M/s. Quadrant EPP Surlon Uttranchal (P) Ltd., New Delhi V. ITO, New Delhi

ITA 442/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3293 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 24-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 24-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SMT BEENA PILLAI, JUDICIAL MEMBER ITA NO.442/DEL/2014 ASSESSMENT YEAR: 2009-10 QUADRANT EPP SURLON UTTRANCHAL (P) LTD., H.NO.4, POCKET-1, JASOLA VIHAR, NEW DELHI. PAN: AAACQ0944J VS. ITO, WARD-14(2), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AKHILESH KUMAR, ADVOCATE DEPARTMENT BY : SHRI ATIQ AHMED, SR. DR DATE OF HEARING : 14.11.2017 DATE OF PRONOUNCEMENT : 15.11.2017 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE CIT(A) ON 21.11.2013 IN RELATION TO THE ASSE SSMENT YEAR 2009-10. ITA NO.442/DEL/2014 2 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAIN ST THE DENIAL OF DEDUCTION U/S 80IC IN RESPECT OF FOUR ITEMS OF INCOME TOTALIN G RS.12,21,572/-, WHICH WERE CLASSIFIED BY THE ASSESSEE UNDER THE HEAD OTH ER INCOME. 3. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESS EE CLAIMED DEDUCTION U/S 80IC. THERE IS NO DISPUTE ON THE OTHERWISE ELI GIBILITY OF DEDUCTION TO THE ASSESSEE. THE SAME WAS ALSO ALLOWED BY THE ASSE SSING OFFICER EXCEPT ON FOUR ITEMS, NAMELY, INTEREST ON DEBTORS AMOUNTIN G TO RS.5,22,012/-; FOREIGN EXCHANGE FLUCTUATION OF RS.1,94,060/-; INTE REST SUBSIDY OF RS.2,05,500/-; AND ROYALTY/RENT RECEIVED AMOUNTING TO RS.3 LAC. THE LD. CIT(A) ECHOED THE ASSESSMENT ORDER ON THIS POINT. T HE ASSESSEE IS IN APPEAL AGAINST THE DENIAL OF DEDUCTION ON THE ABOVE REFERRED FOUR ITEMS OF INCOME. 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. SUB-SECTION (1) OF SECTION 80IC AS APPLICA BLE AT THE MATERIAL TIME READS AS UNDER:- `WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUD ES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2), THERE SHALL, IN ACC ORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOW ED, IN COMPUTING ITA NO.442/DEL/2014 3 THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS, AS SPECIFIED IN SUB-SECTION (3). 5. ON GOING THROUGH THE MANDATE OF SUB-SECTION (1), IT IS MANDATED THAT DEDUCTION IS ELIGIBLE IN RESPECT OF PROFITS AND GAI NS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE `FROM ANY BUSINESS RE FERRED TO UNDER SUB- SECTION (2). LANGUAGE OF THIS SECTION IS DIFFERENT FROM CERTAIN OTHER SECTIONS WHICH PROVIDE FOR DEDUCTION ONLY IN RESPEC T OF PROFITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING. THE ESSENC E OF SECTION 80IC IS THAT DEDUCTION IS ALLOWABLE ON PROFITS AND GAINS DE RIVED BY AN ENTERPRISE FROM ANY ELIGIBLE BUSINESS. SUCH PROFITS AND GAINS FROM THE ELIGIBLE BUSINESS DO NOT REFER ONLY TO THE INCOME DIRECTLY D ERIVED FROM THE UNDERTAKING. INCOME FROM BUSINESS AS REFERRED TO IN THE PROVISION ENCOMPASSES ANY INCOME EMANATING FROM THE BUSINESS CARRIED ON BY THE ENTERPRISE. SUCH INCOME NEED NOT NECESSARILY BE DI RECTLY DERIVED FROM THE UNDERTAKING. SO LONG AS THE NEXUS BETWEEN THE INCO ME AND THE BUSINESS EXISTS, THE INCOME CONTINUES TO BE ELIGIBLE FOR DED UCTION U/S 80IC. 6. COMING TO THE FIRST ITEM OF DISPUTE, NAMELY, INT EREST ON DEBTORS AMOUNTING TO RS.5,22,012/-, IT IS SEEN AS AN ADMITT ED POSITION THAT THIS ITA NO.442/DEL/2014 4 AMOUNT REPRESENTS INTEREST RECEIVED FROM DEBTORS FO R LATE PAYMENT OF SALE PROCEEDS. DEBTORS HAVE OBVIOUSLY ARISEN FROM THE E LIGIBLE BUSINESS OF THE ENTERPRISE. SUCH INTEREST PARTAKES THE CHARACTER O F THE SALE PROCEEDS TO WHICH IT RELATES IN SO FAR AS THE AVAILABILITY OF D EDUCTION IS CONCERNED. THE SAME IS, THEREFORE, ELIGIBLE FOR DEDUCTION AS IT IS INCOME DERIVED FROM THE SALE PROCEEDS OF THE ELIGIBLE BUSINESS. 7. FOREIGN EXCHANGE FLUCTUATION OF RS.1,94,060/- IS , ADMITTEDLY, ON ACCOUNT OF TRADING TRANSACTIONS. SALE IS RECORDED AT THE RATE OF FOREIGN EXCHANGE PREVALENT AT THE TIME WHEN EXPORTS ARE MAD E. IF, LATER ON, AN EXCESS AMOUNT IS RECEIVED DUE TO UPWARD REVISION OF FOREIGN EXCHANGE RATE, SUCH EXCESS AMOUNT IS NOTHING, BUT, PART OF SALE PR OCEEDS ONLY, WHICH WAS EARLIER RECORDED AT A LOWER RATE IN ACCORDANCE WITH THE FOREIGN EXCHANGE RATE PREVALENT AT THE MATERIAL TIME. THUS, FOREIGN EXCHANGE FLUCTUATION IS VERY MUCH AN ITEM OF INCOME DERIVED BY THE ASSESSEE FROM THE BUSINESS OF ELIGIBLE UNDERTAKING. THE SAME IS, ERGO, HELD TO BE ELIGIBLE FOR DEDUCTION. 8. THE NEXT ITEM IS INTEREST SUBSIDY OF RS.2,05,500 /-. NATURE OF INCOME AS CONTENDED BY THE ASSESSEE BEFORE THE LD. CIT(A) IS THAT IT PAID INTEREST ITA NO.442/DEL/2014 5 ON LOANS TAKEN FOR PURCHASE OF PLANT & MACHINERY AN D, THEREAFTER, GOVERNMENT ALLOWED SUBSIDY FOR PAYMENT OF SUCH INTE REST. 9. IN SUPPORT OF DEDUCTION, THE LD. AR RELIED ON CIRCULAR NO.39/2016 WHICH TAKES COGNIZANCE OF THE HON'BLE SUPREME COURT JUDGMENT IN MEGHALAYA STEELS LTD. (2016) 383 ITR 217 (SC) AND PROVIDES THAT THE SUBSIDY OF TRANSPORT, POWER AND INTEREST GIVEN BY T HE GOVERNMENT TO THE INDUSTRIAL UNDERTAKINGS ARE RECEIPTS WHICH HAVE BEE N REIMBURSED FOR ELEMENTS OF COSTS RELATING TO MANUFACTURE/SALE OF PRODUCTS AND, ACCORDINGLY, DEDUCTION SHOULD BE ALLOWED ON THEM. I N OUR CONSIDERED OPINION, THIS CIRCULAR DOES NOT ADVANCE THE CASE OF THE ASSESSEE BECAUSE IT SEEKS TO PROVIDE FOR DEDUCTION IN RESPECT OF SUBSID IES WHICH GO TO REIMBURSEMENT OF COST IN THE PRODUCTION OF PARTICUL AR BUSINESS. WHEN WE ADVERT TO THE FACTS OF THE INSTANT CASE, IT IS FOUN D THAT THE INSTANT INTEREST SUBSIDY IS IN RESPECT OF INTEREST PAID ON LOANS TAKEN FOR PURCHASE OF PLANT & MACHINERY . THERE BEING PATENT DIFFERENCE BETWEEN THE ITEMS OF SUBSIDY REFERRED TO IN THE CIRCULAR AND THE NATURE OF INCOM E EARNED BY THE ASSESSEE, BEING, SUBSIDY FOR INTEREST ON LOAN TAKEN FOR PURCH ASE OF PLANT AND MACHINERY, WE FIND THE CLAIM OF THE ASSESSEE FOR DE DUCTION WANTING ON THIS ITA NO.442/DEL/2014 6 ITEM OF INCOME. THE ACTION OF THE AUTHORITIES BELOW IN NOT ALLOWING DEDUCTION U/S 80IC ON THIS AMOUNT, IS APPROVED. 10. THE LAST ITEM IS ROYALTY/RENT RECEIVED AMOUNTIN G TO RS.3 LAC ON WHICH DEDUCTION U/S 80IC WAS NOT ALLOWED. THIS ITEM, AGA IN, IN OUR CONSIDERED OPINION CANNOT BE CONSIDERED AS PROFITS AND GAINS DERIVED BY AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2). RENTAL INCOME HAS NO RELATION WITH THE ELIGIBLE BUSINESS. THE VIEW OF TH E AUTHORITIES ON THIS ISSUE IS ALSO UPHELD. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOW ED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 15 TH NOVEMBER, 2017. SD/- SD/- [BEENA PILLAI] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 15 TH NOVEMBER, 2017. DK ITA NO.442/DEL/2014 7 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.