Matrix Telecom Pvt. Ltd., Baroda V. The ACIT., Circle-4, Baroda

ITA 2445/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9294 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 14-07-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 28-11-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI P.K.BANSAL, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.2445/AHD/2005 ASSESSMENT YEAR:2002-03 DATE OF HEARING:14.7.09 DRAFTED:14.7.09 MATRIX TELECOM PVT. LTD. C-1/394, GIDC, MAKARPURA, BARODA PAN NO.AABCM5892Q V/S . ACIT, CIRCLE-4, BAROD (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI TUSHAR P HEMANI, AR RESPONDENT BY:- SMT. NEETA SHAH, SR. DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-III, BARODA IN APPEAL NO.CAB/I II-273/04-05 DATED 08-092005. THE ASSESSMENT WAS FRAMED BY THE ASSISTANT COMMISSI ONER OF INCOME-TAX, CIRCLE-4, BARODA U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HERE INAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 31-01-2005 FOR THE ASSESSMENT YEAR 2002-03. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER FOR DEDUCTION U/S.80-IB OF THE ACT ON THE FOLLOWING INCOMES:- (I) INTEREST INCOME ON F.D. RS.3,41,356/- (II) INTEREST RECEIVED FROM CUSTOMERS RS. 71,425 /- (III) PROFIT ON REPAIRS, LABOUR CHARGES INCOME RS.5,62,205/- 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THE INTEREST INCOME ON FDRS, THE ASSESSEE ONLY REQUIRES NETTING OF INTERES T IN VIEW OF THE DECISION OF ITA NO.2445/AHD/2005 A.Y. 2002-03 MATRIX TELECOM P.LTD. V. ACIT, CIR-4 BARODA PAGE 2 HONBLE DELHI HIGH COURT IN THE CASE OF CIT V SHRI RAM POWER EQUIP (2007) 289 ITR 477 (DEL) AND TRIBUNALS IN THE CASE OF LALSONS ENTERPRISE V. DCIT (2004) 82 TTJ 1048 OF DELHI (SB). ON THIS ISSUE, LD. DEPARTMENTA L REPRESENTATIVE HAS NOT OBJECTED. WE FIND THAT THE ISSUE IS COVERED AND ON LY NETTING IS TO BE ALLOWED TO THE ASSESSEE IN CASE, THE ASSESSEE CAN BE ESTABLISH THE NEXUS OF INTEREST RECEIVED AND INTEREST SPENT FOR THE RECEIPT OF INCOME IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF SHRI RAM POWER EQUIP (SUPRA), WE ALLOW THE NETTING IN TERMS OF THE ABOVE. ACCORDINGLY, THIS ISSUE OF THE ASSESSEE S APPEAL IS SET ASIDE TO THE FILE OF ASSESSING OFFICER. 4. THE NEXT TWO INTER-CONNECTED ISSUES, I.E. INTERE ST RECEIVED FROM CUSTOMERS AND PROFIT ON REPAIRS AS LABOUR CHARGES. THE LD. C OUNSEL FOR THE ASSESSEE STATED THAT THE INTER-CONNECTED ISSUES ARE SQUARELY COVERE D IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HONBLE JURI SDICTIONAL HIGH COURT IN THE CASE OF NIRMA INDUSTRIES V. DCIT (2006) 283 ITR 402 (GUJ) AND ITAT AHMEDABAD BENCHES IN THE CASE OF DCIT V. MIRA INDUSTRIES (2003) 87 ITD 475 (AHD). WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE C ASE OF (SUPRA) HAS HELD:- 33. HOWEVER, THE PARTIES HAVING MADE ELABORATE SUB MISSIONS, THE MATTER MAY BE EXAMINED FROM A SLIGHTLY DIFFERENT ANGLE. WH EN THE ASSESSEE ENTERS INTO A CONTRACT FOR SALE OF ITS PRODUCTS IT COULD E ITHER STIPULATE (A) THAT INTEREST AT THE SPECIFIED RATE WOULD BE CHARGED ON THE UNPAI D SALE PRICE AND ADDED TO THE OUTSTANDING TILL THE POINT OF TIME OF REALIZATI ON, OR (B) THAT IN THE CASE OF DELAY THE PAYMENT FOR SALE OF PRODUCTS WORTH RS.100 TO CARRY THE SALE PRICE OF RS.102 FOR FIRST MONTHS DELAY, RS.106 FOR THE THIR D MONTHS DELAY AND SO ON. IF THE CONTENTION OF THE REVENUE IS ACCEPTED, MERELY B ECAUSE THE ASSESSEE HAS DESCRIBED THE ADDITIONAL SALE PROCEEDS AS INTEREST I THE CASE OF A CONTRACT AS PER ILLUSTRATION (A) ABOVE, SUCH PAYMENT WOULD NOT BE PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING, BUT IN THE CASE OF ILLUSTRA TION (B) ABOVE, IF THE PAYMENT IS DESCRIBED AS SALE PRICE IT WOULD BE PROFITS DERI VED FROM THE INDUSTRIAL UNDERTAKING, THIS CAN NEVER BE BECAUSE IN SUM AND S UBSTANCE THESE ARE ONLY TOW MODES OF REALIZING SALE CONSIDERATION, THE OBJE CT BEING TO REALIZE THE SALE PROCEEDS AT THE EARLIEST AND WITHOUT DELAY. THE PU RCHASER PAYS A HIGHER SALE PRICE IF IT DELAYS PAYMENT OF THE SALE PROCEEDS. I N OTHER WORDS, THIS IS A CONVERSE SITUATION TO OFFERING OF CASH DISCOUNT. T HUS, IN PRINCIPLE, IN REALITY, THE TRANSACTION REMAINS THE SAME AND THERE IS NO DI STINCTION S TO THE SOURCE. IT IS INCORRECT TO STATE THAT THE SOURCE FOR INTERE ST IS THE OUTSTANDING SALE PROCEEDS. IT IS NOT THE ASSESSEES BUSINESS TO LEN D FUNDS AND EARN INTEREST. THE DISTINCTION DRAWN BY THE REVENUE IS ARTIFICIAL IN NATURE AND IS NEITHER I CONSONANCE WITH LAW NOR COMMERCIAL PRACTICE. ITA NO.2445/AHD/2005 A.Y. 2002-03 MATRIX TELECOM P.LTD. V. ACIT, CIR-4 BARODA PAGE 3 4.1 SECONDLY, THE AHMEDABAD BENCH IN THE CASE OF MIRA INDUSTRIES (SUPRA) HAS ALSO HELD IN PARA-55 (VI):- (VI) SALE OF SCRAP, SPARE PARTS, SALE OF RAW MATERI ALS & OTHER MISC. RECEIPTS IN CASE THE SALE IS OF SCRAP GENERATED BY THE UNDER TAKING DURING THE COURSE OF PRODUCTION IT WOULD CERTAINLY BE INCOME DERIVED FRO M INDUSTRIAL UNDERTAKING. IT IS PART AND PARCEL OF MANUFACTURING PROCESS AND ACT IVITY OF THE INDUSTRIAL UNDERTAKING. IF HOWEVER SCRAP SALE IS NOT OF INDUST RIAL WASTE GENERATED DURING MANUFACTURING OR PRODUCING PROCESS IT MAY NOT BE TH E INCOME DERIVED FROM INDUSTRIAL UNDERTAKING. AS FOR SALE OF SPARE PARTS AND OF RAW MATERIAL AND OTHER MISC. RECEIPTS ARE CONCERNED, WE HOLD THAT IF IT WA S A SALE AS AN AFTER SALE SERVICE CONDITION OR SALE IS OF OWN MANUFACTURED S PARE PARTS OF THE RECEIPT HAS ARISEN IN THE COURSE OF MANUFACTURE OR PRODUCTI ON, IT WOULD BE THE INCOME DERIVED FROM INDUSTRIAL UNDERTAKING. ON THE OTHER HAND IF IT IS AN INDEPENDENT ACTIVITY NOT CONDITIONED TO SALE OR MANUFACTURE OR PRODUCTION IT WOULD NOT BE AN INCOME DERIVED FROM INDUSTRIAL UNDERTAKING EVEN THO UGH IT MIGHT BE INCOME ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING AS HELD BY T HE SUPREME COURT IN THE CASE OF ASHOK LEYLAND LTD.(SUPRA). RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE ALLO W THE DEDUCTION ON INTEREST RECEIVED FROM THE CUSTOMERS AND PROFIT ON REPAIRS A S LABOUR CHARGES AS DEDUCTIBLE U/S.80-IB OF THE ACT. THESE TWO INTER-CONNECTED IS SUES IN THIS APPEAL OF THE ASSESSEE ARE ALLOWED. 5. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 31/08/2009 SD/- SD/- (P.K.BANSAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 31/08/2009 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-III, BARODA 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD