CAVINKARE (P) LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX*

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/feedback.html /library.html CAVINKARE (P) LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX* ITAT, CHENNAI A BENCH N. Vijayakumaran, J.M. & Shamim Yahya, A.M. ITA Nos. 154 to 158/Mad/2007; Asst. yrs. 2001-02 to 2003-04 25th April, 2008 SHAMIM YAHYA, A.M. : (2008) 16 DTR (Chennai)(Trib) 322 Section 253(5), 80HHC, Asst. Year 2001-02, 2003-04, Decision in favour of Assessee Counsel appeared : T. Banusekar, for the Assessee : Shaji P. Jacob, for the Revenue ORDER One appeal by the Revenue and other appeals by the assessee emanate out of respective orders of the CIT(A). Since the issues involved are common and connected, these are being consolidated and disposed of together for the sake of convenience. 2. ITA No. l54/mds/2007 and ITA No. 1848/Mds/2005 : 2.1 These appeals by the assessee and Revenue are against the order of the CIT(A)-VIII, Chennai, for the asst. yr. 2001-02. 2.2 At the threshold it is noted that there is a delay of 523 days in filing of the appeal by the assessee. As regards the delay, it is the contention of the assessee that originally the assessee had decided not to file appeal against the order of the learned CIT(A). They were intending to file crossappeal/objection in case the Department filed appeal against the learned CIT(A) s order. However, when the Department filed the appeal, the concerned person of the assessee fell ill. Only when the notice of filing of Departmental appeal came to the assessee, did he become aware that cross-objection/appeal by the assessee has not been filed. Thereafter, immediate steps were taken to file the appeal. This resulted in a delay of 523 days for which assessee prayed that the delay may be condoned. 2.3 The learned Departmental Representative strongly objected to the condonation of delay. He relied upon the Third Member decision of this Tribunal in the case of Jt. CIT vs. Tractors & Farm Equipments Ltd. (2006) 105 TTJ (Chennai)(TM) 705 : (2007) 104 ITD 149 (Chennai)(TM). 2.4 We have heard both the counsel and perused the relevant records. We find that reasonable cause for the delay in this case has been attributed to the fact that, employee of the assessee entrusted with the said task of filing cross-objection to the Departmental appeal had fallen sick which resulted in oversight on the part of the company to file appeal/cross-objection and thereafter, only when the intimation about the appeal filed by the Department reached the assessee did they become aware of the situation and filed the appeal. We find that the Hon ble apex Court in the case of N. Balakrishnan vs. M. Krishnamurthy (1998) 7 SCC 123 has expounded that sufficient cause with respect to condonation of delay should be construed liberally. Again we find that Hon ble jurisdictional High Court has considered the issue of condonation of delay and expounded as under in the case of Sreenivas Charitable Trust vs. Dy. CIT (2006) 280 ITR 357 (Mad) : "No hard and fast rule can be laid down in the matter of condonation of delay and Courts should adopt a pragmatic approach and should exercise their discretion /about.html Page 1 of 5 /contact.html

/feedback.html /library.html on the facts of each case keeping in mind that in construing the expression sufficient cause the principle of advancing substantial justice is of prime importance and the expression sufficient cause should receive a liberal construction". Keeping in view the above facts, circumstances and precedents, in the substantial interests of justice, we condone the delay in filing of appeal by the assessee. 2.5 The facts of the case leading to Departmental and assessee s appeal in this case are briefly narrated as under : The assessee, in this case, is a manufacturer of plastic containers and trader in cosmetic goods. During the financial year, it had exported trading goods and claimed deduction under s. 80HHC. In the course of assessment proceedings, the AO reworked the deduction under s. 80HHC. The AO added sales-tax and excise duty in the total turnover. The assessee had taken the figure of total indirect cost to be allocated to export turnover as Rs. 33,98,813 which was arrived at out of total indirect cost of Rs. 12,93,11,653. The AO did not accept the working of the assessee. He computed the deduction under s. 80HHC by applying the formula : Profits of business x Export turnover Total turnover 2.6 In assessee s appeal the learned CIT(A) directed the AO not to include sales-tax and excise duty in the total turnover while computing deduction under s. 80HHC. The learned CIT(A) further referred to the provisions of s. 80HHC(3) prior to 1st April, 1992 and s. 80HHC(3)(b) as substituted w.e.f. 1st April, 1992. Accordingly, the learned CIT(A) held that the provision as amended w.e.f. 1st April, 1992 makes it clear that the formula adopted by the AO is not applicable in the case of the assessee. He further agreed with the assessee that in this case the profits of export business has to be worked out as the export turnover of trading goods as reduced by direct and indirect cost attributable to such export. However, the learned CIT(A) found fault with the working of the assessee as regards indirect cost. He felt that the assessee had considered an amount of Rs. 12,93,11,652 as indirect cost attributable to export which has further been allocated in the ratio of export turnover to total turnover. No explanation was furnished as to how these expenses has been considered as attributable to export. The learned CIT(A) called for the details and the total indirect cost other than manufacturing division came to Rs. 71,81,62,796. The assessee pleaded that it was not necessary that all expenses relating to trading goods should be allocated between export and domestic turnover. However the learned CIT(A) held that since the assessee has not maintained separate books of accounts, the entire indirect expenditure relating to both export expenditure as well as domestic expenditure should be clubbed together. Accordingly, he gave directions that the total indirect cost to be allocated should be Rs. 71,81,62,796 to be allocated in the ratio of export turnover to total turnover. Against this order of the learned CIT(A), both Revenue and assessee are in appeal. 2.7 The first contention of the Revenue is that the CIT(A) erred in holding that excise duty and sales-tax should not be included in the total turnover for the purpose of computing relief under s. 80HHC. 2.8 Upon hearing both the counsel, we find that Hon ble apex Court in the case of CIT vs. Lakshmi Machine Works (2007) 210 CTR (SC) 1 : (2007) 290 ITR 667 (SC) has held that excise duty and sales-tax are to be excluded from turnover for the purpose of s. 80HHC. Accordingly, we confirm the order of the learned CIT(A) on this issue and decide the issue against the Revenue. 3. The next issue raised by the Revenue is that the CIT(A) erred in directing the AO to rework the relief under s. 80HHC. 3.1 On the same issue, the assessee is also in appeal that CIT(A) has not fully allowed the assessee s claim in this regard. 3.2 We have heard both the counsel and perused the relevant records. The formula by which deduction under s. 80HHC has been arrived at by the AO, admittedly, relates to the provisions, which were applicable prior to 1st April, 1992. Hence, the same is not at all applicable. It is clear in this case that separate books of accounts relating to export and other activities have not been maintained. Moreover, s. 80HHC(3)(b), which is applicable in this case states that, where the export out of India is of trading goods, the profits derived from such export shall be export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export. Direct cost has been defined as cost directly attributable to the trading goods exported out of India including the purchase price of such goods. Indirect cost has been defined to mean cost not being direct cost /about.html Page 2 of 5 /contact.html

/feedback.html /library.html allocated in the ratio of export turnover in respect of trading goods to the total turnover. There is no dispute here regarding the direct cost of trading. It is the claim of the assessee that the indirect cost which are to be allocated according to the ratio of export to total turnover is Rs. 12,93,11,652. However, this figure has only been generated by the assessee. There are no books maintained for export division; so there is no cogent basis for this claim by the assessee. Under the circumstances, the learned CIT(A) has rightly held that the total indirect cost other than manufacturing division amounting to Rs. 71,81,62,796 has to be allocated as per the ratio. To conclude, in absence of proper books separately identifying the expenditure of export division and domestic division, there is no basis other than allocating the total indirect cost in the respective ratios as held by the learned CIT(A). Hence, in our opinion, the learned CIT(A) has taken a correct view of the matter, which does not need any interference on our part. Hence, the assessee s as well as Revenue s appeals on this issue are dismissed. 3.3 In the result, appeals filed by the assessee as well as Revenue are dismissed. 4. ITA No. 156/Mds/2007; asst. yr. 2002-03 : At the threshold it is noted that there is a delay of 12 days in filing of this appeal. The reasonable cause for the delay has been attributed to inadvertence on the part of concerned person in signing the relevant papers. Upon hearing both the counsel, in the substantial interest of justice, we are inclined to condone the delay in filing of this appeal. Accordingly, the delay is condoned. 4.1 In this appeal, the assessee has urged that CIT(A) has erred in confirming the computation under s. 80HHC(3)(b) of the IT Act. 4.2 In this case, the assessee had allocated total indirect cost of Rs. 14,16,12,737 into the ratio of export turnover and total turnover amounting to Rs. 34,51,424. The assessee had submitted following details to the AO : 4.3 Though assessee had not maintained separate set of books for export and domestic division, the fact that it has given above figures was taken into account by the AO, who held that, when it is possible to identify the indirect cost pertaining to export without resorting to apportionment of total indirect cost as prescribed under s. 80HHC(3)(b), then it is only commonsense that they are taken for the purpose of computation. He held that the apportionment of indirect cost as provided in Expln. (e) to s. 80HHC need not be resorted to when it is possible to identify the indirect cost incurred exclusively for exports. Hence, the AO held that indirect cost amounting to Rs. 8,11,71,438 should be directly allocated to export turnover and the figure of Rs. 11,04,41,229 should be allocated in the ratio of export turnover to total turnover. Upon assessee s appeal the learned CIT(A) confirmed the action of the AO. 4.4 We have heard both the counsel and perused the relevant records. The learned counsel of the assessee submitted that it is an admitted fact of this case that separate books of accounts are not maintained in this case. He further pointed out that there is no dispute as regards indirect expenses identified to be not relating to exports amounting to Rs. 73,01,08,711 as the veracity of the same has been accepted by the AO. The dispute is only regarding the details of indirect expenses relatable to exports submitted by the assessee to the AO amounting to Rs. 3,11,71,438. The learned counsel of the assessee submitted that there are no separate books of accounts maintained by the assessee wherein these expenses have been entered, to be directly attributable to export. It was the assessee s computer software, which has generated the data of certain indirect expenses relatable to export. The learned counsel of the assessee submitted that, as evident from a perusal of the nature of these expenses, by no stretch of imagination, these can be said to be expenses directly attributable to exports. He contended that the action of the AO tantamount to treating these indirect expenses as direct expenses attributable to export. The learned counsel of the assessee submitted that as per the language of the Act, indirect cost means, cost not being direct cost allocated in the ratio of the export turnover in respect of trading goods to the total turnover. He contended that the language in this regard is plain and simple. The assessee has never admitted these indirect expenses as directly attributable to export. It had claimed the same to be relatable to export and not totally attributable to export. The learned counsel of the assessee contended that it is only the indirect expenses relatable to export, which have to be allocated. The AO has himself accepted that there is no question of accepting indirect expenses not relatable to export. /about.html Page 3 of 5 /contact.html

/feedback.html /library.html 4.5 The learned Departmental Representative, on the other hand, placed reliance upon the Hon ble apex Court decisions in the cases of Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC) and Ashok Leyland Ltd. vs. CIT (1997) 138 CTR (SC) 287 : (1997) 224 ITR 122 (SC) and contended that assessee himself had given the figures of indirect expenses related to export and he submitted that there is no infirmity in the orders of authorities below. 4.6 We have heard both the counsel and perused the relevant records. Admittedly, in this case, separate books of accounts for export and domestic divisions have not been maintained. Under the circumstances, we find that AO has erred in holding that method of resorting to apportionment of indirect expenses as prescribed under s. 80HHC(3)(b) should be given a go by in this case and commonsense approach should be adopted. We find that law is trite that, when the language of the Act is plain and simple there is no case of interpolation or putting any sense, even if it is commonsense, as called by the AO. As held by the Hon ble apex Court in the case of Smt. Tarulata Shyam & Ors. vs. CIT 1977 CTR (SC) 275 : (1977) 108 ITR 345 (SC), even if there be a casus omissus, Courts are not supposed to supply the same. It is clear in this case that the dispute only revolves around the treatment of Rs. 3,11,71,438 mentioned by the assessee as relatable to export in details furnished before the AO. The AO has taken them as tantamount to cost directly attributable to trading goods exported i.e. direct cost. In this regard, it is the plea of the assessee that its software had identified them as relatable to export i.e. they have some relationship with export. It is averred that it was never claimed that these are directly attributable to trading goods exported so as to be treated as direct cost. It is further claimed that books of accounts of the assessee also do not support the claim of the AO that these are directly attributable to trading goods exported. We find considerable cogency in this submission as it would be evident from the description of the expenditures in this regard that it would be presumptuous to treat them as falling in the same class as purchase price of trading goods or similar costs directly attributable to exports in absence of separate books maintained for export division. The description of these expenditures are salaries, staff welfare, interest, advertisement, sales promotion, freight, travelling and conveyance, repairs and maintenance, postage, phone and grams, printing and stationery, rates and taxes, insurance and general expenses. 4.7 The reliance upon the case laws placed by the learned Departmental Representative is not germane here as they were concerned with holding that the term "attributable" is wider than "derived from" and the term "attributable" can be used for things intimately related. In our opinion, these expenditures cannot be termed as intimately related only to export as they are as much related to export as with domestic trade. 4.8 In this regard it would be worthwhile to note here the argument of the learned counsel of the assessee that advertisement expenditure in foreign media, e.g. television channels cannot be said to be meant only for exported goods. He contended that the advertisements in various channels are broadcasted outside India as well as in India like Star Television Network. These have vast audience in India and also have advertisement value for goods traded in India. We find that this amply fortifies the proposition that these expenditures are not direct cost attributable to export but are expenditures relatable to export which need to be allocated in accordance with the formula as prescribed in that (sic). In the background of aforesaid discussion we set aside the orders of authorities below and decide the issue in favour of the assessee. 4.9 In the result, this appeal by the assessee is allowed. 5. ITA No. 157/Mds/2007; asst. yr. 2003-04 : 5.1 In this appeal, the assessee has urged that CIT(A) has erred in confirming the computation under s. 80HHC(3)(b) of the IT Act. 5.2 The issue, facts and circumstances in this case are similar to the one narrated in ITA No. 156/Mds/2007 above. As we have already held above, on the same reasoning, we set aside the order of authorities below and decide the issue in favour of the assessee. 6. Other appeals by the assessee are against the order of the learned CIT(A) under s. 154 of the IT Act in ITA Nos. 155/Mds/2007 and 158/Mds/2007 for the asst. yrs. 2002-03 and 2003-04. /about.html Page 4 of 5 /contact.html

/feedback.html /library.html 6.1 Before us the learned counsel of the assessee conceded that these appeals have become infructuous. Accordingly, these appeals are dismissed as infructuous. 7. In the result, the appeals filed by the Revenue and assessee are decided as under : Revenue s appeal : ITA No. 1848/Mad/2005 Dismissed Assessee s appeals : ITA No. 154/Mds/2007 Dismissed ITA Nos. 156 and 157/Mds/2007 Allowed ITA Nos. 155 and 158/Mds/2007 Dismissed as infructuous /about.html Page 5 of 5 /contact.html