M/s. SEALEXCEL (I) P. LTD., MUMBAI V. ITO - 8(3)(1), MUMBAI

ITA 3111/MUM/2007

• Counselvise Citation: 311119914 RSA 2007
• Duration Of Justice: 4 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 31-03-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 23-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SONGATE
• Assessee Lawyers: K GOPAL; JITENDRA A SINGH
• Section: 43B; 80HHC; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SMT. ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER. I.T.A. NO. 3111/MUM/2007 ASSESS MENT YEAR : 2003-04. AND I.T.A . NO. 683/MUM/2008 ASSESS MENT YEAR : 2004-05. M/S SEALEXCEL (I) PVT. LTD., THE INCOME-TAX OFFICER,, 61, VEENA DALVI INDUSTRIAL ESTATE, VS. CIRCLE-8(3)(1), S.V. ROAD, OSHIWARA, MUMBAI. JOGESHWARI (WEST), MUMBAI 400 102. PAN : AAACS6420R APPELLANT. RESPONDENT. APPELLANT BY : S/S HRI K. GOPAL & JITENDRA A. SINGH. RESPONDENT BY : SHRI D. SONGATE. O R D E R PER P.M. JAGTAP, A.M. : THESE TWO APPEALS FILED BY THE ASSESSEE AGAINST TW O SEPARATE ORDERS PASSED BY THE LEARNED CIT(APPEALS)XXIX, MUMBAI DATED 08-01 -2007 AND 23-11-2007 FOR ASSESSMENT YEARS 2003-04 AND 2004-05 RESPECTIVELY I NVOLVE SOME COMMON ISSUES AND THE SAME, THEREFORE, HAVE BEEN HEARD TOGETHER A ND ARE BEING DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER. 2 ITA NOS.3111/MUM/2007& ITA NO. 683/MUM/2008 ASSTT.YEARS:2003-04&2004-05. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E FOR ASSESSMENT YEAR 2003-04 BEING ITA NO. 3111/MUM/2007. GROUND NO. 1 IS GENER AL SEEKING NO SPECIFIC DECISION FROM US. 3. IN GROUND NO.2 OF THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN UPHOLDING THE ORDER OF THE AO ALLOCATING THE EXPENSES AMOUNTING TO RS.3,89,818/- PERTAINING TO MUMBAI UNI T TO BANASKATHA UNIT AT GUJARAT FOR THE PURPOSE OF COMPUTING DEDUCTIONS U/S 80IB. 4. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH HAS TWO MANUFACTURING UNITS ONE AT MUMBAI AND OTHER AT BANASKATHA, GUJARA T. THE UNIT AT BANASKATHA, GUJARAT IS ELIGIBLE FOR DEDUCTION U/S 80IB AND WHIL E COMPUTING THE PROFIT OF THE SAID UNIT FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80IB, THE AO DEDUCTED A SUM OF RS.3,89,818/- BEING ALLOCATION OF EXPENSES PERTAINI NG TO MUMBAI UNIT TO BANASKATHA UNIT ON THE GROUND THAT THE EXPENSES CLA IMED IN MUMBAI UNIT INCLUDED EXPENSES RELATING TO HEAD OFFICE AND REGISTERED OF FICE SITUATED AT MUMBAI. BEFORE THE LEARNED CIT(APPEALS), IT WAS SUBMITTED ON BEHAL F OF THE ASSESSEE THAT THE EXPENSES INCURRED IN RELATION TO HEAD OFFICE AND RE GISTERED OFFICE AT MUMBAI WERE NOT TOWARDS THE MANUFACTURING ACTIVITY OF BANASKATH A UNIT AND THE SAME BEING IN THE NATURE OF INDIRECT EXPENSES, THERE WAS NO REASO N TO CONSIDER THE SAME WHILE DETERMINING THE PROFIT DERIVED FROM THE MANUFACTURI NG UNIT AT BANASKATHA FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80IB. THE LEARNED CIT(APPEALS) DID NOT FIND MERIT IN THE STAND TAKEN BY THE ASSESSEE. ACCORDING TO HIM, THE EXPENSES INCURRED IN RELATION TO HEAD OFFICE AND REGISTERED OFFICE AT MUMBAI WERE PARTLY ATTRIBUTABLE TO BANASKATHA UNIT AND WHILE COMPUTING THE PROFIT O F THE SAID UNIT ELIGIBLE FOR DEDUCTION U/S 80IB, THE SAME SHOULD HAVE BEEN TAKE N INTO ACCOUNT. HE, THEREFORE, 3 ITA NOS.3111/MUM/2007& ITA NO. 683/MUM/2008 ASSTT.YEARS:2003-04&2004-05. UPHELD THE ACTION OF THE AO IN DEDUCTING THE HEAD O FFICE EXPENSES WHILE COMPUTING THE PROFIT OF BANASKATHA UNIT ON PRORATE BASIS FOR THE PURPOSE OF COMPUTING PROFIT OF THE SAID UNIT ELIGIBLE FOR DEDUCTION U/S 80IB. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NO DOUBT TRUE THAT DEDUCT ION U/S 80IA/80IB IS ALLOWABLE IN RESPECT OF PROFIT DERIVED FROM THE ELIGIBLE UNDERTA KING AS HELD BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCW LTD. VS. ADDL. CIT 37 SOT 322 RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE. HOWEV ER, AS HELD BY ANOTHER COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF AC IT VS. ASEA BROWN BOVERI LTD. 110 TTJ (MUM.) 502, THE PROFIT DERIVED FROM THE ELI GIBLE UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S 80IA/80IB ARE THE NET PROF ITS DERIVED FROM THE ELIGIBLE UNDERTAKINGS AND SUCH NET PROFIT HAS TO BE WORKED O UT AFTER DEDUCTING ALL EXPENSES, DIRECT OR INDIRECT. AS FURTHER HELD BY THE TRIBUNAL IN THE CASE OF ASEA BROWN BOVERI LTD., HEAD OFFICE EXPENSES OR EXPENSES WHICH ARE CO MMON TO ALL THE UNITS WILL HAVE TO BE SPREAD OVER AND CHARGED AGAINST THE RECEIPTS OF ALL THE UNITS. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ASEA BROWN BOVERI LTD. (SUPRA), WE FIND NO INFIRMITY IN THE IMPUGNED ORDE R OF THE LEARNED CIT(APPEALS) UPHOLDING THE ACTION OF THE AO IN ALLOCATING THE HE AD OFFICE EXPENSES TO BANASKATHA UNIT IN THE RATIO OF TURNOVER TO WORK OU T THE PROFIT OF THE SAID UNIT ELIGIBLE FOR DEDUCTION U/S 80IB AND UPHOLDING THE S AME ON THIS ISSUE, WE DISMISS GROUND NO.2 OF THE ASSESSEES APPEAL. 6. IN GROUND NO. 3 THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN UPHOLDING THE ORDER OF THE AO REDUC ING A SUM OF RS.13,40,183/- FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IA AN D 80IB HOLDING THAT THE SAID 4 ITA NOS.3111/MUM/2007& ITA NO. 683/MUM/2008 ASSTT.YEARS:2003-04&2004-05. AMOUNT REPRESENTING BROUGHT FORWARD LOSSES OF EARLI ER YEARS WAS LIABLE TO BE REDUCED FROM THE PROFIT OF THE YEAR UNDER CONSIDERA TION. 7. AT THE TIME OF HEARING BEFORE US, THE LEARNED RE PRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED AGA INST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF IPCA LABORATORY LTD. 266 ITR 521 WHEREIN IT WAS HELD THA T SECTION 80AB HAS BEEN GIVEN AN OVERRIDING EFFECT OVER ALL OTHER SECTIONS IN CHA PTER VI-A AND SINCE THE SAID PROVISION MAKES IT CLEAR THAT COMPUTATION OF INCOME HAS TO BE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, NOT ONLY PROFITS BUT ALS O LOSSES HAVE TO BE TAKEN INTO CONSIDERATION. RESPECTFULLY FOLLOWING THE SAID DECI SION OF THE HONBLE SUPREME COURT, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND DISMISS GROUND NO.3 OF THE ASSESSEES APPEAL. 8. GROUND NOS. 4 AND 5 RAISED BY THE ASSESSEE IN TH IS APPEAL READ AS UNDER : 4. THE LD. (CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LD. ASSESSING OFFICER IN DISALLOWING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT BY HOLDING THAT THE APPELLANT IS NOT ENTITLED TO DEDUC TION UNDER SECTION 80HHC OF THE ACT IF IT HAS BEEN ALLOWED ANY OTHER DEDUCTI ON UNDER CHAPTER VIA. THE LD. ASSESSING OFFICER HAS DISALLOWED THE DEDUCTION BY WRONGLY INTERPRETING THE PROVISIONS OF SECTION 80IA(9) R.W.S. 80IB(13) O F THE ACT. THEREFORE THE DISALLOWANCE OF DEDUCTION U/S 80HHC ON THE PROFITS OF BANASKATHA UNIT AT GUJARAT IS NOT AT ALL JUSTIFIED AND THE SAME MAY BE DELETED. 5. THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LD. ASSESSING OFFICER OF COMPUTING THE DEDUCTION UNDER SECTION 80 HHC AFTER SETTING OFF THE BROUGHT FORWARD LOSSES OF EARLIER YEARS. THE LD . CIT(A) FAILED TO APPRECIATE THAT THE QUANTUM OF DEDUCTION HAS TO BE DETERMINED WITHOUT SETTING OFF THE CARRIED FORWARD LOSSES FROM THE EAR LIER YEARS. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LIMITED RELIEF WHICH HAS BE EN SOUGHT BY THE LEARNED COUNSEL FOR THE ASSESSEE ON THE ISSUES RAISED IN GROUND NO. 4 AND 5 IS THAT THE SAME RELATING 5 ITA NOS.3111/MUM/2007& ITA NO. 683/MUM/2008 ASSTT.YEARS:2003-04&2004-05. TO COMPUTATION OF DEDUCTION U/S 80HHC MAY BE RESTOR ED TO THE FILE OF THE AO WITH A DIRECTION TO RECOMPUTE THE DEDUCTION U/S 80HHC KE EPING IN VIEW THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES PRIVATE LIMITED (2011) 50 DTR (BOM.) 65. A COPY OF THE JUDGMENT PAS SED BY THE HONBLE BOMBAY HIGH COURT HAS ALSO BEEN PLACED ON RECORD BY THE LE ARNED COUNSEL FOR THE ASSESSEE AND THE RELEVANT PORTION OF THE SAME, WHICH IS RELE VANT IN THE PRESENT CONTEXT, IS REPRODUCED BELOW : IN THE RESULT, WE HOLD THAT SECTION 80IA(9) DOES NOT AFFECT THE COMPUTABILITY OF DEDUCTION UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER VI-A, BUT IT AFFECTS THE ALLOWABILITY OF DE DUCTIONS COMPUTED UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER VI- A, SO THAT THE AGGREGATE DEDUCTION UNDER SECTION 80IA AND OTHER PROVISIONS U NDER HEADING C OF CHAPTER VI-A DO NOT EXCEED 100% OF THE PROFITS OF H E BUSINESS OF THE ASSESSEE. OUR ABOVE VIEW IS ALSO SUPPORTED BY THE C .B.D.T. CIRCULAR NO. 772 DATED 23-12-1998, WHEREIN IT IS STATED THAT SECTION 80IA(9) HAS BEEN INTRODUCED WITH A VIEW TO PREVENT THE TAX-PAYERS FR OM CLAIMING REPEATED DEDUCTIONS IN RESPECT OF THE SAME AMOUNT OF ELIGIBL E INCOME AND THAT TOO IN EXCESS OF THE ELIGIBLE PROFITS. THUS, THE OBJECT OF SECTION 80IA(9) BEING NOT TO CURTAIL THE DEDUCTIONS COMPUTABLE UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER, IT IS REASONABLE TO HOLD THAT SECTI ON 80IA(9) AFFECTS ALLOWABILITY OF DEDUCTION AND NOT COMPUTATION OF DE DUCTION. TO ILLUSTRATE, IF RS.100/- IS THE PROFITS OF THE BUSINESS OF THE UND ERTAKING, RS.30/- IS THE PROFITS ALLOWED AS DEDUCTION UNDER SECTION 80IA(1) AND THE DEDUCTION COMPUTED AS PER SECTION 80HHC IS RS.80/-, THEN, IN VIEW OF SECTION 80IA(9), THE DEDUCTION UNDER SECTION 80HHC WOULD BE RESTRICTED TO RS.70/-, SO THAT THE AGGREGATE DEDUCTION DOES NOT EXCEED THE PROFITS OF THE BUSINESS. 10. A PERUSAL OF THE OBSERVATIONS RECORDED BY THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES PRIVATE LIMITED AS REPRODUCED ABOVE, SHOWS THAT THE SAME HAVE A BEARING, DIRECT OR INDIRECT, O N THE ISSUES INVOLVED IN GROUND NO. 4 AND 5 OF THE ASSESSEES APPEAL RELATING TO CO MPUTATION OF DEDUCTION U/S 80HHC. WE, THEREFORE, RESTORE THIS ISSUE TO THE FIL E OF THE AO FOR THE LIMITED PURPOSE OF RECOMPUTING THE DEDUCTION U/S 80HHC KEEP ING IN VIEW THE JUDGMENT OF 6 ITA NOS.3111/MUM/2007& ITA NO. 683/MUM/2008 ASSTT.YEARS:2003-04&2004-05. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCI ATED CAPSULES PRIVATE LIMITED (SUPRA). GROUND NO. 4 AND 5 OF THE ASSESSEE S ARE ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 11. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 BEING ITA NO. 683/MUM/2008. 12. GROUND NO.1 RAISED BY THE ASSESSEE IN THIS APPE AL IS GENERAL SEEKING NO SPECIFIC DECISION FROM US. 13. AS REGARDS GROUND NO. 2, IT IS OBSERVED THAT TH E ISSUE INVOLVED THEREIN RELATING TO ALLOCATION OF HEAD OFFICE EXPENSES TO B ANASKATHA UNIT TO COMPUTE THE PROFIT OF THE SAID UNIT ELIGIBLE FOR DEDUCTION U/S 80IB IS SIMILAR TO THE ONE INVOLVED IN GROUND NO.2 OF THE ASSESSEES APPEAL FOR ASSESSM ENT YEAR 2003-04 WHICH HAS BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWING THE SAID DECISION RENDERED IN ASSESSMENT YEAR 2003-04, WE UP HOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND DISMISS GROUND NO.2 OF THE ASSESSEES APPEAL. 14. AS REGARDS GROUND NO.3, IT IS OBSERVED THAT THE ISSUE RAISED THEREIN RELATING TO THE DEDUCTION U/S 80HHC IS SIMILAR TO THE ONE IN VOLVED IN GROUND NO.4 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2003-04 WHICH HAS ALREADY BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWIN G OUR DECISION RENDERED IN ASSESSMENT YEAR 2003-04, WE RESTORE THIS ISSUE TO T HE FILE OF THE AO FOR THE LIMITED PURPOSE OF RECOMPUTING THE DEDUCTION ALLOWABLE TO T HE ASSESSEE U/S 80HHC KEEPING IN VIEW THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES PRIVATE LIMITED (SUPRA). GROUND NO. 3 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATIS TICAL PURPOSES. 7 ITA NOS.3111/MUM/2007& ITA NO. 683/MUM/2008 ASSTT.YEARS:2003-04&2004-05. 15. AS REGARDS THE LAST ISSUE RAISED BY THE ASSESSE E IN THIS APPEAL RELATING TO DISALLOWANCE OF BONUS U/S 43B AMOUNTING TO RS.71,8 02/-, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ENTIRE BONUS WA S PAID BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. ACCORDING TO HIM, NO DISALLOWANCE ON ACCOUNT OF THE SAID BONUS, THEREFORE, WAS CALLED FOR U/S 43B AS HELD BY COORDINATE BENCH OF T HIS TRIBUNAL IN THE CASE OF M/S PIK PEN PRIVATE LIMITED VS. ITO RENDERED VIDE ITS O RDER DATED 28-10-2010 PASSED IN ITA NO. 6847/MUM/2008 RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSION LTD. 319 ITR 306. WE, T HEREFORE, DIRECT THE AO TO DELETE THE DISALLOWANCE MADE ON ACCOUNT OF BONUS U/ S 43B AFTER VERIFYING THAT THE SAID BONUS WAS PAID BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION 16. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED ON THIS 20 TH DAY OF MAY, 2011. SD/- SD/- (ASHA VIJAYRAGHAVAN) (P.M. JAG TAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 20 TH MAY, 2011. WAKODE 8 ITA NOS.3111/MUM/2007& ITA NO. 683/MUM/2008 ASSTT.YEARS:2003-04&2004-05. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, E-BENCH. (TRUE COPY) BY ORDE R ASSTT. REGI STRAR, ITAT, MUMBAI BEN CHES, MUM BAI.