DEV ASHISH POLYMERS P. LTD, MUUMBAI V. ITO WD 2(1)(2), MUMBAI

ITA 6927/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2718 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-11-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 04-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Assessee Lawyers: S M BANDI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 6927/M/08 ASSESSMENT YEAR: 2005-06 M/S DEV ASHISH POLYMERS PVT. LTD., APPELLANT NTC HOUSE, N.M. ROAD, BALLARD ESTATE, MUMBAI 400 038. (PAN AAACD2341 J) VS. INCOME TAX OFFICER, RESPONDENT WARD 2(1)(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. APPELLANT BY : MR. S.M. BANDI RESPONDENT BY : MR. L.K. AGRAWAL O R D E R PER A.L. GELHOT, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A) II, MUMBAI, PASSED ON 29.10.2008 FOR T HE ASSESSMENT YEAR 2005-06. 2. THE SOLE GROUND RAISED IN THIS APPEAL IS THAT TH E CIT(A) ERRED IN NOT ALLOWING DEDUCTION U/S 80-IB STATING THAT TH E FOLLOWING INCOMES WERE NOT DERIVED FROM INDUSTRIAL UNDERTAKING:- (A) EXPORT INCENTIVE ADVANCE LICENSE OF RS. 22,43, 680/- (B) IMPORT INSURANCE CLAIM OF RS. 1,99,681/- (C) FDR INTEREST INCOME OF RS. 46,759/- (D) SUNDRY BALANCE RETURNED BACK OF RS. 49,027/- (E) ROUNDED OFF CREDIT BALANCE OF RS. 12/-. ITA NO. 6927/MUM/08 M/S DEV ASHISH POLYMERS PVT. LTD. 2 3. THE AO DISALLOWED THE DEDUCTION U/S 80-IB ON THE ABOVE INCOMES, WHICH HAS BEEN CONFIRMED BY THE CIT(A) BY FOLLOWING THE JUDGMENTS, MENTIONED AS UNDER:- 1. LIBERTY INDIA LTD. V. CIT 317 ITR 218(SC) 2. VARINDRA AGRO CHEM LTD. V. DCIT 100 TTJ 1114(CH AND.) 3. ACIT VS. P.S. APPARELS, 101 TTJ 29 (CHENNAI) 4. THE LEARNED AR SUBMITTED THAT EXPORT INCENTIVE A DVANCE LICENSE IS DIRECTLY RELATED TO EXPORT OF GOODS MANU FACTURED BY THE ASSESSEE AS THE RAW MATERIALS IMPORTED, WITHOUT PAY MENT OF DUTY, WERE UTILIZED IN THE MANUFACTURING OF THE GOODS FOR EXPORT. THE LEARNED AR SUBMITTED THAT IT DIRECTLY REDUCES THE C OST OF THE PRODUCTION AND THEREBY NEUTRALIZES THE COST OF PROD UCTION ATTRIBUTABLE TO SUCH DUTIES, WHICH IS AN INTEGRAL PART AND KEY I NGREDIENT FOR PRICING OF THE GOODS MANUFACTURED BY THE ASSESSEE. THE LEARNED AR SUBMITTED THAT EXPORT INCENTIVE IN FORM OF DUTY FRE E REPLENISHMENT CERTIFICATE IS DIRECTLY RELATED TO THE MANUFACTURIN G OF GOODS AND THEREBY IS THE MAIN BUSINESS ACTIVITY OF THE INDUST RIAL UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80-IB. THE LEARNED AR R ELIED UPON THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF C IT VS. INDIA GELATINE AND CHEMICALS LTD., 275 ITR 284 WHEREIN IT WAS HELD THAT DUTY DRAWBACK IS AN INTEGRAL PART OF THE PRICING OF THE GOODS AND, THEREFORE, PART OF THE COST OF PRODUCTION OF THE IN DUSTRIAL UNDERTAKING AND, THEREFORE, DUTY DRAWBACK HAS TO BE TREATED AS DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE LEARNED AR HAS ALSO REL IED UPON THE JUDGMENT IN THE CASE OF CIT V DHARAM PAL PREM CHAND LTD 115 TAXMAN 557 (DELHI). THE LEARNED AR SUBMITTED THAT H ONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA V. CIT, 317 ITR 218 (SC) HAS BEEN DECIDED THE ISSUE AGAINST THE ASSESSEE WHICH IS IN RESPECT OF DEPB. ITA NO. 6927/MUM/08 M/S DEV ASHISH POLYMERS PVT. LTD. 3 5. IN RESPECT OF IMPORT INSURANCE CLAIM, THE LEARNE D AR SUBMITTED THAT THE CLAIM WAS AGAINST THE DAMAGES OF GOODS IMPORTED, THEREFORE, IT IS DIRECTLY RELATED TO ASSESSEES BUS INESS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE LEARNED AR FUR THER SUBMITTED THAT SIMILAR IS THE POSITION IN RESPECT OF FDR INTE REST INCOME. IN RESPECT OF SUNDRY BALANCES WRITTEN BACK, THE LEARNE D AR SUBMITTED THAT THESE ADJUSTMENTS WERE ON ACCOUNT OF PURCHASE, WHICH IS DIRECTLY RELATED TO ASSESSEES BUSINESS ACTIVITY, THEREFORE THIS ACTIVITY OF ADJUSTMENT ULTIMATELY THE INCOME DERIVED FROM INDUS TRIAL UNDERTAKING. SIMILAR IS THE SUBMISSION IN RESPECT O F EXPORT BUSINESS. 6. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF CIT(A) AND SUBMITTED THAT EXPORT INCENTIVE ADVANCE LICENSE IS AGAINST THE ASSESSEE BY THE JUDGMENT OF APEX COURT IN THE C ASE OF LIBERTY INDIA V. CIT, 317 ITR 218 (SC) 183 TAXMAN 527. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. AS REGARDS THE 1 ST ITEM, EXPORT ADVANCE LICENSE WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE JUD GMENT OF APEX COURT IN THE CASE OF LIBERTY INDIA V. CIT, 317 ITR 218 (S C) WHEREIN IT WAS HELD THAT DEPB/DUTY DRAWBACK ARE INCENTIVE WHICH FL OWS FROM THE SCHEME FRAMED BY CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOM ACT HENCE PROFITS BY WAY OF SUCH INCENTIVE I S NOT FALL WITHIN THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDE RTAKING IN SECTION 80-IB. RESPECTFULLY FOLLOWING ABOVE JUDGMENT OF THE APEX COURT WE CONFIRM THE ORDER OF THE CIT(A) ON THE ISSUE. 7.1 SIMILARLY, FDR INTEREST INCOME IS ALSO COVERED AGAINST THE ASSESSEE BY THE VARIOUS DECISIONS AND JUDGMENTS, DC IT V. MIRA INDUSTRIES 87 ITD 475 (AHD.), PANDIAN CHEMICALS LT D V CIT262 ITR 278(SC) CIT V STERLING FOODS -237 ITR 579 (SC) AND NORTH EAST GASES (P) LTD V CIT220 ITR 372 ( GAUHATI). WE RESPECTFULL Y FOLLOW THE ABOVE ITA NO. 6927/MUM/08 M/S DEV ASHISH POLYMERS PVT. LTD. 4 DECISIONS AND IN THE LIGHT OF THAT THE ORDER OF THE (CITA) IS CONFIRMED ON THE ISSUE. 7.2 AS REGARDS INSURANCE AND SUNDRY BALANCES WRITTE N BACK, THE SUBMISSION OF THE LEARNED AR IS THAT THESE ITEMS AR E RELATED TO PURCHASES OF RAW MATERIAL. IT IS TO NOTE THAT THESE ITEMS OF INSURANCE CLAIM AND SUNDRY BALANCES WRITTEN BACK STATED TO BE RELATED TO RAW MATERIAL PURCHASES. THERE ARE TWO WAYS OF RECORDING SUCH TRANSITIONS IN THE BOOKS OF ACCOUNTS. IN CASE OF ANY CLAIM ON A CCOUNT OF INSURANCE OF RAW MATERIAL IS RECEIVED THE SAME IS CREDITED SE PARATELY. SIMILARLY, IF ANY AMOUNT HAS BEEN WRITTEN BACK ON ACCOUNT OF P URCHASES BY DEBITING THE RESPECTIVE CREDITORS ACCOUNT, THIS ALS O IS SHOWN IN THE BOOKS OF ACCOUNT BY CREDITING THE WRITTEN BACK ACCO UNT. IN THIS SYSTEM OF ACCOUNTING ENTRIES THE TOTAL PURCHASE OF RAW MAT ERIAL IS ACCOUNTED FOR GROSS AMOUNT. THE ANOTHER WAY OF PASSING ACCOUN TING ENTRIES IS THAT CREDITING THE RESPECTIVE PURCHASES OF RAW MATE RIAL ACCOUNT BY THESE ITEMS OF INSURANCE CLAIMS AND BALANCE WRITTEN BACK AS THESE DIRECTLY RELATED TO COST OF RAW MATERIAL PURCHASES. THE ASSESSEE HAS AN OPTION TO OPT EITHER OF THE SYSTEM OF PASSING AC COUNTING ENTRIES. AS PER THE ACCOUNTING PRINCIPLE AND SUCH SYSTEM OF PASSING ACCOUNTING ENTRIES, THERE IS NO NET EFFECT ON THE P ROFIT BY FOLLOWING ANY OF ABOVE SYSTEM OF PASSING ACCOUNTING ENTRIES. THE ENTRIES OF BOTH SIDE CREDIT AND DEBIT IN ONE ACCOUNT ARE ONE OF THE WAYS OF THE PRESENTATION OF THE CORRECT COST OF RAW MATERIAL. I N SUCH CASES, IN FACT THERE IS NO SEPARATE SUCH INDEPENDENT INCOME. IT AP PEARS FROM THE RECORD THAT THE ASSESSEE HAS FOLLOWED ANOTHER METHO D OF PASSING ACCOUNTING ENTRIES THAT IS BY CREDITING INSURANCE C LAIM AND BALANCE WRITTEN BACK IN SEPARATE ACCOUNT IN STEAD OF PURCHA SE ACCOUNT. BUT THIS PROCEDURE OF ACCOUNTING AND RELATED FACTS IS S UBJECT TO VERIFICATION WHETHER THIS INSURANCE CLAIM IS IN RES PECT OF PURCHASE OF RAW MATERIAL OR IN RESPECT OF OTHER ITEMS. WE MAY C LARIFY THAT IF THESE ITEMS OF INSURANCE CLAIM AND SUNDRY BALANCE WRITTEN BACK ARE NOT RELATED TO RAW MATERIAL OR ITEMS OF EXPENDITURE, WH ICH WERE DEBITED TO ITA NO. 6927/MUM/08 M/S DEV ASHISH POLYMERS PVT. LTD. 5 P&L A/C WE ARE OF THE CONSIDERED VIEW THAT IN THAT CASE THE ASSESSEE IS NOT ENTITLED TO SET OFF THEIR COST OF RAW MATERI ALS AS THE SAME WERE NOT RELATED TO RAW MATERIAL OR EXPENDITURE. IF THES E ITEMS ARE OTHER THAN THE RAW MATERIAL OR EXPENDITURE DEBITED TO P&L A/C THEN THESE ARE THE SEPARATE INDEPENDENT INCOME WHICH CANNOT BE SAID TO BE THE INCOME DERIVED FROM INDUSTRIAL UNDERTAKING, ACCORD INGLY THE ASSESSEE WILL NOT ENTITLE FOR DEDUCTION U/S 80-IB OF THE A/C . THE CIT(A) RELIED UPON THE DECISION OF ITAT, CHANDIGARH IN THE CASE O F VARINDRA AGRO CHEM LTD. V. DCIT, 100 TTJ 1114(CHD.) WHEREIN THE I TAT HAS FOLLOWED THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. KHEMKA CONTAINER (P) LTD., 275 ITR 559 (P&H) WHEREI N IT WAS HELD THAT INSURANCE CLAIM IN RESPECT OF RAW MATERIAL DES TROYED IN FIRE IS NOT AN INCOME DERIVED FROM INDUSTRIAL UNDERTAKING SO AS TO QUALIFY FOR DEDUCTION U/S 80-I, WHAT HAS TO BE EXCLUDED IS NOT THE GROSS RECEIPT BUT THE INCOME ARISING OUT OF INSURANCE CLAIM WHICH CAN BE COMPUTED BY DEDUCTING COST OF RAW MATERIAL DESTROYED IN FIRE FROM THE GROSS RECEIPT OF INSURANCE CLAIM. 7.3 IN THE LIGHT OF ABOVE DISCUSSION, AS STATED THE FACTS ARE SUBJECT TO VERIFICATION, WE THEREFORE, THINK IT PROPER TO R EMIT THE MATTER BACK THIS MATTER TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH AFTER CONSIDERING ABOVE DISCUSSION AND AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 7.4 THE LAST ISSUE REGARDING ROUNDED OFF CREDIT BA LANCE OF RS. 12/- BEING A PETTY ISSUE, THE SAME IS IGNORED FOR DECISI ON. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 10 TH DECEMBER, 2009. SD/- SD/- (D. MANMOHAN) (A.L. GEHLOT ) VICE PRESIDENT ACCOUNTAN T MEMBER DATED: 10 TH DECEMBER, 2009 ITA NO. 6927/MUM/08 M/S DEV ASHISH POLYMERS PVT. LTD. 6 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, D BENCH , I.T.A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INTALS 1. DRAFT DICTATED ON 17.11.09 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 18.11.09 SR.P.S/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.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER