The DCIT, Circle-1(1)(1), Ahmedabad V. M/s. ABM Steels Pvt.Ltd., Ahmedabad

ITA 2530/AHD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8350 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2002-2003
• Appeal Filed On: 28-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Keywords: Tax effect
• Section: 143(3); 80HHC; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH SMC, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA.NO.2530/AHD/2015 WITH CO NO.188/AHD/2015 / ASSTT.YEAR : 2002-03 DCIT, CIR.1(1)(1) AHMEDABAD. VS M/S.ABM STEELS P.LTD. A WING, ROOM NO.309 3 RD FLOOR, PRATYAKSHA KAR BHAVAN AMBAWADI, AHMEDABAD 380015. PAN : AABCA 6004 A / (APPELLANT) / (RESPONDENT) REVENUE BY : MS.SONIA KUMAR, SR.DR ASSESSEE BY : MS.URVASHI SHODHAN, AR / DATE OF HEARING : 10/10/2017 / DATE OF PRONOUNCEMENT: 11/10/2017 !'/ O R D E R REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF THE LD.CIT(A)-1, AHMEDABAD DATED 4.6.2015 PASSED FOR TH E ASSTT.YEAR 2002-03. ON RECEIPT OF NOTICE ON REVENUES APPEAL, THE ASSES SEE HAS FILED CO BEARING NO.188/AHD/2015. 2. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. SO FAR AS REVENUES APPEAL IS CON CERNED IT HAS CHALLENGED ALLOWANCE OF DEDUCTION UNDER SECTION 80IA OF THE IN COME TAX ACT, 1961 BY THE LD.CIT(A) OF A SUM OF RS.12,17,063/- WHICH REPR ESENTS FOREIGN EXCHANGE RATE DIFFERENCE. IT IS PERTINENT TO OBSERVE THAT T AX EFFECT BY VIRTUE OF RELIEF ITA NO.2530/AHD/2015 WITH CO 2 GIVEN BY THE LD.CIT(A) IS BELOW RS.10 LAKHS. THERE FORE, THE PRESENT APPEAL IS NOT MAINTAINABLE IN VIEW OF RECENT CBDT INSTRUCTION NO.21 OF 2015 DATED 10.12.2015. HENCE, THE APPEAL OF THE REVENUE IS DI SMISSED. 3. SO FAR AS CO OF THE ASSESSEE IS CONCERNED, GRIEV ANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT GROSS SERVICE CHARGES RECEIVED BY THE ASSESSEE FOR PATTERN DEVELO PMENT AMOUNTING TO RS.19,17,761/- IS NOT ELIGIBLE FOR GRANT OF DEDUCTI ON UNDER SECTION 80IA OR 80HHC OF THE INCOME TAX ACT. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 29.10.2002 DECLARING TOTAL INCOME AT RS.7,06,028 /-. AN ASSESSMENT UNDER SECTION 143(3) R.W.S SECTION 147 WAS COMPLETE ON 19 .12.2006 VIDE WHICH INCOME OF THE ASSESSEE WAS DETERMINED RS.49,22,934/ -. IT EMERGES OUT FROM THE RECORD THAT THE ISSUE REGARDING ALLOWANCE OF DE DUCTION UNDER SECTION 80IA OF ALLEGED PATTERN DEVELOPMENT CHARGES TRAVELLED UP TO ITAT IN ITA NO.176 AND 177/AHD/2009. THE TRIBUNAL HAS REMITTED THIS IS SUE TO THE FILE OF AO FOR RE-ADJUDICATION. THE LD.AO HAS DECIDED THE ISSUE V IDE IMPUGNED ORDER AND NET INCOME OF SERVICE CHARGES FOR PATTERN DEVELOPME NT WAS TAKEN AT RS.13,23,938/- WHICH WAS BEING CONSIDERED AS NOT EL IGIBLE PROFIT FOR GRANT OF DEDUCTION UNDER SECTION 80IA. ON APPEAL, THE LD.CIT (A) HAS WITHOUT ISSUING NOTICE FOR ENHANCEMENT OF INCOME HAS DIRECTED THE A O TO EXCLUDE GROSS SERVICE CHARGES. THUS, THE ASSESSEE HAS TWO FOLD O F GRIEVANCE. IN ITS FIRST FOLD OF GRIEVANCE, IT WAS CONTENDED BEFORE ME THAT IN A. Y.2001-02 SUCH SERVICE CHARGES WERE CONSIDERED AS ELIGIBLE FOR GRANT OF DE DUCTION UNDER SECTION 80IA. ALTERNATIVELY, IT WAS CONTENDED THAT ONLY NET SERVI CE CHARGES COULD BE EXCLUDED AND NOT THE GROSS ONE. THE LD.COUSNEL FOR THE ASSESSEE FURTHER CONTENDED THAT AGAINST ORDER OF THE TRIBUNAL PASSED IN ITA ITA NO.2530/AHD/2015 WITH CO 3 NO.2703/AHD/2004 IN ASSTT.YEAR 2001-02, DEPARTMENT WENT IN APPEAL BEFORE THE HONBLE COURT VIDE TAX APPEAL NO.1503 OF 2010. THIS APPEAL WAS DISMISSED BY THE HONBLE COURT VIDE ORDER DATED 4.2 .2016 ON ACCOUNT OF LOW TAX EFFECT INVOLVED IN IT. COPY OF THIS ORDER HAS BEEN PLACED AT PAGE NO.121 TO 123 OF THE PAPER BOOK. 5. ON DUE CONSIDERATION OF THE ABOVE FACTS, WE FIND THAT THE TRIBUNAL HAS ALLOWED DEDUCTION UNDER SECTION 80IA THAT THE ALLEG ED SERVICE CHARGES EARNED BY THE ASSESSEE ON PATTERN DEVELOPMENT. THE DISCUS SION MADE BY THE TRIBUNAL ON THIS ISSUE READS AS UNDER: ON THE OTHER HAND, THE LEARNED AUTHORISED RE PRESENTATIVE OF THE ASSESSEE RELIED UPON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND SUBMITTED THAT THE D EVELOPMENT OF PATTERN WAS A PART AND PARCEL OF THE BUSINE SS OF MANUFACTURING OF COMPONENTS AND PARTS. WE FIND THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF COMPONENTS AND PARTS FOR PROCESS CONTROL INSTRUMENTATION AND OTHER PRODUCTS INCO ME OF WHICH QUALIFIES FOR DEDUCTION U/S 80IA OF THE A CT. THE ASSESSEES BUSINESS OF MANUFACTURING OF COMPONENTS A ND PARTS FOR PROCESS CONTROL INSTRUMENTATION AND OTHER PRODUCTS STAR TS WITH THE RECEIPT OF DRAWINGS OF PARTS AND COMPONENTS REQUIRED BY ITS CUSTOMERS. THE ASSESSEE FOR MANUFACTURING P ARTS AND COMPONENTS HAD TO DEVELOP FIRSTLY PATTERN OR MOULDS. THUS, THE DEVELOP MENT OF PATTERN AND MOULDS WAS UNDERT AKEN BY THE ASSESSEE AS A FIRST STEP IN THE VARIOUS STAG ES OR PROCESSES INVOLVED IN MANUFACTURING OF PARTS AND CO MPONENTS. THE REVENUE HAS BROUGHT NO MATERIAL TO SHOW THAT PATTERN DEVELOPMENT CHARGES WAS UNDERTAKEN BY THE ASSESSEE AS A SEPARATE AND INDEPENDENT ACTIVITY OR BUSINESS. ACCORDING TO THE ASSESSEE THIS ACTIVITY COULD NOT BE INDEPENDENT BUSINESS WI THOUT MANUFACTURING COMPONENTS AND PARTS. THE ASSESSEE MADE SEPAR ATE CHARGES FOR THE PATTERN DEVELOPMENT NOT BECAUSE IT WAS A SEPARATE BUSINESS BUT AS BECAUSE ONE STAGE IN THE MANUF ACTURING OF COMPONENTS AND PARTS WERE COMPLETED AND SO A S TO REALIZE SOME REVENUE BEFORE COMPLETION OF COMPLETE MANUFACT URING ACTIVITY. THE CONTENTION OF THE ASSESSEE THAT ENTIRE P ATTERN DEVELOPMENT ITA NO.2530/AHD/2015 WITH CO 4 ACTIVITY WAS CARRIED OUT UNDER ITS SUPERVISIO N AND GUIDANCE AT ITS OWN COST AND RISK WAS NOT CONTROVERTED BY T HE REVENUE. WE FIND THAT THE REVENUE HAS BROUGHT NO MATERIAL BEF ORE US TO SHOW THAT MANUFACTURING OF COMPONENTS AND PARTS COULD H AVE BEEN DONE BY THE ASSESSEE WITHOUT MANUFACTURING MOUL DS OR DEVELOPING PATTERN. FURTHER, IT IS ALSO NOT THE CASE O F THE REVENUE THAT THE ASSESSEE COULD HAVE UNDERTAKEN ACTIVITY O F DEVELOPMENT OF PATTERN EVEN WITHOUT ITS BUSINESS OF MANUFACTURING OF COMPONENTS AND PASTS SO THAT THIS ACTIVITY COULD BE TREATED A S INDEPENDENT AND SEPARATE BUSINESS. THUS, ON THE ABOVE FACTS, WE FIND THAT THE PATTERN DEVELOPMENT ACTIVITY UNDERTAKEN BY THE ASSESSEE WAS A PART AND PARCEL OF THE BUSINESS OF MANUFACTU RING OF COMPONENTS AND PARTS FOR PROCESS CONTROL INSTRUMENTATION AND OTHER PRODUCTS AND THE SAME WAS NOT A SEPARATE AND INDEPEN DENT BUSINESS OF THE ASSESSEE. WE THEREFORE DO NOT FIND ANY E RROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE I S DISMISSED. 6. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNA L, I DO NOT SEE ANY REASONS TO DEVIATE MYSELF FROM THE CONCLUSION DRAWN BY THE DIVISION BENCH OF THE TRIBUNAL. THEREFORE, I ALLOW THIS GROUND OF APPEAL AND DIRECT THE AO TO GRANT DEDUCTION UNDER SECTION 80IA OF THE ACT FOR S ERVICE CHARGES EARNED BY THE ASSESSEE FOR PATTERN DEVELOPMENT. IN OTHER WOR DS, SERVICE CHARES EARNED BY THE ASSESSEE ON PATTERN DEVELOPMENT WILL BE CONS IDERED AS ELIGIBLE PROFIT FOR GRANT OF DEDUCTION UNDER SECTION 80IA. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D AND CO OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 11 TH OCTOBER, 2017 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 11/10/2017