The ACIT, Vapi Ward-4, Vapi V. M/s. Nikita Plast, Nani Daman

ITA 2470/AHD/2010

• Counselvise Citation: 247020514 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 06-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 80IB

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI D.K.TYAGI, JM AND A. MOHAN ALANKAMON Y, AM. ASSTT. CIT, VAPI CIRCLE, VAPI. VS. M/S NIKITA PLAST, PLOT NO.29/A, SOMNATH INDUSTRIAL ESTATE, DABHEL, NANI DAMAN. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SAMIR TEKRIWAL, SR.DR RESPONDENT BY:- SHRI TUSHAR P. HEMANI, AR DATE OF HEARING : 21/10/2011 DATE OF PRONOUNCEMENT :31.10.2011. O R D E R PER D. K. TYAGI, JUDICIAL MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 3.5.2010 FOR ASST. YEAR 2007-08 RAISIN G FOLLOWING GROUNDS:- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE ON AC COUNT OF REALLOCATION OF EXPENDITURE OF RS.44,614/- WITHOUT CONSIDERING THE FACTS BROUGHT IN BY THE AO IN ITS ENTIRETY. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INCOME FROM SC RAP SALES OF RS.33,32,425/- IS ELIGIBLE FOR DEDUCTION U/S 80IB W ITHOUT ITA NO.2470/AHD/2010 ASST. YEAR :2007-08 ITA NO.2470/AHD/2010 ASST. YEAR 2007-08 2 CONSIDERING FACT THAT IT HAS NO DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM RUNS THREE MANUFACTURING UNITS IN THE NAME AND STYLE OF M/S NI KITA PLAST. UNIT I IS ENGAGED IN MANUFACTURING OF POLY BAGS AND ALLIED PR ODUCTS. UNIT-II IS MANUFACTURING PVC SHRINK LABLES, POLYTHENE BAGS AND ALLIED PRODUCTS. UNIT-III IS ENGAGED IN THE MANUFACTURING OF PVC SHR INKS, LAMINATION POUCH, PVC SHRINKS LABLES, PLASTIC GARRY BAGS, ZIP LOCK BAGS ETC. THE MANUFACTURING UNIT OF THE ASSESSEE IS LOCATED AT TH E UNION TERRITORY OF DAMAN, WHICH IS A BACKWARD UNION TERRITORY AS SPECI FIED IN THE VIII SCHEDULE OF THE IT ACT AND IS ENTITLED TO THE DEDUC TION U/S 80IB OF THE ACT. WHILE MAKING THE ASSESSMENT, THE AO MADE THE F OLLOWING ADDITIONS WERE NOT CONSIDERED FOR GRANTING BENEFIT U/S 80IB: I) SCRAPS SALES RS.32,37,762/- II) EXCISE DUTY REFUND RS. 94,663/- III) DISALLOWANCE OF EXPENSES RS. 44,614/- 3. THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APP ELLATE AUTHORITY, WHEREIN REGARDING GROUND NO.1 OF REVENUES APPEAL R ELATING TO DISALLOWANCE ON ACCOUNT OF REALLOCATION OF EXPENDIT URE OF RS.44,614/- IT WAS SUBMITTED BY LD. AR OF THE ASSESSEE THAT THE AS SESSEE HAD INCURRED UNIT-WISE CERTAIN EXPENSES IN THE NATURE OF ADVERTI SING, BUSINESS PROMOTION, COURIER CHARGES, FEES AND SUBSCRIPTION A ND SUNDRY EXPENSES. THESE EXPENSES WERE SUPPORTED BY BILLS AND VOUCHERS . THE CONTENTION OF THE AO THAT THE EXPENSES IN RESPECT OF UNIT-III ENJ OYING 100% DEDUCTION U/S 80IB WERE UNDERSTATED AS COMPARED TO THE UNIT-I I ENJOYING 25% DEDUCTION U/S 80IB WAS FACTUALLY INCORRECT AS THE E XPENSES IN ABSOLUTE TERMS IN UNIT-III WERE MUCH HIGHER AT RS.22,37,569/ - AS AGAINST RS.2,85,818/- IN UNIT-II. FURTHER THE LD. AR SUBMIT TED THAT BY REALLOCATING ITA NO.2470/AHD/2010 ASST. YEAR 2007-08 3 A MEAGER AMOUNT OF RS.44,614/- TO OTHER UNIT THE AS SESSEE DID NOT DERIVE ANY BENEFIT. THE LD. CIT(A) CONSIDERED THE OBSERVAT ION OF AO AND THE SUBMISSIONS OF THE ASSESSEE AND HE OBSERVED THAT TH ERE WAS A MERIT IN THE ARGUMENT OF THE LD. AR. TAKING INTO CONSIDERATION O F THE FACTS AND CIRCUMSTANCES, THE LD. CIT(A) WAS OF THE OPINION TH AT THE REALLOCATION OF EXPENSES BY THE AO WAS UNCALLED FOR AND HENCE THE A O WAS DIRECTED TO DELETE THE ADDITION OF RS.44,614/-. AGGRIEVED BY THIS ORDER OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US THE LD. DR SUPPORTED THE ORDER OF AO A ND SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO FURNISH THE UNIT-WISE ALLOCATION OF EXPENDITURE PAR TICULARLY IN RESPECT OF BUSINESS PROMOTION, ADVERTISEMENT CHARGES, COURIER CHARGES, FEES AND SUBSCRIPTION, SUNDRY EXPENSES. ASSESSEE FILED UNIT- WISE CHART OF SUCH EXPENDITURE. THE AO FOUND THAT EXPENDITURE IN RESPE CT OF UNIT-III, WHERE THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80IB @ 100%, WAS QUITE LOW AS COMPARED TO THE EXPENDITURE DEBITED IN UNIT-II, WHERE THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80IB @ 25%. THE AO ASKED THE ASSESSEE TO JUSTIFY THE EXPENDITURE DEBITED IN EACH UNIT AND PR ODUCE NECESSARY BILL AND VOUCHERS. THE ASSESSEE PRODUCED THE BILLS AND V OUCHERS OF SUCH EXPENDITURE. ON VERIFICATION OF THE DETAILS THE AO FOUND THAT SOME OF THE EXPENDITURE OF PRIORITY UNIT I.E. UNIT-III HAD BEEN INCURRED FROM THE NON- PRIORITY UNIT I.E. UNIT II. IN RESPECT OF COURIER CHARGES THOUGH THE EXPENSES HAD BEEN INCURRED IN UNIT-II, THE ASSESSEE COULD NOT JUSTIFY HOW THE EXPENDITURE IN THE PRIORITY UNIT WAS QUITE LOW AS COMPARED THE SAME NATURE OF EXPENDITURE DEBITED IN THE NON-PRIORITY U NIT. IN ABSENCE OF PROPER JUSTIFICATION FOR INCURRING EXPENDITURE IN E ACH UNIT AO MADE ITA NO.2470/AHD/2010 ASST. YEAR 2007-08 4 DISALLOWANCE OF RS.44,614/-. THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE SAME. HENCE HIS ORDER MAY KINDLY BE SET ASIDE A ND THAT OF THE LD. AO BE RESTORED. 5. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE RELIED ON THE ORDER OF LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE HAD FURNISHED UNIT WISE ALLOCATION OF EXPENDITURE IN RESPECT OF BUSINE SS PROMOTION, ADVERTISEMENT CHARGES, COURIER CHARGES, FEES AND SU BSCRIPTION, SUNDRY EXPENSES. THE ASSESSEE HAD PRODUCED THE BILLS AND V OUCHERS. PAYMENTS FOR THESE EXPENSES HAD BEEN MADE FROM THE RESPECTIV E UNITS. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT BY REALLOCAT ING A MEAGER AMOUNT OF RS.44,614/- TO OTHER UNIT THE ASSESSEE DID NOT DERI VE ANY BENEFIT. THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.44,614/-. HIS ORDER MAY KINDLY BE UPHELD. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOIN G THROUGH THE MATERIAL ON RECORD, WE FIND FORCE IN THE SUBMISSION S OF LD. COUNSEL OF THE ASSESSEE THAT ASSESSEE HAD FURNISHED UNIT WISE ALLO CATION OF EXPENDITURE IN RESPECT OF BUSINESS PROMOTION, ADVERTISEMENT CHARGE S, COURIER CHARGES, FEES AND SUBSCRIPTION, SUNDRY EXPENSES. THE ASSESSE E HAD PRODUCED THE BILLS AND VOUCHERS. PAYMENTS FOR THESE EXPENSES HAD BEEN MADE FROM THE RESPECTIVE UNITS. THE LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT BY REALLOCATING A MEAGER AMOUNT OF RS.44,614/- TO OTHE R UNIT THE ASSESSEE DID NOT DERIVE ANY BENEFIT. THERE IS MERIT IN THE ARGUM ENT OF THE LD. COUNSEL. THE LD. CIT(A) HAS RIGHTLY OBSERVED THAT REALLOCATI ON OF EXPENSES BY THE AO IS UNCALLED FOR AND THE AO WAS ACCORDINGLY DIREC TED TO DELETE THE DISALLOWANCE. IN OUR OPINION THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A) AND HENCE THE SAME IS UPHELD. THIS GROUND OF REVENUE IS DISMISSED. ITA NO.2470/AHD/2010 ASST. YEAR 2007-08 5 6. REGARDING GROUND NO.2 OF REVENUES APPEAL THE FA CTS ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT IT WAS REVEA LED THAT THE ASSESSEE HAD INCLUDED THE OTHER INCOME IN FORM OF INCOME EARNED ON SALE OF SCRAP OF RS.1,93,549/- IN RESPECT OF UNIT-II AND RS.30,44,21 3/- IN RESPECT OF UNIT- III RESPECTIVELY, IN THE PROFITS ELIGIBLE FOR DEDUC TION U/S 80IB AND HAD CLAIMED THE DEDUCTION U/S 80IB ON THE SAID INCOME. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY NOT THESE INCOME SHOULD BE EXCLUDED FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB AS THE SAME HAD NO DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. THE ASSESSEE THROUGH WRITTEN SUBMISSION EXPLAINED THAT THE SALE OF SCRAP HAD NOT BEEN TREATED SEPARATELY BECAUSE THE SCRAP WAS G ENERATED AND EMANATING FROM MANUFACTURING PROCESS AND IT WAS VER Y MUCH A PART AND PARCEL OF PROFITS OF THE ELIGIBLE UNDERTAKING. THE ASSESSEE ALSO RELIED ON SEVERAL CASE LAWS. THE AO CONSIDERED THE SUBMISSION S OF ASSESSEE AND OBSERVED THAT PROFIT FROM SALE OF EVERY SCRAP COULD NOT BE AT ALL HELD AS MANUFACTURING PROFIT. SCRAP WAS NOT GENERATED AS A BY-PRODUCT DURING THE COURSE OF MANUFACTURING PROCESS. RATHER IT WAS A SA LE OF OLD UNUSABLE PRODUCT, MATERIALS WHICH DEFINITELY DID NOT FORM PA RT OF MANUFACTURING INCOME. THE AO OBSERVED THAT NEXUS OF INCOME-EARNED ON SALE OF SCRAP IS INCIDENTAL ONLY, WHEREAS FOR THE APPLICATION OF THE WORDS DERIVED FROM THERE HAS TO BE DIRECT NEXUS BETWEEN PROFIT AND GA INS AND THE INDUSTRIAL UNDERTAKING. IN FACT, THE EXPRESSION DERIVED FROM IS QUITE DIFFERENT AND DISTINGUISHABLE FROM THE EXPRESSION ATTRIBUTABLE T O. THE HONBLE COURTS HAVE CLEARLY HELD THAT EXPRESSION ATTRIBUTABLE TO IS WIDER IMPORT THAN EXPRESSION DERIVED FROM. THE FORMER EXPRESSION CO VERS RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINE SS. THE AO PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF CAMBAY ITA NO.2470/AHD/2010 ASST. YEAR 2007-08 6 ELECTRIC SUPPLY INDUSTRIAL UNDERTAKING VS. CIT 113 ITR 84 (SC) AND THAT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF ADDL .CIT VS. ABBAS WAZIR P. LTD. 179 ITR 811 (ALL.). THE AO ALSO PLACE D RELIANCE ON SOME OTHER DECISIONS ALONG WITH THE DECISION OF HONBLE M.P. HIGH COURT IN THE CASE D.P. AGRAWAL VS. CIT 272 ITR 118 (MP). THE AO FURTHER PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL, AHMEDABAD BENCH IN THE CASE OF STANDARD OIL AND GREASES FOR ASST. YEAR 2005-06. IN VIEW OF ABOVE, THE AO EXCLUDED THE SCRAP INCOME IN RESPECT OF UNIT-II AND UNIT-III OF RS.1,93,549/- AND RS.30,44,213/- RESPECTIVELY FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT AND DISALLOWED THE SA ME. 7. THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A ) WHO HAS DELETED THE ADDITION BY OBSERVING AS UNDER :- 6. GROUND NO.2- THIS GROUND OF APPEAL RELATES TO I NCOME FROM SALE OF SCRAPS NOT CONSIDERED FOR ALLOWING BENEFITS U/S 80I B OF THE ACT. THE LD. AR HAS SUBMITTED VARIOUS CASE LAWS WHEREIN THE SCRA P SALES HAVE BEEN INCLUDED IN COMPUTING BENEFIT U/S 80IB. THE HONBLE JURISDICTIONAL HC IN THE CASE OF DCIT VS. HARJIVANDAS JUTHABHAI ZAVERI 2 58 ITR 785 (GUJ) HAS HELD THAT SALE PROCEEDS OF SCRAP GENERATED FROM MANUFACTURING ACTIVITIES SHOULD BE INCLUDED FOR COMPUTING DEDUCTI ON U/S 80IB OF THE ACT. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDIC TIONAL HC, I DIRECT THE AO TO ALLOW 80IB BENEFIT TO THE APPELLANT ON THE PR OFIT OF SCRAPS SALE. THIS GROUND OF APPEAL IS ALLOWED. AGGRIEVED BY THIS ORDER OF LD. CIT(A) THE REVENUE I S IN APPEAL BEFORE THE TRIBUNAL. 8. AT THE TIME OF HEARING BEFORE US, THE LD. DR VEH EMENTLY SUPPORTED THE ORDER OF AO BY SUBMITTING THAT THE AO WHILE DEN YING THE BENEFIT U/S 80IB OF THE ACT ON INCOME FROM SALE OF SCRAPS HAS C ATEGORICALLY HELD THAT SCRAP WAS NOT GENERATED AS A BY-PRODUCT DURING THE COURSE OF MANUFACTURING ACTIVITIES AND IT WAS AN INCOME ON SA LE OF OLD UNUSABLE ITA NO.2470/AHD/2010 ASST. YEAR 2007-08 7 PRODUCT/MATERIALS WHICH DEFINITELY DID NOT FORM PAR T OF INCOME FROM MANUFACTURING PROCESS. THE LD. CIT(A) WHILE GIVING RELIEF TO THE ASSESSEE HAS ACCEPTED THE SUBMISSIONS OF THE ASSESSEE THAT I NCOME FROM SALE OF SCRAP WAS OF SCRAP GENERATED FROM MANUFACTURING PRO CESS OF THE ASSESSEE WHICH WAS WITHOUT ANY BASIS. AT THIS STAGE THE BENC H ASKED THE ASSESSEE TO FILE THE DETAILS OF INCOME ON SALE OF SCRAP SO T HAT IT CAN BE ASCERTAINED WHETHER THIS INCOME IS OUT OF SALE OF SCRAP FROM MA NUFACTURING PROCESS OR DUE TO SALE OF OLD UNUSABLE PRODUCT/MATERIAL. THE A SSESSEE HAS FILED THE DETAILS. HOWEVER, GOING THROUGH THESE DETAILS WE FE EL THAT THE DETAILS REQUIRE VERIFICATION AT THE END OF AO. THEREFORE, T HE MATTER IS RESTORED BACK TO THE FILE OF AO AND IF THE ASSESSEE IS ABLE TO PROVE WITH EVIDENCE THAT INCOME FROM SALE OF SCRAP IS DUE TO SALE OF SC RAP GENERATED AS A BY- PRODUCT OF ASSESSEES MANUFACTURING PROCESS, THE BE NEFIT OF SECTION 80IB BE GIVEN TO THE ASSESSEE AND IF FOUND OTHERWISE, NO SUCH BENEFIT IS TO BE GIVEN. THIS GROUND OF REVENUE IS ALLOWED FOR STATIS TICAL PURPOSES. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 31.10.2011. SD/- SD/- (A. MOHAN ALANKAMONY) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD, MAHATA/- ITA NO.2470/AHD/2010 ASST. YEAR 2007-08 8 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 21/10/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 27/10/2011 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..