Shri Ajay Kumar, Aligarh v. ITOWard, V, Aligarh

ITA 423/AGR/2008 | 2003-2004
Pronouncement Date: 26-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 42320314 RSA 2008
Assessee PAN ABVPK6930F
Bench Agra
Appeal Number ITA 423/AGR/2008
Duration Of Justice 1 year(s) 8 month(s) 15 day(s)
Appellant Shri Ajay Kumar, Aligarh
Respondent ITOWard, V, Aligarh
Appeal Type Income Tax Appeal
Pronouncement Date 26-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted SMC
Tribunal Order Date 26-02-2010
Date Of Final Hearing 21-01-2010
Next Hearing Date 21-01-2010
Assessment Year 2003-2004
Appeal Filed On 10-06-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH SMC AGRA BEFORE SHRI P.K. BANSAL ACCOUNTANT MEMBER ITA NO.423/AGR/2008 & 447/AGR/2007 ASST. YEARS: 2003-04 & 2002-03 SHRI AJAY KUMAR VS. INCOME-TAX OFFICER WARD IV PROP. A.K. INTERNATIONAL ALIGARH. VISHNUPURI ALIGARH. (PAN : ABVPK 6930 F) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ GARGH ADVOCATE RESPONDENT BY : SHRI R.C. SHARMA JR. D.R. ORDER THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAI NST THE ORDER OF THE CIT(A) DATED 25.02.2008 AND 31.08.2007 RESPECTIVELY BY TAKING TH E FOLLOWING EFFECTIVE GROUNDS OF APPEAL :- ITA NO.423/AGR/2008 A.Y.2003-04 (1) THAT THE LEARNED LOWER AUTHORITIES WAS WRONG I N FACTS AND IN LAW IN DISALLOWING FOLLOWING EXPENSES : NAME OF EXPENSES EXPORT DIVISION (RS.) DOMESTIC DIVISION (RS.) I) TELEPHONE EXPENSES 9100.00 7140.00 II) CAR EXPENSES 7100.00 III) OFFICE EXPENSES 1540.00 2000.00 IV) ADVERTISEMENT 8800.00 V) GENERATOR & ELECTRICITY EXPENSES 10000.00 VI) EXPORT PROMOTION EXPENSES 64480.00 AT ANY RATE WITHOUT PREJUDICE TO GROUND NO.1 ABOVE THESE DISALLOWANCES OF EXPENSES ARE VERY VERY EXCESSIVE. (2) THAT THE LEARNED LOWER AUTHORITIES WAS WRONG IN FACTS AND IN LAW IN CLUBBING THE ACCOUNTS OF THE TWO DIVISION I.E. EXPORT DIVISION A ND DOMESTIC DIVISION WHEN SEPARATE METHOD OF INCOME COMPUTATION WAS AVAILABLE BEFORE T HE LEARNED LOWER AUTHORITIES APART FROM OTHER MISTAKES IN CALCULATING DEDUCTION U/S.80 HHC OF THE IT ACT 1961. 2 VARIOUS OBSERVATIONS MADE BY THE LEARNED LOWER AUT HORITIES UNTENABLE. (3) THAT THE TAX CHARGED AND INTEREST THEREON U/S.2 34A 234B AND 234C TOTALING FOR RS.75 024/- IS ILLEGAL AND VERY VERY EXCESSIVE. ITA NO.447/AGR/2007 A.Y. 2002-03 (1) THAT THE LEARNED LOWER AUTHORITIES WERE WRONG IN FACTS AND IN LAW IN ISSUING NOTICE U/S.147 AND PASSING ORDER U/S.148 OF THE I.T . ACT 1961. (2) THAT THE TRADING RESULTS OUGHT TO HAVE BEEN ACC EPTED BY THE LEARNED LOWER AUTHORITIES AND THE TRADING RESULTS ENHANCING THE G ROSS PROFIT BY RS.71 686 IN DOMESTIC DIVISION IS ILLEGAL UNJUST AND AT ANY RATE IS VERY EXCESSIVE. VARIOUS OBSERVATION OF LEARNED LOWER AUTHORITIES WE RE UNCALLED FOR AND WERE AGAINST FACTS. FACTS CIRCUMSTANCES DOCUMENTARY E VIDENCE AND THE LEGAL POSITION TO PROVE THE G.P. RATE HAD NOT BEEN APPRECIATED. AT A NY RATE WITHOUT PREJUDICE TO GROUND NO.2 ABOVE AN ADDITION OF RS.71686 IN DOMESTIC DIVI SION MADE ON UNRECORDED AND UNFOUNDED MATERIAL IS VERY VERY EXCESSIVE. (3). THAT THE LEARNED LOWER AUTHORITIES WERE WRONG IN FACTS AND IN LAW IN DISALLOWING FOLLOWING EXPENSES :- (I) 7317/- OUT OF DEPRECIATION ON MOTOR CYCLE IN EX PORT DIVISION. (II) 5000/- OUT OF PERSONAL USE OF MOTOR CYCLE IN EXPORT DIVISION (III) 15090/- OUT OF TELEPHONE EXPENSES IN EXPORT D IVISION. (IV) 23399/- OUT OF TRAVELING EXPENSES IN EXPORT DI VISION. (V) 5989/- ON TELEPHONE EXPENSES IN DOMESTIC DIVISI ON. (VI) 10 000/- ON GENERATOR AND ELECTRICITY EXPENSES . 2. FIRST I TAKE UP ITA NO.423/AGR./2008. THE BRIEF FACTS IN RESPECT OF GROUND NO.1 ARE THAT THE ASSESSEE DEALS IN BUSINESS OF MANUFACTURING TR ADING AND EXPORT OF BRASS HARDWARE. THE ASSESSEE WAS MAINTAINING REGULAR BOOKS OF ACCOUNTS IN RESPECT OF THE TWO UNITS. ONE UNIT NAMED AS DOMESTIC DIVISION WAS SHOWING MANUFACTURING AN D SALES OF BRASS HARDWARE ITEMS WITHIN INDIA WHILE THE ANOTHER UNIT NAMELY EXPORT DIVISI ON WAS SHOWING MANUFACTURING AND SALE OF BRASS HARDWARE ITEMS OUTSIDE INDIA. THE ACCOUNTS W ERE AUDITED UNDER SECTION 44AB OF THE INCOME-TAX ACT 1961 (THE ACT HEREINAFTER). THE A.O. DISALLOWED 1/5 TH OF THE TELEPHONE 3 EXPENSES DUE TO PERSONAL USE OF THE TELEPHONE AMOUN TING TO RS.9 100/- OUT OF THE EXPORT DIVISION AND RS.7 140/- OUT OF THE DOMESTIC DIVISION. 3. AFTER HEARING THE RIVAL SUBMISSIONS I AM OF THE VIEW THAT THE DISALLOWANCES HAVE BEEN MADE ON ADHOC BASIS. NO PARTICULAR EXPENSE HAS BEE N POINTED OUT WHICH DOES NOT RELATE TO THE BUSINESS OF THE ASSESSEE BUT SINCE THE ASSESSEE WAS STAYING IN THE SAME PREMISES WHERE THE MANUFACTURING OF THE HARDWARE WAS CARRIED OUT AND T HE TELEPHONE WAS ALSO INSTALLED THEREIN THEREFORE PART OF THE EXPENDITURE INCURRED ON TELE PHONE BEING INCURRED FOR PERSONAL USE CANNOT BE DENIED IN VIEW OF PROVISIONS OF SECTION 38(2) OF TH E ACT. ALSO KEEPING IN VIEW THAT THE OVERALL EXPENDITURE DEBITED WERE ONLY TO THE TUNE OF RS.45 488/- I DIRECT THE A.O. TO RESTRICT THE DISALLOWANCE ONLY TO 1/10 TH OF THE TELEPHONE EXPENSES. THUS THIS ISSUE RELAT ING TO THE TELEPHONE EXPENSES IS PARTLY ALLOWED. 4. SO FAR AS THE CAR EXPENSES IS CONCERNED AFTER H EARING RIVAL SUBMISSIONS I NOTED THAT THE DISALLOWANCE OUT OF THE CAR EXPENSES TO THE EXTENT OF RS.7 100/- WAS MADE BEING 1/5 TH OF RS.35 580/- AND THE SAME WAS CONFIRMED BY THE CIT(A ) STATING THAT THE ASSESSEE DID NOT FURNISH THE COMPLETE DETAILS OF THESE EXPENDITURES. 5. AFTER HEARING RIVAL SUBMISSIONS I AM OF THE VIE W THAT THE DISALLOWANCE HAS MERELY BEEN MADE ON ADHOC BASIS BEING 1/5 TH OF THE CAR EXPENSES. THE ASSESSEE HAS SUBMITTED T HE DETAILS OF THE CAR EXPENSES BUT NO PARTICULAR EXPENDITURE HAS BEEN POINTED OUT BY THE A.O. WHICH HAS NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS. I AM OF THE VIEW THAT NO ADHOC DISALLOWANCE CAN BE MADE. I ACCORDINGLY DELETE THE DISALLOWANCE OUT OF THE CAR EXPENSES MADE OUT OF THE DOMESTIC DIVISION. 4 6. THE NEXT ISSUE IN GROUND NO.1 RELATES TO THE DIS ALLOWANCE OUT OF OFFICE EXPENSES AMOUNTING TO RS.1 540/- AND RS.2 000/- MADE OUT OF THE EXPORT DIVISION AND DOMESTIC DIVISION RESPECTIVELY. 7. AFTER HEARING THE RIVAL SUBMISSIONS I NOTED THA T THE CIT(A) HAS CONFIRMED THE DISALLOWANCE ON THE BASIS OF THE REASONING GIVEN BY THE A.O. IN THE ASSESSMENT ORDER. I HAVE GONE THROUGH THE ASSESSMENT ORDER ALSO AND NOTED TH AT THE A.O. HAD DISALLOWED 1/5 TH OF SUCH EXPENSES IN THE ABSENCE OF COMPETE DETAILS AND NECE SSARY BILLS AND VOUCHERS FURNISHED BY THE ASSESSEE. IN MY OPINION NO ADHOC DISALLOWANCE CAN BE MADE UNTIL AND UNLESS THE A.O. POINTS OUT ABOUT THE PARTICULAR EXPENDITURE WHICH HAS NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. I ACCORDINGLY DELETE THE DISALLOWA NCE OF RS.1 540/- AND RS.2 000/- ON OFFICE EXPENSES MADE OUT OF EXPORT DIVISION AND DOMESTIC D IVISION RESPECTIVELY. 8. THE NEXT ISSUE IN GROUND NO.1 RELATES TO THE DIS ALLOWANCE OUT OF ADVERTISEMENT AMOUNTING TO RS.8 800/- MADE OUT OF THE DOMESTIC DIVISION. 9. AFTER HEARING THE RIVAL SUBMISSIONS I NOTED THA T THIS DISALLOWANCE HAS ALSO BEEN MADE BEING 1/5 TH INCURRED BY THE ASSESSEE UNDER THE HEAD ADVERTISE MENT MERELY ON ESTIMATE BASIS WITHOUT POINTING OUT ANY PARTICULAR EXPENDITURE WHI CH HAS NOT BEEN INCURRED BY THE ASSESSEE FOR BUSINESS PURPOSE. I ACCORDINGLY DELETE THE DISAL LOWANCE OF RS.8 800/- UNDER THE HEAD ADVERTISEMENT MADE OUT OF DOMESTIC DIVISION.. 10. THE NEXT ISSUE IN GROUND NO.1 RELATES TO THE DI SALLOWANCE OF RS.10 000/- OUT OF GENERATOR AND ELECTRICITY EXPENSES MADE OUT OF DOMESTIC DIVIS ION. 5 11. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING T HROUGH THE ORDER OF THE AUTHORITIES BELOW I NOTED THAT THE A.O. MADE AN ADHOC DISALLOWANCE OU T OF THE GENERATOR AND ELECTRICITY EXPENSES AMOUNTING TO RS.10 000/- MERELY ON THE BASIS THAT T HE ASSESSEES FAMILY HAS SHOWN THE DRAWING TO THE EXTENT OF RS.48 414/-. THE A.O. ACCORDINGLY PRESUMED THAT THE ASSESSEE MIGHT HAVE PERSONALLY USED THE ELECTRICITY AND THE GENERATOR. I NOTED THAT THE A.O. NOWHERE POINTED OUT THE PART OF THE EXPENDITURE THAT HAS NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS. IN MY OPINION THE DISALLOWANCE SO MADE ON ADHOC BASIS CANNOT BE SUSTA INED. I ACCORDINGLY DELETE THE DISALLOWANCE OF RS.10 000/- 12. THE NEXT ISSUE IN GROUND NO.1 RELATES TO THE DI SALLOWANCE OF RS.64 480/- OUT OF EXPORT PROMOTION EXPENSES.. 13. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING T HROUGH THE ORDERS OF THE TAX AUTHORITIES BELOW I NOTED THAT THIS DISALLOWANCE HAS ALSO BEEN MADE BY THE A.O. MERELY ON ADHOC BASIS WITHOUT POINTING OUT A PARTICULAR EXPENSE WHICH HAS NOT BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS. THE A.O. HAD DISALLOWED 1/6 TH OF THE TOTAL EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT TREATING IT TO BE THE EXPORT PROMOTI ON EXPENSES. SECTION 37(2A) IS NO MORE IN THE INCOME TAX ACT. THEREFORE IN MY OPINION THE DISALLOWANCE SO MADE CANNOT BE SUSTAINED. I ACCORDINGLY DELETE THE DISALLOWANCE. THUS THIS G ROUND IS PARTLY ALLOWED. 14. SO FAR THE SECOND GROUND OF APPEAL IS CONCERNED AFTER HEARING THE RIVAL SUBMISSIONS I NOTED THAT THE ASSESSEE CLAIMED DEDUCTION UNDER SEC TION 80HHC OF THE ACT. AS HE WAS MAINTAINING SEPARATE ACCOUNTS FOR THE EXPORT DIVISI ON BUT THE A.O. ALLOWED THE DEDUCTION UNDER SECTION 80HHC. ON THAT BASIS HE ALSO HAS EXAMINED THE RESULT OF BOTH DOMESTIC AND EXPORT 6 DIVISIONS AND NOTED THAT ALTHOUGH THE SALES IN BOTH THE DIVISIONS WERE APPROXIMATELY OF THE SAME FIGURE WHILE THE DIFFERENCE IN GROSS PROFIT AND NE T PROFIT OF BOTH THE DIVISIONS WERE SUBSTANTIALLY HIGH. HE WAS OF THE VIEW THAT THIS HAS BEEN DONE T O CLAIM HIGHER DEDUCTION UNDER SECTION 80HHC AND ACCORDINGLY HE RECOMPUTED THE DEDUCTION. WHEN THE MATER WENT BEFORE THE CIT(A) THE CIT(A) CONFIRMED THE CALCULATION OF THE DEDUCTI ON UNDER SECTION 80HHC OF THE ACT ADOPTED BY THE A.O. 15. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD. I HAVE ALSO GONE THROUGH THE DECISION AS RELIED ON BY THE LD. A.R. BEFORE ME IN THE CASE OF CIT VS. M. GANI & CO. REPORTED IN 301 ITR 381 (MADRAS HIGH COURT). IN THIS CASE I NOTED THAT THE HONBLE MADRAS HIGH COURT HELD THAT WHEN THE ASSESS EE WAS MAINTAINING SEPARATE BOOKS OF ACCOUNTS FOR EXPORT BUSINESS AND DOMESTIC BUSINESS IT WAS ENTITLED TO DEDUCTION UNDER SECTION 80HHC OF THE ACT FULLY ON THE EXPORT PROFIT. WHILE HOLDING SO THE HONBLE MADRAS HIGH COURT HAS RELIED ON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS. RATHORE BROTHERS 254 ITR 656 WHICH WAS FOLLOWED BY THE MADRAS HIGH COURT IN THE SUBSEQUENT DECISION OF CIT VS. SURESH B. MEHTA REPORTED IN 291 ITR 462 (MAD.). IT WAS ALSO POINTED OUT THAT THIS DECISION WAS ALSO SUBSEQUENTLY FOLLOWED BY THE MADRAS HIGH COURT IN ANOTHER CASE OF CIT VS. MACMILLAN INDIA LIMITED 295 ITR 67. I HAVE GONE THROUGH THE ORDER OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. RATHORE BROTHERS 254 ITR 656 ALSO. NO DOUBT IN THAT CASE EVEN THE MADRAS HIGH COURT HAS HELD THAT WHERE THE ASSESSEE HAS MAI NTAINED SEPARATE ACCOUNTS AND IT HAD MAINTAINED ITS TRADING RECEIPTS AND PROFIT & LOSS A CCOUNTS SEPARATELY FOR EXPORT SALES AND DOMESTIC SALES AND THERE WAS SUFFICIENT MATERIALS S UPPORTED BY ALL THE NECESSARY DOCUMENTS TO SHOW THAT THE DEDUCTION CLAIMED WAS ENTIRELY DUE TO EXPORT. THERE WAS NO WARRANT FOR DISALLOWING ANY PORTION OF THE EXPORT EARNINGS PRO RATA BY INVOKING CLAUSE (B) OF SUB-SECTION (3) 7 OF SECTION 80HHC OF THE INCOME-TAX ACT 1961. THE PURPOSE OF THE CLAUSE WAS TO DISALLOW A PART OF THE ALLOWANCE UNDER THAT SECTION ONLY WHEN THE E NTIRE DEDUCTION CLAIMED COULD NOT BE REGARDED AS BEING RELATABLE TO EXPORTS. THIS DECISION RELAT ES TO PROVISIONS OF SECTION 80HHC(3) WHICH WERE PRIOR TO ITS SUBSTITUTION W.E.F. 01.04.1992. 16. I HAVE GONE THROUGH THE PROVISIONS OF SECTION 8 0HHC AND I NOTED THAT THE PROVISIONS OF SECTION 80HHC (3) WHICH LAY DOWN THE MANNER HOW THE PROFIT ELIGIBLE FOR DEDUCTION FROM THE EXPORT UNDER SECTION 80HHC (1) HAS TO BE COMPUTED. THIS SECTION HAS BEEN AMENDED BY THE FINANCE ACT 1991 W.E.F. 01.04.1992 AND READS AS U NDER :- [(3) FOR THE PURPOSES OF SUB-SECTION (1) (A) WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR M ERCHANDISE MANUFACTURED [OR PROCESSED] BY THE ASSESSEE THE PROFITS DERIVED FROM SUCH EXPO RT SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSIN ESS CARRIED ON BY THE ASSESSEE ; (B) WHERE THE EXPORT OUT OF INDIA IS OF TRADING GO ODS THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE EXPORT TURNOVER IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT COSTS AND INDIRECT COSTS ATTRIBUTABLE TO SUCH EXPOR T ; (C) WHERE THE EXPORT OUT OF INDIA IS OF GOODS OR M ERCHANDISE MANUFACTURED [OR PROCESSED] BY THE ASSESSEE AND OF TRADING GOODS THE PROFITS D ERIVED FROM SUCH EXPORT SHALL (I) IN RESPECT OF THE GOODS OR MERCHANDISE MANUFAC TURED [OR PROCESSED] BY THE ASSESSEE BE THE AMOUNT WHICH BEARS TO THE ADJUSTED PROFITS OF THE BUSINESS THE SAME PROPORTION AS THE ADJUSTED EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO THE ADJUSTED TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE ; AND (II) IN RESPECT OF TRADING GOODS BE THE EXPORT TU RNOVER IN RESPECT OF SUCH TRADING GOODS AS REDUCED BY THE DIRECT AND INDIRECT COSTS ATTRIBU TABLE TO EXPORT OF SUCH TRADING GOODS : PROVIDED THAT THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAU SE (B) OR CLAUSE (C) OF THIS SUB-SECTION SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEAR S TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIIA) (NOT BEING PROFITS ON SALE OF A LICEN CE ACQUIRED FROM ANY OTHER PERSON) AND CLAUSES (IIIB) AND (IIIC) OF SECTION 28 THE SAME PROPORTIO N AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE : EXPLANATION. FOR THE PURPOSES OF THIS SUB-SECTI ON 8 (A) ADJUSTED EXPORT TURNOVER MEANS THE EXPORT TU RNOVER AS REDUCED BY THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS ; (B) ADJUSTED PROFITS OF THE BUSINESS MEANS THE P ROFITS OF THE BUSINESS AS REDUCED BY THE PROFITS DERIVED FROM THE BUSINESS OF EXPORT OUT OF INDIA OF TRADING GOODS AS COMPUTED IN THE MANNER PROVIDED IN CLAUSE (B) OF SUB-SECTION (3) ; (C) ADJUSTED TOTAL TURNOVER MEANS THE TOTAL TURN OVER OF THE BUSINESS AS REDUCED BY THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS ; (D) DIRECT COSTS MEANS COSTS DIRECTLY ATTRIBUTAB LE TO THE TRADING GOODS EXPORTED OUT OF INDIA INCLUDING THE PURCHASE PRICE OF SUCH GOODS ; (E) INDIRECT COSTS MEANS COSTS NOT BEING DIRECT COSTS ALLOCATED IN THE RATIO OF THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS TO THE TOTAL T URNOVER ; (F) TRADING GOODS MEANS GOODS WHICH ARE NOT MANU FACTURED [OR PROCESSED] BY THE ASSESSEE.] 17. SECTION 80HHC (3) WHEN THE DECISION OF THE MAD RAS HIGH COURT WAS RENDERED READS AS UNDER :- (3) FOR THE PURPOSES OF SUB-SECTION (1) PROFITS D ERIVED FROM THE EXPORT OF GOODS OR MERCHANDISE OUT OF INDIA SHALL BE - (A) IN A CASE WHERE THE BUSINESS CARRIED ON BY THE ASSESSEE CONSISTS EXCLUSIVELY OF THE EXPORT OUT OF INDIA OF THE GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES THE PROFITS OF THE BUSINESS AS CO MPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION; (B) IN A CASE WHERE THE BUSINESS CARRIED ON BY THE ASSESSEE DOES NOT CONSIST EXCLUSIVELY OF THE EXPORT OUT OF INDIA OF THE GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES THE AMOUNT WHICH HEARS TO THE PROF ITS OF THE BUSINESS (AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION) THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTA L TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. 18. THIS SECTION WAS SUBSEQUENTLY AMENDED BY FOLLOW ING SECTION BY THE FINANCE ACT 1990 W.E.F. 01.04.1991. (3) FOR THE PURPOSES OF SUB-SECTION (1) PROFITS D ERIVED FROM THE EXPORT OF GOODS OR MERCHANDISE OUT OF INDIA SHALL BE THE AMOU NT WHICH BEARS TO THE PROFITS OF THE BUSINESS (AS COMPUTED UNDER THE HEAD PROFIT S AND GAINS OF BUSINESS OR PROFESSION) THE SAME PROPORTION AS THE EXPORT TUR NOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE . 9 19. FROM THE READING OF THESE SECTIONS IT IS APPAR ENTLY CLEAR THAT SECTION 80HHC PROVIDES FOR THE DEDUCTION OF THE EXPORT PROFITS SUBJECT TO CERT AIN CONDITIONS. THE SECTION HAS BEEN AMENDED SEVERAL TIMES SINCE ITS INTRODUCTION. SUBSECTION ( 3) WAS SUBSTITUTED W.E.F. 1.4.1992 BY THE FINANCE ACT 1991. IT MADE A DISTINCTION BETWEEN EXPORT OF GOODS MANUFACTURED OR PROCESSED BY THE ASSESSEE AND EXPORT OF TRADING GOODS AND ALSO PROVI DED FOR DEDUCTION IN THE CASE OF AN ASSESSEE WHO EXPORT BOTH TYPES OF GOODS. 20. SECTION 80HHC (3) (A) IS APPLICABLE IN CASE THE ASSESSEE IS EXPORTING GOODS OR MERCHANDISE MANUFACTURED OR PROCESSED BY THE ASSESS EE. THIS SECTION STATES THE PROFIT DERIVED FROM SUCH EXPORT SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUC H GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. THE EXPORT T URNOVER IS DEFINED UNDER EXPLANATION (B) AND TOTAL TURNOVER IS DEFINED UNDER EXPLANATION (BA) WHICH READS AS UNDER :- (B) EXPORT TURNOVER MEANS THE SALE PROCEEDS [ R ECEIVED IN OR BROUGHT INTO INDIA] BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHA NGE [IN ACCORDANCE WITH CLAUSE (A) OF SUB-SECTION (2)] OF ANY GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES AND WHICH ARE EXPORTED OUT OF INDIA BUT DOES NOT I NCLUDE FREIGHT OR INSURANCE ATTRIBUTABLE TO THE TRANSPORT OF THE GOODS OR MERCH ANDISE BEYOND THE CUSTOMS STATION AS DEFINED IN THE CUSTOMS ACT 1962 (52 OF 1962);] [(BB) TOTAL TURNOVER SHALL NOT INCLUDE FREIGHT OR INSURANCE ATTRIBUTABLE TO THE TRANSPORT OF THE GOODS OR MERCHANDISE BEYOND THE CU STOMS STATION AS DEFINED IN THE CUSTOMS ACT 1962 (52 OF 1962) 21. THIS SECTION DOES NOT DISTINGUISH WHETHER THE B USINESS CARRIED ON BY THE ASSESSEE CONSISTS EXCLUSIVELY OF THE EXPORT OR NOT AS WAS THE CASE PR IOR TO AMENDMENT MADE W.E.F. 01.04.1992. IN MY OPINION THE TURNOVER OF ALL THE BUSINESS WILL B E INCLUDED IN THE TOTAL TURNOVER. 10 22. SO FAR THE APPLICABILITY OF CLAUSE (B) IS CONCE RNED IT PROVIDES :- (B) WHERE THE EXPORT OUT OF INDIA IS OF TRADING GO ODS THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE EXPORT TURNOVER IN RESPECT OF S UCH TRADING GOODS AS REDUCED BY THE DIRECT COSTS AND INDIRECT COSTS ATTRIBUTABLE TO SUCH EXPORT;' DIRECT AND INDIRECT COSTS ARE DEFINED IN CLAUSES (D ) AND (E) RESPECTIVELY OF THE EXPLANATION GIVEN BELOW THE SECTION REPRODUCED AS UNDER :- (D) DIRECT COSTS MEANS COSTS DIRECTLY ATTRIBUTAB LE TO THE TRADING GOODS EXPORTED OUT OF INDIA INCLUDING THE PURCHASE PRICE OF SUCH GOODS ; (E) INDIRECT COSTS MEANS COSTS NOT BEING DIRECT COSTS ALLOCATED IN THE RATIO OF THE EXPORT TURNOVER IN RESPECT OF TRADING GOODS TO THE TOTAL TURNOVER; THE AMENDMENT MADE BY SUBSTITUTING SUB SECTION (3) HAS INTRODUCED A DIFFERENT BASIS FOR ALLOWING DEDUCTION IN RESPECT OF EXPORT PROFITS. W HEREAS PRIOR THERETO THE DEDUCTION WAS ALLOWED IN RESPECT OF THAT PORTION OF THE PROFITS AND GAINS OF THE BUSINESS AS PER THE ASSESSMENT WHICH IS PROPORTIONATE TO THE RATIO WHICH THE EXPOR T TURNOVER BEARS TO THE TOTAL TURNOVER AFTER THE AMENDMENT DIFFERENT BASES WERE PROVIDED DEPENDING O N WHETHER THE ASSESSEE IS AN EXPORTER OF MANUFACTURING GOODS EXCLUSIVELY OR OF TRADING GOODS EXCLUSIVELY OR A COMBINATION OF BOTH. 23. NEITHER THE A.O. NOR THE CIT(A) IN THIS CASE HA S LOOKED INTO THE PROVISIONS OF SECTION 80HHC(3) OF THE ACT. EVEN I AM OF THE OPINION THAT THE DECISION OF THE MADRAS HIGH COURT WILL NOT ASSIST THE ASSESSEE AS THAT DECISION HAS NOT IN TERPRETED THE PROVISIONS OF SECTION 80HHC(3) AS HAS BEEN SUBSTITUTED W.E.F. 01.04.1992 BY THE FINAN CE ACT 1991. I THEREFORE IN THE INTEREST OF JUSTICE AND FAIR PLAY TO BOTH THE PARTIES SET ASID E THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THIS ISSUE TO THE FILE OF THE A.O. WITH THE DIRECTI ON TO EXAMINEE THE CLAIM OF THE ASSESSEE IN VIEW 11 OF THE PROVISIONS OF SECTION 80HHC(3) AS HAS BEEN A MENDED W.E.F. 01.04.1992 BY THE FINANCE ACT 1991. I MAY CLARIFY THAT THE DECISION OF MADRA S HIGH COURT WILL NOT BE APPLICABLE AND FOR THE PURPOSE OF TOTAL TURNOVER TURNOVER OF ALL THE BUSI NESS SHALL BE INCLUDED WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC(3) WHETHER THE ASSESS EE HAS MAINTAINED THE SEPARATE BOOKS OF ACCOUNTS FOR EXPORT BUSINESS OR DOMESTIC BUSINESS. THUS THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 24. THE GROUND NO.3 IS CONSEQUENTIAL IN NATURE AND ACCORDINGLY THE A.O. IS DIRECTED TO RECOMPUTE THE INTEREST UNDER SECTION 234A 234B & 2 34C OF THE ACT AFTER GIVING EFFECT TO THIS ORDER. 25. NOW I TAKE UP ITA NO.447/AGR/2007 FOR A.Y. 2002 -03 26. THE FIRST GROUND WHICH RELATES TO THE INITIATI ON OF PROCEEDINGS UNDER SECTION 147 OF THE ACT HAS NOT BEEN PRESSED BY THE ASSESSEE STANDS DI SMISSED AND AS NOT PRESSED. 27. THE SECOND GROUND RELATES TO THE ADDITION MADE IN THE GROSS PROFIT BY RS.71 686/- BY THE A.O. 28. I HAVE HEARD THE RIVAL SUBMISSION AND NOTED THA T THE A.O. WHILE MAKING THE ADDITION DUE TO THE VARIATION IN THE G.P. RATIO OF THE ASSESSEE IN THE DOMESTIC DIVISION AND EXPORT DIVISION. THE A.O. HAS NOT REJECTED THE BOOKS OF THE ASSESSEE AND EVEN DID NOT FIND ANY DISCREPANCY IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. NO T HUMP RULE CAN BE LAID DOWN THAT THE G.P. AND N.P. WILL REMAIN AT A PRE-DETERMINED RATE. SECTION 145 OF THE ACT EMPOWER THE A.O. TO MAKE THE 12 ASSESSMENT IN THE MANNER AS LAID UNDER SECTION 144 IF THE ASSESSEE DID NOT APPLY WITH PROVISION OF SECTION 145 OF THE ACT. THE A.O. HAS NOT REJECTED THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. IN MY OPINION WITHOUT REJECTING THE BOO KS OF ACCOUNTS OF THE ASSESSEE NO TRADING ADDITION CAN BE MADE. ACCORDINGLY I DELETE THE AD DITION OF RS.71 686/- 29. IN RESPECT OF GROUND NO.3 LD. A.R. RELIED ON T HE SUBMISSION MADE IN THE EARLIER YEAR RELATING TO THE A.Y. 2003-04. WHILE THE LD. D.R. RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 30. AFTER HEARING THE RIVAL SUBMISSION IN THE A.Y. 2002-03 I HAVE ALREADY DELETED THE DISALLOWANCE SO FAR IT RELATES TO THE VEHICLE EXPEN SE AND GENERATOR AND ELECTRICITY EXPENSES BY HOLDING THAT NO ADHOC DISALLOWANCE CAN BE MADE. RE SPECTFULLY FOLLOWING THE DECISION I DELETE THE DISALLOWANCE OF RS.7 317/- IN RESPECT OF DEPREC IATION ON MOTOR CYCLE RS.5 000 IN RESPECT OF EXPENDITURE ON MOTOR CYCLE AND RS.10 000 IN RESPECT OF GENERATOR AND ELECTRICITY EXPENSES. SO FAR THE DISALLOWANCE OUT OF TELEPHONE EXPENSES ARE CONCERNED I HAVE DIRECTED THE A.O. IN THE A.Y. 2003-04 IN ITA NO.423/AGR/2008 THAT THE DISALL OWANCE BE RESTRICTED TO 1/10 TH OF THE TOTAL EXPENDITURE BOTH OUT OF THE EXPORT DIVISION AND THE DOMESTIC DIVISION. ACCORDINGLY I SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE A.O. TO REST RICT THE DISALLOWANCE ONLY TO 1/10 TH OF THE TELEPHONE EXPENSES INCURRED BY THE ASSESSEE IN THE EXPORT DIVISION AS WELL AS IN THE DOMESTIC DIVISION. 31. THE NEXT ISSUE RELATE TO THE TRAVELLING EXPENSE OUT OF EXPORT DIVISION. I NOTED THAT AFTER HEARING THE RIVAL SUBMISSION THAT THIS DISALLOWANCE HAS BEEN MADE BY THE A.O. STATING THAT THE EXPENSES ARE BEING OF UNVERIFIABLE IN NATURE WITHOU T POINTING OUT SPECIFICALLY THE NATURE OF THE EXPENSES. IN MY OPINION NO ADHOC DISALLOWANCE CAN BE MADE UNTILL AND UNLESS THE A.O. 13 SPECIFIES THE PARTICULAR EXPENDITURE WHICH HAS NOT BEEN INCURRED FOR THE PURPOSES OF BUSINESS OR IS FOR PERSONAL EXPENSES. THUS THE DISALLOWANCE MADE IS DELETED. 32. IN THE RESULT APPEALS OF THE ASSESSEE ARE PART LY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 26.02.2010) SD/- (P.K. BANSAL) ACCOUNTANT MEMBER PLACE: AGRA DATE: 26 TH FEBRUARY 2010. PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT BY ORDER 3. CIT CONCERNED 4. CIT (APPEALS) CONCERNED 5. DR ITAT AGRA BENCH AGRA 6. GUARD FILE ASSIST ANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL AGRA TRUE COPY