HEM PAINTS P. LTD, MUMBAI V. ACIT 9(2), MUMBAI

ITA 3263/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8328 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 29-10-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 25-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K MEHTA
• Assessee Lawyers: K T HEMANI
• Keywords: Difference of opinion; Change of opinion
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H BENCH BEFORE SHRI I.P.BANSAL (JUDICIAL MEMBER) AND SHRI B. RAJENDRA (ACCOUNTANT MEMBER) ITA NO.3263/MUM/2011 ASSESSMENT YEAR: 2003-04 HEM PAINTS P. LTD., SURVEY NO.62-1, NEAR CROWN CEERNAMIC VILLAGE HOSANPAR WALNKANER-363622 PA NO.AAACH 0987 L MUMBAI OFFICE: G-1, KHIRA INDUSTRIAL ESTATE, S.T.ROAD, SANTACRUZ (W), MUMBAI-400 054 ACIT 9(2), R.NO.218, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI VS. (RESPONDENT) APPELLANT BY : SHRI K.T.HEMANI RESPONDENT BY: SHRI N.K.MEHTA DATE OF HEARING: 29.10.2012 DATE OF PRONOUNCEMENT: 31.10.2012 ORDER PER I.P.BANSAL, JM: THIS IS APPEAL FILED BY ASSESSEE. IT IS DIRECTED AGAINST ORDER OF LD CIT(A) DATED 9.3.2011 FOR ASSESSMENT YEAR 2003-04. 2. GROUNDS OF APPEAL READ AS UNDER: (1) ON THE BASIS OF FACTS AND MERITS, HONBLE CIT( A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. TO EXCLUDE MODVAT CREDIT AMOUNTING TO RS. 42,47,135/- FROM THE OPERATIONAL PROFITS OF THE UNDERTAKING LEADING TO DENIAL OF DEDUCTION U/S.80-IA. (2) ON THE BASIS OF FACTS AND MERITS, THE LEARNED C IT(A) OUGHT TO HAVE HELD THAT MODVAT CREDIT AMOUNTING TO RS. 42,47,135/ - HAS DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY CARRIED ON IN THE I NDUSTRIAL UNDERTAKING AND IS FORMING PART OF PROFITS AND GAINS DERIVED FR OM SUCH UNDERTAKING AND IS ELIGIBLE FOR DEDUCTION U/S. 80-IA. ITA NO.3263/MUM/2011 ASSESSMENT YEAR: 2003-04 2 (3) ON THE BASIS OF FACTS AND MERITS, THE LEARNED C IT(A) OUGHT TO HAVE DECLARED ORDER PASSED BY AO U/S. 143(3) R.W.S. 147 AS BAD IN LAW FOR CHANGE OF OPINION AND FOR UNJUST NARROW VIEW TAKE N BY HIM ON PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING WHILE REOPENIN G ASSESSMENT FOR RECOMPUTING DEDUCTION U/S.80IA. (4) ON THE BASIS OF FACTS AND MERITS THE LEARNED CI T(A) OUGHT TO HAVE HELD THAT MODVAT CREDIT OF RS. 42,47,135/- CREDITED , IN PROFIT & LOSS A/C. AND EXCISE DUTY EXPENSES AMOUNTING TO RS. 1,13,95,2 31/- DEBITED IN PROFIT & LOSS A/C. HAS DIRECT NEXUS WITH THE INCOM E DERIVED FROM INDUSTRIAL UNDERTAKING AND ON THE PRINCIPLES OF MA TCHING THERE IS NET EXPENSE AND THERE IS NO INCOME WHICH HAS ESCAPED AS SESSMENT. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION O F THE A. 0. EXCLUDING AMOUNT OF MODVAT CREDIT FROM THE OPERATIONAL PROFIT S OF THE UNDERTAKING. (5) THE LEARNED CIT(A) OUGHT TO HAVE DECLARED THAT THE JUDICIAL DECISIONS RELIED UPON AS QUOTED IN THE REASONS FOR REOPENING THE ASSESSMENT NAMELY: - (I) STERLING FOODS (237 ITR 573); (II) CI T VS. CEMENT DISTRIBUTORS LTD (208 ITR 355); AND (III) CIT VS. P ANDIAN CHEMICALS LTD (233 ITR 497) ARE NOT APPLICABLE TO THE FACTS OF TH E CASE AND OUGHT TO HAVE HELD THAT REOPENING U/S. 147 BY THE A.O. IS BA D IN LAW MORESO WHEN AMOUNT OF ALLOWANCE U/S. 80-IA WAS DECIDED AFTER DE TAILED SCRUTINY IN THE ORIGINAL ASSESSMENT AND THERE HAD BEEN MERGER OF AS SESSMENT ORDER WITH THE ORDER OF CIT(A). 3. THE SOLE GROUND WHICH WAS ARGUED BEFORE US WAS R EGARDING NON-CONSIDERATION OF MODVAT CREDIT AMOUNTING TO RS.42,47,135/- FOR THE P URPOSE OF COMPUTATION OF DEDUCTION U/S. 80IA AND OTHER ISSUES WERE NEITHER ARGUED BEFO RE US NOR WERE PRESSED BY LD COUNSEL FOR ASSESSEE. 4. LD COUNSEL FOR ASSESSEE SUBMITTED THAT THIS ISSU E ON MERIT IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION DATED 4.11.2011 OF THE TRI BUNAL IN THE CASE OF ACIT VS.THE TOTAL PACKAGING SERVICES, (I.T.A. NO.5364/MUM/2009) . HE SUBMITTED A COPY OF THE DECISION BEFORE US, A COPY OF WHICH WAS ALSO GIVEN TO LD D.R. THE QUESTION RAISED BEFORE THE TRIBUNAL WAS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED IN LAW TO HOLD THAT INCOME FROM MODVAT CREDIT IS DERIVED FRO M INDUSTRIAL UNDERTAKING AS CONTEMPLATED IN SEC.80IB(1) IGNORING THE VITAL FACT THAT THE VERY SOURCE OF SUCH INCOME WAS GOVERNMENT POLIC Y IMPOSING EXCISE DUTY AT DIFFERENTIAL RATE, SAY 16% ON THE PURCHASES OF RAW MATERIALS FOR THE EARLIER ASSESSMENT YEAR AND 8% ON FINISHED GOOD S SOLD DURING THE CURRENT FINANCIAL YEAR, WHICH CAN BE ATTRIBUTED TO INDUSTRIAL UNDERTAKING BUT NOT DERIVED FROM INDUSTRIAL UNDERTAKING. ITA NO.3263/MUM/2011 ASSESSMENT YEAR: 2003-04 3 5. THE SAME WAS DECIDED WITH THE FOLLOWING OBSERVAT IONS: 5 WE HAVE HEARD THE RIVAL CONTENTION AND CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. UNDISPUTEDLY, THE MODVAT CREDIT EARNED BY THE ASSESSEE DURING THE EARLIER YEARS COULD NOT BE AVAILED AND S ET OFF BECAUSE OF THE HUGE DIFFERENCE OF EXCISE DUTY RATES ON PURCHASE OF RAW MATERIAL AND SALE OF GOODS. UPTO 31ST MARCH, 2005, THE EXCISE DUTY ON RAW MATER IAL WAS 16% WHICH THE ASSESSEE USED TO PAY WHEREAS THE EXCISE DUTY ON MAN UFACTURED GOODS COLLECTED BY THE ASSESSEE WAS 8%. THEREFORE, IT WAS NOT POSSI BLE TO RECOVER THE FULL EXCISE DUTY PAID ON PURCHASES FROM THE EXCISE DUTY COLLECT ED ON THE FINISHED GOODS. VIDE FINANCE ACT, 2006, THE GOVERNMENT HAS AMENDED THE RATES OF EXCISE DUTY AND CONSEQUENTLY, THE EXCISE DUTY ON PURCHASES OF R AW MATERIAL BY THE ASSESSEE WAS REDUCED FROM 16% TO 8%. THUS, ONLY AFTER THE AM ENDMENT VIDE THE FINANCE ACT 2006, THE ASSESSEE WAS ABLE NOT ONLY TO RECOVER THE FULL EXCISE DUTY PAYABLE BUT ALSO SET OFF THE MODVAT CREDIT EARNED IN THE EA RLIER YEARS. 5.1 IT IS NOT THE CASE OF THE REFUND OF EXCISE DUTY IN CASH; BUT ONLY A BENEFIT OF MODVAT CREDIT WAS AVAILABLE TO THE ASSESSEE, WHICH COULD BE SET OFF AND UTILIZED AGAINST THE COLLECTION OF THE EXCISE DUTY ON SALE O F GOODS W.E.F ASSESSMENT YEAR 2006-07. THEREFORE, THIS AMOUNT HAS BEEN RIGHTLY TA KEN INTO ACCOUNT AS INCOME FOR THE YEAR UNDER CONSIDERATION. EVEN OTHERWISE, T HE ASSESSING OFFICER HAS NOT TREATED THIS AMOUNT AS THE INCOME OF THE EARLIER YE ARS BUT DENIED THE DEDUCTION ON THE GROUND THAT THIS IS NOT THE INCOME DERIVED F ROM THE INDUSTRIAL UNDERTAKING. 6 IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT OR SUBSTANCE IN THE CONTENTION OF THE LD DR. 6.1 ON THE ISSUE WHETHER THIS BENEFIT OF MODVAT CRE DIT IS THE INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING OR NOT, THE HONBLE GUWA HATI HIGH COURT IN THE CASE OF MEGHALAYA STEELS LTD. (SUPRA), HAS HELD AS UNDER: IN SO FAR AS THE SECOND QUESTION IS CONCERNED, THE CENTRAL EXCISE DUTY REFUND CLAIMED BY THE ASSESSEE IS ON THE BASIS OF A N EXEMPTION NOTIFICATIONS ISSUED BY THE MINISTRY OF FINANCE (DE PARTMENT OF REVENUE) BEING NOTIFICATION NO. 32 OF 1999 AND NOTIFICATION NO. 33 OF 1999 BOTH DATED JULY 8, 1999. IN TERMS OF THESE NOTIFICATIONS , A MANUFACTURER IS REQUIRED TO FIRST PAY THE CENTRAL EXCISE DUTY AND T HEREAFTER CLAIMED A REFUND ON FULFILMENT OF CERTAIN CONDITIONS. IN THE NEXT MONTH, AFTER VERIFICATION OF THE CLAIM, THE CENTRAL EXCISE DUTY SO DEPOSITED IS REFUNDED TO THE ASSESSEE IF THE CONDITIONS LAID DOWN IN THE NOTIFICATIONS ARE FULFILLED. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE A SSESSEE WAS ENTITLED TO THE CENTRAL EXCISE DUTY REFUND. THE CENTRAL BOARD OF EXCISE AND CUSTOMS IN ITS CIRC ULAR DATED DECEMBER 19, 2002 CLARIFIED THAT THE REFUND IS NOT ON ACCOUN T OF EXCESS PAYMENT OF EXCISE DUTY BUT IS BASICALLY DESIGNED TO GIVE EFFEC T TO THE EXEMPTION AND ITA NO.3263/MUM/2011 ASSESSMENT YEAR: 2003-04 4 TO OPERATIONALISE THE EXEMPTION GIVEN BY THE NOTIFI CATIONS. IN THAT SENSE, THE CENTRAL EXCISE DUTY REFUND DOES NOT APPEAR TO B EAR THE CHARACTER OF INCOME SINCE WHAT IS REFUNDED TO THE ASSESSEE IS TH E AMOUNT PAID UNDER THE MODALITIES PROVIDED BY THE DEPARTMENT OF REVENU E FOR GIVING EFFECT TO THE EXEMPTION NOTIFICATIONS. THERE IS ALSO NOTHING TO SUGGEST THAT THE ASSESSEE HAS RECOVERED OR PASSED ON THE EXCISE DUTY ELEMENT TO ITS CUSTOMERS. EVEN ASSUMING THE REFUND DOES AMOUNT TO INCOME IN T HE HANDS OF THE ASSESSEE, IT IS A PROFIT OR GAIN DIRECTLY DERIVED B Y THE ASSESSEE FROM ITS INDUSTRIAL ACTIVITY. THE PAYMENT OF CENTRAL EXCISE DUTY HAS A DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY AND SIMILARLY, THE REFUND OF THE CENTRAL EXCISE DUTY ALSO HAS A DIRECT NEXUS WITH THE MANUFA CTURING ACTIVITY. THE ISSUE OF PAYMENT OF CENTRAL EXCISE DUTY WOULD NOT A RISE IN THE ABSENCE OF ANY INDUSTRIAL ACTIVITY. THERE IS, THEREFORE, AN IN EXTRICABLE LINK BETWEEN THE MANUFACTURING ACTIVITY, THE PAYMENT OF CENTRAL EXCISE DUTY AND ITS REFUND. IN THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT QUESTION NO. 2 MUST BE ANSWERED IN THE AFFIRMATIVE IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE. 6.2 THE HONBLE HIGH COURT HAS DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE AFTER CONSIDERING THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF LIBERTY INDIA VS CIT REPORTED IN 317 ITR 218. ACCORDINGLY, FOLLOWING THE DECISION OF THE HONBLE GAWAHATI HIGH COURT IN THE CASE OF MEGHALAY A STEELS LTD (SUPRA), WE DEICIDE THIS ISSUE AGAINST THE REVENUE AND IN FAVOU R OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 6. ON THE OTHER HAND, LD D.R. RELIED UPON ORDER PAS SED BY LD CIT(A). 7. THE AFOREMENTIONED MODVAT CREDIT HAS BEEN EXCLUD ED WHILE CONSIDERING THE CLAIM OF ASSESSEE REGARDING DEDUCTION U/S.80IB ON T HE GROUND THAT SAME IS NOT AN INCOME DERIVED FROM INDUSTRIAL UNDERTAKING AND, THE REFORE, NOT ELIGIBLE FOR DEDUCTION U/S. 80IB. THIS ISSUE WAS ALSO CONSIDERED BY THE CO-ORD INATE BENCH OF THIS TRIBUNAL IN THE AFOREMENTIONED CASE AND IT HAS BEEN HELD THAT LD CI T(A) WAS RIGHT IN ADMITTING SUCH CLAIM OF THE ASSESSEE AS THE SAME WAS IN ACCORDANCE WITH THE DECISION OF HONBLE GUWAHATI HIGH COURT IN THE CASE OF CIT VS. MEGHALAY A STEELS LTD., 332 ITR 91(GUW) AND ALSO THE ORDER OF DELHI BENCH OF THE TRIBUNAL IN TH E CASE OF M/S J.K.ALUMINIUM CO. VS ITO ( ITA NO.3303/DEL/2010) ORDER DATED 29.4.2011. NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE. THEREFORE, AFTER HEARING BOTH THE P ARTIES, WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE AFORE MENTIONED DECISION. RESPECTFULLY ITA NO.3263/MUM/2011 ASSESSMENT YEAR: 2003-04 5 FOLLOWING THE DECISION OF CO-ORDINATE BENCH(SUPRA), WE ALLOW APPROPRIATE RELIEF TO THE ASSESSEE AND DIRECT THE AO THAT MODVAT CREDIT AMOUN TING TO RS.42,47,185 SHOULD BE CONSIDERED AS INCOME DERIVED FROM INDUSTRIAL UNDERT AKING AND DEDUCTION U/S.80IB SHOULD BE COMPUTED ACCORDINGLY. IT HAS ALREADY BEEN MENTIO NED THAT LD A.R. DID NOT PRESS OTHER GROUNDS WHICH, INTER ALIA , INCLUDES VALIDITY OR OTHERWISE OF REASSESSMENT PR OCEEDINGS. THE OTHER GROUNDS ARE DISMISSED AS NOT PRESSED. 9. IN THE RESULT, APPEAL IS PARTLY ALLOWED IN THE M ANNER AFORESAID. PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2012 SD/- (RAJENDRA) ACCOUNTANT MEMBER SD/- (I.P.BANSAL) JUDICIAL MEMBER MUMBAI, DATED 31 ST OCTOBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX(A)IX 4. CIT-IX 5. DEPARTMENTAL REPRESENTATIVE, BENCH H MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI