ACIT CIR 3, MUMBAI V. MEGH MALHAR ENTERPARISES, MUMBAI

ITA 4104/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1347 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 03-07-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S S RANA; DR V ANJANEYULU
• Assessee Lawyers: M CHETAN A KARIA
• Keywords: Business income; Cost of acquisition; Competent authority
• Section: 80HHC; 115JB; 80HH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE SHRI S V MEHROTRA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 4196/MUM/2009 (ASSESSMENT YEAR: 2003-04) INCOME TAX OFFICER, 4(2)(4), ROOM NO.647, 6 TH FL, AAYAKAR BHAVAN M K ROAD, MUMBAI-400020 .APPELLANT VS MERCURY LABORATORIES LTD SHREEJI BHAVAN, 52, MANGALDAS ROAD, PRINCESS STREET, MUMBAI-400002. PAN : AAACM0414D RESPONDENT APPELLANT BY : DR.V.ANJANEYULU AND SHR I S S RANA RESPONDENT BY : SHRI M CHETAN A KARIA O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 28.4.2009 OF CIT(A) FOR HE ASSESSMENT YEAR 2003-04. 2. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/ S ITA NO. 4196/MUM/2009 (ASSESSMENT YEAR: 2003-04) 2 80HHC INSPITE OF THE FACT THAT GROSS INCOME IS NEGATIVE IN VIOLATION TO THE PROVISIONS OF SECTION 80(A)(2) READ WITH CLAUSE (IV) OF SECTION 115JB OF THE IT ACT, 1961; 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION ON ACCOUNT OF EMPLOYEES CONTRIBUTION TO PF PAID WITHIN GRACE PERIOD WITHOUT CONSIDERING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PAMWI TISSUES PVT LTD (215 CTR (BOM) 150) 3. GROUND NO.1 IS REGARDING THE DEDUCTION U/S 80HH C. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC AT RS.5,82,230 /- IN THE ORIGINAL RETURN WHICH WAS REDUCED TO RS.5,21,113/ - WHEN THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3). SUBSEQUENTLY, THE ASSESSMENT WAS REOPENED AND DURIN G THE RE-ASSESSMENT PROCEEDINGS THE DEDUCTION WAS DENIED BY THE AO ON THE GROUND THAT THE ASSESSEE CLAIMED DIRECT C OST OF RS.67,53,993/-. BUT ACTUAL DIRECT COST AS PER THE STATEMENT FURNISHED BY THE ASSESSEE WAS WORKED OUT TO BE RS.83,79,208/- COMPRISING THE PURCHASE PRICE OF RS.70,69,410/- AND FREIGHT OF TRADING GOODS OF RS. 13,09,798/-. THE ASSESSEE CONTENDED BEFORE THE AO THAT IN THE AN NEXURE C TO FORM 10CC THE AMOUNT OF EXPORT BILL EXCLUDED FROM THE EXPORT TURNOVER REGARDING DEBTS NOT RECEIVED TILL 30.9.2003 TO THE EXTENT OF RS.19,06,578/- AND HAS CONSIDERED THE EXPORT TURNOVER OF TRADING GOODS AT RS.88,70,858/- ONLY. T HE ASSESSEE ACCORDINGLY EXCLUDED DIRECT COST OF SUCH T RADING GOODS WHICH WERE EXCLUDED FROM THE EXPORT TURNOVER. BUT THE ITA NO. 4196/MUM/2009 (ASSESSMENT YEAR: 2003-04) 3 AO DID NOT ACCEPT THE ASSESSEES CONTENTION AND DE NIED THE DEDUCTION UNDER SECTION 80HHC ON THE GROUND THAT T HE GROSS INCOME IS NEGATIVE. 4. ON APPEAL, THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE BILLS WHICH WERE NO T RECEIVED WITHIN SIX MONTHS OF THE END OF THE FINANCIAL YEAR HAVE BEEN CORRECTLY EXCLUDED FROM THE EXPORT TURNOVER OF TH E TRADING GOODS AS WELL AS FROM DIRECT COSTS OF TRADING GOO DS. 5. WE HAVE HEARD THE LEARNED DR AS WELL AS THE LEA RNED AR AND CONSIDERED THE RELEVANT RECORD. THE MAIN CO NTENTION OF THE LEARNED DR IS THAT WHEN THE GROSS INCOME OF THE ASSESSEE IS NEGATIVE THEN THE DEDUCTION UNDER SECTI ON 80HHC IS NOT ALLOWABLE. HE FURTHER CONTENDED THAT AS PER THE PROVISIONS OF SECTION 80(A)(2) READ WITH CLAUSE (V ) OF SECTION 115JB, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION UNDER SECTION 80HHC WHEN THE NET RESULT IS A LOSS. HE H AS RELIED UPON THE ORDER OF THE AO. 6. ON THE OTHER HAND, THE LEARNED AR HAS SUBMITTED THAT THE ASSESSEE HAS WORKED OUT THE DEDUCTION U/S 80H HC REGARDING THE EXPORT OF TRADING GOODS BY REDUCING T HE SALE PROCEEDS WHICH WAS NOT RECEIVED WITHIN SIX MONTHS F ROM THE END OF THE FINANCIAL YEAR I.E UPTO 30.9.2009 FROM T HE TOTAL SALES PROCEEDS OF EXPORT OF TRADING GOODS. AT THE SAME TIME, ITA NO. 4196/MUM/2009 (ASSESSMENT YEAR: 2003-04) 4 AS PER THE PROVISIONS OF SECTION 80HHC, THE ASSESSE E HAS ALSO REDUCED DIRECT COST WHICH INCLUDES PURCHASE COST A ND FREIGHT CHARGES REGARDING THE EXPORT OF THE GOODS FOR WHICH THE SALE PROCEEDS WAS NOT RECEIVED WITHIN SIX MONTHS. THERE FORE, THE ELIGIBLE EXPORT PROFITS WAS WORKED OUT BY THE ASS ESSEE BY TAKING THE SALE PROCEEDS WHICH WAS RECEIVED IN CONV ERTIBLE FOREIGN EXCHANGE BEFORE 30.9.2003 BY REDUCING THE DIRECT COST ONLY TO THE RECEIPT OF SAID SALE PROCEEDS WHICH IS CORRECT AS PER LAW. HE HAS FURTHER SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF AHMED ABAD BENCH OF THE TRIBUNAL IN THE CASE OF ITO V/S ADANI PORT LTD REPORTED IN 108 ITD (1) . 7. IT IS UNDISPUTED FACT THAT THE ASSESSEE DID NOT RECEIVE THE SALE PROCEEDS TO THE EXTENT OF RS.19,06,578/- WITHI N SIX MONTHS FROM THE END OF FINANCIAL YEAR. THEREFORE, AS PER THE PROVISIONS OF CLAUSE (A) OF SUB-SECTION (2) OF 80HH C, THE SAME WAS NOT ELIGIBLE FOR DEDUCTION U/S 80HHC. AS PER CLAUSE (B) OF SUB-SECTION 3 OF 80HHC, THE PROFITS DERIVE D FROM SUCH EXPORT SHALL BE THE EXPORT TURNOVER IN RESPECT OF S UCH TRADING GOODS AS REDUCED BY THE DIRECT COSTS AND INDIRECT C OSTS ATTRIBUTABLE TO SUCH EXPORT IT IS APT TO QUOTE T HE RELEVANT PROVISIONS OF SECTION 80HHC : ITA NO. 4196/MUM/2009 (ASSESSMENT YEAR: 2003-04) 5 DEDUCTION IN RESPECT OF PROFITS RETAINED FOR EXPOR T BUSINESS. 80HHC. [(1). (2)(A) THIS SECTION APPLIES TO ALL GOODS OR MERCHANDISE, OTHER THAN THOSE SPECIFIED IN CLAUSE (B), IF THE SALE PROCEEDS OF SUCH GOODS OR MERCHANDISE EXPORTED OUT OF INDIA ARE [RECEIVED IN, OR BROUGHT INTO, INDIA] BY THE ASSESSEE [(OTHER THA N THE SUPPORTING MANUFACTURER)] IN CONVERTIBLE FOREIG N EXCHANGE [, WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR, [WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF].] [EXPLANATION... [(3) FOR THE PURPOSES OF SUB-SECTION (1),. (A) (B) WHERE THE EXPORT OUT OF INDIA IS OF TRADING GOODS, THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE EXPORT TURNOVER IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT COSTS AND INDIRECT COSTS ATTRIBUTABLE TO SUCH EXPORT ; 8. FROM THE CO-JOIN READING OF ABOVE TWO SUB-SECTIO NS IT IS CLEAR THAT THE DEDUCTION U/S SECTION 80HHC IS ALLOWABLE ONLY IN RESPECT OF SALE PROCEEDS OF ALL GOODS OR MERCHANDISE EXPORTED OUT OF INDIA AND RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIB LE FOREIGN EXCHANGE WITHIN A PERIOD OF SIX MONTHS FRO M THE END OF THE PREVIOUS YEAR OR WITHIN SUCH FURTHER PER IOD AS ALLOWED BY THE COMPETENT AUTHORITY. THE PROFIT DERI VED FROM SUCH EXPORT SHALL BE THE EXPORT TURNOVER MINU S DIRECT COST AND INDIRECT COST ATTRIBUTABLE TO SUCH EXPORT. ITA NO. 4196/MUM/2009 (ASSESSMENT YEAR: 2003-04) 6 THEREFORE, THE PROFIT FOR THE PURPOSE OF SECTION 80 HHC WILL BE THE EXPORT TURNOVER AS PER CLAUSE (A) OF SU B- SECTION (2) OF SECTION 80HHC REDUCED BY THE DIRECT COST AND INDIRECT COSTS ATTRIBUTABLE TO SUCH EXPORT AS PER CLAUSE. (B) OF SUB-SECTION 3. THE ASSESSEE HAS W ORKED OUT THE ELIGIBLE PROFITS AS UNDER : EXPORT OF TRADING GOODS PURCHASE COST OF TRADING GOODS FREIGHT TOTAL DIRECT COST AY 2003-04 OR FY 2002-03 RS. (1) RS (2). RS (3). RS. (4) = (2) +(3) 1,07,77,436 70,69,410 13,09,798 83,79,208 LESS : EXPORT NOT ELIGIBLE AS EXPORTS AS PAYMENTS FOR THEM RECEIVED AFTER 30.9.2003 19,06,578 14,59,799 1,65,416 16,25,215 NET ELIGIBLE EXPORTS AND THEIR DIRECT COSTS 88,70,858 56,09,611 11,44,382 67,53,993 WHEREAS THE AO WHILE COMPUTING THE DEDUCTION HAS TAKEN INTO ACCOUNT ONLY EXPORT TURNOVER WHICH WAS BROUG HT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE WITHIN SIX M ONTHS FROM THE END OF THE FINANCIAL YEAR TO REDUCE THE COST RE GARDING THE ENTIRE SALES PROCEEDS I.E. THE TURNOVER WHICH WAS B ROUGHT INTO INDIA WITHIN SIX MONTHS FROM THE END OF THE FINANC IAL YEAR AS WELL AS THE TURNOVER WHICH WAS NOT BROUGHT INTO INDIA WITHIN SIX MONTHS. IN THIS WAY, THE AO HAS ARRIVED AT A N EGATIVE FIGURE /RESULTS. WHEN THE PROVISIONS OF SECTION 8 0 HHC ARE ITA NO. 4196/MUM/2009 (ASSESSMENT YEAR: 2003-04) 7 VERY MUCH CLEAR AND A CODE IN ITSELF THAN EXCEPT AS PROVIDED UNDER THE PROVISIONS OF SECTION 80HHC NO ADJUSTMENT CAN BE MADE WHILE COMPUTING THE ELIGIBLE PROFITS. ACCORDI NGLY, THE AO HAS COMMITTED A MISTAKE BY TAKING INTO ACCOUNT T HE ENTIRE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO EXPORT TURNOVER WHICH WAS BROUGHT INTO INDIA AS WELL AS NOT BROUGHT TO I NDIA WITHIN SIX MONTHS FROM THE END OF THE FINANCIAL YEAR. ACC ORDINGLY, WE DECIDE THIS ISSUE AGAINST THE REVENUE AND IN FAV OUR OF THE ASSESSEE. THE ORDER OF CIT(A) IS UPHELD QUA THIS ISSUE. 9. THE NEXT ISSUE IS REGARDING DISALLOWANCE OF EMPL OYEES CONTRIBUTION TOWARDS PF WITHIN GRACE PERIOD. 10 THE AO HAS DISALLOWED A SUM OF RS.6,59,162/- PA ID TOWARDS THE EMPLOYEES CONTRIBUTION TO THE PF. 11. ON APPEAL, THE CIT(A) HAS HELD THAT THE ASSESS EE HAS PAID THE EMPLOYEES CONTRIBUTION WITHIN FIVE DAYS G RACE PERIOD AND DIRECTED THE AO TO VERIFY THE FACTS. IF THE AS SESSEE HAS PAID THE SAID CONTRIBUTION TOWARDS WITHIN FIVE DAYS PERIOD THEN ALLOW THE SAID EXPENDITURE. 12 WE HAVE HEARD THE LEARNED AR OF THE ASSESSEE AS WELL AS THE LEARNED DR AND CONSIDERED RELEVANT RECORD. WHEN THE PAYMENTS HAS BEEN MADE BY THE ASSESSEE AS PER THE G RACE PERIOD ALLOWABLE BY THE CONCERNED ACT THEN THE SAM E CANNOT ITA NO. 4196/MUM/2009 (ASSESSMENT YEAR: 2003-04) 8 BE CONSIDERED AS DELAYED PAYMENT. UNDER THE PROVI SIONS OF SECTION 2(24)(X) READ WITH SECTION 36(1)(VA) OF T HE INCOME TAX ACT IF THE EMPLOYEES CONTRIBUTION IS NOT MADE WITHIN THE DUE DATE PRESCRIBED UNDER THE ACT THE SAME CANNOT BE ALLOWED AS AN EXPENDITURE BUT WHEN THE ASSESSEE HAS MADE THE PAYMENT WITHIN THE PERIOD ALLOWABLE BY THE EMP LOYEES PROVIDENT FUND ACT. ACCORDINGLY, WE DO NOT FIND AN Y ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A) QUA THIS ISS UE. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON 24.06.2010 SD SD (S V MEHROTRA ) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 24 TH JUNE 2010 SRL:4510 COPY TO: 1. INCOME TAX OFFICER, 4(2)(4), ROOM NO.647, 6 TH FL, AAYAKAR BHAVAN M K ROAD, MUMBAI-400020 2.MERCURY LABORATORIES LTD SHREEJI BHAVAN, 52, MANGALDAS ROAD, PRINCESS STREET, MUMBAI-400002. 3. CIT-(IV), MUMBAI 4. CIT(A)-IV, MUMBAI ITA NO. 4196/MUM/2009 (ASSESSMENT YEAR: 2003-04) 9 5. DR B BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI