Intas Pharmaceuticals Ltd., Ahmedabad vs Assessee

DCIT, Cir.4 Intas Pharmaceuticals Ltd. Ahmedabad. Vs 203, Chinubhai Centre Ashram Road Ahmedabad.

(Applicant) (Respondent)

Revenue by : Shri D.C. Mishra, Sr.DR Assessee by : Smt.Urvashi Sodhan

सन ु वाई क तार ख/ Dateof Hearing : 17/07/2015 घोषणा क तार ख / Date of Pronouncement: 22/07/2015

आदे श/O R D E R

PER RAJPAL YADAV, JUDICIAL MEMBER:

The present Misc. Application is directed at the instance of the assessee pointing out apparent error in the order of the Tribunal dated 22.10.2010 passed in CO No.27/Ahd/2008 for the Asstt.Year 2004-05.

2. Brief facts of the case are that the ld.CIT(A) has decided the appeal of the assessee for the Asstt.Year 2004-05 vide order dated 19.10.2007. Dissatisfied with the order of the CIT(A), the Revenue has filed appeal bearing ITA No.8/Ahd/2008. On receipt of notice in the Revenue's appeal, the assessee has filed cross-objection bearing MA No.12/Ahd/2014 2

No.27/Ahd/2008. The ITAT has decided two appeals by the Revenue i.e ITA Nos.8 & 9/Ahd/2008 and CO.No.27 & 28/Ahd/2008 for the Asstt.Years 2004-05 and 2005-06 by a common order dated 22.10.2010. The assessee has filed two MAs., i.e. MA No.11/Ahd/2014. This MA was filed in the Revenue's appeal in ITA No.8/Ahd/2008. Second MA is MA No.12/Ahd/2014 filed in CO No.27/Ahd/2008. The ld.CIT(A) while dealing with the issue regarding computation of deduction admissible under section 80HHC has directed the AO not to exclude other income comprising of insurance claim, C&F stockists interest and cash discount. This part was challenged by the Revenue in its appeal by way of ground no.4. The assessee in its cross-objection has challenged the action of the CIT(A) for reduction of 90% of the gross interest income, dividend income, rental income and other Misc. income from the business profit, while computing the deduction under section 80HHC. The Tribunal has rejected all the grounds taken in the CO, and upheld the action of the CIT(A) for exclusion of 90% of gross income representing interest, dividend, rent, Misc. income from the business profit. Similarly, the Tribunal has allowed ground no.4 of the Revenue's appeal, and held that the CIT(A) has erred in directing the assessee not to exclude 90% of insurance claim, C&F stockists interest and cash discount. In MA No.11/Ahd/2014, we have dealt with the issue adjudicated in ground no.4 of the Revenue's appeal, and after following the decision of Hon'ble Supreme Court in the case of ACG Associates Capsules Pvt. Ltd., 343 ITR 89, we have held that only 90% of net of these receipts is to be excluded. We have decided this MA on 20th July, 2015. Our order reads as under:

"This Misc. Application is directed at the instance of the assessee, pointing out apparent error in the order of the Tribunal dated 22.10.2010 passed in ITA No.8/Ahd/2008 for the Asstt.Year 2004-

05.

2. It is pleaded in the application that the Revenue in its ground no.4 has challenged the exclusion of 90% of other receipts MA No.12/Ahd/2014 3

comprising of insurance claim, C&F stockist interest and cash discount from the profit of the business, while computing the deduction admission under section 80HHC. The Tribunal has allowed this ground of the appeal by following the judgment of Hon'ble Supreme Court in the case of CIT Vs. K. Ravindranathan Nair, 295 ITR 228 (SC). The findings recorded by the Tribunal on this issue read as under:

"5. Ground no.4:

"The ld.CIT(A) has erred in law and on the facts of the case in directing the AO not to exclude 90% of other income comprising of (i) Insurance claim received of Rs.71,53,020/- (ii) C&F stockiest interest of Rs.7,62,111/-, and (iii) cash discount of Rs.10,95,018/- from the profit of the business for the purpose of computation of deduction u/s.80HHC of the I.T.Act."

5.1 After carefully perusing this ground we have noticed that in respect of insurance claim and C&F stockists a view has already been taken in ITA No.1601/Ahd/2007 order dated 06-08-2010 already cited supra against the assessee and in favour of the revenue by the Tribunal that the insurance and C&F sotkcists were not in any manner related to the export activity or turnover of the assessee. It was held that the assessing officer was justified in excluding 90% of those receipts while computing the profits of the business in terms of Explanation(baa) to section 80HHC of the Act. The decision followed are CIT Vs. IK. Ravindranathan Nair 295 ITR 228 (SC), and Alembic Chemical Works 266 ITR 47 (Guj), Liberty Foot Wear Co. 283 ITR 398 (PUH) According we hereby reverse the findings of the ld.CIT(A) and this part of the ground goes in favour of the revenue."

3. The learned counsel for the assessee contended that this aspect has been considered by the Hon'ble Supreme Court's Larger Bench in the case of ACG Associates Capsules Pvt. Ltd., 343 ITR 89. The Hon'ble Supreme Court has held that only 90% of net receipt is to be excluded and not the gross receipt. This decision of the Hon'ble Supreme Court brought the order of the ITAT in the ambit of suffering with the patent error. The learned counsel for the assessee further contended that in the case of CIT Vs.Saurashtra Kutch Stock Exchange, 262 ITR 146, the Hon'ble jurisdictional High Court has, while expounding the scope of section 254(2) of the Income Tax Act, has observed that a subsequent decision of the jurisdictional High Court or the Hon'ble Supreme Court would give rise to a mistake apparent from record, which is to be rectified under section 254 (2) of the MA No.12/Ahd/2014 4

I.T.Act. She further submitted that similar issue had come before the Tribunal in the case of the assessee for assessment for the Asstt.Year 2003-04. The Tribunal following the decision of the Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. (supra) has held that the only 90% of the net of such receipts would be excluded. She placed on record copy of the Tribunal's order dated 10.4.2015 passed in ITA No.1591 and 1601/Ahd/2007 for the Asstt.Year 2003-04.

4. The learned DR, on the other hand, was unable to controvert the contentions of the learned counsel of the assessee.

5. The powers under section 254(2) of the I.T.Act can be exercised when the mistake which is sought to be rectified is an obvious and patent mistake, which is apparent from the record, and not a mistake which requires to be established by arguments and long drawn process of reasoning, on point on which, there may conceivably be two opinions. The Hon'ble Supreme Court in the case of Saurashtra Kutch Stock Exchange Ltd. (supra) has held that non-consideration of a judgment of the jurisdictional High Court would always constitute a mistake apparent from record, regardless of the judgment being rendered prior to or subsequent to the order proposed to be rectified. Thus, after the order of the Tribunal, the Hon'ble Supreme Court has silenced the controversy and held that 90% of the net receipt representing insurance claim, C&F stocks interest and cash discount would be excluded. The findings of the Tribunal on similar issue, on the strength of the Hon'ble Supreme Court, in the Asstt.Year 2003-04 read as under:

"7. Now, we take up the ground No.2 of the Assessee's appeal that reads as under:-

The learned CIT(A) has erred in disallowing deduction u/s.80HHC on 90% of other income being (i) Interest income (FDR) Rs.21,88,854

(ii) Interest income of Rs.1,63,618 (iii) Rent income Rs.12,70,000 (iv) other misc.income Rs.14,18,854/-.

7.1. At the outset, the ld.counsel for the assessee submitted that this issue is squarely covered by the judgement of Hon'ble Apex Court in the case of ACG Associated Capsules Pvt.Ltd. vs. CIT reported at 343 ITR 89(SC). Ld.Counsel reiterated the submissions as were made in the Misc.Application No.10/Ahd/2014. For the sake of clarity, the relevant contents are reproduced hereinbelow:-

MA No.12/Ahd/2014 5 "3. .... . This Ground has been dealt with and adjudicated by the Hon'ble Tribunal at para 8 of the order. It has been held by the Hon'ble Tribunal that in respect of the other incomes referred to in the aforesaid Ground No. 4, 90% of the gross income is required to be excluded under clause (baa) of the Explanation u/s. 80HHC of the Income-tax Act. The Hon'ble Tribunal has referred to its decision with regard to a similar Ground of Appeal raised in assessee's appeal where the Hon'ble Tribunal relied on the Hon'ble Bombay High Court decision in the case of CIT v. Asian Star Co. Ltd. (326 ITR 56). At para 6.9 the Hon'ble Tribunal has observed that in consonance with the aforesaid Bombay High Court judgment 90% of the receipts referred to in Ground No. 2 of the assessee have to be excluded under clause (baa) of the Explanation. It is further observed that to take care of any expenditure which may have been incurred in earning this income, an ad hoc deduction of 10% has been allowed by the Legislature and as per the Bombay High Court judgment no further deduction is permissible.

4. It is respectfully submitted that the Hon'ble Bombay High Court decision in the case of Asian Star Co. (supra) has been overruled by the Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. (343 ITR 89). The Head Note of this judgment is reproduced below for ready reference:

"Under clause (1) of Explanation (baa) to section 80HHC of the Act, ninety per cent, of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head "Profits and gains of business or profession". The expression "included any such profits" would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and gains of business or profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under sections 30 to 44D of the Act and is not included in the profits of business as computed under the head "Profits and gains of business or profession", ninety per cent, of such quantum of receipts cannot be reduced under clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent, of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the pro- fits of the assessee for determining "profits of the business" of the assessee under Explanation (baa) to section 80HHC.

MA No.12/Ahd/2014 6 Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in it, 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 section 80HHC.

Held, accordingly, that ninety per cent, of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of business of the assessee as computed under the head "Profits and gains of business or profession", was to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business.

Decision of the Bombay High Court reversed.

Decision of the Delhi High Court affirmed.

Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 (SC) relied on.

CIT v. Shri Ram Honda Power Equip [2007] 289 ITR 475 (Delhi) approved.

CIT v. Asian Star Co. Ltd. [2010] 326 ITR 56 (Bom) impliedly overruled."

5. From the above it may kindly be appreciated that 90% of only net income can be excluded under clause (baa) of the Explanation to Section 80HHC while determining the profits of the business eligible for deduction. This judgment has been rendered by larger Bench of the Hon'ble Supreme Court comprising of three Judges and they have also followed the earlier Supreme Court decision in the case of Topman Exports v. CIT (342 ITR 49)."

7.2. Ld.Sr.DR fairly conceded the legal position as enunciated in the above referred judgement of the Hon'ble Supreme Court rendered in the case of ACG Associated Capsules (P) Ltd. vs. CIT (supra).

7.3. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. It is contended by the ld.Sr.Counsel for the assessee that the MA No.12/Ahd/2014 7

issue is covered by the judgement of Hon'ble Apex Court in the case of ACG Associated Capsules Pvt.Ltd.(supra), wherein the Hon'ble Supreme Court held that ninety percent of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of the business of the assessee as computed under the head "profits and gains of business or profession" is to be deducted under clause(1) of Explanation (baa) to section 80HHC for determining the profits of business. Therefore, respectfully following the ration laid down by the Hon'ble Apex Court, we hereby restore the issue to the file of the AO for re-computation of deduction u/s.80-HHC in the light of the judgement of Hon'ble Supreme Court rendered in the case of ACG Associated Capsules Pvt.Ltd.(supra). Accordingly, this ground of assessee's appeal is allowed for statistical purposes."

6. In view of the above discussion, we are of the view that the order of the Tribunal dated 22.10.2010 was suffering with apparent error. We allow the Misc. Application of the assessee, and hold that the AO shall re-compute the deduction admissible under section 80HHC to the assessee by excluding 90% of the net receipts of insurance claim, C&F stocks interest and cash discounts, as agitated by the Revenue in its ground no.4.

7. In the result, the Misc. Application of the assessee is allowed."

3. Identical issue is involved in ground nos.1 to 8 of the CO No.27/Ahd/2008. Following our order extracted (supra), we allow this Misc. Application also, and direct the AO that 90% of the net income representing interest, dividend, rental and Misc. Income is to be excluded from the business profit while calculating deduction under section 80HHC of the Act.

4. In the result, the MA of the assessee is allowed.

Order pronounced in the Court on 22nd July, 2015 at Ahmedabad.

Sd/- Sd/- (PRAMOD KUMAR) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER

Ahmedabad; Dated 22/07/2015