DCIT, Circle-8(1), Hyd, Hyderabad V. Ivax Paper Chemicals Lts., Hyd, Hyderabad

CO 39/HYD/2016

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3678 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 25-04-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-04-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 24-08-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: A V RAGHURAM
• Keywords: Business income; Depreciation; Capital receipt
• Section: 80IB; 37(1); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 837, 838 & 839/HYD/2016 AND C.OS. 38, 39 & 40/HYD/2016 ASSESSMENT YEARS: 2009-10, 2010-11 & 2011-12 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 8(1), HYDERABAD. VS. IVAX PAPER CHEMICALS LTD., HYDERABAD. PAN AAAC1 2693 G (APPELLANT) (RESPONDENT/CROSS OBJECTOR) REVENUE BY : SMT. SUMAN MALIK ASSESSEE BY : SHRI A.V. RAGHURAM DATE OF HEARING 04/04/2018 DATE OF PRONOUNCEMENT 25/04/2018 O R D E R PER S. RIFAUR RAHMAN, A.M.: THESE APPEALS FILED BY THE REVENUE ARE DIRECTED AG AINST THE ORDERS OF CIT(A) 2, HYDERABAD, ALL ARE DATED, 29/ 02/2016 FOR AYS 2009-10, 2010-11 & 2011-12 RESPECTIVELY. ASSESSEE ALSO FILED CROSS OBJECTIONS AGAINST THE SAID ORDER OF CIT(A) FOR THE ABOVE THREE AYS. AS IDENTICAL ISSUES ARE INVOLVED IN THESE APPEALS O F REVENUE, THE SAME WERE CLUBBED AND HEARD TOGETHER AND THEREFORE, A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. ITA NO. 837/HYD/2016 FOR AY 2009-10 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1) THE ORDER OF THE CIT (A) IS ERRONEOUS BOTH ON FA CTS AND LAW. 2 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. 2) THE CIT (A) ERRED IN OBSERVING THAT THE PURCHASE S AND SALES ARE DIRECTLY LINKED UNIT WISE. THE CIT (A) SHOULD H AVE APPRECIATED THE FACT THAT THE STOCK TRANSFER ADMITT ED BY THE ASSESSEE ITSELF SHOWS THAT THE PURCHASES WERE NOT D ONE UNIT WISE. 3) THE CIT (A) HAS ERRED IN IGNORING THE PROVISION OF 80IB(13) READ WITH 80IA(10) WHICH WERE SQUARELY APPLICABLE T O THE FACTS OF THE ASSESSEE'S CASE AS IT HAD CONTRIVED TO SHIFT PROFITS FROM OTHER UNITS TO KATHUA UNIT TO SHOW INFLATED PROFITS FOR KATHUA UNIT IN ORDER TO REAP THE UNDUE BENEFIT OF HIGHER EXEMPT ION ULS.80IB, THEREBY EVADING ACTUAL TAX. 4) THE CIT(A) ERRED IN OBSERVING THAT THE CENTRAL E XCISE REFUND IS A CAPITAL RECEIPT. 5) THE CIT (A) SHOULD HAVE UPHELD THE DECISION OF T HE ASSESSING OFFICER IN TREATING THE CENTRAL EXCISE RE FUND AS INCOME FROM OTHER SOURCES. 6) THE CIT(A) ERRED IN OBSERVING DELETED THE INTERE ST PAID ON SERVICE TAX TREATING AS AN ALLOWABLE EXPENDITURE 7) THE CIT (A) SHOULD HAVE UPHELD THE DECISION OF T HE ASSESSING OFFICER SINCE THE PAYMENT OF INTEREST IS PENALTY FOR VIOLATION OF LAW AS PER THE PROVISIONS OF SECTION 3 7(1) OF THE INCOME TAX ACT. 2.1 GROUND NO. 1 IS GENERAL IN NATURE. 3. AS REGARDS GROUND NO. 2 & 3 RELATING TO 80IB DED UCTION, THE FACTS ARE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND PRODUCTION OF PAPER SIZING CHEMICALS, POLYMERS, DEFOAMERS, BIOCIDES AND CLEANING CHEMICALS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2009-10 ON 24/09/2009 DECLARING A TOTAL INCOME OF RS. 3,88,72,399/-. SUBSEQUENTLY, THE CASE WAS SELEC TED FOR COMPULSORY SCRUTINY UNDER CASS AND NOTICES U/S 143( 2) OF THE ACT, 1961 (IN SHORT THE ACT) WERE ISSUED ALONG WITH QU ESTIONNAIRE, CALLING FOR CERTAIN INFORMATION, WHICH WERE DULY SERVED ON THE ASSESSEE. IN RESPONSE THE SAID NOTICES, THE ASSESSEE FILED THE I NFORMATION. 3 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. 2.1 DURING THE COURSE OF HEARING, THE DETAILS OF AC COUNTS OF VARIOUS MANUFACTURING UNITS WHICH ARE SITUATED AT KALLAKAL (HYDERABAD), KATHUA (J&K) AND KOVAI (TAMIL NADU), WERE CALLED AN D VERIFIED. THE AO OBSERVED THAT ON THE TOTAL INCOME OF RS. 8,86,57 ,430/-, DEDUCTION U/S 80IB(4) WAS CLAIMED AT RS. 4,97,85,031/- THERE BY DECLARING TOTAL INCOME OF RS. 3,88,72,399/- WITH THE TOTAL TURNOVER OF THE ASSESSEE WAS RS. 73,71,23,759/-. ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OF CHEMICALS USED IN PAPER MANUFACTURING INDUSTRY A ND HAVING A MANUFACTURING UNIT AT KALLAKAL, HYDERABAD AND HAS S TARTED A NEW UNIT AT KATHUA, JAMMU IN FEBRUARY, 2006. A NEW UNIT AT K OVAI, TAMILNADU COMMENCED ITS COMMERCIAL PRODUCTION DURING THIS YEA R. THEREFORE, DURING THE AY 2009-10, ALL THE THREE UNITS WERE OPE RATIVE. FOR THIS AY, ON THE PROFIT OF KATHUA UNIT, 100% TAX EXEMPTION U/ S 80IB(4) OF THE ACT IS AVAILABLE TO ASSESSEE. A BRIEF GIST OF PROFI T & LOSS A/C, SEPARATELY DRAWN FOR THREE UNITS FOR THE YEAR, AS P ER RETURN OF INCOME, IS REPRODUCED BELOW: PARTICULARS AS ON 31/03/2009 HYDERABAD AS ON 31/03/2009 KATHUA AS ON 31/03/2009 KOVAI SALES 303841588 233770475 187188600 OTHER INCOME 2548065 5258209 - EXPENDITURE A) RAW MATERIAL CONSUMED 222319896 141068824 115381857 B) MANF. EXPENSES 14584858 9732954 5722554 C) PAYMENTS & PROVISIONS TO EMPLOYEES 21364358 5225384 2895487 D) ADMINISTRATIVE SELLING AND OTHER EXPENSES 25162740 30440273 33551717 E) AUDITORS REMUNERATION 200000 - - F) FINANCIAL CHARGES 8810401 1156896 226786 G) DEPRECIATION 3729904 1876403 1754247 TOTAL (A) TO (G) 296172157 189500733 159532647 PROFIT 11678604 49785031 30454587 PROFIT % 3.84 21.30 16.27 2 .2 FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER CAME TO A CONCLUSION THAT THERE WERE TRANSF ER OF FINISHED GOODS FROM KALLAKAL UNIT TO KATHUA UNIT TO THE EXTE NT OF RS. 3,68,58,495/-. THE ASSESSING OFFICER GAVE A FINDING THAT THE KATHUA 4 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. UNIT IS MAKING HIGHER PROFIT WHEN COMPARED TO OTHER TWO UNITS. THE ASSESSING OFFICER BASED ON THE ABOVE FINDING, DOUBT ED THE CORRECTNESS OF THE ACCOUNTS DRAWN UP BY THE ASSESSE E IN RESPECT OF ALL THE THREE UNITS AND REDREW THE PROFIT AND LOSS ACCOUNT OF ALL THE THREE UNITS BY DEBITING THE EXPENSES IN PROPORTIONA TE TO THEIR TURNOVER TO ALL THE UNITS AND CALCULATED THE PROFIT OF KATHU A UNIT AND GRANTED EXEMPTION U/S 80IB OF THE ACT. 2.3 THE ASSESSEE OPPOSED THE ABOVE PROPOSAL AND SUB MITTED AS UNDER: A) THERE IS A BETTER PRODUCTION PER KG AT KHATUA UN IT WHICH HAS RESULTED INCREASE OF PROFIT AS THIS IS A NEW UNIT B) SINCE THE SALES OF KATHUA UNIT ARE IN THE CLOSE BY AREAS, THERE ARE SUBSTANTIAL SAVINGS IN TRANSPORTATION COS T. C) POWER SUBSIDY, PACKAGING EXPENSES, REPAIR & MAIN TENANCE ETC., IS LESS AT KATHUA UNIT. D) THE TRANSFER OF STOCK FROM KALAKAL TO KATHUA IS OF RAW MATERIAL ONLY AS THESE ARE USED FOR PRODUCTION OF V ARIOUS FINISHED GOODS IN CONJUNCTION WITH AKD WAX, GUM RES IN, STARCH, EMULSIFIERS, SALTS, SURFACTANTS ETC. NONE OF THE MA TERIAL DISPATCHED FROM KALAKAL TO KHATUA UNIT LEAVE KATHUA UNIT UNDER SAME NAME. 2.4 HOWEVER, THE ASSESSING OFFICER REJECTED THE CO NTENTIONS RAISED BY THE ASSESSEE ON THE GROUND THAT THE ASSESSING OF FICER IS EMPOWERED TO DO SO UNDER THE PROVISIONS OF SECTION 80IA(10) OF THE ACT AND HAS REDRAWN THE PROFIT AND LOSS ACCOUNT OF ALL THE THREE UNITS BY DISTRIBUTING THE TOTAL EXPENDITURE OF THE THREE BUSINESS UNITS IN EQUAL PROPORTION TO ALL THE THREE UNITS AND DETERMI NED THE PROFITS OF THE KATHUA UNIT AT RS. 2,59,28,952/-. THE ASSESSING OFFICER IN THE PROCESS TREATED THE AMOUNT OF RS. 52,58,209/- OF PL A REFUND UNDER THE HEAD INCOME FROM OTHER SOURCES AND DID NOT CONS IDER THE SAME FOR CALCULATING THE ELIGIBLE PROFITS UNDER SECTION 80IB OF KATHUA UNIT. THE ASSESSING OFFICER REJECTED THE CONTENTION OF TH E ASSESSEE THAT PLA REFUND IS BUSINESS INCOME ON THE GROUND THAT TH E DEDUCTION TO BE ALLOWED UNDER SECTION 80IB IS IN RESPECT OF PROFITS AND GAINS DERIVED 5 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. FROM BUSINESS. THE ASSESSING OFFICER FURTHER HELD T HAT THE PLA REFUND HAS NO BUSINESS CONNECTION AND THEREFORE CANNOT BE CONSIDERED AS BUSINESS INCOME FOR THE PURPOSE OF CALCULATING ENTI TLEMENT UNDER SECTION 80IB OF THE ACT. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A). 4. THE CIT(A) FOLLOWING THE DECISION OF THE ITAT IN AY 2008-09 IN ASSESSEES OWN CASE DIRECTED THE AO TO RECALCULATE THE 80IB DEDUCTION BY EXCLUDING THE PURCHASE FROM THE EXPEND ITURE, WHICH WAS ADOPTED IN THE ASSESSMENT ORDER. 4.1 AGGRIEVED WITH THE ABOVE ORDER, REVENUE IS IN A PPEAL. 5. THE LD. DR RELIED ON THE ORDER OF AO. 6. THE LD. AR SUBMITTED THAT THE ISSUE IN DISPUTE I S SQUARELY COVERED BY THE DECISION OF THE ITAT, HYDERABAD IN A SSESSEES OWN CASE FOR AY 2008-09 AND A COPY OF THE SAME IS FILED ON RECORD. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON SIMILAR SET FACTS AND GROUND RAISED IN A Y 2008-09, THE COORDINATE BENCH HAS HELD AS UNDER: 21. THE CIT(A) APPEAL IN HER ORDER AT PARA 4.7 OBSE RVED THAT THE AO IS RIGHT IN ADOPTING THE CONCEPT OF PRO-RATA BASIS BUT THE PURCHASES WERE TO BE EXCLUDED SINCE THERE ARE RELATED SALES AND EACH UNIT HAS SPECIFIC PURCHASES AS PER THEIR BILLS AND ACCOUNT. THEREFORE, THE AO WAS DIRECTED TO RECALCULATE ALLOWANCES U/S. 80IB BY EXCLUDING THE PURCHASES FROM THE EXPENDITURE PRO-RATA ADOPTED I N THE ASSESSMENT ORDER. THE CIT(A) WHILE OBSERVING AS ABOVE, F OLLOWED THE ORDER OF THE TRIBUNAL IN THE CASE OF SEALEXCEL (I) PVT. LTD. VS. ITO IN ITA NO. 3111/MUM/2007 & ANR., DATED 20.5.2011 WHEREIN HELD AS FOLLOWS: 'THESE TWO APPEALS FILED BY THE ASSESSEE AGA INST TWO SEPARATE ORDERS PASSED BY THE LEARNED CIT (APPEALS)XXIX, MUMBAI DATED 08-01-2007 AND 23-11-2007 FOR ASS ESSMENT YEARS 2003-04 AND 2004-05 RESPECTIVELY INVOLVE SOME COMMON ISSUES AND THE SAME, THEREFORE, HAVE B EEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SINGL E CONSOLIDATED ORDER. 6 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. 2. FIRST WE SHALL TAKE UP THE APPEAL OF TH E ASSESSEE FOR ASSESSMENT YEAR 2003-04 BEING ITA NO. 3 111/MUM/2007, GROUND NO. 1 IS GENERAL SEEKING NO SPECIFIC DECISIO N FROM US. 3. IN GROUND NO. 2 OF THIS APPEAL, THE ASS ESSEE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEA LS) IN UPHOLDING THE ORDER OF THE AO ALLOCATING THE EXPENSES AMOUNTING TO RS. 3,89,818/- PERTAINING TO MUMBA I UNIT TO BANASKATHA UNIT AT GUJARAT FOR THE PURPOSE OF C OMPUTING DEDUCTIONS U/S 80IB. 4. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH HAS TWO MANUFACTURING UNITS ONE AT MUMBAI AND OTHER AT BANASKATHA, GUJARAT. THE UNIT AT BANASKATHA, GUJARAT IS ELIGIBLE FOR DEDUCTION U/S 80IB AND WHILE COMPUTING THE P ROFIT OF THE SAID UNIT FOR THE PURPOSE OF ALLOWING DEDUCTI ON U/S 80IB, THE AO DEDUCTED A SUM OF RS. 3,89,818/- BEING AL LOCATION OF EXPENSES PERTAINING TO MUMBAI UNIT TO BANASKAT HA UNIT ON THE GROUND THAT THE EXPENSES CLAIMED IN MUMBA I UNIT INCLUDED EXPENSES RELATING TO HEAD OFFICE AND REGISTERED OFFICE SITUATED AT MUMBAI. BEFORE THE LEARNED C IT(APPEALS), IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE EX PENSES INCURRED IN RELATION TO HEAD OFFICE AND REGISTER ED OFFICE AT MUMBAI WERE NOT TOWARDS THE MANUFACTURING ACTI VITY OF BANASKATHA UNIT AND THE SAME BEING IN THE NATUR E OF INDIRECT EXPENSES, THERE WAS NO REASON TO CONSIDER THE SAME WHILE DETERMINING THE PROFIT DERIVED FROM THE MANUFACTURI NG UNIT AT BANASKATHA FOR THE PURPOSE OF ALLOWING DEDUCTI ON U/S 80IB. THE LEARNED CIT(APPEALS) DID NOT FIND MERIT IN THE STAND TAKEN BY THE ASSESSEE. ACCORDING TO HIM, THE EXPENSES IN CURRED IN RELATION TO HEAD OFFICE AND REGISTERED OFFICE AT MUMBAI WERE PARTLY ATTRIBUTABLE TO BANASKATHA UNIT AND WHI LE COMPUTING THE PROFIT OF THE SAID UNIT ELIGIBLE FOR DEDUCTIO N U/S 80IB, THE SAME SHOULD HAVE BEEN TAKEN INTO ACCOUNT. HE , THEREFORE, UPHELD THE ACTION OF THE AO IN DEDUCTIN G THE HEAD OFFICE EXPENSES WHILE COMPUTING THE PROFIT OF BANASKA THA UNIT ON PRORATE BASIS FOR THE PURPOSE OF COMPUTIN G PROFIT OF THE SAID UNIT ELIGIBLE FOR DEDUCTION U/S 80IB. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NO D OUBT TRUE THAT DEDUCTION U/S 80IA/80IB IS ALLOWABLE IN RESPECT OF PROFIT DERIVED FROM THE ELIGIBLE UNDERTAKING AS HELD BY TH E COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCW LTD. VS. ADDL. CIT 37 SOT 322 RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE. HOWEVER, AS HELD BY ANOTHER COORDINATE BE NCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. ASEA BROWN BOVERI LTD. 110 TTJ (MUM.) 502, THE PROFIT DERIVED FROM THE ELI GIBLE UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S 8 0IA/80IB ARE 7 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. THE NET PROFITS DERIVED FROM THE ELIGIBLE UNDE RTAKINGS AND SUCH NET PROFIT HAS TO BE WORKED OUT AFTER D EDUCTING ALL EXPENSES, DIRECT OR INDIRECT. AS FURTHER HEL D BY THE TRIBUNAL IN THE CASE OF ASEA BROWN BOVERI LTD., HEAD OFF ICE EXPENSES OR EXPENSES WHICH ARE COMMON TO ALL THE UNITS WIL L HAVE TO BE SPREAD OVER AND CHARGED AGAINST THE RECEIPTS OF ALL THE UNITS. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN THE CASE OF ASEA BROWN BOVERI LTD. B(SUPRA), WE F IND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(APP EALS) UPHOLDING THE ACTION OF THE AO IN ALLOCATING THE HEAD OFFICE EXPENSES TO BANASKATHA UNIT IN THE RATIO OF TURNOVER TO WORK OUT THE PROFIT OF THE SAID UNIT ELIGIBLE FOR DEDUCTIO N U/S 80IB AND UPHOLDING THE SAME ON THIS ISSUE, WE DISMISS GROUND NO. 2 OF THE ASSESSEES APPEAL.' 22. BEING SO, WE DO NOT FIND ANY INFIRMITY IN THIS PART OF CIT(A)'S ORDER AND THE SAME IS CONFIRMED. GROUND NOS. 2 AND 3 ARE OF THE REVENUE ARE REJECTED. AS THE ISSUE IS IDENTICAL IN THE AY UNDER CONSIDERA TION, FOLLOWING THE DECISION OF THE ITAT IN AY 2008-09 IN ASSESSEES OW N CASE, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE GROU NDS RAISED BY THE REVENUE. 8. AS REGARDS GROUND NOS. 4 & 5 REGARDING CENTRAL E XCISE REFUND, THE AO OBSERVED THAT ASSESSEE HAS SHOWN OTHER INCOM E OF RS. 52,58,209/- WHICH IS PLA REFUND RECEIVED BY KATHUA UNIT. IT IS THE EXCISE DUTY REFUND RECEIVED AT KATHUA UNIT. ASSESSE E HAS INCLUDED THIS INCOME IN THE BUSINESS INCOME AND HAS CLAIMED THE SAME AS DEDUCTION U/S. 80IB. ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THIS AMOUNT SHOULD NOT BE TAXED AS INCOME FROM OTHER SOU RCES AND WHY IT SHOULD NOT BE CONSIDERED FOR EXCLUSION FROM TOTAL B USINESS INCOME FOR THE 80IB CLAIM. ASSESSEE IN ITS REPLY DT. 23-11-201 1 STATED THAT EXCISE DUTY IS PART AND PARCEL OF MANUFACTURING ACT IVITY AND IT IS ONLY A REFUND OF CASH LOSS I.E. DUTY PAID BY THE ASSESSE E ON VALUE ADDITION. 8.1 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE AO OBSERVED THAT THE DEDUCTION IS TO BE ALLOWABLE ON P ROFITS AND GAINS DERIVED FROM ANY BUSINESS. FOR CLAIMING DEDUCTION U /S 80IB (4) OF THE 8 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. INCOME TAX ACT, 1961, IT IS TO BE FIRST ESTABLISHED THAT THE PROFIT AND GAINS WERE DERIVED FROM THE INDUSTRIAL UNDERTAKING AND IT IS JUST NOT SUFFICIENT THAT A COMMERCIAL CONNECTION IS ESTABLIS HED BETWEEN THE PROFITS EARNED AND THE INDUSTRIAL UNDERTAKING. THE INDUSTRIAL UNDERTAKING ITSELF HAS TO BE THE ACTUAL SOURCE OF T HE RECEIPT OF THE AMOUNT. THE INDUSTRIAL UNDERTAKING HAS DIRECTLY TO YIELD THE PROFIT. IT SHOULD BE THE DIRECT SOURCE AND NOT MERELY A MEANS TO EARN THE SAME. IF ANY INCOME ARISES NOT BY VIRTUE OF THE NORMAL AC TIVITY OF THE INDUSTRIAL UNDERTAKING BUT BECAUSE OF SOME INCENTIV E SCHEME OF THE GOVT., THEN IT IS THE SCHEME OF THE GOVT., WHICH IS THE DIRECT SOURCE AND NOT THE INDUSTRIAL ACTIVITY ITSELF. IN VIEW OF THE ABOVE OBSERVATIONS AND REFERRING TO VARIOUS CASE LAW, THE AO DISALLOWE D THE DEDUCTION TO THE EXTENT OF RS. 52,58,208/- ON ACCOUNT OF CENTRAL EXCISE DUTY REFUND. 9. ON APPEAL, THE CIT(A) FOLLOWING THE DECISION OF THE ITAT IN 2008-09 IN ASSESSEES OWN CASE, DELETED THE DISALLO WANCE MADE BY THE AO ON ACCOUNT OF CENTRAL EXCISE REFUND. 9.1. AGGRIEVED, REVENUE IS IN APPEAL. 10. LD. DR RELIED ON THE ORDER OF AO WHILE LD. AR S UBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT I N ASSESSEES OWN CASE FOR AY 2008-09. 11. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. IN AY 2008-09, THE COORDINATE BENCH HAS HEL D AS UNDER: 23. GROUND NOS. 3 AND 4 OF THE REVENUE APPEAL ARE A S UNDER: (4) THE CIT(A) ERRED IN OBSERVING THAT THE CENTRAL EXCISE REFUND IS A CAPITAL RECEIPT. (5) THE CIT(A) SHOULD HAVE UPHELD THE DECISION OF T HE ASSESSING OFFICER IN TREATING THE CENTRAL EXCISE REFUND AS IN COME FROM OTHER SOURCES. 9 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. 24. THE CIT(A) OBSERVED IN HER ORDER THAT THE CENTR AL EXCISE DUTY REFUND IS A CAPITAL RECEIPT AND NOT DERIVED FROM INDUSTRIA L UNDERTAKING. THE CIT(A) HAD OBSERVED THAT ON A SIMILAR ISSUE THE TRI BUNAL AMRITSAR BENCH IN ITS ORDER DATED 26TH NOVEMBER, 2009 IN THE CASE OF SHREE BALAJI ALLOYS VS. ITO IN ITA NO. 255(ASR)/2009 HAS HELD CENTRAL E XCISE DUTY REFUND TO BE A REVENUE RECEIPT AND 'NOT DERIVED' FROM INDUSTR IAL UNDER TAKING. WHILE DELIVERING THE SAID DECISION, THE TRIBUNAL HAS HELD THAT THE EXPRESSION 'DERIVED FROM' HAS BEEN JUDICIALLY DEFINED BY THE H ON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA, HAVING REGARD TO THE TEXT AND CONTEXT OF THE STATUTORY PROVISIONS OF SECTION 80LB OF THE IT ACT , 1961. THE TRIBUNAL HAS FURTHER OBSERVED THAT THE EXPRESSION 'DERIVED FROM' CANNOT EMBRACE INCIDENTAL INCOME SUCH AS EXCISE DUTY REFUND AND IN TEREST SUBSIDY, AS THE SAME DON'T HAVE FIRST DEGREE NEXUS WITH THE 'OP ERATIONAL PROFITS' DERIVED FROM THE INDUSTRIAL UNDERTAKING. 25. SHE HAD ALSO OBSERVED THAT THE INCOME OF RS. 1, 09,26,502 ATTRIBUTABLE TO THE RECEIPT OF EXCISE DUTY REFUND R ECEIVED BY THE ASSESSEE CANNOT BE CONSIDERED FOR THE COMPUTATION OF DEDUCTI ON U/S, BOLB OF THE IT ACT, 1961. THEREFORE, THE ASSESSEE IS NOT ELIGIB LE FOR DEDUCTION U/S. 80LB(4) OF THE IT ACT, 1961 ON PROFIT ATTRIBUTABLE TO CENTRAL EXCISE DUTY REFUND. ACCORDINGLY, SHE HAD DISALLOWED THE DEDUCTI ON TO THE EXTENT OF RS. 1,09,26,502 AND DIRECTED TO ADD TO THE RETURNED INCOME OF THE ASSESSEE AS 'INCOME FROM OTHER SOURCES'. AGAINST TH IS, THE REVENUE IS IN APPEAL BEFORE US. 26. THE LEARNED DR RELIED ON THE JUDGEMENT OF HON'B LE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (317 ITR 21B) WHE REIN THE APEX COURT HELD THAT DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH F LOW FROM THE SCHEME FRAMED BY THE CENTRAL GOVERNMENT OR FROM SEC TION 75 OF THE CUSTOMS ACT, 1962. HENCE, INCENTIVES ARE FOR PROFIT S DERIVED FROM THE ELIGIBLE BUSINESS AND, THEREFORE, DEPB BENEFITS/DUT Y DRAWBACK RECEIPT DO NOT FORM PART OF NET PROFIT OF THE INDUSTRIAL UN DERTAKING FOR THE PURPOSE OF SECTION 801A/80IB OF THE ACT. 27. ON THE OTHER HAND, THE LEARNED AR RELIED ON THE ORDER OF THE BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF TOTAL PACKAGIN G SERVICES (SUPRA) WHEREIN HELD THAT INCOME FROM MODVAT CREDIT IS DERI VED FROM INDUSTRIAL UNDERTAKING AS CONTEMPLATED IN SECTION 80IB(1) OF T HE ACT. HE ALSO RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF ]K ALU MINIUM CO., IN ITA NO. 3303/DEL/2010 FOR A.Y. 2007-08 ORDER DATED 29.4.201 1 WHEREIN THE TRIBUNAL HELD THAT REFUND OF EXCISE DUTY IS TO BE C ONSIDERED FOR DEDUCTION U/S, 801B OF THE ACT AS IT IS DERIVED FROM INDUSTRI AL UNDERTAKING AND THE JUDGEMENT SUPREME COURT IN THE CASE OF LIBERTY INDI A (CITED SUPRA) WAS ON THE ISSUE OF DEPB/DUTY DRAWBACK WHICH WAS ON INC ENTIVE ISSUE AND WAS NOT CONCERNED WITH THE REFUND OF AMOUNT PAID. T HE AR RELIED ON THE FOLLOWING CASE-LAW: 1. NOORUL ISLAM EDUCATIONAL TRUST VS. CIT & OTHERS, 332 ITR 97 (MAD) 10 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. 2. M/S. JK ALUMINIUM CO. VS. ITO, IN ITA NO. 3303ID ELL2010 ORDER DATED 29TH APRIL, 2011. 3. WATERFALL ESTATES LTD. VS. CIT, 132 CTR 495 (SC) 4. CIT VS. RASOI LTD., 11 TAXMANN.COM 220 (CAL.) 28. WE HAVE HEARD BOTH THE PARTIES AND PERUS ED THE MATERIAL ON RECORD. IN OUR OPINION, THIS ISSUE IS SQUAR ELY COVERED BY THE JUDGEMENT OF DELHI COURT IN THE CASE OF CIT VS. DHA RAM PAL PREM CHAND LTD. (317 ITR 353) WHEREIN IT WAS HELD THAT THE ASS ESSEE BEING ENTITLED TO EXEMPTION OF EXCISE DUTY, EXCISE DUTY PAID FROM CURRENT ACCOUNT AND REFUNDED IN THE NEXT MONTH WOULD NOT MAKE IT ANY THE LESS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING ELIGIBLE FO R DEDUCTION U/S. 80IB OF THE ACT. BEING SO, WE ARE COMPLETELY IN AGR EEMENT WITH THE ORDER OF THE CIT(A) ON THIS ISSUE. GROUND NOS. 4 AND 5 OF T HE REVENUE ARE REJECTED. FOLLOWING THE SAID DECISION OF THE COORDINATE BENCH IN AY 2008-09, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUN DS RAISED BY THE REVENUE ON THIS ISSUE. 12. AS REGARDS GROUND NOS. 6 & 7 RELATING TO ADDITI ON OF RS. 4,35,957/- TOWARDS INTEREST PAID ON DELAYED PAYMENT S TOWARDS SERVICE TAX, FBT, INCOME TAX ETC., THE AO NOTICED FROM THE RECORD THAT AN AMOUNT OF RS. 4,35,957/- WAS PAID TOWARDS INTEREST ON DELAYED PAYMENTS TOWARDS SERVICE TAXES, FBT, INCOME TAX, ET C. THE AO OBSERVED THAT THE SAME CANNOT BE CONSIDERED AS ALLO WABLE EXPENDITURE AS PER SECTION 37(1) OF THE ACT WHICH S AYS THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE SHALL NOT BE DEEMED TO HAVE BEEN INCURRED F OR THE PURPOSE OF BUSINESS AND NO DEDUCTION/ALLOWANCE SHALL BE MADE. HE, ACCORDINGLY, DISALLOWED THE SAID AMOUNT. 13. BEFORE THE CIT(A), THE ASSESSEE FILED A COPY OF LEDGER ACCOUNT OF INTEREST PAID AND SUBMITTED THAT THE PAYMENT O F INTEREST ON THE AMOUNT OUTSTANDING DOES NOT AMOUNT TO PAYMENT FOR I NFRACTION OF LAW. HE RELIED ON THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF MAHALAXMI SUGAR MILLS CO. VS. CIT, 123 ITR 429 WHER EIN IT WAS HELD THAT INTEREST PAYABLE ON TAX WOULD ALSO BE PART OF THE TAX. 11 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. 14. THE CIT(A) OBSERVED THAT IT IS SEEN FROM THE IN TEREST PAID LEDGER THAT RS. 1,60,203/(RS. 1,21,183 + RS. 39,020/-) IS PAID TOWARDS DELAY IN PAYMENT OF INCOME TAX AND FBT. THE REST OF THE A MOUNT PERTAINS TO INTEREST ON ACCOUNT OF DELAY IN PAYMENT OF SERVI CE TAX. AS PER THE PROVISIONS OF THE ACT, THE INTEREST PARTAKES THE CH ARACTER OF TAX AND THEREFORE CANNOT BE ALLOWED. HOWEVER, THE SAME IS N OT THE CASE WITH INTEREST ON SERVICE TAX. SERVICE TAX PAID IS AN ALL OWABLE EXPENDITURE. THEREFORE, PAYMENT OF INTEREST ON ACCOUNT OF DELAY IN PAYMENT OF SERVICE TAX IS AN ALLOWABLE EXPENDITURE. IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT(A) DIRECTED THE AO TO ALLOW I NTEREST PAID ON THE SERVICE TAX AND RESTRICT THE DISALLOWANCE TOWARDS I NTEREST PAYMENT ON INCOME TAX AND FBT I.E. RS. 1,60,203/-. 15. THE LD. DR SUBMITTED THAT THE CIT(A) SHOULD HAV E UPHELD THE DECISION OF THE AO SINCE THE PAYMENT OF INTEREST IS PENALTY FOR VIOLATION OF LAW AS PER THE PROVISIONS OF SECTION 3 7(1) OF THE ACT. 16. ON THE OTHER HAND, THE LD. AR RELIED ON THE DEC ISION OF THE ITAT, KOLKATA BENCH IN THE CASE OF DCIT VS. M/S NARAYANI ISPAT PVT. LTD. IN ITA NO. 2127/KOL/2014, ORDER DATED 30/08/2017. 17. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. ON SIMILAR ISSUE, THE COORDINATE BENCH OF I TAT, KOLKATA, HAS HELD AS UNDER: 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, AO HAS DISALLOWED THE INTERESTEXPENSES INCURRED BY THE ASSESSEE ON ACCOUN T OF LATE DEPOSIT OF SERVICE TAX AND TDS AFTER HAVING RELIANCE ON THE JUDGMENT OF HON'BLE SUPREME COURT I N THE CASE OF BHARAT COMMERCE INDUSTRIES LTD. VS. CIT (1998) (SUPRA). THE RELEVANT EXTRACT OF THE JUDGMEN T READS AS UNDER: 12 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE F AILED TO PAY ADVANCE TAX EQUIVALENT TO 75 PER CENT OF ESTIMATED TAX. THE ASS ESSING OFFICER LEVIED INTEREST UNDER SECTION 215 AS WELL AS UNDER SECTION 139 . THE ASSESSEE CLAIMED THAT SINCE TAXES WHICH WERE PAYABLE WERE DE LAYED, THE ASSESSEE'S FINANCIAL RESOURCES INCREASED WHICH WERE AVAILABLE FOR BUSINESS PURPOSES. HENCE, THE INTEREST WHICH WAS PAID TO THE GOVERNMEN T WAS INTEREST ON CAPITAL THAT WOULD BE BORROWED BY THE ASSESSEE OTHERWISE. H ENCE, THE AMOUNTS SHOULD BE ALLOWED AS DEDUCTION. THE REVENUE DID NOT ALLOW SUCH DEDUCTION. THE HIGH COURT AFFIRMED THE VIEW. ON APPEAL TO THE SUPREME COURT : HELD WHEN INTEREST IS PAID FOR COMMITTING A DEFAULT IN RESPECT OF A STATUTORY LIABILITY TO PAY ADVANCE TAX, THE AMOUNT PAID AND T HE EXPENDITURE INCURRED IN THAT CONNECTION IS IN NO WAY CONNECTED WITH PRESERV ING OR PROMOTING THE BUSINESS OF THE ASSESSEE. THIS IS NOT EXPENDITURE W HICH IS INCURRED AND WHICH HAS TO BE TAKEN INTO ACCOUNT BEFORE THE PROFITS OF THE BUSINESS ARE CALCULATED. THE LIABILITY IN THE CASE OF PAYMENT OF INCOME- TAX AND INTEREST FOR DELAYED PAYMENT OF INCOME-TAX OR ADVANCE TAX ARISES ON THE COMPUTATION OF THE PROFITS AND GAINS OF BUSINESS. THE TAX WHICH IS PAY ABLE IS ON THE ASSESSEE'S INCOME AFTER THE INCOME IS DETERMINED. THIS CANNOT, THEREFORE, BE CONSIDERED AS AN EXPENDITURE FOR THE PURPOSE OF EARNING ANY IN COME OR PROFITS. INTEREST WHICH IS PAID FOR DELAYED PAYMENT OF ADVANCE TAX ON SUCH INCOME CANNOT BE CONSIDERED AS EXPENDITURE WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF BUSINESS. UNDER THE ACT , THE PAYMENT OF SUCH INTEREST IS INEXTRICABLY CONNECTED WITH THE ASSESSEE'S TAX LIABILITY. IF INC OME-TAX ITSELF IS NOT PERMISSIBLE DEDUCTION UNDER SECTION 37 , ANY INTEREST PAYABLE FOR DEFAULT COMMITTED BY THE ASSESSEE IN DISCHARGING HIS STATUT ORY OBJECTION UNDER THE ACT, WHICH IS CALCULATED WITH REFERENCE TO THE TAX ON INCOME, CANNOT BE ALLOWED AS A DEDUCTION. THEREFORE, IT WAS TO BE HELD THAT DEDUCTION OF INTE REST LEVIED UNDER SECTIONS 139 AND 215 WOULD NOT BE ALLOWABLE UNDER SECTION 37 . IN THE ABOVE JUDGMENT, THE CLAIM OF THE ASSESSEE FO R INTEREST EXPENSES WAS DENIED AS IT DEFAULTED TO MAKE THE PAYMENT OF ADVAN CE TAX AS PER THE PROVISIONS OF THE ACT. THE ADVANCE TAX IS NOTHING B UT INCOME TAX ONLY WHICH THE ASSESSEE HAS TO PAY ON HIS INCOME. IN THE INSTA NT CASE THE DEFAULT RELATES TO THE DELAY IN THE PAYMENT OF ADVANCE TAX AND CONS EQUENTLY INTEREST WAS CHARGED ON THE DELAYED PAYMENT OF ADVANCE TAX. IN T HE ABOVE JUDGMENT THE HON'BLE APEX COURT HELD THAT AS INCOME TAX PAID BY THE ASSESSEE IS NOT ALLOWABLE DEDUCTION AND THEREFORE INTEREST EMANATIN G FROM THE DELAYED PAYMENT OF INCOME TAX (ADVANCE TAX) IS ALSO NOT ALL OWABLE DEDUCTION. HOWEVER THE FACTS OF THE INSTANT CASE BEFORE US ARE DISTINGUISHABLE AS IN THE CASE BEFORE US THE INTEREST WAS PAID FOR DELAYED PA YMENT OF SERVICE TAX & TDS. THE INTEREST FOR THE DELAY IN MAKING THE PAYME NT OF SERVICE TAX & TDS IS COMPENSATORY IN NATURE. AS SUCH THE INTEREST ON DELAYED PAYMENT IS NOT IN THE NATURE OF PENALTY IN THE INSTANT CASE ON HAND. 13 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. THE ISSUE OF DELAY IN THE PAYMENT OF SERVICE TAX IS DIRECTLY COVERED BY THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF LACHM ANDAS MATHURA VS. CIT REPORTED IN 254 ITR 799 IN FAVOUR OF ASSESSEE. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED BELOW : 'THE HIGH COURT HAS PROCEEDED ON THE BASIS THAT THE INTEREST ON ARREARS OF SALES TAX IS PENAL IN NATURE AND HAS REJECTED THE C ONTENTION OF THE ASSESSEE THAT IT IS COMPENSATORY IN NATURE. IN TAKING THE SA ID VIEW THE HIGH COURT HAS PLACED RELIANCE ON ITS FULL BENCH'S DECISION IN SAR AYA SUGAR MILLS (P.) LTD. V. CIT [1979] 116 ITR 387 (ALL.) THE LEARNED COUNSEL APPE ARING FOR THE APPELLANT-ASSESSEE STATES THAT THE SAID JUDGMENT OF THE FULL BENCH HAS BEEN REVERSED BY THE LARGER BENCH OF THE HIGH COURT IN TRIVENI ENGG. WORKS LTD. V. CIT [1983] 144 ITR 732 (ALL.) (FB), WHEREIN IT HAS BEEN HELD THAT INTEREST ON ARREARS OF TAX IS COMPENSATORY IN NATURE AND NOT PE NAL. THIS QUESTION HAS ALSO BEEN CONSIDERED BY THIS COURT IN CIVIL APPEAL NO. 830 OF 1979 TITLED SARAYA SUGAR MILLS (P.) LTD. V. CIT DECIDED ON 29-2-1996. IN THAT VIEW OF THE MATTER, THE APPEAL IS ALLOWED AND QUESTION NOS. 1 A ND 2 ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' IN VIEW OF THE ABOVE JUDGMENT, THERE REMAINS NO DOU BT THAT THE INTEREST EXPENSE ON THE DELAYED PAYMENT OF SERVICE TAX IS AL LOWABLE DEDUCTION. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL, F OLLOWING THE SAID DECISION, WE UPHOLD THE ORDER OF THE CIT(A) AND DIS MISS THE GROUND RAISED BY THE REVENUE. 18. AS THE ISSUE OF SECTION OF 80IA(10) AND ISSUE O F CENTRAL EXCISE REFUND RAISED IN AY 2010-11 AND 2011-12 ARE SIMILAR TO THE ISSUES RAISED IN AY 2009-10, FOLLOWING THE CONCLUSIONS DRA WN THEREIN, WE DISMISS THE GROUNDS RAISED BY THE REVENUE ON THESE ISSUES. 19. AS WE HAVE UPHELD THE ORDER OF CIT(A) IN REVENU E APPEALS, THE COS RAISED BY THE ASSESSEE BECOME INFRUCTUOUS, THER EFORE, THE SAME ARE DISMISSED AS INFRUCTUOUS. 14 ITA NOS. 837, 838 & 839 /HYD/2016 & CO NOS. 38, 39 & 40/H/15 IVAX PAPER CHEMICALS LTD. 20. IN THE RESULT, APPEALS OF THE REVENUE AND COS O F THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 25 TH APRIL, 2018. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHM AN) VICE PRESIDENT ACC OUNTANT MEMBER HYDERABAD, DATED: 25 TH APRIL, 2018 KV COPY TO:- 1) DCIT, CIRCLE 8(1), 6 TH FLOOR, ROOM NO. 605, SIGNATURE TOWERS, KONDAPUR, HYD. 2) M/S IVAX PAPER CHEMICALS LTD., 6-3-248/B, ROAD N O. 1, BANJARA HILLS, HYD. 3) CIT(A) 2, HYDERABAD 4) PR. CIT 2, HYD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6)) GUARD FILE S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER