Universal Pharmaceuticals Ltd., CHENNAI V. ACIT, CHENNAI

CO 111/CHNY/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0344 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-10-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G BASKAR
• Assessee Lawyers: A V SREEKANTH
• Keywords: Reasonable cause; Condonation of delay
• Section: 80IB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NOS. 2144 & 2145/MDS/2014 & C.O.NOS.110 & 1 11/MDS/2014 (IN ITA NOS.2144 & 2145/MDS/2014) ( / ASSESSMENT YEARS: 2006-07 & 2009-10) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-III(3), CHENNAI-600 034. VS M/S. UNIVERSAL PHARMACEUTICALS LTD., 72, RUKMANI LAKSHMIPATHI SALAI, EGMORE, CHENNAI-600 008. PAN: AAACU3759R ( /APPELLANT) (RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : MR. A.V.SREEKANTH, JCIT /RESPONDENT BY : MR. G.BASKAR, ADVOCATE /DATE OF HEARING : 2 ND MARCH, 2015 /DATE OF PRONOUNCEMENT : 18 TH MARCH, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: BOTH THESE APPEALS AND CROSS OBJECTIONS ARE FILED B Y THE REVENUE AND ASSESSEE RESPECTIVELY AGAINST THE C OMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I II CHENNAI DATED 02.01.2014 FOR THE ASSESSMENT YEARS 2 006-07 & 2009-10. THE ONLY GRIEVANCE OF THE REVENUE IN ITS APPEALS IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT CONVERSION CHARGES AS PART OF THE PROFITS OF THE UNDERTAKING FOR THE PURP OSE OF DEDUCTION UNDER SECTION 80IB OF THE ACT. 2 ITA NO.2144 & 2145/MDS/2014 & C.O.NO.110 & 111/MDS/2014 2. BOTH THE APPEALS FILED BY THE REVENUE ARE BARRE D BY 61 DAYS. THE REVENUE FILED SEPARATE PETITIONS EXPL AINING REASONS FOR DELAY IN FILING OF APPEALS IN TIME AND PRAYS FOR CONDONATION OF DELAY. WE HAVE PERUSED THE REASONS A ND ARE SATISFIED THAT THERE IS A REASONABLE CAUSE FOR THE DELAY IN FILING OF THE APPEALS. IN THE INTEREST OF JUSTICE, WE COND ONE THE DELAY OF 61 DAYS IN FILING OF THE APPEALS OF THE RE VENUE. THE PETITIONS FOR CONDONATION OF DELAY ARE THUS, ALLOWE D AND THE APPEALS ARE ADMITTED. 3. AT THE TIME OF HEARING, COUNSEL FOR THE ASSESSEE SUBMITS THAT ISSUE IN APPEALS OF THE REVENUE HAS BE EN DECIDED IN ASSESSEES OWN CASE FOR THE ASSESSMENT Y EARS 2004-05 BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL I N ITA NO.1520/MDS/2011 BY ORDER DATED 30.11.2011. COUNSEL FOR THE ASSESSEE SUBMITS THAT IN VIEW OF THE DECISION O F THIS TRIBUNAL IN ASSESSEES OWN CASE THE APPEALS OF THE REVENUE ARE LIABLE TO BE DISMISSED. 4. DEPARTMENTAL REPRESENTATIVE PLACES RELIANCE ON T HE ORDERS OF THE ASSESSING OFFICER. 3 ITA NO.2144 & 2145/MDS/2014 & C.O.NO.110 & 111/MDS/2014 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISION RELIED ON. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT EXCLUDED CONVERSION CHAR GES FROM PROFITS OF THE BUSINESS STATING THAT SUCH CONV ERSION CHARGES ARE NOT DERIVED FROM THE BUSINESS OF UNDERT AKING FOR THE PURPOSE OF COMPUTING RELIEF UNDER SECTION 80IB OF THE ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT INCOME D ERIVED BY WAY OF CONVERSION CHARGES CANNOT BE EQUATED TO INCO ME ARISING FROM MANUFACTURING ACTIVITY. ON APPEAL, COM MISSIONER OF INCOME TAX (APPEALS) HELD THAT CONVERSION CHARGE S FORM PART OF BUSINESS PROFITS OF THE UNDERTAKING FOR THE PURPOSE OF COMPUTING RELIEF ELIGIBLE UNDER SECTION 80IB OF THE ACT. WHILE HOLDING SO, THE COMMISSIONER OF INCOME TAX (APPEALS ) FOLLOWED THE ORDER OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 . WE HAVE PERUSED THE ORDER OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL AND FIND THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THIS TRIBUNAL HOLDING AS UNDER:- 4 . AT THE TIME HEARING OF THE APPEAL, THE LD. D.R. FAIRLY CONCEDED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE MADRAS JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TAJ FIREWORKS REPORTED IN 288 ITR 192 [MDS]. 4 ITA NO.2144 & 2145/MDS/2014 & C.O.NO.110 & 111/MDS/2014 5. . WE FIND THAT THE LD. CIT(A) HAS DECIDED THIS ISSUE BY OBSERVING AS UNDER: THE FIRST ISSUE PERTAINS TO DISALLOWANCE OF DEDUCTION U/S 801B. FOR THE YEAR UNDER APPEAL, THE APPELLANT FILED A RETURN ADMITTING A LOSS OF RS. 46,20,418/ -. THE APPELLANT HAS TWO UNITS AT PONDICHERRY AND CHENNAI. IN RESPECT OF THE PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING AT PUDUCHERRY, THE APPELLANT CLAIMED DEDUCTION U/S 80LB OF RS. 1,16,68,013/- WHILE DOING SO, IT HAS IGNORED THE LOSS OF CHENNAI UNIT OF RS.45,87,204/ -. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE INCOME FROM OPERATIONS INCLUDES CONVERSION CHARGES OF ` 1,51,48,577/-. THE AO TREATED THE 'CONVERSION CHARGES' AS NOT DERIVED FROM THE MANUFACTURING AND DENIED THE CLAIM FOR DEDUCTION U/S. 801B OF THE ACT. 4.1 THE LD. A.R. HAS SUBMITTED AS UNDER: THE ASSESSEE IS A COMPANY AND HAS AN INDUSTRIAL UNIT AT PUDICHERRY. IT IS A REGISTERED AS A SMALL-SCALE INDUSTRIAL UNDERTAKING FROM 1999. IT IS ENGAGED IN THE MANUFACTURE OF VARIOUS PHARMACEUTICAL FORMULATIONS. FOR MANUFACTURE OF PHARMACEUTICAL PRODUCTS, THE ASSESSEE HAS OBTAINED THE NECESSARY LICENSES FROM THE DRUG CONTROLLER. THE PRODUCTS MANUFACTURED BY THE ASSESSEE ARE NOT ONLY SOLD IN INDIA, BUT ALSO EXPORTED. THE TOTAL TURNOVER OF THE ASSESSEE FOR TH E EARLIER AND LATER YEARS IS AS UNDER ..... APART FROM THIS, THE ASSESSEE CARRIES ON MANUFACTURE FOR OTHER COMPANIES ALSO ON LOAN LICENSE BASIS. EVEN FOR MANUFACTURING ON LOAN LICENSE BASIS, THE ASSESSEE HAS TO OBTAIN LICENCES FROM THE CENTRAL EXCISE AUTHORITIES. THE ASSESSEE ENTERED INTO AN UNDERSTANDING WITH M/ S TABLETS (INDIA) LTD., FOR MANUFACTURE OF CERTAIN FORMULATIONS MENTIONED THEREIN. ONLY TO DISTINGUISH BETWEEN THE MANUFACTURE UNDERTAKEN FOR ITSELF AND THE ONE UNDERTAKEN ON LOAN LICENCE BASIS A DIFFERENT NOMENCLATURE HAD BEEN GIVEN. AS COULD BE SEEN FROM THE LOAN LICENCE AGREEMENT, THE LICENCEE SUPPLIES THE RAW MATERIALS AND OTHER INGREDIENTS 5 ITA NO.2144 & 2145/MDS/2014 & C.O.NO.110 & 111/MDS/2014 REQUIRED FOR THE MANUFACTURE AND THE SAME ARE PROCESSED ON PROCESSING VESSELS AND AFTER APPROPRIATE COOLING, THE SAME IS PASSED THROUGH AUTOMATIC LIQUID FILLING MACHINE AND THE FINAL PRODUCTS (FINISHED PRODUCTS) ARE DISPATCHED TO THE LICENSEE. THE END PRODUCT SUFFERS EXCISE DUTY, REMITTED BY THE APPELLANT. THE MANUFACTURING CHARGE RECEIVED BY THE APPELLANT IS SHOWN UNDER OTHER INCOME. IT IS SUBMITTED THAT EVEN THE 'CONVERSION CHARGES' HAD BEEN EARNED FROM THE MANUFACTURING OPERATIONS. THEREFORE EVEN THE CONVERSION CHARGES ARE ELIGIBLE FOR DEDUCTION U/S.8OIB. 4.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE IN THE LIGHT OF THE FACTS OBTAINING IN THIS CASE. THERE ;S NO DOUBT THAT THE CONVERSION CHARGES IS ALSO PART OF THE 'PROFITS OF THE UNDERTAKING. IT IS PROFITS ARISING OUT OF THE MANUFACTURING ACTIVITY ALTHOUGH ON A LOAN LICENSE BASIS FOR OTHERS. AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF C/T V. TAJ FIRE WORKS 288 ITR 92 EVEN AN INDUSTRIAL UNDERTAKING CARRYING ON MANUFACTURING ACTIVITY ON JOB-WORK BASIS IS ELIGIBLE FOR DEDUCTION /S.80IA/801B OF THE ACT. RESPECTFULLY FOLLOWING THE SAID DECISION, I DIRECT THE AO TO TREAT THE CONVERSION CHARGES OF RS. 1,57,48,577/ - AS PART OF THE PROFITS OF THE UNDERTAKING. THIS GROUND IS, ACCORDINGLY, ALLOWED.' 6. AS THE FACTS AND CIRCUMSTANCES ARE IDENTICAL IN THESE TWO ASSESSMENT YEARS ALSO, RESPECTFULLY FOLLOWING THE SAID DECISION, WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND REJECT THE GROUNDS RAISED BY THE REVENUE FOR BOTH THE ASSESSMENT YEARS. 6 ITA NO.2144 & 2145/MDS/2014 & C.O.NO.110 & 111/MDS/2014 7. THE COMMON GROUNDS RAISED BY THE ASSESSEE IN THE CROSS OBJECTIONS ARE AS UNDER:- 1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN ALLOWING DEDUCTION U/S.80IB OF THE ACT ONLY AFTER SETTING OFF THE LOSS OF THE EARLIER YEARS AND THE LOSS OF THE CHENNAI UNIT (WHICH IS NOT AN ELIGIBLE UNIT) WHICH IS NOT IN ACCORDANCE WITH LAW. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE SEEN THAT DEDUCTION U/S.80IB OF THE ACT IS TO BE COMPUTED ON A STAND- ALONE BASIS AS IF THE ELIGIBLE UNIT IS THE ONLY SOURCE OF INCOME. THUS, THE REDUCTION IN THE DEDUCTION IS ERRONEOUS AND LIABLE TO BE QUASHED. 8. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSING OFFICER WITHOUT QUANTIFICATION OF RELIEF DECIDED TH AT WHETHER SUCH DEDUCTION UNDER SECTION 80IB SHOULD BE ALLOWE D BEFORE SET OFF OF LOSSES OR AFTER SET OFF OF LOSSES . HE P LEADS THAT SINCE THE ASSESSING OFFICER HAS TO FIRST DETERMINE THE ELIGIBLE PROFITS AND CONSEQUENT DEDUCTION UNDER SECTION 80IB OF THE ACT , THE MATTER MAY BE SENT BACK TO THE ASSESSING OFFICER FOR CONSIDERING THE ISSUE AFRESH. 9. DEPARTMENTAL REPRESENTATIVE PLACES RELIANCE ON T HE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) AND 7 ITA NO.2144 & 2145/MDS/2014 & C.O.NO.110 & 111/MDS/2014 SUBMITS THAT THE ISSUE OF WHETHER DEDUCTION UNDER S ECTION 80IB HAS TO BE ALLOWED BEFORE SET OFF OF LOSSES OR AFTER SET OFF OF LOSSES HAS BEEN DECIDED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KOTAGIRI INDUSTRIAL C-OPERATIVE TEA FACTORY LTD. ( 224 ITR 604), WHICH THE COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWED AND THEREFORE THIS IS SUE NEED NOT GO BACK TO THE ASSESSING OFFICER. 10. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND THE MATERIALS ON RECORD. WE FIND THAT THIS ISS UE HAS BEEN SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF SYNCO INDUSTRIES LTD. VS. ASSESSING OFFICER (INCOME TAX ) & ANOTHER (299 ITR 444) OBSERVING AS UNDER:- 12. THE ABOVE DISCUSSION MAKES IT VERY EVIDENT THAT PREDOMINANT MAJORITY OF THE HIGH COURTS HAVE TAKEN THE VIEW THAT WHILE WORKING OUT THE GROSS TOTAL INCOME OF TH E ASSESSEE THE LOSSES SUFFERED HAVE TO BE ADJUSTED AND IF THE GROSS TOTAL INCOME OF THE ASSESSEE IS 'NIL' THE ASSESSEE WILL N OT BE ENTITLED TO DEDUCTION UNDER CHAPTER VI-A OF THE ACT . IT IS WELL- SETTLED THAT WHERE THE PREDOMINANT MAJORITY OF THE HIGH COURTS HAVE TAKEN A CERTAIN VIEW ON THE INTERPRETA TION OF CERTAIN PROVISIONS, THE SUPREME COURT WOULD LEAN I N FAVOUR OF THE PREDOMINANT VIEW. THEREFORE, THIS COURT IS O F THE OPINION THAT THE HIGH COURT WAS JUSTIFIED IN HOLDIN G THAT THE GROSS TOTAL INCOME MUST BE DETERMINED, BY SETTING O FF AGAINST THE INCOME, THE BUSINESS LOSSES OF EARLIER YEARS, B EFORE ALLOWING DEDUCTION UNDER CHAPTER VI-A AND IF THE RE SULTANT INCOME IS 'NIL', THEN THE ASSESSEE CANNOT CLAIM DED UCTION UNDER CHAPTER VI-A. 8 ITA NO.2144 & 2145/MDS/2014 & C.O.NO.110 & 111/MDS/2014 11. RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE U PHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) I N HOLDING THAT DEDUCTION UNDER SECTION 80IB HAS TO B E ALLOWED AFTER SET OFF OF CARRY FORWARD LOSSES AND REJECT TH E GROUNDS RAISED IN THE CROSS OBJECTIONS OF THE ASSESSEE. 12. IN THE RESULT, APPEALS OF THE REVENUE AND THE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DAY OF MARCH, 2015 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 18 TH MARCH, 2015 SOMU 12 32 / COPY TO: 1. ASSESSING OFFICER 2. ASSESSEE 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .