TMI Blog2014 (1) TMI 1759X X X X Extracts X X X X X X X X Extracts X X X X ..... xport incentives as deduction from indirect cost while computing deduction u/s 80HHC on trading exports - Held that:- In the instant case, the assessee is engaged in export of trading goods and therefore, is eligible for deduction u/s 80HHC in respect of profit derived from export of trading goods. The assessee claimed deduction u/s 80HHC at ₹ 13,33,39,275/- whereas the Assessing Officer allowed such deduction on ₹ 13,15,00,727/-. Thus, the Assessing Officer granted lesser deduction of ₹ 18,78,548/- u/s 80HHC than the amount claimed by the assessee. The above difference arose because the assessee reduced its indirect cost relatable to the export of trading goods by 10% of export incentives of ₹ 1,87,85,483/- which was not accepted by the Assessing Officer. On appeal, the Ld. CIT(A) allowed the claim of the assessee by following CBDT circular no. 621 dated 19.12.1991. We find that the issue is squarely covered by decision of the Hon’ble Supreme Court in the case of Hero Exports Vs. CIT (2007 (11) TMI 13 - Supreme Court of India ) in favour of the assessee wherein held that for the purpose of determining export profit u/s 80HHC(3)(b) in case of trader exporter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of the Revenue and ground no. 2 of the Cross Objection of the assessee are directed against the order of the Ld. CIT(A) allowing 10% of advertisement expenditure on permanent pavilion site as revenue expenses and directing to spread the same over a period of 10 years equally. 3. The brief facts of the case are that the Assessing Officer observed that the assessee company made payment of ₹ 7,00,000/- to Gujarat Cricket Association and in the original return of income filed by the assessee, it was claimed as deduction. Later on, the assessee company vide note no. 2 attached to the revised return of income filed claimed the amount of ₹ 7,00,000/- paid to Gujarat Cricket Association, Ahmedabad as advertisement and deduction for the same was claimed as the same was debited in the profit and loss account. The Assessing Officer also observed that as per communication from Gujarat Cricket Association addressed to the assessee company, the assessee was required to make payment of ₹ 25,00,000/-, out of which a sum of ₹ 7,00,000/- was paid during the year under consideration. He noted that the assessee was allotted a pavilion site in the Sardar Patel Stadium, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by proper publicity and advertisement. The assessee also cited the following judgements in support of his contention: (i) CIT Vs. Navsari Cotton Silk Mills, 135 ITR 546(Guj. HC) (ii) CIT Vs. Mehta Transport Co., 160 ITR 35 (Guj. HC) (iii) Bombay Steam Navigation Co. Pvt. Ltd. 56 ITR 52 (SC) 5. Alternatively, the assessee submitted that if it is held that since the assessee will be having the benefit of advertisement facility over a number of years, the whole amount of ₹ 7,00,000/- paid during the year was not allowable as a revenue expenditure, then the deduction over the expenditure incurred should be spread over a period of estimated life of the benefit. In support of the contention, the assessee relied on the judgement of the Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Limited Vs. CIT 91 taxmann.com 340. 6. The Ld. CIT(A) after considering the submissions of the assessee, observed that the expenditure has been incurred for advertisement of the companies named at the pavilion of the Gujarat Cricket Stadium, Ahmedabad. The Assessee is neither the owner of the pavilion nor is having any right over the pavilion, thus the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as submitted that it may kindly be appreciated that a company with turnover of hundreds of crores, book profits of tens of crores of rupees may naturally seek this sort of advertisement. The expenditure is on revenue account. 10. The AR of the assessee further submitted that in the case of CIT Vs. Kamal Company (1993) 203 ITR 1038 (Raj.) expenditure on construction of a fountain which was done for the beautification of traffic island was held to be allowable as revenue expenditure as the object was for improving the sales and image of the assessee by proper publicity and advertisement. It was submitted that the assessee s case was much stronger than that case. 11. It was further submitted that the expenditure was revenue expenditure and the Ld. CIT(A) was not justified in apportioning it at the rate of 10% over a period of 10 years. It was contended that there was no basis for the Ld. CIT(A) to arrive at a decision with that the assessee will derive benefit out of advertisement expenditure over a period of 10 years. It was submitted that the advertisement of the assessee s name at the site of the pavilion was forever and not limited to a period of 10 years and therefore the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icket Association. As per agreement entered into with Gujarat Cricket Association which has been quoted by the Assessing Officer in the Assessment Year as well as copy of which is placed at page numbers 44 to 45 of the assessee s paper book it is observed that as per the said agreement, the assessee agreed to meet payment of ₹ 25,00,000/- including ₹ 7,00,000- in question in consideration of one of the stadium to be called as Adani Stadium or any other name agreed by the assessee during the cricket matches to be played in the Sardar Patel Gujarat Stadium and a board displaying such name will be put up in that pavilion. Thus, it is observed that payment was in the nature of advertisement. The conclusion of the Assessing Officer that the payment was made for acquiring permanent pavilion site is not correct. We find that no permanent site was acquired by the assessee in lieu of the payment in question and the assessee has not become the owner of any site in consideration of the said payment. Therefore, we do not find any merit in this ground of appeal of the Revenue. 15. Further, we find that there was no basis on which the Ld. CIT(A) could have held that the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arise and rejected assessee s claim in this regard. The Assessing Officer took indirect expenses of ₹ 82,26,407/- as against indirect expenses of ₹ 63,47,859/- shown by the assessee and allowed the deduction u/s 80HHC to the assessee of ₹ 13,15,00,727/- as against ₹ 13,33,79,275/- claimed by the assessee for the trading division and disallowed the claim to the extent of ₹ 18,78,548/-. 19. In appeal before the Ld. CIT(A), the AR of the assessee submitted that CBDT in circular dated 19.12.1991 has clarified in Para 32.11 that profits of the business for the purpose of section 80HHC will not include receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature. It has been mentioned in this circular that as some expenditure may be incurred in earning these incomes, which in the generality of case is part of common expenses, ad hoc 10% deduction from such income is provided to account for these expenses. It was therefore submitted that the following expenses were incurred for earning the export incentives: (i) Advance licence application fees (ii) Maintenance of staff for making applications, collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to by the assessee, it is seen that with effect from 01.04.1992 i.e. from Assessment Year 1992-93, certain modifications have been made in the provisions relating to the exemption of income from exports. Para 32.8(b) of the circular deals with the new formula according to which profit from the business of exports of goods is to be calculated in cases where the export in goods not manufactured by the taxpayers but purchased from a third party (those trading goods) further Para 32.11 of the said circular read as under: It has, therefore, been clarified that profits of the business for the purpose of Section 80HHC will not include receipts by way of brokerage, commission, interest, rent, charges of any other receipt of a similar nature. As some expenditure might be incurred in earning these incomes, which in the generality of cases is part of common expenses, adhoc 10 per cent deduction from such income is provided to account for these expense. 22. The above para of the circular allow ad hoc deduction of 10% on certain receipts because some expenditure might have been incurred in earning those incomes which in the generality of cases is part of common expense. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available on record. In the instant case, the assessee is engaged in export of trading goods and therefore, is eligible for deduction u/s 80HHC in respect of profit derived from export of trading goods. The assessee claimed deduction u/s 80HHC at ₹ 13,33,39,275/- whereas the Assessing Officer allowed such deduction on ₹ 13,15,00,727/-. Thus, the Assessing Officer granted lesser deduction of ₹ 18,78,548/- u/s 80HHC than the amount claimed by the assessee. The above difference arose because the assessee reduced its indirect cost relatable to the export of trading goods by 10% of export incentives of ₹ 1,87,85,483/- which was not accepted by the Assessing Officer. On appeal, the Ld. CIT(A) allowed the claim of the assessee by following CBDT circular no. 621 dated 19.12.1991. We find that the issue is squarely covered by decision of the Hon ble Supreme Court in the case of Hero Exports Vs. CIT (supra) in favour of the assessee. The Hon ble Supreme Court has held that for the purpose of determining export profit u/s 80HHC(3)(b) in case of trader exporter indirect cost can be reduced by 10% of export incentives etc. Therefore, we do not find any error in the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audit report with the return of income is procedural requirement and the Assessing Officer should consider the claim of the assessee even if such claim is made at a later stage during the assessment proceeding. Reliance was placed on the following decisions which were given with regard to filing of audit report while claiming relief u/s 80J and u/s 11 of the Income Tax Act. (i) Judgement of the Hon ble Gujarat High Court in the case reported in 219 ITR 721. (ii) Decision of Ld. ITAT, Bombay Bench in the case reported in 47 TTJ 570. (iii) Decision of Ld. ITAT, Delhi Bench in the case reported in 46 TTJ 276. It was therefore submitted that in view of the above decisions, the Assessing Officer be directed to consider the Tax Audit Report in Form No. 10CCAC filed along with revised return of income while working out deduction u/s 80HHC admissible to the assessee regarding the marine division. 32. The Ld. CIT(A) after considering the submissions of the assessee held that in view of the above mentioned decisions relied on by the assessee, the Assessing Officer is directed to consider the audit report in Form No.10CCAC filed along with revised return of income while determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal no. DC(SR)- 1/161/95-96 for Assessment Year 1993-94 in the case of AIA. Magottaux Limited. It was also submitted that similar view was also taken by the Ld. CIT(A)-IV, Baroda vide order dated 17.10.1995 in the case of Pratibha Processors Limited, Surat in appeal no. CAB/IV-II/95- 96 for Assessment Year 1992-93. Therefore, it was submitted that the Assessing Officer be directed to allow deduction u/s 80HHC for marine division equal to 90% of export incentives of ₹ 13,70,95,970/- subject to the condition that the deduction should not exceed gross total income as reduced by the deduction u/s 80HHC allowed for trading division. The Ld. CIT(A) accordingly held that the assessee is entitled to deduction u/s 80HHC for the marine division equal to 90% export incentive in the same proportion as export turnover bears to the total turnover of the assessee which comes to ₹ 13,79,35,917/- and accordingly directed the Assessing Officer to allow deduction for the same subject to condition that the deduction should not exceed gross total income as reduced by deduction u/s 80HHC allowed for trading division. 34. The Ld. DR supported the order of the Assessing Officer. 35. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt profit, the loss is to be ignored and after ignoring the loss as the assessee had export incentives of ₹ 13,70,95,917/-, the assessee was eligible for deduction u/s 80HHC subject to the condition that such deduction should not exceed the gross total income as reduced by deduction u/s 80HHC allowed for trading division. 39. Before us, the Ld. DR contended that as there was loss on export of trading goods u/s 80HHC(3)(b), the assessee was not entitled to any deduction u/s 80HHC in respect of marine division. 40. On the other hand, the Ld. AR of the assessee supported the order of the Ld. CIT and submitted that as the assessee issued a disclaimer certificate in respect of export turnover and therefore, the loss on export of trading goods is to be ignored and the Ld. CIT(A) was justified in granting deduction u/s 80HHC in respect of export incentive. He relied upon the decision of the Delhi Bench of the Tribunal in the case of MMTC Vs. JCIT (2007) 112 TTJ 15 (Delhi). 41. We find that the Hon ble Supreme Court in the case of IPCA Laboratory Limited Vs. DCIT (2004) 135 taxmann 594 (SC) held as under: 15. It was next submitted that even when the profits are to be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given. The Court interpreted it to mean that if there is a loss then no deduction would be available. However, how the test for determining the figure of positive profit is applied is stated as follows:- In arriving at the figure of positive profit, both the profits and the losses will have to be considered. If the net figure is a positive profit then the assessee will be entitled to a deduction. If the net figure is a loss then the assessee will not be entitled to a deduction. It is clear from the above that while computing export profit the result of two activities is to be netted. While doing so, export incentives are also to be taken into consideration . 43. We find that the decision of the Delhi Tribunal in the case of MMTC (supra) is not applicable in the instant case in as much as in the instant case, there is loss in export of trading goods which could not be passed on to supporting manufacturer by issuing disclaimer certificate in view of the decision of the Hon ble Supreme Court in the case of IPCA Laboratory (supra). In view of the above decision of the Hon ble Delhi High Court, we find that after taking into consideration 90% of export incentive, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. According to the Ld. DR, this is not permitted in view of the decision of the Hon ble Supreme Court in the case of CIT Vs. Shelly Products and others (supra). 47, However, Ld. DR could not produce any computation before us to show how the assessed income on the basis of the order of the Ld. CIT(A) will be lesser than the returned income. 48. Be that as it may. 49. The Ld. AR of the assessee in opposition relied upon the order of the Hon ble Supreme Court in the case of Shelly Products (supra). 50. In the instant case, we find that assessment was not quashed by the Ld. CIT(A) and further the decision on merits of the issue of Ld. CIT(A) wherever the Department has any grievance was agitated in appeal and the same have been decided on merits. We are of the considered view that the income of the assessee is to be computed as per provisions of the law and simply because an assessee has suffered more amount on tax than what is legally due, then the Department can not assess the income at a higher figure but should assess the income at correct amount as per the provisions of law. We, therefore, do not find any merit in this ground of appeal of the Revenue and hence, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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