M/s H.M. Steel Ltd., Sangrur V. ACIT, Sangrur

ITA 365/CHANDI/2013

• Counselvise Citation: 36521514 RSA 2013
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 18-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 04-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: N K GARG
• Keywords: Capital receipt
• Section: 143(3); 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 365/CHD/2013 ASSESSMENT YEAR: 2006-07 M/S H.M. STEEL LTD., VS. THE ACIT, CIRCLE, DIRBA, SANGRUR SANGRUR PAN NO. AABCH0164Q (APPELLANT) (RESPONDENT) APPELLANT BY : SH. N.K. GARG RESPONDENT BY : SH. S.K. MITTAL DATE OF HEARING : 06.04.2016 DATE OF PRONOUNCEMENT : 11.04.2016 . ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A),PATIALA DATED 28.01.2013 RELATING TO ASSESSM ENT YEAR 2006-07. 2. THE FIRST GROUND RAISED BY THE ASSESSEE READS AS UNDER:- THAT THE LD. FIRST APPELLATE AUTHORITY WRONGLY AND ILLEGALLY CONFIRMED THE DISALLOWANCE OF DEDUCTION U /S 80IC BY AN AMOUNT OF RS. 2,18,38,221/- BEING RECEIV ED AS TRANSPORT SUBSIDY TO REIMBURSE THE EXCESS TRANSPORT EXPENSES INCURRED ON TRANSPORTATION OF RAW MATERIAL & FINISHED GOODS IN THE HILLY AREAS IGNORING THE 2 SUBMISSIONS, LEADING AND EVIDENCE ON RECORD OR ALTERNATIVELY SHOULD BE TREATED AS CAPITAL RECEIPT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANY HAD SET- UP INDUSTRIAL UNDERTAKING AT KALA-AMB AND IS RUNNIN G THE SAME IT HAS NO OTHER ACTIVITY OF BUSINESS EXCEPT THE RUNNING OF INDUSTRI AL UNDERTAKING. THE ASSESSEE FILED ITS RETURN OF INCOME AND CLAIMED DEDUCTION OF THE PROFITS U/S 80IC OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'), WHICH HA D BEEN ALLOWED TO THE ASSESSEE SINCE ASSESSMENT YEAR 2005-06 BY THE REVEN UE AND ASSESSMENT WAS COMPLETED U/S 143(3). LATER ON, PROCEEDINGS U/S 263 OF THE ACT WERE INITIATED BY THE CIT, PATIALA FOR ASSESSMENT YEAR 2006-07, AND D IRECTED THE ASSESSING OFFICER TO REASSESS DEDUCTION U/S 80IC. THE ASSESSING OFFI CER COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT AND HELD THAT TRANSPORT SUBSI DY CANNOT BE REGARDED AS PROFITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERT AKING, AND HENCE THE DEDUCTION CLAIMED U/S 80IC ON TRANSPORT SUBSIDY OF RS. 3,18,38,221/- WAS DISALLOWED. 4. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE AND, HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE VERY OUTSET, SHRI N.K. GARG, LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF CIT V M/S MEHGALAYA STEELS LIMITED IN CIVIL APPEAL NO. 7622 OF 2014 DAT ED 9.3.2016 WHICH IS IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN THE SAID CASE, THE HON'BLE SUPREME COURT HAS HELD AS UNDER:- 24. WE DO NOT FIND IT NECESSARY TO REFER IN DETAIL TO ANY OF THE OTHER JUDGMENTS THAT HAVE BEEN PLACED BEFORE US . THE 3 JUDGMENT IN JAI BHAGWAN CASE (SUPRA) IS HELPFUL ON THE NATURE OF A TRANSPORT SUBSIDY SCHEME, WHICH IS DESC RIBED AS UNDER: THE OBJECT OF THE TRANSPORT SUBSIDY SCHEME IS NOT AUGMENTATION OF REVENUE, BY LEVY AND COLLECTION OF TAX OR DUTY. THE OBJECT OF THE SCHEME IS TO IMPROVE TRA DE AND COMMERCE BETWEEN THE REMOTE PARTS OF THE COUNTR Y WITH OTHER PARTS, SO AS TO BRING ABOUT ECONOMIC DEVELOPMENT OF REMOTE BACKWARD REGIONS. THIS WAS SOUGHT TO BE ACHIEVED BY THE SCHEME, BY MAKING IT FEASIBLE AND ATTRACTIVE TO INDUSTRIAL ENTREPRENEURS TO START AND RUN INDUSTRIES IN REMOTE PARTS, BY GIVING THEM A LEVEL PLAYING FIELD SO THAT THEY COULD COMPETE WI TH THEIR COUNTERPARTS IN CENTRAL (NON-REMOTE) AREAS. T HE HUGE TRANSPORTATION COST FOR GETTING THE RAW MATERI ALS TO THE INDUSTRIAL UNIT AND FINISHED GOODS TO THE EX ISTING MARKET OUTSIDE THE STATE, WAS MAKING IT UNVIABLE FO R INDUSTRIES IN REMOTE PARTS OF THE COUNTRY TO COMPET E WITH INDUSTRIES IN CENTRAL AREAS. THEREFORE, INDUST RIAL UNITS IN REMOTE AREAS WERE EXTENDED THE BENEFIT OF SUBSIDIZED TRANSPORTATION. FOR INDUSTRIAL UNITS IN ASSAM AND OTHER NORTHEASTERN STATES, THE BENEFIT WA S GIVEN IN THE FORM OF A SUBSIDY IN RESPECT OF A PERCENTAGE OF THE COST OF TRANSPORTATION BETWEEN A POINT IN CENTRAL AREA (SILIGURI IN WEST BENGAL) AND THE ACTUAL LOCATION OF THE INDUSTRIAL UNIT IN THE REMOT E AREA, SO THAT THE INDUSTRY COULD BECOME COMPETITIVE AND ECONOMICALLY VIABLE. (PARAS 14 AND 15). 6. ACCORDINGLY, HON'BLE SUPREME COURT DECIDED THE I SSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V M/S MEHGALAYA STEELS LTD ((SUP RA)), WE ALLOW THIS GROUND IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 7. THE NEXT GROUND OF APPEAL READS AS UNDER:- 4 THAT THE LD. APPELLATE AUTHORITY WRONGLY AND ILLEGA LLY HELD THAT INTEREST INCOME OF RS. 2,37,211/- ON FDRS MAD FOR ILC/FLC OPENED FOR RAW MATERIAL PURCHASE, IS NOT EL IGIBLE FOR DEDUCTION U/S 80IC IGNORING THE SUBMISSIONS, PL EADING AND EVIDENCE ON RECORD AND ALTERNATIVELY BE REDUCED FROM THE COST OF RAW MATERIAL IN VIEW OF APEX COURT JUDGEMEN T IN THE CASE OF KARNAL CO-OP SUGAR MILLS LTD. 8. THE RELEVANT FACTS ARE THAT THE ASSESSING OFFICE R, DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT ASSESSEE RECEIV ED INTEREST AMOUNTING TO RS. 2,37,211/- ON FDRS KEPT WITH THE BANK AS MARGIN MO NEY. THE ASSESSING OFFICER CONSIDERED THE SAID INTEREST AS INCOME FRO M OTHER SOURCES AND NOT PROFIT DERIVED FROM INDUSTRIAL UNDERTAKING. ACCOR DINGLY, DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IC OF THE ACT WAS NOT ALLOWED. 9. ON APPEAL, THE CIT UPHELD THE ORDER OF THE ASSES SING OFFICER AND, HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS REL EVANT TO OBSERVE THERE THAT IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007-08, IN ITA NO. 643/CHD/2011, THE TRIBUNAL VIDE ITS ORDER DATED 17 .6.2013, HELD THAT INTEREST INCOME EARNED ON FDRS CANNOT BE REGARDED AS PROFIT AND GAINS DERIVED FROM INDUSTRIAL UNDERTAKING. THEREFORE, THE AMOUNT IN Q UESTION IS NOT ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. ALTERNATIVELY, SHRI N.K.GARG, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE BENEFIT FOR NETTI NG OFF INTEREST MAY BE GIVEN TO THE ASSESSEE. IT IS RELEVANT TO OBSERVE HERE THA T IN THE ASSESSMENT YEAR 2007- 08, IN ITA NO. 643/CHD/2011, THE TRIBUNAL REMANDED THE ISSUE TO THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE LIMITED QUES TION OF NETTING OFF INTEREST IN 5 VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT DATED 2.5.2012 PASSED IN THE CASE OF VISHAL INDUSTRIES V CIT, JAL ANDHAR IN ITA NO. 120/201 DATED 2.5.2012. THE RELEVANT OBSERVATIONS MADE BY T HE TRIBUNAL, READ AS UNDER;- 20. ACCORDINGLY, BY KEEPING IN VIEW THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT THIS ISSUE IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW AND BY KEEPING IN VIEW THE AFORESAID REFERRED TO DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF VISHAL I NDUSTRIES (SUPRA). ACCORDINGLY, THE ORDER OF THE CIT(A) IS S ET ASIDE AND THE MATTER IS REMANDED BACK TO THE ASSESSING OFFICE R . 11. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNA L PASSED IN ASSESSEES CASE FOR THE ASSESSMENT YEAR 2007-08, WE REMAND THE MATT ER TO THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE LIMITED ISSUE KEEPIN G IN VIEW THE DIRECTIONS AND GUIDELINES GIVEN BY THE TRIBUNAL IN ASSESSEES CASE IN ITA NO. 643/CHD/2011 FOR ASSESSMENT YEAR 2007-08. FOR STATISTICAL PURPO SES, THIS GROUND OF APPEAL IS ALLOWED PARTLY. 12. THE NEXT GROUND OF APPEAL READS AS UNDER:- THAT THE LD. APPELLATE AUTHORITY WRONGLY AND ILLEG ALLY MADE ADDITION OF RS. 2,25,000/- AND ERRONEOUSLY HEL D THAT THE LIBOR PREMIUM IS NOT DIRECTLY ATTRIBUTABLE TO THE ACTIVITIES OF INDUSTRIAL UNDERTAKING AND REDUCE D THE DEDUCTION U/S 80IC BY RS. 2,25,000/- IGNORING FACTS , MATERIAL AND PLEADINGS . 13. AT THE TIME OF HEARING OF THE APPEAL, SHRI N.K. GARG, LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS FOR THIS GROUND OF APPEAL. A CCORDINGLY, WE DISMISS THE SAME AS NOT PRESSED. 6 14. NO OTHER POINT WAS RAISED OR ARGUED BEFORE US. 15. IN THE RESULT, THE APPEAL IS ALLOWED PARTLY AN D PARTLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11.04.2016 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 11 TH APRIL, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR