M/s. Rajratna Metal Industries Ltd.,, Ahmedabad v. The ACIT., Circle-5,, Ahmedabad

ITA 1089/AHD/2008 | 2002-2003
Pronouncement Date: 31-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 108920514 RSA 2008
Assessee PAN AAACR9980M
Bench Ahmedabad
Appeal Number ITA 1089/AHD/2008
Duration Of Justice 2 year(s) 2 month(s) 4 day(s)
Appellant M/s. Rajratna Metal Industries Ltd.,, Ahmedabad
Respondent The ACIT., Circle-5,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 31-05-2010
Date Of Final Hearing 12-05-2010
Next Hearing Date 12-05-2010
Assessment Year 2002-2003
Appeal Filed On 26-03-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' [BEFORE SHRI T K SHARMA JM & SHRI A N PAHUJA AM] ITA NO.1467/AHD/2006 (ASSESSMENT YEAR:-2002-03) A N D ITA NO.546 AND 3242/AHD/2007 (ASSESSMENT YEARS:-2003-04 AND 2004-05) ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-5 AHMEDABAD V/S RAJRATNA METAL INDUSTRIES LTD. 11 1 ST FLOOR SONA ROOPA APARTMENTS C G ROAD AHMEDABAD [PAN: AAACR 9980 M] [APPELLANT] [RESPONDENT] ITA NO.1089/AHD/2008 (ASSESSMENT YEAR:-2002-03) A N D ITA NO.1242 AND 3557/AHD/2007 (ASSESSMENT YEARS:-2003-04 AND 2004-05) RAJRATNA METAL INDUSTRIES LTD. 11 1 ST FLOOR SONA ROOPA APARTMENTS C G ROAD AHMEDABAD V/S ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-5 AHMEDABAD [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S N SOPARKAR WITH MS. URVASHI SHODHAN ARS REVENUE BY:- SMT. NEETA SHAH DR O R D E R A N PAHUJA: THESE CROSS APPEALS HAVE BEEN FILED AGAINST FOUR SEPARATE ORDERS OF THE LD. CIT(APPEALS)-XI AHMEDAB AD DETAILED HEREUNDER:- SR. NO. ITA NO. AGAINST THE ORDER OF CIT(A) DATE OF ORDER OF CIT(A) ASST. YEAR FILED BY 1 1467/A/06 CIT(A)-XI ABAD 16-03-06 2002-03 REVENUE. 2 546/A/07 CIT(A)-XI ABAD 22-11-06 2003-04 REVENUE. ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 2 3 3242/A/07 CIT(A)-XI ABAD 31-05-07 2004-05 REVENUE. 4 1089/A/08 CIT(A)-XI ABAD 04-01-08 2002-03 ASSESSEE 5 1242/A/07 CIT(A)-XI ABAD 22-11-06 2003-04 ASSESSEE 6 3557/A/07 CIT(A)-XI ABAD 31-05-07 2004-05 ASSESSEE 2. IN THESE APPEALS BY THE REVENUE & THE A SSESSEE FOLLOWING GROUNDS HAVE BEEN RAISED : ITA NO.1467/AHD/2006[REVENUE] FOR AY 2002-03: 1 THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XI AHMEDABAD HAS ERRED IN LAW AND ON FACTS WHILE DIRECTING ASSESSING OFFICER TO ALLOW DEPRECIATION OF RS.3 77 59 296/- ON THE BASIS OF FI NDINGS GIVEN IN EARLIER YEARS AND TO CONSIDER THE DEPRECIATION FOR COMPUTIN G THE BOOK PROFIT U/S 115JB OF THE ACT. 2 THE LD. CIT(A)-XI AHMEABAD HAS ERRED IN LAW AND ON FACT WHILE DIRECTING ASSESSING OFFICER TO RECOMPUTED THE DEDUC TION U/S 80HHC OF THE ACT AFTER GIVING EFFECT TO THE APPELLATE ORDER AND REDUCE THE SAME FROM THE BOOK PROFIT. 3 THE LD. CIT(A)-XI AHMEDABAD HAS FURTHER ERRED IN LAW AND ON FACT WHILE DELETING THE ADDITION OF RS.1 11 75 348/- MAD E BY AO WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE I.T. ACT . 4 THE LD. CIT(A)-XI AHMEDABAD HAS ALSO ERRED IN LA W AND ON FACTS WHILE DELETING THE DISALLOWANCE OF RS.14 075/- MADE ON AC COUNT OF ESI PAYMENT. 5 THE LD. CIT(A)-XI AHMEDABAD HAS FURTHER ERRED IN LAW AND ON FACT WHILE DIRECTING AO TO VERIFY AND DETERMINE THE CLAI M OF LONG TERM CAPITAL LOSS AND ALLOW THE SAME FOR CARRY FORWARD AND TO SE T-OFF IN THE SUCCEEDING YEARS. 6 THE LD. CIT(A)-XI AHMEDABAD HAS ALSO ERRED IN LA W AND ON FACT WHILE DIRECTING AO TO COMPUTE THE INTEREST U/S 234B & 234 C AFTER GIVING CREDIT AVAILABLE U/S 115JAA OF THE ACT. 7 THE LD. CIT(A)-XI AHMEDABAD HAS ALSO ERRED IN LA W AND ON FACT WHILE DIRECTING AO TO EXCLUDE THE SALES AND EXCISE DUTY F ROM TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S 80HHC. ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 3 8 ON THE FACTS AND IN HE CIRCUMSTANCES OF THE CASE THE LD. CIT(A)-XI AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE AS SESSING OFFICER. 9 IT IS THEREFORE PRAYED THAT THE ORDER OF THE L D. CIT(A)-XI AHMEDABAD MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. ITA NO.546/AHD/2007[REVENUE]-AY 2003-04 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AH MEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF R S.3 01 060/- ON ACCOUNT OF DISALLOWANCE OF EMPLOYER'S AND EMPLOYEES CONTRIB UTION TOWARDS ESIC WHICH WERE PAID AFTER THE DUE DATE. 2 THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHMEDA BAD HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE DEPRECIATION OF RS.3 29 46 344/-AS AGAINST RS.2 65 43 551/- ALLOWED BY THE ASSESSING O FFICER KEEPING IN VIEW THE WRITTEN DOWN VALUE OF THE ASSETS AS PER INCOME TAX RECORDS. 3 THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHMEDA BAD HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE ADDITIONAL DEPR ECIATION OF RS.16 93 246/- UNDER THE COMPANIES ACT FOR THE PURPOSE OF CALCULAT ING THE BOOK PROFIT UNDER SECTION 115JB OF THE 1.T. ACT 1961 ALTHOUGH THE CHANGE IN THE METHOD FOR CALCULATING THE DEPRECIATION FROM SLM TO WDV METHOD IN THE A.Y. 1997- 98 WAS NOT ACCEPTED. 4. ON THE FACTS AND IN HE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A)-XI AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE AS SESSING OFFICER. 5. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A)-XI AHMEDABAD MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. ITA NO.3242/AHD/2007[ REVENUE]-AY 2004-05 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHME DABAD HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE DEPRECIATION OF RS .5 82 09 336/-AS PER WDV WORKED OUT BY THE ASSESSEE AS AGAINST RS.5 30 0 9 521/- ALLOWED BY THE ASSESSING OFFICER KEEPING IN VIEW THE WRITTEN D OWN VALUE OF THE ASSETS AS PER INCOME TAX RECORDS. 2. THE LD. COMMISSIONER OF INCOME TAX (A)-XI AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF R S.27 075/- ON ACCOUNT OF DISALLOWANCE OF EMPLOYEES CONTRIBUTION TOWARDS ESI WHICH WERE PAID AFTER THE DUE DATE. 3 .ON THE FACTS AND IN HE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A)-XI AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE AS SESSING OFFICER. ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 4 4. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A)-XI AHMEDABAD MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. ITA NO.1089/AHD/2008[ASSESSEE]-AY 2002-03 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FA CTS BY CONFIRMING THE DISALLOWANCE OF CLAIM OF DEDUCTION UNDER SECTIO N 80HHC OF THE ACT AS THE AMENDMENT IN THE ACT IS RETROSPECTIVE DISCRIMI NATIVE AGAINST THE CONSTITUTION AND THE OPERATION OF THE AMENDMENT HAS BEEN STAYED BY THE VARIOUS COURTS AND THEREFORE THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE DEDUCTION UNDER SECTION 80HHC AS CLAIMED WHILE COM PUTING THE TOTAL INCOME. 2. WITHOUT PREJUDICE TO GROUND NO.1 THE DEDUCTION UNDER SECTION 80HHC OF THE ACT IS TO BE CORRECTLY COMPUTED. 3. THAT THE LEARNED CIT (A) HAS ERRED IN LAW AND FACTS BY NOT REDUCING THE AMOUNT OF DEDUCTION UNDER SECTION 80HHC OF THE ACT WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT AND ACCO RDINGLY THE LEARNED AO BE DIRECTED TO REDUCE THE AMOUNT OF DEDUCTION UN DER SECTION 80HHC WHILE COMPUTING BOOK PROFIT UNDER SECTION 115 JB OF THE ACT. 4. YOUR APPELLANT CRAVES A LEAVE TO ADD ALTER OR AMEN D ANY GROUND AT THE TIME OF HEARING ITA NO.1242 /AHD/2007[ASSESSEE]-AY 2003-04 1 THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY CONFIRMING THE DISALLOWANCE OF CLAIM OF DEDUCTION UNDER SECTION 80 HHC OF THE ACT AND THEREFORE THE AO BE DIRECTED TO ALLOW THE SAME WHIL E COMPUTING THE TOTAL INCOME. 2 THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FACT S BY NOT REDUCING THE AMOUNT OF DEDUCTION UNDER SECTION 80HHC OF THE ACT WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT AND ACCO RDINGLY THE LEARNED AO BE DIRECTED TO REDUCE THE AMOUNT OF DEDUCTION UN DER SECTION 80HHC WHILE COMPUTING BOOK PROFIT UNDER SECTION 115 JB OF THE ACT. 3 YOUR APPELLANT CRAVES A LEAVE TO ADD ALTER OR AME ND ANY GROUND AT THE TIME OF HEARING ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 5 ITANO.3557/AHD/2007[ASSESSEE]-AY 2004-05 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FA CTS BY CONFIRMING THE DISALLOWANCE OF CLAIM OF DEDUCTION UNDER SECTIO N 80HHC OF THE ACT AS THE AMENDMENT IN THE ACT IS RETROSPECTIVE DISCRIMI NATIVE AGAINST THE CONSTITUTION AND THE OPERATION OF THE AMENDMENT HAS BEEN STAYED BY THE VARIOUS COURTS AND THEREFORE THE AO BE DIRECTED TO ALLOW THE DEDUCTION UNDER SECTION 80HHC AS CLAIMED WHILE COMPUTING THE TOTAL INCOME. 2. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY NOT REDUCING THE AMOUNT OF DEDUCTION UNDER SECTION 80HHC OF THE ACT WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT AND ACCO RDINGLY THE LEARNED AO BE DIRECTED TO REDUCE THE AMOUNT OF DEDUCTION UNDER SECTION 80HHC WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE AC T. 3.YOUR APPELLANT CRAVES A LEAVE TO ADD ALTER OR AM END ANY GROUND AT THE TIME OF HEARING. 3 ADVERTING FIRST TO GROUND NO.1 IN ITA NO.1467/A/0 6 GROUND NOS.2 & 3 IN ITA NO.546/A/2007 AND GROUND NO.1 IN I TA NO.3242/AHD./2007 IN THE THREE APPEALS OF THE REV ENUE FACTS IN BRIEF AS PER RELEVANT ORDERS FOR THE AY 2002-03 AR E THAT RETURN DECLARING NIL INCOME FILED ON 31.10.2002 BY THE ASS ESSEE MANUFACTURING SS WIRES BRIGHT BARS AND TRADING IN METALS AND CHEMICALS AFTER BEING PROCESSED ON 11.3.2003 U/S 1 43(1) OF THE INCOME-TAX ACT 1961[HEREINAFTER REFERRED TO AS THE ACT] WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2 ) OF THE ACT ON 27.10.003. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE ASSESSING OFFICER[ AO IN SHORT] NOTICED THAT DURI NG THE PREVIOUS YEAR RELEVANT TO AY 1997-98 THE ASSESSEE HAD CLAIM ED ADDITIONAL DEPRECIATION NOT PERTAINING TO AY 1997-98 BY CHANGI NG THE METHOD OF CALCULATING THE DEPRECIATION FROM SLM TO WDV METHOD . SINCE THE CHANGE ADOPTED BY THE ASSESSEE IN METHOD OF CALCULA TING DEPRECIATION WAS NOT ACCEPTED AS THE SOLE PURPOSE F OR DOING SO WAS TO REDUCE TAX LIABILITY ARISING DUE TO MAT U/S. 115 JA OF THE ACT THE ADDITIONAL DEPRECIATION CLAIMED AS PER COMPANIES AC T FROM THE DATE OF COMMISSIONING OF THE ASSET DUE TO CHANGE IN THE METHOD OF CALCULATION WAS DISALLOWED. SINCE IN THE YEAR UN DER CONSIDERATION ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 6 THE ASSESSEE WORKED OUT DEPRECIATION AS PER COMPANI ES ACT WITHOUT TAKING INTO CONSIDERATION THE DEPRECIATION DISALLOW ED IN THE ORDER PASSED FOR THE A.Y.I997-98 AND ONWARDS AND THE MAT U/S L15JB OF THE ACT WAS ALSO CALCULATED ON THE BASIS OF DEPREC IATION CALCULATED WITHOUT ADJUSTING THE DISALLOWANCE MADE IN THE IMME DIATELY PRECEDING YEAR THE AO THEREFORE DISALLOWED EXCES S DEPRECIATION RS.70 70 879 [3 23 68 662-2 52 97 783] RESULTING I N INCREASE IN BOOK PROFIT BY THAT AMOUNT. 3.1 THE AO FURTHER NOTICED THAT THE ASSESSEE CLAIMED DEPRECIATION OF RS.11 69 760/- ON TRADING UNIT AND RS.3 65 89 536/- ON MANUFACTURING UNIT TOTALING TO RS.3 77 59 296/- WH ILE IT WAS ENTITLED TO DEPRECIATION OF RS. 2 98 98 977 CALCULATED AS UNDER: A) MANUFACTURING UNIT. FACTORY BUILDING RS. 58 19 761 OFFICE BUILDING RS. 9 81 728 PLANT & MACHINERY RS 1 81 95 929 OFFICE-EQUIPMENT RS 1 40 857 FURNITURE & FIXTURES RS 15 32 427 COMPUTER RS 4 80 488 VEHICLES RS 15 32 026 ------------------- TOTAL RS 2 87 29 217 B) TRADING UNIT RS. 11 69 760 ------------------- TOTAL DEP. AVAILABLE (A+B) RS. 2 98 98 977 3.2 LIKE WISE IN THE AY 2003-04 THE AO RESTRI CTED THE CLAIM TO DEPRECIATION OF RS.2 65 45 551/- AS AGAINST CLAIM O F RS. 3 29 46 344/- WHILE IN THE AY 2004-05 IT WAS RESTR ICTED TO RS.5 30 09 521/- AS AGAINST CLAIM OF RS. 5 82 09 336/-. ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 7 4 ON APPEAL THE LD. CIT(A) WHILE FOLLOWING THE APP ELLATE ORDER DATED 29-06-2006 OF HIS PREDECESSOR IN APPEAL NO. CIT(A)-XI/91/2004-05 FOR THE AY 2001-02 DIRECTED THE AO IN THESE THREE ASSE SSMENT YEARS TO GO THROUGH THE APPELLATE ORDERS FOR THE EARLIER YEA RS AND ALLOW THE DEPRECIATION ON THE WDV WHICH IS WORKED OUT AFTER GIVING EFFECT TO THE ABOVE ORDERS. AS REGARDS GROUND NO.3 IN ITA NO.546/A/2007 FOR THE AY 2003- 04 RELATING TO DIRECTION TO ALLOW ADDITIONAL DEPRECIATION OF RS.16 93 246/- WHILE COMPUTING BOOK PROFIT U/S 115JB THE LD. CIT(A) ALLOWED THE C LAIM WHILE RELYING UPON THE APPELLATE ORDERS OF THE EARLIER YEARS. 5 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR POINTED OUT THAT ISSUE OF DEPRECIATION RAISED IN AY 1997-98 HAS NOT BECOME FI NAL SINCE APPEAL BY THE REVENUE IN AY 1997-98 IN SECOND ROUND IS PE NDING BEFORE THE ITAT. ON THE OTHER HAND THE LD. AR ON BEHALF O F THE ASSESSEE CONTENDED THAT THE LD. CIT(A) RELIED UPON THE OR DER OF HIS PREDECESSOR FOR THE AY 2001-02 IN THESE THREE ASSE SSMENT YEARS. ON APPEAL BY THE REVENUE IN THAT YEAR THE ITAT VID E THEIR ORDER DATED 20.2.2009 FOLLOWING THEIR DECISION IN ITA NO .215/AHD/2002 FOR THE AY 1998-99 UPHELD THE FINDINGS OF THE LD. CIT( A). 6 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH T HE FACTS OF THE CASE AS ALSO THE DECISIONS OF THE ITAT RELIED U PON. WE FIND THAT THE ITAT IN THE ASSESSEES OWN CASE FOR AY 1998-99 IN ITA NO.215/AHD/2002 ADJUDICATED A SIMILAR ISSUE IN THE FOLLOWING TERMS: 2.1 SO FAR AS ISSUES INVOLVED IN GROUND NOS.1 & 2 ARE CONCERNED THE DR RELIED ON THE ORDER OF THE AO WHEREAS LD. COUN SEL FOR THE ASSESSEE HAS SUPPORTED THE ORDER OF THE CIT(A) AFTER RELYIN G ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES L TD. VS. CIT (255 ITR 273) (SC) AND IN THE CASE OF CIT VS. KWALITY BISCUI TS LTD. (2006) 284 ITR 434 (SC). ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 8 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS FACTS AND CIRCUMSTANCES OF THE CASE DECISIONS OF HON'BLE SUPREME COURT (SU PRA) AND THE FINDINGS OF THE CIT(A) CONTAINED IN PARAGRAPH NO.5 OF THE AP PELLATE ORDER WHICH ARE IN THE FOLLOWING TERMS: 5 I HAVE CONSIDERED THE CONTENTIONS OF THE APPELLA NT AND THE JUDGMENTS RELIED UPON BY THE LD. COUNSEL. THE H ONBLE KARNATAKA HIGH COURT IN THE CASE OF KWALITY BISCUIT S LTD. IT HAS CONCLUDED THAT AMOUNT WRITTEN BACK TO THE PROFIT A ND LOSS ACCOUNT OF AN EARLIER YEAR ON ACCOUNT OF CHANGE IN METHOD OF DEPRECIATION CANNOT BE EXCLUDED FOR THE PURPOSES OF COMPUTATION OF PROFITS UNDER SECTION 115J R.W.S. 20 5 OF THE COMPANIES ACT. THE VARIOUS ITAT HAVE HELD THAT IF T HE CHANGE IN THE METHOD OF COMPUTATION OF DEPRECIATION IS BON AFIDE AND NOT A COLORABLE DEVICE THE AO IS NOT ENTITLED T O INTERFERE WITH THE PROFIT AND LOSS ACCOUNTS. THUS I AM FULLY IN AGREEMENT WITH THE LD. AR RESPECTFULLY THE DECISIONS (ALREADY CITED ABOVE) OF HONBLE KARNATAKA HIGH COURT AND JURISDIC TIONAL ITAT AND THE DECISION IN THE CASE OF THE APPELLANT FOR THE AY 1997-98 BY MY PREDECESSOR IT IS HELD THAT THE AO W AS NOT CORRECT IN DISTURBING THE BOOK PROFIT OF THE APPELL ANT FOR THE AY 1998-99. HE IS DIRECTED TO RECOMPUTED THE BOOK PROF IT UNDER SEC. 115JA AFTER ALLOWING ADDITIONAL DEPRECIATION OF RS.1 37 96 295/- OF THE CURRENT YEAR RESULTING ON ACCOUNT OF CHANGE IN THE METHOD OF DEPRECIATION. 4 AFTER CAREFUL CONSIDERATION OF THE RIVAL SUBMISSI ONS FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISION (SUPRA) WE ARE OF THE OPINION THAT THE ORDER OF THE CIT(A) REQUIRES NO INTERFEREN CE AND THEREFORE REVENUES GROUND NOS.1 & 2 ARE REJECTED AND ORDER O F THE CIT(A) ON THESE POINTS ARE SUSTAINED. 6.1 THE AFORESAID DECISION WAS FOLLOWED WHILE ADJ UDICATING A SIMILAR ISSUE IN ITA NO.2529/AHD./2002 FOR THE AY 1999-2000 ITA NO.3702/AHD./2003 FOR THE AY 2000-01 & ITA NO.2556/ AHD./2004 IN THE AY 2001-02. WHILE ADJUDICATING THE ISSUE IN ITA NO.2556/AHD./2004 THE TRIBUNAL INCORRECTLY REFER RED TO GROUND NO.5 OF ITA NO.215/AHD/2002 INSTEAD OF GROUND NO.1 & 2 I N PARA 52 OF THEIR ORDER. IN THE LIGHT OF VIEW TAKEN IN THESE D ECISIONS WE HAVE NO ALTERNATIVE BUT TO REJECT GROUND NO.1 IN ITA NO.146 7/A/06 GROUND NOS.2 & 3 IN ITA NO.546/A/2007 AND GROUND NO.1 IN I TA ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 9 NO.3242/AHD./2007.AS REGARDS PLEA OF THE LD. DR IN RELATION TO PENDENCY OF APPEAL FOR THE AY 1997-98 WE HAVE GONE THROUGH THAT APPEAL AND THE IMPUGNED ORDER OF THE LD. CIT(A). I N THAT CONNECTION WE MAY CLARIFY THAT IN THE EVENT THERE IS ANY CHANG E IN WDV ON ACCOUNT ADJUDICATION OF CLAIM OF DEPRECIATION IN TH E AY 1997-98 BY THE ITAT CONSEQUENT EFFECT SHOULD BE PERCOLATED IN THESE THREE ASSESSMENT YEARS. 7 GROUND NO.2 IN ITA NO.1467/A/06 RELATES TO DIRECT ION OF THE LD. CIT(A) TO RE-COMPUTE DEDUCTION U/S 80HHC AFTER GIVI NG EFFECT TO APPELLATE ORDER AND REDUCE THE SAME FROM BOOK PROFI T. THE AO NOTICED THAT DURING THE YEAR UNDER CONSIDERATION T HE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF RS.3 55 38 688/- AS PER THE REPORT SUBMITTED IN FORM NO. 10CCAC. FOR THE PURPOSE OF CA LCULATING THE SAID DEDUCTION THE ASSESSEE ADOPTED TURNOVER OF RS .44 41 09 117/- AND PROFIT OF THE BUSINESS AT RS.5 07 69.555/- IN R ESPECT OF ONLY MANUFACTURING DIVISION EXCLUDING THE PROFIT / LOSS AND TURNOVER OF TRADING UNIT . HOWEVER THE AO WHILE REFERRING TO H IS OWN ORDER IN THE PRECEDING ASSESSMENT YEAR AND THE DEFINITIONS OF THE TOTAL TURNOVER AND ADJUSTED PROFITS OF THE BUSINESS AS ALSO PROFI TS OF THE BUSINESS OBSERVED THAT NOWHERE IT WAS DEFINED IN THE ACT THAT THE PROFIT / LOSS OF ANY OTHER BUSINESS OR TURNOVER OF TRADING ACTIVITIES W AS TO BE EXCLUDED FOR THE PURPOSES OF DETERMINING THE DEDUCTION U/S.80HHC OF THE ACT.INTER ALIA THE AO INCLUDED EXCISE DUTY/SALES TAX WHILE DETERMINING TOTAL TURNOVER AND FURTHER HELD THAT ONLY THE NET OUTCOME IS TO BE CONSIDERED BY TA KING CONSOLIDATED FIGURE AND NOT BY EXCLUDING THE NEGATIVE FIGURE OF INCOME. 8. ON APPEAL THE LEARNED CIT(A) DIRECTED THE AO IN PARA 13.5 OF THE IMPUGNED ORDER FOR THE AY 2002-03 TO COMPUTE TH E SAID DEDUCTION AS PER THE PREVAILING LAW AFTER GIVING OPPORTUNITY TO THE ASSESSEE. ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 10 9. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR APPEARING BE FORE US DID NOT POINT OUT ANY INFIRMITY IN THE DIRECTIONS OF THE LD . CIT(A) TO RECOMPUTE DEDUCTION U/S 80HHC OF THE ACT IN THE LIG HT OF AMENDED PROVISIONS WHILE THE LD. AR SUPPORTED THE FINDINGS OF THE LD. CIT(A) 10 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. SINCE THE RELEVANT PROVISIONS OF SEC. 80H HC OF THE ACT WERE AMENDED ONLY AFTER THE ASSESSMENT ORDER WAS PA SSED WE SEE NO INFIRMITY IN THE DIRECTIONS OF THE LD. CIT(A) T O COMPUTE THE SAID DEDUCTION IN TERMS OF THE AMENDED PROVISIONS PREVAI LING DURING THE YEAR AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE A SSESSEE. WITH THESE OBSERVATIONS GROUND NO. 2 IN ITA NO.1467/A/06 IS D ISMISSED.. 11 GROUND NO.3 IN THE ITA NO.1467/AHD./06 RELATES TO DELETION OF THE ADDITION OF RS.1 11 75 348/- WHILE COMPUTING BO OK PROFITS IN TERMS OF PROVISIONS OF SEC. 115JB OF THE ACT. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ADDED AN AMOUNT OF R S. 1 11 75 348/- ON ACCOUNT OF WRITE BACK OF EXCESS PROVISION OF INCOME-TAX OF EARLIER YEAR WHILE DETERMINING BOOK PROFITS U/S 115JB(2) OF THE ACT. ON APPEAL THE LEARNED CIT(A) CONCLUDED AS UNDER:- 7.1 THE SUBMISSIONS OF THE AR OF THE APPELLANT HAV E BEEN PERUSED. IT IS SEEN THAT THE APPELLANT HAD MADE PROVISION FOR INCO ME-TAX FOR THE AY 2001-02 AT RS.1 11 75 348/-. THE AO HAD ADDED BACK THE SAID PROVISION WHILE COMPUTING THE BOOK PROFIT FOR THE ASSESSMENT YEAR 2001-02. 7.2 IT IS FURTHER SEEN THAT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE APPELLANT HAS WRITTEN BACK THE SAID PROVISION W HICH WAS MADE FOR THE PREVIOUS YEAR. 7.3 AS IT COULD BE SEEN THAT EXCESS PROVISION MADE BY THE APPELLANT TOWARDS INCOME-TAX WAS ALREADY CONSIDERED BY THE AO FOR PREVIOUS ASSESSMENT YEAR THEREFORE THE SAME ISSUE CANNOT B E CONSIDERED FOR COMPUTATION OF BOOK PROFIT U/S 115JB OF INCOME-TAX EVEN IT IS REFUNDED OR ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 11 PROVISION IS WRITTEN BACK. THE FACT IS THAT THE SAI D EXCESSIVE PROVISION HAS ALREADY BEEN CONSIDERED FOR THE PREVIOUS ASSESSMENT YEAR WHILE COMPUTING INCOME U/S 115JB OF I.T. ACT. THEREFORE THE ADDITION OF RS.1 11 75 348/- WHILE COMPUTING BOOK PROFIT U/S 11 5JB OF IT ACT IS DELETED. 12 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED TH E ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE SUPPORTE D THE FINDINGS OF THE LD. CIT(A). 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY AND AS POINTED OUT BY THE LD. CIT(A) THE PROVISION OF RS.1 11 75 348/-. FOR INCOME-TAX FOR THE AY 2001-02 MADE BY THE ASSESSEE WAS ADDED BACK BY THE AO WHILE COMPUTING THE BOOK PROFIT FOR THE ASSESSMENT YEAR 2001-02.IN THE YEAR UNDER CONSIDERA TION THE ASSESSEE WROTE BACK THE EXCESS PROVISION AND CREDITED TO THE PROFI T AND LOSS ACCOUNT. HOWEVER WHILE DETERMINING BOOK PROFITS THE ASSESSEE REDUCE D THE AMOUNT WRITTEN BACK . IN TERMS OF PROVISIONS OF CLAUSE (I) OF EXPLANATION TO SEC. 115JB(2) OF THE ACT THE ASSESSEE IS ENTITLED TO REDUCE ANY EXCESS PROVISION WRITTEN BACK IF THE AMOUNT HAD BEEN ADDED IN THE EARLIER YEARS WHILE DETERMINI NG BOOK PROFITS. SINCE THE LD. CIT(A) FOUND THAT THE AMOUNT HAD BEEN ADDED IN THE AY 2001-02 ACCORDINGLY HE PERMITTED REDUCTION OF THE CORRESPONDING AMOUNT IN THE YEAR UNDER CONSIDERATION IN THE LIGHT OF AFORESAID CLAUSE(I) OF EXPLANATION TO SEC. 115JB(2) OF THE ACT. SINCE THE LD. DR DID NOT POINT OUT ANY INFIRMITY IN THESE FINDINGS OF THE LD. CIT(A) WE ARE NOT INCLINED TO TAKE A DIFFERENT VIEW IN THE MATTE R IN THE ABSENCE OF ANY MATERIAL BEFORE US. THEREFORE GROUND NO. 3 IN THE ITA NO.14 67/AHD./06 IS DISMISSED. 14 GROUND NO.4 IN THE ITA NO.1467/AHD./06 RELATE S TO DELETION OF DISALLOWANCE OF RS.14 075/- ON ACCOUNT OF BELATED PAYMENT OF ESI. SIMILARLY GROUND NO. 1 IN ITA NO. 546/AHD./2007 REL ATES TO DISALLOWANCE OF RS.3 01 060/- AND GROUND NO.2 IN I TA NO.3242/AHD./2007 RELATES TO DISALLOWANCE OF RS.27 075/- ON ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 12 ACCOUNT OF BELATED PAYMENT OF ESI .THE AO NOTICED F ROM THE ANNEXURE-3 OF THE AUDIT REPORT THAT FOLLOWING PAYME NTS WERE MADE BELATEDLY IN THE PERIOD RELEVANT TO THE AY 2002-03: EMPLOYEES CONTRIBUTION EMPLOYER CONTRIBUTION DUE DATE OF PAYMENT DATE OF PAYMENT 554 1505 21-5-01 22-5-01 533 1501 21-6-01 22-6-01 578 1568 21-7-01 23-7-01 591 1604 21-8-01 28-8-01 822 2233 21-9-01 10-10-01 696 1890 21-3-02 26-3-02 3744 10301 TOTAL 14075 14.1 TO A QUERY BY THE AO THE ASSESSEE STATED TH AT SINCE THERE THERE WAS SLIGHT DELAY IN THESE PAYMENTS DELAY MAY BE CONDONED IN VIEW OF THE DECISION QUOTED IN NOTE-4 TO STI. INTER ALIA THE ASSESSEE RELIED UPON THE JUDGMENTS IN THE CASE OF FLUID AIR (INDIA) LTD. VS. DCIT 63 ITD 182 (BOM) AND MADRAS RADIATORS AND PRES SING LTD. VS. DCIT 59 ITD 515 (MAD) AND CONTENDED THAT DISALLOWAN CE U/S 36(1)(VA) COULD NOT BE MADE FOR MINOR DELAY IN PAYM ENT OF THE AMOUNT TO THE PF/ESI AUTHORITIES. HOWEVER THE AO REJECTED THESE CONTENTIONS OF THE ASSESSEE WHILE REFERRING TO PROV ISIONS OF SEC. 43B(B) SECTION 2(24)(X) AND THE EXPLANATION BELOW CLAUSE (VA) OF SUB-SECTION (1) OF SEC.36 OF THE ACT AS ALSO DECISION IN THE CASE OF CIT VS. SOUTH INDIA CORPN. LTD [(108 TAXMAN 322 (KER.)] AND DISALLOWED THE CLA IM RESULTING IN ADDITION OF AN AMOUNT OF RS.3 774/- BEING EMPLOYEES CONTRIBUTION AND RS.10 301/- AS BEING EMPLOYERS CONTRIBUTION TO THE TOTAL INCOME. 15. SIMILARLY IN THE AY 2003-04 THE AO DISALLOWED AN AMOUNT OF RS.3 01 060/- AND IN THE AY 2004-05 RS. 27 075/- ON ACCOUNT OF BELATED PAYMENTS OF ESI . ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 13 16 ON APPEAL THE LEARNED CIT(A) WHILE RELYING UPO N HIS OWN DECISION FOR THE PRECEDING ASSESSMENT YEAR ALLOWE D THE CLAIM IN THE AY 2002-03. IN AY 2003-04 & 2004-05 THE LD. CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE THAT PAYMENTS HAVING BEEN MADE BEFORE FILI NG OF THE RETURN ARE ADMISSIBLE. 17 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED DR SUPPORTED THE ORDER OF THE AO AND THE LEARNED AR ON BEHALF OF THE ASSESSEE SUP PORTED THE ORDER OF THE CIT(A) WHILE RELYING UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSION S LTD. (2009) 319 ITR 306 (SC). 18 WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. WE FIND THAT IN THE PRECEDING ASSESSMENT YEAR THE ITAT VIDE THEIR ORDER DATED 20.10.2009 IN ITA NO. 2556/AHD./ 2004 UPHELD DISALL OWANCE ON ACCUNT OF EMPLOYEES CONTRIBUTION IN PARA 56 OF THEIR ORDER. HOWEVER ON A SIMILAR ISSUE THE ITAT AHMEDABAD BENCHES NOW HAVE BEEN CONSISTENTLY F OLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. P.M.ELECTRONICS LTD. 220 ITR635 (DELHI) IN FAVOUR OF THE ASSESSEE. IN THE CASE OF GUJARAT CONTAINERS LTD. V. ACIT IN ITA NO.2609/AHD/2008 FOR THE ASSESSMENT YEAR 2004-05 IN THEIR DECISION DATED 2.3.2009 AS ALSO IN THE CASE OF SHR I OMARSINGH B. RAWAT VS ITP ITA NO.1908/AHD/2009 VIDE THEIR ORDER DATED 18-09-2 009 THE TRIBUNAL ALLOWED THE APPEAL OF THE ASSESSEE ON THE ISSUE OF EMPLOYEE S CONTRIBUTION RELYING UPON THE AFORESAID DECISION OF THE HONBLE DELHI HIGH CO URT. WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF P.M.ELECTRONICS L TD.(SUPRA) FOLLOWING THE DECISION OF HONBLE APEX COURT IN THE CASE OF VINA Y CEMENT LTD.(SUPRA) ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE EMP LOYEES CONTRIBUTION TOWARDS PF. 18.1 MOREOVER RECENTLY HONBLE APEX COURT IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD 319 ITR 306 (SC) HELD THAT THE OMISS ION OF THE SECOND PROVISO TO ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 14 SECTION 43B OF THE ACT BY THE FINANCE ACT 2003 OP ERATED RETROSPECTIVELY WITH EFFECT FROM APRIL 1 1988 AND NOT PROSPECTIVELY FR OM APRIL 1 2004. HONBLE COURT OBSERVED THAT EARLIER UNDER THE SECOND PROVISO TO SECTION 43B AS AMENDED BY THE FINANCE ACT 1989 THE ASSESSEES WERE ENTITLED TO DEDUCTION ONLY IF THE CONTRIBUTION STOOD CREDITED ON OR BEFORE THE DUE DA TE GIVEN IN THE PROVIDENT FUNDS ACT. THIS CREATED FURTHER DIFFICULTIES AND O N A REPRESENTATION MADE TO THE FINANCE MINISTRY ONE MORE AMENDMENT WAS MADE BY THE FINANCE ACT 2003. THOUGH THIS AMENDMENT WAS MADE APPLICABLE WITH EFFE CT FROM APRIL 1 2004 THE AMENDMENT WAS CURATIVE IN NATURE AND APPLIED RETROS PECTIVELY WITH EFFECT FROM APRIL 1 1988.IT WAS CLARIFIED THAT WHEN A PROVISO IN A SECTION IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO MAKE THE SECTION WOR KABLE THE PROVISO WHICH SUPPLIES AN OBVIOUS OMISSION THEREIN IS REQUIRED TO BE READ RETROSPECTIVELY IN OPERATION PARTICULARLY TO GIVE EFFECT TO THE SECTI ON AS A WHOLE. 18.2 EVEN MORE RECENTLY HONBLE DELHI HIGH COU RT IN THEIR DECISION DATED 23.12.2009 IN CIT VS. AIMIL LTD.(DELHI)IN ITA NO. 1 063/2008 OBSERVED THAT S. 2(24) (X) PROVIDES THAT AMOUNTS RECEIVED BY AN ASSE SSEE FROM EMPLOYEES TOWARDS PF CONTRIBUTIONS ETC SHALL BE INCOME. S. 36 (1) (VA) PROVIDES THAT IF SUCH SUMS ARE CONTRIBUTED TO THE EMPLOYEES ACCOUNT IN TH E RELEVANT FUND ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC LEGISLATION T HE ASSESSEE SHALL BE ENTITLED TO A DEDUCTION. THE SECOND PROVISO TO S. 43B (B) PROVIDE D THAT ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO A NY PROVIDENT ETC FUND SHALL BE ALLOWED AS A DEDUCTION ONLY IF PAID ON OR BEFORE THE DUE DATE SPECIFIED IN 36(1)(VA). AFTER THE OMISSION OF THE SECOND PROVISO W.E.F 1.4.2004 THE DEDUCTION IS ALLOWABLE UNDER THE FIRST PROVISO IF THE PAYMENT IS MADE ON OR BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF INCOME. THE HONB LE HIGH COURT WHILE CONSIDERING WHETHER THE BENEFIT OF S. 43B CAN BE EXTENDED TO EM PLOYEES CONTRIBUTION AS WELL WHICH ARE PAID AFTER THE DUE DATE UNDER THE PF LAW BUT BEFORE THE DUE DATE FOR FILING THE RETURN HELD THAT (I) THOUGH THE REVENUE HAS ARGUED THAT A DISTINCTIO N IS TO BE MADE BETWEEN EMPLOYERS CONTRIBUTION AND EMPLOYEES CONTRIBUT ION AND THAT EMPLOYEES CONTRIBUTION BEING IN THE NATURE OF TRUST MONEY IN THE HANDS OF THE ASSESSEE ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 15 CANNOT BE ALLOWED AS A DEDUCTION IF NOT PAID ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC LAW THE SCHEME OF THE ACT IS THAT EM PLOYEES CONTRIBUTION IS TREATED AS INCOME U/S 2 (24) (X) ON RECEIPT BY THE ASSESSEE AND ALLOWED AS A DEDUCTION U/S 36 (1) (VA) ON MAKING DEPOSIT WITH THE CONCERNE D AUTHORITIES. S. 43B (B) STIPULATES THAT SUCH DEDUCTION WOULD BE PERMISSIBLE ONLY ON ACTUAL PAYMENT; (II) THE QUESTION AS TO WHEN ACTUAL PAYMENT SHOULD BE MADE IS ANSWERED BY VINAY CEMENTS 213 CTR 268 WHERE THE DELETION OF THE SECOND PROVI SO TO S. 43B W.E.F 1.4.2004 WAS HELD APPLICABLE TO EARLIER YEARS AS WELL. AS THE DELETION OF THE 2ND PROVISO IS RETROSPECTIVE THE CASE HAS TO BE GO VERNED BY THE FIRST PROVISO. DHARMENDRA SHARMA 297 ITR 320 (DEL) & P.M. ELECTRONICS 313 ITR 161 (DELHI) FOLLOWED; (III) IF THE EMPLOYEES CONTRIBUTION IS NOT DEPOSIT ED BY THE DUE DATE PRESCRIBED UNDER THE RELEVANT ACTS AND IS DEPOSITED LATE THE EMPLOYER NOT ONLY PAYS INTEREST ON DELAYED PAYMENT BUT CAN INCUR PENALTIES ALSO FO R WHICH SPECIFIC PROVISIONS ARE MADE IN THE PROVIDENT FUND ACT AS WELL AS THE ESI A CT. THEREFORE THE ACT PERMITS THE EMPLOYER TO MAKE THE DEPOSIT WITH SOME DELAYS SUBJECT TO THE AFORESAID CONSEQUENCES. INSOFAR AS THE INCOME-TAX ACT IS CONCERNED THE ASS ESSEE CAN GET THE BENEFIT IF THE ACTUAL PAYMENT IS MADE B EFORE THE RETURN IS FILED AS PER THE PRINCIPLE LAID DOWN IN VINAY CEMENT . 18.3 IN VIEW OF THE FOREGOING WE HAVE NO HESIT ATION IN HOLDING THAT THE BOTH EMPLOYERS AS WELL AS EMPLOYEES CONTRIBUTION TOWAR DS ESI HAVING BEEN MADE BY THE ASSESSEE WITHIN THE DUE DATE OF FILING OF RETUR N U/S 139(1) OF THE ACT FOR THE ASSESSMENT YEARS UNDER CONSIDERATION THERE IS NO G ROUND FOR DISALLOWING THE SAME. THEREFORE GROUND NO.4 IN ITA NO. 1467/AHD./2 006 GROUND NO. 1 IN ITA NO. 546/AHD./2007 AND GROUND NO.2 IN ITA NO.3242/A HD./2007 ARE DISMISSED. 19 GROUND NO.5 ITA NO. 1467/AHD./2006 RELATES TO DI RECTION TO DETERMINE CLAIM OF LONG TERM CAPITAL LOSS AND ALLOW THE SAME TO BE CARRIED FORWARD AND SET OFF IN THE SUCCEEDING YEARS . THERE IS NO DISCUSSION ON THIS ASPECT IN THE ASSESSMENT ORDER. ON APPEAL THE LEARNED CIT(A) HAS DEALT WITH THE ISSUE AS UNDER:- 11 IN THE SEVENTH GROUND IT IS SUBMITTED BY THE A PPELLANT THAT THE AO HAS ERRED IN LAW AND FACTS BY NOT DETERMINING THE L ONG TERM CAPITAL LOSS FOR CARRIED FORWARD IN THE NEXT ASSESSMENT YEAR(S). IT IS SUBMITTED BY THE AR THAT BY MISTAKE THE AO HAS NOT ALLOWED THE SAME. ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 16 11.1 HAVING CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE IN THIS REGARD THE AO IS DIRECTED TO VERIFY THE APPELLANT S CLAIM IF ANY FROM HIS RECORD AND DETERMINE THE LONG TERM CAPITAL LOSS AND ALLOW THE SAME FOR CARRIED FORWARD AND SET OFF IN NEXT ASSESSMENT YEAR S IN ACCORDANCE WITH LAW. 20. THE REVENUE IS NOW IN APPEAL AGAINST THE AFOR ESAID FINDINGS OF THE LD. CIT(A).AFTER HEARING BOTH THE PARTIES WE F IND THAT THE LEARNED CIT(A) HAS MERELY DIRECTED THE AO TO VERIFY THE ASS ESSEES CLAIM IF ANY AND DETERMINE THE LONG TERM CAPITAL LOSS AS AL SO ALLOW THE SAME TO BE CARRIED FORWARD AND SET OFF IN SUCCEEDING ASS ESSMENT YEARS IN ACCORDANCE WITH LAW. THE REVENUE HAVING FAILED TO POINT OUT ANY INFIRMITY IN THESE DIRECTIONS WE ARE NOT INCLINED TO INTERFERE. THUS THIS GROUND IN ITA NO. 1467/AHD./2006 IS DISMISSED. 21 GROUND NO.6 IN ITA NO. 1467/AHD./2006 RELATES TO COMPUTATION OF INTEREST U/S 234B AND 234C AFTER ALLOWING CREDIT AV AILABLE U/S 115JAA OF THE ACT. THE AO INTER ALIA WHILE ASSESS ING THE INCOME UNDER THE NORMAL PROVISIONS OF THE ACT LEVIED INTE REST U/S 234B &234C OF THE ACT. ON APPEAL THE LEARNED CIT(A) VIDE PARA -16 OF HIS ORDER UPHELD SUCH LEVY LEVY OF INTEREST U/S 234B AND 234 C OF THE ACT BEING MANDATORY AND CONSEQUENTIAL IN NATURE. IN PARA 14 OF HIS ORDER THE LD. CIT(A) ALSO DIRECTED TO ALLOW INTER ALIA CREDIT U/S 115J AA OF THE ACT . 22 THE REVENUE IS NOW IN APPEAL AGAINST THE DIRECTI ONS OF THE LD. CIT(A) TO LEVY INTEREST U/S 234B & 234C OF THE ACT AFTER ALLOWING CREDIT U/S 115JAA OF THE ACT. THE LD. DR DID NOT P OINT OUT ANY INFIRMITY IN THE DIRECTIONS OF THE LD. CIT(A).ON TH E OTHER HAND THE LEARNED AR ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JINDAL EXPO RTS LTD. (2009) 314 ITR 137 (DELHI) AND THE DECISION OF THE HONBLE MADRAS HIGH ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 17 COURT IN THE CASE OF CIT VS. CHEMPLAST SANMAR LTD. (2009) 314 ITR 231 (MAD). 23 WE HAVE HEARD THE PARTIES AND GONE THROUGH THE F ACTS OF THE CASE. WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JINDAL EXPORTS LTD. (2009) 314 ITR 137 (DELHI) WHILE ADJUDICATING A SIMILAR ISSUE HELD THAT INTEREST U NDER SS. 234B AND 234C IS TO BE CHARGED AFTER THE TAX CREDIT (MAT CREDIT) AVAILABLE UNDER S. 115JAA IS SET OFF AGAINST TAX PAYABLE ON THE TOTAL INCOME OF THE YEAR IN QUESTION . LIKEWISE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. CH EMPLAST SANMAR LTD. (2009) 314 ITR 231 (MAD) HELD THAT THE CREDIT UNDER SECTION 155JAA SHOULD BE GIVEN EFFECT TO BEFORE CHARGING OF INTERE ST UNDER SECTIONS 234A 234B AND 234C OF THE ACT. EVEN MORE RECENTLY WHILE AGRE EING WITH THE VIEW TAKEN IN THE AFORESAID TWO DECISIONS HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. APAR INDUSTRIES LTD. 323 ITR 411(BOM.) HELD THAT A MENDMENT OF SECTION 234B W.E.F. 1.4.2007 BEING CLARIFICATORY IN COMPUTING I NTEREST U/S 234B OF THE ACT MINIMUM ALTERNATE TAX CREDIT HAS TO BE TAKEN IN TO ACCOUNT. 23.1 IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID D ECISIONS AND NO CONTRARY DECISION HAVING BEEN POINTED OUT BY THE RE VENUE BEFORE US WE ARE NOT INCLINED TO INTERFERE WITH THE DIRECTION S OF THE LD. CIT(A). THEREFORE GROUND NO.6 IN ITA NO. 1467/AHD./2006 I S DISMISSED. 24 GROUND NO.7 IN ITA NO. 1467/AHD./2006 RELATES T O DIRECTION TO EXCLUDE SALES-TAX AND EXCISE DUTY FROM TOTAL TURNOV ER FOR COMPUTING DEDUCTION U/S 80HHC OF THE ACT. THE AO WHILE FOLLOW ING HIS OWN ORDER IN THE PRECEDING ASSESSMENT YEAR OBSERVED TH AT THE AMOUNT OF SALES TAX AND EXCISE DUTY WERE REQUIRED TO BE ADDED IN THE TOTAL TURNOVER AS LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF CHOWRA NGHEE SALES BUREAU PVT. LTD. V/S. CIT 87 TTR 542 AND SINCLARE MURRAY & CO. PVT. LTD. V/S. CIT 97 ITR 615. INTER ALIA THE AO RELIED UPON DECISION OF THE AHM EDABAD BENCH OF THE ITAT IN IT A NO.231/AHD/2000 DATED 24.8.2000 IN THE CASE OF GUJARAT FLURO CHEMICALS ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 18 LTD. FOR A.Y.96-97 FOLLOWING THE DECISION OF BRITA NIA INDUSTRIES LTD. 71 ITD 14 (CAL) & PONDS (INDIA) LTD. 64 ITO 33 (MUMBAI) HOL DING THAT SALES TAX AND EXCISE ARE INTEGRAL PART OF THE TOTAL TURNOVER . 25 ON APPEAL THE LEARNED CIT(A) FOLLOWING HIS PRED ECESSORS ORDER DIRECTED TO EXCLUDE THE SALES-TAX AND EXCISE DUTY FROM TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S 80HHC OF THE ACT. 26 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED THE ORDER OF THE A O IN THE LIGHT OF PROVISIONS OF SEC. 145A OF THE ACT WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE ORDER OF THE AO IN VIEW OF JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS LAKSHMI MACHINE WORKS 290 ITR 667 (SC). 27. WE HAVE HEARD BOTH THE PARTIES AND GON E THROUGH THE FACTS OF THE CASE. WE ARE NOT INCLINED TO ACCEPT THE PLEA OF THE LD. DR T HAT THE PROVISIONS OF SEC. 145A WERE APPLICABLE TO THE CONCEPT OF TOTAL TURNOVER EVEN WH ILE DETERMINING THE DEDUCTION U/S 80HHC OF THE ACT IN VIEW OF THE FOLLOWING OBSERV ATIONS OF THE HONBLE APEX COURT IN THE CASE OF LAXMI MACHINE WORKS(SUPRA) WHEREIN IT WAS HELD AS UNDER: WE HAVE TO READ THE WORDS 'TOTAL TURNOVER' IN SECTI ON 80HHC AS PART OF THE FORMULA WHICH SOUGHT TO SEGREGATE THE ' EXPORT PROFITS' FROM THE 'BUSINESS PROFITS'. THEREFORE WE HAVE TO READ THE FORMULA IN ENTIRETY. IN THAT FORMULA THE ENTIRE BUSINESS PROFITS IS NOT GIVEN DE DUCTION. IT IS THE BUSINESS PROFIT WHICH IS PROPORTIONATELY REDUCED BY THE ABOV E FRACTION/RATIO OF EXPORT TURNOVER + TOTAL TURNOVER WHICH CONSTITUTES SECTION 80HHC CONCESSION (DEDUCTION). INCOME IN THE NATURE OF 'BUSINESS PROF ITS' WAS THEREFORE APPORTIONED. THE ABOVE FORMULA FIXED A RATIO IN WHI CH 'BUSINESS PROFITS' UNDER SECTION 28 OF THE ACT HAD TO BE APPORTIONED. THEREF ORE ONE HAS TO GIVE WEIGHTAGE NOT ONLY TO THE WORDS 'TOTAL TURNOVER' BU T ALSO TO THE WORDS 'EXPORT TURNOVER' 'TOTAL EXPORT TURNOVER' AND 'BUSINESS PR OFITS'. THAT IS THE REASON WHY WE HAVE QUOTED HEREINABOVE EXTENSIVELY THE ILLUSTRA TION FROM THE DIRECT TAXES (INCOME-TAX) READY RECKONER OF THE RELEVANT WORD. I N THE CIRCUMSTANCES WE CANNOT INTERPRET THE WORDS 'TOTAL TURNOVER' IN THE ABOVE FORMULA WITH REFERENCE TO THE DEFINITION OF THE WORD 'TURNOVER' IN OTHER L AWS LIKE CENTRAL SALES TAX OR AS DEFINED IN ACCOUNTING PRINCIPLES. GOODS FOR EXPO RT DO NOT INCUR EXCISE DUTY LIABILITY. AS STATED ABOVE EVEN COMMISSION AND INT EREST FORMED A PART OF THE PROFIT AND LOSS ACCOUNT HOWEVER THEY WERE NOT ELI GIBLE FOR DEDUCTION UNDER SECTION 80HHC. THEY WERE NOT ELIGIBLE EVEN WITHOUT THE CLARIFICATION ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 19 INTRODUCED BY THE LEGISLATURE BY VARIOUS AMENDMENTS BECAUSE THEY DID NOT INVOLVE ANY ELEMENT OF TURNOVER. FURTHER IN ALL OT HER PROVISIONS OF THE INCOME- TAX ACT PROFITS AND GAINS WERE REQUIRED TO BE COMP UTED WITH REFERENCE TO THE BOOKS OF ACCOUNT OF THE ASSESSEE. HOWEVER AS CAN B E SEEN FROM THE INCOME- TAX RULES AND FROM THE ABOVE FORM NO. 10CCAC IN THE CASE OF DEDUCTION UNDER SECTION 80HHC A REPORT OF THE AUDITOR CERTIFY ING DEDUCTION BASED ON EXPORT TURNOVER WAS SUFFICIENT. THIS IS BECAUSE THE VERY BASIS FOR COMPUTING SECTION 80HHC DEDUCTION WAS 'BUSINESS PROFITS' AS C OMPUTED UNDER SECTION 28 A PORTION OF WHICH HAD TO BE APPORTIONED IN TER MS OF THE ABOVE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER. SECTION 80HHC(3) WAS A BENEFICIAL SECTION. IT WAS INTENDED TO PROVIDE INCENTIVES TO PROMOTE EXPOR TS. THE INCENTIVE WAS TO EXEMPT PROFITS RELATABLE TO EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE HAVING EXPORT BUSINESS AND DOMESTIC BUSINE SS THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN EXPORT PROF ITS BY APPORTIONING THE TOTAL BUSINESS PROFITS ON THE BASIS OF TURNOVERS. APPORTI ONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIV ING AT EXPORT PROFITS. THIS METHOD EARLIER EXISTED UNDER THE EXCESS PROFITS TAX ACT IT EXISTED IN THE BUSINESS PROFITS TAX ACT. THEREFORE JUST AS COMMIS SION RECEIVED BY AN ASSESSEE IS RELATABLE TO EXPORTS AND YET IT CANNOT FORM PART OF 'TURNOVER' EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE 'TURNOVER'. SIMILARLY 'INTEREST' EMANATES FROM EXPORTS AND YET 'INTEREST' DOES NOT INVOLVE AN ELEMENT OF TURNOVER. THE OBJECT OF THE LEGISLATURE IN ENACTING SECTION 80HHC OF THE ACT WAS TO CONFER A BENEFIT ON PROFITS ACCRU ING WITH REFERENCE TO EXPORT TURNOVER. THEREFORE 'TURNOVER' WAS THE REQUIREMENT . COMMISSION RENT INTEREST ETC. DID NOT INVOLVE ANY TURNOVER. THEREF ORE 90 PER CENT. OF SUCH COMMISSION INTEREST ETC. WAS EXCLUDED FROM THE PRO FITS DERIVED FROM THE EXPORT. THEREFORE EVEN WITHOUT THE CLARIFICATION S UCH ITEMS DID NOT FORM PART OF THE FORMULA IN SECTION 80HHC(3) FOR THE SIMPLE REAS ON THAT THEY DID NOT EMANATE FROM THE' EXPORT TURNOVER' MUCH LESS ANY T URNOVER. EVEN IF THE ASSESSEE WAS AN EXCLUSIVE DEALER IN EXPORTS THE SA ID COMMISSION WAS NOT INCLUDIBLE AS IT DID NOT SPRING FROM THE' TURNOVER' . JUST AS INTEREST COMMISSION ETC. DID NOT EMANATE FROM THE 'TURNOVER' SO ALSO E XCISE DUTY AND SALES TAX DID NOT EMANATE FROM SUCH TURNOVER. SINCE EXCISE DUTY A ND SALES TAX DID NOT INVOLVE ANY SUCH TURNOVER SUCH TAXES HAD TO BE EXC LUDED. COMMISSION INTEREST RENT ETC. DO YIELD PROFITS BUT THEY DO N OT PARTAKE OF THE CHARACTER OF TURNOVER AND' THEREFORE THEY WERE NOT INCLUDIBLE I N THE 'TOTAL TURNOVER'. THE ABOVE DISCUSSION SHOWS THAT INCOME FROM RENT COMMI SSION ETC. CANNOT BE CONSIDERED AS PART OF BUSINESS PROFITS AND THEREFO RE THEY CANNOT BE HELD AS PART OF THE TURNOVER ALSO. IN FACT IN CIVIL APPEAL NO. 4409 OF 2005 THE ABOVE PROPOSITION HAS BEEN ACCEPTED BY THE ASSESSING OFFI CER IF SO THEN EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE 'TO TAL TURNOVER' UNDER SECTION 80HHC(3) OTHERWISE THE FORMULA BECOMES UNWORKABLE. IN OUR VIEW SALES TAX AND EXCISE DUTY ALSO DO NOT HAVE ANY ELEMENT OF 'TU RNOVER' WHICH IS THE POSITION EVEN IN THE CASE OF RENT COMMISSION INTE REST ETC. IT IS IMPORTANT TO BEAR IN MIND THAT EXCISE DUTY AND SALES TAX ARE IND IRECT TAXES. THEY ARE RECOVERED BY THE ASSESSEE ON BEHALF OF THE GOVERNME NT. THEREFORE IF THEY ARE MADE RELATABLE TO EXPORTS THE FORMULA UNDER SE CTION 80HHC WOULD ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 20 BECOME UNWORKABLE. THE VIEW WHICH WE HAVE TAKEN IS IN THE LIGHT OF THE AMENDMENTS MADE TO SECTION 80HHC FROM TIME TO TIME. 27.1 SECTION 80HHC OF THE INCOME-TAX ACT 1961 IS A BENE FICIAL SECTION AND WAS INTENDED TO PROVIDE INCENTIVE TO PROMOTE EXPORTS. THE INTENTION WAS TO EXEMPT PROFITS RELATABLE TO EXPORTS. AS OBSERVED BY THE HONBLE A PEX COURT ONE CANNOT INTERPRET THE WORDS TOTAL TURNOVER WITH REFERENCE TO THE DE FINITION OF THE WORD TURNOVER IN OTHER LAWS LIKE THE CENTRAL SALES TAX OR AS DEFINED IN ACCOUNTING PRINCIPLES. THE WORDS 'TOTAL TURNOVER' IN SECTION 80HHC HAVE TO BE READ AS PART OF THE FORMULA WHICH SOUGHT TO SEGREGATE THE 'EXPORT PROFITS' FROM THE ' BUSINESS PROFITS . THEREFORE WE ARE OF THE OPINION THAT EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3) OF THE ACT. 27.2 IN THE CASE OF SONY INDIA PVT. LTD . VS. DCIT IN ITA NO. 1181/DEL/2005 DATED 23/9/2008 FOR THE AY 2001-02 ITAT DELHI BENC H FOLLOWING THE AFORESAID DECISION OF THE HONBLE SUPREME COURT DIRECTED TO EXCLUDE EXCISE DUTY WHILE WORKING OUT TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. 27.3. IN VIEW OF AFORESAID DECISION OF THE HON BLE SUPREME COURT WE ARE OF THE OPINION THAT THE LD. CIT(A) WAS JUSTIFIED IN DIREC TING THE AO TO EXCLUDE EXCISE DUTY AND SALES TAX WHILE WORKING OUT TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. THUS GROUND NO.7 IN ITA NO. 146 7/AHD./2006 IS DISMISSED.. 28. NOW ADVERTING TO GROUND NOS.1& 2 IN THE ASSES SEES APPEAL IN ITA NO.1089/AHD/2008 FOR AY 2002-03 GROUND NO.1 IN ITA NO. 1242/AHD./2007 FOR THE AY 2003-04 AND GROUND NO. 1 IN ITA NO.3557/AHD./2007 FOR THE AY 2004-05 RELATING TO CO NFIRMATION OF DISALLOWANCE ON ACCOUNT OF CLAIM OF DEDUCTION U/S 80HHC OF THE ACT AO NOTICED DURING THE REASSESSMENT PROCEEDING S IN THE AY 2002-03 THAT THE ASSESSEE HAD BEEN ALLOWED EXCESS D EDUCTION U/S 80HHC OF THE ACT ON DEPB CREDIT OF RS.6.9 CRORES A ND DEPB PREMIUM OF RS.29.5 LACS EVEN WHEN THE ASSESSEE DID NOT FULFILL THE CONDITIONS STIPULATED IN THIRD PROVISO TO SEC. 80HH C(3) OF THE ACT INTRODUCED BY THE TAXATION LAWS (SECOND AMENDMENT) ACT 2005 W.E.F ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 21 1.4.1998. THE CONDITIONS REQUIRED TO FULFILL ARE TH AT THE ASSESSEE SHOULD HAVE NECESSARY AND SUFFICIENT EVIDENCE TO PR OVE THAT; A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAWBACK OR THE DUTY ENTITLED PASS BOOK SCHEME BEIN G DUTY REMISSION SCHEME AND B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOM DUTY WAS HIGHER THAN THE RATE OF CREDIT AVAI LABLE UNDER DUTY ENTITLEMENT PASS BOOK SCHEME BEING DUTY REMISSION SCHEME. WHILE REFERRING TO HIS OWN ORDER FOR THE AY 2003-04 THE AO DENIED THE CLAIM SINCE (I) THE EXPORT TURNOVER WAS MORE TH AN RS.10 CRORE (II) THE ENTIRE SALE VALUE WAS THE PROFIT AS THERE WAS NO COST OF THE DEPB ENTITLEMENT (III) NEWLY AMENDED DEFINITION OF BUSINESS PROFIT AS PER EXPLA NATION (BAA) OF SECTION 80HHC(1) STIPULATED THAT THE AMOUNT OF DEPB IS REQ UIRED TO BE REDUCED FROM THE BUSINESS PROFIT FOR THE DEDUCTION OF CLAIM UNDER SE CTION 80HHC AND THE ASSESSEE FAILED TO JUSTIFY THAT THE TWO CONDITIONS AS ENUMER ATED IN THE AMENDED PROVISIONS HAVE BEEN FULFILLED BY IT. 28.1 LIKE WISE THE AO DISALLOWED THE CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT IN THE AY 2003-04 BUSINESS PROFIT S AFTER REDUCTION OF DEPB AMOUNT OF RS.7 39 51 432/- BEING NEGATIVE. IN AY 2004-05 ALSO SIMILAR FINDINGS WERE RECORDED BY THE AO. 29. ON APPEAL THE LEARNED CIT(A) HELD IN THE AY 20 02-03 THAT SINCE THE ASSESSEE WAS HAVING TURNOVER EXCEEDING R S.10 CRORES AND IT DID NOT FULFILL THE OTHER CONDITIONS AS PER THE PROVISIONS OF THE SECTION 80HHC OF ACT 1961 THE AO HAS RIGHTLY COMPUTED THE BOOK PROFIT A S WELL AS NORMAL INCOME U/S 143(3) OF INCOME-TAX ACT. SIMILAR FINDINGS WERE RE CORDED IN THE AY 2003-04 & AY 2004-05 WHILE UPHOLDING THE ORDER OF THE AO AND CON SEQUENTLY OTHER GROUNDS RELATING TO DEDUCTION U/S 80HHC OF THE ACT WERE NOT ADJUDICATED BY THE LD. CIT(A) IN THE AY 2003-04 & 2004-05. ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 22 30. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A) . THE LEARNED AR ON BEHALF OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE LD. CIT(A) CONTENDED THAT THAT DEDUCTION U/S 80HHC NEEDS TO BE RECOMPUTED IN THE LIGHT OF DECISI ON DATED 11.8.2009 IN THE CASE OF M/S TOPMAN EXPORTS 318 ITR(AT) 87(MUMBAI) (SB). ON THE OTHER HAND THE LEARNED DR SUPPORTED THE FINDINGS OF THE LD. CIT(A) . 31. WE HAVE HEARD BOTH THE PARTIES AND GONE THR OUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED ON . THE REL EVANT PROVISIONS OF SEC. 28(IIID) APPLICABLE W.E.F 1.4.1998 READ AS UND ER : (IIID) ANY PROFIT ON THE TRANSFER OF THE DUTY ENTI TLEMENT PASS BOOK SCHEME BEING THE DUTY REMISSION SCHEME UNDER THE E XPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED UNDER SE CTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT 1992 (22 OF 1992) 31.1 THE THIRD PROVISO TO SEC.80HHC(3) OF THE ACT A S INTRODUCED BY THE TAXATION LAWS (SECOND AMENDMENT) ACT 2005 W.E .F 1.4.1998 READS AS UNDER: PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVI NG EXPORT TURNOVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEAR THE PRO FITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB-SECTION OR AFTER GIVING EFFECT TO THE FIRST PROVISO AS THE CASE MAY BE SHALL BE FURTHER INCRE ASED BY THE AMOUNT WHICH BEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIID) OF SECTION 28 THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE IF THE ASSESSEE HAS NEC ESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT - (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAW BACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME BEING DUTY REMISSION SCHEME; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY ENTITLE MENT PASS BOOK SCHEME BEING DUTY REMISSION SCHEME : 31.2 AS REGARDS PLEA OF THE ASSESSEE IN THEIR GR OUND THAT AMENDMENT IS DISCRIMINATIVE AGAINST THE CONSTITUTI ON AND HAD BEEN ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 23 STAYED BY VARIOUS COURTS THE LD. AR DID NOT MAKE A NY SUBMISSIONS ON THESE ASPECTS NOR BROUGHT TO OUR NOTICE ANY DECI SION STAYING THE AFORESAID AMENDMENTS. IN ANY CASE IT IS NOT WITHIN OUR JURISDICTON TO DECIDE THE CONSTITUTIONALITY OF ANY AMENDMENT UNDER THE ACT AND THEREFORE THIS PLEA HAS TO BE REJECTED. AS IS APPA RENT FROM THE AFORESAID PROVISIONS ONLY NINETY PERCENT OF PROFIT ON TRANSFER OF DEPB LICENSE FALLING WITHIN THE PROVISIONS OF SEC. 28(IIID) HAS TO BE INCREASED IN TERMS OF THE AFORESAID THIRD PROVISO W HILE DETERMINING DEDUCTION U/S 80HHC OF THE ACT. IN THIS CONNECTION IN THE AFORESAID DECISION DATED 11.8.2009 IN THE CASE OF M/S TOPMAN EXPORTS 318 ITR(AT) 87(MUMBAI) (SB). THE FOLLOWING QUESTION WAS REFERR ED TO THE SPECIAL BENCH: WHETHER THE ENTIRE AMOUNT RECEIVED ON SALE OF DEPB ENTITLEMENTS REPRESENTS PROFIT CHARGEABLE UNDER SECTION 28(IIID) OF THE INCOME TAX ACT OR THE PROFIT REFERRED TO THEREIN REQUIRES ANY ARTI FICIAL COST TO BE INTERPOLATED? 31.21 THE SPECIAL BENCH ADJUDICATED THE AFORES AID QUESTION IN FOLLOWING TERMS: I) THE ARGUMENT OF THE REVENUE THAT DEPB IS A POST EXPORT EVENT AND HAS NO RELATION WITH THE PURCHASE OF GOODS CANNOT BE ACCEP TED. THERE IS A DIRECT RELATION BETWEEN DEPB AND THE CUSTOMS DUTY PAID ON THE PURCHASES . FOR PRACTICAL PURPOSES DEPB IS A REIMBURSEMENT OF THE COST OF PURCHASE TO THE EXTENT OF CUSTOMS DUTY; (II) THE DEPB BENEFIT (FACE VALUE) ACCRUES AND BECOMES A SSESSABLE TO TAX WHEN THE APPLICATION FOR DEPB IS FILED WITH THE CON CERNED AUTHORITY . SUBSEQUENT EVENTS SUCH AS SALE OF DEPB OR MAKING IM PORTS FOR SELF CONSUMPTION ETC ARE IRRELEVANT FOR DETERMINING THE ACCRUAL OF T HE INCOME ON ACCOUNT OF DEPB; (III) THOUGH S. 28 (IIIB) REFERS TO A CASH ASSISTA NCE AGAINST EXPORTS IT IS WIDE ENOUGH TO COVER THE FACE VALUE OF THE DEPB BENEFIT; (IV) S. 28 (IIID) WHICH REFERS TO THE PROFITS ON TRANSFER OF THE DEPB OBVIOUSLY REFERS ONLY TO THE PROFIT ELEMENT AND NOT THE GROSS SALE PROCEEDS OF THE DE PB. IF THE REVENUES ARGUMENT THAT THE SALE PROCEEDS SH OULD BE CONSIDERED IS ACCEPTED THERE WOULD BE ABSURDITY BECAUSE THE FACE VALUE OF THE DEPB WILL THEN GET ASSESSED IN THE YEAR OF RECEIPT OF THE DEPB AND ALSO IN THE YEAR OF ITS TRANSFER; ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 24 (V) CONSEQUENTLY ONLY THE PROFIT (I.E. THE SALE VALUE LESS THE FAC E VALUE) IS REQUIRED TO BE CONSIDERED FOR PURPOSES OF S. 80HHC . 31.3 SINCE THE LD. CIT(A) HAVE NOT RECORDING ANY FINDINGS AS TO HOW THE DEPB LICENSES UTILIZED FOR OWN USE/IMPORT OF RAW M ATERIAL FALL WITHIN CLAUSE (IIID) OF THE SEC. 28 OF THE ACT AND THE PROVISIONS OF T HIRD PROVISO TO SEC. 80HHC(3) HAVE BEEN INVOKED IN RESPECT OF THE ENTIRE AMOUNT N OR THE LD. CIT(A) HAD THE BENEFIT OF THE AFORESAID DECISION IN THE CASE OF TO PMAN EXPORTS(SUPRA) WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE O RDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUE RELA TING TO CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT IN RELATION TO THE AMOUNT OF DEPB AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES AND KEEPING IN VIEW THE AFORESAID DECISION OF THE SPECIAL BENCH. INTER ALIA THE ASSESSEE SHALL PLACE ALL THE NECESSARY EVIDENCE BEFORE THE LD. CIT(A) AS TO HOW IT FULFILLS THE CONDITIONS STIPULATED IN THE THIRD PROVISO TO SUB-S ECTION (3) OF SEC. 80HHC OF THE ACT. NEEDLESS TO SAY THAT WHILE REDECI DING THE APPEAL THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEEPING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT AS ALSO RECORD HIS SPECIFIC FINDINGS ON THE GROUNDS CONNECTED WITH DEDUCTION U/S 80HHC O F THE ACT AND NOT ADJUDICATED BY HIM SEPARATELY IN THE AY 2003-04 & 2 004-05. WITH THESE DIRECTIONS GROUND NOS.1 & 2 IN ITA NO.1089/AHD/200 8 GROUND NO.1 IN ITA NOS. 1242&3557/AHD./2007 ARE DISPOSED OF. 32. AS REGARDS GROUND NO.3 IN ITA NO.1089/AHD/200 8 GROUND NO.2 IN ITA NO. 1242/AHD./2007 AND GROUND NO. 2 IN ITA NO.3557/AHD./2007 RELATING TO REDUCTION OF DEDUCTI ON U/S 80HHC WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE ACT THE AO REJECTED THE CLAIM OF THE ASSESSEE SINCE THE PROFITS OF THE BUSINESS RESULTED IN A NEGATIVE FIGURE DUE TO REDUCTION OF DEPB AMOUN TS. ON APPEAL THE LD. CIT(A) MERELY UPHELD THE FINDINGS OF THE AO . ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 25 33. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR R ELIED UPON THE DECISION DATED 20-10-2009 OF THE TRIBUNAL IN THE AS SESSEES OWN CASE IN ITA NO.2529/AHD/2002 FOR AY 1999-2000 WHERE IN IT WAS HELD IN PARA 21 TO 23 AS UNDER:- 21 COMING TO ISSUE INVOLVED IN GROUND NO.2 IT IS OBSERVED THAT THE CIT(A) HAS DECIDED THE SAME AS PER HIS FINDINGS CON TAINED IN PARAGRAPH NO.7 OF THE APPELLATE ORDER WHICH READ AS UNDER: 7 THE THIRD GROUND OF APPEAL RELATES TO DEDUCTION OF AMOUNT OF 80HHC FOR THE PURPOSE OF DETERMINATION OF BOOK PROF IT UNDER SECTION 115JA OF THE ACT. THIS IS A CONSEQUENTIAL GROUND DE PENDING UPON THE AMOUNT OF DEDUCTION UNDER SECTION 80HHC AND THE REFORE THE AO IS DIRECTED TO RECOMPUTED THE AMOUNT OF 80HHC AF TER GIVING EFFECT TO THIS ORDER AND REDUCE THE SAME FROM THE B OOK PROFIT UNDER SECTION 115JA OF THE ACT. 22 THE LD. DR HAS SUPPORTED THE ORDER OF THE AO WH EREAS THE LD. COUNSEL FOR THE ASSESSEE HAS SUPPORTED THE ORDER OF THE CIT(A) AFTER RELYING ON THE DECISION OF ITAT MUMBAI BENCH H (S PECIAL BENCH) IN THE CASE OF DY. CIT VS. SYNCOME FORMULATIONS (I) LTD. ( 2007) 106 ITD 193 (MUM) (SB) AND IN THE CASE OF CIT VS. ATUL PRODUCTS (255 ITR 85) (GUJ) 23 AFTER CAREFUL CONSIDERATION OF THE RIVAL SUBMIS SIONS FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISIONS (SUPRA) WE ARE OF THE OPINION THAT THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASS ESSEE AND AGAINST THE REVENUE AS PER THE DECISION OF ITAT MUMBAI BENCH (S PECIAL BENCH) IN THE CASE OF SYNCOME FORMULATIONS (I) LTD. AND THER EFORE FOLLOWING THE SAME WE UPHOLD THE ORDER OF THE CIT(A) AND REVENUE S GROUND IS REJECTED. THE LD. AR ALSO RELIED UPON DECISION OF THE HON BLE MADRAS HIGH COURT IN CIT VS. RAJNIKANT SCHNELDER & ASSOCIATES P LTD. 302 ITR 22(MAD) AND POINTED OUT THAT SLP HAD BEEN DISMISS ED BY THE HONBLE APEX COURT IN 320 ITR 21(ST). 33.1 THE LD. DR ON THE OTHER HAND SUPPORTED THE ORD ER OF THE LD. CIT(A). ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 26 34. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. WE FIND THAT WHILE ADJUDICATING THE CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT FROM THE BOOK PROFITS DETERMINED U/S 115JB OF THE ACT THE M UMBAI SPECIAL BENCH OF ITAT IN THE CASE OF SYNCOME FORMULATIONS (I) LTD.(SUPRA) HELD THAT THE DEDUCTION UNDER SECTION 80HHC IN A CA SE OF MAT ASSESSMENT IS TO BE WORKED OUT ON THE BASIS OF THE ADJUSTED BOOK PRO FITS AND NOT ON THE BASIS OF THE PROFIT COMPUTED UNDER THE REGULAR PROVISIONS OF LAW APPLICABLE TO THE COMPUTATION OF PROFIT AND GAINS OF BUSINESS OR PROF ESSION. 34.1 HOWEVER SUBSEQUENTLY HONBLE BOMBAY HIGH COURT IN THEIR AFORESAID DECISION IN CIT VS. AJANTA PHARMA LTD. 223 CTR(BOM. )441 OVERRULED THE DECISION IN THE CASE OF SYNCOME FORMULATIONS (I) LT D.(SUPRA) HOLDING AS UNDER: 23. UNTIL S. 115JB WAS INTRODUCED THE WHOLE OF THE PROFITS COMPUTED UNDER S. 80HHC WERE ELIGIBLE FOR REDUCTION FOR COMPUTING THE BOOK PROFITS. PURSUANT TO SUB-S. (1B) OF S. 80HHC THE DEDUCTION AVAILABLE TO THE EXTENT PROVIDED IN S. (1B) AND AFTER 1ST APRIL 2005 THE DEDUCTION OF EXPORT P ROFITS IS DISCONTINUED. THE ASSESSEE'S ARGUMENT IS THAT ONLY IN CASE OF COMPANI ES NOT COVERED BY S. 115JB TO THEN SUB-S. (1B) OF S. 80HHC WOULD APPLY. INSOFA R AS MAT COMPANIES ARE CONCERNED THE PROFITS ELIGIBLE FOR DEDUCTION ARE A S COMPUTED UNDER SUB-S. (3) OR (3A) OF S. 80HHC WITHOUT APPLYING SUB-S. (1B). THIS ARGUMENT IS BASED ON THE EXPRESSION 'COMPUTED UNDER SUB-S. (3) OR SUB-S. (3A ) AS THE CASE MAY BE'. 24. FOR THAT PURPOSE WE WILL HAVE TO EXAMINE THE T RUE SCOPE AND EFFECT OF S. 80HHC. IN S. 80HHC THE RELEVANT PROVISIONS TO WHIC H WE HAVE EARLIER REPRODUCED IS SUB-S. (1) WHICH PROVIDES THAT IN C OMPUTING THE TOTAL INCOME OF THE ASSESSEE A DEDUCTION IS TO BE MADE TO THE EXTENT O F PROFITS REFERRED TO IN SUB-S. (1B) DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUC H GOODS. THE SECTION AS AMENDED HAS BROUGHT IN THE WORDS 'DEDUCTION TO THE EXTENT OF PROFITS' REFERRED TO IN SUB-S. (1B) BY FINANCE ACT 2000 W.E.F. 1ST APRI L 2001. IF THE CONSTRUCTION SOUGHT TO BE GIVEN BY COUNSEL FOR ASSESSEE IS ACCEP TED IT WOULD MAKE SUB-S. (1B) IRRELEVANT FOR THE PURPOSE OF S. 115JB. SUB-S. (1B) PROVIDES FOR DEDUCTION IN TERMS SET OUT THEREIN. SUB-S. (3) SETS OUT THE METHOD OF COMPUTATION OF PROFITS. THE COMPUTATION OF PROFITS IS THEREFORE FOR THE PURPO SE OF WORKING OUT THE DEDUCTION OF PROFITS AVAILABLE UNDER S. 80HHC(1B). EARLIER IT WAS IN TERMS OF SUB-S. (1). NOW S. 80HHC(1) IN TERM REFERS TO SUB-S. (1B). ALL THE PROVISIONS ARE INTER-RELATED AND CANNOT BE READ DE HORS ONE AND OTHER. IF SUB-S. (1B ) IS NOT READ IN SUB-S. (1) THEN THE EXPRESSION 'NO DEDUCTION SHALL BE ALLOWED IN RE SPECT OF THE ASSESSMENT ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 27 BEGINNING ON THE 1ST DAY OF APRIL 2005 AND ANY SUB SEQUENT YEAR' SHALL BE RENDERED OTIOSE. 25. INSOFAR AS S. 115JB(2) EXPLN. 1(IV) IS CONCERN ED IN COMPUTING THE BOOK PROFITS THE EXPORT PROFITS UNDER S. 80HHC HAD TO BE REDUCED. THE OBJECT OF S. 115JB WAS TO IMPOSE TAX ON COMPANIES WHICH ARE KNOW N AS ZERO TAX COMPANIES. THESE COMPANIES THOUGH MAKING HUGE PROFITS AND PAYI NG HANDSOME DIVIDENDS WERE NOT PAYING ANY TAX. THE OBJECT OF THE SECTION WAS THEREFORE THAT THEY PAY TAX NOT IN A MANNER OF TOTAL INCOME COMPUTED BY OTH ER COMPANIES BUT ON THE BOOK PROFITS WHICH HAD TO BE CALCULATED IN TERMS OF S. 115JB(2). THE ASSESSEE'S DO NOT DISPUTE THIS. THEIR ARGUMENT IS THAT REDUCTI ON MUST BE OF THE WHOLE OF THE BOOK PROFITS COMPUTED UNDER SUB-S. (3) OR (3A) OF S . 80HHC. THE OBJECT OF S. 80HHC AS ORIGINALLY INTRODUCED WAS TO EXEMPT THE WH OLE OF THE EXPORT PROFITS. BY VIRTUE OF SUB-S. (1B) INTRODUCED W.E.F. 1ST APRIL 2001 THE DEDUCTION IS ONLY A PERCENTAGE OF THE EXPORT PROFITS AS ALLOWED THEREIN AND NO REDUCTION AFTER 1ST APRIL 2005. THIS BENEFIT OF REDUCTION WAS INITIALL Y NOT MADE AVAILABLE TO MAT COMPANIES BUT THE BENEFIT WAS EXTENDED FROM 1ST AP RIL 1989. 26. IT IS THEN SOUGHT TO BE CONTENDED THAT THE EXPR ESSION 'CONDITIONS' IN CL. (IV) OF EXPLN. 1 OF S. 115JB CANNOT BE REFERABLE TO SUB-S. (1B) OF S. 80HHC AS SUB-S. (1B) IS NOT A CONDITION BUT IN THE NATURE OF COMPUT ATION. WE HAVE REFERRED TO THE DICTIONARY MEANING OF THE WORD 'CONDITIONS'. EVEN I F WE ACCEPT THAT SUB-S. (1B) OF S. 80HHC IS NOT A CONDITION AND PROCEED ON THAT FOO TING NEVERTHELESS IT IS IMPOSSIBLE OF READING S. 80HHC(3) OR (3A) INDEPENDE NT OF S. 80HHC(1B). TO OUR MIND THE LANGUAGE IS CLEAR. THE LITERAL MEANING DO ES NOT IN ANY WAY DEFEAT THE OBJECT OF THE SECTION AND/OR LEAD TO AN ABSURDITY. THE OBJECT OF S. 115JB IS TO ALLOW EVEN MAT COMPANIES TO AVAIL OF THE BENEFIT OF DEDUCTION. IF WE CONSIDER THE ASSESSEE'S ARGUMENTS THAT MAT COMPANIES ARE ENTITLE D TO FULL DEDUCTION OF EXPORT PROFITS IT WILL LEAD TO ANOMALY WHEREBY THE COMPAN IES WHICH ARE PAYING TAX ON TOTAL INCOME UNDER THE NORMAL RULES FOR THEM THE D EDUCTION OF EXPORT PROFITS WILL BE LESSER THAN WHAT MAT COMPANIES ARE ENTITLED TO. IS THIS A POSSIBLE VIEW? WHEN S. 115J WAS ORIGINALLY INTRODUCED MAT COMPANI ES WERE NOT ENTITLED TO DEDUCTION OF PROFITS UNDER S. 80HHC WHILE WORKING O UT THE BOOK PROFITS. THAT CAME TO BE INTRODUCED BY DIRECT TAX LAWS (AMENDMENT ) ACT 1989 W.E.F. 1ST APRIL 1989 A YEAR LATER. PARLIAMENT THEREFORE IN ITIALLY HAD EVEN DENIED TO MAT COMPANIES DEDUCTION UNDER S. 115J. WHEN S. 115JA WA S INTRODUCED W.E.F. 1ST APRIL 1997 S. 80HHC BENEFITS WERE ONCE AGAIN NOT AVAILABLE FOR MAT COMPANIES. THE AMENDMENT BY FINANCE ACT 1997 TO GI VE THE BENEFIT WAS W.E.F. 1ST APRIL 1998. CAN IT NOW BE ARGUED THAT MAT COMP ANIES CONSIDERING S. 115JB(2) EXPLN. 1 (IV) ARE ENTITLED TO BE PLACED IN A BETTER POSITION THAN THE OTHER COMPANIES ENTITLED TO THE EXPORT DEDUCTION UNDER S. 80HHC THOUGH EARLIER THEY CONSTITUTED ONE CLASS? NO RULE OF CONSTRUCTION NOR THE LANGUAGE OF THE S. 80HHC R/W S. 115JB IN OUR OPINION WILL PERMIT SUCH CONS TRUCTION. IF SUCH CONSTRUCTION IS NOT POSSIBLE THEN BOTH THE CLASSES OF COMPANIES WIL L BE ENTITLED TO THE SAME DEDUCTION. THIS WOULD CONTEMPLATE THAT BOTH WOULD B E ENTITLED TO DEDUCTIONS OF PROFITS IN TERMS OF S. 80HHC(1B). SO READ IT WOULD BE A HARMONIOUS CONSTRUCTION. A CLASS OF COMPANIES COVERED BY S. 80HHC CANNOT BE SUB-CLASSIFIED INTO TWO ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 28 CLASSES WHEN MORE SO FOR INTERMITTENT PERIODS PAR LIAMENT HAD EVEN DENIED THE BENEFIT OF S. 80HHC TO MAT COMPANIES. IF THE ARGUME NT OF THE ASSESSEE IS TO BE ACCEPTED WHAT THEN IS THE MISCHIEF THAT S. 115JB SOUGHT TO AVOID? WHAT S. 115JB DID WAS TO CONTINUE THE DEDUCTIONS ALSO TO TH E MAT COMPANIES. THE ONLY DIFFERENCE WAS THAT INSTEAD OF CALCULATING TAX AT 3 0 PER CENT OF THE BOOK PROFITS AS IN THE CASE OF SS. 115J 115JA IT WAS MADE 7.5 PER CENT AND FROM 1ST APRIL 2007 IT IS 10 PER CENT. THE LANGUAGE USED IN CL. (III) T O EXPLN. 1 TO SUB-S. (2) OF S. 115J OR CL. (VII) TO EXPLN. 1 OF S. 115JA(2) OR CL. (IV) OF EXPLN. 1 OF S. 115JB(2) IS 'ELIGIBLE FOR DEDUCTION'. 27. THE ARGUMENT OF THE ASSESSEE IS BASICALLY BASED ON THE MEMORANDUM OF UNDERSTANDING IN THE FINANCE BILL 2000 WHICH WE HA VE EARLIER REPRODUCED. IT ONLY SAYS THAT EXPORT PROFITS UNDER S. 80HHC AND OTHERS ARE KEPT OUT OF THE PURVIEW OF THE PROVISION DURING THE PERIOD OF PHASING OUT OF D EDUCTIONS AVAILABLE UNDER THE PROVISIONS. AT THE SAME TIME IN THE NOTES OF CLAUS ES IT IS CLEARLY STATED THAT THE PROFITS WILL BE AS REDUCED BY THE CERTAIN ADJUSTMEN TS WHICH ARE ELIGIBLE FOR DEDUCTION UNDER S. 80HHC. THE PROFITS ELIGIBLE FOR DEDUCTION ARE EXPORT PROFITS IN TERMS OF S. 80HHC(1B). THERE IS NOTHING IN THE FINA NCE MINISTER'S SPEECH OF 29TH FEB. 2000 [(2000) 159 CTR (ST) 1 : (2000) 242 ITR (ST) 1 ] TO HOLD OTHERWISE. WE HAVE EARLIER REFERRED TO RULES OF CONSTRUCTION AS S ET OUT IN THE JUDGMENTS EARLIER QUOTED. THE NOTES OF OBJECTS AND REASONS IS ONLY AN AID TO CONSTRUCTION. THAT AID TO CONSTRUCTION IS ONLY WHEN THE LITERAL READIN G LEADS TO AMBIGUOUS RESULT OR ABSURDITY. TO OUR MIND CONSIDERING THE LITERAL LANG UAGE THERE IS NO ABSURDITY OR AMBIGUITY BEING CAUSED OR ANY MISCHIEF SOUGHT TO BE REMEDIED. THE LANGUAGE USED IN S. 115JB IS DEDUCTION AVAILABLE UNDER S. 80 HHC. IT IS DIFFICULT TO CONCEIVE OF ANY RATIONAL REASON AS TO WHY THE LEGISLATURE SH OULD HAVE THOUGHT TO GIVE MAT COMPANIES ADDITIONAL BENEFITS THAN THE OTHER COMPAN IES WHO ARE PAYING TAX ON TOTAL INCOME AND NOT THE TAX BASED ON BOOK PROFIT A S CALCULATED UNDER S. 115JB. IS IT POSSIBLE TO CONCEIVE OF ANY DEGREE OF FAIRNESS A ND/OR JUSTICE THAT MAT COMPANIES WHO FOR SOME PERIODS WERE DENIED THE BEN EFIT OF S. 80HHC BECAUSE OF THE INTRODUCTION OF S. 115JB EXPLN. 1(IV) ARE EN TITLED TO HAVE THEIR ENTIRE EXPORT PROFITS REDUCED? THE OBJECT OF S. 115JB OR FOR THAT MATTER S. 115J OR S. 115JA WAS TO IMPOSE TAX ON THOSE COMPANIES WHICH OTHERWISE CO NSIDERING VARIOUS EXEMPTIONS OR DEDUCTIONS AVAILABLE UNDER THE ACT T HOUGH MAKING HUGE PROFITS AND PAYING LARGE DIVIDENDS WERE NOT PAYING ANY TAX. IT IS THEREFORE NOT POSSIBLE TO ACCEPT THE CONSTRUCTION AS SOUGHT TO BE ADVANCED ON BEHALF OF THE ASSESSEE THAT THEY SHOULD BE TREATED ON A DIFFERENT FOOTING IN CO MPUTING EXPORT PROFITS UNDER S. 80HHC FOR THE PURPOSE OF S. 115JB. 28. WE HAVE HAD THE BENEFIT OF GOING THROUGH REASON ING AND THE ORDERS OF TRIBUNAL IN SYNCOME AS ALSO IN THE CASE OF DY. CIT VS. GOVIND RUBBER (P) LTD. IT IS NOT POSSIBLE TO AGREE WITH THE VIEW TAKEN BY THE BENCHES. THOSE DECISIONS IN VIEW OF THIS JUDGMENT STAND OVERRULED. 29. OUR ATTENTION WAS ALSO INVITED TO THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF CIT VS. GTN TEXTILES LTD. IN THE FIRST INST ANCE THE KERALA HIGH COURT WAS CONSIDERING THE PROVISIONS OF S. 115J. SEC. 115JB W AS NOT UNDER CONSIDERATION. ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 29 THE HIGH COURT NOTED THAT ORIGINAL S. 115J OF THE A CT DID NOT CONTAIN EXEMPTION UNDER S. 80HHC. THAT SECTION AS WE HAVE NOTED DID NOT ORIGINALLY INCLUDE EXEMPTION ALLOWED TO EXPORTERS UNDER S. 80HHC. BY T HE VIRTUE OF THE EXPLANATION AND CL. (III) THERETO WHICH CAME INTO EFFECT FROM 1ST APRIL 1989 THE REDUCTION UNDER S. 80HHC BECAME AVAILABLE. THE ISSUE BEFORE T HE KERALA HIGH COURT WAS WHAT IS PROFIT THAT SHOULD BE TAKEN INTO CONSIDERAT ION CONSIDERING THE ACCOUNTING SYSTEM THAT HAVE TO BE FOLLOWED WHILE WORKING OUT T HE BOOK PROFITS. THEREFORE THE JUDGMENT WOULD BE OF NO ASSISTANCE IN CONSIDERING T HE QUESTION FRAMED FOR CONSIDERATION. 30. IT WAS ALSO SOUGHT TO BE THEN CONTENDED THAT IF TWO VIEWS ARE POSSIBLE THEN THE CONSTRUCTION OF S. 115JB EXPLN. 1(IV) CONSIDER ING THE DECIDED LAW THE VIEW IN FAVOUR OF THE ASSESSEE SHOULD BE ACCEPTED. THE QUES TION IS WHETHER THERE ARE TWO VIEWS POSSIBLE. IN OUR OPINION NO TWO VIEWS AR E POSSIBLE. THE ONLY VIEW AS EXPLAINED EARLIER IS THAT THE MAT COMPANIES ARE ENT ITLED TO THE SAME DEDUCTION OF EXPORT PROFITS UNDER S. 80HHC AS ANY OTHER COMPANY INVOLVED IN EXPORT IN TERMS OF S. 80HHC(1B). ONCE THAT BE THE CASE THIS ARGUME NT IS ALSO DEVOID OF MERIT. 34.2 HOWEVER IN THE CASE OF RAJNIKANT SCHNELDER & ASSOCIATES P LTD.(SUPRA) THE HONBLE MADRAS HIGH COURT HELD T HAT THE AO WAS NOT ENTITLED TO ALTER THE PROFIT AND LOSS ACCOUNT P REPARED BY THE ASSESSEE UNDER THE PROVISIONS OF THE COMPANIES ACT WHILE ARRIVING AT BOOK PROFITS U/S 115JA OF THE ACT AND THE COMPUT ATION U/S 80HHC SHOULD BE LIMITED TO THE CASE OF PROFITS OF ELIGIBL E CATEGORY ONLY. THIS DECISION HAS BEEN REITERATED IN CIT VS. SPEL SEMICO NDUCTOR LTD. 323 ITR 488(MAD.) AND SLP FILED BY THE REVENUE HAS BEEN DISMISSED AS REPORTED IN 320 ITR(ST)21. 34.3 IN THE INSTANT CASE WE FIND THAT NEITHER T HE AO NOR THE LD. CIT(A) HAVE PASSED A SPEAKING ORDER ON THIS ISSUE. SINCE THE AO AND LD. CIT(A) DID NOT HAVE THE BENEFIT OF THE VIEWS IN THE AFORECITED DECISION S AND THUS COULD NOT RECORD ANY FINDINGS ON THE PLEAS NOW RAISED ON BEHALF OF THE A SSESSEE BEFORE US ON THEIR CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT WHILE DETE RMINING BOOK PROFITS U/S 115JB OF THE ACT WE CONSIDER IT FAIR AND APPROPRI ATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR D ECIDING THE ISSUE OF CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT IN TERMS OF CLAUSE (IV) OF THE EXPLANATION TO SEC. 115JB OF THE ACT IN ACCORDANCE WITH LAW IN THE LIGH T OF VARIOUS JUDICIAL ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 30 PRONOUNCEMENTS INCLUDING THE AFORECITED DECISIONS AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES . NEEDLESS TO SAY T HAT WHILE REDECIDING THE APPEAL THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEE PING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT AND ENSURING THAT THE CONDITIONS OF SECTION 80HHC ARE SATISFIED IN THE INSTANT CASE WHILE COMPUTING THE DEDUCTION ALLOWABLE TO THE ASSESSEE .WITH THESE DIRECTIONS G ROUND NO. 3 IN ITA NO.1089/AHD/2008 GROUND NO.2 IN ITA NOS. 1242&3557 /AHD./2007 ARE DISPOSED OF. 35 GROUND NOS. 8 & 9 IN ITA NO.546/AHD/2007 G ROUND NOS. 4 & 5 IN ITA NO. 546/AHD./2007 AND GROUND NOS. 3 & 4 IN I TA NO.3242/AHD./2007 BEING GENERAL IN NATURE DO NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HA VING BEEN RAISED IN TERMS OF RESIDUARY GROUND NO. 4 IN ITA NO.1089 /AHD/2008 GROUND NO.3 IN ITA NO. 1242& 3557/AHD./2007 IN THESE APP EALS ALL THESE GROUNDS ARE THEREFORE DISMISSED. 36. IN THE RESULT THESE THREE APPEALS OF THE REV ENUE ARE DISMISSED WHILE THOSE OF THE ASSESSEE ARE PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 31-05- 2010 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 31 -05-2010 COPY OF THE ORDER FORWARDED TO : 1. RAJRATNA METAL INDUSTRIES LTD. 11 1 ST FLOOR SONA ROOPA APARTMENTS C G ROAD AHMEDABAD ITA NO.1467/A/06 AND OTHERS FOR AYS 2002-03 2003-04 AND 2004-05 RAJRATNA ME TAL INDUSTRIES LTD. AHMEDABAD 31 2. THE ACIT CIRCLE-5 AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XI AHMEDABAD 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD