The ITO, Ward-4(4), Ahmedabad V. Rameshchandra S.Patel, Ahmedabad

ITA 505/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0095 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-08-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 11-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Keywords: Opportunity of being heard
• Section: 80HHC; 6; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH D DD D BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI BHAVNESH BHAVNESH BHAVNESH BHAVNESH SAINI SAINI SAINI SAINI, , , , JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER AND AND AND AND SHRI SHRI SHRI SHRI N.S.SAINI N.S.SAINI N.S.SAINI N.S.SAINI, , , , ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER DATE OF HEARING 19-8-10: DRAFTED ON: 19-8-10. ITA NO. 505 /AHD/ 2008 ASSESSMENT YEAR :2004-05 IN COME TAX OFFICER, WARD 4(4), 1 ST FLOOR, NAVJIVAN TRUST BLDG., ASHRAM ROAD, AHMEDABAD. VS. SHRI RAMESHCHANDRA S. PATEL, 501, 6 TH FLOOR, SHIKHAR, NR. NAVRANGPURA RAILWAY CROSSING, NAVRANGPURA,AHMEDABAD. PAN/GIR NO. : AEHPP 6335 A (A PPELLANT ) .. ( R ESPONDENT ) APPELLANT BY : SHRI R.K. DHANESTA, D.R. RESPONDENT BY: MS URVASHI SHODHAN. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VI II, AHMEDABAD, DATED 6-11-2007. 2. GROUND NO.1 READS AS UNDER : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECT ING THE LEARNED ASSESSING OFFICER NOT TO INCLUDE SALES TAX AND EXCISE DUTY IN THE TOTAL TURNOVER FOR THE PURPO SE OF DEDUCTION UNDER SECTION 80HHC EVEN AFTER INSERTION OF SECTION145A. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE CASE OF THE REVENUE IS THAT AFTER INSERTION OF SECTION145A IN T HE STATUTE TOTAL TURNOVER FOR THE PURPOSE OF CALCULATING DEDUCTION ALLOWABLE UNDER SECTION 80HHC SHOULD INCLUDE EXCISE DUTY AND SALES TAX. WE FIND THAT SECTION 145A PROVIDES AS UNDER :- - 2 - [METHOD OF ACCOUNTING IN CERTAIN CASES - NOTWITHSTA NDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145, (A) THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE U NDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' SHALL BE- I) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGU LARLY EMPLOYED BY THE ASSESSEE; AND (II) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCU RRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOC ATION AND CONDITION AS ON THE DATE OF VALUATION. EXPLANATION : FOR THE PURPOSES OF THIS SECTION, ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIME BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTA NDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT. (B) INTEREST RECEIVED BY AN ASSESSEE ON COMPENSATIO N OR ON ENHANCED COMPENSATION, AS THE CASE MAY BE, SHALL BE DEEMED TO BE THE INCOME OF THE YEAR IN WHICH IT IS RECEIVED.] 4. THUS, IT IS OBSERVED THAT SECTION 145A IS APPLIC ABLE ONLY FOR COMPUTING THE INCOME WHICH IS CHARGEABLE TO TAX UND ER THE HEAD PROFIT AND GAINS FROM BUSINESS OR PROFESSION I.E. FOR COMPUTING INCOME AS PER PROVISIONS OF SECTION 28 TO 44DB OF T HE ACT. HON'BLE SUPREME COURT IN THE CASE OF IPCA LABORATORY LTD., (SUPRA) HAS HELD AS UNDER :- THE WORDS TOTAL TURNOVER' IN S. 80HHC HAVE TO BE R EAD AS PART OF THE FORMULA WHICH SOUGHT TO SEGREGATE THE ' EXPORT PROFITS' FROM THE 'BUSINESS PROFITS'. THEREFORE, TH E FORMULA HAS TO BE READ IN ENTIRETY. IN THAT FORMULA THE ENT IRE BUSINESS PROFITS IS NOT GIVEN DEDUCTION. IT IS THE BUSINESS PROFIT WHICH IS PROPORTIONATELY REDUCED BY THE FRACTION/RATIO OF EXPORT TURNOVER + TOTAL TURNOVER WHICH CONSTITUTE 80HHC CO NCESSION (DEDUCTION). INCOME IN THE NATURE OF 'BUSINESS PROF ITS' WAS, THEREFORE, APPORTIONED. THE ABOVE FORMULA FIXED A R ATIO IN WHICH 'BUSINESS PROFITS' UNDER S. 28 HAD TO BE APPO RTIONED. THEREFORE, ONE HAS TO GIVE WEIGHTAGE NOT ONLY TO TH E WORDS 'TOTAL TURNOVER' BUT ALSO TO THE WORDS 'EXPORT TURN OVER', 'TOTAL EXPORT TURNOVER' AND 'BUSINESS PROFITS'. IN THE CIRCUMSTANCES, THE WORDS 'TOTAL TURNOVER' IN THE AB OVE FORMULA CANNOT BE INTERPRETED WITH REFERENCE TO THE - 3 - DEFINITION OF THE WORD 'TURNOVER' IN OTHER LAWS LIK E CENTRAL SALES-TAX OR AS DEFINED IN ACCOUNTING PRINCIPLES. 5. THUS FROM THE ABOVE DECISION OF HON'BLE SUPREME COURT IT IS CLEAR THAT TOTAL TURNOVER IN SECTION 80HHC CARRIES A SPECIAL MEANING AND THE SAME HAS TO BE INTERPRETED KEEPING IN VIEW THE COMPUTABLE EXPORT TURNOVER. IN OTHER WORDS, EXCISE DUTY AND SALES TAX FOR THE PURPOSE OF CALCULATING DEDUCTION ALLOWA BLE UNDER SECTION 80HHC DO NOT FORM THE PART OF THE TOTAL TUR NOVER AS THE SAME DOES NOT FORM PART OF EXPORT TURNOVER. WE FIN D THAT SECTION 145A HAS NOT BROUGHT ANY CHANGE IN THE ABOVE POSITI ON OF LAW. WE THEREFORE, DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE THEREFORE, IT IS DISMISSED. 6. THEREFORE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7. GROUND NO.2 READS AS UNDER :- 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE LEARNED ASSESSING OFFICER NOT TO EXCL UDE 90% OF `.5,94,525/-, BEING THE CONSULTANCY FEES EAR NED IN FOREIGN CURRENCY, FROM THE PROFITS OF THE BUSINE SS, FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 80HHC. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE LEARNED ASSESSING OFFICER REDUCED 90% OF `.61,52,875/- UNDE R EXPLANATION (BAA) OF SECTION 80HHC WHILE COMPUTING DEDUCTION AL LOWABLE UNDER SECTION 80HHC ON THE GROUND THAT `.61,.52,875/- IS RECEIPT OF DEPB AND IN VIEW OF THE RECENT AMENDMENT IN PROVISO TO S ECTION 80HHC(3) AS THE ASSESSEES EXPORT TURNOVER EXCEED ` .10 CRORES THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION IN RESPECT O F DEPB RECEIPT. 9. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS) THE ASSESSEE POINTED OUT THAT `.61,52,875/- INCLUDE S `.5,94,525/- WHICH RECEIPT IS ON ACCOUNT OF CONSULTANCY CHARGES EARNED IN FOREIGN CURRENCY. THE LEARNED COMMISSIONER OF INCO ME - 4 - TAX(APPEALS) ACCEPTING THE SUBMISSION OF THE ASSESS EE DIRECTED THE LEARNED ASSESSING OFFICER NOT TO EXCLUDE 90% OF `.5,94,525/- WHILE CALCULATING DEDUCTION ALLOWABLE UNDER SECTION 80HHC. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITT ED THAT CONSULTANCY CHARGES EARNED BY THE ASSESSEE IS NOT C ONNECTED WITH THE EXPORT TURNOVER OF MERCHANDISE OF THE ASSESSEE AND THEREFORE, IN VIEW OF THE EXPLANATION (BAA) TO SECTION 80HHC 9 0% OF SAME SHOULD HAVE BEEN REDUCED TO CALCULATE EXPORT PROFIT DERIVED FROM EXPORT OF MERCHANDISE. 11. ON THE OTHER HAND THE LEARNED AUTHORISED REPRES ENTATIVE OF THE ASSESSEE REITERATED THE SAME SUBMISSIONS WHICH WERE MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS). 12. WE FIND THAT BOTH THE LOWER AUTHORITIES HAVE NO T CONSIDERED THE ISSUE UNDER CONSIDERATION FROM THE ANGLE THAT W HETHER THE CONSULTANCY CHARGES EARNED BY THE ASSESSEE IN FOREI GNCURRENCY WAS CONNECTED WITH THE EXPORT BUSINESS OF MERCHANDI SE OF THE ASSESSEE OR NOT. BOTH THE PARTIES BEFORE US HAVE A LSO BROUGHT NO MATERIAL TO SHOW WHETHER THE RECEIPT IN QUESTION WA S CONNECTED WITH THE EXPORT OF GOODS BY THE ASSESSEE OR NOT. I N OUR CONSIDERED OPINION IF THE CONSULTANCY CHARGES ARE INEXTRICABLY LINKED WITH THE EXPORT OF GOODS MADE BY THE ASSESSEE, THEN THE SAME WILL FORM THE PART OF EXPORT TURNOVER AND THEN THE SAME WILL NOT COME WITHIN THE PURVIEW OF EXPLANATION (BAA) OF SECTION80HHC OTHER WISE THE SAID CONSULTANCY CHARGES WILL BE COVERED BY EXPLANATION( BAA) TO SECTION 80HHC AS THE SAME COVERS RECEIPTS BY WAY OF BROKERA GE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT OF A SIMILAR NATURE. IN THIS CONNECTION, IT IS OBSERVED THAT TH E TRIBUNAL IN THE CASE DCIT V MAZDA LTD IN ITA NO. 85/AHD/2008VIDE IT S ORDER DATED 21 ST MAY,2010 HELD AS UNDER :- 15. WITH REGARD TO THE INCOME OF RS.28,00,156/- FR OM TECHNICAL DRAWINGS, WE FIND THAT IN THE INSTANT C ASE, THE CLAIM - 5 - OF THE REVENUE IS THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFIED IN NOT EXCLUDING 90% OF THE DRAWING CHARGES OF RS.28,00,156/- CREDITED BY THE A SSESSEE IN THE PROFIT & LOSS ACCOUNT. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ASSESSEE REC EIVED RS.28,00,156/- FOR TECHNICAL DRAWING AND DESIGN SHE ET FROM M/S. CROLL-REYNOLDS ON A CHARGEABLE BASIS DURING TH E YEAR, WHICH IS IN THE ENGINEERING BUSINESS AND HENCE, IT IS BUSINESS RELATED INCOME. WE FIND THAT THE LEARNED DEPARTMEN TAL REPRESENTATIVE COULD NOT BRING ANY MATERIAL TO CONT ROVERT THE ABOVE FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). FROM THE ORDER OF ASSESSMENT, IT IS OBSE RVED THAT THE ASSESSEE IN ENGAGED IN THE BUSINESS OF MANUFACTURIN G AND TRADING OF MACHINERY PARTS. ON THE ABOVE FACTS, THE EXPLANATION OF THE ASSESSEE THAT THE TECHNICAL DRAWING WAS AN I NTEGRAL PART OF THE ABOVE BUSINESS OF THE ASSESSEE CANNOT BE HEL D AS INCORRECT. THUS, THE DRAWING CHARGES IN QUESTION BE ING INTEGRAL PART OF THE MAIN BUSINESS OF THE ASSESSEE OF MANUFA CTURING AND SELLING OF MACHINERY AND PARTS, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS), WHICH IS CONFIRMED AND THIS PART OF THE GROUND OF T HE APPEAL OF THE REVENUE IS DISMISSED. THUS, THIS GROUND OF APP EAL OF REVENUE IS PARTLY ALLOWED. 13. IN THE ABOVE CIRCUMSTANCES, IN ABSENCE OF FULL DETAILS OF THE NATURE OF CONSULTANCY CHARGES EARNED BY THE ASSESSE E WE ARE NOT IN A POSITION TO ADJUDICATE THE ISSUE COMPLETELY. WE THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS I SSUE AND RESTORE THE ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR ADJUDICATION AFRESH AFTER ALLOWING REASONABLE OPPOR TUNITY OF HEARING TO THE ASSESSEE IN LIGHT OF THE DISCUSSIONS MADE HEREINABOVE. THUS, THIS GROUND OF APPEAL OF THE RE VENUE IS ALLOWED FOR STATISTICAL PURPOSES. 14. GROUND NO.3 READS AS UNDER:- 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECT ING THE LEARNED ASSESSING OFFICER TO ALLOW DEDUCTION UN DER SECTION 80HHC ON DISCLAIMER CERTIFICATE ISSUED BY M /S. CLARIANT (INDIA) LTD. - 6 - 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE IS INTERALIA ENGAGED IN THE BUSINESS OF MANUFACTURING OF THE DYES. THE ASSESSEE SOLD DYES TO EXPORT HOUSE ALSO AMONGST OTHERS DURING THE YEAR UNDER CONSIDERATION. THE EXPORT HOU SE NAMELY M/S. CLARIANT (INDIA) LTD., HAS ISSUED A DECLARATION UND ER SUB SECTION (4A) (B) IN FAVOUR OF THE ASSESSEE IN RESPECT OF EX PORT TURNOVER OF `.4,56,02,457/-. ACCORDINGLY THE ASSESSEE CLAIMED D EDUCTION OF `. 30,20,058/-UNDER SECTION 80HHC OF THE ACT. DURING T HE COURSE OF THE ASSESSEE THE LEARNED ASSESSING OFFICER MADE AN INQUIRY WITH THE LEARNED ASSESSING OFFICER OF THE EXPORT HOUSE A ND FOUND THAT M/S. CLARIANT (INDIA) LTD., HAS SHOWN LOSS ON EXPOR T OF TRADING GOODS. IN VIEW OF THE ABOVE FACT, THE LEARNED ASSE SSING OFFICER HELD THAT M/S. CLARIANT (INDIA) LTD., CANNOT PASS T HE BENEFIT OF DEDUCTION UNDER SECTION 80HHC TO THE ASSESSEE IN VI EW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF IP CA LABORATORY LTD VS. DCIT (2004) 266 ITR 521 (SC). THE LEARNED A SSESSING OFFICER THEREFORE, DISALLOWED THE CLAIM OF DEDUCTIO N OF `.30,20,058/- UNDER SECTION 80HHC OF THE ACT. 16. ON APPEAL, LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) DELETED THE ABOVE DISALLOWANCE BY OBSERVING AS UNDE R :- 4.2. AS REGARDS DISALLOWANCE OF DEDUCTION/S. 80HHC ON DISCLAIMER CERTIFICATE ISSUED BY M/S. CLARIANT (IND IA) LTD., IT IS NOTICED THAT THE APPELLANT HAS SOLD ITS OWN MANUFACTURED GOODS WORTH `.4,56,02,457/- TO M/S. CLARIANT (INDIA) LTD., AN EXPORT HOUSE AS SUPPORTIN G MANUFACTURER. THE EXPORT HOUSE HAS EARNED PROFIT IN RESPECT OF THE SAID TRANSACTION AND HAS ISSUED DISCLAIMER CERTIFICATE ON THE BASIS OF WHICH THE APPELLANT HAS CLAIMED DEDUCTION UNDER SECTION 80HH C FOR A SUM OF `.57,14,515/- UNDER SECTION 80HHC. TH E LEARNED ASSESSING OFFICER HAS DISALLOWED THE SAID CLAIM ON THE GROUND THAT THE EXPORT HOUSE IS NOT HAVING ANY POSITIVE CLAIM OF DEDUCTION UNDER SECTIO N 80HHC ON THE EXPORTED TRADING GOODS. IN MY VIEW ONCE DISCLAIMER CERTIFICATE IS RECEIVED, IT IS NOT REQUIRED TO GO INTO THE DETAILS OF PROFIT OF THE EX PORT - 7 - HOUSE AS TO WHETHER THE EXPORT HOUSE HAS INCURRED PROFIT OR LOSS ON THE EXPORT OF GOODS PURCHASED FRO M THE APPELLANT, IT IS NOTICED THAT THE APPELLANT HAS SATISFIED THE CONDITIONS OF THE RELEVANT PROVISIONS IN RESPECT OF ITS CLAIM RELATING TO SALES MADE TO EXPO RT HOUSE AS THE APPELLANT HAS SOLD THE GOODS TO THE EXPORT HOUSE AND THE EXPORT HOUSE HAS EXPORTED SUC H GOODS AND HAS ISSUED A CERTIFICATE IN THE PRESCRIBE D MANNER THAT ION RESPECT OF THE AMOUNT OF EXPORT TURNOVER MENTIONED IN THE CERTIFICATE, THE EXPORT HOUSE HAS NOT CLAIMED THE DEDUCTION UNDER THIS SECTION. THE APPELLANT HAS OBTAINED A CERTIFICATE F ROM THE EXPORT HOUSE M/S. CLARIANT (INDIA) LTD., DULY CERTIFIED BY THE AUDITORS, M/S. A.F. FERGUSON & COMPANY. IN VIEW OF THE ABOVE FACTS, IT IS HELD THA T THE APPELLANT HAS CORRECTLY CLAIMED DEDUCTION IN RESPEC T OF SALES OF `.4,56,02,457/-. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS CLEARLY EXPLAINE D THAT THE FACTS OF THE IPCA LABORATORIES ARE DIFFERE NT. THIS GROUND IS ALLOWED. 17. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATI VE RELIED UPON THE ORDER OF THE HON'BLE SUPREME COURT IN THE CASE OF IPCA LABORATORY LTD., (SUPRA) AND SUBMITTED THAT AS THE EXPORT BUSINESS HAS SUFFERED LOSS ON EXPORT OF TRADING GOODS THE DI SCLAIMER CERTIFICATE ISSUED UNDER SECTION 80HHC (4A)(B) IS N OT PROPER AND THE ASSESSEE WAS NOT ENTITLED FOR DEDUCTION UNDER S ECTION 80HHC. 18. ON THE OTHER HAND, THE LEARNED AUTHORISED REPRE SENTATIVE OF THE ASSESSEE SUBMITTED THAT THE FACTS OF IPCA LABOR ATORY LTD.,(SUPRA) IS DISTINGUISHABLE FROM, THE FACTS OF THE INSTANT CASE, IN SO FAR AS IN THE CASE OF IPCA LABORATORY LTD., THE ASSESSEE WAS AN EXPORT HOUSE WHICH SUFFERED LOSS AFTER ADJUSTMENT O F PROFIT ON EXPORT OF MANUFACTURED GOODS ALSO WHEREAS IN THE IN STANT CASE, THE EXPORT HOUSE HAD NET PROFIT AFTER ADJUSTMENT OF LOS S ON TRADING GOODS. THUS, THE FACTS BEING DISTINGUISHABLE DECIS ION OF IPCA LABORATORY LTD.(SUPRA), IS NOT APPLICABLE IN THE IN STANT CASE. HE FURTHER SUBMITTED THAT THE ISSUE UNDER CONSIDERATIO N IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL IN THE CAS E OF MCFILLS ENTERPRISES PVT. LTD. VS. ITO IN ITA NO.131 & 507/A HD/2008 FOR ASSESSMENT YEAR 2004-05 WHEREIN THE TRIBUNAL VIDE I TS ORDER DATED 11-9-2009 DECIDED THE ISSUE IN FAVOUR OF THE ASSESS EE. HE ALSO - 8 - POINTED OUT AS PER THE PROVISIONS OF SECTION 80HHC( 1A) WHICH IS RELEVANT FOR ALLOWING DEDUCTION IS THE PROFIT OF TH E SUPPORTING MANUFACTURER AND NOT THE PROFIT OR LOSS OF EXPORT H OUSE. HE ALSO SUBMITTED THAT THE EXPORT HOUSE EARNED PROFIT ON EX PORT OF GOODS PURCHASED FROM THE ASSESSEE. 19. WE FIND THAT IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS EARNED PROFIT FROM BUSINESS AND ALSO E ARNED PROFIT ON SALE OF GOODS TO THE EXPORT HOUSE. FURTHER, IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS RECEIVED PRESCRIBED CERTIFICA TE IN ACCORDANCE WITH THE PROVISIONS OF SUB-SECTION (4A)(B) OF SECTI ON 80HHC OF THE ACT. THE ONLY OBJECTION OF THE REVENUE IS THAT AS THE CONCERNED EXPORT HOUSE HAS SUFFERED LOSS ON EXPORT OF TRADING GOODS AND THEREFORE, THE ASSESSEE WAS NOT ENTITLED TO DEDUCTI ON UNDER SECTION 80HHC OF THE ACT. WE FIND THAT SUB-SECTION (1A) OF SECTION 80HHC READS AS UNDER :- (1A) WHERE THE ASSESSEE, BEING A SUPPORTING MANUFA CTURER, HAS, DURING THE PREVIOUS YEAR, SOLD GOODS OR MERCHA NDISE TO ANY EXPORT HOUSE OR TRADING HOUSE IN RESPECT OF WHI CH THE EXPORT HOUSE OR TRADING HOUSE HAS ISSUED A CERTIFIC ATE UNDER THE PROVISO TO SUB-SECTION (1), THERE SHALL, IN ACC ORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE A LLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE [A DEDU CTION TO THE EXTENT OF PROFITS, REFERRED TO IN SUB-SECTION ( 1B)], DERIVED BY THE ASSESSEE FROM THE SALE OF GOODS OR MERCHANDI SE TO THE EXPORT HOUSE OR TRADING HOUSE IN RESPECT OF WHI CH THE CERTIFICATE HAS BEEN ISSUED BY THE EXPORT HOUSE OR TRADING HOUSE.] FURTHER, SUB-SECTION (3A) OF SECTION 80HHC READS AS UNDER : [(3A) FOR THE PURPOSES OF SUB-SECTION (1A), PROFITS DERIVED BY A SUPPORTING MANUFACTURER FROM THE SALE OF GOODS OR MERCHANDISE SHALL BE, - 9 - (A) IN A CASE WHERE THE BUSINESS CARRIED ON BY THE SUPPORTING MANUFACTURER CONSISTS EXCLUSIVELY OF SALE OF GOODS OR MERCHANDISE TO ONE OR MORE EXPORT HOUSES OR TRADING HOUSES, THE PROFITS OF THE BUSINESS [* * *]; (B) IN A CASE WHERE THE BUSINESS CARRIED ON BY THE SUPPORTING MANUFACTURER DOES NOT CONSIST EXCLUSIVELY OF SALE O F GOODS OR MERCHANDISE TO ONE OR MORE EXPORT HOUSES OR TRADING HOUSES, THE AMOUNT WHICH BEARS TO THE PROFITS OF TH E BUSINESS [****] THE SAME PROPORTION AS THE TURNOVER IN RESPECT OF SALE TO THE RESPECTIVE EXPORT HOUSE OR T RADING HOUSE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS C ARRIED ON BY THE ASSESSEE.] 20. THUS, FROM A READING OF THE AFORESAID PROVISION OF LAW IN OUR CONSIDERED OPINION A SUPPORTING MANUFACTURER WHO RE CEIVE CERTIFICATE REFERRED TO IN SUB-SECTION (4A) CLAUSE (B) OF THE ACT IS ENTITLED FOR DEDUCTION UNDER SECTION 80HHC TO THE EXTENT OF PROFIT EARNED BY IT ON SUCH GOODS TO THE EXPORT HOUSE SUBJ ECT TO PROVISIONS OF SUB-SECTION (1B) OF SECTION 80HHC OF THE ACT. NOWHERE THE SECTION STIPULATES FOR ALLOWING DEDUCTI ON UNDER SECTION 80HHC (1A) IT IS ALSO A CONDITION PRECEDENT THAT EXPORT HOUSE SHOULD HAVE ALSO MADE A PROFIT ON EXPORT OF T RADING GOODS. THE LEARNED ASSESSING OFFICER DISALLOWED THE CLAIM IN VIEW OF HIS READING OF THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF IPCA LABORATORY LTD., (SUPRA). WE FIND THAT IN THE CASE OF IPCA LABORATORY LTD., (SUPRA) THE HON'BLE SUPREME COURT WAS CONFRONTED WITH THE CASE OF AN EXPORT HOUSE. THE ASSESSEE THER E WAS AN EXPORT HOUSE. THAT ASSESSEE SUFFERED A LOSS ON EXPO RT OF TRADING GOODS. WHILE COMPUTING DEDUCTION ALLOWABLE UNDER SE CTION 80HHC OF THE ACT THE ASSESSEE IGNORED THE LOSS ON EXPORT OF TRADING GOODS ON THE GROUND THAT IT HAS ISSUED A DISCLAIMER CERTI FICATE UNDER SECTION 80HHC(4A)(B) OF THE ACT IN RESPECT OF TURN OVER OF TRADING GOODS. IN THIS CONTEXT, THE HON'BLE SUPREME COURT VIEWED THAT THE DISCLAIMER CERTIFICATE CAN BE GIVEN IN RESPECT OF P ROFIT ONLY AND NOT IN RESPECT OF LOSS. IN OTHER WORDS, AN ASSESSEE WH O IS AN EXPORT - 10 - HOUSE OR A TRADING HOUSE IS ENTITLED TO REDUCE THE AMOUNT OF DEDUCTION ALLOWABLE UNDER SECTION 80-HHC BY ISSUIN G A DISCLAIMER CERTIFICATE BUT THE ASSESSEE CANNOT INCREASE THE AM OUNT OF DEDUCTION OTHERWISE ALLOWABLE UNDER SECTION 80HHC BY ISSUING A DISCLAIMER CERTIFICATE. 21. THE DECISION IS AN AUTHORITY FOR THE PROPOSITIO N THAT AN EXPORT HOUSE OR TRADING HOUSE CANNOT INCREASE THE D EDUCTION OTHERWISE ALLOWABLE UNDER SECTION 80HHC BY ISSUING A CERTIFICATE UNDER SUB-SECTION (4A)(B) OF THE ACT IN RESPECT OF CERTAIN TURNOVER. 22. HOWEVER, ON CONSIDERATION OF THE FACTS OF THE C ASE, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RE-CONSIDERATION AT THE LEVEL OF THE LEARNED ASSESSING OFFICER. THE LEARNED ASSESSIN G OFFICER NOTED IN THE ASSESSMENT ORDER THAT THE EXPORTER HAS EARNE D A PROFIT ON EXPORT OF MANUFACTURED GOODS IN A SUM OF `.20,22,00 0/-.THE LEARNED ASSESSING OFFICER HOWEVER, CHOOSE TO CONSID ER THE LOSS SUFFERED ON EXPORT OF TRADING GOODS WITH THE ASSESS EE IN A SUM OF `.1,54,000/- FOR THE PURPOSE OF REJECTING THE CLAIM OF THE ASSESSEE TREATING THEREBY THAT SINCE THE EXPORT HOUSE M/S. C LARIANT INDIA LTD., HAS INCURRED LOSSES IN TRADING GOODS THEREFOR E, CLAIM OF THE ASSESSEE HAVE TO BE REJECTED BY APPLYING THE DECISI ON IN THE CASE OF IPCA LABORATORIES. THE FINDINGS OF THE LEARNED A SSESSING OFFICER THUS CANNOT BE APPROVED IN THIS WAY BUT WE MAY ALSO NOTE HERE THAT AT PAGE-7 OF THE ASSESSMENT ORDER THE LEARNED ASSESSING OFFICER MENTIONED THAT THE LEARNED ASSESSING OFFICE R OF M/S. CLARIANT INDIA LTD., HAS POINTED OUT THAT THE RETUR N FOR ASSESSMENT YEAR 2004-05 HAS SHOWN LOSS FROM TRADED GOODS. NO F ACTS WERE GATHERED WHETHER THE EXPORTER M/S. CLARIANT INDIA L TD. HAS IN FACT FILED THE RETURN OF INCOME AT LOSS OR AT PROFIT BEC AUSE IF ULTIMATELY PROFIT IS SHOWN IN THE RETURN OF INCOME ON EXPORT C ONSIDERING BOTH MANUFACTURED GOODS AND TRADING GOODS, PERHAPS THE L EARNED ASSESSING OFFICER COULD NOT HAVE DENIED THE CLAIM O F THE ASSESSEE. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WI THOUT CONSIDERING THE FACTS PROPERLY AND WITHOUT GIVING A NY SPECIFIC - 11 - FINDING ON THE ISSUE AGREED WITH THE ASSESSEES SUB MISSION. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) IS THUS NOT ON FACTS AND IS IN CLEAR VIOLATION OF SECTION 2 50(6) OF THE I.,T. ACT. SINCE THE ENTIRE FACTS HAVE NOT BEEN BROUGHT O N RECORD AND CONSIDERED EITHER BY THE LEARNED ASSESSING OFFICER OR BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), WE ARE OF VIEW THE MATTER REQUIRES RE-CONSIDERATION BY THE LEARNED ASS ESSING OFFICER. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORI TIES BELOW AND RESTORE THE MATTER TO THE FILE OF LEARNED ASSESSING OFFICER FOR RE- CONSIDERATION IN VIEW OF THE ABOVE OBSERVATION. THE LEARNED ASSESSING OFFICER SHALL GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. AS A RESULT, THIS GROU ND OF DEPARTMENTAL APPEAL IS ALLOWED IS FOR STATISTICAL P URPOSE. 23. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 27 TH DAY OF AUGUST, 2010. SD/- SD/- (BHAVNESH SAINI) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABA: ON THIS 27 TH DAY OF AUGUST, 2010 COMPILED AND COMPARED BY: PATKI COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 19-8-2010 -------------- ----- - 12 - 2. DRAFT PLACED BEFORE AUTHORITY 19-8-2010 ----- -------------- 3. DRAFT PROPOSED & PLACED 19-8-2010 ------------ ------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 19-8-2010 ----------- -------- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S ---------------- -- ------------------ 6. KEPT FOR PRONOUNCEMENT ON ---------------- --- ----------------- 7. FILE SENT TO THE BENCH CLERK ---------------- -------------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------