ITO-20(3)(3), MUMBAI v. SHRI. SRIKRUSHNA PATNAIK, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO JUDICIAL MEMBER I.T.A.NOS.5835 & 5836/MUM/2008 A.YRS.2004-05 & 2005-06 INCOME TAX OFFICER 20 (3) (3) MUMBAI. VS. SHRI SRIKRUSHNA PATNAIK 201 GAYATRI APTS. 7 BUNGALOWS ANDHERI (W) MUMBAI 400 012 PAN: AAEPP 1824 F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.SONGATE. RESPONDENT BY : NONE. O R D E R PER T.R.SOOD AM: IN THIS CASE REVENUE APPEALS CAME UP FOR HEARING ON EARLIER OCCASIONS ALSO BUT NONE APPEARED ON BEHALF OF THE A SSESSEE DESPITE SERVICE OF NOTICES. EVEN TODAY THE 8 TH FEB. 2011 NOBODY APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE. T HEREFORE WE HAVE PROCEEDED TO HEAR THE APPEALS ON EX PARTE BASIS. 2. IN BOTH THESE APPEALS REVENUE HAS RAISED THE FOL LOWING COMMON GROUNDS: I. THE LEARNED CIT[A] HAS ERRED ON FACTS AND IN LAW AN D IN THE CIRCUMSTANCES OF THE CASE TO GRANT THE DEDUCTION U/ SEC. 80IB OF THE IT ACT ON THE INCOME FROM SALE OF EMPTY BARREL S INTEREST ON DELAYED PAYMENT FROM DEBTORS AND AMOUNT WRITTEN BACK WHICH IS NOT AN INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING AND THEREFORE NOT ELIGIBLE FOR DEDUCTION U/SEC.80I B OF THE ACT. II. THE LEARNED CIT[A] HAS ERRED ON FACTS AND IN LAW AN D IN THE CIRCUMSTANCES OF THE CASE IN ALLOWING THE ASSESSEE S CLAIM FOR DEDUCTION U/SEC.80IB DISREGARDING THE FACT THAT TH E ABOVE ASSESSEES BUSINESS INCOME DOES NOT SYNCHRONISE WIT H THE TERM OF MANUFACTURE REFERRED TO IN SEC.80IB OF THE IT AC T 1961. 2 III. THE CIT[A] ERRED IN NOT APPRECIATING THE DECISION O F THE SUPREME COURT IN THE CASE OF GRAMPHONE CO. INDIA LT D. VS. COLLECTOR OF CUSTOMS (2000) (1 SCC 549) WHEREIN THE APEX COURT HAS HELD AS UNDER THAT MANUFACTURE IMPLIES A CHANGE BUT EVERY CHANGE IS NOT MANUFACTURE AND YET EVERY CHANG E OF AN ARTICLE IS THE RESULT OF TREATMENT LABOUR AND MANI PULATION. BUT SOME THING MORE IS NECESSARY AND THERE MUST BE TRAN SFORMATION AND A NEW DISTINCT ARTICLE MUST EMERGE. 3. THE LD. DR WAS HEARD. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE LD. DR AND RELEVANT MATERIAL ON RECORD WE FIND THAT DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD CREDITED CERTAIN AMOUNTS TO THE PROFIT & LOSS ACCOUNT ON ACCOUNT OF INTEREST ON DELAYED PAYMENT CASH DISCOUNT SALE OF EMPTY BARRELS AND INTEREST ON FIXED DEPOSIT RECE IPTS AND ACCORDING TO THE AO THESE ITEMS WERE NOT DERIVED FROM INDUST RIAL UNDERTAKING AND THEREFORE THE ASSESSEE WAS NOT ENTITLED TO DE DUCTION U/S.80IB. 5. ON APPEAL LD. CIT[A] WAS OF THE VIEW THAT THOUG H ASSESSEE WAS NOT ENTITLED FOR DEDUCTION U/S.80IB IN RESPECT OF I NTEREST OF F.DS BUT WAS ENTITLED TO DEDUCTION IN RESPECT OF OTHER ITEMS . 6. AFTER CONSIDERING THE SUBMISSIONS OF THE LD. DR AND RELEVANT MATERIAL ON RECORD WE FIND THAT LD. CIT[A] HAS DEC IDED THE ISSUE VIDE PARAS 2.5 AND 2.6 IN A.YRS. 2004-05 AND 2005-06 WHI CH ARE AS UNDER: A.Y 2004-05 2.5 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANTS A/R THE CASE LAWS CITED BY HIM AS WELL AS THE ARGUMENTS OF THE AO. IT IS SEEN THAT AN AMOUNT OF ` `` ` .16 277/- HAS BEEN RECEIVED BY THE APPELLANT ON CASH DISCOUNT [ON PURCHASES]. THE APPELLANT MUST HA VE PURCHASED GOODS FROM DIFFERENT PARTIES AND RECEIVED CASH DISC OUNT FROM THEM. IT IS THUS QUITE EVIDENT THAT THIS DISCOUNT HAS BEEN EARNED FROM THE BUSINESS OF THE APPELLANT. THE CASE LAWS MENTIONED FROM SR.NO.3 TO 6 ALSO SUPPORT THE ARGUMENT OF THE APPELLANT. I THER EFORE HOLD THAT THE 3 CASH DISCOUNT OF ` `` ` .16 277/- IS THE INCOME DERIVED FROM BUSINESS OF INDUSTRIAL UNDERTAKING AND DEDUCTION U/S.80IB IS LI ABLE TO BE GRANTED ON THIS INCOME. SO FAR AS THE AMOUNT WRITTEN BACK OF ` `` ` .15 797/- IS CONCERNED THE SAME IS ALSO OF THE SIMILAR NATURE B ECAUSE THE APPELLANT HAS WRITTEN BACK SOME OF THE CREDITS WHICH ARE NOT PAYABLE. HENCE IT IS IN THE NATURE OF PROFIT FROM THE BUSINESS OF THE IN DUSTRIAL UNDERTAKING. THE AMOUNT OF ` `` ` .15 797/- WILL THEREFORE ALSO QUALIFY FOR DEDUCTION U/S.80IB. 2.6 THE APPELLANT HAS ALSO SOLD EMPTY BARRELS WHIC H ARE USED IN THE BUSINESS FOR STORAGE OF WATER BASED POLYMER EMULSIO N FOR AN AMOUNT OF ` `` ` .11 23 860/-. THE EMPTY BARRELS ARE IN THE NATURE O F BUSINESS ASSETS AND THE INCOME ARISING FROM THE SALE OF THESE BARRE LS WOULD QUALIFY TO BE THE BUSINESS INCOME OF THE INDUSTRIAL UNDERTAKIN G. THE CASE LAWS MENTIONED FROM SR.NO.7 TO 10 ALSO SUPPORT THIS ARGU MENT OF THE APPELLANT. I AM THEREFORE OF THE VIEW THAT THE IN COME OF ` `` ` .11 23 860/- ON ACCOUNT OF SALE OF EMPTY BARRELS IS ALSO ELIGIBL E FOR DEDUCTION U/S.80IB. A.Y 2005-06: 2.5 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANTS A/R THE CASE LAWS CITED BY HIM AS WELL AS THE ARGUMENTS OF THE AO. IT IS SEEN THAT AN AMOUNT OF ` `` ` .9 46 945/- HAS BEEN RECEIVED BY THE APPELLANT FROM DEBTORS AS INTEREST ON ACCOUNT OF DELAYED PAYMENTS OF OUTSTANDING DUES. THE APPELLANT MUST HAVE SOLD HIS GOODS TO THE SE PARTIES AND THE INTEREST HAS BEEN CHARGED IN RESPECT OF SALE PROCEE DS WHICH WERE OUTSTANDING BEYOND THE AGREED CREDIT PERIOD. IT IS THUS QUITE EVIDENT THAT THIS INTEREST HAS BEEN EARNED FROM THE BUSINES S OF THE APPELLANT. THE CASE LAWS MENTIONED FROM SR.NO.3 TO 6 ALSO SUPP ORT THE ARGUMENT OF THE APPELLANT. I THEREFORE HOLD THAT THE CASH DISCOUNT OF ` `` ` .9 46 945/- IS THE INCOME DERIVED FROM BUSINESS OF INDUSTRIAL U NDERTAKING AND DEDUCTION U/S.80IB IS LIABLE TO BE GRANTED ON THIS INCOME. SO FAR AS THE AMOUNT WRITTEN BACK OF ` `` ` .21 231/- IS CONCERNED THE SAME IS ALSO OF THE SIMILAR NATURE BECAUSE THE APPELLANT HAS WRITTEN BA CK SOME OF THE CREDITS WHICH ARE NOT PAYABLE. HENCE IT IS IN THE N ATURE OF PROFIT FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. THE AMO UNT OF ` `` ` .21.231/- WILL THEREFORE ALSO QUALIFY FOR DEDUCTION U/S.80IB. 2.6 THE APPELLANT HAS ALSO SOLD EMPTY BARRELS WHIC H ARE USED IN THE BUSINESS FOR STORAGE OF WATER BASED POLYMER EMULSIO N FOR AN AMOUNT OF ` `` ` .6 54 410/-. THE EMPTY BARRELS ARE IN THE NATURE OF BUSINESS ASSETS AND THE INCOME ARISING FROM THE SALE OF THESE BARRELS W OULD QUALIFY TO BE THE BUSINESS INCOME OF THE INDUSTRIAL UNDERTAKING. THE CASE LAWS MENTIONED FROM SR.NO.7 TO 10 ALSO SUPPORT THIS ARGU MENT OF THE APPELLANT. I AM THEREFORE OF THE VIEW THAT THE IN COME OF ` `` ` .6 53 410/- ON ACCOUNT OF SALE OF EMPTY BARRELS IS ALSO ELIGIBL E FOR DEDUCTION U/S.80IB. 4 IT SEEMS NO DETAILS WERE FILED BEFORE THE AO AS REC ORDED BY THE AO. MOREOVER THE AMOUNTS RECORDED BY THE AO ARE TOTALL Y DIFFERENT THAN RECORDED BY THE CIT[A]. IN A.Y 2004-05 THE AO VIDE PARA-6 HAS OBSERVED AS UNDER: 6. IT IS NOTICED THAT THE ASSESSEE HAS CREDITED AN AMOUNT OF ` `` ` .22 26 258.58/- TOWARDS OTHER INCOME IN THE PROFIT & LOSS ACCOUNT. THE ANNUAL REPORT OF THE ASSESSEE SUBMITTED THAT TH E SAID OTHER INCOME INCLUDES AN AMOUNT OF ` `` ` .989041/- RECEIVED ON ACCOUNT OF DELAYED PAYMENTS ` `` ` .16277/- AS CASH DISCOUNT ` `` ` .15797.58 AS AMOUNT WRITTEN BACK (NET) ` `` ` .1123860/- TOWARDS SALE ON EMPTY BARRELS AND AN AMOUNT OF ` `` ` .81282/- TOWARDS BANK INTEREST RESPECTIVELY WHEREAS THE LD. CIT[A] HAS MENTIONED THE AMOUNTS AS UNDER: 1. CASH DISCOUNT RECEIVED ` `` ` . 16 277/- 2. ON ACCOUNT OF SALE OF EMPTY BARRELS ` `` ` . 11 23 860/- 3. ON ACCOUNT OF INTEREST FROM BANK ` `` ` . 81 232/- 4. ON ACCOUNT OF AMOUNT WRITTEN BACK ` `` ` . 15 707/- THUS CLEARLY THE AMOUNTS MENTIONED BY BOTH THE AUT HORITIES ARE DIFFERENT WHICH CLEARLY SHOWS THAT THE ISSUE HAS N OT BEEN EXAMINED PROPERLY. 7. WE WOULD FURTHER LIKE TO MENTION THAT AS FAR AS INTEREST RECEIVED ON DELAYED PAYMENTS FROM THE CUSTOMERS IS CONCERNED THE SAME IS DIRECTLY CONNECTED WITH THE BUSINESS OF INDUSTRIAL UNDERTAKING AS OBSERVED BY THE HON'BLE MADRAS HIGH COURT IN THE CA SE OF CIT VS. MADRAS MOTORS LTD. [257 ITR 60) AS UNDER: (II) THAT IF THE PURCHASERS OF THE FORGINGS DID N OT MAKE THE PAYMENTS FOR THE FORGINGS AND THEN AGREED TO PAY INTEREST ON THE DELAYED PAYMENTS THE SAID INTEREST WOULD BE DIRECTLY RELAT ABLE TO THE BUSINESS OF THE ASSESSEE OF FORGINGS. THUS THE INTEREST WOU LD HAVE TO BE INCLUDED AS THE PROFITS AND GAINS DERIVED FROM THE BUSINESS OF THE ASSESSEE AND WOULD BE ENTITLED TO BE COVERED BY SEC TION 80HH. 5 THEREFORE AS FAR AS INTEREST FROM DELAYED PAYMENTS FROM CUSTOMERS IS CONCERNED THE SAME HAS TO BE CONSIDERED AS PROFIT FROM INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION U/S.80IB. 8. FURTHER WE WOULD LIKE TO OBSERVE THAT THERE IS NO FORCE IN THE SUBMISSIONS OF THE ASSESSEE MADE BEFORE THE CIT[A] THAT THE DECISIONS RELIED ON BY THE ASSESSING OFFICER ARE NOT APPLICA BLE BECAUSE THE LANGUAGE OF SECTION 80IB IS DIFFERENT FROM THE LANG UAGE OF SECTION 80- HH. IN THIS REGARD WE WOULD LIKE TO POINT OUT THAT THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA V. CIT [317 ITR 218] HAS OBSERVED AS UNDER: SECTIONS 80I 80IA AND 80IB PROVIDES FOR INCENTIVE S IN THE FORM OF DEDUCTIONS WHICH ARE LINKED TO PROFITS AND NOT INVE STMENT. ON ANALYSIS OF SS. 80-IA AND 80-IB IT BECOMES CLEAR THAT ANY IN DUSTRIAL UNDERTAKING WHICH BECOMES ELIGIBLE ON SATISFYING SUB-S. (2) WO ULD BE ENTITLED TO DEDUCTION UNDER SUB-S. (1) ONLY TO THE EXTENT OF PR OFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER SPECIFIED DATE. A PART FROM ELIGIBILITY SUB-S. (1) PURPORTS TO RESTRICT THE QUANTUM OF DEDU CTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS THE IMPORTANCE OF TH E WORDS 'DERIVED FROM INDUSTRIAL UNDERTAKING' AS AGAINST 'PROFITS AT TRIBUTABLE TO INDUSTRIAL UNDERTAKING'. THEREFORE THE DECISIONS RELIED ON BY THE AO ARE EQ UALLY APPLICABLE FOR DEDUCTION U/S.80IB. IT IS NOT CLEAR AS TO HOW THE L D. CIT[A] HAS GIVEN A FINDING THAT THE ASSESSEE HAS SOLD EMPTY BARRELS WH ICH WERE USED FOR STORAGE OF POLYMER EMULSION. SUCH FINDING SHOULD NO T HAVE BEEN GIVEN IN THE ABSENCE OF RELEVANT FACTS AND EVIDENCE. IF S UCH BARRELS WERE PART OF THE PURCHASE OF RAW MATERIAL THEN ONLY SALE OF THE SAME WOULD BE ELIGIBLE FOR DEDUCTION BECAUSE IN THAT CASE THE BAR RELS MUST HAVE GONE INTO INFLATING THE PURCHASES IF THEY WERE SEPARATEL Y PURCHASED AS FIXED 6 ASSET OR OTHERWISE AND USED FOR MANY YEARS THEN TH EY HAVE NOTHING TO DO WITH THE BUSINESS OF INDUSTRIAL UNDERTAKING. 9. AS FAR AS THE AMOUNTS WRITTEN OFF/DISCOUNT ARE C ONCERNED AGAIN IT HAS TO BE SEEN THAT WHETHER THE AMOUNTS HAVE BEE N WRITTEN OFF/DISCOUNT IS ON ACCOUNT OF REVENUE HEAD THEN TO THAT EXTENT THE PROFIT ALREADY GOT REDUCED AND THEREFORE SAME HAS TO BE INCREASED. SIMILARLY IF THE AMOUNTS WRITTEN OFF/DISCOUNT ARE ON ACCOUNT OF CAPITAL THEN THEY WOULD NOT FORM PART OF THE PROFITS FOR TH E PURPOSE OF DEDUCTION U/S.80IB. 10. IN VIEW OF THE ABOVE DETAILED DISCUSSION WE SE T ASIDE THE ORDER OF THE LD. CIT[A] AND RESTORE THE ISSUE RAISED BEFO RE US TO THE FILE OF THE AO WITH THE FOLLOWING DIRECTIONS: 1. DEDUCTION U/S.80IB SHOULD BE ALLOWED IN RESPECT OF INTEREST RECEIVED ON DELAYED PAYMENTS FROM CUSTOMER S AFTER VERIFICATION OF SUCH AMOUNTS; AND 2. ISSUES REGARDING DEDUCTION IN RESPECT OF EMPTY BARR ELS DISCOUNT/AMOUNTS WRITTEN BACK ETC. ARE CONCERNED SAME SHOULD BE RE-EXAMINED AFTER OBTAINING THE NECESSARY DETAILS. 11. IN THE RESULT REVENUE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF FEBRUARY 2011. SD/- SD/- (VIJAY PAL RAO) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 11 TH FEBRUARY 2011.