Vardhman Spinning & General Mills Ltd., Ludhiana V. DCIT, Ludhiana

ITA 147/CHANDI/2005

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64085 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-12-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 11-02-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Assessee Lawyers: SUBHASH AGGARWAL
• Section: 14A; 80IB; 10B; 10

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, J M ITA NO. 147/CHD/2005 ASSESSMENT YEAR : 1999-2000 VARDHMAN SPINNING AND V D.C.I.T. GENERAL MILLS LTD RANGE 1 LUDHIANA LUDHIANA PAN (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SUBHASH AGGARWAL RESPONDENT BY: SMT. JYOTI KUMARI DATE OF HEARING 3.12.2012 DATE OF PRONOUNCEMENT 17.12.2012 O R D E R PER T.R.SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME(A)-I, LUDHIANA DATED 1.1 2.2004. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S WHILE UPHOLDING THE VALIDITY OF RE ASSESSMENT PROCE EDINGS INITIATED BY THE ASSESSING OFFICER U/S 147/148 OF I NCOME- TAX ACT. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW WHILE CONFI RMING THE ACTION OF THE ASSESSING OFFICER FOR SETTING OFF THE LOSS ON TRADING GOODS AGAINST THE PROFITS FROM MANUFACTU RING ACTIVITIES AND NOT IGNORING THE SAME WHILE CALCULAT ING DEDUCTION U/S80HHC OF INCOME-TAX ACT. 3 THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS WHILE EXCLUDING THE RENT RECEIVED FROM EMPLOYEES FR OM ELIGIBLE PROFITS OF THE UNDERTAKING FOR DEDUCTION U /S 80IA/IB OF INCOME-TAX ACT. 3. GROUNDS NO. 1 AND 2 WERE NOT PRESSED BEFORE US, THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED. 2 4 GROUND NO. 3 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER WAS OF THE VIEW THAT RECEIPT ON ACCOUNT OF RENT RECEIVED FROM EMPLOYEES WAS NOT ELIGIBLE FOR DEDUCT ION U/S 80IA/IB. IN RESPONSE TO THE SHOW CAUSE NOTICE, IT WAS MAINLY SUBMITTED THAT RENT WAS RECEIVED FROM EMPLOYEES THE REFORE, IT MAINLY AROSE FROM INDUSTRIAL UNDERTAKING AND THERE FORE, THE SAME SHOULD BE TREATED AS ELIGIBLE FOR DEDUCTION U/ S 80IA/IB. HOWEVER, THE ASSESSING OFFICER FOLLOWING THE DECISI ON OF HON'BLE SUPREME COURT IN CASE OF CIT V. STERLING FO ODS, 237 ITR 579 HELD THAT RENT RECEIVED FROM EMPLOYEES WAS NOT DERIVE ED FROM INDUSTRIAL UNDERTAKING THEREFORE, NOT ELIG IBLE FOR DEDUCTION U/S 80IA/IB OF THE ACT. 5 ON APPEAL, THE LD. CIT(A) FOLLOWING HIS OWN DECIS ION IN ASSESSEES SISTER CONCERN IN MAHAVIR SPG MILLS LTD. IN APPEAL NO. 64/IT/CIT(A)/2004-05 DATED 10.11.2004 CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 6 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REFERR ED TO THE DECISION OF VMT SPINNING COMPANY LTD. V ACIT, ITA NO. 682/CHD/2007 WHEREIN INTEREST FROM CUSTOMERS AS WEL L AS INTEREST FROM EMPLOYEES WAS HELD TO BE ELIGIBLE FOR DEDUCTION U/S 10B. 7 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE STR ONGLY RELIED ON THE DECISION OF HON'BLE MADRAS HIGH COURT IN CASE OF K.S. SUBBIAH PILLAI AND CO (INDIA) PVT LTD. V CIT, 260 ITR 304 (MAD) WHEREIN IT WAS HELD THAT EVEN INTEREST, RENT AND COMMISSION HAS TO BE EXCLUDED FROM PROFITS OF BUSIN ESS BECAUSE THE SAME IS NOT RELATABLE TO THE INDUSTRIAL UNDERTAKING. 3 8 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. T HE QUESTION BEFORE US IS WHETHER THE RENT RECEIVED FRO M EMPLOYEES CAN BE CONSIDERED TO HAVE BEEN DERIVED FROM INDUSTR IAL UNDERTAKING, ELIGIBLE FOR DEDUCTION. CAREFUL READI NG OF SECTION 80IA/IB WOULD REVEAL THAT BOTH THE SECTIONS EMPLOY EXPRESSION DERIVED FROM ANY BUSINESS. WE ARE REPRODUCING SU B-SEC (1) OF SECTION 80IA AS WELL AS 80IB WHICH PROVIDES FOR DEDUCTION: 80IA [(1) - WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERT AKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SEC TION (4) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGI BLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSEC UTIVE ASSESSMENT YEARS.] 80IB(1) - WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUS INESS REFERRED TO IN SUB-SECTIONS (3) TO 13 [(11), (11A) AND (11B) 14 ] (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSIN ESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSES SEE, A DEDUCTION FROM SUCH PROFITS AND GAINS OF AN AMOUNT EQUAL TO S UCH PERCENTAGE AND FOR SUCH NUMBER OF ASSESSMENT YEARS AS SPECIFIE D IN THIS SECTION. THE ABOVE PROVISIONS BASICALLY PROVIDE FOR DEDUCTIO N UNDER VARIOUS CIRCUMSTANCES CLEARLY MANDATES THAT DEDUCTION CAN B E GIVEN ONLY IN RESPECT OF PROFITS AND GAINS DERIVED FROM SUCH INDU STRIAL UNDERTAKING OR BUSINESS. FURTHER THE PROVISIONS OF SECTION 80H H ALSO EMPLOYS THE SAME EXPRESSION AND SECTION 80HH CAME FOR INTER PRETATION BEFORE THE HON'BLE APEX COURT IN CASE OF PANDIAN CH EMICALS LTD. V CIT, 262 ITR 278. IN THAT CASE THE ISSUE WAS WHETH ER THE INTEREST RECEIVED FROM ELECTRICITY BOARD CAN BE SAID TO HAVE BEEN DERIVED FROM INDUSTRIAL UNDERTAKING, THE HON'BLE APEX COURT OPINED THAT IT CAN NOT BE SAID THAT INTEREST FROM ELECTRICITY DEPO SITS HAD BEEN DERIVED FROM INDUSTRIAL UNDERTAKING BECAUSE THERE W AS NO DIRECT 4 CONNECTION BETWEEN THE INTEREST AND THE INDUSTRIAL UNDERTAKING. IN FACT HEAD NOTE OF THIS DECISION READS AS UNDER:- THE WORDS DERIVED FROM IN SECTION 80HH OF THE INCO ME-TAX ACT, 1961 MUST BE UNDERSTOOD AS SOMETHING WHICH HAS A DIRECT OR IMMEDIATE NEXUS WITH THE ASSESSEES INDUSTRIAL U NDERTAKING. ALTHOUGH ELECTRICITY MAY BE REQUIRED FOR THE PURPOS ES OF THE INDUSTRIAL UNDERTAKING, THE DEPOSIT REQUIRED FOR IT S SUPPLY IS A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRIAL UN DERTAKING. HELD ACCORDINGLY , THAT INTEREST DEPRIVED BY THE IN DUSTRIAL UNDERTAKING OF THE ASSESSEE ON DEPOSITS MADE WITH T HE ELECTRICITY BOARD FOR THE SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DI RECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFI TS OR GAINS DERIVED BY THE UNDERTAKING FOR THE PURPOSE OF SPECI AL DEDUCTION U/S 80HH. FROM THE ABOVE, IT IS CLEAR THAT UNLESS AND UNTIL T HERE IS DIRECT PROXIMITY BETWEEN PARTICULAR INCOME AND THE INDUSTR IAL UNDERTAKING, THE SAME CAN NOT BE SAID TO HAVE BEEN DERIVED FROM SUCH INDUSTRIAL UNDERTAKING. IT IS TO BE NOTED THAT NO INDUSTRY CA N FUNCTION WITHOUT ELECTRICITY / POWER AND SUCH ELECTRICITY CONNECTION COULD NOT BE OBTAINED WITHOUT DEPOSITING THE MONEY WITH THE RESP ECTIVE ELECTRICITY BOARD, STILL INTEREST FROM THE ELECTRICITY BOARD WA S HELD NOT TO HAVE BEEN DERIVED FROM INDUSTRIAL UNDERTAKING. IN OUR OP INION, THE SAME THEORY WOULD BE APPLICABLE IN CASE OF RENT RECEIVED FROM THE EMPLOYEES. IN ANY CASE, HON'BLE MADRAS HIGH COURT HAD HELD IN CASE OF K.S. SUBBIAH PILLAI AND CO (INDIA) PVT LTD. V CIT (SUPRA) THAT RENT AND COMMISSION ETC. CAN NOT BE HELD TO H AVE BEEN DERIVED FROM INDUSTRIAL UNDERTAKING. THEREFORE, WE FIND NO THING WRONG WITH THE ORDER OF THE LD. CIT(A) AND HELD THAT RENT RECE IVED FROM EMPLOYEES IS NOT ELIGIBLE F OR DEDUCTION U/S 80IA A ND 80IB. 9 IN ADDITION TO ABOVE, THE ASSESSEE HAS ALSO RAISE D THE FOLLOWING ADDITIONAL GROUND VIDE LETTER DATED 25.10 .2005 WHICH IS AS UNDER: 5 THAT THE AUTHORITIES BELOW HAVE ERRED IN LAW IN AS MUCH AS NOT ALLOWING SETTING OFF OF LOSS AMOUNTING TO RS . 1,76,54,875/- SUFFERED BY VSGM (EOU) AGAINST THE BUSINESS PROFITS EARNED BY THE COMPANY AND EXCLUDIN G THE SAME FROM THE PROFITS OF THE COMPANY WHILE CALC ULATING ITS TAXABLE INCOME. 10. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT THIS GROUND IS OF LEGAL NATURE AND THE SAME WAS ADM ITTED FOR ADJUDICATION. ON MERITS, THE LD. COUNSEL OF THE AS SESSEE SUBMITTED THAT SIMILAR ISSUE CAME UP FOR ADJUDICATE D BEFORE THE TRIBUNAL IN ASSESSEES SISTER CONCERN, M/S MAHAVIR SPINNING MILLS LTD. V ACIT AND THE SAME WAS ADMITTED AND REM ITTED TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATION. 11. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUBMITTED THAT IN CASE LOSS IS ARISEN IN A UNIT WHICH IS ELIG IBLE FOR DEDUCTION U/S 10B THEN SUB-SEC (8) OF 10B WOULD BE APPLICABLE WHICH CLEARLY PROVIDES THAT IF THE ASSESSEE WISHES NOT TO ATTRACT THE PROVISIONS OF SECTION 10B THEN THE ASSESSEE HAS TO SPECIFICALLY FILE THE DECLARATION BEFORE THE ASSESS ING OFFICER BEFORE THE DUE DATE OF FILING OF RETURN U/S 139(1). SINCE IN THIS CASE NO DECLARATION HAS BEEN FILED THEREFORE, PROVI SIONS OF SECTION 10B WOULD BE ATTRACTED AND LOSS CAN NOT BE SET OFF AGAINST OTHER UNIT. 12 IN THE REJOINDER THE LD. COUNSEL OF THE ASSESSEE RELIED ON THE DECISION OF CHANDIGARH BENCH OF THE TRIBUNAL IN CASE OF ACIT V. M/S VARDHMAN TEXTILES LTD. V ACIT, ITA NO. 1172/CHD/2009 (COPY OF ORDER FILED) WHILE ADJUDICAT ING GROUND NO. 2 IT WAS HELD THAT THE CONDITION REGARDING NON APPLICABILITY OF THE BENEFIT U/S 10B WAS NOT OF MANDATORY NATURE. 6 13 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY A ND FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF T HE TRIBUNAL REGARDING INTERPRETATION FOR NON APPLICATION OF SEC TION 10A VIDE GROUND NO. 2 IN ITA NO. 1172/CHD/2009: THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS WHILE NOT ALLOWING SET OFF OF LOSS OF RS. 2,74,47,311/- S UFFERED BY ANANI SPINNING MILLS (NIT III) A AGAINST BUSINES S PROFITS EARNED BY THE ASSESSEE. AFTER CONSIDERING THE SUBMISSIONS, IT WAS HELD VIDE PARA 20 & 21 AS UNDER: 20 ON A CAREFUL PERUSAL AND CONSIDERATION OF THE A BOVE PRODUCED SUBMISSIONS, FILED BYTEH ASSESSEE AND FIND INGS OF THE LD. CIT(A), WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE TH IRD MEMBER DECISION OF THE ITAT BOMBAY, IN THE CASE OF NAVIN BHARAT INDUSTRIES LTD. V DCIT, 2004-(090)-ITD - 000ITAT BOM. 21 A BARE PERUSAL OF THE DECISION REVEALS THAT THE ISSUE RAISED BY THE ASSESSEE, IN THE GROUNDS OF APPEAL RA ISED BY THE ASSESSEE, IS SQUARELY COVERED BY THE DECISIO N OF ITAT BOMBAY IN NAVIN BHARAT INDUSTRIES LTD. (SUPRA) AS IS EVIDENT FROM THE RELEVANT PART OF THE SAID THIRD ME MBER DECISION, AS REPRODUCED HEREUNDER: IN THE PRESENT CASE I FIND THAT THE BENEFIT OF SEC 10A OF THE ACT WAS AVAILABLE TO THE ASSESSEE FOR FI VE YEARS. THE ASSESSEE CLAIMED BENEFIT FOR THREE YEARS. FOR REST OF THE YEARS, THE ASSESSEE DID NOT CLAIM THE BENEFIT OF SECTION 10A OF THE ACT. THE ASSESSEE OPTED TO GET THE PROFITS OF NEW INDUSTRIAL UNDERTAKING ASSESSED UNDER THE NORMAL PROVISIONS. I FIND NO PROVISION IN THE ACT BY WHICH THE ASSESSEE CAN BE FORCED TO AVAILABLE THE BENEFIT FOR FIVE YEA RS. IF THE ASSESSEE WANTS TO PUT THE INCOME UNDER THE NORMAL COMPUTATION PROCEDURE, THERE APPEARS TO BE NO BAR FOR DOING SO. IF ONE PURCHASES TICKET TO UNDERTAKE JOURNEY FROM MUMBAI TO DELHI, LALTELR ON HE DECIDES TO DISEMBARK FROM THE TRAIN AT KOTA, THE RLY AUTHORITIES CANNOT FORCE HIM TO GO UP TO DELHI. IF THE BENEFIT IS CONFERRED ON THE ASSESSEE, HE CANNOT BE FORCED TO AVAIL THE SAME. SECTION 10A OF THE ACT, IS A CODE BY ITSELF. IT CONTAINS THE SCHEME OF TAXATION FORMULATED BY THE GOVERNMENT FOR TAXABILITY OF UNITS SET UP IN THE EXPORT PROCESSING ZONE. AS SUCH, IT CANNOT BE COMPARED WITH SECTION 10 OF THE ACT. EX CONSEQUENT, THE DECISION RENDERED IN THE CASES OF 7 HARPRASAD & CO.(P) LTD. (SUPRA) AND S.S. THIAGARANJAN (SUPRA) IN THE CONTEXT OF SECTION 10 O F THE ACT, CANNOT BE APPLIED OVER HERE. COMING TO TH E APPLICABILITY OF SECTION 10A(4)(II) OF THE ACT, I F IND THAT IT PUT INTERDICT QUA SECTIONS 72 AND 74. IT D OES NOT PRECLUDE THE OPERATION OF SECTIONS 70 AND 71. SECTION 14A OF THE ACT IS APPLICABLE IN RESPECT OF EXPENDITURE. LOSS IS DIFFERENT FROM EXPENDITURE. AS SUCH, THE ASSESSEE IS ENTITLED TO SETTING OFF THE L OSS INCURRED BY THE SEEPZ UNIT. IN VIEW OF THIS FINDIN G, THE QUESTION WHETHER SECTION 14A OF THE ACT IS PROSPECTIVE OR RETROSPECTIVE IN OPERATION, HAS BECOME ACADEMIC. I CONCUR WITH THE FINDINGS OF THE LD. ACCOUNTANT MEMBER. THUS FROM ABOVE IT IS CLEAR THAT EVEN IF THE ASSESS EE HAS NOT FURNISHED SPECIFICALLY UNDERTAKING FOR NON APPLICAT ION OF THE SECTION THAT WOULD NOT BE A FETTER. 14 FURTHER THE ISSUE CAME UP FOR CONSIDERATION OF THE TRIBUNAL IN CASE OF MAHAVIR SPINNING MILLS LTD IN I TA NO. 537/CHD/2009 (COPY OF ORDER FILED) PAPER BOOK PAGES 4 TO 18. AT PAGE 17 IT WAS OBSERVED AS UNDER: THE NEXT ADDITIONAL GROUND RAISED BY THE ASSESSEE IS THAT THE AUTHORITIES BELOW HAVE ERRED IN LAW IN AS MUCH AS NOT ALLOWING SETTING OFF OF LOSS AMOUNTING TO RS. 2,74, 47,311/- SUFFERED BY ANANT SPINNING MILLS (UNIT NO. III) AGA INST THE BUSINESS PROFIT EARNED BY THE COMPANY AND EXCLUDING THE SAME FROM THE PROFITS OF THE COMPANY WHILE CALCULAT ING ITS TAXABLE INCOME. ADMITTEDLY THIS GROUND WAS NOT AGI TATED BEFORE THE AUTHORITIES BELOW. THE LD. DR FOR THE R EVENUE CONTENDED THAT IN VIEW OF THE DECISION OF THE TRIBU NAL IN THE CASE OF BUDHEWAL COOPERTIVE SUGAR MILLS LTD. V. DCIT (2005) 94 TTJ/CHD/307, THIS ADDITIONAL GROUND MAY N OT BE ADMITTED. HOWEVER, WITHOUT GOING INTO MUCH DELIBER ATION AND IN VIEW OF THE DECISION IN THE CASE OF ABHISHEK INDUSTRIES LTD. (2007) 290 ITR 655 (PH), NTPC V CIT (229 ITR 383) (S.C) ALSO IN THE INTEREST OF JUSTICE, WE REMAND THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICE R FOR FRESH ADJUDICATION AS PER THE PROVISIONS OF SECTION . NEEDLESS TO MENTION HERE THAT DUE OPPORTUNITY BE PROVIDED TO THE ASSESSEE. THE ASSESSEE IS ALSO AT LIBERTY TO PRODUCE EVIDENCE, IF ANY TO SUBSTANTIATE ITS CLA IM. THEREFORE, THIS ADDITIONAL GROUND IS ALLOWED FOR ST ATISTICAL PURPOSES ONLY. 8 THEREFORE, FOLLOWING THE ABOVE DECISION WE REMIT T HIS ISSUE TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATIO N AS PER PROVISIONS OF LAW. 15 IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 17.12.2012. SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 17 .12. 2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 9