Vesuvius India Limited, Kolkata V. DCIT, Circle - 10, Kolkata, Kolkata

ITA 614/KOL/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4059 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 06-10-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 21-04-2011
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL
• Keywords: Business income; Advance ruling
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI A.T.VARKEY, JM & DR. A.L.SAINI, AM ./ ITA NOS.613&614/KOL/2011 ( / ASSESSMENT YEAR:2003-04 & 2004-05) VESUVIUS INDIA LIMITED, P-104, TARATOLLA ROAD, KOLKATA-700088 VS. DY.COMMISSIONER OF INCOME TAX CIRCLE-10, KOLKATA ./ ./PAN/GIR NO. : AAACV8995Q ( /APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : SHRI SOUMEN ADAK, FCA REVENUE BY : SHRI RAJAT KUMAR KUREEL, JCIT SR. D R / DATE OF HEARING : 19/12/2016 /DATE OF PRONOUNCEMENT 28/12/2016 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED TWO APPEALS FILED BY THE ASSESSEE, PE RTAINING TO ASSESSMENT YEARS 2003-04 & 2004-05, ARE DIRECTED AG AINST THE ORDERS PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)- XII, KOLKATA, IN APPEAL NO.212/CIT(A)-XII/CIR-10/07-08, DATED 18-01- 2011, & APPEAL NO.210/ CIT(A)-XII/CIR-10/07-08, DATED 19-01-2011, WHICH IN TURN ARISE OUT OF ASSESSMENT ORDERS PASSED U/S.143(3) OF THE INCOM E TAX ACT, 1961 (IN SHORT THE ACT) DATED 30.03.2006 AND 29.12.2006, R ESPECTIVELY. 2. THE CAPTIONED ARE TWO APPEALS, PREFERRED BY ASSE SSEE PERTAINING TO ASSESSMENT YEARS 2003-04 AND 2004-05. SINCE THESE A PPEALS RELATE TO THE SAME ASSESSEE, DIFFERENT ASSESSMENT YEARS, THE COMMON ISSUES INVOLVED, THEREFORE, THESE HAVE BEEN CLUBBED AND HE ARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. THE APPEAL IN ITA NO.613/KOL/2011 PERTAI NING TO ASSESSMENT YEAR 2003-04 IS TAKEN AS A THE LEAD CASE. ITA NOS.613&614/11 VESUVIUS INDIA LIMITED 3 (C) WITHOUT PREJUDICE TO THE ORIGINAL CLAIM OF DEDU CTION U/S.80IB MADE IN THE RETURN OF INCOME, THE ASSESSEE FURTHER SUBMITTED THAT RE-ASSESSMENT PROCEEDINGS IS INITIATED TO RECOMPUTE THE CORRECT AMOUNT OF DEDUCTION U/S.80-IB BY EXCLUDING CERTAIN INCOME, WHICH ACCORDING TO THE REVENUE IS NOT DERIVED FROM THE BU SINESS OF INDUSTRIAL UNDERTAKING. THUS, IT WAS SUBMITTED THAT IF OTHER INCOMES ARE EXCLUDED AND DEDUCTION U/S.80IB IS RECOMPUTED T HEN THE SAME SHOULD BE DONE ONLY BY CONSIDERING THE INCOME AND E XPENSES WHICH HAVE DIRECT AND IMMEDIATE NEXUS WITH THE INDU STRIAL UNDERTAKING. IN SUPPORT OF THEIR CONTENTION RELIANC E IS PLACED ON THE DECISION OF THE AUTHORITY OF ADVANCE RULING IN THE CASE OF NATIONAL FERTILIZERS LTD. IN RE (2005) 142 TAXMAN 5 (AAR-NEW DELHI). TOWARDS THIS THE ASSESSEE HAS SUBMITTED MODIFIED AC COUNTS OF THE TARATOLLA UNIT, DULY CERTIFIED BY CHARTERED ACCOUNT ANT, CONSIDERING THE INCOME AND EXPENSES WHICH HAVE DIRECT AND IMMED IATE NEXUS WITH THE INDUSTRIAL UNDERTAKING. I HAVE SINCE EXAMINED THE SUBMISSION OF THE ASSESSE E AND I DO NOT FIND MERIT IN THE CONTENTIONS RAISED BY THE ASSESSE E, IN VIEW OF EXPRESS PROVISION OF SEC.80-IB. THE HEADS OF INCOME BEING COMMISSION, INTEREST FROM BANKS AND OTHER SERVICE C HARGES, MISC. INCOME HAVE NOT BEEN DERIVED FROM THE ASSESSEE'S UN DERTAKING AGAINST WHICH DEDUCTION U/S.80IB IS AVAILABLE. IN T HE SAID SCENARIO, THE SAID INCOME CANNOT FORM PART OF THE TOTAL INCOM E OF THE ASSESSEE SUBJECT TO DEDUCTION U/S.80IB. HENCE, THE SAME ARE NOT ACCEPTED. 4. AGGRIEVED FROM THE ORDER OF ASSESSING OFFICER, T HE ASSESSEE FILED AN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TA X (APPEALS), WHO HAS CONFIRMED THE ORDER PASSED BY LD. AO OBSERVING THE FOLLOWINGS :- 20. I HAVE CONSIDERED THE SUBMISSION OF THE APPELL ANT AND PERUSED THE ASSESSMENT ORDER. DURING THE YEAR UNDER CONSIDERATION THE APPELLANT HAS EARNED COMMISSION INCOME OF RS. 5 ,09,000/-, INTEREST FROM BANKS AMOUNTING TO RS. 8,72,000/-, IN TEREST FROM OTHERS AMOUNTING TO RS. 46,73,000/- AND MISC. INCOM E OF RS. 6,34,000/-. THE AFORESAID INCOME WAS INCLUDED BY TH E APPELLANT IN THE PROFIT AND GAINS OF BUSINESS OF ELIGIBLE UNDERT AKING AND CONSIDERED THE SAME FOR THE PURPOSE OF DEDUCTION U/ S. 80IB OF THE ACT. ON THE OTHER HAND, THE A.O, WAS OF THE OPINION THE AFORESAID INCOME HAS NOT BEEN DERIVED BY THE APPELLANT FROM T HE ELIGIBLE BUSINESS AND THEREFORE, THE DEDUCTION U/S 80IB IS N OT ALLOWABLE ON THEM. DURING THE COURSE OF APPELLATE PROCEEDINGS IT WAS CONTENDED BY THE APPELLANT THAT IN THE RELEVANT PREVIOUS YEAR IT HAS EARNED COMMISSION INCOME TO THE TUNE OF RS. 5,09,000/- AS THE APPELLANT HAD BEEN APPOINTED AS THE NON-EXCLUSIVE AGENT BY SO ME OF ITS FOREIGN PRINCIPALS AND ITS ASSOCIATES IN RESPECT OF SELL OF COMMON ITA NOS.613&614/11 VESUVIUS INDIA LIMITED 5 INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGR EE. IN THE CASE OF CIT VS. MENON LMPEX PVT. LTD. REPORTED IN 259 IT R 403 (MAD), IT WAS HELD BY THE HON'BLE MADRAS HIGH COURT THAT THE INTEREST RECEIVED BY THE ASSESSEE WAS ON DEPOSITS MADE BY IT IN THE BANKS. IT IS THAT DEPOSIT WHICH IS THE SOURCE OF INCOME. T HE MERE FACT THAT THE DEPOSITS MADE WAS FOR THE PURPOSE OF OBTAINING LETTERS OF CREDIT WHICH IN TURN USED FOR THE PURPOSE OF BUSINESS OF T HE INDUSTRIAL UNDERTAKING DOES NOT ESTABLISH A DIRECT NEXUS BETWE EN THE INTEREST AND THE INDUSTRIAL UNDERTAKING. THE SIMILAR VIEW WA S TAKEN BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF INDIACOMNE T INTERNATIONAL REPORTED IN 304 ITR 322. IN THIS CASE, THE ASSESSEE RECEIVED THE EXPORT PROCEEDS AND THE SAME WAS DEPOSITED IN THE B ANK AND THE INCOME WAS DERIVED FROM THE SAID DEPOSIT. IT WAS HE LD BY THE HON'BLE HIGH COURT THAT THERE WAS NO DIRECT NEXUS B ETWEEN INTEREST AND THE INDUSTRIAL UNDERTAKING. IN THE CASE OF SHRI RAM HONDA POWER EQUIPMENT REPORTED IN 289 ITR 475 IT WAS HELD BY THE HONBLE DELHI HIGH COURT THAT THE INTEREST EARNED O N FIXED DEPOSITS FOR THE PURPOSE OF AVAILING OF CREDIT FACILITIES FR OM THE BANK, DOES NOT HAVE AN IMMEDIATE NEXUS WITH THE EXPORT BUSINESS AN D THEREFORE, HAS TO NECESSARILY BE TREATED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. RECENTLY, THE HONBLE APEX COURT I N THE CASE OF LIBERTY INDIA VS. CIT, REPORTED IN 317 ITR 218 (SC) HAS OBSERVED AND HELD AS UNDER :- .. DUTY DRAWBACK RECEIPTS AND DEPB BENEFITS DO NOT FORM PART OF THE NET PROFITS OF ELIGIBLE INDUSTRIAL UNDE RTAKINGS FOR THE PURPOSE OF THE DEDUCTION UNDER SECTION 80-I/80-IA/8 0-IB OF THE INCOME-TAX ACT, 1961. THE INCOME-TAX ACT. 1961, BROADLY PROVIDES FOR TWO TYPES OF TAX INCENTIVES, VIZ. INVESTMENT-LINKED INCENTIVES A ND PROFIT- LINKED INCENTIVES. CHAPTER VIA OF THE ACT WHICH PRO VIDES FOR INCENTIVES IN THE FORM OF DEDUCTIONS ESSENTIALLY BE LONGS TO THE CATEGORY OF 'PROFIT-LINKED INCENTIVES'. THEREFO RE, WHEN SECTION 80-I/80-IA/80-IB REFERS TO PROFITS DERIVED FROM ELIGIBLE BUSINESS, IT IS NOT THE OWNERSHIP OF THAT BUSINESS WHICH ATTRACTS THE INCENTIVES : WHAT ATTRACTS THE INCENTI VES UNDER SECTION 80-IA/80-IB IS THE GENERATION OF PROFITS (O PERATIONAL PROFITS). IT IS FOR THIS REASON THAT PARLIAMENT HAS CONFINED DEDUCTION OF PROFITS DERIVED FROM ELIGIBLE BUSINESS MENTIONED IN SUB-SECTIONS (3) TO (11A). EACH OF THE BUSINESSE S MENTIONED IN SUB-SECTIONS (3) TO (11 A) CONSTITUTES A STAND- ALONE ITEM IN THE MATTER OF COMPUTATION OF PROFITS. SECTIONS 80-IB AND 80-IA ARE A CODE BY THEMSELVES A S THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROV ISIONS. SECTION 80-IB PROVIDES FOR THE ALLOWING OF DEDUCTIO N IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGI BLE BUSINESS. THE CONNOTATION OF THE WORDS 'DERIVED FRO M' IS NARROWER AS COMPARED TO THAT OF THE WORDS 'ATTRIBUT ABLE TO'. ITA NOS.613&614/11 VESUVIUS INDIA LIMITED 7 5. NOT BEING SATISFIED WITH THE ORDER OF LD. CIT(A) , THE ASSESSEE IS IN FURTHER APPEALS BEFORE US AND HAS TAKEN THE FOLLOWI NG GROUNDS OF APPEAL :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED RATHER GROSSLY ERRED IN NOT ALLOWING DEDUCTION CLAIMED ON ACCOUNT OF TOOLINGS PURCHASED AND UTILISED FOR PRODUCTION DURING THE YEAR AMOUNTING TO RS.1,30,60, 000/-. 2(A). THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED RATHER GROSSLY ERRED IN EXCLUDING OTHER INCOME COMPRISING OF COMMISSION OF RS.5,09,00 0/- INTEREST FROM BANK OF RS.8,72,000/-, INTEREST FROM OTHERS OF RS.46,73,000/- AND MISCELLANEOUS INCOME OF RS. 6,34,000/- IN COMPU TING PROFITS AND GAINS OF BUSINESS OF THE UNDERTAKING ELIGIBLE F OR DEDUCTION U/S.80IB. 2(B). THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN FACTS AND LAW IN DENYING THE CLAIM OF THE APPELLANT TO EXCLUDE NET OF THE AFORESAID OTHER INC OME AND NOT GROSS OF THE AFORESAID INCOME FROM THE PROFITS AND GAINS OF BUSINESS OF THE ELIGIBLE UNDERTAKING. 2(C). THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND WITHOUT PREJUDICE TO GROUND NO. 2(A) AND 2(B) TAKEN HERE-IN ABOVE, THE LD. CIT(APPEALS) ERRED IN NOT RE-COMPUTING PROF ITS AND GAINS OF BUSINESS OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/ S 80LB BY CONSIDERING ONLY THE INCOME AND EXPENDITURE ATTRIBU TABLE TO THE SAID UNDERTAKING. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED RATHER GROSSLY ERRED IN NOT DECIDING THE GROUND AGAINST ERRONEOUS IMPOSITION OF INTEREST U/S 234C OF RS.19,78,434/- ON MERITS AND HOLDING THAT THE SAME IS CONSEQUENTIAL IN NATURE. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND , MODIFY, RESCIND, SUPPLEMENT OR ALTER ANY OF THE GROUNDS STA TED HERE-IN- ABOVE, EITHER BEFORE OR AT THE TIME OF HEARING OF T HIS APPEAL. ALTHOUGH, IN THIS APPEAL, THE ASSESSEE HAS RAISED M ULTIPLE GROUNDS OF APPEAL BUT AT THE TIME OF HEARING THE MAIN GRIEV ANCE OF THE ASSESSEE HAS BEEN CONFINED TO GROUND NO.2(A). GROUN D NO.1, GROUND NO.3 AND GROUND NO.4 WERE NOT PRESSED BY THE ASSESSEE. 6. THE MAIN GRIEVANCE OF THE ASSESSEE IN THIS APPEA L IS THAT THE AO AS WELL AS CIT(A) DID NOT ALLOW THE COMMISSION I NCOME OF ITA NOS.613&614/11 VESUVIUS INDIA LIMITED 9 PURPOSE OF COMPUTATION OF DEDUCTION U/S.80IB OF THE ACT, IN VIEW OF THE PRINCIPLE LAID DOWN IN THE CASE OF LIBERTY INDIA VS . CIT (2009) 317 ITR 218(SC). HOWEVER, LD. AR SUBMITTED BEFORE US THAT I NTEREST FROM OTHERS RS.46,73,000/-, WHICH RELATES TO INTEREST ON LATE PAYMENT RECEIVED FROM TRADE DEBTORS, SHOULD BE INCLUDED FOR THE PURPOSE O F COMPUTATION OF DEDUCTION U/S 80IB. THAT IS, THE AMOUNT OF RS.46,76 ,000/- REPRESENTS PRIMARILY INTEREST ON DELAYED PAYMENT RECEIVED FROM TRADE DEBTORS. THE ASSESSEE HAS RELIED ON THE DECISION IN THE CASE OF VIDYUT CORPORATION (2010) 324 ITR 221 (BOM), WHEREIN IT HAS BEEN HELD THAT INTEREST TOWARDS DELAYED PAYMENT OF THE PRICE OF THE GOODS SOLD, FOR MS A COMPONENT OF SALE PRICE AND IS ELIGIBLE FOR DEDUCTION UNDER SECT ION 80IB OF THE ACT. FOR MISCELLANEOUS INCOME OF RS.6,34,000/-, LD. AR H AS POINTED OUT THAT IT REPRESENTS FOR SALE OF SCRAP WHICH WAS GENERATED IN THE COURSE OF MANUFACTURING PROCESS AND THUS, IT IS VERY MUCH A P ART OF ELIGIBLE PROFIT OF THE INDUSTRIAL UNDERTAKING. THEREFORE, IT SHOULD BE ALLOWED TO COMPUTE THE DEDUCTION U/S.80IB OF THE ACT. THE LD. AR HAS RELIE D ON THE JUDGMENT IN THE CASE OF SADHU FORGINGS LTD. (2011) 336 ITR 444 (DEL), WHEREIN IT HAS BEEN HELD THAT RECEIPTS FROM SALE OF SCRAP BEING PA RT AND PARCEL OF THE MANUFACTURING PROCESS AND BEING PROXIMATE THERETO W ILL ALSO BE WITHIN THE AMBIT OF GAINS DERIVED FROM INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80IB. THE LD. AR FOR THE AS SESSEE HAS ADMITTED THAT COMMISSION OF RS.5,09,000/- AND INTEREST FROM BANK RS.8,72,000/- MAY NOT BE ALLOWED FOR THE PURPOSE OF COMPUTING DED UCTION U/S.80IB IN ITA NOS.613&614/11 VESUVIUS INDIA LIMITED 11 SUPPORTED BY THE JUDGMENTS OF HONBLE HIGH COURTS A ND HONBLE SUPREME COURT (SUPRA). AS HE HAS POINTED OUT THAT SCRAP WHI CH IS PART OF MANUFACTURING PROCESS OF THE UNDERTAKING AND INTERE ST RECEIVED FROM SUNDRY DEBTORS WHICH IS PART OF THE SALE OF THE UND ERTAKING, SHOULD BE ALLOWED FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80IB. HOWEVER, LD. DR FOR THE REVENUE HAS OBJECTED THAT IN ORDER TO DETER MINE THE TRUE NATURE OF INTEREST RECEIVED FROM DEBTORS AND SCRAP SALES, THE CASE SHOULD BE REMITTED BACK TO THE AO FOR HIS VERIFICATION. THAT IS, LD. DR HAS POINTED OUT THAT IT IS DOUBTFUL THAT INTEREST FROM OTHERS RS.46 ,73,000/-, IS INTEREST RECEIVED BY THE ASSESSEE FROM TRADE DEBTORS. IT IS ALSO DOUBTFUL WHETHER MISCELLANEOUS INCOME OF RS.6,34,000/- REPRESENTS SC RAP SALE.THEREFORE, IN ORDER TO DETERMINE THE NATURE OF THESE RECEIPTS, THE CASE SHOULD BE REMITTED BACK TO THE ASSESING OFFICER FOR HIS NECES SARY VERIFICATION. CONSIDERING THE FACTUAL POSITION, WE ARE OF THE VIE W THAT THIS ISSUE (INTEREST FROM OTHERS AND MISCELLANEOUS INCOME) REQ UIRES EXAMINATION FROM THE END OF THE AO. THEREFORE, WE ARE OF THE VI EW TO REMIT THE CASE BACK TO THE FILE OF AO WITH A DIRECTION TO EXAMINE THE INTEREST FROM OTHERS AND MISCELLANEOUS INCOME. WE ALSO DIRECT THE AO THA T IF THE INTEREST FROM OTHERS RELATE TO SUNDRY DEBTORS, THEN THE AO SHOULD GIVE THE RELIEF TO THE ASSESSEE AND ALSO IF THE MISCELLANEOUS INCOME RELAT ES TO SCRAP SALES GENERATED IN THE COURSE OF MANUFACTURING PROCESS, T HE AO SHOULD GIVE THE RELIEF TO THE ASSESSEE IN THE LIGHT OF THE JUDGMENT S CITED BY THE ASSESSEE IN THE CASE OF VIDYUT CORPORATION AND SADHU FORGING S (SUPRA). THEREFORE,