Income Tax Appellate Tribunal - Mumbai
Keymed, Mumbai vs Assessee on 23 September, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, MUMBAI
BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA no.5648/Mum./2013
(Assessment Year : 2002-03)
M/s. Keymed
C/o M/s. Natvarlal Vepari & Co.
Oricon House, 4th Floor
................ Appellant
12, K. Dubhash Marg
Mumbai 400 023
PAN - AADFK2383H
v/s
Dy. Commissioner of Income Tax
Circle-4, Ashar I.T. Park Road no.16-Z ................ Respondent
Wagle Indl. Estate, Thane 400 604
Assessee by : Ms. Ruchi Tamhankar
Revenue by : Shri A.B. Koli
Date of Hearing - 01.09.2016 Date of Order - 23.09.2016
ORDER
PER SAKTIJIT DEY, J.M.
Instant appeal by the assessee is directed against the order dated 29th May 2012, passed by the learned Commissioner (Appeals)- II, for the assessment year 2002-03. Following grounds have been raised by the assessee.
"1. The Commissioner of Income tax (Appeals) [CIT(A)] erred in confirming the deduction granted by the Deputy Commissioner of Income tax, Circle-4, Mumbai (AO) by taking the F.O.B. value of export turnover at Rs.3,63,53,938 as against Rs.3,78,51,534/- by holding that the same is not in conformity with the financials 2 M/s. Keymed furnished by the appellant. The appellant submits that the appellant has claimed the deduction on the basis of FOB value of export turnover as per Report in Form 10CCAC u/s. 80HHC and therefore entitled to deduction as claimed in the return of income.
2.1 The CIT (A) erred in confirming the order of the AO for taking indirect cost at Rs.15,47,760/- for the purpose of computation of deduction u/s. 80HHC of the Act as against Rs.11 14,464/- worked out by the appellant.
2.2 The AO erred in computing indirect cost attributable to trading exports by adding to the expenses the following which are reimbursement of costs.
Contract receipts included in salary Rs.1,80,000
Commission and brokerage paid Rs. 1,04,507
Interest paid Rs.1 48,789
The appellant submits that contract receipts and commission and brokerage represent reimbursement of expenses and are not p a r t o f i n d i r e c t c o st a n d t h e r e f o r e t h e y a r e r e q u i r e d t o b e excluded.
With regard to interest paid, the AO ought to have taken net interest after allowing the set off of interest received for the purpose of interest cost."
2. Insofar as ground no.1 is concerned, briefly the facts are, assessee a partnership firm filed its return of income on 11 th October 2002, declaring income of ` 7,21,370, after claiming deduction of ` 14,19,795 under section 80HHC of the Income Tax Act, 1961 (for short "the Act"). Assessment in assessee's case was completed under section 143(3) of the Act, determining the income at ` 18,82,470, after reducing the deduction claimed under section 80HHC. When the dispute relating to claim of deduction under section 80HHC ultimately came up for consideration before the Tribunal, vide order dated 21 st 3 M/s. Keymed January 2009, in ITA no.2975/Mum./2006, Tribunal set aside the issue back to the file of the Assessing Officer for considering afresh in the light of retrospective amendment in section 80HHC. The Assessing Officer while considering the issue pursuant to direction of the Tribunal found that the assessee has claimed the total FOB value of export turnover at ` 3,78,51,534, whereas, as per the direction of the learned Commissioner (Appeals), the FOB value of the export turnover is ` 3,63,53,938. He further noted that the learned Commissioner (Appeals) has specifically mentioned that as per the notes to the audited Balance Sheet of the assessee, the auditor has categorically stated that the FOB value of export was ` 3,63,53,938. Thus, on the basis of such observations of the learned Commissioner (Appeals) as well as the notes attached to the Balance Sheet, the Assessing Officer computed the deduction under section 80HHC on the export turnover of ` 3,63,53,938 instead of ` 3,78,51,534 as claimed by the assessee. Being aggrieved of such decision of the Assessing Officer, the assessee is in appeal before the first appellate authority.
3. The learned Commissioner (Appeals), after considering the submissions of the assessee in the context of facts and material on record, agreed with the Assessing Officer that the FOB value of export turnover has to be taken as ` 3,63,53,937 in view of the note of the auditor in the audit report.
4
M/s. Keymed
4. The learned Authorised Representative submitted, as per the Profit & Loss account, the export turnover of the assessee is 3,81,38,194 and the freight on export debited to Profit & Loss account is ` 2,86,660. She submitted, while computing FOB value of export turnover for the purpose of section 80HHC, only freight on export has to be excluded. Explaining the auditor's note to the Balance Sheet mentioning FOB value at ` 3,63,53,938, learned Authorised Representative submitted, such value was arrived at after excluding from the export turnover, the profit on exchange difference amounting to ` 72,99,123, freight of ` 13,16,932 and insurance of ` 1,68,201. Learned Authorised Representative submitted, as per the definition of export turnover under section 80HHC(4C) Explanation (b), export turnover does not include freight / insurance attributable to transport of goods or merchandise beyond the customs stations. Thus, it was submitted, as per the said definition, the export freight of ` 2,86,660, would not form part of the export turnover. In this context, learned Authorised Representative referred to the reconciliation statement of export turnover submitted before the learned Commissioner (Appeals). Further, learned Authorised Representative submitted, freight and insurance are reimbursed to the assessee. She, therefore, submitted that the computation of FOB value of export by the A.O. is not proper.
5. Learned Departmental Representative on the other hand relied 5 M/s. Keymed upon the observations of the Assessing Officer and the learned Commissioner (Appeals).
6. We have considered the submissions of the parties and perused the material available on record. As could be seen, the issue in dispute is, what should be the FOB value of export for computing deduction under section 80HHC. While the assessee has claimed the FOB value of export at ` 3,78,51,534, the Assessing Officer on the basis of note of the auditor attached to the Balance Sheet has considered the FOB value of export of ` 3,63,53,938. On a perusal of the notes attached to the audited Balance Sheet, we have noted that the FOB value of export is mentioned as ` 3,63,53,938. However, it is the contention of the assessee that merely on the basis of such note, the FOB value cannot be determined as the export turnover has to be considered on the basis of definition contained under section 8OHHC(4C) of the Act. In our view, the issue has to be examined keeping in view the definition of export turnover under section 80HHC(4C) Explanation (b). As per the said provision, the export turnover will not include freight / insurance attributable to transport of goods and merchandise beyond the custom station. Thus, whether the freight / insurance reduced from the export turnover is actually attributable to transport of goods and whether it is for transportation beyond the custom station has to be examined factually. As these aspects have not been examined by 6 M/s. Keymed the Departmental Authorities, we are inclined to restore the issue back to the file of the Assessing Officer for deciding afresh after providing due opportunity of being heard to the assessee. Ground no.1, is allowed for statistical purposes.
7. In ground no.2.1 and 2.2, the assessee has challenged the decision of the Assessing Officer in taking indirect cost at ` 15,47,760 for the purpose of computation of deduction under section 80HHC as against ` 11,14,464 worked out by the assessee.
8. It was found by the Assessing Officer that the assessee while taking the indirect cost of ` 11,14,464, has netted off certain expenditures against income and thereby reduced the expenditure to claim higher deduction under section 80HHC. The details of such expenditures are as under:-
Income received / After netting
Expenses income / expenses
Expenses Head expenses
Incurred recorded in P/L a/c
recovered
Salary ` 3,29,604 ` 1,80,000 Debited ` 1,49,609
Brokerage Commission ` 3,36,956 ` 3,43,904 Debited ` 6,948
Interest ` 1,48,789 ` 2,27,225 Credited ` 78,436
9. The Assessing Officer observed, the assessee has not shown either the gross expenditure or the gross income under the aforesaid heads in the Profit & Loss account and has only shown the balancing amount in the Profit & Loss account. He, therefore, concluded that 7 M/s. Keymed indirect expenditure has to be taken at ` 15,95,451 for computing deduction under section 80HHC.
10. In appeal proceedings, the learned Commissioner (Appeals) after examining the details available on record, found that as far as salary expenditure is concerned, though, the assessee had incurred expenditure of ` 3,29,609, but in the books of account it has shown expenditure of ` 1,49,609 and the balance amount was adjusted against contractual receipt of ` 1.80 lakh from IPCA Laboratories Ltd. Similarly, he found that the brokerage and commission payment of ` 3,36,956 was adjusted against commission received of ` 3,43,904 while showing income of ` 6,948 in the Profit & Loss account and without showing any expenditure on brokerage and commission. Same was the case with interest expenditure as the assessee had netted off the expenditure of ` 1,48,784 against interest income of ` 2,27,225 shown net income at ` 78,00,436, without debiting the interest expenditure to the Profit & Loss account. The learned Commissioner (Appeals) observed that the assessee as per the provisions of law has to show the receipts and expenditures separately in Profit & Loss account otherwise it will give a distorted picture. Accordingly, he concurred with the view of the Assessing Officer.
11. Learned Authorised Representative submitted, the assessee has computed the indirect cost by correctly following the accounting 8 M/s. Keymed method as the expenditure has to be netted off against the income and the net amount has to be taken to the Profit & Loss account either as income or expenditure. In this context, learned Authorised Representative relied upon the decision of the Hon'ble Supreme Court in ACG Associated Capsules v/s CIT, [2012] 343 ITR 89 (SC).
12. The learned Departmental Representative on the other hand relied upon the order of the authorities below.
13. We have considered the submissions of the parties and perused the material available on record. As could be seen from the order of the Assessing Officer and the learned Commissioner (Appeals), the primary reason for which they disallowed assessee's claim is on the ground that the entire income and expenditure should have been shown separately in Profit & Loss account instead of netted of figure. In our view, though, it may be a requirement of accountancy principle to show the income and expenditure separately in the Profit & Loss account, but, ultimately the net effect has to be seen as the expenditure has to be netted off against the income. Thus, in our view, the assessee is required to establish that the expenditures incurred by the assessee are in relation to the income earned. Moreover, the issue has to be examined in the light of the principle laid down by the Hon'ble Supreme Court in ACG Associated Capsules (supra). As these aspects have not been properly examined by the authorities below, we 9 M/s. Keymed are inclined to restore the issue back to the file of the Assessing Officer for examining afresh after providing due opportunity of being heard to the assessee.
14. In the result, appeal stands allowed for statistical purposes.
Order pronounced in the open Court on 23.09.2016 Sd/- Sd/-
D. KARUNAKARA RAO SAKTIJIT DEY
ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 23.09.2016
Copy of the order forwarded to:
(1) The Assessee;
(2) The Revenue;
(3) The CIT(A);
(4) The CIT, Mumbai City concerned;
(5) The DR, ITAT, Mumbai;
(6) Guard file.
True Copy
By Order
Pradeep J. Chowdhury
Sr. Private Secretary
(Dy./Asstt. Registrar)
ITAT, Mumbai