ALLANASONS LTD, MUMBAI V. ADDL CIT RG 1(1), MUMBAI

ITA 6344/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4164 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-03-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 29-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M MURLI
• Keywords: Retrospective amendment
• Section: 80HHC

Judgement Text

, ,, , ' '' ' INCOME TAX APPELLATE TRIBUNAL,MUMBAI- A,BENCH , , BEFORE S/SHRI JOGINDER SINGH,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER ./ITA/6344/MUM/2013 , / ASSESSMENT YEARS: 2002-03 M/S. ALLANA SONS LIMITED ALLANA HOUSE, 4 J.A. ALLANA MARG COLABA,MUMBAI-400 001. PAN:AACCA 4533 D. VS. ADDL. CIT RANGE-1(1) AAYAKAR BHAVAN, ROOM NO.538, 5 TH FLOOR, M.K. ROAD M.K. ROAD, MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI M. MURLI ASSESSEE BY: MS. VASANTI PATEL / DATE OF HEARING: 22.03.2016 / DATE OF PRONOUNCEMENT: 06.04.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA A.M. - CHALLENGING THE ORDER,DATED 28/08/2013 OF THE CIT ( A)-1,MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.DURING THE COURSE OF HEARING BEFORE US, THE AUTHORISED REPRESENTATIVE (AR) OF THE ASSESSEE STATED THAT THE ASSESSEE WAS NOT INTE RESTED IN PURSUING GROUNDS NOS. 2 AND 3. HENCE,BOTH THE GROUNDS STAND DISMISSED AS NOT PRESS ED. ASSESSEE-COMPANY ENGAGED IN THE BUSINESS OF MANUFAC TURING AND TRADING EXPORTS,FILED ITS RETURN OF INCOME ON 31/10/2002, DECLARING TOTAL INC OME AT RS.59,800/-.THE AO COMPLETED THE ASSESSMENT,U/S.143(3) OF THE ACT,ON 24.03.2005, DET ERMINING THE INCOME OF THE ASSESSEE AT RS.43,14,040/-. 2. THE EFFECTIVE GROUND OF APPEAL IS ABOUT DEDUCTION/ CLAIM UNDER SECTION 80 HHC OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT ASSESSEE HAD INCURRED A LOSS OF RS. 9.80 CRORES FROM TRADING EXPORT AND HAD EARNED PROFIT OF RS.4.35 CRORES FROM MANUFACTURING EXPORT,THAT IT HAD NOT NETTED OF THE LOSS OF TRADIN G EXPORT WITH PROFIT FROM MANUFACTURING EXPORT,THAT IT COMPUTED THE DEDUCTION UNDER SECTION 80 HHC ON THE PROFIT OF RS.4.35 CRORES, BEING PROFIT FROM MANUFACTURING EXPORT IGNORING THE LOSS IN TRADING ACTIVITY. HE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AND ASKED IT AS TO WHY THE LOSS FROM TRADING EXPORT SHOULD NOT BE NETTED OF AGAINST THE PROFIT FROM MANUFACTURING EXP ORT IN VIEW OF THE JUDGEMENT OF THE APEX COURT DELIVERED IN THE CASE OF IPCA LABORATORIES LT D (266 ITR 521). BY ITS LETTER DATED 27/9/ 2004 AND 15/01/2005,THE ASSESSEE SUBMITTED THAT IT HAD NO OBJECTION FOR NETTING OFF OF THE PROFIT AND LOSS OF BOTH THE SEGMENTS. IT WAS FURTHE R STATED THAT THE JUDGMENT WAS NOT AVAILABLE WHEN THE ASSESSEE HAD FILED THE RETURN OF INCOME I. E. ON 31/10/2002.AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE ON VARIOUS OCCASIO NS,THE AO REFERRED TO THE CASE OF ROHAN DYE AND INTERMEDIATES LTD.OF HON'BLE BOMBAY HIGH CO URT,WHEREIN IT WAS HELD THAT IF THE ASSESSEE HAD INCURRED LOSSES FROM EXPORT ACTIVITY B EFORE INCENTIVE NO DEDUCTION U/S.80 HHC OF THE ACT WAS ALLOWABLE,THAT RECEIPT ON ACCOUNT OF DEPB COULD NOT BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE DEDUCTION UNDER 80HHC.IN VIEW OF THE ABOVE,THE AO NETTED OFF THE LOSS FROM TRADING EXPORT AGAINST PROFIT FROM MANUFACTURE EXPORT.HE ARRIVED AT THE NET 6344/M/13-ALLANA SONS LTD. 2 RESULTANT FIGURE OF MINUS RS.5.44 CRORES (LOSS RS.9 .8CRORES, PROFIT RS.4.35CRORES).AS THE FINAL CALCULATION SHOWED THE LOSS,SO, THE AO DID NOT ALLO W DEDUCTION CLAIMED BY THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).IT WAS STATED BEFORE HIM T HAT IT HAD TOTAL TURNOVER OF RS.7.84CRORES FROM EXPORTS,THAT IT HAD CLAIMED A TOTAL DEDUCTION OF RS.6.15 CRORES U/S.80HHC THAT WHILE FILING THE RETURN IT HAD CLAIMED THAT LOSS FROM TRA DING SHOULD BE IGNORED BASED ON THE JUDGMENTS PREVAILING AT THE TIME OF RETURN,DURING T HE ASSESSMENT PROCEEDINGS IT WAS SUBMITTED THAT IT WAS AGREEABLE TO THE PROPOSAL THAT LOSS SHO ULD NOT BE SO IGNORED FOLLOWING THE JUDGMENT OF IPCA LABORATORIES (SUPRA), THAT THE AO HAD TAKEN A VIEW THAT AFTER AGGREGATING THE PROFIT/LOSS FROM MANUFACTURING AND TRADING GOOD S, THE ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION U/S. 80HHC IN RESPECT OF EXPORT INCENTIVE S AS IT HAD SUFFERED A LOSS,THAT THE ASSESSEE HAD EARNED AN INCOME FROM SALE OF DEPB ENT ITLEMENTS,AMOUNTING TO RS.11.90 CRORES,THAT DURING THE ASSESSMENT PROCEEDINGS, IT W AS STATED THAT AMOUNT IN QUESTION WAS ASSESSABLE U/S.28(IV) OF THE ACT,THAT SAME WAS INCL UDIBLE IN BUSINESS PROFITS,THAT DEPB WAS GIVEN TO NEUTRALIZE THE INCIDENCE OF DUTIES OF THE INPUT CONTENT OF THE EXPORT PRODUCTS, THAT SAME FELL WITHIN THE DEFINITION OF DIRECT COST AND HAD TO BE REDUCED FROM THE COST WHILE COMPUTING PROFIT FROM EXPORT OF TRADING GOODS,THAT THE AO HAD HELD THAT THE RECEIPTS ON ACCOUNT OF DEPB COULD NOT BE CONSIDERED FOR PURPOSE OF DETERMINING DEDUCTION U/S.80HHC. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE WRIT PETITION FILED BY THE ASSESSEE BEFORE THE HON'BLE BOMBAY HIGH COURT(WRIT PETITION 7926 OF 2006),THE FAA HELD THAT THERE WAS NET LOSS DURING THE YEAR FROM THE EXPORT OPERAT IONS OF THE ASSESSEE WHICH HAD BEEN EXAMINED AND VERIFIED BY THE AO WHILE PASSING THE A SSESSMENT,THAT THE ASSESSEE HAD A COMPOSITE BUSINESS OF EXPORT,THAT BIFURCATION OR SE GREGATION OF MANUFACTURING OR TRADING ACTIVITIES COULD NOT BE ACCEPTED FOR DEDUCTION U/S. 80HHC OF THE ACT,THAT IT WAS NOT A CASE WHERE THE EXPORT ACTIVITIES AND BUSINESS WAS CARRIE D OUT BY DIFFERENT PERSONS,THAT THE CLAIM MADE BY THE ASSESSEE AMOUNTED TO SEGREGATION OF IN COME AND LOSS IN THE DIFFERENT STAGES OF EXPORT BUSINESS THOUGH IT IS A SINGLE BUSINESS OF E XPORT CARRIED ON BY THE ASSESSEE,THAT IT WAS NOT A CASE OF SUPPORTING-MANUFACTURER,THAT THE DEDU CTION U/S.80HHC WAS ON THE AGGREGATE OF EXPORT PROFIT, SEPARATION OF PROFITS OF UNITS WAS N OT PROVIDED UNDER THE SAID SECTION, THAT THE ASSESSEE HAD MADE NO SUBMISSION IN THAT REGARD, THA T THE DENIAL OF DEDUCTION IN THE CASE UNDER CONSIDERATION WAS BASED ON THE DECISION DELIVERED I N THE CASE OF IPCA LABORATORIES (SUPRA), THAT THE ARGUMENTS BASED ON FRAGMENTED AND SEGREGAT ED AMTS OF COMPONENTS OF VARIOUS RECEIPTS WHICH WERE PART OF THE INCOME/LOSS FROM EX PORT BUSINESS HAD TO BE REJECTED,THAT THE INCOME FROM THE EXPORT BUSINESS OF THE ASSESSEE WAS IN NEGATIVE, THAT THE QUESTION OF DEDUCTION U/S. 80HHC DID NOT ARISE.FINALLY, THE FAA UPHELD THE ORDER OF THE AO. 4. DURING THE COURSE OF HEARING BEFORE US, THE AR STAT ED THAT SUBSEQUENT TO THE TAXATION LAWS (AMENDMENT ACT,2005)PROVISIONS WITH REGARD TO THE C LAIM FOR DEDUCTION U/S.80HHC HAD UNDERGONE A MAJOR CHANGE,THAT 90% OF EXPORT INCENTI VES WERE TO BE ALLOWED TO BE ADJUSTED AGAINST THE LOSS AS PER SECTION 80HHC(3)5 TH PROVISO,THAT WHILE GIVING EFFECT TO THE 4 TH PROVISIO TO SECTION 80HHC(3),DEALING WITH AN ASSESSEE HAVING MORE THAN TURNOVER OF RS.10 CRORES,HAD TO BE READ DOWN AS HELD BY THE HON'BLE SUPREME COUR T IN THE CASE OF AVANI EXPORTS AND ANR. (2015-TIOL-46-SC-IT,DT.303.2015),THAT BY A RETROSPE CTIVE AMENDMENT NETTING HAS BEEN ALLOWED,THAT AT THE TIME OF PASSING OF THE ORDER TH E AMENDMENT WAS NOT PART OF THE ACT, THAT THE AMENDMENT OF 2005 HAS TO BE GIVEN RETROSPECTIV E EFFECT.SHE REFERRED TO THE CASE OF THE ASSESSEE (INCOME TAX APPEAL NO.6837 OF 2010 DT.6/2/ 2015) OF THE HON'BLE BOMBAY HIGH 6344/M/13-ALLANA SONS LTD. 3 COURT WHEREIN THE RETROSPECTIVE EFFECT OF THE AMEND MENT WAS DISCUSSED. THE DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS BEFORE US.WE FIND THAT AT THE TIME OF FILING OF RETURN THERE WAS AMBIGUITY ABOUT NETTING OFF OF PROFITS/LOSS OF THE EXPORT TRADA/BUSINESSES,THAT DURING THE COURSE OF HEARING THE ASSESSEE AGREED THAT IT HAD NO OBJECTION IF THE MATTER WAS DECIDED IN THE LIGHT OF THE JUDGM ENT OF IPCA LABORATORIES(SUPRA), THEN LATER ON RETROSPECTIVE AMENDMENT WAS INTRODUCED WITH REGA RD TO SECTION 80HHC OF THE ACT, THAT IN THE CASE OF AVANI EXORTS (SUPRA),THE HON'BLE SUPREM E COURT HAS LAID DOWN CERTAIN GUIDELINES. WE FIND THAT ALL SUCH MATERIAL WAS NOT AVAILABLE TO THE AO/FAA WHEN THEY HAD PASSED THE ASSESSMENT ORDER/APPELLATE ORDER.AS THEY DID NOT HA VE THE BENEFIT OF IMPORTANT LEGISLATION,SO IN THE INTEREST OF JUSTICE,WE ARE REMITTING BACK TH E FILE TO THE AO FOR FRESH ADJUDICATION.THE AO IS DIRECTED TO DECIDE THE ISSUE AFRESH AFTER AFF ORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE .GROUND NO.1 IS DECIDED IN PART IN FAV OUR OF THE ASSESSEE. AS A RESULT APPEAL FILED BY THE ASSESSEE IS ALLOWE D IN PART. !'# $ % & '() * . ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH APRIL, 2016. '+ , !( 6 TH * , 2016 /JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; , !( DATED : 06.04.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.