Vraj Packaging Pvt.Ltd., Mumbai V. The ACIT.,Vapi Circle, Vapi

ITA 3109/AHD/2010

• Counselvise Citation: 310920514 RSA 2010
• Duration Of Justice: 3 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 22-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: NEEL KHANDELWA
• Keywords: Capital asset; Business income; Source of fund
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO.3109/AHD/2010 A.Y. 2007-08 VRAJ PACKAGING PVT. LTD., A/32, 33, GOLD FILLED COMPOUND, SION BANDRA LINK ROAD, MUMBAI. PAN: AAACV 8096L VS. ACIT, VAPI CIRCLE-VAPI (APPELLANT) (RESPONDENT) REVENUE BY : SHRI O.P. BATHEJA, SR.D.R. , ASSESSEE(S) BY : S/SHRI RAJIV KHANDELWAL, MADHSUDHAN SARAT & NEEL KHANDELWAL, AR / DATE OF HEARING : 03/04/2014 / DATE OF PRONOUNCEMENT: 25/04/2014 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FRO M THE ORDER OF LEARNED CIT(A) VALSAD, DATED 19.07.2010 AND THE ONL Y GROUND RAISED BY THE ASSESSEE IS AS FOLLOWS: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER OF RS.61,25,513/- ON ACCOU NT OF DEDUCTION U/S.80IB. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) DATED 29.12.2009 WERE THAT THE AS SESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF POLYPROPYLENE AND HDPE WOVEN SACKS, KRAFT PAPER LINED BAGS AND MULTIWALL PAPER SACKS. I T WAS NOTED BY THE AO THAT IN THE P & L A/C. THERE WAS AN AMOUNT OF INSU RANCE CLAIMS OF ITA NO.3109/AHD/2010 VRAJ PACKAGING PVT. LTD. VS. ACIT, VAPI CIRCLE, VAP I A.Y.2007-08 - 2 - RS.2,90,00,764/-. ACCORDING TO AO, THERE WAS AN AMO UNT OF INSURANCE CLAIM OF RS.83,67,780/- ARE PERTAINED TO THE CLAIM IN RESPECT OF MACHINERIES. THE AO HAS THUS HELD THAT THE INSURANC E CLAIM WAS NOT A REVENUE RECEIPT BUT IT WAS RECEIVED ON THE LOSS OF A CAPITAL ASSET. FURTHER, IT WAS ALSO NOTED THAT THE ASSESSEE HAS RECEIVED A SUM OF RS.2,06,32,984/- AS INSURANCE CLAIM AGAINST STOCK AND RAW MATERIAL, THE BIFURCATION OF THE SAME WAS AS UNDER: QUANTITY AMOUNT REMARKS RAW MATERIAL 39613 21,20,090/- WORK IN PROCESS 2,36,608 1,96,78,996/- FINISHED GOODS 16309 16,59,677/- AS PER ASSESSEES SUBMISSION DATED 14.12.2009 IN RESPONSE TO THIS OFFICE LETTER DATED 07.12.2009 2.1 AFTER RECORDING THOSE FACTS, FURTHER IT WAS NOT ED BY THE AO THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S.80IB OF RS.61,25 ,513/-. ACCORDING TO HIM, THE ASSESSEE IS NOT ELIGIBLE FOR THE CLAIM OF DEDUCTION U/S.80IB BECAUSE THE AMOUNT RECEIVED AS INSURANCE CLAIM WAS NOT DERIVED FROM THE MANUFACTURING ACTIVITY. THE ENTIRE CLAIM U/S.80 IB WAS THUS DISALLOWED. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. AFTER CONSIDERING THE LEGAL POSITION, LEARNED CI T(A) HAS HELD AS UNDER: 5.2 DECISIONS: I HAVE CAREFULLY CONSIDERED THE ELABORATE SUBMISS IONS MADE BY THE LD. A.R. AND THE FINDINGS OF THE AO IN THE A SSESSMENT ORDER. I HAVE SUMMARIZED THE CONTENTIONS OF THE LD. AR INTO TWO A SPECTS I.E. THE INSURANCE CLAIM IS BUSINESS INCOME AND SINCE THE APPELLANT HA D NO OTHER SOURCES OF INCOME, THE INSURANCE CLAIM IS ELIGIBLE FOR THE DED UCTION U/S. 8O-IB AND THE SECOND ASPECT WAS THAT INSURANCE RECEIPT IS NOT A C APITAL RECEIPT AND SHOULD NOT BE SEGREGATED FOR TREATING BUSINESS INCOME. I H AVE ALSO CAREFULLY CONSIDERED THE JUDICIAL DECISIONS RELIED UPON BY TH E ID. AR PARTICULARLY THE CASE OF CIT VS SPORTKING INDIA LTD. 183 TAXMAN 312 (DELHI). THE RATIO OF THE SAID JUDGMENT WAS THAT INSURANCE CLAIM FOR LOSS OF GOODS ON FIRE IS 'DERIVED FROM' THE BUSINESS OF THE INDUSTRIAL UNDER TAKING AND THEREFORE IS ITA NO.3109/AHD/2010 VRAJ PACKAGING PVT. LTD. VS. ACIT, VAPI CIRCLE, VAP I A.Y.2007-08 - 3 - INCLUDABLE IN PROFITS AND GAINS FOR COMPUTING DEDUC TION U/S. 8O-IA. THE HON'BLE HC ALSO APPROVED THE FINDING OF THE ITAT TH AT WHEN THE COST OF GOODS WAS DEBITED IN THE P & L A/C. AND THE INSURANCE REC EIPT WAS CREDITED IN THE SAME P & L A/C, THE NET EFFECT WILL BE NIL. IN OTHE R WORDS THE HON'BLE HC HAVE APPROVED THE NETTING OFF OF COST OF GOODS AND THE I NSURANCE RECEIPTS THEREOF AND THE PROFITS/GAINS ARISES IF ANY WAS ELIGIBLE FO R DEDUCTION U/S. 80 IA. I HAVE ALSO COME ACROSS A DECISION OF THE HON.'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V/S. KHEMKA CONTAINERS PVT. LTD., ( 2005) 193 CTR (P&H) 427: (2005) 275 ITR 559 (P&H) WHEREIN, IT WAS HELD THAT 'AMOUNT OF INSURANCE CLAIM RECEIVED BY THE ASSESSEE CANNOT BE HELD TO BE INCOME 'DERIVED FROM' INDUSTRIAL UNDERTAKING SO AS TO QUAL IFY FOR DEDUCTION UNDER SEC. 8O-I. HOWEVER, WHILE COMPUTING THE PROFITS OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF DEDUCTION UNDER S. 8O-I, WHAT H AS TO BE EXCLUDED IS NOT THE GROSS RECEIPT BUT THE INCOME ARISING OUT OF THIS RE CEIPT. SUCH INCOME CAN ONLY BE COMPUTED BY DEDUCTING THE COST OF RAW MATERIAL D ESTROYED IN FIRE FROM THE GROSS RECEIPT OF INSURANCE CLAIMS'. ALTHOUGH THE TW O HON'BLE HIGH COURTS HAVE TAKEN DIVERSE VIEWS ON THE SUBJECTS BUT THE SU BSTANCE EMERGES WAS THAT THE DEDUCTION U/S. 8O-I/IA IS NOT AVAILABLE ON GROS S AMOUNT RECEIVED FROM THE INSURANCE COMPANY BUT ON THE NET RECEIPTS. IN THE I NSTANT CASE THE AO OBSERVED THAT THE APPELLANT RECEIVED INSURANCE CLAI M OF RS 2,90,00,764/- WHICH CONSISTED OF INSURANCE CLAIM ON PLANT & MACHI NERY OF RS. 83,67,780/- AND THE BALANCE OF RS. 2,06,32,987/-WAS TOWARDS RAW MATERIALS, WORK-IN- PROGRESS AND FINISHED GOODS. THE AO, WHILE COMPLETI NG THE ASSESSMENT FURTHER REQUIRED FROM THE APPELLANT THE BREAK UP OF THE RAW MATERIALS, WIP AND THE FINISH GOODS DESTROYED IN THE FIRE. THE DET AILED SUBMITTED BY THE APPELLANT BEFORE AO WAS AS UNDER; ITEMS QUANTITY AMT. IN RS. RAW MATERIALS 39,613 21,20,090/- WORK-IN-PROGRESS 2,36,608 1,96,78,996/- FINISHED GOODS 16,309 16,59,677/- TOTAL 2,34,58,763/- FROM THE ABOVE, IT IS CLEAR THAT THE SUM OF INSURAN CE RECEIPTS CONSTITUTED FOR BOTH CAPITAL AND BUSINESS ASSETS. THE AO RIGHTLY HE LD THAT OF INSURANCE CLAIM ON PLANT & MACHINERY OF RS. 83,67,780/- AND THE BAL ANCE OF RS. 2,06,32,987/- WAS TOWARDS RAW MATERIALS, WORK-IN-PROGRESS AND FIN ISHED GOODS. FURTHER I AM IN AGREEMENT WITH THE OBSERVATION OF THE AO THAT THE INSURANCE CLAIM OF RS.83,67,780/- TOWARDS THE PLANTS & MACHINERY IS RE CEIPTS FOR CAPITAL ASSETS AND THEREFORE, CANNOT BE INCLUDED FOR COMPUTATION U /S. 80-IB. WITH REGARDS TO THE BALANCE OF RS.2,06,32,987/-TOWARDS RAW MATERIAL S, WORK-IN-PROGRESS AND FINISHED GOODS, THE AMOUNT INCLUDABLE WAS NOT THE G ROSS BUT THE NET AMOUNT AFTER THE COST WAS REDUCED. THE TOTAL AMOUNT OF RM/ WIP AND FINISHED GOODS DESTROYED IN THE FIRE WAS RS.2,34,58,763/-. THE AMO UNT RECEIVED FROM THE INSURANCE COMPANY IN THIS A/C. WAS RS.2,06,32,984/- WHICH LESS THAN THE ITA NO.3109/AHD/2010 VRAJ PACKAGING PVT. LTD. VS. ACIT, VAPI CIRCLE, VAP I A.Y.2007-08 - 4 - ACTUAL AMOUNT OF GOODS DESTROYED IN THE FIRE. THUS, THE NETTING OF GROSS RECEIPTS AND THE COSTS OF GOODS (RS.2,06,32,984 - R S. 2,34,58,763 = (-) RS. 28,25,777/-) RESULTS IN LOSS AND NOT IN PROFITS. IT IS ALSO FACTS THAT INSURANCE COVERED BY THE INSURANCE COMPANY IS ALWAYS LESS THA N THE ACTUAL COST OF THE MATERIAL INSURED. SIMILARLY, THE INSURANCE COMPENSA TION PAID IS ALWAYS LESS THAN THE ACTUAL COSTS OF THE GOODS. IN THE INSTANT CASE ALSO THE SAME PRINCIPLE APPLIED I.E. THE COST OF GOODS DESTROYED WAS OF RS. 2,34,58,763/- AND THE AMOUNT RECEIVED BY THE APPELLANT FROM THE INSURANCE COMPANY WAS RS.2,06,32,984/-. IN THE RESULT, NO PROFITS OR GAIN S AROUSED TO THE APPELLANT OUT OF THE INSURANCE RECEIPTS. THEREFORE, ALLOWING DEDU CTION U/S.80-IB DOES NOT ARISE IN THIS CASE. CONSIDERING THE FACTUAL MATRIX OF THE CASE AND THE DECISIONS OF VARIOUS COURTS, I AM INCLINED TO AGREE WITH THE FINDING OF THE ASSESSING OFFICER. THUS, THIS GROUND OF APPEAL IS DISMISSED. 5. FROM THE SIDE OF THE APPELLANT, LEARNED AR, MR. RAJIV KHANDELWAL, MR. MADHSUDAN SARAT AND MR. NEEL KHANDELWAL APPEARE D AND PLACED RELIANCE ON THE FOLLOWING JUDGMENTS: 1. CIT VS. SHREE RAMA MULTI TECH LTD., (2013) 33 T AXMANN.COM 194 (GUJARAT) 2. CIT VS. SPORTKING INDIA LTD., (2009) 183 TAXMANN 312 (DELHI) 6. ON THE OTHER HAND, FROM THE SIDE OF THE REVENUE, LEARNED SR.D.R., MR. O.P. BATHEJA APPEARED AND PLEADED THAT THE INSU RANCE CLAIM IN RESPECT OF LOSS OF MACHINERY WAS NOTHING BUT A RECE IPT OF CAPITAL IN NATURE; HENCE, HE HAS PLEADED THAT THE CASE LAW CI TED FROM THE SIDE OF THE ASSESSEE WERE IN RESPECT OF LOSS OF RAW MATERIAL/FI NISH GOODS; HENCE, NOT APPLICABLE ON THE FACTS OF THE CASE. 7. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE IS REQUIRED TO B E DECIDED IN THE LIGHT OF THE PRECEDENT CITED HEREINABOVE. IN THE CASE OF CIT VS. SHREE RAMA MULTI TECH LIMITED (SUPRA), IT WAS HELD BY THE HON BLE COURT AS UNDER: WE HAVE NO REASON TO TAKE A DIFFERENT VIEW. IF THE ASSESSEE HAD EITHER CONSUMED THE RAW MATERIAL IN ITS INDUSTRIAL ACTIVIT Y OR SOLD THE FINISHED GOOD BUT FOR THE UNFORTUNATE FIRE, SURELY THE ASSESSEE W OULD HAVE EARNED INCOME. SUCH INCOME WOULD HAVE BEEN ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA OF ITA NO.3109/AHD/2010 VRAJ PACKAGING PVT. LTD. VS. ACIT, VAPI CIRCLE, VAP I A.Y.2007-08 - 5 - THE ACT. IF THIS MUICH IS UNDISPUTED, MERELY BECAUS E OF THE FIRE AND DESTRUCTION OF SUCH GOODS BEFORE SALE WOULD HARDLY MAKE ANY SIG NIFICANT DIFFERENCE INSOFAR AS EDUCATION UNDER SECTION 80-IA OF THE ACT IS CONCERNED. LOOKING FROM THE OTHER ANGLE, WHAT THE ASSESSEE ACHIEVED TH ROUGH PASSING OF THE INSURANCE CLAIM WAS REDUCTION OF THE LOSS ARISING O UT OF THE INDUSTRIAL UNDERTAKING. SUCH RECOUPING OR REDUCTION OF THE LOS S CANNOT BE KEPT OUT OF CONSIDERATION WHILE COMPUTING THE ASSESSEES INCOME ELIGIBLE FOR REDUCTION UNDER SECTION 80-IA OF THE ACT. 7.1 LIKEWISE, IN THE CASE OF CIT VS. SPORTKING INDI A LTD. (SUPRA) THE HONBLE DELHI HIGH COURT HAS DECIDED THE ISSUE AFTE R CONSIDERING THE PROVISIONS OF THE ACT AS FOLLOWS: 5. AT THE OUTSET, WHILE DETERMINING THE MEANING TO BE ATTRIBUTED TO THIS EXPRESSION, ONE MUST KEEP IN MIND THAT SECTION 80-I A IS A PART OF FASCICULUS OF PROVISIONS WHEREBY BENEFITS ARE GRANTED TO CERTAIN INDUSTRIAL UNDERTAKINGS, BUSINESSES ETC. INCLUDING THOSE WHICH ARE LOCATED I N CERTAIN SPECIAL LOCATIONS/AREAS. THE OBJECT IS GENERATION OF NEW IN VESTMENT AND EMPLOYMENT WITH RESPECT TO PARTICULAR INDUSTRIES IN CERTAIN AR EAS AND IN CERTAIN LOCATIONS BESIDES GENERATION OF REVENUE FOR THE GOVERNMENT AN D INDUSTRIES FROM WHOM PLANT, ETC. WILL BE PURCHASED BY THE NEW INDUSTRIAL UNDERTAKING. THE OBJECT OF THE PROVISION IS FURTHER MADE CLEAR FROM SUB-SECTIO N (2) OF SECTION 80-IA WHEREBY SUCH BUSINESSES ARE NOT CONSIDERED FOR TAKI NG ADVANTAGE OF THE DEDUCTION UNDER SECTION 80-IA IF EITHER IT IS FORME D FROM SPLITTING UP OF AN EXISTING BUSINESS OR BY USE OF MACHINERY OR PLANT P REVIOUSLY USED AND SO ON. THE OBJECT IS CLEARLY TO GIVE FILLIP TO THE ECONOMY AND TO INVESTMENT. THIS OBJECT WILL HAVE TO BE KEPT IN VIEW WHILE INTERPRET ING THE PROVISIONS OF SECTION 80-IA. 6. WE FIND THAT FOR A SIMILAR PROVISION OF SECTION 80-IB, TWO DECISIONS HAVE BEEN RENDERED BY TWO DIVISION BENCHES OF THIS COURT IN THE JUDGMENTS REPORTED AS CIT V. ELTEK SGS (P.) LTD. [2008] 300 I TR 6 1 AND CIT V. DHARAM PAL PREM CHAND LTD. [2009] 221 CTR (DELHI) 133 . IN THE ELTEK SGS (P.) LTD.'S CASE (SUPRA) DUTY DRAWBACK WAS HELD TO BE PR OFITS/GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING AND HENCE ELIGIBLE FOR DE DUCTIONS UNDER SECTION 80- IB. IN THE CASE OF DHARAM PAL PREM CHAND LTD. (SUPR A) REFUND OF EXCISE DUTY WAS HELD TO BE PROFITS AND GAINS DERIVED FROM AN IN DUSTRIAL UNDERTAKING WITHIN THE MEANING OF AN EXPRESSION UNDER SECTION 80-IB. 7.2 IN THE LIGHT OF THE ABOVE TWO DECISIONS AND CON SIDERING THE FACTS OF THE CASE, WE HEREBY HOLD THAT THE ASSESSEE IS ENTIT LED FOR CLAIM OF 80IB DEDUCTION ONLY IN RESPECT OF AMOUNT OF INSURANCE CL AIM IN RESPECT OF RAW MATERIAL, WORK IN PROGRESS AND FINISH GOODS. HOWEVE R, THE ASSESSEE IS NOT ITA NO.3109/AHD/2010 VRAJ PACKAGING PVT. LTD. VS. ACIT, VAPI CIRCLE, VAP I A.Y.2007-08 - 6 - ENTITLED FOR THE CLAIM OF DEDUCTION U/S.80IB IN RES PECT OF LOSS OF MACHINERY BECAUSE IT WAS RIGHTLY HELD BY THE REVENU E DEPARTMENT THAT THE SAME WAS A CAPITAL LOSS WHICH WAS RECOUPED BY T HE INSURANCE COMPANY; THEREFORE, THOSE RECEIPTS WERE CAPITAL IN NATURE. WE DIRECT TO RE-COMPUTE THE DEDUCTION U/S.80IB ACCORDINGLY. RESU LTANTLY, THIS GROUND OF THE ASSESSEE MAY BE TREATED AS PARTLY ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/- SD/- (T.R. MEENA) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 25/04/2014 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