DCIT 24(2), MUMBAI V. SILVASSA WOODEN DRUMS, MUMBAI

ITA 5782/MUM/2013

• Counselvise Citation: 578219914 RSA 2013
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2005-2006
• Appeal Filed On: 25-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 80IB; 148

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - E BENCH , !' , ! BEFORE S/SH.JOGINDER SINGH, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.5781/MUM/2013, # # # # $ $ $ $ / ASSESSMENT YEAR-2004-05 DCIT - 24(2 ), C - 13, 6TH FLOOR, PRATYAKSHA KAR BHAVAN, BKC, BANDRA(EAST), MUMBAI-400051. # VS. M/S SILVASSA WOODEN DRUMS, C-202, PANCHWATI GARDENS, RAHEJA TOWNSHIP, MALAD(E), MUMBAI-400097. PAN: AAOFS8319L ( %& / APPELLANT) ( '(%& / RESPONDENT) /. ITA NO.5782/MUM/2013, # # # # $ $ $ $ / ASSESSMENT YEAR-2005-06 DCIT-24(2), C-13, 6TH FLOOR, PRATYAKSHA KAR BHAVAN, BKC, BANDRA(EAST), MUMBAI-400051. # VS. M/S SILVASSA WOODEN DRUMS, C-202, PANCHWATI GARDENS, RAHEJA TOWNSHIP, MALAD(E), MUMBAI-400097. PAN: AAOFS8319L ( %& / APPELLANT) ( '(%& / RESPONDENT) ) * ! / REVENUE BY : SHRI NEIL PHILIP #+, #+, #+, #+, * * * * ! !! ! / BY :SHRI DHARMESH SHAH # # # # ) )) ) ,- ,- ,- ,- / DATE OF HEARING :09 -02-2015 .$ ) ,- / DATE OF PRONOUNCEMENT :09 -02-2015 # # # # , 1961 ) )) ) 254(1) ! !! ! ,, ,, ,, ,, !/ !/ !/ !/ ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. ! !' ! # : CHALLENGING THE ORDERS DATED 11.06.2013 OF THE CIT( A)-43, MUMBAI, THE ASSESSING OFFICER (AO) HAS RAISED FOLLOWING IDENTICAL GROUNDS OF APPEAL FO R BOTH THE ASSESSMENT YEARS. I)'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO INCLUDE THE INCO ME ARISING OUT OF SALES OF SCRAP AS ELIGIBLE FOR DEDUCTION U/S 801B IGNORING THE FACT THAT THE INCOM E FROM SALE OF SCRAP IS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING AS CONTEMPLATED U/S 80113(3) AND NOT ELIGIBLE FOR DEDUCTION U/S 80IB.' II)'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF DEDUCTION U/S 80IB ON THE INC OME DERIVED FROM SALE OF SCRAP IGNORING THE DECISION OF THE HON'BLE ITAT 'G' BENCH, MUMBAI WHER EIN RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA V/S CIT (2009) 317 ITR 218 (SC) THE HON'BLE ITAT IN THE CASE OF ACIT V/S ZENITH WIRE INDUSTRIES (2012) 330CH 890 HELD THAT SALE OF SCRAP AND JOB WORK RECEIPTS ARE NOT INCOME DERIVED FROM I NDUSTRIAL UNDERTAKING AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S 80IB' III)'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER A NY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' ITA NO. 5781/MUM/2013 AY 2004-05 2 ITA NO. 5781 & 5782/MUM/2013 M/S. SILVASSA WOODEN D RUMS 2. -FIRM, ENGAGED IN THE BUSINESS OF GALVANIZING OF ST EEL TAPE AND CR STRIPS, FILED ITS RETURN OF INCOME ON 28.11.2004 DECLARING TOTAL INCOME OF RS. 2.52 LAKHS. IT MADE A CLAIM OF RS. 78 LAKHS U/S.80IB OF THE ACT.ASSESSMENT WAS COMPLETED U/S.14 3(3) OF THE ACT ON 29.03.2006 DETERMINING THE INCOME OF THE AT RS. 2,52,191/- ALLOWING THE DEDUC TION U/S. 80IB. SUBSEQUENTLY, CASE WAS REOPENED U/S.147 OF THE ACT.THE AO ISSUED A NOTICE U/S 148 O F THE ACT DATED 02.01.2009. IN RESPONSE TO THE SAID NOTICE FILED A LETTER ON 06.11.2009 STATING T HAT THE ORIGINAL RETURN OF INCOME SHOULD BE TREATED AS RETURN FILED IN COMPLIANCE OF NOTICE U/S 148 OF THE ACT. THE AO COMPLETED THE ASSESSMENT,ON 21.12.2009,DETERMINING THE INCOME OF THE AT RS. 80 .52 LAKHS. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THA T THE ASSESSEE HAD SHOWN SALE (DOMESTIC) OF RS. 12.06 CRORES. HE DIRECTED IT TO EXPLAIN AS TO W HETHER THE SALE INCLUDED SCRAP SALE AND JOB RECEIPTS. IN RESPONSE TO THE QUERY RAISED BY,THE A DMITTED THAT THE SALE INCLUDED SCRAP SALES OF RS. 2 3, 15,671/-AND IT WAS CLAIMED THAT THE SCRAP SALES CON STITUTED PART OF THE SALE.THE AO,AFTER CONSIDERING THE EXPLANATION OF THE ,HELD THAT THE RECEIPT ON AC COUNT OF SALE OF SCRAP HAD NO DIRECT LINK AND NEXUS WITH THE 'S BUSINESS ACTIVITY, THAT IT WAS ONLY INC IDENTAL TO ITS BUSINESS, THAT MERE TECHNICAL OR COMMERCIAL GAIN OF THE SCRAP TO THE MANUFACTURED PR ODUCT COULD NOT BE TREATED AS INCOME OF INDUSTRIAL UNIT FROM THE ELIGIBLE BUSINESS, THAT AS PER THE PROVISIONS OF SECTION 80IB OF THE ACT THAT DEDUCTION WAS ALLOWABLE FROM PROFITS /GAINS DERIVED FROM ELIGIBLE BUSINESS, THAT THE RECEIPT ON ACCOUNT OF SCRAP SALE COULD NOT BE HELD TO CONSTITU TE PROFIT FROM INDUSTRIAL UNIT.THE AO REFERRED TO CASES OF STERLING FOODS (237 ITR 579), CAMBAY ELECT RIC SUPPLY INDL. CO. LTD. (113 ITR 84), STANDARD MOTOR PRODUCTS OF INDIA LTD. (46 ITR 614), MADRAS MOTOR LTD. (257 ITR 60). FINALLY, HE HELD THAT RECEIPT/INCOME ON ACCOUNT OF SALE OF SCRA P AT RS. 23.15 LAKHS WAS NOT DERIVED FROM THE INDUSTRIAL UNIT ELIGIBLE FOR DEDUCTION U/S. 80IB AN D WAS TO BE ADDED TO THE TOTAL INCOME OF THE FOR THE YEAR UNDER CONSIDERATION. 3. IN THE APPELLATE PROCEEDINGS,BEFORE THE FIRST APPEL LATE AUTHORITY (FAA),THE CONTENDED THAT SCRAP WAS GENERATED DURING THE COURSE OF MANUFACTURING TH AT INVOLVED VARIOUS PROCESS, THAT IT GENERATED DIFFERENT TYPE OF SCRAPS E.G. LEAD END OF RAW-MATER IAL, SLITTED PORTION OF HR AND CR COIL, MELTING SCRAP.IT WAS ALSO ARGUED THAT SCRAP OF ZINC WAS GEN ERATED IN GALVANIZING PROCESS, THAT SCRAP MATERIAL WOULD ARISE OUT OF SAME RAW-MATERIAL HAVING SAME ID ENTITY AND USE, THAT IT WAS GENERATED FROM THE MANUFACTURING PROCESS AND HAD TO BE CONSIDERED AS P RODUCT HAVING LESSER VALUE, THAT IT WAS NOT BYPRODUCT HAVING DIFFERENT USES OR IDENTITY,THAT TH E SCRAP WAS NOT THE NOMENCLATURE GIVEN FOR UNUSABLE FINISHED PRODUCTS. IT WAS FURTHER ARGUED A LTERNATIVELY THAT SALE OF SCRAP WAS NOTHING BUT REDUCTION IN COST OF RAW-MATERIAL CONSUMED,THAT IT IN TURN INCREASED THE MANUFACTURING PRODUCTS ELIGIBLE FOR DEDUCTION U/S 80IB,THAT IT DIRECTLY RE DUCED THE COST OF RAW-MATERIAL CONSUMED AND INCREASED MANUFACTURING PRODUCT. THE RELIED UPON T HE CASES OF SADHU FORGING LTD.(366 ITR444),FEENER INDIA LTD. (241 ITR 803),HARJIVANDAS JUTHABHAI ZAVERI & ANR (258 ITR 785). AFTER CONSIDERING THE SUBMISSION OF THE AND THE AS SESSMENT ORDER, THE FAA HELD THAT INCOME OUT OF SALE OF SCRAP WOULD ARISE OUT OF THE MANUFACTURING PROCESS OF THE INDUSTRIAL UNDERTAKING, THAT THERE WERE VARIOUS PROCESS INVOLVED IN MANUFACTURED AND G ALVANIZED WIRES/STRIPS, THAT THERE WERE VARIOUS KINDS OF SCRAP GENERATED IN EACH STAGE OF MANUFACTU RING PROCESS, THAT SCRAP WAS NOTHING BUT DEFECTIVE/REJECTED INTERMEDIATE PRODUCT GENERATED D URING THE MANUFACTURING PROCESS, THAT MANUFACTURING PROCESS INVOLVED WAS SAME FOR BOTH TH E REGULAR PRODUCT AND THE SCRAP, THAT SCRAP ARE GENERATED OUT OF THE MANUFACTURING ACTIVITY AND SAL E OF SCRAP AND THE INCOME ARISING OUT OF IT WAS ESSENTIALLY DERIVED MANUFACTURING ACTIVITY OF THE I NDUSTRIAL UNDERTAKING, THAT SAME WAS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. HE REFERRED TO THE J UDGMENT OF HON'BLE DELHI HIGH COURT DELIVERED 3 ITA NO. 5781 & 5782/MUM/2013 M/S. SILVASSA WOODEN D RUMS IN THE CASE OF SADHU FORGING LTD.(SUPRA) AND THE MA TTER OF SAHANI COMPUTERS LTD. OF HON'BLE KARNATAKA HIGH COURT (203 TAXMANN 37).FINALLY,HE DI RECTED THE AO TO INCLUDE THE INCOME EARNED OUT OF THE SALE OF SCRAP WHILE COMPUTING THE DEDUCT ION U/S 80IB OF THE ACT. 4.BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTE D THE ORDER OF THE AO. AUTHORISED REPRESEN -TATIVE(AR) SUBMITTED THAT SCRAP WAS GENERATED OUT OF THE MANUFACTURING ACTIVITY OF THE AND WAS DIRECTLY LINKED WITH SUCH ACTIVITIES. HE RELIED UPO N THE CASES OF DONEAR INDUSTRIES LTD. (ITA NO. 6715/MUM/2010 DT. 06.09.13),GRAUER AND MEIL INDIA L TD. (ITA NO. 782/MUM/2010 DT. 30.09.10),M/S. TAURUS INDIA LTD. (ITA NO. 3815/DEL/ 2009 DT. 05.11.09),T.T.G.INDUSTRIES LTD. (TC (A) NO. 677 OF 2005 DT. 25.04.12),JAKAR A. SAIYED ( 42 TAXMANN.COM 403),MODI ZEROX LTD (365 ITR 200)AND METALMAN AUTO P. LTD. (336 ITR 434) 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT PROVISIONS OF SECTION 80IB STIPULATE THAT PROFIT SHOULD BE DER IVED FROM EILGIBLE BUSINESS OF THE INDUSTRIAL UNDERTAKING. IN OUR OPINION FOR CLAIMING DEDUCTION U/S 80-IB DIRECT NEXUS BETWEEN THE ACTIVITIES OF THE INDUSTRIAL UNDERTAKING AND PROFITS/GAINS IS NOT A PRE-CONDITION.THEREFORE, INCOME GENERATED OUT OF THE SALE OF SCRAP IS PART OF ACTIVITIES CARRIED OUT BY THE -FIRM AND IS ELIGIBLE FOR DEDUCTION U/S 80IB.WE FIND THAT HON'BLE DELHI HIGH COURT IN THE C ASE OF SADHU FORGING LTD.(SUPRA) HAS HELD AS UNDER: WITH THE CONSENT OF THE COUNSEL FOR THE PARTIES, WE HAVE HEARD THE MATTER FINALLY. TO ANSWER THE QUESTIONS IN BOTH THE APPEALS, WE NEED TO CONSIDER, FIRSTLY, AS TO WHETHER THE SCRAP, GENERATED AT VARIOUS STAGES OF MANUFACTURING PROCESS, WAS PART O F MANUFACTURING ACTIVITY OF THE INDUSTRIAL UNIT AND THUS REPRESENTED PROFITS AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING ON THIS ACCOUNT WERE ENTITLED TO DEDUCTION UNDER SECTION 80-IB. .. THERE CANNOT BE ANY TWO OPINIONS THAT MANUFACTURIN G ACTIVITY OF THE TYPE OF MATERIAL BEING UNDERTAKEN BY THE WOULD ALSO GENERATE SCRAP IN THE PROCESS OF MANUFACTURING. THE RECEIPTS OF SALE OF SCRAP BEING PART AND PARCEL OF THE ACTIVITY AND BEING PROXIMATE THERETO WOULD ALSO BE WITHIN THE AMBIT OF GAINS DERIVED FROM THE INDUSTRIAL UNDERTAK ING FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80-IB. CONSIDERING THE ABOVE,WE HOLD THAT SCRAP GENERATION WAS PART OF MANUFACTURING ACTIVITIES OF THE INDUSTRIAL UNDERTAKING RUN BY THE .THEREFORE, CONFI RMING THE ORDER OF THE FAA,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. THE CASE S RELIED UPON BY THE AR ALSO SUPPORT THE VIEWS TAKEN BY US. ITA NO. 5782 MUM 2013 FACTS AND CIRCUMSTANCES OF THE CASE FOR THE YEAR UN DER APPEAL ARE IDENTICAL TO THE FACTS OF THE AY 2004-05. FOLLOWING OUR ORDER FOR PREVIOUS YEAR, WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO FOR BOTH THE AY .S. STAND DISMISSED. 1,2 #+, 3 4 ) #5 #..) 7 #8 ) , 9 . ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH ,FEBRUARY,2015. !/ ) .$ ! 7 :# 9, 1- , ,, , 201 5 ) @ SD/- SD/- ( /JOGINDER SINGH) ( !' / RAJENDRA) / JUDICIAL MEMBER ! ! ! ! / ACCOUNTANT MEMBER / MUMBAI, :# /DATE:09.02.2015 4 ITA NO. 5781 & 5782/MUM/2013 M/S. SILVASSA WOODEN D RUMS SK !/ !/ !/ !/ ) )) ) ',A ',A ',A ',A B!A$, B!A$, B!A$, B!A$, / COPY OF THE ORDER FORWARDED TO : 1. / %& 2. RESPONDENT / '(%& 3. THE CONCERNED CIT(A)/ C D , 4. THE CONCERNED CIT / C D 5. DR E BENCH, ITAT, MUMBAI / AE ',# , . . . 6. GUARD FILE/ 1 (A, ', //TRUE COPY// !/# / BY ORDER, F / DY./ASST. REGISTRAR , /ITAT, MUMBAI