The ITO, Ward-4(1), Ahmedabad V. Elctrotherm (India) Ltd, Ahmedabad

ITA 4529/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5986 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 24-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: M G PATEL
• Keywords: Opportunity of being heard; Set aside
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD C BENCH, BEFORE SHRI BHAVNESH SAINI, J.M. AND SHRI A.N. PAHU JA, A.M. ITA NO.4432 AND 4433/AHD/2007 A. Y.: 2002-03 AND 2004-05 ELECTROTHERM INDIA LTD., A-1, SKYLARK APARTMENT, SATELLITEROAD, AHMEDABAD VS THE INCOME TAX OFFICER, WARD-4(1), AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO.4528, 4529 AND 4530 /AHD/2007 A.Y.: 2002-03, 2003-04 AND 2004-05 THE INCOME TAX OFFICER, WARD-4(1), AHMEDABAD VS ELECTROTHERM INDIA LTD., A-1, SKYLARK APARTMENT, SATELLITEROAD, AHMEDABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI M. G. PATEL, AR FOR DEPARTMENT: SHRI K. M. MAHESH, DR O R D E R PER BENCH : THIS ORDER SHALL DISPOSE OF ALL THE ABOVE APPEALS OF THE ASSESSEE AND THE REVENUE ON WHICH IDENTICAL ISSUES HAVE BEEN RAISED. 2. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD POINTED OUT BY THE PARTIES. 2 ITA NO. 4432 AND 4433/AHD/2007 (BY ASSESSEE) 3. BOTH THE APPEALS BY ASSESSEE ARE DIRECTED AGAINS T DIFFERENT ORDERS OF LEARNED CIT (A)-VIII, AHMEDABAD DATED 10 TH OCTOBER, 2007 FOR ASSESSMENT YEAR 2002-03 AND 2004 - 05. IN ASSESSMENT YEAR 2002-03, LEARNED COUNSEL FO R THE ASSESSEE RESTRICTED HIS ARGUMENTS WITH REGARD TO DE DUCTION CLAIMED U/S 80 HHC AND 80 IB OF THE IT ACT WITH REG ARD TO SCRAP SALES OF RS.30,24,322/-. REST OF THE GROUNDS CLAIMING DEDUCTIONS IN THE AFORESAID SECTIONS ON INTEREST IN COME, OTHER INCOME AND LABOUR CHARGES ARE NOT PRESSED. TH ESE GROUNDS ARE ACCORDINGLY DISMISSED AS NOT PRESSED. S IMILARLY IN ASSESSMENT YEAR 2004-05, LEARNED COUNSEL FOR THE ASSESSEE RESTRICTED HIS ARGUMENTS WITH REGARD TO DE DUCTION CLAIMED U/S 80 HHC AND 80 IB OF THE IT ACT WITH REG ARD TO SERVICE CHARGES OF RS.50,05,173/- AND SCRAP SALES O F RS.34,38,000/-. REST OF THE GROUNDS CLAIMING DEDUCT ION IN THE AFORESAID SECTIONS ON INTEREST INCOME AND OTHER INCOME ARE NOT PRESSED. THESE GROUNDS ARE ACCORDINGLY DISM ISSED AS NOT PRESSED. 4. AS REGARDS SCRAP SALES, IN BOTH THE ASSESSMENT Y EARS IT WAS SUBMITTED BEFORE LEARNED CIT (A) THAT SAME W AS GENERATED IN THE COURSE OF THE MANUFACTURING PROCES S, SO THE SAME WAS DERIVED FROM BUSINESS OF MANUFACTURING FURNACES. THE ASSESSEE RELIED UPON DECISION OF ITAT AHMEDABAD SPECIAL BENCH IN THE CASE OF NIRMA INDUST RIES 3 REPORTED IN 95 ITD 199. THEREFORE, IT WAS CLAIMED T O BE ELIGIBLE FOR DEDUCTION U/S 80 HHC OF THE IT ACT. TH E LEARNED CIT (A) NOTED THAT SIMILAR ISSUE IS CONSIDERED BY L EARNED CIT (A) IN ASSESSMENT YEAR 2003-04 AND ISSUE IS DEC IDED AGAINST THE ASSESSEE. LEARNED CIT (A) HELD THAT SCR AP IS NOT NECESSARY BYE-PRODUCT OF THE MANUFACTURING PROC ESS, THE SAME IS HELD TO BE NOT DIRECTLY DERIVED FROM MANUFACTURING AND EXPORT OF RELEVANT PRODUCT. THERE FORE, THE ASSESSING OFFICERS ACTION IN EXCLUDING THE INC OME FROM SCRAP SALES FROM THE PROFIT OF THE BUSINESS WAS UPH ELD. SIMILAR VIEW WAS TAKEN WITH REGARD TO DEDUCTION CLA IMED U/S 80 IB OF THE IT ACT. THE LEARNED CIT (A) THEREFORE, DENIED THE DEDUCTION TO THE ASSESSEE U/S 80 HHC AND 80 IB OF THE IT ACT ON SCRAP SALES. 4.1 LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN ASSESSMENT YEAR 2003-04, ITAT AHMEDABAD BENCH IN TH E CASE OF THE SAME ASSESSEE IN ITA NO.1363/AHD/2007 V IDE ORDER DATED 17-06-2008 RESTORED THE MATTER BACK TO THE FILE OF THE A O TO VERIFY WHETHER THE SCRAP SALES IS GEN ERATED AS BYE-PRODUCT OF THE ASSESSEES MANUFACTURING PROCESS AND ALLOW THE SAME IN THE LIGHT OF DECISION OF THE SPEC IAL BENCH IN THE CASE OF NIRMA INDUSTRIES LTD. (SUPRA). COPY OF THE ORDER IS FILED (PB -104 108). LEARNED COUNSEL FOR ASSESSEE, THEREFORE, SUBMITTED THAT SINCE THE LEANE D CIT (A) FOLLOWED THE ORDER FOR ASSESSMENT YEAR 2003-04 IN WHICH MATTER IS RESTORED TO THE FILE OF THE A O AS PER 4 DIRECTION OF THE TRIBUNAL, THEREFORE, THIS ISSUE MA Y ALSO BE RESTORED TO THE FILE OF A O FOR RECONSIDERATION. TH E LEARNED D R DID NOT DISPUTE THE ORDER OF THE TRIBUNAL FOR A SSESSMENT YEAR 2003-04 DATED 17-06-2008 (SUPRA). 5. ON CONSIDERATION OF THE ABOVE FACTS AND SUBMISSI ONS OF THE PARTIES, WE ARE OF THE VIEW THE MATTER REQUI RES RECONSIDERATION AT THE LEVEL OF THE A O. THE LEARNE D CIT (A) FOLLOWED THE ORDER OF THE LEARNED CIT (A) FOR ASSES SMENT YEAR 2003-04 FOR DENYING THE DEDUCTION TO THE ASSES SEE U/S 80 HHC AND 80 IB OF THE IT ACT ON SCRAP SALES. IN ASSESSMENT YEAR 2003-04 THE TRIBUNAL IN THE CASE OF THE ASSESSEE SET ASIDE THE ORDERS OF THE AUTHORITIES BE LOW AND RESTORED BACK THE ISSUE TO THE FILE OF THE A O TO V ERIFY WHETHER SCRAP SALES IS GENERATED AS BYE-PRODUCTS OF ASSESSEES MANUFACTURING PROCESS AND ALLOW THE SAME IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH IN T HE CASE OF NIRMA INDUSTRIES LTD. (SUPRA). WE MAY ALSO NOTE HER E THAT HON'BLE SUPREME COURT IN THE CASE OF CIT VS K. RAVINDERANATHAN NAYER 295 ITR 228 HELD THAT PROFIT INCENTIVES LIKE RENT, COMMISSION, BROKERAGE CHARGES ETC. THOUGH THEY FORMED PART OF THE GROSS TOTAL INC OME HAD TO BE EXCLUDED AS THEY WERE INDEPENDENT INCOMES WHICH HAD NO ELEMENT OF EXPORT TURNOVER . CONSIDERING THE ABOVE DISCUSSION, IT WOULD BE APPROPRIATE TO RE STORE THE ISSUE OF DEDUCTION U/S 80 HHC AND 80IB OF THE IT AC T ON SCRAP SALES TO THE FILE OF THE A O IN BOTH THE ASSE SSMENT 5 YEARS. WE ACCORDINGLY SET ASIDE THE ORDERS OF AUTHO RITIES BELOW ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF A O WITH DIRECTION TO RE-DECIDE THIS ISSUE IN THE L IGHT OF THE ABOVE OBSERVATION BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE APP EALS OF THE ASSESSEE ON THIS ISSUE ARE ALLOWED FOR STATISTI CAL PURPOSES. 6. AS REGARDS DEDUCTIONS CLAIMED U/S 80 HHC AND 80 IB OF THE IT ACT ON SERVICE CHARGES IN ASSESSMENT YEAR 2004-05, IT WAS SUBMITTED BEFORE LEARNED CIT (A) TH AT SERVICE INCOME IS DERIVED FROM ASSESSEES BUSINESS OF MANUFACTURING OF ELECTRIC FURNACES AND SAME WAS INT RICATE PART OF ITS MANUFACTURING ACTIVITIES. THE ASSESSEE HAS RECEIVED SERVICE CHARGES INCOME FROM THE CUSTOMERS FOR SERVICES PROVIDED BY ITS SERVICE ENGINEERS. THE SER VICE ENGINEERS ATTEND THE WORK OF INSTALLATION AND COMMI SSIONING OF FURNACES SOLD BY THE ASSESSEE AND FOR PROVIDING SUCH SERVICES, THE ASSESSEE HAD TO INCUR EXPENSES LIKE R ENT OF THE OFFICE, SALARY OF THE SERVICE STAFF, TRAVELING EXPENSES OF STAFF, ELECTRICITY EXPENSES AND ANGADIA CHARGES, TH EREFORE, SAME SHOULD BE CONSIDERED AS PROFIT DERIVED FORM IN DUSTRIAL UNDERTAKING. IN THE ALTERNATE CONTENTION, IT WAS ST ATED THAT THE SERVICE INCOME MAY BE NETTED FROM THE SERVICE EXPENSES. THE LEARNED CIT (A) NOTED THAT THE SERVIC E CHARGES CANNOT BE SAID TO BE DERIVED FROM MAIN EXPO RT ACTIVITY. THE LEARNED CIT (A) ALSO FOLLOWED HIS ORD ER FOR 6 ASSESSMENT YEAR 2003-04 FOR THE PURPOSE OF DENYING DEDUCTION TO THE ASSESSEE U/S 80 HHC AND 80IB OF TH E IT ACT ON SERVICE CHARGES/INCOME. 7. LEARNED COUNSEL FOR ASSESSEE REITERATED THE SAME SUBMISSIONS MADE BEFORE THE AUTHORITIES BLOW. ON TH E OTHER HAND, LEARNED D R RELIED UPON ORDERS OF THE AUTHORI TIES BELOW. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES. LEARNED COUNSEL FOR THE ASSESSEE FILED COP Y OF THE ORDER OF THE TRIBUNAL IN THE CASE OF THE SAME ASSES SEE FOR ASSESSMENT YEAR 2003-04 IN ITA NO.1363/AHD/2007(SUP RA) ON WHICH ALSO ASSESSEE HAS RAISED THE SIMILAR GROUN D CLAIMING DEDUCTION U/S 80 HHC AND 80 IB OF THE IT A CT ON SERVICE CHARGES ON GROUNDS NO.1.3 AND 2.3. THE TRIB UNAL NOTED IN THIS ORDER THAT THE LEARNED COUNSEL FOR TH E ASSESSEE HAS FAIRLY CONCEDED THAT THE CLAIM OF THE ASSESSEE HAS BEEN DENIED IN EARLIER YEARS ON THE IDENTICAL I SSUE. THE TRIBUNAL FOLLOWING ORDER OF THE TRIBUNAL IN EARLIER YEAR DISMISSED THESE GROUNDS OF APPEAL OF THE ASSESSEE. IT IS THEREFORE, CLEAR THAT THE ISSUE OF DEDUCTIONS U/S 8 0 HHC AND 80 IB OF THE IT ACT ON SERVICE CHARGE/INCOME IS SQU ARELY COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE TR IBUNAL IN ASSESSMENT YEAR 2003-04. BY FOLLOWING THE SAME ORDE R OF THE TRIBUNAL IN EARLIER YEARS, THIS GROUND OF APPEA L OF THE ASSESSEE IS DISMISSED. 7 9. AS A RESULT, BOTH THE APPEALS OF THE ASSESSEE AR E PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.4528, 4529 AND 4530/AHD/2007(BY DEPARTMENT ) 10. ALL THE DEPARTMENTAL APPEALS ARE DIRECTED AGAIN ST THE SEPARATE ORDERS OF LEARNED CIT (A)-VIII, AHMEDABAD DATED 10-10-2007 FOR ASSESSMENT YEAR 2002-03, DATED 31-01 -2007 FOR ASSESSMENT YEAR 2003-04 AND DATED 10-10-2007 FO R ASSESSMENT YEAR 2004-05. IN ALL THE APPEALS REVENUE CHALLENGED THE ORDER OF THE LEARNED CIT (A) IN HOLD ING THAT THE PACKING AND FORWARDING INCOME OF RS.30,66,173/- , RS.31,02,972/- AND RS.54,12,732/- IS NOT TO BE EXCL UDED FROM THE PROFITS OF BUSINESS FOR THE PURPOSE OF COM PUTATION OF DEDUCTION U/S 80 HHC OF THE IT ACT AND IN HOLDIN G THAT THE AFORESAID INCOME IS DERIVED FROM INDUSTRIAL UND ERTAKING AND IS THEREFORE, ELIGIBLE FOR DEDUCTION U/S 80 IB OF THE IT ACT. IT WAS SUBMITTED BEFORE LEARNED CIT (A) THAT P ACKING AND FORWARDING INCOME WAS CHARGED FOR THE PURPOSE O F PACKING OF GOODS MANUFACTURED BY THE ASSESSEE, THER EFORE, SAME WAS INTRICATELY CONNECTED WITH THE MANUFACTURI NG PROCESS AND SUCH INCOME WAS DERIVED FROM BUSINESS A ND ACCORDINGLY THE SAME WAS ELIGIBLE FOR THE PURPOSE O F CALCULATION OF CLAIM U/S 80 HHC AND 80 IB OF THE IT ACT. THE LEARNED CIT (A) IN HIS APPELLATE ORDER FOR ASSESSME NT YEAR 2003-04 NOTED THAT THE ASSESSEE EXPLAINED THAT IT W AS IN CONNECTION WITH PACKING CHARGES OF PRODUCT MANUFACT URED AND SOLD TO THE CUSTOMERS VIZ, FURNACES. IT BEING I NTEGRAL 8 PART OF BUSINESS OF THE ASSESSEE COMPANY, THE SAME IS TO BE CONSIDERED AS PART OF THE PROFIT OF THE BUSINESS . THE LEARNED CIT (A) ACCEPTED THE CONTENTION OF THE ASSE SSEE AND ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80 HHC AND 80 IB OF THE IT ACT. THE LEARNED CIT (A) FO LLOWED HIS ORDER FOR ASSESSMENT YEAR 2003-04 IN THE REMAIN ING ASSESSMENT YEARS AND ALLOWED THE CLAIM OF THE ASSES SEE. 11. LEARNED D R RELIED UPON ORDER OF THE A O AND RE FERRED TO PB -2 WHICH IS EXPLANATION OF THE ASSESSEE IN ASSESSMENT YEAR 2002-03, IN WHICH ASSESSEE HAS EXPL AINED AS REGARDS PACKING AND FORWARDING CHARGES THAT THE SAME IS CHARGED FOR THE PURPOSE OF PACKING OF GOODS MANUFAC TURED BY IT. LEARNED D R THEREFORE, SUBMITTED THAT PACKIN G CHARGES ARE NOT PART OF THE MANUFACTURING, INDUSTRI AL ACTIVITY OR EXPORT ACTIVITY OF THE ASSESSEE, THEREFORE, LEAR NED CIT (A) SHOULD NOT HAVE ALLOWED THE CLAIM OF THE ASSESS EE. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE RE ITERATED THE SAME SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT IT WAS INCLUDED IN THE BILLS OF SALE S ON WHICH SALES TAX AND EXCISE DUTY HAVE BEEN PAID. THEREFORE , PACKING AND FORWARDING INCOME IS A PART OF THE SALE PROCEEDS/PRICE. MANUFACTURED ITEMS HAVE TO BE PACKE D PROPERLY; THEREFORE, THESE ARE PART OF THE MANUFACT URING EXPENSES. LEARNED COUNSEL FOR THE ASSESSEE HOWEVER, FAIRLY ADMITTED THAT COPIES OF THE BILLS OF SALES A RE NOT FILED IN THE PAPER BOOK AS WELL AS SAME HAVE NOT BEEN TAK EN INTO 9 CONSIDERATION BY THE LEARNED CIT (A). HE HAS SUBMIT TED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE LEARN ED CIT (A) FOR RECONSIDERATION AND ASSESSEE WOULD PRODUCE RELE VANT MATERIAL BEFORE HIM TO SATISFY THE REQUIREMENTS OF LAW. LEARNED D R ALSO STATED THAT MATTER MAY BE REMANDED TO THE FILE OF THE LEARNED CIT (A) FOR RECONSIDERATION . 12. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE A RE OF THE VIEW MATTER REQUIRES RECONSIDERATION BY THE LEA RNED CIT (A) ON THE ABOVE ISSUE INVOLVED IN ALL THE DEPARTME NTAL APPEALS. THE LEARNED CIT (A) CONSIDERING THE SUBMIS SION OF THE ASSESSEE ACCEPTED THE CLAIM OF THE ASSESSEE WIT HOUT GIVING ANY SPECIFIC FINDINGS ON THE ISSUE. THE LEAR NED CIT (A) SHALL HAVE TO DISCUSS THE EVIDENCE ON RECORD IN THE APPELLATE ORDER BEFORE ACCEPTING THE CONTENTION OF THE ASSESSEE. THUS, THE LEARNED CIT (A) PASSED A NON-SP EAKING ORDER ON THE MATTER IN ISSUE. WE MAY ALSO NOTE HERE THAT HON'BLE SUPREME COURT IN THE CASE OF CIT VS K. RAVINDERANATHAN NAYER 295 ITR 228 HELD THAT PROFIT INCENTIVES LIKE RENT, COMMISSION, BROKERAGE CHARGES ETC. THOUGH THEY FORMED PART OF THE GROSS TOTAL INC OME HAD TO BE EXCLUDED AS THEY WERE INDEPENDENT INCOMES WHICH HAD NO ELEMENT OF EXPORT TURNOVER . IT MAY ALSO BE NOTED HERE THAT LEARNED CIT (A) NOTED THE REMAND RE PORT OF THE A O IN THE APPELLATE ORDER IN WHICH A O HAS MEN TIONED THAT AT THE BEST IT COULD BE TAKEN AS ATTRIBUTABLE TO BUSINESS AND NOT DERIVED EITHER FROM EXPORT OR FROM INDUSTRI AL 10 UNDERTAKING. THE REMAND REPORT OF THE A O IS ALSO N OT CONSIDERED BY THE LEARNED CIT (A). CONSIDERING THE ABOVE DECISION AND THE FACT THAT THE LEARNED CIT (A) HAS NOT CONSIDERED EVIDENCE ON RECORD FOR THE PURPOSE OF DE CIDING THE ISSUE IN FAVOUR OF THE ASSESSEE, WE ACCORDINGLY SET ASIDE THE ORDERS OF THE LEARNED CIT (A) AND RESTORE THIS ISSUE TO HIS FILE WITH DIRECTION TO RE-DECIDE THE I SSUE BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. THE LEARNED CIT (A) SHALL PASS A SPEA KING ORDER DISCUSSING THE ENTIRE EVIDENCE AND MATERIAL O N RECORD IN THE APPELLATE ORDER. AS A RESULT, THESE GROUNDS OF APPEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES . 13. AS A RESULT, ALL THE APPEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED PARTLY FOR STATISTICAL PURPOSES. ALL THE AP PEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11-06-2010 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 11/06/2010 LAKSHMIKANT/- 11 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, 6. GUARD FILE BY ORDER //TRUE COPY// DY.R/AR, I TAT, AHMEDABAD