Shri Rameshbhai Narottamdas Shah, Ahmedabad V. The Income tax Officer, Ward-3(3), Ahmedabad

ITA 3868/AHD/2004

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7783 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-07-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 28-12-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 80HHC

Judgement Text

FIT FITFIT FIT FOR FORFOR FOR PUBLICATION PUBLICATION PUBLICATION PUBLICATION IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI R.V. EASWAR, VICE PRESIDENT AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING 30/07/09 DRAFTED ON:30/07/09 ITA NO.3868/AHD/04 ASSESSMENT YEAR :2001-2002 SHRI RAMESHBHAI N. SHAH SEVKANI VADI, KHADIA, AHMEDABAD. VS. THE ITO, WARD-3(3), AHMEDABAD. PAN/GIR NO. :AFHPS 8218 Q (APPELLANT) .. (RESPONDENT) APPELLANT BY : J.M. SHAH, CA RESPONDENT BY: K. SHREEDHAR, CIT (DR) O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS APPEAL IS AN APPEAL FILED BY THE ASSESSEE AG AINST THE ORDER OF THE LD. CIT(APPEALS) VII AHMEDABAD DAT ED 27/10/2004 FOR ASSESSMENT YEAR 2001-02. 2. IN GROUND NOS. 1 TO 3 OF THE APPEAL THE GRIEVANC E OF THE ASSESSEE IS THAT THE LD. CIT(APPEALS) ERRED IN LAW AND IN FACTS IN DIRECTING THE ASSESSING OFFICER TO COMPUTE THE DEDU CTION UNDER SECTION 80HHC OF THE ACT TAKING INTO CONSIDER ATION ITA NO .3868/A/04 SHRI RAMESHBHAI N. SHAH ASST.YEAR -2001-02 - 2 - DIRECT AND INDIRECT COST ATTRIBUTABLE TO LOCAL TRAD ING GOODS AND THEREBY ARRIVING AT A LOSS OF RS. 5,32,335/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN OF INCOME SHOWING INCOME OF RS. 2,57,429/-. THE ASSESSEE HAD SHOWN PROFIT FROM EXPORT OF TRADING GO ODS AT RS. 15,01,059/- AS PER THE AUDITORS REPORT IN THE PRESC RIBED FORM ATTACHED TO THE RETURN OF INCOME. ON THAT BASIS DE DUCTION U/S 80HHC WAS CLAIMED AT RS. 12,00,847/-, BEING 80% OF THE AFORESAID EXPORT PROFITS. THE ASSESSING OFFICER OB SERVED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE RE CEIVED INCOME FROM TWO PROPRIETORSHIP CONCERNS VIZ. M/S. I NTEGRATED ENGINEERING IMPEX WHICH WAS INVOLVED ONLY IN EXPORT OF TRADING GOODS AND M/S. D.S. TRADING CO. WHICH WAS CONCERNED WITH LOCAL TRADING ONLY. FOR THE LATTER THE ASSESSEE RETURNED A LOSS OF RS. 1,21,999/- WHILE IN THE CASE OF INTEGRATED ENGINEERING IMPEX, THE ASSESSEE HAD A TOTAL EXPORT INCOME OF RS. 15,01,059/-. ACCORDING TO THE ASSESSING OFFICE R DEDUCTION UNDER SECTION 80HHC IS AVAILABLE TO THE ASSESSEE ON THE WHOLE ITA NO .3868/A/04 SHRI RAMESHBHAI N. SHAH ASST.YEAR -2001-02 - 3 - AND NOT TO AN INDIVIDUAL UNIT OR PROPRIETARY CONCER N. THEREFORE, IN THE COMPUTATION OF DEDUCTION UNDER SE CTION 80HHC, THE ASSESSING OFFICER HAS TAKEN INTO CONSIDE RATION THE DIRECT AND INDIRECT COST ATTRIBUTABLE TO D.S. TRADI NG CO. ALSO AND ARRIVED AT A LOSS OF RS. 5,32,335/-. FOR THIS, ASSESSING OFFICER PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATORIES 266 ITR 521, HOLDING THAT A DEDUCTION SHALL BE PERMITTED UNDER SECTION 80HHC ON LY IF THERE IS A POSITIVE PROFIT, AND THAT IN ARRIVING AT THE FIGURE OF POSITIVE PROFIT, BOTH PROFIT AND LOSSES HAVE TO BE CONSIDERED. 4. BEING AGGRIEVED BY THIS ORDER OF THE ASSESSING O FFICER, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(APPEAL S) AND SUBMITTED THAT IT IS ONLY EXPORTING TRADING GOODS A ND NOT MANUFACTURING GOODS AND SO THE CASE OF IPCA LABORAT ORIES LTD. IS NOT APPLICABLE TO IT. THE ASSESSEE CONTEND ED THAT ONLY ITS PROFIT FROM THE EXPORTS OF PROPRIETORSHIP CONCE RN M/S. INTEGRATED IMPEX SHOULD BE CONSIDERED FOR GRANTING OF DEDUCTION UNDER SECTION 80HHC. ITA NO .3868/A/04 SHRI RAMESHBHAI N. SHAH ASST.YEAR -2001-02 - 4 - 5. THE LD. CIT(APPEALS) AFTER CONSIDERING THE SUBMI SSION OF THE ASSESSEE OBSERVED THAT IN HIS OPINION THE RATIO OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F IPCA LABORATORIES LTD. (SUPRA) WAS APPLICABLE IN THE CAS E OF THE ASSESSEE. THEREFORE, HE CONFIRMED THE ACTION OF TH E ASSESSING OFFICER. 6. BEING STILL AGGRIEVED BY THE ORDER OF THE LD. CI T(APPEALS), THE ASSESSEE HAS FILED SECOND APPEAL BEFORE THE TRI BUNAL AND REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT( APPEALS). 7. THE LD. D.R. SUPPORTED THE ORDER OF THE LD. CIT( APPEALS) AND SUBMITTED THAT THE ORDER OF THE LD. CIT(APPEALS ) FINDS SUPPORT FROM THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS. K. RAVINDRANATHAN NAIR 295 ITR 228 (SC) AND A.M. MOOSA VS. CIT 294 ITR 1 (SC). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS A VAILABLE ON RECORD. IN THE INSTANT CASE THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE IS RUNNING TWO SEPARATE BUSIN ESS UNDER ITA NO .3868/A/04 SHRI RAMESHBHAI N. SHAH ASST.YEAR -2001-02 - 5 - PROPRIETORSHIP. ONE BUSINESS IS CARRIED OUT UNDER T HE NAME STYLE M/S INTEGRATED IMPEX IN WHICH THE ASSESSEE IS ENGAGED IN EXPORT ACTIVITY EXCLUSIVELY AND IN WHICH ASSESSE E HAS EARNED RS.15,01,059/- AS INCOME DURING THE YEAR UNDER CONS IDERATION. THE OTHER BUSINESS IS RUN BY THE ASSESSEE UNDER THE NAME M/S D S TRADING CO. IN WHICH ASSESSEE IS ENGAGED IN DO MESTIC TURNOVER ONLY AND IN WHICH THE ASSESSEE HAS SUFFERE D LOSS OF RS.1,21,999/- . THE ASSESSEE HAS CLAIMED DEDUCTION IN REGARD TO EXPORT PROFIT OF RS.15,01,059/- @ 80% THEREOF UN DER SECTION 80HHC . THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON TWO COUNTS. FIRSTLY, THE ASSESSING OFFI CER OBSERVED EVIDENCES OF REMITTANCES OF ENTIRE SALE PROCEEDS IN FOREIGN EXCHANGE WAS NOT FILED AND THEREFORE HE RESTRICTED THE ELIGIBLE EXPORT TURNOVER TO RS.28,08,111/- IN PLACE OF RS.47,55,396/-. SECONDLY, ASSESSING OFFICER TOOK TH E COMBINED TURNOVER OF ASSESSEE S BOTH THE BUSINESSES AND COM BINED PROFIT OF BOTH THE BUSINESSES TO COMPUTE PROFIT DER IVED FROM EXPORT BY APPLYING THE FORMULA STATED IN SECTION 80 HHC(3) . ITA NO .3868/A/04 SHRI RAMESHBHAI N. SHAH ASST.YEAR -2001-02 - 6 - ACCORDINGLY, AS PER THE ASSESSING OFFICER EXPORT PR OFIT WORKED OUT TO LOSS RS.5,32,335/- AND THEREFORE THE ASSESSI NG OFFICER ALLOWED DEDUCTION UNDER SECTION 80HHC AT NIL. IN AP PEAL LD. CIT(APPEALS) OBSERVED THAT THE ASSESSEE HAS GIVEN E VIDENCE OF BRINGING OF ENTIRE SALE PROCEEDS WITHIN INDIA IN FOREIGN EXCHANGE AND THEREFORE ACCEPTED THE ASSESSEES EXPO RT TURNOVER AT THE FIGURE SHOWN BY THE ASSESSEE. HOWEV ER, THE LD. CIT(APPEALS) AGREED WITH THE COMPUTATION MADE BY TH E ASSESSING OFFICER FOR ARRIVING AT EXPORT PROFIT BY TAKING COMBINED TURNOVER AND PROFIT OF THE TWO BUSINESSES. BEING AGGRIEVED BY THIS MANNER OF COMPUTATION OF EXPORT P ROFIT THE ASSESSEE IS APPEAL BEFORE US. THE CONTENTION OF THE ASSESSEE IS THAT HIS TWO BUSINESSES ARE ENTIRELY SEPARATE AND I NDEPENDENT BUSINESSES. IT IS NOT IN DISPUTE THAT SEPARATE BOOK S OF ACCOUNT ARE MAINTAINED FOR THE TWO DIFFERENT BUSINESSES. TH EREFORE, ACCORDING TO THE ASSESSEE AS BUSINESS FROM EXPORT I S EVIDENT FROM ITS SEPARATE BOOKS OF ACCOUNT MAINTAINED FOR E XPORT BUSINESS THE LD. CIT(APPEALS) WAS NOT JUSTIFIED IN COMBINING ITA NO .3868/A/04 SHRI RAMESHBHAI N. SHAH ASST.YEAR -2001-02 - 7 - TURNOVER OF TWO SEPARATE BUSINESSES AND ARRIVING AT AN ARTIFICIAL AMOUNT FOR DEEMING IT AS HIS ACTUAL EXPO RT PROFIT . WE FIND THAT IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT THE ASSESSEE IS ENGAGED IN TWO SEPARATE BUSINESSES. ONE BUSINESS CARRIED UNDER THE NAME M/S INTEGRATED ENGINEERING IMPEX IN WHICH ONLY EXPORT TRADING WAS DONE. OTHER BUSINESS WAS CA RRIED ON UNDER THE NAME M/S D S TRADING CO. IN WHICH ONLY DO MESTIC TRADING WAS DONE. SEPARATE BOOKS OF ACCOUNT FOR THE TWO BUSINESSES WERE MAINTAINED. IT IS NOT THE CASE OF T HE REVENUE THAT EXPENSES OF ONE BUSINESS WAS ACCOUNTED FOR IN THE BOOKS OF OTHER BUSINESS OR THERE WAS INTERMINGLING OF FU NDS OF TWO BUSINESSES IN SUCH A MANNER THAT SEPARATE PROFIT OF EACH OF THE BUSINESS CANNOT BE COMPUTED PRECISELY ON THE BA SIS OF ENTRIES MADE IN THE BOOKS. IN THE ABOVE CIRCUMSTANC ES IN OUR CONSIDERED OPINION THE TWO BUSINESSES WERE SEPARATE AND ACTUAL PROFIT OF THE TWO BUSINESS CAN BE COMPUTED S EPARATELY FROM THE SEPARATE BOOKS OF ACCOUNT MAINTAINED FOR T HE TWO BUSINESSES. FURTHER, IN M/S INTEGRATED ENGINEERING IMPEX THE ITA NO .3868/A/04 SHRI RAMESHBHAI N. SHAH ASST.YEAR -2001-02 - 8 - ASSESSEE WAS ENGAGED IN ONLY EXPORT TRADE AND THERE FORE, THE PROFIT OF SAID ENTITY WAS THE EXPORT PROFIT OF THE ASSESSEE AND NO EXPORT WAS UNDERTAKEN IN THE BUSINESS CARRIED ON UNDER THE NAME M/S D S TRADING CO. IN THE ABOVE CIRCUMST ANCES IN OUR CONSIDERED OPINION PROVISIONS OF SUB-SECTION (3 ) OF SECTION 80HHC DOES NOT COME INTO PLAY . OUR ABOVE VIEW FIND S SUPPORT FROM THE DECISION OF HONBLE MADRAS HIGH CO URT IN THE CASE OF CIT VS SURESH B MEHTA (2007) 291 ITR 46 2 (MAD) IN WHICH THE HIGH COURT HAS FOLLOWED ITS EARLIER DECIS ION IN THE CASE OF CIT VS. RATHORE BROTHERS (2002) 254 ITR 656 (MAD). THE SAID DECISIONS WERE AGAIN FOLLOWED BY THE HIGH COUR T IN THE CASE OF CIT VS M. GANI & CO. (2008) 301 ITR 381 (MA D). WE FIND THAT LD. CIT(APPEALS) HAS APPLIED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATOR IES LTD 266 ITR 521 (SC) IN SUPPORT OF HIS ACTION FOR COMBI NING THE TURNOVER AND PROFIT OF TWO DIFFERENT BUSINESSES OF THE ASSESSEE TO ARRIVE AT THE EXPORT PROFITS. WE FIND THAT IN TH E CASE OF IPCA LABORATORIES (SUPRA) THE ISSUE WAS THAT WHEN AN ASS ESSEE HAS ITA NO .3868/A/04 SHRI RAMESHBHAI N. SHAH ASST.YEAR -2001-02 - 9 - SUFFERED LOSS ON EXPORT OF TRADING ACTIVITIES AND H AS EARNED INCOME FROM EXPORT OF MANUFACTURING GOODS THEN SUCH LOSS FROM EXPORT OF TRADING GOODS ARE TO BE SET OFF FROM THE INCOME OF EXPORT OF MANUFACTURING GOODS IN VIEW OF SECTION 80HHC(3)(A)(B)(C). IN OTHER WORDS, AS PER THE AFOR ESAID DECISION EXPORT LOSS FROM ONE BUSINESS IS TO BE SET OFF AGAINST THE EXPORT INCOME OF OTHER BUSINESS TO ARRIVE AT TH E EXPORT PROFIT WITH REFERENCE TO WHICH DEDUCTION UNDER SECT ION 80HHC IS TO BE COMPUTED. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT NO EXPORT ACTIVITY WAS UNDERTAKEN IN THE BUSINESS C ARRIED ON UNDER THE NAME M/S. D.S. TRADING CO. THEREFORE, THE ABOVE DECISION IN THE CASE OF IPCA LABORATORIES (SUPRA) I S NOT APPLICABLE IN THE INSTANT CASE. IN VIEW OF THE ABO VE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DIREC T THE ASSESSING OFFICER TO ALLOW DEDUCTION UNDER SECTION 80HHC TO THE ASSESSEE BY TAKING ENTIRE PROFIT AS GAIN DERIVE D FROM THE BUSINESS CARRIED ON UNDER THE NAME M/S. INTEGRATED ENGINEERING IMPEX BY TAKING THE SAME AS PROFIT DERI VED FROM ITA NO .3868/A/04 SHRI RAMESHBHAI N. SHAH ASST.YEAR -2001-02 - 10 - EXPORT. THUS, THIS GROUND OF THE APPEAL OF THE ASS ESSEE IS ALLOWED. 9. THE GROUND NO. 4 OF THE APPEAL RELATES TO UPHOLD ING THE DISALLOWANCE OF RS. 11,360/- OUT OF TELEPHONE EXPEN SES AND VEHICLE EXPENSES. AT THE TIME OF HEARING, THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT DUE T O SMALLNESS OF THE AMOUNT INVOLVED IN THIS GROUND OF APPEAL, THE SAME IS NOT PRESSED. THEREFORE, THIS GROUND OF APP EAL OF THE ASSESSEE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 31/07/2009. SD/- SD/- ( R.V. EASWAR ) ( N.S. SAINI ) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD; DATED 31/07/2009 ANKIT COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT 3. THE CIT CONCERNED. 4. THE LD. CIT(APPEALS)-VII, AHMEDABAD 5. THE DR, AHMEDABAD BENCH. 6. THE GUARD FIL E. BY ORDER, ITA NO .3868/A/04 SHRI RAMESHBHAI N. SHAH ASST.YEAR -2001-02 - 11 - //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD FIT FOR PUBLICATION SD/- SD/- ( R.V. EASWAR ) ( N.S. SAINI ) VICE PRESIDENT ACCOUNTANT MEMBER