Dy.CIT, Central Circle-4, Hyderabad V. M/s Hetero Drugs Limited, Hyderabad

MA 36/HYD/2013

• Counselvise Citation: [2013] 124 COUNSELVISE.COM (IT) 0826 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 25-09-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 29-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Business income
• Section: 80HHC; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER MA.NO. 36/HYD/2013 ARISING OUT OF ITA.NO. 1004/HYD/2006 - ASSESSMENT YEAR 2003-04 DCIT, C.C. 4 HYDERABAD V S . M/S HETERO DRUGS LTD., HYDERABAD PAN AAACH5071K APPL IC ANT RESPONDENT APPLICANT BY : SHRI K.J. RAO (DR) RESPONDENT BY : SHRI S. RAMA RAO (AR) DATE OF HEARING : 26.07.2013 DATE OF PRONOUNCEMENT: 25.09.2013 ORDER PER SMT. ASHA VIJAYARAGHAVAN, J.M. : AGAINST THE ORDER OF TRIBUNAL IN ITA NO 1004/H/06 DATED 16.04.2013 THE DEPARTMENT HAS PREFERRED A MISCELLAN EOUS APPLICATION. IN THIS APPLICATION, THE DEPARTMENT H AS SUBMITTED THAT GROUND NO.9 IN THE APPEAL BEFORE ITAT AGAINST THE O RDER OF CIT(A) HAS NOT BEEN DECIDED UPON BESIDES RAISING OBJECTION BY WAY OF MISCELLANEOUS PETITION AT PARAS 3.5 AND 3.6 AS FOLL OWS : 3.5. ON PERUSAL OF THE JUDGMENT OF THE HONBLE TRI BUNAL IN THE CASE OF ASSESSEES SISTER CONCERNED NAMELY M/S. HET ERO LABS LTD IN ITA NOS. 74, 75 AND 76/HYD/2007 FOR THE ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05 VIDE ORDER DATED 30.03.2012, IT IS NOTICED THAT THE ISSU E OF INCLUSION OF CONVERSION CHARGES IN TOTAL TURNOVER W HILE COMPUTING THE DEDUCTIONS ALLOWABLE U/S. 80HHC WAS N OT DECIDED AT ALL IN PARAGRAPH NOS. 14 AND 15 OF THE O RDER. 2 MA.NO.36/HYD/2013 IN ITA.1004/HYD/2006 M/S. HETERO DRUGS LTD. 3.6. THUS, IT IS SUBMITTED THAT THE HONBLE ITAT HA S RELIED ON THE ABOVE MENTIONED JUDGMENT IN WHICH THE SIMILAR I SSUE WAS NOT DECIDED, WHILE DECIDING THE ISSUE RAISED VI DE GROUND NO.5 BY THE ASSESSEE. HENCE, THE ISSUE IS NO T COVERED BY THE JUDGMENT OF THE TRIBUNAL IN THE CASE OF ASSESSEES SISTER CONCERN, M/S. HETERO LABS LTD. 2. WE FIND THAT AT PARA 10 OF THE ORDER IN ITA.NO.1 004/HYD/2006 DATED 16.04.2012 IT HAS BEEN HELD AS FOLLOWS : 15. THE NEXT GROUND IS WITH RESPECT TO HOLDING AG AINST THE CONVERSION CHARGES AS BEING DEDUCTIBLE FROM PROFIT FOR THE PURPOSE OF ARRIVING DEDUCTION U/S 80HHC. THE LEARNED COUNS EL RELIED ON IN THE CASE OF CIT VS. BANGALORE CLOTHING CO. (260 ITR 371) ((BOM.HC), WE FIND THAT IN LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SHRI K. RAVINDRANATHAN NAIR (295 ITR 228) (SC) AND ITS SUBSEQUENT DECISION IN THE CASE OF ACG ASSOCIATED CAPSULES P. LTD. VS. CIT (2012-TIOL-13-S C-IT-LB) WHILE THE CONVERSION CHARGES HAS TO BE EXCLUDED FRO M BUSINESS PROFITS UNDER EXPLANATION (BAA) TO SEC 80HHC, ONLY T HE NET INCOME FROM CONVERSION CHARGES AFTER DEDUCTING THE EXPENDITURE INCURRED FOR THE SAME, CAN BE EXCLUDED UNDER EXPLA NATION BAA TO 80HHC. WE THEREFORE SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER TO RECOMPUTE THE RELIEF U/S.80HHC IN RESPEC T OF CONVERSION CHARGES BY APPLYING THE DECISIONS OF THE APEX COURT IN THE CASES OF SHRI K. RAVINDRANATHAN NAIR (295 ITR 228) AND ACG ASSOCIATED CAPSULES P. LTD. VS. CIT (2012-TIOL-13-S C-IT-LB). 3. AS SEEN FROM ABOVE PARA, TRIBUNAL CONSIDERED ALL THE FACTS AND FOLLOWED JUDGMENT OF HONBLE SUPREME COURT (SUPRA), WE DO NOT FIND ANY INFIRMITY IN OUR ORDER DATED 16.04.2012 IN ITA.NO.1004/ HYD / 2006. THEREFORE, WITH RESPECT TO GROUND NO.5, WE DO NOT FIND ANY MISTAKE APPARENT ON RECORD AND HENCE, DOES NOT FALL UNDER AMBIT OF APPLICATION UNDER SECTION 254(2). 4. HENCE, WE DISMISS THIS GROUND IN THE M.A. 3 MA.NO.36/HYD/2013 IN ITA.1004/HYD/2006 M/S. HETERO DRUGS LTD. 5. GROUND NO. 9 RAISED BEFORE ITAT READS AS UNDER: THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PROFI T ON HIGH SEA SALES AND THE PROFIT FROM THE SAMPLES CANNOT BE CON SIDERED AS ELIGIBLE FOR DEDUCTION U/S 80IB AND 80HHC. 6. WHILE DISPOSING OF THE GROUND NO.8,9,10 OF THE D EPARTMENTAL GROUNDS OF APPEAL, IN PARA 15 OF THE ITAT ORDER IN ITA.NO. 1004/HYD/2006 DATED 16 TH APRIL, 2012, IT HAS BEEN HELD, FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE CASE O F HETERO LABS LIMITED IN ITA NOS.74,75 AND 76/07 AND THE BOMBAY H IGH COURT JUDGMENT IN THE CASE OF ASSOCIATED CAPSULES P LTD V S DCIT REPORTED IN 332 ITR 42 (BOM), THAT WHILE COMPUTING RELIEF UNDER SECTION 80HHC DEDUCTION ALLOWABLE UNDER SECTION 80I B NEED NOT BE DEDUCTED FROM THE BUSINESS PROFIT. 7. HOWEVER IN THE IMPUGNED ORDER THE GROUND NO.9 RE GARDING CONSIDERING PROFIT FROM SAMPLE SALES AND HIGH SEAS SALES IN COMPUTING THE DEDUCTION UNDER SECTION 80IB AND 80HH C, HAS NOT BEEN CONSIDERED. ACCORDINGLY THE ORDER OF THIS BEN CH IN ITA NO 1004/H/06 FOR AY 2003-04 IN THE CASE OF THE ASSESSE E STANDS MODIFIED AS UNDER: AFTER THE EXISTING PARAGRAPH 16 THE FOLLOWING SHA LL BE INSERTED AS PARAGRAPHS 17 & 18: 17. THE NEXT GROUND BY THE ASSESSEE IS REGARDING INCLUSION OF HIGH SEAS SALES AND SALES OF SAMPLES F OR THE PURPOSE OF DEDUCTION UNDER SECTION 80IA AND 80HHC. SALE OF SAMPLES REPRESENT THE AMOUNTS REALIZED FROM SALE OF SAMPLE PRODUCTS SENT VARIOUS CUSTOMERS FOR APPROVAL. THE R ECEIPT OF CONSIDERATION FOR SAMPLES HAVE BEEN ACCOUNTED AS OT HER INCOME. AS THE SALES SAMPLES ARE DIRECTLY CONNECTE D WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE WE HOLD THAT THE 4 MA.NO.36/HYD/2013 IN ITA.1004/HYD/2006 M/S. HETERO DRUGS LTD. ASSESSEE IS ENTITLED TO RELIEF UNDER SECTION 80IB A S WELL AS 80HHC IN RESPECT OF SAMPLE SALES AMOUNTING TO RS.8,19,421/- 18. AS REGARDS HIGH SEAS SALES, THE ASSESSEE IMPO RTED RAW MATERIALS FOR THEIR MANUFACTURE. FOR VARIOUS RE ASONS, IF THEY FIND THAT PORTION OF SUCH RAW MATERIALS WILL N OT BE REQUIRED FOR MANUFACTURE THE MATERIAL IS SOLD AT HI GH SEAS AT THE SAME PRICE AT WHICH IT WAS PURCHASED. IN ORDER TO RECOVER SOME OF THE EXPENDITURE THAT WAS INCURRED ON IMPORT S, THE ASSESSEE RECEIVED COMMISSION FROM THE PURCHASER OF THE RAW MATERIALS, SOLD ON HIGH SEAS BASIS. THESE EXPENDITU RES HAVE BEEN CHARGED TO PROFIT AND LOSS ACCOUNT. SALES OF R AW MATERIALS ON HIGH SEAS DO NOT REPRESENT PROFIT FROM THE MANUFACTURING ACTIVITIES OF THE ASSESSEE BUT ONLY T RADING ACTIVITY. THE INCOME FROM HIGH SEAS SALES CANNOT BE INCLUDED AS BUSINESS PROFIT DERIVED FROM THE UNDERTAKING FOR THE PURPOSE OF COMPUTING RELIEF UNDER SECTION 80IB. HOW EVER THE EXPENDITURE INCURRED IN EARNING THIS INCOME SHOULD ALSO BE EXCLUDED WHILE COMPUTING RELIEF U/S 80IB. FURTHER, EVEN THOUGH THE COMMISSION RECEIVED ON ACCOUNT OF HIGH S EA SALES IS BUSINESS INCOME, THE SAME IS ALSO NOT ENTITLED T O RELIEF UNDER SECTION 80HHC IT IS A RECEIPT OF THE NATURE R EFERRED TO IN EXPLANATION (BAA) TO SEC 80HHC. BUT AS HELD BY T HE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULE S LIMITED REPORTED IN 343 ITR 89, ONLY THE NET AMOUNT OF INCOME IN RESPECT OF RECEIPTS MENTIONED IN EXPLANATION (BA A) HAS TO BE EXCLUDED. ACCORDINGLY, WHILE COMPUTING RELIEF UNDE R SECTION 80HHC, 90% OF THE NET INCOME FROM HIGH SEA SALES OF RS.22,96,738/- AS REDUCED BY CORRESPONDING EXPENDIT URE INCURRED FOR EARNING THIS INCOME SHALL BE EXCLUDED FORM THE BUSINESS PROFIT. THE ASSESSEE SHALL PROVIDE NECESS ARY 5 MA.NO.36/HYD/2013 IN ITA.1004/HYD/2006 M/S. HETERO DRUGS LTD. PARTICULARS REGARDING EXPENDITURE INCURRED FOR EARN ING THIS INCOME. THUS IN SO FAR AS HIGH SEAS SALES IS CONCER NED THE NET INCOME SHALL BE EXCLUDED FOR THE PURPOSE OF COMPUTI NG THE DEDUCTION U/S 80IB AND 90% OF THE NET INCOME SHALL BE EXCLUDED FROM BUSINESS PROFITS WHILE COMPUTING DEDU CTION U/S 80HHC. THE EXISTING PARAGRAPH 17 SHALL BE RENUMBERED AS PA RAGRAPH NO 19. 8. IN THE RESULT, MA FILED BY THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25.09.2013. SD/- SD/- (CHANDRA POOJARI) (SMT. ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATE 25 TH SEPTEMBER, 2013. VBP/- COPY TO 1. DCIT, CC 4, HYDERABAD. 2.M/S HETERO DRUGS LTD., C/O SHRI S.RAMA RAO, FLAT NO.102, SHIRYA'S ELEGANCE, NO.3-6-643, STREET NO.9, HIMAYAT NAGAR, HYDERABAD 500029 3. CIT(A) - I II , HYDERABAD. 4. CIT, HYDERABAD 5. DR , ITAT, HYDERABAD B BENCH , HYDERABAD.