ACIT CIR 21(3), MUMBAI V. GELSULES EXPORTS, MUMBAI

ITA 581/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3870 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 07-04-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 29-01-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI T.R. SOOD, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 7175/M/2008 ASSESSMENT YEAR: 2001-02 M/S GELSULES EXPORTS, APPELLANT B-203, GODREJ COLLESEUM, OFF. EASTERN EXPRESS HIGHWAY, SION (E), MUMBAI 400 022. (PAN AAAFG1651 P) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDENT CIRCLE 21(3), C-10, BANDRA KURLA COMPLEX, MUMBAI 400 050. ITA NO. 581/M/2009 ASSESSMENT YEAR: 2001-02 DY. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE 21(3), C-10, BANDRA KURLA COMPLEX, MUMBAI 400 050. VS. M/S GELSULES EXPORTS, RESPONDENT B-203, GODREJ COLLESEUM, OFF. EASTERN EXPRESS HIGHWAY, SION (E), MUMBAI 400 022. (PAN AAAFG1651 P) ASSESSEE BY : MR. VIJAY MEHTA REVENUE BY : MR. MOHD. USMAN. . ORDER PER V. DURGA RAO, J.M.: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE O RDER OF CIT(A)- XXI, MUMBAI, PASSED ON 10/11/2008 FOR THE ASSESSMEN T YEAR 2001- 02. ITA NOS.7175/MUM/08 & 581/M/09 M/S GELSULES EXPORTS 2 2. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE HAS REQUESTED THE BENCH TO ACCORD PERMISSI ON TO WITHDRAW THE APPEAL FILED BY THE ASSESSEE BEING 7175/M/08. I N VIEW OF THE SPECIFIC REQUEST MADE BY THE LEARNED COUNSEL FOR TH E ASSESSEE TO WITHDRAW THE ASSESSEES APPEAL, WE HEREBY PERMIT TH E SAME AND, ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS DISMISSE D AS WITHDRAWN. ITA NO. 581/M/09 APPEAL BY THE REVENUE 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1 (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE AO TO REDUCE THE EXCISE DUTY REFUND AMOUNTING TO ` . 17,22,305/- FROM THE PURCHASE COST AND RECOMPUTED THE QUANTUM OF DIRECT COST AND THEN COMPUTE THE DEDUCTION U/S 80 HHC ACCORDINGLY . (II) THE LEARNED CIT(A) ERRED IN CONSIDERING THAT E XCISE DUTY REFUND IS NOT AN INDEPENDENT ITEM OF INCOME BUT IS A DIRECT REDUCTION IN THE PURCHASE COST OF THE RAW MATERIAL. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO RESTORED. 4. THE CONTENTION OF THE AO WAS THAT EXCISE DUTY RE FUND IS AN ITEM OF INCOME AND EXCISE REFUND DID NOT FALL IN THE CAT EGORY OF EXPORT INCENTIVE. THEREFORE, DEDUCTION U/S 80 HHC COULD N OT BE ALLOWED NOR COULD BE REDUCED FROM THE COST OF GOODS EXPORTED AS THE ASSESSEE WAS A 100% TRADING EXPORTER. THE CONTENTION OF THE ASSE SSEE BEFORE THE AO WAS THAT THE PURCHASES OF RAW MATERIAL FOR EXPORTS MADE WHICH INCLUDE EXCISE DUTY. THE SAID EXCISE DUTY PAID IS R EFUNDED BACK TO THE ASSESSEE ON THEIR EXPORTING THE GOODS. THEREFORE, T HE PURCHASE COST OF THE GOODS IS REDUCED FOR COMPUTING THE DIRECT COST. THE ASSESSEE FURTHER CONTENDED THAT THE TERM DIRECT COST HAD B EEN DEFINED IN SECTION 80 HHC AS COST DIRECTLY ATTRIBUTABLE TO THE TRADING GOODS EXPORTED OUT OF INDIA INCLUDING THE PURCHASE PRICE OF SUCH GOODS. THE AO WAS OF THE VIEW THAT SINCE THE EXCISE DUTY REFUN D IS DIRECTLY RELATABLE TO THE PURCHASES OF THE GOODS EXPORTED AN D IS PART OF THE ITA NOS.7175/MUM/08 & 581/M/09 M/S GELSULES EXPORTS 3 PURCHASE COST AND SINCE EXCISE DULY HAS BEEN INCLUD ED IN THE PURCHASE COST, THE EXCISE DUTY REFUND IS NO OTHER I NCOME BUT A DIRECT DEDUCTION IN RESPECT OF THE PURCHASE COST. AFTER CO NSIDERING THE ARGUMENTS OF THE AO AS WELL AS ASSESSEE, THE CIT(A) HELD AS UNDER:- 7.2THE COMPUTATION OF DEDUCTION U/S 80 HHC IN CASE OF A TRADING EXPORTER IS COMPUTED BY REDUCING THE D IRECT COST AND INDIRECT COST ATTRIBUTABLE TO EXPORTS FROM THE FOB VALUE OF EXPORTS TO ARRIVE AT THE EXPORT PROFITS. I AM OF THE CONSID ERED VIEW THAT EXCISE DUTY REFUND IS NOT AN INDEPENDENT ITEM OF IN COME BUT IS A DIRECT REDUCTION IN THE PURCHASE COST OF THE RAW MA TERIAL. IN VIEW OF THE ABOVE, THE AO IS DIRECTED TO REDUCE THE AMOU NT OF EXCISE DUTY REFUND AMOUNTING TO ` . 17,22,305/- FROM THE PURCHASE COST AND RECOMPUTE THE QUANTUM OFDIRECT COST AND RECOMPU TE THE DEDUCTION U/S 80 HHC ACCORDINGLY. THIS GROUND OF A PPEAL IS, THUS, ALLOWED. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 6. THE LEARNED DR BESIDES RELYING UPON THE ORDER O F AO SUBMITTED THAT THE EXCISE REFUND CANNOT BE REDUCED FROM THE V ALUE OF PURCHASES AS IT IS AN ITEM OF INCOME AND THE SAME DOES NOT FA LL IN THE CATEGORY OF EXPORT INCENTIVES AS DEFINED U/S 28(IIIA) OR (IIIB ) OR (IIIC) OR (IIID) OR (IIIE). THEREFORE, THE AO HAS RIGHTLY HELD THAT DED UCTION U/S 80 HHC CANNOT BE ALLOWED ON EXCISE REFUND NOR CAN IT BE RE DUCED FROM THE COST OF GOODS EXPORTED. THE LEARNED DR CONTENDED TH AT THE CIT(A) HAS ERRED IN DIRECTING THE AO TO REDUCE THE EXCISE DUTY REFUND FROM THE PURCHASE COST AND RECOMPUTE THE QUANTUM OF DIRECT C OST AND THEN COMPUTE THE DEDUCTION U/S 80 HHC ACCORDINGLY. THE LEARNED DR PLEADED THAT THE ORDER OF CIT(A) MAY BE SET ASIDE A ND THAT OF THE AO RESTORED. 7. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, FILED A WRITTEN SUBMISSION BEFORE US WHEREIN IT WAS STATED THAT SINCE THE ASSESSEE IS A 100% TRADING EXPORTER IN WHICH THE DE DUCTION U/S 80 HHC OF THE ACT IS REQUIRED TO BE COMPUTED AS PER TH E PROVISIONS OF SECTION 80 HHC(3)9B), THE EXCISE DUTY REFUND AGAINS T PURCHASES GOES TO REDUCE THE PURCHASE COST AND, THEREFORE, THE DIR ECT EXPENSES. IT WAS ITA NOS.7175/MUM/08 & 581/M/09 M/S GELSULES EXPORTS 4 FURTHER STATED THAT THE ASSESSEE HAS CORRECTLY DEDU CTED FROM THE PURCHASES, THE EXCISE DUTY REFUND DEBITED TO PURCHA SE ACCOUNT SINCE THE BILL INCLUDING EXCISE DUTY HAS BEEN DEBITED TO THE PURCHASE ACCOUNT. IN THIS RESPECT, THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS: I) AARTI INDUSTRIES LTD. VS. DCIT [95 TJ 14 (AHD.) II) B.S. EXPORTS V. DCIT IN ITA NO. 3308/M/06 DATE D 5/8/10. III) DCIT VS. BS EXPORTS IN ITA NOS. 1078/MUM/07 AN D 2850/MUM/07 DT. 29/10/08. 8. THE ALTERNATE SUBMISSION WAS THAT THE EXCISE DUT Y REFUND IS COVERED BY THE PROVISIONS OF S. 28(IIIB) OF THE ACT , AND, THEREFORE, 90% OF THE SAME HAS TO BE ADDED, WHILE WORKING OUT DEDU CTION UNDER PROVISO TO S. (3) OF 80HHC, FOR WHICH HE RELIED UPO N THE FOLLOWING DECISIONS: A) ACIT VS. PRATIBHA SYNTEX LTD., 63 TTJ 409 (AHD. ) AND B) GHASHYAM W. DIALANI V. ITO IN ITA NO. 6063/MUM/0 7 DT. 31/10/08. 9. IT WAS STATED IN THE WRITTEN SUBMISSION THAT THE DECISION IN THE CASE OF CIT V. DRESSER RAND INDIA P. LTD., 323 ITR 429 (BOM.) DOES NOT APPLY TO THE FACTS OF THE CASE AS THE PRINCIPAL ISSUE INVOLVED IN THAT DECISION WAS REGARDING TREATMENT OF FREIGHT, I NSURANCE, ETC RECOVERED AND OTHER SIMILAR RECEIPTS WHILE CALCULAT ING THE ELIGIBLE PROFIT U/S 80 HHC OF THE ACT. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECO RD AS WELL AS GONE THROUGH THE DECISIONS CITED. WE FIND THAT THE FACTS FOR THE PROPOSITIONS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE A RE NOT AVAILABLE ON RECORD TO EXAMINE THE SAME. THEREFORE, WE SET ASIDE THE ORDER OF CIT(A) AND REMIT THE ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE AFTER CONSIDERING THE PROPOSITI ONS MADE BEFORE US BY WAY OF WRITTEN SUBMISSIONS AS WELL AS TAKING INT O CONSIDERATION THE ITA NOS.7175/MUM/08 & 581/M/09 M/S GELSULES EXPORTS 5 JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF DRESSER RAND INDIA P. LTD., 323 ITR 429 (BOM) WHEREIN THE H ONBLE COURT HELD THAT WHILE COMPUTING DEDUCTION UNDER S. 80HHC, INDEPENDE NT INCOMES LIKE RECOVERY OF FREIGHT, INSURANCE, PACKING RECEIP TS, SALES-TAX SET OFF/REFUND AND SERVICE FEES WHICH HAVE NO ELEMENT O F EXPORT PROFIT ARE LIABLE TO BE EXCLUDED IN TERMS OF EXPLN. (BAA) TO S . 80HHC. NEEDLESS TO SAY, THE AO SHALL PROVIDE AN OPPORTUNITY OF HEARING TO THE ASSESSEE IN THE MATTER. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED AND THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PU RPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF NOVEMBER, 2010. SD/- SD/- (T.R. SOOD) ( V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 12 TH NOVEMBER, 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, G BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV ITA NOS.7175/MUM/08 & 581/M/09 M/S GELSULES EXPORTS 6