ALLANASONS LTD,MUMBAI vs. ITO 1(1)(1), MUMBAI

आदेश / O R D E R

Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 26/09/2013 of the ld. First Appellate Authority, Mumbai.

2. The Assessment Year involved is Assessment Year 2001-02. 3. The appeal was admitted on 8 February 2011 on the following question of law: “Whether on the facts and the circumstances of the case and in law, the Tribunal is right in holding that the order of the Assessing Officer has got to be considered as having been merged in the order of the Commissioner of Income Tax(Appeals) without appreciating the fact that the issue raised in the order passed by the Commissioner of Income Tax u/s 263 of the I.T. Act was not considered by the Assessing Officer in his assessment order and was therefore not a subject matter of the order of the Commissioner of Income Tax (Appeals) and hence the doctrine of merger relied upon by the ITAT and the Respondent is not applicable to this case?”

5. Briefly, the facts are that the respondent filed its return of in c o m e f o r t h e A s s e s s m e n t Y e a r 2 0 0 1 - 0 2 d e c la r i n g a n i n c o m e Rs.90,000/-. This was after having claimed a deduction of Rs.12.53 Crores under Section 80HHC of the Act i.e. without taking into account the trading loss. The Assessing Officer restricted the claim after adjusting the trading loss to its manufacturing profits and adding of 90% export incentives. Thus on 30 January 2004 an assessment order was passed determining the income at Rs.1.76 Crores after allowing deduction of Rs.4.67 Crores under Section 80HHC of the Act. 6.The Assessment Order dated 30 January 2004 was carried in appeal to the Commissioner of Income Tax (Appeals) (the 'CIT(A)'). By an order dated 19 August 2004 the CIT(A) upheld the order dated 30 January 2014 of the Assessing Officer. 7. On 8 February 2005, the Commissioner of Income Tax (the CIT') issued a notice under Section 263 of the Act. Thereafter the CIT by order dated 14 March 2005 held that the respondent is not entitled to claim deduction under Section 80HHC of the Act. This was because the net business results after exclusion of export incentive was a loss. 8. Being aggrieved, the respondent preferred an appeal to the Tribunal. By the impugned order the Tribunal held that in view of the doctrine of merger, the assessment order dated 30 January 2004 of the Assessing Officer did not exist after the order dated 19 August 2004 was passed by the CIT(A). Thus the impugned order dated 25 March 2008 held that the CIT, had no jurisdiction to issue notice under Section 263 of the 9. The grievance of the revenue as articulated by Mr. Suresh Kumar is that although the Assessing Officer while passing the(Assessment order dated 30 January 2004 considered the respondent's claim for benefit under Section 80 HHC of the Act yet in appeal the CIT(A) had not applied his mind and considered the issue of export incentive being considered for arriving deduction at Section 80 HHC of the Act. Thus it is submitted even if an appeal was filed by assessee from the order dated 30 January 2004 to the CIT(A), no question of merger into the CIT(A)'s order dated 19 August 2004 can arise.

(Provided also that in case the computation under clause (a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety pet- cent of (a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or (b) any sum referred to in clause (iiid) or clause (iiic), as the case may be, of Section 28,as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.] Thus this amendment permitted set off of losses against export incentives. Prior to the above amendment in terms of the first proviso to Section 80HHC(3) of the Act only profits could be Increased by the export incentives. The first proviso to Section 80HHC(3) at all times read as under: "Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee."

It is also noted that the Hon’ble Apex Court in the case of CIT vs Avani Exports vide order dated 30/03/2015, duly considered the amendment in section 80HHC(3) with retrospective effect from 01/04/1992 substituted the following in the direction of the Hon’ble High Court:-

Having seen the twin conditions and since 80HHC benefit is not available 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 or the judgment in Appeal.

In the light of the above and the claim of the assessee that its turnover is more than 20 crores, we direct the ld. Assessing Officer to examine the claim of the assessee and after providing due opportunity of being heard to the assessee decide in accordance with law considering the aforesaid decisions, thus, this ground of the assessee is allowed for statistical purposes.

3.1. We have considered the rival submissions and perused the material available on record. The ld. Assessing Officer noted that in earlier year, the assessee expended Rs.11,10,598/- on the foreign travel expenses of the spouse of the director, which were added to the income of the assessee. On the same reasoning and following various decisions, the amount of Rs.9,73,594/- which is 50% of the expenses was disallowed. The assessee claimed that the travel of the spouse is a normal custom/business practice. On appeal, the ld. Commissioner of Income Tax (Appeals) affirmed the stand of the ld. Commissioner of Income Tax (Appeals). The Hon’ble Gujarat High Court in CIT vs Sahibag Entrepreneur Pvt. Ltd. held as under:-

Expenditure incurred on foreign tour of wife of a director who accompanies him, is not allowable, where there is no evidence that her visit was necessary in order to facilitate negotiation at top level with foreign corporations.

Before us, the ld. counsel for the assessee has not explained as to how the wife was necessary in furtherance of business interest, helping the director of the assessee firm. It was contended that it is a custom that wife should accompany while traveling abroad, neither such custom nor any case law in support of the claim was furnished before us, therefore, in the absence of any plausible reasoning we affirm the stand of the ld. Commissioner of Income Tax (Appeals), thus, this ground of the assessee is having no merit, therefore, dismissed.

4. The next ground raised by the assessee pertains to confirming disallowance of PF due u/s 43B of the Act by claiming that such dues were paid during the previous year itself i.e. within the grace period. The ld. DR, defended the conclusion. On perusal of record and after hearing the rival submissions, we are of the view that as per provisions of section 43B of the Act are to be allowed only on actual payment. The ld. Assessing Officer is directed that if the amount is paid within the prescribed period including grace period then the same has to be allowed, therefore, the Assessing Officer is to examine the claim of the assessee. The assessee is directed to produce necessary evidence for its claim. Thus, this ground of the assessee is also allowed for statistical purposes.

Finally, the appeal of the assessee is partly allowed for statistical purposes.

This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 10/02/2016.