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TMI Blog2012 (5) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... n 133A of the Act was conducted at the business premises of the assessee on 5th December, 1996. Excess cash of Rs. 13,83,000/- was found and discrepancies in stock of gold ornaments and diamonds of Rs. 57,16,600/- were noticed. Statement of Hemant Goel, partner of the assessee, was recorded. The relevant portion of the statement reads:- "Q. Physical verification of stock during the course of survey as per inventories drawn & stock entered as per books of a/c. the following differences in stock in two forms have been found. M/s Goel Jewellers (i) Goel ornaments 777.079 gms (short) (ii) Diamond 58.73 ct. (excess) M/s Jewel Mines Corporation (i) Gold ornaments 191.861 gms (short)" Please explain the discrepancies? Ans. The excess diamond lying in the stock of M/s Goel Jewellers is surrendered to buy peace with the department. The valuation of the said stock is agreed to be taken at Rs. 6800 per ct. which comes to Rs. 399364/- As regards shortage in the gold ornaments is concerned in both the firms the same is lying with Karigars for manufacturing. Q. Is there any other stock of bullion lying with your karigars for manufacturing. If so please quantify and explain? Ans. Total stock l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 80HHC. 8. On further appeal before the tribunal vide order dated 13th May, 2003, the tribunal held that the assessee during the course of survey had surrendered Rs.75 lacs under the head "business income". The said surrender has to be accepted as a whole and not on piecemeal basis. Rs.75 lacs, which was surrendered has to be assessed under the head "business income". The exact reasoning of the tribunal reads as under:- "3. After hearing rival submissions and perusing the material on record, we find that assessee deserves to succeed in its appeal. We have seen the copy of statement recorded during the survey operation and find that assessee surrendered a sum of Rs.75 lakhs under the head "Business income". This surrender was made by assessee subject to treating the same as business income and not to levy any penalty under the provisions of law. The English version of the statement recorded of the assessee s placed from pages 19 and 20 of the paper book. We have further seen that the AO has accepted the contention of the assessee in a way that no penalty u/s 271(1)(c) were initiated while completing the assessment u/s 143(3) of the Income Tax Act. In our considered vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, the CIT(Appeals) vide order dated 6th August 1998 held that the tribunal had directed that Rs.75 lacs, as surrendered, should be treated as business profit and the deduction should be accordingly calculated. He observed that the Assessing Officer while giving appeal effect had not correctly computed the deduction under Section 80HHC. He must strictly comply with the directions given by the tribunal and in case the Assessing Officer had any grievance and was not satisfied with the order of the tribunal, Reference before the High Court was the remedy. 12. Pursuant to the said directions, the Assessing Officer recomputed the deduction under Section 80HHC and enhanced the same to Rs. 84,88,511/-, the figure claimed in the return. 13. The Commissioner of Income Tax, Delhi-IX issued notice and invoked the revisionary power under Section 263 of the Act. Vide order dated 1st April, 2004, the Jurisdictional Commissioner held as under:- "18. In view of the above, I hereby proceed to determine both the aforesaid issues on the basis of facts and circumstances of the case and in default of the assessee saying anything in respect of either of them. It is quite clear, and there can har ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 223;ble ITAT. 20. Even if it is assumed, though not conceded, for the sake of argument that the profit of Rs.75 lacs is to be included for the purposes of the formula given in section 80HHC(3) than the estimated turnover referable to the said profit of Rs.75 lacs will also have to be included in the total turnover in applying the formula given Section 80HHC(3). Hence the export profit and the deduction shall work out to (Rs.2756083+7500000)x(26783345)/(32492658+47588832)=3693 481/-. Thus even on this basis the maximum deduction admissible to the assessee will be Rs.36.93 lacs only. 21. However, for reason stated in paragraphs 12 and 19 above, it is held that in accordance with the finding of the Hon‟ble ITAT the assessee is entitled to deduction u/s 80HHC of no more than Rs.2271809/-. The total income of the assessee shall therefore be Rs.10297979-2271809=8026170/- in place of Rs.1809468/- determined by the Assessing Officer in his order dated 8.1.2004. The assessing office is directed to give effect to this order and to raise the additional demand of tax as well as interest under sections 234B, 234C and 234D in accordance with the mandatory provisions of the said sections. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same ratio as otherwise disclosed in the account of the assessee is perverse?" 16. ITA No. 24/2006 was admitted to hearing and vide order dated 24th September, 2007 the following substantial questions of law were framed:- "1. Whether, on the facts and circumstances of the case the Income Tax Appellate Tribunal („Tribunal‟) erred in holding that the order of the Assessing Officer dated 8th January, 2004 giving effect to the directions of the Commissioner of Income Tax (Appeals) [CIT(A)] dated 28th November, 2004 was erroneous and prejudicial to the interest of the Revenue for the purposes of Section 263 of the Income Tax Act, 1961 („Act‟)? 2. Whether, on the facts and circumstances of the case the Income Tax Appellate Tribunal („Tribunal‟) was justified in holding that issues with regard to the export profit and turnover were not the subject matter of the appeal before Commissioner of Income Tax (Appeals) [CIT(A)] and the Tribunal and therefore the invoking of Clause (c) to the Explanation to Section 263(1) of the Act was justified?" ITA No. 16/2004 17. This appeal according to us is the main appeal and the question of quantum of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has raised the same contention and relied upon the order dated 6th August 1998 passed by the CIT(A). 20. Section 80HHC is a part of Chapter VI A and provides for deduction in respect of income/profits derived from exports made out of India of any goods or merchandise. Exports profits during the relevant period were entirely exempt and had to be reduced from the taxable income. On export profits/ income earned as computed under Section 80HHC, no tax was payable. We have to examine whether the aforesaid direction is right, justified and as per law. 21. To qualify for the said deduction various stipulations and requirements mentioned in Section 80HHC have to be satisfied. These include the requirement that the assessee should have received remittance of the export proceeds in convertible foreign exchange. Sub-section 3 to Section 80HHC prescribes the formula when an assessee has both export turnover and domestic sales, as in the present case. It requires computation of the export turnover, total turnover and business income. Thereafter, on a proportionate basis, profits earned from the export business are computed and treated as derived from the exports. Relevant porti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude an amount in the profit/income without appropriate and required increase in the turnover when we apply the formula mentioned in 80HHC(3). In the present case we do not have the figure of turnover on which Rs. 75 lacs was earned and disclosed as income. Rs. 75 lacs, therefore, cannot be added to the business income while computing deduction as per the formula under Section 80HHC(3) of the Act. 23. When we examine the computation made and pressed by the assessee it is apparent that the tribunal has misdirected itself by directing that Rs. 75 lacs was a part of the profits/ income earned. The surrender of Rs. 75 lacs would have no meaning, if the direction of the tribunal is accepted as correct. If Rs. 75 lacs is treated as business profit, the deduction declared under Section 80HHC as submitted by the assessee works to Rs. 84,53,978/-. If this amount is not taken into consideration as part of business profit, then the deduction under Section 80HHC is Rs. 22,71,800/-. The difference in the two figures is Rs. 61,82,178/-. In other words, the actual surrender made by the assessee was Rs. 13,18,000/- only and not Rs. 75 lacs. This was obviously not the intention when the surrender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks versus Commission of Income Tax (Appeals), (2007) 288 ITR 18 (P&H), the assessee surrendered of Rs.12 lacs as business income at the time of survey. The contention of the assessee was that said surrender should be treated as income from exports as the assessee was an export oriented unit. The surrendered amount was treated and reflected in the profit and loss account as profits derived from exports. The assessee was unsuccessful before the tribunal and the High Court affirmed the decision observing that deduction under Section 80HHC could be claimed only on showing facts which make an assessee eligible for the deduction. There was no presumption that the surrender made was on account of unexplained stocks representing the export income. It was further observed that burden to prove to said facts was on the assessee and not on the Revenue. We fail to understand how this decision helps and supports the case and the stand of the assessee. The said decision supports the version and the stand of the Revenue. Similarly, in Commissioner of Income Tax versus Bawa Skin Company (2007) 294 ITR 537 (P&H), the Assessing Officer rejected the books of accounts under Section 145 of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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