DCIT - 13(3), MUMBAI V. M/s. PRABHAT INDUSTRIES, MUMBAI

ITA 5220/MUM/2006

• Counselvise Citation: 522019914 RSA 2006
• Duration Of Justice: 7 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 10-09-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 05-10-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: DR K SHIVRAM; PARAS S SAVLA
• Keywords: Business income; Opportunity of being heard
• Section: 28; 43B; 143(3); 80HHC

Judgement Text

J IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI .. , ; BEFORE SHRI P.M. JAGTAP, AM AND SHRI VIVEK VARMA, J M ./ I.T.A. NO.5220 /MUM/2006 ( / ASSESSMENT YEAR : 2003-2004 DY. COMMISSIONER OF INCOME TAX 13(3), ROOM NO. 427, 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 20. / VS. M/S PRABHAT INDUSTRIES, PRABHAT BHAVAN, OPP. SIPLA, 96, LBS MARG, VIKHROLI (WEST), MUMBAI 400 083. . / PAN : AAAFP 0470H ( # / APPELLANT ) .. ( $%# / RESPONDENT ) ./ I.T.A. NO.4976/MUM/2006 ( / ASSESSMENT YEAR : 2003-2004 M/S PRABHAT INDUSTRIES, PRABHAT BHAVAN, OPP. SIPLA, 96, LBS MARG, VIKHROLI (WEST), MUMBAI 400 083. / VS. DY. COMMISSIONER OF INCOME TAX 13(3), ROOM NO. 427, 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 20. ./ PAN : AAAFP 0470H ( # / APPELLANT ) .. ( $%# / RESPONDENT ) ASSESSEE BY DR. K. SHIVRAM & SHRI PARAS S. SAVLA REVENUE BY : SHRI SURENDRA KUMAR ) * / DATE OF HEARING : 23-12-13 ) * / DATE OF PRONOUNCEMENT : 20-02-2014 [ ITA 5220/M/06 & 4976/M/06 2 / O R D E R PER P.M. JAGTAP, A.M . : .. , THESE CROSS APPEALS FILED AGAINST THE ORDER OF LD. CIT(A) XIII, MUMBAI DTD. 10-07-2006 ARE FIXED BEFORE US TO DECIDE SOME ISSUES RAISED THEREIN AS PER THE DIRECTION OF THE HONBLE BOMBAY HIGH COURT AFTER GIVING BOTH THE SIDES AN OPPORTUNITY OF BEING HEARD. 2. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM WHICH IS ENGAGED IN THE BUSINESS OF EXPORT OF RUBBER GOODS, AUTO SPA RE PARTS WITH ACCESSORIES AND MARINE PRODUCTS AS A TRADER. THE RETURN OF INC OME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 8-10-2003 DECLARIN G TOTAL INCOME OF RS. 15,18,620/- AFTER CLAIMING DEDUCTION OF RS. 51,37,0 94/- U/S 80HHC OF THE INCOME TAX ACT, 1961. THE SAID DEDUCTION U/S 80HHC OF THE ACT WAS COMPUTED BY THE ASSESSEE AS A TRADER U/S 80HHC(3)(B ) OF THE ACT AND SINCE SUCH COMPUTATION RESULTED IN A LOSS, THE SAID LOSS WAS SET OFF BY THE ASSESSEE AGAINST 90% OF ALL EXPORT INCENTIVES AS PER THE 5 TH PROVISO TO SECTION 80HHC(3) THEREBY CLAIMING DEDUCTION OF RS. 51,37,094/- U/S 8 0HHC OF THE ACT. IN THE ASSESSMENT ORIGINALLY COMPLETED U/S 143(3) OF THE A CT VIDE AN ORDER DTD. 28.2.2006, THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80HHC OF THE ACT WAS EXAMINED BY THE A.O. ON SUCH EXAMINATION, HE HELD THAT NO DEDUCTION FOR 10% OF EXPORT INCENTIVES TOWARDS IN-DIRECT COST WAS ALLOWABLE AS CLAIMED BY THE ASSESSEE. HE ALSO HELD THAT THE RESULTANT LOSS AS COMPUTED BY THE ASSESSEE U/S 80HHC(3)(B) OF THE ACT WAS LIABLE TO B E SET OFF ONLY AGAINST DUTY DRAWBACK OF RS. 1,33,09,615/- AND NOT AGAINST THE E XPORT INCENTIVES AS CLAIMED BY THE ASSESSEE. HE WAS ALSO OF THE OPINION THAT THE LOSS OF USA BRANCH OF THE ASSESSEE WAS LIABLE TO BE SET OFF AGA INST THE BUSINESS INCOME FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S 80HHC OF THE ACT. ACCORDINGLY THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80HHC O F THE ACT WAS RESTRICTED BY THE A.O. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOR ITA 5220/M/06 & 4976/M/06 3 REDUCING THE CENTRAL EXCISE REFUND OF RS. 99,58,658 /- FROM THE COST OF PURCHASE. HE ALSO HELD THAT THE LOSS OF USA BRANCH COULD NOT BE SET OFF AGAINST THE BUSINESS INCOME OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT. AS REGARDS THE CLAI M OF THE ASSESSEE FOR DEDUCTION OF 10% FROM THE EXPORT INCENTIVE TOWARDS IN-DIRECT COST, THE LD. CIT(A) FOUND THAT SUCH IN-DIRECT COST ON PROPORTION ATE BASIS WAS ONLY 3.06% AND ACCORDINGLY THE CLAIM OF THE ASSESSEE FOR SUCH DEDUCTION WAS ALLOWED BY HIM ONLY TO THE EXTENT OF 3.06% AS AGAINST 10% CLAI MED BY THE ASSESSEE. AS REGARDS THE LOSS COMPUTED BY THE ASSESSEE AS PER SE CTION 80HHC(3)(B) OF THE ACT, THE LD. CIT(A) HELD THAT THE DUTY DRAWBACK WAS RIGHTLY CONSIDERED BY THE A.O. ON THE GROUND THAT ONLY ONE ITEM OF EXPORT INC ENTIVE COULD BE ADDED BACK AS PER THE 5 TH PROVISO TO SECTION 80HHC(3) OF THE ACT. HE HELD T HAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80HHC OF THE ACT ON DEPB THUS WAS RIGHTLY DISALLOWED BY THE A.O. 3. AGAINST THE ORDER OF THE LD. CIT(A) ALLOWING PAR TLY THE APPEAL OF THE ASSESSEE, BOTH REVENUE AND ASSESSEE PREFERRED THEIR APPEALS BEFORE THE ITAT AND THE ITAT VIDE ITS ORDER DATED 18-11-2009 DECIDE D THE ISSUES INVOLVED IN THOSE APPEALS AS UNDER: A) CENTRAL EXCISE REFUND / REBATE CANNOT BE REDUCE D FROM PURCHASES BUT THEY WILL BE INCOME U/S. 28(IIIB) AND A.O. WAS DIRECTED TO COMPUTE S. 8OHHC ACCORDINGLY. B) DEPB WAS NOT CONSIDERED FOR DEDUCTION U/S. 8OHHC IN VIEW OF 5TH PROVISO TO 8OHH( (3) C) LOSS OF USA BRANCH WAS TO BE SETOFF FOR COMPUTIN G PROFITS ELIB1E FOR CLAIMING DEDUCTION U/S. 80HHC. 4. AGAINST THE ORDER OF THE ITAT, BOTH THE REVENUE AND THE ASSESSEE PREFERRED THEIR APPEALS BEFORE THE HONBLE BOMBAY H IGH COURT AND WHILE DISPOSING OF THE SAID APPEALS BY SEPARATE ORDERS, T HE HONBLE BOMBAY HIGH ITA 5220/M/06 & 4976/M/06 4 COURT RESTORED SOME OF THE ISSUES INVOLVED THEREIN TO THE FILE OF THE TRIBUNAL FOR DECIDING THE SAME AFRESH AS PER THE DIRECTION G IVEN IN ITS ORDER. 5. AT THE TIME OF HEARING BEFORE US, THE LD. REPRES ENTATIVES OF BOTH THE SIDES HAVE AGREED THAT AS PER THE DIRECTIONS GIVEN BY THE HONBLE BOMBAY HIGH COURT IN ITS ORDERS, GROUND NO. 1(A) OF THE AS SESSEES APPEAL AND GROUND NO. 1,2 & 4 OF THE REVENUES APPEAL ARE REQUIRED TO BE DECIDED BY THE TRIBUNAL AFRESH. THE SAID GROUNDS READ AS UNDER:- GROUNDS RAISED BY THE ASSESSEE: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCT ION UNDER SECTION 8OHHC OF THE INCOME TAX ACT, 1961 OF RS.21, 27,720/- ONLY OUT OF CLAIM OF THE APPELLANT OF RS.5 1, 3 7,094 THEREBY CONFIRMING THE DISALLOWANCE OF THE CLAIM TO THE EXT ENT OF RS.30,09,374/- ON ALL OR ANY OF THE FOLLOWING GROUN DS:- A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT DIRECTING THE A. 0. TO CALCULATE THE DEDUCTI ON AS PER AMENDED PROVISIONS OF SECTION 8OHHC(3) UNDER FIFTH PROVISO ON ALL THE ITEMS REFERRED TO IN CLAUSE (IIIA), (IIIB), (IIIC), (IIID) OR (IIIE) OF SECTION 28 INSTEAD OF ONLY ONE ITEM AND HAS THEREBY ERRED IN NOT DIRECTING, THE A. 0. TO CONSIDER THE CLAIM ON DEPB AMOUNT OF RS.59,91,226/- FOR THE WORKING OF DEDUCTION UNDER S ECTION 8OHNC UNDER THE SAID PROVISO. GROUNDS RAISED BY THE REVENUE: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ID. CIT(A) HAS GROSSLY ERRED IN FACT AND IN LAW IN DIRE CTING THE AO TO REDUCE THE CENTRAL EXCISE DUTY REFUND OF RS.99,48,6 58/- FROM THE COST OF GOODS AS AGAINST TAKEN AS INCOME NOT DE RIVED FROM EXPORT FOR THE PURPOSE OF DEDUCTION U/S. 8OHHC, SIN CE THE SAID RECEIPTS HAD NO LINKAGE TO THE EXPORT ACTIVITY AND MAINLY NOT DERIVED FROM THE EXPORT GOODS. II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ID. CIT(A) ERRED BOTH IN FACTS AND IN LAW IN DIRECTING THE AD NOT TO CONSIDER THE OVERSEAS BRANCH LOSS WITHOUT APPRECIAT ING THE FACT THAT THE OVERSEAS BRANCH IS ALSO ENGAGED IN THE BUS INESS OF THE EXPORT CARRIED ON BY THE ASSESSEE AND IS DEALING WI TH THE EXPORT ITA 5220/M/06 & 4976/M/06 5 OF THE GOODS MADE BY THE ASSESSEE AND IS A PART AND PARCEL OF THE EXPORT BUSINESS CARRIED ON BY THE ASSESSEE. IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ID. CIT(A) ERRED BOTH IN FACTS AND IN LAW IN DELETING T HE ADDITION OF RS. 28,188/- REPRESENTING THE DELAYED PAYMENT OF CO NTRIBUTION TO EMPLOYEES PROVIDENT FUND BY HOLDING THAT THE AME NDED PROVISION OF SECTION 43B IS APPLICABLE RETROSPECTIV E EVEN THOUGH AS PER THE LEGISLATURE THE AMENDMENT IS PROSPECTIVE . 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS REGARDS T HE ISSUE INVOLVED IN GROUND NO. 1(A) OF THE ASSESSEES APPEAL, IT IS OBSERVED T HAT AS PER THE 5 TH PROVISO TO SECTION 80HHC(3) OF THE ACT, IN CASE THE COMPUTATIO N UNDER CLAUSE (A) OR (B) OR (C) OF SUB SECTION 3 OF SECTION 80HHC OF THE ACT IS A LOSS, SUCH LOSS IS TO BE SET OFF AGAINST THE AMOUNT WHICH BEARS TO 90% OF AN Y SUM REFERRED TO IN CLAUSE (IIIA) OR CLAUSE (3) OR CLAUSE (IIIC) OF SEC TION 28 OF THE ACT AS THE CASE MAY BE. AS HELD BY THE HONBLE SUPREME COURT IN TH E CASE OF TOPMAN EXPORTS VS. CIT, 342 ITR 249 (SC), THE FACE VALUE O F DEPB FALLS U/S 28(IIIB) WHILE THE DUTY DRAWBACK FALLS U/S 28(IIIC) OF THE A CT. BOTH DEPB AND DUTY DRAWBACK THUS FALLS UNDER CLAUSE (A) OF 5 TH PROVISO TO SECTION 80HHC(3) OF THE ACT AND AS HELD BY THE CO-ORDINATE BENCH OF THIS TR IBUNAL IN THE CASE OF YASMEEN SILK CORPORATION VS. ITO, 16 DTR 507 (MUMBA I), THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80HHC OF THE ACT WITH RE FERENCE TO ALL THE RECEIPTS FALLING UNDER CLAUSE (IIIA) TO (IIIC) OF SECTION 28 IN VIEW OF THE PROVISIONS OF 5 TH PROVISO TO SECTION 80HHC OF THE ACT. THIS ISSUE TH US IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF CO-ORDINATE BENCH O F THIS TRIBUNAL IN THE CASE OF YASMEEN SILK CORPORATION (SUPRA) AND THERE BEING NO OTHER CASE LAW CITED BY THE LD. D.R. TAKING A DIFFERENT VIEW ON THIS ISS UE, WE RESPECTFULLY FOLLOW THE SAID DECISION OF THE CO-ORDINATE BENCH OF THIS TRIB UNAL AND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE A.O. IS ACCORDINGLY DIRECTED TO RECOMPUTE THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80HHC OF TH E ACT AFTER ALLOWING THE LOSS AS WORKED OUT AS PER SECTION 80HHC (3)(B) OF T HE ACT AS AGAINST THE ITA 5220/M/06 & 4976/M/06 6 AMOUNT WHICH BEARS TO 90% OF THE FACE VALUE OF DEPB AND DUTY DRAWBACK. GROUND NO. 1(A) OF THE ASSESSEES APPEAL IS ACCORDI NGLY ALLOWED. 7. AS REGARDS THE ISSUE RAISED IN GROUND NO. 1 OF T HE REVENUES APPEAL, IT IS OBSERVED THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS ONLY A TRADER EXPORTER WHO PAID THE EXCISE DUTY AT THE MOM ENT OF PURCHASE AND CLAIMED THE REFUND OF EXCISE DUTY SO PAID ONCE THE EXPORT OF THE SAID GOODS WAS EFFECTED. WHAT THE ASSESSEE THUS RECEIVED WAS THE REFUND OF EXCISE DUTY ACTUALLY PAID AND THERE WAS NO ELEMENT OF ANY PROFI T INVOLVED IN THE SAID RECEIPT. IN THE CASE OF CIT VS. SUDARSHAN CHEMICALS INDUSTRIES LTD. (2000) 245 ITR 769 CITED BY THE LD. COUNSEL FOR THE ASSESS EE, IT WAS HELD BY THE HONBLE BOMBAY HIGH COURT THE TURNOVER SHOULD BE RE STRICTED TO THE SUCH RECEIPTS WHICH HAVE ELEMENT OF PROFIT IN IT AND ANY THING CHARGED BY THE ASSESSEE BY WAY OF EXCISE DUTY AND SALES TAX CANNOT BE TAKEN INTO ACCOUNT AS THEY DO NOT HAVE ANY ELEMENT OF PROFIT. EVEN OTHER WISE, THE EXCISE DUTY REFUND IS LIABLE TO BE NETTED AGAINST EXCISE DUTY P AID AND ONCE SUCH NETTING IS ALLOWED, THE EXCISE DUTY CANNOT BE PART OF ANY DIRE CT COST AS PER THE PRINCIPLES LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CA SE OF CIT VS. CROWN COMPUTERISED REPORTED IN (2007) 289 ITR 151 (DEL). THIS ISSUE THUS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE J UDICIAL PRONOUNCEMENTS DISCUSSED ABOVE AND EVEN THE LD. D.R. AT THE TIME O F HEARING BEFORE US HAS ACCEPTED THIS POSITION. RESPECTFULLY FOLLOWING THE SAID JUDICIAL PRONOUNCEMENTS, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DIRECTING THE A.O. TO REDUCE THE CENTRAL EXCISE DUTY REFUND F ROM THE COST OF GOODS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT AND DISMISS GROUND NO. 1 OF REVENUES APPEAL. 8. AS REGARDS THE ISSUE RAISED IN GROUND NO. 2 OF T HE REVENUES APPEAL RELATING TO THE TREATMENT TO BE GIVEN TO THE LOSS O F OVERSEAS BRANCH OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC, THE LD. D.R. HAS ITA 5220/M/06 & 4976/M/06 7 SUBMITTED THAT A SIMILAR ISSUE HAS BEEN DECIDED AGA INST THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER YEA RS. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS SUBMITTED THAT THE RELEVANT FACTS INVOLVED DURING THE YEAR CONSIDERATION ARE MATERIALLY DIFFER ENT FROM THE EARLIER YEARS INASMUCH AS THE ENTIRE EXPORT OF THE ASSESSEE OUT O F INDIA DURING THE YEAR UNDER CONSIDERATION WAS THAT OF TRADING GOODS WHERE AS THE SAME WAS OF MERCHANDISE MANUFACTURED ALSO IN THE EARLIER YEARS. HE HAS CONTENDED THAT THE DEDUCTION U/S 80HHC OF THE ACT FOR THE YEAR UND ER CONSIDERATION THUS IS LIABLE TO BE COMPUTED AS PER CLAUSE (B) OF SUB SECT ION (3) OF SECTION 80HHC OF THE ACT BY REDUCING THE DIRECT COST AND INDIRECT CO ST ATTRIBUTABLE TO THE EXPORT FROM THE EXPORT TURNOVER AND EXPLANATION (BAA) IS N OT RELEVANT. HE HAS SUBMITTED THAT THE A.O. MAY BE DIRECTED TO VERIFY T HIS CLAIM OF THE ASSESSEE AND DECIDE THE ISSUE AFRESH. SINCE THE LD. D.R. HA S NOT RAISED ANY MATERIAL OBJECTION IN THIS REGARD, WE SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF TH E A.O. WITH A DIRECTION TO DECIDE THE SAME AFRESH AFTER VERIFYING THE CLAIM OF THE ASSESSEE AS PER CLAUSE (B) OF SUB SECTION (3) OF SECTION 80HHC OF THE ACT. GROUND NO. 3 OF THE REVENUES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 9. AS REGARDS GROUND NO. 4 OF THE REVENUES APPEAL, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUE INVOLVED THEREIN RELATING TO BELATED PAYMENT OF EMPLOYEES CONTRIBUT ION TO PROVIDENT FUND AFTER THE DUE DATE BUT BEFORE THE DUE DATE OF FILING OF R ETURN OF INCOME IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE INTER ALIA BY THE DECISION OF THE HONBLE UTTARAKHAND HIGH COURT IN THE CASE OF CIT VS. KICHH A SUGAR COMPANY (ITA NO. 50 OF 2009 DTD. 20-5-2013) WHEREIN IT WAS HELD THAT DUE DATE REFERRED IN SECTION 36(1)(VA) MEANS DUE DATE OF FILING THE RETU RN OF INCOME. RESPECTFULLY FOLLOWING THE SAID DECISION OF HONBLE UTTARAKHAND HIGH COURT IN THE CASE OF KICHHA SUGAR COMPANY (SUPRA), WE UPHOLD THE IMPUGNE D ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE BY THE A.O. O N ACCOUNT OF BELATED ITA 5220/M/06 & 4976/M/06 8 PAYMENT OF EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND AND ALLOW GROUND NO. 4 OF REVENUES APPEAL. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D WHEREAS THE APPEAL OF THE REVENUE IS TREATED AS PARTLY ALLOWED FOR STATIS TICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH FEBRUARY, 2014. . ) 0 1 2052514 ) SD/- SD/- (VIVEK VARMA) (P.M. JAGTAP ) JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 1 DATED 20-02-2014. [ .../ RK , SR. PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $%# / THE RESPONDENT. 3. 9 () / THE CIT(A)XIII, MUMBAI. 4. 9 / CIT 13, MUMBAI 5. $= , * = , / DR, ITAT, MUMBAI J BENCH 6. / GUARD FILE. / BY ORDER, % $ //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI