Met India, Ahmedabad V. The ACIT.,Vapi Circle, Vapi

ITA 4440/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5510 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-07-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 17-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Section: 80IB; 205; 80IA; 201

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M MET INDIA, MEHTA LODHA & CO., CHARTERED ACCOUNTS, 105, SAKAR-1, ASHRAM ROAD, AHMEDABAD-380009. VS. ASSTT. CIT, VAPI CIRCLE, VAPI. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI PRAKASH D. SHAH, A.R. REVENUEBY:- SHRI R. K. DHANESTA, D.R. O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUND :- (1) THAT THE CIT(A) HAS ERRED IN LAW AND FACTS BY NOT A LLOWING DEDUCTION U/S 80 IB OF THE ACT, ON THE INTEREST INC OME OF RS.183449/- ON THE DELAYED PAYMENT OF SALES RECEIVE D. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM IS ENGAGED IN MANUFACTURING OF COPPER AND BRASS PIPES, TUBES, ROD S, STRIPS AND FLATS. THE MANUFACTURING UNIT IS LOCATED IN UNION TERRITORY OF DAMAN AND DIU WHICH IS A BACKWARD AREA AS SPECIFIED IN SCHEDULE V III OF THE INCOME-TAX ACT AND IS ACCORDINGLY ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. THE ASST. YEAR 2005-06 FOR WHICH THE APPEAL IS BEFORE U S, IS THE SECOND YEAR OF MANUFACTURING AND, THEREFORE, AS PER AO THE ASSE SSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80IB THIS YEAR ALSO. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO EXAMINED THE PROFIT A ND LOSS ACCOUNT AND FOUND THAT ASSESSEE HAS INCLUDED INTEREST INCOME OF RS.1,83,449/- EARNED ITA NO.4440/AHD/2007 ASST. YEAR :2005-06 2 ON THE DELAYED PAYMENT OF SALE PROCEEDS WHOSE PROFI TS WERE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. THE AO WAS , HOWEVER, OF THE VIEW THAT INTEREST INCOME HAS NO DIRECT NEXUS WITH THE MANUFACTURING ACTIVITIES OF THE ASSESSEE. ACCORDING TO HIM THE PH RASE USED IN SECTION 80IA & 80IB IS PROFITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING WHICH MEANS THAT NOT ANY PROFIT IS EN TITLED FOR BENEFIT OF DEDUCTION UNDER SECTION 80IA/80IB OF THE ACT. ACCOR DING TO THE AO AS PER VARIOUS DECISIONS OF THE APEX COURT EXPRESSION DERIVED FROM IS QUITE DIFFERENT FROM THE EXPRESSION ATTRIBUTABLE T O, WHICH MEANS THAT IF AN INCOME IS ATTRIBUTABLE TO THE INDUSTRIAL UNDERTA KING THEN IT CANNOT BE SAID THAT IT IS ALSO DERIVED FROM SUCH INDUSTRIAL U NDERTAKING. THE AO THEN REFERRED TO THE DECISION OF HON. SUPREME COURT IN T HE CASE OF PANDIAN CHEMICALS LTD. 262 ITR 278 (SC) AND CIT VS. STERLIN G FOODS (1999) 237 ITR 579 TO HIGHLIGHT HIS POINT THAT INTEREST INCOME DERIVED FROM DEBTORS OF SALE PROCEEDS IS NOT IN FACT DERIVED FROM INDUST RIAL UNDERTAKING AND HENCE IT IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB. 3. HOWEVER, THE LD. AO DID NOT FOLLOW THE DECISION OF HON. GUJARAT HIGH COURT IN NIRMA INDUSTRIES LTD. VS. DCIT 283 IT R 402 EVEN THOUGH IT WAS CITED BEFORE HIM AS REFERRED TO BY HIM IN TH E ASSESSMENT ORDER. 4. THE LD. CIT(A) ALSO DID NOT FOLLOW THE HON. GUJA RAT HIGH COURT DECISION IN NIRMA INDUSTRIES LTD. VS. DCIT (SUPRA) BUT REFERRED TO SEVERAL OTHER DECISIONS WHICH WERE RENDERED IN RELEVANCE TO SECTION 80 HHC AND APPLICABILITY OF EXPLANATION (BAA) TO THAT SECTION. THE LD. CIT(A) ALSO REFERRED TO THE DECISION OF ITAT, (SPECIAL BENCH) I N THE CASE OF LALSONS ENTERPRISES VS. DCIT (2004) 89 ITD 25, CIT VS. NAG PUR ENGINEERING CO. LTD. 245 ITR 806 (BOM) AND MANY OTHERS WHICH WERE R ENDERED IN THE CONTEXT OF SECTION 80 HHC. 3 5. BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT ALL THOSE DECISIONS REFERRED TO BY THE LD. CIT(A) AND AO ARE NOT REALLY APPLICABLE TO THE FACTS OF THE PRESENT CASE BECAUSE THE LANGUA GE USED IN SECTION 80 HHC AND 80IB ARE QUITE DIFFERENT. IN FACT SECTION 8 0IB REFERS TO THE PROFITS AND GAINS DERIVED FROM ANY BUSINESS OF INDU STRIAL UNDERTAKING WHICH IS QUITE DIFFERENT FROM THE LANGUAGE USED IN SECTION 80IA AND OTHERS WHERE ELIGIBILITY IS CONFERRED ON PROFITS AN D GAINS DERIVED BY AN UNDERTAKING. THUS CRUCIAL DIFFERENCE IS OF PROFITS AND GAINS DERIVED BY THE UNDERTAKING AS USED IN SECTION 80IA AND PROFITS AND GAINS DERIVED BY BUSINESS OF AN INDUSTRIAL UNDERTAKING AS USED IN SE CTION 80IB. SO FAR AS INTEREST ON DELAYED RECEIPTS OF SALE PROCEEDS IS CO NCERNED, IT IS DIRECTLY RELATED TO THE BUSINESS OF INDUSTRIAL UNDERTAKING O F THE ASSESSEE AND, THEREFORE, IS DIRECTLY DERIVED FROM SUCH BUSINESS. IN FACT INTEREST SO RECEIVED IS ONLY ADDITIONAL SALE PROCEEDS AND, THER EFORE, PART OF THE SALE PROCEEDS AND IS NOT EQUIVALENT TO INTEREST RECEIVED FROM FIXED DEPOSIT IN THE BANK. HE REFERRED TO THE DECISION OF HON. DELHI HIGH COURT IN CIT VS. ADVANCE DETERGENTS LTD. (2010) 228 CTR (DEL) 356 FO R THE PROPOSITION THAT INTEREST ON LATE PAYMENT RECEIVED FROM CUSTOME RS OR INTEREST RECEIVED BY THE ASSESSEE ON OVERDUE PAYMENT FROM THE CUSTOME RS IS TO BE CONSIDERED AS PROFITS AND GAINS DERIVED FROM INDUST RIAL UNDERTAKING WHICH ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA. HE S UBMITTED THAT IF SUCH INTEREST IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IA WHOSE SPHERE OF APPLICABILITY IS LIMITED AS COMPARED TO SPHERE OF A PPLICABILITY OF SECTION 80IB THEN SUCH DEDUCTION UNDER SECTION 80IB ON INTE REST RECEIVED ON DELAYED PAYMENT FROM CUSTOMERS SHOULD BE ELIGIBLE F OR DEDUCTION. 6. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS O F AUTHORITIES BELOW. HE SUBMITTED THAT MATTER MAY BE REFERRED TO THE LD. CIT(A) AGAIN FOR 4 CONSIDERING THE ISSUE AFRESH AS HE HAS RATHER TOUCH ED ONLY SECTION 80 HHC AND NOT SECTION 80IB. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ASSESSEE IS E NTITLED FOR DEDUCTION UNDER SECTION 80IB ON INTEREST RECEIVED ON DELAYED PAYMENTS RECEIVED FROM CUSTOMERS. IT IS BECAUSE INTEREST EARNED BY TH E ASSESSEE IS NOT ON ANY FIXED DEPOSIT WHICH IS DIVORCED FROM MAIN BUSINESS OF ASSESSEE OF MANUFACTURING AND SALE. THE DEBTORS TO WHOM SALES A RE MADE WILL NOT BE PAYING INTEREST TO THE ASSESSEE ON DELAYED PAYMENTS UNLESS IT IS SO AGREED WITH THEM BY THE ASSESSEE WHILE CONTRACTING FOR SAL E. IN OTHER WORDS PAYMENT OF INTEREST BY THE DEBTORS DURING THE PREVI OUS YEAR AGAINST SALES MADE TO THEM IS IN ACCORDANCE WITH THE AGREEMENT MA DE WITH THEM. THE AGREEMENT INCLUDES PAYMENT OF INTEREST ALSO, IF SAL E PROCEEDS ARE NOT REMITTED WITHIN STIPULATED PERIOD AFTER THE SALE. T HEREFORE, THE PAYMENT OF SALE PROCEEDS AND INTEREST BOTH ARE DIRECTLY DERIVE D FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING WHICH IS MANUFACTURING, PROD UCTION AND SALE. THE RECEIPT OF INTEREST ON DELAYED PAYMENTS, THEREFORE, CANNOT BE SEPARATELY CONSIDERED TO HAVE A SEPARATE CHARACTER OTHER THAN SALE. OUR VIEW IS SUPPORTED BY THE DECISION OF HON. DELHI HIGH COURT IN THE CASE OF ADVANCE DETERGENTS LTD. (SUPRA). IT IS HELD THEREIN THAT INTEREST AT THE SPECIFIED RATE IS ADDED TO THE OUTSTANDING BILL TIL L THE TIME OF REALIZATION AND FURTHER THAT ENTIRE PAYMENT SO RECEIVED INCLUDI NG INTEREST WOULD BE PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING. TH E PAYMENT OF INTEREST IS IN FACT PAYMENT OF HIGHER SALE PROCEEDS IF THERE IS A DELAY IN PAYMENT OF SALE PROCEEDS. IN PRINCIPLE THERE IS NO DISTINCTION AS TO THE SOURCE FOR ORIGINATING SALE PRICE AND INTEREST ON DELAYED PAYM ENTS. IT IS INCORRECT TO STATE THAT SOURCE OF INTEREST IS THE OUTSTANDING SA LE PROCEEDS BUT IN FACT IS A 5 REVERSE OF DISCOUNT. SIMILAR VIEW HAS BEEN TAKEN BY VARIOUS HIGH COURTS IN FOLLOWING JUDGMENTS :- (1) PHATELA COTGIN INDUSTRIES (P) LTD. VS. CIT (2008) 3 03 ITR 411 ( P & H) (2) CIT VS. FLENDER MACNEILL GEARS LTD. (1984) 41 CTR ( CAL) 60 (1984) 150 ITR 83 (CAL) (3) TATA SPONGE IRON LTD. VS. CIT (2007) 292 ITR 175 (O RI) (4) CIT VS. INDIA MATSUSHITA CARBON CO. LTD. (2006) 205 CTR (MAD) 493 (2006) ITR 201 (MAD) 8. HON. GUJARAT HIGH COURT IN NIRMA INDUSTRIES LTD. VS. DCIT (SUPRA) HELD THAT INTEREST RECEIVED FROM TRADE DEBTORS TOWA RDS LATE PAYMENT OF SALE CONSIDERATION IS TO BE INCLUDED IN THE PROFITS AND LOSS OF THE INDUSTRIAL UNDERTAKING. ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT INTEREST ON DELAYED PAYMENT OF SALE PROCEEDS IS PART OF SALE PR OCEEDS AND, THEREFORE, IS DIRECTLY DERIVED FROM BUSINESS OF INDUSTRIAL UND ERTAKING AND IS, THEREFORE, ELIGIBLE FOR DEDUCTION UNDER SECTION 80I B. ACCORDINGLY THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 30/7/2010 SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 30/7/2010 MAHATA/- 6 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD