Income Tax Appellate Tribunal - Mumbai
Sulzer India Ltd., Mumbai vs Department Of Income Tax on 30 August, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
"E" BENCH : MUMBAI
BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No. 2871/Mum/2007
(Assessment year: 2003-04)
Asst. Commissioner of Income- Vs. M/s. Sulzer India Limited,
tax, Karmyog Building,
Room No.204, 2nd Floor, Parsi Panchayat Road,
Aayakar Bhavan, Andheri (E),
M.K. Road, Mumbai -400 059
Mumbai -400 020
Appellant Respondent
ITA No. 2944/Mum/2007
(Assessment year: 2003-04)
M/s. Sulzer India Limited, Vs. Asst. Commissioner of Income-tax,
Karmyog Building, Room No.204, 2nd Floor,
Parsi Panchayat Road, Aayakar Bhavan,
Andheri (E), M.K. Road,
Mumbai -400 059 Mumbai -400 020
PAN:AAACS 7876U
Appellant Respondent
Assessee-Appellant by : Shri Ronak G. Doshi
Revenue-Respondent by : Shri Jayakumar
Date of hearing : 30.08.2012
Date of Pronouncement : 07.09.2012
ORDER
PER VIVEK VARMA, JM:
Cross appeals have been filed by the department and the assessee against the order of CIT (A) XXIX, Mumbai dated 19.01.2007. As the appeals have been filed against the same order, we, for the sake of convenience and brevity, are passing a common order.
2 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007 ITA No. 2871/Mum/2007 (Appeal by the department)
2. The revenue has taken up four grounds, which are dealt with hereunder:
Ground no.1 "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in not upholding the action of the Assessing Officer of making addition of Rs. 67,27,141/- on account of MODVAT u/s 145A of the Act.
3. During the course of assessment proceedings, the AO noticed that the appellant has not included the excise duty in the valuation of closing stock as per provisions of section 145A. After calling the explanation, the AO added back Rs. 67,27,141 to the closing stock valuation, as per the provisions of section 145A, which prescribes the valuation to be done under inclusive method, as against the exclusive method, adopted by the assessee in the past.
4. The assessee not satisfied, approached the CIT(A), who, following his predecessor's view in assessment year 2000-01 in the case of the assessee itself, allowed the appeal and deleted the addition made.
5. The department, not satisfied, is now before the ITAT.
6. Before us, the DR contended that by the provisions of section 145A are very clear and the AO was correct in applying the inclusive method.
7. On the other hand, the AR, supported the view taken by the CIT(A) and also pointed out that for assessment year 2000-01 and 2001-02, the coordinate Bench in the assessee's own case had decided in favour of the assessee, following Hon'ble Delhi High Court in the case of CIT vs Mahavir Aluminium Ltd. reported in 297 ITR 77. "....Ground no. 2 pertains to deletion of addition in respect of MODVAT credit pertaining to closing stock. The Assessing Officer made an addition of Rs. 62,73,582/- to the closing stock as MODVAT credit available. Considering that the assessee is following exclusive method of accounting the learned CIT(A) has deleted the addition stating that 3 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007 the method followed by the assessee is revenue neutral in nature and there is no impact on the profits of the company on account of unutilised MODVAT. Since similar issue was considered in previous years he deleted the addition. It was submitted that the order of the Hon'ble Delhi High court in the case of CIT vs Mahavir Aluminium Ltd. 297 ITR 77 is in favour of the assessee as far as this issue is concerned. It was further submitted that there is no appeal for MODVAT in earlier year even though the learned CIT(A) has given a direction on this and followed the earlier years order. We have considered the issue. Since this issue is already covered in favour of the assessee by the Hon'ble Delhi High Court quoted above and also the fact that the assessee is following exclusive method of account which is revenue neutral, the ground is rejected, and other cases, i.e. Hawkins Workers Ltd. vs ITO, reported in 14 DTR 206 (TM) and CIT v/s Mahalaxmi Glass Works (P) Ltd., reported in 318 ITR 116 (Bom)".
8. The AR, thus, pleaded that the ground must be dismissed.
9. We have heard the arguments of both the sides and have perused the orders placed before us. According to us, the decisions cited by the AR shall be of no avail to the assessee, because, the law itself has changed and the changed law has been accepted by the ICAI and have also prescribed the working of valuation of closing stock as per the provisions of section 145A and its corresponding effects on MODVAT etc. In so far as the adoption of the requirements, as prescribed u/s section 145A is concerned, we are of the opinion that the AO was correct in enforcing the provisions, which we sustain, but to examine the correctness of the calculations and computation of closing stock, strictly in accordance with the provisions of section 145A and in accordance with the Guidance Note prescribed by the ICAI on this issue, we deem it fit to restore the issue to the file of the AO.
10. The order of the CIT(A), is therefore set aside on this issue, and the issue is restored to the file of the AO, who is directed to recompute the closing stock as per section 145A, i.e. inclusive method, and as per the 4 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007 guidance note of the ICAI, which prescribes the statutory working and allow corresponding adjustment to the opening stock in the succeeding year.
11. Thus the ground is allowed for statistical purposes.
Ground 2: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not upholding the action of the Assessing Officer in disallowing warranty provision to Rs. 43,97,184/-."
12. The ground taken by the department is against the deletion of provision of warranty, being a contingent liability. The AO disallowed the provision made, holding it to be contingent and unascertained liability and disallowed Rs. 43,97,184/-.
13. The assessee, aggrieved by the decision of the AO, approached the AO, who relying on the various case laws, as mentioned in the impugned order and following his predecessor's order for assessment year 1999-2000 in the assessee's own case allowed the appeal and deleted the addition.
14. The department is in appeal before the ITAT.
15. Before us, the DR relied on the order of the AO.
16. The AR on the other hand placed reliance on the decision of Rotork Controls India (P) Ltd. vs CIT, reported in 314 ITR 62, wherein the Hon'ble Apex Court held where warranty is attached to the sale of a product, the provision get attached thereby and that liability then becomes ascertainable and the Hon'ble Apex court allowed the appeal of the assessee. The AR also relied on the decision of coordinate Bench at Mumbai in the case of Haden International Group India Pvt. Ltd., reported in 20 SOT 305 and also that a consistent view has been taken by the coordinate Benches at Mumbai in the assessee's own cases in assessment years 1998-99 to 2000-01 and assessment year 2006-07 in ITAs No. 5 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007 A.Y. ITA No. 1998-99 2790/Mum/2003 1999-00 5047/Mum/2003 2000-01 3677/Mum/2004 2001-01 8219/Mum/2004 2006-07 4050 & 4435/M/11
17. Respectfully following the decisions as rendered by the Hon'ble Supreme Court of India and the coordinate Benches in the assessee's own case, we hold that provision for warranty is an accrued inbuilt liability, fully ascertainable and is not in the nature of contingent liability.
18. We, therefore, do not find any reason to disturb the decision of the CIT(A), which we sustain and reject the ground filed by the department.
19. The ground is therefore, rejected.
Ground no.3: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not upholding the action of the Assessing Officer of excluding 90% of scrap sales from profit of business while computing deduction u/s 80HHC of the Act."
20. The ground pertains to the exclusion of 90% of scrap sales from profit for computation of deduction u/s 80HHC. In the year under consideration appellant sold scrap to the tune of Rs. 26,74,969 and included the same in the "Total Turnover". The AO reduced the figure of Rs. 26,74,969 from the total turnover, holding cost of the material is already included in the total consumption of the material and since it is a sale of scrap, this could not be held to be derived from the exports. The AO, therefore, reduced the same for the computation of the deduction u/s 80HHC.
21. Aggrieved, the assessee approached the CIT(A), who relied on the decisions of Tanna Exports, rendered by Mumbai ITAT and Nathani Steels Ltd., reported in 57 ITD 584 (Mum), held, "scrap sales represents part of the total turnover and therefore, are required to be considered as part of total 6 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007 turnover and not as other income". The CIT(A), therefore, allowed the assessee's claim and rejected the observations of the AO.
22. The department is now in appeal.
23. Before us, the DR relied on the decision taken by the AO and the AR, defended the decision of the CIT(A), and submitted that now the issue is covered in the assessee's own case in ITA No. 2326/Mum/2006, wherein the coordinate Bench for assessment year 2002-03 has allowed the inclusion of scrap to the total turnover for the purposes of calculation of deduction u/s 80HHC, holding, "that the fifth dispute is regarding exclusion of 90% of certain receipts from profit of business while computing deduction under section 80HHC. The first item is the receipt from scrap sale of Rs. 42,07,798/- The assessee has treated it part of business profit but the Assessing Officer has excluded 90% of the same from the business profit as per Explanation (baa). In appeal CIT(A) has confirmed decision of the Assessing officer. We have heard both the parties. In our view scrap is an integral part of the manufacturing process and therefore any income arising from sale of scrap has to be treated as part of manufacturing profit and 90% of the same is not required to be included as per explanation (baa). However, the same would not be excluded in the turnover. This view is supported by several decisions of the Tribunal such as the decision of Delhi Bench of Tribunal in case of Jagaran Exports (124 Taxman 220) and the decision of Ahmedabad Bench of Tribunal in case of Meera Industries (87 ITD 475). We therefore hold that scrap sale will be treated as part of business which will neither be excluded as per Explanation (baa) nor it would be included in the turnover. We have also observed that in ITA No. 8105/Mum/2004, the coordinate Bench in assessment year 2001-02, has taken conflicting stand, from where the amounts were excluded is not clear from the order of the AO even though the learned CIT(A) has given a finding that this is to be included as part of total turnover. Since the facts are not clear from the orders of the AO and CIT (A) we restore the matter back to the AO to examine whether scrap sale is excluded by the AO the order of the CIT(A) on this issue has to be reversed as 7 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007 it was already held in various orders of the Hon'ble ITAT that scrap sale will come to reduce the cost of purchase/manufacturing cost, hence, not form part of total turnover. Accordingly, the matter is restored to the AO to examine the issue and exclude the same if it is included by the AO in the computation".
24 As, there are conflicting stands by the coordinate Bench in the assessee's own case, we, in our considered view, restore the issue back to the file of the AO, for examining the issue afresh, to come to a definite finding in accordance with law. The cases cited by the AR shall only take effect once a definite finding is arrived at by the AO.
25 We, therefore, set aside the order of the CIT(A) on this issue and direct the AO to recompute the deduction u/s 80HHC in accordance with law with specific view on sale of scrap.
26 The ground is treated as allowed for statistical purposes.
27 Ground no. 4 pertains to the issue of inclusion of Sales Tax and Excise Duty, amounting to Rs. 5,11,38,743 to the total turnover for the computation of deduction u/s 80HHC.
28 While computing the deduction u/s 80HHC, the AO added sales tax and excise duty aggregating to Rs. 5,11,38,743 to the total turnover. The assessee approached the CIT(A), who relying on relevant decisions, directed the AO to reduce the impugned figure from the turnover.
29. The department is in appeal before the ITAT.
30. Before us, the DR conceded that the issue is covered by the decision of the Hon'ble Supreme court in the case of CIT vs Catapharma (India) P. Ltd., reported in 292 ITR 641 (SC), where, the Hon'ble Supreme court held:
"While calculating the deduction under section 80HHC(3)(b) of the Income-tax Act, 1961, for computing the "total turnover" of exports out of India of trading goods, excise duty and sales tax are not to be included.
8 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007 The object of the Legislature in enacting section 80HHC was to confer a benefit on profits accruing with reference to export turnover. Just as commission received by an assessee is relatable to exports and yet it cannot from part of "turnover", excise duty and sales tax also cannot form part of the "turnover"
excise duty and sales tax also cannot form part of the "turnover" for the purposes of section 80HHC. Just as interest, commission, etc., do not emanate from the "turnover" so also excise duty and sales tax do not emanate from the such turnover. Since excise duty and sales tax do not involve any such turnover, such taxes have to be excluded.
Commission, interest, rent, etc., do yield profits, but they do not partake of the character of turnover and therefore they are not includible in the "total turnover" under section 80HHC(3), otherwise the formula becomes unworkable".
31. Respectfully following the decision of the Supreme Court and the various other case laws cited by the CIT(A) in his order, we sustain the findings of the CIT(A) and reject the appeal of the department on this issue.
32. The ground is rejected.
ITA no. 2944/Mum/2007 (Assessee's appeal) Ground no. 1 pertains to part disallowance of depreciation on motor car.
33. The facts are that the assessee had claimed depreciation at 40% on motor vehicle. The AO called for an explanation, as to why the depreciation be not restricted to 20%. The assessee vide letter dated 11.02.2006, submitted, "as per the provisions of the Income-tax Act, 1961 a commercial vehicle (commercial vehicle means heavy goods vehicle), heavy passenger motor vehicle, light motor vehicle, medium goods vehicle and medium passenger motor vehicle is defined under section 2 of the Motor Vehicles Act, 1988) acquired during the period 1st October, 1998 to March 31, 1999 qualifies for depreciation @ 40%. Accordingly depreciation of Rs. 62,288/- has been computed @ 40% on opening written down value of Rs. 1,55,719/- of Honda City (medium passenger motor vehicle) acquired on October 6, 1988 at a total cost of Rs 9,22,584/-".
9 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007
34. The AO considered the assessee reply and observed, that the motor car is a Honda City car, which is used by the director for office purposes. Depreciation on motor vehicle is allowable on commercial vehicle, used to carrying passengers and goods on hire. The car is a luxury car and it does not qualify to be a commercial vehicle.
35. The AO, therefore, restricted the depreciation to 20%.
36. Aggrieved, the assessee approached the CIT(A), who observed that even a motor car can be commercial vehicle but since the assessee is covered by item no. 2 off III Appendix I, Rule 5, the vehicle cannot be called to be running on hire, therefore, depreciation cannot be allowed as claimed and sustained the depreciation, allowed by the AO.
37. The assessee, aggrieved by the decision of the CIT(A) is now before the ITAT.
38. Before us, the AR pointed out that the CIT(A) accepts that motor cars can be allowed depreciation at 40% and also pointed out that since assessment year 1999-00, i.e. last four years the assessment was being framed u/s 143(3) and depreciation had not been restricted in either of the preceding four years, he therefore, pleaded that an inconsistent view should not be taken in the current year, specially in a circumstance, that the issue remains consistent. The AR placed reliance on the following judgments, all directly on the issue impugned before us, supporting the claim of the assessee
01. Daleep s. Chandani vs. ACIT 14 SOT 233 (Mum)
02. DCIT vs. Birla Sun Life Distribution Co. ITA no. 1197/M/07 Ltd.
03. Godfrey Phillips India Limited ITA no. 2632/M/06
04. Ashok Gangadhar Maratha vs. Oriental 1999 AIR 318 (SC) Insurance Co. Ltd.
05. Radhasoami Satsang vs. CIT 193 ITR 321 (SC)
06. CIT vs. Godaveri Devi Devi 156 ITR 835, 850 (MP) 10 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007
07. CIT vs. ARJ Security Printers 264 ITR 276 (Del)
08. CIT vs Neo Ply Pack (P) Ltd. 245 ITR 492 (Del)
39. The AO pleaded that in the case of Ashok Gangadhar Maratha (supra), Hon'ble Supreme court held that a light motor vehicle cannot always mean light goods carriage and that light motor vehicle can be non-transport vehicle as well.
40. The AR also submitted that in the decision at sl. Nos. 5, 6, 7 & 8, the various High Courts and the Hon'ble Apex Court has highlighted on the rule of consistency, which should be allowed in tax cases. He, therefore, pleaded that depreciation, as claimed should be allowed.
41. The DR relied on the decision of the revenue authorities and also referred to the case of MP High Court, reported in 239 ITR 466 (MP).
42. We have heard the arguments of both the sides and looking into the history of the assessee's case on the impugned issue, we, do not intend to disturb the earlier consistent views on the same issue. We also hold that the case of the Hon'ble MP High Court is clearly distinguishable, hence cannot be relied upon. Besides the fact, that the courts of the land have always insisted and favoured the rule of consistency. On this basis, we are inclined to accept the plea of the assessee and following the consistent stand taken by the AO in the preceding year and that there being no change in the factual and legal circumstances, we in our considered opinion, allow the appeal.
43. We, therefore, set aside the order of the CIT(A) and direct the AO to allow depreciation, as claimed by the assessee @ 40% on the motor car, being used for the purpose of business by the assessee.
44. The ground is allowed.
11 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007
45. Ground no. 2 is disallowance of Rs. 2,17,007, being payments made for club Membership.
46. According to the AO, the assessee had paid Rs. 50,000 to Pune club and Rs. 1,67,007 for other club expenses, for which no details had been submitted by the assessee.
47. The AO disallowed the payments, holding that these were personal expenses of the directors.
48. Aggrieved, the assessee approached the CIT(A), before whom, it was submitted that the company provides facility of club membership to its CEOs/Directors and is used by them to solicit business, and relied on various decisions:
Otis Elevators (India) Ltd. vs. CIT 195 ITR 682 (Bom) CIT vs. Sundaram Industries Ltd. 240 ITR 335 (Mad) Goyal Gases Pvt. Ltd. vs. DCIT 42 ITD 135 (Del) CIT vs. Engineers India Limited 239 ITR 237 (Del) DCIT vs. RPG Enterprises Ltd. ITA No.4931/Mum/2001 Anarkali Chit Fund (P) Ltd. vs. ITO 43 Taxman 292 (Hyd. Tri) Vulcan Alloys & Inds. (P) Ltd. vs ITO 12 Taxman 99 (Ahd. Trib) Sahni Kirkud (P) Ltd. ITA No. 779/Bom/80 dtd.4/4/81 Echjay Industries (P) Ltd. vs. ITO 26 ITD 259 (Bom) Pratima Hotel Pvt. Ltd. vs ITO 17 TTJ 550)(Bom) ITO vs. Bright Bros. Ltd. 18 TTJ 377 (Bom) CIT vs. Sundaram Industries Ltd. 240 ITR 335 (Mad) DCIT vs. RPG Enterprises Ltd. ITA No. 4931/Mum/2001
49. The CIT(A) observed, "that the arguments of the appellant is too spacious. The membership of club is taken for leisure entertainment and to unwind after a day's work. If in the club some business talk is done, it would not change the predominant reason of taking the membership of a club. The predominant reason of expenditure which would determine the allowability of that expenditure. This simply means that the expenditure has not been incurred wholly and exclusively for business purposes. Accordingly, this ground is dismissed".
12 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007
50. The CIT(A), thus rejected the ground, as raised by the assessee.
51. Aggrieved, the assessee is now before the ITAT.
52. Before us, the AR, reiterated, the submissions made before the CIT(A) and relied on the decisions. The AR also pointed out that there were no disallowance in the earlier years, because the membership taken by the company is corporate Membership for the usage by its directors/CEOs. The AR submitted that since these were corporate membership, disallowance cannot be made in the hands of the assessee company, once it is accepted to be an expense of the company. The AR, therefore, pleaded that the expense is an allowable expense.
53. The DR relied on the decision of the revenue authorities.
54. We have heard the arguments of the either side and here we intend to accept the submissions made before the AR before us and also before the revenue authorities. If the expense is a legitimate expense, debited in the books of assessee company, it cannot be said that the same would be for non-business purpose, because the assessee is a company, a separate judicial entity, separate from its directors/CEOs and the company. Once, if it expends something for its directors/CEOs, who utilises the same for the betterment of the company, and, it is, a legitimate business expense of the assessee company, the expense shall become allowable. On the other hand, a very heavy burden is cast on the revenue authorities to prove the otherwise. In the instant case, merely disallowing the expenses shall not suffice, it is for the revenue authorities to prove that the expense of the company has not been incurred wholly and exclusively for the business purposes. This has not been done by the either of the revenue authorities.
55. We, therefore, reverse the findings of the revenue authorities and set aside the order of the CIT (A) and direct the AO to allow the expense.
13 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007
56. The ground is allowed.
57. Ground no. 3 is on pre payment of deferment of sale tax loan.
58. At the time of hearing, the AR pointed out that the issue is covered by the decision of Hon'ble Special Bench in the assessee's own case reported in 6 ITR (Trib) 604. The AR placed the copy of the decision and also pointed out that the Misc. application filed by the revenue also stands dismissed.
59. The AR pointed out that in addition, the case is covered by the Hon'ble co-ordinate Bench in the case of DCIT vs Sterlite industries in ITA No. 7136 & 7177/Mum/2004 and also by the Hon'ble Apex Court in the case of CIT vs Pouni Sugar and Chemicals Ltd. reported in 306 ITR 392 (SC).
60. The DR, fairly conceded to the cited cases.
61. Respectfully following the above decisions, we reverse the findings of the revenue authorities and set aside the order of the CIT(A) and direct the AO to allow the figure of Rs 4,14,87,985 as the capital reserve of the assessee as claimed.
62. The alternate argument, taken by the assessee becomes' infructuous.
63. The ground is treated as allowed.
64. Ground no. 4 is on account of reduction of 90% of gross commission amounting to Rs. 2,73,60,766 by applying clause (baa) of the Explanation to section 80HHC.
65. The facts involved in the issue, are, "that during the year, the assessee has received aggregate commission of Rs. 2,73,60,766/-. While computing the deduction u/s 80HHC, the assessee has not reduced the 90% of the said commission from the profit of the business. The total includes Rs.
14 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007 2,39,03,065/- textile machinery and Rs 34,57,071/- for the products. The assessee was asked to explain why the same should not be excluded from the total profit of the business/undertaking for the purpose of computation of deduction u/s 80HHC of the Act. The assessee filed the explanation in this regard and contended that the entire commission cannot be reduced from the profit of the business because they have an exclusive set up for earning commission in Mumbai and the expenditure incurred in Mumbai office are towards the earning of the commission. In this regard the assessee furnished the details of expenditure incurred at Rs 2,32,26,812/-. The major expenses are under the head salary, travelling, rent, service charges, staff welfare and incentives. The details filed by the assessee have been examined and found not acceptable. The assessee is having its registered office at Mumbai whereas corporate office and factory is at Pune. The entire expenditure debited to Mumbai office cannot be regarded as the expenditure incurred for the earning of the commission as the assessee has its set up of the business in Mumbai as well as Pune. The commission is earned by the assessee which is in addition to the main business income and also not derived out of the export activity".
66. The AO, after considering all facts, held that commission earned cannot be held to be an income "derived" form the export activity.
67. The assessee approached the CIT(A) on the observations of the AO and reiterated the submissions made before the AO. The CIT(A), after taking into consideration the entire facts, sustained the disallowance made by the AO.
68. Aggrieved, the assessee is now before the ITAT.
69. Before us, the AR submitted the case and gave the back ground of the case and reiterated the submissions made before the revenue authorities.
70. At the time of hearing, the AR relied on the following decisions:
15 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007
01. CIT vs. Bangalore Clothing Co. 260 ITR 371 (Bom)
02. ACIT vs. Star India (P) Ltd. 22 SOT 444 (Mum)
03. ACG Associated Capsules Pvt. Ltd. vs. 343 ITR 89 CIT
04. CIT vs. Sri Ram Honda Power Equip. 289 ITR 475 (Del)
05. CIT vs. Taj International 170 Taxman 490 (Del)
06. Lasons Enterprises vs. DCIT 89 ITD 25 (Del-SB)
07. Kantilal Chhotalal vs. DCIT 68 ITD 395 (Mum)
71. The AR pointed out that the decisions from sl. No. 3 to 7 are with regard to netting off and would be applicable in case the decision is not favour of the assessee and the assessee would be pleased to press for setting off of the commission.
72. The AR also conceded that in assessment years 2001-02 and 2002-03, the coordinate Benches at Mumbai in the assessee's own case has set aside the issue to the file of the AO to examine the nexus between the commission income earned and direct expenditure which could be reduced from gross commission.
73. Since the issue in the preceding year is restored to the AO, to work out the nexus between the commission income and direct expenses which could be reduced from the gross commission, we, in the interest of justice and to bring out a considered and consistent view in the issue, in the case of the assessee, we deem it fit to restore the issue in the current year, as well to the AO.
74. In the result, the order of both the revenue authorities are set aside on the issue with a direction to the AO to decide the issue afresh in line with the decision taken in the preceding years in assessment years 2001-02 & 2002-03, after giving a fair opportunity to the assessee.
75. The ground is treated as allowed for statistical purposes.
76. Ground no. 5 is not pressed by the assessee, hence it is dismissed.
16 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007
77. Ground no. 6 is on account of reduction of 90% of compensation received on termination of agency from business income.
78. In the assessment order, the AO has treated the compensation received for termination of agency at Rs. 13,49,466 as income not derived from the export business and applying explanation (baa) of section 80HHC, excluded 90% from the profit of the business, as not related to export business.
79. The assessee, preferred an appeal before the CIT(A), who, held that according to termination letter dated 09.12.2003, copy of which has been filed, saying, "appellant received Rs. 13,49,466 as compensation for termination of Textile Agency being 10% of Net Asset Value as on 01.01.2003. There is no other information regarding this transaction. Appellant has relied on the decisions of Hon'ble Delhi Tribunal, Special Bench in the case of Lalsons Enterprises vs DCIT (89 ITD 25) and Hon'ble Mumbai Tribunal in the case of Pink Star vs DCIT (ITA No.6031/M/97) which has followed the said special bench decision. In my considered opinion, appellant has no case in this regard and reliance placed on the above decisions are totally misplaced. AO has correctly taken out 90% of gross receipts for the purpose of computation of deduction u/s 80HHC for the reasons discussed in his order. In this regard, reference may also be made to the discussion made earlier in respect of interest/commission which is also fully applicable on this issue and, therefore, this ground of appeal is dismissed".
80. The CIT(A), thus rejected this ground of appeal.
81. The assessee is now before the ITAT.
82. Before us, the assessee reiterated its submissions and placed reliance on various decisions and prayed that the income so received should be 17 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007 netted against other commission expenses and should not be given the treatment as per Explanation (baa) to section 80HHC.
83. The DR relied on the orders of the revenue authorities.
84. We have heard and have considered the issue. On an almost similar issue, wherein there was income from commission (ground no. 4), we have restored the issue to the file of the AO to take an appropriate view, keeping in view the decision of Bombay High Court in the case of ACG Associated Capsules Pvt. Ltd. vs CIT reported in 343 ITR 89 and other cases. Since the issue and claim of the assessee is similar, we restore the issue to the file of the AO.
85. We, therefore, set aside the case of CIT (A) on this issue and direct the AO to consider the details, which the assessee wishes to rely upon and decide the issue afresh, which shall be consistent and reasonable, after giving opportunity to the assessee.
86. The ground is treated as allowed for statistical purposes.
87. Ground no. 7 is on account of reduction of 90% of gross interest from business income.
88. From the order of the CIT(A), we find that despite the fact that the addition was agitated before the CIT (A), which is evidenced by going through ground no. IX, as per GOA. The issue, we find, has not been adjudicated by the CIT(A). Since the issue is not decided, by the CIT(A), we cannot adjudicate on this issue. In the interest of justice and as per judicial propriety, we deem it fit to restore the issue to the CIT(A), with the direction to adjudicate on this issue.
89. In the result, the ground is treated as allowed for statistical purposes.
18 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007
90. Ground no. 8 is on account of addition of excise duty and sales tax to the total turnover. The issue came up in the department's appeal as well, where we have decided the issue against the revenue, where Hon'ble Supreme Court held:
"While calculating the deduction under section 80HHC(3)(b) of the Income-tax Act, 1961, for computing the "total turnover" of exports out of India of trading goods, excise duty and sales tax are not to be included. The object of the Legislature in enacting section 80HHC was to confer a benefit on profits accruing with reference to export turnover. Just as commission received by an assessee is relatable to exports and yet it cannot from part of "turnover", excise duty and sales tax also cannot form part of the "turnover"
excise duty and sales tax also cannot form part of the "turnover" for the purposes of section 80HHC. Just as interest, commission, etc., do not emanate from the "turnover" so also excise duty and sales tax do not emanate from the such turnover. Since excise duty and sales tax do not involve any such turnover, such taxes have to be excluded.
Commission, interest, rent, etc., do yield profits, but they do not partake of the character of turnover and therefore they are not includible in the "total turnover" under section 80HHC(3), otherwise the formula becomes unworkable".
91. The decision taken there is against the revenue, therefore consequently, the same issue in this appeal has to be allowed.
92. The order of the revenue authorities are therefore reversed and the AO is directed to accept the computation as made by the assessee.
93. The ground is allowed.
94. Ground no. 9 is not pressed, hence dismissed.
95. Ground no. 10 is on account of levy of interests u/s 234A, 234B, 234C & 234D.
96. The CIT (A) has held that the exigibility of interest are consequential in nature, and he has directed the AO to charge interest as per law, after verification.
19 M/s. Sulzer India Limited ITA No.2871/Mum/2007 ITA No.2944/Mum/2007
97. The exigibility of interests can only be verified on arriving at the conclusion and final assessment of assessed income. We, therefore, endorse the direction of the CIT (A) and direct the AO to charge interest after verification.
98. The ground is thus allowed.
99. In the result, both the appeals filed by the revenue as well as assessee are thus partly allowed.
Order pronounced in the open court on 7th September, 2012 Sd/- Sd/-
(R.S. SYAL) (VIVEK VARMA)
ACCOUTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 7th September, 2012
Copy to:-
1) The Appellant.
2) The Respondent.
3) The CIT (A)-XXIX, Mumbai.
4) The CIT - VIII, Mumbai,
5) The D.R. "E" Bench, Mumbai.
6) Copy to Guard File.
By Order
/ / True Copy / /
Asstt. Registrar
I.T.A.T., Mumbai
*Chavan