ACIT, New Delhi V. M/s. Namo Alloys Pvt. Ltd., New Delhi

ITA 1482/DEL/2012

• Counselvise Citation: 148220114 RSA 2012
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 03-10-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 29-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AROOP KR SINGH
• Assessee Lawyers: MRS RANA JAIN CAS
• Keywords: Earning of tax free income; Question of law
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: E NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, A.M. AND SHRI RAJPAL YADAV, J.M. ITA NO: 1482/DEL/2012 ASSESSMENT YEAR : - 2008-09 ACIT, CIRCLE 13 (1) VS. M/S NAMO ALLOYS P.LTD. NEW DELHI 3721, GALI BARNA, SADAR BAZAR DELHI 110 006 PAN: : AAEFM 6006C C.O.NO: 165/DEL/2012 (IN ITA NO: 1482/DEL/2012) ASSESSMENT YEAR : - 2008-09 M/S NAMO ALLOYS PVT.LTD. VS. ACIT, CIRCLE 13(1) NEW DELHI NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AROOP KR.SINGH, SR.D. R. RESPONDENT BY : SH. VED JAIN & MRS.RANA JAIN, CAS O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE REVENUE DIRECTED AGAINS T THE ORDER OF THE LD.CIT(A)-XVI, NEW DELHI DT. 18.10.2011 PERTAINING TO THE ASSESSMENT YEAR 2008-09 ON THE FOLLOWING GROUNDS. 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD.CIT(A) WAS CORRECT IN HOLDING THAT CONVERSION CH ARGES, TESTING CHARGES AND INTEREST INCOME WOULD BE ELIGIBLE FOR D EDUCTION UNDER SECTION 80 IB? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD.CIT(A) WAS CORRECT IN DECIDING THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS CORREC T IN DECIDING THE CASE IN FAVOUR OF THE ASSESSEE RELYING ONLY ON SUB SECTION 1 OF 2 SECTION 80 IB WHICH HAS FOCUSED ONLY ON THE EXPRESS ION PROFITS AND GAINS DERIVED FROM INDUSTRIAL UNDERTAKING AND ERRED IN ACKNOWLEDGING SUB SECTION2 (III) TO S.80 IB WHICH R EVEALS THAT IT IS MANDATORY THAT THE DEDUCTION IS AVAILABLE TO ONLY T HAT INDUSTRIAL UNDERTAKING WHICH MANUFACTURES OR PRODUCES ANY ARTI CLE OR THING IN OTHER WORDS, THE DEDUCTION IS AVAILABLE ONLY TO ELIGIBLE INDUSTRIAL UNDERTAKING WHICH IS SPECIFICALLY PROVIDED FOR SUB SECTION 2(III) OF SECTION 80 IB. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) ERRED IN ADMITTING THE FACT THAT ASSESSE E HAS FAILED TO ESTABLISH THE FACT THAT BY CARRYING OUT THE WORK OF CONVERSION AND TESTING, IT HAS MANUFACTURED OR PRODUCED ANY ARTICL E OR THING FROM WHICH IT IS DERIVING ANY INCOME. THIS CLEARLY INDI CATES THAT THE CONVERSION/TESTING CARRIED OUT BY THE ASSESSEE IS O NLY IN THE NATURE OF PROCESSING AND DOES NOT AMOUNT TO MANUFACTURE/PRODUCTION. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) ERRED IN OVERLOOKING THE FACT THAT THE A SSESSEE HAS NOT FURNISHED ANY DETAILS OF PURPORTED DELAYED PAYMENTS (INTEREST) RECEIVED FROM CUSTOMERS AND THE ASSESSEE HAS ALSO N OT PROVIDED COMPLETE DETAILS CALLED FOR. 2. FACTS IN BRIEF:- THE ASSESSEE COMPANY IS ENGAGE D IN THE BUSINESS OF MANUFACTURING OF NON-FERROUS METAL ALLOYS. IT F ILED ITS RETURN OF INCOME ELECTRONICALLY ON 30.9.2008. IT CLAIMED DED UCTION UNDER SECTION 80 IB AMOUNTING TO RS. 34,73,908/-. IN HIS ORDER U NDER SECTION 142(3) DT. 27.12.2010 THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 80 IB ON CONVERSION/TESTING CHARGES AND ON INTEREST INCOME. AGGRIEVED THE ASSESSEE CARRIED TH E MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE FIRST AP PELLATE AUTHORITY HELD THAT CONVERSION CHARGES ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB OF THE INCOME TAX ACT, 1961. ON THE ISSUE OF INTEREST INCOME THE FIRST APPELLATE AUTHORITY HELD THAT IN CASE OF INTEREST O N DELAYED PAYMENTS FROM CUSTOMERS, THE ASSESSEE IS ELIGIBLE FOR DEDUCT ION UNDER SECTION 80 IB OF THE INCOME TAX ACT, 1961. ON INTEREST RECEI VED ON FIXED DEPOSITS KEPT WITH THE BANK, HE HELD AGAINST THE ASSESSEE. THE REVENUE FILED AN APPEAL AGAINST THE CLAIMS ALLOWED BY THE COMMISSION ER OF INCOME TAX (APPEALS) AND THE ASSESSEE FILED A CROSS OBJECTION ON THE ISSUE OF 3 DISALLOWANCE OF EXEMPTION UNDER SECTION 80 IB OF TH E INCOME TAX ACT, 1961 ON INTEREST INCOME FROM FIXED DEPOSITS. ALTER NATE CONTENTION IS RAISED THAT ONLY NET INCOME FROM INTEREST SHOULD HA VE BEEN EXCLUDED. 3. WE HAVE HEARD MR.AROOP KUMAR SINGH THE LD.D.R. O N BEHALF OF THE REVENUE AND MR.VED JAIN, THE LD.COUNSEL FOR THE ASS ESSEE. 4. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE AND PERUSAL OF PAPERS ON RECORD, WE HOLD AS UNDER:- ON THE NATURE OF CONVERSION CHARGES RECEIVED, WE FIND THAT THE AS SESSEE COMPANY MANUFACTURES METAL ALLOY INGOTS. IT HAS ALSO A MA NUFACTURING UNIT OF TOP COVERS, BOTTOM COVERS, BRAKE SHOES ETC. THE AS SESSEE COMPANY MANUFACTURES THESE ITEMS NOT ONLY FOR SELF USE AND SALE BUT ALSO FOR SOME OUTSIDE PARTIES, WHO SEND THEIR RAW MATERIAL I N THE FORM OF ALUMINUM INGOTS ETC. BRAKE SHOES, TOP COVERS ETC. ARE MANUFACTURED FROM OUT OF RAW MATERIAL SEND BY THESE THIRD PARTIE S IN SUCH CASES. THE ASSESSEE CHARGES CERTAIN AMOUNTS TO THESE OUTSIDE P ARTIES, WHICH IS TERMED AS CONVERSION CHARGES. 5. IN OTHER WORDS THE ASSESSEE HAS TWO ACTIVITIES, THE FIRST IS WHERE IT PURCHASES RAW MATERIAL AND CONVERTS THE SAME INTO FINISHED PRODUCTS AND SECONDLY WHERE RAW MATERIAL IS SUPPLIED BY THE CUSTOMER AND THE SAME IS USED FOR MANUFACTURING OF FINISHED PRODUCTS AND THEN GIVEN TO THE CUSTOMER ON PAYMENT OF CONVERSION CHARGES. AS FAR AS FIRST ACTIVITY IS CONCERNED, THERE IS NO DISPUTE THAT THE ASSESSEE IS ENTITLED FOR CLAIM OF DEDUCTION UNDER SECTION 80 IB. THE DISPUTE IS ONLY WITH REGARD TO THE SECOND TYPE OF ACTIVITY. IN OUR CONSIDERED OPINION THE FIRST APPELLATE AUTHORITY WAS RIGHT IN HOLDING THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF CONVERSION AND TESTING CHARGES EARNED BY THE AS SESSEE FOR DOING JOB WORK ON THE FACTS AND CIRCUMSTANCES OF THE CASE ELA BORATED ABOVE. THIS DECISION IS IN LINE WITH THE PROPOSITIONS LAID DOWN BY THE JURISDICTIONAL 4 HIGH COURT IN THE CASE OF CIT VS. NORTHERN AROMATI CS LTD. 196 CPR (DELHI) 479, WHICH IS ALSO FOLLOWED IN THE CASE OF CIT VS. SADHU 336 ITR 444 (DELHI). RESPECTFULLY FOLLOWING THE SAME ON TH E FACTS OF THE PRESENT CASE, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AU THORITY AND DISMISS GROUND NOS. 1 TO 3 OF THE REVENUE. 6. COMING TO GROUND NO.4, WE HOLD THAT THE INTEREST RECEIVED BY THE ASSESSEE FROM CUSTOMERS FOR DELAYED PAYMENTS, IS EL IGIBLE FOR DEDUCTION UNDER SECTION 80 IB OF THE INCOME TAX ACT, 1961 BY APPLYING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. ADVANCE DETERGENTS LTD. 339 ITR 81 (DELHI), WHEREIN THE HON BLE COURT FOLLOWED THE JUDGEMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LTD. VS DCIT 238 ITR 402 AS WELL AS OTHE R SIMILAR DECISIONS. RESPECTFULLY FOLLOWING THE SAME WE DISMISS THIS GRO UND OF APPEAL OF THE REVENUE. 7. COMING TO THE CROSS OBJECTION GROUND NOS. 1 AND 2 HAVE TO BE DISMISSED IN VIEW OF THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF LIBERTY INDIA LTD. VS CIT 183 TAXMAN 349 (S C). COMING TO THE ALTERNATE PLEA OF THE ASSESSEE THAT WHAT HAS TO BE ELIMINATED, IS INTEREST INCOME WHICH IS NET OF EXPENDITURE ATTRIBUTABLE TO THE EARNING OF INCOME, WE FOLLOW THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF ESSEL SHYAM COMMUNICATIONS LTD. VS CIT ITA NO. 130/2011 J UDGEMENT DT. 17 TH MAY, 2012, WHEREIN IT WAS DECIDED AS FOLLOWS. Q.NO: 2 :- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE TRIBUNAL ERRED IN LAW IN NOT DIRECTING EXCLUSIO N OF ONLY NET INTEREST INCOME, I.E. GROSS INTEREST INCOME LESS EXPENDITURE INCURRED FOR EARNING SUCH INTEREST INCOME, WHILE COMPUTING DEDUCTION UND ER SECTION 80 IA OF THE INCOME TAX ACT, 1961? PARA 23. IN VIEW OF THE AFORESAID OBSERVATIONS IN THE CASE OF LIBERTY INDIA (SUPRA), THE AFORESAID SECOND QUESTION OF LAW IN ITA 130/2011 IS ANSWERED IN NEGATIVE WITH AN ORDER OF REMAND TO THE TRIBUNAL. IN THE ABSENCE OF DETAILS, 5 IT IS DIRECTED THAT THE TRIBUNAL WILL EXAMINE THE F ACTUAL MATRIX OF THE PRESENT CASE INCLUDING THE BALANCE SH EET AND ACCOUNTS OF THE ASSESSEE, TO DECIDE THE QUESTION. IT WILL BE OPEN TO THE TRIBUNAL TO EXAMINE AND CONSIDER THE CO NTENTION OF THE ASSESSEE. IF RAISED AND SUPPORTED BY FACTS, THE QUANTUM OF EXPENDITURE INCURRED/ATTRIBUTED TO EARNI NG OF EXEMPT INCOME UNDER SECTION 80 IA OF THE INCOME TAX ACT, 1961. WE SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFF ICER FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. 5. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISM ISSED AND THE C.O. BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH OCTOBER,2012. SD/ SD/- (RAJPAL YADAV) (J.SU DHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 12 TH OCTOBER, 2012 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR 6 1. DATE OF DICTATION: 04.10.2012 2. DRAFT PLACED BEFORE THE AUTHOR ON: 09.10.2012 3. DRAFT PROPOSED AND PLACED BEFORE SECOND MEMBER ON: 4. DRAFT DISCUSSED/APPROVED BY THE SECOND MEMBER ON: 5. APPROVED DRAFT CAME TO SR.P.S. ON: 6. DATE OF PRONOUNCEMENT : 7. FILE SENT TO BENCH CLERK ON : 8. DATE ON WHICH FILE GIVEN TO HEAD CLERK ON: 9. DATE OF DISPATCHING THE ORDER ON: