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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 ..... aving 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. - I.T.A. No.4056/Mum/2011, I .T.A. No.5534/Mum/2011, I.T.A. No.4121/Mum/2011, I.T.A. No.5548/Mum/2011, I .T.A. No.4185/Mum/2011, I .T.A. No.5518/Mum/2011, I .T.A. No.4110/Mum/2011, And I .T.A. No.5533/Mum/2011 - - - Dated:- 2-1-2017 - SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Ms. Vasanti Patel Shri Apurva Shah For The Revenue : Shri A. Ramachandran ORDER PER RAMIT KOCHAR, Accountant Member These are bunch of eight appeals pertaining to different assessee s of the same group. Out of these eight appeals, four appeals by the assessees being ITA Nos. 4056/Mum/11, 4121/Mum/11,4185/Mum/11 and 4110/Mum/11 and other four appeals by the Revenue being ITA Nos. 5534/Mum/11, 5548/Mum/11, 5518/Mum/11 and 5533/Mum/11 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these additional grounds of appeal. After hearing both the parties, we direct that these additional grounds be admitted in the interest of substantial justice and be adjudicated on merits in accordance with law. 4. The brief facts of the case are that the assessee is a manufacturer of frozen foodstuffs who exported large parts of its production through an export house namely Allana Sons Limited. The assessee being a supporting manufacturer, got a disclaimer certificate from the export house as prescribed under sub section 4A(b) of Section 80 HHC of the Act. The assessee had claimed deduction u/s 80HHC of the Act on disclaimed turnover of ₹ 39,07,97,779/- . The assessee has made claim of deduction u/s 80 HHC of the Act on the profit arose to the assessee on the sales to the export house of its manufactured goods which was specified as assessee s turnover in the disclaimer certificate issued by the export house in favour of the assessee. The claim of the assessee for deduction u/s 80HHC of the Act was denied by the AO relying on the decision of the Hon ble Supreme Court in the case of IPCA Laboratories Ltd., (2004)266 ITR 521(SC), as no deduction u/s 80HHC of the Act was av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra) the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken in to consideration before allowing deduction u/s 80HHC of the Act which shall be allowed only when there is positive profit after adjusting losses, if any. Thus as per learned CIT(A), the losses arising from export of traded goods shall be set off against profit from export of manufactured goods by Allana Sons Limited before allowing deduction u/s 80HHC of the Act in the hands of Allana Sons Limited. Thus, it was observed by the learned CIT(A) that ratio of decision of Hon ble Supreme Court in Ipca Laboratories Limited(supra) clearly lays down that if no deduction is available in the hands of trading house/export house , because there is a net loss in the case of export house/ trading house , then the export house cannot pass on or give credit of such non existing deduction to a supporting manufacture . The ld. CIT (A) further observed the assessee has complied with all the necessary provisions of Sec. 80 HHC (1A) r.w.s. 3A, 4A of the Act for claiming deduction as envisaged in proviso to section 80HHC(l) and hence the AO was not correct in denying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na Sons Limited. It was submitted that now with the introduction of Taxation Laws (Amendment )Act 2005 , fifth proviso to section 80 HHC(3) of the Act has been inserted w.e.f. 01-04-1992, the export house Allana Sons Limited shall become eligible for deduction u/s 80HHC of the Act as the export incentives received by Allana Sons Limited and retained by them shall become eligible to be set off to the extent of 90% against loss from export activities and if the net result after above adjustments is positive profit entitling Allana Sons Limited to get deduction u/s 80HHC of the Act . Thus, it was submitted that the assessee being supporting manufacturer is also entitled for deduction u/s 80HHC of the Act as it hold disclaimer certificate issued by Allana Sons Limited. The assessee has brought on record the Tribunal order in ITA No. 6344/Mum/2013 for the assessment year 2002-03 dated 6th April, 2016 in the case of M/s Allana Sons Ltd. v. Addl. CIT , whereby the Tribunal directed the authorities below to allow deduction u/s 80 HHC of the Act to M/s Allana Sons Limited keeping in view of the amendments brought in by the Taxation Laws (Amendment) Act, 2005 w.e.f. 01-4-1992 whereby proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited namely Frigorifico Allana Limited and ors. , keeping in view insertion of fifth proviso to Section 80HHC(3) of the Act by the introduction of Taxation Laws (Amendment) Act, 2005 with effect from 01-04-1992 , whereby the Tribunal has held as under:- These appeals belong to different assessees of same group arising in different assessment years involving identical issues and therefore these were heard together and being disposed by this common order. 2. During the course of hearing, arguments were made by Shri P.J. Pardiwalla Ms. Vasanti Patel, Authorised Representatives (ARs) on behalf of the Assessee and by Shri G.M. Doss Shri E. Shreedhar, Departmental Representatives (DRs) on behalf of the Revenue. First we shall take up appeals of the Assessee Revenue in the case of Frigerio Conserva Allana Ltd in ITA No.4195/Mum/2011 ITA No. 5528/Mum/2011, respectively, for A.Y. 2000-01: 3. Ground Nos 1 2 of assessee s appeal and Ground No.2 of Revenue s 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 supporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss from export activities, then the export house cannot pass on the benefit of deduction u/s 80HHC by way of issue of disclaimer certificate u/s 80HHC (4)(a) to the supporting manufacturer. 3.4. Before us, the Ld. Counsel of the assessee defended and justified the order of Ld. CIT(A) for allowing deduction u/s 80HHC on many grounds. His first argument was that deduction has been actually allowed to the export house i.e. ASL by the Tribunal and order of the Tribunal has been upheld by the Hon ble Bombay High Court wherein the reopening done by the AO of the ASL has been quashed and on merits also Hon ble High Court had found that deduction u/s 80HHC was allowable in the hands of ASL as per law and facts. Thus, the whole premise on which the deduction was disallowed in the hands of the assessee ceases to exist and therefore the deduction has to be allowed to the assessee. Second argument made by the assessee was that this controversy has been resolved in the judgment of Hon ble Banglore Bench in the 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, on the aforesaid ground alone impugned notice is not sustainable. 3.5. It is further noted by us that, on merits also Hon ble High Court observed that deduction u/s 80HHC was actually allowable to the said export house the observations of the Hon ble High Court are very useful and these are reproduced hereunder for the sake of ready reference: In any view of the matter, the stand of the petitioner on merits with regard to interest income being included while computing the 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 will work to the benefit of the petitioner. In the above view of the matter, allowing reassessment proceedings would be a mere academic exercise only because the Assessing Officer would be bound by the orders of the Tribunal. Moreover, the very basis of the impugned notice 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim in view of his reading of the decision of the Hon'ble Supreme Court in the case of IPCA Laboratory Ltd., (supra). We find that in the case of IPCA Laboratory Ltd., (supra) the Hon'ble Supreme Court was confronted with the case of an Export House. The assessee there was an Export House. That assessee suffered a loss on export of trading goods. While computing deduction allowable under section 80 HHC of the Act the assessee ignored the loss on export of trading goods on the ground that it has issued a disclaimer certificate under section 80 HHC (4A(b) of the Act in respect of turnover of trading goods. In this context, the Hon ble Supreme Court viewed that the disclaimer certificate can be given in respect of profit only and not in respect of loss. In other words, as assessee who is an Export House or Trading House is entitled to reduce the amount of deduction allowable under section 80- HHC by issuing a disclaimer certificate but the assessee cannot increase the amount of deduction otherwise allowable under section 80 HHC by issuing a disclaimer certificate. 21. The decision is an Authority for the proposition that an Export House or Trading House cannot in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shall give reasonable sufficient opportunity of being heard to the assessee. As a result, this ground of Departmental appeal is allowed is for statistical purpose. 8. We have considered the rival contentions and also perused the material available on record including case laws relied upon. We have observed that the assessee is a manufacturer of frozen foodstuffs who exported large parts of its production through an export house namely Allana Sons Limited. The assessee being a supporting manufacturer, got a disclaimer certificate from the export house as prescribed under sub section 4A(b) of Section 80 HHC of the Act. The assessee had claimed deduction u/s 80HHC of the Act on disclaimed turnover of ₹ 39,07,97,779/- . The assessee has made claim of deduction u/s 80 HHC of the Act on the profit arose to the assessee on the sales to the export house of its manufactured goods which was specified as assessee s turnover in the disclaimer certificate issued by the export house in favour of the assessee. Now , vide Taxation Laws (Amendment) Act, 2005 , proviso 5 to section 80 HHC (3) of the Act is inserted w.e.f. 01-04-1992 whereby the 90% of export incentives are taken into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders of the Tribunal. Moreover, the very basis of the impugned notice dated 10 January 2005 will not be sustainable. In view of all the above reasons, we set aside the impugned notice dated 10 January 2005. The Mumbai Bench of the Tribunal in the case of other supporting manufacturer to Allana Sons Limited namely Frigorifico Allana Limited and ors. in cross appeals ACIT v. Frigorifico Allana Limited and ors. vide ITA No. 5513/Mum/2011 and ors. for the assessment years 2002-03 to 2004-05 vide common orders dated 27th July, 2016 has also allowed the claim of deduction under section 80HHC of the Act. , keeping in view insertion of fifth proviso to Section 80HHC(3) of the Act by the introduction of Taxation Laws (Amendment) Act, 2005 with effect from 01-04-1992 , whereby the Tribunal has held as under:- These appeals belong to different assessees of same group arising in different assessment years involving identical issues and therefore these were heard together and being disposed by this common order. 2. During the course of hearing, arguments were made by Shri P.J. Pardiwalla Ms. Vasanti Patel, Authorised Representatives (ARs) on behalf of the Assessee and by S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owability of deduction u/s 80HHC in the hands of export house and he further held that in any case the export house has been actually allowed the deduction u/s 80HHC, and therefore, on facts also the assessee is entitled for deduction u/s 80HHC. 3.3. Being aggrieved, the revenue filed an appeal before the Tribunal on the ground that Ld. CIT(A) ought not to have allowed the benefit of deduction u/s 80HHC in the light of judgment of Hon ble Supreme Court in the CIT v. IPCA Laboratories Ltd. 266 ITR 521 (SC) wherein it was held that in case there was loss from export activities, then the export house cannot pass on the benefit of deduction u/s 80HHC by way of issue of disclaimer certificate u/s 80HHC (4)(a) to the supporting manufacturer. 3.4. Before us, the Ld. Counsel of the assessee defended and justified the order of Ld. CIT(A) for allowing deduction u/s 80HHC on many grounds. His first argument was that deduction has been actually allowed to the export house i.e. ASL by the Tribunal and order of the Tribunal has been upheld by the Hon ble Bombay High Court wherein the reopening done by the AO of the ASL has been quashed and on merits also Hon ble High Court had found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsider an issue during the assessment proceeding under section 143(3) of the Act. In this case, the Assessing Officer had during the proceeding under section 143(3) of the Act raised queries to the petitioner specifically with regard to petitioner s claim for deduction under section 80HHC of the Act and the petitioner s response to the same was considered by the Assessing Officer while passing the assessment order. Therefore, the impugned notice and the grounds in support thereof are in fact a change of pinion on the part of the Assessing Officer. Therefore, on the aforesaid ground alone impugned notice is not sustainable. 3.5. It is further noted by us that, on merits also Hon ble High Court observed that deduction u/s 80HHC was actually allowable to the said export house the observations of the Hon ble High Court are very useful and these are reproduced hereunder for the sake of ready reference: In any view of the matter, the stand of the petitioner on merits with regard to interest income being included while computing the 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 Nove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable after 04/04/2005 , we are satisfied that cases of exporters having a turnover below and those above 10 crore should be treated similarly. This order is in substitution of the judgment in Appeal. Thus in light of our detailed discussions as set out above, we restore the matter to the file of the AO for computing deduction allowable to the assessee u/s 80HHC of the Act in accordance with law . 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 appeal in ITA no. 4056/Mum/2011 filed by the assessee for the assessment year 2002-03. We order accordingly. 9. In the result , appeal of the assessee is allowed for statistical purposes as indicated in our above order. Revenue Appeal in the case of ACIT v. Allana Frozen Foods Private Limited in ITA no. 5534/Mum/2011 for assessment year 2002-03 10. Our above decision in ITA no. 4056/Mum/2011 for assessment year 2002-03 in preceding para shall apply mutatis mutandis to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 14A of the Act incurred in relation to earning of exempt income as made by the AO. The Revenue has raised following ground of appeal with respect to disallowance of expenditure u/s 14A of the Act in relation to earning of exempt income, in memo of appeal filed with the tribunal : 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in restoring the issue of disallowance of ₹ 2,00,000/- U/s. 14A as per rule 8D to the Assessing Officer's file and directing that disallowance to be as per immediate preceding year in the light of observation of jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT 234 ITR 1 (Bom.) as the decision of Hon'ble Bombay High Court is not accepted by the Department . 16. The assessee has earned dividend income of ₹ 19,61,241/- and claimed exemption u/s 10(34) of the Act. The assessee has not shown any expenditure on the earning of the dividend income. The AO invoked the provisions of section 14A of the Act. The assessee submitted that the assessee has not incurred any expenditure which needs to be disallowed u/s 14A of the Act. It was submitted that there are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of ₹ 2,00,000/- on lump-sum ad-hoc basis u/s 14A of the Act in assessee s case. 20. The ld. Counsel for the assessee submitted and conceded that this matter can be set aside to the file of the A.O. who can make disallowance having regards to the assessee s account as per mandate of Section 14A of the Act. It was submitted that Rule 8D of Income-tax Rules, 1962 is not applicable to the impugned assessment year under appeal , as the instant assessment year under appeal is assessment year 2004-05 which is prior to the assessment year 2008-09 , and Rule 8D of Income-tax Rules, 1962 is applicable from assessment year 2008-09 in view of decision of Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd.(supra) 21. We have considered the rival contentions and also perused the material available on record. The A.O. has made ad-hoc lump-sum disallowance of ₹ 2,00,000/- towards expenditure incurred in relation to earning of exempt income , without having regards to the accounts of the assessee as per mandate of Section 14A(2) of the Act. We are of the considered view that the appeal under consideration is prior to assessment year 2008-09 and hence Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X
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