Lubrizol Advanced Material India Pvt.Ltd., Baroda V. The Dy.CIT., Circle-1(2), Baroda

ITA 2720/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9173 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 15-02-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 22-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: EXCLUDING EXPORT FREIGHT CHARGES
• Keywords: Business income; Question of law; Initiation of penalty proceedings; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 80HHC; 10B; 201; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER LUBRIZOL ADVANCED MATERIAL INDIA PVT. LTD. (FORMERLY KNOWN AS INDIA MALT P. LTD), AT & PO, MANJUSAR, TAL. SAVLI, DISRICT: VADODARA PAN: AAACI1436B (APPELLANT) VS THE DCIT , CIRCLE - 1( 2 ) , BARODA (RESPONDENT) REVENUE BY : S H RI SITARAM MEENA , SR. D . R. ASSESSEE BY: MS. URVASHI SHODHAN, A.R. DATE OF HEARING : 15 - 02 - 2 017 DATE OF PRONOUNCEMENT : 20 - 02 - 2 017 / ORDER P ER : AMAR JIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2009 - 10 , AR I SES FROM ORDER OF THE CIT(A) - I, AHMEDABAD DATED 30 - 09 - 2013 IN APPEAL NO. CAB - I/69/12 - 13 , IN P ROCEEDINGS UNDER SECTION 154 R.W.S. 292 - B OF THE INCOME TAX ACT, 1961; IN SHORT TH E ACT . I T A NO . 2720 / A HD/20 13 A SSE SSMENT YEAR 200 5 - 06 I.T.A NO. 272 0 /AHD/20 13 A.Y. 2005 - 06 PAGE NO LUBRIZOL ADVANCED MATERIAL INDIA P. LTD. VS. DCIT 2 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1 LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIRMING RECOMPUTATION BY AO OF EXEMPTED PROFIT U/S 10B OF THE ACT. BOTH THE LOWER AUTHORITIES ERRED IN NOT APPRECIATING SUBMIS SIONS THAT CARRIAGE, INSURANCE & FREIGHT ON GOODS SOLD ON THE FACTS OF THE CASE OUGHT NOT TO HAVE BEEN EXCLUDED FROM EXPORT TURNOVER. THE ORDER ID. CIT (A) CONFIRMING EXCLUSION OF EXPORT FREIGHT FROM EXPORT TURNOVER FOR COMPUTING EXEMPTED PROFIT U/S 10B OF THE ACT DESERVES TO BE SET ASIDE. IT BE SO HELD NOW. 2 LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIRMING ACTION OF AO IN NOT ACCEPTING ALTERNATE CONTENTION OF THE APPELLANT THAT ON PRINCIPLE OF PARITY EXPORT FREIGHT IF EXCLUDED FROM EXPORT TURNO VER OUGHT TO BE EXCLUDED FROM TOTAL TURNOVER ALSO WHILE COMPUTING EXEMPTED PROFITS U/S 10B OF THE ACT. LD. CIT (A) GRAVELY ERRED IN NOT APPRECIATING RATIO OF THE JUDICIAL DECISIONS THAT WHEN EXPORT FREIGHT IS TO BE EXCLUDED FROM THE EXPORT TURNOVER THEN IT OUGHT TO BE EXCLUDED FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. IT BE SO HELD NOW. 3 INITIATION OF PENALTY PROCEEDINGS U/S 271 (1 )(C) ARE NOT JUSTIFIED. ALL THE GROUNDS OF APPEAL ARE INTERCONN ECTED SO THEY ARE DECIDED TOGETHER AS UNDER. 3. IN THIS CASE, RETURN OF INCOME DECLARING INCOME OF RS. 86 , 30 , 290/ - WAS FILED ON 28 TH OCTOBER, 2005. THE ASSESSEE COMPANY WAS ENGAGED IN TH E BUSINESS OF MANUFACTURING OF C ASSI A GUM POWDER AND GUAR GUM POWDER . THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S. 10B OF THE ACT. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S. 143(3) ON 26 TH DECEMBER, 2008 BY ALLOWING THE CLAIM U/S. 10B( 4) OF THE ACT TO THE AMOUNT OF RS. 7 ,6 4 ,9 8 , 712/ - . SUBSEQUENTLY , ASSESSING O FFICER HAS INITIATED PROCEEDINGS U/S. 154 OF THE ACT STATING THAT IT WAS NOTICED THAT IN THE I.T.A NO. 272 0 /AHD/20 13 A.Y. 2005 - 06 PAGE NO LUBRIZOL ADVANCED MATERIAL INDIA P. LTD. VS. DCIT 3 CLAIM U/S. 10B, THE ASSESSEE COMPANY HAS NOT DEDUCTED AN AMOUNT OF RS. 1 , 29 , 44 , 675/ - FROM EXPORT TUR N - OVER BEING EXPORT FREIGHT. THEREAFTER, THE ASSESSING OFFICER HAS PASSED ORDER U/S. 154 OF THE ACT ON 25 TH APRIL, 2012 AND RE WORKED THE DEDUCTION U/S. 10B OF THE ACT AND RESTRICTED IT TO THE EXTENT OF RS. 7 , 21 , 23 , 996/ - A FTER REDUCING EXPORT FREIGHT AS DISCUSSED SUPRA IN THIS ORDER. THEREAFTER, THE ASSESSEE FILED APP EAL BEFORE THE LD. CIT(A) AGAINST THE ORDER OF ASSESSING OFFICER REGARDING RE - COMPUTATION OF EXEMPTED PROFIT U/S. 10B(4) OF THE ACT BY MAKING REDUCTION OF EXPORT FREIGHT OF RS. 1 , 29 , 44 , 675/ - FROM EXPORT TURN - OVER. THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER: - 6.11 THUS, AS PER EXPLANATION 2( III) BELOW SECTION 10B EXPORT TURNOVER MEANS THE CONSIDERATION IN RESPECT OF THE EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTER SOFTWARE RECEIVED OR BROUGHT INTO INDIA IN C ONVERTIBLE FOREIGN EXCHANGE, BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA. IN VIEW OF THIS THE FREIGHT AND INSURANCE ETC. AS INCURRED BY THE A PPELLANT IN INDIAN CURRENCY AND WHICH ARE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OUTSIDE INDIA I.E. BEYOND THE CUSTOM STATION ARE REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER, BUT THE SAME CANNOT BE EXCLUDED FROM TOTAL TURNOVER AS THESE ARE NOT IN THE NATURE OF REIMBURSEMENT EXPENSES. THUS, THE PARITY PRINCIPLE CANNOT BE APPLIED I N THE CASE OF APPELLANT IN VIEW OF THE FACT THAT THE FRE IGHT AND INSURANCE CHARGES ETC. ARE NOT IN THE NATURE .OF REIMBURSEMENT EXPENSES AND THEREFORE THEY DO NOT F ORM PART OF EXPORT TURNOVER AND TOTAL .TURNOVER. THESE EXPENSES ARE BORN BY THE APPELLANT ONLY. HOWEVER, AS PER EXPLANATION 2(III) BELOW SECTION 10B, FREIGHT AND INSURANCE CHARGES ETC. ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFT WARE OUTSIDE INDIA ARE REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER. CONSIDERING ALL THESE FACTS, IT IS HELD THAT THE AO HAS CORRECTLY RECOMPUTED THE EXEMPTED PROFIT U/S 10B(4) IN THE CASE OF APPELLANT BY EXCLUDING EXPORT FREIGHT CHARGES OF RS.1,29,44, 675/ - FROM EXPORT TURNOVER AND THEREFORE THE ACTION OF I.T.A NO. 272 0 /AHD/20 13 A.Y. 2005 - 06 PAGE NO LUBRIZOL ADVANCED MATERIAL INDIA P. LTD. VS. DCIT 4 THE AO IN THIS REGARD IS CONFIRMED. THUS, THE GROUND OF APPEAL NO.2 AS WELL AS ADDITIONAL GROUND OF APPEAL OF THE APPELLANT IS DISMISSED. 4. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, LEAR NED COUNSEL CONTENDED THAT ON PRINCIPLE OF PARITY IF EXPORT FREIGHT EXCLUDED FROM EXPORT TURN - OVER AND THE SAME ALSO OUGHT TO BE EXCLUDED FROM TOTAL TURNOVER WHILE COMPUTING EXEMPTED PROFIT U/S. 10B OF THE ACT. IN THIS CONNECTION, SHE RELIED ON THE ORD ER OF THE HON BLE HIGH COURT OF KARNATAKA (2010) 17 TAXMANN.COM 100 (KARNATAKA) IN THE CASE OF CIT VS. TATA ELEXI LTD. ON THE OTHER HAND T HE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF LD. CIT(A). 5. AFTER HEARING BOTH SIDES AND PERUSAL OF M ATERIAL ON RECORD, WE FIND THAT ON IDENTICAL ISSUE HON BLE HIGH COURT OF KARNATAKA IN THE CIT VS. TATA ELEXI LTD SUPRA HELD THAT WHILE COMPUTING DEDUCTI ON U/S. 10A IF EXPORT TURNOVER NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUD ING CERTAIN EXPENSES , SUCH EX PENSES ARE ALSO TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNOVER IN DENOMINATOR. AFTER PERUSAL OF THE FINDINGS OF HON BLE HIGH COURT , WE FIND THAT CLAIM OF ASSESSEE U/S. 10B IS SIMILAR TO THE ISSUE DECIDED BY THE HON BLE HIGH COURT AND THE RELEVANT PART OF THE DECISION OF THE HON BLE HIGH COURT IS REPRODUCED AS UNDER: - FROM THE AFORESAID JUDGMENTS, WHAT EMERGES IS THAT, THERE SHOULD BE UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA, SIN CE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10 - A IS A BENEFICIAL SECTION. IT IS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. THE INCENTIVE IS TO EXEMPT PROFITS RELATABLE TO EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESS EE, HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS, THE I.T.A NO. 272 0 /AHD/20 13 A.Y. 2005 - 06 PAGE NO LUBRIZOL ADVANCED MATERIAL INDIA P. LTD. VS. DCIT 5 LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON THE BASIS OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN THE EASE OF SECTION 80HHC, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSESSEE, WHEREAS IN SECTION 10 - A, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BU SINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING, IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS, IN OTHER WORDS, EXPORT TURNOVER AND DOMESTIC TURNOVER. THE EXPORT TURNOVER WOULD BE A COMPONENT OR PART OF A DENOMINATOR, THE O THER COMPONENT BEING THE DOMESTIC TURNOVER. IN OTHER WORDS, TO THE EXTENT OF EXPORT TURNOVER, THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IN VIEW OF THE COMMONALITY, THE UNDERSTANDING SHOULD ALSO BE THE SAME. IN O THER WORDS, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. THE REASON BEING THE TOTAL TURN OVER INCLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE, THOUGH THERE IS NO DEFINITION OF THE TERM 'TOTAL TURNOVER' IN SECTION 10 - A, THERE IS NOTHING IN THE SAID SECTION TO MA NDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICULAR WORD IS NOT DEFINED BY THE LEGISLATURE AND AN ORDINARY MEANING IS TO BE ATTRIBUTED TO THE SAME, THE SAID ORDIN ARY MEANING TO BE ATTRIBUTED TO SUCH WORD IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHICH IT IS USED. WHEN THE STATUTE PRESCRIBES A FORMULA AND IN THE SAID FORMULA, 'EXPORT TURNOVER' IS DEFINED, AND WHEN THE 'TOTAL TURNOVER' INCLUDES EXPORT TURNOVER, THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE TOTAL TURNOVER, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHI LE ARRIVING AT THE TOTAL TURNOVER, WHEN THE EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. IF THAT WERE THE INTENTION OF THE LEGISLATURE, THEY WOULD HAVE EXPRESSLY STA TED SO. IF THEY HAVE NOT CHOSEN TO EXPRESSLY DEFINE WHAT THE TOTAL TURNOVER MEANS, THEN, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE MEANING ASSIGNED BY THE LEGISLATURE TO THE EXPORT TURNOVER IS TO BE RESPECTED AND GIVEN EFFECT TO, WHILE INTERPRE TING THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT I.T.A NO. 272 0 /AHD/20 13 A.Y. 2005 - 06 PAGE NO LUBRIZOL ADVANCED MATERIAL INDIA P. LTD. VS. DCIT 6 TURNOVER. THEREFORE, THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECTION 10 - A, WOULD BE AS UNDER: EXPORT TURN OVER ------------------- --------------- PROFITS OF THE BUSINESS A - (EXPORT TURNOVER + DOMESTIC TURN OVER) UNDERTAKING TOTAL TURN OVER 11. IN THAT VIEW OF THE MATTER, WE DO NOT S EE ANY ERROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGMENTS RENDERED IN THE CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10 - A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAME. THEREFORE, WE DO NOT SEE ANY MERIT IN THESE APP EALS. THE SUBSTANTIAL QUESTION OF LAW FRAMED IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 5.1 IN VIEW OF THE ABOVE STATED JUDICIAL FINDINGS WE CONSIDERED THAT T HE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR AND THE DENOMINATOR C ANNOT BE DIFFERENT . AFTER CONSIDERING THE LEGAL FINDINGS AS SUPRA, WE FIND THAT ON PRINCIP LE OF PARITY IF EXPORT FREIGHT EXCLUDED FROM EXPORT TURN - OVER AND THE SAME ALSO OUGHT TO BE EXCLUDED FROM TOTAL TURNOVER WHILE COMPUTING EXEMPTED PROFIT U/S. 10B OF THE ACT THEREFORE, WE ALLOW THE APPEAL OF THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 20 - 02 - 201 7 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 20 /02 /2017 I.T.A NO. 272 0 /AHD/20 13 A.Y. 2005 - 06 PAGE NO LUBRIZOL ADVANCED MATERIAL INDIA P. LTD. VS. DCIT 7 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,