Bhavna Electric Industries,, JAMNAGAR v. The Income Tax Officer, Ward-1(3),, JAMNAGAR

ITA 1213/RJT/2009 | 1997-1998
Pronouncement Date: 10-12-2010 | Result: Allowed

Appeal Details

RSA Number 121324914 RSA 2009
Assessee PAN AACFB0540Q
Bench Rajkot
Appeal Number ITA 1213/RJT/2009
Duration Of Justice 11 month(s) 9 day(s)
Appellant Bhavna Electric Industries,, JAMNAGAR
Respondent The Income Tax Officer, Ward-1(3),, JAMNAGAR
Appeal Type Income Tax Appeal
Pronouncement Date 10-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 10-12-2010
Assessment Year 1997-1998
Appeal Filed On 31-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI D.T. GARASIA (JM) I.T.A. NO.1213/RJT/2009 (ASSESSMENT YEAR 1997-98) BHAVNA ELECTRIC INDUSTRIES VS ITO WD.1(3) 485/1 GIDC STU JAMNAGAR JAMNAGAR PAN : AACFB0540Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PM MAHARSHI RESPONDENT BY : SHRI JAI RAJ KUMAR O R D E R GARASIA : THIS APPEAL BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF CIT(A) JAMNAGAR FOR THE ASSESSMENT YEAR 1997-98. 2. THERE ARE AS MANY AS FIVE GROUNDS RAISED BY THE ASSESSEE. THE FIRST GROUND IS GENERAL IN NATURE AND DOES NOT REQUIRE AN Y ADJUDICATION. GROUNDS 2 TO 4 PERTAIN TO COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT AND IN FACT THIS IS THE SOLE EFFECTIVE ISSUE IN THESE GROUNDS. GROUND 5 PE RTAINS TO INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT AND THERE BEIN G NO PENALTY LIES AGAINST THE INITIATION OF PENALTY PROCEEDINGS THIS GROUND NO.5 IS REJECTED. 3. WITH REGARD TO THE ISSUE OF COMPUTATION OF DEDUC TION U/S 80HHC THE BRIEF FACTS ARE THAT THE ASSESSEE A PARTNERSHIP FIRM ENG AGED IN EXPORTING TRADED GOODS HADE CLAIMED DEDUCTION U/S 80HHC OF THE ACT I N ITS RETURN OF INCOME AT RS. 18 06 118. AN ASSESSMENT U/S 143(3) WAS FRAMED ON 31-10-2000 WHEREIN DEDUCTION U/S 80HHC WAS DISALLOWED TO THE EXTENT OF RS.12 63 412 FROM THE CLAIM OF RS.18 06 118. ON APPEAL THE CIT(A) CONFI RMED THE ACTION OF THE ASSESSING OFFICER. ON FURTHER BY THE ASSESSEE THE ITAT VIDE ORDER DATED 24-03- 2006 SET AIDE THE ASSESSMENT WITH A DIRECTION TO RE WORK DEDUCTION U/S 80HHC OF ITA NO.1213/RJT/2009 2 THE ACT AFTER TAKING INTO CONSIDERATION THE DECISIO N OF HONBLE GUJARAT HIGH COURT IN CASE OF INDIA GELATIN & CHEMICALS LTD 275 ITR 28 4 (GUJ) RETROSPECTIVE AMENDMENT IN SECTION 80HHC OF THE ACT BY TAXATION L AWS (AMENDMENT) ACT 2005 AND TWO DECISIONS OF THE TRIBUNAL IN CASE OF M /S RANG INTERNATIONAL 91 ITD 499(AHD) AND MUMBAI SPECIAL BENCH IN THE CASE OF M/ S SURENDRA ENGG CORPORATION 86 ITD 121 (MUM)(SB). THUS THE IMPUGN ED ASSESSMENT IS MADE BY THE ASSESSING OFFICE VIDE ORDER U/S 143(3) R.W.S . 254 DATED 19-02-2007. IN THE REVISED ASSESSMENT FRAMED THE ASSESSING OFFICER RE -WORKED THE COMPUTATION OF DEDUCTION U/S 80HHC. HE FOUND THAT THE ASSESSEE HA S CLAIMED THAT INTEREST TO PARTNERS OF RS.5 55 000 AND REMUNERATION TO PARTNER OF RS.1 84 000 WERE NOT INDIRECT COST ATTRIBUTABLE TO EXPORT OF GOODS. THE ASSESSING OFFICER HOWEVER WHILE DISAGREEING WITH THE SUBMISSION OF THE ASSESS EE WORKED OUT THE INDIRECT COST OF TRADING GOODS RS.3 03 827 AS AGAINST WORKED OUT BY THE ASSESSEE AT RS.73 892. WHILE DOING SO THE ASSESSING OFFICER H AS ALSO TAKEN INTO CONSIDERATION INTEREST AND SALARY PAYMENTS TO PARTN ERS AS INDIRECT COSTS ATTRIBUTABLE TO EXPORT PROFIT. MATTER CARRIED TO CIT(A) AND CIT(A) HAS CONFIRMED THE SAME. 4. THE LD. AR SUBMITTED THAT ASSESSEE IS A TRADER E XPORTER AND CLAIMED DEDUCTION U/S 80HHC. THE METHOD OF DEDUCTION IN CA SE OF A TRADER EXPORTER IS TO REDUCE THE DIRECT COST AND PROPORTIONATE INDIRECT C OST FROM FOB VALUE OF GOODS EXPORTED IF THEY ARE ATTRIBUTABLE TO EXPORT OF TRA DED GOODS. THE ASSESSEE HAS PAID INTEREST AND REMUNERATION TO PARTNERS AND THEY DO NOT ENTER FOR REDUCTION AS INDIRECT COST. THE INDIRECT COST IS DEFINED IN CLA USE (E) OF EXPLANATION TO SECTION 80HHC AS COSTS NOT BEING DIRECT COST ALLOCATED IN THE RATIO OF EXPORT TURNOVER IN RESPECT OF TRADING GOODS TO THE TOTAL TURNOVER. T HE ASSESSEE SUBMITTED THAT INTEREST AND REMUNERATION TO PARTNERS IS A MODE OF SHARING OF PROFIT OF BUSINESS ANDE THEREFORE THEY ARE NOT COST AND THEY SHOULD NO T FORM PART OF INDIRECT COST TO BE REDUCED FROM FOB VALUE OF TRADED GOODS EXPORTED. THE CIT(A) IS NOT JUSTIFIED IN HOLDING THAT ASSESSEE GETS DOUBLE DEDUCTION IF T HE SALARY AND INTEREST TO PARTNERS IS NOT CONSIDERED AS INDIRECT COST FOR MAK ING OUT DEDUCTION U/S 80HHC OF ITA NO.1213/RJT/2009 3 THE ACT. THE DEDUCTION OF SALARY AND INTEREST IS G RANTED AS DEDUCTION FROM BUSINESS INCOME AND 80HHC DEDUCTION IS GRANTED FROM GROSS TOTAL INCOME. THEREFORE THERE IS NO CHANCE OF GETTING THE DOUBLE DEDUCTION. 5. ON THE OTHER HAND THE LD.DR RELIED UPON THE ORD ERS OF REVENUE AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. ON A CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS AND ON PERUS AL OF THE RECORDS WE ARE IN AGREEMENT WITH THE CONTENTIONS OF THE LD.AR OF THE ASSESSEE THAT INTEREST AND SALARY PAID TO PARTNERS U/S 40(B) OF THE ACT SHOULD NOT FORM PART OF INDIRECT COST ATTRIBUTABLE TO THE EXPORT BUSINESS OF THE ASSESSEE . WE FIND THAT THE INTEREST AND REMUNERATION PAID TO PARTNERS ARE NOT INDIRECT COST BUT THEY ARE A MODE OF SHARE OF PROFIT AS HAS BEEN HELD IN THE CASE OF CIT VS RM CHIDAMBARAM PILLAI 106 ITR 292 (SC). SIMILARLY IN THE CASE OF GLAXO SMITHKLIN 3E LTD VS ACIT 6 SOT 113 (DEL) THE DELHI BENCH C OF THE TRIBUNAL HELD AS F OLLOWS: FROM A HARMONIOUS READING OF DEFINITION OF INDIRE CT COST IN EXPLN.(E) BELOW SUB-S.(3) OF S.80HHC AND CL.(B) OF THAT SECTION IT WOULD BE APPRECIATED THAT ONLY INDIRECT COST ATTRIB UTABLE TO THE EXPORT IS TO BE REDUCED FOR COMPUTING DEDUCTION FRO M EXPORT OF TRADING GOODS. EXPLANATION (E) TO SUB-S.(3) OF S.8 0HHC CANNOT OVERRIDE THE PROVISION OF CL.(B) OF S.80HHC(3). FO R THE PURPOSE OF COMPUTING DEDUCTION UNDER S.80HHC INDIRECT COSTS RE LATED TO THE EXPORT OF TRADING GOODS IS TO BE APPORTIONED AND NO T ALL COSTS OTHER THAN DIRECT COSTS HAVE TO BE PRORATED TO ARRIVE AT THE INDIRECT COSTS THAT HAVE TO BE REDUCED. IT IS ONLY THOSE COSTS WH ICH HAVE SOME RELATION TO THE EXPORT OF TRADING GOODS THAT NEED T O BE ALLOCATED. THE AO IS THEREFORE DIRECTED TO RECOMPUTED THE DE DUCTION UNDER S.80HHC IN RESPECT OF TRADING GOODS BY EXCLUDING FR OM THE INDIRECT EXPENSES SUCH EXPENSES NOT RELATED TO THE EXPORT O F TRADING GOODS. WE ALSO FIND THAT IN ANOTHER DECISION BY THE DELHI BENCH A IN THE CASE OF MMTC LTD VS JCIT 112 TTJ (DEL) 15 THE BENCH HELD THAT I NTEREST EXPENDITURE WHICH IS NOT ATTRIBUTABLE TO EXPORT OF TRADING GOODS CANNOT BE APPORTIONED WHILE WORKING OUT INDIRECT COST OF EXPORT OF SUCH GOODS FOR COMPU TING DEDUCTION U/S ITA NO.1213/RJT/2009 4 80HHC(3)(B). IN VIEW OF THESE LEGAL POSITION WE R ESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS HOLD THAT INTEREST AND REMUNERATION PAID TO PARTNERS U/S 40(B) OF THE ACT IS NOT INDIRECT COST ATTRIBUTABLE TO EXPORT BUS INESS OF THE ASSESSEE AND THEREFORE THE SAME SHOULD NOT BE CONSIDERED AS IND IRECT COST WHILE COMPUTING DEDUCTION U/S 80HHC OF THE ACT. THE ORDERS OF AUTH ORITIES BELOW ON THIS ISSUE ARE THEREFORE SET ASIDE AND THE ASSESSING OFFICER I S DIRECTED TO TAKE THE INDIRECT COST AT RS.73 892 AS SHOWN BY THE ASSESSEE AND RECO MPUTE THE DEDUCTION U/S 80HHC OF THE ACT IN ACCORDANCE WITH LAW. 7. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10-12-2010 SD/- SD/- (A.L. GEHLOT) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DT : 10 TH DECEMBER 2010 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) JAMNAGAR 4. THE CIT JAMNAGAR 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT RAJKOT