INDFOS INDUSTRIES LTD, MUMBAI v. ITO 2(2)(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I MUMBAI BEFORE SHRI D.K. AGARWAL J.M. AND SHRI RAJENDRA SI NGH A.M. I.T.A. NO.6560/MUM/2009 ASSESSMENT YEAR : 2002-03 M/S. INDFOS INDUSTRIES LTD. MEGHAL INDL. ESTATE GALA NO.22 1 ST FLOOR DEVI DAYAL ROAD MULUND(W) MUMBAI-400 080 P.A. NO: AAAC12581H VS. ITO 2(2)(1) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHARP TANNAN RESPONDENT BY : SHRI S.K. SINGH ORDER PER D.K. AGARWAL J.M: THIS APPEAL ARISES AS A RESULT OF ORDER PASSED BY THE TRIBUNAL IN MISCELLANEOUS PETITION NO. 699/MUM/2010 ARISING OUT OF ITA NO.6560/MUM/2009 FOR A.Y. 2002-03 WHEREIN THE TRIB UNAL VIDE ORDER DATED 31.12.2010 HAS RECALLED ITS EXPARTE ORDER DATED 26. 07.2010 AND RESTORED THE APPEAL TO ITS ORIGINAL NUMBER. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF PRESSURE AND TEMP ERATURE CONTROLS HYDRAULIC TROLLEYS AND OVERLOAD PROTECTORS. IT FILE D ITS RETURN DECLARING AN INCOME OF RS.2 30 137/-. DURING THE COURSE OF ASSES SMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE AMOUNT OF EMPLOYEES AND M/S. INDFOS INDUSTRIES LTD. I.T.A. NO.6560/MUM/2009 2 EMPLOYERS CONTRIBUTIONS TO PROVIDENT FUND AND ESIS AGGREGATING TO RS.52 60 342/- SHOULD NOT BE ADDED TO THE TOTAL INC OME AS THE SAME WAS PAID BEYOND DUE DATE. IT WAS SUBMITTED BY THE ASSESSEE T HAT THE PAYMENTS HAVE BEEN MADE AFTER THE DUE DATE BUT BEFORE THE DATE OF FILING OF RETURN. THEREFORE THE SAME SHOULD NOT BE ADDED BACK IN THE INCOME OF THE ASSESSEE. THE RELIANCE WAS ALSO PLACED ON CERTAIN DECISIONS. HOWEVER THE ASSESSING OFFICER IN ORDER TO KEEP THE ISSUE ALIVE ADDED THE SAME TO THE INCOME O F THE ASSESSEE. APART FROM THIS THE ASSESSING OFFICER ALSO REDUCED THE DEDUCT ION U/S.80HHC TO RS.2 22 697/- BY DEDUCTING THE AMOUNT OF RS.6 36 46 0/- BEING 90% OF RS.7 07 178/- (OTHER INCOME) FROM THE BUSINESS INCO ME OF RS.2 01 60 215/- AND THEREBY WORKED OUT PROFIT OF THE BUSINESS AT RS .1 95 23 755/- AND ACCORDINGLY COMPLETED THE ASSESSMENT AT INCOME OF RS.54 67 610/- VIDE ORDER DATED 23.03.2005 PASSED U/S.143(3) OF THE INCOME TA X ACT 1961 OF (THE ACT). ON APPEAL THE LD.CIT(A) WHILE DIRECTING THE ASSESS ING OFFICER TO EXCLUDE EXCISE DUTY AND SALES TAX FROM TOTAL TURNOVER FIGURE FOR T HE PURPOSE OF DEDUCTION U/S.80HHC CONFIRMED THE OTHER DISALLOWANCES MADE B Y THE ASSESSING OFFICER. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NO.1 IS GENERAL IN NATURE AND IN THE AB SENCE OF ANY SPECIFIC PLEA THE SAME IS THEREFORE REJECTED. 5. GROUND NO.2 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF ADDITION OF RS.52 60 342/- ON ACCOUNT OF DELAYED PAYMENT OF PRO VIDENT FUND AND ESIC OF EMPLOYEES AND EMPLOYERS CONTRIBUTIONS. 6. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT SINCE THE ASSESSEE HAS DEPOSITED THE AMOUNT BEFORE THE DU E DATE OF FILING OF THE RETURN THEREFORE IN VIEW OF THE DECISION OF THE H ONBLE SUPREME COURT IN CIT M/S. INDFOS INDUSTRIES LTD. I.T.A. NO.6560/MUM/2009 3 VS. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 (SC) T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT( A) BE DELETED. 7. ON THE OTHER HAND THE LD. DR SUPPORTS THE ORDER OF THE ASSESSING OFFICER AND LD. CIT(A). 8. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE RESPECTFULLY F OLLOWING THE JUDGMENT OF HONBLE APEX COURT IN ALOM EXTRUSIONS LTD. (SUPRA) OBSERVED THAT THERE IS NO MATERIAL ON RECORD TO SHOW AS TO WHEN THE ABOVE AMO UNT OF EMPLOYEES AND EMPLOYERS CONTRIBUTION TO PROVIDENT FUND AND ESIS AGGREGATING TO RS.52 60 342/- WAS PAID BY THE ASSESSEE. EVEN AT TH IS STAGE THE LD. COUNSEL FOR THE ASSESSEE HAS FAILED TO PLACE ON RECORD ANY SUCH RELEVANT MATERIAL. HOWEVER HE SUBMITS THAT HE HAS NO OBJECTION IF THE ISSUE IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION. THIS BEING SO WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE THE MATTER SHO ULD GO BACK TO THE FILE OF THE ASSESSING OFFICER AND ACCORDINGLY WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK T HE MATTER TO THE FILE OF THE ASSESSING OFFICER WHO SHALL ALLOW THE SAME IN THE L IGHT OF THE RATIO OF THE DECISION IN THE CASE OF ALOM EXTRUSIONS LTD. (SUPRA ) AFTER DUE VERIFICATION OF THE PAYMENT WHICH HAS BEEN STATED TO HAVE BEEN PAID BEFORE THE DUE DATE OF FILING OF THE RETURN. THE GROUND TAKEN BY THE ASSE SSEE IS THEREFORE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.3 IS AGAINST THE DEDUCTION OF RS.6 36 460/- BEING 90% OF OTHER INCOME OF RS.7 07 178/- FROM THE PROFITS AND GAINS OF THE BUSINESS WHILE WORKING OUT THE DEDUCTION U/S.80HHC. 10. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE OTHER INCOME INCLUDES SALE OF SCRAP OF RS.6 40 852/ - AND HE IS PRESSING ONLY TO THIS EXTENT THAT THE SALE OF SCRAP SHOULD BE TREATE D AS BUSINESS INCOME ELIGIBLE M/S. INDFOS INDUSTRIES LTD. I.T.A. NO.6560/MUM/2009 4 FOR DEDUCTION U/S.80HHC AS PART OF PROFIT OF BUSINE SS. HE THEREFORE SUBMITS THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DED UCTING 90% OF THE SAME WHILE WORKING OUT THE PROFIT OF THE BUSINESS AND THEREFOR E THE DUE RELIEF BE ALLOWED TO THE ASSESSEE. 11. ON THE OTHER HAND THE LD. DR WHILE RELYING ON THE ORDER OF THE ASSESSING OFFICER AND LD.CIT (A) ALSO RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN CASE OF CIT VS. SHIVA DISTILLERIES LTD.(2007) 29 3 ITR 108 (MAD). 12. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE DISP UTE IS REGARDING TREATMENT OF INCOME FROM SCRAP SALE AND OTHER INCOME WHILE COMPU TING DEDUCTION U/S.80HHC. THE COMPUTATION U/S.80HHC IS MADE ON THE BASIS OF PROFIT OF BUSINESS WHICH HAS BEEN DEFINED AS PROFIT COMPUTED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND PROFESSION AS REDUCED BY 90% OF INCOME SUCH AS INTEREST RENT COMMISSION OR OTHER INCOME OF SIMIL AR NATURE. THE SCRAP GENERATION IS PART OF THE MANUFACTURING ACTIVITY AN D THEREFORE INCOME ARISING FROM SCRAP SALES IS THE OPERATION INCOME FROM THE U NDERTAKING. THEREFORE IN OUR VIEW THE SCRAP SALE HAS TO BE TREATED AS PART O F THE BUSINESS PROFIT AND 90% OF THE SAME IS NOT REQUIRED TO BE EXCLUDED AS PER E XPLANATION (BAA). AS REGARDS THE OTHER INCOME THE LD. COUNSEL FOR THE ASSESSEE D ID NOT PRESS THE SAME. 13. AS REGARDS THE JUDGEMENT IN SHIVA DISTILLERIES LTD. (SUPRA) RELIED UPON BY THE LD. DR RECENTLY THE HONBLE KARNATAKA HIGH COURT IN CIT VS. MOTOR INDUSTRIES CO. LTD.(2010) 326 ITR 358 (KARN) WHILE HOLDING THAT THE AO IS REQUIRED TO CONSIDER THE VALUE RECEIVED BY THE SALE OF SCRAP ALSO AS IT CANNOT BE EXCLUDED AS THE SALE OF SCRAP AMOUNTS TO A TURNOVER IN THE DOMESTIC MARKET DID NOT ACCEPT THE DECISION OF HONBLE MADRAS HIGH COURT AS ACCORDING TO THEIR LORDSHIP THE MADRAS HIGH COURT DID NOT CONSIDER THE DEFINITION OF EXPORT TURNOVER AND TOTAL TURNOVER AS DEFINED UNDER SECTIO N 80HHC(4C) EXPLANATION (B) AND (BA). EVEN OTHERWISE IT IS SETTLED LAW THA T IN SUCH CASES THE M/S. INDFOS INDUSTRIES LTD. I.T.A. NO.6560/MUM/2009 5 INTERPRETATION HAS TO BE CONSTRUCTED IN A MANNER BE NEFICIAL TO THE ASSESSEEE VIDE CIT VS.VEGETABLE PRODUCTS LTD. (1973) 88 ITR 1 92 (SC). 14. IN THIS VIEW OF THE MATTER WE DIRECT THE AO TO TREAT THE AMOUNT OF SCRAP SALE AS PART OF BUSINESS PROFITS WITHOUT REDUCING 9 0% OF THE SAME FOR THE PURPOSE OF DEDUCTION U/S.80HHC OF THE ACT. THE GROU ND TAKEN BY THE ASSESSEE IS THEREFORE PARTLY ALLOWED. 15. IN THE RESULT ASSESSEES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 11 TH DAY OF FEBRUARY 2011. SD/- SD/- ( RAJENDRA SINGH ) (D.K. A GARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DT: 11 TH FEBRUARY 2011. ROSHANI COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T. 4. CIT (A) 5. THE DR I - BENCH ITAT MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI