MEGHMANI ORGANICS LIMITED vs. ASSISTANT COMMISSIONER OF INCOME TAX

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TAXAP/1425/2008HC GujaratGJHC24041315200818 February 2020Author: HONOURABLE MR. JUSTICE J.B.PARDIWALA,HONOURABLE MR. JUSTICE BHARGAV D. KARIA5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Income Tax Appellate Tribunal was right in law in holding that for the purpose of calculating deduction under Section 80HHC of the Act, the entire/global turnover of the business, and not division/unit-wise turnover, is required to be taken into consideration. The Court reasoned that the assessee was engaged in one business, and its units could not be separated for this purpose. The Tribunal's decision was supported by the Special Bench of the Tribunal in International Research Park Laboratories Ltd. Vs ACIT and the Kerala High Court in CIT(A) Vs Jose Thomas. The High Court also noted that its own decision in Devraj R. Agarwal fortified this view. Consequently, the substantial questions of law were answered in favor of the Revenue and against the assessee. The appeal was dismissed.

What were the facts?

This Tax Appeal was filed by the Revenue against an order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, for the Assessment Year 2000-2001. The appeal challenged the ITAT's decision regarding the calculation of deduction under Section 80HHC of the Income Tax Act. The core of the dispute was whether the deduction should be calculated on the global turnover or on a unit/division-wise basis, and whether units engaged in domestic activities should be differentiated from those engaged in export. The ITAT had previously ruled in favor of the Revenue, holding that global turnover should be considered. The High Court noted that the issues were no longer res integra due to its own prior ruling in the case of Devraj R. Agarwal.

What were the issues?

1. Whether, in the facts and under the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that for the purpose of calculation of deduction u/s 80HHC of the Act, the entire/global turnover of the business and not division/unit wise turnover of the business is required to be taken into consideration without differentiating between units engaged in export activities and units engaged in domestic activities? Assessee's Contention (as understood from the judgment's description of the ITAT's original decision): The assessee argued that deduction under Section 80HHC should be available on unit/division-wise profits, implying a separation of domestic and export activities. The assessee relied on its own earlier decisions for Assessment Years 1997-98 and 1998-99. Revenue's Contention (as understood from the judgment's description of the ITAT's original decision): The Revenue contended that the deduction under Section 80HHC is available only on the entire business profit, without differentiating between units engaged in export and units engaged in domestic sales. The Revenue relied on the Special Bench decision in International Research Park Laboratories Ltd. Vs ACIT and the Kerala High Court decision in CIT(A) Vs Jose Thomas.

Which sections of the Income-tax Act were involved?

Section 260A,Section 80HHC

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
C/TAXAP/1425/2008 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1425 of 2008 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== MEGHMANI ORGANICS LIMITED Versus ASSISTANT COMMISSIONER OF INCOME TAX ========================================================== Appearance: MRS SWATI SOPARKAR(870) for the Appellant(s) No. 1 MRS KALPANAK RAVAL(1046) for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 18/02/2020

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) C/TAXAP/1425/2008 JUDGMENT This Tax Appeal under Section 260A of the Income Tax Act, 1961, (for short “the Act”) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench, Ahmedabad dated 31.8.2007 in the ITA No. 3933/Ahd/2003 for the Assessment Year 2000-2001. 2. We are called upon to consider the following two substantial questions of law, on which the Appeal has been admitted :

“1. Whether, in the facts and under the circumstances of the case the Income Tax Appellate Tribunal was right in law in holding that for the purpose of calculation of deduction u/s 80HHC of the Act, entire/global turnover of the business and not division/unit wise turnover of the business is required to be taken into consideration without differentiating between units engaged in export activities and units engaged in domestic activities ?

2.

Whether, in the facts and under the circumstances of the case the Income Tax Appellate Tribunal was right in law in not following the decision of the co- ordinate Bench in the case of the very same assessee for more than 3 years wherein under identical circumstances, deductions u/s 80HHC of the Act was granted on unit/division wise profits?. C/TAXAP/1425/2008 JUDGMENT

3.

At the outset, Mr. Soparkar, the learned Senior Counsel appearing for the appellant-assessee, very fairly pointed out that both the issues raised in this Tax Appeal are no longer res integra, in view of the pronouncement of this Court in the case of Devraj R. Agarwal Assistant Commissioner of Income Tax (2016 389ITR 642).

4.

The Tribunal was called upon to decide, whether the CIT (A) committed any error in holding that the deduction under section 80HHC of the Act is not available on the division/unit wise profits of the business and the same is available only on the entire business profit without differentiating between the units engaged in the export and the units engaged in the domestic sales. While answering the issue in favour of the Revenue and while dismissing the Appeal preferred by the assessee it observed, thus :

“6. We have heard the parties and considered the rival and dividend. For the purpose of computing deduction u/s 80HHC, the total turnover was directed to be including cost of flats constructed by the assessee because in the opinion of C/TAXAP/1425/2008 JUDGMENT the Lordship, turnover in respect of works contract shall be the aggregate amounts received or receivable by the dealer for the transfer of goods involved in the execution of such contract, and it was held the Tribunal an error of law in holding that the total turnover for the purpose of computation of eligible deduction u/s 80HHC (3) did not include the cost allowance of deductions u/s 80HHC, the entire turnover of the assessee has to taken into account. Assessee's reliance on its earlier decision in assessment year 1997-98 and 1998-99 in ITA No. 1165 and 1166/Ahd./2001 dated 17.11.2006, would also be of no help because it followed the decision in assessee's own case for assessment year 1999-2000 in ITA no. 174/Ahd./2003 dated 20.10.2009, which in turn ,has followed the decision of the Tribunal in the case of Madhusudan Industried Ltd., ITA No. 2136/Ahd./1997 and ITA No. 1925/Ahd/1997, vide order dated 6.7.2005. But, in none of the finds support of Kerala High Court decision in the Case of C/TAXAP/1425/2008 JUDGMENT to work out the deduction u/s 80HHC by taking the turnover of units separately.”

5.

The aforesaid view taken by the Tribunal stands fortified by the decision of this Court in the case of Devraj R. Agarwal (supra).

6.

In the aforesaid view of the matter, this Appeal fails and is hereby dismissed. The substantial questions are answered in favour of the Revenue and against the assessee. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) MARY VADAKKAN

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