Liberty India, V. ACIT , Circle,

ITA 2542/DEL/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2216 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-12-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 22-07-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Assessee Lawyers: ASHWANI TANEJA; RANI KIYALA
• Keywords: Business income; Depreciation; Business expenditure; Principle of natural justice; Question of law; Capital expenditure
• Section: 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D DELHI) BEFORE SHRI A.D. JAIN AND SHRI K.G. BANSAL ITA NOS. 2446, 2447 & 2542(DEL)08 ASSESSMENT YEARS: 2002-03 TO 2004-05 M/S. LIBERTY INDIA, ASSTT .COMMISSIONER OF INCOME TAX, C/O CORPORATE PROFESSIONALS, V. CIRCLE, PANIP AT. D-28, SOUTH EXTN.PART-I, N.DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ASHWANI TANEJA, ADV.& MS. RANI KIYALA RESPONDENT BY: SHRI B.K. GUPTA, SR. DR ORDER PER A.D. JAIN, J.M. ITA NO. 2446(DEL)08: THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2002-03 TAKING THE FOLLOWING GROUNDS:- 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) OUGHT TO HAVE QUASHED THE ASSESSMENT ORDER H AVING BEEN FRAMED WITHOUT COMPLYING WITH THE MANDATORY CONDITI ONS OF 147 TO 151 OF THE INCOME TAX ACT, 1961 AND REOPENING OF AS SESSMENT WAS INVALID AND NOT IN ACCORDANCE WITH LAW. 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REVE RSING ACTION OF THE LD. AO IN NOT ALLOWING DEDUCTION U/S 80 IB IN FULL AS CLAIMED BY THE ASSESSEE IN HIS RETURN OF INCOME. ITA NOS. 2446, 2447&2542(DEL)08 2 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REVERSI NG ACTION OF THE LD. AO IN NOT GRANTING THE BENEFIT OF DEDUCTION U/S 80 IB ON THE AMOUNT OF DUTY DRAW BACK/DEPB/OTHER EXPORT INCENTIVES. 4. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT QUASHIN G THE ASSESSMENT ORDER FRAMED BY THE AO BEING ILLEGAL, VOID AB INITI O, IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. 5. THAT IN ANY VIEW OF MATTER AND IN ANY CASE, ACT ION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE LD. AO IN NOT ALLOW ING THE CLAIM OF DEDUCTION U/S 80 IB IS ILLEGAL, VOID AB INITIO, ARB ITRARY, UNJUSTIFIED , AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND CONTR ARY TO THE LAW AND FACTS. 2. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSES SEE STATES AT THE BAR THAT GROUND NO.1 IS NOT PRESSED. REJECTED AS NOT PRESS ED. 3. GROUND NOS. 2 TO 5 ARE CONCERNING THE ACTION OF THE LEARNED CIT(A) IN UPHOLDING THE AOS ACTION NOT TO ALLOW DEDUCTION U/S 80 IB IN FULL TO THE ASSESSEE, IN RESPECT OF EXPORT INCENTIVES. THE A SSESSEE, EXPORTER DERIVED INCOME DURING THE YEAR FROM MANUFACTURE AND EXPORT OF HANDLOOM GOODS. IT HAD RECEIVED EXPORT INCENTIVES ON ACCOUNT OF DUTY D RAW BACK AND DEPB. THE ASSESSEE CLAIMED THAT DUTY DRAW BACK AND DEPB A RE PART OF EXPORT INCENTIVES. THE ALTERNATIVE CONTENTION WAS THAT TH ESE MAY BE REDUCED FROM THE COST OF GOODS MANUFACTURED, SINCE IT WAS RETURN OF THE DUTY PAID. THE ASSESSEE CLAIMED DEDUCTION U/S 80 IB OF THE I.T. AC T ON THE AMOUNT OF DUTY ITA NOS. 2446, 2447&2542(DEL)08 3 DRAW BACK AS WELL AS DEPB. THIS CLAIM WAS DISALLO WED. THE LEARNED CIT(A) UPHELD THE AOS ORDER. 4. UNDISPUTEDLY, THE MATTER IS COVERED SQUARELY AGA INST THE ASSESSEE AND IN FAVOUR OF THE DEPARTMENT BY NUMEROUS DECISIONS . IN THE ASSESSEES OWN CASE, M/S. LIBERTY INDIA LTD. V. CIT, 207 CTR 243 (P&H), IT HAS BEEN HELD AS FOLLOWS:- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE RECORD . SECTION 80 IB(1) IS AS UNDER:- (I) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE I NCLUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUSINESS REFERRE D TO IN SUB-SECTIONS (3) TO (11) AND (11A)(SUCH BUSINESS BEING HEREINAFT ER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH THE SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COM PUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFI TS AND GAINS OF AN AMOUNT EQUAL TO SUCH PERCENTAGE AND FOR SUCH NUMBER OF ASSESSMENT YEARS AS SPECIFIED IN THIS SECTION. INTERPRETING THE IDENTICAL LANGUAGE IN SECTION 80 H H, THE HONBLE SUPREME COURT IN STERLING FOODS (SUPRA) OBSERVED: - WE DO NOT THINK THAT THE SOURCE OF THE IMPORT ENT ITLEMENTS CAN BE SAID TO BE THE INDUSTRIAL UNDERTAKING OF THE AS SESSEE. THE SOURCE OF THE IMPORT ENTITLEMENTS CAN, IN THE CIRCUMSTANCE S ONLY BE SAID TO BE THE EXPORT PROMOTION SCHEME OF THE CENTRAL GOVERNME NT WHEREUNDER THE EXPORT ENTITLEMENTS BECOME AVAILABLE. THERE M UST BE , FOR THE APPLICATION OF THE WORDS DERIVED FROM A DIRECT NE XUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. IN THE INSTANT CASE, THE NEXUS IS NOT DIRECT BUT ONLY INCIDENTAL. THE INDUSTRIAL UNDERTAKING EXPORTS PROCESSED SEA FOOD. BY REASON OF SUCH EXP ORT, THE EXPORT PROMOTION SCHEME APPLIES. THEREUNDER, THE ASSESSE E IS ENTITLED TO IMPORT ENTITLEMENTS, WHICH IT CAN SELL. THE SALE CONSIDERATION ITA NOS. 2446, 2447&2542(DEL)08 4 THEREFROM CANNOT, IN OUR VIEW, BE HELD TO CONSTITUT E A PROFIT AND GAIN DERIVED FROM THE ASSESSEE INDUSTRIAL UNDERTAKING. WE ARE OF THE VIEW THAT FOR THE REASONING ADOPTED BY THE HONBLE SUPREME COURT, INCOME OF THE ASSESSEE FROM DUTY DRAW BACK CANNOT BE HELD TO BE INCOME DERIVED FROM SPECIFI ED BUSINESS. DISTINCTION SOUGHT TO BE MADE BY THE LEARNED COUNS EL FOR THE ASSESSEE, IN INCOME DERIVED FROM DUTY DRAW BACK AN D SALE OF IMPORT ENTITLEMENT CANNOT BE ACCEPTED AS RELEVANT DISTINCT ION, AS THE CORE QUESTION BEFORE THE COURT WAS THAT SUCH INCOME WAS DERIVED FROM SPECIFIED BUSINESS, WHICH REASONING IS FULLY APPLIC ABLE TO THE PRESENT SITUATION. FOR THE ABOVE REASONS, WE ARE OF THE VIEW THAT THE MATTER BEING COVERED BY THE JUDGEMENT OF HONBLE SUPREME COURT I N STERLING FOODS(SUPRA), NO SUBSTANTIAL QUESTION OF LAW ARISE S IN THIS APPEAL. 5. IN NAHAR EXPORTS V. CIT, 288 ITR 494(P&H) AND IN CIT V. FIVE STAR RUGS, 207 CTR 246(P&H), THAT DEPB AND DUTY DR AW BACK ARE NOT INCOME ELIGIBLE FOR DEDUCTION U/S 80 IB OF THE I.T. ACT, SINCE THEY ARE NOT DERIVED FROM SPECIFIC BUSINESS. 6. IN VIEW OF THE ABOVE, FINDING NO FORCE IN THE GR IEVANCE RAISED BY THE ASSESSEE BY WAY OF GROUND NOS. 2 TO 5, THE SAME ARE REJECTED. ITA NO. 2447 (DEL)08: 7. THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YE AR 2003-04. THE GROUNDS TAKEN ARE AS UNDER:- ITA NOS. 2446, 2447&2542(DEL)08 5 1 . THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REVE RSING ACTION OF THE LD. AO IN NOT ALLOWING DEDUCTION U/S 80 IB IN FULL AS CLAIMED BY THE ASSESSEE IN HIS RETURN OF INCOME. 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REVERSI NG ACTION OF THE LD. AO IN NOT GRANTING THE BENEFIT OF DEDUCTION U/S 80 IB ON THE AMOUNT OF DUTY DRAW BACK/DEPB/OTHER EXPORT INCENTIVES. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT QUASHIN G THE ASSESSMENT ORDER FRAMED BY THE AO BEING ILLEGAL, VOID AB INITI O, IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. 4. THAT IN ANY VIEW OF MATTER AND IN ANY CASE, ACT ION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE LD. AO IN NOT ALLOW ING THE CLAIM OF DEDUCTION U/S 80 IB IS ILLEGAL, VOID AB INITIO, ARB ITRARY, UNJUSTIFIED , AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND CONTR ARY TO THE LAW AND FACTS. 8. THE ABOVE GROUNDS CORRESPOND TO GROUND NOS. 2 T O 5 IN ITA NO.2446(DEL)08, WHICH WE HAVE DEALT WITH HEREINABOV E. FOR THE REASONS RECORDED THEREIN, THESE GROUNDS ARE REJECTED, THE F ACTS IN THE PRESENT APPEAL BEING PARI MATERIA WITH THOSE IN ITA NO. 2446(DEL)0 8. ITA NO. 2542(DEL)08: 9. THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEA R 2004-05. THE GROUNDS TAKEN ARE AS FOLLOWS:- 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF ITA NOS. 2446, 2447&2542(DEL)08 6 LD. AO IN SUSTAINING THE DISALLOWANCE OF RS. 21,100 /- ON ACCOUNT OF PURCHASE OF MOBILE PHONE TREATED AS CAPITAL EXPENSE S. 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LD. AO IN MAKING THE DISALLOWANCE OF RS. 12,292/- O N ACCOUNT OF TRAVELLING EXPENSES. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REVERSI NG ACTION OF THE LD. AO IN NOT ALLOWING THE DEDUCTION U/S 80 IB ON THE A MOUNT OF DUTY DRAW BACK/DEPB/OTHER EXPORT INCENTIVES. 4. THAT IN ANY VIEW OF MATTER AND IN ANY CASE, ACT ION OF THE LD. CIT(A) IN NOT REVERSING THE ACTION OF THE LD. AO IN DISAL LOWING THE CLAIM OF DEDUCTION U/S 80 IB IS ILLEGAL, VOID AB INITIO, ARB ITRARY, UNJUSTIFIED , AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND CONTR ARY TO THE LAW AND FACTS AND HAS FURTHER ERRED IN NOT QUASHING THE ASS ESSMENT ORDER FRAMED BY LD. AO BEING ILLEGAL VOID AB INITIO, IN V IOLATION OF PRINCIPLES OF NATURAL JUSTICE. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REVERSI NG THE ACTION OF LD. AO IN NOT GRANTING THE CLAIM OF DEDUCTION U/S 80 HH C IN FULL AS CLAIMED BY THE ASSESSEE IN THE RETURN AND HAS FURTH ER ERRED IN CONFIRMING THE ACTION OF AO IN ALLOWING THE DEDUCTI ON U/S 80 HHC ONLY AFTER REDUCING THE AMOUNT OF DEDUCTION U/S 80 IB FROM THE AMOUNT OF BUSINESS PROFIT. 6. THAT IN ANY VIEW OF MATTER AND IN ANY CASE, ACT ION OF LD. CIT(A) IN NOT REVERSING THE ACTION OF LD. AO IN DISALLOWING T HE CLAIM OF DEDUCTION U/S 80 HHC IS ILLEGAL, VOID AB-INITIO, AR BITRARY, UNJUSTIFIED AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND CONTR ARY TO THE LAW AND FACTS AND HAS FURTHER ERRED IN NOT QUASHING THE ASS ESSMENT ORDER FRAMED BY LD. AO BEING ILLEGAL VOID AB INITIO, IN V IOLATION OF PRINCIPLES OF NATURAL JUSTICE. 10. APROPOS GROUND NO.1, THE AO DISALLOWED RS. 44,7 09/- ON ACCOUNT OF PAYMENT FOR PURCHASE OF TWO MOBILE PHONES AND MOBIL E CHARGES, DUE TO NON- ITA NOS. 2446, 2447&2542(DEL)08 7 PRODUCTION OF BILLS. BEFORE THE LEARNED CIT(A), T HE ASSESSEE FILED COPY OF ACCOUNT OF TELEPHONE EXPENSES, WHICH WAS ALSO STATE D TO HAVE BEEN FILED BEFORE THE AO. THESE DETAILS ARE AS FOLLOWS:- WEBSITE CHARGES 21060/- PAID BY CHEQUE INTERNET CHARGES 999/- PAID BY CHEQUE PHONE AND FAX CHARGES 1550/- CASH MOBILE PHONE 6500/- CASH MOBILE PHONE 14600/- CASH - ------------- TOTAL 44709/- --------------- 11. THE LEARNED CIT(A) OBSERVED THAT THE WEBSITE CH ARGES AND INTERNET CHARGES WERE BUSINESS EXPENSES AND HAVE BEEN INCURR ED BY THE ASSESSEE ONLY, AS CLEAR FROM THE BILLS. THE LEARNED CIT(A) UPHELD THE DISALLOWANCE ON PURCHASE OF MOBILE PHONES FOR RS. 6,500/- AND RS . 14,600/-, HOLDING IT TO BE A CAPITAL EXPENDITURE. THE AO, HOWEVER, WAS DI RECTED TO ALLOW DEPRECIATION THEREON. 12. THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT BE EN ABLE TO SHOW AS TO HOW THE LEARNED CIT(A) HAS ERRED IN CONFIRMING SUCH DISALLOWANCE AMOUNTING TO RS. 21,100/-. PURCHASE OF MOBILE PHO NE HAS RIGHTLY BEEN HELD TO BE CAPITAL EXPENDITURE. PURCHASE OF MOBILE PHON E IS UNDOUBTEDLY THE CAPITAL EXPENDITURE. THEREFORE, THE ACTION OF THE LD. CIT(A) IN CONFIRMING THIS DISALLOWANCE IS UPHELD. GROUND NO.1 IS REJEC TED. ITA NOS. 2446, 2447&2542(DEL)08 8 13. SO FAR AS REGARDS GROUND NO.2, THE ASSESSEE HAD MADE CERTAIN PAYMENTS THROUGH CREDIT CARD. OUT OF THESE, BILL F OR RS. 12,292/- WAS NOT FURNISHED. IT WAS, THEREFORE, THAT THE AO DISALLOW ED THE PAYMENT AS OF PERSONAL NATURE. EVEN BEFORE THE LD. CIT(A), NO B ILL OR OTHER EVIDENCE WAS PRESENTED, THOUGH THE EXPENDITURE WAS CLAIMED TO BE A BUSINESS EXPENDITURE. IN THESE CIRCUMSTANCES, THE LEARNED CIT(A) WAS CORR ECT IN UPHOLDING THE DISALLOWANCE. THIS ACTION OF THE LD. CIT(A) IS TH US CONFIRMED. GROUND NO.2 IS REJECTED. 14. GROUND NOS. 3&4 CORRESPOND TO GROUND NOS. 2 TO 6 IN ITA NO. 2446(DEL)08 WHICH WE HAVE DEALT WITH HEREINABOVE. FOR THE REASONS RECORDED THEREIN, THESE GROUNDS ARE REJECTED, THE F ACTS IN THE PRESENT APPEAL BEING PARI MATERIA WITH THOSE IN ITA NO. 2446(DEL)0 8. THEREFORE, GROUND NOS. 3 & 4 ARE REJECTED. 15. COMING TO GROUND NOS. 5&6, THE AO HELD THAT DED UCTION U/S 80 HHC OF THE ACT WAS ALLOWABLE ONLY AFTER REDUCING THE AM OUNT OF REDUCTION U/S 80 IB OF THE I.T. ACT FROM THE BUSINESS PROFIT AS PER SECTION 80 IA(9) OF THE ACT. THE ASSESSEE HAS CONTENDED THAT THE BUSINESS INCOME FOR DEDUCTION U/S 80 HHC OF THE ACT WAS TO BE TAKEN WITHOUT ANY REDUCTIO N ON ACCOUNT OF DEDUCTION U/S 80 IB OF THE ACT. THE ACTION OF THE AO WAS UPHELD BY THE LD. CIT(A). ITA NOS. 2446, 2447&2542(DEL)08 9 16. THIS ISSUE , IT IS SEEN, IS COVERED SQUARELY IN FAVOUR OF THE DEPARTMENT BY THE SPECIAL BENCH DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX V. HINDUST AN MINI & AGRO PRODUCTS(P)LTD., 110 ITD 107(DEL)(SB) , WHEREIN, IT HAS BEEN HELD THAT THE PROFIT RATE OF DEDUCTION U/S 80 IA IS TO BE REDUCED FROM THE PROFIT OF THE BUSINESS FOR COMPUTING DEDUCTION U/S 80 HHC OF THE ACT. ACCORDINGLY, GROUND NOS. 5&6 ARE REJECTED. 17. IN THE RESULT, ALL THE APPEALS FILED BY THE ASS ESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.12.2009. SD/- SD/- (K.G. BANSAL) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10.12.2009 *RM COPY FORWARDED TO: 1. M/S. LIBERTY INDIA, C/O CORPORATE PROFESSIONALS, D-28, SOUTH EXTN.PART-I, N.DELHI 2. ACIT, CIRCLE, PANIPAT. 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR