M/s Halycon Life Sciences Pvt. Ltd., Chandigarh V. Pr. CIT (Central), Gurgaon

ITA 578/CHANDI/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5173 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 13-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR GULSHAN RAJ
• Keywords: Business income; Assessment record
• Section: 143(3); 153A; 115JB; 80IB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCHES A, CHANDIGARH BEFORE MS. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R.KUMAR, ACCOUNTANT MEMBER ITA NO. 578/CHD/2016 ASSESSMENT YEAR: 2010-11 M/S HALYCON LIFE SCIENCES VS. THE PR. CIT (CENT RAL) SCO- 850, SHIVALIK ENCLAVE, GURGAON NAC, MANIMAJRA CHANDIGARH PAN : AADCK4208J (A PPELLANT) (RESPONDENT) APPELLANT BY : SHRI VED JAIN RESPONDENT BY : DR. GULSHAN RAJ DATE OF HEARING : 11.12.2017 DATE OF PRONOUNCEMENT : 06/03/2018 ORDER PER DR. B.R.R.KUMAR, AM: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, B Y THE PR. CIT(CENTRAL), GURGAON DT. 28/03/2016. 2. IN THE PRESENT APPEAL ASSESSEE HAS RAISED THE FO LLOWING EFFECTIVE GROUNDS: 2. THAT THE LD. PCIT(CENTRAL) HAS WRONGLY SET ASIDE THE ASSESSMENT ORDER OF THE LD. ASSESSING OFFICER UNDER SECTION 263 OF THE INCOME TAX ACT. 3. THAT THE LD. PCIT(CENTRAL) HAS WRONGLY PASSED OR DER UNDER SECTION 263 ON THE ISSUE ALREADY DECIDED BY THE ASSESSING OFFICER IN ORDER PASSED UNDER SECTION 153A(1)(B) R.W.S 143(3) OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT IN THE CASE HAS BEEN COMPLETED UNDER SECTION 153A (1) (B) BY THE DCIT, C ENTRAL CIRCLE-2 CHANDIGARH ON 03/03/2014 ACCEPTING THE RETURNED INCOME. SUBSEQ UENT TO THE PASSING OF ASSESSMENT ORDER THE LD. PCIT, CENTRAL GURGAON HAS INVOKED POWERS CONFERRED BY SECTION 263 AND PASSED AN ORDER ON 28/03/2016. T HE ORDER OF THE LD. PR. CIT PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, RE ADS AS UNDER: 2 A PERUSAL OF THE ASSESSMENT RECORDS SHOWS THAT: 'TOTAL INCOME WAS ASSESSED AT RS. 12,46,210/- AFTE R ALLOWING , DEDUCTION OF RS. 2,66,88,138/- U/S 80 IB THEREAFTER, TAX WAS CHARGED U/S 115JB ON BOOK PROFIT OF RS. 2,7,34,595/-. HOWEVER, IT APPEARS THAT THE DEDUCTIO N U/S 80IB HAS BEEN WRONGLY ALLOWED ON INCOME OTHER THAN INCOME ARISING FROM TH E BUSINESS OF AN INDUSTRIAL UNDERTAKING VIZ. EXCISE INCENTIVE, INTEREST ON FDR, MISCELLANEOUS WRITE OFF AND OTHER MISCELLANEOUS INCOME, AMOUNTING IN ALL TO RS. 4.01,69.808/-. AS PER THE PRINCIPLES LAID DOWN BY-VARIOUS COURTS, DEDUCTION U /S 80 IB IS AVAILABLE ONLY ON INCOME DERIVED FROM INDUSTRIAL UNDERTAKING AND NOT ON INCOME WHICH IS MERELY ATTRIBUTABLE TO IT. THE FAILURE ON THE PART OF THE ASSESSING OFFICER TO DRAW ADVERSE INFERENCE IN THE MATTER HAS RENDERED THE ASSESSMENT ORDER ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE 2. ACCORDINGLY, A SHOW CAUSE NOTICE WAS ISSUED TO T HE ASSESSEE VIDE THIS OFFICE LETTER F. NO. PR. CIT(C)/GGN/15-16/REVISION-9/4983 DATED 16/11/2015 WHY PROCEEDINGS U/S 263 BE NOT INITIATED. 03. THE ASSESSEE VIDE HIS LETTER DATED DECEMBER 12 TH , 2015 HAS OBJECTED TO THE PROCEEDINGS U/'S 263: (A) THAT PROCEEDINGS U/S 263 DOES NOT LIE. (B) CITED VARIOUS CASE LAWS THAT THE INCOME ARISING FRO M EXCISE INCENTIVE. INTEREST ON FDR , MISCELLANEOUS WRITE OFF AND OTHER MISCELLANEOUS INC OME, AMOUNTING TO RS. 4.01.69.808/- ARE NOT TO BE EXCLUD ED FOR THE PURPOSES OF DEDUCTION U/S 80 IB. 04. THE FACTS OF THE CASE HAVE BEEN CONSIDERED. THE DETAILS OF OTHER INCOME AMOUNTING TO RS . 4,01,69,808/- IS AS UNDER: SR. NO . PARTICULARS AMOUNT 1 EXCISE INCENTIVES 4,01,20,670/- 2. INTEREST ON FDR 18,931/- 3. MISC. W/OIT 1,222/- 4. MISC. INCOME 258,985/- TOTAL 4,01,69,808/- 05. THE HONBLE SUPREME COURT IN THE CASE OF LIBERT Y INDIA VS. CIT 317 ITR 218 (SC) HELD, ' CONTINUING OUR ANALYSIS OF SECTIONS 80-IA /80-IB IT MAY BE MENTIONED THAT SUB-SECTION (13) OF SECTION 80-IB PROVIDES FOR APPLICABILITY OF THE PROVISIONS OF SUB-SECTION (5) AND SUB-SECTIONS (7) TO (12) OF SEC TION 80-IA , SOFA-AS MAY BE, APPLICABLE TO THE ELIGIBLE BUSINESS UNDER SECTION 8 0-IB . THEREFORE, AT THE OUTSET, WE STATED THAT ONE NEEDS TO READ SECTIONS 801 , 80-IA AND 80-IB AS HAVING A COMMON SCHEME. ON PERUSAL OF SUB-SECTION (5) OF SEC TION 80-IA , IT IS NOTICED THAT IT PROVIDES FOR MANNER OF COMPUTATION OF PROFITS OF AN ELIGIBLE BUSINESS. ACCORDINGLY, SUCH PROFITS ARE TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THEREFORE, T HE DEVICES ADOPTED TO REDUCE OR INFLATE THE PROFITS OF ELIGIBLE BUSINESS HAS GOT TO BE REJECTED OF THE OVERRIDING PROVISIONS OF SUB- SECTION (5) OF SECTION 80-IA , WHICH ARE ALSO REQUIRED TO BE READ INTO SECTION S0-1B . /SEE SECTION 80-IB(13}] . WE MAY REITERATE THAT SECTIONS 801 , 80- IA AND 80-IB HAVE A COMMON SCHEME AND IF SO READ IT IS CLEAR TH AT THE SAID SECTIONS PROVIDE FOR INCENTIVES IN THE FORM OF DEDU CTION(S) WHICH ARE LINKED TO PROFITS AND NOT TO INVESTMENT. ON ANALYSIS OF SECTI ONS 80-IA AND 80-IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING, WHICH BECOME S ELIGIBLE ON SATISFYING SUB- 3 SECTION(2), WOULD BE ENTITLED TO DEDUCTION UNDER SU B-SECTION (I) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER SPECIFIED DATE(S). HENCE, APART FROM ELIGIBILITY, SUB-SECTION(L) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS THE I MPORTANCE OF THE WORDS 'DERIVED FROM INDUSTRIAL UNDERTAKING' AS AGAINST 'PROFITS AT TRIBUTABLE TO INDUSTRIAL UNDERTAKING'. PROFIT GENERATION COULD BE ON ACCOUNT OF COST CUTTI NG, COST, RATIONALIZATION, BUSINESS RESTRUCTURING, TAX PLANNING ON SUNDRY BALA NCES BEING WRITTEN BACK, LIQUIDATION OF CURRENT ASSETS ETC. THEREFORE, WE AR E OF THE VIEW THAT DUTY DRAWBACK, DEPB BENEFITS, REBATES ETC. CANNOT BE CRE DITED AGAINST THE COST OF MANUFACTURE OF GOODS; DEBITED IN THE PROFIT & LOSS ACCOUNT FOR PURPOSES OF SECTIONS 80-IA /80-IB AS SUCH REMISSIONS (CREDITS) WOULD CONSTITUTE INDE PENDENT SOURCE OF INCOME BEYOND THE FIFSCDEGREE NEXUS BETWE EN PROFITS AND THE INDUSTRIAL UNDERTAKING.' 6. FOLLOWING THE PRINCIPLE LAID DOWN BY HON'BLE SUPREM E COURT, THE EXCISE INCENTIVE. INTEREST ON FDR. MISCELLANEOUS WR ITE OFF AND OTHER MISCELLANEOUS INCOME ARE NOT INCOME 'DERIVED FROM INDUSTRIAL UNDE RTAKING.' 7. ACCORDINGLY, THE AO HAS ERRED IN ALLOWING DEDUCTION U/S 80 IB IN RESPECT OF INCOME I.E. EXCISE INCENTIVE. INTEREST O N FDR. MISCELLANEOUS WRITE OFF AND OTHER MISCELLANEOUS INCOME, AMOUNTING TO RS. 4, 01,69,808/-.THE ORDER OF THE AO FS. THEREFORE, ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 8. THE AO IS THEREFORE DIRECTED TO RECALCULATE DIE DED UCTION U/S 80 IB BY EXCLUDING THE INCOME FROM EXCISE INCENTIVE. INTE REST ON I'DR. MISCELLANEOUS WRITE OFF AND OTHER MISCELLANEOUS INCOME. THE AO IS DIRECTED TO RE-COMPUTE THE DEDUCTION U/S 80-IB AS PER AFORESAID DIRECTIONS. 4. BEFORE US THE LD. AR ARGUED THAT THE OBSERVATION S OF THE LD. PR. CIT ON EXCISE INCENTIVES AS NOT ELIGIBLE FOR DEDUCTION CAN NOT BE ACCEPTED IN VIEW OF THE VARIOUS JUDGMENTS. THE LD. AR RELIED ON THE JUD GMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S SHRI. BALAJI ALLOY S (2016) (4) TMI WHEREIN THE HONBLE SUPREME COURT DECIDED THE ISSUE OF INCENTIV E IN FAVOUR OF THE ASSESSEE BY APPLYING THE RATIO IN THE CASE OF PONNI SUGARS A ND CHEMICALS LTD. (2008) 9 SCC 377. SIMILARLY IN THE CASE OF BALAJI ALLOYS, HO NBLE PUNJAB & HARYANA HIGH COURT HAS DISMISSED THE APPEAL OF THE REVENUE IN TH E CASE OF SHIVALIK AGRO CHEMICAL LTD. 2016 (10) TMI 811. 4.1 FURTHER IN THE CASE OF CIT VS. DHARMPAL PREM CH AND LTD. 2008 (11) TMI 231 WHEREIN DELHI HIGH COURT HELD THAT EXCISE INCENTIVE IS ELIGIBLE FOR DEDUCTION AS IT WOULD CONSTITUTE PROFITS AND GAINS DERIVED FROM ANY BUSINESS. SIMILARLY IN THE CASE OF GREEN FIELD ENTERPRISES VS. ADDL. CIT(2016) (5) TMI 929 THE COORDINATE BENCH HAS TREATED EXCISE INCENTIVE AS ELIGIBLE FOR DEDUCT ION. 5. LD. CIT, DR STRONGLY RELIED ON THE ORDER OF THE LD. PR. CIT. 4 6. WE HAVE GONE THROUGH THE JUDGMENTS QUOTED AND AL SO THE ORDER OF THE PR. CIT. WE FIND THAT THE COMPANIES AVAILING THE BE NEFIT OF NOTIFICATION NO. 56/2002 CE DT. 14/11/2002 TO CENTRAL EXCISE WHICH U NDER A SPECIAL PROCEDURE THE MANUFACTURERS LOCATED IN J&K FIRST PAY EXCISE D UTY AND CESS AND THERE AFTER CLAIM THE REFUND OF THE SAME UNDER CENTRAL EXCISE T ARIFF. THUS IT MAKES AN INTEGRAL PART OF THE PROFITS OF THE BUSINESS WHICH WOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. 7. THE ORDER OF THE PR. CIT HOLDS THAT THE EXCISE I NCENTIVE IS NOT ELIGIBLE FOR DEDUCTION WHICH IS IN CONTRAVENTION WITH THE ESTABL ISHED JUDICIAL POSITION AS DETAILED ABOVE. HENCE, THE ORDER OF THE LD. PR. CIT CANNOT BE HELD TO BE VALID UNDER THIS HEAD. 8. REGARDING THE FDRS AMOUNT OF RS. 18,931/- THE L D. AR SUBMITTED THAT THE AMOUNT REPRESENTS THE INCOME FROM FDRS OPENED FOR S ALES TAX AND ELECTRICITY DEPARTMENT IN JAMMU WHICH ARE REQUIRED UNDER RESPEC TIVE LAW TO RUN BUSINESS OF THE ASSESSEE AND THEY HAVE DIRECT NEXUS WITH THE BUSINESS INCOME. SINCE THE FDRS MADE FOR THE PURPOSE OF THE BUSINESS THE INTE REST AND IS ALSO ELIGIBLE FOR DEDUCTION. THE LD. PR. CIT HAS ALSO HELD THAT THE I NTEREST ON FDRS OF RS. 18,931/- AND MISC. INCOME OF RS. 1,222/- AND INCOME OUT OF T HE SCRAP SALE OF RS. 2,58,985/- IS NOT ELIGIBLE FOR DEDUCTION UNDER CHAP TER VI-A. 9. FROM THE PERUSAL OF THE RECORD AND SUBMISSIONS I T WAS FOUND THAT THE FDRS HAVE BEEN MADE FOR THE PURPOSE OF ELECTRICITY CONNE CTION FOR THE JAMMU UNIT. SINCE THE FDRS HAVE BEEN MADE OUT OF BUSINESS COMP ULSION, THE INTEREST EARNED WOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTIO N 80IB. RELIANCE IS PLACED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF PR. CIT VS. UNIVERSAL PRECISION SCREWS IN ITA NO. 392/2015 DT. 06/10/2015 AND ALSO ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF RIVIERA HOM E FURNISHING VS. ADDL. CIT IN ITA NO. 459/2015 DT. 19/11/2015. 10. THE SALE OF SCRAP IS AN INTEGRAL PART OF THE MA NUFACTURING ACTIVITY THUS IT WOULD BE DIRECTLY RELATED TO BUSINESS AND ELIGIBLE FOR DEDUCTION. RELIANCE IS PLACED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. 5 SAADHU FORGING LTD. 336 ITR 444. SIMILARLY THE MISC . INCOME WRITTEN OFF OF RS. 1,222/- IS A PART OF THE BUSINESS INCOME AND WOULD BE ELIGIBLE FOR DEDUCTION. 11. SINCE THE ADDITIONS PROPOSED BY THE LD. PR. CIT ON ACCOUNT OF EXCISE INCENTIVES, SALE OF SCRAP, INTEREST ON FDRS ARE SQ UARELY COVERED BY THE JUDICIAL PRECEDENCES, IT CANNOT BE SAID THAT ALLOWING OF SU CH DEDUCTION BY THE ASSESSING OFFICER IS ERRONEOUS OR PREJUDICIAL TO TH E INTEREST OF REVENUE. HENCE WE FOUND NO JUSTIFICATION IN INVOKING THE PROVISIONS U NDER SECTION 263 OF INCOME TAX ACT IN RELATION TO THE ASSESSMENT DONE BY THE DCIT, CENTRAL CIRCLE-II CHANDIGARH. 12. THUS ALL THE GROUNDS TAKEN BY THE ASSESSEE ARE TREATED TO BE ALLOWED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (DR.B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 06/03/2018 AG COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR