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TMI Blog2017 (7) TMI 433X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A)"). The issues involved in all these appeals are common; the same have been heard together and are being disposed of by this single consolidated order for the sake of convenience. First we shall take up assessee's appeal in ITA no. 4056/Mum/2011 for assessment year 2002-03. 2. The assesseee has raised following grounds of appeal in the memo of appeal filed with the Income-Tax Appellate Tribunal(hereinafter called " the Tribunal") : " The Commissioner of Income Tax(Appeals)-1,Mumbai erred:- 1.1. Without prejudice, in not appreciating that Allanasons Ltd. , a Trading House, had made a profit on the sale of goods purchased from the Appellant, a Supporting Manufacturer, as was evident from the Form No 10CCAB filed with the Assessing Officer." The assessee has also raised following additional grounds of appeal:- "Without prejudice to the Appellant's contention [which has been accepted by the Commissioner of Income Tax (Appeals)] that its claim for deduction u/s 80HHC as a Supporting Manufacturer is not dependant on the outcome of claim made by Allanasons Ltd., a Trading House which issued Disclaimer Certificate in favour of Appellant:- 1.2 erred in not apprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee being supporting manufacturer cannot claim any deduction u/s. 80HHC of the Act on the export turnover disclaimed by the export house. It is pertinent to note at this stage that loss of Allana Sons Limited from export of trading goods is much more than profits earned by it on export of manufactured goods. The assessee was , however, allowed deduction u/s 80HHC of the Act on the direct export turnover made by the assessee. The AO passed assessment order dated 17-03-2005 u/s. 143(3) of the Act. 5. Aggrieved by the assessment order dated 17-03-2005 passed by the AO u/s 143(3) of the Act, the assessee carried the matter in appeal before the ld. CIT(A) whereby the assessee reiterated the submissions as were made before the A.O. . The assessee contended that in view of insertion of fifth proviso to Section 80HHC(3) with retrospective effect from 1.4.1992 by Taxation Laws (Amendment) Act, 2005 to provide that the losses from trading/manufacturing exports would be adjusted against export incentives as provided in the said proviso, and that a deduction u/s 80HHC of the Act would be allowable against the balance profit. It was submitted that the assessee being supporting manufacturer sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued to the appellant was by an export house /trading house as per clause "C" of the explanation. (iii) The disclaimer certificate required under sub section (4A) of Section 80HHC of the Act in form No. 10 CCAB as per rule 18BBA(2) of Incometax Rules,1962 was filed by the appellant along with return of income for claiming deduction u/s 80HHC(1A) certifying that the export house had not claimed deduction under Section 80HHC(1) on the export of trading goods effected on manufacturing goods of the appellant. (iv) The appellant has also filed a certificate in prescribed proforma i.e. form no. 10CCAC as per Rule 18BBA(3) in terms of sub clause (a) of sub section (4A) of Section 80HHC. 6. Aggrieved by the appellate order dated 15-03-2011 passed by learned CIT(A) , the assessee filed second appeal before the Tribunal because Allana Sons Limited was having net loss after adjusting the loss arising from export of traded goods with profit earned on export of manufactured goods. Thus, there was a net loss and Allana Sons Limited was not entitled for deduction u/s 80HHC of the Act and consequently the assessee was denied the benefit of deduction u/s 80HHC of the Act being a supporting man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein the A.O. allowed the deduction of Rs. 3,52,20,045/- u/s 80HHC of the Act to Allana Sons Limited. The said orders are placed in file. The ld. Counsel submitted that in view of the decision of the tribunal in the case of Allana Sons Limited (supra), the assessee's claim should be allowed being supporting manufacturer as now deduction of Rs. 3,52,20,0045/- is allowed to Allana Sons Limited u/s 80HHC of the Act and the assessee holds disclaimer certificate issued by Allana Sons Limited . It is also submitted that the Hon'ble Bombay High Court in the case of M/s Allana Sons Ltd. v. DCIT vide Writ Petition No. 802 of 2005 vide orders dated 22nd July, 2014 has allowed the Writ Petition and quashed the reassessment notice dated 10-01- 2005 issued by the AO u/s 148 of the Act, by holding as under:- "In any view of the matter, the stand of the petitioner on with regard to interest income being included while computing claim for deduction under Section 80HHC of the Act has been upheld not only by the CIT(A) but also by the Tribunal in its order dated 22 November 2006. Besides the amendment to Section 80HHC (3) of the Act by addition of fifth proviso thereto with retrospective effect wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturer, selling its goods to the export house namely M/s. Allana Sons Ltd, who had issued disclaimer certificate in favour of the assessee u/s 80HHC and accordingly, the assessee claimed benefit of deduction u/s 80HHC on the amount of turnover made by the assessee to the export company. During the course of reassessment proceedings, the AO noted that the said export house has been denied the benefit of deduction u/s 80HHC on the ground that the said export house company namely M/s. Allana Sons Ltd. ('here in after referred to as 'ASL' in short) had incurred loss in case the amount of incentive is not included in its export profits. Accordingly, the AO of the assessee withdrew the benefit of claim of deduction u/s 80HHC in the case of present assessee also solely on the ground when the main exporter i.e. ASL as itself being denied the benefit of deduction u/s 80HHC, therefore, consequently, the assessee should also be denied the benefit of deduction u/s 80HHC. Accordingly, the claim made by the assessee u/s 80HHC for Rs. 16,87,12,722/- on the turnover of Rs. 97,59,61,941/- (disclaimed by ASL in favour of the assessee) was withdrawn by the AO. 3.2. Being aggrieved, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of disallowance u/s 40A(3) only and no issue was raised in the 'Reasons' recorded with respect to deduction u/s 80HHC. The disallowance made u/s 40A(3) has been deleted by the Ld. CIT(A) against which revenue has not filed any appeal. Thus, main issue on which 'Reasons' were recorded has been settled and therefore, no other disallowance would be sustainable as reopening would become bad in law. 3.4. Per contra, Ld. DR relied upon the judgment of Hon'ble Supreme Court in the case of IPCA Laboratories Ltd. v. CIT (supra) and relied upon the order of the AO. We have considered the entire matrix and facts of this case and copies of judgment placed before us. Before going deeper in details, it has been noted by us at the outset that deduction u/s 80HHC in the hands of ASL (i.e. export house) has been found to be allowable by Hon'ble Bombay High Court in the case of M/s. Allana Sons Ltd. v. DCIT writ petition No.802 of 2005 dated 22nd July 2014 wherein it was held that reopening of the assessment in the hands of M/s. Allana Sons Ltd. was not valid as per law and the same was quashed with following observations: "We have considered the rival submission. It is well settled that a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Taxation Laws (Amendment) Act 2005 in section 80HHC to curtail the benefit of u/s 80HHC on the amount of incentive received by the main exporters would not operate retrospective. Thus, if we consider on facts the case of ASL on merits also, it is noted that after including amount of incentives there would arise positive amount of profit. Thus, viewed from any angle, and keeping in view the fact that when deduction u/s 80HHC has been actually allowed in the hands of ASL i.e. export house, therefore, the whole premises of the AO based upon which the deduction was denied to the assessee, ceases to exist. Under these facts and circumstances, we find that Ld. CIT(A) has rightly allowed the benefit of deduction u/s 80HHC to the assessee and therefore, we find nothing wrong in the order of Ld. CIT(A) and therefore, the same is upheld. Since, we have allowed the relief to the assessee on the first argument itself therefore, we treat other arguments as academic in nature and therefore, we are not dealing with the same at this stage. As a result, grounds raised by the revenue in this appeal are dismissed and grounds raised by the assessee may be treated as allowed." 7. The ld. D.R., in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Learned Assessing Officer noted in the assessment order that the exporter has earned a profit on export of manufactured goods in a sum of Rs. 20,22,000/-. The Learned Assessing Officer however, choose to consider the loss suffered on export of trading goods with the assessee in a sum of Rs. 1,54,000/- for the purpose of rejecting the claim of the assessee treating thereby that since the export House M/s. Clariant India Ltd., has incurred losses in trading goods therefore, claim of the assessee have to be rejected by applying the decision in the case of IPCA Laboratories. The findings of the Learned Assessing Officer thus cannot be approved in this way but we may also note here that at page-7 of the Assessment' Order the Learned Assessing Officer mentioned that the Learned Assessing Officer of M/s. Clariant India Ltd., has pointed out that the return for Assessment Year 2004-05 has shown loss from traded goods. No facts were gathered whether the exporter M/s. Clariant India Ltd. has in fact filed the return of income at loss or at profit because if ultimately profit is shown in the return of income on export considering both manufactured goods and trading goods, perhaps the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90% export incentives retained by Allana Sons Limited are duly considered while computing profits eligible for deduction u/s 80HHC of the Act as now M/s Allana Sons has positive profits after adjusting loss from export of traded goods with the profits from export of manufactured goods after factoring 90% of export incentives as per fifth proviso to Section 80HHC(3) of the Act inserted vide Taxation Laws(Amendment) Act, 2005 w.e.f. 01-04-1992 , and thereby deduction is already allowed by Revenue to said Allana Sons Limited by the Revenue vide orders dated 23-05-2016 giving appeal effect to tribunal's order in ITA No. 6344/Mum/2013 dated 06-04- 2014 in the case of Allana Sons Limited for the assessment year 2002- 03(copy placed on record), and hence the assessee being supporting manufacturer holding disclaimer certificate issued by Allana Sons Limited is also entitled for deduction u/s 80 HHC of the Act. The Hon'ble Bombay High Court has also upheld the allowability of deduction u/s 80 HHC of the Act to Allana Sons Limited on merits keeping in view insertion of fifth proviso to Section 80HHC(3) of the Act by Taxation Laws(Amendment) Act, 2005 w.e.f. 01-04-1992. The Hon'ble Bombay Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal involve identical issue with regard to denial of deduction u/s 80HHC to the assessee on the ground that deduction u/s 80HHC was denied to the main exporter also, to whom the assessee (a supporting manufacturer) had sold its goods. 3.1. We have heard both the parties on this issue in detail and also gone through the orders of the lower authorities as well as copies of judgment placed before us. The brief background of this case is that assessee is supporting manufacturer, selling its goods to the export house namely M/s. Allana Sons Ltd, who had issued disclaimer certificate in favour of the assessee u/s 80HHC and accordingly, the assessee claimed benefit of deduction u/s 80HHC on the amount of turnover made by the assessee to the export company. During the course of reassessment proceedings, the AO noted that the said export house has been denied the benefit of deduction u/s 80HHC on the ground that the said export house company namely M/s. Allana Sons Ltd. ('here in after referred to as 'ASL' in short) had incurred loss in case the amount of incentive is not included in its export profits. Accordingly, the AO of the assessee withdrew the benefit of claim of deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Shamanur Kallappa & Sons vs. ACIT 23 DTR (Bang)(Trib) 269 which has been subsequently upheld by the Hon'ble Karnataka High Court by vide its order dated 12th January 2015 in ITA No. 10/2009 by holding that deduction u/s 80HHC to the supporting manufacturer is allowable independent of actual allowing of deduction in the hands of main exporter. The third argument made by the Ld. Counsel was that reopening was done in the case of the assessee by the AO on the issue of disallowance u/s 40A(3) only and no issue was raised in the 'Reasons' recorded with respect to deduction u/s 80HHC. The disallowance made u/s 40A(3) has been deleted by the Ld. CIT(A) against which revenue has not filed any appeal. Thus, main issue on which 'Reasons' were recorded has been settled and therefore, no other disallowance would be sustainable as reopening would become bad in law. 3.4. Per contra, Ld. DR relied upon the judgment of Hon'ble Supreme Court in the case of IPCA Laboratories Ltd. v. CIT (supra) and relied upon the order of the AO. We have considered the entire matrix and facts of this case and copies of judgment placed before us. Before going deeper in details, it has been noted by us at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice dated 10 January 2005 will not be sustainable. In view of all the above reasons, we set aside the impugned notice date 10th January 2005." 3.6. Thus, it is noted by us that the Hon'ble High Court has not only quashed the reassessment order but also held that deduction u/s 80HHC is actually allowable to ASL. It is further noted by us that it has been held by Hon'ble Gujarat High Court in the case of Avani Exports & Others dated 02.07.2012 that the amendment made by Taxation Laws (Amendment) Act 2005 in section 80HHC to curtail the benefit of u/s 80HHC on the amount of incentive received by the main exporters would not operate retrospective. Thus, if we consider on facts the case of ASL on merits also, it is noted that after including amount of incentives there would arise positive amount of profit. Thus, viewed from any angle, and keeping in view the fact that when deduction u/s 80HHC has been actually allowed in the hands of ASL i.e. export house, therefore, the whole premises of the AO based upon which the deduction was denied to the assessee, ceases to exist. Under these facts and circumstances, we find that Ld. CIT(A) has rightly allowed the benefit of deduction u/s 80HH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4121/Mum/2011 for assessment year 2003-04 and Revenue Appeal in ITA no. 5548/Mum/2011 for assessment year 2003-04 in the case of ACIT v. Allana Cold Storage Limited. 12. Our above decision in ITA no. 4056/Mum/2011 for assessment year 2002-03 in preceding paras' in the case of Allana Frozen Foods Limited shall apply mutatis mutandis to the Assessee's appeal in ITA no. 4121/Mum/2011 as well to the Revenues' appeal in ITA no. 5548/Mum/2011 as identical issues' are involved. Thus, both the assessees' appeal in ITA No. 4121/Mum/2011 and Revenue appeal in ITA no. 5548/Mum/2011 for assessment year 2003-04 are allowed for statistical purposes. We order accordingly. 13. In the result , both the assessees' appeal in ITA no. 4121/Mum/2011 and Revenue appeal in ITA no. 5548/Mum/2011 for assessment year 2003- 04 are allowed for statistical purposes. Assessee's Appeal in the case of Allana Cold Storage Limited v. DCIT in ITA no. 4110/Mum/2011 for assessment year 2004-05 and Revenue Appeal in ITA no. 5518/Mum/2011 for assessment year 2004-05 in the case of ACIT v. Allana Cold Storage Limited. 14. Our above decision in ITA no. 4056/Mum/2011 for assessment year 2002-03 in preceding paras' in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 2,00,000/- on ad-hoc basis (for assessment year 2004-05) incurred in relation to earning of exempt income u/s 14A of the Act, vide assessment order dated 26-12-2006 passed u/s 143(3) of the Act. 17. Aggrieved by the assessment order dated 26-12-2006 passed by the A.O., the assessee filed its first appeal before the ld. CIT(A) whereby the assessee contended that as per the order of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. DCIT reported in (2010) 328 ITR 81(Bom HC), any disallowance of expenditure incurred in relation to earning of exempt income u/s 14A should be restricted to a reasonable estimation of the expenses incurred to earn exempt income. The ld. CIT(A) after considering the order of the A.O. and the submission of the assessee observed that the A.O. has made the disallowance as per clause (iii) of rule 8D(2) of the Incometax Rules, 1962. The ld. CIT(A) held that the A.O. is not justified in making the disallowance on ad-hoc lump-sum basis keeping in view the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd.(supra), whereby Rule 8D is applicable from assessment year 2008-09 onwards. The ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nable disallowance u/s 14A of the Act. We do not any infirmity in the order of the ld. CIT(A) and accordingly the said appellate order of learned CIT(A) is sustained and confirmed and the AO in remand proceedings shall work out reasonable disallowance of expenditure incurred in relation to earning of exempt income having regards to the accounts of the assessee in accordance with mandate of Section 14A(2) of the Act. The assessee is directed to appear before the AO and produce all relevant evidences and explanations in support of its contentions. The AO shall provide proper and reasonable opportunity of being heard to the assessee in accordance with law in accordance with principles of natural justice. This disposes of ground no 2 raised by the Revenue in memo of appeal filed with the tribunal. We order accordingly. 22. In the result, both the assessees' appeal in ITA no. 4110/Mum/2011 and Revenue appeal in ITA no. 5518/Mum/2011 for assessment year 2004- 05 are allowed for statistical purposes. Assessee's Appeal in the case of Allana Investment and Trading Company Limited v. DCIT in ITA no. 4185/Mum/2011 for assessment year 2004- 05 and Revenue Appeal in ITA no. 5533/Mum/2011 for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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