ITO 6(3)(1), MUMBAI V. GITANJALI CHEMICALS P. LTD, MUMBAI

ITA 6672/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75675 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 28-08-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 16-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Keywords: Reopening of assessment; Business income; Retrospective amendment
• Section: 143(3); 80HHC; 147

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI , BEFORE : SHRI H.L.KARWA, PRESIDENT AND SHRI R.C.SHARMA, AM ITA NO. 6672 / MUM/20 1 0 ( ASSESSMENT YEAR :200 3 - 0 4 ) ACIT, CIR - 6(3), MUMBAI VS. M/S GITANJALI CHEMICALS PVT. LTD., MADHU KUNJ, GROUND FLOOR, SHANKER GHANEKAR ROAD, PRABHADEVI, MUMBAI - 25 PAN/GIR NO. : A A A C G 1427 G ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO. 6173 / MUM/20 1 0 ( ASSESSMENT YEAR :200 3 - 0 4 ) M/S GITANJALI CHEMICALS PVT. LTD., MADHU KUNJ, GROUND FLOOR, SHANKER GHANEKAR ROAD, PRABHADEVI, MUMBAI - 25 VS. ACIT, CIR - 6(3), MUMBAI PAN/GIR NO. : AA ACG 1427 G ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : SHRI R.K.SAHU /ASSESSEE BY : SHRI NARESH JAIN DATE OF HEARING : 1 2 TH FEBRUARY , 201 4 DATE OF PRONOUNCEMENT : 21 ST FEBRUARY , 201 4 O R D E R PER R.C.SHARMA ( A .M.) : TH ESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT (A) - 12, MUMBAI, DATED 29 - 3 - 2010 , FOR THE ITA NO S . 6672 & 6173 /20 1 0 2 ASSESSMENT YEAR 200 3 - 0 4 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) R.W.S.147 OF THE I.T. ACT . 2 . THE SOLITARY GROUND RAISED BY THE REVENUE READS AD UNDER : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN HOLDING THAT CONVERSION CHARGES OF RS. 54,12,670/ - WOULD BE INCLUDED IN ELIGIBLE PROFITS FOR DEDUCTION OF 801B BY RELYING ON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF TAJ FIRE WORKS INDUSTRIES (288ITR 323) AND BA NGALORE CLOTHING CO. (260 ITR 371) AND WITHOUT APPRECIATING THE FACT THAT THIS DEDUCTION WAS NOT ALLOWABLE IN VIEW OF THE EXPLANATION TO SECTION 801A INSERTED BY THE FINANCE ACT 2007 WITH RETROSPECTIVE EFFECT FROM 01 .04.2000, WHICH STIPULATES THE CONDITIO N THAT WORK CONTRACTORS ARE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 801B. 3 . IN THE APPEAL OF THE ASSESSEE, FOLLOWING GROUNDS HAVE BEEN TAKEN : - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AUTHORITIES BELOW, HAVE ERRED IN RE - OPENING T HE ASSESSMENT U/S 147 WHEN THE PREVIOUS ASSESSMENT HAS ALREADY BEEN A SCRUTINY ASSESSMENT ORDER DATED 28/02/2006 UNDER SECTION 143(3) OF THE I. T. ACT, 1961. 2. ON THE FACTS OF THE CASE, THE AUTHORITIES BELOW HAVE ERRED IN ADDING A SUM OF RS. 3,70,613/ - U /S 145A OF THE INCOME TAX ACT, 1961 AND PARTICULARLY WHEN THIS POINT WAS NOT A PART OF THE REASON FOR WHICH THE ASSESSMENT WAS RE - OPENED. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AUTHORITIES BELOW, HAVE ERRED IN NOT ALLOWING DEDUCTION U/S 8OHHC AMOUNTING TO RS. 6,24,691/ - IN THE RIGHT SPIRIT AND AS PER THE PROVISIONS OF I T ACT, AND THE LD. CIT(A) HAS GROSSLY MISUNDERSTOOD THE FACTS OF THE CASE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AUTHORITIES BELOW, HAVE ERRE D IN NOT ALLOWING DEDUCTION U/S 801A AMOUNTING TO RS. 11,22,757/ - CLAIMED BY THE APPELLANT AND .THE SAME IS ALLOWED @ 30% AFTER REDUCING FROM THE INCOME UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AN AMOUNT OF RS. 20,09,815/ - BEING THE INTEREST AND A SUM OF RS. 1,56,831/ - BEING THE SALE PROCEEDS OF IMPORT LICENCE. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER HAS ERRED IN INITIATING THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 FOR THE AFORESAID ADDITIONS. ` ITA NO S . 6672 & 6173 /20 1 0 3 4 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF CHEMICALS. IN THE RETURN OF INCOME, ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80HHC . D EDUCTION WAS ALSO CLAIMED IN RES PECT OF CONVERSION CHARGES UNDER SECTION 80IA/80IB. 5 . WHILE COMPUTING DEDUCTION UNDER SECTION 80I A , THE AO HAS EXCLUDED CONVERSION CHARGES FROM THE ELIGIBLE PROFIT OF THE ASSESSEES INDUSTRIAL UNDERTAKING ON THE PLEA THAT INCOME FROM CONVERSION CHARGES IS NOT D ERI V ED FROM INDUSTRIAL UNDERTAKING. THE AO RELIED UPON THE ORDER OF HON BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA, 317 ITR 218 . IT WAS CONTENDED BEFORE THE AO THAT CONVERSION CHARGES ARE THE CHARGES RECEIVED BY THE COMPANY FOR PRODUCING FINISH ED PRODUCTS ON BEHALF OF ITS CUSTOMERS. ON THE PLEA THAT CONVERSION CHARGES IS NOT THE INCOME DERIVED FROM INDUSTRIAL UNDERTAKING, THE AO DECLINED ASSESSEES CLAIM FOR DEDUCTION. 6 . BY THE IMPUGNED ORDER THE CIT(A) ALLOWED ASSESSEES CLAIM FOR DEDUCTI ON AFTER FOLLOWING THE DECISIONS : - I) TAJ FIRE WORKS INDUSTRIES, 288 ITR 92 (MADRAS) II) BANGALORE CLOTHING CO., 260 ITR 371 III) NORTHERN AROMATICS LTD., 196 CTR 479 & IV) ASPINWALL & CO. LTD. VS. CIT, 251 ITR 323 7 . WE HAV E CONSIDERED RIVAL CONTENTIONS AN D FOUND THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF CHEMICALS. IT WAS ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 80IA IN RESPECT OF ITS INDUSTRIAL ITA NO S . 6672 & 6173 /20 1 0 4 UNDERTAKING. IN ADDITION TO INCOME FROM DIRECT SALE OF CHEMICALS SO MANUFACTURED, IT HAD ALSO GOT CO NVERSION CHARGES FOR PRODUCING FINISHED PRODUCTS ON BEHALF OF ITS CUSTOMERS . THE ASSESSEE USED TO GET PRINCIPAL RAW MATERIALS FROM ITS CUSTOMERS AND AFTER RECEIPT OF THAT RAW MATERIAL, THE ASSESSEE COMPANY MAKES ITS FINISHED PRODUCT BY USING ADDITIVES, SOL VENTS AND OTHER CHEMICALS WHICH ARE ESSENTIALLY REQUIRED FOR THE CHLORINATION, BLENDING, FRACTIONATION AND PURIFICATION PROCESSES ETC., WHICH ARE REQUIRED TO BE CARRIED OUT FOR THE MANUFACTURE OF THAT FINISHED PRODUCT. THUS, ENTIRE PLANT AND MACHINERIES OF ASSESSEES INDUSTRIAL UNDERTAKING WAS USED FOR THE MANUFACTURE OF THAT PRODUCT. THUS, THE CHARGES RECEIVED ON ACCOUNT OF CONVERSION WERE ESSENTIAL LY CHARGES FOR FINISHED PRODUCTS LESS THE COST OF PRINCIPAL RAW MATERIAL SUPPLIED BY THE CUSTOMERS. HENCE, TH E RECEIPT OF CONVERSION CHARGES WAS PART OF MANUFACTURING PROCESS AS IS DONE IN THE CASE OF ASSESSEES OWN SALES. IN THE CASE OF LIBERTY INDIA (SUPRA) , THE HONBLE SUPREME COURT HELD THAT THE DEPB /DUTY DRAW BACK ARE INCENTIVES WHICH FLOW FROM THE SCHEME FR AMED BY THE CENTRAL GOVERNMENT OR FROM SECTION 75 OF CUSTOMS ACT, 1962, HENCE, THE INCENTIVES PROFITS ARE NOT PROFIT DERIVED FROM ELIGIBLE BUSINESS AND, THEREFORE, THE DUTY DRAWBACK RECEIPT/DEPB BENEFITS DO NOT FORM PART OF NET PROFIT OF THE INDUSTRIAL UND ERTAKING FOR THE PURPOSE OF SECTION 80IA/80IB. HOWEVER, IN THE INSTANT CASE HERE BEFORE US, THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF RECEIPT FROM CONVERSION CHARGES, WHICH WAS ON ACCOUNT OF JOB WORK UNDERTAKEN BY USE OF ITS INSTALLED PLANT AND MACH INERY IN THE ITA NO S . 6672 & 6173 /20 1 0 5 FACTORY PREMISES. IT IS NOT THE CASE OF THE AO THAT JOB WORK CHARGES W ERE RECEIVED WITHOUT USE OF PLANT AND MACHINERY OR NOT RELATED TO THE INDUSTRIAL ACTIVITY BEING CARRIED OUT BY THE ASSESSEE. SINCE THE CONVERSION CHARGES WAS DIRECTLY RELATE D TO THE PRODUCTION BEING CARRIED ON BY THE ASSESSEE, THEREFORE, ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 80I A . 7.1 THE HON BLE MADRAS HIGH COURT IN THE CASE OF TEJ FIRE WORKS INDUSTRIES, 288 ITR 92(MADRAS) , HAS HELD THAT PRODUCTION OF FIRE WORKS O N JOB WORK BASIS, WHERE THE ASSESSEE WAS PRODUCING CRACKERS FROM RAW MATERIALS SUPPLIED BY ANOTHER CONCERN, WAS HELD TO BE MANUFACTURER OF CRACKERS. IT WAS FURTHER OBSERVED THAT A TEST OF INDUSTRIAL UNDERTAKING WAS ALSO SATISFIED AS IT IS ENGAGED IN THE SY STEMATIC ACTIVITY, ORGANIZING FOR PRODUCTION AND DISTRIBUTION OF GOODS I.E., NEW PRODUCTS, CRACKERS. ACCORDINGLY, ASSESSEE WAS HELD TO BE ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 80HH & 80I IN RESPECT OF ITS INDUSTRIAL UNDERTAKING. 7.2 RECENTLY THE H ON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. AMBUJA GINNING PRESSING & OIL CO.(P) LTD., REPORTED IN (2011) 332 ITR 434 (GUJ) , HAS HELD THAT JOB WORK RECEIPTS WAS INCOME CHARGED BY THE ASSESSEE FROM ITS MAIN ACTIVITY OF GINNING AND PRESSING OF COTTON AN D MANUFACTURING OF COTTONSEED OIL AND OIL CAKES. JOB WORK CHARGES WERE IN CONNECTION WITH RENDERING OF SERVICE TO OTHER PARTIES INCLUDING MANUFACTURING AND PROCESSING OF COTTONSEEDS OIL AND OIL CAKES. HENCE, ITA NO S . 6672 & 6173 /20 1 0 6 THESE RECEIPTS WERE DERIVED FROM MANUFACTURING O R PRODUCING ARTICLES AND THINGS WITHIN THE MEANING OF SECTION 80IA ON WHICH ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION. APPLYING THE PROPOSITION OF LAW LAID DOWN IN THE ABOVE CASES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR ALLOWING CLAIM OF DEDUCTION UNDER SECTION 80IA/80IB WITH RESPECT TO CONVERSION CHARGES RECEIVED BY THE ASSESSEE. WE DIRECT ACCORDINGLY. 8 . THE GROUND TAKEN BY THE ASSESSEE WITH REGARD TO REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE I.T.ACT , WAS NOT PRESSED DURING THE COURSE OF HEARING BEFORE US. THE SAME IS, THEREFORE, DISMISSED AS NOT PRESSED. 9 . WITH REGARD TO THE GROUND TAKEN FOR ADDITION OF RS. 3,70,613/ - UNDER SECTION 145A, WE FOUND THAT SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASS ESSMENT YEAR 2005 - 06, WHEREIN THE ISSUE WAS RESTORED TO THE FILE OF THE AO TO EXAMINE THE ISSUE IN THE LIGHT OF THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF HAWKINS COOKERS LTD. VS. ITO, PASSED IN ITA NO. 505/MUM/2004 FOR A.Y.1999 - 2000, VIDE ORDER D ATED 11 - 8 - 2008 [(2008) 14 DTR (MUM)(TRIB) 206] . WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL IN THE AFORESAID CASE, WHEREIN FOLLOWING WAS THE CONCLUSION OF THE TRIBUNAL : - WHEN THE ASSESSEE EXERCISES ITS OPINION TO SET OFF MODVAT ACCOUNT AGAINST EXCISE LIABILITY, SAME AMOUNTS TO PAYMENT OF EXCISE DUTY AND ACCORDINGLY, ASSESSEE IS ENTITLED TO DEDUCTION THEREOF BUT DOUB LE ADJUSTMENT CANNOT BE ALLOWED, MATTER IS SENT BACK TO THE AO TO VERIFY THE FACTS OF THE CASE, AND TO DELETE THE IMPUGNED ADDITION IF IT I S FOUND THAT THE ASSESSEE HAS GIVEN EFFECT TO S.145A . ITA NO S . 6672 & 6173 /20 1 0 7 THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE PARI MATERIAL WHEREIN ADDITION OF RS. 3,70,613/ - WAS MADE ON ACCOUNT OF ADJUSTMENT OF MODVAT CREDIT WHERE THE ASSESSEE EXERCISES TO SET OFF MODVAT ACCOUNT AGAINST EXCISE LIABILITY, THE SAME AMOUNTS TO PAYMENT OF EXCISE DUTY, ARE THE SAME AS DISCUSSED IN THE CASE OF HAWKINS COOKERS LTD. (SUPRA) . THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE RE STORE THE ISSUE BACK TO THE FILE OF AO FOR DECIDING IN TERMS OF DIRECTION GIVEN IN CASE OF HAWKINS COOKERS LTD.(SUPRA) . 10 . IN THE GROUND NO. 3, THE ASSESSEE HAS ALLEGED COMPUTATION OF DEDUCTION UNDER SECTION 80HHC. FROM THE RECORD WE FOUND THAT D URING T HE COURSE OF SCRUTINY ASSESSMENT, THE AO REWORKED OUT DEDUCTION ELIGIBLE UNDER SECTION80HHC BY INCLUDING THE SALES TAX AND EXCISE DUTY IN THE EXPORT TURNOVER OF THE ASSESSEE. BY THE IMPUGNED ORDER, THE CIT(A) DIRECTED FOR EXCLUSION OF SALES TAX & EXCISE DU TY FROM THE EXPORT TURN OVER BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LAKSHMI MACHINE WORKS, (2007) 290 ITR 667 (SC) . IT WAS ARGUED BY THE LEARNED AR THAT THE CIT(A) WAS NOT JUST DIRECTED FOR REDUCING THE SALES TAX & EXCISE DUTY O NLY FROM EXPORT TURN OVER INSOFAR AS HE DID NOT GIVE ANY DIRECTION FOR REDUCING THE SAME AMOUNT FROM THE TOTAL TURNOVER. AS PER OUR CONSIDERED VIEW, THE EXCISE DUTY & SALES TAX DO NOT FORM PART OF INCOME INSOFAR AS SAME IS PAID TO THE GOVERNMENT TREASURY, THEREFORE, WHILE COMPUTING ELIGIBLE AMOUNT OF DEDUCTION UNDER SECTION 80HHC, THE AMOUNT OF SALES TAX & EXCISE ITA NO S . 6672 & 6173 /20 1 0 8 DUTY IS REQUIRED TO BE REDUCED NOT ONLY FROM THE EXPORT TURN OVER BUT ALSO FROM THE TOTAL TURNOVER. ACCORDINGLY, WE DIRECT THE AO TO REWORK OUT EL IGIBLE AMOUNT OF DEDUCTION UNDER SECTION 80HHC IN TERMS OF OUR OBSERVATION GIVEN HEREIN ABOVE. 11 . IN GROUND NO. 4, THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IA IN RESPECT OF INTEREST INCOME AND INCOM E RECEIVED FROM SALE PROCEEDS OF IMPORT LICENCE . 12 . IN TERMS OF DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA, 317 ITR 218 , ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION IN RESPECT OF INCOME, WHICH IS NOT DERIVED FROM INDUSTRIAL UNDERTAKING. THE INCOME FROM SALE PROCEEDS OF IMPORT LICENCE IS NOT AN INCOME DIRECTLY DERIVED FROM ACTIVITY OF INDUSTRIAL UNDERTAKING, THEREFORE, THE SAME IS NOT ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 80IA. SIMILARLY, INTEREST INCOME IS ALSO NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA . HOWEVER, WH ERE THE INTEREST INCOME IS ASSESSE D BY THE AO AS BUSINESS INCOME, NET AMOUNT OF INTEREST INCOME SHOWN BY THE ASSESSEE IS REQUIRED TO BE EXCLUDED FROM THE ELIGIBLE INCOME OF INDUSTRIAL UNDERTAKING AND NOT THE GROSS AMOUNT OF INTEREST. THUS, THE INTEREST EXP ENDITURE IS TO BE REDUCED FROM INTEREST INCOME, AND NET INTEREST INCOME SHOULD BE EXCLUDED FROM ELIGIBLE INCOME OF INDUSTRIAL UNDERTAKING FOR COMPUTING CLAIM OF DEDUCTION U/S.80IA. WE FOUND THAT THE AO HIMSELF HAS TREATED INTEREST INCOME AS INCOME FROM BU SINESS AND PROFESSION AND NOT AS INCOME FROM OTHER SOURCES , UNDER THESE CIRCUMSTANCES, NET INTEREST INCOME IS TO BE EXCLUDED FROM ELIGIBLE ITA NO S . 6672 & 6173 /20 1 0 9 INCOME OF INDUSTRIAL UNDERTAKING FOR COMPUTING CLAIM OF DEDUCTION U/S.80IA . HON BLE SUPREME COURT IN THE CASE OF A CG ASSOCIATED CAPSULES PVT. LTD. VS. CIT, REPORTED IN (2012) 343 ITR 89 (SC) , HAS OBSERVED AND HELD AS UNDER : - HELD , ACCORDINGLY , THAT NINETY PER CENT. OF NOT THE GROSS RENT OR GROSS INTEREST BUT ONLY THE NET INTEREST OR NET RENT, WHICH HAD BEEN INCLUDED IN THE PROFITS OF BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', WAS TO BE DEDUCTED UNDER CLAUSE (1) OF EXPLANATION (BAA) TO SECTION 80HHC FOR DETERMINING THE PROFITS OF THE BUSINESS. RESPECTFULLY FOLL OWING THE PROPOSITION OF LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD (SUPRA) , WE DIRECT THE AO TO REDUCE THE NET AMOUNT OF INTEREST FROM THE ELIGIBLE INCOME OF INDUSTRIAL UNDERTAKING FOR COMPUTING DEDUCTION U /S.80IA. THIS GROUND OF THE ASSESSEE IS ALLOWED IN PART . 1 3 . IN THE RESULT, APPEAL FILED BY THE REVENUE (I.E. ITA NO.6672/M/10) IS DISMISSED WHEREAS APPEAL OF THE ASSESSEE (I.E. ITA NO.6173/M/10) IS PARTLY ALLOWED , IN TERMS INDICATED HEREIN ABOVE . (I.E. ITA NO. 6672 /M/1 0 ) (I.E. ITA NO. 6173 /M/1 0 ) ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST FEB . 201 4 . 21 ST FEB,2014 SD/ - SD/ - ( ) ( H.L.KARWA ) ( ) ( R.C.SHARMA ) / PRESIDENT / ACCOUNTANT MEMBER MUMBAI ; DATED 21 / 02/ 2014 /PKM , PS ITA NO S . 6672 & 6173 /20 1 0 10 COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REG ISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//