DCIT 20(2), MUMBAI V. M.M. INTERNAITONAL, MUMBAI

ITA 2890/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9030 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2000-2001
• Appeal Filed On: 14-05-2015
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Business income
• Section: 143(3); 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. NO.2890/MUM/2015 (ASSESSMENT YEAR: 2000-01) DY.CIT 20(2), MUMBAI VS M/S MM INTERNATIONAL 14, BHOJ TERRACE, TEJU KAYA PARK, DR BABASAHEB AMBEDKAR MARG, MUMBAI-19 PAN : AAEFM6628A (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SUMAN KUMAR RESPONDENT BY SHRI VIJAY MEHTA DATE OF HEARING : 10-01-2017 DATE OF ORDER : 13 -01-2017 O R D E R PER ASHWANI TANEJA, AM: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-32, MUMBAI [HE REINAFTER CALLED CIT(A)] DATED 20-12-2015 PASSED AGAINST THE ASSESSM ENT ORDER OF THE AO U/S 143(3) R.W.S. 254 & 147 DATED 18-03-2013 FOR A. Y 2000-01 ON THE FOLLOWING GROUNDS :- (1) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING SALES TAX REFUND AS ELIGIBLE COMPONENT FOR DEDUCTION UNDER SECTION 80HH C WITHOUT APPRECIATING THAT SALES TAX REFUND CANNOT B E CONSIDERED TO 2 I.T.A. NO.2890/MUM/2015 BE DERIVED OUT OF EXPORT ACTIVITY AS THERE IS NO DI RECT NEXUS BETWEEN SUCH RECEIPTS AND EXPORT BUSINESS.' (2) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LOW, THE LD CIT(A) ERRED IN TREATING SALES TAX R EFUND AS PROFIT FROM BUSINESS, AS AGAINST INCOME FROM OTHER SOURCES, WITHOUT TAKING INTO COGNIZANCE THAT RECEIPTS DOES N OT ASSUME THE CHARACTER OF EXPORT RELATED ACTIVITY.' (3) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN PLACING REL IANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F VALIANT GLASS WORKS P LTD (50 TAXMANN 268) WHICH INVOLVED C EN VAT INCENTIVE AND IGNORING THE DECISION OF HO'BLE BOMBA Y HIGH COURT IN THE CASE OF DRESSER RAND (323 ITR 429) WHI CH HAS SOME FACTS AS IN THE INSTANT CASE.' 2. THE SOLITARY ISSUE RAISED BY THE REVENUE IS WHETHER ASSESSEE WOULD BE ELIGIBLE TO CLAIM THE BENEFIT OF DEDUCTION U/S 8 0HHC ON THE AMOUNT OF SALES-TAX REFUND RECEIVED BY IT. 3. THE BRIEF BACKGROUND IS THAT IN SET ASIDE PROCEEDIN GS, THE AO OBSERVED THAT SALES TAX SET OFF CANNOT BE SAID TO B E RELATED TO EXPORTS. IN THE CASE OF CIT V DRESSER RAND INDIA P LTD, IT WAS CATEGORICALLY HELD THAT RECOVERY OF FREIGHT, INSURANCE, PACKING RECEIP TS, SALES TAX SET OFF/REFUND AND SERVICE INCOME COMPRISE OF AN INDEPE NDENT INCOME AND HAVE TO BE REDUCED FROM THE GROSS TOTAL INCOME TO A RRIVE AT BUSINESS PROFITS. THE AO DISTINGUISHED THE BOMBAY HIGH COURT DECISION IN CASE OF ALFA LAVAL INDIA LTD (186 ITR 390) AS IN THAT CASE THE AO HAD TREATED INCOME FROM SALES TAX SET OFF AS INCOME UNDER THE H EAD BUSINESS OR PROFESSION. HOWEVER, IN THE CASE OF THE ASSESSEE TH E AO HAS HELD THAT THE SAID INCOME WAS DISTINCT FROM INCOME DERIVED FR OM EXPORTS AND TAXED THE SAME AS INCOME FROM OTHER SOURCES. ACCORD INGLY, THE AO UPHELD THE REDUCTION IN CLAIM OF SECTION 80HHC OF T HE ACT ON ACCOUNT OF SALES TAX SET OFF OF RS. 69,02,926/-. 4. DURING THE COURSE OF APPEAL BEFORE LD. CIT(A), DETA ILED SUBMISSIONS 3 I.T.A. NO.2890/MUM/2015 WERE FILED AND IT IS SUBMITTED THAT THE AO HAS MISU NDERSTOOD THE FACTS OF THE CASE AND PROVISIONS OF LAW IN THIS REGARD. THE REFUND OF SALES-TAX WAS NOTHING BUT REDUCTION OF COST, THEREFORE IT WAS NOT AKIN TO ANY OTHER INCOME RECEIVED BY THE ASSESSEE. FURTHER, PROVISIO NS OF EXPLANATION (BAA) TO SECTION 80HHC WERE NOT APPLICABLE UPON THE ASSES SEE SINCE ASSESSEE WAS A TRADER AND NOT A MANUFACTURER. LD. CIT(A) CO NSIDERED THE ENTIRE SUBMISSIONS AND JUDGMENTS PLACED BEFORE HIM AND AGR EED WITH THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT ASSESSEE WAS ELIGIBLE TO GET THE BENEFIT OF DEDUCTION U/S 80HHC AS NO OTHER INCOME W AS RECEIVED AS THE AMOUNT OF SALES-TAX REFUND RECEIVED BY THE ASSESSEE WENT INTO REDUCING THE COST OF PURCHASES OF THE ASSESSEE. RELEVANT PA RT OF THE FINDINGS OF LD. CIT(A) IS REPRODUCED BELOW:- 4.8. I HAVE CAREFULLY CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THE PRESENT CASE, THE - APPELLANT IS A TRADER OF GOODS. THERE ARE 100% EXPO RT SALES AND NO LOCAL SALES. AN EXTRACT OF SECTION 80HHC (3) IS AS UNDER: '(3) FOR THE PURPOSES OF SUB-SECTION (1),- (A) WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR MERCHANDISE MANUFACTURED [OR PROCESSED] BY THE ASSESSEE, THE PROFITS DERIVED FROM SUCH EXPORT SHAL L BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINE SS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER O F THE BUSINESS CARRIED ON BY THE ASSESSEE; (B) WHERE THE EXPORT OUT OF INDIA IS OF TRADING GOODS, THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE EXPOR T TURNOVER IN RESPECT OF SUCH TRADING GOODS AS REDUCE D BY THE DIRECT COSTS AND INDIRECT COSTS ATTRIBUTABLE TO SUCH EXPORT;' AS PER EXPLANATION TO SECTION 80HHC, THE TERM PROFI TS OF THE BUSINESS IS DEFINED AS FOLLOWS: 4 I.T.A. NO.2890/MUM/2015 ( BAA) 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GA INS OF BUSINESS OR PROFESSION' AS REDUCED BY (1) NINETY PER CENT OF ANY SUM REFERRED TO IN CLQUSES (IIIA), (IIIB) [, (IIIC), (IIID) AND (IIIE)] OF SEC TION 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE, COMNISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE IN CLUDED IN SUCH PROFITS , AND (2) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA; A READING OF LANGUAGE OF SECTION 80HHC OF THE ACT W OULD INDICATE THAT FOR MANUFACTURERS, THE DEDUCTION HAS TO BE COMPUTED BASED ON RATIO OF PROFITS OF BUSINESS IN R ATIO OF EXPORT TURNOVER TO TOTAL TURNOVER. HOWEVER, IN THE PRESENT CASE, THE APPELLANT IS NOT A MANUFACTURER BUT A TRADER. FOR TRADERS, THE PROFIT HAS TO BE COMPUTED BASED ON EXPORT TURNO VER AS REDUCED BY DIRECT AND INDIRECT COSTS. HENCE, THE DE FINITION OF PROFITS OF BUSINESS AS PER EXPLANATION (BAA) TO SEC TION 80HHC IS NOT RELEVANT TO THE APPELLANT'S CASE. IN THE CASE O F A TRADER, EXPORT TURNOVER IS TO BE REDUCED BY DIRECT AND INDI RECT COSTS. IN THE CASE OF DRESSER RAND (SUPRA), THE BOMBAY HIGH COURT CONSIDERED THE QUESTION OF ETHER SALES TAX REFUND I S TO BE REDUCED FROM PROFITS OF THE BUSINESS AS PER EXPL ANATION (BAA) TO SECTION 80HHC. IN THE PRESENT CASE, THE AP PELLANT IS NOT COVERED BY THE SAID EXPLANATION. THAT CASE WAS RELATING TO A MANUFACTURER OF EXPORTED GOODS. THE BOMBAY HIG H COURT RELIED ON THE RATIO OF RAVINDRANATHAN NAIR 295 ITR 228 (SC) AND HELD THAT EXPLANATION (BAA) TO S. 80HHC REQUIRE D RECEIPTS CONSTITUTING INDEPENDENT INCOME HAVING NO NEXUS WITH EXPORTS TO BE REDUCED FROM BUSINESS PROFITS UN DER CLAUSE (BAA) SO AS TO AVOID DISTORTION IN THE COMPUTATION OF EXPORT PROFITS. THIS CASE IS NOT RELEVANT TO THOSE ASSESSE E'S WHO ARE NOT MANUFACTURES AND ARE NOT COVERED BY EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. 4.10. IN A RECENT DECISION IN THE CASE OF CIT V VALIANT GLASS WORKS P LTD 50 TAXMANN.COM 268 (BOM), THE BOMBAY HIGH COURT HELD THAT CENVAT CREDIT WAS ELIGI BLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE ASSES SING 5 I.T.A. NO.2890/MUM/2015 OFFICER IN ITS ASSESSMENT ORDER HELD THAT CENVAT IN CENTIVES WERE NOT ELIGIBLE PROFITS FOR CLAIMING A DEDUCTION UNDER SECTION 80HHC AND, THUS, HAD] TO BE EXCLUDED FROM T HE BUSINESS INCOME WHILE CALCULATING DEDUCTIONS UNDER SECTION 80FIHC. ON APPEALS, THE COMMISSIONER (APPEA LS) DISMISSED THE SAME. ON FURTHER APPEAL, THE TRIBUNAL , PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE. THE TRIBU NAL HELD THAT THE CENVAT INCENTIVES WERE IN THE NATURE OF EX PORT INCENTIVES AND, HENCE, ALLOWED FOR THE PURPOSE OF C ALCULATING BUSINESS INCOME WHILE CALCULATING A DEDUCTION UNDER SECTION 80HHC. THE BOMBAY HIGH COURT HELD THAT IN THE INSTA NT CASE, IT CAN HARDLY BE ARGUED THAT THE DEEMED CREDIT UNDE R THE CENVAT INCENTIVE SCHEME WOULD NOT REDUCE THE MATERIAL/MANUFACTURING COST OF THE GOODS EXPORTED B Y THE ASSESSEE. NO OTHER PROVISION VAS BROUGHT TO OUR NOT ICE THAT WOULD JUSTIFY THE DISALLOWANCE OF CENVAT INCENTIVE WHILST COMPUTING THE ADMISSIBLE DEDUCTION UNDER SECTION 80 HIHC. IN THIS VIEW OF THE MATTER, IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, THE TRIBUNAL HAS NOT MISDIRECT ED ITSELF IN COMING TO THE CONCLUSION THAT THE AMOUNT OF DEEMED CREDIT UNDER THE CENVAT INCENTIVE SCHEME WAS A PART OF THE BUSINESS PROFITS OF THE ASSESSEE ELIGIBLE FOR A DED UCTION UNDER SECTION 80HHC DESPITE THE FACT THAT IT DID NOT SPEC IFICALLY FIND PLACE IN SECTION 80HHC(3). 4.11. IN VIEW OF ABOVE BOMBAY HIGH COURT DECISION I N CASE OF VALIANT GLASS WORKS P LTD, I AM OF THE VIEW THAT TH E SALES TAX REFUND IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC. FURTHER, THE APPELLANT IS FOLLOWING INCLUSIVE METHO D AND CLAIMING REFUND FROM SALES TAX DEPARTMENT OF SALES TAX EMBEDDED IN EXPORTS. AS PER RULE 43C OF THE BOMBAY SALES TAX RULES, SALES TAX CAN BE SET OFF BY A TRADER EXPORT ONLY IF SUCH GOODS ARE EXPORTED OUTSIDE THE STATE AND THAT TOO W ITHIN SPECIFIED TIME PERIOD. THUS, SUCH SET OFF HAS A DIR ECT NEXUS WITH THE EXPORT AND IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT. HENCE, ALL THE GROUNDS OF APPEAL ARE ALLOWED. 5. DURING THE COURSE OF HEARING BEFORE US, LD. DR RELI ED UPON THE ORDER OF THE AO WHEREAS THE LD. COUNSEL HEAVILY RELIED UPON 6 I.T.A. NO.2890/MUM/2015 THE ORDER OF LD. CIT(A) AND REITERATED THE SUBMISS IONS MADE BEFORE LD. CIT(A) AND ALSO SUBMITTED COPY OF JUDGME NT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS VALIANT GL ASS WORKS PVT LTD 110 DTR 281 (BOM) WHICH WAS RELIED UPON BY THE LD. CIT(A) WHILE ALLOWING RELIEF TO THE ASSESSEE. 6. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BEFORE US AS WELL AS ORDERS PASSED BY THE LOWER AUTHORITIES AND ALSO THE JUDGEMENTS CONSIDERED BY THE AO AS WELL AS LD. CIT( A) WHILE DECIDING THE ISSUE. IT WAS STATED THAT THE ASSESSE E IS A TRADER AND NOT A MANUFACTURER. THEREFORE, PROVISIONS OF EXPLA NATION (BAA) TO SECTION 80HHC ARE NOT APPLICABLE UPON THE ASSESSEE AS WERE APPLIED BY THE AO. FURTHER, IT IS ALSO NOTICED BY US THAT SALES-TAX REFUND RECEIVED BY THE ASSESSEE WAS NOTHING BUT RED UCTION OF COST OF PURCHASE. IN SUBSTANCE, IT DOES NOT MAKE A DIFF ERENCE IN WHATEVER MANNER THE ACCOUNTING HAS BEEN DONE BY THE ASSESSEE. THE SALES-TAX REFUND RECEIVED BY THE ASSESSEE CLEAR LY GOES TO REDUCE THE COST OF PURCHASES OF THE ASSESSEE. UNDE R THESE CIRCUMSTANCES, WE FIND THAT THE FINDINGS OF LD. CIT (A) ARE WELL REASONED AND JUSTIFIED AND IN ACCORDANCE WITH LAW A ND FACTS. LD. CIT(A) HAS FOLLOWED THE AFORESAID JUDGEMENT OF HON BLE BOMBAY HIGH COURT WHILE DECIDING THIS ISSUE. THIS VIEW IS ALSO SUPPORTED BY THE VIEW TAKEN BY HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS CIT 342 ITR 49 (SC) . NO CONTRARY VIEW WAS BROUGHT BEFORE US BY THE LD. DR. THEREFORE, RESPECTFULLY F OLLOWING THE SAME, WE DO NOT FIND ANY JUSTIFICATION TO MAKE INTE RFERENCE IN THE WELL REASONED FINDINGS OF THE LD. CIT(A). THEREFOR E, HIS ORDER IS CONFIRMED. 7 I.T.A. NO.2890/MUM/2015 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF THE HEARING. SD/- SD/- (JOGINDER SINGH) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 13 TH JANUARY, 2017 PATEL/PS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , B-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES