE NO MANUFACTURER WOULD BE ABLE TO FIX THE EXPORT PRICE FOR A PRICE S ENSITIVE PRODUCT LIKE CASHEW. FOR THE PURPOSE OF ASSESSMENT UNDER THE INCOME TAX ACT, EACH BUSINESS ENTITY, EVEN IF THAT BE A SISTER CONCERN, IS TREATED AS A S EPARATE UNIT OF ASSESSMENT, THE PROFIT OR LOSS OF WHICH IS TO BE INDEPENDENTLY ARRI VED AT AND ASSESSED. THEREFORE I.T.A. NOS.242,243,381 & 382 /COCH/2007 4 THE CONTENTION OF THE APPELLANT THAT IT IS NOT NECE SSARY THAT THE TRANSFER PRICE HAS TO BE ABOVE THE COST OF PRODUCTION ESPECIALLY WHERE SUCH SALE IS TO A SISTER CONCERN CANNOT BE ACCEPTED. ALSO THE ASSESSING OFF ICER WAS FORCED TO ADOPT THE AVERAGE COST BECAUSE THE APPELLANT WAS UNABLE TO FU RNISH DETAILS OF DIFFERENT GRADES AND THEIR INDEPENDENT COST OF PRODUCTION. IT HAS BEEN HELD IN THE CASE OF PATEL CHEMICAL WORK S VS. CIT REPORTED IN 265 ITR 273 THAT A SALE TO A SISTER CONCERN AT PRICES MUCH BELOW THE MARKET RATES WAS A DEVICE FOR TAX AVOIDANCE. THEREFORE, THE APPELLANT S CASE, WHEREIN THE SALE TO A SISTER CONCERN IS EVEN BELOW THE COST PRICE, HAS TO BE VIEWED MORE SERIOUSLY. IN VIEW OF THE ABOVE, I HOLD THAT THE ASSESSING OFF ICER IS PERFECTLY IN ORDER IN HIS ACTION AND THEREFORE THE ADDITION OF RS.23,41,202/- MADE BY HIM IS SUSTAINED. 9. BEFORE US, THE ASSESSEE HAS MADE GENERAL SU BMISSIONS FINDING FAULT WITH THE WORKINGS MADE BY THE AO. THE ASSESSEE HAS MIS ERABLY FAILED TO OFFER CONVINCING EXPLANATIONS AS TO THE REASONS THAT COM PELLED HIM TO UNDER PRICE THE SALE PRICE IN RESPECT OF SALES MADE TO THE SISTER CONCERNS. IN THE ABSENCE OF PROPER EXPLANATIONS, THE TAX AUTHORITIES DO NOT HA VE ANY OTHER OPTION, BUT TO PRESUME THAT THE ASSESSEE HAS ADOPTED COLOURABLE D EVICE TO SHIFT HIS PROFIT TO HIS SISTER CONCERNS. HENCE, WE DO NOT FIND ANY INFIRM ITY IN THE DECISION OF LD CIT(A) IN CONFIRMING THIS ADDITION. CONSISTENT WITH THE VIEW TAKEN IN THE ABOVE SAID CA SE, WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 7. THE NEXT COMMON ISSUE RELATES TO THE ADDITION MADE IN RESPECT OF CARTON BUSINESS. THE ASSESSEE IS RUNNING A CARTON BOXES MANUFACTURIN G UNIT. THE AO NOTICED THAT THE ENTIRE PRODUCTION WAS SOLD ONLY TO THE SISTER CONCE RNS OF THE ASSESSEE. THE CARTON BOXES WERE SOLD AT AN AVERAGE RATE OF RS.13.25 PER CARTON AND RS.13.18 PER CARTON RESPECTIVELY IN THE YEARS RELEVANT TO THE ASSESSMEN T YEARS 2002-03 AND 2003-04, AS AGAINST THE AVERAGE COST OF MANUFACTURING OF RS.18. 58 PER CARTON AND RS.19.70 IN THE ABOVE SAID YEARS. THUS THE METHODOLOGY ADOPTED BY THE ASSESSEE RESULTED IN LOSS IN THE CARTON MANUFACTURING UNIT. THE AO TOOK THE VIEW THAT THIS WAS A COLOURABLE DEVICE TO INCREASE THE INCOME OF THE SISTER CONCERNS AND R EDUCE THE PROFIT OF THE ASSESSEE. I.T.A. NOS.242,243,381 & 382 /COCH/2007 5 ACCORDINGLY, THE AO RECOMPUTED THE INCOME FROM CART ON BOX UNIT AND MADE ADDITION OF RS.38,61,488/- IN ASSESSMENT YEAR 2002-03 AND RS.30 ,41,775/- IN ASSESSMENT YEAR 2003-04. THE LD CIT(A) CONFIRMED THE ADDITION MADE BY THE AO WITH THE FOLLOWING OBSERVATIONS:- I HAVE HEARD THE AUTHORIZED REPRESENTATIVE AND VER IFIED THE RECORDS PERTAINING TO THE ISSUE. IN ANY BUSINESS NO ONE WILL SELL THE PRODUCTS BELOW COST, WHATEVER MAY BE THE COMPELLING SITUATION. IF THE APPELLANT S CONTENTION IS ACCEPTED IT WOULD APPEAR THAT THE WHOLE CARTON INDUSTRY WAS MAK ING LOSS DURING THE RELEVANT YEAR. THE APPELLANT HAS NOT PRODUCED ANY EVIDENCE T O SHOW THAT THE MARKET PRICE AS A WHOLE WAS LOW DURING THE YEAR OR THE SIS TER CONCERNS COULD HAVE OBTAINED A BETTER PRICE FROM THE MARKET AS CONTENDE D BY HIM. FOR THE PURPOSE OF ASSESSMENT UNDER THE INCOME TAX ACT, EACH BUSINESS ACTIVITY, EVEN IF THAT BE A SISTER CONCERN, IS TREATED AS A S EPARATE UNIT OF ASSESSMENT, THE PROFIT OR LOSS OF WHICH IS TO BE INDEPENDENTLY ARRI VED AT AND ASSESSED. THEREFORE THE CONTENTION OF THE APPELLANT THAT IT IS NOT NECE SSARY THAT THE SALE PRICE OF CARTONS HAS TO BE ABOVE THE COST OF PRODUCTION ESPE CIALLY WHERE SUCH SALE IS TO A SISTER CONCERN CANNOT BE ACCEPTED. IT HAS BEEN HELD IN THE CASE OF PATEL CHEMICAL WORK S VS. CIT REPORTED IN 265 ITR 273 THAT A SALE TO A SISTER CONCERN AT PRICES MUCH BELOW THE MARKET RATES WAS A DEVICE FOR TAX AVOIDANCE. THEREFORE THE APPELLANT S CASE, WHEREIN THE SALE TO A SISTER CONCERN IS EVEN BELOW THE COST PRICE, HAS TO BE VIEWED MORE SERIOUSLY. IN VIEW OF THE ABOVE THE ADDITION OF INCOME MADE TO THE CARTON UNIT IS SUSTAINED. 8. BEFORE US, THE LD A.R REITERATED CONTENTIONS MADE BEFORE THE TAX AUTHORITIES. THE UNDISPUTED FACT REMAINS THAT THE ASSESSEE HAS SOLD THE CARTON BOXES TO ITS SISTER CONCERNS AT A RATE WHICH WAS VERY MUCH BELOW THE CO ST OF PRODUCTION. IT IS NOT UNDERSTANDABLE AS TO HOW A PRUDENT BUSINESS MAN WOU LD SELL ANY PRODUCT AT LOSS. WHEN IT COMES TO THE TRANSACTIONS WITH SISTER CONCE RNS, THE NATURAL PRESUMPTION IS THAT THE SAID ARRANGEMENT IS ONLY TO SHIFT THE ASSESSEE S INCOME TO HIS SISTER CONCERNS. THE ASSESSEE HAS NOT GIVEN ANY CONVINCING EXPLANATION T O COUNTER THE PRESUMPTION STATED ABOVE. ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT( A) ON THIS ISSUE. 9. THE LAST COMMON ISSUE RELATES TO THE DISALLOWANC E OF CLAIM OF DEDUCTION U/S 80IB OF THE ACT ON THE GROUND THAT THE ASSESSEE DID NOT MAI NTAIN SEPARATE BOOKS OF ACCOUNT FOR I.T.A. NOS.242,243,381 & 382 /COCH/2007 6 THE ELIGIBLE UNIT. IT IS STATED THAT THIS ISSUE IS COVERED BY THE DECISION OF CO-ORDINATE BENCH OF COCHIN ITAT IN THE CASE OF T.C. USHA VS.AC IT IN ITA NOS. 1268 TO 1270. IT WAS NOT SHOWN TO US THAT THE ABOVE SAID DECISION OF THE TRIBUNAL HAS BEEN REVERSED. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE TH IS ISSUE IN THE LIGHT OF PRINCIPLES GIVEN IN THE CASE OF T.C.USHA REFERRED SUPRA. 10. WE SHALL NOW DEAL WITH THE INDIVIDUAL ISSUE S RAISED BY THE ASSESSEE IN BOTH THE YEARS. IN ASSESSMENT YEAR 2002-03, THE ASSESSEE HA S RAISED FOLLOWING ISSUES. (A) REJECTION OF ADDITIONAL CLAIM OF DEDUCTION U/S 80HHC OF THE ACT. (B) VALIDITY OF CHARGING OF INTEREST U/S 234D OF T HE ACT. 11. THE IMPUGNED ASSESSMENT FOR THE ASSESSMENT YEAR 2002-03 IS A RE-OPENED ASSESSMENT U/S 147 OF THE ACT. IN THE ORIGINAL ASS ESSMENT PROCEEDING, THE ASSESSEE DID NOT CLAIM DEDUCTION U/S 80HHC IN RESPECT OF PURCHAS ES MADE FROM THE SUPPORTING MANUFACTURER. HOWEVER, IT WAS NOTICED BY HIM LATER THAT HE DID NOT ISSUE DISCLAIMER CERTIFICATE TO THE SUPPORTING MANUFACTURER AND HENC E HE WILL BE ELIGIBLE TO CLAIM DEDUCTION U/S 80HHC ON SUCH EXPORTS ALSO. ACCORDING LY, HE LODGED A CLAIM FOR ENHANCEMENT OF DEDUCTION U/S 80HHC ON THE EXPORTS R ELATING TO THE PURCHASES MADE FROM THE SUPPORTING MANUFACTURER. THE SAID CLAIM W AS REJECTED BY THE AO AND THE LD CIT(A) ALSO CONFIRMED THE ACTION OF THE AO. HENCE THE ASSESSEE IS AGGRIEVED BY THE SAID DECISION. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMI SSIONS ON THIS ISSUE. ACCORDING TO THE ASSESSEE, THE OMISSION TO CLAIM DEDUCTION U/S 8 0HHC IS A MISTAKE WHICH COULD BE RECTIFIED BY THE AO. HOWEVER, WE NOTICE THAT THE L D CIT(A) REJECTED THE SAID CLAIM WITH THE FOLLOWING OBSERVATIONS:- I HAVE HEARD THE AUTHORIZED REPRESENTATIVE AND VER IFIED THE RELEVANT RECORDS. ONCE THE ASSESSMENT IS REOPENED U/S 148, FURTHER PR OCEEDINGS TO BE TAKEN ARE THOSE WHICH ARE ONLY FAVOURABLE TO THE REVENUE AND SECTION 148 IS NOT THE PLACE TO CONSIDER ANY CLAIM OF THE ASSESSEE WHICH WILL EN D IN ANY RELIEF TO HIM. THIS HAS BEEN CLEARLY PRONOUNCED IN THE CASE OF COMMISS IONER OF INCOME TAX VS. SUN ENGINEERING WORKS PVT LTD REPORTED IN 198 ITR 297 (S C). I.T.A. NOS.242,243,381 & 382 /COCH/2007 7 IN VIEW OF THE ABOVE I HOLD THAT THE REJECTION OF T HE ADDITIONAL CLAIM U/S 80HHC IS IN ORDER AND SUSTAIN THE SAME. IT CAN BE NOTICED THAT THE LD CIT(A) HAS FOLLOWED T HE LEGAL PROPOSITION LAID DOWN BY THE HONBLE SUPREME COURT IN DECIDING THIS ISSUE AGAINS T THE ASSESSEE. THE ASSESSEE DID NOT SHOW TO US ANY OTHER DECISION OF THE HONBLE SU PREME COURT IN SUPPORT OF HIS CLAIM. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF LD CIT(A) ON THIS ISSUE. 13. THE NEXT INDIVIDUAL ISSUE RELATES TO CHARGI NG OF INTEREST U/S 234D OF THE ACT. THIS ISSUE HAS SINCE BEEN SETTLED BY THE HONBLE JURISDI CTIONAL KERALA HIGH COURT IN THE CASE OF CIT VS. KERALA CHEMICALS AND PROTEINS LTD REPORT ED IN 323 ITR 584. ACCORDINGLY, WE DIRECT THE AO TO CHARGE INTEREST U/S 234 IN ACCORDA NCE WITH THE SAID DECISION. 14. IN ASSESSMENT YEAR 2003-04, THE ASSESSEE IS AS SAILING THE DECISION OF LD CIT(A) IN HOLDING THAT THE LOSS FROM MANUFACTURING SECTION SH OULD BE SET OFF AGAINST THE PROFITS FROM TRADING SECTION FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SEC. 80HHC OF THE ACT. WE NOTICE THAT THE LD CIT(A) HAS FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATORY VS. DCIT REPOR TED IN 266 ITR 521. THOUGH THE ASSESSEE HAS CONTENDED THAT THE DECISION OF THE APE X COURT CITED ABOVE IS DISTINGUISHABLE, NOTHING WAS PLACED ON RECORD IN SU PPORT OF THE SAID CONTENTION. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE SAI D DECISION OF LD CIT(A) ON THIS ISSUE. 15. IN THE APPEALS FILED BY THE REVENUE, THE ON LY ISSUE URGED RELATES TO THE DIRECTION GIVEN BY LD CIT(A) WITH REGARD TO THE COMPUTATION O F INDIRECT COSTS ATTRIBUTABLE TO THE EXPORT OF TRADING GOODS. THIS BENCH OF THE TRIBUNA L HAS CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF B.MOHANACHANDRAN NAIR IN ITA NO. 158/CO CH/2007 RELATING TO THE ASSESSMENT YEAR 2003-04 AND THE TRIBUNAL, VIDE ITS ORDER DATED 06-01-2002 SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH THE FOLLOWING OBSERVATIONS:- 5. THE FIRST ISSUE PERTAINS TO THE COMPUTATION O F INDIRECT COST RELATING TO EXPORT OF TRADING GOODS. U/S 80HHC(3)(C) OF THE A CT, THE PROFIT DERIVED FROM I.T.A. NOS.242,243,381 & 382 /COCH/2007 8 THE EXPORT OF TRADING GOODS SHALL BE THE EXPORT TUR NOVER IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO EXPORT OF SUCH TRADING GOODS. THE DISPUTE IS WITH REGARD TO THE QUANTUM OF INDIRECT COSTS ATTRIBUTABLE TO THE TRADING GOODS. THE ASSESSEE H AS TAKEN THE TOTAL AMOUNT OF INDIRECT COST AT RS.1,74,53,650/-, WHILE THE ASSESS ING OFFICER HAS TAKEN THE SAME AT RS.4,71,01,876/-. THOUGH IT IS NOT CLEARLY BORN E OUT OF RECORD, THERE APPEARS TO BE NO DISPUTE WITH REGARD TO THE ALLOCATION OF I NDIRECT COSTS BETWEEN PROCESS EXPORT AND TRADING EXPORT, WHICH ARE TO BE CARRI ED OUT IN ACCORDANCE WITH THE FOLLOWING FORMULA AS PER CLAUSE (E) OF EXPLANATION TO 80HHC(3) INDIRECT COSTS X EXPORT TURNOVER/TOTAL TURNOVER. THE ASSESSING OFFICER HAS TAKEN ALL THE EXPENSES DE BITED TO THE PROFIT AND LOSS ACCOUNT AS INDIRECT COST AND ACCORDINGLY ARRIVED AT THE FIGURE OF RS.4,71,01,876/-. HOWEVER, ACCORDING TO THE ASSESS EE, HE HAS TAKEN ONLY THOSE INDIRECT EXPENSES, WHICH ARE ATTRIBUTABLE TO THE EXPORT TURNOVER. ACCORDING TO THE ASSESSEE, HE HAS FOLLOWED THE SIMILAR METHOD OF COMPUTATION IN THE EARLIER YEARS ALSO AND THE SAID METHOD WAS ALSO ACCEPTED BY THE ASSESSING OFFICER. ACCORDINGLY, IT WAS CONTENDED, BY PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT REPORTED IN 193 ITR 321, THAT THE ASSESSING OFFICER WAS NOT CORRECT IN DEVIATING FROM THE VIEW TAKEN CONSISTENTLY IN EARLIER YEARS, IN THE ABSENCE OF AN Y MATERIAL WHICH JUSTIFIES THE SAID CHANGE. THE LD A.R ALSO PLACED RELIANCE ON TH E FOLLOWING DECISION IN SUPPORT OF THE COMPUTATIONS MADE BY THE ASSESSEE. (A) GLAXO SMITHKLINE ASIA (P) LTD VS. ACIT (97 TTJ (DEL) 108) (B) SURENDRA ENGINEERING CORPN. VS. ACIT (78 TTJ (M UM)(SB)347) (C) ORDER DATED 31-01-2007 PASSED BY SMC BENCH OF COCHIN ITAT IN THE CASE OF M/S POYILAKADA TRUST VS. DCIT. 5.1 WE NOTICE THAT THE SMC BENCH OF THE COCHIN TRIBUNAL HAS CONSIDERED THE OTHER TWO DECISIONS REFERRED SUPRA AND HAS DECIDED AN IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. IN THE CASE OF SURENDRA ENGINEERING C ORPORATION, SUPRA, THE SPECIAL BENCH OF THE TRIBUNAL HAS OBSERVED AS UNDER: THE COMMISSIONER (APPEALS) VIEW THAT AS PER THE DE FINITION OF INDIRECT COSTS IN EXPLANATION (E) BELOW SUB SECTION (3), EXC EPT FOR THE ALLOCATION BETWEEN EXPORT TURNOVER IN RESPECT OF TRADING GOODS AND TOTAL TURNOVER IN A CASE WHERE THE ASSESSEE HAVE BOTH EXPORTS AND LOC AL SALES, NO OTHER APPORTIONMENT IS CONTEMPLATED, APPEARED TO OVER LOO K THE IMPORT OF THE WORDS ATTRIBUTABLE TO SUCH EXPORT APPEARING IN CL AUSE (B) OF SUB-SECTION (3). THE DEFINITION OF INDIRECT COSTS MUST BE GOV ERNED OR CONTROLLED BY THE WORDS ATTRIBUTABLE TO SUCH EXPORT APPEARING I N CLAUSE (B) OF SUB- SECTION (3) SINCE THE ATTEMPT IS TO FIND OUT, IN A REASONABLE MANNER, THE PROFITS DERIVED FROM THE EXPORT OF TRADING GOODS, A ND THEREFORE, WHATEVER EXPENDITURE IS NOT RELEVANT OR CANNOT BE REASONABLY STATED TO HAVE BEEN INCURRED IN CONNECTION WITH THE EXPORTS OR CAN BE R EASONABLY SAID TO HAVE BEEN INCURRED IN CONNECTION WITH OTHER ACTIVITIES O R RECEIPTS WOULD HAVE TO BE EXCLUDED. I.T.A. NOS.242,243,381 & 382 /COCH/2007 9 IN THE CASE OF SMITHKLINE ASIA (P) LTD. VS. ACIT, S UPRA, THE DELHI BENCH HAS HELD THAT THE INDIRECT COST ATTRIBUTABLE TO THE EXPORT I S TO BE REDUCED FOR COMPUTING DEDUCTION U/S 80HHC IN RESPECT OF EXPORT OF TRADING GOODS AND NOT ALL COSTS OTHER THAN DIRECT COSTS. WHILE COMING TO THIS CONC LUSION, THE DELHI BENCH HAS FOLLOWED THE DECISION OF MUMBAI SPECIAL BENCH IN TH E CASE OF SURENDRA ENGG. CORPORATION, REFERRED SUPRA. 5.2 ON A CAREFUL READING OF THE DECISIONS REFER RED SUPRA, WE NOTICE THAT THE INDIRECT COSTS NOT RELATABLE TO THE EXPORT TURNOVER (BOTH PROCESSING EXPORT AND TRADING EXPORT) HAVE TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC. FROM THE EXPLANATIONS FURNISHED BY THE ASSESSEE BEFORE LD CIT(A), WHICH ARE PLACED IN PAGES 14 TO 18 OF THE ASSESSEE S PAPER BOOK, CERTAIN EXPENSES EXCLUSIVELY PERTAIN TO THE MANUFACTURING/P ROCESSING UNIT. IN OUR VIEW, THE QUESTION OF ALLOCATION OF INDIRECT COSTS SHAL L ARISE ONLY IN RESPECT OF THOSE EXPENSES WHICH HAVE BEEN INCURRED COMMONLY BOTH FOR PROCESS EXPORT AND TRADING EXPORT. IN THE EXPLANATIONS FILED BEFORE L D CIT(A), THE ASSESSEE HAS POINTED OUT THAT CERTAIN TYPES OF INDIRECT EXPENSES HAVE BEEN INCURRED EXCLUSIVELY FOR PROCESS EXPORT. AS PER SEC. 80HHC( 3), THE PROFITS DERIVED FROM TRADING GOODS SHALL BE THE EXPORT TURNOVER IN RESPE CT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO EXPORT OF SUCH TRADING GOODS . IF A PARTICULAR TYPE OF INDIRECT EXPENSE IS PROV ED TO HAVE BEEN INCURRED ONLY IN RESPECT OF PROCESSED EXPORTS, IN O UR VIEW, THE SAME COULD NOT BE ALLOCATED TO TRADING EXPORTS. HENCE, IN OUR VIEW, THE QUESTION OF DETERMINATION OF SUCH TYPES OF INDIRECT COSTS REQUIRES RE-EXAMINA TION. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND REST ORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DETERMINE THE QUANTUM OF INDIRECT COSTS AS PER THE DECISIONS RELIED UPON BY THE ASSESSEE AND A LSO BY DULY CONSIDERING THE DISCUSSIONS MADE ABOVE AND THERE AFTER ASCERTAIN TH E AMOUNT OF INDIRECT COSTS ATTRIBUTABLE TO THE TRADING EXPORTS AS PER THE FORM ULA GIVEN IN SEC. 80HHC OF THE ACT. CONSISTENT WITH THE VIEW TAKEN IN THE ABOVE CITED C ASE, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FI LE OF THE AO WITH THE SIMILAR DIRECTIONS. I.T.A. NOS.242,243,381 & 382 /COCH/2007 10 6. IN THE RESULT, THE APPEALS OF THE ASSESSEE A RE TREATED AS PARTLY ALLOWED AND THE APPEALS OF THE REVENUE ARE TREATED AS ALLOWED FOR S TATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY O N 10-08-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 10TH AUGUST, 2012 GJ COPY TO: 1. SHRI R. PRAKASH, PROP. PRAKASH EXPORTS, KOCHUPILA MOODU, KOLLAM. 2.THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CI RCLE, KOLLAM. 3.THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, KOCHI. 4.THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN