Graziano Transmissioni India (P) Ltd. Vs. DCIT (ITAT Delhi)

Payment has been made for architectural consultancy in connection with forging shed, lab construction and site visits. Thus the services were clearly linked towards activity in capital field. Even the consultants bill has been made. by narrating that ‘assuming total cost of civil works 20 lacs @ 3% = Rs. 60,000/-. On this amount service tax has been added. Thus we find that authorities below are correct in holding that this expenditure falls in the capital field. Excise duty and sales tax cannot form part of the turnover for the purposes of section 80HHC. Section 80HHC is governed by section 80AB and unabsorbed losses of earlier years u/s 72 have to be set off in computing eligible profits for the purposes of section 80HHC.

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “C” NEW DELHI

BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER

I.T.A. No. 3478/Del/2010
A.Y. : 2004-05

Asseessee by : Sh. P.C. Parwal, CA
Department by : S h. R.K. Gupta, C.I.T. (D.R.)

Date of Judgment: 26/11/2010.

ORDER

PER SHAMIM YAHYA: AM

This appeal by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals) dated 31.3.2010 pertaining to assessment year 2004-05.

2. The issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in holding that the expenditure incurred at Rs. 64,800/-on account of architectural consultancy charges paid to the professional in connection with on going construction of the building structure is capital in nature and not allowable as business expenditure.

3. On this issue Assessing Officer noted that from the details filed by the assessee that assessee has paid Rs. 64800/- to Mr. Manoj Kumar Samal under the head legal and professional expenses for architectural consultancy services for forging shed, new lab construction and site visits, which are related to addition to fixed assets. Therefore, Assessing Officer held that expenses paid to Mr. Manoj Kumar Samal are also incurred for bringing into existence new assets and therefore, capital in nature. Hence, these expenses of Rs. 64800/- are hereby disallowed and added to the income of the assessee.

4. Upon assessee’s appeal Ld. Commissioner of Income Tax (Appeals) noted that assessee had submitted that payment to Shri Manoj Kumar Samal was a typographical error and the said payment was made to M/s Ceacon Consultant. Ld. Commissioner of Income Tax (Appeals) observed that the said bill was raised as ‘professional charges for forging shed, new lab construction and site visits’. Ld. Commissioner of Income Tax (Appeals) held that the said bill clearly establishes that the said payment was not for ongoing activity throughout the year as claimed by the assessee. Hence, he confirmed the Assessing Officer’s action.

5. Against this order the assessee is in appeal before us.

6. We have heard the rival contentions in light of the precedents relied upon. We find that the said payment has been made for architectural consultancy in connection with forging shed, lab construction and site visits. Thus the services were clearly linked towards activity in capital field. Even the consultants bill has been made. by narrating that ‘assuming total cost of civil works 20 lacs @ 3% = Rs. 60,000/-. On this amount service tax has been added. Thus we find that authorities below are correct in holding that this expenditure falls in the capital field. Hence we uphold the orders of the authorities below on this issue.

7. The next issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in holding the total turnover is to be taken by including sales tax and excise duty for the purposes of section 80HHC.

8. We have heard both the counsel and perused the records. Both the counsel fairly agreed that the issue is covered in favour of the assessee by the decision of the Hon’ble Apex court in the case of C.I.T. vs. Lakshmi Machine Works, 290 ITR 667 and by another decision of the Hon’ble Apex Court in the case of C.I.T. vs. Catapharma (India) P. Ltd. 292 ITR 641. In these cases, it was clearly held that excise duty and sales tax cannot form part of the turnover for the purposes of section 80HHC. Respectfully, following the precedent, we set aside the orders of the authorities below and decide the issue in favour of the assessee.

9. The next issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in upholding the Assessing Officer’s order for working of business profits for the purposes of sub-section (3) of section 80HHC by reducing it with brought forward business loss of 2,10,76,814/-.

10. We have heard both the counsel and perused the records. We find that the issue involved is squarely covered against the assessee by the decision of the Hon’ble Apex Court in the case of C.I.T. vs. Shirke Construction Equipment Ltd. 291 ITR 380. In this case it was held that section 80HHC is governed by section 80AB and unabsorbed losses of earlier years u/s 72 have to be set off in computing eligible profits for the purposes of section 80HHC. Respectfully, following the precedent as above, we uphold the orders of the authorities below and decide the issue against the assessee.

11. The next issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in not passing a speaking order on a specific ground that Assessing Officer has not considered the export incentive on account of DEPB of Rs. 3,38,53,958/- while computing deduction as per amended provisions of section 80HHC of the Act. It has further been urged that Assessing Officer’s decision for not allowing deduction u/s 80HHC on 90% of the DEPB is contrary to the judgement of ITAT, Mumbai (SB) in Top man Exports vs. ITO (2010) 124 ITD 1 holding that the face value of DEPB falls under section 28(iiib) and profit element on sale of DEPB falls u/s 28(iiid) of the IT Act, 1961.

12. We have heard both the counsel and perused the records. We find that Hon’ble Mumbai High Court decision in the case of C.I.T. vs. Kalpataru Colours and Chemicals in Income Tax Appeal (LODG.) No. 2887 of 2009 dated 28/29th June, 2010 has considered the tribunal decision. The operative portion of the judgment is contained in paragraph nos. 33 and 34, which are reproduced below for ready reference:-

“33. That submission that prior to insertion of clause (iiid) in section 28, the face value of the DEPB credit realized on the transfer of such credit constituted export profits, but not the amount realized in excess of the face value of the DEPB is similarly without any basis. This is because (i) The object of DEPB was to furnish an incentive to exporters so as to adjust the credit against the customs duty payable on any goods imported into India. However, where an exporter instead of utilizing the credit transfers the credit at a premium, it cannot be said that the exporter has utilized the credit; (ii) The legislature considers that the customs duty and excise duty paid on raw materials used in the export product, when repaid or repayable as duty drawback, would not constitute export profit. Similarly, when the DEPB credit is not utilized in the business but is transferred for value, the amount received on the transfer would be business profits and not export profits irrespective of whether the amount which is realized is equal to, larger than or less than the face value of the DEPB credit. Parliament has considered that the entirety of the amount received on the transfer of the DEPB shall constitute profits of business under section 28(iiid). Since such profits are not export profits Parliament directed that ninety percent of those profits would be excluded while computing the deduction under section 80HHC; (iii) Parliament considered that an exporter who instead of utilizing the DEPB credit for paying customs duty on imported goods, makes a profit by transferring the DEPB, would form a separate class and seeks to tax the receipts on the transfer of the DEPB credit as business profits and not export profits. Exporters who transfer the DEPB credit and make a profit cannot be placed on par with those exporters who utilize the credit for paying the customs duty on the imported goods; (iv) The fact that Parliament did not consider the amount received on the transfer of the DEPB to be export profit cannot be a ground to hold that the receipts on the transfer of DEPB credit are not business profits. Counsel appearing on behalf of the assessee submits that the entire amount received on the transfer of the DEPB credit is business profit, but it was contended that what is included in section 28(iiid) is the amount received on the transfer of the DEPB credit in excess of the face value of the DEPB and the amount received to the extent of the face value of the DEPB would be covered under section 28(iiib). There is no merit in this contention because (a) the DEPB credit was not in existence when section 28 (iiib) was inserted by the Finance Act of 1990. DEPB credit was introduced with effect from 1 April, 1997 which was after the insertion of clause (iiib) in section 28; (b) Section 28(iiib) refers to cash assistance (by whatever name called) received by the assessee from the Government pursuant to a scheme of the Government. The amount received on the transfer of the DEPB credit is not received by the assessee from the Government pursuant to a scheme of the Government within the meaning of clause (iiic) and (c) when section 28(iiid) specifically deals with profits realized on the transfer of the DEPB credit, it would be impermissible as a matter of first principle to bifurcate the face value of the DEPB and the amount received in excess of the face value of the DEPB.

34. For all these reasons, we have come to the conclusion that the view of the Tribunal on the two questions of law formulated by the revenue is unsustainable. In the circumstances, we allow the appeal by answering the first question of law as formulated in the negative.”

12.1 Thus, the Hon’ble Mumbai High Court has overruled the decision of the ITAT, Mumbai Special Bench in the case of Top man Exports vs. ITO now. Under the circumstances, we uphold the orders of the authorities below on this issue and decide the issue against the assessee.

13. The next issue raised is that Ld. Commissioner of Income Tax (Appeals) has erred in laws in not adjudicating a specific ground that the Assessing Officer has taken business income at Rs. 19,64,55,896/- even when as per his own calculations, business income was computed at Rs. 19,68,45,360/-.

14. We have heard both the counsel and perused the records. We find that assessee has taken specific ground before the Ld. Commissioner of Income Tax (Appeals) vide ground no. 9 before the Ld. Commissioner of Income Tax (Appeals). Since the Ld. Commissioner of Income Tax (Appeals) has not adjudicated upon this issue. Hence, we remit this issue to the files of the Ld. Commissioner of Income Tax (Appeals) to consider the same and pass a speaking order on this issue. Needless to add that the assessee should be given adequate opportunity of being heard.

15. The last issue raised is that Ld. Commissioner of Income Tax (Appeals) has erred in not adjudicating ground against charging of interest u/s 234B despite when deduction u/s 80HHC was not allowed on DEPB and interest was not charged in view of the Board’s Circular on Taxation (Laws) Amendment Act, 2005.

16. We have heard both the counsel and perused the records. We find that this issue was raised before the Ld. Commissioner of Income Tax (Appeals) vide ground no. 10 and the assessee is now aggrieved that Ld. Commissioner of Income Tax (Appeals) has erred in not adjudicating the ground relating to charging of interest u/s 234B. Under the circumstances, the interest of justice will be served, if we remit this issue to the files of the Ld. Commissioner of Income Tax (Appeals). Hence, we remit the same to the files of the Ld. Commissioner of Income Tax (Appeals) to pass a speaking order on this issue, after considering the assessee’s submission in this regard. Needless to add that the assessee should be given adequate opportunity of being heard.

17. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Order pronounced in the open court on 26/11/2010.