The ACIT, Circle-1, Ahmedabad V. Adani Exports Ltd., Ahmedabad

ITA 3184/AHD/2004

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1091 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-07-2016
• Assessment Year: 2001-2002
• Appeal Filed On: 28-10-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P M MEHTA; S N SOPARKAR
• Assessee Lawyers: JAGDISH
• Keywords: Business income; Question of law; Revised return; Capital expenditure
• Section: 80HHC; 234B; 37; 28; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI S.K. YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NOS: 3190 & 3277/AHD/2003 (ASSESSMENT YEAR: 2000-01) ADANI EXPORTS LTD. ADANI HOUSE, NR. MITHAKHALI SIX ROADS, NAVRANGPURA, AHMEDABAD ITO, OSD-(1&3), AHMEDABAD V/S V/S ITO, OSD-1, AHMEDABAD ADANI EXPORTS LTD. ADANI HOUSE, NR. MITHAKHALI SIX ROADS, NAVRANGPURA, AHMEDABAD (APPELLANT) (RESPONDENT) ITA. NOS: 3184 & 2837/AHD/2004 (ASSESSMENT YEAR: 2001-02) A.C.I.T., CIRCEL-1, AHMEDABAD ADANI EXPORTS LTD. ADANI HOUSE, NR. MITHAKHALI SIX ROADS, NAVRANGPURA, AHMEDABAD V/S V/S ADANI EXPORTS LTD. ADANI HOUSE, NR. MITHAKHALI SIX ROADS, NAVRANGPURA, AHMEDABAD ITO, OSD-(1&3), AHMEDABAD (APPELLANT) (RESPONDENT) ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 2 PAN: AABCA28041 APPELLANT BY: SHRI S.N. SOPARKAR & P.M. MEHTA, A. R. RESPONDENT BY : SHRI JAGDISH, CIT/DR ( )/ ORDER DATE OF HEARING : 13 -07-201 6 DATE OF PRONOUNCEMENT : 25 -07-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NOS. 3190 & 3277/AHD/2003 ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)-V, AHMEDABAD DATED 05.06.2003 PERTAINING TO A.Y. 2000- 01 AND ITA NOS. 3184 & 2837/AHD/2004 ARE CROSS APPEALS BY THE ASSES SEE AND THE REVENUE PREFERRED AGAINST THE ORDER OF THE LD. CIT( A)-V, AHMEDABAD DATED 16.08.2004 PERTAINING TO A.Y. 2001-02. 2. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. WE FIRST TAKE UP ITA NO. 3190/AHD/2003 ASSESSEES APPEAL FOR A.Y. 2000-01. 3. THE FIRST GRIEVANCE OF THE ASSESSEE RELATES TO UPHO LDING OF DISALLOWANCE OF RS. 90.38 LACS FROM THE BUSINESS INCOME OF THE Y EAR BY HOLDING IT AS PREVIOUS YEARS EXPENDITURE. ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 3 4. WHILE SCRUTINIZING THE RETURN OF INCOME AND PERUSIN G THE TAX AUDIT REPORTS, THE A.O. FOUND THAT THE ASSESSEE HAS DEBIT ED RS. 90.38 LACS AS EXPENSES PERTAINING TO PREVIOUS YEAR. THE ASSESS EE WAS ASKED TO JUSTIFY ITS CLAIM. ASSESSEE FILED A DETAILED REPLY ALONG WITH THE DETAILS OF THE PRIOR PERIOD EXPENSES. IT WAS STRONGLY CONTE NDED THAT THE DETAILS ARE EXHAUSTIVE AND CONTAIN THE DETAILS OF EXPENSES AS WELL AS INCOME. IT WAS BROUGHT TO THE NOTICE OF THE A.O. THAT PRIOR PERIOD TRANSACTIONS INCLUDE BOTH INCOME AND EXPENDITURE AND THE EXPENSE S HAVE BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. S IMILARLY, THE INCOME PERTAINING TO PREVIOUS YEAR WAS MADE KNOWN TO THE C OMPANY IN THE CURRENT YEAR. NECESSARY DETAILS DIVISION-WISE WERE FILED. THE SUBMISSIONS AND THE DETAILS FIELD BY THE ASSESSEE D ID NOT FIND ANY FAVOUR WITH THE A.O. WHO WAS OF THE OPINION THAT SI NCE THE ASSESSEE COMPANY IS MAINTAINING ITS BOOKS OF ACCOUNTS ON MER CANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY DISALLOWED RS. 90.38 LAC S AND ADDED TO THE RETURN OF INCOME. 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES AND IN SUPPORT OF HIS CONTENTION, THE LD. COUNSEL DREW OUR ATTENTION TO THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 1859/AHD/20 11 FOR ASSESSMENT YEAR 2006-07. IT IS THE SAY OF THE LD. C OUNSEL THAT ON IDENTICAL FACTS, THE TRIBUNAL HAS DELETED THE DISAL LOWANCES MADE ON ACCOUNT OF THE ALLEGED PRIOR PERIOD EXPENSES. ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 4 7. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE REVENUE AUTHORITIES. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORI TIES BELOW. WE HAVE ALSO GIVEN A THOUGHTFUL CONSIDERATION TO THE D ECISION OF THE CO- ORDINATE BENCH GIVEN IN ASSESSEES OWN CASE (SUPRA) , WE FIND THAT AN IDENTICAL ISSUE WAS RAISED BEFORE THE CO-ORDINATE B ENCH IN THE SAID APPEAL QUA GROUND NO. 1. FINDINGS OF THE TRIBUNAL R EAD AS UNDER:- 5. WE HAVE HEARD RIVAL CONTENTIONS. PAGE 13 TO 16 O F THE PAPER BOOK COMPRISE ALL DETAILS OF ASSESSEE'S PRIOR PERIOD EXPENDITURE AMOU NTING TO RS. 67,88,591/- FALLING UNDER MAJOR HEADS OF C & F, MISC. EXPENDITURE, OUTW ARD FREIGHT AND TRAVELLING ETC. ITS LEDGER ACCOUNTS REVEALS THAT THE SAME HAVE BEEN RECOGNIZED ON VARIOUS DATES FROM 01-04-2005 TO 31-03-2006. THERE IS HARDL Y ANY DISPUTE ON GENUINENESS ASPECT OF THE ABOVE STATED EXPENDITURE HEADS. THIS IS NOT THE REVENUE'S CASE THAT THE SAME IS CAPITAL EXPENDITURE OTHERWISE NOT ALLOW ABLE U/S. 37 OF THE ACT. BOTH THE LOWER AUTHORITIES NOWHERE REBUT ASSESSEE'S CASE THAT IT HAS BEEN FOLLOWING PAST PRACTICE OR THE ISSUE STANDS DECIDED IN ITS FAVOUR IN EARLIER ASSESSMENT YEARS. CASE LAW (1958) 33 ITR 681 (BOM) CIT VS. NAGRI MILLS CO. LTD HOLDS THAT WHEN AN ASSESSEE COMPANY IS ASSESSED AT UNIFORM RATE, YEAR OF RAISING AN EXPENDITURE CLAIM IS OF NO CONSEQUENCE, MORE PARTICULARLY, WHEN THE SAME IS ALLOWABLE. NEXT JUDGMENT (2010) 194 TAXMANN 158 (DEL) CIT VS. JAGAT JIT INDUSTRIES ACCEPTS CONSISTENT ACCOUNTING PRACTICE CLAIMING IDENTICAL E XPENDITURE IN MERCANTILE SYSTEM OF ACCOUNTING WHEREIN THE NECESSARY EXPENDIT URE VOUCHERS HAVE BEEN RECEIVED AFTER 31 ST MARCH OF THE RELEVANT ACCOUNTING PERIOD. CASE LAW (2014) 221 TAXMANN 80 (BOM) CIT VS. MAHANAGAR GAS LTD SUPPORTS ASSESSEE'S CASE THAT PRIOR PERIOD EXPENDITURE CRYSTALLIZE DURING THE YEA R ON RECEIPT OF BILLS IS ALLOWABLE. THIS IS FOLLOWED BY (2010) 328 ITR 17 (D EL) CIT VS. EXXON MOBIL LUBRICANTS PVT. LTD UPHOLDING CIT(A)'S AND TRIBUNAL 'S VIEW THAT IF THE ASSESSEE ADMITS PRIOR PERIOD INCOME WHICH WAS NOT EXCLUDED W HILE WORKING OUT RELEVANT ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 5 PREVIOUS YEAR INCOME, IT IS UNREASONABLE TO ALLOW O NE PART OF PRIOR PERIOD ADJUSTMENT I.E. PRIOR PERIOD EXPENDITURE. WE COME TO REVENUE'S CASE LAW NOW. THE FIRST ONE IS (2013) 33 TAXMANN.COM 92 (BANG) BEARING POINT BUSINESS SOLUTIONS VS. DCIT AN D (2013) 35 TAXMANN.COM (HYD) NOW BHARAT VENTURES LTD VS. CIT DECIDING THE ISSUE IN REVENUE'S FAVOUR. WE FIND THAT THESE TRIBUNAL'S DECISIONS DO NOT CONF IRM TO DIFFERENT VIEWS OF VARIOUS HON'BLE HIGH COURTS HEREINABOVE. NEXT CASE LAW (201 3) 42 TAXMANN.COM 142 (GUJ) CIT VS. GUJARAT MINERAL DEVELOPMENT CORPORATION IS AN ADMISSION ORDER AFTER FRAMING SUBSTANTIAL QUESTION OF LAW WHEREIN THE MAI N CASE IS STILL PENDING FOR FINAL DISPOSAL. WE OBSERVE THAT THIS LATTER ORDER D OES NOT SETTLE A RATIO. WE TAKE INTO ACCOUNT ABOVE STATED DISCUSSIONS, RELEVANT FAC TS AND CASE LAW TO CONCLUDE THAT BOTH THE LOWER AUTHORITIES HAVE WRONGLY DISALL OWED ASSESSEE'S CLAIM OR PRIOR PERIOD EXPENDITURE. THE SAME STANDS DELETED. THIS F IRST SUBSTANTIVE GROUND IS TREATED AS ALLOWED. 9. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA), WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIR ECT THE A.O TO DELETE THE ADDITION OF RS. 90.38 LACS. GROUND NO. 1 IS ACC ORDINGLY ALLOWED. 10. GROUND NO. 2 RELATES TO UPHOLDING THE DISALLOWANCE FOR THE ALLEGED EXCESSIVE SHORTAGE IN THE SESAME SEEDS ACCO UNT. 11. WHILE SCRUTINIZING THE FINANCIAL STATEMENTS OF THE ASSESSEE, THE A.O. FOUND CERTAIN SHORTAGE OF SESAME SEEDS. THE AS SESSEE WAS ASKED TO EXPLAIN THE SHORTAGE. ASSESSEE FILED A DETAILED REPLY WHICH READS AS UNDER:- COMPARABLE DETAILS IN RESPECT OF SHORTAGE OF SESA ME SEEDS AND DE-OILED CAKES HAS ALREADY BEEN SUBMITTED VIDE OUR LETTER DATED P L OCTOBER, 2002. AS PER THE SAID DETAILS THERE IS HIGHER SHORTAGE AS COMPARED TO EAR LIER YEAR IN SESAME SEEDS. IN THIS CONNECTION, IT IS SUBMITTED THAT THIS TRADE CO MMODITY BUSINESS HAS BEEN CLOSED ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 6 IN THE YEAR UNDER CONSIDERATION AND SINCE THE LAST STOCK WHICH WERE NOT IN SALEABLE FORM AS PER THE STANDARDS PRESCRIBED BY TH E GOVT. AUTHORITIES THE SAME HAS BEEN DESTROYED BY US. THUS THOUGH IT IS SHOWN A S SHORTAGE BUT IN FACT IT IS A LOSS AND ACCORDINGLY IT CANNOT BE COMPARED WITH THE SHORTAGE OF EARLIER YEAR. AT THIS JUNCTURE WE BEG TO SUBMIT THAT THE SESAME SEED S SALES SINCE FROM F.Y. 1995- 96 TO 1999-2000 RELEVANT TO A.Y. 1996-97 TO 2000-02 AGGREGATING IN QUANTITY 5940 MT FOR THE VALUE OF RS.29.48 CRORES. IF THE TO TAL SHORTAGE IS CONSIDERED IT IS HARDLY 0.86% OF THE ENTIRE FIVE YEARS' QUANTITY. IN VIEW OF THE ABOVE, YOUR HONOUR IS REQUESTED TO CONSIDER SYMPATHETICALLY IN RESPECT OF THE AFORESAID BUSINESS LOSS.' 12. AFTER CONSIDERING THE AFOREMENTIONED SUBMISSION OF THE ASSESSEE THOUGH THE A.O. AGREED THAT THERE ARE SHORTAGES AT THE END OF THE CLOSER OF THE BUSINESS. HOWEVER, AT THE SAME TIME, THE A.O. WAS OF THE OPINION THAT THE SHORTAGES PERTAINS TO SEVERAL ASSE SSMENT YEARS STARTING FROM A.Y. 1996-97 TO 2000-01. THE A.O. WAS OF THE FIRM BELIEF THAT THE SHORTAGE EVEN IT IS CONSIDERED TO BE REASO NABLE SPREAD OVER TO THE PRECEDING ASSESSMENT YEAR AND ACCORDINGLY DISAL LOWED RS. 15,19,800/-. 13. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT MUCH SUCCESS. 14. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES AND THE LD . D.R. SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 15. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FAC TS IN ISSUE AND HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHOR ITIES BELOW. WE FIND THAT THE ASSESSEE HAS CLOSED THE BUSINESS OF TRADIN G IN SESSAME SEEDS DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY WROTE OFF THE ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 7 ENTIRE STOCK WHICH WAS NOT SALEABLE AS PER THE STAN DARDS PRESCRIBED BY THE GOVERNMENT AUTHORITIES AND THE SAME HAS BEEN DE STROYED. IN OUR CONSIDERED OPINION, THIS IS A LOSS AND NOT SHORTAGE THOUGH CLAIMED AS A SHORTAGE. THE TOTAL QUANTITY WROTE OFF WAS 5940 MT ON A TOTAL VALUE OF RS. 29.48 CRORES WHICH COMES TO 0.86% ONLY. THE ON LY REASON FOR UPHOLDING THE DISALLOWANCE GIVEN BY THE FIRST APPEL LATE AUTHORITY IS THAT THE ASSESSEE HAS FAILED TO QUANTIFY THE SHORTA GE/LOSS DUE TO SUB- STANDARDS MATERIAL. THERE MAY BE SOME FORCE IN THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. CONSIDERING THE SMALLNES S OF THE OVERALL PERCENTAGE WHICH IS 0.86%, THE BALANCE OF CONVENIEN CE IS TILTED IN FAVOUR OF THE ASSESSEE. WE, ACCORDINGLY, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE DISALL OWANCE OF RS. 15,19,800/-. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 16. GROUND NO. 3 IS AN ALTERNATIVE CLAIM IN RESPECT OF DEDUCTION U/S. 80HHC FOR THE DISALLOWANCES MADE BY THE A.O. AND CO NFIRMED BY THE LD. CIT(A). 17. SINCE, WE HAVE DELETED THE DISALLOWANCES SO MADE TH IS CLAIM OF THE ASSESSEE BECOMES INFRUCTUOUS. 18. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO THE L EVY OF INTEREST U/S. 234B OF THE ACT. THE CHARGING OF INTEREST IS M ANDATORY THOUGH CONSEQUENTIAL IN THIS CASE, WE, ACCORDINGLY, DIRECT THE A.O. TO LEVY INTEREST U/S. 234B OF THE ACT AS PER THE PROVISIONS OF THE LAW. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 3277/AHD/2003 FOR A.Y. 2000-01 REVENUES AP PEAL ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 8 20. THE FIRST GRIEVANCE RELATES TO THE DIRECTION TO CON SIDER PROFIT ON SALE OF DEPB LICENSE FOR COMPUTATION U/S. 80HHC OF THE ACT. 21. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. F OUND THAT THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF PROFIT ON SALE OF DEPB LICENSE U/S. 80HHC. THE A.O. WAS OF THE FIRM BELIEF THAT THE CLAIM OF THE ASSESSEE U/S. 28 (IIIA) OF THE ACT READ WITH PR OVISO TO SUB-SECTION (3) OF SECTION 80HHC DOES NOT APPEAR TO BE CORRECT AND WAS OF THE FIRM BELIEF THAT DEPB LICENSE DOES NOT COME IN THE PURVIEW OF CLAUSE (IIIA) OF SECTION 28 AND ACCORDINGLY DENIED THE CLA IM. 22. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CLAIM OF DEDUCTION. 23. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) OBSERVED THAT CLAUSE (IIIA), (IIIB) AND (IIIC) WERE INSERTED BY THE FINANCE ACT, 1990 THOUGH RETROSPECTIVELY. THE LD. CIT(A) WA S OF THE OPINION THAT CLAUSE (IIIA) TO SECTION 28 WOULD NOT BE APPLI CABLE TO THE DEPB LICENSES GRANTED AFTER THE ENACTMENT OF THE 1992 AC T. THE LD. CIT(A) WAS CONVINCED THAT PROVISIONS OF OTHER CLAUSES I.E. (IIIB) & (IIIC) TO SECTION 28 ARE VIDE ENOUGH TO COVER SUCH INCENTIVES AND ACCORDINGLY DIRECTED THE A.O. TO GRANT DEDUCTION WITH REFERENCE TO DEPB LICENSE. 24. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 25. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE STATED THA T THIS ISSUE HAS BEEN ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 9 DECIDED BY THE HONBLE SUPREME COURT IN FAVOUR OF T HE ASSESSEE AND AGAINST THE REVENUE IN THE CASE OF TOPMAN EXPORTS 3 42 ITR 49. 26. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FAC TS IN ISSUE AND HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHOR ITIES BELOW. WE HAVE ALSO CONSIDERED THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA), WE FIND THAT THE HO NBLE SUPREME COURT HAS CONSIDERED THIS ISSUE AND HAS DECIDED IN FAVOUR OF THE ASSESSEE BY HOLDING:- 'SECTION 28(IIIB), READ WITH SECTION 28(IIID) OF TH E INCOME-TAX ACT, 1961 - BUSINESS INCOME - CASH ASSISTANCE - ASSESSMENT YEAR 2002-03 - WHETHER DEPB IS A 'CASH ASSISTANCE' RECEIVABLE BY ASSESSEE AND I S COVERED UNDER CLAUSE (IIIB) OF SECTION 28, WHEREAS PROFIT ON TRANSFER OF DEPB TAKE S PLACE ON A SUBSEQUENT DATE WHEN DEPB IS SOLD BY ASSESSEE AND IS COVERED U NDER CLAUSE (IIID) OF SECTION 28 - HELD, YES SECTION 80HHC, READ WITH SECTION 28(IIID) OF THE IN COME-TAX ACT, 1961 - DEDUCTIONS -EXPORTERS - ASSESSMENT YEAR 2002-03 - W HETHER WHEN DEPB ACCRUES TO ASSESSEE IN FIRST PREVIOUS YEAR AND ASSE SSEE TRANSFERS DEPB CERTIFICATE IN SECOND PREVIOUS YEAR, IT IS ONLY NIN ETY PER CENT OF PROFIT ON TRANSFER OF DEPB COVERED UNDER CLAUSE (IIID) OF SECTION 28 A ND NOT NINETY PER CENT OF ENTIRE SALE VALUE INCLUDING FACE VALUE OF DEPB GETS EXCLUDED FROM 'PROFITS OF BUSINESS' IN TERMS OF EXPLANATION (BAA) UNDER SECTI ON 80HHC AND, AS A RESULT, ASSESSEE GETS A BIGGER FIGURE OF 'PROFITS OF BUSINE SS' WHICH BECOMES MULTIPLIER IN FORMULA UNDER SECTION 80HHC(3)(A) FOR ARRIVING AT F IGURE OF PROFITS DERIVED FROM EXPORTS - HELD, YES [IN FAVOUR OF ASSESSEE] 27. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT (SUPRA), WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1 IS DISMISSED. ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 10 28. GROUND NO. 2 RELATES TO THE DIRECTION TO CONSIDER O NLY THE NET INTEREST AS PART OF INDIRECT COST FOR THE PURPOSE O F COMPUTATION OF DEDUCTION. 29. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E A.O. FOUND THAT THE ASSESSEE COMPANY HAS TAKEN NET INTEREST IN WORKING OF THE TOTAL INDIRECT COST OF GENERAL DIVISION. THE A.O. W AS OF THE OPINION THAT NET INTEREST IS NOT PERMISSIBLE AND ACCORDINGLY TOO K THE GROSS INTEREST AMOUNT FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 80HHC. 30. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CLAIM OF NET INTEREST TO BE CONSIDERED FOR THE COMPUTATION OF DEDUCTION U/S. 80HHC OF THE ACT. THE LD. CIT(A) FOU ND THAT IN PRECEDING ASSESSMENT YEARS HIS PREDECESSOR HAS ALLO WED THE NETTING OFF OF INTEREST FOR THE PURPOSES OF THE COMPUTATION OF DEDUCTION U/S. 80HHC AND FOLLOWING THE FINDINGS OF HIS PREDECESSOR DIRECTED THE A.O. TO CONSIDER ONLY THE NET INTEREST. 31. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 32. WE FIND THAT THIS ISSUE IS NO MORE RES INTEGRA AND IS DECIDED BY THE HONBLE SUPREME COURT IN FAVOUR OF THE ASSESSEE IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD. 343 ITR 89. THE HONBLE SUPREME COURT WHILE DECIDING THIS ISSUE CONSIDERED THE FOLL OWING AND OBSERVED ACCORDINGLY:- WHETHER THE INCOME-TAX APPELLATE TRIBUNAL WAS COR RECT IN LAW IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO REDUCE INTEREST PAID B Y IT AGAINST INTEREST RECEIVED BY IT WHILE CALCULATING DEDUCTION UNDER SECTION 80HHC READ WITH EXPLANATION (BAA) OF THE INCOME-TAX ACT ?' ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 11 AS REGARDS QUESTION NO. (I), WE FIND THAT BEFORE TH E TRIBUNAL HAS ANSWERED THE ISSUE THUS: 6. THE THIRD AND FIFTH GROUNDS RELATE TO THE SAME ISSUE. IT IS THE ASSESSEES CLAIM IN THESE GROUNDS THAT FOR THE PURPOSE OF COMPUTING PRO FITS AND GAINS. WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC, THE INTEREST REC EIVED BY THE ASSESSEE SHOULD BE NETTED AGAINST THE INTEREST PAID AND ONLY THE NET A MOUNT OF INTEREST SHALL BE EXCLUDED BY INVOKING EXPLANATION (BAA) BELOW THE SECTION. IT IS CONTENDED THAT THE ORDERS OF THE INCOME-TAX AUTHORITIES HOLDING TO THE CONTRARY ARE NOT CORRECT, IN THE LIGHT OF THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE C ASE OF LALSONS ENTERPRISES [2004] 89 ITD 25 (PARA. 28). THE COMMISSIONER OF INCOME-TA X (APPEALS) IN PARA. 11 OF HIS ORDER HAS REJECTED THE ASSESSEES CLAIM FOR NETTING . HOWEVER, IN THE LIGHT OF THE ORDER OF THE OF THE SPECIAL BENCH CITED ABOVE, THE ORDER OF THE INCOME- TAX AUTHORITIES REJECTING THE PRINCIPLE OF NETTING CANNOT BE UPHEL D. WHILE, THEREFORE, UPHOLDING THE ASSESSEE'S CLAIM FOR NETTING OF THE INTEREST, WE RE STORE THE MATTER TO THE ASSESSING OFFICER TO ENABLE HIM TO EXAMINE THE ASSESSEE'S CLA IM THAT THERE IS FACTUALLY A NEXUS BETWEEN THE SPECIAL BENCH ORDER. THE ASSESSEE SHALL BE GIVEN ADEQUATE OPPORTUNITY OF BEING BEFORE, DECISION IS TAKEN. THESE GROUNDS A RE DECIDED ACCORDINGLY. ALTHOUGH THE TRIBUNAL HAS FOLLOWED LALSONS AND 'HEL D THAT NETTING SHOULD BE ALLOWED, IT HAS REMITTED THE MATTER TO THE ASSESSING OFFICER TO ENABLE HIM TO EXAMINE THE ASSESSEE'S CLAIM THAT THERE IS FACTUALLY A NEXUS BE TWEEN THE INTEREST PAID AND RECEIVED AND TAKE A FRESH DECISION. WE FIND NO REASON TO INTERFERE WITH THE DIRECTIONS GIVEN BY THE INCOME-TAX APPELLATE TRIBUNAL, WHICH IS CONSISTENT WITH THE DECISION REN DERED BY US TODAY IN THE BATCH OF THE APPEALS OF WHICH THE PRESENT APPEAL FORMS PART. NEEDLESS TO ADD, THE ASSESSING OFFICER WILL PROCEED IN ACCORDANCE WITH OUR JUDGMEN T. 33. RESPECTFULLY FOLLOWING THE FINDINGS OF THE HONBLE SUPREME COURT (SUPRA), WE DO NOT FIND ANY REASON TO INTERFERE WIT H THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. GROUND NO. 2 IS ACCORDIN GLY DISMISSED. ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 12 34. GROUND NO. 3 RELATES TO THE DIRECTION TO REDUCE INT EREST EXPENSES BY 10% OF TOTAL EXPORT INCENTIVES AND TO RECALCULAT E THE DEDUCTION U/S. 80HHC IN RESPECT OF BOTH THE DIVISIONS. 35. IN OUR CONSIDERED OPINION, AN IDENTICAL ISSUE IS DE CIDED QUA GROUND NO. 2 OF THIS APPEAL WHEREIN WE HAVE FOLLOWE D THE DECISION OF THE HONBLE SUPREME COURT IN 343 ITR 89. FOR OUR D ETAILED DISCUSSION THEREIN, GROUND NO. 3 IS ALSO DISMISSED. 36. GROUND NO. 4 RELATES TO THE DIRECTION TO ALLOW DEDU CTION U/S. 80HHC FOR MARINE DIVISION IGNORING LOSS AND ALLOWIN G THE CLAIM OF INCENTIVE. 37. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS AND ON PERUSING THE TAX AUDIT REPORT, THE A.O. NOTICED THE CLAIM OF DEDUCTION U/S. 80HHC AT RS. 37,05,12,476. ON SCRUTI NY OF THIS CLAIM, THE A.O. FOUND THAT THIS ENTIRE CLAIM IS FOR THE IN CENTIVE RECEIVED BY THE ASSESSEE FROM THE CENTRAL GOVERNMENT UNDER THE VARIOUS SCHEMES PROPOUNDED BY IT BY WAY OF EXPORT INCENTIVES. THE A .O. FURTHER NOTICED THAT THE ASSESSEE HAS NOT DEDUCTED THERE FROM HUGE LOSS WHICH IT HAD INCURRED FOR THE PURPOSE OF CARRYING OUT OF BUSINES S OF MARINE DIVISION. THE A.O. ACCORDINGLY RECOMPUTED THE CLAIM OF DEDUCT ION U/S. 80HHC BY TAKING INTO CONSIDERATION THE HUGE LOSS INCURRED BY THE ASSESSEE FROM ITS MARINE DIVISION. 38. ASSESSEE AGITATED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED ITS CLAIM OF DEDUCTION. THE LD. CIT(A) F OUND THAT HIS PREDECESSOR IN A.Y. 1999-2000 HAS DIRECTED TO GIVE DEDUCTION IGNORING THE LOSS AND ALLOWING THE CLAIM OF INCENTIVE RECEIV ED BY THE ASSESSEE. ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 13 FOLLOWING THE FINDINGS OF HIS PREDECESSOR, THE LD. CIT(A) DIRECTED ACCORDINGLY. 39. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 40. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO THE NOTICE, THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR A.Y. 1994-95 IN ITA NO. 3403/AHD/1997. IT IS THE SAY OF THE LD. COUNSEL THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN EARLIER YEAR AND HAS DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE AND AGAINST THE REVENUE. 41. WE HAVE CAREFULLY CONSIDERED THE FACTS IN ISSUE AND THE DECISION OF THE CO-ORDINATE BENCH RELIED UPON BY THE ASSESSE E. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. AN IDENTICAL ISS UE WAS CONSIDERED BY THE TRIBUNAL IN A.Y. 1994-95 (SUPRA) QUA GROUND NO. 4 OF THAT APPEAL AT PARA 28 AND THE RELEVANT PART OF THE DECISIONS O F THE CO-ORDINATE BENCH READS AS UNDER:- 28. GROUND NO. 4 OF THE APPEAL OF THE REVENUE IS DI RECTED AGAINST THE ORDER OF LD. CIT(A) TO ALLOW DEDUCTION U/S 80HHC IN RESPECT OF I NCOME OF MARINE DIVISION. 29. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A RECOGNIZED EXPORT HOUSE. THE EXPORT TURNOVER (FOB) IN THE MARINE DIVISION DU RING THE YEAR WAS RS 3,07,51,05,859/- IN THE ASSESSMENT YEAR. THE ASSESS ING OFFICER STATED THAT IN THE ORIGINAL RETURN OF INCOME FILED, NO DEDUCTION U/S 8 0HHC WAS CLAIMED IN RESPECT OF EXPORTS IN THIS DIVISION. SUBSEQUENTLY, THE REVI SED RETURN OF INCOME WAS FILED BY THE ASSESSEE AND DEDUCTION U/S 80HHC WAS QUANTIFIED BY TAX AUDITORS IN THE REPORT IN FORM NO. 10CCAC FILED ALONG WITH RETURN O F INCOME. THE ASSESSING OFFICER HELD THAT SINCE THE TAX AUDIT REPORT IN FOR M NO. 10CCAC WAS NOT FILED ALONG WITH THE ORIGINAL RETURN OF INCOME AS PROVIDE D IN SUBSECTION (4) OF SECTION 80HHC, DEDUCTION U/S 80HHC IN RESPECT OF MARINE DIV ISION WAS NOT ADMISSIBLE. ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 14 30. FURTHER, THE ASSESSING OFFICER HELD THAT SINCE THERE IS A LOSS OF RS 13,50,71,719/- IN THE MARINE DIVISION QUESTION OF I NCREASING THE EXPORT PROFIT BY 90% OF EXPORT INCENTIVE OF RS 15,23,28,797/- I.E. R S 13,70,45,917 IN THE PROPORTION OF EXPORT TURNOVER TO THE TOTAL TURNOVER DOES NOT ARISE AS THE INCREMENT ON ACCOUNT OF EXPORT INCENTIVE OF RS 13,70,95,917/- WILL GET ABSORBED IN THE LOSS OF THE MARINE DIVISION. THE ASSESSING OFFICER FURTH ER STATED THAT THE ASSESSEE COMPANY HAS ALSO ISSUED A DISCLAIMER CERTIFICATE IN RESPECT OF EXPORT OF MARINE DIVISION, HENCE DEDUCTION U/S 80HHC CANNOT BE ALLOW ED EVEN ON THE BALANCE PROFIT OF RS 20,24,198/- (13,70,95,917 - 13,50,71,7 19). IN VIEW OF THE ABOVE FINDING, THE ASSESSING OFFICER DISALLOWED DEDUCTION U/S 80HHC IN RESPECT OF MARINE DIVISION. 31. IN APPEAL BEFORE THE LD. CIT(A), IT WAS SUBMITT ED THAT IT HAS BEEN HELD IN VARIOUS DECISION THAT FILING OF AUDIT REPORT WITH T HE RETURN OF INCOME IS PROCEDURAL REQUIREMENT AND THE ASSESSING OFFICER SHOULD CONSID ER THE CLAIM OF THE ASSESSEE EVEN IF SUCH CLAIM IS MADE AT A LATER STAGE DURING THE ASSESSMENT PROCEEDING. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS WHIC H WERE GIVEN WITH REGARD TO FILING OF AUDIT REPORT WHILE CLAIMING RELIEF U/S 80 J AND U/S 11 OF THE INCOME TAX ACT . (I) JUDGEMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE REPORTED IN 219 ITR 721. (II) DECISION OF LD. ITAT, BOMBAY BENCH IN THE CASE REPORTED IN 47 TTJ 570. (III) DECISION OF LD. ITAT, DELHI BENCH IN THE CASE REPORTED IN 46 TTJ 276. IT WAS THEREFORE SUBMITTED THAT IN VIEW OF THE ABOV E DECISIONS, THE ASSESSING OFFICER BE DIRECTED TO CONSIDER THE TAX AUDIT REPOR T IN FORM NO. 10CCAC FILED ALONG WITH REVISED RETURN OF INCOME WHILE WORKING O UT DEDUCTION U/S 80HHC ADMISSIBLE TO THE ASSESSEE REGARDING THE MARINE DIV ISION. 32. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE HELD THAT IN VIEW OF THE ABOVE MENTIONED DECISIONS RELIED ON BY THE ASSESSEE, THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE AUDIT REPORT IN FORM NO.10CCAC FILED ALONG WITH REVISED RETURN OF INCOME WHILE DETERMINING DED UCTION U/S 80HHC ADMISSIBLE TO THE ASSESSEE REGARDING THE MARINE DIVISION. 33. WITH REGARD TO ADMISSIBILITY OF DEDUCTION U/S 8 0HHC, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE SUBMITTED FOB OF THE EXPORT TURNO VER OF MARINE DIVISION IS RS 3,07,51,859/- AND AFTER DEDUCTING THE DIRECT COST A ND INDIRECT COST TOTALING TO RS 3,21,01,72,578/-, THERE IS A BUSINESS LOSS OF RS 13 ,50,71,719/- WITHOUT CONSIDERING 90% OF THE EXPORT INCENTIVES OF RS 13,70,95,917/-. THE LD. CIT(A) OBSERVED THAT IT WAS SUBMITTED THAT SECTION 80HHC IS AN INCENTIVE PROVISION AND IT SHOULD BE INTERPRETED IN A LIBERAL WAY. THE WORDS 'FURTHER IN CREASE' CLEARLY SHOW THAT THE BENEFIT AS PER PROVISO IS OVER AND ABOVE THE BENEFI T AS PER CLAUSE (A) OF SUBSECTION ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 15 (3) OF SECTION 80HHC IN THE CASE OF A NEGATIVE BALANCE AS PER CLAUSE (A ) OF SUBSECTION (3), BENEFIT OF PROVISO CANNOT BE ADJUST ED OR REDUCED. THE LD. CIT(A) FURTHER OBSERVED THAT IT WAS SUBMITTED THAT FURTHER INCREASE CONTEMPLATED AS PER PROVISO CANNOT BE REDUCED AND ADJUSTED AGAINST THE LOSS ARRIVED AT THE STAGE OF COMPUTATION. THE ASSESSEE FILED COPY OF THE DECISIO N DATED 14.09.1995 OF THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF A.M. MO OSA VS. ACIT (1996) 54 TTJ 193 AND SUBMITTED THAT IN THIS DECISION, IT HAS BEE N HELD THAT CONSTRUING THE PROVISO TO SUBSECTION (3) OF SECTION 80HHC AS AN INDEPENDENT PROVISION, THE ASSESSEE COULD BE ENTITLED TO THE DEDUCTION IN AN A MOUNT EQUAL TO 90% OF THE SUMS REFERRED TO ANY CLAUSE (IIIA) (IIIB) AND CLAUSE (II IC) OF SECTION 28 , SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. FROM ANOTHER POINT OF VIEW, EVEN IF THE P ROVISO TO SUB SECTION 3 OF SECTION 80HHC IS VIEWED ONLY, STILL THE ASSESSEE CANNOT BE DENIE D THE DEDUCTION. THIS IS BECAUSE UNDER THE MAIN PROVISIONS OF SUBSEC TION (3) STATUTORY PROFIT OF BUSINESS IS TO BE TAKEN AS 'NIL' THERE BEING NO PRO FIT THIS SHOULD BE INCREASED BY THE AMOUNT SPECIFIED IN THE PROVISO TO SUBSECTION ( 3). AS A RESULT, THE POSITIVE FIGURE WILL EMERGE. THUS, FROM ANY POINT OF VIEW, T HE ASSESSEE SUCCEEDS. THE ASSESSING OFFICER IS DIRECTED TO QUANTIFY AMOUNT OF DEDUCTION AND ALLOW THE SAME SUBJECT TO THE AVAILABILITY OF TOTAL INCOME. IT WAS ALSO SUBMITTED BY THE ASSESSEE THAT THE DECISION OF THE COCHIN BENCH OF THE TRIBUN AL WAS FOLLOWED BY THE LD. CIT(A) IN HIS ORDER DATED 10.10.2006 IN APPEAL NO. DC(SR)- 1/161/95-96 FOR ASSESSMENT YEAR 1993-94 IN THE CASE OF AIA. MAGOTTA UX LIMITED. IT WAS ALSO SUBMITTED THAT SIMILAR VIEW WAS ALSO TAKEN BY THE L D. CIT(A)-IV, BARODA VIDE ORDER DATED 17.10.1995 IN THE CASE OF PRATIBHA PROC ESSORS LIMITED, SURAT IN APPEAL NO. CAB/IV-II/95- 96 FOR ASSESSMENT YEAR 199 2-93. THEREFORE, IT WAS SUBMITTED THAT THE ASSESSING OFFICER BE DIRECTED TO ALLOW DEDUCTION U/S 80HHC FOR MARINE DIVISION EQUAL TO 90% OF EXPORT INCENTIVES O F RS 13,70,95,970/- SUBJECT TO THE CONDITION THAT THE DEDUCTION SHOULD NOT EXCEED GROSS TOTAL INCOME AS REDUCED BY THE DEDUCTION U/S 80HHC ALLOWED FOR TRADING DIVI SION. THE LD. CIT(A) ACCORDINGLY HELD THAT THE ASSESSEE IS ENTITLED TO D EDUCTION U/S 80HHC FOR THE MARINE DIVISION EQUAL TO 90% EXPORT INCENTIVE IN TH E SAME PROPORTION AS EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE ASSESSE E WHICH COMES TO RS 13,79,35,917/- AND ACCORDINGLY DIRECTED THE ASSESSI NG OFFICER TO ALLOW DEDUCTION FOR THE SAME SUBJECT TO CONDITION THAT THE DEDUCTIO N SHOULD NOT EXCEED GROSS TOTAL INCOME AS REDUCED BY DEDUCTION U/S 80HHC ALLOWED FO R TRADING DIVISION. 34. THE LD. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 35. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE D ELHI BENCH OF THE TRIBUNAL IN THE CASE OF MMTC LIMITED VS JCIT 112 TTJ 15 (DELHI) HAS HELD THAT WHEN AN EXPORT HOUSE SURRENDERS PART OF ITS EXPORT TURNOVER IN FAVOUR OF SUPPORTING MANUFACTURER, IT IS REQUIRED TO ISSUE A CERTIFICATE AS REFERRED TO IN CLAUSE (B) OF SUBSECTION (4A) IN RESPECT OF THE AMOUNT OF TURNOVE R SPECIFIED THEREIN, THEN THE AMOUNT OF DEDUCTION IN THE CASE OF THE ASSESSEE BEI NG EXPORT HOUSE SHALL BE REDUCED BY SUCH AMOUNT WHICH BEARS TO THE TOTAL PRO FIT DERIVED BY THE ASSESSEE FROM EXPORT OF TRADING GOODS, SAME PROPORTION AS TH E AMOUNT OF EXPORT TURNOVER ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 16 SPECIFIED IN THE SAID CERTIFICATE BEARS TO THE TOTA L EXPORT TURNOVER OF THE ASSESSEE IN RESPECT OF SUCH TRADING GOODS. THUS, IN RESPECT OF THE INCOME WHICH THE ASSESSEE DID NOT DISCLAIM IN FAVOUR OF THE SUPPORTING MANUFA CTURER WHICH PERTAINS TO AND IS ATTRIBUTABLE TO THE EXPORT INCENTIVE, THERE IS NO R EASON TO REDUCE THE EXPORT INCENTIVE RELATABLE TO THE DISCLAIMED TURNOVER IN T ERMS OF PROVISO TO SECTION 80HHC (1) OF THE ACT. HE ALSO SUBMITTED THAT THIS IS THE ONLY DECISION OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. HE ALSO SUBMITT ED THAT NO APPEAL HAS BEEN FILED AGAINST THIS ORDER BY THE DEPARTMENT MEANING THEREBY THAT THEY HAVE ACCEPTED THE DECISION. HE THEREFORE SUBMITTED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE UPHELD AND THE GROUND OF APPEAL OF THE RE VENUE BE DISMISSED. 36. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. THE UNDISPUTE D FACTS ARE THAT THE ASSESSEE IN ITS MARINE DIVISION SUFFERED LOSS OF RS 13,50,71 ,719/- ON EXPORT OF TRADING GOODS AND EARNED EXPORT INCENTIVES OF RS 13,70,45,9 17/-. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF RS 13,70,45,917/- ON THE GRO UND THAT IN RESPECT OF EXPORT TURNOVER IT HAS CLAIMED DEDUCTION U/S 80HHC BY ISSU ING CERTIFICATE TO THE SUPPORTING MANUFACTURER IN RESPECT OF ENTIRE EXPORT TURNOVER. THE ASSESSING OFFICER DISALLOWED THE ENTIRE CLAIM ON THE GROUND T HAT THERE WAS LOSS ON EXPORT OF TRADING GOODS AND ON THE GROUND THAT THE REQUIRED C ERTIFICATE OF THE AUDITOR WAS NOT FURNISHED ALONG WITH RETURN OF INCOME. 37. ON APPEAL, THE LD. CIT(A) HELD THAT FURNISHING OF AUDITOR'S CERTIFICATE DURING THE COURSE OF ASSESSMENT PROCEEDINGS WAS SUFFICIENT COMPLIANCE. 38. FURTHER, THE LD. CIT(A) HELD THAT WHILE COMPUTI NG EXPORT PROFIT, THE LOSS IS TO BE IGNORED AND AFTER IGNORING THE LOSS AS THE ASSES SEE HAD EXPORT INCENTIVES OF RS 13,70,95,917/-, THE ASSESSEE WAS ELIGIBLE FOR DEDUC TION U/S 80HHC SUBJECT TO THE CONDITION THAT SUCH DEDUCTION SHOULD NOT EXCEED THE GROSS TOTAL INCOME AS REDUCED BY DEDUCTION U/S 80HHC ALLOWED FOR TRADING DIVISION . 39. BEFORE US, THE LD. DR CONTENDED THAT AS THERE W AS LOSS ON EXPORT OF TRADING GOODS U/S 80HHC(3)(B), THE ASSESSEE WAS NOT ENTITLE D TO ANY DEDUCTION U/S 80HHC IN RESPECT OF MARINE DIVISION. 40. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE S UPPORTED THE ORDER OF THE LD. CIT AND SUBMITTED THAT AS THE ASSESSEE ISSUED A DIS CLAIMER CERTIFICATE IN RESPECT OF EXPORT TURNOVER AND THEREFORE, THE LOSS ON EXPORT O F TRADING GOODS IS TO BE IGNORED AND THE LD. CIT(A) WAS JUSTIFIED IN GRANTING DEDUCT ION U/S 80HHC IN RESPECT OF EXPORT INCENTIVE. HE RELIED UPON THE DECISION OF TH E DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MMTC VS. JCIT (2007) 112 TTJ 15 (DELHI) . 41. WE FIND THAT THE HON'BLE SUPREME COURT IN THE C ASE OF IPC A LABORATORY LIMITED VS. DCIT (2004) 135 TAXMANN 594 (SC) HELD A S UNDER: ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 17 '15. IT WAS NEXT SUBMITTED THAT EVEN WHEN THE PROFI TS ARE TO BE REDUCED BY THE LOSSES IN CASES WHERE AN EXPORT HOUSE HAS DISCL AIMED ITS TURNOVER IN FAVOUR OF A SUPPORTING MANUFACTURER, THE TURNOVER O F THE EXPORTER GETS REDUCED TO THE EXTENT DISCLAIMED. IT IS SUBMITTED T HAT AS THE TURNOVER, WHICH IS DISCLAIMED, IS REDUCED IT CANNOT THEN BE T AKEN INTO CONSIDERATION FOR THE PURPOSES OF COMPUTING PROFITS UNDER SUB- SECTION 3(C) ( II). IN OUR VIEW THIS IS AN ARGUMENT WHICH MERELY NEEDS TO BE S TATED TO BE REJECTED. IF SUCH AN ARGUMENT IS ACCEPTED IT WOULD LEAD TO AN AB SURD RESULT. IT WOULD MEAN WHEN IF THERE WAS NO DISCLAIMER THE EXPORT HOU SE WOULD NOT BE ENTITLED TO ANY DEDUCTION IN CASES WHERE THERE IS A LOSS BUT BECAUSE DISCLAIMER HAS BEEN MADE BOTH THE EXPORT HOUSE AND THE SUPPORTING MANUFACTURER WOULD BECOME ENTITLED TO DEDUCTIONS. T HE PROVISO TO SUB- SECTION (3) OF SECTION 80HHC ENABLES A DISCLAIMER ONLY TO ENABLE THE EXPORT HOUSE TO PASS ON DEDUCTIONS. IT IN NO WAY RE DUCES THE TURNOVER OF THE EXPORT HOUSE. IN COMPUTING TOTAL INCOME, THE EN TIRE TURNOVER IS TAKEN INTO ACCOUNT EVEN THOUGH THERE IS A DISCLAIMER. THU S EVEN THOUGH THE DISCLAIMER IS MADE THE TAXABLE INCOME OF RS. 4.39 C RORES HAS BEEN ARRIVED AT BY THE APPELLANTS AFTER TAKING INTO ACCOUNT THE ENTIRE TURNOVER FROM EXPORT OF TRADING GOODS. IN ARRIVING AT THE FIGURE OF RS. 4.39 CRORES ADMITTEDLY THE LOSS OF RS. 6.86 CRORES HAS BEEN TAK EN INTO ACCOUNT. EVEN AFTER DISCLAIMER THE TURNOVER HAS REMAINED THE TURN OVER OF THE EXPORT HOUSE, I.E., THE APPELLANTS. THE DISCLAIMER IS ONLY FOR PURPOSES OF ENABLING THE EXPORT HOUSE TO PASS ON THE DEDUCTION WHICH IT WOULD HAVE GOT TO THE SUPPORTING MANUFACTURER. IT FOLLOWS THAT IF NO DEDU CTION IS AVAILABLE, BECAUSE THERE IS A LOSS, THEN THE EXPORT HOUSE CANN OT PASS ON OR GIVE CREDIT OF SUCH NON-EXISTING DEDUCTION TO A SUPPORTING MANU FACTURER.' THUS, IN OUR CONSIDERED VIEW, THE LOSS OF RS 13,50, 71,719/- SUFFERED ON EXPORT OF TRADING GOODS CANNOT BE IGNORED ON THE GROUND THAT A DISCLAIMER CERTIFICATE WAS ISSUED IN RESPECT OF RELEVANT EXPORT TURNOVER TO TH E SUPPORTING MANUFACTURER. 42. FURTHER, WE FIND THAT THE HON'BLE DELHI HIGH CO URT IN THE CASE OF CIT VS. MEREENA CREATIONS 189 TAXMANN 71 (DEL.) HELD AS UND ER: '15. AFTER READING THE JUDGMENT OF THE SUPREME COUR T IN IPC A LABORATORY LTD.'S CASE (SUPRA), IT CLEARLY EMERGES: NO DOUBT, UNLESS THERE IS A POSITIVE 'PROFIT', THE BENEFIT OF SECTION 80HHC WOULD NOT BE GIVEN. THE COURT INTERPRETED IT TO MEAN THAT IF THERE IS A LOSS THEN NO DEDUCTION WOULD BE AVAILABLE. HOWEVER, HOW THE TEST FOR DETERMINING TH E FIGURE OF POSITIVE PROFIT IS APPLIED IS STATED AS FOLLOWS:-- 'IN ARRIVING AT THE FIGURE OF POSITIVE PROFIT, BOTH THE PROFITS AND THE LOSSES WILL HAVE TO BE CONSIDERED. IF THE NET FIGURE IS A POSITIVE PROFIT THEN THE ASSESSEE WILL BE ENTITLED TO A DEDUCTION. IF THE NE T FIGURE IS A LOSS THEN THE ASSESSEE WILL NOT BE ENTITLED TO A DEDUCTION.' ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 18 IT IS CLEAR FROM THE ABOVE THAT WHILE COMPUTING EXP ORT PROFIT THE RESULT OF TWO ACTIVITIES IS TO BE NETTED. WHILE DOING SO, EXP ORT INCENTIVES ARE ALSO TO BE TAKEN INTO CONSIDERATION.' 43. WE FIND THAT THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF MMTC (SUPRA) IS NOT APPLICABLE IN THE INSTANT CASE IN AS MUCH AS IN THE INSTANT CASE, THERE IS LOSS IN EXPORT OF TRADING GOODS WHICH COULD NOT BE PASSED O N TO SUPPORTING MANUFACTURER BY ISSUING DISCLAIMER CERTIFICATE IN VIEW OF THE DE CISION OF THE HON'BLE SUPREME COURT IN THE CASE OF IPC A LABORATORY (SUPRA). IN VIEW OF THE ABOVE DECISION OF THE HON'BLE DELHI HIGH COURT, WE FIND THAT AFTER TAKING INTO CONSIDERATION 90% OF EXPORT INCENTIVE, THERE WAS A POSITIVE PROFIT OF RS 20,24,198/- IN THE INSTANT CASE. THEREFORE, THE ASSESSEE WAS ENTITLED FOR DEDUCTION U/S 80HHC IN RESPECT OF RS 20,24,198/- ONLY. WE, THEREFORE, MODIFY THE ORDER O F THE LD. CIT(A) TO THE ABOVE EXTENT. THUS, THE GROUND OF APPEAL OF REVENUE IS PA RTLY ALLOWED. 42. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA), WE DIRECT ACCORDINGLY. 43. THE LAST GRIEVANCE OF THE REVENUE RELATES TO THE DI RECTION TO ALLOW DEDUCTION U/S. 80HHC TO THE EXTENT OF GROSS TOTAL I NCOME WITHOUT RESTRICTING THE TOTAL INCOME DERIVED FROM EXPORT OF GOODS. 44. WE FIND THAT AN IDENTICAL ISSUE WAS CONSIDERED BY T HE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 1994-95 IN ITA NO. 3403 /AHD/1997 QUA GROUND NO. 5 OF THAT APPEAL AT PARA 44 AND THE SAME READS AS UNDER:- 44. THE GROUND NO. 5 OF THE APPEAL OF THE REVENUE I S DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) DIRECTING TO ALLOW DEDUCTION U/S 80H HC AS MENTIONED IN THE GROUNDS THEREBY RESULTING IN COMPUTATION OF INCOME LOWER THAN SHOWN BY THE ASSESSEE IN REVISED RETURN OF INCOME. 45. THE LD. AR OF THE ASSESSEE RELIED ON THE DECISI ON OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SHELLY PRODUCTS AND OTHERS (200 3) 261 ITR 367 (SC) AND SUBMITTED THAT AT PAGE 382 OF THE ORDER IN PLACETUM C, D & E, HON'BLE SUPREME COURT HAS OBSERVED THAT THE FAILURE OF THE REVENUE TO FRAME A FRESH ASSESSMENT SHOULD NOT PLACE THE ASSESSEE IN A MORE DISADVANTAG EOUS POSITION THAN IN WHAT HE WOULD HAVE BEEN IF A FRESH ASSESSMENT WAS MADE. IN A CASE WHERE AN ASSESSEE CHOOSES TO DEPOSIT BY WAY OF INDEPENDENT ACTION ADV ANCE TAX OR AS SELF ASSESSMENT TAX WHICH IS IN EXCESS OF HIS LIABILITY ON THE BASI S OF THE RETURN FURNISHED OR THERE IS ANY ARITHMETICAL ERROR OR INACCURACY, IT IS UP T O HIM TO CLAIM REFUND OF THE EXCESS TAX PAID AT THE TIME OF THE ASSESSMENT PROCE EDINGS. HE CAN CERTAINLY MAKE SUCH A CLAIM ALSO BEFORE THE CONCERNED AUTHORITY FO R REFUND. SIMILARLY, IF HE HAS ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 19 BY MISTAKE OR INADVERTENCE OR ON ACCOUNT OF IGNORAN CE INCLUDED IN HIS INCOME ANY AMOUNT WHICH IS EXEMPT FROM PAYMENT OF INCOME TAX O R IS NOT INCOME WITHIN THE CONTEMPLATION OF LAW, HE CAN LIKEWISE BRING THIS TO THE NOTICE OF THE ASSESSING OFFICER WHO, IF SATISFIED, MAY GRANT HIM RELIEF AND REFUND THE TAX PAID IN EXCESS, IF ANY. SUCH MATTERS CAN BE BROUGHT TO THE NOTICE OF T HE CONCERNED AUTHORITY IN CASE WHEN REFUND IS DUE AND PAYABLE AND THE AUTHORITY CO NCERNED ON BEING SATISFIED SHALL GRANT APPROPRIATE RELIEF. IT WAS THEREFORE HI S SUBMISSION THAT IN VIEW OF THE FINDING OF THE HON'BLE SUPREME COURT IN THE CASE OF SHELLY PRODUCTS (SUPRA), GROUND OF APPEAL OF THE REVENUE SHOULD BE DISMISSED . 46. THE LD. DR SUBMITTED BEFORE US THAT THE ASSESSE E HAS DECLARED INCOME OF RS 28,00,000/- IN ITS RETURN OF INCOME. HOWEVER, IF EF FECT OF THE ORDER OF THE LD. CIT(A) IS GIVEN, THEN THE ASSESSED INCOME WILL BE L ESSER THAN THE RETURNED INCOME. ACCORDING TO THE LD. DR, THIS IS NOT PERMITTED IN V IEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SHELLY PRODUCTS AND OTHERS (SUPRA). 47, HOWEVER, LD. DR COULD NOT PRODUCE ANY COMPUTATI ON BEFORE US TO SHOW HOW THE ASSESSED INCOME ON THE BASIS OF THE ORDER OF TH E LD. CIT(A) WILL BE LESSER THAN THE RETURNED INCOME. 48. BE THAT AS IT MAY. 49. THE LD. AR OF THE ASSESSEE IN OPPOSITION RELIED UPON THE ORDER OF THE HON'BLE SUPREME COURT IN THE CASE OF SHELLY PRODUCTS (SUPRA ). 50. IN THE INSTANT CASE, WE FIND THAT ASSESSMENT WA S NOT QUASHED BY THE LD. CIT(A) AND FURTHER THE DECISION ON MERITS OF THE ISSUE OF LD. CIT(A) WHEREVER THE DEPARTMENT HAS ANY GRIEVANCE WAS AGITATED IN APPEAL AND THE SAME HAVE BEEN DECIDED ON MERITS. WE ARE OF THE CONSIDERED VIEW TH AT THE INCOME OF THE ASSESSEE IS TO BE COMPUTED AS PER PROVISIONS OF THE LAW AND SIMPLY BECAUSE AN ASSESSEE HAS SUFFERED MORE AMOUNT ON TAX THAN WHAT IS LEGALLY DU E, THEN THE DEPARTMENT CAN NOT ASSESS THE INCOME AT A HIGHER FIGURE BUT SHOULD ASSESS THE INCOME AT CORRECT AMOUNT AS PER THE PROVISIONS OF LAW. WE, THEREFORE, DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE AND HENCE, THE SAME IS DISMISSED. 45. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDIN GS OF THE LD. CIT(A). GROUND NO. 5 IS ACCORDINGLY DISMISSED. ITA NO. 3184/AHD/2004 FOR A.Y. 2001-02 REVENUES AP PEAL ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 20 46. THE FIRST GRIEVANCE OF THE REVENUE RELATES TO THE D ELETION OF THE DISALLOWANCE OF PREVIOUS YEAR EXPENSES OF RS. 4,62, 11,501/-. 47. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ITA NO. 3190/AHD/2003 QUA GROUND NO. 1 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, THIS GROUND OF THE REVENUE IS D ISMISSED. 48. GROUND NO. 2 RELATES TO THE DIRECTION TO ALLOW DEDU CTION U/S. 80HHC ON GENERAL DIVISION OF RS. 55,89,38,610/- AND MARINE DIVISION AT RS. 10,28,41,704/-. 49. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ITA NO. 3277/AHD/2003 (SUPRA) QUA GROUND NO. 4 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, THIS GROUND OF THE REV ENUE IS PARTLY ALLOWED. 50. GROUND NO. 3 RELATES TO THE DIRECTING THE A.O. NOT TO REDUCE DEDUCTION U/S. 80IA WHILE COMPUTING DEDUCTION U/S. 80HHC. 51. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE AS SESSEE HAS NEVER CLAIMED ANY DEDUCTION U/S. 80IA OF THE ACT; T HEREFORE, THIS ISSUE IS NOT COMING OUT OF THE ORDER OF THE ASSESSING OFF ICER. THEREFORE, NEEDS NO SEPARATE ADJUDICATION. 52. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED. ITA NO. 2837/AHD/2004 FOR A.Y. 2001-02 ASSESSEES A PPEAL ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 21 53. THE FIRST GRIEVANCE OF THE ASSESSEE RELATES TO THE DENIAL OF DEDUCTION U/S. 80HHC OF THE ACT. 54. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ITA NO. 3277/AHD/2003 QUA GROUND NO. 1, 2 & 3 OF THAT A PPEAL. FOR OUR DETAILED DISCUSSION THEREIN AND RESPECTIVELY FOLLOW ING OUR OWN FINDINGS, WE DIRECT THE A.O. TO ALLOW THE DEDUCTION U/S. 80HH C AS CLAIMED BY THE ASSESSEE. GROUND NO. 1 IS ACCORDINGLY ALLOWED. 55. GROUND NO. 2 RELATES TO UPHOLDING OF THE REDUCTION OF EXPORT TURNOVER. 56. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE EXPORT TURNOVER OF RS. 32,59,822/- HAS NOT BEEN REC EIVED IN MARINE DIVISION AND ACCORDINGLY REDUCED THE SAME FROM THE WORKING OUT OF DEDUCTION U/S. 80HHC OF THE ACT. THE A.O. FURTHER F OUND THAT EXPORT TURNOVER OF RS. 1,40,68,572/- HAS NOT BEEN RECEIVED IN GENERAL DIVISION AND ACCORDINGLY REDUCED THE SAME FROM THE WORKING OUT OF DEDUCTION U/S. 80HHC OF THE ACT. 57. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 58. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STRONGL Y CONTENDED THAT THE ISSUE MAY BE DECIDED IN THE LIGHT OF THE P ROVISIONS OF SECTION 155(13) OF THE ACT. 59. THE LD. D.R. FAIRLY CONCEDED TO THIS. ITA NOS.3190 & 3277/AHD/2003 & ITA NOS. 3184 & 2837/AHD/2004 . A.YS.2000-01 & 2001-02 22 60. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE FACT S IN ISSUE, WE RESTORE THIS ISSUE TO THE FILES OF THE A.O., THE A. O IS DIRECTED TO DECIDE AFRESH IN THE LIGHT OF THE PROVISIONS OF SECTION 15 5(13) OF THE ACT. GROUND NO. 2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 61. WITH GROUND NO. 3, THE ASSESSEE HAS TAKEN AN ALTERN ATIVE PLEA FOR THE CLAIM OF DEDUCTION U/S. 80HHC ON THE DISALL OWANCES MADE BY THE A.O. 62. SINCE, WE HAVE DIRECTED THE A.O. TO DELETE THE DISA LLOWANCES. THIS GRIEVANCE OF THE ASSESSEE BECOMES INFRUCTUOUS. 63. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 25 - 07 - 20 16. SD/- SD/- (S.K. YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD