Commissioner of Income Tax vs Gujarat Automotive Gears Ltd.

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K.S. Jhaveri, J.—Since, the issue involved in both the appeals is common, they are heard together and disposed of by this common judgment.

The brief facts of the case, so far as Tax Appeal No. 57 of 2006 is concerned, are that the respondent-assessee, therein, filed its return of income on 29.10.2001 for the A.Y. 2001-02 and same was processed on 28.03.2003. Pursuant thereto, the case of the assessee was selected for scrutiny. During the scrutiny, the AO found that the assessee had ignored negative value of business profits and shown them to be nil. The AO was of the opinion that had the assessee not done the same, it would have resulted in a negative value of deduction under Section 80HHC of the Income Tax Act, 1961 (for short, ''the Act'') and as a consequence thereof, the deduction allowable under the said section would have been ''Nil''. Hence, the AO determined deduction under Section 80HHC of the Act at ''Nil''. Being aggrieved thereby, the assessee approached the CIT(A), which partly allowed the appeal of the assessee. In turn, the revenue challenged the order of the CIT(A) before the ITAT, Ahmedabad (for short, ''the Tribunal''), which dismissed the appeal of the revenue. Hence, the revenue has preferred the present appeal raising the following question of law, for the consideration of this Court;

"Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal was right in upholding the order of the CIT(A) directing to exclude sales-tax and excise duty while computing total turnover for the purpose of deduction u/s. 80HHC of the I.T. Act?"

So far as Tax Appeal No. 915 of 2006 is concerned, the facts in brief are that the respondent-assessee, therein, filed its return of income for the A.Y. 1996-97 on 30.10.1996. However, the AO found that the assessee had not included the amount of sales tax amounting to Rs. 45,12,006/- and excise duty Rs. 14,32,560/- in total turnover. Pursuant thereto, the AO reduced the claim of the assessee for deduction under Section 80HHC of the Income Tax Act, 1961 (for short, ''the Act''). Being aggrieved thereby, the assessee approached the CIT(A), which dismissed the appeal of the assessee, holding that the sales tax and excise duty would form the part of ''total turnover''. Since, the assessee was not satisfied with the same, it carried the order of the CIT(A) in challenge before the ITAT, Ahmedabad (for short, ''the Tribunal''), which allowed the appeal of the assessee, directing the AO to exclude excise duty and sales tax from the total turnover. Hence, the revenue has preferred the present appeal raising the following question of law, for the consideration of this Court;

"Whether on facts and circumstances of the case and in law, ITAT was right in law in holding that sums relatable to Excise duty and Sales tax do not form part of the total turn over for the purpose of computing profits derived from export for claiming benefit u/s. 80HHC of the Income Tax Act, 1961?"

Mr. Parikh, learned Counsel for the appellant-revenue in both the appeals, submitted that the Tribunal erred by confirming the finding of the CIT(A) and directing the AO to exclude sales tax and excise duty from total turn over. Mr. Parikh submitted that the Tribunal ought to have, in view of the decision of the Apex Court in Chowringhee Sales Bureau (P) Ltd. Vs. Commissioner of Income Tax , West Bengal, , held that sales tax and excise duty would form the part of total turn over. Mr. Parikh also placed reliance on another decision of the Apex Court in the case of Sinclaire Murray and Co. (P) Ltd. Vs. The Commissioner of Income Tax, Calcutta, .

As against this learned Counsel for the respondent assessee supported the order of the Tribunal and submitted that the Tribunal, in view of the latest decision of the Apex Court as well as of this Court, rightly come to the conclusion that the sales tax and excise duty shall not form the part of total turnover.

Heard learned counsels for the parties and perused the material on record, including the orders of the learned CIT(A) as well as the Tribunal. The issue involved in this appeal is not res integra and the same has been answered in favour of the assessee and against the revenue by the Apex Court in Commissioner of Income Tax, Coimbatore Vs. Lakshmi Machine Works, . In that case, the Apex Court hold that while interpreting the words "total turnover" in the formula in Section 80HHC, one has to give a schematic interpretation and the various amendments made therein show that receipts by way of brokerage, commission, interest, rent, etc. do not form part of business profits, as they have no nexus with the activity of export, and therefore, excise duty and sales tax also cannot form part of the "total turnover" under Section 80HHC(3) of the Act.

The aforesaid principle has also been followed by this Court in Tax Appeal No. 884 of 2006 and the allied matters, whereby, this Court also held that the amounts towards sales tax and the excise duty cannot be included in the total turnover.

It has come on record, in both the cases, while re-examining the case of the respective assessee, the AO included the amount towards Sales Tax as well as the Excise Duty in the total turnover. Therefore, in view of the above discussion and the principle laid down by the Apex Court in the above-mentioned decision and which is followed by this Court, as stated above, we are of the opinion that the Tribunal committed no error in directing the AO to exclude sales tax and excise duty from the total turnover. Both the appeals sans merit and deserve to be dismissed.

In the result, both the appeals stand Dismissed. The question raised in these appeals is accordingly answered in favour of the assessee and against the revenue. No order as to costs.