Karnataka High Court
M/S Dazzle Trading Llp vs The Joint Commissioner on 26 June, 2018
Bench: Vineet Kothari, S.Sujatha
1/14
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 26TH DAY OF JUNE 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON'BLE Mrs.JUSTICE S.SUJATHA
I.T.A.Nos.65-66/2010
BETWEEN:
M/s.Dazzle Trading LLP
222, Gokaldas Chambers
5th Main, Sadashivanagar
Bellary Road
Bangalore-560 080
...APPELLANT
(By Mr.S.Parthasarathi, Adv. and
Ms.Jinita Chatterjee, Adv.)
AND:
The Joint Commissioner of
Income-tax (Asst)
Special Range-II, Bangalore.
...RESPONDENT
(By Mr.K.V.Aravind, Adv.)
THESE I.T.As. ARE FILED U/S.260-A OF I.T.ACT, 1961
ARISING OUT OF ORDER DATED 25.9.2009 PASSED IN
I.TA.NOS.818 & 819/BANG/2001, FOR THE ASSESSMENT
YEARS 1997-98 & 1998-99, PRAYING TO I) FORMULATE THE
SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN II) ALLOW
THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT
BANGALORE IN ITA NOS.818 & 819/BANG/2001, DATED 25-9-
2009.
Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010
M/s. Dazzle Trading LLP Vs.
The Joint Commissioner of Income-tax (Asst.)
2/14
THESE I.T.As. COMING ON FOR ORDERS, THIS DAY
Dr. VINEET KOTHARI J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr.S.Parthasarathi, Adv. and Ms.Jinita Chatterjee, Adv. for Appellant-assessee Mr.K.V.Aravind, Adv. for Respondent-Revenue Mr.S.Parthasarathi, learned counsel for the appellant/assessee today informs the Court that the appellant-M/s.Hinduja Exports Pvt. Ltd. got merged with M/s.Dazzle Trading Pvt. Ltd. with the approval of this Court vide order dated 15.04.2005.
Subsequently, M/s.Dazzle Trading Pvt. Ltd. stood transformed into M/s. Dazzle Trading LLP w.e.f.
23.11.2015. To that effect, learned counsel has filed an application (I.A.No.1/18) seeking amendment of the cause title, which is ordered separately by allowing the application.
In view of the amendment, M/s.Hinduja Exports now onwards known as M/s.Dazzle Trading LLP.
Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010 M/s. Dazzle Trading LLP Vs. The Joint Commissioner of Income-tax (Asst.) 3/14
2. The appellant-assessee has filed this appeal u/s.260A of the Income Tax Act, 1961 (for short 'Act') raising the purported substantial questions of law for consideration by this Court arising from the learned Income Tax Appellate Tribunal (for short 'Tribunal') vide Annexure-A dated 25.09.2009 in ITA Nos.818 & 819 (BNG)/01 for the A.Y.1997-98 and A.Y.1998-99 [M/s.Hinduja Exports, Bangalore -vs- The Joint Commissioner of Income Tax, Spl. Range II, Bangalore].
3. The said order was passed by the learned Tribunal in the second round of litigation after the earlier order passed by the learned Tribunal on 06.05.2003 in ITA Nos.818-819/Bang/2001 (M/s.Hinduja Exports, Bangalore -vs- The Jt.
Commissioner of Income-tax, Bangalore), which came to be set aside by the cognate bench of this Court in ITA No.429/2003 (The Commissioner of Income Tax Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010 M/s. Dazzle Trading LLP Vs. The Joint Commissioner of Income-tax (Asst.) 4/14 (Appeals) & another -vs- M/s. Hinduja Exports) decided on 05.08.2008.
4. The issue involved in the present case is as to whether for the purpose of computing the deduction in respect of profit or loss for export business as provided u/s. 80HHC of the Act the appellant-assessee is entitled to claim the deduction with respect to its export income earned from its unit M/s.Hinduja Exports (now known as M/s.Dazzle Trading LLP) without taking into account the loss or profit incurred by its other unit-M/s. Hinduja Processing & Finishing Unit in which the tailoring and stitching work of the garments took place.
5. The claim of the assessee before the authorities below was that the loss incurred by other unit- M/s.Hinduja Processing & Finishing Unit cannot be set off or deducted from the profit made by it on the export of readymade garments through its unit-
Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010 M/s. Dazzle Trading LLP Vs. The Joint Commissioner of Income-tax (Asst.) 5/14 M/s.Hinduja Exports (now known as M/s.Dazzle Trading LLP) because both the units had maintained separate books of accounts and their respective profit or loss were determined separately.
6. The three authorities below concurrently however found that the profit or loss incurred by the other unit-M/s.Hinduja Processing & Furnishing Unit cannot be ignored and it has to be deducted from the profits made by the appellant-assessee from its export unit under the name and style M/s.Hinduja Exports (now known as M/s.Dazzle Trading LLP). The findings of the authorities below in their respective orders are quoted here for ready reference:
"(i) Assessment order (Annexure-B) dated 23.03.2000 for the A.Y.1997-98.
3. Deduction u/s.80HHC The assessee has computed deduction u/s.80HHC of Rs.1,79,56,663/- and claimed a deduction of Rs.1,19,07,150/- i.e., to the extent of Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010 M/s. Dazzle Trading LLP Vs. The Joint Commissioner of Income-tax (Asst.) 6/14 income available. It is seen from the assessee's computation of deduction u/s.80HHC that the assessee has added the loss of one of its units viz., Hinduja Processing & Finishing unit of Rs.63,52,822/- to the profits of business, to boost up the same so that the assessee can avail more deduction u/s.80HHC. This is not correct. Deduction u/s.80HHC is to be computed on the total profits of the business and not on the profits of the unit of the assessee which is making the exports. It is precisely to avoid such manipulations by the assessee that the deduction u/s.80HHC has been provided on the profits of the business of the assessee to be computed in the ratio of export turnover to total turnover. Hence, the assessee's manipulation of boosting up the profits of the unit exporting the goods by adding the loss of the other unit is incorrect and the same is hence disallowed.
Further, it is seen from the proceedings P & L A/c. that an amount of Rs.1,71,38,458/- has been credited, being income of Hinduja Processing & Finishing Unit. The assessee clarified that this entire amount represented tailoring charges received by that unit. Thus this amount of Rs.1,71,38,458/- is in the nature of Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010 M/s. Dazzle Trading LLP Vs. The Joint Commissioner of Income-tax (Asst.) 7/14 charges being tailoring/job work charges received by the assessee for job work done by it for outside parties viz. M/s.Gokuldas Exports P. Ltd., M/s.The Unique creations (B) P. Ltd. and M/s.Universal Exports (B) P. Ltd.
As per explanation (baa) under section 80HHC 90% of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature, are to be reduced from the profits of the business.
Hence, in the present case also, while computing the deduction u/s.80HHC, 90% of these charges of Rs.1,71,38,458/- are to be reduced from the profits of the business.
(ii) Assessment order (Annexure-B1) dated 31.01.2001 for the A.Y.1998-99.
3. Deduction u/s.80HHC The assessee has claimed deduction u/s.80HHC of Rs.90,85,780/- and claimed a deduction of Rs.43,68,131/- i.e., to the extent of income available.
Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010 M/s. Dazzle Trading LLP Vs. The Joint Commissioner of Income-tax (Asst.) 8/14 It is seen from the assessee's computation of deduction u/s.80HHC that the assessee has added the loss of one of its units viz., Hinduja Processing & Finishing unit of Rs.51,66,706/- to the profits of business, to boost up the same so that the assessee can avail more deduction u/s.80HHC. This is not correct. Deduction u/s.80HHC is to be computed on the total profits of the business and not on the profits of the unit of the assessee which is making the exports. It is precisely to avoid such manipulations by the assessee that the deduction u/s.80HHC has been provided on the profits of the business of the assessee to be computed in the ratio of export turnover to total turnover. Hence, the assessee's manipulation of boosting up the profits of the unit exporting the goods by adding the loss of the other unit is incorrect and hence the same is disallowed.
Further, it is seen from the proceedings P & L A/c. that an amount of Rs.1,83,82,943/- has been credited, being income of Hinduja Processing & Finishing Unit. The assessee vide letter dated 8.12.2000, filed a copy of P&L A/c. of Hinduja Processing & Finishing Unit. It is seen from the same that, the income of this unit comprises of Finishing charges of Rs.5,57,390/-
Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010 M/s. Dazzle Trading LLP Vs. The Joint Commissioner of Income-tax (Asst.) 9/14 Tailoring charges of Rs.1,77,96,504/- and Misc. income of Rs.29,049/-.
The assessee submitted that Hinduja Processing & Finishing Unit is not a sister concern but is a part of M/s. Hinduja Exports. It is the manufacturing unit of M/s.Hinduja Exports and the stitching processing and finishing of garments is done in this unit. The assessee further stated that the activity of M/s.Hinduja Exports is to export readymade garments and M/s.Hinduja Processing & Finishing Unit was a factory, where the garments are stitched, manufactured, processed and finished, for M/s.Hinduja Exports for export.
As per explanation (baa) under section 80HHC 90% of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature, are to be reduced from the profits of the business."
(iii) Commissioner of Income-Tax (Appeals)-IV, Bangalore, (Annexure-C)
dated 23.10.2001 for the A.Y.1997-98.
"The use of the word proportion in the above clause indicated that initially the Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010 M/s. Dazzle Trading LLP Vs. The Joint Commissioner of Income-tax (Asst.) 10/14 profits/loss of the whole business i.e. all the units have to be worked out and thereafter proportionate profit/loss is to be worked out in the same proportion as export turnover/total turnover. It is clear from the language of sub-section 3(a) that one cannot exclude the loss of M/s.Hinduja Processing and Furnishing Unit from the over all loses. Hence as per law the contention of the assessee is not correct and the issue is decided against the assessee."
(iv) Income Tax Appellate Tribunal, Bangalore Bench 'B' (Annexure-A) for the A.Y.1997-98 & 1998-99) "The Assessing Officer and the learned CIT(A) had rightly proceeded to compute the deduction available to the assessee under the provisions of section 80HHC after following the availability of profits for deduction in accordance with the provisions of Income Tax Act, 1961 which we are inclined to uphold. The appeals of the assessee on this issue are bound to be dismissed in view of the above finding. The direction of the Hon'ble High Court of Karnataka has been adhered to."
Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010 M/s. Dazzle Trading LLP Vs. The Joint Commissioner of Income-tax (Asst.) 11/14
7. The provisions of Section 80HHC(1) to the extent it is relevant for our purpose is quoted below:
"80HHC. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise 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 to the extent of profits, referred to in sub-section (1B,) derived by the assessee from the export of such goods or merchandise."
8. Learned counsel for the assessee Mr.S.Parthasarathi has urged before the Court that since both the Units of the assessee were maintaining separate books of accounts for the Tailoring and Stitching section of the assessee under the name and style "M/s.Hinduja Processing Finishing Unit" and which carried out only job works, the loss incurred by Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010 M/s. Dazzle Trading LLP Vs. The Joint Commissioner of Income-tax (Asst.) 12/14 that Unit cannot be set off or adjusted against the profits earned by the assessee in its Export Unit under the name and style M/s.Hinduja Exports (now known as M/s.Dazzle Trading LLP) and therefore the benefit u/s.80HHC ought to have been allowed to the assessee to the full extent of export profits in its Unit-
M/s.Hinduja Exports (now known as M/s.Dazzle Trading LLP).
9. On the other hand, the learned counsel for the Respondent/revenue-Mr. K.V.Aravind, supported the findings of the authorities below.
10. Having heard the learned counsel for the parties, we cannot accept the submissions made by the learned counsel for the appellant/assessee Mr.S.Parthasarathi merely because books of accounts are separately maintained for separate Units of the same assessee. The profit or loss of the stitching unit of the assessee, where readymade garments are made and Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010 M/s. Dazzle Trading LLP Vs. The Joint Commissioner of Income-tax (Asst.) 13/14 they are only exported by the assessee through its export unit-M/s.Hinduja Exports (now known as M/s.Dazzle Trading LLP). It is the net business profit of the assessee-exporter of readymade garments, which is liable to be considered for the purpose of deduction u/s.80HHC of the Act. The cost incurred by the stitching unit for manufacturing of the garments which are only exported by the assessee in the present case, cannot be ignored and it cannot be contended by the assessee that export profit alone from the export unit, ignoring the cost incurred for the manufacturing of the readymade garments in its stitching unit, is entitled for deduction u/s.80HHC of the Act.
11. We are satisfied with the correctness of the finding of facts arrived at by the authorities below up to Tribunal, concurrently against the assessee, are correct findings of facts. We are therefore of the considered Date of Judgment 26-06-2018 I.T.A.Nos.65-66/2010 M/s. Dazzle Trading LLP Vs. The Joint Commissioner of Income-tax (Asst.) 14/14 opinion that the present appeals filed by the appellant-
assessee do not give rise to any substantial question of law and the alleged question of law does not meet the requirements of Section 260-A of the Act and thus, the appeals filed by the appellant-assessee are found to be devoid of merit and the same are liable to be dismissed and are accordingly dismissed. No costs.
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