SAMEER R. KARWA, MUMBAI V. ACIT 16(1), MUMBAI

CO 27/MUM/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7043 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 24-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAILESH S SHAH
• Assessee Lawyers: A K NAYAK
• Keywords: Business expenditure; Question of law
• Section: 80IB; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E : MUMBAI BEFORE SHRI P.M.JAGTAP, A.M. AND AMIT SHUKLA, J.M. ITA. NO.3918/MUM/2011 ASSESSMENT YEAR 2007-2008 ACIT 16 (1) MUMBAI 7. VS. SHRI SAMEER R. KARWA MUMBAI 400 006 PAN AGKPK2975N (APPELLANT) (RESPONDENT) CROSS OBJECTION NO. 27/MUM/2012 ARISING OUT OF ITA. NO. 3918/MUM/2011 ASSESSMENT YEAR 2007-2008 SHRI SAMEER R. KARWA MUMBAI 400 006 PAN AGKPK2975N VS. ACIT 16 (1) MUMBAI 7. (CROSS - OBJECTOR) (RESPONDENT) FOR REVENUE : SHRI SHAILESH S. SHAH FOR ASSESSEE : SHRI A.K.NAYAK ORDER PER SHRI P.M.JAGTAP, A.M. 1. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT (A)-27, MUMBAI DATED 25-1-2011 AND THE SAME IS BEING DISPOSED OF ALONG WITH CROSS-OBJECTION FILED BY THE ASSESSEE BE ING CO.NO.27/MUM/2012. 2. THE SOLITARY ISSUE RAISED BY THE REVENUE IN ITS APPEAL IS WHETHER THE LEARNED CIT(A) IS JUSTIFIED IN HOLDING THAT THE AMOUNT OF RS.1,47,33,593/- RECEIVED BY THE ASSESSEE TOWARDS INTEREST ON DELAYE D PAYMENTS FORMS PART OF THE ELIGIBLE PROFIT FOR THE PURPOSE OF DEDUCTION UN DER SECTION 80IB. 2 3. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDU AL WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ALUMINUM COLLAPSIB LE TUBES AND RIGID CONTAINERS IN THE NAME AND STYLE OF ITS PROPRIETARY CONCERN M/S. MAXIM CONTAINERS CO. THE RETURN OF INCOME FOR THE YEAR UN DER CONSIDERATION WAS FILED BY HIM ON 5-10-2007 DECLARING TOTAL INCOME OF RS.2, 07,51,300/- AFTER CLAIMING DEDUCTION UNDER SECTION 80IB TO THE EXTENT OF 25% O F THE PROFITS OF THE ELIGIBLE BUSINESS. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS INCLUDED IN TEREST OF RS.1,47,33,593/- RECEIVED ON DELAYED PAYMENTS FROM HIS CUSTOMERS IN THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. ACCORDING TO HIM, THE SAID INTEREST HAD NO FIRST DEGREE CONNECTION WITH THE ELIGIBLE INDUSTRIAL UNDE RTAKING OF THE ASSESSEE AND AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (317 ITR 218) SUCH INTEREST COULD NOT BE TREATED AS INCOME D ERIVED BY THE ASSESSEE FROM THE ELIGIBLE INDUSTRIAL UNDERTAKING. ACCORDINGLY, R ELYING ON THE SAID DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY IN DIA, INTEREST RECEIVED BY THE ASSESSEE ON DELAYED PAYMENTS MADE BY THE CUSTOMERS WAS EXCLUDED BY THE ASSESSING OFFICER FROM THE ELIGIBLE PROFIT FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80IB. 4. ON AN APPEAL, THE LEARNED CIT(A) REVERSED THE D ECISION OF THE ASSESSING OFFICER ON THIS ISSUE AND HELD THE INTERE ST RECEIVED BY THE ASSESSEE ON DELAYED PAYMENTS FROM ITS CUSTOMERS AS FORMING P ART OF THE ELIGIBLE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTIO N 80IB RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. VIDYUT CORPORATION 324 ITR 221 AND THAT OF HONBLE DELHI H IGH COURT IN THE CASE OF CIT VS. PODDAR PIGMENTS LTD. (ITA. NO. 347/2010). A GGRIEVED BY THIS RELIEF ALLOWED BY THE CIT(A) TO THE ASSESSEE, THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 3 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RECORD. ALTHOUGH THE LEARNED D.R. HAS MADE AN A TTEMPT TO SUPPORT THE CASE OF THE REVENUE ON THIS ISSUE BY CONTENDING THAT THE POINT OF ACCRUAL INTEREST IS DIFFERENT FROM THE POINT OF SALE MADE BY THE ASSESS EE TO HIS CUSTOMERS AND EVEN THE BASIS ON WHICH SUCH INTEREST IS CHARGED IS UTIL IZATION OF FUNDS OF ASSESSEE BY THE CUSTOMERS WHICH IS THE IMMEDIATE SOURCE AND NOT THE ELIGIBLE INDUSTRIAL UNDERTAKING OF THE ASSESSEE, IT IS OBSERVED THAT TH IS ISSUE INVOLVED IN THE APPEAL OF THE REVENUE IS SQUARELY COVERED BY THE DE CISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF VIDYUT CORPORATION (SUPRA) AND THAT OF HONBLE DELHI HIGH COURT IN THE CASE OF PODDAR PIGM ENTS LTD. (SUPRA). 6. IN THE CASE OF VIDYUT CORPORATION, THE HONBLE BOMBAY HIGH COURT WHILE DEALING WITH THE SIMILAR ISSUE HELD AS UNDER : THE FACTS, AS ADMITTED BEFORE THE COURT, WOULD DEMONSTRATE THAT IN SUBSTANCE AND IN ESSENCE, WHAT IS RECEIVED B Y THE ASSESSEE FROM THE PURCHASER IS A COMPONENT OF INTER EST TOWARDS DELAYED PAYMENT OF THE PRICE OF THE GOODS SO LD, SUPPLIED AND DELIVERED BY THE ASSESSEE. THERE CAN BE NO DISPUTE ABOUT THE POSITION THAT PRICE REALIZED BY TH E ASSESSEE FROM THE SALE OF GOODS MANUFACTURED BY THE INDUSTRIAL UNDERTAKING CONSTITUTES A COMPONENT OF THE PROFITS A ND GAINS DERIVED FRQM THE ELIGIBLE BUSINESS. THE PURCHASER, ON ACCOUNT OF THE DELAY IN PAYMENT OF THE SALE PRICE AL SO PAYS TO THE ASSESSEE INTEREST. THIS FORMS A COMPONENT OF TH E SALE PRICE AND IS PAID TOWARDS THE LAG WHICH HAS OCCURRE D IN THE PAYMENT OF THE PRICE OF THE GOODS SOLD BY THE ASSESS EE. ON THESE FACTS, THEREFORE , THE PAYMENT OF INTEREST ON ACCOUNT OF THE DELAY IN PAYMENT OF THE SALE PRICE OF THE GOODS SUPPLIED BY 1 THE UNDERTAKING PARTAKES OF THE SAME NATURE AND CHARACTER AS THE SALE CONSIDERATION. THE DELAYED PAYMENT CHARGES CONSEQUENTLY SATISFY, TOGETHER WITH THE SALE PRICE, THE FIRST DEGREE TEST WHICH HAS BEEN LAID DOW N BY THE SUPREME COURT IN LIBERTY INDIA. FOR THESE REASONS, T HE FIRST QUESTION OF LAW IS ANSWERED AGAINST THE REVENUE AND I N FAVOUR OF THE ASSESSEE. 4 7. THE HONBLE DELHI HIGH COURT ALSO HAD AN OCCASI ON TO CONSIDER A SIMILAR ISSUE IN THE CASE OF PODDAR PIGMENTS LTD. A ND WHILE DECIDING THE SAME IN FAVOUR OF THE ASSESSEE, THEIR LORDSHIPS HELD AS UNDER : AS REGARD THE SECOND ISSUE, WHICH PERTAINS TO DEDUCTION UNDER SECTION 801B OF THE SAID ACT, THE TRIBUNAL HELD THAT THE INTEREST INCOME RECEIVED ON DELAYED REALISATION OF SALE PROCEEDS TOOK THE CHARA CTER OF SALE PROCEEDS AND, AFTER PLACING RELIANCE ON THE DE CISION OF THE MADRAS HIGH COURT IN THE CASE OF COMMISSIONE R OF INCOME-TAX VS.LNDOMATSUSHITA CO. LTD. 286 ITR 201, HELD THAT THE SAID INTEREST INCOME COULD BE EXCLUDED FRO M THE PURVIEW OF DEDUCTION UNDER SECTION 801 THE SAID ACT . WE FIND THAT THIS ISSUE OF INTEREST RECEIVED FROM TRAD E DEBTORS HAD BEEN CONSIDERED BY THIS COURT IN THE CASE OF CI T VS.ADVANCE DETERGENTS LTD (ITA NO.248/2009, DECIDED ON 30.11.2009]. THIS COURT, IN ADVANCE DETERGENTS (SUPRA), PLACED RELIANCE ON A DECISION OF THE GUJAR AT HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LTD. VS.DEPUT Y COMMISSIONER OF INCOME-TAX: 283 ITR 402 (GUJ): THIS COURT ALSO CONSIDERED SEVERAL OTHER DECISIONS OF TH E OTHER HIGH COURT. THE COURT ALSO CONSIDERED THE DECISIONS OF THE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS.COMMISSIONER OF INCOME-TAX 317 ITR 218 (SC) AND CAME TO THE CONCLUSION THAT THE VIEW TAKEN BY THE G UJARAT HIGH COURT AND OTHER HIGH COURTS ON THE QUESTION OF INTEREST PAID ON DELAYED PAYMENT IS THE APPROPRIATE VIEW. THE GUJARAT HIGH COURT WAS OF THE VIEW THAT INTEREST ON DELAYED PAYMENT WAS NOTHING BUT A HIGHE R SALE PRICE WHICH IS THE CONVERSE SITUATION TO OFFER ING OF CASH DISCOUNT AND THUS THE TRANSACTION REMAINS THE SAME AND THERE IS NO DISTINCTION AS TO THE SOURCE. CONSIDERED FROM THIS POINT OF VIEW, INTEREST BECOMES PART OF THE SALE PRICE AND THEREFORE, WOULD BE 5 CLEARLY DERIVED FROM THE SALES MADE AND WAS NOT DIVORCED THEREFROM. CONSEQUENTLY, IT WAS HELD THAT SUCH INTEREST WOULD BE THE DIRECT RESULT OF THE SALE OF GOODS AND THE INCOME WOULD DEFINITELY FALL WITHIN THE EXPRESSION DERIVED FROM THE BUSINESS OF INDUSTRIA L UNDERTAKING AS APPEARING IN SECTION 801B OF THE SAI D ACT. 8. AS IS CLEARLY EVIDENT FROM THE DECISIONS OF HON BLE BOMBAY HIGH COURT IN THE CASE OF VIDYUT CORPORATION AND THAT OF HONBLE DELHI HIGH COURT IN THE CASE OF PODDAR PIGMENTS LTD. (SUPRA), A SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND THAT TOO AFTER TAKING IN TO CONSIDERATION THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY IND IA (SUPRA) WHICH IS RELIED UPON BY THE ASSESSING OFFICER WHILE DISALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT ON THE INCO ME RECEIVED FROM INTEREST ON DELAYED PAYMENTS FROM THE CUSTOMERS. IN OUR OPIN ION, THE ISSUE INVOLVED IN THIS APPEAL OF THE REVENUE IS SQUARELY COVERED IN F AVOUR OF THE ASSESSEE INTER ALIA, BY THE DECISION OF HONBLE JURISDICTIONAL HIG H COURT IN THE CASE OF VIDYUT CORPORATION (SUPRA) AND RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A) ALLOWING DEDUC TION CLAIMED BY THE ASSESSEE UNDER SECTION 80IB IN RESPECT OF INTEREST RECEIVED FROM CUSTOMERS FOR DELAYED PAYMENTS TREATING THE SAME AS PART OF ELIGI BLE PROFIT. THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. 9. IN THE CROSS-OBJECTION THE ASSESSEE HAS RAISED ONLY ONE ISSUE RELATING TO DISALLOWANCE MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF REPAIRS EXPENDITURE TREATING THE SAME AS OF CAPITAL NATURE WHICH HAS BEEN SUSTAINED BY THE LEARNED CIT(A) TO THE EXTENT OF RS.19,14,588 /-. 10. IN THE PROFIT AND LOSS ACCOUNT FILED ALONG WIT H HIS RETURN OF INCOME, THE ASSESSEE HAD DEBITED A SUM OF RS.22,12,673/- ON ACCOUNT OF REPAIRS AND MAINTENANCE EXPENSES. DETAILS OF THE SAID EXPENSES AS FURNISHED BY THE 6 ASSESSEE BEFORE THE ASSESSING OFFICER DURING THE CO URSE OF ASSESSMENT PROCEEDINGS WERE AS UNDER : NAME OF THE PARTY NATURE OF EXPENSES AMOUNT RS. AMBICA STEEL PURCHASE OF STEEL MATERIALS SUCH AS BEAMS AND COLUMNS FOR REPAIRING OF FACTORY BUILDING 85,110 PRATHMESH FABRICATORS FABRICATION WORK DONE FOR REPAIRING OF THE FACTORY BUILDING 25,823 PETTY CASH FACTORY DAY TO DAY REPAIRS AND MAINTENANCE WORK DONE THROUGH VARIOUS PETTY CASH VOUCHERS FOR FACTORY BUILDING. 40,262 SHEIK MOHAMED AMOUNT PAID TOWARDS SHED AT THE TIME OF MONSOON IN FACTORY PREMISES. 1,83,489 MAYA CERAMICS / PARAS MARBLES PURCHASE OF GRANITES & MARBLES AND SANITARY WARES AT THE TIME OF REPAIRING OF FACTORY BUILDING. 1,83,489 SHEKAR PLUMBING WORKS PLUMBING WORK CARRIED OUT AT FACTORY BUILDING. 21,355 SHREE SAI CONTRACTORS AMOUNT PAID TOWARDS DISMANTLING OF KOTA FLOORING AND CLEANING THE SITE. 12,00,041 SHREE SAI CONTRACTORS AMOUNT PAID TOWARDS COLUMN FOOTING RCC WORK AND MURRUM FILLING RUBBLE SOLING. 3,83,341 SHREE SAI CONTRACTORS AMOUNT PAID TOWARDS KOTA FLOORING PCC GRADE AND RUBBLE SOLING. 91,252 SHREE SAI CONTRACTORS AMOUNT PAID TOWARDS LABORING WORK & PROVIDING MATERIALS FOR REPAIRING WORK. 56,465 TOTAL 22,12,674 11. THE STAND TAKEN BY THE ASSESSEE BEFORE THE ASS ESSING OFFICER ON THIS ISSUE WAS THAT THE ABOVE EXPENSES WERE INCURRE D FOR REPAIRING AND REPLACEMENT OF FLOORING OF THE FACTORY AS IT WAS DA MAGED AND THERE BEING NO NEW ASSET THAT HAD COME INTO EXISTENCE AS A RESULT OF INCURRING OF THE SAID EXPENDITURE, IT WAS ALLOWABLE AS REVENUE EXPENDITUR E. THE STAND OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER. ACCORDING TO HIM, THE ASSESSEE HAD REPLACED THE ENTIRE FLOORING OF TH E FACTORY AND IT HAD ALSO UNDERTAKEN RCC FOOTING WORK FOR THIS PURPOSE. HE HE LD THAT THE EXPENDITURE 7 INCURRED BY THE ASSESSEE ON REPAIRS THUS HAD RESULT ED INTO BENEFIT OF ENDURING NATURE AND THE SAME THEREFORE, WAS OF CAPITAL NATUR E. ACCORDINGLY, THE DEDUCTION CLAIMED BY THE ASSESSEE ON THE REPAIRS AN D MAINTENANCE EXPENDITURE WAS DISALLOWED BY THE ASSESSING OFFICER. 12. THE MATTER WAS CARRIED IN APPEAL BEFORE THE CI T(A) AND THE STAND TAKEN BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS REITERATED ON BEHALF OF THE ASSESSEE BEFORE THE CIT(A). IT WAS EXPLAINED TH AT THE IMPUGNED EXPENSES WERE INCURRED TO KEEP THE FACTORY IN RUNNING CONDIT ION AND THERE WAS NO ACQUISITION OF ANY NEW ASSET AS A RESULT OF THE SAI D EXPENSES. THE LEARNED CIT(A) PERUSED THE DETAILS OF REPAIRS AND MAINTENAN CE EXPENSES FURNISHED BY THE ASSESSEE AND HELD ON SUCH PERUSAL THAT THE AMOU NTS PAID BY THE ASSESSEE TO M/S. MAYA CERAMICS/PARAS MARBLE AND SHRI SAI CON TRACTORS AGGREGATING TO RS.19,14,588/- CONSTITUTED THE EXPENDITURE OF CAPIT AL NATURE. THE REMAINING AMOUNT HOWEVER, WAS HELD TO BE EXPENDITURE OF REVEN UE NATURE BY THE LEARNED CIT(A), ALLOWING THE DEDUCTION OF CLAIM BY THE ASSE SSEE TO THAT EXTENT. ACCORDINGLY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF REPAIRS AND MAINTENANCE EXPENSES AMOUNTING TO RS.22 ,12,674/- TREATING THE SAME AS OF CAPITAL NATURE WAS SUSTAINED BY THE CIT( A) TO THE EXTENT OF RS.19,14,588/-. 13. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES ON T HIS ISSUE AND PERUSED THE MATERIAL ON RECORD INCLUDING THE DETAIL S OF REPAIRS AND MAINTENANCE EXPENDITURE FURNISHED BY THE ASSESSEE. IT IS OBSERVED THAT THE SAID EXPENSES WERE MAINLY INCURRED BY THE ASSESSEE ON REPLACEMENT OF THE EXISTING FLOORING IN THE FACTORY BUILDING AND ON RC C FOOTING WORK WHICH WAS REQUIRED FOR THAT PURPOSE. THE SAID EXPENDITURE INC URRED BY THE ASSESSEE THUS WAS IN THE NATURE OF REPAIRS AND REPLACEMENT OF THE PORTION OF THE BUILDING NAMELY FLOORING OF THE EXISTING BUILDING AND THERE WAS NO NEW ASSET THAT HAD COME INTO EXISTENCE AS A RESULT OF INCURRING OF THE SAID EXPENSES. THIS POSITION HAS NOT BEEN DISPUTED EVEN BY THE ASSESSING OFFICER OR BY THE LEARNED CIT(A). 8 THE REPAIRS AND MAINTENANCE EXPENSES, HOWEVER, WERE TREATED BY THEM AS OF CAPITAL NATURE MAINLY ON THE GROUND THAT THE SAME H AS RESULTED IN THE BENEFIT OF ENDURING NATURE TO THE ASSESSEE. THEY HOWEVER, A PPEAR TO HAVE IGNORED THE FACT THAT SUCH ENDURING BENEFIT, IF ANY, ACCRUED TO THE ASSESSEE IS IN THE REVENUE FIELD AND NOT IN THE CAPITAL FIELD, AS IT D ID NOT BRING ANY NEW ASSET IN EXISTENCE. IT IS BY NOW WELL SETTLED THAT THE EXPEN DITURE WHICH BRINGS ENDURING BENEFIT TO THE ASSESSEE IN THE CAPITAL FIELD ALONE CAN BE TREATED AS OF CAPITAL NATURE AND IF THERE IS ANY BENEFIT ACCRUED TO THE A SSESSEE IN THE REVENUE FIELD, THE EXPENDITURE INCURRED CANNOT BE TREATED AS OF CA PITAL NATURE EVEN IF THAT BENEFIT IS OF ENDURING NATURE. IN OUR OPINION, THE EXPENDITURE INCURRED BY THE ASSESSEE ON REPAIRS AND MAINTENANCE IN THE PRESENT CASE DID NOT BRING ANY NEW ASSET IN EXISTENCE AND SINCE THE SAID EXPENDITURE I NCURRED BY THE ASSESSEE ON THE REPAIRS AND REPLACEMENT OF PORTION OF THE BUILD ING BROUGHT BENEFIT TO THE ASSESSEE ONLY IN THE REVENUE FIELD, THE SAME WAS AL LOWABLE AS BUSINESS EXPENDITURE BEING REVENUE IN NATURE. IN THAT VIEW O F THE MATTER, WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUST AINED BY THE LEARNED CIT(A) ON THIS ISSUE AND ALLOW THE CROSS-OBJECTION OF THE ASSESSEE. 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED WHEREAS THE CROSS-OBJECTION OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 30 TH DAY OF MARCH, 2012. SD/- SD/- (AMIT SHUKLA) (P.M.JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATE 30 TH MARCH, 2012 VBP/- 9 COPY TO 1. ACIT 16 (1), INCOME TAX OFFICE, MATRU MANDIR, MU MBAI 7. 2. SHRI SAMEER R. KARWA, 74, BLUE HEAVEN, MOUNT PLE ASANT ROAD, MUMBAI 400 006 PAN AGKPK2975N 3. CIT(A) - 27, MUMBAI 4. CIT, CITY - XVI, MUMBAI 5. DR E BENCH 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, I.T.AT. MUMBAI BENCHES MUMBAI.