`Honourable Mr.justice v. M. Sahai Honourable Mr.justice N.v. Anjaria`

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 470 of 2011 For Approval and Signature: HONOURABLE MR.JUSTICE V. M. SAHAIHONOURABLE MR.JUSTICE N.V. ANJARIA =========================================================1[Whether Reporters of Local Papers may be allowed ]to see the judgment ? 2To be referred to the Reporter or not ? 3[Whether their Lordships wish to see the fair copy ]of the judgment ?Whether this case involves a substantial question of law as to the interpretation of the 4constitution of India, 1950 or any order made thereunder ?5[Whether it is to be circulated to the civil judge ]? ========================================================= COMMISSIONER OF INCOME TAX-III - Appellant(s)VersusM/S SHREENATH INTERMEDIATES C/O BHAILALBHAI T AKHANI - Opponent(s) =========================================================Appearance :MRS MAUNA M BHATTfor Appellant(s) : 1,None for Opponent(s) : 1, ========================================================= CORAM :HONOURABLE MR.JUSTICE V. M. SAHAI and HONOURABLE MR.JUSTICE N.V. ANJARIA Date : 13/06/2012 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE N.V. ANJARIA) The present appeal under section 260A of the Income Tax Act, 1961 is preferred by the Revenue against the order dated 09.07.2010 of Income Tax Appellate Tribunal, Ahmedabad Bench ‘C’ in ITA No.2080/1995, wherein the following questions are proposed to be arising as the substantial questions of law. “(A) Whether The Appellate Tribunal is right in law and on facts in Directing the assessing officer to exclude excise duty and sales tax for the purpose of calculating deduction u/s.80HHC?” (B) Whether The Appellate Tribunal is right in law and on facts in holding that Rs.9,16,617/- (excise duty refund) falls within the purview of provisions of Explanation (baa) to section 80HHC?”” 2.Noticing the relevant facts, in the return of income of the assessee for the Assessment Year 1994-95, the Assessing Officer while working eligible deduction under section 80HHC, computed total turnover by adding Sales Tax of Rs.6,61,131/- and Excise Duty of Rs.45,11,261/-. Further, the Assessing Officer noticed that the Central Excise set-off/refund of Rs.9,15,616/- was in the nature of an asset as per the MODVAT Account and accordingly he excluded 90% of such amount while calculating deduction under section 80HHC. Moreover, he excluded 90% of interest income of Rs.2,05,807/- while calculating 80HHC deduction and reworked the allowable deduction on all the above basis. 2.1The Commissioner of Income-tax (Appeals) upheld the disallowance made by the Assessing Officer, but the Appellate Tribunal deleted the disallowance while allowing the appeal of the assessee in view of the judgment of the Supreme Court in Laxmi Machine Works Vs. CIT [290 ITR 667]. 3.We have heard the learned Sr. Standing Counsel Mr. M.R.Bhatt with Mrs. Mauna Bhatt for the appellant. 4.Having considered the matter, the point formulated by the Revenue in question (A) proposed as substantial question of law, reproduced hereinabove, has been covered and decided in Laxmi Machine Works (supra). It was held that the principal reason for enacting the formula in section 80HHC of the Income Tax Act, 1961, is to disallow a part of the concession thereunder when the entire deduction claimed cannot be regarded as relating to exports. Therefore, while interpreting the words “total turnover” in the formula in section 80HHC one has to give a schematic interpretation. The various amendments made therein show that receipts by way of brokerage, commission, interest, rent, etc., do not form part of business profits as they have no nexus with the activity of export. The amendments made from time to time indicate that they became necessary in order to make the formula workable. If so, excise duty and sales tax also cannot form part of the “total turnover” under section 80HHC(3). 4.1The Apex Court observed further - “Therefore, just as commission received by an assessee is relatable to exports and yet it cannot form part of “turnover”, excise duty and sales tax also cannot form part of the “turnover”. Similarly, “interest” emanates from exports and yet “interest” does not involve an element of turnover. The object of the Legislature in enacting section 80HHC of the Act was to confer a benefit on profits accruing with reference to export turnover. Therefore, “turnover” was the requirement. Commission, rent, interest, etc. did not involve any turnover. Therefore, 90 per cent of such commission, interest, etc. was excluded from the profits derived from the export. Therefore, even without the clarification such items did not form part of the formula in section 80HHC(3) for the simple reason that they did not emanate from the “export turnover”, much less any turnover. Even if the assessee was an exclusive dealer in exports, the said commission was not includible as it did not spring from the “turnover”. Just as interest, commission etc. did not emanate from the “turnover”, so also excise duty and sales tax did not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover, such taxes had to be excluded.” 4.2In view of the law laid down by the Apex Court, the Question (A) stands answered and with regard to that question there is substance in the appeal. 5.As far as question (B) proposed as substantial question of law is concerned, it is seen that by the impugned order, the Tribunal has restored the issue remanding the matter for that matter to CIT(A) observing that the Appellate Commissioner had rejected the claim of the assessee without passing any speaking order. To be precise, the Tribunal while passing the aforesaid order has observed as under: “The assessee made a specific submission before the authorities below by claiming that the gross total income of Rs.10,70,000/- did not include the amount of Rs.9,15,617/-. Once the above amount of excise duty refund was not shown as part of the income, there was no reason to have considered the same in the light of Explanation (baa) to section 80HHC of the IT Act. The assessee made detailed submission before the learned CIT(A) but the learned CIT(A) without passing any speaking order on the issue rejected the claim of the assessee by considering other issues attached to the above ground of appeal. According to section 250(6) of the IT Act, the learned CIT(A) is required to pass speaking order discussing the point for determination, submission of the assessee and should have given reasons for decision on the same. Since the learned CIT(A) did not appreciate the facts of the case in proper perspective and has not passed speaking order, we, therefore, set aside the order of the learned CIT(A) and restore this issue to his file with direction to re-decide the above issue in the light of the submissions made by the assessee above and in the light of the decision of ITAT Ahmedabad Bench in the case of Aarti Industries Ltd. (supra).” 6.The observations and the consequential remand of the matter restoring it to the files of Appellate Commissioner with a direction to re-decide the issue is found to be proper. The appellate authority would be reconsidering the issue on the basis of the directions and observations of the Tribunal and would pass a reasoned in accordance with law. Such order does not raise any question of law much less substantial question of law. As no substantial question of law has been arising, the appeal is not liable to be entertained. 7.Accordingly, the appeal fails on both the questions proposed as substantial questions of law by the Revenue, as no question of law arises in the case. This Tax Appeal is therefore dismissed. (V.M. SAHAI, J.) (N.V. ANJARIA, J.) (SN DEVU PPS)