M/S. SUN TRNASLINK (INDIA) PVT. LTD, MUMBAI v. THE DCIT RG 8(3),

ITA 5044/MUM/2007 | 2003-2004
Pronouncement Date: 11-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 504419914 RSA 2007
Assessee PAN AAACS6293E
Bench Mumbai
Appeal Number ITA 5044/MUM/2007
Duration Of Justice 3 year(s) 7 month(s) 22 day(s)
Appellant M/S. SUN TRNASLINK (INDIA) PVT. LTD, MUMBAI
Respondent THE DCIT RG 8(3),
Appeal Type Income Tax Appeal
Pronouncement Date 11-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 11-03-2011
Date Of Final Hearing 28-02-2011
Next Hearing Date 28-02-2011
Assessment Year 2003-2004
Appeal Filed On 20-07-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI BEFORE SHRI J SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 1699 AND 5044 /MUM/2007 (ASSESSMENT YEARS 2002-03 AND 2003-04) SUN TRANSLINK (INDIA) P LTD 1 SMRUTI ASHOK NAGAR SOCIELTY JVPD SCHEME VILE PAREL (W) MUMBAI-400059 PAN: AAACS6293E .APPELLANT VS INCOME TAX OFFICER WARD 8(3)(2) AAYAKAR BHAVAN MUMBAI-400020 .RESPONDENT ASSESSEE BY : SHRI N M POZDL REVENUE BY : SHRI D SONGATE O R D E R PER VIJAY PAL RAO THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE TWO DIFFERENT ORDERS OF THE CIT(A) DATED 28.11.2006 AND 10.4.2007 FOR THE ASSESSMENT YEAR 2002-03 AND 200 3-04 RESPECTIVELY ITA NO. 1699 /MUM/2007 2. THE ASSESSEE RAISED THE FOLLOWING EFFECTIVE GROU NDS : 1. ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRM ING ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 2 ASSESSMENT MADE BY THE AO ASSESSING APPELLANT ON TOTAL INCOME OF RS.64 71 420/- AS AGAINST THE RETURNED INCOME BY THE APPELLANT OF RS.2972796/-. THE APPELLANT DISPUTES ALL THE ADDITIONS DISALLOWANCES OBSERVATIONS AND WRONGFUL VARIATIONS AND SUBMIT THAT IT IS RETURN INCOME BE ACCEPTED AS CORRECT INCOME. PROVISIONS OF THE ACT OUGHT TO HAVE BEEN PROPERLY CONSTRUED AND REGARD BEING HAD TO FACTS OF THE CASE NO SUCH ADDITIONS/DISALLOWANCES SHOULD HAVE BEEN MADE 2(A). ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRM ING REJECTION OF CLAIM MADE UNDER SECTION 80HHC OF RS.3498621/- BY THE APPELLANT. PROVISIONS OF THE A CT OUGHT TO HAVE BEEN PROPERLY CONSTRUED AND REGARD BEING HAD TO FACT OF THE CASE DEDUCTION UNDER SECT ION 80HHC SHOULD NOT HAVE BEEN REJECTED AND TAKEN AT NIL. REASONS ASSIGNED BY HIM ARE WRONG AND INSUFFICIENT TO JUSTIFY REJECTION OF CLAIM MADE UND ER SECTION 80HHC OF THE ACT; 3.(A) ON THE FACTS AND IN THE CIRCUM STANCES OF TH E CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRM ING CONCLUSION ARRIVED AT BY THE AO THAT IT IS ONLY PR OFIT ON TRANSFER OF DEPB LICENCES IS ELIGIBLE FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT AND REMAINING UNSOLD PORTION OF DEPBL LICENCES OF RS.8675887/- ARE NOT COVERED UNDER SECTION 28(IID)/28(IIIE) AND SAME ARE CONSIDERED AS ANY OTH ER RECEIPT OF A SIMILAR NATURE AND THEREFORE 90% THEREFORE SHOULD BE REDUCED FROM THE PROFIT OF THE BUSINESS WHILE CALCULATING DEDUCTION UNDER SECTION 80HHC OF THE ACT; 4.(A) ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRM ING THE CONCLUSION ARRIVED AT BY THE AO THAT 90% OF INTEREST OF RS.105781/- 90% OF PRODUCT CONSULTANCY O F RS.1101788/- AND 90% OF LABOUR CHARGES OF RS.89743/- ON GROSS RECEIPT BASIS BE DEDUCTED FROM PROFIT OF THE BUSINESS CALCULATED AS PER EXPLANATI ON (BAA) TO SECTION 80HHC OF THE ACT INSTEAD OF ON NET BASIS AS CLAIMED BY THE APPELLANT. PROVISIONS OF THE ACT OUGHT TO HAVE BEEN PROPERLY CONSTRUED AND REGAR D BEING HAD TO FACTS OF THE CASE SUCH CONCLUSION SHOU LD NOT HAVE BEEN CONFIRMED. REASONS ASSIGNED BY HIM ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 3 ARE WRONG AND INSUFFICIENT TO CONFIRM CONCLUSION SO ARRIVED AT; 5(A) ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRM ING CONCLUSION SO ARRIVED AT BY THE AO THAT 10% ADHOC DEDUCTION FROM INTEREST LABOUR CHARGES AND PRODUC T CONSULTANCY CHARGES IS PROVIDED FOR TO ACCOUNT FOR THOSE EXPENSES. THE LD. CIT(A) FURTHER ERRED IN CONFIRMING THAT IT IS GROSS AMOUNT OF INTEREST AND NOT THE NET AMOUNT OF INTEREST IS TO BE CONSIDERED UND ER CLAUSE (1) OF THE EXPLANATIONS (BAA0 TO SECTION 80H HC OF THE ACT. PROVISIONS OF THE ACT OUGHT TO HAVE BEE N PROPERLY CONSTRUED AND REGARD BEING HAD TO THE FACT S OF THE CASE SUCH CONCLUSION SHOULD NOT HAVE BEEN CONFIRMED. 6(A) THE LEARNED CIT(A) ERRED IN CONFIRMING CONCLUSION SO ARRIVED AT BY THE AO THAT 90% OF EXPORT INCENTIVE BY WAY O F DEPB AMOUNTING TO RS.7808298 AND EXPORT INCENTIVE BY WAY OF DUTY DRAW BACK AMOUNTING TO RS.288207 BE REDUCED FROM THE PROFIT OF THE BUSINESS. PROVISIONS OF THE ACT OUGH T TO HAVE BEEN PROPERLY CONSTRUED AND REGARD BEING HAD T O FACTS OF THE CASE THE SAID CONCLUSION SHOULD NOT HA VE BEEN CONFIRMED.; 7(A) ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN ARISING AT THE CONCLUSION THAT SALE OF SCRAPE OF RS.490923/- IS PART OF THE TOTAL TURNOVER AS DEFINED UNDER SECTIO N 80HHC OF THE ACT AND SHOULD NOT BE REDUCED FROM THE PURCHASE AS CLAIMED BY THE APPELLANT. PROVISIO NS OF THE ACT OUGHT TO HAVE BEEN PROPERLY CONSTRUED AN D REGARD BEING HAD TO FACT OF THE CASE THE SAID CONCLUSION SHOULD NOT HAVE BEEN ARRIVED AT; 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ORDER MADE BY THE LEARNED AO U/S 143(3) OF THE ACT IS ILLEGAL BAD IN LAW ULTRA VIRUS AND WITHOUT ALLOWING REASONABLE OPPORTUNITY OF THE HEARING WITHOUT PROVIDING COPIES OF ALL THE MATERI ALS RELIED UPON AND WITHOUT APPRECIATING THE FACTS SUBMISSIONS EXPLANATIONS AND EVIDENCES IN THEIR PROPER PERSPECTIVE AND IS LIABLE TO BE ANNULLED. ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 4 9. THE LEARNED CIT ERRED IN CONFIRMING CHARGING OF INTEREST U/S 234A 234B AND 234C OF THE ACT AS LEVIED BY THE ASSESSING OFFICER. 3. GROUNDS OF APPEAL NO.1 AND 8 ARE GENERAL IN NATU RE AND THEREFORE NO SPECIFIC FINDINGS AND ADJUDICATION IS REQUIRED HENCE DISMISSED BEING GENERAL IN NATURE. 4. GROUNDS OF APPEAL 2 3 AND 6 ARE REGARDING EXPOR T INCENTIVE BY WAY OF DEPB FOR THE PURPOSE OF DEDUC TION U/S 80HHC. 5. WE HAVE HEARD THE LEARNED AR AS WELL AS THE LEAR NED DR AND CONSIDERED THE RELEVANT RECORD. AT THE OUTSET WE NOTE THAT THIS ISSUE IS SETTLED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S KALPLATARU COLOU RS AND CHEMICALS IN INCOME TAX APPEAL (LODG) NO.2887 OF 2009 ORDER DATED 28/29 JUNE 2010. THE HONBLE JURISDICT IONAL HIGH COURT IN THE ABOVE SAID DECISION HAS HELD IN PARAGR APHS 29 TO 31 AS UNDER : 29. TO GET OVER THIS DIFFICULTY THE ASSESSEES CONTENDS THAT THE PROFITS ON TRANSFER OF DEPB IN SECTION 28(IIID) WOULD NOT INCLUDE THE FACE VALUE O F THE DEPB SO THAT THE ASSESSEE GETS A DEDUCTION UNDER SECTION 80HHC ON THE FACE VALUE OF THE DEPB. THERE IS NO MERIT IN THE ABOVE CONTENTION FOR THE FOLLOWI NG REASONS : ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 5 A) WHAT IS RECEIVED ON TRANSFER OF THE DEPB CREDIT IS THE PROFIT BECAUSE DEPB CREDIT UNDER THE DEPB SCHEME IS GIVEN AT A PERCENTAGE OF THE FOB VALUE OF THE EXPORTS SO AS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCT. THE DEPB CREDIT IS ALSO GIVEN TO AN EXPOR TER WHO HAS EXPORTED GOODS WITHOUT IMPORTING RAW MATERIAL REQUIRED FOR THE EXPORT. DEPB CREDIT IS G IVEN FOR PAYING CUSTOMS DUTY ON IMPORT OF GOODS WHICH MA Y OR MAY NOT BE UTILIZED IN THE EXPORT GOODS. WHEN T HE DEPB CREDIT IS NOT UTILIZED FOR PAYING CUSTOMS DUTY BUT IS TRANSFERRED FOR ANY SUM THEN SUCH SUM WOULD BE PROFITS ON TRANSFER OF DEPB COVERED UNDER SECTI ON 28(IIID); B) EVEN THE ASSESSEE HAS NOT DISPUTED BEFORE THE COURT THAT THE ENTIRE AMOUNT RECEIVED ON TRANSFER O F DEPB IS BUSINESS INCOME CHARGEABLE TO TAX AS PROFIT S OF BUSINESS. HOWEVER IT IS CONTENDED THAT THE FAC E VALUE OF THE DEPB WOULD NOT BE COVERED UNDER SECTION 28(IIID) BECAUSE IT IS A CREDIT EARNED BY T HE ASSESSEE. WHERE THE DUTY PAID IS RECEIVED BACK AS DUTY DRAWBACK IT IS ALSO AN AMOUNT EARNED BY THE ASSESSEE BUT SUCH A RECEIPT IS STILL CONSIDER AS PROFITS OF BUSINESS. SIMILARLY THE AMOUNT REALIZED IN TRANSFER OF DEPB BE IT EQUIVALENT TO THE FACE VALU E OF THE DEPB; MORE THAN THE FACE VALUE OF DEPB OR LES S THAN FACE VALUE OF DEPB WOULD BE PROFIT ON TRANSF ER OF DEPB COV4ERED UNDER SECTION 28(IIID); C ) THE FACT THAT THE ASSESSEE HAD ACCOUNTED FOR DEPB CREDIT IMMEDIATELY AFTER MAKING AN APPLICATION SEEKING SEPB CREDIT WOULD MAKE NO DIFFERENCE TO THE TAXABILITY OF THE ENTIRE AMOUNT RECEIVED ON TRANSFE R OF THE DEPB CREDIT UNDER SECTION 28(IIID0. WHAT CONSTITUTES PROFITS UNDER SECTION 28(IIID) IS THE A MOUNT RECEIVED ON TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT OF CREDIT WHICH THE ASSESSEE WAS ENTITLED TO UNDER THE DEPB SCHEME. IN OTHER WORDS THE AMOUNT EQUIVALENT TO THE FACE VALUE OF DEPB AS WELL AS TH E AMOUNT RECEIVED IN EXCESS OF THE DEPB WOULD CONSTITUTE PROFITS OF BUSINESS UNDER SECTION 28(III D) ;AND MERELY BECAUSE A PART OF SUCH PROFITS OF BUSINESS (FACE VALUE) WAS OFFERED TO TAX IN THE YEA R IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE WOULD NOT BE A GROUND TO HOLD THAT SUCH PROFIT WAS NOT COVER ED UNDER SECTION 28(IIID). WHERE THE FACE VALUE OF THE DEPB CREDIT IS OFFERED TO TAX AS BUSINESS PROFITS ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 6 UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE CRE DIT ACCRUED TO THE ASSESSEE THEN ANY FURTHER PROFIT ARISING ON TRANSFER OF DEPB CREDIT WOULD BE TAXED AS PROFITS OF BUSINESS UNDER SECTION 28(IIID) IN THE Y EAR IN WHICH THE TRANSFER OF DEPB CREDIT TOOK PLACE. THEREFORE THE ARGUMENTS OF THE ASSESSEE THAT IF TH E FACE VALUE OF THE DEPB CREDIT IS HELD TO BE COVERE D UNDER SECTION 28(IIID) IT WOULD AMOUNT TO DOUBLE TAXATION IS WITHOUT ANY MERIT. 30. THERE IS ANOTHER PERSPECTIVE FROM WHICH THE ISSUE CAN BE LOOKED AT. THE DEPB CREDIT TO WHICH AN EXPORTER IS ENTITLED IS A FORM OF AN EXPORT INCENT IVE. THE SUPREME COURT IN RAVINDRANATHAN NAIRS CASE HAS HELD THAT ALL THE INCOMES WHICH FALL WITHIN CLA USES (IIIA) TO (IIIE) OF SECTION 28 ARE INCENTIVE INCO MES. AS AN INCENTIVE THAT IS MADE AVAILABLE TO THE EXPO RTER THERE IS NO COST THAT IS ATTACHED TO THE GRANT OF T HE INCENTIVE. THE INCENTIVE AS WE HAVE ALREADY NOTED IS CALCULATE AS A PERCENTAGE OF THE FOB VALUE OF TH E GOODS EXPORTED. THE TRIBUNAL IN THE PRESENT CASE RECOGNIZED THE DIFFICULTY IN REDUCING THE FACE VALU E OF THE DEPB CREDIT FROM THE SALE CONSIDERATION WHEN IT OBSERVED IN PARAGRAPH 48 OF ITS JUDGMENT THAT N O DOUBT THE EXPORTER DOES NOT DIRECTLY PURCHASE THE DEPB FROM THE MARKET BY INCURRING ANY COST. HAVIN G SO OBSERVED THE TRIBUNAL STILL CONSIDERED IT APPROPRIATE TO HOLD THAT CLAUSE (IIID) WOULD ONLY R EFER TO THE DIFFERENCE BETWEEN THE SALE CONSIDERATION AN D THE VALUE OF HE DEPB CREDIT. WE FIND NO BASIS OR JUSTIFICATION FOR THE TRIBUNAL TO HAVE DONE SO. 31. WE DO NOT FIND ANY LOGICAL JUSTIFICATION IN BIFURCATING THE VALUE OF THE SALE CONSIDERATION REALIZED BY THE EXPORTER ON HE TRANSFER OF THE DEPB CREDIT. FOR ONE THING CLAUSE (IIID) OF SECTION 28 MUST COVER WITHIN ITS PURVIEW THE ENTIRELY OF THE SALE CONSIDERATION WHICH IS REALIZED BY THE EXPORTER ON THE TRANSFER OF THE DEPB CREDIT SINCE THAT REPRESENT TH E PROFIT WHICH THE EXPORTER OBTAINS ON THE TRANSFER O F THE CREDIT. NO PART OF THE CREDIT THAT IS AVAILABLE UN DER THE DEPB SCHEME CAN FALL FOR CLASSIFICATION UNDER CLAUSE (IIIB) OF SECTION 28 WHICH DEALS WITH CASH ASSISTANCE RECEIVED OR RECEIVABLE AGAINST ANY SCHEME OF THE GOVERNMENT OF INDIA. AS THE LEGISLAT IVE HISTORY OF THE PROVISION WOULD SHOW CLAUSE 9IIIB) W AS ENACTED BY PARLIAMENT AT A TIME WHEN THE EXPORT INCENTIVES THAT WERE AVAILABLE WERE (I) IMPORT ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 7 ENTITLEMENT LICENSES ; (II) CASH COMPENSATORY SUPPO RT; AND (III) DUTY DRAWBACK. THE DEPB SCHEME WAS NOT EVEN IN EXISTENCE WHEN CLAUSE (IIIB) CAME TO BE ENACTED INTO SECTION 28 BY THE FINANCE ACT OF 199 0. THE DEPB SCHEME WAS BROUGHT INTO EXISTENCE WITH EFFECT FROM 1 ST APRIL 1997. CLAUSE (IIID) OF SECTION 28 WAS INSERTED BY THE AMENDING ACT 2005 LWITH EFFEC T FROM `1 APRIL 1998. THE VALUE OF THE DEPB CREDIT C AN BY NO MEANS BE REGARDED AS A CASH ASSISTANCE WHICH IS RECEIVED OR RECEIVABLE BY A PERSON AGAINST EXPOR TS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA 6. BOTH THE PARTIES AGREED THAT THE ISSUE REQUIRE S TO BE RECONSIDERED AT THE LEVEL OF THE AO IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT. ACCORDINGLY WE SET ASIDE THE ISSUE OF DEPB RAISED IN GROUNDS OF APPE AL NO.2 3 AND 6 TO THE RECORD OF THE AO TO RECONSIDER AND AD JUDICATE THE SAME IN THE LIGHT OF THE DECISION OF THE HON. JURIS DICTIONAL HIGH COURT IN THE CASE CITED ABOVE. GROUNDS OF APPEAL N O.2 3 AND 6 ARE ALLOWED FOR STATISTICAL PURPOSES. 7. GROUNDS OF APPEAL NO.4 AND 5 ARE REGARDING EXCL USION OF 90% OF INTEREST CONSULTANCY AND LABOUR CHARGES A S PER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. 8. WE HAVE HEARD THE LEARNED AR AS WELL AS THE LEAR NED DR AND CONSIDERED THE RELEVANT RECORD. AT THE OUTSET WE NOTE THAT THE ISSUE OF INTEREST LABOUR CHARGES AND CONS ULTANCY CHARGES ARE COVERED AGAINST THE ASSESSEE BY THE DEC ISION OF THE HON.SUPREME COURT IN THE CASE OF K RAVINDRANAT HAN NAIR ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 8 REPORTED IN (2007)295 ITR 228(SC) IN WHICH VIDE PA RAGRAPHS 18 TO 22 THE APEX COURT HELD AS UNDER : 18. IN THE PRESENT CASE THE A.O. HAD WORKED OUT BUSINESS PROFITS OF RS.1 94 08 220 AS GROSS TOTAL INCOME ON THE BASIS OF INCOME RECEIVED FROM CASHEW BUSINESS (SEE: PAGES 50 AND 52 OF THE SLP PAPER BOOK). EVEN ACCORDING TO ASSESSEES IN THE ABOVE FORMULA HIS BUSINESS PROFITS INCLUDED THE ABOVEMENTIONED PROCESSING CHARGES. HOWEVER ACCORDING TO ASSESSEES THE SAID CHARGES WERE NOT T O BE INCLUDED IN THE TOTAL TURNOVER. WE ARE NOT INCLI NED TO ACCEPT THE CONTENTION OF THE ASSESSEES. THE ABOV E DISCUSSION INDICATES THAT THE FORMULA IN SECTION 80HHC(3) OF THE I.T. ACT PROVIDED FOR A FRACTION OF EXPORT TURNOVER DIVIDED BY TOTAL TURNOVER TO BE APP LIED TO BUSINESS PROFITS CALCULATED AFTER DEDUCTING 90% OF THE SUMS MENTIONED IN CLAUSE (BAA) TO THE SAID EXPLANATION. THAT PROFIT INCENTIVES AND ITEMS LIKE RENT COMMISSION BROKERAGE CHARGES ETC. THOUGH FORMED PART OF GROSS TOTAL INCOME HAD TO BE EXCLUDE D AS THEY WERE 'INDEPENDENT INCOMES' WHICH HAD NO ELEMENT OF EXPORT TURNOVER. THAT THE SAID ITEMS DISTORTED THE FIGURE OF EXPORT PROFITS. 19. IN OUR VIEW FOR THE ABOVE REASONS THE SAID PROCESSING CHARGES WHICH WAS PART OF GROSS TOTAL INCOME WAS AN INDEPENDENT INCOME LIKE RENT COMMISSION BROKERAGE ETC. AND THEREFORE 90% OF T HE SAID SUM HAD TO BE REDUCED FROM THE GROSS TOTAL INCOME TO ARRIVE AT THE BUSINESS PROFITS AND SINCE THE SAID PROCESSING CHARGE WAS AN IMPORTANT COMPONENT OF BUSINESS PROFITS IT ALSO HAD TO BE INCLUDED IN THE TOTAL TURNOVER IN THE SAID FORMULA TO ARRIVE AT BUS INESS PROFITS IN TERMS OF CLAUSE (BAA) TO THE SAID EXPLANATION. 20. ONE POINT STILL REMAINS FOR CONSIDERATION. ON BEHALF OF ASSESSEES IT HAS BEEN VEHEMENTLY URGED THAT THE ABOVE-MENTIONED PROCESSING CHARGES EARNED BY THE ASSESSEES BY PROCESSING RAW CASHEW NUTS FOR THIRD PARTIES HAD NO NEXUS WITH THE EXPORT BUSINES S AND THEREFORE SUCH CHARGES WERE NOT INCLUDIBLE IN THE TOTAL TURNOVER. IT WAS ALSO FURTHER ARGUED THAT EXPORT INCENTIVES WERE ADMISSIBLE ONLY IN RESPECT O F PROFITS ON EXPORT SALES. IN THIS CONNECTION IT WAS SUBMITTED THAT THE ASSESSEES EARNED PROCESSING ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 9 CHARGES FROM AN ACTIVITY WHICH HAD NO CONNECTION WI TH EXPORTS. ACCORDING TO ASSESSEES NO EXPORT TURNOVER AROSE FROM PROCESSING OF RAW MATERIAL BY THE ASSESSEES FOR THIRD PARTIES AND THEREFORE THE SAI D RECEIPTS DID NOT CONSTITUTE AN ELEMENT OF TOTAL TURNOVER. THEREFORE ACCORDING TO ASSESSEES THE A. O. HAD ERRED IN INCLUDING THE SAID CHARGES IN THE TOTA L TURNOVER. ACCORDING TO ASSESSEES PROFITS DERIVED F ROM LOCAL SALES WERE INCLUDIBLE IN BUSINESS PROFITS BUT NOT IN THE TOTAL TURNOVER. 21. AT THE OUTSET WE MAY STATE THAT IN THE PRESEN T CASE WE ARE DEALING WITH THE LAW AS IT STOOD DURIN G ASSESSMENT YEAR 1993-94. AT THAT TIME SECTION 80HHC(3) OF THE I.T. ACT CONSTITUTED A CODE BY ITSE LF. SUBSEQUENT AMENDMENTS HAVE IMPOSED RESTRICTIONS/QUALIFICATIONS BY WHICH THE SAID PROVI SION HAS CEASED TO BE A CODE BY ITSELF. IN THE ABOVE FORMULA THERE EXISTED FOUR VARIABLES NAMELY BUSIN ESS PROFITS EXPORT TURNOVER TOTAL TURNOVER AND 90% OF THE SUMS REFERRED TO IN CLAUSE (BAA) TO THE SAID EXPLANATION. IN THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC ALL FOUR VARIABLES HAD TO BE TAKEN IN TO ACCOUNT. ALL FOUR VARIABLES WERE REQUIRED TO BE GIV EN WEIGHTAGE. THE SUBSTITUTION OF SECTION 80HHC(3) SECURES PROFITS DERIVED FROM THE EXPORTS OF ELIGIBL E GOODS. THEREFORE IF ALL THE FOUR VARIABLES ARE KEP T IN MIND IT BECOMES CLEAR THAT EVERY RECEIPT IS NOT INCOME AND EVERY INCOME WOULD NOT NECESSARILY INCLUDE ELEMENT OF EXPORT TURNOVER. THIS ASPECT NEE DS TO BE KEPT IN MIND WHILE INTERPRETING CLAUSE (BAA) TO THE SAID EXPLANATION. THE SAID CLAUSE STATED THAT 9 0% OF INCENTIVE PROFITS OR RECEIPTS BY WAY OF BROKERAG E COMMISSION INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF LIKE NATURE INCLUDED IN BUSINESS PROFITS HAD TO BE DEDUCTED FROM BUSINESS PROFITS COMPUTED IN TERMS OF SECTIONS 28 TO 44D OF THE I.T. ACT. IN OTH ER WORDS RECEIPTS CONSTITUTING INDEPENDENT INCOME HAVING NO NEXUS WITH EXPORTS WERE REQUIRED TO BE REDUCED FROM BUSINESS PROFITS UNDER CLAUSE (BAA). A BARE READING OF CLAUSE (BAA)(1) INDICATES THAT RECE IPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES ETC. FORMED PART OF GROSS TOTAL INCOME BEIN G BUSINESS PROFITS. BUT FOR THE PURPOSES OF WORKING O UT THE FORMULA AND IN ORDER TO AVOID DISTORTION OF ARR IVING EXPORT PROFITS CLAUSE (BAA) STOOD INSERTED TO SAY T HAT ALTHOUGH INCENTIVE PROFITS AND 'INDEPENDENT INCOMES ' CONSTITUTED PART OF GROSS TOTAL INCOME THEY HAD TO BE ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 10 EXCLUDED FROM GROSS TOTAL INCOME BECAUSE SUCH RECEIPTS HAD NO NEXUS WITH THE EXPORT TURNOVER. THEREFORE IN THE ABOVE FORMULA WE HAVE TO READ AL L THE FOUR VARIABLES. ON READING ALL THE VARIABLES IT BECOMES CLEAR THAT EVERY RECEIPT MAY NOT CONSTITUTE SALE PROCEEDS FROM EXPORTS. THAT EVERY RECEIPT IS NOT INCOME UNDER THE I.T. ACT AND EVERY INCOME MAY NOT BE ATTRIBUTABLE TO EXPORTS. THIS WAS THE REASON FOR THIS COURT TO HOLD THAT INDIRECT TAXES LIKE EXCISE DUTY WHICH ARE RECOVERED BY THE TAXPAYERS FOR AND ON BEHALF OF THE GOVERNMENT SHALL NOT BE INCLUDED IN THE TOTAL TURNOVER IN THE ABOVE FORMULA (SEE: COMMISSIONER OF INCOME TAX COIMBATORE V. M/S. LAKSHMI MACHINE WORKS - 2007(6) SCALE 168). 22. IN THE PRESENT CASE THE PROCESSING CHARGES WER E INCLUDED IN THE GROSS TOTAL INCOME FROM CASHEW BUSINESS. THAT EVEN ACCORDING TO ASSESSEE THE SAID CHARGES CONSTITUTED AN IMPORTANT COMPONENT OF GROSS TOTAL INCOME FROM CASHEW BUSINESS. THIS IS NOT DISPUTED. THEREFORE IN TERMS OF CLAUSE (BAA) 90% OF THE 'INDEPENDENT INCOME' HAD TO BE DEDUCTED FROM GROSS TOTAL INCOME TO ARRIVE AT BUSINESS PROFITS TO WHICH THE FRACTION HAD TO BE APPLIED. SINCE THE PROCESSING CHARGES CONSTITUTED INDEPENDENT INCOME SIMILAR TO RENT COMMISSION ETC. WHICH FORMED PAR T OF THE GROSS TOTAL INCOME THE SAME HAD TO BE REDUCED BY 90% AS CONTEMPLATED IN CLAUSE (BAA) TO ARRIVE AT BUSINESS PROFITS. THEREFORE THE SAID PROCESSING CHARGES WERE INCLUDIBLE IN THE TOTAL TURNOVER IN TH E FORMULA UNDER SECTION 80HHC(3) OF THE I.T. ACT. 9. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HON. SUPREME COURT WE DISMISS THE GROUNDS RAISED BY THE ASSESSEE. 10. GROUNDS OF APPEAL NO.4 AND 5 ARE DISMISSED. 11. GROUNDS OF APPEAL NO.7 IS REGARDING DEDUCTION U/S 80HHC ON SALE OF SCRAP. AT THE TIME OF HEARING TH E ASSESSEE ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 11 SUBMITTED THAT THE ASSESSEE DOES NOT WANT TO PRESS GROUNDS OF APPEAL NO.7 AND THE SAME MAY BE DISMISSED FOR WHICH THE LEARNED DR HAS NO OBJECTION. WE ACCEDE THE REQUEST OF THE ASSESSEE AND DISMISS GROUND NO.7 AS NOT PRESSED. 12. GROUND NO.7 IS DISMISSED AS NOT PRESSED. 13. GROUNDS OF APPEAL NO.9 PERTAINS TO THE CHARGING OF INTEREST U/S 234A 234B AND 234C THE CHARGING OF I NTEREST IS MANDATORY AND CONSEQUENTIAL. THEREFORE NO NEED TO ADJUDICATE THE SAME. 14. THE APPEAL BEARING ITA NO.1699/MUM/2007 IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 5044 /MUM/2007 15. GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THI S APPEAL ARE AS UNDER : 1. ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRM ING DEDUCTIONS ALLOWED BY THE LD. AO U/S 80HHC TO THE EXTENT OF RS.7 32 964/- AS AGAINST THE DEDUCTIONS CLAIMED BY THE APPELLANT COMPANY TO THE EXTENT OF RS.12 34 660/- 2. THE LEARNED CIT(A) ERRED IN CONFIRMING REDUCTION OF 90% OF THE PRODUCT CONSULTANCY CHARGE S LABOUR CHARGES AND INTEREST INCOME ON GROSS RECEIPT ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 12 BASIS FROM PROFITS OF THE BUSINESS CALCULATED AS PER THE EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT INSTEAD OF NET BASIS AS CLAIMED BY THE APPELLANT COMPANY 3. THE LEARNED CIT(A) ERRED IN REJECTING THE CLAIM OF THE APPELLANT COMPANY THAT EXPENSES INCURRED FOR EARNING OF PRODUCT CONSULTANCY LABOUR CHARGES AND INTEREST INCOME SHOULD HAVE BEEN REDUCED FROM THE GROSS AMOUNT OF PRODUCT CONSULTANCY LABOUR CHARGE S AND INTEREST AND IT IS 90% OF NET AMOUNT SHOULD HAV E BEEN REDUCED FROM THE PROFIT OF THE BUSINESS AS CALCULATED UNDER EXPLANATION (BAA) TO SECTION 80HH C OF THE ACT 4. THE LEARNED CIT(A) ERRED IN CONFIRMING DEPRECIATION ALLOWABLE ON MOTOR CARE AT 20% INSTEAD OF 50% AS CLAIMED BY THE APPELLANT COMPANY; 5. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCES MADE OF RS.17 933/- OUT OF EXPENSES ON MOTOR CAR AND RS.28692/- OUT OF DEPRECIATION ON MOTORCAR; 6. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCES MADE U/S 43B OF THE ACT BEING PAYMENT OF EMPLOYERS CONTRIBUTION TO PROVIDENT FUN D AND OTHER AMOUNTING TO RS.15 278 MADE BEYOND THE DUE DATE (INCLUDING GROSS PERIOD). 7. THE LEARNED CIT(A) ERRED IN MAKING ADDITIONS OF RS.17 327/- ON ACCOUNT OF DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND AND ESIC BEYOND THE GROSS PERIOD U/S 2(24)(X) R.W.S. 36(1)(V A) OF THE ACT. 16. GROUNDS OF APPEAL NO.1 IS GENERAL IN NATURE AN D THEREFORE NO SPECIFIC FINDINGS AND ADJUDICATION IS REQUIRED HENCE DISMISSED BEING GENERAL IN NATURE ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 13 17. GROUNDS OF APPEAL NO.2 AND 3 IS REGARDING EXC LUSION OF 90% OF PRODUCT CONSULTANCY CHARGES LABOUR CHARGES AND INTEREST INCOME AS PER THE EXPLANATION (BAA) TO SEC TION 80HHC OF THE ACT. THESE GROUNDS ARE IDENTICAL TO THAT OF GROUNDS OF APPEAL NO.4 AND 5 FOR THE ASSESSMENT YEAR 2002-03. 18. WE HAVE CONSIDERED AND DECIDED THE IDENTICAL I SSUES AGAINST THE ASSESSEE WHILE DECIDING THE GROUNDS NO. 4 AND 5 FOR THE ASSESSMENT YEAR 2002-03. ACCORDINGLY GROUN D NO.2 AND 3 ARE DECIDED AGAINST THE ASSESSEE. 19. GROUNDS OF APPEAL NO.2 AND 3 ARE DISMISSED. 20. GROUNDS OF APPEAL NO.4 IS REGARDING DISALLOWANC E OF DEPRECIATION ON MOTOR CAR CLAIMED AT THE RATE OF 50%. 21. ON APPEAL THE LEARNED CIT(A) HAS RESTRICTED TH E CLAIM OF THE ASSESSEE TO 20% INSTEAD OF 50% AS CLAIMED BY TH E ASSESSEE. 22 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND THE RELEVANT RECORD. THE AO HAS OBSERVED THAT THE VE HICLE USED BY THE DIRECTOR OF THE ASSESSEE COMPANY CANNOT BE C ONSIDERED AS USED FOR COMMERCIAL PURPOSES AND ALSO ASKED THE ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 14 ASSESSEE TO FURNISH THE DETAILS IN THIS REGARD. T HE AO WAS OF THE VIEW THAT THE 50% DEPRECIATION IS ALLOWABLE ON NEW COMMERCIAL VEHICLES WHICH ARE ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL 2001 BUT BEFORE THE 1 ST DAY OF APRIL 2002 AND IS PUT TO USE BEFORE 1 ST DAY OF APRIL; 2002 AND THE DEPRECIATION @50% IS AVAILABLE ONLY TO THE COMMERCIAL VEHICLE AND NOT TO THE VEHICLES USED BY DIRECTORS AND EXECUTIVE OF THE COM PANY FOR COMING AND GOING TO OFFICE. THE AO DISALLOWED THE CLAIM OF HE ASSESSEE. 23. ON APPEAL THE CIT(A) CONFIRMED THE DISALLOW ANCE MADE BY THE AO. 24. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED T HE RELEVANT RECORD. IN THIS RESPECT IT IS TO BE NOTED THAT IN THE APPENDIX-I TO THE INCOME TAX RULES AS APPLICABLE TO THE RELEVANT ASSESSMENT YEAR ITEMS (III)(2)(IID) PROV IDES THE RATE OF DEPRECIATION ON NEW COMMERCIAL VEHICLES WHICH IS ACQUIRED ON OR AFTER 1 ST DAY OF APRIL 2001 BUT BEFORE 1 ST DAY OF APRIL 2002 AND IS PUT TO USE BEFORE THE 1 ST DAY OF APRIL 2002 FOR THE PURPOSE OF BUSINESS OR PROFESSION AT 50%. FURTHER THE MEANING OF COMMERCIAL VEHICLE FOR THIS PURPOSE HAS BEEN PROVIDED IN ITEMS (3A) OF THE NOTES BELOW THE TABLE . IF THAT ITEM IS READ ALONG WITH CLAUSE (21) OF SECTION 2 OF THE MOTOR ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 15 VEHICLE ACT 1988 MOTOR CARS OWNED BY THE APPELLA NT AND USED FOR THE PURPOSES OF BUSINESS HAVE TO BE REGIS TERED AS COMMERCIAL VEHICLES. THEREFORE IF SUCH MOTOR CAR IS ACQUIRED WITHIN THE PRESCRIBED PERIOD INDICATED IN THE ITEM S AS IN THE INSTANT CASE THEN DEPRECIATION AT THE RATE OF 50% IS TO BE ALLOWED TO THE COST OR WRITTEN DOWN VALUE OF THE CA R; 25. THERE IS NO DOUBT IF THE VEHICLE ON WHICH THE DEPRECIATION IS CLAIMED BY THE ASSESSEE ARE FALLING UNDER COMMERCIAL VEHICLE THEN IN VIEW OF THE PROVISIONS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION HIGHER RATES OF DEPRECIATION WOULD BE ALLOWED. SINCE THE VEHICLE ON WHICH THE ASSESSEE CLAIMED HIGHER DEPRECIATION IS FOR NO T USED FOR HIRE BUSINESS AND ARE USED ONLY FOR THE DIRECTOR AND EXECUTIVES OF THE ASSESSEE THEN MERELY BECAUSE THE VEHICLE ARE USED FOR CONVEYANCE OF THE DIRECTORS AND EXECU TIVES OF THE ASSESSEE COMPANY WOULD NOT FALL UNDER THE CATEG ORY OF THE COMMERCIAL VEHICLE AS PER THE PROVISIONS OF MOTOR V EHICLE ACT. THE HIGHER DEPRECIATION IS PROVIDED FOR THE COMMERC IAL VEHICLE BECAUSE OF THE HIGHER WERE AND TEAR DUE TO THE NA TURE OF USE BEING ON HIRE. ACCORDINGLY WE DO NOT FIND ANY ERR OR OR ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 16 ILLEGALITY IN THE ORDER OF THE LOWER AUTHORITIES Q UA THIS ISSUE. 26. GROUND NO.4 OF THIS APPEAL IS DISMISSED. . 27. GROUNDS OF APPEAL NO.5 IS REGARDING DISALLOWANC E OF EXPENSES ON MOTOR CAR THE AO DISALLOWED THE EXPEND ITURE ON MOTOR CAR. THE DISALLOWANCE IS 10% OF THE EXPENDIT URE ON MOTOR CAR INCLUDING THE DEPRECIATION ON THE GROUND OF PERSONAL USE. 28. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED T HE RELEVANT RECORD. SINCE VEHICLE IS OWNED BY THE CO MPANY THEREFORE THERE CANNOT BE PERSONAL USE OF THE VEHI CLE. EVEN IF THE VEHICLE IS USED FOR PERSONAL WORK OF THE DIRECT OR OR STAFF OF THE COMPANY THE SAME MAY BE TREATED AS PERQUISITE IN THE HANDS OF THE CONCERNED STAFF. ACCORDINGLY WE DELE TE THE ADDITION MADE ON THIS ACCOUNT. 29. GROUNDS OF APPEAL NO.6 AND 7 ARE REGARDING CON TRIBUTION TO PF AND ESIC. 30. WE HAVE HEARD THE PARTIES. THE LEARNED COUNSEL SUBMITTED THAT THIS ISSUE SANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT V/S ALOM EXTRUSION LTD. REPORTE D IN 319 ITR 306 AS WELL AS BY THE DECISION OF THE HONBLE DELHI HIGH COURT ITA NO. 1699 AND5044 /MUM/2007 (AYS 2002-03 AND 2003-04 ) 17 IN THE CASE OF AIMIL LIMITED AND ORS. IN ITA NOS.1063/MUM/2008 755/MUM/2008 204 50 AND 70/MUM/2 009 JUDGMENT DATED 23.12.2009 (UNREPORTED). RESPECTFULL Y FOLLOWING THE DECISION OF THE HON.DELHI HIGH COURT WE ALLOWED THE GROUND NO.6 AND 7 OF THE ASSESSEES APPEAL. 31. IN SUM AND SUBSTANCE THE ITA NO. 1699 /MUM/200 7 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND ITA NO. 5044 /MUM/2007 IS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 11 MARCH 2011 SD SD (J.SUDHAKAR REDDY) (V IJAY PAL RAO) ACCOUNTANT MEMBER JUDIC IAL MEMBER MUMBAI ON THIS 11 TH DAY OF MARCH 2011 SRL:7311 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI