The Commissioner Of Income Tax-I, Jaipur v. M/S. Baid Leasing & Finance Co. Ltd

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. DB INCOME TAX APPEAL NO.243/2005 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.In this appeal, the appellant has challenged the judgmentand order of the Tribunal whereby the Tribunal has partlyallowed the appeal preferred by the assessee and dismissed theappeals preferred by the Department. 2.The brief facts of the case are that return declaringtotal income of Rs Nil was filed on 29-11-95. The same wasprocessed u/s 143(1) (a) on 12.12.97. Thereafter notice u/s148 was issued on 1-2-2000. In response thereto theassessee vide his letter dated 23.02.2000 requested forconsidering the original return filed on 29.11.95 as return ofincome in response to notice issued u/s 147/148. Noticesu/s 143(2),142(1) and questionnaire were issued from timeto time. In Compliance thereto Shri Naresh Sharma, C.A.and A/R appeared on behalf of the assessee. Filed returnsubmissions and Produced books of accounts. The books of accounts were test checked and the case was discussedwith him. The assessee is engaged in the business ofexport of precious and semi precious stone and leasing andhire purchase of vehicle. During the year underconsideration, the assessee has declared export turnover ofRs. Rs. 46,40,468/- and gross income hire charges hasbeen declared at Rs. 60,88,989/- and lease charges of Rs.8,71,412/-. In the Just preceding year there was no exportsale. The gross revenue generated from hire charges weredeclared at Rs. 2,21,067/- and lease charges of Rs.48,000/- only. While comparing the gross revenuegenerated/ income declared, there is a substantial increasein the year under consideration. The company has alsoengaged in leasing and hire purchase financing ofautomobiles and vehicles. This is most important activity ofthe total business done by the company. The assessee wastherefore, specifically asked vide questionnaire dated05.02.2002 to furnish the details amongst others in respectof vehicles financed on hire purchase and on lease basis.The assessee has filed the details as per letter dated11.02.2002 submitting that on hire purchase business, thecompany has not claimed and depreciation. But thecompany has claimed depreciation on all the leased assetsas per the rates of depreciation. 3.This Court while admitting the appeal framed the following substantial questions of law: “(i)Whetheronthefactsandcircumstances of the case, the ITAT was rightand justified in allowing the deduction u/s80HHC after excluding the expenses relatingto 'Insurance & Registration Charges' ofRs.5,31,685/- and 'Depreciation on leasedvehicle' of Rs.38,04,474/- from the indirectcost allocable to the export turnover, whenthe explanation (e) to section 82HHC (3)specifically defines the indirect cost? (ii)Whether on the facts and circumstanceof the case, the finding of the ITAT isperverse, contrary to the record anduntenable in the eye of law?” 4.With regard to issue No.1, the Tribunal held as under: 3.This Court while admitting the appeal framed the following substantial questions of law: “(i)Whetheronthefactsandcircumstances of the case, the ITAT was rightand justified in allowing the deduction u/s80HHC after excluding the expenses relatingto 'Insurance & Registration Charges' ofRs.5,31,685/- and 'Depreciation on leasedvehicle' of Rs.38,04,474/- from the indirectcost allocable to the export turnover, whenthe explanation (e) to section 82HHC (3)specifically defines the indirect cost? (ii)Whether on the facts and circumstanceof the case, the finding of the ITAT isperverse, contrary to the record anduntenable in the eye of law?” 4.With regard to issue No.1, 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/ Indirect cost attributable to trading goods exported 85,99,901/- The appellant has calculated the direct cost and indirect cost for the export attributable as under:--Direct cost: 1. Cost of goods exported90,05,456/-2. Interest on export packing credit 1,47,208/- 3. Packing and forwarding expenses on the goods exported 15,636/- 4. Air freight 28,022/-32,157/- 5. Insurance on exported goods32,157/--6. Bank charges (exclusively in r/o export a/c)20,739/ Total:92,49,218/- Indirect cost: 1. Salaries (375824+36000)2. Printing & stationary (119118+570)3. Office expenses (11084+400)4. Legal expenses (19930+20740) 4,11,824/-1,19,686/-11,484/-40,670/-28,106/-48,113/-42,036/-48,718/-25,000/-22,397/-27,018/-118454/-8,914/-12,258/-6,600/-2,68,873/-1,21,381/--3,21,836/-21,09,176/Indirect cost ndirect cost 5. Petrol expenses6. Repair and maintenance7. Electricity charges8. Postage & telegraph9. Auditor's fremuneration10. Staff welfare expenses11. Office rent 12. Telephone expenses (117804+650)13. News paper books & periodicals14. Festival expenses15. Membership fee(4000+2600) 16. Business promotion expenses17. Depreciation(other than leased assests) 18. Misc. Expenses written off3,21,836/-Total indirect cost21,09,176/Indirect cost ndirect cost attributable to exports: 9,76,354/- 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/-Depreciation38,29,105/--Misc. Expenses written off3,21,836/ 90,05,456/-42,16,951/-40,93.392/-25,51,122/-38,29,105/--3,21,836/2,40,17,862/- 18. Misc. Expenses written off3,21,836/-Total indirect cost21,09,176/Indirect cost ndirect cost attributable to exports: 9,76,354/- 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/-Depreciation38,29,105/--Misc. Expenses written off3,21,836/ 90,05,456/-42,16,951/-40,93.392/-25,51,122/-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: Depreciation38,29,105/2,01,88,757/--Add: depreciation1,15,28,179/ 2,40,17,862/--38,29,105/2,01,88,757/--1,15,28,179/-3,17,16,936/ 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 over 5 is 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.” 5.In view of the above facts, the issue is required to be answered in favour of the assessee against the Department. The appeal stands accordingly dismissed. (MAHENDRA MAHESHWARI), J. (K.S. JHAVERI), J. /bm gandhi