The ACIT,Vapi Circle,, Vapi v. Standard Oil & Greases,

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' [BEFORE SHRI MAHAVIR SINGH JM AND SHRI A N PAHUJA A M] ITA NO.1748/AHD/2007 (ASSESSMENT YEAR:-2004-05) ASSISTANT COMMISSIONER OF INCOME-TAX VAPI CIRCLE VAPI V/S M/S STANDARD OIL & GREASES PLOT NO.83/1 & 2 VILLAGE KHADOLI SILVASSA- 396230 [PAN:AAUFS9308K] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI C K MISHRA DR ASSESSEE BY:- SHRI M J SHAH O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 15- 01-2007 OF THE LD. CIT(APPEALS) VALSAD RAISES THE FOLLOWING GROUNDS: 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE INCOME FROM IN TEREST OF RS.6 31 210/- AND DISCOUNT OF RS.1 04 865/- ON SALE OF DEPB PURCHASE ARE ELIGIBLE FOR DEDUCTION U/S 80IB WITHOUT CONSIDE RING THE FACT THAT THEY HAVE NO DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACT URING ACTIVITY OF THE ASSESSEE. 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE INCOME FROM IN TEREST AND DISCOUNT ON SALE OF DEPB ARE ELIGIBLE FOR DEDUCTION U/S 80IB THROUGH THEY ARE NOT DERIVED FROM BUT ONLY ARE ATTRIBUTABLE TO T HE BUSINESS OF THE ASSESSEE. 3 IT IS THEREFORE PRAYED THAT THE DECISION OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THE ORDER OF THE AO MAY BE RESTORED. THE APPELLANT CARVES LEAVE TO ADD ALTER OR AMEND ANY GROUNDS OF APPEAL. 2 FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT THE RETURN DECLARING INCOME OF RS.94 67 061/- FILED ON 19-10- 2004 BY THE ASSESSEE MANUFACTURING LUBRICATING OILS AND GREASE S AFTER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT 1961 [H EREINAFTER ITA NO.1748/AHD/2007 2 REFERRED TO AS THE ACT] WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 06-07-2005. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASS ESSEE CLAIMED DEDUCTION U/S 80IB ON THE INTEREST INCOME OF RS.6 3 1 210/-. SINCE THE SAID INTEREST INCOME DID NOT HAVE ANY DIRECT NE XUS WITH THE MANUFACTURING ACTIVITY OF THE INDUSTRIAL UNDERTAKIN G OF THE ASSESSEE THE AO SHOW CAUSED THE ASSESSEE TO EXPLAIN WHY DEDU CTION U/S 80IB SHOULD NOT BE DISALLOWED ON THE SAID AMOUNT. IN RES PONSE THE ASSESSEE SUBMITTED VIDE LETTER DATED 16-11-06 THAT THE INTEREST RECEIVED AND PAID TO VARIOUS PARTIES RELATES TO VAR IOUS PARTIES WITH WHOM BUSINESS DEALINGS WERE CARRIED OUT DURING THE YEAR. SINCE INTEREST RECEIVED IS BUSINESS INCOME AND NET AMOUNT IS BEING REFLECTED IN P&L ACCOUNT THE ASSESSEE PLEADED THAT THEY ARE ENTITLED FOR THE DEDUCTION U/S 80IB OF THE ACT. HOW EVER THE AO RELYING UPON THE DECISIONS OF THE HON'BLE SUPREME C OURT IN THE CASES OF PANDIAN CHEMICALS LTD.VS. CIT 262 ITR 278 (SC) AND CIT VS. STERLING FOODS 237 ITR 579 (SC) CONCLUDED THAT THE INTEREST HAVING NOT BEEN DERIVED FROM THE BUSINESS OF THE IN DUSTRIAL UNDERTAKING WAS NOT ELIGIBLE FOR DEDUCTION U/S 80 IB OF THE ACT. 3 ON APPEAL THE CIT(A) ALLOWED THE CLAIM OF THE A SSESSEE IN THE FOLLOWING TERMS: 6. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CAS E FINDINGS OF THE A.O & SUBMISSIONS OF THE APPELLANT BEFORE A.O. & I N APPELLATE PROCEEDINGS. AFTER CONSIDERING THE ENTIRE FACTS & V ARIOUS JUDGMENTS CITED BY THE APPELLANT. I AM OF THE VIEW THAT THE INTERES T INCOME RS.6 315210/- RECEIVED FROM VARIOUS BUSINESS DEALINGS HAS D IRECT & IMMEDIATE NEXUS WITH BUSINESS OF THE INDUSTRIAL UNDER TAKING . FURTHER ON GOING THROUGH THE WORDS USED IN SECTION 80IB I FIN D FORCE IN APPELLANTS ARGUMENT THAT BENEFIT SECTION 8OIB IS AVAIL ABLE NOT ONLY TO THE PROFITS & GAINS DERIVED FROM INDUSTRIAL U NDERTAKING BUT ALSO IN RESPECT OF INCOME HAVING CLOSE & DIRECT NEXUS WITH THE PROFITS & GAINS OF THE BUSINESS OF INDUSTRIAL UNDERTAKING. SO IN VIEW OF THESE FACTS AND LEGAL PRONOUNCEMENT I AM OF THE OPINION THAT THE SUBMISS ION MADE BY AUTHORIZED REPRESENTATIVE OF APPELLANT DURING APPEL LATE PROCEEDINGS IS CONVINCING. I ALSO FIND FORCE IN AUTHORIZED REPRESE NTATIVES ARGUMENT THAT ITA NO.1748/AHD/2007 3 THE FACTS IN CASE OF APPELLANT ARE DIFFERENT FROM T HE FACTS IN CASE OF PANDIAN CHEMICALS LTD. AND STERLING FOODS LTD. AND RATIO OF THESE TWO JUDGMENTS CANNOT BE APPLIED IN CASE OF THE APPELLANT. A. O. I S THEREFORE DIRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF INTEREST INC OME RS.6 31 210/- AND CONSEQUENTLY ALLOW DEDUCTION U/S 80IB TO THAT EXTE NT. THEREFORE THIS GROUND OF APPEAL IS ALLOWED. 4 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST TH E AFORESAID FINDINGS OF THE LEARNED CIT(A). AT THE OUTSET BOTH THE PARTIES AGREED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION DATED 4-01-2008 OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE SUCC EEDING ASSESSMENT YEAR 2005-06 IN ITA NO.3095/AHD/2007. 5 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH T HE FACTS OF THE CASE. UNDISPUTEDLY THE FACTS IN THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS IN THE AY 2005-06 WHEREIN TH E TRIBUNAL VIDE THEIR AFORESAID ORDER DATED 04-01-2008 CONCLUDED A S UNDER:- 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. WE FIND THAT THE A O HAS DISALLOWED THE CLAIM FOR DEDUCTION U/S 80 IB ON INTEREST INCOME OF RS.17.896/- TO THE ASSESSEE ON THE GROUND THAT THE SAME WAS NOT DERIVED FROM MANUFACTURING ACTIVITIES OF THE UNDERTAKING OF THE ASSESSEE. THE CONTENTION OF THE ASSESSEE IS THAT THE CLAIM FOR DE DUCTION U/S 80 IB ON INTEREST INCOME IS ALLOWABLE TO THE ASSESSEE AS THE WORDS USED IN THE SECTION ARE BUSINESS OF AN INDUSTRIAL UNDERTAKING W HICH INCLUDES ALL THE ACTIVITIES CARRIED OUT BY THE ASSESSEE IN BROAD SEN SE. IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDE RED VIEW THAT THE INCOME DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING INCLUDES THE ACTIVITIES SUCH AS PURCHASE OF RAW MATERIALS PRODU CTION OF FINISHED GOODS AND SALE OF FINISHED GOODS IN THE MARKET. THUS ANY INCOME WHICH IS EARNED BY THE ASSESSEE FROM THE ACTIVITY OF CONVERT ING RAW MATERIAL INTO FINISHED GOODS AND THEN SELLING THE SAME WILL BE IN COME FROM INDUSTRIAL UNDERTAKING OF THE ASSESSEE. THUS IF THE ASSESSEE SELLS GOODS AND ITS CUSTOMERS PAY INTEREST TO THE ASSESSEE ON THE BELAT ED PAYMENT OF THE SALE CONSIDERATION TO THE ASSESSEE THE SAID INTEREST INC OME WILL BE AN INCOME CONNECTED WITH THE INDUSTRIAL UNDERTAKING OF THE AS SESSEE AND HENCE WOULD QUALIFY FOR DEDUCTION U/H 80 IB OF THE ACT. I N THE INSTANT CASE IT IS NOT THE CASE OF THE ASSESSEE THAT IT HAS DERIVED INTERE ST INCOME WHICH WAS EARNED IN CONNECTION WITH THE INDUSTRIAL UNDERTAKIN G OF THE ASSESSEE. NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT TH E INCOME WAS EARNED FROM INDUSTRIAL UNDERTAKING OF THE ASSESSEE. THEREF ORE THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ALLOWING DEDUCTION U/S 80 IB O N INTEREST INCOME OF RS.17.385/-. HENCE WE SET ASIDE THE ORDER OF THE L EARNED CIT(A) AND ITA NO.1748/AHD/2007 4 RESTORE THE ORDER OF THE AO. ACCORDINGLY THE GROUN D OF APPEAL OF THE REVENUE IS ALLOWED. 5.1 IN THE LIGHT OF THE VIEW TAKEN BY THE ITAT IN THE AFORESAID DECISION FOR THE AY 2005-06 AND THERE BEING NO MAT ERIAL BEFORE US REGARDING EVEN THE NATURE OF INTEREST OR ANY EXPEND ITURE HAVING BEEN INCURRED BY THE ASSESSEE IN EARNING THE AFORESAID I NTEREST INCOME THE PLEA ON BEHALF OF THE ASSESSEE FOR ALLOWANCE OF DEDUCTION U/S 80IB OF THE ACT OR EVEN REGARDING THE NETTING OFF T HE INTEREST FOR THAT PURPOSE IS REJECTED. ACCORDINGLY FOLLOWING THE AFO RESAID DECISION OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AY 2005 -06 ESPECIALLY WHEN IT IS NOT DISPUTED BEFORE US THAT THE FACTS IN THE YEAR UNDER CONSIDERATION ARE AT VARIANCE WITH THE FACTS IN THE AY 2005-06 WE HAVE NO ALTERNATIVE BUT TO SET ASIDE THE ORDER OF T HE LEARNED CIT(A) AND RESTORE THE ORDER OF THE AO . THEREFORE GROUND NO.1 IN THE APPEAL IS ALLOWED. 6 NOW ADVERTING TO GROUND NO.2 RELATING TO DISALLO WANCE OF DEDUCTION U/S 80IB OF THE ACT ON DISCOUNT OF RS.1 0 4 865/- ON SALE OF DEPB PURCHASE THE AO DISALLOWED THE CLAIM FOLLOWIN G THE AFORESAID DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASES OF PANDIAN CHEMICALS LTD.(SUPRA) AND STERLING FOODS(SUPRA). 7 ON APPEAL THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 9 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CAS E FINDINGS OF THE AO AND SUBMISSIONS OF THE LEARNED AUTHORIZED REPRESENT ATIVE OF APPELLANT & I AM OF THE OPINION THAT DISCOUNT CREDITED ON PROFIT AND LOSS ACCOUNT IS PART OF PURCHASE PRICE AND NOT INCOME AT ALL. I ALSO AGR EE THAT DEPB LICENSES WERE PURCHASED ONLY BECAUSE THEY ARE AVAILABLE AT D ISCOUNT. INSTEAD OF DEBITING NET PURCHASE PRICE IN PROFIT AND LOSS ACCO UNT APPELLANT HAS DEBITED TOTAL AMOUNT OF LICENSES ON DEBIT SIDE OF P ROFIT AND LOSS ACCOUNT & ON CREDIT SIDE DISCOUNT IS MENTIONED FOR ACCOUNTING PURPOSE. SO DISCOUNT IS NOTHING BUT REDUCTION IN PURCHASE PRICE. AO IS DIRE CTED TO DELETE THE ADDITION MADE ON ACCOUNT OF DISCOUNT ON DEPB PURCHA SE RS.1 04 865/- ITA NO.1748/AHD/2007 5 AND CONSEQUENTLY ALLOW THE DEDUCTION U/S 80IB TO TH AT EXTENT. THEREFORE THIS GROUND OF APPEAL IS ALLOWED. 8 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). AT THE OU TSET BOTH THE PARTIES AGREED THAT THE ISSUE IS SQUARELY COVERED B Y THE DECISION DATED 04-01-2008 OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE SUCCEEDING ASSESSMENT YEAR 2005-06 IN ITA NO.3095/A HD/2007. 9 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY THE FACTS IN THE Y EAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS OBTAINING IN THE AY 2005-06 WHEREIN THE TRIBUNAL VIDE THEIR AFORESAID ORDER DAT ED 04-01-2008 CONCLUDED AS UNDER:- 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES. WE FIND THAT IT IS NOT IN DISPUT E THAT THE ASSESSEE HAS PURCHASED DEPB LICENSE AND THE PURCHASE PRICE WAS S HOWN AS A DEBIT ENTRY IN THE PROFIT & LOSS ACCOUNT. THE DISCOUNT RE CEIVED ON DEPB LICENSE WAS SHOWN AS CREDIT ENTRY IN THE PROFIT & LOSS ACCO UNT. THUS THE DISCOUNT SHOWN IN THE PROFIT & LOSS ACCOUNT RELATES TO THE P URCHASE OF DEPB LICENSE AND IS THEREFORE PART OF TRADING RECEIPTS. THEREF ORE THE A O WAS NOT JUSTIFIED IN NOT INCLUDING THE DISCOUNT OF RS.7 18. 393/-IN THE PROFIT OF THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE WHILE COMPUT ING THE DEDUCTION ALLOWABLE U/S 80 IB TO THE ASSESSEE. THE LEARNED DR COULD NOT BRING ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF TH E LEARNED CIT(A) THAT THE FACTS AS STATED ABOVE BY THE LEARNED CIT(A) ARE NOT CORRECT. THEREFORE WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE O RDER OF THE LEARNED CIT(A). IT IS CONFIRMED AND THE GROUND OF APPEAL O F THE REVENUE IS DISMISSED. 9.1 IN THE LIGHT OF THE VIEW TAKEN IN THE AFORES AID DECISION OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AY 2005-06 ESPECIALLY WHEN IT IS NOT DISPUTED BEFORE US THAT THE FACTS IN THE YEAR UNDER CONSIDERATION ARE AT VARIANCE WITH THE FACTS IN THE AY 2005-06 WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF T HE LEARNED CIT(A) AND RESTORE THE ORDER OF THE AO . THEREFORE GROUND NO. 2 IN THE APPEAL IS DISMISSED. ITA NO.1748/AHD/2007 6 10 GROUND NO.3 BEING GENERAL IN NATURE DOES NOT RE QUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUN D HAVING BEEN RAISED IN TERMS OF RESIDUARY GROUND BOTH THESE GRO UNDS ARE DISMISSED. 11 IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 13 -04 -2010 (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 13-04-2010 COPY OF THE ORDER FORWARDED TO : 1. STANDARD OIL & GREASES PLOT NO.83/1 & 2 VILLAG E KHADOLI SILVASSA 2. THE ACIT VAPI CIRCLE VAPI 3. CIT CONCERNED 4. CIT(A) VALSAD 5. THE DR ITAT D AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD