ACIT, CHENNAI V. M/s. Colour Plus Fashions Pvt. Ltd., CHENNAI

ITA 1514/CHNY/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7758 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-07-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 07-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RANGARAJANJR STA NDING
• Assessee Lawyers: R VIJAYARAGHAVAN
• Section: 80HHC; 234B; 14A; 80IB; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT, AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1514 /MDS/2011 (ASSESSMENT YEAR: 2004-05) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-I(3) AAYAKAR BHAVAN, NEW BLOCK VI FLOOR, M.G.ROAD CHENNAI-600 034. VS. M/S. COLOUR PLUS FASHIONS PVT. LTD. C-10, AMBATTUR INDUSTRIAL ESTATE, AMBATTUR, CHENNAI-600 058. PAN: AABCC3401B (APPELLANT) (RESPONDENT) APPELLANT BY : MR. K.E.B. RANGARAJAN, JR.STA NDING COUNSEL RESPONDENT BY : MR. R.VI JAYARAGHAVAN, ADVOCATE DATE OF HEARING : 25 TH JULY, 2012 DATE OF PRONOUNCEMENT : 25 TH JULY, 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN PREFERRED BY THE REVENUE IMPUGNING THE ORDER OF THE CIT(A)-III, CHENNAI DATE D 22.06.2011. 2. THE ASSESSEE IS A MANUFACTURER OF READYMADE GARMENTS. THE ASSESSEE HAD FILED RETURN OF INCOME R ELEVANT TO THE ASSESSMENT YEAR 2004-05 ON 30.10.2004 ADMITTING TOTAL INCOME OF ` 12,42,02,419/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143( 2) DATED ITA NO. 1514/M DS/2011 2 12.10.2005 WAS ISSUED TO THE ASSESSEE. THE ASSESSIN G OFFICER VIDE ASSESSMENT ORDER DATED 26.12.2006 COMP LETED THE ASSESSMENT AND MADE CERTAIN ADDITIONS/DISALLOWA NCES AND DEMAND OF ` 69,06,040/- WAS RAISED BY THE ASSESSING OFFICER. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE CIT(A). THE APPEAL W AS PREFERRED BY THE ASSESSEE PRIMARILY ON THE FOLLOWIN G ISSUES:- (I) DISALLOWANCE OF EXPENDITURE ON SOFTWARE AMOUNTING TO ` 4,37,806/- BY TREATING IT AS CAPITAL IN NATURE. (II) RESTRICTING THE CLAIM OF DEDUCTION UNDER SECTI ON 80HHC. (III) REDUCTION IN CLAIM OF DEDUCTION UNDER SECTION 80IB. (IV) DISALLOWANCE OF DEDUCTION UNDER SECTION 80IB I N RESPECT OF DUTY DRAW BACK, INTEREST, MISCELLANEOUS INCOME AND GAIN ON FOREIGN EXCHANGE. (V) DISALLOWANCE OF ` 4,14,315/- UNDER SECTION 14A BEING 10% DIVIDEND INCOME. ITA NO. 1514/M DS/2011 3 (VI) LEVY OF INTEREST UNDER SECTION 234B AND 234C. THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED BY TH E CIT(A) VIDE ORDER DATED 22.06.2011. 3. THE REVENUE HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE ORDER OF THE CIT(A) ON TWO G ROUNDS: (I) THE CIT(A) ERRED IN HOLDING THAT DEDUCTION UND ER SECTION 80IB NEED NOT BE REDUCED FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF DEDUCTION UNDER SE CTION 80HHC. & (II) THE CIT(A) ERRED IN HOLDING THAT PROFIT DERI VED FROM JOB WORK CHARGES ARE ELIGIBLE FOR DEDUCTION UN DER SECTION 80IB. 4. SHRI K.E.B.RENGARAJAN, APPEARING ON BEHALF OF TH E REVENUE SUBMITTED THAT THE CIT(A) HAS ERRED IN ALLO WING THE APPEAL OF THE ASSESSEE ON THE AFOREMENTIONED TWO GR OUNDS. THE LEARNED D.R. CONTENDED THAT WITH EFFECT FROM 1. 4.1999 DEDUCTION UNDER SECTION 80HHC HAS TO BE COMPUTED ON LY ON THE PROFITS AVAILABLE AFTER ALLOWING DEDUCTION UNDE R SECTION 80IB. ITA NO. 1514/M DS/2011 4 AS REGARDS, ELIGIBILITY OF DEDUCTION UNDER SECTION 80IB ON PROFITS DERIVED FROM JOB WORK CHARGES, THE D.R. SUB MITTED THAT PROFITS FROM JOB WORK CHARGES WERE ATTRIBUTABLE TO THE BUSINESS AND IT CANNOT BE SAID TO BE DERIVED FROM T HE BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. HE STRONGLY SUPPORTED THE ASSESSMENT ORDER. 5. ON THE OTHER HAND, SHRI R. VIJAYARAGHAVAN, COUNS EL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE JUDGEMEN T OF THE DIVISION BENCH OF THE HONBLE MADRAS HIGH COURT IN TAX CASE (APPEAL) NO.1020 OF 2009 TITLED CIT VS. MRF LTD. DE CIDED ON 27.10.2009. HE SUBMITTED THAT IN THE ABOVE MENTION ED CASE THE HONBLE MADRAS HIGH COURT HAS HELD THAT BOTH TH E SECTIONS ARE INDEPENDENT AND THEREFORE, DEDUCTION C AN BE CLAIMED UNDER BOTH ON THE GROSS TOTAL INCOME. THE H ONBLE HIGH COURT WHILE COMING TO THE CONCLUSION HAS RELIE D ON THE JUDGEMENTS OF VARIOUS HIGH COURTS INCLUDING THE JUD GEMENT OF HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF J.P.TOBACCO PRODUCTS P. LTD. VS. CIT REPORTED AS 2 29 ITR 123. ITA NO. 1514/M DS/2011 5 6. AS REGARDS ISSUE NO.2, THE COUNSEL SUBMITTED THA T THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASS ESSEE IN ASSESSEES OWN CASE BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.2281/MDS/2003 VIDE ORDER DATED 25.01.2007 RELEVANT TO THE ASSESSMENT YEAR 2000-01. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE PARTIES AND HAVE PERUSED THE JUDGEMENTS REFERRED TO . WE FIND THAT GROUND NO.1 WITH RESPECT TO DEDUCTION UNDER SE CTION 80IB AND UNDER SECTION 80HHC IS IDENTICAL TO THE QUESTIO N DECIDED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF MR F LTD. (SUPRA). THE VIEW EXPRESSED BY THE HONBLE JURISDIC TIONAL HIGH COURT HAS BEEN REPEATEDLY FOLLOWED BY DIFFERENT HIG H COURTS IN NUMBER OF CASES AND THUS IT IS A WELL SETTLED L AW THAT TWO SECTIONS ARE INDEPENDENT AND THEREFORE THE DEDUCTIO N CAN BE CLAIMED UNDER BOTH THE SECTIONS ON THE GROSS TOTAL INCOME. WE, THEREFORE, UPHOLD THE ORDER OF THE CIT(A) ON TH IS ISSUE AND REJECT THE FIRST GROUND RAISED BY THE REVENUE. 8. THE SECOND ISSUE IS WITH REGARD TO PROFITS DERIV ED FROM JOB WORK CHARGES - WHETHER ELIGIBLE FOR DEDUCTION U NDER ITA NO. 1514/M DS/2011 6 SECTION 80IB? THE CO-ORDINATE BENCH OF THE TRIBUNA L IN ASSESSEES OWN CASE TITLED DEPUTY COMMISSION OF INC OME TAX VS. M/S. COLOUR PLUS FASHIONS PVT. LTD. RELEVAN T TO THE ASSESSMENT YEAR 2000-01 DECIDED ON 25.01.2007 HAS HELD AS UNDER:- 4. ITA NO.2281/MDS/03: IN THE DEPARTMENTAL APPEAL THE SOLITARY ISSUE RAISED RELATES TO THE QUESTION WHETHER THE PROFIT DERIVED FROM THE JOB WO RK PRODUCTION WOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA OF THE ACT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US AND PRECEDENTS RELIED UPON. IN REGARD TO THE JOB WORK PRODUCTION I T WAS EXPLAINED BEFORE US THAT ASSESSEE BUYS FABRICS AND GETS THE GARMENTS CUT AND STITCHED BY OTHER MANUFACTURERS CALLED JOB WORKERS UNDER ITS OWN FACTORY, WASH, FINISH PRESS AND PACK THE SAME IN IT S OWN FACTORY AND THEN SELL THE SAME. THE ASSESSEE PAYS TAILORING CHARGES TO JOB WORK MANUFACTURERS WHICH ARE DEBITED TO THE PROFIT AND LOSS ACCOUNT AS SUCH. 6. IN THE CASE OF CIT VS. PENWALT INDIA LTD. (196 ITR 813) (BOM) ASSESSEE WAS GETTING MACHINERY MANUFACTURED BY SOMEBODY ELSE UNDER ITS DIRECT ITA NO. 1514/M DS/2011 7 SUPERVISION AND CONTROL. ALL OTHER ACTIVITIES WERE UNDERTAKEN BY THE ASSESSEE. HONBLE HIGH COURT HAS HELD THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURE OF MACHINERY. AS SUCH DEDUCTION UNDER SECTION 80-I WAS ALLOWED. SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL IN THE CASE OF DY.COMMISSIONER OF INCOME TAX VS. ELGI ULTRA INDUSTRIES LTD. IN ITA NO.1631 & 1790/MDS/03 DATED 26.10.2005. IT IS THEREFORE CLEAR THAT FOR A PERSON TO BE ENGAGED IN MANUFACTURING ACTIVITY IT IS NOT SINE QUA NON THAT HE SHOULD UNDERTAKE ALL MANUFACTURING ACTIVITIES BY HIMSELF . IT WOULD BE ENOUGH IF HE ENGAGES HIMSELF IN A PART OF MANUFACTURING ACTIVITY AND GETS REST OF IT DONE THROUGH THE AGENCY OF OTHERS. WE HAVE GONE THROUGH THE REASONING ADDUCED IN THE IMPUGNED ORDER. IN OUR OPINION, CIT(A) TOOK A CORRECT VIEW IN THE MATTER A ND HIS ORDER CALLS FOR NO INTERFERENCE ON THIS COUNT. ACCORDINGLY, WE UPHOLD THE SAME. 9. WE ARE OF THE CONSIDERED OPINION THAT THE PRESEN T CONTROVERSY IS SIMILAR TO THE ONE WHICH HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2000-01. RESPECTFULLY FOLLOWING TH E DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL, WE DISMISS THIS GROUND OF THE REVENUE AND HOLD THAT THE ASSESS EE IS ITA NO. 1514/M DS/2011 8 ENTITLED TO DEDUCTION UNDER SECTION 80IB IN RESPECT OF PROFITS DERIVED FROM THE JOB WORK PRODUCTION. NO INTERFEREN CE IN THE ORDER OF THE CIT(A) IS CALLED FOR AND WE UPHOLD THE SAME. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED BEING DEVOID OF MERIT. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON WEDNESDAY, THE 25 TH DAY OF JULY, 2012 AT CHENNAI. SD/- SD/- (DR. O.K.NARAYANAN) (VIKAS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 25 TH JULY, 2012. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.