DCIT CIR 4(2), MUMBAI V. MEGA FINE PHARMA P. LTD, MUMBAI

ITA 1436/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7825 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-03-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR SINGH
• Keywords: Business income
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1436/MUM/2009 (ASSESSMENT YEAR: 2005-06) DCIT, CIRCLE 4(2) M/S. MEGA FINE PHARMA P. LTD. ROOM NO. 642, 6TH FLOOR SETHNA, 4TH FLOOR, 55 M.K. ROAD AAYAKAR BHAVAN, M.K. ROAD, VS. MARINE LINES, MUMBAI 400002 MUMBAI 400020 PAN - AAACM 7472 M APPELLANT RESPONDENT APPELLANT BY: SHRI ANIL KUMAR SINGH RESPONDENT BY: NONE O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A)-IV, MUMBAI DATED 17.12.2008. 2. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE CL AIMED 80IB DEDUCTION WHICH INCLUDED EXCISE DUTY REFUND OF ` 65,61,858/- AND PROFIT OF SALE OF DEPB LICENCE AMOUNTING TO ` 27,31,547/-. THE A.O. WAS OF THE OPINION THAT THESE TWO AMOUNTS CANNOT BE CONSIDERED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING. ACCORDINGLY THE DE DUCTION UNDER SECTION 80IB WAS NOT ALLOWED ON THE ABOVE AMOUNTS. WHEN THE MATTER WAS TAKEN UP BEFORE THE CIT(A), THE CIT(A) FOLLOWING THE ORDER O F THE ITAT IN ASSESSEES OWN CASE FOR A.Y. 2001-02 IN ITA NO. 92/MUM/2005 DA TED 24.08.2007 HAS ALLOWED ASSESSEES CONTENTIONS. ACCORDINGLY THE REV ENUE IS AGGRIEVED. 3. REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DEDUCTION U/S. 80I B ON THE AMOUNT OF EXPORT INCENTIVES AND OTHER INCOME AND CU STOM DUTY REIMBURSEMENT WITHOUT APPRECIATING THE FACT THAT TH ESE INCOME WERE NOT DERIVED FROM BUSINESS BUT HAD ONLY ATTRIBU TES OF BUSINESS INCOME. ITA NO. 1436/MUM/2009 M/S. MEGA FINE PHARMA P. LTD. 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW AND CONSEQUENTLY ON MERITS TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. INSPITE OF GIVING NUMBER OF POSTINGS ASSESSEE WAS N OT REPRESENTED BY ANY PERSON, HENCE THE CASE WAS DECIDED EXPARTE AFTER HE ARING THE LEARNED D.R. 5. AS SEEN FROM THE RECORD THE A.O. WAS OF THE OPINION THE EXCISE DUTY REFUND WAS BECAUSE OF THE SCHEME OF THE GOVERNMENT DUE TO EXPORT OF GOODS. IT IS NOT KNOWN WHETHER THE ASSESSEE HAS CLAIMED EX PORT DUTY PAYMENT AS A DEDUCTION AT THE TIME OF PAYMENT. IF SO THE AMOUNT OF REFUND COULD GOT ADJUSTED AS THERE WAS A CLAIM EARLIER WHICH WAS REF UNDED WHICH WOULD BECOME PROFIT UNDER THE PROVISIONS OF SECTION 41(1) . SINCE THE EXCISE DUTY REFUND IS LIMITED TO THE EXCISE DUTY PAYMENT ONT HE MANUFACTURING ACTIVITY OF THE INDUSTRIAL UNDERTAKING TO THAT EXTENT EXCISE DUTY HAS TO BE CONSIDERED AS PART OF PROFIT DERIVED FROM THE INDUSTRIAL UNDER TAKING. HOWEVER, THE FACTS OF THE CLAIM OF EXCISE DUTY WERE NOT EXAMINED NOR T HERE ARE ANY DETAILS ON RECORD TO EXAMINE THIS ASPECT BY US. WE ARE OF THE OPINION THAT THIS ISSUE REQUIRES EXAMINATION BY THE A.O. AND TO DECIDE ACCO RDINGLY. GROUND 1 IS ACCORDINGLY RESTORED TO THE FILE OF AO. 6. WITH REFERENCE TO THE CLAIM OF PROFIT OF SALE OF DE PB LICENCE AMOUNTING TO ` 27,31,547/-, EVENTHOUGH THERE IS A COORDINATE BENCH DECISION WHICH WAS FOLLOWED BY THE CIT(A), THE ISSUE HAS NOW CRYST ALLISED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY IN DIA LTD. 317 ITR 218 WHEREIN THE AMOUNTS RECEIVED ON DEPB WERE NOT CONSI DERED BY THE HON'BLE SUPREME COURT AS DERIVED FROM THE INDUSTRIAL UNDERT AKING. THE HON'BLE SUPREME COURT HELD AS UNDER: - THE IT ACT BROADLY PROVIDES FOR TWO TYPES OF TAX IN CENTIVES, NAMELY, INVESTMENT LINKED INCENTIVES AND PROFIT LINKED INCE NTIVES. CHAPTER VI- A WHICH PROVIDES FOR INCENTIVES IN THE FORM OF TAX DEDUCTIONS ESSENTIALLY BELONG TO THE CATEGORY OF 'PROFIT LINKE D INCENTIVES'. THEREFORE, WHEN S. 80-IA/80-IB REFERS TO PROFITS DE RIVED FROM ELIGIBLE BUSINESS, IT IS NOT THE OWNERSHIP OF THAT BUSINESS WHICH ATTRACTS THE ITA NO. 1436/MUM/2009 M/S. MEGA FINE PHARMA P. LTD. 3 INCENTIVES. WHAT ATTRACTS THE INCENTIVES UNDER S. 8 0-IA/80-IB IS THE GENERATION OF PROFITS (OPERATIONAL PROFITS). IT IS FOR THIS REASON THAT PARLIAMENT HAS CONFINED DEDUCTION TO PROFITS DERIVE D FROM ELIGIBLE BUSINESSES MENTIONED IN SUB-SS. (3) TO (11A) (AS TH EY STOOD AT THE RELEVANT TIME). ONE MORE ASPECT NEEDS TO BE HIGHLIG HTED. EACH OF THE ELIGIBLE BUSINESSES IN SUB-SS. (3) TO (11A) CONSTIT UTES A STAND-ALONE ITEM IN THE MATTER OF COMPUTATION OF PROFITS. THAT IS THE REASON WHY THE CONCEPT OF 'SEGMENT REPORTING' STANDS INTRODUCE D IN THE INDIAN ACCOUNTING STANDARDS (IAS) BY THE ICAI. ANALYSING C HAPTER VI-A, IT IS FOUND THAT SS. 80-IB AND 80-IA ARE THE CODE BY THEM SELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROV ISIONS. THEREFORE, THE COURT NEEDS TO EXAMINE WHAT THESE PROVISIONS PR ESCRIBE FOR 'COMPUTATION OF PROFITS OF THE ELIGIBLE BUSINESS'. IT IS EVIDENT THAT S. 80-IB PROVIDES FOR ALLOWING OF DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS. THE WORDS 'DERIVED FROM' ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORD S 'ATTRIBUTABLE TO'. IN OTHER WORDS, BY USING THE EXPRESSION 'DERIV ED FROM', PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. ON ANALYSIS OF SS. 80-IA AND 80-IB IT BECOMES CLEAR TH AT ANY INDUSTRIAL UNDERTAKING, WHICH BECOMES ELIGIBLE ON SATISFYING S UB-S. (2), WOULD BE ENTITLED TO DEDUCTION UNDER SUB-S. (1) ONLY TO T HE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER SPEC IFIED DATE(S). HENCE, APART FROM ELIGIBILITY, SUB-S. (1) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF P ROFITS. THIS IS THE IMPORTANCE OF THE WORDS 'DERIVED FROM INDUSTRIAL UN DERTAKING' AS AGAINST 'PROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTA KING'. 7. IN VIEW OF THIS, THE CLAIM OF PROFIT ON SALE OF DEP B LICENCE AMOUNTING TO ` 27,31,547/- AS DEDUCTION UNDER SECTION 80IB CANNOT BE ALLOWED. THE ORDER OF THE CIT(A) HAS TO BE MODIFIED. WE ORDER AC CORDINGLY. THE A.O. IS DIRECTED TO REWORK OUT THE DEDUCTION AFTER DULY EXA MINING THE ISSUE REMITTED BACK TO HIM IN GROUND NO 1. 8. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MARCH 2011. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH MARCH 2011 ITA NO. 1436/MUM/2009 M/S. MEGA FINE PHARMA P. LTD. 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV, MUMBAI 4. THE CIT IV, MUMBAI CITY 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.