The ACIT, Vapi Circle,, Vapi v. M/s. Paras Motors Mfg.Co.,, Daman

ITA 2236/AHD/2010 | 2007-2008
Pronouncement Date: 07-01-2011 | Result: Dismissed

Appeal Details

RSA Number 223620514 RSA 2010
Assessee PAN AADFP2489B
Bench Ahmedabad
Appeal Number ITA 2236/AHD/2010
Duration Of Justice 6 month(s) 5 day(s)
Appellant The ACIT, Vapi Circle,, Vapi
Respondent M/s. Paras Motors Mfg.Co.,, Daman
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 07-01-2011
Assessment Year 2007-2008
Appeal Filed On 02-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER AND SHRI A.N. PAHUJA ACCOUNTANT MEMBER DATE OF HEARING : 31/12/2010 DRAFTED ON: 03 /01/2011 ITA NO.2236/AHD/2010 ASSESSMENT YEAR : 2007-08 THE ASSTT.CIT VAPI CIRCLE VAPI VS. M/S.PARAS MOTOR MFG. CO. PLOT NO.43/8 DAMAN INDUSTRIAL ESTATE SOMNATH DAMAN PAN/GIR NO. : AADFP 2489 B ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI S. S. SHUKLA SR. D.R. RESPONDENT BY: SHRI HEMANT BAHEDIA O R D E R PER SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE W HICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-VALSAD DATED 23/03/2010 AND THE SOLITARY SUBSTANTIAL GROUND READS AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INCOME FROM SCRAP SALES OF RS.24 66 972/- OF UNIT-I AND RS.1 13 07 232/- OF UN IT-II IS ELIGIBLE FOR DEDUCTION U/S. 80IB WITHOUT CONSIDERING FACT THAT IT HAS NO DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTU RING ACTIVITY OF THE ASSESSEE. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT 1961 DATED 30/ 11/2009 WERE THAT THE ITA NO. 2236/AHD/2010 ASST.CIT VS. M/S.PARAS MOTOR MFG.CO. ASST.YEAR - 2007-08 - 2 - ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF ELECTRIC MOTORS. IN RESPECT OF THE MANUFACTURING ACTIVITY THE ASSESSEE HAS EXPLAINED THE PROCESS AS FOLLOWS:- AS A MAIN PART/RAW MATERIAL IN THE FIRM USES ELEC TRICAL STAMPING/LAMINATION FOR MANUFACTURING ELECTRIC MOTO RS. THESE STAMPINGS/LAMINATIONS ARE BEING PRODUCED FROM CRNG ELECTRICAL STEEL SHEETS. THE APPELLANT FIRM GETS THEE SHEETS IN FORM OF COIL OF GROUND APPROX 5 TO 6 TONES WEIGHT EACH. THESE COILS ARE SLITTED IN REQUIRED WIDTH TO PRODUC E ELECTRICAL STAMPING/LAMINATION. SCRAP IS GENERATED DURING THE PROCESS OF MANUFACTUR ING OF ELECTRICAL STAMPING/LAMINATION A MAJOR PART/RAW MATERIALS FOR PRODUCTION OF ELECTRIC MOTORS. IN CASE NO STAMPING/LAMINATION MANUFACTURES THEN THERE WILL N OT BE ANY MOTOR MANUFACTURES THUS SCRAP/WASTE IS GENERATED FR OM THE MANUFACTURING ACTIVITY. THUS SCRAP SALES IS DIRECTLY RELATES TO THE INDUST RIAL UNDERTAKING AND IS THE INCOME GENERATED OUT OF MANU FACTURING ACTIVITY AND HENCE SCRAP INCOME OF RS.24 66 972/- IN RESPECT OF UNIT-I AND RS.1 13 07 232/- IN RESPECT OF UNIT-I I TO BE CONSIDERED AS PROFITS ELIGIBLE FOR DEDUCTION U/S.80 IB OF THE ACT. 2.1. HOWEVER THE ASSESSING OFFICER HAS HELD THAT T HERE WAS NO NEXUS OF GENERATION OF SCRAP WHICH CAN BE SAID TO B E DERIVED FROM INDUSTRIAL UNDERTAKING. PLACING A RELIANCE ON A DECISION OF HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF D P AGRAWAL VS. CIT REPORTED AS [2005]272 ITR 118 (M.P.) THE ASSE SSING OFFICER HAS ITA NO. 2236/AHD/2010 ASST.CIT VS. M/S.PARAS MOTOR MFG.CO. ASST.YEAR - 2007-08 - 3 - HELD THAT THE INCOME GENERATED ON SALE OF A SCRAP WAS NOT ELIGIBLE FOR THE CLAIM OF DEDUCTION U/S.80IB OF THE I.T.ACT. 3. BEFORE THE LEARNED CIT(APPEALS) SEVERAL CASE LA WS HAVE BEEN CITED MOREOVER THE DECISION AS RELIED UPON BY THE ASSESSING OFFICER IN THE CASE OF D P AGRAWAL VS. CIT(SUPRA) HAS ALSO BEEN DISTINGUISHED. CASE LAWS RELIED UPON WERE AS UNDER :- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. CAMBAY ELECTRIC SUPPLY CO. VS. CIT 113 ITR 84 2. CIT VS. STERLING FOODS [1999] 237 ITR 579 3. PANDIAN CHEMICALS LTD. 262 ITR 278 4. CONSIDERING THE FACTUAL AS WELL AS LEGAL ARGUMEN TS OF THE ASSESSEE THE LEARNED CIT(APPEALS) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE FOLLOWING PARAGRAPH:- 4.5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE A.R. OF THE APPELLANT AND THE OBSERVATION OF THE ASSESSI NG OFFICER IN THE ASSESSMENT ORDER. IN ORDER TO BE ELIGIBLE FOR C LAIM OF DEDUCTION U/S.80IB OF THE INCOME TAX ACT AN INCOME HAS TO BE DERIVED FROM AN INDUSTRIAL UNDERTAKING AND SUCH INCOME SHOULD HAVE A DIRECT NEXUS WITH THE MANUFACTURING A CTIVITY AND SUCH NEXUS DOES NOT HAVE TO BE INCIDENTAL. IN THE CASE OF THE APPELLANT THE FACT OF THE CASE IS THAT THE APP ELLANT IS ITA NO. 2236/AHD/2010 ASST.CIT VS. M/S.PARAS MOTOR MFG.CO. ASST.YEAR - 2007-08 - 4 - MANUFACTURING ELECTRIC MOTORS AND THE STEEL SCRAP I S GENERATED DURING THE COURSE OF SUCH MANUFACTURING ACTIVITY. THUS THE SCRAP CANNOT BE SEEN IN ISOLATION FROM THE MANUFACT URING ACTIVITY AS WITHOUT MANUFACTURING ACTIVITY I.E. MAN UFACTURING OF CORRUGATED BOXES THERE WOULD ALSO BE NO SCRAP G ENERATED. THEREFORE SUCH SCRAP GENERATED CAN BE SAID TO BE EM ANATING FROM THE MANUFACTURING ACTIVITY OF THE APPELLANT AN D IN THAT SENSE HAS A DIRECT NEXUS WITH THE MANUFACTURING ACT IVITY. IN OTHER WORDS THE SALE OF SCRAP CANNOT BE SEEN DIFFE RENTLY FROM THE SALE OF ELECTRIC MOTORS AS THE ESSENTIAL ELEMEN T IN SCRAP IS ALSO THE SAME RAW-MATERIAL WHICH COULD NOT BE CUT O N ITS EDGES AS PER THE SPECIFICATIONS OF THE CUSTOMER AND THEREFORE CARRIES A LESSER VALUE THAN THE FINISHED PRODUCT. SIMILAR FINDINGS WERE GIVEN BY MY LEARNED PREDECESSOR IN TH IS CASE FOR EARLIER YEARS. THE HON'BLE ITAT AHMEDABAD HAD ALS O CONFIRMED THE FINDING OF THE LD. CIT(A) IN THE APPE LLANTS CASE. IN THE CASE OF HARJIVANDAS JHUTHABHAI JAVERI AND OTHERS VS. DCIT 258 ITR 785 (GUJ.) THE HON'BLE GUJARAT HC HAS HELD THAT INCOME FROM SCRAP SALE IS ELIGIBLE FOR DEDUCTI ON U/S.80IB OF THE ACT. RESPECTFULLY FOLLOWING THE JUDICIAL P RECEDENTS AS REFERRED ABOVE I DIRECT THE AO TO DELETE THE ADDIT ION MADE IN THIS GROUND. THUS THE APPELLANT SUCCEEDS ON THIS ISSUE. 5. IDENTICAL ISSUE HAD COME UP BEFORE THE ITAT AHMEDABAD BENCH D BY WAY OF ITA NO.2235/AHD/2010 (BY REVE NUE) AND ITA NO. 2236/AHD/2010 ASST.CIT VS. M/S.PARAS MOTOR MFG.CO. ASST.YEAR - 2007-08 - 5 - CO NO.261/AHD/2010 FOR ASSESSMENT YEAR 2007-08 IN T HE CASE OF M/S.NATIONAL LAMINATION IND. DAMAN WHEREIN OUR O RDER OF EVEN DATE IT WAS DECIDED THE ISSUE AS UNDER:- 5. WITH THIS BACKGROUND WE HAVE HEARD BOTH THE SI DES AT SOME LENGTH. THE ONLY OBJECTION OF LEARNED DEPARTMENT AL REPRESENTATIVE SHRI S.R. MALIK WAS THAT THE GENERAT ION OF SCRAP WAS NOT LINKED WITH THE MANUFACTURING ACTIVITY AS N OTED BY THE ASSESSING OFFICER THEREFORE THE ISSUE WAS NOT COV ERED BY THE DECISION OF HON'BLE HIGH COURT. ON THE OTHER HAND LEARNED AUTHORISED REPRESENTATIVE HAS STRONGLY OPPOSED THE SAID OBSERVATION PRIMARILY ON THE GROUND THAT WITHOUT VE RIFYING THE CORRECT FACTS OF THE CASE THE ASSESSING OFFICER H AD ARBITRARILY HELD THAT THE PRODUCTION OF A SCRAP WAS NOT A BY-PRODUCT OF THE MANUFACTURING ACTIVITY. IT HAS ALSO BEEN STATED TH AT THOUGH THERE WAS NO CHANGE IN THE MANUFACTURING ACTIVITY OF THE ASSESSEE; AND THAT THERE WAS NO CHANGE IN THE PRODUCTION OF SCRAP COMPARING THE PAST RECORDS OF THE CASE; AND THAT THE DEDUCTION ON SALE OF A SCRAP HAS ALWAYS BEEN ALLOWED IN THE PAST HENCE THERE WA S NO OCCASION ON THE PART OF THE ASSESSING OFFICER TO DISTURB THE ALREADY ACCEPTED STAND OF THE REVENUE. IN SUPPORT OF THE CLAIM FOLL OWING CASE LAWS HAVE ALSO BEEN RELIED UPON:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. DY.CIT VS. HARJIVANDAS JUTHABHAI ZAVERI & ANOTHER [2002] 258 ITR 785 (GUJ.) 2. DY.CIT VS. CORE HEALTHCARE LTD. [2009] 308 ITR 263 (GUJ.) 3. NIRMA INDUSTRIES LTD. VS. ACIT [2005] 95 ITD 119 [AHD.] (SB) 4. FENNER (INDIA) LTD. VS. CIT [2000] 241 ITR 803 (MAD.) 6. THE ADMITTED FACTUAL POSITION IS THAT THE ASSESS EE IS USING RAW-MATERIAL CALLED AS CRGO ELECTRICAL STEEL SHEETS . THE STEEL SHEETS ARE IN VARIOUS SHAPES WHICH ARE CUT INTO V ARIOUS SIZES. DURING THIS PROCESS SIGNIFICANT SCRAP IS GENERATED HENCE THE ITA NO. 2236/AHD/2010 ASST.CIT VS. M/S.PARAS MOTOR MFG.CO. ASST.YEAR - 2007-08 - 6 - VEHEMENT CLAIM IS THAT THE SCRAP OF STEEL CREATED ON CUTTING OF STEEL SHEETS NATURALLY HAS A DIRECT LINK AS WELL AS NEXUS WITH THE MANUFACTURING ACTIVITY. WE ARE OF THE VIEW THAT THE TOTALITY OF THE CIRCUMSTANCES THUS WARRANTS TO HOLD THAT THE INCOM E GENERATED ON SALE OF SCRAP WAS DERIVED FROM THE INDUSTRIAL MANUF ACTURING ACTIVITY OF THE ASSESSEE THEREFORE QUALIFIES FOR THE DEDUCTION AS PRESCRIBED UNDER THE ACT. RESULTANTLY THE LEARNED CIT(APPEALS) HAS RIGHTLY FOLLOWED THE DECISION OF THE HON'BLE JU RISDICTIONAL HIGH COURT AND HIS VIEW IS HEREBY AFFIRMED. THIS G ROUND OF THE REVENUE IS DISMISSED. 5.1. SIMILAR VIEW WAS TAKEN IN THE ASSESSEES OWN C ASE FOR THE A.Y.2006-07 IN ITA NO.1618/AHD/2009. 6. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 7 / 1 /2011. SD/- SD/- ( A.N. PAHUJA ) ( MU KUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED / /2011 T.C. NAIR SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-VALSAD 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD ITA NO. 2236/AHD/2010 ASST.CIT VS. M/S.PARAS MOTOR MFG.CO. ASST.YEAR - 2007-08 - 7 - 1. DATE OF DICTATION..03/01/2011 /2010 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 04/01/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S7.1.11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7.1.11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER