M/s. Flex Foods Limited, New Delhi V. ACIT, New Delhi

ITA 347/DEL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6649 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 20-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR SHARMA SENIOR
• Assessee Lawyers: SURESH ANANTHARAMAN
• Keywords: Opportunity of being heard; Capital receipt
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.346/DEL./2014 (ASSESSMENT YEAR : 2009-10) ITA NO.347/DEL./2014 (ASSESSMENT YEAR : 2010-11) M/S. FLEX FOODS LIMITED, VS. ACIT, CENTRAL CIRCLE 18, 305, 3 RD FLOOR, BHANOT CORNER, NEW DELHI. PAMPOSH ENCLAVE, GREATER KAILASH I, NEW DELHI 110 048. (PAN : AAACF0108K) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SURESH ANANTHARAMAN, CA REVENUE BY : SHRI ANIL KUMAR SHARMA, SENIOR DR DATE OF HEARING : 15.11.2016 DATE OF ORDER : 21.11.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN R AISED IN BOTH THE AFORESAID APPEALS, THE SAME ARE BEING D ISPOSED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DI SCUSSION. 2. THE APPELLANT, M/S. FLEX FOODS LIMITED (HEREINAF TER REFERRED TO AS THE ASSESSEE), BY FILING BOTH THE AFORESAID APPEALS SOUGHT TO ITA NOS.346 & 347/DEL./2014 2 SET ASIDE THE IMPUGNED ORDERS BOTH DATED 22.11.2013 QUA THE ASSESSMENT YEARS 2009-10 AND 2010-11 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, NEW DELHI ON THE GROUNDS INTER ALIA THAT:- GROUNDS OF APPEAL (AY 2009-10) 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LOWER AUTHORITIES ERRED IN LAW NOT ALLOWI NG DEDUCTION U/S 80-IC ON INCENTIVE GRANTED UNDER VISH ESH KRISHI AND GRAM UDYOG YOJANA (VKGUY) OF RS.1,17,83,416/- ALLOWED TO COMPENSATE HIGH TRANSPO RT COST INCURRED BY THE COMPANY. 2. IT IS CONTENDED THAT INCENTIVES GRANTED UNDER VISHESH KRISHI AND GRAM UDYOG YOJANA (VKGUY) HAVE A DIRECT, INTRINSIC AND FIRST DEGREE NEXUS WITH THE BUSINESS OPERATIONS OF THE APPELLANT. 3. IT IS CONTENDED THAT INCENTIVE WERE GIVEN TO OFF SET THE HIGH FREIGHT COSTS INCURRED BY THE APPELLANT AN D THUS THE NET EFFECT THEREOF ON THE PROFITS IS NIL. 4. THE LOWER AUTHORITIES ERRED IN HOLDING THAT THE PROFITS GENERATED OUT OF SUCH INCENTIVE ARE NOT OPE RATIONAL PROFITS. 5. THE LOWER AUTHORITIES ERRED IN HOLDING THAT SOU RCE OF SUBSIDY I PROFITS ARE NOT THE BUSINESS BUT THE S CHEMES CENTRAL GOVERNMENT. 6. WITHOUT PREJUDICE TO ABOVE, IT IS STATED THAT T HE LOWER AUTHORITIES ERRED IN HOLDING THAT INCENTIVE G IVEN UNDER VISHESH KRISHI AND GRAM UDYOG YOJANA (VKGUY) WITH AN OBJECTIVE TO GENERATE EMPLOYMENT AN D PROMOTE ECONOMIC GROWTH IS NOT A CAPITAL RECEIPT. 7. THE LOWER AUTHORITIES ERRED IN HOLDING THAT THE SAID INCENTIVE BEING CAPITAL IN NATURE IS NOT TO BE DEDU CTED WHILE ARRIVING BOOK PROFITS UNDER SECTION 115JB. ITA NOS.346 & 347/DEL./2014 3 8. THE APPELLANT CRAVES TO ADD, REDUCE, WITHDRAW, MODIFY AND ALTER THE GROUNDS OF THE APPEAL. GROUNDS OF APPEAL (AY 2010-11) 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LOWER AUTHORITIES ERRED IN LAW NOT ALLOWI NG DEDUCTION U/S 80-IC ON INCENTIVE GRANTED UNDER VISH ESH KRISHI AND GRAM UDYOG YOJANA (VKGUY) OF RS.1,35,55,206/- ALLOWED TO COMPENSATE HIGH TRANSPO RT COST INCURRED BY THE COMPANY. 2. IT IS CONTENDED THAT INCENTIVES GRANTED UNDER VISHESH KRISHI AND GRAM UDYOG YOJANA (VKGUY) HAVE A DIRECT, INTRINSIC AND FIRST DEGREE NEXUS WITH THE BUSINESS OPERATIONS OF THE APPELLANT. 3. IT IS CONTENDED THAT INCENTIVE WERE GIVEN TO OFF SET THE HIGH FREIGHT COSTS INCURRED BY THE APPELLANT AN D THUS THE NET EFFECT THEREOF ON THE PROFITS IS NIL. 4. THE LOWER AUTHORITIES ERRED IN HOLDING THAT THE PROFITS GENERATED OUT OF SUCH INCENTIVE ARE NOT OPE RATIONAL PROFITS. 5. THE LOWER AUTHORITIES ERRED IN HOLDING THAT SOU RCE OF SUBSIDY / PROFITS ARE NOT THE BUSINESS BUT THE S CHEMES CENTRAL GOVERNMENT. 6. WITHOUT PREJUDICE TO ABOVE, IT IS STATED THAT T HE LOWER AUTHORITIES ERRED IN HOLDING THAT INCENTIVE G IVEN UNDER VISHESH KRISHI AND GRAM UDYOG YOJANA (VKGUY) WITH AN OBJECTIVE TO GENERATE EMPLOYMENT AN D PROMOTE ECONOMIC GROWTH IS NOT A CAPITAL RECEIPT. 7. THE LOWER AUTHORITIES ERRED IN HOLDING THAT THE SAID INCENTIVE BEING CAPITAL IN NATURE IS NOT TO BE DEDU CTED WHILE ARRIVING BOOK PROFITS UNDER SECTION 115JB. 8. THE APPELLANT CRAVES TO ADD, REDUCE, WITHDRAW, MODIFY AND ALTER THE GROUNDS OF THE APPEAL. ITA NOS.346 & 347/DEL./2014 4 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE ISSUES INVOLVED IN BOTH THE AFORESAID APPEALS ARE : THE CASE OF THE ASSESSEE WAS SUBJECTED TO SCRUTINY FOR ASSESSMENT Y EARS 2009-10 AND 2010-11, WHICH WAS CONTESTED BY ASSESSEE THROUG H ITS REPRESENTATIVE, SHRI VIPIN AGRAWAL, CA AND SHRI RAJ A BANERJEE, AR. 3. ASSESSEE COMPANY PROVIDED INFORMATION THAT IT IS A 100% EXPORT ORIENTED UNIT (EOU) ENGAGED IN GROWING AND P ROCESSING OF MUSHROOMS, CULINARY HERBS AND OTHER FRUITS AND VEGE TABLES, DECLARED TOTAL TURNOVER OF RS.43.11 CRORES & RS.35, 89,06,421 FOR AYS 2009-10 & 2010-11 RESPECTIVELY. FROM THE TOTAL GROSS INCOME DECLARED AT RS.8.80 CRORES & RS.5,78,99,271/- FOR A YS 2009-10 & 2010-11 RESPECTIVELY, ASSESSEE COMPANY CLAIMED DEDU CTION OF RS.7.29 CRORES & RS.1,15,95,788/- QUA AYS 2009-10 & 2010-11 RESPECTIVELY. AO OBSERVED THAT AN AMOUNT OF RS.1,1 7,83,416/- & RS.1,35,55,206/- FOR AYS 2009-10 & 2010-11 RESPECTI VELY HAD BEEN CREDITED AS EXPORT INCENTIVE QUA AYS 2009-10 & 2010-11 RESPECTIVELY AND HE WAS CALLED UPON TO EXPLAIN AS T O WHY THE SAME BE NOT EXCLUDED FROM THE ELIGIBLE PROFIT U/S 80IB O F THE ACT. ASSESSEE FILED COMPREHENSIVE REPLY. BEING NOT SATI SFIED, THE AO PROCEEDED TO CONCLUDE THAT THE AMOUNT OF IMPORT INC ENTIVE CANNOT ITA NOS.346 & 347/DEL./2014 5 BE TREATED AS INCOME DERIVED FROM THE INDUSTRIAL UN DERTAKING SO AS TO MAKE THE ASSESSEE ELIGIBLE FOR DEDUCTION U/S 80I C OF THE ACT BECAUSE THERE MUST BE A DIRECT NEXUS BETWEEN THE PR OFIT AND GAINS AND THE INDUSTRIAL UNDERTAKING AND THEREBY MADE AN ADDITION OF RS.1,17,83,416/- & RS.1,35,55,206/- QUA AYS 2009-10 & 2010-11 RESPECTIVELY. 4. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING AN APPEAL WHO HAS DISMISSED THE APPEALS. FE ELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS NO.1 TO 5 OF ITA NO.346/DEL/2014 GROUNDS NO.1 TO 5 OF ITA NO.347/DEL/2014 6. AO/CIT (A) DISALLOWED THE DEDUCTION U/S 80IC OF THE ACT BY HOLDING THAT THE INCENTIVE IS NOT PART OF THE PROFI T AND GAINS DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING SO AS T O MAKE THE ASSESSEE ELIGIBLE TO DEDUCTION U/S 80IC. ITA NOS.346 & 347/DEL./2014 6 7. UNDISPUTEDLY, ASSESSEE COMPANY IS A 100% EOU EN GAGED IN CREATING AND PROCESSING OF MUSHROOMS, CULINARY HERB S AND OTHER FRUITS AND VEGETABLES. 8. THE LD. AR FOR THE ASSESSEE CONTENDED THAT ASSES SEE COMPANY BEING AN EOU HAS BEEN GRANTED INCENTIVE UND ER THE SCHEME ENTITLED VISHESH KRISHI AND GRAM UDYOG YOJAN A TO PROMOTE THE EXPORT OF AGRICULTURAL PRODUCE AND THEI R VALUE ADDED PRODUCTS AND THOUGH IT IS STATED AS EXPORT INCENTIV E IN PROFIT & LOSS ACCOUNT BUT IT IS EXACTLY NOT THE EXPORT INCENTIVE RATHER THE SUM RECEIVED UNDER VISESH KRISTI AND GRAM UDYOG YOJANA (VKGUY); AND THAT TO COMPENSATE THE HIGH TRANSPORT COST OF T HE AGRICULTURAL PRODUCE WHICH WAS LIGHTER IN WEIGHT BUT NEED MORE S PACE IN CARGO AND AS SUCH, THE TRANSPORT COST BECAME VERY HIGH, T HE VKGUY WAS FORMULATED BECAUSE AS AGAINST THE TOTAL INCENTIVE O F RS.1,35,55,206/- RECEIVED THE TOTAL FREIGHT OUTWARD IS RS.2,57,97,349/- THAT IS ABOUT 10.76% OF THE TOTAL VALUE OF THE EXPORT FOR AY 2010-11. 9. FROM THE GROUNDS OF APPEAL, ARGUMENTS ADDRESSED AND CASE LAWS RELIED UPON BY THE PARTIES TO THE PRESENT APPE AL, THE SOLE QUESTION ARISES FOR DETERMINATION IN THIS CASE IS : - ITA NOS.346 & 347/DEL./2014 7 AS TO WHETHER TRANSPORT SUBSIDY IS TO BE TREATED A S INCOME DERIVED FROM AN INDUSTRIAL UNDERTAKING SO AS TO MAKE THE ASSESSEE COMPANY ELIGIBLE FOR DEDUCTION U/ S 80IC? 10. HOWEVER, IT IS CONTENDED BY THE LD. AR FOR THE ASSESSEE THAT IN THE PRECEDING YEARS, TRANSPORT SUBSIDY IS BEING TREATED AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING AND ASSESSEE HA S BEEN ALLOWED DEDUCTION U/S 80IC. THIS VIEW HAS NOT BEEN CONTROV ERTED BY THE REVENUE. KEEPING IN VIEW THE UNDISPUTED FACT THAT THIS IS THE 5 TH YEAR OF CLAIM MADE BY THE ASSESSEE U/S 80IC AND THE ASSESSEE HAS BEEN CONTINUOUSLY ALLOWED DEDUCTION U/S 80IC QUA TR ANSPORT SUBSIDY AND AO/CIT(A) HAVE NOT BROUGHT ON RECORD AN Y REASON FOR DEPARTING FROM THE PREVIOUS YEARS AS ON THE SAME SE T OF FACTS PERTAINING TO THE YEAR UNDER ASSESSMENT, THE ISSUE IS REQUIRED TO BE RESTORED TO THE AO TO DECIDE AFRESH IN THE LIGHT OF THE ORDERS PASSED IN THE PRECEDING YEARS. SO, THE GROUNDS NO.1 TO 5 IN BOTH THE ASSESSMENT YEARS I.E. 2009-10 & 2010-11 ARE DETERMI NED IN FAVOUR OF THE ASSESSEE FOR STATISTICAL PURPOSES. ITA NOS.346 & 347/DEL./2014 8 GROUNDS NO.6 & 7 OF ITA NO.346/DEL/2014 GROUNDS NO.6 & 7 OF ITA NO.347/DEL/2014 11. BOTH THE AFORESAID GROUNDS HAVE BEEN RAISED BY THE ASSESSEE COMPANY WITHOUT PREJUDICE TO GROUNDS NO.1 TO 5 BY C ONTENDING THAT THE INCENTIVE BEING A SUBSIDIARY AND CAPITAL IN NAT URE IS NOT INCLUDIBLE IN DETERMINING THE TOTAL INCOME U/S 115J B. AGAIN FOR THE SAKE OF REPETITION, WE RESTORE THE MATTER TO TH E AO TO DETERMINE AFRESH IN THE LIGHT OF WHAT HAS BEEN DECIDED IN THE PRECEDING YEARS IN ASSESSEES OWN CASE AND IN THE LIGHT OF THE FIND INGS RETURNED ON GROUNDS NO.1 TO 5. SO, GROUNDS NO.6 & 7 RAISED IN BOTH THE ASSESSMENT YEARS I.E. 2009-10 & 2010-11 ARE DETERMI NED IN FAVOUR OF THE ASSESSEE FOR STATISTICAL PURPOSES. 12. IN VIEW OF OUR FINDINGS ON THE AFORESAID GROUND S, IMPUGNED ORDERS ARE SET ASIDE AND ARE ORDERED TO BE RESTORED TO THE AO TO DECIDE AFRESH IN THE LIGHT OF THE DECISION TAKEN IN THE PRECEDING YEARS BY AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13. RESULTANTLY, BOTH THE AFORESAID APPEALS STAND A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS DAY 21 ST NOVEMBER, 2016. SD/- SD/- (R.S. SYAL) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 21 ST DAY OF NOVEMBER, 2016/TS ITA NOS.346 & 347/DEL./2014 9 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-III, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.