TMI Blog2013 (1) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (baa) of Explanation to section 80HHC - Held that:- Since the issue of reduction of 90% under clause (baa) of Explanation to sec. 80HHC was neither raised before the CIT(A) in the appeal of the assessee nor it was taken up by the CIT(A) in the first round of litigation, therefore, the said issue was not at all involved and consider in the appeal of the assessee by CIT(A) while passing the order dated 18.5.2001 whereby the issue of indirect cost allocable to the export of traded goods was remanded to the AO - thus when the limited aspect/dispute of allocation of indirect cost to the export of trading goods was remanded to the record of the AO then in the giving effect proceedings in pursuant to the directions of the CIT(A) the jurisdiction and power of the AO is confined only to the issue and aspect, which has been remanded for reworking and re-determination. Hence, in the proceedings pursuant to the directions of the CIT(A), AO cannot go beyond the issue and aspect which was directed to be reconsidered and decided. - thus by taking up the issue of reduction of 90% of the receipts arising from sales tax refund, processing charges and sale of scrap, the AO has travelled be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the issue of adopting indirect cost for computing the profits of trading exports to Assessing Officer for the purpose of deduction u/s 80HHC vide order dated 18.5.2001. Pursuant to the order of the Commissioner of Income Tax(Appeals), the Assessing Officer has passed the order giving to effect to Commissioner of Income Tax(Appeals) s order whereby the Assessing Officer computed the indirect costs attributable to the trading goods exported at Rs.2,65,79,211/-. 3.1 Apart from allocating the indirect costs against the profit from export of trading goods, the Assessing Officer, while passing the order giving to effect to CIT(A) s order also applied clause (baa) of Explanation to Sec. 80HHC (4C) and thereby reduced 90% of other income, which includes processing charges, sales tax refund and income on sale of scrap from business profits. 3.2 Aggrieved by the action of the Assessing Officer in the order giving effect to the order of the Commissioner of Income Tax(Appeals), the assessee filed appeal before the Commissioner of Income Tax(Appeals) raising objection against the jurisdiction of the Assessing Officer in the remand proceedings for reducing 90% of other income under claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the provisions of section 8OHHC(3)(c)(i) of the Act. He ought not to have done so. 2. Without prejudice to Ground No.1, on the facts and in the circumstances of the case and in law, the learned CIT(A), has erred in holding that in computing the deduction under section 8OHHC(3)(c)(i), 90% of the following receipts had to be excluded from the profits of business/adjusted profits of business: (i) Sales-tax refund Rs.65,20,908 (ii) Processing charges Rs.1,85,80,156 Rs.2,51,01,064 3. On the facts and in the circumstances of the case and in law, the learned CIT(A), has erred in confirming that the learned assessing officer had correctly excluded the processing charges of Rs.1,85,80,156, and sales-tax set off / refund of Rs.65,20,908 from the business profits by treating these receipts as covered under clause (baa) of the explanation to section 8OHIIC for the purpose of computing the deduction under that section. He ought not to have done so. 4. On the facts and in the circumstances of the case and in law, the learned CIT(A), has erred in holding that in computing the deduction in respect of export of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 429. 4.2 The Ld Sr counsel has submitted that the directions of the Commissioner of Income Tax(Appeals) while setting aside the issue of deduction u/s 80HHC was explicit to consider the claim of the amount that are to be taken as direct cost and indirect cost in relation to the goods exported out of India for computation of deduction u/s 809HHC(3)(b). While deducting 90% of the certain receipts while working out the eligible deduction u/s 80HHC, the Assessing Officer has gone beyond the direction and thereby exceeded his jurisdiction. 4.3 The ld Sr counsel has alternatively submitted that even otherwise, the processing charges received by the assessee are operating receipts and cannot be held as the income falls under clause III(a),(b),(c),(d) and (e) of section 28 as provided under clause (baa)of Explanation to section 80HHC. He has further contended that even otherwise, the exclusion of 90% of such receipts should be net and not gross as held by the Hon ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income-tax reported in 343 ITR 89. 4.4 On the other hand, the ld DR has submitted that the Commissioner of Income Tax(Appeals) has given a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, processing charges and miscellaneous income on sale of scrap, the details of which are as under: i) Sales Tax Refund Rs.65,20,908/- ii) Processing Charges Rs.1,85,80,156/- iii) Sale Value of scrap included in Misc. Income Rs.1,16,989/- Total Rs.2,52,18,053/- 5.1 The assessee has not challenged the action of the Assessing Officer in the original assessment to the extent of applying clause (baa) of Explanation to sec. 80HHC on certain income but has challenged the action of the Assessing Officer only with respect to the figure of total turnover and allocation of indirect cost to the export of traded goods. The Commissioner of Income Tax(Appeals) vide his order dated 18.5.2001 has remitted these two issues in paras 26 to 26.5 as under: 26.1 In working out the deduction allowable u/s.80HH-C, the assessee took the total turnover at a figure of Rs.5,35,79,38,457/. The assessing officer held that export turnover of Rs.7.67 crores not realised by 30/9/98 was not included in the total turnover as mentioned above. He according)y added this amount of Rs.7.67 crores to be total turnover taken by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the workings of the A.0 and the A, R., I find that the A. 0, worked out the indirect costs at Rs1,73,00,11,000/- without giving a proper opportunity of being hoard to the assessee. It is not possible to decide in this appellate order, what items should be included or excluded in the indirect costs without the Assessing Officer discussing them thoroughly in the assessment order. The Assessing Officer is, therefore, directed to re-compute the deduction allowable u/s 80HHC after discussing each and every claim of the assessee before coming to a decision on each point. For this purpose, the matter is restored to the AO, with a direction to determine the deduction allowable u/s. 8O.HHC after giving proper opportunity of being heard to the assessee." 5.2 It is clear that as regards to the dispute of turnover, the Commissioner of Income Tax(Appeals) has accepted the claim of the assessee and directed the Assessing Officer just to verify and compute the deduction u/s 80HHC accordingly. Whereas the issue of indirect cost allocated to the export of goods traded as per sec.80HHC(3)(b), the Commissioner of Income Tax(Appeals) has remanded the issue to the record of the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer. 6.2 The Hon ble jurisdictional High Court in the case of Indo-Aden Salt Works Co (supra), has observed at pages 435 and 436 as under: That brings us to the consideration of the real contention of the assessee which turns on the interpretation of the Tribunal's order when it directed the Appellate Assistant Commissioner to dispose of the appeal on its merits. It appears from that order that it was a common ground before the Tribunal at the hearing of that appeal that it was a case of succession within the meaning of section 25(4). It is also clear that the only question which the Tribunal was asked to consider and which the Tribunal had jurisdiction to consider was whether the Appellate Assistant Commissioner was right in deciding the appeal on the sole legal contention that there was no right in the assessee to claim relief in respect of super-tax. The Tribunal having reached the conclusion that the Appellate Assistant Commissioner had taken a technical and narrow view of the matter would have proceeded to go into the merits of the claim for relief in respect of super-tax. It was at that stage that counsel for the assessee stated that he wanted to lead certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the case when the Assessing Officer has no jurisdiction over an issue, then in the appellate proceedings, the jurisdiction of the Commissioner of Income Tax(Appeals) cannot be enlarged beyond the jurisdiction of the Assessing Officer. Hence, we set aside the orders of the authorities below on this issue as without jurisdiction. 8. Ground no.4 regarding indirect cost allocable to export of trading goods. 8.1 In computing deduction u/s 80HHC in respect of export of trading goods, the assessee submitted before the Assessing Officer that the indirect cost of trading export was allowable to be reduced only to the extent of Rs. 32,19,550/- as computed in the computation as per Form 10CCAC. In the giving effect to the order of the Commissioner of Income Tax(Appeals), the Assessing Officer has computed the indirect cost allocable to the export of trading goods at Rs. 2,65,79211/-. 8.2 On appeal, the CIT(A) has held that for the purpose of Sec 80HHC (3)(b),an item of expenditure can be taken as cost for the said purpose only, if it has connection, link, attributes to export and if the expenditure is totally disconnected with the export activity, it cannot be taken as a part of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be allocated in the ratio of export turnover in respect of trading goods to the total turnover, which clearly means that the total indirect cost for local sales as well as export sales has to be taken into consideration for allocating in the ratio of export turnover of trading goods to the total turnover. Therefore, the ld DR has submitted that the indirect cost of branches of the assessee has to be taken into consideration for the purpose of allocating as per sec. 80HHC(3)(b) of the Act. The ld DR has forcibly contended that the impugned order of the CIT(A) on this issue is not sustainable as the same is contrary to the provisions of sec. 80HHC. He has referred the computation of indirect cost by the AO in the giving effect order and submitted that the AO has applied the correct formula as per Explanation to sub..sec (3)of sec. 80HHC and therefore, the order of the Assessing Officer has to be restored. 9.2 In rebuttal, the ld Sr counsel has submitted that for the purpose of computation of indirect cost allocable to export of goods u/s 80HHC(3)(b), the expenses which had nothing to do with the export of trading goods should be excluded. The ld Sr counsel has submitted that thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llocated in the ratio of export of trading goods to the total turnover. 10.3 The total turnover further defined under clause (ba) of Explanation to sub sec. 4C. Therefore, the total turnover includes the local sales as well as the export sales regarding manufacturing goods and trading goods except certain items which shall be included as per clause (ba). When the indirect cost has to be allocated in the ratio of export turnover of trading goods to the total turnover, then the indirect cost subjected to be allocated in the said ratio includes all items of indirect cost incurred for the total turnover. 10.4 It is manifest from the plan reading of the relevant provisions that the indirect cost for the purpose of sec. 80HHC (3)(b) r.w.s clause (e) of Explanation does not restrict the items of expenditure incurred in relation to export of trading goods only; but the entire indirect cost incurred for the total turnover has to be allocated in the ratio of export turnover of trading goods to the total turnover which itself makes it clear that only such portion of the total indirect cost in the ratio of export turnover of the trading goods to the total turnover shall be allocated for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have not only to dismiss the appeal, but also to set aside the entire assessment. The point would have served as a weapon of defence against the appeal, but it could not be made into a weapon of attack against the order in so far as it was against the assessee. 10.8 The CIT(A) has given the findings on the issue in paras 28 to 30 as under; 28. After careful consideration of the submission, it has to be said that the section of the Assessing Officer does not appear to be correct. What cannot be ignored is that subsection (3)(b)deduction inter-alia of indirect cost attributable to such exports. The phrase attributable to such export cannot be missed out. Therefore, an item of expenditure can be taken as cost for the purpose only if it has some connection, link, attributes to the export. If the expenditure is totally disconnected with the export activity, it cannot be taken as part of the indirect costs, Therefore, the Assessing Officer has definitely gone beyond what is provided in the Act to workout the indirect cost attributable to export of trading goods. 29. In order to determine correctly the indirect cost, the appellant s representative was asked to furnish the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be allocated in the ratio of export turnover of trading goods to total turnover. Therefore, for the purpose of this section, it is not relevant to divide the indirect cost as per the nexus or connection with the local sales or export sales. 10.10 As we have already discussed that for the purpose of sec. 80HHC(3)(b) r.w.clause (e) of Explanation, the indirect cost to be allocated in the ratio of export turnover of trading goods to the total turnover has to be taken as the total figure of the indirect cost incurred for the total turnover and not the indirect cost directly related to the export turnover as held by the CIT(A). 10.11 The assessee has not furnished the details showing the direct and indirect cost item wise. The only detail furnished before us is the expenditure incurred at Hyderabad office which also does not give a clear picture about the direct and indirect cost. Therefore, as far as the factual aspect of the computation of indirect cost, neither the CIT(A) has segregated the same nor the assessee filed any material in support of its claim. The Assessing Officer has computed the indirect cost in the giving effect order as under: Indirect cost attributa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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