M/S. FIRESTONE TRADING PVT. LTD, MUMBAI v. THE ITO WD 5(1)(4), MUMBAI

ITA 2338/MUM/2008 | 2002-2003
Pronouncement Date: 30-04-2010 | Result: Allowed

Appeal Details

RSA Number 233819914 RSA 2008
Assessee PAN AAACE3313J
Bench Mumbai
Appeal Number ITA 2338/MUM/2008
Duration Of Justice 2 year(s) 26 day(s)
Appellant M/S. FIRESTONE TRADING PVT. LTD, MUMBAI
Respondent THE ITO WD 5(1)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 30-04-2010
Date Of Final Hearing 15-04-2010
Next Hearing Date 15-04-2010
Assessment Year 2002-2003
Appeal Filed On 04-04-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH MUMBAI. BEFORE S/SHRI S.V.MEHROTRA AM & N.V.VASUDEVAN JM I.T.A. NO. 2338 /MUM/2008 ASSESSMENT YEAR: 2002-03 FIRESTONE TRADING PVT.LTD. V. THE I.T.O. WARD 5( 1)(4) 1110 PRASAD CHAMBERS OPERA HOUSE MUMBAI MUMBAI-04. PA NO.AAACE 3313 J (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SANJEEV M.SHAH REVENUE BY : SHRI VIRENDRA OJHA O R D E R PER S.V.MEHROTRA AM THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 3.1.2008 OF LD CIT (A)-V MUMBAI FOR THE ASSESSMENT YEAR 2002. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IN THE RELEVANT ASSESSMENT YEAR WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF DIAMONDS. THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 80 HHC OF RS.21 06 543/-. T HE ASSESSING OFFICER NOTICED FROM THE PROFIT AND LOSS ACCOUNT AND DETAILED WORKING OF THE DEDUCTION U/S. 80 HHC THAT DURING THE PREVIOUS YEAR THE ASSESSEE CARRIED OUT BUSINE SS OF TRADING IN LICENSE TRANSFER PREMIUM (RESALE ACCOUNT) WHERE IT HAD SUFFERED A LO SS OF RS.11 52 596/-. THUS THE PROFITS OF BUSINESS CONSIDERED FOR THE WORKING OUT THE DEDUCTION WAS ARRIVED AT RS.26 44 537/- AFTER SETTING OFF THE LOSS SUFFERED IN TRADING OF LICENSE TRANSFER PREMIUM OF RS.11 52 596/-. THE AO WAS OF THE OPINION THAT THE SAME HAD TO BE SET OFF FROM THE PROFITS OF THE TRADING OF EXPORT BUSINESS OF RS.31 79 342/- AS PER THE TAX AUDIT REPORT. ITA NO.2338/M/2008 M/S. FIRESTONE TRADING P. LTD. 2 THEREFORE HE ISSUED NOTICE TO THE ASSESSEE AND AFT ER CONSIDERING THE DETAILED SUBMISSIONS AS REPRODUCED AT PAGES 2 & 3 OF THE ORDER APPLIED THE PROVISIONS OF SECTION 70(1) OF THE ACT AND DETERMINED THE PROFIT IN TRADING OF EXPORT AT RS.20 26 746/-(RS.31 79 342 RS.11 52 596/-). HE ACCORDINGLY RECOMPUTED THE E LIGIBLE DEDUCTION U/S. 80 HHC OF THE ACT AT RS.17 88 932/-. 3. LD CIT (A) THOUGH NOT AGREEING WITH THE ASSESSIN G OFFICERS MODE OF COMPUTATION ISSUED ENHANCEMENT NOTICE TO THE ASSES SEE TO TREAT THE UNUTILIZED VALUE OF DEPB TO THE TUNE OF RS.65 43 094/- AS ASSESSEES IN COME. HE RELIED ON THE DECISION DATED 31.12.2007 OF THE ITAT IN THE CASE OF M/S. SH REEJI INDIA EXPORTS V ACIT (ITA NO.6092/M/06) WHEREIN THE DECISION OF ITAT MUMBAI IN THE CASE OF GLENMARK LAB LTD (ITA NO.5979/M/06) HAD BEEN FOLLOWED WHEREIN IT W AS INTER ALIA HELD THAT ONLY PROFIT ELEMENT HAS TO BE TAKEN FOR THE PURPOSE OF ALLOWANC E OR DISALLOWANCE UNDER THE AMENDED PROVISIONS OF SECTION 80 HHC. BEING AGGRIEVED WITH THE ORDER OF LD CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE AMENDED GROUNDS OF APPEAL RAISED BY THE ASSE SSEE READ AS UNDER:- 1. ON FACTS AND IN LAW THE LD CIT (A) ERRED IN N OT DIRECTING THE AO TO ALLOW DEDUCTION U/S. 80 HHC IN RESPECT OF TRADING G OODS EXPORTED AT A SUM OF RS.31 79 342/- AS CLAIMED BY THE APPELLANT. UND ER THE FACTS AND CIRCUMSTANCES OF THE MATTER HE OUGHT TO HAVE DIREC TED THE AO TO ALLOW DEDUCTION U/S. 80 HHC IN RESPECT OF TRADING GOODS E XPORTED AT A SUM OF RS.31 79 342/- AS CLAIMED BY THE APPELLANT. 2. ON FACTS AND IN LAW THE LD CIT (A) FAILED TO AP PRECIATE THAT RS.11 52 596/-BEING THE LOSS SUFFERED BY THE APPELL ANT IN THE LOCAL TRADING HAD ALREADY BEEN DEBITED BY THE APPELLANT TO ITS PR OFIT AND LOSS ACCOUNT THEREBY REDUCING ITS PROFIT OF THE BUSINESS AND CON SEQUENTLY THE DEDUCTION ADMISSIBLE U/S. 80 HHC. UNDER THE FACTS AND CIRCUM STANCES OF THE MATTER IF THE DEDUCTION ADMISSIBLE U/S. 80 HHC AS PER CLAU SE (B) OF SUB-SECTION(3) OF SECTION 80 HHC IS FURTHER REDUCED BY THE SAID SU M OF RS.11 52 596/- IT WILL TANTAMOUNT TO DOUBLE REDUCTION WHICH IS NOT SU STAINABLE IN THE EYES OF LAW. 3. ON FACTS AND IN LAW THE LD CIT (A) ERRED IN ENH ANCING THE TOTAL INCOME OF THE APPELLANT BY RS.65 43 -04/- WITHOUT APPRECIA TING THE FACTS OF THE CASE. ITA NO.2338/M/2008 M/S. FIRESTONE TRADING P. LTD. 3 5. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUND OF APPEAL AS UNDER:- ON FACTS AND IN LAW THE LD CIT (A) ERRED IN NOT D IRECTING THE AO TO DELETE THE INTEREST CHARGED U/S.234D AT A SUM OF RS.13 153 /-. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER HE OUGHT TO HAVE DIREC TED THE AO NOT TO CHARGE ANY INTEREST U/S.234D. 6. HAVING HEARD BOTH THE PARTIES WE ARE OF THE CON SIDERED OPINION THAT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS PURELY LEGAL IN NA TURE AND THEREFORE DESERVE TO BE ADMITTED. WE ACCORDINGLY ADMIT THE SAME. 7. LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE A SSESSEE A DIAMOND EXPORTER IS BOTH A TRADER AS WELL AS MANUFACTURER. HE POINTED OUT THAT THE ASSESSEE HAD PURCHASED LICENCES IN EARLIER YEARS AT A PREMIUM AND IN THE R ELEVANT ASSESSMENT YEAR SOLD IT AT LOSS. HE POINTED OUT THAT THIS ACTIVITY HAD NOTING TO DO WITH THE EXPORT AND ON THIS COUNT THERE IS NO DISPUTE. LD COUNSEL REFERRED TO PROVISIONS O F SECTION 80 HHC(3)(C) (II) WHICH READS AS UNDER:- FOR THE PURPOSES OF SECTION (1)- (A). (B). (C) WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR ME RCHANDISE MANUFACTURED (OR PROCESSED) BY THE ASSESSEE AND OF TRADING GOODS TH E PROFITS DERIVED FROM SUCH EXPORT SHALL- (I). (II) IN RESPECT OF TRADING GOODS BE THE EXPORT TUR NOVER IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT AND INDIRECT COSTS A TTRIBUTABLE TO EXPORT OF SUCH TRADING GOODS. 8. HE POINTED OUT THAT IN THE SECTION NO MECHANISM HAS BEEN PRESCRIBED FOR DEDUCTION OF LOCAL TRADING LOSS. LD COUNSEL SUBMIT TED THAT SECTION 80 HHC IS A COMPLETE CODE WHICH PRESCRIBES THE ENTIRE MECHANISM FOR COMP UTING THE DEDUCTION U/S. 80 HHC. HE REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF HERO EXPORT 295 ITR 454 (SC) TO SUBMIT THAT STATUTORY FORMULA IS TO BE ALLOWED. HE POINTED OUT THAT THE AO WRONGLY APPLIED THE PROVISIONS OF SECTION 70. L D COUNSEL FURTHER REFERRED TO THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR THE F .Y. 2001-02 AND POINTED OUT THAT PAGE 16 IS THE SCHEDULE OF OTHER INCOME IN WHICH LICEN CE TRANSFER PREMIUM(RESALE) HAS BEEN SHOWN AT RS.53 90 498/- WHICH WAS PURCHASED IN EAR LIER YEAR AT RS.65 43 094/-. HE ITA NO.2338/M/2008 M/S. FIRESTONE TRADING P. LTD. 4 POINTED OUT THAT LD CIT (A) HAS TAKEN COMPLETE COST AS ASSESSEES INCOME. LD COUNSEL SUBMITTED THAT SINCE IT IS A CASE OF CASH OUTGO IT WAS NOT IN THE FORM OF PERQUISITE AS CONTEMPLATED U/S.28(IV). IN SUPPORT OF THIS LD CO UNSEL RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF BALKRISHNA HIRALAL WANI V ITO [2010] 321 ITR 519(BOM). 9. IN REGARD TO ADDITIONAL GROUND RAISED BY THE AS SESSEE HE RELIED ON THE DECISION OF THE ITAT SPECIAL BENCH REPORTED AT 117 TTJ 289. 10. LD D.R. SUBMITTED THAT THE MATTER MAY BE RESTOR ED BACK TO THE FILE OF THE LD CIT (A) IN ORDER TO FIND OUT AS TO WHAT HAPPENED TO COS T BECAUSE HE HAD DELETED THE ENTIRE SUM OF RS.65 43 498/-. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD OF THE CASE. SECTION 80 HHC IS A CODE BY ITSELF AS IT PROVIDES F OR SUBSTANTIVE AS WELL AS ALL PROCEDURAL ASPECTS. THE PROFIT DERIVED FROM EXPORT OF TRADING GOODS IS TO BE DETERMINED AS PER THE PROVISIONS CONTAINED IN SECTION 80 HHC(3)(C)(II) W HICH PRESCRIBES THE MECHANISM FOR THE SAME WHICH IS TO BE ARRIVED AT AFTER REDUCING DIREC T AND INDIRECT COST ATTRIBUTABLE TO EXPORT OF SUCH TRADING GOODS. THE LOSS INCURRED ON ACCOUN T OF LOCAL TRADING OF DEPB LICENCES COULD NOT BE ADJUSTED WHILE COMPUTING PROFITS DERIV ED FROM EXPORT OF TRADING GOODS. THEREFORE THE AO HAD WRONGLY SET OFF THE LOSS ON S ALE OF DEPB LICENCES. THEREFORE THE FINDINGS OF LD CIT (A) TO THIS EXTENT ARE UPHELD. 12. NOW COMING TO GROUND NO.3 BEING IN REGRD TO T HE ENHANCEMENT OF TOTAL INCOME AT RS.65 43 094/- SINCE THE ASSESSEE HAS TAKEN INT O CONSIDERATION THE SALE PROCEEDS AS WELL AS COST OF DEPB LICENCES IN ITS PROFITS AND LO SS ACCOUNT THEREFORE THERE IS NO QUESTION OF INVOKING THE PROVISIONS OF SECTION 28(I V) BECAUSE IN ANY VIEW OF THE MATTER THIS WAS NOT IN THE NATURE OF BENEFIT OR PERQUISITE ARISING FROM BUSINESS. THIS GROUND IS ALLOWED. ITA NO.2338/M/2008 M/S. FIRESTONE TRADING P. LTD. 5 13. IN REGARD TO ADDITIONAL GROUND WE FIN D THAT THE ITAT DELHI (SB) IN THE CASE OF ITO V. EKTA PROMOTERS (P)LTD. (2008) 113 I TD 719 (DELHI)(SB) HELD THAT SECTION 223D WILL HAVE APPLICATION ONLY W .E.F. A.Y. 2004-05 AND CANNOT BE APPLIED TO A.Y. 2003-04. B Y THE DECISION DATED 15.4.2009 OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. M/S . BAJAJ HINDUSTAN LTD IN INCOME TAX APPEAL NO.198 OF 2009 HELD THAT THE PROVISIONS OF SECTION 234D INSERTED W.E.F. 1.6.2003 HAVE NO RETROSPECTIVE EFFECT. IN THIS CAS E THE A.Y INVOLVED IS 2002-03 THEREFORE WE ALLOW THE ADDITIONAL GROUND. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED ON 30 TH APRIL 2010 SD/- (N.V.VASUDEVAN) (JUDICIAL MEMBER) SD/- (S.V. MEHROTRA) (ACCOUNTANTMEMBER) MUMBAI DATED 30 TH APRIL 2010 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-V MUMBAI 4. COMMISSIONER OF INCOME TAX NC-V- MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH F MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI ITA NO.2338/M/2008 M/S. FIRESTONE TRADING P. LTD. 6 DATE INITIALS 1. DRAFT DICTATED ON 22.4.2010 PS 2. DRAFT PLACED BEFORE AUTHOR 26.2010 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM/JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/J M 5. APPROVED DRAFT COMES TO THE SR. PS PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER ITA NO.2338/M/2008 M/S. FIRESTONE TRADING P. LTD. 7