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The Commissioner of Income Tax v/s Rajratna Metal Industries (P) Ltd.

    Tax Appeal Nos. 1084 of 2006 to 1086 of 2006

    Decided On, 13 November 2014

    At, High Court of Gujarat At Ahmedabad

    By, THE HONOURABLE MR. JUSTICE KAUSHAL JAYENDRA THAKER & THE HONOURABLE MR. JUSTICE K.S. JHAVERI

    For the Appellant: Nitin K. Mehta, Advocate. For the Respondent: Hardik V. Vora, Advocate.



Judgment Text

K.S. Jhaveri, J.

1. Since, the issue involved in these matters is similar, they are heard together and disposed of by this common judgment.

2. The appellant-Revenue is in appeal against the order of the ITAT passed in (1) ITA No. 999/Ahd/2000 for A.Y.-1995-96, Dated : 29.09.2005, (2) ITA No. 1145/Ahd/2000 for A.Y.-1996-97, Dated : 28.09.2005 and (3) ITA No. 1902/Ahd/2000 for A.Y.-1997-98, Dated : 07.10.2005.

3. The brief facts of the case are that the respondent-assessee filed returns of income for the different assessment years. The respondent-assessee vide aforesaid returns claimed deduction under Section 80HHC of the Income Tax Act, 1961 (for short, 'the Act'). However, the appellant-revenue reduced the claim of the respondent-assessee for deduction under the aforesaid section for the relevant years. Hence, the respondent-assessee carried the matter before the CIT(A) and the learned CIT(A) allowed all the appeals filed by the respondent-assessee. Being aggrieved with the same, the appellant-revenue approached the ITAT and the ITAT partly allowed the appeals of the revenue. Hence, the appellant-revenue has preferred the present appeals, raising the following common questions of law for the consideration of this Court;

"(A) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the learned CIT(A) holding that the only net conversion charges should be taken into consideration for the purpose of deduction u/S. 80HHC of the Act, despite clear provisions of clause (baa) of Explanation to Section 80HHC?

(B) Whether the Appellate Tribunal is right in law and on facts in holding that the excise duty and sales tax should be excluded from the total turnover for the purposes of computation u/s. 80HHC of the Act?"

4. Heard learned Counsels for the parties and perused the material on record as well as the orders passed by the CIT(A) and Tribunal.

5. So far as the first question pertaining to net conversion charges is concerned, the learned Counsels for the parties invited our attention to a decision of the Apex Court in the case of ACG Associated Capsules Pvt. Ltd. (Formerly Associated Capsules Pvt. Ltd.) Vs. The Commissioner of Income Tax, Central-IV, Mumbai, , wherein, the Apex Court held that ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of business of the assessee, as computed under the head "Profits and gains of business or profession", was to be deducted under clause (1) of the Explanation (baa) to section 80HHC for determining the profits of the business.

6. In the case on hand, from the material on record it is borne out that at the time of assessment, the AO noticed that the profit of business, for the purpose of deduction under Section 80HHC, had been calculated without deduction 90 per cent interest received and 90 per cent of conversion charges, and therefore, he reduced the same. However, while doing so the AO appears to have overlooked the fact that in the case of the very assessee for the A.Y. 1994-95, the then CIT(A) had already directed the AO not to reduce 90 per cent of the interest received and that of the conversion charges. Thus, the CIT(A) was justified in directing the AO to follow the earlier order passed by the CIT(A) in the case of the assessee for the A.Y. 1994-95, which, is rightly confirmed by the Tribunal. In the result, in view of the above discussion and the ratio laid down by the Apex Court in the aforesaid decision, the first question requires to be answered in favour of the assessee.

7. Insofar as the second question pertaining to inclusion of excise duty and sales tax in total turnover is concerned, the learned Counsel for the parties, invited our attention to another decision of the Apex Court in the case of Commissioner of Income Tax, Coimbatore Vs. Lakshmi Machine Works, , wherein, the Apex Court hold that while interpreting the words "total turnover" in the formula in Section 80HHC, one has to give a schematic interpretation and 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, and therefore, excise duty and sales tax also cannot form part of the "total turnover" under Section 80HHC(3) of the Act.

8. As is clear from the material on record, in the instant case, the AO while examining the returns of the respondent-assessee for the relevant assessment years not only added the amount towards excise duty but also the amount towards sales tax for arriving at the amount of total turnover of the respondent-assessee and thereby he committed a grave error. Hence, in view of the above discussion and in view of the ratio laid down by the apex Court in th

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e case of "LAKSHMI MACHINE WORKS"(Supra), the CIT(A) was justified in directing the AO to deduct the amount towards sales tax and excise duty for arriving at total turnover of the respondent-assessee for the relevant years. Under the circumstances, second question also requires to be answered in favour of the respondent-assessee. 9. In the result, both the questions are answered against the appellant-revenue and in favour of the respondent-assessee and all the appeals stand dismissed as being without merit. No order as to costs.
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