MULTIPACK SYSTEMS P. LTD, MUMBAI v. DCIT CIR 22), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI J.SUDHAKAR R EDDY(A.M) ITA NO.300/MUM/2010(A.Y. 2004-05) MULTIPACK SYSTEMS PVT. LTD. ROHIT CHAMBERS JANMABHOOMI MARG FORT MUMBAI 400 001 PAN:AAACM 3013E (APPELLANT) VS. THE DCIT CIR. 2(2) ROOM NO.545 AAYKAR BHAVAN MK ROAD MUMBAI 20. (RESPONDENT) APPELLANT BY : SHRI KUSHAL PARIKH RESPONDENT BY : SHRI S.K.MOHANTY ORDER PER N.V.VASUDEVAN J.M THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 12/11/2009 OF CIT(A)-V MUMBAI RELATING TO ASSESSMENT YEAR 200 4-05. THE GROUND OF APPEAL OF THE ASSESSEE READS AS FOLLOWS: THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN RESTRICTING DEDUCTION U/S. 80 HHC AND NOT GRANTING FULL DEDUCTION AT RS.54 02 365/- CLAIMED BY YOUR APPELLANTS. YOUR AP PELLANTS SUBMIT THAT DEDUCTION UNDER SECTION 80 HHC OUGHT TO BE ALL OWED AS CLAIMED BY YOUR APPELLANTS. IN PARTICULAR- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN CONFIRMING THE DEDUCTION U/S. 80 HHC BY REDUCING THE PROFITS E LIGIBLE FOR DEDUCTION U/S. 80 IB FROM THE PROFITS OF THE BUSINE SS FOR COMPUTING DEDUCTION U/S. 80HHC IS A SEPARATE AND INDEPENDENT CODE IN ITSELF. IT IS SUBMITTED THAT PROFITS OF THE BUSINESS OUGHT NOT TO HAVE BEEN REDUCED BY THE PROFITS ELIGIBLE FOR DEDUCTION U/S. 80 IB. YOUR APPELLANTS SUBMIT THAT THE PROFIT OF SILVASA UNIT W HICH ARE EXEMPT U/S. 80 IB OUGHT TO HAVE BEEN INCLUDED IN THE COMPUTATIO N OF PROFITS OF BUSINESS FOR CALCULATING DEDUCTION U/S. 80 HHC. YO UR APPELLANTS SUBMIT THAT THE BUSINESS PROFIT FOR THE YEAR SHOULD BE TAKEN AT RS. ITA NO.300/MUM/2010(A.Y. 2004-05) 2 7 40 28 435/- AND DEDUCTION U/S. 80 HHC OUGHT TO HA VE BEEN ALLOWED ACCORDINGLY. WITHOUT PREJUDICE TO ABOVE YOUR APPELLANT SUBMITS THAT IN CASE THE PROFITS OF SILVASA UNIT ELIGIBLE FOR DEDUCTION U/S . 80 IB IS EXCLUDED FROM THE COMPUTATION OF PROFIT OF THE BUSINESS THEN THE TURNOVER OF SILVASA UNIT SHOULD ALSO BE EXCLUDED FROM THE COMPU TATION OF TOTAL TURNOVER FOR CALCULATING DEDUCTION U/S. 80 HHC. 2. THE ASSESSEE IS A COMPANY . IT IS ENGAGED IN TH E BUSINESS OF MANUFACTURING PACKAGING MACHINERY. THE ASSESSEE H AD TWO UNITS ONE AT DADRA & NAGAR HAWELI (UT) AND THE OTHER AT BARODA. THE UNIT AT DADRA & NAGAR HAWELI WAS ENTITLED TO DEDUCTION UNDER SECTI ON 80IA / IB OF THE INCOME TAX ACT 1961 (THE ACT). THE UNIT AT BARODA WAS ENTITLED TO DEDUCTION UNDER SECTION 80 HHC OF THE ACT AS IT WAS AN EXPORT UNIT. THE ASSESSE CLAIMED DEDUCTION UNDER SECTION 80 HHC IN RESPECT OF THE UNIT AT BARODA OF A SUM OF RS. 54 02 365/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT IN VIEW OF THE PROVISIONS OF SECTION 80 IB(13 ) R.W.S. 80IA(9) OF THE ACT DEDUCTION ALLOWED UNDER SECTION 80IB SHOULD BE REDU CED FROM THE PROFITS OF BUSINESS OF THE EXPORT UNIT WHILE COMPUTING DEDUCTI ON UNDER SECTION 80 HHC OF THE EXPORT UNIT. THE RELEVANT PROVISIONS O F SECTION 80 IB(13) R.W.S. 80IA(9) READS AS FOLLOWS: WHERE ANY AMOUNT OF PROFITS AND GAINS OF AN INDUST RIAL UNDERTAKING OR OF AN ENTERPRISE IN THE CASE OF AN ASSESSEE IS CLAIMED AND ALLOWED UNDER THIS SECTION FOR ANY ASSESSMENT YEAR DEDUCTI ON TO THE EXTENT OF SUCH PROFITS AND GAINS SHALL NOT BE ALLOWED UNDER A NY OTHER PROVISIONS OF THIS CHAPTER UNDER THE HEADING C-DEDUCTIONS IN RESPECT OF CERTAIN INCOMES AND SHALL IN NO CASE EXCEED THE PROFITS A ND GAINS OF SUCH ELIGIBLE BUSINESS OF INDUSTRIAL UNDERTAKING OR ENTE RPRISE AS THE CASE MAY BE. IN VIEW OF THE SPECIFIC PROVISION OF LAW THE AO RE DUCED PROFITS FROM SILVASA UNIT ON WHICH DEDUCTION U/S. 80 IB HAS BEEN ALLOWED FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF ALLOWING DEDUCTION UNDE R SECTION 80 HHC. THE ASSESSING OFFICER ACCORDINGLY COMPUTED THE DEDUCTIO N UNDER SECTION 80 HHC AS FOLLOWS: ITA NO.300/MUM/2010(A.Y. 2004-05) 3 A. EXPORT TURNOVER OF THE EXPORT UNIT 8 97 43 403 LESS:PROCEEDS NOT RECEIVED IN TIME 96 992 ---------- ---- TOTAL EXPORT TURNOVER 8 96 46 411 ---------- ---- B. TOTAL TURNOVER OF THE ASSESSEE COMPANY 36 85 26 545 ADD: EXCISE DUTY ON SALES 4 70 70 641 ------------ ---- 41 55 97 186 ----------- ---- C PROFITS OF BUSINESS: ------------------------ BUSINESS PROFIT OF THE EXPORT UNIT 7 40 20 435 LESS: DEDUCTION U/S. 80IB 1 14 51 674 ------------- -- 6 25 76 761 -------------- -- D. DEDUCTION U/S. 80 HHC ------------------------------ ADJUSTED PROFITS OF BUSINESS X EXPORT TURNOVER TOTAL TURNOVER 6 25 76 761 X 8 96 46 411 41 55 97 186 1 34 98 123 -------------- - DEDUCTION U/S. 80 HHC @ 30% 40 49 437 ========== 3. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE DE DUCTION UNDER SECTION 80 HHC SHOULD BE ALLOWED FIRST AND THEN DEDUCTION U NDER SECTION 80 IB HAS TO BE ALLOWED. IF THE CLAIM UNDER BOTH THESE SECTI ON FOR DEDUCTION EXCEEDS THE GROSS TOTAL INCOME THEN THE DEDUCTION SHOULD B E RESTRICTED TO GROSS TOTAL INCOME AS PER THE PROVISIONS OF SECTION 80 IA(2) OF THE ACT. THE CIT(A) HOWEVER DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE AND HE HELD AS FOLLOWS:- 5.1 HOWEVER IN SO FAR AS OTHER ISSUE RELATING TO APPLICABILITY OF SECTION 80 IB(13) R.W. SECTION 80 IB (9) IS CONCERNED THER E IS NO MERIT IN THE CONTENTIONS OF THE APPELLANT IN VIEW OF SPECIFIC PR OVISION OF SECTION 80 ITA NO.300/MUM/2010(A.Y. 2004-05) 4 IA (9)/80 IB(13) WHICH ARE CLEARLY APPLICABLE IN TH E RELEVANT ASSESSMENT YEAR. IT MAY BE STATED HERE THAT IN A RECENT DECISION IN THE CASE OF ACIT VS. ROGINI GARMENTS (2007) 294 ITR (AT) 15 (CHENNAI) (SB) WHILE INTERPRETING THE AMENDED PROVISIONS OF S ECTION 80 IA AND 80 IB IT WAS HELD THAT IN VIEW OF THE PROVISIONS OF S ECTION 80 IA (9) RELIEF U/S. 80 IA HAS TO BE DEDUCTED FROM PROFIT AND GAINS OF BUSINESS BEFORE COMPUTING RELIEF U/S. 80 HHC. REFERENCE WAS ALSO M ADE TO CBDT CIRCULAR NO.772 DATED 23/12/1998. IT WAS STATED TH AT THE AMENDMENT WAS BROUGHT IN TO THE ACT SO THAT UNINTEN DED BENEFITS DO NOT PASS ON TO THE ASSESSEE. THIS IS SPECIAL PROVI SION WHICH WOULD PREVAIL OVER GENERAL PROVISION. RESTRICTION CONTAI NED IN SECTION 80 IA OR 80IB NOT TO ALLOW REPEATED DEDUCTION IS APPLICAB LE TO SAME PROFIT. THE SAID DECISION HAS BEEN RECENTLY CONFIRMED BY IT AT (DEL) (FIVE MEMBERS) (SPECIAL LARGER BENCH) IN ACIT VS. HINDUST AN MIN AND AGRO PRODUCTS P. LTD. 119 ITD 107 (DEL). IN OTHER CASE OF LEBEN LABORATORIES LTD. VS. DCIT (2007) 284 ITR (AT) 1(MUM) LIKEWISE IT WAS HELD THAT WHEN THE ASSESSEE CLAIMED DEDUCTION BOTH UNDER SECT ION 80 IA AND 80 HHC DEDUCTION FOR EXPORT IS NOT TO BE ALLOWED ON P ROFITS TO THE EXTENT OF DEDUCTION ALREADY ALLOWED U/S. 80 IA IN VIEW OF THE PROVISIONS OF SECTION 80 IA(9) OF THE ACT. IN VIEW OF THE PROVIS IONS OF THE ACT AND THE CITATIONS RELIED UPON ACTION OF THE AO IS THEREF ORE UPHELD. 4. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESS EE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSION. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES PVT. LTD. VS. DC IT & ANOTHER (2011) 50 DTR 65(BOM) HAD AN OCCASION TO CONSIDER THE QUESTIO N WHETHER PROFITS ALLOWED AS DEDUCTION UNDER SECTION 80IA HAS TO BE R EDUCED FROM THE PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTION UNDER SEC TION 80 HHC OF THE ACT. THE HONBLE COURT HELD THAT SECTION 80IA(9) OF THE ACT SEEKS TO CURTAIL ALLOWANCE OF DEDUCTION AND NOT COMPUTABILITY OF DED UCTION UNDER ANY OTHER PROVISION. PROFITS OF THE BUSINESS FOR THE PURPOSE OF S. 80 HHC OF THE ACT CANNOT BE REDUCED BY ANY AMOUNT SAVE AND EXCEPT THE AMOUNT SPECIFIED IN CL.(BAA) OF EXPLANATION TO S. 80HHC OF THE ACT. S EC. 80 IA(9) OF THE ACT DOES NOT EXPRESSLY OR IMPLIEDLY PROVIDE THAT THE AM OUNT OF PROFITS ALLOWED AS DEDUCTION UNDER S. 80 IA SHOULD BE REDUCED FROM THE PROFITS OF THE BUSINESS ITA NO.300/MUM/2010(A.Y. 2004-05) 5 FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER S. 80 HHC. FURTHER THE HONBLE COURT HELD THAT IN THE CASE OF TRADER EXPOR TER THE DEDUCTION UNDER S. 80 HHC IS COMPUTED ON THE EXPORT TURNOVER AND NOT O N THE PROFITS OF THE BUSINESS. THE HONBLE COURT REASONED THAT IF THE A RGUMENT OF THE REVENUE THAT THE AMOUNT OF PROFITS ALLOWED UNDER S. 80 IA H AS TO BE DEDUCTED FROM THE PROFITS OF THE BUSINESS IS ACCEPTED THEN S. 80 HHC(3)(B) WOULD BECOME UNWORKABLE. THUS IN THE CASE OF A TRADER EXPORTER S. 80 IA (9) CAN BE APPLIED ONLY AFTER THE DEDUCTION UNDER S. 80 HHC (3 )(B) IS COMPUTED. IF THE WORDS USED IN S. 80IA (9) WERE SHALL NOT QUALIFY THEN PROBABLY IT COULD BE SAID THAT THE LEGISLATURE INTENDED TO AFFECT THE QU ANTUM OF DEDUCTION COMPUTABLE UNDER OTHER PROVISIONS UNDER HEADING C OF CHAPTER VIA. THE HONBLE COURT HELD THAT WHEREVER THE LEGISLATURE IN TENDED THAT THE DEDUCTION ALLOWED UNDER ONE SECTION SHOULD AFFECT THE COMPUTA TION OF DEDUCTION UNDER OTHER PROVISIONS THE LEGISLATURE HAS EXPRESSLY USE D WORDS TO THAT EFFECT. AS THE WORDS USED IN S. 80 IA(9) RELATE TO ALLOWANCE A ND NOT COMPUTATION OF DEDUCTION IT CANNOT BE INFERRED THAT S. 80 IA(9) I S INSERTED WITH A VIEW TO AFFECT COMPUTATION OF DEDUCTION UNDER ANY OTHER PRO VISIONS UNDER HEADING C OF CHAPTER VIA. REASONABLE CONSTRUCTION OF S. 80 IA(9) WOULD BE THAT WHERE DEDUCTION IS ALLOWED UNDER S. 80 IA (9) THE N THE DEDUCTION COMPUTED UNDER OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A HAS TO BE RESTRICTED TO THE PROFITS OF THE BUSINESS THAT REMAINS AFTER E XCLUDING THE PROFITS ALLOWED AS DEDUCTIONS UNDER S. 80 IA SO THAT THE TOTAL DED UCTION ALLOWED UNDER THE HEADING C OF CHAPTER VI-A DOES NOT EXCEED THE PRO FITS OF THE BUSINESS. 6. IN VIEW OF THE AFORESAID DECISION OF THE HONBL E BOMBAY HIGH COURT WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE HAS TO BE ACCEPTED. IT IS ORDERED ACCORDINGLY. THE ASSESSING OFFICER WILL HO WEVER ENSURE THAT THE TOTAL DEDUCTION ALLOWED UNDER CHAPTER VIA DOES NOT EXCEED THE LIMITS AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT REFERRED TO A BOVE. WITH THESE OBSERVATIONS THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.300/MUM/2010(A.Y. 2004-05) 6 7. IN VIEW OF THE DECISION ON THE MAIN GROUND RAISE D BY THE ASSESSE THE ALTERNATIVE SUBMISSION MADE BY THE ASSESSEE IN THE GROUNDS OF APPEAL DOES NOT CALL FOR ANY ADJUDICATION. 8. IN THE RESULT THE APPEAL BY THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 23 RD DAY OF FEBRUARY 2011. SD/- SD/- (J.SUDHAKAR REDDY) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 23 RD FEB.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RE BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.300/MUM/2010(A.Y. 2004-05) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 15/2/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 17/2/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER