DCIT, Alappuzha V. N.C.John & Sons P.Ltd, Alappuzha

ITA 733/COCH/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65052 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 17-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 09-06-2008
• Court: TRIBUNAL
• Department Lawyers: SUSAN GEORGE VARGHESE
• Assessee Lawyers: S MAHADEVAN
• Keywords: Tax effect
• Section: 80HHC; 10B

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. NOS. 563 & 733/COCH/2008 ASSESSMENT YEARS : 2003-04 & 2004-05 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, ALAPPUZHA. VS. M/S. N.C.JOHN & SONS (P) LTD., VAZHICHERRY, ALAPPUZHA. [PAN: AABCN 0264H] (REVENUE-APPELLANT) (ASSESSEE - RESPONDENT) REVENUE BY SMT. SUSAN GEORGE VARGHESE, SR. DR ASSESSEE BY SHRI S. MAHADEVAN, FCA DATE OF HEARING 17/10/2012 DATE OF PRONOUNCEMENT 21/12/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE APPEALS, FILED AT THE INSTANCE OF REVEN UE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-IV, KOCHI AND THEY RELAT E TO THE ASSESSMENT YEARS 2003-04 AND 2004-05. SINCE ONE OF THE ISSUES URGED IN THESE APPEALS ARE IDENTICAL IN NATURE, THESE APPEALS WERE HEARD TOGET HER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THESE APPEALS WERE INITIALLY DISMISSED BY TH E CO-ORDINATE BENCH OF THE TRIBUNAL, VIDE ITS ORDER DATED 12.10.2009, ON THE G ROUND THAT THE TAX EFFECT IN THESE APPEALS WERE LESS THAN THE MONETARY LIMITS PR ESCRIBED BY THE CBDT. SUBSEQUENTLY, THE REVENUE FILED MISCELLANEOUS APPLI CATIONS SEEKING RECALL OF THE ORDER ON THE GROUND THAT THE TAX EFFECT ON THE DISP UTED ADDITIONS IN THESE TWO YEARS IS MORE THAN THE MONETARY LIMITS PRESCRIBED B Y THE CBDT. THE TRIBUNAL, ON BEING CONVINCED WITH THE SUBMISSIONS MADE BY THE REVENUE, CONSIDERED THAT I.T.A. NOS. 563 & 733/COCH/2008 2 THE ORDER PASSED BY THE TRIBUNAL EARLIER SUFFERS FR OM MISTAKE. ACCORDINGLY THE ORDER PASSED IN BOTH THE APPEALS WERE RECALLED BY T HE TRIBUNAL, VIDE ITS ORDER DATED 09.03.2012. THE ASSESSEE CHALLENGED THE ORDE R DATED 09.03.2012 PASSED BY THE TRIBUNAL ON THE MISCELLANEOUS APPLICATIONS F ILED BY THE REVENUE BEFORE THE HONBLE HIGH COURT OF KERALA. THE HONBLE HIGH COU RT, VIDE ITS ORDER DATED 03- 07-2012, HELD THAT THE TRIBUNAL SHALL DECIDE THE AP PEALS AFTER HEARING THE PARTIES AND UNTRAMMELED BY ANY FINDINGS OR OBSERVATIONS CON TAINED IN THE ORDER ISSUED ON THE MISCELLANEOUS APPLICATIONS FILED BY THE REVE NUE. THE RELEVANT OBSERVATIONS MADE BY HONBLE HIGH COURT ARE EXTRACT ED BELOW:- THE APPELLANT CANNOT BE AGGRIEVED BY THE RE-CONSID ERATION OF THE IT APPEALS PENDING BEFORE THE APPELLATE TRIBUNAL ON ME RITS. THE GRIEVANCE IS ONLY TO THE EFFECT THAT THE IMPUGNED ORDER CONTAINS CERTAIN FINDINGS AND OBSERVATIONS WHICH MAY ADVERSELY AFFECT THE ADJUDIC ATION OF THE APPEALS ON MERITS. WE, ACCORDINGLY, SUSTAIN THE IMPUGNED O RDER AND DIRECT THAT WHEN IT APPEALS 563 & 733/COCH/2008 ARE TAKEN UP BY THE INCOME TAX APPELLATE TRIBUNAL, THEY SHALL BE DECIDED AFTER HEA RING THE PARTIES AND UNTRAMMELED BY ANY FINDINGS OR OBSERVATIONS CONTAIN ED IN THE ORDER ISSUED ON M.P. NOS. 28 & 29/COCH/2010. ACCORDINGLY, THESE TWO APPEALS WERE HEARD. 3. IN THE ASSESSMENT YEAR 2003-04, THE REVENUE IS AGGRIEVED BY THE DECISION RENDERED BY LD CIT(A) ON THE METHOD OF COMPUTING EX EMPTION U/S 10B OF THE ACT AND ALSO WITH THE METHOD OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT. IN THE ASSESSMENT YEAR 2004-05, THE REVENUE IS AGGRIEV ED BY THE DECISION RENDERED BY LD CIT(A) ON THE METHOD OF COMPUTING EXEMPTION U /S 10B OF THE ACT. 4. THUS THE COMMON ISSUE IN BOTH THE YEARS REL ATES TO THE METHOD OF COMPUTATION OF EXEMPTION U/S 10B OF THE ACT. THE F ACTS RELATING TO THE SAME ARE STATED IN BRIEF. THE ASSESSEE IS AN EXPORTER OF CO IR, COIR PRODUCTS, JUTE AND SISAL PRODUCTS. THE ASSESSEE HAS A 100% EXPORT ORIENTED UNIT (EOU) LOCATED IN TWO PLACES, VIZ., ONE AT POOCHAKKAL MANUFACTURING SISAL /JUTE MATTINGS, SISAL MATTINGS AND THE OTHER ONE AT PATHIRAPPALLY, ALLEPPEY MANUFA CTURING MACHINE LOOM I.T.A. NOS. 563 & 733/COCH/2008 3 MATTINGS. IT HAS GOT NON-EOU UNITS ALSO. THE ASSES SEE CLAIMED EXEMPTION U/S 10B OF THE ACT ON ITS 100% EXPORT ORIENTED UNIT. H OWEVER, IT DID NOT MAINTAIN SEPARATE BOOKS OF ACCOUNT FOR EOU AND NON-EOU UNITS. THE ASSESSEE HAS PREPARED SEPARATE PROFIT AND LOSS ACCOUNT FOR EOU UN ITS FROM THE COMMON SET OF BOOKS OF ACCOUNT BY ADOPTING SOME BASIS. THE AO WA S NOT CONVINCED WITH THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR DETERMINING THE PROFIT FROM EOU UNITS, AS HE FELT THAT THE SAID METHODOLOGY DID NOT REFLEC T THE TRUE PROFIT FROM THE EOU UNITS AND IT HAS RESULTED IN INFLATION OF THE PROFI TS FROM EOU UNITS. ACCORDINGLY, THE AO COMPUTED THE FROM EOU UNITS BY APPLYING NET P ROFIT RATE ON THE TURNOVER OF THE EOU UNITS. 5. IN THE APPEAL FILED BEFORE LD CIT(A), THE FI RST APPELLATE AUTHORITY DIRECTED THE AO TO COMPUTE THE PROFIT FROM EOU UNITS BY ALLOC ATING THE DIRECT EXPENSES AND THE INDIRECT EXPENSES. THE LD CIT(A) HELD THAT THE INDIRECT EXPENSES/COMMON EXPENSES SHALL BE APPORTIONED ON TH E BASIS OF TURNOVER OF EOU UNITS AND NON-EOU UNITS. AGGRIEVED BY THE SAID DECISION OF LD CIT(A), THE REVENUE IS IN APPEAL IN BOTH THE YEARS. 6. AT THE TIME OF HEARING, BOTH THE PARTIES AGR EED THAT AN IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE R ELATING TO THE ASSESSMENT YEARS 2005-06 AND 2006-07 AND THE CO-ORDINATE BENCH OF THE TRIBUNAL HAS UPHELD THE VIEW TAKEN BY THE LD CIT(A) WITH REGARD TO THE APPORTIONMENT OF COMMON EXPENSES/INDIRECT EXPENSES. THE COPY OF ORD ER DATED 15.09.2010 PASSED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE I N ITA NO.950/COCH/2008 AND ITA NO.1000/COCH/2008 RELATING TO THE ASSESSMENT YE AR 2005-06 AND THE COPY OF ORDER DATED 27-04-2011 PASSED IN ITA NO.438 & 46 5/COCH/2009 RELATING TO THE ASSESSMENT YEAR 2006-07 ARE PLACED ON RECORD. 7. WE NOTICE THAT THE CO-ORDINATE BENCH OF THE TRI BUNAL HAS CONSIDERED THE ISSUE OF ALLOCATION OF COMMON EXPENSES IN PARAGRAPH 3.5 O F ITS ORDER DATED 15-09-2010 I.T.A. NOS. 563 & 733/COCH/2008 4 RELATING TO THE ASSESSMENT YEAR 2005-06 AND HELD TH AT THE ALLOCATION OF COMMON/INDIRECT EXPENSES ON THE BASIS OF TURNOVER I S IN AGREEMENT WITH THE PROVISIONS OF SEC.10B(4) OF THE ACT. ACCORDINGLY T HE ORDER OF LD CIT(A) WAS UPHELD BY THE TRIBUNAL. IN THE INSTANT YEARS, THE LD CIT(A) HAS DIRECTED THE AO TO FOLLOW THE VERY SAME METHODOLOGY THAT WAS DIRECT ED TO BE FOLLOWED IN THE ASSESSMENT YEAR 2005-06 AND 2006-07. SINCE THE SAI D METHODOLOGY HAS BEEN APPROVED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL, CONSISTENT WITH THE VIEW TAKEN THEREIN, WE ALSO UPHOLD THE ORDER OF LD CIT(A ) ON THIS ISSUE. 8. THE NEXT ISSUE URGED IN THE APPEAL RELATING TO THE ASSESSMENT YEAR 2003-04 RELATES TO THE METHOD OF WORKING OF DEDUCTION U/S 8 0HHC OF THE ACT. THE AO NOTICED THAT THE ASSESSEE WAS PAYING COMMISSION TO ITS FOREIGN AGENTS. HENCE, WHILE DETERMINING THE EXPORT TURNOVER, THE AO REDUC ED THE COMMISSION AMOUNT OF RS.52,96,000/- FROM THE EXPORT TURNOVER AND ACCO RDINGLY COMPUTED THE DEDUCTION U/S 80HHC OF THE ACT. IT IS PERTINENT TO NOTE THAT THE AO DID NOT DEDUCT THE COMMISSION FROM THE TOTAL TURNOVER. IN THIS REGARD, THE AO PLACED RELIANCE ON THE CIRCULAR NO.23 OF 1969 DATED 23.07. 1969 ISSUED BY CBDT AND ALSO THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF CIT VS. TOSHOKU LTD REPORTED IN 124 ITR 525. IN THE ABOVE SAID CASE, T HE HONBLE SUPREME COURT HELD AS UNDER:- A FOREIGN AGENT OF AN INDIAN EXPORTER OPERATES IN HIS OWN COUNTRY AND NO PART OF HIS INCOME DERIVES IN INDIA. HIS COMMISSIO N IS USUALLY REMITTED DIRECTLY TO HIM AND IS THEREFORE NOT RECEIVED BY HI M OR ON HIS BEHALF IN INDIA. SUCH AN AGENT IS NOT LIABLE TO INCOME TAX I N INDIA ON THE COMMISSION. THE AO TOOK THE VIEW THAT THE COMMISSION PAID TO FO REIGN AGENTS IS A PRE-CHARGE ON THE EXPORT AND SINCE THE ASSESSEE PAYS A PART OF EXPORT TURNOVER AS COMMISSION, THE SAME IS LIABLE TO BE DEDUCTED FROM THE EXPORT TURNOVER. I.T.A. NOS. 563 & 733/COCH/2008 5 9. THE LD CIT(A) DID NOT AGREE WITH THE VIEW EN TERTAINED BY THE AO. THE LD CIT(A) HELD THAT THE CIRCULAR NO. 23 OF 1969 AND TH E DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF TOSHOKU CO. LT D ARE NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. THE LD CIT(A) NOTICED T HAT THE EXPORT TURNOVER, FOR THE PURPOSE OF SEC. 80HHC IS DEFINED AS THE SALE PR OCEEDS RECEIVED IN OR BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE. ACCORD INGLY, THE LD CIT(A) HELD THAT THERE IS NO NECESSITY TO DEDUCT THE COMMISSION PAYM ENT FROM THE TURNOVER. ACCORDINGLY, HE SET ASIDE THE VIEW OF THE AO ON THI S ISSUE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE RECORD. ADMITTEDLY, THE DEDUCTION U/S 80HHC IS COMPUTED WITH REFERENCE TO THE EXPORT PROCEEDS RECEIVED IN OR BROUGHT INTO INDIA IN CONVERTIBLE FO REIGN EXCHANGE. THIS IS SO DEFINED IN CLAUSE (B) OF EXPLANATION TO SEC. 80HHC(4 C) OF THE ACT. HENCE, THE COMMISSION PAYMENTS, IF IT HAD BEEN MADE IN FOREIGN COUNTRY OUT OF SALE PROCEEDS, WOULD AUTOMATICALLY GET DEDUCTED WHILE BR INGING THE SALE PROCEEDS IN INDIA. HENCE, THERE IS NO NECESSITY TO DEDUCT THE SAME AGAIN FROM THE AMOUNT OF EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) ON THIS ISSUE. 11. IN THE RESULT, BOTH THE APPEALS FILED BY TH E REVENUE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 21-12-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 21ST DECEMBER, 2012 I.T.A. NOS. 563 & 733/COCH/2008 6 GJ COPY TO: 1. M/S. N.C. JOHN & SONS (P) LTD., VAZHICHERRY, ALA PPUZHA. 2.THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, ALAPPUZHA. 3.THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, KOCH I. 4.THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5 .D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN