ACIT, CHENNAI V. M/s. Brakes India Ltd., CHENNAI

ITA 2510/CHNY/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4926 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 06-12-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Rule 8D; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE U.B.S.BEDI, JUDICIAL MEMBER AND SHRI N.S.SAINI, ACCOUNTANT MEMBER .. ITA NO.1180/MDS./10 ASSESSME NT YEAR:2000-01 ITA NO.1181/MDS./10 ASSESSME NT YEAR:2001-02 M/S.BRAKES INDIA LTD., PADI, CHENNAI 600 050. VS. DY. COMMISSIONER OF INCOME TAX (LTU), CHENNAI. PAN AAACB 2533 Q (APPELLANT) (RESPONDENT) ITA NO.1080/MDS./07 ASSESSMEN T YEAR:2003-04 M/S.BRAKES INDIA LTD., PADI, CHENNAI 600 050. VS. ASST. COMMISSIONER OF INCOME TAX , CO. CIRCLE 1(2) CHENNAI. 600 034 PAN AAACB 2533 Q (APPELLANT) (RESPONDENT) ITA NO.2468/MDS/07 ASSESSMEN T YEAR:2004-05 M/S.BRAKES INDIA LTD., PADI, CHENNAI 600 050. VS. ASST. COMMISSIONER OF INCOME TAX , CO. RANGE 1, CHENNAI. 600 034 PAN AAACB 2533 Q (APPELLANT) (RESPONDENT) PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 2 ITA NO.1635/MDS./07 ASSESSMEN T YEAR:2003-04 ITA NO.2510/MDS./07 ASSESSMENT YEAR:2004-05 ASST. COMMISSIONER OF INCOME TAX , CO. CIRCLE 1(2) CHENNAI. 600 034 VS. M/S.BRAKES INDIA LTD., PADI, CHENNAI 600 050. PAN AAACB 2533 Q (APPELLANT) (RESPONDENT) ITA NO.1163/MDS./10 ASSESSMENT YEAR:2000-01 ITA NO.1164/MDS./10 ASSESSMENT YEAR:2001-02 DY. COMMISSIONER OF INCOME TAX (LTU), CHENNAI. VS. M/S.BRAKES INDIA LTD., PADI, CHENNAI 600 050. PAN AAACB 2533 Q (APPELLANT) (RESPONDENT) ITA NO.1565/MDS./08 ASSESSMEN T YEAR:2002-03 ASSISTANT COMMISSIONER OF INCOME TAX (LTU), CHENNAI. VS. M/S.BRAKES INDIA LTD., PADI, CHENNAI 600 050. PAN AAACB 2533 Q (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.VIJAYARAGHAVAN DEPARTMENT BY : SHRI SHAJI P JACOB PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 3 O R D E R PER BENCH : THESE ARE THE CROSS APPEALS FILED BY THE ASSESSE E AND THE DEPARTMENT EXCEPT FOR ASSESSMENT YEAR 2002-03 W HERE REVENUE IS ONLY IN APPEAL AGAINST THE SEPARATE ORDE RS OF CIT(A). 2. THE GROUND NO.1 OF ASSESSEES APPEAL FOR ASSESS MENT YEARS 2003-04 & 2004-05 AND GROUND NO.1 OF REVENUE S APPEAL FOR ASSESSMENT YEAR 2003-04 ARE DIRECTED AGA INST THE ORDER OF THE CIT(A) SUSTAINING DISALLOWANCE OF 2% O F THE DIVIDEND INCOME U/S.14A AS EXPENDITURE FOR EARNING THE INCOME AS AGAINST DISALLOWANCE OF 10% OF DIVIDEND I NCOME MADE BY THE ASSESSING OFFICER. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER MADE THE DISALLOWANCE ON ESTIMATE BASIS @ 10% OF DI VIDEND INCOME BY INVOKING SEC.14A OF THE ACT FOLLOWING HI S ORDERS FOR EARLIER ASSESSMENT YEARS. ON APPEAL, THE CIT(A) FO LLOWING THE DECISION OF HIS PREDECESSORS IN APPEAL NO.24/05-06 DT.01.12.05 FOR THE ASSESSMENT YEAR 2002-2003 IN AS SESSEES OWN CASE RESTRICTED THE DISALLOWANCE TO 2% OF GROSS DIVIDEND INCOME AS EXPENDITURE ATTRIBUTABLE TO EARNING TAX F REE INCOME. 4. AT THE TIME OF HEARING BOTH THE PARTIES AGREED THAT THE MATTERS SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO ADJUDICATE THE ISSUE IN THE LIGHT OF THE DECISION OF PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 4 HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AN D BOYCE MANUGACTURING CO. LTD., VS. DCIT [2010] 328 ITR 81 (BOM.) WHERE IT WAS HELD THAT: THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH, 24, 2008 , WOULD APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008- 09. EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER H AD TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SEC TION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DU TY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NTO FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHOUL D DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/ INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED U/S.14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, TH E ASSESSING OFFICER SHOULD PROVIDE A REASONABLE PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 5 OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUN TS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. WE THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION OF THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUGACTURING CO. LTD., VS. D CIT (SUPRA) AFTER ALLOWING REASONABLE AND PROPER OPPORT UNITY TO THE ASSESSEE. THIS GROUND OF APPEAL OF THE ASSESSE E AS WELL AS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPO SES. 6. GROUND NO.2 OF THE ASSESSEES APPEAL FOR THE ASSESSMENT YEARS 2003-04 & 2004-05 ARE DIRECTED AGA INST THE ORDER OF THE CIT(A) HOLDING THAT THE INTEREST INCOM E, LEASE RENT RECEIPTS ARE TO BE INCLUDED IN COMPUTING DEDUCTION U/S.80-IB. THE GROUND NO.2 IN REVENUES FOR THE ASSESSMENT YEA R 2003- 04 IS DIRECTED AGAINST THE ORDER OF THE CIT(A), WHO HELD THAT THE OTHER INCOME SHOULD BE INCLUDED IN COMPUTING RE LIEF U/S.80-I. 7. THE BRIEF FACTS OF THE CASE ARE THAT WHILE COMP UTING DEDUCTION U/S.80-IB, THE ASSESSING OFFICER REDUCED FROM THE BUSINESS PROFITS RS.11,42,882/- BEING INTEREST RECE IVED, RS.4,88,527/- LEASE RENT RECEIPT AND RS.8,74,206/- OTHER INCOME IN THE ASSESSMENT YEAR 2003-04. SIMILARLY I N ASSESSMENT YEAR 2004-05, THE ASSESSING OFFICER WHIL E COMPUTING DEDUCTION U/S.-80-IB REDUCED FROM THE BUS INESS PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 6 PROFITS INTEREST RECEIVED RS.75,091/- AND OTHER IN COME OF RS.16,69,484/-. IN APPEAL, THE CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSORS IN APPEAL NO.123/04-05 FOR THE ASSESSM ENT YEAR 2001-02 HELD THAT INTEREST RECEIVED AND LEASE REN T CAN NOT BE INCLUDED AS INCOME FOR COMPUTING DEDUCTION U/S.80-I B. HOWEVER, HE HELD THAT OTHER INCOME WILL FALL PART O F PROFITS U/S.80-IB. 8. AT THE TIME OF HEARING, THE AUTHORIZED REPRESE NTATIVE OF THE ASSESSEE SUBMITTED THAT THE ISSUE OF INTEREST INCOME AND LEASE RENT FORMING A PART OF ELIGIBLE BUSINESS PROF IT FOR COMPUTING DEDUCTION U/S.80-IB WAS COVERED AGAINST T HE ASSESSEE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03 IN ITA NO.430 & 661/MDS/06 ORDER DT.12.10.0 7. HE SUBMITTED THAT REGARDING OTHER INCOME OF RS.8,74,20 6/- IN ASSESSMENT YEAR 2003-04 AND RS.16,69,484/- IN ASSES SMENT YEAR 2004-05 ON WHICH DEDUCTION U/S.80-IB WAS ALLOW ED TO THE ASSESSEE. FOLLOWING THE ORDER OF HIS PREDECESSORS, CIT(A) IN ASSESSMENT YEAR 2001-02 THE DETAILS REGARDING SUCH INCOME ARE NOT AVAILABLE EITHER FROM THE ASSESSMENT ORDER OR FROM THE ORDER OF THE CIT(A) AND THEREFORE, THE MATTER MAY B E RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR AFRES H ADJUDICATION OF THE ISSUE BY BRINGING OF RELEVANT MATERIALS ON R ECORD. 9. THE DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND SUBMITTED THAT THE OTHER INCOME ON WHICH SEC.80-IB WAS ALLOWED TO THE ASSESSEE PERTAINS TO RECEIPTS BY WAY OF DEPB AS WILL BE SEEN FROM THE ASSESSMENT ORDER. THEREFO RE, THE ISSUE IS COVERED BY THE DECISION OF HONBLE SUPREME COURT PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 7 AGAINST THE ASSESSEE IN CASE OF LIBERTY INDIA --- VS. CIT [2009] 317 ITR 218 (SC) WHERE HONBLE SUPREME COURT HELD THAT DEPB BENEFITS DO NOT FALL PART OF THE NET PROF IT OF ELIGIBLE - -- FOR THE PURPOSE OF DEDUCTION U/S.80I /IA/IB OF T HE INCOME TAX ACT, 1961. HE FURTHER SUBMITTED THAT AS PRAYED BY THE THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE THE MATTE R MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOER VERIFICATION AND IF IT IS FOUND THAT OTHER INCOME PERTAINS TO RE CEIPTS OF THE DEPB, THEN NO DEDUCTION SHOULD BE ALLOWED TO THE AS SESSEE U/S.80-IB OF THE ACT ON SUCH RECEIPTS. 10. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSI NG THE MATERIALS ON RECORD, WE FIND THAT THE ASSESSING OFF ICER DISALLOWED THE DEDUCTION U/S.80-IB ON INTEREST INCO ME, LEASE RENTAL AND OTHER INCOME AND THE CIT(A) IN APPEAL DI SALLOWED THE DEDUCTION TO THE ASSESSEE ON INTEREST INCOME AN D LEASE RENTAL FOLLOWING HIS PREDECESSORS ORDER FOR THE AS SESSMENT YEAR 2001-02 IN ASSESSEES OWN CASE AND ALLOWED DED UCTION TO THE ASSESSEE ON OTHER INCOME. THE ORDER OF THE CIT(A) WAS CONFIRMED BY THE TRIBUNAL IN FURTHER APPEAL FIL ED BY THE ASSESSEE. THE ASSESSEE HAS THEREFORE VERY FAIRLY C ONSIDERED THAT THE ISSUE OF ALLOWING DEDUCTION U/S.80-IB ON I NTEREST INCOME AND LEASE RENTALS ARE COVERED AGAINST THE AS SESSEE. THEREFORE, THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. REGARDING THE DEDUCTION ALLOWED U/S.80IB ON OTHER I NCOME, WE FIND THAT ALL THE FACTS REGARDING THE DETAILS O F INCOME ARE NOT AVAILABLE FROM THE ORDER OF THE ASSESSING OFFIC ER AND THE CI(A) AND NEITHER PARTY BEFORE US HAS FILED THE SAM E. THEREFORE, WE ARE NOT IN A POSITION TO ADJUDICATE T HE ISSUE PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 8 COMPLETELY. THEREFORE, IN OUR CONSIDERATE OPINION, THE ISSUE NEEDS TO BE ADJUDICATED AFRESH BY THE ASSESSING OFF ICER AFTER BRINGING ALL RELEVANT DETAILS AND FACTS ON RECORD B Y PASSING HIS SPEAKING ORDER. WE THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMAND THE MATTER BACK TO THE FILE FO THE ASSESSING OFFICER TO ADJUDICATE THE MATTER AFRESH B Y PASSING HIS ORDER AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 11. THE GROUND NO.3 OF THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2003-04 & 2004-05 IS DIRECTED AGAI NST THE ORDER OF THE CIT(A) DENYING DEDUCTION U/S.80-IB ON PROFIT FROM FORGE SHOP. 12. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER HAD DENIED DEDUCTION U/S.80-IB ON THE INCOME EARNED FROM FORGE SHOP ON THE GROUND THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENSES TOWARDS CONSUMPTION OF STORES, FREIGHT , PACKING, SALARY AND WAGES ETC. AS THE ASSESSEE HAS GOT PRODU CT MANUFACTURED THROUGH JOB WORK FROM SUB-CONTRACTOR. IN FIRST APPEAL, ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT T HE RAW MATERIALS WERE PRODURED BY THE ASSESSEE AND THE PRO DUCTS WERE MANUFACTURED BY THE SUB-CONTRACTOR AS PER THE DESIGN AND DRAWINGS PREPARED BY THE ASSESSEE UNDER ITS DIR ECT SUPERVISION AND CONTROL INCLUDING QUALITY CHECKS AN D FINAL INSPECTION OF THE PRODUCTS AND PLACED RELIANCED ON THE DECISION OF CIT V PENWALT INDIA LTD., 196 ITR 813 ( BOM.). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE AUT HORIZED PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 9 REPRESENTATIVE OBSERVED THAT AS PER SEC.80-IB(2), I T IS MANDATORY THAT THE MANUFACTURING ACTIVITY SHOULD BE CARRIED OUT BY THE ASSESSEE PRIMARILY WITH THE HELP OF NEW PLANT AND MACHINERY. THE SPIRIT OF THE SAID SECTION IS THAT ASSESSEE SHOULD BE ENGAGED IN THE MANUFACTURING ACTIVITY BY SETTING UP A NEW INDUSTRIAL UNDERTAKING HAVING A MINIMUM NUMBE R OF EMPLOYEES AND THAT THE MANUFACTURING ACTIVITY SHOUL D BE CARRIED OUT PRIMARILY WITH THE NEW PLANT AND MACHIN ERY. HOWEVER, IN THE PRESENT CASE, THE ACTIVITY CARRIED OUT IN THE FORGE SHOP NEITHER INVOLVES ANY MANUFACTURING ACTIV ITY DONE BY THE APPELLANT NOR IT INVOLVES ANY PLANT AND MACHINE RY OWNED BY IT. CIT(A) EXPRESSED HIS VIEW THAT THE ASSESS EE DOES NTO SATISFY THE PRIMARY CONDITIONS PRESCRIBED IN SEC.80 -IB FOR THE PURPOSE OF AVAILING DEDUCTION U/S.80-IB AS FAR AS A CTIVITIES CARRIED OUT AT THE FORGE SHOP ARE CONCERNED AND IT HAS NOT BEE POINTED OUT AT ANY STAGE WHETHER THE SAID FORGE SHO P ASSESSEE WAS ALSO CLAIMING DEDUCTION U/S.80-IB OR N OT ON THE INCOME EARNED BY THEM FROM THE SAID FORGING ACTIVIT IES. CIT(A) PLACED HIS RELIANCE IN THE DECISION OF JURIS DICTIONAL HIGH COURT IN THE CASE OF CIT V. TAMIL NADU HEAT TREATME NT AND FETTING SERVICES (P) LTD., (NO.1), 238 ITR 529 (MAD .), WHEREIN IT HAS BEEN HELD THAT PROCESS OF HEAT TREATMENT AND FORGING ETC. TENTAMOUNTS TO MANUFACTURING ACTIVITY AND THE ASSESSEE IS ENTITLED TO SPECIAL DEDUCTION. SINCE THE FORGE SHOP IS ENTITLED TO DEDUCTION U/S.80-IB BY FOLLOWING THE RATIO OF TH E ABOVE SAID DECISION, IT BECOMES APPARENT THAT THE SAME TURNOVE R CANNOT BE SUBJECT MATTER OF DEDUCTION U/S.80-IB IN THE HAN DS OF THE ASSESSEE COMPANY. CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER OF EXCLUDING THE INCOME OF RS.43, 02,478/- PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 10 EARNED FROM THE FORGE SHOP FROM THE ELIGIBLE PROFIT S WHILE COMPUTING DEDUCTION U/S.80-IB IS FOUND TO BE IN ORD ER. 13. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE PROCURED RAW MATERIALS AND FURTHER PROCESS WAS DONE ON SUB-CONTRACT BASIS AS PER ASSESSEES DESIGNS AND DRAWING UNDER ITS SUPERVISIO N AND CONTROL. THE FINAL INSPECTION FOR QUALITY, DISPATC H WAS DONE ONLY BY THE ASSESSEE. UNDER IDENTICAL CIRCUMSTANCE S, THE CHENNAI BENCH OF THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN THE CASE OF THE SISTER CONCERN O F THE ASSESSEE M/S.SUNDARAM POLYMERS LTD. V. DCIT IN ITA NOS.60,71, 72 AND 73/MDS/01 VIDE ORDER DT.31.05.06 IN ASSESSMENT YEARS 1994-95 TO 1997-98. FUTHER HE ALS O PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. PENWALT INDIA LTD. IN 196 ITR 813 ( BOM.) AND SUBMITTED THAT THIS DECISION OF HONBLE BOMBAY HIGH COURT WAS FOLLOWED BY THE CHENAAI BENCH OF THE TRIBUNAL I N ITA NO.1631,1789,1790/MDS/03 IN THE CASE OF DCIT VS. EL GI ULTRA INDUSTRIES LTD., AND IN ITA NOS.60,71,72 & 73/MDS/0 1 IN THE CASE OF SUNDARAM POLYMERS LTD. VS. DCIT. THE DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND RELIE D ON THE ORDER OF THE CIT(A). 14.------ 15. THE GROUND NO.4 OF THE APPEAL OF THE ASSESSEE IN ASSESSMENT YEARS 2003-04 & 2004-05 IS DIRECTED AGAI NST THE PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 11 ORDER OF THE CIT(A) CONFIRMING THE ORDER OF THE ASS ESSING OFFICER INCLUDING SCRAP SALES IN THE TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S.80HHC OF THE ACT. 16. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT INCLUDED SCRAP S ALES OF RS.7,73,44,190/-, THOUGH THE SAME FORMS PART OF THE ASSESSEES TOTAL TURNOVER BY NOT INCLUDING THE ABOV E SALES IN THE TOTAL TURNOVER, THE ASSESSEE IS DERIVING MORE B ENEFIT OF DEDUCTION U/S.80HHC, WHICH CANNOT BE ALLOWED. THERE FORE, WORK OUT THE DEDUCTION U/S.80HHC BY INCLUDING SALE PROCEEDS OF SCRAP SALES IN THE TOTAL TURNOVER OF THE ASSESSE E. IN APPEAL THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OF FICER OBSERVING THAT VARIOUS COURTS ARE HELD THAT NUMERAT OR AND DENOMINATOR SHOULD INCLUDE THE SIMILAR RECEIPTS WHI LE COMPUTING DEDUCTION U/S.80HHC. THE INCLUSION OF PR OFITS FROM SCRAP SALES IN THE ELIGIBLE PROFITS COMPUTED U/S.80 HHC HAS NOT BEEN DENIED BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. HE FURTHER OBSERVED THAT THE HONBLE BOMBAY HIGH CO URT IN THE CASESUDARSHAN CHEMICALS IN 245 ITR 769 (BOM.), WHICH WAS FOLLOWED BY HONBLE MADRAS HIGH COURT IN THE CA SE OF M/S.WHEELS INDIA LTD., 275 ITR 319 (MDS.) AND ALSO THE DECISION OF CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF -- -CYCLES IN 42 ITD 426 (CHD.) HAS HELD THAT SCRAP SA LES ARE INCLUDIBLE IN THE TOTAL TURNOVER WHILE COMPUTING DE DUCTION U/S.80HHC. 17. THE AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ISSUE STANDS DECIDED AGAINST THE ASSESSEE BY THE DECISION OF PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 12 HONBLE SUPREME COURT IN THE CASE OF CIT VS. K.RAVINDRANTHAN NAIR [2007] 295 ITR 228, 18. THE DEPARTMENTAL REPRESENTATIVE AGREED WITH TH E SUBMISSIONS MADE BY THE AUTHORIZED REPRESENTATIVE. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITY AND MATERIALS AVAILAB LE ON RECORD. THE HONBLE SUPREME COURT IN THE CASE OF C IT VS. K.RAVINDRANTHAN NAIR (SUPRA) HAS HELD THAT FOR THE PURPOSE OF WORKING OUT THE FORMULA AND IN ORDER TO AVOID DISTO RTION IN ARRIVING AT EXPORT PROFITS CLAUSE-(BAA)STOOD INSERT ED TO SAY THAT ALTHOUGH INCENTIVE PROFITS AND INDEPENDENT INCOMES CONSTITUTED PART OF THE GROSS TOTAL INCOME. THEY H AD TO EXCLUDE FROM GROSS TOTAL INCOME BECAUSE SUCH RECEIP TS HAS NO NEXUS TO THE EXPORT TURNOVER, PROCESSING CHARGES, W HICH ARE PART OF GROSS TOTAL INCOME, FAIRLY ITEM OF INDEPEND ENT INCOME LIKE RENT, COMMISSION, BROKERAGE ETC AND THEREFORE, 90% OF THE PROCESSING CHARGES HAS ALSO TO BE REDUCED FROM THE GROSS TOTAL INCOME TO ARRIVE AT THE BUSINESS PROFITS AND THEREFORE, IT HAS ALSO TO BE INCLUDED IN THE TOTAL TURNOVER IN TH E FORMULA FOR ARRIVING AT THE BUSINESS PROFITS IN TERMS OF SALES (BAA) OF THE EXPLANATION TO SEC.80HHC(III). WHILE ARRIVING AT TH E EXPORT PROFIT U/S.80HHC(BAA) AS IT STOOD IN THE ASSESSMENT YEAR 1993-94 PROCESSING CHARGES OUGHT TO INCLUDE IN THE TOTAL TURNOVER. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE GROSS TOTAL INCOME OF THE ASSESSEE INCLUDED SALES PROCEED S OF SCRAP AND THEREFORE, THE SAME WAS TO BE INCLUDED IN THE T OTAL TURNOVER FOR WORKING OUT THE BUSINESS PROFITS IN TE RMS OF PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 13 CLAUSE(BAA) OF THE EXPLANATION TO SEC.80HHC(III). T HEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 20. THE GROUND NO.5 OF THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2003-04 & 2004-05 IS DIRECTED AGAI NST THE ORDERS OF THE CIT(A) CONFIRMING THE ORDER OF THE AS SESSING OFFICER REDUCING THE DEDUCTION ALLOWABLE U/S.80HHC BY THE ELIGIBLE DEDUCTION U/S.80-IB AND U/S.80G INVOKING T HE PROVISIONS OF SEC.80-IA(9). 21. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER WHILE COMPUTING THE DEDUCTION ALLOWABLE TO THE ASSE SSEE U/S.80HHC OF THE ACT REDUCED FROM THE BUSINESS PROF ITS DEDUCTION ALLOWABLE U/S.80-IB AND U/S.80G OF THE AC T, RELYING ON THE PROVISIONS OF SEC.80-IA(9) AND U/S.80G(5A) RESPECTIVELY. 22. ON APPEAL, CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER RELYING ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF LEBEN LABORATORIES LTD . VS. DCIT IN ITA NO.2850/MUM/04 DT.29.09.06. 23. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ARGUED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF SC M CREATIONS VS. ACIT IN 304 ITR 319 (MAD) AND CIT VS. MRF LTD., TC(A) NO.1020/09 DT.27.10.09 AND ASSOCIATED C APSULES (P) LTD. VS. DCIT IN 237 CTR 408(BOM.). PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 14 24. THE DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND ARGUED THAT THE DELHI SPECIAL BENCH OF THE TRIBUNAL IN HINDUSTAN --- IN 119 ITD 107 (SB)(DEL.) HAS CONS IDERED THE DECISION OF SCM CREATIONS (SUPRA) AND DECIDED THE ISSUE IN FAVOUR OF THE ISSUE. FURTHER, THE HONBLE MADRAS HI GH COURT IN THE CASE OF 315 ITR 400 GENERAL OPTICS (ASIA) LTD VS. DCIT HAS HELD THAT AFTER THE AMENDMENT WHICH CAME INTO F ORCE WITH EFFECT FROM 01.04.99 BY INTRODUCING THE SEC.80-IA(9 ) DEDUCTION ALLOWABLE TO THE ASSESSEE U/S.80-IB AND U/S.80G OF THE ACT. IN RESULT, ORDER PRONOUNCED IN THE COURT ON 10 TH JUNE, 2011. SD/- SD/- ( U.B.S. BEDI ) ( N.SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 10 TH JUNE, 2011. KSS COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE PAGE OF 15 ITA. 1180/1181 /MDS/11 M/S..BRAKES INDIA LTD. 15 DATE INITIALS 1. DRAFT DICTATED ON 2. DRAFT PLACED BEFORE AUTHORITY 3. DRAFT PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S. 6. KEEP FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE 9. DATE OF DISPATCH OF ORDER