M/s. Ornet Intermediates Ltd., V. The Income tax Officer, Ward-5(2),

ITA 1463/AHD/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0429 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 18-11-2009
• Assessment Year: 2000-2001
• Appeal Filed On: 30-04-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S SANDHU
• Keywords: Business income
• Section: 80HHC; 80IB; 80IA

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI N.S. SAINI, A.M.) I.T.A. NO. 1463/AHD./2004 ASSESSMENT YEAR : 2000-2001 M/S. ORNET INTERMEDIATES LTD., AHMEDABAD VS.- INC OME TAX OFFICER, WARD-5(2), AHMEDABAD (P.A. NO. AAACO 2744 E) (APPELLANT) (R ESPONDENT) APPELLANT BY : SHRI DEEPAK SONI RESPONDENT BY : SHRI B.S. SANDHU, CIT O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER :- THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER DATED 24.03.2004 OF LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) -XI, AHMEDABAD FOR THE ASSESSMENT YEAR 2000-01. 2. GROUND NO. 1 OF THIS APPEAL IS GENERAL IN NATURE AND NEEDS NO ADJUDICATION. 3. GROUND NO. 2 OF THIS APPEAL IS AGAINST EXCLUSION OF RS.1,33,87,393/-, I.E. 90% OF RS.1,48,74,881/- BEING GROSS AMOUNT OF INTEREST WHI LE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. 4. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE L D. COUNSEL OF THE ASSESSEE MADE A REQUEST TO ALLOW THE BENEFIT OF NETTING AS HELD BY THE ITAT, S PECIAL BENCH, AHMEDABAD IN THE CASE OF LALSONS ENTERPRISES VS.- DCIT REPORTED IN 89 ITD 2 5 AND CIT VS.- SHRI RAM HONDA REPORTED IN 289 ITR 475. AS AGAINST THIS, THE LD. DEPARTMENT AL REPRESENTATIVE POINTED OUT THAT BENEFIT OF NETTING IS TO BE ALLOWED TO THE EXTENT THE ASSESSEE IS ABLE TO PROVE THE DIRECT NEXUS AND ONUS IS ON THE ASSESSEE TO PROVE THE NEXUS. BY CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, THIS ISSUE IS RESTORED TO THE FILE OF A.O. WITH THE DIRE CTION THAT THE A.O. WILL ALLOW THE BENEFIT OF NETTING TO THE EXTENT THE ASSESSEE IS ABLE TO PROVE THE NEXUS AS HELD BY THE ITAT, SPECIAL BENCH IN THE CASE OF LALSONS ENTERPRISES (SUPRA). RESULTA NTLY, THIS GROUND OF APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 2 5. GROUND NO. 3 OF THIS APPEAL IS AGAINST THE DEDUC TION UNDER SECTION 80IA AT RS.53,80,130/- AS AGAINST DEDUCTION AT RS.1,08,82,939/- CLAIMED BY THE ASSESSEE, I.E. THE APPEAL IS AGAINST EXCLUSION OF BUSINESS INCOME FROM TRADING ACTIVITIE S OF RS.99,45,561/- FOR COMPUTING DEDUCTION UNDER SECTION 80IA OF THE INCOME TAX ACT, 1961. 6. AT THE TIME OF HEARING, ON BEHALF OF ASSESSEE SH RI DEEPAK SONI APPEARED AND STATED THAT HE HAS NO OBJECTION WITH REGARD TO EXCLUSION OF BUS INESS INCOME FROM TRADING ACTIVITIES FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80IA. HOWEVER, HE SUBMITTED THAT WHATEVER AMOUNT IS EXCLUDED BY THE A.O. IS EXCESSIVE, THEREF ORE, IN SUPPORT OF THIS ARGUMENT, HE RELIED ON THE DECISION DATED 10.02.2006 OF THE ITAT, B BENC H, AHMEDABAD IN ASSESSEES OWN CASE IN ITA NO. 589/AHD./2000 FOR THE ASSESSMENT YEAR 1996- 97. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IN THAT YEAR TRIBUNAL HAS HELD THE E XPENSES BY WAY OF CONSUMPTION OF RAW MATERIAL AND EXPENDITURE BY WAY OF COST OF PURCHASE S OF TRADING GOODS ARE REFERABLE DIRECTLY TO THE TRADING AND MANUFACTURING ACTIVITIES RESPECTIVE LY AND QUESTION OF ALLOCATION OF SUCH EXPENDITURE DOES NOT ARISE. ONLY THE COMMON EXPENDI TURE ARE REQUIRED TO BE ALLOCATED BETWEEN TWO ACTIVITIES. THE LD. COUNSEL FURTHER SUBMITTED T HAT FOLLOWING THE DECISION, THE MATTER BE RESTORED TO THE FILE OF A.O., WHO WILL WORK OUT THE PROFIT FROM TRADING ACTIVITY KEEPING IN VIEW THE DECISION OF TRIBUNAL FOR THE ASSESSMENT YEAR 19 96-97 IN ITA NO. 589/AHD./2003 (SUPRA). 7. SHRI B.S. SANDHI, LD. DEPARTMENTAL REPRESENTATIV E COULD NOT CONTROVERT THE ABOVE CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE. 8. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW AS WELL AS THE DECISION OF THE TRIBUNAL IN IT A NO. 589/AHD./2003 FOR THE ASSESSMENT YEAR 1996-97(SUPRA) RELIED BY THE LD. COUNSEL FOR THE AS SESSEE. KEEPING IN VIEW THE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1996-97 (SUPRA), W E RESTORE THIS ISSUE TO THE FILE OF A.O., WHO WILL RE-WORK-OUT THE PROFIT FROM TRADING ACTIVITY, WHICH IS REQUIRED TO BE EXCLUDED AS PER THE DECISION OF THE TRIBUNAL IN ITA NO. 589/AHD./2003 F OR THE ASSESSMENT YEAR 1996-97(SUPRA). WE ORDER ACCORDINGLY. 3 9. GROUND NO. 3(A) IS AGAINST EXCLUSION OF INTEREST INCOME AND NOT ALLOWING THE BENEFIT OF NETTING WHILE CALCULATING DEDUCTION UNDER SECTION 8 0IA OF THE INCOME TAX ACT, 1961. 10. WE HAVE HEARD BOTH SIDES. THE INTEREST INCOME I S NOT DERIVED FROM INDUSTRIAL ACTIVITY. HOWEVER, WHILE EXCLUDING THE INTEREST INCOME, THE A SSESSEE IS ENTITLED TO BENEFIT OF NETTING TO THE EXTENT THE ASSESSEE IS ABLE TO PROVE THE DIRECT NEX US. FOR THIS PURPOSE, THE MATTER IS RESTORED TO THE FILE OF A.O. WITH THE DIRECTION THAT A.O. WILL ALLO W APPROPRIATE RELIEF IN ACCORDANCE WITH LAW. RESULTANTLY, THIS GROUND OF APPEAL IS ALLOWED FOR S TATISTICAL PURPOSES. 11. GROUND NO. 3(B) IS AGAINST EXCLUSION OF RS.77,7 7,873/- BEING EXPORT INCENTIVES, I.E. DUTY DRAWBACK AND PROFIT ARISING FROM DEPB SCHEME FOR CO MPUTING DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT, 1961. 12. AT THE TIME OF HEARING, BOTH SIDES CONCEDED THA T THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY A LATEST DECISION OF THE HON'BLE SUPREME COURT I N THE CASE OF LIBERTY INDIA VS.- CIT [2009] 317 ITR 218 (SC), DELIVERED ON 31.08.2009, WHEREIN IT WAS HELD THAT DEPB/ DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED B Y THE CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT, 1962. INCENTIVE PROFITS ARE NOT PROFITS DERIVED FROM ELIGIBLE BUSINESS UNDER SECTION 80IB OF THE INCOME TAX ACT, 1961. THE Y BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. PROFITS DERIVED BY WAY OF INCE NTIVES SUCH AS DEPB/ DUTY DRAW BACK CANNOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOOD S DEBITED IN THE PROFIT & LOSS ACCOUNT AND THEY DO NOT FALL WITHIN THE EXPRESSION PROFITS DER IVED FROM INDUSTRIAL UNDERTAKING UNDER SECTION 80IB. 13. BY CONSIDERING THE TOTALITY OF THE FACTS AND CI RCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA), WE REJECT THIS GROUND OF APPEAL OF THE ASSESSEE. 14. THE LAST GROUND OF APPEAL IS AGAINST APPLICATIO N OF PROVISION OF SECTION 80IA(9A) AND THEREBY EXCLUDING DEDUCTION UNDER SECTION 80IA WHIL E COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE INCOME TAX ACT, 1961. 4 15. AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSE SSEE CONCEDED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITAT, SPECI AL BENCH, DELHI IN THE CASE OF ACIT VS.- HINDUSTAN MINT & AGRO PRODUCTS (P) LTD. REPORTED IN 119 ITD 107 (DELHI) (SB), WHEREIN IT WAS HELD THAT DEDUCTION TO BE ALLOWED UNDER ANY PROVISI ON OF CHAPTER VI-A WITH HEADING C (COVERING SECTIONS 80H, 80HHC, ETC.) IS TO BE REDUC ED BY AN AMOUNT OF DEDUCTION ALLOWED UNDER SECTION 80-IA/ 80-IB OF THE INCOME TAX ACT, 1961. 16. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND PERUSED THE RELEVANT MATERIAL PLACED ON R ECORD. WE, RESPECTFULLY FOLLOWING THE DECISION OF ITAT, SPECIAL BENCH, DELHI IN THE CASE OF ACIT VS.- HINDUSTAN MINT & AGRO PRODUCTS (P) LTD. REPORTED IN 119 ITD 107 (DELHI) ( SB) (SUPRA), REJECT THIS GROUND OF APPEAL OF THE ASSESSEE. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AS STATED ABOVE. THE ORDER PRONOUNCED IN THE COURT ON 20.11.2009 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 20 / 11 / 2009 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT 3) CIT(A) CONCERNED; (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.