M/s Vardhman Industries, Solan V. Income Tac Officer, Baddi

ITA 317/CHANDI/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0667 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 06-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: ASHISH CHADHA ADV SH K V JAIN
• Keywords: Question of law

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B, CHANDIGARH , !'# $' % & , '( BEFORE: SH. SANJAY GARG, JM & SMT. ANNAPURNA GUPTA , AM ./ ITA NOS.317 & 318/CHD/2016 / ASSESSMENT YEARS : 2010-11 & 2011-12 VARDHMAN INDUSTRIES, 55, HPSIDC INDUSTRIAL AREA, BADDI, DISTT. SOLAN H.P. THE I.T.O., BADDI (H.P.) ./PAN NO: AAEFV7858F /APPELLANT / RESPONDENT / ASSESSEE BY : SHRI ASHISH CHADHA , ADV SH K.V JAIN ,C.A ! / REVENUE BY : SHRI MANJIT SINGH ,SR. DR '# $ / DATE OF HEARING: 12.07.2018/01.11.18 %&'(# / DATE OF PRONOUNCEMENT : 13.11.2018 ') /ORDER PER ANNAPURNA GUPTA, A.M. : BOTH THE APPEALS RELATE TO THE SAME ASSESSEE AND AR E DIRECTED AGAINST SEPARATE ORDERS OF LEARNED COMMIS SIONER OF INCOME TAX(APPEALS), SHIMLA (IN SHORT CIT(A), PASSE D U/S 250(6) OF THE INCOME TAX ACT,1961,(HEREINAFTER REFE RRED TO AS ACT) BOTH DATED 22.01.2016, RELATING TO ASSESSMEN T YEARS 2010-11 AND 2011-12 RESPECTIVELY. 2. SINCE COMMON ISSUE INVOLVED IN BOTH THE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY T HIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO .317 & 318/CHD/2016 A .YS.2010-11 & 2011-12 2 WE SHALL FIRST BE TAKING UP THE APPEAL OF THE ASSES SEE IN ITA NO.317/CHD/2016 RELATING TO ASSESSMENT YEAR 2010- 11. ITA NO.317/CHD/2016(A.Y.2010-11): 3. THE EFFECTIVE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 2.(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW BY UPHOLDIN G THE ORDER OF THE AO RESTRICTING THE DEDUCTION CLAI MED BY THE ASSESSEE U/S 80IC OF THE ACT TO RS.31,39,394/-, I.E. 25% DEDUCTION, AS AGAINST RS.1,25,57,577/-, I.E. 100% DEDUCTION CLAIMED BY THE ASSESSEE. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN CONFIRMING THE SAID ADDITION BY MISINTERPRETING THE PROVISIONS OF SECTION 80IC OF THE ACT REGARDING 'SUBSTANTIA L EXPANSION'. 3.(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN CONFIRMING THE ADDITION MADE BY THE AO ON ACCOUNT OF INCOME GENERATED FROM SCRAP SALES, DESPITE THE FACT THAT THE SAME IS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. (II) THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND I N LAW IN RESTRICTING THE DISALLOWANCE MADE BY THE AO TO 2 5% OF THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IC OF T HE ACT ON ACCOUNT OF INCOME OF RS.10,96,393/- GENERATED FR OM SCRAP SALES, DESPITE THE FACT THAT THE ASSESSEE IS ELIGIBLE FOR 100% DEDUCTION U/S 80IC. 4.(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN CONFIR MING THE ADDITION MADE BY THE AO ON ACCOUNT OF MISCELLANEOUS RECEIPTS, DESPITE THE FACT THAT THE SAME ARE ELIGIB LE FOR DEDUCTION U/S 801C OF THE ACT. (II) THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN RESTRICTING THE DISALLOWANCE MADE BY THE AO TO 2 5% OF THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IC OF TH E ACT ON ACCOUNT OF MISCELLANEOUS RECEIPTS OF RS.1,27,000/-, DESPITE THE FACT THAT THE ASSESSEE IS ELIGIBLE FOR 100% DEDUCTION U/S 80IC. 5. THE ABOVE DISALLOWANCE OF DEDUCTION HAS BEEN MAD E DESPITE THE FACT THAT SCRAP SALES AND MISCELLANEOUS RECEIPTS ARE ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT, IN ITA NO .317 & 318/CHD/2016 A .YS.2010-11 & 2011-12 3 TOTAL DISREGARD TO THE VARIOUS JUDICIAL PRONOUNCEME NTS IN THIS REGARD. 4. GROUND NO.2(I)&(II) RAISED BY THE ASSESSEE RELAT ES TO RESTRICTION OF DEDUCTION CLAIMED U/S 80IC TO 25% OF THE ELIGIBLE PROFITS AS AGAINST 100% CLAIMED ON ACCOUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN. 5. BRIEFLY STATED, THE ASSESSEE IS A PARTNERSHIP FI RM MANUFACTURING ELECTRICAL APPLIANCES. THE ASSESSEE FIRM HAD COMMENCED ITS OPERATION/ACTIVITY OF BUSINESS W.E.F. 26.4.2004 AND BEING ELIGIBLE TO CLAIM DEDUCTION U/S 80IC OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) HAD B EEN CLAIMING THE SAME SINCE A.Y. 2005-06, WHICH WAS TRE ATED AS INITIAL ASSESSMENT YEAR. THE ASSESSEE CLAIMED DEDUC TION OF 100% OF ITS PROFITS UNDER THE SAID SECTION FOR A PE RIOD OF FIVE YEARS UPTO ASSESSMENT YEAR 2009-10. THE IMPUG NED YEAR WAS THE 6 TH ASSESSMENT YEAR FOR CLAIM OF DEDUCTION U/S 80IC OF THE ACT AND THE ASSESSEE HAD CLAIMED DEDUCT ION OF 100% OF ITS PROFITS ON ACCOUNT OF SUBSTANTIAL EXPAN SION CARRIED OUT BY IT, WHICH WAS RESTRICTED TO 25% BY T HE ASSESSING OFFICER STATING THAT THE BENEFIT OF SUBST ANTIAL EXPANSION IS AVAILABLE ONLY TO UNITS WHICH WERE IN EXISTENCE WHEN SECTION 80IC WAS BROUGHT ON THE STATUTE AND TH E IMPUGNED YEAR BEING THE SIXTH YEAR THE ASSESSEE WAS ELIGIBLE TO CLAIM DEDUCTION OF 25% OF THE PROFITS A S PER THE PROVISIONS OF THE ACT. . THE LD.CIT(A) UPHELD THE S AME FOLLOWING THE DECISION OF THE ITAT CHANDIGARH BENCH IN THE CASE OF HYCRON ELECTRONICS VS ITO IN ITA NO.798/CH D/2012 AND OTHER RELATED CASES. ITA NO .317 & 318/CHD/2016 A .YS.2010-11 & 2011-12 4 6. DURING THE COURSE OF HEARING BEFORE US, IT WAS BROUGHT TO OUR NOTICE THAT THE ISSUE INVOLVED IN THIS APPE AL HAS ALREADY BEEN SETTLED BY THE HONBLE APEX COURT AG AINST THE ASSESSEE IN THE CASE OF COMMISSIONER OF INCOME T AX VS. CLASSIC BINDING INDUSTRIES IN CIVIL APPEAL NO.7208 OF 2018 AND OTHER CASE VIDE ORDER DATED 20 AUGUST 2018. LD .COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED TO THE SAME. 7. WE HAVE GONE THROUGH THE ORDER IN THE CASE OF CL ASSIC BINDING(SUPRA) AND FIND THAT THE HONBLE APEX COURT HAS INTERPRETED THE PROVISIONS OF SECTION 80IC AND CLE ARLY RULED OUT THE POSSIBILITY OF THERE BEING TWO INITIAL ASSESSMENT YEARS FOR THE PURPOSE OF CLAIMING 100% DEDUCTION OF PROFITS. IT HAS BEEN CATEGORICALLY HELD THAT AN OTHERWISE EL IGIBLE UNIT, NEWLY SET UP AFTER THE PROVISIONS OF SECTION 80IC W ERE BROUGHT ON THE STATUTE AND WHICH HAS CLAIMED THE YE AR OF COMMENCEMENT OF MANUFACTURING ACTIVITY AS ITS INITI AL ASSESSMENT YEAR THUS CLAIMING DEDUCTION OF 100% OF ITS PROFITS FOR THE PRESCRIBED PERIOD OF FIVE YEARS, WI LL NOT BE ELIGIBLE TO AGAIN CLAIM THE YEAR IN WHICH SUBSTANTI AL EXPANSION IS CARRIED OUT AS THE INITIAL ASSESSMENT YEAR AND THUS CLAIM DEDUCTION OF 100% OF ITS PROFITS BEYOND THE STIPULATED PERIOD OF FIVE YEARS. THE RELEVANT FIND INGS OF THE HONBLE COURT ARE AS UNDER: 17.IN THIS BACKDROP, THE QUESTION IS AS TO WHETHER THESE ASSESSEES, WHO HAD AVAILED DEDUCTIONS @ 100% FOR FIRST FIVE YE ARS ON THE GROUND THAT THEY HAD SET UP A MANUFACTURING UNIT AS PRESCRIBED UNDER SUB-SECTION (2) OF THE ACT, CAN START CLAIMIN G DEDUCTIONS @ 100% AGAIN FOR NEXT FIVE YEARS AS THEY HAD UNDERTAK ING SUBSTANTIAL EXPANSION DURING THE PERIOD MENTIONED IN SUBSECTION (2)? THE ANSWER HAS TO BE IN THE NEGATIVE FOR THE F OLLOWING THE REASONS: ITA NO .317 & 318/CHD/2016 A .YS.2010-11 & 2011-12 5 18. WE ARE DEALING WITH THE DEDUCTIONS IN RESPECT O F PROFITS AND GAINS UNDER SECTION 80-IC OF THE ACT. NO OTHER PROV ISION IS INVOLVED. THIS SECTION MAKES SPECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKINGS OR ENTERPRISES IN CERTAIN SPECIAL CATE GORY STATES. SECTION 80-IC WAS INSERTED BY THE FINANCE ACT, 2003 W.E.F. APRIL 1, 2004. AS PER THIS PROVISION, CERTAIN UNDERTAKINGS O R ENTERPRISES IN CERTAIN SPECIAL CATEGORY STATES ARE ALLOWED DEDUCTI ON FROM SUCH PROFITS AND GAINS, AS SPECIFIED IN SUB-SECTION (3) OF SECTION 80-IC. THE PROVISIONS OF SECTION 80-IC PROVIDED DEDUCTION TO MANUFACTURING UNITS SITUATED IN THE STATE OF SIKKIM, HIMACHAL PRA DESH AND UTTARANCHAL AND NORTH-EASTERN STATES. THE DEDUCTION WAS PROVIDED TO NEW UNITS ESTABLISHED IN THE AFORESAID STATES, A ND ALSO TO EXISTING UNITS IN THOSE STATES IF SUBSTANTIAL EXPAN SION WAS CARRIED OUT. THE DEDUCTION WAS AVAILABLE @ 100% FOR TEN ASS ESSMENT YEARS FOR THE UNITS LOCATED IN NORTH-EASTERN AND IN THE S TATE OF SIKKIM AND FOR THE UNITS LOCATED IN HIMACHAL PRADESH, THE DEDU CTION WAS AVAILABLE @ 100% FOR FIVE YEARS AND @ 25% FOR NEXT FIVE YEARS. 19. IN THE INSTANT CASE, WE ARE CONCERNED WITH THE ASSESSEES WHO HAD ESTABLISHED THEIR UNDERTAKINGS IN THE STATE OF HIMACHAL PRADESH. SUB-SECTION (3), AS NOTED ABOVE, MENTIONS THE PERIOD OF 10 YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR. SUBSECTION (6) PUTS A CAP OF 10 YEARS, WHICH IS THE MAXIMUM PERIOD FOR WHICH THE DEDUCTION CAN BE ALLOWED TO ANY UNDERTAKING OR ENTE RPRISE UNDER THIS SECTION, STARTING FROM THE INITIAL ASSESSMENT YEAR. ANOTHER SIGNIFICANT FEATURE UNDER SUB-SECTION (3) IS THAT T HE DEDUCTION ALLOWABLE IS 100% OF SUCH PROFITS AND GAINS FROM AN UNDERTAKING OR AN ENTERPRISE FOR FIVE ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR AND THEREAFTER THE DEDUCTION IS ALL OWABLE AT 25% (OR 30% WHERE THE ASSESSEE IS A COMPANY) OF THE PRO FITS AND GAINS. CUMULATIVE READING OF THESE PROVISIONS BRINGS OUT T HE FOLLOWING ASPECTS: (A) THOSE UNDERTAKINGS OR ENTERPRISES FULFILLING TH E CONDITIONS MENTIONED IN SUB-SECTION (2) OF SECTION 80-IC BECOM E ENTITLED TO DEDUCTION UNDER THIS PROVISION. (B) THIS DEDUCTION IS ALLOWABLE FROM THE INITIAL AS SESSMENT YEAR. INITIAL ASSESSMENT YEAR IS DEFINED IN SECTI ON 80- IB(14)(C) OF THE ACT. (C) THE DEDUCTION IS @ 100% OF SUCH PROFITS AND GAI NS FOR FIRST 5 ASSESSMENT YEARS AND THEREAFTER A DEDUCTION IS PERMISSIBLE @ 25% (OR 30% WHERE THE ASSESSEE IS A COMPANY). (D) TOTAL PERIOD OF DEDUCTION IS 10 YEARS, WHICH ME ANS 100% DEDUCTION FOR FIRST 5 YEARS FROM THE INITIAL ASSESS MENT YEAR AND 25% (OR 30% WHERE THE ASSESSEE IS A COMPANY) FO R THE NEXT 5 YEARS. 20. WHEN WE KEEP IN MIND THE AFORESAID SCHEME AND S PIRIT BEHIND THIS PROVISION, SUCH A SITUATION CANNOT BE COUNTENA NCED WHERE AN ASSESSEE IS ABLE TO SECURE DEDUCTION @ 100% FOR THE ENTIRE PERIOD OF 10 YEARS. IF THAT IS ALLOWED IT WILL AMOUNT TO DOIN G VIOLENCE TO THE PROVISIONS OF SUB-SECTION (3) READ WITH SUB-SECTION (6) OF SECTION 80- IC. A PRAGMATIC AND REASONABLE INTERPRETATION OF SE CTION 80-IC WOULD BE TO HOLD THAT ONCE THE INITIAL ASSESSMENT Y EAR COMMENCES AND AN ASSESSEE, BY VIRTUE OF FULFILLING THE CONDIT IONS LAID DOWN IN SUB-SECTION (2) OF SECTION 80-IC, STARTS ENJOYING D EDUCTION, THERE CANNOT BE ANOTHER INITIAL ASSESSMENT YEAR FOR THE PURPOSES OF ITA NO .317 & 318/CHD/2016 A .YS.2010-11 & 2011-12 6 SECTION 80-IC WITHIN THE AFORESAID PERIOD OF 10 YEA RS, ON THE BASIS THAT IT HAD CARRIED SUBSTANTIAL EXPANSION IN ITS UN IT. 21. WE ARE CONSCIOUS OF OUR RECENT JUDGMENT RENDERE D BY THIS VERY BENCH IN MAHABIR INDUSTRIES V. PRINCIPAL COMMISSIONER OF INCOME TAX (CIVIL APPEAL NOS. 4765-4766 OF 2018 DECIDED ON MAY 18, 2018). HOWEVER, A FINE DISTINCTION NEEDS TO BE NOTED BETWEEN THE TWO SETS OF CASES. IN MAHABIR INDUSTRIES , THE ASSESSEES HAD AVAILED THE INITIAL DEDUCTION UNDER A DIFFERENT PRO VISION, NAMELY, SECTION 80-IA OF THE ACT, I.E. BY FULFILLING THE CO NDITIONS MENTIONED IN SUB-SECTION (4) OF SECTION 80-IA. THOSE CONDITIONS ARE ALTOGETHER DIFFERENT. DEDUCTION IN RESPECT OF PROFITS AND GAIN S UNDER THE SAID PROVISION IS ADMISSIBLE WHEN THESE PROFITS AND GAIN S ARE FROM INDUSTRIAL UNDERTAKINGS OR ENTERPRISES ENGAGED IN I NFRASTRUCTURE DEVELOPMENT ETC. EVEN THIS AVAILMENT STARTED AT A T IME WHEN SECTION 80-IC WAS NOT EVEN ON THE STATUTE BOOK. AS MENTIONED ABOVE, SECTION 80-IC WAS INSERTED BY THE FINANCE AC T, 2003 WITH EFFECT FROM APRIL 01, 2004. THE ASSESSEES IN THOSE CASES HAD STARTED CLAIMING AND WERE ALLOWED DEDUCTIONS FROM TH E ASSESSMENT YEARS 1998-99 AND 1999-2000 UNDER SECTION 80-IA AND FROM THE ASSESSMENT YEAR 2000-01 TO ASSESSMENT YEAR 2005-06 UNDER SECTION 80-IB OF THE ACT. THE DEDUCTION WAS, THUS, CLAIMED BY THE ASSESSEES IN THOSE APPEALS UNDER THE NEW PROVISION I.E. SECTION 80- IC ON FULFILLING CONDITIONS CONTAINED IN SUB-SECTIO N (2) OF SECTION 80- IC FOR THE FIRST TIME FOR THE ASSESSMENT YEAR 2006- 07. THUS, INSOFAR AS THOSE CASES ARE CONCERNED, THE INITIAL ASSESSMEN T YEAR UNDER SECTION 80-IN CASE STARTED ONLY FROM THE ASSESSMENT YEAR 2006- 07. IN CONTRAST, POSITION HERE IS ALTOGETHER DIFFER ENT. THESE ASSESSEES HAVE AVAILED DEDUCTION UNDER SECTION 80-I C ALONE. INITIALLY, THEY CLAIMED THE DEDUCTION ON THE GROUND THAT THEY HAD SET UP THEIR UNITS IN THE STATE OF HIMACHAL PRADESH AND AFTER AVAILING THE DEDUCTION @ 100% THEY WANT CONTINUATION OF THIS RATE OF 100% FOR THE NEXT 5 YEARS ALSO UNDER THE SAME PROVISION ON THE GROUND THAT THEY HAVE MADE SUBSTANTIAL EXPANSION. AS POINT ED OUT ABOVE, ONCE THE ASSESSEES HAD STARTED CLAIMING DEDUCTION UN DER SECTION 80-IC AND THE INITIAL ASSESSMENT YEAR HAS COMMENCED WITHIN THE AFORESAID PERIOD OF 10 YEARS, THERE CANNOT BE ANOTH ER INITIAL ASSESSMENT YEAR THEREBY ALLOWING 100% DEDUCTION FOR THE NEXT 5 YEARS ALSO WHEN SUB-SECTION (3), IN NO UNCERTAIN TE RMS, PROVIDES FOR DEDUCTION @ 25% ONLY FOR THE NEXT 5 YEARS. IT MAY B E ASSERTED AGAIN THAT THE ASSESSEES ACCEPT THE LEGAL POSITION THAT T HEY CANNOT CLAIM DEDUCTION OF MORE THAN 10 YEARS IN ALL UNDER SECTIO N 80-IC. 22. IN VIEW OF THE AFORESAID DISCUSSION, WE HOLD TH AT AFTER AVAILING DEDUCTION FOR A PERIOD OF 5 YEARS @ 100% OF SUCH PR OFITS AND GAINS FROM THE UNITS, THE ASSESSEES WOULD BE ENTITLED T O DEDUCTION FOR REMAINING 5 ASSESSMENT YEARS @ 25% (OR 30% WHERE TH E ASSESSEE IS A COMPANY), AS THE CASE MAY BE, AND NOT @ 100%. THE QUESTION OF LAW IS, THUS, ANSWERED IN FAVOUR OF THE REVENUE THEREBY ALLOWING ALL THESE APPEALS. 8. IN VIEW OF THE SAME, SINCE AS PER THE FACTS OF T HE PRESENT CASE, THE ASSESSEE IS CLAIMING DEDUCTION O F 100% OF ITS PROFITS U/S 80IC IN THE IMPUGNED YEAR, HAVING A LREADY CLAIMED THE SAME RATE OF DEDUCTION FOR THE STIPULAT ED PERIOD OF FIVE YEARS, BY CLAIMING THE YEAR IN WHICH SUBSTA NTIAL ITA NO .317 & 318/CHD/2016 A .YS.2010-11 & 2011-12 7 EXPANSION WAS CARRIED OUT AS ITS INITIAL ASSESSMENT YEAR, THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY T HE DECISION OF THE APEX COURT. WE THEREFORE SEE NO REA SON TO INTERFERE IN THE ORDER OF THE CIT(A) DENYING THE CL AIM OF 100% DEDUCTION OF PROFITS U/S 80IC OF THE ACT , RES TRICTING IT TO 25% OF THE ELIGIBLE PROFITS. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS THEREFORE DISMISSED. 9. GROUND NO.3(I) RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE OF DEDUCTION U/S 80IC OF THE ACT ON SA LE OF SCRAP AMOUNTING TO RS.10,96,393/-. BEFORE THE ASSES SING OFFICER, THE ASSESSEE CONTENDED THAT THE SCRAP HAD BEEN GENERATED FROM GOODS MANUFACTURED AND WAS THUS ELIG IBLE FOR DEDUCTION U/S 80IC OF THE ACT. BUT THE ASSESSIN G OFFICER DID NOT AGREE WITH THE SAME HOLDING THAT THE SAID I NCOME HAD NO DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. FURTHER WHEN CONFRONTED, THE ASSESSEE OFF ERED THE SAME FOR TAXATION SUBJECT TO NO PENALTY. THE AO THE REFORE REDUCED THE SAID AMOUNT OF RS.10,96,393/, FROM THE PROFITS OF THE ASSESSEE ELIGIBLE FOR DEDUCTION U/S 80IC AND ADDED THE SAME TO THE TAXABLE INCOME OF THE ASSESSEE. 10. THE LD.CIT(APPEALS) UPHELD THE ADDITION SO MADE FOR THE REASON THAT THE ASSESSEE HAD AGREED TO THE SAID ADDITION BEFORE THE ASSESSING OFFICER AND ALSO SINCE NO EVI DENCE WAS FILED BEFORE HIM TO SHOW THAT THE SCRAP WAS GENERAT ED FROM THE MANUFACTURING ACTIVITY OF THE ASSESSEE TO ESTAB LISH ITS ITA NO .317 & 318/CHD/2016 A .YS.2010-11 & 2011-12 8 FIRST DEGREE NEXUS WITH THE SAME ,EXCEPT FOR COPY O F ACCOUNT OF SALE OF SCRAP WHICH DID NOT SERVE THE PURPOSE. 11. BEFORE US, THE LD. COUNSEL FOR ASSESSEE STATED THAT THE INCOME FROM SALE OF SCRAP HAD FIRST DEGREE NEXUS WI TH THE MANUFACTURING ACTIVITIES OF THE ASSESSEE AND WAS TH US ENTITLED TO DEDUCTION U/S 80IC, BUT NO EVIDENCE TO THIS EFFECT WAS PRODUCED EVEN BEFORE US. 12. IN VIEW OF THE ABOVE, SINCE THE ASSESSEE HAD AG REED TO THE AFORESAID ADDITION BEFORE THE ASSESSING OFFICER AND HAVING RAISED ITS CLAIM BEFORE THE CIT(APPEALS) AND EVEN BEFORE US WITHOUT PRODUCING ANY SHRED OF EVIDENCE ESTABLISHING FIRST DEGREE NEXUS BETWEEN THE SCRAP S OLD AND MANUFACTURING ACTIVITIES OF THE ASSESSEE, THE ASSES SEE, WE HOLD, IS NOT ENTITLED TO ANY DEDUCTION U/S 80IC OF THE ACT ON THE SAME. THE GROUND OF APPEAL NO.3(I) RAISED BY TH E ASSESSEE IS, THEREFORE, DISMISSED. 13. IN GROUND NO.3(II) THE ASSESSEE HAS CHALLENGED THE RESTRICTION OF DISALLOWANCE MADE U/S 80IC ON THE S CRAP SALES TO 25% OF THE INCOME FROM SCRAP SALES. SINCE WE HAVE UPHELD THE ORDER OF THE CIT(A) HOLDING THAT THE ASS ESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION ON THE SCRAP SALES, THE INCOME FROM THE SAME IS DIRECTED TO BE REDUCED FROM THE ELIGIBLE PROFITS OF THE ASSESSEE. GROUND NO.3(II) I S ACCORDINGLY DISPOSED. 14. GROUND NO.4(I) RAISED BY THE ASSESSEE RELATES T O DENIAL OF DEDUCTION U/S 80IC OF THE ACT, ON THE MISCELLANE OUS ITA NO .317 & 318/CHD/2016 A .YS.2010-11 & 2011-12 9 RECEIPTS SHOWN BY THE ASSESSEE OF RS.1,27,000/-. TH E SAME WAS DENIED BY THE ASSESSING OFFICER HOLDING THAT TH E SAID INCOME HAD NOT BEEN DERIVED FROM INDUSTRIAL UNDERTA KING AND HAD NO FIRST DEGREE NEXUS WITH THE MANUFACTURIN G ACTIVITY OF THE ASSESSEE. 15. THE LD.CIT(APPEALS) UPHELD THE SAME FOR THE SAM E REASON AND ALSO ON FINDING THAT THE ASSESSEE HAD AG REED TO THE SAID ADDITION BEFORE THE ASSESSING OFFICER. 16. BEFORE US, THE LD. COUNSEL FOR ASSESSEE POINTED OUT FROM THE PLEADINGS MADE BEFORE THE CIT(A) REPRODUCE D AT PAGE 8 OF THE ORDER OF THE CIT(APPEALS), THAT THE S AID MISCELLANEOUS RECEIPTS WERE ON ACCOUNT OF DEBIT NOT ES ISSUED BY THE FIRM TO ITS DEBTORS OF RS.1,25,000/- FOR REVISION OF RATES AND TO CREDITORS OF RS.2,000/- FO R LATE SUPPLY OF MATERIAL BY THEM. THE LD. COUNSEL FOR ASS ESSEE CONTENDED THAT IT IS EVIDENT THAT THE SAME WERE REL ATABLE TO THE PURCHASE/SALE OF THE BUSINESS AND WERE VERY MUC H PART OF THE BUSINESS ACTIVITIES OF THE ASSESSEE AND THUS ENTITLED TO DEDUCTION U/S 80IC OF THE ACT. 17. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE FINDINGS OF THE CIT(A) AT PARA 5.3 OF THE ORDER AS UNDER: 5.3 GROUND NO. 6 AND 7 ARE RELATED TO MISC INCOME O F RS. 127000 INCLUDED IN RETURN OF INCOME. THE AO HAS DISALL OWED THE CLAIM, OF THE APPELLANT FOR DEDUCTION U/S 80IC O N THE SAME. THE APPELLANT HAS RAISED THIS GROUND CONTESTIN G THE SAID DISALLOWANCE. A PERUSAL OF THE MATERIAL ON RECORD S HOWS THAT THE MISC. RECEIPTS ARE ON ACCOUNT OF DEBIT NOTE ISSUED BY THE FIRM TO ITS CUSTOMERS. WHEN CONFRONTED BY THE A O VIDE ORDER SHEET ENTRY DATED 30/10/2012 HOLDING THAT THE MISC. INCOME HAS NO FIRST DEGREE NEXUS WITH MANUFACTURING ITA NO .317 & 318/CHD/2016 A .YS.2010-11 & 2011-12 10 ACTIVITIES AGREED TO OFFER THE SAME FOR TAXATION SU BJECT TO NO PENALTY. THE APPELLANT HAS ACCEDED TO THE CONTENTION OF THE AO DURING THE ASSESSMENT PROCEEDINGS. EVEN OTHERWISE, T HE ISSUANCE OF DEBIT NOTE IS AN ACTIVITY INDEPENDENT FROM THE MANUFACTURING ACTIVITY. IT MAY BE RELATED TO THE CUST OMERS BUT THAT DOES NOT IN ANY WAY ESTABLISH FIRST DEGREE N EXUS WITH MANUFACTURING ACTIVITY. IN FACT, THE DEBIT NOTE S CAN BE ISSUED OR RECEIVED YEARS AFTER THE MANUFACTURING AC TIVITY HAS CEASED. THIS ITSELF ESTABLISHES THAT SUCH RECEIPTS CA N HAVE NO FIRST DEGREE NEXUS WITH THE MANUFACTURING ACTIVIT Y. ACCORDINGLY, THE APPEAL OF THE APPELLANT RAISED IN GRO UND NO. 6 AND 7(1) IS DISMISSED. HOWEVER, THE ALTERNATIVE PLEA RAISED BY THE APPELLANT IN GROUND 7(II) OF THE APPEAL THAT THE AO HAS ERRED IN MAKING ADDITION OF ENTIRE AMOUNT OF RS.1,27,000/- U/S 80IC DESPITE DISALLOWING 75% OF THE TOTAL AS, FOUND BE, CORRECT AS DISCUSSED IN THE PRECEDING PARAGRAPHS, AS THE DEDUCTION U/S 8 0IC HAS BEEN ALLOWED ONLY @ 25% OF THE ELIGIBLE INCOME THE MISCELLANEOUS INCOME INCLUDED THEREIN @25% ONLY SHO ULD BE ADDED BACK. ACCORDINGLY THE GROUNDS OF APPEAL AT NO. 6 AND 7 (I ) ARE DISMISSED WHILE GROUND 7(II) OF THE APPEAL IS ALLOW ED. 18. REFERRING TO THE SAME LD.DR CONTENDED THAT THE CIT(A) HAD RIGHTLY DENIED THE DEDUCTION ON THE MISC. RECIP TS ,SINCE IT WAS CORRECTLY HELD BY HIM THAT THE ISSUANCE OF D EBIT NOTE HAD NO RELATION WITH THE MANUFACTURING ACTIVITY AND WAS AN INDEPENDENT ACTIVITY. 19. HAVING HEARD BOTH THE PARTIES, WE FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE. THE FAC T, AS CONTENDED BY THE ASSESSEE, THAT THE MISC. INCOME R ELATED TO DEBIT NOTES ISSUED TO THE DEBTORS FOR REVISION OF RATES AND TO CREDITORS ON ACCOUNT OF LATE SUPPLY OF PURCHASE MADE FROM THEM, HAS NOT BEEN CONTROVERTED BY THE REVENUE . THEREFORE, THE SAID INCOME CLEARLY RELATED TO THE PURCHASE/ SALE ACTIVITY CARRIED OUT BY THE ASSESSEE AND THERE IS NO IOTA OF DOUBT THAT THE SAID INCOME THEREFORE HAD FIRST D EGREE ITA NO .317 & 318/CHD/2016 A .YS.2010-11 & 2011-12 11 NEXUS WITH THE MANUFACTURING ACTIVITY CARRIED OUT B Y THE ASSESSEE. THE CONTENTION OF THE REVENUE THAT THE IS SUANCE OF DEBIT NOTES IS AN INDEPENDENT ACTIVITY , IN THE LIGHT OF THE FACTS OF THE CASE, HAS NO MERIT AT ALL AND IS THER EFORE REJECTED. WE THEREFORE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IC OF THE ACT ON THE MISC. INCOME O F RS.1,27,000/- AND SET ASIDE THE ORDER OF THE CIT(A) DENYING THE SAME. GROUND OF APPEAL NO.4(I) RAISED BY THE ASSESSEE STA NDS ALLOWED. 20. GROUND NO 4(II) CHALLENGES THE RESTRICTION OF DISALLOWANCE MADE TO 25% OF THE INCOME FROM MISC. RECEIPTS. SINCE WE HAVE HELD THAT THE ASSESSEE IS E LIGIBLE TO CLAIM DEDUCTION U/S 80IC ON THE MISC. RECEIPTS IN G ROUND NO.4(I) ABOVE, AND HAVE ALSO HELD THE ASSESSEE ELIG IBLE TO CLAIM DEDUCTION @ 25% OF ITS ELIGIBLE PROFITS IN GR OUND 2 ABOVE, IT IS DIRECTED THAT THE MISC INCOME BE INCLU DED WHILE COMPUTING THE ELIGIBLE PROFITS OF THE ASSESSEE AND DEDUCTION THEREAFTER BE GRANTED @ 25% THEREON. GROUND NO.4(II ) IS ACCORDINGLY DISPOSED. 21. GROUND NO.5 IS A CONSOLIDATED GROUND RAISED BY THE ASSESSEE AGAINST THE DENIAL OF DEDUCTION U/S 80IC O N THE SCRAP SALES AND MISC. INCOME. THE SAID ISSUES HAVE BEEN DEALT WITH BY US IN GROUND NO. 3 &4 RESPECTIVELY AN D THIS GROUND RAISED THEREFORE STANDS ADJUDICATED IN THE SAID GROUNDS RAISED BEFORE US. ITA NO .317 & 318/CHD/2016 A .YS.2010-11 & 2011-12 12 22. THE APPEAL OF THE ASSESSEE IS THEREFORE PARTLY ALLOWED. ITA NO.318/CHD/2016( A.Y.2011-12): 23. IN THIS APPEAL, THE ASSESSEE HAS RAISED FOLLOW ING EFFECTIVE GROUNDS: 2.(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW BY UPHOLD ING ORDER OF THE AO RESTRICTING THE DEDUCTION CLAIMED B Y THE ASSESSEE U/S 80IC OF THE ACT TO RS.44,00,333/-, I.E. 25% DEDUCTION, AS AGAINST RS.1,76,01,333/-, I.E. 100 % DEDUCTION CLAIMED BY THE ASSESSEE. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN CONFIRMING THE SAID ADDITION BY MISINTERPRETING THE PROVISIONS OF SECTION 80IC OF THE ACT REGARDING 'SU BSTANTIAL EXPANSION'. 3.(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN CONFIRMI NG THE ADDITION MADE BY THE AO ON ACCOUNT OF INCOME GENERATED FROM SCRAP SALES, DESPITE THE FACT THAT TH E SAME IS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. (II) THE ABOVE DISALLOWANCE OF DEDUCTION HAS BEEN MAD E DESPITE THE FACT THAT SCRAP SALES IS ELIGIBLE FOR D EDUCTION U/S 80IC OF THE ACT, IN TOTAL DISREGARD TO THE VARI OUS JUDICIAL PRONOUNCEMENTS IN THIS REGARD. (III) THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS A ND IN LAW IN RESTRICTING THE DISALLOWANCE MADE BY THE AO TO 25% OF THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IC OF THE ACT ON ACCOUNT OF INCOME OF RS.6,01,983/- GENER ATED FROM SCRAP SALES, DESPITE THE FACT THAT THE ASSESSE E IS ELIGIBLE FOR 100% DEDUCTION U/S 80IC. 24. IT IS RELEVANT TO MENTION HERE THAT GROUND NOS. 2 AND 3 RAISED BY THE ASSESSEE IN THIS APPEAL IT WAS COMMO N GROUND, WERE IDENTICAL TO GROUND NOS.2 AND 3 RAISED IN ITA NO.317/CHD/2016 WHICH HAS BEEN ADJUDICATED ABOVE B Y US. OUR DECISION RENDERED THEREIN AT PARA 8 AND PAR A 12-13 RESPECTIVELY, SHALL APPLY WITH EQUAL FORCE TO THE A FORE SAID GROUNDS ALSO. FOLLOWING THE SAME BOTH THE GROUNDS R AISED BY THE ASSESSEE ARE DISMISSED. ITA NO .317 & 318/CHD/2016 A .YS.2010-11 & 2011-12 13 THE APPEAL OF THE ASSESSEE IS THEREFORE DISMISSED. 25. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.317/CHD/2016 IS PARTLY ALLOWED, WHILE THE APPEAL IN ITA NO.318/CHD/2016 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/ SD/- # % $' & (SANJAY GARG) (ANNAPURNA GUPTA) / JUDICIAL MEMBER '( / ACCOUNTANT MEMBER *# / DATED: 13 TH NOVEMBER, 2018 * ' * &) *+,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. - $ / CIT 4. - $ ( )/ THE CIT(A) 5. +./ 0 , #0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35' / GUARD FILE &) $ / BY ORDER, 6 ! / ASSISTANT REGISTRAR