DCIT CEN CIR-2, MUMBAI v. MEDISPRAY LABORATORIES P. LTD, MUMBAI

ITA 5429/MUM/2009 | 2006-2007
Pronouncement Date: 29-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 542919914 RSA 2009
Assessee PAN AAACM4153B
Bench Mumbai
Appeal Number ITA 5429/MUM/2009
Duration Of Justice 1 year(s) 2 month(s) 29 day(s)
Appellant DCIT CEN CIR-2, MUMBAI
Respondent MEDISPRAY LABORATORIES P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-12-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 29-12-2010
Assessment Year 2006-2007
Appeal Filed On 30-09-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER & SHRI R.S.PADVEKAR JUDICIAL MEMBER I.T.A.NO.5429/MUM/2009 A.Y 2006-07 DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2 MUMBAI. VS. M/S MEDISPRAY LABORATORIES PVT.LTD. C/O. M/S. OKASA PVT. LTD. 12 GUNBOW STREET HORNBY VIEW BLDG. FORT MUMBAI 400 001. PAN AAACM 4153 B (APPELLANT) (RESPONDENT) APPELLANT BY : MR. GOVIND SINGH. [DR] RESPONDENT BY : MR. DINESH R. JAIN. O R D E R PER T.R.SOOD AM: IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING G ROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT[A] ERRED IN HOLDING THAT THE ASSESSEE IS EL IGIBLE FOR CLAIMING DEDUCTION U/S.80IB ON THE PROFITS DERIVED FROM THE WORK/MANUFACTURING GOT DONE THROUGH LEASE AND LICEN SE MANUFACTURERS [LLM]. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT[A] WAS NOT JUSTIFIED IN HOLDING THAT SALE O F SCRAP IS ELIGIBLE FOR COMPUTATION OF PROFITS FOR THE PURPOSE OF CLAIMING DEDUCTION U/S.80IB. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT[A] WAS NOT JUSTIFIED IN DIRECTING THE AO TO ALLOW DEDUCTION IN RESPECT OF VAT IN VIEW OF THE PROVISIO NS OF SECTION 145A OF THE I. T. ACT 1961. 2. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTED THAT ASSESSEE GOT I TS MANUFACTURING DONE THROUGH LLM WHICH MEANS MANUFACTURING WAS OUTS OURCED. SINCE THE ASSESSEE HAD CLAIMED DEDUCTION U/S.80IB AND ASS ESSEE ITSELF HAS 2 NOT CARRIED ON MANUFACTURING THEREFORE DEDUCTION U/S.80IB WAS DENIED. 3. ON APPEAL THE DEDUCTION WAS ALLOWED BY THE LD. CIT[A] FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES O WN CASE FOR THE A.YRS. 2001-02 AND 2004-05 VIDE PARA 2.1 WHICH READ S AS UNDER: 2.1 THE ABOVE GROUND OF APPEAL RELATES TO DENIAL O F DEDUCTION TO THE APPELLANT U/S.80IB IN RESPECT OF PROFITS DERIVED FR OM SALE OF GOODS WHERE A PART OF THE MANUFACTURING ACTIVITY IS CARRI ED OUT BY THE LOAN LICENCEES ON BEHALF OF THE APPELLANT. THE ABOVE ISS UE IS COVERED BY THE HON. ITATS ORDER IN THE APPELLANTS OWN CASE FOR A .YRS. 2001-02 AND 2004-05. IN THE EARLIER ASSESSMENT YEAR ALSO I HAD DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT BY FOLLOWING THE HON. ITAT S ORDER IN THE APPELLANTS OWN CASE AS REFERRED TO ABOVE. BY RESPE CTFULLY FOLLOWING THE DECISION OF THE ITAT THE ISSUE INVOLVED IN THE ABOVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE APPELLANT AND IT IS HELD THAT THE APPELLANT IS ENTITLED FOR DEDUCTION U/S.80IB IN RES PECT OF THE PROFITS AS EARNED BY IT ON SALE OF GOODS WHERE A PART OF THE M ANUFACTURING ACTIVITY IS CARRIED OUT BY LOAN LICENCES ON BEHALF OF THE AP PELLANT. THE APPELLANT SUCCEEDS ON ITS GROUND OF APPEAL. 4. BEFORE US LD. DR RELIED ON THE ORDER OF THE AO. 5. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT AN IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL IN E ARLIER YEAR AND WAS DECIDED IN FAVOUR OF THE ASSESSEE AND THEREFORE I S COVERED IN FAVOUR OF THE ASSESSEE. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IN EARLIER YEAR THE TRIBUNAL DECIDED THIS ISSUE IN I.T.A.NO.59 15/M/07 VIDE PARAS 5 & 6 WHICH READ AS UNDER: 5. HAVING GONE THROUGH THE ORDER OF THE LOWER AUTH ORITIES AND THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR T HE ASSESSMENT YEARS 200-2002 TO 2003-2004 WE FIND THAT THE IMPUGNED IS SUE HAS BEEN WRECKED UP IN ASSESSMENT YEAR 2001-2003 AND TRIBUNA L HAS ADJUDICATED THE ISSUE IN DETAIL AND HAS GIVEN A FIN DING THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION U/S.80IB OF THE ACT. THIS ORDER OF THE TRIBUNAL WAS FOLLOWED IN SUBSEQUENT YEARS I. E. ASSESSMENT YEARS 3 2002-2003 AND 2003-2004 AND DEDUCTION UNDER SECTION U/S.80IB IN RESPECT OF THE INCOME DERIVED FROM MANUFACTURING AC TIVITIES GOT CARRIED OUT THROUGH LLM WAS ALLOWED. THE RELEVANT OBSERVATI ON OF THE TRIBUNAL IN ASSESSMENT YEAR 2001-2002 ARE AS UNDER: 13. WE HAVE HEARD BOTH THE PARTIES AND HAVE CONSID ERED THE RIVAL SUBMISSIONS. AFTER CONSIDERING THE SUBMISSIONS AND VARIOUS OTHER MATERIALS ON RECORD WE FIND THAT THE ORDER OF THE LEARNED CIT[A] IS LIABLE TO BE SUSTAINED. WE NOTED THAT SIMILAR DISAL LOWANCE WAS MADE BY THE ASSESSING OFFICER WHILE MAKING BLOCK ASSESSM ENT ORDER FOR 1- 4-92 TO 19-9-2000. THE ASSESSING OFFICER REDUCED DE DUCTION U/S.80IB ON ACCOUNT OF INCOME GENERATED THOUGH MANU FACTURING ACTIVITY GOT FROM LLM. THE MATTER REACHED TO THE TR IBUNAL AND THE TRIBUNAL BY FINDING OUT THE FACT IN CASE OF GROUP C ASE VIZ. OKASA PVT. LTD. AND OKASA PHARMA PVT. LTD. DECIDED IN I.T (SS) A.NO.259/MUM/2003 IN FAVOUR OF THE ASSESSEE. IN THI S ORDER IT WAS HELD THAT THE BENEFIT OF DEDUCTION U/S.80IA WAS AVA ILABLE TO THE ASSESSEE ON THE INCOME DERIVED THROUGH LLM. FOLLOWI NG THIS ORDER OF THE TRIBUNAL IN THE CASE OF OKASA PVT. LTD. AND OKASA PHARMA PVT. LTD. THE APPEAL OF THE ASSESSEE FOR BLOCK PERIOD WA S ALLOWED BY THE TRIBUNAL IN I.T(SS)A.NO.644/MUM/2003 VIDE ORDER DAT ED 21-11-06. A COPY OF THE ORDER OF THE TRIBUNAL IS PLACED ON RE CORD. 6. SINCE THE TRIBUNAL HAS TAKEN A PARTICULAR VIEW I N EARLIER YEARS WE FIND NO REASON TO TAKE A CONTRARY VIEW IN THESE APPEALS. WE ACCORDINGLY DECIDE THIS ISSUE IN FAVOUR OF THE ASS ESSEE. WE THEREFORE FIND NO INFIRMITY IN THE ORDER OF THE CIT[A] WHO HA S DECIDED THE ISSUE IN CONSONANCE WITH THE ORDER OF THE TRIBUNAL. FOLLOWING THE ABOVE ORDER WE DECIDE THIS ISSUE AGA INST THE REVENUE. 7. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT AO DENIED DEDUCTION U/S.80IB IN RESPECT OF SCRAP SALES ALSO. THIS DEDUCTION WAS ALSO ALLOWED ON APPEAL BY THE LD. CIT [A] ON THE BASIS OF THE TRIBUNALS ORDER IN I.T.A.NO.5915/M/07. 8. BEFORE US LD. DR RELIED ON THE ORDER OF THE AO. 9. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT AN IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL IN E ARLIER YEAR AND WAS DECIDED IN FAVOUR OF THE ASSESSEE VIDE PARA-7 WHIC H READS AS UNDER: 7. IN CROSS OBJECTIONS THE COMMON ISSUE IS RAISED WITH REGARD TO THE DISALLOWANCE OF CLAIM OF DEDUCTION UNDER SECTI ON U/S.80IB ON SALE OF SCRAPS. THE ISSUE WAS ALSO EXAMINED BY THE TRIBU NAL IN EARLIER YEARS 4 AND IT WAS HELD THAT DEDUCTION UNDER SECTION U/S.80 IB WILL BE ALLOWED ON THE SALE OF SCRAP. WE THEREFORE FOLLOWING THE ORDER OF THE TRIBUNAL FOR EARLIER YEARS DECIDE THIS ISSUE IN FAVOUR OF T HE ASSESSEE. ACCORDINGLY THE ORDER OF THE CIT[A] IS SET ASIDE I N THIS REGARD AND ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM O F THE ASSESSEE. FOLLOWING THE ABOVE ORDER WE DECIDE THIS ISSUE AGA INST THE ASSESSEE. 10. GROUND NO.3 : AFTER HEARING BOTH THE PARTIES WE FIND THAT NO DEDUCTION WAS ALLOWED IN RESPECT OF INCENTIVES RECE IVED AGAINST DEFERMENT SCHEME OF VAT. 11. ON APPEAL LD. CIT[A] ALLOWED THE CLAIM OF DEDU CTION U/S.80IB IN THIS RESPECT BECAUSE VAT WAS CALCULATED AGAINST THE SALE AND THEREFORE ACCORDING TO HIM IT WAS A PART OF THE AC TIVITY ARISING FROM INDUSTRIAL UNDERTAKING. 12. BEFORE US LD. DR SUBMITTED THAT INCENTIVES REC EIVED FROM THE GOVERNMENT ON ACCOUNT OF VAT CANNOT BE SAID TO HAVE BEEN DERIVED FROM THE INDUSTRIAL UNDERTAKING AND IN THIS REGARD HE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F STERLING FOODS LTD. VS. CIT 237 ITR 579. 13. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF THE CIT[A]. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT THE HON'BLE SUPREME COURT IN THE CASE OF STERLING FOODS LTD. VS . CIT [SUPRA] HELD AS UNDER: HELD REVERSING THE DECISION OF THE HIGH COURT TH AT THE PROVISIONS OF SECTION 28 AS AMENDED MADE ON DIFFERENCE. THE WORD 'DERIVE' IS USUALLY FOLLOWED BY THE WORD 'FROM' AND IT MEANS: GET TO TRACE FROM A SOURCE; ARISE FROM ORIGINATE IN; SHOW THE ORIGINAL OR FORMATION OF. THE SOURCE OF IMPORTANT ENTITLEMENTS COULD NOT BE S AID TO BE THE 5 INDUSTRIAL UNDERTAKING OF THE ASSESSEE. THE SOURCE OF IMPORT ENTITLEMENTS COULD ONLY BE SAID TO BE THE EXPORT PROMOTION SCHEME OF THE CENTRAL GOVERNMENT WHEREUNDER THE EXPORT ENTITL EMENTS BECOME AVAILABLE. THERE MUST BE FOR THE APPLICATION OF TH E WORDS 'DERIVED FROM' A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. IN THE INSTANT CASE THE NEXUS IS NOT D IRECT BUT ONLY INCIDENTAL. THE INDUSTRIAL UNDERTAKING EXPORTS PROC ESSED SEA FOODS. BY REASON OF SUCH EXPORT THE EXPORT PROMOTION SCHEME APPLIED. THEREUNDER THE ASSESSEE WAS ENTITLED TO IMPORT ENT ITLEMENTS WHICH IT COULD SELL. THE SALE CONSIDERATION THEREFROM COULD NOT BE HELD TO CONSTITUTE A PROFIT AND GAIN DERIVED FROM THE ASSES SEES INDUSTRIAL UNDERTAKING. THE RECEIPTS FROM THE SALE OF IMPORT E NTITLEMENTS COULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE FOR T HE PURPOSE OF COMPUTING THE RELIEF UNDER SECTION 80HH OF THE INCO ME-TAX ACT 1961. 15. THE HON'BLE SUPREME COURT IN THE CASE OF WAS CO NSIDERING THIS ISSUE AGAIN IN THE CASE OF PANDIAN CHEMICALS LTD. V S. CIT IN 262 ITR 278 WHEREIN IT WAS HELD AS UNDER: THE WORDS 'DERIVED FROM' IN S. 80HH MUST BE UNDERS TOOD AS SOMETHING WHICH HAS DIRECT OR IMMEDIATE NEXUS WITH THE APPELLANT'S INDUSTRIAL UNDERTAKING. ALTHOUGH ELECTRICITY MAY BE REQUIRED FOR THE PURPOSES OF THE INDUSTRIAL UNDERTAKING THE DEPOSIT REQUIRED FOR ITS SUPPLY IS A STEP REMOVED FROM THE BUSINESS OF THE I NDUSTRIAL UNDERTAKING. HELD ACCORDINGLY THAT INTEREST DERIVED BY THE IND USTRIAL UNDERTAKING OF THE ASSESSEE ON DEPOSITS MADE WITH THE ELECTRICITY BOARD FOR SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSEL F AND WAS NOT PROFITS OR GAINS DERIVED BY THE UNDERTAKING FOR THE PURPOSE OF THE SPECIAL DEDUCTION UNDER SECTION 80HH. THUS IT IS CLEAR FROM THE ABOVE THAT UNLESS A PART ICULAR ITEM OF INCOME IS DERIVED FROM THE INDUSTRIAL UNDERTAKING SAME CA NNOT BE SAID TO BE ELIGIBLE FOR THE BENEFIT OF DEDUCTION. IN THE CASE BEFORE US INCENTIVES ON ACCOUNT OF VAT CANNOT BE SAID TO BE DERIVED FROM TH E INDUSTRIAL UNDERTAKING BECAUSE BENEFIT IS DIRECTLY CAME BECAUS E OF THE GOVERNMENT SCHEME. THEREFORE THE SAME IS NOT ELIGI BLE FOR DEDUCTION U/S.80IB. THEREFORE WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND 6 DIRECT THE AO NOT TO ALLOW DEDUCTION U/S.80IB IN RE SPECT OF BENEFIT ON ACCOUNT OF VAT. 16. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF DECEMBER 2010. SD/- SD/- (R.S.PADVEKAR) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI:29 TH DECEMBER 2010. P/-*