GOLD STAR JEWELLERY LTD, MUMBAI V. DY CIT 8(1), MUMBAI

ITA 3356/MUM/2008

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8731 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 22-10-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 13-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Assessment record
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G , MUMBAI BEFORE SHRI I. P. BANSAL, JUDICIAL MEMBER AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO. : 3356/MUM/2008 ASSESSMENT YEAR : 2002-03 M/S. GOLD STAR JEWELLERY LIMITED G-9, GEMS & JEWELLERY COMPLEX, SEEPZ, ANDHERI (E), MUMBAI- 400 096 PAN NO: AAACG 3264 B VS. DCIT 8(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M. SUBRAMANIAN RESPONDENT BY : SHRI AMAR DEEP DATE OF HEARING : 22.10.2012 DATE OF PRONOUNCEMENT : 25.10.2012 ORDER PER RAJENDRA SINGH, A.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 28.03.2008 OF CIT(A)-VIII, MUMBAI FOR THE A.Y. 2002 -03. THE DISPUTE RAISED IN THIS APPEAL RELATES TO THE COMPUTATION OF DEDUCTION U/S.80HHC. THE GROUNDS ARE REPRODUCED AS UNDER:- 1. THE LEARNED CIT(A) HAS ERRED IN RECOMPUTING THE DEDUCTION ALLOWED U/S.80HHC TAKING INTO ACCOUNT THE COMBINED PROFITS, EXPORT TURNOVER AND TOTAL TURNOVE R OF THE 100% EXPORT UNIT, GOLD STAR JEWELLERY LTD. 1 AND THE DOMESTIC TRADING UNIT GOLD STAR JEWELLERY LTD. ITA NO : 3356/MUM/2008 M/S. GOLD STAR JEWELLERY LIMITED 2 2. THE LEARNED CIT(A) HAS ERRED IN CALCULATING TOTA L TURNOVER OF THE BUSINESS BY CONSIDERING INTER UNIT SALES OF `. 5,12,31,003/- AFFECTED BY GOLD STAR JEWELLERY LIMIT ED TRADING UNIT TO OTHER UNITS AS A PART OF TOTAL TURN OVER FOR CALCULATING DEDUCTION CLAIM U/S.80HHC OF THE I.T. A CT, 1961. 3. THE LEARNED CIT(A) HAS ERRED IN ALLOWING CLAIM U/S.80HHC AT `. 7,93,66,300 IN PLACE OF `. 8,50,12,958 AS CLAIMED BY ASSESSEE AND ADMITTED IN ORIGINAL ASSESS MENT. 4. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING CHARG ING OF INTEREST U/S.234B AT `. 22,06,315/- U/S.234C AT `. 8,42,612 U/S.234D AT `. 11,023 AND U/S.220(2) AT `. 55,641/-. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WHO WAS IN JEWELLERY BUSINESS HAD FOUR DIFFERENT UNITS NAMED AS UNDER:- I) GOLD STAR JEWELLERY LTD. I II) GOLD STAR JEWELLERY LTD. - SDF III) GOLD STAR JEWELLERY LTD. SRD IV) GOLD STAR JEWELLERY LTD. - TRADING 2.1 IN RESPECT OF GOLD STAR JEWELLERY LTD. SDF AN D GOLD STAR JEWELLERY LTD. SRD, THE ASSESSEE HAD CLAIMED DEDU CTION U/S.10A OF THE I.T. ACT. IN GOLD STAR JEWELLERY LTD.-I, THE ASSE SSEE WAS DOING ONLY EXPORT BUSINESS AND HAD CLAIMED DEDUCTION U/S.80HHC . THE FOURTH UNIT I.E. GOLD STAR JEWELLERY LTD. TRADING WAS A DOMES TIC UNIT. WHILE COMPUTING THE DEDUCTION U/S.80HHC IN RESPECT OF GOL D STAR JEWELLERY LTD. -I, THE ASSESSEE HAD TAKEN INTO ACCOUNT ONLY T HE PROFIT AND TOTAL TURNOVER OF THAT UNIT WHICH HAD BEEN ALLOWED BY THE A.O. IN THE ORIGINAL ASSESSMENT. SUBSEQUENTLY, THE CIT ON EXAMINATION O F THE ASSESSMENT RECORDS OBSERVED THAT THE ASSESSEE HAD NOT CORRECTL Y COMPUTED THE ITA NO : 3356/MUM/2008 M/S. GOLD STAR JEWELLERY LIMITED 3 DEDUCTION U/S.80HHC AND THE A.O. HAD ACCEPTED THE C OMPUTATION MADE BY THE ASSESSEE WITHOUT PROPER ENQUIRY. HE, THEREF ORE, DIRECTED THE A.O. TO COMPUTE THE DEDUCTION U/S.80HHC BY TAKING INTO C ONSIDERATION THE PROFIT OF BUSINESS, THE EXPORT TURNOVER AND TOTAL T URNOVER OF BOTH, THE GOLD STAR JEWELLERY LTD. I AND GOLD STAR JEWELLER Y LTD. TRADING UNIT. THE A.O., THEREFORE, IN THE FRESH ASSESSMENT ORDER DATED 25.10.2007 U/S.143(3)/263 COMPUTED THE DEDUCTION ACCORDINGLY. 3. THE ASSESSEE DISPUTED THE DECISION OF THE A.O. A ND SUBMITTED BEFORE THE CIT(A) THAT DEDUCTION U/S.80HHC WAS AVAI LABLE IN RESPECT OF PROFIT DERIVED FROM EXPORT ACTIVITY AND, THEREFORE, ONLY THE EXPORT TURNOVER AND TOTAL TURNOVER OF EXPORT UNIT HAD TO BE TAKEN I NTO ACCOUNT AND NOT THE TURNOVER OF THE LOCAL TRADING UNIT. THE ASSES SEE RELIED UPON THE SEVERAL JUDGMENTS OF THE HON'BLE HIGH COURT OF MADR AS. THE CIT(A) HOWEVER, DID NOT ACCEPT THE CONTENTIONS RAISED AND FOLLOWING THE JUDGMENT OF HON'BLE HIGH COURT OF KERALA IN THE CAS E OF CIT VS. PARRY AGRO INDUSTRIES LTD. (257 ITR 41) IN WHICH IT WAS HELD THAT EVEN IF SEPARATE ACCOUNTS WERE MAINTAINED, THE TOTAL TURNOV ER OF THE ENTIRE BUSINESS INCLUDING THE LOCAL BUSINESS HAD TO BE TAK EN INTO ACCOUNT, CONFIRMED THE DISALLOWANCE MADE BY THE A.O. AGGRIEV ED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US, THE LEARNED AR FOR THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES THAT THE ASSESSEE WAS ITA NO : 3356/MUM/2008 M/S. GOLD STAR JEWELLERY LIMITED 4 HAVING FOUR SEPARATE UNITS, INDEPENDENT OF EACH OTH ER AND IN RESPECT OF EACH, SEPARATE BOOKS OF ACCOUNT HAD BEEN MAINTAINED AND EACH UNIT WAS LOCATED IN A SEPARATE PLACE. THERE WAS NO CENTRALI SED DATA AT ONE PLACE. THE ASSESSEE HAD EXPORT BUSINESS ONLY IN GOLD STAR JEWELLERY LTD. I, WHEREAS THE GOLD STAR JEWELLERY LTD. TRADING WAS FOR THE LOCAL BUSINESS WHICH WAS INDEPENDENT AND, THEREFORE, FOR DEDUCTION U/S.80HHC ONLY THE PROFIT, THE EXPORT TURNOVER AND TOTAL TURNOVER OF THE EXPORT UNIT HAD TO BE TAKEN INTO ACCOUNT. HE PLACED RELIANCE ON TH E DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. BALAJI FI LAMENTS LTD. VS. DCIT IN ITA NO. 5502/M/2008 IN WHICH THE TRIBUNAL IN THE ORDER DATED 25.04.2012 HELD THAT ONLY THE PROFIT AND TURNOVER O F THE EXPORT DIVISION HAD TO BE TAKEN INTO ACCOUNT. HE ALSO PLACED RELIA NCE ON THE JUDGMENT OF HON'BLE HIGH COURT OF MADRAS IN THE CASE OF CHAMUND I TEXTILE (SILK MILLS) LTD. (341 ITR 488) IN SUPPORT OF THE CASE. THE LEA RNED DR, ON THE OTHER HAND, REFERRED TO THE DECISION OF THE TRIBUNAL IN R ELATION TO THE ORDER U/S.263 IN ITA NO.892/M/2007 IN WHICH THE TRIBUNAL OBSERVED THAT WHETHER THE TWO BUSINESS WERE THE SAME BUSINESS WIL L NOT DEPEND UPON THE FACT WHETHER SEPARATE BOOKS OF ACCOUNTS WERE MA INTAINED, BUT WHETHER THERE WAS INTERCONNECTION, INTERRELATION AN D INTERDEPENDENCY OF THE TWO BUSINESS UNITS. HE ALSO REFERRED TO THE JU DGMENT OF HON'BLE SUPREME COURT IN THE CASE OF MYSODET P. LTD. VS. CI T (2008) 305 ITR 276, IN WHICH IT WAS HELD THAT THE QUANTUM OF DEDUCTION HAD TO BE ON THE ITA NO : 3356/MUM/2008 M/S. GOLD STAR JEWELLERY LIMITED 5 BASIS OF THE PROPORTION OF THE BUSINESS PROFIT IN R ESPECTIVE OF WHAT COULD BE DESCRIBED AS PROFIT FROM THE EXPORT OR MERCANTIL E IN INDIA. IN REPLY, THE LEARNED AR FOR THE ASSESSEE POINTED OUT THAT TH E SAID JUDGMENT OF THE HON'BLE SUPREME COURT WAS NOT APPLICABLE AS THE SAM E RELATE TO THE A.Y. 1990-91 AND WAS ALSO DISTINGUISHABLE ON THE FACTS. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE DISPUTE IS REGARDING THE METHOD OF COMPUTATION OF DEDUCTION U/S.80HHC. THE ASSESSEE HAD CLAMED DEDUCTION U/S.8 0HHC IN RESPECT OF GOLD STAR JEWELLERY LTD I USING THE EXPORT TUR NOVER AND TOTAL TURNOVER OF THAT UNIT AS IN THAT UNIT ONLY EXPORT B USINESS WAS BEING DONE. THE ASSESSEE HAD ALSO A UNIT NAMELY GOLD STA R JEWELLERY LTD. TRADING, IN WHICH LOCAL BUSINESS WAS BEING DONE. T HE ISSUE IS WHETHER IN COMPUTATION OF DEDUCTION U/S.80HHC WHICH HAS TO BE COMPUTED AS THE PROFIT OF THE BUSINESS IN THE RATIO OF EXPORT TURNO VER TO TOTAL TURNOVER, THE TOTAL TURNOVER OF ONLY THE EXPORT UNIT SHOULD BE TA KEN INTO ACCOUNT OR THE TOTAL TURNOVER OF BOTH THE UNITS. THE AUTHORITIES B ELOW HAVE HELD THAT THE TOTAL TURNOVER OF BOTH THE EXPORT UNIT AND LOCAL UN IT HAS TO BE TAKEN INTO ACCOUNT. THE CASE OF THE ASSESSEE IS THAT THE TWO UNITS ARE INDEPENDENT UNITS, LOCATED AT DIFFERENT PLACES FOR WHICH SEPARA TE ACCOUNTS HAVE BEEN MAINTAINED AND, THEREFORE, THE DEDUCTION U/S.80HHC HAD TO BE COMPUTED SEPARATELY IN RESPECT OF THE EXPORT ORIENT ED UNIT. ITA NO : 3356/MUM/2008 M/S. GOLD STAR JEWELLERY LIMITED 6 5.1 THE CASE OF THE DEPARTMENT IS SUPPORTED BY THE JUDGMENT OF THE HON'BLE HIGH COURT OF KERALA IN THE CASE OF CIT VS. PARRY AGRO INDUSTRIES LTD. (SUPRA) IN WHICH IT HAS BEEN HELD THAT EVEN IF SEPARATE ACCOUNTS WERE MAINTAINED FOR TWO UNITS, THE TOTAL TURNOVER OF BOT H THE BUSINESS HAVE TO BE TAKEN INTO ACCOUNT. THE HON'BLE HIGH COURT OF MADRAS HAS HOWEVER, TAKEN A DIFFERENT VIEW. IN THE CASE OF CHAMUNDI TE XTILE (SILK MILLS) LTD. (SUPRA), THE HON'BLE HIGH COURT OF MADRAS REFERRED TO THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF L.M. CHHAB DA & SONS [1967] 65 ITR 638 (SC) IN WHICH IT WAS HELD THAT THERE WAS NO SUCH GENERAL PRINCIPLE THAT WHERE AN ASSESSEE CARRIES ON BUSINES S VENTURES OF THE SAME CHARACTER AT DIFFERENT PLACES IT MUST BE HELD AS A MATTER OF LAW THAT THE VENTURES ARE PARTS OF A SINGLE BUSINESS. THE H ON'BLE HIGH COURT ALSO REFERRED TO THE JUDGMENT OF THE HON'BLE SUPREME COU RT IN THE CASE OF WATERFALL ESTATES LIMITED. VS CIT(SC) (219 ITR 563) IN WHICH IT WAS HELD THAT WHEN THE ASSESSEE CARRIED ON VARIOUS ACTIVITIE S, EVEN THOUGH THERE MAY BE CENTRALIZED ACCOUNTS MAINTAINED, SO LONG AS THERE IS NO INTER- LACING, INTER-CONNECTION AND INTER-DEPENDENCE OF TH E VARIOUS UNITS, THE VARIOUS ACTIVITIES CARRIED ON BY THE ASSESSEE HAD T O BE TREATED AS SEPARATE AND DISTINCT ACTIVITIES. THE HON'BLE HIGH COURT, THEREFORE, HELD THAT IN CASE SEPARATE ACCOUNTS HAVE BEEN MAINTAINED INDEPEN DENTLY AND THERE IS NO INTER-LACING, INTER-CONNECTION AND INTER-DEPENDE NCE OF THE FUNDS, THE ITA NO : 3356/MUM/2008 M/S. GOLD STAR JEWELLERY LIMITED 7 DEDUCTION U/S.80HHC HAD TO BE COMPUTED INDEPENDENTL Y IN RESPECT OF THAT UNIT. 5.2 THE LEARNED DR HAS REFERRED TO THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MYSODET P. LTD. (SUPR A). THE SAID CASE IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THAT CASE, THE HON'BLE HIGH COURT FOLLOWING THE JUD GMENT OF HON'BLE SUPREME COURT IN THE CASE OF IPCA LABORATORIES LTD . VS. DCIT (2001) 266 ITR 521 (BOM) HELD THAT SINCE THERE WAS NO PROF IT FROM THE EXPORTS MADE, NO DEDUCTION U/S.80HHC SHOULD BE ALLOWED. TH E HON'BLE SUPREME COURT, HOWEVER, HELD THAT THE CASE RELATED TO THE A.Y. 1990-91 AND THERE BEING COMPOSITE BUSINESS, THE DEDUCTION H AS TO BE ALLOWED IN THE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER OF T HE BUSINESS. THE HON'BLE SUPREME COURT ALSO OBSERVED THAT THE JUDGME NT IN THE CASE OF IPCA LABORATORIES LTD. (SUPRA) WHICH RELATED TO THE A.Y. 1996-97 WAS NOT APPLICABLE AS THERE WERE SEVERAL CHANGES IN SECTION 80HHC AFTER A.Y. 1990-91. THUS, IN CASE OF MYSODET P. LTD. (SUPRA) THE CASE WAS DECIDED ON THE BASIS THAT THERE WAS COMPOSITE BUSINESS. TH E ISSUES AS TO WHETHER WHEN SEPARATE ACCOUNTS WERE MAINTAINED IN R ESPECT OF PARTICULAR UNIT, DEDUCTION SHOULD BE BASED ON THE T URNOVER OF THAT UNIT ONLY OR IT SHOULD INCLUDE THE TURNOVER OF OTHER BUS INESS UNITS WAS NOT BEFORE THE HON'BLE SUPREME COURT. THEREFORE, IN OU R VIEW, THE SAID JUDGMENT WILL NOT BE APPLICABLE ON THE FACTS OF THE PRESENT CASE. THE ITA NO : 3356/MUM/2008 M/S. GOLD STAR JEWELLERY LIMITED 8 ISSUE IN OUR VIEW REQUIRES FRESH EXAMINATION IN THE LIGHT OF THE JUDGMENT OF HON'BLE HIGH COURT OF MADRAS IN THE CASE OF CHAM UNDI TEXTILE (SILK MILLS) LTD. (SUPRA) WHICH IS BASED ON THE JUDGMENT OF THE APEX COURT. IN FACT THE CIT IN THE ORDER U/S.263 ALSO PROCEEDED ON THE BASIS THAT THERE WAS INTER-LACING, INTER-CONNECTION AND INTER-DEPEND ENCE OF THE UNITS BUT THERE IS NOT FACTUAL FINDINGS OF THE AUTHORITIES BE LOW ON THIS ASPECT. THE ISSUE, THEREFORE, IN OUR VIEW, REQUIRES FRESH EXAMI NATION AT THE LEVEL OF THE CIT(A). WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER BACK TO HIM FOR PASSING A FRESH ORDER AF TER NECESSARY EXAMINATION IN THE LIGHT OF THE OBSERVATIONS MADE A BOVE IN ACCORDANCE WITH LAW AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. SINCE THE MAIN ISSUE IS BEING RESTORED TO CIT(A), THE OTH ER ISSUES SUCH AS TREATMENT OF INTER-UNIT SALES AND LEVY OF INTEREST ARE ALSO RESTORED TO CIT(A) FOR FRESH DECISION IN ACCORDANCE WITH LAW AF TER HEARING THE ASSESSEE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 25 TH DAY OF OCTOBER, 2012. SD/- SD/- ( I. P. BANSAL ) ( RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 25.10.2012 ITA NO : 3356/MUM/2008 M/S. GOLD STAR JEWELLERY LIMITED 9 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI