The ITO, Ward-3(2), Baroda V. M/s. Zincollied (India) Ltd., Baroda

ITA 1792/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68029 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 26-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Source of fund; Capital receipt
• Section: 43B; 143(3); 234B; 80IB; 37

Judgement Text

ITA NOS. 1792 & 1795/AHD/2010 . A.Y. 2006- 07 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI KUL BHARA T, J.M.) I.T. A. NO. 1792 & 1795 /AHD/2010 (ASSESSMENT YEAR:2006-07) INCOME-TAX OFFICER. WD- 3(2), AAYAKAR BHAVAN RACE COURSE CIRCLE BARODA V/S M/S ZINCOLLIED (INDIA) SYNERGY HOUSE, SUBHANPURA BARODA (APPELLANT) (RESPONDENT) M/S ZINCOLLIED (INDIA) SYNERGY HOUSE, SUBHANPURA BARODA V/S INCOME-TAX OFFICER. WD-3(2), AAYAKAR BHAVAN RACE COURSE CIRCLE BARODA (APPELLANT) (RESPONDENT) PAN: AAAFZ0860 H APPELLANT BY : SHRI S.K. DEV SR. D.R. RESPONDENT BY : SHRI MILIN MEHTA A.R. ( )/ ORDER DATE OF HEARING : 11-12-201 3 DATE OF PRONOUNCEMENT : 13 -12-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE TWO APPEALS ONE FILED BY THE REVENUE AND THE OTHER FILED BY THE ASSESSEE ARE AGAINST THE ORDER OF CIT(A)-II, BARODA DATED 22.03.2010 FOR A.Y. 2006-07. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER: ITA NOS. 1792 & 1795/AHD/2010 . A.Y. 2006- 07 2 3. ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF MANUF ACTURING OF WHITE SEAL GRADE OF ZINC OXIDE. ASSESSEE FILED ITS RETURN OF I NCOME FOR A.Y. 06-07 ON 28.09.2006 DECLARING TOTAL INCOME OF RS. 64,66,5 94/- AND SHORT TERM CAPITAL GAIN OF RS. 2,50,122/-. THE CASE WAS SELECT ED FROM SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 31.12.2008 AND THE TOTAL INCOME WAS DETERMINE D AT RS. 2,27,07,875/- AND SHORT TERM CAPITAL GAIN OF RS. 2, 50,122/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFO RE CIT(A), CIT(A) VIDE ORDER DATED 22.03.2010 PARTLY ALLOWED THE APPE AL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A) BOTH REVENUE AND A SSESSEE ARE NOW IN APPEAL BEFORE US. THE GROUNDS RAISED BY THE REVENUE READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION AMOUNTING TO RS. 1,62,41,371/- ON ACCOUNT OF DISALLOWANCE CLAIM OF DEDUCTION U/S. 80IB AS THE ASSESSEE COULD NOT FURNISH DETAILS OF PRODUC TION OF NEW AND OLD UNITS SEPARATELY, EVEN THOUGH BOTH THE UNITS ARE CLAIMED AS ENTIRELY SEPAR ATE ENTITIES. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT WITHOUT MAINTAINING DETAILS OF PRO DUCTION OF EACH UNIT SEPARATELY, DETERMINATION OF EXACT PROFIT EACH UNIT IS NOT POSSIBLE FOR ALLOW ING THE CLAIM OF DEDUCTION U/S.. 80IB. 4. THE GROUNDS RAISED BY THE ASSESSEE READS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN REJECTING THE CONTENTION OF THE APP ELLANT THAT THE SUBSIDY GRANTED TO THE APPELLANT IN THE FORM OF SALES TAX EXEMPTION IS CAPITAL IN NA TURE AND THEREFORE NOT CHARGEABLE TO TAX. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN TAXING A SUM OF RS. 1,40,26,954/- O N ACCOUNT OF SALES TAX CONSIDERING THE SAME AS REVENUE RECEIPT INSTEAD OF CAPITAL RECEIPT CONSIDER ED BY THE APPELLANT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN EXCLUDING THE DUTY DRAW BACK FROM T HE PROFITS OF THE UNDERTAKING WHILE COMPUTING DEDUCTION U/S. 80IB OF THE INCOME TAX ACT, 1961 ON THE GROUND THAT SUCH INCOME IS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CHARGING INTEREST U/S 23 4B OF THE INCOME TAX ACT, 1961. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF A.O. IN INITIATING PENALTY PROCEDDINGS U/ S. 271(1)(C) OF THE INCOME TAX 1961. 5. WE FIRST TAKE UP ASSESSEES APPEAL (ITA NO. 1795/AH D/2010) ITA NOS. 1792 & 1795/AHD/2010 . A.Y. 2006- 07 3 GROUND NO 1 IS WITH RESPECT TO DEDUCTION OF NOTIONA L SALES TAX SUBSIDY. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O. N OTICED THAT ASSESSEE HAD MANUFACTURING UNITS AT DAMAN AND THEY WERE ENJO YING SALES TAX HOLIDAY. HE NOTICED THAT ASSESSEE HAD REDUCED NOTIO NAL SALES TAX LIABILITY AMOUNTING TO RS. 1,40,26,954/- FROM THE PROFIT OF T HE BUSINESS. THE ASSESSEE WAS ASKED TO JUSTIFY THE REDUCTION OF NOTI ONAL SALES TAX LIABILITY FROM THE PROFITS OF UNITS AND ALSO TO SHOW CAUSE AS TO WHY THE SAME NOT BE ADDED BACK. ASSESSEE INTERALIA SUBMITTED THAT ITS M ANUFACTURING UNITS AT DAMAN ARE ENJOYING SALES TAX HOLIDAY BOTH UNDER THE LOCAL AND CENTRAL LEGISLATIONS. THE NOTIONAL SALES TAX LIABILITY WAS CLAIMED IN RESPECT OF SALES AFFECTED FROM DAMAN UNITS AS THE SUBSIDY WAS CAPITAL IN NATURE. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. HE NOTED THAT THE SALES TAX OF RS. 1.40 CRORE WAS NOT ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT AND THE ASSESSEE WAS NOT INCLUDING SALES TAX IN ITS PROFIT AND LOSS ACCOUNT. HE FURTHER NOTED THAT ASSE SSEE WAS ENJOYING SALES TAX EXEMPTION FOR 15 YEARS AND THEREFORE ASSE SSEE WAS ALSO NOT CHARGING SALES TAX FROM ITS CUSTOMERS AND HENCE THE SALES TAX WAS NEVER CREDITED IN THE PROFIT AND LOSS ACCOUNT. HE WAS THE REFORE OF THE VIEW THAT THE DEDUCTION OF ANY SALES TAX EXPENSE WAS ONLY NOT IONAL AS THERE WAS NO LIABILITY ON THE ASSESSEE TO PAY THE SALES TAX AND THEREFORE IT DID NOT QUALIFY AS DEDUCTION. HE WAS FURTHER OF THE VIEW TH AT IT WAS ALSO NOT ALLOWABLE EXPENDITURE U/S 37 OF THE ACT AS IT HAD N EITHER ACCRUED OR PAID AS PER THE PROVISIONS OF SECTION 43B OF THE ACT. H E FURTHER NOTED THAT THE SALES TAX INCENTIVE WAS A REVENUE RECEIPT AND NOT A CAPITAL RECEIPT AND FOR WHICH HE RELIED ON THE DECISION OF HON. SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS INDIA LTD. VS. CIT (19 97) 228 ITR 253. ITA NOS. 1792 & 1795/AHD/2010 . A.Y. 2006- 07 4 ACCORDINGLY THE CLAIM OF ASSESSEE ON ACCOUNT OF NOT IONAL SALES TAX LIABILITY OF RS. 1,40,26,954/- WAS DISALLOWED. AGG RIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CI T(A) FOLLOWING THE ORDER OF HIS PREDECESSOR FOR A.Y. 05-06 UPHELD THE ACTION OF A.O. BY HOLDING AS UNDER:- 2.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHOR IZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER. THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE CIT(A) FOR A.Y. 2005-06. THERE BEING NO CHANGE IN THE FACTS OF THE CASE, THE ACTION OF THE A.O. IN NOT ALLOWING EXEMPTION OF NOTIONAL SALES TA X SUBSIDY IS CONFIRMED. 7. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), THE ASS ESSEE IS NOW IN APPEAL BEFORE US. 8. BEFORE US AT THE OUTSET, THE LD. A.R. SUBMITTED THA T THE ISSUE OF NOTIONAL SALES TAX LIABILITY HAS BEEN DECIDED AGAINST IT BY THE TRIBUNAL IN A.Y. 04- 05 & 05-06. HE FURTHER SUBMITTED THAT THE FACTS OF THE CASE ARE IDENTICAL TO THAT OF A.Y. 04-05 & 05-06. HE THEREFORE FAIRLY CO NCEDED THAT THE ISSUE WAS COVERED AGAINST IT. HE ALSO PLACED ON RECORD T HE COPY OF ORDER OF ITAT DATED 24 TH MARCH 2010 FOR A.Y. 04-05 & 05-06. LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF LOWER AUTHORITIES . 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE OF DEDUCTION OF NOTIONAL SAL ES TAX LIABILITY WAS BEFORE THE CO-ORDINATE BENCH OF TRIBUNAL IN THE ASS ESSEES OWN CASE FOR A.Y. 04-05 & 05-06. THE CO-ORDINATE BENCH IN ITA NO S. 999 & 2467/AHD/2008 HAS DECIDED THE ISSUE AGAINST THE ASS ESSEE BY HOLDING AS UNDER:- 8. WE HAVE CONSIDERED THE RELEVANT FACTS, ARGUMENTS AD VANCED AND DECISIONS CITED. THE FACT TO BE NOTED IS THAT THE ASSESSEE HAS NOT RECEIVED ANY SUB SIDY FROM THE GOVERNMENT BUT IS CLAIMING THAT ITA NOS. 1792 & 1795/AHD/2010 . A.Y. 2006- 07 5 THE SALE PROCEEDS OF THE GOODS SOLD INCLUDES SALES TAX ALSO AND SINCE THE ASSESSEE WAS EXEMPTED FROM PAYMENT OF SALES TAX, THAT ART OF THE SALES-TA X SHALL BE DEEMED TO BE SUBSIDY RECEIVED FROM THE GOVERNMENT AND SINCE SAID NOTIONAL SUBSIDY WAS GRANTED TO SET UP AN INDUSTRY IN A NOTIFIED AREA PRIOR TO CERTAIN DATE, THE SAID NOTIONAL SUBSI DY IS CLAIMED TO BE CAPITAL RECEIPT. THE CLAIM IS BASED MAINLY RELYING ON THE DECISION OF SPECIAL BEN CH OF THE TRIBUNAL IN THE CASE BEFORE SPECIAL BENCH OF THE TRIBUNAL IN DCIT VS. RELIANCE INDUSTRI ES LTD., 88 ITD 273 : 82 TTJ(MUM.)(SB): THERE ALSO THE ASSESSEE CLAIMED THAT IT CAN BE DEEM ED TO HAVE RECEIVED SUBSIDY IN THE FORM OF WAIVER OF SALES-TAX AND WAS HELD TO BE CAPITAL RECE IPT. BENCH THEREFORE, ASKED THE ASSESSEE TO FILE THE COPY OF THE SCHEME CLAIMED WHEREBY SAID RELIANC E INDUSTRIES LTD. WAS GRANTED SALES-TAX EXEMPTION OR SO CALLED SUBSIDY BUT THE COUNSEL FOR THE ASSESSEE DECLARED HIS INABILITY TO FURNISH THE SAME. WE ARE, THEREFORE, UNABLE LO COMPARE WHAT WAS THE SCHEME OF BENEFIT GRANTED TO RELIANCE INDUSTRIES LTD. PURSUANT TO THE SCHEME OF GOVERNMEN T OF MAHARASHTRA. AT ANY RATE THE FINDING GIVEN BY THE TRIBUNAL IN THE SAID CASE IN PARA 10 R EGARDING FACTUAL POSITION WAS AS FOLLOWS: '(A) BEFORE THE DATE OF NOTIFICATION UNDER SECTION 41 OF THE BOMBAY SALES TAX ACT GRANTING EXEMPTION QUA CERTAIN CLASS OF GOODS FROM THE PAYME NT OF SALES-TAX, ON EACH UNIT OF TURNOVER VALUING RS. 100 THERE WAS EMBED DED ON SALES RECEIP TS AMOUNT OF RS.4 BY WAY OF SALES-TAX LIABILITY AND, THEREFORE, THE ASSESSEE WAS OFFERING SUM OF RS .96 FOR THE PURPOSE OF INCOME TAX. DURING THE PERIOD OF EXEMPTION FOR THE SAME UNIT OF TURNOVER VALUING RS. 100 THE ASSESSEE HAS OFFERED RS. 96 FOR INCOME-TAX, IT APPROPRIATES RS. 4 AGAINST SUBSIDY. IF THE REVENUES STAND IS ACCEPTED THEN THE ASSESSEE SHOULD BE OFFERING SUM O F RS. 100 AS TAXABLE RECEIPT. (C ) EVEN AFTER THE EXEMPTION PERIOD WHEN THE CIRCU MSTANCES OR THE MANNER IN WHICH THE BILLS ARE RAISED CONTINUE THE SAME WAY, THE POSITION IS JUST LIKE THAT GIVEN IN (A) I.E. RS.96 BEING OFFERED FOR TAXATION. 32.2 FROM THE ABOVE IT WILL BE SEEN THAT BEFORE EXE MPTION, DURING EXEMPTION AND AFTER EXEMPTION, THE ASSESSEE IS OFFERING AN AMOUNT OF RS. 96 BY WAY OF TAXABLE RECRIPTS. 8.1 THE TRIBUNAL IN PARA 17 ALSO NOTED THAT THE MAH ARASHTRA SCHEME UNLIKE ANDHRA PRADESH AND MADHYA PRADESH SCHEME WERE COMPLETELY FOCUSED ON LO CATION OF THE INDUSTRY AND THE AMOUNT OF FIXED CAPITAL INVESTMENT AND THESE TWIN OBJECTIVES WERE SOUGHT TO BE ACHIEVED TO ALLURE THE PROSPECTIVE INVESTOR TO MAKE LARGE SCALE FIXED CAPI TAL INVESTMENT IN THE INTERIOR BACKWARD AREAS OF THE STATE. THE SPECIAL BENCH OF THE TRIBUNAL HELD T HAT 'WHERE THE SUBSIDY IS GIVEN FOR SETTING UP OR EXPANSION OF INDUSTRY IN A BACKWARD AREA, IT WILL B E CAPITAL IRRESPECTIVE OF MODALITY OR SOURCE OF FUNDS THROUGH OR FROM WHICH IT IS GIVEN AND THAT IF MONIES ARE GIVEN FOR ASSISTING ASSESSEE IN CARRYING OUT BUSINESS OPERATIONS ONLY AFTER, AND CO NDITIONAL UPON, COMMENCEMENT OF PRODUCTION, IT WOULD BE REVENUE RECEIPT. APPLYING THE SAID DECI SION IN THE PRESENT CASE IT IS SEEN THAT THE SCHEME AS PRODUCED BEFORE US AS NOTED ABOVE IS TO E XEMPT FROM PAYMENT OF SALES-TAX ON SALE OF GOODS MANUFACTURED IN THE UNION TERRITORY OF DAMAN AND DIU BY ANY INDUSTRY WHETHER SMALL SCALE, MEDIUM SCALE OR LARGE SCALE FOR 15 YEARS, 10 YEARS OR 5 YEARS RESPECTIVELY FROM THE DATE OF FIRST SALE. THE FURTHER CONDITION STIPULATED THAT T HE PLANT AND MACHINERY OR CONFIRMED PURCHASE ORDER FOR PLANT AND MACHINERY SHALL BE PLACED BEFOR E 31 ST MARCH 2000 AND ----COMMERCIAL PRODUCTION SHALL COMMERCE ON OR BEFORE 31 S DECEMBER 2002. IT NOWHERE REFERS TO THE DEVELOPMEN T AND ANY SPECIFIED AREA NOR IT RELATES TO FOR ANY CA PITAL COST. THE ASSESSEE IS MERELY GRANTED EXEMPTION FROM PAYMENT OF SALES-TAX IF THE COMMERCI AL PRODUCTION COMMENCES ON OR BEFORE 31' DECEMBER, 2002 IN THE ENTIRE UNION TERRITORY OF DAM AN & DIU. THEREFORE, EVEN APPLYING THE DECISION OF SPECIAL BENCH OF TRIBUNAL, SINCE THE SO CALLED BENEFIT IN THE FORM OF EXEMPTION FROM SALES-TAX WAS AVAILABLE ONLY AFTER AND CONDITIONAL OPTION COMMENCEMENT OF PRODUCTION, THE SAME WOULD BE ON REVENUE FIELD. BY GRANTING EXEMPTION FR OM SALES-TAX, THE ASSESSEE CAN SELL GOODS AT CHEAPER RATE WHICH CAN COMPETE IN THE MARKET WITH O THER ESTABLISHED SUPPLIERS. THEREFORE, IN A WAY IT WAS A BENEFIT GRANTED IN CARRYING ON THE OPE RATION OR ASSISTING IN CARRYING OUT THE BUSINESS OPERATION COMPETENTLY. THEREFORE, EVEN IF SUCH NOTI ONAL BENEFIT IS TO BE TREATED AS SUBSIDY AS HELD BY SPECIAL BENCH OF TRIBUNAL, STILL THE SAME WOULD BE ON REVENUE FIELD AND NOT CAPITAL RECEIPT. 8.2 HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CA SE OF CIT VS. ABHISHEK INDUSTRIES LTD., 286 ITR ANALYSIS THE SCHEME OF SALES TAX EXEMPTION WHI CH WAS EXTRACTED IN PARA 38 OF THE ORDER. AS PER THE EXEMPTION NOTIFICATION OF PUNJAB GOVERNMENT , GROUP OF INDUSTRIES WHICH ARE SET UP IN A CATEGORY AREA ON OR AFTER 1 ST OCTOBER, 1992 AND GOODS PRODUCED BY THEM SHALL BE EXEMPT FROM THE PAYMENT OF SALES-TAX FOR A PERIOD OF 10 YEARS COMME NCING FROM THE DATE OF PRODUCTION AND IN CASE OF INDUSTRIES SET UP IN 'B' CATEGORY AREA AFTER L SL OCTOBER,. 1992 WERE EXEMPT FROM PAYMENT OF ITA NOS. 1792 & 1795/AHD/2010 . A.Y. 2006- 07 6 SALES-TAX FOR A PERIOD OF 7 YEARS COMMENCING FROM T HE DATE OF PRODUCTION FOR THE FIRST TIME SUBJECT TO THE CONDITION THAT TOTAL SALES-TAX EXEMPTION SHA LL NOT EXCEED CERTAIN PERCENTAGE OF THEIR FIXED CAPITA! INVESTMENT. IN SUCH A SITUATION HON'BLE PUN JAB & HARYANA HIGH COURT AFTER APPLYING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SA HNEY STEEL & PRESS WORKS (SUPRA) AND REFERRING TO THE FOLLOWING DECISIONS HELD THAT THE SALES-TAX SUBSIDY WAS REVENUE RECEIPT AND NOT CAPITAL RECEIPT AS HELD BY THE TRIBUNAL :- (1) CIT VS. CHHINDWARA FUELS, 245 ITR 9 (CAL.) (2) JAGAPATHY ART PICTURES VS. CIT, 240 ITR 625 (MA D.) (3) SHREE AYYANAR SPINNING AND WEAVING MILLS LTD. V S. CIT, 240 ITR 106 (MAD.) (4) CIT VS. NEO SACK LTD., 148 TAXMAN 603 (MP) (5) CIT VS. STEEL AUTHORITY OF INDIA LTD., 257 ITR 241 (DEL.) (6) CIT VS. PONNI SUGARS & CHEMICALS LTD., 260 ITR 605 (MAD.) (7) CIT VS. PREMIER PROTEINS LTD. 277 ITR 406 (MP) (8) SAROJA MILLS LTD. VS. CIT, 220 ITR 626 (MAD.) (9) KALPANA PALACE VS. CIT, 275 ITR 365 (ALL.) (10) CIT VS. BALARAMPUR CHINI MILLS LTD., ITR 445 ( CAL.). WE, THEREFORE HOLD THAT THE BENEFITS ACCRUING TO TH E ASSESSEE IN THE FORM OF SALES-TAX EXEMPTION WERE INTENDED TO ENABLE THE ASSESSEE TO RUN THE BUS INESS MORE PROFITABLY AND THEREFORE, ARE TO BE TREATED AS IN REVENUE FIELD AND HENCE NOT EXEMPT AS CAPITAL RECEIPT. ACCORDINGLY GROUND NO. 1 FAILS. 9. AS REGARDS GROUND NO. 2 THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY ADMITTED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF SPE CIAL BENCH OF THE TRIBUNAL IN THE CASE OF HINDUSTAN MINT AND AGRO PRODUCTS (P) LTD., 119 ITD 107 (DEL). 10. IN THE RESULT, THE APPEAL IS DISMISSED. 10. SINCE THE ADMITTED POSITION IS THAT THE FACTS OF TH E CASE THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEAR I.E. A .Y. 04-05 & 05-06, WE RESPECTFULLY THE DECISION OF THE CO-ORDINATE BENCH OF TRIBUNAL UPHOLD THE ACTION OF A.O. AND CIT(A). THUS THIS GROUND OF ASSE SSEE IS DISMISSED. GROUND NO 2 IS WITH RESPECT TO EXCLUSION OF DUTY DR AW BACK FOR COMPUTATION OF DEDUCTION UNDER 80IB. 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O. N OTICED THAT ASSESSEE HAD CLAIMED DEDUCTION UNDER 80IB IN RESPECT OF DUTY DRAW BACK OF RS. 4,80,800/-. A.O. WAS OF THE VIEW THAT DUTY DRAW BAC K WAS IN THE NATURE OF SUBSIDY ARISING FROM EXPORT OF GOODS AND WAS NOT DE RIVED FROM INDUSTRIAL UNDERTAKING. HE THEREFORE RELYING ON THE DECISION IN THE CIT VS. STERLING FOOD 237 ITR 579 (SC) AND OTHER DECISIONS HELD THAT ASSESSEE WAS NOT ITA NOS. 1792 & 1795/AHD/2010 . A.Y. 2006- 07 7 ELIGIBLE TO CLAIM DEDUCTION U/S 80IB ON DUTY DRAW B ACK. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFOR E CIT(A). CIT(A) UPHELD THE ORDER OF A.O. BY HOLDING AS UNDER:- 4.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHO RIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER. IT HAS BEEN FAIRLY ACCEPTED THAT NO DEDUCT ION U/S. 80IB CAN BE ALLOWED ON THE DUTY DRAWBACK I N VIEW OF DECISION OF SUPREME COURT IN THE CASE OF LI BERTY INDIA SUPRA. IN VIEW OF THE SAME THE ACTION O F THE ASSESSING OFFICER IN NOT ALLOWING DEDUCTION U/S . 80IB ON THE DUTY DRAWBACK INCOME IS CONFIRMED. INCOME FROM SALE OF SCRAP GENERATED DURING PRODUCTI ON PROCESS IS ELIGIBLE TO CLAIM DEDUCTION U/S : . 80IB IN VIEW OF DECISION OF AHMEDABAD TRIBUNAL IN T HE CASE OF DCIT V. MIRA INDUSTRIES 87 ITD 475. THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTIO N ON THE INCOME FROM SALE OF SCRAP U/S. 80IB OF THE ACT. REGARDING THE CLAIM OF DEDUCTION ON FOREIGN EX CHANGE FLUCTUATION THE ISSUE IS COVERED BY THE DECISION OF CHENNAI TRIBUNAL SUPRA. THE ASSESSING O FFICER IS THEREFORE DIRECTED NOT TO REDUCE THE FOREIGN EXCHANGE FLUCTUATION INCOME WHILE COMPUTING DEDUCTION U/S. 80IB OF THE ACT. 12. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS N OW IN APPEAL BEFORE US. 13. BEFORE US AT THE OUTSET, THE LD. A.R. FAIRLY SUBMIT TED THAT ISSUE OF DEDUCTION UNDER 80IB ON DUTY DRAW BACK WAS COVERED AGAINST THE ASSESSEE BY THE DECISION OF HON. APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT 317 ITR 218. HE THEREFORE SUBMITTED THAT TH IS GROUND IS COVERED AGAINST THE ASSESSEE. LD. D.R. SUPPORTED THE ORDER OF LOWER AUTHORITIES. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IB ON DUTY DRAW BACK. IN THE CASE OF LIBERTY INDIA VS. CI T (SUPRA), THE HON. SUPREME COURT HAS HELD THAT DEPB/DUTY DRAW BACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOM S ACT, 1962 AND HENCE INCENTIVE PROFITS ARE NOT PROFITS DERIVED FROM ELIGIBLE BUSIN ESS UNDER SECTION 80IB. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERT AKING IN SUCH CIRCUMSTANCES PROFITS ITA NOS. 1792 & 1795/AHD/2010 . A.Y. 2006- 07 8 DERIVED BY WAY OF SUCH INCENTIVES DO NOT FALL WITHI N THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING IN SECTION 80IB.. 15. SINCE THE ISSUE OF DEDUCTION U/S. 80IB ON DUTY DRAW BACK IS NOW SETTLED BY THE AFORESAID DECISION OF APEX COURT, RESPECTFUL LY FOLLOWING THE AFORESAID DECISION OF HON. SUPREME COURT, WE FIND N O REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF AS SESSEE IS DISMISSED. GROUND NO. 3 IS WITH RESPECT TO CHARGING OF INTERES T UNDER SECTION 234B IT BEING CONSEQUENTIAL IN NATURE DOES NOT CALL ED FOR ADJUDICATION. 16. IN THE RESULT, THE APPEAL OF ASSESSEE IS DISMISSED. ITA NO. 1792/AHD/2010 (REVENUES APPEAL) 17. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O. N OTICED THAT ASSESSEE HAD CLAIMED DEDUCTION UNDER 80IB OF THE ACT ON THE PROFITS OF OLD UNIT AS WELL AS NEW UNIT. THE ASSESSEE WAS ASKED TO SUBSTA NTIATE THE CLAIM OF DEDUCTION UNDER 80IB AND FOR WHICH VARIOUS DETAILS LIKE DETAILS OF MACHINERY, MANUFACTURING ACTIVITIES AT OLD AND NEW UNIT, DAILY PRODUCTION REGISTER INDICATING SEPARATE PRODUCTION FOR NEW AND OLD UNIT BATCH-WISE AND FURNACE-WISE BASIS OF ALLOCATION OF EXPENSES BE TWEEN OLD AND NEW UNIT ETC WAS CALLED FOR. THE SUBMISSION MADE BY TH E ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO. A.O. ALSO NOTICED THAT ASSESSEE HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR OLD AND N EW UNITS AT DAMAN. HE FURTHER NOTED THAT THE PROFITS OF THE BUSINESS W ERE BIFURCATED ON THE BASIS OF GOODS MANUFACTURED FROM THE FURNACES OF TH E OLD AND NEW UNITS. ITA NOS. 1792 & 1795/AHD/2010 . A.Y. 2006- 07 9 A.O. THEREFORE CONCLUDED THAT SINCE THE ASSESSEE WA S NOT IN A POSITION TO DISCHARGE ITS PRIMARY RESPONSIBILITY OF PROVING ITS CLAIM OF DEDUCTION BY PROVIDING BATCH WISE PRODUCTION SEPARATELY FOR OLD AND NEW UNIT, THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 80IB C ANNOT BE ACCEPTED AND HE ACCORDINGLY DENIED THE DEDUCTION. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DECIDE THE ISSUE IN FAV OUR OF ASSESSEE BY HOLDING AS UNDER:- 3.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHOR IZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER. THE OLD UNIT HAD CLAIMED DEDUCTION U/S. 80 IB FROM ASSESSMENT YEAR 1999-2000 TO 2005-06. DISALLOWING THE ASSESSEE'S CLAIM IN THE CURRENT YEA R WITHOUT ASSIGNING ANY SPECIFIC REASON IS UNJUSTIFIED. THE APPELLANT IS ENTITLED TO CLAIM DED UCTION ON THE PROFITS ON THE OLD UNIT AND THE SAME IS ALLOWED. WITH REGARD TO THE CLAIM OF DEDUCTION ON 8 NEW FURNACES ESTABLISHED ON 03.06.2003, IT IS SEEN THAT THE ADDITION TO PLANT AND MACHINERY WAS OF RS. 81,92,620/-. THE BUILDING WAS ALSO EXTENDED BY A FURTHER EXPENDITURE OF RS.11,26,696/-. ADDITIONS TO LABORATORY EQUIPMENT, OFFICE EQUIPMENT, COMPUTER ETC. WERE MADE. PRODUCTION CAPACITY DOUBLED SINCE 8 NEW FURNACES WERE INSTALLED. ADDITIONAL STAFF WAS RECRUITED FOR HANDLING THE INCREASED PRODUCTION CAP ACITY. HENCE IT CAN BE CONCLUDED THAT A UNIT WHICH WAS PHYSICALLY, TECHNICALLY AND FINANCIALLY SEPARAT E WAS SET UP. THE HON'BLE TRIBUNAL IN THE CASE OF RUBAMIN INDUSTRY VIDE ITA NO. 5167/A/1996 ON SIMILA R FACTS HELD THAT 'THAT IN VIEW OF THE DECISIONS OF THE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. VS. CIT 107 ITR 195 AND CIT VS. INDIAN ALUMINIUM LTD. 108 ITR 367, IT HAS TO BE TAK EN AS A NEW INDUSTRIAL UNDERTAKING. IN THOSE CASES, IT WAS HELD BY THE SUPREME COURT THAT WHEN THERE WA S INCREASE IN THE CAPACITY IT HAS TO BE TREATED AS A NEW INDUSTRIAL UNDERTAKING TO THE EXTENT OF THE EXP ANSION. WE FIND THAT THE CAPACITY OF THE ASSESSEE I N THE OLD UNIT WAS 1600 MT WHEREAS IN THE NEW UNIT IT HAS INCREASED TO 2200 MT. IT IS THUS CLEAR CASE OF SUBSTANTIAL INCREASE IN THE CAPACITY AND THE ASSESS EE WOULD BE ENTITLED TO DEDUCTION IN VIEW OF THE AFORESAID DECISIONS'. THE ASSESSING OFFICER IN THE ORDER MENTIONED THAT NO SEPARATE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED FOR THE OLD UNIT AND THE NEW U NIT THERE IS NO REQUIREMENT IN LAW ABOUT MAINTENANCE OF SEPARATE BOOKS OF ACCOUNTS. IN THE C ASE OF CIT VS. MADURAI PANDIAN ENGG. CORPN. LTD. 239 ITR 641 (MAD), IT WAS HELD THAT IF THE ASSESSEE HAD FULFILLED ALL THE PRESCRIBED ADDITIONS THE REL IEF DUE TO THE ASSESSEE COULD NOT BE DENIED. MERELY BEC AUSE THE ASSESSEE HAD NOT KEPT SEPARATE ACCOUNTS FOR THE NEW UNIT. THE AHMEDABAD TRIBUNAL IN THE CAS E OF PATWA KINARIWALA ELECTRONICS VS. IAC 51 TTJ 280 ALSO CONCURRED WITH THE MADRAS HIGH COURT. THE ASSESSING OFFICER'S OBJECTION THAT BATCH WISE PRODUCTION IS NOT MAINTAINED CANNOT ALSO BE THE REA SON FOR DENYING THE APPELLANT DEDUCTION U/S. 80IB. PRODUCTION REGISTER OF THE OLD UNIT AND THE NEW UNI T WHICH IS MAINTAINED ON A DAILY BUSINESS WAS EXAMINED BY THE ASSESSING OFFICER AND NO DISCREPANC Y HAS BEEN POINTED OUT. IN VIEW OF THE FACT THAT SUBSTANTIAL INVESTMENT IN PLANT AND MACHINERY, BUIL DING AND EQUIPMENT, HAS BEEN MADE, PRODUCTION CAPACITY HAS DOUBLED AND A UNIT WHICH IS PHYSICALLY , TECHNICALLY AND FINANCIALLY SEPARATE EXISTS LEADS TO THE CONCLUSION THAT THE ASSESSEE IS ENTITLED TO DED UCTION U/S. 80IB. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE INCOME ACCORDINGLY. 18. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS NOW IN APPEAL BEFORE US. ITA NOS. 1792 & 1795/AHD/2010 . A.Y. 2006- 07 10 19. BEFORE US, THE LD. D.R. STRONGLY SUPPORTED THE ORDE R OF A.O. AND TOOK US THROUGH THE OBSERVATIONS OF A.O. HE THUS STRONGLY S UPPORTED THE ORDER OF A.O. AND SUBMITTED THAT THE ORDER OF A.O. BE UPHELD . THE LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE C IT(A) AND THUS SUPPORTED THE ORDER OF CIT(A). 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT A.O. DENIED THE DEDUCTION U/S. 80IB MA INLY FOR THE REASON THAT ASSESSEE HAD NOT MAINTAINED BATCH-WISE PRODUCT ION FOR OLD AND NEW UNIT. WE FIND CIT(A) WHILE DECIDING THE ISSUE IN FA VOUR OF ASSESSEE HAS GIVEN A FINDING THAT ASSESSEE HAD CLAIMED DEDUCTION UNDER 80IB FOR OLD UNIT IN THE PAST AND FURTHER WITHOUT ASSIGNING ANY SPECIFIC REASON OR NEW FACTS, THE ASSESSEES CLAIM FOR DEDUCTION OF OLD UN IT IN THE YEAR UNDER APPEAL WAS UNJUSTIFIED. HE HAS FURTHER GIVEN A FIND ING THAT THE CAPACITY OF THE OLD UNIT WAS 1600 METRIC TON WHERE AS IN THE NE W UNIT IT HAD INCREASED TO 2,200 METRIC TON AND THUS IT WAS CLEAR THAT SUBS TANTIAL INCREASE IN CAPACITY HAD TAKEN PLACE. HE HAS FURTHER NOTED THA T AS PER THE PROVISIONS OF THE ACT, THERE IS NO REQUIREMENT OF MAINTAINING SEPARATE BOOKS OF ACCOUNTS FOR OLD UNIT AND NEW UNIT. HE HAS FURTHER NOTED THAT PRODUCTION REGISTER OF THE OLD UNIT AND NEW UNIT WAS MAINTAINE D ON A DAILY BASIS AND WAS ALSO EXAMINED BY THE A.O. AND NO DISCREPANCY WA S POINTED OUT BY THE A.O. HE HAS FURTHER GIVEN A FINDING THAT THERE WAS SUBSTANTIAL INVESTMENT IN PLANT AND MACHINERY, BUILDING AND EQU IPMENT AND THE PRODUCTION CAPACITY HAD DOUBLED AND A NEW SEPARATE UNIT EXIST. THE AFORESAID FINDINGS OF CIT(A) HAS NOT BEEN CONTROVER TED BY REVENUE BY BRINGING ANY CONTRARY MATERIAL ON RECORD. IN VIEW O F THE AFORESAID FACTS, ITA NOS. 1792 & 1795/AHD/2010 . A.Y. 2006- 07 11 WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CI T(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 21. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE AND REVEN UE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 13 - 12 - 2013. SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD