M/s. Paras Motors Mfg.Co., Daman V. The ACIT., Vapi Circle, Vapi

ITA 2682/AHD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6600 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 15-09-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Assessee Lawyers: YAGNESH M DESAI
• Keywords: Cost of acquisition
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND BHAVNESH SAINI, JUDICIAL MEMBER) ITA NO.2682/AHD/2010 [ASSTT. YEAR : 2008-2009] M/S.PARAS MOTORS MANUFACTURING CO. PLOT NO.A3/8, DAMAN INDUSTRIAL ESTATE SOMNATH, DAMAN. PAN : AADFP 2489 B VS. ACIT, VAPI CIR. VAPI. ITA NO.2755/AHD/2010 [ASSTT. YEAR : 2008-2009] ACIT, VAPI CIR. VAPI. VS. M/S.PARAS MOTORS MANUFACTURING CO. PLOT NO.A3/8, DAMAN INDUSTRIAL ESTATE SOMNATH, DAMAN. PAN : AADFP 2489 B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI YAGNESH M. DESAI REVENUE BY : SHRI H.P. MEENA O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THE ABOVE APPEALS OF THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS), VALSAD DATED 2 6.07.2010 ARISING OUT OF THE ORDER OF THE ASSESSING OFFICER PASSED UN DER SECTION 143(3) OF THE INCOME TAX ACT, 1961. FOR THE SAKE OF CONVENIE NCE, WE DISPOSE OF BOTH THE APPEALS BY THIS COMMON ORDER. 2. THE ONLY EFFECTIVE GROUND RAISED IN THE APPEALS OF THE ASSESSEE IS AGAINST THE DISALLOWANCE OF DEDUCTION UNDER SECTION 80IB IN RESPECT OF INTEREST INCOME OF RS.58,84,797/-, WHILE GROUND RAI SED IN THE REVENUES APPEAL IS AGAINST THE DIRECTION OF THE CIT(A) TO AL LOW DEDUCTION UNDER ITA NO.2083/AHD/2010 -2- SECTION 80IB IN RESPECT OF INCOME FROM SCRAP SALE A ND INCOME FROM EXCHANGE RATE DIFFERENCE. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. IT IS VEHEMENTLY CONTENDED BY THE LEARN ED COUNSEL THAT THE ASSESSEE HAD DEPOSITED THE MONEY WITH THE BANK AS M ARGIN MONEY FOR OBTAINING LETTER OF CREDIT FOR IMPORT OF RAW-MATERI AL. HE HAS STATED THAT THE ASSESSEE HAD NOT KEPT THE FD WITH THE BANK OUT OF SURPLUS FUND, BUT IT HAD TO KEEP THE MONEY IN FD BECAUSE IT HAD NO OPTIO N. THAT THE BANK DID NOT GIVE LETTER OF CREDIT UNLESS THE MARGIN MONEY I S KEPT WITH THE BANK, KEEPING OF THE MARGIN MONEY WITH THE BANK WAS COMPU LSORY AND PART AND PARCEL OF THE CARRYING OUT OF THE ASSESSEES BUSINE SS, THEREFORE, THE INCOME FROM INTEREST FROM THE BANK IS TO BE CONSIDERED WHI LE COMPUTING THE DEDUCTION UNDER SECTION 80IB. IN SUPPORT OF THIS C ONTENTION, HE RELIED UPON THE DECISION OF THE ITAT, AHMEDABAD BENCH IN T HE CASE OF INDUCTOTHERM (INDIA) LTD. VS. DCIT, 75 TTJ (AHD) 72 8. HOWEVER, WE ARE UNABLE TO ACCEPT THE ASSESSEES CONTENTION. THI S ISSUE IS NOW SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF PANDIAN CHEMICALS VS. CIT, 262 ITR 278 (SC) WHEREIN THEIR LORDSHIPS HELD AS UNDER: I NTEREST DERIVED BY THE INDUSTRIAL UNDERTAKING OF TH E ASSESSEE ON DEPOSITS MADE WITH THE ELECTRICITY BOARD FOR THE SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKI NG ITSELF AND WAS NOT PROFITS OR GAINS DERIVED BY THE UNDERTAKING FOR THE PURPOSE OF THE SPECIAL DEDUCTION UNDER SECTION 80HH . THAT IN THE CASE OF THE PANDIAN CHEMICALS, THE ASSE SSEE HAD TO MAKE DEPOSIT WITH THE ELECTRICITY BOARD FOR SUPPLY OF EL ECTRICITY WHICH WAS NECESSARY FOR RUNNING THE INDUSTRIAL UNDERTAKING. HOWEVER, DESPITE ABOVE ITA NO.2083/AHD/2010 -3- FACTS, THEIR LORDSHIPS OF THE HONBLE APEX COURT HE LD THAT THE INTEREST FROM SUCH DEPOSITS CANNOT BE CONSIDERED AS PROFIT A ND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF SECTI ON 80HH. THAT LANGUAGE OF SECTION 80HH AND 80IB ARE SIMILAR BECAU SE THE DEDUCTION IS PERMISSIBLE ON THE PROFIT DERIVED FROM THE INDUSTRI AL UNDERTAKING. THEREFORE, THE RATIO OF THE ABOVE DECISION OF THE H ONBLE APEX COURT WOULD BE SQUARELY APPLICABLE TO THE FACTS OF THE AS SESSEES CASE. THE DECISION OF THE ITAT RELIED UPON BY THE LEARNED COU NSEL WAS PRIOR TO THE ABOVE DECISION OF THE HONBLE APEX COURT. WE THERE FORE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF PANDIAN CHEMICALS (SUPRA) HOLD THAT THE CIT(A) WAS JUSTIFIE D IN HOLDING THAT THE INTEREST INCOME WAS NOT ELIGIBLE FOR DEDUCTION UNDE R SECTION 80IB. 4. COMING TO THE REVENUES APPEAL, WE FIND THE ISSU E OF SCRAP SALE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT IN ASSESSEES OWN CASE FOR A.Y.2007-2008 VIDE IT NO.2236/AHD/2010 . IN THAT YEAR ALSO THE CIT(A) HAD ACCEPTED THE ASSESSEES CONTENT ION AGAINST WHICH THE REVENUE WAS IN APPEAL. HOWEVER, THE ITAT VIDE ORDE R DATED 7-12-2011 UPHOLD THE ORDER OF THE CIT(A) AND DISMISSED THE RE VENUES APPEAL. THE RELEVANT FINDINGS OF THE ITAT READ AS UNDER: 5. IDENTICAL ISSUE HAD COME UP BEFORE THE ITAT AHME DABAD BENCH D BY WAY OF ITA NO.2235/AHD/2010 (BY REVENUE) AND CO NO.261/AHD/2010 FOR ASSESSMENT YEAR 2007-08 IN THE CASE OF M/S.NATIONAL LAMINATION IND., DAMAN, WHEREIN, OUR O RDER OF EVEN DATE, IT WAS DECIDED THE ISSUE AS UNDER:5. WITH TH IS BACKGROUND, WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. THE ON LY OBJECTION OF LEARNED DEPARTMENTAL REPRESENTATIVE SHRI S.R. MALIK WAS THAT THE GENERATION OF SCRAP WAS NOT LINKED WITH THE MANUFAC TURING ACTIVITY AS NOTED BY THE ASSESSING OFFICER, THEREFORE, THE I SSUE WAS NOT COVERED BY THE DECISION OF HONBLE HIGH COURT. ON T HE OTHER HAND, LEARNED AUTHORISED REPRESENTATIVE HAS STRONGLY OPPO SED THE SAID OBSERVATION PRIMARILY ON THE GROUND THAT WITHOUT VE RIFYING THE ITA NO.2083/AHD/2010 -4- CORRECT FACTS OF THE CASE, THE ASSESSING OFFICER HA D ARBITRARILY HELD THAT THE PRODUCTION OF A SCRAP WAS NOT A BY-PRODUCT OF THE MANUFACTURING ACTIVITY. IT HAS ALSO BEEN STATED THA T THOUGH THERE WAS NO CHANGE IN THE MANUFACTURING ACTIVITY OF THE ASSESSEE; AND THAT THERE WAS NO CHANGE IN THE PRODUCTION OF SCRAP COMPARING THE PAST RECORDS OF THE CASE; AND THAT THE DEDUCTION ON SALE OF A SCRAP HAS ALWAYS BEEN ALLOWED IN THE PAST, HENCE THERE WA S NO OCCASION ON THE PART OF THE ASSESSING OFFICER TO DISTURB THE ALREADY ACCEPTED STAND OF THE REVENUE. IN SUPPORT OF THE CLAIM FOLLO WING CASE LAWS HAVE ALSO BEEN RELIED UPON: - XXXX 6. THE ADMITTED FACTUAL POSITION IS THAT THE ASSESS EE IS USING RAW- MATERIAL CALLED AS CRGO ELECTRICAL STEEL SHEETS. TH E STEEL SHEETS ARE IN VARIOUS SHAPES WHICH ARE CUT INTO VARIOUS SI ZES. DURING THIS PROCESS, SIGNIFICANT SCRAP IS GENERATED, HENCE, THE VEHEMENT CLAIM IS THAT THE SCRAP OF STEEL CREATED ON CUTTING OF ST EEL SHEETS NATURALLY HAS A DIRECT LINK AS WELL AS NEXUS WITH THE MANUFAC TURING ACTIVITY. WE ARE OF THE VIEW THAT THE TOTALITY OF THE CIRCUMS TANCES THUS, WARRANTS TO HOLD THAT THE INCOME GENERATED ON SALE OF SCRAP WAS DERIVED FROM THE INDUSTRIAL MANUFACTURING ACTIVITY OF THE ASSESSEE, THEREFORE, QUALIFIES FOR THE DEDUCTION AS PRESCRIBE D UNDER THE ACT. RESULTANTLY, THE LEARNED CIT(APPEALS) HAS RIGHTLY F OLLOWED THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT A ND HIS VIEW IS HEREBY AFFIRMED. THIS GROUND OF THE REVENUE IS DISM ISSED. 5.1. SIMILAR VIEW WAS TAKEN IN THE ASSESSEES OWN C ASE FOR THE A.Y.2006-07 IN ITA NO.1618/AHD/2009. SINCE THE FACTS ARE IDENTICAL, RESPECTFULLY FOLLOWI NG THE ABOVE DECISION OF THE ITAT IN ASSESSEES OWN CASE, WE HOLD THAT THE A SSESSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 80IB IN RESPECT OF THE INCOME FROM SCRAP SALES. 5. WITH REGARD TO INCOME FROM EXCHANGE RATE DIFFERE NCE, IT WAS EXPLAINED BY THE LEARNED COUNSEL THAT THE ASSESSEE HAS IMPORTED THE GOODS AND AS SOON AS THE BILL IS RECEIVED FROM THE SELLER , THE ENTRY IS MADE IN THE ASSESSEES BOOKS OF ACCOUNTS, AS PER EXCHANGE RATE OF DOLLAR ON THAT DATE. ITA NO.2083/AHD/2010 -5- HOWEVER, WHEN ON THE DATE OF ACTUAL PAYMENT, IF RUP EE APPRECIATES AGAINST THE DOLLAR, THE ASSESSEE IS BENEFITED AND S UCH BENEFIT IS REFERRED AS EXCHANGE RATE DIFFERENCE. IT IS NOTHING BUT REDUCT ION IN THE PURCHASE COST. HE ALSO POINTED OUT THAT THIS ISSUE IS COVERED IN F AVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. RACHNA UDYOG, 230 CTR 72. IN THIS CASE THEIR LORDS HIPS HELD AS UNDER: THE DIFFERENCE ON ACCOUNT OF EXCHANGE RATE FLUCTU ATION IS LIABLE TO BE ALLOWED UNDER S. 80-1B. THE EXCHANGE RATE FLUCTU ATION ARISES OUT OF AND IS DIRECTLY RELATED TO THE SALE TRANSACTION INVOLVING THE EXPORT OF GOODS OF THE INDUSTRIAL UNDERTAKING. THE EXCHANG E RATE FLUCTUATION BETWEEN THE RUPEE EQUIVALENT OF THE VAL UE OF THE GOODS EXPORTED AND THE ACTUAL RECEIPTS WHICH ARE REALIZED ARISES ON ACCOUNT OF THE SALE TRANSACTION. THE DIFFERENCE ARI SES PURELY AS A RESULT OF A FLUCTUATION IN THE RATE OF EXCHANGE BET WEEN THE DATE OF EXPORT AND THE DATE OF RECEIPT OF PROCEEDS, SINCE T HERE IS NO VARIATION IN THE SALE PRICE UNDER THE CONTRACT. THOUGH THE ABOVE DECISION WAS WITH REGARD TO EXCHAN GE RATE FLUCTUATION ON THE EXPORT OF THE GOODS, THE RATIO LAID DOWN WOU LD BE SQUARELY APPLICABLE FOR EXCHANGE RATE FLUCTUATION IN THE CAS E OF IMPORT OF GOODS ALSO. NO CONTRARY DECISION IS BROUGHT TO OUR NOT ICE BY THE REVENUE. WE THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIO N OF THE HONBLE BOMBAY HIGH COURT UPHOLD THE ORDER OF THE CIT(A) IN THIS REGARD. 6. IN RESULT, ASSESSEES APPEAL AS WELL AS REVENUE S APPEAL, BOTH ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 20 TH MAY, 2011 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD ITA NO.2083/AHD/2010 -6- DATE : 20-05-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD