M/s Himatsingka Seide Limited, Bangalore v. Addl.CIT, Bangalore

ITA 70/BANG/2010 | 2005-2006
Pronouncement Date: 28-01-2011 | Result: Allowed

Appeal Details

RSA Number 7021114 RSA 2010
Bench Bangalore
Appeal Number ITA 70/BANG/2010
Duration Of Justice 1 year(s) 5 day(s)
Appellant M/s Himatsingka Seide Limited, Bangalore
Respondent Addl.CIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 28-01-2011
Date Of Final Hearing 24-01-2011
Next Hearing Date 24-01-2011
Assessment Year 2005-2006
Appeal Filed On 22-01-2010
Judgment Text
PAGE 1 OF 7 ITA NO.70/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K. J.M. AND SHRI A MOHAN ALANKAMONY A.M. ITA NO.70/BANG/2010 (ASST. YEAR 2005-06) M/S HIMATSINGKA SEIDE LIMITED NO.10/24 KUMARA KRUPA ROAD HIGH GROUNDS BANGALORE-1. - APPELLANT VS THE ADDL. COMMISSIONER OF INCOME TAX RANGE-11 BANGALORE. - RESPONDENT APPELLANT BY : SHRI ANANTHA PADMANABHAN C.A. RESPONDENT BY : SHRI G V GOPALA RAO CIT-I O R D E R PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECT ED AGAINST THE CIT(A)-I'S ORDER DATED 12.11.2009. THE RELEVANT A SSESSMENT YEAR IS 2005-06. 2. THE SOLITARY ISSUE THAT IS INVOLVED IN THIS APPE AL IS WHETHER THE CIT(A) IS JUSTIFIED IN CONFIRMING THE ORDER OF THE A.O. THAT FREIGHT AND INSURANCE OUGHT TO BE EXCLUDED FROM THE EXPORT TURN OVER AND NOT FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 10B OF THE ACT. 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- PAGE 2 OF 7 ITA NO.70/BANG/2010 2 THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE B USINESS OF MANUFACTURING AND EXPORT OF NATURAL AND BLENDED SIL K FABRICS AND VARIOUS KINDS OF YARNS. THE RETURN OF INCOME FOR THE CONCER NED YEAR WAS FILED ON 31/10/2005. THE ASSESSEE HAS TWO 100% EXPORT ORIE NTED UNDERTAKINGS (EOUS) NAMELY SEIDE AND FILATI. FILATI DIVISION W AS ESTABLISHED IN ASST. YEAR 1999-2000 AND IS ELIGIBLE FOR TAX HOLIDAY BENEFIT UN DER SECTION 10B OF THE I T ACT 1961 FOR AY 2005-06. IN THE RETURN OF INCOM E THE ASSESSEE CLAIMED THE EXEMPTION U/S 10B FOR THE INCOME EARNED FROM TH E FILATI UNIT. 3.1 THE A.O. WHILE COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT RECOMPUTED THE DEDUCTION U/S 10B OF THE ACT. THE AO REDUCED FROM THE EXPORT TURNOVER A SUM OF RS.1 78 74 343/- BEING FREIGHT AND A SUM OF RS.4 13 800/- BEING INSURANCE AMOUNT WHEREAS THE S AME WAS NOT REDUCED FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U /S 10B OF THE ACT. 4. THE ASSESSEE BEING AGGRIEVED CARRIED THE MATT ER BEFORE THE FIRST APPELLATE AUTHORITY. 5. THE FIRST APPELLATE AUTHORITY FOLLOWING HIS OR DER IN THE CASE OF M/S JAIPURIA SILKS VIDE ITA NO.101/AC-11(5)/A-I/08- 09 DATED 10.9.2009 DECIDED THE ISSUE AGAINST THE ASSESSEE. 6. THE ASSESSEE BEING AGGRIEVED BY THE ORDER OF TH E CIT(A) IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS:- I) THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ORDE R OF AO THAT FREIGHT AND INSURANCE OUGHT TO BE EXCLUDED FROM PAGE 3 OF 7 ITA NO.70/BANG/2010 3 EXPORT TURNOVER BUT NOT FROM TOTAL TURNOVER IN COMP UTING THE DEDUCTION U/S 10B. II) THE LEARNED CIT(A) HAS ERRED IN NOT RELYING ON THE DECISION OF THE SPECIAL BENCH OF THE CHENNAI TRIBUN AL IN THE CASE OF SAK SOFT LIMITED V ITO (ITA NO.691 & 1953/MDS/2007) WHEREIN IT HAS BEEN HELD THAT IF THE TELECOMMUNICATION FREIGHT AND INSURANCE EXPENSES A RE REDUCED FROM THE EXPORT TURNOVER THEN THE SAME WOUL D ALSO HAVE TO BE REDUCED FROM THE TOTAL TURNOVER IN ORDER TO COMPUTE THE DEDUCTION UNDER SECTION 10A. III) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT I N THE ABSENCE OF A DEFINITION OF TOTAL TURNOVER U/S 10B O F THE ACT THE DEFINITION OF THE TERM TOTAL TURNOVER AS CONTAINED IN A SIMILAR PROVISION OF THE ACT I.E. 80 HHE SHOULD BE APPLIED. IV) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE INTENTION OF SECTION 10B OF THE ACT IS TO ENSURE TH AT EXPORT PROFITS ARE NOT TAXED. HOWEVER BY MAKING TH E ABOVE MENTIONED REDUCTION THE PROFITS ON EXPORTS A RE BEING TAXED IN THE HANDS OF THE APPELLANT THEREBY DEFEATING THE PURPOSE OF THE SECTION. V) THE LEARNED CIT(A) HAS ALSO ERRED IN NOT RELYING ON THE DECISION OF THE INCOME TAX APPELLATE TRIBUNAL BANG ALORE IN THE ASSESSEES OWN CASE FOR AY 003-04 (ITA NO.270/BANG/08) ON THE SIMILAR ISSUE AND VARIOUS OT HER CASES OF THE JURISDICTIONAL TRIBUNAL. 7. IT WAS SUBMITTED BY THE LEARNED AR THAT THE ORD ER ON WHICH THE CIT(A) HAS PLACED RELIANCE NAMELY M/S JAIPURIA SILK MILLS (P) LTD. WAS TAKEN IN APPEAL BEFORE THE HONBLE ITAT AND THE TRI BUNAL HAD REVERSED THE DECISION OF THE CIT(A) (ITA NO.1112/BANG/2009 DATED 12 TH APRIL 2010). 8. THE LEARNED DR SUPPORTED THE IMPUGNED ORDERS OF THE INCOME TAX AUTHORITIES. PAGE 4 OF 7 ITA NO.70/BANG/2010 4 9. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE DECISION RELIED ON BY THE CIT(A) NAME LY M/S JAIPURIA SILK MILLS (P) LTD. WAS DECIDED IN FAVOUR OF THE ASSESS EE BY THE TRIBUNAL. THE RELEVANT FINDING OF THE TRIBUNAL READS AS FOLLOWS:- 8. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL PLACED ON RECORD. THE ISSUE IN QUESTI ON STANDS COVERED DIRECTLY IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR TH E ASST. YEAR 2005-06 (ITA NO.406/ BANG/2008 DATED 10.7.2009) WHICH IN TURN FOLLOWED THE DECISION OF THE SPECIAL BENCH CITED SUPRA. THE RELEVANT PORTION OF THE TRIBUNAL'S ORDER IN ASSESSEE'S OWN CASE CITED SUPRA READS AS FOLLOWS:- 'WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL PERUSAL OF THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE'S CASE OUR CONSIDERED OPINION IS THAT NOW THE ISSUE STANDS SETTLED BY THE SPECIAL BENCH DECISION OF THE ITAT CHENNAI IN THE CASE OF ITO V SAK SOFT LTD. REPORTED IN 313 ITR (AT) 353 DATED 6.3.09 THEREFORE DOES NOT REQUIRE ANY FURTHER DELIBERATION. THE ISSUE STANDS COVERED AS ALSO HELD BY THE LEARNED CIT(A) WHICH DOES NOT CALL FOR ANY FURTHER INTERFERENCE'. 9. THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF ITO V SAK SOFT LTD. REPORTED IN 313 ITR (AT) 353 WAS CONSIDERING AN IDENTICAL SITUATION WHEREIN IT WAS H ELD AS FOLLOWS :- 'THE COMMON THREAD RUNNING THROUGH SECTIONS 80HHC 80HHE AND 80HHF IS THAT PAGE 5 OF 7 ITA NO.70/BANG/2010 5 THEY ARE ALL PROVISIONS GRANTING RELIEF TO THE ASSESSEES IN RESPECT OF PROFITS DERIVED FROM EXPORT. THE DIFFERENCE BETWEEN CHAPTER III IN WHICH SECTION 10B FALLS AND CHAPTER VI-A IN WHICH THESE SECTIONS FALL IS THAT WHILE THE FORMER EXCLUDES THE INCOME IN QUESTION TOTALLY FROM THE PURVIEW OF TOTAL INCOME AND GIVES TOTAL EXEMPTION FROM TAX THE LATTER GIVES DEDUCTION OF A PART OF THE PROFITS AND GAINS OF THE CONCERNED BUSINESS FROM THE GROSS TOTAL INCOME. BOTH HOWEVER ARE CHAPTERS WHICH GIVE RELIEF TO ASSESSEES FROM TAXATION SUBJECT TO THE CONDITIONS BEING FULFILLED AND IN THAT SENSE THEY ARE OF THE SAME GENRE. THE OBJECT OF THESE SECTIONS IS TO ENCOURAGE THE EARNING OF FOREIGN EXCHANGE AND PROVIDE INCENTIVE TO PROMOTE EXPORTS. IF SOME OF THE SECTIONS SUCH AS SECTIONS 80HHE AND 80HHF PROVIDE FOR A FORMULA FOR CALCULATING THE DEDUCTION WHICH IS IDENTICAL WITH THE FORMULA PRESCRIBED BY SECTION 10B IT WOULD BE INCONGRUOUS TO INTERPRET SECTION 10B IN A MANNER DIFFERENT FROM THOSE TWO SECTIONS MERELY BECAUSE THERE IS NO DEFINITION OF 'TOTAL TURNOVER' IN THAT SECTION. 'EXPORT TURNOVER' AS DEFINED IN THESE SECTIONS EXCLUDES FREIGHT TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THUS STATUTORILY PARITY IS MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER IN THESE SECTIONS. THERE IS NO REASON WHY SUCH PARITY CANNOT BE MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER PAGE 6 OF 7 ITA NO.70/BANG/2010 6 IN SECTION 10B JUST BECAUSE 'TOTAL TURNOVER' HAS NOT BEEN DEFINED IN THAT SECTION'. 10. THE FIRST APPELLATE AUTHORITY HAS ATTEMPTED TO DISTINGUISH THE CASES CITED ON THE BASIS THAT THE W ORD 'TOTAL TURNOVER' OR 'GROSS RECEIPT' AS IT APPEARS I N SECTION 44AB OF THE I T ACT 1961 BASED ON ICAI GUIDANCE NOTE INCLUDES ALL RECEIPTS INCLUDING REIMBURSEMENT OF EXPENSES. THE CONTEXT IN WHICH TH E WORDS 'TOTAL TURNOVER' AND 'GROSS RECEIPTS' APPEAR IN SECTION 44AB OF THE I T ACT 1961 IS TOTALLY DIFFERE NT TO THAT OF THIS CASE. THERE THE WORD 'TOTAL TURNOVER' IS USED TO BRING IN AMBIT OF TAX AUDIT ALL THE TRANSAC TIONS OF SALES AND SERVICES. THE DEFINITION IS REPRODUCED HE REIN BELOW:- 'THE AGGREGATE AMOUNT FOR WHICH SALES ARE EFFECTED OR SERVICES RENDERED BY AN ENTERPRISE. THE TERM 'GROSS TURNOVER' AND 'NET TURNOVER' (OR 'GROSS SALES' AND 'NET SALES') ARE SOMETIMES USED TO DISTINGUISH THE SALES AGGREGATE BEFORE AND AFTER DEDUCTION OF RETURNS AND TRADE DISCOUNTS'. THE WORD 'TOTAL TURNOVER' IS NOT DEFINED U/S 44AB O F THE I T ACT 1961. HENCE THIS DEFINITION IS BEING CONSIDERED AS GUIDING DEFINITION TO DETERMINE TURNO VER FOR TAX AUDIT. THE FIRST APPELLATE AUTHORITY HAS AD OPTED THE MEANING OF WORDS STATED IN SECTION 44AB WHICH IS WHOLLY UNNECESSARY IN THE INSTANT CASE AND HAS CONCLU DED THAT TURNOVER AND GROSS RECEIPTS ARE SYNONYM AND CAN BE USED INTERCHANGEABLY. THIS LINE OF ANALYSIS CANNOT BE APPLIED IN THIS CASE BECAUSE GROSS RECEIPT IS USED FOR SERVICES RENDERED BY BUSINESS ENTERPRISE OR FOR PROFESSIONAL INCOME AND WORD 'TURNOVER' FOR SALES EFFECTED OR FOR BUSINESS INCOME. THE ASSESSEE'S BUSINESS IS WHOLLY OF EXPORT OF MANUFACTURED SILK FA BRIC PAGE 7 OF 7 ITA NO.70/BANG/2010 7 AND HENCE WORD 'GROSS RECEIPT' CANNOT BE APPLIED TO EXPORT TURNOVER HERE. 11. FOR THE ABOVE SAID REASONS WE REVERSE THE ORDE R OF THE AUTHORITIES BELOW AND DIRECT THE ASSESSING OFFICER TO EXCLUDE FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER A SUM OF RS.96 39 523/- AND RS.2 43 763/- BEING FREIGHT AND INSURANCE EXPENSES RESPECTIVELY WHILE CALCULATING DEDUCTION U/S 10B OF THE ACT. 12. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 10. FOLLOWING THE COORDINATE BENCH DECISION IN THE CASE CITED SUPRA WE HOLD THAT THE CIT(A) IS NOT JUSTIFIED IN HIS CON CLUSION AND DIRECT THE ASSESSING OFFICER THAT THE FREIGHT AND INSURANCE EX PENSES ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AS WELL AS F ROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 10B OF THE ACT. IT IS ORDERED ACCORDINGLY. 11. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED ON FRIDAY THE 28 TH DAY OF JANUARY 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1) THE ASSESSEE (2) THE REVENUE (3) THE CIT(A) CONCERNED. (4) THE CIT CONCERNED. (5) THE DR (6) GUARD FILE. MSP/24.1. BY ORDER ASST. REGISTRAR ITAT BANGALORE.