Rajendranathan Nair, Kollam V. ACIT, Kollam

ITA 96/COCH/2002

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58229 (ITAT-COCHIN)
• Duration Of Justice: 9 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 15-11-2011
• Assessment Year: 1995-1996
• Appeal Filed On: 19-04-2002
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A. NO. 114/COCH/2002 & C.O. NO. 15/COCH/2002 (BY THE ASSESSEE) ASSESSMENT YEAR: 1995-96 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. VS. SHRI K. RAJENDRAN NAIR, M/S. WESTERN INDIA CASHEW CO., KOLLAM (REVENUE-APPELLANT) (ASSESSEE - RESPONDENT) I.T.A. NO. 96/COCH/2002 ASSESSMENT YEAR: 1995-96 SHRI K. RAJENDRAN NAIR, M/S. WESTERN INDIA CASHEW CO., KOLLAM VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOLLAM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI R. KRISHNA IYER, CA REVENUE BY MS. S. VIJAYAPRABHA, JR.DR DATE OF HEARING 15/11/2011 DATE OF PRONOUNCEMENT 20/01/2012 O R D E R PER SANJAY ARORA, AM: THIS IS A SET OF CROSS APPEALS, I.E., BY THE ASSES SEE AND THE REVENUE, AS WELL AS CROSS OBJECTION BY THE ASSESSEE, DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, TRIVANDRUM (CIT(A) FOR SHORT) DATED 28-01-2002, PARTLY ALLOWING THE ASSESSEES APPEAL AGAINST ITS ASSESSME NT FOR A.Y. 1995-96 VIDE ORDER U/S. 143(3) R.W.S 147 OF THE INCOME TAX ACT, 1961 (THE ' ACT' HEREINAFTER) DATED 25/2/2001. I.T.A. NOS.114 & 96/COCH/2002 & C.O. NO. 15/COCH/2003 SRI K.RAJENDRANATHAN NAIR VS. ACIT, KOLLAM 2 2. THE ASSESSEE, AN INDIVIDUAL, IS IN THE BUSINESS OF CASHEW EXPORTS AS WELL AS RUNNING A HOTEL. THIS IS THE SECOND ROUND BEFORE THE TRIBUN AL; IT ADJUDICATING THE SAME ON AN EARLIER OCCASION PER ITS ORDER DATED 26-04-2005. TH E DEPARTMENT CARRIED THE MATTER IN APPEAL, I.E., IN RESPECT OF ITS APPEAL (IN I.T.A. N O. 114/COCH/2002) BEFORE THE HONBLE JURISDICTIONAL HIGH COURT, WHICH, VIDE ITS ORDER DA TED 19-08-2008 (IN I.T.A. NO. 64 OF 2008/COPY ON RECORD), WHILE DENYING ADMISSION, GRAN TED LIBERTY THERETO TO MOVE THE TRIBUNAL IN CASE IT WAS OF THE VIEW THAT ITS ORDER IS INCONSISTENT WITH A SUBSEQUENT JUDGMENT BY THE APEX COURT. THE TRIBUNAL, VIDE ITS ORDER IN M.P. NO. 85/COCH/2008 DATED 04.3.2009, RECALLED ITS EARLIER ORDER IN FULL, I.E. , INCLUDING THE ASSESSEES APPEAL AND CROSS OBJECTION. THE REVENUE BEFORE THE TRIBUNAL IN THE M.P. PROCEEDINGS CITED TWO DECISIONS BY THE APEX COURT, I.E., IPCA LABORATORY VS. DY. CIT (2003) 266 ITR 521 (SC) AND CIT VS. K. RAVINDRANATHAN NAIR (2007) 295 ITR 228 (SC), WHICH OBSERVED THAT THE IM PUGNED ORDER IS TO BE RECALLED FOR APPLYING THE CORRECT LA W AS STATED IN THE SUBSEQUENT JUDGMENT/S BY THE SUPREME COURT. THE INSTANT APPEALS, THUS, AR E BEFORE US FOR ADJUDICATION BY WAY OF APPLYING THE CORRECT LAW AS EXPLAINED BY THE APEX C OURT. 3.1 WITH REFERENCE TO THE FORMER DECISION, I.E., IPCA LABORATORY VS. DY. CIT (SUPRA), THE SAME STANDS IN FACT INVOKED BY THE TRIBUNAL; IT DIRECTING THE ADJUSTMENT OF THE PROFIT OR `LOSS PER THE DIFFERENT CLAUSES OF S. 80HHC(3) IN ARRIVING AT THE `PROFITS OF THE BUSINESS, DISMISSING THE ASSESSEES GROUND NO. 3 ( IN I.T.A. NO. 96/COCH/2002), PER WHICH THE SAID ISSUE WAS RAISED BEFORE IT. ACCORDIN GLY, NO CONTENTIONS WITH REGARD TO THIS ISSUE WERE RAISED DURING HEARING. 3.2 THE SECOND ISSUE, WHICH FORMS THE SUBJECT MATTE R OF THE REVENUES APPEAL (PER ITS GROUND NOS. 4 TO 6 IN I.T.A. NO. 114/COCH/2002), CO NCERNS THE ADJUSTMENT AS REQUIRED TO BE MADE WITH REGARD TO `PROCESSING CHARGES IN THE COMPUTATION OF DEDUCTION U/S. 80HHC. THE ASSESSING OFFICER (AO) COMPUTED DEDUCTI ON BY: I.T.A. NOS.114 & 96/COCH/2002 & C.O. NO. 15/COCH/2003 SRI K.RAJENDRANATHAN NAIR VS. ACIT, KOLLAM 3 A) INCLUDING PROCESSING CHARGES AT ` 28,46,951/- IN THE `TOTAL TURNOVER, WHICH TERM HAS NOT BEEN DEFINED IN THE ACT, EXCEPT IN TE RMS OF THE ITEMS THAT DO NOT FORM PART THEREOF (REFER EXPLANATION (BA) TO S. 80HHC); B) EXCLUDING 90% OF THE PROCESSING CHARG ES RECEIVED/ACCRUED, FROM THE PROFITS OF THE BUSINESS UNDER EXPLANATION (BAA) TO S. 80HHC. THE LD. CIT(A) FOLLOWING THE DECISION BY THE TRIBUNAL (IN I.T.A. NO. 763/COC H/1995) DIRECTED EXCLUSION OF THE PROCESSING CHARGES IN THE COMPUTATION OF TOTAL TURNOVER, AND ALSO THE PROFIT ELEMENT IN THE PROCESSING CHARGES IN THE COMPUTATIO N OF THE PROFITS OF THE BUSINESS UNDER EXPLANATION (BAA) . THE ASSESSEE IS TO PROVIDE THE NECESSARY PARTICULARS FOR ARRIVING AT THE FIGURE FOR PROFIT A ND, IN ABSENCE THEREOF, THE AO WOULD ADOPT A PERCENTAGE AT 10% OF THE GROSS CHARGE S TOWARD THE SAME. 4. BEFORE US, THE ASSESSEE CONTENDED THAT THE DECIS ION IN THE CASE OF CIT VS. K. RAVINDRANATHAN NAIR (SUPRA) HAD NO DIRECT APPLICATION TO ITS CASE, WHER EIN THE ISSUE WAS WHETHER THE PROCESSING CHARGES HAS TO BE EXCLUDED I N ARRIVING AT THE FIGURE OF TOTAL TURNOVER WHILE COMPUTING THE EXPORT PROFIT U/S. 80 HHC(3). IN THE INSTANT CASE, HOWEVER, THE ISSUE IS OF THE EXCLUDING OF THE PROCESSING CHA RGES UNDER EXPLANATION (BAA) . A DECISION, IT IS WELL SETTLED, IS ONLY AN AUTHORITY FOR WHAT IT ACTUALLY DECIDES, SO THAT THE SAID DECISION MAY NOT BE CONSIDERED AS IMPACTING THE PRE SENT APPEAL BY THE REVENUE. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 5.1 WE FIND THE ISSUE UNDER REFERENCE AS SQUARE LY COVERED BY THE DECISION BY THE APEX COURT IN THE CASE OF CIT VS. K. RAVINDRANATHAN NAIR (SUPRA), FOR APPLYING THE LAW AS LAID DOWN WHEREBY ONLY WAS THE IMPUGNED ORDER RECALLED B Y THE TRIBUNAL. IN FACT, NOT ONLY IS THE SAID CASE OF A CASHEW EXPORTER, I.E. AS THE ASS ESSEE, AS IT WOULD APPEAR, THE SAME IS ONLY IN THE ASSESSEES OWN CASE (FOR A.Y. 1993-94) IN-AS-MUCH AS THE APEX COURT THEREBY DECIDED THE REVENUES APPEAL AGAINST THE DECISION B Y THE HONBLE KERALA HIGH COURT IN THE CASE OF K. RAJENDRANATHAN NAIR [REPORTED AT (2004) 265 ITR 35 (KER.)]. IN ANY CA SE, SUCH A PLEA COULD ONLY BE RAISED EITHER IN THE PROC EEDINGS U/S. 254(2) OR, ON ITS NON- ACCEPTANCE, BY WAY OF AN APPEAL THERE-AGAINST. THE APEX COURT PER THE SAME HAS ABUNDANTLY CLARIFIED THAT THE `PROCESSING CHARGES IS AN `INDEPENDENT INCOME LIKE BROKERAGE, COMMISSION, RENT, CHARGES, ETC. FORMING PART OF THE GROSS TOTAL INCOME (GTI), I.T.A. NOS.114 & 96/COCH/2002 & C.O. NO. 15/COCH/2003 SRI K.RAJENDRANATHAN NAIR VS. ACIT, KOLLAM 4 BEING BUSINESS PROFIT, THOUGH HAVING NO NEXUS WITH THE EXPORT AND, ACCORDINGLY, IS TO BE DEDUCTED AT 90% THEREOF (PG. 240). FURTHER, THE SA ID PROCESSING CHARGES WOULD ALSO STAND TO BE INCLUDED IN THE TOTAL TURNOVER FOR COMPUTIN G THE DEDUCTION FOR EXPORT PROFITS U/S. 80HHC(3) (PG. 242). NO OTHER AND SUBSEQUENT DECISI ON BY THE APEX COURT, TAKING A CONTRARY OR DIFFERENT VIEW, HAS BEEN BROUGHT TO OUR NOTICE. WE, ACCORDINGLY, HAVE NO HESITATION IN DIRECTING FOR THE SAME IN THE INSTANT CASE AS WELL. 5.2 THE ASSESSEE HAS, HOWEVER, RAISED AN ALTERNATIV E PLEA, CLAIMING THAT EVEN IF SO, IT IS ONLY THE INCOME FROM THE PROCESSING CHARGES, AND NO T THE GROSS RECEIPT BY WAY OF PROCESSING CHARGES, THAT HAS TO BE EXCLUDED UNDER EXPLANATION (BAA) . THE BUSINESS IS LABOUR-ORIENTED AND THE MARGIN OF PROFIT IS ONLY 10 %. ACCORDINGLY, ONLY 10% OF ` 28.47 LAKHS, OR ` 2,84,695/-, WOULD STAND TO BE REDUCED, AS AGAINST 9 0% THEREOF, AS DONE BY THE REVENUE. 5.3 AT THE OUTSET, WE MAY CLARIFY THAT NO ARGUMENT QUA THIS ASPECT OF THE MATTER WAS RAISED BEFORE THE APEX COURT IN THE SAID CASE ( K. RAVINDRANATHAN NAIR (SUPRA)), IN WHICH CASE THIS ISSUE OR ASPECT OF THE MATTER WOULD ALSO STAND DECIDED BY IT PER THE SAID CASE, PRECLUDING ANY INTERFERENCE BY US. A DECISION, IT IS TRITE, IS ONLY AN AUTHORITY IN RESPECT OF WHAT IT ACTUALLY DECIDES (REFER: CIT V. C. PARAKH & CO. (INDIA ) LTD . (1956) 29 ITR 661 (SC); CIT V. SUN ENGINEERING WORKS (P.) LTD . (1992) 198 ITR 297 (SC)). WE DISCUSS THE ASSESSEES THIS ARGUMENT ON MERITS HEREINBELOW. 5.4 WE FIND CONSIDERABLE FORCE IN THE ASSESSEES AFORE-STATED ARGUMENT. AS WOULD BE APPARENT FROM THE READING OF THE PROVISION, AS WELL AS ITS ELUCIDATION BY THE HONBLE APEX COURT, IT IS ONLY THE INCOME AS INCLUDED IN THE GTI , ASSESSABLE AS BUSINESS INCOME, THAT IS LIABLE FOR EXCLUSION IN COMPUTING BUSINESS PROFITS UNDER EXPLANATION (BAA) . WHERE HOWEVER, DEFINITE EVIDENCE IS AVAILABLE TO SHOW THA T THE PROFIT IS NOT 90%, AS STATUTORILY IMPUTED PER THE SECTION, THE SAME HAS TO BE NECESSA RILY TO BE GIVEN EFFECT TO IF DISTORTION IN COMPUTATION OF THE PROFITS ON THAT ACCOUNT IS TO BE AVOIDED. SO, HOWEVER, WE MAY HASTEN TO ADD THAT NO PRESUMPTIVE RATE AS SUGGESTED BY THE LD. CIT(A) AT 10%, AS ALSO BY I.T.A. NOS.114 & 96/COCH/2002 & C.O. NO. 15/COCH/2003 SRI K.RAJENDRANATHAN NAIR VS. ACIT, KOLLAM 5 THE ASSESSEE, WOULD HOLD. IF THE ASSESSEE IS NOT IN CLINED OR OTHERWISE UNABLE TO EXHIBIT WITH REASONABLE ACCURACY THE EXTENT OF INCOME INCLU DED IN THE GROSS PROCESSING CHARGES, WHICH ONLY WE MAY REITERATE STANDS INCLUDED IN THE BUSINESS INCOME COMPUTED U/S. 28 AND, THUS, IN THE GTI, THE STATUTORY PRESUMPTION OF THE SAME BEING AT 90% THEREOF WOULD APPLY. IN OTHER WORDS, THE STATUTORY PRESUMPTION OF EXCLUDING 90% (OF THE RECEIPT) IS ONLY TOWARD ADJUSTING THE BUSINESS PROFITS FROM THE IMPA CT OF THE INDEPENDENT INCOMES, EVEN AS EXPLAINED BY THE APEX COURT IN CIT VS. K. RAVINDRANATHAN NAIR (SUPRA). AS SUCH, ONCE `PROCESSING CHARGES HAS BEEN HELD TO BE AN `INDEPE NDENT INCOME, I.E., AS RENT, COMMISSION, BROKERAGE, ETC., LIKE TREATMENT IN ITS RESPECT WOULD FOLLOW. SO, HOWEVER, AS THE SAME MAY LEAD TO GROSS DISTORTION, AND THUS, GR OSS INEQUITY, AS AN INDEPENDENT INCOME AS THE PROCESSING CHARGES MAY HAVE A PROFIT COMPONE NT MUCH BELOW 90% OR IN SOME CASE MAY EVEN BE AS ANY OTHER BUSINESS ACTIVITY AT A LOSS, A PURPOSIVE READING OF THE PROVISION WOULD SUGGEST DEDUCTION ONLY TO THE EXTEN T OF THE PROFIT DISCLOSED THEREON AND ACTUALLY DETERMINED U/S. 28 (REFER: BAJAJ TEMPO LTD. V. CIT (1992) 196 ITR 188 (SC)). 5.5 `INCOME, HOWSOEVER, LIBERALLY CONSTRUED, BEI NG A TERM OF WIDE IMPORT, YET ITS LIMITATIONS ARE IMPLICIT THEREIN, AND IT CANNOT INC LUDE EXPENDITURE INCURRED FOR EARNING THE SAME, EXCEPT WHERE SPECIFICALLY DISALLOWABLE UNDER A PARTICULAR PROVISION/S OF THE ACT. REMOVING A LARGER INCOME (THAN THAT EARNED) UNDER EXPLANATION (BAA) WOULD RESULT IN INFLATING AND, THUS, TAXING MORE THAN THE ACTUAL IN COME, AND WHICH CAN ONLY BE OF THE REAL INCOME. IN FACT, INCOME UNDER THE HEAD PROFITS AN D GAINS OF BUSINESS OR PROFESSION U/C IV-D OF THE ACT HAS NECESSARILY TO BE COMPUTED UNDE R SECTION 29 R.W.S. 145. THOUGH EQUITY AND TAXATION ARE STRANGE BEDFELLOWS, EFFORTS SHOULD BE MADE AS FAR AS POSSIBLE TOWARD A RECONCILIATION, AVOIDING INEQUITY; LAW BEI NG THE HAND-MAIDEN OF JUSTICE (ALSO REFER: CIT V. GOTLA (1985) 156 ITR 323 (SC)). INCOMES SUCH AS RENT, COMMISSION, INTEREST, ETC., IT MAY BE APPRECIATED, HAVE GENER ALLY NO IDENTIFIABLE COSTS RELATABLE THERETO (DEBITED TO THE P&L ACCOUNT/OPERATING STATEMENT), S O THAT THE LAW PROVIDES A PRESUMPTIVE RATE OF EXPENDITURE THERE-AGAINST AT 10%, EFFECTIVE LY DETERMINING THE PROFIT (INCOME) EMBEDDED THEREIN AT 90%. IT IS THE WELL ACCEPTED BY NOW THAT THE RESTRICTION OR THE EXCLUSION OF THE SPECIFIED RECEIPTS UNDER EXPLANATION (BAA) AT 90% IS ONLY TOWARD I.T.A. NOS.114 & 96/COCH/2002 & C.O. NO. 15/COCH/2003 SRI K.RAJENDRANATHAN NAIR VS. ACIT, KOLLAM 6 ADJUSTING THE ESTIMATED EXPENDITURE THERE-AGAINST, ASCERTAINING THE PROFIT/INCOME COMPONENT THEREIN. PROCESSING CHARGES, HOWEVER, STAND ON A DIFFERENT FOOTING, AND MAY WELL CONSTITUTE A MAJOR SOURCE OF REVENUE FOR THE A SSESSEE. THE APEX COURT HAS IN FACT TIME AND AGAIN, EXHORTED THE COURTS AND TRIBUNALS T O ACCORD AN INTERPRETATION THAT MAKES THE PROVISION OF LAW WORKABLE, AND WITH REFERENCE T O ITS LEGISLATIVE INTENT (REFER: CIT VS. BABY MARINE EXPORTS (2009) 290 ITR 323 (SC)). IT ACCORDED A SCHEMATIC INTERPRETATION TO THE TERM `TOTAL TURNOVER U/S. 80HHC IN CIT VS. LAXMI MACHINE WORKS (2007) 290 ITR 667 (SC), HOLDING FOR THE EXCLUSION OF EXCISE DUTY AND OTHER INDIRECT TAXES THERE-FROM, WHICH WERE BEING PEDANTICALLY INCLUDED BY THE DEPAR TMENT IN THE COMPUTATION OF `TOTAL TURNOVER. EVEN IN THE INSTANT CASE ( CIT VS. K.RAVINDRANATHAN NAIR (SUPRA)), IT MAKES REFERENCE TO ITS SAID EARLIER DECISION IN CIT V. LAXMI MACHINE WORKS (SUPRA), STATING THAT THE NATURE OF EVERY RECEIPT IS TO BE ASCERTAINED (P G. 242). THOUGH THE OBSERVATION STANDS MADE IN THE CONTEXT OF `TOTAL TURNOVER; THE DECISION IN LAXMI MACHINE WORKS (SUPRA) BEING IN RESPECT THEREOF, THE SAME IS EQUALLY VALID AS ITS DICTA IN CONSTRUING THE TERM `PROFITS OF THE BUSINESS AS WELL. 5.6 THE ONUS, HOWEVER, TO ESTABLISH THE SAID PROF IT INCLUDED IN THE GTI WOULD ONLY BE ON THE ASSESSEE, SO THAT IN ITS ABSENCE, THE STATUTORY PRESCRIPTION IN ITS RESPECT WOULD FOLLOW. THE MATTER IS ACCORDINGLY RESTORED BACK TO THE FILE OF THE AO, TO DECIDE THE SAME AFTER ALLOWING THE ASSESSEE AN OPPORTUNITY TO ESTABLISH ITS CASE WITH REGARD TO THE EXTENT OF PROFIT INCLUDED IN THE PROCESSING CHARGES OF ` 28.47 LAKHS, WHICH ONLY STANDS INCLUDED IN THE GTI. WE DECIDE ACCORDINGLY, MODIFYING THE IMPU GNED APPELLATE ORDER TO THIS EXTENT. 6. THE ASSESSEES CROSS OBJECTION, WE FIND TO BE ONLY SUPPORTIVE IN NATURE I.T.A. NOS.114 & 96/COCH/2002 & C.O. NO. 15/COCH/2003 SRI K.RAJENDRANATHAN NAIR VS. ACIT, KOLLAM 7 7.. IN THE RESULT, THE REVENUES APPEAL IS PARTLY A LLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE ASSESSEES APPEAL AND CROSS OBJECTION ARE DISMISSED. . SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 20 TH JANUARY, 2012 GJ COPY TO: 1. SHRI K. RAJENDRAN NAIR, M/S. WESTERN INDIA CASHE W CO., KOLLAM. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -1, KOLLAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, TR IVANDRUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE .