DCIT, CC-VI, Kolkata, Kolkata V. M/s. Maithan Smelters Ltd., Kolkata

ITA 1327/KOL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99738 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 10-10-2011
• Court: TRIBUNAL
• Department Lawyers: AMITAVA BHATTACHARJEEJCITSR
• Assessee Lawyers: MANISH TIWARI
• Keywords: Business income; Additional evidence; Assessment record
• Section: 143(3); 80IB; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A , KOLKATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANESH, AM ] ITA NO.1327/KOL/2011 ASSESSMENT YEAR : 2005 - 06 ( A PPELLANT ) (RESPONDENT) D.C.I.T., CENTRAL CIRCLE - VI, - VERSUS - M/S. MAITHAN SMELTERS LTD. KOLKATA KOLKATA (PAN: AACCM 9380 J) FOR THE APPELLANT : SHRI AMITAVA BHATTACHARJEE,JCIT,SR.DR FOR THE RESPONDENT : SHRI MANISH TIWARI, FCA DATE OF HEARING : 18.08 .2015. DATE OF PRONOUNCEMENT : ORDER PER SHRI M. BALAGANESH, AM THIS APPEAL OF REVENUE ARISES OUT OF ORDER OF LD. CIT(A) - I, KOLKATA IN APPEAL NO . 606/CIT(A) - I/CIR - 3/07 - 08 DATED 15.07.2011 FOR A.Y.2005 - 06 2. THE FIRST ISSUE TO BE DECIDED IS AS TO WHETHER THE LD. CIT(A) IS CORRECT IN DIRECTING THE LD. AO TO GRANT DEDUCTION U/S 80IB OF THE ACT ON ACCOUNT OF TRANSPORT AND OTHER SUBSIDIES AMOUNTING TO RS.52,22,555/ - . 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY STARTED ITS FACTORY UNIT AT EXPORT PROMOTIONAL INDUSTRIAL PARK, BYRNI HAT, MEGHALAYA FOR MANUFACTURE OF FERRO ALLOYS AND IN ORDER TO AVAIL INCENTIVE DECLARED BY GOVERNMENT OF MEGHALAYA IN ITS INDUSTRIAL POLICY FORMULATED IN 1997 EFFECTIVE FROM 15 TH AUGUST, 1997. THE ASSESSEE HAD COMMENCED ITS COMMERCIAL PRODUCTION ON 02.10.2 001 RELEVANT TO A.Y.2002 - 03 AND IN VIEW OF THE LOSS, NO DEDUCTION U/S 80IB WAS CLAIMED BY THE ASSESSEE FOR THE SAID ASSESSMENT YEAR. HOWEVER, THE CLAIM OF DEDUCTION U/S 80IB OF THE ACT WAS MADE FOR THE FIRST TIME BY THE ASSESSEE IN A.Y.2003 - 04 WHICH WAS D ULY GRANTED BY THE LD.AO IN THE SCRUTINY ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 147 OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS UNDER APPEAL I.E. 2005 - 06, THE LD. AO FOUND THAT THE ASSESSEE WAS IN RECEIPT OF THE FOLLOWING SUBSIDIES FROM THE G OVERNMENT : - ITA NO. 1327/KOL/2011 M/S. MAITHAN SM ELTERS LTD. A.YR. 2005 - 06 2 1) TRANSPORT SUBSIDY : RS.34,30,378/ - 2) SUBSIDY ON WORKING CAPITAL INTEREST : RS. 1,52,177/ - 3) SUBSIDY ON POWER TARIFF : RS.14,00,000/ - 4) SUBSIDY ON LONG TERM LOAN INTEREST : RS. 2,40,000/ - RS.52,22,555/ - THE LD. AO CONCLUDE D THAT THE AFORESAID SUBSIDIES WERE NOT ENTITLED FOR DEDUCTION U/S 80IB OF THE ACT AS THEY CANNOT BE CONSTRUED AS PROFIT S AND GAIN S DERIVED FROM THE INDUSTRIAL UNDERTAKING ON THE GROUND THAT THE SUBSIDY RECEIPTS ARE ANCILLARY IN NATURE OR MERELY INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND THEY ARE ONLY SUPPLEMENTARY IN NATURE DOLED OUT BY THE GOVERNMENT FOR ENCOURAGEMENT AND GROWTH OF BUSIN ESS IN THE BACKWARD AREA AND T HE ACCRU AL OF THESE SUBSIDIES WAS NOT DEPENDENT ON THE NATURE OR YIELD OF THE PRODUCT S OF THE ASSESSEE COMPANY. AGGRIEVED, THE ASSESSEE CHALLENGED THIS ISSUE BEFORE THE LD. CIT(A), WHO DELETED THE ADDITION MADE BY THE LD.AO BY RELYING ON THE EARLIER YEAR I.E. A.Y.2004 - 05 ORDER OF THE LD. CIT(A) AND ITAT ON THE IDENTICAL ISSUE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS : - 1 . THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD.CIT(A) ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION UNDER SECTION 80IB ON TRANSPORT AND OTHER SUBSID Y OF RS.52,22,555/ - . 2 . THAT IN DOING SO, LD. CIT(A) FAILED TO CONSIDER THE CATEGORICAL FINDINGS OF HON BLE APEX COURT IN THE CASE OF LIBERTY INDIA VS CIT (2009) 317 ITR 218. 3 . THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) FAILED TO APPRECIATE THA T TRANSPORT SUBSIDY AND INTEREST SUBSIDY WERE NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. 4. SHRI AMITAVA BHATTACHARJEE, JCIT, SR.DR, THE LD. DR APPEARED ON BEHALF OF THE REVENUE AND SHRI MANISH TIWARI, FCA, LD. AR APPEARED ON BEH ALF OF THE ASSESSEE. 5. THE LD. DR ARGUED THAT THE ISSUES BEFORE THE TRIBUNAL HAVE BEEN DECIDED AGAINST THE ASSESSEE BY THE HON BLE APEX COURT ON SIMILAR ISSUE IN THE CASE OF LIBERTY INDIA VS CIT (2009) 317 ITR 218 AND ACCORDINGLY PRAYED FOR SETTIN G ASIDE THE LD. CIT(A) S ORDER AND RESTORE THE ORDER OF THE LD. AO. ITA NO. 1327/KOL/2011 M/S. MAITHAN SM ELTERS LTD. A.YR. 2005 - 06 3 6. IN RESPONSE TO THIS, THE LD. AR ARGUED THAT THE SUBSIDIES PROVIDED BY THE GOVERNM ENT FORM AN INTEGRAL PART OF BUSINESS RECEIPTS OF THE ASSESSEE AND THEY ARE DIRECTLY RELATED TO TH E COST OF PRODUCTION AND SALES AND ADMINISTRATION INCURRED BY THE INDUSTRIAL UNITS. HE FURTHER ARGUED THAT THE SELLING PRICE OF THE PRODUCTS ARE FIXED AFTER DETERMIN ING THE COST WHICH IS REDUCED BY THE AMOUNT OF SU BSIDY EXPECTED TO BE RECEIVED FROM TH E GOV ERNMENT AND HENCE SUBSIDY RECEIVED BY THE INDUSTRIAL UNIT HAVE DIRECT AND IMMEDIATE NEXUS WITH THE BUSINESS OPERATION S OF THE ASSESSEE. HE ALSO PLEADED THAT THIS ISSUE RAISED BY THE REVENUE IS DIRECTLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF T HIS TRIBUNAL FOR A.Y.2004 - 05 IN ASSESSEE S OWN CASE AND THE DECISION OF THE HON BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS MEGHALAYA STEELS LTD. (2013)34 TAXMANN.COM 34 (GAUHATI) VIDE ORDER DATED 29.05.2013 CLEARLY DISTINGUISHED THE DECISION OF THE HON B LE APEX COURT IN THE CASE OF LIBERTY INDIA . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE HAS BEEN ELABORATELY DEALT WITH BY THE HON BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS MEGHALAYA STE ELS LTD VI DE ORDER DATED 29.05.2013 WHEREIN THEIR LORDSHIPS HAD CLEARLY DISTINGUISHED THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF LIBERTY INDIA CASE AND IT IS PERTINENT TO GO INTO THE OPERATIVE PORTION OF THE HON BLE GAUHATI HIGH COURT S DECISION IN RESPECT OF EACH CATEGORY OF SUBSIDY WHICH IS IN DI S PUTE BEFORE US: - 1. TRANSPORT SUBSIDY 88. IN THE LIGHT OF WHAT HAVE BEEN DISCUSSED ABOVE, THERE CAN BE ESCAPE FROM THE CONCLUSION THAT TRANSPORT SUBSIDY WAS AIMED AT REDUCING THE COST OF PRODUCTION OF THE INDUSTRIAL UNDERTAKINGS 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. SUCH PROFITS AND GAINS OUGHT TO HAVE BEEN TREATED, AND HAS RIGHTLY BEEN TREATED, BY THE LEARNED TRIBUNAL, TO BE PROFITS AND GAINS DERIVED FROM, OR DERIVED BY, THE INDUSTRIAL UNDERTAKING CONCERNED. 89. THE REVENUE, IT HAS BEEN RI GHTLY CONTENDED BY MR.AGARWALLA, LEARNED SENIOR COUNSEL, HAS NOT EVEN ATTEMPTED TO DISTINGUISH THE DECISION, IN JAI BHAGWAN OIL & FLOUR MILLS CASE (SUPRA), IN ANY MANNER WHATSOEVER, WHEN THIS DECISION MAKES IT MORE THAN ABUNDANTLY CLEAR THAT TRANSPORT SUBS IDY GOES ON TO REDUCE THE COST OF PRODUCTION OF THE INDUSTRIAL UNDERTAKING LEADING TO EARNING OF PROFITS AND MAKING OF GAINS BY THE INDUSTRIAL UNDERTAKING. ITA NO. 1327/KOL/2011 M/S. MAITHAN SM ELTERS LTD. A.YR. 2005 - 06 4 94. PUT SHORTLY, THERE IS AN EXISTENCE OF DIRECT NEXUS BETWEEN TRANSPORT SUBSIDY, ON THE ONE HAND, AND THE MANUFACTURING/PRODUCTION ACTIVITIES OF INDUSTRIAL UNDERTAKING, ON THE OTHER, STANDS WELL ESTABLISHED. UNLESS SHOWN OTHERWISE, THE INDUSTRIAL UNDERTAKINGS, IN THE PRESENT SET OF APPEALS, WHICH HAVE BEEN GRANTED TRANSPORT SUBSIDY, ARE ENTITLED TO CLA IM DEDUCTIONS IN TERMS OF THE DIRECTIONS OF THE LEARNED TRIBUNAL. 2. POWER SUBSIDY : 105. FROM A COMBINED READING OF THE TWO DECISIONS, RENDERED IN RAJARAM MAIZE PRODUCTS (SUPRA) AND EASTERN ELECTRO CHEMICAL INDUSTRIES CASE (SUPRA), WHAT BECOMES TRANSP ARENT IS THAT POWER SUBSIDY IS MEANT TO ENABLE A PERSON MEET A CERTAIN PERCENTAGE OF EXPENDITURE ON POWER AND IS, THEREFORE, REVENUE IN NATURE. HOWEVER, THOUGH REVENUE IN NATURE, THE FACT REMAINS THAT IT HELPS IN NOT ONLY GROWTH OF THE INDUSTRIAL UNDERTAKI NG, BUT ALSO HELP AN INDUSTRIAL UNDERTAKING TO EARN PROFITS AND MAKE GAINS. SUCH A SUBSIDY, THOUGH REVENUE IN NATURE AND TAXABLE ACCORDINGLY, IS NONETHELESS COVERED BY THE PROVISIONS EMBODIED IN SECTION 80IB OR 80IC, AS THE CASE MAY BE. 106. SITUATED THUS, THE PRINCIPLE, DEDUCIBLE FROM THE CASES OF SAHNEY STEEL & PRESS WORKS LTD S . CASE (SUPRA), RAJARAM MAIZE PRODUCTS CASE (SUPRA) AND EASTERN ELECTRO CHEMICAL INDUSTRIES CASE (SUPRA), IS THAT WHEN A SUBSIDY, GRANTED BY GOVERNMENT, IS OPERATIONAL IN NATURE, WHICH HELPS IN GENERATION OF PROFITS FOR ANY INDUSTRIAL UNDERTAKING, SUCH A PROFIT IS, INDEED, COVERED BY THE PROVISIONS EMBODIED IN SECTION 80IB OR 80IC, AS THE CASE MAY BE. 109. WE, NOW, TURN TO THE CASE OF PANCHARATNA CEMENT (P) LTD. (SUPRA), WHEREIN A MITAVA ROY, J., (AS HIS LORDSHIP, THEN, WAS ), HAS, UPON CONSIDERATION OF THE SUBSIDY INVOLVED, TOOK THE VIEW THAT THE AMOUNT OF SUBSIDY, GIVEN BY WAY OF ASSISTANCE OR GRANTS BY THE GOVERNMENT, SERVES AS STIMULUS TO THE WILLING INDUSTRIAL ESTABLISHMENTS TO CATER TO THE GROWTH OF THE REGION AND, THUS, REINFORCE THE EVENTUAL INCOME OF THE BUSINESS OF THE UNDERTAKING. THOUGH THE CASE OF PANCHARATNA CEMENT (P.) LTD. (SUPRA) IS, AS RIGHT POINTED OUT BY THE LEARNED ASG, AROSE OUT OF A WRIT PETITION AND NOT AN APP EAL UNDER THE ACT, THE FACT REMAINS THAT THE LAW, LAID DOWN THEREIN, IS RELEVANT IN DETERMINING THE CONTROVERSY, WHICH IS REQUIRED TO BE DEALT WITH IN THIS SET OF APPEALS. THE RELEVANT OBSERVATIONS, APPEARING AT PARA 3 2, IN PANCHARATNA CEMENT (P.) LT D. (SU PRA), IS, THEREFORE, QUOTED BELOW : ..IT CANNOT BE GAINSAID THAT HAVING REGARD TO THE LAYOUT OF INVESTMENT AND INCOME DESIGNED FOR ANY COMMERCIAL OR BUSINESS VENTURE, REIMBURSEMENT OF THE EXPENSES INCURRED TO WHATEVER EXTENT, WOULD LOGICALLY C ONTRIBUTE TO THE PROFITS AND GAINS DERIVED FROM THE RELATED ENTERPRISE AND THUS WOULD AUGMENT THE OVERALL INCOME. THE AMOUNTS OF SUBSIDIES AS THE FACTS OF THE CASE REVEAL ARE BY WAY OF GOVERNMENT ASSISTANCE OR GRANTS UNDER THE SCHEMES TO PROVIDE STIMULUS T O THE WILLING INDUSTRIAL ESTABLISHMENTS TO CATER TO THE INDUSTRIAL GROWTH IN THE REGION AND, THEREFORE, THE SAME (SUBSIDY) ARE AIMED NECESSARILY AT NEUTRALIZING THE EXPENSES INCURRED AND THUS REINFORCE THE EVENTUAL INCOME OF THE BUSINESS UNDERTAKING. (EMP HASIS SUPPLIED) 110. WE RESPECTFULLY AGREE WITH THE ABOVE OBSERVATIONS, MADE IN PANCHARATNA CEMENT (P)LTD. CASE (SUPRA), AND THE LAW LAID DOWN THEREIN. 3.INTEREST SUBSIDY : 112. THE FACTS ARE, THEREFORE, NOT IN DISPUTE ON THIS ASPECT. THE DISPUTE IS : WHETHER THE INTEREST SUBSIDY IS PAYABLE ON NON - OPERATIONAL OR OPERATIONAL SUBSIDY? IF THE OBJECT OF THE RELEVANT SCHEME IS BORNE IN MIND, IT CLEARLY SHOWS THAT INTEREST SUBSIDY, HAVING AIMED AT REDUCING THE INTEREST PAYABLE ON WORKING CAPITAL BY AN INDUS TRIAL UNDERTAKING, HELPS DIRECTLY IN REDUCING THE COST OF MANUFACTURING OR PRODUCTION ACTIVITIES AND ITA NO. 1327/KOL/2011 M/S. MAITHAN SM ELTERS LTD. A.YR. 2005 - 06 5 ESTABLISH THEREBY DIRECT AND FIRST DEGREE NEXUS BETWEEN THE INDUSTRIAL ACTIVITIES OF THE ASSESSEE - RESPONDENTS, ON THE ONE HAND, AND THE INTEREST SUBSIDY, O N THE OTHER, RECEIVED BY THE ASSESSEE - RESPONDENTS AND, IN CONSEQUENCE THEREOF, SINCE INTEREST SUBSIDY RESULTS INTO PROFITS AND GAINS DERIVED FROM, OR DERIVED BY, AN INDUSTRIAL UNDERTAKING, THERE IS NO REASON AS TO WHY SUCH PROFITS AND GAINS, EARNED BY AN I NDUSTRIAL UNDERTAKING ON THE STRENGTH OF SUCH A SUBSIDY, NAMELY, INTEREST SUBSIDY, BE NOT ALLOWED TO BE DEDUCTED FROM THE TAXABLE INCOME OF THE INDUSTRIAL UNDERTAKING CONCERNED. NOW IT IS RELEVANT TO UNDERSTAND HOW THE HON BLE GAUHATI HIGH COURT HAD DIS TINGUISHED THE DECISION OF THE HON BLE APEX COURT IN LIBERTY INDIA CASE. THE HON BLE GAUHATI HIGH COURT HAS HELD AS UNDER : - 124. LOGICALLY EXTENDED, THIS WOULD MEAN THAT THERE WAS NO RELATIONSHIP OR NEXUS BETWEEN THE EXPORT INCENTIVE, ON THE ONE HAND, A ND MANUFACTURING/PRODUCTION, ON THE OTHER. DEPB ENTITLEMENT WAS BASED ON THE ARTIFICE OF DEEMED IMPORT CONTENT OF EXPORT PRODUCT AND WAS NOT EVEN BASED ON ACTUAL IMPORT CONTENT OF THE EXPORT PRODUCT; WHEREAS, IN THE CASES AT HAND, THE TRANSPORT SUBSIDY WAS MADE AVAILABLE ON THE RAW MATERIAL ACTUALLY CONSUMED IN THE MANUFACTURING PROCESS AND FINISHED GOODS, WHICH WERE ACTUALLY PRODUCED AND TAKEN TO THE EXISTING MARKET FOR SALE AND, SIMILARLY, POWER SUBSIDY, INTEREST SUBSIDY, AND INSURANCE SUBSIDY ARE, AS ALR EADY INDICATED ABOVE, MADE AVAILABLE ON THE ACTUAL AMOUNT OF THE POWER BILL, INTEREST AND INSURANCE PREMIUM PAID BY THE ASSESSEE - RESPONDENTS CONCERNED THE INFERENCE, SO DRAWN, GETS REINFORCED FROM THE FACT THAT DEPB ENTITLEMENT WAS FREELY TRANSFERABLE AND SALEABLE RESULTING IN PROFIT OR LOSS. 125. THAT THE CASE OF LIBERTY INDIA CASE (SUPRA) IS NOT APPLICABLE TO THE CASES AT HAND IS ALSO EVIDENT FROM THE FACT THAT THE OBJECT BEHIND DEPB WAS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY PAYMENT ON THE IMPORT D UTY OF THE EXPORT PRODUCT AND, HENCE, THE DEPB SCHEME WAS NOT AIMED AT NEUTRALIZING THE COST OF PRODUCTION; RATHER, AS OBSERVED BY THE SUPREME COURT, IT WAS AN INCENTIVE FOR EXPORT AND ENTITLEMENT AROSE, WHEN EXPORT WAS MADE AND NOT OTHERWISE. 127. MOST I MPORTANTLY, POINTED OUT THE SUPREME COURT, IN LIBERTY INDIA CASE (SUPRA), THAT THE RULES DO NOT ENVISAGE A REFUND OF AN AMOUNT ARITHMETICALLY EQUAL TO EXEMPTION DUTY OR CENTRAL EXCISE DUTY ACTUALLY PAID BY AN INDIVIDUAL IMPORTER/MANUFACTURER. THIS IS T HE STRIKING DIFFERENCE BETWEEN SUBSIDIES ON TRANSPORTATION COST, POWER, INTEREST AND INSURANCE, IN THE CASES AT HAND, ON THE ONE HAND, AND DUTY DRAWBACK SCHEME, ON THE OTHER, INASMUCH AS THE SUBSIDIES, SO PROVIDED TO THE ASSESSES CONCERNED, ARE ARITHMETICA LLY EQUIVALENT TO THE COST OF RAW MATERIALS ACTUALLY USED IN THE MANUFACTURING PROCESS AND THE FINISHED GOODS, WHICH IS ACTUALLY TAKEN TO THE EXISTING MARKET FOR SALE WITHIN AND OUTSIDE THE NORTH - EASTERN REGION AND, SIMILARLY, THE ASSESSEES CONCERNED HAVE THE RIGHT TO RECEIVE POWER SUBSIDY, ARISING OUT OF POWER BILLS PAID, OR INTEREST SUBSIDY OR INSURANCE SUBSIDY, EQUIVALENT TO THE AMOUNT PAID ON INTEREST AND INSURANCE RESPECTIVELY. THESE ASPECTS OF DEPB AND DUTY DRAWBACK SCHEME GIVE RISE TO THE INFERENCE T HAT THE DECISION, IN LIBERTY INDIA (SUPRA), WAS RENDERED, IN THE LIGHT OF ITS OWN FACTS, AND NOT FOR UNIVERSAL APPLICATION. THIS INFERENCE GETS STRENGTHENED FROM THE FOLLOWING OBSERVATIONS MADE IN LIBERTY INDIA CASE (SUPRA) : THE NEXT QUESTION IS WHAT IS DUTY DRAWBACK? SECTION 75 OF THE CUSTOMS ACT, 1962 AND SECTION 37 OF THE CENTRAL EXCISE ACT, 1944 EMPOWER GOVERNMENT OF INDIA TO ITA NO. 1327/KOL/2011 M/S. MAITHAN SM ELTERS LTD. A.YR. 2005 - 06 6 PROVIDE FOR REPAYMENT OF CUSTOMS AND EXCISE DUTY PAID BY AN ASSESSEE. THE REFUND IS OF THE AVERAGE AMOUNT OF DUTY PAID ON M ATERIALS OF ANY PARTICULAR CLASS OR DESCRIPTION OF GOODS USED IN THE MANUFACTURE OF EXPORT GOODS OF SPECIFIED CLASS. THE RULES DO NOT ENVISAGE A REFUND OF AN AMOUNT ARITHMETICALLY EQUAL TO CUSTOMS DUTY OR CENTRAL EXCISE DUTY ACTUALLY PAID BY AN INDIVIDUAL IMPORTER - CUM - MANUFACTURER. SUB - SECTION (2) OF SECTION 75 OF THE CUSTOMS ACT REQUIRES THE AMOUNT OF DRAWBACK TO BE DETERMINED ON A CONSIDERATION OF ALL THE CIRCUMSTANCES PREVALENT IN A PARTICULAR TRADE AND ALSO BASED ON THE FACTS SITUATION RELEVANT IN RESP ECT OF EACH OF VARIOUS CLASSES OF GOODS IMPORTED. BASICALLY, THE SOURCE OF DUTY DRAWBACK RECEIPT LIES IN SECTION 75 OF THE CUSTOMS ACT AND SECTION 37 OF THE CENTRAL EXCISE ACT (EMPHASIS SUPPLIED) 128. IN SHORT, THUS, THE DEPB AND DUTY DRAWBACK SCHEME WE RE NOT, AS ALREADY INDICATED ABOVE, RELATED TO THE BUSINESS OF INDUSTRIAL UNDERTAKING PER SE FOR ITS MANUFACTURING OR PRODUCTION. ENTITLEMENT FOR DEPB OR DUTY DRAWBACK SCHEME AROSE, WHEN THE UNDERTAKING DECIDED TO EXPORT AFTER MANUFACTURING OR PRODUCTION A ND THIS INCENTIVE WAS RESTRICTED ONLY TO THE EXPORT OF GOODS OF A SPECIFIED CLASS. CONSEQUENTLY, IF THERE WAS NO EXPORT, THERE WAS NO INCENTIVE FROM DEPB OR DUTY DRAWBACK. THIS APART, DEPB OR DUTY DRAWBACK SCHEME DID NOT PROVIDE REFUND OF EXEMPTION FROM CE NTRAL EXCISE DUTY ACTUALLY PAID. 129. THUS, THE RELATIONSHIP UNDER THE DEPB OR DUTY DRAWBACK SCHEME, ON THE ONE HAND, AND THE MANUFACTURING OR PRODUCTION, ON THE OTHER , WAS NOT PROXIMATE AND DIRECT. THE ENTITLEMENT WAS BASED ON THE ARTIFICE OF AVERAGE AMO UNT OF DUTY PAID. IN THE CASE OF TRANSPORT SUBSIDY, POWER SUBSIDY AND INSURANCE SUBSIDY, THE RELATION BETWEEN SUBSIDY RECEIVED, ON THE ONE HAND, AND THE PROFITS EARNED OR THE GAINS MADE, BY AN INDUSTRIAL UNDERTAKING, STAND, AS ALREADY OBSERVED AT PARAGRAPH 127, WELL ESTABLISHED. 131. LIBERTY INDIA CASE (SUPRA), IT MAY BE NOTED, IS, THUS, AN EXPOSITION OF LAW ON THE SCHEMES OF DEPB AND DUTY DRAWBACK SCHEME, WHICH RELATE TO EXPORT OF GOODS BY AN INDUSTRIAL UNDERTAKING; WHEREAS THE SCHEME OF TRANSPORT SUBSIDY, INTEREST SUBSIDY, POWER SUBSIDY AND INSURANCE SUBSIDY, IS INEXTRICABLY AND DIRECTLY CONNECTED WITH THE REDUCTION OF COST OF PRODUCTION AND MANUFACTURING OF AN INDUSTRIAL UNDERTAKING ENTITLING THEREBY THE ELIGIBLE INDUSTRIAL UNDERTAKINGS TO CLAIM DEDUCTION UNDER SECTION 80IB OR 80IC, AS THE CASE MAY BE. 132. THE DECISION, IN LIBERTY INDIA CASE (SUPRA), IS, THEREFORE, NOT, IN OUR CONSIDERED VIEW, RELEVANT TO THE SCHEMES OF SUBSIDIES AT HAND. SIMILAR ADDITION MADE BY THE LD. AO FOR A.Y.2004 - 05 HAS BEEN DE LETED BY THE ITAT, KOLKATA A BENCH IN ASSESSEE S OWN CASE REPORTED IN (2009) 118 ITD 273 (KOL). 14. APART FROM THE ABOVE DECISIONS OF COURTS, WE ALSO FIND THAT THE HON BLE SUPREME COURT IN ITS LANDMARK JUDGMENT IN CASE OF BAJAJ TEMPO LTD. V. CIT [1992] 62 TAXMAN 480 HAS HELD THAT A PROVISION INTENDED FOR PROMOTING ECONOMIC GROWTH REQUIRES TO BE INTERPRETED LIBERALLY AND NOT TO FRUSTRATE IT AND SINCE IN THE PRESENT CASE ALSO, THE SCHEME OF TRANSPORT SUBSIDY AND OTHER SUBSIDIES GRANTED BY THE GOVERNMENT T O THE ASSESSEE IS INTENDED TO PROMOTE INDUSTRIAL AND ECONOMIC GROWTH IN NORTH - EASTERN STATE, SUCH RECEIPT OF SUBSIDY BY THE ASSESSEE CERTAINLY FORM PART OF ITS NORMAL BUSINESS ACTIVITY AND HAS A DIRECT NEXUS WITH THE NORMAL BUSINESS TRANSACTION FOR WHICH D EDUCTION UNDER SECTION 80 - IB IS AVAILABLE TO THE ASSESSEE. WE, THEREFORE, DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE UNDER SECTION ITA NO. 1327/KOL/2011 M/S. MAITHAN SM ELTERS LTD. A.YR. 2005 - 06 7 80 - IB ON SUCH TRANSPORT AND OTHER SUBSIDY AND, THEREFORE, UPHOLD T HE SAME AND REJECT THE GROUNDS RAISED BY THE REVENUE. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS, WE HOLD THAT THE INTEREST SUBSIDY, TRANSPORT SUBSIDY AND POWER SUBSIDY RECEIVED BY THE ASSESSEE ARE ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT AND ACCORD INGLY, GROUNDS 1 TO 3 RAISED BY THE REVENUE ARE DISMISSED. 8. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL OF THE REVENUE IS AS TO WHETHER THE LD. CIT(A) IS CORRECT IN DELETING THE ADDITION MADE IN THE SUM OF RS.84,75,159/ - ON ACCOUNT OF CLOSING STOCK VALU ATION OF RAW MATERIALS. 9. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF FERRO ALLOYS AND FOR WHICH PURPOSE MANGANESE ORE IS THE MAIN RAW MATERIAL. THE ASSESSEE HAD PURCHASED THE SAME ON DIFFERENT DATES DURING THE YEAR AND HAD FURNISHED MONTH - WISE QUANTITATIVE DETAILS TOGETHER WITH ITS RESPECTIVE VALUE S AND CONSUMPTION DETAILS THEREON BEFORE THE LD. AO AND THE LD. CIT(A). THE ASSESSEE HAD ADOPTED WEIGHTED AVERAGE RATE FOR VALUING ITS CLOSING STOCK OF RAW MATERIALS IN CO NSONANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM IN THIS REGARD OVER THE YEARS. ACCORDINGLY, THE WEIGHTED AVERAGE RATE OF RAW MATERIALS WORKED OUT TO RS.5109/ - PER MT. ON THE CONTRARY, THE LD. AO ADOPTED THE LATEST PURCHASE PRICE AND ADOPT ING THE VALUE AT RS.7,437/ - PER MT FOR VALUATION OF CLOSING STOCK OF RAW MATERIALS THEREBY MAKING AN ADDITION OF RS.84,75,159/ - IN THE ASSESSMENT. AGGRIEVED, THE ASSESSEE CHALLENGED THIS ISSUE BEFORE THE LD. CIT(A), WHO GAVE A FINDING THAT THE ASSESSEE H AS BEEN ADOPTING AVERAGE WEIGHTED PRICE CONSISTENTLY OVER THE YEARS AND THERE IS NO NEED TO DISTURB THE SAME AND ACCORDINGLY DELETED THE ADDITION. AGGRIEVED BY THE LD. CIT(A) S ORDER, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND : - 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) OVERLOOKED THE FACT THAT A.O. MADE ADDITION ON ACCOUNT UNDER VALUATION OF RAW MATERIALS ON THE BASIS OF ITA NO. 1327/KOL/2011 M/S. MAITHAN SM ELTERS LTD. A.YR. 2005 - 06 8 FACTS AND ASSESEE HAS NO SPECIFIC METHOD OF VALUATION TO JUSTIFY THE LOWER RATE ADOPTED FOR VA LUING THE CLOSING STOCK. 10. THE LD. DR STATED THAT THE RATE CHART CONTAINING THE MONTH - WISE QUANTITATIVE DETAILS TOGETHER WITH ITS VALUE S AS MENTIONED IN THE CIT(A) S ORDER WERE NOT PRODUCED BEFORE THE AO BY THE ASSESSEE AND WAS FILED BEFORE CIT(A) AS AN ADDITIONAL EVIDENCE AND ACCORDINGLY THE CIT(A) OUGHT TO HAVE SOUGHT FOR A REMAND REPORT FROM THE AO BEFORE PASSING THE ORDER AND HENCE THERE IS VIOLATION OF RULE 46A OF THE INCOME TAX RULES AND PRAYED FOR SETTING ASIDE THIS ISSUE TO THE FILE OF AO FOR H IS VERIFICATION. 11. ON THE CONTRARY, THE LD. AR VEHEMENTLY OPPOSED THE ARGUMENTS ADVANCED BY THE LD. DR AND STATED THAT THE MONTH - WISE QUANTITATIVE PARTICULARS TOGETHER WITH THEIR VALUES HAVE BEEN DULY FILED BEFORE THE LD. AO DURING THE ASSESSMENT PROCE EDINGS VIDE LETTER DATED 26.12.2007. MOREOVER, THE REVENUE HAD NOT RAISED ANY GROUND FOR VIOLATION OF RULE 46A BEFORE THE TRIBUNAL AND HENCE THE ARGUMENTS ADVANCED BY THE LD. DR DESERVE S TO BE DISMISSED. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. FORTUNATELY THE LD. DR HAD BROUGHT THE ASSESSMENT RECORDS AT THE TIME OF HEARING AND ON VERIFICATION OF THE SAME, IT WAS FOUND THAT THE ASSESSEE HAD INDEED FILED A REPLY LETTER CONTAINING THE MONTH - WISE QUANTITATIVE DE TAILS TOGETHER WITH ITS VALUES, CONSUMPTION DETAILS ETC. FOR RAW MATERIALS VIDE REPLY TO QUESTION NO.4 IN HIS LETTER DATED 26.12.2007. IT IS ALSO SEEN THAT THE REVENUE HAD NOT RAISED ANY GROUND BEFORE US FOR VIOLATION OF RULE 46A AND HENCE THE CONTENTION R AISED BY THE LD. DR IN THIS REGARD IS DISMISSED. IT IS ALSO SEEN THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE WEIGHTED AVERAGE PRICE FOR VALUATION OF CLOSING STOCK OF RAW MATERIALS AND SIMILAR ADDITION MADE FOR A.Y.2004 - 05 IN THE HANDS OF THE ASSE SSEE HAD BEEN DELETED BY THIS TRIBUNAL IN ASSESSEE S OWN CASE REPORTED IN (2009) 118 ITD 273 (KOL). THE RELEVANT OPERATIVE PORTION IS REPRODUCED HEREIN FOR THE SAKE OF CONVENIENCE : - 17. THE LD. CIT(A) HAS DELETED THE ABOVE TWO ADDITIONS MADE BY THE ASSE SSING OFFICER CONSIDERING THE VALUATION SHOWN BY THE ASSESSEE AS UNDER - VALUED. THE LD. CIT(A) HAS DELETED SUCH ADDITION OBSERVING THAT THE ASSESSEE HAD FURNISHED QUANTITATIVE INVOICES OF THE STOCK SHOWING THE OPENING BALANCE, PRODUCTION, SALES AND CLOSING STOCK AND THE ITA NO. 1327/KOL/2011 M/S. MAITHAN SM ELTERS LTD. A.YR. 2005 - 06 9 ASSESSING OFFICER HAS NOT MADE ANY ADVERSE COMMENTS ON SUCH STOCK STATEMENT SUBMITTED BY THE ASSESSEE. THE LD. CIT(A) HAS FURTHER OBSERVED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE AUDITED AND NO DEFECT HAS BEEN POINTED OUT BY THE ASSESSI NG OFFICER ON SUCH AUDITED SETS OF ACCOUNTS AND THE ACTION OF ASSESSING OFFICER IN CONSIDERING THE STOCK OF FINISHED GOODS AND RAW MATERIALS AS UNDERVALUED IS BASED ON MERE PRESUMPTION AND WITHOUT ANY MATERIAL EVIDENCE ON RECORD. HE HAS, ACCORDINGLY, DELET ED THE ADDITION MADE BY THE ASSESSING OFFICER. 18. IN APPEAL BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE COULD NOT CONTROVERT THE ABOVE OBSERVATION OF LD. CIT(A) WHILE DELETION THE ADDITION MADE BY THE ASSESSING OFFICER. 19. WE, AFTER HE ARING BOTH THE PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, ARE OF THE OPINION THAT THE ADDITION WAS MADE BY THE ASSESSING OFFICER WITHOUT BRINGING ANY MATERIAL EVIDENCE ON RECORD, WHEREIN THE ASSESSEE HAS DULY SUBMITTED THE DETAILS OF STOCK, I.E . OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK, APART FROM ABOVE FACT THE BOOKS OF ASSESSEE ARE AUDITED AND THE ASSESSING OFFICER HAS NOT PASSED ANY ADVERSE COMMENT ON SUCH AUDITED STATEMENT AND THE STOCK STATEMENT FILED BY THE ASSESSEE AND IN THESE C IRCUMSTANCES, THE ACTION OF ASSESSING OFFICER IN MAKING ADDITION ON MERE PRESUMPTION WAS NOT CORRECT AND THE LD. CIT(A) WAS JUSTIFIED IN DELETING SUCH ADDITION. WE, THEREFORE, DO NOT SEE ANY REASON TO INTERFERE WITH SUCH ORDER OF LD. CIT(A) AND, THEREFORE, UPHOLD THE SAME AND REJECT THE GROUNDS RAISED BY THE REVENUE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND FROM THE MATERIALS ON RECORD AND IN VIEW OF THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE ON IMPUGNED ISSUE FOR A.Y.2004 - 05, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS RECORDED BY THE LD. CIT(A) AND ACCORDINGLY, GROUND NO.4 RAISED BY THE REVENUE IS DISMISSED. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNC ED IN TH E COURT ON 26.8.15. SD/ - SD/ - [MAHAVIR SINGH] [M.BALAG ANESH] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 26.08.2015 R.G.(.P.S.) ITA NO. 1327/KOL/2011 M/S. MAITHAN SM ELTERS LTD. A.YR. 2005 - 06 10 COPY OF THE ORDER FORWARDED TO : 1 . M/S. MAITHAN SMELTERS LTD., IDEAL PLAZA, 9, A.J.C.BOSE ROAD, KOLKATA. 2 THE D.C.I.T., CENTRAL CIRCLE - VI, KOLKATA. 3 . THE CIT - I, KOLKATA , 4. THE CIT(A) - I, KOLKATA. 5 . DR, KOLKATA BENCHES, KOLKATA TRUE COPY , BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES