HIMEDIA LABORATORIES P.LTD, MUMBAI V. ACIT 10(2), MUMBAI

ITA 3490/MUM/2012

• Counselvise Citation: 349019914 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 26-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 17-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G N MAKWANA
• Assessee Lawyers: ANAND BALKRISHNA JOG
• Keywords: Business income; Depreciation; Business expenditure; Revenue expenditure
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 3490/MUM/2012 ASSESSMENT YEAR : 2009-10 M/S. HIMEDIA LABORATORIES PRIVATE LTD. 23, VADHANI INDUSTRIAL ESTATE, LBS MARG GHATKOPAR (W) MUMBAI-400 086. PAN NO.AAACH 3784 P VS. ACIT - 10(2) ROOM NO.432, 4 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHR I ANAND BALKRISHNA JOG REVENUE BY : SHRI G.N. MAKWANA DATE OF HEARING : 29/08/2013 DATE OF PRONOUNCEMENT : 11 / 0 9 /2013 O R D E R PER B. RAMAKOTAIAH, AM: THIS IS AN ASSESSEES APPEAL RAISING SIX GROUNDS ON TWO ISSUES AGAINST THE ORDER OF CIT(A)-21, MUMBAI DATED 07/02 /2012. WE HAVE HEARD THE LD. COUNSEL AND THE LD. DR. THE LD. COUNS EL ALSO MADE WRITTEN SUBMISSIONS PLACED ON RECORD ALONGWITH PAPER BOOK A ND GIST OF CASES RELIED UPON. 2. GROUND NO. 1, 2 AND 3 PERTAIN TO THE CLAIM OF EX PENDITURE AS REVENUE ON THE PIPE LINE CONSTRUCTED FOR SUPPLY OF WATER TILL ASSESSEES FACTORY PREMISES. IN THE COURSE OF ASSESSMENT PROCE EDINGS, THE AO ITA NO.3490/M/`12 A.Y.09-10 2 NOTICED THAT THE ASSESSEE CLAIMED AN AMOUNT OF RS.2 1,43,814/- TOWARDS WATER CHARGES AS AGAINST RS.2.36 LACS INCURRED FOR ASSESSMENT YEAR 2008-09. IT WAS EXPLAINED BY THE ASSESSEE THAT ASSE SSEE HAD TO LAY PIPELINE BETWEEN SOURCE OF WATER NEAR THE DAM TO FA CTORY OF THE ASSESSEE THROUGH PRIVATE LANDS AND ACCORDINGLY, THE PORTION OF THE EXPENDITURE FROM THE SOURCE OF WATER TO THE FACTORY GATE WERE CLAIMED AS REVENUE EXPENDITURE AND EXPENDITURE FROM FACTORY GATE TO ST ORAGE FACILITY INSIDE FACTORY PREMISES WAS CAPITALIZED TO THE BUILDING AN D APPROPRIATE DEPRECIATION WAS CLAIMED. THE ASSESSEE RELIED ON TH E JUDGMENT OF HONBLE SUPREME COURT IN THE CASES OF CIT VS. ACC LTD. (172 ITR 257) AND EMPIRE JUTE CO.LTD.VS. CIT (124 ITR 1)(SC) . IT WAS THE CONTENTION OF THE AO THAT EVEN THOUGH THE PIPE LINE WAS LAID OUTSIDE THE FACT ORY PREMISES THE ASSESSEE IS THE OWNER OF THE PIPELINE, ACCORDINGLY EXPENDITURE IS CAPITAL IN NATURE. HE DISALLOWED THE AMOUNT BUT ALLOWED DEP RECIATION AS APPLICABLE. THE LD. CIT(A) ALSO DID NOT AGREE WITH THE ASSESSEES CONTENTION ON THE REASON THAT ASSESSEE WAS DE FACTO OWNER OF SUCH WATER PIPELINE. 3. BEFORE US THE LD. COUNSEL EXPLAINED THE FACTS AN D ALSO APPROVAL FROM THE PANCHAYAT FOR LAYING PIPELINE PLACED BEFOR E AUTHORITIES TO SUBMIT THAT THE ASSESSEE DOES NOT OWN THE PIPELINE AND DOES NOT HAVE ANY POWER TO REPAIR ALSO AND WITH CERTAIN CONDITION S BY THE GRAM- PANCHAYAT, IT LAID PIPELINE THROUGH COMMON LAND OF VILLAGE AND THAT OF SOME FARMERS. IT WAS SUBMITTED THAT COST OF THE WAT ER PIPELINE WITHIN THE FACTORY PREMISES WAS HOWEVER CAPITALIZED. SINCE LAY ING OF WATER PIPELINE IS NECESSARY BUSINESS EXPENDITURE THE SAME WAS CLAI MED AS REVENUE EXPENDITURE. 4. THE LD. DR RELIED ON THE ORDERS OF THE AUTHORITI ES. 5. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FA CTS AS PLACED ON RECORD. THE ASSESSEE IS DEALING IN MANUFACTURING, T RADING AND DEALING OF ITA NO.3490/M/`12 A.Y.09-10 3 MICROBIOLOGICAL PRODUCTS, LABORATORY CHEMICALS AND ALLIED PRODUCTS AND EQUIPMENTS ETC. THERE IS NO DISPUTE WITH REFERENCE TO THE SHORTAGE OF WATER FOR PRODUCTION AS WELL AS DRINKING WATER NEED S OF WORKERS AND STAFF WORKING IN THE FACTORY PREMISES. THEREFORE, IT WAS NECESSARY TO BRING WATER TO FACTORY PREMISES FROM A NEARBY DAM LOCATED ABOUT 4.5 KMS FROM THE FACTORY PREMISES. BEFORE COMMENCING THE WORK, A SSESSEE OBTAINED PERMISSION FROM GRAM PANCHAYAT FOR LAYING OUT PIPEL INE THROUGH COMMON LAND BELONGING TO VILLAGE AND VILLAGERS. THE APPROV AL WAS GIVEN ON VARIOUS CONDITIONS. FOLLOWING THE PRINCIPLES LAID DOWN BY T HE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ACC LTD.(SUPRA) AND AL SO OTHER DECISIONS RELIED UPON BY THE ASSESSEE, WE ARE OF THE OPINION THAT THE EXPENDITURE IS REVENUE IN NATURE AS ASSESSEE DID NOT GET ANY OWNE RSHIP ON THE PIPELINE LAID OUTSIDE THE FACTORY PREMISES. EVENTHOUGH THE F ACTS IN THE CASE DECIDED BY THE HON'BLE SUPREME COURT WAS FOR UNDER TAKING SUPPLY OF WATER TO THE ENTIRE TOWN WHICH WAS CONSIDERED AS RE VENUE EXPENDITURE, THE FACTS IN THIS CASE ARE ALSO SIMILAR AS THE ASSE SSEE HAS TO NECESSARILY SPEND THE AMOUNT TO GET WATER FOR THE PURPOSE OF IT S OWN BUSINESS. THE PRINCIPLES LAID DOWN BY THE ABOVE DECISION DO APPLY TO THE FACTS OF THE CASE. IN CASE ASSESSEE WERE TO REIMBURSE THE COST O F PIPELINE IF LAID DOWN BY THE GOVERNMENT OR PANCHAYAT, THE SAME WILL BE E LIGIBLE AS REVENUE DEDUCTION AS DECIDED BY THE HON'BLE GUJARAT COURT I N THE CASE OF SARABHAI M. CHEMICALS PVT., LTD. VS. CIT (127 ITR 74) AND BY THE HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. BONGAIGAO N REFINERY AND OTHERS (222 ITR 208) . KEEPING IN MIND THE FACT THAT THE ASSESSEE HAS CA PITALIZED THE COST OF PIPELINE WITHIN THE FACTORY PREMISES ON WHICH IT RETAINED OWNERSHIP, WE ARE OF THE OPINION THAT THE ASSESSEE S CLAIM IS GENUINE AND ALLOWABLE AS REVENUE EXPENDITURE. THEREFORE, AO IS DIRECTED TO ALLOW THE AMOUNT AS REVENUE EXPENDITURE. DEPRECIATION IF ANY ALLOWED BY THE AO ON THE ABOVE SAID AMOUNT CAN BE WITHDRAWN. GROUNDS ARE ALLOWED. ITA NO.3490/M/`12 A.Y.09-10 4 6. GROUND NO.4 PERTAINS TO THE ISSUE OF CLAIM UNDER SECTION 80IB. THE ASSESSEE AS PART OF THE UNIT ELIGIBLE FOR PROFITS C LAIMED DEDUCTION ON INTEREST AT RS.41,131/-, OTHER INCOME RS.2,22,545/- AND ALLOCATION OF INCOME OF HEAD OFFICE AT RS.7,53,135/- (TOTAL OF TH E AMOUNT RS.10,16,890/-). THE AO WAS OF THE OPINION THAT THE SE AMOUNTS ARE NOT DERIVED FROM THE UNDERTAKING AND THEREFORE, THEY CA NNOT BE ALLOWED AS DEDUCTION. THE LD. CIT(A) AFTER ANALYZING THE NATUR E OF INCOME AGREED WITH THE AO THAT THE SAME ARE NOT DERIVED FROM INDU STRIAL UNDERTAKING ACCORDINGLY, NOT ELIGIBLE FOR DEDUCTION UNDER SECTI ON 80IB. 6.1 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED THE SUBMISSIONS. ON EXAMINATION, WE ARE OF THE OPINION THAT INTEREST RECEIVED FROM MIDC, NASIK ON SECURITY DEPOSIT TO TH E EXTENT OF RS.41,131/- CANNOT BE CONSIDERED AS INCOME DERIVED BY THE UNIT. THEREFORE, THE SAME EVEN THOUGH CONNECTED WITH ASS ESSEE OBTAINING ELECTRICITY TO THE FACTORY, IT CANNOT BE CONSIDERED AS INCOME DERIVED BY THE UNIT ( FIRST SOURCE PRINCIPLE). ACCORDINGLY TO THAT EXTENT THE CLAIM IS NOT CORRECT. 6.2 WITH REFERENCE TO OTHER INCOME OF RS.2,22,545 /-, IT WAS SUBMITTED THAT THIS AMOUNT WAS REIMBURSEMENT OF INSURANCE CL AIM FROM NEW INDIA INSURANCE CO. LTD. AGAINST PERSONAL ACCIDENT POLICY OF SHRI V.J. CHOPDE, FACTORY MANAGER AT PALKHED, NASIK AND THE SAME AMOU NT WAS CLAIMED AS BUSINESS EXPENDITURE IN EARLIER YEAR AND SO REIMBUR SEMENT WAS ELIGIBLE FOR DEDUCTION. SURPRISINGLY, AS SEEN FROM THE ORDER S OF THE AUTHORITIES THERE IS NO FINDING ON THIS ISSUE WHETHER THE AMOUN T, WHEN INCURRED BY THE ASSESSEE WAS ALLOWED AS BUSINESS EXPENDITURE OU T OF THE UNIT ELIGIBLE FOR DEDUCTION. IF THE AMOUNT WAS CLAIMED AS REVENUE EXPENDITURE OUT OF THE PROFITS OF THE UNIT IN EARLIER YEAR, THE REIMBU RSEMENT DURING THE YEAR WILL CERTAINLY BE TAXED UNDER SECTION 41(1) OF THE ACT, THEREFORE, BECOMES BUSINESS INCOME OF THE UNIT. SINCE NEXUS OF THE REC EIPT WITH THE ITA NO.3490/M/`12 A.Y.09-10 5 EXPENDITURE CLAIM OF THE UNIT IN THE EARLIER YEAR H AS NOT BEEN EXAMINED, WE RESTORE THIS ASPECT TO THE FILE OF AO WITH DIREC TION TO EXAMINE THE FACTS AND IF THERE IS REIMBURSEMENT OF AMOUNT CLAIMED AS DEDUCTION FROM THE PROFITS OF ELIGIBLE UNIT IN EARLIER YEAR TO ALLOW D EDUCTION ON THE ABOVE AMOUNT. ISSUE RESTORED TO THE FILE OF AO TO THAT EX TENT. 6.3 THE THIRD ITEM ON WHICH DEDUCTION WAS DISALLOWE D WAS ALLOCATION OF INCOME OF HEAD OFFICE ON THE BASIS OF TURNOVER R ATIO. IT WAS EXPLAINED THAT THIS AMOUNT WAS PROPORTIONATE AMOUNT OF INCOME OF THE UNIT OUT OF THE WRITE-BACK OF EXCESS ADVANCES RECEIVED FROM DEB TORS AND WRITE-BACK OF CREDIT BALANCES OF SUPPLIERS AND THEREFORE, HAD NEXUS BETWEEN BUSINESS ACTIVITY AND CREDITED AMOUNTS. HERE ALSO EVENTHOUGH THE AMOUNT HAS A NEXUS BETWEEN BUSINESS ACTIVITY OF THE ASSESSEE AND RIGHTLY CONSIDERED AS INCOME IN THE P&L ACCOUNT, WH AT IS RELEVANT FOR ALLOWING DEDUCTION IS NEXUS WITH THE ACTIVITY OF IN DUSTRIAL UNDERTAKING. THAT ASPECT HAS NOT BEEN EXAMINED AT ALL. IN CASE THE WRITE BACK OF EXCESS ADVANCES/BALANCES OF SUPPLIERS HAS ANY RELAT ION TO THE BUSINESS ACTIVITY OF THE UNIT, THEN INCOME CAN BE CONSIDERED AS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB, PROVIDED THERE WAS CL AIM IN EARLIER YEARS OF PAYMENTS/EXPENDITURE OUT OF THE PROFITS OF THE E LIGIBLE UNITS. THIS ASPECT ALSO REQUIRES EXAMINATION ON FACTUAL BASIS B Y AO, THEREFORE, IN THE INTEREST OF JUSTICE THIS ISSUE IS ALSO RESTORED TO THE FILE OF THE AO TO EXAMINE FACTS AND CONSIDER CLAIM OF THE ASSESSEE AC CORDING TO LAW. ACCORDINGLY, GROUND TO THAT EXTENT IS PARTLY ALLOWE D FOR STATISTICAL PURPOSES. 7. GROUND NO.5 PERTAINS TO MISTAKE IN CALCULATION W HILE ALLOWING DEDUCTION UNDER SECTION 80IB. AS SEEN FROM THE ASSE SSMENT ORDER THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80IB TO AN EXTENT OF RS.2,17,22,111/-. THE AO INSTEAD OF REDUCING THE AM OUNT TREATED AS NOT PERTAINING TO INCOME DERIVED FROM THE UNIT OF RS.10 ,16,890/-, REDUCED ITA NO.3490/M/`12 A.Y.09-10 6 THE SAME FROM AMOUNT OF CLAIM U/S SECTION 80IB. IF THE 80IB DEDUCTION WAS ELIGIBLE AT 100% THE ADJUSTMENT WOULD NOT HAVE MADE MUCH DIFFERENCE MATHEMATICALLY, BUT SINCE ASSESSEE WAS E LIGIBLE FOR DEDUCTION AT 30%, THE ABOVE REDUCTION FROM CLAIM OF 80IB HAS RESULTED IN EXCESS DISALLOWANCE. THE AO WAS APPRISED ABOUT THIS MISTAK E AND SAME WAS ALSO CONTESTED BEFORE CIT(A), BUT THERE SEEMS TO BE NO ADJUDICATION ON THIS ISSUE. SINCE THIS IS A MISTAKE IN COMPUTATION OF INCOME, THE AO IS DIRECTED TO TAKE CARE OF THIS WHILE GIVING EFFECT IN THE CONSEQUENTIAL ORDER. WHATEVER AMOUNT IS CONSIDERED AS NOT DERIVED FROM THE UNIT THE SAME SHOULD BE REDUCED FROM THE PROFITS OF THE UNIT SHOWN BY ASSESSEE, BUT NOT FROM THE DEDUCTION CLAIMED UNDER SECTION 80 IB. ASSESSEES GROUND IS CONSIDERED AS ALLOWED. 8. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER, 2013. SD/- SD/- (DR. S.T.M. PAVALAN) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 11/09/2013. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.