DCIT-1(1), MUMBAI V. M/S. BEEKAYLON INDUSTRIES LTD., MUMBAI

ITA 6493/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1590 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 07-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PITAMBAR DAS
• Keywords: Cost of acquisition; TDS
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: MUMBAI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SMT ASHAVIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO 6493/MUM/2008 (ASSESSMENT YEAR: 2005-06) DCIT -1(1) , ROOM NO 579, AAYAKAR BHAVAN, MUMBAI -400 020 VS BEEKAYLON INDUSTRIES LTD , 10 JASVILLE, NEW MARINE LINES, MUMBAI -400 020 PAN: AAACB 0306 R APPELLANT RESPONDENT APPELLANT BY: SHRI RAKESH JOSHI RESPONDENT BY: SHRI PITAMBAR DAS ORDER PER PRAMOD KUMAR , ACCOUNTANT MEMBER 1. BY WAY OF THIS APPEAL, THE REVENUE HAS CHALLENGE D CORRECTNESS OF CIT (A)S ORDER DATED 25TH AUGUST 2008 FOR THE ASSESSMENT YEA R 2005-06, ON THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICE R TO INCLUDE THE QUANTITY DISCOUNT RECEIVED IN THE FORM OF COMMISSION RECEIVE D RS 32,82,812/- AS INCOME FROM INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S 80IB OF THE ACT. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICE R NOT TO EXCLUDE INTEREST OF RS 8,25,350/- RECEIVED FROM THE CREDITORS FOR PURCH ASES TOWARDS DELAYED PAYMENTS, FOR THE PURPOSE OF DEDUCTION U/S 80IB OF THE ACT. 2. AS FAR AS SECOND GROUND OF APPEAL IS CONCERNED, EVEN AS LEARNED DEPARTMENTAL REPRESENTATIVE RATHER DUTIFULLY RELIES UPON THE SP ECIAL BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF NIRMA INDUSTRIES LTD VS ACIT (95 TTJ 867), LEARNED REPRESENTATIVES FAIRLY ACCEPT THAT THE ISSUE IS NOW COVERED IN FAVO UR OF THE ASSESSEE BY HONBLE GUJARAT HIGH COURTS DECISION IN THE CASE OF NIRMA INDUSTRIES LTD VS DCIT (283 ITR 402) WHEREIN THEIR LORDSHIPS HAVE HELD THAT INTERE ST RECEIVED FROM TRADE DEBTORS FOR LATE PAYMENT OF SALES CONSIDERATION IS INCOME DERIV ED FROM INDUSTRIAL UNDERTAKING AND M/S BEEKAYLON INDUSTRIES LTD 2 IT CANNOT BE EXCLUDED FROM THE PROFITS OF THE INDUS TRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80I. 3. RESPECTFULLY FOLLOWING HONBLE GUJARAT HIGH COUR T DECISION IN THE CASE OF NIRMA INDUSTRIES LTD (SUPRA), WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT (A) AND DECLINE TO INTERFERE IN THE MATTER. THE CIT (A) WA S INDEED QUITE JUSTIFIED IN DIRECTING THE ASSESSING OFFICER NOT TO EXCLUDE RS 8,25,350/-, RECEIVED FOR DELAYED PAYMENT OF BILLS BY TRADE DEBTORS WHILE COMPUTING DEDUCTION U/ S 80IB. NO INTERFERENCE IS CALLED FOR. 4. GROUND NO.2 IS THUS DISMISSED. 5. AS REGARDS GROUND NO.1, THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICATE IS WHETHER QUANTITY DISCOUNT RECEIVED IN THE FORM OF C OMMISSION IS REQUIRED TO BE EXCLUDED FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IB. A PLAIN READING OF GROUND OF APPEAL INDICATES THAT THE COMMISSION BEING IN TH E NATURE OF QUANTITY DISCOUNT IS NOT IN DISPUTE. THE RELEVANT FACTS ARE ALSO SET OU T IN THE STATEMENT OF FACTS AS FOLLOWS:- THE APPELLANT BUYS RAW MATERIALS THROUGH AGENTS WH O BUY THE SAME FROM MANUFACTURER. BASED ON THE QUANTITY OF MATERIAL SO LIFTED THE AGENT GETS A QUANTITY DISCOUNT WHICH IS PASSED OVER TO THE APPEL LANT THE SAID QUANTITY DISCOUNT WHEN GIVEN TO THE APPELLANT BY THE AGENT I S CALLED COMMISSION AND IS MERELY A RECOPUMENT OF THE COST OF PURCHASE. ACCOR DINGLY THE APPELLANT HAS TREATED THE SAME AS BEING DERIVED FROM THE INDUSTRI AL UNDERTAKING BECAUSE IT IS LINKED TO THE PURCHASE OF GOODS FOR THE BUSINESS OF THE UNDERTAKING. THE AO HOWEVER HAS TREATED THE SAID INCOME AS AN INDEPENDE NT SOURCE OF INCOME AND HAS HENCE HELD THAT THE APPELLANT IS ENTITLED TO A LOWER DEDUCTION U/S 80IB TO THE EXTENT OF SUCH INCOME.. 6. THE ASSESSING OFFICER, HOWEVER, REJECTED THE STA ND OF THE ASSESSEE TO THE EFFECT THAT THE AFORESAID COMMISSION RECEIVED CANNO T BE VIEWED AS AN INDEPENDENT SOURCE OF INCOME, AND THE REASONING FOR REJECTING T HIS PLEA WAS AS FOLLOWS:- FROM ASSESSEES SUBMISSION IT IS SEEN THAT M/S K R SAGAR & COMPANY WHO IS GETTING COMMISSION ON SALE OF RAW MATERIALS FROM RE LIANCE INDUSTRIES LTD FOR THE SALE OF THAT COMPANYS PRODUCT IS SHARING OR PA SSING PART OF IT COMMISSION RECEIVED TO THE ASSESSEE. THE COMMISSION IS BASED ON THE QUANTUM OF RAW MATERIALS PURCHASED. SINCE M/S K R SAGAR ONLY SHAR ING THE COMMISSION THE M/S BEEKAYLON INDUSTRIES LTD 3 SAME CANNOT BE SAID TO BE QUANTITY DISCOUNT. THIS IS EVIDENT FROM THE FACT THAT THE SAID PARTY IS GIVING A TDS CERTIFICATE WITH RES PECT TO THE COMMISSION PASSED TO THE ASSESSEE. HENCE THE AMOUNT IS REDUCED FROM THE TOTAL RECEIPTS OF THE RAKHOLI UNIT ELIGIBLE FOR 80IB. 7. IN APPEAL, THE CIT (A) REVERSED THE STAND SO TAK EN BY THE ASSESSING OFFICER AND OBSERVED AS FOLLOWS:- 5.3 I HAVE GONE THROUGH THE MATERIAL BROUGHT BEFOR E ME. THE RECEIPTS TITLED COMMISSION IS BASED ON ITS PURCHASE OF RAW MATERIAL . THE COMMISSION IS DIRECTLY LINKED TO THE QUANTUM OF PURCHASE OF ITS R AW MATERIAL. SO IT IS OF A CHARACTER OF A DISCOUNT OUT OF ITS PURCHASE COST. IF THE PURCHASE COST IS DISCOUNTED THERE WILL BE INFLATION OF ITS PURCHASE COST. IF THE PURCHASE COST IS DISCOUNTED THERE WILL BE INFLATION OF THE PROFIT AN D INCOME. THIS IS THE INCOME OF INDUSTRIAL UNDERTAKING ON WHICH THE DEDUCTION U/ S 80IB IS ALLOWABLE. THE APPELLANT HAS ACCOUNTED FOR THE RECEIPTS SEPARATELY . IT HAS CLAIMED THE PURCHASE COST FULLY AND HAS SEPARATELY CREDITED THE COMMISSION TO THE P&L ACCOUNT. HOWEVER, THE COMMISSION RECEIVED IS LINKE D TO ITS PURCHASES ONLY WHICH GOES INTO THE WORKING OF THE INCOME OF THE IN DUSTRIAL UNDERTAKING. SO IN MY OPINION THE COMMISSION FORMS PART OF THE INCOME FROM MANUFACTURING ACTIVITY ELIGIBLE FOR DEDUCTION U/S 80IB. IT SHOUL D BE REMEMBERED HERE THAT THE APPELLANT HAS NOT UNDERTAKEN ANY OTHER ACTIVITY WHI CH WILL ENTITLE IT TO EARN COMMISSION. ACCORDINGLY THE AO IS DIRECTED TO RECO MPUTE THE DEDUCTION U/S 80IB BY TAKING THIS AMOUNT OF RS 32,82,814 AS INCOM E FROM THE INDUSTRIAL UNDERTAKING. 8. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT (A), REVENUE IS IN APPEAL BEFORE US. 9. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE ARE NOT INCLINED TO INTERFERE IN WELL REASONED C ONCLUSIONS ARRIVED AT BY THE CIT (A). ONCE IT IS NOT IN DISPUTE THAT THE RECEIPT IN QUEST ION IS DIRECTLY LINKED TO PURCHASES AND IT ENDS UP REDUCING THE COST OF PURCHASED, THER E CANNOT BE ANY GOOD REASONS TO VIEW IT AS AN INDEPENDENT SOURCE OF INCOME. THE FA CT THAT AGENT HAS SHARED A PART OF ITS COMMISSION DOES NOT ALTER THE CHARACTER OF REC EIPT IN THE HANDS OF THE ASSESSEE, NOR DOES IT MATTER AS TO HOW ASSESSEE HAS ACCOUNTED FOR THE SAME. IN OUR CONSIDERED VIEW, THE IMPUGNED RECEIPT, BEING A QUAN TITY DISCOUNT ON PURCHASES OF RAW MATERIAL, REDUCE THE COST OF PURCHASE, AND IN A SITUATION IN WHICH IT IS NOT BEING SHOWN AS REDUCTION FROM THE COST OF PURCHASES AND A S A SEPARATE ITEM IN THE PROFIT AND LOSS ACCOUNT, IN VIEW OF THE REQUIREMENT OF THE RELEVANT ACCOUNTING STANDARD, M/S BEEKAYLON INDUSTRIES LTD 4 THIS RECEIPT IS TO BE TAKEN INTO ACCOUNT FOR COMPUT ING ASSESSEES INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING, WE, THEREFORE, APPROVE THE STAND OF THE CIT (A) AND DECLINE TO INTERFERE IN THE MATTER. 10. GROUND NO.1 IS ALSO THUS DISMISSED. 11. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 27TH OCT OBER 2009. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATE: 27TH OCTOBER 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-I, MUMBAI. 4) THE CITI, MUMBAI. 5) THE D.R. B BENCH, ITAT, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T., MUMBAI M/S BEEKAYLON INDUSTRIES LTD 5 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 20.10.09 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 26.10.09 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER