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TMI Blog2012 (5) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... referred by the Revenue is directed against the order of the Income Tax Appellate Tribunal (tribunal, for short) dated 13th May, 2003. ITA No. 1070/2005 and ITA No. 24/2006 are two cross-appeals by the Revenue and the assessee, respectively against the order of the tribunal dated 29th March, 2005. 2. The facts as noted and recorded by the tribunal in the two orders are required to be first elucidated. 3. The assessee is a partnership firm engaged in business of manufacture and sale of jewellery/ornaments in India and abroad. 4. Survey under Section 133A of the Act was conducted at the business premises of the assessee on 5th December, 1996. Excess cash of Rs. 13,83,000/- was found and discrepancies in stock of gold ornaments and diamonds of Rs. 57,16,600/- were noticed. Statement of Hemant Goel, partner of the assessee, was recorded. The relevant portion of the statement reads:- Q. Physical verification of stock during the course of survey as per inventories drawn stock entered as per books of a/c. the following differences in stock in two forms have been found. M/s Goel Jewellers (i) Goel ornaments 777.079 gms (short) (ii) Diamond 58.73 ct. (excess) M/s Jewel Mines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is amount of Rs.75 lacs from business profit of Rs.1,02,56,082/-. The figure of total turnover of business and export turnover was not disturbed by him and the deduction under the said provision was computed as Rs.22,71,800/-, instead of Rs.84,53,978/- as claimed by the assessee. 7. The CIT (Appeals) confirmed the said computation, inter alia, observing that addition of Rs.75 lacs under Sections 68 and 69A of the Act has to be assessed under the head income from other sources and, therefore, cannot be taken into consideration for computing the deduction under Section 80HHC. 8. On further appeal before the tribunal vide order dated 13th May, 2003, the tribunal held that the assessee during the course of survey had surrendered Rs.75 lacs under the head business income . The said surrender has to be accepted as a whole and not on piecemeal basis. Rs.75 lacs, which was surrendered has to be assessed under the head business income . The exact reasoning of the tribunal reads as under:- 3. After hearing rival submissions and perusing the material on record, we find that assessee deserves to succeed in its appeal. We have seen the copy of statement recorded during the survey ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alculate the deduction under Section 80HHC? 10. Pursuant to the direction of remit in the order dated 13th May, 2003, the Assessing Officer recomputed the deduction under Section 80HHC vide order dated 10th September, 2003. He held that surrendered amount of Rs.75 lacs comes within the ambit of Explanation bba to Section 80HHC and 90% of the said amount should be reduced from the income under the head profits and gains of business and profession . He computed the deduction under the said Section at Rs.29,20,109/-. 11. In the first appeal, preferred by the assessee, the CIT(Appeals) vide order dated 6th August 1998 held that the tribunal had directed that Rs.75 lacs, as surrendered, should be treated as business profit and the deduction should be accordingly calculated. He observed that the Assessing Officer while giving appeal effect had not correctly computed the deduction under Section 80HHC. He must strictly comply with the directions given by the tribunal and in case the Assessing Officer had any grievance and was not satisfied with the order of the tribunal, Reference before the High Court was the remedy. 12. Pursuant to the said directions, the Assessing Officer recom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. The assumption that the profit of the business to be located comprises of export profits as well as domestic profits is inherent in the formula, and to hold otherwise would be absurd and irrational. Since the surrendered profit of Rs.75 lacs admittedly has no element of export profit, therefore the same cannot be included in the profit of the business for the purposes of application of the formula given in section 80HHC(3). Hence, the assessee is entitled to the deduction of Rs.2271809/- only under Section 80HHC in accordance with the finding of the Hon‟ble ITAT. 20. Even if it is assumed, though not conceded, for the sake of argument that the profit of Rs.75 lacs is to be included for the purposes of the formula given in section 80HHC(3) than the estimated turnover referable to the said profit of Rs.75 lacs will also have to be included in the total turnover in applying the formula given Section 80HHC(3). Hence the export profit and the deduction shall work out to (Rs.2756083+7500000)x(26783345)/(32492658+47588832)=3693 481/-. Thus even on this basis the maximum deduction admissible to the assessee will be Rs.36.93 lacs only. 21. However, for reason stated in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accounts of the assessee. The AO is directed to recompute the deduction u/s 80 HHC of the Act accordingly and allow the same to the assessee. This order is impugned in the two cross-appeals by the Revenue and the assessee, i.e., ITA No. 1070/2005 and ITA No. 24/2006 respectively 15. ITA No. 1070/2005 was admitted to hearing on 26th October, 2005 and the following substantial question of law was framed:- Whether the view taken by the ITAT that the turnover of the assessee should be increased only by Rs.75 lakhs and divided between local and export turnover in the same ratio as otherwise disclosed in the account of the assessee is perverse? 16. ITA No. 24/2006 was admitted to hearing and vide order dated 24th September, 2007 the following substantial questions of law were framed:- 1. Whether, on the facts and circumstances of the case the Income Tax Appellate Tribunal ( Tribunal‟) erred in holding that the order of the Assessing Officer dated 8th January, 2004 giving effect to the directions of the Commissioner of Income Tax (Appeals) [CIT(A)] dated 28th November, 2004 was erroneous and prejudicial to the interest of the Revenue for the purposes of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Department. Even if we accept the said reasoning of the tribunal, it is difficult to comprehend and accept the direction recorded by the tribunal, which reads: Accordingly we direct the AO to treat the same as business profits and as per formula for calculating the deduction u/s 80-HHC of the Income Tax Act, the deduction be calculated . 19. The aforesaid direction has been understood by the assessee to mean a direction that the surrender was a part of undeclared income which qualifies for deduction/ exemption under Section 80HHC. Before us also the assessee has raised the same contention and relied upon the order dated 6th August 1998 passed by the CIT(A). 20. Section 80HHC is a part of Chapter VI A and provides for deduction in respect of income/profits derived from exports made out of India of any goods or merchandise. Exports profits during the relevant period were entirely exempt and had to be reduced from the taxable income. On export profits/ income earned as computed under Section 80HHC, no tax was payable. We have to examine whether the aforesaid direction is right, justified and as per law. 21. To qualify for the said deduction various stipulations and req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estic turnover, therefore comes to Rs. 3,24,94,658/-. This figure does not include the surrendered business income of Rs.75 lacs. The said figure has not been given and mentioned by the assessee in the turnover. As per the books, the business income/profits earned was Rs.27,56,082/-. If we include figure of Rs. 75 lacs to the profit earned on turnover, the profits would go up substantially from Rs. 27,56,082/- to Rs. 1,02,56,082/-. But this would distort computation and calculation under section 80HHC. The business profit depends upon the turnover. We cannot include an amount in the profit/income without appropriate and required increase in the turnover when we apply the formula mentioned in 80HHC(3). In the present case we do not have the figure of turnover on which Rs. 75 lacs was earned and disclosed as income. Rs. 75 lacs, therefore, cannot be added to the business income while computing deduction as per the formula under Section 80HHC(3) of the Act. 23. When we examine the computation made and pressed by the assessee it is apparent that the tribunal has misdirected itself by directing that Rs. 75 lacs was a part of the profits/ income earned. The surrender of Rs. 75 lacs wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in question. The surrender could be in respect of business income earned in the earlier years. It would be, therefore, impossible to compute the deduction as per the formula under Section 80HHC(3) in the absence of the exact and full facts and computation of the turnover on which this amount of Rs.75 lacs was earned. In these circumstances, it is best and what is required, is to exclude and to not take into consideration Rs.75 lacs as business profits earned during the year in question for computing deduction under Section 80HHC. 26. In National Legguard Works versus Commission of Income Tax (Appeals), (2007) 288 ITR 18 (P H), the assessee surrendered of Rs.12 lacs as business income at the time of survey. The contention of the assessee was that said surrender should be treated as income from exports as the assessee was an export oriented unit. The surrendered amount was treated and reflected in the profit and loss account as profits derived from exports. The assessee was unsuccessful before the tribunal and the High Court affirmed the decision observing that deduction under Section 80HHC could be claimed only on showing facts which make an assessee eligible for the deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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