ACIT - 5(2), MUMBAI V. M/s. JYOTI CERAMICS INDS. P. LTD., MUMBAI

ITA 4521/MUM/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7866 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L1
• Next Hearing Date: 14-01-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 08-08-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Keywords: Depreciation; Transfer pricing; International transaction; Set aside
• Section: 92C; 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L-1, MUMBAI BEFORE SHRI T.R. SOOD, AM AND SMT. P. MADHAVI D EVI, JM I.T.A. NO. 4521/MUM/06 ASSESSMENT YEAR :2003-04 ASST. COMMISSIONER OF INCOME-TAX-5(2), ROOM NO.571, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. M/S. JYOTI CERAMICS INDS. PVT. LTD., 119, ARUN CHAMBERS, TARDEO ROAD, TARDEO, MUMBAI 400 034. PAN: AAACJ 0247 P (APPELLANT) (RESPONDENT) APPELLANT BY :: SHRI L.K. AGRAWAL RESPONDENT BY :: SHRI K. GOPAL O R D E R PER T.R. SOOD (AM): IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWIN G GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD.CIT(A) HAS ERRED IN DIRECTING THE A.O. TO GRANT DEPRECIATION IN THE VEHICLES EVEN THOUGH THESE ARE PURCHASED IN THE NAME OF THE DIRECTORS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND AS PER LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 13,86,364 /- MADE U/S.92AC R.W.S.92C(3) OF THE INCOME-TAX ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND AS PER LAW, THE LD.CIT(A) HAS ERRED IN DIRECTING THE A.O. NOT TO INCLUDE SALE S TAX AND EXCISE DUTY AS PART OF THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION ALLOWABLE U/S.80HHC. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND AS PER LAW, THE LD.CIT(A) HAS ERRED IN DIRECTING THE A.O. TO TREAT THE INTERE ST FROM CUSTOMERS, INSURANCE CLAIM AND SCRAP SALES AS PART OF PROFITS OF BUSINES S FOR COMPUTING DEDUCTION U/S.80HHC. 2. AS REGARDS GROUND NO.1, AFTER HEARING BOTH THE P ARTIES, WE FIND THAT THIS ISSUE IS COVERED AGAINST THE REVENUE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03 IN ITA NO. 720/MUM/05 DATED 14.8.2006, WHEREIN THE ISSUE WAS DECIDED VIDE PARA 3, WHICH IS AS UNDER: BOTH THE PARTIES HAVE AGREED THAT THE FIRST GROUND IS COVERED IN FAVOR OF THE ASSESSEE BY THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF DILIPSINGH SARDARSINGH BAGGAR (201 ITR 995) WHEREIN IT HAS BEEN HELD THAT DEPRECIATION IS ALLOWABLE T THE BENEFICIAL OWNER. THEREFORE, IN OUR OPINION, THE CIT(A) WAS JUSTIFIED IN ALLOWING DEPRECIATION O N CARS PURCHASED BY THE 2 ASSESSEE COMPANY IN THE NAME OF DIRECTORS. ACCORDIN GLY, FIRST GROUND RAISED BY THE REVENUE IS DISMISSED. 3. FOLLOWING THE ABOVE ORDER, WE DECIDE THE ISSUE A GAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 4. AS REGARDS GROUND NO.2, AFTER HEARING BOTH THE P ARTIES, WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAD ENTERED INTO TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES, VIZ. TECHNO CERAMIC. IT WAS FURTHER NOTED THAT THE PRICES CHARGED FROM THIRD PARTIES WERE NOT COMP ARABLE TO THE PRICES CHARGED FROM ASSOCIATED CONCERNS AND ULTIMATELY ADJUSTMENT OF RS .13,86,364/- WAS MADE TO THE PROFITS OF THE ASSESSEE. 5. THE LEARNED CIT(A) DELETED THE ADDITION BY OBSER VING THAT THE DIFFERENCE WAS VERY NEGLIGIBLE AND ALSO THE PROVISION REGARDING CONSIDE RATION OF DIFFERENCE OF 5% WAS IGNORED BY THE ASSESSING OFFICER. 6. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIV E SUBMITTED THAT IT IS NOT CLEAR THAT THE DIFFERENCE OF SALE PRICE IS LESS THAN 5% O R MORE AND THEREFORE, IT CANNOT BE SAID THAT THE RELIEF WAS GIVEN BECAUSE THE DIFFERENCE WAS LES S THAN 5%. 7. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS ALSO NOT DISCUSSED THE DETAIL S PROPERLY AND IN ANY CASE, THE AMENDED PROVISION REGARDING IGNORING THE DIFFERENCE OF 5% H AS NOT BEEN FOLLOWED. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT BOTH THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAVE NOT DISCUSSED T HE ISSUE IN DETAIL. IT IS NOT CLEARS WHETHER THE DIFFERENCE IN PRICE IS MORE THAN 5% IN COMPARIS ON TO THE PRICES CHARGED FROM THE THIRD PARTIES. THE SECOND PROVISO TO SECTION 92C READS AS UNDER: PROVIDED FURTHER THAT IF THE VARIATION BETWEEN THE ARMS LENGTH PRICE SO DETERMINED AND PRICE AT WHICH THE INTERNATIONAL TRA NSACTION HAS ACTUALLY BEEN UNDERTAKEN DOES NOT EXCEED FIVE PER CENT OF THE LAT TER, THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTA KEN SHALL BE DEEMED TO BE THE ARMS LENGTH PRICE. 3 9. THEREFORE, IN THE INTEREST OF JUSTICE, WE SET AS IDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION AFTER CON SIDERING THE SECOND PROVISO TO SECTION 92C. NEEDLESS TO SAY THAT ASSESSEE SHOULD BE GIVEN PROPE R OPPORTUNITY TO EXPLAIN ITS CASE. 10. AS FAR AS THE THIRD GROUND, AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS ISSUE IS SQUARELY COVERED AGAINST THE REVENUE BY THE DECISIO N OF HONBLE SUPREME COURT IN CASE OF CIT VS LAKSHMI MACHINE WORKS (290 ITR 667) WHEREIN IT WAS HELD AS UNDER:- THE PRINCIPAL REASON FOR ENACTING A FORMULA IN SEC TION 80HHC OF THE INCOME- TAX ACT, 1961, IS TO DISALLOW A PART OF THE CONCESS ION THEREUNDER WHEN THE ENTIRE DEDUCTION CLAIMED CANNOT BE REGARDED AS RELA TING TO EXPORTS. THEREFORE, WHILE INTERPRETING THE WORDS TOTAL TURNOVER IN TH E FORMULA IN SECTION 80HHC ON HAS TO GIVE A SCHEMATIC INTERPRETATION. THE VAR IOUS AMENDMENTS MADE THEREIN SHOW THAT RECEIPTS BY WAY OF BROKERAGE, COM MISSION, INTEREST, RENT, ETC., DO NOT FORM PART OF BUSINESS PROFITS AS THEY HAVE NO NEXUS WITH THE ACTIVITY OF EXPORT. THE AMENDMENTS MADE FROM TIME TO TIME INDICATE THAT THEY BECAME NECESSARY IN ORDER TO MAKE THE FORMULA WORKA BLE. IF SO, EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE TOTAL T URNOVER UNDER SECTION 80HHC(3): OTHERWISE THE FORMULA BECOMES UNWORKABLE. 11. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE D ECIDE THIS ISSUE AGAINST THE REVENUE. 12. AS FAR AS GROUND NO.4, AFTER HEARING BOTH THE PARTIES, WE FIND THAT INTEREST FROM CUSTOMER IS CONCERNED, THIS ISSUE CAME UP FOR CONSI DERATION BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2001-02 IN ITA NO. 2773/MUM/04 DATE D 8 TH JULY, 2007, AND THE SAME WAS ADJUDICATED VIDE PARA 5 OF THAT ORDER, WHICH IS AS UNDER: RIVAL SUB MISSIONS OF THE PARTIES HAVE BEEN CONSID ERED CAREFULLY. AS FAR AS THE INTEREST ON DELAYED PAYMENT OF SALE PROCEEDS IS CONCERNED, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NIRMA INDUSTRIES (SUPRA) WHEREIN IT HAS BEEN HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTIO N UNDER SECTION 80I OF THE ACT AS INTEREST ON DELAYED PAYMENT IS NOTHING BUT P ART OF THE SALE PROCEEDS. THIS JUDGMENT WAS DELIVERED AFTER CONSIDERING THE S UPREME COURT JUDGMENT I THE CASE OF PANDIAN CHEMICALS LTD. THEREFORE, FOL LOWING THE SAID JUDGMENT THIS ASPECT OF THE ISSUE IS DECIDED IN FAVOUR OF TH E ASSESSEE. AS FAR AS THE INSURANCE CLAIM IS CONCERNED, THE SAME IS COVERED I N FAVOUR OF THE ASSESSEE BY THE DECISION F THE TRIBUNAL IN ASSESSEES OWN CA SE FOR THE ASSESSMENT YEAR 2002-03. ACCORDINGLY, THE ORDER OF THE CIT(A) IS UPHELD ON BOTH THE ASPECTS OF THE ISSUE. 13. FOLLOWING THE ABOVE ORDER WE DECIDE THIS ISSUE AGAINST THE REVENUE. 4 14. AS FAR AS SALE FROM SCRAP IS CONCERNED, AFTER H EARING BOTH THE PARTIES, WE FIND THE DETAILS HAVE NOT BEEN DISCUSSED BY THE ASSESSING OF FICER OR THE LEARNED CIT(A), THEREFORE, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH DIRE CTION TO RECONSIDER THE SAME AFTER ASCERTAINING THE DETAILS OR SCRAP IN THE LIGHT OF T HE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. K. RAVINDRANATHAN NAIR (295 ITR 228). 15. LASTLY, AS FAR AS THE ISSUE OF INSURANCE CLAIM IS CONCERNED, AFTER HEARING BOTH THE PARTIES, WE FIND THT THE DETAILS HAVE NOT BEEN DISC USSED BY THE LOWER AUTHORITIES. IF THE INSURANCE CLAIM PERTAINS TO THE REVENUE FIELD, FOR EXAMPLE, LOSS OF RAW MATERIAL, THEN DEFINITELY, THE SAME WOULD BE ELIGIBLE FOR DEDUCTIO N U/S.80HHC. IF THE SAME IS IN THE CAPITAL FIELD, SAY LOSS OF MACHINERY THEN THE SAME IS NOT ENTITLED FOR DEDUCTION. THEREFORE, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO RE-EXAMINE THE SAME AFTER DETERMINING THE PARTICULARS OF INSURANCE CLAIM AND THEN DECIDE ACCORDINGLY. 16. IN THE RESULT, THE REVENUES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 1 ST DAY OF FEBRUARY, 2010. SD. SD. (P. MADHAVI DEVI) (T.R. SOOD ) JUDICIAL MEMBER ACCOUNTANT MEMBR MUMBAI, DATED THE 1 ST FEBRUARY, 2010. KN COPY TO: 1. THE ASSESSEE. 2. THE ACIT-5(2), MUMBAI 3. T2HE CIT MC-V, MUMBAI 4. THE CIT(A)-V, MUMBAI 5. THE DR, L-1 BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, I.T.A.T.MUMBAI 5 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 15.01.2010 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 15.01.2010 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/A M 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER