M/s Hubli Electricity Supply Co., V. DCIT,

ITA 537/BANG/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8582 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 22-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEERA MALHOTRA BENGALURU
• Assessee Lawyers: V GURUNATHAN
• Section: 143(3); 80IB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NOS.537 TO 539/BANG/2013 ASSESSMENT YEARS : 2006-07 TO 2008-09 M/S. HUBLI ELECTRIC SUPPLY CO., NAVANAGAR, P.B. ROAD, HUBLI. PAN: AABCH 3176J VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1), HUBLI. APPELLANT RESPONDENT APPELLANT BY : SHRI V. GURUNATHAN, ADVOCATE RESPONDENT BY : MS. NEERA MALHOTRA, CIT(DR)(ITAT-2), BENGALURU. DATE OF HEARING : 23.01.2017 DATE OF PRONOUNCEMENT : 17.02.2017 O R D E R PER A.K. GARODIA, ACCOUNTANT MEMBER ALL THESE THREE APPEALS ARE FILED BY THE ASSESS EE WHICH ARE DIRECTED AGAINST THE SEPARATE ORDERS OF THE LD. CIT (APPEALS), HUBLI DATED 29.01.2013 FOR THE ASSESSMENT YEARS 2006-07, 2007-0 8 & 2008-09. ALL THESE 3 APPEALS WERE HEARD TOGETHER AND ARE BEING D ISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP THE APPEAL FOR THE AY 2006-07 I N ITA NO.537/BANG/2013 . THE GROUNDS RAISED BY THE ASSESSEE IN THIS YEAR ARE AS UNDER:- ITA NOS.537 TO 539/BANG/2013 PAGE 2 OF 15 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED COMMISSIONER OF INCOME-TAX WRONGLY SURMISED THAT THE ASSESSMENT ORDER PASSED U/S. 143(3) BY AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, THEREBY INVOKING THE PROVISION OF SECTION 263 OF THE ACT IS BAD IN LAW A ND NOT SUSTAINABLE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CONDITION PRECEDENT FOR INVOKING SECTION 263 OF THE ACT BEING ABSENT, THE PROCEEDINGS INITIATED UNDER THE SAID SECTION WAS OP POSED TO LAW AND ORDER PASSED U/S. 263 IS LIABLE TO BE CANCELLED. 3. THE LEARNED COMMISSIONER OF INCOME-TAX OUGHT TO HAVE APPRECIATED THAT THE TOTAL INVESTMENT IN PLANT AND MACHINERY IS SUBSTANTIAL MORE THAN 50% OF THE VALUE OF MACHINERY AS ON 1.4.2004 AND THUS THE COMPANY HAVING SATISFIED THE CONDITION LAID DOWN IN THE EXPLANATION TO THE SECTION, HE OUGHT NO T TO HAVE DIRECTED THE AO TO WITHDREW THE BENEFIT CLAIMED U/S . 80IA (4) (IV) (C) OF THE ACT. 4. THE LEARNED COMMISSIONER OF INCOME-TAX OUGHT TO HAVE APPRECIATED THAT EVEN THOUGH THE APPELLANT HAD BIFU RCATED A PORTION OF ITS INCOME AS MISCELLANEOUS INCOME, THE SAME COULD NOT BE TREATED AS INCOME FROM NON-BUSINESS ACTIVITY AND HENCE THE BENEFIT U/S. 80-IA(4) OF THE ACT OUGHT NOT TO HAVE BEEN DENIED. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL THE APPELLANT PRAYS THAT T HE APPEAL MAY BE ALLOWED. 3. AT THE VERY OUTSET, THE BENCH WANTED TO KNOW AS TO WHAT HAPPENED IN THE PROCEEDINGS U/S. 263 OF THE I.T. ACT. IN REP LY, IT WAS SUBMITTED BY THE LD. AR OF ASSESSEE THAT AGAINST THE ORDER PASSED U/ S. 263 OF THE ACT, AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE TRIBUNA L, BUT THIS APPEAL WAS FILED LATE AND THEREFORE THE SAME WAS DISMISSED BY THE TRIBUNAL IN ITA NO.1638/BANG/2013 DATED 12.08.2016 WITHOUT CONDONIN G THE DELAY. THEN IT WAS OBSERVED BY THE BENCH THAT IN THAT CIRCUMSTA NCES, THE ORDER OF CIT ITA NOS.537 TO 539/BANG/2013 PAGE 3 OF 15 PASSED U/S. 263 OF THE ACT FOR AY 2006-07 HAS ATTAI NED FINALITY AND SINCE THE AO HAS SIMPLY FOLLOWED THIS ORDER OF LD. CIT U/ S. 263, HOW THE ASSESSEE CAN CLAIM RELIEF IN THIS YEAR. IN REPLY, THE LD. AR OF ASSESSEE HAD NOTHING TO SAY. 4. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AU THORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THE STATEMENT OF FACTS FILED BY THE ASSESSEE BEFORE THE LD. CIT(APPEALS) ALONG WITH FORM 35 ARE RELEVANT TO CONSIDER THE FACTS AND HENCE, THE SAME ARE REPRODUCED HEREINBELOW:- STATEMENT OF FACTS THE APPELLANT IS A CORPORATION FORMED FOR PUBLIC UT ILITY FOR DISTRIBUTION OF POWER. FOR THE RELEVANT ASSESSMENT YEAR UNDER DISPUTE THE APPELLANT FILED ITS RETURN OF INCOME DE CLARING TAXABLE INCOME OF RS.2,17,67,626 AFTER CLAIMING DEDUCTION U /S.80- IA(4)(IV) (C) OF THE ACT. THE SAID MATTER WAS TAKEN UP FOR SCRUTINY AFTER ISSUING NOTICE U/S.143 (2) OF THE AC T. THE RETUNED INCOME WAS ACCEPTED BY THE ASSESSING OFFICER AND TH E ASSESSMENT WAS CONCLUDED, ACCEPTING THE RETURNED IN COME. SUBSEQUENTLY, THE COMMISSIONER OF INCOME TAX INITIA TED PROCEEDINGS U/S 263, PROPOSING TO DENY THE DEDUCTIO N 80IA (4) (IV) (C), ON THE GROUNDS THAT THE APPELLANT HAS NOT SATISFIED T HE CONDITIONS LAID DOWN IN THE SECTION. THE APPELLANT OBJECTED TO THE PROPOSED PROCEEDINGS AND SUBMITTED THE DETAILS TO PROVE THAT IT HAS SATISFIED THE CONDITIONS LAID DOWN IN THE SE CTION FOR BEING ELIGIBLE FOR THE DEDUCTION AS CLAIMED. HOWEVER, THE CIT WAS OF THE VIEW THAT THE APPELLANT WAS NOT ELIGIBLE TO CLA IM DEDUCTION U/S.80-IA (4) (IV) (C) ON, MISCELLANEOUS INCOME ACC OUNTED BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS FOR THE RELEVANT ASSESSMENT YEAR, WITHOUT APPRECIATING THE FACT THAT THE SAID M ISCELLANEOUS INCOME WAS EARNED DURING THE REGULAR COURSE OF BUSI NESS OF THE APPELLANT AMOUNTING TO RS. 15,53,99,921/-. BASED ON THE ITA NOS.537 TO 539/BANG/2013 PAGE 4 OF 15 DIRECTIONS ISSUED BY THE CIT IN HIS ORDER U/S 263 T HE ASSESSING OFFICER DISALLOWED THE CLAIM U/S 80-IA(4)(IV)(C) ON THE MISCELLANEOUS INCOME - RS 15,53,99,921/-, AND LEVIE D TAX ON THE SAID INCOME. THE LEARNED ASSESSING AUTHORITY FURTHER ERRED IN LEVYING THE INTEREST U/S.234C AND 234D OF THE ACT. HENCE TH E APPEAL. 6. FROM THE ABOVE STATEMENT OF FACTS, IT IS SEEN TH AT IT IS ADMITTED BY THE ASSESSEE ALSO IN THIS STATEMENT OF FACTS THAT B ASED ON THE DIRECTIONS ISSUED BY THE CIT IN HIS ORDER U/S. 263 OF THE ACT, THE AO DISALLOWED THE CLAIM U/S. 80IA(4)(IV)(C) ON THE MISCELLANEOUS INCO ME OF RS.15,53,99,921. IN THIS VIEW OF THE FACT THAT THIS ORDER OF CIT U/S . 263 HAS ATTAINED FINALITY, WE HOLD THAT NO INTERFERENCE IS CALLED FOR IN THE O RDER OF CIT (APPEALS) IN THIS YEAR. 7. IN THE RESULT, THE APPEAL OF ASSESSEE FOR AY 200 6-07 IS DISMISSED. 8. NOW WE TAKE UP THE APPEAL OF ASSESSEE FOR AY 200 7-08 IN ITA NO.538/BANG/2013 . THE GROUNDS RAISED BY THE ASSESSEE IN THIS YEAR ARE AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN PASSING THE ORDER IN THE MANNER HE DID. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE VIEW OF THE ASSESSING OFFICE R AS TO EXCLUDE THE MISCELLANEOUS INCOME, ON THE GROUND THAT SAME C OULD NOT BE HELD TO BE RECEIPTS FROM BUSINESS ACTIVITY WITHOUT APPRECIATING THE EXPLANATION OF THE APPELLANT. 3 THE LEARNED CIT (A) FURTHER OUGHT TO HAVE APPREC IATED THAT APPELLANT IS ENGAGED ONLY IN THE BUSINESS OF D ISTRIBUTION OF ITA NOS.537 TO 539/BANG/2013 PAGE 5 OF 15 ELECTRICITY AND DOES NOT HAVE ANY OTHER BUSINESS AN D CONSEQUENTLY THE ENTIRE MISCELLANEOUS INCOME IS REQUIRED TO BE C ONSIDERED FOR THE PURPOSE OF DEDUCTION AS RIGHTLY CLAIMED BY THE APPELLANT. 4. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THA T MISCELLANEOUS INCOME HAS BEEN CLASSIFIED AS SUCH AS PER THE REQUIREMENT OF THE ACCOUNTING POLICIES AND HENCE AL L THE RECEIPTS OF THE COMPANY ARE ONLY INCOME RELATABLE TO THE BUS INESS UNDERTAKING OF THE COMPANY, AND SAME IS ELIGIBLE FO R DEDUCTION AS RIGHTLY CLAIMED BY THE APPELLANT. 5. THE LEARNED CIT (A) FURTHER OUGHT TO HAVE APPRE CIATED THE VARIOUS CASELAW RELIED BY THE APPELLANT AND OUGHT T O HAVE ALLOWED THE CLAIM TO THE APPELLANT IN TOTO. 6. WITHOUT PREJUDICE, THE DISALLOWANCE AS CONFIRME D BY CIT (A) IS EXCESSIVE, ARBITRARY, AND UNREASONABLE AND O UGHT TO BE REDUCED SUBSTANTIALLY. 7. THE LEARNED CIT (A) ERRED IN UPHOLDING THE INTE REST LEVIED UNDER SECTION 234C AND 234D OF THE ACT. 8. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING OF THE APPEAL THE APPELLANT PRAYS T HAT THE APPEAL MAY BE ALLOWED. 9. IT IS SUBMITTED BY THE LD. AR OF ASSESSEE THAT D ETAILS OF MISCELLANEOUS INCOME OF RS.10,09,39,888 IS AVAILAB LE ON PAGES 3 & 4 OF THE LD. CIT(APPEALS)S ORDER. THEREAFTER, HE SUBMI TTED THAT THE STAND OF LD. CIT(A) AND OF THE AO IS IN LINE WITH THE JUDGMENT O F HONBLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA V. CIT AS REPORTED IN 317 ITR 218 (SC) . BUT SUBSEQUENT TO THAT, IN THE CASE OF CIT V. M/S. MEGHALAYA STEELS LTD. AS PER JUDGMENT REPORTED IN 383 ITR 217 (SC) (COPY AVAILABLE ON PAGES 263 TO 295 OF PB), THE EARLIER JUDGMENT OF HO NBLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA (SUPRA) WAS CONSIDERED AND THEREAFTER ITA NOS.537 TO 539/BANG/2013 PAGE 6 OF 15 IT WAS HELD THAT IF ANY SUBSIDY IS RECEIVED FROM GO VERNMENT OF INDIA IN ORDER TO REIMBURSE, WHOLLY OR PARTLY, COSTS ACTUALLY INCU RRED BY THE ASSESSEE IN THE MANUFACTURING AND SELLING OF ITS PRODUCTS. THE PROFITS AND GAINS FOR THE PURPOSE OF SECTION 80-IB AND 80-IC WILL BE AFTE R CONSIDERING SUCH SUBSIDIES, BECAUSE THOSE SUBSIDIES ONLY REDUCE THE COST AND THE NET PROFIT OF THE INDUSTRIAL UNDERTAKING IS TO BE ARRIVED AT A FTER DEDUCTING THE MANUFACTURING COST AND SELLING COSTS ACTUALLY INCUR RED BY THE ASSESSEE AFTER REDUCING THE REIMBURSEMENT OF SUCH COST RECEI VED BY THE ASSESSEE FROM THE GOVERNMENT. 10. HE SUBMITTED THAT IN THE PRESENT CASE, THE MISC ELLANEOUS INCOME OF THE ASSESSEE ARE OF THE SAME NATURE FOR WHICH RELIE F WAS ALLOWED BY THE HONBLE APEX COURT IN THE CASE OF CIT V. M/S. MEGHALAYA STEELS LTD. (SUPRA) AND THEREFORE, THIS JUDGMENT OF HONBLE APEX COURT HAS TO BE CONSIDERED AND RELIEF SHOULD BE ALLOWED TO THE ASSE SSEE. 11. RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA RENDERED IN THE CASE OF CIT V. WIPRO L TD. IN ITA NO.507/2002 DATED 25.08.2010 (COPY AVAILABLE ON PAGES 176 TO 20 9 OF THE PB). IT WAS ALSO SUBMITTED THAT THE RELEVANT PARA OF THIS JUDGM ENT ARE PARA NOS.30 & 36. 12. THEREAFTER, HE PLACED RELIANCE ON THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT AS REPORTED IN 113 ITR 84 (SC) . ITA NOS.537 TO 539/BANG/2013 PAGE 7 OF 15 13. AS AGAINST THIS, THE LD. DR OF REVENUE SUPPORTE D THE ORDERS OF AUTHORITIES BELOW. SHE PLACED RELIANCE ON THE JUDG MENT OF HONBLE HIGH COURT OF HIMACHAL PRADESH RENDERED IN THE CASE OF HIMACHAL FUTURISTIC COMMUNICATION LTD. V. CIT AS REPORTED IN 42 TAXMANN.COM 179 (HP). SHE MADE AVAILABLE A COPY OF THIS JUDGMENT. SHE ALSO P LACED RELIANCE ON THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA (SUPRA) . 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRS T OF ALL, WE REPRODUCE THE DETAILS OF MISCELLANEOUS INCOME OF RS .10,09,39,888 WHICH IS IN DISPUTE. THESE DETAILS ARE AVAILABLE ON PAGES 3 & 4 OF THE CIT(A)S ORDER. THE SAME IS REPRODUCED HEREUNDER:- INCOME FROM INVESTMENT: 1. INTEREST ON BANK DEPOSIT RS. 16,28,923 2. INTEREST ON LOANS TO SOCIETY RS. 5,905 INCOME FROM TRADING: 3. PROFIT ON SALE OF STORES RS. 67,84,271 4. SALE OF SCRAP RS. 24,10,221 5. MISC. RECEIPTS FROM TRADING RS. 46,93,290 MISCELLANEOUS RECEIPTS: 6. RENTAL FROM STAFF QTRS RS. 90,06,414 7. RENTAL FROM OTHER RS. 59,692 8. EXCESS FOUND ON PHYSICAL VERIFICATION OF MATERIAL STOCK RS. 4,03,364 9. COMMISSION FOR COLLECTION OF ELECTRIC DUTY RS. 67,61,146 * MISC. RECOVERY RS. 7,51,86,612 ---------------------- RS. 10,03,39,888 ---------------------- ITA NOS.537 TO 539/BANG/2013 PAGE 8 OF 15 BIFURCATION OF *MISC. RECOVERIES RS.7,51,86,012/- I S AS UNDER: 11. PENALTY RECOVERED FROM SUPPLIERS/CONTRACTORS RS .4,31,07,307 12. UNCLAIMED BALANCE O/S RS.2,64,25,609 13. DEPT. EXAM FEES RS. 2,346 14. SALE OF DEPT. BOOKS RS. 1,035 15. SALE OF FORMS RS. 4,18,341 16. MISC. RECOVERY FROM EMPLOYEES RS. 8,45, 452 17. SALE OF SCRAP/STOCK EXCESS FOUND RS. 33,1 2,422 18. METER READING TESTING CHARGES RS. 3,51 ,653 19. BBC THEFT CA COLLECTED RS. 2,03,730 20. DIFFERENCE BETWEEN WDV/BOOK VALUE OF RELEASED ASSET RS. 96,77,085 ---------------------- RS. 7,51,86,012 ---------------------- 15. FROM THE ABOVE DETAILS OF MISCELLANEOUS INCOME, IT IS SEEN THAT THE INCOME IN DISPUTE IS INTEREST INCOME, PROFIT ON SAL E OF STORES, SALE OF SCRAP, MISC. RECEIPTS FROM TRADING, RENTAL FROM STAFF QTRS ., RENTAL FROM OTHERS, EXCESS FOUND ON PHYSICAL VERIFICATION OF MATERIAL S TOCK, COMMISSION FOR COLLECTION OF ELECTRIC DUTY AND MISCELLANEOUS RECOV ERY OF RS.7,51,86,012. AS PER THE DETAILS OF MISCELLANEOUS RECOVERY, WE FI ND THAT THE ITEMS INCLUDED ARE PENALTY RECOVERED FROM SUPPLIERS/CONTR ACTOR, UNCLAIMED BALANCE O/S, DEPT .EXAMS FEES, SALE OF DEPT. BOOKS, SALE OF FORMS, MISCELLANEOUS RECOVERY FROM EMPLOYEES, SALE OF SCRA P/STOCK EXCESS FOUND, METER READING TESTING CHARGES, BBC THEFT CA COLLECT ED AND DIFFERENCE BETWEEN WDV/BOOK VALUE OF RELEASED ASSET. 16. NOW, WE EXAMINE THE RATIO LAID DOWN BY HONBLE APEX COURT IN THE CASE OF CIT V. M/S. MEGHALAYA STEELS LTD. (SUPRA). AS PER THIS JUDGMENT, IN ITA NOS.537 TO 539/BANG/2013 PAGE 9 OF 15 OUR CONSIDERED OPINION, THE RATIO LAID DOWN BY HON BLE APEX COURT IS THIS THAT IF A RECEIPT IS TOWARDS REIMBURSEMENT OF MANUF ACTURING OR SELLING COST THEN SUCH RECEIPT IS NOT AN INDEPENDENT INCOME BUT IT WILL REDUCE THE COST OF MANUFACTURING OR SELLING AND RESULTANT INCREASE IN PROFIT IS PROFIT FROM INDUSTRIAL UNDERTAKING. AS PER THE JUDGMENT OF HON BLE APEX COURT IN THE CASE OF LIBERTY INDIA (SUPRA) , THE DISPUTE WAS ABOUT DEPF AND DUTY DRAW BACK AND IT WAS HELD THAT IT IS AN INDEPENDENT INCO ME AND NOT AN INCOME DERIVED FROM AN INDUSTRIAL UNDERTAKING. HENCE, THER E IS NO CONTRADICTION IN THESE TWO JUDGMENTS. IN OUR HUMBLE OPINION, IF A RE CEIPT IS IN THE NATURE OF INDEPENDENT INCOME, IT HAS TO BE REDUCED FROM THE P ROFIT AS PER P/L ACCOUNT BUT IF A RECEIPT IS TOWARDS REIMBURSEMENT OF MANUFA CTURING OR SELLING COST, IT IS NOT AN INDEPENDENT INCOME BUT IT GOES TO REDUCE COST OF MANUFACTURING/SELLING AND RESULTANT INCREASE IN PRO FIT IS PROFIT FROM INDUSTRIAL UNDERTAKING. 17. NOW WE EXAMINE THESE DETAILS OF OTHER INCOME TO FIND OUT AS TO WHETHER THESE ARE INDEPENDENT INCOME OR A RECEIPT T OWARDS REIMBURSEMENT OF MANUFACTURING OR SELLING COST. IN OUR CONSIDERED OPINION, IT COMES OUT FROM THE DETAILS NOTED ABOVE THAT INTEREST INCOME I S INDEPENDENT INCOME AND IT IS NOT REIMBURSEMENT OF MANUFACTURING OR SEL LING EXPENSES AND HENCE, IT CANNOT BE SAID TO BE INCOME DERIVED FROM AN INDUSTRIAL UNDERTAKING. SIMILARLY PROFIT ON SALE OF STORES ALS O IS AN INDEPENDENT INCOME AND IT ALSO CANNOT BE ACCEPTED AS REIMBURSEM ENT OF MANUFACTURING OR SELLING EXPENSES AND AS A CONSEQUENCE, IT IS ALS O NOT AN INCOME DERIVED ITA NOS.537 TO 539/BANG/2013 PAGE 10 OF 15 FROM AN INDUSTRIAL UNDERTAKING. MISC. RECEIPTS FRO M TRADING ALSO IS AN INDEPENDENT INCOME AND IT ALSO CANNOT BE ACCEPTED A S REIMBURSEMENT OF MANUFACTURING OR SELLING EXPENSES AND AS A CONSEQUE NCE, IT IS ALSO NOT AN INCOME DERIVED FROM AN INDUSTRIAL UNDERTAKING. REN TAL INCOME ALSO IS AN INDEPENDENT INCOME AND IT ALSO CANNOT BE ACCEPTED A S REIMBURSEMENT OF MANUFACTURING OR SELLING EXPENSES IN THE ABSENCE OF THIS FACT THAT ASSESSEE WAS PAYING RENT OF STAFF QUARTERS WHICH WAS DEBITED TO PROFIT & LOSS ACCOUNT AND AS SUCH RECOVERY OF RENTAL INCOME FROM STAFF QUARTERS IS GOING TO REDUCE THE EXPENSES OF THE ASSESSEE INCURRED ON RENT. AS A CONSEQUENCE, IT IS ALSO NOT AN INCOME DERIVED FROM AN INDUSTRIAL UNDERTAKING. COMMISSION FOR COLLECTION OF ELECTRIC DUTY ALSO IS AN INDEPENDENT INCOME AND IT ALSO CANNOT BE ACCEPTED A S REIMBURSEMENT OF MANUFACTURING OR SELLING EXPENSES AND AS A CONSEQUE NCE, IT IS ALSO NOT AN INCOME DERIVED FROM AN INDUSTRIAL UNDERTAKING. APA RT FROM THE MISCELLANEOUS RECOVERY OF RS.7,51,86,012, WE ARE LE FT WITH TWO ITEMS I.E., SALE OF SCRAP OF RS.24,10,221 AND EXCESS FOUND ON P HYSICAL VERIFICATION OF MATERIAL STOCK OF RS.4,03,364. REGARDING THESE TWO ITEMS, WE ARE SATISFIED THAT THIS WILL GO TO REDUCE THE COST INCURRED BY TH E ASSESSEE AND DEBITED TO PROFIT & LOSS ACCOUNT AND TO THIS EXTENT, THESE REC EIPTS SHOULD BE REDUCED FROM THE COST AND THEREFORE, THESE TWO ITEMS SHOULD NOT BE REDUCED FROM THE PROFIT SHOWN BY THE ASSESSEE IN THE PROFIT & LO SS ACCOUNT FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWED TO THE ASSES SEE U/S. 80IA(4)(IV)(C). WE HOLD ACCORDINGLY. ITA NOS.537 TO 539/BANG/2013 PAGE 11 OF 15 18. NOW WE EXAMINE THE ISSUE REGARDING MISCELLANEOU S RECOVERY OF RS.7,51,86,012. THE ITEMS INCLUDED HEREIN ARE PENA LTY RECOVERED FROM SUPPLIERS/CONTRACTOR OF RS.431.07 LAKHS, UNCLAIMED BALANCE O/S OF RS.264.25 LAKHS AND DIFFERENCE BETWEEN THE WDV AND BOOKS VALUE OF RELEASED ASSET OF RS.96.77 LAKHS. THESE 3 ITEMS AR E NEITHER ANY INCOME DERIVED FROM AN INDUSTRIAL UNDERTAKING NOR A REALIZ ATION TO REDUCE THE COST OF MANUFACTURING/COST OF SALE OF ASSESSEE AND THERE FORE, THESE 3 ITEMS ARE RIGHTLY REDUCED FROM THE PROFIT OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE U/S. 80IA(4)(IV)(C). 19. REGARDING THE BALANCE ITEMS SUCH AS DEPT. EXAM FEES, SALE OF DEPT. BOOKS AND SALE OF FORMS, SALE OF SCRAP/STOCK EXCESS FOUND, METER READING TESTING CHARGES AND BBC THEFT CA COLLECTED ETC., IN OUR CONSIDERED OPINION, THESE RECEIPTS REDUCE THE COST OF ASSESSEE WHICH AR E DEBITED TO PROFIT & LOSS ACCOUNT AND THEREFORE, THESE ITEMS SHOULD NOT BE REDUCED FROM THE PROFIT OF ASSESSEE AS PER PROFIT & LOSS ACCOUNT FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S. 80IA(4)(IV)(C). 20. NOW WE ARE LEFT WITH ONLY ONE ITEM I.E., MISC. RECOVERY FROM EMPLOYEES OF RS.8,45,452. REGARDING THIS ITEM, NOT HING HAS BEEN SHOWN THAT THESE ARE ON ACCOUNT OF RECOVERY OF CERTAIN EX PENSES INCURRED BY THE ASSESSEE AND DEBITED TO PROFIT & LOSS ACCOUNT AND T HEREFORE, REGARDING REDUCTION OF THIS ITEM FROM THE PROFIT OF THE ASSES SEE, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT (APPEALS). ITA NOS.537 TO 539/BANG/2013 PAGE 12 OF 15 21. OUR ABOVE DECISION IN RESPECT OF VARIOUS ITEMS OF MISC. INCOME IS BY RESPECTFULLY FOLLOWING BOTH THE JUDGMENTS OF HONBL E APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA (SUPRA) WHEREIN IT WAS HE LD BY THE HONBLE APEX COURT THAT IF AN INCOME IS IN THE NATURE OF INDEPEN DENT INCOME, IT IS NOT AN I9NCOME DERIVED FROM INDUSTRIAL UNDERTAKING AND TH EREFORE, NOT ELIGIBLE FOR DEDUCTION U/S 80IB AND ALSO IN CASE OF CIT V. M/S. MEGHALAYA STEELS LTD. (SUPRA) WHEREIN IT WAS HELD BY THE HONBLE APEX COURT THAT IF A SUBSIDY IS RECEIVED AS REIMBURSEMENT OF COST ACTUALLY INCURRED BY ASSESSEE IN MANUFACTURING AND SELLING OF ITS PRODUCTS, THEN SUC H SUBSIDY SHOULD NOT BE EXCLUDED FROM BUSINESS PROFIT. IN OUR HUMBLE OPINI ON, THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THIS JUDGMENT IS THIS THAT IF A RECEIPT IS REDUCING THE COST INCURRED BY THE ASSESSEE IN THE M ANUFACTURING/SELLING OF ITS PRODUCTS, THEN SUCH RECEIPTS SHOULD BE CONSIDER ED AS REDUCTION IN COST WHICH WILL RESULT INTO INCREASE IN PROFIT DERIVED F ROM INDUSTRIAL UNDERTAKING AND THEREFORE, SUCH RECEIPTS SHOULD NOT BE REDUCED FROM THE PROFIT OF THE ASSESSEE. IN THIS VIEW OF THE MATTER, WE HAVE HELD IN THE ABOVE PARA THAT CERTAIN RECEIPTS SHOULD NOT BE REDUCED FROM BUSINES S PROFIT OF THE ASSESSEE BUT OTHER RECEIPTS ARE TO BE SO REDUCED. 22. REGARDING APPLICABILITY OF VARIOUS JUDGMENTS CI TED BY LD. DR OF REVENUE, WE HOLD THAT WE HAVE FOLLOWED TWO JUDGMENT S OF HONBLE APEX COURT AS NOTED ABOVE AND HENCE, OTHER JUDGMENTS ARE NOT RELEVANT. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S PARTLY ALLOWED. ITA NOS.537 TO 539/BANG/2013 PAGE 13 OF 15 24. NOW WE TAKE UP THE APPEAL OF ASSESSEE FOR AY 20 08-09 IN ITA NO.539/BANG/2013 . THE GROUNDS RAISED BY THE ASSESSEE IN THIS YEAR ARE AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN PASSING THE ORDER IN THE MANNER HE DID. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE VIEW OF THE ASSESSING OFFICE R AS TO EXCLUDE THE MISCELLANEOUS INCOME, ON THE GROUND THAT SAME C OULD NOT BE HELD TO BE RECEIPTS FROM BUSINESS ACTIVITY WITHOUT APPRECIATING THE EXPLANATION OF THE APPELLANT. 3. THE LEARNED CIT (A) FURTHER OUGHT TO HAVE APPRE CIATED THAT APPELLANT IS ENGAGED ONLY IN THE BUSINESS OF D ISTRIBUTION OF ELECTRICITY AND DOES NOT HAVE ANY OTHER BUSINESS AN D CONSEQUENTLY THE ENTIRE MISCELLANEOUS INCOME IS REQUIRED TO BE C ONSIDERED FOR THE PURPOSE OF DEDUCTION AS RIGHTLY CLAIMED BY THE APPELLANT. 4. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THA T MISCELLANEOUS INCOME HAS BEEN CLASSIFIED AS SUCH AS PER THE REQUIREMENT OF THE ACCOUNTING POLICIES AND HENCE AL L THE RECEIPTS OF THE COMPANY ARE ONLY INCOME RELATABLE TO THE BUS INESS UNDERTAKING OF THE COMPANY, AND SAME IS ELIGIBLE FO R DEDUCTION AS RIGHTLY CLAIMED BY THE APPELLANT. 5. THE LEARNED CIT (A) FURTHER OUGHT TO HAVE APPRE CIATED THE VARIOUS CASELAW RELIED BY THE APPELLANT AND OUGHT T O HAVE ALLOWED THE CLAIM TO THE APPELLANT IN TOTO. 6. WITHOUT PREJUDICE, THE DISALLOWANCE AS CONFIRME D BY CIT (A) IS EXCESSIVE, ARBITRARY, AND UNREASONABLE AND O UGHT TO BE REDUCED SUBSTANTIALLY. 7. THE LEARNED CIT (A) ERRED IN UPHOLDING THE INTE REST LEVIED UNDER SECTION 234C AND 234D OF THE ACT. 8. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING OF THE APPEAL THE APPELLANT PRAYS T HAT THE APPEAL MAY BE ALLOWED. ITA NOS.537 TO 539/BANG/2013 PAGE 14 OF 15 25. BOTH THE SIDES AGREED THAT THE FACTS AND ARGUME NTS IN THE PRESENT YEAR REGARDING OTHER INCOME OF RS.7,16,67,413 IN DI SPUTE ARE ALSO SIMILAR TO THE FACTS IN THE AY 2007-08. IT WAS ALSO POINTED O UT BY THE LD. AR OF ASSESSEE THAT DETAILS OF THIS INCOME ARE AVAILABLE IN PAGE 2 OF THE ASSESSMENT ORDER. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRS T OF ALL, WE REPRODUCE THE DETAILS OF OTHER INCOME OF RS.7,16,67 ,413 FROM PAGE 2 OF THE ASSESSMENT ORDER. THE SAME IS AS UNDER:- 27. IN LINE WITH OUR DECISION IN AY 2007-08, WE HOL D THAT SALE OF SCRAP OF RS.40,22,860 SHOULD NOT BE REDUCED FROM THE PROFIT OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE TO THE ASS ESSEE U/S. 80IA(4)(IV)(C) BUT THE OTHER RECEIPTS WERE RIGHTLY REDUCED FROM THE PROFIT OF THE ASSESSEE BECAUSE THESE OTHER RECEIPTS ARE NEITH ER INCOME DERIVED FROM ITA NOS.537 TO 539/BANG/2013 PAGE 15 OF 15 INDUSTRIAL UNDERTAKING NOR A RECEIPT IN THE NATURE OF REIMBURSEMENT OF EXPENSES INCURRED BY THE ASSESSEE FOR MANUFACTURING AND SELLING OF GOODS. THE ASSESSEE GETS RELIEF TO THE EXTENT OF RS.40,22, 860/- WHICH SHOULD NOT BE REDUCED FROM PROFIT OF THE ASSESSEE FOR COMPUTIN G DEDUCTION ALLOWABLE TO THE ASSESSEE U/S. 80IA(4)(IV)(C). 28. IN THE RESULT, THIS APPEAL OF ASSESSEE IS PARTL Y ALLOWED. 29. IN THE COMBINED RESULT, APPEAL OF THE ASSESSEE FOR AY 2006-07 IS DISMISSED AND THE REMAINING TWO APPEALS OF THE ASSE SSEE FOR AYS 2007-08 & 2008-09 ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF FEBRUARY, 2017. SD/- SD/- (VIJAY PAL RAO ) ( A.K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 17 TH FEBRUARY, 2017. /D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.