ITO, Ward - 3(3), , Kolkata V. M/s. PDP Steels Ltd., , Kolkata

ITA 2407/KOL/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2609 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 19-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: S JHAJHARIA
• Keywords: Business income; Set aside
• Section: 80IC; 80IC

Judgement Text

1 ITA NO.2407/KOL/2018 PDP STEELS LTD. AY 2014-15 , C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA ( )BEFORE . , /AND . # . $ , ) [BEFORE SHRI J. SUDHAKAR REDDY, AM & SHRI A. T. VAR KEY, JM] I.T.A. NO. 2407/KOL/2018 ASSESSMENT YEAR: 2014-15 INCOME-TAX OFFICER, WARD-3(3), KOLKATA VS. M/S. PDP STEELS LTD., (PAN: AABCP6726C) APPELLANT RESPONDENT DATE OF HEARING 28.01.2020 DATE OF PRONOUNCEMENT 18.03.2020 FOR THE APPELLANT SHRI SUPRIYO PAL, JCIT, SR. DR FOR THE RESPONDENT SHRI S. JHAJHARIA, FCA ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-1, KOLKATA DATED 31.08.2018 FOR AY 2014-15 ON THE FOLLOWING GR OUND: 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING RELIEF TO ASSESSEE AMOUNTING TO RS.2,74,48 ,824/- U/S. 80IC. THE LD. CIT(A) ERRED IN TREATING INTEREST INCOME OF RS.1,48,450/- FROM BANK , RS.2,55,50,690/- FROM CUSTOMERS, RS.4,13,633/- FROM SECURITY DEPOSIT RELATES TO BUSI NESS ACTIVITIES. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY CARRIES ON THE BUSINESS OF MANUFACTURING AND TRADING OF IRON AND STEEL PRODUCT S AND IT HAD FILED RETURN OF INCOME FOR AY 2014-15 DECLARING TOTAL INCOME OF RS.5,654/- UND ER NORMAL PROVISIONS OF THE ACT REPRESENTING NON-OPERATING MISCELLANEOUS INCOME AFT ER CLAIMING 100% DEDUCTION OF THE BUSINESS PROFIT OF RS.4,17,64,799/- U/S. 80IC(2)(A) (I) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) AND SHOWED B OOK PROFIT OF RS.3,82,04,075/-. THE ASSESSEE COMPANY HAS AN INDUSTRIAL AREA IN BONDA, N ARANG, DISTRICT-KAMRUP, GAUHATI IN THE STATE OF ASSAM. IN THE SAID INDUSTRIAL AREA, THE A SSESSEE MANUFACTURES/PRODUCES IRON AND STEEL ARTICLES/ITEMS AND IS ADMITTEDLY ENTITLED TO GET DEDUCTION U/S. 80IC(2)(A)(I) OF THE ACT AS PER CBDT NOTIFICATION ON THE SUBJECT. ACCORDING TO THE ASSESSEE, IT HAS BEEN CLAIMING THE DEDUCTION SINCE INITIAL ASSESSMENT YEAR 2011-12 AND THIS IS THE FOURTH YEAR OF CLAIMING 2 ITA NO.2407/KOL/2018 PDP STEELS LTD. AY 2014-15 OF DEDUCTION. AFTER THE CASE WAS SELECTED FOR SCRU TINY FOR THIS ASSESSMENT YEAR, AND THE AO DISALLOWED THE ASSESSEES CLAIM OF DEDUCTION FOR TH E FOLLOWING INCOME U/S. 80IC(2)(A)(I) OF THE ACT: I) INTEREST INCOME ON FIXED DEPOSIT IN BANK RS.20,3 7,345/-; II) INTEREST EARNED ON SECURITY DEPOSIT RS.4,13,633 /- AND III) INTEREST EARNED FROM CUSTOMERS/OTHER PARTIES R S.2,55,50,680/-. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE LD. CIT(A), WHO IN RESPECT OF THE AOS ACTION DISALLOWING INTEREST INCOME OF R S.20,37,345/- HAS HELD AS UNDER: IN VIEW OF THE ABOVE DISCUSSION AND RESPECTIVELY F OLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF RECKITT BE NCKISER (INDIA) VS. ADDL. COMMISSIONER OF INCOME TAX (SUPRA), I AM OF THE VIEW THAT THERE IS NO INFIRMITY IN THE FINDING OF THE AO IN HOLDING THAT THE APPELLANT WAS NOT ENTITLED FOR DED UCTION U/S. 80IC OF THE I. T. ACT, 1961 IN RESPECT OF THE INTEREST INCOME OF R.5,52,844/- FROM BANK DEPOSITS UNDER THE HEAD OTHER INCOME. THEREFORE, THE INTEREST INCOME OF RS.5,52,844/- IS HELD TO BE NOT ELIGIBLE FOR DEDUCTION UNDER THE SECTION 80IC OF THE ACT. ACCORDINGLY, TH IS GROUND IS PARTLY ALLOWED. 4. AGGRIEVED THE REVENUE IS BEFORE US ASSAILING THE AFORESAID ACTION OF LD. CIT(A). HOWEVER, WE NOTE THAT THE LD. CIT(A) AT PAGE 15 OF THE IMPUGNED ORDER HAS CONFIRMED THE ACTION OF THE AO IN RESPECT OF DISALLOWANCE OF INTE REST INCOME FROM FIXED DEPOSIT. HOWEVER, HAS MISTAKENLY TYPED THE FIGURE AS RS.5,52 ,844/- IN PLACE OF RS.20,37,345/-. SINCE THE INTEREST INCOME FROM FIXED DEPOSIT CANNOT BE HAVING FIRST DEGREE NEXUS WITH THE PROFIT AND GAIN DERIVED FROM THE UNDERTAKING WHICH IS ELIGIBLE FOR DEDUCTION U/S. 80IC OF THE ACT, WE CONFIRM THE ORDER OF THE LD. CIT(A) AND CORRECT THE MISTAKE OF THE FIGURES SHOWN AS RS.20,37,345/- IN PLACE OF RS.5,52,844/-. AND SO THE REVENUE APPEAL TO THIS EXTEND SUCCEEDS. 5. COMING NEXT TO THE DISALLOWANCE OF THE INTEREST EARNED ON SECURITY DEPOSIT FROM THE CLAIM OF DEDUCTION U/S. 80IC OF THE ACT, ACCORDING TO LD. AR, THE SECURITY DEPOSITS WERE KEPT MAINLY WITH ELECTRICITY DEPARTMENT AS SECURITY FOR GETTING ELECTRIC SUPPLY REQUIRED FOR THE PURPOSE OF MANUFACTURING OF C.R. COIL. ACCORDI NG TO LD. AR, THE ELECTRICITY CHARGES LEVIED BY THE ELECTRICITY DEPARTMENT WAS A MAJOR CO ST IN THE MANUFACTURING PROCESS AND THE DEPOSITS MADE FOR THIS PURPOSE ARE DIRECTLY LINKED WITH MANUFACTURING BUSINESS OF THE ASSESSEE AND AS SUCH THE DEPOSITS ARE INTEGRAL PART OF THE ASSESSEES BUSINESS, AND, THEREFORE, THE INCOME EARNED ON THOSE DEPOSITS WERE INDISPUTAB LY BUSINESS INCOME AND WAS RIGHTLY CLAIMED FOR DEDUCTION U/S. 80IC OF THE ACT. PER CO NTRA, THE LD. DR SUBMITTED THAT THE 3 ITA NO.2407/KOL/2018 PDP STEELS LTD. AY 2014-15 INTEREST EARNED FROM THE SECURITY DEPOSIT IS NOT DE RIVED BY THE UNDERTAKING OR ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2) OF SECTION 80IC OF THE ACT AND, THEREFORE, THE INTEREST EARNED ON THE SECURITY DEPOSIT FOR SU PPLY OF ELECTRICITY CANNOT BE TREATED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING WITH IN THE MEANING OF SECTION 80IC OF THE ACT AND FOR COMING TO SUCH A CONCLUSION, WE RELY ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS VS. CIT 36 2 ITR 278 (SC) AND BACHA F GUZDAR VS. CIT (1955) 27 ITR 1. HOWEVER, WE NOTE THAT THI S ISSUE HAS NOT BEEN DECIDED BY THE LD. CIT(A) . 6. COMING THE INTEREST INCOME EARNED FOR DELAYED PA YMENT FROM CUSTOMERS, WE NOTE THAT ASSESSEE MANUFACTURES C. R. COIL AND SELL THE SAME TO THE CUSTOMERS ON CREDIT. AND IF THERE IS ANY DELAY IN RECEIPT OF PAYMENT FROM THE C USTOMERS AND SINCE IT AFFECTS THE ASSESSEES WORKING CAPITAL, THE ASSESSEE IS COMPELL ED TO BORROW EXTERNAL FUNDS FOR WHICH IT INCURS INTEREST EXPENDITURE. IN ORDER TO COMPENSAT E THE LOSS OF ANY INTEREST PAYMENT, ASSESSEE CHARGES INTEREST FROM THE CUSTOMERS/SUNDRY DEBTORS FOR THE DELAY IN MAKING PAYMENT TO IT. IT WAS POINTED OUT BY THE LD. AR TH AT AS PER THE MANDATORY ACCOUNTING STANDARD AND THE COMPANIES ACT, THE SAME ARE REPORT ED AS INCOME AND EXPENSES SEPARATELY. ACCORDING TO LD. AR, SUCH INTEREST INCOME AND INTER EST PAYMENT ARE DIRECTLY RELATED TO THE ASSESSEES BUSINESS OPERATION. THE LD. AR RELIED O N THE DECISION OF THE HONBLE GAUHATI HIGH COURT IN THE CASE OF CIT, GUWAHATI-II VS. UNIV ERSAL PIPES (P) LTD. (2012) 211 TAXMAN 420 (GAU) WHEREIN A SIMILAR CASE THE HONBLE HIGH COURT UPHELD THE VIEW OF THE TRIBUNAL WHICH HELD THAT THE AMOUNT BY WAY OF INTER EST FROM TRADE DEBTOR HAS TO BE TREATED AS BUSINESS INCOME AND IT HAS BEEN HELD AS DERIVED FROM ITS UNDERTAKING THUS MAKING IT ELIGIBLE FOR DEDUCTION U/S. 80IC OF THE ACT. IT WA S BROUGHT TO OUR NOTICE THAT THE HONBLE GUWAHATI HIGH COURT WHILE DECIDING THE CASE RELIED ON THE JUDGMENT OF THE HONBLE APEX COURT IN CIT VS. GOVINDA CHOUDHURY (1993) 203 ITR 8 81 WHEREIN THE HONBLE APEX COURT HELD THAT THE INTEREST AWARDED TO THE ASSESSE E THEREIN IN AN ARBITRATION PROCEEDING FOR DELAYED PAYMENT IN A CONTRACT EXECUTED BY THE ASSES SEE WAS TO BE RECORDED AS BUSINESS INCOME AND COULD NOT BE TREATED AS INCOME FROM OTH ER SOURCES AND UPHELD THE ACTION OF THE TRIBUNAL. SO, ACCORDING TO LD. AR IN THE PRESE NT CASE, THE ASSESSEE HAD SOLD THE C. R. COIL MANUFACTURED FROM ITS ELIGIBLE UNDERTAKING TO CUSTOMERS ON CREDIT AND WHEN THERE IS A DELAY IN MAKING PAYMENT BY THE CUSTOMERS TO ASSESSE E, THEN THE ASSESSEE CHARGED INTEREST UPON THE CUSTOMERS WHICH HAVE BEEN SHOWN BY THE ASS ESSEE AS INTEREST INCOME FROM THE 4 ITA NO.2407/KOL/2018 PDP STEELS LTD. AY 2014-15 CUSTOMERS. THEREFORE, ACCORDING TO LD. AR SINCE THE INTEREST INCOME FOR DELAYED PAYMENT FROM THE CUSTOMERS FOR THE PRODUCT MANUFACTURED BY THE ASSESSEE ARE TO BE TREATED AS BUSINESS INCOME IN THE LIGHT OF THE HONBLE SUPREME COURT DECISION IN GOVINDA CHOUDHURY (SUPRA), THE INCOME THUS DERIVED BY THE A SSESSEE FROM THE UNDERTAKING IT IS ELIGIBLE FOR DEDUCTION U/S. 80IC(2) OF THE ACT AS H ELD BY THE HONBLE GUWAHATI HIGH COURT IN UNIVERSAL PIPES (P) LTD. (SUPRA) AND, THEREFORE, THE AOS ACTION OF NOT ALLOWING DEDUCTION IS PER SE ERRONEOUS. HOWEVER, WE ARE NOT INCLINED TO DECIDE THESE GROUNDS SINCE IT IS NOTED THAT THE LD. CIT(A) HAS NOT ADJUDICATED THE ISSUES RELATING TO TWO ISSUES I.E. DEDUCTION IN RESPECT OF INCOME FROM DELAYED PAYMENT FROM CUSTOMERS AND INTEREST ON SECURITY DEPOSIT (ELECTRICITY), THEREFORE, BOTH THE SE ISSUES ARE SET ASIDE BACK TO THE FILE OF THE LD. CIT(A) FOR FRESH ADJUDICATION WITH A DIRECTION TO DECIDE THE ISSUES IN ACCORDANCE TO LAW AFTER HEARING THE ASSESSEE AND WITHOUT BEING INFLUE NCED BY ANY OBSERVATION MADE BY US SUPRA. 7. IN THE RESULT, THE APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. ORDER IS PRONOUNCED IN THE OPEN COURT ON 18TH MARCH , 2020 SD/- SD/- (J. SUDHAKAR REDDY) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 18TH MARCH, 2020 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT ITO, WARD-3(3), KOLKATA. 2 RESPONDENT M/S. PDP STEELS LTD., 17, ESPLANADE M ANSION, GOVERNMENT PLACE (EAST), KOLKATA-700 069. 3 . THE CIT(A)-1, KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .