Monarch Dyestuff Industries & Exports Ltd., Ahmedabad V. The ACIT.,Circle-4, Ahmedabad

ITA 672/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76808 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-05-2014
• Assessment Year: 1995-1996
• Appeal Filed On: 02-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: B S MAHATA
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI D.K. TYAGI, J.M. & SHRI ANIL CHATURVE DI, A.M.) I.T. A. NO. 672 /AHD/2010 (ASSESSMENT YEAR:1995-96) MONARCH DYESTUFF INDUSTRIES 301, SHAGUN COMPLES, 93 SWASTIK SOCIETY, B/H ST. XAVIERS LADIES HOSTEL, NAVRANGPURA, AHMEDABAD 380009 V/S THE ACIT-CIRCLE-4, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABCM 8936F APPELLANT BY : SHRI B.S. MAHATA. A.R. RESPONDENT BY : SHRI O.P. BATHEJA, SR. D.R. ( )/ ORDER DATE OF HEARING : 05-05-2014 DATE OF PRONOUNCEMENT : 30-05-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-VIII, AHMEDABAD DATED 15.10.2009 FOR A.Y. 1995-96. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING, TRADING AND EXPORT OF CHEMICALS. IT FILED ITS RETURN OF INCOME FOR A.Y. 95-96 ON 31.03.1997 DECLARING TOTAL INCOME OF RS. NIL. THE TOTAL INCOME WAS ASSESSEE AT RS. 26,16,174/- VI DE ORDER DATED ITA NO 672/A HD/2010 . A.Y. 1995- 96 2 23.03.1998 PASSED UNDER SECTION 143(3) OF THE ACT. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE PREFERRED THE APPEAL BEFORE CIT(A) WHO VIDE ORDER DATED 08.11.2000 PARTLY ALLOWED THE APPEAL. A GGRIEVED BY THE ORDER OF CIT(A), REVENUE PREFERRED APPEAL BEFORE HONBLE ITAT. HONBLE ITAT VIDE ORDER DATED 05.01.2007 (ITA NO. 376/AHD/2 001) DIRECTED THE A.O TO DECIDE AFRESH THE ISSUE OF DEDUCTION UND ER SECTION 80HHC IN RESPECT OF ADVANCE LICENCE. PURSUANT TO THE DIRECT IONS OF TRIBUNAL, A.O VIDE ORDER DATED 26.12.2008 PASSED UNDER SECTION 14 3(3) R.W.S 254 OF THE ACT DETERMINED TOTAL INCOME AT RS. 26,16,174/-. AG GRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 15.10.2009 UPHELD THE ORDER OF A.O BY HOLDING AS UNDER:- 5.4 I HAVE CONSIDERED THE FACTS AND SUBMISSIONS OF THE LD. A.R. CAREFULLY. THERE IS NO DISPUTE ABOUT THE FACT THAT THE APPELLANT IS FOLLOWING MERCANTILE SYS TEM OF ACCOUNTING. THEREFORE, INCOME IS LIABLE TO BE TAXED ON THE BASIS OF ITS ACCRUAL OR ARISING DUR ING THE RELEVANT PERIOD. THERE IS NO DISPUTE ABOUT THE FACT ALSO THAT THE APPELLANT BECAME ENTITLED FO R THE INCOME OF RS. 62,88,891/- ON ACCOUNT OF ADVANCE LICENSE BY VIRTUE OF EXPORTS MADE BY IT IN THE RELEVANT PREVIOUS YEAR. THE LD. A.RS CLAIM THAT THE EVENTS HAPPENED IN THE SUBSEQUENT PREVIOUS YEARS HAD ADVERSELY EFFECTED ITS CLAIM FOR ADVANCE LICENSE AND THAT/DID NOT MATERIALIZE. THOUG H THE APPELLANT HAD ACCOUNTED FOR THE AMOUNT TOWARDS ADVANCE LICENSE IN THE RELEVANT PERIOD HOWE VER, THE SAME WAS NOT RECEIVED BY IT DUE TO ADVERSE HAPPENING IN THE SUBSEQUENT PREVIOUS YEARS. THE LD. A.R'S ARGUMENT CANNOT BE ACCEPTED SIMPLY BECAUSE THE EVENTS RELEVANT TO THE PREVIOUS YEAR UNDER REFERENCE ARE REQUIRED TO BE SEEN AND THE ACCRUAL OF INCOME RESULTING FROM SUCH EVENT S IS REQUIRED TO BE ACCOUNTED FOR IN THE PROFIT ACCORDINGLY. THE EVENTS WHICH HAPPENED SUBSEQUENTLY HAD NO IMPACT ON THE INCOME FOR THE RELEVANT PERIOD. THEREFORE, UNDER THESE CIRCUMSTANC ES THE A.O HAS RIGHTLY TREATED THE AMOUNT OF ADVANCE LICENSE AS INCOME FOR THE RELEVANT PERIOD I N TERMS OF THE PROVISIONS OF SEC. 28(III)(C) OF THE ACT. ONCE THE AMOUNT HAS BEEN TREATED AS INCOME FRO M BUSINESS AND PROFESSION WITHIN THE MEANING OF SECTION 28(III)(C) OF THE ACT, THE DEDUC TION U/S 80HHC IS REQUIRED TO BE WORKED OUT ON THE BASIS OF THE FORMULA LAID DOWN IN THE SECTION A ND THE JUDICIAL PRONOUNCEMENT EXPLAINING SUCH PROVISIONS. 5.5 IT IS SEEN THAT THE A.O HAS RIGHTLY WORKED OUT DEDU CTION U/S 80HHC OF THE ACT KEEPING IN VIEW THE CONDITIONS LAID DOWN IN THE FIFTH PROVISO INSERTED IN THE SECTION BELOW SUBSECTION (3) THROUGH THE TAXATION LAWS (AMENDMENT) ACT 2005 WITH RETROSPECTI VE EFFECT 1.4.1992. THE LD. A.R'S CLAIM THAT DEDUCTION U/S 80HHC SHALL BE WORKED OUT AFTER IGNOR ING THE LOSS DETERMINED IN RESPECT OF EXPORTS IS NOT VALID AFTER THE INSERTION OF THE FIFTH PROVI SO IN SECTION 80HHC AS REFERRED TO ABOVE. THEREFORE, UNDER THESE CIRCUMSTANCES THE A.O HAS RI GHTLY WORKED OUT THE DEDUCTION U/S 80HHC AVAILABLE TO THE APPELLANT DURING THE RELEVANT PERI OD AND NO INTERFERENCE IN THE SAME IS CALLED FOR. 5.6 IN VIEW OF THE AFORESAID DISCUSSION, ALL THE FOUR G ROUNDS OF APPEAL ARE HEREBY REJECTED. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS N OW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- ITA NO 672/A HD/2010 . A.Y. 1995- 96 3 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS. 6 288891/- U/S 28 (III) (C) OF THE HYPOTHETICAL INCOM E OF THE INCENTIVE ON ADVANCE LICENSE ACCOUNTED FOR B Y THE APPELLANT IN ITS BOOKS OF ACCOUNTS WHICH IN FACT WAS NOT EARNED BY THE APPELLANT ON THE PRINCIP LE OF REAL INCOME AND SCOPE OF TOTAL INCOME. 2. ACCORDINGLY YOUR APPELLANT PRAY TO YOUR HONOUR T O DIRECT THE LEARNED A.O. THAT HYPOTHETICAL INCOME OF RS.62,88,891/- TREATED AS INCOME UNDER SE CTION 28(III)(C) BY A.O BE DELETED. 5. BOTH THE GROUNDS ARE INTERCONNECTED AND THEREFORE T HEY ARE DECIDED TOGETHER. 6. BEFORE US, THE LD. A.R. SUBMITTED THAT ASSESSEE WAS ENTITLED TO DUTY DRAW BACK FOR EXPORTS UNDER THE DUTY EXEMPTION SCHE ME OF THE CUSTOM AND EXCISE DUTIES DRAW BACK RULES, 1971. THE COMPA NY HAD OBTAINED THE ADVANCE LICENSE FOR IMPORTS OF RAW MATERIALS FO R THEIR MANUFACTURING PURPOSE AND HAD ACCOUNTED ON HYPOTHETICAL BASIS THE INCENTIVE INCOME AT THE YEAR END FOR UNUSED LICENSE OR LICENSES NOT REC EIVED BUT FOR WHICH THE APPLICATION WAS MADE. HE FURTHER SUBMITTED THAT MER E HOLDING OF ADVANCE LICENSE AT THE YEAR END DOES NOT RESULT INTO ACCRUA L OF INCOME AND THE INCOME IS SAID TO ACCRUE WHEN LEGAL AND ENFORCEABLE RIGHT IS ACQUIRED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT AFTER 31.03 .1995 DUE TO FINANCIAL CRUNCH AND POLLUTION CONTROL, THE ASSESSEE DID NOT CONTINUE THE PROCESS OF MANUFACTURING AND IT THEREFORE SURRENDERED THE ADVA NCE LICENSES TO THE APPROPRIATE AUTHORITY. HE FURTHER SUBMITTED THAT A SSESSEE HAS NOT EARNED ANY PROFIT IN FUTURE ON THE SALE OF ADVANCE LICENSE . HE ALSO PLACED ON RECORD THE COPY OF THE SUBMISSION MADE TO THE RELEV ANT AUTHORITIES ABOUT THE SURRENDERING OF LICENSES. HE FURTHER PLACED REL IANCE ON THE DECISION OF APEX COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. (2013) 86 CCH 86. HE ALSO PLACED ON RECORD THE COPY OF THE AFORES AID ORDER. HE THUS SUBMITTED THAT IN VIEW OF THE DECISION OF THE HONB LE APEX COURT IN THE ITA NO 672/A HD/2010 . A.Y. 1995- 96 4 CASE OF EXCEL INDUSTRIES, NO ADDITION CAN BE. THE L D. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US THE ASSESSEE HAS SUBMITTED THAT AS PER TH E ACCOUNTING SYSTEM FOLLOWED BY IT, IT HAD ACCOUNTED FOR THE INCENTIVE INCOME OF ADVANCE LICENSE ON HAND FOR UNUSED LICENSE OR LICENSES NOT RECEIVED BUT FOR WHICH APPLICATION TO THE APPROPRIATE AUTHORITIES WERE MAD E. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD DISCONTINUED ITS MA NUFACTURING OPERATIONS AFTER 31.03.1995 AND DUE TO DISCONTINUIN G TO ITS OPERATION HAD SURRENDERED THE LICENSES AND NO BENEFIT HAS BEEN DE RIVED OUT OF SALE OF ADVANCE LICENSE OR BY IMPORTING MATERIALS. THE AFOR ESAID SUBMISSIONS HAVE NOT BEEN CONTROVERT BY REVENUE. HONBLE SUPRE ME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES (SUPRA) HAS HELD A S UNDER:- IT WAS FOUND THAT INCOME ACCRUES WHEN IT BECOMES D UE BUT IT MUST ALSO BE ACCOMPANIED BY A CORRESPONDING LIABILITY OF THE OTHER PARTY TO PAY T HE AMOUNT. ONLY THEN CAN IT BE SAID THAT FOR THE PURPOSES OF TAXABILITY THAT THE INCOME WAS NOT HYPO THETICAL AND IT HAD REALLY ACCRUED TO THE ASSESSEE. IN SO FAR AS THE PRESENT CASE WAS CONCERNED, EVEN I F IT WAS ASSUMED THAT THE ASSESSEE WAS ENTITLED TO THE BENEFITS UNDER THE ADVANCE LICENCES AS WELL AS UNDE R THE DUTY ENTITLEMENT PASS BOOK, THERE WAS NO CORRESPONDING LIABILITY ON THE CUSTOMS AUTHORITIES TO PASS ON THE BENEFIT OF DUTY FREE IMPORTS TO THE ASSESSEE UNTIL THE GOODS WERE ACTUALLY IMPORTED AND MADE AVAILABLE FOR CLEARANCE. THE BENEFITS REPRESENT, AT BEST, A HYPOTHETICAL INCOME WHICH MAY OR MAY NOT MATERIALIZE AND ITS MONEY VALUE IS THEREFORE NOT THE INCOME OF THE ASSESSEE. APPLYING THE THREE TESTS LAID DOWN BY VARIOUS DECISIONS OF COURT, NAMELY, WHETHER THE INCOME ACCRUED TO THE AS SESSEE IS REAL OR HYPOTHETICAL; WHETHER THERE IS A CORRESPONDING LIABILITY OF THE OTHER PARTY TO PASS ON THE BENEFITS OF DUTY FREE IMPORT TO THE ASSESSEE EVEN WITHOUT ANY IMPORTS HAVING BEEN MADE; AND THE PROBABILITY OR IMPROBABILITY OF REALISATION OF THE BENEFITS BY THE ASSESSEE CONSIDERED FROM A REALISTI C AND PRACTICAL POINT OF VIEW (THE ASSESSEE MAY NOT HAVE MADE IMPORTS), IT WAS QUITE CLEAR THAT IN FACT NO REAL INCOME BUT ONLY HYPOTHETICAL INCOME HAD ACCRUED TO THE. ASSESSEE AND SECTION 28(IV) WOULD B E INAPPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. CONSIDERING THE FACT THAT THE ASSESSEE HAS DISCONTI NUED ITS MANUFACTURING OPERATIONS AFTER 31.03.1995, SURRENDERED THE LICENS ES TO THE APPROPRIATE AUTHORITIES AND HAS NOT OBTAINED SUBSEQUENTLY ANY B ENEFIT OUT OF THE ADVANCE LICENSES AND ON THESE FACTS APPLYING THE RA TIO OF THE AFORESAID ITA NO 672/A HD/2010 . A.Y. 1995- 96 5 DECISION OF HONBLE APEX COURT, WE ARE OF THE VIEW THAT NO INCOME AROSE TO THE ASSESSEE AND THEREFORE NO ADDITION CAN BE MA DE ON ACCOUNT OF INCOME ON ADVANCE LICENSE. IN VIEW OF THE AFORESAI D FACTS, WE DIRECT THE DELETION MADE ON ACCOUNT OF INCOME ON ADVANCE LICEN SES. THUS THIS GROUND OF ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN OPEN COURT ON 30 - 05 - 2014. SD/- SD/- (D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT ,AHMEDABAD