M/s. Dynemic Products Ltd., Ahmedabad V. The ACIT.(OSD), AR-1, Ahmedabad

ITA 1207/AHD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0235 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-10-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 26-04-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NITA SHAH
• Assessee Lawyers: RAJESH D SHAH
• Keywords: Business expenditure; Opportunity of being heard; Bonafide belief; Scheme of amalgamation; TDS
• Section: 271(1)(c); 80HHC; 80IB; 80IA; 201; 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI D.C. AGARWAL, A.M.) I.T.A. NOS. 1207/AHD./2005 ASSESSMENT YEAR : 2001-2002 & I.T.A. NO. 637/AHD./2007 ASSESSMENT YEAR : 2003-2004 M/S. DYNEMIC PRODUCTS LTD., AHMEDABAD -VS.- ASSI STANT COMMISSIONER OF INCOME TAX (OSD), (P.A. NO. AAACD 4067 D) AR-1, AHMEDABAD (APPELLANT) (RESPONDENT) & I.T.A. NO. 160/AHD./2007 ASSESSMENT YEAR : 2001-2002 M/S. DYNEMIC PRODUCTS LTD., AHMEDABAD -VS.- ASSI STANT COMMISSIONER OF INCOME TAX, CIRCLE-1, AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJESH D. SHAH RESPONDENT BY : SMT. NITA SHAH O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER :- ALL THESE THREE APPEALS FILED BY THE SAME ASSESSEE WERE HEARD ON THE SAME DATE, ARGUED BY COMMON LD. R EPRESENTATIVES. THEREFORE, THESE ARE DECIDED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. WE NOW FIRST TAKE UP THE ITA NO. 1207/AHD./2005 FOR THE ASSESSMENT YEAR 2001-02. THE ASSESSEE HAS FILED THIS APPEAL AGAINST THE ORDE R OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -V, AHMEDABAD DATED 20-01-2005. GROUND NO. 1 IS AGAINST CONFIRMING THE DISALLOWANCE OF INTEREST ON SALES TAX OF RS.1,06,966/-. IN THE ASSESSMENT ORDER, THE A.O. DI SALLOWED THE INTEREST ON SALES TAX AMOUNTING TO RS.1,06,966/-. ON APPEAL, IN THE IMPUGNED ORDER, TH E LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE DISALLOWANCE FOLLOWING T HE DECISION OF THE HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS.- RAJDEV KIRANA S TORES REPORTED IN (1990) 181 ITR 285, 2 WHEREIN IT WAS HELD THAT PENALTY FOR NON-PAYMENT OF SALES TAX IS NOT DEDUCTIBLE. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS ), THE ASSESSEE IS IN APPEAL BEFORE US. 3. AT THE TIME OF HEARING, SHRI RAJESH D. SHAH APPE ARED ON BEHALF OF THE ASSESSEE AND CONTENDED THAT PENALTY PAYABLE FOR NON-PAYMENT OF S ALES TAX WITHIN THE PRESCRIBED TIME IS NOT DEDUCTIBLE AS BUSINESS EXPENDITURE UNDER SECTION 37 OF THE INCOME TAX ACT. HOWEVER, IN THIS CASE, THE INTEREST IS PAID ON THE DELAYED PAYMENT O F SALES TAX AND NOT THE PENALTY. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OVERLOOKED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF PRAKASH COTTON MILLS PVT. LTD. VS.- CIT REPORTED IN [1993] 201 ITR 684 AND IN THE CASE OF LACHMANDAS MATHURDAS VS.- CIT REPORTED IN (2002) 254 ITR 799 (SC), WHEREIN IT WAS HELD THAT INTEREST ON THE ARREARS OF SALES TAX OR O N THE OUTSTANDING BALANCE OF SALES TAX IS NOT PENAL IN NATURE. THE A.O. IN THE ASSESSMENT ORDER CLEARLY STATED THAT IT IS INTEREST EXPENSES DEBITED FOR LATE PAYMENT OF SALES TAX LIABILITY. IT IS NOT IN T HE NATURE OF PENALTY FOR THE VIOLATION OF LAW, THEREFORE, THE SAME IS ALLOWABLE UNDER SECTION 37 O F THE INCOME TAX ACT, 1961. 4. SMT. NEETA SHAH APPEARED FOR THE REVENUE POINTED OUT THAT DELAYED INTEREST PAYMENT OF SALES TAX CAN BE ALLOWED ONLY WHEN IT IS COMPENSATO RY IN NATURE. SHE POINTED OUT THAT THE HON'BLE GUJARAT HIGH COURT IN THE CASES OF ORIENT TRADING C O. VS.- CIT REPORTED IN (1993) 202 ITR 481 (GUJ.); AND INDEQUIP CHEMDYE (P) LTD. VS. CIT [1 993] 203 ITR 280 (GUJ.) HELD THAT THE TRUE NATURE OF THE PAYMENT TO BE MADE UNDER SECTION 45 O F THE GUJARAT SALES TAX ACT, 1969 IS PENALTY AND NOT INTEREST AND THUS, IT IS NOT AN ALLOWABLE D EDUCTION. SHE ACCORDINGLY POINTED OUT THAT THE ADDITION HAS RIGHTLY MADE. THEREFORE, THE VIEW TAKE N BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHELD. 5. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. IT AP PEARS THAT NONE OF THE DEPARTMENTAL AUTHORITIES BELOW MADE AN ATTEMPT TO EXAMINE THE NATURE OF PAYM ENT. IN THE LIGHT OF JUDGMENT OF THE HON'BLE SUPREME COURT AS WELL AS JURISDICTIONAL HIGH COURT CITED BY BOTH THE SIDES, WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF A.O. WITH THE DIRECTION T HAT HE MAY CALL THE ORDERS OF SALES TAX AUTHORITY LEVYING THE INTEREST IS MADE AND ALSO EXAMINE THE R ELEVANT PROVISIONS OF SALES TAX ACT, UNDER WHICH INTEREST IN QUESTION WAS PAID AND RE-ADJUDICA TE THE ADDITION OF RS.1,06,966/- AFRESH IN ACCORDANCE WITH LAW. NEEDLESS TO ADD THAT INTEREST TO THE EXTENT WHICH IS COMPENSATORY IN NATURE IS ALLOWABLE. THE PENAL INTEREST IS NOT ALLOWABLE U NDER EXPLANATION TO SECTION 31 OF THE INCOME 3 TAX ACT, 1961. THE A.O. WILL ACCORDINGLY RE-ADJUDIC ATE THIS ADDITION AFRESH IN ACCORDANCE WITH LAW. 6. THE NEXT GROUND OF APPEAL IS CONFIRMING THE PREL IMINARY EXPENSES OF RS.26,000/-. AT THE TIME OF HEARING, THE LD. COUNSEL OF THE ASSESSEE PO INTED OUT THAT THE EXPENSES IN QUESTION WERE INCURRED FOR INCREASING THE SHARE CAPITAL. THE LEAR NED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ACTION OF A.O. BY DISALLOWING THE EXP ENSES UNDER SECTION 35D OF THE INCOME TAX ACT OF RS.26,000/- (1/5 TH OF PRELIMINARY EXPENSES INCURRED BY THE ASSESSEE O F RS.1,30,000/- FOR INCREASE IN THE AUTHORIZED SHARE CAPITAL). THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IF IT IS NOT ALLOWED UNDER SECTION 35D, THE A.O. BE DIRECTED TO ALLOW THE ENTIRE AMOUNT UNDER SECTION 37 OF THE INCOME TAX ACT. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT APPROPRIATE RELIEF IN THIS REGARD BE ALLOWED TO THE ASSESSEE. 7. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ORDER OF AUTHORITIES BELOW. SHE POINTED OUT THAT INCREASE IN AUTHORIZED SHARE CAPITAL WAS REQUIRED TO OBTAIN FURTHER CAPITAL FUND TO ACQUIRE THE BUSINESS OF PARTNERSHIP FIRM, M/S. SAFFRON DYESTUFF INDUSTRIES AND NOT FOR EXPANSION OF BUSINESS. THEREFORE, THESE ARE NOT ALLOWABLE EITHER UNDER SECTION 37 OR UNDER SECTION 35D OF THE INCOME TAX ACT. 8. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUT HORITIES BELOW. FROM THE REASONING GIVEN BY THE A.O. AT PARA 3 IN PAGE 2 OF THE ASSESS MENT ORDER, IT IS CLEAR THAT DURING THE YEAR, THE ASSESSEE HAS INCURRED EXPENSES OF RS.1,30,000/-, WH ICH HAVE BEEN AMORTIZED BY THE COMPANY AND DEDUCTION AT 1/5 TH OF THE EXPENSES HAS BEEN CLAIMED. THIS EXPENDITURE WAS INCURRED FOR INCREASING AUTHORIZED CAPITAL FROM RS.2 CRORES TO RS. 4 CRORES AND PRELIMINARY EXPENSES INCLUDES EXPENSES INCURRED FOR PAYMENT OF ROC FEES AND STAMP DUTIES F OR INCREASING THE AUTHORIZED CAPITAL FOR EXPANDING BUSINESS. THE A.O. DISALLOWED THE SAME BY HOLDING THAT THE EXPENDITURE IS CAPITAL IN NATURE. SECTION 35D(1) OF THE ACT PROVIDES FOR AMOR TIZATION OF CERTAIN PRELIMINARY EXPENSES INCURRED BY AN INDIAN COMPANY OR RESIDENT-ASSESSEE OTHER THAN A COMPANY BEFORE THE COMMENCEMENT OF BUSINESS OR IN CONNECTION WITH THE EXTENSION OF INDUSTRIAL UNDERTAKING. THE ASSESSEE HAS INCURRED THE EXPENDITURE IN QUESTION F OR EXTENSION OF INDUSTRIAL UNDERTAKING AS IT IS INVOLVED IN MANUFACTURING OF DYES, COLOUR CHEMICALS AND FOOD COLOUR. 1/5 TH OF TOTAL EXPENDITURE IS ALLOWABLE UNDER SECTION 35D. FIRM ACQUIRED FROM ADD ITIONAL CAPITAL AND SAME IS ALSO ENGAGED IN MANUFACTURING. WE, THEREFORE, DIRECT THE A.O. TO AL LOW THE EXPENDITURE OF RS.26,000/- (BEING 4 1/5 TH OF RS.1,30,000/-) UNDER SECTION 35D OF THE INCOME TAX ACT, 1961. THIS GROUND OF APPEAL IS ALLOWED. 9. THE NEXT GROUND OF APPEAL IS AGAINST NON-ALLOWAN CE OF DEDUCTION UNDER SECTION 801B(3) OF THE INCOME TAX ACT ON PROFIT OF (UNIT-II) UNDERT AKING TAKEN OVER BY THE ASSESSEE. THE FACTS RELATING TO CONTROVERSY INVOLVED IN THIS GROUND OF APPEAL ARE THAT THE ASSESSEE COMPANY HAS TAKEN OVER THE RUNNING INDUSTRIAL UNDERTAKING OF THE PART NERSHIP FIRM AS GOING CONCERN ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB(3) OF THE INCOME TAX A CT, 1961. BEFORE THE A.O., IT WAS CONTENDED BY THE LD. COUNSEL OF THE ASSESSEE THAT ALL THE CON DITIONS LAID DOWN IN CLAUSE (I) TO (IV) OF SUB- SECTION (2) OF SECTION 80IB OF THE INCOME TAX ACT W ERE FULFILLED. HE ALSO CONTENDED THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80I B(3)(I) FOR PROFIT EARNED BY SUCH ACQUIRED UNDERTAKING (UNIT-II) FOR A PERIOD AFTER THE DATE O F ACQUISITION I.E. FROM 1.1.2000 TO 31.4.2001. IN THE ASSESSMENT ORDER, THE A.O. DENIED THE DEDUCTIO N ON THE GROUND THAT AS PER SECTION 80-IB(12), WHERE ANY UNDERTAKING OF AN INDIAN COMPANY IS ENTIT LED TO DEDUCTION UNDER THIS SECTION IS TRANSFERRED BEFORE THE EXPIRY OF PERIOD SPECIFIED, TO ANOTHER INDIAN COMPANY ON SCHEME OF MERGER, NO DEDUCTION SHALL BE ADMISSIBLE TO THE AMA LGAMATING OR THE DEMERGED UNIT FOR THE PREVIOUS YEAR, IN WHICH THE AMALGAMATION OR DEMERGE D TAKES PLACE. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) UPHELD THE ACTION OF A.O. 10. AT THE TIME OF HEARING, THE LD. COUNSEL OF THE ASSESSEE CONTENDED THAT THE ASSESSEE IS NOT THE DE-MERGED OR AMALGAMATING COMPANY. IT IS THE MA IN COMPANY WITH WHICH THE DE-MERGED OR THE AMALGAMATING COMPANY IS AMALGAMATED, IT IS THE RESULTING OR THE AMALGAMATED COMPANY. THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT IF WE READ SUB-SECTION (12) OF SECTION 80IB, IT PROVIDES THAT WHERE ANY UNDERTAKING OF AN INDIAN C OMPANY WHICH IS ENTITLED TO THE DEDUCTION UNDER THIS SECTION IS TRANSFERRED BEFORE THE EXPIRY OF THE PERIOD SPECIFIED IN THIS SECTION TO ANOTHER INDIAN COMPANY IN SCHEME OF AMALGAMATION OR DE-MERG ER :_ (A) NO DEDUCTION SHALL BE ADMISSIBLE UNDER THIS SEC TION TO THE AMALGAMATING OR THE DE-MERGED COMPANY FOR THE PREVIOUS YEAR IN WHIC H THE AMALGAMATION OR THE DE-MERGER TAKES PLACE. (B) THE PROVISIONS OF THIS SECTION SHALL, AS FAR AS MAY BE, APPLY TO THE AMALGAMATED OR THE RESULTING COMPANY AS THEY WOULD HAVE APPLIED TO THE 5 AMALGAMATING OR DE-MERGED COMPANY IF THE AMALGAMATI ON OR DE-MERGER HAD NOT TAKEN PLACE. 11. IT WAS CONTENDED BY THE LD. COUNSEL OF THE ASSE SSEE THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS NOT CONSIDERED CLAUSE (B) W HEREIN IT IS SPECIFIC THAT THE PROVISION OF THIS SECTION I.E. 80IB SHALL APPLY TO THE RESULTING COMPANY OR THE AMALGAMATED COMPANY AS IF THE AMALGAMATION OR DE-MERGER HAD NOT TAKEN PLACE, MEAN ING THEREBY THAT THE ASSESSEE COMPANY SHALL CONTINUE TO BE ELIGIBLE FOR DEDUCTION UNDER S ECTION 80IB FOR THE REMAINING PERIOD. THE LD. COUNSEL OF THE ASSESSEE FURTHER CLARIFIED THAT DE-M ERGED OR THE AMALGAMATING PARTNERSHIP FIRM HAS NOT TAKEN ANY DEDUCTION UNDER SECTION 80IB IN THE Y EAR OF AMALGAMATION OR EVEN THEREAFTER, BECAUSE THE FIRM WAS DISSOLVED AND CLOSED DOWN THER EAFTER. THE LD. COUNSEL CONTENDED THAT SINCE THE CASE OF THE ASSESSEE IS COVERED BY EXCEPTION PR OVIDED IN CLAUSE (B) OF SUB-SECTION (12) OF SECTION 80IB, THEREFORE, THE A.O. BE DIRECTED TO AL LOW DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT, 1961. 12. THE LD. D.R. APPEARED FOR THE REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. SHE POINTED OUT THAT THE OBJECT OF ALLOWANCE OF DEDUCTI ON UNDER SECTION 80IB IS TO NEW UNDERTAKING. SINCE THE ASSESSEE COMPANY HAS TAKEN OVER THE RUNNI NG BUSINESS OF EXISTING FIRM, DEDUCTION UNDER SECTION 80IB(3) WAS RIGHTLY DISALLOWED BY THE A.O. AND CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER. 13. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE HA VE ALSO GONE THROUGH THE PROVISIONS CONTAINED IN SECTION 80IB OF THE INCOME TAX ACT, 19 61. WE FOUND CONSIDERABLE FORCE IN THE SUBMISSIONS MADE BY THE LD. COUNSEL OF THE ASSESSEE THAT HIS CASE IS COVERED BY EXCEPTION PROVIDED IN CLAUSE (B) OF SUB-SECTION (12) OF SECTI ON 80IB OF THE INCOME TAX ACT, 1961. ADMITTEDLY, THE LEARNED COMMISSIONER OF INCOME TAX( APPEALS) HAS NOT CONSIDERED THE CLAUSE (B) OF SUB-SECTION (12) OF SECTION 80IB, WHICH CLEA RLY PROVIDED THAT THIS SECTION, I.E. 80IB WAS APPLIED TO THE RESULTING COMPANY OR THE AMALGAMATED COMPANY AS IF THE AMALGAMATION OR DE- MERGER HAD NOT TAKEN PLACE, MEANING THEREBY THAT TH E ASSESSEE COMPANY SHALL CONTINUE TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB FOR THE R EMAINING PERIOD. THE A.O. IS ACCORDINGLY 6 DIRECTED TO VERIFY THE REMAINING PERIOD AND ALLOW T HE DEDUCTION UNDER SECTION 80IB AS CLAIMED IN THE ASSESSMENT YEAR UNDER APPEAL AND SUBSEQUENT ASS ESSMENT YEARS IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN CLAUSE (B) OF SUB-SECTION ( 12) OF SECTION 80IB OF THE INCOME TAX ACT, 1961. AS A RESULT, THIS GROUND OF APPEAL IS ALLOWED . 14. THE NEXT GROUND OF APPEAL IS AGAINST REDUCTION OF TOTAL PROFIT OF THE BUSINESS BY A SUM CLAIMED UNDER SECTION 80IB FOR ALLOWING CLAIM UNDER ANY OTHER SECTION OF CHAPTER VIA AS PER SECTION 80IA(9). 15. IN THE ASSESSMENT ORDER, THE A.O. DISALLOWED TH E DEDUCTION UNDER SECTION 80HHC BY REDUCING FROM PROFIT OF THE BUSINESS, THE DEDUCTION UNDER SECTION 80IA HAS COMPUTED IN THE ASSESSMENT ORDER. 16. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER UPHELD THE ACTION OF A.O. 17. AT THE TIME OF HEARING, BOTH THE SIDES CONCEDED THAT THE CONTROVERSY INVOLVED IN THIS GROUND OF APPEAL IS SQUARELY COVERED BY THE DECISIO N OF THE ITAT, SPECIAL BENCH, DELHI IN THE CASE OF ACIT VS.- HINDUSTHAN MINT PRODUCT [2009] 1 19 ITD 107 (SB), WHEREIN IT WAS HELD THAT DEDUCTION TO BE ALLOWED UNDER ANY PROVISION OF CHAP TER VIA WITH THE HEADING C (COVERING SECTION 80H, 80HHC, ETC.) IS TO BE REDUCED BY AN AM OUNT OF DEDUCTION ALLOWED UNDER SECTION 80- IA AND 80-IB(10) OF THE INCOME TAX ACT. WE, THEREFO RE, RESPECTFULLY FOLLOWING THE SAME, UPHOLD THE ACTION OF BOTH THE DEPARTMENTAL AUTHORITIES BEL OW. THIS GROUND OF APPEAL IS REJECTED. 18. THE LAST GROUND OF APPEAL IS AGAINST EXCLUSION OF AMOUNT OF DEPB, EXPORT INCENTIVES, DUTY DRAW BACK INCOME FOR COMPUTING DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT ON THE GROUND THAT THESE ARE NOT DIRECTLY DERIVED FROM MANUFACTURING ACTIVITY OF THE ASSESSEE. FOR THIS PROPOSITION, THE A.O. RELIED ON THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS.- STERLING FOODS LIMITED REPORTED IN 237 ITR 57 9 (SC). 7 19. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS) UPHELD THE ACTION OF A.O. FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LIMITED VS.- CIT REPORTED IN 266 ITR 278. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE AS SESSEE IS IN APPEAL BEFORE US. 20. AT THE TIME OF HEARING, BOTH THE SIDES CONCEDED THAT UNDER THE CONTROVERSY INVOLVED IN THIS GROUND OF APPEAL IS COVERED IN FAVOUR OF REVEN UE BY LATEST DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS.- CIT (2009) 317 ITR 218 (SC). IN THIS JUDGMENT, IT IS HELD THAT DEPB/ DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAME BY THE CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT, 1 962. INCENTIVE PROFITS ARE NOT PROFITS DERIVED FROM ELIGIBLE BUSINESS UNDER SECTION 80-IB : THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. PROFITS DERIVED BY WAY OF INCENTIVES SUCH AS DEPB/ DUTY DRAWBACK CANNOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THEY DO NOT FALL WITHIN THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING UNDER SECTION 80-IB . WE, THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMEN T OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) UPHOLD THE ACTION OF A.O. EXCLUDING THE AMOUNT OF DEPB INCOME, EXPORT INCENTIVES, DUTY DRAW BACK INCOME FOR COMPUTING THE DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT, 1961. THI S GROUND OF APPEAL IS ACCORDINGLY REJECTED. 21. NOW WE TAKE UP THE ITA NO. 637/AHD,/2007 . THIS APPEAL HAS FILED BY THE ASSESSEE AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-VI, AHMEDABAD DATED 04.01.2007 FOR THE ASSESSMENT YEAR 2003-04. 22. THE FIRST GROUND OF APPEAL IS AGAINST NON-ALLOW ANCE OF INTEREST ON TDS AMOUNTING TO RS.1,01,931/-. 23. WE HAVE HEARD BOTH THE SIDES. IN THE RETURN OF INCOME, ASSESSEE-COMPANY ITSELF OFFERED THE INTEREST ON TDS RS.1,01,931/- FOR TAXATION. THI S GROUND OF APPEAL WAS NOT PRESSED BY THE LD. COUNSEL OF THE ASSESSEE BEFORE THE LEARNED COMMISSI ONER OF INCOME TAX(APPEALS). WE, THEREFORE, DECLINE TO INTERFERE. THIS GROUND OF APP EAL IS REJECTED. 8 24. THE NEXT GROUND OF APPEAL IS AGAINST NON-ALLOWA NCE OF INTEREST ON DELAYED PAYMENT OF SALES TAX AMOUNTING TO RS.6,606/-. 25. THE CONTROVERSY INVOLVED IN THIS GROUND WAS AL SO INVOLVED IN THE ASSESSMENT YEAR 2001- 02. WHILE ADJUDICATING THE GROUND NO. 1 FOR THAT AS SESSMENT YEAR (SUPRA), WE HAVE RESTORED THE IDENTICAL ISSUE TO THE FILE OF A.O. FOR THE REASONS GIVEN THEREIN, THE ADDITION OF RS.6,606/- IS ALSO RESTORED TO THE FILE OF A.O., WHO WILL RE-ADJUDICAT E THE SAME AFRESH IN ACCORDANCE WITH LAW AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 26. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE OF DEDUCTION UNDER SECTION 80IB AMOUNTING TO RS.13,12,965/-. 27. WE HAVE HEARD BOTH THE SIDES. WE HAVE PERUSED T HE ORDERS OF AUTHORITIES BELOW AS WELL AS MATERIAL AVAILABLE ON RECORD. WE HAVE ALREADY DISCU SSED THE ISSUE IN OUR ORDER AS MENTIONED IN PARA 13 ABOVE IN I.T.A. NO.1207/AHD./2005 FOR THE A SSESSMENT YEAR 2001-02. WE FOUND CONSIDERABLE FORCE IN THE SUBMISSIONS MADE BY THE L D. COUNSEL OF THE ASSESSEE THAT THIS CASE IS COVERED BY EXCEPTION PROVIDED IN CLAUSE (B) OF SUB- SECTION (12) OF SECTION 80IB OF THE INCOME TAX ACT, 1961. ADMITTEDLY, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS NOT CONSIDERED THE CLAUSE (B) OF SUB-SECTION (12) OF SE CTION 80IB, WHICH CLEARLY PROVIDED THAT THIS SECTION, I.E. 80IB WAS APPLIED TO THE RESULTING COM PANY OR THE AMALGAMATED COMPANY AS IF THE AMALGAMATION OR DE-MERGER HAD NOT TAKEN PLACE, MEAN ING THEREBY THAT THE ASSESSEE COMPANY SHALL CONTINUE TO BE ELIGIBLE FOR DEDUCTION UNDER S ECTION 80IB FOR THE REMAINING PERIOD. THE A.O. IS ACCORDINGLY DIRECTED TO VERIFY THE REMAINING PER IOD AND ALLOW THE DEDUCTION UNDER SECTION 80IB AS CLAIMED IN THE ASSESSMENT YEAR UNDER APPEAL AND SUBSEQUENT ASSESSMENT YEARS IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN CLAUSE (B) OF SUB-SECTION (12) OF SECTION 80IB OF THE INCOME TAX ACT, 1961. AS A RESULT, THIS GROUND OF A PPEAL IS ALLOWED. 28. NOW WE TAKE UP THE ITA NO. 160/AHD./2007 . 29. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST T HE ORDER DATED 13.11.2006 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-V, AHMEDABAD CO NFIRMING THE PENALTY OF RS.6,60,997/- 9 LEVIED BY THE A.O. UNDER SECTION 271(1)(C) OF THE I NCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2001-02. 30. BRIEFLY STATED THE FACTS ARE THAT THE A.O. HAD COMPLETED THE ASSESSMENT FOR THE ASSESSMENT YEAR UNDER APPEAL AT A TOTAL INCOME OF RS.1,11,13,1 57/- AS AGAINST RETURNED INCOME OF RS.90,42,710/-. ON APPEAL, FOLLOWING TWO ADDITIONS WERE CONFIRMED :- (I) DISALLOWANCE UNDER SECTION 80HHC AMOUNTING TO RS.7,18,720/-; (II) DISALLOWANCE UNDER SECTION 80IB AMOUNTING TO RS.9,52,575/-. SUBSEQUENTLY, THE A.O. ISSUED SHOW-CAUSE NOTICE ASK ING THE ASSESSEE TO SHOW WHY PENALTY UNDER SECTION 271(1)(C) SHOULD NOT BE LEVIED IN RESPECT O F DISALLOWANCE OF (I) RS.7,18,720/- FOR CLAIM OF DEDUCTION UNDER SECTION 80HHC AND (II) RS.9,52,575/ - ON ACCOUNT OF NON-ALLOWANCE OF DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT. AFTER CON SIDERING THE REPLY OF THE ASSESSEE, THE A.O. LEVIED PENALTY OF RS.6,60,997/- @ 100% OF TAX SOUGH T TO BE EVADED IN RESPECT OF BOTH THE DISALLOWANCES FOR THE DETAILED REASONS GIVEN IN PEN ALTY ORDER. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HEL D AS UNDER :- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE. SO FAR AS CLAIM OF DEDUCTION U/S. 80HHC WAS CONCERNED ASSESSEE WAS HAV ING NEGATIVE PROFIT FROM EXPORT OF TRADING GOODS, WHILE THERE WA S A PROFIT FROM EXPORT OF MANUFACTURED GOODS. AT THE TIME OF ASSESSMENT DE DUCTION U/S. 80HHC WAS CLAIMED ON THE BASIS OF DEDUCTION OF AHMEDABAD BENCH OF ITAT IN THE CASE OF PRATIBHA SYNTEX LTD. BY WHICH LOSS WERE TO BE IGNORED. THE CLAIM OF THE ASSESSEE WAS DENIED WHEN DECISION OF H ON'BLE APEX COURT IN THE CASE OF IPCA LABORATORIES WAS PRONOUNCED. THERE FORE, AT THE TIME OF MAKING THE CLAIM IT CAN REASONABLY BE HELD THAT THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT THE CLAIM MADE BY IT WOULD BE ALLOWABLE IN VIEW OF DECISION OF THE AHMEDABAD BENCH OF ITAT. THUS SO FA R AS CLAIM U/S. 80HHC IS CONCERNED, THE ASSESSEE CANNOT BE HELD TO HAVE FURNISHED INACCURATE PARTICULARS OF THE CLAIM SO THAT ANY PEN ALTY CAN BE LEVIED. COMING TO THE CLAIM OF DEDUCTION U/S. 80IB, IT IS N OTICED THAT THE ASSESSEE COMPANY HAD TAKEN OVER THE BUSINESS OF A PARTNERSHI P FIRM WHICH WAS OTHERWISE ENTITLED TO DEDUCTION U/S. 80IB IN ITSELF . IT WAS CLAIMED THAT SINCE THE BUSINESS OF PARTNERSHIP FIRM WAS TAKEN OV ER AS A GOING CONCERN AND SUCH TRANSFER OF WHOLE OF THE BUSINESS OF THE G OING CONCERNS WAS LIKE MERGER OF TWO COMPANIES. HOWEVER, THIS WAS NOT ACCE PTED BECAUSE PROVISIONS OF SECTION 80IB(12) CLARIFIES THAT IF BU SINESS OF AN ASSESSEE WHO WAS ELIGIBLE TO DEDUCTION U8/S. 80IB IS TRANSFE RRED BEFORE THE PERIOD 10 SPECIFIED, NO DEDUCTION SHALL BE ADMISSIBLE. HERE I T IS TO BE POINTED OUT THAT THE CASE LAW RELIED UPON BY THE ASSESSEE WAS O N AN ENTIRELY DIFFERENCE ISSUE. IN FACT SECTION 80IB(12) ITSELF I S VERY CLEAR THAT NO DEDUCTION SHALL BE AVAILABLE IF THE UNIT IS TRANSFE RRED. IN THE CASE, SIMILAR IS THE SITUATION AND BUSINESS OF THE FIRM WAS TRANS FERRED TO THE ASSESSEE- COMPANY. THE CLAIM MADE CANNOT BE SAID TO BE BONAFI DE BECAUSE SPECIFIC PROHIBITION IN THE ACT ITSELF. THUS SO FAR AS REDUC TION IN CLAIM AMOUNTING TO RS.9,52,575/- ON ACCOUNT OF DISALLOWANCE U/S. 80 IB IS CONCERNED, ASSESSEE IS LIABLE FOR PENALTY U/S. 271(1)(C)M BECA USE THE CLAIM HAS BEEN MADE DESPITE SPECIFIC PROHIBITION IN PROVISIONS OF THE ACT, ITSELF. THE A.O. VIDE ORDER DATED 23.03.2006 LEVIED THE PEN ALTY OF R.6,60,997/- IN RESPECT OF CONCEALMENT OF INCOME TO THE EXTENT OF RS.19,82,991 /- (IN RESPECT OF DISALLOWANCE OF RS.7,18,720/- CLAIMED AS DEDUCTION UNDER SECTION 80 HHC AND RS.9,52,575/- ON ACCOUNT OF DISALLOWANCE FROM CLAIM OF DEDUCTION UNDER SECTION 80IB). 31. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS) RESTRICTED THE PENALTY TO MINIMUM LEVIABLE IN RESPE CT OF DISALLOWANCE UNDER SECTION 80IB, BECAUSE ACCORDING TO HIM, THE ASSESSEE HAS FURNISHE D INACCURATE PARTICULARS OF INCOME. 32. AGGRIEVE BY THE ORDER OF LEARNED COMMISSIONER O F INCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE US. 33. AT THE TIME OF HEARING, THE LD. COUNSEL OF THE ASSESSEE APPEARED AND CONTENDED THAT PENALTY TO THE EXTENT OF RS.3,76,743/- CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN RESPECT OF DISALLOWANCE OF CLAIM OF DEDUCTION UNDER SECTION 80IB SHOULD BE DELETED BECAUSE THE ASSESSEE HAS NEITHER CONCEALED INACCURATE PARTICULARS OF INCOME NOR FURNISHED INACCURATE PARTICULARS THEREOF. THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT AGAINST THE DISALLOWANCE OF DEDUCTION UNDER SECTION 80IB, AN AP PEAL IS FILED IN ITA NO. 1207/AHD./2005. WHILE ARGUING THAT APPEAL, DETAILED WRITTEN SUBMISS IONS WERE PLACED AND AFTER CONSIDERING THOSE SUBMISSIONS MADE THEREIN, IT MAY BE CLEAR THAT THE ASSESSEE HAS NEITHER CONCEALED PARTICULARS OF ITS INCOME NOR FURNISHED INACCURATE PARTICULARS THE REOF. 11 34. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 35. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WHILE DECIDING THE ASSESSEES QUANTUM APPEAL FOR THE ASSE SSMENT YEAR 2001-02 IN ITA NO. 1207/AHD./2005 (SUPRA), WE HOLD THAT THE ASSESSEE I S ENTITLED TO DEDUCTION UNDER SECTION 80IB. CONSEQUENTLY, NO PENALTY UNDER SECTION 271(1)(C) IS LEVIABLE. THEREFORE, PENALTY TO THE EXTENT OF RS.3,76,743/- CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS HEREBY CANCELLED. 36. IN THE RESULT, THE APPEALS BEING I.T.A. NOS. 12 07/AHD./2005 AND 637/AHD./2007 FILED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2001-02 & 200 3-04 RESPECTIVELY ARE PARTLY ALLOWED AS INDICATED ABOVE. THE APPEAL BEING I.T.A NO. 160/AHD ./2007 FOR THE ASSESSMENT YEAR 2001-02 FILED BY THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED IN THE COURT ON 23.10.2009 SD/- SD/- (D.C. AGARWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23 / 10 / 2009 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT, 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.