The DCIT, Central Circle-2, Surat V. M/s. M. Kantilal Exports, Surat

ITA 967/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5979 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 03-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 14-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA; B S SADHU
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING: 3.06.10 DRAFTED ON:3.06.2010 ITA NO.967/AHD/2008 ASSESSMENT YEAR : 2003-2004 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIR.2, ROOM NO.504, AAYAKAR BHAVAN, MAJRAGATE, SURAT. VS. M/S. M. KANTILAL EXPORTS, AMBICA NIVAS, MAHAN NI CHAWL, VARACHHA ROAD, SURAT, PAN/GIR NO. : AAAFM 4325L (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI B.S.SADHU CIT, D.R. & C.K.MISHRA D.R. RESPONDENT BY: NONE O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, AHMEDABAD, DATED 11.01.2008. 2. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SHRI ASHWIN K. PAREKH (C.A.) HAS APPLIED FOR ADJOUR NMENT OF THE HEARING WHICH WAS REJECTED BY THE BENCH AS THE REAS ON FOR SEEKING ADJOURNMENT OF THE HEARING WAS NOT FOUND TO BE A PL AUSIBLE ONE. THE BENCH BEING OF THE VIEW THAT THE APPEAL CAN BE DISP OSED OF WITHOUT - 2 - THE ASSISTANCE OF THE LEARNED AUTHORISED REPRESENTA TIVE OF THE ASSESSEE PROCEEDED TO DECIDE THE APPEAL EX-PARTE QU A THE APPELLANT ASSESSEE AFTER CONSIDERING THE SUBMISSION OF THE LE ARNED DEPARTMENTAL REPRESENTATIVE AND THE MATERIALS AVAIL ABLE ON RECORD. 3. THE SOLE GROUND OF APPEAL TAKEN BY THE REVENUE I N THIS APPEAL IS AS FOLLOWS:- 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO RECOMPUTE THE DEDUCTION U/S. 80HHC AFT ER EXCLUDING THE JOB WORK RECEIPTS TREATED AS FORMING PART OF TOTAL TURNOVER FOR THE PURPOSE OF WORKING OF DEDUCT ION U/S.80HHC. 4. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS HELD AS UNDER:- 9. THE NEXT GROUND OF APPEAL IS REGARDING DEDUCTIO N U/S. 80 HHC(3). THE A.O. HAS OBSERVED THAT THE ASSESSEE HAS TAKEN EXPORT TURNOVER AND TOTAL TURNOVER AT RS.1,12,03,18 ,538/-. NO SEPARATE BOOKS FOR DIFFERENT ACTIVITIES ARE MAINTAI NED. THE EXPORT WORK IS CARRIED OUT AT MUMBAI AND MANUFACTURING WOR K AT SURAT. HE, THEREFORE, PROPOSED TO CLUB THE TOTAL TURNOVER OF ALL THE ACTIVITIES TOGETHER. ACCORDINGLY THE LABOUR RECEIPT S OF RS.8,75,47,877/- ARE HELD TO BE PART OF THE TOTAL T URNOVER. IT IS ALSO STATED BY HIM THAT THE SEPARATE BOOKS ARE NOT MAINTAINED AND THAT THEIR WORKERS ARE WORKING UNDER ONE ROOF W ITHOUT ANY DISTINCTION. ALL THE INFRASTRUCTURE FACILITIES ARE ALSO OWNED BY THE APPELLANT. HENCE, IT IS HAVING INTERCONNECTION AND INTERDEPENDENCE OF TWO ACCOUNTS NO SEPARATE BANK AC COUNT IS MAINTAINED FOR JOB WORK. WITH THE ABOVE REMARKS THE ASSESSING OFFICER HAS REFERRED TO CERTAIN DECISION AND HELD T HAT THE LABOUR RECEIPTS OF RS.875.47 LAKH ARE FORMING PART OF THE TOTAL TURNOVER. HE HAS ALSO REWORKED THE PROFIT ELIGIBLE FOR DEDUCT ION U/S.80 HHC. - 3 - 9.1. THE APPELLANT SUBMITTED THAT SEPARATE BOOKS O F ACCOUNT ARE MAINTAINED FOR THE THREE DIFFERENT ACTIVITIES. IT I S STATED THAT FOR THE EXPORT ACTIVITIES THE DIAMONDS ARE IMPORTED AND MANUFACTURING IS DONE ON JOB WORK AND EXPORT IS MAD E FOR POLISHED DIAMONDS. IN RESPECT OF JOB WORK ACTIVITY THEY RECEIVED ONLY COMMISSION. THERE IS NO INTERCONNECTION AS ALL EGED BY THE A.O. IT IS ALSO STATED THAT SEPARATE AUDITED PROFIT & LOSS ACCOUNT ARE PREPARED BY THE AUDITORS. AS REGARDS JO B WORK RECEIPTS, IT IS STATED THAT AGAINST IT EXPENSES ARE INCURRED AND NET COMMISSION OF RS.18.55 LAKH IS RECEIVED AND HENCE 9 0% THEREOF IS TO BE DEDUCTED FROM THE NET PROFIT. 9.2 I HAVE CONSIDERED THE APPELLANT'S SUBMISSI ONS AND THE ABOVE DECISION OF THE A.O. ON CONSIDERATION OF TH E SUBMISSIONS AND THE ASSESSMENT ORDER IT IS FOUND TH AT FOR JOB WORK ACTIVITY THE APPELLANT HAS SHOWN TURNOVER OF R S.875.47 LAKH AGAINST WHICH LABOUR CHARGES ARE SHOWN AT RS.8 56.91 LAKH AND THUS NET INCOME FROM THIS ACTIVITY IS OF RS.18. 55 LAKH. HOWEVER IT IS NOTICED THAT THE LABOUR CHARGES PAID ARE FOUND TO BE EXCESSIVE AND 10% THEREOF ARE DISALLOWED WHICH I S DISCUSSED SEPARATELY. HENCE THE PROFIT FROM THE JOB WORK 1 ACTIVITY SHOULD BE TAKEN AFTER TAKING THE SAID DISALLOWANCE FOR THE PURPOSE OF EXCLUSION OF THE INCOME. HOWEVER, I AGREE WITH THE APPELLANT THAT THE ENTIRE AMOUNT OF RS.875.47 CANNOT FORM PAR T OF THE TOTAL TURNOVER IN VIEW OF THE DECISION OF THE ITAT, AHMED ABAD REFERRED TO EARLIER. HE IS DIRECTED TO RECOMPUTE TH E DEDUCTION ACCORDINGLY. 5. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENT ATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF EXPORT OF D IAMONDS AND THE ASSESSEE ALSO EARNED LABOUR CHARGES FOR MANUFACTURI NG DIAMONDS ON JOB WORK BASIS FOR OTHERS. THE LEARNED ASSESSING O FFICER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC INCLUDED RE CEIPT OF LABOUR CHARGES IN THE TOTAL TURNOVER OF THE ASSESSEE. ON A PPEAL, THE LEARNED - 4 - COMMISSIONER OF INCOME TAX(APPEALS) AGREED WITH TH E SUBMISSION OF THE ASSESSEE THAT JOB WORK BUSINESS WAS AN INDEP ENDENT BUSINESS OF THE ASSESSEE FOR WHICH SEPARATE BOOKS OF ACCOUNTS W ERE MAINTAINED AND FOR WHICH SEPARATE PROFIT AND LOSS ACCOUNT WERE PREPARED AND AUDITED. IN VIEW OF THE ABOVE, THE LEARNED COMMISSI ONER OF INCOME TAX(APPEALS) FOLLOWING THE DECISION OF THIS BENCH O F THE TRIBUNAL IN THE CASE OF JAYANTILAL J. SONI VS. ITO (1999) 63 TT J (AHD) 661, HELD THAT 90% OF THE NET INCOME FROM JOB WORK CHARGES IS TO BE EXCLUDED AND THE RECEIPT OF LABOUR CHARGES ARE NOT BE INCLUD ED IN THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UND ER SECTION 80HHC. WE FIND THAT IN THE ABOVE CITED CASE, THE TR IBUNAL FOUND THAT THE LOCAL AND EXPORT BUSINESS OF THE ASSESSEE WERE INDEPENDENT UNITS, OPERATED IN DEFERENT PREMISES AND HAD NO INTERCONNE CTION, INTERLACING AND INTERDEPENDENCE AND SEPARATE BOOKS OF ACCOUNT W ERE MAINTAINED. ON THE ABOVE FACTS, THE TRIBUNAL HELD THAT THE ASSE SSEE IS ENTITLED TO BENEFIT OF SECTION 80HHC IN RESPECT OF INCOME OF EX PORT UNIT AND DEDUCTION IS NOT TO BE WORKED OUT ON THE BASIS OF T OTAL TURNOVER BY INCLUDING THE TURNOVER OF LOCAL BUSINESS. WE FIND T HAT THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT BRING ANY MAT ERIAL BEFORE US TO SHOW THAT SEPARATE BOOKS OF ACCOUNT WERE NOT MAINTA INED BY THE ASSESSEE FOR ITS EXPORT BUSINESS AND LOCAL JOB CHAR GES BUSINESS OR THE SAID TWO BUSINESSES HAD ANY INTERCONNECTION, INTERL ACING AND INTERDEPENDENT. ON THE ABOVE FACTS, IN OUR CONSIDER ED VIEW, THE TWO BUSINESSES WERE TWO SEPARATE UNITS OF THE ASSESSEE WHOSE PROFITS WERE COMPUTABLE SEPARATELY. THUS, WE DO NOT FIND ANY ERR OR IN THE DECISION OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN SO FAR AS IT HAS BEEN HELD THAT THE TWO BUSINESS BEING SEPARATE AND INDEPENDENT - 5 - BUSINESS WHERE PROFIT COULD BE COMPUTED SEPARATELY THEREFORE, THE TURNOVER OF JOB CHARGES BUSINESS SHOULD NOT BE INCL UDED WITH THE TURNOVER OF EXPORT BUSINESS FOR DETERMINING PROFIT DERIVED FROM EXPORT BUSINESS. 6. WE FIND JUSTIFICATION IN THE ALTERNATIVE ARGUMEN T OF A LEARNED DEPARTMENTAL REPRESENTATIVE THAT WHEN TWO BUSINESS WERE SEPARATE AND INDEPENDENT BUSINESS THEN THERE IS NO REASON TO EXCLUDE ONLY 90% OF THE PROFIT OF LOCAL BUSINESS FOR COMPUTING DEDUC TION UNDER SECTION 80HHC AND THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS) OUGHT TO HAVE DIRECTED TO EXCLUDE 100% OF THE PROFI T DERIVED FROM LOCAL JOB WORK BUSINESS. WE THEREFORE, MODIFY THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) TO THE ABOVE EXTENT AND DIRECT THE LEARNED ASSESSING OFFICER TO EXCLUDE 100% OF THE INCOME OF JOB WORK CHARGES FROM COMPOSITE NET PROFI T FOR CALCULATING DEDUCTION ALLOWABLE UNDER SECTION 80HHC., THUS, THI S APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON THIS 11 TH DAY OF JUNE 2010. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD; ON THIS 11 TH DAY OF JUNE, 2010 PARAS - 6 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-III, SURAT. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 03.06.2010 -------------- ----- 2. DRAFT PLACED BEFORE AUTHORITY 04.06.2010 ---- --------------- 3. DRAFT PROPOSED & PLACED 04.06.2010 ---------- --------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 04.06.2010 ---------- --------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 07.06.2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 11.06.2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 11.06.2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------