PIONEER FOODS & AGRO INDUSTRIES, MUMBAI V. ITO WD 18(3)(4), MUMBAI

ITA 6088/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2504 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 18-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMIT KUMAR SINGH
• Assessee Lawyers: MRUGAKSHI K JOSHI
• Section: 80IB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH , MUMBAI BEFORE SHRI G. S. PANNU, ACCOUNTANT MEMBER AND SHR I PAWAN SINGH, JUDICIAL MEMBER /I.TA NOS. 6088 & 6089/MUM/2013 ( / ASSESSMENT YEARS: 2009-10 & 2010-11 M/S. PIONEER FOODS & AGRO INDUSTRIES,52, KRISHNA KUNJ, 3B, 1 ST FLOOR, 8 TH ROAD, PALI HILL, KHAR (W), MUMBAI-400 052 / VS. THE ITO, WARD-18(3)(2), MUMBAI ./ ./PAN/GIR NO. AAJFP 0506D ( /APPELLANT ) .. ( / RESPONDENT ) / ASSESSEE BY: MS. MRUGAKSHI K. JOSHI / REVENUE BY: SHRI AMIT KUMAR SINGH / DATE OF HEARING : 22.04. 2016 / DATE OF PRONOUNCEMENT : 20.07.2016 / O R D E R PER PAWAN SINGH, JM: 1. THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDERS OF THE LD. CIT(A)-29, MUMBAI DATED 20.8.2013 & 19.8.2013 RESPE CTIVELY. AS COMMON ISSUES ARE INVOLVED IN BOTH THESE APPEALS, THEY WER E HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER. 2. FOR THE SAKE OF CONVENIENCE, WE MAY REPRODUCE THE G ROUND OF APPEAL IN ITA NO. 6088/M/2013 FOR ASSESSMENT YEAR 2009-10. THIS IS AN APPEAL AGAINST THE ORDER OF THE LD. CIT (A)-29 WHO HAS ERRED IN 1. CONFIRMING THE DISALLOWANCE OF DEDUCTION U/S. 80 IB OF RS. 19,78, 309/- BY EXCLUDING DUTY DRAWBACK, VKUY LICENSE AND EXCHANGE DIFFERENCE FROM THE NET PROFIT DECLARED AS PER THE PROFIT AND LOSS ACCO UNT. ITA NO. 6088 & 6089/M/13 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF MANUFACTURING OF HONEY FILED ITS RETURN OF INCOME O N 23.9.2009 FOR ASSESSMENT YEAR 2009-10 DECLARING TOTAL INCOME AT R S. 16,432/-. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY ASSESSMENT. TH E ASSESSEE CLAIMED DEDUCTION U/S. 80IB OF THE ACT. DURING THE ASSESSME NT PROCEEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN WHY DEDUCTION U/S. 80 -IB OF THE ACT SHOULD NOT BE DISALLOWED. THE ASSESSEE FILED ITS REPLY DATED 11.07.2011 AND CONTENDED THAT ASSESSEE FIRM IS ENGAGED IN BUSINESS OF MANUFA CTURING OF HONEY AND HAS CLAIMED DEDUCTION/S 80-IB. THE ASSESSEES FACTORY IS SITUATED AT PLOT NO. H- 30, UP SIDC, KOSI KALAN DISTRICT, MATHURA, UP. THIS IS THE SECOND YEAR OF CLAIMING DEDUCTION U/S 80IB (SUB CLAUSE 11-A). CONT ENTION OF THE ASSESSEE WAS NOT ACCEPTED BY AO AND DISALLOWED THE DEDUCTION CLAIMED U/S 80IB OF THE ACT. AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A).THE LD. CIT(A) AFTE R HEARING THE SUBMISSION OF THE ASSESSEE, DISMISSED THE APPEAL CONFIRMING TH E ORDER OF THE ASSESSING OFFICER IN THE IMPUGNED ORDER DATED 20 TH AUGUST, 2013, AGAINST WHICH THE PRESENT APPEAL IS FILED BEFORE US. 4. WE HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE AND PERUSED THE ORDERS ON RECORD. LD. AR OF THE ASSESSEE ARGUED THAT THE GROUND RAISED IN THE PRESENT APPEAL ARE COVERED BY THE DECISION OF LIBERTY INDIA VS. CIT (2 009) 317 ITR 218 (SC). LD. DR FOR REVENUE SUPPORTED THE ORDER OF AUTHORITI ES BELOW. THE ISSUE BEFORE US FOR OUR CONSIDERATION HAS THREE FACETS, W HICH INCLUDE EXCLUDING OF DUTY DRAW BACK, VKUY LICENSE AND FOREIGN EXCHANGE D IFFERENCE. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE CASE IS EN TIRELY COVERED BY THE DECISION IN THE CASE OF LIBERTY INDIA VS CIT REPORT ED IN 317 ITR 218 (SC) AND THE DECISION OF JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS RACHNA UDHOG IN INCOME TAX APPEAL NO. 2394 OF 2009. ITA NO. 6088 & 6089/M/13 3 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. CIT(A) WHILE DEALING WITH THE GROUND OF APPEAL HAS OBSERVED THAT THE PROFITS EARNED ON ACCOUNT OF SALE OF VKUY LICENSE, DUTY DRAWBACK AND EXCHANGE DIFFERENCE COUL D BE SAID TO BE PROFIT DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION U/S. 80-IB OF THE ACT. HE FURTHER OBSERVED THAT WH ILE ENACTING THE SECTION 80- IB, THE LEGISLATURE HAS USED THE WORD PROFITS AND GAINS DERIVED FROM WHICH CLEARLY SPELLS OUT THE INTENTION OF THE FRAMERS OF THE SECTION THAT ONLY THOSE PROFITS WILL BE ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT, WHICH HAVE A DIRECT NEXUS WITH THE EARNING OF SUCH INCOME. THE LD. CIT (A) CONCLUDED THAT THE WORDS DERIVED FROM IS NARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO. IN OTHER WORDS, BY USING THE EXP RESSION DERIVED FROM, THE PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE AS HELD IN THE CASE OF LIBERTY INDIA VS CIT (SUPRA) AND HELD T HAT THE PROFITS DERIVED ON ACCOUNT OF SALE OF VKUY LICENSE, DUTY DRAWBACK AND EXCHANGE DIFFERENCE ARE NOT DERIVED FROM THE MANUFACTURING OR PRODUCTION AC TIVITY OF THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. THESE PROFITS HAVE NO DIRECT NEXUS WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE AND, THEREFORE, NOT ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT. THESE PROFITS BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS AND ARE NOT DIRECTLY RELATED T O THE ELIGIBLE BUSINESS OF THE ASSESSEE FIRM FOR THE PURPOSE OF SEC. 80IB OF T HE ACT AND HE FURTHER CONCLUDED THAT THE HONBLE SUPREME COURT IN THE CAS E OF LIBERTY INDIA, WHEREIN IT WAS HELD BY THE HONBLE APEX COURT THA T DUTY DRAWBACK RECEIPT/DEPB BENEFITS DO NOT FORM PART OF THE NET P ROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF SECTIONS 80-I/80-IA /80-IB OF THE ACT AND HENCE, INCENTIVES PROFITS ARE NOT PROFITS DERIVED F ROM THE ELIGIBLE BUSINESS UNDER SECTION 80-IB OF THE ACT AND THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS AND CONFIRMED THE ORD ER OF THE ASSESSING OFFICER. 6. THE HONBLE JURISDICTIONAL HIGH COURT IN ITA NO. 23 94 OF 2009 IN THE CASE OF CIT VS RACHNA UDHOG DEALT WITH THE FOLLOWING ISSUE: ITA NO. 6088 & 6089/M/13 4 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN LAW IN CONFIRMING THE ORDER OF LD. CI T(A) IN ALLOWING THE CLAIM OF DEDUCTION U/S. 80IB IN RESPECT OF INCENTIVES RECEIV ED OF RS. 1.17 CRORES (CONSISTING OF DUTY DRAWBACK OF RS. 81.51 LACS, EXP ORT ENTITLEMENT OF RS. 8.29 LACS, RS. 14.76 LACS BEING DEPB LICENSE AND EX CHANGE RATE DIFFERENCE OF RS. 13.22 LAC) WHICH WERE NOT ACTUALLY DERIVED FROM INDUSTRIAL UNDERTAKING? 7. THE HONBLE JURISDICTIONAL HIGH COURT WHILE DISCUSS ING THE RATIO OF THE DECISION OF SUPREME COURT IN THE CASE OF LIBERTY IN DIA (SUPRA) DISALLOWED THE CLAIM OF DEDUCTION U/S. 80-IB OF THE ACT VIZ. (1) DUTY DRAW BACK (2) EXPORT ENTITLEMENT (3) DEPB LICENSE. THE OPERATIVE PART O F THE DECISION ARE REPRODUCED BELOW: HOWEVER, IN SO FAR AS THE QUESTION OF DIFFERENCE I N THE RATE OF EXCHANGE IS CONCERNED, THE SUBMISSION OF THE ASSESSEE BEFORE TH E ASSESSING OFFICER WAS THAT EXCHANGE RATE FLUCTUATION FORMS PART OF THE SA LE PROCEEDS ELIGIBLE FOR DEDUCTION U/S. 80IB. ACCORDING TO THE ASSESSEE, TH E RECEIPT WAS DIRECTLY RELATED TO THE PROCESS OF CARRYING ON THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. THE EXPORT INVOICES WERE MADE IN US $ TERMS. WHEN THE SALE PROCEEDS OF GOODS EXPORTED ARE RECEIVED IN INDIA IN CONVERTIBLE FOREIGN EXCHANGE, THE RUPEE EQUIVALENT OF THE SALE PROCEEDS IS LIABLE TO VARY CONSEQUENT UPON THE FLUCTUATION IN THE RATE OF FORE IGN EXCHANGE BETWEEN THE DATE WHEN THE GOODS ARE EXPORTED AND THE DATE ON WH ICH THE SALE PROCEEDS ARE RECEIVED IN INDIA. IN OTHER WORDS, IT WAS THE CONTE NTION OF THE ASSESSEE THAT THE VALUE OF THE GOODS EXPORTED REMAINS THE SAME BUT TH E RUPEE EQUIVALENT IS LIABLE TO VARY DUE TO FLUCTUATION IN THE RATE OF FO REIGN EXCHANGE. CONSEQUENTLY, A BOOK ENTRY IS MADE IN ORDER TO ENSURE THAT THE RU PEE EQUIVALENT OF THE VALUE OF THE GOODS EXPORTED OUT OF INDIA IS CORRECTLY REF LECTED IN THE BOOKS OF ACCOUNT, SINCE THE BOOKS ARE MAINTAINED IN RUPEE TE RMS. HAVING HEARD THE LEARNED COUNSEL APPEARING ON BEHAL F OF THE APPELLANT AND LEARNED COUNSEL APPEARING FOR THE ASSESSEE, WE ARE OF THE VIEW THAT THE DIFFERENCE ON ACCOUNT OF EXCHANGE RATE FLUCTUATION IS LIABLE TO BE ALLOWED UNDER SECTION 80IB. THE EXCHANGE RATE FLUCTUATION A RISES OUT OF AND IS DIRECTLY RELATED TO THE SALE TRANSACTION INVOLVING THE EXPOR T OF GOODS OF THE INDUSTRIAL UNDERTAKING. THE EXCHANGE RATE FLUCTUATION BETWEEN THE RUPEE EQUIVALENT OF THE VALUE OF THE GOODS EXPORTED AND THE ACTUAL RECE IPTS WHICH ARE REALIZED ARISES ON ACCOUNT OF THE SALE TRANSACTION. THE DIFF ERENCE ARISES PURELY AS A RESULT OF A FLUCTUATION IN THE RATE OF EXCHANGE BET WEEN THE DATE OF EXPORT AND THE DATE OF RECEIPT OF PROCEEDS, SINCE THERE IS NO VARIATION IN THE SALE PRICE UNDER THE CONTRACT. THE VIEW WHICH WE HAVE TAKEN IS ALSO CONSISTENT WITH THE VIEW TAKEN BY A DIVISION BENCH OF THIS COURT ON 15T H DECEMBER 2009 IN THE CASE OF SYNTEL LIMITED INCOME TAX APPEAL NOS. 1974, 1976 AND 1978 OF 2009. IN THE CIRCUMSTANCES, WE WOULD AFFIRM THE JUDGMENT OF THE TRIBUNAL IN SO FAR AS THE QUESTION OF EXCHANGE RATE FLUCTUATION IS CONCER NED. 8. IN THE CASE OF LIBERTY INDIA VS CIT, THE HONBLE A PEX COURT EXAMINED THE QUESTION WHETHER DUTY DRAW BACK RECEIPTS AND DUTY EXEMPTION PASSBOOK ITA NO. 6088 & 6089/M/13 5 BENEFITS FORM PART OF THE NET PROFITS OF ELIGIBLE I NDUSTRIAL UNDERTAKING FOR THE PURPOSES OF SECTIONS 80-I/80IA/80-IB OF THE ACT AND IT WAS HELD THAT THE WORD DERIVED FROM IS NARROWER IN CONNOTATION AS C OMPARED TO THE WORDS ATTRIBUTABLE TO BY USING EXPRESSION DERIVED FROM AND HELD THAT THE CONCEPT OF REMISSION OF DUTY DRAW BACK AND DEPB DO NOT FALL WITHIN THE EXPRESSION PROFIT DERIVED FROM INDUSTRIAL UNDERTAKING IN SEC . 80-IB. THUS, THE ASSESSEE IS NOT ENTITLED FOR THE CLAIM OF DEDUCTION U/S 80IB ON THE AMOUNT OF DUTY DRAW BACK. HOWEVER, THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS RACHNA UDYOG (SUPRA) HAS ALLOWED THE DEDU CTION ON THE EXCHANGE RATE DIFFERENCE. REGARDING THE CLAIM OF DEDUCTION U/S 80IB ON THE I NCOME BY WAY OF EXCHANGE RATE DIFFERENCE, IT WAS EXPLAINED BEFORE U S THAT THE SAME ARISES FROM EXPORTS SALES MADE BY THE ASSESSEE. THEREFORE FOLLO WING THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN CASE OF RACHNA UDYOG ( SUPRA) ASSESSEES CLAIM FOR DEDUCTION W.R.T. INCOME BY WAY OF EXCHANG E RATE DIFFERENCE IS ALLOWED. IN SO FAR ASSESSEES CLAIM FOR DEDUCTION O N OTHER INCOME STATED ABOVE IS CONCERNED, IT IS CLEARLY DENIABLE ON THE B ASIS OF AFORESAID JUDGMENT IN THE CASE OF RACHNA UDYOG (SUPRA) WHICH IN TURN I S BASED ON THE JUDGMENT OF LIBERTY INDIA (SUPRA) IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 6089/M/2013 A.Y. 2010-11 9. THE ISSUE INVOLVED IN THIS APPEAL IS IDENTICAL WITH THE ISSUE IN ITA NO. 6088/M/13, THOUGH QUANTUM MAY DIFFER, THEREFORE, ON SIMILAR LINES AND SIMILAR REASONS, THE APPEAL FILED BY THE ASSESSEE I N ITA NO. 6089/M/13 FOR ASSESSMENT YEAR 2010-11 IS ALSO PARTLY ALLOWED. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESS EE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JULY, 2016. SD/- SD/- (G.S. PANNU) (PAWAN SINGH ) / ACCOUNTANT MEMBER # $ /JUDICIAL MEMBER MUMBAI; ' DATED : 20 TH JULY, 2016 ITA NO. 6088 & 6089/M/13 6 SK. PS !' #' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ( ) / THE CIT(A)- 4. ( / CIT 5. )* + $$,- , ,- , / DR, ITAT, MUMBAI 6. + ./ / GUARD FILE. / BY ORDER, ) $ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI