The DCIT, Circle - 1, Rajkot V. M/s Timewell Technics Pvt. Ltd., Rajkot

ITA 129/RJT/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7158 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 08-02-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S L MEENA
• Assessee Lawyers: J C RANPURA
• Keywords: Source of fund
• Section: 80HHC; 260A; 80IB; 80IA; 80HH; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI M.V.NAYAR (AM) AND SHRI D.T. GARASIA (J M) ITA NO. 129/RJT/2007 & CO : 19/RJT/2007 (A.Y. 2003-04) THE DCIT CIRCLE-1, RAJKOT APPELLANT V/S. M/S. TIMEWELL TECHNICS P. LTD. 50 FT ROAD, PARSANA RAJKOT RESPONDENT PAN : AAACT7815R APPELLANT BY : SHRI S L MEENA, CIT(DR) RESPONDENT BY : SHRI J C RANPURA, CA O R D E R PER D.T. GARASIA, JM THIS APPEAL IS RECALLED VIDE ORDER OF MA NO.14/RJT /2009 DTD. 17/04/20069. THE FACTS LEADING TO THE MA AND THE PRESENT ORDER IS DISCUSSE D HERE BELOW. THE ASSESSEE IS A CLOSELY HELD PRIVATE LIMITED COMPANY AND HAD CLAIMED DEDUCTION U /S. 80HHC OF RS 73,60,557/- AS WELL AS U/S. 80IB. OF RS 44,46,409/-. THE AO IN THE ASSESS MENT ORDER PASSED ON 24.3.2006 HAD HELD THAT, AS PER THE PROVISIONS OF SECTION 8IA(9), THE ASSESS EE IS NOT ENTITLED TO ANY DEDUCTION UNDER ANY OTHER PROVISIONS OF THIS CHAPTER TO THE EXTENT OF S UCH PROFITS AND GAINS WHICH HAS BEEN CLAIMED AND ALLOWED UNDER THIS SECTION FOR ANY ASSESSMENT Y EAR AND IN NO CASE IT SHALL EXCEED THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS OR UNDERTAKING. THE AO ALSO DENIED DEDUCTION U/S. 80IB IN RESPECT OF DEPB CREDIT AND THUS, BY VIRTUE OF SECTI ON 80IA(9), HE REWORKED THE DEDUCTION ALLOWABLE/ELIGIBLE U/S. 80IB(3) AT RS 6,98,341/-. FOR DEDUCTION ELIGIBLE U/S. 80HHC, THE AO HAD HELD THAT, BY VIRTUE OF SECTION 80IA(9), THE ASSESS EE WILL BE ENTITLED TO DEDUCTION U/S. 80HHC TO ITA NO. 129/RJT/2007 A.Y. 2003-04 2 THE EXTENT OF PROFITS AND GAINS REDUCED BY THE DEDU CTION ALLOWABLE U/S. 80IB SUBJECT TO THE CONDITION THAT IT SHALL NOT EXCEEDED THE PROFITS AN D GAINS OF SUCH ELIGIBLE BUSINESS. HE THEREFORE REWORKED THE DEDUCTION U/S. 80HHC AFTER EXCLUDING T HE AMOUNT OF DEDUCTION ALLOWABLE TO THE ASSESSEE U/S. 80IB. THUS THE DEDUCTION U/S. 80HHC WAS ACCORDINGLY REWORKED OUT AT RS 70,11,577/-. 2. ON FIRST APPEAL, THE LD. CIT(A) VIDE HIS ORDER D ATED 24.11.2006 HAD ALLOWED THE ASSESSEES APPEAL BY HOLDING THAT, THE OBJECT OF THE DEPB SCHE ME IS TO NEUTRALIZE THE EXPORTER OF EXTRA EXPENDITURE INCURRED IN THE FORM OF EXCISE DUTY SO AS TO MAKE THE GOODS COMPETITIVE IN THE INTERNATIONAL MARKET AND WHENEVER THE ASSESSEE SELL S DEPB LICENSE IT HAS TO BE TREATED AS INCOME DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING , SINCE THE TERMS IS NOT PROFIT DERIVED FROM INDUSTRIAL UNDERTAKING BUT THE PROFIT DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING, WHICH HAVE A WIDER MEANING. REGARDING THE CLAIM OF DEDUCT ION U/S. 80HHC, THE LD. CIT(A) DIRECTED THAT THE SAME STANDS MODIFIED ACCORDINGLY. 3. AGAINST THE ORDER OF THE LD. CIT(A), THE REVENUE FILED APPEAL REGARDING THE ASSESSEES CLAIM OF DEDUCTION U/S. 80IB AND THE ASSESSEE FILED APPEAL AGAINST THE LD. CIT(A)S ORDER WITH REGARD TO DEDUCTION U/S. 80HHC WHEREIN HE HAD DIREC TED TO ALLOW THE SAME AFTER KEEPING THE PROVISIONS OF SECTION 80IA(9). THIS TRIBUNAL VIDE O RDER DATED 8.8.2007 HAD HELD THAT, ON THE GROUND OF CLAIM OF DEDUCTION ON DEPB, THE ISSUE INV OLVED IS SQUARELY COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V S INDIA GELATINE & CHEMICALS LTD (2005) 275 ITR 284 (GUJ). THUS, THE REVENUES GROUND WAS D ISMISSED. REGARDING THE CROSS APPEAL OF THE ASSESSEE WITH REGARD TO THE RESTRICTION OF CLAI MS OF DEDUCTION WITH REGARD TO THE PROVISIONS OF SECTION 80IA(9), THIS TRIBUNAL HAD, ON THE BASIS OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF JCIT VS MANDIDEEP ENGINEERING & PACKAGI NG INDUSTRIES P LTD. (292 ITR 1) WHEREIN THE HONBLE SUPREME COURT HAD HELD THAT, SECTIONS 8 0HH AND 80I OF THE INCOME TAX ACT 1961 ARE INDEPENDENT AND THEREFORE, DEDUCTIONS CAN BE CLAIME D BY A NEWLY ESTABLISHED INDUSTRIAL UNDERTAKING UNDER BOTH THE SECTION 80HH AND 80I ON THE GROSS TOTAL INCOME. THUS, THE ASSESSEES CO WAS ALLOWED. ITA NO. 129/RJT/2007 A.Y. 2003-04 3 4. AGAINST THIS ORDER, THE REVENUE HAD FILED APPEAL U/S. 260A BEFORE THE HONBLE GUJARAT HIGH COURT RAISING ONLY ONE GROUND VIZ., WHETHER THE TRIBUNAL IS RIGHT IN LAW AND ON FACTS I N CONFIRMING THE ORDER PASSED BY THE CIT(A) IN DELETI NG THE DISALLOWANCE OF DEDUCTION U/S. 80IB OF RS 37,48,068/-. 4.1 THE REVENUES MAIN PLEA TAKEN UP BEFORE THE HON BLE GUJARAT HIGH COURT WAS THAT, THE TRIBUNAL HAD WRONGLY RECORDED UNDER PARAGRAPH 4 OF THE IMPUGNED ORDER DATED 8.8.2007 THAT BOTH THE SIDES HAD ACCEPTED THAT THE ISSUE INVOLVED WAS SQUARELY COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT. THE HONBLE HIGH COURT O F GUJARAT UNDER ORDER NO 650 OF 2008 HAD HELD THAT, ASSUMING THAT THE GRIEVANCE MADE BY THE LD COUNSEL IS CORRECT VIZ., THE DEPARTMENTAL REPRESENTATIVE BEFORE THE TRIBUNAL HAD NOT ACCEPTED AS NOTED BY THE TRIBUNAL, THE REMEDY OF THE APPELLANT WOULD BE TO MORE THE TR IBUNAL SEEKING APPROPRIATE RECTIFICATION OF THE IMPUGNED ORDER. 5. ACCORDINGLY, THE REVENUE VIDE APPLICATION DATED 25.3.2009 FILED A MISCELLANEOUS APPLICATION WHEREIN IT WAS PRAYED THAT THE ORDER OF THIS TRIBUNAL MAY BE RECALLED ON THE BASIS OF THE DIRECTION OF THE HONBLE GUJARAT HIGH COURT. TH IS TRIBUNAL HAD RECORDED THE REASONS IN THE MA ORDER PASSED UNDER MA NO. 14/RJT/2009 DATED 17.4 .2009 AND RECALLED THE EARLIER ORDER DATED 8.8.2007. ON GOING THROUGH THE REVENUES APPLICATIO N AS ALSO ON GOING THROUGH THE GROUNDS RAISED BY THE REVENUE BEFORE THE HONBLE GUJARAT HI GH COURT, IT IS SEEN THAT THE REVENUE IS GRIEVED BY THE ORDER OF THIS TRIBUNAL FAVOURING THE ASSESSEE, WITH RESPECT TO THE ASSESSEES CLAIM OF DEDUCTION U/S. 80IB ON SALE OF DEPB LICENSES, ON THE BASIS OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE CIT VS INDIA GELATIN E & CHEMICALS LTD (2005) 275 ITR 284 (GUJ). 7. WE FIND THAT THE ISSUE STANDS DECIDED BY THE HON BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS CIT (317 ITR 218) HOLDING THAT, DE PB ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY THE CENTRAL GOVERNMENT OR FROM SE CTION 75 OF THE CUSTOMS ACT, 1962 AND HENCE, INCENTIVE PROFITS ARE NOT PROFITS DERIVED FR OM THE ELIGIBLE BUSINESS UNDER SECTION 80IB. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS. BASICALLY, THE SOURCE OF ITA NO. 129/RJT/2007 A.Y. 2003-04 4 DUTY DRAWBACK RECEIPT LIES IN SECTION 75 OF THE CUS TOMS ACT AND SECTION 37 OF THE CENTRAL EXCISE ACT. IN THE CIRCUMSTANCES, PROFITS DERIVED BY WAY O F SUCH INCENTIVES DO NOT FALL WITHIN THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTA KING IN SECTION 80IB. FURTHER, DUTY DRAWBACK, REBATE, ETC SHOULD NOT BE TREATED AS ADJUSTMENT (CR EDITED) TO COST OF PURCHASE OR MANUFACTURE OF GOODS. THEY SHOULD BE TREATED AS SEPARATE ITEMS OF REVENUE OR INCOME AND ACCOUNTED FOR ACCORDINGLY. THEREFORE, DUTY DRAW BACK, DEPB BENEFI TS, REBATES ETC CANNOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE P&L ACCOUNT FOR PURPOSES OF SECTION 80IA / 80IB AS SUCH REMISSIONS (CREDITS) WOULD CONSTITUTE INDEP ENDENT SOURCES OF INCOME BEYOND THE FIRST DEGREE NEXUS BETWEEN PROFITS AND THE INDUSTRIAL UND ERTAKING. 8. HENCE, RESPECTFULLY THE ABOVE DECISION OF THE HO NBLE SUPREME COURT, IT IS HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR CLAIM OF DEDUCTION U/S . 80IB ON SALE OF DEPB LICENSES AND ACCORDINGLY, THE APPEAL OF THE REVENUE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON _19/03/20 10 _ . SD/- SD/- (M.V.NAYAR) (D.T.GARASIA) ACCOUNTANT MEMBER JUDICIAL MEM BER DATE : 19/03/2010 RAJKOT COPY FORWARDED TO, 1. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, RAJKOT 2. M/S TIMEWELL TECHNICS PVT. LTD., 50 FEET ROAD, 6 , PARSANA SOCIETY, RAJKOT 3. THE CIT-I, RAJKOT 4. THE CIT(A)-I, RAJKOT 5. THE D.R., I.T.A.T., RAJKOT 6. THE GUARD FILE TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY