DCIT 24(3), MUMBAI V. CELLO STATIONERS PRODUCTS, MUMBAI

ITA 5757/MUM/2010

• Counselvise Citation: 575719914 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 13-02-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 16-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: MRS AARTI VISSANJI
• Keywords: Depreciation
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, A ND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 5757/MUM./2010 (ASSESSMENT YEAR : 2007-08 ) DY. COMMISSIONER OF INCOME TAX CIRCLE-23(3), C-11, BANDRA KURLA COMPLEX, BANDDRA (EAST) MUMBAI 400 051 .. APPELLANT V/S M/S. CELLO STATIONERY PRODUCTS 5, VAKIL INDUSTRIAL ESTATE WALBHAT ROAD, GOREGAON (E) MUMBAI 400 063 PAN AADFC8145P .... RESPONDENT REVENUE BY : MR. V.V. SHASTRI ASSESSEE BY : MRS. AARTI VISSANJI DATE OF HEARING 13.02.2012 DATE OF ORDER 22.02.2012 O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE REVENUE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 21 ST APRIL 2010, PASSED BY THE COMMISSIONER (APPEALS)-XXXIV, MUMBAI, FOR ASSESSMENT YEAR 2007-0 8. GROUNDS NO.1, 2 AND 3, READ AS FOLLOWS:- 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) FAILED TO APPRECIATE THAT PROVISIONS OF S ECTION 801A(10)/801B(13) ARE APPLICABLE IN THIS CASE AS TH E PARTNERS OF ASSESSEE FIRM SHRI PANKAJ RATHOD (HUE) AND SHRI PRA DEEP RATHOD (HUE) WHO ARE PARTNERS OF M/S. CELLO STATIONERY PRO DUCTS WHO TOGETHER M/S. CELLO STATIONERY PRODUCTS ITA NO.5757/MUM./2010 2 HOLD 50% OF SHARE PROFIT THROUGH THEIR HUE ALSO HOL D 95% OF SHARE OF PROFIT IN THE FIRM M/S. CELLO SALES & MARKETING IN THEIR INDIVIDUAL CAPACITY. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) FAILED TO APPRECIATE THAT M/S. CELLO STAT IONERY PRODUCTS IS SHOWING WHOOPING NET PROFIT @45.61% AS AGAINST MEAG ER PROFIT OF 0.24% SHOWN BY M/S. CELLO SALES & MARKETING AND THE SAME HAS BEEN ACHIEVED BY ARRANGING THE BUSINESS AFFAIRS IN SUCH A MANNER, WHEREIN ASSESSEE FIRM WHOSE INCOME IS ELIGIBLE FOR DEDUCTIO N U/S.8OLB @ 100% SHOWN MORE THAN ORDINARY PROFIT @ 45.61% AGAINST TH E PROFIT EARNED BY M/S. CELLO SALES & MARKETING @ 0.24% AS ITS INCO ME IS FULLY TAXABLE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSES SEE WITHOUT DISCUSSING THE GROUNDS OF DENIAL OF 801B DEDUCTION AS MENTIONED BY THE AO IN THE ASSESSMENT ORDER. 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER OBSERVED THAT THE ASSESSEE HAS FLOATED A SALES AND MARKETING ENTITY DELIBERATELY TO SHIFT ALL ADMINISTRATIVE AND MARKET ING EXPENSES TO M/S. CELLO SALES & MARKETING, SO AS TO DISPROPORTIONATELY INCR EASE THE NET PROFIT OF ALL THE MANUFACTURING CONCERN INCLUDING M/S. CELLO STAT IONERY PRODUCTS, AS THE INCOME OF ALL THESE ENTITIES IS EXIGIBLE TO DEDUCTI ON UNDER SECTION 80IA/80IB OF THE ACT AND, HENCE, ALLOCATED THE NET PROFIT OF THE ASSESSEE EQUALLY BETWEEN THE ASSESSEE AND CELLO SALES & MARKETING AN D CONSEQUENTLY, REDUCING THE CLAIM OF DEDUCTION UNDER SECTION 80IB OF THE ACT. HE HELD THAT THE ARRANGEMENT BETWEEN THE ASSESSEE AND CELLO SALE S & MARKETING GIVES THE ASSESSEE MORE THAN ORDINARY PROFITS AND ACCORDI NGLY, INVOKED HIS DISCRETIONARY POWERS UNDER SECTION 80IB(13) R/W SEC TION 80IA OF THE ACT. 3. THE ASSESSEE, BEING AGGRIEVED, CARRIED THE MATTER B EFORE THE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPE ALS), VIDE PARA-6 OF HIS ORDER, HELD AS FOLLOWS:- 6. I RESPECTFULLY FOLLOWING THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI, FOR A.Y. 2005-06 AND A.Y. 2006-07 , AND AFTER DULY CONSIDERING THE CHANGE IN FACTS IN THE RELEVANT PRE VIOUS YEAR, DELETE THE DISALLOWANCE OF THE DEDUCTION UNDER SECTION 80I B OF THE ACT AND ITS CONSEQUENT REDUCTION OF CLAIM OF SECTION 80IB FROM ` 26,17,94,357 TO ` 13,05,05,670. ACCORDINGLY, GROUNDS NO.1 AND 2 OF T HE APPELLANT ARE ALLOWED . M/S. CELLO STATIONERY PRODUCTS ITA NO.5757/MUM./2010 3 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIB UNAL. 5. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT T HE ISSUE ARISING OUT OF THE AFORESAID GROUNDS NO.1 TO 3, IS COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE DECISION OF A CO-ORDI NATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06, ITA NO.5866/MUM./ 2008, ORDER DATED 23 RD FEBRUARY 2010, WHEREIN THE TRIBUNAL HELD AS FOLLOW S:- WE HAVE ALREADY SEEN THAT CSM WAS FORMED ON 01.04.2 001 WHEREAS THE ASSESSEE CAME INTO EXISTENCE SUBSEQUENTLY IN MA RCH 2004. IT CANNOT THEREFORE BE SAID THAT THE MARKETING ARM WAS CREATED ONLY TO ENABLE THE ASSESSEE TO SHIFT ITS EXPENSES TO THE MA RKETING ARM. EVEN IF IT IS ARGUED THAT THIS MAY NOT BE CONCLUSIVE AND TH AT EVEN THOUGH THE ASSESSEE FIRM CAME INTO EXISTENCE LATER IT WAS STIL L POSSIBLE FOR IT TO MAKE USE OF THE MARKETING ARM TO SHIFT ITS EXPENSES , IT IS NOT PERMISSIBLE TO VIEW WITH SUSPICION THE RELATIONSHIP BETWEEN THE ASSESSEE AND ITS MARKETING ARM BECAUSE AS FOUND BY THE CIT(A), CSM WAS FORMED FOR BUSINESS REASONS, THE MAIN REASON BE ING TO ENABLE THE STOCKIST OF THE CELLO GROUP OF CONCERNS TO DEAL WIT H A SINGLE ENTITY OR A SINGLE WINDOW INSTEAD OF DIFFERENT MANUFACTURING CO NCERNS OF THE GROUP, RESULTING IN CONFUSION AND OVERLAPPING. NO E VIDENCE HAS BEEN LED ON BEHALF OF THE DEPARTMENT BEFORE US OR IN THE ASSESSMENT ORDER TO DEMONSTRATE THAT THIS WAS NOT THE REAL REASON FO R WHICH THE MARKETING ARM WAS CREATED. THE MARKETING ARM HAS AL SO BEEN SEPARATELY ASSESSED AND THIS SHOWS THAT IT HAS BEEN LOOKED UPON BY THE INCOME TAX AUTHORITIES AS A SEPARATE LEGAL ENTI TY, CARRYING ON ITS OWN BUSINESS AND ENJOYING PROFITS FOR ITSELF. TO A SPECIFIC QUERY POSED BY US IN THE COURSE OF THE ARGUMENTS, THE LEARNED D EPARTMENTAL REPRESENTATIVE STATED THAT NO EXPENSES CLAIMED BY C SM IN ITS ASSESSMENT TO INCOME TAX HAVE BEEN DISALLOWED ON TH E GROUND THAT THE EXPENSES DID NOT RELATE TO ITS MARKETING ACTIVI TIES. EVEN IN THE ASSESSMENT ORDER IN THE PRESENT CASE, THERE IS NO S UGGESTION THAT THE EXPENSES CLAIMED BY CSM IN ITS RETURN DID NOT IN FA CT RELATE TO ITS ACTIVITIES. NOR IS THERE ANY EVIDENCE TO SHOW THAT ANY PART OF THE EXPENSES WERE RELATED TO THE ACTIVITIES OF THE ASSE SSEE FIRM, BUT DELIBERATELY DEBITED IN THE BOOKS OF ACCOUNTS OF CS M. 9. THE LEARNED COUNSEL FOR THE ASSESSEE DEMONSTRATE D BEFORE US THAT THE TABLE GIVEN AT PAGE 3 OF THE ASSESSMENT OR DER SHOWING THAT THE ASSESSEE CLAIMED ONLY TRAVELLING AND CONVEYANCE EXPENSES OF RS.62,298/- WHILE COMPUTING ITS PROFITS IS FACTUALL Y ERRONEOUS. THE ACCOUNTS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDE RATION WERE FILED BEFORE US IN THE COURSE OF THE HEARING, FROM WHICH WE FIND THAT THE PROFIT AND LOSS ACCOUNT SHOWS AN AGGREGATE EXPENDIT URE OF RS.6,94,22,917/- CONSISTING OF THE FOLLOWING: - (A) RAW & PACKING MATERIALS CONSUMED .. RS.5,07,52, 869/- (B) MANUFACTURING EXPENSES .. RS. 34,30,234/- (C) ADMINISTRATIVE, SELLING & DISTRIBUTION EXPENSES .. RS. 70,30,738/- (D) DEPRECIATION RS. 82,09,076/- M/S. CELLO STATIONERY PRODUCTS ITA NO.5757/MUM./2010 4 THE AFORESAID ITEMS OF EXPENDITURE HAVE ALSO BEEN D ETAILED IN SCHEDULES J, K, L AND B OF THE FINANCIAL ST ATEMENTS RESPECTIVELY AND A PERUSAL THEREOF SHOWS THAT THE ASSESSEE FIRM HAS INCURRED THE NORMAL EXPENSES WHICH ANY MANUFACTURING CONCERN WOU LD INCUR. APART FROM RAW MATERIALS AND PACKING MATERIALS CONSUMED, THE MANUFACTURING EXPENSES INCLUDES WAGES, CARRIAGE INW ARD, PRODUCTION INCENTIVE, LABOUR PAYMENTS SUCH AS PROVIDENT FUND, HRA, LABOUR WELFARE EXPENDITURE, BONUS, ETC. THERE ARE ALSO POW ER & WATER CHARGES, CARRIAGE OUTWARD, LOADING & UNLOADING CHAR GES, ETC. SCHEDULE L SHOWS ADMINISTRATIVE, SELLING AND DISTRIBUTION EXPENSES AND IN FACT ALSO INCLUDES SALES PROMOTION EXPENSES OF RS.46,92, 370/-. THE CLAIM OF DEPRECIATION AS PER SCHEDULE B SHOWS THE EXIST ENCE OF PLANT & MACHINERY, TOOLS & EQUIPMENTS, ELECTRICAL INSTALLAT ION, FURNITURE & FIXTURES, ETC. ALL THESE FIGURES OF EXPENSES DEBITE D IN THE ASSESSEES ACCOUNTS FOR THE YEAR UNDER APPEAL SHOW THAT THE CO NCLUSION OF THE ASSESSING OFFICER THAT THE ASSESSEE DID NOT INCUR A NY EXPENDITURE OTHER THAN TRAVELLING AND CONVEYANCE EXPENSES IS BASELESS . 10. A LOOK AT THE PROFIT & LOSS ACCOUNT OF CSM FOR THE YEAR ENDED 31.03.2005 SHOWS THAT IT HAS INCURRED THE USUAL EXP ENSES WHICH ANY MARKETING ORGANIZATION WOULD INCUR. FOR INSTANCE, I T HAS PAID SALARIES OF RS.1,73,38,510/-; CARRIAGE OUTWARD & OCTROI OF R S.2,85,16,643/-; SALES COMMISSION OF RS.30,82,084/-; SALES PROMOTION EXPENSES OF RS.4,48,37,995/-; ADVERTISEMENT EXPENSES OF RS.10,4 2,47,006/-; OUTSTATION STAFF EXPENSES OF RS.1,39,20,825/- ETC. THE GROSS PROFIT OF CSM AMOUNTED TO RS.22,31,69,180/- AND THE AFORESAID EXPENDITURE HAS BEEN INCURRED OUT OF THE SAME. NEITHER THE ASSE SSING OFFICER NOR THE LEARNED SENIOR DR APPEARING FOR HIM BEFORE US C OULD PINPOINT AS TO WHICH OF THE ITEMS OF EXPENDITURE DEBITED IN THE PR OFIT & LOSS ACCOUNT OF CSM RELATED TO THE MANUFACTURING ACTIVITIES OF T HE ASSESSEE. THEREFORE, THE CONCLUSION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD INFLATED ITS PROFITS BY SHIFTING ITS EXPENDITUR E TO ITS MARKETING ARM APPEARS TO HAVE NO FACTUAL BASIS. 11. A PERUSAL OF THE RESULTS OF M/S CELLO PLASTIC P RODUCTS, ONE OF THE GROUP CONCERNS, FOR THE ASSESSMENT YEARS 2002-03 TO 2005-06 (PAGE 64 OF THE PAPER BOOK) SHOWS THE FOLLOWING POSITION: - ASSESSMENT YEAR NET PROFIT RATE 2002-03 49.40% 2003-04 46.56% 2004-05 39.67% 2005-06 40.48% THE ABOVE FIGURES SHOW THAT THE NET PROFIT RATE IN THE GROUP CONCERNS IS QUITE HIGH. EVEN IN THE ASSESSEES OWN CASE, IT IS SHOWN AS NET PROFIT RATE OF 44.10% FOR THE ASSESSMENT YEAR 2006-07. IT WOULD THEREFORE APPEAR THAT THERE IS NOTHING UNUSUAL TO RAISE THE E YEBROWS IF THE ASSESSEE HAS SHOWN 55.67% OF NET PROFIT ON ITS SALE S. 12. ON THE OTHER SIDE, IF WE COMPARE THE NET PROFIT RATE OF CERTAIN SUPER STOCKIST OF THE ASSESSEE, ALSO DEALING IN WRI TING INSTRUMENTS FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07, THEY SHOW THAT THEIR NET PROFIT RATE IS VERY LOW AS IN THE CASE OF THE LOW N ET PROFIT OF 0.17% SHOWN BY CSM. THE ASSESSEE HAS PLACED THESE DETAILS AT PAGE 121 OF M/S. CELLO STATIONERY PRODUCTS ITA NO.5757/MUM./2010 5 THE PAPER BOOK, WHICH IS A COPY OF THE WRITTEN SUBM ISSIONS FILED BEFORE THE CIT(A). IT SHOWS THE FOLLOWING POSITION: - NAME ASSESSMENT YEAR ASSESSMENT YEAR 2005-06 2006-07 1. TIKU WRITING INSTRUMENTS 1.01% 0.6 2% AHMEDABAD 2. KONICA ENTERPRISES 0.62% 0.80% MUMBAI 3. PADMA MARKETING 0.36% 0.42% BARODA IT MAY BE SEEN THAT THE NET PROFIT RATE OF THREE DI FFERENT SUPER STOCKIST OF THE ASSESSEE SHOW VERY LOW NET PROFIT RATES AND IT IS THEREFORE NOT UNUSUAL THAT CSM, WHICH WAS THE MARKETING ARM OF TH E ASSESSEE AND OTHER GROUP CONCERNS, HAS BEEN ABLE TO EARN ONLY A NET PROFIT RATE OF 0.17%. IT CANNOT BE CONSIDERED TO BE ABNORMALLY LOW . 13. TURNING TO THE COMPARABLE CASES GIVEN BY THE AS SESSING OFFICER, IT IS SEEN THAT SO FAR AS M/S TODAYS WRITING PRODUC TS LIMITED IS CONCERNED, CITED IN THE ASSESSMENT ORDER, WHICH HAS SHOWN NET PROFIT RATE OF 7% TO 12% AS PER THE UNAUDITED FINANCIAL RE SULTS PUBLISHED IN THE ECONOMIC TIMES FOR THE YEAR ENDED 31.03.2007, I T IS NOT KNOWN AS TO WHAT IS THE STATURE OF THAT COMPANY IN THE WRITI NG INSTRUMENTS MARKET SO THAT IT CAN STAND THE TEST OF COMPARISON. THE ASSESSEE GROUP, IT IS STATED BEFORE US, ENJOYS 38% SHARE IN THE WRITING INSTRUMENTS AND STATIONERY MARKET AND THUS HAS A VE RY HIGH BRAND VALUE AND GOODWILL. ITS STATURE IN THE MARKET IS VE RY HIGH AND OBVIOUSLY THEREFORE THE FIGURES CANNOT BE COMPARED WITH THOSE OF M/S TODAYS WRITING PRODUCTS LIMITED. IT IS ALSO SEEN THAT THIS COMPANY IS ALSO HAVING TRADING ACTIVITIES AND, THEREFORE, THE PRODU CT MIX IS NOT KNOWN AND THIS ALSO MAKES THE COMPARISON DIFFICULT. AS RE GARDS THE CASE OF M/S GAUTAM INDUSTRIES CITED IN THE ASSESSMENT ORDER , THERE ARE ABSOLUTELY NO DETAILS FROM WHICH IT CAN BE KNOWN AS TO WHETHER IT IS A COMPARABLE CASE AT ALL. WE DO NOT HAVE THE DETAILS OF THE TURNOVER, THE BRAND NAME, THE PRODUCT MIX, ETC. TO TEST THE VALID ITY OF THE COMPARISON. THE SAME THING HAS TO BE SAID ABOUT THE THREE OTHER COMPARABLE CASES GIVEN BY THE ASSESSING OFFICER IN THE REMAND REPORT, NAMELY, RASHMI WRITING INSTRUMENTS, PRAYAS WRITING INSTRUMENTS AND MONTEX WRITING INSTRUMENTS. THEY HAVE SHOWN NET PRO FIT PERCENTAGE OF 16.12, 17.63 AND 6.55 RESPECTIVELY. IN THE ABSENCE OF THE DETAILS OF THEIR TURNOVER, MARKET SHARE, ETC. AGAIN IT IS NOT POSSIBLE TO HAVE A COMPARISON BETWEEN THEM AND THE ASSESSEE. 14. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CITED A FEW AUTHORITIES, NAMELY, ITO VS. PCA ENGINEERS LTD. (1984) 8 ITD 518 (MUM); ITO VS. NOVEL CONSUMER PRODUCTS (P) LTD. (2006) 7 SOT 615 ( MUM) AND THE JUDGMENT OF THE SUPREME COURT IN VNM ARUNACHALA NAD AR VS. CEPT (1962) 44 ITR 352 (SC). HOWEVER, SINCE WE ARE DEALI NG WITH A FACTUAL ISSUE, IT IS NOT NECESSARY TO REFER TO THESE AUTHOR ITIES AND EXAMINE THEIR APPLICABILITY TO THE PRESENT CASE. 15. FOR THE ABOVE REASONS WE ARE SATISFIED THAT THE DECISION OF THE CIT(A) IS UNEXCEPTIONABLE. WE AGREE WITH HIS FINDIN GS AND THE ULTIMATE M/S. CELLO STATIONERY PRODUCTS ITA NO.5757/MUM./2010 6 CONCLUSION THAT THE ASSESSEE IS ENTITLED TO THE DED UCTION UNDER SECTION 80-IB IN RESPECT OF ITS ENTIRE PROFITS OF RS.8,41,8 4,226/-. 16. IN THE VIEW WE HAVE TAKEN ON THE MERITS OF THE APPLICABILITY OF SECTION 80-IA(10) READ WITH SECTION 80-IB(13), IT I S NOT NECESSARY FOR US TO CONSIDER THE LEGAL CONTENTION OF THE EARNED C OUNSEL FOR THE ASSESSEE THAT THE ASSESSING OFFICER HAS NO JURISDIC TION TO INVOKE THE ABOVE PROVISION SINCE HE HAS NOT PROVED THAT THE CO URSE OF BUSINESS BETWEEN THE ASSESSEE AND CSM WAS SO ARRANGED THAT T HE BUSINESS TRANSACTED BETWEEN THEM PRODUCED MORE THAN ORDINARY PROFITS TO THE ASSESSEE AND THAT THE WORDS BUSINESS TRANSACTED I N THE PROVISION REFERS ONLY TO THE SALES MADE BY THE ASSESSEE TO CS M. IN DECIDING THE CASE ON MERITS WE HAVE PROCEEDED ON THE ASSUMPTION THAT THE ASSESSING OFFICER RIGHTLY ASSUMED JURISDICTION UNDE R THE STATUTORY PROVISIONS NOTED ABOVE. 6. KEEPING IN VIEW THE AFORESAID DECISION OF THE TRIBU NAL, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE COMMISSION ER (APPEALS) AND DECLINE TO INTERFERE IN THE ORDER AS SUCH. CONSEQUENTLY, TH E ORDER PASSED BY THE COMMISSIONER (APPEALS) IS UPHELD. 7. GROUND NO.4, READS AS FOLLOWS:- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN ACCEPTING THE CONTENTIO N OF THE ASSESSEE THAT THE INTEREST INCOME OF ` 1,61,697 EARNED BY THE ASSESSEE IS HAVING DIRECT NEXUS WITH THE BUSINESS OF INDUSTRIAL UNDERTAKING AND IS ENTITLED TO DEDUCTION UNDER SECTION 80IB. 8. BOTH THE LEARNED REPRESENTATIVES AGREE BEFORE US TH AT THE ISSUE FOR OUR ADJUDICATION IS COVERED IN FAVOUR OF THE REVENUE AN D AGAINST THE ASSESSEE BY THE JUDGMENT OF HON'BLE SUPREME COURT IN LIBERTY IN DIA V/S CIT, [2009] 317 ITR 0218 (SC), WHEREIN THE OBSERVATIONS OF THE HON BLE COURT ARE FOLLOWS:- DUTY DRAWBACK RECEIPTS AND DEPB BENEFITS DO NOT FOR M PART OF THE NET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKINGS FOR THE PURPOSE OF THE DEDUCTION UNDER SECTION 80-I / 80-IA / 80-IB OF THE INCOME-TAX ACT, 1961. THE INCOME-TAX ACT, 1961, BROADLY PROVIDES FOR TWO TYPES OF TAX INCENTIVES, VIZ., INVESTMENT-LINKED INCENTIVES AND PROFIT-LINKED INCENTIVES. CHAPTER VI-A OF THE ACT WHICH PROVIDES FOR INCENTIVES IN THE FORM OF DEDUCTIONS ESSENTIALLY BELONGS TO THE CATEG ORY OF 'PROFIT-LINKED INCENTIVES'. THEREFORE, WHEN SECTION 80-IA / 80-IB REFERS TO PROFITS DERIVED FROM ELIGIBLE BUSINESS, IT IS NOT THE OWNER SHIP OF THAT BUSINESS WHICH ATTRACTS THE INCENTIVES: WHAT ATTRACTS THE IN CENTIVES UNDER SECTION 80-IA / 80-IB IS THE GENERATION OF PROFITS (OPERATIONAL PROFITS). IT IS FOR THIS REASON THAT PARLIAMENT HAS CONFINED DEDUCTION OF PROFITS M/S. CELLO STATIONERY PRODUCTS ITA NO.5757/MUM./2010 7 DERIVED FROM ELIGIBLE BUSINESSES MENTIONED IN SUB-S ECTIONS (3) TO (11A). EACH OF THE BUSINESSES MENTIONED IN SUB-SECT IONS (3) TO (11A) CONSTITUTES A STAND-ALONE ITEM IN THE MATTER OF COM PUTATION OF PROFITS. SECTIONS 80-IB AND 80-IA ARE A CODE BY THEMSELVES A S THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. SECTION 80-IB PROVIDES FOR THE ALLOWING OF DEDUCTIO N IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINES S. THE CONNOTATION OF THE WORDS 'DERIVED FROM' IS NARROWER AS COMPARED TO THAT OF THE WORDS 'ATTRIBUTABLE TO'. BY USING THE EXPRESSION 'DERIVED FROM' PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGR EE. SECTIONS 80-I, 80-IA AND 80-IB ARE TO BE READ AS HA VING A COMMON SCHEME. SUB-SECTION (5) OF SECTION 80-IA (WHICH IS REQUIRED TO BE READ INTO SECTION 80-IB) PROVIDES FOR THE MANNER OF COMP UTATION OF THE PROFITS OF AN ELIGIBLE BUSINESS. SUCH PROFITS ARE C OMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF T HE ASSESSEE. THEREFORE, DEVICES ADOPTED TO REDUCE OR INFLATE THE PROFITS OF THE ELIGIBLE BUSINESS HAVE TO BE REJECTED IN VIEW OF TH E OVERRIDING PROVISIONS OF SECTION 80-IA(5) . SECTIONS 80-I,80-IA AND 80-IB PROVIDE FOR INCENTIVE S IN THE FORM OF DEDUCTIONS WHICH ARE LINKED TO PROFITS AND NOT INVE STMENT. ON ANALYSIS OF SECTIONS 80-IA AND 80-IB IT BECOMES CLEAR THAT A NY INDUSTRIAL UNDERTAKING WHICH BECOMES ELIGIBLE ON SATISFYING SU B-SECTION (2) WOULD BE ENTITLED TO DEDUCTION UNDER SUB-SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AF TER THE SPECIFIED DATE. APART FROM ELIGIBILITY, SUB-SECTION (1) PURPO RTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF T HE PROFITS. THIS IS THE IMPORTANCE OF THE WORDS 'DERIVED FROM AN INDUST RIAL UNDERTAKING' AS AGAINST 'PROFITS ATTRIBUTABLE TO AN INDUSTRIAL U NDERTAKING'. DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM T HE SCHEMES FRAMED BY THE CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT,1962. INCENTIVE PROFITS ARE NOT PROFITS DERIVED FROM ELIGIBLE BUSINESS UNDER SECTION 80-IB : THEY BELONG TO THE C ATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. PROFITS DERIVED BY WAY OF INCENTIVES SUCH AS DEPB/DUTY DRAWBACK CANNOT BE CREDITED AGAINST TH E COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THEY DO NOT FALL WITHIN THE EXPRESSION 'PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING' UNDER SECTION 80-IB . DECISIONS OF THE PUNJAB AND HARYANA HIGH COURT IN L IBERTY INDIA V. CIT [2007] 293 ITR 520 AND CIT V. LAKHWINDER SINGH [200 9] 317 ITR 209 OF THE DELHI HIGH COURT IN CIT V. RITESH INDUSTRIES LTD. [2005] 274 ITR 324 AND OF THE MADRAS HIGH COURT IN SHAKTI FOOTWEAR V. CIT (NO. 2) [2009] 317 ITR 199 AFFIRMED. 9. IN VIEW OF THE AFORESAID JUDGMENT OF THE HON'BLE SU PREME COURT, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSI ONER (APPEALS) AND HOLD THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTIO N UNDER SECTION 80IB OF THE ACT. CONSEQUENTLY, THE GROUND RAISED BY THE REV ENUE IS HEREBY ALLOWED. M/S. CELLO STATIONERY PRODUCTS ITA NO.5757/MUM./2010 8 10. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY 2012 SD/- R.S. PADVEKAR JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 22 ND FEBRUARY 2012 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, C BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI M/S. CELLO STATIONERY PRODUCTS ITA NO.5757/MUM./2010 9 DATE INITIAL 1. DRAFT DICTATED ON 14.2.2012 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 16.2.2012 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 17.2.2012 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 17.2.2012 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 17.2.2012 SR.PS 6. DATE OF PRONOUNCEMENT 22.2.2012 SR.PS 7. FILE SENT TO THE BENCH CLERK 22.2.2012 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER