M/s. Team Ferro Alloys Pvt.Ltd., Vapi V. The ACIT., Vapi Circle, Vapi

ITA 618/AHD/2012

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2302 (ITAT-SURAT)
• Duration Of Justice: 6 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-09-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 12-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R P RASTOGI SRI
• Assessee Lawyers: M K PATEL
• Keywords: Business income; TDS
• Section: 143(3); 80IB

Judgement Text

M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 1 OF 16 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./ I.T. A NO.618/AHD/2012/SRT / A.YS.:2008-09 M/S.TEAM FERRO ALLOYS PVT. LTD., SURVEY NO.357/2/2/1 & 357/2/32, BEHIND DADRA GARDEN, VILLAGE DADRA 396230 U.T. OF DADRA & NAGAR HAVELI. PAN : AAACT 8925A V S . ASST. COMMISSIONER OF INCOME TAX, VAPI CIRCLE, VAPI. APPELLANT /RESPONDENT . . ./ I.T. A NO.2126/AHD/2013/SRT / A.YS.:2010-11 ASST. COMMISSIONER OF INCOME TAX, VAPI CIRCLE, VAPI. VS. M/S.TEAM FERRO ALLOYS PVT. LTD., SURVEY NO.357/2/2/1 & 357/2/32, BEHIND DADRA GARDEN, VILLAGE DADRA 396230 U.T. OF DADRA & NAGAR HAVELI. PAN : AAACT 8925A APPELLANT /RESPONDENT /ASSESSEE BY SHRI M.K.PATEL. /REVENUE BY SHRI R.P.RASTOGI, SRI.DR / DATE OF HEARING: 13 .04 .2018 /PRONOUNCEMENT ON 26 .04.2018 /O R D E R M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 2 OF 16 PER O. P. MEENA, ACCOUTANT MEMBER: 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD.COMMISSIONER OF INCOME TAX(APPEALS), VALSAD DATED 25.11.2011 FOR THE ASSESSMENT YEAR 2008-09 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WHEREAS REVENUE HAS FILED APPEAL AGAINST THE ORDER OF CIT(A)-VALSAD, DATED 09.06.2013 FOR THE ASSESSMENT YEAR 2010-11. ITA NO.618/AHD/2012/SRT/ FOR .A.Y.2008-09; (BY ASSESSEE): 2. GROUND NO.1 AND 2 ARE GENERAL IN NATURE AND NOT PRESSED BEFORE US, HENCE, SAME ARE TREATED DISMISSED AS NOT PRESSED. 3. GROUND NO.3 RELATES TO NON-GRANTING DEDUCTION U/S.80IB OF THE ACT FROM THE PROFITS AND GAINS OF THE APPELLANT ON THE BASIS THAT THE INDUSTRIAL UNDERTAKING IS FORMED BY RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, AT THE OUTSET, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD.AO AS WELL AS CIT(A) HAS DISALLOWED THE CLAIM OF DEDUCTION U/S.80IB OF THE ACT BY FOLLOWING THEIR ORDERS FOR A.Y. 2005-06. HOWEVER, THE ITAT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR A.Y. 2005-06 VIDE ITA NO.2585/AHD/2007 DATED 30.03.2012 AND ALSO IN A.Y 2006-07 AND 2007-08 VIDE ITA NO.1792 & 1793/AHD/2011 DATED 13.06.2014. THE LD.CIT-DR HAS ALSO ACCEPTED THIS FACT. THE ITAT IN A.Y. 2006-07 OBSERVED AS UNDER : 7. AT THE TIME OF HEARING LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT AO AS WELL AS LD. CIT(A) HAVE DISALLOWED THE CLAIM OF DEDUCTION OF THE ASSESSEE U/S. 80IB OF THE ACT BY FOLLOWING THEIR ORDERS FOR ASSESSMENT YEAR 2005-06. HOWEVER HON'BLE ITAT WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2005-06 HAVE DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE HOLDING THAT ASSESSEE WAS ENTITLED FOR THE CLAIM OF DEDUCTION U/S. 80IB OF THE INCOME TAX ACT. THEREFORE APPEALS OF THE M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 3 OF 16 ASSESSEE ARE ALSO REQUIRED TO BE ALLOWED. LD. DR HOWEVER RELIED ON THE ORDERS OF LOWER AUTHORITIES. 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THE ISSUE IS NOW COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HON'BLE ITAT IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2005-06 WHEREIN FOLLOWING WAS HELD:- '8. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE VIEW THAT NOW, THIS ISSUE IS COVERED BY THE DECISION OF COORDINATE BENCH. IN THIS REGARD, THE FACTS NARRATED BY THE ASSESSEE ABOUT THE NEW UNIT ARE AS FOLLOWS:- 'INDUSTRIAL UNDERTAKING CONSISTS OF LAND, BUILDING, PLANT AND MACHINERY AND OTHER EQUIPMENTS. IN THIS REGARD, WOULD LIKE TO BRING BEFORE YOUR HONOR THE FACTS OF THE CASE WHICH ARE AS UNDER A. IN OUR CASE WE HAVE PURCHASED A NEW PIECE OF LAND ON WHICH NEW BUILDING IS CONSTRUCTED ON. B. WE HAVE INSTALLED ENTIRELY NEW SET OF PLANT AND MACHINERIES. A STATEMENT SHOWING DETAILS OF VARIOUS PLANT AND MACHINERIES INSTALLED ARE ENCLOSED. C. WE HAVE EMPLOYED MORE THIN 20 WORKERS. A STATEMENT SHOWING LIST OF WORKERS EMPLOYED DURING THE YEAR IS ENCLOSED. D. OUR INDUSTRIAL UNDERTAKING IS LOCATED IN A BACKWARD AREAS SPECIFIED IN THE EIGHTH SCHEDULE TO THE INCOME TAX ACT. THUS WE SATISFY ALL INC CONDITIONS AS REQUIRED IN SECTION 80-1B. FURTHER MORE WE WOULD LIKE TO BRING BEFORE, YOUR HONOR THAT,... A. THERE IS NO TRANSFER OF ANY OF THE ASSETS FROM THE OLD UNIT TO NEW UNIT, B. THERE WAS NO TRANSFER OF PLANT MACHINERY OR ANY OTHER MANUFACTURING FACILITIES FROM THE OLD UNIT TO NEW UNIT, C. ALL PLANTS AND MACHINERIES INSTALLED IN THE INDUSTRIAL UNDERTAKING ARE NEW. D. THERE WAS NO TRANSFER OF BUSINESS FROM THE OLD UNIT TO NEW UNIT. E. WE HAVE OBTAINED ALL THE REQUIRED LICENSES AND CERTIFICATES FROM VARIOUS GOVERNMENT AGENCIES LIKE. CENTRAL EXCISE, SALES TAX, DIG, POLLUTION CONTROL BOARD AND FACTORY LICENSE ETC. AS REQUIRED UNDER THE RESPECTIVE LEGISLATION FOR SETTING UP A NEW UNIT. COPY OF THE SAME IS ATTACHED HEREWITH FOR YOUR KIND PERUSAL. THUS IT CAN BE SEEN THAT IN OUR CASE, NONE OF THE BUSINESS HAS BEEN BROKEN UP AND ALSO THAT NO PORTION OF THE BUSINESS ACTIVITY OF ANY OTHER UNDERTAKING HAS BEEN BROKEN UP SO AS TO FORM OUR UNDERTAKING. M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 4 OF 16 9. ON THE BASIS OF THE FACTS AND EVIDENCES PLACED ON RECORD, WE HEREBY HOLD THAT THE UNIT IN QUESTION HAS NOT BEEN FORMED EITHER BY SPLITTING UP OR BY RECONSTRUCTION OF A BUSINESS. THERE WAS A NEW INDEPENDENT LOCATION WHERE NEW PLANT AND MACHINERY WAS STATED TO BE INSTALLED. WHETHER THE ASSESSEE CARRIED THE SAME BUSINESS OR DIFFERENT BUSINESS WAS OF NO CONSIDERATION AS IT WAS DONE BY THE REVENUE AUTHORITIES. RATHER THE REVENUE AUTHORITIES WERE NOT JUSTIFIED IN TREATING THE EXISTENCE OF NEW UNIT AS A RECONSTRUCTION OF OLD UNIT. IN THE CASE OF M/S. COMPUTER FORCE (SUPRA) WHEREIN ELABORATELY DISCUSSED TERM USED 'SPLITTING UP' OR 'RECONSTRUCTION'. WE HAVE NOTED THAT THE A.O. HAS MOLDED THE FACTS AND STATED THAT THE OLD UNIT WAS CLOSED DOWN CONSEQUENTLY GIVEN BIRTH TO A NEW UNIT. THIS REASONING OF THE A.O. CANNOT BE APPROVED BECAUSE THE SAME IS MERELY PRESUMPTION THAT THE OLD UNIT HAD GIVEN BIRTH TO A NEW UNIT. WE PLACE RELIANCE ON THE DECISION OF ABBAS NABI SHAIKH (SUPRA), RELEVANT PARA OF THE TRIBUNAL ORDER IS REPRODUCED BELOW: 'IT WOULD BE A CASE OF RECONSTRUCTION IF AT THE SAME PLACE WHERE THE ALREADY EXISTING UNIT IS FUNCTIONING NEW/ADDITIONAL MACHINERY/PLANT ARE INSTALLED OR NEW CAPITAL IS INFUSED OR CERTAIN MODIFICATIONS AND ALTERATIONS IN THE PROCESS FOR MANUFACTURING THE PRODUCT IS CARRIED OUT AND THERE IS A CONTINUITY OF THE ACTIVITIES OF THE BUSINESS IN THE SAME INDUSTRIAL UNDERTAKINGS. BUT WHERE AT A NEW LOCATION INDEPENDENT OF THE EARLIER EXISTING UNIT, NEW PLANT AND MACHINERY ARE PURCHASED AND INSTALLED, NEW CAPITAL IS INVESTED THEN IT WOULD BE A CASE OF SETTING UP OF A NEW UNIT EVEN THOUGH FOR CARRYING OUT THE SAME BUSINESS. THE ESSENTIAL DIFFERENCE LIES IN CHANGE IN LOCATION AND INSTALLATION OF NEW INFRASTRUCTURE IN THE FORM OF FACTORY BUILDING AND PLANT AND MACHINERY, WHETHER ASSESSEE CARRIES OUT THE SAME BUSINESS OR DIFFERENT BUSINESS IS NOT AN ESSENTIAL INGREDIENT TO HOLD IT IS A RECONSTRUCTION OR NOT. THE REVENUE AUTHORITIES WERE NOT JUSTIFIED IN TREATING IT AS A CASE OF CONSTRUCTION MERELY BECAUSE ASSESSEE CONTINUED TO CARRY ON THE SAME BUSINESS IN THE NEW UNIT ALSO. ON THE BASIS THAT OLD UNIT DID NOT FUNCTION OR IT HAS STOPPED ACTIVITIES MAY GIVE RISE LOAN IMPRESSION THAT THE NEW UNIT IS THE RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. BUT EARNING ON THE SAME BUSINESS IN THE NEW UNIT IS NOT SUFFICIENT AT ITS OWN TO HOLD THAT THE NEW UNIT IS A RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE UNLESS LOCATION IS THE SAME AND THERE IS NO INSTALLATION OF NEW PLANT AND MACHINERY. THE OLD UNIT MAY STOP FUNCTIONING IMMEDIATELY OR AFTER SOMETIME. IF OLD UNIT RUNS PARALLEL FOR SOME TIME AND THEREAFTER IT STOP FUNCTIONING THEN IT IS NOT GOING TO MAKE ANY DIFFERENCE. ONE CANNOT SAY THAT IF OLD UNIT STOPS FUNCTIONING IMMEDIATELY ON THE START OF NEW UNIT IT WOULD BE A CASE OF RECONSTRUCTION AND IF OLD UNIT STOPS FUNCTIONING AFTER A YEAR OR SO, AFTER THE NEW UNIT STARTS FUNCTIONING, IT WILL NOT BE A CASE OF RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. FURTHER, IF THE ARGUMENT OF THE ID. DR IS ACCEPTED THEN SEVERAL UNITS WHERE SAME BUSINESS IS CARRIED OUT, WOULD ALWAYS BE TREATED AS RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE AND THUS DENYING THE BENEFIT OTHERWISE AVAILABLE TO THE TAX PAYER. THEREFORE, CARRYING ON THE SAME BUSINESS IN THE NEW UNIT OR STOPPAGE OF BUSINESS IN THE OLD UNIT CANNOT BE A CRITERIA TO HOLD THAT IT IS A CASE OF RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE.' M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 5 OF 16 9.1 AFTER DUE CONSIDERATION OF THE FACTS INVOLVED, WE HEREBY DIRECT THAT THE ASSESSEE IS ENTITLED FOR THE CLAIM OF DEDUCTION U/S 80IB OF THE INCOME TAX ACT 1961. SUBSTANTIVE GROUND RAISED BEFORE US IS, THEREFORE, ALLOWED.' IN VIEW OF THE ABOVE, THE APPEALS FILED BY THE ASSESSEE FOR BOTH THE YEARS ARE ALLOWED. 9. IN THE RESULT, ASSESSEE'S APPEALS ARE ALLOWED. 5. IN THE LIGHT OF THE ABOVE DECISION LAID DOWN BY THE ITAT AHMEDABAD IN GRANTING DEDUCTION U/S.80IB OF THE INCOME TAX ACT, 1961 FROM THE PROFITS AND GAINS OF THE APPELLANT ON THE BASIS THAT THE INDUSTRIAL UNDERTAKING IS FORMED BY RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. WE DEEM IT FIT AND PROPER IN ALLOWING THE GROUND NO.3 OF THE ASSESSEE. ACCORDINGLY, THIS GROUND IS THEREFORE ALLOWED. 6. IN THE RESULT, THIS GROUND NO. 3 IS ALLOWED. 7. GROUND NO.4 RELATES TO CONFIRMING ACTION OF THE AO IN REDUCING DEDUCTION U/S.80IB TO THE EXTENT OF RECEIPT OF RS.1,55,83,560/- ON ACCOUNT OF CALCIUM MANAGEMENT SERVICES ON THE BASIS THAT THE APPELLANT COMPANY HAS NOT MANUFACTURED/PRODUCED/PROCESS THE SAME IN ITS INDUSTRIAL UNDERTAKING. 8. FACTS APROPOSED FOR THIS GROUND ARE THAT THE ASSESSEE HAS INCURRED RS.1,55,83,560/- TOWARDS CALCIUM MANAGEMENT SERVICES AND CREDIT THE SAME TO THE PROFIT & LOSS ACCOUNT UNDER THE HEAD OF SALES. IT WAS SUBMITTED BEFORE THE AO THAT THE TERMS OF THE CONTRACT WITH CALCIUM MANAGEMENT SERVICES INCLUDED THE COST OF MATERIAL + SERVICES AND AS PER THE TERMS OF AGREEMENT THE COST OF MATERIAL IS BASED ON THE PER MT OF LIQUID STEEL. THE COMPANY HAS TAKEN CERTAIN WORKS FOR M/S.ISPAT INDUSTRIES LTD. TOWARDS THE CALCIUM RECOVERY AND NOT FOR SALE M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 6 OF 16 OF ANY MANUFACTURED ITEM. THE APPELLANT HAD CLAIMED DEDUCTION U/S.80IB ON THIS AMOUNT. ON VERIFICATION OF THE FLOW CHART, PROCESS INVOLVED AND CALCIUM RECOVERY THE AO CONCLUDED AS UNDER : OBSERVATION OF THE A.O :- THE APPELLANT COMPANY HAS INCURRED RS.1,55,83,560/- TOWARDS CALCIUM MANAGEMENT SERVICES AND CREDITED THE SAME TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD SALES. IT WAS SUBMITTED BEFORE THE AO THAT THE TERMS OF CONTRACT WITH CALCIUM MANAGEMENT SERVICE INCLUDED THE COST OF MATERIAL PLUS SERVICES AND AS PER THE TERMS OF AGREEMENT THE COST OF MATERIAL] IS BASED ON THE PER MT OF LIQUID STEEL. THE COMPANY HAVE TAKEN CERTAIN WORK FOR M/S.LSPAT INDUSTRIES LIMITED TOWARDS CALCIUM RECOVERY AND THE PAYMENT WAS LINKED WITH THE PERFORMANCE OF CALCIUM RECOVERY AND NOT FOR SALE OF ANY MANUFACTURED ITEM. THE APPELLANT HAD CLAIMED 80-IB DEDUCTION ON THIS AMOUNT. ON VERIFICATION OF THE FLOW CHART, PROCESS INVOLVED AND CALCIUM RECOVERY STEPS THE AO CONCLUDED AS UNDER 'ACTUALLY, IN THIS EASE, THE PAYMENT WHICH WAS TO BE MADE BY M/S. ISPAT INDUSTRIES LTD., WAS PERFORMANCE LINKED PAYMENT. THIS PERFORMANCE WAS IN THE FORM OF CALCIUM RECOVERY. THIS CALCIUM RECOVERY WAS TO BE MADE AT THE PREMISES OF THE M/S. ISPAT INDUSTRIES LTD. ACCORDINGLY, THE PROCESS OF CALCIUM RECOVERY WAS UNDERTAKEN BY THE ASSESSEE AT THE PREMISES OF M/S. LSPAT INDUSTRIES LTD, AND FOR WHICH, 1. MACHINERY BELONGING TO M/S. LSPAT INDUSTRIES LTD WERE USED. 2. THE LABOUR WORKED AT THE PREMISES OF M/S. LSPAT INDUSTRIES LTD. THE AO FURTHER OBSERVED THAT THE CALCIUM RECOVERY WAS DONE NOT IN THE FACTORY AT DADRA BUT THE LOCATION WHICH IS NOT ENTITLED FOR 80-IB BENEFITS. THEREFORE, THE AO OF THE VIEW THAT THE INCOME FROM CALCIUM MANAGEMENT SERVICES IS NOT INCOME FROM THE INDUSTRIAL UNDERTAKING FOR ELIGIBLE FOR BENEFIT U/S.80-IB OF THE ACT. 9. IT WAS CLAIMED BEFORE CIT(A) THAT THE PAYMENT HAS BEEN CREDITED TOWARDS THE CALCIUM MANAGEMENT SERVICES IN THE PROFIT & LOSS ACCOUNT, IN REALITY THE PAYMENT HAS BEEN MADE TOWARDS SUPPLY OF MATERIAL TOWARDS ITS CALCIUM RECOVERY FACTOR WHICH IS BASED ON A MUTUAL COMMERCIAL AGREEMENT BETWEEN THE PARTIES. THE ASSESSEE INDUSTRIAL UNDERTAKING IS CARRYING ON ONLY THE BUSINESS OF MANUFACTURING FERRO ALLOY PRODUCTS. THE PROFITS HAVE DERIVED FROM THE SUPPLY OF MATERIAL MANUFACTURED IN THE INDUSTRIAL UNDERTAKING. HOWEVER, THE CIT(A) HAS OBSERVED THAT THE FACTUM OF THE CASE IS APPEARING THAT THE APPELLANT RECEIVED PAYMENTS FROM M/S.ISPAT INDUSTRIES LTD. TOWARDS CALCIUM MANAGEMENT SERVICES FOR WHICH A SEPARATE AGREEMENT BETWEEN THE APPELLANT AND M/S.ISPAT INDUSTRIES LTD. IS IN EXISTENCE AS PER THE M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 7 OF 16 APPELLANT OWN ADMISSION. THE PAYMENTS MADE BY THE CUSTOMER WAS ON THE BASIS OF THE ACTUAL CALCIUM RECOVERY. THE PROCESS OF CALCIUM RECOVERY IS DONE ONLY AT THE CUSTOMERS PREMISES BY USING ITS INFRASTRUCTURE I.E. PLANT AND MACHINERY AND LABOURS. IT WAS ALSO ADMITTED FACT THAT THE APPELLANT HAS CREDITED THE SAID AMOUNT IN THE PROFIT AND LOSS ACCOUNT AS RECEIPTS FROM CALCIUM MANAGEMENT SERVICES. THE AGREEMENT IN THIS REGARD EXPLAINED THE PAYMENT NOT TOWARDS MATERIAL COST, BUT TOWARDS THE CALCIUM MANAGEMENT SERVICES. FURTHER, THE PAYMENT ALSO PERFORMANCE LINK AS RIGHTLY OBSERVED BY THE AO. THEREFORE, THE IMPORTANT QUESTION IS WHETHER THE CALCIUM MANAGEMENT SERVICES RECEIPT IS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING. THE INCOME RECEIVED BY THE APPELLANT WAS ON THE BASIS OF AN INDEPENDENT AGREEMENT FOR CALCIUM MANAGEMENT SERVICES. THE PAYMENT WAS NOT RELATED TO THE MATERIALS SUPPLIED BY THE APPELLANT. IT IS AN ADMITTED FACT THAT THE APPELLANT HAS RECORDED THE SAID TRANSACTION IN THE PROFIT AND LOSS ACCOUNT FROM CALCIUM MANAGEMENT SERVICES. THE CALCIUM RECOVERY PROCESS WAS CARRIED OUT BY THE CUSTOMER AT HIS OWN PLACE USING ITS OWN INFRASTRUCTURES AND OUTSIDE DAMAN & NAGAR HAVELI REGION. THEREFORE, THE INCOME CALCIUM MANAGEMENT SERVICES CANNOT HELD AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING AT DAMAN & NAGAR HAVELI. THE CIT(A) HAS ALSO DISTINGUISHED THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DHARMA PAL PREM CHAND LTD. [2008] 317 ITR 353 (DEL) OF ITS RATIO WAS PARTLY DISTINGUISHABLE. 10. BEING AGGRIEVED WITH THE CIT(A), THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 8 OF 16 11. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO INTERPRETED THE PURPOSE LINK PAYMENT TO THE APPELLANT COMPANY FOR RECOVERY OF CALCIUM MADE AT THE PREMISES TO ITS CUSTOMERS M/S.ISPAT INDUSTRIES LTD. USING THE MACHINERY BELONGING TO M/S.ISPATH INDUSTRIES LTD. THE COUNSEL SUBMITTED THAT THE SECTION 80IB PROVIDES FOR A DEDUCTION FROM ANY PROFITS AND GAINS DERIVED FROM ANY BUSINESS REFERRED TO ANY SUB- SECTION (3) TO [(11), (11A) AND (11B)]. 12. THE ASSESSEE UNDERTAKING IS CARRYING ON ONLY THE BUSINESS OF MANUFACTURING FERRO ALLOY PRODUCTS, THEREFORE, THE PROFITS HAS BEEN DERIVED FROM SUPPLY OF MATERIAL MANUFACTURED IN THE INDUSTRIAL UNDERTAKING, HENCE, THE AO WAS NOT JUSTIFIED IN NOT CONSIDERING THE ACTUAL NATURE OF RECEIPTS AND INTERPRETED THE SAME TO BE FOR PROCESS OF CALCIUM RECOVERY AND ALSO CONSIDERED THE SAME AS ANOTHER BUSINESS. THE LD.COUNSEL HAS ALSO PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CHILLIES EXPORTS HOUSE LTD. VS. CIT [1997] 225 ITR 894 (SC)/ 92 TAXMANN.COM 68 (SC) WHEREIN RELYING ON THE DECISION OF KERALA HIGH COURT IN CIT VS. RAJMOHAN CASHEWS (P.) LTD. (1990) 185 ITR 472 IT WAS OBSERVED THAT THE ASSESSEE WAS ENGAGED IN THE PROCESSING RAW CASHEW NUTS AND THE MAJOR OPERATION OF PROCESSING WORK WAS DONE BY OUTSIDE AGENCIES ON BEHALF OF THE ASSESSEE AND CHARGES, THEREFOR, WERE PAID BY THE ASSESSEE, THE ASSESSEE WAS ENGAGED IN MANUFACTURE AND PROCESSING OF THE GOODS AND WAS AN INDUSTRIAL COMPANY WITHIN THE MEANING OF SECTION 2(6) (C) OF THE FINANCE ACT, 1972. THE COURT HELD THAT THE FACT THAT THE PROCESSING WAS NOT DONE IN THE FACTORY OF THE ASSESSEE BUT IN THE FACTORY OF SOMEONE ELSE WOULD NOT NECESSARILY MEAN THAT THE ASSESSEE IS NOT MAINLY ENGAGED IN THE PROCESSING OF THE GOODS PROVIDED THERE IS MATERIAL TO SHOW THAT THE M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 9 OF 16 PROCESSING WAS DONE BY THE OUTSIDE AGENCY FOR AND ON BEHALF OF THE ASSESSEE AND THE CHARGES INCURRED THEREFOR WERE PAID BY THE ASSESSEE DIRECTLY. 13. ON THE OTHER HAND, THE LD.CIT-DR RELIED ON THE ORDERS OF LOWER AUTHORITIES AND SUBMITTED THAT THE AGREEMENT REFLECTS THAT THE PAYMENTS WAS NOT TOWARDS MATERIAL COST BUT TOWARDS M/S.CALCIUM MANAGEMENT SERVICES, THEREFORE, PROCESS OF CALCIUM RECOVERY WAS UNDERTAKEN BY THE ASSESSEE AT THE PREMISES OF M/S.ISPAT INDUSTRIES LTD. USING THE MACHINERY BELONGING TO M/S.ISPAT INDUSTRIES LTD. AND INCOME DERIVED THEREFROM CANNOT BE TREATED AS INCOME FROM THE PROCESS OF MANUFACTURING FERRO ALLOY PRODUCTS BY THE ASSESSEE WITHIN THE MEANING OF SECTION 80IB OF THE ACT. THEREFORE, THE AO AND CIT(A) WERE RIGHT IN DISALLOWING THE DEDUCTION U/S.80IB ON THESE RECEIPTS. 14. WE HAVE CONSIDERED FACTS AND MATERIAL ON RECORD. IT IS SEEN THAT THERE IS AN INDEPENDENT AGREEMENT BETWEEN THE ASSESSEE AND M/S.ISPAT INDUSTRIES LTD. THE ASSESSEE HAS TAKEN CERTAIN WORK FOR M/S.ISPAT INDUSTRIES LTD. TOWARDS CALCIUM RECOVERY AND THE PAYMENT WAS LINKED WITH THE PERFORMANCE OF CALCIUM RECOVERY AND NOT FOR SALE OF ANY MANUFACTURED ITEM. THIS PERFORMANCE WAS IN THE FORM OF CALCIUM RECOVERY WHICH WAS TO BE MADE AT THE PREMISES OF M/S.ISPAT INDUSTRIES LTD. FOR WHICH MATERIAL WAS TO BE SUPPLIED BY THE ASSESSEE TO M/S.ISPAT INDUSTRIES LTD, MUMBAI. THE PROCESS FOR SUCH MATERIAL WAS PAYABLE AT THE TIME OF DISPATCH OF GOODS AND CERTAIN ADDITIONAL CONSIDERATION FOR THE SAME MATERIAL WAS PAYABLE ON THE BASIS ACTUAL CALCIUM RECOVERY BY THE CUSTOMER WHILE USING SUCH MATERIAL FOR THEIR PRODUCTION. THE CIT(A) HAS OBSERVED THAT IN THE APPELLANTS OWN ADMISSION THE PAYMENT M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 10 OF 16 MADE BY THE CUSTOMER WAS ON THE BASIS ACTUAL CALCIUM RECOVERY. THE PROCESS OF CALCIUM RECOVERY IS DONE ONLY AT THE CUSTOMERS PREMISES BY USING ITS INFRASTRUCTURE I.E. PLANT AND MACHINERY AND LABOURS. WE ALSO NOTICE THAT THE ASSESSEE HAS CREDITED THE SAID AMOUNT IN THE PROFIT AND LOSS ACCOUNT AS RECEIPTS FROM M/S. CALCIUM MANAGEMENT SERVICES. THUS, THE AGREEMENT IN THIS REGARD EXPLAINED THAT THE PAYMENT WAS NOT TOWARDS MATERIAL COST BUT TOWARDS THE CALCIUM MANAGEMENT SERVICES. IT IS ALSO SEEN THAT THE PAYMENT WAS THEREFORE, NOT RELATED TO THE MATERIAL SUPPLIED BY THE APPELLANT AND THE TRANSACTIONS WERE ALSO RECORDED IN THE PROFIT AND LOSS ACCOUNT FROM CALCIUM MANAGEMENT SERVICES. THE CALCIUM RECOVERY PROCESS WAS CARRIED BY THE CUSTOMER AT HIS OWN PLACE USING ITS OWN INFRASTRUCTURE, LABOURS AND OUTSIDE DAMAN & NAGAR HAVELI REGION, THEREFORE THE INCOME FROM CALCIUM MANAGEMENT SERVICES CANNOT BE HELD AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING AT DAMAN & NAGAR HAVELI. THE DECISION IN THE CASE OF CHILLIES EXPORTS HOUSE (P.) LTD (SUPRA) RELIED BY THE AR IS NOT OF THE HELP TO THE ASSESSEE AS IN THAT CASE THE PROCESSING OF RAW CASHEW NUTS WAS DONE BY THE MATERIAL PROVIDED BY THE ASSESSEE FROM OUTSIDE AGENCY FOR ON ABOVE OF THE ASSESSEE AND CHARGES INCURRED, THEREFORE WERE PAID BY THE ASSESSEE DIRECTLY. THEREFORE, IN SUCH A SITUATION THE SAID INCOME WAS CONSIDERED TO BE DERIVED FROM MANUFACTURING PROCESS WHEREAS IN THE INSTANT CASE THE CALCIUM MANAGEMENT SERVICES ARE PERFORMED BY THE M/S.ISPAT INDUSTRIES LTD AT BOMBAY BY USING ITS INFRASTRUCTURE AND LABOURS. THEREFORE, THE INSTANT CASE DISTINGUISHABLE ON FACTS. IN VIEW OF THIS MATTER, WE FIND THAT NO INFIRMITY IN THE ORDER OF LD.CIT(A), ACCORDINGLY SAME IS UPHELD. THIS GROUND OF THE ASSESSEE IS THEREFORE DISMISSED. M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 11 OF 16 15. GROUND NO.5 RELATES TO EXCLUDING THE FLOWING ITEMS OF INCOME FROM PROFIT ELIGIBLE FOR DEDUCTION U/S.80IB IN DEPB INCOME RS.3,84,750/- AND INTEREST ON FDRS & MARGIN MONEY RS.2,81,651/-. 16. THE AO AND CIT(A) HAS DISALLOWED THE DEPB INCOME OF RS.3,84,750/- BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S.LIBERTY INDIA VS. CIT (2009) 317 ITR 218 (SC) WHEREIN IT WAS HELD THAT DUTY DRAWBACK, DEPB IS EXCLUDABLE, HENCE NOT PROFITS DERIVED FROM THE ALLOWABLE BUSINESS U/S.80IB, THOUGH BELONGING TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. THE HONBLE APEX COURT ITSELF HELD THAT DUTY DRAWBACK RECEIPTS/DEPB BENEFITS DO NOT FORM PART OF THE NET PROFITS ELIGIBLE FOR INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF SECTION 80IB OF THE ACT. SIMILARLY, INTEREST ON FDRS AND MARGIN MONEY AMOUNT OF RS.2,81,651/- WAS ALSO EXCLUDED BY PLACING RELIANCE ON THE DECISION OF PANDIAN CHEMICALS LTD. 262 ITR 278 (SC). 17. BEING AGGRIEVED WITH THE ORDER OF THE CIT(A), THE ASSESSEE FILED THIS APPEAL BEFORE THIS TRIBUNAL. THE LD.COUNSEL CONTENDED THAT DEPB GRANTED SPECIFICALLY REDUCING THE COST OF MANUFACTURING ARE TO BE TREATED AS INEXTRICABLY LINKED WITH THE COST OF PRODUCTION AND ALSO SHALL BE TREATED DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING. THE LD.COUNSEL ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF TOPMAN EXPORTS 342 ITR 49 WITH REGARD TO INTEREST ON FDRS. THE LD.COUNSEL HAS PLACED RELIANCE ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF EMPIRE PUMPS PRIVATE LIMITED VS. ACIT, TAX APPEAL NO.1862818/2003 DATED 14.10.2014 (PAPER BOOK, PAGE NO.87) HELD THAT THE INCOME EARNED FROM FIXED DEPOSIT PLACED FOR BUSINESS PURPOSE CANNOT BE TREATED AS INCOME FROM OTHER SOURCES MUST BE SEEN M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 12 OF 16 AS PART OF THE ASSESSEES BUSINESS INCOME. IN THE PRESENT CASE ALSO THE ASSESSEE WAS COMPELLED TO PART A PARK OF ITS FUNDS IN FIXED DEPOSITS UNDER THE INSISTENCE OF THE FINANCIAL INSTITUTIONS AND THEREFORE THE INCOME RECEIVED THERE UPON CANNOT BE TERMED TO INCOME FROM OTHER SOURCES. 18. ON THE OTHER HAND, THE LD.ASSESSING OFFICER SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 19. WE HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND NOT THAT THE DEPB LICENSE IS NOT ALLOWABLE DEDUCTION U/S.80IB. IN THE LIGHT OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT 347 ITR 218 AND ALSO THE DECISION OF HONBLE CIT VS. RACHNA UDHYOG (2010) 230 CTR 72 (BOMBAY). HENCE, EXCLUSION DEPB INCOME OF RS.3,84,750/- IS SUSTAINED. HOWEVER, WITH REGARD TO INTEREST ON FDRS OF MARGIN MONEY THE ISSUE IS SQUARELY COVERED BY THE DECISION OF JURISDICTIONAL HONBLE GUJARAT HIGH COURT IN THE CASE OF EMPOWER PAYMENTS PVT. LTD. VS. ACIT (SC) WHEREIN AFTER CONSIDERING THE DECISION OF LIBERTY INDIA PVT. LTD. THE DEDUCTION ON ACCOUNT OF INTEREST ON FDRS IN MARGIN MONEY WAS HELD TO BE ALLOWABLE U/S.80IB OF THE ACT, ACCORDINGLY, THE DEDUCTION OF THIS AMOUNT OF RS.2,81,651/- IS ALLOWABLE. THIS GROUND IS, THEREFORE, ALLOWED PARTLY. 20. GROUND NO.6 RELATES TO NON-GRANTING DEDUCTION OF RS.1,10,22,792/- AS CLAIMED BY THE APPELLANT U/S.80IB OF THE ACT. 21. WE HAVE CONSIDERED THE FACTS AND FOUND THAT THE ASSESSEE HAS BEEN ALLOWED DEDUCTION U/S.80IB WHICH DEALING WITH THE GROUND NOL.3, ACCORDINGLY THIS GROUND IS TREATED AS ALLOWED AS IT IS COVERED UNDER GROUND NO.3. M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 13 OF 16 22. GROUND NO.3 RELATING TO DISALLOWANCE OF EXPENSES INCURRED TO INCREASE SHARE CAPITAL AMOUNTING TO RS.1,50,000/- IS NOT PRESSED BEFORE US. THEREFORE, SAME IS TREATED AS DISMISSED AS NOT PRESSED. 23. IN THE RESULT, APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09 IS PARTLY ALLOWED. ITA NO.2126/AHD/2013 FOR A.Y.2011-12; (BY REVENUE): 24. GROUND NO.1 RELATES TO DISALLOWANCE OF DEDUCTION U/S.80IB AMOUNTING TO RS.48,93,772/-. WE HAVE CONSIDERED THE FACTS AND BOTH PARTIES HAVE AGREED THAT THE FACTS ARE IDENTICAL AS FOR ASSESSMENT YEAR 2008-09 IN GROUND NO.3, THEREFORE, THE FINDINGS AS GIVEN IN GROUND NO.3 FOR ASSESSMENT YEAR 2008-09 IN RESPECT OF ASSESSEES APPEAL WILL MUTATIS-MUTANDIS APPLIED TO THIS GROUND ALSO. ACCORDINGLY, SAME IS ALLOWED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE APPEAL ON THIS GROUND IS DISMISSED. 25. GROUND NO.2 RELATES TO ALLOWING NET GAIN OF FOREX FLUCTUATION AMOUNTING TO RS.21,74,554/- FOR THE PURPOSE OF GRANTING DEDUCTION U/S.80IB OF THE ACT. 26. FACTS APROPOSED OF THIS GROUND ARE THAT THE ASSESSEE HAS INCLUDED OTHER INCOME AMOUNTING OF RS.21,74,554/- ON ACCOUNT OF NET GAIN ON THE BASIS FOREX FLUCTUATION FOR CALCULATION OF DEDUCTION U/S.80IB OF THE ACT, BUT RELYING ON THE RATIO LAID DOWN IN THE CASE OF LIBERTY INDIA VS. CIT (2009) 317 ITR 218 (SC) HELD THAT INCOME FROM NET GAIN ON FOREX FLUCTUATION WAS NOT DERIVED FROM INDUSTRIAL UNDERTAKING, HENCE, M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 14 OF 16 DEDUCTION OF THE SAID AMOUNT WAS HELD TO BE EXCLUDABLE FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S.80IB OF THE CT. 27. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). BEFORE WHOM IT WAS SUBMITTED THAT FOREX GAIN PERTAINS TO DIFFERENCE IN THE VALUE OF PAYMENTS MADE FOR IMPORT OF MATERIAL AND DIFFERENCE IN THE VALUE OF RECEIPTS OF EXPORT MADE BY THE ASSESSEE COMPANY. IT WAS SUBMITTED THAT SAID NET INCOME HAS A DIRECT AND IMMEDIATE NEXUS THAT THE PARTY PURCHASE AND SALES MADE BY THE ASSESSEE AND THE SAME SHOULD BE TREATED AS AN ITEM OF ADJUSTMENT/JUSTIFIED IN THE VALUE OF PURCHASE OF SALES VALUE OF THE FINISHED GOODS SOLD. FURTHER, THE SAID FOREIGN EXCHANGE GAIN WAS ONLY DISCLOSED SEPARATELY IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD OTHER SOURCES DUE TO THE MANDATORY REQUIREMENT OF SEPARATELY DISCLOSING THE SAID ITEM AS PER THE ACCOUNTING STANDARD 11. THEREFORE, THE CIT(A) FOLLOWING DECISION IN THE CASE OF CIT VS. RACHNA UDHYOG 230 CTR 72 (BOM) WHEREIN IT WAS HELD THAT DEDUCTION U/S.80IB IS ALLOWABLE IN RESPECT OF EXCHANGE RATE DIFFERENCE AS THE EXCHANGE RATE DIFFERENCE IS ARISES OUT OF EXPORT SALES AND IS DIRECTLY RELATED TO THE SALE TRANSACTION INVOLVING THE EXPORT OF GOODS OF THE INDUSTRIAL UNDERTAKING. 28. BEING AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. THE LD.CIT- DR SUPPORTED THE ORDERS OF AO. 29. WE HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE ARE OF THE VIEW THAT FOREIGN EXCHANGE GAIN IS DERIVED BY THE ASSESSEE ON ACCOUNT OF DIFFERENCE IN THE VALUE OF PAYMENTS MADE FOR IMPORT OF MATERIAL DIFFERENCE IN THE VALUE OF RECEIPTS OF EXPORTS MADE BY THE ASSESSEE COMPANY, THEREFORE, M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 15 OF 16 THE NET GAIN IS HAVING DIRECT NEXUS WITH THE SALE TRANSACTIONS INVOLVING THE EXPORT OF GOODS OF THE INDUSTRIAL UNDERTAKING. THEREFORE, WE ARE OF THE VIEW AND ALSO RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RACHNA UDHYOG 230 CTR 72 THE CIT(A) HAS CORRECTLY ALLOWED THE DEDUCTION U/S.80IB IN RESPECT OF THIS AMOUNT. THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. 30. GROUND NO.3 RELATES TO DELETING THE DISALLOWANCE OF EXPENSES OF RS.2,03,550/- U/S.40A OF THE ACT FOR NON-DEDUCTION OF TDS. 31. ON VERIFICATION OF THE PAYMENTS REFLECTED IN ANNEXURE-3, THE AO NOTED THAT THE ASSESSEE HAS MADE PAYMENT ON ACCOUNT OF MAINTENANCE CHARGES TO THE SOCIETY AND OTHERS ON WHICH TDS HAS NOT BEEN DEDUCTED AS REQUIRED U/S.194C OR DEDUCTED LESS AS PER THE TABLE GIVEN AT PAGE 16 OF THE ASSESSMENT ORDER, AND ACCORDINGLY MADE DISALLOWANCE OF RS.2,03,550/- U/S.40A(IA) OF THE ACT. IN APPEAL BEFORE CIT(A), IT WAS CLAIMED THAT THE ASSESSEE COMPANY HAS MADE COMPOSITE INVOICES FOR SUPPLY OF MATERIAL AND LABOUR OF WHICH BREAKUP WAS GIVEN TO THE CIT(A) WHICH HAS BEEN REPRODUCED AT PAGE NO.7. ACCORDING TO WHICH, THE TDS WAS DEDUCTABLE ONLY ON PAYMENT OF RS.25,500/- TO KRUPA MOTORS ON ACCOUNT OF LABOUR CHARGES AND IN RESPECT OF BALANCE TWO PARTIES LABOUR CHARGES RS.5800/- AND RS.5650/- ONLY AND THE SAME IS BELOW THE LIMIT PRESCRIBED U/S.194C OF THE ACT FOR DEDUCTION OF TDS. CONSIDERING THESE FACTS, THE CIT(A) HAS DELETED THE SAID DISALLOWANCE. 32. BEING AGGRIEVED, THE REVENUE FILED THIS APPEAL BEFORE THIS TRIBUNAL. M/S.TEAM FERRO ALLOYS PVT. LTD./ITA NO.618 & 2126 PAGE 16 OF 16 33. WE HAVE CONSIDERED THE FACTS AND HEARD THE PARTIES AND NOTED THAT THE TDS WAS DEDUCTIBLE IN RESPECT OF PAYMENT OF RS.25,500/- MADE TO KRUPA MOTORS, HOWEVER, THE CIT(A) HAS DELETED THE ENTIRE DISALLOWANCE OF TAXES ATTRIBUTABLE TO LABOUR CHARGES OF RS.25,500/- IS CALLED FOR. ACCORDINGLY, THE AO IS DIRECTED TO RECALCULATE THE DISALLOWANCE IN ACCORDANCE ON THE PAYMENT OF RS.25,500/-. WITH REGARD TO BALANCE PAYMENT, THE FINDINGS OF THE CIT(A) ARE UPHELD. IN VIEW OF THIS MATTER, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 34. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO.2126/AHD/2013 IS PARTLY ALLOWED. 35. TO SUM UP, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.618/AHD/2012 IS PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IN ITA NO.2126/AHD/2013 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26-04-2018. SD/- SD/- ( . . /C.M. GARG) ( . . / O.P.MEENA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / SURAT, DATED: 26 TH APRIL , 2018 S.GANGADHARA RAO COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / / / ASSISTANT REGISTRAR, SURAT