ACIT 14(3), MUMBAI V. VIREN J. SHAH, MUMBAI

ITA 4163/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3408 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 27-02-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 20-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Assessee Lawyers: DR K SHIVARAM; PARAS SAVLE
• Keywords: Business income
• Section: 143(3); 80HHC; 263

Judgement Text

ITA NO. 4163/M/2011 AND CO NO. 38/M/2012 SHRI VIREN J. SHAH PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.4163/MUM/2011 (ASSESSMENT YEAR: 2003-04) ASSISTANT COMMISSIONER OF INCOME TAX 14(3) 6 TH FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI- 400 021. SHRI VIREN J. SHAH PROP. M/S BALAJI EXPORT CO. 307, 3 RD FLOOR, SARAF MANSION 9/11, OLD HANUMAB LANE 32, PEINCESS STREET MUMBA 02. PAN:- AAGPS0827D APPELLANT RESPONDENT CO NO.38/MUM/2012 (ASSESSMENT YEAR: 2003-04) ARISING OUT OF ITA 4163/MUM/2011 SHRI VIREN J. SHAH PROP. M/S BALAJI EXPORT CO. 307, 3 RD FLOOR, SARAF MANSION 9/11, OLD HANUMAB LANE 32, PEINCESS STREET MUMBA 02. PAN:- AAGPS0827D ASSISTANT COMMISSIONER OF INCOME TAX 14(3) 6 TH FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI- 400 021. APPLICANT RESPONDENT ASSESSEE BY: SHRI DR. K. SHIVARAM & PARAS SAVLE DEPARTMENT BY: SHRI O.P. MEENA DATE OF HEARING: 10 /06/2013 DATE OF PRONOUNCEMENT: 19/06/20 13 O R D E R PER RAJENDRA SINGH, A.M. THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 15.3.2011 OF CIT ( A) FOR THE ASSESSMENT YEAR 2003-04 PASSED BY AO U/S 143(3)/263 OF THE IT ACT. THE DISPUTE RAISED BY THE REVENUE IN ITS APPEAL IS REGARDING AD DITION OF RS. 23,47,695/- ON ACCOUNT OF EXCESS CONSUMPTION OF 24 CT GOLD. IN THE ITA NO. 4163/M/2011 AND CO NO. 38/M/2012 SHRI VIREN J. SHAH PAGE 2 OF 8 CROSS OBJECTION FILED THE ASSESSEE HAS DISPUTED THE ORDERS OF CIT (A) IN RELATION TO ADDITION OF RS. 3,19,308/-ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK OF 22 CT JEWELLERY AND RS. 62,615/- O N ACCOUNT OF UNDER VALUATION OF CLOSING STOCK OF 21 CT JEWELLERY AS WE LL AS ADDITION OF RS. 1,49,232/- ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK OF 24 CT GOLD BULLION WHICH HAVE BEEN CONFIRMED BY CIT (A). THE A SSESSEE HAS ALSO CHALLENGED THE ORDER OF CIT (A) DENYING DEDUCTION U/S 80HHC TO THE ASSESSEE ON ACCOUNT OF INTEREST INCOME OF RS. 18,19 ,992/-. 2. WE FIRST TAKE UP THE APPEAL OF THE REVENUE IN ITA NO. 4163/MUM/2011 . THE ONLY DISPUTE RAISED BY THE REVENUE IS REGARDI NG DELETION OF ADDITION OF RS. 23,47,695/- MADE BY AO ON ACCOUNT OF EXCESS CONSUMPTION OF 24 CT GOLD BULLION IN MANUFACTURING OF JEWELLERY. IN THE ORIGINAL ASSESSMENT ORDER PASSED BY AO U/S 143(3) N O ADDITION HAD BEEN MADE. SUBSEQUENTLY, CIT ON EXAMINATION OF RECORDS N OTED THAT TOTAL WEIGHT OF MANUFACTURING JEWELLERY IN RESPECT OF 22 CT, 21 CT AND 18 CT WAS 795239.93 GRAM AND QUANTITY OF 24 CT GOLD CONSU MED IN THE SAID JEWELLERY WAS 7,15,613.410 GRAM. CIT FURTHER NOTED THAT AUDITORS IN THE TAX AUDIT REPORT IN CLAUSE 28 (B) HAD GIVEN THE UTI LIZATION OF GOLD AT 720281.380 GRAM WHEN ACTUAL UTILIZATION WAS ONLY 71 5613.410 GRAM. THERE WAS THUS EXCESS CONSUMPTION OF 4667.970 GRAM OF GOLD. IN OTHER WORDS, THE CLOSING STOCK OF 24 CT GOLD HAD BEEN SHO WN SHORT BY 4667.970 GRAM OF GOLD, THE VALUE OF WHICH CAME TO R S. 23,47,695/-. CIT, THEREFORE, HELD THE ASSESSMENT ORDER PASSED BY AO ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND DIRECTED THE AO TO COMPLETE THE ASSESSMENT ORDER AFRESH ON THIS POINT AFTER ALLOWIN G OPPORTUNITY OF HEARING TO THE ASSESSEE. THE AO IN THE FRESH ASSESS MENT ORDER PASSED TREATED THE EXCESS CONSUMPTION OF 4667.97 GRAM OF GOLD AS SUPPRESSION OF CLOSING STOCK AND, THEREFORE MADE AD DITION OF RS. 23,47,695/- ON THIS ACCOUNT. ITA NO. 4163/M/2011 AND CO NO. 38/M/2012 SHRI VIREN J. SHAH PAGE 3 OF 8 2.1 THE ASSESSEE DISPUTED THE DECISION OF AO AND SU BMITTED BEFORE CIT (A) THAT THE ASSESSEE HAD SUBMITTED A CHART BE FORE THE AO GIVING CALCULATION OF CONSUMPTION OF GOLD AS PER THE ASSES SEE AND AS MADE BY AO WHICH IS REPRODUCED BELOW:- AS PER ASSESSEE AS PER ITO CARAT (CT) PURITY OF GOLD 99.5% PURE WEIGHT OF MANUFACTURED JEWELLERY IN GRAMS QTY. OF 24CT (99.5%) GOLD IN GRAMS IN THE JEWELLERY BASED ON PURITY CARAT (CT) PURITY OF GOLD 99.5% PURE WEIGHT OF MANUFACTURED JEWELLERY IN GRAMS QTY. OF 24CT (99.5%) GOLD IN GRAMS IN THE JEWELLERY BASED ON PURITY 1 2 3 4 1 2 3 4 22CT 91.7% 4,88,142.124 4,49,875.706 (2X3/99.5 PURITY) 22CT - 4,88,142.124 4,47,479.885 (1X3/24CT) 21CT 87.5% 3,02,481.466 2,66,001.290 (2X3/99.5 PURITY) 21CT - 3,02,481.466 2,64,671.280 (1X3/24CT) 18CT *83.3% 4,616.340 3,864.735 (2X3/99.5 PURITY) 18CT - 4,616.340 3,462.250 SUB TOTAL 7,95,239.930 7,19,741.730 SUB TOTAL 7,95, 239.930 7,15,613.410 21CT WASTA GE 87.5% 613.660 539.651 (2X3/99.5 PURITY) - - - - TOTAL TOTAL: 7,95,853.590 7,20,281.381 TOTAL 7,95,239.930 7,15,613.410 2.2 THE ASSESSEE POINTED OUT THAT IN THE ABOVE COMP UTATION THE ASSESSEE HAD FOLLOWED THE METHOD OF CONVERSION INTO PURITY ON THE BASIS OF INTERNATIONAL STANDARD APPROVED BY THE WORLD GOL D COUNCIL, WHEREAS THE AO HAS APPLIED THE CRUDE METHOD BASED ON COMMON UNDER STANDING. ITA NO. 4163/M/2011 AND CO NO. 38/M/2012 SHRI VIREN J. SHAH PAGE 4 OF 8 THE DEFINITION OF KARATAGE IN GOLD CONTENT AS PER R ECOGNIZED INTERNATIO NAL STANDARDS WAS SUBMITTED AS UNDER:- CARATS/KARATS FINENESS (OF 1000) GOLD % CONTENT COMMENTS 24 999 99.9% PURE GOLD 24 990 99.0% MINIMUM ALLOWED FOR PURE GOLD 22 916 91.6% INDIAN SUBCONTINENT 21 875 87.5% ARABIC COUNTRIES (19.2) 800 80.0% STANDARD IN PORTUGAL 18 750 75.0% STANDARD INTERNATIONAL KARATAGE 14 585 58.5% 583/58.3% IN USA 10 417 41.7% MINIMUM IN USA 9 375 37.5 U.K. STANDARD 8 333 33.3% MINIMUM GERMANY 2.3 IT WAS ARGUED THAT THE ASSESSEE HAD GIVEN THE CORRE CT METHOD OF COMPUTATION OF CONSUMPTION OF 24 CT GOLD AT 7,20,28 1.381 GRAM. THE METHOD ADOPTED BY AO GIVING CONSUMPTION AT 7,15,613 .410 GRAM WAS NOT PROPER. THEREFORE, IT WAS SUBMITTED THAT THE A DDITION MADE BY AO HAD NO PROPER BASIS AND HAD TO BE DELETED. AFTER CO NSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) OBSERVED THAT THERE WAS NO DIFFERENCE IN THE WEIGHT OF MANUFACTURING JEWELLERY BOTH IN THE CALCULATION MADE BY ASSESSEE AND THAT BY THE AO. TH E EXCESS CONSUMPTION WAS ONLY BASED ON DIFFERENT METHOD OF C OMPUTATION MADE BY AO WHICH HAD NO PROPER BASIS WHEREAS THE METHOD ADOPTED BY THE ASSESSEE WAS ON THE BASIS OF INTERNATIONAL STANDARD APPROVED BY WORLD GOLD COUNCIL. CIT (A) THEREFORE, DIRECTED THE AO TO DELETE THE ADDITION MADE, AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL B EFORE TRIBUNAL. ITA NO. 4163/M/2011 AND CO NO. 38/M/2012 SHRI VIREN J. SHAH PAGE 5 OF 8 2.4 BEFORE US, THE LEARNED AR FOR THE ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE CIT( A) WHEREAS THE LEARNED DR PLACED RELIANCE ON THE ORDER OF AO. 2.5 WE HAVE PERUSED THE RECORDS AND CONSIDERED RIVA L CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITION ON ACC OUNT OF CONSUMPTION OF 24 CT GOLD IN MAKING OF 22 CT, 21 CT, AND 18 CT OF JEWELLERY. THE TOTAL WEIGHT OF JEWELLERY WAS 7,95,853.590 ABOUT WH ICH THERE IS NO DISPUTE BETWEEN THE ASSESSEE AND THE AO. THE DISPUT E IS ONLY IN RELATION TO CALCULATION OF CONSUMPTION IN TERMS OF 24 CT GOL D. THE COMPUTATION OF CONSUMPTION HAS BEEN MADE BY THE ASSESSEE ON THE BASIS OF GOLD CONTENT AS PER INTERNATIONAL STANDARD AS PER WHICH THE PURITY OF 24 CT GOLD VARIES FROM 99% TO 99.9% AND, THEREFORE, THE A SSESSEE HAD TAKEN THE CONTENT OF 24 CT GOLD AT 99.5%. THE GOLD CONTE NT IN RESPECT OF 22 CT IS 91.7% AND 87.5% IN RESPECT OF 21 CT WHEREAS T HE GOLD CONTENT IN RESPECT OF 18 CT IS 83.3% AS PER THE INTERNATIONAL STANDARD. THE ASSESSEE HAS THEREFORE COMPUTED THE CONSUMPTION IN TERMS OF 24 CT GOLD IN THE RATIO OF 91.7% TO 99.5%, IN RESPECT OF 22 CT JEWELLERY AND IN THE RATIO OF 87.5% TO 99.5% IN RESPECT 21 CT JEWELL ERY AND IN RESPECT OF 18 CT JEWELLERY IT HAS BEEN CALCULATED IN THE RATIO OF 83.3% TO 99.5%. THE ASSESSEE HAS EXPLAINED BEFORE AO AND CIT (A) TH AT THOUGH THE CONTENT IN RESPECT OF 18 CT JEWELLERY AS PER INTERN ATIONAL STANDARD IS 75% BUT THE BUYER HAD PLACED SPECIFIC ORDER FOR ORN AMENTS OF 83.3% PURITY AND, THEREFORE, THE ASSESSEE HAD ADOPTED 83. 3% CONTENT IN RESPECT OF 18 CT JEWELLERY. THIS CLAIM OF THE ASSESSEE HAD NOT BEEN CONTROVERTED BY AO OR EVEN BY LD. DR BEFORE US. THEREFORE, IN OU R VIEW THE COMPUTATION OF CONSUMPTION MADE BY THE ASSESSEE IN TERMS OF 24 CT GOLD IS CORRECT. THE AO ON THE OTHER HAND MADE THE COMPUTATION IN THE RATIO OF 22 TO 24 IN RESPECT OF 22 CT JEWELLERY AND 21 TO 24 IN RESPECT OF 21 CT JEWELLERY AND SIMILARLY IN RESPECT OF 18 CT J EWELLERY. HE HAS NOT MADE THE COMPUTATION BASED ON THE GOLD CONTENT AS P ER THE INTERNATIONAL STANDARD. THEREFORE, THE APPROACH ADO PTED BY AO IS PRIMA FACIE INCORRECT. WE, THEREFORE, SEE NO INFIRMITY IN THE O RDER OF CIT (A) ITA NO. 4163/M/2011 AND CO NO. 38/M/2012 SHRI VIREN J. SHAH PAGE 6 OF 8 DIRECTING THE AO TO DELETE THE ADDITION MADE ON ACC OUNT OF CONSUMPTION OF GOLD. THE ORDER OF CIT (A) IS ACCORDINGLY UPHELD . 3. THE CROSS OBJECTION OF THE ASSESSEE IN CO NO. 38/MUM/2012. 3.1 IN THE CROSS OBJECTION THE ASSESSEE HAS DISPUTE D THE ORDER OF CIT (A) IN RELATION TO ADDITION OF RS. 1,49,232 ON ACCO UNT OF UNDER VALUATION OF 24 CT GOLD BULLION, THE ADDITION OF RS. 3,19,308 /- ON ACCOUNT OF UNDER VALUATION OF STOCK OF 22 CT JEWELLERY AND RS. 62,675 ON ACCOUNT OF UNDER VALUATION OF 21 CT WHICH HAD BEEN UPHELD BY C IT (A). AT THE TIME OF HEARING OF THE APPEAL, LEARNED AR DID NOT PRESS THESE GROUNDS. THE GROUNDS ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 3.2 THE ONLY REMAINING GROUND IS REGARDING DENIAL OF CLAIM OF DEDUCTION U/S 80HHC BY THE AO IN RESPECT OF INTEREST INCOME O F RS. 18,19,992/-. THE ASSESSEE HAD SHOWN INTEREST EARNED FROM FDR AND LOANS GIVEN AT RS. 18,19,992/-. THE AO IN THE ASSESSMENT PROCEEDIN GS U/S 143(3)/263 HAS ASSESSED THE INTEREST INCOME AS INCOME FROM OTH ER SOURCES AND, THEREFORE, DENIED THE CLAIM OF DEDUCTION U/S 80HHC IN RESPECT OF SUCH INCOME. 3.3 THE ASSESSEE DISPUTED THE DECISION OF AO AND SU BMITTED BEFORE CIT (A) THAT THE ASSESSEE HAD EARNED INTEREST INCOM E OF RS. 12,92,809/- FROM FDR AND INTEREST ON LOANS OF RS. 5,27,283/- WH ICH HAD BEEN SHOWN AS BUSINESS INCOME AS THESE LOANS AND DEPOSITS WERE IN CONNECTION WITH BUSINESS. CIT (A) HOWEVER, DID NOT ACCEPT THE CONTE NTIONS RAISED AND HELD THAT INTEREST INCOME WAS NOT DERIVED FROM THE BUSINESS OF EXPORT OF JEWELLERY CARRIED ON BY THE ASSESSEE. RELIANCE FOR THE SAID PROPOSITION WAS PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF CIT VS. STERLING FOODS (234 ITR 575) AND ON THE JUDGMENT IN CASE OF LIBERTY INDIA VS. CIT (317 ITR 218) AND SOME OTHER JUDGMENT S. CIT (A) THEREFORE, HELD THAT THE ASSESSEE WAS NOT ENTITLED FOR DEDUCTI ON U/S 80HHC IN RESPECT OF INTEREST INCOME WHICH HAD NOT BEEN DERIV ED FROM BUSINESS OF ITA NO. 4163/M/2011 AND CO NO. 38/M/2012 SHRI VIREN J. SHAH PAGE 7 OF 8 EXPORT. ACCORDINGLY HE CONFIRMED THE ORDER OF AO, A GGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 3.4 BEFORE US, LEARNED AR FOR THE ASSESSEE SUBMITTE D THAT IN THE ORIGINAL ASSESSMENT MADE BY AO THE CLAIM OF DEDUCTI ON U/S 80HHC IN RESPECT OF INTEREST INCOME HAD BEEN DISALLOWED WHIC H HAD BEEN DISPUTED BY THE ASSESSEE AND THE TRIBUNAL FINALLY IN THE ORD ER DATED 19.9.2008 IN ITA NO. 6057/MUM/2006 HAD ALLOWED THE CLAIM OF THE ASSESSEE. IT WAS POINTED OUT THAT THE FRESH ASSESSMENT ORDER HAD BEE N PASSED BY AO IN PURSUANCE OF ORDER OF CIT U/S 263 OF THE IT ACT BUT IN THE SAID ORDER THERE WAS NO ISSUE RELATING TO ALLOWABILITY OF DEDU CTION U/S 80HHC IN RESPECT OF INTEREST INCOME. THEREFORE, THE AO WAS N OT JUSTIFIED IN MAKING THE DISALLOWANCE IN THE ORDER PASSED U/S 143(3)/263 . THE LEARNED DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF AUT HORITIES BELOW. 3.5 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. WE FIND THAT IN THE ORIGINAL ASSESSMENT ORDER PASSED BY THE AO U/S 143(3), THE CLAIM OF DEDUCTION U/S 80HHC IN RES PECT OF INTEREST INCOME OF RS. 18,19,992/- HAD BEEN DENIED WHICH HAD BEEN DISPUTED BY THE ASSESSEE. THE TRIBUNAL IN THE ORDER DATED 19-9 -2008 IN ITA NO. 6057/MUM/2006 IN ASSESSMENT YEAR 2003-04 HELD THAT INTEREST INCOME WAS INCOME FROM BUSINESS IN VIEW OF THE JUDGMENT O F HONBLE HIGH COURT OF BOMBAY IN CASE OF CIT VS. INDO SWISS JEWEL S LTD. (284 ITR 389). THE TRIBUNAL, THEREFORE, HELD THAT DEDUCTION U/S 80 HHC WAS ALLOWABLE TO THE ASSESSEE. HOWEVER, BEFORE THE ORDER OF TRIBU NAL WAS PASSED, CIT IN THE ORDER DATED 25.3.2008 U/S 263 HAD GIVEN CERTAIN DIRECTIONS FOR FRESH CONSIDERATION BY THE AO IN RESPECT OF ORIGINAL ASSE SSMENT ORDER PASSED UNDER THE PROVISIONS OF SECTION 263 OF THE IT ACT. WE HAVE CAREFULLY PERUSED THE SAID ORDER OF CIT AND FIND THAT DIRECTI ON GIVEN BY CIT FOR FRESH CONSIDERATION WERE ONLY IN RELATION TO CLOSIN G STOCK OF JEWELLERY. INSOFAR AS 80 (HHC) IS CONCERNED THE ONLY ISSUE CON SIDERED BY CIT WAS IN RELATION TO ALLOWABILITY OF DEDUCTION U/S 80 (HHC) IN RESPECT OF EXCESS EXPORT OF FOB VALUE OF RS.14,190/-. THERE WAS NO IS SUE CONSIDERED BY ITA NO. 4163/M/2011 AND CO NO. 38/M/2012 SHRI VIREN J. SHAH PAGE 8 OF 8 CIT U/S 263 IN RELATION TO ALLOWABILITY OF CLAIM OF DEDUCTION U/S 80 (HHC) IN RELATION TO INTEREST INCOME. THEREFORE, TH E DENIAL OF DEDUCTION U/S 80 HHC IN RESPECT OF INTEREST INCOME IN THE ASS ESSMENT ORDER PASSED BY AO WAS NOT JUSTIFIED. IN ANY CASE SUCH IS SUE HAS ALREADY BEEN DECIDED BY TRIBUNAL VIDE ORDER DATED 19.9.2008 IN I TA NO. 6057/MUM/06 FOR SAME YEAR. THEREFORE, THE ADDITION MADE BY AO ON ACCOUNT OF DENIAL U/S 80HHC IN RELATION TO INTEREST INCOME CANNOT BE UPHELD. WE, THEREFORE, SET ASIDE THE ORDER OF CIT ( A) AND ALLOW THE CLAIM OF THE ASSESSEE. 4. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED WHEREAS THAT BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 /6/2013 SD/- SD/- (SANJAY GARG) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 19 TH JUNE 2013. SK SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI