DCIT 25(1), MUMBAI V. BIO-VET INDUSTRIES, MUMBAI

ITA 6225/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75337 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-12-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 08-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3); 80IB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , , BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER . / ITA NO. 6225 / MUM./ 2011 ( / ASSESSMENT YEAR : 20 0 7 08 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 25(1), C 11, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX BANDRA (E), MUMBAI 400 051 .. / APPELLANT V/S M/S. BIO VET INDUSTRIES SHANTIVILLA, SHANTIVAN CO.OP. HSG. SOC. NEAR CLUB AQUARIA, DEVIDAS LANE BORIVALI, MUMBAI 400 103 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AADFB3600L . / C.O. NO. 128 /MUM./2012 ( . 6225 /MUM./201 1 ) ( ARISING OUT OF ITA NO. 6225 /MUM./201 1 ( / ASSESSMENT YEAR : 2007 08 ) M/S. BIO VET INDUSTRIES SHANTIVILLA, SHANTIVAN CO.OP. HSG. SOC. NEAR CLUB AQUARIA, DEVIDAS LANE BORIVALI, MUMBAI 400 103 .. / CROSS OBJECTOR V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 25(1), C 11, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX BANDRA (E), MUMBAI 400 051 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AADFB3600L / ASSESSEE BY : NONE / REVENUE BY : MR. SURENDRA KUMAR M/S. BIO VET INDUSTRIES 2 / DATE OF HEARING 13 . 01 .201 4 / DATE OF ORDER 22.01.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENUE, CHALLENGING THE IMPUGNED ORDER DATED 20 TH JUNE 2012 , PASSED BY THE COMMISSIONER (APPEALS) X X XV , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) FOR THE ASSESSMENT YEAR 20 07 08 . THE ASSESSEE HAS ALSO PREFERRED CROSS OBJECTION WHICH IS ARISING OUT OF THE AFORESAID APPEAL OF THE REVENUE. THE GROUNDS RAISED BY THE REVENUE, READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION OF RS. 11,30,756/ - CLAIMED BY THE ASSESSEE UNDER SECTION 801B OF THE INCOME TAX ACT 1961 FOR ITS UNIT NO.LL WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE UNIT NO II IS ONLY AN EXTENSION OF UNIT NO. I AND THEREFORE UNIT II IS NOT ENTITLED FOR 100% DEDUCTION UNDER SECTION 801B OF THE INCOME TAX ACT 1961 . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT (A) ERRED IN ALLOWING DEDUCTION OF RS. 11,30,756/ - CLAIMED BY THE ASSESSEE UNDER SECTION 801B OF THE INCOME TAX ACT 1961 FOR ITS UNIT NO.I I WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD DIVERTED THE EXPENSES OF ITS UNIT II TO UNIT I AND HAD REDUCED THE TAXABLE PROFITS OF UNIT I AND INCREASED THE PROFIT OF UNIT II AND CLAIMED 100% EXEMPTION ON THE PROFIT OF UNIT II . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION UNDER SECTION 8 01B OF THE ACT CLAIMED BY THE ASSESSEE FOR ITS UNIT NO. I I WITHOUT APPRECIATING THE FACT THAT THE NEW UNIT AND THE OLD UNIT ARE AN INTEGRATED SINGLE UNIT FORMING PART OF ACTIVITIES OF THE ASSESS EE.' 2 . WHEN THE CASE WAS CALLED FOR HEARING, NONE APPEARED ON BE HALF OF THE ASSESSEE. WE, HOWEVER, PROCEED TO DISPOSE OFF THE APPEAL M/S. BIO VET INDUSTRIES 3 PREFERRED BY THE REVENUE AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE. 3 . FACTS IN BRIEF : THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF POULTRY AN D CATTLE FIELDS, ETC., THROUGH ITS UNIT I AND II AT DHABOL IN DAMAN. THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IB IN RESPECT OF UNIT II IN THE FOLLOWING MANNER: A.Y. 2007 08 UNIT I ( ` UNIT II ( ` ) TOTAL ( ` ) TOTAL TURNOVER 2,82,16,705 3,22,63,54 1 6,04,80,246 GROSS PROFIT 1,00,60,540 5,43,956 1,06,04,496 GROSS PROFIT RATIO 35,65% 16.90% NET PROFIT RATIO 20,95,462 22,28,333 43,23,795 (38,29,261) DEDUCTION U/S 80IB NIL 11,30,756 11,30,756 4 . THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED SIMILAR DEDUCTION UNDER SECTION 80IB @ 100% OF THE PROFIT MADE IN RESPECT OF UNIT II WHICH HAS COMMENCED BUSINESS IN THE ASSESSMENT YEAR 2003 04. HE OBSERVED THAT IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEARS 2003 04 AND 2006 07, IT HAS BEEN HEL D THAT UNIT II IS NOT A NEW UNIT BUT IT IS AN EXTENSION OF UNIT I AND FOLLOWING THE SAME REASONING HE DISALLOWED THE CLAIM FOR DEDUCTION UNDER SECTION 80 I B. 5 . BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS SUBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CA SE IN ITA NO.5928 AND 6826/MUM./2006, ORDER DATED 25 TH FEBRUARY 2010, HAS HELD THAT UNIT II IS A SEPARATE INDUSTRIAL UNDERTAKING. THE LEARNED COMMISSIONER (APPEALS), RELYING UPON THE DECISION OF THE TRIBUNAL, ALLOWED THE DEDUCTION AFTER OBSERVING AND HOLDI NG AS UNDER: M/S. BIO VET INDUSTRIES 4 3.5 I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESENTATIVE AND THE STAND TAKEN BY THE A.O.. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE A.O. RELIED ON THE REASONING GIVEN IN THE ASSESSMENT ORDER FOR A.Y.2003 - 200.1 AND HELD THAT UN IT - II WAS ONLY AN EXTENSION OF UNIT - I AND THEREBY DENIED DEDUCTION U/S.8CIB WITHOUT PREJUDICE TO THE ABOVE, HE FURTHER HELD THAT THE INDIRECT EXPENSE' WERE TO BE APPORTIONED ON THE BASIS OF TURNOVER AS HELD IN THE ASSESSMENT ORDER FOR A.Y.2003 - 2004. IT IS SEEN THAT THE HON' BLE ITAT HAS DEALT WITH BOTH THE ABOVE ISSUES IN ITS ORDER DATED 25.02.2010 IN ITA NO.5928 & 6826/MUM!2006. THE HON'BLE ITAT HELD AS UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. FIRSTLY WE SHALL DEAL WITH THE GROUND OF THE REVENUE AS TO WHETHER UNIT II IS EXTENSION OF UNIT I OR A SEPARATE MANUFACTURING UNIT. ON A SPECIFIC QUERY RAISED FROM THE BENCH IT WAS STATED ON BEHALF OF THE ASSESSEE THAT BOTH UNITS WERE SEPARATELY LOCATED. WHEREAS UN IT - I WAS AT GALA 6 AND 7 ON ONE SIDE OF THE ROAD AND UNIT - II WAS LOCATED AT GALA 8, BEING THE OTHER SIDE OF THE ROAD. ON A PERTINENT QUERY, THE LEARNED DEPARTMENTAL REPRESENTATIVE ACCEPTED THAT THE MACHINERY IN UNIT - II WAS NEW ONE AND NO PART OF THE MA CHINERY OF EXISTING UNIT I WAS USED IN UNIT - II. ABOUT THE ITEMS MANUFACTURED IN UNIT - I AND UNIT - II VIS - A - VIS COMMON PRODUCTION REGISTER, WE FIND FROM THE ORDERS OF THE AUTHORITIES BELOW THAT THE SURVEY TEAM FOUND SEPARATE ISSUE REGISTER AND PURCHASE RE GISTER FOR BOTH THE UNITS. COMMON PRODUCTION RE9ISTER ON WHICH THE AO. HAS PLACED STRONG RELIANCE WAS MAINTAINED BY THE PRODUCTION MAN A GER ONLY FOR HIS RECORD AS WAS STATED SO DURING THE COURSE OF SURVEY ITSELF. THE SAID STATEMENT WAS NOT FOUND TO BE INC ORRECT. WE FIND FROM THE STATEMENT RECORDED AT THE TIME OF SURVEY THAT THE ITEMS PRODUCED IN UNIT I WAS MAINLY TAXING WHICH WAS NOT VERY COSTLIER WHILE UNIT - II PRODUCED MAINLY VITAMINS WHICH WERE COSTLIER. EVEN TILE RAW MATERIAL USED FOR BOTH THE UNITS IS DIFFERENT AS WAS STATED IN REPLY TO QUESTION NO. 19 WHICH HAS BEEN REPRODUCED AT PAGE 15 AT THE IMPUGNED ORDER. THERE IS NO REFERENCE IN THE ASSESSMENT ORDER TO ANY CONTRARY MATERIAL FOUND AT THE TIME OF SURVEY. ON THE QUESTION OF DISCREPANCY FOUND BY THE ASSESSING OFFICER ABOUT THE 551 CERTIFICATE, WE FIND THAT THE LEARNED CIT( A) HAS RIGHTLY TAKEN NOTE OF THE FACT THAT THE ADDITIONAL PLACE OF BUSINESS WAS GIVEN TO THE ASSESSEE AT BUILDING N0.2 GALA 8. IN RESPONSE TO QUESTION NO. 15 ABOUT THE CONT ENTS OF THE LETTER TAKEN NOTE OF BY THE ASSESSING OFFICER, SHRI.KALPESH SHAH, THE PARTNER OF THE ASSESSEE - FIRM STATED THAT THE CERTIFICATE WAS ISSUED BY THE DISTRICT INDUSTRIES AT DAMAN AS PER DAMAN (DIC RULES) AND THE SAME WAS ONLY FOR SETTING UP A NE W UNIT. WE FURTHER NOTE THAT IN RESPECT OF GALA 6 AND 7 I.E UNIT - I, THE LICENCE WAS ISSUED TO THE ASSESSEE IN 1997 WHEREAS IN RESPECT OF UNIT - II A NEW LICENCE WAS ISSUED IN RESPECT OF GALA 8 ON 11.09.2002. THESE FACTS AMPLY INDICATE THAT VIEW POINT OF TH E ASSESSING OFFICER ABOUT UNIT - II BEING EXTENSION; OF UNIT - I, HAS RIGHTLY NOT BEEN SUSTAINED IN THE FIRST APPEAL. WE, THEREFORE, UPHOLD THE VIEW CANVASSED BY THE LD. CIT(A) THAT UNIT I WAS SEPARATE AND DISTINCT FROM UNIT II. M/S. BIO VET INDUSTRIES 5 36. FROM THE ABOVE, IT IS CLEAR THAT UNIT - I I IS A SEPARATE INDUSTRIAL UNDERTAKING WHICH IS ENTITLED TO DEDUCTION U/S.801 B . SIMILARLY, REGARDING BIFURCATION OF EXPENSES, THE HONBLE TRI BUNAL HELD AS UNDER: - 'COMING TO THE BIFURCATION OF EXPENSES, WE FIND THAT DISPUTE IS ONLY QUA ADMINISTRATIVE EXPENSES, SELLING EXPENSES AND FINANCIAL EXPENSES. THE ASSESSEE HAS NO OBJECTION ON THE MANUFACTURING EXPENSES B E ING APPORTIONED ON THE B A SIS OF GOODS MANUFACTURED. THE LEARNED CIT(A) DIRECTED TO APPORTION THESE THREE TYPES OF EXPENSES ON THE BASIS OF TURNOVER OF BOTH THE UNITS. IN OUR CONSIDERED OPINION, THE SELLING EXPENSES HAVE DIRECT RELATION WITH THE TURNOVER. WE, THEREFORE, HOLD THAT THE APPORTIONMENT OF SELLING EXPENSES ON THE BASIS OF THE AMOUNT OF TURNOVER IN BOTH THE UNITS IS A PPROPRIATE. THE FINANCIAL EXPENSES REPRESENT THE COST OF MONEY BORROWED FOR USE IN BUSINESS. RAW MATERI A L FOR A PRODUCT IN UNIT - I MAY COST RS. 100 WHILE IN T H E OTHER UNIT MAY COST RS. 1,000. BIFURCATION OF THE EXPENSES 0'1 THE BA S IS OF Q UAN TITY PRODUCED WO ULD OBVIOUSLY LEAD TO ABSURD SITUATION BECAUSE THE NUMBER OF UNITS MANUFACTURED WITH DIFFERENT VALUES CANNOT BE THE BASIS OF APPORTIONING THE EXPENSES. IN OUR CONSIDERED OPINION THE APPORTIONMENT OF FINANCIAL EXPENSES NEEDS TO BE DONE ON THE BASIS OF VALUE OF GOODS MANUFACTURED IN BOTH THE UNITS. COMING TO THE LAST ITEM BEING ADMINISTRATIVE EXPENSES WHICH INCLUDED RENT, TRAVELING AN D TE L EPHONE EXPENSES ETC. IN OUR CONSIDERED OPINION, AGAIN THE CONTENTION O F THE ID. AR IS NOT ACCEPTABLE FOR APPORTIONING SUCH EXPENSES ON THE BASIS OF NUMBER OF UNITS MANUFACTURED. THERE IS NO CONNECTION OF SUCH EXPENSES WITH THE QUANTITY OF GOODS MANUFACTURED. !N OUR VIEW SUCH EXPENSES NEED TO BE APPORTIONED ON THE BASIS OF VALUE OF TURNOVER IN BOTH THE ORDER ACCORDINGLY '. 3. 7 FROM THE ABOVE, IT COULD BE SEEN THA T THE HON B L E TRI B UNAL DIRECTED THAT THE SE LL ING EXPENSES AND THE ADMINISTRATIVE EXPENSES ARE TO BE BIFURCATED ON THE BASIS OF TURNOVER WHEREAS THE FINANCIAL EXPENSES IS TO BE APPORTIONED ON THE BASIS OF V A LUE OF GOODS MANUFACTURED IN BOTH T H E UNITS. ACCORDINGLY, .HE A.O. IS DIRECTED TO GRANT DEDUCTION U/S.80IB IN RESPECT OF U NIT - II AFTER APPORTIONING THE EXPENSES AS DI RECTED BY THE HON'BLE TRIBUNAL. FOR THE SAKE OF CONVENIENCE, THE A.O. SHALL WORK OUT INCOME O F UNIT - I & UNI T - II SEPARATELY WHILE GIVING EFFECT TO TH E ORDER AS HE H A S DONE IN THE ASSESSMENT ORDER. HOWEVER, THE A . O. SHALL ENSURE THAT THE DEDUCTION ALLOWED BY HIM WHILE GIVING EFFECT TO THIS APPELLATE ORDER SHALL NOT EXCEED RS. 11,30,756/ WHICH WAS CL AIMED BY THE APPELLANT IN THE RETURN OF INCOME. 6 . SINCE THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE, THE RELEVANT OBSERVATIONS OF WHICH HAVE ALSO BEEN INCORPORATED BY THE LEARNED COMMISSIONER (APPEALS) AS ABOVE , THEREFORE, RESPECTF ULLY FOLLOWING THE SAME, WE UPHOLD THE FINDINGS OF M/S. BIO VET INDUSTRIES 6 THE LEARNED COMMISSIONER (APPEALS) AND DISMISS THE GROUND S RAISED BY THE REVENUE. 7 . 7. IN THE RESULT, REVENUES APPEAL IS TREATED AS DISMISSED. WE NOW TAKE UP C ROSS OBJECTION PREFERRED BY THE ASSESSEE. 8 . IN THE CROSS OBJECTION, MAIN ISSUES RAISED BY THE ASSESSEE ARE THAT FIRSTLY, THE INTEREST RECEIPTS OF ` 2,08,960, SHOULD BE ASSESSED UNDER THE HEAD BUSINESS INCOME AND NOT UNDER THE HEAD INCOME FROM OTHER SOUR CES AND SECONDLY, THE SET OFF OF INTEREST PAYMENT AGAINST INTEREST RECEIPTS SHOULD BE GIVEN AND ONLY NET SHOULD RECEIPT SHOULD BE CONSIDERED. IN THIS REGARD, RELIANCE HAS BEEN PLACED ON THE DECISION OF ACG ASSOCIATED CAPSULES PVT. LTD. V/S CIT, [2012] 343 ITR 89 (SC). 9 . INSOFAR AS THE ASSESSEES GROUND THAT INTEREST SHOULD BE TREATED BUSINESS INCOME , WE DO NOT FIND ANY MERIT IN SUCH A GROUND IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN LIBERTY INDIA V/S CIT, 317 ITR 218 ( SC ). HOWEVER, WE AGREE WITH THE SECOND GROUND OF APPEAL OF THE ASSESSEE THAT ONLY THE NET INTEREST INCOME SHOULD BE CONSIDERED FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 80IB AND INTEREST PAYMENT SHOULD BE SET OFF AGAINST THE INTEREST RECEIPT S . ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO APPLY THE PRINCIPLES OF THE HON'BLE SUPREME COURT IN ACG ASSOCIATED CAPSULES PVT. LTD. (SUPRA) AND COMPUTE THE RELIEF ACCORDINGLY. 10 . 10. IN TH E RESULT, THE CROSS OBJECTION PREFERRED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. M/S. BIO VET INDUSTRIES 7 11 . , 11. TO SUM UP, REVENUES APPEAL IS TREATED AS DI SMISSED AND ASSESSEES CROSS OBJECTION IS TREATED AS PARTLY ALLOWED. 22 ND JANUARY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JANUARY 2014 SD / - . . P.M. JAGTAP ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 22 ND JANUARY 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CON CERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI