Sri R.Pratap, Kollam V. DCIT, Kollam

ITA 485/COCH/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61430 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 21-03-2012
• Assessment Year: misc
• Appeal Filed On: 22-05-2007
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: T V HARIHARAN
• Keywords: Reason to believe
• Section: 80HHC; 80IB; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 485, 312 & 486/COCH/2007 ASSESSMENT YEARS : 1999-2000, 2003-04 & 2004-05 SHRI PRATAP R. NAIR, PROP. SUNFOOD CORPORATION, KOCHUPILAMMOODU, KOLLAM. [PAN:ABFPN 4423L] THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, KOLLAM (ASSESSEE-APPELLANT) (REVENUE - RESPONDENT) ASSESSEE BY SHRI T.V. HARIHARAN, CA REVENUE BY SMT. VIJAYAPRABHA, SR. DR DATE OF HEARING 21/03/2012 DATE OF PRONOUNCEMENT 04/05/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: ALL THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE C HALLENGING THE RESPECTIVE ORDERS PASSED BY LD CIT(A0 AND THEY RELA TE TO THE ASSESSMENT YEARS 1999- 2000, 2003-04 AND 2004-05. THESE APPEALS WERE HEAR D TOGETHER AND HENCE THEY ARE DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF C ONVENIENCE. HOWEVER, WE PREFER TO ADJUDICATE THE APPEALS ASSESSMENT YEAR WISE. 2. WE TAKE UP THE APPEAL RELATING TO THE ASS ESSMENT YEAR 1999-2000 FIRST. THE ASSESSEE DID NOT PRESS THE GROUND NUMBERED AS 6. A CCORDINGLY THE SAID GROUND IS DISMISSED AS WITHDRAWN. THE REMAINING GROUNDS GIVE RISE TO THE FOLLOWING ISSUES. (A) VALIDITY OF RE-OPENING OF ASSESSMENT AFTER FO UR YEARS. (B) ASSESSMENT OF DEPB BENEFITS. ITA NO. 485,312&486/COCH/2007 2 (C) ADDITION ON ACCOUNT OF UNDER PRICING IN THE S ALE OF KERNELS MADE TO SISTER CONCERNS. (D) VALIDITY OF CHARGING OF INTEREST U/S 234D OF THE ACT. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF M ANUFACTURE AND EXPORT OF CASHEW KERNELS AND CASHEW NUT SHELL LIQUIDS. THE RETURN F ILED BY THE ASSESSEE WAS PROCESSED INITIALLY U/S 143(1) OF THE ACT. IN VIEW OF THE AM ENDMENT BROUGHT IN BY THE TAXATION LAWS (AMENDMENT) ACT 2005 IN SECTION 80HHC OF THE A CT, THE ASSESSMENT WAS REOPENED BY THE AO BY ISSUING NOTICE U/S 148 OF THE ACT. THE AO COMPLETED THE ASSESSMENT BY MAKING VARIOUS ADDITIONS. THE ASSESS EE PREFERRED APPEAL BEFORE LD CIT(A), WHO ALLOWED THE APPEAL IN PART. STILL AGGR IEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE FIRST ISSUE CONTESTED BY THE ASSESSEE IS ABOUT THE VALIDITY OF RE-OPENING OF ASSESSMENT OF THE YEAR UNDER CONSIDERATION. THE AS SESSMENT FOR THE ASST. YEAR 1999- 2000 HAS BEEN REOPENED AFTER COMPLETION OF FOUR YEA RS FROM THE END OF THAT ASSESSMENT YEAR. THE ASSESSMENT WAS NOT COMPLETED U/S 143(3), BUT THE RETURN OF INCOME WAS PROCESSED U/S 143(1) ONLY. ACCORDING TO LD A.R, THE RE-OPENING OF ASSESSMENT AFTER FOUR YEARS, EVEN IN RESPECT OF ASS ESSMENT COMPLETED BY PROCESSING THE RETURN OF INCOME U/S 143(1) OF THE ACT, CAN BE MADE ONLY IF THE AO HAS REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT. (CI T VS. KELVINATOR OF INDIA LTD (2010) (320 ITR 561). HE FURTHER SUBMITTED THAT TH E SUBSEQUENT CHANGE IN LAW DOES NOT AUTHORIZE REASSESSMENT NOTICE BEYOND FOUR YEARS LIMIT WHEN THE ASSESSEE HAS FOLLOWED THE LAW PREVAILING AT THE TIME OF FILING H IS ORIGINAL RETURN (295 ITR 282 (SC)). THE ASSESSEE CANNOT FORESEE OR FORECAST A FUTURE AM ENDMENT WHICH WAS TO BE BROUGHT INTO EFFECT RETROSPECTIVELY AND HENCE REASSESSMENT UNDER SECTION 147 WAS TO BE SET ASIDE (CIT VS. SIL INVESTMENTS LTD (339 ITR 166)(DE LHI). HE FURTHER SUBMITTED THAT EVEN IF THE RE-OPENING OF ASSESSMENT IS CONSIDERED AS VALID, THE AO WAS NOT AUTHORIZED TO EXAMINE THE MATTERS WHICH WERE NOT INCLUDED IN T HE REASSESSMENT NOTICE, I.E., HE CANNOT CONSIDER ITEMS WHICH COME TO HIS NOTICE SUBS EQUENTLY. (CIT VS. SHRI RAM SINGH (2008) (217 CTR 345). ITA NO. 485,312&486/COCH/2007 3 5. ON THE OTHER HAND, THE LD D.R SUBMITTED THA T THE AO HAS REOPENED THE IMPUGNED ASSESSMENT BY RECORDING PROPER REASONS. SHE FURTHE R SUBMITTED THAT THE RESTRICTION IMPOSED BY THE PROVISO FOR RE-OPENING OF ASSESSMENT AFTER COMPLETION OF FOUR YEARS IS APPLICABLE TO ONLY THOSE CASES WHERE THE REGULAR AS SESSMENT WAS COMPLETED U/S 143(3). IN THE INSTANT CASE, THERE WAS NO REGULAR ASSESSMEN T AND THE RETURN WAS PROCESSED U/S 143(1) ONLY. SHE FURTHER SUBMITTED THAT IT IS NOW PERMISSIBLE FOR THE AO WHICH COMES TO HIS NOTICE DURING THE COURSE OF REASSESSMENT PRO CEEDING ALONG WITH THE ITEMS LISTED IN THE NOTICE ISSUED U/S 148 OF THE ACT. 6. WE ARE INCLINED TO ACCEPT THE SUBMISSIONS OF LD D.R. THE RETURN OF INCOME FILED BY THE ASSESSEE HAS BEEN PROCESSED U/S 143(1) OF TH E ACT, I.E., THERE WAS NOT ANY REGULAR ASSESSMENT. HENCE THE RESTRICTION IMPOSED UNDER THE PROVISO TO SEC. 147 DOES NOT APPLY TO THE INSTANT CASE. IN OUR VIEW, CLAUSE (B) OF EXPLANATION 2 TO SEC. 147 ARE ATTRACTED IN THIS CASE. THE AO HAS RECORDED PROPER REASONS FOR RE-OPENING THE ASSESSMENT. IT IS NOT A CASE WHERE THE AO HAS OMITT ED TO CONSIDER THE MATTERS STATED MENTIONED IN THE NOTICE U/S 148 OF THE ACT, BUT PRO CEEDED TO ASSESS OTHER ITEMS. THE PROVISIONS OF SEC. 147 VERY MUCH AUTHORIZES THE AO TO ASSESS THE ESCAPED INCOME THAT COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF A SSESSMENT PROCEEDINGS, ALONG WITH THE ITEMS LISTED OUT IN THE NOTICE ISSUED FOR RE-OP ENING OF ASSESSMENT. ACCORDINGLY, WE ARE OF THE VIEW THAT THE VARIOUS CASE LAW RELIED UP ON BY THE ASSESSEE DO NOT APPLY TO THE FACTS OF THE INSTANT CASE. ACCORDINGLY WE UPHO LD THE VALIDITY OF RE-OPENING OF ASSESSMENT. 7. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF DEPB BENEFITS. AT THE TIME OF HEARING, THE LD A.R BROUGHT TO OUR NOTICE THAT THE ISSUE OF TAXABILITY OF DEPB RECEIPTS HAS SINCE BEEN SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT REPORTED IN (2012)(247 CTR (SC) 353) AND ACCORD INGLY PRAYED THAT THIS ISSUE MAY BE SET ASIDE TO THE FILE OF AO FOR FRESH CONSIDERAT ION IN TERMS OF THE DECISION OF HONBLE SUPREME COURT REFERRED SUPRA. THE LD D.R ALSO DID NOT OBJECT TO THE SAID PLEA MADE BY LD A.R. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE ITA NO. 485,312&486/COCH/2007 4 SAME TO THE FILE OF AO WITH THE DIRECTION TO EXAMIN E THE ISSUE OF TAXABILITY OF DEPB IN ACCORDANCE WITH THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF TOPMAN EXPORTS REFERRED SUPRA. 8. THE NEXT ISSUE RELATES TO THE ADDITION MADE ON ACCOUNT OF UNDER PRICING MADE IN RESPECT OF SALES EFFECTED TO THE SISTER CONCERNS. T HE AO NOTICED THAT THE AVERAGE SALE PRICE OF CASHEW KERNEL SOLD TO THE SISTER CONCERNS WAS RS.186.93 PER KG, WHERE AS THE AVERAGE COST OF PRODUCTION FOR THE ASSESSEE WORKED OUT TO RS.194/- PER KG. THUS THE ASSESSEE INCURRED A LOSS OF RS.7.07 PER KG OF CASHE W KERNEL SOLD TO HIS SISTER CONCERNS. THE AO TOOK THE VIEW THAT NO BUSINESSMAN WILL SELL HIS PRODUCTS AT A PRICE WHICH IS LESS THAN THE COST OF PRODUCTION, EVEN IF THE SALE WAS M ADE TO THE SISTER CONCERNS. ACCORDINGLY, THE AO WORKED OUT THE UNDER PRICING OF SALES AT RS.23,41,202/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE LD CIT(A) CONFIRMED THE SAID ADDITION WITH THE FOLLOWING OBSERVATIONS:- I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. FIRST OF ALL, I AM OF THE VIEW THAT THE CONTENTION OF THE APPELLANT THAT THE COST OF PRODUCTION COULD BE KNOWN ONLY AT THE YEAR END CANNOT BE ACCEPTED. IF THAT I S THE CASE NO MANUFACTURER WOULD BE ABLE TO FIX THE EXPORT PRICE FOR A PRICE S ENSITIVE PRODUCT LIKE CASHEW. FOR THE PURPOSE OF ASSESSMENT UNDER THE INCOME TAX ACT, EACH BUSINESS ENTITY, EVEN IF THAT BE A SISTER CONCERN, IS TREATED AS A S EPARATE UNIT OF ASSESSMENT, THE PROFIT OR LOSS OF WHICH IS TO BE INDEPENDENTLY ARRI VED AT AND ASSESSED. THEREFORE THE CONTENTION OF THE APPELLANT THAT IT IS NOT NECE SSARY THAT THE TRANSFER PRICE HAS TO BE ABOVE THE COST OF PRODUCTION ESPECIALLY WHERE SUCH SALE IS TO A SISTER CONCERN CANNOT BE ACCEPTED. ALSO THE ASSESSING OFF ICER WAS FORCED TO ADOPT THE AVERAGE COST BECAUSE THE APPELLANT WAS UNABLE TO FU RNISH DETAILS OF DIFFERENT GRADES AND THEIR INDEPENDENT COST OF PRODUCTION. IT HAS BEEN HELD IN THE CASE OF PATEL CHEMICAL WORK S VS. CIT REPORTED IN 265 ITR 273 THAT A SALE TO A SISTER CONCERN AT PRICES MUCH BELOW THE MARKET RATES WAS A DEVICE FOR TAX AVOIDANCE. THEREFORE, THE APPELLANT S CASE, WHEREIN THE SALE TO A SISTER CONCERN IS EVEN BELOW THE COST PRICE, HAS TO BE VIEWED MORE SERIOUSLY. IN VIEW OF THE ABOVE, I HOLD THAT THE ASSESSING OFF ICER IS PERFECTLY IN ORDER IN HIS ACTION AND THEREFORE THE ADDITION OF RS.23,41,202/- MADE BY HIM IS SUSTAINED. 9. BEFORE US, THE ASSESSEE HAS MADE GENERAL SUB MISSIONS FINDING FAULT WITH THE WORKINGS MADE BY THE AO. THE ASSESSEE HAS MISERABL Y FAILED TO OFFER CONVINCING ITA NO. 485,312&486/COCH/2007 5 EXPLANATIONS AS TO THE REASONS THAT COMPELLED HIM T O UNDER PRICE THE SALE PRICE IN RESPECT OF SALES MADE TO THE SISTER CONCERNS. IN T HE ABSENCE OF PROPER EXPLANATIONS, THE TAX AUTHORITIES DO NOT HAVE ANY OTHER OPTION, B UT TO PRESUME THAT THE ASSESSEE HAS ADOPTED COLOURABLE DEVICE TO SHIFT HIS PROFIT TO HI S SISTER CONCERNS. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) IN CONFIRMING THIS ADDITION. 10. THE LAST ISSUE RELATES TO THE VALIDITY OF CH ARGING INTEREST U/S 234D OF THE ACT. THE LD D.R SUBMITTED THAT THIS ISSUE HAS SINCE BEEN SET TLED BY THE HONBLE JURISDICTIONAL KERALA HIGH COURT IN THE CASE OF CIT VS. KERALA CHE MICALS AND PROTEINS LTD REPORTED IN 323 ITR 584. ACCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF AO WITH THE DIRECTION TO FOLLOW THE PRINCIPLES LAID DOWN BY THE JURISDICTION AL HIGH COURT IN THE ABOVE CITED CASE. 11. WE SHALL NOW TAKE THE APPEAL RELATING TO THE ASSESSMENT YEAR 2003-04. THE ASSESSEE DID NOT PRESS THE GROUND NUMBERED AS (6) A ND HENCE THE SAME IS DISMISSED AS WITHDRAWN. THE REMAINING GROUNDS RELATE TO THE FOL LOWING ISSUES:- (A) ASSESSMENT OF DEPB RECEIPTS. (B) EXCLUSION OF 90% OF ITEMS CREDITED TO THE PROF IT AND LOSS ACCOUNT AS EXPENSES ALLOCATED AND CESS REFUND UNDER EXPLANA TION (BAA) OF SEC. 80HHC OF THE ACT. (C) AGGREGATION OF EXPORT TURNOVER OF TWO INDEPEN DENT UNITS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. (D) DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80IB I N RESPECT OF NEW UNIT FOR WANT OF SEPARATE BOOKS OF ACCOUNT. 12. THE ISSUE RELATING TO THE ASSESSMENT OF DEPB IS SET ASIDE TO THE FILE OF AO FOR EXAMINING THE SAME AFRESH IN ACCORDANCE WITH THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS, REFERRED SUPRA. 13. THE NEXT ISSUE RELATES TO THE EXCLUSION OF I TEMS CREDITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE CAPTION EXPENSES ALLOCATED AND CESS REFUND. THE AO TOOK THE VIEW THAT THESE TWO ITEMS HAVE TO BE EXCLUDED UNDER EXPLANATION (BAA) TO SEC. 80HHC IN ORDER TO ARRIVE AT THE PROFITS OF BUSINESS. THE SAID VIEW WAS CONFIRMED BY LD CIT(A). ITA NO. 485,312&486/COCH/2007 6 14. THE SUBMISSION OF THE ASSESSEE IS THAT THESE TWO ITEMS ARE NOT INDEPENDENT SOURCE OF ANY INCOME AND HENCE DO NOT HAVE ELEMENT OF TURN OVER. ACCORDING TO HIM, BOTH THE ITEMS HAVE DIRECT NEXUS AND ALSO PERTAIN T O THE EXPORT BUSINESS OF THE ASSESSEE. IN THIS REGARD HE RELIED UPON THE CBDT C IRCULAR NO.621 DATED 19-12-1991 REPORTED IN (1992) 195 ITR (ST.) 176. ON THE OTHER HAND, THE LD D.R STOOD BY THE ORDER OF LD CIT(A). 15. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THE DETAILS RELATING TO THE RECEIPTS UNDER THE CAPTION ALLOCATED EXPENSES AND CESS REFUND ARE NOT AVAILABLE IN THE RECORD. IN OUR VIEW, IF THE ASSESSEE HAS BOOKE D THE EXPENSES AND ALSO THE CESS PAYMENT IN HIS PROFIT AND LOSS ACCOUNT AND RECOVERE D A PART OF SUCH EXPENSES/CESS, THEN THEY CANNOT BE TREATED AS INDEPENDENT SOURCE OF INCOME LIKE INTEREST, BROKERAGE, COMMISSION, RENT ETC. PRESCRIBED IN EXPLANATION (BA A) TO SEC. 80HHC. THEN THERE IS NO NECESSITY TO EXCLUDE 90% THEREOF WHILE COMPUTING TH E PROFITS OF BUSINESS. HOWEVER, THIS ASPECT REQUIRES VERIFICATION. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH IN THE LIGHT OF DISCUSSIONS MADE ABOVE AND DECIDE THE SAME IN ACCORDANCE WITH LAW. 16. THE NEXT ISSUE RELATES TO AGGREGATION OF EXP ORT TURNOVER OF TWO INDEPENDENT UNITS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80H HC OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EXPORTED CASHEW K ERNELS AND ALSO ANOTHER PRODUCT NAMED CNSL (CASHEW NUT SHELL OIL). THE ASSESSEE DI D NOT INCLUDE THE TURNOVER OF CNSL IN THE EXPORT TURNOVER AND TOTAL TURNOVER. HENCE, TH E AO RECOMPUTED THE DEDUCTION U/S 80HHC BY INCLUDING THE TURNOVER PERTAINING TO CNSL. THE LD CIT(A) CONFIRMED THE SAID ACTION OF THE AO. 17. WE HAVE HEARD THE PARTIES ON THIS ISSUE. THE LD A.R RELIED UPON FOLLOWING DECISION IN SUPPORT OF THE VIEW OF THE ASSESSEE. (A) DATAMATICS LTD VS. ACIT (2008) (110 ITD 24)( MUM) (B) CIT VS. SURSH B MEHTA (2007) (291 ITR 462) (M AD) ITA NO. 485,312&486/COCH/2007 7 IN THE INSTANT CASE, THE ASSESSEE HAS EXPORTED BOT H CASHEW KERNELS AND CNSL. AS NOTICED BY LD CIT(A), THE TERMS EXPORT TURNOVER AN D TOTAL TURNOVER HAVE BEEN DEFINED IN SEC. 80HHC OF THE ACT. BOTH THE DEFINITI ON REFERS TO THE ASSESSEE AND NOT UNDERTAKING AS SPECIFIED IN SOME OTHER SECTIONS. WHEN THE EXPORT TURNOVER AND TOTAL TURNOVER OF AN ASSESSEE IS REQUIRED TO BE CONSIDERE D FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S 80HHC, IN OUR VIEW, IT IS NOT PERMISS IBLE TO ASSESSEE TO EXCLUDE CERTAIN TURNOVER ACCORDING TO HIS CONVENIENCE. BOTH THE CA SE LAW RELIED UPON BY THE ASSESSEE ARE NOT APPLICABLE, SINCE IN THOSE CASES, THE QUEST ION OF AGGREGATION RELATED TO EXPORT TURNOVER AND DOMESTIC TURNOVER, WHICH IS NOT THE CASE IN THE INSTANT CASE. THE DEDUCTION U/S 80HHC IS NOT AVAILABLE IN RESPECT OF DOMESTIC TURNOVER. HENCE THE SIGNIFICANCE OF MAINTAINING TWO SEPARATE BOOKS ASSU MED IMPORTANCE. IN THE INSTANT CASE, THE ASSESSEE IS EXPORTING TWO TYPES OF PRODUC TS AND HENCE IN OUR VIEW, BOTH THE TURNOVERS HAVE TO BE AGGREGATED FOR THE PURPOSES OF SEC. 80HHC OF THE ACT. HENCE, WE UPHOLD THE VIEW OF THE LD CIT(A) ON THIS ISSUE. 18. THE LAST ISSUE RELATES TO THE REJECTION OF CLAIM OF DEDUCTION U/S 80IB FOR WANT OF SEPARATE BOOKS OF ACCOUNTS FOR THE ELIGIBLE UNIT. I T IS STATED THAT THIS ISSUE IS COVERED BY THE DECISION OF CO-ORDINATE BENCH OF COCHIN ITAT IN THE CASE OF T.C. USHA VS.ACIT IN ITA NOS. 1268 TO 1270. IT WAS NOT SHOWN TO US THAT THE ABOVE SAID DECISION OF THE TRIBUNAL HAS BEEN REVERSED. ACCORDINGLY WE SET ASI DE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WI TH THE DIRECTION TO EXAMINE THIS ISSUE IN THE LIGHT OF PRINCIPLES GIVEN IN THE CASE OF T.C .USHA REFERRED SUPRA. 19. WE NOW TAKE UP THE APPEAL RELATING TO THE AS SESSMENT YEAR 2004-05. THE ASSESSEE DID NOT PRESS THE GROUND NUMBERED AS (6) A ND HENCE THE SAME IS DISMISSED AS WITHDRAWN. THE REMAINING GROUNDS GIVE RISE TO THE FOLLOWING ISSUES:- (A) ASSESSMENT OF DEPB BENEFITS. (B) EXCLUSION OF 90% OF ALLOCATED EXPENSES AND PRIOR YEAR ADJUSTMENTS UNDER EXPLANATION (BAA) TO SEC. 80HHC. ITA NO. 485,312&486/COCH/2007 8 20. THE ISSUE RELATING TO THE ASSESSMENT OF DEPB IS SET ASIDE TO THE FILE OF AO FOR EXAMINING THE SAME AFRESH IN ACCORDANCE WITH THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS, REFERRED SUPRA. 21. IN THE GROUNDS RAISED BY THE ASSESSEE, IT IS STATED THAT THE LD CIT(A) ERRED IN CONFIRMING EXCLUSION OF 90% OF EXPENSES ALLOCATED A ND PRIOR YEAR ADJUSTMENTS BOTH CREDITED TO THE PROFIT AND LOSS ACCOUNT TOTALING RS .31,36,858/- INVOKING EXPLANATION (BAA) TO SECTION 80HHC. THE BREAK UP OF THE ABOVE SAID AMOUNT IS RS.30,00,000/- RELATING TO EXPENSES ABSORPTION AND RS.1,36,858/- RE LATING TO PRIOR PERIOD ADJUSTMENT. 22. IN THE PRECEDING PARAGRAPH, WE HAVE HELD THAT IF THE EXPENSES ABSORPTION IS IN THE NATURE OF RECOVERY OF PART OF EXPENSES ALREADY BOOKED IN THE PROFIT AND LOSS ACCOUNT, THEN THERE IS NO NECESSITY TO EXCLUDE 90% OF THE SAME UNDER EXPLANATION (BAA) TO SEC. 80HHC. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) IN RESPECT OF THIS ITEM AND RESTORE THE SAME TO THE FILE OF AO FOR FRE SH EXAMINATION. 23. THE PRIOR PERIOD ITEM IS AN INCOME RELATING TO THE EARLIER YEAR. THE DEDUCTION U/S 80HHC IS GIVEN TO THE CURRENT YEARS ELIGIBLE PROFI T. ACCORDINGLY, WE ARE OF THE VIEW THAT THE AO WAS RIGHT IN EXCLUDING THE SAME UNDER EXPLAN ATION (BAA) TO SEC. 80HHC. ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT(A) IN RE SPECT OF THIS ITEM. 24. IN THE RESULT, ALL THE APPEALS OF THE ASSESS EE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY O N 04-05-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 4 TH MAY, 2012 GJ ITA NO. 485,312&486/COCH/2007 9 COPY TO: 1. SHRI PRATAP R. NAIR, PROP. SUNFOOD CORPORATION,K OCHUPILAMMOODU, KOLLAM. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL C IRCLE , KOLLAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS-I, KOCHI. 4. THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN