CHEMSTAR INTERNATIONAL, MUMBAI V. ACIT CIR 20(1), MUMBAI

ITA 6971/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2628 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 25-11-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 08-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ISHWER RATHI
• Keywords: Opportunity of being heard; Set aside
• Section: 143(3); 80HHC; 234B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI. BEFORE S/SHRI R K GUPTA (JM) & J. SUDHAKAR REDDY (AM ) I.T.A. NO. 6971/MUM/2008 (ASSESSMENT YEAR: 2001-02) CHEMSTAR INTERNATIONAL 102, NIRMAN PALACE, PUMP HOUSE, RAJAMATA JIJABAI ROAD, ANDHERI (EAST), MUMBAI 400 093 PAN NO.: - AABFC 8974 G VS. A.C.I.T., CIRCLE -20(1), PIRAMAL CHAMBER, LAL BAGH, PAREL, MUMBAI 400 012 APPELLANT RESPONDENT ASSESSEE BY : SHRI. ISHWER RATHI DEPARTMENT BY : SHRI. AARSI PRASAD ORDER PER R.K.GUPTA (JM) THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD. CIT(A)-XX, MUMBAI, DATED 24.01.2008 RELATIN G TO THE ASSESSMENT YEAR 2001-02. 2. GROUND NO.1 IS AGAINST CONFIRMING CHARGEABILITY OF INCOME TAX ON SUM ASSURED U/S.28(IIID) AND 28(IIIE), WHICH IS NO T COVERED WITHIN THE DEFINITION OF INCOME U/S.2(24). ITA NO.6971/M/08 ASSESSMENT YEAR: 2001-02 CHEMSTAR INTERNATIONAL 2 3. THE LEARNED COUNSEL OF THE ASSESSEE FAIRLY STATE D THAT THIS ISSUE HAS TO BE DECIDED AGAINST THE ASSESSEE AS THE ISSUE IS COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE MUMBAI TRIBUNA L IN THE CASE OF M/S. TOPMAN EXPORTS VS. ITO IN ITA NO.5769/MUM/2006 FOR THE ASST. YEAR: 2002-2003 AGAINST THE ASSESSEE. 4. IN VIEW OF THESE FACTS, THIS GROUND OF THE ASSES SEE IS DISMISSED AS THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/ S. TOPMAN EXPORTS, (SUPRA) HAS HELD SUCH SUM SPECIFIED U/S.28(IIID) AND 28(II IE) ARE INCOME WITHIN THE DEFINITION OF INCOME U/S.2(24). 5. GROUND NO. 2 TO 5 RELATED TO CONFIRMING THE ENTI RE SALE PROCEEDS OF DEPB ENTITLEMENTS AS COVERED U/S.28(IIID). 6. THIS ISSUE HAS TO BE DECIDED IN LIGHT OF THE DEC ISION IN THE CASE M/S. TOPMAN EXPORTS, (SUPRA) . ACCORDINGLY, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO TO DECIDE THE SAME IN LIGHT OF THE D ECISION OF THE SPECIAL BENCH M/S. TOPMAN EXPORTS, (SUPRA) AND AFTER AFFORDING THE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER, ACCORDING LY. 7. GROUND NO. 6 RELATES TO NOT ALLOWING DEDUCTION O F RS.88,176/- FROM THE DIRECT COST OF THE GOODS EXPORTED, WHILE CALCUL ATING DEDUCTION U/S.80HHC. 8. THE ASSESSING OFFICER WHILE CALCULATING DEDUCTIO N U/S.80HHC EXCLUDED A SUM OF RS.88,176/- FROM THE DIRECT COST. BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE AO HAS EXCEEDED HIS JURISDI CTION TO REDUCE THE DEDUCTION U/S. 80HHC OF THE ACT ON EXCISE REFUND AM OUNTING TO ITA NO.6971/M/08 ASSESSMENT YEAR: 2001-02 CHEMSTAR INTERNATIONAL 3 RS.88,176/-. IT WAS FURTHER SUBMITTED THAT IN VIEW OF THE DECISION IN THE CASE OF GLENMARK LABORATORIES LTD. THE AMOUNT REFUN DED CANNOT BE REDUCED FROM THE DIRECT COST. 9. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS FOUND THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF GLENMARK LA BORATORIES LTD. IS MISPLACED. ON PERUSAL OF THE SAID ORDER, IT WAS FOU ND THAT THE TRIBUNAL HAS NO OCCASION TO ADJUDICATE ON THIS ISSUE. THE AS SESSEE HAS CREDITED ITS P & L A/C ON ACCOUNT OF REFUND OF EXCISE DUTY, WHIC H HAS NO DIRECT RELATION TO THE EXPORT BEING UNDERTAKEN BY THE ASSE SSEE. IT WAS ALSO FURTHER NOTED THAT THE EXCISE DUTY IS NOT COVERED U NDER CLAUSE (IIIA) TO (IIIE) OF SECTION 28 OF THE INCOME-TAX ACT, NOR IT IS SIMILAR TO BROKERAGE, COMMISSION, INTEREST CHARGES, ETC. NOTED IN EXPLANA TION (BAA) TO SEC.80HHC OF THE INCOME TAX ACT. THEREFORE, THE SAM E CANNOT BE ALLOWED TO BE REDUCED FROM THE DIRECT COST AS WELL AS FROM THE PROFITS OF THE BUSINESS. 10. ACCORDINGLY, THE LD. CIT(A) IN PARA 6.3 TO 6.5 OBSERVED AS UNDER: - 6.3 THE EXPORTS ARE EXEMPTED FROM EXCISE DUTY. ALL EXPORTS/ SALES ON WHICH EXCISE DUTY IS PAID IS ACCORDINGLY REFUNDED TO THE APPELLANT. IT HAS NOTHING TO DO WIT H EXPORT BUSINESS OF THE APPELLANT. THE RELEVANT EXPLANATION (D) TO SUB SECTION (3) TO SECTION 80 HH C APPLICABLE FOR THIS PURPOSE IS AS UNDER: - DIRECT COSTS MEANS COSTS DIRECTLY ATTRIBUTABLE TO THE TRADING GOODS EXPORTED OUT OF INDIA INCLUDING THE PURCHASE PRICE OF SUCH GOODS. 6.4 FROM THE ABOVE IT IS EVIDENT THAT ONLY DIRECT COSTS ATTRIBUTABLE TO SUCH EXPORTS SALES ONLY ARE TO BE REDUCED. EXCISE DUTY REFUND HAS NO DIRECT NEXUS TO SUCH TRADING GOODS EXPORTED OUT OF INDIA. IT IS NOT PART OF THE ITA NO.6971/M/08 ASSESSMENT YEAR: 2001-02 CHEMSTAR INTERNATIONAL 4 COST OF SUCH GOODS EXPORTED. THEREFORE, THE SAME CA NNOT BE REDUCED FROM THE DIRECT COSTS FOR THIS PURPOSE. IN THE CASE OF RAVIRATNA EXPORTS PVT. LTD. 246 ITR 443 (BO M), THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT UNDER CLAUSE (BAA) ALL SUCH RECEIPTS WHICH HAVE NO NEXUS WITH THE EXPORT ACTIVITY, STANDS EXCLUDED FRO M THE BUSINESS PROFITS. 6.5 ON ACCOUNT OF THE ABOVE, EXCISE REFUND IS NEITH ER HELD TO BE PART OF THE DIRECT COST NOR IT IS HELD TO BE PAR T OF EXPORT INCENTIVES, THEREFORE, THE ASSESSING OFFICER S ACTION TO EXCLUDE THE SAME FROM THE DIRECT COSTS FO R THE PURPOSE OF WORKING OF DEDUCTION U/S.80HHC IS CONFIRMED. THE ASSESSING OFFICER IS HELD TO BE CORR ECT TO ASSESS THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCE. ACCORDINGLY, THIS GROUND OF APPEAL IS DISMISSED. 11. NOW, THE LD. COUNSEL OF THE ASSESSEE STATED THA T THE AO AND THE CIT(A) WERE NOT JUSTIFIED IN NOT DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE EXCISE DUTY HAS DIRECT NEXUS. THEREFORE, THE ACTION OF THE AO TO EXCLUDE THE SAME FROM THE DIRECT COST FOR THE PURPOSE OF WORKING OF DEDUCTION U/S.80HHC W AS NOT JUSTIFIED. 12. ON THE OTHER HAND, THE LD. DR PLACED RELIANCE O N THE ORDER OF THE CIT(A). 13. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE ABOVE FINDING O F THE LD. CIT(A). 14. IT IS SEEN THAT ONLY AN ENTRY IS PASSED IN THE BOOKS OF ACCOUNTS ON ACCOUNT OF REFUND OF EXCISE DUTY. HOW EXCISE DUTY R ELATABLE TO EXPORT ACTIVITY OF THE ASSESSEE IS NOT EXPLAINED NOR ANY O THER BREAK UP WAS FILED TO ESTABLISH THAT THE EXCISE REFUND HAS DIRECT RELA TION WITH THE COST OF THE ITA NO.6971/M/08 ASSESSMENT YEAR: 2001-02 CHEMSTAR INTERNATIONAL 5 MATERIAL EXPORTED BY THE ASSESSEE. THEREFORE, WITHO UT ANY EVIDENCE/ MATERIAL THE ORDER OF THE CIT(A) CANNOT BE REVERSED . ACCORDINGLY, WE CONFIRM THE ORDER OF THE CIT(A). 15. THE REMAINING ISSUE IS AGAINST IN CONFIRMING TH E CHARGEABILITY OF INTEREST U/S.234B AS THE SAME IS AGAINST THE CIRCUL AR OF CBDTS CIRCULAR NO.2/2006 DATED 17.01.2006. 16. THE ASSESSING OFFICER CHARGED THE INTEREST U/S. 234B ON THE BASIS OF THE ASSESSED INCOME. BEFORE THE CIT(A), IT WAS S UBMITTED THAT THE CHARGEABILITY IF INTEREST IS AGAINST THE DIRECTION GIVEN BY THE CBDT VIDE CIRCULAR NO.2/2006 DATED 17.01.2006, WHEREBY IT IS CLARIFIED THAT NO INTEREST U/S.234B SHOULD BE CHARGED ON DEMAND ARISI NG ON ACCOUNT OF DEDUCTION OF 80HHC CLAIM DUE TO DEPB AND DFRC. 17. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS ST ATED AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AS NOTED ABOVE AS WELL AS THE FACTS AVAILABLE FROM THE ASSESSMENT ORDER. AS MENTIONED ABOVE, THE DEMAND IN THIS CASE IS RAISED PRIOR TO THE AMENDMENT MADE VIDE TAX ALATION LAWS AMENDMENT ACT (2005) W.E.F. 01.04.1998. THE RE LEVANT PORTION OF THE CIRCULAR REFERRED BY THE LD. AR READ S AS BELOW: THE AMENDMENTS RELATING TO DUTY ENTITLEMENT PASS BOOK SCHEMES AND DUTY REPLACEMENT CERTIFICATE HAVE BEEN BROUGHT INTO THE STATUTE WITH RETROSPECTIVE EF FECT. THEREFORE, IT HAS BEEN DECIDED THAT NO PENALTY SHAL L BE LEVIED OR INTEREST SHALL BE CHARGED IN RESPECT OF A NY FRESH DEMAND RAISED CONSEQUENT TO THE ENACTMENT OF TAXATION LAWS (AMENDMENT) ACT 2005, ON ACCOUNT OF VARIATION IN THE RETURNED / ASSESSED INCOME ATTRIBU TABLE TO PROFITS ON SALE OF DEPB CREDITS OR DFRC. FROM THE ABOVE, IT IS EVIDENT THAT THE BENEFIT MADE AVAILABLE FOR NOT CHARGING INTEREST U/S.234B VIDE ABOVE MENTI ONED CIRCULAR IS ONLY ON RESPECT OF THE CASES IN WHICH F RESH DEMAND ITA NO.6971/M/08 ASSESSMENT YEAR: 2001-02 CHEMSTAR INTERNATIONAL 6 IS RAISED CONSEQUENT TO THE ENACTMENT OF TAXATION L AWS AMENDMENT ACT (2005). IN THE CASE OF THE APPELLANT, THE DEMAND WAS ALREADY RAISED BY THE AO IN THE ORIGINAL ASSESSMENT PASSED U/S. 143(3) OF THE ACT, DATED 19. 01.2004 WHEREBY HE HAS RESTRICTED THE DEDUCTION CLAIMED BY THE APPELLANT. THEREFORE, IT CANNOT BE SAID TO BE A FRE SH DEMAND RAISED SO AS TO MAKE THE APPELLANT ENTITLED FOR THE BENEFIT OF THE AFORESAID CBDT CIRCULAR. IN VIEW OF THE ABOVE, THIS GROUND OF APPEAL IS DISMISSED. 18. THE CONTENTIONS RAISED BEFORE THE CIT(A) WERE R EITERATED BY THE LD. AR HERE BEFORE US. ON THE OTHER HAND, THE LD. DR PL ACED RELIANCE ON THE FINDINGS OF THE CIT(A). 19. AFTER CONSIDERING THE SUBMISSIONS, WE FIND NO I NFIRMITY IN THE ORDER OF THE LD. CIT(A). THE CIT(A) HAS GIVEN A CATEGORIC ALLY FINDING THAT THE AO PASSED THE ORDER WHEREBY DEDUCTION U/S.80HHC WAS RE STRICTED MUCH BEFORE THE AMENDMENT TOOK PLACE. IT WAS FURTHER NOT ED BY THE CIT(A) THAT NO FRESH DEMAND WAS RAISED IN CONSEQUENT TO AMENDME NT. THEREFORE, THE BOARD DIRECTIONS ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. THE FINDINGS OF THE CIT(A) ARE CORRECT AND THEREFORE, W E CONFIRM THE FINDINGS OF THE CIT(A). 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 7 TH DECEMBER, 2009. SD/- SD/- J. SUDHAKAR REDDY R. K. GUPTA (ACCOUNTANT MEMBER) (JUDICIAL M EMBER) MUMBAI, ON THIS 7 TH DAY OF DECEMBER, 2009 ITA NO.6971/M/08 ASSESSMENT YEAR: 2001-02 CHEMSTAR INTERNATIONAL 7 NEELAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (A) CONCERNED 4. THE CIT CONCERNED 5. THE DR C BENCH BY ORDER TRUE ASST.REGISTRAR, ITAT, MUMBAI ITA NO.6971/M/08 ASSESSMENT YEAR: 2001-02 CHEMSTAR INTERNATIONAL 8 DATE INITIALS 1. DRAFT DICTATED ON: 25.11.09 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 27.11.09 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/ PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. ORDER COME BACK TO SR.PS/PS 8. FILE SENT TO THE BENCH CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: 10. DATE OF DISPATCH OF ORDER: