Decision Of This Court In Income Tax Officer v. Novelty

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. (i) DB INCOME TAX APPEAL NO.242/2005 The Commissioner of Income Tax-I, JaipurVersus M/s. Baid Leasing & Finance Co. Ltd. (ii) DB Cross Objection No.7/2006InDB INCOME TAX APPEAL NO.242/2005 The Commissioner of Income Tax,-I, JaipurVersus M/s. Baid Leasing & Finance Co. Ltd. DATE OF ORDER ::: 23.11.2016. HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE MAHENDRA MAHESHWARI Mr. Anuroop Singhi, for the appellant. Mr. Sanjay Jhanwar, for the respondent. 1.By way of this appeal, the appellant has challenged thejudgment and order of the Income Tax Appellate Tribunalwhereby the appeal of the assessee was partly allowed andcross-objection and appeal of the Department was dismissedconfirming the order of the CIT (A) as well as AO. 2.The return declaring total income of Rs Nil was filed on 28-11-96. The same was processed u/s 143(1) (a) on16.09.98. Thereafter notice u/s 148 was issued on 1-2-2000. In response thereto the assessee vide his letter dated21.02.2000 requested for considering the original returnfiled on 28.11.96 as return of income filed in response to notice issued u/s 147/148. Notices u/s 143(2), 142(1) andquestionnaire were issued from time to time. In compliancethereto Shri Naresh Sharma, C.A. and A/R appeared onbehalf of the assessee. Filed return submissions andproduced books of accounts. The books of accounts weretest checked and the case was discussed with him. Theassessee is engaged in the business of export of percious andsemi precious stones and leasing and hire purchase of vehicle.During the year under consideration, the assessee has declaredexport turnover of Rs. 1,88,25,473/- and gross income from hirecharges has been declared at Rs. 90,79,900/- and leasecharges of Rs. 55,76,072/-. The company has also engaged inleasing and hire purchase financing of automobiles andvehicles. This is most important activity of the total businessdone by the company. The assessee was therefore, specificallyasked vide questionnaire dated 05.02.2002 to furnish the detailsamongst others in respect of vehicles financed on hire purchaseand on lease basis. The assessee has filed the details as perletter dated 11.02.2002 submitting that on hire purchasebusiness, the company has not claimed any depreciation. Butthe company has claimed depreciation on all the leased assetsas per the rates of depreciation. During the year underconsideration depreciation of Rs. 1,13,109 was claimed onleased assets. The assessee was, therefore, again asked to filecomplete details of the lease transactions and as to how thedepreciation was claimed on leased assets. The details furnished reveal that these assets were purchased in the namesof the vehicle owners and the assessee has simply financedthem. The purchase bills issued by the seller of these vehiclesare in the names of the assessee. The Assessee Company isnot the real owner of these vehicles. All these vehicles are alsoregistered by the Registering Authroity District Transport Officerunder Motor Vehcile Act in the names of the Vehicle owners.The Purchase invoice/bills showed that the Assessee Companyhas simply financed them and its name is appearing only asfinancer. 3.This Court while admitting the appeals framed thefollowing substantial questions of law: furnished reveal that these assets were purchased in the namesof the vehicle owners and the assessee has simply financedthem. The purchase bills issued by the seller of these vehiclesare in the names of the assessee. The Assessee Company isnot the real owner of these vehicles. All these vehicles are alsoregistered by the Registering Authroity District Transport Officerunder Motor Vehcile Act in the names of the Vehicle owners.The Purchase invoice/bills showed that the Assessee Companyhas simply financed them and its name is appearing only asfinancer. 3.This Court while admitting the appeals framed thefollowing substantial questions of law: “i)Whetheronthefactsandcircumstances of the case, the ITAT was rightand justified in allowing the deduction ofRs.85,99,901/- u/s.80HHC and directed theAssessing Officer to obtain the audit reportafresh in Form No.10CCAC, which is verymuch contrary to the provisions of section80HHC (4) of the Act of 61?ii)Whether on, the facts andcircumstances of the case, the ITAT was rightand justified in allowing the deduction u/s80HHC after excluding the expenses relatingto 'Insurance & Registration Charges' and'Depreciation on leased vehicle', from theindirect cost allocable to the export turnover,when the explanation (e) to Section 80HHC(3) specifically defines the indirect cost? iii)Whetheronthefactsandcircumstances of the case, the find of theITAT is perverse, contrary to the record anduntenable in the eye of law?” 4.However, counsel for the respondent has relied upon decision of this Court in Income Tax Officer Vs. Novelty “3.Now the Board after recognising hasclarified in its Circular, dt. 17[th] Jan., 2001[published at (2001) 165 CTR (St) 9] that thesubmission of auditor's report in the oldformat of Form No.10CCAC is place of newformat is a defect, which can be correct byfiling the auditor's report in the revised formatduring the course of assessmentproceedings. 4.the admitted fact is that the assessmenthas been completed in the case in hand on26[th] March, 1998, and assessee had filed theauditor's report along with new format ofForm No.10CCAC on 29[th] Aug., 1996, i.e.,before completion of assessment order.” 5.The Tribunal for issue No.1 observed as under: “I have carefully considered rival submissions. It isadmitted that the purchase of shares, purchase oftransfer of stamps, insurance and registrationexpenses for purchase of vehicles are direct cost.However, it is not acceptable that rest of theadministrative expenses, interest expenses, Misc.Expenses and depreciation can be taken within thedirect cost. Considering the totality of facts andcircumstances, it is clear that the appellant has notworked out the computation of deduction inaccordance with the provisions of section 80HHC. Ifthis calculation is made strictly in accordance withthese provisions then the appellant is not entitled fordeduction under this section for Rs.12,58,755/- only.The appellant had filed claim u/s 80HHC in formNo.10CCAC alongwith original return of income inwhich claim of Rs.99,98,350.20/- has been made. Adetailed working of this claim is given in Ann-A to thisappellate order. During the course of appellate proceedings, theattention of the AR of the appellant was drawn to thefact that this working does not show any exportturnover in respect of trading goods. In response tothis querry, ld AR of the appellant filed anotherworking for a claim of Rs.85,99,901/- for deductionu/s 80HCC alongwith a note as under: "In the original annexure-A, the nature of goodsexported have mistakenly shows as those of"manufactured". In fact export represents "trading"only. This fact is evident from the details of ourexpenses, which do not contain any expenditure of the nature of manufacturing or processing expenses. Wehave rectified this mistake in the enclosed Annexure-A". During the course of appellate proceedings, theattention of the AR of the appellant was drawn to thefact that this working does not show any exportturnover in respect of trading goods. In response tothis querry, ld AR of the appellant filed anotherworking for a claim of Rs.85,99,901/- for deductionu/s 80HCC alongwith a note as under: "In the original annexure-A, the nature of goodsexported have mistakenly shows as those of"manufactured". In fact export represents "trading"only. This fact is evident from the details of ourexpenses, which do not contain any expenditure of the nature of manufacturing or processing expenses. Wehave rectified this mistake in the enclosed Annexure-A". The fresh working filed by the apellant (Ann-B to thisappellate order) for the claim of deduction u/s 80HHCat Rs.85,90,901/- is not supported by a report of anAccountant as defined in explanation below sub-section(2) of section 288 certifying that the deductionhas been correctly claimed in accordance with theprovisions of this section. Further-more, though in theannexed letter, it has been stated by the appellant thatthe whole of the export represents trading only andthere was no manufacturing or processing activity butfrom the persual of record this assertion is found to beincorrect. From the shipping bill of the export, it isseen that the appellant has exported cut and polishedstones only whereas the purchases show raw materialand semi-finished goods as indicated below:- 1)Ledger a/c of Metro Gem Ltd Bangkok –1.4.95 to 31.3.96 This account is credited by a sum of Rs.40,91,530/- on5[th] June with the note "being raw-material purchasedvide invoice No.1/95 for $1,28,400/- @ Rs.31.86/.Further the same account is further credited by a sumof Rsx.4,11,458/- on 21[st] December with the remark"being amount credited for rate difference in $/Rs andpayments made to Metro Gems Co @ Rs.35.07/-instead of Rs. 31.86 on $ 1,28,400/-" . 2) M/s Overseas Emerald 1.5.95 to 31.3.96The account of this company is credited by a sum ofRs.4,79,324/- on 23[rd] May as indigenous purchasewith the ramark "being raw material purchase videinvoice No.64". Subsequently on 19[th] August the sameamount is credited by Rs. 12,96,711/- by indigenouspurchase. "being invoice No. 74 for purchase of rawmaterial/semi finished goods". Again on 11[th]September this account is credited by a sum ofRs.5,34,112/- by indigenous purchase "being invoiceNo. 79 for purchase of raw-material/semi finishedgoods.” 6.With regard to issue No.2, the Tribunal held as under: “However, looking to the business of the appellant, hirecharges and other receipts including dividend and otherinterest etc are taken as sales of the business then thesereceipts are to be taken into consideration in calculatingtotal turnover of the business. The total turnover of thebusiness will be Rs.4,06,67,858/- which includes exportsales of Rs 1,88,25,433/-. Tfhe deduction u/s 80HHC willbe required to be calculated in accordance with theprovisions of this section. The appellant, in the revisedworking has calculated the deduction u/s 80HHC and thefigures have been given in the form No. 10CCAC.Relevant figure is reproduced below as the business ofthe appellant is export in respect of trading goods only. Total export turn over 1,88,25,473/-Total profit of the business 1,66,49,996/-Export turn over in respect of trading goods 1,88,25,473/-Direct cost of trading goods92.49,218/-Indirect cost attributable to trading goods exported 9,76,354/-Total of direct cost and indirect cost 1,02,25,572/-Profit from export of trading goods1,88,25,473/--1,02,25,572/ 85,99,901/- Total export turn over 1,88,25,473/-Total profit of the business 1,66,49,996/-Export turn over in respect of trading goods 1,88,25,473/-Direct cost of trading goods92.49,218/-Indirect cost attributable to trading goods exported 9,76,354/-Total of direct cost and indirect cost 1,02,25,572/-Profit from export of trading goods1,88,25,473/--1,02,25,572/ 85,99,901/- In calculating indirect cost in respect of trading goods,the appellant has not calculated the amount in terms ofprovisions of the Act. The indirect cost is defined inExplanation to sec.80HHC is "indirect cost means costnot being direct cost, allocated in the ratio of total turnover". In the P&L a/c the expenditure of the business isgiven as under:-Cost of goods sold (export)90,05,456/-Cost of shares sold 42,16,951/-Administrative & other expenses40,93.392/-Interest25,51,122/- DepreciationMisc. Expenses written off 38,29,105/--3,21,836/2,40,17,862/- Depreciation in the above working has not been taken as per the provisions of the I.T.Act. If this is taken into consideration then the expenditure will be as under:-Total expenditure2,40,17,862/--Less: Depreciation38,29,105/ 2,40,17,862/--38,29,105/2,01,88,757/--1,15,28,179/-3,17,16,936/ Add: depreciation The expenditure towards purchase which is direct expenditure,which is to be excluded to arrive at indirect cost. Therefore,indirect cost is to be worked out on the above figure ofRs.3,17,16,936 – (9005456+4216951) = 1,84,94,529/-. Theexport sales are Rs.1,88,25,473/- and other part of the turn overis Rs.4,06,67,858 – 1,88,25,473 = 2,18,42,385/-. Therefore, theindirect cost is to be computed as under:-Cost other than direct cost 1,84,94,529 x 1,88,25,4734,06,67,858 = 85,61,262/- From the perusal of the above working, it is clear thatthedirectcostandindirectcostisRs.4005456+8561262 = 1,75,66,718/-. Therefore, theprofit from export of trading goods is Rs.1,88,25,473/-- 1,75,66,718 = Rs. 12,58,755/-. Therefore, theappellant can be entitled for deduction u/s 80HHC forRs.12,58,755/- only.” 7.In view of the decision of this Court, the issue is required to be answered in favour of the assessee against theDepartment. 8.We are in complete agreement with the view taken by the Tribunal. The appeal is accordingly dismissed. The cross-objections thus become infructuous and are accordinglydismissed. A copy of this order be placed in the connected case. (MAHENDRA MAHESHWARI), J. (K.S. JHAVERI), J.