TECNOCRAFT INDUSTRIES (I) LTD, MUMBAI V. ADDL CIT 8(3), MUMBAI

ITA 3601/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49244 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2006-2007
• Appeal Filed On: 06-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P R TOPRANI
• Keywords: Rule 8D; Set aside
• Section: 14A; 10B

Judgement Text

1 ITA NO. 3601/MUM/2010 (ASST YEAR2006-07 ) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI PRAMOD KUMAR, AM & SHRI VIJAY PAL RAO, JM ITA NO. 3601/MUM/2010 (ASST YEAR2006-07 ) M/S TECHNOCRAFT INDUSTRIES (INDIA) LTD A-25 MIDC MAROL INDL.AREA ROAD NO.3, ANDHERI (E) MUMBAI 93 VS THE ADDL COMMR OF INCOME TAX 8 (3), MUMBAI (APPELLANT) (RESPONDENT) PAN NO.AAACT2724P A SSESSEE BY SHRI P R TOPRANI REVENUE BY SHRI S K SINGH PER VIJAY PAL RAO, JM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 8.4.2010 OF THE CIT(A) RELATING TO ASSESSMENT YEAR 2006-07. 2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1 THE LD CIT(A) ERRED IN CONFIRMING THE FOLLOWING ACTI ONS OF THE ASSESSING OFFICER IN WORKING OUT 10B DEDUCTION; A) REDUCING WEIGH BRIDGE RECEIPT OF RS. 18960/- FROM THE PROFIT OF BUSINESS FOR THE PURPOSE OF CALCULATING DEDUCTION US / 10B B) WORKING OUT AND ALLOCATING DIRECTORS REMUNERATION I N PROPORTION TO THE TURNOVER TO 10B DIVISION AMOUNTING TO RS. 77,44,6 79/- AND REDUCING THE SAME FROM BUSINESS PROFIT WHILE CALCULATING DEDUC TION U/S 10B. 2 THE LD CIT(A) FURTHER ERRED IN SUSTAINING THE DISA LLOWANCE MADE U/S 14A OF RS. 2089901/- WITHOUT APPRECIATING THE FACT THAT SINCE NO INTEREST BEARING FUNDS ARE USED FOR MAKING INVESTMENTS, NO DISALLOWA NCE U/S 14A IS CALLED FOR. 3 GROUND NO.1(A) REGARDING REDUCING WEIGH BRIDE REC EIPT FROM THE PROFIT OF BUSINESS FOR THE PURPOSE OF CALCULATION OF DEDUCTIO N U/S 10B. 4 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE FIND THAT THIS ISSUE WAS 2 ITA NO. 3601/MUM/2010 (ASST YEAR2006-07 ) CONSIDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.3622/MUM/08 VIDE ORDER DATED 26.6.2009. THE TRIBUNAL HAS DECIDED THIS ISSUE AGAINST THE ASSESSEE IN PARA 8 A S UNDER: 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E ORDERS. FIRST WE TAKE UP ASSESSEES GRIEVANCES ON 10B DEDUCTIONS. TH E QUESTION ARISING IN BOTH ASSESSEES APPEAL AND REVENUES APPEAL ON THIS ISSU E IS WHETHER IT IS POSSIBLE TO CONSIDER THE RECEIPTS OF THE NATURE MENTIONED AT P ARA 3 ABOVE AS PART OF PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES OR THINGS. UNDISPUTEDLY, ASSESSEE IS A HUNDRED PER CENT EXPORT ORIENTED UNDERT AKING ELIGIBLE FOR DEDUCTION U/S.10B OF THE ACT. AS REGARDS COMMISSION A ND BROKERAGE RECEIPT THE IMMEDIATE SOURCE CANNOT BE CONSIDERED AS EXPORT ACTIVITY OF THE ASSESSEE. WORDS DERIVED FROM IMPLY THAT THERE SHOULD BE DIRECT NEXUS AND SUCH NEXUS SHOULD NOT BE ONLY INCIDENTAL. THE TERMIN OLOGY USED IN SECTION 10B IS DERIVED FROM EXPORTS AND THIS BEING THE CASE, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAD CORRECTLY APPLIED THE DECIS ION OF THE HONBLE APEX COURT IN STERLING FOODS AND CAMBAY ELECTRICAL SUPPLY INDL.CO. LTD. (SUPRA). THE COMMISSION AND BROKERAGE EARNED BY THE ASSESSEE HA VING NO NEXUS WITH ITS EXPORT ACTIVITIES, IT COULD NOT BE TREATED AS A P ART OF PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES OR THINGS. WE ARE THEREF ORE OF THE OPINION THAT, THE CLAIM OF THE ASSESSEE, VIS-A-VIS COMMISSION AND BROKERAGE RECEIPT OF RS. 29,41,650/-, FOR CALCULATING THE DEDUCTION U/S.10B OF THE ACT WAS CORRECTLY DENIED BY THE AO AND CONFIRMED BY THE LEARNED CIT(A) . VIS--VIS, RECEIPT FROM WEIGH BRIDGE RS. 10,010/- ALSO, SUBMISSION OF THE ASSESSEE WAS THAT THIS WAS PART OF ITS BUSINESS PROFIT. UNDISPUTEDLY, WEIGH BRIDGE RECEIPT HAS NOTHING TO DO WITH THE EXPORT ACTIVITY OF THE ASSESSEE AND WAS ARISING OUT OF AN INDEPENDENT ACTIVITY OF GIVING OUTSIDE PARTIES THE SERVICES OF THE WEIGH BRIDGE. NO DOUBT, THIS MAY BE A PART OF ITS BUSINES S ACTIVITY BUT COULD NOT BE DEEMED AS PROFITS AND GAINS WHICH ARE DERIVED FROM EX PORT OF ARTICLES OR THINGS. FOR THE SAME REASONS THAT WE HAVE MENTIONED FOR COMMISSION AND BROKERAGE INCOME, WE FIND THAT CLAIM OF DEDUCTION U/S.10B OF THE ACT ON SUCH RECEIPT WERE ALSO RIGHTLY DENIED TO THE ASSESSEE. AS AFORESAID, ASSESSEES COUNSEL HIMSELF HAS NOT PRESSED THE CLAIM FOR CONSID ERING INTEREST FOR RS.2,11,849/- AS PART OF ITS BUSINESS PROFITS FOR CO MPUTING DEDUCTION US/10B OF THE ACT. RESULTANTLY, GROUND NO.1 OF THE ASSESSEE S TANDS DISMISSED. 5 ACCORDINGLY, FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESEES OWN CASE WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 3 ITA NO. 3601/MUM/2010 (ASST YEAR2006-07 ) 6 GROUND NO.1(B) REGARDING REDUCING DISALLOWANCE ON ACCOUNT OF DIRECTORS REMUNERATION IN PROPORTION TO THE TURNOVER U/S 10B. 7 AT THE TIME OF HEARING, THE LD AR OF THE ASSESSEE HAS STATED THAT THIS ISSUE DOES NOT PRESS AND THE SAME MAY BE DISMISSED AS NOT PRES SED. THE LD DR HAS NO OBJECTION, IF THE GROUND IS DISMISSED AS NOT PRESSE D. ACCORDINGLY, WE DISMISSED THIS GROUND AS NOT PRESSED. 8 GROUND NO.2 REGARDING THE DISALLOWANCE U/S 14A. 9 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR. WE FIND THE LOWER AUTHORITIES HAS APPLIED RULE 8D WHILE DISALLO WING THE INTEREST U/S 14A. IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG P LTD VS ACIT REPORTED IN 328 ITR 81, RULE 8D IS NO T APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. HOWEVER, THE DISALLOWANCE HAS TO BE MADE ON SOME REASONABLE BASIS. ACCORDINGLY, WE SET ASIDE THE OR DER OF THE CIT(A) AND RESTORED THE SAME TO THE RECORD OF THE ASSESSING OFFICER TO DECI DE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF GODREJ & BOYCE MFG P LTD (SUPRA) AFTER AFFORDING REASONABLE OPPORTUNITY OF B EING HEARD TO THE ASSESSEE. 10 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 30 TH DAY OF JUNE 2011. SD/- SD/- ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 30 TH JUNE 2011 RAJ* 4 ITA NO. 3601/MUM/2010 (ASST YEAR2006-07 ) COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI