TMI Blog2013 (4) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... to her sister concern and accordingly claims that the sales value declared in the documents relating to high seas sales viz., Rs.1,62,11,217/- should be considered as the income - Held that:- CIT(A) did not accept the theory of high sea sales and accordingly determined the value of 6141 bags, on the basis of average sales rate, at Rs.1,85,60,113/- finds merit as the transaction of alleged high seas sales have been entered with the sister concern of the assessee, the alleged transactions of high seas sales/purchases have not been recorded in the books of the assessee as well as in the books of the sister concern, the high seas sales invoice as well as high seas sales agreement are self- generated documents within the control of the assessee and hence lacks credence. No external documents were brought on record in support of claim - uphold the order of CIT(A) on this issue. Disallowance of claim of payments relating to group gratuity scheme - Held that:- It is well settled proposition of law that the re-opening of the assessment u/s. 148 is only for the benefit of the Revenue as held by in CIT vs. Sun Engineering Works P. Lt., [1992 (9) TMI 1 - SUPREME Court]. Admittedly, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60,113/- (c) Disallowance of claim of payments relating to group gratuity scheme : Rs. 1,01,111/- (d) Denial of deduction u/s. 80HHC of the Act. (e) Denial of deduction u/s. 80IB of the Act. 4. The facts relating to the case are stated in brief. The assessee is engaged in the business of processing of raw cashew nuts and export of cashew kernels. She filed her return of income for the year under consideration on 31-03-2004 declaring a total income of Rs.6,22,169/- after claiming deductions u/s. 80HHC and u/s. 80IB of the Act. Subsequently, the Assessing Officer noticed that the deductions claimed u/s. 80HHC and 80IB were excessive. Accordingly, she re-opened the assessment by issuing notice u/s. 148 of the Act on 24-08-2005. The Assessing Officer later completed the assessment by determining the total income at Rs.1,92,70,240/- making various additions. The assessee challenged all the additions before the Ld. CIT(A), but could not succeed. Hence, the assessee has filed this appeal before us. 5. The first issue relates to the addition of Rs.14,96,230/- pertaining to credit found in the capital account of the assessee. Before the Assessing Officer, the assessee explained th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by purchase invoices and stock registers. Accordingly, it was submitted that the shortage of stock declared by the assessee is the actual shortage due to driage loss and transit loss. On further analysis, the Assessing Officer noticed that the shortage declared by the assessee worked out to be 1.8% on imported items and 45.8% on local purchases. The Assessing Officer referred to three comparable cases, namely, K.R. Ushasree of Sai Exports, A. Abdul Azees and A. Ramachandran and noticed that the deficit stock declared by those assessees was less than 1%. The assessing officer further noticed that the assessee had shown the quantity of bags processed at 39564 bags for sales tax purposes, where as she has shown the processed quantity at 32072 bags for income tax purposes. Hence, the assessing officer came to the conclusion that the shortage of stock claimed by the assessee was very much on the higher side. The Assessing Officer, accordingly, limited the claim of shortage to 1.8% on imported items and 5% on local purchases. Accordingly, the Assessing Officer determined the excess claim of shortage at 5635 bags. The Assessing Officer considered the same as sales made by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer again reopened the assessment of the year under consideration in order to rework the deduction u/s 80HHC of the Act in view of the decision of Hon'ble Supreme Court in the case of CIT Vs. K.Ravindranathan Nair (295 ITR 228). In the return filed in response to the notice issued u/s 148 of the Act, the assessee offered the value of high sea sales as her income. Hence, the assessee filed a letter before Ld CIT(A) seeking permission to withdraw the additional grounds urged before him. The assessee also stated that the additional grounds may be treated as not pressed. 11. The Ld. CIT(A) noticed that the assessee has been shifting her stands very often by making altogether new claims, viz., (a) first it was claimed that the shortage was due to driage loss and transit loss; (b) Later it was submitted that the delivery of the import was taken by the sister concern; (c) when the assessing officer called for the books of accounts of the sister concern in order to verify as to whether the sister concern has accounted for the 'mistaken' delivery, then the assessee came out with the theory of 'high sea sales'. The Ld CIT(A) further noticed that the assessee as well as the sister concern d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh seas sales have been entered with the sister concern of the assessee. (b) the alleged transactions of high seas sales/purchases have not been recorded in the books of the assessee as well as in the books of the sister concern. (c) the high seas sales invoice as well as high seas sales agreement are self- generated documents within the control of the assessee and hence lacks credence. No external documents were brought on record in support of claim. (d) The claim of the assessee that it had declared the value of high seas sales in the return filed in response to the subsequent 148 notice also needs to be rejected, as the re-opening of assessment is always for the benefit of the revenue. Accordingly, we uphold the order of Ld CIT(A) on this issue. 14. The next issue relates to the claim of payment to group gratuity scheme. The assessee submitted before the Assessing Officer that she had incurred a sum of Rs.1,01,111/- towards payment of group gratuity scheme and the same was omitted to be claimed in the original return of income. Accordingly, the assessee sought for deduction of the same in the reassessment proceedings. The Assessing Officer as well as the Ld. CIT(A) co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, even after exclusion of incidental incomes, which are not related to the manufacturing activity. Accordingly, we confirm the order of the Ld. CIT(A) on this issue. 19. Now we shall take up the appeal numbered as ITA 388/Coch/09. The issue relating to deduction u/s 80HHC of the Act is available in both the appeals. We shall first set out the facts relating to the deduction u/s 80HHC of the Act as available in the appeal numbered as ITA 387/Coch/2009. In the first round of reopening, the assessing officer noticed following errors in the computation of deduction u/s 80HHC of the Act:- (a) Loss arising on manufactured goods was not set off against the profits and the same was not in accordance with the decision of Hon'ble Supreme Court in the case of IPCA Laboratories (266 ITR 521). When this mistake was pointed out to the assessee, she accepted the proposal of the assessing to carry out necessary corrections. In addition to the above, the assessing officer also took into account following errors. (b) The assessee had included sale proceeds of export incentives in the total turnover instead of reducing 90% of the same from business profits. (c) Since the export turnover o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distortion of the figure of export profits. The High court has relied on a decision of this court in CIT v. K. Ravindranathan Nair (2007) 295 ITR 228 (SC) in which the issue raised before this court was entirely different from the issue raised in this case. In that case, the assessee owned a factory in which he processed cashew nuts grown in his farm and he exported the cashew nuts as an exporter. At the same time, the assessee processed cashew nuts which were supplied to him by exporters on job work basis and he collected processing charges for the same. He, however, did not include such processing charges collected on job work basis in his total turnover for the purpose of computing the deduction u/s. 80HHC(3) of the Act and as a result this turnover of collection charges was left out in the computation of profits and gains of business of the assessee and as a result ninety per cent of the profits of the assessee arising out of the receipt of processing charges was not deducted under clause (1) of Explanation (baa) to sec. 80HHC. This court held that the processing charges was included in the gross total income from cashew business and hence in terms of Explanation (baa), ninety ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Legislature and so construed the words "such income by way of dividends" in sub-sec. (1) of sec. 80M must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. Similarly, Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in Explanation (baa), the words, "receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits" will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head "Profits and gains of business or profession" referred to in the first part of Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head "Profits and gains of business or profession", ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to sec. 80HHC. 12. If we now apply Explanation (baa) as interpreted by us in this jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act as he found that the profit derived from manufacturing activities was NIL after excluding incidental income. In the first round of reassessment, the assessing officer also made addition relating to deficit stock. When the appeal against the said assessment order was pending before Ld CIT(A), the assessment was re-opened again to rework the deduction u/s 80HHC of the Act. In the return filed in response to the notice issued for the second time u/s 148 of the Act, the assessee appears to have claimed deduction u/s 80IB of the Act again and also disclosed additional income relating to alleged high sea sales discussed in the preceding paragraphs. It is pertinent to note that deficit stock noticed by the assessing officer in the first round of reassessment proceeding was sought to be explained by the assessee as "High sea sales" effected by it and which was omitted to be accounted in the books of accounts. Thus, the amount relating to deficit stock was offered as additional income by the assessee in the return of income relating to second round of reassessment proceedings. However, the assessing officer, while passing order in the second round of reassessment proceeding, did no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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