SHRI BABULAL H. BAFNA, MUMBAI v. THE ACIT 14(1), MUMBAI

ITA 837/MUM/2008 | 2004-2005
Pronouncement Date: 29-07-2010 | Result: Partly Allowed

Appeal Details

RSA Number 83719914 RSA 2008
Assessee PAN AAEPB7979D
Bench Mumbai
Appeal Number ITA 837/MUM/2008
Duration Of Justice 2 year(s) 5 month(s) 23 day(s)
Appellant SHRI BABULAL H. BAFNA, MUMBAI
Respondent THE ACIT 14(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 29-07-2010
Date Of Final Hearing 17-05-2010
Next Hearing Date 17-05-2010
Assessment Year 2004-2005
Appeal Filed On 06-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI J. SUDHAKAR REDDY AM AND SHRI V.DURG A RAO JM I.T.A.NO.837/MUM/2008 ASSESSMENT YEAR : 2004-05 SHRI BABULAL H. BAFNA 25/27 MATKA GALLI PODAR BLDG. LST FLOOR VITHALWADI KALBADEVI MUMBAI 400 002. VS. THE ASST. COMMISSIONER OF INCOME-TAX- 14(1) EARNEST HOUSE NARIMAN POINT MUMBAI 400 021. PAN: AAEPB 7979 D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAKESH JOSHI RESPONDENT BY : S/SHRI NARESH BALODIA/O.P. SHARMA O R D E R PER J. SUDHAKAR REDDY AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XIV MUMBAI D ATED 23.01.2008 FOR THE ASSESSMENT YEAR 2004-05. 2. FACTS IN BRIEF : THE ASSESSEE IS AN INDIVIDUAL AND IS IN THE BUSINES S OF EXPORTS OF TEXTILES UNDER THE PROPRIETARY CONCERN OF M/S. MOHANLAL BABULAL BAFNA. FOR THE ASSESSMENT YEAR 2004-05 THE ASSESSEE FILED THE RETURN OF INCOME DECLARING T OTAL INCOME OF RS.23 44 340/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SE CTION 143(3) ON 19.09.2006 DETERMINING GROSS TOTAL INCOME OF RS.23 51 945/-. THE ISSUES THAT ARISE IN THIS APPEAL ARE ON THE QUANTIFICATION OF DEDUCTION UNDER SECTION 80 HHC WITH REGARD TO DEPB INCOME AND WITH RESPECT TO ADJUSTMENT OF INDIRECT EXPENSES IN CURRED FOR EARNING EXPORT INCOME. 3. WE HAVE HEAD SHRI RAKESH JOSHI LEARNED COUNSEL FOR THE ASSESSEE AND SHRI NARESH BALODIA LEARNED DEPARTMENTAL REPRESENTATIV E. 4. THE FIRST TWO GROUNDS RAISED BY THE ASSESSEE REA D AS FOLLOWS: 1. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AUTHORITIES BELOW HAVE ERRED IN RESTRICTING DEDUCTION U/S.80HHC TO RS.4 17 437/- AS AGAINST CLAIM OF RS. 6 72 203/- MADE 2 BY THE ASSESSEE AND THE REASONS ASSIGNED FOR DOING SO ARE WRONG AND CONTRARY TO THE FACTS AND THE PROVISIONS OF THE LAW . 2. ON THE FACTS AND UNDER THE CIRCUMSTANC ES OF THE CASE AND IN LAW THE LEARNED AUTHORITIES BELOW HAS ERRED IN CONSIDERING DEPB INCOME FOR CALCULATION OF DEDUCTION U/S.80HHC ON RECEIPT BASIS AND TAKEN THE FIGURE AT RS.39 88 520/- AS AGAINST THE ACCRUAL MET HOD FOLLOWED BY THE APPELLANT AND THE REASONS ASSIGNED FOR DOING S O ARE WRONG AND CONTRARY TO THE FACTS OF THE CASE AND THE PROVISION S OF THE LAW. 5. THE FACTS AND THE CONTROVERSY IN QUESTION ARE AC TUALLY BROUGHT OUT BY THE LEARNED CIT(A) IN THE FOLLOWING WORDS: THE ASSESSEE FIRM IS AN EXPORTER AND THE ASSESSEE S INCOME CONSISTED OF INCOME FROM PROPRIETARY CONCERN AND ALSO INCOME FROM OTHER SOURCES BY WAY OF INTEREST. DURING THE SUBJECT YEAR ITS TURNOVER WAS LESS THAN RS.10 CRORES. THE APPELLANT HAD SHOWN SALE OF DEPB LICENCES AT RS. 41 76 414/- AND FURTHER DEPB LICENCES IN HAND AND RECEIVABLE AT RS. 17 30 293/- EXCISE DUTY DRAW BACK AT RS.27 12 630/- TOTALING TO RS. 68 89 044/-. THE AO HELD THAT THE AMOUNT REC EIVED ON ACCOUNT OF SALE OF DEPB LICENCES AT RS. 41 76 414/- ONLY WAS COVERED U /S.28(IIID). ACCORDINGLY 90% OF THE SAME WAS INCLUDED IN THE AMOUNTS ADMISSIBLE FOR DEDUCTION U/S.80HHC . WITH REGARD TO THE REMAINING AMOUNT OF RS. 17 30 29 3/- THE AO HELD THAT THIS WAS NOT COVERED U/S.28(IIID) BUT WAS TAXABLE U/S.28(IV ) AND ACCORDINGLY DEDUCTION U/S.80HHC WAS DENIED IN RESPECT OF DEPB IN HAND AND RECEIVABLE AT RS. 17 30 293/-. I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBMI9SSI ONS AND AM NOT CONVINCED WITH THE APPELLANTS CONTENTION. AS PER THE TAXATION LAW S (AMENDMENT) ACT 2006 THE DEPB PROCEEDS ARE TO BE TREATED AS PART OF BUSINESS PROFITS IN VIEW OF THE PROVISIONS OF SEC. 28(IIID). THE PROVISIONS OF SEC. 28(IIID) COVER ONLY THE INCOME ON ACCOUNT OF TRANSFER OF DEPB. THUS IT IS NECESSARY THAT THE APPELLANT SHOULD HAVE RECEIVED THE CONSIDERATION ON TRANSFER OF DEPB LICE NCES. EVEN THOUGH THE APPELLANT IS FOLLOWING THE MERCANTILE SYSTEM OF AC COUNTING AND ON THAT GROUND THE DEPB INCOME HAD BEEN SHOWN AS RECEIVABLE BUT THIS CANNOT BE A GROUND FOR ALLOWANCE OF DEDUCTION U/S.80HHC. KEEPING IN VIEW THE SPECIFIC PROVISIONS OF SEC.28(IIID) R.W.S.80HHC ALLOWANCE OF DEDUCTION U/ S.80HHC ON THE DEPB RECEIVABLES DURING THE SUBJECT YEAR WOULD CERTAINLY BE A PREMATURE ACTION. THEREFORE THE AO WAS FULLY JUSTIFIED IN DENYING TH E DEDUCTION ON ACCOUNT OF DEPB RECEIVABLE DURING THE YEAR. RELIANCE IS PLACED ON THE I.T.A.T K BENCH MUMBAI DECISION IN THE CASE OF OM EXPORTS IN ITA NOS. 5096 & 5097/MUM/2006 DATED 12.11.07 WHERE IN THE I.T.A.T HAS HELD THAT THE AO HAS TO GIVE DEDUCTION IN RESPECT OF DEPB ONLY TO THE EXTENT OF CONSIDERATION ACTUALLY RECEIVED BY THE APPELLANT DURING THE SUBJECT YEAR AND THE AO WAS NO T BOUND TO GIVE DEDUCTION ON DEPB RECEIVABLES. ACCORDINGLY THIS GROUND OF APPEA L IS DISMISSED. 6. THE HONBLE HIGH COURT IN THE CASE OF CIT V. KAL PATARU COLOURS AND CHEMICALS IT APPEAL (LODG.) NO. 2887 OF 2009 DECIDED ON 28/29 TH JUNE 2010 SUB-CLAUSE (C) OF PARA 29 (AT PAGE 33 - 34) HELD AS FOLLOWS: 3 (C) THE FACT THAT THE ASSESSEE HAD ACCOUNTED FOR T HE DEPB CREDIT IMMEDIATELY AFTER MAKING AN APPLICATION SEEKING DEPB CREDIT WOU LD MAKE NO DIFFERENCE TO THE TAXABILITY OF THE ENTIRE AMOUNT RECEIVED ON TRANSFE R OF THE DEPB CREDIT UNDER SECTION 28(IIID). WHAT CONSTITUTES PROFITS UNDER S ECTION 28(IIID) IS THE AMOUNT 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 THE ACCOUNT RECEIVED IN EXCESS OF THE DEPB WOULD CONSTITUTE PROFITS OF BUSINESS UNDER SECTION 28(IIID) AND MERELY BECAUSE A PART OF SUCH PROFITS OF BUSINESS (FACE V ALUE) WAS OFFERED TO TAX IN THE YEAR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE WO ULD NOT BE A GROUND TO HOLD THAT SUCH PROFIT WAS NOT COVERED UNDER SECTION 28(I IID). WHERE THE FACE VALUE OF THE DEPB CREDIT IS OFFERED TO TAX AS BUSINESS PROFITS U NDER SECTION 28(IIID) IN THE YEAR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE THEN ANY FURTHER PROFIT ARISING ON TRANSFER OF DEPB CREDIT WOULD BE TAXED AS PROFITS OF BUSINES S UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE TRANSFER OF DEPB CREDIT TOOK PLAC E. THEREFORE THE ARGUMENT OF THE ASSESSEE THAT IF THE FACE VALUE OF THE DEPB CRE DIT IS HELD TO BE COVERED UNDER SECTION 28(IIID) IT WOULD AMOUNT TO DOUBLE TAXATIO N IS WITHOUT ANY MERIT. AT PAGE 42 PARA 33 IT WAS FURTHER HELD AS FOLLOWS: ..WHEN SECTION 28(IIID) SPECIFICALLY DEALS WITH PROFITS REALIZED ON THE TRANSFER OF THE DEPB CREDIT IT WOULD BE IMPERMISSIBLE AS A MAT TER OF FIRST PRINCIPLE TO BIFURCATE THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. THUS AS PER THE JURISDICTIONAL HIGH COURT DECISIO N THE ENTIRE DEPB CREDIT SHOULD FALL UNDER SECTION 28(IIID) THE ASSESSING OFFICER IS WR ONG IN HOLDING THAT THE PART OF THE AMOUNT IS NOT COVERED UNDER SECTION 28(IIID) BUT WA S TAXABLE UNDER SECTION 28(IV) OF THE ACT. ONCE THE INCOME HAS BEEN TAXED THE QUESTION O F NOT GRANTING RELIEF UNDER SECTION 80HHC ON THE GROUND THAT THE ASSESSEE HAS NOT REAL IZED THIS AMOUNT DOES NOT ARISE. IN VIEWS OF THIS GROUND NOS. 1 & 2 OF THE ASSESSEE AR E ALLOWED. 7. GROUND NO. 3 READS AS FOLLOWS: ON THE FACTS AND UNDER THE CIRCUMSTAN CES OF THE CASE AND IN LAW THE LEARNED AUTHORITIES BELOW HAS ERRED IN CONSIDERING 10% OF INDIRECT EXPENSES AS INCURRED FOR EARNING EXPORT INCENTIVE A ND THE REASONS ASSIGNED DOING SO ARE WRONG AND CONTRARY TO THE FAC TS OF THE CASE AND THE PROVISIONS OF THE LAW. 8. THOUGH THE ASSESSEE HAS RAISED THIS GROUND BEFOR E THE FIRST APPELLATE AUTHORITY THE SAME HAS NOT BEEN ADJUDICATED UPON. IN ANY EVE NT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISIO N OF THE HONBLE SUPREME COURT IN THE 4 CASE OF HIRO EXPORTS VS. CIT (2007) 295 ITR 454(SC) . RESPECTFULLY FOLLOWING THE SAME WE ALLOW THIS GROUND OF THE ASSESSEE. 9. GROUND NO.4 IS IN RESPECT OF GRANTING OF INTERES T U/S.244A ON THE REFUND AMOUNT. THE SAME IS DISMISSED AS NOT PRESSED. 10. GROUND NO. 5 IS GENERAL IN NATURE. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 9 TH DAY OF JULY 2010. SD. SD . (V.DURGA RAO) (J. SUDHAKAR REDD Y) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED THE 29 TH JULY 2010. KN/ COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT-XIV MUMBAI 4. THE CIT(A)-XIV MUMBAI 5. THE DR B BENCH MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR ITAT MUMBAI