The Income-tax Officer, Pathankot V. M/s. V.M. Timber Industries, Pathankot

ITA 105/ASR/2014

• Counselvise Citation: 10520914 RSA 2014
• Duration Of Justice: 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 31-07-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 19-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAMEER AGGARWAL
• Keywords: Capital receipt
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. B.P. JAIN, ACCOUNTANT MEMBER I.T.A. NO. 105(ASR)/2014 ASSESSMENT YEAR: 2005-06 PAN: AAAFV7568C INCOME TAX OFFICER, VS. M/S V.M. TIMBER INDUSTRI ES, WARD-3, PATHANKOT KATHUA, H.O. KULDIP NIWAS, MAIN BAZAR, PATHANKOT. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. TARSEM LAL, DR RESPONDENT BY: SH. SAMEER AGGARWAL, CA DATE OF HEARING: 31.07.2014 DATE OF PRONOUNCEMENT: 04.08.2014 ORDER PER A.D. JAIN, J.M. 1. THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YE AR 2005-06 AGAINST THE ORDER DATED 12.12.2013 PASSED BY LEARNE D CIT(A), AMRITSAR, DELETING THE ADDITION OF RS. 15,12,508/- MADE BY TH E ASSESSING OFFICER DISALLOWING THE DEDUCTION UNDER SECTION 80IB OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) ON INTEREST AND TRANSPORT SUBSIDY. 2. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF B OTH THESE SUBSIDIES, TREATING THEM TO BE REVENUE RECEIPTS NOT DIRECTLY ATTRIBUTABLE TO THE INDUSTRIAL ACTIVITIES OF THE ASSESSEES FIRM, W HICH IS ENGAGED IN THE 2 I.T.A. NO. 105(ASR)/2014 ASSESSMENT YEAR: 2005-06 BUSINESS OF MANUFACTURING AND SALE OF CEMENT. DURIN G THE YEAR, THE ASSESSEE RECEIVED INTEREST SUBSIDY OF RS. 87,770/- AND TRANSPORT SUBSIDY OF RS. 14,24,728/, TOTALING AMOUNTING TO RS. 15,12, 508/-. 3. LEARNED CIT(A) DELETED BOTH THE DISALLOWANCES, HO LDING THAT BOTH THE SUBSIDIES WERE REVENUE RECEIPTS PERTAINING TO THE A SSESSEES BUSINESS ACTIVITIES, AND THAT DEDUCTION UNDER SECTION 80IB O F THE ACT WAS FULLY ALLOWABLE THEREON, FOR HOLDING SO, THE LEARNED CIT( A) ACCEPTED THE ASSESSEES RELIANCE ON THE FOLLOWING CASE-LAWS: I. CIT VS. ANDAMAN TIMBER INDUSTRIES, REPORTED IN 242 ITR 204 (CAL.) II. CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT, REPORTED IN 113 ITR 84 (SC) III. CIT VS. PANDIAN CHEMICALS LTD., REPORTED IN 233 IT R 497 (MAD.) 4. CHALLENGING THE IMPUGNED ORDER, THE LEARNED DR H AS CONTENDED THAT THE LEARNED CIT(A) HAS ERRED IN DELETING THE D ISALLOWANCES CORRECTLY MADE BY THE ASSESSING OFFICER; THAT WHILE DOING SO, THE LEARNED CIT(A) HAS ERRED IN FOLLOWING THE DECISION OF HONBLE HIGH COURT OF JAMMU & KASHMIR IN THE CASE OF M/S SHREE BALAJI ALLOYS & O RS. VS. CIT, REPORTED IN 333 ITR 335 (J&K). 3 I.T.A. NO. 105(ASR)/2014 ASSESSMENT YEAR: 2005-06 5. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER, SUPPO RTING THE DELETION OF THE DISALLOWANCE ON BOTH THE SUBSIDIES. STRESS HAS PARTICULARLY BEEN LAID ON THE JUDGMENT DATED 29.05.2013 (COPY PLACED ON RE CORD) OF THE HONBLE GAUHATI HIGH COURT PASSED IN ITA NOS. 7/2010 & 16/2 011, IN THE CASES OF M/S MEGHALAYA STEELS LTD. AND M/S PRIDE COKE PVT. LTD. 6. HAVING CONSIDERED THE RIVAL CONTENTIONS IN THE L IGHT OF THE MATERIAL PLACED ON RECORD, WE FIND THAT BOTH THESE ISSUES STAND COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE GAUHATI HIGH COURT IN THE CASES OF M/S MEGHALAYA STEELS LTD. AND M/S P RIDE COKE PVT. LTD. (SUPRA). SO FAR AS REGARDS THE TRANSPORT SUBSIDY, I N THE AFORESAID CASE, THEIR LORDSHIPS HAVE HELD AS FOLLOWS: 86. IN THE LIGHT OF WHAT HAVE BEEN DISCUSSED ABO VE, THERE CAN BE NO ESCAPE FROM THE CONCLUSION THAT TRANSPORT SUBSIDY WAS AIMED AT REDUCING THE COST OF PRODUCTION OF THE INDUSTRIAL U NDERTAKING COVERED BY TRANSPORT SUBSIDY SCHEME. THUS, THERE WAS A FIRST DEGREE NEXUS BETWEEN THE TRANSPORT SUBSIDY, ON THE ONE HAND, AND COST OF PRODUCTION, ON THE OTHER. WHEN COST IS REDUCED, IT NATURALLY HELPS IN EARNING OF PROFIT AND, AT TIMES, HIGHER PROFITS. SU CH PROFITS AND GAINS OUGHT TO HAVE BEEN TREATED, AND HAS RIGHTLY BEEN TR EATED, BY THE LEARNED TRIBUNAL, TO BE PROFITS AND GAINS DERIVED FROM, OR DERIVED BY, THE INDUSTRIAL UNDERTAKING CONCERNED. 94 PUT SHORTLY, THERE IS AN EXISTENCE OF DIRECT NEXUS BETWEEN TRANSPORT SUBSIDY , ON THE OTHER HAND, AND THE MANUFACTURING/PRODUCTION ACTIVITIES OF INDUSTRIAL U NDERTAKING, ON THE OTHER, STANDS WELL ESTABLISHED. UNLESS SHOWN OTHERW ISE, THE INDUSTRIAL 4 I.T.A. NO. 105(ASR)/2014 ASSESSMENT YEAR: 2005-06 UNDERTAKINGS, IN THE PRESENT SET OF APPEALS, WHICH HAVE BEEN GRANTED TRANSPORT SUBSIDY , ARE ENTITLED TO CLAIM DEDUCTION IN TERMS OF THE DIRECTIONS OF THE LEARNED TRIBUNAL. 7. THE OBJECTION OF THE LEARNED DR WITH REGARD TO THIS ISSUE IS THAT THE HONBLE GAUHATI HIGH COURT HAS NOT TAKEN INTO C ONSIDERATION THE DECISION IN CIT VS. KIRAN ENTERPRISES, REPORTED I N (2010) 189 TAXMAN 457 (HP), WHICH HAS BEEN RENDERED IN FAVOUR OF THE DEPARTMENT BY THE HONBLE HIMACHAL PRADESH HIGH COU RT, I.E., THE JURISDICTIONAL HIGH COURT, SO FAR AS THE PRESENT CA SE IS CONCERNED. THIS GRIEVANCE OF THE DEPARTMENT, IT IS SEEN, IS INCORRE CT. M/S KIRAN ENTERPRISES (SUPRA) STANDS DULY TAKEN INTO CONSIDE RATION IN M/S MEGHALAYA STEEL LTD. (SUPRA), AS IS EVIDENT FROM PARA 29 OF THE JUDGMENT. WHILE DECIDING THE MATTER IN FAVOUR OF TH E ASSESSEE, THEIR LORDSHIPS, HAVING TAKEN NOTE OF M/S KIRAN ENTERPRI SES (SUPRA) HAVE, IN PARA 83 OF THE JUDGMENT, REFERRED TO THE DECISION O F THE HONBLE SUPREME COURT IN JAI BHAGWAN OIL & FLOUR MILLS VS. UNION O F INDIA, REPORTED IN (2009) 14 SCC 63. IT HAS BEEN NOTED THAT THEREIN, T HE HONBLE SUPREME COURT OBSERVED THAT THE OBJECT OF THE TRANSPORT SUB SIDY SCHEME IS NOT AUGMENTATION OF THE REVENUE BY LEVY OR COLLECTION O F TAX OR DUTY. IT IS ON THIS, THAT IN PARA 84 OF THE JUDGMENT, IT WAS HELD THAT THE TRANSPORT SUBSIDY SCHEME WAS NEVER MEANT TO BE A MEANS OF EARNING REV ENUE BY THE STATE 5 I.T.A. NO. 105(ASR)/2014 ASSESSMENT YEAR: 2005-06 OR COLLECTION OF TAX OR DUTY BY THE STATE. THE CASE OF JAI BHAGWAN OIL & FLOUR MILLS (SUPRA) HAS BEEN ELABORATELY DEALT WIT H FURTHER IN PARAS 85 TO 87 (PAGE NOS. 44 TO 46) OF THE JUDGMENT, WHICH ARE AS FOLLOWS: 85. FAR FROM BEING A SOURCE OF EARNING REVENUE, THE OBJECT OF THE SCHEME, AS POINTED OUT BY THE SUPREME COURT, IN JAI BHAGWAN OIL & FLOUR MILLS (SUPRA), HAS BEEN TO IMPROVE TRADE AND COMMERCE BETWEEN REMOTE PARTS OF THE COUNTRY WITH O THER PARTS SO AS TO BRING ABOUT ECONOMIC DEVELOPMENT OF REMOTE BACKW ARD REGIONS. THIS WAS SOUGHT TO BE ACHIEVED BY THE SCHEME BY MAK ING IT FEASIBLE AND ATTRACTIVE TO INDUSTRIAL ENTREPRENEURS TO START AND RUN INDUSTRIES IN REMOTE PARTS BY GIVING THEM A LEVEL PLAYING FIELD SO THAT THEY COULD COMPETE WITH THEIR COUNTERPARTS IN THE CENTRAL (NON -REMOTE) AREAS. THE RELEVANT OBSERVATIONS, APPEARING, IN THIS REGARD, A T PARA 14 OF JAI BHAGWAN OIL & FLOUR MILLS (SUPRA), READ AS UNDER: 14. THE OBJECT OF THE TRANSPORT SUBSIDY SCHEME IS NOT AUGMENTATION OF REVENUE, BY LEVY AND COLLECTION OF TAX OR DUTY. THE OBJECT OF THE SCHEME IS TO IMPROVE TRADE AND COMMERCE BETWEEN THE REMOTE PARTS OF THE COUNTRY WI TH OTHER PARTS, SO AS TO BRING ABOUT ECONOMIC DEVELOPMENT OF REMOTE BACKWARD REGIONS. THIS WAS SOUGHT TO BE ACHIEVED BY THE SCHEME, BY MAKING IT FEASIBLE AND ATTRACTIVE TO IND USTRIAL ENTREPRENEURS TO START AND RUN INDUSTRIES IN REMOTE PARTS, BY GIVING THEM A LEVEL PLAYING FIELD SO THAT THEY COUL D COMPETE WITH THEIR COUNTERPARTS IN THE CENTRAL (NON-REMOTE) AREAS. (EMPHASIS PROVIDED) 86. EXPLAINING AS TO WHY THE TRANSPORT SUBSIDY HAD BECOME NECESSARY, THE SUPREME COURT FURTHER OBSERVED, IN JAI BHAGWAN OIL & FLOUR MILLS (SUPRA), AS UNDER: 15. THE HUGE TRANSPORTATION COST FOR GETTING THE RAW MATERIALS TO THE INDUSTRIAL UNIT AND FINISHED GOODS TO THE EXISTING MARKET OUTSIDE THE STATE WAS MAKING IT UNV IABLE FOR INDUSTRIES IN REMOTE PARTS OF THE COUNTRY TO COMPET E WITH 6 I.T.A. NO. 105(ASR)/2014 ASSESSMENT YEAR: 2005-06 INDUSTRIES IN THE CENTRAL AREA. THEREFORE, INDUSTRIAL UNITS IN REMOTE AREAS WERE EXTENDED THE BENEFIT OF SUBSIDIZE D TRANSPORTATION. FOR INDUSTRIAL UNITS IN ASSAM AND OTHER NORTH EASTERN STATES, THE BENEFIT WAS GIVEN IN THE FORM O F A SUBSIDY IN RESPECT OF A PERCENTAGE OF THE COST OF TRANSPORTATI ON BETWEEN A POINT IN CENTRAL AREA (SILIGURI IN WEST BENGAL) AND THE ACTUAL LOCATION OF THE INDUSTRIAL UNIT IN THE REMOTE AREA, SO THAT THE INDUSTRY COULD BECOME COMPETITIVE AND ECONOMICALLY VIABLE. *** *** *** *** *** *** 18. ANY GOOD, WHICH GOES IN AS A RAW MATERIAL REQU IRED/USED IN THE MANUFACTURING PROGRAMME OF AN INDUSTRIAL UNI T SITUATED IN A NOTIFIED REMOTE AREA, OR ANY FINISHED GOODS TH AT IS PRODUCED IN THE INDUSTRIAL UNIT SITUATED IN SUCH AR EA AND EXPORTED OUT OF THE STATE, WAS ELIGIBLE FOR THE TRA NSPORT SUBSIDY UNDER THE SCHEME. THE SCHEME ITSELF SPECIFICALLY DE FINES FINISHED GOODS AS GOODS ACTUALLY PRODUCED BY AN I NDUSTRIAL UNIT IN ACCORDANCE WITH THE MANUFACTURING PROGRAMME AS APPROVED BY THE CENTRAL GOVERNMENT AND/OR THE GOVER NMENT OF THE STATE WHERE THE INDUSTRIAL UNIT IS LOCATED. (EMPHASIS PROVIDED) 87. FROM A CAREFUL READING OF THE OBSERVATIONS, AT PARA 14, 15 AND 18 MADE BY THE SUPREME COURT, IN JAI BHAGWAN OIL & FLOUR MILLS (SUPRA), WHAT BECOMES ABUNDANTLY CLEAR IS THAT HUGE TRANSPORTATION COST, FOR BRINGING THE RAW MATERIALS TO THE INDUSTRIAL UNIT, LOCATED IN THE NORTH-EASTERN REGIO N, AND IN CARRYING FINISHED GOODS TO THE EXISTING MARKET OUTSIDE THE STATES OF NORTH- EASTERN REGION, HE HAD MAKING IT UNVIABLE FOR ANYON E TO ESTABLISH INDUSTRIES IN THE NORTH EASTERN REGION AND IT WAS, IN ORDER TO NEUTRALISE THIS HEAVY TRANSPORTATION COST THAT TH E TRANSPORT SUBSIDY SCHEME WAS EVOLVED AS A DEVICE AND, THEREFORE, THE OBJECT OF TRANSPORT SUBSIDY HAD NEVER BEEN, AS CONCLUDED BY THE SUPREME COURT A T PARA 14, .AUGMENTATION OF REVENUE, BY LEVY AND COLLECTION OF TAX OR DUTY. 7 I.T.A. NO. 105(ASR)/2014 ASSESSMENT YEAR: 2005-06 8. IN PARA 89 (PAGE NOS. 46 & 47) OF THE AFORESAID JUDGMENT, IT HAS BEEN NOTED AS FOLLOWS: 89. THE REVENUE, IT HAS BEEN RIGHTLY CONTENDED B Y MR. AGARWALLA, LEARNED SENIOR COUNSEL, HAS NOT EVEN ATTEMPTED TO DISTINGUISH THE DECISION, IN JAI BHAGWAN OIL & FLOUR MILLS (SUPRA), IN ANY MANNER WHATSOEVER, WHEN THIS DECISION MAKES IT MORE THAN ABUNDANTLY CLEAR THAT TRANSPORT SUBSIDY GOES ON TO REDUCE THE COST OF PRODUCTION OF THE INDUSTRIAL UNDERTAKIN G LEADING TO EARNING TO PROFITS AND MAKING OF GAINS BY THE IN DUSTRIAL UNDERTAKING. 9. FROM THE ABOVE DISCUSSION, IT IS EVIDENT THAT IN HOLDING IN FAVOUR OF THE ASSESSEE QUA THE ISSUE OF TRANSPORT S UBSIDY, THE HONBLE GAUHATI HIGH COURT HAS FOLLOWED THE HONBLE SUPREM E COURT DECISION IN JAI BHAGWAN OIL & FLOUR MILLS (SUPRA). BESIDES, M/S KIRAN ENTERPRISES (SUPRA) REFERRED BY THE HONBLE JURISD ICTIONAL HIGH COURT OF HIMACHAL PRADESH HAS ALSO BEEN TAKEN NOTE OF. FOR T HIS REASON, THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT IS FOUND TO BE SHORN OF MERIT AND IS REJECTED AS SUCH. 10. THE ORDER OF THE LEARNED CIT(A) DELETING THE DIS ALLOWANCE QUA TRANSPORT SUBSIDY IS, THEREFORE, UPHELD. 11. SO FAR AS REGARDS THE INTEREST SUBSIDY ALSO, UND ISPUTEDLY, THIS ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE IN SHRI BALAJI ALLOYS VS. CIT AND ANOTHER, REPORTED IN 333 ITR 335 (J&K), HO LDING, INTER ALIA, 8 I.T.A. NO. 105(ASR)/2014 ASSESSMENT YEAR: 2005-06 INTEREST SUBSIDY TO BE A CAPITAL RECEIPT. THE MATTE R IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY M/S MEGHALAYA STEEL LTD. (SUPRA). AS SUCH, THE DECISION OF THE LEARNED CIT(A) IN DELETING THE DISALLOWANCE WITH REGARD TO INTEREST SUBSIDY IS ALSO CONFIRMED. 12. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH AUGUST, 2014 SD/- SD/- (B.P. JAIN) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 4 TH AUGUST, 2014 /RK/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: M/S V.M. TIMBER INDUSTRIES, KATHUA, H .O. KULDIP NIWAS, MAIN BAZAR, PATHANKOT 2. ITO, WARD-3, PATHANKOT 3. THE CIT(A), 4. THE CIT, 5. THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.