Multico Exports Pvt.Ltd.,, Ahmedabad v. The Income tax Officer,Ward-4(4),, Ahmedabad

ITA 683/AHD/2008 | 2004-2005
Pronouncement Date: 21-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 68320514 RSA 2008
Assessee PAN AABCM9058Q
Bench Ahmedabad
Appeal Number ITA 683/AHD/2008
Duration Of Justice 2 year(s) 2 month(s) 29 day(s)
Appellant Multico Exports Pvt.Ltd.,, Ahmedabad
Respondent The Income tax Officer,Ward-4(4),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 21-05-2010
Date Of Final Hearing 19-05-2010
Next Hearing Date 19-05-2010
Assessment Year 2004-2005
Appeal Filed On 22-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI BHAVNESH SAINI JUDICIAL MEMBER AND SHRI N.S.SAINI ACCOUNTANT MEMBER DATE OF HEARING: 19.05.10 DRAFTED ON:19.05.10 ITA NO.683/AHD/2008 ASSESSMENT YEAR : 2004-2005 MULTICO EXPORTS PVT. LTD. 707 AKIK TOWERS OPP. RAJPATH CLUB S.G.HIGHWAY AHMEDABAD. VS. THE COMMISSIONER OF INCOME TAX INCOME TAX OFFICE-4(4) NAVJIVAN TRUST BUILDING ASHRAMA ROAD AHMEDABAD. PAN/GIR NO. : AABCM9058Q (APPELLANT) .. (RESPONDENT) APPELLANT BY : WRITTEN SUBMISSION RESPONDENT BY: SMT. NEETA SHAH SR. D.R. O R D E R PER N.S.SAINI ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)- VIII AHMEDABAD DATED 30.11.2007. 2. ALTHOUGH NOTICE OF HEARING WAS SERVED ON THE ASS ESSEE THE ASSESSEE HAS PREFERRED NOT TO APPEAR IN PERSON OR THROUGH AN AUTHORISED REPRESENTATIVE AND HAS FILED WRITTEN SUBMISSION WITH A REQUEST TO CONSIDER THE SAME WHIL E DECIDING THE APPEAL. 3. GROUNDS NO.1 OF THE APPEAL READS AS UNDER:- - 2 - 1. THE C.I.T.(APPEALS) ERRED IN LAW AND ON FACT WH ILE CONFIRMING ADDITION FOR DISALLOWANCE OF SOFTWARE EXPENSES OF RS.1 48 000/- AND ON THE BASIS OF FACTS AND LAW THE SAME IS REQUIRED TO BE DELETED. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS DECIDED THIS ISSUE AS UNDER:- 2. THE FIRST GROUND IS AGAINST DISALLOWANCE OF SOF TWARE EXPENSES OF RS.1 48 000/-. THE APPELLANT CLAIMED TH AT THE SOFTWARE DEVELOPMENT EXPENSES ARE ROUTINE AND RECURRING BUSINESS EXPENDITURE. IT WAS INCURRED FOR THE PURPOSE OF BUSINESS. SOFTWARE PROGRAMMES HAVE TO BE CHANGED AND UPGRADED EVERY YEAR. AS IN I.T. RULES I T IS PROVIDED THAT COMPUTER SOFTWARE IS ELIGIBLE FOR DEPRECIATION @ 60% THE A.O. MADE DISALLOWANCE OF EXCESS DEPRECIATION OF RS.1 48 000/- CLAIMED BY THE APPELLANT. 2.1. BEFORE ME THE A.R. SUBMITTED THAT THE APPELLAN T HAS PURCHASED SOFTWARE FOR EXPORT DOCUMENTATION PRODUCT COSTING FINANCIAL ACCOUNTING ISO CERTIFIC ATION AND TRAINING EXPENSES OF STAFF. THE EXPENDITURE WAS RECURRING IN NATURE AND IT REQUIRED ONGOING EXPENSE S FOR ITS UPGRADATION THEREFORE ONE TIME EXPENDITUR E ON THE SAME CANNOT GIVE BENEFIT OF ENDURING NATURE TH US THE SAME NEEDS TO BE ALLOWED AS REVENUE EXPENDITURE . THE A.R. RELIED UPON THE FOLLOWING DECISIONS. (1) SUMITOMO CORPO. INDIA (P) LTD. VS. CIT(2005) - 1 SOT 91 (DELHI) (2) BUSINESS INFORMATION PROCESSING SERVICES VS. CI T 106 TAX MAN 116(JD) (3) NAVEEN PROJECT LTD. VS. CIT (2005) 1 SOT 232 (DELHI) (4) ITC CLASSIC FINANCE LTD. VS. CIT 112 TAXMAN 15 5 (CALCUTTA) (5) AJIT KUMAR C. KAMDAR VS. CIT (2005) 1 SOT 183 (MUMBAI) (6) CIT VS. CITICORP OVERSEAS SOFTWARE LTD. 85 TTJ (MUMBAI) 87. 2.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE AND THE DECISIONS CITED BY THE LD. AUTHORISED - 3 - REPRESENTATIVE. AS THERE IS A SEPARATE DEPRECIATION RATE FOR COMPUTER SOFTWARES IN I.T.RULES THE CLAIM OF T HE APPELLANT IS REJECTED AND THE A.O'S FINDING IS CONF IRMED. FURTHER THE PURCHASE OF SOFTWARE HAS BEEN HELD AS CAPITAL EXPENDITURE IN THE FOLLOWING DECISIONS:- I) ESCORTS LTD. -104 ITD 427 (DELHI) II) MARUTI UDYOG LTD. 92 ITD 119 (DELHI) III) AARAVALI CONSTRUCTION CO.PVT.LTD. (RAJ) 259 ITR 30 5. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE UNDISPUTED FACTS A RE THAT THE ASSESSEE HAS INCURRED RS.3 70 000/- FOR DEVELOPMENT AND ACQUISITION OF CERTAIN COMPUTER SOFTWARE. THE ASSES SEE CLAIMED THE SAME AS REVENUE EXPENDITURE. THE LOWER AUTHORITIES HAVE HELD THEE SAME AS CAPITAL EXPENDIT URE AND ACCORDINGLY ALLOWED DEPRECIATION @ 60% . 6. WE FIND THAT THE ISSUE UNDER CONSIDERATION IS CO VERED BY THE DECISION OF THE DELHI SPECIAL BENCH OF THE T RIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DY.CIT (208 ) 111 ITD 112(SB)(DEL). THE SPECIAL BENCH AFTER GOING THR OUGH PLETHORA OF DECISIONS ON THE ISSUE HAS HELD AS UNDE R:- 56. FOR ASCERTAINING AS TO WHETHER EXPENDITURE ON COMPUTER SOFTWARE GIVES AN ENDURING BENEFIT TO AN ASSESSEE THE DURATION OF TIME FOR WHICH THE ASSESS EE ACQUIRES RIGHT TO USE THE SOFTWARE BECOMES RELEVANT . HAVING REGARD TO THE FACT THAT SOFTWARE BECOMES OBSOLETE WITH TECHNOLOGICAL INNOVATION AND ADVANCEMENT WITHIN A SHORT SPAN OF TIME IT CAN BE SAID THAT WHERE THE LIFE OF THE COMPUTER SOFTWARE IS SHO RTER (SAY LESS THAN 2 YEARS) IT MAY BE TREATED AS REVEN UE EXPENDITURE. IT IS ALSO EVIDENT FROM THE AMENDMENT TO THE LAW W.E.F. 1ST APRIL 2003 GRANTING 60 PER CENT - 4 - DEPRECIATION ON COMPUTER SOFTWARE THAT EVEN THE LEGISLATURE CONSIDERS THE LIFE OF COMPUTER SOFTWARE AS ABOUT TWO YEARS BY PROVIDING THE HIGHER RATE OF DEPRECIATION @ 60 PER CENT THEREON SO AS TO ENABLE ASSESSEE TO WRITE OFF THE SAME TO THE EXTENT OF 84 PER CENT EVEN WHEN TREATED AS CAPITAL ASSET WITHIN A PE RIOD OF TWO YEARS. AN ASSESSEE MAY OWN A SOFTWARE OUTRIG HT OR BE A LICENSEE BUT THE SAME MAY OPERATE TO CONFER BENEFIT ONLY IN THE REVENUE FIELD AND THEREFORE IT MAY HAVE TO BE REGARDED AS REVENUE EXPENDITURE. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD. (SUPRA) LAYS DOWN THAT IT IS N OT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST (ENDURING BENEFIT TEST). WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSES SEES TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING T HE FIXED CAPITAL UNTOUCHED THE EXPENDITURE WOULD BE O N REVENUE ACCOUNT EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR ON INDEFINITE FUTURE. IN OTHER WORDS TH E FUNCTIONAL TEST WOULD BECOME MATERIAL AND IF ON APPLICATION OF THE SAME IT IS FOUND THAT THE EXPEND ITURE OPERATES TO CONFER BENEFIT IN THE REVENUE FIELD TH EN THE SAME WOULD BE REVENUE IRRESPECTIVE OF THE DURATION OF TIME FOR WHICH THE ASSESSEE ACQUIRES RIGHTS IN A SOFTWARE. THE PERIOD OF ADVANTAGE IN THE CONTEXT OF COMPUTER SOFTWARE SHOULD NOT BE VIEWED FROM THE POI NT OF VIEW OF DIFFERENT ASSETS OR ADVANTAGE LIKE TENAN CY OR USE OF KNOW-HOW BECAUSE SOFTWARE IS A BUSINESS TOOL ENABLING A BUSINESSMAN S ABILITY TO RUN HIS BUSIN ESS. WHETHER THE EXPENDITURE OPERATES TO ADD THE PROFIT EARNING APPARATUS OF THE ASSESSEE (FUNCTIONAL TEST) : 57. THE ADVANTAGE WHICH AN ASSESSEE DERIVES HAS TO BE SEEN. THE NATURE OF ADVANTAGE HAS TO BE SEEN IN A COMMERCIAL SENSE. IF THE ADVANTAGE IS IN THE CAPITA L FIELD THEN THE SAME WOULD BE CAPITAL EXPENDITURE. I F THE - 5 - ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSES SEE S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF ASSESSEE S BUSINESS TO BE CARRIED ON M ORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE F IXED CAPITAL UNTOUCHED THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT HOWEVER IF ASSETS/ADVANTAGE IS PA RT OF PROFIT EARNING APPARATUS IT IS CAPITAL. 58. THE FOLLOWING FACTORS WOULD BE RELEVANT TO DETE RMINE WHETHER THE ADVANTAGE OPERATES IN THE CAPITAL FIELD OR REVENUE FIELD. (I) NATURE OF BUSINESS OF THE ASSESSEE : IT IS NECE SSARY TO OBTAIN AN UNDERSTANDING OF THE BUSINESS FUNCTION OR EFFECT OF A CONCERN S SOFTWARE. SOFTWARE NORMALLY FUNCTIONS AS A TOOL ENABLING BUSINESS TO BE CARRIED ON MORE EFFICIENTLY. THE SCOPE POWER LONGEVITY OF SU CH A TOOL AND ITS CENTRALITY TO THE FUNCTIONS OF THE BUS INESS WILL ALL BEAR ON ITS TREATMENT. IN THE CASE OF M/S SQL STAR INTERNATIONAL LTD. ONE OF THE ASSESSEES IN THE CASES REFERRED TO THE SPECIAL BENCH THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AS WELL AS RUNNING A TRAINING CENTER TO IMPART SPECIALIZED TRAINING TO T HE STUDENTS IN SOFTWARE TECHNOLOGY. IF THE SOFTWARE WE RE USED IN SUCH BUSINESS TO IMPART TRAINING TO THE STUDENTS THEN THE SAME WOULD BE PART OF THE PROFIT MAKING APPARATUS OF THE ASSESSEE AND CONSEQUENTLY EXPENDITURE ON SOFTWARE CAPITAL. SIMILARLY EXAMPLE OF A TRAVEL AGENT CAN BE CITED H ERE AS AN ILLUSTRATION WHEREIN THE EXPENDITURE INCURRED ON ACQUISITION OF A SOFTWARE FOR THE PURPOSE OF ENABLI NG THE ASSESSEE TO MAKE BOOKING OF AIR TICKETS WOULD BE A CAPITAL EXPENDITURE BECAUSE SUCH A SOFTWARE CERTAIN LY FORMS PART OF THE PROFIT MAKING APPARATUS OF THE TR AVEL AGENCY BUSINESS INASMUCH AS THE BUSINESS OF AIR TIC KET BOOKING IS DONE WITH THE HELP OF THAT SOFTWARE. ANOTHER EXAMPLE WHICH CAN BE CONSIDERED HERE IS THA T OF ACQUISITION OF TURBO GOLD SOFTWARE FOR RS. 17.61 LAKHS BY ONE OF THE ASSESSEES IN THE PRESENT CASE I .E. M/S AMWAY INDIA ENTERPRISES. AS SUBMITTED BEFORE US THE SAID SOFTWARE HELPS IN COMPRESSION OF SIZE OF E - - 6 - MAILS SENT THROUGH THE LOTUS NOTES MAILING SYSTEM A ND IT INCLUDES LICENSES FOR 150 USERS WHO ARE USING LO TUS NOTES MAILING SYSTEM AND SOFTWARE LICENSE FOR RUNNI NG ON ITS SERVER. IF USE OF THIS SOFTWARE IN THE BUSIN ESS OF THE ASSESSEE IS LIMITED TO FACILITATE MERELY AN EFF ECTIVE AND FAST COMMUNICATION IN ORDER TO INCREASE ITS ORGANIZATIONAL EFFICIENCY THE SAME CANNOT BE TREAT ED AS FORMING PART OF THE PROFIT MAKING APPARATUS OF THE ASSESSEE. ON THE OTHER HAND IF SUCH SOFTWARE IS BE ING USED BY AN ASSESSEE ENGAGED IN THE BUSINESS OF PLACEMENT AGENCY WHERE THE APPLICATIONS FROM PERSON S SEEKING JOBS ARE INVITED THROUGH E-MAIL AND ARE ALS O FORWARDED TO THE CONCERNED CLIENTS THROUGH E-MAIL THE SAME MAY FORM PART OF PROFIT MAKING APPARATUS OF TH E ASSESSEE S BUSINESS OF PLACEMENT AGENCY AND CAN B E TREATED AS A CAPITAL ASSET. (II) AS A GENERAL RULE IT MAY BE STATED THAT THE MO RE EXPENSIVE THE COMPUTER SOFTWARE THE MORE IT IS LIKE LY TO BE A CENTRAL TOOL OF THE BUSINESS AND THE MORE ENDU RING IS LIKELY TO BE ITS EFFECT ADDING TO THE PROFIT EAR NING APPARATUS. IF THERE ARE ASSOCIATED CAPITAL EXPENDIT URE LIKE PURCHASE OF NEW COMPUTER EQUIPMENT FOR RUNNING THE SOFTWARE DEVELOPED UNDER A PROJECT THEN IT CAN BE CONSIDERED AS CAPITAL EXPENDITURE. THIS IS ESPECIAL LY THE CASE WHERE THE NEW HARDWARE IS NOT MERELY DESIRABLE BUT NECESSARY FOR THIS PURPOSE. (III) DEGREE OF ASSOCIATED ORGANISATIONAL CHANGE : SIMILARLY THE DEGREE OF CHANGE INTENDED IN THE WAY OPERATIONS ARE CARRIED OUT AS A RESULT OF THE COMPU TER SOFTWARE FOR EXAMPLE SAVINGS IN THE NUMBER AND CHANGES IN THE LOCATION OF STAFF USED TO PROVIDE S ERVICES TO CUSTOMERS WILL HAVE A BEARING. THE MORE RADICAL THE CHANGES THE MORE LIKELY THE EXPENDITURE WILL BE CA PITAL. THESE CHANGES ARE LIKELY TO BE MOST RADICAL WHEN OPERATIONS PREVIOUSLY CARRIED ON MANUALLY ARE COMPUTERISED. (IV) IT HAS TO BE BORNE IN MIND THAT COMPUTER SOFTW ARE INDUSTRY IS OF A FAST CHANGING NATURE. THEREFORE WHATEVER SOFTWARE PURCHASED BY AN ASSESSEE WOULD BECOME OUTDATED MUCH EARLIER THAN EXPECTED. THE ASSESSEE HAS THEREFORE TO UPGRADE HIS SOFTWARE. AN - 7 - ELEMENT OF UPGRADING DOES NOT AUTOMATICALLY MAKE TH E EXPENDITURE CAPITAL. THE PRESENCE OF AN ELEMENT OF UPGRADING THEREFORE WILL NOT NECESSARILY CAUSE TH E EXPENDITURE IN QUESTION TO BE CAPITAL. 59. OUR CONCLUSIONS ON THE ISSUE UNDER CONSIDERATIO N THUS CAN BE SUMMARIZED AS UNDER : (I) WHEN THE ASSESSEE ACQUIRES A COMPUTER SOFTWARE OR FOR THAT MATTER THE LICENSE TO USE SUCH SOFTWARE H E ACQUIRES A TANGIBLE ASSET AND BECOMES OWNER THEREOF AS HELD ABOVE RELYING ON THE DECISION OF HON BLE SUP REME COURT IN THE CASE OF TCS (SUPRA). (II) HAVING REGARD TO THE FACT THAT SOFTWARE BECOME S OBSOLETE WITH TECHNOLOGICAL INNOVATION AND ADVANCEMENT WITHIN A SHORT SPAN OF TIME. IT CAN BE SAID THAT WHERE THE LIFE OF THE COMPUTER SOFTWARE IS SHO RTER (SAY LESS THAN 2 YEARS) IT MAY BE TREATED AS REVEN UE EXPENDITURE. ANY SOFTWARE HAVING ITS UTILITY TO THE ASSESSEE FOR A PERIOD BEYOND TWO YEARS CAN BE CONSIDERED AS ACCRUAL OF BENEFIT OF ENDURING NATURE . HOWEVER THAT BY ITSELF WILL NOT MAKE THE EXPENDITU RE INCURRED ON SOFTWARE AS CAPITAL IN NATURE AND THE FUNCTIONAL TEST AS DISCUSSED ABOVE ALSO NEEDS TO BE SATISFIED. (III) ONCE THE TESTS OF OWNERSHIP AND ENDURING BENE FIT ARE SATISFIED THE QUESTION WHETHER EXPENDITURE INCURRED ON COMPUTER SOFTWARE IS CAPITAL OR REVENUE HAS TO BE SEEN FROM THE POINT OF VIEW OF ITS UTILIT Y TO A BUSINESSMAN AND HOW IMPORTANT AN ECONOMIC OR FUNCTIONAL ROLE IT PLAYS IN HIS BUSINESS. IN OTHER WORDS THE FUNCTIONAL TEST BECOMES MORE IMPORTANT AND RELEVANT BECAUSE OF THE PECULIAR NATURE OF THE COMP UTER SOFTWARE AND ITS POSSIBLE USE IN DIFFERENT AREAS OF BUSINESS TOUCHING EITHER CAPITAL OR REVENUE FIELD OR ITS UTILITY TO A BUSINESSMAN WHICH MAY TOUCH EITHER CAP ITAL OR REVENUE FIELD. THUS WE FIND THAT THE SPECIAL BENCH IN THE ABOVE C ASE HAS LAID DOWN THE CRITERIA FOR DETERMINING THE NATURE O F EXPENDITURE INCURRED ON ACQUISITION OF SOFTWARE WH ETHER CAPITAL OR REVENUE WHICH SHOULD BE APPLIED TO DETE RMINE THE - 8 - EXACT NATURE OF EXPENDITURE INCURRED BY THE ASSESS EE. SINCE ALL THE RELEVANT FACTS REQUIRED TO APPLY THE ABOVE CRITERIA IS NOT AVAILABLE ON RECORD IN OUR CONSIDERED OPINION THE MATTER REQUIRES TO BE RESTORED BACK TO THE FILE OF THE LEA RNED ASSESSING OFFICER FOR APPLYING THE ABOVE CRITERIA L AID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL. WE THEREFORE RE STORE THE ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFF ICER AND DIRECT HIM TO READJUDICATE THE ISSUE IN THE LIGHT O F THE OBSERVATIONS MADE ABOVE AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 7. THE GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. THE C.I.T.(APPEALS) ERRED IN LAW AND ON FACT WH ILE CONFIRMING ADDITION ON RYCEHAS OF DEDUCTION CLAIMED U/S 80HHC OF RS.4 60 586/- ON CONJECTURE AND ON THE BASIS OF FACTS AND LEGAL SITUATION PREVAILING IN THE OUR CASE THE SAME IS REQUIRED TO BE DELETED. 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS DECIDED THIS ISSUE AS UNDER:- 3. THE SECOND GROUND IS AGAINST ADDITION TO INCOME ON ACCOUNT OF DISALLOWANCE OF DEDUCTION CLAIMED U/S.80HHC OF RS.4 60 583/-. THE APPELLANT HAD CLAIMED DEDUCTION U/S.80HHC OF RS.4 60 583/-. THE A.O. OBSERVED THAT THE APPELLANT HAS IGNORED THE LO SS INCURRED IN TRADING EXPORT OF RS.16 55 399/-. A SUR VEY UNDER 133A WAS CARRIED OUT IN THE PREMISES OF MISSI ON PHARMA LOGISTIC (INDIA) PVT. LTD. AND CLAIM OF DEDUCTION U/S.10 A OF THAT COMPANY WAS REJECTED BY THE DEPARTMENT. THE APPELLANT HAD EXPORTED THROUGH MISSION PHARMA LOGISTIC (INDIA) LTD. GOODS WORTH OF RS.21 24 598/- AND HAD CLAIMED DEDUCTION U/S. 80HHC AS PER SUB SECTION 4C OF SECTION 80HHC. AS - 9 - MISSION PHARMA LOGISTIC (INDIA) PVT. LTD. WAS FOUND TO BE NOT ELIGIBLE FOR CLAIM OF DEDUCTION U/S. 10A ACCORDING TO THE A.O. THE APPELLANT WAS NOT ELIGIBL E FOR DEDUCTION U/S.80HHC TO THE EXTENT OF GOODS SOLD TO MISSION PHARMA AND HE DISALLOWED THE CLAIM OF DEDUCTION. 3.1. BEFORE ME THE A.R. SUBMITTED THAT DURING THE Y EAR THE APPELLANT COMPANY HAD TURNOVER OF RS.3.72 CRORE S WHICH CONSISTED OF DIRECT EXPORT OF RS.3.51 CRORES AND REMAINING RS.21.24 LACS WERE FROM INDIRECT EXPORT T O MISSION PHARMA LOGISTIC PVT. LTD. THE APPELLANT SUBMITTED THAT ALONG WITH TRADING LOSS OF RS.16.55 LACS THE APPELLANT HAS GOT EXPORT INCENTIVE I.E. PROFIT ON SALE OF IMPORT LICENSE OF RS.20.99 LACS. ACCORDING TO TH E PROVISIONS OF SECTION 80HHC IF TRADING PROFIT IS LO SS NO DEDUCTION FOR TRADING EXPORT IS AVAILABLE BUT FOR E XPORT INCENTIVE THE DEDUCTION IS AVAILABLE AS PER THE PROVISIONS OF ACT AND ACCORDINGLY FOR CALCULATION O F DEDUCTION TRADING LOSS IS NOT TO BE DEDUCTED FROM EXPORT INCENTIVE AND DEDUCTION U/S.80HHC IS TO BE CALCULATED ON EXPORT INCENTIVE ALONE. ACCORDING TO THE LD. A.R. THE ACT IS ITSELF CLEAR AS THE PROVISO TO SECTION 80HHC PROVIDED THAT THE PROFITS COMPUTED UNDER CLAUSE (A) (B) OR CLAUSE (C) OF THE SAID SUBSECTIO N SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO NINETY PERCENT OF ANY SUM REFERRED TO IN CLAUSE (II IA) (IIIB) AND CLAUSE (IIIC) OF SECTION 28 THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTA L TURNOVER OF THE BUSINESS CARRIED ON BY THE APPELLAN T. IT WAS SUBMITTED THAT NOWHERE IN THE ACT IT HAS BEEN PROVIDED THAT EXPORT TRADING LOSS SHOULD BE DEDUCTE D FROM EXPORT INCENTIVES FOR CALCULATION OF DEDUCTION U/S. 80HHC. REGARDING THE A.O.'S CONCLUSION FOR REJECTIO N OF CLAIM OF DEDUCTION U/S.80HHC BASED ON SURVEY AND REJECTION OF CLAIM U/S.10A IN THE CASE OF MISSION PHARMA LOGISTIC PVT. LTD. THE A.R. SUBMITTED THAT APPELLANT HAD SOLD GOODS TO MISSION PHARMA LOGISTIC PVT. LTD. DURING THE YEAR UNDER CONSIDERATION AND AT THE TIME OF SALE THE SAID CONCERN WAS DULY REGISTER ED AS A SEZ UNDER KANDLA PORT TRUST AND THE APPELLANT HAS SATISFIED ALL THE CONDITIONS AS REQUIRED UNDER SUB- SECTION 4C OF 80HHC FOR SALE OF GOODS TO AN UNDERTAKING LOCATED IN SEZ. THE APPELLANT HAD RECEI VED - 10 - DISCLAIMER CERTIFICATE FOR THE SAID AMOUNT FROM DIR ECT EXPORTER M/S. MISSION PHARMA. THE BENEFIT UNDER SUB SECTION 4C UNDER SECTION 80HHC IS AVAILABLE FOR THE YEAR 2004-05 ONLY AND ACCORDING TO THE PROVISION OF SECTION 10A BENEFIT IS AVAILABLE ONLY IF A UNDERTAK ING MANUFACTURING AND PRODUCES ONLY. BUT BY INCORPORATING THE 80HHC (4C) THE ACT CLEARLY APPRO VED THE EXPORT OF TRADING GOODS TO UNIT AVAILING BENEFI T 10A IN SEZ FOR THE ASSESSMENT YEAR 2004-05. 3.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E AND THE DECISIONS CITED BY THE LD. AUTHORISED REPRESENTATIVE. AS THE CONCERN MISSION PHARMA LOGIS TIC PVT. LTD. HAS NOT BEEN ALLOWED CLAIM U/S 10A THE A .O. HAS RIGHTLY REJECTED CLAIM OF DEDUCTION U/S.80HHC I N RESPECT OF SALE OF GOODS TO THE SAID CONCERN. THIS GROUND IS DISMISSED. FURTHER I FIND THAT THE APPELL ANT HAS GOT LOSS FROM EXPORT OF TRADING GOODS OF RS.18 09 031/- AND IF 90% OF INCENTIVE IS ADDED I.E . RS.17 71 211/- STILL IT IS LOSS OF RS.37 820/-. AS THERE IS NO PROFIT FROM EXPORT AS COMPUTED BY THE A.O. IT BE ING LOSS OF RS.37 820/- NO DEDUCTION U/S.80HHC IS AVAILABLE TO THE APPELLANT. THE SUPREME COURT IN IP CA LABORATORY LTD. VS. CIT (266 ITR 521)(SC)HAS HELD T HAT ANY LOSS IN EITHER COMPONENT IN RESPECT OF EXPORT O F MANUFACTURED OR TRADING GOODS WILL HAVE TO BE SET O FF AGAINST THE OTHER. WHERE THERE IS A NET LOSS IN RES PECT OF ACTUAL EXPORTS WITHOUT RECKONING INCENTIVE PROFITS THERE WILL BE NO RIGHT TO DEDUCTION THOUGH THERE M AY BE POSITIVE PROFIT FROM EXPORTS ON ACCOUNT OF INCENTIV ES LIKE PROFIT ON SALE OF IMPORT LICENCE DUTY DRAW BACK ET C. THIS DECISION WAS FOLLOWED IN CIT VS. FORBES EWART AND PIGGIES (P)LTD.(269 ITR 94)(KER). THE COMPUTATION M ADE BY THE A.O. IS FOUND TO BE CORRECT. HENCE THE GROUN D OF THE APPELLANT IS DISMISSED. 9. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE CLAIM OF ASSESSEE FOR DEDUCTION UNDER SECTION 80HHC WAS DISALLOWED BY THE LOWER AUTHORITIES. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT TRADING LOSS ON EXPORT O F GOODS - 11 - RS.18 09 031/- AND EVEN AFTER ADJUSTING OF 90% OF E XPORT INCENTIVES OF RS.17 71 211/- THERE STILL REMAINS LO SS OF RS.37 820/-. IN VIEW OF THE ABOVE THE LEARNED COMM ISSIONER OF INCOME TAX(APPEALS) FOLLOWING THE DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF IPCA LABORATORY LTD. V S. DCIT (2004) 266 ITR 521 (SC) AND THE DECISION OF THE KER ALA HIGH COURT IN THE CASE OF CIT VS. FORBES EWART & FIGGIE S (P) LTD. (2004) 269 ITR 94 (KER) HELD THAT NO DEDUCTION UNDE R SECTION 80HHC IS ALLOWABLE TO THE ASSESSEE. WE FIND NO MATE RIAL AVAILABLE BEFORE US TO SHOW THAT THE ASSESSEE ACTUA LLY DERIVED ANY PROFIT FROM EXPORT OF GOODS OR MERCHANDISE. THU S WE DO NOT FIND ANY ERROR IN THE DECISION OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THEREFORE TH IS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 10. THE GROUND NO.3 OF THE APPEAL READS AS UNDER:- 3. THE C.I.T.(APPEALS) ERRED IN LAW AND ON FACT WH ILE CONFIRMING DISALLOWANCE OF FOREIGN TRAVEL EXPENSES IN THE TUNE OF RS.2 42 282/-AND ON THE BASIS OF FACTS OF THE CASE THE SAME IS REQUIRED TO BE DELETED. 11. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS DECIDED THIS ISSUE AS UNDER:- 4. THE THIRD GROUND IS AGAINST THE DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF RS.2 42 282/-. THE APPELLANT CLAIMED TRAVELING EXPENSES OF DIRECTOR MR. SHOBHIT TIWARY TO MOZAMBIQUE SOUTH AFRICA FOR BUSINESS PROMOTION TOUR. FROM THE PASSPORT THE A.O. FOUND THAT THE TRAVELING DONE BY THE DIRECTOR WAS FOR THE PERIOD BEYOND THE FINANCIAL YEAR 2003-04 TO THE TIME OF RS.2 42 282/- WHICH WAS DISALLOWED AS NOT RELATING TO THE YEAR UNDER CONSIDERATION. - 12 - 4.1. THE A.R. SUBMITTED THAT THE SAME WAS INCURRED IN THE NORMAL COURSE OF BUSINESS AND FOR FOREIGN TOUR FOR PROMOTION OF COMPANY PRODUCT BY COMPANY DIRECTORS. IT WAS SUBMITTED THAT THE JOURNEY HAD BEGUN BEFORE THE END OF THE ACCOUNTING YEAR. HOWEVER AS THE PORTION OF EXPENDITURE RELATED TO THE SUBSEQUENT YEAR THE DISALLOWANCE HAS RIGHTLY BEEN MADE BY THE A.O. HENCE THIS GROUND IS DISMISSED. 12. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE RS.2 42 282/- WAS DIS ALLOWED OUT OF FOREIGN TRAVELLING EXPENSES BY THE LOWER AUT HORITIES ON THE GROUND THAT THE SAID AMOUNTS RELATES TO THE TRA VEL WHICH WAS UNDERTAKEN BY THE DIRECTORS IN THE SUBSEQUENT P REVIOUS YEAR. WE FIND THAT NO MATERIAL WAS BROUGHT BEFORE U S TO SHOW THAT EXPENSE IN QUESTION RELATED TO THE YEAR UNDER APPEAL. IN ABSENCE OF ANY SUCH MATERIAL ON RECORD WE DO NOT F IND ANY ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS). THEREFORE THIS GROUND OF APPEAL OF T HE ASSESSEE IS DISMISSED. 13. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 21 ST DAY OF MAY 2010. SD/- SD/- (BHAVNESH SAINI) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; ON THIS 21 ST DAY OF MAY 2010 PARAS - 13 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS) GANDHINAGAR AHMEDABAD. 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 19.05.2010 ----------------- 2. DRAFT PLACED BEFORE AUTHORITY20.05.2010 ----------------- 3. DRAFT PROPOSED & PLACED 20.05.2010 -----------------JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 20.05.2010 ---------------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 20.05.2010 ------------------ 6. KEPT FOR PRONOUNCEMENT ON 21.05.2010 ------------------ 7. FILE SENT TO THE BENCH CLERK 21.05.2010 ------------------ 8. DATE ON WHICH FILE GOES TO THE---------------- ------------ ------ 9. DATE OF DISPATCH OF ORDER ---------------- ------------- -----