Income Tax Appellate Tribunal - Mumbai
Sakarwadi Trading Co P. Ltd. , Mum vs Assessee on 10 October, 2007
IN THE INCOME TAX APPELLATE TRIBUNAL
"J" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri B. Ramakotaiah, Accountant Member
ITA Nos. 7261, 7262 & 7263/Mum/2007
(Assessment Year: 2001-02, 2002-03 & 2003-04)
M/s. Excel Bearings P. Ltd. Income Tax Officer - 6(2)(3)
401, Dolly Chambers Vs. Aayakar Bhavan, M.K. Road
Strand Road, Colaba Mumbai 400020
Mumbai 400020
PAN - AAACE 3445 N
Appellant Respondent
Appellant by: Shri Vipul B. Joshi &
Shri Sameer Dalal
Respondent by: Shri Sumeet Kumar
ORDER
Per B. Ramakotaiah, A.M.
These three appeals are by the assessee against the orders of the CIT(A) VI, dated 10.10.2007 passed similarly but separately for the respective assessment years. Eventhough the CIT(A) orders refer to ITAT order while considering the jurisdiction issue, the ITAT order pertains to A.Y. 2001-02 only and not to A.Y. 2002-03 and 2003-04 when assessment under section 143(3) was done for the first time r.w.s. 147 which are contested. The issues are common therefore, the appeals are heard together.
2. We have heard the learned counsel and the learned D.R. in detail. The assessee has placed paper books and written submission alongwith various orders of cases relied upon. These are considered in deciding the appeals.
3. The assessee has raised various grounds and additional ground for A.Y. 2001-02 on the issue of jurisdiction for reopening the assessments and on merits of various disallowances made by the A.O. in the reassessment.
4. The facts for A.Y. 2001-02 are that the return of income was originally filed declaring taxable income at ` Nil and taxable adjusted book profits under section 115JB of the Income Tax Act, 1961 at `2,50,415/- after 2 ITA Nos. 7261, 7262 & 7263/Mum/2007 M/s. Excel Bearings P. Ltd.
claiming deduction under section 80HHC at `33,90,542/- and deduction under section 80IB at `11,53,613/-. The said return was revised declaring at ` Nil and taxable adjusted book profits under section 115JB of the I.T. Act at `9,28,523/- after claiming deduction under section 80HHC at `27,12,434/- and deduction under section 80IB at `11,53,613/-. The assessment under section 143(3) of the Act was completed by the A.O. on 25.07.2003 determining the income of the assessee at `11,32,520/-. The A.O., while framing assessment, disallowed, on ad hoc basis motor car expenses and depreciation as claimed by the assessee. The A.O. during the assessment proceedings also raised a specific query about the computation under section 80HHC and 80IA/IB of the Act. After examining both the claims, the A.O. recomputed deduction under section 80HHC and 80IA of the Act and restricted the same to `20,08,991/- and `8,78,732/- respectively. The matter was carried in appeal by the assessee before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. The assessee as well as the Revenue carried the matter in further appeal before the Hon'ble ITAT. The Hon'ble ITAT in ITA No. 2937/Mum/2004 and ITA Nos. 1914 & 1915/Mum/2004 vide its orders dated 26.04.2006 and 22.12.2006, restored the matter back to the file of the A.O. with a direction to decide the matter de novo in both the appeals. Pending the appeal before the Tribunal the A.O. issued notice under section 154 dated 17.11.2004 based on revenue audit objection, proposing to rectify the order passed under section 143(3) of the Act stating that the assessee had claimed excess deduction under section 80HHC and 80IA of the Act. The assessee filed replies on 02.12.2004 and 24.12.2004 challenging the jurisdiction of the A.O. in issuing the notice under section 154 as well as the merits of the issue as raised in the audit objection. No formal order was passed. Pending the rectification application and Tribunal appeal, on 13.09.2005 the A.O. issued notice under section 148 of the Act proposing to reopen the assessment for A.Y. 2001-02, presumably on the very same audit objection. Accordingly, the assessee vide letter dated 28.10.2005 requested the A.O. to furnish the reasons recorded for reopening the assessment and also objected to the proposed reopening. On 14.11.2006, alongwith the notice under section 3 ITA Nos. 7261, 7262 & 7263/Mum/2007 M/s. Excel Bearings P. Ltd.
143(2) of the Act the A.O. supplied the assessee reasons recorded by him for reopening the assessment. In the letter sent to the assessee in response to its objection to the reopening proceedings the A.O. stated, "The reasons recorded for reopening of assessment are based on information available on record". He intimated the reasons for reopening but the assessee has not filed any return of income in response. Thereafter, on 30.11.2006 the A.O. passed order under section 143(3) r.w.s. 147 of the Act, reduced the amount received by the assessee on sale of Duty Entitlement Passbook (DEPB) as, according to him, the amount received on sale of DEPB license was not eligible for deduction under section 80IA of the Act. The A.O. further reduced the amount of deduction under 80IA of the Act while computing deduction under section 80HHC of the Act. Accordingly the A.O. recomputed deduction under section 80HHC and 80IA of the Act and restricted the same to Rs.21,93,264/- and `8,64,953/- respectively. The assessee preferred an appeal before the CIT(A) challenging the reassessment proceedings and also the merits of the addition made by the A.O. The assessee challenged the assessment proceedings on following counts: (a) the reassessment was based merely on an audit objection as such the same was bad in law as it amounted to a mere change of opinion; (b) necessary sanction of the authorities mentioned in section 151(1) of the Act was not obtained prior to issue of notice under section 148 of the Act; (c) no opportunity, much less any hearing, was given to the assessee by the A.O. after the notice under section 143(2) alongwith the reasons for reopening were provided to the assessee on 14.11.2006; (d) the appeals of the assessee as well as Revenue challenging the assessment order on recomputing the deductions under section 80HHC and 80IA for the year under consideration were pending before the Tribunal; and (e) apart from this the assessee brought to the notice of the CIT(A) that the 154 proceedings initiated by the A.O. on the basis of the audit objection on the very same issue for which no order was passed by the A.O.
5. CIT(A) has rejected the contentions on jurisdiction and gave relief on depreciation on motor car and confirmed the other disallowances on working of 80IB/80HHC.
4 ITA Nos. 7261, 7262 & 7263/Mum/2007M/s. Excel Bearings P. Ltd.
6. The facts in A.Y. 2002-03 and A.Y. 2003-04 are different in as much as there was no assessment under section 143(3) and the assessment was done for the first time after reopening under section 148. The CIT(A), however, referred to the fact in A.Y. 2001-02 in these years also in his similar order passed for each of the year but however, rejected the issue on jurisdiction as the A.O. reopened the assessment within four years from the end of the assessment year, therefore, many of the legal contentions are not applicable.
7. Issue of jurisdiction to reopen the same under section 148 7.1 The learned counsel placed his arguments which are similar for all the years and his arguments and case law relied upon can be summarised as under: -
(a) Reopening of assessment under section 147 is not valid when the notice under section 154 was issued and proceedings were pending.
i. CIT vs. EID Parry Ltd. 216 ITR 289 (Mad.) ii. Berger Paint India Ltd. vs. ACIT & Ors. 322 ITR 369 (Cal) iii. Jethalal K. Morbia vs. ACIT 109 TTJ (Mum) 1 (b) Reopening of assessment on the basis of objection was bad in law. i. Indian & Eastern Express Society vs. CIT 199 ITR 996 (SC) ii. IL&FS Investment Managers Ltd. vs. ITO 298 ITR 32 (Bom) iii. CIT vs. Sant Ram Mangat Ram 312 ITR 100 (P&H) iv. CIT vs. Indian Sugar & General Industry Export Import Corporation Ltd. 8 DTR (Del) 112 v. Chief CIT vs. Kanhaiyalal Kapoor & Sons 147 Taxman 12 (All) vi. CIT vs. Mettur Chemical & Industrial Corporation 242 ITR 119 (Mad.) vii. Adani Exports vs. CIT 240 ITR 224 (Guj) viii. Balaji Motors P. Ltd. vs. DCIT 91 TTJ (Luck) 604 ix. ITO vs. Essential Motto 17 DTR (Chd) 281 5 ITA Nos. 7261, 7262 & 7263/Mum/2007 M/s. Excel Bearings P. Ltd. (c) When there is no failure on the part of the assessee, the reopening is
bad in law, in the absence of fresh information, even within 4 year period:
i. Prashant Joshi vs. ITO 324 ITR 154 (Bom) ii. Bapalal & Co. vs. JCIT 289 ITR 37 (Mad) iii. CIT vs. Manoharlal Gupta 213 CTR (Raj) 193 iv. Aipta Marketing P. Ltd. vs. ITO 121 SOT 302 (Mum) v. Pirojsha Godrej Foundation vs. ADIT (Exmption) 133 TTJ (Mum) 194 vi. Rajgarh Liquors vs CIT 89 ITD 84 (Ind) (d) Reopening under section 147 is bad in law when similar/same issue
was pending before appellate authority (in this case ITAT) i. Ador Technopack Ltd. vs. DCIT 271 ITR 50 (Bom) ii. Metro Auto Corporation vs. ITO 286 ITR 618 (Bom) The learned counsel also raised objection that the necessary administrative approval under section 151 was not obtained and relied on various cases whereas the learned D.R. placed on record the copies of administrative approval which was also furnished to the learned counsel. Hence these objections are not maintainable.
7.2 The learned D.R., however, distinguished the facts for A.Y. 2002-03 and 2003-04 to A.Y. 2001-02 and submitted that in these years since only 143(1) was done and no assessment was done originally, the reopening is proper and relied on the principles established by the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR
500. For A.Y. 2001-02 his submission was that this year the A.O. has considered the issues of:
(i) Disallowance of deduction under section 80IB on DEPB profits. This issue was considered by the ITAT order and so not part of the dispute.
Consequence to the disallowance on 80IB on DEPB profit the 80IB deduction was restricted so the issue has to be concluded against the assessee;
6 ITA Nos. 7261, 7262 & 7263/Mum/2007M/s. Excel Bearings P. Ltd.
(ii) Disallowance on 80HHC claim - this issue was restored by the ITAT to examine as per the amended provisions and the A.O. allowed the claim on examination as per the ITAT directions, and
(iii) Restriction of deduction under section 80HHC invoking 80IA(a) to the extent of profits allowed under section 80IB,. This issue is common in all years.
Referring to the reasons recorded it was the submission of the learned D.R. that the subject matter of appeal before the ITAT was deduction under section 80IB and 80HHC in toto on DEPB issues and invoking 80IA(9) which was done for the first time in reopened assessment was with in the law. With reference to the objection of the assessee on initiation of 154 proceedings and subsequent reopening, the learned D.R. submitted that the assessee objected to the proceedings under section 154 and so the same could not be proceeded with and the A.O. has not formed any opinion as no orders were passed and proceedings were deemed to have been dropped. It was his submission that the decision of the Hon'ble Madras High Court in the case of EID Parry Ltd. (supra) does not apply as that was a case of initiating 154 proceedings after reopening under section 147 on the same issue. With reference to the reopening on the basis of audit objection, it was his submission that the A.O. has not recorded in the reason that the audit objection is the basis for forming opinion and states that the audit objection can be a starting point for forming the opinion and relied on the Hon'ble Supreme Court decision in the case of PVS Beedies (P) Ltd. 237 ITR 13. It was also his contention that the assessee has not filed any return in response to notice under section 148 and so, it cannot raise objections on technicalities now as it has not followed the guidelines issued by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO 259 ITR
19. It was also his further submission that the A.O. has not formed any opinion on invoking 80IA in scrutiny under section 143(3) so there is no question of change of opinion in the reassessment proceedings. He relied on the judgement of Hon'ble Gujarat High Court in the case of Praful C. Patel vs. ACIT 236 ITR 832.
7 ITA Nos. 7261, 7262 & 7263/Mum/2007M/s. Excel Bearings P. Ltd.
7.3 Learned counsel in reply submitted that the subject matter of appeal before the ITAT was allowance under section 80HHC and so the proceedings initiated for A.Y. 2001-02 when the matter was pending in appeal was bad in law. Further it was submitted that the A.O. could not have had any independent mind without the basis of audit objection and so reopening on the basis of audit objection is not correct. He relied on the case of Asian Paints vs. DCIT 308 ITR 195 (Bom) for reopening within 4 years in the absence of failure on the part of the assessee.
7.4 We have considered the issue and arguments of the rival parties. As stated earlier the facts in A.Y. 2001-02 are different from A.Y. 2002-03 and A.Y. 2003-04. As far as A.Y. 2001-02 is concerned, the appeals were pending when the notice for reopening was issued. Many of the arguments of the assessee on reopening cannot be accepted as the facts are different in each case and legal propositions can be applied when the facts are similar. As far as the satisfaction recorded by the A.O. is concerned, the same does seem to be on the basis of audit objection eventhough the A.O. did not state the same in the reasons recorded. That may be starting point. As far as the aumentment of simultaneous proceedings under section 154 and 147 the legal opinion on that issue is also at variance. In the case of EID Parry Ltd. the Hon'ble Madras High Court held that after the initiation of rectification proceedings under section 154 the A.O. does not have jurisdiction to reopen the same and pass an order under section 147, whereas in the case CIT vs. India Sea Foods ITA 128 of 2010 dt17-01-2011, the Hon'ble Kerala High Court has considered and held that even an assessment happens to be an under assessment or a mistake in order, the course open to the A.O. is either to rectify the mistake under section 154 or to make reassessment under section 147. It further considered that while, it is correct, as held in CIT vs. EID Parry Ltd. 216 ITR 289 (Mad.) that the A.O. has to choose between the two and can not initiate both the proceedings at the same time, the principle of constructive resjudicata made applicable by the Hon'ble Madras High Court that the A.O. having initiated rectification proceedings under section 154 should stick to the same only and cannot drop that and proceed under section 147 is not acceptable. The fact that the A.O. invoked section 154 8 ITA Nos. 7261, 7262 & 7263/Mum/2007 M/s. Excel Bearings P. Ltd.
and dropped it does not affect the validity of the reassessment under section
147. This is not a simple computational error which could be rectified u/s 154 and not under proceedings u/s 147 as held by the Hon'ble Bombay High Court. The issue involved interpretation of law. In the present case the A.O. proposed the modification under section 154 in rectifying the deduction under section 80HHC invoking section 80IA(9) and the assessee objected to the same as a disputable point. On that basis, the proceedings are not continued. We do not see any reason to hold that the A.O. has decided or formed an opinion to rectify under section 154 and he was prevented in reopening under section 147.
7.5 Only relevant argument which can be accepted is that the issue of deduction under section 80HHC was subject matter of appeal and so the A.O. is not correct in reopening the assessment when the matter was pending with the ITAT. The legal propositions relied on do establish that when the matter is pending in appeal and not concluded, the A.O. cannot exercise the jurisdiction to reopen the assessment. On that reason we are of the opinion that the reassessment proceedings under section 147 for A.Y. 2001-02 are bad in law.
7.6 Having arrived at that conclusion, it is noticed that the A.O. passed order not only on the reopened issues but also on the issues restored by the ITAT. This was a common order, therefore to the extent of issues reopened under section 147, the order is to be held bad in law. The computation of deduction under section 80HHC is also one of the issues as stated by the Revenue before the ITAT. The issue contested before the ITAT was whether the profit on some DEPB licence is covered under clause 3© of section 28 of the Act for the purpose of computation of deduction under section 80HHC and also has to be included for the purpose of total turnover. When the Revenue raised this ground the ITAT vide its order in ITA No. 2097/Mum/2004 dated 26th May 2006 has restored the computation under section 80HHC back to the file of the A.O. to be decide afresh. The operative part of the ITAT order is as under: -
9 ITA Nos. 7261, 7262 & 7263/Mum/2007M/s. Excel Bearings P. Ltd.
"During the course of hearing it is agreed by both the parties that the matter should be restored back to the file of the A.O. to be decided afresh in view of the retrospective amendment made with reference to the provisions of section 80HHC by way of Taxation Amendment Act, 2005:
Therefore, we are of the opinion that computation of 80HHC has to be examined afresh by the A.O consequent to the direction of ITAT. In our opinion there was no need to resort to provisions of section 147 when the issue was pending before the appellate forum and accordingly the proceedings initiated under section 147 to the extent of issues involved in appeal are considered bad in law.
8. In A.Y. 2002-03 and 2003-04, the issue is whether reopening under section 147 is permissible when there was no order of 143(3) and only intimation under section 143(1) was done. As held by the Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500, the reopening for A.Y. 2002-03 and 2003-04, where the return was processed only under section 143(1) are to be held valid as there was no opinion formed at the stage of intimation and the same was not an assessment. The learned counsel relied on the order of the Hon'ble Bombay High Court in the case of Prashant S. Joshi in writ petition No. 2287 of 2009 dated 22.02.2010 to question the reopening even in order of proceedings under section 143(1). The Hon'ble High Court however discussed the issue in para 16 as under:
"16. Counsel for the revenue submitted before the Court that in the present case, no assessment has taken place and at the stage of section 143(1), there is only an intimation. Reliance is sought to be placed on the judgment of the Supreme Court in Assistant Commissioner of Income Tax V/s Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500(S.C.). The judgment of the Supreme Court in Rajesh Jhaveri has noticed the difference between the expression 'intimation' and 'assessment' and the Supreme Court held that in the scheme of things an intimation under section 143(1)(a), the question of a change of opinion, as contended did not arise. The judgment of the Supreme Court also emphasises what is meant by the expression "reason to believe" and the nature of the belief that is to be formed by the Assessing Officer that the income for any assessment year has escaped assessment. The Supreme Court held that at the stage of the issuance of a notice under section 148, the Assessing Officer must have reason to believe that income has escaped assessment and at 10 ITA Nos. 7261, 7262 & 7263/Mum/2007 M/s. Excel Bearings P. Ltd.
that stage an established fact that income has escaped assessment is not require. The Supreme Court held thus: -
"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion ..... At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that state. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction."
The Supreme Court held that so long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147 and failure to take steps under section 143(3) will not render him powerless to initiate reassessment proceedings even when an intimation under section 143(1) had been issued. In other words, when an intimation has been issued under section 143(1), the Assessing Officer is competent to initiate reassessment proceedings provided that the requirements of section 147 are fulfilled. In such a case as well, the touchstone to be applied is as to whether there was reason to believe that income had escaped assessment." The touch stone to be applied is as to whether there was reason to believe that income has escaped assessment. On this issue there is no doubt that A.O. has formed an opinion on the basis of the legal opinion then existing that there was reason to believe. The learned counsel questioned the reasoning only on the issue that the basis was audit report objection but the belief formed by the A.O. was not questioned. The A.O. has considered three issues for forming the belief. One of the issues is denial of deduction under section 80IB on DEPB profits. The issue is concluded against the assessee not only by the ITAT in their own case for A.Y. 2001-02 and earlier years but also by the Hon'ble Supreme Court in the case of Liberty India vs. CIT 317 ITR 218. Therefore it cannot be stated that the A.O. has no reason to believe that income escaped assessment in these years. Therefore, the reopening u/s 147 in these assessment years is to be upheld. The ground No. 1 for A.Y. 2001-02 on this issue and additional ground are partly allowed. Ground No. 1 for A.Y. 2002-03 and 2003-04 are rejected.
11 ITA Nos. 7261, 7262 & 7263/Mum/2007M/s. Excel Bearings P. Ltd.
Issue of deduction under section 80IB on sale proceeds of DEPB:
9.1 The assessee raised ground No. 2 elaborately on this issue. However, we notice that the issue was concluded by the ITAT in ITA No. 1914 & 1915/Mum/2004 dated 22.12.2006 at para 12 holding as under: -
"12. We have considered the submission made by both sides, material on record and orders of the authorities below. As far as the nature of duty draw back and DEPB licences is concerned, though both are given to the assessee to compensate them against the duty (Excise and Customs) paid by them on import or in the course of manufacturing. However, both are not identical and the same for the reason that duty draw back entitlement is given to the person specifically and is non-transferable whereas DEPB licences is transferable subject to the conditions of import export policy announced by the Government of India, hence, profit on sale of DPB licences cannot be said to have been derived from the industrial undertaking because it is earned by selling the DEPB entitlement in the open market and such activity cannot be termed an activity of industrial undertaking. At the most, this can be incidental business activity of the assessee. Further, duty draw back refund is of the nature of the amount earlier spent, hence, the same cannot be given differential treatment at two different point of times. Therefore, in all situations, in our opinion, duty draw back refund would be eligible for deduction under all respective sections. Now, we have to consider the other contention of the assessee that provisions of section 80IB were wider scope. The provisions of section 80IB(1) defines the eligible business referred to sub-section 3 to 11 of that section, hence, actual determination of eligible profits is required to be done as per the combined effect of sub-section 80IB(1) r.w. specific sub-section as applicable to the concerned assessee. This is particularly important in view of different language being used in different sub-sections by the legislative. For example, in sub-section 3,4,5& 6, the legislature has used profits and gains derived from such industrial undertaking whereas in other sub-section 7 to 11 the reference is of profits and gains derived from the business of the nature of specified therein. Use of such different language in different sub-sections, in our considered view, lead to an obvious conclusion that where the legislature has intended to give a wider meaning to the provisions, the term "any business has been used and where it is not so, term "profits" and gains derived by an indusial undertaking" has been used. Admittedly, the assessee's case would fall sub-section 3/4/5 of section 80IB, hence, the ratio of the decision given in the context of Section 80HH, 80HHA, 80I and 80J would be squarely applicable. In this view of the matter, we are of the view that profit on sale of DEPB licences would not be eligible for deduction u/s. 80IB of the Act. Thus, we hold that the order of the learned CIT(A) is in accordance with law. Accordingly, this ground of the assessee stands rejected."12 ITA Nos. 7261, 7262 & 7263/Mum/2007
M/s. Excel Bearings P. Ltd.
A.O., eventhough not remanded again by the ITAT, repeated the same stand as in the original order and the CIT(A) based on the findings of the ITAT in assessee's own case, confirmed the same. The issue is concluded by the ITAT in the original assessment, so there is no need to re-agitate or re- adjudicate the same again. Moreover the issue is also concluded by the Hon'ble Supreme Court in the case of Liberty India vs. CIT 317 ITR 218 wherein it was held as under: -
"Continuing our analysis of section 80-IA/80-IB it may be mentioned that sub-section (13) of section 80-IB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) of section 80- IA, so far as may be, applicable to the eligible business under section 80-IB. Therefore, at the outset, we stated that one needs to read sections 80-I, 80-IA and 80-IB as having a common scheme. On a perusal of sub-section (5) of section 80-IA, it is noticed that it provides for the manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business have got to be rejected in view of the overriding provisions of sub- section (5) of section 80-IA, which are also required to be read into section 80-IB. (see section 80-IB(13)). We may reiterate that sections 80-I, 80-IA and 80-IB have a common scheme and if so read it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investment. On an analysis of sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub- section (2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section(1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking".
It has been further held (placitum 22 & 24 at page 235):
"......Therefore, we are of the view that the duty drawback, DEPB benefits, rebates, etc., cannot be credited against the cost of manufacture of goods debited in the profit and loss account for purposes of section 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking.
... ... ... ... ... ... ... ... ... ... ... ... ...
In the circumstances, we hold that duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial 13 ITA Nos. 7261, 7262 & 7263/Mum/2007 M/s. Excel Bearings P. Ltd.
undertaking for the purposes of section 80-I/80-IA/80-IB of the 1961 Act".
Ground No. 2 on this issue in A.Y. 2001-02 is, therefore, rejected.
9.3 Similar grounds were raised in other years on the same issue where the A.O. has denied deduction on sale proceeds of DEPB. Relying on the order in assessee's own case in earlier year and for the reasons stated in earlier para, the grounds are rejected. The order of the A.O. and CIT(A) on this is upheld.
10. Regarding ground No. 3 the A.O. allowed deduction under section 80HHC even including the sale proceeds of DEPB which was disputed earlier in A.Y. 2001-02 consequent to amendment brought to section 80HHC. So allowance of deduction under section 80HHC is not a dispute. What is disputed is the quantum of profit to be considered for deduction. The A.O. considered provisions of section 80IA(9) and restricted the profits of the business. The Assessing Officer's working was upheld by the CIT(A) as the opinion of the Special Bench of ITAT in the case of Hindustan Mint and Agro Products P. Ltd. 119 ITD 107 (Del) was same. Similar opinion was also expressed by the Hon'ble Delhi High Court in the case of Great Eastern Exports vs. CIT ( ITA No. 267 of 2008) dated 29.11.2010 as also the Hon'ble Kerala High Court in the case of Olam Exports (India) Ltd. vs. CIT 184 Taxman 373. However, the jurisdictional High Court in the case of Associated Capsules P. Ltd. vs. DCIT in ITA No. 3036 of 2010 dated 10.11.2011 has differed from the above and held as under: -
"39. In the result, we hold that Section 80IA(9) does not affect the computability of deduction under various provisions under heading 'C" of Chapter VI-A, but it affects the allowability of deductions computed under various provisions under heading 'C' of Chapter VI- A, so that the aggregate deduction under Section 80IA and other provisions under heading 'C' of Chapter VI-A do not exceed 100% of the profits of the business of the assessee. Our above view is also supported by the C.B.D.T. Circular No. 772 dated 23-1-21998, wherein it is stated that Section 80IA(9) has been introduced with a view to prevent the tax-payers from claiming repeated deductions in respect of the same amount of eligible profits. Thus, the object of Section 80IA(9) being not to curtail the deductions computable under various provisions under heading 'C' of Chapter, it is reasonable to hold that Section 80IA(9) affects allowability of deduction and not 14 ITA Nos. 7261, 7262 & 7263/Mum/2007 M/s. Excel Bearings P. Ltd.
computation of deduction. To illustrate, if Rs.100/- is the profits of the business of the undertaking, Rs.30/- is the profit allowed as deduction under section 80IA(1) and the deduction computed as per Section 80HHC is Rs.80/-, then, in view of Section 80IA(9), the deduction under section 80HHC would be restricted to Rs.70/-, so that the aggregate deduction does not exceed the profits of the business."
Respectfully following the same, the A.O. is directed to rework out the deduction under section under section 80HHC accordingly and in no case the deduction should exceed the profits of the business. The issue to the extent of working out the deduction u/s 80HHC is restored to the file of the A.O. in A.Y. 2001-02, 2002-03 and 2003-04.
11. In the result, appeals are partly allowed for statistical purpose.
Order pronounced in the open court on 31st March 2011.
Sd/- Sd/-
(D. Manmohan) (B. Ramakotaiah)
Vice President Accountant Member
Mumbai, Dated: 31st March 2011
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) - VI, Mumbai
4. The CIT- VI, Mumbai City
5. The DR, "J" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.