TMI Blog2011 (4) TMI 1318X X X X Extracts X X X X X X X X Extracts X X X X ..... acturer. 2.1 The facts, as stated in the assessment order are that the assessee is a manufacturer of home furnishing products, which are exported directly as well as through the recognized export house. It received export benefits in respect of direct exports and also in respect of exports through the recognized export house. The Assessing Officer also found that the export turn over of the assessee exceeded to ₹ 10 crores. He referred to the provision contained in Third Proviso to Sub-section (3) of Section 80HHC, introduced respectively in the provision by the Tax Laws (Amendment) Act, 2005. In a case where turnover exceeds ₹ 10 crore. This provision comes into operation on satisfaction of two conditions, namely, (a) the assessee has an option to choose either the duty draw back or the duty entitlement pass-book scheme, being the duty remission scheme, and (b) the rate of duty draw back credited attributable to the customs duty is higher than the rate of credit allowable under the duty entitlement pass-book scheme being the duty remission scheme. None of these conditions has been satisfied in the case of the assessee. Accordingly, the claim of deduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what can be excluded is only the premium received on transfer of the benefit but not the whole of the receipt. 3.1 The learned CIT(A) considered the position of law as obtained after introduction of the Third Proviso by the Taxation Laws (Amendment) Act, 2005, and the corresponding amendment made in section 28. It is held that cumulative effect of these amendments is that deduction u/s 80HHC is to be allowed in respect of the benefit in cases having export turn over exceeding ₹ 10 crores only on fulfillment of two conditions (i) the DEPB rate is lower than the rate of duty draw back; (ii) the assessee has an option to choose either of the two benefits. The assessee has not fulfilled any of these conditions. Therefore, the benefit is not available in respect of the benefit u/s 80HHC. He also rejected the claim that only the premium may be excluded from the profits of the business on the ground that no cost is paid for obtaining the benefit. 3.2 Coming to the issue of benefit received from the export house, IKEA (India) Private Limited, it is mentioned that the assessee supplied goods of the value of ₹ 74,16,11,651/- to the export house. The assessee has filed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led which means that the IKEA will not claim deduction u/s 80HHC in respect of export turn over of the aforesaid amount and, therefore, the benefit of the section devolves upon the assessee, and the provisions contained in section 80HHC (1A) and section 80HHC (3A) become applicable to the facts of the case. In so far as the benefits received by the assessee from the export house are concerned, the matter is no longer res-integra in view of the decision in the case of Baby Marine Exports (Supreme Court). In this case, it has been held that the export house premium can be included in the profits of the business because it is integral part of the business operations of the assessee, which consists of sale of goods by the assessee to the export house. Therefore, respectfully following this decision, it is held that the premium received by the assessee is nothing but sale proceeds of the goods sold to the IKEA and the assessee is entitled to deduction u/s 80HHC on the benefits also. For the sake of ready reference, the relevant portions of the judgment at placitum Nos. 34 to 40 are reproduced below:- 34 The respondent-a supporting manufacturer sold the goods or merchandise to the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant is also contrary to the specific terms of the agreement between the appellant and the respondent. 39. On a plain construction of section 80HHC(lA), the respondent is clearly entitled to claim deduction of the premium amount received from the export house in computing the total income. The export house premium can be included in the business profit because it is an integral part of business operation of the respondent, which consists of sale of goods by the respondent to the export house. 40. The order of the Tribunal, which has been upheld by the High Court in the impugned judgment, is based on proper construction of section 80HHC of the Income-tax Act, 1961. The appeal filed by the appellant being devoid of any merit is accordingly dismissed. 5.1 The result of the discussion is that ground No.1 in the appeal of the revenue is dismissed. 5.2 Coming to the deduction on incentives received by the assessee in respect of direct exports, the case of the learned DR is that in view of the provision contained in the Third Proviso, the assessee is not entitled to further deduction as its export turn over exceeds ₹ 10 crores. The provision reads as under:- Prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit. Thus, the decision of Special Bench of Mumbai Tribunal in the case of Topman Exports Vs. Income Tax Officer (2009) 318 ITR (AT) 87 stands superceded. Therefore, there is no merit in this claim of the assessee also. 5.5 The result of the aforesaid discussion is that ground No.1 in the appeal of the assessee is also dismissed. 6. Ground No.2 in the appeal of the assessee is that the learned CIT(A) erred in confirming the action of the Assessing Officer in making disallowance of ₹ 4,43,308/- on account of employees share of provident fund. 6.1 In the course of assessment, the Assessing Officer noted that three payments aggregating to ₹ 4,43,308/-, in respect of employees contribution to the provident fund for the months of September, November and December 2003, were made to the P.F. Commissioner on 21.10.2003, 21.01.2004, and 21.10.2004 respectively. Therefore, the deduction of this sum was not allowed by recording the following reasons:- As per clause (va) of section 36(1) of the Income-tax Act, deduction on a/c of any sum received by the assessee from any of his employees as an employer by way of contribution to any provident fund or supe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is paid before the date of filing of the return under the Income-tax Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contriLbutions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delayLing payment of contributions to the welfare funds. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of the Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess, and fee with conLtributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made appliLcable by Parliament only with effect from April i, 2004, would become curative in nature, hence, it would apply, retrospectively, with effect from April I, 1988. Secondly, it may be noted that, in the case of Allied Motors P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors P. Ltd. (supra) is delivered by a Bench of three learned judges, which is binding on us. Accordingly, we hold that the Finance Act, 2003, will operate retrospecLtively with effect from April 1, 1988 (when the first proviso stood inserted). Lastly, we may point out the hardship and the invidious discrimination, which would be caused to the assessee(s) if the contention of the Department is to be accepted that the Finance Act, 2003, to the above extent, operated prospectively. Take an example-in the present case, the respondents have deposited the contributions with the R. P. F. C. after March, 31 (end of the accounting year) but before filing of the returns under the Income-tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under section 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other. 7.1 These grounds were not pressed by the learned counsel for the assessee. Therefore, these grounds are dismissed as not pressed. 8. We now proceed with other grounds taken by the revenue in its appeal. Ground No.2 is to the effect that the learned CIT(A) erred in deleting the addition of ₹ 8,38,77,635/- made by the Assessing Officer on account of difference in the value of stock, as per statement submitted to the bank and declared in the books of account. 8.1 In this connection, it has been mentioned in the assessment order that the assessee had shown outstanding, secured loan of ₹ 23,07,26,493/- from City Bank against the security of stock. The stock as per books has been shown at ₹ 22,07,16,036/- only. Summons were issued to the bank to furnish the inventory of stock submitted to it by the assessee. The same was furnished, which shows that stock declared to the bank as on 25.03.2004 was of the value of ₹ 31,12,04,000/-. The assessee was requested to reconcile the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stock and invoices and bills for valuation of the stock. It was submitted that the stock has been accepted by the VAT department of Government of Haryana and the same stock has been taken for the purpose of excise records. It was further submitted that the Assessing Officer has not shown any defect in the maintenance of the records, which could lead to the rejection of stock records. It was also submitted that the statement submitted to the bank is merely a figure, not supported by any quantitative details and valuation thereof. The statement to the bank has not been affirmed on oath. The method of preparing manufacturing-cum-trading account by the Assessing Officer for the period 26.03.2004 to 31.03.2004 was also assailed by submitting that the manufacturing expenses etc. do not have any co-relation with the turn over. It was also submitted that credit limit availed of was not only against the stock but also book debts. In these facts it was argued that no adjustment could be validly made to the stock as per books of account. The learned CIT(A) considered the facts of the case and submissions made before him. It was mentioned that the addition could be made only if quantity of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain the operating potion of the order. It is mentioned that the claim of the assessee is that the annual accounts have been audited and the position of stock is as per excise records. This position has also been accepted by VAT department of the Haryana Government. These facts have not been disputed by the Assessing Officer. The Assessing Officer has also not pointed out any error in the financial records. There is no evidence that any unaccounted stock was there in the possession of the assessee or any unaccounted purchase or sale was made. The learned CIT(A) also considered the manufacturing-cum-trading account prepared by the assessee and came to the conclusion that the overhead expenses have no co-relation with the turn over. It has also been recorded that as per arrangement with the bank not only stock but book debts were also furnished as security against loan. In view of these facts, it has been held that the book results have been wrongly disturbed without rejection of the books of account. Accordingly, the addition made by the Assessing Officer in this regard has been deleted. 8.5 The learned counsel also drew our attention to various papers placed in the paper bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement given to the bank is that a hypothetical figure was furnished to the bank so as to cover the credit limit. The same does not represent the correct value of stock. The statement is not given on oath and the stock has not been verified by the bank authorities. The question is whether the addition in respect of the discrepancy can be made to the total income by invoking the provision contained in Section 69 of the Act? 9.1 The learned DR relied on the decision of Hon ble Punjab and Haryana High Court, being the jurisdictional High Court in the case of B.T. Steels Ltd. Vs. CIT (2011) 196 Taxman 362. In this case, the Assessing Officer found that the stock statement of hypothecated goods furnished to the bank was at variance with the stock entered in the books of account. The bank confirmed that the assessee had given statement to the bank which was duly signed by it. It was nowhere denied that the bank officers visited the assessee in respect of stock with it as on 31.12.1994. The concept of hypothecation of goods and visits requires periodical checks by the bank. However, the bank did not have in its possession the record of visits on other dates, other than 31.12.1994. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that the question is regarding the acceptability or otherwise of the explanation offered by the assessee, which is a question of fact. The Hon ble Court mentioned that the explanation had not been accepted by the Tribunal and the resultant position is that there is excess stock, not disclosed in the books of account, and that the nondisclosure was only with a view to suppress the income. On these findings of the Tribunal, the only in-escapable conclusion is that the excess stock should come from undisclosed sources. The case made out by the learned counsel is that the facts are distinguishable because it is a case of the pledging of the stock and quantitative details were furnished to the bank. In case of a pledge the stock remains in the position of the bank and the assessee is in no position to change the stock position in the statement. 9.3 The learned DR also relied on the decision of Madras High Court in the case of CIT Vs. India Cements Limited (1999) 154 CTR 167 in which it had been held that while making the assessment, the violation of other laws cannot be overlooked. Thus, if remuneration is paid to the managing agents in violation of section 349 of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n can be drawn only where the evidence is totally unworthy of credit or the same is patently absurd. Accordingly, the petition was allowed and the Chief Judicial Magistrate was directed to proceed with the case on merits. The case of the learned DR is that if there are differences in the two stock statements, even prosecution can be launched while we are dealing with the addition, which can fix tax liability, which is the civil liability. The learned counsel submitted that the decision only states that the prosecution can be proceeded with if prima facie evidence is available. However, the Magistrate was directed to proceed with the case on merits which was not affected in any manner by the decision of the Court and this was also made clear in the judgment itself. Therefore, what is to be seen in this case is the merit and the weight to be attached to the statement furnished to the bank in the light of evidences produced by the assessee. 9.6 In the case of Recon Machine Tools (P) Limited Vs. CIT, (2006) 286 ITR 637 (Karnataka), the Hon ble Court mentioned that the material on record reveals a different figure shown in the bank statement than the figure shown in the return fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... category-wise method. The accounts in this respect submitted before the I.T. Department, VAT Department and Excise Department are the same. However, it is also a fact that a much higher value was shown to the bank. The question is whether bank stock can be substituted in place of book stock to come to the conclusion that unaccounted investment was made in the stock to the extent of the difference in values? Although, a number of cases have been cited, we are of the view that the decision of jurisdictional High Court in the case of B.T. Steels Limited (supra) lays down the correct principles on which the issue ought to be decided. In our opinion, the thrust of the judgment is as to examine whether the statement submitted to the bank could be relied upon when seen in the context of other evidences filed with the return. In the aforesaid case, the assessee had not satisfactorily explained the difference. The statement was admittedly filed by the assessee and verified by the bank. Therefore, it had sufficient merit and could be relied upon in place of the evidence filed with the return of income. Further, we are of the view that a bland statement that the stock was inflated to obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case can also be distinguished. Having said the aforesaid, the point is whether merely a value furnished to the bank without any detail or verification by the bank; can be relied upon to the exclusion of all other evidences. We find that the assessee had maintained broad details of the stock, its consumption, production and closing balance. These accounts have been maintained on day-to-day basis. These accounts have been accepted by the Excise Authorities and the VAT Authorities. The Assessing Officer has also not pointed out any discrepancy in the books with reference to purchase, sale or closing stock. Looking to these facts, we are of the view that greater weight has to be attached to the books of account maintained in regular course of the business than to the statement given to the bank. Thus, we are of the view that the Assessing Officer should have accepted the book results looking to overall facts of the case, notwithstanding the conclusion that furnishing an exaggerated statement to the bank constitutes rather undesirable act on the part of the assessee. 9.9 In result, this ground is dismissed. 10. Ground No.3 is against the deleting of the addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord to show whether the expenditure was incurred on the premises owned by the assessee or rented by it. The burden to prove that the expenditure is deductible is on the assessee. The same does not stand discharged merely on filing the aforesaid details, which show new construction as large number of bricks and large amount of cement, sand, glass etc. has been purchased. Learned counsel placed reliance on the decision of Hon ble Delhi High Court in the case of CIT Vs. Hi Line Pens (P) Limited (citation); CIT Vs. Bindal Apparels (2008) 169 Taxman 49; and CIT Vs. Escorts Finance Limited (2006) 205 CTR (Delhi) 574. The learned DR argued that the facts of these cases are distinguishable. 10.4 We have considered the facts of the case and submissions made before us. We have also perused the details of expenditure placed in the paper book. From the details it is seen that large number of bricks were purchased. Page 225 itself shows that 81 trucks of bricks were purchased and 1300 bags of cement were also purchased. Similar items find place on subsequent pages of the paper book also. Page Nos.221 shows that the digging was undertaken for new plant boiler. Substantial expenditure was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that stock details have not been maintained in the desired form. Relying on these facts, it is argued that the claim of loss has not been substantiated by the assessee. 11.1 In reply, the learned counsel relied on the impugned order, in which it is mentioned that various details were filed in the course of hearing of the appeal. The details show that the cost of the damaged stock was ₹ 1,16,99,418/-. The National Insurance Company settled the claim at ₹ 83,14,554/-. Final, payment of ₹ 79,94,128/- was made by the insurance company. The loss is evidenced by the report of cost accountant. Bills of purchase for arriving at the cost have been filed. Copy of fee-receipt from the fire brigade, its report and FIR have also been filed. These details were communicated to the Assessing Officer, who submitted that such details were not filed in assessment proceedings, and the same may be considered. The learned CIT(A) mentioned that after considering the claim paid by the insurance company, the loss of stock in fire amounted to ₹ 33,84,874/-. This claim is revenue in nature and thus deductible in computing the total income. 11.2 Having considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) came to the appropriate conclusion after considering the details of machinery and hearing the Assessing Officer. He found that the machinery has been purchased as per TUF Scheme, making the assessee eligible for deduction at the higher rate. No error has been found in this order by the learned DR. Therefore, there is no reason to interfere with his factual finding. 13.1 Thus, this ground is dismissed. 14. Ground No.7 is against allowance of foreign travel expenses, amounting to ₹ 8,38,717/-. The Assessing Officer had disallowed the expenditure by mentioning that none of the persons was a partner in the firm. However, the learned CIT(A) examined the matter further and allowed the appeal on this ground by recording the finding : I have considered the facts of the case and the submissions of the assessee. The Assessing Officer has not disputed that the expenditure was not incurred or the expenditure was not relating to foreign travel. The objection of the Assessing Officer is that the said persons who traveled abroad were not the partners and therefore, expenses relating to them is not the business expenditure, whereas, assessee has given a complete detail that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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