DCIT, V. M/s Paramount Metal Factory Tabela Street,

ITA 458/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2367 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 13-08-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 06-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Assessee Lawyers: P K MISHRA
• Keywords: Business income; Depreciation; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA : VICE PRESIDENT AND SHRI R.P. TOLANI : JUDICIAL MEMBER ITA NO. 267/DEL/09 ASST. YR: 2005-06 M/S PARAMOUNT METAL FACTORY VS. ACIT-1, MORADABA D C/O KANSAL KAPOOR & CO (CAS), KOTHIWAL NAGAR, STATION ROAD, MORADABAD. AND ITA NO. 458/DEL/09 ASST. YR: 2005-06 ACIT-1, MORADABAD VS M/S PARAMOUNT METAL FACTOR Y C/O KANSAL KAPOOR & CO KOTHIWAL NAGAR, STATION ROAD, MORADABAD. PAN/ GIR NO. AAEFP 3056B ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI P.K. MISHRA CA REVENUE BY : SHRI H.K. LAL SR. DR O R D E R PER G.E. VEERABHADRAPPA, V.P: THESE CROSS APPEALS ARISE OUT OF THE ORDER DATED 5- 11-2008 OF THE CIT(APPEALS), BAREILLY FOR A.Y. 2005-06. BOTH THE A PPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A COMMON ORDE R FOR THE SAKE OF CONVENIENCE. ITA 267 & 458/D/09 PARAMOUNT METAL FACTORY 2 ITA NO. 267/DEL/09 ( ASSESSEES APPEAL) : 2. AT THE HEARING THE LEARNED COUNSEL FOR THE ASS ESSEE DID NOT PRESS ISSUES RELATING TO DISALLOWANCE OF TELEPHONE EXPENS ES, CAR EXPENSES, DEPRECIATION ON CAR AND DISALLOWANCE OF TAVELLING E XPENSES. ACCORDINGLY GROUND NOS. 1 TO 4 TAKEN BY THE ASSESSEE IN ITS APP EAL STAND REJECTED BEING NOT PRESSED. 3. THE ONLY GROUND THAT IS ARGUED BY THE ASSESSEE R ELATES TO THE DISALLOWANCE OF FOREIGN TOUR EXPENSES TO THE EXTENT OF 5%. THE ASSESSEE IS A MANUFACTURER AND EXPORTER AND IS ENTITLED TO HUNDRE D PERCENT DEDUCTION U/S 80-IB OF THE INCOME-TAX ACT, 1961. THE ASSESSING OF FICER FOUND THAT THE ASSESSEE HAD INCURRED A SUM OF RS. 34,87,502/- ON F OREIGN TRAVELING OF DIFFERENT PARTNERS OF THE FIRM. THE EXPENSES INCLUD ED A SUM OF RS. 20,94,140/- ON FOOD & DRINKS, HOTEL BILLS MISC. EXP ENSES, TAXI EXPENSES, OVERSEAS CUSTOMER ENTERTAINMENT ETC. THE ASSESSING OFFICER DISALLOWED 10% OF THE EXCHANGE AMOUNT AS RELATING TO PERSONAL ENTE RTAINMENT. THE CIT(APPEALS) REDUCED THE SAID DISALLOWANCE TO 5% AN D THE ASSESSEE IS AGGRIEVED. 4. THE CONTENTION OF THE ASSESSEE IS THAT THERE IS NO PERSONAL ELEMENT IN THE BUSINESS EXPENSES INCURRED BY THE ASSESSEE. THE DISALLOWANCE HAS BEEN MADE ON ARBITRARY BASIS AND IS NOT BASED ON ANY MAT ERIAL ON RECORD. THE ITA 267 & 458/D/09 PARAMOUNT METAL FACTORY 3 DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STR ONGLY SUPPORTED THE DISALLOWANCE. 5. WE HAVE HEARD RIVAL CONTENTIONS AND ARE UNABLE TO APPROVE THE ACTION OF THE DEPARTMENT IN MAKING THE AD HOC DISALLOWANCE WITHOUT ANY BASIS. IT IS NOBODYS CASE THAT ANY EXPENDITURE INCURRED BY THE ASSESSEE IS FOR NON- BUSINESS PURPOSES. THEY WERE INCURRED ABROAD FOR B USINESS PURPOSES ONLY. THE ELEMENT OF ANY PERSONAL ENTERTAINMENT IN SUCH A N EXPENDITURE IS NOT BORNE FROM THE RECORDS. MOREOVER, THE ASSESSEE IS A N HUNDRED PERCENT EXPORTER AND ALL THE EXPENSES ARE INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS. THE DISALLOWANCE IS DELETED. ITA NO. 458/DEL/09 ( REVENUES APPEAL) : 6. IN REVENUES APPEAL THE ONLY DISPUTE RELATES TO THE ASSESSEES CLAIM FOR RELIEF U/S 80-IB ON THE AMOUNT OF EXPORT INCENTIVES . AS THE FACTS REVEAL, THE ASSESSEES CLAIM IS WITH REFERENCE TO THE DUTY DRAW BACK, INCLUDED AS A PART OF THE BUSINESS INCOME. ACCORDING TO THE ASSESSING OFFICER, THESE EXPORT INCENTIVES ARE PROVIDED FOR EXPORT PROMOTION POLIC Y OF THE CENTRAL GOVERNMENT AS INCENTIVE TO ENCOURAGE EXPORT. THESE INCENTIVES MAY BE ATTRIBUTED TO THE PROFITS AND GAINS BUT CANNOT BE T REATED AS PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING. ACCORDINGLY, IN HI S OPINION THE AMOUNT OF DUTY DRAW BACK DOES NOT QUALIFY FOR ANY DEDUCTION. FOR THIS PURPOSE HE ITA 267 & 458/D/09 PARAMOUNT METAL FACTORY 4 RELIED UPON THE DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF MENTHA & ALLIED PRODUCTS PVT. LTD. 2006(7) MTC 625. IN APPE AL, THE CIT(A), RELYING UPON THE DECISION OF DELHI HIGH COURT IN THE CASE O F CIT VS. ELTEK SGS PVT. LTD. 300 ITR 6, ALLOWED THE CLAIM OF THE ASSESSEE. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE ENTIRE MATERIAL ON RECORD. THIS VERY ISSUE ALSO CAME UP FOR CONSID ERATION BEFORE THE ITAT DELHI BENCH E IN ITA NO. 444/DEL/2009 IN THE CASE OF M/S SAG NEW LOOK DATED 8-4-2009. IN THAT CASE THE ITAT HAS MADE THE FOLLOWING OBSERVATIONS AND REFERRED TO THE DECISION OF THE IT AT IN ITA NO. 1082 & 1473/DEL/2008 DATED 23-1-2009, WHEREIN IDENTICAL IS SUE WAS DISCUSSED: 4. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORDS. WE FIND THAT THIS ISSUE IS SQUARELY COV ERED BY THE DECISION OF ITAT, DELHI BENCH F IN THE CASE OF RASHID EXPORTS DATED 11 TH JULY, 2008. THE BENCH HAS HELD THAT DEDUCTION UNDER SECTI ON 80-IB OF THE ACT WILL BE AVAILABLE IN RESPECT OF DUTY DRAWBACK AND D EPB RECEIPTS. THE BENCH WHILE DECIDING THE APPEAL HELD AS UNDER: 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. HONBLE DELHI HIGH CO URT IN THE CASE OF CIT VS ELTEK SGS PVT. LTD. 300 ITR PAGE 6 (DEL.) HAS CONSIDERED THE ISSUE RELATING TO ALLOWAB ILITY OF DEDUCTION UNDER SECTION 80-IB OF THE ACT IN RESPE CT OF DUTY DRAWBACK. HONBLE DELHI HIGH COURT HELD AS UNDER:- WE ARE OF THE OPINION THAT IT IS NOT NECESSARY FO R US TO GO AS FAR AS THE GUJARAT HIGH COURT HAS DONE IN COMING TO THE CONCLUSION THAT DUTY DRAWBACK IS PROFIT OR GAIN DERIVED FROM AN INDUSTRIAL UNDERTAKING. IT IS SUFFICIENT IF WE STICK TO THE LANGUAGE USED IN SECTION 80-IB OF THE ACT AND COME TO THE CONCLUSION THAT DUTY DRAWBACK IS PROFIT OR GAIN DERIVED FROM THE BUSINESS OF AN INDUSTRIAL UNDERTAKING. THE LANGUAGE USED IN SECTION 80-IB OF THE ACT IS NOT AS BROAD AS THE EXPRESSION ATTRIBUTABLE TO REFERRED TO BY THE SUPREME COURT IN STERLING FOODS (1999) 237 ITR 579 AND CAMBAY ELECTRIC (1978) 113 IR 84 (SC) NOR IS IT S NARROW A S THE EXPRESSION DERIVED FROM. THE EXPRESSION ITA 267 & 458/D/09 PARAMOUNT METAL FACTORY 5 DERIVED FROM THE BUSINESS OF AN INDUSTRIAL UNDERTAKING IS SOMEWHERE IN BETWEEN. CONSEQUENTLY, WE ARE OF THE VIEW THAT THE SOURCE OF THE DUTY DRAWBACK IS THE BUSINESS OF THE INDUSTRIAL UNDERTAKING, WHICH IS TO MANUFACTURE AND EXPORT GOODS OUT OF RAW MATERIAL THAT IS IMPORTED AND ON WHICH CUSTOMS DUTY IS PAID. THE ENTITLEMENT FOR DUT Y DRAWBACK ARISES FROM SECTION 75(1) OF THE CUSTOMS ACT, 1962 READ WITH THE RELEVANT NOTIFICATION ISSUE D BY THEN CENTRAL GOVERNMENT IN THAT REGARD. 11. WE ALSO FIND THAT ITAT, DELHI BENCH G IN THE CASE OF SHRI ANIL KUMAR RASTOGI CONSIDERED THE DECI SION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ELT EK SGS PVT. LTD. (SUPRA) AND DISTINGUISHED THE CASE OF HON BLE ALLAHABAD HIGH COURT IN THE CASE OF MENTHA AND ALLI ED PRODUCTS PVT. LTD (SUPRA) ON THE BASIS OF LANGUAGE EMPLOYED IN SECTION 80-IA OF THE ACT, BY OBSERVING AS UNDER:- 6. COMING NOW TO THE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF MENTHA AND ALLIED PRODUCTS (P) LTD. (SUPRA, IT IS SEEN THAT IT WAS CONCERNED WITH THE DEDUCTION UNDER SECTION 80- HHA, WHICH USES LANGUAGE THAT IS IDENTICAL WITH SECTIONS 80-HH, 80-I ETC. VIZ. PROFITS AND GAINS DERIVED FROM A SMALL SCALE INDUSTRIAL UNDERTAKING T O WHICH THIS SECTION APPLIES. THUS, FOR THE PURPOSE OF SECTION 80-HHA, AS IN THE CASES OF SECTIONS 80-HH, 80-I ETC. IT IS NECESSARY THAT THE INDUSTRIAL UNDERTAKING ITSELF SHOULD BE THE DIRECT SOURCE FOR THE INCOME IN QUESTION AND NOT ONE OR MORE STEPS REMOVED. AS ALREADY NOTICED, THE LANGUAGE EMPLOYED IN SECTION 80-IB IS WIDER, THOUGH NOT AS WIDE AS ATTRIBUTABLE TO. THE STATUTORY PROVISION CONSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IS DIFFERENT HAVING DIFFERENT LANGUAGE. 12. AFTER CONSIDERING THE DECISION OF JURISDICTIONA L HIGH COURT, THE BENCH FURTHER HELD AS UNDER:- 7. IN THE LIGHT OF THE ABOVE DISCUSSION, IT IS NOT NECESSARY TO CONSIDER THE JUDGMENT OF THE MADRAS HIGH COURT IN CIT VS. JAMEEL LEATHERS (246 ITR 97) AND CIT VS. VISWANATHAN & CO. (261 ITR 737), ITA 267 & 458/D/09 PARAMOUNT METAL FACTORY 6 ALL CITED BY THE LEARNED SENIOR DR. IN ANY CASE, A PERUSAL OF THESE JUDGMENTS SHOWS THAT THEY WERE CONCERNED WITH SECTIONS 80-J, 80-HH AND 80-I AND NOT SECTION 80-IB WHERE THE LANGUAGE E USED IS MUCH WIDER. THE JUDGMENT OF THE DELHI HIGH COURT IN CI T VS. J.B. EXPORTS (286 ITR 603) CITED BY HIM WAS ALSO CONCERNED WITH SECTION 80-HH AND NOT SECTION 80-IB. THE ORDER OF THE DELHI BENCH OF THE TRIBUNAL IN ACIT VS. K.S. INTERNATIONAL (293 ITR 39 (AT), IN WHICH SECTION 80-IB WAS CONSIDERED AND IT WAS HELD THAT THE DDB RECEIPT CANNOT BE TREATED AS PROFITS DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING WAS RENDERED ON 17 TH NOVEMBER, 2006, BEFORE THE JUDGMENT OF THE DELHI HIGH COURT IN CIT VS. ELTEK SGS (P) LTD. (SUPRA); THE ORDER CA N NO LONGER BE GIVEN EFFECT TO AFTER THE JUDGMENT OF THE DELHI HIGH COURT. THE TRIBUNAL IN THIS ORDER HAD HELD THAT HE TWO TERMS DERIVED FROM THE INDUSTRIA L UNDERTAKING AND DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING HAVE THE SAME MEANING, A VIEW WHICH DID NOT FIND APPROVAL BY THE DELHI HIGH COURT IN ELTEK SGS (SUPRA). THEREFORE, THE ARGUMENT OF THE DEPARTMENT BASED ON THIS ORDER OF THE TRIBUNAL CANNOT BE GIVEN EFFECT TO. 8. IN THE RESULT, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION UNDER SECTION 80-IB IN RESPECT OF THE DDB AND DEPB RECEIPTS. THE GROUNDS ARE ALLOWED. 13. FROM THE ABOVE PRECEDENTS, IT IS CLEAR THAT THE ASSESSEES CASE IS SQUARELY COVERED BY THE DECISION OF ITAT, DELHI BENCH G. THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN MENTHA AND ALLIED PRODUCTS (P) LTD. (SUPRA ) HAS BEEN DISTINGUISHED ON LAW AND FACTS. RESPECTFULLY F OLLOWING THE PRECEDENTS, THE ISSUE IS DECIDED IN FAVOUR OF T HE ASSESSEE. 5. SINCE THE ISSUE IS SQUARELY COVERED BY THE DECIS ION OF ITAT IN THE CASE OF RASHID EXPORTS, RESPECTFULLY FOLLOWING THE PRECEDENT, IT IS HELD THAT THE ASSESSEE WILL BE ENTITLED FOR DEDUCTION UNDER S ECTION 80-IB IN RESPECT OF DUTY DRAWBACK AND DEPB RECEIPTS. THE ASSESSING O FFICER IS DIRECTED TO RECOMPUTE THE DEDUCTION UNDER SECTION 80-IB OF THE ACT ACCORDINGLY. ITA 267 & 458/D/09 PARAMOUNT METAL FACTORY 7 8. IN THE LIGHT OF THE ABOVE, WE FIND THAT THE ISSU E IS SQUARELY COVERED BY THE AFORESAID ORDERS OF THE TRIBUNAL IN ASSESSEES FAVOUR. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) I N DIRECTING THE ASSESSING OFFICER TO ALLOW CLAIM U/S 80-IB WITH REFERENCE TO THE DUTY DRAWBACK RECEIPTS. ACCORDINGLY, ORDER OF CIT(APPEALS) ON THE ISSUE IN QUESTION IS UPHELD. 9. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED AND THAT OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 31-12-2009. ( R.P. TOLANI ) (G.E.VEE RABHADRAPPA) JUDICIAL MEMBER VICE PRESIDENT DATED: 31 ST DECEMBER 2009. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 267 & 458/D/09 PARAMOUNT METAL FACTORY 8