I.T. OFFICER vs. TEX COLOUR INTERNATIONAL

O/TAXAP/416/2003 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 416 of 2003

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 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, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ I.T. OFFICER....Appellant(s) Versus TEX COLOUR INTERNATIONAL....Opponent(s) ================================================================ Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 28/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. This is an appeal by the appellant- revenue, assailing the order of the learned ITAT 14Page 1 of 7

O/TAXAP/416/2003 JUDGMENT (for short, ‘the Tribunal’), Dated: 30.01.2003, rendered in ITA No. 336/Ahd/02 for A.Y. 1995-96, whereby, the Tribunal, whereby, the Tribunal partly allowed the appeal of respondent-assessee for statistical purpose. 2. Brief facts of the case are that the assessee filed its return of income for the year under consideration on 21.11.1995, declaring his total income at ‘Nil’. Pursuant thereto, the case of the assessee came to be processed on 26.03.1996 and a notice came to be issued under Section 148 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’) on 25.03.1998. During the examination of the case of the assessee, the concerned AO found that the deduction was claimed by the assessee under Section 80HHC in contravention of the provisions of the Act. Later on, the AO disallowed the claim of the assessee for deduction under the aforesaid Section. Hence, the assessee carried the matter before the CIT(A), which dismissed the appeal of the assessee. Being aggrieved thereby, assessee carried the matter before the Tribunal, wherein, the Tribunal passed the impugned order. Hence, the present appeal by the revenue, raising the following questions of law for the consideration of this Court; “1. Whether the ITAT is right in law and on facts in reversing the order of the learned Commissioner of Income-tax 14Page 2 of 7

O/TAXAP/416/2003 JUDGMENT (Appeals) and directing the Assessing Officer to exclude the excise duty from the total turnover for computing deduction u/s 80 HHC of the I.T. Act? 2. Whether the Tribunal is right in law and on facts in directing the Assessing Officer to allow deduction u/s 80HHC when the net result in the export business is a loss?” 3. Mr. Bhatt, learned Sr. Advocate, invited the attention of this Court to the orders of the CIT(A) as well as the Tribunal and more particularly, to Paras-3.4 and 3.5 of the order of the Tribunal, wherein, the Tribunal observed that 14the calculation given by the assessee appears to be correct and then, directed the AO to verify the aforesaid calculation and allow the deduction u/s. 80HHC of the Act to the assessee. Mr. Bhatt, then, submitted that while reversing the order of the CIT(A), the Tribunal has given no finding of its own, and therefore, it committed a grave error in passing the impugned order. Mr. Bhatt also invited our attention to the provisions of Section 80HHC of the Act, which reads as under; “80HHC. [(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the 14Page 3 of 7

O/TAXAP/416/2003 JUDGMENT assessee, [a deduction to the extent of profits, referred to in sub-section (1B),] derived by the assessee from the export

such

goods

or merchandise: ...” 4. Mr. Bhatt also invited our attention to explanation(4C) to the said section as well as explanation (d) and (e), thereto. He, then, submitted that in view of the same, the Tribunal erred in directing the AO to verify the calculation given by the assessee and to allow deduction under Section 80HHC of the Act. He, therefore, prayed that the appeal be allowed. 5. As against this, Mr. Soparkar, learned Sr. Advocate, for the respondent-assessee supported the order of the Tribunal and submitted that no error of law is committed by the Tribunal. He submitted that in view of the decision of the Apex Court in “ACG ASSOCIATED CAPSULES PVT. LTD. VS. COMMISSIONER OF INCOME TAX”, [2012] 343 ITR 89 (SC) and in “COMMISSIONER OF INCOME TAX VS. GOVINDBHAI MAMAIYA”, [2014] 367 ITR 498 (SC), the Tribunal was justified in directing the AO to verify the claim of the assessee and give deduction under Section 80HHC of the Act, accordingly. He, thus, submitted that there being no merit in the matter same be dismissed. 6. We have heard learned Counsels for the parties and perused the material on record, 14Page 4 of 7

O/TAXAP/416/2003 JUDGMENT including the orders of the CIT(A) as well as the Tribunal. 7. From a perusal of the order of the Tribunal, we find that while reversing the findings recorded by the CIT(A), the Tribunal, in Para-3.3., observed as under; “3.3 … In the impugned order, Ld. CIT(A) has held that excise refund is more of a subsidy. In support of this Ld. CIT(A) has relied on the judgment of the Supreme Court in the case of Sahney Steel and Press Works Ltd. Vs. CIT reported in 228 ITR 253. We found considerable force in the contention of the counsel of the assessee that refund of

excise

duty

amounting

to Rs.21,41,462/- appearing in the credit side of the profit and loss account should to to reduce cost of purchases. Hence, this plea of the assessee is accepted.” 8. Thus, from the above, it becomes clear that while reversing the findings of the CIT(A) on the aforesaid issue, the Tribunal has not assigned detailed reasons and has straightway stated that there is considerable force in the contention of the counsel of the assessee that refund of excise duty amounting to Rs.21,41,462/- appearing in the credit side of the profit and loss account should reduce cost of purchases. The Tribunal as an appellate Court was required to look into the matter and was to give its independent findings on 14Page 5 of 7

O/TAXAP/416/2003 JUDGMENT the aforesaid issue.’ However, it merely stated that we find ‘force’ in submission of the counsel for the assessee and without assigning any plausible reason for answering that issue in favour of the assessee, held the same in favour of the assessee. Further, while determining the issue of adjustment of freight and computation for deduction under Section 80HHC of the Act, the Tribunal again relied on the calculation given by the assessee, without given any reason for relying on the same, and directed the AO to verify the assessee’s claim and to grant him deduction under Section 80HHC of the Act. We are, therefore, of the opinion that the ends of justice would be met if the matter is remanded to the Tribunal for its consideration afresh, on merits and in accordance with law. 9. In the result, the appeal is PARTLY ALLOWED. The impugned judgment and order of the Tribunal, Dated : 30.01.2003, is QUASHED and set aside and the matter is remanded to the Tribunal for its consideration afresh. The Tribunal will consider the matter afresh in accordance with law and on merits and will dispose of the same by recording detailed reasons after hearing the parties, at the earliest. No order as to costs. (K.S.JHAVERI, J.) 14Page 6 of 7

O/TAXAP/416/2003 JUDGMENT (K.J.THAKER, J) UMESH 14Page 7 of 7