The ITO, Ward-3, Vapi V. M/s. Subh Paper Products, SILVASSA

ITA 2866/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2012 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-02-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 13-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N L AGARWAL
• Section: 80IB

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M INCOME-TAX OFFICER, VAPI WARD-3, VAPI. VS. M/S SUBH PAPER PRODUCTS, S.NO.145/3, VAGHDHARA ROAD, SILVASSA. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI K. MADHUSUDAN, SR.DR RESPONDENT BY:- SHRI S. N. L. AGARWAL, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUND:- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.11, 14,759/- MADE ON ACCOUNT OF SCRAP SALES INCOME. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WHETHE R DEDUCTION UNDER SECTION 80IB ON SCRAP SALES OF RS.11,14,759/- IS AL LOWABLE OR NOT. 3. THE AO CONSIDERED THAT SCRAP SALE IS NOT DIRECTL Y EMANATING FROM BUSINESS OF THE ASSESSEE AND, THEREFORE, ASSESSEE I S NOT ENTITLED FOR SUCH CLAIM. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSE SSEE FOLLOWING THE DECISION OF HON. GUJARAT HIGH COURT IN THE CASE OF HARJIVANDAS JHUTHABHAI ZAVERI AND ANOTHER 258 ITR 785 (GUJ). ITA NO.2866/AHD/2010 ASST. YEAR 2007-08 ITA NO.2866/AHD/2010 ASST. YEAR 2007-08 2 4. BEFORE US THE LD. DR SUBMITTED THAT PROFITS DERI VED FROM SALE OF EVERY SCRAP CANNOT ALWAYS BE HELD AS MANUFACTURING PROFIT.THE NEXUS OF INCOME EARNED ON SALE OF SCRAP IS ONLY INCIDENTAL A ND IT CANNOT BE SAID THAT SUCH INCOME IS DERIVED FROM THE BUSINESS OF IN DUSTRIAL UNDERTAKING. THE LD. DR SUBMITTED THAT THERE IS DIFFERENCE BETWE EN THE EXPRESSION ATTRIBUTABLE TO AND EXPRESSION DERIVED FROM. WH EREAS THE EXPRESSION ATTRIBUTABLE TO HAS WIDER IMPORT AS COMPARED TO E XPRESSION DERIVED FROM. HE ALSO RELIED ON THE DECISION OF HON. MADRA S HIGH COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT (2004) 270 I TR 448 (MAD) FOR THE PROPOSITION THAT EXPRESSION DERIVED HAS CLOSE R NEXUS BETWEEN THE INCOME AND SOURCE. 5. ON THE OTHER HAND THE LD. AR SUBMITTED THAT CASE OF THE ASSESSEE IS COVERED BY THE DECISION OF THIS BENCH IN THE CASE O F THE ASSESSEE HIMSELF FOR ASST. YEAR 2006-07 IN ITA NO.2413/AHD/2009 FOR ASST. YEAR 2006-07 WHEREIN THE TRIBUNAL HAS HELD AS UNDER :- 6. WE HAVE HEARD THE LEARNED DR AND LEARNED AR OF THE ASSESSEE. IN OUR CONSIDERED VIEW, THE ISSUE WHETHER ASSESSEE IS ENTI TLED FOR DEDUCTION UNDER SECTION 80IB ON SALE OF SCRAP GENERATED IN THE MANU FACTURING ACTIVITY IS COVERED BY THE DECISIONS OF HON'BLE SUPREME COURT I N INDIAN CINE AGENCIES VS. CIT (2009) 308 ITR 98 (SC) AND ALSO BY VARIOUS OTHER AUTHORITIES AS UNDER: 1. IN [2005] 273 ITR (A.T.) 0001- ASSISTANT COMMISS IONER OF INCOME-TAX VS. MAXCARE LABORATORIES LTD. INCOME-TAX APPELLATE TRIB UNALCUTTACK HELD THAT THE INCOME FROM SALE OF EMPTY DRUMS/CONTAINERS, SAL E OF USELESS MATERIALS WAS OUT OF THE BUSINESS OF INDUSTRIAL UNDERTAKING O F THE ASSESSEE. FOR DETERMINING THE PROFITS OF BUSINESS OF THE INDUSTRI AL UNDERTAKING THE SALE OF EMPTY DRUMS/CONTAINERS, SALE OF USELESS MATERIALS C OULD BE TAKEN INTO ACCOUNT. 2. IN [2001] 251 ITR 0806- SHIP SCRAP TRADERS VS. C OMMISSIONER OF INCOME- TAX BOMBAY HIGH COURT HAS OBSERVED THAT FOR ASSESSEES ENGAGED IN SHIP BREAKIN G THE SCRAP AND, STEEL OBTAINED BY DISMANTLING AND BREAKING UP OF THE SHIP MUST BE REGARDED AS A ITA NO.2866/AHD/2010 ASST. YEAR 2007-08 3 DIFFERENT COMMERCIAL COMMODITY FROM THE SHIP ITSELF , AND THE ACTIVITY WOULD AMOUNT TO MANUFACTURE. HENCE, THE ASSESSEES WOULD B E ENTITLED TO THE SPECIAL DEDUCTION UNDER SECTIONS 80HHA AND 80-I. 3. IN [1982] 133 ITR T)034- COMMISSIONEROF INCOME- TAX VS. SUNDARAM CLAYTON LTD. MADRAS HIGH COURT HELD THAT THE SCRAP SOLD BY THE ASSESSEE BEING THE BYPRODUCT ARISING OUT OF THE MANUFACTURED ITEMS COMING WITHIN THE SCOPE OF A PRIORITY INDUSTRY, THE INCOME ARISING FR OM SUCH SALE WOULD BE ATTRIBUTABLE TO THE PRIORITY INDUSTRY. (CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT[ 1978] 113 ITR 84 (SC) APPLIED.) 4. IN [2005] 279 ITR (A.T.) 0024- DEPUTY COMMISSION ER OF INCOME-TAX VS. INVESTWEL PUBLISHERS P. LTD. INCOME-TAX APPELLATE T RIBUNALMUMBAI HELD THAT THE RADDI SALES FORMED PART OF THE INCOME DERIVED F ROM THE PUBLISHING BUSINESS. THE MAGAZINES WHICH WERE NOT SOLD BECAME OBSOLETE AND WERE SOLD AS RADDI AND THEREFORE THIS INCOME WAS OF THE NATURE AS INCOME RECEIVED BY SALE OF MAGAZINES. DEDUCTION UNDER SECTION 80-1 WOULD BE ELIGIBLE ON THIS INCOME 5. IN [2000] 241 ITR 0803- FENNER (INDIA) LTD. VS. COMMISSIONER OF INCOME- TAX (NO. 2) MADRAS HIGH COURT HELD THAT IN THE INDUSTRIAL UNDERTAKING IN THE MANUFACTU RE OF V-BELTS, OIL SEALS, O- RINGS AND RUBBER MOULDED PRODUCTS, CERTAIN SCRAP MA TERIALS RESULTED WHICH HAD A SALEABLE VALUE. THE SCRAP MATERIALS HAD DIREC T LINK OR'NEXUS WITH THE INDUSTRIAL UNDERTAKING. THEREFORE, PROFIT FROM THE SALE OF THE SCRAP MATERIALS WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HH. 6. IN NIRMA INDUSTRIES LTD. VS. ASSISTANT COMMISSIO NER OF INCOME-TAX, CENTRAL CIRCLE 2(1) NIRMA INDUSTRIES LTD. V/S. ACIT , 95 IT D 199 (AND.) (SB) IT WAS HELD : ''.........REGARDING SALE OF BARDANA AND SALE OF WA STE MATERIAL: 22. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITT ED BY THE LEARNED COUNSEL THAT SALE OF BARDANA AND WASTE MATERIAL HAS GENERATED DU RING THE COURSE OF PRODUCTION OF THE INDUSTRIAL UNDERTAKING. THEREFORE , IT HAS DIRECT AND IMMEDIATE NEXUS WITH THE INDUSTRIAL UNDERTAKING. TH E LEARNED DR COULD NOT CONTROVERT THE ABOVE STATEMENT MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE. MOREOVER IT WAS POINTED OUT BY THE LEARNE D COUNSEL FOR THE ASSESSEE THAT THE HON'BLE JURISDICTIONAL HIGH COURT HAS DECIDED IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN THE CASE OF DY. CIT V. HARJIVANDAS JUTHABHAI ZAVERI VIDE [IT REFERENCE NO. 189 OF 1999 ]. SINCE THE BARDANA WASTE MATERIAL HAS GENERATED DURING THE COURSE OF P RODUCTION OF THE INDUSTRIAL UNDERTAKING, WE HOLD THAT IT HAS A DIRECT AND IMMED IATE NEXUS WITH THE INDUSTRIAL UNDERTAKING AND THEREFORE ENTITLED TO DE DUCTION UNDER SECTION 80HH/80-I. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CLT(A) IN THIS RESPECT. ITA NO.2866/AHD/2010 ASST. YEAR 2007-08 4 REVENUE HAS RELIED ON DECISION OF HON'BLE M.P. HIGH COURT IN D.P. AGARAWAL VS. CIT 272 ITR 118 MP. HOWEVER, THE FACTS IN THAT CASE ARE DIFFERENT. THE ASSESSEE D.P. AGARWAL WAS ENGAGED IN REROLLING OF I RON AND STEELS. IT USED TO PURCHASE OLD/DISCARDED GUNS AND USED/THEIR CONTENTS FOR REROLLING. CERTAIN BRASS SCRAP WAS SEPARATED FROM THE GUNS WHICH WAS S OLD SEPARATELY. HON'BLE M.P. HIGH COURT HELD THAT GENERATION OF BRASS SCRAP AND RE-ROLLING IRON AND STEEL HAS NO RELATIONSHIP. THAT, ASSESSEE HAD OBTAI NED BRASS SCRAP BY DISMANTLING GUNS AND NOT FROM THE PROCESS OF REROLL ING OF STEEL. THE GENERATION OF BRASS SCRAP COULD NOT BE SAID TO BE FROM THE PRO CESS OF MANUFACTURE OR IS NOT A PRODUCT OR BYPRODUCT FROM THE ACTIVITIES OF T HE ASSESSEES INDUSTRIAL UNDERTAKING. IN OTHER WORDS, BRASS SCRAP WAS GENERA TED PRIOR TO THE START OF REROLLING PROCESS AND WAS NOT A PRODUCT OR BY PRODU CT OF THE PROCESS OF REROLLING. HOWEVER, BRASS SCRAP AND FINAL PRODUCT M ANUFACTURED BY THE ASSESSEE I.E. IRON AND STEEL HAD NO COMMON RAW-MATE RIAL. REVENUE HAS FURTHER RELIED ON THE DECISION OF THE APEX COURT IN CIT VS. STERLING FOODS (1999) 237 ITR 279 AND PANDAYAN CHEMICALS VS. CIT(2 003) 262 ITR 278 (SC). THESE TWO DECISIONS HIGHLIGHTED THE DISTINCTI ON BETWEEN DERIVED FROM AND ATTRIBUTABLE TO AND REVENUE HAS SOUGHT TO EMP HASIS THAT SCRAP IS NOT DERIVED FROM THE BUSINESS OF MANUFACTURING ACTIVITY . AT BEST IT CAN BE ATTRIBUTED TO SUCH ACTIVITIES. WE DO NOT SUBSCRIBE TO THIS VIEW OF THE REVENUE. ONCE A PRODUCT OR BYPRODUCT OR WASTE IS THE RESULT OF SOME MANUFACTURING PROCESS WHICH HAS RESULTED IN THE FINISHED GOODS SO LD BY THE ASSESSEE AND IF THE FINISHED GOODS CAN BE SAID TO BE DERIVED FROM M ANUFACTURING ACTIVITY THEN THERE IS NO REASON TO HOLD THAT SCRAP RESULTED FROM THE SAME ACTIVITY IS NOT DERIVED FROM MANUFACTURING ACTIVITY. THE SAME PROCE SS IS GENERATING TWO TIMES (I) FINISHED PRODUCT SOLD BY THE ASSESSEE AND THE OTHER, (II) WASTE, BYPRODUCT OR SCRAP. NO SUCH DISTINCTION CAN BE CREA TED AS IF FINAL PRODUCT IS DERIVED FROM THE MANUFACTURING ACTIVITY AND OTHER I S NOT. BOTH ARE GENERATED AT THE SAME TIME FROM THE SAME PROCESS EXCEPT THAT ONE HAS HIGHER MARKET VALUE AND OTHER HAS NOT, AND ACCORDINGLY THE SAME I S TREATED AS SCRAP. IN ANY CASE, THE ISSUE IS NOW FULLY COVERED IN FAVOUR OF T HE ASSESSEE BY THE LATER DECISIONS OF THE COURTS AND ALSO OF THE APEX COURTS AS NOTED ABOVE. 6. WE HAVE HEARD THE PARTIES. SINCE THE ISSUE IS CO VERED BY THE DECISION OF THE TRIBUNAL IN ASST. YEAR 2006-07 AND THERE IS NO MATERIAL TO TAKE A DIFFERENT VIEW, FOLLOWING THE PRINCIPLES OF CONSISTENCY WE TAKE THE SAME VIEW AS TAKEN IN ASST. YEAR 2006-07 AND ACCORD INGLY UPHOLD THE ORDER OF THE LD. CIT(A). AS A RESULT, THE APPEAL FI LED BY THE REVENUE IS DISMISSED. ITA NO.2866/AHD/2010 ASST. YEAR 2007-08 5 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 11.2.11. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 11.2.11. MAHATA/- 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 7/2/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 8/2/ 2011 MEMBER.OTHER MEMBER. 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..