9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2008 (10) TMI 642 - AT - Income TaxClaim of exemption u/s 10BA - income from the business of manufacturing trading and exporting of handmade wooden handicraft antique furniture - whether the activities tantamount to manufacturing/production - HELD THAT - We find the contention of the learned CIT departmental Representative contradictory inasmuch with regard to the certification by the customs authorities as to the nature of the export of the disputed articles of being of artistic value whereas by drawing inferences only it is argued that no activity was carried out and it was a matter of simple purchases. Such an approach of the revenue is disapproved. We further agree with the contention of the learned Counsel that the use of the machinery is only to prepare the wood purchased by the appellant with a view to make it fit for further technical steps to be carried out by artisans. It is nothing but a preparatory stage before handwork is commenced. The machine work is confined to seasoning of wood which normally contains moisture thickness plaining and cutting. Further the objections as regards the shortfall of workers the required number i.e. 20 u/s 10BA(2)(e) also not factually correct. A perusal of copies of the wages registers submitted to assessing officer (paper book 23-72) clearly show that there were more than 20 workers in any case throughout the year engaged in the manufacturing activities. There apart the other karigars being paid on piece rate basis are also the persons engaged and deserve consideration for this purposes. Even the learned Commissioner (Appeals) has also now recorded a finding that the assessee had employed more than 20 workers as required u/s 10BA. The heavy reliance placed by the revenue on the decision of Kwal Pro Exports 2006 (10) TMI 193 - ITAT JODHPUR is also misplaced the Tribunal placed reliance upon the Third Member decision in case of Arihant Tiles Marbles (P) Ltd. v. ITO 2006 (6) TMI 157 - ITAT JODHPUR . However the same now stands reversed in the case of Arihant Tiles Marbles (P) Ltd. v. ITO 2007 (5) TMI 132 - HIGH COURT RAJASTHAN . Moreover there is a specific definition of the eligible article u/s 10BA which is not the case u/s 10B with which Kwal Pro Exports 2006 (10) TMI 193 - ITAT JODHPUR was concerned. Therefore the said decision cannot be applied being totally distinguishable. It has been held that an incentive provision has to be construed liberally as held in Bajaj Tempo Ltd. 1992 (4) TMI 4 - SUPREME COURT . The present case also helps achieving the avowed object. Once the underlying purpose of an enactment is served there is no reason why the deduction should be restricted on one pretence or order. Recently in CIT v. Baby Marine Exports 2007 (3) TMI 206 - SUPREME COURT the Hon ble Supreme Court strongly advocated for a liberal interpretation. It was held that Section 80HHC was incorporated with the object of granting incentive to earners of foreign exchange. This court is Sea Pearl Industries v. CIT 2001 (1) TMI 78 - SUPREME COURT also observed that the object of selection Section 80HHC is to grant incentive to earners of foreign exchange. In IPCA Laboratory Ltd. v. Dy. CIT 2004 (3) TMI 9 - SUPREME COURT this court has taken the same view. This court in the said judgment observed that Section 80HHC has been incorporated with a view to provide incentive to export house and this Section must receive liberal interpretation. Thus we are fully satisfied that the appellant was engaged in the manufacturing and production of the eligible articles under the provisions of Section 10BA and hence the appellant is fully entitled to get the deductions. The assessing officer is therefore directed to allow the same. Thus ground No. 2 of the assessee is allowed. Disallowance of interest payment u/s 40A(2)(b) - HELD THAT - It has been explained that the rate of interest was @ 15 per cent and not @ 18 per cent p.a. The market rate of interest on loan from bank is though 15 per cent p.a. but including several types of other charges and cost the effective rate of interest is 18 per cent p.a. Various other formalities of hypothecation and pledge are also required in the case of bank loan. Moreover the assessing officer has not brought on record that interest paid is excessive or unreasonable. In the circumstances and facts of the case the assessing officer is not justified in disallowing the interest. The same is directed to be deleted. Thus ground No. 5 of the assessee is allowed. As regard the disallowance made the assessing officer failed to appreciate that the gross profit rate declared by the assessee during the impugned year was 21.35 per cent as compared to gross profit rate of 19.68 per cent in the immediately preceding year. The increase in expenditure on account of firewood expenses and seasoning charges has been duly explained which has not been taken into consideration by the assessing officer. Therefore the assessing officer is not justified in making addition in the income of the assessee. The same is directed to be allowed. Thus ground No. 1 of the assessee is allowed. Disallowance of depreciation claimed on car purchased and delivery - put to use after duly provisionally registered with RTO and deposit of road tax - HELD THAT - The assessing officer has ignored the explanation given by the assessee that the car was taken in possession on 28-3-2003 as per delivery note on record. The assessee has also provided the copy of the cover note of insurance dated 29-3-2003. The copy of the bill for fuel purchased and used to run the vehicle dated 29-3-2004 was also produced and is on record. In the circumstances and facts of the case the asset is considered as put to use in the impugned year and the assessee is entitled to depreciation. The assessing officer is therefore directed to allow the claim of depreciation. Thus ground No. 2 of the assessee is allowed. Disallowance of deduction of interest paid - interest under the head Income from other sources - In view of the consistent decision of the Special Bench decision in the case of Dy. CIT v. Allied Construction 2006 (11) TMI 242 - ITAT DELHI-A the interest income has rightly been treated as income from other sources and the interest paid cannot be allowed as deduction u/s 57(iii) of the Act. However since whole of the income of the assessee has been to be exempt by us u/s 10BA of the Act hereinbefore therefore no addition under this ground will remain. Thus ground No. 6 of the assessee is allowed.
Issues Involved:
1. Claim of exemption under Section 10BA. 2. Deduction under Section 80HHC. 3. Deduction under Section 80-IB. 4. Disallowance of interest payment under Section 40A(2)(b). 5. Disallowance of interest payment under Section 57(iii). 6. Disallowance of various expenses. 7. Depreciation on car. 8. Application of Section 145(3). Issue-wise Detailed Analysis: 1. Claim of exemption under Section 10BA: The assessee, engaged in manufacturing, trading, and exporting handmade wooden handicraft antique furniture, claimed an exemption under Section 10BA. The assessing officer denied the claim, arguing that the articles were not eligible as they were not manufactured but merely processed. The Commissioner (Appeals) confirmed this. The Tribunal, however, noted that the legislature did not stress manufacturing in a technical sense under Section 10BA. The Tribunal found that the assessee's activities, including assembling, carving, and polishing, transformed the raw material into artistic handmade wooden articles, thus qualifying for the exemption. The Tribunal also noted certifications from customs authorities and other government agencies supporting the assessee's claim. Therefore, the Tribunal allowed the exemption under Section 10BA. 2. Deduction under Section 80HHC: The assessee claimed a deduction under Section 80HHC, which the assessing officer reduced by the amount of deduction under Section 80-IB. The Commissioner (Appeals) upheld this reduction, relying on a Special Bench decision. However, the Tribunal referred to the Hon'ble Madras High Court's decision in SCM Creations, which reversed the Special Bench's decision. Consequently, the Tribunal ruled that the deduction under Section 80HHC should be computed independently without reducing the deduction under Section 80-IB, thus allowing the assessee's claim. 3. Deduction under Section 80-IB: The assessing officer excluded duty drawback from the business income while computing the deduction under Section 80-IB. The Commissioner (Appeals) confirmed this exclusion. The Tribunal, however, cited the Hon'ble Gujarat High Court's decision in India Gelatine & Chemicals Ltd. and the Tribunal's own decision in Vyay Industries, which allowed the inclusion of duty drawback in the business income for computing the deduction under Section 80-IB. Therefore, the Tribunal allowed the assessee's claim for deduction on duty drawback. 4. Disallowance of interest payment under Section 40A(2)(b): The assessing officer disallowed part of the interest paid to specified persons, considering the rate excessive. The Commissioner (Appeals) confirmed this. The Tribunal, however, noted that the market rate of interest, including other charges, was effectively 18%, and the assessing officer had not provided evidence that the interest paid was excessive. Therefore, the Tribunal directed the deletion of the disallowance. 5. Disallowance of interest payment under Section 57(iii): The assessing officer disallowed interest paid on loans against FDRs, as the assessee could not prove a nexus between the interest received and paid. The Commissioner (Appeals) confirmed this. The Tribunal upheld the treatment of interest income as income from other sources and disallowed the interest payment under Section 57(iii). However, since the entire income was held exempt under Section 10BA, the addition did not remain. 6. Disallowance of various expenses: The assessing officer disallowed 20% of conveyance and depreciation expenses for personal use, which the Commissioner (Appeals) confirmed. The Tribunal upheld these disallowances but noted that since the entire income was exempt under Section 10BA, these additions did not remain. 7. Depreciation on car: The assessing officer disallowed depreciation on a car purchased and delivered in March 2003 but registered in April 2003. The Commissioner (Appeals) confirmed this. The Tribunal, however, accepted the assessee's evidence of possession and use of the car before the end of March 2003 and directed the allowance of depreciation. 8. Application of Section 145(3): The assessing officer invoked Section 145(3) due to the absence of stock registers and quantitative details, leading to disallowances for firewood and seasoning charges. The Commissioner (Appeals) confirmed this. The Tribunal found that the gross profit rate had increased compared to the previous year and that the increase in expenses was explained. Therefore, the Tribunal directed the allowance of these expenses. Conclusion: The Tribunal allowed the assessee's claims for exemption under Section 10BA, deductions under Sections 80HHC and 80-IB, and various disallowed expenses and interest payments, while upholding the disallowance under Section 57(iii) but noting it was moot due to the overall exemption. The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeals.
|
