ITAT MUMBAI BENCH ‘L’
Aventis Pharma Ltd.
versus
Deputy Commissioner of Income-tax
IT Appeal NO. 4179 (MUM.) OF 2003
ASSESSMENT YEAR 1998-99
Date of Pronouncement – 12.12.2012
ORDER
Vijay Pal Rao, Judicial Member
This appeal by the assessee is directed against the order dated 23.3.2003 of the Commissioner of Income Tax (Appeals) arising from the order giving effect to Commissioner of Income Tax (Appeals)’s order dated 18.5.2001 for the Assessment Year 1998-99.
2. The assessee company is engaged in the business of pharmaceutical products. It had filed its return of income for the assessment year under consideration on 30.11.1998 disclosing the income of Rs. 30.73 crores. The original assessment was completed u/s 143(3) on 28.2.2001 determining the total income at Rs. 63.04 crores. While completing the assessment, the Assessing Officer made certain additions and dis allowances which were disputed by the assessee in the appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) inter alia restored the issue of adopting indirect cost for computing the profits of trading exports to Assessing Officer for the purpose of deduction u/s 80HHC vide order dated 18.5.2001. Pursuant to the order of the Commissioner of Income Tax (Appeals), the Assessing Officer has passed the order giving to effect to Commissioner of Income Tax (Appeals)’s order whereby the Assessing Officer computed the indirect costs attributable to the trading goods exported at Rs. 2,65,79,211/-.
3.1 Apart from allocating the indirect costs against the profit from export of trading goods, the Assessing Officer, while passing the order giving to effect to CIT(A)’s order also applied clause (baa) of Explanation to Sec. 80HHC (4C) and thereby reduced 90% of other income, which includes processing charges, sales tax refund and income on sale of scrap from business profits.
3.2 Aggrieved by the action of the Assessing Officer in the order giving effect to the order of the Commissioner of Income Tax (Appeals), the assessee filed appeal before the Commissioner of Income Tax (Appeals) raising objection against the jurisdiction of the Assessing Officer in the remand proceedings for reducing 90% of other income under clause (baa) of Explanation to sec. 80HHC(4C), which was neither an issue in the original assessment nor remanded by the Commissioner of Income Tax(Appeals) in the first round of litigation. Apart from this, the assessee has also challenged the allocation of indirect cost amounting to Rs. 2.65 crores.
3.3 The Commissioner of Income Tax (Appeals) has turned down the objection of the assessee with regard to the jurisdiction of the Assessing Officer for making certain additions in the order giving to effect proceedings which was not made in the original assessment.
3.4 The Commissioner of Income Tax (Appeals) has alternatively issued a notice u/s 251 of the Act for enhancement of assessment with respect to the additions by reducing 90% of other income under clause (baa) of Explanation to sec. 80HHC(4C). Accordingly, out of the three receipts, the Commissioner of Income Tax (Appeals) has confirmed the exclusion of 90% in respect of two receipts namely sales tax refund and processing charges under clause (baa) of Explanation to sec. 80HHC(4C).
3.5 As regards the sale of scrap, the Commissioner of Income Tax (Appeals) has held that the action of the Assessing Officer is not in terms of provisions of law and therefore, the addition on this account was allowed.
3.6 On the issue of indirect cost attributable to export of traded goods, the Commissioner of Income Tax (Appeals) has given partial relief to the assessee by holding that the items of expenditure can be taken as cost only, if it has some connection, link to the export and therefore, if the expenditure is totally disconnected with the export activity, it cannot be taken as part of the indirect costs. Accordingly, the Commissioner of Income Tax (Appeals) has directed the Assessing Officer to rework the indirect costs for working out the deduction u/s 80HHC (3(b) of the Act.
3.7 Aggrieved by the order of the Commissioner of Income Tax (Appeals), the assessee has filed this appeal before us and raised the following grounds:
1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) (hereinafter referred to as the learned CIT(A), has erred in issuing a notice dated 18th February, 2003 for enhancement under section 251(2) of the Act read with explanation thereto which has consequently resulted in lesser deduction being allowed to the appellant company under the provisions of section 80HHC(3)(c)(i) of the Act. He ought not to have done so.
2. Without prejudice to Ground No. 1, on the facts and in the circumstances of the case and in law, the learned CIT(A), has erred in holding that in computing the deduction under section 80HHC(3)(c)(i), 90% of the following receipts had to be excluded from the profits of business/adjusted profits of business:
