Income Tax Appellate Tribunal - Mumbai
Star Chemicals (Bom) (P) Ltd, Mumbai vs Department Of Income Tax on 18 May, 2006
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES, 'B', MUMBAI
BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND
SHRI VIJAY PAL RAO, JUDICIAL MEMBER
ITA No. 4655/Mum/2006 and
ITA No. 1593/Mum/2009
(Assessm ent Year: 2003-04)
DCIT Cir 3(3),
Room No.609
6 t h fl, Aayakar Bhavan
M K Road,
Mumbai-400020 ....Appellant
V/s
Star Chemicals (Bom) P ltd,
55/56, Jolli Maker cham bers No.2
Nariman point,
Mumbai-400021 ...Respondent
Revenue by : Shri S S Rana
Assessee by : Shri Deepak Tralshawala
O R D E R
PER VIJAY P AL RAO,JM These appeals by the revenue are directed against the two separate orders of CIT(A)-XXXII dated 18.5.2006 arising from assessment order passed under secti on 143(3) and order dated 17.10.2008 arising from the order passed u/s 154 of the Act for the assessment year 2003-04. Since these appeals pertain to the sam e assessee, for the sake of convenience, these appeals were heard toget her and are being decided by this consolidated order. ITA No. 4655/M um/2006 2 I T A N o . 4 6 5 5 / M u m/ 2 0 0 6 a n d I T A N o . 1 5 9 3 / M u m/ 2 0 0 9
2. The revenue has raised following effective grounds:
"1. On the facts and in the circumstances of thecae and in law, the learned CIT(A) erred in directing the AO to exclude excise duty collected amounting to Rs.2,39,92,301/- from the total turnover for the purposes of deduction u/s 80HHC of the IT Act, 1961 relying on the decision in Bombay high Court 's decision in the case of Sudarshan Chemicals and Industries ltd 245 ITR 769;
2. On the facts and in the circumstances of thecae and in law, the learned CIT(A) erred in directing the AO not to take into consideration or reduce these receipts such as 90% of sales tax refund, insurance, misc.receipts and amounts written off received while computi ng the profit of the assessee company for the purpose of computing deduction u/s 80HHC and learned CIT(A) failed to appreciate provisions of clause (baa) of Explanation to section 80HHC of the IT Act, 1961 supported by the decision in the case of Ganghadharan Nair V/s ITO (54 ITD 15)
3. On the facts and in the circumstances of thecae and in law, the learned CIT(A) erred in directing the AO to compute the capital gain in th e hand of the assessee in the current year on the basis of the cost of acquisition of the assets in respect of waste heat recovery equipment hire purchased as per agreement with the ITC classic and on which depreciati on was rejected as tr4ansaction was held as mere finance transaction"
5. On the facts and in the circumstances of thecae and in law, the learned CIT(A) erred in admitti ng the additional ground of appeal raised by the assessee vide letter dated 24.2.2006 in contraventi on of Rule 46A "
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3. Ground no.1 regarding exclusion of excise duty from the total turnover for the purpose of deduction u/s 80HHC. 3.1 W e have heard the learned DR as well as learned AR and considered the relevant record. At the outset, we note that this issue is covered by the decision of the Hon'ble Supreme Court in the case of CIT V/s Lakshmi Machine W orks reported in (2007) 290 ITR 667 (SC), in which the Hon'ble Supreme Court has held that the excise duty and sales tax cannot f orm part of the total turnover while com puting the deduction u/s 80HHC(3) of the Act. In view of the said decision of the Supreme Court, we decide this issue against the revenue and in f avour of the assessee. The order of the CIT(A) on this issue is upheld.
4. Ground no.2 regarding sales tax refund, insurance, misc. receipts and amounts written off while com puting the profit of the assessee company for the purpose of deduction u/s 80HHC.
5. The AO excluded 90% of the sales tax refund set off, Misc.receipts, insurance and other amounts which are as under :
Head Am ount Rs.
Interest 3,04,42 4
Sal es tax round set off 16,26,804
Misc.recei pts 7,546
insurance 33,508
Am ounts written of f received 2,57,34 3
Ref und f rom the MSEB 3,16,42 9
Lease re ntal 19,47,0 0
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6. On appeal, the learned CIT(A) has directed the AO to
compute the profit of business of the assessee on the basis of without excluding 90% of the total turnover except the interest receipt and lease rent.
7. W e have heard the learned DR as well as the learned AR of the assessee and considered the relevant record. The CIT(A) has allowed the claim of the assessee with respect to the sales tax ref und, insurance, misc.receipt and amount written off received as receipt of the assessee in the course of carrying out of the business. The learned DR has contended that the sales tax refund cannot be included in the turnover of the export business and therefore cannot be included i n the business of the assessee for the purpose of computation of deduction u/s 80HHC. As regard, the Misc.Receipt and insurance the learned DR contended that these are not directly related to the export income. Therefore, the same are also not eligi ble for deduction u/s 80HHC. The amount written off received and ref und from the MSEB are also not connected with the business income from the export. Therefore, the same are not includible for the purpose of computation of deducti on u/s 80HHC. He has relied upon the decision of the Hon.Supreme Court in the case of Ravindranadh Nair V/s CIT reported in 295 ITR 228. The 5 I T A N o . 4 6 5 5 / M u m/ 2 0 0 6 a n d I T A N o . 1 5 9 3 / M u m/ 2 0 0 9 learned DR has also relied upon the decision of the jurisdictional High Court in the case of CIT V/s M/s Asian Star Co.Ltd in Income Tax Appeal no. 200 of 2009, order dated 18/19,2010 and submitted that the Hon. jurisdictional High Court has decided the issue of exclusion of 90% receipt related to the export turnover by followi ng the decision of Hon. Supreme Court in the case of Ravindranadh Nair V/s CIT (supra).
8. On the other hand, the learned AR of the assessee has submitted that all these receipts are incidental to the business of the assessee and are part of the business income of the assessee, therefore, these cannot be excluded while computing the deduction u/s 80HHC by applying cl ause (baa).
9. W e have considered the rival contentions and relevant record. As regard the sales tax refund set off is concerned, the sales tax itself is not a part of total turnover, while computing the deduction u/s 80HHC. Therefore, the sales tax refund cannot be treated as income from the export activities of the assessee. Accordingl y, we are of the view that the CIT(A) has not taken correct view on the issue. The order of the CIT(A) qua this issue is set aside and the order of the AO is restored.
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10. As regard the misc.recei pt and refund from MSEB are concerned, the same are also not a part of the export turnover and therefore, as per the provisions of cl ause (baa), 90% of the same are to be excluded whil e com puting the deduction u/s 80HHC. The insurance claim received b y the assessee is also not connected with the export business of the assessee but it is regarding receipt from the insurance company for stock damaged during the course of business. Therefore, the same is also not forming the part of the export turnover and accordingl y, 90% of the same is excluded from the profits of business of the assessee while computing the deduction u/s 80HHC
11. As regard the amount written off recei pt is concerned, though the CIT(A) has recorded in the order that the sai d am ount written off earlier was in respect of sale of the assessee's product and later on received in the year under consideration but there is no findings of the fact whether this am ount was regarding export sales of the product or domestic sales of the product. The assessee has not claimed earlier that the am ount was regarding the export sales which was written off and received i n the year under consideration. Therefore, under the facts and circumstances of the case, the 7 I T A N o . 4 6 5 5 / M u m/ 2 0 0 6 a n d I T A N o . 1 5 9 3 / M u m/ 2 0 0 9 same is also not forming the part of the export turnover and 90% of the sam e has to be excluded from the profits of the business of the assessee by applying the clause (baa) to the Explanation of Section 80HHC for the purpose of computation of deduction u/s 80HHC. Therefore, in view of the decision of the Supreme Court Ravindranadh Nair V/s CIT (supra) as well as the decision of the Hon. Jurisdictional High Court in the case of CIT V/s M/s Asian Star Co.Ltd in Incom e Tax Appeal no. 200 of 2009, the other income are to be excluded as per clause (baa) of Explanation to section 80HHC from the profit of the business of the assessee for computation of deduction u/s 80HHC . Therefore, we set aside the order of the CIT(A) on this issue and restore the order of the AO .
12. As regard the capital gain of Rs.88,50,000/-, the facts of the case are that the assessee purchased under hire purchase agreem ent the asset like economizers, Recupeotors and air heaters (polluti on control equipments) from RSEB and leased back the same to RSEB. These assets are 100 % depreciable assets but the assessee claimed onl y 50% depreciation for the assessment year 1995-96 because the assets were stated to have been put to use for less than 180 days. The AO rejected the claim of the assessee of depreciation on these assets in the assessment year 1995-96 and 1996-97.
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13. On appeal, the CIT(A) confirmed the order of the AO for both the assessment years. The assessee filed an appeal before this Tribunal for the assessment years 1995-96 and 1996-97. The Tri bunal restored this matter to the record of the AO for re-examination as per the terms and directions of this Tribunal.
14. In the current year the assessee has sold the above mentioned assets for a sum of Rs.88,50,000/- and the assessee has shown the profit under the head "Capit al Gain"
in the return of incom e furnished by the assessee for the current year. The AO rejected the claim of the assessee.
15. Before the CIT(A), the assessee has raised the ground that the claim of the assessee regarding acquiring the assets and giving on lease and claiming the depreciation on the same has not been accepted by the department in the year in which the assets were acquired. Therefore, in the current year the capital gain on sale of these assets has to be worked out on the basis of cost of acquisition of assets and not on the basis of written down value at NIL as the assessee was not allowed depreciation on these assets. The assessee has also raised an additional ground that the depreciation on these assets for the assessment years 1995-96 and 1996-97 are to be 9 I T A N o . 4 6 5 5 / M u m/ 2 0 0 6 a n d I T A N o . 1 5 9 3 / M u m/ 2 0 0 9 deducted while com puting the total incom e for the said assessm ent years, in the event, if the claim of the deprecation is not allowed in the assessment years 1995-96 and 1996-97 t hen lease rent from RSEB included in the total income for the assessm ent year 2003-04 are not to be included in the total income. The CIT(A) directed the AO to compute the capital gain in the hands of the assessee in the current year on the basis of the cost of acquisition of the assets and allow to the assessee necessary relief or if the claim of the assessee regarding the depreciation on these assets is accepted at any stage by the appellate authority the n the capital gain in the current year will be com puted on the basis of opening W DV of the assets for the current year.
16. As regards the additional ground, the CIT(A) has directed the AO not to treat the capital component embedded in the lease rental as the incom e of the assessee for the current year.
17. W e have heard the learned DR as well as the learned AR of the assessee and considered the relevant record. As regards the com putation of capital gain is concerned, we note that the assessee itself has worked out and shown the capital gain for sale of these assets. Even the long term capital loss and short term capital loss were also adjusted being set off of losses against the short term capital gain and long term 10 I T A N o . 4 6 5 5 / M u m/ 2 0 0 6 a n d I T A N o . 1 5 9 3 / M u m/ 2 0 0 9 capital gain. The assessee has not filed revised return for computation of capital gain on the basis of cost of acquisition of the assets. Therefore, the AO had no occasion to work out the capital gai n on the basis of cost of acquisition of assets. The AO accepted the capital gain worked out by the assessee. And thus this issue does not emanate from the assessm ent order. Similarly, the additional issue raised b y the assessee does not arise from the assessment order because no such claim was m ade by the assessee in the return of incom e or in revised return of income. The assessee has claimed before the CIT(A) that when the claim of depreciation of assets has not been allowed b y treating the transactions as finance transaction then gross lease rental cannot be treated as incom e in the hands of the assessee. W e are of the view that even if the transaction was treated as finance transactions, the nomencl ature of the incom e offered by the assessee does not affect the chargeability of tax when the undisputed facts are that the assessee was receiving the charges f rom the other party which may be in the nature of lease rental or finance charges. The question of capital component in the shape of refund of principle if any depends upon the out come of the dispute for the assessment years 1995-96 and 1996-97. Therefore, in the absence of settlem ent of the issue of nature of transaction no hypothetical 11 I T A N o . 4 6 5 5 / M u m/ 2 0 0 6 a n d I T A N o . 1 5 9 3 / M u m/ 2 0 0 9 issue can be decided. Thus, the CIT(A) has adjudicated both the issues at the appellate stage without giving any opportunity of being heard to the AO which is a clear violation of Rule 46A of the Incom e Tax Rules, 1962. As far as the computation of capital gain on the basis of cost of acquisition of assets is concerned when the transaction itself was treated by the AO as finance transaction in the assessment years 1995-96 and 1996-97 and this issue was not at all involved in the assessment ye ar under consideration then the question of cost of acquisition or W DV does not arise. Since, the assessee itself has disclosed and admitted the capital gain then in our view, the CIT(A) has exceeded his jurisdiction to consider and adj udicate upon this issue in favour of the assessee. Similarly, the additional issue raised by the assessee before the CIT(A) also needs no consideration because the receipt of amount is not disputed by th e assessee. Only because the assessee has admitted the am ount under the head "lease rental" and the revenue has treated the transaction as finance cannot change the character of receipt from incom e to non income. Even otherwise, this issue depends out com e of the issue of nature of transaction involved in the assessment years 1995-96 and 1996-97. Therefore, the CIT(A) has taken an incorrect view in directing 12 I T A N o . 4 6 5 5 / M u m/ 2 0 0 6 a n d I T A N o . 1 5 9 3 / M u m/ 2 0 0 9 the AO to allow the claim of the assessee. Accordingly, we set aside the order of the CIT(A) qua this issue. .
ITA No. 1593/M um/2009
18. The revenue has raised solitary ground as under :
"On the f act and in the circumstances of the case and in law, the learned CIT(A) erred in directing the AO to rectify the assessment u/ s 154 of the IT Act, 1961 on the basis of time barred rectification application filed by the assessee"
19. The relevant facts have already been discussed by us whil e adjudicati ng the appeal of the revenue bearing no.4655/Mum/2006, therefore, the sam e are not repeated herein for the sake of brevity.
20. The assessee filed an application dated 21.05.2008 f or rectification of the assessm ent order u/s 154. The assessee in the rectification application claimed that when the depreciation was disallowed, the lease rental incom e net of hire purchase rental charges was subjected to tax, in respect of the said leased assets. Therefore, the tax on lease rental amounts to double t axation. The AO rejected the rectification application vide order dated 21.07.2008 on the ground that this issue is a debatable one and cannot be rectified u/s 154.
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21. On appeal, the CIT(A) has directed the AO to rectif y th e assessm ent u/s 154 by deleting the said lease rental as claimed by the assessee.
22. W e have heard the learned DR as well as the learned AR of the assessee and considered the rel evant record. The assessee has filed return of income admitting the lease rental as income and the same was accepted by the AO. The assessee filed revised computation of incom e excluding th e lease rental as incom e of the assessee in the petition u/s 154. The assessee made his claim on the premises that when th e transactions were treated by the revenue as finance and not as lease rental subjected to tax amount to double taxation. The main cont ention of the assessee is that the AO has disallowed the depreciation on the leased assets and treated it as incom e as finance transaction in the assessment years 1995-96 and 1996-97, the AO again treated the sam e transaction as lease rentals and treated the assessee's income from l ease rentals in the said years and in th e subsequent years. As we have discussed above, the AO has not made any addition while framing the assessment on this issue but the AO has accepted the income offered by the assessee. Even if the transactions was treated by the revenue as finance transactions , the incom e received by the assessee would be taxed either as finance charges or lease rentals.
14 I T A N o . 4 6 5 5 / M u m/ 2 0 0 6 a n d I T A N o . 1 5 9 3 / M u m/ 2 0 0 9 W hen the assessee itself has offered the receipts as lease rental and the same was accepted by the AO then the sam e cannot be treated as non taxable by rectif ying the order u/s
154. It is undisputed fact that the assessee has received the am ount which is accounted in the books of account under the head "rentals" then del eting the same only on the ground that the transaction was treated by the revenue as finance transactions t hen the issue of taxability of the same i n the hands of the assessee is not a simple and undebatable issue which can be adjudicated under the provisions of section 154. It is settled proposition of law that a mistake apparent from the record must be an obvious and patent mistake and not something which can be established by long drawn process of reasoning can be rectified u/s 154. Decision on a debatable point of law is not a mistake apparent from the record. Merely overlooking of certai n facts or mandatory provisions of law which does not allow any discreti on to the taxing authorities is a mistake apparent from the record. But a decision on a debatable point of law or when the law confers on the taxing authorities a discretion such discretion cannot be correct under the provisions of section 154 of Act. Thus, a mistake cannot be rectified u/s 154 of the Act when there is a debatable point of fact or law. In the case in hand the assessee claimed rectification of mistake u/s 154 and 15 I T A N o . 4 6 5 5 / M u m/ 2 0 0 6 a n d I T A N o . 1 5 9 3 / M u m/ 2 0 0 9 CIT(A) has del eted the incom e which was offered by the assessee under the lease rent als on the ground that the transaction was treated b y the revenue as finance transactions and then no lease rentals can be t axed in the hands of the assessee. This is not a patent and apparent mist ake on the face of record which can be rectified under the provisions of section 154. This is an issue involving a complex point of facts as well as law. If the contention of the assessee is accepted then no income would arise or taxable even it is received by the assessee on the finance transaction. Therefore, in our view the impugned order of the CIT(A) is not sustainable on the facts as well as on law and the same is set aside.
23. In sum and substance, the appeal no.4655/Mum/2006 is partly allowed and appeal beari ng no.1593/Mum/2009 is allowed.
Pronounced in the Open Court on 25.06.2010 Sd sd (P.M.JAGTAP) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 25 th June 2010 SRL:21610 16 I T A N o . 4 6 5 5 / M u m/ 2 0 0 6 a n d I T A N o . 1 5 9 3 / M u m/ 2 0 0 9 copy to:
1. DCIT Cir 3(3), Room No.609 6 t h fl, Aayakar Bhavan M K Road, Mumbai-400020
2.Star Chemicals (Bom) P ltd, 55/56, Jolli Maker cham bers No.2 Nariman point, Mumbai-400021
3.CCIT, Mumbai 4 CCIT city-II, Mum bai.
5.DCIT(3)(3), Mum bai 5 CIT(A)-XXXII, Mum bai.
6. DR "B" Bench BY ORDER True cop y ASSTT. REGISTRAR, ITAT, MUMBAI