DCIT CIR 3, THANE V. NEOGEN CHEMICALS LTD, MUMBAI

ITA 515/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4636 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 23-09-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 21-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: SUBODH L RATNAPARKHI
• Keywords: Business income
• Section: 43B; 80HHC; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIAL MEMBER. I.T.A. NO. 515/MUM/2010 ASSESSMENT YEAR : 2004-05. DY. COMMISSIONER OF INCOME-TAX, M/S NEOGEN CHEMICALS LTD. CIRCLE-3, THANE. VS. 115, VARDHMAN INDL. COMPLEX, AGRA ROAD, THANE., MUMBAI 400071. PAN AAACN5836E (APPELLANT) (RESPONDENT) C.O. NO.175/MUM/2010 ( IN ITA NO. 515/MUM/2010) A SSESSMENT YEAR : 2004-05. M/S NEOGEN CHEMICALS LTD., DY. COMMISSIONER OF INCOME-TAX, MUMBAI. VS. CIRCLE-3, THANE. (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : SHRI A.K.NAYAK. ASSESSEE BY : SHRI SUBODH L. RATNAPARKHI. O R D E R PER J.SUDHAKAR REDDY, A.M. THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF THE CIT(APPEALS)-I, THANE DATED 15-10-2009 FOR THE AS SESSMENT YEAR 2004-05 ON THE FOLLOWING GROUND : 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-1, THANE HAS FAILED TO APPRECIATE THAT THE E XPORT INCENTIVE IN THE FORM OF ADVANCE LICENSE SCHEME AMOUNTING TO RS.1, 04,23,708/- IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE I NCOME-TAX ACT, 1961. FURTHER, THE SAID EXPORT INCENTIVE IS NOT COVERED B Y THE CLAUSES (IIIA) TO (IIIE) OF SECTION 28 OF THE INCOME-TAX ACT, 1961. T HE APEX COURT IN THE CASE OF STERLING FOODS (237 ITR 579) (SC) HAS CLEAR LY HELD THAT EXPORT INCENTIVE CANNOT BE CONSIDERED AS BUSINESS INCOME. IT IS FURTHER HELD THAT THE NEXUS BETWEEN THE SOURCE OF IMPORT ENTITLEMENT AND INDUSTRIAL UNDERTAKING IS NOT DIRECT BUT INCIDENTAL. THE ASSESSEE HAS FILED THE CROSS OBJECTION ON THE F OLLOWING GROUND: THE LD. CIT(APPEALS) ERRED IN NOT DELETING THE AD DITION OF RS.2,09,806/- MADE BY THE LD. A.O. U/S 43B OF THE I. TAX ACT 1961 BY HOLDING THAT YOUR APPELLANT HAD BREACHED THE PROVISIONS OF SECTION 36 (1)(VA) R.W.S. 2(24)(X) OF THE I. TAX ACT 1961, WITH RESPECT TO DEPOSIT OF EMP LOYEES CONTRIBUTION TOWARDS PROVIDENT FUND RS.2,03,319/- AND ESIC RS.6, 487/-. 2. WE HAVE HEARD MR. A.K. NAYAK, LEARNED DR AND M R. SUBODH L. RATNAPARKHI, LEARNED COUNSEL FOR THE ASSESSEE. 3. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIR CUMSTANCES OF THE CASE, WE HOLD AS FOLLOWS. 4. AT PARA 5.6 THE LEARNED CIT(APPEALS) HELD AS FO LLOWS : IN THE CASE OF HERO HONDA MOTORS LTD. VS. DCIT, THE HON ITAT DELHI BENCH HAS HELD THAT IN TERMS OF THE ADVA NCE LICENSE SCHEME, THE ASSESSEE WOULD BE ELIGIBLE TO IMPORT RA W MATERIALS WITHOUT PAYMENT OF DUTY. IF IT IS SO DONE, ABSENCE OF CUSTOMS DUTY WOULD RESULT IN LOWER PRODUCTION COST THEREBY ENABL ING THE ASSESSEE TO ACHIEVE HIGHER MARGIN OF PROFIT. THIS HIGHER MARGIN OF PROFIT CAN, BY NO STRETCH OF IMAGINATION, BE CONSTRUED AS DIFFERE NT FROM PROFIT OF BUSINESS. WHEN EXPENDITURE A CUSTOMS DUTY IS CONSID ERED, AS A EXPENDITURE, SO AS TO REDUCE THE PROFIT OF BUSINESS OF ABSENCE OF THE SAME FOR WHATEVER REASONS, CANNOT BE TREATED ALTERN ATIVELY. THE RESULTANT GAIN WOULD RETAIN THE CHARACTER OF THE BU SINESS INCOME. THUS, 3 IN A CASE, WHERE THE ASSESSEE GETS A REBATE ON CUST OMS DUTY THEREBY HAVING LOWER COST OF PRODUCTION AND THE SALES ARE E XPORT OUT OF INDIA, THE CHARACTER OF THE RESULTANT HIGHER PROFIT CANNOT BE CONSIDERED ALTERNATIVELY. THE PROFITS ACCRUING TO THE ASSESSEE ON ACCOUNT OF ITS NON INCURRING OF CUSTOMS DUTY IS NOTHING BUT GAINS. AS LONG AS SUCH BUSINESS IS OF EXPORTS, THE IMPUGNED PROFIT OR GAIN SHALL BE ELIGIBLE FOR COMPUTATION OF DEDUCTION U/S 80HHC. THIS DECISION IS IN LINE WITH THE ORDER OF THE JURI SDICTIONAL TRIBUNAL IN THE CASE OF ACIT V. WYETH LEDERLE LTD. 14 SOT 365 (MUM)(2007). RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE FIRST APPELLAT E AUTHORITY AND DISMISS THE APPEAL OF THE REVENUE. 5. COMING TO THE CROSS OBJECTION, WE FIND THAT THE FIRST APPELLATE AUTHORITY HAS NOT DISPOSED OF THIS ADDITIONAL GROUN D. THE ASSESSEE RELIES ON THE DECISION OF THIS BENCH OF THE TRIBUNAL, C-BENCH, I N THE CASE OF M/S PIK PEN PRIVATE LIMITED VS. ITO IN ITA NO. 6847/MUM/2008, O RDER DATED 28 TH JANUARY, 2010, WHEREIN THIS BENCH APPLIED THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUCTION LTD. 319 ITR 306 AN D HELD THAT EVEN IN THE CASE OF CONTRIBUTION PAYABLE BY THE EMPLOYER TO THE PF/SUPE RNNUATION FUND OR ANY OTHER FUND, THE SAME IS ALLOWABLE IF PAID BEFORE FILING O F THE RETURN. 6. THE C-BENCH OF THE TRIBUNAL IN THE CASE OF M/S PRANAVADIYA SPINNING MILLS LTD. VS. ACIT IN ITA NO. 6855/MUM/2008, ORDER DATED 22 ND MARCH, 2010, HAS TAKEN THE SAME VIEW. A PERUSAL OF PAGE 5 PARA 5 OF THE ORDER OF THE AO SHOWS THAT ALL THE PAYMENTS HAVE BEEN MADE PRIOR TO DUE D ATE OF FILING OF THE RETURN. THUS WE ALLOW THIS CROSS OBJECTION OF THE ASSESSEE. 4 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF SEPT., 2010. SD/- SD/- (VIJAY PAL RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUN TANT MEMBER MUMBAI, DATED: 30 TH SEPT. 2010. WAKODE COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, G-BENCH //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENC HES