SUBRAY CATAL CHEM P. LTD, MUMBAI V. DCIT 9(3), MUMBAI

ITA 5034/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55948 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 16-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 17-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Keywords: Business income; Additional evidence
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H , MUMBAI BEFORE SHIRI D.K. AGARWAL, JM AND SHRI R.K. PANDA, AM ITA NO. : 5034/MUM/2010 ASSESSMENT YEAR : 2006-07 M/S. SUBRAY CATAL CHEM. PVT. LTD. A-12/8, INDRAYUDH CHS LTD. M.G. ROAD, GOREGAON (W), MUMBAI-400 062 PAN NO: AAACS 9934 Q VS. DCIT 9(3) AAYAKAR BHAWAN, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : MISS AASIFA KHAN RESPONDENT BY : SHRI V . V. SHASTRI DATE OF HEARING : 16.11.2011 DATE OF PRONOUNCEMENT : 25.11.2011 ORDER PER R. K. PANDA (AM) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 29.04.2010 PASSED BY THE LD. CIT(A)-20, MUMBAI RELA TING TO ASSESSMENT YEAR 2006-07. 2. THE CONCISE GROUNDS OF APPEAL NO.1 BY THE ASSESS EE READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREI NAFTER REFERRED TO AS THE CIT(A)] ERRED IN HOLDING THAT INTEREST FROM ITA NO : 5034/MUM/2010 M/S. SUBRAY CATAL CHEM PVT. LTD. 2 FIXED DEPOSIT OF `. 2,65,381/-, INTEREST FROM SUNDRY DEBTORS OF `. 3,47,530/-, SUNDRY BALANCES WRITTEN OFF OF `. 57,553/- AND EXCHANGE GAIN OF `. 86,686/- AGGREGATING TO `. 7,57,150/- IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE IN COME TAX ACT, 1961. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SALE OF CHEMICALS. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSES SEE HAD CLAIMED DEDUCTION U/S.80IB OF `. 6,48,648/- WHICH INCLUDES OTHER INCOME AGGREGATING TO `. 7,57,150/- AND THE DETAILS OF WHICH ARE AS UNDER :- A) INTEREST ON FIXED DEPOSIT OF `. 2,65,381/-. B) INTEREST ON SUNDRY DEBTORS OF `. 3,47,530/-. C) SUNDRY BALANCES WRITTEN OFF OF `. 57,553/-. D) EXCHANGE GAIN OF `. 86,686/-. 4. ACCORDING TO THE AO THE ABOVE RECEIPTS HAD NOT A RISEN FROM THE MANUFACTURING ACTIVITY. HE, THEREFORE, ASKED THE AS SESSEE TO EXPLAIN AS TO WHY THE ABOVE RECEIPTS SHOULD NOT BE EXCLUDED FROM THE PROFITS OF SILVASSA UNIT FOR THE PURPOSE OF DEDUCTION U/S.80IB. REJECTI NG THE EXPLANATION GIVEN BY THE ASSESSEE, THE AO HELD THAT THE ABOVE R ECEIPTS DO NOT EMANATE DIRECTLY FROM THE MANUFACTURING ACTIVITY. ACCORDING TO HIM, IN ORDER TO BE ELIGIBLE FOR DEDUCTION U/S.80IB, THE PROXIMITY AND IMMEDIATE SOURCE SHOULD BE THE BUSINESS OF THE INDUSTRIAL UNDERTAKIN G. HOWEVER, IN THE INSTANT CASE, THE SAME IS NOT DIRECTLY FROM THE MAN UFACTURING ACTIVITY. HE, ACCORDINGLY, HELD THAT THE ABOVE SAID RECEIPTS OF `. 7,57,150/- IS NOT ELIGIBLE FOR DEDUCTION U/S.80IB. 5. IN APPEAL, THE LD. CIT(A) UPHELD THE ACTION OF T HE AO. AGGRIEVED WITH SUCH THE LD. CIT(A) IS IN APPEAL BEFORE US. ITA NO : 5034/MUM/2010 M/S. SUBRAY CATAL CHEM PVT. LTD. 3 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE LD. CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE BEFOR E US. 6.1 SO FAR AS THE INTEREST INCOME OF `. 2,56,381/- ON FIXED DEPOSITS IS CONCERNED, THE ASSESSEE IN OUR OPINION IS NOT ELIGI BLE FOR DEDUCTION U/S.80IB OF THE I.T. ACT IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT REPORTE D IN 317 ITR 218. THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE INTEREST INCOME SHOULD BE NETTED AGAINST THE INTEREST EXPENDITURE I S ALSO WITHOUT ANY MERIT IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. LTD. REPORTED IN 326 ITR 56. 7. NOW COMING TO THE ALLOWABILITY OF DEDUCTION U/S. 80IB ON INTEREST FROM SUNDRY DEBTORS OF `. 3,47,530/-, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. VIDYUT CORPORATION REPORTED IN 324 ITR 221 AND THE DECISION IN THE CASE OF CIT VS. GRIDWELL NORTON LTD. REPORTED IN 31 8 ITR 172. SHE ALSO RELIED ON THE DECISION OF THE TRIBUNAL REPORTED IN 39 SOT 32 AND 25 SOT 235. HOWEVER, FROM THE DETAILS FILED BY THE LD. COU NSEL FOR THE ASSESSEE IN THE PAPER BOOK, IT IS OBSERVED THAT THE INTEREST SH OWN AS RECEIVABLE FROM DEBTORS IS THROUGH JOURNAL ENTRIES. THE LD. COUNSEL FOR THE ASSESSEE COULD NOT REPLY AS TO WHETHER THE AMOUNT HAS ACTUALLY BEE N RECEIVED OR NOT. WE, THEREFORE, DEEM IT PROPER TO RESTORE THE ISSUE TO T HE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN THE LIGHT O F THE DECISIONS CITED ABOVE AND IN ACCORDANCE WITH LAW AFTER GIVING DUE O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO : 5034/MUM/2010 M/S. SUBRAY CATAL CHEM PVT. LTD. 4 7.1 SO FAR AS THE AMOUNT OF `. 57,553/- RELATING TO SUNDRY BALANCE WRITTEN OFF IS CONCERNED, IT IS THE SUBMISSION OF T HE LD. COUNSEL FOR THE ASSESSEE THAT THE SAME IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CA SE OF CIT VS. ABDUL REHMAN INDUSTRIES REPORTED IN 293 ITR 475. IN THE S AID DECISION, THERE WERE CREDITS APPEARING IN THE BOOKS ON THE BASIS OF PURCHASE OF ITEMS FROM VARIOUS SUPPLIERS AND THESE SUPPLIERS WERE NOT PAID. THESE UNCLAIMED CREDIT BALANCES WERE BROUGHT TO THE PROFI T AND LOSS ACCOUNT. ACCORDINGLY, IT WAS HELD THAT THE RECEIPTS HAD ARIS EN ONLY OUT OF ORDINARY TRADING TRANSACTIONS AND PART OF BUSINESS INCOME AN D IS ELIGIBLE FOR DEDUCTION U/S.80HHC. HOWEVER, IN THE INSTANT CASE, NOTHING COMES OUT OF THE EXPLANATION GIVEN BY THE ASSESSEE BEFORE THE AO ABOUT THE NATURE OF SUNDRY BALANCES WRITTEN OFF. NO DETAILS HAVE BEEN F ILED EITHER BEFORE THE AO OR LD. CIT(A) OR EVEN BEFORE US EXPLAINING THE S AME. THEREFORE, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE NATURE OF SUNDRY BALANCE WRITTEN OFF AND DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF ABD UL REHMAN INDUSTRIES (SUPRA). 7.2 SO FAR AS THE EXCHANGE GAIN OF `. 86,686/- IS CONCERNED, WE FIND THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS INDIA PVT . LTD. REPORTED IN ITA NO : 5034/MUM/2010 M/S. SUBRAY CATAL CHEM PVT. LTD. 5 330 ITR 175, WHEREIN IT HAS BEEN HELD THAT GAINS DU E TO FLUCTUATION IN RATE OF FOREIGN EXCHANGE DURING THE EXPORT TRANSACT ION HAS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF DEDUCTION U/S.80HHC . ALTHOUGH THE ISSUE BEFORE US IS ALLOWABILITY OF DEDUCTION U/S.80IB, HO WEVER, IN OUR OPINION, THE SAME RATIO HAS TO BE FOLLOWED AND THE ASSESSEE IN OUR OPINION, IS ENTITLED TO DEDUCTION U/S.80IB ON ACCOUNT OF EXCHAN GE GAIN OF `. 86,686/-. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY PA RTLY ALLOWED FOR STATISTICAL PURPOSE. 8. THE CONCISE GROUNDS OF APPEAL NO.2 BY THE ASSESS EE READS AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF `. 7,20,000/- OUT OF `. 21,60,000/- BEING THE DIRECTORS REMUNERATION PAID DURING THE YEAR UNDER SECTION 40A (2)(A) OF THE ACT. 9. AFTER HEARING BOTH THE SIDES WE FIND THE ASSESSE E HAS PAID REMUNERATION OF `. 21,60,000/- TO MS. VEENA S. HOSMANE AND DIRECTOR OF THE ASSESSEE COMPANY WHO IS A PERSON SPECIFIED UNDE R SECTION 40A(2)(B). THE AO NOTED THAT IN THE IMMEDIATE PRECEDING ASSESS MENT YEAR, THE REMUNERATION PAID TO THE DIRECTOR WAS ONLY `. 7,20,000/-. IN VIEW OF THE STEEP INCREASE IN THE REMUNERATION TO THE DIRECTOR, THE AO ASKED THE ASSESSEE TO JUSTIFY THE PAYMENT. REJECTING THE EXPL ANATION GIVEN BY THE ASSESSEE AND CONSIDERING THE FACT THAT THERE IS SOM E INCREASE IN THE TURNOVER, HE CONSIDERED `. 14,40,000/- AS REASONABLE REMUNERATION AND DISALLOWED AN AMOUNT OF `. 7,20,000/- OUT OF THE REMUNERATION PAID AT `. 21,60,000/-. ITA NO : 5034/MUM/2010 M/S. SUBRAY CATAL CHEM PVT. LTD. 6 10. IN APPEAL, THE LD. CIT(A) UPHELD THE ACTION OF THE AO, FOR WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 11. THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING FILED CERTAIN ADDITIONAL EVIDENCES AND REQUESTED THE BENCH TO ADM IT THE SAME. AFTER HEARING BOTH THE PARTIES, THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE ARE ACCEPTED. 11.1 REFERRING TO THE ADDITIONAL EVIDENCES, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT MS. VEENA S. HOSMANE WAS TH E PROPRIETOR OF M/S. WESTERN CHEMICALS & OXIDE FOR THE ASSESSMENT Y EARS 2002-03 TO 2004-05. SHE CLOSED HER BUSINESS AND BECAME TOTALLY INVOLVED IN THE BUSINESS OF THE ASSESSEE COMPANY IN HER CAPACITY AS A DIRECTOR. SOME OF HER CUSTOMERS WHO WERE DOING BUSINESS WITH HER EARL IER BECAME THE CUSTOMERS OF THE ASSESSEE COMPANY FOR WHICH THE VOL UME OF TURNOVER HAS SUBSTANTIALLY INCREASED. THE MAJOR CUSTOMER OF THE ASSESSEE COMPANY I.E. M/S. FINOLEX CABLES LTD. WAS THE CUSTOMER OF MS. VE ENA S. HOSMANE. REFERRING TO THE COPIES OF THE PURCHASE ORDER FROM M/S. FINOLEX CABLES LTD. AND ANALYSIS STATEMENT FILED ALONG WITH THE AD DITIONAL EVIDENCES SHE SUBMITTED THAT THESE DOCUMENTS SHOW THE JUSTIFICATI ON OF INCREASE IN VOLUME OF BUSINESS DUE TO MS. VEENA S. HOSMANE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE FACTS WERE NOT CO NSIDERED DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR BEFORE THE LD. CIT(A). THEREFORE, THE MATTER MAY BE RESTORED TO THE FILE OF THE AO TO DEC IDE THE ISSUE AFRESH. 12. THE LD. DR ON THE OTHER HAND, HAS NO OBJECTION IF THE MATTER IS SET ASIDE TO THE FILE OF THE AO. 13. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. IN VIEW OF THE ADDITIONAL EVIDENCES FILED BY THE ASSES SEE WHICH WERE NEITHER ITA NO : 5034/MUM/2010 M/S. SUBRAY CATAL CHEM PVT. LTD. 7 PRODUCED BEFORE THE LOWER AUTHORITIES NOR CONSIDERE D BY THEM, WE, IN THE INTEREST OF JUSTICE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AND IN ACCORDANCE WITH LAW. WE HOLD AND DIRECT ACCORDINGLY. THIS GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY, ALLOWED FOR STATISTICAL PURPOSE. 14. THE CONCISE GROUNDS OF APPEAL NO.3 BY THE ASSES SEE READS AS UNDER:- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) ERRED IN CONFIRMING THE ALLOCATION O F 2/3 RD OF THE DIRECTORS REMUNERATION TO THE SILVASSA UNIT WHICH IS AN ELIGIBLE UNIT FOR 80IB DEDUCTION AND ALLOCATION OF 1/3 RD OF THE SAID EXPENSES TO THE NON-ELIGIBLE BUSINESS OF THE ASSESS EE. 14.1 THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT THE REMUNERATION OF THE DIRECTORS MAY BE ALLOCATED EQUA LLY TO BOTH THE UNITS. IN HER ALTERNATE CONTENTION, SHE SUBMITTED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE AO, SINCE THE SECOND GR OUND IS BEING RESTORED TO THE FILE OF THE AO. 15. THE LD. DR ON THE OTHER HAND, WHILE SUPPORTING THE ORDER OF THE LD. CIT(A) SUBMITTED THAT HE HAS NO OBJECTION IF THE MA TTER IS SET ASIDE TO THE FILE OF THE AO. 16. AFTER HEARING BOTH THE SIDES WE FIND MERIT IN T HE ALTERNATE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE MATTER MAY BE SET ASIDE TO THE FILE OF THE AO, SINCE THE GROUNDS OF A PPEAL NO.2 BY THE ASSESSEE HAS BEEN SET ASIDE TO HIS FILE. WE, THEREF ORE, DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE AO FOR FRESH A DJUDICATION OF THE ISSUE IN ACCORDANCE WITH LAW. THIS GROUND OF APPEAL BY THE A SSESSEE IS ACCORDINGLY, ALLOWED FOR STATISTICAL PURPOSE. ITA NO : 5034/MUM/2010 M/S. SUBRAY CATAL CHEM PVT. LTD. 8 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THIS 25 TH DAY OF NOVEMBER, 2011. SD/ - SD/ - ( D.K. AGARWAL ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTAT MEMBER MUMBAI, DT: 25/11/2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, H- BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI