The ACIT, Circle-8,, Ahmedabad v. Vishal Exports Overseas Limited, Ahmedabad

ITA 4355/AHD/2007 | 2004-2005
Pronouncement Date: 08-10-2010 | Result: Allowed

Appeal Details

RSA Number 435520514 RSA 2007
Assessee PAN AAACV2354D
Bench Ahmedabad
Appeal Number ITA 4355/AHD/2007
Duration Of Justice 2 year(s) 10 month(s) 1 day(s)
Appellant The ACIT, Circle-8,, Ahmedabad
Respondent Vishal Exports Overseas Limited, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 08-10-2010
Appeal Filed By Department
Order Result Allowed
Bench Allotted C
Tribunal Order Date 08-10-2010
Date Of Final Hearing 05-10-2010
Next Hearing Date 05-10-2010
Assessment Year 2004-2005
Appeal Filed On 07-12-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI MAHAVIR SINGH JM & SHRI A N PAHUJA AM ITA NO.4355/AHD/2007 (ASSESSMENT YEAR:-2004-05) ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-8 AJANTA COMMERCIAL CENTRE A WING ASHRAM ROAD AHMEDABAD V/S VISHAL EXPORTS OVERSEAS LTD. VISHAL HOUSE OPP. SALES INDIA ASHRAM ROAD AHMEDABAD [PAN: AAACV 2354 D] [APPELLANT] [RESPONDENT] ITA NO.4382/AHD/2007 (ASSESSMENT YEAR:-2004-05) VISHAL EXPORTS OVERSEAS LTD. VISHAL HOUSE OPP. SALES INDIA ASHRAM ROAD AHMEDABAD V/S ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-8 AHMEDABAD [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI SHELLEY JINDAL DR ASSESSEE BY:- SHRI S N SOPARKAR AR O R D E R A N PAHUJA: THESE CROSS APPEALS BY THE REVENUE AND THE ASSESS EE DIRECTED AGAINST AN ORDER DATED 28-09-2007 OF THE L D.CIT(APPEALS)- XIV AHMEDABAD RAISE THE FOLLOWING GROUNDS:- ITA NO.4355/AHD/2007[REVENUE] 1 THE LD. CIT(A)-XIV AHMEDABAD HAS ERRED IN LAW A ND ON FACTS IN DIRECTING TO ALLOW DEDUCTION U/S 80HHC OF THE ACT I N RESPECT OF EXPORT TO RUSSIA AMOUNTING TO RS.11 11 70 400/-. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A)- XIV AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF TH E AO. 3 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A)-XIV AHMEDABAD MAY BE SET-ASIDE AND THAT OF THE AO BE RE STORED. ITA NO.4355 & 4382/AHD/07 2 ITA NO.4382/AHD/2007[ASSESSEE] 1. THE LEARNED. COMMISSIONER OF I.T.( APPEALS) HAS ERR ED IN LAW AND IN FACTS WHILE UNRECOGNIZING DEPB/LICENSE AS EXPORT INCENTIVES COVERED UNDER SECTION 28(IIIA) OR 28(III)(B) OF I.T . ACT-1961. 2. THE LEARNED COMMISSIONER OF I.T. (APPEALS) HAS E RRED IN LAW AND FACTS WHILE DISALLOWING PUBLIC ISSUE EXPENSES OF RS .16 51 946/-. 3. THE LEARNED COMMISSIONER OF I.T.(APPEALS ) HAS E RRED IN LAW AND FACTS FOR NOT ALLOWING 10% OF DEPB/LICENSE INSTEAD OF EXPORT INCENTIVES COVERED UNDER SECTION 28(IIIA) (IIIB) A ND 28(IIIC) AGAINST INDIRECT EXPENSES FOR DEDUCTION U/S 80HHC(3)OF I.T. ACT. 4. THE LEARNED COMMISSIONER OF I.T.(APPEALS) HAS FA ILED TO INTERPRET CORRECTLY THE TERMS 'TOTAL TURNOVER' AND 'EXPORT TU RNOVER' FOR THE PURPOSE OF SECTION 80HHC(3)OF I.T. ACT. 5. THE LEARNED COMMISSIONER OF I.T. (APPEALS) HAS E RRED IN LAW AND IN FACTS WHILE INTERRUPTING PROVISO TO SECTION 80HHC(1 ) OF REDUCTION IN DEDUCTION ON ACCOUNT OF DISCLAIMER CERTIFICATE ISSU ED TO SUPPORTING MANUFACTURING. 6. THE LEARNED COMMISSIONER OF I.T.(APPEALS) HAS ER RED IN LAW IN FACTS WHILE DISALLOWING EXPENSES OF RS.1 31 406/- AS CONS ULTANCY FEES PAID TO DALAI MACDONALD. 7. THE PROPOSITION OF THE LEARNED COMMISSIONER OF I .T. (APPEALS) FOR CHARGEABILITY OF INTEREST U/S 234B 234C & 234D OF T HE INCOME TAX ACT 1961 MAY BE DIRECTED TO DELETE. 8. THE APPELLANT COMPANY RESERVES THE RIGHTS TO APP END ALTER DELETE AND MODIFY ANY OR ALL GROUNDS OF APPEAL. 2 ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL OF T HE REVENUE FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT TH E RETURN DECLARING NIL INCOME UNDER THE NORMAL PROVISIONS AND BOOK PROFITS U/S 115JB OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO A S THE ACT] FILED ON 01-11-2004 BY THE ASSESSEE A PUBLIC LIMITED COM PANY ENGAGED IN THE BUSINESS OF IMPORTS/EXPORTS AND GENERATION O F ELECTRICITY AFTER BEING PROCESSED U/S 143(1) OF THE ACT WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 01-08- 2005. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFF ICER[AO IN SHORT]NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION U /S 80HHC OF THE ITA NO.4355 & 4382/AHD/07 3 ACT ON THEIR PROFITS ON EXPORTS OF RS.11 11 70 400 /- TO RUSSIA. A SIMILAR CLAIM HAD BEEN DISALLOWED IN ASSESSMENT YEA R (AY) 2003-04 IN CONSEQUENCE OF SEARCH BY THE DIRECTORATE OF REVE NUE INTELLIGENCE (DRI) AND SUBSEQUENT SHOWCAUSE NOTICE.. SINCE THE A SSESSEE HAD EXPORTED THE GOODS WORTH RS.11 11 70 400/- TO RUSSI A IN THE YEAR UNDER CONSIDERATION THE AO SHOWCAUSED THE ASSESSEE AS WHY THE CLAIM FOR DEDUCTION U/S 80HHC BE NOT DISALLOWED ON THE PROFITS ARISING FROM EXPORTS TO RUSSIA. THE ASSESSEE EXPLAI NED THAT A SIMILAR CLAIM DISALLOWED IN AY 2003-04 HAD BEEN DE LETED BY THE LEARNED CIT(A). IN THE PRECEDING YEAR IT WAS NOT ICED THAT A SEARCH WAS CARRIED OUT BY THE DRI ZONAL UNIT AHMEDABAD I N THE BUSINESS PREMISES OF THE ASSESSEE AS WELL AS CONNECTED PARTI ES ON 29 TH AND 30 TH JANUARY 2004 WHEN THE DRI NOTICED THAT THE ASSESS EE DID NOT FULFILL THE FOLLOWING FIVE CONDITIONS MENTIONED IN THEIR CIRCULARS NO. 2 DATED 18.5.1995 & NO. 12 DATED 27.8.1996:- 1) LETTER OF CREDIT (LC) TO BE OPENED BY RUSSIAN B UYER WITH THE BANK OF FOREIGN ECONOMIC AFFAIRS (BFEA) MOSCOW IN FAVOU R OF THE INDIAN EXPORTER; 2) THE INDIAN EXPORTER SHALL REGISTER THE LETTER OF CREDIT WITH THE RESERVE BANK OF INDIA; 3) THE LETTERS OF CREDIT OPENED BY THE BFEA ARE OP EN TO NEGOTIATION ONLY BY THE BANKS NOMINATED FOR THIS PURPOSE BY THE RESERVE BANK OF INDIA; 4) THE GOODS MUST BE MEANT FOR EXPORT TO RUSSIAN T ERRITORY ONLY AND NO THIRD COUNTRY EXPORTS ARE PERMITTED; 5) NO REIMBURSEMENT WILL BE MADE IN CASE OF SHIPMEN T MADE PRIOR TO OPENING OF LETTER OF CREDIT OR PRIOR TO REGISTRATIO N OF THE LETTER OF CREDIT WITH THE RESERVE BANK OF INDIA. 2.1 INTER ALIA IT WAS NOTICED BY THE DRI THAT IN ORDER TO AVAIL OF HIGHER EXPORT INCENTIVES THE ASSESSEE INFLATED TH E FOB PRICE OF EXPORTS AND MANIPULATED THE SHIPPING BILLS BILLS OF LADING ETC. WHILE THE RUSSIAN FIRMS WERE FOUND TO BE NON-EXISTENT. TH E ASSESSEE ITA NO.4355 & 4382/AHD/07 4 HOWEVER EXPLAINED THAT SINCE GOODS EXPORTED BY THE M WERE CLEARED AT THE INDIAN PORT BY THE CUSTOM AUTHORITY AS PER T HE BILL OF LADINGWHILE THE PAYMENT THEREOF WAS RECEIVED THROUG H THE BANK FOR FOREIGN ECONOMICS AFFAIRS OF RUSSIA AND RBI AND THE GOODS WERE SOLD ON FOB BASIS AS PER CONTRACT AND L/C THE ASSE SSEE WAS ENTITLED TO DEDUCTION U/S 80HHC OF THE ACT. IT WAS POINTED OUT THAT THE DRI DID NOT CONDUCT FULL INVESTIGATION AND THER E WAS NO BASIS FOR CONCLUDING THE INFLATION IN PRICE. MOREOVER SINCE RUSSIANS HAD NOT BEEN EXAMINED AND THERE WAS NO FINDING BY THE DRI THAT THE GOODS HAD NOT BEEN PHYSICALLY MOVED FROM THE INDIAN PORTS THE CONDITIONS STIPULATED U/S 80HHC WERE FULFILLED THE ASSESSEE C ONTENDED. HOWEVER THE AO DID NOT ACCEPT THE CONTENTIONS OF T HE ASSESSEE ON THE GROUND THAT THE EVIDENCES COLLECTED BY THE DRI PROVED THAT THE EXPORTS TO RUSSIA WERE NOT FULFILLING THE AFORESAID STIPULATED FIVE CONDITIONS AND THERE WAS NO MOVEMENT OF FOREIGN CON VERTIBLE CURRENCY IN THESE EXPORTS AND ONLY VALUE OF GOODS W AS REIMBURSED BY THE RBI IN INDIAN RUPEES THROUGH THE NOMINATED B ANK. ACCORDINGLY THE AO DISALLOWED THE CLAIM FOR DEDUCT ION U/S 80HHC ON EXPORTS TO RUSSIA. 3. ON APPEAL THE LEARNED CIT(A) WHILE RELYING UPON HIS OWN FINDINGS IN THE AY 2003-04 ALLOWED THE CLAIM. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE FINDINGS OF THE AO .ON THE OTHER HAND THE LEARNED AR ON BEHALF OF THE ASSESSEE WHILE INVITING OUR ATTENTION TO AN ORD ER DATED 13-09- 2010 OF THE ITAT IN THE CASE OF A SISTER CONCERN M /S VISHAL PLASTOMERS PRIVATE LTD. FOR THE AY 2003-04 IN ITA NO.2740/AHD/2006 CONTENDED THAT THERE WERE NO VALID REASONS FOR DISALLOWING THE CLAIM U/S 80HHC OF THE ACT. ITA NO.4355 & 4382/AHD/07 5 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISION OF THE ITAT IN THE CASE OF SISTER CONCERN OF THE ASSESSEE . WE FIND THAT WHIL E ADJUDICATING A SIMILAR ISSUE IN THE CASE OF M/S VISHAL PLASTOMER S PRIVATE LTD. FOR AY 2003-04 THE TRIBUNAL VIDE THEIR AFORESAID ORDER DATED 13-09- 2010 CONCLUDED AS UNDER:- 4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSES SEE CLAIMED DEDUCTION UNDER SECTION 80HHC ON EXPORT OF T. SHIRTS OF RS.5. 21 CRORES TO A RUSSIAN PARTY. THE LEARNED AO OBSERVED THAT THE DRI ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ON THE GROUND THAT ASSESSEE HAS SHO WN INFLATED FOB PRICE IN ORDER TO CLAIM MORE CUSTOMS BENEFIT. THE L EARNED ASSESSING OFFICER FURTHER OBSERVED THAT THE DRI HAS ALLEGED T HAT THE ASSESSEE HAS MANIPULATED THE SHIPPING BILLS THE BILLS OF LADING ETC. SO AS TO SHOW THE SAME AS EXPORT TO THE DESTINATION IN USSR IN THE DO CUMENTS SUBMITTED TO THE RBI THROUGH THE NOMINATED BANKS FOR RELEASE OF PAYMENT IN TERMS OF THE LC WHEREAS THE SHIPPING WAS MADE TO DESTINATIO NS OTHER THAN USSR. THE LEARNED ASSESSING OFFICER HAS FURTHER OBSERVED THAT THE DRI HAS STATED THAT THE DATE OF EXPORT WAS PRIOR TO OPENING OF LC WHICH WAS IN VIOLATION OF THE RBI CIRCULAR NO.12 OF 27-8-1996. T HUS IN THE OPINION OF THE LEARNED ASSESSING OFFICER THE ASSESSEE HAS NOT SATI SFIED THE CONDITIONS FOR EXPORT TO RUSSIA. HE THEREFORE DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 5. ON THE APPEAL LEARNED COMMISSIONER OF INCOME TA X (APPEALS) OBSERVING AS QUOTED ABOVE IN THIS ORDER DIRECTED T HE LEARNED ASSESSING OFFICER TO ALLOW DEDUCTION UNDER SECTION 80HHC. 6. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE UNDER SECTION 80HHC WAS MADE BY THE LEARNED ASSESSING OFFICER ON THE BASIS OF ALLEGATIO N MADE BY DRI AGAINST THE ASSESSEE. HE SUBMITTED THAT SIMILAR ALLEGATION ON THE SIMILAR FACTS WERE ALSO LEVIED BY THE DRI AGAINST A SISTER CONCERN OF THE ASSESSEE NAMELY M/S. VISHAL EXPORTS OVERSEAS LTD. AND THE HON'BLE SUPREME COURT VIDE ITS ORDER DATED 12-2-2007 PASSED IN THE CASE OF M/S VIS HAL EXPORTS OVERSEAS LTD. REPORTED IN (2007)-(XC2)-GJX-0032-SC FOUND TH E ALLEGATION AS INCORRECT. ACCORDING TO THE LEARNED AUTHORISED REPR ESENTATIVE OF THE ASSESSEE IN VIEW OF THIS DECISION OF THE HONBLE SU PREME COURT ALLEGATION MADE BY THE LEARNED ASSESSING OFFICER IN THE INSTAN T CASE DOES NOT SURVIVE. 7. WE FIND THAT THE ORDER OF THE HON'BLE SUPREME CO URT DATED 12-2- 2007 PASSED IN THE CASE OF M/S. VISHAL EXPORTS OVER SEAS LTD. (SUPRA) WAS NOT CONSIDERED BY BOTH THE LOWER AUTHORITIES. FURTH ER THE FINAL OUTCOME OF ITA NO.4355 & 4382/AHD/07 6 THE DRI ALLEGATION IN THE CASE OF THE ASSESSES COUL D NOT BE INFORMED TO US BY BOTH THE PARTIES. IN THE CIRCUMSTANCES IN OUR C ONSIDERED OPINION IT SHALL BE IN THE INTEREST OF JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR ADJUDICATION AFRESH I N THE LIGHT OF THE ABOVE MENTIONED DECISION OF THE HON'BLE SUPREME COURT. TH E LEARNED ASSESSING OFFICER IS DIRECTED TO VERIFY THE POINTS OF THE FINAL OUTCOME OF ALLEGATIONS MADE BY THE DRI AGAINST THE ASSESSEE AN D TO TAKE INTO CONSIDERATION THE DECISION OF THE HON'BLE SUPREME C OURT AND CBDT CIRCULAR NO.562 OF 23-5-1990 AND THEREAFTER TO DEC IDE THE ISSUE AFRESH IN ACCORDANCE WITH THE LAW AFTER ALLOWING REASONABLE O PPORTUNITY OF HEARING TO THE ASSESSEE. 8 IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOW ED FOR STATISTICAL PURPOSES. 5.1 IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISION ESPECIALLY WHEN THE ASSESSEE DID NOT SUBMIT A COPY OF ORDER DATED 12-2- 2007 OF THE HONBLE APEX COURT IN THE CASE OF M/S VISHAL EXPORTS OVERSEAS LT D. REPORTED IN (2007)-(XC2)- GJX-0032-SC BEFORE US DESPITE REQUEST MADE NOR T HE LOWER AUTHORITIES HAD BENEFIT OF THE SAID DECISION WHILE THE FINAL OUTC OME OF DRI INVESTIGATION IS NOT EVIDENT FROM THE IMPUGNED ORDERS NOR THE LD. AR CO ULD THROW LIGHT ON THIS ASPECT WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE TH E ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR READJUDIC ATING THE ISSUE RAISED IN THIS GROUND AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF AFORESAID OBSERVATIONS AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE AND OF COURSE AFTER CONSIDERING THE AFORESAID DECISION OF HONBLE APEX COURT AND CIRCUL AR NO.562 DATED 23-5-1990 OF THE CBDT AS ALSO AFTER ASCERTAINING THE FINAL OU TCOME OF DRI INVESTIGATIONS. WITH THESE OBSERVATIONS GROUND NO. 1 IN THE APPEA L OF THE REVENUE IS DISPOSED OF. 6. ADVERTING NOW TO GROUND NO.1 IN THE APPEAL OF A SSESSEE RELATING TO TAXATION OF EXPORT INCENTIVES ON ACCOUN T OF DEPB LICENSES THERE IS NO DISCUSSION ON THIS ASPECT IN THE ORDER OF THE AO OR THE LEARNED CIT(A). THE LEARNED AR ON BEHALF OF THE ASSESSEE BEFORE US ADMITTED THAT DEPB LICENSE IS NOW COVERED UNDER SEC. 28(IIID) OF THE ACT INSERTED BY THE TAXATION LAWS( SECOND ITA NO.4355 & 4382/AHD/07 7 AMENDMENT) ACT 2005 WITH EFFECT FROM 1.4.1998. IN VIEW OF THIS PLEA OF THE LEARNED AR GROUND NO.1 IS DISMISSED. 7. GROUND NO.2 RELATES TO DISALLOWANCE OF PUBLIC IS SUE EXPENSES OF RS.16 51 946/-. THE AO NOTICED THAT THE ASSESSEE INCURRED THE FOLLOWING EXPENSES IN RESPECT OF PUBLIC ISSUE:- (A) RS.2 83 838 PAID TO H J PARIKH (B) RS.9 08 280 PAID TO P K MODI & CO. (C) RS.1 62 000 PAID TO P K MODI & CO. (D) RS.2 97 828 PAID TO SBI CAPITAL MARKET LTD. ----------------- RS.16 51 946/- TO A QUERY BY THE AO THE ASSESSEE EXPLAINED THAT T HE EXPENDITURE WAS INCURRED IN RELATION TO THE OFFER FOR SALE OF C OMPANYS SHARES FOR LISTING IN STOCK EXCHANGES. NEITHER SHARE CAPITAL O F THE COMPANY HAD INCREASED NOR ANY FUNDS WERE RECEIVED NOR EVEN ANY PECUNIARY BENEFIT OF ENDURING NATURE WAS GAINED. ACCORDINGLY RELYING UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. GENERAL INSURANCE CORPORATION 286 ITR 232 THE ASS ESSEE CONTENDED THAT THE EXPENDITURE COULD NOT BE DISALLO WED. HOWEVER THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESS EE ON THE GROUND THAT THE ANNUAL REPORT OF THE ASSESSEE COMPANY MEN TIONED THAT THE PROMOTERS DISINVESTED 25% OF THE SHARE CAPITAL BY I PO AND THEREFORE THE EXPENDITURE IS CAPITAL IN NATURE. TH E AO FURTHER ALLOWED THE DEDUCTION U/S 35D OF THE ACT. 8. ON APPEAL THE LEARNED CIT(A) MERELY AGREED WITH THE OBSERVATIONS OF THE AO AND CONCLUDED THAT EXPENDITU RE IS NOT OF REVENUE IN NATURE. 9. GROUND NO.3 IN THE APPEAL OF THE ASSESSEE REL ATES TO DEDUCTION IN TERMS OF EXPLANATION (BAA) TO SECTION 80HHC WHILE ITA NO.4355 & 4382/AHD/07 8 GROUND NOS.4 AND 5 RELATE TO INTERPRETATION OF THE TERMS TOTAL TURNOVER AND EXPORT TURNOVER AND REDUCTION IN DE DUCTION U/S 80HHC OF THE ACT ON ACCOUNT OF DISCLAIMER CERTIFICA TE ISSUED TO SUPPORTING MANUFACTURERS. THE AO REJECTED THE CLAIM FOR DEDUCTION U/S 80HHC ON THE PROFITS ATTRIBUTABLE TO THE DEPB L ICENSE IN VIEW OF THE AMENDMENT BY TAXATION LAWS(SECOND AMENDMENT) AC T 2005 THE TURNOVER OF THE ASSESSEE EXCEEDING RS.10 CRORES AND THE ASSESSEE HAVING NOT FULFILLED THE CONDITIONS STIPUL ATED UNDER THE THIRD PROVISO TO SECTION 80HHC(3) OF THE ACT. 10. ON APPEAL THE LEARNED CIT(A) UPHELD THE FINDIN GS OF THE AO ON THE GROUND THAT THE AO CORRECTLY ALLOWED THE DEDUCT ION. THE FINDINGS OF THE LD. CIT(A) ON THE ISSUES RAISED IN THESE THR EE GROUNDS ARE AS UNDER: 4 THE SECOND GROUND OF APPEAL IS WITH REGARD TO NO T ALLOWING DEDUCTION U/S 80HHC OF THE ACT WITH REFERENCE TO DE PB INCOME. THE AO HAS NOT ALLOWED DEDUCTION IN RESPECT OF THIS ITEM WHEREAS THE APPELLANT HAS SUBMITTED THAT IT IS IN THE NATURE OF EXPORT IN CENTIVE AND THEREFORE IT IS ENTITLED TO DEDUCTION U/S 80HHC OF THE ACT. I HAVE CONSIDERED THE FACTS AND I DONT AGREE WITH THE VIEWS OF THE APPELLANT. THE EXPORT TURNOVER IN APPELLANTS CASE EXCEEDS RS.10 CR. AND AS PER THE AMENDED PROVISIONS OF SEC. 80HHC WHEN THE TURNOVER EXCEEDS RS. 10 CR. D EDUCTION U/S. 80HHC ON DEPB RECEIPT IS NOT AVAILABLE UNLESS THE APPELL ANT FULFILLS THE CONDITIONS SPECIFIED THEREIN. THE APPELLANT HAS NOT FURNISHED ANY EVIDENCE WHICH SHOWS THAT IT SATISFIES ALL THE CONDITIONS AND HENC E THE ACTION OF AO IN THIS REGARD WAS JUSTIFIED AND THE SAME IS HEREBY UPHELD. 6. THE FOURTH GROUND OF APPEAL IS WITH REGARD TO NO T ALLOWING 10% OF DEPB LICENCE AGAINST INDIRECT EXPENSES FOR DEDUCTIO N U/S. 80HHC OF THE ACT. THE APPELLANT HAS SUBMITTED THAT 10% OF DEPB L ICENCE SHOULD BE ALLOWED AS INDIRECT EXPENSES FOR CALCULATING THE DE DUCTION U/S. 80HHC OF THE ACT. I HAVE CONSIDERED THE FACTS OF THE CASE AN D I DO NOT AGREE WITH THE APPELLANT'S VIEWS. THE AO HAS CALCULATED THE INDIRE CT EXPENSES AND CORRECTLY ALLOWED DEDUCTION U/S. 80HHC AS PER THE P ROVISIONS OF THE I.T. ACT. THIS GROUND IS ALSO REJECTED . 7. THE FIFTH GROUND OF APPEAL IS AGAINST WRONG INTE RPRETATION BY THE AO THE TERMS 'TOTAL TURNOVER' AND 'EXPORT TURNOVER' FO R THE PURPOSE OF SEC. 80HHC(3) IOF THE ACT. IT IS SEEN THAT THE AO HAS CO RRECTLY TAKEN THE VALUE OF EXPORT TURNOVER AND NOT ALLOWED THE DEDUCTION U/ S. 80HHC OF THE ACT AS PER THE PROVISIONS OF THE I.T. ACT. THE APPELLANT G ETS NO RELIEF ON THIS POINT. ITA NO.4355 & 4382/AHD/07 9 8. THE SIXTH GROUND OF APPEAL RELATES TO THE INTERP RETATION OF PROVISO TO SEC. 80HHC(1) OF REDUCTION IN DEDUCTION ON ACCOUNT OF DISCLAIMER CERTIFICATE ISSUED TO SUPPORTING MANUFACTURING. THE ASSESSEE HAS ISSUED DISCLAIMER CERTIFICATE AMOUNTING TO RS.7 78 13 76 6 32/- TO THE SUPPORTING MANUFACTURERS. THE AO HAS NOT ALLOWED DEDUCTION U/S . 80HHC IN RESPECT OF DISCLAIMER CERTIFICATE ISSUED. THE APPELLANT HAS SUBMITTED THAT IT HAS NOT EARNED ANY PROFIT IN RESPECT OF SUCH EXPORT AND HEN CE THE DEDUCTION U/S. 80HHC SHOULD NOT REDUCED. I HAVE CONSIDERED THE FAC TS AND I DO NOT-AGREE WITH ITS VIEWS. THE AO HAS FOLLOWED THE PROVISIONS OF THE I.T. ACT CORRECTLY AND NOT ALLOWED DEDUCTION IN RESPECT OF DISCLAIMER CERTIFICATE ISSUED. HENCE THIS GROUND IS ALSO REJECTED. 11. GROUND NO.6 IN THE APPEAL OF THE ASSESSEE REL ATES TO DISALLOWANCE OF EXPENSES OF RS.1 31 406/- ON ACCOUN T OF CONSULTANCY FEES PAID TO DALAL MACDONALD. THE AO NO TICED THAT THE ASSESSEE PAID AN AMOUNT OF RS.1 31 406/- TO DALAL M ACDONALD ON ACCOUNT OF CONSULTANCY FEES FOR STUDY ON IDENTIFYIN G INVESTMENT OPPORTUNITY IN INFRASTRUCTURE PROJECTS IN GUJARAT. HOWEVER THE AO REJECTED THE CONTENTION OF THE ASSESSEE WITHOUT ASS IGNING ANY REASONS. 12. ON APPEAL THE LEARNED CIT(A) UPHELD THE FINDIN GS OF THE AO IN THE FOLLOWING TERMS:- 9. THE SEVENTH GROUND OF APPEAL IS WITH REGARD TO DISALLOWANCE OF RS.1 31 406/-AS CONSULTATION FEES PAID TO DALAI MAC DONALD. THE ASSESSEE HAS PAID RS.1 31 406/- TO DALAI MACDONALD AS CONSUL TANCY FEES FOR STUDY ON IDENTIFYING INVESTMENT OPPORTUNITY INFRASTRUCTU RE PROJECTS IN GUJARAT. THE AO HAS DISALLOWED THE SAME BY TREATING IT AS CA PITAL EXPENDITURE. THE APPELLANT HAS SUBMITTED THAT IT SHOULD BE ALLOWED A S REVENUE EXPENDITURE. I DO NOT AGREE WITH THE APPELLANT'S VIEWS. THE AO WAS QUITE JUSTIFIED IN TREATING IT AS CAPITAL IN NATURE AND HENCE THE APPE LLANT GETS NO RELIEF ON THIS GROUND. 13. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A) IN TERMS OF GROUND NOS.2 TO 6 OF THE APPEAL. THE LEARNED AR ON BEHALF OF THE ASSESSEE CO NTENDED THAT THE ORDER OF THE CIT(A) IS CRYPTIC AND DID NOT ADDU CE ANY REASONS FOR UPHOLDING THE AFORESAID DISALLOWANCE MADE BY THE AO . TO A QUERY BY ITA NO.4355 & 4382/AHD/07 10 THE BENCH BOTH THE PARTIES AGREED THAT SINCE THE L EARNED CIT(A) HAVE NOT ADDUCED ANY REASONS FOR UPHOLDING THE FIND INGS OF THE AO THE ISSUES RAISED IN THESE GROUNDS MAY BE RESTORED TO THE FILE OF THE AO FOR RE-CONSIDERATION. 14. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT WITHOUT ANALYSING THE FACTS IN THE ISSUES INVOLVED IN THESE GROUNDS NOS. 2 TO 6 THE LD. CIT( A) MERELY AGREED WITH THE OBSERVATIONS OF THE AO. A MERE GLANCE AT T HE IMPUGNED ORDER REVEALS THAT THE LD. CIT(A) HAVE NOT ASSIGNED ANY REASONS AT ALL WHILE UPHOLDING THE CONCLUSIONS OF THE AO NOR ANALYSED THE ISSUES IN THEIR PROPER PERSPECTIVE. IN THE ABSENCE OF ANY REASONS FOR UPHO LDING THE FINDINGS OF THE AO WE ARE OF THE OPINION THAT THE AFORESAID ORDER OF THE LD. CIT(A) IS NOT A SPEAKING ORDER. THE APPLICA TION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST IT SELF IN THE ORDER. SECTION 250(6) OF THE INCOME TAX ACT 1961 MANDATES THAT TH E ORDER OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHA LL STATE THE POINTS FOR DETERMINATION THE DECISION THEREON AND THE REASON FOR THE DECISION. AS IS APPARENT FROM THE IMPUGNED ORDER IN OUR OPINION T HE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE NAMELY THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS REASONED ORDER WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEFORE IT. TH E REQUIREMENT OF RECORDING OF REASONS AND COMMUNICATION THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PROCEDURE. THE REQUIREMENT OF RECOR DING OF REASONS BY THE QUASI- JUDICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO E NSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARITY CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZES ARBITRARINESS IN THE D ECISION-MAKING PROCESS. WE MAY REITERATE THAT A DECISION DOES NOT MERELY MEA N THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE C ONCLUSION.[MUKHTIAR SINGH VS. STATE OF PUNJAB (1995)1SCC 760(SC)]. WE FIND THAT T HE IMPUGNED ORDER SUFFERS FROM LACK OF REASONING AND IS NOT A SPEAKING ORDER . IN VIEW OF THE FOREGOING ESPECIALLY WHEN THE LD. CIT(A) HAVE NOT PASSED A SP EAKING ORDER ON THE ISSUES ITA NO.4355 & 4382/AHD/07 11 RAISED IN GROUND NOS. 2 TO 6 IN THE APPEAL OF THE A SSESSEE WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUES RAISED IN THESE GROUN DS AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE ISSUE THE LEARNED CIT(A) SHAL L PASS A SPEAKING ORDER KEEPING IN MIND INTER ALIA THE MANDATE OF PROVISI ONS OF SEC. 250(6) OF THE ACT. WITH THESE OBSERVATIONS GROUND NOS. 2 TO 6 IN TH E APPEAL OF THE ASSESSEE IS DISPOSED OF. 15. GROUND NO.7 IN THE ASSESSEES APPEAL RELATES T O LEVY OF INTEREST U/S 234B 234C AND 234D OF THE ACT. ON COM PLETION OF ASSESSMENT THE AO CHARGED INTEREST IN TERMS OF THE SE PROVISIONS. ON APPEAL THE LD. CIT(A) HELD THAT CHARGING OF IN TEREST IS CONSEQUENTIAL. 16. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID OBSERVATIONS OF THE LD. CIT(A).THE LEARNED AR ON BE HALF OF THE ASSESSEE WHILE REFERRING TO AN ORDER DATED 30-07-20 10 OF THE TRIBUNAL IN THE CASE OF INTAS EXPORTS IN ITA NOS.18 19 AND 1820/AHD/2008 FOR AYS 2003-04 AND 2004-05 CONTENDE D THAT SINCE THE ASSESSEE WAS NOT AWARE OF THE FORTHCOMING AMEND MENTS IN SEC. 80HHC OF THE ACT NO INTEREST IN TERMS OF THESE PRO VISIONS COULD BE LEVIED. 22 ON THE OTHER HAND THE LEARNED DR ARGUED THAT LEVY OF INTEREST U/S 234B 234C AND 234D OF THE ACT BEING MANDATORY AS HELD IN THE DECISION OF THE HON'BLE SUPREME COURT I N THE CASE OF ANJUM M.H. GHASWALA (2001) 252 ITR 1 (SC) THERE WAS NO INFIRMITY IN THE DIRECTIONS OF THE LEARNED CIT(A). 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THR OUGH THE AFORESAID DECISION OF THE ITAT RELIED UPON BY THE L D. AR. IN FACT THE LEVY OF INTEREST U/S 234 B & 234C OF THE ACT HAS B EEN EXAMINED AT LENGTH BY THE FIVE JUDGES CONSTITUTIONAL BENCH OF THE APEX COURT IN THE CASE OF CIT V. ANJUM M.H. GHASWALA [2001] 252 ITR 1 (THOUGH IN THE CONTEXT OF POWER OF SETTLEMENT ITA NO.4355 & 4382/AHD/07 12 COMMISSION TO REDUCE OR WAIVE THE INTEREST) AND IT WAS HELD THAT THE ASSESSING AUTHORITY HAS NO POWER TO REDUCE OR WAIVE INTEREST STATUTORILY PAYABLE UNDER THE SAID SECTIONS. THEREFORE THE LEVY OF INTEREST U/S 234B 234C& 234D OF THE ACT BEING MANDATORY IN TERMS OF THE SAID DECISION IN A NJUM M. H. GHASWALA AND OTHERS(SUPRA) AFFIRMED BY HON'BLE APEX COURT IN TH E CASE OF CIT V. HINDUSTAN BULK CARRIERS [2003] 259 ITR 449 (SC) AND IN THE CASE OF CIT V. SANT RAM MANGAT RAM JEWELLERS [2003] 264 ITR 564 (SC) ] WE ARE OF THE OPINION THAT RELIANCE BY THE LD. AR ON THE AFORESAID DECISION OF THE ITAT IS TOTALLY MISPLACED. ACCORDINGLY THIS GROUND IS DISMISSED.HOWEVER THE AO SHALL ALL OW CONSEQUENTIAL RELIEF IF ANY WHILE GIVING EFFECT TO OUR AFORESAID DIRECTIONS. 18. GROUND NOS.2 & 3 IN THE APPEAL OF THE REVENUE BEING PRAYER AND GENERAL IN NATURE DO NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED IN TE RMS OF RESIDUARY GROUND NO. 8 IN THE APPEAL OF THE ASSESSEE THESE G ROUNDS ARE DISMISSED. 19. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWE D WHILE THAT OF THE ASSESSEE IS PARTLY ALLOWED BUT BOTH FOR STAT ISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 8-10-2010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 8-10-2010 COPY OF THE ORDER FORWARDED TO: 1. VISHAL EXPORTS OVERSEAS LTD. VISHAL HOUSE OPP. SALES INDIA ASHRAM ROAD AHMEDABAD 2. ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-8 AHMEDABAD 3. CIT CONCERNED 4. CIT(A) 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD