EASTERN PACIFIC CO., MUMBAI V. DCIT 12(3), MUMBAI

ITA 368/MUM/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8260 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 1998-1999
• Appeal Filed On: 16-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V KRISHNAMOORTHY
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI RAJENDRA (ACCOUNTANT MEMBER) ITA NO.368/MUM/2012 ASSESSMENT YEAR: 1998-1999 EASTERN PACIFIC CO., 112, MAKERS CHAMBERS VI, NARIMAN POINT, MUMBAI-21. PA NO.AAAFE 7547 A DCIT 12(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI RAJIV KHANDELWAL RESPONDENT BY: SHRI V.KRISHNAMOORTHY DATE OF HEARING: 22.10.2012 DATE OF PRONOUNCEMENT: 16 .11.2012 ORDER PER B.R.MITTAL, JM: THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT Y EAR 1998-99 AGAINST ORDER DATED 19.10.2011 OF LD CIT(A)-23, MUMBAI ON FOLLOW ING GROUNDS: 1. THE CIT(A) ERRED IN FRAMING AN EXPARTE ORDER. 2. THE APPELLANTS CONTEND THAT ON THE FACT AND IN T HE CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A) OUGHT NOT TO HAVE FR AMED AN EXPARTE ORDER. 3. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF AO I N ALLOWING DEDUCTION U/S.80HHC RS.6,18,330 S AGAINST RS.24,23,161 CLAIME D BY THE APPELLANT. 4. THE APPELLANTS CONTENDS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ALLOCATION OF ADMINISTRATI VE EXPENSES IS ON PRESUMED AND ESTIMATED BASIS AND NOT ON CONCRETE BA SIS AND THE BASIS OF DEDUCTION U/S.80HHC RS.6,18,330 IS BASELESS, ERRONE OUS AND NOT IN ACCORDANCE WITH LAW. 2. AT THE TIME OF HEARING, LD A.R. SUBMITTED THAT G ROUND NOS.1 & 2 ARE NOT PRESSED FOR. HENCE, GROUND NOS.1 & 2 OF APPEAL ARE REJECT ED. ITA NO.368/MUM/2012 ASSESSMENT YEAR: 1998-1999 2 3. IN RESPECT OF GROUND NOS.3 & 4 OF APPEAL, RELEV ANT FACTS ARE THAT THIS APPEAL IS ARISING OUT OF ASSESSMENT ORDER PASSED UNDER SECTIO N 143(3) R.W. S 254 OF THE ACT DATED 29.12.2010. 4. ORIGINALLY, ASSESSEE FILED ITS RETURN OF INCOME ON 2.11.1998 DECLARING TOTAL INCOME AT RS.NIL. THE ASSESSMENT WAS COMPLETED UND ER SECTION 143(3) OF THE ACT ON 29.3.2001 ASSESSING TOTAL INCOME AT RS.22,71,430. 5. FACTS IN BRIEF ARE STATE THAT ASSESSEE IS AN EXP ORTER IN GARMENT AND WAS ALSO RECEIVING COMMISSION INCOME FROM LOCAL AS WELL AS F OREIGN PRINCIPALS AND INCOME AS RECRUITING AGENT. THUS, ASSESSEE WAS AN EXPORTER, A COMMISSION AGENT AND RECRUITING AGENT. ASSESSEE FILED SEPARATE ACCOUNTS FOR EXPORT S, COMMISSION AND RECRUITMENT CHARGES AND TRAVEL COMMISSION. ASSESSEE CLAIMED THA T 50% OF ADMINISTRATIVE EXPENSES RELATED TO EXPORT, 20% FOR EARNING RECRUITMENT CHAR GES AND TRAVEL COMMISSION AND 30% FOR EARNING COMMISSION ON EXPORT. DURING THE SAID ORIGINAL ASSESSMENT PROCEEDINGS, THE AO AFTER ARRIVING AT NET INCOME, AFTER ATTRIBUTING DIRECT AND INDIRECT EXPENSES TOOK THE NET INCOME TO THE TOTAL TURNOVER. IT WAS ARGUED TH AT ASSESSEE WAS FOLLOWING THE SAID METHOD OF ALLOCATION OF EXPENSES FOR THE LAST SEVER AL YEARS WHICH HAD BEEN ACCEPTED. HOWEVER, AS PER DIRECTION OF THE ADDL. CIT, AO ALL OCATED NO EXPENSES FOR EARNING OF COMMISSION AND IN RESPECT OF RECRUITMENT INCOME, AL LOWED ONLY RECRUITMENT EXPENSES AND VISA CHARGES. AO ALSO ALLOWED 10% OF INDIRECT EXPENSES TOWARDS COMMISSION AND RECRUITMENT INCOME WHILE COMPUTING DEDUCTION UNDER SECTION-8OHHC OF THE ACT. ACCORDINGLY, AO WHILE FRAMING THE ASSESSMENT U/S.14 3(3) OF THE ACT, RESTRICTED THE DEDUCTION U/S 80HHC OF THE ACT TO RS.194285. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD CIT(A). 6. LD CIT(A) VIDE HIS ORDER DATED 30.4.2002 DIRECTE D THE AO TO RE-COMPUTE DEDUCTION U/S.80HHC OF THE ACT AFTER ALLOWING INDIR ECT EXPENSES/ADMINISTRATIVE EXPENSES AS CLAIMED BY THE ASSESSEE AGAINST COMMISSION AND R ECRUITMENT INCOME. THE DEPARTMENT DISPUTED THE SAID ORDER OF LD CIT(A) BEF ORE THE TRIBUNAL. THE TRIBUNAL BY ITS ORDER DATED 22.12.2009 IN I.T.A. NO.3841/M/2002 AFT ER CONSIDERING ITS OWN DECISION FOR ITA NO.368/MUM/2012 ASSESSMENT YEAR: 1998-1999 3 ASSESSMENT YEAR 1999-2000 PASSED IN I.T.A. NO.1731/ M2003 IN ASSESSEES OWN CASE RESTORED THE ISSUE TO THE FILE OF AO VIDE PARA 4 OF THE SAID ORDER AS UNDER: 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. WE FIND THAT IDENTICAL DISPUTE HAD BEEN RAISED BY THE ASSES SEE IN A.Y. 1999-2000 WHICH HAS SINCE BEEN DECIDED BY THE TRIBUNAL IN ITA NO.17 31/M/2003. THE TRIBUNAL AFTER DETAILED EXAMINATION HELD AS UNDER 6. IN VIEW OF THE ABOVE DISCUSSION, THE ORDER OF T HE CIT(A) IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE ASSES SING OFFICER, FOR FRESH ADJUDICATION AFTER EXAMINING THE FACT WHETHER THE A SSESSEE MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR DIFFERENT ACTIVITIES. IF IT IS FOUND THAT SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED BY THE AS SESSEE, THEN HE WOULD DETERMINE THE INDIRECT COST WITH REFERENCE TO THE BOOKS RELATING TO EXPORT BUSINESS. IF IT IS FOUND THAT SEPARATE BOOKS WERE NOT MAINTAINED, THEN THE ASSESSEE SHOULD BE ASKED TO SUBSTANTIATE T HE ALLOCATION MADE BY HIM. IF IT IS FOUND TO BE ACCEPTABLE THEN THE DEDUC TION UNDER SECTION 8OHHC SHOULD BE COMPUTED CONSIDERING THE EXPENSES R ELATING TO EXPORT BUSINESS. HOWEVER, IF NO ACCEPTABLE FORMULA REGARDI NG ALLOCATION IS POSSIBLE, THEN THE TOTAL RECEIPTS RELATING TO OTHER INCOME I.E., RS.30,28,690/- SHOULD BE TREATED AS PART OF THE TOT AL TURNOVER AND THEN THE DEDUCTION MAY BE RECOMPUTED. THE ASSESSING OFFI CER SHALL ALSO CONSIDER THE PLEA OF THE ASSESSEE, AS TO WHETHER TH ERE IS ANY CONFLICT BETWEEN THE SPECIAL BENCH DECISION AND THE DECISION OF THE TRIBUNAL RELATING TO EARLIER YEARS. AT THIS STAGE, WE MAY PO INT OUT THAT THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 1998-99 WAS MAD E EXPARTE, AND IN THE ORDER FOR ASSESSMENT YEAR 1995-96, THE ASPECT O F MAINTENANCE OF SEPARATE BOOKS OF ACCOUNT WAS NOT THERE, AND THE DE CISION OF THE SPECIAL BENCH REFERRED TO BY THE ASSESSEES COUNSEL WAS NOT CITED BEFORE THE BENCH. THEREFORE, IF THE ASSESSING OFFICER IS SATIS FIED THAT THE RATIO LAID DOWN BY THE SPECIAL BENCH HELPS THE WORKING OF INDI RECT COST, THEN THE AO SHALL WORK OUT THE DEDUCTION IN ACCORDANCE WITH THE DECISION OF SPECIAL BENCH. 7. ACCORDINGLY, AO HAS PASSED THE IMPUGNED ASSESSME NT ORDER OUT OF WHICH THIS APPEAL HAS ARISEN. AO WHILE PASSING THE ASSESSMENT ORDER HAS STATED THAT ASSESSEE SUBMITTED BEFORE HIM THAT IT WAS NOT MAINTAINING SE PARATE BOOKS OF ACCOUNT. THE ALLOCATION OF EXPENSES IS DONE BY THE ASSESSEE ON T HE BASIS OF ACTIVITIES CARRIED OUT, USAGE OF FACILITIES, PERSONS EMPLOYED IN THE RESPEC TIVE BUSINESS AND EXPERIENCE OF ARRIVING AT THESE ALLOCATION BASIS. AO CONSIDERED THAT ASSESSEE IS NOT MAINTAINING SEPARATE BOOKS OF ACCOUNT IN RESPECT OF ITS THREE A CTIVITIES VIZ; EXPORT, RECRUITMENT AND COMMISSION AND HAS ALLOCATED INDIRECT EXPENSES AT 5 % AND 10% ON ESTIMATE BASIS FOR EARNING COMMISSION AND RECRUITMENT INCOME RESPECTIV ELY AS AGAINST 30% AND 20% ITA NO.368/MUM/2012 ASSESSMENT YEAR: 1998-1999 4 CLAIMED BY ASSESSEE. ACCORDINGLY, AO WORKED OUT DE DUCTION U/S.80 HHC OF THE ACT AT RS.6,18,330 IN STEAD OF RS.24,23,161 CLAIMED BY THE ASSESSEE. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD CIT(A). 8. LD CIT(A) BY HIS EXPARTE ORDER DT.19.10.2011 CON FIRMED THE ACTION OF AO. HENCE, THIS APPEAL BY THE ASSESSEE. 9. AT THE TIME OF HEARING, LD A.R., AS MENTIONED HE REINABOVE, DID NOT PRESS GROUND NOS.1 & 2 FOR FRAMING EXPARTE ORDER AND SUBMITTED T HAT APPEAL BE ADJUDICATED BY THE TRIBUNAL AS THE MATTER IS OLD AND HAS ALREADY BEEN RESTORED ONCE TO THE FILE OF AO. 10. LD A.R. SUBMITTED THAT ASSESSEE IS MAINTAINING SEPARATE LEDGER ACCOUNT FOR EXPENSES FOR EACH OF THE ACTIVITIES AND THE OBSERVA TION OF THE AO THAT ASSESSEE IS NOT MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR ITS ACTIV ITIES IS NOT FACTUALLY CORRECT. HE REFERRED ORDER OF THE TRIBUNAL DATED 22.12.2009, COPY PLACED AT PAGES 1 TO 4 OF PB AND SUBMITTED THAT EVEN IN THE FIRST ROUND OF APPEAL, I T WAS THE SUBMISSION OF ASSESSEE THAT ASSESSEE FILED SEPARATE ACCOUNTS FOR ALL OF ITS THR EE ACTIVITIES I.E. EXPORT, COMMISSION AND RECRUITMENT CHARGES AND TRAVEL EXPENSES. HE SUBMIT TED THAT THERE ARE CERTAIN INDIRECT EXPENSES WHICH COULD NOT BE DIRECTLY RELATED TO ALL ACTIVITEIS AS THE ASSESSEE IS CARRYING OUT ITS THREE ACTIVITIES FROM THE SAME PREMISES AND , THEREFORE, ALLOCATION OF INDIRECT EXPENSES ARE REQUIRED TO BE MADE ON ALL THE ACTIVIT IES. HE SUBMITTED THAT ASSESSEE HAS FOLLOWED FOR ALLOCATING INDIRECT EXPENSES THE CONS ISTENT METHOD WHICH IS BEING FOLLOWED FROM A.Y. 1996-97 AND DEPARTMENT HAD ACCEPTED THE S AID METHOD OF ALLOCATION OF EXPENSES. HE REFERRED PAGES 112 TO 113 OF PB, WHIC H IS A COPY OF LETTER DATED 27.12.2010 ADDRESSED TO AO, WHEREIN, ASSESSEE STATE D THAT IT IS MAINTAINING SEPARATE BOOKS OF ACCOUNT AND PRODUCED BOOKS OF ACCOUNT TO EXPLAIN THE NATURE OF BUSINESS ACTIVITIES. LD A.R. FURTHER REFERRED PAGES 110 & 1 11 OF PB, WHICH IS A COPY OF LETTER DATED 22.12.2010 ADDRESSED TO AO AND SUBMITTED THAT COMMISSION BUSINESS WAS EXPLAINED AND IT WAS ALSO MENTIONED THAT ALL THE TH REE ACTIVITIES OF THE ASSESSEE ARE VERY DIFFERENT, IDENTIFIABLE AND HAVE DIFFERENT MODUS OP ERANDI TO BE TRANSACTED AND, ACCORDINGLY, ARE DIFFERENT FROM EACH OTHER. HE SUB MITTED THAT ASSESSEE ALSO FILED LETTER DATED 20.12.2010, COPY PLACED AT PAGES 104 TO 109 O F PB, WHEREIN ALSO, IT WAS ITA NO.368/MUM/2012 ASSESSMENT YEAR: 1998-1999 5 CATEGORICALLY STATED THAT ASSESSEE HAS MAINTAINED S EPARATE PARTICULARS AND DETAILS FOR EACH OF THE THREE ACTIVITIES AND, ACCORDINGLY, SEPA RATE ACCOUNTING HAS BEEN DONE FOR INDIVIDUAL COMPUTATION OF INCOME FROM EACH ACTIVIT Y. LD A.R. REFERRED TO PAGE 13 OF PB AND SUBMITTED THAT IT CONTAINS DETAILS OF THE ADMIN ISTRATIVE EXPENSES AND PARTICULARS OF ALLOCATION MADE FOR THE EXPENSES. LD A.R. SUBMITTE D THAT DETAILS FOR EACH OF THE ACTIVITIES ARE ALSO PLACED AT PAGES 14 TO 15 OF PB, RESPECTIVELY FOR RECRUITMENT AND COMMISSION INCOME. LD A.R. SUBMITTED THAT ALLOCATI ON AS MADE BY THE ASSESSEE FOR THE EXPENSES SHOULD BE ACCEPTED AND, ACCORDINGLY, DEDUC TION AS CLAIMED U/S. 80HHC BE ALLOWED AS THE METHOD ADOPTED BY THE ASSESSEE IS TH E SAME WHICH HAS CONSISTENTLY BEEN FOLLOWED FOR LAST SEVERAL YEARS AND ALSO ACCEP TED BY DEPARTMENT. 11. ON THE OTHER HAND, LD D.R. RELIED ON ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE IS NOT MAINTAINING SEPARATE BOOKS OF ACCOUNT AS OBSERVED BY AO. THEREFORE, ESTIMATION AS MADE BY THE AO TO ALLOCATE THE EXPENSES BE ACCEPTED. HE SUBMITTED THAT DEDUCTION ALLOWED BY THE AO BE CONFI RMED. 12. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTA TIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. WE HAVE CONSIDERED RELEVANT DET AILS PLACED AT PAGES 13 TO 15 OF PB GIVING BREAK-UP OF EXPENSES AND ALLOCATION MADE BY THE ASSESSEE FOR ITS THREE ACTIVITIES CARRIED OUT BY IT VIZ; EXPORT, RECRUITMENT AND COMM ISSION. 13. WE OBSERVE THAT AO HAS MADE ITS OWN ESTIMATION TO ALLOCATE THE INDIRECT EXPENSES AT 5% AND 10% ON ESTIMATE BASIS RESPECTIVE LY FOR EARNING COMMISSION AND RECRUITMENT INCOME MAINLY ON THE GROUND THAT ASSESS EE IS NOT MAINTAINING SEPARATE BOOKS OF ACCOUNT AND SAME WAS ACCEPTED BY THE ASSES SEE BEFORE HIM. HOWEVER, ON PERUSAL OF CORRESPONDENCES I.E. LETTER DATED 27.11. 2010, COPY OF WHICH WAS FILED AT THE TIME OF HEARING, ASSESSEE STATED CATEGORICALLY THAT IT IS MAINTAINING SEPARATE BOOKS OF ACCOUNT AND ALSO STATED THAT ALLOCATION OF INDIRECT EXPENSES HAD NOT BEEN DISPUTED IN THE LAST ASSESSMENT YEARS AND THE SAME BASIS HAS BEEN F OLLOWED BY THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. WE ALSO OBSE RVE FROM THE LETTER DATED 22.10.2010, COPY PLACED AT PAGES 110 TO 111 OF PB, ASSESSEE STATED, INTER ALIA, THAT ALL THE THREE ACTIVITIES ARE VERY DIFFERENT, IDENTIFIAB LE AND HAVE DIFFERENT MODUS OPERANDI TO ITA NO.368/MUM/2012 ASSESSMENT YEAR: 1998-1999 6 BE TRANSACTED AND HENCE, DIFFERENT FROM EACH OTHER. IT IS ALSO STATED THAT SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY THE ASSESSEE FIR M FOR ALL ITS ACTIVITIES. SIMILARLY, ASSESSEE REITERATED VIDE LETTER DATED 27.12.2010 , COPY PLACED AT PAGES 112 TO 113 OF PB, THAT ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR ITS THREE ACTIVITIES AND FOLLOWED THE SAME PRACTICE FOR ALLOCATION OF ADMINI STRATIVE EXPENSES AS FOLLOWED IN PRECEDING ASSESSMENT YEARS. WE ALSO OBSERVE THAT L D CIT(A) WHILE PASSING ORDER IN THE FIRST ROUND OF APPEAL, IN PARA 3.7 THEREOF, OBSERVE D THAT ASSESSEE WAS FOLLOWING SAME PRACTICE OF ALLOCATING THE COMMON EXPENSES FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. WE ALSO OBSERVE THAT THE TRIBUNAL W HEN SETTING ASIDE THE MATTER TO THE FILE OF AO DIRECTED THE AO THAT WHILE WORKING OUT T HE INDIRECT COST, AO SHALL WORK OUT DEDUCTION IN ACCORDANCE WITH THE DECISION OF ITAT S PECIAL BENCH BUT WE OBSERVE THAT AO HAS NOT DISCUSSED THE SAID ASPECT WHILE MAKING T HE ESTIMATED ALLOCATION OF INDIRECT COST @ 5% AND 10% IN RESPECT OF EARNING COMMISSION AND RECRUITMENT INCOME RESPECTIVELY FOR WORKING OUT DEDUCTION U/S.80HHC OF THE ACT. CONSIDERING ABOVE FACTS OF THE CASE AND CONTENTION OF LD A.R. THAT ASSESSEE HA S FOLLOWED THE SAME METHOD OF ALLOCATION OF EXPENSES IN THE ASSESSMENT YEAR UNDER CONSIDERATION, AS IT HAD FOLLOWED IN EARLIER ASSESSMENT YEARS, AND ALSO ACCEPTED BY DEPA RTMENT, WE HOLD THAT THE PERCENTAGE OF ALLOCATION AS MADE BY THE ASSESSEE I. E. @ 20% FOR RECRUITMENT ACTIVITIES AND 30% FOR COMMISSION ACTIVITIES AND REMAINING 50% TO THE EXPORT ACTIVITY, WHICH IS BASED ON THE SAME BASIS AS FOLLOWED IN THE PRECEDIN G ASSESSMENT YEAR BE ACCEPTED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. HENCE, WE DIRECT THE AO ACCORDINGLY BY ALLOWING GROUND NOS.3 & 4 OF APPEAL TAKEN BY ASSESS EE. 14. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLO WED IN PART. PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2012 SD/- (RAJENDRA) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 16 TH NOVEMBER, 2012 ITA NO.368/MUM/2012 ASSESSMENT YEAR: 1998-1999 7 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),23, MUMBAI 4. COMMISSIONER OF INCOME TAX, 12 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH E MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI