Income Tax Appellate Tribunal - Kolkata
Hindustan Gums & Chemicals Ltd., ... vs Department Of Income Tax on 6 January, 2014
आयकर अपीलीय अधीकरण, Ûयायपीठ - " A ", कोलकाता
INCOME TAX APPELLATE TRIBUNAL, BENCH- "A" KOLKATA
(सम¢)Before ौी पी.के. बनशल, लेखा सदःय एवं/and
Shri P.K.Bansal, Accountant Member
ौी जॉज[ म1थान, Ûयायीक सदःय
Shri George Mathan, Judicial Member
आयकर अपील संÉया / ITA Nos. 1393/Kol/2012 & 1723/Kol/2012
A.Ys 2005-06 & 2006-07
D.C.I.T Cir-12, Kolkata -वनाम- M/s. Hindustan Gums & Chemicals
Ltd. PAN: AAACH 7214E
-
(अपीलाथȸ/APPELLANT ) Versus- (ू×यथȸ/RESPONDENT)
.
अपीलाथȸ के िलए / ौी/Shri S.P. Lahiri, ld. CIT/Sr.DR
For the Appellant
ू×यथȸ के िलए/ ौी/ J.P. Khaitan &
S.Bhowmick, Advocate, ld.ARs
For the Respondent: S/Shri
सुनवाई कȧ तारȣख/Date of Hearing : 06-01-2014
घोषणा कȧ तारȣख/Date of Pronouncement:09-01-2014
आदे श/ORDER
ौी जॉज[ म1थान, Ûयायीक सदःय Shri George Mathan, Judicial Member ITA No. 1393/Kol/2012 is an appeal filed by the revenue against the order of the learned Commissioner of Income-tax (Appeals)-XII, Kolkata in appeal no. 382/XII/R-12/08-09 dated 11-06-2012 for the assessment year 2005-06 and ITA No. 1723/Kol/2012 is an appeal filed by the revenue against the order of the learned Commissioner of Income-tax (Appeals)-XIX, Kolkata in appeal no. 47/CIT(A)- XIX/Addl.CIT, R-12/Kol/11-12 dated 28-08- 2012 for the assessment year 2006-07.
2. As both the revenue's appeals relate to the same assessee and are inter- connected, the same are being disposed of by this common order.
3. Shri S.P. Lahiri, learned CIT(DR) represented on behalf of the revenue and S/Shri J.P Khaitan and Shri S.Bhowmick Advocates, learned ARs represented on behalf of the assessee.
ITA No.1393/Kol/2012 A.Y 2005-06 (by the revenue)4. In this the revenue's appeal, the revenue has raised the following grounds of appeal:-
I) Whether on the facts and in the circumstances of the case, Ld. CIT(A) was justified in allowing the exempted income u/s. 10B for interest earned from suspense fund of Rs. 28,50,639/-.
2) Whether on the facts and in the circumstances of the case, ld.CIT(A) was justified in allowing the exempted income u/s. 10B for foreign travel expense of Rs.11,93,596/-ITA No.1723/Kol/2012 A.Y 2006-07 (by the revenue)
5. In this the revenue's appeal, the revenue has raised the following grounds of appeal:-
I. "Whether on the facts and in the circumstances of the case, Ld. CIT(A) was justified in allowing the exempted income u/s.10B fcr interest earned from suspense fund of Rs.23,29,084/-."
2. "Whether on t e facts and in the circumstance of the case, Ld. CIT(A) was justified in allowing the exempted income u/s.10B for foreign travel expense of Rs.5 ,45,955/-."
3. Whether on the facts and in the circumstances of the case, Ld. CIT(A) was justified in allowing Rs.2,13,517/- as prior period expenses is not an allowable expenditure.
6. At the time of hearing, it was fairly agreed by both the sides that the ground no.1 in both the revenue's appeals in ITA Nos. 1393/Kol/2012 & 1723/Kol/2012 for the assessment years 2005-06 & 2006-07 was squarely covered by the decision of the co-ordinate bench of this tribunal in assessee's own case for the assessment year 2003-04 in ITA Nos. 150/Kol/2007 and 277/Kol/2007 dated 28-12-2007, wherein the issue has been held in favour of the assessee in paras 6.4 to 6.7 as follows:-
6.4. We have considered the rival contentions of the parties and perused the material placed before us. As already noted above, the interest income earned by the assessee has not been treated by it as income from "other sources". The assessee did not show any interest income under the head 'other sources' in its computation of income. In the assessment order, interest income has been assessed under "business"
head and not as "other source" income. The A.O's observation in the assessment order that the interest income on the surplus business funds of the 100% EOU was nothing but an "income in the nature of other source" is only to highlight his view point that there was no direct nexus between the interest income and the industrial undertaking. This is quiet apparent from the fact that in his final computation, the Assessing Officer ITA Nos. 1393/Kol/12 & 1723/Kol/12-A M/s. Hindustan Gums & Chem. Ltd 2 assessed the interest income under the head "business" and not "other sources". In any event, as held by the jurisdictional High Court in CIT - vs- Tirupati Woolen Mills Limited (supra), such interest income has to be assessed under the head "business".
6.5. The judgment of the Hon'ble Supreme Court in Sterling Foods (supra) relied upon by department was rendered with reference to the provisions of section 8OHH which are found to be materially different. Sub-section (1) of section 8OHH reads as follows:-
"Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of' this section, be allowed, in computing the total income of the assessee. a deduction from such profits and gains of an amount equal to twenty per cent thereof'. (emphasis supplied) Section 80HH provides for deduction of 20% of the profits and gains derived from an industrial undertaking. However, section 8OHH. unlike sections 10B and 8OHHC, does not lay down the manner of computation of such profits. In the absence of statutory prescription, it was held by the Hon'ble Supreme Court that "derived from" denoted a direct nexus between the profits and gains and the industrial undertaking. 6.6. Sec 10B refers to the profits and gains derived by a 100% EOU from export and then goes or to lay down the method of computation of such profits with reference to "the profits of the business of the undertaking".
The language of Sec. 10B being unequivocal, the decision of Hon'ble Court rendered in the context of Sec. 8OHH, the language employed wherein is materially different has no application in the instant case. The material portions of sub-secs. (1) and (4) of section 10B are as under:
"(1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred percent export-oriented undertaking from the export of articles or things or computer software......... shall be allowed from total income of the assessee: " (emphasis supplied)
4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the iundertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking" (emphasis supplied) 6.7 The deduction of the profits and gains derived by a 100% EOU from export provided for in sub-section (1) of section 10B is subject to the provisions of the said section, sub-section(4) lays down its own formula for computing the profits derived by the undertaking from export. The formula is as follows:-ITA Nos. 1393/Kol/12 & 1723/Kol/12-A M/s. Hindustan Gums & Chem. Ltd 3
Profits of the business Export turnover
undertaking X Total turnover of the business
carried on by the
undertaking
Therefore, profits and gains derived by the undertaking from export for the purposes of section 10B are required to be computed in accordance with sub-section(4) of Sec. 10B. Sub-section (4) speaks of 'profits of the business of the undertaking'. To such figure of profits, the ratio of the export turnover to the 'total turnover of the business carried on by the undertaking' is to be applied to determine the profits eligible for deduction.
There is no requirement for the purposes of section 10B to establish direct nexus between the income and the undertaking. The entire business income of the 100% EOU will be the 'profits of the business of the undertaking'. It has been held above that the interest earned on temporarily surplus business funds of the 100% EOU deposited with banks for short periods is business income and has in fact been so assessed. It is not in dispute that the surplus funds were of the 100% EOU. As such, the interest earned thereon has to be regarded as part of the 'profits of the business of the undertaking.' We further find that the Tribunal in the case of Cheviot Co. Ltd for assessment years 2003-04 and 2004-05, relied upon by the assessee, has dealt with similar issue. In those cases, the difference between the provisions of sections 10B and 80HH was noted and after considering the judgments of the Hon'ble Supreme Court in Sterling Foods (supra) and in P.R Prabhakar- versus- CIT [284 ITR 548(SC)] approving the Special Bench decision of the Tribunal in International Research Park Laboratories Limited-versus- Assistant C.I.T [212 ITR (AT) 1 (SB)], it was held that the profits of the business of the undertaking would include its entire business income. Keeping in view the above discussion and the decision of the Tribunal, we are of the considered opinion that the assessee has to succeed. The Assessing Officer is directed to treat the interest of Rs.28,74,473/- as part of the profits of the business of the 100% EOU eligible for deduction under section 10B and compute the deduction accordingly. The Assessing Officer should deduct the sum of Rs.8,01,30,294/- (Rs.7,72,54,821/-+ 28,74,473/-) and not only Rs.7,72,54,821/- from the profit as per profit and loss account for the purpose of separate consideration under section 10B. Ground Nos. 3,4 and 5 of the assessee's appeal are thus allowed."
7. It was, however, submitted by the learned CIT (DR) that the revenue has filed second appeal u/s. 260A against the said order of the co-ordinate bench of this tribunal in assessee's own case (refer to supra) and the matter is pending.
ITA Nos. 1393/Kol/12 & 1723/Kol/12-A M/s. Hindustan Gums & Chem. Ltd 48. In regard to ground no.2 of both the revenue's appeals in ITA Nos. 1393/Kol/2012 & 1723/Kol/2012 for the assessment years 2005-06 & 2006-07, it was also fairly agreed by both the sides that the issue was squarely covered by the said decision of the co-ordinate bench of this tribunal in assessee's own case (refer to supra), wherein in para 5.5 the issue has been held in favour of the assessee as follows:-
"5.5. We have heard the rival contentions of the parties and perused the material placed before us. The grievance of the department was that the C.LT.(A) in contravention of Rule 46A has decided the issue by taking into consideration the fresh evidence which were not made available to the A.O. From the written submission filed before the C.LTJA), which has been reproduced above, we find that the assessee filed the separate Profit & Loss A/c, and Balance Sheet of the 100% EOU as well as break-up of the miscellaneous expenses of the 100% EOU which included traveling expenses of Rs.16,965I- and conveyance expenses of Rs.l.08.600/-. totalling to Rs.L25.565/-,. before the C.LT.(A) and also before the A.O. These papers have also been filed before us which find place on pages 14 to 17 of the paper book. Page-17 of the paper book is a letter dated 20,3,2006 addressed to the I.T 0. Ward-l2(4. Kolkata. whereby' as per requisition the assessee filed break-up of the miscellaneous expenses appearing in the Profit & Loss A/c of the 100% EOU, which included traveling & conveyance expenses also. Therefore, we find no justification in the submission of the Ld. Departmental Representative and grounds raised in this regard that the C.I.T.(A) decided the issue on the basis of new evidence which were not filed before the A.O. As explained by the Ld. Counsel, the customers of the 100% EOU were fixed and no travel including foreign travel was required for selling its product and only local travelling and conveyance expenses were incurred. It was also explained as to why the travelling and conveyance expenses of the other units, which included foreign travel expenses for selling the products of those units, were higher. The Department has not disputed any of the facts asserted by the assessee. In that view of the matter, the CIT(A) was justified in accepting the assessee's contention that the travelling and conveyance expenses of the 100% EOU were Rs. 1,25,565/- only which had already been debited while computing the profits of the business of the 100% EOU and that the said expenditure was not required to be increased since the assessee did not incur any other amount for travelling and conveyance relating to the 100% EOU. Further, once the entire expenditure incurred on travelling and conveyance of the 100% EOU was debited in the separate acgounts maintained for it, we find no justification for apportioning the expenditure under the head appearing in the consolidated accounts ITA Nos. 1393/Kol/12 & 1723/Kol/12-A M/s. Hindustan Gums & Chem. Ltd 5 of the assessee as referable to the 100% EOU on the basis of turnover ratio of 21% worked out by the AO. Keeping in view the totality of the facts and circumstances of the case and the accounts of the assessee, we find no merit in the grounds raised by the Department and the same are dismissed. The order of the CIT(A) on this issue, therefore, stands confirmed."
9. It was, however, submitted by the learned CIT(DR) that the revenue has filed second appeal u/s.260A of the Act against the said order of the co-ordinate bench of this tribunal in assessee's own case (refer to supra)
10. We have considered the rival submissions. As it is noticed that the issues in respect of ground nos.1 & 2 of both the revenue's appeals in ITA Nos.1393/Kol/12 & 1723/Kol/12 for the A.Ys 2005-06 & 2006-07 are squarely covered by the said order/decision of the co-ordinate bench of this tribunal in assessee's own case (refer to supra) in so far as the said order of the tribunal has not yet been disturbed as also on account of the fact that there is no change in the facts for the relevant assessment years 2005-06 & 2006-07 compared to the facts as available for the assessment year 2003-04 [in assessee's own case] (refer to supra) the findings of the ld.CIT(A) on the issues stand confirmed. These issues of both the revenue's appeals in ITA Nos. 1393/Kol/12 & 1723/Kol/12 for the assessment years 2005-06 & 2006-07 stand dismissed.
11. In regard to ground no.3 of the revenue's appeal in ITA No. 1723/Kol/2012 for the assessment year 2006-07, it was fairly agreed by both the sides that the issue was squarely covered by the said order/decision of the co-ordinate bench of this tribunal in assessee's own case(refer to supra) for the assessment year 2003-04, wherein in para 7.3 the co-ordinate bench of this tribunal has held the issue in favour of the assessee as follows:-
"7.3 We have heard the parties and perused the material placed before us. As per tax audit report, the sum of Rs.47,972/- was prior period expenses and income of Rs. 31,64,850/- was also relating to earlier years. The AO took into consideration the income excluding the expenditure. We find that out of the expenditure of Rs.47,972/-, a sum of Rs.23,888/- was on account of rates & taxes, which was admittedly not paid during the relevant years. However, as has been pointed out before the CIT(A) and contended before us, the ITA Nos. 1393/Kol/12 & 1723/Kol/12-A M/s. Hindustan Gums & Chem. Ltd 6 assessee itself has disallowed the said expenditure u/s. 43B. Out of the remaining expenditure of Rs.24,084/- [Rs.47,972 - Rs.23,888], sum of Rs. 6,769/- was on account of interest for which, according to the assessee, debit advice was issued by the bank on 1.4.2002 and hence the said amount got left out from consideration in the accounts for the year ended 31.3.2002, but reflected in the accounts as on 31.3.2003. Considering the totality of the facts and circumstances of the case, we find substantial force in the contention of the assessee's learned counsel that the AO was not justified in taking into consideration only the income excluding the related expenditure of the earlier years and disallowing the expenditure as prior period expenditure. Income and expenditure is correlated. If income is to be considered, then automatically expenditure in relation to such income needs to be taken care of. The assessee deserves to succeed on this ground. "
11.1 In the circumstances, respectfully following the said decision of the co-ordinate bench of this tribunal in assessee's on case for the assessment year 2003-04, the findings of the ld.CIT(A) on this issue stand confirmed. This ground of revenue's appeal stands dismissed.
12. In the result, both the revenue's appeals in ITA Nos. 1393/Kol/12 & 1723/Kol/12 for the assessment years 2005-06 & 2006-07 stand dismissed as stated above.
यह आदे श खुले Ûयायालय मɅ सुनाया गया है
THIS ORDER IS PRONOUNCED IN OPEN COURT ON Dt 9.1.14
Sd/- Sd/-
( पी.के. बनशल, लेखा सदःय ) ( जॉज[ म1थान, Ûयायीक सदःय )
( P.K.Bansal, Accountant Member ) (George Mathan, Judicial Member)
(तारȣख)
तारȣख)Date 9.1.14
** PRADIP SPS
आदे श कȧ ूितिलǒप अमेǒषतः/ Copy of the order forwarded to:
1.. अपीलाथȸ / The Appellant : DCIT,Cir-12, P-7 Chowringhee Sq,Aaykar Bhawan, 7th Fl, Kol-69.
2 ू×यथȸ / The Respondent- M/s. Hindustan Gums & Chemicals Ltd 9/1 R.N Mukherjee Rd, Kol-1 3 आयकर किमशनर/The CIT, ITA Nos. 1393/Kol/12 & 1723/Kol/12-A M/s. Hindustan Gums & Chem. Ltd 7 आयकर किमशनर (अपील)/The CIT(A)
4..
5. वभािगय ूितनीधी / DR, Kolkata Bench
6. Guard file.
स×याǒपत ूित/True Copy, आदे शानुसार/ By order, सहायक पंजीकार/Asstt Registrar ITA Nos. 1393/Kol/12 & 1723/Kol/12-A M/s. Hindustan Gums & Chem. Ltd 8