CLARIANT CHEMICALS (I) LTD ( EARLIER KNOWN AS COLOUR -CHEM LTD), MUMBAI v. ADDL CIT RG 1(1), MUMBAI

ITA 1161/MUM/2010 | 2002-2003
Pronouncement Date: 08-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 116119914 RSA 2010
Assessee PAN AAACC5602P
Bench Mumbai
Appeal Number ITA 1161/MUM/2010
Duration Of Justice 1 year(s) 4 month(s) 26 day(s)
Appellant CLARIANT CHEMICALS (I) LTD ( EARLIER KNOWN AS COLOUR -CHEM LTD), MUMBAI
Respondent ADDL CIT RG 1(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 08-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 08-07-2011
Date Of Final Hearing 28-06-2011
Next Hearing Date 28-06-2011
Assessment Year 2002-2003
Appeal Filed On 12-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI BEFORE SHRI R V EASWAR PRESIDENT AND SHRI B RAMAKOTAIAH ACCOUNTANT MEMBER I T A NO: 1161/MUM/2010 (ASSESSMENT YEAR: 2002-03) CLARIANT CHEMICALS (INDIA) LIMITED MUMBAI APPELL ANT (EARLIER KNOWN AS COLOUR CHEM LIMITED) (PAN: AAACC5602P) VS ADDITIONAL COMMISSIONER OF INCOME TAX RESPONDENT RANGE 1(1) MUMBAI ASSESSEE BY: MR FARROKH IRANI REVENUE BY: MR JITENDRA YADAV O R D E R R V EASWAR PRESIDENT: THIS APPEAL FILED BY THE ASSESSEE RELATES TO THE A SSESSMENT YEAR 2002-03. THE ASSESSEE IS A COMPANY ENGAGED IN THE MANUFACTURE AND SALE OF PIGMENTS CHEMICALS CHEMIC AL INTERMEDIATES DYESTUFFS FOR TEXTILES LAMINATING A DHESIVES ETC. THE APPEAL ARISES OUT OF THE ASSESSMENT ORDER PASSED UN DER SECTION 143(3) OF THE INCOME TAX ACT 1961 ON 23.03.2005. 2. THE FIRST GROUND RELATES TO THE DISALLOWANCE OF ` 1 25 000/- SUSTAINED BY THE CIT(A) OUT OF THE ADHOC DISALLOWAN CE OF ` 5 00 000/- MADE BY THE ASSESSING OFFICER IN RESPECT OF GENERAL AND STAFF EXPENSES. THIS GROUND IS COVERED BY THE ORDER DATED 30.09.2010 PASSED BY THE TRIBUNAL MUMBAI BENCH IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1998-9 9 TO 2001- 2002 IN ITA NOS: 169 2551 2499 AND 6727/MUM/2005. A COPY OF ITA NO: 1161/MUM/2010 2 THE SAID ORDER HAS BEEN FILED BEFORE US. IN PARAGR APH 4 THE TRIBUNAL HAS HELD THAT 25% OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER MAY BE SUSTAINED. RESPECTFULLY F OLLOWING THE SAME WE HOLD THAT THE DISALLOWANCE OF ` 1 25 000/- SUSTAINED BY THE CIT(A) OUT OF THE DISALLOWANCE OF ` 5 00 000/- MADE BY THE ASSESSING OFFICER SEEMS TO BE IN ORDER. THE DISALL OWANCE IS ACCORDINGLY SUSTAINED AND THE GROUND IS DISMISSED. 3. GROUND NOS: 2 AND 3 ARE DIRECTED AGAINST THE DIS ALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT 1961. OBJ ECTION IS ALSO TAKEN TO THE ENHANCEMENT MADE BY THE CIT(A). THE D ISALLOWANCES WERE THE SUBJECT MATTER OF APPEAL IN THE YEARS IN W HICH THE TRIBUNAL PASSED THE ORDER (SUPRA). IN THE SAID ORDER IN PA RAGRAPHS 5 AND 6 THEREOF THE TRIBUNAL HAS HELD FOLLOWING THE JUDGM ENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE M FG. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM) THAT THE MATTER M AY BE RE- DECIDED BY THE ASSESSING OFFICER FOR DECIDING THE Q UANTUM OF DISALLOWANCE AS PER THE GUIDELINES LAID DOWN IN THE SAID JUDGMENT AND AFTER ALLOWING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAID ORDER W E RESTORE THE MATTER TO THE ASSESSING OFFICER WITH THE SAME DIREC TIONS AND ALLOW THE GROUNDS FOR STATISTICAL PURPOSES. 4. GROUND NO:4 IS DIRECTED AGAINST THE ADJUSTMENT O F ` 44 55 583/- MADE ON ACCOUNT OF UNUTILIZED MODVAT CR EDIT IN COMPUTING THE BUSINESS INCOME. THIS ISSUE STANDS C OVERED BY PARAGRAPH 13 OF THE AFORESAID ORDER OF THE TRIBUNAL . IN THE SAID PARAGRAPH THE TRIBUNAL HAS FOLLOWING ITS EARLIER O RDER DATED ITA NO: 1161/MUM/2010 3 27.08.2010 IN ITA NO: 1272/MUM/2007 RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH IN ACCORDANCE WITH THE DIRECTIONS CONTAINED IN THE ORD ER OF THE TRIBUNAL DATED 27.08.2010. RESPECTFULLY FOLLOWING THE SAID ORDER WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE SAME DIRECTIONS. THE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 5. GROUND NO:5 RELATES TO THE SHORT DEDUCTION UNDER SECTION 80- IB IN RESPECT OF NEW GREEN PLANT BY EXCLUDING THE D UTY DRAWBACK OF ` 126.32 LAKHS IN COMPUTING THE PROFITS. THE ASSESSE ES CONTENTION IS THAT THE DUTY DRAWBACK SHOULD NOT HAVE BEEN EXCL UDED. THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY PARAGRAPH 10 OF THE ORDER OF THE TRIBUNAL DATED 30.09.2010 (SUPRA). THE TRIB UNAL HAS HELD THAT THE DUTY DRAWBACK WAS RIGHTLY EXCLUDED IN COMP UTING THE PROFITS FOR PURPOSES OF SECTION 80-IB FOLLOWING THE JUDGME NT OF THE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. VS. CIT (2009) 317 ITR 218 (SC). RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL WE DECIDE THE GROUND AGAINST THE ASSESSEE AND DISMISS THE SAME. 6. GROUND NO:6 RELATES TO THE COMPUTATION OF THE DE DUCTION UNDER SECTION 80HHC OF THE ACT. THE GROUND IS IN T WO PARTS. THE FIRST PART RELATES TO THE INTEREST RECEIPT OF ` 1 34 39 260/- THE CONTENTION BEING THAT THE INTEREST RECEIPT SHOULD B E NETTED AGAINST THE INTEREST PAYMENT OF ` 31 95 000/- AND ONLY THE NET RECEIPT SHOULD BE EXCLUDED UNDER EXPLANATION (BAA) BELOW SE CTION 80HHC OF THE ACT. THIS ISSUE IS TO BE DECIDED AGAINST TH E ASSESSEE RESPECTFULLY FOLLOWING THE JUDGMENT OF THE BOMBAY H IGH COURT IN CIT VS. ASIAN STAR CO. LTD. (2010) 326 ITR 56 (BOM) WH ERE THE ITA NO: 1161/MUM/2010 4 PRINCIPAL OF NETTING HAS NOT BEEN ACCEPTED. ACCORD INGLY WE UPHOLD THE ACTION OF THE DEPARTMENTAL AUTHORITIES. 7. THE SECOND PART OF THE GROUND RELATES TO THE SER VICE CHARGES OF ` 54 77 559/- RECOVERED FROM DYSTAR INDIA LIMITED. T HE BRIEF FACTS IN THIS CONNECTION MAY BE NOTED. THE ASSESSE E WHILE COMPUTING THE DEDUCTION TOOK INTO ACCOUNT THE AFOR ESAID RECEIPT OF SERVICE CHARGES WITHOUT EXCLUDING 90% OF THE SAME A S PER EXPLANATION (BAA) BELOW SECTION 80HHC. ACCORDING T O THE ASSESSING OFFICER 90% OF THE SERVICE CHARGES OUGHT TO HAVE BEEN REDUCED IN ACCORDANCE WITH THE MANDATE OF THE ABOVE EXPLANATION. THE CIT(A) AGREED WITH THE ASSESSING OFFICER AND HE NCE THE PRESENT GROUND. 8. WE HAVE CONSIDERED THE FACTS AND THE RIVAL CONTE NTIONS. THE SERVICE CHARGES WERE SEPARATELY CREDITED TO THE PRO FIT AND LOSS ACCOUNT. ACCORDING TO THE ASSESSEE THEY REPRESENT THE RECOVERY MADE FROM DYSTAR INDIA LIMITED TOWARDS CERTAIN EXPE NSES FOR THE COMMON SERVICES RENDERED TO THEM. THE CONTENTION I S THAT THE RECOVERY OF THE SERVICE CHARGES WILL REDUCE THE ASS ESSEES EXPENSES AND THEREFORE IS NOT REALLY IN THE NATURE OF AN INDEPENDENT INCOME THOUGH IT IS SEPARATELY CREDITED TO THE PROF IT AND LOSS ACCOUNT. IT IS CONTENDED THAT THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. DRESSER RAND INDIA (P) LTD. ( 2010) 232 CTR (BOM) 52 WILL NOT APPLY TO THE PRESENT CASE. IN TH AT CASE THE HONBLE BOMBAY HIGH COURT EXPLAINED THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS. RAVINDRANATHAN NAIR (2007) 295 ITR 228 (SC) AND HELD THAT ANY RECEIPT NOT HAVI NG NEXUS WITH ITA NO: 1161/MUM/2010 5 THE EXPORTS SHOULD BE REDUCED TO THE EXTENT OF 90% AS PER EXPLANATION (BAA)(1) BELOW SECTION 80HHC. THE ASSE SSEES FURTHER CONTENTION IS THAT THE LATER JUDGMENT OF THE HONBL E BOMBAY HIGH COURT IN THE CASE OF CIT VS. PFIZER LTD. (2010) 233 CTR (BOM) 521 SUPPORTS THE ASSESSEES CONTENTION. IN THIS CASE I T HAS BEEN HELD THAT THERE IS NO NEED FOR A NEXUS BETWEEN THE RECEI PT AND THE EXPORT TURNOVER IN ORDER THAT THE RECEIPT MAY QUALIFY FOR THE DEDUCTION. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE SERVICE CHARGES WERE NOT INDEPENDENT INCOME OF THE ASSESSEE AND IT HAD NO NEXUS WITH THE EXPORTS AND SINCE SUCH A NEXUS HA S NOT BEEN HELD TO BE ESSENTIAL IN THE CASE OF PFIZER LTD. (S UPRA) THE RECEIPT QUALIFIES FOR THE DEDUCTION. IT IS FURTHER SUBMITT ED THAT THE RECEIPT REPRESENTS OPERATIONAL INCOME IN THE SENSE THAT IT REPRESENTS SERVICE CHARGES RECOVERED FROM DYSTAR INDIA LIMITED WHICH IS PART OF THE OPERATIONS INCIDENTAL TO THE ASSESSEES BUSI NESS. IT IS CONTENDED THAT ON THIS BASIS THE EARLIER ORDER OF T HE TRIBUNAL DATED 30.09.2010 IN WHICH THE TRIBUNAL HAS DECIDED THIS I SSUE AGAINST THE ASSESSEE SHOULD NOT BE GIVEN EFFECT TO. 9. IN PARAGRAPH 14 OF THE ORDER OF THE TRIBUNAL DAT ED 30.09.2010 IT HAS BEEN HELD FOLLOWING THE JUDGMEN T OF THE SUPREME COURT IN THE CASE OF RAVINDRANATHAN NAIR (S UPRA) THAT PROCESSING CHARGES BEING INDEPENDENT INCOME ARE LIA BLE TO BE REDUCED TO THE EXTENT OF 90% FROM THE PROFITS OF TH E BUSINESS IN ACCORDANCE WITH EXPLANATION (BAA)(1). THE QUESTION NOW IS WHETHER THERE IS ANYTHING IN THE JUDGMENT OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF PFIZER LTD. (SUPRA) WHIC H SHOWS THAT THE ITA NO: 1161/MUM/2010 6 VIEW TAKEN BY THE TRIBUNAL IN THE ASSESSEES OWN CA SE REQUIRES RECONSIDERATION. OUR ATTENTION WAS DRAWN BY THE LE ARNED COUNSEL FOR THE ASSESSEE TO THE OBSERVATIONS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PFIZER LTD. (SUPRA) TO THE EFF ECT THAT THE RATIONALE FOR EXCLUDING 90% OF THE RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT OR CHARGES IS THAT THESE ARE INDEPENDENT INCOMES AND THEIR INCLUSION IN THE PROFITS OF THE B USINESS WOULD RESULT IN A DISTORTION. OUR ATTENTION WAS ALSO DRA WN TO THE OBSERVATIONS TO THE EFFECT THAT THERE IS NO NEED FO R ANY NEXUS BETWEEN THE RECEIPT AND THE EXPORT TURNOVER IN ORDE R THAT THE RECEIPT MAY QUALIFY FOR THE DEDUCTION. IT HAS BEEN OBSERVE D BY THE HONBLE BOMBAY HIGH COURT THAT THE REFERENCE TO EXPORT TURN OVER IS MADE IN THE FORMULA PRESCRIBED UNDER SUB-SECTION (3) OF SEC TION 80HHC ON THE BASIS OF WHICH THE EXPORT PROFITS OF THE BUSINE SS HAVE TO BE ASCERTAINED AS THE SAME PROPORTION IN WHICH THE EXP ORT TURNOVER BEARS TO THE TOTAL TURNOVER. THE HONBLE HIGH COUR T HAS FURTHER OBSERVED THAT THE ELEMENT OF EXPORT TURNOVER IS A F ACET WHICH HAS BEEN TAKEN CARE OF BY THE LEGISLATURE IN THE APPLIC ATION OF THE FORMULA AND THEREFORE ONE CANNOT IMPORT THE SAME RE QUIREMENT AGAIN WHILE EXCLUDING ANY ITEM OF RECEIPT TO THE EX TENT OF 90% IN ACCORDANCE WITH EXPLANATION (BAA)(1). 10. HAVING CONSIDERED THE MATTER CAREFULLY AND RESP ECTFULLY IN THE LIGHT OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH CO URT IN THE CASE OF PFIZER LIMITED (SUPRA) WE ARE OF THE VIEW THAT THE SAID JUDGMENT IS NOT OF ANY ASSISTANCE TO THE ASSESSEE IN THE PRE SENT CASE. THE LEARNED DR RIGHTLY POINTED OUT THAT THE RATIO OF TH E JUDGMENT IS ITA NO: 1161/MUM/2010 7 CONTAINED IN PARAGRAPH 11. THAT WAS A CASE OF AN I NSURANCE CLAIM MADE WITH REFERENCE TO STOCK-IN-TRADE. ACCORDING T O THE JUDGMENT IF THE STOCK-IN-TRADE HAD BEEN SOLD THE SALE PROCEEDS WOULD CONSTITUTE PROFITS OF THE BUSINESS COMPUTED UNDER T HE HEAD PROFITS AND GAINS OF BUSINESS. ONCE IT BECOMES PART OF TH E PROFITS AND GAINS OF BUSINESS IT CANNOT BE TAKEN OUT TO THE EX TENT OF 90% FOR THE SIMPLE REASON THAT IT DOES NOT CONSTITUTE A REC EIPT OF A NATURE SIMILAR TO BROKERAGE OR COMMISSION OR INTEREST OR R ENT OR CHARGES. THE INSURANCE CLAIM RECEIVED BY THE ASSESSEE IT WA S HELD MUST STAND ON THE SAME FOOTING AS THE INCOME THAT WOULD HAVE BEEN REALIZED BY THE ASSESSEE ON THE SALE OF STOCK-IN-TR ADE. IT WAS IN THIS VIEW OF THE MATTER THAT IT WAS HELD THAT THE INSURA NCE CLAIM RECEIVED ON ACCOUNT OF STOCK-IN-TRADE DOES NOT CONSTITUTE AN INDEPENDENT INCOME OR A RECEIPT OF A NATURE SIMILAR TO BROKERAG E COMMISSION ETC. IN THE LIGHT OF THIS RATIO IF WE EXAMINE THE PRESENT CASE IT MAY BE SEEN THAT THE RECEIPT BY WAY OF RECOVERY OF SERV ICE CHARGES IS AN INDEPENDENT RECEIPT WHICH HAS NOTHING TO DO WITH TH E PROFITS OF THE BUSINESS AS ONE WOULD NORMALLY UNDERSTAND. IT MAY BE THAT THE SERVICE CHARGES WERE NOT REQUIRED TO HAVE ANY NEXUS WITH THE EXPORT TURNOVER. FOR THAT REASON ALONE THE APPLICA TION OF EXPLANATION (BAA) CANNOT BE AVOIDED BECAUSE THE MAI N REQUIREMENT THAT THE SERVICE CHARGES SHOULD FORM PART OF THE PR OFITS OF THE BUSINESS OF THE ASSESSEE AND SHOULD NOT BE AN INDEP ENDENT INCOME IS NOT SATISFIED IN THE PRESENT CASE. IT IS AN INDEPENDENT RECEIPT AND IS OF A SIMILAR NATURE AS BROKERAGE CO MMISSION INTEREST ETC. MENTIONED IN EXPLANATION (BAA). THE FACTS OF THE ITA NO: 1161/MUM/2010 8 PRESENT CASE ARE MORE AKIN TO THE FACTS IN DRESSER RAND INDIA (P) LTD. (SUPRA) THAN PFIZER LTD. (SUPRA). 11. FOR THESE REASONS WE DO NOT SEE ANY JUSTIFICATI ON TO DEPART FROM THE EARLIER ORDER OF THE TRIBUNAL RENDERED IN THE ASSESSEES OWN CASE. WE ACCORDINGLY CONFIRM THE ACTION OF THE DEPARTMENTAL AUTHORITIES IN EXCLUDING THE SERVICE CHARGES OF ` 54 77 559/- WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE GROUND IS THUS DISMISSED. 12. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JULY 2011. SD/- SD/- (B RAMAKOTAIAH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI DATED 8 TH JULY 2011 SALDANHA COPY TO: 1. CLARIANT CHEMICALS (INDIA) LIMITED 194 RAVINDRA ANNEXE CHURCHGATE RECLAMATION DINSHAW VACHHA ROAD MUMBAI 400 020 2. ADDL. CIT RANGE 1(1) MUMBAI 3. CIT-1 MUMBAI 4. CIT(A)-15 MUMBAI 5. DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI