Hamilton Housewares Pvt.Ltd., U.T. OF DADRA & NAGAR HAVELI V. The ACIT.,Vapi Circle, Vapi

ITA 2802/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89548 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 27-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 14-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Business income; Depreciation; Revenue expenditure
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR ACCOUNTANT MEMBER AND SHRI S.S. GODARA JUDICIAL MEMBER ITA NO S .988/AH D/ 20 0 9 , 942 & 3305/AHD/2010, 2673/AHD/2011 A. Y S . 2005 - 06 , 2006 - 07, 2007 - 08, 2008 - 09 ACIT, VAPI . VS HAMILTON HOUSEWARE P. LTD., SURVEY NO.288/1, NEAR DADRA DEMNI ROAD, DADRA & NAGAR HAVEIL. PAN: AABCD 1683Q (APPELLANT) (RESPONDENT) ITA NOS.1143/AHD/2009, 1583 & 3336/AHD/2010, 2802/AHD/2011 A.Y S . 2005 - 06 , 2006 - 07, 2007 - 08, 2008 - 09 HAMI LTON HOUSEWARE P. LTD., SURVEY NO.288/1, NEAR DADRA DEMNI ROAD, DADRA & NAGAR HAVEIL. PAN: AABCD 1683Q VS ACIT, VAPI. (APPELLANT) (RESPONDENT) REVENUE BY : S HRI SUBHASH BAINS, CIT - D.R. , ASSESSEE(S) BY : SHRI M.K. PATEL, A.R. / DATE OF HEARING : 27/ 0 4 /201 5 / DATE OF PRONOUNCEMENT: 9 / 0 6 /201 5 / O R D E R PER S.S. GODARA , JUDICIAL MEMBER TH IS IS A BATCH OF 8 CROSS APPEALS I.E. FOUR EACH FILED BY THE REVE NUE AND ASSESSEE. THESE APPEALS HAVE ARIS EN FROM DIFFERENT ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 2 - ORDERS OF CIT(A), VALSAD DATED 12.1.2009, 18.11.2009, 28.9.2010, 26.08.2011 PASSED I N CASE S NO . CIT(A)/VLS/236/07 - 08, 265/08 - 09, 249/09 - 10, 273/10 - 11 , FOR ASSESSMENT YEARS 2005 - 06, 2006 - 07, 2007 - 0 8 AND 2008 - 09; RESPECTIVELY, IN PROCEEDINGS U/S . 143(3) OF THE INCOME TAX ACT IN SHORT THE ACT . BOTH PARTIES REITERATE THEIR RESPECTIVE PLEADINGS IN THE COURSE OF HEARING. THEY ALSO SUPPORT THE CIT(A) ORDER S UNDER CHALLENGE TO THE EXTENT THE SAME FAVOUR THEIR CAUSE. FOR THE SAKE OF CONVENIENCE AND BREVITY, WE PROCEED TO DECIDE THESE CASES ASSESSMENT YEAR WISE.. A.Y.2005 - 06 REVENUE S APPEAL ITA 988/AHD/2009 2. THE REVENUE RAISES 5 SUBSTANTIVE GROUNDS IN ITS APPEAL. ITS FIRST GRIEVANCE CHALLENGES THE CIT (A) ORDER ALLOWING U/S.80IB DEDUCTION OF RS.3,82,20,953/ - WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE FAILED TO OBTAIN A FACTORY LICENSE TO RUN ITS UNIT ON OR BEFORE THE CUT OFF DATE 31.03.2004, I.E., U/ S . 80IB(4) OF THE ACT. 3. THE ASSESSEE - COMPANY M ANUFACTURES POT FLASKS IN ITS UNITS SITUATED AT DADRA AND BHAYENDER. IT FILED RETURN ON 31 .10.2 005 DECLARING TOTAL INCOME OF RS.1,28,67,263/ - . THE ASSESSING OFFICER TOOK UP SCRUTINY . HE INTER ALIA NOTICED THE ASSESSEE S CLAIM OF SECTION 80IB DEDUCTION FO R ITS DADAR UNIT. THERE IS NO DISPUTE THAT ITS MANUFACTURING ACTI VITY COMMENCED IN AUGUST, 2003. M UCH BEFORE 31 ST OF MARCH, 2004. IT APPLIED FOR FACTORY LICENSE ON 9.2.2006. THE ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 3 - ASSESSING OFFICER OBSERVED IN ASSESSMENT ORDER DATED 31.12.2007 THAT THE ASSES SEE HAD NEITHER APPLIED NOR OBTAINED A VALID FACTORY LICENSE BEFORE COMMENCING ITS MANUFACTURING. HE WAS OF THE VIEW THAT ITS MANUFACTURING WAS NOT LAWFUL AS PER SECTION 80IB(4) IN THE RELEVANT ACCOUNTING PERIOD FROM 1.4.2004 TO 31.3.2005. A SSESSEE S PLEAD INGS CLAIMING LIBERAL INTERPRETATION OF THE DEDUCTION PROVISION ETC STOOD REJECTED RESULTING IN THE IMPUGNED DISALLOWANCE/ADDITION OF RS.3,82,20,953/ - BEING MADE ACCORDINGLY. 4. THE CIT(A) HAS AGREED WITH THE ASSESSEE S CONTENTIONS . HE INTER ALIA HOLDS TH AT SECTION 80IB IS A DEDUCTION PROVISION TO BE LIBERALLY CONSTRUED AS PER A CATINA OF CASE LAW, NON OBTAINING OF AN APPROVAL LICENSE UNDER THE FACTORIES ACT IS NOT A GROUND TO DENY THE IMPUGNED DEDUCTION UNDER THE INCOME TAX LAW, THE ASSESSING OFFICER HAD NOWHERE DISPUTED ITS MANUFACTURING ACTIVITY TO HAVE COMMENCED IN AUGUST, 2003 ETC. THE ASSESSEE S GROUND HAS BEEN ALLOWED IN THE LOWER APPELLATE ORDER. 5. WE HAVE HEARD BOTH SIDES. RELEVANT FINDINGS IN BOTH THE LOWER ORDERS STAND PERUSED. THERE IS NO ISSU E BETWEEN THE PARTIES ABOUT THE FACTS AND FIGURES STATED HEREINABOVE. T HE ASSESSEE S MANUFACTURING ACTIVITY COMMENCED IN AUGUST, 2003 I.E. BEFORE THE CUT OFF DATE 31.3.2004. IT APPLIED FOR A FACTOR Y LICENSE ON 9.2.2006. THE SAME STOOD GRANTED WELL AFTER TH E IMPUGNED ASSESSMENT YEAR. THE ASSESSING OFFICER PERCEIVES IT TO BE A CASE OF UNLAWFUL ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 4 - MANUFACTURING U/S.80IB(4) . WE FIND THE HON BLE BOMBAY H IGH C OURT (JURISDICTIONAL H IGH C OURT FOR DADRA UNION TERRITORY U/S. 269 OF THE ACT) IN INCOME TAX APPEAL (L) NO.1 622 OF 2012 CIT VS. JOLLY POLYMERS HAS TURNED DOWN A SIMILAR ARGUMENT OF THE REVENUE BY APPROVING THE TRIBUNAL S ORDER HOLDING THAT SUCH A VIOLATION UNDER THE FACTORIES ACT DOES NOT DISENTITLE A DEDUCTION CLAIMED UNDER SECTION 80IB. THE REVENUE FAILS TO QU OTE ANY CASE LAW TO THE CONTRARY. WE AFFIRM THE CIT(A) FINDINGS IN THESE CIRCUMSTANCES AND REJECT THE REVENUE S CORRESPONDING GROUND. 6. THE REVENUE S SECOND GROUND CHALLENGES THE CIT(A) ORDER GRANTING BENEFIT OF NETTING OUT AND HOLDING THAT THE NET INT EREST INCOME ONLY TO BE EXCLUDED FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S.80IB ALLEGEDLY WITHOUT CONSIDERING THE FACT THAT THE JURISDICTIONAL ITAT IN THE CASE OF NEPTUNE STEEL PROCESSOR AND AURO STAMPING P. LTD. HAS HELD THAT SECTION 80IA DEDUCTION IS T O BE ALLOWED BY EXCLUDING GROSS [AND NOT MERELY NET] AMOUNT OF INTEREST FROM THE PROFITS OF UNDERTAKING ELIGIBLE FOR DEDUCTION U/S.80IB. P ERUSAL OF THE CASE FILE REVEALS THAT A CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE ITA 2438/AHD/2007 DECI DED ON 26.3.2010 RELATING TO ASSESSMENT YEAR 2004 - 05 (PRECEDING ASSESSMENT YEAR) HAS ALREADY DECIDED THE VERY ISSUE OF NETTING OF THE INTEREST INCOME AGAINST THE REVENUE. THERE IS NO DISTINCTION ON FACTS OR LAW BEING POINTED OUT . WE AFFIRM THE CIT(A) FINDI NGS IN THESE ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 5 - CIRCUMSTANCES. THE REVENUE S CORRESPONDING GROUND STANDS REJECTED. 7. THE REVENUE S THIRD SUBSTANTIVE GROUND CHALLENGES THE CIT(A) ORDER HOLDING THAT EXCHANGE RATE DIFFERENCE OF RS.21,81,641/ - IS INCLUDIBLE IN THE PROFITS ELIGIBLE FOR DEDUCTI ON U/S.80IB WITHOUT ALLEGEDLY CONSIDERING THE FACT THAT IT HAS NOT BEEN DERIVED FROM THE MANUFACTURING ACTIVITY OF THE UNDERTAKING. A CO - ORDINATE BENCH IN ASSESSEE S CASE (SUPRA) HOLDS THAT FOREIGN EXCHANGE RATE FLUCTUATION GAINS BEAR THE CHARACTER OF INCO ME DERIVED FROM EXPORT SALES TO BE TREATED AS PART AND PARCEL OF EXPORT PROFITS ONLY. NO DISTINCTION ON FACTS OR LAW IS BEING POINTED OUT AT THE REVENUE S BEHEST SO AS TO ADOPT DIFFERENT APPROACH IN THE IMPUGNED ASSESSMENT YEAR. W E AFFIRM THE CIT(A) FINDIN GS . T HE REVENUE S GROUND I S REJECTED . 8. THE REVENUE S FOURTH GROUND ASSAILS THE CIT(A) ORDER GRANTING RELIEF TO THE ASSESSEE WITH REGARD TO EXCLUSION OF SCRAP INCOME OF RS.13,25,610 FROM THE PROFIT ELIGIBLE FOR DEDUCTION U/S.80IB OF THE ACT WITHOUT CONS IDERING THE RATIO LAID DOWN BY THE HON BLE M.P. HIGH COURT IN THE CASE OF D.P. AGRAWAL VS. CIT 272 ITR 118 (MP) WHEREIN IT HAS BEEN HELD BY THE HON BLE COURT THAT SCRAP INCOME WILL NOT BE ELIGIBLE FOR DEDUCTION U/S.80IB OF THE ACT. ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 6 - 9. THE ASSESSING OFFIC ER NOTICED THE ASSESSEE S IMPUGNED SCRAP SALES INCOME OF RS.13,25,610/ - AND HELD IT AS NOT TO HAVE BEEN DERIVED FROM NORMAL BUSINESS OPERATION. THE CIT(A) TREATS THE SCRAP IN QUESTION TO HAVE BEEN GENERATED FROM ITS MANUFACTURING PROCESS HAVING DIRECT RELA TION TO THE SOURCE OF BUSINESS INCOME. T HE HON BLE JURISDICTIONAL HIGH COURT IN DCIT VS. HARJIVANDAS J. ZAVERI 258 ITR 785 DEALS WITH A CASE OF SALE OF EMPTY BOTTLES/PLASTIC WASTE IN CASE OF AN ASSESSEE INVOLVED IN MANUFACTURING ACTIVITY AND HOLDS THAT THE SAME ARE DIRECTLY CONNECTED WITH THE SAID ACTIVITY. THEIR LORDSHIPS ASSUMED A HYPOTHETICAL SITUATION THAT IN CASE THERE IS NO INDUSTRIAL/MANUFACTURING ACTIVITY, THERE WOULD NOT BE ANY SCRAP GENERATED. THE REVENUE HAS NOT BEEN ABLE TO DISTINGUISH OPERATION OF THE SAME. W E ALSO FOLLOW SUIT AND HOLD THAT THE CIT(A) HAS RIGHTLY INCLUDED SCRAP INCOME OF RS.13,25,610/ - AS PROFIT S ELIGIBLE FOR SECTION 80IB DEDUCTION. THE REVENUE S CORRESPONDING GROUND IS REJECTED. 10. THIS LEAVES US WITH THE REVENUE S LAST GROU ND CHALLENGING LOWER APPELLATE ORDER ALLOWING DEDUCTION U/S. 35(1)(III) OF RS.1,87,500/ - WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE DID NOT FILE ANY CERTIFICATE. 11. IT TRANSPIRES FROM THE CASE FILE THAT THE ASSESSING OFFICER HAD DISALLOWED THIS DEDUC TION FOR WANT OF NECESSARY CERTIFICATES. THE CIT(A) IN LOWER APPELLATE ORDER OBSERVES THAT THE ASSESSEE HAD ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 7 - PLACED ON RECORD NECESSARY ACKNOWLEDGEMENTS/DONATION RECEIPTS WITH ITS RETURN. P APER BOOK PAGES 44 TO 46 CONTAIN TWO RECEIPTS OF RS.50,000/ - AND 1 L AC RELATING TO M/S. VENDANTA CULTURAL FOUNDATION MUMBAI. THIS TAKES CARE OF THE REVENUE S TECHNICAL PLEAS IN THE INSTANT PROCEEDINGS. THE CIT(A) APPEARS TO HAVE VERIFIED THE SAME AS WELL . THUS, WE UPHOLD THE LOWER APPELLATE ORDER QUA THIS ISSUE. REVENUE S APPEAL ITA 988/AHD/20 09 IS DISMISSED. 1 2 . NOW WE COME TO ASSESSEE S APPEAL ITA 1143/AHD/2009. ITS FIRST SUBSTANTIVE GROUND CHALLENGES ACTION OF THE LOWER AUTHORITIES EXCLUDING EXPORT INCENTIVES OF DADRA AND BAYENDERI UNITS AMOUNTING TO RS.65,98,801/ - AN D RS.46,51,472/ - FROM PROFITS ELIGIBLE FOR SECTION 80IB DEDUCTION. THE CASE FILE INDICATES THAT THE ASSESSEE HA S ALSO FILED ALTERNATIVE / ADDITIONAL GROUNDS VIS - - VIS ITS FIRST SUBSTANTIVE GROUND BY FILING A PETITION DATED 24.2.2015 READING AS UNDER: IN R EGARD TO THE CAPTIONED APPEAL PROCEEDINGS BEFORE YOUR HONOURS, WE WOULD LIKE TO HUMBLY REQUEST TO PERMIT US TO RAISE THE FOLLOWING ADDITIONAL GROUND BEFORE YOUR HONOUR AS UNDER. 1. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND WITHOUT PREJUDI CE TO OTHER GROUNDS OF APPEAL, THE NOTIONAL INCOME BY WAY OF DEPB CREDITS, DFRC RECEIPTS OR OTHER EXPORT INCENTIVES CREDITED IN THE PROFIT AND LOSS ACCOUNT BE NOT CONSIDERED AS INCOME LIABLE FOR TAX DURING THE YEAR IN ACCORDANCE WITH THE DECISION OF THE HO N BLE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. REPORTED IN 38 TAXMAN.COM 100 (SC). 2. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND WITHOUT PREJUDICE TO OTHER GROUNDS OF APPEAL, THE EXCLUSION OF DEPB CREDITS, DFRC RECEIPTS O R OTHER EXPORT INCENTIVES FOR THE PURPOSE OF CALCULATING THE PROFITS ELIGIBLE FOR DEDUCTION U/S.80IB OF ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 8 - THE ACT SHALL BE RESTRICTED TO THE NET BENEFIT AFTER NETTING OUT THE COST OF OBTAINING THE SAID BENEFIT AS SPECIFIED AND OBSERVED BY THE HON BLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS VS. CIT (342 ITR 49) THE REVENUE OBJECTS ADMISSIBILITY OF THE ASSESSEE S ALTERNATIVE/ ADDITIONAL GROUND. THE ASSESSEE QUOTE S LAW SETTLED BY THE HON BLE APEX COURT IN EXCEL INDUSTRIES AND TOPMAN EXPORTS (SUPRA) PROPOUN DING COMPUTATION OF NOTIONAL INCOME FROM DEPB CREDITS/DFRC RECEIPTS / OTHER EXPORT INCENTIVES ACCRUES NOT IN THE YEAR OF EXPORT; BUT IN THE ONE CORRESPONDING TO THE IMPORTS AND ALSO DEVISING NETTING FORMULA TO BE ADOPTED IN EXCLUDING FACE VALUE OF THE ABOV E CREDITS FOR COMPUTING PROFITS ELIGIBLE FOR SECTION 80IB DEDUCTION ; RESPECTIVELY . WE REJECT THE REVENUE S TECHNICAL OBJECTIONS AND ADMIT THE ADDITIONAL GROUNDS IN VIEW OF THE ABOVE SETTLED LEGAL PREPOSITION IN THE INTEREST OF JUSTICE. THE ASSESSEE ALSO FA ILS TO CONTROVERT THE LOWER AUTHORITIES ACTION EXCLUDING THE ABOVE SUMS FROM THE PURVIEW OF SECTION 80IB DEDUCTION IN PRINCIPLE. THE FACT ALSO REMAINS THAT THESE ALTERNATIVE PLEADINGS REQUIRE EXAMINATION OF NEW FACTS AND DETAILS FOR THE PURPOSE OF COMPUTA TION OF NOTIONAL INCOME FROM EXPORT INCENTIVES AS WELL AS NET PROFITS IN VIEW OF ABOVESTATED CASE LAW. THUS, WE REJECT THE ASSESSEE S MAIN GROUND IN PRINCIPLE AND ACCEPT ADDITIONAL/ALTERNATIVE GROUNDS FOR STATISTICAL PURPOSES AND REMIT THE SAME BACK TO THE ASSESSING OFFICER FOR ADJUDICATION AFRESH AS PER LAW. THE ASSESSEE SHALL PRODUCE ALL THE RELEVANT DETAILS IN CONSEQUENTIAL PROCEEDINGS. ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 9 - 1 3 . THE ASSESSEE S NEXT GROUND RAISES ISSUE OF DEBITS/CREDITS WRITTEN OFF AMOUNTING TO RS.77,784/ - AND RS.13,747/ - RE GARDING DADRA AND BHAYENDERI UNITS ; RESPECTIVELY. THE AUTHORITIES BELOW HAVE EXCLUDED THE SAME FROM ELIGIBLE PROFITS FOR U/S.80IB DEDUCTION . THE ASSESSING OFFICER HOLDS THESE BALANCES AS NOT DIRECTLY RELATED TO THE ASSESSEE S BUSINESS BEING IN THE NATURE O F INCIDENTAL INCOME. HE TREATS THESE BALANCES AS THE ONE S NOT DERIVED FROM NORMAL BUSINESS OPERATIONS. THE REASONING ADOPTED IS ON IDENTICAL LINES AS DONE IN CASE OF INTEREST ISSUE DECIDED IN THE REVENUE S APPEAL HEREINABOVE. THE CIT(A) AFFIRMS THE ASSESSI NG OFFICER S FINDINGS AND QUOTE S ASSESSEE FAILURE IN PRODUCING SPECIFIC DETAILS TO PROVE THAT THE IMPUGNED BALANCES ARE RELAT ED TO ITS REVENUE EXPENSES . 14 . WE HAVE HEARD RIVAL CONTENTIONS. RECORDS PERUSED. RELEVANT FACTS STAND NARRATED HEREINABOVE. T HE L OWER AUTHORITIES HAVE NOT ADVERTED TO THE ASSESSEE S BOOKS TO FIND OUT AS TO WHETHER THE IMPUGNED BALANCES ST EM FROM ITS REVENUE ACCOUNT OR NOT FOR THE PURPOSE OF GRANTING SECTION 80IB DEDUCTION. WE FEEL THAT THIS ISSUE REQUIRES RE - EXAMINATION IN ASSESSING OFFICER S HANDS . WE ORDER ACCORDINGLY. THE ISSUE SHALL NOW BE ADJUDICATED AS PER THE ASSESSEE S BOOKS AND OTHER DETAILS. THE CORRESPONDING GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 15 . THE ASSESSEE S THIRD SUBSTANTIVE GROUND RAISES ISSUE OF TRADING SALE S OF RS.85,063/ - EXCLUDED FOR THE PURPOSE OF COMPUTING ELIGIBLE ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 10 - PROFITS RELEVANT FOR SECTION 80IB DEDUCTION. IT DOES NOT PRESS FOR THE SAME IN THE COURSE OF HEARING. WE REJECT THIS GROUND ACCORDINGLY FOR NON PROSECUTION. 16 . THIS LEAVES US WITH THE ASSES SEE S LAST GROUND REGARDING EXCESS PRODUCTION OF REFILLS AMOUNTING TO RS.8,90,590/ - . THE ASSESSING OFFICER AS WELL AS THE CIT(A) HOLD THIS SUM AS ITS PROFITS NOT ELIGIBLE FOR SECTION 80IB DEDUCTION. 17 . THE ASSESSING OFFICER SOUGHT FOR ASSESSEE S QUANTITA TIVE DETAILS OF RAW MATERIALS AND FINISHED GOODS . H E NOTICE D CONSUMPTION OF 59706 REFILLS FOR MANUFACTURING 65848 UNITS OF POT FLASKS (ASSESSEE S MANUFACTURED PRODUCT). THIS RESULTED IN A DIFFERENCE OF 6142 REFILLS. THE ASSESSEE PLEADED AGAINST BOTTOM LINE MATCHING OF RAW MATERIAL AND FINISHED GOODS IN QUESTION. IT ATTRIBUTED THIS DIFFERENCE TO WORK IN PROGRESS AS WELL AS AVAILABILITY OF OPENING MATERIAL IN THE FORM OF SEMI FINISHED GOODS. THE ASSESSING OFFICER TREATED IT TO BE ONLY A GENERAL EXPLANATION. H E SOUGHT FOR EXCISE RECORDS. THE ASSESSEE ALLEGEDLY FAILED TO PRODUCE THE SAME. THE ASSESSING OFFICER OBSERVED IN THESE CIRCUMSTANCES THAT ITS POT FLASKS WERE PRODUCED ON AN ASSEMBLY LINE . A ND ONCE THE RAW MATERIAL WAS PUT IN INJECTION MODELING MACHINE , SU BSEQUENT STEPS WERE ON A CONTINU OUS ASSEMBLY LINE, THE TIME REQUIRED FOR ALL THESE STEPS W AS VERY SHORT SINCE IT NEEDED HOT REFILLS. HE DECLINE D ANY POSSIBILITY OF WORK IN PROGRESS. HE ALSO STATED THAT THE ASSESSEE MUST HAVE GOT THE ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 11 - EXCESS POT FLASKS NUMB E RING 6 1 42 AS FINISHED PRODUCTS AND EXCLUDED VALUE THEREOF FOR THE PURPOSE OF COMPUTING IMPUGNED SECTION 80IB DEDUCTION BY QUOTING LACK OF ASSESSEE S CAPACITY TO PRODUCE THESE RAW MATERIALS. HE CONCLUDED THAT SINCE SALE OF RAW MATERIAL REFILLS WAS A TRADING ACTIVITY, IT DID NOT COME WITHIN THE PURVIEW OF SECTION 80IB DEDUCTION. 18 . THE CIT(A) HAS AFFIRMED THE ASSESSING OFFICER S FINDINGS AS FOLLOWS: THE NEXT GROUND OF APPEAL IS REGARDING THE ACTION OF THE AO IN NOT GRANTING DEDUCTION U/S. 80IB OF THE IT ACT ON PROFITS EARNED OUT OF SALE OF RAW MATERIAL. THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, SUBMITTED QUANTITATIVE DETAILS OF FINISHED GOODS AND RAW MATERIALS. THE APPELLANT HAD A FINISHED GOOD ITEM CALLED 'POT FLASK 1000 ML.' AND THE REF ILL REQUIRED FOR POT FLASK 1000 ML CALLED AS 'POT FLASK ML. REFILL'. THE AO OBSERVED FROM THE QUANTITATIVE DETAILS OF RAW MATERIAL SUBMITTED BY THE APPELLANT COMPANY THE POSITION AS UNDER: - PRODUCT CODE PRODUCT NAME UNIT OPENING RECEIPTS ISSUES BALANCE 004BRFL 0002 POT FLASK 1 000 NOS . 7020 52759 59706 73 THE AO OBSERVED THAT RAW MATERIAL CONSUMPTION OF POT FLASK 1000 ML. REFILL WAS 59706 UNITS AND ONE REFILL WAS REQUIRED FOR ONE FLASK. THUS ACCORDING TO THE AO BY USING 59706 UNITS OF POT FLASK 1000 ML REFILL THE APPELLANT CLAIMED TO HAVE MANUFACTURED 65848 UNITS. WHEN THE APPELLANT WAS ASKED TO EXPLAIN THE DISCREPANCY, THE APPELLANT STATED THAT THERE WAS AN INTERMEDIATE STAGE OF WORK IN PROGRESS (WIP). ANY ISSUE OF RM FROM RM STORES WAS ACCOUNTED AS ISSUE OF RM TO SHOP FLOOR (I.E. WIP). SO, THE FG PRODUCTION DECLARED WOULD BE THE OUTCOME OF PROCESSED MATERIAL FROM OPENING WIP AND ISSUES OF RM DURING THE YEAR. HENCE THE DIFFERENCE OF FG MANUFACTURED AND RM ISSUED WAS ON ACCOUNT OF THE AVAILABLE OPENIN G MATERIAL IN HAND IN THE FORM OF WORK IN PROGRESS / SEMI FINISHED GOODS. ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 12 - HOWEVER THE AO WAS OF THE VIEW THAT THE WIP STATEMENT SUBMITTED BY THE APPELLANT WAS NOT SPECIFIC AND ONLY MENTIONED 'POT FLASK' AND THE CAPACITY OF THE POT FLASK AS TO WHETHER IT WA S 1000ML OR 500 ML WAS NOT MENTIONED IN THE STATEMENT. THUS ACCORDING TO THE AO THE, APPELLANT MUST HAVE GOT THESE EXCESS POT FLASKS 1000 ML 6142 UNITS AS FINISHED PRODUCT. THE AO OBSERVED THAT THE EXPLANATION GIVEN BY THE APPELLANT WAS ONLY ABOUT WIP AND COULD NOT BE SUBSTANTIATED. IN REALITY THE SAID PRODUCT WAS PRODUCED ON AN ASSEMBLY LINE, THEREFORE ONCE RAW MATERIALS WERE PUT IN INJECTION MOLDING MACHINE; THE SUBSEQUENT STEPS WERE ON A CONTINUOUS ASSEMBLY LINE. THE AO ALSO OBSERVED THAT THE TIME REQUIR ED FOR ALL STEPS WAS VERY SHORT AND ALL THESE STEPS HAD TO BE PERFORMED WHEN IT WAS HOT AND THEREFORE, THERE WAS NO POSSIBILITY OF WIP. THE AO FURTHER OBSERVED THAT THE APPELLANT HAD NO CAPACITY TO PRODUCE THE RAW MATERIALS LIKE POT FLASK 1000 ML REFILL. T HUS ACCORDING TO THE AO THE SALE OF RAW MATERIALS WAS A TRADING ACTIVITY NOT ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT. BEFORE ME THE ID AR SUBMITTED THAT THE OBSERVATION OF THE AO WAS BASED ON PRESUMPTIONS ONLY. IT WAS SUBMITTED THAT THE COMPONENT POT FLASK 1000ML REFILL WAS MANUFACTURED BY THE COMPANY IN ITS OTHER UNIT. THE REFILLS WERE REQUIRED BY THE CUSTOMERS TO ENSURE CONTINUOUS USE OF THE FLASK IN T HE EVENT OF BREAKAGE OF THE ONE WHICH WAS PART OF FLASK. THE APPELLANT COMPANY ALSO SUBMITTED THAT T HE DETAIL OF WORK IN PROGRESS WAS GIVEN TO THE AO ALONG WITH LETTER DATED 28.12.2007 IN WHICH IT W AS EXPLAINED THAT THE WORK IN PROGRESS REPRESENTED SEMI FINISHED GOODS. IT WAS ALSO SUBMITTED THAT THIS WAS ALSO CONVERTED INTO FINISHED GOODS IN THE ASSEMBLY LINE ALONG WITH RAW MATERIAL ISSUES. I HAVE CONSIDERED THE SUBMISSIONS. THE AO HAS S T ATED THAT THERE WAS NO WIP IN THE SCHEME OF PRODUCTION UNDERTAKEN BY THE APPELLANT. AFTER EXAMINING WIP STATEMENT THE AO CONCLUDED THAT HE IS UNABLE TO GATHER THE EXACT Q UANTUM OF PRODUCTION OF POT FLASKS OF 1000ML FROM THE WIP STATEMENT. THE APPELLANT COMPANY HAS NOW STATED THAT THE WIP STATEMENT CLEARLY INDICATES THE QUANTUM OF PRODUCTION OF EACH TYPE OF FLASK. THERE IS A GAP OF 6142 UNITS OF REFILL WHICH ARE PURCHASED F ROM OUTSIDE. AFTER CONSIDERING THE WORKING AND OTHER INFORMATION SUBMITTED BY THE APPELLANT COMPANY BEFORE THE AO, I AM OF THE VIEW THAT FINDINGS OF THE AO ARE IN ORDER. HOWEVER I AM OF THE OPINION THAT THE DISALLOWANCE IS TO BE CALCULATED ON THE BASIS OF COST OF THE ITEMS AS PER BOOKS OF ACCOUNTS AND AS FURNISHED BEFORE THE AO. REFILL PRODUCED 65848 REFILL CONSUMED 59706 DIFFERENCE 6142 ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 13 - WTD AVERAGE RATE RS. 145/ - VALUE OF 6142 PCS. (6142 X RS.145/ - ) RS. 8,90,590 / - THE AO IS DIRECTED TO WORK OUT THE D ISALLOWANCE ACCORDINGLY AND THIS GROUND OF APPEAL IS PARTLY ALLOWED. 19 . HEARD BOTH SIDES. ORDERS OF BOTH THE LOWER AUTHORITIES STAND PERUSED. U NDISPUTED FACTS PERTAINING TO THIS ISSUE HAVE BEEN NARRATED IN THE PRECEDING PARAGRAPHS. T HERE IS A DIFFERENCE BETWEEN REFILLS CONSUMED AND POT FLASKS MANUFACTURED TO THE TUNE OF 6149 UNITS. THE REVENUE TREATS THE ASSESSEE TO HAVE SOLD THE RAW MATERIAL (SUPRA) BY WAY OF INDULGING IN A TRADING ACTIVITY. ITS NOTES AND OTHER MATERIAL ON RECORD HAS NOWHERE BEEN REJECT ED. NOR IS THERE ANY EVIDENCE OF ANY SUCH ACTIVITY FORTHCOMING FROM THE CASE FILE. THE ASSESSING OFFICER HAS PROCEEDED ON THIS ASSUMPTION WITHOUT QUOTING ANY EVIDENCE ON RECORD . THE ASSESSEE IS ALREADY A MANUFACTURER OTHERWISE ENTITLED FOR SECTION 80IB DED UCTION . THAT BEING THE CASE, WE SEE NO REASON TO AGREE WITH LOWER AUTHOR ITIES TREATING IT AS A TRADER IN SALE OF REFILLS IN QUESTION. THEREFORE, WE ACCEPT ASSESSEE S RELEVANT GROUND AND HOLD IT TO HAVE MANUFACTURED THE REFILLS ENTITLE D FOR SECTION 80IB DED UCTION QUA THIS SUM OF RS.8,90,590/ - . THE ASSESSEE SUCCEEDS IN THE CORRESPONDING GROUND. THE ASSESSEE S APPEAL ITA 1143/AHD/2009 IS PARTLY ALLOWED. ASSESSMENT YEAR 2006 - 07 REVENUE S APPEAL ITA 942/AHD/2010 2 0 . THE REVENUE RAISES FOLLOWING SUBSTANTIVE GR OUNDS: ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 14 - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING DEDUCTION U/S.80IB OF THE IT ACT NOT GRANTED ON THE BASIS OF NOT HAVING FACTORY LICENSE FOR THE PARTICULAR YEAR. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE INCOME OF SALE OF SCRAP OF RS.17,73,316/ - FROM THE PROFIT ELIGIBLE FOR DEDUCTION U/S.80IB. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE SOFTWARE EXPENSE S TO THE TUNE OF RS.8,89,125/ - TREATING IT AS REVENUE EXPENDITURE EVEN THOUGH IT IS CAPITAL IN NATURE. IT IS TO BE SEEN THAT THE REVENUE S FIRST TWO GROUNDS ARE IDENTICAL TO THOSE RAISED IN ASSESSMENT YEAR 2005 - 06 ITA 988/AHD/2009 DECIDED HEREINABOVE. NO DISTINGUISHING FEATURES ARE NOTICED. THEREFORE, WE REJECT THE REVENUE S FIRST TWO GROUNDS IN THE LIGHT OF OUR FINDINGS IN PRECEDING ASSESSMENT YEAR. THE CIT(A) ORDER UNDER CHALLENGE IS UPHELD QUA THESE TWO GROUNDS. 2 1 . THIS LEAVES US WITH THE REVENUE S THIRD GROUND SEEKING RESTORATION OF SOFTWARE EXPENSES DISALLOWANCE TO THE TUNE OF RS.8,89,125/ - . THE ASSESSEE HAD DEBITED THIS SUM TOWARDS SOFTWARE EXPENSES. THE ASSESSING OFFICER OBSERVED THAT THE SAME WOULD GIVE RISE TO LONG LASTING ENDURING BENEFITS . HE TOOK NOTICE OF THE FACT THAT THE ASSESSEE COMPANY HAS ITSELF CAPITALIZED A SUM OF RS.25 LAC IN THE RELEVANT PREVIOUS YEAR ON ACCOUNT OF SAP SOFTWARE AND DISALLOWED/ADDED THE IMPUGNED CLAIM AMOUNT. 2 2 . IN LOWER APPELLATE PROCEEDINGS, T HE ASSESSEE SUBMITT ED TO HAVE PAID THE SUM IN QUESTION AS ADVANCE TO A PUNE BASED FIRM FOR ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 15 - DEVELOPMENT OF ITS LOGISTICS SOFTWARES. AND THE SAID PAYEE COULD NOT IMPLEMENT ITS ASSIGNMENT . I T CLAIMED TO HAVE WRITTEN OFF THIS SUM AS A N EXPENDITURE INCURRED FOR THE PURPOSE OF BUS INESS. THE CIT(A) WENT THROUGH THE CASE RECORD AND AGREED WITH THE ASSESSEE S SUBMISSIONS HE HE LD THE IMPUGNED EXPENDITURE TO HAVE BEEN INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS ALLOWABLE U/S.37 OF THE ACT. 2 3 . WE HAVE HEARD BOTH SID ES AND PERUSED THE LOWER AUTHORITIES FINDINGS. THE REVENUE IS UNABLE TO DISPUTE THE CIT(A) FINDINGS REGARDING ASSESSEE S ACT IN WRITING OFF THE SOFTWARE ADVANCES. IT COULD NOT PURCHASE THE SOFTWARE. THE ASSESSEE ALSO RAISES AN ALTERNATIVE PLEA OF BUSINESS LOSS QUA THE VERY AMOUNT TO HAVE BEEN ARISEN FROM ITS ACTIVITY INCIDENTAL TO THE MAIN BUSINESS AS PER CASE LAW OF CIT VS. ABDUL RAZAK (1982) 136 ITR 825 (GUJ.) . HOWEVER, ONCE WE EXPRESS AGREEMENT WITH THE CIT(A) HOLDING THE IMPUGNED EXPENDITURE ALLOWABLE U /S.37 OF THE ACT, THE ASSESSEE S ALTERNATIVE PLEA OF BUSINESS LOSS HAS BEEN RENDERED INFRASTRUCTURE. THE REVENUE S GROUND IS REJECTED. THE REVENUE S APPEAL ITA 942/AHD/2010 IS DISMISSED. ASSESSEE S APPEAL ITA 1583/AHD/2010 2 4 . THE ASSESSEE S SOLE SUBSTA NTIVE GROUND READS AS UNDER: 3. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ADDITIONS MADE BY THE LD. JOINT COMMISSIONER OF INCOME TAX ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 16 - (LEARNED ASSESSING OFFICER) AND CONFIRMED BY THE LEARNED CIT(A) ARE CONTRARY TO LAW AND BASED ON ERR ONEOUS UNDERSTANDING OF THE FACTS. INTEREST INCOME 11,91,876 EXPORT INCENTIVES 39,88,113 EXCHANGE RATE DIFFERENCE 1,467 IT HAS FILED ADDITIONAL /ALTERNATIVE GROUNDS IN TUNE WITH THOSE DECIDED IN PRECEDING ASSESSMENT YEAR 2005 - 06 HEREINABOVE. THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCE S. THEREFORE, WE FOLLOW OUR SAID FINDINGS IN THE IMPUGNED ASSESSMENT YEAR AS WELL AND ACCEPT THE ASSESSEE S ADDITIONAL/ALTERNATIVE GROUNDS FOR STATISTICAL PURPOSES. THESE TWO ALTERNATIVE/ADDITIONAL ISSUES ARE RE MITTED BACK TO THE ASSESSING OFFICER FOR FRESH DECISION AS PER LAW IN VIEW OF THE HON BLE APEX COURT DECISIONS RENDERED IN EXCEL INDUSTRIES AND TOPMAN EXPORT (SUPRA). 2 5 . NOW WE COME TO THE ISSUE OF EXCHANGE RATE DIFFERENCE OF RS.1,467/ - HELD AS PROFIT NO T ELIGIBLE FOR SECTION 80IB DEDUCTION BY THE LOWER AUTHORITIES. THE ASSESSEE DOES NOT PRESS FOR THE SAME KEEPING IN MIND THE SMALLNESS OF THE AMOUNT INVOLVED. WE AFFIRM THE CIT(A) FINDINGS WITH A RIDER THAT THE SAME SHALL NOT BE TREATED AS A PRECEDENT AGAI NST THE ASSESSEE. THE RELEVANT GROUND IS REJECTED . ASSESSEE S APPEAL ITA 1583/AHD/2010 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. A.Y. 2007 - 08 REVENUE S APPEAL ITA 3305/AHD/2010 ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 17 - 26 . THE REVENUE S SUBSTANTIVE PLEADINGS READ AS UNDER: 1. ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF DEDUCTION U/S.80IB AMOUNTING TO RS.7,61,77,024/ - WITHOUT CONSIDERING THE FACTS THAT ASSESSEE DID NOT HAD FACTORY LICENSE AS ON 31.03.2004, THE CUTOFF DATE FOR STARTI NG THE INDUSTRIAL UNDERTAKING U/S.80IB(4) OF THE IT. ACT, 1961. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INCOME FROM EXCHANGE RATE DIFFERENCE OF RS.3,07,377/ - IS ELIGIBLE FOR DEDUCTION U/S.80IB, WITHOUT CONSIDERING FACT THAT IT HAS NOT DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INCOME FROM SCRAP SALES OF RS.14,32, 106/ - IS ELIGIBLE FOR DEDUCTION U/S.80IB, WITHOUT CONSIDERING FACT THAT IT HAS NOT DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. A PERUSAL OF THE REVENUE S PLEADING REVEALS THAT THE SAME ARE IDENTICAL TO THOSE DECIDED AGAINS T IT IN ITA 988/AHD/2009 ASSESSMENT YEAR 2005 - 06 HEREINABOVE. WE HAVE ALREADY HELD THAT VIOLATION OF FACTORY LICENSE OR ABSENCE THEREOF DOES NOT DISENTITLE A DEDUCTION CLAIM U/S.80IB OF THE ACT. WE HAVE ALSO CONCLUDED THAT INCOME FROM EXCHANGE RATE AND SCR AP SALE ARE ELIGIBLE FOR THE IMPUGNED DEDUCTION. THEREFORE, WE AFFIRM THE CIT(A) FINDINGS AND REJECT THE REVENUE S GROUNDS EXTRACTED HEREINABOVE. THE REVENUE S APPEAL ITA 3305/AHD/2010 IS DISMISSED. ASSESSEE S APPEAL ITA 3336/AHD/2010 27 . THE ASSESSEE S SUBSTANTIVE GRIEVANCE IS PLEADED AS FOLLOWS: 3. ON APPLICATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. ASSESSING ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 18 - OFFICER IN EXCLUDING THE FOLLOWING TERMS OF INCOME FROM THE PROFIT ELIGIBLE FOR DEDUCTION U/S.80IB INTEREST INCOME 16,59,946 EXPORT INCENTIVES 33,57,405 THE ASSESSEE - APPELLANT HAS ALSO FILED ALTERNATIVE/ ADDITIONAL GROUND S PRAYING FOR QUA THE INTEREST INCOME AS WELL THAT ARISING FROM EXPORT INCENTIVES IN TUNE WITH THOSE WOR DS IN PRECEDING ASSESSMENT YEARS DECIDED HEREINABOVE . WE ADMIT THE SAME IN TUNE WITH OUR ORDER ON IDENTICAL ISSUES IN ITA 1143/AHD/2009 FOR ASSESSMENT YEAR 2005 - 06 REMIT THE SE ISSUES BACK TO ASSESSING OFFICER FOR AFRESH ADJUDICATION AS PER LAW IN VIEW OF T HE HON BLE APEX COURT S DECISIONS IN EXCEL INDUSTRIES AND TOPMAN EXPORTS (SUPRA). THE ASSESSEE S MAIN GROUNDS FAIL AND ADDITIONAL/ALTERNATIVE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES ACCORDINGLY. THE ASSESSEE APPEAL ITA 3336/AHD/2010 IS PARTLY ALLOWE D FOR STATIST ICAL PURPOSES. ASSESSMENT YEAR 2008 - 09 REVENUE S APPEAL ITA 2678/AHD/2011 28 . THE REVENUE S SUBSTANTIVE PLEADINGS READ AS FOLLOWS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF DE DUCTION U/S.80IB AMOUNTING TO RS.4,93,10,032/ - WITHOUT CONSIDERING THE FACTS THAT ASSESSEE DID NOT HAD FACTORY LICENSE AS ON 31.03.2004, THE CUTOFF DATE FOR STARTING THE INDUSTRIAL UNDERTAKING U/S.80IB(4) OF THE IT ACT, 1961. 2 ON THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INCOME FROM EXCHANGE RATE DIFFERENCE OF RS.11,70,181/ - IS ELIGIBLE FOR DEDUCTION U/S.80IB, WITHOUT CONSIDERING FACT THAT IT HAS NOT DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING A CTIVITY OF THE ASSESSEE. ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 19 - 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INCOME FROM SCRAP SALES OF RS.13,90,852/ - PERTAINING TO DADRA UNDERTAKING IS ELIGIBLE FOR DEDUCTION U/S.80IB, WITHOUT CONSIDERI NG FACT THAT IT HAS NOT DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INCOME FROM SCRAP SALES OF RS.12,71,568/ - PERTAINING TO HARIDWAR UNDERTAKING IS ELIGIBLE FOR DEDUCTION U/S.80IB, WITHOUT CONSIDERING FACT THAT IT HAS NOT DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. THE SE REVENUE S GROUND S CHALLENGES THE CIT(A) ORDER GRANTING SECTION 80IB DED UCTION TO THE ASSESSEE DESPITE NOT HAVING OBTAINED FACTORY LICENSE, QUA INCOME FROM EXCHANGE RATE DIFFERENCE AND SCRAP SALES GENERATED FROM DADRA AND HARIDWAR UNDERTAKINGS; RESPECTIVELY. WE HAVE ALREADY DECIDED THE VERY ISSUES IN THE ASSESSEE S FAVOUR IN A SSESSMENT YEAR 2005 - 06 ITA 988/AHD/2009. THE REVENUE FAILS TO POINT OUT ANY EXCEPTION INVOLVED IN THE IMPUGNED ASSESSMENT YEAR. THUS, THE CIT(A) FINDINGS UNDER CHALLENGE ARE AFFIRMED. THE REVENUE S APPEAL ITA 2673/AHD/2011 IS DISMISSED. ASSESSEE S APPEA L ITA 2802/AHD/ 2011 RAIS ES THE FOLLOWING SUBSTANTIVE GROUNDS: 2. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE ADDITION AS MADE BY THE LD. JOINT CIT(A) (LD. ASSESSING OFFICER) AND CONFIRMED BY THE LD. CIT(A) ARE CONTRARY TO LAW A ND BASED ON ERRONEOUS UNDERSTANDING OF THE FACTS. 3. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. ASSESSING OFFICER IN SETTING OFF THE LOSS PERTAINING TO THE HARIDWAR UNIT, INCURRED IN A.Y. 2007 - 08 AMOUNTING TO RS.110,79,284/ - AGAINST THE PROFITS OF THE ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 20 - HARIDWAR UNIT ELIGIBLE FOR DEDUCTION U/S.80IC OF THE ACT. THE ACTION OF THE LD. CIT(A) IS CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW AND DESERVES TO BE DELETED. 4. O N APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, CASE THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. ASSESSING OFFICER IN EXCLUDING THE FOLLOWING ITEMS OF INCOME FROM THE PROFIT ELIGIBLE FOR DEDUCTION U/S.80IB EXPORT INCENTIVES - DE PB RECEIVED 47,35,634 SUNDRY BALANCE WRITTEN BACK 86,475 5. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. ASSESSING OFFICER IN EXCLUDING THE FOLLOWING ITEMS OF INCOME FROM THE PROFIT ELIGIBLE FOR DEDUCTION U/S.80IB OTHER MISC. INCOME 22,090 SUNDRY BALANCE WRITTEN BACK 6,764 THE ASSESSEE DOES NOT PRESS FOR ITS GROUND NO.2 BEING GENERAL IN NATURE. 29. RELEVANT FACTS QUA GROUND NO.3 ARE THAT THE ASSESS EE HAD CLAIMED SECTION 80I C DEDUCTION OF RS.1,70,91,825/ - IN RESPECT OF ITS HARIDWAR UNIT. IT HA D ALSO INCURRED A LOSS OF RS.1,10,79,284/ - IN PRECEDING ASSESSMENT YEAR ABSORBED AGAINST OTHER INCOMES . THE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 23.12.20 10 QUOTED SECTION 80IA(5) OF THE ACT AND DISALLOWED ITS CLAIM BY HOLDING THAT THE AFORESAID LOSSES HAD TO BE NOTIONALLY BROUGHT FORWARD AND SET OFF AGAINST THE DEDUCTION PROFITS IN THE IMPUGNED ASSESSMENT YEAR AS WELL . AS PER CASE LAW ACIT AHMEDABAD VS. GO LDMINE SHARES AND FINANCE PVT. LTD. 113 ITD 229 (SB) WAS ALSO REFERRED. ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 21 - 30 . THE CIT(A) HAS AFFIRMED THE ASSESSING OFFICERS FINDINGS AS UNDER: 6 - 3 DECISION : - I HAVE CONSIDERED CAREFULLY THE OBSERVATIONS OF THE AO IN THE ASSESSMENT ORDER AS WELL AS T HE CONTENTIONS RAISED BY THE AR OF THE APPELLANT. THE MOOT QUESTION IS THAT WHETHER THE B/F LOSS OF THE ELIGIBLE UNIT CAN BE SET OFF BEFORE ALLOWING THE BENEFITS U/S.8O - LC OF THE ACT, THE SECTION GRANT A DEDUCTION, FOR 10 YEARS FROM THE PROFITS OF NEW UNDE RTAKINGS OR ENTERPRISES OR EXISTING UNDERTAKINGS OR ENTERPRISES ON THEIR SUBSTANTIAL EXPANSION, IN THE STATE OF HIMACHAL PRADESH, UTTARANCHAL, SIKKIM AND NORTH - EASTERN STATES. THE SECTION ALSO PROVIDES THAT IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, NO DEDUCTION WILL BE ALLOWED UNDER ANY OTHER SECTION CONTAINED IN CHAPTER - VIA OR IN SEC.10A OR 10B, IN RELATION TO THE PROFITS AND GAINS OF THE UNDERTAKINGS OR ENTERPRISE. IN THE CASE OF SCOOP INDUSTRIES (P) LTD. VS. ITO 289 ITR 195 (BOM.) IT WAS HELD THAT I N CLAIMING DEDUCTION U/S. 80 - IA, THE ASSESSEE IS REQUIRED TO CLAIM DEDUCTION OF DEPRECIATION AND THEREAFTER DEDUCTION UNDER THE SAID SECTION IS TO BE CLAIMED. THE OVERRIDING PROVISIONS OF SUB - SEC. (7) OF SEC. 80 IA IS A DISTINCT AND SEPARATE DEEMING PROVISIO N WHICH LAYS DOWN THE SPECIAL METHOD OF COMPUTING PROFITS AND GAINS ENTITLED TO DEDUCTION U/S.8OIA. THIS PROVISION WILL BE APPLIED AS IF THE INDUSTRIAL UNIT IS AN INDEPENDENT UNIT AND IS THE ONE AND ONLY SOURCE OF INCOME POSSESSED BY THE ASSESSEE. IT IS CL EAR THAT WHILE COMPUTING THE DEDUCTION U/S.8O - 1 A, THE PROFITS AND GAINS OF A UNIT X FOR THE PURPOSE OF DETERMINING THE QUANTUM OF DEDUCTION U/S, 8O - 1 A(5) IS TO BE COMPUTED IF SUCH ELIGIBLE BUSINESS OF THE SAID UNIT IS THE ONLY SOURCE OF THE ASSESSEE. THUS, THE X UNIT BEING THE ONLY UNIT OF THE ASSESSEE ELIGIBLE FOR DEDUCTION U/S. 8O - IA IS TO BE TREATED AS AN: INDEPENDENT UNIT. THAT MEANS DURING THE OPERATION OF SE C. 8O - IC AS REGARDS TO A PARTICULAR UNIT, THE INCOME/LOSS OF THAT UNIT HAS TO BE TREATED INDEPEN DENTLY. THEREFORE, THE B/F BUSINESS LOSS OR DEPRECIATION OF THAT UNIT HAS TO BE ADJUSTED ACCORDINGLY BEFORE ALLOWING THE BENEFIT U/ S , 8 0 - IC. THE LD. AH RELIED UPON THE OBSERVATION OF HONORABLE DELHI HIGH COURT IN THE CASE OF CIT V/S. DEWAN KRAFT SYSTEM (P) LTD (2007) 297 ITR 305 (DELHI.) WHEREIN IT WAS HELD THAT 'IN VIEW OF THE OVERRIDING PROVISIONS OF SUB - SEC. (7) OF SEC. 801 A, DEDUCTION U/S.8OIA CANNOT BE RESTRICTED BY ADJUSTING THE PROFITS OF THE ELIGIBLE UNIT AGAINST THE LOSSES OF OTHER UNITS OF THE ASSE SSEE'. THERE IS NO DISPUTE ON THE DECISION OF THE ABOVE REFERRED CASE. IN THAT CASE, THE AO HAD SET OFF LOSS OF ANOTHER UNIT WHICH THE HON'BLE HG RIGHTLY POINTED THAT THE ADJUSTMENT OF ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 22 - OTHER UNIT CANNOT BE MADE. THE FINDINGS OF THE AO WAS ALSO SUPPORTED BY THE DECISION OF HONORABLE ITAT AHMEDABAD SPECIAL BENCH IN THE EASE OF ACIT V/S . GOLDMINE SHARES & FINANCE (P) LTD . 113 ITR 229. AS REGARDS THE OBSERVATION OF THE AO THAT THAT NOTIONAL LOSSES OF EARLIER YEARS HAS TO BE DEDUCTED FROM THE CURRENT YEAR'S PROF IT ELIGIBLE FOR DEDUCTION U/S. 8 01 C OF THE ACT. IN VIEW OF THE ABOVE, 1 AM NOT INCLINED TO INTERFERE IN THE FINDINGS OF THE AO. THUS, THE ADDITION MADE BY THE AO IN THIS GROUND IS CONFIRMED . ACCORDINGLY, THIS GROUND OF APPEAL IS DISMISSED. WE HAVE HEARD BOTH SIDES. ORDERS OF THE LOWER AUTHORITIES HAVE ALSO BEEN PERUSED. THERE IS NO DISPUTE ABOUT THE FACTUAL POSITION NARRATED IN THE PRECEDING PARAGRAPHS. THE AUTHORITIES BELOW RELY ON SECTION 80IA(5) AND HOLD THAT ASSESSEE S LOSSES PERTAINING TO PRECEDING ASSESSMENT YEAR ALREADY SET OFF HAVE TO BE NOTIONALLY BROUGHT FORWARD TO BE SET OFF ONCE AGAIN AGAINST THE PROFIT OF THE HARIDWAR UNIT IN QUESTION. WE FIND THAT HON BLE MADRAS H IGH C OURT IN VELAYUDHASAMY SPINNING MILLS CASE 340 ITR 477 H O LD S THAT SUCH LOSS ES CANNOT BE NOTIONALLY BROUGHT FORWARD FOR BEING SET OFF AGAINST ELIGIBLE PROFITS. TH IS OVERRULES TRIBUNAL S DECISION (SUPRA). WE FOLLOW TH E SAID CASE LAW AND ALLOW ASSESSEE S CLAIM OF DEDUCTION . THE RELEVANT GROUND SUCCEEDS. 31 . NOW WE COME TO THE ASSE SSEE S GROUND NO.4 CHALLENGING LOWER AUTHORITIES ORDER S EXCLUDING EXPORT INCENTIVES FROM DEPB RECEIVED OF RS.47,35,634/ - AND SUNDRY BALANCE S RETURN BACK OF RS.86,475/ - FROM PROFITS ELIGIBLE FOR SECTION 80IB DEDUCTION. THE ASSESSEE HAS ALSO FILED ADDITIONAL / ALTERNATIVE GROUND S IDENTICAL TO THOSE IN PRECEDING ASSESSMENT YEAR S (SUPRA). WE DO NOT FIND ANY DISTINCTION ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 23 - ON FACTS FORTHCOMING FROM THE CASE FILE. THUS, WE DISMISS THE MAIN GROUND AND RESTORE THE ASSESSEE S ALTERNATIVE GROUNDS TO THE ASSESSING OFFICE R FOR PROCEEDING AFRESH AS PER OUR OBSERVATION IN ASSESSMENT YEARS 2005 - 06 . WE DEEM IT APPROPRIATE TO OBSERVE THAT IN CASE HE FINDS THE SUNDRY BALANCES WRITTEN BACK IN THE BOOKS TO BE ON REVENUE SIDE, THERE WOULD BE HARDLY ANY LIGHT LEFT TO THE THROWN THAT THE SAME WERE ARISEN FROM ITS MANUFACTURING ACTIVITY. TH E CORRESPONDING GROUND BE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 32 . THIS LEAVES US WITH THE ASSESSEE S LAST GROUND OF ANOTHER MISC. EXPENSES AND SUNDRY BALANCES WRITTEN OF AMOUNTING TO RS.22,090/ - AND RS.6,764/ - ; RESPECTIVELY ORDER ED TO BE EXCLUDED FROM ELIGIBLE PROFITS FOR SECTION 80IC DEDUCTION. THE ASSESSEE DOES NOT WISH TO PRESS FOR THE SAME KEEPING IN MIND SMALLNESS OF THE AMOUNT S INVOLVED. WE APPRECIATE THIS FAIR STAND AND DISMISS THE CORRESPONDING GROUND S . THE ASSESSEE S APPEAL ITA 2802/AHD/2011 IS PARTLY ALLOWED. TO SUM UP REVENUE S APPEAL ITA S 988/AHD/2009, 942/AHD/2010, 3305/AHD/2010 AND ITA 2673/AHD/2011 ARE DISMISSED. AND ITA NO S.988 & 1143/AHD /201 0 , 942, 1583, 3305& 3336/AHD/2010, 2673, 2802/AHD/2011 HAMILTON HOUSEWARE P. LTD. FOR A.Y. 2005 - 06, 200 6 - 07 , 2007 - 08 & 2008 - 09 - 24 - ASSESSEE S APPEAL ITAS 1 143/AHD/2009 IS PARTLY ALLOWED, ITAS 1583 & 3336/AHD/2010 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND ITA 2802/AHD/2011 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON THIS DAY, THE 9 TH JUNE , 201 5 AT AHMEDABAD. SD/ - SD/ - ( PRAMOD KUMAR ) ( S.S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED / 0 5 / 20 1 5 PRABHAT KR. KESARWANI , SR. P . S . / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD