Mahavira Cycle Industries vs. CIT & Anr. [2015] 379 ITR 357 (SC)
The assessee-firm was dealing in trading and manufacturing of cycle parts. It claimed that the scrap was bi-product of manufacturing which was not part of the total turnover. On November 29, 1999, the assessee filed its original return for the assessment year 1999-2000 declaring a total income as nil. The assessee claimed deduction of Rs.1,73,53,957 u/s. 80HHC of the Act. The return was processed u/s. 143(1)(a) on March 21, 2001. The case was reopened u/s. 148 of the Act. During the assessment proceedings, it was found that the assessee had made sale of scrap amounting to Rs.79,25,489. According to the view point of the Revenue, the sale proceeds of the scrap was a part of the total turnover though the assessee had ignored to include the amount of sale of scrap while computing the deduction u/s. 80HHC of the Act. At the same time, the Assessing Office excluded the profit on sale of scrap from the profit of the business on proportionate basis for the purposes of calculation of deduction u/s. 80HHC. The Assessing Officer, thus, vide order dated July 10, 2006, modified the deduction admissible u/s. 80HHC.
The assessee filed an appeal before the Commissioner of Income Tax (Appeals) (for short “the CIT(A)”). The Commissioner of Income Tax (Appeals) held that the Assessing Officer fell in legal error by including the sale of scrap in the total turnover for the purpose of computation of deduction u/s. 80HHC. It was also clarified that the sale of scrap shall not be considered while computing the profits of the business and, accordingly, by its order dated September 25, 2006, the Commissioner of Income Tax (Appeals) allowed the appeal.
The order giving effect to the order of the Commissioner of Income Tax (Appeals) was passed on October 3, 2006 by the Assessing Officer wherein the total income was assessed at nil. However, later on the Assessing Officer was of the opinion that while giving effect to the order of the Commissioner of Income Tax (Appeals), a mistake apparent on the face of the record had occurred as the scrap sales amounting to Rs.79,25,489 had to be excluded from the total turnover as well as from the profits of the business for computing deduction u/s. 80HHC. The Assessing Officer rectified its earlier order giving appeal effect by exercise of the powers under section 154 of the Act, vide order dated November 28, 2006 and recomputed the deduction by excluding the entire turnover of sale of scrap from the profits of the business. The assessee again filed an appeal before the Commissioner of Income Tax (Appeals) challenging the order dated November 28, 2006 of the Assessing Officer. The Commissioner of Income Tax (Appeals), however, dismissed the appeal, vide order dated December 28, 2007, in the light of its earlier order dated September 25, 2006, holding that u/s.154 the Assessing Officer was competent to initiate proceedings to exclude the turnover of sale of scrap from the profit of business for the purpose of computation of deduction u/s. 80HHC. The assessee further took the matter in appeal before the Tribunal, impugning the orders passed by the Commissioner of Income Tax (Appeals) dated December 28, 2007, and September 25, 2006. The main submission that was raised on behalf of the assessee was that the Commissioner of Income Tax (Appeals) had erred in holding that the entire turnover of sale of scrap was to be excluded from profits of business while computing the deduction u/s. 80HHC.
The Tribunal vide order dated September 29, 2008, held that the deduction u/s. 80HHC of the Act should be computed after excluding the profit on sale of scrap from the profit of business and the sale of scrap also would not form part of the total turnover, for the purpose of calculation of deduction u/s. 80HHC and dismissed both the appeals of the assessee.
The High Court held that the question regarding the inclusion of profit on sale of scrap in calculating business profit u/s. 80HHC had come up for consideration before the Kerala High Court in CIT vs. Kar Mobiles Ltd.’s case (311 ITR 478) where after examining the provisions of section 80HHC and Explanation (baa)(1) attached thereto, it was held that the profits arising from the sale of scrap shall form part of business profits referred to in the formula for determining admissible deduction u/s. 80HHC of the Act. It was also recorded that the sale of scrap shall also form part of the total turnover of the assessee.
Before the Supreme Court, the Revenue acknowledged that the controversy in hand has been adjudicated upon by the Supreme Court in CIT vs. Punjab Stainless Steel Industries (364 ITR 144), in which it was held that sale proceeds of scrap were not includible in turnover.
The Supreme Court therefore allowed the application of the assessee and disposed of the civil appeals in terms of the judgment in CIT vs. Punjab Stainless Steel Industries.
