ACIT, Central Circle-2(1), Kolkata, Kolkata V. M/s Amricon Agrovat Pvt. Ltd., Kolkata

ITA 2300/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1415 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 06-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: D S DAMLE
• Keywords: Business income; Earning of tax free income
• Section: 14A; 80IB; 10

Judgement Text

ITA NO.2300/KOL/2016 M/S. AMRICON AGROVAT PVT.LTD. A.Y.2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH 'B', KO LKATA [BEFORE HON'BLE SRI N.V.VASUDEVAN, JM & HON'BLE SRI WASEEM AHMED, AM] ITA NO 2300/KOL/2016 ASSESSMENT YEAR : 2013-14 A.C.I.T., CENTRAL CIRCLE-2(1) -VS- M/S. AMRICON AGROVAT (P).LTD., KOLKATA KOLKATA (PAN AADCA 1610 Q) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI.S.DASGUPTA ADDL.CIT DR FOR THE RESPONDENT: SHRI D.S.DAMLE, FCA DATE OF HEARING : 15.2.2018 DATE OF PRONOUNCEMENT : 01.03.2018. ORDER PER SHRI N.V.VASUDEVAN, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST ORD ER DATED 27.9.2016 OF CIT(A)-20, KOLKATA, RELATING TO AY 2013-14. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THIS READS AS FOLLOWS: (I) THAT THE LD. CIT(A) HAS ERRED IN ACCEPTING THA T THE TERM 'MANUFACTURE' OCCURRING IN THE CONTEXT OF SECTION 80-IB DOES NOT NECESSARILY REQUIRE THAT THE END PRODUCT OF THE MANUFACTURING PROCESS IS TO BE COMPL ETELY DIFFERENT FROM THE INGREDIENTS, AS REGARDS ITS CHEMICAL COMPOSITION, I NTEGRAL STRUCTURE OR ITS USE. (II) THAT THE LD. CIT(A) HAS ERRED IN ACCEPTING THA T THE PROCESS OF MANUFACTURING OF POULTRY FEEDS DOES NOT AMOUNT TO MERE MIXING TOG ETHER OF ALL DIFFERENT INGREDIENTS, WITHOUT INVOLVING ANY CHANGE IN THE CH EMICAL COMPOSITION OF THE INGREDIENTS. (III) THAT THE LD. CIT(A) HAS ERRED IN ACCEPTING TH AT THE PROCESS OF PREPARATION OF POULTRY FEEDS AMOUNT TO PRODUCTION OF AN ARTICLE WI THIN THE MEANING OF SECTION 80IB. (IV) THAT THE LD. CIT(A) HAS ERRED IN ALLOWING THE ENTIRE AMOUNT OF RS.1,12,50,626/- CLAIMED AS DEDUCTION U/S 80-IB. ITA NO.2300/KOL/2016 M/S. AMRICON AGROVAT PVT.LTD. A.Y.2013-14 2 (V) THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE A.O. TO NET OFF THE INTEREST INCOME CREDITED IN THE PROFIT AND LOSS ACCOUNT OF T HE ELIGIBLE UNDERTAKING AGAINST THE INTEREST EXPENSE DEBITED IN THE SAID PROFIT AND LOSS ACCOUNT WITHOUT THE APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CAS E SUPPORTED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMIC ALS LIMITED VS. CIT,[2003] 129 TAXMAN 539 (SC) AND THE DECISION OF HIGH COURT OF JAMMU AND KASHMIR IN THE CASE OF ASIAN CEMENT INDUSTRIES VS INCOME TAX APPELLATE TRIBUNAL, [2012] 28 TAXMAN 290(JAMMU & KASHMIR) (VI) THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE A.O. TO RECOMPUTE THE INCOME OF THE ELIGIBLE UNDERTAKING AND RE-COMPUTE THE DEDU CTION U/S 80IB AFTER NETTING OFF THE INTEREST INCOME CREDITED IN THE PROFIT AND LOSS ACCOUNT OF THE ELIGIBLE UNDERTAKING AGAINST THE INTEREST EXPENSE DEBITED IN THE SAID PROFIT AND LOSS ACCOUNT. (VII) LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.26,080/-U/S.14A. (VIII)THAT THE DEPARTMENT CRAVES THE RIGHT TO ADD, MODIFY OR ABROGATE THE GROUNDS OF APPEAL DURING THE COURSE OF HEARING OF T HE CASE. 3. GROUNDS NO.(I) TO (III) RAISED BY THE REVENUE I S WITH REGARD TO THE ISSUE AS TO WHETHER THE CIT(A) WAS JUSTIFIED IN ALLOWING THE CL AIM OF THE ASSESSEE FOR DEDUCTION U/S.80IB(5) OF THE INCOME TAX ACT, 1961 (ACT) ON TH E PROFITS DERIVED BY THE ASSESSEE FROM MANUFACTURE AND SALE OF POULTRY FEED. 4. AT THE TIME OF HEARING IT WAS SUBMITTED BY TH E LEARNED COUNSEL FOR THE ASSESSEE THAT THE AFORESAID ISSUE REGARDING THE ELIGIBILITY OF THE ASSESSEE FOR DEDUCTION U/S 80IB(5) OF THE ACT HAS ALREADY BEEN DECIDED BY THE ITAT KOLKATA BENCH IN ASSESSEES OWN CASE FOR AY 2007-08 & AY.2010-11 IN ITA NO. 222 7/KOL/2010 ORDER DATED 20.3.2013 & ITA(SS)NO.131/KOL/2016 ORDER DATED 5.4. 2017 AND THIS TRIBUNAL FOLLOWING THE DECISION RENDERED IN THE CASE OF M/S. AMRIT FEEDS IN ITA NO.1505/KOL/2007 FOR AY 2003-04 DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE HOLDING THAT THE PROFIT DERIVED FROM THE ACTIVITY O F MANUFACTURE OF POULTRY FEED WAS ENTITLED TO DEDUCTION U/S.80IB(5) OF THE ACT. 5. IT WAS THE PLEA OF THE ASSESSEE THAT THE PROC ESS OF PRODUCING POULTRY FEED INVOLVED MECHANICAL, CHEMICAL & ELECTRICAL PROCESSES FOR WHI CH THE ASSESSEE USED SOPHISTICATED PLANT & MACHINERY. IN THE COURSE OF PRODUCTION OF P OULTRY FEED RAW- MATERIALS WHICH ITA NO.2300/KOL/2016 M/S. AMRICON AGROVAT PVT.LTD. A.Y.2013-14 3 EXCEEDED 30 IN NUMBER, LOST INDIVIDUAL IDENTITY AND THE EMERGING PRODUCT WAS DISTINCT AND SEPARATE IN SHAPE, CHARACTER AND END-USE. THE R AW- MATERIALS CONSUMED IN PRODUCTION OF POULTRY FEED COULD BE INDIVIDUALLY US ED FOR DIFFERENT PURPOSES, BUT THE END PRODUCT AT THE END OF INTEGRATED PRODUCTION PRO CESS WAS KNOWN TO TRADE BY ITS DISTINCT COMMERCIAL NAME AS 'POULTRY FEED'. IT COUL D ONLY BE CONSUMED BY ONLY ONE CLASS OF CONSUMER I.E. POULTRY & NONE ELSE. IT WAS THE CLAIM OF THE ASSESSEE THE END PRODUCT WAS KNOWN AS POULTRY FEED IN THE TRADE, COM MERCE AND INDUSTRY AND WAS CONSIDERED AS SEPARATE AND DISTINCT FROM VARIOUS MA TERIALS CONSUMED IN THE PROCESS OF ITS PRODUCTION. THE ASSESSEE ALSO PLEADED THAT POUL TRY FEED MANUFACTURING INDUSTRY WAS NOTIFIED BY THE CENTRAL GOVERNMENT TO BE ELIGIB LE FOR CLAIMING DEDUCTION FOR A CONSECUTIVE PERIOD OF 10 YEARS U/S 801B(4) OF THE A CT WHERE THE UNDERTAKING WAS LOCATED IN ANY OF THE NORTH EASTERN STATES. IT WAS THE PLEA OF THE ASSESSEE THAT DEDUCTION BOTH U/S 801B (4) & (5) COULD BE ALLOWED ONLY IF NEWLY SET UP INDUSTRIAL UNDERTAKING WAS ENGAGED IN MANUFACTURE AND PRODUCTI ON OF AN ARTICLE AND IF POULTRY FEED INDUSTRY WAS CONSIDERED ELIGIBLE BY THE CENTRA L GOVERNMENT FOR CLAIMING DEDUCTION U/S 801B(4) THEN THE SAME INDUSTRY SHOULD BE CONSIDERED TO BE ELIGIBLE FOR DEDUCTION U/S 801B(5) OF THE ACT ALSO ON THE GROUND AT IT WAS ENGAGED IN MANUFACTURE OR PRODUCTION OF AN ARTICLE. 6. THE AO HOWEVER WAS OF THE VIEW THAT IN THE PROD UCTION PROCESS EXPLAINED BY THE ASSESSEE, THERE WAS NO CHANGE IN CHEMICAL COMPOSITI ON OF THE END PRODUCT AND THEREFORE THERE WAS NO MANUFACTURE. HOWEVER BEFORE RECORDING SUCH AN AUTHENTIC TECHNICAL FINDING, THE AO HOWEVER DID NOT REFER TO ANY SCIENTIFIC DATA OR SCIENTIFIC EXPERIMENTS OR TECHNICAL REPORT TO SUPPORT HIS CONC LUSION. THE AO ACCORDINGLY REJECTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/ S.80IB(5) OF THE ACT. 7. ON APPEAL BY THE ASSESSEE, THE CIT(A) HELD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S.80IB(5) OF THE ACT AND IN DOING SO RE LIED ON THE DECISION RENDERED IN ASSESSEES OWN CASE BY THE TRIBUNAL REFERRED TO IN THE EARLIER PART OF THIS ORDER. 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.2300/KOL/2016 M/S. AMRICON AGROVAT PVT.LTD. A.Y.2013-14 4 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ISSUE TO BE DECIDED IS AS TO WHETHER THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF A PRODUCT ION OF AN ARTICLE TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. THIS ISSUE HAS DULY B EEN DECIDED BY THIS BENCH IN ASSESSEE'S OWN CASE IN ITA(SS)A NO.131/KOL/2016 IN ASSESSEES OWN CASE AND THIS TRIBUNAL WHILE DECIDING THE SIMILAR ISSUE, THIS TRI BUNAL OBSERVED AS UNDER: 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ISSU E TO BE DECIDED IS AS TO WHETHER THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF A PRODUCTION OF AN ARTICLE TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. TH IS ISSUE HAS DULY BEEN DECIDED BY THIS BENCH IN ASSESSEE'S SISTER CONCERN IN ITA NO.1505/KOL/2007 IN THE CASE OF ACIT-VS- AMRIT FEEDS LTD., KOLKATA, IN WHICH, THE SIMILAR ISSUE HAS ARISEN. WHILE DECIDING THE SIMILAR ISSUE, THIS TRIB UNAL OBSERVED AS UNDER VIDE PARA 15 TO 18 OF ITS ORDER. '15. SEC 801B (2) (III) REQUIRES THE ELIGIBLE INDUS TRIAL UNDERTAKING TO BE ENGAGED IN 'MANUFACTURE OF PRODUCTION OF AN ARTICLE '. THE SAID SECTION HOWEVER, DOES NOT DEFINE THE EXPRESSION 'MANUFACTUR E OR PRODUCTION OF AN ARTICLE'. IN FACT THIS EXPRESSION IS NOT DEFINED IN THE ACT ALSO. THE LD. CIT (A) EXTENSIVELY ANALYSED MEANING OF THE SAID EX PRESSION WITH REFERENCE TO JUDICIAL DECISIONS DISCUSSED IN HIS OR DER. THE TEST LAID DOWN BY THE COURTS IS WHETHER THE EMERGING NEW PRODUCT I S KNOWN TO THE TRADE, INDUSTRY AND COMMERCE BY ITS OWN NAME HAVING ITS OWN APPLICATION USE AND HAS A MARKET OF ITS OWN. APPLYI NG THE CRITERIA AS LAID DOWN IN THESE JUDICIAL DECISIONS WE FIND THAT IN PH YSICAL APPEARANCE, COLOUR AND SHAPE THE. POULTRY FEED VASTLY DIFFERS F ROM THE INPUT MATERIALS. THE POULTRY FEED IS MANUFACTURED IN A SC IENTIFIC AND SYSTEMATIC MANNER WITH THE USE AND ASSISTANCE OF SO PHISTICATED PLANT AND MACHINERY ACQUIRED AT A SUBSTANTIAL COST. POULTRY F EED IS RECOGNISED NOT ONLY BY TRADE AND COMMERCE BUT ALSO BY THE STATUTOR Y AUTHORITIES UNDER CENTRAL EXCISE, SALES TAX ETC AS INDEPENDENT PRODUC TS APPLYING THE RATIO LAID DOWN IN JUDICIAL DECISIONS DISCUSSED IN THE ORDER OF CTT(A) WE HAVE NO HESITATION IN HOLDING THAT THE ASSESSEE IS ENGAGED IN MANUFACTURE OR PRODUCTION OF AN ARTICLE, CONTEMPLAT ED IN SEC 801B (2) (III) . 16. WE ALSO FIND ON THE IDENTICAL FACTS THE BANGALO RE BENCH OF ITAT IN THE CASE OF KOMRALA FEEDS --VS- DCIT 74 ITD 65 HELD THAT ACTIVITY OF PRODUCING POULTRY FEED AMOUNTS TO MANUFACTURE AND T HEREFORE ELIGIBLE FOR DEDUCTION U/S 80 I. SEC 80I AND SEC 80IB ARE PA RAMETERIA BECAUSE CONDITIONS FOR PART OF DEDUCTION ARE SAME AND THERE FORE THE SAID DECISION IS EQUALLY APPLICABLE IN THE PRESENT CASE. ITA NO.2300/KOL/2016 M/S. AMRICON AGROVAT PVT.LTD. A.Y.2013-14 5 17. SECTION 80IB IS AN INCENTIVE PROVISION OF THE INCOME TAX ACT ENACTED, BY THE LEGISLATURE TO PROMOTE ECONOMIC AN D INDUSTRIAL GROWTH IN BACKWARD DISTRICTS AND STATES. IN THE CAS E OF BAJAJ TEMPO LTD - -VS. CIT (196 ITR 188) THE SUPREME COURT HAS OPINED THAT A PROVISION OF TAXING STATUTE GRANTING INCENTIVES FOR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE CONSTRUED LIBERALLY AND SINCE A PROVISION FOR PROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIB ERALLY THE RESTRICTION THEREON TOO HAS TO BE CONSTRUED SO AS TO ADVANCE TH E OBJECTIVE OF THE PROVISION AND NOT TO FRUSTRATE IT. CONDITIONS OF SE C 801B (2) (III) SHOULD BE FULFILLED BY EVERY NEW INDUSTRIAL UNDERTAKING CL AIMING DEDUCTION EITHER/UNDER SUB SEC (3) (4) OR (5) OF SEC 80 IB I. E. TO SAY THE UNDERTAKING MUST BE ENGAGED IN MANUFACTURE OR PRODU CTION OF AN ARTICLE. IF THIS CONDITION IS NOT FULFILLED NO DEDUCTION IS PERMISSIBLE UNDER ANY OF THE SUB SECTIONS OF SEC 801B. THE INDUSTRIAL UNDERT AKINGS NOTIFIED AND APPROVED BY THE CENTRAL GOVT. AND SITUATED IN NORTH EASTERN STATES ARE ELIGIBLE FOR TAX HOLIDAY FOR PERIOD OF 10 YEARS' AS AGAINST PERIOD OF 5 YEARS AVAILABLE TO OTHER BACKWARDS STATES. IN NOTIF ICATION NO. SO 627 (E) DATED 04.08.1999 THE CENTRAL GOVERNMENT HAS REC OGNISED POULTRY AND CATTLE FEED INDUSTRY, TO BE AN ELIGIBLE INDUSTR Y U/S 80 IB (4). ONCE THE CENTRAL GOVERNMENT NOTIFIED THE POULTRY 'FEED I NDUSTRY U/S 80 IB (4) THEN THERE IS A TACIT ADMISSION THAT IT IS ENGAGED IN 'MANUFACTURE OR PRODUCTION OF AN ARTICLE'. THIS IS SO BECAUSE UNLES S POULTRY FEED INDUSTRY DOES NOT MANUFACTURE AN ARTICLE; NO DEDUCTION CAN B E PERMISSIBLE U/S 80IB. ONCE THE CENTRAL GOVT. ACCEPTED IN PRINCIPLE THAT POULTRY FEED IS AN ELIGIBLE INDUSTRY U/S 80IB(4); THEN THE VERY SAM E INDUSTRY CANNOT BE CONSIDERED AS NON MANUFACTURING INDUSTRY UNDER SUB SECTIONS (3) AND (5) ' OF SEC 801B. WITH REFERENCE TO SAME SET OF FACTS THE REVENUE CANNOT HOLD THE POULTRY .FEED INDUSTRY AS MANUFACTURING IN DUSTRY IF SITUATED IN NORTH EASTERN STATES AND A 'PROCESSING INDUSTRY' IF SITUATED IN ANY OTHER STATES SUCH AN INTERPRETATION WILL ONLY LEAD TO AN ABSURD LEGAL POSITION. 18. FOR THE REASONS AS SET OUT HEREIN BEFORE THEREF ORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) HOLDING THE ASSESS EE TO BE ENGAGED IN MANUFACTURE OR PRODUCTION OF AN ARTICLE WE ARE THER EFORE OF THE CONSIDERED OPINION THAT THE ASSESSEE SATISFIES THE CONDITIONS OF SEC 80- IB(2) (III) OF THE ACT AND IS THEREFORE ELIGIBLE FO R DEDUCTION U/S 80IB WE THEREFORE UPHOLD THE ORDER OF CIT (A) DIRECTING A 0 TO ALLOW DEDUCTION U/S 80 IB TO THE ASSESSEE.' 10. IN ASSESSEES OWN CASE THIS TRIBUNAL IN ITA NO. 2227/KOL/2010 FOR AY 2007-08 BY ORDER DATED 20.3.2013 ALLOWED SIMILAR CL AIM OF THE ASSESSEE. FROM PERUSAL OF THE SAID DECISIONS OF THIS TRIBUNAL, IT IS APPARENT THAT THIS TRIBUNAL HAS CATEGORICALLY HELD IN THE CASE THAT THE ASSESSE E IS ENGAGED IN MANUFACTURING OF POULTRY FEEDS AND THAT THE ASSESSEE IS ENGAGED I N THE MANUFACTURE OR PRODUCTION OF AN ARTICLE. ITA NO.2300/KOL/2016 M/S. AMRICON AGROVAT PVT.LTD. A.Y.2013-14 6 11. THE LEARNED DR HOWEVER SUBMITTED THAT IN THE D ECISIONS RENDERED BY THE TRIBUNAL, THE DECISION RENDERED BY THE HYDERABAD BE NCH OF ITAT IN THE CASE OF VENKATESWARA FEEDS -VS- ACIT 22 TAXMANN.COM 234 (HY D.) WAS NOT PROPERLY CONSIDERED AND THEREFORE THE DECISION RENDERED IN A SSESSEES OWN CASE REQUIRES RECONSIDERATION. IN THIS REGARD IT WAS SUBMITTED T HAT THE TRIBUNAL IN THE CASE OF VENKATESWAR FEEDS (SUPRA) FOUND THAT VARIOUS FEED INGREDIENTS SUCH AS MAIZE, RICE BRAN, DE-OILED SOYA ETC., ALONG WITH CERTAIN F EED PREMIXES ARE MIXED IN DIFFERENT PROPORTIONS AND THEN GROUND TO FORM A COU RSE POWDERED MATERIAL WHICH WAS CALLED MASH FEED. SUCH FEED UNDERWENT A C ERTAIN KIND OF PHYSICAL CHANGES AND WAS CONVERTED INTO SMALL PELLETS. THE A CTUAL PROCESS INVOLVED WAS THAT THE MASH FEED WAS CARRIED THROUGH AN ELEVATOR TO A PELLET MAKING MACHINE WHERE IT GOT MIXED WITH STEAM AND THEN FORCED THROU GH A PRESS CONTAINING SMALL HOLES TO CONVERT THE FEED INTO SMALL PELLETS. IT WAS HELD THAT THERE WAS NO CHANGE OF COMPOSITION IN THE MASH FEED AND THE PELL ET FEED. HENCE CONVERSION OF PHYSICAL SHAPE OF THE FEED INVOLVES ONLY PROCESS ING AND NOT MANUFACTURE. 12 . THE LEARNED DR FILED BEFORE US A CHART EXPLAINING THE PROCESS CARRIED OUT BY THE ASSESSEE, WHICH IS AS FOLLOWS: RAW MATERIALS (CORN, SOYA MEAL, RICE BRAN, CASSAVA, OTHERS QUALITY INSPECTION (AFLATCOCIN, MOISTURE, ENERGY, PROTEIN, ETC. HATCH WEIGHING (PER FORMULATION) GRINDING OF RAW MATERIALS MIXING PELLETING COOLING CRUMBLING QUALITY INSPECTION WEIGHING AND PACKAGING STORAGE IT WAS SUBMITTED BY HIM THAT THE RAW MATERIAL AND E ND PRODUCT WERE THE SAME AND THEREFORE WHAT THE ASSESSEE DOES IS ONLY PROCES SING AND NOT MANUFACTURE. FOR AN ACTIVITY TO BE CALLED MANUF ACTURE ONE OF THE ITA NO.2300/KOL/2016 M/S. AMRICON AGROVAT PVT.LTD. A.Y.2013-14 7 IMPORTANT CRITERIA IS THAT THE END PRODUCT OF THE M ANUFACTURING PROCESS IS TO BE COMPLETELY DIFFERENT FROM THE INGREDIENTS, AS RE GARDS ITS CHEMICAL COMPOSITION, INTEGRAL STRUCTURE OR ITS USE AND SUCH FACTOR IS MISSING IN THE CASE OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THE ACT IVITY CARRIED OUT BY THE ASSESSEE WAS MERE MIXING TOGETHER OF DIFFERENT INGR EDIENTS, WITHOUT INVOLVING ANY CHANGE IN THE CHEMICAL COMPOSITION OF THE INGRE DIENTS AND THEREFORE, THE DECISIONS RENDERED ON THIS ISSUE HAVE OVERLOOKED TH IS ASPECT. IT WAS SUBMITTED THAT THE DECISION RENDERED IN ASSESSEES OWN CASE D ID NOT CONSIDER THE DECISION OF THE HYDERABAD BENCH OF ITAT IN THE CASE OF VENKATESWARA FEEDS (SUPRA) AND THEREFORE THE DECISION REQUIRES RECONSI DERATION. 13. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE REL YING ON THE ORDER OF THE CIT(A) AND DECISION OF THE TRIBUNAL IN ASSESSEES O WN CASE IN AY 2005-06 ALSO SUBMITTED THAT IN THE CASE OF AMRIT FEEDS (SUP RA), THE HONBLE ITAT HAD CONSIDERED AND DISTINGUISHED THE DECISION RENDERED IN THE CASE OF VENKATESWARA FEEDS (SUPRA) BY ITAT HYDERABAD BENCH. 14. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. IN THE CASE OF AMRIT FEEDS (SUPRA), THE TRIBUNAL CONSIDERED THE DECISION RENDERED IN THE CASE OF VENKATESWARA FEEDS (SUPRA) AND HELD THAT TH E ASSESSEE IN THAT CASE HAD CLAIMED DEDUCTION UNDER SECTION 80IB ON THE ACTIVITY OF MERELY CONVERTING POULTRY MASH FEED INTO PELLET FEED AND THEREFORE TH AT BENCH HAS HELD THAT THERE WAS NO CHANGE IN THE BASIC COMPONENT OR NEW OR DIFF ERENT ARTICLE CAME INTO EXISTENCE. AS SUCH, CONVERSION WAS PROCESSING ACTIV ITY NOT MANUFACTURING. THE TRIBUNAL HELD THAT THE CASE OF THE ASSESSEE AMRIT F EEDS (SUPRA) WAS ENTIRELY DIFFERENT. THE ASSESSEE'S ELIGIBLE UNDERTAKING ITSE LF WAS INDEPENDENTLY CARRYING OUT THE COMPLETE ACTIVITY I.E. FROM MIXING, GRINDIN G TILL THE PELLETISATION. THE RAW MATERIALS ONCE CONSUMED COULD NOT BE RECONVERTE D INTO THE SAME POSITION. ITS UTILITY GETS CHANGED. THE PRIME RAW MATERIALS S UCH AS, MAIZE, SOYA OIL, RICE BRAN, ETC. CAN NO MORE BE REGARDED TO BE THE RICE B RAN, SOYA OIL, MAIZE. WE ARE OF THE VIEW THAT THE ISSUE IN THE REVENUE'S APPEAL IS SQUARELY COVERED AGAINST THE REVENUE BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE EARLIER YEARS WHICH WAS BASED ON THE DECISION RENDERED IN THE CASE OF AMRIT FEEDS (SUPRA). RESPE CTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL I N ASSESSEE'S OWN CASE THE FINDING OF LD. CIT(A) ON THIS ISSUE STANDS CONFIRME D AND THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN ALL THE APPEALS ON THIS IS SUE ARE DISMISSED. 10. IT IS NOT DISPUTED BEFORE US THAT THE FACTS AN D CIRCUMSTANCES IN THE PRESENT AY ARE IDENTICAL TO FACTS AND CIRCUMSTANCES THAT PREVAILED IN AY 2010-11 DECIDED BY THE TRIBUNAL. IN THESE CIRCUMSTANCES, WE RESPECTFULLY FOLLOW THE DECISION RENDERED BY THE TRIBUNAL AND HOLD THAT THE CIT(A) WAS JUSTIFIED IN ACCEPTING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.80IB OF THE ACT. THUS GROUNDS NO . (I) TO (III) ARE DISMISSED. ITA NO.2300/KOL/2016 M/S. AMRICON AGROVAT PVT.LTD. A.Y.2013-14 8 11. AS FAR AS GROUND NOS. (IV) TO (VI) RAISED BY T HE REVENUE ARE CONCERNED IT HAS BEEN PROJECTED IN THE GROUNDS OF APPEAL THAT THE ISSUE F OR CONSIDERATION IS WHETHER INTEREST INCOME EARNED BY THE ASSESSEE ON FDRS SHOULD BE CON SIDERED AS INCOME DERIVED FROM ELIGIBLE BUSINESS FOR THE PURPOSE OF ALLOWING DEDUC TION U/S 80IB(5) OF THE ACT. THE FINDING OF THE CIT(A) IS THAT INTEREST INCOME WAS E ARNED ON FDRS WHICH WERE OFFERED AS SECURITY FOR VARIOUS CREDIT FACILITIES AVAILED B Y THE ASSESSEE FROM BANKS AND USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE I NTEREST INCOME HAD NEXUS WITH THE BUSINESS OF THE ASSESSEE AND THEREFORE HAD TO BE RE GARDED AS INCOME FROM BUSINESS. THE FOLLOWING WERE THE FINDINGS OF THE CIT(A): I HAVE CONSIDERED THE FINDING OF THE AO IN THE ASS ESSMENT ORDER AND THE WRITTEN SUBMISSION FILED BY THE AR ALONG WITH DIFFERENT CAS E LAWS ON THIS ISSUE. I HAVE CONSIDERED THE HON 'BLE SUPREME COURT'S DECISION IN THE PANDIAN CHEMICAL'S CASE (SUPRA) AND I HAVE ALSO CONSIDERED THE DECISION OF THE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD VS CIT (343 ITR 89. I THINK, EVEN THOUGH THE SAID DECISION WAS RENDERED IN THE CONTEXT OF PR OVISIONS OF SECTION 80HHC, YET IN MY OPINION THE PRINCIPLE LAID DOWN IN THAT DECIS ION HAS EQUAL APPLICATION IN THE ASSESSEE'S CASE AS WELL. I FURTHER FIND THAT ON SIM ILAR FACTS THE ITAT, KOLKATA IN THE CASE OF DCIT VS BMW INDUSTRIES LIMIT (TA NO.211 5/KOL/2007) DATED 29TH FEBRUARY 2008 HAD SIMILARLY HELD THAT FOR THE PURPO SE OF COMPUTATION OF DEDUCTION U/S 8IB, THE INTEREST INCOME WAS LIABLE T O BE NETTED OFF AGAINST INTEREST EXPENSES AND ONLY THE NET INTEREST EXPENDITURE WAS REQUIRED TO BE ALLOWED IN ARRIVING AT QUALIFYING PROFITS OF THE ELIGIBLE UNDE RTAKING U/S 80IB OF THE ACT. I ALSO FIND THAT THE PRINCIPLE OF NETTING OFF OF INTE REST INCOME AGAINST INTEREST EXPENSE HAS BEEN UPHELD BY JURISDICTIONAL CALCUTTA HIGH COURT IN THE CASE OF CIT VS WARREN TEA LTD (374 ITR 6) FOR THE PURPOSES OF I NTERPRETING & COMPUTING BUSINESS INCOME IN THE CONTEXT OF RULE 8 APPLICABLE TO TEA COMPANIES. FOLLOWING THE RATIO LAID DOWN IN THESE DECISIONS THEREFORE, I HOLD THAT THE AO SHOULD NET OFF THE INTEREST INCOME CREDITED IN THE PROFIT AND LOSS ACCOUNT OF THE ELIGIBLE UNDERTAKING AGAINST THE INTEREST EXPENSE DEBITED IN THE SAID PROFIT AND LOSS ACCOUNT. IF NET RESULT THEREOF IS EXPENDITURE, THE SAME SHALL BE CONSIDERED TO BE THE EXPENDITURE RELATABLE TO ELIGIBLE UNDERTAKING. HOWEVER IF THE NET RESULT AFTER SET OFF IS INCOME, THEN THE ASSESSEE WILL NOT BE EL IGIBLE TO CLAIM DEDUCTION U/S 801B IN RESPECT OF SUCH NET INCOME. THE AO SHALL AC CORDINGLY RE-COMPUTE THE INCOME OF THE ELIGIBLE UNDERTAKING AND RE-COMPUTE T HE DEDUCTION IS] S 80LB. THUS, ASSESSEE'S APPEAL ON GROUNDS NO 3 TO 6 ARE AL LOWED. 12. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE ADMITTED FACTUAL POSITION THAT THE INCOME IN QUESTION HAD DIRECT NEXUS WITH THE BUSINE SS OF THE ASSESSEE, THE SAME WAS RIGHTLY HELD BY CIT(A) TO BE ELIGIBLE FOR THE PURPO SE OF CLAIMING DEDUCTION U/S ITA NO.2300/KOL/2016 M/S. AMRICON AGROVAT PVT.LTD. A.Y.2013-14 9 80IB(5) OF THE ACT. WE DO NOT FIND ANY GROUND TO IN TERFERE WITH THE ORDER OF CIT(A). CONSEQUENTLY THE GROUNDS OF APPEAL ARE DISMISSED. 13. AS FAR AS GR.NO.(VII) RAISED BY THE REVENUE IS CONCERNED, THE SAME RELATES TO DISALLOWANCE OF EXPENSES U/S.14A OF THE ACT READ WI TH RULE 8D(2)(II) & (III) OF THE INCOME TAX RULES, 1962 (RULES). THE AO MADE DISALL OWANCE OF INTEREST EXPENSES AND OTHER EXPENSES U/S.14A OF THE ACT OF A SUM OF R S.26,080 FOR THE FOLLOWING REASONS: 4.1. ASSESSEE DEBITED AN AMOUNT OF RS.39,822/- ON ACCOUNT OF INTEREST PAYMENT AGAINST UNSECURED LOAN. IT IS FURTHER OBSERVED THAT , ASSESSEE RECEIVED EXEMPT INCOME IN THE FORM OF DIVIDEND, ETC. IN THE LIGHT O F ABOVE I AM SATISFIED THAT PROVISION OF SECTION 14A R.W.R 8D WOULD APPLY IN TH E CASE OF ASSESSEE AND TO BE CALCULATED ON THE BASIS OF METHOD PROVIDED U/S 14A READ WITH RULE 8D(2)(II) AS BELOW. IT IS MENTIONED WORTHY HERE THAT ASSESSEE PA ID AN AMOUNT OF RS.87,09,632/- AS INTEREST ON SECURED LOAN, WHICH W AS UTILIZE FOR SPECIFIC PURPOSES AS THE TERM AND CONDITIONS OF LOAN. HENCE, PAYMENT OF INTEREST ON SECURED LOAN NOT CONSIDERED FOR CALCULATION OF DISA LLOWANCE U/S 14A. (I) MOUNT OF DIRECT EXPENDITURE NIL (II) A AMOUNT OF INTEREST EXPENDITURE 39,822 B AVERAGE VALUE OF INVESTMENT 25,74,500 AS ON 01.04.2012 25,74,500 AS ON 31.03.2013 25,74,500 C AVERAGE OF TOTAL ASSETS 30,48,44,037 AS ON 01.04.2012 25,70,92,556 AS ON 31.03.2013 35,25,95,519 A X B/C 336 (III) % OF AVERAGE VALUE OF INVESTMENT I.E. B 12,8 72 TOTAL (I+II+III) 13,208 AMOUNT ALREADY DISALLOWED BY ASSESSEE IN CO MPUTATION NIL DISALLOWANCE U/S 14A R.W .S. 8D(2)(II) 13,208 DISALLOWANCE : RS.13,208/- ITA NO.2300/KOL/2016 M/S. AMRICON AGROVAT PVT.LTD. A.Y.2013-14 10 4.2 ASSESSEE HAD RECEIVED CERTAIN INCOMES DURING TH E YEAR SUCH AS DIVIDEND INCOME WHICH ARE EXEMPT INCOME IN THE HANDS OF ASSE SSEE. ASSESSEE ALSO CLAIMED VARIOUS EXPENSES UNDER THE HEAD PROFIT AND GAIN OF BUSINESS OR PROFESSION. AS, IT IS NOT POSSIBLE TO SEGREGATE PORTION OF THESE EXPEN SES INCURRED FOR EARNING EXEMPT INCOME I.E. DIVIDEND AND OTHERS, HENCE IT HAS BEEN DECIDED THAT PROVISIONS OF SECTION 14A WOULD APPLY IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2013-14. THE NEXT QUESTION THAT ARISES IS THE QUANT UM OF DISALLOWANCE. THE ONLY BASIS OF QUANTIFICATION OF DISALLOWANCE IS THE ONE PROVIDED IN RULE 8D(2)(III), I.E., 0.5% OF THE AVERAGE INVESTMENT. ACCORDINGLY, DISALL OWANCE UNDER RULE 8D(2)(III) IS WORKED AT 0.5% OF (B) ABOVE: DISALLOWANCE U/S 14A R.W.R 8D(2)(III) 0.5% OF 25,74,5001- 12,872/- 4.3 IN VIEW OF THE AFORESAID PARAGRAPH, AN AMOUNT O F RS.12,872/- IS DISALLOWED U/S 14A READ WITH RULE 8D. HENCE, DISALLOWANCE ADDE D TO THE TOTAL INCOME OF ASSESSEE. DISALLOWANCE: RS.12,872/- 14. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT ON LY DIVIDEND BEARING INVESTMENTS SHOULD BE RECKONED FOR DISALLOWANCE UNDER RULE 8D(2 )(III) OF THE RULES AND THAT STRATEGIC INVESTMENTS SHOULD BE EXCLUDED. IN THIS REGARD, THE RELIANCE PLACED BY THE LD AR ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF REI AGRO LTD REPORTED IN 144 ITD 141 (KOL) WHEREIN IT WAS HELD THAT :- 8.1 THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT-MATTE R OF CONSIDERATION WHEN COMPUTING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH H AS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. UNDER THE CIRCUMSTANCES, THE COMPUTATION OF THE DISALLOWANCE UNDER SECTION 14A R EAD WITH RULE 8D(2)(III), WHICH IS ISSUE IN THE ASSESSEE'S APPEAL, IS RESTORE D TO THE FILE OF THE AO FOR RECOMPUTATION IN LINE WITH THE DIRECTION GIVEN ABOV E. NO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(I) AND (II) CAN BE MADE IN THIS CASE. IT WAS ALSO SUBMITTED THAT INVESTMENTS MADE IN SUBS IDIARIES WOULD FALL UNDER THE CATEGORY OF STRATEGIC INVESTMENTS AS THEY ARE ADMIT TEDLY MADE ONLY FOR THE PURPOSE OF OBTAINING CONTROLLING INTEREST IN THE SAID COMPANIE S AND NOT FOR THE PURPOSE OF EARNING DIVIDEND INCOME WHICH IS EXEMPT. HENCE THEY WOULD STAND DIFFERENTLY FROM OTHER REGULAR INVESTMENTS. ITA NO.2300/KOL/2016 M/S. AMRICON AGROVAT PVT.LTD. A.Y.2013-14 11 15. THE CIT(A) ACCEPTED THE CONTENTION OF THE ASSE SSEE AS ABOVE AND DELETED THE ADDITION MADE BY THE AO WITH THE FOLLOWING OBSERVAT IONS: I HAVE CONSIDERED THE FINDING OF THE AO AND THE WR ITTEN SUBMISSION FILED BY THE AR DURING THE APPELLATE PROCEEDING. I FIND THAT THE ASSESSEE HAS MADE INVESTMENTS PRIMARILY IN THE GROUP COMPANIES WHICH ARE ENGAGED IN THE SAME LINE OF BUSINESS. THE INVESTMENT IN SHARES OF THE GROUP ASSOCIATE COMPANIES HAS NOT PRODUCED TAX-FREE DIVIDEND INCOME IN ALL CASES. THE JURISDICTIONAL CALCUTTA HIGH COURT IN THE CASE OF CIT VS REI AGRO LTD (ITA NO.22 0 OF 2013) HAS HELD THAT NO DISALLOWANCE U/S 14A IS PERMISSIBLE WHERE THE INVES TMENTS HAVE PRODUCED ANY TAX FREE INCOME DURING THE RELEVANT PREVIOUS YEAR. THE SAME VIEW HAS ALSO BEEN EXPRESSED BY THE DELHI HIGH COURT IN THE CASE OF C IT VS HOLEIM INDIA PVT LTD (272 CITR 282), GUJARAT HIGH COURT IN THE CASE OF C IT VS CORTECH ENERGY PVT LTD (223 TAXMAN 130) & ALLAHABAD HIGH COURT IN THE CASE OF CIT VS SHIVAM MOTORS (P) LTD (230 TAXMAN 63). I FURTHER FIND THAT IN SOME CASES OF THIS GROUP THE DIVIDEND WAS PAID ONLY BY THE ASSOCIATE COMPANIES. THE INVESTMENT IN THESE SHARES WAS MADE FOR ACQUIRING MANAGEMENT CONTROL AND NOT TO EARN TAX FREE DIVIDEN D. THE ITAT, KOLKATA IN THE CASE OF DCIT VS BINANI INDUSTRIES LIMITED (ITA NO.4 43/KOL/2013) HAS HELD THAT NO DISALLOWANCE U/S 14A IS WARRANTED WHERE THE INVE STMENTS ARE MADE IN ASSOCIATE & SUBSIDIARY COMPANIES FOR STRATEGIC BUSI NESS PURPOSES. KEEPING IN VIEW THE RATIO DECIDED BY THE JURISDICTIONAL KOLKAT A BENCH OF ITAT AND OTHER JUDICIAL AUTHORITIES, ASSESSEE'S APPEAL ON THESE GR OUNDS ARE ALLOWED. 16. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REV ENUE HAS RAISED GR.NO.(VII) BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMISSION OF THE LEARNED DR WHO RELIED ON THE ORDER OF THE AO. AS FAR AS DISALLOWANCE UNDER RULE 8D(2)(III) IS CONCERNED, WE ARE OF THE VIEW THAT IT IS ONLY THE INVESTMENT WHICH YIELD DIVIDEND INCOME THAT SHOULD BE CONSIDERED FOR THE PURPOSE OF APPLYING THE FORMULA AS HELD BY THIS TRIBUNAL IN THE CASE OF REI AGRO LTD. (SUPRA). THE AFORESAID VIEW OF THE TRIBUNAL HAS SINCE BEEN AFFIRMED AS CORRECT BY THE HONBLE CALCUTTA HIGH COURT IN G. A.NO.3581 OF 2013 IN THE APPEAL AGAINST THE ORDER OF THE TRIBUNAL IN THE CASE OF RE I AGRO LTD. (SUPRA). AS FAR AS INVESTMENTS MADE IN SUBSIDIARIES IS CONCERNED, SUCH INVESTMENTS MADE IN SUBSIDIARIES WOULD FALL UNDER THE CATEGORY OF STRATEGIC INVESTME NTS AS THEY ARE ADMITTEDLY MADE ONLY FOR THE PURPOSE OF OBTAINING CONTROLLING INTER EST IN THE SAID COMPANIES AND NOT FOR THE PURPOSE OF EARNING DIVIDEND INCOME WHICH IS EXE MPT. HENCE THEY WOULD STAND DIFFERENTLY FROM OTHER REGULAR INVESTMENTS. RELI ANCE IN THIS REGARD IS PLACED ON THE ITA NO.2300/KOL/2016 M/S. AMRICON AGROVAT PVT.LTD. A.Y.2013-14 12 DECISION OF THIS TRIBUNAL IN THE CASE OF DY CIT VS SELVEL ADVERTISING (P) LTD REPORTED IN (2015) 58 TAXMANN.COM 196 (KOL TRIB). IN VIEW OF THE ABOVE, WE FIND NO MERITS IN THE GROUND (VII) RAISED BY THE REVENUE. 17. IN THE RESULT THE APPEAL BY THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.03.2018. SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 01.03.2018. R.G.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. M/S. AMRICON AGROVAT (P) LTD., 158, LENIN S ARANI, 2 ND FLOOR, KOLKATA-700013. 2. A.C.I.T., CENTRAL CIRCLE-2(1), KOLKATA 3. CIT(A)-20, KOLKATA 4. CIT CENTRAL-I, KOLKATA. 5. CIT DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, SR.PRIV ATE SECRETARY, HEAD OF OFFICE/ D.D.O. ITAT, KOLKATA BENCHES