VITA BIO PHARMA P.LTD, MUMBAI V. DCIT 7(3), MUMBAI

ITA 2225/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3503 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 19-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Assessee Lawyers: KIRAN PANCHOLI
• Keywords: Rectification of order
• Section: 143(3); 80IB; 80IA

Judgement Text

1 ITA 2225/MUM/10, M/S VITA BIO PHARMA P. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI P.M. JA GTAP, A.M. ITA NO. 2225/MUM/2010 ASSESSMENT YEAR 2006-07 M/S VITA BIO PHARMA PVT. LTD., PLOT 109, OPP. SION FORT GARDEN, SION (EAST), MUMBAI 400 0 22. PAN AABCV8454F VS. DCIT, CENTRAL -39, MUMBAI. APPELLANT RESPONDENT APPELLANT BY SHRI KIRAN PANCHOLI RESPONDENT BY SHRI SUMEET KUMAR ORDER PER P.M. JAGTAP, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF LD. CIT(A)-41, MUMBAI DATED 15.02.2010. 2. IN GROUND NO. 1, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE MADE ON ACCOUNT OF ITS CLAIM FOR DEDUCTION U/S 80IB IN RESPECT OF INTE REST INCOME WHEREAS IN GROUND NO. 2 & 3, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF ITS CLAIM FOR DEDUCTION U/S 80IA IN RESPECT OF INCOME FROM SALE OF SCRAP. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOAPS, COSMETICS, DRUG PRODUCTS AN D PHARMACEUTICALS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 31.10.2006 DECLARING TOTAL INCOME OF ` 61,86,610/- AFTER CLAIMING DEDUCTION U/S 80IB. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE CLAIM OF THE ASSESSEE F OR DEDUCTION U/S 80IB WAS EXAMINED BY THE A.O. AND ON SUCH EXAMINATION, HE FOUND THAT THE SAID DEDUCTION WAS CLAIMED BY 2 ITA 2225/MUM/10, M/S VITA BIO PHARMA P. LTD. THE ASSESSEE ON PROFIT OF ` 88,38,011/- WHICH INCLUDED INTEREST INCOME OF ` 42,892/- AND MISCELLANEOUS INCOME OF ` 10,91,376/- REPRESENTING SALE OF SCRAP. ACCORDING TO HIM, THE INTEREST INCOME EARNED BY THE ASSESSEE WAS NOT FORM ING PART OF ITS PROFIT ELIGIBLE FOR DEDUCTION U/S 80IB. ACCORDINGLY, THE SAID INCOME W AS NOT CONSIDERED BY HIM FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IB. AS REGARD S THE SALE OF SCRAP, HE FOUND THAT THE SAME COMPRISED OF SALE OF VARIOUS REJECTED ITEMS. ACCORDING TO THE A.O., NONE OF THESE ITEMS COULD BE SAID TO BE THE SCRAP OR THE BYE-PROD UCT ARISING OUT OF THE MANUFACTURING PROCESS OF THE ASSESSEES UNDERTAKING. HE ALSO NOT ED THAT IT WAS NOT PERMISSIBLE TO THE ASSESSEE TO SELL THE REJECTED ITEMS OF PHARMA AND D RUGS AS THE SAME WERE REQUIRED TO BE DESTROYED BY IT AS PER THE RELEVANT FDA RULES. HE T HEREFORE HELD THAT INCOME FROM SALE OF SCRAP WAS ALSO NOT ELIGIBLE FOR DEDUCTION U/S 80IB AND ACCORDINGLY RESTRICTED THE CLAIM OF THE ASSESSEE FOR THE SAID DEDUCTION IN THE ASSESSME NT COMPLETED U/S 143(3) VIDE AN ORDER DATED 26.12.08. 4. AGAINST THE ORDER PASSED BY THE A.O. U/S 143 (3), AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) CHALLENGING, INTER ALIA, THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF ITS CLAIM FOR DEDUCTION U/S 80IB IN RESP ECT OF INTEREST INCOME AND INCOME FROM SALE OF SCRAP. AFTER CONSIDERING THE SUBMISSIONS M ADE ON BEHALF OF THE ASSESSEE BEFORE HIM AS WELL AS THE MATERIAL AVAILABLE ON RECORD, TH E LD. CIT(A) HELD THAT INTEREST ON BANK FDRS WAS NOT ELIGIBLE FOR DEDUCTION U/S 80IB AS THE SAME WAS NOT DERIVED FROM THE BUSINESS OF THE ASSESSEE. AS REGARDS THE SALE OF S CRAP, HE FOUND THAT THE SAID INCOME WAS EARNED BY THE AASSESSEE FROM SALE OF EMPTY DRUMS, A LUMINUM SCRAP, WOODEN STICK AND WASTE PAPER. ACCORDING TO HIM, SINCE THE ASSESSEE W AS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOAPS, COSMETICS, DRUG PRODUCTS AN D PHARMACEUTICALS, THE SCRAP SOLD BY IT WAS NOT THE RESULT OF ANY PRODUCT MANUFACTURED. HE, THEREFORE, HELD THAT THE SALE OF SCRAP WAS NOT THE INCOME DERIVED BY THE ASSESSEE FR OM THE BUSINESS WHICH WAS ELIGIBLE FOR DEDUCTION U/S 80IB. ACCORDINGLY, HE CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF ASSESEES CLAIM FOR DEDUCTION U/S 80I B IN RESPECT OF INTEREST INCOME AND INCOME FROM SALE OF SCRAP. 3 ITA 2225/MUM/10, M/S VITA BIO PHARMA P. LTD. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS REGARDS THE INTEREST INCOME, THE LEA RNED COUNSEL FOR THE ASSESSEE HAS NOT DISPUTED THAT THE SAME CANNOT BE TREATED AS INCOME DERIVED FROM THE ELIGIBLE BUSINESS OF THE ASSESSEES UNDERTAKING. HE, HOWEVER, HAS CONTEN DED THAT INTEREST EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION BEING MORE THAN THE INTEREST INCOME, THE BENEFIT OF NETTING SHOULD BE ALLOWED TO THE ASS ESSEE ESPECIALLY WHEN THE INVESTMENT IN FDRS WAS MADE BY THE ASSESSEE FOR THE PURPOSE OF BU SINESS. WE FIND IT DIFFICULT TO ACCEPT THIS CONTENTION OF THE LEARNED COUNSEL FOR THE ASSE SSEE. FIRST OF ALL, THERE IS NOTHING BROUGHT ON RECORD TO ESTABLISH THAT INVESTMENT IN B ANK FDRS WAS MADE BY THE ASSESSEE FROM THE BORROWED FUNDS AND THERE WAS A DIRECT NEXU S BETWEEN THE SAID DEPOSITS AND THE FUNDS BORROWED BY THE ASSESSEE. SECONDLY, THE EARNI NG OF INTEREST BY ITSELF IS NOT A SEPARATE BUSINESS ACTIVITY OF THE ASSESSEE SO THAT THE NET PROFIT OF THAT ACTIVITY CAN BE DETERMINED INDEPENDENTLY FOR THE PURPOSE OF COMPUTI NG DEDUCTION U/S 80IB. EVEN THE ASSESSEE COMPANY ITSELF HAS NOT DONE SUCH EXERCISE AND IT HAS CLAIMED THE ENTIRE INTEREST EXPENDITURE AS THE EXPENDITURE OF ITS BUSINESS OF M ANUFACTURING. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE ARGUMENTS RAISED BY THE LEARN ED COUNSEL FOR THE ASSESSEE CLAIMING THE BENEFIT OF NETTING AND REJECTING THE SAME, WE U PHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION U/S 80IB IN RESPECT OF INTEREST INCOME. GROUND NO. 1 OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMISSED. 6. AS REGARDS THE INCOME FROM SALE OF SCRAP, T HE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED STRONG RELIANCE ON THE DECISION OF DELHI BEN CH OF ITAT IN THE CASE OF SONY INDIA PVT. LTD. VS. DCIT 315 ITR (AT) 150 IN SUPPORT OF T HE ASSESSEES CLAIM FOR DEDUCTION U/S 80-IB ON THAT INCOME. A PERUSAL OF THE ORDER PASSE D BY THE TRIBUNAL IN THE SAID CASE, HOWEVER, SHOWS THAT INCOME EARNED BY THE ASSESSEE W AS FROM SALE OF SCRAP GENERATED IN THE MANUFACTURING PROCESS AND THE SAME ACCORDINGLY WAS TREATED BY THE TRIBUNAL AS PROFIT DERIVED BY THE ASSESSEE FROM ITS INDUSTRIAL UNDERTA KING WHICH WAS ELIGIBLE FOR DEDUCTION 4 ITA 2225/MUM/10, M/S VITA BIO PHARMA P. LTD. U/S 80IB. THE FACTS INVOLVED IN THE PRESENT CASE A RE ENTIRELY DIFFERENT IN AS MUCH AS THE INCOME EARNED BY THE ASSESSEE, AS FOUND BY THE LD. CIT(A), WAS FROM SALE OF EMPTY DRUMS, ALUMINUM SCRAP, WOODEN STICKS AND WASTE PAPE R WHICH COULD NOT BE SAID TO HAVE BEEN GENERATED FROM THE PROCESS OF MANUFACTURING OF SOAPS, COSMETICS, DRUGS AND PHARMACEUTICALS CARRIED ON BY THE ASSESSEE . AT TH E TIME OF HEARING BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO CONTR OVERT/REBUT THIS FINDING OF FACT SPECIFICALLY RECORDED BY THE LD. CIT(A) AND THIS BE ING SO, WE ARE OF THE VIEW THAT THE INCOME FROM SALE OF SCRAP CANNOT BE SAID TO HAVE A FIRST DEGREE CONNECTION WITH THE ELIGIBLE BUSINESS/UNDERTAKING OF THE ASSESSEE. DED UCTION U/S 80IB, THEREFORE, CANNOT BE ALLOWED TO THE ASSESSEE IN RESPECT OF INCOME FROM S ALE OF SCRAP AS HELD INTER ALIA BY THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA 317 ITR 218. IN THAT VIEW OF THE MATTER, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT (A) CONFIRMING THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION U/S 80IB IN RESPECT OF INCOME FROM SALE OF SCRAP AND DISMISS GROUND NO. 2 & 3 OF THE ASSESSEES APPEAL. 7. GROUND NO. 4 RAISED BY THE ASSESSEE IN THIS APPE AL HAS NOT BEEN PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEA RING BEFORE US ON THE GROUND THAT THE RELIEF SOUGHT THEREIN HAS ALREADY BEEN ALLOWED BY T HE A.O. BY WAY OF RECTIFICATION ORDER PASSED U/S 154. THE SAID GROUND IS, ACCORDINGLY, D ISMISSED AS NOT PRESSED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED ON 31 ST DECEMBER, 2010. SD/- SD/- (R.V. EASWAR) (P.M. JAGTAP) PRESIDENT A CCOUNTANT MEMBER MUMBAI, DATED 31 ST DECEMBER , 2010. RK 5 ITA 2225/MUM/10, M/S VITA BIO PHARMA P. LTD. COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 41 - MUMBAI 4. THE CIT- CENTRAL III MUMBAI 5. THE DR BENCH, F 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 6 ITA 2225/MUM/10, M/S VITA BIO PHARMA P. LTD. ` DATE INITIALS 1. DRAFT DICTATED 29.12.10 SR.P.S./P.S. 2. DRAFT PLACED BEFORE AUTHOR 30.12.10 SR.P.S./P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER. - J.M./A.M. 4.DRAFT DISCUSSED/ APPROVED BY SECOND MEMBER. J.M./A.M. 5. APPROVED DRAFT COMES TO THE SR.P.S./P.S. SR.P.S./P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S. 8. DATE OF WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.