The ITO, Vapi Ward-4, Nani Daman V. M/s. Chirag Plast, Nani Daman

ITA 2415/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0247 (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
• Keywords: Business income; TDS
• Section: 40(a)(ia); 80IB; 251; 28

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.2415/AHD/2009 (ASSESSMENT YEAR 2006-2007) INCOME TAX OFFICER, VAPI WARD-4, DAMAN. VERSUS M/S. CHIRAG PLAST, PLOT NO.145/5, JALARAM INDUSTRIAL ESTATE, NR. MAHATAMA GANDHI UDYOGNAGAR, DABHEL, NANI DAMAN. (APPELLANT) (RESPONDENT) PAN: AADFC 3525 H FOR THE APPELLANT: SMT. NITA SHAH, SR. DR FOR THE RESPONDENT NONE ORDER PER D C AGRAWAL (ACCOUNTANT MEMBER): THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME TAX(APPEALS) DATED 08-05-2008. THE FACTS OF THE CASE ARE THAT A SSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CORROBORATED BOXES , PLATES AND SHEETS. THE MANUFACTURING UNIT IS LOCATED IN THE UNION TERR ITORY OF DAMAN WHICH IS NOTIFIED BY THE CENTRAL GOVERNMENT AS A BACKWARD AREA. THEREFORE, THE PROFIT FROM THE MANUFACTURING UNIT WAS ELIGIBLE FOR 100% DEDUCTION UNDER SECTION 80IB OF THE ACT. ACCORDINGLY, RETURN OF IN COME FOR THE ASSESSMENT YEAR 2006-2007 WAS FILED AT NIL INCOME. THE ASSESSEE HAD DECLARED SALES OF RS. 9,12,066/- AND CREDITED THE S AME IN THE PROFIT AND LOSS ACCOUNT. WHEN ASKED TO EXPLAIN, THE ASSESSEE SUBMITTED THAT THE SCRAP IS GENERATED WHILE MAKING BOXES BY CUTTING CO RRUGATED SHEETS, BUT THE ASSESSING OFFICER TOOK THE VIEW THAT GENERATION OF SCRAP CANNOT BE SAID TO BE DERIVED FROM THE MANUFACTURING ACTIVITY, AND THEREFORE, IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. THE LD. COMMISSIONER OF 2 ITA NO.2415/AHD/2009 (ASSESSMENT YEAR 2006-2007) INCOME TAX(APPEALS) ALLOWED THE CLAIM BY HOLDING TH AT SCRAP CANNOT BE SEEN DIFFERENTLY FROM THE PRODUCTION OF CORRUGATED BOXES AS ESSENTIAL ELEMENT IN SCRAP IS THE SAME RAW MATERIAL. THUS, T HE SCRAP GENERATED HAS DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY. 2. FURTHER, THE ASSESSING OFFICER FOUND THAT ASSESS EE HAS MADE T.D.S. ON VARIOUS PAYMENTS FOR EXPENDITURE AMOUNTING TO RS . 1,21,975/- INCURRED DURING THE YEAR BUT HAS NOT DEPOSITED THE TDS IN DUE TIME TO THE CREDIT OF GOVERNMENT ACCOUNT. THEY WERE DEPOSITED AFTER DUE DATES. THUS, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF EXPENDITURE AMOUNTING TO RS. 1,21,975/- ALSO. THE ASSESSING OF FICER ALSO DISALLOWED DEDUCTION UNDER SECTION 80IB ON THIS ADDITION BY CL ASSIFYING THIS AMOUNT UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LD. COMMISSIONER OF INCOME TAX(APPEALS) UPHELD THE DISALLOWANCE, BUT DI RECTED TO ALLOW DEDUCTION UNDER SECTION 80IB TREATING IT AS BUSINES S INCOME. LD. COMMISSIONER OF INCOME TAX(APPEALS) RELIED ON THE F OLLOWING JUDGMENTS. (I) I.T.O. WARD-4, VAPI V/S. M/S ANUPAM INDUSTRIES ITA NO. 3571/AHD/2008 (II) I.T.O. WARD-4, VAPI V/S. M/S UNIMOLD INDIA ITA NO. 4145/AHD/2008 3. AGAINST THIS, THE REVENUE IS IN APPEAL RAISING F OLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A)HAS ERRED IN ALLOWING THE DEDUCTION U /S. 80IB OF THE I.T. ACT ON DISALLOWANCE OF RS. 9,12,066/- MADE ON SCRAP SALES INCOME. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A)HAS ERRED IN ALLOWING THE DEDUCTION U /S. 80IB ON THE 3 ITA NO.2415/AHD/2009 (ASSESSMENT YEAR 2006-2007) DISALLOWANCE OF RS. 1,62,675/- U/S. 40A(IA), AS THE DISALLOWANCE BEING TECHNICAL IN NATURE AND ASSESSEE IS ENTITLED TO DEDUCTION OF SUCH DISALLOWANCE IN NEXT YEAR ON PAYMENT BASIS. T HIS WOULD LEAD TO DOUBLE BENEFIT TO THE ASSESSEE. 4. WE HAVE HEARD LEARNED DR AND LEARNED AR OF THE A SSESSEE. IN OUR CONSIDERED VIEW, THE FIRST ISSUE IS COVERED IN FAVO UR OF THE ASSESSEE. BY THE DECISION OF THE HON'BLE SUPREME COURT IN INDIAN CINE AGENCIES VS. CIT (2009) 308 ITR 98 (SC) AND ALSO BY FOLLOWING OT HER DECISIONS. 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 OB SERVED THAT FOR ASSESSEES ENGAGED IN SHIP BREAKING THE SCRAP AN D, STEEL OBTAINED BY DISMANTLING AND BREAKING UP OF THE SHIP MUST BE REGARDED AS A DIFFERENT COMMERCIAL COMMODITY FROM T HE SHIP ITSELF, AND THE ACTIVITY WOULD AMOUNT TO MANUFACTURE. HENCE , THE ASSESSEES WOULD BE ENTITLED TO THE SPECIAL DEDUCTIO N 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.2415/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 FOR DE DUCTION 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 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. RESPECTFULLY FOLLOWING ABOVE AUTHORITIES, WE HOLD T HAT ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80IB ON PRODUCTION AND S ALE OF A SCRAP FROM THE SAME RAW MATERIAL FROM WHICH PRODUCT SOLD WERE MANUFACTURED. ACCORDINGLY THIS GROUND OF THE REVENUE IS REJECTED. 5 ITA NO.2415/AHD/2009 (ASSESSMENT YEAR 2006-2007) 5. REGARDING GROUND NO. 2, WE ARE OF THE CONSIDERED VIEW THAT EVEN IF ADDITION IS SUSTAINED, THEN ASSESSEE WOULD BE ENTIT LED TO DEDUCTION UNDER SECTION 80IB AS IT WOULD BE ONLY THE BUSINESS PROFI T. SECTION 40(A)(IA) FALLS IN CHAPTER (IV) AND UNDER THE HEAD COMPUTATI ON OF BUSINESS INCOME. ANY ADDITION PROPOSED BY THE ASSESSING OF FICER BY INVOKING A PROVISION FALLING IN CHAPTER (IV) UNDER THE HEAD C OMPUTATION OF BUSINESS INCOME, PARTICULARLY BETWEEN SECTION 28 TO 43D, WOU LD BE MADE UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES, UNLESS SPECIFICAL LY SO PROVIDED. ACCORDINGLY, THOUGH PROPOSED BY THE ASSESSING OFFIC ER ON THE GROUND THAT TDS HAS NOT BEEN PAID TO THE ACCOUNT OF THE CE NTRAL GOVERNMENT WITHIN TIME IS IN ORDER, BUT ASSESSEE IS ENTITLED T O DEDUCTION UNDER SECTION 80IB THEREON AS IT WOULD BE ONLY A PART OF BUSINESS PROFIT. THE ARGUMENT OF THE LEARNED DR THAT ASSESSEE MAY CLAIM BENEFIT A GAIN ON PAYMENT BASIS IS PREMATURE AND ACADEMIC AS THERE ARE ENOUGH LEGAL RECOURSES OPEN TO PREVENT SUCH CLAIMS. AS A RESULT WE DO NOT FIND ANY FORCE IN THIS GROUND RAISED BY THE REVENUE. THE SAME IS DISMISSE D. 6. AS A RESULT, APPEAL FILED BY THE REVENUE IS DISM ISSED. 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 6 ITA NO.2415/AHD/2009 (ASSESSMENT YEAR 2006-2007) 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.