Botil Oil Tools (India) Pvt. Ltd., V. DCIT Circle 2 (1),

ITA 3307/DEL/2006

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5591 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 08-03-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 17-10-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMARDR
• Keywords: Opportunity of being heard
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH : E NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.3307/DEL./2006 (ASSESSMENT YEAR : 2001-02) M/S BOTIL OIL TOOLS(INDIA) PVT. LTD., VS. DCIT, CI RCLE 2(1), (ERSTWHILE BAKER OIL TOOLS(INDIA) PVT., NEW DELHI . 4 TH FLOOR, MOHTA BUILDING, BHIKAJI CAMA PLACE, NEW DELHI. (PAN/GIR NO.AAECA3954A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANIL BHALLA, CA REVENUE BY : SHRI SANJAY KUMAR,DR ORDER PER A.K. GARODIA, AM THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE O RDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, NEW DELHI DATED 12.8.2004 F OR AY 2001-02. THE ONLY GROUND RAISED BY THE ASSESSEE READS AS UNDER: COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTI FIED IN CONFIRMING THE ORDER OF THE AO IN RESPECT OF DEDUCTION U/S 80HHC BY WAY OF NOT INCLUDING FOR THE PURPOSES OF DETERMINING PROFITS OF BUSINESS U/S 80H HC(3) EXCHANGE FLUCTUATION OF RS.12,37,003/- AND RECOVERY OF FREIGHT OF RS.40, 64,746/- AS THESE HAVE NEXUS WITH PROFITS OF BUSINESS. 2. BRIEF FACTS ARE THAT WHILE WORKING OUT THE DEDUC TION ALLOWABLE TO THE ASSESSEE U/S 80HHC THE AO HAS REDUCED 90% OF RECEIPTS OF THE ASS ESSEE ON ACCOUNT OF INTEREST - RS.10,000/-, SALE OF SCRAP MATERIAL RS.107097/-, FOREIGN EXCHANGE FLUCTUATION RS.1237003/-; AND FREIGHT RECOVERY RS.4064746/- TOTAL - RS.5418846/- FROM PROFIT OF BUSINESS. 90% AMOUNT OF THIS WAS W ORKED OUT AT RS.4876961/- AND BUSINESS PROFIT WAS WORKED OUT AT RS.27629699/-. ACCORDINGLY, DEDUCTION ALLOWABLE TO ITA NO.3307/DEL./2006 (AY : 2001-02) 2 THE ASSESSEE U/S 80HHC WAS WORKED OUT AT RS.143.28 LAKHS. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A) . BEFORE CIT(A), THE ASSESSEE RAISED GRIEVANCE ON ACCOUNT OF EXCLUSION OF 90% OF SALE OF SCRAP MATERIAL, FOREIGN EXCHANGE FLUCTUATION AND FREIGHT RECOVERY. ON ACCOUNT OF SA LE OF SCRAP, MATTER WAS DECIDED BY THE CIT(A) IN FAVOUR OF THE ASSESSEE, BUT ON REMAINING TWO ACCOUNTS I.E. OF FOREIGN EXCHANGE FLUCTUATION AND FREIGHT RECOVERY, THE MATTER WAS DE CIDED BY THE CIT(A) AGAINST THE ASSESSEE AND NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. IT WAS SUBMITTED BY THE LD.AR OF THE ASSESSEE TH AT ON FOREIGN EXCHANGE FLUCTUATION, THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL DECISION RENDERED IN THE CASE OF PRINYANKA GEMS VS. CIT, REP ORTED IN 94 TTJ (AHM.) 557. AT THIS JUNCTURE, IT WAS POINTED OUT BY THE BENCH THAT THE FOREIGN EXCHANGE FLUCTUATION HAS TO BE CONSIDERED AS PART OF BUSINESS PROFIT, BUT THE SAME HAS TO RELATE BACK TO THE YEAR OF EXPORT AND IN THAT YEAR, THE SAME SHOULD NOT ONLY BE ADDED WITH PROFIT OF BUSINESS, BUT THE SAME SHOULD ALSO BE ADDED TO EXPORT TURNOVER AND TOTAL T URNOVER AND THEREAFTER, DEDUCTION ALLOWABLE U/S 80HHC SHOULD BE WORKED OUT. IN REPLY , THE LD.AR OF THE ASSESSEE ALSO AGREED ON THIS PROPOSITION. REGARDING EXCLUSION FR OM PROFIT OF BUSINESS ON ACCOUNT OF FREIGHT RECOVERY, IT WAS SUBMITTED BY THE LD.AR OF THE ASSESSEE THAT THERE IS NEXUS TO THE EXPENDITURE INCURRED ON FREIGHT OUTWARD AND IN FACT , THE CUSTOMER HAS REIMBURSED THE FREIGHT INCURRED BY THE COMPANY ON THEIR BEHALF. I T IS ALSO SUBMITTED THAT FREIGHT IS RECOVERED AS PART OF INVOICE VALUE, BUT ACCOUNTED F OR AFTER EXCLUDING FREIGHT EXPENDITURE. IT WAS SUBMITTED THAT THE SAME CANNOT BE EXCLUDED F ROM BUSINESS PROFIT UNDER EXPLANATION (BAA) TO SECTION 80HHC OF THE I.T. ACT. AT THIS JUNCTURE, IT WAS ENQUIRED BY THE BENCH AS TO WHETHER THIS FREIGHT RECOVERY WAS A TTRIBUTABLE TO THE TRANSPORT OF GOODS ON MERCHANDISE BEYOND THE CUSTOMS STATION OF INDIA, IT WAS SUBMITTED BY THE LD.AR OF THE ASSESSEE THAT THIS DETAILS IS NOT READILY AVAILABLE AND HENCE THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE AO FOR FRESH DECISION AFTER EXAMINING THIS ASPECT OF THE MATTER. LD.DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AU THORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. WE FIND THAT REGARDING FOREIGN EXCHANGE FLUCTUATION RECEIPT, IT IS NOW A SETTLED POSITION THAT NO PART OF THE SAME CAN BE EXCLUDED FROM PROFI T OF BUSINESS IN THE YEAR OF EXPORT AND ITA NO.3307/DEL./2006 (AY : 2001-02) 3 DEDUCTION U/S 80HHC HAS TO BE COMPUTED AFTER INCLUD ING SUCH FOREIGN EXCHANGE FLUCTUATION RECEIPT IN EXPORT TURNOVER AS WELL AS T OTAL TURNOVER IF SUCH FOREIGN EXCHANGE FLUCTUATION WAS REALIZED DURING THE YEAR OF EXPORT ITSELF. IF THE FOREIGN EXCHANGE FLUCTUATION HAS BEEN REALIZED AFTER THE END OF THE YEAR OF THE EXPORT THEN THE SAME HAS TO BE EXCLUDED FORM THE PROFIT OF BUSINESS OF THAT SUB SEQUENT YEAR AND THE SAME SHOULD ALSO BE EXCLUDED FROM TAXABLE INCOME OF THAT YEAR. THE SAME HAS TO BE RELATED BACK TO THE YEAR OF EXPORT AND IN THAT YEAR, IT SHOULD BE ADDED TO PROFIT OF BUSINESS AS WELL AS TO TAXABLE INCOME. DEDUCTION U/S 80HHC OF THAT YEAR S HOULD BE RECOMPUTED ON THE BASIS OF SUCH INCREASED PROFIT OF BUSINESS AFTER INCLUDING S UCH FOREIGN EXCHANGE FLUCTUATION RECEIPT IN EXPORT TURNOVER AS WELL AS TOTAL TURNOVER IF THE EXPORT TURNOVER OF THAT YEAR WAS NOT CONSIDERED ON ACTUAL RECEIPT BASIS. SUCH RE-CALCUL ATED AMOUNT OF DEDUCTION U/S 80HHC SHOULD BE REDUCED FROM THAT INCREASED TAXABLE INCOM E IN THE YEAR OF EXPORT. ACCORDINGLY, IN THE PRESENT CASE ALSO, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THIS MATTER BACK TO THE FILE OF THE AO FOR DOING THE NEE DFUL AS DISCUSSED ABOVE. IF THE FOREIGN EXCHANGE FLUCTUATION WAS RECEIVED ON ACCOUNT OF EXP ORT MADE IN EARLIER YEARS THEN THE SAME SHOULD BE CONSIDERED IN THE YEAR OF EXPORT AS DISCUSSED ABOVE AND IN THE PRESENT YEAR, THE RECEIPT TO THAT EXTENT SHOULD BE EXCLUDED FROM GROSS TOTAL INCOME AND ALSO FROM PROFIT OF BUSINESS AND THE SAME WILL BE ADDED BACK IN THE YEAR OF EXPORT. 5. REGARDING RECEIPT ON ACCOUNT OF FREIGHT CHARGES ALSO, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF T HE AO FOR FRESH DECISION BECAUSE IT IS NOT CLEAR AS TO WHETHER SUCH FREIGHT RECOVERY IS AT TRIBUTABLE TO THE TRANSPORT OF GOODS OR MERCHANDISE BEYOND THE CUSTOMS STATION OF INDIA. T HIS IS VERY MUCH RELEVANT IN VIEW OF THE DEFINITION OF TERMS EXPORT TURNOVER AND TOTA L TURNOVER AS PER CLAUSE (B) & (BA) OF EXPLANATION TO SECTION 80HHC(4C). IF THE FREIGHT R ECOVERY WAS MADE ON ACCOUNT OF FREIGHT ATTRIBUTABLE TO THE TRANSPORT OF THE GOODS BEYOND THE CUSTOMS STATION OF INDIA, THE SAME IS NOT REQUIRED TO BE ADDED TO EXPORT TURNOVER AND TOTAL TURNOVER, BUT IF SUCH RECOVERY IS FOR FREIGHT FOR THE TRANSPORT OF THE GO ODS WITHIN THE CUSTOMS STATION OF INDIA, THEN GROSS AMOUNT OF SUCH FREIGHT RECOVERY HAS TO B E ADDED TO EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHEREAS THE ASSESSEE HAS ACCOUNTED F OR NET AMOUNT OF FREIGHT AFTER REDUCING THE FREIGHT EXPENSES OF FREIGHT OUTWARD INCURRED BY THE ASSESSEE. FOR THE PURPOSE OF ITA NO.3307/DEL./2006 (AY : 2001-02) 4 COMPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 8 0HHC, NO AMOUNT OF FREIGHT RECOVERY IS REQUIRED TO BE EXCLUDED FROM PROFIT OF BUSINESS, BUT ADJUSTMENTS HAD TO BE MADE IN THE AMOUNT OF EXPORT TURNOVER AND TOTAL TURNOVER AS PER CLAUSE (B) & (BA) OF EXPLANATION TO SECTION 80HHC AND THEREAFTER DEDUCTION U/S 80HHC HAS TO BE COMPUTED. ON BOTH THE ISSUES, THE AO SHOULD PASS FRESH ORDER AS PER LAW A FTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSE. 7. ORDER PRONOUNCED IN OPEN COURT ON 10.03.2010 AFT ER THE CONCLUSION OF THE HEARING OF THE APPEAL. (R.P. TOLANI) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: MARCH 10, 2010. *SKB* COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A)-V, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT ITA NO.3307/DEL./2006 (AY : 2001-02) 5