R.B. JEWELLERY P. LTD, MUMBAI v. DCIT 8(3), MUMBAI

ITA 713/MUM/2010 | 2005-2006
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 71319914 RSA 2010
Assessee PAN AACCR9206Q
Bench Mumbai
Appeal Number ITA 713/MUM/2010
Duration Of Justice 1 year(s) 6 month(s)
Appellant R.B. JEWELLERY P. LTD, MUMBAI
Respondent DCIT 8(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 29-07-2011
Date Of Final Hearing 04-05-2011
Next Hearing Date 04-05-2011
Assessment Year 2005-2006
Appeal Filed On 29-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI R V EASWAR PRESIDENT AND SHRI RAJENDRA SINGH ACCOUNTANT MEMBER I T A NO: 713/MUM/2010 (ASSESSMENT YEAR: 2005-06) R B JEWELLERY PRIVATE LIMITED MUMBAI APPELLANT (PAN: AACCR9206Q) VS DEPUTY COMMISSIONER OF INCOME TAX RESPONDENT 8(3) MUMBAI ASSESSEE BY: MR D B SHAH REVENUE BY: MR C G K NAIR DATE OF HEARING: 20.07.2011 DATE OF PRONOUNCEMENT: .07.2011 O R D E R R V EASWAR PRESIDENT: THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSM ENT YEAR 2005-06 AND ARISES OUT OF THE ASSESSMENT ORDER PASS ED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 BY ORDE R DATED 10.12.2008. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN THE MANUFACTURE AND SALE OF GOLD AND DIAMOND JEWELLERY ON WHOLESALE BASIS. 3. THE FIRST GROUND IS DIRECTED AGAINST THE DISALLO WANCE OF THE PRODUCT DEVELOPMENT COST OF ` 1 45 656/- DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER NOTICED THAT T HE EXPENDITURE ITA NO: 713/MUM/2010 2 RELATED TO NEW PRODUCT DESIGNS AND CANNOT BE ALLOWE D AS REVENUE EXPENDITURE. HE THEREFORE ALLOWED DEPRECIATION AT THE RATE OF 25% ON THE AFORESAID AMOUNT AND DISALLOWED THE BALANCE OF ` 1 09 242/-. ON APPEAL THE CIT(A) AGREED WITH THE ASSESSING OFF ICER. HE FURTHER HELD THAT THE EXPENDITURE WAS INCURRED ON M AKING MOULDS DEPENDING ON THE DESIGN GIVEN BY THE CLIENTS AND TH AT THESE MOULDS CAN BE REPEATEDLY USED BY THE ASSESSEE FOR MAKING S IMILAR DESIGNS ESPECIALLY THE STANDARD ITEMS SUCH AS RINGS BANGLE S ETC. HE THEREFORE HELD THAT THE EXPENDITURE RESULTED IN AN ENDURING BENEFIT. 4. THE ASSESSEE IS IN FURTHER APPEAL. THE FIRST AR GUMENT OF THE LEARNED REPRESENTATIVE FOR THE ASSESSEE WAS THAT SI MILAR EXPENDITURE AMOUNTING TO ` 2 35 089/- AND ` 79 210/- WERE ALLOWED IN THE ASSESSMENT YEARS 2006-07 AND 2007-08 RESPECT IVELY. HIS OTHER SUBMISSION BASED ON THE DETAILS GIVEN AT PAG E 1 OF THE PAPER BOOK IS THAT THE EXPENDITURE CONSISTS OF SIMPLE RU BBER ITEMS FROM WHICH THE MOULDS ARE MADE LABOUR CHARGES AND TRANS PORTATION COST. HE SUBMITTED THAT THE MOULDS GET WORN OUT FA ST AND THEY HAVE TO BE REPLACED FREQUENTLY AND THUS THE EXPENDITURE CANNOT BE SAID TO BE CAPITAL IN NATURE. ON A CAREFUL CONSIDERATIO N OF THE MATTER IN THE LIGHT OF THE RIVAL SUBMISSIONS WE ARE OF THE V IEW THAT THE EXPENDITURE SHOULD BE ALLOWED AS REVENUE EXPENDITUR E. FIRSTLY SIMILAR EXPENDITURE HAS BEEN ALLOWED BY THE ASSESSI NG OFFICER AS REVENUE EXPENDITURE IN THE SUBSEQUENT TWO YEARS. S ECONDLY THOUGH THE RUBBER MOULDS CAN BE USED MORE THAN ONCE FOR DESIGNING STANDARD ITEMS OF JEWELLERY STILL THE EX PENDITURE CANNOT BE SAID TO BE IN THE CAPITAL FIELD MERELY BECAUSE T HE MOULDS CAN BE ITA NO: 713/MUM/2010 3 USED MORE THAN ONCE. THE DESIGNS OF JEWELLERY AS I S WELL-KNOWN FREQUENTLY CHANGE AND IT IS POSSIBLE THAT A MOULD M AY NOT BE USED THE SECOND TIME AT ALL. IN ANY CASE THEY ARE RUBB ER MOULDS SUBJECT TO WEAR AND TEAR. MOREOVER THE DESIGNS ARE INTRIC ATE AND THIS MAY HAVE AN IMPACT ON THE LIFE OF THE MOULDS. TAKING A LL THESE INTO CONSIDERATION IT IS NOT POSSIBLE TO VIEW THE EXPEND ITURE AS CONFERRING AN ENDURING BENEFIT UPON THE ASSESSEE. WE THEREFOR E DIRECT THE ASSESSING OFFICER TO ALLOW THE ENTIRE EXPENDITURE A S REVENUE EXPENDITURE. THE GROUND IS THUS ALLOWED. 5. THE SECOND GROUND RELATES TO THE COMPUTATION OF THE DEDUCTION UNDER SECTION 10A OF THE ACT WHICH MAKES SPECIAL PROVISION FOR NEWLY ESTABLISHED UNDERTAKINGS IN FRE E TRADE ZONE ETC. THE PROFITS AND GAINS DERIVED BY SUCH AN UNDERTAKIN G FROM THE EXPORT OF ARTICLES ARE EXEMPT FROM INCOME TAX FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE YEA R IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE THE ARTICLES. TH E DEDUCTION IS SUBJECT TO SEVERAL CONDITIONS MENTIONED IN THE SECT ION. 6. WE ARE CONCERNED WITH AN EXPENDITURE INCURRED BY THE ASSESSEE ON ACCOUNT OF LABOUR CHARGES. ACCORDING T O THE ASSESSING OFFICER THE LABOUR CHARGES WERE PAID IN FOREIGN CURRENCY AND THEREFORE THE ASSESSEE OUGHT TO HAVE DEDUCTED T AX THEREFROM. SINCE THE ASSESSEE DID NOT DEDUCT THE TAXES THE AS SESSING OFFICER INVOKED SECTION 40(A)(IA) AND ADDED BACK THE LABOUR CHARGES OF ` 19 22 615/-. HOWEVER WHILE COMPUTING THE DEDUCTIO N UNDER SECTION 10A THE ASSESSING OFFICER EXCLUDED THE AMO UNT OF ` 19 22 615/- ON THE GROUND THAT TO THIS EXTENT THE P ROFITS CANNOT BE ITA NO: 713/MUM/2010 4 SAID TO HAVE BEEN DERIVED BY THE UNDERTAKING FROM T HE EXPORTS OF JEWELLERY. HIS VIEW WAS CONFIRMED BY THE CIT(A). 7. THE FIRST PART OF GROUND NO:2 IS AGAINST THE AFO RESAID DECISION OF THE DEPARTMENTAL AUTHORITIES. AT THE T IME OF THE HEARING THE LEARNED REPRESENTATIVE FOR THE ASSESSEE DREW OU R ATTENTION TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. (2010) 233 CTR 24 8 (BOM). ONE OF THE QUESTIONS BEFORE THE HIGH COURT WAS WHETHER THE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO GRANT THE EXEMPTION UNDER SECTION 10A ON THE ASSESSED INCOME WHICH WAS ENHANCED DUE TO DISALLOWANCE OF EMPLOYER AS WELL AS EMPLOYEES CONTRIBUTION TOWARDS PF / ESIC. THE HIGH COURT HEL D THAT THE DISALLOWANCE HAS BEEN MADE BECAUSE OF A STATUTORY P ROVISION NAMELY SECTION 43B AND THE PLAIN CONSEQUENCE OF TH E DISALLOWANCE IS AN INCREASE IN THE BUSINESS PROFITS OF THE ASSES SEE. IT WAS OBSERVED THAT THE CONTENTION OF THE REVENUE THAT IN COMPUTING THE DEDUCTION UNDER SECTION 10A THE DISALLOWANCE OF THE PF / ESIC SHOULD BE IGNORED CANNOT BE ACCEPTED IN THE ABSENCE OF ANY STATUTORY PROVISION TO THAT EFFECT. IN THIS VIEW O F THE MATTER THE TRIBUNALS DIRECTION TO THE ASSESSING OFFICER TO GR ANT EXEMPTION UNDER SECTION 10A ON THE ASSESSED INCOME WHICH WAS ENHANCED DUE TO THE DISALLOWANCE OF THE CONTRIBUTION TOWARDS PF / ESIC WAS UPHELD. THE FACTS OF THE PRESENT CASE ARE SIMILAR. HEREIN THE BUSINESS PROFITS WERE ENHANCED BY THE ASSESSING OFF ICER BY THE DISALLOWANCE OF ` 19 22 615/- MADE UNDER SECTION 40(A)(IA) ON THE GROUND THAT THE ASSESSEE DID NOT DEDUCT TAX ON PAYM ENTS MADE IN ITA NO: 713/MUM/2010 5 FOREIGN CURRENCY TOWARDS LABOUR CHARGES. WHEN IT C OMES TO GRANTING DEDUCTION UNDER SECTION 10A THE ASSESSING OFFICER CANNOT IGNORE THE ENHANCED BUSINESS PROFITS AND HOLD THAT THE DEDUCTION CANNOT BE GIVEN ON THE ENHANCED BUSINESS PROFITS BU T WILL BE GIVEN ONLY ON THE BUSINESS PROFITS AS REDUCED BY THE DISA LLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT. THEREFORE RES PECTFULLY FOLLOWING THE AFORESAID JUDGMENT WE DIRECT THE ASSESSING OFF ICER TO GRANT DEDUCTION UNDER SECTION 10A ON THE BUSINESS PROFITS ENHANCED BY THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA). 8. THE SECOND PART OF THE GROUND RELATES TO FREIGHT AND INSURANCE CHARGES WHICH ARE INCURRED LOCALLY. THER E IS A DEFINITION OF THE WORDS EXPORT TURNOVER IN CLAUSE (IV) OF EX PLANATION 2 BELOW SECTION 10A. ACCORDING TO THE DEFINITION EXPORT TURNOVER DOES NOT INCLUDE FREIGHT TELECOMMUNICATION CHARGES OR INSUR ANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OUTSIDE INDIA. IN THE PRESENT CASE THE ASSESSEE INCURRED ` 3 28 600/- AS CLEARING AND FORWARDING CHARGES THE DETAILS OF WHICH ARE GIVEN AT PAGE 18 OF THE PA PER BOOK. ACCORDING TO THE DEFINITION OF EXPORT TURNOVER O NLY FREIGHT AND INSURANCE CHARGES ATTRIBUTABLE TO THE DELIVERY OF T HE ARTICLES OUTSIDE INDIA CAN BE REDUCED FROM THE EXPORT TURNOVER. A P ERUSAL OF THE DETAILS AT PAGE 18 OF THE PAPER BOOK SHOWS THAT SO FAR AS THE EXPENDITURE OF ` 2 52 292/- IS CONCERNED IT REPRESENTS EXPENDITURE INCURRED IN INDIA IN RESPECT OF PACKING MATERIALS SECURITY CLEARING & FORWARDING AND CONVEYANCE CHARGES. SUCH EXPENDITUR E CANNOT BE REDUCED FROM THE EXPORT TURNOVER SINCE IT WAS NOT I NCURRED ON THE DELIVERY OF THE ARTICLES OUTSIDE INDIA. WE ACCORDI NGLY DIRECT THE ITA NO: 713/MUM/2010 6 ASSESSING OFFICER NOT TO EXCLUDE THE AFORESAID AMOU NT OF EXPENDITURE FROM THE EXPORT TURNOVER. 9. AS REGARDS THE SHIPMENT CHARGES OF ` 76 308/- FOR WHICH DETAILS ARE GIVEN AT PAGE 18 OF THE PAPER BOOK IT IS NOT CLEAR WHETHER THEY WERE ATTRIBUTABLE TO THE DELIVERY OF T HE ARTICLES OUTSIDE INDIA. THE PARTIES BEFORE US ARE AGREED THAT THIS MATTER MAY BE VERIFIED BY THE ASSESSING OFFICER. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO VERIFY THE FACTUAL ASPECT AND TAKE A FRESH DECISION AS PER LAW. THE LEARNED REPRESENTATIVE FO R THE ASSESSEE SUBMITTED THAT IF ON VERIFICATION THE ASSESSING OFF ICER FINDS THAT THE EXPENDITURE OF ` 76 308/- IS TO BE REDUCED FROM THE EXPORT TURNOVER A CORRESPONDING AMOUNT SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER AS HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN THE DECISION CITED SUPRA. IT WOULD BE OPEN TO THE ASSESSEE TO TAKE UP SUCH A CONTENTION BEFORE THE ASSESSING OFFICER W HEN THE FACTUAL ASPECT IS VERIFIED AND THE ASSESSING OFFICER SHALL ALSO DEAL WITH THE SAME AS PER LAW AND IN ACCORDANCE WITH THE JUDGMENT CITED ABOVE. SUBJECT TO THESE REMARKS THE GROUND IS PARTLY ALLOW ED. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY 2011. SD/- SD/- (RAJENDRA SINGH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI DATED 29 TH JULY 2011 SALDANHA ITA NO: 713/MUM/2010 7 COPY TO: 1. R B JEWELLERY PVT. LTD. SDF-IV UNIT NO.108 SEEPZ ANDHERI (EAST) MUMBAI 400 096 2. DCIT 8(3) MUMBAI 3. CIT-8 MUMBAI 4. CIT(A)-18 MUMBAI 5. DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI