M/s. WALCHAND NAGAR INDUSTRIES LTD., MUMBAI v. JT. CIT SPL. Rg. - 19, MUMBAI

ITA 3790/MUM/2003 | 1998-1999
Pronouncement Date: 11-03-2010 | Result: Allowed

Appeal Details

RSA Number 379019914 RSA 2003
Bench Mumbai
Appeal Number ITA 3790/MUM/2003
Duration Of Justice 6 year(s) 9 month(s) 28 day(s)
Appellant M/s. WALCHAND NAGAR INDUSTRIES LTD., MUMBAI
Respondent JT. CIT SPL. Rg. - 19, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 11-03-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 11-03-2010
Date Of Final Hearing 16-02-2010
Next Hearing Date 16-02-2010
Assessment Year 1998-1999
Appeal Filed On 14-05-2003
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI. BEFORE SHRI R.K. GUPTA J.M. AND SHRI J. SUDHAKAR REDDY A.M. I.T.A. NO. 3 790/MUM/2003. ASSESSMENT YEAR : 1998-99. WALCHANDNAGAR INDUSTRIES LTD. JT. COMMISSIONER OF 3 WALCHAND TERRACES VS. INCOME TAX TARDEO ROAD MUMBAI-400 034. SP L. RANGE-19 MUMBAI. PAN AAACW-0541-M APPELLANT RESPONDENT APPELLANT BY : MS. VASANTI PATEL RESPONDENT BY : SHRI DAYA SHANKER. O R D E R PER J. SUDHAKAR REDDY A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED A GAINST THE ORDER OF THE CIT(APPEALS)-V MUMBAI DATED 10-03-200 3 FOR THE ASSESSMENT YEAR 1998-99. 2. FACTS IN BRIEF : THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE B USINESS OF SUGAR/CEMENT MACHINERY MANUFACTURING BOILER GEAR BOXES AND OTHER HI-TECH ENGINEERING PRODUCTS/MACHINERY. IT FILED IT S RETURN OF INCOME ON 30 TH NOV. 1998 SHOWING AN INCOME OF RS. 5 70 60 680/- FOR THE ASSESSMENT YEAR 1998-99. THE AO COMPLETED THE ASSES SMENT ON 27-03- 2001 DETERMINING THE TOTAL INCOME AT RS.11 76 89 50 0/-. ON APPEAL THE FIRST APPELLATE AUTHORITY GRANTED PART RELIEF. THE ASSESSEE FILED THE CURRENT APPEAL ON THE FOLLOWING GROUNDS : 2 1. THE CIT(A) ERRED IN TREATING COMPENSATION RECEIVED BY THE APPELLANT FROM M/S GENERAL ELECTRIC COMPANY INDIA LIMITED ON ACCOUNT OF BREACH OF CONTRACT AMOUNTING TO RS.1 70 00 000/- AS TRADING RECEIPT. 2. THE CIT(A) FAILED TO APPRECIATE THAT THE SAID COMPE NSATION OF RS.1 70 00 000/- RECEIVED BY THE APPELLANT FROM M/S GENERAL ELECTRIC COMPANY INDIA LIMITED WAS A LUMPSUM AMOUNT RECEIVED ON ACCOUNT OF BREACH OF CONTRACT AND THE SAME IS A CAP ITAL RECEIPT WHICH IS NOT CHARGEABLE TO TAX. 3. THE CIT(A) FAILED TO APPRECIATE THE SUBMISSIONS MAD E BY THE APPELLANT VIDE THEIR LETTERS DATED 23-12-2000 12 0 2 2000 AND 19-02- 2002 IN CONNECTION WITH TAXABILITY OF THE SAID LUMP SUM CONSIDERATION RECEIVED BY THE APPELLANT FROM THE SAID M/S GENERAL ELECTRIC COMPANY INDIA LIMITED. 4. THE CIT(A) ERRED IN REDUCING DEDUCTION CLAIMED BY T HE APPELLANT UNDER SECTION 80HHB FOR THE PURPOSE OF COMPUTING DE DUCTION UNDER SECTION 80HHC WITHOUT APPRECIATING THE CORRECT FACT S. 5. THE CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT HAD NOT CLAIMED DOUBLE DEDUCTION AS THE PROJECTS WHICH WERE UNDERTA KEN FOR CLAIMING DEDUCTION UNDER SECTION 80HHB WERE ALTOGETHER DIFFE RENT. 6. THE CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT HAD NOT INCLUDED PROFITS OF THE PROJECTS ON WHICH DEDUCTION WAS CLAI MED UNDER SECTION 80HHC AND THEREFORE THERE WAS NO QUESTION OF CLAI MING DOUBLE DEDUCTION. 7. THE CIT(A) ERRED IN ALLOCATING INTEREST AND DEPRECI ATION AS INDIRECT COST FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER S ECTION 80HHC. 8. THE CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT HAD ALREADY TAKEN INTO CONSIDERATION DIRECT COST AND INDIRECT COST WH ILE ARRIVING AT THE FIGURE OF PROFIT ON TRADING GOODS EXPORTED FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC AND THEREF ORE HE WAS NOT JUSTIFIED IN FURTHER ALLOCATING COMPONENT OF IN TEREST AND DEPRECIATION AS INDIRECT COST. 9. THE CIT(A) FAILED TO APPRECIATE THAT AS PER THE RAT IO LAID DOWN BY SPECIAL BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF SURENDRA ENGINEERING COMPANY LIMITED INDIRECT COST WHICH IS ATTRIBUTABLE TO EXPORT ACTIVITY ONLY SHOULD BE TAKEN INTO CONSIDERA TION FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC. 10. THE CIT(A) ERRED IN REDUCING 90% OF THE FOLLOWING R ECEIPTS UNDER EXPLANATION (BAA) TO SECTION 80HHC FOR THE PURPOSE OF ARRIVING AT PROFITS OF THE BUSINESS : I) INTEREST AND DIVIDEND : RS.82 89 760/- II) OCCUPATION FEES : RS.13 94 578/- 3 III) BILL DISCOUNTING CHARGES : RS. 2 51 043/- IV) SALE OF IMPORT ENTITLEMENT : RS.15 09 327/- 11. WITHOUT PREJUDICE TO THE ABOVE THE CIT(A) OUGHT TO HAVE TAKEN INTO CONSIDERATION ONLY NET AMOUNT OF INTEREST OCCUPATI ON FEES BILL DISCOUNTING CHARGES AND SALE OF IMPORT ENTITLEMENT WHICH IS INCLUDED IN PROFITS OF THE BUSINESS AND NOT GROSS A MOUNT OF THE SAID RECEIPTS. 12. THE CIT(A) ERRED IN OBSERVING AS UNDER : EVEN FACTUALLY ANALYSIS DOES NOT ESTABLISH AN Y NEXUS BETWEEN INTEREST AND OTHER RECEIPTS AND EXPENSES DEBITED IN THE ABSENCE OF SEPARATE BOOKS OF ACCOUNTS. 3. WE HAVE HEARD MS. VASANTI PATEL LEARNED COUNSE L FOR THE ASSESSEE AND MR. DAYA SHANKER LEARNED CIT-DR ON BE HALF OF THE REVENUE. MS. VASANTI PATEL FILED A CHART AS WELL AS TWO PAPER BOOKS. 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND PERUSED THE PAPERS ON RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITE D WE HOLD AS FOLLOWS. 5. GROUND NOS. 1 2 AND 3 PERTAIN TO THE ISSUE OF TAXABILITY OF COMPENSATION RECEIVED FROM GENERAL ELECTRIC COMPANY INDIA LIMITED. THE FACTS HAVE BEEN BROUGHT OUT AT PARA 2 TO 2.4 OF THE CIT(APPEALS) ORDER WHICH WE DO NOT REPEAT FOR THE SAKE OF GRAVIT Y. SUFFICE TO SAY THAT THE AO HAS BASED HIS DECISION ON THE CLAIM PREFERRE D BY THE ASSESSEE AS LISTED OUT AT PARA 4 OF THE ASSESSMENT ORDER PAGE 4 . AFTER THE CLAIM WAS MADE THE CIVIL JUDGE SATARA PASSED A DECREE AWARD ING COMPENSATION OF RS.1 90 34 993.75 ON 31-07-1986. THEREAFTER AN APP EAL HAS BEEN FILED BEFORE THE HONBLE BOMBAY HIGH COURT WHICH DIRECTE D GEC TO DEPOSIT RS.50 LAKHS AND FURTHER TO FURNISH A BANK GUARANTEE OF RS.2 CRORES. 4 THEREAFTER THE ASSESSEE-COMPANY WIL AND GEC ENTERED INTO A MEMORANDUM OF UNDERSTANDING. THIS MEMORANDUM OF UND ERSTANDING WAS APPROVED BY THE HONBLE BOMBAY HIGH COURT ON 01 -10-1997. THE ADJUDICATION BY THE AO AS WELL AS THE CIT(APPEALS) ARE NOT BASED ON THIS MEMORANDUM OF UNDERSTANDING AS APPROVED BY THE JURI SDICTIONAL HIGH COURT. AS STATED EARLIER. THE ADJUDICATION WAS BA SED ON A CLAIM MADE BY THE ASSESSEE. THUS IN OUR CONSIDERED OPINION IT WO ULD BE APPROPRIATE TO SET ASIDE THE MATTER TO THE FILE OF THE AO FOR FRES H ADJUDICATION IN ACCORDANCE WITH LAW AFTER TAKING INTO CONSIDERATIO N THE TERMS OF THE MEMORANDUM OF UNDERSTANDING AS APPROVED BY THE HON BLE BOMBAY HIGH COURT. 6. IN THE RESULT GROUND NOS. 1 2 AND 3 ARE ALLOW ED FOR STATISTICAL PURPOSES. 7. GROUND NOS. 4 5 AND 6 ARE ON THE ISSUE OF COMP UTATION OF DEDUCTION U/S 80HHB. 8. AFTER HEARING RIVAL CONTENTIONS WE FIND THAT T HIS BENCH OF THE TRIBUNAL VIDE ITS ORDER DATED 07-02-2005 IN ITA NO. 2689/MUM/2003 I-BENCH HAD CONSIDERED THE VERY SAME ISSUE FOR THE ASSESSMENT YEAR 1998-99 AND QUASHED THE ORDER PASSED U/S 263. WE SE T ASIDE THIS ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN LINE W ITH THE VIEW TAKEN BY HIM IN AN ORDER PASSED CONSEQUENT TO THE REVISION B Y THE CIT CITY-V MUMBAI U/S 263 DATED 18-02-2003. THIS ORDER IS STAT ED TO HAVE BEEN PASSED U/S 143(3) ON 30-03-2004. 9. IN THE RESULT WE SET ASIDE THE ISSUE RAISED IN GROUND NOS. 4 5 AND 6 TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. 5 10. GROUND NOS. 7 8 AND 9 ON THE ISSUE OF COMPUTA TION OF DEDUCTION U/S 80HHC RELATE TO THE ALLOCATION OF DE PRECIATION AND INTEREST AS INDIRECT COST OF CALCULATING PROFIT OF TRADING G OODS EXPORTED. THE ISSUE IS SET ASIDE TO THE FILE OF THE AO FOR FOLLOWING TH E DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SURENDRA ENGIN EERING REPORTED IN 80 ITD 121 (MUM)(S.B.). THE C-BENCH OF THE TRIBUNAL IN ITA NO. 1955/MUM/2001 IN THE ASSESSEES OWN CASE FOR THE AS SESSMENT YEAR 1996- 97 VIDE ORDER DATED 15 TH SEPT. 2004 AT PARA 12 SET ASIDE THE ISSUE TO THE FILE OF THE AO. CONSISTENT WITH THE VIEW TAKEN THER EIN WE SET ASIDE THESE MATTERS TO THE FILE OF THE AO FOR FRESH ADJUDICATIO N IN ACCORDANCE WITH LAW. 11. COMING TO GROUND NOS. 10 11 AND 12 THESE ARE ON THE ISSUE OF COMPUTATION OF DEDUCTION U/S 80HHC ON ACCOUNT OF INTEREST OCCUPATION FEE BILL DISCOUNTING CHARGES AND SALE O F IMPORT ENTITLEMENT. THE ASSESSEE IS MAINLY AGGRIEVED AT THE FINDING OF THE CIT(APPEALS) THAT AS THE ASSESSEE HAS NOT MAINTAINED SEPARATE BOOKS O F ACCOUNT NEXUS CANNOT BE ESTABLISHED BETWEEN THE RECEIPT AND THE E XPENSE. THIS FINDING OF THE CIT(APPEALS) IN OUR HUMBLE OPINION IS NOT CORRECT. FOR ESTABLISHING NEXUS SEPARATE BOOKS OF ACCOUNT NEED NOT BE MAINTAINED. AS ONLY THE NET FIGURE GOES INTO THE FIGURES OF PROFIT S FROM BUSINESS WHAT CAN BE ELIMINATED IS ONLY THE NET FIGURE. IN ANY EVENT WE FIND THAT FOR THE EARLIER ASSESSMENT YEAR 1996-97 THE TRIBUNAL IN ITA NO. 1955/MUM/2001 IN THE ASSESSEES OWN CASE ON A SIMILAR ISSUE HA S SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AND HAS A LSO DIRECTED THE AO TO FOLLOW THE JUDGMENT OF THE SPECIAL BENCH OF THE TRI BUNAL IN THE CASE OF M/S LALSON ENTERPRISES LTD. 89 ITD 25 (S.B.). CONSI STENT WITH THE VIEW TAKEN THEREIN WE SET ASIDE THESE ISSUES TO THE FIL E OF THE AO. 6 12. IN THE RESULT GROUND NOS. 10 11 AND 12 ARE A LLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT THE APPEAL OF THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 11 TH DAY OF MARCH 2010. SD/- SD/- (R.K. GUPTA) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER. MUMBAI DATED : 11 TH MARCH 2010. WAKODE COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR A-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI BENCHES MUMBAI.