Shri Jitendra Hiralal Gandhi, Baroda V. The ACIT.,Circle-2(1), Baroda

ITA 4414/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0409 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-11-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 13-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Business income; Opportunity of being heard; Revised return; Set aside
• Section: 80HHC

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI N.S. SAINI, A.M.) I.T.A. NO. 4414/AHD./2007 ASSESSMENT YEAR : 2002-2003 SHRI JITENDRA HIRALAL GANDHI, BARODA -VS.- ASSI STANT COMMISSIONER OF INCOME TAX, (P.A. NO. ACMPG 4427 D) CIRCLE-2(1), BARODA (APPELLANT) (R ESPONDENT) APPELLANT BY : SHRI MUKUND BAKSHI RESPONDENT BY : SHRI C.K. MISHRA, SR. D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER :- THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER DATED 02.08.2007 OF LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) -II, BARODA FOR THE ASSESSMENT YEAR 2002-03. 2. THE ONLY GROUND OF APPEAL IS AS UNDER :- LEARNED C.I.T.(A) HAS ERRED IN CONFIRMING THE ACTI ON OF THE ASSESSING OFFICER IN TREATING PROCESSING CHARGES OF RS.28,13,000/- RECEIVED FROM THE NORMAL MANUFACTURING ACTIVITIES A S OTHER INCOME FALLING UNDER EXPLANATION (BAA) TO SECTION 80HHC(3) INSTEAD OF TREATING THE SAME AS OPERATIONAL INCOME. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF VARIOUS CHEMICAL ARTIC LES. IN THE RETURN OF INCOME, IT CLAIMED THE DEDUCTION UNDER SECTION 80HHC AT RS.40,97,167/-. TH EREAFTER IT FILED THE REVISED RETURN, WHERE DEDUCTION CLAIM UNDER SECTION 80HHC WAS REVISED AT RS.48,95,202/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHILE CALCULATING THE DEDUCT ION UNDER SECTION 80HHC, THE ASSESSEE HAS INCLUDED PROCESSING CHARGES OF RS.28,13,000/- FORMI NG PART OF INCOME FROM OTHER SOURCES AND AS PER THE EXPLANATION (BAA) TO SECTION 80HHC, 90% OF ENTIRE INCOME FROM OTHER SOURCES BEING INCOME ON ACCOUNT OF EXPORT INCENTIVES AND INTEREST IS TO BE REDUCED WHILE WORKING OUT THE DEDUCTION UNDER SECTION 80HHC. AFTER MAKING THIS AD JUSTMENT, HE FOUND THAT ADJUSTED PROFIT OF THE BUSINESS OF RS.(-)51,48,504/-. HE ACCORDINGLY W ORKED OUT THE DEDUCTION UNDER SECTION 80HHC AT NIL. 2 4. ON APPEAL, IN THE IMPUGNED ORDER DATED 03.02.200 9, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, BARODA UPHELD THE ACTION O F A.O. REGARDING TREATMENT GIVEN TO THE PROCESSING CHARGES FOLLOWING HIS ORDER DATED 02.08. 2007 FOR THE ASSESSMENT YEAR 2001-02. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF I NCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE US. 5. AT THE TIME OF HEARING, ON BEHALF OF ASSESSEE SH RI MUKUND BAKSHI APPEARED AND CONTENDED THAT THE ASSESSEE RECEIVED PROCESSING CHA RGES FOR MANUFACTURING POTASSIUM MERCURIC IODIDE. THE ASSESSEE IS MANUFACTURING THE SAME PROD UCT AND EXPORTING THE SAME. THIS VERY PROCESS IS CARRIED OUT IN BOTH CASES WITH APPLICATI ON OF SAME MANPOWER AND SAME MACHINERY AND OTHER SOURCES. IN CASE OF PROCESSING ONLY TWO RAW M ATERIALS ARE SUPPLIED BY THE PARTY, REST OF THE MATERIALS ARE USED BY THE ASSESSEE FROM HIS OWN SOU RCES. DESPITE THESE CIRCUMSTANCES, THE A.O. TREATED THE PROCESSING CHARGES AS FALLING UNDER EXP LANATION (BAA) TO SECTION 80HHC(3) AND THEREBY REDUCED 90% OF THE SAME FROM CALCULATION OF PROFIT OF BUSINESS FOR DEDUCTION UNDER SECTION 80HHC. THE LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT HAVING USED MATERIALS, MACHINERY AND MANPOWER AND CARRIED OUT THE ENTIRE MANUFACTURI NG PROCESS, IT IS HIGHLY UNREASONABLE TO PRESUME A 90% MARGIN FROM THE PROCESSING CHARGES IN COME BY TREATING IT AS INCOME FALLING UNDER RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTERES T, RENT OR OTHER RECEIPTS OF SIMILAR NATURE AS DEFINED UNDER EXPLANATION (BAA) TO SECTION 80HHC(3) . THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT ON IDENTICAL FACTS IN THE ASSESSMENT YEAR 2001-02, ITAT, A BENCH, AHMEDABAD VIDE ORDER DATED 27.07.2005 IN ITA NO. 1437/AHD./20 05, SET ASIDE THE SAME ISSUE TO THE FILE OF A.O. AND DIRECTED HIM TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF GUIDANCE LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS.- BANGALORE CLOTHING LTD. REPORTED IN 260 ITR 371. THE LD. COUNSEL FURTHER SUBMITTED THAT IN THE ASSESSMENT YEAR 2001-02, THE A.O. AGAIN INCLUDED THE PROCESSING CHARGES IN CLAUSE (BAA) TO SECTION 80HHC(3). ON FURTHER APPEAL BY THE ASSESSEE, THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS)-II, BARODA VIDE ORDER DATED 03.02.2009 IN APPEAL NO. CAB/II-615/06-07 FOLLOWING THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF BANGALORE CLOTHING LTD. (SUPRA) HELD TH AT A.O. WAS NOT JUSTIFIED IN TREATING THE PROCESSING CHARGES AS INCOME NOT RELATING TO BUSINE SS OF THE ASSESSEE AND REDUCING THE SAME FOR CALCULATION OF DEDUCTION UNDER SECTION 80HHC. IT WA S FURTHER SUBMITTED THAT AGAINST THIS ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), NO APP EAL HAS BEEN FILED. THEREFORE, THE VIEW 3 TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) VIDE ORDER DATED 03.02.2009 IN THE ASSESSMENT YEAR 2001-02 ATTAINED FINALITY AND IS BI NDING ON THE DEPARTMENTAL AUTHORITIES. IN SUPPORT OF THIS PROPOSITION, RELIANCE IS PLACED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN SEA FOOD LIMITED VS.- JCIT RE PORTED IN [2009] 28 DTR (SC) 108, WHEREIN IT WAS HELD THAT ASSESSEE HAVING ALLOWED DEDUCTION UNDER SECTION 80HHC IN RESPECT OF PROCESSING/ FABRICATION CHARGES ON THE GOODS, WHICH WERE ULTIMATELY EXPORTED BY OTHER EXPORTER FOR WHOM PROCESSING WAS UNDERTAKEN BY THE ASSESSEE, FOLLOWING THE EARLIER DECISION OF THE HON'BLE HIGH COURT, AGAINST WHICH NO APPEAL WAS FIL ED, SPECIAL LEAVE PETITION (SLP) IS LIABLE TO BE DISMISSED. 6. SHRI C.K. MISHRA, LD. DEPARTMENTAL REPRESENTATIV E CONTENDED THAT THE ISSUE INVOLVED IN THIS APPEAL IS NOW REQUIRED TO BE DECIDED KEEPING I N VIEW THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS.- RAVINDRANATHAN NAIR REPORTED IN 295 ITR 228 (SC). THIS JUDGMENT OF THE HON'BLE SUPREME COURT WAS NOT CONSIDERED BY ANY OF THE AUTHORITIES BELOW AS WELL AS LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, BAR ODA IN THE ASSESSMENT YEAR 2001-02. THEREFORE, IF IN CASE FOLLOWING THE JUDGMENT OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02, THE MATTER IS RESTORED TO THE FILE OF A.O., IN THAT EVENT IT MAY BE OBSERVED THAT ASSESSING OFFICER IS AT LIBERTY TO CO NSIDER THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF RAVINDRANATHAN NAIR (SUPRA). 7. IN REPLY, THE LD. COUNSEL OF THE ASSESSEE SUBMIT TED THAT ITAT, D BENCH, MUMBAI IN THE CASE OF ACIT VS.- STAR INDIA PVT. LTD. (2009) 117 ITD 319 (MUM.) AFTER CONSIDERING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F RAVINDRANATHAN NAIR (SUPRA) HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 80 HHF IN ACCORDANCE WITH THE FORMULA GIVEN IN SUB-SECTION (3) THEREOF. HE SUBMITTED THAT FORMULA FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHF IS ALMOST IDENTICAL WHICH CONTAINED IN SECTIO N 80HHC. THEREFORE, THE A.O. BE DIRECTED TO INCLUDE THE PROCESSING CHARGES AS VARIOUS BUSINESS INCOME OF THE ASSESSEE. 8. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND PERUSED THE MATERIAL PLACED ON RECORD. WE FIND FROM THE MATERIAL AVAILABLE ON RECORD THAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02, THIS ISSUE WAS RESTORED TO THE FILE OF 4 A.O. THEREAFTER IN THAT YEAR, THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS)-II, BARODA VIDE ORDER DATED 03.02.2009 (SUPRA) DIRECTED THE A.O. TO TREAT THE PROCESSING CHARGES AS INCOME FROM BUSINESS AND 90% OF THE PROCESSING CHARGES SHOULD N OT BE EXCLUDED UNDER EXPLANATION (BAA) TO SECTION 80HHC(3) OF THE INCOME TAX ACT, 1961. IT IS NOT KNOWN, WHETHER AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, BAR ODA ON THIS ISSUE, A FURTHER APPEAL HAS BEEN FILED OR NOT. THE JUDGMENT OF THE HON'BLE SUPR EME COURT IN THE CASE OF RAVINDRANATHAN NAIR AND THE DECISION OF THE ITAT, SPECIAL BENCH, M UMBAI IN THE CASE OF STAR INDIA PVT. LTD. (SUPRA) WAS ALSO NOT CONSIDERED BY THE LEARNED COMM ISSIONER OF INCOME TAX(APPEALS) FOR THE ASSESSMENT YEAR 2001-02. KEEPING IN VIEW THE TOTALI TY OF THE FACTS AND CIRCUMSTANCES AND FOLLOWING THE DECISION OF THE TRIBUNAL DATED 27.07. 2005 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02, THE MATTER IS RESTORED TO THE FILE OF A.O., WHO WILL DECIDE THIS ISSUE AFRESH IN ACCORDANCE WITH LAW KEEPING IN VIEW THE DECISION OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOR ASSESSMENT YEAR 2001-02, AND ALSO VERIFY THAT WHETHER THE DECISION WAS ACCEPTED OR NOT AND AT THE SAME TIME WILL PASS APPR OPRIATE ORDER IN ACCORDANCE WITH LAW AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. IN THE RESULT, FOR STATISTICAL PURCHASE, THE APP EAL OF THE ASSESSEE IS TREATED AS ALLOWED. THE ORDER PRONOUNCED IN THE COURT ON 20.11.2009 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 20 / 11 / 2009 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT 3) CIT(A) CONCERNED; (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.