Madhusudan International(Previously known as Madhusudan Silk Mills), Surat V. The ACIT., Circle-2, Surat

ITA 4053/AHD/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0357 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 24-08-2009
• Assessment Year: 2000-2001
• Appeal Filed On: 16-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S SANDHU
• Keywords: Competent authority; Set aside
• Section: 143(3); 80HHC; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER ITA NO.4053-4054/AHD/2008 ASSESSMENT YEARS:2000-01 & 2001-02 DATE OF HEARING:24.8.09 DRAFTED:14.9.09 MADHUSUDAN INTERNATIONAL (PREVIOUSLY KNOWN AS MADHUSUDAN SILK MILL), 2 ND FLOOR, KAJIWALA COMPLEX, NR. KINNARY CINEMA, RING ROAD, SURAT PAN NO.AAEFM2037K V/S . ACIT, CIRCLE-2, SURAT (APPELLANT) .. (RESPONDENT) APPELLANT BY :- NONE RESPONDENT BY:- SHRI B.S. SANDHU, CIT, DR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THE ONLY COMMON ISSUE IN THESE TWO APPEALS OF THE A SSESSEE IS AS REGARDS TO THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SALE CONSIDERAT ION OF DEPB TREATING THE SAME AS PROFIT AND REDUCING 90% OF WHICH, FROM THE PROFITS OF THE BUSINESS IN ACCORDANCE WITH CLAUSE-(BAA) TO THE EXP LANATION TO SEC. 80HHC(3). ITA NO.4053-54/AHD.2008 A.Y. 2001-02 MADHUSUDAN INTERNATIONAL V. ACIT-CIR-2, SURAT P AGE 2 2. THE FACTS IN BOTH THE YEARS ARE EXACTLY IDENTICA L. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIR M AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF CLOTHS. THE ASSESSEES TURNOVER IS AMOUNTING TO RS.14,56,04,302/-. THE ASSESSEE FIL ED RETURN OF INCOME AND ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFIC ER U/S 143(3) OF THE ACT AT A TOTAL INCOME OF RS.10,82,910/-. THE ASSESS MENT WAS REOPENED U/S 148 AND THE ASSESSING OFFICER HELD THAT THE EXP ORT TURNOVER OF THE ASSESSEE IS EXCEEDING RS.10 CRORES AND ACCORDINGLY DEPB SALES REALIZATION AT RS.2,00,90,160/- WERE NOT ELIGIBLE FOR DEDUCTION AS PER THE THIRD PROVISO TO SEC. 80HHC(3) OF THE ACT. ACCORDINGLY, T HE ASSESSING OFFICER BY GIVING FOLLOWING FINDINGS, MADE THE DISALLOWANCE IN PARA-6 AS UNDER: 6. I HAVE PERUSED THE SUBMISSION MADE BY THE ASSE SSEE. THE REPLY FILED IS VERY GENERAL AND SUBJECTIVE IN NATUR E. THE ASSESSEE HAS FAILED TO FURNISH ANY DOCUMENTARY EVIDENCE AS R EGARDS TO EXERCISING OF THE OPTIONS AVAILABLE FOR EITHER CHOO SING DEPB OR DUTY DRAWBACK WHICH IS THE PRIMARY CONDITION FOR BEING E LIGIBLE FOR DEDUCTION U/S 80HHC AS PER SUB CLAUSE 3 OF SECTION 80HHC OF THE ACT. THUS, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTI ON U/S 80HHC, ACCORDINGLY, THE DEDUCTION OF RS. 3,35,95,054 ORIGI NALLY THE ASSESSEE IS DISALLOWED AND ADDED TO THE TOTAL INCOM E. 3. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY GI VING FOLLOWING FINDING IN PARA-3 TO 3.2 AS UNDER: 3. THE ASSESSMENT ORDER IS VERY CLEAR. THE AO REO PENED THE ASSESSMENT IN VIEW OF THE AMENDMENTS TO SEC 80HHC B Y THE TAXATION LAWS (AMENDMENT ACT) OF 2005, AND RECOMPUT ED THE ADMISSIBLE DEDUCTION UNDER THE SAID SECTION. THIS T HE AO DID FOR SEVERAL ASSESSMENT YEARS IN THE CASE OF THE ASSESSE E, AFTER THE AMENDMENT ACT CAME INTO EFFECT. THE FACTS AND CIRCU MSTANCES OF THE CASE, INCLUDING THE GROUNDS ON WHICH THE ASSESS MENTS WERE REOPENED HAVE REMAINED THE SAME IN ALL THE ASSESSME NT YEARS I.E. FROM _AY 2000-01 TO AY20P5-06. THE. AR'S SUBMISSIO NS IN EACH OF THE YEARS HAVE REMAINED THE SAME, ONLY THAT THIS YE AR, THE AR HAS CLAIMED THAT THE DEPB BENEFIT DOES NOT FALL UNDER T HE PROVISIONS OF SEC 28(IIID) BUT UNDER 28(IV), SO THAT NO DEDUCTION COULD BE MADE FROM THE 'PROFITS OF THE BUSINESS' UNDER CLAUSE (BA A) TO THE ITA NO.4053-54/AHD.2008 A.Y. 2001-02 MADHUSUDAN INTERNATIONAL V. ACIT-CIR-2, SURAT P AGE 3 EXPLANATION BELOW THE SAID SECTION. AND SIMILARLY, NO AMOUNT IS REQUIRED TO BE ADDED BACK UNDER THE THIRD PROVISO O N THE GROUND THAT THE ASSESSEE DID NOT FULFILL THE CONDITIONS LA ID DOWN THEREUNDER. THIS MATTER HAS ALREADY BEEN DEALT WITH WHILE DECID ING THE ASSESSEE'S APPEAL FOR THE AY 2002-03, VIDE ORDER DA TED 02/11/2006. 3.1 FURTHER, THE AR HAS ALSO PLACED RELIANCE T HIS TIME ON THE UNREPORTED DECISION OF THE MUMBAI BENCH OF THE IT AT IN THE CASE OF M/S GLENMARK LABORATORIES V/S ACIT IN ITA NO 597 9/M/06 TO ARGUE THAT THE PROFIT FROM THE SALE OF DEPB HAS TO BE COMPUTED AFTER ADJUSTING THE ELEMENT OF 'DIRECT COST' ATTRIB UTABLE TO THE EARNINGS OF DEPB CREDITS. THUS, THE COST OF DEPB CA NNOT BE TAKEN AS 'NIL', AND A PART OF THE 'DIRECT COST' HAS TO BE AP PORTIONED AS THE COST INCURRED IN ACQUIRING THE DEPB BENEFIT. IN THIS CON TEXT, IT MUST BE SAID THAT THE HON'BLE ITAT AHMEDABAD BENCH HAS N OT ENTERTAINED THE APPEALS OF SEVERAL EXPORTERS BASED ON THE SAID DECISION OF THE MUMBAI ITAT. THIS IS BECAUSE, AS MENTIONED IN THE GROUNDS OF APPEAL IN THIS CASE, SEVERAL EXPORTERS HA VE FILED WRITS IN DIFFERENT HIGH COURTS ACROSS THE COUNTRY AND ALL TH ESE WRITS HAVE BEEN CENTRALISED OR BUNCHED FOR BEING DISPOSED OF B Y THE HON'BLE SUPREME COURT. PENDING THE DECISION OF THE HON'BLE SUPREME COURT, THE AHMEDABAD ITAT HAS KEPT ALL SUCH APPEALS IN ABE YANCE. THEREFORE, THE RELIANCE PLACED BY THE AR ON THE CASE OF GLENMARK LABORATORIES IS NOT ENTERTAINED. 3.2 OTHERWISE, FOLLOWING MY DECISION TAKEN IN ASSE SSEE'S OWN CASE IN THE AYS 2002-03 AND 2004-05, I UPHOLD THE A CTION OF THE AO IN RE-COMPUTING THE ADMISSIBLE DEDUCTION U/S 80HHC IN ACCORDANCE WITH THE TAXATION LAWS (AMENDMENT) ACT OF 2005, WHE REBY THE SALE CONSIDERATION OF DEPB AMOUNTING TO RS 2,00,90,160 W AS TREATED AS THE PROFIT THEREON, 90% OF WHICH WAS REDUCED FROM T HE 'PROFITS OF THE BUSINESS' IN ACCORDANCE WITH CLAUSE-(BAA) TO TH E EXPLANATION BELOW SEC 80 HHC(3). FURTHER, THE FAILURE TO FULFIL L THE CONDITIONS LAID DOWN UNDER THE THIRD PROVISO, THE ASSESSEE'S EXPORT TURNOVER BEING IN EXCESS OF RS 10 CRORES, MEANT THAT NO DEDUCTION U/S 80HHC WAS ADMISSIBLE TO THE ASSESSEE. THE AO WAS JUSTIFIED IN DISALLOWING THE CLAIM OF DEDUCTION OF RS 3,35,95,054. 4. AGGRIEVED, THE ASSESSEE AGAIN CAME IN SECOND APP EAL BEFORE US. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE FA IRLY STATED THAT THE ISSUE HAS BEEN DECIDED BY THE MUMBAI SPECIAL BENCH OF THE I.T.A.T. IN ITA NO.5769/MUM/2006 FOR ASSESSMENT YEAR 2002-03 WHEREI N IT IS HELD AS UNDER: ITA NO.4053-54/AHD.2008 A.Y. 2001-02 MADHUSUDAN INTERNATIONAL V. ACIT-CIR-2, SURAT P AGE 4 89. THE QUESTION RAISED BEFORE THE SPECIAL BENCH HAS TWO PARTS. IN SO FAR AS THE FIRST PART :WHETHER TH E ENTIRE AMOUNT RECEIVED ON SALE OF DEPB ENTITLEMENTS REPRES ENTS PROFIT CHARGEABLE UNDER SECTION 28(IIID)'OF THE INC OME-ACT', IS CONCERNED, WE ANSWER IT IN NEGATIVE AND THE SECOND PART OF THE QUESTION FOR THE PROFIT REFERRED TO THEREIN REQ UIRES ANY ARTIFICIAL COST TO BE INTERRELATED? ' IS REPLIED IN AFFIRMATIVE TO THE EXTENT THAT THE FACE VALUE OF DEPB SHALL BE DED UCTED FROM THE SALE PROCEEDS. AS REGARDS THE GROUNDS IN THESE APPEALS AGAINST THE DENIAL OF DEDUCTION U/S 80HHC, IN LULL OR PART, WE FIND THAT THE COMPUTATION OF PROFITS DERIVED FROM E XPORTS AND THE RESULTANT AMOUNT OF DEDUCTION UNDER THIS SECTIO N CAN BE MADE ONLY WHEN THE DECISION IS TAKEN ON THE AMOUNT AND THE TIMING OF TAXABILITY OF THE FACE VALUE OF DEPB AND THE PROFIT ON ITS SALE. ON THIS ISSUE WE HOLD THAT THE FACE VA LUE OF DEPB IS CHARGEABLE TO LAX U/S 28.(IIIB) AT THE TIME OF A CCRUAL OF INCOME, THAT IS, WHEN THE APPLICATION FOR DEPB IS F ILED WITH THE COMPETENT AUTHORITY PURSUANT TO EXPORTS AND PRO FIT ON SALE OF DEPB REPRESENTING THE EXCESS OF SALE PROCEE DS OF DEPB OVER ITS FACE VALUE IS LIABLE TO BE CONSIDERED U/S 28(IIID) AT THE TIME OF ITS SALE. WHATEVER IS SAID ABOUT DEP B, SHALL ALSO HOLD GOOD FOR DFRC, ON BOTH ITS COMPONENTS, VI Z, THE FACE VALUE OF DFRC AND PROFIT ON ITS TRANSFER, EXCE PT FOR THE FACT THAT THE PROFIT ON SALE OF DFRC SHALL BE CHARG ED TO TAX U/S 28(IIIE). THERE IS NO DISPUTE ABOUT THE DUTY DR AWBACK, WHICH SHALL BE CHARGEABLE TO TAX AT THE TIME OF ACC RUAL OF INCOME U/S 28(IIIC) WHEN APPLICATION IS FILED WITH THE COMPETENT AUTHORITY AFTER MAKING EXPORTS. SINCE THE NECESSARY FACTS FOR THE DETERMINATION OF THE QUANTU M OF DEDUCTION U/S 80HHC, AS DISCUSSED ABOVE, ARE NOT AV AILABLE ON RECORD. WE, THEREFORE, SET ASIDE THE IMPUGNED OR DERS AND DIRECT THE ASSESSING OFFICER TO COMPUTE THE AMOUNT OF RELIEF IN ACCORDANCE WITH THE VIEW EXPRESSED BY US HERE IN ABOVE. 5. WE FIND THAT THE HONBLE MUMBAI SPECIAL BENCH HA S CATEGORICALLY HELD THAT THE PROFIT ON SALE PROCEEDS OF DEPB REPRE SENTING SALE PROCEEDS OF DEPB IS LIABLE TO BE CONSIDERED U/S 28(IIID) AT THE TIME OF ITS SALE. IN VIEW OF THE ABOVE DECISION OF THE MUMBAI SPECIAL BE NCH OF THE I.T.A.T. IN THE CASE OF M/S TOPMAN EXPORTS (SUPRA), ONLY THE PR OFIT PORTION IS TO BE TAXED U/S 28(IIID). AS REGARDS TO DEDUCTION U/S 80 HHC FOR DETERMINATION OF THE QUANTUM OF DEDUCTION, THE FACTS ARE NOT AVAI LABLE ON RECORD, HENCE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES TO THE FILE OF THE ASSESSING OFFICER FOR COMPUTING THE DEDUCTION IN ACCORDANCE W ITH THE DECISION OF THE ITA NO.4053-54/AHD.2008 A.Y. 2001-02 MADHUSUDAN INTERNATIONAL V. ACIT-CIR-2, SURAT P AGE 5 MUMBAI SPECIAL BENCH IN THE CASE OF M/S TOPMAN EXPO RTS (SUPRA). THESE TWO APPEALS OF THE ASSESSEE ARE SET ASIDE TO THE FI LE OF ASSESSING OFFICER. 6. IN THE RESULT, T HE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 09/10 /2009 SD/- SD/- (D.C.AGRAWAL) (MAHAVIR SIN GH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 09/10/2009 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD