AVR Zinc Products Pvt. Ltd., Hyderabad V. Dy. Commissioner of Income Tax, Hyderabad

ITA 1374/HYD/2013

• Counselvise Citation: 137422514 RSA 2013
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 22-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B RAMA KRISHNA
• Assessee Lawyers: S RAMA RAO
• Keywords: Business income
• Section: 80IB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 1374/HYD/2013 ASSESSMENT YEAR 2007-08 M/S. AVR ZINC PRODUCTS PVT. LTD., HYDERABAD PAN: AADCA4720D VS. THE DEPUTY CIT CIRCLE-1(1) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI S. RAMA RAO RESPONDENT BY: SRI B. RAMA KRISHNA DATE OF HEARING: 15 .0 9 .201 4 DATE OF PRONOUNCEMENT: 29.10.2014 O R D E R PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-V, HYDERABAD DATED 26.07.2013 FOR A.Y . 2007-08. 2 FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF ZINC PRODUCTS, FILED I TS RETURN OF INCOME FOR THE A.Y. 2007-08 ON 12-10-2007 DISCLOSIN G NIL INCOME UNDER NORMAL PROVISIONS AND RS. 18,48,590 UN DER MAT PROVISIONS. THE ASSESSMENT WAS COMPLETED BY THE ASS ESSING OFFICER DETERMINING THE TOTAL INCOME AT RS. 1,78,51 ,426 BY REDUCING OTHER INCOME OF RS. 1,64,11,809 FROM THE E LIGIBLE PROFITS WHILE CALCULATING THE DEDUCTION U/S 80IB OF THE ACT. 3 THE ASSESSEE CLAIMED DEDUCTION OF RS. 1,84,68,405 U /S 80IB IN RESPECT OF THE PROFITS AND GAINS OF INDUSTR IAL ITA NO. 1374/HYD/2013 M/S. AVR ZINC PRODUCTS PVT. LTD. ========================= 2 UNDERTAKING. THE AO OBSERVED THAT THAT ASSESSEE HAS OTHER INCOME OF RS. 1,64,11,809 WHICH CANNOT BE SAID TO B E DERIVED FROM INDUSTRIAL UNDERTAKING. THE OTHER INCOME CONS ISTED OF VARIOUS ITEMS OF OTHER INCOMES LIKE FREIGHT RECEIPT S, CENVAT, MODVAT RECEIPTS, AGRICULTURAL INCOME, EDUCATION CES S RECEIPTS WHICH NEEDS TO BE EXCLUDED FROM THE BUSINESS PROFIT S OF ELIGIBLE BUSINESS FOR COMPUTING DEDUCTION U/S 80IB OF THE AC T. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE OTHER REC EIPTS ARE INCIDENTAL TO AND LINKED TO THE BUSINESS OF THE ASS ESSEE AND HENCE WAS TREATED AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING. THE AO, HOWEVER, DID NOT ACCEPT THE C ONTENTION OF THE ASSESSEE. RELYING ON THE DECISIONS OF MADRAS H IGH COURT IN THE CASE OF PANDIAN CHEMICALS LTD. ((233 ITR 497), CIT VS SIDHAGANGA OIL EXTRACTIONS LTD (201 ITR 531) (KARN) , CIT VS STERLING FOODS LTD (237 ITR 579) (SC) AND IN THE CA SE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LIMITED (113 ITR 84) REDUCED THE OTHER INCOME OF RS. 1,64,11,809 FROM THE ELIGIBLE P ROFIT OF RS. 1,84,68,405 AND CALCULATED DEDUCTION U/S 80IB AT RS . 6,16,979, DISALLOWING RS. 1,78,51,426. 4 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASS ESSEE SUBMITTED THAT THE CIT (APPEALS)-II, HYDERABAD, VID E ITA NO. 0225/CIT(A)-II/08-09 DATED 18-03-2009, FOR A.Y. 200 6-07, IN THE ASSESSEE'S OWN CASE, HAS DIRECTED THE AO TO INC LUDE THE CENVAT/MODVAT RECEIPTS IN THE PROFITS OF THE BUSINE SS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80IB. ON A PPEAL BY THE DEPARTMENT, THE ITAT, VIDE ITA NO. 754/HYD/2009 DATED 16-7-2010, IN ASSESSEE'S OWN CASE, REVERSED THE ORD ER OF THE CIT (APPEALS)-II, HYDERABAD, AND HELD THAT THE CENVAT/M ODVAT RECEIPTS HAVE TO BE EXCLUDED FROM THE ELIGIBLE PROF ITS OF BUSINESS FOR DEDUCTION U/S 80IB, RELYING ON THE DECISION OF THE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (317 ITR 218). THE ITA NO. 1374/HYD/2013 M/S. AVR ZINC PRODUCTS PVT. LTD. ========================= 3 ASSESSEE ALSO RELIED ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF DHARMPAL PREMCHAND LIMITED REPORTED IN 317 ITR 353, WHICH HELD THAT THE DECISION OF THE SUPREME COURT I N THE CASE OF LIBERTY INDIA LIMITED (317 ITR 218) WILL NOT APPLY TO EXCISE DUTY REFUND BUT ONLY APPLIES TO DEPB CREDIT, WHICH IS DI FFERENT BEING AN INCENTIVE. IT WAS SUBMITTED THAT THIS DECISION OF DHARMPAL PREMCHAND HAS BECOME FINAL BY DISMISSAL OF SLP FILE D BY THE DEPARTMENT BEFORE THE SUPREME COURT AS OBSERVED BY THE ITAT, DELHI IN THE CASE OF M/S JK ALUMINIUM COMPANY, FOR A.Y. 2007- 08 VIDE ITA NO. 3303/DEL/2010 DATED 29-4-2011. 5 REGARDING FREIGHT RECEIPTS OF RS. 8,23,241, THE ASS ESSEE CONTENDED THAT THEY FORM PART OF SALES AND CANNOT B E TREATED SEPARATELY AS 'OTHER INCOME' RELYING ON THE CASES O F DYER MEAKIN BREWERIES LTD VS. STATE OF KERALA (26 STC 248) AND HINDUSTAN SUGAR MILLS LTD VS. STATE OF RAJASTHAN (43 STC 13). 6 REGARDING CENVAT/MODVAT RECEIPTS AND EDUCATION CESS RECEIPTS, THE ASSESSEE SUBMITTED THAT THE INCO ME IS OVERSTATED IN RESPECT OF CENVAT/MODVAT RECEIPTS AND EDUCATION CESS RECEIPTS. THE SAME HAVE BEEN ALREADY SHOWN IN RESPECTIVE ACCOUNTS OF PURCHASES AND SALES. IT WAS SUBMITTED THAT THE ACCOUNTANT BY INADVERTENCE INSTEAD OF REDU CING THE CREDIT AVAILABLE FROM PURCHASES, CREDITED THE SAME TO P&L ACCOUNT RESULTING IN OVERSTATEMENT OF INCOME. THE A SSESSEE SUBMITTED THAT THE CENVAT CREDIT HAS ARISEN ON ACCO UNT OF WRONG ACCOUNTING TREATMENT GIVEN TO SUCH RECEIPTS. IT WAS FURTHER SUBMITTED THAT IT IS MANDATORY UNDER THE PR OVISIONS OF SECTION 145A TO INCLUDE ALL DUTIES PAID OR RECEIVED IN PURCHASES, SALES AND CLOSING STOCK. ONCE THE MANDATORY ADJUST MENT UNDER THE PROVISIONS OF SECTION 145A IS DONE THEN THERE W ILL NOT BE ANY INCOME FROM THE CENVAT & MODVAT CREDIT. THE VERY PU RPOSE OF BRINGING IN THE PROVISIONS OF SECTION 145A IS TO ENSURE THAT ITA NO. 1374/HYD/2013 M/S. AVR ZINC PRODUCTS PVT. LTD. ========================= 4 THE CENVAT/MODVAT CREDITS ARE CONSIDERED IN THE TRA DING ACCOUNT AND SUBMITTED THAT THE AO IS NOT CORRECT IN HOLDING THAT THEY REPRESENT 'OTHER INCOME' THAT IS NOT ELIG IBLE FOR DEDUCTION U/S 80IB. 7 THE CIT(A) HELD THAT THE CIT (A)-II, HYDERABAD, VID E ITA NO. 0225/CIT(A)-II/08-09 DATED 18-03-2009, FOR A.Y . 2006-07, IN ASSESSEE'S OWN CASE, HAS DIRECTED THE AO TO INCL UDE THE CENVAT/MODVAT RECEIPTS IN THE PROFITS OF THE BUSINE SS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80IB. ON A PPEAL BY THE DEPARTMENT, THE ITAT, VIDE ITA NO. 754/HYD/2009 DATED 16-7-2010, IN ASSESSEE'S OWN CASE, REVERSED THE ORD ER OF THE CIT (A)-II, HYDERABAD, AND HELD THAT THE CENVAT/MODVAT RECEIPTS HAVE TO BE EXCLUDED FROM THE ELIGIBLE PROFITS OF BU SINESS FOR DEDUCTION U/S 80IB, RELYING ON THE DECISION OF THE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (317 ITR 218) AND THE FACTS OF THE CASE-LAW CITED BY THE ASSESSEE IN THE CASE OF DHARAMPAL PREMCHAND LIMITED ARE NOT APPLICABLE TO T HE FACTS OF THE ASSESSEE. THE CIT(A) FOLLOWING THE TRIBUNAL'S DECISION REFERRED TO ABOVE HELD THAT THE CENVAT/MODVAT AND EDUCATION CESS RECEIPTS WHICH ARE INTER-RELATED, HA VE TO BE EXCLUDED FROM THE ELIGIBLE PROFITS OF BUSINESS FOR COMPUTATION OF DEDUCTION U/S 80IB AND DIRECTED THE AO ACCORDINGLY. 8 THE LEARNED AR SUBMITTED THAT THE ORDER OF THE LEAR NED CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER I N EXCLUDING THE 'GROSS OTHER INCOME' AMOUNTING TO RS. 1,64,11,809 F OR THE PURPOSE OF DETERMINING THE DEDUCTION U/S. 80IB OF T HE IT ACT. THE AR FURTHER SUBMITTED THAT THE CIT(A) OUGHT TO H AVE DIRECTED THE ASSESSING OFFICER TO EXCLUDE ONLY THE 'NET OTHE R INCOME' TO THE EXTENT SUCH OTHER INCOMES ARE NOT ATTRIBUTABLE TO THE BUSINESS INCOME. THE AR SUBMITTED THAT THE CIT(A) SHOULD NOT ITA NO. 1374/HYD/2013 M/S. AVR ZINC PRODUCTS PVT. LTD. ========================= 5 HAVE CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN RESTRICTING THE DEDUCTION U/S. 80IB TO RS. 6,16,979. 9 THE LEARNED DR, ON THE OTHER HAND, CONTENDED THAT T HE DECISION OF THE SUPREME COURT IN THE CASE OF ACG AS SOCIATED CAPSULES PVT. LTD. VS. CIT (343 ITR 89) IS APPLICAB LE IN THE PRESENT CASE. 10 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE DIRECTION U/SS. 80HH, 80J, 80IB AND 80IA IS BASED ON THE INCOME DERIVED FROM THE SPECIFIC TYPE OF UNDERTAKING REFERRED IN THE RESPECTIVE SECTIONS. T HE PROFIT AND GAINS DERIVED FROM THE ELIGIBLE UNIT ARE TO BE COMP UTED BY TAKING THE INCOME AND EXPENDITURE THAT CAN BE SAID TO BE R ELATED TO THE BUSINESS OF THE UNDERTAKING IN THE FIRST DEGREE. T HE RECEIPT AND EXPENDITURE WHICH CANNOT BE SAID TO BE RELATED TO T HE UNDERTAKING IN THE FIRST DEGREE HAS TO BE REMOVED. NOT ONLY RECEIPTS WHICH ARE NOT RELATED CLOSELY TO THE BUSIN ESS OF THE UNDERTAKING SHOULD BE REMOVED BUT ALSO EXPENDITURE INCURRED FOR EARNING SUCH EXCLUDED INCOME SHOULD ALSO BE EXC LUDED FROM THE COMPUTATION OF RELIEF UNDER THESE SECTIONS. TH IS HAS BEEN HELD BY THE APEX COURT IN THE CASE OF ACG ASSOCIATE D CAPSULES PVT. LTD. VS. CIT (343 ITR 89), WHICH IS AS FOLLOWS : 'UNDER CLAUSE (1) OF EXPLANATION (BAA), NINETY PER CENT OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE IN CLUDED IN ANY SUCH PROFITS ARE TO BE DEDUCTED FROM THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BU SINESS OR PROFESSION'. THE EXPRESSION 'INCLUDED ANY SUCH PRO FITS' IN CLAUSE (1) OF THE EXPLANATION (BAA) WOULD MEAN ONLY SUCH RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT WHICH ARE INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THEREFORE, IF ANY QUANT UM OF THE RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE IS ALLOWED AS EXPENSES UNDER SECTIONS 30 TO 44D OF THE ACT AND IS NOT ITA NO. 1374/HYD/2013 M/S. AVR ZINC PRODUCTS PVT. LTD. ========================= 6 INCLUDED IN THE PROFITS OF BUSINESS AS COMPUTED UND ER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', NINE TY PER CENT OF SUCH QUANTUM OF RECEIPTS CANNOT BE REDUCED UNDER CLAUSE (1) OF EXPLANATION (BAA) FROM THE PROFITS OF THE BU SINESS. IN OTHER WORDS, ONLY NINETY PER CENT OF THE NET AMOUNT OF ANY RECEIPT OF THE NATURE MENTIONED IN CLAUSE (1) WHICH IS ACTUALLY INCLUDED IN THE PROFITS OF THE ASSESSEE IS TO BE DE DUCTED FROM THE PROFITS OF THE ASSESSEE FOR DETERMINING 'PROFITS OF THE BUSINESS' OF THE ASSESSEE UNDER EXPLANATION (BAA) TO SECTION 80HHC.' 11 THE HONBLE SUPREME COURT WHILE DEALING WITH THE EXCLUSION OF RECEIPTS IN THE NATURE OF COMMISSION, INTEREST, CHARGES, ETC., UNDER EXPLANATION (BAA) TO SECTION 8 0HHC HAS HELD THAT ONLY THE NET INCOME OF THESE TYPES SHOULD BE EXCLUDED FROM THE PROFITS AND GAINS OF BUSINESS. 12 TO THE EXTENT OF EXCLUDING THE AMOUNTS CONTESTED BE FORE THE LEARNED CIT(A), THERE IS NO DISPUTE. THE DISPU TE IS ONLY WITH REFERENCE TO EXCLUDING 'GROSS' OR 'NET' RECEIPTS. WE ARE NOT CONVINCED WITH CLAIM OF 'NET RECEIPTS' ON CENVAT RE CEIPTS AS THERE CANNOT BE ANY EXPENDITURE. HOWEVER, THE ASSE SSING OFFICER SHALL EXAMINE AS TO WHETHER EXPENDITURE HAS BEEN INCURRED FOR EARNING THE INCOME. THE ASSESSING OFF ICER SHALL AFTER PROVIDING REASONABLE OPPORTUNITY TO THE ASSES SEE TO SUBMIT NECESSARY PROOF AND EVIDENCE REGARDING ALLOCATION/A LLOWABILITY OF SUCH EXPENDITURE AGAINST THE RECEIPTS TO BE EXCL UDED, DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 13 IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2014. S D/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 29 TH OCTOBER, 2014 TPRAO ITA NO. 1374/HYD/2013 M/S. AVR ZINC PRODUCTS PVT. LTD. ========================= 7 COPY FORWARDED TO: 1 . M/S. AVR ZINC PRODUCTS PVT. LTD., C/O. SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYA'S ELEGANCE, H. NO. 3 -6-643, ST. NO. 9, HIMAYATNAGAR, HYDERABAD-500 029. 2 . THE DEPUTY CIT, CIRCLE - 1(1), HYDERABAD. 3. THE CIT(A) - V, HYDERABAD. 4 . THE CIT - IV , HYDERABAD. 5 . THE DR A BENCH, ITAT, HYDERABAD