THE ACIT CIR 6(2), MUMBAI v. M/S. FAZE THREE EXPORTS LTD, MUMBAI

ITA 5726/MUM/2008 | 2005-2006
Pronouncement Date: 23-03-2010 | Result: Partly Allowed

Appeal Details

RSA Number 572619914 RSA 2008
Assessee PAN AAACF2212N
Bench Mumbai
Appeal Number ITA 5726/MUM/2008
Duration Of Justice 1 year(s) 6 month(s) 11 day(s)
Appellant THE ACIT CIR 6(2), MUMBAI
Respondent M/S. FAZE THREE EXPORTS LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-03-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted F
Tribunal Order Date 23-03-2010
Date Of Final Hearing 13-10-2009
Next Hearing Date 13-10-2009
Assessment Year 2005-2006
Appeal Filed On 11-09-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI T.R. SOOD AM AND SMT. ASHA VIJAYARAGH AVAN JM I.T.A.NO. 5621/MUM/2008 ASSESSMENT YEAR : 2005-06 M/S. FAZE THREE LIMITED 1-2 SHIV SMRITI CHAMBER 49-A DR. A.B. ROAD WORLI MUMBAI 400 018 PAN: AAACF 2212 N VS. THE ASST. COMMISSIONER OF INCOME- TAX CIRCLE 6(2) MUMBAI. (APPELLANT) (RESPONDENT) I.T.A.NO. 5726/MUM/2008 ASSESSMENT YEAR : 2005-06 THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE 6(2) MUMBAI. VS. M/S. FAZE THREE LIMITED 1-2 SHIV SMRITI CHAMBER 49-A DR. A.B. ROAD WORLI MUMBAI 400 018 PAN: AAACF 2212 N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KESHAV BHUJE REVENUE BY : SHRI VIRENDRA OJHA O R D E R PER T.R. SOOD AM: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENU E ARE DIRECTED AGAINST THE ORDER DATED 26.06.2007 OF THE LEARNED C OMMISSIONER OF INCOME- TAX (APPEALS)-VI MUMBAI AND PERTAIN TO THE ASSESSM ENT YEAR 2005-06. ITA NO.5621/M/2008 : 2. IN THIS APPEAL THE ASSESSEE HAS RAISED DETAILED GROUNDS. BUT AT THE IME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSE E SUBMITTED THAT ONLY THE FOLLOWING TWO DISPUTES ARE INVOLVED: 1. DEDUCTION UNDER SECTION 80-IB WR ONGLY COMPUTED BY SETTING OFF THE LOSS OF THE DADRA UNIT FROM THE PROFITS OF THE DAPADA UNIT. 2. INTEREST HAS BEEN WRONGLY ALLOCA TED AT A HIGHER AMOUNT TO DAPADA UNIT WHILE COMPUTING DEDUCTION UNDER SECTION 80- IB. ITA NO.5621 & 5726/M/08 2 3. AS REGARDS GROUND NO. 1 IS CONCERNED AT THE OUT SET THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THIS ISS UE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF SYNCO INDUSTRIES LTD. VS. ASSESSING OFFICER (INCOME-TAX) AND ANOTHER (299 ITR 444) WHEREIN IT WAS HELD THAT FOR ALLOWING DEDUCTION U/S .80-I EFFECT HAS TO BE GIVEN TO SECTION 80-IA AND 80-IB. THIS MEANS THAT IF THE GROSS TOTAL INCOME IS NEGATIVE THEN NO DEDUCTION IS ALLOWABLE. 4. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE HONBLE DELHI HIGH COURT HAS CONSIDERED TH IS DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SONA KOYO STE RLING SYSTEMS LTD. (2010 TIOL 149). HE ARGUED THAT IN THAT DECISION T HE WHOLE ISSUE WAS DISCUSSED IN DETAIL AND AFTER QUOTING FROM PARA 13 OF THE DECISION IN THE CASE OF SYNCO INDUSTRIES LTD. (SUPRA) IT WAS OBSERVED BY THE COURT THAT DEDUCTION UNDER SECTION 80-I IS NOT POSSIBLE IF THE GROSS TOT AL INCOME IS NIL. IT CANNOT BE INTERPRETED TO MEAN THAT THE LOSS OF NON ELIGIBLE U NIT CAN BE ADJUSTED AGAINST THE PROFIT OF ELIGIBLE UNITS IN TERMS OF SECTION 80 -I(6) OF THE ACT. HE FURTHER EXPLAINED BY WAY OF EXAMPLE THAT IF SOME BUSINESSMA N HAS RS.100 PROFIT FROM ELIGIBLE UNIT A AND THERE IS A LOSS OF RS.10 /- IN NON-ELIGIBLE UNIT B AND IF THE GROSS TOTAL INCOME IS RS.130/- THEN THE DEDUCTI ON IN THE CASE OF ELIGIBLE UNIT A UNDER SECTION 80-I CANNOT BE REDUCED TO RS . 90/- I.E. RS.100/- - RS.10/- BECAUSE THE LOSS IN NON-ELIGIBLE UNIT WOULD BE ADJUSTED BY SOME OTHER INCOME WHICH ALSO FORMS PART OF THE GROSS TOTAL INC OME. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND FORCE IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSES SEE. THE EXAMPLE GIVEN BY THE ASSESSEE CLEARLY SHOWS THAT UNLESS AND UNTIL THE GROSS TOTAL INCOME IS ALSO LOWER THAN THE AMOUNT OF DEDUCTION U/S.80-I OF THE ACT CAN BE RESTRICTED OTHERWISE THE LOSSES ETC. NEEDS TO BE ADJUSTED FROM THE PROFITS IN OTHER SOURCES. HOWEVER THE DETAILS OF THE AMOUNT OF PRO FIT OR LOSS IS NOT AVAILABLE ITA NO.5621 & 5726/M/08 3 BEFORE US. THEREFORE IN THE INTEREST OF JUSTICE WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO DEC IDE THE SAME IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF SYNCO INDUSTRIES LTD. (SUPRA) AND THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SONA KOYO STEERLING SYSTEMS LTD. (SUPRA). 6. AS REGARDS GROUND NO.2 IS CONCERNED THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 43 OF THE PAPER BOOK WHIC H GIVES THE DETAILS OF INTEREST ALLOTTED TO VARIOUS UNITS. HE ARGUED THAT THE ASSESSING OFFICER ALLOCATED WHOLE OF THE INTEREST EXPENDITURE ON THE BASIS OF TURNOVER WHICH IS NOT CORRECT BECAUSE WHATEVER CAN BE ALLOCATED DIREC TLY TO A PARTICULAR UNIT BECAUSE OF THE PARTICULAR FUNDING AND PATTERN THEN OUT OF THE TOTAL INTEREST SUCH INTEREST SHOULD BE ALLOCATED TO A PARTICULAR U NIT AND ONLY BALANCE OF THE JOURNAL INTEREST EXPENSES IS TO BE ALLOCATED TO VAR IOUS UNITS. 7. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REP RESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT IF THE DETAILS OF INTEREST ON VARIOUS ITEMS AND UNDER VARI OUS UNITS ARE AVAILABLE THEN WHATEVER CAN BE ALLOCATED DIRECTLY TO A PARTICULAR UNIT SHOULD BE ALLOCATED AND ONLY THE BALANCE OF SUCH INTEREST SHOULD BE ALLOCAT ED ON TURNOVER BASIS. THEREFORE WE SET ASIDE THE ORDER OF THE LEARNED CI T(A) AND REMIT THE MATTER BACK TO THE FILE OF THE A.O. TO RE-WORK THE ALLOCAT ION OF INTEREST IN THE LIGHT OF THE OBSERVATIONS MADE BY US. 9. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.5726/MUM/2008 : 10. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLL OWING GROUND: 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD.CIT(A) HAS ERRED IN DIRECTING THE A.O. TO ALLOW DEDUCTION U/S. 80IB IN RESPECT OF DUTY ITA NO.5621 & 5726/M/08 4 DRAW BACK AMOUNTING TO RS. 8 32 415/- MISCELLANEOU S INCOME IN THE NATURE OF STENTERING INCOME AMOUNTING TO RS.56 88 0 79/- AND EXCHANGE GAIN AMOUNTING TO RS.22 67 004/- EVEN THOUGH THE S AME ARE NOT IN THE NATURE OF INCOME DERIVED FROM INDUSTRIAL UNDERTAKIN G. 11. AFTER HEARING BOTH THE PARTIES WE FIND THAT AS FAR AS DEDUCTION ON ACCOUNT OF DUTY DRAWBACK IS CONCERNED THE SAME IS COVERED IN FAVOR OF THE REVENUE AND AGAINST THE ASSESSEE BY THE RECENT DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT 317 ITR 218 WHEREIN IT WAS HELD THAT DEDUCTION U/S.80-IA AND 80-IB IS NOT ALLOWABLE ON ACCOUNT OF DEPB AND DUTY DRAWBACK. THEREFORE RESPECTFULLY FO LLOWING THE DECISION THE ISSUE REGARDING DEDUCTION U/S.80-IB ON DUTY DRAWBAC K IS DECIDED IN FAVOUR OF THE REVENUE. 12. AS FAR AS DEDUCTION U/S.80-IB ON STENTERING INC OME IS CONCERNED AFTER HEARING BOTH THE PARTIES WE FIND THAT THIS I SSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 IN ITA NO. 2070/M/07. THE I SSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE VIDE PARA 2.5 VIDE ITS ORDER DATED 31.3.2009. THE RELEVANT PORTION OF THE ORDER READS AS UNDER: HOWEVER IN THE INSTANT CASE THE MISCELLANEOUS INCOME OBTAINED BY THE ASSESSEE IS ON ACCOUNT OF STENTERI NG INCOME. IT HAS ALREADY BEEN EXPLAINED BEFORE THE ASSESSING OFFICER THAT THE INCOME IS OBTAINED BY UTILIZING THE IDLE CAPACI TY OF THE MACHINERIES FOR GETTING THE JOB WORK DONE FOR OTHER S. THEREFORE WHEN THE PLANT AND MACHINERY ARE UTILIZE D FOR DOING THE JOB WORK FOR OTHERS SUCH INCOME IN OUR OPINIO N CAN BE TERMED AS DERIVED FROM THE BUSINESS OF THE INDUST RIAL UNDERTAKING. MERELY BECAUSE THE NOMENCLATURE IS CH ANGED THE BENEFIT WHICH IS OTHERWISE AVAILABLE TO THE ASS ESSEE CANNOT BE DENIED. .. FOLLOWING THE SAID DECISION WE DECIDE THE ISSUE AGA INST THE REVENUE 13. LASTLY THE ISSUE REGARDING DEDUCTION U/S.80-IB ON ACCOUNT OF FOREIGN EXCHANGE IS CONCERNED THE SAME WAS DECIDED AGAINST THE ASSESSEE IN THE ASSESSEES APPEAL ABOVE. HOWEVER THE LEARNED COUNS EL FOR THE ASSESSEE ITA NO.5621 & 5726/M/08 5 HAS FILED A COPY OF THE DECISION OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT V. RACHNA UDHOG INCOME-TAX APPEAL NO. 2394 OF 2009 WHEREIN IN PARA 5 IT WAS HELD AS UNDER: HAVING HEARD THE LEARNED COUNSEL APPEARING ON BEHA LF OF THE APPELLANT AND LEARNED COUNSEL APPEARING FOR THE ASSESSEE WE ARE OF THE VIEW THAT THE DIFFERENCE ON ACCOUNT OF EXCHANGE RATE FLU CTUATION IS LIABLE TO BE ALLOWED UNDER SECTION 80IB. THE EXCHANGE RATE FL UCTUATION ARISES OUT OF AND IS DIRECTLY RELATED TO THE SALE TRANSACTION INVOLVING THE EXPORT OF GOODS OF THE INDUSTRIAL UNDERTAKING. THE EXCHANGE R ATE FLUCTUATION BETWEEN THE RUPEE EQUIVALENT OF THE VALUE OF THE GO ODS EXPORTED AND THE ACTUAL RECEIPTS WHICH ARE REALIZED ARISES ON AC COUNT OF THE SALE TRANSACTION. THE DIFFERENCE ARISES PURELY AS A RES ULT OF A FLUCTUATION IN THE RATE OF EXCHANGE BETWEEN THE DATE OF EXPORT AND THE DATE OF RECEIPT OF PROCEEDS SINCE THERE IS NO VARIATION IN THE SAL E PRICE UNDER THE CONTRACT. THE VIEW WHICH WE HAVE TAKEN IS ALSO CONS ISTENT WITH THE VIEW TAKEN BY A DIVISION BENCH OF THIS COURT ON 15 TH DECEMBER 2009 IN THE CASE OF SYNTEL LIMITED (INCOME TAX APPEAL NOS. 1974 1976 AND 1978 OF 2009). IN THE CIRCUMSTANCES WE WOULD AFFIRM THE JUDGMENT OF THE TRIBUNAL IN SO FAR AS THE QUESTION OF EXCHANGE RATE FLUCTUATION IS CONCERNED. 14. RESPECTFULLY FOLLOWING THE SAID DECISION WE DE CIDE THE ISSUE AGAINST THE REVENUE. 15. IN THE RESULT THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. ORDER PRONOUNCED ON THIS 23 RD DAY OF MARCH 2010. SD. SD. (ASHA VIJAYARAGHAVAN) (T. R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED THE 23RD MARCH 2010. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT CITY 6 MUMBAI 4. THE CIT(A)-VI MUMBAI 5. THE DR F BENCH MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR ITAT MUMBAI ITA NO.5621 & 5726/M/08 6 ORDER PRONCOUNCED ON . 2. AT THE TIME OF HEARING NONE APPEARED ON BEHALF O F THE ASSESSEE-APPELLANT AS WELL AS NO PETITION FOR ADJOU RNMENT WAS FILED. WE FIND FROM THE RECORDS THAT ASSESSEE-APPELLANT WA S SERVED NOTICE BY REGISTERED POST ACKNOWLEDGEMENT DUE TWICE AND THE ACKNOWLEDGEMENT CARDS DULY SIGNED BY THE A SSESSEE ON 25.07.2007 AND 16.11.2007 RECEIVED BACK. IT IS THEREFORE PRESUMED THAT THE ASSESSEE IS NOT INTERESTED IN PURSUING THE APPEAL FILED BY IT. IT HAS BEEN HELD BY THE HONBLE MADHYA PRADESH HIGH CO URT IN ESTATE OF LATE TUKOJIRAO HOLKAR VS. CWT (223 ITR 480)(MP) THA T IF THE PARTY AT WHOSE INSTANCE THE REFERENCE IS MADE FAILS TO APPE AR AT THE HEARING OR FAILS IN TAKING STEPS FOR PREPARATION OF PAPER-BOOK S SO AS TO ENABLE HEARING OF THE REFERENCE THE COURT IS NOT BOUND TO ANSWER THE REFERENCE. THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN CIT VS. MULTIPLAN (INDIA) PVT. LTD. 38 ITD 320 (DEL.) IS A LSO TO THE SAME EFFECT. IN THE FACTS OF THE CASE WE HOLD THAT THE ASSESSEE IS NOT INTERESTED IN ITA NO.5621 & 5726/M/08 7 PURSUING THE PRESENT APPEAL BEFORE THE TRIBUNAL AC CORDINGLY THE APPEAL OF THE ASSESSEE IS DISMISSED AS UNADMITTED. THE ASSESSEE IF SO ADVISED SHALL BE FREE TO MOVE THE TRIBUNAL PRAY ING FOR RECALLING OF THIS ORDER PROVIDED THE ASSESSEE IS ABLE TO ESTABLI SH THE REASONABLE CAUSE BEHIND THE NON-APPEARANCE ON THE DATE OF HEAR ING AND IN THAT CASE THE TRIBUNAL MAY IN ITS DISCRETION RECALL THIS ORDER AND THE APPEAL MAY BE RESTORED FOR RE-HEARING. 3. IN THE RESULT APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.12.2 007. 2. FROM THE GROUNDS FILED BY THE ASSESSEE BEFORE TH E LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WE FIND THAT T HE LEVY PERTAINED TO CONCEALMENT OF INCOME OF RS. 1 02 744/- AND THE PEN ALTY LEVIED WAS RS. 22 248/-. THEREFORE IN VIEW OF CBDT CIRCULAR F.NO. 279/MISC.142/2007-IT DATED 15 TH MAY 2008 THE APPEAL IS NOT MAINTAINABLE TAX EFFE CT BEING LESS THAN RS. 2 LAKHS. VIDE PARA 4 OF THIS CIRCULAR IT IS CLEARLY MENTIONED THAT THE TAX EFFECT IN ASCERTAINING MONETARY LIMITS FOR FILI NG OF APPEALS IN THE CASE OF PENALTY ORDERS WOULD MEAN QUANTUM OF PENALTY DELET ED OR REDUCED. 3. THEREFORE APPEAL OF THE REVENUE IS DISMISSED AS NOT MAINTAINABLE. ORDER PRONOUNCED ON THIS _______ DAY OF MAY 2009 . (G.C. GUPTA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED THE ______MAY 2009. KN COPY TO: 6. THE ASSESSEE 7. THE ITO-26(1)(2) MUMBAI. 8. THE CIT CITY-XXVI MUMBAI 9. THE CIT(A)-XXVIII MUMBAI ITA NO.5621 & 5726/M/08 8 10. THE DR G BENCH MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR ITAT MUMBAI S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 18.05.09 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 18.05.09 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 ITA NO.5621 & 5726/M/08 9