Assistant Commissioner of Income Tax, Circle-1(1), Panaji., Panaji V. M/s Coral Clinical Systems., Goa

ITA 324/PAN/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93545 (ITAT-PANAJI)
• Duration Of Justice: 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-07-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 11-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B BALAKRISHNA
• Assessee Lawyers: LORENCE J MALEKAR
• Section: 80IB; 194C; 10; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 322, 323 & 324 /PNJ/201 4 (ASST. YEAR S : 200 9 - 1 0 , 2010 - 11 & 2011 - 12 ) ACIT, CIRCLE - 1(1), PANAJI. VS. M/S. CORAL CLINICAL SYSTEMS , A - 3, GITANJALI, DR. REGO BAGH, ALTO SANTA CRUZ, BAMBOLIM COMPLEX, GOA. PAN NO. AABFC 8044 P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI LORENCE J. MALEKAR CA DEPARTMENT BY : SHRI B. BALAKRISHNA - DR DATE OF HEARING : 09 / 0 7 /2015 . DATE OF PRONOUNCEMENT : 09 / 0 7 /201 5 . O R D E R PER N.S. SAINI , ACCOUNTANT MEMBER THE S E ARE THE APPEALS FILED BY THE REVENUE AGAINST THE CONSOLIDATED ORDER OF THE LD. CIT (A), PANAJI, DATED 3 0 /0 6 /201 4 FOR THE A.Y S . 2009 - 10 , 2010 - 11 & 2011 - 12 . 2. THE FIRST COMMON GROUND OF APPEAL IN ALL THESE APPEALS IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 6,79,102/ - FOR THE A.Y. 2009 - 10, RS. 11,47,991/ - FOR THE A.Y. 2010 - 11 AND RS. 4,52,620 / - FOR THE A.Y. 2011 - 12 MADE U/S. 40(A)(IA) R.W.S. 194C TOWARDS THE PAYMENT OF DEMURRAGE TO PARTIES IN INDIA. 3. WE HAVE HEARD RIVAL SUBMISSION S AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT 2 ITA NO S . 322 - 324 /PNJ/2014 CASE, THE ASSESSING OFFICER ON VERIFICATION OF P & L A/C FOUND THAT THE ASSESSEE HAS CLAIMED DEDUCTION FOR LOCAL FREIGHT AND EXPORT FREIGHT CHARGES. THE ASSESSEE EXPLAINED THAT THE CLEARING AND FORWARDING AGENTS WERE APPOINTED TO PROVIDE SERVICES TO FACILI TATE THE MOVEMENT OF GOODS FOR SALE/EXPORT BY PERFORMING VARIOUS FUNCTIONS SUCH AS ARRANGING THE DOCUMENTATION, FINDING CARRIER ETC. , FOR WHICH THEY CHARGE FEES/ REMUNERATION. THEY ARE NOT THE TRANSPORTERS / CARRIERS OF THE GOODS, BUT ONLY ARRANGERS FOR THE SAME . IN THE COURSE OF PERFORMING THEIR DUTIES AS FACILITATORS, THEY INCUR EXPENSES FOR FREIGHT CHARGES WHICH THEY CLAIM AS REIMBURSEMENT OF ACTUAL EXPENSES. THERE IS NO DIRECT TRANSACTION/ CONTRACT WITH THE AIRLINES. DISPATCH OF GOODS THROUGH VARIOUS AIRLINES IS AT THE SOLE DISCRETION OF THE FORWARDING AGENTS . THEY DO NOT COLLECT ANY COMMISSION OR SERVICE CHARGES FROM THE ASSESSEE FOR GOODS SENT LOCALLY. SERVICE CHARGES ARE COLLECTED FOR THE GOODS EXPORTED . HENCE, THE ASSESSEE IS CLAIMING THAT REIMBURSEMENT OF EXPENSES ARE NOT COVERED WITHIN THE AMBIT OF SEC. 194C OF THE ACT AS THE PARTIES TO THE CONTRACT FOR THE ACTUAL EXPENSES PAID ARE THE PARTY WHO IS RECEIVING THE REIMBURSEMENT AND THE PARTY WHO RENDERED SERVIC E TO THAT PARTY. IT WAS FURTHER SUBMITTED THAT SERVICE CHARGES PAID TO THE CLEARING AND FORWARDING AGENTS FOR THE SERVICES RENDERED BY THEM ON PRINCIPAL TO PRINCIPAL BASIS AND NOT ON REIMBURSEMENT S . 4 . THE ASSESSING OFFICER, HOWEVER , WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND THE ASSESSING OFFICER HELD THAT AS PER THE AMENDED PROVISIONS OF SEC. 194C, THE CLEARING AND FORWARDING AGENTS COME WITHIN THE PURVIEW OF SERVICE CONTRACTORS/TRANSPORT CONTRACTORS AND THE ASSESSEE WAS LIABLE TO DEDU CT TDS ON THE FREIGHT PAYMENTS MADE TO FORWARDING AND CLEARING AGENTS AND THEREFORE, DISALLOWED RS. 6,79,102/ - FOR THE A.Y. 2009 - 10 , RS. 11,47,991/ - FOR THE A.Y. 2010 - 11 AND RS. 4,52,620/ - FOR THE A.Y. 2011 - 12 BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. 3 ITA NO S . 322 - 324 /PNJ/2014 5. ON APPEAL , LD. CIT(A) HELD THAT THE AMOUNT REIMBURSEMENT TO THE CLEARING AND FORWARDING AGENTS IS THE ACTUAL AIR FREIGHT PAID BY THEM TO THE AIRLINES. THE ASSESSEE CONTENDED THAT THE CLEARING AND FORWARDING AGENTS PRESENTS THE ACTUAL AIR FREIGHT BILL TO CLAIM THE REIMBURSEMENT AND THIS REIMBURSEMENT DOES NOT HAVE ANY SERVICE CHARGES OR ANY ELEMENT OF PROFIT EMBEDDED IN IT AND THEREFORE , ON THE FACTS, THE PROVISIONS OF SEC. 194C OR THE CBDT CIRCULAR IS NOT APPLICABLE . HE HELD THAT IN THE CASE OF M/S. ZEPHYR BIOMEDICALS FOR A.Y. 2009 - 10 , HE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONSEQUENTLY HE DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE U/S. 40(A)(IA) OF THE ACT FOR NON - DEDUCTION OF TAX AT SOURCE ON REIMBURSEMENT OF EXPENSES MADE TO CLEARING AND FORWARDING AGENTS. 6. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER . AR SUPPORTED THE ORDER OF THE LD. CIT(A). 7. WE FIND THAT NO SPECIFIC ERROR IN THE ORDER OF THE LD. CIT(A) COULD BE POINTED OUT BY THE DR . HE COULD NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT THE AMOUNT OF RS. 6,79,102/ - FOR THE A.Y. 2009 - 10, RS.11,47,991/ - FOR THE A.Y. 2010 - 11 AND RS. 4,52,620/ - FOR THE A.Y. 2011 - 12 WERE NOT R EIMBURS E M E N T O F EXPENSES PAID BY THE CLEARING AND FORWARDING AGENTS FOR FREIGHT TO THE AIRLINES . IN THE ABSENCE OF THE SAME, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A), WHICH IS HEREBY CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 8. GROUND NO.2 OF THE APPEAL IN ALL THE YEARS UNDER CONSIDERATION IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) IN DELETING THE ADDITION OF RS. 4,74,540/ - FOR THE A.Y. 2009 - 10, RS. 4,74,540/ - FOR THE A.Y. 2010 - 4 ITA NO S . 322 - 324 /PNJ/2014 11 AND RS. 4,74,540/ - FOR A . Y .2011 - 12 ON ACCOUNT OF GOA VAT INCENTIVE BY DISALLOWING DEDUCTION U/S. 80IB TO THE ASSESSEE . 9. BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE RECEIVED INCENTIVE OF RS. 18,98, 162/ - UNDER GOA VAT DEFERMENT CU M NET COMPULSORY PAYMENT SCHEME 2005 . THE ASSESSEE CLAIMED 80IB BENEFIT ON THE ABOVE INCOME TR E ATING THEM AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING . THE ASSESSING OFFICER RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF STERLING FOODS VS. CIT REPORTED IN 237 ITR 579, PANDIAN CHEMICALS LTD. VS. CIT REPORTED IN 262 ITR 278 AND LIBERTY INDIA VS. CIT REPORTED IN 317 ITR 218 HELD THAT TAX INCENTIVE IS INCENTIVE PROFIT AND THE SAME IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT. 10. ON APPEAL, LD. CIT(A) FOLLOWING THE DECISION OF THE HONBLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. MEGHALAYA STEELS LTD. REPORTED IN (2011) 221 TAXMANN 79 , WHO AFTER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) , HELD THAT EXCISE DUTY REFUND IS INEXTRICABLY LINKED WITH MANUFACTURING ACTIVITY AND HENCE IS ELIGIBLE FOR DEDUCTI O N U/S. 80IB , ALLOWED THE CLAIM OF DEDUCTION U/S. 80IB TO THE ASSESSEE ON GOA VAT INCENTIVE . 11. BEING AGGRIEVED BY THIS ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 12. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND THE AR SUPPORTED THE ORDER OF THE LD. CIT(A). 13. WE FIND THAT ON A SIMILAR ISSUE, THE BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF M/S. DIAMOND TOOL INDUSTRIES VS. JCIT IN 5 ITA NO S . 322 - 324 /PNJ/2014 I.T.A.NO. 136/MUM/2009 VIDE ORDER DATED 14/12/2011 , HELD AS UNDER: - '6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT (A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE HON'BLE GAUHATI HIGH COURT IN THE CASE OF MEGHALAYA STEELS LTD. ( SUPRA) AFTER CONSIDERING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) HAS HELD THAT CENTRAL EXCISE DUTY HAS A DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY AND SIMILARLY THE REFUND OF THE CENTRAL EXCISE DUTY ALSO HAD A DIRECT N EXUS WITH THE MANUFACTURING ACTIVITY. THE ISSUE OF PAYMENT OF CENTRAL EXCISE DUTY WOULD NOT ARISE IN THE ABSENCE OF ANY INDUSTRIAL ACTIVITY. IT WAS, ACCORDINGLY, HELD THAT THE REFUND OF EXCISE DUTY HAS TO BE TAKEN INTO ACCOUNT FOR PURPOSES OF SECTION 80 - IB . FOLLOWING THE RATIO OF THE SAID DECISION, WE ARE OF THE CONSIDERED OPINION THAT THERE IS AN INEXTRICABLE LINK BETWEEN THE MANUFACTURING ACTIVITY, THE PAYMENT OF SALES TAX AND THE SALES TAX INCENTIVE. THEREFORE, IN OUR OPINION, SUCH SALES TAX INCENTIVE WH ICH HAS BEEN RETAINED BY THE ASSESSEE FROM THE SALES TAX COLLECTED HAS TO BE HELD AS DERIVED FROM THE INDUSTRIAL UNDERTAKING AND CONSEQUENTLY IS ELIGIBLE FOR DEDUCTION U/S 80 - IB OF THE ACT. IN THIS VIEW O F THE MATTER, THE ORDER OF THE L D.CIT(A) IS SET ASID E AND THE A.O. IS DIRECTED NOT TO EXCLUDE THE SALES TAX INCENTIVE OF 12,94,1097 - AND RS.84,687/ - FROM THE PROFIT OF UNIT - 1 AND UNIT - II RESPECTIVELY WHILE CALCULATING DEDUCTION U/S 80 - IB OF THE ACT . THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 14. FURTHER , ON A SIMILAR ISSUE, HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. COROMANDEL INTERNATIONAL LTD. IN I.T.A.NO. 1147 & 1157/HYD/2014 & C.O.NOS. 52 & 53/HYD/2014 VIDE ORDER DATED 21/11/2014 , HELD AS UNDER: - 8. HAVING CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD AND AFTER HAVING APPLIED OUR MIND TO THE DECISIONS RELIED UPON BY THE PARTIES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) IN ALLOWI NG BENEFIT U/S 80IB TO ASSESSEE ON EXCISE DUTY REFUND FOR THE FOLLOWING REASONS. 9. IT IS CLEAR FROM THE ASSESSMENT ORDER THAT AO HAS DENIED 80IB DEDUCTION ON EXCISE DUTY REFUND FOR THE SOLE REASON THAT IT CANNOT BE TREATED AS INCOME DERIVED FROM ELIGIBLE 6 ITA NO S . 322 - 324 /PNJ/2014 BUSINESS OF THE UNDERTAKING. HOWEVER, AS CAN BE SEEN FROM THE FACTS BROUGHT ON RECORD, THERE IS NO DISPUTE THAT ASSESSEE HAS PAID THE EXCISE DUTY ON THE GOODS MANUFACTURED AND SOLD AND AS SUCH IT FORMS PART OF THE SALE PRICE OF ASSESSEE. THEREFORE, PAYMENT OF CENTRAL EXCISE DUTY IS INTEGRALLY CONNECTED WITH THE MANUFACTURING AND SALE OF GOODS PRODUCED BY ASSESSEE. IT IS ALSO NOT IN DISPUTE THAT AS PER THE INDUSTRIAL POLICY RESOLUTION DECLARED FOR THE STATE OF J&K AND CONSEQUENT TO CENTRAL EXCISE DEPARTMENT NOTIFICATION, ASSESSEE BECAME ELIGIBLE FOR REFUND OF EXCISE DUTY PAID AFTER SET OFF OF CENVAT CREDIT. THEREFORE, IN SUM AND SUBSTANCE, IT IS ONLY A REFUND OF AN AMOUNT ALREADY PAID BY ASSESSEE AND REDUCED FROM THE SALE PRICE WHILE COMPUTING THE PROFIT. THE REFORE, WHEN ASSESSEE GETS REFUND OF AN EXPENDITURE ALREADY INCURRED THE SAME HAS TO BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION CARRIED ON BY ASSESSEE IN TERMS OF SECTION 41(1)(A) OF THE ACT. IN THAT VIEW OF THE AFTER, EXCISE DUTY REFU ND RECEIVED BY ASSESSEE HAS TO BE TREATED AS PART OF THE BUSINESS PROFIT, HENCE, ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. OTHERWISE ALSO, AS PAYMENT OF EXCISE DUTY IS DIRECTLY LINKED WITH THE MANUFACTURING OF GOODS, REFUND OF EXCISE DUTY HAS TO BE TREAT ED AS INCOME DERIVED FROM ELIGIBLE BUSINESS AS PROVIDED U/S 80IB. IN THE AFORESAID VIEW OF THE MATTER, ASSESSEE WILL BE ELIGIBLE TO CLAIM DEDUCTION U/S 80IB ON THE INCOME ACCRUING FROM REFUND OF EXCISE DUTY. SO FAR AS THE RATIO IN CASE OF LIBERTY INDIA VS. CIT (SUPRA), THE FACTS ARE CLEARLY DISTINGUISHABLE AND DO NOT APPLY TO THE FACTS OF THE PRESENT CASE. IN CASE OF LIBERTY INDIA, THE HONBLE SUPREME COURT WAS CONSIDERING THE PROFITS DERIVED FROM SALE/TRANSFER OF DEPB/DUTY DRAW BACK BENEFITS. DEPB/DUTY DRA W BACK BENEFITS, IS GIVEN UNDER A SCHEME FRAMED UNDER THE CUSTOMS ACT AND IT IS TRANSFERABLE, IN OTHER WORDS, IT IS A MARKETABLE COMMODITY. EXCISE DUTY REFUND BY ASSESSEE IN THE PRESENT CASE IS NEITHER A MARKETABLE COMMODITY NOR TRANSFERABLE. IT IS ONLY A REFUND OF EXPENDITURE ALREADY INCURRED BY ASSESSEE, HENCE THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF LIBERTY INDIA (SUPRA) WILL NOT APPLY. IN THE AFORESAID VIEW OF THE MATTER, WE UPHOLD THE ORDER OF LD. CIT(A) BY DISMISSING GROUNDS RAISED. 15. THUS, ON PERUSAL OF THE ABOVE QUOTED ORDER S OF THE TRIBUNAL, WE FIND THAT THE GOA VAT INCENTIVE RECEIVED BY THE ASSESSEE IS D I R E C T L Y L I N K E D W I T H T H E M A N U F A C T U R I N G A N D S A L E O F G O O D S A N D T H E R E F O R E INCOME 7 ITA NO S . 322 - 324 /PNJ/2014 DERIVED FROM THE INDUSTRIAL UNDERTAKING AND CONSEQUENTLY IS ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT. THEREFORE, RESPECTFU LLY FOLLOWING THE ABOVE QUOTED DECISION S OF THE TRIBUNAL, WE CONFIRM THE ORDER OF THE LD.CIT(A) AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. 16. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON THURSDAY , THE 0 9 TH DAY OF JULY , 201 5 AT GOA . S D / - S D / - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 09 TH JU LY , 201 5 . VR/ - COPY TO: 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE LD.CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI 8 ITA NO S . 322 - 324 /PNJ/2014 DATE INITIAL ORIGINAL DICTATION PAD IS ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 0 9 .0 7 .2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 09 .07 .2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 09 /07 /2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 09 /0 7 /2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 09 /07 /2015 SR.PS 6. DATE OF PRONOUNCEMENT 09 /0 7 /2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 1 0 /07 /2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER