ACIT 5(2), MUMBAI V. MILI STEELS P. LTD, MUMBAI

ITA 3066/MUM/2010

• Counselvise Citation: 306619914 RSA 2010
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 19-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: DEEPESH CHHADA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI PRAMOD KUMAR (A.M) ITA NO.3066/MUM/2010(A.Y. 2007-08) THE ACIT 5(2), ROOM NO.571, 5 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 20. (APPELLANT) VS. M/S. MILI STEEL PVT. LTD. D-48, SARVODAYA NAGAR, 1 ST PANJRAPOLE LANE, MUMBAI 400 004. PAN: AAACM 5722A (RESPONDENT) APPELLANT BY : SMT. ASHIMA GUPTA RESPONDENT BY : SHRI DEEPESH CHHADA ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 24/2/2010 OF CIT(A)-9 MUMBAI RELATING TO THE ASSESSMENT YEAR 200 7-08. THE GROUNDS OF APPEAL OF THE REVENUE READ AS FOLLOWS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE AMOUNT OF RS. 2,69,82,965/- DERIVED FROM SALE OF SCRAP IS ELIGIBLE FOR DEDUCTIO N UNDER SECTION 80 IB, IN VIEW OF THE FACT THAT THE PROFIT ON SALE OF SCRA P CANNOT BE SAID TO HAVE BEEN DERIVED FROM THE MANUFACTURING ACTIVITIES OF THE INDUSTRIAL UNDERTAKING AS PER THE PROVISIONS OF SECTION 80 IB. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE RECEIPT OF RS. 20, 591/- RECEIVED ON ACCOUNT OF DISCOUNT TO BE INCLUDING WHILE COMPUTING PROFITS OF INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S. 80 IB. ITA NO.3066/MUM/2010(A.Y. 2007-08) 2 2. THE ASSESSEE IS A COMPANY AND IS IN THE BUSINESS OF MANUFACTURING OF STAINLESS STEEL UTENSILS AND HAS INDUSTRIAL UNDERTA KING AT A, B AND C WING, ATGAON LAGHU UDYOG SANKUL, MUMBAI NASIK HIGHWAY, AT GAON, SHAHPUT, THANE 421 604. THIS UNDERTAKING IS ELIGIBLE FOR DE DUCTION UNDER SECTION 80 IB OF THE INCOME TAX ACT, 1961(THE ACT). THE TOTAL TURNOVER OF THIS UNDERTAKING WAS RS.40,82,16,578/-. THIS TURNOVER I NCLUDES RECEIPTS ON SALE OF SCRAP AMOUNTING TO RS. 2,69,82,965/-. THE ASSES SEE EXPLAINED TO THE AO THAT ITS SCRAP WAS GENERATED DURING THE COURSE OF M ANUFACTURING PROCESS AND, THEREFORE, IT FORMED PART OF THE BUSINESS PROF ITS DERIVED FROM INDUSTRIAL UNDERTAKING. THE AO DISALLOWED THE CLAIM OF THE A SSESSEE HOLDING THAT THE SCRAP IS GENERATED ON ACCOUNT OF CUTTING OF STEEL S HEETS AND IT IS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING AND, THEREFORE, THE ASSESSEE CANNOT INCLUDE RECEIPTS ON SALE OF SCRAP WHILE COMPUTING PROFITS O F THE ELIGIBLE UNDERTAKING. THE AO FURTHER HELD THAT THE OTHER INCOME OF THE AS SESSEE AMOUNTING TO RS. 20,591/- BEING DISCOUNT RECEIVED IS INCOME FROM OTH ER SOURCES AND WILL NOT QUALIFY FOR DEDUCTION UNDER SECTION 80 IB OF THE AC T. SINCE AFTER EXCLUDING THESE RECEIPTS, THE PROFIT OF THE INDUSTRIAL UNDERT AKING WAS A LOSS, THE AO DID NOT ALLOW ANY DEDUCTION TO THE ASSESSEE UNDER SECTI ON 80 IB OF THE ACT. 3. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT SCRAP WAS RELATED IN THE MANUFACTURING PROCESS. THEREFORE, IT IS REQUIRED T O BE INCLUDED IN THE TURNOVER OF THE INDUSTRIAL UNDERTAKING FOR THE PURP OSE OF COMPUTING PROFITS OF INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION UN DER SECTION 80 IB OF THE ACT. THE ASSESSEE FURTHER RELIED ON THE FACT THAT THE ITAT HAS CONSIDERED THIS ISSUE IN A.Y 2004-05 AND ALLOWED THE APPEAL O F THE APPELLANT ON THIS ISSUE. THE ASSESSEE ALSO RELIED ON CIT(A)S ORDER FOR THE A.Y. 2005-06 WHEREIN THE CLAIM OF THE ASSESSEE WAS ALLOWED. 4. AS REGARDS INCOME FROM OTHER SOURCES, THE ASSESS EE CLAIMED THAT IT RECEIVED DISCOUNT OF RS. 460/- ON POLISHING CHARGES PAYABLE BY IT. DISCOUNT OF RS.2944/- ON FACTORY MAINTENANCE PAYABLE AND DIS COUNT OF RS.17,181/- ITA NO.3066/MUM/2010(A.Y. 2007-08) 3 SALES AND PURCHASES. THE ASSESSEE CLAIMED THAT THE SE DISCOUNTS RELATE TO INDUSTRIAL UNDERTAKING AND, THEREFORE, IT IS ENTITL ED TO DEDUCTION UNDER SECTION 80 IB OF THE ACT. THE ASSESSEE ALSO RELIE D ON THE DECISION OF THE CIT(A) FOR THE A.Y2005-06. 5. THE OBSERVATIONS OF THE CIT(A) WERE AS UNDER:- 2.3.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE AP PELLANT. THE SCRAP SOLD BY THE APPELLANT IS GENERATED IN THE MANUFACTU RING PROCESS. THEREFORE, IT CANNOT BE SAID THAT THESE RECEIPTS AR E NOT DERIVED FROM INDUSTRIAL UNDERTAKING. THE ITAT IN THE CASE OF TH E APPELLANT IN A.Y. 2004-05 IN ITA NO.706/M/2008 ALLOWED THE CLAIM OF T HE APPELLANT. I HAVE ALSO ALLOWED THE CLAIM OF THE APPELLANT IN A. Y 2005-06 IN THE APPELLATE ORDER DATED 5/3/2009. ACCORDINGLY, THIS ISSUE IS COVERED IN FAVOUR OF THE APPELLANT. SIMILARLY, I HAVE DECIDED THE ISSUE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 80 IB OF TH E INCOME TAX ACT ON DISCOUNTS RECEIVED IN FAVOUR OF THE APPELLANT IN A. Y. 2005-06 IN ORDER DATED 5/3/2009 IN APPEAL NO. CIT(A)-V/5(2)/152/07-0 8. IN VIEW OF THESE FACTS THE ASSESSING OFFICER IS DIRECTED TO IN CLUDE RECEIPTS ON ACCOUNT OF SALE OF SCRAP AND RECEIPTS ON ACCOUNT OF DISCOUNTS RECEIVED WHILE COMPUTING THE PROFITS OF INDUSTRIAL UNDERTAKI NG FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 IB OF THE INCOME TAX ACT. THESE GROUNDS OF THE APPEAL OF THE APPELLANT ARE ALLOWED. 6. AT THE TIME OF HEARING OF THIS APPEAL IT WAS BRO UGHT TO OUR NOTICE THAT SIMILAR ISSUE HAD BEEN CONSIDERED AND DECIDED IN FA VOUR OF THE ASSESSEE BY THE HONBLE ITAT IN ASSESSEES OWN CASE IN ITA NO.7 06/MUM/2008 FOR A.Y. 2004-05 AND ITA NO.2494/M/09 FOR A.Y.2005-06. COPI ES OF THE ORDERS WERE FILED BEFORE US. ON PERUSAL OF THE SAME IT IS SEE N THAT THE ISSUE HAD COME UP FOR CONSIDERATION IN A.Y. 2004-05 BEFORE THE TRI BUNAL AND THE TRIBUNAL HELD AS FOLLOWS: 6. GROUND 3 RELATES TO EXCLUSION OF SALE OF SCRA P OF RS. 1,23,55,807/- FOR THE PURPOSE OF COMPUTING ALLOWABLE DEDUCTION U/ S. 80IB. AT THE VERY OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE H AS MENTIONED THAT THE SAID ISSUE IS ALSO COVERED IN FAVOUR OF THE ASS ESSEE BY VIRTUE OF MADRAS HIGH COURT JUDGMENT IN THE CASE OF M/S.FENNE R INDIA LTD. (241 ITR 803) FOR THE PROPOSITION THAT THE PROFIT O N SALE OF SCRAP MATERIAL SINCE HAD DIRECT LINK OR NEXUS WITH THE IN DUSTRIAL UNDERTAKING, IS ELIGIBLE FOR DEDUCTION U/S. 80 HH. CONSIDERING THE SIMILARITY IN LANGUAGE USED IN SECTIONS 80 HH AND 8 0 IB, WE ARE OF THE ITA NO.3066/MUM/2010(A.Y. 2007-08) 4 CONSIDERED OPINION THAT THE ASSESSEE SHOULD SUCCEE D IN THIS REGARD ALSO. ACCORDINGLY, GROUND 3 OF THE ASSESSEES APPE AL IS ALLOWED. THE ABOVE DECISION IS WITH REGARD TO EXCLUDING THE SALE OF SCRAP WHILE CALCULATING PROFITS ELIGIBLE FOR DEDUCTION UNDER SE CTION 80 IB OF THE ACT. AS FAR AS EXCLUDING DISCOUNT RECEIVED WHILE COMPUTING PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB IS CONCERNED THE ISS UE WAS CONSIDERED IN ASSESSMENT YEAR 2005-06 AND THE TRIBUNAL HELD AS FO LLOWS: 14. AS REGARDS GROUND NO.2 RELATING TO THE DISCOU NT RECEIVED AND SUNDRY BALANCE WRITTEN BACK, WE AGREE WITH THE FIND INGS OF THE CIT(A) THAT THEY ARE PART OF THE PROFITS AND GAINS DERIVED WITH THE INDUSTRIAL UNDERTAKING AS THEY ARE NOTHING BUT THE RECOUPMENT OF THE LOSS INCURRED BY THE ASSESSEE FOR ITS OPERATIONS OF INDU STRIAL ACTIVITY. THIS GROUND OF APPEAL IS ACCORDINGLY REJECTED.: IN VIEW OF THE ABOVE WE DO NOT FIND ANY MERITS IN T HIS APPEAL BY THE REVENUE. CONSEQUENTLY, THE SAME IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 8 TH DAY OF APRIL, 2011. SD/- SD/- (PRAMOD KUMAR ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 8 TH APRIL.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RF BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.3066/MUM/2010(A.Y. 2007-08) 5 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 1/4/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 5/4/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER