ADDL.C.I.T. 24(3), MUMBAI V. NARENDRA POLYPLAST, MUMBAI

ITA 4567/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84650 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 06-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI D. KARUNAKAR RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 4567/MUM/2012 ASSESSMENT YEAR: 2008-09 ADDL. CIT - 24(3) MUMBAI VS. M/S. NARENDRA POLYPLAST 3, VAKIL INDUSTRIAL ESTATE, VALBHAT ROAD, GOREGAON(E), MUMBAI-400 062 PAN:AAAFN 0900 E (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI SUBHASH S. SHETTY REVENUE BY : SHRI AKHILENDRA YADAV D ATE OF HEARING : 04 . 1 2 . 2014 DATE OF ORDER : 19 . 1 2 .2014 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST ORDER DATED 25.04.2012 PASSED BY THE LD.CIT(A)-34, MUMBAI , FOR THE QUANTUM OF THE ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 20 08-09 ON THE FOLLOWING GROUNDS:- ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITIONS MAD E BY THE ASSESSING OFFICER ON A/C OF DEDUCTION CLAIMED BY THE ASSESSEE U/S. 80IB OF THE I.T. ACT 1961.' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASES AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN HOLDING THAT THE JOB WORK DONE BY THE ASSESSEE AMOUNTED TO CARRYING OUT MANUF ACTURING ACTIVITY BY AN INDUSTRIAL UNDERTAKING AND THEREFORE ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT' ITA NO. 4567/MUM/2012 M/S. NARENDRA POLYPLAST ASSESSMENT YEAR: 2008-09 2 3. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASES AND IN LAW, THE LD. CIT(A) IS CORRECT IN DISALLOWIN G THE SALE IF MANUFACTURED PRODUCT TO BE TREATED AS 'TRADING RECE IPT' AS HELD BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER.' 4. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASES AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DISALLOW ING THE RE- ALLOCATION OF EXPENDITURE SUCH AS INTEREST CHARGES, REPAIRS & MAINTENANCE AND INSURANCE CHARGES BETWEEN TRADING A ND MANUFACTURING ACTIVITY AND SUBSEQUENT DETERMINATION OF NET PROFIT BY THE ASSESSING OFFICER. 2. REGARDING DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80IB, THE AOS CASE HAD BEEN THAT ASSESSEE IS ENGAGED IN THE BUSIN ESS OF TRADING IN PLASTIC BAGS AND ALSO DOING LABOUR WORK ON JOB WORK DURING THE YEAR AND FOR THE INCOME GENERATED OUT OF JOB WORK ACTIVITY, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 80IB. THE ASSESSEES CLA IM WAS THAT THE LABOUR CHARGE RECEIVED WAS ON ACCOUNT OF MANUFACTURING ACT IVITY ONLY, AS IT WAS CARRYING OUT JOB WORK FROM THE SOME MACHINERY W HICH WAS UTILIZED BY THE ASSESSEE FOR ITS OWN MANUFACTURING. HOWEVER, THE LEARNED ASSESSING OFFICER RELYING UPON THE DECISION OF SPEC IAL BENCH MUMBAI TRIBUNAL IN THE CASE OF B.T. PATIL AND SONS 35 SOT 171 (MUM) (SB), DISALLOWED THE CLAIM OF THE ASSESSEE. 3. BEFORE THE LD.CIT(A), THE ASSESSE SUBMITTED THAT IT IS CARRYING OUT THREE ACTIVITIES VIZ, MANUFACTURING OF PLASTIC BAGS , TRADING; AND CARRYING OUT JOB OF WORK FOR A MANUFACTURING OF THE PLASTIC AND BOPP FILMS FOR OTHERS. DURING THE RELEVANT ASSESSMENT YEAR IT HAS CARRIED OUT THE TRADING AND JOB OF WORK ON CONTRACT BASIS FROM THE SAME PLANT AND MACHINERY. IT HAS MAINTAINED SEPARATE BOOKS OF ACCO UNT FOR MANUFACTURING ACTIVITY AND TRADING BUSINESS. THEREF ORE, PROFIT DERIVED FROM MANUFACTURING ACTIVITY INCLUDING INCOME FROM L ABOUR JOB WORK FROM MANUFACTURING OF PLASTIC BAGS FOR CUSTOMERS IS ELIG IBLE FOR DEDUCTION U/S ITA NO. 4567/MUM/2012 M/S. NARENDRA POLYPLAST ASSESSMENT YEAR: 2008-09 3 80IB. THE DECISION OF THE SPECIAL BENCH IN THE CASE OF B.T. PATIL AND SONS (SUPRA) IS NOT APPLICABLE AT ALL. ON THE OTHER HAND, THERE ARE CATENA OF HIGH COURT DECISIONS WHICH ARE IN FAVOUR OF THE ASSESSE HOLDING THAT DEDUCTION U/S 80IB IS ALSO AVAILABLE ON JOB OF WORK . LIST OF SUCH DECISIONS ARE AS UNDER:- 1. CIT VS. IMPEL FORGE & ALLIED INDUSTRIES 326 ITR 27 (P&H) 2. METALMAN AUTO PVT. LTD. VS. CIT 336 ITR 34 (P&H) 3. CIT VS. NORTHERN AROMATICS LTD. 196 CTR 479 4. CIT VS. RANE (MADRAS) LTD. 148 CIT (MAD) 404 5 BANK OF BARODA VS. H.C. SRIVASTAVA 122 TAXMANN 33 0(MUM) 4. THE LD.CIT(A) FIRST OF ALL NOTED THE ENTIRE FACT S ON THE ISSUE OF CLAIM OF DEDUCTION U/S 80IB IN THE FOLLOWING MANNER :- I HAVE CAREFULLY GONE THROUGH THE SUBMISSIONS OF TH E APPELLANT, STATEMENT OF FACTS, THE IMPUGNED ASSESSMENT ORDER A ND VARIOUS CASE LAWS RELIED ON BY THE APPELLANT ON THIS ISSUE. THE APPELLANT CARRIED ON THREE KINDS OF ACTIVITIES VIZ, MANUFACT URING OF PLASTIC BAGS, TRADING AND CARRYING OUT JOB WORK FOR MANUFAC TURING THE PLASTIC BOPP FILMS FOR OTHERS BUT DURING THE ASSESS MENT YEAR, IT CARRIED ON ONLY THE LATTER TWO ACTIVITIES. THE VERY SAME PLANT & MACHINERIES WHICH IS USED FOR ITS OWN MANUFACTURING IS ONLY UTILIZED FOR DOING JOB WORK DONE ON A CONTRACT BASI S. THE, BREAK- UP DETAILS FOR THE SALE SUBMITTED IS AS UNDER: 1. LABOUR CHARGES OUT OF MANUFACTURING RS.215,25,7 22 2.SALE OF MANUFACTURED GOODS RS. 98, 05,414 TOTAL RS.313,34,736 1.6 PAGE NOS. 57 & 58 OF THE PAPER BOOK CONTAINS T HE DETAILS WITH REGARD TO THE SALE OF MANUFACTURED GOODS. FURT HER, THE PERUSAL OF MANUFACTURING, TRADING A/C. SHOWS THAT R S.95,57,961/- WAS SHOWN AS OPENING STOCK UNDER THE HEAD 'MANUFACT URING'. IT WAS THE CLAIM OF THE APPELLANT THAT THIS MANUFACTUR ED GOODS WERE ONLY SOLD FOR RS.98,08,414/- DURING THE ASSESSMENT YEAR AND HENCE, IT CANNOT BE SAID THAT THE ENTIRE PROFIT OF THE APPELLANT AROSE ONLY OUT OF JOB WORK. THE PROFIT COMPONENT OF THIS MANUFACTURED SALES IS ALSO EMBEDDED INTO THE CLAIM OF 80IB(10). ITA NO. 4567/MUM/2012 M/S. NARENDRA POLYPLAST ASSESSMENT YEAR: 2008-09 4 1.7 IT WAS THE CONTENTION OF THE APPELLANT THAT SE PARATE BOOKS OF ACCOUNTS WERE MAINTAINED FOR MANUFACTURING ACTIVITY AND TRADING BUSINESS. THEREFORE, THE PROFIT DERIVED FROM MANUFA CTURING ACTIVITY INCLUDES INCOME OUT OF LABOUR JOB WORK ALS O. IT WAS ALSO SUBMITTED THAT SINCE THE SAME P & M WHICH IS USED F OR MANUFACTURING IS ALSO USED FOR JOB WORK, THE INCOME OUT OF CONTRACT JOB WORK IS DERIVED INCOME FOR THE PURPOSE OF SEC. 801B. THE QUESTION TO BE ANSWERED IN THIS CASE IS WHETHER THE APPELLANT IS ENTITLED FOR DEDUCTION U/S 80LB OF THE ACT IN RE SPECT OF THE JOB WORK ACTIVITY UNDERTAKEN. IN THIS REGARD, THE FACTS IN SOME OF THE CASES, WHICH ARE IDENTICAL TO THAT OF THE APPELLANT ARE DISCUSSED BELOW. AND THEREAFTER, HE ANALYZED THE VARIOUS DECISIONS R ELIED UPON BY THE ASSESSE AND ALSO OTHER DECISION WHICH WERE AS UNDER :- 1. CIT VS. SAHANI COMPUTERS LTD. REPORTED IN 203 TAXMA NN 37 2. CIT VS. AMBUJA GINNE PROCESSING & OIL CO. PVT. LTD. REPORTED IN 332 ITR 434 3. MIDAS PLOYMER COMPOUNDS (P) LTD. VS. ACIT REPORTED IN 331 ITR 68 4. CIT VS. VALLABH YARNS PVT. LTD. REPORTED IN 335 ITR 518 (P&H) 5. ITAT SPL. BENCH CALCUTTA IN THE CASE OF DCIT VS. RA JESHKUMA R DROLIA LTD. IN 12 ITR (TRIB) 001 6. HONDA SIEL POWER PRODUCTS LTD. VS. CIT (2009) 318 I TR 309 (DELHI) AFTER ANALYZING THE FACTS AND RATIO LAID DOWN BY TH E HONBLE HIGH COURTS IN THE AFORESAID DECISIONS, THE LD.CIT(A) ALLOWED T HE CLAIM OF DEDUCTION AFTER U/S 80IB OBSERVING AND HOLDING AS UNDER:- IN THE CASE OF THE APPELLANT, THE PLANT & MACHINER Y WHICH WAS USED FOR MANUFACTURING PLASTIC BAGS AND POLYPROPYLE NE SHEETS WERE ONLY USED TO CARRY OUT THE JOB WORK FOR OTHERS . THE INCOME ARISING OUT OF THE JOB WORK IS NOTHING BUT A 'DERIV ED INCOME' FROM THE INDUSTRIAL UNDERTAKING AS PER PROVISIONS OF SEE .80IB OF THE LT. ACT. AS PER VARIOUS JUDICIAL PRONOUNCEMENTS, MENTIO NED ABOVE THIS SECTION DOES NOT DIFFERENTIATE THE INCOME WHET HER IT IS DERIVED OUT OF OWN MANUFACTURING OR OUT OF THE JOB WORK. HENCE, IT HAS TO BE REGARDED THAT DOING JOB WORK AMOUNTS T O CARRYING OUT MANUFACTURING ACTIVITY BY THE INDUSTRIAL UNDERTAKIN G AND HENCE, THE APPELLANT IS ELIGIBLE FOR THE DEDUCTION U/S 80L B OF THE I.T. ACT. IN VIEW OF THE ABOVE, THE APPEAL OF THE APPELLANT I S 'ALLOWED'. 1.16 IT WAS ALSO THE CONTENTION OF THE APPELLANT TH AT THE FACTS IN THE CASE OF B.T. PATIL & SONS PVT LTD. IS DIFFERENT AND THE SAME CANNOT BE APPLIED TO THE FACTS OF THE APPELLANT'S C ASE. IN THE CASE ITA NO. 4567/MUM/2012 M/S. NARENDRA POLYPLAST ASSESSMENT YEAR: 2008-09 5 OF B.T. PATIL & SONS PVT. LTD. THE DECISION WAS REN DERED IN THE CONTEXT OF DEVELOPER/CIVIL CONTRACTOR TO AVAIL THE BENEFIT OF SEC.801B WHEREAS IN THE APPELLANT'S CASE, IT PERTAI NS TO CLAIM UNDER NEW INDUSTRIAL UNDERTAKING AND NOT AS A CIVIL CONTRACTOR. I CONCUR WITH THE APPELLANT THAT THE FACTS IN APPELLA NT CASE IS ENTIRELY DIFFERENT FROM THAT OF B.T PATIL & SONS AN D IT IS NOT APPLICABLE. 5. BEFORE US THE LD. DR STRONGLY RELIED UPON THE OR DER OF THE AO, WHEREAS LD. COUNSEL SUBMITTED THAT THIS ISSUE IS CO VERED BY THE SERIES DECISIONS OF THE HIGH COURT AS REFERRED BY THE LD.C IT(A). 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ALSO ON THE PERUSAL OF THE FINDINGS GIVEN IN THE IMPUGNED ORDERS, WE FIND THAT THE ASSESSEES CLAIM FOR DEDUCTION U/S 80IB IS MAINLY ON ACCOUNT O F JOB WORK WHICH WAS CARRIED OUT FROM THE PLANT AND MACHINERIES INSTALLE D BY THE ASSESSE FOR ITS OWN MANUFACTURING PURPOSES. THE VARIOUS COURTS HAVE HELD THAT THE ONLY REQUIREMENT FOR CLAIM OF DEDUCTION U/S 80IB IS THAT, INCOME SHOULD BE DERIVED FROM THE INDUSTRIAL UNDERTAKING AND ASSE SSEE IS LIBERTY TO MANUFACTURE THE GOODS FOR ITSELF OR FOR OTHERS. THE SECTION DOES NOT MAKE ANY DIFFERENCE FOR THE PURPOSE OF CLAIMING DED UCTION U/S 80IB. IF THE JOB WORK HAS BEEN DONE FROM THE RAW MATERIAL SU PPLIED BY THE CUSTOMERS AND ASSESSEE HAS MANUFACTURED THE GOODS F ROM THOSE RAW MATERIALS, THEN IT AMOUNTS TO MANUFACTURING FROM TH E INDUSTRIAL UNDERTAKING. IN ALL THE DECISIONS AS HAVE BEEN REFE RRED BEFORE US, THE HONBLE HIGH COURTS HAVE REITERATED THE SAME PROPOS ITION. A FINDING OF FACT HAS BEEN RECORDED BY THE LD.CIT(A) THAT THE PL ANT AND MACHINERY WERE USED FOR MANUFACTURING OF PLASTIC BAGS AND POL YPROPYLENE SHEETS TO CARRY OUT THE JOB WORK FOR OTHERS. THE ONLY DIFFERE NCE IS THAT ASSESSEE INSTEAD OF ITS OWN RAW MATERIAL, HAS USED RAW MATER IAL SUPPLIED BY OTHERS. THUS SUCH AN INCOME FROM JOB WORK IS NOTHIN G, BUT INCOME ITA NO. 4567/MUM/2012 M/S. NARENDRA POLYPLAST ASSESSMENT YEAR: 2008-09 6 DERIVED FROM INDUSTRIAL UNDERTAKING AS PER THE PROV ISIONS OF SECTION 80IB. THUS THE FINDING OF THE LD.CIT(A) IS INCORPOR ATED ABOVE AS AFFIRMED AND ACCORDINGLY GROUND NO. 1 AND 2 RAISED BY THE REVENUE IS DISMISSED. 7. IN GROUND NO. 3 THE REVENUE HAS CHALLENGED THE D ELETION OF DISALLOWANCE OF THE SALES OF MANUFACTURED PRODUCT T REATED AS TRADING RECEIPTS. THE BRIEF FACTS OF THE CASE ARE THAT, THE AO NOTED THAT THERE IS A DIFFERENCE BETWEEN THE LABOUR CHARGES RECEIVED AN D THE AMOUNT DEBITED IN THE P&L ACCOUNT FROM THE DETAILS GIVEN I N THE TDS CERTIFICATES FILED ALONG WITH THE RETURN OF INCOME. IN THE P&L A CCOUNT THE ASSESSEE HAS DEBITED RS.3,13,34,736/- WHEREAS IN THE TDS CER TIFICATE, IT WAS ONLY RS.2,15,26,322/-, THUS, THERE ,WAS A DIFFERENCE OF RS.98,08,414/-. IN RESPONSE TO THE SHOW CAUSE NOTICE THE ASSESSE SUBMI TTED THAT THE SAID AMOUNT DOES NOT PERTAIN TO LABOUR CHARGES BUT IT PE RTAINS TO TRADING OF GOODS AND HENCE NO TDS WAS DEDUCTED. THE RELEVANT S UBMISSIONS OF THE ASSESSE BEFORE THE AO WAS AS UNDER:- RS.98,08,414/- WAS TRADING/MANUFACTURING ENTRY WHI CH WAS PASSED IN THE LABOUR CHARGES ACCOUNT. AT THE YEAREN D I.E. 31.07.07, IT WAS TRANSFERRED BY WAY OF A J.V. TO TH E NARNEDRA POLYPRINT A/C. AND THUS REMOVED FROM THE LABOUR JOB RECEIVED. A/S. IT DOES NOT PERTAIN TO LABOUR CHARGES, IT PERT AINS TO TRADING OF GOODS. HENCE, TDS WAS NOT DEDUCTED ON THE SAME AS I T WAS NOT A LABOUR CHARGE RECEIPT. HOWEVER, THE ASSESSING OFFICER HELD THAT THE ASSESS E HAS ERRONEOUSLY INCLUDED THE TRADING RECEIPTS OF RS.98,08,414/- UND ER THE HEAD LABOUR CHARGES. HENCE THE SAME IS TO BE EXCLUDED FROM THE LABOUR CHARGES AND ACCORDINGLY THE PROFITS OF THE TRADING ACTIVITY IS TO BE INCREASED BY THE SAID AMOUNT AND THE PROFITS OF THE LABOUR CHARGES S HOULD BE REDUCED ITA NO. 4567/MUM/2012 M/S. NARENDRA POLYPLAST ASSESSMENT YEAR: 2008-09 7 FROM THE SAID AMOUNT. THUS, HE WORKED OUT THE GROSS PROFIT OF LABOUR CHARGES AND TRADING ACTIVITIES AND ENHANCED THE INC OME. 8. BEFORE THE LD.CIT(A), IT WAS CLARIFIED THAT THER E WAS INADVERTENT MISTAKE BY THE ASSESSEE IN GIVING EXPLANATION BEFO RE THE AO THAT THE SALES OF RS.98,08,414/- PERTAINED TO TRADING OF GOO DS. IN FACT, IT WAS SALES ON ACCOUNT OF GOODS MANUFACTURED BY THE ASSE SSE. THESE SALES PERTAINS TO GOODS MANUFACTURED I.E., DOPP FILMS AND IN SUPPORT OF THIS CONTENTION EXTRACT OF SALES REGISTER OF THE MANUFAC TURED PRODUCT FOR THE PERIOD 01.04.2007 TO 31.07.2007 WAS FILED ALONG WIT H THE SAMPLE COPY OF THE SALE INVOICES. THE RELEVANT CLARIFICATION BY THE ASSESSE HAS BEEN REPRODUCED AT PAGES 7 TO 8 OF THE APPELLATE ORDER. THE BIFURCATION OF SALES OF THE TRADING ACTIVITY AND MANUFACTURED GOOD S WAS ALSO WORKED OUT. 9. THE LD.CIT(A) NOTED THAT THE ASSESSE HAD SHOWN O PENING STOCK OF MANUFACTURED GOODS AT RS.95,57,961/- AND THE SALE O F MANUFACTURED GOODS OF RS.98,08,414/-. IT WAS DUE TO SOME MISREPR ESENTATION AT THE ASSESSMENT STAGE, IT WAS STATED THAT THE SAID SALES BELONG TO THE TRADING RECEIPTS. HOWEVER, SUCH A STATEMENT IS NOT CORRECT WHICH IS EVIDENT FROM THE SALES REGISTER OF MANUFACTURING AND ALSO THE SA LE INVOICES. AFTER PERUSING AND EXAMINING THESE DOCUMENTS, THE LD.CIT( A) DIRECTED THE AO TO ACCEPT THE GROSS PROFIT DECLARED BY THE ASSESSE AND ALLOW THE DEDUCTION U/S 80IB ON LABOUR CHARGES. THE RELEVANT FINDING OF THE LD.CIT(A) READS AS UNDER:- I HAVE PERUSED THE COPIES OF THE SAMPLE INVOICE AN D IT CLEARLY INDICATES THAT IT WAS TOWARDS SALE OF BOPP FILMS. S INCE THE STOCK HAS BEEN SHOWN AS OPENING STOCK OUT OF MANUFACTURIN G, NO DOUBT, THAT THE SALE OF GOODS IS OUT OF MANUFACTURI NG ACTIVITY ONLY. THE ASSESSING OFFICER BY IGNORING THE ACTUAL FACTS GONE BY THE SUBMISSION OF THE EARLIER CA WHICH WAS DEFINITE LY ERRONEOUS. ITA NO. 4567/MUM/2012 M/S. NARENDRA POLYPLAST ASSESSMENT YEAR: 2008-09 8 SINCE THE SALE OUT OF THE BOPP FILMS HAS BEEN HELD AS OUT OF MANUFACTURING OF GOODS, THE PROFIT EMANATED OUT OF THIS WOULD AMOUNT TO A DERIVED INCOME FROM THE INDUSTRIAL UNDE RTAKING AND THE APPELLANT IS ENTITLED FOR DEDUCTION 80LB OF THE IT ACT. FURTHER, THE ASSESSING OFFICER SHIFTED THE GROSS PROFIT IN R ESPECT OF ABOVE SALE OF MANUFACTURED GOODS FROM JOB WORK TO TRADING RECEIPTS AND ARTIFICIALLY INFLATED THE GROSS PROFITS BY NOT SHIF TING THE CORRESPONDING COST OF SALES FROM LABOUR ACTIVITY TO TRADING ACTIVITY. SINCE I HAVE HELD THAT THE PROFITS HAS EM ANATED OUT OF MANUFACTURING ACTIVITY, THE ASSESSING OFFICER IS NO T PERMITTED TO ARTIFICIALLY SHIFT AND INFLATE THE PROFIT FROM TRAD ING GOODS. AS PER THE RETURN OF INCOME, THE GROSS RECEIPT OUT OF LABO UR WAS RS.3,13,34,736/- (WHICH INCLUDES THE SALE OUT OF MA NUFACTURING RS.98.08 LACS) AND THE GROSS RECEIPT OUT OF TRADING IS RS.32,22,76,325/-. THE ACCOUNTS OF THE APPELLANT WE RE AUDITED AND STATUTORY AUDIT REPORT FILED BEFORE THE AO. THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY DISCREPANCY IN THE ACCOUNTS AND NOT REJECTED THE BOOK RESULTS AND HE IS NOT PERMITT ED TO TINKER WITH THE SAME, IN VIEW OF THIS THE ASSESSING OFFICE R IS DIRECTED TO ACCEPT THE GROSS PROFIT DECLARED BY THE APPELLANT A ND ALLOW THE DEDUCTION U/S 80LB OF THE I.T. ACT, 1961 ON THIS PR OFIT ALSO. THIS GROUND OF APPEAL IS ALLOWED. 10. BEFORE US, LD. DR SUBMITTED THAT THE ASSESSE HA S KEPT ON CHANGING ITS VERSION FIRSTLY, BY TREATING IT AS TRA DING RECEIPTS AND THEN STATING THAT IT WAS FROM SALE OF MANUFACTURED GOODS . TO CLARIFY THIS POSITION MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO. 11. ON THE OTHER HAND, LEARNED COUNSEL SUBMITTED TH AT THE STATEMENT BEFORE THE AO WAS ONLY INADVERTENT MISTAKE AND THE SAME WAS CLARIFIED BEFORE THE LD.CIT(A) WITH DOCUMENTARY EVIDENCE ALRE ADY ON RECORD. THE LD.CIT(A) HAS VERIFIED THE RECORDS AND HAS GIVEN A CATEGORICAL FINDING, THUS THE STRONGLY RELIED UPON THE ORDER OF THE LD.C IT(A). 12. WE HAVE HEARD THE RIVAL SUBMISSION AND ALSO PE RUSED THE RELEVANT FINDING OF THE AO AS WELL AS OF THE LD.CIT(A). THE GENESIS OF THE CONTROVERSY STARTED WHEN THE AO NOTED THAT IN THE P &L ACCOUNT, THE ASSESSEE AS DEBITED MORE LABOUR CHARGES HAS COMPARE D TO THE LABOUR ITA NO. 4567/MUM/2012 M/S. NARENDRA POLYPLAST ASSESSMENT YEAR: 2008-09 9 CHARGES SHOWN IN THE TDS CERTIFICATE. WHEN REQUIRED TO RECONCILE THE DIFFERENCE, THE ASSESSEE SUBMITTED THAT THE AMOUNT OF RS.98,08,414/- WAS NOT ON ACCOUNT OF LABOUR CHARGES BUT ON ACCOUNT OF TRADING RECEIPTS. BEFORE THE LD.CIT(A), IT WAS CLARIFIED THAT SUCH A RECONCILIATION STATEMENT GIVEN BEFORE THE AO WAS NOT CORRECT AS THE CORRECT POSITION IS THAT, THE SAID AMOUNT REPRESENTS SALES OF MANUFACTURED GOODS AND NO TRADING RECEIPT. ON THE PERUSAL OF THE RECORDS, IT IS SEEN THAT THE ASSESSE HAD SHOWN INCOME FROM TWO KIND OF ACTIVITIES, ONE FORM JOB WORK OF MANUFACTURING AND SALE OF MANUFACTURED GOODS AND OT HER ON ACCOUNT OF TRADING ACTIVITIES. UNDER THE HEAD MANUFACTURING, T HE ASSESSE HAD SHOWN OPENING STOCK OF MANUFACTURED GOODS AS ON 31.07.200 7 AT RS.95,57,961/-. THE SALE OF MANUFACTURED GOODS WAS SHOWN AT RS.3,13,34,736/- WHICH ALSO INCLUDED SALE ON ACCOUN T OF JOB CHARGES OUT OF RS.2,15,25,722/-. THE AMOUNT WAS FINALLY RECONCI LED IN THE ACCOUNTS. THOUGH THERE HAS BEEN SOME MISREPRESENTATION OF FAC TS BEFORE THE AO HOWEVER, LD.CIT(A) HAS DULY VERIFIED THE SAME FROM SALES REGISTER AND ALSO COPY OF SALE MEMOS AND HAS GIVEN A CATEGORICAL FINDING THAT IT PERTAINS TO SALE OF MANUFACTURED GOODS AND NOT TRAD ING RECEIPTS. THUS SUCH A FINDING OF FACT APPEARS TO BE CORRECT FROM T HE MATERIAL PLACED ON RECORD, HENCE WE DO NOT FIND ANY REASON TO DISTURB SUCH A FINDING OF FACT. ACCORDINGLY GROUNDS RAISED BY THE REVENUE IS DISMISSED. 13. IN GROUND NO. 4, THE REVENUE HAS CHALLENGED FIN DING OF THE LD.CIT(A) ON REALLOCATION OF THE EXPENDITURES. THE ASSESSING OFFICER NOTED THAT ASSESSE HAS ALLOTTED MOST OF THE EXPENSE S TO THE TRADING ACTIVITY AND LOSS ON ACCOUNT OF JOB WORK ACTIVITY. BIFURCATION OF THE OVERHEAD BETWEEN THE TWO ACTIVITIES AND THE NET PRO FITS WERE AS UNDER:- ITA NO. 4567/MUM/2012 M/S. NARENDRA POLYPLAST ASSESSMENT YEAR: 2008-09 10 TRADING ACTIVITY LABOUR ACTIVITY TOTAL GROSS PROFIT AS PER ASSESSEE 24,636,768 16,006,158 40,442,926 LESS: TOTAL OVER HEADS AS PER ASSESSEE 13,631,524 3,885,230 17,516,754 NET PROFIT AS PER ASSESSEE 11,005,244 12,120,928 23,126,172 AO HELD THAT SOME OF THE EXPENSES LIKE REPAIR AND M AINTENANCE, INSURANCE, INTEREST EXPENSES WHICH ARE MOSTLY FOR T HE LABOUR CHARGES ACTIVITY, HAS BEEN DEBITED LOSS TO INCREASE THE PRO FIT IN THIS ACCOUNT AND HELD THAT SAME SHOULD BE APPORTIONED IN THE RATIO O F 80:20. ACCORDINGLY, HE RELOCATED THE EXPENSES AND THE WORKED OUT THE NE T PROFIT. 14. BEFORE THE LD.CIT(A), THE ASSESSE SUBMITTED THA T IT HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR THE MANUFACTURING ACT IVITY INCLUDING JOB WORK AND FOR THE TRADING ACTIVITY. THE EXPENSES PER TAINING TO BOTH TYPES OF ACTIVITIES HAS BEEN SEPARATELY RECORDED. THE EXE RCISE DONE BY THE AO FOR ALLOCATION OF EXPENSES IS MOSTLY BASED ON PRESU MPTION AND WRONG CONCLUSION THAT EXPENSES RELATING TO REPAIR AND MAI NTENANCE, INSURANCE AND INTEREST HAVE BEEN OVER CHARGED TO THE TRADING ACTIVITY AND IT SHOULD BE MORE ON JOB OF WORK. IF AT ALL THESE EXPENSES AR E TO BE RELOCATED THE SAME SHOULD BE ON THE BASIS OF ACTUAL TURNOVER OF S ALES, WHICH WORKS OUT TO 87:13 AND NOT 20:80 AS ALLOTTED BY THE AO. THE A SSESSEES DETAIL WORKING AND SUBMISSION HAS BEEN INCORPORATED FROM P AGES 9 TO 11 OF THE APPELLATE ORDER. THE LD.CIT(A) AFTER DETAILED A NALYSIS OF EACH AND EVERY EXPENSES, HELD THAT APPORTIONMENT MADE BY THE AO IS NOT CORRECT AND IS ARBITRARY. HE ALSO NOTED THAT, SINCE THE BOO KS OF ACCOUNT HAVE BEEN AUDITED AND AO DID NOT POINT OUT ANY SPECIFIC DISCREPANCY IN THE BOOKS OF ACCOUNT HE COULD THINKER WITH THE BOOK RES ULTS. THE TURN OVER BASIS OF ALLOCATING BE EXPENDITURE AND TO ARRIVE AT THE NET PROFIT TO WORK ITA NO. 4567/MUM/2012 M/S. NARENDRA POLYPLAST ASSESSMENT YEAR: 2008-09 11 OUT THE DEDUCTION U/S 80IB IS QUITE REASONABLE. THU S HE HELD THAT THE BASIS OF WORKING ADOPTED BY THE ASSESSEE IS LIABLE TO BE ACCEPTED. LD. CIT(A) FURTHER ANALYZED THE INTEREST AND THE PURPOS E OF WHICH IT LOANS WERE TAKEN. REGARDING INTEREST ALLOCATION, HIS FIND ING IS AS UNDER:- AS FAR AS INTEREST EXPENDITURE IS CONCERNED, THE A SSESSING OFFICER HAS TAKEN VALUE OF THE FACTORY BUILDING AND THE VAL UE OF P & M AS RS.61 CRORE FOR BOTH MANUFACTURING AS WELL AS JOB W ORK ACTIVITIES. IT WAS THE CONTENTION OF THE APPELLANT THAT THE ASS ESSING OFFICER HAS LOST SIGHT OF TRADING ACTIVITY WHICH HAS CONTRI BUTED RS.22.28 CRORES OUT OF TOTAL BUSINESS OF RS.35.36 CORES AND THE FACTORY/OFFICE PREMISES HAVE BEEN USED FOR THE TRAD ING ACTIVITY ALSO. THE ASSESSING OFFICER IGNORED THIS FACT WHILE ALLOCATING THE EXPENDITURE ON AD HOC BASIS. IT WAS ALSO BROUGHT TO MY NOTICE THAT RS.150 CRORES WAS EMPLOYED FOR TRADING ACTIVITY AND INTEREST WAS PAID EXCLUSIVELY FOR THE TRADING ACTIVITY IS AS UNDER: 1.INTEREST PAID TO ICICI BANK AGAINST EXPORT PACKIN G CREDIT FACILITY RS. 5,21,417 2. INTEREST PAID ON CASH CREDIT LOAN FROM ICICI RS. 8,30,637 3. INTEREST PAID ON UNSECURED LOAN RS. 11,72,489 TOTAL RS.25,24,543 ADMITTED BY THE APPELLANT THAT A SUM OF RS.13,10,13 1/- WAS INCURRED TOWARDS THE SAME. THE ASSESSING OFFICER IN THE IMPUGNED ASSESSMENT ORDER HAS ADOPTED THE RATIO OF 46:15 BETWEEN THE MACHINERY AND THE BUILDING. ACCORDINGLY , THE ASSESSING OFFICER HAS APPORTIONED INTEREST OF RS.3, 22,163/- TOWARDS THE BUILDING PREMISES AND RS.11,49,050/- TO WARDS TO MANUFACTURING ACTIVITY. IT WAS THE CONTENTION OF TH E APPELLANT THAT THE BUILDING PREMISES WAS USED BOTH FOR TRADING AND MANUFACTURING ACTIVITIES AND THE INTEREST EXPENDITU RE TOWARDS BUILDING HAS TO BE EQUALLY APPORTIONED AT THE RATIO OF 50:50. THE WORKING GIVEN BY THE APPELLANT IS AS UNDER: TOTAL INTEREST PAID ON TERM LOANS RS.13,10,131 LESS:LNTEREST FOR FACTORY BUILDING FOR TRADING ACTI VITIES AS STATED ABOVE (50% OF RS.3,22,163/-) RS. 1,61,081 RS.11,49,050 ITA NO. 4567/MUM/2012 M/S. NARENDRA POLYPLAST ASSESSMENT YEAR: 2008-09 12 TOTAL INTEREST PERTAINING TO TRADING ACTIVITY COMES AS UNDER INTEREST AS PER PARA (V) AS ABOVE RS.25,24,543 ADD: INTEREST PERTAINING BUILDING PREMISES AS ABOVE RS. 1,61,081 RS.26,85,626 AS FAR AS THE INTEREST IS CONCERN, THE COMPARATIVE DETAILS ARE AS UNDER:- TRADING ACTIVITY LABOUR ACTIVITY TOTAL ORIGINALLY CLAIMED BY THE APPELLANT 33.61 4.72 38.34 APPORTIONMENT BY THE AO 7.6 6 30.67 38.34 BEFORE CIT(A) 11.49 26.85 38.3 4 3.10 HOWEVER, THE SUBMISSION OF THE APPELLANT THAT PORTION OF INTEREST EXPENDITURE ON BUILDING HAS TO BE ALLOCATE D EQUALLY BETWEEN TRADING ACTIVITY AND MANUFACTURING AND JOB WORK ACTIVITY DESERVES TO BE CONSIDERED. ACCORDING TO WHICH THE I NTEREST WORKING COMES TO RS.26,85,626/- FOR TRADING & RS.11 ,49,050/- FOR MANUFACTURING AND JOB WORK ACTIVITY. THE ABOVE WORK ING OF THE APPELLANT IS REASONABLE AND IT IS SCIENTIFIC AND HE NCE, THE ASSESSING OFFICER IS DIRECTED TO ACCEPT THE SAME AN D ACCORDINGLY WORK OUT THE DERIVED INCOME FOR ALLOWABILITY OF DED UCTION U/S 80LB OF THE I.T. ACT 1961. 3.11 WITH REGARD TO THE ALLOCATION OF INSURANCE, RE PAIRS AND MAINTENANCE, I FEEL THE ASSESSING OFFICE HAS TO FOL LOW THE RATIO OF THE TURNOVER OF THE SALES MENTIONED ALREADY AND ACC ORDINGLY, DIRECTED TO APPORTION IN THE RATIO OF 87:13 BETWEEN THE TRADING ACTIVITY, MANUFACTURING AND JOB WORKING ACTIVITY. 3.12 IT WAS SUBMITTED BEFORE ME THAT IF INTEREST AP PORTIONMENT IS TAKEN AS RS.26.85 LAKHS FOR TRADING AND RS.11.49 LA KHS TOWARDS MANUFACTURING AND JOB WORK ACTIVITY, COUPLED WITH A LLOCATION OF 87:13 ON REPAIRS AND MAINTENANCE AND INSURANCE EXPE NDITURE THEN THE 80-18(10) DEDUCTION WOULD BE RS.1,44,20,83 7 AS AGAINST RS.1,50,96,981 CLAIMED BY THE APPELLANT. HOWEVER, I N THE LIGHT OF MY FINDING IN THE EARLIER PARA, THE ASSESSING OFFIC ER IS DIRECTED TO REWORK THE DEDUCTION U/S 80IB OF THE I.T. ACT AND P ROPERLY APPORTIONING THE NET PROFIT BETWEEN THE TRADING ACT IVITY AND MANUFACTURING AND JOB WORK ACTIVITY AND SUBJECT TO THIS CONDITION, THIS GROUND OF APPEAL IS ALLOWED. 15. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E FINDING OF THE LD.CIT(A) APPEARS TO BE CORRECT, FIRSTLY, THE ASSES SEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT, ONE FOR THE MANUFACTURIN G ACTIVITY AND OTHER ITA NO. 4567/MUM/2012 M/S. NARENDRA POLYPLAST ASSESSMENT YEAR: 2008-09 13 FOR TRADING ACCOUNT. THE BOOK RESULTS OF MANUFACTUR ING AND TRADING ACTIVITY HAS NOT BEEN DISTURBED BY THE AO IN AS MUC H AS, NO DISCREPANCY WITH REGARD TO THE ALLOCATION OF THE EXPENSES BY TH E ASSESSEE. THE ENTIRE BASIS OF THE AO FOR REALLOCATION OF EXPENSES IS BAS ED ON PRESUMPTION THAT CERTAIN EXPENSES ARE MORE IN THE JOB WORK ACTI VITY. SO FAR AS THE MAJOR COMPONENT OF INTEREST EXPENDITURE IS CONCERN ED, WE FIND THAT THE LD.CIT(A) HAS ANALYZED THE LOAN TAKEN FROM THE BANK AND THE PURPOSE OF WHICH THE LOANS WERE TAKEN. BASED ON SUCH ANALYSIS, HE HAS DIRECTED THE AO TO REWORK THE DEDUCTION UNDER SECTION 80IB. THUS , THE FINDING OF THE LD.CIT(A) AS REPRODUCED ABOVE IS UPHELD AND THE GRO UND RAISED BY THE REVENUE IS HEREBY DISMISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF DECEMBER, 2014. SD/- SD/- (D.KARUNAKAR RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 19.12.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR B BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.