The Commissioner Of Income Tax-9 v. K.patel Dye-Chem Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO. O. C. J. INCOME TAX APPEAL NO.3178 OF 2009 The Commissioner of Income Tax-9. ...Appellant. Vs. K.Patel Dye-Chem Pvt. Ltd. ...Respondent. .... Mr. Suresh Kumar for the Appellant.Mr.S.S.Shetty for the Respondent. ..... CORAM : DR.D.Y.CHANDRACHUD AND J.P.DEVADHAR, JJ. April 9, 2010. P.C. : The appeal by the Revenue under Section 260A of the Income Tax Act, 1961 raises the following questions of law: “(a) Whether, on the facts and in the circumstances of the case, the ITAT was justified in law in confirming the order of the CIT(A) deleting the addition of Rs.2,09,344/- to the closing stock on account of unavailed Modvat credit at the end of the relevant previous year on the ground that no provision is made for Excise duty on goods lying in bounded warehouse on the closing date and provision of Excise duty will have no impact on the profit of the year; (b) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in confirming the order of the CIT(A) deleting the addition of Rs.2,09,344/- to the closing stock on account of unavailed Modvat credit at the end of the relevant previous year ignoring the provisions of section 145A of the Income Tax Act, 1961, according to which the value of purchases and sales of the goods and inventory for the purpose of determining the income chargeable under the head ‘profit & gains of business/profession’ have to be adjusted to include the amount of any tax, duty etc.; -(c) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in confirming the order of the CIT(A) holding that job work charges/labour charges cannot be considered at par with receipts enumerated in the explanation (baa) to section 80HCC of the Income Tax Act, 1961 and accordingly 90% of the same was not to be excluded from the ‘profit & gains of business/profession’ to arrive at book profit as per explanation (baa) to section 80HHC of the Income Tax Act, 1961 whereas the Supreme Court in the case of CIT vs. K.Ravindranathan Nair reported in 295 ITR 228 has clearly held that processing charges derived by the assessee being independent income like rent, commission etc. 90% thereof had to be reduced from the gross total income to arrive at the profit of the business. The said decision of the Apex Court has further been followed in the case of CIT vs. Deodhar Electro Design Pvt.Ltd. 300 ITR 103; -(d) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in confirming the order of the CIT(A) holding the labour charges/job work charges as part of normal profit and gains of the business for the purpose of deduction u/s.80 HHC of the Income Tax Act, 1961 following the decision of the Bombay High Court in the case of CIT vs. Bangalore Clothing Co., 260 ITR 371 which stands superseded by the decision of the Apex Court in the case of CIT vs. K.Ravindranathan Nair reported in 295 ITR 228. -(e) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in confirming the order of the CIT(A) in respect of deduction of Rs.8,16,368?- being 80% of Rs.10,20,460/- u/s.80HHC(1A) of the Income Tax Act, 1961 which is based on incorrect computation of the profit of the business done by the assessee. -(f) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in confirming the order of the CIT(A) in respect of deduction of Rs.8,16,368/- being 80% of Rs.10,20,460/- u/s.80HHC(1A) of the Income Tax Act, 1961 even though the profit of the business for the said purpose has wrongly been computed by the assessee without reducing 90% of the labour charges/job work charges amounting to Rs.34,29,000/- from the profit and gains of the business as provided in clause (baa) of explanation to section 80HHC of the Income Tax Act, 1961.” computation of the profit of the business done by the assessee. -(f) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in confirming the order of the CIT(A) in respect of deduction of Rs.8,16,368/- being 80% of Rs.10,20,460/- u/s.80HHC(1A) of the Income Tax Act, 1961 even though the profit of the business for the said purpose has wrongly been computed by the assessee without reducing 90% of the labour charges/job work charges amounting to Rs.34,29,000/- from the profit and gains of the business as provided in clause (baa) of explanation to section 80HHC of the Income Tax Act, 1961.” Counsel appearing on behalf of the Revenue states that questions (a) and (b) are covered against the Revenue by the decision of the Division Bench of this Court in CIT vs. Mahalaxmi Glass Works P.Ltd., (2009) 318 ITR 116. In the circumstances, questions (a) and (b) do not raise any substantial questions of law. Counsel appearing on behalf of the Revenue and Counsel appearing on behalf of the Assessee are agreed in stating that questions (c) and (d) are covered in favour of the Revenue and against the Assessee by the judgment of this Court dated 8[th] April 2010 in CIT vs. Dresser Rands India Pvt.Ltd. (Income Tax Appeal No.2186 of 2009). In the circumstances, the appeal is admitted on questions (c) and (d). The Appeal would have to be allowed and questions (c) and (d) answered in favour of the Revenue and against the Assessee in view of the judgment in Dresser Rand (supra). Questions (e) and (f) are consequential to the above. The appeal shall accordingly stand allowed to the aforesaid extent. There shall be no order as to costs. ( Dr.D.Y.Chandrachud, J.) ( J.P.Devadhar, J.)