RACHNA PLASTICIZERS, MUMBAI V. ITO 19(1)(2), MUMBAI

ITA 1672/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8878 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2001-2002
• Appeal Filed On: 04-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Assessee Lawyers: MAYUR MAHADIA
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.1672 & 1673/MUM/2010 A.YRS. 2001-02 & 2002-03 M/S RACHNA PLASTICIZERS, PLOT NO.143, SHANTI NIKETAN, 3 RD FLOOR, S.V.ROAD, OPP. KHAR POLICE STATION, KHAR (W), MUMBAI 400 052. PAN: AAAFR 7811 A VS. INCOME TAX OFFICER 19 (1)(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAYUR MAHADIA. RESPONDENT BY : SHRI SUMEET KUMAR. O R D E R PER T.R.SOOD, AM: THE APPEALS OF THE ASSESSEE ARE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. I.T.A.NO.1676/M/10 A.Y 2001-02 : IN THIS APPEAL THE ONLY DISPUTE IS REGARDING DENIAL OF DEDUCTION U/S.80IB I N RESPECT OF INTEREST FROM BANK AGAINST DEPOSITS GIVEN FOR BANK GUARANTEE TO ELECTRICITY BOARD, RECEIPT ON SALE OF SCRAP AND SUNDRY BALANCES WRITTEN OFF. 3. THE ISSUE REGARDING INTEREST FROM BANK WAS NOT P RESSED BEFORE US AND, THEREFORE, SAME IS DISMISSED. 4. AS FAR AS ISSUE REGARDING SALE OF SCRAP IS CONCE RNED, THE LD. COUNSEL OF THE ASSESSEE POINTED THAT THE ISSUE CAME UP FOR 2 CONSIDERATION OF THE TRIBUNAL IN EARLIER YEAR IN I. T.A.NOS.197 & 198/MUM/09 AND WAS DECIDED IN FAVOUR OF THE ASSESSE E. 5. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE CIT[A]. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN I.T.A.NO.197 & 198/M/09 FOR A.YRS. 2004-05 & 2005-06 AND THE SAME WAS DECIDED VIDE PARAS 8 AND 9 WHICH ARE AS UNDER: 8. GROUND NO.2 PERTAINS TO DISALLOWANCE U/S.80IB(2 )(IV)(B) OF THE ACT HOLDING THAT THE AMOUNT OF RS.1,83,244/- ON ACC OUNT OF SALE OF SCRAP CAN NOT BE BUSINESS INCOME AND TREATED THE S AME AS INCOME FROM OTHER SOURCES . THE ASSESSING OFFICER TREATED THE S ALE OF SCRAP AS NOT ELIGIBLE FOR DEDUCTION WHICH WAS CONFIRMED BY THE C IT(A) HOLDING THAT THE SCRAP WAS NOT GENERATED OUT OF ITS MANUFACTURIN G PROCESS, RATHER THE SAME IS ON ACCOUNT OF SALE OF EMPTY SCRAP BAGS AND DRUMS BEING PACKING MATERIAL SOLD BY THE APPELLANT, GENERATED O UT OF ITS PURCHASE OF RAW-MATERIAL. THEREFORE, HE OBSERVED THE INCOME ON ACCOUNT OF SALE OF SCRAP CANNOT BE TREATED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE LD. COUNSEL STATED THE FACTS AND R ELIED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DC IT VS. CORE HEALTHCARE LTD. (2009) 308 ITR 263 (GUJ.) AND IN TH E CASE OF CIT (DEPUTY) VS. HARJIVANDAS JUTHABHAI ZAVERI (2002) 25 8 ITR 785 (GUJ). THE LD. DR HOWEVER RELIED ON THE ORDER OF THE ASSES SING OFFICER AND THE CIT(A). 9. WE HAVE CONSIDERED THE ISSUE. THERE IS FINDIN G OF THE FACT THAT THE SCRAP SOLD WAS NOTHING BUT EMPTY BAGS BEING PACKAGI NG MATERIAL GENERATED OUT OF ITS RAW MATERIAL, AND AS RIGHTLY H ELD BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CORE HEALTHCARE (SUPRA) THE COST OF THE BAGS AND DRUM WAS PART OF THE PURCHASE PRICE WH ICH WENT TO MAKE UP THE TOTAL COST OF MANUFACTURING PRODUCT. IT WAS THUS DIRECTLY RELATABLE TO THE ACTIVITY OF INDUSTRIAL UNDERTAKING . RELYING ON THE PRINCIPLES ESTABLISHED THEREIN, WE ARE OF THE OPINI ON THAT THE INCOME FROM THE SALE OF SCRAP MATERIAL IS ENTITLED TO DEDU CTION UNDER SEC.80IB AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE DECID E THIS ISSUE IN FAVOUR OF THE ASSESSEE. 3 7. THE LAST ISSUE IS IN RESPECT OF SUNDRY BALANCES WRITTEN OFF. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING ASSES SMENT PROCEEDINGS IT WAS EXPLAINED THAT SUNDRY BALANCES WRITTEN OFF PERT AIN TO DISCOUNT AND WRITE OFF OF SMALLER AMOUNTS PAYABLE TO THE CREDITO RS ON ACCOUNT OF PURCHASES AND, THEREFORE, SAME WERE DIRECTLY RELATE D TO THE BUSINESS. HOWEVER, AO WAS OF THE VIEW THAT THESE ITEMS COULD NOT BE SAID TO BE DERIVED FROM BUSINESS BECAUSE ASSESSEE HAD ALREADY ACCOUNTED FOR DISCOUNT FOR RAW-MATERIALS AND, ACCORDINGLY, HE DEN IED DEDUCTION U/S.80IB IN RESPECT OF THESE ITEMS. 8. ON APPEAL, THE ACTION OF THE AO WAS CONFIRMED BY THE LD. CIT[A]. 9. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE SUNDRY CREDIT BALANCES HAVE BEEN WRITTEN OFF BECAUS E SMALLER PAYMENTS ARE EITHER ADJUSTED AS DISCOUNTS OR UNPAID TO THE SUPPLIER AND, THEREFORE, THEY CONSTITUTE DIRECT PROFIT OF TH E ASSESSEE FROM BUSINESS AND SHOULD BE HELD TO BE ELIGIBLE FOR DEDU CTION U/S.80IB. 10. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER O F THE LD. CIT[A]. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. IF A SUPPLIER WHO HAS SUPPLIED RAW MATERIAL TO THE ASSES SEE, THAT MUST HAVE GONE TO CONSTITUTE ITEM OF EXPENDITURE FOR THE ASSESSEE AND IF SOME OF THE AMOUNTS ARE NOT PAID LATER ON BECAUSE O F DISCOUNTS OR 4 SMALLNESS OF THE AMOUNTS OR FOR OTHER REASONS, THEN DEFINITELY EXPENDITURE TO THAT EXTENT STANDS REDUCED. IT MEANS THAT THE PROFITS OF THE ASSESSEE HAVE TO BE INCREASED AND IN OUR VIEW T O THAT EXTENT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80IB. HOWEVE R, AT THE SAME TIME IF THE SUNDRY CREDITORS RELATE TO CAPITAL EXPENDITU RE, E.G., FOR PURCHASE OF MACHINERY, THEN SUCH ITEM WOULD BE IN THE CAPITA L FIELD AND NOT ELIGIBLE FOR DEDUCTION U/S.80IB. SINCE THE INDIVIDU AL ITEMS CANNOT BE EXAMINED HERE, THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE NATURE OF WRITE OFF AND ALLOW DEDUCTION U/S.80I B IN RESPECT OF WRITE OFF WHICH PERTAINS TO REVENUE FIELD. 12. I.T.A.NO.1672/M/10 A.Y 2002-03 : IN THIS APPEAL THE ONLY DISPUTE IS REGARDING DENIAL OF DEDUCTION U/S.80IB I N RESPECT OF INTEREST FROM BANK AGAINST DEPOSITS GIVEN FOR BANK GUARANTEE TO ELECTRICITY BOARD, BANK INTEREST ON L/C MARGIN AND RECEIPT ON A CCOUNT OF SALE OF SCRAP. 13. THE ISSUES REGARDING INTEREST FROM BANK AND BAN K INTEREST ON L/C MARGIN WERE NOT PRESSED BEFORE US AND, THEREFOR E, SAME ARE DISMISSED. 14. AS FAR AS THE DISPUTE REGARDING SALE OF SCRAP I S CONCERNED, THE SAME HAS ALREADY BEEN ADJUDICATED BY US WHILE ADJUD ICATION I.T.A.NO.1672/M/10 FOR A.Y 2001-02 AND THE ISSUE WA S DECIDED IN 5 FAVOUR OF THE ASSESSEE VIDE PARA-11. FOLLOWING THAT ORDER, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 15. IN THE RESULT, ASSESSEES APPEALS ARE PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF JANUARY, 2011. SD/- SD/- (N.V.VASUDEVAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 21 ST JANUARY, 2011. P/-*