M/s Priya Aqua Farms, Guntur V. The ACIT, Circle-2(1)., Guntur

ITA 417/VIZ/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50203 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-04-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 05-10-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Section: 80HHC; 147; 148

Judgement Text

ITA NOS.7 & 417 OF 07 PRIYA AQUA FARMS, GUNTUR IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 6 & 417 /VIZAG/ 20 07 ASSESSMENT YEAR S : 2003 - 04 & 1999 - 2000 RES PECTIVELY PRIYA AQUA FARMS GUNTUR VS. ACIT, CIRCLE - 2(1) GUNTUR (APPELLANT) (RESPONDENT) PAN NO.AACFP 7408F APPELLANT BY: SHRI C. SUBRAHMANYAM, CA RESPONDENT BY: SHRI J. SIRI KUMAR, SR. DR ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAIN ST THE RESPECTIVE ORDER OF THE CIT(A) ON VARIOUS COMMON GROUNDS. IN THESE APPEALS THE ASSESSEE HAS RAISED VARIOUS GROUNDS BUT THEY ALL RE LATE MAINLY ON TWO ISSUES. ONE IS WITH REGARD TO THE VALIDITY OF THE RE-OPENIN G OF THE ASSESSMENT BY ISSUING A NOTICE U/S 148 OF THE ACT AND THE SECOND IS WITH REGARD TO THE COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. 2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y EXAMINED THE ORDER OF THE LOWER AUTHORITIES AND WE FIND THAT THOUGH TH E ASSESSEE HAS RAISED A GROUND CHALLENGING THE VALIDITY OF THE RE-OPENING O F THE ASSESSMENT U/S 147 OF THE ACT BUT THIS GROUND DOES NOT EMERGE FROM THE ORDER OF THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS NOT RAISED THIS GROUND OF APPEAL. THEREFORE, THERE IS NO ADJUDICATION OF THIS GROUND IN THE ORDER OF THE CIT(A). BEFORE THE TRIBUNAL, ASSESSEE HAS RAISED FIRST TIME THIS GROUND. SINCE THIS GROUND DOES NOT ARISE OUT OF THE ORDER OF THE CIT(A ), WE FIND NO JUSTIFICATION TO ENTERTAIN THE SAME AND WE ACCORDINGLY REJECT IT. NOW THE MAIN ISSUE LEFT OUT IN THESE APPEALS IS WITH REGARD TO THE ELIGIBIL ITY OF DEDUCTION U/S 80HHC OF THE ACT. ITA NOS.7 & 417 OF 07 PRIYA AQUA FARMS, GUNTUR 2 3. THE FACTS BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE IS A SUPPORTING MANUFACTURE AND CLAIMED THE DEDUCTION U/ S 80HHC ON THE BASIS OF A DISCLAIMER CERTIFICATE ISSUED BY THE EXPORT HOUSE . THE ASSESSING OFFICER HAS HOWEVER DENIED THE DEDUCTION AFTER HOLDING THAT EXP ORT HOUSE HAD INCURRED A LOSS, AND IN THE LIGHT OF JUDGEMENT OF THE APEX COU RT IN THE CASE OF IPCA LABORATORIES VS. DCIT 226 ITR 31 ASSESSEE IS NOT EN TITLED FOR DEDUCTION U/S 80HHC OF THE ACT. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) BUT DID NOT FIND FAVOUR WITH HIM IN BOTH THE YEARS. 4. NOW THE ASSESSEE IS BEFORE US WITH THE SUBMISSIO N THAT THE JUDGEMENT OF THE APEX COURT IN THE CASE OF IPCA LABORATORIES (SUPRA) IS ONLY APPLICABLE TO THOSE CASES WHERE THE ASSESSEE HIMSELF HAS INVOL VED IN EXPORT ACTIVITIES. FOR A SUPPORTING MANUFACTURE IT IS NOT NECESSARY TH AT THE EXPORT HOUSE MUST EARN PROFIT ON ITS EXPORTS. THE REQUISITE CONDITIO N FOR CLAIMING DEDUCTION U/S 80HHC FOR THE SUPPORTING MANUFACTURE IS ONLY TO SEL L THE GOODS TO THE EXPORT HOUSE FOR ITS EXPORT AND ON THE PROFIT EARNED BY TH E ASSESSEE HE IS ENTITLED FOR DEDUCTION U/S 80HHC OF THE ACT. IN SUPPORT OF ITS CONTENTION HE HAS INVITED OUR ATTENTION TO THE PROVISIONS OF SECTION 80HHC WITH THE SUBMISSION THAT NOWHERE SECTION 80HHC SAYS THAT THE DEDUCTION IN THE CASE OF SUPPORTING MANUFACTURE SHALL BE ALLOWED IF ONLY THE RE IS A PROFIT TO THE EXPORT HOUSE ON ACCOUNT OF GOODS EXPORTED BELONGING TO THE SUPPORTING MANUFACTURE. FOR A SUPPORTING MANUFACTURE ONLY FOL LOWING CONDITIONS ARE REQUIRED TO BE PROVED. (1) THE GOODS HAVE BEEN EXPORTED. (2) THE FOREIGN EXCHANGE HAVE BEEN REALIZED. (3) DISCLAIMER CERTIFICATE ISSUED BY THE EXPORT HOU SE. (4) THERE IS A PROFIT TO THE MANUFACTURE ON ACCOUNT OF GOODS EXPORTED. SINCE THE ASSESSEE HAS FULFILLED ALL THESE CONDITIO NS IT IS ENTITLED FOR DEDUCTION U/S 80HHC ON EXPORT PROFIT. 5. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTEND ED THAT SECTION 80HHC HAS NOT IMPOSED ANY CONDITION THAT GOODS SHOU LD BE SOLD BY THE EXPORT HOUSE FOR A PROFIT TO ENABLE THE SUPPORTING MANUFACTURE TO CLAIM THE ITA NOS.7 & 417 OF 07 PRIYA AQUA FARMS, GUNTUR 3 BENEFIT. IT WAS FURTHER CONTENDED THAT JUDGEMENT O F THE APEX COURT IN THE CASE OF IPCA LABORATORIES IS ON DIFFERENT FOOTINGS IN AS MUCH AS THE ISSUE BEFORE THEM WAS WHETHER THE ASSESSEE IS ENTITLED FO R DEDUCTION U/S 80HHC IN RESPECT OF SUM OF RS.3.78 CRORES BY IGNORING A LOSS OF RS.6.86 CRORES. HE HAS ALSO PLACED A RELIANCE UPON THE FOLLOWING JUDGEMENT S:- LACHMAN DAS VS. ACIT (2011) 237 CTR (DEL) (FB) 117 ACIT VS. AFFECTION INVESTMENTS (2004) 2 SOT 165 (A HD) CIT VS. THANE ELECTRIC SUPPLY LTD. (1994) 206 ITR 727 KANEN OIL AND EXPORTS INDIA LTD. VS. JCIT (2009) 1 21 ITD 596 6. THE LD. D.R. ON THE OTHER HAND BESIDE PLACING A RELIANCE UPON THE CIT(A) ORDER HAS SUBMITTED THAT THE IMPUGNED ISSUE WAS EXAMINED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.732/H YD/2009 IN WHICH THE TRIBUNAL HAS TAKEN A VIEW THAT SINCE THERE WAS NO P ROFIT AND EXPORT HOUSE SUFFERED A LOSS THEY CANNOT ISSUE ANY DISCLAIMER CE RTIFICATE TO THE ASSESSEE AND THEREFORE THE ASSESSEE IS NOT ENTITLED FOR ANY DEDUCTION U/S 80HHC OF THE ACT. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE ORDERS OF LOWER AUTHORITIES AND JUDGEMENTS REFERRED TO BY THE PARTIES. WE HAVE ALSO EXAMINED THE ORDER OF TRIBUNAL IN THE ASSESSEES OW N CASE IN WHICH TRIBUNAL HAS HELD THAT SINCE THERE WAS NO PROFIT AND EXPORT HOUSE SUFFERED A LOSS THEY CANNOT ISSUE ANY DISCLAIMER CERTIFICATE TO THE ASSE SSEE AND THEREFORE THE ASSESSEE IS NOT ENTITLED FOR ANY DEDUCTION U/S 80HH C OF THE ACT. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE ARE EXTRACTED HEREUNDER: WE HAVE CONSIDERED RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ONLY ISSUE T HAT ARISES FOR CONSIDERATION IS, WHEN THE EXPORT HOUSE HAS SUFFERED A LOSS, CAN THEY PASS ON THE DEDUCTION TO THE SUPPORTING MANUFACTURER BY WAY OF A DISCLAIM ER CERTIFICATE? THIS ISSUE WAS CONSIDERED BY THE APEX COURT IN THE CASE OF IPC A LABORATORY LTD. (SUPRA). THE APEX COURT, AFTER DISCUSSING THE PROV ISIONS OF SEC. 80HHC, HAS OBSERVED AS FOLLOWS AT PAGES 531 AND 532 OF THE REP ORT:- IT WAS NEXT SUBMITTED THAT EVEN WHEN THE PROFITS ARE TO BE REDUCED BY THE LOSSES IN CASES WHERE AN EXPORT HOUS E HAS DISCLAIMED ITS TURNOVER IN FAVOUR OF A SUPPORTING M ANUFACTURER, THE TURNOVER OF THE EXPORTER GETS REDUCED TO THE EXTENT DISCLAIMED. IT ITA NOS.7 & 417 OF 07 PRIYA AQUA FARMS, GUNTUR 4 IS SUBMITTED THAT AS THE TURNOVER, WHICH WAS DISCLA IMED, IS REDUCED IT CANNOT THEN BE TAKEN INTO CONSIDERATION FOR THE PURPOSES OF COMPUTING PROFITS UNDER SUB-SECTION (3)(C)(II). IN OUR VIEW THIS IS AN ARGUMENT WHICH MERELY NEEDS TO BE STATED TO BE R EJECTED. IF SUCH AN ARGUMENT IS ACCEPTED IT WOULD LEAD TO AN AB SURD RESULT. IT WOULD MEAN WHEN IF THERE WAS NO DISCLAIMER THE EXPO RT HOUSE WOULD NOT BE ENTITLED TO ANY DEDUCTION IN CASES WHE RE THERE IS A LOSS BUT BECAUSE DISCLAIMER HAS BEEN MADE BOTH THE EXPORT HOUSE AND THE SUPPORTING MANUFACTURE WOULD BECOME ENTITLE D TO DEDUCTIONS. THE PROVISO TO SUB-SECTION (1) OF SECT ION 80HHC ENABLES A DISCLAIMER ONLY TO ENABLE THE EXPORT HOUS E TO PASS ON DEDUCTIONS. IT IN NO WAY REDUCES THE TURNOVER OF T HE EXPORT HOUSE. IN COMPUTING TOTAL INCOME, THE ENTIRE TURNOVER IS T AKEN INTO ACCOUNT EVEN THOUGH THERE IS A DISCLAIMER. THUS EV EN THOUGH THE DISCLAIMER IS MADE THE TAXABLE INCOME OF RS.4.39 CR ORES HAS BEEN ARRIVED AT BY THE APPELLANTS AFTER TAKING INTO ACCO UNT THE ENTIRE TURNOVER FROM EXPORT OF TRADING GOODS. IN ARRIVING AT THE FIGURE OF RS.4.39 CRORES ADMITTEDLY THE LOSS OF RS.6.86 CRORE S HAS BEEN TAKEN INTO ACCOUNT. EVEN AFTER DISCLAIMER THE TURNOVER H AS REMAINED THE TURNOVER OF THE EXPORT HOUSE, I.E., THE APPELLANTS. THE DISCLAIMER IS ONLY FOR PURPOSES OF ENABLING THE EXPORT HOUSE TO P ASS ON THE DEDUCTION WHICH IT WOULD HAVE GOT TO THE SUPPORTING MANUFACTURER. IT FOLLOWS THAT IF NO DEDUCTION IS AVAILABLE, BECAU SE THERE IS A LOSS THEN THE EXPORT HOUSE CANNOT PASS ON OR GIVE CREDIT OF SUCH NON- EXISTING DEDUCTION TO A SUPPORTING MANUFACTURER. IN VIEW OF THE ABOVE, WHEN THE EXPORT HOUSE SUFFER ED A LOSS, THEY CANNOT GIVE ANY DISCLAIMER CERTIFICATE. WHAT CAN B E PASSED ON TO THE SUPPORTING MANUFACTURER IS THE DEDUCTION AVAILABLE ON THE BASIS OF THE PROFIT. SINCE ADMITTEDLY THERE WAS NO PROFIT AND THE EXPORT HOUSE SUFFERED LOSS OF RS.24,75,025 THEY CANNOT ISSUE ANY DISCLAIMER CERTI FICATE AS HELD BY THE APEX COURT. THEREFORE, IN OUR OPINION, THE AO RIGHTLY R EOPENED THE CASE UNDER SEC.147 AND DISALLOWED THE DEDUCTION UNDER SEC.80HH C. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACC ORDINGLY, THE SAME IS CONFIRMED. 8. IN AN ANOTHER CASE OF ANJANEYA AQUA VS. ACIT ITA NO.154/V/2008 THIS BENCH OF THE TRIBUNAL HAS TAKEN A SIMILAR VIEW. CO PY OF THE ORDER OF THE TRIBUNAL IS PLACED ON RECORD FOR PERUSAL. THE IMPU GNED ISSUE IS SQUARELY COVERED BY THE JUDGEMENT OF THE APEX COURT IN THE C ASE OF IPCA LABORATORY LTD. VS. DCIT 266 ITR 521 IN WHICH THE HONBLE SUPR EME COURT HAS CATEGORICALLY HELD THAT A DEDUCTION CAN BE PERMITTE D ONLY IF THERE IS PROFIT IN THE EXPORT OF BOTH SELF-MANUFACTURED AS WELL AS T RADING GOODS. IF THERE IS A LOSS IN EITHER OF THE TWO, THEN THAT LOSS HAS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF COMPUTING PROFITS. THEIR LORDSHIP FURTH ER HELD THAT THE DISCLAIMER ITA NOS.7 & 417 OF 07 PRIYA AQUA FARMS, GUNTUR 5 IN NO WAY REDUCE THE TURNOVER OF THE EXPORT HOUSE. IF NO DEDUCTION IS AVAILABLE BECAUSE OF LOSS THEN EXPORT HOUSE CANNOT PASS ON OR GIVE CREDIT OF SUCH NON-EXISTING DEDUCTION TO A SUPPORTING MANUFAC TURE. THE RELEVANT OBSERVATIONS OF THE APEX COURT IN THIS REGARD ARE A S UNDER: THE SUBMISSION THAT AS THE TURNOVER, WHICH IS DISCL AIMED, IS REDUCED IT CANNOT THEN BE TAKEN INTO CONSIDERATION FOR THE PURPOSES OF COMPUTING PROFITS UNDER SUB-S.(3)(C)(II ) IS AN ARGUMENT WHICH MERELY NEEDS TO BE STATED TO BE REJE CTED. IF SUCH AN ARGUMENT IS ACCEPTED IT WOULD LEAD TO AN ABSURD RESULT. IT WOULD MEAN WHEN IF THERE WAS NO DISCLAIMER THE EXPO RT HOUSE WOULD NOT BE ENTITLED TO ANY DEDUCTION IN CASES WHE RE THERE IS A LOSS BUT BECAUSE DISCLAIMER HAS BEEN MADE BOTH THE EXPORT HOUSE AND THE SUPPORTING MANUFACTURER WOULD BECOME ENTITL ED TO DEDUCTIONS. THE PROVISO TO SUB-S.(1) OF S. 80HHC E NABLES A DISCLAIMER ONLY TO ENABLE THE EXPORT HOUSE TO PASS ON DEDUCTIONS. IT IN NO WAY REDUCES THE TURNOVER OF THE EXPORT HOU SE. IN COMPUTING TOTAL INCOME, THE ENTIRE TURNOVER IS TAKE N INTO ACCOUNT EVEN THOUGH THERE IS A DISCLAIMER. THUS, EVEN THOU GH THE DISCLAIMER IS MADE THE TAXABLE INCOME OF RS.4.39 CR ORES HAS BEEN ARRIVED AT BY THE APPELLANTS AFTER TAKING INTO ACCO UNT THE ENTIRE TURNOVER FROM EXPORT OF TRADING GOODS. IN ARRIVING AT THE FIGURE OF RS.4.39 CRORES ADMITTEDLY THE LOSS OF RS.6.86 CRORE S HAS BEEN TAKEN INTO ACCOUNT. EVEN AFTER DISCLAIMER THE TURN OVER HAS REMAINED THE TURNOVER OF THE EXPORT HOUSE I.E., THE APPELLANTS. THE DISCLAIMER IS ONLY FOR PURPOSES OF ENABLING THE EXPORT HOUSE TO PASS ON THE DEDUCTION WHICH IT WOULD HAVE GOT TO TH E SUPPORTING MANUFACTURER. IT FOLLOWS THAT IF NO DEDUCTION IS A VAILABLE, BECAUSE THERE IS A LOSS, THEN THE EXPORT HOUSE CANNOT PASS ON OR GIVE CREDIT OF SUCH NON-EXISTING DEDUCTION TO A SUPPORTING MANU FACTURER. 9. FOLLOWING THE ORDER OF THE APEX COURT IN THE CAS E OF IPCA LABORATORY LTD. VS. DCIT (SUPRA), THE TRIBUNAL HAS TAKEN A PAR TICULAR VIEW IN THE ASSESSSEES OWN CASE FOR THE ASSESSMENT YEAR 2000-0 1 THAT WHEN THE EXPORT HOUSE SUFFERED A LOSS, THEY CANNOT GIVE ANY DISCLAI MER CERTIFICATE AND WHAT CAN BE PASSED ON TO THE SUPPORTING MANUFACTURE IS T HE DEDUCTION AVAILABLE ON THE BASIS OF THE PROFIT AND SINCE THERE WAS NO PROF IT AND EXPORT HOUSE SUFFERED A LOSS, THE SUPPORTING MANUFACTURE CANNOT BE ENTITLED FOR THE DEDUCTION U/S 80HHC ON THE BASIS OF THE DISCLAIMER CERTIFICATE. WE THEREFORE, FIND NO VALID REASON TO TAKE A CONTRARY VIEW IN THI S APPEAL AND FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL AND JUDGEMENT OF TH E APEX COURT, WE HOLD THAT ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 80H HC ON THE BASIS OF THE DISCLAIMER CERTIFICATE ISSUED BY THE EXPORT HOUSE W HO HAS SUFFERED A LOSS IN ITA NOS.7 & 417 OF 07 PRIYA AQUA FARMS, GUNTUR 6 EXPORT AND IS NOT ENTITLED FOR DEDUCTION U/S 80HHC OF THE ACT. WE THEREFORE, FIND NO MERIT IN THE ASSESSEES APPEAL AND WE CONFI RM THE ORDER OF THE CIT(A) IN THIS REGARD. 10. IN THE RESULT, THE APPEALS OF THE ASSESSEES ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 9.5.2011 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 9 TH MAY, 2011 COPY TO 1 M/S. PRIYA AQUA FARMS, C/O C. SUBRAHMANYAM, CHARTERED ACCOUNTANT, 102, LAKSHMI APARTMENTS, FACOR LAYOUT, WALTAIR UPLA NDS, VISAKHAPATNAM-530 003 2 ACIT, CIRCLE - 2(1), GUNTUR 3 THE CI T, GUNTUR 4 THE CIT (A) , GUNTUR 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM