Itxa/1173/2017 Of Pr. Commissioner Of Income Tax-21 v. M/S. Looms India

Digitally signedby GAURIGAURIAMITAMITGAEKWADGAEKWADDate:2021.10.1414:40:13 +0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1173 OF 2017 Pr. Commissioner of Income Tax – 21 ….Appellant V/s. M/s. Looms India ….Respondent ---- Mr. Suresh Kumar for appellant.Mr. M. Subramanian i/b. Mr. Vishnu S. Hadade for respondent. ---- CORAM : K.R.SHRIRAM, & AMIT B. BORKAR, JJ. DATED : 11[th] OCTOBER 2021 P.C.: 1Respondent filed its return of income on 30[th] October 2001declaring total income of Rs.Nil and declaring 20% of amount of deductionof Rs.22,33,208/- under Section 80HHC (Deduction in respect of profitsretained for export business) of the Income Tax Act, 1961 (the said Act).The assessment was completed vide order dated 31[st] March 2004. TheAssessing Officer had held that the assessee had no positive income fromthe export if 90% of incentives and other income are reduced from profit ofthe business and disallowed the deduction claimed by the assesee underSection 80HHC. The Assessing Officer also disallowed a sum ofRs.2,39,57,005/- and brought to tax the said amount under Section69A (Unexplained money, etc.) after giving a finding that respondent hasnot been able to satisfactorily explain the acquisition/purchase of goods ofthis value. According to the Assessing Officer, the purchase has been made against cash but full cash payment has not been made on or before thepurchase and therefore, it has to be presumed that cash payment shown inthe books after the date of purchase did not reflect the true state of affairs.The Assessing Officer also observed that the assessee has not debited anybrokerage or commission expenses to the P and L account. He also observedthat the amount of cash withdrawn for payments to suppliers on or beforethe date of purchase is less compared to the value of the cash purchases andcash payments made after the date of purchase to such suppliers and hencecannot be accepted. The whole basis of the Assessing Officer’s assumption isthat normally in cash purchases the goods are supplied or delivered onreceipt of the payment. 2Aggrieved by this order of the Assessing Officer, respondentfiled an appeal before Commissioner of Income Tax (Appeal) [CIT (A)]. TheCIT (A) vide order dated 10[th] November 2004 partly allowed the appeal ofthe assessee. Being aggrieved by the order of CIT (A), appellant filed anappeal before the Income Tax Appellate Tribunal (ITAT). ITAT vide its orderdated 20[th] July 2016 dismissed the appeal and confirmed the viewsexpressed by CIT (A). CIT (A) had held that respondent was eligible fordeduction under Section 80HHC and addition under Section 69A waswithout any basis. Against the order of ITAT, the present appeal has beenfiled and the substantial question of law proposed are as under : (i) Whether on the facts and circumstances of the case, the Hon’ble Tribunal is correct in holding that the assessee isentitled to compute income u/s. 80HHC on netting of interestincome. (ii) Whether on the facts and circumstances of the case, whenthe export income is Nil then whether the assessee is entitledto claim deduction u/s. 80HHC on export incentive. (iii) Whether, on the facts and circumstances of the case andin law, the Hon’ble ITAT has not erred in confirming the orderof the Ld. CIT (A) wherein it was held that the assessee isliable for disallowance u/s. 40A(3) of the IT Act instead ofaddition u/s. 69A made by the AO ignoring the fact that theaddition of Rs.2,37,57,005/- was made u/s. 69A which isstand alone addition having no connection with theallowance or other wise of deduction u/s. 80HHC of the Act. 3At the outset, Mr. Suresh Kumar stated that question no.1 is nomore res-integra in view of the judgment of the Apex Court in the case of ACG Associates Capsules (P.) Ltd. V/s. Commissioner of Income Tax,1Central- IV, Mumbai. (iii) Whether, on the facts and circumstances of the case andin law, the Hon’ble ITAT has not erred in confirming the orderof the Ld. CIT (A) wherein it was held that the assessee isliable for disallowance u/s. 40A(3) of the IT Act instead ofaddition u/s. 69A made by the AO ignoring the fact that theaddition of Rs.2,37,57,005/- was made u/s. 69A which isstand alone addition having no connection with theallowance or other wise of deduction u/s. 80HHC of the Act. 3At the outset, Mr. Suresh Kumar stated that question no.1 is nomore res-integra in view of the judgment of the Apex Court in the case of ACG Associates Capsules (P.) Ltd. V/s. Commissioner of Income Tax,1Central- IV, Mumbai. 4As regards question no.2, this also is no more an issue. This isbecause the Assessing Officer had proceeded on the basis that if the reportincentives are excluded, there is a negative profit, which in other wordsmeans loss, respondent has not derived any profits from the export businessand therefore, was not entitled to deduction under Section 80HHC. Inparagraph 7 of the Assessing Officer’s order, he states “in the instant case,therefore, the assessee was entitled to deduction only to the extent ofprofits derived from the export of goods or merchandise which in theassessee’s case was a negative figure and as such the assessee was not 1. (2012) 18 taxmann.com 137 (SC) entitled to deduction under Section 80HHC.”. ITAT, which confirmed theorder of CIT (A), has concluded, in fact there would be profits of business inthe sum of Rs.16,610/-. We have to also note that the Assessing Officer had passed thisorder on 31[st] March 2004. The CIT (A) passed its order on 10[th] November2004. By an amendment in 2005, 5[th] proviso was inserted to sub Section 3 of Section 80HHC, which reads as under : Provided also that in case the computation under clause (a)or clause (b) or clause (c) of this sub-section is a loss, suchloss shall be set off against the amount which bears to ninetyper 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 (iiie),as the case may be, of section 28, as applicable in thecase of an assessee referred to in the second or thethird or the fourth proviso, as the case may be, the same proposition as the export turnover bears to the totalturnover of the business carried on by the assessee. This insertion was with retrospective effect from 1[st] April 1992. Therefore, even for a moment we accept what Mr. Suresh Kumar submittedthat the calculation by CIT (A) was not correct, still pursuant to thisamendment coming into force with retrospective effect, respondent will beentitled to deduction under Section 80HHC even where profits derived fromthe export of goods was a negative figure, i.e., even where there was a loss. 5As regards question no.3, first of all the issue raised, in ouropinion, would be question of fact and cannot be question of law. The the same proposition as the export turnover bears to the totalturnover of the business carried on by the assessee. This insertion was with retrospective effect from 1[st] April 1992. Therefore, even for a moment we accept what Mr. Suresh Kumar submittedthat the calculation by CIT (A) was not correct, still pursuant to thisamendment coming into force with retrospective effect, respondent will beentitled to deduction under Section 80HHC even where profits derived fromthe export of goods was a negative figure, i.e., even where there was a loss. 5As regards question no.3, first of all the issue raised, in ouropinion, would be question of fact and cannot be question of law. The Assessing Officer has proceeded on the basis that in the case of cashpurchases, supply and delivery is given only at the time of payment and thatthe cash withdrawn on or before the date of purchase was less than theamount of purchase. At the same time, he also accepts that cash has beenwithdrawn after the date of purchase and if the cash withdrawal made onor before the date of purchase is added to cash withdrawal after the date ofpurchase, it almost tallies with the amount of purchase. Moreover, it is notdenied anywhere that any purchases were ever made or the entries for cashpayments made were bogus entries. The only basis we find, when we readthe entire order, for the Assessing Officer to come to the conclusion that hehas arrived at that the explanation was unsatisfactory is because in hisbelief, based on a presumption, in cash purchases full consideration has tobe paid before taking delivery. He has also stated that some of the suppliershad stated that they have not supplied to respondent but can that be asubstantial question of law whether such supplies were made or otherwise?In our opinion, these are questions of fact. We also have to note that there isa finding that the Assessing Officer has accepted as genuine the paymentmade to the same suspect parties before the date of purchase. 6In our view, the Tribunal has not committed any perversity orapplied incorrect principles to the given facts and when the facts andcircumstances are properly analysed and correct test is applied to decide theissue at hand, then, we do not think that question as pressed raises any substantial question of law. 7The appeal is devoid of merits and it is dismissed with no order as to costs. (AMIT B. BORKAR, J.) (K.R. SHRIRAM, J.)