Thiagarajar Mills Private Limited, Madurai V. ACIT, Madurai

ITA 991/CHNY/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1320 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-12-2010
• Assessment Year: 1994-1995
• Appeal Filed On: 18-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: R SVINIVASAN SHRI P B SEKARAN
• Section: 80HHC; 2

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL: B-BENCHL;CHENN AI (BEFORE SHRI U.B.S.BEDI, JUDICIAL MEM BER AND SHRI ABRAHAM P. GEORGE. ACCOU NTANT MEMBER) ITA NOS 991 & 992 / MDS/ 2010 ASST. YEARS 1994-95 & 1996-97 M/S THIAGARAJAR MILLS P.LTD, KAPPALUR, MADURAI 625008 PAN AAACT4304R VS THE ASST. COMMISSIONER OF INCOME-TAX, CO. CIR.I, MADURAI (APPELLANT) (RESPONDENT) APPELLANT BY: RESPONDENT BY: SHRI R.SVINIVASAN SHRI P.B.SEKARAN, CIT-DR ORDER PER SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER: THESE ARE APPEALS OF THE ASSESSEE AND THE GROUNDS RAISED IN THE APPEALS FOR BOTH THE YEARS ARE SIMILAR. 2. GRIEVANCE OF THE ASSESSEE IS THAT TURNOVER RELAT ING TO SALE OF SCRAP AND SALE OF SCRAP WAS INCLUDED IN THE TOTAL TURNOVER FO R CALCULATING ELIGIBLE DEDUCTION UNDER SEC. 80HHC OF THE INCOME-TAX ACT, 1961 (THE ACT FOR SHORT). 3. SHORT FACTS APROPOS ARE THAT ASSESSEE, ENGAGED I N THE BUSINESS OF MANUFACTURE OF COTTON YARN, HAD EFFECTED SALE OF CO TTON AND SCRAP IN DOMESTIC MARKET BUT NEVERTHELESS IT DID NOT INCLUDE IN THE T OTAL TURNOVER FOR THE PURPOSE OF CALCULATING DEDUCTION UNDER SEC. 80HHC OF THE ACT. THE MATTER TRAVELED UPTO THIS TRIBUNAL, AND THIS TRIBUNAL IN ITS ORDER DATED 26- 08-2005, REMITTED THE ISSUE BACK TO THE AO, FOR CONSIDERING THE QUESTION WHETHER SUC H SALE OF COTTON AND SCRAP COULD BE INCLUDED IN THE TOTAL TURNOVER FOR THE PUR POSE OF CALCULATING DEDUCTION ITA NOS.991-2/MDS//10. 2 UNDER SEC.80HHC OF THE ACT, IN THE LIGHT OF DECISIO N OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MADRAS MOTORS LTD. (25 7 ITR 60). HOWEVER, WHILE GIVING EFFECT TO THE ORDER OF THIS TRIBUNAL, AO ONC E AGAIN INCLUDED THE TURNOVER RELATING TO SALE OF COTTON AND SCRAP AS A PART OF T HE TOTAL TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF WORKING OUT DEDUCTION UNDER SEC. 80HHC OF THE ACT. NOTHING WAS MENTIONED BY THE AO ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MADRAS MOTORS LTD. (SUPRA). ASSESSEE ON CE AGAIN MOVED IN APPEAL BEFORE THE CIT(A), WHO HELD THAT THE DECISION OF TH E AO WAS ABSOLUTELY PERFECT EVEN IF IT WAS CONSIDERED IN THE LIGHT OF THE DECIS ION OF THE HONBLE JURISDICTIONAL HIGH COURT IN MADRAS MOTORS (SUPRA)S CASE. FOR COM ING TO THIS CONCLUSION, LD. CIT(A) RELIED ON THE DECISION OF A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF JCIT VS. VIRUDHUNAGAR TEXTILE MILLS LTD. (97 ITD 30 6), IN WHICH THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F MADRAS MOTORS LTD. (SUPRA) AS WELL AS IN THE CASE OF SUNDARAM FASTNERS LTRD. (272 ITR 652) WERE DISCUSSED. THUS HE HELD THAT THE AO WAS WELL JUSTIFIED IN INCL UDING THE VALUE OF SALE OF COTTON AND SALE OF SCRAP IN THE TOTAL TURNOVER FOR THE P URPOSE OF WORKING OUT DEDUCTION UNDER SEC.80HHC OF THE ACT. 4. NOW BEFORE US, LD. AR STRONGLY ASSAILING THE ORD ERS OF THE AUTHORITIES BELOW, SUBMITTED THAT NEITHER THE AO NOR THE CIT(A) HAD CORRECTLY FOLLOWED THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF MADRAS MOTORS LTD. (SUPRA). ACCORDING TO HIM, SINCE THE SCRAP SAL ES AND COTTON SALES WERE ACTUALLY DONE IN DOMESTIC MARKET, THERE WAS NO QUES TION OF THE RELATED TURNOVER ITA NOS.991-2/MDS//10. 3 BEING INCLUDED IN TOTAL TURNOVER, FOR CALCULATING D ELDCUCTION UNDER SEC. 80HHC OF THE ACT. 5. PER CONTRA, LD. DR RELIED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. K. RAVINDRANATHAN NAIR (285 ITR 228 ). ACCORDING TO HIM, DECISION OF THE HONBLE APEX COURT IN THE CASE OF K . RAVINDRANATHAN NAIRS CASE (SUPRA) WOULD GO TO SHOW THAT LD. CIT(A) WAS ABSOL UTELY CORRECT IN DIRECTING INCLUSION OF SCRAP SALE AND COTTON SALE AS A PART OF THE TOTAL TURNOVER FOR WORKING OUT DEDUCTION UNDER SEC. 80HHC OF THE ACG. 6. IN REPLY, LD. AR SUBMITTED THAT DECISION OF HON BLE APEX COURT IN K. RAVINDRANATHAN NAIRS CASE (SUPRA) WAS BEING QUOTED WITHOUT REFERRING TO THE FACTS OF THAT CASE AND THE DECISION OF HONBLE JURI SDICTIONAL HIGH COURT IN THE CASE OF SUNDARAM MOTORS LTD. (SUPRA) STILL HELD THE FIEL D. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS. SHORT QUESTION IS WHETHER SALE OF COTTON AND SALE OF SCRA P WOULD FORM PART OF THE TOTAL TURNOVER FOR WORKING OUT DEDUCTION UNDER SEC.80HHC. IN OUR OPINION, DECISION OF HONBLE APEX COURT IN K. RAVINDRANATHAN NAIRS CASE (SUPRA) HAS SETTLED THE ISSUE ONCE FOR ALL. THERE THE CLAIM OF THE ASSESSEE WAS REGARDING PROCESSING CHARGES WHICH WAS EXCLUDED FROM TOTAL TURNOVER FOR THE PURPOSE OF WORKING OUT DEDUCTION UNDER SEC. 80HHC OF THE ACT. IT WAS HELD BY THE HONBLE APEX COURT THAT PROCESSING CHARGES EARNED BY THE ASSESSEE, THO UGH IT HAD NO NEXUS WITH THE EXPORT BUSINESS, HAD TO BE INCLUDED IN THE TOTAL TU RNOVER FOR THE PURPOSE OF WORKING OUT DEDUCTION UNDER SEC. 80HHC OF THE ACT. AFTER REFERRING TO EXPLANATION (BAA) TO SEC. 80HHC OF THE ACT, IT WAS HELD BY HONBLE APEX COURT ITA NOS.991-2/MDS//10. 4 THAT EVEN THOUGH RECEIPTS LIKE BROKERAGE, COMMISSIO N, INTEREST, RENT, CHARGES, ETC. WERE FROM INDEPENDENT INCOME, WHEN IT FORMED P ART OF THE GROSS TOTAL INCOME BEING THE BUSINESS PROFIT, IT CONSTITUTED A PART OF THE TOTAL TURNOVER. HONBLE APEX COURT ALSO HELD, EVERY RECEIPT MAY NOT CONSTITUTE S ALE PROCEEDS FROM EXPORT BUT NEVERTHELESS, ONCE SUCH RECEIPT FORMED PART OF GROS S TOTAL INCOME, IT HAD TO BE INCLUDED IN THE TOTAL TURNOVER AS LONG AS IT WAS PA RT OF THE BUSINESS OF THE ASSESSEE. WE ARE OF THE OPINION THAT THIS DECISION SUPPORTS THE STAND TAKEN BY THE AO AS WELL AS THE CIT(A). FURTHER, COORDINATE B ENCH OF THIS TRIBUNAL HAD INDEED CONSIDERED THE DECISION OF HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF MADRAS MOTORS LTD. (SUPRA) WHILE COMING TO A SIMILA R CONCLUSION, IN THE CASE OF VIRUDHUNAGAR TEXTILE MILLS LTD. (SUPRA). RELEVANT P ART OF THE ORDER OF THE TRIBUNAL HAS BEEN REPRODUCED BY THE CIT(A) IN HIS ORDER AND IS ONCE AGAIN REPRODUCED BY US FOR BREVITY: FROM THE ABOVE PARA IT BECOMES CLEAR THAT WHEREVER THERE IS A COMPOSITE BUSINESS AND PROFITS OF EXPORT HAVE TO BE INCLUDED FOR THE PURPOSE OF DEDUCTION UNDER SEC.80HHC, THEN THE FORMULA GIVEN U NDER SEC. 80HHC(3) HAS TO BE APPLIED AND WHENEVER PROFIT ELEMENT FROM DOMESTIC TURNOVER OF SPECIFIED OR NON-SPECIFIED GOODS IS INCLUDED, THEN DOMESTIC TURNOVER OF SUCH GOODS HAS TO BE INCLUDED IN THE TOTAL TURNOVER . IN FACT, IT BECOMES CLEAR FROM THE TWO DECISIONS RENDERED BY THE MADRAS HIGH COURT IN THE CASE OF MADRAS MOTORS LTD. (SUPRA) AND SUNDARM FAST NERS LTD. (SUPRA), THAT HAS BEEN CLEARLY LAID DOWN THAT WHEREVER THERE IS A DOMESTIC TURNOVER AND THAT INVOLVES ELEMENT OF PROFIT, THEN SUCH TURN OVER IS TO BE INCLUDED IN THE TOTAL TURNOVER FOR DETERMINING THE PROPORTIONAT E EXPORT PROFIT UNDER SEC. 80HHC(3) FOR THE PURPOSE OF ALLOWING DEDUCTION UNDE R SEC. 80HHC(3). IT IS CLEAR FROM THE RECORDS THAT THE ASSESSEE HAD GENERATED PROFIT ON SALE OF COTTON AS WELL AS SALE OF CONDEMNED MATE RIAL AND IT ALSO GENERATED PROFITS FROM PROCESS CHARGES WHICH IS INC LUDED IN THE BUSINESS PROFIT AND, THEREFORE, THESE ELEMENTS HAVE TO BE IN CLUDED IN THE TOTAL TURNOVER. ITA NOS.991-2/MDS//10. 5 WE DO NOT THUS FIND ANY REASON, THEREFORE, TO INTE RFERE IN THE ORDERS OF THE LOWER AUTHORITIES. 8. IN THE RESULT, APPEALS OF THE ASSESSEE ARE DISMI SSED. ORDER WAS PRONOUNCED IN THE OPEN COURT O N 03 -01-2011 SD/- SD/- (U.B.S.BEDI) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI: DATED: 3RD JANUARY, 2011. NBR CC: ASSESSEE /ASSESSING OFFICER/ CIT(A)/ CIT/ D .R/ GUARD FILE.