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2018 (9) TMI 2076 - AT - Income TaxReopening of assessment u/s 147 - Assessee has filed objections to reopening which has not been disposed of by the Assessing Officer by way of a separate order before framing the assessment - HELD THAT - In our opinion such disposal of objection by way of separate order is mandatory in view of the decision of the hon'ble Bombay High Court in the case of KSS Petron Pvt 2016 (10) TMI 1112 - BOMBAY HIGH COURT after following the decision of the hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT held that in case of non-disposal of objection the assessment has to be quashed. Even otherwise the reasons recorded for reopening of the assessment are not valid reasons. First reasons recorded is invalid as it is covered in favour of the assessee. Addition towards various bad debts and advance given during the ordinary course of business of the assessee written off - HELD THAT - We find that the learned Commissioner of Income-tax (Appeals) ought to have passed the making order after considering the facts on record. A perusal of the assessment order reveals that the assessee has filed all the necessary details in respect of sundry debtors and trading advances which were written off in the books of account. Both the authorities below have not gone into the evidence filed by the assessee. On the other hand the position of law is very clear that if the amounts are written off in the books of account by the assessee, the same have to be allowed. Under these circumstances, we are not in agreement with the conclusion of the learned Commissioner of Income-tax (Appeals) and accordingly direct the Assessing Officer to delete the disallowance. Disallowance of reallocation expenses pertaining to head office - HELD THAT - AO has given a clear finding that the expenditure claimed under various heads also related to the Daman unit and therefore the same was estimated. There is no material produced before us to controvert the said finding. Merely because the accounts are audited does not mean that expenses incurred for the head office could not relate to the other unit. The assessee has also referred to some other decisions but in none of the cases it has been held that even if there is material to show that expenditure relating to a particular unit has been incurred the same cannot be determined on estimate. Therefore in our view the allocation made by the Assessing Officer on estimate is justified on the facts of the case. However, we find some merit in the alternate submission that only the incremental and additional expenses on account of commencement and establishment of Daman unit should be re-allocated to the said unit. There is no clear finding on this aspect and therefore it needs further examination. We there fore restore this aspect to the file of the Assessing Officer for passing a fresh order after necessary examination and after allowing an opportunity of hearing to the assessee Exclusion of other income while calculating the deduction under section 80-IB - HELD THAT - We find that the issue is covered in favour of the assessee by the decision of the co-ordinate Bench of the Tribunal in the assessee's own case. Not allowing the exclusion of income from the expenses attributable that that income or revenue under the same head - HELD THAT - We observe that the hon'ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. 2012 (2) TMI 101 - SUPREME COURT has held that the income has to be netted against the expenses incurred under the same head. We, therefore, respectfully following the same, direct the Assessing Officer to delete the addition. Excluding the deduction under section 80-IB while computing the deduction under section 80HHC - HELD THAT - We find that the issue is decided by the hon'ble Bombay High Court in the case of Associated Capsules P. Ltd. 2011 (1) TMI 787 - BOMBAY HIGH COURT wherein it has been held that while computing the deduction under section 80HHC deduction under section 80-IB is not to be excluded. We, therefore, respectfully following the decision, set aside the order of the learned Commissioner of Income-tax (Appeals) on this issue and direct the Assessing Officer to allow the deduction under section 80HHC in respect of the same income. Applying Explanation (baa) to section 80HHC in respect of various receipts like interest from banks, royalty receipt, rent, etc - HELD THAT - We find that the identical issue has been decided in favour of the assessee by the decision of the co-ordinate Bench of the Tribunal in the assessee's own case held f royalty received reliance was placed on the decision of the Tribunal in the case of Glaxo Smithkline Asia (P.) Ltd. 2005 (8) TMI 301 - ITAT DELHI-C in which it was specifically held that computed on the basis of profit of business computed under the head profit or gains of business or profession, under the provisions of the Act and as per method prescribed under sub-section (3) or (3A) of section 80HHC and the deduction actually available under the provisions of sub-section (1B) of section 80HHC will be allowed as deduction under clause (iv) of Explanation I to section 115JB. Applying Explanation (baa) to section 80HHC in respect of labour charges received from job-work is a part of the operational income of the assessee - As decided in BANGALORE CLOTHING CO. 2003 (1) TMI 89 - BOMBAY HIGH COURT where element of turnover was involved, 90 per cent. of the job charges could not be excluded from the profit of business. The Tribunal following the said judgment held that 90 per cent. of job charges was not required to be excluded as per Explanation (baa). We have to follow the decision of the co-ordinate Bench as the co-ordinate Bench had specifically considered the judgment of the hon'ble Supreme Court in the case of K. Ravindranathan Nair 2000 (11) TMI 3 - SUPREME COURT relied upon by the learned Departmental representative. Therefore, respectfully following the decision of the Tribunal in the case of Star India Pvt. Ltd. 2008 (5) TMI 660 - ITAT MUMBAI we see no infirmity in the order of the Commissioner of Income-tax (Appeals) allowing the claim of the assessee Treating the duty drawback as a benefit falling under section 28(iii)(c) of the Act and denying the benefit of deduction under section 80HHC read with Explanation (baa) under section 80HHC - HELD THAT - We are of the view that the export incentives received by the asses see by way of duty drawback are part of the profit and gains from business and profession and therefore the assessee is entitled to deduction under section 80HHC on the export incentive in the form of duty drawback. The issue is squarely covered by the apex court in favour of the assessee in the case of Topman Exports 2012 (2) TMI 100 - SUPREME COURT . Accordingly, we set aside the order of the learned Commissioner of Income-tax (Appeals) and direct the Assessing Officer to allow the deduction under section 80HHC as claimed by the assessee.
Issues Involved:
1. Maintainability of Revenue's appeals due to tax effect below ?20 lakhs. 2. Withdrawal of assessee's appeal. 3. Jurisdiction of Assessing Officer under Section 148. 4. Confirmation of disallowance of bad debts and advances. 5. Reallocation of head office expenses to Daman unit. 6. Exclusion of other income while calculating deduction under Section 80-IB. 7. Exclusion of income from expenses attributable to that income. 8. Exclusion of deduction under Section 80-IB while computing deduction under Section 80HHC. 9. Application of Explanation (baa) to Section 80HHC for various receipts. 10. Treatment of duty drawback under Section 28(iii)(c) and denial of deduction under Section 80HHC. 11. Confirmation of penalty under Section 271(1)(c). Issue-wise Detailed Analysis: 1. Maintainability of Revenue's Appeals: The Revenue's appeals (I.T.A. Nos. 1351/Mum/2007 and 1315/Mum/2007) were dismissed as not maintainable since the tax effect was below ?20 lakhs, in accordance with Board's Circular No. 3 of 2018. 2. Withdrawal of Assessee's Appeal: The assessee's appeal (I.T.A. No. 3970/Mum/2009) was dismissed as withdrawn upon the assessee's request and no objection from the Departmental representative. 3. Jurisdiction of Assessing Officer under Section 148: The assessee challenged the jurisdiction of the Assessing Officer under Section 148. The Tribunal found that the original assessment was completed under Section 143(3) and the reopening was based on three reasons: - Wrong claim of deduction under Section 80HHC. - Claiming expenditure for 80-IB unit against income of another unit. - Not excluding 90% of labour charges while computing deduction under Section 80HHC. The Tribunal held that the reopening was invalid as: - The issue of deduction under Section 80HHC was covered in favor of the assessee by the Bombay High Court in Associated Capsules P. Ltd. - The issue of allocation of expenses was settled in favor of the assessee in earlier years. - The reopening on the basis of the same material amounted to a change of opinion, which is not permissible. The Tribunal quashed the assessment order due to non-disposal of objections by the Assessing Officer, following the Bombay High Court's decision in KSS Petron Pvt. Ltd. 4. Confirmation of Disallowance of Bad Debts and Advances: The Tribunal found that the assessee had provided necessary details for the sundry debtors and trading advances written off. It directed the Assessing Officer to delete the disallowance, as the amounts written off in the books of account should be allowed. 5. Reallocation of Head Office Expenses to Daman Unit: The Tribunal observed that the issue was covered by its decision in the assessee's own case for the assessment year 2002-03. It restored the issue to the Assessing Officer for fresh examination, directing that only incremental and additional expenses should be allocated to the Daman unit. 6. Exclusion of Other Income while Calculating Deduction under Section 80-IB: The Tribunal found that the issue was covered in favor of the assessee by its decision in the assessee's own case for the assessment year 2002-03. It allowed the appeal, directing the Assessing Officer to include other income while calculating the deduction under Section 80-IB. 7. Exclusion of Income from Expenses Attributable to That Income: The Tribunal followed the Supreme Court's decision in ACG Associated Capsules Pvt. Ltd. v. CIT, holding that income should be netted against the expenses incurred under the same head. It directed the Assessing Officer to delete the addition. 8. Exclusion of Deduction under Section 80-IB while Computing Deduction under Section 80HHC: The Tribunal followed the Bombay High Court's decision in Associated Capsules P. Ltd., holding that while computing the deduction under Section 80HHC, the deduction under Section 80-IB should not be excluded. It directed the Assessing Officer to allow the deduction under Section 80HHC. 9. Application of Explanation (baa) to Section 80HHC for Various Receipts: The Tribunal found that the issue was covered in favor of the assessee by its decision in the assessee's own case for the assessment year 2002-03. It directed the Assessing Officer to decide the issue on the same lines, allowing the appeal. 10. Treatment of Duty Drawback under Section 28(iii)(c) and Denial of Deduction under Section 80HHC: The Tribunal held that duty drawback is part of the profit and gains from business and profession, and the assessee is entitled to deduction under Section 80HHC. It followed the Supreme Court's decision in Topman Exports v. CIT, directing the Assessing Officer to allow the deduction. 11. Confirmation of Penalty under Section 271(1)(c): Since the quantum appeal was decided in favor of the assessee, the Tribunal directed the deletion of the penalty confirmed by the Commissioner of Income-tax (Appeals). Conclusion: The Tribunal dismissed the two appeals of the Revenue and one of the assessee, and allowed the three appeals of the assessee. The order was pronounced on September 28, 2018.
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