THE ITO 14(1)4, MUMBAI v. M/S. D N H SPINNERS, AADFD3001F

ITA 5773/MUM/2007 | 2004-2005
Pronouncement Date: 09-07-2010 | Result: Dismissed

Appeal Details

RSA Number 577319914 RSA 2007
Assessee PAN AADFD3001F
Bench Mumbai
Appeal Number ITA 5773/MUM/2007
Duration Of Justice 2 year(s) 10 month(s) 2 day(s)
Appellant THE ITO 14(1)4, MUMBAI
Respondent M/S. D N H SPINNERS, AADFD3001F
Appeal Type Income Tax Appeal
Pronouncement Date 09-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 09-07-2010
Date Of Final Hearing 30-03-2010
Next Hearing Date 30-03-2010
Assessment Year 2004-2005
Appeal Filed On 06-09-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH MUMBAI BEFORE SHRI N.V. VASUDEVAN JM & SHRI R.K. PANDA AM I.T.A. NO. 5773/MUM/2007 (ASSESSMENT YEAR 2004-05) I.T.O. 14(1)4 203 2 ND FLOOR EARNEST HOUSE NARIMAN POINT MUMBAI-400 021 VS. M/S. D.N.H. SPINNERS 601/602/603 BUSINESS CLASSIC CHINCHOLI BUNDER ROAD MALAD (W) MUMBAI-64 PAN: AADFD3001F APPELLANT RESPONDENT I.T.A. NO. 5414/MUM/2007 (ASSESSMENT YEAR 2004-05) M/S. D.N.H. SPINNERS 601/602/603 BUSINESS CLASSIC CHINCHOLI BUNDER ROAD MALAD (W) MUMBAI-64 PAN: AADFD3001F VS. I.T.O. 14(1)4 203 2 ND FLOOR EARNEST HOUSE NARIMAN POINT MUMBAI-400 021 APPELLANT RESPONDENT REVENUE BY: SHRI S.K. SINGH ASSESSEE BY: SHRI RAKESH JOSHI O R D E R DATE OF HEARING: 10.05.2010 DATE OF ORDER: 08.02.2010 PER R.K. PANDA AM: THESE ARE CROSS APPEALS THE FIRST ONE FILED BY TH E REVENUE AND THE SECOND ONE FILED BY THE ASSESSEE AND ARE DI RECTED AGAINST THE ORDER DATED 13 TH JUNE 2007 OF THE CIT(A)-XIV MUMBAI RELATING TO A.Y. 2004-05. FOR THE SAKE OF C ONVENIENCE THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 2 2. GROUND OF APPEAL NO. 2 BY THE REVENUE AND GROUND OF APPEAL NO. 2 BY THE ASSESSEE RELATE TO THE ORDER O F THE CIT(A) IN GIVING PART RELIEF BY DIRECTING THE ASSESSING OFFIC ER TO COMPUTE THE PROFITS FROM THE SALE OF YARN GOT MANUFACTURED BY THE SISTER CONCERN M/S. BEEKAYLON SYNTHETICS LTD. (BSL) AT RS. 4 85 059 AS AGAINST THE PROFITS OF RS.57 48 251 DETERMINED BY T HE ASSESSING OFFICER. IN GROUND OF APPEAL NO.1 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN HOLDING THAT THE ASSESSE E IS NOT ENTITLED TO DEDUCTION U/S.80IB OF THE ACT IN RESPEC T OF PROFIT DERIVED ON SUCH JOB WORK. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF YARN FROM POY IN ITS IN DUSTRIAL UNIT AT SILVASSA A DECLARED BACKWARD AREA. THE AS SESSEE FILED ITS RETURN OF INCOME DISCLOSING INCOME OF RS.1 19 09 257 AND CLAIMED THE SAME AS EXEMPT U/S. 80IB OF I.T. ACT. THE ASSESSING OFFICER REDUCED THE SAID INCOME BY THE AM OUNT OF UNABSORBED DEPRECIATION OF EARLIER YEARS AT RS.22 6 7 130 AND COMPUTED THE PROFIT DERIVED WITH REGARD TO SALE OF PRODUCT GOT MANUFACTURED ON JOB WORK BASIS AT RS.57 48 251. HE FURTHER HELD THAT THE ASSESSEE IS NOT ENTITLED TO THE BENEF IT OF EXEMPTION U/S. 80IB WITH REGARD TO SUCH PROFIT. 4. BEFORE CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE HA D MADE ONLY ORAL SUBMISSIONS DURING THE COURSE OF ASS ESSMENT PROCEEDINGS AS NO FURTHER QUERIES WERE MADE. IT WA S SUBMITTED THAT THE ASSESSEE WAS UNDER A BONAFIDE BELIEF THAT THE ASSESSING OFFICER WAS SATISFIED WITH THE SUBMISSION MADE BY T HE ASSESSEE. HOWEVER WHILE FRAMING THE ASSESSMENT THE ASSESSING OFFICER DENIED DEDUCTION U/S. 80IB WITH REGARD TO THE PROFI T EARNED FROM SALE OF YARN GOT MANUFACTURED ON JOB WORK BASI S. IT WAS FURTHER SUBMITTED THAT THE PROFIT WAS COMPUTED AT A HIGHER FIGURE OF RS.57 48 251. IT WAS SUBMITTED THAT SINC E VERY SMALL I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 3 QUANTITY OF 1 07 404 KGS OF YARN WAS GOT MANUFACTUR ED ON JOB WORK BASIS THE ASSESSING OFFICER WAS NOT JUSTIFIED IN COMPUTING THE PROFIT AT SUCH A HIGH FIGURE. IT WAS SUBMITTED THAT VARIOUS DETAILS LIKE JOB CHARGES PAID BILLS OF JOB CHARGES RELEVANT PURCHASE BILLS AND RECONCILIATION WITH EXCISE CHALL AN ON SAMPLE BASIS AND BILLS OF SALES FOR RESPECTIVE GOODS SUPPO RTING THAT ONLY 1 07 404 KG OF FINISHED YARN WAS GOT MANUFACTURED O N JOB WORK BASIS WERE FILED. IT WAS SUBMITTED THAT M/S. BSL W AS CHARGING PROCESSING CHARGES OF RS.5 PER KG ON RAW MATERIAL S ENT TO THAT CONCERN AND IN THE LATER PART OF THE FINANCIAL YEAR 2003-04 IT WAS INCREASED TO RS.5.50 PER KG. IT WAS SUBMITTED THAT THE ASSESSEES MANUFACTURING ACTIVITY OF CONVERSION OF POY INTO YARN INVOLVES A NUMBER OF PROCESSES SUCH AS ACQUISITION OF RAW MATERIAL MAKING IT SUITABLE FOR MANUFACTURE ACTUA L MANUFACTURING PROCESS PACKING THEREOF DISTRIBUTIO N FOR SALE AND REALISATION OF SALE PRICE. OUT OF THESE PROCES SES ONLY ONE OF THE PROCESSES I.E. MANUFACTURING WAS GOT DONE BY T HE ASSESSEE FROM THE SISTER CONCERN ON JOB CHARGES BASIS. THE REMAINING ACTIVITIES WERE DONE BY THE ASSESSEE ITSELF AND ACC ORDINGLY IT WAS ENTITLED TO DEDUCTION U/S. 80IB OF THE I.T. ACT 19 61. RELYING ON A NUMBER OF DECISIONS IT WAS SUBMITTED THAT THE UND ERTAKING WAS ENTITLED FOR DEDUCTION U/S. 80IB OF THE ACT. 5. THE LEARNED CIT(A) ON THE BASIS OF THE ARGUMENTS ADVANCED BY THE ASSESSEE AND ON THE BASIS OF THE F RESH EVIDENCES FILED BEFORE HIM DURING THE COURSE OF HEA RING CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER. AF TER OBTAINING THE REMAND REPORT FROM THE ASSESSING OFFICER THE C IT(A) CALLED FOR COMMENTS FROM THE ASSESSEE AFTER PROVIDING A CO PY OF THE SAME. AFTER CONSIDERING THE VARIOUS ARGUMENTS ADVA NCED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND THE REMAND REP ORT SUBMITTED BY THE AO THE CIT(A) DIRECTED THE ASSESS ING OFFICER TO TREAT INCOME OF RS.4 85 059/- AS AGAINST RS.57 4 8 251 I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 4 DETERMINED BY THE ASSESSING OFFICER AS PROFIT ON AC COUNT OF SALE OF 1 07 404 KG OF YARN MANUFACTURED BY THE SIS TER CONCERN. HE HOWEVER HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S. 80IB WITH REGARD TO PROFITS DERIVED FROM SALE OF YARN GOT MANUFACTURED BY THE SISTER CONCERN BY HOLDING AS UN DER: 8. I HAVE CAREFULLY CONSIDERED THE FACTS/ SUBMISSIONS AND HAVE PERUSED RELEVANT RECORDS AND THE ADDITIONAL EVIDENCE PLACED BEFORE US. ON PERUS AL OF THE RELEVANT FACTS/DETAILS I AM OF THE VIEW THA T SUFFICIENT OPPORTUNITY WAS NOT PROVIDED TO THE APPELLANT FOR FURNISHING NECESSARY EVIDENCE WITH REGARD TO THE ASCERTAINMENT OF PROFIT DERIVED ON SA LE OF PRODUCT MANUFACTURED THROUGH THE SISTER CONCERN. NO SPECIFIC QUERY WITH REGARD TO THE ASCERTAINMENT OF PROFIT DERIVED FROM THE PRODUCT MANUFACTURED ON JOB WORK BASIS SEEMS TO HAVE BEEN RAISED BY THE AO NOR ANY METHOD OF COMPUTATION OF PROFITS DERIVED ON SAL E OF SUCH PRODUCTS WAS PROPOSED TO THE ASSESSEE. THEREFORE I AM OF THE VIEW THAT THE ADDITIONAL EVIDENCE FURNISHED DURING THE COURSE OF APPELLATE PROCEEDINGS DESERVES TO BE ADMITTED UNDER RULE 46A OF I.T. RULES. 9. BEFORE DECIDING THE ISSUE PERTAINING TO THE COMPUTATION OF PROFIT FROM SALE OF GOODS GOT MANUFACTURED FROM THE SISTER CONCERN IT NEEDS TO B E EXAMINED WHETHER THE APPELLANT WAS ENTITLED FOR DEDUCTION U/S. 80IB WITH REGARD TO THE INCOME EARNED FROM SALE OF SUCH PRODUCT. ON EXAMINATION O F THE FACTS/DETAILS I AM NOT CONVINCED WITH THE ARGUMENTS AND SUBMISSIONS MADE BY THE AR. IT IS APPARENT THAT THE APPELLANT PAID THE LABOUR CHARGES TO ITS SISTER CONCERN FOR THE JOB WORK POY ANTI S TATIC OIL AND PACKING MATERIAL WAS SUPPLIED BY THE APPELLANT TO ITS SISTER CONCERN WHO HAD DONE ALL TH E NECESSARY MANUFACTURING WORK FOR CONVERSION OF POY INTO YARN. THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE APPELLANT HAD EXERCISED ANY SUPERVISION CONTROL OR DIRECTION OVER THE MANUFACTURING ACTIVIT Y CARRIED OUT BY THE SISTER CONCERN. IN FACT NO SUCH GUIDANCE OR SUPERVISION WAS REQUIRED AS SISTER CONCERN WAS ENGAGED IN THE SAME KIND OF ACTIVITY. IN THE CIRCUMSTANCES THE ARS CONTENTION THAT SISTER CONCERN HAD DONE ONLY ONE OF THE FEW PROCESSES OF MANUFACTURING AND THE REMAINING ACTIVITIES WERE I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 5 DONE BY THE APPELLANT ITSELF IS NOT CORRECT AND THEREFORE THE CASE LAWS RELIED UPON BY THE AR ARE NOT APPLICABLE TO THE FACTS OF THE CASE. I AGREE W ITH THE AOS FINDING THAT THE PROFIT DERIVED FROM THE S ALE OF PRODUCT GOT MANUFACTURED FROM THE SISTER CONCERN ON PAYMENT OF LABOUR CHARGES CANNOT BE TAKEN AS DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING AND WAS THEREFORE NOT ELIGIBLE FOR DEDUCTION U/S. 80IB. 10. AS REGARDS THE AMOUNT OF PROFIT DERIVED FROM THE SALE OF PRODUCT GOT MANUFACTURED FROM THE SISTE R CONCERN ALL RELEVANT DETAILS/EVIDENCES AND SUBMISSION HAVE BEEN CAREFULLY EXAMINED. IN MY OPINION SUFFICIENT DIRECT EVIDENCE SUCH AS THE RECO RDS MAINTAINED FOR EXCISE DEPARTMENT THE CHALLANS SENT TO BEEKAYLON SYNTHETICS THE FORMS ANNEXURE II COPIES OF ANNEXURE IV BILLS ISSUED BY BEEKAYLON SYNTHETICS WAS AVAILABLE TO PROVE THAT THE APPELLAN T HAD SENT 102435 KGS OF POY TO BEEKAYLON AND RECEIVED 107403 KGS OF FINISHED PRODUCTS BACK FROM THEM. THERE WAS NO JUSTIFICATION FOR THE AO TO DRA W AN INFERENCE THAT THE QUANTITY OF GOODS GOT MANUFACTURED THROUGH THE SISTER CONCERN WAS MUCH HIGHER SIMPLY ON THE BASIS OF VARIATION IN THE CONSUMPTION RATIO OF POWER AND FUEL. THERE MAY BE A NUMBER OF REASONS FOR THE VARIATION IN THE COST OF POWER/FUEL PER KG. AND THE EXPLANATION FURNISHED BY THE AR IN HIS WRITTEN SUBMISSIONS THAT DURING THE SUBJECT YEAR HT POWER SUPPLY FROM ELECTRICITY DEPARTMENT WAS STARTED FROM MAY ONWARDS APPEARED ON SOUND FOOTING. ON PERUSAL OF THE COPIE S OF CHALLANS ISSUED BY BEEKAYLON SYNTHETICS TO THE APPELLANT IT WAS EVIDENT THAT BEEKAYLON HAD CHARGED RS.5/- / RS.5.5 PER KG FOR THE JOB WORK. THEREFORE I AM FULLY CONVINCED WITH ARS SUBMISSIO N THAT THE QUANTITY OF GOODS MANUFACTURED THROUGH BEEKAYLON SYNTHETICS WAS 107404 KGS ONLY WHICH STOOD DULY SUPPORTED BY THE DOCUMENTARY EVIDENCE/PAPERS FURNISHED BY WAY OF ADDITIONAL EVIDENCE. THERE IS SUBSTANCE IN THE ARS CONTENTIO NS THAT THE PARAMETERS USED BY THE AO IN ARRIVING AT T HE EXTENT OF PROFIT BY TAKING THE MANUFACTURING WAGES AS SIMILAR TO THE LABOUR CHARGES PAID TO SISTER CONCERN WERE INCORRECT AS THE LABOUR CHARGES PAID F OR THE JOB WORK TO BEEKAYLON SYNTHETICS INCLUDED A NUMBER OF OTHER EXPENSES (APART FROM THE WAGES OF WORKERS) SUCH AS COST OF POWER AND FUEL I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 6 ADMINISTRATIVE EXPENSES DEPRECIATION ON MACHINERY AND OTHER ASSETS RATES AND TAXES AND PROFIT ELEMEN T. SINCE NO SEPARATE RECORDS HAVE BEEN MAINTAINED SOME ELEMENT OF ESTIMATION CANNOT BE RULED OUT AND MOST APPROPRIATE METHOD TO WORK OUT THE PROFIT WAS BY USING THE AVERAGE METHOD I.E. TO WORK OUT THE PROFIT PER KG. OF MANUFACTURED YARN AND THEN COMPUTE THE PROFIT ON QUANTITY GOT MANUFACTURED FRO M THE SISTER CONCERN. IN ONE OF THE TWO METHODS PROPOSED BY THE APPELLANT THE PROFIT HAS BEEN WORKED OUT AT RS.4 516 PER KG AND THUS THE INCOME ATTRIBUTABLE TO SALE OF YARN OF 107404 KGS HAS BEEN COMPUTED AT RS.4 85 059/-. IN YET ANOTHER METHOD THE APPELLANT HAS WORKED OUT THE PROFIT AT RS.2 04 626/- ONLY WHEREAS IN THE STATEMENT OF FACT S THE PROFIT WORKED OUT BY THE APPELLANT IS SHOWN AT RS.4 11 689/-. IN THE CIRCUMSTANCES SINCE THE METHOD BY TAKING THE AVERAGE NET PROFIT PER KG OF YARN SEEMS TO BE THE MOST APPROPRIATE METHOD THE ESTIMATE OF INCOME AT RS.4 85 59/- FROM THE SALE OF YARN OF 107404 KGS GOT MANUFACTURED THROUGH SISTER CONCERN SEEMS TO BE THE MOST REASONABLE. THEREFORE THE AO IS DIRECTED TO TREAT THE INCOME OF RS.4 85 059/- INSTEAD OF RS.57 48 251/- AS DERIVED FROM SALE OF 107404 KGS. OF YARN MANUFACTURED BY SISTER CONCERN. ACCORDINGLY THE APPELLANT GETS RE LIEF OF RS.52 63 192/- (RS.57 48 251 4 85 059). AS TH E APPELLANT WAS NOT ENTITLED FOR DEDUCTION U/S. 80IB WITH REGARD TO PROFIT DERIVED FROM SALE OF YARN GOT MANUFACTURED BY SISTER CONCERN THE DENIAL OF DEDUCTION U/S. 80IB ON SUCH PROFIT AT RS.4 85 059/- WAS JUSTIFIED. ACCORDINGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENU E AS WELL AS THE ASSESSEE ARE IN APPEAL BEFORE US. 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. AS FAR AS THE REVENUES GROUND IS CONCERNED REGARDING THE DETERMI NATION OF PROFIT AT RS.4 85 059 AS AGAINST THE PROFIT OF RS.5 7 48 251 DETERMINED BY THE ASSESSING OFFICER BEING PROFIT FR OM THE SALE OF I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 7 YARN GOT MANUFACTURED BY THE SISTER CONCERN M/S. BS L WE FIND THE ASSESSEE HAS PRODUCED SUFFICIENT DIRECT EVIDENC ES SUCH AS RECORDS MAINTAINED FOR EXCISE DEPARTMENT CHALLANS SENT TO BSL BILLS RECEIVED FROM BSL ETC. WE FIND ON THE BASIS OF THE VARIOUS DOCUMENTS PRODUCED BEFORE HIM IN THE SHAPE OF ADDIT IONAL EVIDENCE AND AFTER CALLING FOR A REMAND REPORT FRO M THE ASSESSING OFFICER THE CIT(A) HAS GIVEN A FINDING T HAT THE ASSESSEE HAD SENT1 07 435 KGS. OF POY TO BEEKAYLON AND RECEIVED 1 07 403 KGS. OF FINISHED PRODUCTS BACK FR OM THEM AND THERE WAS NO JUSTIFICATION FOR THE ASSESSING OFFICE R TO TO DRAW AN INFERENCE THAT THE QUANTITY OF GOODS GOT MANUFAC TURED THROUGH THE SISTER CONCERN WAS MUCH HIGHER. THE LD. D.R. COULD NOT CONTROVERT THE ABOVE FINDING GIVEN BY THE CIT(A ). FURTHER WE FIND THE ASSESSING OFFICER CALCULATED THE PROFIT ON THE PROPORTION OF SALES ATTRIBUTABLE TO JOB WORK WHEREAS THE CIT (A) HAS CALCULATED THE PROFIT ON JOB WORK ON THE BASIS OF QUANTITY GOT MANUFACTURED THROUGH THE SISTER CONCERN. IN OUR OP INION THE PROPORTIONATE PROFIT ON ACCOUNT OF SALE OF YARN GOT MANUFACTURED THROUGH THE SISTER CONCERN SHOULD BE BASED ON THE Q UANTITY GOT MANUFACTURED WHICH IN OUR OPINION IS A SCIENTIFIC ONE AS AGAINST THE PROPORTIONATE PROFIT DETERMINED BY THE ASSESSING OFFICER ON THE BASIS OF TURNOVER AND WAGES. WE THE REFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) ON TH IS ISSUE AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 8. NOW COMING TO THE GROUND RAISED BY THE ASSESSEE REGARDING THE DETERMINATION OF PROFIT AT RS.4 85 05 9/- BY THE CIT(A) WE FIND THE ASSESSEE HAS NOT MAINTAINED ANY SEPARATE RECORDS FOR DETERMINING THE PROFIT ON ACCOUNT OF YA RN GOT MANUFACTURED THROUGH THE SISTER CONCERN A FINDING GIVEN BY THE CIT(A) IN PARA-10 OF HIS ORDER AND NOT CONTROVERTED BY THE LD. COUNSEL FOR THE ASSESSEE BY BRINGING ANY COGENT EVI DENCE BEFORE US. FURTHER THE CIT(A) HAS GIVEN A FINDING IN HIS ORDER THAT THE I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 8 ASSESSEE IN ITS STATEMENT OF FACTS HAS SHOWN THE PR OFIT WORKED OUT BY IT AT RS.4 11 689/-. UNDER THESE CIRCUMSTAN CES WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY THE ASSE SSEE THAT THE ESTIMATION OF PROFIT AT RS.4 85 059/- ON ACCOUNT OF SALE OF PRODUCTS GOT MANUFACTURED THROUGH THE SISTER CONCER N IS EXCESSIVE. IN THIS VIEW OF THE MATTER AND IN VIEW O F THE DETAILED DISCUSSION BY THE CIT(A) WHICH HAS ALREADY BEEN RE PRODUCED IN THE BODY OF THIS ORDER WE DO NOT FIND ANY INFIRMIT Y IN THE SAME. GROUNDS OF APPEAL NO. 2 BY THE ASSESSEE AS WELL AS THE REVENUE ARE ACCORDINGLY DISMISSED. 9. AS REGARDS GROUND OF APPEAL NO.1 BY THE ASSESSEE REGARDING THE DENIAL OF DEDUCTION U/S.80IB IS CONCE RNED WE FIND ADMITTEDLY THE SISTER CONCERN OF THE ASSESSEE IS EN GAGED IN THE MANUFACTURING WORK FOR CONVERSION OF POY INTO YARN. THE ASSESSEE HAS MERELY SUPPLIED THE RAW MATERIAL. THER E IS NO EVIDENCE ON RECORD TO SHOW THAT THE ASSESSEE HAS IN ANY WAY SUPERVISED THE MANUFACTURING PROCESS. THEREFORE IT CANNOT BE SAID THAT THE ASSESSEE DERIVED ITS PROFIT FROM AN INDUSTRIAL UNDERTAKING SO AS TO ENTITLE IT TO CLAIM THE BENEFI T OF DEDUCTION U/S. 80IB OF THE I.T. ACT. 10. AS REGARDS THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. OKASA (P) LTD. REPORTED IN (2006) 10 SOT 164 AND AS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE WE F IND THE ASSESSEE IN THAT CASE ENGAGED 8 SUB-MANUFACTURERS U NDER A LOAN & LICENCE AGREEMENT TO MANUFACTURE ITS FORMULA TIONS ON ITS BEHALF AND HAS DIRECT SUPERVISORY CONTROL OVER THE SUB- MANUFACTURERS. ACCORDINGLY THE TRIBUNAL HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.80IA OF THE I.T. ACT. HOWEVER IN THE INSTANT CASE THE LD. CIT(A) HAS GIVEN A FINDING TH AT THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE ASSESSEE HAD EX ERCISED ANY SUPERVISION CONTROL OR DIRECTION OVER THE MANUFACT URING ACTIVITY OF THE SISTER CONCERN. THE LD. COUNSEL FOR THE ASSE SSEE ALSO COULD I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 9 NOT BRING ANY EVIDENCE TO OUR NOTICE. THEREFORE T HIS DECISION IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 10.1 SIMILARLY IN THE CASE OF CIT VS. ORICON (P) LTD. REPORTED IN (1985) 151 ITR 296 (BOM.) WE FIND THE JURISDICTION AL HIGH COURT HAS HELD THAT ALL THE PROCESSES RESULTING IN THE EN D-PRODUCT MUST BE CARRIED OUT BY THE ASSESSEE HIMSELF. IF AN ASSESSEE HAS DONE SOME PROCESS WHICH ULTIMATELY HAS BROUGHT ABOU T THE END- PRODUCT SUCH AN ASSESSEE WILL BE AN INDUSTRIAL CO MPANY ENTITLED TO THE CONCESSIONAL RATE OF TAX. HOWEVER IN THE INSTANT CASE THE ASSESSEE HAS NOT DONE ANY PROCESS. WE D O NOT FIND ANY FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT PURCHASE OF RAW MATERIAL PACKING THE FINAL PR ODUCT AND SELLING THE SAME AMOUNTS TO PROCESS. THEREFORE THE DECISION OF THE JURISDICTIONAL HIGH COURT AS RELIED ON BY THE L D. COUNSEL FOR THE IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FA CTS OF THE PRESENT CASE. 10.2 AS REGARDS THE DECISION OF THE HONBLE CALCUTT A HIGH COURT IN THE CASE OF GRIFFON LABORATORIES (O) LTD. VS. CIT REPORTED IN (1979) 119 ITR 145 AND AS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE WE FIND THE COURT IN THAT CASE HAS HELD THAT THE ASSESSEE NEED NOT OWN OR POSSESS PLANT & M ACHINERY TO BE A MANUFACTURER OF GOODS. THE THING IS THAT IT SH OULD MAINLY ENGAGE ITSELF IN MANUFACTURE OR PROCESSING OF GOODS . HOWEVER MANUFACTURE MAY BE EITHER BY THE ASSESSEE ITSELF OR BY SOMEONE UNDER THE ASSESSEES SUPERVISORY CONTROL OR DIRECTI ON. HOWEVER IN THE INSTANT CASE WE FIND THE ASSESSEES SISTER CONCERN IS ENGAGED IN THE BUSINESS OF MANUFACTURING WORK FOR C ONVERSION OF POY INTO YARN AND THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE ASSESSEE EXERCISED ANY SUPERVISION CONTROL OR DIRECTION OVER THE MANUFACTURING ACTIVITY CARRIED OUT BY THE SISTE R CONCERN. THEREFORE THIS DECISION IS ALSO NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 10 10.3 IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED DISCUSSION BY THE CIT(A) IN HIS ORDER WE DO NOT FI ND ANY INFIRMITY IN HIS ORDER IN DENYING THE BENEFIT OF DE DUCTION U/S.80IB OF THE ACT. WE ACCORDINGLY UPHOLD THE SAME . GROUND NO.1 BY THE ASSESSEE IS ACCORDINGLY DISMISSED. 11. IN GROUND NO.3 THE REVENUE HAS CHALLENGED THE ORDER OF THE CIT(A) IN DIRECTING THE ASSESSING OFFICER TO TR EAT THE INTEREST RECEIVED AMOUNTING TO RS.2 89 802/- FROM CUSTOMERS FOR DELAYED PAYMENT AS BUSINESS INCOME ELIGIBLE FOR DED UCTION U/S.80IB. 12. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSES SEE RECEIVED INTEREST OF RS.2 89 802/- FROM CUSTOMERS FOR DELAYE D PAYMENT AND CLAIMED THE SAME AS BUSINESS INCOME AND ELIGIBL E FOR DEDUCTION U/S.80IB. THE ASSESSING OFFICER HELD THAT THE SAME HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES A ND THEREFORE NOT ELIGIBLE FOR DEDUCTION U/S.80IB. IN APPEAL THE CIT(A) FOLLOWING A COUPLE OF DECISIONS HELD THAT INTEREST RECEIVED FROM CUSTOMERS ON LATE PAYMENT OF SALE CONSIDERATION WA S IN THE NATURE OF ADDITIONAL REALIZATION FROM CUSTOMERS TO WHOM THE GOODS ARE SOLD. THEREFORE THE RECEIPTS AROSE DIREC TLY FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING AND THEREFORE TH E ASSESSEE IS ENTITLED FOR DEDUCTION U/S.80IB. WHILE DOING SO HE RELIED ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF N IRMA INDUSTRIES LTD. REPORTED IN 202 CTR 198 AND THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. GOVIND CHOUDHARY & SON. REPORTED IN 203 ITR 881. 13. AFTER HEARING BOTH THE SIDES WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. THE CO-OR DINATE BENCHES OF THE TRIBUNAL ARE TAKING THE CONSISTENT V IEW THAT INTEREST RECEIVED FROM CUSTOMERS ON DELAYED PAYMENT PARTAKES THE CHARACTER OF BUSINESS RECEIPT AND ENTITLED FOR DEDUCTION I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 11 U/S.80IB. IN THIS VIEW OF THE MATTER WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUND RAISED BY THE REVENUE . 14. GROUNDS OF APPEAL NOS. 1 4 & 5 BY THE REVENUE BEING GENERAL IN NATURE ARE DISMISSED. 15. IN GROUNDS OF APPEAL NOS.3(A) AND 3(B) THE ASS ESSEE HAS CHALLENGED THE ORDER OF CIT(A) IN CONFIRMING THE OR DER OF ASSESSING OFFICER IN TREATING THE INTEREST INCOME O F RS.12 26 900/- AS INCOME FROM OTHER SOURCES AND THE REBY NOT ENTITLED TO DEDUCTION U/S.80IB OF THE I.T. ACT. 16. AFTER HEARING BOTH THE SIDES WE FIND THE ISSUE STANDS COVERED AGAINST THE ASSESSEE BY THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA REPORTED IN 317 ITR 218. WE FIND THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT SECTIONS 80IB AND 80IA ARE A CODE BY THEMSELVE S AS THEY CONTAIN BOTH SUBSTANTIVE AND PROCEDURAL PROVISIONS. SEC. 80IB PROVIDES FOR ALLOWING OF DEDUCTION IN RESPECT OF PR OFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS. THE CONNOTATION OF THE WORDS DERIVED FROM IS NARROWER AS COMPARED TO THAT OF THE WORDS ATTRIBUTABLE TO. BY USING THE EXPRESSION DERIVED FROM PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. ACCORDINGLY IT WAS HELD THAT DEPB/DUTY DRA WBACK BENEFIT DO NOT FORM PART OF THE NET PROFIT OF ELIGI BLE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF THE DEDUCTION U/S. 80I/80IA/80IB OF THE I. T. ACT. FOLLOWING THE SAME RATIO WE HOLD THAT INTEREST INCOME CANNOT BE HELD AS DERIVED FR OM FROM THE ELIGIBLE BUSINESS SO AS TO ENTITLE THE ASSESSEE TO GET THE BENEFIT OF DEDUCTION U/S.80IB OF THE I.T. ACT. ACCORDINGLY THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 17. IN GROUND OF APPEAL NO.4 THE ASSESSEE HAS TAKE N THE ALTERNATIVE GROUND THAT IN CASE INTEREST INCOME IS HELD AS NOT ELIGIBLE FOR DEDUCTION U/S.80IB THEN NETTING SHOUL D BE ALLOWED. I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 12 17.1 AFTER HEARING BOTH THE SIDES WE FIND THIS GRO UND ALSO HAS TO BE DECIDED AGAINST THE ASSESSEE IN VIEW OF THE RECENT DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. LTD. VIDE ITA NO.200 OF 2009 DATED 19-03-2010 WHERE THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT NET TING OF INTEREST IS NOT PERMISSIBLE. THE RELIANCE ON THE DE CISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF LALSO N ENTERPRISES VS. DCIT REPORTED IN 89 ITD 25 BY THE LD. COUNSEL FOR THE ASSESSEE IS NO LONGER APPLICABLE TO THE FACTS OF TH E PRESENT CASE IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT CITED ABOVE WHICH IS BINDING ON THE TRIBUNAL. IN THIS VI EW OF THE MATTER THE GROUND BY THE ASSESSEE IS DISMISSED. 18. IN THE RESULT THE APPEALS FILED BY THE REVENUE AS WELL AS THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THE 09TH DAY OF JULY 2010. SD/- SD/- SD/-SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER SD/- (R.K. PANDA) ACCOUNTANT EMBER MUMBAI DATED: 09 TH JULY 2010. NG: I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 13 COPY TO: (1) THE APPELLANT (2) THE RESPONDENT (3) THE CIT(A)-XIV MUMBAI (4) THE CIT-14 MUMBAI (5) THE DR D BENCH ITAT MUMBAI. (6) MASTER FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI TPRAO/NG I.T.A. NOS. 5773 & 5414/MUM/2007 M/S. D.N.H. SPINNERS ========================== 14 DATE INITIALS DRAFT DICTATED ON 26.05.2 010 SR. P.S. DRAFT PLACED BEFORE THE AUTHOR 28.05.2010 SR. P.S. DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER AM/JM DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM APPROVED DRAFT COMES TO THE SR. PS SR. P.S. KEPT FOR PRONOUNCEMENT ON SR. P.S. FILE SENT TO THE BENCH CLERK SR. P.S. DATE ON WHICH FILE GOES TO THE HEAD CLERK DATE OF DISPATCH