ACIT-18(2), MUMBAI V. CHAITANYA S. JOSHI, MUMBAI

ITA 6561/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92696 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 08-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PERMANAND J
• Section: 2

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI , ! ..'(),*!,+ BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.6561/MUM/2013 ASSESSMENT YEAR: 2010-11 ACIT-18(2) ROOM NO.115, 1 ST FLOOR PIRAMAL CHAMBERS PAREL, MUMBAI 400 012 / VS. CHAITANYA S. JOSHI 58/5 TH FLOOR, HIMGIRI APARTMENTS 1277, HATISKAR MARG, PRABHADEVI MUMBAI 400 025 / APPELLANT ,-./ / RESPONDENT P.A. NO. AABPJ0212G 01 / REVENUE BY SHRI PERMANAND J. 01 / ASSESSEE BY SHRI MANGESH P. KADAM A/W MS. ADITI SAWANT / DATE OF HEARING 02/06/2015 / DATE OF ORDER: 05/06/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 23/08/2013 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, HOLDING THAT DEDUCTION AS MENTIONED IN SUB-SECTION 4 OF SECTION 10A OF THE INCOME TAX ACT, 1961(HEREINAFTER THE ACT), SHOULD BE COMPUTED ON TURNOVER OF SURAT UNIT ALONE, WHEREAS BOTH SURAT AND MUMBAI UNITS ARE ENGAGED IN THE SAME BUSINESS. CHAITANYA S. JOSHI 2 2. DURING HEARING OF THIS APPEAL, THE LD. DR, SHRI , PERMANAND J. DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER AND CONSEQUENT ADDITION MADE BY THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. COUN SEL FOR THE ASSESSEE, SHRI MANGESH P. KADAM ALONG WITH ADITI SA WANT DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF CHEMICALS IN THE DOMES TIC AS WELL AS INTERNATIONAL MARKET. THE LD. ASSESSING OF FICER, DURING SCRUTINY PROCEEDINGS, FOUND THAT THE ASSESSE E HAD TWO INDUSTRIAL UNITS AT SURAT AND MUMBAI. THE UNIT SIT UATED AT SURAT IS ELIGIBLE FOR DEDUCTION U/S 10A, HOWEVER, O N PERUSAL OF DETAILS, FILED BY THE ASSESSEE, IT WAS NOTED BY THE ASSESSING OFFICER THAT BOTH THE UNITS HAD HUGE DIFFERENCE IN GROSS PROFIT AND NET PROFIT RATIO, WHICH ARE ANALYZED AS UNDER:- DESCRIPTION MUMBAI UNIT SURAT UNIT GROSS PROFIT RATIO 61.43% 82.63% NET PROFIT RATIO 25.51% 81.27 % THE LD. ASSESSING OFFICER NOTICED THAT IN RESPECT O F SURAT UNIT (WHICH IS ELIGIBLE FOR EXEMPTION U/S 10A), THE GROS S PROFIT RATE SHOWN IS 82.63% AND THE NET PROFIT RATE IS 81.27%, WHICH IS ABNORMALLY HIGH, WHEREAS, THE CORRESPONDING GROSS P ROFIT RATE OF MUMBAI UNIT IS 61.43% AND NET PROFIT IS SUBSTANT IALLY BELOW AT 25.51%. IT WAS FURTHER OBSERVED BY THE A SSESSING OFFICER THAT THERE WAS HUGE DIFFERENCE BETWEEN GROS S PROFIT CHAITANYA S. JOSHI 3 AND NET PROFIT. ON APPEAL, BEFORE THE LD. COMMISSIO NER OF INCOME TAX (APPEALS), IT WAS CONCLUDED AS UNDER:- 13. DURING THE COURSE OF APPELLATE PROCEEDINGS, TH E AR OF THE APPELLANT HAS CONTENDED THE AO OUGHT TO HAVE CONSID ERED TURNOVER AND PROFIT CONSISTENTLY AND SHOULD NOT HAVE CONSIDERED PROFIT OF ONLY SURAT UNIT AND TURNOVER OF BOTH MUMBAI AND SURAT UNITS WH ILE CALCULATING THE DEDUCTION U/S 10A. ACCORDING TO THE AR, THE SUB-SEC TION 4 OF SECTION 10A STIPULATES THE METHOD FOR DEDUCTION AS UNDER:- 'THE PROFIT DERIVED FROM EXPORT OF ARTICLES OR THIN GS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PRO FITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPO RT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFT WARE BEARS TO THE TOTAL TURNOVER IN RESPECT OF SUCH ARTICLES OR THING S OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TILE UNDERTAKING' 14. THE AR OF THE APPELLANT HAS RUN THAT ARGUED THA T THE ABOVE SECTION 10A(4) HAS BEEN AMENDED BY THE FINANCE ACT 2001 W.E .F. 01/04/2001. PRIOR TO THIS AMENDMENT, THE SECTION READ AS FOLLOW S: 'THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THI NGS OR COMPUTER SOFTWARE SHALL NE THE AMOUNT WHICH BEARS TO THE PRO FITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPE CT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL T URNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE' 15. ACCORDING TO THE APPELLANT, IT IS APPARENT FROM THE ABOVE THAT THE INTENTION OF THE LEGISLATURE IS CLEAR THAT THE DEDU CTION UNDER SECTION 10A IS TO BE COMPUTED ON THE BASIS OF PROFIT OF THE UNDERTAKING (AND NOT ON THE BASIS OF THE PROFITS OF THE BUSINESS OF THE ASSESSEE) AND THE RATIO OF EXPORT TURNOVER OF THE UNDERTAKING BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING (AND NOT THE BUSINESS OF THE ASSESSEE) IS TO BE APPLIED TO THE PROFIT OF SUCH UN DERTAKING. 16. THE CONTENTION OF THE APPELLANT IS THAT THE AO HAS CONSIDERED PROFIT OF THE SURAT UNIT/UNDERTAKING WHILE APPLYING THE AB OVE FORMULA STIPULATED IN SUB-CLAUSE 4 OF THE SECTION 10A, HE H AS ERRONEOUSLY CONSIDERED TURNOVER OF BOTH MUMBAI AND SURAT UNITS WHILE ARRIVING AT THE PROFITS OF THE BUSINESS OF THE UNDERTAKING FOR DEDUCTION UNDER SECTION 10A. 17. THE ABOVE CONTENTIONS OF THE APPELLANT HAVE BEE N CONSIDERED AND THERE IS A MERIT IN THE ABOVE ARGUMENTS. FROM THE P LAIN READING OF THE CHAITANYA S. JOSHI 4 SUBSECTION 4 OF SECTION 10A, IT IS CLEAR THAT WHILE CALCULATING THE DEDUCTION UNDER SECTION 10A, THE SAME IS TO BE COMP UTED ON THE BASIS OF THE PROFIT OF THE EXPORT UNDERTAKING AND NOT ON THE BASIS OF THE ENTIRE TURNOVER OF THE BUSINESS OPERATIONS OF THE APPELLAN T. THE DISTINCTION HAS .TO BE MADE BETWEEN THE TOTAL TURNOVER OF THE UNDER TAKING AND THE TOTAL TURNOVER OF THE BUSINESS OPERATIONS OF THE APPELLAN T. THE WORDS USED IN THE AMENDED SECTION 10A(4) W.E.F. 01/04/2001, ARE ' THE PROFITS OF THE BUSINESS OF THE UNDERTAKING' AND NOT THE 'PROFITS O F THE BUSINESS'. IN VIEW OF THE ABOVE POSITION OF LAW, THE AO IS DIRECTED TO NOT TO TAKE THE TURNOVER OF BOTH MUMBAI AND SURAT UNITS WHILE ARRIV ING AT THE PROFITS OF THE BUSINESS OF THE UNDERTAKING FOR DEDUCTION UNDER SECTION 10A. THE TOTAL TURNOVER OF THE SURAT UNIT ONLY NEED TO BE TA KEN FOR THE PURPOSES FOR CALCULATING THE ELIGIBLE PROFITS FOR DEDUCTION U/S 10A. 18. IN RESULT THE APPEAL IS PARTLY ALLOWED. 2.2. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDE R, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT ON THE BAS IS OF ANALYSIS OF SECTION 10A(4) OF THE ACT, THE INTENTIO N OF THE LEGISLATURE IS THAT THE DEDUCTION U/S 10A IS TO BE COMPUTED ON THE BASIS OF PROFIT OF THE UNDERTAKING AND THE R ATIO OF THE EXPORT TURNOVER OF THE UNDERTAKING BEARS TO THE TOT AL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE UNDERTAK ING AND NOT ON THE BASIS OF THE BUSINESS OF THE ASSESSEE. I T IS CLEAR THAT WHILE CALCULATING THE DEDUCTION U/S 10A, IT HA S TO BE COMPUTED ON THE BASIS OF PROFIT OF THE EXPORT UNDER TAKING AND NOT ON THE ENTIRE TURNOVER OF THE BUSINESS OPERATIO N OF THE ASSESSEE, THUS, A CLEAR DISTINCTION HAS TO BE MADE OF THE UNDERTAKING AND THE TOTAL TURNOVER OF THE BUSINESS OPERATION OF THE ASSESSEE. THE TOTAL TURNOVER OF THE SURAT UN IT NEED TO BE TAKEN FOR THE PURPOSE OF CALCULATING THE ELIGIBL E DEDUCTION CHAITANYA S. JOSHI 5 U/S 10A OF THE ACT, THEREFORE, WE FIND MERIT IN THE CONCLUSION DRAWN BY THE LD. FIRST APPELLATE AUTHORITY. FINALLY, THE APPEAL OF THE REVENUE IS HAVING NO ME RIT, THEREFORE, DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LEARNED REPRESENTATIVES FROM BOTH THE S IDES AT THE CONCLUSION OF THE HEARING ON 02 ND JUNE 2015. SD/- SD/- ( N.K. BILLAIYA ) (JOGINDER SINGH) *! / ACCOUNTANT MEMBER ! / JUDICIAL MEMBER MUMBAI; DATED : 05/06/2015 F{X~{T? P.S / ! 0, 456574 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. '#$ / THE RESPONDENT. 3. %$ %$ & ( ) / THE CIT, MUMBAI. 4. %$ %$ & / CIT(A)- , MUMBAI 5. ) *+$ ' , %$ $ - , / DR, ITAT, MUMBAI 6. +. / / GUARD FILE. / BY ORDER, #$) ' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI