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Income Tax Appellate Tribunal, “G”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH, JM &
आदेश / O R D E R PER R.C.SHARMA (A.M): These are the cross appeals filed by the revenue and assessee against the order of CIT(A) for the assessment year 2002-03 in the matter of order passed u/s.143(3) r.w.s.263 of the I.T. Act. 2. The grounds taken by the revenue are as under:-
7413/Mum/2013 Gold Star Jewellery Ltd., 1. "On the facts and in the circumstances of the case and in law, the Ld. C(T(A) erred in directing the AO to recomputed deduction u/s.80HHC after adjusting the total turnover for inter-unit sales, without appreciating that such adjustment is not prescribed in the provisions of section 80HHC of the IT Act." 2. "On the facts and in the circumstances of the ca.se and in law, the Ld. CIT(A) erred in directing the AO to rework the computation of deduction u/s80HHC after adjusting the total turnover for inter-unit sales, without appreciating that such adjustment of inter-unit sales without corresponding adjustment in inter-unit purchases and unitwise profit/loss would result in incorrect computation of deduction u/s.80HHC."
3. The grounds taken by assessee are as under:- 1) The Learned CIT (A) has erred in law, facts and circumstances of the case by treating unit I and Trading unit as a consolidated unit for working out the section 80HHC deduction instead of treating the two units separately thereby reducing the claim under Section 80HHC of Rs.8,50,12,982/- and consequently confirming the order of the learned assessing officer u/s 143 (3) r.w.s. 263 of the Income Tax Act, 1961. 2) The Learned CIT (A) erred in law, facts and circumstances by treating unit I and Trading unit as a consolidated unit for working out the section 80HHC deduction inspite of direction of the Hon'ble ITAT to consider the issue in light of decision of Hon'ble High Court of Madras in the case of Chamundi Textiles (Silk Mills) Ltd 341 ITR 488 (Madras). 3) The Learned CIT (A) erred in law, facts and circumstances by treating unit I and Trading unit as a consolidated unit for working out the section 80HHC deduction inspite of giving a finding that there is no inter lacing & inter dependence of funds. 4) The Learned CIT (A) has erred in law, facts and in circumstances of the case by confirming the levy of interest U/S 2348, 234C and 234D. 5) Your Appellant craves leave to add to, alter, amend, delete and/or modify the above grounds of appeal on or before the final date of hearing. 6) Prayer: The Appellant prays your honor for allowing the appeal.
Rival contentions have been heard and record perused.
7413/Mum/2013 Gold Star Jewellery Ltd., 4. Brief facts of the case are that the Assessing Officer passed order u/s.143(3) r.w.s. 263 of the Act determining the income at Rs.4,24,17,060/- as against the income of Rs.3,67,70,300/- declared in the revised return of income. The AO has recomputed the deduction u/s.80HHC of the Act by taking into account the profits of the business, export turnover and total turnover of both the units i.e., Gold Star Jewellery Ltd., -1 and Gold Star Jewellery Ltd., Trading Unit. The AO, in the order has relied on the order passed u/s.263 of the Act. Aggrieved by the order of the AO, the assessee preferred appeal with the CIT(A), VIII, Mumbai. The CIT(A)-VIII, Mumbai, dismissed the assessee’s appeal vide order dated 28/03/2008, holding that “the computation of deduction u/s.80HHC by the AO is as per law especially in view of the decision of the Hon’’ble Kerala High Court in the case of CIT vs. Parry Agro Industries Ltd. 257 ITR 41 and the decision of the Special Bench of Delhi Tribunal in the case of International Research Park and Labs Ltd., Vs. ACIT 50 ITD 3(Del. S.B.). The stand of the AO is accordingly upheld.”
Further, aggrieved by the order dated 28/03/2008 of the CIT(A)-VIII, Mumbai, the assessee went in appeal before the Hon’ble ITAT, Mumbai. In its order dated 25/10/2012 in the ITAT held as under:-
7413/Mum/2013 Gold Star Jewellery Ltd., “2. The facts in brief are that the assessee who was in jewellery business had four different units named as under:- i) Gold Star Jewellery Ltd. -I ii) Gold Star Jewellery Ltd. - SDF iii) Gold Star Jewellery Ltd. - SRD iv) Gold Star Jewellery Ltd. - Trading 2.1 In respect of Gold Star Jewellery Ltd. - SDF and Gold Star Jewellery Ltd. - SRD, the assessee had claimed deduction u/s.10A of the I.T. Act. In Gold Star Jewellery Ltd.-I, the assessee was doing only export business and had claimed deduction u/s.80HHC. The fourth unit i.e. Gold Star Jewellery Ltd. - Trading was a domestic unit. While computing the deduction u/s.80HHC in respect of Gold Star Jewellery Ltd. -I, the assessee had taken into account only the profit and total turnover of that unit which had been allowed by the A.O. in the original assessment. Subsequently, the CIT on examination of the assessment records observed that the assessee had not correctly computed the ITA No : 3356/Mum/2008 M/s. Gold Star Jewellery Limited deduction u/s.80HHC and the A.O. had accepted the computation made by the assessee without proper enquiry. He, therefore, directed the A.O. to compute the deduction u/s.80HHC by taking into consideration the profit of business, the export turnover and total turnover of both, the Gold Star Jewellery Ltd. - I and Gold Star Jewellery Ltd. - Trading unit. The A.O., therefore, in the fresh assessment order dated 25.10.2007 u/s.143(3)/263 computed the deduction accordingly.
3. The assessee disputed the decision of the A.O. and submitted before the CIT(A) that deduction u/s.80HHC was available in respect of profit derived from export activity and, therefore, only the export turnover and total turnover of export unit had to be taken into account and not the turnover of the local trading unit. The assessee relied upon the several judgments of the Hon'ble High Court of Madras. The CIT(A) however, did not accept the contentions raised and following the judgment of Hon'ble High Court of Kerala in the case of CIT vs. Parry Agro Industries Ltd. (257 ITR 41) in which it was held that even if separate accounts were maintained, the total turnover of the entire business including the local business had to be taken into account, confirmed the disallowance made by the A.O. aggrieved by which the assessee is in appeal before the Tribunal.
Before us, the learned AR for the assessee reiterated the submissions made before the lower authorities that the assessee was ITA No : 3356/Mum/2008 M/s. Gold Star Jewellery Limited having four separate units, independent of each other and in respect of each, separate books of account had been maintained and each unit was located in a separate place. There was no centralised data at one place. The assessee had export business only in Gold Star Jewellery Ltd. - I, whereas the Gold Star Jewellery Ltd. - Trading 7413/Mum/2013 Gold Star Jewellery Ltd., was for the local business which was independent and, therefore, for deduction u/s.80HHC only the profit, the export turnover and total turnover of the export unit had to be taken into account. He placed reliance on the decision of Mumbai Bench of the Tribunal in the case of M/s. Balaji Filaments Ltd. vs. DCIT in in which the Tribunal in the order dated 25.04.2012 held that only the profit and turnover of the export division had to be taken into account. He also placed reliance on the judgment of Hon'ble High Court of Madras in the case of Chamundi Textile (Silk Mills) Ltd. (341 ITR 488) in support of the case. The learned DR, on the other hand, referred to the decision of the Tribunal in relation to the order u/s.263 in ITA No.892/M/2007 in which the Tribunal observed that whether the two business were the same business will not depend upon the fact whether separate books of accounts were maintained, but whether there was interconnection, interrelation and interdependency of the two business units. He also referred to the judgment of Hon'ble Supreme Court in the case of Mysodet P. Ltd. vs. CIT (2008) 305 ITR 276, in which it was held that the quantum of deduction had to be on the ITA No : 3356/Mum/2008 M/s. Gold Star Jewellery Limited basis of the proportion of the business profit in respective of what could be described as profit from the export or mercantile in India. In reply, the learned AR for the assessee pointed out that the said judgment of the Hon'ble Supreme Court was not applicable as the same relate to the A.Y. 1990-91 and was also distinguishable on the facts.
5. We have perused the records and considered the matter carefully. The dispute is regarding the method of computation of deduction u/s.80HHC. The assessee had clamed deduction u/s.80HHC in respect of Gold Star Jewellery Ltd - I using the export turnover and total turnover of that unit as in that unit only export business was being done. The assessee had also a unit namely Gold Star Jewellery Ltd. - Trading, in which local business was being done. The issue is whether in computation of deduction u/s.80HHC which has to be computed as the profit of the business in the ratio of export turnover to total turnover, the total turnover of only the export unit should be taken into account or the total turnover of both the units. The authorities below have held that the total turnover of both the export unit and local unit has to be taken into account. The case of the assessee is that the two units are independent units, located at different places for which separate accounts have been maintained and, therefore, the deduction u/s.80HHC had to be computed separately in respect of the export oriented unit. ITA No : 3356/Mum/2008 M/s. Gold Star Jewellery Limited 5.1 The case of the department is supported by the judgment of the Hon'ble High Court of Kerala in the case of CIT vs. Parry Agro Industries Ltd. (supra) in which it has been held that even if separate accounts were maintained for two units, the total turnover of both the business have to be taken into account. The Hon'ble' High Court of Madras has however, taken a different view. In the case of Chamundi Textile (Silk 7413/Mum/2013 Gold Star Jewellery Ltd., Mills) Ltd. (supra), the Hon'ble' High Court of Madras referred to the judgment of the Hon'ble Supreme Court in the case of L.M. Chhabda & Sons [1967] 65 ITR 638 (SC) in which it was held that there was no such general principle that where an assessee carries on business ventures of the same character at different places it must be held as a matter of law that the ventures are parts of a single business. The Hon'ble High Court also referred to the judgment of the Hon'ble Supreme Court in the case of Waterfall Estates Limited. vs CIT(SC) (219 ITR 563) in which it was held that when the assessee carried on various activities, even though there may be centralized accounts maintained, so long as there is no inter- lacing, inter-connection and inter-dependence of the various units, the various activities carried on by the assessee had to be treated as separate and distinct activities. The Hon'ble High Court, therefore, held that in case separate accounts have been maintained independently and there is no inter-lacing, inter-connection and inter-dependence of the funds, the ITA No : 3356/Mum/2008 M/s. Gold Star Jewellery Limited deduction u/s.80HHC had to be computed independently in respect of that unit. 5.2 The learned DR has referred to the judgment of the Hon'ble Supreme Court in the case of Mysodet P. Ltd. (supra). The said case is distinguishable and not applicable to the facts of the present case. In that case, the Hon'ble High Court following the judgment of Hon'ble Supreme Court in the case of IPCA Laboratories Ltd. vs. DCIT (2001) 266 ITR 521 (Bom) held that since there was no profit from the exports made, no deduction u/s.80HHC should be allowed. The Hon'ble Supreme Court, however, held that the case related to the A.Y. 1990-91 and there being composite business, the deduction has to be allowed in the ratio of export turnover to total turnover of the business. The Hon'ble Supreme Court also observed that the judgment in the case of IPCA Laboratories Ltd. (supra) which related to the A.Y. 1996-97 was not applicable as there were several changes in section 80HHC after A.Y. 1990-91. Thus, in case of Mysodet P. Ltd. (supra) the case was decided on the basis that there was composite business. The issues as to whether when separate accounts were maintained in respect of particular unit, deduction should be based on the turnover of that unit only or it should include the turnover of other business units was not before the Hon'ble Supreme Court. Therefore, in our view, the said judgment will not be applicable on the facts of the present case. The ITA No : 3356/Mum/2008 M/s. Gold Star Jewellery Limited issue in our view requires fresh examination in the light of the judgment of Hon'ble High Court of Madras in the case of Chamundi Textile (Silk Mills) Ltd. (supra) which is based on the judgment of the Apex Court. In fact the CIT in the order u/s.263 also proceeded on the basis that there was inter- lacing, inter-connection and inter-dependence of the units but there is not factual findings of the authorities below on this aspect. The issue, therefore, in our view, requires fresh examination at the level of the CIT(A). We, therefore, set aside the order of the CIT(A) and restore the matter back to him for passing a fresh order after necessary 7413/Mum/2013 Gold Star Jewellery Ltd., examination in the light of the observations made above in accordance with law and after allowing opportunity of hearing to the assessee. Since the main issue is being restored to CIT(A), the other issues such as treatment of inter-unit sales and levy of interest are also restored to CIT(A) for fresh decision in accordance with law after hearing the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.”
6. CIT(A) passed order to give effect to the order of the Tribunal and observed as under:- The contentions of the appellant company as well as the available documents on record are considered. The ITAT has restored the issue of allowability of deduction u/s 80HHC to the file of the CIT(A) with the direction that the issue be examined in the light of the judgement of the Hon'ble Madras High Court in Chamundi Textile Silk Mills Ltd. (supra). The issue to be decided is whether in the case presently in appeal there is any inter-lacing/ interconnection of funds, and whether there is inter-dependency amongst the units, such that all units can be taken as one for the purposed of computing deduction u/s 80HHC or that the units are totally independent warranting separate treatment for each unit. In Chamundi Silk Mills case, there were two units, one at Bangalore(100% export oriented unit doing manufacturing and export) and one at Ramnagaram (manufacturing silk fabrics with both domestic sales and export), these were found to be separate units, there was no intermingling of expenditure or interlacing of funds. Both units had separate workforce, separate books were maintained and also separate bank accounts. There was no interdependency of the units. In the present case in appeal, while the appellant claims that these are independent units, since each unit has separate work force, separate books of account are maintained and there is no intermingling of funds, be that as it may, the fact remains that there is inter-dependence between the export unit and others, in the light of the admitted fact that more than 70% of the sales of the trading unit are to own units, including the export unit. Hence it cannot be said that the export unit is independent of the trading units. Hence in view of this factual finding the AO’s action in computing deduction u/s 80HHC taking into account the combined profits, export turnover and total turnover is correct. The facts of the present case are clearly distinguishable from the facts in