Prasad GWK Cooltech Pvt.Ltd., Ahmedabad v. The Dy.CIT.,Circle-5,, Ahmedabad

ITA 1072/AHD/2010 | 2006-2007
Pronouncement Date: 02-07-2010 | Result: Dismissed

Appeal Details

RSA Number 107220514 RSA 2010
Assessee PAN AABCP4965D
Bench Ahmedabad
Appeal Number ITA 1072/AHD/2010
Duration Of Justice 2 month(s) 25 day(s)
Appellant Prasad GWK Cooltech Pvt.Ltd., Ahmedabad
Respondent The Dy.CIT.,Circle-5,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 02-07-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 02-07-2010
Date Of Final Hearing 02-07-2010
Next Hearing Date 02-07-2010
Assessment Year 2006-2007
Appeal Filed On 07-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI MAHAVIR SINGH JUDICIAL MEMBER AND SHRI A.N.PHAUJA ACCOUNTANT MEMBER ITA NO.1072-1073/AHD/2010 ASSESSMENT YEAR:2006-07 DATE OF HEARING:2.7.10 DRAFTED:5.7.10 PRASAD GWK COOLTECH PVT. LTD. 14/16 PHASE-G.I.D.C VAATVA AHMEDABAD PAN NO.AABCP4965D PRASAD KOCH TECHNIK PVT. LTD. 14/16 PHASE-I G.I.D.C. VATVA AHMEDABAD PAN NO.AAACP6751G V/S. V/S. DCIT CIRCLE-5 AHMEDABAD DCIT CIRCLE-5 AHMEDABAD (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- NONE REVENUE BY:- SHRI K. MADHUSUDUN SR-DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THESE TWO APPEALS BY THE ASSESSEE ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX(APPEALS)-XI AHMEDABAD I N APPEAL NOS. CIT(A)- XI/468-469/08-09 DATED 02-03-2010. THE ASSESSMENT W AS FRAMED BY THE DCIT CIRCLE-5 AHMEDABAD U/S.143(3) OF THE INCOME-TAX AC T 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 18-06-2008 FOR T HE ASSESSMENT YEAR 2006-07. 2. THE ONLY COMMON ISSUE IN THESE APPEALS OF THE AS SESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE U/S.80-IB OF THE ACT ON EXPORT INCENTIVE. AS ITA NO.1072-1073/AHD/2010 A.Y.2006-07 PRASAD GWK COOLTECH & TECHNIK PVT.LTD. V. DCIC CIR-5 A BD PAGE 2 THE ISSUE IS SAME WE REPRODUCE THE GROUNDS FROM ITA NO.1072/AHD/2010 WHICH ARE AS UNDER:- 1. YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PAS SED BY LEARNED C.I.T. (APPEALS)-XI AHMEDABAD DATED 02.03.2010 PRESENTS THIS APPEAL ON FOLLOWING GROUNDS. 2. THE LEARNED C.I.T(APPEALS)-XI AHMEDABAD HAS ERR ED IN DISALLOWANCE U/S.80-IB OF RS.9 06 184/- BEING EXPORT INCENTIVE I NCOME THOUGH FULLY EXPLAINED. THE PENALTY LEVIED BE DELETED. 3. THE BRIEF FACTS IN BOTH THE APPEALS OF THE ASSES SEE ARE THAT THE ASSESSEE CLAIMED DEDUCTION U/S.80-IB OF THE ACT ON OTHER INC OME I.E. EXPORT INCENTIVE AND GAINS RECEIVED ON FOREIGN EXCHANGE RATE. THE ASSESS ING OFFICER DISALLOWED THE DEDUCTION U/S.80-IB OF THE ACT ON EXPORT INCENTIVE AND FOREIGN EXCHANGE GAINS. HOWEVER THE CIT(A) ALLOWED THE DEDUCTION IN RESPEC T OF GAINS ON FOREIGN EXCHANGE FLUCTUATIONS BUT CONFIRMED THE DISALLOWANCE ON DEDU CTION ON EXPORT INCENTIVE. 4. AT THE OUTSET LD. SR-DR SHRI K. MUDHUSUDUN STA TED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF REVENUE AND AGAINST T HE ASSESSEE IN BOTH THE ASSESSEES APPEALS BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF LIBERTY INDIA LTD. V. CIT (2009) 317 ITR 218 (SC) THE HONBLE APEX COURT HELD THAT SECTION 80-IB PROVIDES FOR ALLOWING DEDUCTION IN RESPECT OF PROFI T & GAINS DERIVED FROM ELIGIBLE BUSINESS AND ANALYSIS THE PROVISIONS AS UNDER:- BEFORE ANALYSING SECTION 80-IB AS A PREFATORY NOT E IT NEEDS TO BE MENTIONED THAT THE 1961 ACT BROADLY PROVIDES FOR TWO TYPES OF TAX INCENTIVES NAMELY INVESTMENT-LINKED INCENTIVE S AND PROFIT- LINKED INCENTIVES. CHAPTER VI-A WHICH PROVIDES FOR INCENTIVES IN THE FORM OF TAX DEDUCTIONS ESSENTIALLY BELONG TO TH E CATEGORY OF PROFIT LINKED INCENTIVES. THEREFORE WHEN SECTION 80-IA/80-TB REFERS TO PROFITS DERIVED FROM ELIGIBLE BUSINESS I T IS NOT THE OWNERSHIP OF THAT BUSINESS WHICH ATTRACTS THE INCEN TIVES. WHAT ATTRACTS THE INCENTIVES UNDER SECTION 80-IA/80-IB I S THE GENERATION OF PROFITS (OPERATIONAL PROFITS). FOR EXAMPLE AN A SSESSEE- COMPANY LOCATED IN MUMBAI MAY HAVE A BUSINESS OF BU ILDING HOUSING PROJECTS OR A SHIP IN NAVA SHEVA. OWNERSHIP OF A SHIP PER SE WILL NOT ATTRACT SECTION 80-IB(6). IT IS THE PROFITS ARISING FROM THE BUSINESS OF A SHIP WHICH ATTRACTS SUB-SECT ION (6). IN OTHER WORDS DEDUCTION UNDER SUB-SECTION (6) AT THE SPECIFIED RATE HAS LINKAGE TO THE PROFITS DERIVED FROM THE SHIPPIN G OPERATIONS. THIS IS WHAT WE MEAN IN DRAWING THE DISTINCTION BET WEEN PROFIT- ITA NO.1072-1073/AHD/2010 A.Y.2006-07 PRASAD GWK COOLTECH & TECHNIK PVT.LTD. V. DCIC CIR-5 A BD PAGE 3 LINKED TAX INCENTIVES AND INVESTMENT-LINKED TAX INC ENTIVES. IT IS FOR THIS REASON THAT PARLIAMENT HAS CON FINED THE DEDUC TION TO PROFITS DERIVED FROM ELIGIBLE BUSINESSES MENTIONED IN SUB-S ECTIONS (3) TO (11A) (AS THEY STOOD AT THE RELEVANT TIME). ONE MOR E ASPECT NEEDS TO BE HIGHLIGHTED. EACH OF THE ELIGIBLE BUSIN ESS IN SUB SECTIONS (3) TO (11A) CONSTITUTES A STAND-ALONE ITE M IN THE MATTER OF COMPUTATION OF PROFITS. THAT IS THE REASON WHY T HE CONCEPT OF SEGMENT REPORTING STANDS INTRODUCED IN THE INDIAN ACCOUNTING STANDARDS (IAS) BY THE INSTITUTE OF CHARTERED ACCOU NTANTS OF INDIA (ICAT). ANALYSING CHAPTER VT-A WE FIND THAT SECTION 80-113 /80-IA ARE A CODE BY THEMSELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. THEREFORE WE NEED TO EXAMIN E WHAT THESE PROVISIONS PRESCRIBE FOR COMPUTATION OF PROFITS OF THE ELIGIBLE BUSINESS. IT IS EVIDENT THAT SECTION 80-IB PROVIDE S FOR ALLOWING OF DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED F ROM THE ELIGIBLE BUSINESS. THE WORDS DERIVED FROM ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO. IN OTHE R WORDS BY USING THE EXPRESSION DERIVED FROM PARLIAMENT INT ENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. IN THE PRESENT BATCH OF CASES THE CONTROVERSY WHICH ARISES FOR DETERMINATI ON IS: WHETHER THE DEPB CREDIT/DUTY DRAWBACK RECEIPT COMES WITHIN THE FIRST DEGREE SOURCES? ACCORDING TO THE ASSESSEE(S) DEPB CREDIT/DUTY DRAWBACK RECEIPT REDUCES THE VALUE OF PURCHASES (CO ST NEUTRALIZATION) HENCE IT COMES WITHIN FIRST DEGRE E SOURCE AS IT INCREASES THE NET PROFIT PROPORTIONATELY. ON THE OT HER HAND ACCORDING TO THE DEPARTMENT DEPB CREDIT/DUTY DRAWB ACK RECEIPTS DO NOT COME WITHIN FIRST DEGREE SOURCE AS THE SAID INCENTIVES FLOW FROM THE INCENTIVE SCHEMES ENACTED BY THE GOVERNMEN T OF INDIA OR FROM SECTION 75 OF THE CUSTOMS ACT 1962. HENCE ACCORDING TO THE DEPARTMENT IN THE PRESENT CASES THE FIRST DEG REE SOURCE IS THE INCENTIVE SCHEME/PROVISIONS OF THE CUSTOMS ACT. IN THIS CONNECTION THE DEPARTMENT PLACES HEAVY RELIANCE ON THE JUDGMENT OF THIS COURT IN STERLING FOODS [1999) 237 ITR 579 . THEREFORE IN THE PRESENT CASES IN WHICH WE ARE RE QUIRED TO EXAMINE THE ELIGIBLE BUSINESS OF AN INDUSTRIAL UNDE RTAKING WE NEED TO TRACE THE SOURCE OF THE PROFITS TO MANUFACT URE. (SEE CIT V. KIRLOSKAR OIL ENGINES LTD. REPORTED IN [1986] 157 I TR 762.) CONTINUING OUR ANALYSIS OF SECTION 80-IA/80-IB IT M AY BE MENTIONED THAT SUB-SECTION (13) OF SECTION 80-LB PR OVIDES FOR APPLICABILITY OF THE PROVISIONS OF SUB-SECTION (5) AND SUB-SECTIONS (7) TO (12) OF SECTION 80-IA SO FAR AS MAY BE APP LICABLE TO THE ELIGIBLE BUSINESS UNDER SECTION 80-LB. THEREFORE A T THE OUTSET WE STATED THAT ONE NEEDS TO READ SECTIONS 80-I 80-IA AND 80-IB AS HAVING A COMMON SCHEME. ON A PERUSAL OF SUB-SECTION (5) OF SECTION 80-LA IT IS NOTICED THAT IT PROVIDES FOR T HE MANNER OF ITA NO.1072-1073/AHD/2010 A.Y.2006-07 PRASAD GWK COOLTECH & TECHNIK PVT.LTD. V. DCIC CIR-5 A BD PAGE 4 COMPUTATION OF PROFITS OF AN ELIGIBLE BUSINESS. ACC ORDINGLY SUCH PROFITS ARE TO BE COMPUTED AS IF SUCH ELIGIBLE BUSI NESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THEREFORE THE DE VICES ADOPTED TO REDUCE OR INFLATE THE PROFITS OF ELIGIBL E BUSINESS HAVE GOT TO BE REJECTED IN VIEW OF THE OVERRIDING PROVIS IONS OF SUBSECTION (5) OF SECTION 80-IA WHICH ARE ALSO REQ UIRED TO BE READ INTO SECTION 80-TB. (SEE SECTION 80-IB(13)). W E MAY REITERATE THAT SECTIONS 80-I 80-IA AND 80-IB HAVE A COMMON SCHEME AND IF SO READ IT IS CLEAR THAT THE SAID SEC TIONS PROVIDE FOR INCENTIVES IN THE FORM OF DEDUCTION(S) WHICH ARE LI NKED TO PROFITS AND NOT TO INVESTMENT. ON AN ANALYSIS OF SECTIONS 8 0-IA AND 80-IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING W HICH BECOMES ELIGIBLE ON SATISFYING SUB-SECTION (2) WOULD BE EN TITLED TO DEDUCTION UNDER SUB-SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER SPEC IFIED DATE(S). HENCE APART FROM ELIGIBILITY SUB-SECTION (1) PURP ORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS THE IMPORTANCE OF THE WORDS DERIVED FROM I NDUSTRIAL UNDERTAKING AS AGAINST PROFITS ATTRIBUTABLE TO IN DUSTRIAL UNDERTAKING. DEPB IS AN INCENTIVE. IT IS GIVEN UNDER THE DUTY EX EMPTION REMISSION SCHEME. ESSENTIALLY IT IS AN EXPORT INCE NTIVE. NO DOUBT THE OBJECT BEHIND DEPB IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY PAYMENT ON THE IMPORT CONTENT OF EXPOR T PRODUCT. THIS NEUTRALIZATION IS PROVIDED FOR BY CREDIT TO CU STOMS DUTY AGAINST EXPORT PRODUCT. UNDER DEPB AN EXPORTER MAY APPLY FOR CREDIT AS A PERCENTAGE OF THE FOB VALUE OF EXPORTS MADE IN FREELY CONVERTIBLE CURRENCY. CREDIT IS AVAILABLE ONLY AGAI NST THE EXPORT PRODUCT AND AT RATES SPECIFIED BY THE DGFT FOR IMPO RT OF RAW MATERIALS COMPONENTS ETC. DEPB CREDIT UNDER THE SCHEME HAS TO BE CALCULATED BY TAKING INTO ACCOUNT THE DEEMED IMPORT CONTENT OF THE EXPORT PRODUCT AS PER BASIC CUSTOMS DUTY AND SPECIAL ADDITIONAL DUTY PAYABLE ON SUCH DEEMED IMPORTS. THE REFORE IN OUR VIEW DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH F LOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM SECTIO N 75 OF THE CUSTOMS ACT 1962 HENCE INCENTIVES PROFITS ARE NO T PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDER SECTION 80 -113. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS. THE NEXT QUESTION IS WHAT IS DUTY DRAWBACK? SECTI ON 75 OF THE CUSTOMS ACT 1962 AND SECTION 37 OF THE CENTRAL EX CISE ACT 1944 EMPOWER THE GOVERNMENT OF INDIA TO PROVIDE FO R REPAYMENT OF CUSTOMS DUTY AND EXCISE DUTY PAID BY AN ASSESSEE . THE REFUND IS OF THE AVERAGE AMOUNT OF DUTY PAID ON MATERIALS OF ANY PARTICULAR CLASS OR DESCRIPTION OF GOODS USED IN TH E MANUFACTURE OF EXPORT GOODS OF SPECIFIED CLASS. THE RULES DO NO T ENVISAGE A REFUND OF AN AMOUNT ARITHMETICALLY EQUAL TO CUSTOMS DUTY OR ITA NO.1072-1073/AHD/2010 A.Y.2006-07 PRASAD GWK COOLTECH & TECHNIK PVT.LTD. V. DCIC CIR-5 A BD PAGE 5 CENTRAL EXCISE DUTY ACTUALLY PAID BY AN INDIVIDUAL IMPORTER-CUM- MANUFACTURER. SUB-SECTION (2) OF SECTION 75 OF THE CUSTOMS ACT REQUIRES THE AMOUNT OF DRAWBACK TO BE DETERMINED ON A CONSIDERATION OF ALL THE CIRCUMSTANCES PREVALENT IN A PARTICULAR TRADE AND ALSO BASED ON THE FACTS SITUATION RELEVAN T IN RESPECT OF EACH OF VARIOUS CLASSES OF GOODS IMPORTED. BASICALL Y THE SOURCE OF THE DUTY DRAWBACK RECEIPT LIES IN SECTION 75 OF THE CUSTOMS ACT AND SECTION 37 OF THE CENTRAL EXCISE ACT. ANALYSING THE CONCEPT OF REMISSION OF DUTY DRAWBACK AND DEPB WE ARE SATISFIED THAT THE REMISSION OF DUTY IS ON A CCOUNT OF THE STATUTORY/POLICY PROVISIONS IN THE CUSTOMS ACT/SCHE ME(S) FRAMED BY THE GOVERNMENT OF INDIA. IN THE CIRCUMSTANCES W E HOLD THAT PROFITS DERIVED BY WAY OF SUCH INCENTIVES DO NOT FA LL WITHIN THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTA KING IN SECTION 80-LB. SINCE RELIANCE WAS PLACED ON BEHALF OF THE ASSESSEE (S) ON AS-2 WE NEED TO ANALYSE THE SAID STANDARD. AS-2 DEALS WITH VALUATION OF INVENTORIES. INVENTORI ES ARE ASSETS HELD FOR SALE IN THE COURSE OF BUSINESS; IN THE PRO DUCTION FOR SUCH SALE OR IN THE FORM OF MATERIALS OR SUPPLIES TO BE CONSUMED IN THE PRODUCTION. INVENTORY SHOULD BE VALUED AT THE LOWER OF COST A ND NET REALIZABLE VALUE (NRV). THE COST OF INVENTORY SHO ULD COMPRISE ALL COSTS OF PURCHASE COSTS OF CONVERSION AND OTHE R COSTS INCLUDING COSTS INCURRED IN BRINGING THE INVENTORY TO THEIR PRESENT LOCATION AND CONDITION. THE COST OF PURCHASE INCLUDES DUTIES AND TAXES (OTH ER THAN THOSE SUBSEQUENTLY RECOVERABLE BY THE ENTERPRISE FROM THE TAXING AUTHORITIES) FREIGHT INWARDS AND OTHER EXPENDITURE DIRECTLY ATTRIBUTABLE TO THE ACQUISITION HENCE TRADE DISCOU NTS REBATE DUTY DRAWBACK AND SUCH SIMILAR ITEMS ARE DEDUCTED IN DETERMINING THE COSTS OF PURCHASE. THEREFORE DUTY DRAWBACK REBATE ETC. SHOULD NOT BE TREATED AS ADJUSTMENT ( CREDITED) TO THE COST OF PURCHASE OR MANUFACTURE OF GOODS. THEY SHOU LD BE TREATED AS SEPARATE ITEMS OF REVENUE OR INCOME AND ACCOUNTE D FOR ACCORDINGLY (SEE PAGE 44 OF THE INDIAN ACCOUNTING S TANDARDS AND GAAP BY DOLPHY DSOUZA). THEREFORE FOR THE PURPOSE S OF AS-2 CENVAT CREDITS SHOULD NOT BE INCLUDED IN THE COST O F PURCHASE OF INVENTORIES. EVEN THE INSTITUTE OF CHARTERED ACCOUN TANTS OF INDIA (1CM) HAS ISSUED GUIDANCE NOTE ON ACCOUNTING TREATM ENT FOR ITA NO.1072-1073/AHD/2010 A.Y.2006-07 PRASAD GWK COOLTECH & TECHNIK PVT.LTD. V. DCIC CIR-5 A BD PAGE 6 CENVAT/MODVAT UNDER WHICH THE INPUTS CONSUMED AND T HE INVENTORY OF INPUTS SHOULD BE VALUED ON THE BASIS O F PURCHASE COST NET OF SPECIFIED DUTY ON INPUTS (I.E. DUTY RE COVERABLE FROM THE DEPARTMENT AT A LATER STAGE) ARISING ON ACCOUNT OF REBATES DUTY DRAWBACK DEPB BENEFIT ETC. PROFIT GENERATION COULD BE ON ACCOUNT OF COST CUTTING COST RATIONALIZATION BUSI NESS RESTRUCTURING TAX PLANNING ON SUNDRY BALANCES BEIN G WRITTEN BACK LIQUIDATION OF CURRENT ASSETS ETC. THEREFORE WE A RE OF THE VIEW THAT THE DUTY DRAWBACK DEPB BENEFITS REBATES ETC . CANNOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOODS D EBITED IN THE PROFIT AND LOSS ACCOUNT FOR PURPOSES OF SECTION 80- IA/80-IB AS SUCH REMISSIONS (CREDITS) WOULD CONSTITUTE INDEPEND ENT SOURCE OF INCOME BEYOND THE FIRST DEGREE NEXUS BETWEEN PROFIT S AND THE INDUSTRIAL UNDERTAKING. 5. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FA VOUR OF REVENUE AND AGAINST THE ASSESSEE BY THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF LIBERTY INDIA LTD. (SUPRA) AND THE COMMON ISSUE IN BOTH THE ASSESSEE S APPEALS IS DISMISSED. 6 IN THE RESULT ASSESSEES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 02/07/2010 SD/- SD/- (A.N.PHAUJA) (MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD DATED : 02/07/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-XI AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD