ACIT CEN CIR 1(2), MUMBAI V. OKASA P. LTD, MUMBAI

ITA 533/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7834 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 03-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 14A; 80IB

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.533/MUM/2016 ASSESSMENT YEAR: 2011-12 ACIT, CENTRAL CIRCLE-1(2), ROOM NO.906, PRATISHTHA BHAVAN, 10 TH FLOOR, OLD. C.G. O. BUILDING ANNEXE, MUMBAI-400020 / VS. M/S OKASA PRIVATE LIMITED, 12, GUNBOW STREET, FORT, MUMBAI-400001 ( / REVENUE) ( !' # /ASSESSEE) P.A.NO . AAACO0677L $ % # & / DATE OF HEARING : 26/12/2017 % # & / DATE OF ORDER: 26/12/2017 !' # ! / ASSESSEE BY SHRI DHARMESH SHAH ! / REVENUE BY SHRI PURSHOTTAM KUMAR-DR ITA NO. 533/MUM/2016 OKASA PRIVATE LIMITED 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 23/11/2015 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) O N THE PROFIT DERIVED FROM THE WORK/MANUFACTURING GOT DONE THROUGH LEASE AND LICENSE MANUFACTURERS (LLMS). 2. DURING HEARING, AT THE OUTSET, SHRI DHARMESH SHAH, LD. COUNSEL FOR THE ASSESSEE, CLAIMED THAT TH E IMPUGNED ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2010-11 ( ITA NO.6117/MUM/2014) ORDER DATED 28/07/2016. THE LD. D R, SHRI PURUSHOTTAM KUMAR, DID NOT CONTROVERT THE CLAI M OF THE ASSESSEE WITH THE HELP OF ANY POSITIVE MATERIAL . HE SIMPLY DEFENDED THE ADDITION MADE BY THE LD. ASSESS ING OFFICER. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION ITA NO. 533/MUM/2016 OKASA PRIVATE LIMITED 3 FROM THE AFORESAID ORDER OF THE TRIBUNAL DATED 28/0 7/2016 FOR READY REFERENCE AND ANALYSIS:- THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-3 6, MUMBAI (CIT(A) FOR SHORT) IN APPEAL NO. CIT(A)-36/AP-1/1 3-14 DATED 16.7.2014, PARTLY ALLOWING THE ASSESSEES APPEAL CO NTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2010-11 VIDE ORDER DATED 18.2.2013. 2. THE FIRST ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) ALLOWING THE CLAIM OF THE ASSES SEE OF DEDUCTION U/S. 80-IB OF THE ACT ON PROFIT DERIVED FROM MANUFA CTURING BEING DONE THROUGH LEASE AND LICENSE MANUFACTURERS (LLMS) . FOR THIS, THE REVENUE HAS RAISED FOLLOWING GROUND NO.1: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE AS SESSEE IS ELIGIBLE FOR CLAIMING DEDUCTION U/S. 80-IB ON THE PROFITS DERIVED FROM TH E WORK/MANUFACTURING GOT DONE THROUGH LEASE AND LICENSE MANUFACTURERS (LLMS) . 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A MANUFACTURER AND DISTRIBUTOR OF MEDICINES AND ITS FORMULATIONS. THE ASSESSEE COMPANY IS ONE OF THE GROUP COMPANIES OF CIPLA GROU P. DURING THE YEAR UNDER CONSIDERATION, IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING AMOXYCILLIN, CLOXACILLIN + AMOXYCILLI N & CEFADROXYL IN THE SHAPE OF CAPSULES, TABLETS, DRY S YRUPS AND INJECTIONS. AS PER THE ASSESSMENT ORDER, THE ASSESS EE HAS FACTORY UNITS AS UNDER: (II) UNIT-2: 346/347, KUNDAIM INDUSTRIAL ESTATE, KU NDAIN, GOA-403 115 (III) UNIT-3: 348, KUNDAIN INDUSTRIAL ESTATE, KUNDA IN, GOA-403 115 ACCORDING TO THE ASSESSING OFFICER (A.O.) APART FRO M ITS OWN MANUFACTURING, THE ASSESSEE GETS SOME PRODUCT MANUF ACTURED ON JOB ITA NO. 533/MUM/2016 OKASA PRIVATE LIMITED 4 WORK BASIS, I.E., LLMS. THE A.O. DISALLOWED THE CLA IM OF DEDUCTION U/S. 80-IB OF THE ACT OF THE ASSESSEE IN RESPECT OF CLAIM MADE WITH REGARD TO LLMS. THE A.O. RELYING ON THE DECISION OF THE EARLIER YEARS, DISALLOWED THE CLAIM OF THE ASSESSEE. AGGRIE VED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO ALLOWED T HE CLAIM OF THE ASSESSEE BY RELYING ON THE EARLIER YEAR ORDERS OF C IT(A) IN ASSESSEES OWN CASE AND TRIBUNALS ORDER AND ALSO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PENWALT INDIA LTD. [1992] 196 ITR 813 (BOM) BY OBSERVING IN PARA 5.3 AS UNDER : 5.3 I HAVE PERUSED THE ORDER OF THE A.O. AND CONSID ERED THE SUBMISSION OF THE APPELLANT. THERE IS NO CHANGE IN THE FACTS OF T HE CASE. THE HONBLE ITAT ON THE SAME FACTS HAS VIDE ITS ORDER NO. ITA(SS) NO. 2 59/MUM/2003 FOR BLOCK PERIOD 01.4.1990 TO 19.9.2000 AND ITAS NO. 3465/MUM/2003 & 466/MUM/2004 DECIDED THAT THE DECISION OF CIT VS. PENWALT INDIA LTD. 196 ITR 813 IS FULLY APPLICABLE IN THIS CASE AND THE DEDUCTION U/S. 80IB WAS TO BE ALL OWED TO THE APPELLANT. THIS ORDER IS CITED AT 10 SOT 164 (2006). MY PREDECESSOR CIT(A) HAVE FOR THE A.YS. 2004-05, 2005-06 AND 2006-07 (ORDER NO. CIT(A) CENT -I/AP/140/08-09 DATED MAY 11, 2009) AND VIDE ORDER NO. CIT(A)-36/AP. 236/ 2009-10 FOR A.Y. 2007-08 DATED 15/02/2010, ORDER NO. CIT(A)-36/AP-256/2010-1 1 DATED 09.2.2011 FOR A.Y. 2008-09 AND ORDER NO. CIT(A)-36/AP2011/11-12 D ATED 19.6.2012 FOR THE A.Y. 2009-10 DECIDED THE ISSUE IN FAVOUR OF THE APP ELLANT HAVE DECIDED THE ISSUE IN THE FAVOUR OF THE APPELLANT. SINCE, THERE IS NO CHANGE IN THE FACTS, THE GROUND OF APPEAL NO. 1 IS ALLOWED. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LD. COUNSE L FOR THE ASSESSEE BEFORE US RELIED ON THE DECISION OF THIS TRIBUNAL, MUMBAI B BENCH IN ITA NO. 3465/MUM/2003 FOR THE A.Y. 1999-2000 AND ALSO ORDER IN ITA NO. 5248/MUM/2012 FOR THE A.Y. 2009-10. ACCO RDING TO THE LD. COUNSEL, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ON THE OTHER HAND, THE LD. DR ONLY RELIED ON THE ORDER OF THE A.O. 5. WE HAVE GONE THROUGH THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PENWALT INDIA LTD. (SUPRA) AND NOTED THAT THE HONBLE HIGH COURT HAS ALLOWED THE CLAIM IN THE CASE WHERE MANUFACTURING IS DONE THROUGH JOB WORKS AND WHERE J OB WORKERS ITA NO. 533/MUM/2016 OKASA PRIVATE LIMITED 5 HAVE NOT CLAIMED ANY DEDUCTION. THE HONBLE HIGH CO URT HAS OBSERVED IN PARA 6 AND 7 AS UNDER: 6. IT CANNOT PERHAPS BE DISPUTED ON THE BASIS OF THE DECISIONS RELIED UPON THAT THE EXPRESSION 'ENGAGED IN MANUFACTURE' INDICA TES THAT THE ASSESSEE SHOULD BE DIRECTLY INVOLVED IN THE MANUFACTURING PROCESS A ND IT WILL NOT INCLUDE CASES WHERE HE GETS THE GOODS MANUFACTURED TOTALLY BY AN OUTSIDE AGENCY. INCIDENTALLY, THE MADRAS HIGH COURT, IN ITS DECISION IN ADDL. CIT VS. CHILLIES EXPORT HOUSE LTD. (SUPRA) REFERRED TO THE ALLAHABAD HIGH COURT D ECISION IN THE CASE OF BULBU PRASAD AMARNATH VS. CST (1964) 15 STC46, WHEREIN IT WAS HELD THAT IT IS NOT MERELY THE PERSON WHO MANUFACTURES BUT EVEN THE PER SON WHO HAD THE GOODS MANUFACTURED WHO WOULD BE ENTITLED TO THE BENEFIT O F THE DEFINITION. IN SO DOING, THE LEARNED JUDGES REFERRED TO 33, HALSBURY'S LAWS OF ENGLAND, THIRD EDITION, 'REVENUE', PARAGRAPH 407, WHEREIN IT WAS SAID THAT A PERSON IS DEEMED TO MAKE GOODS OR TO APPLY A PROCESS IF THE GOODS ARE MADE, OR THE PROCESS IS APPLIED, BY ANOTHER PERSON TO HIS ORDER UNDER ANY FORM OF CONTR ACT OTHER THAN A PURCHASE. THEREFORE, WE HAVE TO PROCEED ON THE BASIS OF THE D ECISIONS CITED THAT AN ASSESSEE WOULD BE SAID TO BE ENGAGED IN MANUFACTURING ACTIVI TY IF HE IS DOING A PART OF THE MANUFACTURING ACTIVITY BY HIMSELF AND, FOR THE REST OF IT, ENGAGES THE SERVICES OF SOMEBODY ELSE ON A CONTRACT OTHER THAN A CONTRACT O F PURCHASE. 7. COMING TO THE FACTS OF THE INSTANT CASE, WE FIN D FROM THE FACTS FOUND BY THE TRIBUNAL THAT THE ASSESSEE'S MANUFACTURING ACTI VITY CONSISTED OF (I) CANVASSING OF ORDERS, (II) PREPARING OF DESIGNS AND DRAWINGS O N THE BASIS OF ORDERS, (III) PLACING ORDERS FOR THE MANUFACTURE OF MACHINERY WIT H TURNER HOARE, (IV) TO SEE THAT THE MANUFACTURING PROCESS IS CARRIED ON BY TUR NER HOARE UNDER THE DIRECT SUPERVISION OF THE ASSESSEE-COMPANY, (V) TO HAVE A CHECK OVER THE QUALITY CONTROL AND LAST BUT NOT THE LEAST, TO BE RESPONSIBLE FOR T HE PROPER FUNCTIONING OF THE MACHINERY AND GUARANTEE AFTER SALE SERVICE FOR A ST IPULATED PERIOD. OUT OF SO MANY ACTIVITIES, EXCEPT FOR ONE ACTIVITY, NAMELY, G ETTING THE MACHINERY MANUFACTURED THROUGH TURNER HOARE, ALL OTHER ACTIVI TIES ARE, ADMITTEDLY, UNDERTAKEN BY THE ASSESSEE-COMPANY. IN THE CIRCUMST ANCES, WE FIND NO DIFFICULTY IN AGREEING WITH THE TRIBUNAL THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF SUGAR AND TEA MACHINERY AND IS, ACCO RDINGLY, QUALIFIED FOR RELIEF UNDER S. 80-I. IN THE ABOVE VIEW OF THE MATTER, WE ANSWER THE THIRD AND FOURTH QUESTIONS ALSO IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. 6. WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CA SE OF PENWALT INDIA LTD. (SUPRA) HAS CONSIDERED THE ASSESSEE'S MANUFACTURING ACTIVITY CONSISTED OF CANVASSING OF O RDERS, PREPARING OF DESIGNS AND DRAWINGS ON THE BASIS OF ORDERS, PLA CING ORDERS FOR THE MANUFACTURE OF MACHINERY, TO SEE THAT THE MANUFACTU RING PROCESS IS CARRIED BY LLMS UNDER THE DIRECT SUPERVISION OF THE ASSESSEE- COMPANY, TO HAVE A CHECK OVER THE QUALITY CONTROL A ND LAST BUT NOT THE LEAST, TO BE RESPONSIBLE FOR THE PROPER FUNCTIO NING OF THE MACHINERY AND GUARANTEE AFTER SALE SERVICE FOR A ST IPULATED PERIOD. OUT OF SO MANY ACTIVITIES, EXCEPT FOR ONE ACTIVITY, NAMELY, GETTING THE MACHINERY MANUFACTURED THROUGH LLMS ALL OTHER ACTIV ITIES ARE, ITA NO. 533/MUM/2016 OKASA PRIVATE LIMITED 6 ADMITTEDLY, UNDERTAKEN BY THE ASSESSEE-COMPANY. IN THE PRESENT CASE BEFORE US, ON QUERY TO THE LD. COUNSEL, WHETHER IN TERM OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PENWALT INDIA LTD. (SUPRA) WHETHER THE ASSESSEE IS GIVING ITS OWN FORM ULATION OF MEDICINES, HE REPLIED AND ALSO TAKEN US THROUGH AGR EEMENTS WITH VARIOUS JOB MANUFACTURERS AND HE READ OUT ONE OF TH E TERMS AND CONDITIONS OF MANUFACTURING, WHICH READS AS UNDER: 1. MANUFACTURING TO BE CARRIED OUT STRICTLY AS PER OUR REQUIREMENT FOLLOWING GOOD MANUFACTURING PRACTICES IN ACCORDANC E WITH THE SPECIFICATION SUPPLIED BY US. ACCORDING TO THE CIT(A), THE ASSESSEE HAS PROVIDED FORMULATION OF THE JOB WORKERS AND STRICT QUALITY CONTROL AND CHEC KS WERE MAINTAINED OVER THE JOB WORKERS BY THE ASSESSEE AND ACCORDINGLY THE ASSESSEE IS ACTUALLY MANUFACTURER FOR THIS PRODUCTS . WE FIND FROM THE RECORDS OF THE CASE, EVIDENCE PRODUCED BEFORE US TH AT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PENWALT INDIA LTD. (SUPRA), AND ALSO IN THE ASSESSEES OWN CASE FOR EA RLIER YEARS BY THE TRIBUNAL, CITE SOME. ACCORDINGLY, WE DISMISS THIS I SSUE OF REVENUES APPEAL. 7. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) RESTORING THE ISSUE OF DISALLOWANCE OF EXPENSES QUA EXEMPTED INCOME MADE BY THE A.O. BY INVOKING THE PR OVISIONS OF SECTION 14A OF THE ACT R/W RULE 8D OF THE RULES. FO R THIS THE REVENUE HAS RAISED THE FOLLOWING GROUND NO.2: 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN RESTORING THE ISSUE OF DISALLOWANCE TO THE FILE OF ASSESSING OFFICER WITHOUT APPRECIATING THE FACT THA T DISALLOWANCE U/S. 14A READ WITH RULE 8D IS MANDATORY W.E.F. A.Y. 2008-09? 8. AFTER HEARING BOTH THE SIDES AND GOING THROUGH T HE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT IN EARLIER YEAR ALSO THE MATTER WAS RESTORED BACK TO THE FILE OF THE A.O., HENCE WE FIND NO INFIRMITY ITA NO. 533/MUM/2016 OKASA PRIVATE LIMITED 7 IN THE ORDER OF THE CIT(A) RESTORING THE MATTER BAC K TO THE FILE OF THE A.O. FOR FRESH EXAMINATION OF FACTS, IN TERM OF THE ABOVE. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 9. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . 2.2. WE FIND THAT IN THE AFORESAID ORDER, ON IDENT ICAL ISSUE, THAT TOO IN THE CASE OF ASSESSEE ITSELF, THE TRIBUNAL DULY ANALYZED THE FACTS AND ALSO CONSIDERED THE DEC ISION FROM HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PENWALT INDIA LTD. (1992) 196 ITR 813(BOM.) AND THEREAFTER FOUND THAT THE ASSESSEE PROVIDED FORMULATION OF THE JOB W ORKERS AND STRICT QUALITY CONTROLS AND CHECKS WERE MAINTAI NED OR THE JOB WORKERS BY THE ASSESSEE AND IT WAS FOUND T HAT THE ASSESSEE WAS ACTUALLY WAS THE MANUFACTURER OF THE PRODUCTS. NO CONTRARY FACTS WERE BROUGHT TO OUR NO TICE BY EITHER SIDE AND MORE SPECIFICALLY THE REVENUE. IT IS ALSO NOTED THAT WHILE COMING TO A PARTICULAR CONCLUSION THE BENCH ALSO CONSIDERED THE DECISION FOR ASSESSMENT Y EAR 1999-2000 (ITA NO.3465/MUM/2003) AND THE ORDER OF ASSESSMENT YEAR 2009-10 (ITA NO.5248/MUM/2012), WHEREIN, ALSO, THE DECISION WAS IN FAVOUR OF THE AS SESSEE. RESPECTFULLY, FOLLOWING THE AFORESAID DECISION, BEI NG ON ITA NO. 533/MUM/2016 OKASA PRIVATE LIMITED 8 IDENTICAL FACTS/ISSUE, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL ), RESULTANTLY, THE APPEAL OF THE REVENUE IS DISMISSED . FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF HEARING ON 26/12/2017. SD/- SD/- ( RAJESH KUMAR ) (JOGINDER SINGH) '!# / ACCOUNTANT MEMBER $!# /JUDICIAL MEMBER $ MUMBAI; ( DATED : 26/12/2017 F{X~{T? P.S / /. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT (RESPECTIVE ASSESSEE) 2. ./,- / THE ASSESSEE. 3. 0 0 1# ( *+ ) / THE CIT, MUMBAI. 4. 0 0 1# / CIT(A)- , MUMBAI, 5. 34 .# , 0 *+& * 5 , $ / DR, ITAT, MUMBAI 6. 6! 7$ / GUARD FILE. ! / BY ORDER, /3+# .# //TRUE COPY// /! (DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI