AVENTIS PHARMA LTD, V. DY CIT RG 8(1),

ITA 4179/MUM/2003

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9290 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 20-09-2012
• Assessment Year: 1998-1999
• Appeal Filed On: 29-05-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: J D MISTRY MR SANJIV M SHAH
• Keywords: Opportunity of being heard
• Section: 143(3); 80HHC; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI L BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI B RAMAKOTAIAH , AM & SHRI VIJAY PAL RA O, JM ITA NO. 4179/MUM/2003 (ASST YEAR 1998-99) AVENTIS PHARMA LTD (FORMERLY HOECHST MARION ROUSSEL LTD) HOECHST CENTRE 54/A-SIRMATHURADASVASANJIROAD CHAKALA ANDHERI (E) MUMBAI 93 VS THE DY COMMR OF IN COME TAX RANGE 8(1), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAACH2736F ASSESSEE BY SH JD MISTRY/MR SANJIV M SHAH REVENUE BY SH MAHESH KUMAR DT.OF HEARING 22 ND NOV 2012 DT OF PRONOUNCEMENT 12 TH , DEC 2012 ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 23.3.2003 OF THE COMMISSIONER OF INCOME TAX(APPEALS) ARISING FRO M THE ORDER GIVING EFFECT TO COMMISSIONER OF INCOME TAX(APPEALS)S ORDER DATED 1 8.5.2001 FOR THE ASSESSMENT YEAR 1998-99. 2 THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS O F PHARMACEUTICAL PRODUCTS. IT HAD FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ON 30.11.1998 DISCLOSING THE INCOME O F ` 30.73 CRORES. THE ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) ON 28.2.2001 DE TERMINING THE TOTAL INCOME AT ` 63.04 CRORES. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER MADE CERTAIN ADDITIONS AND DISALLOWANCES WHICH WERE DISPUTED BY THE ASSESSEE IN THE APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) INTER-ALIA RESTORED THE ISSUE OF ADOP TING INDIRECT COST FOR COMPUTING ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 2 THE PROFITS OF TRADING EXPORTS TO ASSESSING OFFICER FOR THE PURPOSE OF DEDUCTION U/S 80HHC VIDE ORDER DATED 18.5.2001. PURSUANT TO THE O RDER OF THE COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSING OFFICER HAS PAS SED THE ORDER GIVING TO EFFECT TO COMMISSIONER OF INCOME TAX(APPEALS)S ORDER WHEREBY THE ASSESSING OFFICER COMPUTED THE INDIRECT COSTS ATTRIBUTABLE TO THE TRA DING GOODS EXPORTED AT ` 2,65,79,211/-. 3.1 APART FROM ALLOCATING THE INDIRECT COSTS AGAINS T THE PROFIT FROM EXPORT OF TRADING GOODS, THE ASSESSING OFFICER, WHILE PASSING THE ORDER GIVING TO EFFECT TO CIT(A)S ORDER ALSO APPLIED CLAUSE (BAA) OF EXPLANA TION TO SEC. 80HHC (4C) AND THEREBY REDUCED 90% OF OTHER INCOME, WHICH INCLUDES PROCESSING CHARGES, SALES TAX REFUND AND INCOME ON SALE OF SCRAP FROM BUSINESS PROFITS. 3.2 AGGRIEVED BY THE ACTION OF THE ASSESSING OFFICE R IN THE ORDER GIVING EFFECT TO THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS ), THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX(APPEALS) RAIS ING OBJECTION AGAINST THE JURISDICTION OF THE ASSESSING OFFICER IN THE REMAND PROCEEDINGS FOR REDUCING 90% OF OTHER INCOME UNDER CLAUSE (BAA) OF EXPLANATION TO SEC. 80HHC(4C), WHICH WAS NEITHER AN ISSUE IN THE ORIGINAL ASSESSMENT NOR REM ANDED BY THE COMMISSIONER OF INCOME TAX(APPEALS) IN THE FIRST ROUND OF LITIGATIO N. APART FROM THIS, THE ASSESSEE HAS ALSO CHALLENGED THE ALLOCATION OF INDIRECT COST AMO UNTING TO ` 2.65 CRORES. 3.3 THE COMMISSIONER OF INCOME TAX(APPEALS) HAS TUR NED DOWN THE OBJECTION OF THE ASSESSEE WITH REGARD TO THE JURISDICTION OF THE ASSESSING OFFICER FOR MAKING CERTAIN ADDITIONS IN THE ORDER GIVING TO EFFECT PROCEEDING S WHICH WAS NOT MADE IN THE ORIGINAL ASSESSMENT. ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 3 3.4 THE COMMISSIONER OF INCOME TAX(APPEALS) HAS ALT ERNATIVELY ISSUED A NOTICE U/S 251 OF THE ACT FOR ENHANCEMENT OF ASSESSMENT WI TH RESPECT TO THE ADDITIONS BY REDUCING 90% OF OTHER INCOME UNDER CLAUSE (BAA) OF EXPLANATION TO SEC. 80HHC(4C). ACCORDINGLY, OUT OF THE THREE RECEIPTS, THE COMMISS IONER OF INCOME TAX(APPEALS) HAS CONFIRMED THE EXCLUSION OF 90% IN RESPECT OF TW O RECEIPTS NAMELY SALES TAX REFUND AND PROCESSING CHARGES UNDER CLAUSE (BAA) OF EXPLANATION TO SEC. 80HHC(4C). 3.5 AS REGARDS THE SALE OF SCRAP, THE COMMISSIONER OF INCOME TAX(APPEALS) HAS HELD THAT THE ACTION OF THE ASSESSING OFFICER IS NO T IN TERMS OF PROVISIONS OF LAW AND THEREFORE, THE ADDITION ON THIS ACCOUNT WAS ALLOWED . 3.6 ON THE ISSUE OF INDIRECT COST ATTRIBUTABLE TO E XPORT OF TRADED GOODS, THE COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN PART IAL RELIEF TO THE ASSESSEE BY HOLDING THAT THE ITEMS OF EXPENDITURE CAN BE TAKEN AS COST ONLY, IF IT HAS SOME CONNECTION, LINK TO THE EXPORT AND THEREFORE, IF TH E EXPENDITURE IS TOTALLY DISCONNECTED WITH THE EXPORT ACTIVITY, IT CANNOT BE TAKEN AS PART OF THE INDIRECT COSTS. ACCORDINGLY, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS DIRECTED THE ASSESSING OFFICER TO REWORK THE INDIRECT COSTS FOR WORKING OUT THE DEDUCTION U/S 80HHC (3(B) OF THE ACT. 3.7 AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF I NCOME TAX(APPEALS), THE ASSESSEE HAS FILED THIS APPEAL BEFORE US AND RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) (HEREINAFTER REF ERRED TO AS THE LEARNED CIT(A)), HAS ERRED IN ISSUING A NOTICE DATED 18TH FE BRUARY, 2003 FOR ENHANCEMENT UNDER SECTION 251(2) OF THE ACT READ WITH EXPLANATION THERETO WHICH HAS CONSEQUENTLY RESULTED IN LESSER DEDUCTION BEING ALLOWED TO THE APPELLANT COMPANY UNDER THE PROVISIONS OF SECTION 8OH HC(3)(C)(I) OF THE ACT. HE OUGHT NOT TO HAVE DONE SO. ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 4 2. WITHOUT PREJUDICE TO GROUND NO.1, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A), HAS ERRED I N HOLDING THAT IN COMPUTING THE DEDUCTION UNDER SECTION 8OHHC(3)(C)(I) , 90% OF THE FOLLOWING RECEIPTS HAD TO BE EXCLUDED FROM THE PROFITS OF BUSINE SS/ADJUSTED PROFITS OF BUSINESS: (I) SALES-TAX REFUND ` 65,20,908 (II) PROCESSING CHARGES ` 1,85,80,156 ` , 2,51,01,064 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A), HAS ERRED IN CONFIRMING THAT THE LEARNED ASSES SING OFFICER HAD CORRECTLY EXCLUDED THE PROCESSING CHARGES OF ` . 1,85,80,156, AND SALES-TAX SET OFF / REFUND OF RS.65,20,908 FROM THE BUSINESS PROFITS BY T REATING THESE RECEIPTS AS COVERED UNDER CLAUSE (BAA) OF THE EXPLANATION TO SE CTION 8OHIIC FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER THAT SECTIO N. HE OUGHT NOT TO HAVE DONE SO. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A), HAS ERRED IN HOLDING THAT IN COMPUTING THE D EDUCTION IN RESPECT OF EXPORT OF TRADING GOODS UNDER SECTION 8OHHC, THE EXPE NDITURE INCURRED AT HYDERABAD BRANCH OFFICE OF THE APPELLANT COMPANY TO THE EXTENT NOT DIRECTLY RELATED TO DOMESTIC SALES WAS LIABLE TO BE TREATED AS PART OF INDIRECT COST OF TRADING EXPORTS WITHOUT APPRECIATING THE FA CT THAT THE SAID BRANCH OFFICE DID NOT CARRY OUT ANY ACTIVITY RELATING TO TRA DING EXPORTS. HE OUGHT NOT TO HAVE DONE SO. 4 GROUND NOS 1 TO 3 RELATING TO THE REDUCTION OF 9 0% OF THE RECEIPTS ON ACCOUNT OF SALES TAX REFUND AND PROCESSING CHARGES FROM THE PROFIT OF BUSINESS UNDER CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC. 4.1 THE LD SR COUNSEL SHRI J D MISTRY HAS SUBMITTED THAT IN THE FIRST ROUND OF LITIGATION, THE COMMISSIONER OF INCOME TAX(APPEALS) REMANDED TH E MATTER TO THE RECORD OF THE ASSESSING OFFICER WITH RESPECT TO THE DEDUCTION U/S 80HHC ONLY ON TWO ASPECTS VIZ (I) THE TOTAL TURNOVER FIGURE AND (II) COMPUTAT ION OF TOTAL DIRECT COST ATTRIBUTABLE TO THE EXPORT OF TRADING GOODS. THE ASSESSING OFFIC ER, WHILE PASSING THE ORDER GIVING EFFECT TO COMMISSIONER OF INCOME TAX(APPEALS)S ORD ER HAS EXCEEDED HIS JURISDICTION AND MADE CERTAIN ADDITIONS WITH RESPECT TO THE INC OME ON ACCOUNT OF SALES TAX REFUND, PROCESSING CHARGES AND SCRAP SALE BY REDUCI NG 90% FROM THE PROFIT OF BUSINESS UNDER CLAUSE (BAA) OF EXPLANATION TO SEC. 80HHC. THEREFORE, THE ASSESSING ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 5 OFFICER, WHILE MAKING THESE ADDITIONS HAS ACTED ILL EGALLY AND WITHOUT JURISDICTION. THE LD SR COUNSEL HAS SUBMITTED THAT THE COMMISSION ER OF INCOME TAX(APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER WITH RESPECT TO THE RECEIPTS ON ACCOUNT OF SALES TAX REFUND AND PROCESSING CHARGE S AND ALTERNATIVELY UNDER THE POWER OF ENHANCEMENT OF ASSESSMENT, WHICH IS ALSO A GAINST THE PROVISIONS OF LAW. THE LD SR COUNSEL HAS SUBMITTED THAT THE POWER OF T HE COMMISSIONER OF INCOME TAX(APPEALS) FOR ENHANCEMENT OF THE ASSESSMENT ARE RESTRICTED TO THE POWER OF THE ASSESSING OFFICER AND IF THE ASSESSING OFFICER HAS NO JURISDICTION IN THE REMAND PROCEEDINGS TO MAKE ADDITION, WHICH WAS NOT MADE IN THE ORIGINAL ASSESSMENT, THEN IN THE APPEAL AGAINST THE ORDER GIVING EFFECT, THE COMMISSIONER OF INCOME TAX(APPEALS) HAS NO JURISDICTION BEYOND THE JURISDI CTION OF THE ASSESSING OFFICER ON THE SUBJECT MATTER. HE HAS RELIED UPON THE DECISIO N OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. INDO-ADEN SALT WORKS CO. REPORTED IN 36 ITR 429. 4.2 THE LD SR COUNSEL HAS SUBMITTED THAT THE DIRECT IONS OF THE COMMISSIONER OF INCOME TAX(APPEALS) WHILE SETTING ASIDE THE ISSUE O F DEDUCTION U/S 80HHC WAS EXPLICIT TO CONSIDER THE CLAIM OF THE AMOUNT THAT A RE TO BE TAKEN AS DIRECT COST AND INDIRECT COST IN RELATION TO THE GOODS EXPORTED OU T OF INDIA FOR COMPUTATION OF DEDUCTION U/S 809HHC(3)(B). WHILE DEDUCTING 90% OF THE CERTAIN RECEIPTS WHILE WORKING OUT THE ELIGIBLE DEDUCTION U/S 80HHC, THE A SSESSING OFFICER HAS GONE BEYOND THE DIRECTION AND THEREBY EXCEEDED HIS JURIS DICTION. 4.3 THE LD SR COUNSEL HAS ALTERNATIVELY SUBMITTED T HAT EVEN OTHER WISE, THE PROCESSING CHARGES RECEIVED BY THE ASSESSEE ARE OPE RATING RECEIPTS AND CANNOT BE HELD AS THE INCOME FALLS UNDER CLAUSE III(A),(B),(C ),(D) AND (E) OF SECTION 28 AS ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 6 PROVIDED UNDER CLAUSE (BAA)OF EXPLANATION TO SECTIO N 80HHC. HE HAS FURTHER CONTENDED THAT EVEN OTHER WISE, THE EXCLUSION OF 90 % OF SUCH RECEIPTS SHOULD BE NET AND NOT GROSS AS HELD B Y THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD. V. COMMISSIONER OF INCOME-TAX RE PORTED IN 343 ITR 89. 4.4 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN A FINDING THAT THE DIRECTION GIVEN IN THE FIRST ROUND OF APPEAL ARE NOT CLEAR AND THEREFORE, WHEN THE ISSUE OF DED UCTION U/S 80HHC WAS REMANDED TO THE ASSESSING OFFICER, THEN THE ASSESSING OFFICE R, IN THE REMAND PROCEEDINGS CAN DECIDE ALL THE ASPECTS RELATING TO THE ISSUE OF DE DUCTION U/S 80HHC AND THEREFORE, THE ASSESSING OFFICER WAS HAVING JURISDICTION TO D ECIDE THE ISSUE OF EXCLUSION OF 90% OF THE OTHER INCOME AS PER CLAUSE (BAA) OF EXPLANAT ION TO SECTION 80HHC. THE LD DR HAS FURTHER SUBMITTED THAT THE JURISDICTION FOR THE ENHANCEMENT OF ASSESSMENT EXERCISED BY THE COMMISSIONER OF INCOME TAX(APPEALS ) IS ONLY AN ALTERNATIVE ACTION AFTER CONFIRMING THE ACTION OF THE ASSESSING OFFICE R. THEREFORE, THERE IS NO ILLEGALITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS ) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN REDUCING 90% OF THE OTHER INCOME WITH RESPECT TO SALES TAX REFUND AND PROCESSING CHARGES WHICH IS VERY MUCH P ART AND PARCEL OF THE SAME ISSUE OF DEDUCTION U/S 80HHC. 4.5 ON MERITS, THE LD DR HAS SUBMITTED THAT THE SAL ES TAX REFUND AND PROCESSING CHARGES ARE THE RECEIPTS/INCOME SIMILAR TO THE INCO ME AS PROVIDED UNDER CLAUSE III(A),(B),(C),(D) AND (E) OF SECTION 28. HE HAS RE LIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME -TAX V. K. RAVINDRANATHAN NAIR REPORTED IN 295 ITR 228 AS WELL AS THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 7 IN THE CASE OF COMMISSIONER OF INCOME-TAX V. DRESSE R RAND INDIA P. LTD. REPORTED IN 323 ITR 429. HE HAS RELIED UPON THE ORDERS OF THE A UTHORITIES BELOW. 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE POWER AND JURISDICTION OF THE ASSESSIN G OFFICER IN THE REMAND PROCEEDINGS ARE CIRCUMSCRIBED BY THE DIRECTIONS OF THE APPELLATE AUTHORITIES. IN THE ORIGINAL ASSESSMENT, THOUGH, THE ASSESSING OFFICER APPLIED CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC(4C) WITH RESPECT TO SA LE OF IMPORT LICENCE, DUTY DRAWBACK, DEPB ENTITLEMENTS, RENT, INTEREST, SERVI CE CHARGES, COMMISSION, OTHER MISCELLANEOUS INCOME AND DISCOUNT. THEREFORE, IT IS NOT THE CASE WHERE THE ASSESSING OFFICER HAS COMPLETELY OVERLOOKED THE PROVISIONS OF SECTION 80HHC AND PARTICULARLY CLAUSE (BAA) OF EXPLANATION TO SEC. 80HHC WHILE COM PLETING THE ORIGINAL ASSESSMENT. HOWEVER, THE CLAUSE (BAA) OF EXPLANATION TO SEC. 80 HHC WAS NOT APPLIED WITH RESPECT TO THE SALES TAX, PROCESSING CHARGES AND MI SCELLANEOUS INCOME ON SALE OF SCRAP, THE DETAILS OF WHICH ARE AS UNDER: I) SALES TAX REFUND ` 65,20,908/- II) PROCESSING CHARGES ` 1,85,80,156/- III) SALE VALUE OF SCRAP INCLUDED IN MISC. INCOME ` 1,16,989/- TOTAL ` `` ` 2,52,18,053/- 5.1 THE ASSESSEE HAS NOT CHALLENGED THE ACTION OF T HE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT TO THE EXTENT OF APPLYING CLAUS E (BAA) OF EXPLANATION TO SEC. 80HHC ON CERTAIN INCOME BUT HAS CHALLENGED THE ACTI ON OF THE ASSESSING OFFICER ONLY WITH RESPECT TO THE FIGURE OF TOTAL TURNOVER A ND ALLOCATION OF INDIRECT COST TO THE EXPORT OF TRADED GOODS. THE COMMISSIONER OF INCOME TAX(APPEALS) VIDE HIS ORDER DATED 18.5.2001 HAS REMITTED THESE TWO ISSUES IN PA RAS 26 TO 26.5 AS UNDER: 26.1 IN WORKING OUT THE DEDUCTION ALLOWABLE U/S.80 HH-C, THE ASSESSEE TOOK THE TOTAL TURNOVER AT A FIGURE OF ` ` .,5,35,79,38,457/. THE ASSESSING OFFICER HELD THAT EXPORT TURNOVER OF` ` 7.67 CRORES NOT REALISED BY 30/9/98 WAS NOT INCLUDED ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 8 IN THE TOTAL TURNOVER AS MENTIONED ABOVE. HE ACCORDIN G)Y ADDED THIS AMOUNT OF RS.7.67 CRORES TO BE TOTAL TURNOVER TAKEN BY THE AS SESSEE. THE A.R. HAS CLARIFIED THAT THE SUM OF ` . ,7.67 CRORES WAS IN FACT INCLUDED IN THE TOTAL TURNOVER AS SHOWN IN THE ANNEXURE TO THE CERTIFICATE I N FORM NO.10 CCAC, AND THAT THE AO MADE A DOUBLE ADDITION OF THE SAME AMOU NT. THE ASSESSEE ALSO FILED A PETITION U/S. 154 ON THIS POINT. THE CONTEN TION OF THE ASSESSEE APPEARS TO BE CORRECT. THE A.O. IS DIRECTED TO VERIFY THIS AN D COMPUTE THE ALLOWABLE DEDUCTION U/S 80HHC ACCORDINGLY. 26.2 IN ITS COMPUTATION, THE ASSESSEE TOOK THE TOTA L INDIRECT COSTS ATTRIBUTABLE TO TOTAL EXPORTS AT ` 29,04,71,861/- OUT OF WHICH T HE INDIRECT COSTS ATTRIBUTABLE TO THE EXPORTS OF TRADING GOODS WAS TAKEN AT ` 32,1 9,550/-. THE A.0. TOOK THESE FIGURES AT ` .1,73,00,11,000/ AND RS 1,90,26,756/- RESPECTIVELY A S A RESULT OF WHICH THE DEDUCTION ALLOWABLE U/S.80HHC IN RESPECT O F EXPORTS OF TRADING GOODS WAN CONSIDERABLY REDUCED. 26.3 THIS COMPUTATION OF TOTAL INDIRECT COSTS AT ` `.1,73,00,11,000/, THE A.O TOOK THE GENERAL EXPENSES AT ` ` .1,46,69,78,000/ AFTER EXCLUDING FROM THE GENERAL EXPENSES OF ` ` 1,40,13,51,441/- (AS PER SCHEDULE 17 OF THE ANNU AL REPORT), THE FOLLOWING EXPENSES : A) POWER, FUEL & LIGHTING ` ` 16,65,02,833 B) STORES AND SPARES ` ` 2,60,85,809 C) REPAIRS TO PLANT & MACHINERY ` ` 3,17,83,650 TOTAL ` ` 22,43,72,222/- 26.4 THE CONTENTION OF THE ASSESSEE IS THAT FOR THI S DETERMINATION OF THE INDIRECT COST ATTRIBUTABLE, TO THE EXPORTS OF TRADIN G GOOD, COSTS UNRELATED TO EXPORTS OF TRADING GOODS SHOULD NOT BE TAKER INTO ACC OUNT. IN THIS VIEW OF THE MATTER, IT IS CONTENDED THAT THE FOLLOWING EXPENSES ALSO INCLUDED IN THE GENERAL EXPENSES OF .RS. 1,69,13,51,411/-, SHOULD B E EXCLUDED FOR PURPOSE OF COMPUTING DEDUCTION ALLOWABLE U/S 80HHC IN RESPECT OF EXPORTS OF TRADING GOODS ; I) MANUFACTURING EXPENSES, NOT CONSIDERED BY THE A. O. LIKE SALARIES, WAGES, RATES, TAXES, RENT, TRAVELLING, INSURANCE, REPACKING A ND PROCESSING CHARGES, ROYALTIES, ETC. II) BRANCH EXPENSES LIKE SALARIES, WAGES, RENT, RATES, TAXES, POWER AND FUEL, LIGHTING, INSURANCE, TRAVELLING, ADVERTISEMENT, PACKI NG, FREIGHT, FORWARDING, LOCAL COMMISSION ETC. III) CERTAIN HEAD OFFICE EXPENSES. IV) AS AGAINST INTEREST OF ` ` 12,66,85,000/- CONSIDERED BY THE ASSESSING OFFICE R WHY INTEREST OF RS .96,97,538/.. SHOULD BE CONSID ERED. 26,5 AFTER GOING THROUGH THE WORKINGS OF THE A.0 AND T HE A, R., I FIND THAT THE A. 0, WORKED OUT THE INDIRECT COSTS AT RS1,73,00,11, 000/- WITHOUT GIVING A PROPER OPPORTUNITY OF BEING HOARD TO THE ASSESSEE. IT IS NOT POSSIBLE TO DECIDE IN THIS APPELLATE ORDER, WHAT ITEMS SHOULD BE INCLU DED OR EXCLUDED IN THE INDIRECT COSTS WITHOUT THE ASSESSING OFFICER DISCUSSI NG THEM THOROUGHLY IN THE ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 9 ASSESSMENT ORDER. THE ASSESSING OFFICER IS, THEREFORE , DIRECTED TO RE-COMPUTE THE DEDUCTION ALLOWABLE U/S 80HHC AFTER DISCUSSING E ACH AND EVERY CLAIM OF THE ASSESSEE BEFORE COMING TO A DECISION ON EACH PO INT. FOR THIS PURPOSE, THE MATTER IS RESTORED TO THE AO, WITH A DIRECTION TO DETE RMINE THE DEDUCTION ALLOWABLE U/S. 8O.HHC AFTER GIVING PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5.2 IT IS CLEAR THAT AS REGARDS TO THE DISPUTE OF T URNOVER, THE COMMISSIONER OF INCOME TAX(APPEALS) HAS ACCEPTED THE CLAIM OF THE A SSESSEE AND DIRECTED THE ASSESSING OFFICER JUST TO VERIFY AND COMPUTE THE DE DUCTION U/S 80HHC ACCORDINGLY. WHEREAS THE ISSUE OF INDIRECT COST ALLOCATED TO T HE EXPORT OF GOODS TRADED AS PER SEC.80HHC(3)(B), THE COMMISSIONER OF INCOME TAX(APP EALS) HAS REMANDED THE ISSUE TO THE RECORD OF THE ASSESSING OFFICER TO COMPUTE T HE DEDUCTION AFTER DISCUSSING EACH AND EVERY CLAIM OF THE ASSESSEE. THUS, SO F AR AS THE ISSUE OF DEDUCTION U/S 80HHC WHICH WAS REMANDED TO THE ASSESSING OFFICER P ERTAINS ONLY TO THE COMPUTATION OF ATTRIBUTABLE INDIRECT COST TO THE E XPORT OF TRADING GOODS. 5.3 SINCE THE ISSUE OF REDUCTION OF 90% UNDER CLAU SE (BAA) OF EXPLANATION TO SEC. 80HHC WAS NEITHER RAISED BEFORE THE COMMISSIONER O F INCOME TAX(APPEALS) IN THE APPEAL OF THE ASSESSEE NOR IT WAS TAKEN UP BY THE C OMMISSIONER OF INCOME TAX(APPEALS) IN THE FIRST ROUND OF LITIGATION; THER EFORE, THE SAID ISSUE WAS NOT AT ALL INVOLVED AND CONSIDER IN THE APPEAL OF THE ASSESSEE BY THE COMMISSIONER OF INCOME TAX(APPEALS) WHILE PASSING THE ORDER DATED 18.5.20 01 WHEREBY THE ISSUE OF INDIRECT COST ALLOCABLE TO THE EXPORT OF TRADED GOODS WAS R EMANDED TO THE ASSESSING OFFICER. 6 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CAS E WHEN THE LIMITED ASPECT/DISPUTE OF ALLOCATION OF INDIRECT COST TO TH E EXPORT OF TRADING GOODS WAS REMANDED TO THE RECORD OF THE ASSESSING OFFICER, TH EN IN THE GIVING EFFECT PROCEEDINGS IN PURSUANT TO THE DIRECTIONS OF THE C OMMISSIONER OF INCOME ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 10 TAX(APPEALS), THE JURISDICTION AND POWER OF THE ASS ESSING OFFICER IS CONFINED ONLY TO THE ISSUE AND ASPECT, WHICH HAS BEEN REMANDED FOR R EWORKING AND RE- DETERMINATION. HENCE, IN THE PROCEEDINGS PURSUANT T O THE DIRECTIONS OF THE COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSING OFFICER CANNOT GO BEYOND THE ISSUE AND ASPECT WHICH WAS DIRECTED TO BE RECONSIDE RED AND DECIDED. THUS, IN OUR VIEW, BY TAKING UP THE ISSUE OF REDUCTION OF 90% OF THE RECEIPTS ARISING FROM SALES TAX REFUND, PROCESSING CHARGES AND SALE OF SCRAP, THE A SSESSING OFFICER HAS TRAVELLED BEYOND HIS JURISDICTION LIMITED TO THE DIRECTION OF THE COMMISSIONER OF INCOME TAX(APPEALS). 6.1 NO DOUBT, THE POWER AND JURISDICTION OF THE COM MISSIONER OF INCOME TAX(APPEALS) ARE CO-TERMINUS WITH THAT OF THE ASSE SSING OFFICER; BUT THE SAME CANNOT BE EXPANDED BEYOND THE JURISDICTION OF THE A SSESSING OFFICER ON THE SUBJECT MATTER. WHEN THE ASSESSING OFFICERS JURISDICTION IS LIMITED IN THE REMAND PROCEEDINGS TO CONSIDER AND DECIDE A PARTICULAR ISSUE AND ASPEC T AS PER THE DIRECTIONS OF THE COMMISSIONER OF INCOME TAX(APPEALS), THEN IN THE AP PEAL PROCEEDINGS AGAINST THE GIVING EFFECT ORDER, THE JURISDICTION OF THE COMMIS SIONER OF INCOME TAX(APPEALS) CANNOT BE ENLARGED TO THAT OF THE ASSESSING OFFICE R. 6.2 THE HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE OF INDO-ADEN SALT WORKS CO (SUPRA), HAS OBSERVED AT PAGES 435 AND 436 AS UNDER : THAT BRINGS US TO THE CONSIDERATION OF THE REAL CO NTENTION OF THE ASSESSEE WHICH TURNS ON THE INTERPRETATION OF THE TRIBUNAL'S O RDER WHEN IT DIRECTED THE APPELLATE ASSISTANT COMMISSIONER TO DISPOSE OF THE APPEAL ON ITS MERITS. IT APPEARS FROM THAT ORDER THAT IT WAS A COMMON GROUND BEF ORE THE TRIBUNAL AT THE HEARING OF THAT APPEAL THAT IT WAS A CASE OF SUC CESSION WITHIN THE MEANING OF SECTION 25(4). IT IS ALSO CLEAR THAT THE ONLY QUESTION WHICH THE TRIBUNAL WAS ASKED TO CONSIDER AND WHICH THE TRIBUNAL HAD JURISDICTION TO CONSIDER WAS WHETHER THE APPELLATE ASSISTANT COMMISSI ONER WAS RIGHT IN DECIDING THE APPEAL ON THE SOLE LEGAL CONTENTION TH AT THERE WAS NO RIGHT IN ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 11 THE ASSESSEE TO CLAIM RELIEF IN RESPECT OF SUPER-TAX . THE TRIBUNAL HAVING REACHED THE CONCLUSION THAT THE APPELLATE ASSISTANT COMMISSIONER HAD TAKEN A TECHNICAL AND NARROW VIEW OF THE MATTER WOULD HAVE PROCEEDED TO GO INTO THE MERITS OF THE CLAIM FOR RELIEF IN RESPECT OF SU PER-TAX. IT WAS AT THAT STAGE THAT COUNSEL FOR THE ASSESSEE STATED THAT HE WANTED TO LEAD CERTAIN EVIDENCE IN RESPECT OF THE CLAIM FOR ASSESSEE FIRM FOR RELIEF F ROM SUPER-TAX. THAT THIS WAS WHAT HAPPENED BEFORE THE TRIBUNAL IS EXPRESSLY STATE D IN THE ORDER OF THE TRIBUNAL AND IT IS ONLY IN THIS BACKGROUND AND IN TH IS CONTEXT THAT THE WORDS RELATING TO VACATING THE ORDER OF THE APPELLATE ASSI STANT COMMISSIONER AND RESTORING OF THE APPEAL MUST BE READ. IT IS TRUE THAT READ BY ITSELF THE LAST SENTENCE OF THE ORDER WOULD SUGGEST THAT THE APPELLA TE ASSISTANT COMMISSIONER WAS BEING DIRECTED TO DEAL WITH THE ENTI RE APPEAL ON ITS OWN MERITS. THE ORDER OF THE TRIBUNAL MUST, HOWEVER, BE REA D AND UNDERSTOOD IN THE PROPER CONTEXT AND IN THE LIGHT OF ALL THAT IS S TATED IN THE ORDER ITSELF AND IF WE DO SO, AS INDEED WE SHOULD DO SO, THERE IS CONSID ERABLE FORCE IN THE SUBMISSION ON BEHALF OF THE ASSESSEE THAT THE ORDER M UST BE READ AS RESTRICTING THE SCOPE OF THE INQUIRY BY THE APPELLATE ASSISTANT COMMISSIONER ONLY TO THE QUESTION OF MERITS AFFECTING THE CLAIM FOR RELIEF FRO M SUPER-TAX. WE MUST, HOWEVER, OBSERVE THAT THERE IS IN THIS CASE SCOPE FOR THE CONTENTION VERY STRONGLY PRESSED BEFORE US BY MR. JOSHI. ON A CONSIDERA TION OF THE MATTER, WE PREFER TO TAKE THE VIEW THAT THE ORDER OF THE TRIBUNAL REQUIRED THE APPELLATE ASSISTANT COMMISSIONER TO INQUIRE ONLY INTO THE MATT ER OF RELIEF FROM SUPER-TAX ON ITS MERITS. 6.3 THUS, IT HAS BEEN HELD BY THE HONBLE HIGH COUR T THAT THE SCOPE OF THE ENQUIRY IS RESTRICTED ONLY TO THE QUESTION OF MERIT RELATED TO THE MATTER OF RELIEF FROM SUPER TAX AS DIRECTED BY THE TRIBUNAL. 7 THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, WE HO LD THAT THE ASSESSING OFFICER WHILE MAKING CERTAIN ADDITIONS BY RESTRICTING 90% O F THE RECEIPTS BY APPLYING CLAUSE (BAA) OF EXPLANATION TO SEC. 80HHC HAS TRAVELLED BE YOND HIS JURISDICTION AND SCOPE OF ENQUIRY AS DIRECTED BY THE COMMISSIONER OF INCOM E TAX(APPEALS) BECAUSE IT WAS NOT THE SUBJECT MATTER OF REMAND PROCEEDINGS. SINC E THE ASSESSING OFFICER WAS LACKING THE JURISDICTION IN THE REMAND PROCEEDINGS TO GO INTO THE ISSUE OTHER THAN DIRECTED TO BE RE-EXAMINED, THE COMMISSIONER OF INC OME TAX(APPEALS), IN THE APPEAL PROCEEDINGS AGAINST THE ORDER GIVING EFFECT ALSO HAS NO JURISDICTION TO GO INTO THE SAID ISSUE BECAUSE UNDER THE PROVISIONS OF SEC . 251, THE COMMISSIONER OF INCOME TAX(APPEALS) CAN EXERCISE HIS JURISDICTION ON THE I SSUE ON WHICH THE ASSESSING OFFICER ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 12 COULD HAVE EXERCISED BUT DID NOT DO SO. IN THE CA SE WHEN THE ASSESSING OFFICER HAS NO JURISDICTION OVER AN ISSUE, THEN IN THE APPELLAT E PROCEEDINGS, THE JURISDICTION OF THE COMMISSIONER OF INCOME TAX(APPEALS) CANNOT BE ENLA RGED BEYOND THE JURISDICTION OF THE ASSESSING OFFICER. HENCE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AS WITHOUT JURISDICTION. 8 GROUND NO.4 REGARDING INDIRECT COST ALLOCABLE TO EXPORT OF TRADING GOODS. 8.1 IN COMPUTING DEDUCTION U/S 80HHC IN RESPECT OF EXPORT OF TRADING GOODS, THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER TH AT THE INDIRECT COST OF TRADING EXPORT WAS ALLOWABLE TO BE REDUCED ONLY TO THE EXTE NT OF ` . 32,19,550/- AS COMPUTED IN THE COMPUTATION AS PER FORM 10CCAC. I N THE GIVING EFFECT TO THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS), T HE ASSESSING OFFICER HAS COMPUTED THE INDIRECT COST ALLOCABLE TO THE EXPORT OF TRADING GOODS AT ` . 2,65,79211/- . 8.2 ON APPEAL, THE CIT(A) HAS HELD THAT FOR THE PUR POSE OF SEC 80HHC (3)(B),AN ITEM OF EXPENDITURE CAN BE TAKEN AS COST FOR THE SA ID PURPOSE ONLY, IF IT HAS CONNECTION, LINK, ATTRIBUTES TO EXPORT AND IF THE EXPENDITURE IS TOTALLY DISCONNECTED WITH THE EXPORT ACTIVITY, IT CANNOT BE TAKEN AS A P ART OF INDIRECT COST. THUS, THE CIT(A) HAS OBSERVED THAT THE ASSESSING OFFICER HAS GONE B EYOND WHAT IS PROVIDED IN THE ACT TO WORK OUT THE INDIRECT COST ATTRIBUTABLE TO E XPORT OF TRADING GOODS. 8.3 AS REGARDS THE HO EXPENDITURE, THE CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE REGARDING THE AMOUNT TO BE TAKEN AS ATTRIB UTABLE AS INDIRECT COST TO EXPORTS OF TRADING GOODS. HOWEVER, SINCE THE ASSESS EE EXPORTED THE TRADING GOODS DURING THE YEAR WHICH WERE PROCURED FROM HYDERABAD AND MUMBAI AND THE ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 13 ASSESSEE HAS BRANCH OFFICES AT BOTH THE PLACES APAR T FROM THE HO IN MUMBAI; THEREFORE, THE EXPENDITURE INCURRED AT HYDERABAD BR ANCH OFFICE, TO THE EXTENT NOT DIRECTLY RELATED TO DOMESTIC SALE, WAS HELD TO BE T AKEN AS DIRECT COST FOR WORKING OUT THE DEDUCTION U/S 80HHC(3)(B) OF THE ACT. IT IS O N THIS PART OF THE FINDING OF THE CIT(A), THE ASSESSEE IS AGGRIEVED AND CHALLENGED TH E SAME UNDER THIS GROUND. 9 BEFORE US, THE LD SR COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER COMMITTED THE FACTUAL ERROR IN DETERMINING THE INDIRECT COST IN THE PRESENT YEAR BECAUSE HE HAS REDUCED ONLY MATERIAL COST FROM THE TOTAL EXPENDITURE AND THE BALANCE HAS BEEN TREATED AS REPRESENTING INDIRECT C OST. HE HAS IGNORED ALL OTHER COST RELATED TO MANUFACTURING AND DOMESTIC SALES AC TIVITIES AND HAS NOT ARRIVED AT ANY DIRECT COST. THE LD SR COUNSEL HAS REFERRED TH E DETAILS OF THE EXPENDITURE PERTAINING TO HYDERABAD BRANCH AT PAGE 70 OF THE PA PER BOOK AND SUBMITTED THAT ALL THESE EXPENSES ARE PERTAINING TO LOCAL SALES AN D NOT TO THE EXPORT SALES. THUS, THE LD SR COUNSEL HAS SUBMITTED THAT THE CIT(A) HAS COM MITTED AN ERROR IN DIRECTING THE AO TO WORKOUT THE DIRECT COST BY TAKING INTO ACCOUN T THE EXPENDITURE INCURRED AT HYDERABAD BRANCH AS PART OF INDIRECT COST. 9.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE CIT(A) HAD PROCEEDED ON THE PREMISES THAT THE INDIRECT COST ALLOWABLE T O THE EXPORT OF TRADING GOODS U/S 80HHC(3)(B) SHALL BE TAKEN ONLY THOSE ITEMS OF EXPE NDITURE TO HAVE DIRECTLY RELATING OR TO HAVE NEXUS WITH THE EXPORT OF GOODS. THUS, TH E LD CIT(A) HAS HELD THAT AN ITEM OF EXPENDITURE TAKEN AS COST FOR THE SAID PURPOSE, IF IT HAS SOME CONNECTION, LINK, ATTRIBUTABLE TO EXPORT, WHICH IS TOTALLY AGAINST T HE PROVISIONS OF SEC. 80HHC. HE HAS REFERRED THE EXPLANATION TO SUB.SEC (3) OF SECTION 80HHC AND SUBMITTED THAT AS PER CLAUSE (E) OF EXPLANATION THE INDIRECT COST SHOULD BE ALLOCATED IN THE RATIO OF EXPORT ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 14 TURNOVER IN RESPECT OF TRADING GOODS TO THE TOTAL T URNOVER, WHICH CLEARLY MEANS THAT THE TOTAL INDIRECT COST FOR LOCAL SALES AS WELL AS EXPORT SALES HAS TO BE TAKEN INTO CONSIDERATION FOR ALLOCATING IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE TOTAL TURNOVER. THEREFORE, THE LD DR HAS SUBMITTE D THAT THE INDIRECT COST OF BRANCHES OF THE ASSESSEE HAS TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF ALLOCATING AS PER SEC. 80HHC(3)(B) OF THE ACT. THE LD DR HAS FO RCIBLY CONTENDED THAT THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE IS NOT SUSTAINABLE AS THE SAME IS CONTRARY TO THE PROVISIONS OF SEC. 80HHC. HE HAS REFERRED T HE COMPUTATION OF INDIRECT COST BY THE AO IN THE GIVING EFFECT ORDER AND SUBMITTED TH AT THE AO HAS APPLIED THE CORRECT FORMULA AS PER EXPLANATION TO SUB..SEC (3)O F SEC. 80HHC AND THEREFORE, THE ORDER OF THE ASSESSING OFFICER HAS TO BE RESTORED. 9.2 IN REBUTTAL, THE LD SR COUNSEL HAS SUBMITTED T HAT FOR THE PURPOSE OF COMPUTATION OF INDIRECT COST ALLOCABLE TO EXPORT O F GOODS U/S 80HHC(3)(B), THE EXPENSES WHICH HAD NOTHING TO DO WITH THE EXPORT OF TRADING GOODS SHOULD BE EXCLUDED. THE LD SR COUNSEL HAS SUBMITTED THAT THOS E EXPENSES WHICH RELATE TO EITHER TO MANUFACTURING OF GOODS OR TO DOMESTIC SALES SHO ULD NOT BE CONSIDERED AS IND9RECT EXPENSES FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC. 10 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THOUGH, THE ISSUE BEFORE US IS LIMITED ONLY TO THE EXTENT OF A FINDING OF THE CIT(A) PERTAINING TO THE EXPENDITURE INCURRED AT HY DERABAD BRANCH OFFICE TO BE TAKEN AS PART OF INDIRECT COST FOR WORKING OUT THE DEDUCTION U/S 80HHC (3)(B). HOWEVER, THE SAID FINDING OF THE CIT(A) IS BASED ON THE VIEW TAKEN BY THE COMMISSIONER OF INCOME TAX(APPEALS) THAT U/S SUB. SEC. 3(B) OF SEC. 80HHC, INDIRECT COST ATTRIBUTABLE TO EXPORT INCLUDES THE ITEMS OF EXPENDITURE ONLY IF IT HAS SOME ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 15 CONNECTION, LINK, ATTRIBUTES TO EXPORT. THIS PROPOS ITION PROPOUNDED BY THE CIT(A) IS APPARENTLY AGAINST THE PROVISIONS OF SECTION 80HHC( 3)(B). IF THE PROVISIONS OF SEC 80HHC(3)(B) ARE READ IN CONJUNCTION WITH CLAUSE (E ) OF EXPLANATION TO THE SAID SUB. SECTION, IT IS CLEAR THAT THE INDIRECT COST FOR THE PURPOSE OF ALLOCATION UNDER SUB.SEC (3) SHALL BE TAKEN AS THE TOTAL INDIRECT COST INCUR RED FOR THE TOTAL TURNOVER (LOCAL + EXPORT) AND THE SAME HAS TO BE ALLOCATED IN THE RAT IO OF EXPORT TURNOVER OF TRADING GOODS TO THE TOTAL TURNOVER. 10.1 FOR READY REFERENCE, WE QUOTE SEC 80HHC(3)(B) AND CLAUSE (E) OF EXPLANATION AS UNDER: [(3) FOR THE PURPOSES OF SUB-SECTION (1), ( A ) . ( B ) WHERE THE EXPORT OUT OF INDIA IS OF TRADING GOOD S, THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE EXPORT TURNOVER 45 IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT COSTS AND INDIRECT COSTS ATTRIBUTABLE TO SUCH EXPORT; ( C ) EXPLANATION. FOR THE PURPOSES OF THIS SUB-SECTION, ( A ) .. ( B ) ( D ) . ( E ) 'INDIRECT COSTS' MEANS COSTS, NOT BEING DIRECT C OSTS, ALLOCATED IN THE RATIO OF THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS TO THE TOTAL TURNOVER ; ( F ) 10.2 IT IS CLEAR FROM THE COMBINED READING OF SUB. SEC. 3(B) AND CLAUSE (E) OF EXPLANATION TO SEC. 80HHC(3) THAT THE PROFIT DERIV ED FROM EXPORT OF TRADING GOODS SHALL BE THE EXPORT TURNOVER OF TRADING GOODS MINUS DIRECT COST AND INDIRECT COST ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 16 ATTRIBUTABLE TO SUCH EXPORTS. THE INDIRECT COST HAS BEEN DEFINED UNDER CLAUSE (E) OF EXPLANATION WHICH MEANS THE INDIRECT COST WHICH IS NOT DIRECT COST AND ALLOCATED IN THE RATIO OF EXPORT OF TRADING GOODS TO THE TOTAL T URNOVER. 10.3 THE TOTAL TURNOVER FURTHER DEFINED UNDER CLAUS E (BA) OF EXPLANATION TO SUB SEC. 4C. THEREFORE, THE TOTAL TURNOVER INCLUDES THE LOCA L SALES AS WELL AS THE EXPORT SALES REGARDING MANUFACTURING GOODS AND TRADING GOODS EXC EPT CERTAIN ITEMS WHICH SHALL BE INCLUDED AS PER CLAUSE (BA). WHEN THE INDIRECT C OST HAS TO BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE T OTAL TURNOVER, THEN THE INDIRECT COST SUBJECTED TO BE ALLOCATED IN THE SAID RATIO INCLUDE S ALL ITEMS OF INDIRECT COST INCURRED FOR THE TOTAL TURNOVER. 10.4 IT IS MANIFEST FROM THE PLAN READING OF THE RE LEVANT PROVISIONS THAT THE INDIRECT COST FOR THE PURPOSE OF SEC. 80HHC (3)(B) R.W.S CLA USE (E) OF EXPLANATION DOES NOT RESTRICT THE ITEMS OF EXPENDITURE INCURRED IN RELAT ION TO EXPORT OF TRADING GOODS ONLY; BUT THE ENTIRE INDIRECT COST INCURRED FOR THE TOTAL TURNOVER HAS TO BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE T OTAL TURNOVER WHICH ITSELF MAKES IT CLEAR THAT ONLY SUCH PORTION OF THE TOTAL INDIRECT COST IN THE RATIO OF EXPORT TURNOVER OF THE TRADING GOODS TO THE TOTAL TURNOVER SHALL BE AL LOCATED FOR THE PURPOSE OF COMPUTING THE PROFITS DERIVED FROM SUCH EXPORT U/S 80HHC(3)(B). 10.5 THOUGH THE REVENUE HAS NOT FILED ANY APPEAL AG AINST THE FINDINGS OF THE CIT(A); HOWEVER, THE REVENUE, BEING THE RESPONDENT CAN RAISE AN PLEA AGAINST SUSTAINABILITY OF THE ORDER OF THE CIT(A); BUT TH E EFFECT OF SUCH PLEA WOULD BE ONLY TO THE EXTENT OF DEFENCE AGAINST THE APPEAL AND IF THE RESPONDENT/REVENUE SUCCEEDS IN THE SAID GROUND/PLEA, THEN THE APPEAL OF THE APPELLANT/ASSESSEE WOULD FAIL. ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 17 10.6 THE SCOPE OF RAISING A PLEA AGAINST THE SUSTAI NABILITY OF THE IMPUGNED ORDER AS THE RESPONDENT DEFENDED AGAINST THE APPEAL FILED BY OTHER PARTY HAS BEEN PROVIDED UNDER RULE 27 OF ITAT RULES; THEREFORE, TH OUGH THE IMPUGNED ORDER OF THE CIT(A) WOULD STAND AND WILL HAVE FULL EFFECT IN SO FAR AS IT IS AGAINST THE REVENUE; BUT IF THE PLEA RAISED BY THE REVENUE IS ACCEPTED AS REGAR DS THE VALIDITY OF THE IMPUGNED ORDER BUT THEN THE REVENUE SUCCEEDS ONLY TO THE EXT ENT THAT THE APPEAL OF THE ASSESSEE WOULD FAIL. 10.7 THE SCOPE OF RULE 27 OF ITAT RULES HAS BEEN D ISCUSSED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF BAMASI (B. R.) V. COMMISSIONER OF INCOME-TAX REPORTED IN 83 ITR 223 AS UNDER; BUT EVEN IF THE ASSESSEE HAD NOT MADE SUCH A STAT EMENT, THE ABOVE JUDGMENT SHOWS THAT THE ASSESSEE WOULD B E ENTITLED TO RAISE A NEW GROUND, PROVIDED IT IS A GRO UND OF LAW AND DOES NOT NECESSITATE ANY OTHER EVIDENCE TO BE RECORDED, THE NATURE OF WHICH WOULD NOT ONLY BE A DEF ENCE TO THE APPEAL ITSELF, BUT MAY ALSO AFFECT THE VALID ITY OF THE ENTIRE ASSESSMENT PROCEEDINGS. IF THE GROUND SUCCEED S, THE ONLY RESULT WOULD BE THAT THE APPEAL WOULD FAIL. THE ACCEPTANCE OF THE GROUND WOULD SHOW THAT THE ENTIRE ASSESSMENT PROCEEDINGS WERE INVALID, BUT YET THE TRI BUNAL WHICH HEARS THAT APPEAL WOULD HAVE NO POWER TO DISTU RB OR TO SET ASIDE THE ORDER IN FAVOUR OF THE APPELLANT A GAINST WHICH THE APPEAL HAS BEEN FILED. THE GROUND WOULD S ERVE ONLY AS A WEAPON OF DEFENCE AGAINST THE APPEAL. IF THE RESPONDENT HAS NOT HIMSELF TAKEN ANY PROCEEDINGS TO CHALLENGE THE ORDER IN APPEAL, THE TRIBUNAL CANNOT SET ASIDE THE ORDER APPEALED AGAINST. THAT ORDER WOULD STAND AND WOULD HAVE FULL EFFECT IN SO FAR AS IT IS AGAINST THE RESPONDENT. THE TRIBUNAL REFUSED TO ALLOW THE ASSESSEE TO TAKE UP THIS GROUND UNDER AN INCORRECT IMPRESSION OF LAW THAT IF T HE POINT WAS ALLOWED TO BE URGED AND SUCCEEDED, THE TRIBUNAL WOULD HAVE NOT ONLY TO DISMISS THE APPEAL, BUT ALS O TO SET ASIDE THE ENTIRE ASSESSMENT. THE POINT WOULD HAVE S ERVED AS A WEAPON OF DEFENCE AGAINST THE APPEAL, BUT IT COU LD NOT BE MADE INTO A WEAPON OF ATTACK AGAINST THE ORDER IN SO FAR AS IT WAS AGAINST THE ASSESSEE. 10.8 THE CIT(A) HAS GIVEN THE FINDINGS ON THE ISSUE IIN PARAS 28 TO 30 AS UNDER; ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 18 28. AFTER CAREFUL CONSIDERATION OF THE SUBMISSION, IT HAS TO BE SAID THAT THE SECTION OF THE ASSESSING OFFICER DOES NOT APPEAR TO B E CORRECT. WHAT CANNOT BE IGNORED IS THAT SUBSECTION (3)(B)DEDUCTION INTER- ALIA OF INDIRECT COST ATTRIBUTABLE TO SUCH EXPORTS. THE PHRASE ATTRIBUTABLE TO SUCH EXPORT CANNOT BE MISSED OUT. THEREFORE, AN ITEM OF EXPENDITURE CAN B E TAKEN AS COST FOR THE PURPOSE ONLY IF IT HAS SOME CONNECTION, LINK, ATTRIB UTES TO THE EXPORT. IF THE EXPENDITURE IS TOTALLY DISCONNECTED WITH THE EXPORT ACTIVITY, IT CANNOT BE TAKEN AS PART OF THE INDIRECT COSTS, THEREFORE, THE A SSESSING OFFICER HAS DEFINITELY GONE BEYOND WHAT IS PROVIDED IN THE ACT T O WORKOUT THE INDIRECT COST ATTRIBUTABLE TO EXPORT OF TRADING GOODS. 29. IN ORDER TO DETERMINE CORRECTLY THE INDIRECT COS T, THE APPELLANTS REPRESENTATIVE WAS ASKED TO FURNISH THE DETAILS OF TRA DING EXPORT ACTIVITIES. IN THIS REGARD THE DETAILS REVEAL THAT THE TRADING GOODS E XPORTS COMPRISE PARTLY OF GOODS IMPORTED AND PARTLY PURCHASED LOCALLY EITHER FROM MUMBAI OR ELSEWHERE. IT WAS SUBMITTED THAT THE MATERIAL DEPARTME NT OF THE COMPANY PROCURED ITEMS OF TRADING EXPORTS. ALL ACTIONS AND FO RMALITIES FOR EXPORTS ARE CARRIED OUT BY EXPORT DEPARTMENT. EXPENSES OF BOTH THESE DEPARTMENTS ARE BOOKED AS HEAD OFFICE EXPENSES. THE APPELLANTS REPRE SENTATIVE FURNISHED THE DETAILS OF HEAD OFFICE EXPENSES. IT WAS CLAIMED THAT SOME OF THE EXPENSES INCURRED THEREIN ARE FOR DOMESTIC ACTIVITIES A ND ONLY EXPENDITURE AMOUNTING TO RS.29,04,71,863/- IS SUCH THAT IS TO B E TAKEN AS SOMEHOW ATTRIBUTABLE TO EXPORTS TO BE TAKEN AS PART DIRECT EX PENSES. A PERUSAL OF THE DETAILS SHOW THAT AS FAR AS THE HEAD OFFICE EXPENSES IS CONCERNED, THE WORKING THEREOF IS CORRECT AND HENCE NEEDED TO BE ACCE PTED. 30 HOWEVER, THE APPELLANT COMPANY EXPORTED TRADING GOODS DURING THE YEAR THAT WERE PROCURED FROM HYDERABAD AND MUMBAI. AT BO TH THE PLACES THE APPELLANT COMPANY HAS BRANCH OFFICES APART FROM T HE HEAD OFFICE BEING LOCATED IN MUMBAI. THOUGH IT WAS CLAIMED THAT THE J OB OF PROCUREMENT OF TRADING GOODS EXPORTED ARE CARRIED OUT FROM HEAD OFFIC E THAT IS HAVING SEPARATE PROCUREMENT AND EXPORT DIVISIONS, WHILE THE INVOLVEMENT OF BRANCH OFFICE AT MUMBAI CAN BE RULED OUT WITH A SPECIFIC OF FICE FOR THE PURPOSE LOCATED THEREIN, IN RESPECT OF THE BRANCH OFFICE AT H YDERABAD, THE OTHER PLACE FOR PROCUREMENT, THE SAME CANNOT BE ACCEPTED. HE NCE THE EXPENDITURE INCURRED AT HYDERABAD BRANCH OFFICE TO THE EXTENT NOT DIRECTLY RELATED TO DOMESTIC SALES IS ALSO REQUIRED TO BE TAKE N AS PART OF THE INDIRECT COST FOR WORKING OUT DEDUCTION UNDER SECTION 80 HHC ( 3)(B) OF THE ACT, THE ASSESSING OFFICER SHALL REWORK OUT THE INDIRECT COST U NDER THE SECTION ACCORDINGLY. 10.9 THE ASSESSEE HAS CHALLENGED THE FINDINGS OF TH E CIT(A) IN PARA 30; HOWEVER, THE SAID FINDING IS PASSED ON THE FINDING OF THE C IT(A) IN PARA 28 SO FAR S HOLDING THAT THE EXPENDITURE INCURRED AT HYDERABAD BRANCH NOT RE LATED TO DOMESTIC SALE IS ALSO REQUIRED TO BE TAKEN AS PART OF INDIRECT COST FOR W ORKING OUT THE DEDUCTION U/S 80HHC(3)(B) OF THE ACT. UNDER THE PROVISIONS OF SE C 80HHC(3), THERE IS NO SCOPE OF ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 19 CATEGORISATION OF INDIRECT COST INCURRED FOR LOCAL SALE AND EXPORT SALES SEPARATELY; BUT THE ENTIRE INDIRECT COST SHALL BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO TOTAL TURNOVER. THEREFORE, FOR THE PURPOSE OF THIS SECTION, IT IS NOT RELEVANT TO DIVIDE THE INDIRECT COST AS PER THE NE XUS OR CONNECTION WITH THE LOCAL SALES OR EXPORT SALES. 10.10 AS WE HAVE ALREADY DISCUSSED THAT FOR THE PUR POSE OF SEC. 80HHC(3)(B) R.W.CLAUSE (E) OF EXPLANATION, THE INDIRECT COST T O BE ALLOCATED IN THE RATIO OF EXPORT TURNOVER OF TRADING GOODS TO THE TOTAL TURNOVER HA S TO BE TAKEN AS THE TOTAL FIGURE OF THE INDIRECT COST INCURRED FOR THE TOTAL TURNOVER AND NOT THE INDIRECT COST DIRECTLY RELATED TO THE EXPORT TURNOVER AS HELD BY THE CIT(A ). 10.11 THE ASSESSEE HAS NOT FURNISHED THE DETAILS SH OWING THE DIRECT AND INDIRECT COST ITEM WISE. THE ONLY DETAIL FURNISHED BEFORE US IS THE EXPENDITURE INCURRED AT HYDERABAD OFFICE WHICH ALSO DOES NOT GIVE A CLEAR P ICTURE ABOUT THE DIRECT AND INDIRECT COST. THEREFORE, AS FAR AS THE FACTUAL ASP ECT OF THE COMPUTATION OF INDIRECT COST, NEITHER THE CIT(A) HAS SEGREGATED THE SAME N OR THE ASSESSEE FILED ANY MATERIAL IN SUPPORT OF ITS CLAIM. THE ASSESSING OFFICER HA S COMPUTED THE INDIRECT COST IN THE GIVING EFFECT ORDER AS UNDER: INDIRECT COST ATTRIBUTABLE TO TRADING GOODS EXPORTED 26579211 TOTAL COST OF BUSINESS 5071127564 LESS: COST OF GOODS 2637907315 2433220249 LESS: DISALLOWABLE AS PER COMPUTATION 2228596 90 ADD: ALLOWABLE AS PER COMPUTATION 17933 3623 2389694182 INDIRECT COST FOR TRADING GOODS EXPORTED 2389694182 X 59386649 = 26579211 5339358301 ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 20 10.12 IT IS CLEAR FROM THE WORKING OF THE ASSESSING OFFICER THAT FOR DETERMINING THE INDIRECT COST, THE AO HAS REDUCED FROM THE TOTAL CO ST OF BUSINESS, COST OF GOODS AS WELL AS THE OTHER ITEMS. THEREFORE, WE DO NOT FIND ANY ERROR AS FAR AS THE FORMULA ADOPTED BY THE ASSESSING OFFICER FOR COMPUTATION OF INDIRECT COST ALLOCATED TO THE EXPORT OF TRADING GOODS. 11 IN VIEW OF THE ABOVE FACTS AS WELL AS THE DISCUS SION, WE ARE OF THE OPINION THAT THE CIT(A) HAS PROCEEDED ON WRONG PRINCIPLE WHICH IS CONTRARY TO THE PROVISIONS OF SEC. 80HHC(3)(B) R.W. CLAUSE (E)OF EXPLANATION AND THEREFORE, THE REVENUE SUCCEEDS IN ITS OBJECTIONS/PLEA/GROUND RAISED AGAINST THE OR DER OF THE CIT(A) AND IN SUPPORT OF THE ORDER OF THE AO; BUT THE EFFECT OF THOSE OBJECT IONS WOULD BE LIMITED ONLY TO THE EXTENT THAT THE APPEAL OF THE ASSESSEE WOULD FAIL A S THE REVENUE HAS NOT FILED ANY APPEAL OR CROSS OBJECTION AGAINST THE IMPUGNED ORDE R. HENCE, THE ORDER OF THE CIT(A), SO FAR AS ITS IS AGAINST THE REVENUE WILL H AVE FULL EFFECT, THOUGH THE OBJECTION/PLEA RAISED BY THE REVENUE HAS RESULTED T HAT THE APPEAL OF THE ASSESSEE, QUA THIS ISSUE IS LIABLE TO BE DISMISSED AND ACCORD INGLY, GROUND NO.4 STANDS DISMISSED. 12 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF DEC 2012. SD/- SD/- ( B RAMAKOTAIAH ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 12 TH , DEC 2012 RAJ* ITA NO. 4179/M/03 AVENTIS PHARMA LTD . 21 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI