DCIT, Circle - 12, Kolkata, Kolkata V. M/s. Reckitt Benckiser (India) Ltd., New Delhi

ITA 684/KOL/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70469 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2013
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2011
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA
• Assessee Lawyers: R N BAJORIA; ASHISH AGARWAL
• Section: 143(3); 80IB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , /AND ! ! ! !. . . . # ## ##$ #$#$ #$, %& ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI ABRAHAM P. GEORGE, AM] ' ' ' ' /IN I.T.A NO. 684/KOL/2011 () *+ () *+ () *+ () *+/ // / ASSESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. RECKI TT BENCKISER (INDIA) LTD. CIRCLE-12, KOLKATA (PAN:AABCR2655Q) (-. /APPELLANT ) (/0-./ RESPONDENT ) & ' ' ' ' /IN I.T.A NO. 702/KOL/2011 () *+ () *+ () *+ () *+/ // / ASSESSMENT YEAR: 2007-08 M/S. RECKITT BENCKISER (INDIA) LTD. VS. ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-12, KOLKATA. (-. /APPELLANT ) (/0-./ RESPONDENT ) FOR THE REVENUE: SHRI VARINDER MEHTA FOR THE ASSESSEE: S/SHRI R. N. BAJORIA & ASHISH AGARWAL DATE OF HEARING: 26.11.2013 DATE OF PRONOUNCEMENT: 30.12.2013 %1 / ORDER PER MAHAVIR SINGH, JM/ , : THESE CROSS APPEALS BY REVENUE AND ASSESSEE ARE ARI SING OUT OF ORDER OF CIT(A)-XII, KOLKATA IN APPEAL NO. 217/CIT(A)-XII/R-12/10-11 DAT ED 09.03.2011. ASSESSMENT WAS FRAMED BY ADDL. CIT, RANGE-12, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2007-08 VIDE H IS ORDER DATED 30.12.2010. 2. FIRST, WE TAKE UP ITA NO.684/K/2011 (REVENUES A PPEAL). THE SOLE ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) IN RESTRI CTING THE DISALLOWANCE OF DEDUCTION CLAIMED BY ASSESSEE U/S. 80IC OF THE ACT AT RS.19,95,28,000 /-. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND: 1. THAT LD. CIT(A) ERRED IN RESTRICTING THE DISALL OWANCE OF DEDUCTION CLAIMED U/S. 80IC TO RS.19,95,28,000/- WITHOUT APPRECIATING THE FACTS AN D CIRCUMSTANCES OF THE CASE. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR 2007-08 ON 31.10.2007 DECLARING TOT AL INCOME AT RS.71,63,27,060/-. THIS 2 ITA NO.684 & 702/K/2011 RECKIT BENCKISER (I) LTD.., A.Y. 07-08. RETURN WAS REVISED ON 31.03.2009 REVISING THE TOTAL INCOME AT RS.46,37,85,023/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT AT A TOT AL INCOME OF RS.202,76,54,670/- DISALLOWING CLAIM U/S. 80IC(3) IN REGARD TO THREE U NITS OF THE ASSESSEE AT HIMACHAL PRADESH NAMED, PARWANOO LIQUID UNIT, PARWANOO SOAP UNIT AND BADDI UNIT. THE ASSESSEE COMPANY HAS FOUR UNITS OF PRODUCTION SITUATED IN VARIOUS PA RTS OF INDIA. OUT OF THE ABOVE FOUR UNITS, THREE UNITS ARE SITUATED IN HIMACHAL PRADESH AS NARRATED ABOVE. THE PROFITS FROM THESE UNITS HAVE BEEN CLAIMED U/S. 80IC(3) OF THE ACT AS DEDUCTION. ACCORDING TO ASSESSEE, PARWANOO LIQUID UNIT STARTED COMMERCIAL PRODUCTION OF CONSUMER GOO DS I.E. HERPIC, LIZOL, COLIN, TEEPOL, ETC. FROM ASSESSMENT YEAR 2004-05, PARWANOO SOAP UNIT ST ARTED COMMERCIAL PRODUCTION FROM ASSESSMENT YEAR 2005-06 AND BADDI UNIT STARTED PROD UCTION OF CHERRY, MANSTON, BRASSO ETC. IN ASSESSMENT YEAR 2005-06. ACCORDING TO ASSESSING OFFICER, ASSESSEE COMPANY HAS CLAIMED DEDUCTION OF ENTIRE AMOUNT OF PROFIT WITH RESPECT T O THESE THREE UNITS LOCATED IN HIMACHAL PRADESH U/S. 80IC(3) OF THE ACT. THE QUANTUM OF AS SESSEES CLAIM OF DEDUCTION U/S. 80IC(3) OF THE ACT IN THE CASE OF PARWANOO LIQUID UNIT WAS AT RS.41,21,03,765/-, DEDUCTION CLAIMED IN PARWANOO SOAP UNIT WAS AT RS.82,89,40,420/- AND DED UCTION CLAIMED IN BADDI UNIT WAS AT RS.32,28,25,456/-. EFFECTIVELY, ASSESSING OFFICER DISALLOWED DEDUCTION U/S.80IC(3) OF THE ACT WITH RESPECT TO THESE THREE UNITS AGGREGATING TO RS . 1,56,38, 69,650 BY OBSERVING AS UNDER: ON VERIFICATION OF COMPUTATION OF TOTAL INCOME IT IS FOUND THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IC UNDER CHAPTER-VI OF THE I. T. A CT, 1961 FOR RS.1,56,38,69,650/-. IT IS FOUND FROM THE DETAILS AVAILABLE ON RECORD THAT THE SAID DEDUCTION IS CLAIMED BY THE ASSESSEE WITH RESPECT TO ITS MANUFACTURING ACTIVITY FROM ITS HIMACHAL PRADESH UNIT FOR PRODUCTION OF SOAP, HARPIC, COLIN, LIZOL, TEEPOL, C HERRY, MANSION, BRASSO ETC. FROM THE INFORMATION AVAILABLE ON RECORD AND COLLECTED DURIN G THE COURSE OF ASSESSMENT PROCEEDING IT IS FOUND THAT ALL THESE ITEMS ARE EITHER FALLING UNDER THE CATEGORY OF ORGANIC OR INORGANIC CHEMICALS OR COMBINATION OF BOTH. THIS MAY BE MENT IONED THAT SECTION 80IC(2) SPEAKS FOR DEDUCTION WITH RESPECT TO THE UNDERTAKING OR ENTERP RISE WHICH HAS BEGUN OR BEGIN TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THING, NOT BE ING ANY ARTICLE OR THING SPECIFIED IN THE 13 TH SCHEDULE, OR WHICH MANUFACTURES OR PRODUCES ANY AR TICLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE 13 TH SCHEDULE, PART-B. IT IS FURTHER NOTED THAT PART-B OF 13 TH SCHEDULE SPECIFIES ARTICLE OR THING FOR PRODUCTION OF WHICH DEDUCTION U/S. 80IC IS NOT AVAILABLE, WHICH INCLUDES INORGANIC AND ORGANIC CHE MICALS EXCEPT CERTAIN ITEMS, ON WHICH SUCH DEDUCTION IS AVAILABLE. IT IS ALSO NOTED THAT THE ARTICLE OR THING PRODUCED/MANUFACTURED BY THE ASSESSEE IS NOT FALLIN G WITHIN THESE EXCEPTIONS. HENCE, IT IS HELD THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U /S. 80IC IS NOT ALLOWABLE. 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT( A), WHO ALLOWED THE MAIN ISSUE OF ASSESSEES APPEAL BY OBSERVING AS UNDER IN PARA 7 O F HIS APPELLATE ORDER: 7. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT AND PERUSED THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE JUDICIAL PRONOUNCEMENT R ELIED UPON BY THE APPELLANT. THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF MAN UFACTURING AND TRADING OF CONSUMER GOODS AND MEDICINE ETC. AND SOME OF ITS WELL KNOWN BRANDS ARE DETTOL, DISPRINE, ROBIN ULTRA MARINE BLUE, HARPIC, MORTEIN MOSQUITO REPELLE NT, CHERRY BLOSSOM SHOE POLISH ETC. BESIDES OTHERS, THE APPELLANT COMPANY IS HAVING THR EE MANUFACTURING UNITS IN THE STATE OF HIMACHAL PRADESH NAMED AS PARWANOO LIQUID UNIT, PAR WANOO SOAP UNITS AND BADDI UNIT. DURING THE YEAR UNDER CONSIDERATION THE APPEL LANT COMPANY HAS CLAIMED DEDUCTION U/S. 80IC(3) ON THE PROFIT EARNED FROM THESE THREE UNITS AGGREGATING RS. 156,38,69,650/-. THE INITIAL ASSESSMENT YEAR FROM WHICH DEDUCTION U/ S. 80IC(3) WAS CLAIMED IN RESPECT OF 3 ITA NO.684 & 702/K/2011 RECKIT BENCKISER (I) LTD.., A.Y. 07-08. PARWANOO LIQUID UNIT WAS A.Y. 2004-05 AND IN RESPEC T OF OTHER TWO UNITS THE INITIAL ASSESSMENT YEAR OF CLAIM OF DEDUCTION U/S. 80IC WAS A.Y. 2005-06. TILL A.Y. 2006-07, THE CLAIM OF THE APPELLANT COMPANY U/S. 80IC WAS ALLOWE D BY THE A.O. HOWEVER, IN THE YEAR UNDER APPEAL, THE A.O. HAS CHANGED HIS STANDS AND I T WAS HELD BY HIM THAT THE APPELLANT COMPANY IS NOT ENTITLED FOR DEDUCTION U/S. 80IC WIT H RESPECT TO PROFITS EARNED FROM THREE UNITS LOCATED IN HIMACHAL PRADESH. THE MAIN REASON FOR WHICH THE CLAIM OF THE APPELLANT WAS DISALLOWED IN THE YEAR UNDER APPEAL WAS THAT TH E PRODUCTS MANUFACTURED BY THE COMPANY WERE EITHER INORGANIC OR ORGANIC CHEMICALS OR COMBINATION THEREOF AND COVERED IN PART-B OF THE 13TH SCHEDULE. AS PER THE PROVISIO NS OF SEC. 80IC(2)(A) OF THE ACT THE DEDUCTION IS ALLOWABLE TO AN ASSESSEE WHERE ITS GRO SS TOTAL INCOME INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FR OM ANY BUSINESS WHICH HAS BEGUN OR BEGINS TO MANUFACTURES OR PRODUCE ANY ARTICLE OR TH ING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN 13TH SCHEDULED, OR WHICH MANUFACTURES OR PRODUCES ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING WHICH IS SPECIFIED IN TH E 13TH SCHEDULE. THE A.O. WAS OF THE OPINION THAT THE APPELLANT COMPANY IS MANUFACTURIN G THE ARTICLES OR THING MENTIONED AT SI. NO. 4 & 5 OF PART-B OF THE 13TH SCHEDULE WHICH FALLS UNDER CHAPTER 28 AND CHAPTER 29 OF EXCISE CLASSIFICATION. IN ORDER TO DECIDE THE I SSUE INVOLVED IN THIS APPEAL, IT IS NECESSARY TO FIND OUT AS TO WHETHER APPELLANT COMPA NY WAS MANUFACTURING ARTICLE AND THINGS SPECIFIED IN 13TH SCHEDULE UNDER CHAPTER 28 & 29 OF EXCISE CLASSIFICATION OR AS TO WHETHER THE APPELLANT COMPANY IS MANUFACTURING OR P RODUCING ANY ARTICLE OR THING NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE 13TH SC HEDULE. ON PERUSAL OF CHAPTER-28 OF EXCISE CLASSIFICATION, IT IS OBSERVED THAT THIS CHA PTER DEALS WITH INORGANIC CHEMICALS, ORGANIC OR INORGANIC COMPOUNDS OF PRECIOUS METALS, OF RARE-EARTH METALS, OF RADIO ACTIVE ELEMENTS OR OF ISOTOPES, FOR EXAMPLE HALOGENS, SULP HER, CARBON, HYDROGEN, ALKALI, VARIOUS INORGANIC ACIDS, OXIDES, AMMONIA AND VARIOUS INORGA NIC SALTS. FURTHER, CHAPTCR-29 OF EXCISE CLASSIFICATION DEALS WITH ORGANIC CHEMICALS FOR EXAMPLE HYDRO-CARBONS AND THEIR HALOGENATED, SULPHONATED OR NITRATED DERIVATIVES, A LCOHOLS AND THEIR DERIVATIVES, PHENOLS, ETHERS, CARBOXYLIC ACIDS ETC. THUS, THE CHAPTER-28 & 29 OF THE EXCISE CLASSIFICATION AS MENTIONED IN PART-B OF 13TH SCHEDULE DO NOT HAVE AN Y ITEM WHICH IS MANUFACTURED OR PRODUCED BY THE APPELLANT COMPANY. ALONG WITH THE A SSESSMENT ORDER THE A.O. HAS ENCLOSED CERTAIN PAPERS DOWNLOADED BY HIM FROM THE WEBSITE OF THE APPELLANTS PARENT COMPANY; ON THE BASIS OF WHICH IT WAS HELD BY THE A .O. THAT THE ARTICLES OR THINGS MANUFACTURED BY THE APPELLANT COMPANY FALLS UNDER T HE CATEGORY OF ORGANIC OR INORGANIC CHEMICALS OR COMBINATION OF BOTH. ON PERUSAL OF ENC LOSURES WITH THE ASSESSMENT ORDER IT IS OBSERVED THAT ONE OF THE PRODUCT WAS HARPIC WHICH IS USED AS DISINFECTANT/CLEANER. THE SAID PRODUCT HAS BEEN MADE BY USING VARIOUS ORGANIC OR INORGANIC CHEMICALS AND PERFUME ETC. AS ITS RAW MATERIAL. THE ANOTHER PRODUCT WAS BRASSO METAL POLISH WHOSE CONSTITUENTS ARE LIQUID HYDRA-CARBON, MINERAL POWDER, FATTY ACID S, AMMONIUM HYDRA-OXIDE AND OTHER INGREDIENTS. THUS, IT MAY BE OBSERVED THAT THE APPE LLANT COMPANY HAS MANUFACTURING VARIOUS CONSUMER PRODUCTS INCLUDING SOAPS ETC. IN I TS THREE UNITS LOCATED IN HIMACHAL PRADESH AND IT HAS CONSUMED VARIOUS CHEMICALS AND O THER INGREDIENTS FOR MANUFACTURING OF SUCH CONSUMER PRODUCTS. HENCE, I AM OF THE OPINI ON THAT IT CANNOT BE SAID THAT THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF MAN UFACTURING OF INORGANIC OR ORGANIC CHEMICALS WHICH ARE CLASSIFIED UNDER CHAPTER-28 & 2 9 OF EXCISE CLASSIFICATION HAVING PLACE IN 13TH SCHEDULE. IN FACT, THE APPELLANT COMP ANY IS MANUFACTURING VARIOUS CONSUMER PRODUCTS WHICH HAVE BEEN CLASSIFIED UNDER CHAPTERS- 33, 34 AND 38 OF EXCISE CLASSIFICATION AND NOT THE PART OF 13TH SCHEDULE. T HE CHAPTER-33 DEALS WITH ESSENTIAL OILS AND RESINOIDS, PERFUMERY, COSMETIC OR TOILET PREPAR ATIONS WHEREAS CHAPTER-34 DEALS WITH SOAP, ORGANIC SURFACE ADDITIVE AGENTS, WASHING PREP ARATIONS, LUBRICATING PREPARATION AND POLISHING PREPARATIONS ETC. ON CAREFUL CONSIDERATIO N OF THE FACTS, I AM OF THE OPINION THAT THE A.O. WAS NOT JUSTIFIED IN HOLDING THAT THE APPE LLANT COMPANY WAS MANUFACTURING INORGANIC OR ORGANIC CHEMICALS OR COMBINATION OF BO TH AND THAT THE PRODUCTS MANUFACTURED ARE COVERED UNDER THE ITEMS SPECIFIED IN 13TH SCHEDULE. THE APPELLANT COMPANY IS NOT MANUFACTURING INORGANIC OR ORGANIC C HEMICAL PER SE, BUT USING SOME INORGANIC OR ORGANIC CHEMICALS AS THE RAW MATERIALS OR INGREDIENTS FOR MANUFACTURING OF VARIOUS CONSUMER PRODUCTS. IF, THE CONTENTION OF TH E A.O. IS ACCEPTED, IN THAT CASE ALL THE INDUSTRIAL UNDERTAKINGS MANUFACTURING THE PHARMACEU TICAL PRODUCTS OR MANUFACTURING PAINTS ETC. ARE TO BE HELD AS INDUSTRIAL UNDERTAKIN GS MANUFACTURING THE INORGANIC OR 4 ITA NO.684 & 702/K/2011 RECKIT BENCKISER (I) LTD.., A.Y. 07-08. ORGANIC CHEMICALS BECAUSE THESE INDUSTRIES MAINLY A ND SUBSTANTIALLY USE VARIOUS INORGANIC AND ORGANIC CHEMICALS FOR MANUFACTURING OF MEDICINE S AND PAINTS ETC. EVEN, IN THE FOOD PROCESSING INDUSTRIES, A NUMBER OF INORGANIC OR ORG ANIC CHEMICALS/SALTS ARE USED AS COLOUR ENHANCERS OR PRESERVATIVES. BUT, WHAT IS IMP ORTANT IS TO SEE THE END PRODUCT WHICH IS MANUFACTURED OR PRODUCED BY THAT UNDERTAKING OR ENTERPRISE. AS PER L3TH SCHEDULE, AN INDUSTRIAL UNDERTAKING WHICH IS ENGAGED IN THE BUSI NESS OF MANUFACTURING OR PRODUCING AN INORGANIC OR ORGANIC CHEMICAL WILL NOT GET DEDUC TION U/S. 801C BUT NOT A COMPANY OR AN ENTERPRISE WHICH IS UTILIZING SUCH CHEMICALS AS RAW MATERIAL FOR MANUFACTURING OF OTHER PRODUCTS. IN VIEW OF ABOVE, I AM OF THE OPINION THA T THE A.O. WAS NOT JUSTIFIED IN HOLDING THAT THE APPELLANT COMPANY WAS MANUFACTURING OR PRO DUCING ARTICLE OR THING WHICH IS SPECIFIED IN 13TH SCHEDULE AND CONSEQUENTLY, HE WAS NOT JUSTIFIED IN HOLDING THAT THE DEDUCTION U/S,. 801C IS NOT ALLOWABLE ON THE PROFIT S OF THREE UNITS LOCATED IN HIMACHAL PRADESH. IT IS TO BE HELD THAT, IN PRINCIPLE, THE A PPELLANT COMPANY IS ENTITLED FOR DEDUCTION U/S. 801C AND IN EARLIER YEARS SUCH DEDUCTION WAS A LLOWED BY THE A.O. HIMSELF. AGGRIEVED AGAINST ALLOWANCE OF DEDUCTION U/S. 80IC OF THE ACT BY CIT(A), REVENUE CAME IN APPEAL BEFORE US. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINES S OF MANUFACTURE AND TRADING OF CONSUMER GOODS AND MEDICINES. THE ASSESSEES BRANDS ARE DET TOL, DISPRIN, ROBIN ULTRA MARINE BLUE, HARPIC, MORTEN MOSQUITO REPELLENT, CHERRY BLOSSOM S HOE POLISH ETC. THE FIRST UNIT I.E. PARWANOO, LIQUID UNIT, HIMACHAL PRADESH IS PRODUCIN G HARPIC, LIZOL, COLLIN, TEEPOL ETC. AND INITIAL ASSESSMENT YEAR FOR WHICH DEDUCTION WAS C LAIMED BY ASSESSEE AND ALLOWED BY REVENUE WAS AY 2004-05. THIS WAS INITIAL ASSESSMENT YEAR. IN RESPECT TO PARWANOO SOAP UNIT, HIMACHAL PRADESH WHERE SOAPS ARE PRODUCED AND INITI AL ASSESSMENT YEAR FROM WHICH DEDUCTION CLAIMED AND ALLOWED BY REVENUE WAS AY 2005-06. IN RESPECT TO BADDI UNIT, HIMACHAL PRADESH, WHICH PRODUCES POLISHES, CHERRY, MANSION, BRASSO ETC. AND INITIAL ASSESSMENT YEAR FROM WHICH DEDUCTION WAS CLAIMED BY ASSESSEE AND RE VENUE ALLOWED DEDUCTION U/S. 80IC OF THE ACT WAS 2005-06. THE AO DISALLOWED THE CLAIM OF DE DUCTION IN RESPECT OF THE ELIGIBLE UNIT SOLELY ON THE GROUND THAT THE PRODUCTS MANUFACTURED IN THE SAID UNITS BY THE ASSESSEE FALLS UNDER THE NEGATIVE LIST OF ITEMS (I.E. ORGANIC AND INORGA NIC CHEMICALS) SPECIFIED IN PART B SCHEDULE 13 OF THE ACT. THE AO MADE THE DISALLOWANCE ON THE PR ESUMPTION THAT ALL ORGANIC AND INORGANIC PRODUCTS IN SL. NOS. 4 AND 5 EXCEPT CERTAIN ITEMS A RE PART OF NEGATIVE LIST AS STATED IN 13 SCHEDULE. BUT AO FAILED TO NOTICE THAT ONLY ITEM M ENTIONED IN CHAPTER 28 AND 29 OF THE EXCISE CLASSIFICATION ARE COVERED IN SL. NOS. 4 AND 5 IN P ART B OF 13 SCHEDULE. NOW, WE HAVE TO GO THROUGH EXCISE CLASSIFICATION CHAPTERS 28, 29, 33, 34 AND 38. THE ASSESSEE HAS PRODUCED BEFORE THE LOWER AUTHORITIES AND EVEN NOW BEFORE US THE EX CISE CLASSIFICATION, 13TH SCHEDULE OF THE ACT AND RELEVANT EXTRACT OF THE NOTIFICATION NO. 50/3 D ATED 10.06.2003 AND NOTIFICATION NO. 76/2003 DATED 05.11.2003. 5 ITA NO.684 & 702/K/2011 RECKIT BENCKISER (I) LTD.., A.Y. 07-08. 6. WE HAVE GONE THROUGH EXCISE CLASSIFICATION CHAPT ERS 28, 29, 33, 34 AND 38. WE HAVE ALSO PERUSED THE DETAILS OF EXCISE CLASSIFICATION F OR THE PRODUCTS MANUFACTURED BY ASSESSEE IN ITS UNITS WHERE CLAIM OF DEDUCTION U/S. 80IC OF THE ACT WAS MADE. WE HAVE ALSO GONE THROUGH NOTIFICATION NO. 50/3 DATED 10.06.2003 AND AMENDED NOTIFICATION NO. 76/3 DATED 05.11.2003. WE HAVE ALSO GONE THROUGH COPY OF EXCISE RETURNS FO R THE QUARTER ENDED DECEMBER, 2003 IN RESPECT TO THE AFORESAID UNITS. AFTER GOING THROUG H THE ABOVE DOCUMENTS, IT WILL BE APPARENT FROM THE AFORESAID CLASSIFICATION CHAPTERS THAT THE RE ARE SPECIFIC CHAPTERS DEALING WITH THE PRODUCTS MANUFACTURED BY THE ASSESSEE I.E. CHAPTERS 33,34 AND 38. ACCORDING TO US, THESE PRODUCTS DO NOT FALL WITHIN CHAPTER 28 AND 29 AS AS SUMED BY THE AO. FURTHER, IN THIS CONTEXT, WE ARE OF THE VIEW THAT FOR THE PURPOSE OF CLAIMING EXCISE EXEMPTION AS PER NOTIFICATION NO. 50/03 AND AMENDED NOTIFICATION NO. 86/03 IN THE STA TE OF HIMACHAL PRADESH, WHEREIN THE AFORESAID UNITS OF THE ASSESSEE ARE SITUATED, THE M ANUFACTURER IS ELIGIBLE TO CLAIM EXCISE EXEMPTION ON THE CONDITION THAT IT SHOULD NOT PRODU CE OR MANUFACTURE THE PRODUCTS AS SPECIFIED IN THE NEGATIVE LIST THEREIN. WE ARE OF THE VIEW TH AT SUCH SPECIFIED NEGATIVE LIST AS PRESCRIBED UNDER THE AFORESAID NOTIFICATION WHICH THEMSELVES E NTITLED A MANUFACTURER TO CLAIM EXEMPTION FROM EXCISE DUTY ON THE MANUFACTURE OF PRODUCT IS S AME TO THE NEGATIVE LIST AS EXISTED IN PART B OF THIRTEENTH SCHEDULE OF THE ACT. HENCE, ACCORDIN G TO US, THE AFORESAID UNITS OF THE ASSESSEE ARE ENTITLED TO TAX CONCESSION UNDER THE DIRECT TAX LAW S AND CAN CLAIM DEDUCTION U/S. 80IC OF THE ACT. ACCORDING TO US, THESE UNITS ARE NOT ENGAGED IN MANUFACTURE OR ARTICLES OR THINGS STATED IN THE NEGATIVE LIST, THESE UNITS ARE ELIGIBLE FOR CLA IM OF EXEMPTION AND ARE BEING GRANTED EXEMPTION FROM THE PAYMENT OF EXCISE DUTY ON THE PR ODUCTS MANUFACTURED IN THE SAID UNITS AND IN THIS CONTEXT, THE AO WAS WRONG IN NOT ALLOWING D EDUCTION OR HOLDING THAT THESE UNITS ARE NOT ELIGIBLE FOR DEDUCTION U/S. 80IC OF THE ACT. HENCE , WE AGAIN REITERATE THAT THESE PRODUCTS MANUFACTURED BY THE ASSESSEE IN THEIR ELIGIBLE UNIT S ITSELF DOES NOT FALL UNDER CHAPTER 28 AND 29 OF THE EXCISE TARIFF AND THUS IS ALSO ELIGIBLE FOR DEDUCTION U/S. 80IC OF THE ACT. 7. FURTHER, BEFORE US ALSO ASSESSEE PRODUCED A COPY OF LETTER DATED 28.12.2010 FILED BEFORE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHE REIN THE ASSESSEE SUBMITTED BEFORE HIM AS UNDER: .FURTHER TO THE AFORESAID, YOUR HONOUR MAY PLEASE NOTE THAT THE THREE ELIGIBLE UNITS BEING PARWANOO SOAP, BADDI & JAMMU POWDER HAS COMME NCED OPERATION IN AY 2005-06, WHEREAS THE PARWANOO LIQUID UNIT HAS COMMENCED OPER ATION IN AY 2004-05 AND ACCORDINGLY DEDUCTION UNDER SECTION 80IB AND 80IC O F THE ACT HAS BEEN CLAIMED BY RBIL IN RESPECT OF SUCH UNITS IN EARLIER YEARS ALSO. TH E ELIGIBILITY OF SUCH UNITS FOR DEDUCTION UNDER SECTION 80IB AND SECTION 80IC OF THE ACT IN E ARLIER ASSESSMENT YEARS HAS BEEN EXAMINED AND ACCEPTED BY THE ASSESSING OFFICER AND HAS NOT BEEN SUBJECT TO A MATTER OF DISPUTE. IN THE INSTANT ASSESSMENT YEAR ALSO, THER E HAS BEEN NO CHANGE IN THE FACTS AS COMPARED TO EARLIER YEARS WITH RESPECT OF SUCH CLAI M OF DEDUCTION UNDER SECTIONS 80IB AND SECTION 80IC OF THE ACT. HENCE, IT IS SUBMITTED TH AT THE CLAIM MADE BY RBIL IN RESPECT OF THE SAID UNITS ARE AS PER THE PROVISIONS OF THE ACT . 6 ITA NO.684 & 702/K/2011 RECKIT BENCKISER (I) LTD.., A.Y. 07-08. ACCORDING TO THE ABOVE LETTER, WHICH WAS NEVER DENI ED BY REVENUE, THE ASSESSEE HAS BEEN CLAIMING DEDUCTION IN RESPECT OF AFORESAID ELIGIBLE UNITS U/S. 80IC OF THE ACT FROM EARLIER ASSESSMENT YEARS I.E. THE INSTANT ASSESSMENT YEAR I S NOT THE FIRST YEAR OF CLAIM OF DEDUCTION U/S. 80IC OF THE ACT. AS THE INSTANT ASSESSMENT IS NOT THE FIRST ASSESSMENT YEAR OF CLAIM OF DEDUCTION U/S. 80IC OF THE ACT AND THE CLAIM OF DED UCTION, FOR AFORESAID UNITS, U/S. 80IC OF THE ACT HAS BEEN ACCEPTED IN EARLIER ASSESSMENT YEARS, THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS COMPARED TO EARLIER YE ARS, NO DISALLOWANCE U/S. 80IC OF THE ACT CAN BE MADE BY THE AO. IN SUCH CIRCUMSTANCES, WE H AVE NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND WE CONFIRM THE SAME ON THIS ISSUE. A PPEAL OF REVENUE IS DISMISSED. NOW, ASSESSEES APPEAL IN ITA NO.702/KOL/2011. 8. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AS REGARDS TO CONFIRMATION OF DISALLOWANCE OF DEDUCTION U/S. 80IC OF THE ACT ON ACCOUNT OF INTERE ST INCOME EARNED BY ASSESSEE. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO.1 (B): THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT INTEREST INCOME OF RS.190,823,000 EARNED BY TH E APPELLANT AND ALLOCATED TO ELIGIBLE UNDERTAKINGS IS NOT ELIGIBLE FOR DEDUCTION UNDER SE CTION 80IC OF THE ACT ON THE GROUND THAT THE SAME IS NOT DERIVED FROM THE ELIGIBLE UN DERTAKING(S). 9. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE AO DISALLOWED THE CLAIM OF DEDUCTION U/S 80IC O F THE ACT ON INTEREST INCOME EARNED BY ASSESSEE AND CIT(A) ALSO CONFIRMED THE ACTION OF AO BY RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (2009) 317 ITR 218. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. AT THE OUTSET, LD . COUNSEL FOR THE ASSESSEE SHRI R. N. BAJORIA, SR. ADVOCATE RELIED ON THE PROVISIONS OF SECTION 80 IC OF THE ACT AND STATED THAT INTEREST INCOME IS FROM ELIGIBLE BUSINESS AND HENCE, DEDUCTION SHOU LD BE ALLOWED. WE HAVE GONE THROUGH THE PROVISIONS OF SECTION 80IC (1) OF THE ACT, WHICH RE ADS AS UNDER: (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE IN CLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS R EFERRED TO IN SUB-SECTION (2), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVIS IONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUC TION FROM SUCH PROFITS AND GAINS, AS SPECIFIED IN SUB-SECTION (3). THIS PROVISION OF SECTION 80IC(1) OF THE ACT, WHIC H CLEARLY STATES THAT ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRIS E FROM ANY BUSINESS REFERRED TO IN SUB- SECTION (2) MEANS ONLY LIMITED TO ANY BUSINESS REFE RRED TO IN SUB-SECTION OF THIS SECTION 80IC OF THE ACT. THAT MEANS THE INCOME SHOULD HAVE DIRECT NEXUS OR THAT PART OF GROSS 7 ITA NO.684 & 702/K/2011 RECKIT BENCKISER (I) LTD.., A.Y. 07-08. TOTAL OF INCOME WHICH INCLUDES ANY PROFITS AND GAIN S DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS AS REFERRED TO IN SUB- SECTION (2). THIS INTEREST INCOME IS NOT DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2) RATHER THIS INTEREST INCOME EARNED ON INVESTMENTS M ADE BY ASSESSEE FROM SURPLUS FUNDS GENERATED DURING EARLIER YEARS. THIS ISSUE IS SQUA RELY COVERED IN FAVOUR OF REVENUE AND AGAINST THE ASSESSEE BY THE DECISION OF HONBLE SUP REME COURT FIRSTLY IN THE CASE OF CIT VS. STERLING FOODS (1999) 237 ITR 579 (SC), WHEREI N IT IS HELD AT PAGE 584 AS UNDER: WE DO NOT THINK THAT THE SOURCE OF THE IMPORT ENTI TLEMENTS CAN BE SAID TO BE THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. T HE SOURCE OF THE IMPORT ENTITLEMENTS CAN, IN THE CIRCUMSTANCES, ONLY BE SAI D TO BE THE EXPORT PROMOTION SCHEME OF THE CENTRAL GOVERNMENT WHEREUND ER THE EXPORT ENTITLEMENTS BECOME AVAILABLE. THERE MUST BE, FOR T HE APPLICATION OF THE WORDS DERIVED FROM, A DIRECT NEXUS BETWEEN THE PR OFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. IN THE INSTANT CASE, TH E NEXUS IS NOT DIRECT BUT ONLY INCIDENTAL. THE INDUSTRIAL UNDERTAKING EXPORTS PROCESSED SEA FOOD. BY REASON OF SUCH EXPORT, THE EXPORT PROMOTION SCHEME APPLIES. THEREUNDER, THE ASSESSEE IS ENTITLED TO IMPORT ENTITLEMENTS, WH ICH IT CAN SELL. THE SALE CONSIDERATION THEREFROM CANNOT, IN OUR VIEW, BE HEL D TO CONSTITUTE A PROFIT AND GAIN DERIVED FROM THE ASSESSEES INDUSTRIAL UND ERTAKING. FURTHER HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS COMMISSIONER OF INCOME-TAX (2003) 262 ITR 278 (SC) H AS HELD AS UNDER: 4. SECTION 80HH OF THE INCOME-TAX ACT GRANTS DEDUC TION IN RESPECT OF PROFITS AND GAINS 'DERIVED FROM' AN INDUSTRIAL UNDERTAKING. THE CONTENTION OF THE APPELLANT BEFORE US IS THAT INTEREST EARNED ON THE DEPOSIT MADE WITH THE ELECTRICITY BOARD FOR THE SUPPLY OF ELECTRICITY TO THE APPELLANT'S INDUSTRIAL UNDERTAKING SHOULD BE TREATED AS INCOME DERIVED FRO M THE INDUSTRIAL UNDERTAKING WITHIN THE MEANING OF SECTION 80HH. IT IS SUBMITTED THAT WITHOUT THE SUPPLY OF ELECTRICITY THE INDUSTRIAL UNDERTAKING COULD NOT RU N AND SINCE ELECTRICITY WAS AN ESSENTIAL REQUIREMENT OF THE INDUSTRIAL UNDERTAKING , THE INDUSTRIAL UNDERTAKING COULD NOT SURVIVE WITHOUT IT. IT IS FURTHER POINTED OUT THAT FOR THE PURPOSE OF GETTING THIS ESSENTIAL INPUT, THE STATUTORY REQUIRE MENT WAS THAT THE DEPOSIT MUST BE MADE AS A PRE-CONDITION FOR THE SUPPLY OF ELECTR ICITY. CONSEQUENTLY, ACCORDING TO THE APPELLANT, THE INTEREST ON THE DEPOSIT SHOUL D BE TREATED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING WITHIN THE MEANING OF SECTION 80HH. IN VIEW OF THE ABOVE DECISION, THE INTEREST EARNED ON FIXED DEPOSITS OR AN INVESTMENT DOES NOT HAVE ANY IMMEDIATE NEXUS WITH THE BUSINESS REFE RRED TO IN SUB-SECTION (2) OF SECTION 80IC OF THE ACT AND ONCE IT IS NOT DERIVED FROM ANY BUSINESS OF THE UNDERTAKING AS REFERRED TO IN SUB-SECTION (2) OF SECTION 80IC OF THE ACT DE DUCTION CANNOT BE ALLOWED. WE CONFIRM THE ORDER OF CIT(A) ON THIS ISSUE. THIS ISSUE OF A SSESSEES APPEAL IS DISMISSED. 10. COMING TO SECOND, THIRD AND FOURTH ISSUE I.E. S CRAP SALE, T&M FEES AND ROYALTY PAYMENTS MADE TO ITS ASSOCIATE ENTERPRISES FOR USE OF INTELLECTUAL PROPERTY RIGHTS WHETHER ELIGIBLE FOR DEDUCTION U/S. 80IC OF THE ACT OR NOT. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF FENNER 8 ITA NO.684 & 702/K/2011 RECKIT BENCKISER (I) LTD.., A.Y. 07-08. (INDIA) LTD. VS. CIT (2000) 241 ITR 803 AND COMMISSIONER OF INCOME-TAX V. SUNDARAM INDUSTRIES LTD. (2002) 253 ITR 396 FOR SCRAP SALE AND T&M FEES, COMMISSIONER OF INCOME-TAX V. SPORTKING INDIA LIMITED (2010) 324 ITR 283(DEL) AND ALSO STATED THAT THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. IT SEEMS THAT ON THESE TWO ISSUES THE ASSESSEE HAS A CASE AS THE SAME IS COVER ED IN FAVOUR OF ASSESSEE. THE RECEIPT OF SCRAP SALE IS DIRECT AND IMMEDIATE RESULT OF BUSINE SS FOR AN UNDERTAKING AND THEREBY PROFITS AND GAINS FROM THE UNDERTAKING IS DERIVED BY THE AS SESSEE. ACCORDINGLY, THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 11. IN RESPECT OF ROYALTY PAYMENT TO ITS ASSOCIATE ENTERPRISES FOR USE OF INTELLECTUAL PROPERTY RIGHTS NEITHER AO NOR CIT(A) HAS DISCUSSED FACTS RELATING TO THIS ISSUE IN THEIR RESPECTIVE ORDERS. HENCE, WE REMIT BACK THIS ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION. NEEDLESS TO SAY, THE ASSESSEE IS FREE TO MAKE ITS C LAIM AFRESH BEFORE THE AO AND AO WILL DECIDE ACCORDINGLY. 12. IN THE RESULT, REVENUES APPEAL IS DISMISSED AN D THAT OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 13. ORDER IS PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER, 2013. SD/- SD/- ! ! ! !. . . . # ## ##$ #$#$ #$ , %& , (ABRAHAM P. GEORGE) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( 2& 2& 2& 2&) )) ) DATED: 30 TH DECEMBER, 2013 34 (5# 6 JD.(SR.P.S.) %1 7 /! 8%!*9- COPY OF THE ORDER FORWARDED TO: 1 . % /APPLICANT DCIT, CIRCLE-12, KOLKATA. 2 /0-. / RESPONDENT, M/S. RECKITT BENCKISER (INDIA) LTD., 227, OKHLA INDUSTRIAL ESTATE, NEW DELHI-110096. 3 . 1( ( )/ THE CIT(A) , KOLKATA 4. CIT, KOLKATA 5 . ?@ /( / DR, KOLKATA BENCHES, KOLKATA 0! // TRUE COPY, %1(A/ BY ORDER, # /ASSTT. REGISTRAR .