Yamuna Gases and Chemicals Ltd. V. Commissioner of Income Tax, Panchkula and another

ITA/343/2006

AI Insights

The case involves a series of appeals under Section 260A of the Income Tax Act, 1961, concerning the computation of deductions under Section 80HHC for the Assessment Years 1996-97, 1997-98, 2003-04, and 2004-05. The primary legal contention was whether the deductions should be computed based on gross receipts or net receipts, and whether the Tribunal erred in its interpretation of these provisions. The Supreme Court's decision in ACG Associated Capsules (P) Ltd. clarified that only 90% of the net amount of certain receipts included in the profits of the business should be deducted, which was the basis for the High Court's decision to remand the matter back to the Assessing Officer for re-computation in accordance with this precedent.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 805120 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 30-03-2012
• Assessment Year: misc
• Other Referred Cases: Rani Paliwal v. CIT, CIT v. Shri Ram Honda Power Equip, ACG Associated Capsules (P) Ltd. v. Commissioner of Income Tax, Central-IV, Mumbai, Distributors (Baroda) (P) Ltd. v. Union of India
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: YOGESH PUTNEY; SAVITA SAXENA
• Assessee Lawyers: RADHIKA SURI
• Keywords: Deduction; Gross receipts; Income Tax; Net receipts; Rectification; Section 80HHC
• Section: 154; 80HHC; 260A; 80AB

Judgement Text

"IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 343 of 2006 (O&M) and connected appeals Date of Decision: March 30, 2012 Yamuna Gases and Chemicals Ltd. …Appellant Versus Commissioner of Income Tax, Panchkula and another …Respondents CORAM: CORAM: CORAM: CORAM: H H H HON’BLE MR. JUSTICE M.M. KUMAR ON’BLE MR. JUSTICE M.M. KUMAR ON’BLE MR. JUSTICE M.M. KUMAR ON’BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE HON’BLE MR. JUSTICE HON’BLE MR. JUSTICE HON’BLE MR. JUSTICE T.P.S. MANN T.P.S. MANN T.P.S. MANN T.P.S. MANN Present: For the Assessee-Appellant(s): Ms. Radhika Suri, Advocate. For the Revenue-Respondent(s): Mr. Yogesh Putney, Advocate. Ms. Savita Saxena, Advocate. 1. To be referred to the Reporters or not? 2. Whether the Judgment should be reported in the Digest M.M. KUMAR, J. M.M. KUMAR, J. M.M. KUMAR, J. M.M. KUMAR, J. 1. This order shall dispose of a bunch of appeals* * * * filed under Section 260A of the Income Tax Act, 1961 (for brevity, ‘the Act’) against the order(s)** ** ** ** passed by the Chandigarh Bench of the Income Tax Appellate Tribunal (for brevity, ‘the Tribunal’) because common questions of law and facts are involved. 2. On 28.11.2007, ITA Nos. 343 and 344 of 2006, which have been filed by the assessee-appellant against the common order dated 5.10.2005, passed by the Tribunal in respect of Assessment Years 1996-97 and 1997-98, were admitted by the Division Bench taking into account the judgment of this Court rendered in the case of Rani Paliwal Rani Paliwal Rani Paliwal Rani Paliwal v. v. v. v. CIT CIT CIT CIT, (2004) 268 ITR 220 , (2004) 268 ITR 220 , (2004) 268 ITR 220 , (2004) 268 ITR 220 and ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals 2 the judgment of Delhi High Court in the case of CIT CIT CIT CIT v. v. v. v. Shri Ram Shri Ram Shri Ram Shri Ram Honda Power Equip Honda Power Equip Honda Power Equip Honda Power Equip, (2007) 289 ITR 475 (Delhi) , (2007) 289 ITR 475 (Delhi) , (2007) 289 ITR 475 (Delhi) , (2007) 289 ITR 475 (Delhi) and the following substantial questions of law were framed: “i) Whether in the facts and circumstances of the case, the Tribunal was right in reducing the net profits computed under the head profit and gain of business and profession by excluding 90% of receipts by way of rental, service charge, interest and sale of samples amounting to Rs. 11,77,555/- to compute the deduction under Section 80HHC by taking into account the gross receipts received by the assessee as opposed to the net receipts by wrongly relying on the judgment of Rani Paliwal v. CIT, 268 ITR 220, which was clearly inapplicable in the facts and circumstances of the present case? ii) Whether the deduction under Section 80HHC is to be computed in accordance with the provisions of the Income Tax Act by taking into account the Section 80AB of the Income Tax Act which provides that the deductions claimed in Chapter VI-A are to be allowed as per the provisions of the Act meaning thereby that only the net amount of receipts are to be considered for exclusion under the explanation (baa) of the proviso to (4C) of Section 80HHC.” 3. Similarly, ITA Nos. 853 and 854 of 2008, which have been filed by the assessee-appellant against the common order dated 28.12.2007, passed by the Tribunal in respect of Assessment Years 2003-04 and 2004-05, were admitted vide order dated ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals 3 12.5.2010 and the Division Bench formulated the following questions of law: “i) Whether the ratio of this Hon’ble Court in the case of Rani Paliwal vs. CIT, 268 ITR page 220 Rani Paliwal vs. CIT, 268 ITR page 220 Rani Paliwal vs. CIT, 268 ITR page 220 Rani Paliwal vs. CIT, 268 ITR page 220 constitutes binding precedent being contrary to the provisions of the Act and the judgment of the Supreme Court in the case of Distributors Baroda 155 ITR Page 120. Distributors Baroda 155 ITR Page 120. Distributors Baroda 155 ITR Page 120. Distributors Baroda 155 ITR Page 120. ii) Whether the deduction under Section 80HHC is to be computed in accordance with the provisions of the Income Tax Act by taking into account the Section 80AB of the Income Tax Act which provides that the deductions claimed in Chapter VI-A are to be allowed as per the provisions of the Act meaning thereby that only the next amount of receipts are to be considered for exclusion under the explanation (baa) of the proviso to 4(C) of Section 80HHC.” The aforementioned appeals were ordered to be listed along with ITA Nos. 343 and 344 of 2006. 4. The other ITA No. 194 of 2005 has been filed by the revenue against the order dated 17.3.2004 rendered by the Tribunal in respect of the Assessment Year 1994-95 in the case of M/s Yamuna Gases and Chemicals Ltd. (who has filed ITA Nos. 343 and 344 of 2006 in respect of Assessment Years 1996-97 and 1997- 98). This appeal was admitted on 22.1.2007 and the revenue- appellant has sought to raise the following substantial question of law: “Whether in the facts and circumstances of the case, the ITAT was right in law in quashing the order passed by ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals 4 the assessing officer under Section 154 of the Income- tax Act thereby holding that claim of deduction under Section 80HHC(4B) of the Act, was a debatable issue, hence, could not be rectified under Section 154 of the Act?” 5. Now, the assessee-appellant(s) have filed miscellaneous application(s) in ITA Nos. 343 & 344 of 2006 and ITA No. 854 of 2008, praying that the appeals may be disposed of in terms of the recent judgment of Hon’ble the Supreme Court rendered in the case of ACG Associated Capsules (P) Ltd. ACG Associated Capsules (P) Ltd. ACG Associated Capsules (P) Ltd. ACG Associated Capsules (P) Ltd. v. v. v. v. C C C Commissioner of Income Tax, ommissioner of Income Tax, ommissioner of Income Tax, ommissioner of Income Tax, Central Central Central Central- - - -IV, Mumbai IV, Mumbai IV, Mumbai IV, Mumbai, (2012) 3 SCC 321 , (2012) 3 SCC 321 , (2012) 3 SCC 321 , (2012) 3 SCC 321. According to the applicant- appellant(s) the aforementioned questions of law have been answered by Hon’ble the Supreme Court in favour of the assessee. 6. Notice of the application bearing CM No. 7377-CII of 2012 in ITA No. 343 of 2006 was issued and the learned counsel for the revenue have put in appearance. 7. We have heard learned counsel for the parties and are of the view that the question of law which prompted admission of these appeals were covered against the revenue and in favour of the assessee(s) for the view taken by this Court in Rani Paliwal’s Rani Paliwal’s Rani Paliwal’s Rani Paliwal’s case (supra) case (supra) case (supra) case (supra) and that of Delhi High Court rendered in the case of Shri Ram Honda Power Equip (supra) Shri Ram Honda Power Equip (supra) Shri Ram Honda Power Equip (supra) Shri Ram Honda Power Equip (supra). The view of Delhi High Court has been specifically affirmed by their Lordships’ of Hon’ble the Supreme Court in the case of ACG Associated Capsules (P) Ltd. ACG Associated Capsules (P) Ltd. ACG Associated Capsules (P) Ltd. ACG Associated Capsules (P) Ltd. (supra) (supra) (supra) (supra). Placing reliance on the judgment of a Constitution Bench in the case of Distributors (Baroda) (P) Ltd. v. Union of India, (1986) 1 Distributors (Baroda) (P) Ltd. v. Union of India, (1986) 1 Distributors (Baroda) (P) Ltd. v. Union of India, (1986) 1 Distributors (Baroda) (P) Ltd. v. Union of India, (1986) 1 SCC 43 SCC 43 SCC 43 SCC 43, their Lordships’ interpreted Explanation (baa) to Section 80HHC of the Act as under:- ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals 5 “12. Explanation (baa) extracted above states that \"profits of the business\" means the profits of the business as computed under the head \"Profits and Gains of Business or Profession\" as reduced by the receipts of the nature mentioned in clauses (1) and (2) of Explanation (baa). Thus, profits of the business of an Assessee will have to be first computed under the head \"Profits and Gains of Business or Profession\" in accordance with provisions of Section 28 to 44D of the Act. In the computation of such profits of business, all receipts of income which are chargeable as profits and gains of business under Section 28 of the Act will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under Sections 30 to 44D have to be allowed as expenses. After including such receipts of income and after deducting such expenses, the total of the net receipts are profits of the business of the Assessee computed under the head \"Profits and Gains of Business or Profession\" from which deductions are to made under Clauses (1) and (2) of Explanation (baa). 13. Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head \"Profits and Gains of Business or Profession\". The expression \"included any such profits\" in Clause (1) of ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals 6 the Explanation (baa) would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head \"Profits and Gains of Business or Profession\". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under Sections 30 to 44D of the Act and is not included in the profits of business as computed under the head \"Profits and Gains of Business or Profession\", ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent of the net amount of any receipt of the nature mentioned in Clause (1) which is actually included in the profits of the Assessee is to be deducted from the profits of the Assessee for determining \"profits of the business\" of the Assessee under Explanation (baa) to Section 80HHC. 14. For this interpretation of Explanation (baa) to Section 80HHC of the Act, we rely on the judgment of the Constitution Bench of this Court in Distributors (Baroda) (P) Ltd. v. Union of India, (1986) 1 SCC 43. xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx 21. ……… In our considered opinion, it was not necessary to refer to the explanatory Memorandum when the language of Explanation (baa) to Section ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals 7 80HHC was clear that only ninety per cent of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits computed under the head profits and gains of business of an Assessee could be deducted under Clause (1) of Explanation (baa) and not ninety per cent of the quantum of any of the aforesaid receipts which are allowed as expenses and therefore not included in the profits of business of the assessee. 22. In the result, we allow the appeal and set aside the impugned order of the High Court and remand the matter to the Assessing Officer to work out the deductions from rent and interest in accordance with this judgment. No costs.” 8. The aforesaid view of Hon’ble the Supreme Court clearly enunciates the law in favour of the assessee and against the revenue. Accordingly, we allow the appeals filed by the assessee(s), namely, ITA Nos. 343 and 344 of 2006 and 853 and 854 of 2008. The impugned orders passed by the Tribunal in those appeals are set aside. The matters are remanded back to the Assessing Officer to work out the deductions from rent, interest etc. in accordance with law laid down by Hon’ble the Supreme Court in the case of ACG Associated Capsules (P) Ltd. (supra) ACG Associated Capsules (P) Ltd. (supra) ACG Associated Capsules (P) Ltd. (supra) ACG Associated Capsules (P) Ltd. (supra). ITA No. 194 of 2005 ITA No. 194 of 2005 ITA No. 194 of 2005 ITA No. 194 of 2005 ( ( ( (CIT CIT CIT CIT v. v. v. v. M/s Yamuna Gases and Chemicals Ltd. M/s Yamuna Gases and Chemicals Ltd. M/s Yamuna Gases and Chemicals Ltd. M/s Yamuna Gases and Chemicals Ltd.) ) ) ) 9. In respect of Assessment Year 1994-95 the assessee- respondent filed its return of income on 30.11.1994 declaring income of `55,11,947/- and it claimed deduction of `17,45,758/- under Section 80HHC. The return was processed under Section ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals 8 143(1) of the Act on 16.10.1995 and eventually assessment under Section 143(3) was completed vide order dated 27.3.1996 at a total income of `66,95,910/-. The assessee was allowed deduction under Section 80HHC as per its claim. However, the Assessing Officer noticed some mistake in allowing deduction under Section 80HHC. As per the view of the Assessing Officer the explanation (baa) appended to Section 80HHC (4B), the net profit of business was required to be reduced by 90% of gross sum included in assessee’s profit. The Assessing Officer issued notice under Section 154 of the Act proposing to rectify the aforesaid alleged mistake. The assessee pleaded that there was no mistake apparent from record. The assessee submitted that various expenses were required to be reckoned against the receipts and, therefore, only reduction to the extent of 90% of net receipts was permissible. The Assessing Officer rejected the submission of the assessee-respondent and passed order under Section 154. Accordingly, deduction under Section 80HHC was reduced to `15,22,862/- as against the assessee’s claim of `17,44,758/-. On appeal the CIT(A) upheld the order of the Assessing Officer passed under Section 154 of the Act. The Tribunal vide order dated 17.3.2004 allowed the assessee’s appeal for the Assessment Year 1994-95. 10. The aforesaid controversy is no longer open to any debate in view of the judgment of Hon’ble the Supreme Court rendered in the case of ACG Associated Capsules (P) Ltd. (supra) ACG Associated Capsules (P) Ltd. (supra) ACG Associated Capsules (P) Ltd. (supra) ACG Associated Capsules (P) Ltd. (supra). The order of the Tribunal is affirmed with the modification that matter is remanded back to the Assessing Officer to work out deductions from rent, interest etc. in accordance with the law laid down by Hon’ble the Supreme Court in the case of ACG Associated ACG Associated ACG Associated ACG Associated ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals ITA No. 343 of 2006 (O&M) & connected appeals 9 Capsules (P) Ltd. (supra) Capsules (P) Ltd. (supra) Capsules (P) Ltd. (supra) Capsules (P) Ltd. (supra). The appeal of the revenue is dismissed with the aforesaid directions. 11. The miscellaneous applications filed in these appeals are also disposed of. 12. A photocopy of this order be placed on the files of connected appeals. (M.M. KUMAR) (M.M. KUMAR) (M.M. KUMAR) (M.M. KUMAR) JUDGE JUDGE JUDGE JUDGE ( ( ( (T.P.S. MANN T.P.S. MANN T.P.S. MANN T.P.S. MANN) ) ) ) M M M March arch arch arch 30 30 30 30, 201 , 201 , 201 , 2012 2 2 2 JUDGE JUDGE JUDGE JUDGE PKapoor * Arising out of Sr. No. ITA No. Title Date of the impugned order** ** ** ** Name of the Bench of the ITAT which has passed the impugned order ITA No. before the Tribunal Assessment Year 1 194 of 2005 Commissioner of Income Tax, Panchkula v. M/s Yamuna Gases and Chemicals Ltd. 17.3.2004 Chandigarh Bench ‘A’ 361/DEL/1998 1994-95 2 343 of 2006 Yamuna Gases and Chemicals Ltd. v. Commissioner of Income Tax, Panchkula and another 5.10.2005 Chandigarh Bench ‘A’ 420/CHANDI/2002 1996-97 3 344 of 2006 Yamuna Gases and Chemicals Ltd. v. Commissioner of Income Tax, Panchkula and another 5.10.2005 Chandigarh Bench ‘A’ 767/CHANDI/2002 1997-98 4 853 of 2008 Deepak International Ltd. v. Commissioner of Income Tax, Ludhiana and another 28.12.2007 Chandigarh Bench ‘B’ 315/CHANDI/2006 2003-04 5 854 of 2008 Deepak International Ltd. v. Commissioner of Income Tax, Ludhiana and another 28.12.2007 Chandigarh Bench ‘B’ 989/CHANDI/2007 2004-05 (M.M. KUMAR) (M.M. KUMAR) (M.M. KUMAR) (M.M. KUMAR) JUDGE JUDGE JUDGE JUDGE ( ( ( (T.P.S. MANN T.P.S. MANN T.P.S. MANN T.P.S. MANN) ) ) ) M M M March arch arch arch 30 30 30 30, 201 , 201 , 201 , 2012 2 2 2 JUDGE JUDGE JUDGE JUDGE PKapoor "