Caplin Point Laboratories Limited, CHENNAI V. ACIT, CHENNAI

ITA 529/CHNY/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7986 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 05-03-2014
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Scheme of amalgamation; Revised return
• Section: 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . . ' #$ , % &' ( [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D. S. SUNDER SINGH, ACCOUNTANT MEMBER ] ./ I.T.A.NO.529/MDS/2014 / ASSESSMENT YEAR : 2010-11 M/S CAPLIN POINT LABORATORIES LTD NARBAVI, NO.3, LAKSHMANAN STREET, T. NAGAR CHENNAI 600 017 VS. T HE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(3) CHENNAI [PAN AABCC 2667 F] ( )* / APPELLANT) ( +,)* /RESPONDENT) ./ I.T.A.NOS.889/MDS/2014 & 1274/MD/2015 / ASSESSMENT YEARS : 2010-11 & 2011-12 THE DY. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE/CORPORATE CIRCLE I(3) CHENNAI VS. M/S CAPLIN POINT LABORATORIES LTD NARBAVI, NO.3, LAKSHMANAN STREET, T. NAGAR CHENNAI 600 017 ( )* / APPELLANT) ( +,)* /RESPONDENT) ASSESSEE BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE DEPARTMENT BY : SHRI SHIVA SRINIVAS, JCIT / DATE OF HEARING : 24 - 10 - 2016 / DATE OF PRONOUNCEMENT : 25 - 11 - 2016 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE FOR ASSESSMENT YEAR 2010-11 ARE DIRECTED AGAINST THE OR DER OF THE ITA NO.529/14 ETC :- 2 -: COMMISSIONER OF INCOME-TAX (APPEALS)-I, CHENNAI, DA TED 24.12.2013. THE REVENUE HAS ALSO FILED APPEAL FOR ASSESSMENT YE AR 2011-12 AGAINST THE ORDER OF THE CIT(A)-1, CHENNAI, DATED 2 3.1.2015. FOR THE SAKE OF CONVENIENCE AND BREVITY, WE DISPOSE OF THES E APPEALS BY THIS COMMON ORDER. 2. FIRST WE TAKE UP REVENUES APPEALS I.T.A.NO.889/MDS /2014 AND 1274/MDS/2015 FOR ASSESSMENT YEARS 2010-11 AND 2011-12. GROUNDS RAISED BY THE REVENUE ARE COMMON IN BOTH TH E APPEALS. 3. GROUND NO.1 IS GENERAL IN NATURE NEEDING NO SPECIFI C ADJUDICATION. 4. GROUND NO.2 IS RELATED TO DEPRECIATION ON GOODWILL IN BOTH THE ASSESSMENT YEARS. 5. DURING THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YE AR 2010-11, THE ASSESSEE MADE A FRESH CLAIM OF DEPREC IATION FOR GOODWILL A SUM OF ` 1,16,80,000/-. THE ASSESSING OFFICER REFUSED THE CLAIM OF THE ASSESSEE SINCE THE CLAIM WAS NOT MADE IN THE ORIGINAL RETURN OR BY REVISED RETURN. THE ASSESSING OFFICER OBSERVED THAT NO FRESH CLAIM CAN BE MADE WHICH RESULTS INTO REDUCTION OF INCOME AND IT SHOULD BE MADE THROUGH REVISED RETURN INCOME. PLACING RELIAN CE ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF GO ETZE INDIA VS CIT, 284 ITR 323, THE ASSESSING OFFICER REJECTED TH E CLAIM. ITA NO.529/14 ETC :- 3 -: 6. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE WENT ON APPEAL BEFORE THE CIT(A). DURING APPELLATE PROCEEDINGS, THE CIT(A) ENTERTAINED THE CLAIM OF TH E ASSESSEE RELYING ON HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF J UTE CORPORATION OF INDIA LTD VS CIT, 187 ITR 688, THAT THE CIT(A) I S PERMITTED TO ADMIT ANY FRESH CLAIM WHICH WAS NOT MADE DURING ASSESSMEN T PROCEEDINGS. THE CIT(A) FOUND THAT AMALGAMATION OF M/S MAY INDIA LABORATORIES LTD. WITH THE ASSESSEE-COMPANY RESULTED IN GOODWIL L OF ` 584 LAKHS AND THE SCHEME OF AMALGAMATION WAS SANCTIONED BY THE MADRAS HIGH COURT VIDE ORDER DATED 25.1.2007. PLACING RELIANCE ON THE JUDGMENT OF HON'BLE KERALA HIGH CORUT IN THE CASE OF B. RAVEEND RAN PILLAI VS CIT, 237 CTR 80, AND THE HON'BLE DELHI HIGH COURT JUDGME NT IN THE CASE OF CIT VS HINDUSTAN COCO COLA BEVERAGES PVT. LTD, 238 CTR 1, THE CIT(A) ALLOWED THE ASSESSEES CLAIM AGAINST WHICH THE REV ENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. APPEARING FOR THE REVENUE, SHRI SHIVA SRINIVAS, LD. DR ARGUED THAT THE ASSESSEE-COMPANY IS NOT ELIGIBLE FO R DEPRECIATION ON GOODWILL AND HAS RELIED ON THE ASSESSMENT ORDER. 8. ON THE OTHER HAND, THE LD. AR ARGUED THAT DEPRECIAT ION IS AN INTANGIBLE ASSET WHICH WAS ACQUIRED BY THE ASSESSEE -COMPANY FROM M/S MAY INDIA LABORATORIES LTD WHICH HAS RESULTED I N EXCESS PAYMENT OVER AND ABOVE THE VALUE OF FIXED ASSETS OF ` 584 LAKHS TOWARDS THE ITA NO.529/14 ETC :- 4 -: GOODWILL. AS PER THE RATIO LAID DOWN BY THE HON'BL E SUPREME COURT AND THE DELHI HIGH COURT CITED SUPRA, THE ASSESSEE- COMPANY IS ELIGIBLE FOR DEPRECIATION ON GOODWILL. HE HAS ALSO RELIED O N THE DECISION OF THIS TRIBUNA IN THE CASE OF M/S HINDUJA FOUNDRIES LTD V S ACIT IN I.T.A.NOS.1590 TO 1593/MDS/2015, DATED 19.2.2016, W HEREIN ON IDENTICAL FACTS, THIS TRIBUNAL HAS HELD AS UNDER: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE JUDGMEN T OF APEX COURT IN SMIFS SECURITIES LTD. (SUPRA). IN TH E CASE BEFORE APEX COURT, THE ASSESSEE CLAIMED DEDUCTION TOWARDS DEPRECIATION ON GOODWILL. THE ASSESSEE CLA IMED THAT THE EXCESS CONSIDERATION PAID BY THE ASSESSEE OVER THE VALUE OF NET ASSET TO BE CONSIDERED AS GOODWILL ARISING ON AMALGAMATION. HOWEVER, THE ASSESSING OFFICER FO UND THAT THE GOODWILL IS NOT AN ASSET. HOWEVER, THE AP EX COURT FOUND THAT THE ASSESSEE HAD ACQUIRED A CAPITAL RIGH T IN THE FORM OF GOODWILL BECAUSE OF WHICH THE MARKET WORTH OF THE ASSESSEE-COMPANY STOOD INCREASED. IN THOSE CIRCUMSTANCES, THE APEX COURT FOUND THAT THE ASSESS EE IS ENTITLED FOR DEPRECIATION ON THE GOODWILL WHICH IS IN THE NATURE OF COMMERCIAL ASSET. IN THE CASE BEFORE US, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS PURCHASED DUCTRON CASTINGS UNIT FROM M/S ASHOK LEYLAND LTD. THE ASSE SSEE HAS PAID OVER THE VALUE OF NET ASSET TO THE EXTENT OF ` 147.57 LAKHS AND CLAIMED THE SAME AS COST OF THE GOODWILL. HOWEVER, THE ASSESSING OFFICER DISALLOWE D THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE PAYMEN T DOES NOT FALL WITHIN THE MEANING OF KNOW-HOW, PATEN T OR COPYRIGHT. THE ASSESSING OFFICER HAS NOT CONSIDERE D THE JUDGMENT OF APEX COURT IN SMIFS SECURITIES LTD. (SU PRA). THE APEX COURT, AFTER CONSIDERING THE PROVISIONS OF EXPLANATION 3 TO SECTION 32(1) OF THE ACT FOUND THA T THE WORD ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SI MILAR NATURE IN CLAUSE (B) OF EXPLANATION 3 INDICATES TH AT GOODWILL WILL FALL UNDER THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. IN VIEW O F THE ABOVE JUDGMENT OF APEX COURT IN SMIFS SECURITIES LT D., ITA NO.529/14 ETC :- 5 -: WE ARE UNABLE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES. THE ASSESSING OFFICER IS DIRECT ED TO ALLOW DEPRECIATION AT THE APPLICABLE RATE ON THE PA YMENT RELATABLE TO GOODWILL. 9. THE FACTS ARE IDENTICAL ON THE ABOVE ISSUE AND THE LD. DR DID NOT BRING ANY OTHER JUDGMENT OF HON'BLE HIGH COURT OR ANY OTHER HIGHER FORUM TO CONTROVERT THE ABOVE DECISION. TH EREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) ON TH IS ISSUE AND THE SAME IS CONFIRMED. GROUND NO.2 IS DISMISSED. 10. GROUND NO.3 IS RELATED TO MAT CREDIT FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION. 11. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER FOUND THAT M/S MAY INDIA LABORATORIES LTD AMALGAMAT ED WITH THE ASSESSEE-COMPANY AND CLAIMED THE CREDIT FOR THE TAX ES PAID UNDER MAT PROVISION RELATING TO THE AMALGAMATED COMPANY. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE STATIN G THAT SINCE SEC. 115JA AND JB ARE SELF-CONTAINED SECTIONS, THERE IS NO PROVISION TO ALLOW CREDIT FOR AMALGAMATING ENTITY IN THE MANNER HELD F OR AMALGAMATED COMPANY. AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE C IT(A) ALLOWED THE ASSESSEES CLAIM PLACING RELIANCE ON THE DECISION O F THIS TRIBUNAL IN THE ITA NO.529/14 ETC :- 6 -: CASE OF M/S RANGANATHAN INDUSTRIES PVT. LTD VS ADDL . CIT IN I.T.A.NO. 2434/MDS/2004. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 12. THE LD. DR SUPPORTED THE ORDER OF THE ASSESSING OFF ICER THE LD. AR SUPPORTED THE ORDER OF THELD. CIT(A). 13. AN IDENTICAL ISSUE HAS COME UP BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN I.T.A.NO. 667/MDS/2013, DATED 31.1.2014 AND THE CO-ORDINATE B ENCH HAS HELD AS UNDER: 11. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERI ALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE CASE OF THE ASSESSEE IS THAT THE AMALGAMATION BETWEEN THE AMALGAMATING COMPANY [MALIND LABORATORI ES PVT. LTD.] AND THE AMALGAMATED COMPANY I.E. THE ASSESSEE WAS APPROVED BY THE HONBLE MADRAS HIGH COURT VIDE ORDER DATED 25.09.2008 AND ON AMALGAMATI ON, ALL THE ASSETS AND LIABILITIES ARE VESTED WITH THE AMALGAMATED COMPANY AND THE AMALGAMATED COMPANY I.E. THE ASSESSEE ONLY CONTINUES THE BUSINESS OF TH E AMALGAMATING COMPANY AND CLAIMED MAT CREDIT. HOWEVER, THE ASSESSING OFFICER DENIED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE PROVISIONS OF SECTI ON 115JA AND SECTION 115JB OF THE ACT ARE SELF CONTAIN ED SECTIONS AND THERE IS NO PROVISION UNDER THIS SECTI ON TO ALLOW CREDIT OF AN AMALGAMATING ENTITY IN THE HANDS OF THE AMALGAMATED ENTITY. ON APPEAL, THE LD. CIT(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF M /S. RANGANATHAN INDUSTRIES PRIVATE LIMITED V. ADDL. CIT IN I.T.A. NO.2434/MDS/ 2004 VIDE ORDER DATED 30.11.200 7, IN WHICH IT HAS BEEN HELD HAS UNDER: 'UPON A CAREFUL CONSIDERATION OF THE ISSUE WE FIND THAT, AFTER AMALGAMATION THE ASSESSEE COMPANY IS ENTITLED TO ALL THE ASSETS, CLAIMS, ETC. OF THE ERSTWHILE COMPANY, WHICH IS ALSO ITA NO.529/14 ETC :- 7 -: SUPPORTED BY HON'BLE HIGH COURT ORDER IN THIS REGARD. FURTHER, WHEN THE ASSESSEE COMPANY IS NOW BEING ASSESSED IN PLACE OF ERSTWHILE COMPANY AND THE TDS CREDIT PERTAINING TO THE ERSTWHILE COMPANY IS BEING GIVEN CREDIT TO THE ASSESSEE COMPANY, THERE IS NO REASON WHY A DIFFERENT TREATMENT SHOULD BE GIVEN TO THE MAT CREDIT AVAILABLE PERTAINING TO THE ERSTWHILE COMPANY. WE DO NOT AGREE WITH THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT THERE IS NEED FOR SPECIFIC MENTION IN THIS REGARD IN SECTION 115JAA AS THE CARRY FORWARD OF MAT CREDIT OF ERSTWHILE COMPANY BY AMALGAMATED COMPANY IS IN-BUILT IN THE SCHEME OF AMALGAMATION AS WELL AS THE SCHEME OF MAT CREDIT. HENCE, WE SET ASIDE THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THIS REGARD AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. ' 12. THE LD. CIT(APPEALS), BY FOLLOWING THE ABOVE OF THE TRIBUNAL, DIRECTED THE ASSESSING OFFICER TO ALLOW T HE CLAIM OF THE ASSESSEE. MOREOVER, THE LD. DR COULD NOT CON TROVERT THE ABOVE FINDINGS OF THE TRIBUNAL OR FILED ANY HIG HER COURTS DECISION TO TAKE A DIFFERENT VIEW. IN VIEW OF THE ABOVE, WE FIND NO REASON TO INTERFERE WITH THE ORDE R PASSED BY THE LD. CIT(APPEALS) ON THIS ISSUE AND DI SMISS THE GROUNDS RAISED BY THE REVENUE. 14. FOLLOWING THE ABOVE DECISION OF THE CO-ORDINATE BEN CH IN ASSESSEES OWN CASE, WE UPHOLD THE ORDER OF THE CIT (A) AND DISMISS THE GROUND RAISED BY THE REVENUE. 15. IN THE RESULT, THE REVENUES APPEALS FOR ASSESSMENT YEARS 2010-11 AND 2011-12 ARE DISMISSED. ITA NO.529/14 ETC :- 8 -: 16. NOW COMING TO ASSESSEES APPEAL I.T.A.NO. 529/MDS/ 2014, FOR ASSESSMENT YEAR 2010-11, THE ASSESSEE HAS RAIS ED GROUNDS ON THREE ISSUES. FIRST ISSUE IS DISALLOWANCE U/S 14A R.W. RULE 8D. 17. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF ` 36,255/- U/S 14A R.W.R 8D. THE CIT(A) CONFIRMED THE ORDER O F THE ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 18. DURING APPEAL, THE LD.AR HAS NOT PRESSED THIS GROUN D, THEREFORE, THIS GROUND IS DISMISSED AS NOT PRESSED. 19. THE SECOND ISSUE IS RELATING TO APPORTIONMENT OF EX PENSES. 20. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICE R NOTICED THAT THE ASSESSEE HAS MADE FOLLOWING EXPEN SES: RS RS BOOKS & PERIODICALS 66,528 TRAVELLING EXPENSES OVERSEAS 39,78,561 ELECTRICITY CHARGES 3,22,912 AGM EXPENSES 3,39,060 INTERNET CHARGES 56,942 ADVERTISEMENT 2,18,397 OFFICE MAINTENANCE 1,75,426 SALES PROMOTION 7,76,734 LEGAL & PROFESSIONAL CHARGES 63,680 SERVICE CHARGES 2,00,723 INTERNAL AUDIT FEE 1,60,000 COMMISSION 1,58,000 DIRECTORS REMUNERATION 5,18,300 VERIFICATION & INSPECTION CHARGES 27,446 TOTAL 77,62,769 ITA NO.529/14 ETC :- 9 -: 21. THE ASSESSEE HAS CLAIMED THE ENTIRE EXPENSES FROM CHENNAI UNIT WHICH IS NOT ELIGIBLE FOR DEDUCTION U/S 80IC. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FOUND THAT LEGAL AN D PROFESSIONAL CHARGES, ADVERTISEMENT CHARGES, ECGC CHARGES AND OT HER EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT AND CLAIMED ON LY FROM THE NON- 80IC UNIT. THE ASSESSEE COULD NOT PLACE ANY EVIDE NCE TO PROVE THAT THE ENTIRE EXPENDITURE WAS RELATED TO THE CHENNAI U NIT AND NO OTHER EXPENDITURE WAS RELATED TO THE BADDI UNIT. THEREFO RE, THE ASSESSING OFFICER DISALLOWED PROPORTIONATE EXPENDITURE AMOUNT ING TO ` 16,30,182/- ON THE BASIS OF TURNOVER. 22. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE C IT(A) HAS CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R AS PER THE FOLLOWING DISCUSSION MADE IN PARA 5.2 OF HIS ORDER AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US: I HAVE CAREFULLY CONSIDERED THE FACTS AND CIRCUMS TANCES OF THE CASE. IT IS SEEN FROM THE ASSESSMENT ORDER THAT A. O HAS MADE THE DISALLOWANCE AFTER THOROUGH VERIFICATION OF THE ABOVE EXPENSES. THE APPORTIONMENT MADE BY THE A.O APPEAR S TO BE LOGICAL AND I AM IN AGREEMENT WITH THE A.OS VIEW. THE APPELLANT, EVEN THOUGH, OPPOSED THE APPORTIONMENT OF THE EXPEN SES, HE HAS NOT PROVED IN ANY WAY THAT SUCH EXPENSES WERE NOT I NCURRED BY BADDI UNIT AT ALL. THEREFORE, THE CONTENTIONS OF T HE APPELLANT ARE NOT ACCEPTED AND THE DISALLOWANCE MADE BY THE A.O I N THIS REGARD IS HEREBY CONFIRMED. THE GROUND IS DISMISSED. ITA NO.529/14 ETC :- 10 -: 23. DURING APPEAL, THE LD. AR DID NOT BRING ANY EVIDENC E TO PROVE THAT THE EXPENDITURE WAS COMPLETELY RELATABLE TO CH ENNAI UNIT. IT APPEARS FROM THE NATURE OF EXPENSES LISTED IN THE A SSESSMENT ORDER THAT HE EXPENDITURE WAS COMMON EXPENDITURE INCURRED FOR THE PURPOSE OF CARRYING ON THE BUSINESS BY THE ASSESSEE OF BOT H THE UNITS. THE EXPENDITURE CANNOT BE IDENTIFIED ITEM WISE WITH THE PARTICULAR UNIT. THEREFORE, WE HOLD THAT THE CIT(A) HAS RIGHTLY CONF IRMED THE ADDITION MADE BY THE ASSESSING OFFICER. WE, THEREFORE, UPHO LD THE SAME DISMISS THE GROUND RAISED BY THE ASSESSEE. 24. THE NEXT ISSUE IS RELATED TO THE EXCLUSION OF INCOM E FROM SALE OF DEPB AND FOCUS MARKET SCHEME FOR COMPUTATION OF DEDUCTION U/S 80IC OF THE ACT. 25. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS INCLUDED OTHER INCOME I.E EXPORT INCENTIVES RECEIVED OF ` 35,06,732/- AND FOCUS MARKET SCHEME OF ` 22,76,733/- IN COMPUTATION OF PROFIT FROM THE UNDERTAKING AND CLAIMED DEDUCTION U/S 80IC OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT FOR THE PURPOSE OF SECTION 80IC, THE PROFITS DERIVED FROM MANUFACTURING ALONE IS ELIGIBL E FOR DEDUCTION U/S 80IC OF THE ACT. SINCE THE INCENTIVES AND FOCUS MA RKET SCHEME WERE NOT DERIVED FROM INDUSTRIAL UNDERTAKING, THE ASSESS ING OFFICER DISALLOWED THE CLAIM MADE BY THE ASSESSEE. THE AS SESSING OFFICER RELIED ON THE JUDGMENT OF THE APEX COURT IN THE CAS E OF STERLING FOODS ITA NO.529/14 ETC :- 11 -: LTD, 237 ITR 579, WHEREIN IT WAS HELD THAT AN INCOME FROM SALE OF IMPORT ENTITLEMENTS WOULD NOT BE HELD TO BE DERIVED FROM AN INDUSTRIAL UNDERTAKING AND THAT SUCH INCOME WAS INCIDENTAL TO THE ACTIVITY OF THE INDUSTRIAL UNDERTAKING EXPORTING PROCESSED SEA FOOD S, THE COURT HELD THAT IT WAS ONLY BY REASON OF SUCH EXPORT THAT THE EXPORT PROMOTION SCHEME APPLY AND UNDER WHICH SCHEME, THE ASSESSEE WAS ENTITLED TO IMPORT LICENCES, WHICH IT COULD SELL. THE ASSESSING OFFICER HAS ALSO RELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS JAMEEL LEATHERS AND UPPERS, 246 ITR 97 WHERE IN IT WAS HELD THAT THE RECEIPTS FROM IMPORT ENTITLEMENTS, DUTY DRAW BA CK AND CASH COMPENSATION DID NOT CONSTITUTE INCOME DERIVED FROM AN INDUSTRIAL UNDERTAKING AND ASSESSEE WAS NOT ELIGIBLE FOR DEDU CTION IN RESPECT OF SUCH RECEIPTS . 26. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE C IT(A) SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER PLACING RELIANCE ON THE JUDGMENTS OF THE APEX COURT IN THE CASE OF CIT VS K . RAVINDRANATHAN NAIR, 295 ITR 228 AND ALSO CIT VS STERLING FOODS LT D, 237 ITR 579 AND LIBERTY INDIA VS CIT, 317 ITR 218, WHEREIN IT WAS H ELD THAT DUTY DRAW BACK RECEIPTS, DEPB BENEFITS AND IMPORT ENTITLEMENT BENEFITS ETC ARE NOT ENTITLED FOR THE SAID DEDUCTION. THEY CONSTITU TE INDEPENDENT SOURCE OF INCOME BEYOND FIRST DEGREE NEXUS BETWEEN THE PROFITS AND ITA NO.529/14 ETC :- 12 -: THE INDUSTRIAL UNDERTAKING. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 27. APPEARING FOR THE ASSESSEE, THE LD. AR ARGUED THAT THE DEPB ENTITLEMENT AND DUTY DRAW BACK ARE INEXTRICABLY LIN KED WITH THE PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING, THEREFORE, ENT ITLED FOR DEDUCTION U/S 80IC OF THE ACT. THE DEPB ENTITLEMENT AND DUTY DRAW BACK ARE REQUIRED TO BE INCLUDED IN THE COMPUTATION OF DEDUC TION FOR THE PURPOSE OF DEDUCTION U/S 80IC OF THE ACT. SIMILAR LY, HE HAS ARGUED THAT FOCUS MARKETING SCHEME EXPENSES IS TO OFFSET H IGH FREIGHT COST AND OTHER EXTERNALITIES TO SELECT INTERNATIONAL MAR KETS WITH A VIEW TO ENHANCE INDIAS EXPORT COMPETITIVENESS IN SOME COUN TRIES THE EXPORT OF PRODUCTS FROM DUTY CREDIT SCRIPS AS STATED ABOVE IS INEXTRICABLY CONNECTED WITH EXPORT ACTIVITY CARRIED OUT BY THE U NDERTAKING AND HENCE, ELIGIBLE FOR DEDUCTION U/S 80IC. ALTERNATI VELY, THE LD. AR SUBMITTED THE INCOME CAN BE TREATED AS ABATEMENT OF COST IN GENERAL AND FREIGHT COST IN PARTICULAR WHEREBY INCOME IS CO MPENSATORY TO FREIGHT COST MAKING IT ELIGIBLE FOR 80IC DEDUCTION. EVEN ON THIS COUNT, THE LD. AR ARGUED THAT THE UNDERTAKING IS ELIGIBLE FOR DEDUCTION U/S 80IC. 28. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. ITA NO.529/14 ETC :- 13 -: 29. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL PLACED BEFORE US. THE A.RS ARGUMENT IS THAT THE A SSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IC ON THE RECEIPTS OF FOCUS MAR KETING SCHEME AND DEPB. WE REPRODUCE HEREUNDER SEC. 80IC OF THE ACT : 80-IC. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE IN CLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN E NTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2), THERE SHAL L, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOW ED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFI TS AND GAINS, AS SPECIFIED IN SUB-SECTION (3). (2) THIS SECTION APPLIES TO ANY UNDERTAKING OR ENTE RPRISE, (A) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PR ODUCE ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEENTH SCHEDULE, OR WHICH MANUFACTURES OR PRODUCES ANY ART ICLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEE NTH SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING (I) ON THE 23RD DAY OF DECEMBER, 2002 AND ENDING B EFORE THE 1ST DAY OF APRIL, 29 [2007], IN ANY EXPORT PROCESSING ZONE OR INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GRO WTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TE CHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE B OARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED 30 BY THE CENTRAL GOVERNMENT IN THIS REGARD, IN THE STATE OF SIKKIM; OR (II) ON THE 7TH DAY OF JANUARY, 2003 AND ENDING BE FORE THE 1ST DAY OF APRIL, 2012, IN ANY EXPORT PROCESSING ZONE OR INTEG RATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GRO WTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TE CHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE B OARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED 30 BY THE CENTRAL GOVERNMENT IN THIS REGARD, IN THE STATE OF HIMACHAL PRADESH OR THE STATE OF UTTARANCHAL; OR (III) ON THE 24TH DAY OF DECEMBER, 1997 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2007, IN ANY EXPORT PROCESSING ZONE OR IN TEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GRO WTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TE CHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED 30 BY THE BOARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY T HE CENTRAL GOVERNMENT IN THIS REGARD, IN ANY OF THE NORTH-EAST ERN STATES; (B) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PR ODUCE ANY ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR COMM ENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE, OR WHICH MANU FACTURES OR PRODUCES ANY ARTICLE OR THING, SPECIFIED IN THE FOU RTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING ITA NO.529/14 ETC :- 14 -: (I)ON THE 23RD DAY OF DECEMBER, 2002 AND ENDING BEF ORE THE 1ST DAY OF APRIL, 31 [2007], IN THE STATE OF SIKKIM; OR (II) ON THE 7TH DAY OF JANUARY, 2003 AND ENDING BE FORE THE 1ST DAY OF APRIL, 2012, IN THE STATE OF HIMACHAL PRADESH OR TH E STATE OF UTTARANCHAL; OR (III) ON THE 24TH DAY OF DECEMBER, 1997 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2007, IN ANY OF THE NORTH-EASTERN STATES. (3) THE DEDUCTION REFERRED TO IN SUB-SECTION (1) SH ALL BE (I) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE R EFERRED TO IN SUB-CLAUSES (I) AND (III) OF CLAUSE (A) OR SUB-CLAUSES (I) AND (III) OF CLAUSE (B), OF SUB-SECTION (2), ONE HUNDRED PER CENT OF SUCH PROFI TS AND GAINS FOR TEN ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESS MENT YEAR; (II) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB-CLAUSE (II) OF CLAUSE (A) OR SUB-CLAUSE (II) OF CLAUSE (B) , OF SUB-SECTION (2), ONE HUNDRED PER CENT OF SUCH PROFITS AND GAINS FOR FIVE ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR AND THE REAFTER, TWENTY- FIVE PER CENT (OR THIRTY PER CENT WHERE THE ASSESSE E IS A COMPANY) OF THE PROFITS AND GAINS. 30. AS PER SECTION 80IC OF THE ACT, THE PROFI TS AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING WHICH IS MA NUFACTURING OR PRODUCING AN ARTICLE OR THING NOT BEING ANY ARTI CLE OR THING SPECIFIED IN THE THIRTEENTH SCHEDULE , IS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. THE ASSESSEE HAS RECEIVED TH E DEPB ENTITLEMENT AND REIMBURSEMENT OF FOCUS MARKETING EX PENSES WHICH IS DIRECTLY LINKED TO THE EXPORT ACTIVITY BUT NOT THE INDUSTRIAL ACTIVITY. ANY ASSESSEE WHO IS ENGAGED I N EXPORT OF GOODS OR THINGS IS ENTITLED TO RECEIVE THE DEPB EN TITLEMENT AND SIMILARLY, ANY PERSON WHO EXPORTS THE PRODUCTS AS PER THE FOREIGN TRADE POLICY IS ENTITLED TO RECEIVE THE BEN EFITS. THE BENEFIT UNDER FOCUS PRODUCT SCHEME AND DEPB ENTITLE MENT ARE DIRECTLY LINKED TO THE EXPORT ACTIVITY BUT NOT LINK ED TO THE INDUSTRIAL ACTIVITY. THE ASSESSEE RELIED ON THE J UDGMENT OF ITA NO.529/14 ETC :- 15 -: SUPREME COURT IN THE CASE OF CIT VS MEGHALAYA STEEL S LTD. 2016-TIOL-25-SC-IT WHEREIN IT WAS HELD THAT SUBSIDI ES RECEIVED TOWARDS REIMBURSEMENT OF COSTS OF MANUFACT URE ARE ELIGIBLE FOR DEDUCTION/S 80IB.. THE HON'BLE SUPREM E COURT RENDERED THE JUDGMENT IN CONNECTION WITH THE TRANS PORT SUBSIDY, INTEREST SUBSIDY AND POWER SUBSIDY RELATIN G TO THE TAX HOLIDAY FOR THE INDUSTRIES SET UP IN NORTH EASTERN REGION. THE IDEA OF GIVING THESE SUBSIDIES WAS TO GIVE 10 YEAR TAX HOLIDAY TO SET UP INDUSTRIES IN THE STATE OF MEGHALAYA WHIC H IS BACK WARD AREA. SUBSIDIES WERE GIVEN EITHER FOR PARTIAL OR COMPLETE REDUCTION OF COSTS AS REIMBURSEMENT. 31. IN THE ASSESSEES CASE, THE IS SUE IS NOT RELATING TO THE SUBSIDIES RECEIVED FROM GOVERNMENT IN THE MEGHALAYA STATE A BACKWARD STATE TOWARDS THE REIMBURSEMENT OF EXPENSE S ,WHICH HAS A DIRECT NEXUS TO THE MANUFACTURING ACTI VITY BUT IT IS RELATED TO THE ISSUE OF DEPB ENTITLEMENT AND REI MBURSEMENT OF FOCUS MARKET SCHEME WHICH ARE IN THE FORM OF GRA NTS FROM THE GOVERNMENT. THE IMMEDIATE SOURCE OF INCOME WAS FROM THE GOVERNMENT AND NOT THE BUSINESS OF THE ASSESSEE . THIS BEING THE CASE WE ARE OF CONSIDERED OPINION THAT TH E AMOUNTS RECEIVED ON ACCOUNT OF DEPB ENTITLEMENTS AND THE EX PORT INCENTIVES IN THE FORM OF FOCUS MARKETING ARE NOT Q UALIFIED FOR ITA NO.529/14 ETC :- 16 -: THE DEDUCTION U/S 80 IC OF THE ACT HONBLE SUPREME COURT JUDGMENT IN THE CASE OF CIT.V. STERLING FOODS LTD ( 237 ITR 579) AND LIBERTY INDIA V CIT,137 ITR 218 ARE SQUARE LY APPLICABLE IN THE ASSESSEES CASE. THEREFORE, WE HOLD THAT THE CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY T HE ASSESSING OFFICER AND THE SAME IS CONFIRMED. 32. IN THE RESULT, THE ASSESSEES AP PEAL IS DISMISSED. 33. TO SUMMARIZE, BOTH THE APPEALS OF THE REVEN UE AND THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 25 TH NOVEMBER, 2016, AT CHENNAI. SD/- SD/- ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( . . ' #$ ) (D.S. SUNDER SINGH) % / ACCOUNTANT MEMBER / CHENNAI ! / DATED: 25 TH NOVEMBER, 2016 RD !' # $% &% / COPY TO: 1 . '( / APPELLANT 4. ) / CIT 2. #*'( / RESPONDENT 5. %+, # - / DR 3. ) () / CIT(A) 6. ,/ 0 / GF