PERFECT ENGINEERING PRODUCTS LTD, MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 6373/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3629 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 30-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DR K SHIVRAM; RAHUL R SARDA
• Keywords: Cost of acquisition
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI , , BEFORE SHRI AMIT SHUKLA , JM AND SHRI RAJESH KUMAR , AM ./ I.T.A. NO. 6373 /MUM / 201 3 ( / ASSESSMENT YEAR : 2007 - 08 ) PERFECT ENGINEERING PRODUCTS LTD., 31, GOLDEN BEACH, RUIA PARK, JUHU VILE PARLE, MUMBAI - 400049 / VS. DY.COMMISSIONER OF I NCOME TAX - 8(2), ROOM NO.209, AAYAKER BHAVAN, M K ROAD, MUMBAI - 400020 ./ PAN : AABC P 6180E ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : DR. K SHIVRAM, AND RAHUL R SARDA / RESPONDENT BY : SHRI RAJESH OJHA / DATE OF HEARING : 1 3 .1.2016 / DATE OF PRONOUNCEMENT : 14. 3. 2016 / O R D E R PER RAJESH KUMAR , AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27.08.2013 OF COMMISSIONER OF INCOME TAX (APPEALS) - 17 , MUMBAI (HEREINAFTER CALLED AS THE CIT(A) FOR ASSESSMENT YEAR 2007 - 08 . 2. AT THE OUTSET, THE LD.AR SUBMITTED THAT THE ASSESSEE HAS FILED REVISED GROUNDS OF APPEAL VIDE APPLICATION DATED 9.6.2015, WHICH ARE REPR ODUCED BELOW : SALES TAX REFUND OF RS.35,32,788/ - ELIGIBLE FOR DEDUCTION U/S 10B - ORIGINAL GROUN D NOS. 1 AND 2 ITA NO. 6373 / MUM/20 1 3 2 1 . THE LD. CIT(A) FAILED TO APPRECIATE THAT SALES TAX REFUND REPRESENTS PROFITS DERIVED F RO M 100% EOU, AND HENCE , ELIGIBLE FOR DEDUCTION U/S 1 0B OF THE ACT. SALES TAX REFUND REPRESENTS RECOVERY OF COST - ORIGINAL GROUND NOS . 3 - 5 2 . WITHOUT PREJUDICE, THE CIT(A) FAILED TO APPRECIATE THAT THE SALES TAX REFUND IS NOTHING BUT RECOVERY OF COST OF PURCHASE, AND HENCE, ELIGIBLE FOR DEDUCTION U/S 10B OF TH E ACT AS THE SAME IS DERIVED FRO M 100% EOU . THE LD. AR REQUESTED THE BENCH TO ADMIT AND ADJUDICATE THE SAID GROUNDS OF APPEAL AS AGAINST THE ORIGINAL GROUNDS OF APPEAL FILED BY IT THROUGH MEMORANDUM OF APPEAL . THE LD. AR ALSO REQUESTED THE BENCH THAT T HE ADDITIONAL GROUNDS RAISED VIDE APPLICATION DATED 9.6.2015 ARE NOT BEING PRESSED, THEREFORE BE DISMISSED. 3 . THE SOLE ISSUE RAISED IN THE REVISED GROUNDS OF APPEAL RELATES TO THE CONFIRMATION BY LD. CIT(A) OF AOS ORDER THAT THE SALE TAX REFUND D ID NO T F ORM PART OF THE PROFIT DERIVED FROM 100% EOU AND THUS HELD THAT THE SAME WAS NOT ELIGIBLE FOR DEDUCTION U/S 1 0B OF THE ACT . 4 . THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING TOTAL INCOME AT A LOSS OF RS.66,47,815 / - . THE CASE WAS SEL ECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATED 24.12.2009 DETERMINING A TOTAL INCOME AT RS.10,60,57,750/ - BY MAKING VARIOUS ADDITIONS. THE ONLY ISSUE BEFORE US IS WHETHER THE SALE TAX REFUND RECEIVED BY THE ASSESSEE FOR M ED THE PART OF THE PROFIT FROM UNDERTAKING FOR THE PURPOSES OF DEDUCTION U/S 10IB OF THE ACT . 5 . AT THE OUTSET, THE LD. AR OF THE ASSESSEE POINTED OUT THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S BRIGHT ENGINEERING WORKS V/S JIT (ITA NO.7699/MUM/2012) (AY - 2008 - 09) DATED ITA NO. 6373 / MUM/20 1 3 3 19.9.2014 AND THEREFORE, IN VIEW OF THE SAID DECISION, THE APPEAL OF THE ASSESSEE BE ALLOWED BY SETTING ASIDE THE ORDER OF LD.CIT(A ). 6 . THE LD. DR, PER CONTRA OPPOSED TO THE SUBMISSIONS OF THE LD.AR, HOWEVER, APPEARED TO BE REASONABLY AGREED TO THE CONTENTION OF THE ASSESSEE THAT THE SIMILAR ISSUE WAS DECIDED IN THE ABOVE STATED TRIBUNALS ORDER. 7 . WE HAVE CONSIDERED THE RIVAL CONTE NTIONS AND PERUSED THE MATERIAL AVAILABLE BEFORE US. WE FIND THAT DURING THE YEAR THE ASSESSEE RECEIVED SALE TAX REFUND WHICH WAS CLAIMED AS PART OF THE NET PROFIT FOR THE PURPOSE OF DEDUCTION U/S 10B AND THE ISSUE WHICH WAS CONSIDERED BY THE AO FOR THE P URPOSE OF CALCULATING THE DEDUCTION U/S 10B OF THE ACT FOR THE REASONS THAT THE SAME WAS NOT DERIVED FROM EXPORT OF ARTICLES AND THINGS AND HENCE, WERE NOT ELIGIBLE FOR DEDUCTION FOR THE PURPOSE OF SECTION 10B OF THE ACT. THE LD. CIT(A) ALSO UPHELD THE AD DITION MADE BY THE AO THAT SALES TAX COULD NOT BE SAID TO BE RECOVERY OF COST AND THE ASSESSEE FAILED TO ESTABLISH THAT SALES TAX WAS INCLUDED IN THE PURCHASE COST. WE FIND THAT THE SIMILAR ISSUE HAS BEEN DECIDED BY THE CO - ORDINATE BENCH OF THE TRIBUNA L IN THE CASE OF M/S BRIGHT ENGINEERING WORKS (SUPRA) VIDE ORDER DATED 19.9.2014 IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE SALES TAX REFUND RECEIVED BY THE ASSESSEE WOULD NOT GO TO THE REDUCE OF PURCHASE COST OF THE ASSESSEE AS ORIGINALLY IT WAS INCL UDED IN THE COST OF PURCHASE. THE RELEVANT PARA 4 OF THE SAID ORDER IS REPRODUCED BELOW : 4. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT THE AO HAS DECLINED CLAIM OF DEDUCTION U/S.10B IN RESPECT OF SALES TAX REFUND CREDITED IN THE PROFIT AND LOSS ACCOUNT. SUCH SALES TAX REFUND IS NOT A SEPARATE SOURCE OF INCOME, IT IS THE AMOUNT WHICH THE ASSESSEE GOT BACK ON ITS SALES TAX ASSESSMENT WHEN IT WAS FOUND THAT ASSESSEE HAS PAID EXCESS SALE S TAX ON ITS PURCHASES. SUCH PAYMENT OF SALES TAX ON THE COST OF GOODS SO PURCHASED AND DEBITED TO THE PROFIT AND ITA NO. 6373 / MUM/20 1 3 4 LOSS ACCOUNT GO TO REDUCE THE PROFIT. IN CASE OF ASSESSEE GETS REFUND OF CERTAIN AMOUNT ON SUCH SALE TAX WHICH IS A PART OF PURCHASE COST, THE CORRESPONDING PROFIT OF ASSESSEE WILL GO TO INCREASE. IN THE INSTANT CASE AS PER CONTENTION OF LD. AR, IT APPEARS THAT ASSESSEE HAS ALREADY DEBITED THE AMOUNT PAID UNDER SALES TAX AS ITS EXPENSES FORMING PART OF COST OF GOODS PURCHASED FOR EXPORT, HOWEVER , SUBSEQUENTLY PART OF SUCH SALES TAX WAS REFUNDED WHICH GO TO REDUCE THE COST OF PURCHASES. THE CORRESPONDING INCREASE IN PROFIT DUE TO SUCH REFUND IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S.10B. THE SALES TAX REFUND IS NOT A SEPARATE SOURCE OF INCOME NOR IT IS THE DUE TO ANY GOVERNMENT POLICY FOR PAYING ANY INCENTIVE. NEITHER IT IS EXPORT INCENTIVE NOR ANY PAYMENT UNDER SCHEME OF GOVERNMENT. THEREFORE, THE SOURCE OF RECEIPT CANNOT BE ATTRIBUTED TO SUCH SCHEME. IT IS SIMPLY REFUND OF EXCESS SALES TAX PAID WHIC H HAS ALREADY FORMED PART OF COST OF PURCHASES. WE ACCORDINGLY, DIRECT THE AO TO VERIFY AS TO WHETHER THE SALES TAX REFUND RECEIVED BY THE ASSESSEE ALREADY FORMED PART OF ITS COST OF PURCHASESEITHER DURING THE YEAR UNDER CONSIDERATION OR IN EARLIER YEARS. ACCORDINGLY, ASSESSEE IS DIRECTED TO FURNISH DETAILS OF SUCH PAYMENT OF SALES TAX AND THE YEAR IN WHICH IT HAS FORMED PART OF ITS COST OF PURCHASE IN TRADING/P&L ACCOUNT. IF THE AO FINDS THAT SUCH SALES TAX HAVE ALREADY BEEN DEBITED IN THE TRADING/PROFIT A ND LOSS ACCOUNT AS A COST OF PURCHASES, ASSESSEE SHOULD BE GIVEN BENEFIT OF DEDUCTION U/S.10B WITH RESPECT TO SUCH AMOUNT OF SALES TAX REFUND. WE DIRECT ACCORDINGLY. 8 . WE THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE BY ALLOWING THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14TH MARCH, 2016. . 14 TH MARCH, 2016 SD SD ( /AMIT SHUKLA) ( /RAJESH KUMAR) / JUDICIAL ME MBER / ACCOUNTANT MEMBER MUMBAI ; DATED 14 /0 3 /2016 . . ./ SRL , SR. PS ITA NO. 6373 / MUM/20 1 3 5 / 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