Tyco Valves & Controls (India) Pvt. Ltd., Baroda V. The Asstt. Comm. of Income Tax, Cir- 4, Baroda

ITA 1659/AHD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0522 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-11-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 21-06-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C
• Assessee Lawyers: DIVYAKANT PARIKH
• Keywords: Business income
• Section: 80IB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI N.S. SAINI, A.M.) I.T.A. NO. 1659/AHD./2005 ASSESSMENT YEAR : 2001-2002 TYCO VALVES & CONTROLS (INDIA) PVT. LTD., BARODA - VS.- ASSISTANT COMMISSIONER OF INCOME TAX, (P.A. NO. AAACK 8809 L) CIRCLE- 4, BARODA (APPELLANT) (R ESPONDENT) APPELLANT BY : SHRI DIVYAKANT PARIK H RESPONDENT BY : SHRI M.C. PANDIT O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER :- THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER DATED 08.04.2005 OF LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) -III, BARODA FOR THE ASSESSMENT YEAR 2001-2002. 2. GROUND NO. 1 OF THE APPEAL FILED BY THE ASSESSEE READS AS UNDER :- THE LD. LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) HAS ERRED IN NOT ALLOWING DEDUCTION UNDER SECTION 80IB ON DEP B LICENSE FEE, MISCELLANEOUS INCOME, EXCHANGE RATE VARIATION AND O CTROI. YOUR APPELLANT SUBMITS THAT SAME BEING EARNED IN THE ORD INARY COURSE OF BUSINESS QUALITY FOR DEDUCTION U/S. 80IB. IT BE HEL D SO NOW AND A.O. BE DIRECTED TO ALLOW DEDUCTION U/S. 80IB ON THE ABO VE TERMS. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF PRODUCTION AND ASSEMBLING OF VALUES, VALVE PARTS, ACTUATORS, COMPO NENTS AND ACCESSORIES. IN THE ASSESSMENT ORDER, THE A.O. EXCLUDED THE OTHER INCOME OF RS.87, 99,000/- WHILE ARRIVING AT A PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB ON THE GROUND THAT THI S INCOME IS NOT DERIVED FROM ELIGIBLE UNIT. IN THE ASSESSMENT ORDER, THE A.O. ALSO NOTED THAT OTHE R INCOME CONSISTS OF INTEREST, SERVICE CHARGES, SUNDRY BALANCE WRITTEN OFF, SALE OF SCRAP, ETC. THE A.O. TREATED THE ENTIRE OTHER INCOME OF RS.89,89,000/- EXCLUDING SALE OF SCRAP AS INCOME NO T DERIVED FROM INDUSTRIAL UNDERTAKING. THIS SCRAP SALE OF RS.1,90,928/- WAS TREATED AS BUSINESS INCOME AND, THEREFORE, THE BALANCE AMOUNT OF RS.87,99,000/- WAS STATED AS OTHER INCOME AND WAS R EDUCED FROM PROFIT FOR THE PURPOSE OF 2 CALCULATION OF DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT. THUS, THE A.O. RE-CALCULATED THE DEDUCTION UNDER SECTION 80IB AT RS.58,53,000/- AS AGAINST RS.84,93,000/- CLAIMED BY THE ASSESSEE. 4. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) HELD THAT DEPB LICENCE, MISCELLANEOUS INCOME, EXCHA NGE VARIATION AND OCTROI SALES WILL ALSO NOT QUALIFY FOR DEDUCTION AS THESE INCOME ARE NOT DIREC TLY DERIVED FROM THE INDUSTRIAL UNDERTAKING THOUGH THEY MAY BE FORMING PART OF BUSINESS INCOME OR ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE. HOWEVER, THE LEARNED COMMISSIONER OF INCO ME TAX(APPEALS) DIRECTED THE A.O. TO ALLOW DEDUCTION UNDER SECTION 80IB ON SERVICE CHARG ES OF RS.8,43,308/-, SUNDRY BALANCES WRITTEN OFF OF RS.1,85,605/-, INSPECTION CHARGES OF RS.1,68 ,685/-, PROFIT ON SALE OF FIXED ASSETS OF RS.72,470/-. ON THE OTHER ITEMS OF INCOME, VIZ. AGE NCY COMMISSION, DEPB LICENSE INCOME, MISCELLANEOUS INCOME, INSURANCE, INTEREST INCOME, E XCHANGE VARIATION AND OCTOI SALES, DEDUCTION UNDER SECTION 80IB IS NOT TO BE ALLOWED AS THESE IN COME ARE CLEARLY IN THE NATURE OF OTHER INCOME AND WILL NOT BE ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE INCOME TAX ACT, 1961. AGGRIEVED BY THIS ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS ), THE ASSESSEE IS IN APPEAL BEFORE US. 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF T HE ASSESSEE SHRI DIVYAKANT PARIKH APPEARED AND FAIRLY ADMITTED THAT ON AGENCY COMMISSION AMOUNTING TO RS.6,43,464/-, THE ASSESSEE IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80IB. ON DEPB L ICENSE INCOME AMOUNTING TO RS.30,01,989/- ALSO LD. A.R. OF THE ASSESSEE CONCEDED THAT RECENTL Y HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS.- CIT REPORTED IN 317 ITR 218 HELD THAT D EPB LICENSE INCOME IS NOT ENTITLED FOR BENEFIT OF DEDUCTION UNDER SECTION 80IB AS IT IS NOT PART O F NET PROFIT DERIVED FROM ELIGIBLE UNIT. WITH REGARD TO MISCELLANEOUS INCOME, I.E. REIMBURSEMENT FOR PROVIDING OFFICE SPACE TO ASSOCIATE COMPANY, REFUND OF SALES TAX AND MONEY RECEIVED FRO M WORKERS FOR SALE OF EMPTY DRUMS, WOOD, ETC., THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THA T IN RESPECT OF THESE ITEMS, THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80IB IN VIEW OF THE JUDGMENT OF THE ITAT, SPECIAL BENCH, AHMEDABAD IN THE CASE OF NIRMA INDUSTRIES LTD. VS. - CIT REPORTED IN 95 TTJ 870. SIMILARLY, IN RESPECT OF INSURANCE (LOCAL SALES), THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THIS IS NOTHING BUT RECOVERY OF EXPENSES INCURRED BY THE ASSESSEE FROM CUSTOMERS. ON THIS ISSUE ALSO, THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80IB FOLLOWING THE JUDGMENT OF THE ITAT, SPECIAL BENCH, 3 AHMEDABAD IN THE CASE OF NIRMA INDUSTRIES LTD. (SUP RA). WITH REGARD TO INTEREST INCOME ON SURPLUS MONEY DEPOSITED WITH BANKS AMOUNTING TO RS. 29,29,581/-, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ON THIS ITEM, THE ASSESSEE IS ENTITL ED TO DEDUCTION UNDER SECTION 80IB. ON EXCHANGE RATE VARIATION AMOUNTING TO RS.3,22,641/-, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF THE ITAT, B BENCH, AHMEDABAD IN THE CASE OF PRIYANKA GEMS VS.- ACIT REPORTED IN 94 TTJ 557 (AHD.). LASTLY ON RECOVERY OF OCTROI SALES ALSO, THE LD. COUNSEL OF THE ASSESSEE SUBMITT ED THAT DEDUCTION UNDER SECTION 80IB BE ALLOWED AS PER DECISION OF THE HON'BLE GUJARAT HIGH COURT I N THE CASE OF K. KACHARADAS PATEL SPECIFIC FAMILY TRUST VS.- CIT REPORTED IN (2006) 282 ITR 3 17 (GUJ.). 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE SUBMITTED THAT ON DEPB LICENSE INCOME, THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U NDER SECTION 80IB AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA). WITH REGARD TO REIMBURSEMENT FOR PROVIDING OFFICE SPACE TO ASSOCIATE COMPANY, RECOVERY OF INSU RANCE EXPENSES (LOCAL SALE), RECOVERY OF EXPENSES ON OCTROI SALES NEED VERIFICATION AT THE E ND OF A.O. TO THE EXTENT, IF THE AMOUNT IS SPENT AND IT IS RECOVERED FROM THE CUSTOMERS, THE ASSESSE E IS ENTITLED TO DEDUCTION UNDER SECTION 80IB. FOR THE BALANCE AMOUNT, WHICH IS IN THE NATURE OF I NCOME, THE ASSESSEE IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80IB. WITH REGARD TO INTERE ST INCOME OF RS.29,29,581/-, THE LD. D.R. SUBMITTED THAT SINCE THE ASSESSEE FAILED TO PROVE T HE NEXUS BEFORE BOTH THE DEPARTMENTAL AUTHORITIES BELOW AS WELL AS BEFORE THE TRIBUNAL, T HEREFORE, IT IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80IB ON INTEREST INCOME OF RS.29,29,581/-. 7. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. OUR F INDING IN RESPECT OF VARIOUS ITEMS IS AS UNDER :- (I) WITH REGARD TO AGENCY COMMISSION AMOUNTING TO RS.6,43,464/-, WE FIND THAT THIS INCOME IS NOT DERIVED FROM ELIGIBLE UNIT, THEREFORE , FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF STERLING FOODS REPORTE D IN 237 ITR 579, WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80IB ON THIS AMOUNT. 4 (II) IN RESPECT OF DEPB LICENSE INCOME OF RS.30,01 ,989/-, FOLLOWING THE RECENT JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA), WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80IB ON THI S AMOUNT. (III) IN RESPECT OF MISCELLANEOUS INCOME OF RS.9,8 1,507/- ON REIMBURSEMENT FOR PROVIDING OFFICE SPACE TO ASSOCIATE COMPANY, WE ARE OF THE VI EW THAT THE ASSESSEE IS ENTITLED TO DEDUCTION TO THE EXTENT, THE ASSESSEE PROVED BEFORE THE A.O. THA T THIS IS PURELY IN THE NATURE OF REIMBURSEMENT AND THE ASSESSEE HAS ACTUALLY INCURRED THIS AMOUNT. THEREFORE, THE A.O. MAY VERIFY THE SAME AND CONSIDER THE ALLOWANCE OF DEDUCTION ACCORDINGLY. (IV) IN RESPECT OF REFUND OF SALES TAX AND MONEY R ECEIVED FROM WORKERS FOR SALE OF EMPTY DRUMS, WOOD, ETC., WE ARE OF THE VIEW THAT THE A.O. MAY ALLOW THE DEDUCTION BECAUSE IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HIMSELF HAS ALLOWED THE DEDUCTION UNDER SECTION 80IB ON SCRAP SALES. (V) IN RESPECT OF INSURANCE ON LOCAL SALES AMOUNT ING TO RS.32,598/-, WE FIND THAT IN CASE THIS AMOUNT REPRESENTS ONLY RECOVERY OF EXPENSES FR OM CUSTOMERS, WHICH WAS INCURRED BY THE ASSESSEE. IN THAT EVENT FOLLOWING THE DECISION OF T HE ITAT, SPECIAL BENCH, AHMEDABAD IN THE CASE OF NIRMA INDUSTRIES LIMITED (SUPRA), WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80IB. HOWEVER, IT NEEDS VERIFICATION AT THE END OF A.O. WHETHER THIS INCOME REPRESENTS PURE RECOVERY. TO THE EXTENT, THIS INCOME REPRESENT S RECOVERY OF EXPENSES, WHICH WAS ALREADY INCURRED, THE A.O. IS DIRECTED TO ALLOW THE DEDUCTI ON UNDER SECTION 80IB. (VI) IN RESPECT OF INTEREST INCOME OF RS.29,29,581 /-, WE FIND CONSIDERABLE FORCE IN THE SUBMISSION OF THE LD. DEPARTMENTAL REPRESENTATIVE. THE INTEREST INCOME IS NOT DERIVED FROM INDUSTRIAL UNDERTAKING. HOWEVER, TO THE EXTENT, NEX US CAN BE PROVED, APPROPRIATE DEDUCTION CAN BE ALLOWED. SINCE BOTH THE AUTHORITIES BELOW AS WEL L AS THE ASSESSEE COULD NOT PROVE THE NEXUS, IN OUR OPINION, DEDUCTION UNDER SECTION 80IB ON INTERE ST INCOME IS RIGHTLY DENIED AS IT IS NOT DERIVED FROM ELIGIBLE UNIT. 5 (VII) IN RESPECT OF EXCHANGE VARIATION OF RS.3,22, 641/-, BEFORE US IT WAS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT EXCHANGE RATE DIF FERENCE WAS BETWEEN DATE OF BOOKING OF THE INVOICE AND DATE OF REALIZATION OF INVOICE. WE FIND THAT THE NATURE OF EXCHANGE RATE DIFFERENCE IS NOT EXAMINED BY ANY OF THE AUTHORITIES BELOW. IN CA SE, THE EXCHANGE RATE DIFFERENCE IS ON EXPORT SALES, THEN THE A.O. WILL ALLOW THE DEDUCTION UNDER SECTION 80IB AS IT REPRESENTS SALE PROCEEDS OF THE GOODS, WHICH ARE MANUFACTURED BY THE ASSESSEE-C OMPANY. SUBJECT TO THIS VERIFICATION, THE A.O. WILL ALLOW THE NECESSARY DEDUCTION UNDER SECTI ON 80IB ON THIS INCOME KEEPING IN VIEW THE DECISION OF THE ITAT, B BENCH, AHMEDABAD IN THE CASE OF PRIYANKA GEMS VS.- ACIT REPORTED IN 94 TTJ 557 (AHD.) (SUPRA). (VIII) IN RESPECT OF OCTROI SALES AMOUNTING TO RS. 15,595/-, WE FIND THIS AMOUNT REPRESENTS RECOVERY OF EXPENSES, WHICH WERE INCURRED BY THE AS SESSEE ON BEHALF OF ITS CUSTOMERS. IN THAT EVENT, THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80IB. IN CASE OF EXCESS RECOVERY FROM DISTRIBUTORS, THE ASSESSEE IS ALSO ENTITLED TO DEDU CTION UNDER SECTION 80IB. THE A.O. MAY VERIFY THE SAME AND ALLOW THE DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT. 8. THE A.O. IS ACCORDINGLY DIRECTED TO RE-COMPUTE T HE DEDUCTION UNDER SECTION 80IB OF THE ACT AS INDICATED HEREINABOVE. 9. THE ONLY OTHER GROUND OF APPEAL IS THAT THE LD. LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN CONFIRMING DISALLOWANCES MADE BY THE A.O. OF RS.8,832/- OUT OF ENTERTAINMENT EXPENSES, RS.10,000/- OUT OF MISCELLA NEOUS EXPENSES AND RS.25,340/- OUT OF OFFICE EXPENSES AND ALSO THAT THE DISALLOWANCES MADE ARE N OT JUSTIFIED AND SAME BE DELETED IN TOTO. 10. THIS GROUND OF APPEAL OF THE ASSESSEE IS NOT PR ESSED AT THE TIME OF HEARING. THEREFORE, THE SAME IS BEING DISMISSED AS NOT PRESSED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AS INDICATED ABOVE. THE ORDER PRONOUNCED IN THE COURT ON 06.11.2009 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 06 / 11 / 2009 6 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.