M/S. PRECISION GEARS LTD., v. THE DCIT SP. RG -1,

CO 306/MUM/2005 | 1995-1996
Pronouncement Date: 13-08-2010 | Result: Partly Allowed

Appeal Details

RSA Number 30619923 RSA 2005
Assessee PAN AAACP6442Q
Bench Mumbai
Appeal Number CO 306/MUM/2005
Duration Of Justice 5 year(s) 1 month(s) 5 day(s)
Appellant M/S. PRECISION GEARS LTD.,
Respondent THE DCIT SP. RG -1,
Appeal Type Cross Objection
Pronouncement Date 13-08-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 13-08-2010
Assessment Year 1995-1996
Appeal Filed On 08-07-2005
Judgment Text
1 CO NOS.305 & 36/MUM/2005 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI R S PADVEKAR JM & SHRI B RAMAKOTAIAH AM C.O NOS. 305 & 306/MUM/2005 ARISING OUT OF ITA NOS. 3029 & 3030/MUM/2002 (ASST YEARS 1992-93 AND 1995-06 ) M/S PRECISION GEARS LTD G-1 EVEREST APARTMNT TARDEO ROAD MUMBAI 34 VS THE DY COMMR OF INCOME TAX SPL RANGE (1)/5(2) MUMBAI (APPELLANT) (RESPONDENT) PAN AAACP6442Q ASSESSEE BY: SHRI PRAVIN D DHONE REVENUE BY: SHRI SUMIT KUMAR O R D E R PER R S PADVEKAR: IN THESE TWO CROSS OBJECTIONS THE ASSESSEE HAS RAI SED THE GRIEVANCE AGAINST THE ORDER OF THE LD CIT(A). 2 FIRST WE WILL TAKE THE CROSS OBJECTION FOR THE A Y 1992-93. 3 THE LD COUNSEL FOR THE ASSESSEE SUBMITS THAT HE I S NOT PRESSING GROUND NO.1. AS GROUND NO.1 IS NOT PRESSED THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. 4. GROUND NO.2 READS AS UNDER: THE LD CIT(A) ERRED IN HOLDING DEDUCTION OF 90% OF SERVICE CHARGES OF RS. 1 15 235/- AND ROYALTY INCOME OF `.2 37 395/- U NDER EXPLANATION(BAA) OF SEC. 80HHC FOR COMPUTATION OF P ROFITS OF THE BUSINESS. 2 CO NOS.305 & 36/MUM/2005 5.1 THE ISSUE IS IN RESPECT OF DETERMINATION OF QUA NTUM OF ADDITION U/S 80HHC; MORE PARTICULARLY THE APPLICABILITY OF EXPL ANATION (BAA) BELOW SEC. 80HHC FOR THE PURPOSE OF COMPUTATION OF PROFIT. 5.2 THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80HHC. I N THE OTHER INCOME CREDITED TO P & L ACCOUNT THE ASSESSEE HAS INCLUDE D RS. 1 15 235/- AS SERVICE CHARGES AND RS 2 37 795/- AS ROYALTY. THE A.O HAS NOTED THAT THE ROYALTY INCOME OF RS . 2.37 LACS IS RECEIVED FOR THE GOODS SUPPLIED BY TH E ASSESSEES FOREIGN ASSOCIATES TO THE BUYERS WITHIN THE TERRITORY ALLOTTED TO THE ASSESSEE COMPANY BY THE FOREIGN ASSOCIATES. THE A.O WAS OF THE OPINION THAT THE SAID RECEIPT PARTAKE THE CHARACTER OF BROKERAGE OR COMMISSION AND HENCE UNDER EXPLANATION (BAA) TO SEC. 80HHC 90% O F THE AMOUNT OF ROYALTY IS REQUIRED TO BE REDUCED FOR ARRIVING AT THE PROFI T OF THE BUSINESS. HE ACCORDINGLY REDUCED 90% OF THE ROYALTY AS WELL AS SERVICE CHARGES FOR ARRIVING AT THE PROFIT OF THE BUSINESS BY APPLYING EXPLANATION (BAA) BELOW SEC. 80HHC OF THE ACT. THE ASSESSEE CHALLENGED THE SAID ISSUE BEFORE THE LD CIT(A) BUT WITHOUT SUCCESS. 6 WE HAVE HEARD THE PARTIES. SO FAR AS THE SERVICE CHARGES ARE CONCERNED THE SAME IS DECIDED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS DR ESSERLAND INDIA P LTD (223 ITR 429) AFTER EXAMINING THE SCHEME OF SEC. 80 HHC AND ALSO REFERRING TO THE DECISION OF THE SUPREME COURT IN THE CASE OF SHRI K P RAVINDRAN NAIR (295 ITR 228) IT IS HELD THAT PROFIT INCENTIVE AND ITEM WHICH CONSTITUTE INDEPENDENT INCOME HAVE NO ELEMENT OF EXPORT TURNO VER ARE TO BE EXCLUDED TO THE EXTENT WHICH IS STIPULATED IN EXPLANATION (B AA). AS THE ISSUE OF SERVICE CHARGES IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT WE CONFIRM THE O RDER OF THE A.O ON THIS ISSUE. 3 CO NOS.305 & 36/MUM/2005 7 SO FAR AS THE ISSUE OF ROYALTY IS CONCERNED AS P ER THE FACTS NOTED BY THE A.O ROYALTY IS PAID BY THE ASSESSES FOREIGN A SSOCIATE FOR SUPPLYING THE GOODS TO THE BUYERS WITHIN THE TERRITORY ALLOTTED T O THE ASSESSEE BY FOREIGN ASSOCIATES. THERE IS NOT MUCH MORE DISCUSSION ON F ACTS PERTAINING THIS ISSUE IN THE ASSESSMENT ORDER AS WELL AS IN THE ORD ER OF THE LD CIT(A). 7.1 SO FAR AS THE FACTS ON RECORDS AND ALSO SUBMITT ED BY THE LD COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS RECEIVED THE ROY ALTY FROM HIS FOREIGN ASSOCIATES IN OUR OPINION ROYALTY HAS DIRECT NEXU S WITH THE EXPORT ACTIVITY OF THE ASSESSEE AS IT IS PART OF THE UNDERSTANDING BETWEEN THE FOREIGN ASSOCIATES AND THE ASSESSEE FOR REGULATING THEIR BU SINESS RELATIONS. IN OUR OPINION EXPLANATION (BAA) CANNOT BE APPLIED TO THE AMOUNT OF ROYALTY. AS ROYALTY HAS DIRECT NEXUS WITH THE EXPORT BUSINESS O F THE ASSESSEE WE THEREFORE DIRECT THE A.O NOT TO INCLUDE 90% OF THE AMOUNT OF ROYALTY AS PER THE FACT ON RECORD BY APPLYING EXPLANATION (BAA). A CCORDINGLY GROUND NO.2 IS PARTLY ALLOWED. 8 NOW WE WILL TAKE THE CROSS OBJECTION FOR AY 1995 -96. 9 FIRST ISSUE RELATES TO DISALLOWANCE U/S 43B OF TH E ACT IN RESPECT OF PF CONTRIBUTION (EMPLOYERS & EMPLOYEES) OF RS. 2 92 208/- AND ESI CONTRIBUTION (EMPLOYERS & EMPLOYEES) OF RS. 58 773/- AS DELAYED PAYMENTS U/S 43B. 10 WE HAVE HEARD THE PARTIES. NOW THIS ISSUE IS C OVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD (319 ITR 306). THE COPIES OF T HE ASSESSMENT ORDER AS WELL AS THE ORDER OF THE LD CIT(A) ARE NOT ON RECOR D FOR THE AY 1995-96 AND HENCE WE ARE UNABLE TO UNDERSTAND WHETHER THE SAID PAYMENTS WERE PAID BEFORE THE DUE DATE OF FILING OF RETURN. WE THERE FORE CONSIDER IT FIT TO RESTORE THIS ISSUE TO THE FILE OF THE A.O WITH A DIRECTION THAT IF THE ABOVE REFERRED 4 CO NOS.305 & 36/MUM/2005 AMOUNTS ARE DEPOSITED BY THE ASSESSEE BEFORE THE DU E DATE OF FILING OF RETURN FOR AY 1995-96 THEN THE SAME SHOULD BE ALLOWED. ACC ORDINGLY GROUND NO.1 IS ALLOWED IN ABOVE TERMS. 11 GROUND NO.2 RELATES TO DISALLOWANCE OF RS. 85 300/- BEING MACHINERY SHIFTING EXPENSES FROM GHATKOPAR TO RABALE FACTORY. 11.1 THE LD COUNSEL FOR THE ASSESSEE ARGUES THAT TH E ASSESSEE HAS EXISTING BUSINESS AND THE ASSESSEE SHIFTED THE MACHINERY FRO M DADAR TO RABALE FACTORY. IT IS PLEADED THAT THE EXPENSE IS REVENUE IN NATURE. THE LD COUNSEL ALSO RELIED ON THE FOLLOWING PRECEDENTS: I) CIT VS MADURA COATS LTD (253 ITR 62 ( MAD) II) CIT VS KARAMPURA DEV CO LTD (144 ITR 538(CAL) WE ALSO HEARD THE LD DR. 12 WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE PRINCIPLES LAID DOWN IN ABOVE TWO REFERRED DECISION S. THE ASSESSEE HAS SHIFTED THE MACHINERY FROM GHATKOPAR TO ITS RABALE FACTORY. NOWHERE IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE HAS START ED THE NEW BUSINESS; WE THEREFORE HOLD THAT THE EXPENDITURE IS REVENUE IN NATURE AND THE SAME IS TO BE ALLOWED U/S 37(1) OF THE ACT. ACCORDINGLY GROU ND NO.2 IS ALLOWED. 13 GROUND NO.3 IS IN RESPECT OF INCLUSION OF RS. 2 08 801/- BEING PROFIT IN EXCHANGE IN TOTAL TURNOVER FOR SEC. 80HHC PURPOSES. 5 CO NOS.305 & 36/MUM/2005 13.1 THE LD COUNSEL FOR THE ASSESSEE REFERRED TO TH E PAPER BOOK MORE PARTICULARLY PAGE 2 AND SUBMITS THAT THE PROFIT SHO ULD NOT HAVE BEEN INCLUDED IN THE TOTAL TURNOVER FOR THE PURPOSE OF S EC. 80HHC. IN PAGE NO.2 THE ASSESSEE HAS GIVEN THE SUMMARY OF PROFIT IN FOR EIGN EXCHANGE AS WELL AS SUMMARY OF LOSS IN FOREIGN EXCHANGE. 14 IN OUR OPINION THE A.O HAS RIGHTLY INCLUDED THE PROFIT IN THE TOTAL TURNOVER AS WELL AS EXPORT TURNOVER. WE DONT FIND ANY MERIT IN THE GROUND NO.3 AND ACCORDINGLY THE GROUND NO.3 IS DISMISSED. 15 NEXT ISSUE IS IN RESPECT OF DISALLOWANCE OF 90% EXPORT INCENTIVE OF RS.9 37 000/- RECEIVED FROM WORLD BANK UNDER EXP LANATION (BAA) OF SEC. 8HHC FOR COMPUTATION OF PROFIT OF THE BUSINESS. 15.1 THE LD COUNSEL FOR THE ASSESSEE ARGUES THAT ON LY INCENTIVE RECEIVED FROM THE GOVERNMENT OF INDIA IS REQUIRED TO BE REDU CED AT 90% UNDER EXPLANATION (BAA) TO SEC. 80HHC. IT IS ARGUED THA T THE ASSESSEE HAS RECEIVED THE SAID INCENTIVE FROM THE WORLD BANK UND ER THE EXPORT SCHEME AND HENCE 90% OF THE EXPORT INCENTIVE RECEIVED FROM THE WORLD BANK CANNOT BE EXCLUDED. WE HAVE ALSO HEARD THE LD DR. 16 AS PER THE DOCUMENTS PLACED ON RECORD BANK OF B ARODA IS THE NODAL AGENCY FOR THE IBRD FOR IMPLEMENTING THE SCHEME OF EXPORT DEVELOPMENT FUNDS (EDF). IT APPEARS THAT IBRD HAS AGREED TO GI VE ASSISTANCE UNDER EDF UP TO AN AMOUNT OF 5000 US $ TO THE ASSESSEES COMP ANY. THE ARGUMENTS OF THE LD COUNSEL FOR THE ASSESSEE IS THAT ONLY THE INCENTIVE IS COVERED IN CLAUSE (IIIA) (IIIB) (IIIC) (IIID) AND (IIIE) OF SEC. 28 AND EXCLUSION OF 90% OF THE EXPORT ASSISTANCE RECEIVED UNDER IBRD EXPORT DEVELO PMENT FUND CANNOT BE 6 CO NOS.305 & 36/MUM/2005 SUBJECT MATTER OF 90% OF THE EXCLUSION. THE RELEVAN T CLAUSES OF SEC. 28 READ AS UNDER: SEC. 28........... (IIIA) PROFITS ON SALE OF A LICENCE GRANTED UNDER THE IMP ORTS (CONTROL) ORDER 1955 MADE UNDER THE IMPORTS AND EXP ORTS (CONTROL) ACT 1947 (18 OF 1947); (IIIB ) CASH ASSISTANCE (BY WHATEVER NAME CALLED) RECEIVE D OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVT OF INDIA; (IIIC ) ANY DUTY OF CUSTOMS OR EXCISE REPAID OR REPAYABLE AS DRAWBACK TO ANY PERSON AGAINST EXPORTS UNDER THE C USTOMS AND CENTRAL EXCISE DUTIES DRAWBACK RULES 1971; (IIID) ANY PROFITS ON THE TRANSFER OF THE DUTY ENTITLEMEN T PASS BOOK SCHEME BEING THE DUTY REMISSION SCHEME UNDER THE EXPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED U/S 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT 1992 (22 OF 1992); (IIIE) ANY PROFIT ON THE TRANSFER OF THE DUTY FREE REPLEN ISHMENT CERTIFICATE BEING THE DUTY REMISSION SCHEME UNDER THE EXPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED U/S 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION )ACT 1992 22 OF 1992). 17 ADMITTEDLY THE EXPORT ASSISTANCE GIVEN TO THE A SSESSEE BY THE IBRD FROM EXPORT DEVELOPMENT FUNDS IS NOT COVERED IN ANY OF THE AMOUNT OR INCENTIVE SPECIFIC IN SECTIONS 28 (IIIA) TO (IIIE) AS THE LEGISLATURE HAS IN CLEAR TERMS PROVIDED EXCLUSION OF ITEMS IN EXPLANATION (B AA). WE HAVE TO GO WITH THE RULE OF STRICT INTERPRETATION BEING IT IS TAX S TATUTE. ACCORDINGLY WE HOLD THAT THE ASSISTANCE RECEIVED BY THE ASSESSEE UNDER IBRD UNDER EXPORT DEVELOPMENT FUND IS NOT TO BE REDUCED BY 90%. WE A CCORDINGLY DIRECT THE A.O FOR NOT REDUCING 90% OF THE SAME WHILE DETERM INING THE PROFIT OF THE BUSINESS UNDER EXPLANATION (BAA). ACCORDINGLY GROU ND NO.4 IS ALLOWED. 7 CO NOS.305 & 36/MUM/2005 18 IN THE RESULT BOTH THE CROSS OBJECTIONS FILED B Y THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON THE 13 TH DAY OF AUG 2010. SD/- SD/- ( B RAMAKOTAIAH ) ACCOUNTANT MEMBER (R S PADVEKAR ) JUDICIAL MEMBER PLACE: MUMBAI : DATED:13 TH AUG 2010 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI