Home Tex, Panipat V. ACIT circle, Panipat

ITA 3272/DEL/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1073 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 13-10-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 03-11-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K SINHA
• Assessee Lawyers: PANKAJ JAIN
• Keywords: Business expenditure
• Section: 143(3); 133A; 80IB; 274; 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI D.R.SINGH, JM AND SHRI R.C.SHARMA, AM ITA NO.3272/DEL/2008 ASSESSMENT YEAR : 2005-06 M/S HOME TEX, PLOT NO.77, SECTOR-29, HUDA, PANIPAT. PAN NO.AAAFH5045C. VS. ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE, PANIPAT. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ JAIN AND SHRI GURJEET SI NGH. RESPONDENT BY : SHRI A.K.SINHA, DR. ORDER PER R.C.SHARMA, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A) DATED 16.9.2008 FOR AY 2005-06, IN THE MATTER OF ORDER PA SSED U/S 143(3) OF THE IT ACT. 2. FOLLOWING GROUNDS OF APPEAL HAVE BEEN TAKEN BY T HE ASSESSEE :- 1. THAT THE LEARNED CIT(A) IS NOT JUSTIFIED IN UPH OLDING THE ASSESSMENT ORDER MECHANICALLY ON THE GROUND THAT TH E ORDER OF THE ASSESSING AUTHORITY IS JUSTIFIED WHEREAS AS PER THE ASSESSEE THERE IS NONE INDEPENDENT APPLICATION OF A JUDICIAL MIND FOR ARRIVING OF A DECISION MAKING. 2. A) THAT THE LEARNED CIT(A) IS NOT JUSTIFIED IN U PHOLDING THE ASSESSMENT ORDER FOR DECLINING THE CLAIM OF EXP ORT INCENTIVES DUTY DRAWBACK/DEPB U/S 80IB ON THE GROUND OF PLACIN G RELIANCE ON THE JUDGEMENT OF HON'BLE PUNJAB & HARYANA HIGH COUR T IN THE CASE OF LIBERTY INDIA VS. CIT 207 CTR 243 (P&H), WHEREAS THE DUTY DRAWBACK RECEIVED BY THE APPELLANT IS DERIVED FROM AN INDUSTRIAL UNDERTAKING AS PER THE GENESIS OF THE WORD DERIVED IN ITS TRUE SENSE AND SPIRITS. B) THAT THE ACTION OF CIT(A) IS UNSUSTAINABLE IN DE NYING THE CLAIM OF THE DUTY DRAWBACK/DEPB, WHICH IS HAVING DI RECT NEXUS AND ITA-3272/D/2008 2 BEING GERMANE TO THE BUSINESS AS PER THE JUDGEMENT OF UNION OF INDIA VS. RAJINDRA DYEING AND PRINTING MILLS LTD. 2 005 (180) E.L.T. 433 (SC), SUN INDUSTRIES, 1988 (35) ELT 241 (SC) & (RECENTLY HONBLE HIGH COURT OF RAJASTHAN IN THE CASE OF M/S SARAF SEASONING UDYOG VS. ITO, WARD-2, CHURU, ITA NO.76 OF 2006 & 7 7 OF 2006). 3. THE CIT(A) HAS ERRED IN REDUCING THE DEDUCTION U /S 80IB FROM RS.23,10,397/- TO RS.4,67,369/- TREATING INCOM E DECLARED UNDER SURVEY AMOUNTING TO RS.40,00,000/- UNDER THE HEAD I NCOME FROM OTHER SOURCES INSTEAD OF PROFIT & GAINS FROM BUSINE SS OR PROFESSION. 4. THAT THE CIT(A) HAS NOT ALLOWED TELEPHONE EXP AM OUNTING TO RS.26,442/- (1/6 OF TELEPHONE EXPENSES) TREATED AS PERSONAL EXPENDITURE INSTEAD OF BUSINESS EXPENDITURE WHICH I S HIGHLY EXCESSIVE. 5. THAT THE ORDER OF THE CIT(APPEALS) IS AGAINST LA W & FACTS. 6. THE APPELLANT DISPUTES THE QUANTUM OF ADDITION. 7. THAT THE APPELLANT CRAVES FOR PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL AND FOR GRANTING OF ANY CONSEQUENTIAL RELIEF AND ON LEGAL CLAIM ARISING IN THE INTEREST O F SUBSTANTIAL JUSTICE TO AVOID PROTRACTED LITIGATION BEFORE OR AT THE TIM E OF HEARING OF APPEAL. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN EXPORTER WHO DERIV ES INCOME FROM MANUFACTURE AND EXPORT OF HANDLOOM GOODS. THE ASSESSEE HAS RECEIVE D CASH INCENTIVES ON ACCOUNT OF DUTY DRAWBACK AND DEPB. THE ASSESSEE HAS CLAIME D THAT DUTY DRAWBACK AND DEPB ARE PART OF EXPORT RECEIPTS OR ALTERNATIVELY T HEY MAY BE REDUCED FROM THE COST OF GOODS MANUFACTURED BECAUSE IT IS RETURN OF THE DUTY PAID, THEREFORE, THE ASSESSEE CLAIMED DEDUCTION U/S 80IB ON THE AMOUNT O F DUTY DRAWBACK AND DEPB ALSO. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE BY RELYING ON THE DECISION IN THE CASE OF CIT VS. STERLING FOODS 237 ITR 579 (S C), CIT VS. RITESH INDUSTRIES 274 ITR 324 (DELHI) AND OTHER DECISIONS AND HELD THAT THE DUTY DRAWBACK AND DEPB ARE NOT THE INCOME DERIVED FROM THE BUSINESS I NCOME WHICH IS ELIGIBLE FOR DEDUCTION U/S 80IB. BY THE IMPUGNED ORDER, THE CIT (A) CONFIRMED THE ACTION OF ITA-3272/D/2008 3 THE AO BY RELYING ON THE DECISION OF HON'BLE JURISD ICTIONAL HIGH COURT IN THE CASE OF LIBERTY INDIA, ORDER DATED 22.9.2006 REPORTED AT 207 CTR 243. AGAINST THIS ORDER OF CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. THE LEARNED AR FAIRLY CONCEDED THAT THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF LIBERTY INDIA HAS BEEN CONFIRMED BY THE HON'BLE SUPREME COURT VIDE ITS ORDER DATED 31.8.200 9. 5. IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) WHEREIN IT WAS HELD THAT DEPB/DUTY DR AWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY THE CENTRAL GOVERNM ENT OR FROM SECTION 75 OF CUSTOMS ACT, 1962, HENCE INCENTIVES PROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS U/S 80IB. IT WAS FURTHER HELD TH AT THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS. THEREFORE, DUTY DRAWBACK, DEPB BENEFITS, REBATES ETC. CANNOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT & LOSS ACCOUNT FOR PURPOSES OF SECTION 8 0-IA/80-IB AS SUCH REMISSIONS (CREDITS) WOULD CONSTITUTE INDEPENDENT SOURCE OF IN COME BEYOND THE FIRST DEGREE NEXUS BETWEEN PROFITS AND THE INDUSTRIAL UNDERTAKIN G. 6. IN THE RESULT, GROUND NO.1 & 2 OF THE ASSESSEES APPEAL STAND DISMISSED. 7. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO NOT AL LOWING DEDUCTION U/S 80IB IN RESPECT OF INCOME DECLARED UNDER SURVEY AMOUNTING T O RS.40 LAKHS. 8. FACTS IN BRIEF ARE THAT DURING THE YEAR, A SURVE Y U/S 133A OF THE IT ACT WAS CONDUCTED ON 9.3.2005 AT THE BUSINESS PREMISES OF T HE ASSESSEE. DURING THE COURSE OF SURVEY, PHYSICAL INVENTORY OF STOCK WERE PREPARE D. CERTAIN DISCREPANCIES WERE FOUND IN THE STOCK AND THE ASSESSEE SURRENDERED ADD ITIONAL INCOME OF RS.40 LAKHS FOR TAXATION ON ACCOUNT OF DIFFERENCE IN STOCK. TH E AO TREATED THE SAID SURRENDER ITA-3272/D/2008 4 AS INCOME FROM OTHER SOURCES AND THEREFORE DID NOT ALLOW CLAIM OF DEDUCTION U/S 80IB ON SUCH INCOME. THE CIT(A) ALSO CONFIRMED THE ACTION OF THE AO. 9. IT WAS ARGUED BY THE LEARNED AR THAT ASSESSEE WA S ONLY HAVING INCOME FROM THE INDUSTRIAL UNDERTAKING, THE EXCESS STOCK F OUND DURING THE COURSE OF SURVEY WAS PROCURED ONLY OUT OF PROFIT EARNED FROM INDUSTR IAL UNDERTAKING, THEREFORE DEDUCTION U/S 80IB IS TO BE ALLOWED ON SUCH SURREND ERED INCOME. HE FURTHER CONTENDED THAT THE CLAIM IS FOR ALLOWANCE OF 80IB D EDUCTION ON THE VALUATION DIFFERENCE OF THE STOCK WHICH HAS BEEN ASSUMED AND INCORPORATED BY THE DEPARTMENT ON THE BASIS OF PRECEDING YEAR GROSS PRO FIT RATE. AS PER LEARNED AR, SURRENDER OF RS.40 LAKHS WAS ATTRIBUTABLE TO RATE D IFFERENCE IN THE CLOSING STOCK PHYSICALLY TAKEN DURING COURSE OF SURVEY. HE CONTE NDED THAT DURING THE COURSE OF SURVEY, NO DOCUMENT WAS FOUND INDICATING ANY UNACCO UNTED TRANSACTION OF PURCHASE/SALE OF STOCK. AS PER LEARNED AR, SINCE T HERE HAS BEEN A COMPLETE ACCEPTANCE OF BOOK RESULTS IN THE SUBSEQUENT YEAR, THERE WAS NO VALID REASON BEFORE THE AO TO DECLINE CLAIM OF DEDUCTION ON SUCH BUSINE SS INCOME U/S 80IB OF IT ACT. 10. ON THE OTHER HAND, LEARNED DR SUBMITTED THAT AS PER THE STATEMENT OF THE ASSESSEE WITH REGARD TO SURRENDER OF ADDITIONAL INC OME WAS CLEARLY ATTRIBUTABLE TO THE EXCESS STOCK FOUND ON VERIFICATION. THERE WAS NO EVIDENCE TO THE EFFECT THAT SUCH ADDITIONAL STOCK WAS PROCURED OUT OF INCOME EA RNED FROM INDUSTRIAL UNDERTAKING, THEREFORE LOWER AUTHORITIES WERE JUSTI FIED IN DECLINING CLAIM OF DEDUCTION ON SUCH SURRENDERED INCOME U/S 80IB OF TH E ACT. 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, DELIB ERATED UPON THE VARIOUS CASE LAWS CITED BY LEARNED AR AND TOWARDS WHICH OUR ATTE NTION WAS DIVERTED WITH REFERENCE TO THE FACTUAL MATRIX OF INSTANT CASE. F ROM THE RECORD, WE FOUND THAT DURING THE COURSE OF SURVEY, EXCESS STOCK WAS FOUND ON PHYSICAL VERIFICATION, WHILE SURRENDERING RS.40 LAKHS, THE ASSESSEE HAS FURNISHE D A LETTER WHICH READS AS UNDER:- ITA-3272/D/2008 5 SURVEY U/S 133A(1) WAS CONDUCTED BY THE INCOME-TAX DEPARTMENT ON OUR BUSINESS PREMISES TODAY I.E. 9.3.2005. INVE NTORY OF STOCKS IN THE PREMISES WAS PREPARED AND THE SAME WAS VALUED W ITH OUR HELP. THE STOCKS AS PER BOOKS OF ACCOUNTS AND AS PER INVE NTORY IS AS UNDER: STOCK AS PER BOOKS OF ACCOUNTS 161805-00 AS PER INVENTORY 4161705-00 DIFFERENCE IN STOCK 3999900-00 WE HEREBY SURRENDER RS.40,00,000-00 ON ACCOUNT OF E XCESS STOCK AS PER PHYSICAL VERIFICATION VOLUNTARILY AND WITHOUT ANY PRESSURE OR FORCE. THE SURRENDER OF ADDITIONAL INCOME IS BEING MADE SUBJECT TO NO PENALTY AND PROSECUTION. NO ADJUSTMENT WILL BE MADE AGAINST THE SURRENDERED INCOME. THE SURRENDER OF ADDITIONAL IN COME IS OVER AND ABOVE THE REGULAR INCOME AS PER BOOKS OF ACCOUNTS. ADVANCE TAX ON THE ADDITIONAL INCOME WILL BE DEPOSITED BY 15-03-20 05. POST DATED CHEQUE NO.1181332 DATED 15-03-2005 FOR RS.15,00,000 -00 OF THE BANK OF INDIA, G.T.ROAD, PANIPAT BRANCH IS BEING GI VEN IN LIEU OF ADVANCE TAX. THE SURRENDER OF ADDITIONAL INCOME IS FOR F.Y. 2004- 2005 RELEVANT TO AY 2005-2006. 12. IT IS QUITE EVIDENT FROM THE ABOVE LETTER SUBMI TTED BY ASSESSEE THAT RS.40 LAKHS INCOME WAS SURRENDERED ONLY ON ACCOUNT OF EXC ESS STOCK FOUND AS PER PHYSICAL VERIFICATION. IT WAS ALSO STATED IN THE L ETTER THAT NO ADJUSTMENT WILL BE MADE AGAINST THE SURRENDERED INCOME AND SUCH SURREN DERED INCOME IS OVER AND ABOVE THE REGULAR INCOME AS PER BOOKS OF ACCOUNT. ADVANCE TAX ON THE ADDITIONAL INCOME WAS ALSO PROPOSED TO BE DEPOSITED VIDE POST DATED CHEQUES. SINCE IN THE LETTER ITSELF THE ASSESSEE HAS ACCEPTED THAT THIS A DDITIONAL INCOME WAS OVER AND ABOVE THE REGULAR INCOME AS PER BOOKS OF ACCOUNT, T HE REGULAR INCOME WHICH IS ARISING OUT OF INDUSTRIAL UNDERTAKING CAN ONLY BE S UBJECT TO DEDUCTION U/S 80IB AND NO OTHER INCOME SURRENDERED ON ACCOUNT OF ADDITIONA L STOCK FOUND DURING THE COURSE OF SURVEY CAN BE CONSIDERED FOR DEDUCTION U/ S 80IB. MORE PARTICULARLY IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN TH E CASE OF LIBERTY INDIA (SUPRA) WHEREIN EVEN THE INCOME FROM DEPB AND DUTY DRAWBACK WHICH ARE RECEIVED BY THE INDUSTRIAL UNDERTAKING AS AN INCENTIVE IN THE C OURSE OF THEIR BUSINESS WERE HELD TO BE NOT ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80IB, NOTHING IS LEFT FOR GRANTING DEDUCTION IN RESPECT OF SUCH INCOME SURRENDERED DUR ING THE COURSE OF SURVEY ITA-3272/D/2008 6 WHICH IS ATTRIBUTABLE TO THE EXCESS STOCK FOUND DUR ING THE SURVEY. NOTHING WAS BROUGHT ON RECORD BY THE LEARNED AR TO SHOW THAT AM OUNT SO INVESTED IN THE EXCESS STOCK WAS DERIVED FROM INDUSTRIAL UNDERTAKING. IT I S NOT ONLY THE INCOME OF THE BUSINESS WHICH CAN BE CLAIMED FOR DEDUCTION U/S 80I B BUT IT IS ONLY THAT INCOME WHICH IS DERIVED FROM INDUSTRIAL UNDERTAKING AND CO MES WITHIN THE FIRST DEGREE OF NEXUS BETWEEN PROFIT AND INDUSTRIAL UNDERTAKING AS FOUND BY THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA), THAT CA N BE MADE AVAILABLE FOR ALLOWING THE DEDUCTION U/S 80IB OF THE IT ACT. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF LOWER AUTHORITIES FOR DECLINING CLAIM OF DEDUCTION U/S 80IB IN RESPECT OF EXTRA INCOME SURRENDERED DURING SURVEY ON ACCOUNT O F EXCESS STOCK PHYSICALLY FOUND AS COMPARED TO THE STOCKS INDICATED IN THE RE GULAR BOOKS OF ACCOUNT. 13. LAST GRIEVANCE OF THE ASSESSEE RELATES TO DISAL LOWANCE OF RS.26,442/- ON ACCOUNT OF TELEPHONE EXPENSES, BY TREATING THE SAME AS PERSONAL EXPENDITURE INSTEAD OF BUSINESS EXPENDITURE. WE FOUND THAT AO HAS DISALLOWED 1/6 TH OF THE TELEPHONE EXPENSES WHICH WAS CONFIRMED BY THE CIT(A ). KEEPING IN VIEW THE NATURE OF THE ASSESSEES BUSINESS VIS--VIS QUANTUM OF TRANSACTIONS INVOLVED IN THE BUSINESS, WE CONSIDER IT APPROPRIATE TO CONFINE DIS ALLOWANCE ON ACCOUNT OF TELEPHONE EXPENSES TO THE EXTENT OF 1/10 TH OF THE EXPENSES SO INCURRED, ON ACCOUNT OF PERSONAL USE. AO IS DIRECTED ACCORDINGLY. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART. DECISION PRONOUNCED IN THE OPEN COURT ON 6 TH NOVEMBER, 2009. SD/- SD/- (D.R.SINGH) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 06.11.2009. VK. ITA-3272/D/2008 7 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR