M/s. Packaging India Pvt. Ltd., Pondicherry v. ACIT, Pondicherry

CO 74/CHNY/2009 | 2005-2006
Pronouncement Date: 11-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 7421723 RSA 2009
Assessee PAN AAACP3492J
Bench Chennai
Appeal Number CO 74/CHNY/2009
Duration Of Justice 1 year(s) 9 month(s) 16 day(s)
Appellant M/s. Packaging India Pvt. Ltd., Pondicherry
Respondent ACIT, Pondicherry
Appeal Type Cross Objection
Pronouncement Date 11-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 11-03-2011
Date Of Final Hearing 20-01-2011
Next Hearing Date 20-01-2011
Assessment Year 2005-2006
Appeal Filed On 25-05-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH D : CHENNAI [BEFORE DR. O.K. NARAYANAN VICE-PRESIDENT AND SHRI HARI OM MARATHA JUDICIAL MEMBER] I.T.A NO. 405/MDS/2009 ASSESSMENT YEAR : 2005-06 THE ACIT CIRCLE I PUDUCHERRY VS M/S PACKAGING INDIA LTD R.S.NO.151/4 & 151/5 KANDANPET VILLAGE PILLAYARKUPPAM BAHOUR COMMUNE PONDICHERRY 607 402 [PAN AAACP3492J ] (APPELLANT) (RESPONDENT) C.O NO. 74/MDS/2009 ASSESSMENT YEAR : 2005-06 M/S PACKAGING INDIA LTD R.S.NO.151/4 & 151/5 KANDANPET VILLAGE PILLAYARKUPPAM BAHOUR COMMUNE PONDICHERRY 607 402 VS THE ACIT CIRCLE I PUDUCHERRY (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : SHRI K.E.B RENGARAJAN JR. STANDING COUNSEL ASSESSEE BY : SHRI PHILIP GEORGE O R D E R PER HARI OM MARATHA JUDICIAL MEMBER: THE APPEAL BY THE REVENUE AND THE CROSS OBJECTIO N BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-XII CHENNAI DATED 20.11.2008 ITA 405/09 & CO 74/09 :- 2 -: 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE- COMPANY WHICH IS A DOMESTIC COMPANY AND ENGAGED IN THE BUSINESS OF MAKING PRINTED AND LAMINATED FLEXIBLE PACKAGING MATERIALS AND MULTI-LAYER POLY FILM CO-EXTRUSION AND ROTOGRAVURE PRINTING ROLLERS ETC. WHICH ARE USED FOR PACKAGING VARIOUS TYPES OF FOOD ARTICLES MAINLY BISCUITS TEA COFFEE ETC. AND OTHER ITEMS LIKE SH AMPOO TOILETRIES AND THE LIKE. FOR THE YEAR UNDER CONSIDERATION THE AS SESSEE-COMPANY FILED ITS RETURN OF INCOME ON 31.10.2005 ADMITTING TOTAL INCOME OF ` 2 58 32 017/- AFTER CLAIMING DEDUCTION OF ` 1 16 04 473/- U/S 80-IB OF THE ACT BEING 30% OF THE NET PROFIT FOR THE ACCOUNT ING PERIOD ENDED 31.3.2005. SUBSEQUENTLY THE ASSESSEE REVISED ITS RETURN OF INCOME AND ENHANCED TOTAL INCOME TO ` 2 65 98 513/- BY WAY OF REDUCING ITS CLAIM OF DEDUCTION U/S 80-IB TO ` 1 11 91 269/-. TO ARRIVE AT THE ABOVE REVISED INCOME THE COMPANY HAS EXCLUDED INCO ME LIKE INTEREST ON BANK DEPOSITS INTEREST ON LOAN GIVEN TO ONE OF THE DIRECTORS OF THE COMPANY ETC. FURTHER THERE WERE TWO UNITS OWNED BY THE ASSESSEE- COMPANY AND THE LOSS ARISING OUT OF ONE UNIT WAS NO T SET OFF AGAINST THE PROFITS OF THE OTHER UNIT BEFORE CLAIMING DEDUC TION U/S 80-IB. THIS WAS ALSO A REASON FOR REVISING THE TOTAL INCOME ON THE ADVICE OF THE CHARTERED ACCOUNTANT. AS AGAINST WHICH HOWEVER T HE ASSESSMENT WAS COMPLETED U/S 143(3) ON 31.12.2007 AT A TOTAL INCOME OF ITA 405/09 & CO 74/09 :- 3 -: ` 3 77 89 782/- AS FOLLOWING ADJUSTMENTS AND ADDITION S WERE MADE TO THE TOTAL INCOME RETURNED: (I) A SUM OF ` 3 32 825/- THAT WAS STATED TO REPRESENT DIVIDEND INCOME FROM MUTUAL FUNDS AND WHICH WAS CLAIMED AS EXEMPT FROM TAXATION WAS ADDED AS SHORT TERM CAPITA L GAINS ARISING OUT OF REDEMPTION OF THE UNITS OF MUT UAL FUNDS. (II) A SUM OF ` 48 15 119/- WAS EXCLUDED FROM THE PROFITS OF THE BUSINESS AS NOT ELIGIBLE FOR DEDUCTION U/S 80-IB A S THE SAME WAS HELD TO BE NOT DERIVED FROM THE MANUFACTUR ING ACTIVITIES CARRIED ON BY THE APPELLANT COMPANY. THE BREAKUP FOR THIS SUM IS AS UNDER: A) INTEREST ` 24 229 B) FOREX GAINS ` 4 58 209 C) EXPORT BENEFITS ` 13 84 793 D) INSURANCE ` 55 595 E) JOB WORK ` 52 935 F) EXCESS PROVISION WRITTEN BACK ` 69 843 G)INTEREST U/S 244A ` 7 469 H)SALE OF WASTE STEEL ROLLERS ` 9 83 606 I)SALE OF OTHER SCRAP ` 17 78 440 ` 48 15 119 (III) IN ADDITION TO THE DISALLOWANCES AND ADDITION S MADE AS ABOVE THE ASSESSING OFFICER HAD ALSO DENIED TO THE APPELLANT COMPANY THE BENEFIT OF DEDUCTION CLAIMED U/S 80-IB IN ITS ENTIRETY BY HOLDING THAT THE ACTIVITIE S CARRIED ON BY THE COMPANY WOULD NOT AMOUNT TO MANUFACTURE WITHIN THE MEANING OF SEC.80IB AND FURTHER THE UNI T WITH REGARD TO WHICH THE DEDUCTION WAS CLAIMED WAS NOT A NEW INDUSTRIAL UNDERTAKING EXISTING IN ITS OWN RIGH T. 3. AGGRIEVED THE ASSESSEE PREFERRED APPEAL AND WAS SU CCESSFUL IN GETTING PART RELIEF. THE REVENUE IS IN APPEAL AGAI NST THE RELIEF GRANTED TO THE ASSESSEE AND THE ASSESSEE IS AGGRIEVED AGAI NST THE RELIEFS WHICH WERE NOT ALLOWED TO IT. THE REVENUE HAS RAIS ED THE FOLLOWING GROUNDS IN ITS APPEAL: ITA 405/09 & CO 74/09 :- 4 -: 1. THE ORDER OF THE CIT(A) IS AGAINST LAW AND FA CTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) ERRED IN ALLOWING THE CLAIM OF THE A SSESSEE U/S 80IB OF THE INCOME TAX ACT 1961. 3. THE CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE WITHOUT TAKING INTO THE ACCOUNT THAT THE ASSESSEE H AD MADE THIS CLAIM IN RESPECT OF UNIT II WHICH WAS NOTHING BUT AN EXPANSION OF THE EXISTING UNIT FOR WHICH T E BENEFI T OF EXEMPTION U/S 80IB WAS AL READY CLAIMED. 4. THE CIT (A) ERRED IN ALLOWING THE EXEMPTION U/S 80IB CLAIMED ON THE SALE OF WASTE ROLLERS FOR ` 9 83 606/- FOR WHICH THE EXEMPTION IS NOT ALLOWABLE. 5. FOR THESE GROUNDS AND FOR ANY OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING THE ORDER OF THE CI T(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 6 . ON THE STRENGTH OF THE BOARD'S INSTRUCTION NO.5/200 8 IN F. NO.279/MISC.142/2007-ITJ DATED 15.05.2008 THE APPEA L IS FILED. 4. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN I TS CROSS OBJECTION: 1. ELIGIBILITY OF DEDUCTION U/S.80IB ON INSURANCE CLAIM EXCESS RECEIVED ( ` 55 595/-) {AT PAGE 35; PARA 6 OF THEO0RDER OF THE CIT (A)} 1.1. THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRE D IN CONFIRMING THE EXCLUSION OF THE INSURANCE CLAIM OF ` 55 595/- FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S.80-IB B Y HOLDING THAT THE SAME WAS NOT DERIVED FROM INDUSTRIAL UNDERTAKIN G. 1.2. THE COMMISSIONER OF INCOME-TAX (APPEALS) OUG HT TO HAVE HELD THAT THE INSURANCE CLAIM RECEIVED WAS ENTITLED TO DEDUCTION U/S.80IB. 2. ELIGIBILITY OF DEDUCTION U/S.80IB ON SALE OF OT HER SCRAPS ( ` 17 78 440/-) {AT PAGE 40; PARA 7.5 OF THE ORDER OF CIT (A)} : 2.1. THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE EXCLUSION OF ` 17 78 440/- BEING PROFIT RECEIVED FROM SALE OF OTHER SCRAPS. ITA 405/09 & CO 74/09 :- 5 -: 2.2. THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE OTHER SCRAPS PERTAINS TO THE W ORN OUT CONSUMABLES AD PACKING MATERIALS WHICH WERE THE RE SULT OF THE NATURAL PHENOMENON IN THE UTILIZATION OF CONSUMABLE S/PACKING MATERIALS AND TO THIS EXTEND IT REDUCES THE TOTAL C OST OF THE MANUFACTURING EXPENSES. 2.3. THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION U/ S.80IB ON SALE OF OTHER SCRAPS. 3. ELIGIBILITY OF DEDUCTION U/S.80IB ON JOB WORK RE CEIPT ( ` 52 935/-) {AT PAGE 40; PARA 8 OF THE ORDER OF CIT(A )} : 3.1. THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE JOB WORK RECEIPTS ARE NOT ENTITLED TO DEDU CTION U/S.80IB. 3.2. THE COMMISSIONER OF INCOME-TAX (APPEALS) GROS SLY ERRED IN HOLDING THAT JOB WORK CHARGES RECEIVED ARE SECON DARY IN NATURE BY WAY OF AFTER SALES SERVICES AND NOT PROF ITS DERIVED FROM MANUFACTURING OF AN ARTICLE OR THING. 3.3. THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGH T TO HAVE APPRECIATED THAT THE JOB WORK RECEIPT WAS BY UTILIZ ATION OF THE ASSESSEES INDUSTRIAL UNDERTAKING AND THEREFORE ENT ITLED TO DEDUCTION U/S.80IB. 4. THE CROSS OBJECTOR CONTESTS ALL THE FINDINGS OF FACT AND LAW AND ALL PRESUMPTIONS MADE AGAINST THE CROSS OBJECTO R BY THE COMMISSIONER OF INCOME-TAX (APPEALS). 5. THE CROSS OBJECTOR PRAYS THAT IT MAY BE PERMITTE D TO FILE ADDITIONAL GROUNDS OF CROSS OBJECTION IF ANY AT OR BEFORE THE TIME OF HEARING. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE P ERUSED THE ENTIRE RECORDS INCLUDING THE PAPER BOOK FILED BEFOR E US IN THE LIGHT OF THE ORAL SUBMISSIONS MADE BY BOTH THE PARTIES. IN FACT MAJORLY THE ISSUE BEFORE US IS WHETHER THE ASSESSEE IS ENTITLED TO A RELIEF OF DEDUCTION U/S 80IB IF IT IS ALLOWED WHAT ITEMS OF RECEIPT WOULD NOT BE SPECIFICALLY ELIGIBLE FOR THIS DEDUCTION. THE DETA ILED FACTS APROPOS THE CLAIM OF DEDUCTION UN 80-IB ARE THAT THE ASSESSEE C LAIMS THAT IT HAS ITA 405/09 & CO 74/09 :- 6 -: ESTABLISHED UNIT-II ALTHOUGH IT WAS MANUFACTURING S AME AND SIMILAR ARTICLES YET IT WAS DISTINCT FROM UNIT-I. THE CASE OF THE REVENUE IS THAT THE ASSESSEE HAS REINVESTED THE CAPITAL OF UNIT-I I N UNIT-II SO IT CANNOT BE CONSIDERED AS AN INDEPENDENT SEPARATE AND DISTI NCT INDUSTRIAL UNDERTAKING. THE MAIN REASON WHICH WEIGHED IN THE MIND OF THE ASSESSING OFFICER SPECIFICALLY IS THAT UNIT-II WAS MERELY A SUBTERFUGE TO CLAIM THE BENEFIT OF DEDUCTION UNS80-IB. AFTER CON SIDERING THE RIVAL CLAIMS AND AFTER GOING THROUGH THE LENGTHY ORDER OF THE LD. CIT(A) AS WELL AS THE ASSESSMENT ORDER WE NOTICE THAT UNIT-I WAS ESTABLISHED IMMEDIATELY AFTER THE INCORPORATION OF THE COMPANY AND COMMERCIAL PRODUCTION COMMENCED ON 1.6.1991. THIS UNIT WAS C LOSED ON 1.11.2000 IN THE PREVIOUS YEAR RELEVANT TO ASSESSME NT YEAR 2001-02. THIS UNIT WAS NOT FUNCTIONAL IN THE YEAR RELEVANT T O ASSESSMENT YEAR 2005-06. THE ASSESSEE HAD CLAIMED BENEFIT OF DEDUC TION U/S 80-IB WITH REGARD TO UNIT-I FOR RELEVANT ASSESSMENT YEAR S FROM 1992-93 TO 2001-02. UNIT-I WAS SITUATED IN SURVEY NO.151/2 A T KATTUKUPPAM IN BAHOUR COMMUNE ON THE PONDICHERRY-CUDDALORE MAIN RO AD WHEREAS UNIT-II IS LOCATED IN SURVEY NO.151/4 AT PILLIARKUP PAM IN KANDANPET VILLAGE AT BAHOUR COMMUNE. THIS UNIT IS ENGAGED IN THE MANUFACTURING OF FLEXIBLE PACKAGING MATERIALS WHICH ARE USED AS PRIMARY PACKAGING FOR SOAPS AND COSMETICS BISCUITS AND CONFECTIONERY TEA COFFEE AND SUCH OTHER FOOD ARTICLES. THIS UNI T WENT INTO PRODUCTION WITH EFFECT FROM 19.6.1996 AND SINCE THEN THE COMPA NY HAS BEEN ITA 405/09 & CO 74/09 :- 7 -: CLAIMING DEDUCTION U/S 80-IB IN RESPECT OF INCOME ARISING FROM THIS UNIT-II AS WELL. WE HAVE NOTICED THAT THE PRODUCTS MANUFACTURED IN UNIT-I AND UNIT-II WERE TECHNICALLY DIFFERENT ALTHO UGH BOTH THE UNITS MANUFACTURE ONLY PACKAGING MATERIALS. BUT THE FINI SHED GOODS PRODUCED IN UNIT-II ARE TOTALLY DIFFERENT FROM THOS E PRODUCED IN UNIT-I. THE RAW MATERIALS USED FOR BOTH THE UNITS ARE SUBST ANTIALLY DIFFERENT. THE TYPES OF MACHINERY USED ARE ALSO DIFFERENT IN B OTH THE UNITS. FOR PRODUCTION DONE IN UNIT-II THE RAW MATERIALS BEING DIFFERENT THE ARTICLES PRODUCED ARE ALSO MATERIALLY DIFFERENT WHI CH ARE PRODUCED BY USING NEW TECHNOLOGY. THE LD.AR DEMONSTRATED THE F INISHED GOODS BEFORE US IN THE OPEN COURT. IT WAS EXPLAINED THAT THE RAW MATERIALS USED IN UNIT-I WERE ONLY DIFFERENT TYPES OF PAPER A ND POLYETHYLENE FILMS AS AGAINST WHICH THE MAIN RAW MATERIALS USED IN UNIT-II WERE POLYESTER FILMS BOP/CPP FILMS METALLIC FILMS ALU MINIUM FOILS GRANULES ADHESIVES AND SOLVENTS. THE MAIN PROTEST OF THE LD.DR IS THAT UNIT-II IS SIMPLICITOR AND EXTENSION OF THE AL READY EXISTING UNIT AND SINCE THE ASSESSEE HAS CLAIMED THE ELIGIBLE BENEFIT OF DEDUCTION FOR TEN YEARS IT HAS PLOYED TO EXTEND THE BENEFIT BY USING THE OLD MACHINERY IN THE ALLEGED SECOND UNIT AND IN THIS WAY UNIT-I AND UNIT-II ARE ONE AND THE SAME SO THIS BENEFIT CANNOT BE ALLOWED TO THE ASSESSEE. THE LD. CIT(A) HAS GIVEN DESCRIPTION OF DIFFERENT RAW MATER IALS AND PRODUCTS SO PRODUCED IN HIS LENGTHY ORDER STARTING FROM PAGE 11 ONWARDS AND WE ARE ALSO CONVINCED THAT THE FINISHED GOODS PRODU CED IN UNIT-II ARE ITA 405/09 & CO 74/09 :- 8 -: DEFINITELY A DIFFERENT ONE FROM THE ONE PRODUCED IN UNIT-I. SO ALSO THE RAW MATERIALS ARE DIFFERENT. WE ARE NOT REQUIRED T O GO INTO THE MINUTE DETAILS WHICH THE LD. CIT(A) HAS EXPLAINED THREADBA RE IN HIS ORDER ITEMWISE. BUT WE ARE CONVINCED THAT UNIT-II IS SEP ARATE AND DISTINCT UNIT PRODUCING DIFFERENT ITEMS. THE ASSESSEE HAS O BTAINED CERTIFICATE FROM REGISTRAR OF COMMERCIAL TAXES PONDICHERRY TH AT UNIT-I WAS CANCELLED WITH EFFECT FROM 1.11.2000 WITH ENDORSEME NT NO.1496 DATED 3.5.2001. IN THE ANNEXURE TO THIS ORDER LIST OF I TEMS MANUFACTURED IN THIS UNIT ARE AS UNDER: (I) POLY POLYESTER (II) ADHESIVE WAX (III) INK (IV) PAPER (V) CARDBOARD BOXES (VI) MACHINERIES & SPARES (VII) CYLINDERS (VIII) BIO-OXIDANT POLY PROPYLENE (BOPP) (IX) SOLVENTS (X) POLY CHIPS (XI) STATIONERY (XII) PAPER CORE (XIII) CARTON BOXES (XIV) PACKING MATERIAL PLASTIC POUCHES FOR PACKING SHAMPOO BISCUITS & PICKLES (XV) GUM TAPE (XVI) SCAN POSITIVES (XVII) OIL (MACHINERY USAGE) 6. A PERUSAL OF ACCOUNTS STATEMENT PERTAINING TO THREE ACCOUNTING PERIODS INDICATE THAT UNIT-II HAD BEEN OWNED BY FR ESH INVESTMENT AND THE PRODUCTS MANUFACTURED BY UNIT-II WERE A NEW PRO DUCT THOUGH THE UTILITY OF THE PRODUCT REMAINED THE SAME. THE UNIT S ARE LOCATED AT ITA 405/09 & CO 74/09 :- 9 -: DIFFERENT AND SEPARATE PLACES. THE ASSESSEE HAS BE EN MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR BOTH THE UNITS. SEPA RATE WORKERS WERE EMPLOYED AT TWO UNITS AND THE NUMBER OF EMPLOYEES W ORKING IN UNIT-II AT THE RELEVANT TIME WAS 300 IN NUMBER. BOTH THE UNITS WERE OPERATING PARALLELLY FOR FIVE YEARS. SO IN OUR O PINION UNIT-II IS A NEW INDUSTRIAL UNDERTAKING IN ITS OWN RIGHTS BECAUSE OF THE FOLLOWING REASONS: (I) THE UNIT-II IS NEWLY ESTABLISHED INDEPENDENT INTEGRATED UNIT FORMED WITH INTRODUCTION OF FRESH CAPITAL AND PURCHASE OF NEW MACHINERIES WITHOUT ANY INTERLACING OR INTERDEPENDENCE WITH UNIT-I. (II) SEPARATE LICENSES/APPROVALS HAVE BEEN OBTAINED FOR THE UNITS AND EACH UNIT IS TOTALLY IDENTIFIABLE APART FROM THE OTHER. (III) THE PLANT AND MACHINERY INSTALLED AND PUT TO USE ARE ALL NEW AND NOT TRANSFERRED FROM ANY OF THE UNITS TO THE OTHER. (IV) SEPARATE WORK FORCE IS EMPLOYED THEREIN FOR EACH UNIT. (V) THE PROFIT AND LOSS FROM EACH UNIT IS SEPARATEL Y DETERMINABLE AND IS SO DETERMINED. (VI) THE PREMISES OF UNIT I AND II ARE DIFFERENT. (VII) RAW MATERIAL AND THE END PRODUCT OF UNIT I AN D UNIT II ARE DIFFERENT TO CATER DIFFERENT CLASS OF CUSTOMERS. ITA 405/09 & CO 74/09 :- 10 - : 7. HENCE KEEPING IN MIND THE CUMULATIVE EFFECT OF THE FACTS THAT BOTH THE UNITS ARE SITUATED AT SEPARATE PLACES SEP ARATE INVESTMENT WAS MADE IN UNIT-II THE RAW MATERIALS USED IN BOTH THE UNITS ARE ENTIRELY DIFFERENT THE TECHNICAL PROPERTIES OF THE ORIGINAL PRODUCTS ARE ALSO DIFFERENT AND THE FINISHED GOODS PRODUCED ARE ALSO DIFFERENT THE MACHINERIES USED IN BOTH THE UNITS ARE ENTIRELY DIF FERENT THEREFORE IT BECOMES EVIDENTIALLY CLEAR THAT THE COMPANY HAD GON E IN FOR SUBSTANTIAL EXPANSION BY NOT ONLY USING AN IMPROVED AND DIFFERENT TECHNOLOGY BUT ALSO GOING IN FOR TOTALLY DIFFERENT TYPES OF PRODUCTS WHICH ARE USED FOR PACKING. 8. WE HAVE CONSIDERED VARIOUS DECISIONS RELIED UPON B EFORE US. BUT ONLY ON THE BASIS OF FACTS AVAILABLE BEFORE US AND APPLYING THE PLAIN MEANING OF THE WORDS USED IN SECTION 80-IB W E HAVE COME TO A DEFINITE CONCLUSION THAT UNIT-II IS A SEPARATE ONE AND FULFILLS ALL THE REQUISITE CONDITIONS FOR CLAIMING DEDUCTION U/S 80- IB IN ITS OWN RIGHTS. THERE IS NOTHING CONTAINED IN SECTION 80-IB TO REST RICT THE ASSESSEE FROM STARTING ANOTHER UNIT(S) FOR THE PURPOSE OF CA RRYING ON AN ALREADY EXISTING BUSINESS OF COURSE WITHOUT VIOLATING ANY OF THE CONDITIONS LAID DOWN THEREIN. THE UNIT-II HAS NOT BEEN FOUND TO BE FORMED BY SPLITTING UP OF AN ALREADY EXISTING INDUSTRIAL UNDE RTAKING OR BY RECONSTRUCTION OF AN ALREADY EXISTING UNDERTAKING. NO PART OF THE CAPITAL OF THE EXISTING UNIT HAS BEEN TRANSFERRED T O UNIT-II. LIKEWISE IT IS NOT A CASE WHERE THE ASSETS LAND AND BUILDING PLANT AND MACHINERY ITA 405/09 & CO 74/09 :- 11 - : ETC. WERE TRANSFERRED FROM UNIT-I TO UNIT-II LOCK STOCK AND BARREL. THERE IS NO RECONSTRUCTION OF THE ALREADY EXISTING BUSINESS. AS THE ASSESSEE HAS BEEN CLAIMING THIS BENEFIT FROM ASSESS MENT YEAR 1997- 98 THE PRESENT ASSESSMENT YEAR 2005-06 IS THE NIN TH YEAR HENCE THE CLAIM U/S 80IB REGARDING THIS UNIT IS LEGALLY MAINT AINABLE. WE CONFIRM THE FINDING OF THE LD. CIT(A) AND CANNOT ALLOW GROU ND NOS.2&3 OF REVENUES APPEAL. 9. THE OTHER ISSUE OF REVENUES APPEAL IS TAKEN VIDE G ROUND NO.4. THE FACTS OF THIS ISSUE ARE THAT THE ASSESSEE-COMPA NY HAS SHOWN CERTAIN INCOME FROM SALE OF SCRAP WHICH COMPRISES O F SALE OF WASTE STEEL ROLLERS OF ` 9 83 606/- AND SALE OF OTHER SCRAP OF ` 17 78 440/- WHICH THE ASSESSING OFFICER HAS EXCLUDED FROM THE P ROFITS OF BUSINESS BY TREATING THEM TO BE NOT ELIGIBLE FOR DEDUCTION U /S 80IB. THE ASSESSEE HAS ALSO SHOWN SCRAP FOR THE VALUE OF ` 22 66 064/- THAT HAS BEEN OBTAINED AS A BY-PRODUCT AND HAS TREATED IT AS DERIVED FROM ITS MANUFACTURING ACTIVITIES. REGARDING SALE OF WASTE STEEL ROLLERS AND OTHER SCRAP THE ASSESSING OFFICER HAS CONCLUDED T HAT THESE CANNOT BE SAID TO BE DERIVED DIRECTLY FROM THE MANUFACTURING ACTIVITIES OF THE ASSESSEE THEREFORE HE HAS EXCLUDED THE SAME FROM THE BUSINESS PROFIT. BEFORE THE LD. CIT(A) IT WAS ARGUED THAT THE WASTE STEEL ROLLERS ARE NOTHING BUT THE WORN OUT PRINTING CYLINDER(BLOC KS) GENERATED OUT OF THE ASSESSEES PROCESS OF MANUFACTURING. THUS THE SE ARE THE RESULT OF NATURAL PHENOMENON IN THE UTILIZATION OF CONSUMABLE S AND TO THAT ITA 405/09 & CO 74/09 :- 12 - : EXTENT IT REDUCES THE COST OF THE MANUFACTURING EXP ENSES. REGARDING THE OTHER SCRAPS IT WAS STATED THAT THESE PERTAINE D TO WORN OUT CONSUMABLES/PACKING MATERIALS AND TO THAT EXTENT I T REDUCES THE TOTAL COST OF MANUFACTURING EXPENSES. THE ASSESSEE RELIE D ON THE DECISIONS OF HON'BLE MADRAS HIGH COURT IN THE CASE OF FENNER INDIA LTD VS CIT 241 ITR 803(MAD) AND IN THE CASE OF CIT VS SUNDARAM INDUSTRIES 253 ITR 396(MAD) WHEREIN IT HAS BEEN HELD THAT THE ASS ESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80HH IN RESPECT OF PROFITS DERIV ED FROM THE SALE OF SCRAP BY OBSERVING THAT IT WAS WRONG TO SAY THAT T HE SCRAP HAD NO DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKING. AFTE R CONSIDERING THE FACTS OF THESE TWO ITEMS THE LD. CIT(A) HAS FOUND THE SUM OF ` 9 83 606/- REPRESENTING PROFIT ON SALE OF WASTE STE EL ROLLERS DID QUALIFY FOR DEDUCTION U/S 80IB AS PER THE RATIO OF THE DECI SIONS OF HON'BLE MADRAS HIGH COURT (SUPRA). BUT AS REGARDS THE OT HER SCRAPS COMING OUT OF PACKING MATERIALS AS PER THE LD. CIT(A) T HE LD.AR COULD NOT CLEARLY EXPLAIN AS TO HOW THESE SCRAPS WERE GENERA TED DURING THE COURSE OF MANUFACTURING ACTIVITIES CARRIED ON BY TH E ASSESSEE HENCE CANNOT BE STATED TO HAVE BEEN DERIVED FROM THE MANU FACTURING ACTIVITIES OF THE ASSESSEE. THEREFORE HE HAS NOT ALLOWED THE OTHER PART OF ADDITION AMOUNTING TO ` 17 78 440/- U/S 80IB. THE ASSESSEE HAS CHALLENGED THIS SUSTAINED ADDITION VIDE GROUND NO.2 OF THE CROSS OBJECTION. THIS IS BEING CONNECTED ISSUE WE WILL DECIDE IT SIMULTANEOUSLY. ITA 405/09 & CO 74/09 :- 13 - : 10. BOTH THE PARTIES HAVE STUCK TO THEIR REASONSINGS TA KEN BEFORE THE LD. CIT(A). THE HON'BLE SUPREME COURT HAS CLEARLY LAID DOWN GUIDELINES WHILE DECIDING THE ISSUE IN THE CASE OF CIT VS PANDIAN CHEMICALS 262 ITR 278 IN WHICH IT WAS HELD THAT W HAT IS NOT DERIVED FROM THE MANUFACTURING ACTIVITIES OF THE ASSESSEE-C OMPANY CANNOT BE HELD TO BE ELIGIBLE FOR SUCH DEDUCTION. THIS VIEW HAS BEEN FURTHER CLARIFIED BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS SUNDARAM INDUSTRIES (SUPRA) AFTER FOLLOWING ITS OWN DECISION IN THE CASE OF FENNER INDIA LTD AS UNDER: THIS COURT IN THE CASE OF FENNER (INDIA) LTD. V. C IT (NO.2)[2000] 241 ITR 803 HAS HELD THAT SCRAP MATER IALS WHICH HAD A SALEABLE VALUE AND WHICH WERE A BY-PRO DUCT OF THE MANUFACTURE OF OTHER RUBBER ARTICLES WHEN S OLD AND RESULTED IN AN INCOME TO THE ASSESSEE HAD A DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKING AND THAT THE PROFI T FROM THE SALE OF SCRAP MATERIALS WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HH OF THE ACT. IN THE LIGHT OF THAT JUDG MENT WE MUST HOLD THAT IN RESPECT OF THE MISCELLANEOUS INCO ME EARNED FROM THE SALE OF SCRAP THE ASSESSEE WAS ENT ITLED TO THE BENEFIT OF SECTION 80HH OF THE ACT. IN SO FAR AS INTERESTS ON DEPOSITS ARE CONCERNED SUCH INTEREST CANNOT BE REGARDED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING AND IT HAS ALREADY BEEN SO HELD BY THI S COURT IN THE CASE OF CIT V. PANDIAN CHEMICALS LTD. [1998] 233 ITR 497. WE THEREFORE ANSWER THE SECOND PART OF THAT QUESTION REGARDING INTEREST ON DEPOSITS BY HOLDING THAT SUCH INTEREST IS NOT INTEREST DERIVED FROM THE INDU STRIAL UNDERTAKING AND DOES NOT QUALIFY FOR DEDUCTION UND ER SECTION 80HH OF THE ACT . 11. THE LD. CIT(A) HAS FOLLOWED THIS DECISION IN ITS LE TTERS AS WELL AS IN SPIRIT WHILE DECIDING THE ISSUE OF SCRAP SALE OF WASTE STEEL ROLLERS BY TREATING THEM AS REGULAR CONSUMABLES IN THE PROCESS OF MANUFACTURING ITA 405/09 & CO 74/09 :- 14 - : OF THE ASSESSEE-COMPANY. BUT AT THE SAME TIME S IMILAR SCRAPS WHICH ARE ALSO RESULT OF MANUFACTURING ACTIVITIES BEING R EGULAR CONSUMABLES COMING OUT OF THE PACKING MATERIALS. IN OUR CONSID ERED OPINION BOTH THESE SCRAPS ARE THE RESULT OF REGULAR BUSINESS ACT IVITIES OF MANUFACTURING OF THE ASSESSEE-COMPANY AND THESE RE CEIPTS ARE DERIVED FROM THE MANUFACTURING ACTIVITIES OF THE AS SESSEE AND HENCE BOTH THE DECISIONS OF THE HON'BLE SUPREME COURT AND THE HON'BLE MADRAS HIGH COURT WOULD COME TO THE RESCUE OF THE A SSESSEE. IN THIS WAY WE CONFIRM THE IMPUGNED DELETION AND ALSO DELE TE THE OTHER ADDITION OF ` 17 78 440/-. IN THIS PROCESS WE DISMISS THE SECO ND ISSUE OF REVENUES APPEAL BUT ALLOW GROUND NO.2 OF CROSS OBJECTION. 12. GROUND NO.1 OF CROSS OBJECTION RELATES TO EXCLUSION OF INSURANCE CLAIM OF ` 55 595/- FROM THE PROFITS ELIGIBLE FOR DEDUCTION U /S 80IB ON THE PREMISE THAT THE SAME WAS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. THIS SUM REPRESENTS RECEIPTS FROM INS URANCE CLAIMED. THE ASSESSEE HAS PAID INSURANCE PREMIUM AND DEBITED THE SAME IN THE PROFIT & LOSS ACCOUNT TOWARDS LOSS DUE TO TRANSIT O F THE FINISHED PRODUCTS ETC. AND WHEN THE CLAIM WAS RECEIVED TO C OMPENSATE THE COMPANY FOR THE EXPENSES INCURRED THIS RECEIPT MUS T BE TAKEN INTO CONSIDERATION AS FORMING PART OF THE PROFITS U/S 80 IB. IN THIS REGARD THE ASSESSEE RELIED ON THE DECISION OF HON'BLE P&H HIGH COURT IN THE CASE OF CIT VS KHEMKA CONTAINER(P) LTD 275 ITR 559 . BUT WHEN THIS ISSUE WAS CHURNED IT WAS FOUND THAT THIS AMOUNT OF ` 55 595/- IS ITA 405/09 & CO 74/09 :- 15 - : ATTRIBUTABLE TO FOUR TYPES OF CLAIM (I) VALUE OF THE MATERIALS DAMAGED (II) PROPORTIONATE EXCISE DUTY (III) SURV EY FEES; AND (IV) HANDLING CHARGES @ 10% OF THE MATERIAL VALUE ASSESS ED. CLEARLY THESE AMOUNTS DO NOT FALL IN THE PURVIEW OF SECTION 80IB BECAUSE THESE CANNOT BE SAID TO BE DERIVED FROM THE BUSINESS OF M ANUFACTURING ACTIVITIES OF THE ASSESSEE. THEREFORE THIS GROUND OF CROSS OBJECTION CANNOT BE ALLOWED. 13. THE OTHER GROUND OF CROSS OBJECTION IS REGARDING TR EATMENT OF JOB WORK RECEIPTS AMOUNTING TO ` 52 935/-. THE ASSESSEE HAS SHOWN A SUM OF ` 52 935/- AS JOB WORK RECEIPTS WHICH HAVE BEEN TA KEN INTO CONSIDERATION WHILE WORKING OUT THE NET PROFIT ELIG IBLE FOR CLAIM OF DEDUCTION U/S 80IB. THE ASSESSING OFFICER HOWEVER HAS EXCLUDED THIS SUM ON THE REASONING THAT THE SAME CANNOT BE STATED TO BE DERIVED DIRECTLY FROM THE MANUFACTURING ACTIVITIES CARRIED ON BY THE ASSESSEE- COMPANY. THE CASE OF THE ASSESSEE IS THAT THIS INC OME WAS DERIVED FROM CERTAIN SERVICES RENDERED AFTER THE MANUFACTUR ING PROCESS WAS OVER. IT IS THE CLEAR CASE OF THE ASSESSEE THAT TH E JOB WORK WAS GOT DONE ON THE SAME FINISHED PRODUCTS ALREADY SUPPLIED TO THE CUSTOMERS AND WHICH WERE RETURNED TO MAKE UP CERTAIN DEFICIEN CY AND TO MAKE THE PRODUCTS USABLE. THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER. NOW THE ASSESSEE IS FURTHER AG GRIEVED. 14. IN OUR CONSIDERED OPINION WHEN THIS IS CLEAR CUT C ASE OF THE ASSESSEE THAT THE JOB WORK WAS GOT DONE AFTER THE M ANUFACTURING ITA 405/09 & CO 74/09 :- 16 - : PROCESS WAS OVER BY NO STRETCH OF IMAGINATION THE SE RECEIPTS CAN BE STATED TO BE DIRECTLY DERIVED FROM THE MANUFACTURIN G ACTIVITIES OF THE ASSESSEE HENCE WE UPHOLD THE IMPUGNED ADDITION AN D DISMISS THE GROUND RAISED BY THE ASSESSEE IN THIS REGARD. 15. IN THE RESULT THE CROSS OBJECTION FILED BY THE ASS ESSEE STANDS PARTLY ALLOWED. 16. TO SUMMARIZE THE RESULT THE APPEAL OF THE REVENUE STANDS DISMISED WHEREAS THE CROSS OBJECTION OF THE ASSESSE E STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.3 .2011 SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 11.3.2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR