M/s. Sidhi Vinayak Alloys Industries, Jammu V. The Income-tax Officer, Kathua

ITA 398/ASR/2011

• Counselvise Citation: 39820914 RSA 2011
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 28-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital receipt
• Section: 234B; 80IB

Judgement Text

ITA NO.398/ASR/2011 IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO. 398(ASR)/2011 ASSESSMENT YEAR:2008-09 PAN: M/S.SIDHI VINAYAK ALLOYS INDUSTRIES VS. INCOME TAX OFFICER, KATHUA, JAMMU. KATHUA. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. RAJESH JAIN, CA RESPONDENT BY: SH. TARSEM LAL, DR DATE OF HEARING :14.03.2012 DATE OF PRONOUNCEMENT:15/03/2012 ORDER PERBENCH; THIS APPEAL OF THE ASSESSE ARISES FROM THE ORDER O F THE CIT(A), JAMMU, DATED 11.05.2011 RELATING TO ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: 1. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ACTI ON OF THE ASSESSING OFFICER IN NOT ALLOWING DEDUCTION U/S 80I B ON RS.3,79,503/- WHICH WERE ADDED BACK BY THE APPELLAN T BEING EXPENSES NOT ADMISSIBLE UNDER THE ACT ARBITRA RILY WITHOUT APPRECIATING THE SUBMISSIONS OF THE APPELLA NT AS THE SAID AMOUNT SO DISALLOWED BY THE APPELLANT IS I NCOME ITA NO.398/ASR/2011 2 FROM INDUSTRIAL UNDERTAKING AND THE APPELLANT IS EN TITLED TO CLAIM DEDUCTION U/S 80IB OF THE ACT ON 3,79,503/ -. 2. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIO N OF THE ASSESSING OFFICER IN DISALLOWING INTEREST ON FDR OF RS.4,982/- WITHOUT APPRECIATING THE FACT THAT SUCH FDR IS WITH THE ELECTRICITY DEPARTMENT AND INTEREST RECEIV ED ON IT IS RELATED TO INDUSTRIAL ACTIVITY. 3. THAT THE LD. CIT(A) ERRED IN NOT ADJUDICATING TH E GROUND IN RESPECT OF DEDUCTION U/S 80-IB OF THE ACT ON EXC ISE DUTY REFUND WHICH IS COVERED BY THE JUDGMENT OF CO- ORDINATE BENCH OF DELHI IN THE CASE OF J.K. ALUMINI UM. 4. THAT THERE WAS NO JUSTIFICATION FOR LEVYING OF I NTEREST U/S 234B OF THE ACT ON THE FACTS OF THE CASE AND AS PE R LAW. 5. WITHOUT PREJUDICE TO THE GROUND NO.5, INTEREST C HARGED U/S 234B OF THE ACT IS EXCESSIVE AND THE SAME IS NOT CALCULATED AS PER LAW. 6. THAT THE ORDERS OF THE CIT(A) AND ASSESSING OFFI CER ARE NOT BASED ON CORRECT FACTS OF THE CASE AND BINDING PRECEDENTS AND THE SAME ARE LIABLE TO SET ASIDE. 3. AS REGARDS GROUND NO.1, THE BRIEF FACTS AS ARISI NG FROM THE ORDER OF THE ASSESSING OFFICER VIDE PARA 5.1. TO 5.3 ARE AS UNDE R: 5.1 AS PER THE PROVISIONS OF SEC. 80IB OF THE INCO ME-TAX ACT, 1961, IT IS THE PROFITS AND GAINS DERIVED FROM AN INDUSTR IAL UNDERTAKING WHICH IS ELIGIBLE FOR DEDUCTION AND NOT THE INCOME CHARGE ABLE TO INCOME TAX FROM PROFITS AND GAINS OF ANY BUSINESS/INDUSTRIAL A CTIVITY WHICH HAS BEEN CLAIMED BY THE ASSESSEE AS A DEDUCTION BY DISA LLOWING THE FOLLOWING ITEMS FROM THE PROFITS AND GAINS DERIVED/ CLAIMED TO HAVE BEEN DERIVED FROM THE INDUSTRIAL UNDERTAKING AS PER THE PROFIT &LOSS ACCOUNT: A) FBT RS.27,291/- B) INCOME TAX RS.52,212/- C) PRIOR PERIOD EXPENDITURE RS.3,00,000/- THE ASSESSEE WAS ACCORDINGLY ASKED TO EXPLAIN WHY T HE ABOVE AMOUNTS SHOULD NOT BE REDUCED FROM THE DEDUCTION U/ S 80IB OF THE INCOME-TAX ACT, 1961 CLAIMED BY THE ASSESSEE TO ARR IVE AT THE CORRECT ITA NO.398/ASR/2011 3 AMOUNT OF DEDUCTION U/S 80IB OF THE INCOME TAX ACT, 1961 ADMISSIBLE TO IT. 5.2. IN RESPONSE TO ABOVE, THE ASSESSEE STATED THAT THE SAME HAS BEEN DEBITED TO PROFIT & LOSS ACCOUNT AND THE ASSESSEE HAS ADDED BACK ALL THOSE EXPENSES WHICH ARE NOT ADMISSIBLE UNDER THE A CT. 5.3. I HAVE CAREFULLY GONE THROUGH THE FACTS OF THE CASE AND THE ASSESSEES REPLY. IT IS SEEN THAT IN THIS CASE, THE ASSESSEE HAS DEBITED FBY AND INCOME TAX WHICH IS IN VIOLATION TO THE PRO VISIONS OF THE I.T.ACT, 1961, IT IS THE PROFITS AND GAINS DERIVED FROM AND INDUSTRIAL UNDERTAKING WHICH IS ELIGIBLE FOR DEDUCTION AND NO T THE INCOME CHARGEABLE TO INCOME TAX ON PROFITS AND GAINS OF AN Y BUSINESS/INDUSTRIAL UNDERTAKING OR ADDITIONS TO THE GROSS TOTAL INCOME ON ACCOUNT OF STATUTORY DISALLOWANCES UNDER THE INC OME TAX ACT, 1961. THUS, WHAT IS TO BE ALLOWED AS DEDUCTION IS T HE PROFITS AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING AND NOT INC OME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION DERIVED FROM THE INDUSTRIAL UNDERTAKING. THUS, THE INCOME S O EARNED HAS NO DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE, IT CANNOT BE SAID TO HAVE BEEN DERIVED FROM THE MANUFACTURING ACTIVITY. IT IS ALSO NOT THE INTENT OF THE LEGISLATURE TO GIVE UNDUE BEN EFIT TO THE ASSESSEE WHO CONTRAVENES THE PROVISIONS OF LAW. THE HONBLE ITAT, AMRITSAR BENCH IN THE CASE OF M/S. KASHMIR TUBES, JAMMU, DEC IDED IN ITA NO.145(ASR)/2005/2005 ON 7.12.07, HAS ALSO HELD THA T SUCH EXPENDITURE, WHICH IS NOT ALLOWABLE HAS TO BE ADDED BACK TO THE INCOME AS IT HAS NO DIRECT NEXUS WITH THE MANUFACTU RING ACTIVITY OF THE ASSESSEE. KEEPING IN VIEW THE ABOVE FACT AND ALSO T HE DECISION OF THE HONBLE ITAT, AMRITSAR BENCH, IN THE CASE OF M/S. K ASHMIR TUBES, JAMMU, AN AMOUNT OF RS.3,79,503/- IS SUBJECTED TO T AX. ACCORDINGLY, DEDUCTION TO THE EXTENT OF RS.3,79,503/- IS DISALLO WED AND ADDED TO THE RETURNED INCOME OF THE ASSESSEE. 4. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER. 5. SH. RAJESH JAIN, CA, THE LD. COUNSEL APPEARING F OR THE ASSESSEE ARGUED AND POINTED OUT, AT THE OUTSET, WITH REGARD TO THE DECISION OF ITAT, AMRITSAR BENCH, DATED 7 TH DEC.,2007, IN THE CASE OF M/S. KASHMIR TUBES, JAMM U VS. ITA NO.398/ASR/2011 4 ITO WARD 2(1), JAMMU, PASSED IN ITA NO.145(ASR)/200 5 FOR THE ASSESSMENT YEAR 2001-02, IS ON DIFFERENT FACTS WITH REGARD TO EPF, WHICH IS ALLOWED AS PER SPECIFIC PROVISIONS CONTAINED IN SECTION 36(1)( VA) READ WITH SECTION 2(24) OF THE ACT, SINCE THE ASSESSEE HAS FAILED TO DEPOSI T CONTRIBUTION OF ITS EMPLOYEES BY THE DUE DATE AND, THEREFORE, DEFAULT U NDER EPF PAYMENT WAS NOT AN ALLOWABLE EXPENDITURE AND HAD TO BE ADDED TO THE INCOME OF THE ASSESSEE AND, THEREFORE, INCOME SO EARNED HAD NO DI RECT NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. SH. RAKESH JAIN CA, THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF MUMBAI ITAT IN THE CASE OF S.B. BUILDERS & DEVELOPERS VS. ITO REPORTED IN (2011) 45 SOT 335 WHERE IT HAS BEEN HELD THAT INCOME DERIVED FROM THE ELIGIBLE BUS INESS MUST BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 30 TO 43D AS PROVIDED IN SECTION 29. SECTION 29 OF THE ACT PROVIDES THAT INC OME CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINE D IN SECTION 30 TO 43D. IT WAS FURTHER HELD THAT IN THE SAID DECISION OF IT AT, WHILE GIVING EFFECT TO THE COMPUTATION PROVISIONS CONTAINED IN SECTION 30 TO 43D, ONE SHOULD NOT BE BOGGED DOWN BY THE THEORY THAT THE DISALLOWED E XPENDITURE CANNOT BE CONSIDERED AS PROFITS DERIVED FROM THE HOUSING PR OJECT OR AS OPERATIONAL PROFITS. THE LD. COUNSEL SH. RAJESH JAIN ALSO RELI ED UPON THE UNREPORTED ITA NO.398/ASR/2011 5 DECISION OF ITAT MUMBAI BENCH H MUMBAI, IN THE CA SE OF HARSH INDUSTRIES, MUMBAI VS. THE INCOME TAX OFFICER, 15(2 )(2), MUMBAI, IN ITA NO.2338/MUM/2011, FOR THE A.Y. 2007-08, DATED 15 TH JULY, 2011, ON THE IDENTICAL ISSUE, A COPY OF THE SAME WAS PLACED ON R ECORD. THEREFORE, THE LD. COUNSEL FOR THE ASSESSEE PRAYED TO ALLOW THE DEDUCT ION AS CLAIMED IN THE COMPUTATION OF INCOME. 6. ON THE OTHER HAND, THE LD. DR, SH. TARSEM LAL, I NVITED OUR ATTENTION TO THE PROVISIONS OF SECTION 80-IB OF THE ACT THAT DEDUCTION SHOULD BE ALLOWED ONLY ON THE PROFITS AND GAINS OF THE ASSESS EE DERIVED FROM THE BUSINESS OF THE ASSESSEE. HE STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE ISSUE BEFORE US IS COVERED BY THE DECISION OF T HE CO-ORDINATE BENCH IN THE CASE OF S.B. BUILDERS & DEVELOPERS VS. INCOME T AX OFFICER, REPORTED IN (2011) 45 SOT 335.FOR THE SAKE OF CLARITY, THE DECI SION IN THE SAID CASE IS REPRODUCED AS UNDER: UNDER SECTION 80AB THE INCOME THAT IS DERIVED FROM THE ELIGIBLE BUSINESS MUST BE COMPUTED IN ACCORDANCE WI TH THE PROVISIONS OF SS. 30 TO 43D, AS PROVIDED IN SECTION 29. SECTION 29 PROVIDES THAT THE INCOME CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SS. 30 TO 43D. UNQUESTIONABLY, S. 40(A)(IA) IS A SECTION FALLING B ETWEEN SS. 30 TO 43D AND THEREFORE EFFECT MUST BE GIVEN TO THE SA ME IN ITA NO.398/ASR/2011 6 COMPUTING THE PROFITS AND GAINS DERIVED FROM THE EL IGIBLE BUSINESS, WHICH IN THIS CASE IS A HOUSING PROJECT. IT FOLLOWS THAT IF THE ASSESSEE HAS NOT DEDUCTED TAX FROM ANY PAYME NT WHICH IT WAS REQUIRED TO OR HAS FAILED TO DEPOSIT THE TAX WI THIN THE PRESCRIBED TIME-LIMIT, IT CANNOT CLAIM ANY DEDUCTIO N IN RESPECT OF THE PAYMENT WHILE COMPUTING THE PROFITS DERIVED FROM THE ELIGIBLE BUSINESS. THE PAYMENT HAS TO BE DISALLOWED AND ADDED BACK TO THE PROFITS, THEREBY SWELLING THE SAME. THE RESULTANT FIGURE OF PROFITS, ENHANCED BY THE AMOUNT OF DISALL OWANCE, WOULD BE ELIGIBLE FOR THE DEDUCTION UNDER S. 80-IB( 10). THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS, FOR THE PURPOSE OF THE SECTIONS FALLING UNDER THE HEAD C-DEDUCTIONS IN RE SPECT OF CERTAIN INCOMES, HAVE TO BE COMPUTED IN ACCORDANCE WITH THE COMPUTATION PROVISIONS OF SS. 30 TO 43D AS MANDATED BY S.. 29. THEREFORE, IT HARDLY MATTERS WHETHER WHILE COMPUTIN G THE PROFITS IN ACCORDANCE WITH THE ABOVE SECTIONS, AN A MOUNT IS ALLOWED AS A DEDUCTION OR IS DISALLOWED AND ADDED B ACK TO THE PROFITS SINCE COMPUTATION WOULD INCLUDE BOTH ALLO WING A DEDUCTION AND DISALLOWING OR RESTRICTING A DEDUCTIO N IN ACCORDANCE WITH THE STATUTORY PROVISIONS. SEC. 40(A )(IA) AUTHORIZES THE DISALLOWANCE OF THE DEDUCTION IF THE TAX HAS NOT BEEN DEDUCTED AND PAID IN TIME. IT IS PART OF THE P ROVISIONS FOR COMPUTATION OF THE PROFITS.SEC.80AB ADVISEDLY USES AND EXPRESSION ..THE AMOUNT OF INCOME OF THAT NATURE A S COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT. TH E SECTION WOULD HAVE BEEN DIFFERENTLY WORDED IF THE CONTENTIO N OF THE REVENUE IS TO BE ACCEPTED. ONE WOULD BE IGNORING TH E MANDATE OF SECTION 80ABR/W.S. 29 IF ONE ACCEPTS THE STAND O F THE REVENUE. THERE IS NO AUTHORITY GIVEN BY THESE SECTI ONS TO IGNORE THE EFFECT OF S. 40(A)(IA). THOSE SECTIONS DO NOT S AY THAT THE ASSESSEE WILL BE ALLOWED ALL THE DEDUCTIONS FROM TH E PROFITS, BUT WHEN IT COMES TO DISALLOWING CERTAIN CLAIMS OF EXPE NDITURE SOMEHOW THOSE PROVISIONS WILL HAVE TO BE IGNORED. W HILE GIVING EFFECT TO THE COMPUTATION PROVISIONS CONTAINED IN S S. 30 TO 43D ONE SHOULD NOT BE BOGGED DOWN BY THE THEORY THAT TH E DISALLOWED EXPENDITURE CANNOT BE CONSIDERED AS PROF ITS DERIVED FROM THE HOUSING PROJECT OR AS OPERATION AL PROFITS. PLASTIBLENDS INDIA LTD. VS. ADDL. CIT & ORS. (2009) 227 CTR (BOM) (FB) 1: (2009) 30 DTR (BOM)(FB) 194 : (2009) 318 ITR 352 (BOM)(FB), CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO . LTD. VS. ITA NO.398/ASR/2011 7 CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC) AND DISTRIBUTORS (BARODA) )P) LTD. VS. UNION OF INDIA & ORS. (1985) 47 CTR (SC) 349(1985) 155 ITR 120 (SC) RELIED ON; L IBERTY INDIA VS. CIT (2009) 225 CTR (SC) 233 : (2009)28 DT R (SC) 73 : (2009) 317 ITR218 (SC) DISTINGUISHED. 7.1. RESPECTFULLY FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH (SUPRA), THE DISALLOWANCE MADE IN THE PRESENT CASE HAS TO BE IGNORED WHILE COMPUTING THE DEDUCTION U/S 80-IB OF THE ACT. ACCORDINGLY, TH E AO IS DIRECTED TO ALLOW THE CLAIM OF THE ASSESSEE AS PER COMPUTATION OF INC OME, IGNORING THE DISALLOWANCE ON ACCOUNT OF FBT, INCOME TAX AND PRI OR PERIOD EXPENDITURE. THUS, GROUND NO.1 OF THE ASSESSEE IS ALLOWED. 8. AS REGARDS GROUND NO.2, THE SAME HAS NOT BEEN PR ESSED BY THE LD. COUNSEL FOR THE ASSESSEE. THEREFORE, THE SAME IS DI SMISSED AS NOT PRESSED. 9. AS REGARDS GROUND NO.3 WITH REGARD TO THE DEDUCT ION UNDER SECTION 80-IB ON ACCOUNT OF EXCISE DUTY REFUND AND INTEREST SUBSIDY, THE SAME HAS BEEN ALLOWED TO BE TREATED AS CAPITAL RECEIPT BY TH E LD. CIT(A).. THE DEPARTMENT IS NOT IN THE APPEAL BEFORE US AND THERE IS NO GRIEVANCE AGAINST THE ASSESSEE AND, THEREFORE, THE GROUND OF THE ASSE SSEE IS TREATED AS INFRUCTUOUS AND ACCORDINGLY DISMISSED. ITA NO.398/ASR/2011 8 10. AS REGARDS GROUNDS NO.4 & 5, WHICH ARE RELATED TO INTEREST UNDER SECTION 234B OF THE ACT, THE SAME ARE MANDATORY AND CONSEQUENTIAL IN NATURE. 11. GROUND NO.6 IS GENERAL IN NATURE AND, THEREFORE , DOES NOT REQUIRE ANY ADJUDICATION. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.398(ASR)/2011 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15TH MARCH, 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15TH MARCH , 2012 /SKR/ COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE:M/S. SIDHU VINAYAK ALLOYS INDUSTRIES, KATHUA, 2. THE ITO, KATHUA. 3. THE CIT(A), JAMMU. 4. THE CIT, JAMMU. 5. THE SR DR, ITAT, ASR. TRUE COPY BY ORDER