ACIT 18(2), MUMBAI V. N.M. FASHIONS, MUMBAI

ITA 4601/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55615 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 10-10-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 03-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH: MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO.4601/MUM/2010 (ASSESSMENT YEAR: 2003-04) ITA NO.4602/MUM/2010 (ASSESSMENT YEAR: 2004-05) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE -18(2)/ ITO 18(2)2, ROOM NO.115, 1ST FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI -400 012 ....... APPELLANT VS M/S. N.M. FASHIONS, 155 A TO Z INDL. ESTATE, G.K. MARG, MUMBAI -400 013 ..... RESPONDENT C.O. NO.56/MUM/2011 IN ITA NO.4601/MUM/2010, A.Y. 2003-04 C.O. NO.57/MUM/2011 IN ITA NO.4602/MUM/2010, A.Y. 2004-05 M/S. N.M. FASHIONS, 155 A TO Z INDL. ESTATE, G.K. MARG, MUMBAI -400 013 ....... APPELLANT VS ASSTT. COMMISSIONER OF INCOME TAX CIRCLE -18(2), ROOM NO.115, 1ST FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI -400 012 ..... RESPONDENT PAN : AABFN 0083 B APPELLANT-RREVENUE BY: SHRI PARASNATH NAIK RESPONDENT-ASSESSEE-CROSS OBJECTOR BY: SHRI JITENDR A JAIN DATE OF HEARI NG: 10.10.2011 DATE OF PRONOUNCEMENT: 19 .10.2011 M/S. N.M. FASHIONS ITA 4601/M/2010 ITA 4602/M/2010 C.OS. 56 & 57/MUM/2011 2 O R D E R PER R.S. PADVEKAR, JM: IN THIS BATCH OF TWO APPEALS AND TWO CROSS OBJECTIO NS, THE APPEALS ARE FILED BY THE REVENUE CHALLENGING THE RE SPECTIVE IMPUGNED ORDER OF THE LD. CIT (A) FOR THE A.Y. 2003-04 AND 2 004-05 AND THE ASSESSEE HAS FILED THE CROSS OBJECTIONS RAISING THE GRIEVANCE AGAINST THE SAME ORDERS OF THE LD. CIT (A). WE FIRST TAKE THE APPEAL OF THE REVENUE FOR THE A.Y. 2003-04 BEING ITA NO.4601 OF 2 010. THE REVENUE HAS TAKEN FOLLOWING GROUNDS IN THE APPEAL: I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO RECOMPUTE DEDU CTION U/S.80HHC BY TAKING THE AMOUNT OF ` 1,33,69,838 AS BUSINESS INCOME FOR THE PURPOSE OF DEDUCTION U/S.80 HHC. II. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO RECOMPUTE DEDU CTION U/S.80HHC IN VIEW OF THE DECISION OF THE ITAT, SPEC IAL BENCH IN THE CASE OF TOPMAN EXPORTS VS. ITO IN ITA NO.5769/M/06. 2. SO FAR AS GROUND NO.(I) IS CONCERNED, THE LD. CO UNSEL WAS FAIR ENOUGH TO STATE THAT THE LD. CIT (A) GRANTED THE RE LIEF TO THE ASSESSEE RELYING ON THE DECISION OF THE HONBLE SPECIAL BENC H OF THE TRIBUNAL IN THE CASE OF M/S. TOPMAN EXPORTS VS. ITO 318 ITR 87 (AT)(SB) BUT THE SAID DECISION OF TOPMAN EXPORTS HAVE BEEN REVERSED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KALPATARU COLOURS AND CHEMICALS 328 ITR 451 (BOM). THE REVENUE HAS TO SU CCEED ON THIS GROUND. THE ASSESSEE IS 100% EXPORTER ENGAGED INTO THE EXPORTS AND M/S. N.M. FASHIONS ITA 4601/M/2010 ITA 4602/M/2010 C.OS. 56 & 57/MUM/2011 3 PRIMARY TEXTILE FABRIC SARIS. THE ASSESSEE HAD CLA IMED THE DEDUCTION U/S.80HHC. THE ASSESSEE HAD INCLUDED THE DEPB AMOU NT OF ` 1,06,06,205/- IN THE PROFIT AND CLAIMED THE DEDUCTI ON U/S.80HHC. THE A.O. WAS OF THE VIEW THAT ONLY PROFIT RECEIVED ON TRANSFER OF LICENSE WOULD BE TREATED AS ELIGIBLE FOR DEDUCTION U/S.80HH C & DEPB CREDIT IN ITSELF DOES NOT HAVE ANY VALUE. ITS VALUE ARISE S ONLY WHEN EITHER THERE IS A TRANSFER OF CREDIT OR WHEN CREDIT USED F OR REMISSION OF CUSTOMS DUTY WHILE IMPORTING THE MATERIAL. THE A.O ., THEREFORE, EXCLUDED THE AMOUNT BOOKED BY THE ASSESSEE IN RESPE CT OF THE DEPB WHILE COMPUTING THE DEDUCTION U/S.80HHC. THE LD. C IT (A) RELIED ON THE DECISION OF THE TOPMAN EXPORTS (SUPRA) ALLOWED THE DEDUCTION TO THE ASSESSEE ON THE ACTUAL VALUE OF THE DEPB OF ` 1,05,42,023/- ACCRUED TO THE ASSESSEE DURING THE A.Y. 2003-04. A S PER THE DECISION OF THE TOPMAN EXPORTS (SUPRA) THE SAID AMOUNT IS PA RT OF THE BUSINESS INCOME AS PER SEC. 28(IIIB) OF THE ACT. THE LD. CI T (A) ALSO NOTED THAT THE ASSESSEE INCURRED THE LOSS OF ` 8,14,489/- ON THE SALE OF THE DEPB HENCE ONLY THE NET AMOUNT OF THE DEPB IS TO BE CONS IDERED. IN THE CASE OF KALPATARU COLOURS AND CHEMICALS (SUPRA) THE DECISION IN CASE OF TOPMAN EXPORTS (SUPRA) HAS BEEN REVERSED. WE, T HEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTION AL HIGH COURT IN THE CASE OF KALPATARU COLOURS AND CHEMICALS (SUPRA) ALL OW GROUND NO.(I) OF THE REVENUE AND RESTORE THE ORDER OF THE A.O. ON TH IS ISSUE. ACCORDINGLY, GROUND NO.(I) IS ALLOWED. 4. SO FAR AS GROUND NO.(II) IS CONCERNED, IT WAS NO TICED BY THE A.O. THAT THE ASSESSEE HAS REDUCED THE AMOUNT EQUIVALENT TO THE 10% OF THE INCENTIVE FROM THE INDIRECT COST. THE LD. COUN SEL SUBMITS THAT NOW THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE HONBLE ITAT IN THE CASE OF SURENDR A ENGINEERING CORPORATION VS. DCIT 86 ITD 121 (MUM)(SB). THE LD. D.R. FAIRLY SUBMITTED THAT TO KEEP THE ISSUE ALIVE THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF SURENDRA ENGINEERI NG CORP. (SUPRA) WAS NOT APPLIED BY THE A.O. NOTHING HAS BEEN BROUG HT TO OUR NOTICE M/S. N.M. FASHIONS ITA 4601/M/2010 ITA 4602/M/2010 C.OS. 56 & 57/MUM/2011 4 THAT THE DECISION IN THE CASE OF SURENDRA ENGINEERI NG CORPORATION (SUPRA) HAS BEEN REVERSED BY THE HIGHER JUDICIAL FO RUM. WE, THEREFORE, FIND NO MERIT IN THE GROUND NO.2 TAKEN BY THE REVEN UE AND THE SAME IS DISMISSED. 5. NOW, WE TAKE-UP ASSESSEES CROSS OBJECTION BEING C.O. NO.56/MUM/2011. 6. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS:- I. THE LEARNED CIT (A) ERRED IN NOT DECIDING GROUN D NO.3 RAISED BEFORE HIM RELATING TO ALLOWABILITY OF DEDUC TION U/S.80HHC OF THE ACT ON DUTY DRAWBACK AMOUNTING TO ` 8,80,671/- (RUPEES EIGHT LAKHS EIGHTY THOUSAND SIX HUNDRED SEVENTY ONE ONLY). II. THE LEARNED CIT (A) ERRED IN HOLDING THAT THE I SSUE WHETHER THE APPELLANT IS A TRADING EXPORTER OR MANUFACTURER EXPORTER HAS NO BEARING ON TOTAL DEDUCTION U/S.80HHC AND HEN CE ERRED IN DISMISSING THIS GROUND OF APPEAL. 7. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUBM ITS THAT THE GROUND NO.1 WAS RAISED BEFORE THE LD. CIT (A) BUT T HE SAME WAS NOT ADJUDICATED AND HENCE, THE SAME MAY BE RESTORED TO THE FILE OF THE LD. CIT (A). WE FIND THAT THE ASSESSEE HAS TAKEN GROUN D NO.3 BEFORE LD. CIT (A) RAISING THE GRIEVANCE THAT THE A.O. DID NOT ALLOW THE EXPORT INCENTIVE ON ACCOUNT OF DUTY DRAWBACK TO THE EXTENT OF ` 8,80,671/- BUT THE LD. CIT (A) DOES NOT ADJUDICATE THE SAID GR OUND. WE, THEREFORE, CONSIDER IT FIT TO RESTORE THE GROUND NO .1 IN THE CROSS OBJECTION TO THE FILE OF THE LD. CIT (A) FOR ADJUDI CATION ON MERIT. ACCORDINGLY, GROUND NO.1 IS ALLOWED FOR THE STATIST ICAL PURPOSES. M/S. N.M. FASHIONS ITA 4601/M/2010 ITA 4602/M/2010 C.OS. 56 & 57/MUM/2011 5 8. SO FAR AS GROUND NO.2 IS CONCERNED, THE LD. COUN SEL SUBMITS THAT THE SAID GROUND WAS ALSO RAISED BEFORE THE LD. CIT (A) BUT THE SAME WAS NOT ADJUDICATED. AS PER THE RECORD BEFORE US, WE FIND THAT THE ASSESSEE HAS TAKEN GROUND NO.4 BEFORE THE LD. C IT (A) RAISING GRIEVANCE AGAINST THE A.O. TREATING THE ASSESSEE AS A TRADER EXPORTER INSTEAD OF MANUFACTURER EXPORTER BUT THE LD. CIT (A) MERELY OBSERVED THAT THE SAID GROUND HAS NO BEARING ON THE TOTAL DE DUCTION U/S.80HHC. THE LD. COUNSEL SUBMITS THAT THE LD. CI T (A) IS NOT CORRECT AS THERE WILL BE BEARING ON THE WORKING OF THE TOTAL QUANTUM OF DEDUCTION ALLOWABLE U/S.80HHC. IN OUR OPINION, THE RE A FORCE IN THE ARGUMENT OF THE LD. COUNSEL. ACCORDINGLY, WE RESTO RE GROUND NO.2 TO THE FILE OF THE LD. CIT (A) TO DECIDE THE SAME ON M ERIT AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE. 9. NOW, WE TAKE-UP THE APPEAL OF THE REVENUE FOR TH E A.Y. 2004-05 BEING ITA NO.4602 OF 2010. 10. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS:- 1. THE LEARNED ASSESSING OFFICER ERRED ON FACTS, CI RCUMSTANCE OF THE CASE AND IN LAW, IN NOT ALLOWING THE DEDUCTI ON CLAIMED OF ` 29,51,313/- UNDER THE AMENDED PROVISIONS OF SECTION 80HHC OF THE INCOME-TAX ACT. 2. THE LEARNED ASSESSING OFFICER ERRED IN HOLDING T HAT THERE IS NO COST/VALUE AT THE TIME OF DEPB CREDIT IS OBTAINE D. THE LEARNED ASSESSING OFFICER ERRED IN HOLDING THAT THE VALUE OF DEPB ARISES ONLY WHEN EITHER THERE IS A TRANSFER OF CREDIT OR THE SAID CREDIT IS UTILIZED AT THE TIME OF REMISSIO N OF CUSTOMS DUTY WHILE IMPORTING. THE LEARNED ASSESSIN G OFFICER OUGHT TO HAVE TREATED THE FACE VALUE OF THE DEPB LICENSE AS COST OF DEPB AS THE SAME IS INCIDENCE OF TAX M/S. N.M. FASHIONS ITA 4601/M/2010 ITA 4602/M/2010 C.OS. 56 & 57/MUM/2011 6 WHICH HAS BEEN BORNE BY THE APPELLANT AND REIMBURSE D BY THE GOVERNMENT TO THE EXPORTERS. 11. EVEN IF THE REVENUE HAS TAKEN TWO GROUNDS BUT T HERE IS ONLY ONE ISSUE I.E. IN RESPECT OF PROCEEDS OF THE DEPB AS WE LL AS AMOUNT CREDITED ON ACCOUNT OF THE DEPB. 12. THIS ISSUE IS IDENTICAL TO GROUND NO.1 OF THE R EVENUES APPEAL FOR A.Y. 2003-04 AND WE HAVE ALLOWED THE REVENUES GROU ND NO.1 BY RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF KALPATARU COLOURS AND CHEMICAL S (SUPRA). FOLLOWING THE REASONING GIVEN IN A.Y. 2003-04, WE A LLOW BOTH THE GROUNDS IN A.Y. 2004-05. 13. NOW, WE TAKE-UP ASSESSEES CROSS OBJECTION BEIN G C.O. NO.57/MUM/2011. 14. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS:- 1.1 THE LEARNED CIT (A) ERRED IN NOT DECIDING GROU ND NO.1 RAISED BEFORE HIM RELATING TO ALLOWABILITY OF DEDU CTION U/S.80HHC OF THE ACT ON DUTY DRAWBACK AMOUNTING TO ` 6,34,569/- (RUPEES SIX LAKHS THIRTY FOUR THOUSAND F IVE HUNDRED SIXTY-NINE ONLY). 1.2 WITHOUT PREJUDICE TO GROUND NO.1.1 THE LEARNED CIT (A) ERRED IN NOT GRANTING DEDUCTION U/S.80HHC OF THE AC T ON DUTY DRAWBACK AMOUNTING TO ` 6,34,596/- RUPEES SIX LAKHS THIRTY FOUR THOUSAND FIVE HUNDRED SIXTY-NINE ONLY). 15. WE HAVE HARD THE PARTIES. THE ONLY PLEA OF THE LD. COUNSEL IS THAT THE ISSUE ARISING FROM BOTH THE GROUNDS RAISED BEFORE THE LD. CIT M/S. N.M. FASHIONS ITA 4601/M/2010 ITA 4602/M/2010 C.OS. 56 & 57/MUM/2011 7 (A) BUT THE SAME HAS NOT BEEN ADJUDICATED. THE GRI EVANCE OF THE ASSESSEE IS IN RESPECT OF ALLOWABILITY OF THE DEDUC TION U/S.80HHC OF THE ACT ON THE DUTY DRAWBACK. WE FIND THAT THOUGH THE ASSESSEE HAS TAKEN A SPECIFIC GROUND BUT SAME HAS NOT BEEN ADJUD ICATED. THE LD. D.R. HAS NO OBJECTION FOR RESTORING THE ISSUE TO TH E FILE OF THE LD. CIT (A) TO DECIDE THE GROUND TAKEN BY THE ASSESSEE ON M ERIT. WE, ACCORDINGLY, RESTORE THE ISSUE ARISING FROM THE GRO UNDS TAKEN BY THE ASSESSEE TO THE FILE OF THE LD. CIT (A) TO DECIDE T HE SAME ON MERIT. NEEDLESS TO SAY IN RESPECT OF THE ISSUES RESTORED T O THE FILE OF THE LD. CIT (A) THE ASSESSEE SHOULD BE GIVEN REASONABLE OPP ORTUNITY OF BEING HEARD. 16. IN THE RESULT, REVENUES APPEAL IN THE A.Y. 200 3-04 IS PARTLY ALLOWED AND THAT OF A.Y. 2004-05 IS ALLOWED AND BOT H THE COS OF ASSESSEE ARE ALLOWED FOR THE STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 9TH OCTOBER 2011. SD/- SD/- ( RAJENDRA SINGH ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATED : 19TH OCTOBER 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) -29, MUMBAI. 4) THE CIT18, MUMBAI. 5) THE D.R. J BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN M/S. N.M. FASHIONS ITA 4601/M/2010 ITA 4602/M/2010 C.OS. 56 & 57/MUM/2011 8 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 10.10.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 12.10.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 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 FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER