The DCIT, Circle-5, Ahmedabad V. Pino Bisazza Glass Pvt.Ltd.,

ITA 3552/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5854 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 24-08-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Keywords: Set aside
• Section: 43B; 80HHC; 143(1); 143(2); 6; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' [BEFORE S/SHRI BHAVNESH SAINI,JM & A N PAHUJA,AM] ITA NO.3552/AHD/2007 (ASSESSMENT YEAR:-2004-05) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-5, AHMEDABAD V/S PINO BISAZZA GLASS PVT. LTD., 23, B.C.D., GIDC ESTATE, KADI, DIST. MEHSANA [PAN: AABCP 8041 Q] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI K M MAHESH, DR ASSESSEE BY:- SHRI SANJAY R SHAH, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 25-06-2007 OF THE LD. CIT(APPEALS)-XI, AHMEDABAD, R AISES THE FOLLOWING GROUNDS: 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABA D HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.11,413/- ON ACCOUNT OF DISALLOWANCE OF LATE PAYMENT OF ESIC CON TRIBUTION UNDER SECTION 36(L)(VA) READ WITH SECTION 2(24)(X) OF THE INCOME TAX ACT, 1961. 2. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT IF NO PROFITS A RE MADE, NO EXCLUSION CAN BE MADE OUT OF BUSINESS PROFITS TOWAR DS DEPB PROFITS FOR COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE INCOME TAX ACT, 1961 IGNORING THE PROVISIONS OF EXPLANATIO N (BAA) TO THE SAID SECTION. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER TO THE AB OVE EXTENT 4 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMEDABAD MAY BE SET ASIDE AND T HAT OF THE ASSESSING OFFICER BE RESTORED. 2 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.2,48,47,399 FILED ON 29-10-2004 BY THE ASSESSEE, ITA NO.3552/AHD/2007 FOR AY 2004-05 PINO B ISAZZA GLASS P. LTD. 2 MANUFACTURING GLASS-MOSAIC, AFTER BEING PROCESSED U /S 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS TH E ACT],WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) ON 11-07- 2005. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE DEP OSITED EMPLOYEES CONTRIBUTION TOWARDS ESI ON 20-12-2003 ON THE BASI S OF INSPECTION CARRIED OUT BY THE ESIC AUTHORITIES FOR THE PERIOD APRIL, 2001 TO MARCH, 2003. THOUGH THE ASSESSEE CONTENDED THAT THE PROVISIONS OF SECTION 36(1)(VA) AND SECTION 43B OF THE ACT DID NO T APPLY TO THIS PAYMENT, THE AO DISALLOWED THE CLAIM U/S 36(1)(VA ) READ WITH SECTION 2(24)(X) OF THE ACT, IN THE ABSENCE OF SP ECIFIC DETAILS. 3. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWAN CE, HOLDING AS UNDER: 2.2. I HAVE PERUSED THE SUBMISSIONS OF THE A. R. O F THE APPELLANT CAREFULLY, I HAVE ALSO PERUSED THE DETAILS PRODUCED BOLERO ME BY THE A. R .OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSES SING OFFICER IN THE ASSESSMENT ORDER. 2.2.1. IT IS SEEN THAT THE DEMAND, IN QUESTION, IS ARISEN IN VIEW OF THE ASSESSMENT ORDER PASSED BY THE ESIC AUTHORITIES AND THE SAME IS PAID ON 20-12-2003 I.E., DURING THE PREVIOUS YEAR UNDER CON SIDERATION. IT IS TO BE MENTIONED THAT THE SAID PAYMENT IS A STATUTORY LIAB ILITY AND HENCE ALLOWABLE AS DEDUCTION. FURTHER, THE TAX AUDITORS VIDE NO TE-4 TO THE AUDIT REPORT HAS MENTIONED AS UNDER:- 'AS A RESULT OF THE INSPECTION OF THE RECORDS OF TH E COMPANY FOR THE PERIOD APRIL 2001 TO MARCH, 2003, CARRIED OUT BY IN SPECTOR OF ESIC, THE COMPANY WAS REQUIRED VIDE THE INSPECTOR'S OBSER VATION SLIP NO. 993 TO DEPOSIT AN AMOUNT OF RS.11,413/- WITH THE ES IC AUTHORITIES, WHICH AMOUNT HAS BEEN PAID BY THE COMPANY ON 20-12- 2003. THE SAME IS NOT INCLUDED IN THE ABOVE STATEMENT. IT IS CONTENDED THAT THE PROVISIONS OF SECTION 36(1)(VA) AND SECTION 43B DO NOT APPLY TO THIS PAYMENT.' 2.2.2. THEREFORE, HAVING CONSIDERED THE FACTS AND C IRCUMSTANCES OF THE CASE, I AM OF THE OPINION THAT THE AO IS NOT JUSTIF IED IN MAKING DISALLOWANCE ON ACCOUNT OF ABOVE PAYMENT. THE ADDITION MADE BY T HE A0 AT RS.11,413/- IS THEREFORE DELETED. ITA NO.3552/AHD/2007 FOR AY 2004-05 PINO B ISAZZA GLASS P. LTD. 3 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED DR SUPPORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF T HE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE LD. CIT(A) AND CONTENDED THAT THE SAID AMOUNT RELATED TO ADDITIONAL DEMAND RAISED BY ESIC IN CONSEQUENCE OF INSPECTION AND THEREFORE, COULD NOT BE DISALLOWED U/S 36(1)(VA) READ WITH SEC. 43B OF THE ACT. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. WE FIND THAT THE AO DISALLOWED THE CLAIM FOR DEDUCTION OF ADDITIONAL DEMAND RAISED BY THE ESIC AUTHORITIES, P RESUMING THE AMOUNT TOWARDS EMPLOYEES CONTRIBUTION. THERE IS NO THING ON RECORD TO SUGGEST THAT THE AMOUNT WAS PAID TOWARDS EMPLOYE ES CONTRIBUTION. SINCE THE AMOUNT HAD BEEN PAID IN CON SEQUENCE OF ORDER OF THE ESIC AUTHORITIES DURING THE YEAR UNDER CONSIDERATION AND THE REVENUE HAVE NOT PLACED BEFORE US ANY MATER IAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, W E ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). T HEREFORE, GROUND NO.1 IN THE APPEAL IS DISMISSED. 6. GROUND NO.2 RELATES TO DEDUCTION U/S 80HHC IN R ESPECT OF DEPB AMOUNT. THE AO NOTICED DURING THE COURSE OF ASSESS MENT PROCEEDINGS THAT THE ASSESSEE, INTER ALIA, DID NOT EXCLUDE 90% OF THE DEPB AMOUNT OF RS,24,07,182/- WHILE COMPUTING PROFI TS OF THE BUSINESS IN TERMS OF EXPLANATION (BAA) FOR THE PURP OSE OF DEDUCTION U/S 80HHC OF THE ACT. TO A QUERY BY THE AO, THE ASS ESSEE EXPLAINED THAT SINCE THERE WAS NO PROFIT ON SALE OF DEPB OR D FRC AS COMPARED TO ITS FACE VALUE, THEREFORE, NO SUCH AMOU NT WAS DEDUCTED FROM PROFITS OF BUSINESS. HOWEVER, THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT (I) THE EXPORT TURNOVER WAS MORE THAN ITA NO.3552/AHD/2007 FOR AY 2004-05 PINO B ISAZZA GLASS P. LTD. 4 RS.10 CRORE (II) THE ENTIRE SALE VALUE WAS THE PROF IT, AS THERE WAS NO COST OF THE DEPB ENTITLEMENT (III) NEWLY AMENDED DEFINITION OF BUSINESS PROFIT, AS PER EXPLANATION (BAA) OF SECTION 80HHC(1) STIPULATED TH AT THE AMOUNT OF DEPB IS REQUIRED TO BE REDUCED FROM THE BUSINESS PROFITS WH ILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT AND IV) THE ASSESSEE FAIL ED TO SATISFY THAT THE TWO CONDITIONS ENUMERATED IN THE AMENDED PROVISIONS HA VE BEEN FULFILLED BY IT. 7. ON APPEAL, THE LD. CIT(A) ACCEPTED THE SUBMISSI ONS OF THE ASSESSEE AND DIRECTED THE AO TO VERIFY WHETHER THE ASSESSEE HAD MADE ANY PROFIT ON TRANSFER OF DEPB AND IF NO PROFIT WAS MADE, NO EXCLUSION CAN BE MADE OUT OF BUSINESS PROFITS TOWARDS DEPB WHILE COM PUTING DEDUCTION U/S 80HHC OF THE ACT. 8 . THE REVENUE IS NOW IN APPEAL BEFORE US AGAIN ST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED DR SUPPORTED THE ORDER OF THE A O. ON THE OTHER HAND, THE LEARNED AR ON BEHALF OF THE ASSESSEE WHILE SUPPORTI NG THE DIRECTIONS OF THE LD. CIT(A) RELIED UPON THE DECISION DATED 11.8.2009 IN THE CA SE OF M/S TOPMAN EXPORTS,318 ITR(AT) 87(MUMBAI) (SB). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THRO UGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED ON . THE RE LEVANT PROVISIONS OF SEC. 28(IIID) APPLICABLE W.E.F 1.4.1998 READ AS UND ER : (IIID) ANY PROFIT ON THE TRANSFER OF THE DUTY ENTI TLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME UNDER THE E XPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED UNDER SE CTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992 (22 OF 1992) 9.1 THE THIRD PROVISO TO SEC.80HHC(3) OF THE ACT AS INTRODUCED BY THE TAXATION LAWS (SECOND AMENDMENT) ACT, 2005, W.E .F 1.4.1998 READS AS UNDER: PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVI NG EXPORT TURNOVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEAR, THE PRO FITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB-SECTION OR AFTER GIVING EFFECT TO THE FIRST ITA NO.3552/AHD/2007 FOR AY 2004-05 PINO B ISAZZA GLASS P. LTD. 5 PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCRE ASED BY THE AMOUNT WHICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIID) OF SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE, IF THE ASSESSEE HAS NEC ESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT, - (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAW BACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING DUTY REMISSION SCHEME; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY ENTITLE MENT PASS BOOK SCHEME, BEING DUTY REMISSION SCHEME : 9.2 AS IS APPARENT FROM THE AFORESAID PROVISIONS , ONLY NINETY PERCENT OF PROFIT ON TRANSFER OF DEPB LICENSE FALLI NG WITHIN THE PROVISIONS OF SEC. 28(IIID) HAS TO BE INCREASED IN TERMS OF THE AFORESAID THIRD PROVISO WHILE DETERMINING DEDUCTION U/S 80HHC OF THE ACT. IN THIS CONNECTION, IN THE AFORESAID DECISION DATED 11.8.2009 IN THE CASE OF M/S TOPMAN EXPORTS,318 ITR(AT) 87(MUMBAI) (SB)., THE FOLLOWING QUESTION WAS REFERRED TO THE SPECIAL BENCH: WHETHER THE ENTIRE AMOUNT RECEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE UNDER SECTION 28(IIID) OF THE INCOME TAX ACT OR THE PROFIT REFERRED TO THEREIN REQUIRES ANY ARTI FICIAL COST TO BE INTERPOLATED? 9.21 THE SPECIAL BENCH ADJUDICATED THE AFORESA ID QUESTION IN FOLLOWING TERMS: I) THE ARGUMENT OF THE REVENUE THAT DEPB IS A POST EXPORT EVENT AND HAS NO RELATION WITH THE PURCHASE OF GOODS CANNOT BE ACCEP TED. THERE IS A DIRECT RELATION BETWEEN DEPB AND THE CUSTOMS DUTY PAID ON THE PURCHASES . FOR PRACTICAL PURPOSES, DEPB IS A REIMBURSEMENT OF THE COST OF PURCHASE TO THE EXTENT OF CUSTOMS DUTY; (II) THE DEPB BENEFIT (FACE VALUE) ACCRUES AND BECOMES A SSESSABLE TO TAX WHEN THE APPLICATION FOR DEPB IS FILED WITH THE CON CERNED AUTHORITY . SUBSEQUENT EVENTS SUCH AS SALE OF DEPB OR MAKING IM PORTS FOR SELF CONSUMPTION ETC ARE IRRELEVANT FOR DETERMINING THE ACCRUAL OF T HE INCOME ON ACCOUNT OF DEPB; (III) THOUGH S. 28 (IIIB) REFERS TO A CASH ASSISTA NCE AGAINST EXPORTS, IT IS WIDE ENOUGH TO COVER THE FACE VALUE OF THE DEPB BENEFIT; ITA NO.3552/AHD/2007 FOR AY 2004-05 PINO B ISAZZA GLASS P. LTD. 6 (IV) S. 28 (IIID) WHICH REFERS TO THE PROFITS ON TRANSFER OF THE DEPB OBVIOUSLY REFERS ONLY TO THE PROFIT ELEMENT AND NOT THE GROSS SALE PROCEEDS OF THE DE PB. IF THE REVENUES ARGUMENT THAT THE SALE PROCEEDS SH OULD BE CONSIDERED IS ACCEPTED THERE WOULD BE ABSURDITY BECAUSE THE FACE VALUE OF THE DEPB WILL THEN GET ASSESSED IN THE YEAR OF RECEIPT OF THE DEPB AND ALSO IN THE YEAR OF ITS TRANSFER; (V) CONSEQUENTLY, ONLY THE PROFIT (I.E. THE SALE VALUE LESS THE FAC E VALUE) IS REQUIRED TO BE CONSIDERED FOR PURPOSES OF S. 80HHC . 9.3 SINCE THE LD. CIT(A) HAVE NOT RECORDED AN Y FINDINGS AS TO WHETHER OR NOT THE CONDITIONS STIPULATED IN THE THIRD PROVISO TO SEC. 80HHC(3) ARE FULFILLED NOR THE LD. CIT(A) HAD THE BENEFIT OF THE AFORESAID DECISIO N IN THE CASE OF TOPMAN EXPORTS(SUPRA), WE CONSIDER IT FAIR AND APPROPRIAT E TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUE RELATING TO CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT IN RELATION TO T HE AMOUNT OF DEPB, AFRESH IN ACCORDANCE WITH LAW, AFTER ALLOWING SUFFICIENT OPPO RTUNITY TO BOTH THE PARTIES AND KEEPING IN VIEW THE AFORESAID DECISION OF THE SPECI AL BENCH. INTER ALIA, THE ASSESSEE SHALL PLACE ALL THE NECESSARY EVIDENCE BEF ORE THE LD. CIT(A) AS TO HOW IT FULFILLS THE CONDITIONS STIPULATED IN THE THIRD PRO VISO TO SUB-SECTION (3) OF SEC. 80HHC OF THE ACT. NEEDLESS TO SAY THAT WHIL E REDECIDING THE APPEAL, THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER, KEE PING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT WIT H THESE DIRECTIONS, GROUND NO.2 IN THE APPEAL IS DISPOSED OF. 10. GROUND NOS. 3 & 4 BEING GENERAL IN NATURE, DO NOT REQUIRE OUR SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED . 11. IN THE RESULT, APPEAL IS PARTLY ALLOWED, BUT FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 30-6-2010 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30-6-2010 ITA NO.3552/AHD/2007 FOR AY 2004-05 PINO B ISAZZA GLASS P. LTD. 7 COPY OF THE ORDER FORWARDED TO: 1. PINO BISAZZA GLASS PVT. LTD., 23, B.C.D., GIDC E STATE, KADI, DIST. MEHSANA 2. THE DCIT, CIRCLE-5, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XI, AHMEDABAD 5. THE DR, C BENCH ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD