M/s Metro Tyres Ltd., Delhi v. DCIT, New Delhi

ITA 3460/DEL/2008 | 2004-2005
Pronouncement Date: 08-01-2010

Appeal Details

RSA Number 346020114 RSA 2008
Bench Delhi
Appeal Number ITA 3460/DEL/2008
Duration Of Justice 1 year(s) 1 month(s) 18 day(s)
Appellant M/s Metro Tyres Ltd., Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 08-01-2010
Appeal Filed By Assessee
Bench Allotted E
Tribunal Order Date 08-01-2010
Date Of Final Hearing 23-11-2009
Next Hearing Date 23-11-2009
Assessment Year 2004-2005
Appeal Filed On 20-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E: NEW DELHI BEFORE SHRI A.D. JAIN JUDICIAL MEMBER AND SHRI DEEPAK R. SHAH ACCOUNTANT MEMBER I.T.A.NO.3460/DEL/2008 ASSESSMENT YEAR : 2004-05 M/S. METRO TYRES LTD. DY. COMMISSIONER OF INCOME-TAX 101 JYOTI BHAWAN VS. CIRCLE 6(1) NEW DELHI. DR. MUKHERJEE NAGAR COMMERCIAL COMPLEX DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.C. VASUDEVA CA. RESPONDENT BY : SHRI B.K. GUPTA SR. DR. O R D E R PER DEEPAK R. SHAH ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-IX NEW DELHI DATED 3 RD SEPTEMBER 2008 IN AN APPEAL AGAINST ASSESSMENT FRA MED UNDER SECTION 143(3) OF THE INCOME-TAX ACT 1961 (THE ACT). 2. GROUND NOS. 1 & 3 ARE AGAINST DISALLOWANCE OF 25 % OF VEHICLE EXPENSES AND 50% OF TELEPHONE EXPENSES RESPECTIVELY ON THE ALLEGED GROUND OF PERSONAL USER BY THE DIRECTORS. 2 2 3. AT THE TIME OF HEARING BOTH THE COUNSELS AGREED THAT IDENTICAL ISSUE AROSE IN APPEALS OF THE ASSESSEE FOR A.Y. 2002-03 A ND 2005-06. IN BOTH THESE APPEALS THE TRIBUNAL RELYING UPON THE FOLLOWI NG DECISIONS HELD THAT THE ASSESSEE BEING A LIMITED COMPANY THERE CAN BE NO P ERSONAL USER OF TELEPHONE AND VEHICLE AND THEREFORE NO PART OF EXPENDITURE C AN BE DISALLOWED: (1) SAYAJI IRON & ENGINEERING CO. VS. CIT 253 ITR 749; (2) DINESH MILLS LTD. VS. CIT 254 ITR 749; & (3) DCIT VS. HARYANA OXYGEN LTD. 76 ITD 32 (ITAT DEL). FOLLOWING THE SAID DECISIONS THE DISALLOWANCES AS MADE IN GROUND NO.1 & 3 ARE DELETED. 4. AS REGARDS GROUND NO.2 IT IS SEEN THAT THE LEARN ED COMMISSIONER (APPEALS) FURTHER DISALLOWED 25% DEPRECIATION AND I NSURANCE RELATING TO VEHICLE BY TREATING THE SAME AS PERSONAL EXPENSES O F DIRECTORS. WE FIND THAT WHEN THE ASSESSING OFFICER DISALLOWED 25% OF THE VE HICLE EXPENSES THE SAID EXPENSES ALSO INCLUDED DEPRECIATION INSURANCE AND INTEREST ON LOAN RELATING TO VEHICLE. THEREFORE SEPARATE DISALLOWANCE IS NO T CALLED FOR. ACCORDINGLY THE ADDITIONAL SUM OF RS.2 94 446/- DISALLOWED BY T HE LEARNED COMMISSIONER (APPEALS) IS DIRECTED TO BE DELETED. 3 3 5. GROUND NO.4(A) IS AGAINST REDUCING THE ENTIRE AM OUNT ON THE REALIZATION OF DEPB CREDIT FROM THE PROFITS OF BUSI NESS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 6. WE FIND THAT THE SAME ISSUE HAS BEEN CONSIDERED BY SPECIAL BENCH OF TRIBUNAL IN THE CASE OF TOPMAN EXPORTS VS. ITO 33 SOT 337 (MUM.)(SB) WHEREIN IT HAS BEEN HELD AS UNDER:- (I) THE ARGUMENT OF THE REVENUE THAT DEPB IS A POST-EXP ORT EVENT AND HAS NO RELATION WITH THE PURCHASE OF GOOD S CANNOT BE ACCEPTED. THERE IS A DIRECT RELATION BETW EEN DEPB AND THE CUSTOMS DUTY PAID ON THE PURCHASES. FO R PRACTICAL PURPOSES DEPB IS A REIMBURSEMENT OF THE COST OF PURCHASE OF THE EXTENT OF CUSTOMS DUTY ; (II) THE DEPB BENEFIT (FACE VALUE ) ACCRUES AND BECOMES ASSESSABLE TO TAX WHEN THE APPLICATION FOR DEPB IS FILED WITH THE CONCERNED AUTHORITY SUBSEQUENT EVENTS SU CH AS SALE OF DEPB OR MAKING IMPORTS FOR SELF-CONSUMPTIO N ETC. ARE IRRELEVANT FOR DETERMINING THE ACCRUAL OF INCOME ON ACCOUNT OF DEPB; (III) ON A HARMONIOUS CONSTRUCTION OF CLAUSES (IIIA) (II IB) AND (IIIC) OF $28 IT IS EVIDENT THAT CLAUSES (IIIA) AND (IIIC) DEAL WITH SPECIFIC SPECIES OF INCENTIVES CLAUSE (IIIB) IS A RESIDUAL CLAUSE WHICH BRINGS WITHIN ITS SWEEP ALL F ORMS OF EXPORT INCENTIVES OTHER THAN THOSE SPECIFICALLY SET OUT IN CLAUSES (IIIA) AND (IIIC) ; (IV) THE FACE VALUE OF DEPB BENEFIT FALLS WITHIN THE AMB IT OF $ 28 (IIIB) ; (V) S.28 (IIID) WHICH REFERS TO THE PROFITS ON TRANSFE R OF THE DEPB OBVIOUSLY REFERS ONLY TO THE PROFIT ELEMENT AND NOT THE GROSS SALE PROCEEDS OF THE DEPB. IF THE REVENUES ARGUMENT THAT THE SALE PROCEEDS SHOULD BE 4 4 CONSIDERED IS ACCEPTED THERE WOULD BE ABSURDITY BE CAUSE THE FACE VALUE OF THE DEPB WILL THEN GET ASSESSED I N THE YEAR OF THE DEPB AND ALSO IN THE YEAR OF ITS TRANSF ER; (VI) PROFIT ON SALE OF DEPB REPRESENTING THE EXCESS OF S ALE PROCEEDS OF DEPB OVER ITS FACE VALUE IS LIABLE TO B E CONSIDERED U/S 28 (IIID) AT THE TIME OF SALE ; (VII) ONLY THE PROFIT (I.E THE SALE VALUE LESS THE FACE VALUE) IS REQUIRED TO BE CONSIDERED FOR THE PURPOSES OF S. 80 HHC; (VIII) WHATEVER HAS BEEN SAID ABOUT DEPB ALSO HOLDS GOOD F OR DFRC ON BOTH ITS COMPONENTS VIZ. THE FACE VALUE O F DFRC AND PROFIT ON ITS TRANSFER EXCEPT FOR THE FAC T THAT THE PROFIT ON SALE OF DFRC SHALL BE CHARGED TO TAX U/S. 28 (IIIE); (IX) DUTY DRAWBACK SHALL BE CHARGEABLE TO TAX AT T HE TIME OF ACCRUAL OF INCOME U/S 28 (IIIB) WHEN APPLICATION IS FILED WITH THE COMPETENT AUTHORITY AFTER MAKING EXPORTS. APPLYING THE SAME WE DIRECT THE ASSESSING OFFICER TO EXCLUDE ONLY THE PROFIT ON TRANSFER OF DEPB FROM THE PROFITS OF BUSI NESS FOR PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC. 7. GROUND NO.4(B) IS AGAINST ACTION OF THE ASSESSIN G OFFICER IN EXCLUDING RECEIPT OF INSURANCE CLAIM AND MISCELLANE OUS INCOME WHILE COMPUTING PROFITS OF BUSINESS FOR PURPOSE OF COMPUT ING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 8. THE ASSESSEE RECEIVED MISCELLANEOUS INCOME IN TH E FORM OF INTEREST AND SALES-TAX REFUND ETC. THE ASSESSEE ALSO RECEIV ED INSURANCE CLAIM FOR REPAIRS OF MACHINERY. THE LEARNED CIT(A) WHILE CO MPUTING THE DEDUCTION 5 5 UNDER SEC.80HHC OF THE ACT HAS EXCLUDED THE RECEIPT ON ACCOUNT OF MISCELLANEOUS INCOME AMOUNTING TO RS.2 95 798/- AND INSURANCE CLAIM OF RS.20 96 549/- WHILE COMPUTING THE PROFITS OF BUSIN ESS FOR THE PURPOSES OF SEC. 80HHC OF THE ACT. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI S.C. V ASUDEVA SUBMITTED THAT EVERY BUSINESS RECEIPT CANNOT FALL UNDER THE E XPRESSION `CHARGES OR RECEIPT OF A SIMILAR NATURE. THE SECTION ITSELF H AS CARVED OUT TWO DISTINCT SITUATIONS. THE FIRST IS THE ITEMS COVERED IN SECT ION 28(IIIA). (IIIB) (IIIC) (IIID) AND (IIIE) OF THE ACT WHICH ARE NOT COVERED UNDER `RECEIPTS OF A SIMILAR NATURE. THIS EXPRESSION APPLIES TO ONLY THE SECON D CATEGORY WHICH WOULD MEAN ONLY SUCH RECEIPTS WHICH CAN BE CONSIDERED AS COMPENSATION FOR SERVICES RENDERED FOR USE OF PROPERTY. WITHOUT PREJUDICE TO THE ABOVE THAT BASED ON THE RULE OF ESJUSDEM GENERIC MISCELLANEOUS INCOME AND INSURANCE RECEIPT S CANNOT BE EXCLUDED FROM `PROFITS OF BUSINESS EVEN MISCELLANEOUS INCO ME AND INSURANCE RECEIPTS DO NOT WARRANT ANY EXCLUSION. MISCELLANEOUS INCOME AMOUNTING TO RS.2 95 789/- INCLUDES SALES TAX REFUND OF VARIOUS BRANCHES AND INSURANCE RECEIPTS INCLUDE AMOUNT RECEIVED FROM THE INSURANCE COMPANY AGAINST VARIOUS CLAIMS ON ACCOUNT OF REPAIR OF MACHINERY V EHICLES AND RAW MATERIAL CLAIM. IN ALL THESE CASES THE PROFIT AND LOSS ACCO UNT IS DEBITED WITH THE 6 6 EXPENDITURE AND THE RECEIPT THEREOF FROM THE INSURA NCE COMPANY IS NOTHING BUT COMPENSATION FOR THE EXPENSE THAT HAS ALREADY B EEN INCURRED. THESE RECEIPTS ARE INEXTRICABLY LINKED WITH THE BUSINESS OF THE ASSESSEE COMPANY AND BY NO LOGIC CAN BE CONSTRUED AS TRANSACTION IND EPENDENT OF ASSESSEES BUSINESS. DETAIL OF MISC. INCOME AND INSURANCE IS ENCLOSED ON PAGES 50 TO 53 OF THE PAPER BOOK. ATTENTION IS INVITED TO THE FOLLOWING JUDGMENTS:- (I) GLAXO SMITHKLINE ASIA (P) LTD. VS ACIT 97 TTJ 108 (DEL); (II) BABY MARINE EXPORTS VS. ACIT 77 ITD 442 (COCH IN); (III) D. KISHORE KUMAR & CO. VS. DCIT 2 SOT 769 (M UM.); & (IV) P&G ENTERPRISES (P) LTD. VS. DCIT 93 ITD 138 (DEL). IN VIEW OF THE ABOVE IT IS PLEADED THAT DIRECTIONS MAY BE GIVEN TO INCLUDE THE AMOUNT OF MISCELLANEOUS INCOME AND INSURANCE RECEIP TS IN THE PROFITS OF THE BUSINESS FOR PURPOSE OF COMPUTING DEDUCTION U/S 80H HC. 10. THE LEARNED DR SHRI B.K. GUPTA SUBMITTED THAT T HE MISCELLANEOUS INCOME AND INSURANCE CLAIM ARE NOT THE PROFIT DERIV ED FROM BUSINESS OF EXPORT OF GOODS AND HENCE THE SAME WERE RIGHTLY EXC LUDED. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE INCOME BY WAY OF MISCELLANEOUS INCOME AND INSURANCE CLAIM IS FORMING PART OF PROFITS OF THE BUSINESS COMPUTED UNDER SECTION 28 O F THE ACT. THE ASSESSEE BEING A MANUFACTURING EXPORTER DEDUCTION UNDER SEC .80HHC IS ALLOWED ON 7 7 THE BASIS OF EXPORT TURNOVER WHICH BEARS TO THE TOT AL TURNOVER AS APPLICABLE TO THE PROFITS OF THE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. CLAUSE (BAA) OF EXPLANATI ON BELOW SUB-SECTION 4C OF SECTION 80HHC OF THE ACT PROVIDES AS UNDER: PROFITS OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION AS REDUCED BY NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSES ( IIIA) (IIIB) [(IIIC) (IIID) AND (IIIE)] OF SECTION 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES O R ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFIT S; FROM THE PERUSAL OF THE ABOVE CLAUSE IT WOULD BE CL EAR THAT IN ADDITION TO THE ITEMS COVERED BY CLAUSE (IIIA) (IIIB) (IIIC) (II ID) AND (IIIE) OF SECTION 28 OF THE ACT ONLY RECEIPTS BY WAY OF BROKERAGE COMMISSI ON INTEREST RENT CHARGES AND SIMILAR RECEIPTS HAVE TO BE EXCLUDED WHILE COMP UTING THE PROFITS OF THE BUSINESS. THE EXPRESSION ANY OTHER RECEIPT OF A SIMILAR NAT URE IN THE SAID EXPLANATION HAS TO BE CONSTRUED AS EJUSDEM GENERIS WITH BROKERAGE COMMISSION ETC. ACCORDINGLY MISCELLANEOUS INCOME AND INSURANCE RECEIPTS DO NOT TAKE THE CHARACTER OF INCOME IN THE NATURE O F INTEREST RENT ETC. MISCELLANEOUS INCOME AND INSURANCE RECEIPTS ARE ASS ESSED UNDER THE HEAD BUSINESS INCOME AND THEREFORE THEY CANNOT BE EXCLUD ED FROM THE PURVIEW OF PROFITS OF BUSINESS. SINCE THE MISCELLANEOUS INCOM E OR INSURANCE CLAIMED 8 8 FOR REPAIRS OF MACHINERY CANNOT BE EQUATED WITH BRO KERAGE COMMISSION INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF A SI MILAR NATURE 90% OF SUCH RECEIPT CANNOT BE EXCLUDED WHILE COMPUTING PROFITS OF BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SEC.80HHC. WE THEREFORE DIRECT THAT THE AMOUNT OF MISCELLANEOUS INCOME AND INSURAN CE RECEIPTS SHALL BE INCLUDED IN THE PROFITS OF BUSINESS AND DEDUCTION U NDER SEC. 80HHC BE GRANTED ACCORDINGLY. 12. IN THE RESULT THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 8-1-2010. SD/- SD/- (A.D. JAIN) (DEEPAK R. SHAH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 8-1-2010. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR ITAT.