ACIT, Central Circle- 27, New Delhi V. Ultimate Flexipack Ltd., New Delhi

ITA 1418/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6430 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 28-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SRIVASTAVA
• Section: 80IC; 80IC

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI B BEN CH, NEW DELHI (THROUGH VIDEO CONFERENCING] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO. 1418/DEL/2018 [A.Y 2013-14] THE A.C.I.T VS. ULTIMATE FLEXIPACK LTD. CENTRAL CIRCLE 27 305, 3 RD FLOOR, BHANOT CORNER, NEW DELHI PAMPOSH ENCLAVE, GREATER KAILASH-1, NEW DELHI - 110048 PAN : AAACU 6565 D [APPELLANT] [RESPONDENT] DATE OF HEARING : 06.09.2021 DATE OF PRONOUNCEMENT : 06.09.2021 ASSESSEE BY : SHRI. M. P. RASTOGI, ADV. SHRI RAJIV KUMAR, C.A. REVENUE BY : MS. NIDHI SRIVASTAVA, CIT-DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS] - 29, NEW DELH I DATED 20.12.2017 PERTAINING TO ASSESSMENT YEAR 2013-14. 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOCATING RS.10 L ACS AGAINST EARNING OF SUB LICENSING FEE AND OTHER CORPORATE INCOME AS NO BASIS ARRIVING AT THIS AMOUNT HAS BEEN GIVEN AND THE ESTIMATED EXP ENDITURE FIGURE IS EXCESSIVE AND UNJUSTIFIED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD CIT(A) HAS ERRED IN LAW AND IN FACTS IN HOLDING THE INCOME OF RS.5,98,30,263/- ON ACCOUNT OF DEDUCTION U/S 80IC I N RESPECT OF SCRAP SALES OF RS.5,98,30,263/- AS BEING GENERATED OUT OF ITS MANUFACTURING ACTIVITY. 3. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 4. THAT THE APPELLANT CARVES LEAVE TO ADD, AMEND, A LTER OR FORGO ANY GROUND(S) OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. AT THE VERY OUTSET, THE LD. DR FAIRLY CONCEDED T HAT GROUND NO. 1 HAS BEEN ADVERTENTLY TAKEN AS THE GRIEVANCE DOES NO T FIND ANY PLACE IN THE ORDER OF THE FIRST APPELLATE AUTHORITY. THE SA ME IS, ACCORDINGLY, DISMISSED. 3 4. GROUND NO. 2 RELATES TO THE ALLOWING OF DEDUCTIO N U/S 80IC OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'T HE ACT' FOR SHORT] IN RESPECT OF SCRAP SALES OF RS. 5,98,30,263/-. 5. BRIEFLY STATED, THE UNDERLYING FACTS IN ISSUE AR E THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FILM USED IN PACKING INDUSTRY, PRINTED ARTICLE IN POUCH FORM AND ZIPPER DIAPHRAGM. THE ASSESSEE COMPANY HAS FOUR MANUFACTURING UNITS A T BADDI, JAMMY AND TWO UNITS AT HARIDWAR. 6. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS AND ON PERUSAL OF PROFIT AND LOSS ACCOUNT FOR THE YEAR UND ER CONSIDERATION, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EAR NED INCOME FROM SCRAP SALES AMOUNTING TO RS. 5.98 CRORES. THE ASSE SSEE WAS ASKED TO SUBMIT DETAILS OF SCRAP SALES WHICH WERE DULY SUBMI TTED BY THE ASSESSEE. 7. IT WAS CONTENDED THAT THE SCRAP SALE PRICE COMPR ISES OF SALE OF SCRAP GENERATED OUT OF MANUFACTURING OF FINISHED GO ODS AS WELL AS OTHER SCRAPS WHICH HAVE BEEN RECEIVED WITH RAW MATE RIAL AND 4 GENERATED OUT OF REPAIR AND MAINTENANCE OF PLANT AN D MACHINERY AND OTHER ASSETS. 8. THE ASSESSING OFFICER WAS OF THE OPINION THAT TH E SALE OF SCRAP GENERATED DURING THE MANUFACTURING CANNOT BE SAID T O HAVE BEEN DERIVED FROM INDUSTRIAL ACTIVITIES. AT THE MOST, I T CAN BE INCIDENTAL TO THE INDUSTRY ACTIVITIES. DRAWING SUPPORT FROM THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS 129 TAXMANN.COM 539 AND LIBERTY INDIA 183 TAXMAN 349, T HE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION IN RESPEC T OF SALE PROCEEDS ON SCRAP SALES. 9. THE ASSESSEE STRONGLY AGITATED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED ITS CLAIM OF DEDUCTION U/S 80IC OF T HE ACT IN RESPECT OF SCRAP SALE. 10. AFTER CONSIDERING THE FACTS AND SUBMISSIONS, TH E LD. CIT(A) WAS CONVINCED THAT THE ASSESSEE HAS SUCCESSFULLY DEMONS TRATED THAT ALL THE ITEMS OF SCRAP ARE GENERATED OUT OF ITS MANUFACTURI NG ACTIVITIES. THE LD. CIT(A) FURTHER FOUND THAT THE COST OF ALL THESE ITEMS HAVE BEEN CHARGED TO PROFIT AND LOSS ACCOUNT AND ELIGIBLE PRO FIT U/S 80IC OF THE 5 ACT. THE LD. CIT(A) CONSIDERED THE FOLLOWING JUDGM ENT OF THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF S ADHU FORGING LTD 336 ITR 444 : 'THE INDUSTRIAL UNDERTAKING, SET UP BY THE ASSESSEE , WAS FOR THE PURPOSE OF MANUFACTURE OF STEEL FORGING, GEARS AND PART AND ACCESSORIES OF MOTOR VEHICLES AND THE SCRA P OF THESE ITEMS WAS STATED TO BE A BYE- PRODUCT OF MANUFACTURING PROCESS. ITAT FOUND THAT THE ASSESSEE WAS INVOLVED IN MANUFACTURING OF FORGING WHICH INVOLVED PURCHASE OF STEEL, CUTTING THE SAME, MAKING OF FORG ING PORTS, GIVING HEAL TREATMENT AND' MACHINING. EACH O F THESE PROCESSES COULD BE DONE IN SEPARATE INDUSTRIAL UNDE RTAKING, WHEREAS ASSESSEE HAD UNDERTAKEN ALL THESE PROCESSES IN ITS UNITS. THE ASSESSEE WAS DOING THESE WORKS ON JOB BA SIS FOR OTHER UNDERTAKINGS, BY GETTING THE RAW MATERIAL FRO M THEM. WHEN THE ASSESSEE WAS ENTITLED TO CLAIM EXEMPTION IN RESPECT OF INCOME DERIVED FROM SUCH PROCESSES DOMQ FOR ITSELF, IT IS NOT UNDERSTANDABLE AS TO WHY HE WOULD NOT BE ENTITLED TO SO MERELY BECAUSE T HE ROW MATERIAL COMPONENT WAS BEING SUPPLIED BY OTHER CUSTOMERS AND FOR WHOM THE ASSESSEE WAS DOING THE J OB; THE HE A TREATMENT IS ONE OF THE PROCESSES THROUGH WHICH THE FORGINGS ARE GIVEN THE DESIRED TEMPERATURE AND THEN COOLED IN DIFFERENT MANNER WHICH RESULTS IN A CHANG ING THE MECHANICAL PROPERTIES DESIRED BY THE CUSTOMERS. THE COOLING OF THE MATERIAL AT SOME PREDETERMINED RATES 6 CAUSES THE FORMATION OF DESIRED STRUCTURE WITHIN TH E METAL FOR THE DESIRED PROPERTIES WITH THE AIM (I) TO IMPROVE THE MECHANICAL PROPERTY SUCH AS TENSILE STR ENGTH, HARDNESS, DEDUCTIBILITY, SHOCK RESISTANCE, ETC. (II ) IMPROVE MACHINABILITY, (III) INCREASE RESISTANCE TO HEAT AN D CORROSION (IV) RELIEVE STRESSES DEVELOPED DUE TO HO T AND CORDWORKING, (V) MODIFY ELECTRICAL, MAGNETIC & MOLECULAR BONDING PROPERTIES, ETC. THE HEAT TREATME NT TOUGHENS THE FORGED PART FOR BEING USED AS AUTOMOBI LE PORTS. THE PROCESS OF HEAT TREATMENT IS ABSOLUTELY ESSENTIAL FOR RENDERING THEM MARKETABLE. THEREFORE, THE ACTIVITY FORGING WAS 'MANUFACTURING' WITHIN THE AMB IT OF SECTION 8018. IT WAS IMMATERIAL THAT THE ASSESSEE W AS DOING THE JOB OF FORGING ALSO FOR CUSTOMERS AND WAS CHARGING THEM ON JOB-WORK BASIS OR ON THE BASIS OF LABOUR CHARGES. THUS, THE JOB WORK CHARGES AND LABOUR CHAR GES WERE PORT AND PARCEL OF THE MANUFACTURING ACTIVITY AND COULD NOT BE EXCLUDED FROM THE PROFITS AND GAINS DE RIVED FROM THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80-IB; THE MANUFACTURING ACTIVITY ALSO GENERATE SCRAP IN THE P ROCESS OF MANUFACTURING. THE RECEIPTS SALE OF SCRAP BEING PORT AND PARCEL OF THE ACTIVITY AND BEING PROXIMATE THERETO WOULD ALSO BE WITHIN THE AMBIT OF GAINS DERIVED FROM INDU STRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTING UNDER SECTION 80IB. 7 11. DRAWING SUPPORT FROM THE AFOREMENTIONED JUDGMEN T, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. 12. BEFORE US, THOUGH THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER, BUT COULD NOT POINT OUT ANY ERROR OR OMISSION IN THE FINDINGS OF THE LD. CIT(A) WHICH IS SUPPORTED B Y THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI [SUPRA]. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). 13. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 1418/DEL/2018 IS DISMISSED. 12. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 06.09. 2021 IN THE PRESENCE OF BOTH THE RIVAL REPRESENTATIVES. SD/- SD/- [ SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 06 TH SEPTEMBER, 2021 VL/ 8 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER