Poyilakada trust, Kollam V. DCIt, Kollam

ITA 609/COCH/2006

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64773 (ITAT-COCHIN)
• Duration Of Justice: 5 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 11-09-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 28-11-2006
• Court: TRIBUNAL
• Department Lawyers: B SAJJIEVE
• Assessee Lawyers: A S NARAYANAMOORTHY
• Section: 80HHC

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. 609/COCH/2006 ASSESSMENT YEAR: 2003-04 M/S. POYILAKADA TRUST, PARAMESWAR NAGAR, KOLLAM-691 001. PAN: [AAATP 2485Q] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI A.S. NARAYANAMOORTHY, CA REVENUE BY SHRI B. SAJJIEVE, JR. DR DATE OF HEARING 11/09/2012 DATE OF PRONOUNCEMENT 14/09/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 13-09-2006 PASSED BY THE LD. CIT(A)-III, TRIVANDRUM AND IT RELATES TO THE ASSESSMENT YEAR 2003-04. 2. THIS APPEAL WAS ORIGINALLY DISPOSED OF BY THIS T RIBUNAL VIDE ITS ORDER DATED 31-01- 2007. THE REVENUE CHALLENGED THE SAME BEFORE THE H ONBLE HIGH COURT OF KERALA AND THE HONBLE HIGH COURT SET ASIDE THE MATTER RELATIN G TO THE DEDUCTION OF COMPUTATION OF INDIRECT COSTS FOR WORKING OUT THE EXPORT PROFIT AT TRIBUTABLE TO TRADING GOODS AND ALSO THE QUESTION OF CHARGEABILITY OF INTEREST U/S. 234D OF THE ACT. THE ORDER OF THE HONBLE HIGH COURT IS EXTRACTED BELOW FOR THE SAKE OF CONVE NIENCE. AFTER HEARING BOTH SIDES AND AFTER GOING THROUGH THE TRIBUNALS ORDER WE NOTICE THAT THE TRIBUNAL BESIDES QUOTING SPECIAL BENCH DE CISION OF THE BOMBAY TRIBUNAL, HAS NOT CONSIDERED OR DECIDED THE ISSUE RAISED IN THE APPEAL. THE QUESTION RAISED IS ON THE COMPUTATION OF INDIRECT COST FOR WORKING OUT THE EXPORT PROFIT ATTRIBUTABLE TO TRADING OF GOODS. THIS COURT HAS IN THE DECISION OF CIT V. PARRY AGRO INDUSTRIES LTD., 257 ITR 41 HELD THAT THE FORM ULA PROVIDED U/S. I.T.A. NO.609 /COCH/2006 2 80HHC(3) HAS TO BE APPLIED FOR WORKING OUT INDIREC T COST WHICH IS DEFINED IN CLAUSE (B) OF SECTION 80HHC(3). ALL WHAT WE NOTIC E IS THAT TRIBUNAL HAS EXTRACTED THE ASSESSMENT ORDER AND ORDER OF THE CIT(APPEALS) AND ULTIMATELY AFTER REFERRING TO DELHI BENCH DECISION, THE TRIBUNAL DE CLARED THAT THE APPEAL IS ALLOWED. IT WAS THE DUTY OF THE TRIBUNAL TO CONSID ER WHETHER THE INDIRECT COST WORKED OUT BY THE ASSESSING OFFICER AS MODIFIED BY THE CIT(APPEALS) IS CORRECT OR NOT. SINCE TRIBUNAL HAS NOT CONSIDERED THE ISSUE PROPERLY OR HAS NOT DRAWN ANY CONCLUSION OF ITS OWN, WE ALLOW THE APPEAL BY SET TING ASIDE THE ORDER OF THE TRIBUNAL AND RESTORE THE APPEAL BACK TO THE FILE O F THE TRIBUNAL FOR FRESH DECISION AFTER HEARING BOTH SIDES. SO FAR AS THE SECOND QU ESTION IS CONCERNED, THAT IS INTEREST U/S. 234D OF THE ACT, THE ISSUE IS COVERE D BY OUR JUDGMENT IN CIT V. KERALA PROTEINS AND CHEMICALS, 323 ITR 584. THE TRIB UNAL WILL FOLLOW THE SAID JUDGMENT AND DECIDE THAT ISSUE ALSO AFRESH. 3. ACCORDINGLY, THE CASE WAS POSTED FOR HEARING AN D THE PARTIES WERE HEARD. THE FIRST ISSUE RELATES TO THE COMPUTATION OF INDIRECT COSTS ATTRIBUTABLE TO THE EXPORT OF TRADING GOODS. THIS BENCH OF THE TRIBUNAL HAS CONSIDERED A N IDENTICAL ISSUE IN THE CASE OF B.MOHANACHANDRAN NAIR IN ITA NO. 158/COCH/2007 RELA TING TO THE ASSESSMENT YEAR 2003-04 AND THE TRIBUNAL, VIDE ITS ORDER DATED 06-0 1-2002 SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH THE FOLLOWING OBSERVATIONS:- 5. THE FIRST ISSUE PERTAINS TO THE COMPUTATION O F INDIRECT COST RELATING TO EXPORT OF TRADING GOODS. U/S 80HHC(3)(C) OF THE A CT, THE PROFIT DERIVED FROM THE EXPORT OF TRADING GOODS SHALL BE THE EXPORT TUR NOVER IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO EXPORT OF SUCH TRADING GOODS. THE DISPUTE IS WITH REGARD TO THE QUANTUM OF INDIRECT COSTS ATTRIBUTABLE TO THE TRADING GOODS. THE ASSESSEE H AS TAKEN THE TOTAL AMOUNT OF INDIRECT COST AT RS.1,74,53,650/-, WHILE THE ASSESS ING OFFICER HAS TAKEN THE SAME AT RS.4,71,01,876/-. THOUGH IT IS NOT CLEARLY BORN E OUT OF RECORD, THERE APPEARS TO BE NO DISPUTE WITH REGARD TO THE ALLOCATION OF I NDIRECT COSTS BETWEEN PROCESS EXPORT AND TRADING EXPORT, WHICH ARE TO BE CARRI ED OUT IN ACCORDANCE WITH THE FOLLOWING FORMULA AS PER CLAUSE (E) OF EXPLANATION TO 80HHC(3) INDIRECT COSTS X EXPORT TURNOVER/TOTAL TURNOVER. THE ASSESSING OFFICER HAS TAKEN ALL THE EXPENSES DE BITED TO THE PROFIT AND LOSS ACCOUNT AS INDIRECT COST AND ACCORDINGLY ARRIVED AT THE FIGURE OF RS.4,71,01,876/-. HOWEVER, ACCORDING TO THE ASSESS EE, HE HAS TAKEN ONLY THOSE INDIRECT EXPENSES, WHICH ARE ATTRIBUTABLE TO THE EXPORT TURNOVER. ACCORDING TO THE ASSESSEE, HE HAS FOLLOWED THE SIMILAR METHOD OF COMPUTATION IN THE EARLIER YEARS ALSO AND THE SAID METHOD WAS ALSO ACCEPTED BY THE ASSESSING OFFICER. ACCORDINGLY, IT WAS CONTENDED, BY PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT REPORTED IN 193 ITR 321, THAT THE ASSESSING OFFICER WAS NOT CORRECT IN DEVIATING FROM THE VIEW TAKEN I.T.A. NO.609 /COCH/2006 3 CONSISTENTLY IN EARLIER YEARS, IN THE ABSENCE OF AN Y MATERIAL WHICH JUSTIFIES THE SAID CHANGE. THE LD A.R ALSO PLACED RELIANCE ON TH E FOLLOWING DECISION IN SUPPORT OF THE COMPUTATIONS MADE BY THE ASSESSEE. (A) GLAXO SMITHKLINE ASIA (P) LTD VS. ACIT (97 TTJ (DEL) 108) (B) SURENDRA ENGINEERING CORPN. VS. ACIT (78 TTJ (M UM)(SB)347) (C) ORDER DATED 31-01-2007 PASSED BY SMC BENCH OF COCHIN ITAT IN THE CASE OF M/S POYILAKADA TRUST VS. DCIT. 5.1 WE NOTICE THAT THE SMC BENCH OF THE COCHIN TRIBUNAL HAS CONSIDERED THE OTHER TWO DECISIONS REFERRED SUPRA AND HAS DECIDED AN IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. IN THE CASE OF SURENDRA ENGINEERING C ORPORATION, SUPRA, THE SPECIAL BENCH OF THE TRIBUNAL HAS OBSERVED AS UNDER: THE COMMISSIONER (APPEALS) VIEW THAT AS PER THE DE FINITION OF INDIRECT COSTS IN EXPLANATION (E) BELOW SUB SECTION (3), EXC EPT FOR THE ALLOCATION BETWEEN EXPORT TURNOVER IN RESPECT OF TRADING GOODS AND TOTAL TURNOVER IN A CASE WHERE THE ASSESSEE HAVE BOTH EXPORTS AND LOC AL SALES, NO OTHER APPORTIONMENT IS CONTEMPLATED, APPEARED TO OVER LOO K THE IMPORT OF THE WORDS ATTRIBUTABLE TO SUCH EXPORT APPEARING IN CL AUSE (B) OF SUB-SECTION (3). THE DEFINITION OF INDIRECT COSTS MUST BE GOV ERNED OR CONTROLLED BY THE WORDS ATTRIBUTABLE TO SUCH EXPORT APPEARING I N CLAUSE (B) OF SUB- SECTION (3) SINCE THE ATTEMPT IS TO FIND OUT, IN A REASONABLE MANNER, THE PROFITS DERIVED FROM THE EXPORT OF TRADING GOODS, A ND THEREFORE, WHATEVER EXPENDITURE IS NOT RELEVANT OR CANNOT BE REASONABLY STATED TO HAVE BEEN INCURRED IN CONNECTION WITH THE EXPORTS OR CAN BE R EASONABLY SAID TO HAVE BEEN INCURRED IN CONNECTION WITH OTHER ACTIVITIES O R RECEIPTS WOULD HAVE TO BE EXCLUDED. IN THE CASE OF SMITHKLINE ASIA (P) LTD. VS. ACIT, S UPRA, THE DELHI BENCH HAS HELD THAT THE INDIRECT COST ATTRIBUTABLE TO THE EXPORT I S TO BE REDUCED FOR COMPUTING DEDUCTION U/S 80HHC IN RESPECT OF EXPORT OF TRADING GOODS AND NOT ALL COSTS OTHER THAN DIRECT COSTS. WHILE COMING TO THIS CONC LUSION, THE DELHI BENCH HAS FOLLOWED THE DECISION OF MUMBAI SPECIAL BENCH IN TH E CASE OF SURENDRA ENGG. CORPORATION, REFERRED SUPRA. 5.2 ON A CAREFUL READING OF THE DECISIONS REFER RED SUPRA, WE NOTICE THAT THE INDIRECT COSTS NOT RELATABLE TO THE EXPORT TURNOVER (BOTH PROCESSING EXPORT AND TRADING EXPORT) HAVE TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC. FROM THE EXPLANATIONS FURNISHED BY THE ASSESSEE BEFORE LD CIT(A), WHICH ARE PLACED IN PAGES 14 TO 18 OF THE ASSESSEE S PAPER BOOK, CERTAIN EXPENSES EXCLUSIVELY PERTAIN TO THE MANUFACTURING/P ROCESSING UNIT. IN OUR VIEW, THE QUESTION OF ALLOCATION OF INDIRECT COSTS SHAL L ARISE ONLY IN RESPECT OF THOSE EXPENSES WHICH HAVE BEEN INCURRED COMMONLY BOTH FOR PROCESS EXPORT AND TRADING EXPORT. IN THE EXPLANATIONS FILED BEFORE L D CIT(A), THE ASSESSEE HAS POINTED OUT THAT CERTAIN TYPES OF INDIRECT EXPENSES HAVE BEEN INCURRED EXCLUSIVELY FOR PROCESS EXPORT. AS PER SEC. 80HHC( 3), THE PROFITS DERIVED FROM TRADING GOODS SHALL BE THE EXPORT TURNOVER IN RESPE CT OF SUCH TRADING GOODS AS I.T.A. NO.609 /COCH/2006 4 REDUCED BY THE DIRECT AND INDIRECT COSTS ATTRIBUTABLE TO EXPORT OF SUCH TRADING GOODS . IF A PARTICULAR TYPE OF INDIRECT EXPENSE IS PROV ED TO HAVE BEEN INCURRED ONLY IN RESPECT OF PROCESSED EXPORTS, IN O UR VIEW, THE SAME COULD NOT BE ALLOCATED TO TRADING EXPORTS. HENCE, IN OUR VIEW, THE QUESTION OF DETERMINATION OF SUCH TYPES OF INDIRECT COSTS REQUIRES RE-EXAMINA TION. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND REST ORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DETERMINE THE QUANTUM OF INDIRECT COSTS AS PER THE DECISIONS RELIED UPON BY THE ASSESSEE AND A LSO BY DULY CONSIDERING THE DISCUSSIONS MADE ABOVE AND THERE AFTER ASCERTAIN TH E AMOUNT OF INDIRECT COSTS ATTRIBUTABLE TO THE TRADING EXPORTS AS PER THE FORM ULA GIVEN IN SEC. 80HHC OF THE ACT. CONSISTENT WITH THE VIEW TAKEN IN THE ABOVE CITED C ASE, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FI LE OF THE AO WITH THE SIMILAR DIRECTIONS. WHILE DECIDING THE ISSUE, THE AO SHOUL D FOLLOW THE DECISION RENDERED BY HONBLE JURISDICTIONAL KERALA HIGH COURT IN THE CAS E OF CIT VS. PARRY AGRO INDUSTRIES LTD (257 ITR 41) WITH REGARD TO THE FORMULA TO BE ADOPT ED FOR WORKING OUT THE INDIRECT COST. 4. THE NEXT ISSUE RELATES TO THE LEVY OF INTEREST U/S 234D OF THE ACT. THE REFUND INITIALLY GRANTED WAS REDUCED BY THE ORDER DATED 29 -03-2006. HENCE THE AO LEVIED INTEREST U/S 234D OF THE ACT ON THE EXCESS REFUND G RANTED EARLIER. BEFORE THE LD CIT(A), THE ASSESSEE CONTENDED THAT THE PROVISIONS OF SEC. 234D HAS COME INTO FORCE WITH EFFECT FROM 1.6.2003 AND HENCE THE SAID PROVIS IONS ARE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION, I.E., THE ASSESSMENT YEAR 2003 -04. THE LD CIT(A) REJECTED THE SAID CONTENTIONS. HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. KERALA PROTEINS AND CHEMICALS (323 ITR 584) HAS HELD THAT THE PROVISION S OF SEC. 234D ARE NOT INTRODUCED WITH REFERENCE TO ANY ASSESSMENT YEAR. THE HIGH CO URT HAS FURTHER HELD THAT THE PROVISIONS OF SEC. 234D SHALL APPLY TO ALL CASES OF REFUND GRANTED U/S 143(1) BUT INTEREST COULD BE LEVIED ONLY WITH EFFECT FROM JUNE 1, 2003. IN THE INSTANT CASE, THE RETURN OF INCOME WAS FILED ON 30-12-2003. HENCE THE AO WAS R IGHT IN LAW IN LEVYING INTEREST U/S 234D OF THE ACT. ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT(A) ON THIS ISSUE. I.T.A. NO.609 /COCH/2006 5 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE ON THESE TWO GROUNDS IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY O N 14-09-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 14TH SEPTEMBER, 2012 GJ COPY TO: 1. M/S. POYILAKADA TRUST, PARAMESWAR NAGAR, KOLLAM- 691 001. 2.THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. 3.THE COMMISSIONER OF INCOME-TAX(APPEALS)-III, TRIV ANDRUM.. 4.THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN