M/s Barton Firtop Engineering (India) Private Limited., Verna V. The Assistant Commissioner of Income Tax, Circle-1, Margao

ITA 390/PAN/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 0385 (ITAT-PANAJI)
• Duration Of Justice: 3 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: WT(D)
• Assessment Year: 2005-2006
• Appeal Filed On: 26-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 80IB; 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER I.T.A. No.390/PAN/2018 Assessment Year: 2005-06 M/s Barton Firtop Engineering (India) Private Limited, Plot No.L-74, Phase-II-D, Verna Industrial Estate, Verna, Goa. PAN: AAACB7464L Vs. ACIT, Circle-1, Margao, Goa.. Appellant Respondent Date of Hearing 15.06.2022 Date of Pronouncement 16.06.2022 Assessee by None Department by Shri Mayur Kamble, Sr. DR ORDER PER C.M. GARG, JM: This appeal has been filed by the assessee against the order of the CIT(A)-2, Panaji, dated 20.06.2018 for assessment year 2005-06. 2. In this appeal, an adjournment application has been filed by the assessee. On careful consideration of the adjournment application and after hearing the argument of the learned Sr. DR, we find that the appeal can be disposed of on the basis of the material available on record and by considering the submissions of the assessee made in the grounds of appeal as well as before the authorities below. Therefore, the 2 ITA No.390/PAN/2018 M/s Barton Firtop Engineering (India) Pvt. Ltd. vs. ACIT adjournment application is dismissed and we proceed to decide the appeal after hearing the argument of the learned Sr. DR. 3. The assessee has raised the following grounds in this appeal:- 4. It was contended by the assessee before the Assessing Officer that the development charges are incidental to the business of the assessee. Therefore, deduction u/s 80IB of the Income-tax Act, 1961 (for short, ‘the Act’) is allowable to the assessee. The Assessing Officer has rejected the contention of the Assessing Officer by observing that as per the decision of the Hon'ble Supreme Court in the case of Liberty India vs. CIT, 317 ITR 218 (SC), any receipt falling outside the first degree source cannot be considered as income ‘derived from.’ The Assessing Officer also noticed that sub-section (5) of section 80IA provides that eligible profit are to be computed as if such eligible business is the only income of the assessee and the devices adopted to inflate the profit of eligible business need to be rejected. Aggrieved by the order of the Assessing Officer, the assessee carried the matter 3 ITA No.390/PAN/2018 M/s Barton Firtop Engineering (India) Pvt. Ltd. vs. ACIT before the CIT(A) and the learned CIT(A) also dismissed the contention of the assessee by observing that the Assessing Officer was right in holding that the additional quality check made by the appellant on behalf of the customers for which developmental charges were received fell outside the first degree source and hence cannot be derived from manufacturing activity. The learned CIT(A) also noted that the Assessing Officer has correctly applied the ratio of the decision of the Apex Court in the case of Liberty India (supra). 5. The learned Sr. DR supporting the orders of the authorities below, submitted that the developmental charges which were received by the assessee does not fall within the scope of first degree source, hence, the same cannot be said to be derived from the manufacturing activity of the assessee. 6. On careful consideration of above submissions, we are of the considered view that the Hon'ble Supreme Court in the case of Liberty India (supra) rendered a proposition that the income received by the assessee which fall outside the first degree source or which does not come within the ambit of first degree source cannot be said to be derived from the manufacturing activity. This proposition has to be applied considering the facts and circumstances of each case. It is a peculiar situation of the present case that the assessee is in the business of manufacturing of industrial strainers and valves. The Assessing Officer did not dispute the fact that the eligible receipts in the case of the assessee were those receipts which were derived from the sale of manufactured goods, but, he denied to consider the developmental charges as 4 ITA No.390/PAN/2018 M/s Barton Firtop Engineering (India) Pvt. Ltd. vs. ACIT received from the manufacturing activity and held the same as receipts incidental to the manufacturing activity. In our considered opinion, a unit manufacturing industrial strainers and valves which are used for highly technical equipments requires quality check and without quality check such kind of manufacturing items cannot be marketed or sold. As per statement of facts, the assessee company is engaged in the business of manufacturing of industrial strainers and valves, as an integral part and having direct link to the business of export of industrial strainers and valves. The assessee carried out the activity of quality check which were designed to comply with the requirements of foreign buyers and charged development charges. In this situation, when this statement has not been controverted neither by the Assessing Officer nor by the learned CIT(A), that the manufacturing and export of industrial strainers and valves is not possible without quality check and, thus, the developmental charges cannot be put outside the purview of first degree source of income of the assessee fetching the benefit of section 80IB of the Act. In our considered opinion, the developmental charges are inextricable linked with the manufacturing of industrial strainers and valves and export thereof. It cannot be said that the quality check was not required and development charges does not fall within the ambit of first degree source of income of the assessee from export business as before exporting the goods, quality check is required which was undertaken by the assessee earning income in the form of development charges which is inextricably linked with the manufacturing and export activity of the assessee and, thus, the same falls within the scope/ambit of first degree source of income of the assessee. Therefore, the findings 5 ITA No.390/PAN/2018 M/s Barton Firtop Engineering (India) Pvt. Ltd. vs. ACIT given by the Assessing Officer as well as learned CIT(A) cannot be held as sustainable and, thus, we set aside the same and direct the Assessing Officer to allow the assessee the benefit of section 80IB(4)of Act of Rs.11,03,009/-. 7. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 16 th June, 2022. Sd/- Sd/- (Girish Agrawal) (C.M. Garg) Accountant Member Judicial Member Dated: 16.06.2022 dk Copy of the order forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. Pr. CIT 5. DR, ITAT, Panaji, Goa. 6. Guard File True Copy By Order Sr. Private Secretary, ITAT Panaji Bench, Panaji (On Tour)