C I T vs. M/S NAHAR EXPORTS LTD.

ITA/382/2007HC Punjab & HaryanaPHHC01073081200722 January 2008Author: MR JUSTICE RAKESH KUMAR GARG,MR. JUSTICE SATISH KUMAR MITTAL3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeal filed by the revenue had no merit and no substantial question of law arose for determination. This was in view of the settled proposition of law laid down by the High Court itself in the case of Commissioner of Income-Tax v. Vardhman Polytex Ltd. (2008) 296 ITR 382 (P&H). In that precedent, the High Court had ruled that while computing deduction under Section 80HHC, only the actual sale price is relevant. Excise duty and sales tax, which are charged by the assessee, cannot be taken into account as they do not have any element of profit. The court further noted that, according to accounting principles, such levies do not form part of the profit and loss account and are shown as liabilities in the balance sheet. Therefore, the ITAT's decision to exclude Sales Tax and Central Sales Tax from the total turnover for the purpose of Section 80HHC deduction was upheld. The appeal was dismissed.

What were the facts?

The revenue, Commissioner of Income Tax-III, Ludhiana, appealed against an order of the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench 'B', dated July 31, 2006. This order pertained to assessment year 2001-02 and concerned M/s. Nahar Exports Ltd., Ludhiana. The assessee, a limited company engaged in manufacturing and trading cotton yarn fabrics and garments, had its assessment framed by the ACIT at an income of Rs.12,28,82,539/-, an increase from its returned income. During assessment, the Assessing Officer (AO) included Sales Tax and Central Sales Tax amounting to Rs.81,01,622/- in the total turnover for computing deductions under Section 80HHC. The CIT(Appeals) partly allowed the assessee's appeal, holding that these taxes had no profit element and should be excluded from total turnover. The ITAT upheld this decision, relying on its own prior rulings.

What were the issues?

1. Whether, on the facts and circumstances of the case, the Hon'ble ITAT was right in law in holding that Sales Tax and Central Sales Tax should be excluded from the total turnover of the assessee while computing deduction under Section 80HHC. Assessee's Contention: The judgment does not record any specific contentions made by the assessee before the High Court. However, the ITAT's decision, which was in favor of the assessee, was based on its prior rulings in the case of M/s Nahar Spinning Mills Ltd. and the assessee's own case for assessment year 1992-93, implying the assessee argued that these taxes do not form part of the profit and should be excluded from turnover for Section 80HHC computation. Revenue's Contention: The revenue's appeal was based on the substantial question of law stated above. However, at the outset of the hearing, the revenue's counsel fairly conceded that the issue was squarely covered by a judgment of the High Court in the case of Commissioner of Income-Tax v. Vardhman Polytex Ltd. (2008) 296 ITR 382 (P&H), which was decided in favor of the assessee.

Which sections of the Income-tax Act were involved?

Section 80HHC,Section 260A

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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CM No.18197-CII of 2007 and Date of decision: 22.1.2008 The Commissioner of Income Tax-III, Ludhiana ......Appellant Versus M/s. Nahar Exports Ltd., 376-Indl. Area-A, Ludhiana ......Respondent CORAM:- HON'BLE MR.JUSTICE SATISH KUMAR MITTAL HON'BLE MR.JUSTICE RAKESH KUMAR GARG * * * Present: Mr. Sanjiv Bansal, Advocate for the appellant. * * * Rakesh Kumar Garg, J . CM No.18197-CII of 2007

For the reasons mentioned in the application, delay of 144 days in refiling the appeal is condoned. CM stands disposed of.

1.

The revenue has filed the present appeal against the order of the Income Tax Appellate Tribunal, Chandigarh Bench ‘B’ Chandigarh passed in ITA No.371/Chandi/2005 dated 31.7.2006 for the assessment year 2001-02 on the following substantial question of law:- “Whether on the facts and the circumstances of the case, the Hon’ble ITAT was right in law in holding that Sales Tax, and Central Sales Tax be excluded from the total turnover of the assessee while computing

deduction u/s 80HHC.”

2.

The respondent is a Limited company which derives income from manufacturing and trad

The order continues below.

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