FARMACHEM SA INDIA P LTD, MUMBAI V. ACIT RG 8(1), MUMBAI

ITA 2742/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70841 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 17-07-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 08-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 2742/MUM/2010 ASSESSMENT YEAR: 2002-03 FARMACHEM SA INDIA ( P RIVATE) LIMITED C/O. M/S. G.M. KAPADIA & CO 1001, RAJEHA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400 021. PAN:AAACF 3405 H VS. ACIT - 8(1) AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NITESH J OSHI REVENUE BY : SHRI V.V. SHASTRI DATE OF HEARING : 18/07/ 2013 DATE OF PRONOUNCEMENT : 14 / 08 /2013 O R D E R PER B. RAMAKOTAIAH, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-16,MUMBAI DATED 01.02.2010 FOR THE ASSESSME NT YEAR 2002-03. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY CARRYI NG ON ITS BUSINESS AS A TRADER EXPORTER AND ALSO ACTS AS AN INDENTING AGENT FOR COMMISSION IN RESPECT OF VARIOUS ITEMS. THE ISSUES IN THE APPE AL ARE RELATED TO DEDUCTION U/S. 80HHC. THE ASSESSEE IS AGGRIEVED ON THE ACTION OF AO (A) IN TAKING THE FOREIGN EXCHANGE RECEIVED (B) ALLOCAT ION OF INDIRECT ITA NO. 2742/MUM/2010 ASSESSMENT YEAR : 2002-03 2 EXPENSES AND (C) EXCLUSION OF 90% OF COMMISSION AND OTHER INCOME UNDER EXPLANATION (BAA) WHILE ARRIVING AT THE PROFI T FOR WORKING OUT DEDUCTION U/S 80HHC. THE GROUNDS ARE RAISED ACCORDI NGLY. WE HAVE HEARD LD. COUNSEL SRI NITISH JOSHI AND LD. DR- SRI V.V. SHASTRI AND CONSIDERED VARIOUS ISSUES. 3. THE ISSUE ON FOREIGN EXCHANGE RECEIVED IS ON THE AOS ACTION IN THE TAKING THE AMOUNT AT RS.2,31,45,523/- AS AGAINS T THE CLAIM OF RS. 2,32,48,135/-. IT WAS THE SUBMISSION THAT THE AMOUN T WAS ADOPTED BY AO FROM THE DIRECTORS REPORT WHEREAS THE ASSESSEE HAD TAKEN THE AMOUNT RECEIVED AFTER THE CLOSURE OF THE YEAR BUT W ITHIN SIX MONTHS AS PER THE PROVISIONS OF ACT. EVEN THOUGH THIS CONTENT ION WAS RAISED BEFORE THE LD.CIT(A), THE SAME WAS NEITHER EXAMINED NOR R EJECTED. THERE IS MERIT IN ASSESSEES CONTENTIONS. THEREFORE, WE DIRE CT THE AO TO EXAMINE THE CONTENTIONS AND ACCEPT THE AMOUNT OF RS. 2,32,4 8,135/-, IF THE AMOUNT OF RS. 1,02,612/- WAS RECEIVED BY THE ASSESS EE, WITHIN SIX MONTHS FROM THE END OF FINANCIAL YEAR AS CONTENDED. GROUND NO. 1 IS ALLOWED FOR STATISTICAL PURPOSE. 4. THE NEXT ISSUE IS ON ALLOCATION OF INDIRECT EXPE NSES. OUT OF THE ADMINISTRATIVE EXPENSES CLAIMED, THE ASSESSEE ALLOC ATED DIRECT EXPENDITURE PERTAINING TO EXPORT AND APPORTIONED TH E BALANCE EXPENDITURE TOWARDS EXPORT AND COMMISSION ACTIVITY. THE DETAILS OF ALLOCATION WAS IN PAGE 20 OF PAPER BOOK WHICH INDIC ATE THAT OUT OF THE TOTAL EXPENDITURE OF RS. 2,64,86,110/- THE EXPORT E XPENDITURE WAS TAKEN AT 2,20,81,051/- AND COMMISSION ACTIVITY AT RS. 44, 05,058/-. IN ALLOCATING EXPENDITURE THE ASSESSEE TOOK COMMISSION AND FORWARDING CHARGES AT 100% TOWARDS EXPORT AND BUSINESS PROMOTI ON AT 100% TOWARDS COMMISSION AND OTHER EXPENDITURE WAS ALLOCA TED AT 25% TO EXPORT AND 75% TO COMMISSION. THE AO, HOWEVER, CONS IDERED AN AMOUNT OF RS. 59,46,087/- TOWARDS ALLOCATION AND CONSIDERE D 77.21% TO EXPORT ITA NO. 2742/MUM/2010 ASSESSMENT YEAR : 2002-03 3 ACTIVITY AND 22.79% TO COMMISSION ACTIVITY. THE ABOVE EXERCISE RESULTED IN EXPORT PROFIT BEING NEGATIVE AND SO DED UCTION U/S 80HHC WAS DENIED. THE LD.CIT(A) HAS REJECTED ASSESSEES CONTE NTIONS WITHOUT ANY DISCUSSION IN HIS BRIEF CONCLUSION. 4.2 IT WAS THE CONTENTION THAT SIMILAR ISSUE WAS RA ISED IN LATER YEAR AND ITAT HAS AFFIRMED THE ALLOCATION OF CIT(A) AT 8 0:20 AMONGST THESE ACTIVITIES. HOWEVER, THIS YEAR THE AO HIMSELF ALLO CATED AT 77.21: 22.79% ON THE BASIS OF EXPORT TURNOVER AND COMMISSION INCO ME. THE ITAT HAS NOT APPROVED THE ALLOCATION ON THE BASIS OF EXPORT TURNOVER AND COMMISSION INCOME AS THE SAME ARE NOT COMPARABLE. A S SEEN FROM THE P & L A/C COMMISSION RECEIPTS HAS INCREASED FROM 29. 35 LAKHS IN EARLIER YEAR TO 71.58 LAKHS DURING THE YEAR. THIS WAS COMP ARABLE TO COMMISSION INCOME OF LATER YEAR AT RS. 67.14 LAKHS, WHICH WAS SUBJECT MATTER OF APPEAL BEFORE ITAT. THEREFORE, AOS ALLOCATION AT 7 7.21:22.79 IS REASONABLE AND DOES NOT REQUIRE ANY MODIFICATION. H OWEVER, THE AMOUNT TAKEN FOR WORKING REQUIRES RECONCILIATION. AO IS DIRECTED TO EXCLUDE THE DIRECT EXPENDITURE RELATED TO EXPORT ACTIVITY AND C OMMISSION ACTIVITY AND ALLOCATE THE BALANCE IN THE RATIO OF 77% TOWARDS EX PORT AND 23% TOWARD COMMISSION ACTIVITY, WHICH SHOULD MEET THE ENDS OF JUSTICE ON THE GIVEN FACTS. GROUND IS PARTLY ALLOWED. 5. THE LAST ISSUE CONTESTED IS ON ARRIVING AT PROFI T OF EXPORT ACTIVITY. IT WAS THE CONTENTION THAT THE AO NEED NOT EXCLUDE 90 % OF THE INCOME IN ARRIVING AT BUSINESS PROFIT, AS ASSESSEE IS NOT A MANUFACTURER BUT A TRADER AND PROVISIONS OF SECTION 80HHC (3)(B) WILL APPLY FOR ARRIVING AT THE PROFIT. THIS ARGUMENT IS ACADEMIC IN NATURE AS AO HIMSELF WORKED OUT THE PROFIT AS PER SECTION 80HHC (3)(B) ONLY. HE ALSO WORKED OUT U/S 80HHC (1), BUT THE LOSS WAS ARRIVED AT AFTER TAKING FOREIGN EXCHANGE RECEIVED ON SALES, LESS FREIGHT, LESS(DIRECT EXPEND ITURE +INDIRECT EXPENDITURE) AS PER 80HHC(3)(B) ONLY( THE AMOUNTS M AY VARY CONSEQUENT ITA NO. 2742/MUM/2010 ASSESSMENT YEAR : 2002-03 4 TO REWORKING AS PER ABOVE GROUNDS). THEREFORE, THE GROUND IS ACADEMIC IN NATURE. 6. AO IS DIRECTED TO REWORKOUT THE EXPORT BUSI NESS PROFIT AFTER EXAMINING THE FOREIGN EXCHANGE RECEIVED (AS PER GRO UND NO. 1) AND ALLOCATION OF DIRECT EXPENDITURE AND INDIRECT EXPEN DITURE AS DIRECTED IN GROUND NO.2. THE DEDUCTION U/S 80HHC MAY BE ALLOWED ACCORDINGLY. ASSESSEE SHOULD BE GIVEN DUE OPPORTUNITY DURING THE CONSEQUENTIAL PROCEEDINGS. 7. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST, 2013. SD/- SD/- (DR. S.T.M. PAVALAN ) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 14/08/2013. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR F BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.