M/s Ansysco, Chandigarh V. DCIT, Chandigarh

ITA 120/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5382 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 28-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: SUNIL BHANDARI
• Keywords: Source of fund
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS.SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.120 /CHD/2011 (ASSESSMENT YEAR : 2007-08) M/S ANSYSCO, VS. THE D.C.I.T., SCO 74-75, SECTOR 8-C, CIRCLE 1(1), CHANDIGARH. CHANDIGARH. PAN: AACFA7228C & ITA NO.255 /CHD/2011 (ASSESSMENT YEAR : 2007-08) THE D.C.I.T., VS. M/S ANSYSCO, CIRCLE 1(1), SCO 74-75, SECTOR 8-C, CHANDIGARH. CHANDIGARH. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUNIL BHANDARI DEPARTMENT BY : SHRI N.K.SAINI, DR O R D E R PER SUSHMA CHOWLA, J.M, : THE CROSS APPEALS FILED BY THE ASSESSEE AND THE RE VENUE ARE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (A), DATED 20.9.2010 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORD ER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2 2. BOTH THE APPEALS OF THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLI DATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE HAS RAISED FOLLOWING GROUND OF APP EAL: 1. ON THE FACTS AND IN LAW, THE LEARNED CIT(A) ERR ED IN CONFIRMING THE DENIAL OF DEDUCTION U/S 80IC IN RESPECT OF OTHER INCOME OF RS.14,36,998/- BY AGREEING WITH THE AO THAT THE SAID INCOME WAS NOT DERIVED FROM THE BUSINESS OF THE ELIGIBLE UNDERTAKING. LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE SAID INCOME WAS NOT AN INDEPENDENT SOURCE OF INCOME OF THE UNDERTAKING AND HENCE COULD NOT HAVE BEEN EXCLUDED FOR DETERMINING THE DEDUCTION CLAIMED AND ALLOWABLE U/S 80IC TO THE APPELLANT FIRM. 4. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF COOLENT & PVC COMPOUND AS WELL AS OF DGX COMPOUND SINCE THE JOB WORK DONE DID NOT COME UNDER THE PURVIEW OF MANUFACTURE AS DEFINED IN BLACKS LAW DICTIONARY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.6,41,303/- MADE ON ACCOUNT OF CAPITALIZATION OF EXPENSES AS THE SAME WAS INCURRED TO BRING INTO BEING AN ASSET OF ENDURING NATURE. 5. THE ONLY ISSUE RAISED BY THE ASSESSEE IS IN RESP ECT OF THE DEDUCTION ALLOWABLE UNDER SECTION 80IC OF THE ACT ON OTHER IN COME. 3 6. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT D URING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD CREDITED THE FOLLOWI NG AMOUNTS AS INCOME TO ITS PROFIT & LOSS ACCOUNT: INTEREST FROM THE EMPLOYEES/BANK (IN RS.) I) FDRS PLEDGED WITH SALES TAX DEPTT. 6,537/- II) INSURANCE CLAIM RECEIVED 33,230/- III) INCOME FROM CREDIT BALANCE OF PARTIES 11,51,5 37/- IV) SECURITY REFUND BY MSRTC 5,000/- V) SCRAP SALE 2,40,594/- TOTAL : 14,36,988/- 7. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE A BOVE SAID INCOME DOES NOT RELATE TO THE MANUFACTURING ACTIVITIES CAR RIED ON BY THE ASSESSEE. HENCE, THE SAID INCOME WAS HELD NOT ELI GIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. THE CIT(A) PLACED R ELIANCE ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN LIBERTY I NDIA VS. CIT (317 ITR 218)(SC), WHEREIN IT IS HELD AS UNDER :- THE WORDS DERIVED FROM ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO. IN OTHER WORDS, BY USING THE EXPRESSION DERIVED FR OM, PARLIAMENT INTENDED TO COVER SOURCES, NOT BEYOND TH E FIRST DEGREE. 8. THE ASSESSEE IS IN APPEAL AGAINST THE SAID DISAL LOWANCE MADE. THE LEARNED A.R. FOR THE ASSESSEE PLACED RELIANCE ON TH E RATIO LAID DOWN IN ARVIND FASHIONS LTD. VS. ACIT, (37 SOT 369 (AHD)) A ND POINTED OUT THAT THE SAME ARE FIRST DEGREE INCOME OF THE INDUSTRIAL UNDERTAKING, WHICH COULD NOT BE ALIENATED FROM THE MANUFACTURING ACTIV ITIES CARRIED OUT BY THE ASSESSEE. 9. THE LEARNED D.R. FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF THE CIT(A). 4 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE OTHER INCOME TOTALING RS.14.36 LACS WAS RECEIVED BY THE ASSESSEE AND THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80IC O F THE ACT ON THE SAID OTHER INCOME. THE AUTHORITIES BELOW HELD THE ASSES SEE NOT ELIGIBLE FOR THE SAID DEDUCTION AVAILABLE UNDER SECTION 80IC OF THE ACT. THE CIT(A) PLACED RELIANCE ON THE RATIO LAID DOWN IN LIBERTY I NDIA VS. CIT (SUPRA) WHEREIN IT HAS BEEN HELD THAT THE WORDS DERIVED FR OM ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO. IN OTHER WORDS, BY USING THE EXPRESSION DERIVED FROM, PARLIAMENT INTENDED TO COVER SOURCES, NOT BEYOND THE FIRST DEGREE. 11. COMING TO THE NATURE OF OTHER INCOME EARNED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION THE LEARNED A.R. POINT ED OUT THAT THE INSURANCE CLAIM OF RS.33,320/- REPRESENTED RECOVERY OF MATERIAL COST AND OTHER REPAIRS AND CLAIMED FOR DAMAGE TO MACHINERY. THE INCOME FROM SCRAP SALE WAS ATTRIBUTABLE TO THE SCRAP OF PACKING MATERIAL IN WHICH THE RAW MATERIAL WAS RECEIVED. FURTHER THE INCOME FROM SUPPLIER BALANCE WRITTEN BACK AT RS.11,51,537/- WAS ON ACCOUNT OF LI ABILITY INCURRED FOR MATERIAL PURCHASED. MISC. INCOME OF RS.5000/- WAS RECOVERY OF SECURITY DEPOSIT FOR TENDER OF MSRTC WRITTEN OFF IN EARLIER YEARS. THE INTEREST AMOUNT WAS ON ACCOUNT OF INTEREST EARNED ON FDRS AN D EMPLOYEES LOANS. AS PER THE RATIO LAID DOWN BY THE HON'BLE SUPREME C OURT IN LIBERTY INDIA VS. CIT (SUPRA), BEFORE HOLDING THE ASSESSEE TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT, IT IS TO BE DETERMIN ED WHETHER THE INCOME EARNED BY THE ASSESSEE IS DERIVED FROM MANUFACTURIN G BUSINESS CARRIED ON BY THE ASSESSEE. 12. THE AHMEDABAD BENCH OF TRIBUNAL IN ARVIND FASHI ONS LTD. VS. ACIT (SUPRA) HAS CONSIDERED THE ELIGIBILITY OF VARI OUS ITEMS OF OTHER INCOME BEING DERIVED FROM THE BUSINESS OF THE ELIGI BLE INDUSTRIAL 5 UNDERTAKING, ON WHICH DEDUCTION UNDER SECTION 80IB OF THE ACT WAS CLAIMED BY THE ASSESSEE AND HELD AS UNDER : I) INTEREST INCOME ON BANK DEPOSIT IS NOT TO BE TRE ATED AS DERIVED FROM INDUSTRIAL UNDERTAKING. II) DUTY DRAWBACK WAS ALSO HELD TO BE NOT DERIVED F ROM THE INDUSTRIAL UNDERTAKING IN VIEW OF THE RATIO LAI D DOWN IN LIBERTY INDIA (SUPRA). III) INCOME FROM SALE OF SCRAP WAS HELD TO BE GENER ATED OUT OF THE MANUFACTURING ACTIVITIES OF INDUSTRIAL UNIT. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE GUJRAT HIGH COURT IN DCIT VS. HARJIVANDAS JUTHABHAI ZAVERI, 258 ITR 785 (GUJ) WHEREIN IT WAS HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE FOR JOB WORK, EMPTY SODA ASH, BARDANA, EMPTY BARRELS, PLASTIC WASTES ETC. WERE ELIGIBLE FOR CONSIDIERATIO N OF DEDUCTION UNDER SECTION 80IA OF THE ACT. IV) SALE OF EXPORT QUOTA WAS NOT ELIGIBLE FOR DEDUC TION. V) THE STOCK ADJUSTMENT AMOUNT ON ACCOUNT OF ADJUSTMENT OF SHORTAGE OF GOODS AND MATERIAL WAS HELD TO BE GENERATED DIRECTLY FROM BUSINESS TURNOVE R OF THE STOCK AND MATERIAL BY THE ASSESSEE IN ITS REGULAR ACTIVITIES AND WAS HELD TO BE DIRECT INCOME GENERATED OF THE ELIGIBLE INDUSTRIAL UNIT. CERTAIN OTHER SOURCES OF INCOME WERE ALSO CONSIDER ED BY THE AHMEDABAD BENCH OF THE TRIBUNAL WHICH ARE NOT RELEV ANT TO THE ISSUE BEFORE US. 13. COMING TO THE FACTS BEFORE US AND FOLLOWING THE RATIO LAID DOWN BY THE AHMEDABAD BENCH OF THE TRIBUNAL IN ARVIND FASHI ONS LTD. VS. ACIT (SUPRA) WE HOLD THAT THE INTEREST INCOME RECEIVED B Y THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE A CT. HOWEVER, THE 6 AMOUNT RECEIVED ON SCRAP SALE, THE CREDIT BALANCE W RITTEN OFF OF PARTIES, INSURANCE CLAIM RECEIVED TOWARDS MATERIAL DAMAGE DU RING TRANSIT IS DIRECTLY ATTRIBUTABLE TO THE ACTIVITIES OF THE INDU STRIAL UNIT AND HENCE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE AC T. HOWEVER, THE ASSESSEE IS NOT ENTITLED TO THE DEDUCTION CLAIMED U NDER SECTION 80IC OF THE ACT ON THE MISC. INCOME RECEIVED BEING REFUND O F SECURITY DEPOSIT AND THE INSURANCE CLAIM ON MACHINERY REPAIRS. IN V IEW THEREOF WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION AL LOWABLE UNDER SECTION 80IC OF THE ACT. THE GROUND NO.1 RAISED B Y THE ASSESSEE IS PARTLY ALLOWED. 14. IN I.T.A.NO. 255/CHD/2011 THE ISSUE IN GROUND N O.1 RAISED IS AGAINST THE ALLOWANCE OF DEDUCTION UNDER SECTION 80 IC OF THE ACT ON JOB WORK CHARGES. 15. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT T HAT THE ISSUE STANDS COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE. 16. THE ASSESSING OFFICER WHILE COMPUTING THE INCOM E FOR THE YEAR UNDER APPEAL HAD NOT ALLOWED THE CLAIM OF THE ASSES SEE VIS--VIS THE JOB WORK CHARGES BEING ELIGIBLE FOR DEDUCTION UNDER SEC TION 80IC OF THE ACT. THE CIT(A) FOLLOWING THE ORDER OF THE TRIBUNAL IN A SSESSEES OWN CASE HAD ALLOWED THE CLAIM OF THE ASSESSEE THAT THE ISSU E WAS DECIDED IN FAVOUR OF THE ASSESSEE AFTER TAKING INTO ACCOUNT TH E RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN M/S INDIA CINE AGENCIE S IN CIVIL APPEAL NO.3649-3650 OF 2003. 17. WE FIND THAT THE TRIBUNAL IN I.T.A.NO. 261/CHD/ 2009 IN APPEAL FILED BY THE REVENUE IN THE CASE OF THE ASSESSEE IT SELF RELATING TO 7 ASSESSMENT YEAR 2006-07 HAD VIDE PARAS 5 TO 7 IN TU RN RELYING UPON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 2005-06 VIDE ORDER DATED 30.10.2009 HAD ALLOWED THE CLAIM O F THE ASSESSEE ON GROSS OF JOB WORK INCOME AT PVC COMPOUND AND COOLEN T BEING ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. 18. BEFORE US IT WAS A COMMON GROUND BETWEEN THE PA RTIES THAT THE SAID ISSUE STANDS COVERED BY THE ORDER OF THE TRIBUNAL I N ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 2005-06 AND 2006-07. APPLYING THE ABOVE SAID RATIO WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) AND THE GROUND NO.1 RAISED BY THE REVENUE IS THUS DISMISSED. 19. THE ISSUE IN GROUND NO.2 IS AGAINST THE DELETIO N OF ADDITION MADE ON ACCOUNT OF CAPITALIZATION OF EXPENSES. THE ASSE SSEE HAD INCURRED AN EXPENDITURE OF RS.7,07,223/- ON REPAIR OF BUILDING. THE ASSESSING OFFICER HELD THESE TO BE OF ENDURING IN NATURE AND A SUM OF RS.6,41,303/- WAS CAPITALIZED. THE CIT(A) UNDER PARA 15 AT PAGES 8 AND 9 HAD TABULATED THE EXPENDITURE OF RS.6,41,303/-. THE EX PLANATION OF THE ASSESSEE BEFORE THE CIT(A) WAS AS UNDER : EXPENSES WERE INCURRED ON PAINTING OF VARIOUS SECTIONS OF THE EXISTING BUILDING INCLUDING SHOP FL OOR. BRICK WORK AND PLASTERING, REPLACEMENT OF DOOR ETC. ALSO WAS CARRIED OUT TO THE EXISTING BUILDING AND THERE WAS NO EXTENSION TO THE BUILDING OR USABLE AREA OF THE BUI LDING AND HENCE FULLY ALLOWABLE U/S 30 OF THE ACT BEING C URRENT REPAIRS. RELIANCE ALSO PLACED ON THE DECISION OF T HE HON'BLE APEX COURT IN THE CASE OF CIT V SARAVANA SP G. MILLS (P) LTD. 293 ITR 201 (SC) 8 20. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE HO LDING THAT THE EXPENSES WERE INCURRED FOR UPKEEP AND MAINTENANCE, WHICH WOULD FALL IN THE CATEGORY OF CURRENT REPAIRS. THE EXPENDITURE INCURRED ON FLOORING, PAINTING, WHITE WASHING, REPAIR OF BROKEN AREA, OIL BOUND DISTEMPER WERE HELD TO BE CURRENT REPAIRS, ALLOWABLE UNDER SECTION 30(A)(II) OF THE ACT. IN THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF T HE CASE AND THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE WE UPHOLD T HE ORDER OF THE CIT(A). THE EXPENDITURE INCURRED BY THE ASSESSEE B EING IN THE NATURE OF CURRENT REPAIRS IS ALLOWABLE IN THE HANDS OF THE AS SESSEE. THUS GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DAY OF JUNE, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 ST JUNE, 2011 RATI COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH . 9