ACIT, Circle-9(1), Hyderabad V. M/s.Sri Balaji Jewellers & Exporters, Hyderabad

ITA 873/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66560 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 10-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G SRINIVASA RAO
• Keywords: Business income
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMB ER ITA NO.873/HYD/2011 : ASSESSME NT YEAR 2002-03 ASSTT. COMM ISSIONER OF INCOME - TAX, CIRCLE 9(1), HYDERABAD V/S. M/S. BALAJI JEWELLERS & EXPORTERS, HYDERABAD ( PAN - AAGFS 2313 E ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.SRINIVASA RAO, DR RESPONDENT BY : NONE DATE OF HEARING 1 6.10.2012 DATE OF PRONOUNCEMENT 7.12.2012 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THE APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS), VIJAYAWADA DAT ED 28.2.2011 FOR THE ASSESSMENT YEAR 2002-03. 2. AT THE OUTSET, WE MAY NOTE THAT THERE WAS NO AP PEARANCE ON BEHALF OF THE ASSESSEE AT THE TIME OF HEARING ON TH IS APPEAL ON 16.10.2012. ON THE PENULTIMATE DATE OF HEARING VIZ. 4.7.2012, W HEN COPY OF THE GROUNDS OF APPEAL OF THE REVENUE WERE HANDED OVER TO THE RE SPONDENT-ASSESSEE, THE MATTER WAS ADJOURNED TO 16.10.2012 DULY INFORMING T HE PARTIES IN THE OPEN COURT. NOT EVEN AN ADJOURNMENT PETITION HAS BEEN R ECEIVED FROM THE ASSESSEE OR ITS AUTHORIZED REPRESENTATIVE. ITA NO.873/HYD/2011 M/S.SRI BALAJI JEWELLERS & EXPORTERS, HYDERABAD. 2 3. THE ONLY ISSUE INVOLVED IN THE APPEAL OF THE RE VENUE RELATES TO THE CLAIM OF THE ASSESSEE FOR RELIEF UNDER S.80HHC OF THE ACT, AND THE SPECIFIC GROUNDS OF THE REVENUE READ AS FOLLOWS- 1. .. 2. THE CIT(A) ERRED IN ALLOWING RELIEF TO THE ASSESS EE AS THE INCOME NOT RELATABLE TO THE BUSINESS OF EXPORT DIRECTLY IS NOT ELIGIBLE FOR DEDUCTION. 3. THE CIT(A) ERRED IN TREATING THE INTEREST ON FIXED DEPOSITS IS PART OF THE PROFITS OF THE BUSINESS OF THE ASSESSEE. 4. 4. FACTS OF THE CASE IN BRIEF, RELEVANT TO THE DET ERMINATION OF THE POINT AT ISSUE ARE THAT THE ASSESSEE FIRM DOING TH E BUSINESS OF MANUFACTURE AND EXPORT OF GOLD JEWELLERY, FILED ITS RETURN OF I NCOME ON 31.10.2012, WHICH WAS INITIALLY PROCESSED UNDER S.143(1) OF THE ACT O N 3.2.2003 ACCEPTING THE INCOME RETURNED AT RS.54,23,750. ON THE GROUND T HAT THE ASSESSEE HAS CLAIMED EXCESS DEDUCTION UNDER S.80HHC, A NOTICE UN DER S.148 REOPENING THE ASSESSMENT WAS ISSUED, WHICH WAS SERVED ON THE ASSESSEE ON 27.1.2008. IN RESPONSE, THE ASSESSEE FILED RETURN ON 24.12.200 8, ADMITTING THE VERY SAME AMOUNT OF INCOME AS DISCLOSED IN EARLIER RETUR N, VIZ. RS.54,23,750. IN THE COURSE OF RE-ASSESSMENT PROCEEDINGS UNDER S.14 3(3) READ WITH S.147 OF THE ACT, THE ASSESSING OFFICER OBSERVED THAT AN AM OUNT OF RS.32,67,413 REPRESENTING INTEREST ON FDRS WAS CONSIDERED BY THE ASSESSEE AS BUSINESS INCOME FOR THE PURPOSE OF CALCULATING THE DEDUCTION UNDER S.80HHC. THIS WAS HELD BY THE ASSESSING OFFICER TO BE NOT ALLOWAB LE, FOR THE REASON THAT ONLY PROFIT DERIVED FROM EXPORT WAS ELIGIBLE FOR DE DUCTION. WHILE ARRIVING AT SUCH CONCLUSION, THE ASSESSING OFFICER REJECTED THE DETAILED EXPLANATION OF THE ASSESSEE, WHICH INCLUDED A PLEA THAT FOR THE ASSESS MENT YEAR 2003-04, THE TRIBUNAL DECIDED THIS VERY ISSUE IN FAVOUR OF THE A SSESSEE. THE ASSESSING OFFICER COMPUTED THE EXCESS DEDUCTION CLAIMED UNDER S.80HHC AT RS.22,10,378, AND ACCORDINGLY DISALLOWING THE DEDUC TION CLAIMED UNDER S.80HHC TO THE EXTENT OF RS.22,10,378, THE ASSESSIN G OFFICER COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.76,34,128 AS AG AINST THE INCOME ITA NO.873/HYD/2011 M/S.SRI BALAJI JEWELLERS & EXPORTERS, HYDERABAD. 3 RETURNED OF RS.54,23,750, VIDE ORDER OF ASSESSMENT DATED 29.12.2009, PASSED UNDER S.143(3) READ WITH S.147 OF THE ACT. 5. ON APPEAL, THE CIT(A), CONSIDERING THE DETAILE D WRITTEN SUBMISSIONS OF THE ASSESSEE FILED BEFORE HIM, FOLLO WING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04, ACCEPTED THE CLAIM OF THE ASSESSEE, AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO MODIFY THE ASSESSMENT ALLOWING THE DEDUCTION CLAIME D BY THE ASSESSEE UNDER S.80HHC IN ITS ENTIRETY. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), REVENUE P REFERRED THE PRESENT APPEAL BEFORE US. 7. WE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIV E AND PERUSED THE IMPUGNED ORDERS OF THE LOWER AUTHORITIES AND OT HER MATERIAL ON RECORD. IT IS THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRE SENTATIVE THAT THE INTEREST EARNED ON THE FIXED DEPOSIT DOES NOT HAVE A DIRECT NEXUS WITH THE EXPORT INCOME OF THE ASSESSEE, AND HENCE IT CANNOT BE CONSIDERED AS A BUSINESS INCOME, FOR THE PURPOSES OF COMPUTING DEDU CTION UNDER S.80HHC OF THE ACT. IN SUPPORT OF THIS CONTENTION, THE LEARNE D DEPARTMENTAL REPRESENTATIVE RELIED UPON THE DECISIONS OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S. SHAH ORIGINALS (327 ITR 19) AN D OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF DOLLAR APPAREL V/S. ITO ( 294 ITR 484). BEFORE DECIDING THE ISSUE AS TO WHETHER THE INTEREST EARNE D ON THE FIXED DEPOSIT QUALIFIES AS BUSINESS INCOME OR IT SHOULD BE TREATE D AS INCOME FROM OTHER SOURCES, IT IS WORTHWHILE TO TAKE NOTE OF THE PROVI SIONS AS CONTAINED IN S.80HHC(1) OF THE ACT. WE EXTRACT THE SAID PROVISI ON HEREUNDER- 80 HHC (1) WHERE AN ASSESSEE, BEING AN INDIAN COMP ANY OR A PERSON (OTHER THAN A COMPANY) RESIDENT IN INDIA, IS ENGAGE D IN THE BUSINESS OF EXPORT OUT OF INDIA OR ANY GOODS OR MER CHANDISE TO WHICH THIS SECTION APPLIES, THERE SHALL, IN ACCORDA NCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOW ED IN COMPUTING THE TOTAL INCOM E OF THE ASSESSEE, A DEDUCTION TO THE ITA NO.873/HYD/2011 M/S.SRI BALAJI JEWELLERS & EXPORTERS, HYDERABAD. 4 EXTENT OF PROFITS, REFERRED TO IN SUB-SECTION (1B), DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUCH GOODS OR MERCHANDI SE: .. A READING OF THE AFORESAID PROVISION MAKES IT CLEAR THAT THE DEDUCTION WILL BE RESTRICTED TO THE EXTENT OF PROFIT DERIVED BY THE A SSESSEE FORM EXPORT OF GOODS OR MERCHANDISE. KEEPING IN VIEW OF THE AFORESAID P ROVISIONS, IT HAS TO BE SEEN WHETHER THE INTEREST EARNED ON FIXED DEPOSITS WILL QUALIFY AS A PROFIT DERIVED BY THE ASSESSEE FORM EXPORT OF JEWELLERY. 8. AS IS EVIDENT FORM THE RECORD, IT IS THE CLAIM OF THE ASSESSEE THAT THE REVENUE EARNED FROM THE EXPORT OF JEWELLERY RE CEIVED IN CONVERTIBLE FOREIGN EXCHANGE WERE FIRST DEPOSITED IN EXCHANGE E ARNERS FOREIGN CURRENCY ACCOUNT (EEFC) AND LATER ON TRANSFERRED INTO FIXED DEPOSITS. THUS, ACCORDING TO THE ASSESSEE, THERE IS NEXUS BETWEEN THE INTERES T EARNED ON THE FIXED DEPOSITS WITH THE EXPORT BUSINESS OF THE ASSESSEE. 9. SUCH CONTENTION OF THE ASSESSEE IS NOT ACCEPTA BLE AND CONTRARY TO THE STATUTORY PROVISIONS. THE INTEREST EARNED ON F IXED DEPOSITS CERTAINLY DOES NOT HAVE ANY DIRECT PROXIMITY WITH THE BUSINESS OF THE ASSESSEE WHICH IS IN THE NATURE OF EXPORT OF JEWELLERY. A SIMILAR DISPU TE CAME UP FOR CONSIDERATION BEFORE THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S. SHAH ORIGINALS (SUPRA). THE HONBLE BOMBAY HIGH COURT ON INTERPRET ING THE EXPRESSION DERIVED FROM AS APPEARING IN S.80HHC(1), HELD THAT IT MUST HAVE A DIRECT AND PROXIMATE RELATION WITH THE EXPORT BUSINESS OF THE ASSESSEE. THE HONBLE BOMBAY HIGH COURT IN THIS CONTEXT, RELIED UPON THE DECISIONS OF THE APEX COURT IN THE CASE OF PANDIAN CHEMICALS LIMITED V/S. CIT(262 ITR 278) AND CIT V/S. K.RAVINDRANTHAN NAIR (295 ITR 228) AND HE LD AS FOLLOWS- 11. THE ASSESSEE ADMITTEDLY IN THE PRESENT CASE RE CEIVED THE ENTIRE PROCEEDS OF THE EXPORT TRANSACTION. THE RESE RVE BANK OF INDIA, HAS GRANTED A FACILITY TO CERTAIN CATEGORIES OF EXPORTERS TO MAINTAIN A CERTAIN PROPORTION OF THE EXPORT PROCEED S IN AN EEFC ITA NO.873/HYD/2011 M/S.SRI BALAJI JEWELLERS & EXPORTERS, HYDERABAD. 5 ACCOUNT. THE PROCEEDS OF THE ACCOUNT ARE TO BE UTIL IZED FOR BONA FIDE PAYMENTS BY THE ACCOUNT HOLDER SUBJECT TO THE LIMITS AND THE CONDITIONS PRESCRIBED. AN ASSESSEE WHO IS AN EXPORT ER IS NOT UNDER AN OBLIGATION OF LAW TO MAINTAIN THE EXPORT P ROCEEDS IN THE EEFC ACCOUNT BUT, THIS IS A FACILITY WHICH IS MADE AVAILABLE BY THE RESERVE BANK. THE TRANSACTION OF EXPORT IS COMP LETE IN ALL RESPECTS UPON THE REPATRIATION OF THE PROCEEDS. IT LIES WITHIN THE DISCRETION OF THE EXPORTER AS TO WHETHER THE EXPORT PROCEEDS SHOULD BE RECEIVED IN A RUPEE EQUIVALENT IN THE ENT IRETY OR WHETHER A PORTION SHOULD BE MAINTAINED IN CONVERTIB LE FOREIGN EXCHANGE IN THE EEFC ACCOUNT. THE EXCHANGE FLUCTUAT ION THAT ARISES, IT MUST BE EMPHASIZED, IS AFTER THE EXPORT TRANSACTION IS COMPLETE AND PAYMENT HAS BEEN RECEIVED BY THE EXPOR TER. UPON THE COMPLETION OF THE EXPORT TRANSACTION, WHAT THE SELLER DOES WITH THE PROCEEDS, UPON REPATRIATION, IS A MATTER OF HIS OPTION. THE EXCHANGE FLUCTUATION IN THE EEFC ACCOUNT ARISES AFT ER THE COMPLETION OF THE EXPORT ACTIVITY AND DOES NOT BEAR A PROXIMATE AND DIRECT NEXUS WITH THE EXPORT TRANSACTION SO AS TO FALL WITHIN THE EXPRESSION 'DERIVED' BY THE ASSESSEE IN SUB SEC TION (1) OF SECTION 80-HHC. BOTH THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME TAX (APPEALS) HAVE MADE A DI STINCTION, WHICH MERITS EMPHASIS. THE EXCHANGE FLUCTUATION, AS BOTH THOSE AUTHORITIES NOTED, AROSE SUBSEQUENT TO THE TRANSACT ION OF EXPORT. IN OTHER WORDS, THE EXCHANGE FLUCTUATION WAS NOT ON ACCOUNT OF A DELAYED REALIZATION OF EXPORT PROCEEDS. THE DEPOSIT OF THE RECEIPTS IN THE EEFC ACCOUNT AND THE EXCHANGE FLUCTUATION WH ICH HAS ARISEN THEREFROM CANNOT BE REGARDED AS BEING PART O F THE PROFITS DERIVED BY THE ASSESSEE FROM THE EXPORT OF GOODS OR MERCHANDISE. 12. THE INTEREST WHICH HAS ARISEN AS A RESULT OF TH E DEPOSITS MAINTAINED IN THE EEFC ACCOUNT CAN SIMILARLY NOT BE REGARDED AS REPRESENTING THE BUSINESS INCOME OF THE ASSESSEE . THE BUSINESS OF THE ASSESSEE CONSISTS OF THE MANUFACTURE AND EXP ORT OF GARMENTS. THE INTEREST INCOME WHICH WAS GENERATED F ROM THE DEPOSITS HELD IN THE EEFC ACCOUNT WOULD NOT FALL FO R CLASSIFICATION AS INCOME UNDER THE HEAD OF BUSINESS AND PROFESSION BUT, WOULD FALL FOR CLASSIFICATION AS INCOME FROM O THER SOURCES. UNDOUBTEDLY AS COUNSEL APPEARING ON BEHALF OF THE A SSESSEE SUBMITS, IN DETERMINING UNDER WHICH HEAD, INCOME WO ULD FALL, THE COURT MUST BE GUIDED BY THE PRINCIPLE LAID DOWN BY THE SUPREME COURT IN NALINIKANT AMBALAL MODY V. S.A.L. NARAYAN RAO, CIT3 THE SUPREME COURT HELD THAT 'WHETHER AN INCOME FALL S UNDER ONE HEAD OR ANOTHER HAS TO BE DECIDED ACCORDING TO THE COMMON NOTIONS OF PRACTICAL MEN, FOR THE ACT DOES NOT PROV IDE ANY ITA NO.873/HYD/2011 M/S.SRI BALAJI JEWELLERS & EXPORTERS, HYDERABAD. 6 GUIDANCE IN THE MATTER'. THE INTEREST WHICH ACCRUED TO THE ASSESSEE ON THE DEPOSITS HELD IN THE EEFC ACCOUNT C ANNOT BE TREATED AS BUSINESS INCOME. THE HONBLE MADRAS HIGH COURT IN THE CASE OF DOLLAR APPARELS V/S. ITO (SUPRA) HAS ALSO TAKEN A SIMILAR VIEW. 10. THUS, TAKING A CUE FROM THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SHAH ORIGINALS (SU PRA), IT HAS TO BE HELD THAT THE ASSESSEES EXPORT TRANSACTION WAS COMPLETE IN ALL RESPECTS ON RECEIPT OF THE PROCEEDS TOWARDS EXPORT SALES, IN WHATEVER F ORM SUCH RECEIPTS MIGHT HAVE BEEN RECEIVED. THE INTEREST RECEIVED ON ACCOU NT OF DEPOSITS IN EEFC ACCOUNT OR THE SUBSEQUENT FIXED DEPOSITS ARISING TH EREFROM, DOES NOT HAVE A DIRECT OR PROXIMATE RELATION WITH THE EXPORT ACTIVI TY OF THE ASSESSEE. SINCE PROFIT OF SUCH EXPORT ACTIVITY OF THE ASSESSEE IS A LONE ELIGIBLE FOR DEDUCTION UNDER S.80HHC, ASSESSEE IS NOT ENTITLED FOR SUCH RE LIEF IN RESPECT TO THE INTEREST INCOME, WHICH, AS A MATTER OF FACT, IS ASS ESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE RELIANCE PLACED B Y THE CIT(A) ON THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FO R THE ASSESSMENT YEAR 2003-04, IS MISPLACED, IN VIEW OF THE FACT THAT THE TRIBUNALS DECISION WAS RENDERED IN THE CONTEXT OF VALIDITY OF THE ORDER PA SSED BY THE COMMISSIONER OF INCOME-TAX IN EXERCISE OF HIS REVISIONAL POWER U NDER S.263 OF THE ACT. THE TRIBUNAL HELD THAT TWO VIEWS ARE POSSIBLE ON A PART ICULAR ISSUE, VIZ. ELIGIBILITY OF INTEREST ON FIXED DEPOSIT FOR RELIEF UNDER S.80H HC, AND AS THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEW, IT CANN OT BE SAID THAT THE ORDER OF ASSESSMENT WAS ERRONEOUS OR PREJUDICIAL TO THE INTE RESTS OF THE REVENUE. HENCE, THE AFORESAID VIEW OF THE TRIBUNAL, TAKEN IN THE CONTEXT OF LEGALITY AND VALIDITY OF THE ASSUMPTION OF JURISDICTION UNDER S. 263 OF THE ACT, CANNOT BE TAKEN TO BE A BINDING PRECEDENT IN THE CONTEXT OF T HE DISPUTE INVOLVED IN THE PRESENT APPEAL. EVEN OTHERWISE ALSO, THE RATIO LAI D DOWN BY THE HONBLE ITA NO.873/HYD/2011 M/S.SRI BALAJI JEWELLERS & EXPORTERS, HYDERABAD. 7 BOMBAY HIGH COURT IN THE CASE OF SHAH ORIGINALS (SU PRA) PREVAILS OVER THE EARLIER DECISION OF THE TRIBUNAL. 11. IN THE LIGHT OF THE ABOVE DISCUSSION, WE HOLD THAT INTEREST RECEIVED ON FIXED DEPOSITS CANNOT BE CONSIDERED AS PART OF BUSINESS INCOME FOR THE PURPOSES OF COMPUTATION OF DEDUCTION UNDER S.80HHC OF THE ACT. WE ACCORDINGLY, SET ASIDE THE ORDER OF THE CIT(A), AND RESTORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. CONSEQUENTLY, THE GR OUNDS OF THE REVENUE ARE ALLOWED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWE D. ORDER PRONOUNCED IN THE COURT ON 7.12.2012 SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED/- 7 TH DECEMBER, 2012 COPY FORWARDED TO: 1. M/S. BALAJI JEWELLERS & EXPORTERS, 22 - 6 - 1069, KALI KAMAN ROAD, GULZAR HOUSE, HYDERABAD 2. 3. 4. ASST. COMMISSIONER OF INCOME - TAX CIRCLE 9(1) , HYDERABAD COMMISSIONER OF INCOME-TAX(APPEALS) VIJAYAWADA COMMISSIONER OF INCOME-TAX VI, HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S.