The ITO, Ward-3, Vapi V. M/s. Subh Paper Producation, SILVASSA

ITA 2413/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0248 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 17-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NITA SHAH
• Assessee Lawyers: S N L AGARWAL
• Section: 80IB; 251

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, B-BENCH, AHMEDABAD. BEFORE: SHRI T K SHARMA, JUDICIAL MEMBER, AND SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER. ITA NO.2413/AHD/2009 (ASSESSMENT YEAR 2006-2007) I.T.O. VAPI WARD-3, VAPI INCOME TAX OFFICE, 2 ND FLOOR, SHIVAM COMMERCIAL COMPLEX, N.H. NO. 8, NEAR GALAXY HOTEL, VAPI. VERSUS M/S. SUBH PAPER PRODUCTION, SURVEY NO. 145/3, VAGHDHARA ROAD, DADRA, SILVASSA-396230 (APPELLANT) (RESPONDENT) PAN: AAYFS 0019 H FOR THE APPELLANT: SMT. NITA SHAH, SR. DR FOR THE RESPONDENT SHRI. S.N.L. AGARWAL ORDER PER D C AGRAWAL (ACCOUNTANT MEMBER): THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A)HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 6,62,839/- MADE BY EXCLUDING THE SCRAP INCOME FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A)HAS ERRED IN GRANTING RELIEF TO THE ASSES SEE WITHOUT CONSIDERING THE FACT THAT THE SCRAP INCOME DOES NOT HAVE ANY DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A)HAS ERRED IN DIRECTING NOT TO EXCLUDE THE ABOVE INCOME FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S. 80IB, IN CONTRAVENTION OF 2 ITA NO.2413/AHD/2009 (ASSESSMENT YEAR 2006-2007) THE RATIO LAID DOWN BY THE HON. APEX COURT IN THE C ASES OF CIT VS. STERLING FOODS (1999) 237 ITR 579 AND PANDIAN CHEMI CALS VS. CIT(2003) 262 ITR 278 9SC). 4. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE HON'BLE. M.P. HIGH COURT IN THE CASE OF D.P. AGRAWAL VS. CIT 272 ITR 118 (MP) HAVE HELD THAT SCRAP INCOME IS NOT ELIGIBLE FO R DEDUCTION U/S. 80IB OF THE ACT. 4. THE FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAG ED IN THE BUSINESS OF MANUFACTURING OF CORRUGATED BOXES. THIS IS A THIRD YEAR OF OPERATION OF THE INDUSTRIAL UNDERTAKING. MANUFACTURING UNIT OF THE ASSESSEE IS SITUATED IN THE UNION TERRITORY OF DADRA AND NAGAR HAVELI WH ICH IS A NOTIFIED BACKWARD AREA AND ACCORDINGLY ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. DURING THE YEAR UNDER CON SIDERATION, THE ASSESSING OFFICER DISALLOWED THE CLAIM UNDER SECTIO N 80IB ON SCRAP SALES AMOUNTING TO RS. 6,62,839/- ON THE GROUND THAT GENE RATION OF SCRAP IS NOT DERIVED FROM THE MANUFACTURING UNIT. THE LD. COMMI SSIONER OF INCOME TAX(APPEALS) ALLOWED THE CLAIM BY HOLDING THAT THER E IS A DIRECT NEXUS BETWEEN GENERATION OF SCRAP AND MANUFACTURING ACTIV ITY. THE CONTENTS OF BOTH I.E. SCRAP AND PRODUCTS SOLD HAVE SAME RAW MAT ERIAL. 5. AGAINST THIS, THE REVENUE IS IN APPEAL. 6. WE HAVE HEARD THE LEARNED DR AND LEARNED AR OF T HE ASSESSEE. IN OUR CONSIDERED VIEW, THE ISSUE WHETHER ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80IB ON SALE OF SCRAP GENERATED IN TH E MANUFACTURING ACTIVITY IS COVERED BY THE DECISIONS OF HON'BLE SUP REME COURT IN INDIAN CINE AGENCIES VS. CIT (2009) 308 ITR 98 (SC) AND AL SO BY VARIOUS OTHER AUTHORITIES AS UNDER: 3 ITA NO.2413/AHD/2009 (ASSESSMENT YEAR 2006-2007) 1. IN [2005] 273 ITR (A.T.) 0001- ASSISTANT COMM ISSIONER OF INCOME-TAX VS. MAXCARE LABORATORIES LTD. INCOME-T AX APPELLATE TRIBUNALCUTTACK HELD THAT THE INCOME FROM SALE OF EMPTY DRUMS/CONTAINERS, SAL E OF USELESS MATERIALS WAS OUT OF THE BUSINESS OF INDUSTRIAL UND ERTAKING OF THE ASSESSEE. FOR DETERMINING THE PROFITS OF BUSINESS O F THE INDUSTRIAL UNDERTAKING THE SALE OF EMPTY DRUMS/CONTAINERS, SAL E OF USELESS MATERIALS COULD BE TAKEN INTO ACCOUNT. 2. IN [2001] 251 ITR 0806- SHIP SCRAP TRADERS VS. COMMISSIONER OF INCOME-TAX BOMBAY HIGH COURT HAS OBSERVED THAT FOR ASSESSEES ENGAGED IN SHIP BREAKING THE SCRAP AND, STEEL OBTAINED BY DISMANTLING AND BREAKING UP OF THE SHIP MUST BE REGARDED AS A DIFFERENT COMMERCIAL COMMODIT Y FROM THE SHIP ITSELF, AND THE ACTIVITY WOULD AMOUNT TO MANUF ACTURE. HENCE, THE ASSESSEES WOULD BE ENTITLED TO THE SPECIAL DEDU CTION UNDER SECTIONS 80HHA AND 80-I. 3. IN [1982] 133 ITR T)034- COMMISSIONEROF INCOM E-TAX VS. SUNDARAM CLAYTON LTD. MADRAS HIGH COURT HELD THAT THE SCRAP SOLD BY THE ASSESSEE BEING THE BYPRODUCT ARISING OU T OF THE MANUFACTURED ITEMS COMING WITHIN THE SCOPE OF A PRI ORITY INDUSTRY, THE INCOME ARISING FROM SUCH SALE WOULD BE ATTRIBUT ABLE TO THE PRIORITY INDUSTRY. (CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT[ 1978] 113 ITR 84 (SC) APPLIED.) 4. IN [2005] 279 ITR (A.T.) 0024- DEPUTY COMMISSION ER OF INCOME-TAX VS. INVESTWEL PUBLISHERS P. LTD. INCOME- TAX APPELLATE TRIBUNALMUMBAI HELD THAT THE RADDI SALES FORMED 4 ITA NO.2413/AHD/2009 (ASSESSMENT YEAR 2006-2007) PART OF THE INCOME DERIVED FROM THE PUBLISHING BUSI NESS. THE MAGAZINES WHICH WERE NOT SOLD BECAME OBSOLETE AND W ERE SOLD AS RADDI AND THEREFORE THIS INCOME WAS OF THE NATURE A S INCOME RECEIVED BY SALE OF MAGAZINES. DEDUCTION UNDER SECT ION 80-1 WOULD BE ELIGIBLE ON THIS INCOME 5. IN [2000] 241 ITR 0803- FENNER (INDIA) LTD. VS. COMMISSIONER OF INCOME-TAX (NO. 2) MADRAS HIGH COUR T HELD THAT IN THE INDUSTRIAL UNDERTAKING IN THE MANUFACTU RE OF V-BELTS, OIL SEALS, O-RINGS AND RUBBER MOULDED PRODUCTS, CERTAIN SCRAP MATERIALS RESULTED WHICH HAD A SALEABLE VALUE. THE SCRAP MATE RIALS HAD DIRECT LINK OR'NEXUS WITH THE INDUSTRIAL UNDERTAKING. THER EFORE, PROFIT FROM THE SALE OF THE SCRAP MATERIALS WAS ELIGIBLE F OR DEDUCTION UNDER SECTION 80HH. 6. IN NIRMA INDUSTRIES LTD. VS. ASSISTANT COMMISSIO NER OF INCOME-TAX, CENTRAL CIRCLE 2(1) NIRMA INDUSTRIES LT D. V/S. , ACIT , 95 ITD 199 (AND.) (SB) IT WAS HELD : ''.........REGARDING SALE OF BARDANA AND SALE OF WA STE MATERIAL: 22. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED B Y THE LEARNED COUNSEL THAT SALE OF BARDANA AND WASTE MATE RIAL HAS GENERATED DURING THE COURSE OF PRODUCTION OF THE IN DUSTRIAL UNDERTAKING. THEREFORE, IT HAS DIRECT AND IMMEDIATE NEXUS WITH THE INDUSTRIAL UNDERTAKING. THE LEARNED DR COU LD NOT CONTROVERT THE ABOVE STATEMENT MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE. MOREOVER IT WAS POINTED OUT BY TH E LEARNED COUNSEL FOR THE ASSESSEE THAT THE HON'BLE JURISDICT IONAL HIGH COURT HAS DECIDED IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN 5 ITA NO.2413/AHD/2009 (ASSESSMENT YEAR 2006-2007) THE CASE OF DY. CIT V. HARJIVANDAS JUTHABHAI ZAVERI VIDE [IT REFERENCE NO. 189 OF 1999]. SINCE THE BARDANA WASTE MATERIAL HAS GENERATED DURING THE COURSE OF PRODUCT ION OF THE INDUSTRIAL UNDERTAKING, WE HOLD THAT IT HAS A DIREC T AND IMMEDIATE NEXUS WITH THE INDUSTRIAL UNDERTAKING AND THEREFORE ENTITLED TO DEDUCTION UNDER SECTION 80HH/ 80-I. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CLT(A) IN T HIS RESPECT. REVENUE HAS RELIED ON DECISION OF HON'BLE M.P. HIGH COURT IN D.P. AGARAWAL VS. CIT 272 ITR 118 MP. HOWEVER, THE FACT S IN THAT CASE ARE DIFFERENT. THE ASSESSEE D.P. AGARWAL WAS ENGAGED I N REROLLING OF IRON AND STEELS. IT USED TO PURCHASE OLD/DISCARDED GUNS AND USED/THEIR CONTENTS FOR REROLLING. CERTAIN BRASS SCRAP WAS SEPARATED F ROM THE GUNS WHICH WAS SOLD SEPARATELY. HON'BLE M.P. HIGH COURT HELD THAT GENERATION OF BRASS SCRAP AND RE-ROLLING IRON AND STEEL HAS NO RELATION SHIP. THAT, ASSESSEE HAD OBTAINED BRASS SCRAP BY DISMANTLING GUNS AND NOT FR OM THE PROCESS OF REROLLING OF STEEL. THE GENERATION OF BRASS SCRAP COULD NOT BE SAID TO BE FROM THE PROCESS OF MANUFACTURE OR IS NOT A PRODUCT OR BYPRODUCT FROM THE ACTIVITIES OF THE ASSESSEES INDUSTRIAL UNDERTAKING . IN OTHER WORDS, BRASS SCRAP WAS GENERATED PRIOR TO THE START OF REROLLING PROCESS AND WAS NOT A PRODUCT OR BY PRODUCT OF THE PROCESS OF REROLLING. HOWEVER, BRASS SCRAP AND FINAL PRODUCT MANUFACTURED BY THE ASSESSEE I.E. IRON AND STEEL HAD NO COMMON RAW-MATERIAL. REVENUE HAS FURTHER RELIED ON THE DECISION OF THE APEX COURT IN CIT VS. STERLING FOODS (1999) 237 ITR 279 AND PANDAYAN CHEMICALS VS. CIT(2003) 262 ITR 278 (SC). THESE TW O DECISIONS HIGHLIGHTED THE DISTINCTION BETWEEN DERIVED FROM AND ATTRIBUTABLE TO AND REVENUE HAS SOUGHT TO EMPHASIS THAT SCRAP IS NO T DERIVED FROM THE BUSINESS OF MANUFACTURING ACTIVITY. AT BEST IT CAN BE ATTRIBUTED TO SUCH 6 ITA NO.2413/AHD/2009 (ASSESSMENT YEAR 2006-2007) ACTIVITIES. WE DO NOT SUBSCRIBE TO THIS VIEW OF TH E REVENUE. ONCE A PRODUCT OR BYPRODUCT OR WASTE IS THE RESULT OF SOME MANUFACTURING PROCESS WHICH HAS RESULTED IN THE FINISHED GOODS SO LD BY THE ASSESSEE AND IF THE FINISHED GOODS CAN BE SAID TO BE DERIVED FRO M MANUFACTURING ACTIVITY THEN THERE IS NO REASON TO HOLD THAT SCRAP RESULTED FROM THE SAME ACTIVITY IS NOT DERIVED FROM MANUFACTURING ACTIVITY . THE SAME PROCESS IS GENERATING TWO TIMES (I) FINISHED PRODUCT SOLD BY T HE ASSESSEE AND THE OTHER, (II) WASTE, BYPRODUCT OR SCRAP. NO SUCH DIS TINCTION CAN BE CREATED AS IF FINAL PRODUCT IS DERIVED FROM THE MANUFACTURI NG ACTIVITY AND OTHER IS NOT. BOTH ARE GENERATED AT THE SAME TIME FROM THE SAME PROCESS EXCEPT THAT ONE HAS HIGHER MARKET VALUE AND OTHER HAS NOT, AND ACCORDINGLY THE SAME IS TREATED AS SCRAP. IN ANY CASE, THE ISSUE I S NOW FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE LATER DECISIONS OF TH E COURTS AND ALSO OF THE APEX COURTS AS NOTED ABOVE. 5. ACCORDINGLY, WE UPHOLD THE ORDER OF LD. COMMISSI ONER OF INCOME TAX(APPEALS) AND DISMISS THE APPEAL FILED BY THE RE VENUE. THE ORDER PRONOUNCED IN THE OPEN COURT ON DATED 23 RD OCTOBER, 2009. SD/- SD/- (T.K. SHARMA) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTA NT MEMBER AHMEDABAD; DATED: 23/10/2009 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 7 ITA NO.2413/AHD/2009 (ASSESSMENT YEAR 2006-2007) 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.