M/s. VALIANT GLASS WORKS P. LTD., MUMBAI v. ACIT - 4(3), MUMBAI

ITA 858/MUM/2007 | 2003-2004
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 85819914 RSA 2007
Assessee PAN ACTOF2005W
Bench Mumbai
Appeal Number ITA 858/MUM/2007
Duration Of Justice 4 year(s) 6 month(s) 4 day(s)
Appellant M/s. VALIANT GLASS WORKS P. LTD., MUMBAI
Respondent ACIT - 4(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted K
Tribunal Order Date 29-07-2011
Date Of Final Hearing 07-07-2011
Next Hearing Date 07-07-2011
Assessment Year 2003-2004
Appeal Filed On 25-01-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K MUMBAI BEFORE SHRI J. SUDHAKAR REDDY(AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO.858/MUM/2007 ASSESSMENT YEAR- 2003-04 M/S. VALIANT GLASS WORKS PVT. LTD. 384 M DABOLKARWADI 5 TH FLOOR KALBADEVI ROAD MUMBAI-400 002 PAN- VS. THE ACIT 4(3) AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AJIT SHAH RESPONDENT BY: SHRI P. NAIK O R D E R DATE OF HEARING : 7.7.2011 DATE OF PRONOUNCEMENT : 29THJULY 2011 PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 14.12.2006 PASSED BY THE LD. CIT(A)-XIV FOR T HE ASSESSMENT YEAR 2003-04. 2. THE FACTS IN BRIEF ARE THAT THE APPELLANT IS IN THE BUSINESS OF MANUFACTURE OF TEXTILES AND MADE UPS FOR EXPORTS. DURING THE YEAR UNDER REFERENCE THE EXPORT OF GOODS WAS RS. 25 38 07 661/- (FOB VALUE). IN TERMS OF THE EXPORT IMPORT POLICY THE APPELLANT WAS ENTITLED FOR DEPB CREDIT AT THE RELEVANT RATES ON THE FOB VALUE OF EX PORTS. IN RESPECT OF THE EXPORTS MADE BY THE APPELLANT PROFITS IN RESPECT O F DEPB OF RS. ITA NO. 858/M/07 2 2 42 75 307/- WAS ACCOUNTED AND THE SAME WAS CLASSI FIED IN THE ACCOUNTS AS DEPB CREDIT. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IN THE GR OUND OF APPEAL PERTAINS TO DENIAL OF DEDUCTION U/S. 80HHC IN RESPE CT OF DEPB CREDIT AT RS. 2 42 75 307/- AND CENVAT INCENTIVE AT RS. 89 34 887/-. 4. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED TH AT THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TOPMAN EXPORTS (SUPRA) WHICH WAS IN FAVOUR OF THE ASSESSEE HAS SINCE BEEN REVERSED B Y THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS & CHEMICALS REPORTED IN 233 CTR 313 WHICH READS AS FOLLOWS: AS REGARDS THE DEDUCTION UNDER SECTION 80HHC THE LEGISLATURE SUBSTITUTED EXPLANATION (BAA) IN SECTION 80HHC SO AS TO EXCLUDE 90 PER CENT. OF THE PROFITS RECEIVED ON TRANSFER OF DEP B FROM THE PROFITS OF BUSINESS FOR THE PURPOSES OF SECTION 80H HC AND INSERTED THE SECOND AND THIRD PROVISOS TO SECTION 80HHC(3). THE SECOND PROVISO PROVIDED THAT IN THE CASE OF AN ASSESSEE HA VING AN EXPORT TURNOVER NOT EXCEEDING RS. 10 CRORES THE PROFITS C OMPUTED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90 PER CENT. OF THE SUM REFERRED TO IN SECTION 28(IIID). THE THIRD PROVISO PROVIDED THAT IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TURNOVER EXCEE DING RS. 10 CRORES THE PROFITS COMPUTED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90 PER CENT. OF THE SUM REFERRED TO IN SECTION 28(IIID) SUBJECT TO THE TWO CONDITIONS SET OUT THEREIN. WHAT CONSTITUTES PROFITS UNDER SECTION 28(IIID) IS THE AMOUNT RECEIV ED ON TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT OF CREDIT WHICH T HE ASSESSEE WAS ENTITLED TO UNDER THE DEPB SCHEME. IN OTHER WORD S THE AMOUNT EQUIVALENT TO THE FACE VALUE OF DEPB AS WELL AS THE AMOUNT RECEIVED IN EXCESS OF THE DEPB WOULD CONSTITUTE PROF ITS OF BUSINESS UNDER SECTION 28(IIID) AND MERELY BECAUSE A PART OF SUCH PROFITS OF BUSINESS (FACE VALUE) WAS OFFERED TO TAX IN THE YEA R IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE WOULD NOT BE A GROUN D TO HOLD THAT SUCH PRO-FIT WAS NOT COVERED UNDER SECTION 28(IIID) . WHERE THE FACE VALUE OF THE DEPB CREDIT IS OFFERED TO TAX AS BUSINE SS PROFITS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE CREDIT AC CRUED TO THE ASSESSEE THEN ANY FURTHER PROFIT ARISING ON TRANSF ER OF THE DEPB CREDIT WOULD BE TAXED AS PROFITS OF BUSINESS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE TRANSFER OF THE DEPB CREDIT TO OK PLACE. ITA NO. 858/M/07 3 THERE IS ANOTHER PERSPECTIVE FROM WHICH THE ISSUE C AN BE LOOKED AT. THE DEPB CREDIT TO WHICH AN EXPORTER IS E NTITLED IS A FORM OF AN EXPORT INCENTIVE. NO PART OF THE CREDIT THAT IS AVAILABLE UNDER THE DEPB SCHEME CAN FALL FOR CLASSIFICATION UN DER CLAUSE (IIIB) OF SECTION 28 WHICH DEALS WITH CASH ASSISTANCE REC EIVED OR RECEIVABLE AGAINST ANY SCHEME OF THE GOVERNMENT OF INDIA. CLAUSE (IIIB) WAS ENACTED AT A TIME WHEN THE EXPORT INCENT IVES THAT WERE AVAILABLE WERE (I) IMPORT ENTITLEMENT LICENCES; (II ) CASH COMPENSATORY SUPPORT ; AND (III) DUTY DRAWBACK. THE DEPB SCHEME WAS NOT IN EXISTENCE WHEN CLAUSE (IIIB) CAME TO BE ENACTED INTO SECTION 28 BY THE FINANCE ACT OF 1990. THE DEPB SCHE ME WAS BROUGHT INTO EXISTENCE WITH EFFECT FROM APRIL 1 19 97. CLAUSE (IIID) OF SECTION 28 WAS INSERTED BY THE AMENDING ACT OF 2 005 WITH EFFECT FROM APRIL 1 1998. THE VALUE OF THE DEPB CREDIT CAN NOT BE REGARDED AS A CASH ASSISTANCE WHICH IS RECEIVED OR RECEIVABLE BY A PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVE RNMENT OF INDIA. IT CANNOT BE INFERRED FROM THE SPEECH OF THE FINANC E MINISTER THAT THE INSERTION OF CLAUSE (IIID) IN SECTION 28 W AS MADE WITH A VIEW TO TAX ONLY THE AMOUNT WHICH HAS BEEN RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB CREDIT. DEPB CREDIT WAS I NTRODUCED WITH EFFECT FORM APRIL 1 1997 WHICH WAS AFTER THE INSE RTION OF CLAUSE (IIIB) IN SECTION 28 ; SECTION 28(IIIB) REFERS TO C ASH ASSISTANCE RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUA NT TO A SCHEME OF THE GOVERNMENT. THE AMOUNT RECEIVED ON TH E TRANSFER OF THE DEPB CREDIT IS NOT RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUANT TO A SCHEME OF THE GOVERNMENT W ITHIN THE MEANING OF CLAUSE (IIIC) ; AND WHEN SECTION 28(IIID ) SPECIFICALLY DEALS WITH PROFITS REALISED ON THE TRANSFER OF THE DEPB C REDIT IT WOULD BE IMPERMISSIBLE AS A MATTER OF FIRST PRINCIPLE TO BIF URCATE THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. THE ENTIRETY OF THE SALE CONSIDER ATION WOULD FALL WITHIN THE PURVIEW OF SECTION 28(IIID). IN THESE CIRCUMSTANCES WE SET ASIDE THE ISSUE TO THE FILE OF THE AO TO DECIDE IN LIGHT OF THE DECISIONS OF THE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS & CHEMICALS(SUPRA) ITA NO. 858/M/07 4 5. REGARDING CENVAT INCENTIVES OF RS. 89 34 887/- THE LD. CIT(A) HELD AS FOLLOWS: AS REGARDS THE DEEMED CREDIT RECEIVED WITH REGARD T O CENVAT INCENTIVES THE CLAIM OF THE APPELLANT THAT THIS IT EM OF INCOME WAS COVERED U/S.28(I) OR 28(IV)( CANNOT BE ACCEPTED FOR THE REASON THAT CENVAT INCENTIVE WAS IN THE NATURE OF EXPORT INCENT IVES AND THEREFORE IN ORDER TO BE ELIGIBLE FOR DEDUCTION U/ S.80HHC IT SHOULD STAND COVERED UNDER ANY OF THE CLAUSES (IIA) TO (II IE) OF SEC. 28 OF THE I.T. ACT. ADMITTEDLY CENVAT INCENTIVE IS NOT COVER ED UNDER ANY OF THESE CLAUSES. ON PERUSAL OF THE DETAILS OF THE SCH EME IT IS APPARENT THAT THE DEEMED CREDIT RECEIVED UNDER CENVAT INCENT IVE WAS ON THE LINES SIMILAR TO DUTY DRAW BACK. IN FACT IT WAS TH E CHOICE OF THE EXPORTER EITHER TO OBTAIN THE REFUND OF CENVAT CRED IT OR AVAIL DRAW BACK FACILITY. SINCE THE APPELLANT HAD CHOSEN THE F ORMER WHICH WAS NOT COVERED UNDER SEC.28(IIIC) THE BENEFIT OF PROP ORTIONATE INCREASE IN THE BUSINESS PROFITS FOR ALLOWING DEDUCTION U/S.80H HC CANNOT BE ALLOWED TO THE APPELLANT. AS PER THE RULE OF HARMON IOUS CONSTRUCTION IF SOME ITEM STANDS CLEARLY EXCLUDED UNDER SOME PRO VISION OF A SECTION THE SAME CANNOT BE ASSUMED AS COVERED IN O THER PROVISIONS OF THE SAME SECTION. FURTHER IF SUCH INTERPRETATIO N AS PLEADED BY THE A.R. IS ACCEPTED THEN THERE WAS HARDLY ANY NEED FO R SPECIFICALLY COVERING VARIOUS EXPORT INCENTIVES UNDER VARIOUS CL AUSES OF SEC. 28 I.E. (IIIA) TO (IIIE) AS ALL THESE INCENTIVES WOULD HAVE BEEN COVERED U/S.28(IV) OF THE I.T. ACT. THE JUDGMENTS RELIED UP ON BY THE A.R. ARE WITH REGARD TO THE DUTY DRAW BACK OR REFUND OF EXCI SE DUTY AND THEREFORE THEY DO NOT COVER THE ISSUE OF DEEMED CR EDIT UNDER CENVAT INCENTIVES. IN THE CIRCUMSTANCES I HOLD THAT THE A MOUNT OF DEEMED CREDIT UNDER CENVAT INCENTIVE SCHEME AT RS.89 34 88 7/- WAS NOT A PART OF BUSINESS PROFITS TO BE ELIGIBLE FOR DEDUCTI ON U/S.80HHC. THEREFORE THE ACTION OF THE A.O. IN DENYING THE DE DUCTION U/S.80HHC IN RESPECT OF CENVAT INCOME AT RS.89 34 8 87/- IS HEREBY CONFIRMED. 6. THE LD. AR PLEADED THAT CENVAT INCENTIVES ARE S IMILAR TO DEPB AND THE ITEM OF INCOME IS COVERED U/S. 28(I) OR 28( IV) AND THEREFORE ELIGIBLE FOR DEDUCTION U/S. 80HHC. 7. THE VARIOUS EXPORT INCENTIVES UNDER VARIOUS CLAU SES OF SEC. 28 I.E. (IIIA) TO (IIIE) HAVE BEEN SPECIFIED AND CENVAT INC ENTIVE IS NOT ONE OF THEM. AT THE SAME TIME THE CENVAT CREDIT IS IN THE NATURE OF CREDIT AGAINST EXCISE DUTY PAYABLE AND HENCE IS BUSINESS INCOME. W HAT IS EXCLUDED ITA NO. 858/M/07 5 FROM BUSINESS PROFITS IS ONLY INCENTIVES MENTIONED IN SEC 28(IIIA) TO 28(IIIE). CENVAT CREDIT SHOULD BE CONSIDERED EITHER AS DUTY DRAW BACK OR AN INCENTIVE WHICH IS NOT EXCLUDIBLE FROM BUSINESS PROFITS. UNDER EITHER CIRCUMSTANCES THE ASSESSEE WILL BE ENTITLED TO RELI EF UNDER SEC 80HHC. IN CASE THE CENVAT INCENTIVES ARE CONSIDERED ON PAR WI TH DUTY DRAW BACK THEN 10% OF THE DRAW BACK WILL BE INCLUDED IN THE B USINESS PROFITS AND THE BALANCE 90% WILL BE ENTITLED TO RELIEF UNDER PR OVISO TO SEC 80HHC(3). IF IT IS NOT ANY OF THE INCENTIVES U/S 28(III) THE N NO PART OF IT CAN BE EXCLUDED AND THE ENTIRE AMOUNT WILL BE TAKEN INTO A CCOUNT FOR COMPUTING RELIEF U/S 80HHC. 8. IN THESE CIRCUMSTANCES WE HOLD THAT HE AMOUNT O F DEEMED CREDIT UNDER CENVAT INCENTIVE SCHEME AT RS. 89 34 887/- IS PART OF BUSINESS PROFITS ELIGIBLE FOR DEDUCTION U/S. 80HHC. HENCE WE ALLOW THE APPEAL OF THE AESESSEE AND REVERSE THE ORDER OF THE LD. CIT(A ) ON THIS ISSUE. 9. THE NEXT ISSUE RAISED IN THE GROUNDS OF APPEAL P ERTAINS TO ESTIMATION OF INCOME AT RS. 50 000/- ON ACCOUNT OF UNACCOUNTED SALE OF BHANGER. THE FACTS ARE AS FOLLOWS: A SURVEY U/S.133A WAS CARRIED OUT ON THE BUSINESS P REMISES OF THE CONCERNS BELONGING TO THE PANCHERIWALA GROUP CASES. IN THE IMPOUNDED DOCUMENTS AN EVIDENCE OF SALE OF BHANGAR AMOUNTING TO RS.2500/- WAS FOUND ON A LOOSE PAPER DATED 25.01 .03. THE A.O. HELD THAT THE APPELLANT HAD ADMITTED UNACCOUNTED SA LE OF BHANGAR AND THIS WAS ENOUGH EVIDENCE TO HOLD THAT SIMILAR A CTION OF SALE MUST HAVE BEEN MADE THROUGH OUT THE YEAR WHICH HAVE NOT BEEN ACCOUNTED FOR. THEREFORE THE UNACCOUNTED SALE OF B HANGAR WAS ESTIMATED AT RS.50 000/-. ITA NO. 858/M/07 6 AT THE TIME OF HEARING IT WAS ORALLY PLEADED THAT E STIMATION MADE BY THE A.O. WAS EXCESSIVE AND DESERVED TO BE REDUCE D. 9. THE LD. CIT(A) HELD AS FOLLOWS: ON CAREFULLY CONSIDERATION OF THE FACTS AND SUBMIS SIONS I FIND THAT SINCE THE APPELLANT HAD ADMITTED THE UNAC COUNTED SALE OF BHANGAR AND THERE WAS EVIDENCE ALSO WITH REGARD TO SUCH SALE OF RS.2500/- ON 25.01.2003 THE ESTIMATION ON THE PART OF THE A.O. THAT THE APPELLANT MUST HAVE CARRIED SUCH SALES THROUGH OUT THE YEAR WAS NOT UNREASONABLE. THEREFORE THE ESTIMATION OF UNACCOUNTED SALES OF BHANGAR AT RS.50 000/- IS HEREBY UPHELD. A CCORDINGLY THIS GROUND OF APPEAL IS REJECTED . 10. ON APPEAL BEFORE US THE LD. DEPARTMENTAL REPRES ENTATIVE SUBMITTED THAT IT WOULD BE REASONABLE TO ESTIMATE T HE UNACCOUNTED SALE OF BHANGER AT RS. 20 000/-. 11. WE FIND THAT THE ASSESSEE HAD ADMITTED THE UNAC COUNTED SALE OF BHANGAR AND THERE WAS EVIDENCE ALSO WITH REGARD TO SUCH SALE OF RS. 2 500/- ON 25.1.2003. THE AO HAS PRESUMED THAT THE ASSESSEE MUST HAVE CARRIED ON SUCH SALES FOR SIMILAR AMOUNTS THRO UGHOUT THE YEAR WHICH WAS UPHELD BY THE LD. CIT(A). HOWEVER SINCE IT CANNOT BE PRESUMED THAT THE SALE HAD BEEN FOR RS. 2 500/- ON ALL THE DATES WE ARE OF THE OPINION THAT THE REASONABLE ESTIMATE COULD B E AT RS. 20 000/- INSTEAD OF RS. 50 000/- CONFIRMED BY THE LD. CIT(A) . THE ASSESSEE SHALL GET RELIEF AT RS. 30 000/-. 12. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 29THDAY OF JULY 2011 SD/- SD/- (J. SUDHAKAR REDDY) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER ITA NO. 858/M/07 7 MUMBAI DATED 29THJULY 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR K BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 858/M/07 8 DATE INITIALS 1. DRAFT DICTATED ON: 15.7.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 22.07.2011 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. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: