Shivom Cotspin Limited, Kala Amb V. DCIT, Parwanoo

ITA 116/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6646 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 12-01-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: S P GOYAL
• Keywords: Principle of natural justice; Notional interest; Benefit of exemption
• Section: 14A; 6; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCHB, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.116/CHD/2017 (ASSESSMENT YEAR : 2013-14) M/S SHIVOM COTSPIN LTD. VS. THE DCIT VILL- KHERI, KALA AMB, H.P. CIRCLE PARWANOO PAN: AAJCS9111L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.P. GOYAL RESPONDENT BY : SHRI. MANJIT SINGH DATE OF HEARING : 28.09.2017 DATE OF PRONOUNCEMENT : 14/11/2017 O R D E R PER DR.B.R.R.KUMAR, A.M . : PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAI NST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA, DATED 28/10/2016. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE WORTHY CIT APPEAL HAS DISALLOWED THE EXEMPTION U/S 80IC @100% & ALLOWED @30%, THUS NOT G IVING THE BENEFIT OF SUBSTANTIAL EXPANSION IN THE EXISTIN G INDUSTRIAL UNDERTAKING SETUP IN INDUSTRIAL BACKWARD STATE OF H IMACHAL PRADESH. THE DEDUCTION CLAIMED U/S 80IC WAS RS. 3,4 8,32,450/- AGAINST WHICH THE WORTHY CIT HAS ALLOWED RS. 98,17, 039/-. THE EXEMPTION U/S 80IC OF RS. 3,48,32,450/- MAY PLEASE BE ALLOWED. THAT THE RATIO OF JUDGMENT REFERRED BY WOR THY CIT APPEAL & ASSESSING OFFICER ARE NOT APPLICABLE TO TH E CASE OF ASSESSEE COMPANY. 2. THAT THE WORTHY CIT APPEAL HAS ERRED IN REDUCING THE INCOME BY RS. 21,08,986/- FROM ELIGIBLE BUSINESS FO R ALLOWING DEDUCTION U/S 80IC ON THE PLEA THAT THIS IS NOT A I NCOME DIRECTLY DERIVED FROM MANUFACTURING ACTIVITIES OF T HE INDUSTRIAL UNDERTAKING ON WRONG & UNTENABLE ROUNDS. THE INTERE ST INCOME & DUTY DRAW BACK RECEIPTS OF RS. 21,08,986/- MAY PL EASE BE TREATED AS INCOME DERIVED FROM ELIGIBLE BUSINESS FO R ALLOWING DEDUCTION U/S 80IC. THAT THE RATIO OF JUDGMENT REFE RRED BY 2 WORTHY CIT APPEAL & ASSESSING OFFICER ARE NOT APPLI CABLE TO THE CASE OF ASSESSEE COMPANY. 3. THAT THE WORTHY CIT APPEAL HAS ERRED IN UPHOLDIN G THE ADDITION MADE U/S 14A OF RS. 6,86,847/- ON INVESTME NT MADE IN SHARES OF PRIVATE LIMITED COMPANY OF RS. 95 LACS BY DISALLOWING THE NOTIONAL INTEREST ON THIS INVESTMEN T. 4. IT IS HUMBLY PRAYED THAT APPEAL ORDER OF WORTHY CIT APPEAL & ASSESSMENT ORDER PASSED BY WORTHY DCIT PARWANOO M AY PLEASE BE SET-ASIDE. 3. THE ISSUES INVOLVED IN THE PRESENT APPEAL PERTAI NS TO RESTRICTION OF DEDUCTION, CLAIMED UNDER SECTION 80IC AT THE RATE O F 100% ON ACCOUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN, DEDUCTION OF OTHE R INCOME AND DISALLOWANCE UNDER SECTION 14A OF . 4. REGARDING THE GROUND NO.1: BRIEF FACTS RELEVANT TO THE CASE ARE THAT THE ASSESSEE STARTED ITS MANUFACTURING ACTIVITY/OPERATI ON ON 08/02/2007 AND INITIAL ASSESSMENT YEAR FOR CLAIM OF DEDUCTION U/S 80IC OF THE ACT WAS A.Y. 200708. THE ASSESSEE CLAIMED DEDUCTION U/S 80 IC TO THE EXTENT OF 100% OF THE ELIGIBLE PROFITS FOR 5 YEARS PERIOD STARTING FROM A.Y.200708 TO A.Y . 201112. DURING ASSESSMENT PROCEEDINGS FOR THE IMPUGNED YEAR THE AO NOTICED TH AT THE ASSESSEE FIRM HAD AGAIN CLAIMED HUNDRED PERCENT DEDUCTION OF ITS ELIG IBLE PROFITS ON ACCOUNT OF HAVING CARRIED OUT SUBSTANTIAL EXPANSION IN F.Y. 20 1011 & 2011-12. THE ASSESSING OFFICER, FOR DETAILED REASONS MENTIONED IN THE ASSE SSMENT ORDER ,HELD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80IC ONLY A T THE RATE OF 30% AS AGAINST THE CLAIM OF 100% MADE BY THE ASSESSEE. 5. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT(APPEAL) WHO DISMISSED THE ASSESSEES APPEAL AND RESTRICTED THE DEDUCTION CLAIMED TO 25% OF THE PROFITS, RELYING UPON THE JUDGEMENT OF THE CHAN DIGARH BENCH OF THE ITAT IN THE CASE OF M/S HYCRON ELECTRONICS VS ITO IN ITA NO . 798/CHD/2012 AND OTHER RELATED CASES. 3 6. AGGRIEVED BY THE SAME THE ASSESSEE HAS NOW COME UP IN APPEAL BEFORE US. 7. DURING THE COURSE OF HEARING BEFORE US, LD. COUN SEL RELIED ON THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) WHILE THE SR . DR ARGUED THAT THE ISSUE WAS COVERED AGAINST THE ASSESSEE BY THE DECISION O F THE CHANDIGARH BENCH OF THE ITAT, IN THE CASE OF M/S HYCRON ELECTRONICS VS ITO IN ITA NO. 798/CHD/2012 AND OTHER RELATED CASES. 8. WE HAVE HEARD BOTH THE PARTIES AND ALSO PERUSED THE ORDERS OF THE AUTHORITIES BELOW. FACTS EMERGING IN THE PRESENT C ASE AND WHICH ARE RELEVANT FOR ADJUDICATING THE ISSUE AT HAND ARE THAT, THE AS SESSEE CAME INTO EXISTENCE AND COMMENCED ITS MANUFACTURING ACTIVITY/OPERATION ON 08.02.2007, WAS ELIGIBLE TO CLAIM DEDUCTION OF 100% OF ITS PROFITS U/S 80IC OF THE INCOME TAX ACT,1961, AND HAD CLAIMED THE SAME FOR FIVE YEARS F ROM A.Y 2007-08 TO A.Y 2011- 12. FURTHER IT IS NOT DISPUTED THAT THE ASSESSEE UN DERTOOK SUBSTANTIAL EXPANSION OF ITS UNDERTAKING IN F.Y. 2010-11 & 2011-12 AND ON A CCOUNT OF THE SAME CLAIMED DEDUCTION AGAIN @ 100% OF ITS ELIGIBLE PROFITS WHI CH HAS BEEN DENIED TO IT, RESTRICTING THE SAME TO 25% OF THE PROFITS ,WHICH HAS BEEN CHALLENGED BEFORE US. 9. WE HAVE GONE THROUGH THE ORDER OF THE LD CIT(A) AND FIND NO INFIRMITY IN THE SAME. THE ISSUE OF QUANTUM OF DEDUCTION AVAILAB LE TO NEW UNDERTAKINGS WHICH CAME INTO EXISTENCE AFTER 01.07.2003, AND WHI CH HAVE ALREADY CLAIMED DEDUCTION OF 100% OF THEIR ELIGIBLE PROFITS FOR THE STATUTORILY SPECIFIED PERIOD OF FIVE YEARS, ON SUBSTANTIAL EXPANSION OF THE SAID UN DERTAKING, HAS BEEN DEALT WITH BY THE ITAT CHANDIGARH BENCH IN THE CASE OF M/S HYC RON ELECTRONICS (SUPRA).THE HONBLE BENCH IN THE SAID ORDER, AFTER DEEPLY ANALY ZING THE PROVISIONS OF SECTION 80IC ,HAS CATEGORICALLY HELD THAT THE BENEFIT OF C LAIMING 100% DEDUCTION OF PROFITS ON UNDERTAKING SUBSTANTIAL EXPANSION IS NOT AVAILABLE TO NEW UNDERTAKINGS 4 SET UP AFTER 01.07.2003. IT HAS BEEN CATEGORICALLY HELD BY THE ITAT THAT THERE CAN BE ONLY ONE INITIAL ASSESSMENT YEAR FOR THE PURPOSE OF CLAIMING DEDUCTION @ 100% OF PROFITS U/S 80IC OF THE ACT. IT HAS ALSO B EEN HELD THAT AS PER SECTION 80IC, ELIGIBLE UNDERTAKINGS SET UP IN SPECIFIED AREAS OF THE STATE OF HIMACHAL PRADESH ARE NOT ENTITLED TO CLAIM DEDUCTION @ 100% OF THE P ROFITS BEYOND A PERIOD OF FIVE YEARS. 10. THE LD CIT(A) ,WE FIND HAS CORRECTLY APPRECIATE D THE FACTS OF THE PRESENT CASE AND APPLIED THE AFORESAID DECISION OF THE ITA T TO RESTRICT THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IC @ 25% OF THE PROFI TS, SINCE UNDISPUTEDLY THE ASSESSEE COMMENCED BUSINESS OPERATIONS AFTER 01.07. 2003, I.E. ON 08.02.2007 AND HAD ALREADY CLAIMED DEDUCTION OF 100% OF ITS PR OFITS FOR FIVE YEARS FROM A.Y 2007-08 TO A.Y 2011-12. THE LD CIT(A) HAS CORRECTLY HELD THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION @ 100% OF ITS PROFI TS IN THE IMPUGNED YEAR ON ACCOUNT OF HAVING UNDERTAKEN SUBSTANTIAL EXPANSION IN F.Y 2010-11 & 2011-12 IN VIEW OF THE DECISION OF THE CO-ORDINATE BENCH OF IT AT, CHANDIGARH IN THE CASE OF M/S HYCRON ELECTRONICS (SUPRA). 11. IN VIEW OF THE SAME WE FIND NO MERIT IN THIS GR OUND OF APPEAL RAISED BY THE ASSESSEE AND THE SAME IS THEREFORE DISMISSED. 12. REGARDING THE GROUND NO. 2, THE ASSESSING OFFIC ER HAS DISALLOWED THE CLAIM OF RS. 21,08,986/- UNDER SECTION 80IC ON ACCO UNT OF DUTY DRAWBACK AGAINST THE EXPORT AND INTEREST INCOME. 13. THE AO RELIED ON THE ORDER IN CASE OF LIBERTY I NDIA LTD. VS. CIT 317 ITR 218 AND PANDIAN CHEMICALS VS. CIT 262 ITR 278. 14. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE. 5 15. BEFORE US, THE LD. AR ARGUED THAT THE RECEIPTS ARE CONSEQUENTIAL TO BUSINESS AS THEY ARE DERIVED / ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSSE AND ARE THUS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC. LD. AR SUBMITTED THAT THE ASSESSEE COMPANY HAS EARNED INTEREST INCOME OF RS. 16,00,089/- WHICH HAS BEEN CREDITED IN THE PROFIT & LOSS ACCOUNT. IT COMP RISES INTEREST EARNED OF RS. 3,70,276/- FROM FIXED DEPOSITS MADE WITH PUNJAB NAT IONAL BANK, RS. 2,65,250/- BEING INTEREST RECEIVED ON SECURITY DEPOSIT WITH HP SEB FOR OBTAINING POWER CONNECTION & BALANCE RS. 9,64,563/- RECEIVED FROM D IFFERENT TRADE PARTIES ON DELAYED PAYMENT SALE MADE ON THESE PARTIES. THE DET AIL OF THIS INTEREST INCOME & ITS NATURE WAS VERY WELL EXPLAINED AT THE TIME OF ASSESSMENT PROCEEDINGS. IT WAS SUBMITTED THAT THE FDRS WITH PNB WAS MADE FOR I SSUE OF LETTER OF CREDIT FOR IMPORT OF CAPITAL GOODS & BANK GUARANTEE FOR IMPORT OF MACHINERY TO BE ISSUED IN FAVOUR OF EITHER CUSTOM AUTHORITIES OR DGFT. ALL THESE DEPOSITS WERE MADE IN COMPLIANCE OF VARIOUS STATUTE I.E IMPORT EXPORT POL ICY ETC. & OTHER APPLICABLE LAWS WHICH ARE VERY MUCH NECESSARY TO CONDUCT THE B USINESS OF THE COMPANY. SIMILARLY INTEREST INCOME OF RS. 2,65,250/- WAS EAR NED ON SECURITY DEPOSIT WITH HPSEB FOR OBTAINING POWER CONNECTION FOR RUNNING OF INDUSTRIAL UNDERTAKING. ALL THESE INTEREST INCOME ARE VERY MUCH PART & PARCEL O F THE MAIN BUSINESS ACTIVITIES, MADE IN THE ORDINARY COURSE OF BUSINESS AS PER EXISTING TRADE PRACTICES & IN COMPLIANCE OF VARIOUS STATUTE. SO IT IS NOT CO RRECT TO SAY THAT THIS INTEREST INCOME IS NOT DIRECTLY ATTRIBUTABLE TO THE MAIN BUS INESS OF THE COMPANY. SO DENYING OF BENEFIT OF EXEMPTION EITHER 100% OR 30% ON THIS INTEREST INCOME IS AGAINST THE SPIRIT OF LAW OF NATURAL JUSTICE, WHICH MAY PLEASE BE ALLOWED AS INCOME FROM ELIGIBLE BUSINESS OF THE COMPANY. SIMIL ARLY THE AR ARGUED THAT DUTY DRAWBACK IS ALSO AN INCENTIVE WHICH IS ELIGIBLE FOR DEDUCTION. THE AR FURTHER ARGUED THAT THE EXCHANGE RATE FLUCTUATION ON EXPORT OF YARN IS AN ALLOWABLE DEDUCTION UNDER SECTION 80IC. 6 16. THE LD. SR. DR SHRI. MANJIT SINGH ARGUED THAT T HE SAME MATTER HAS BEEN COVERED BY THE ORDER OF THE COORDIANTE BENCH OF ITA T CHANDIGARH IN CASE OF HYCRON ELECTRONICS & OTHRS. IN ITA NO. 374/CHD/2014 FOR THE AY 2010-11. 17. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE P ARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THIS ISSUE HAS BEEN A LREADY EXAMINED EARLIER BY THE COORDINATE BENCH OF ITAT CHANDIGARH. THE RELEVA NT PORTION OF THE ORDER MENTIONED BY THE SR. DR IS AS UNDER: 58. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY WE FIND THAT HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT (SUPRA) WAS CONCERNED WITH THE ISSUE OF DEDUCTION U/S 80HH ON INTEREST INCOME RECEIVED ON ELECTRICITY DEPOSIT MADE BY THE ASSESSEE. ON THIS ISSUE, THE FOLLOWING OBSERVATIONS WERE MADE. THE WORDS DERIVED FROM IN SECTION 80HH OF THE INC OME-TAX ACT 1961, MUST BE UNDERSTOOD AS SOMETHING WHICH HAS A DIRECT OR IMMED IATE NEXUS WITH THE ASSESSEES INDUSTRIAL UNDERTAKING. ALTHOUGH ELECTRI CITY MAY BE REQUIRED FOR THE PURPOSE OF THE INDUSTRIAL UNDERTAKING, THE DEPOSIT REQUIRED FOR ITS SUPPLY IS A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTA KING. 59. AFTER THE ABOVE OBSERVATION, IT WAS HELD AS UND ER: HELD ACCORDINGLY, THAT INTEREST DERIVED BY THE IND USTRIAL UNDERTAKING OF THE ASSESSEE ON DEPOSITS MADE WITH THE ELECTRICITY BOAR D FOR THE SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS O R GAINS DERIVED BY THE UNDERTAKING FOR THE PURPOSE OF THE SPECIAL DEDUCTIO N UNDER SECTION 80HH. 60. SAME VIEW WAS TAKEN LATER ON IN THE CASE OF LIB ERTY INDIA LTD. VS. CIT(SUPRA). IT MAY BE NOTED THAT EXPRESSION DERIVED FROM HAS BEE N USED IN SECTION 80IC ALSO, THEREFORE, AS FAR AS INTEREST RECEIVED ON MARGIN MO NEY AND INTEREST RECEIVED ON OTHER AMOUNTING TO RS. 2,85,876/- AND RS. 70,328/- ARE NOT ENTITLED FOR DEDUCTION U/S 80IC AND ACCORDINGLY WE CONFIRM THE ACTION OF T HE ASSESSING OFFICER AND CIT(A) IN THIS RESPECT (EMPHASIS ADDED). 18. THUS FOLLOWING THE EARLIER ORDER OF THE TRIBUN AL ON THE SAME ISSUE, THE GROUND NO. 2 OF THE ASSESSEE IS HEREBY DISMISSED. 19. REGARDING GROUND NO. 3 THE ASSESSING OFFICER HA S MADE ADDITION OF RS. 22,04,100/- ON ACCOUNT OF DISALLOWANCE OF EXPENSES UNDER SECTION 14A READ WITH RULE 8D. THIS AMOUNT WAS RECTIFIED TO RS. 6,3 6,347/- UNDER SECTION 154 BY THE AO. BEFORE THE CIT(A) THE AMOUNT WAS MENTIONED AS R S. 6,86,847/-. 7 20. THE LD. CIT(A) HAS CONFIRMED THE ADDITION FOLLO WING THE DECISION OF GODREJ BOYCE MANUFACTURING CO. LTD. 328 ITR 81 (BOM). 21. BEFORE US THE LD. AR SUBMITTED THAT NO DIVIDEND INCOME HAS BEEN EARNED BY THE COMPANY WHICH IS CLAIMED AS EXEMPTED INCOME IN COMPUTATION OF INCOME. HE RELIED ON THE PARA NO. 8 OF THE LETTER S UBMITTED BEFORE THE LD. CIT(A) VIDE DT. 21/11/2016 WHEREAS AO IN THE ASSESSMENT OR DER PARA NO. 5 HAS OBSERVED THAT THE ASSESSEE HAS UNDERTAKEN CERTAIN TRANSACTIONS IN SHARES / MUTUAL FUNDS AND AS DECLARED SHORT TERM CAPITAL GAI N (STCG) / LONG TERM CAPITAL GAIN (LTCG) IN THE COMPUTATION OF INCOME. THIS ISSUE IS BEING REFERRED BACK TO THE FILE OF THE AO TO RE-EXAMINE DISALLOWAN CE AND CHECK WHETHER THE DIVIDEND WAS RECEIVED OR NOT. WE HOLD IN PRINCIPLE THAT NO INTEREST CAN BE DISALLOWED IF NO DIVIDEND HAS BEEN EARNED BY THE AS SESSEE, THEREFORE, THE AO IS DIRECTED TO GO TO THE FACTUAL MATRIX AND INVOKE PRO VISIONS OF RULE 8D DULY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE COURT IN THE CASE OF HERO CYCLES LTD. (2010) 323 ITR 518. 22. THE APPEAL OF THE ASSESSEE, THEREFORE, STANDS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :14/11/2017 AG COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH