V. K. INDUSTRIES, MUMBAI V. DCIT - 30(3), MUMBAI

ITA 6929/MUM/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0188 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 07-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAYN KUMAR G SUBRAMA NIYAN
• Assessee Lawyers: NITIN FURIA
• Keywords: Business income; Initiation of penalty proceedings
• Section: 271(1)(c); 234B; 80IB; 80IA; 13; 22

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI , .'# ,&' &( BEFORE VIKAS AWASTHY, JUDICIAL MEMBER & SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER . 6929/ / 2017 (. . 2012-13 ) ITA NO.6929/MUM/2017A.Y.2012-13) M/S. V K INDUSTRIES, 16, MEHTA INDUSTRIAL ESTATE, 3 RD LIBERTY GARDEN, X LANE, MALAD WEST, MUMBAI 400 064 PAN: AADFV1419I ...... , / APPELLANT VS. THE JCIT 30(3), C-10/709, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA(E), MUMBAI 400 051 ..... -. / RESPONDENT ASSESSEE BY : SHRI NITIN FURIA REVENUE BY : SHRI VIJAYN KUMAR G SUBRAMA NIYAN /. / DATE OF HEARING : 03/12/2020 012 /. / DATE OF PRONOUNCEMENT : 23/02/2021 &/ ORDER PER VIKAS AWASTHY,JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-41, MUMBAI ( I N SHORT THE CIT(A)) DATED 07/09/2017 FOR THE ASSESSMENT YEAR 2012-13. 2. SHRI NITIN FURIA APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AND TRADING OF ELECTRICAL,ELECTRONIC GOODS AND HOUSE WIRES. THE MANUFACTURING UNIT OF THE ASS ESSEE IS SITUATED AT DAMAN, 2 . 6929/ / 2017 (. . 2012-13 ) ITA NO.6929/MUM/2017A.Y.2012-13) AN INDUSTRIALLY BACKWARD AREA SPECIFIED IN 8 TH SCHEDULE AND HENCE, THE SAID UNIT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF TH E INCOME TAX ACT, 1961 ( IN SHORT THE ACT). THIS IS THE ONLY BUSINESS OF TH E ASSESSEE AND THERE IS NO OTHER BUSINESS ACTIVITY CARRIED OUT BY THE ASSESSEE, HENC E, THE INCOME DECLARED BY THE ASSESSEE IS FROM BUSINESS OF MANUFACTURING HOUS E WIRE, ELECTRIC AND ELECTRONIC GOODS ELIGIBLE FOR DEDUCTION UNDER SECTI ON 80 IB OF THE ACT. 2.1 THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSE E SUBMITTED THAT THE ASSESSEE HAD TAKEN EMPLOYEES RETENTION POLICY ( IN SHORT ERP) FROM ICICI PRUDENTIAL LIFE INSURANCE IN THE NAME OF TWO EMPLOY EES I.E. MR.SAMEER GALA AND MR. VIJAY GALA. THE AFORESAID POLICY WAS TAK EN TO SAFEGUARD ANY PROBABLE LOSSES AT THE TIME OF EXIT OF THE AFORESAID EMPLOYE ES BEFORE THE PERIOD AS SPECIFIED IN THE POLICY. THE RETENTION BENEFITS/IN CENTIVES WERE GIVEN TO ABOVE MENTIONED KEY PERSONNEL TO STAY FOR A LONGER DURATI ON WITH THE ASSESSEE. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR U NDER APPEAL BOTH THE ABOVE SAID PERSONS LEFT THE ASSESSEE COMPANY DURING THE CURRENCY OF ERP. AFTER THE EXIT OF ABOVE SAID EMPLOYEES FROM EMPLOY MENT OF ASSESSEE, THE ASSESSEE RECEIVED COMPENSATION OF RS.39,74,925/- ON THE REDEMPTION OF POLICY. THE LD.AUTHORIZED REPRESENTATIVE OF THE AS SESSEE POINTED THAT MR.SAMEER GALA AND MR. VIJAY GALA WERE KEY EMPLOYEE S IN HANDLING MANUFACTURING, DISTRIBUTION AND MARKETING OF THE PR ODUCTS. MR.SAMEER GALA WAS INSTRUMENTAL IN SOURCING OF NEW PRODUCTS, MARKE TING STRATEGY AND ALSO CONTRIBUTED IN MAINTAINING ACCOUNTS OF CUSTOMERS. MR. VIJAY GALA HANDLED MATERIAL PROCUREMENT AND PLAYED VITAL ROLE IN SUPPL Y AND DISTRIBUTION CHAIN. 2.2 THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80 IB OF THE ACT ON THE AMOUNT RECEIVED ON REDEMPTION OF ERP. THE ASSES SING OFFICER IN SCRUTINY 3 . 6929/ / 2017 (. . 2012-13 ) ITA NO.6929/MUM/2017A.Y.2012-13) ASSESSMENT PROCEEDINGS REJECTED ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80 IB OF THE ACT, INTER-ALIA ON THE AMOUNT RECEIV ED BY ASSESSEE ON REDEMPTION OF ERP. AGGRIEVED AGAINST THE ASSESSMEN T ORDER DATED 26/02/2015, THE ASSESSEE FILED APPEAL BEFORE THE CI T(A). THE CIT(A) WITHOUT APPRECIATING THE FACTS REJECTED ASSESSEES CLAIM ON THE PREMISE THAT ERP THOUGH LABELLED AS INSURANCE POLICY BUT IN STRICT SENSE DOES NOT QUALIFY AS INSURANCE POLICY AS IT IS NOT GOVERNED BY THE INSUR ANCE REGULATORY AUTHORITY OF INDIA. THE CIT(A) FURTHER HELD THAT THE REDEMPTION AMOUNT RECEIVED HAS NO DIRECT NEXUS WITH ACTIVITIES OF THE INDUSTRIAL UND ERTAKING ELIGIBLE FOR BENEFIT UNDER SECTION 80 IB OF THE ACT. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ASSERTED THAT THE ASSESSEE HAS MADE PAYME NT OF THE POLICY PREMIUM ON THE AFORESAID POLICES FROM 31/03/2008 TO 31/03/2 010. THE SAME WAS ALLOWED AS EXPENSES, CONSEQUENTLY, THE ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80 IB OF THE ACT TO THE EXTENT OF EXPENDIT URE ALLOWED WAS REDUCED. TO SUPPORT HIS CONTENTIONS, THE ASSESSEE PLACED ON REC ORD P&L ACCOUNT FOR THE FINANCIAL YEAR ENDING ON 31/03/2008, 31/03/2009 AND 31/03/2010. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE VEHEME NTLY ARGUED THAT THERE A DIRECT NEXUS BETWEEN THE PROCEEDS RECEIVED FROM RED EMPTION OF ERP AND THE PROFITS FROM THE INDUSTRIAL UNDERTAKING. THE LD. AU THORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED THAT SECTION 28(VI) SPECIFIC ALLY PROVIDES THAT SUM RECEIVED UNDER KEYMEN INSURANCE POLICY IS CHARGEA BLE TO INCOME TAX AS BUSINESS INCOME. IN ANY CASE, THIS IS THE ONLY BUS INESS OF THE ASSESSEE, THEREFORE, THE ASSESSEE SHOULD BE GRANTED THE BENEF IT OF DEDUCTION UNDER SECTION 80 IB OF THE ACT ON THE AMOUNT RECEIVED ON REDEMPTION OF ERP. IN SUPPORT OF HIS CONTENTIONS, THE LD.AUTHORIZED REPRE SENTATIVE OF THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS: 4 . 6929/ / 2017 (. . 2012-13 ) ITA NO.6929/MUM/2017A.Y.2012-13) (I) CIT VS. SPORTKING INDIA LTD., 324 ITR 283(DEL) (II) SNAM PROGETTI SPA VS. ADDL.CIT, 132 ITR 70(DEL) (III) ITO VS. ELECTRO FERRO ALLOYS LTD. 13 ITR (TRIB) 594 (AHD) 3. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT IN GROUND NO.2 OF APPEAL, THE ASSESSEE HAS RAISED AN ALTERNATE CONTENTION WITHOUT PREJUDICE TO THE FIRST CONTENTION THAT IF , THE REDEMPTION AMOUNT IS NOT HELD TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB OF THE ACT, THEN THE EXPENSES NOT HAVING DIRECT NEXUS TO INDUSTRIAL UNDE RTAKING SHOULD BE EXCLUDED FOR CALCULATING DEDUCTION UNDER SECTION 80 IB OF TH E ACT. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE POINTED THAT THE ASS ESSING OFFICER IN ASSESSMENT PROCEEDINGS HAS DISALLOWED INTEREST INCO ME ON FIXED DEPOSITS AS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB OF T HE ACT, IN APPEAL THE CIT(A) HAS GRANTED THE BENEFIT OF DEDUCTION ON THE SAID IN TEREST AMOUNT. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE FURTHE R SUBMITTED THAT THE ASSESSEE HAD INCURRED SEVERAL INDIRECT EXPENSES AGG REGATING TO RS.2,97,98,713/-. THESE EXPENDITURE ARE NOT DIRECT LY RELATED TO MANUFACTURING ACTIVITY OF THE BUSINESS AND HENCE, SHOULD BE EXCLU DED WHILE DETERMINING PROFIT FOR THE PURPOSE OF DEDUCTION UNDER SECTION 8 0 IB OF THE ACT. 4. ON THE CONTRARY, SHRI VIJAYN KUMAR G SUBRAMANIYAN REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER A ND PRAYED FOR DISMISSING THE APPEAL OF ASSESSEE. THE LD.DEPART MENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS FAILED TO SHOW FIRS T DEGREE NEXUS BETWEEN THE PROFIT AND GAINS DERIVED FROM THE ELIGIBLE UNIT AND REDEMPTION AMOUNT OF THE ERP. 5 . 6929/ / 2017 (. . 2012-13 ) ITA NO.6929/MUM/2017A.Y.2012-13) 5. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S, EXAMINED ORDERS OF AUTHORITIES BELOW AND HAVE CONSIDERED THE DECISIONS ON WHICH RELIANCE HAS BEEN PLACED BY THE ASSESSEE. THE PRIMARY ISSUE BEF ORE US IN APPEAL IS WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTIO N 80 IB OF THE ACT ON SUM RECEIVED BY ASSESSEE ON REDEMPTION OF ERP. IN SO F AR FACTS OF THE CASE ARE CONCERNED, THEY ARE NOT IN DISPUTE. 6. A BARE PERUSAL OF SECTION 80 IB OF THE ACT WOULD SHOW THAT IT IS THE PROFIT AND GAINS DERIVED FROM ANY BUSINESS SPECIFIED IN SU B-SECTION (3) TO (11), (11A) AND (11B) SHALL BE ELIGIBLE FOR DEDUCTION SUBJECT TO FULFILMENT OF CONDITIONS SPECIFIED IN SUB-SECTION(2). THE EXPRESSION DERIV ED FROM USED IN SECTION IS OF PARAMOUNT SIGNIFICANCE. THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF LIBERTY INDIA VS. CIT , 317 ITR 218 HAS HELD THAT THE WORDS DERIVED FROM USED IN SECTION 80IA/80IB OF THE ACT INTEND TO COVER SOU RCES NOT BEYOND THE FIRST DEGREE . IT IS NOT IN DISPUTE THAT THE INDUSTRIAL UNDERTAKIN G OF THE ASSESSEE QUALIFIES FOR DEDUCTION UNDER SECTION 80 IB OF THE ACT. THE ISSUE BEFORE US IS IN NARROW COMPASS I.E. WHETHER AMOUNT RECEIVED ON RED EMPTION OF ERP HAS DIRECT NEXUS WITH PROFITS & GAINS OF UNDERTAKING A ND HENCE, ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB OF THE ACT. IN THE PRESENT CASE WE FIND THAT APART FROM TH E BUSINESS OF MANUFACTURING OF ELECTRICAL AND ELECTRONIC GOODS AN D WIRES THERE IS NO OTHER BUSINESS OF THE ASSESSEE. THUS, THE POLICY PREMIUM PAID BY THE ASSESSEE UNDER EMPLOYEE RETENTION SCHEME WAS IN RESPECT OF EMPLOYE ES WORKING IN THE INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB OF THE ACT. THE PREMIUM AMOUNT PAID BY THE ASSESSEE OVER THE YE ARS I.E. FROM FINANCIAL YEAR 2007-08 TO 2009-10 AGGREGATING TO RS.33,00,000 /- WAS ALLOWED AS 6 . 6929/ / 2017 (. . 2012-13 ) ITA NO.6929/MUM/2017A.Y.2012-13) EXPENDITURE BY THE DEPARTMENT IN THE CORRESPONDING ASSESSMENT YEARS. THIS RESULTED IN REDUCTION IN THE PROFITS AND THE ASSE SSEES CLAIM OF DEDUCTION UNDER SECTION 80 IB OF THE ACT. THE RETENTION OF T HE EMPLOYEES VIZ. MR. SAMEER GALA AND MR. VIJAY GALA IN THE OPINION OF ASSESSEE WAS CRITICAL FOR PROFITABLE WORKING OF THE INDUSTRIAL UNDERTAKING. THUS, THERE WAS LIVE CONNECTION BETWEEN THE OPERATIONS OF INDUSTRIAL UNDERTAKING AND THE SERVICES RENDERED BY THE SAID KEY EMPLOYEES IN THE UNDERTAKING. TH E DEPARTURE OF BOTH SAID EMPLOYEES FROM THE EMPLOYMENT OF ASSESSEE DURING TH E PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL RESULTED IN CULMINATIO N OF ERP. THE LOSS SUFFERED BY THE ASSESSEE ON EXIT OF THE AFORESAID E MPLOYEES WAS COMPENSATED TO THE EXTENT COVERED BY THE POLICY. 7. THE HON'BLE DELHI HIGH COURT IN THE CASE OF SPOR TKING INDIA LTD. (SUPRA) WHILE DEALING WITH THE ISSUE OF ELIGIBILITY OF DED UCTION UNDER SECTION 80IA ON THE AMOUNT RECEIVED AS INSURANCE COMPENSATION ON GO ODS DESTROYED HELD THAT THERE IS A NEXUS BETWEEN BUSINESS AND THE GOODS OF THE BUSINESS THAT ARE DESTROYED AND FOR WHICH AN INSURANCE AMOUNT IS CLAI MED. IN OTHER WORDS THE HONBLE HIGH COURT HELD THAT THERE WAS NEXUS BETWEE N THE PROFIT DERIVED FROM THE BUSINESS OF ELIGIBLE INDUSTRIAL UNDERTAKING AND THE AMOUNT OF INSURANCE CLAIMED. WHILE HOLDING SO, THE HONBLE HIGH COURT CONSIDERED VARIOUS DECISIONS. FOR THE SAKE OF COMPLETENESS RELEVANT E XTRACT OF THE FINDING OF HONBLE HIGH COURT ON THE ISSUE ARE REPRODUCED HERE IN BELOW: 4. THE ISSUE, THEREFORE, WHICH FALLS FOR CONSIDERAT ION IS, WHETHER THE INSURANCE CLAIM WHICH HAS BEEN RECEIVED CANNOT BE CONSIDERED WHILE MAKING DEDUCTIONS IN RESPECT OF THE PROFITS AND GAINS FROM AN INDUSTRIAL UNDERTAKING UNDER SECTION 80-IA. THE MATTER BOILS DOWN TO THE MEANING OF THE EXPRESSION 'DERIVED FROM ANY BUSINES S OF AN INDUSTRIAL UNDERTAKING' AS APPEARING IN SECTION 80-IA. 7 . 6929/ / 2017 (. . 2012-13 ) ITA NO.6929/MUM/2017A.Y.2012-13) 5. AT THE OUTSET, WHILE: DETERMINING THE MEANING TO BE ATTRIBUTED TO THIS EXPRESSION, ONE MUST KEEP IN MIND THAT SECTION 80-IA IS A PART OF F ASCICULUS OF PROVISIONS WHEREBY BENEFITS ARE GRANTED TO CERTAIN INDUSTRIAL UNDERTAKINGS, BUSINES SES ETC. INCLUDING THOSE WHICH ARE LOCATED IN CERTAIN SPECIAL LOCATIONS/AREAS. THE OBJECT IS G ENERATION OF NEW INVESTMENT AND EMPLOYMENT WITH RESPECT TO PARTICULAR INDUSTRIES IN CERTAIN AREAS AND IN CERTAIN LOCATIONS BESIDES GENERATION OF REVENUE FOR THE GOVERNMENT AN D INDUSTRIES FROM WHOM PLANT, ETC. WILL BE PURCHASED BY THE NEW INDUSTRIAL UNDERTAKING. THE OBJECT OF THE PROVISION IS FURTHER MADE CLEAR FROM SUBSECTION (2) OF SECTION 80-IA WHEREBY SUCH BUSINESSES ARE NOT CONSIDERED FOR TAKING ADVANTAGE OF THE DEDUCTION UNDER SECTION 80- IA IF EITHER IT IS FORMED FROM SPLITTING UP OF AN EXISTING BUSINESS OR BY USE OF MACHINERY OR P LANT PREVIOUSLY USED AND SO ON. THE OBJECT IS CLEARLY TO GIVE FILLIP TO THE ECONOMY AND TO INV ESTMENT. THIS OBJECT WILL HAVE TO BE KEPT IN VIEW WHILE INTERPRETING THE PROVISIONS OF SECTION 8 0-IA. [ 6. WE FIND THAT FOR A SIMILAR PROVISION OF SECTION 80-IB, TWO DECISIONS HAVE BEEN RENDERED BY TWO DIVISION BENCHES OF THIS COURT IN T HE JUDGMENTS REPORTED AS CIT V. ELTEK SGS (P.) LTD.[2008] 300 ITR 6 AND CIT V. DHARAM PAL PRE M CHAND LTD. [2009] 221 CTR (DELHI)133 . IN THE ELTEK SGS (P.) LTD.'S CASE (SUPRA] DUTY DRAW BACK WAS HELD TO BE PROFITS/GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING AND HENCE ELIGIBLE F OR DEDUCTIONS UNDER SECTION 80-IB. IN THE CASE OF DHARAM PAL PREM CHAND LTD. (SUPRA] REFUND O F EXCISE DUTY WAS HELD TO BE PROFITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING WITHIN THE MEANING OF AN EXPRESSION UNDER SECTION 80-IB 7.IN FACT, THE SUPREME COURT, WAY BACK IN 1952 IN T HE JUDGMENT REPORTED AS RAGHUVANSHI MILLS LTD. V. CIT[1952] 22 ITR 484 HELD THAT WHERE THE ASSESSEE HAD TAKEN POLICY KNOWN AS 'CONSEQUENTIAL LOSS POLICY' AGAINST LOSS OF PROFIT AND ITS MILLS WERE COMPLETELY DESTROYED BY FIRE THE AMOUNT RECEIVED UNDER THE POLICY WAS HELD TO BE INSEPARABLY CONNECTED WITH THE CONDUCT OF THE BUSINESS AND, HENCE, WAS HELD TO BE A:REVENUE RECEIPT.'PARA 18 IS RELEVANT AND IS RE-PRODUCED HEREIN:- '18. THE ASSESSEE IS A BUSINESS COMPANY. ITS AIM IS TO MAKE PROFITS AND TO INSURE AGAINST LOSS. IN THE ORDINARY WAY IT DOES THIS BY BUYING RAW MATERIAL, MANUFACTURING GOODS OUT OF THEM AND SELLING THEM SO THAT ON BALAN CE THERE IS A PROFIT OR GAIN TO ITSELF. BUT IT ALSO HAS OTHER WAYS OF ACQUIRING GAI N, AS DO ALL PRUDENT BUSINESSES, NAMELY BY INSURING AGAINST LOSS OF PROFITS. IT IS I NDUBITABLE THAT THE MONEY PAID IN SUCH CIRCUMSTANCES IS A RECEIPT AND INSOFAR AS IT R EPRESENTS LOSS OF PROFITS, AS OPPOSED TO LOSS OF CAPITAL AND SO FORTH, IT IS AN ITEM OF I NCOME IN ANY NORMAL SENSE OF THE TERM. IT IS EQUALLY CLEAR THAT THE RECEIPT IS INSEPARABLY CONNECTED WITH THE OWNERSHIP AND CONDUCT OF THE BUSINESS AND ARISES FROM IT. ACCORDI NGLY, IT IS NOT EXEMPT,' (P. 488) , 8. SIMILARLY, IN THE CASE OF CIT V. NEEDLE INDUSTR IES (INDIA) LID. [2006] 245 ITR 556 A DIVISION BENCH OF THE MADRAS HIGH COURT HELD THAT THE AMOUNT RECEIVED FROM AN INSURER ON ACCOUNT OF LOSS OF RAW MATERIALS ETC. IN THE FIRE, WAS HELD TO BE A TRADING RECEIPT TO THE EXTENT THE AMOUNT RECEIVED EXCEEDED THE BOOK VALUE OF THE GOOD S AND THE SAME CONSTITUTED TAXABLE INCOME. 9. AT THIS STAGE, IT MAY BE STATED THAT THE FACT TH AT THERE WAS A FIRE IN THE UNIT OF THE ASSESSEE-COMPANY IS AN UNDISPUTED FACT. IT IS NOT A S IF THE EVENT IS QUESTIONABLE. IF THAT BE SO, THERE IS NO REASON WHY KEEPING IN ACCOUNT THE INTEN T OF THE PROVISION OF SECTION 80-1A AND THE FACT THAT AN INDUSTRIAL UNDERTAKING HAS ALREADY BEE N ESTABLISHED AND IS RUNNING, (I.E. 8 . 6929/ / 2017 (. . 2012-13 ) ITA NO.6929/MUM/2017A.Y.2012-13) INVESTMENT DONE, MACHINERY PURCHASED, EMPLOYMENT AN D REVENUE GENERATED ETC.) A RESTRICTED INTERPRETATION BE GIVEN TO THE EXPRESSIO N 'DERIVED FROM ANY BUSINESS OF AN INDUSTRIAL UNDERTAKING'. AS HELD BY THE SUPREME COU RT IN THE CASE OF RAGHUVANSHI MILLS LTD. (SUPRA) DEFINITELY A NEXUS TO THE BUSINESS IS THERE IN CASE THE GOODS OF A BUSINESS ARE DESTROYED AND FOR WHICH AN INSURANCE AMOUNT IS CLAI MED. 10 . WE ALSO NOTE WITH THE APPROVAL OF THE FOLLOWING PAS SAGE IN THE JUDGMENT OF THE 1TAT WHICH SHOWS THAT THE NET EFFECT OF THE PROFIT AND L OSS ACCOUNT IS NIL IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE: 'MOREOVER, THE SAID RECEIPTS ON ACCOUNT OF INSURANC E CLAIM, IN OUR OPINION, ARE IN THE NATURE OF REIMBURSEMENT OF LOSS ACTUALLY INCURRED B Y THE ASSESSEE AS A RESULT OF GOODS DAMAGED BY FIRE AND, THERE BEING NO ELEMENT O F PROFIT INVOLVED THEREIN, THE SAME CANNOT BE TREATED AS ANY INCOME SEPARATELY EAR NED BY THE ASSESSEE SO AS TO EXCLUDE THEM FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80-IA. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, ALTHOUGH THE EXPENDITURE INCURRED ON THE COST OF GOODS DAMAGED BY FIRE IS DE BITED IN THE PROFIT AND LOSS ACCOUNT BY THE ASSESSEE AND THE INSURANCE CLAIM REC EIVED ON ACCOUNT OF SUCH GOODS LOST IN FIRE IS CREDITED IN THE PROFIT AND LOSS ACC OUNT AS PER THE GUIDELINE FOR PROPER PRESENTATION AND DISCLOSURE, THE NET EFFECT IS THAT BOTH THESE TRANSACTIONS GET NULLIFIED HAVING NO BEARING ULTIMATELY ON THE PROFI T SHOWN IN THE PROFIT AND LOSS ACCOUNT. IN OUR OPINION, THE EXCLUSION OF THE AMOUN T OF INSURANCE CLAIM RECEIVED BY THE ASSESSEE AND CREDITED IN THE PROFIT AND LOSS AC COUNT FOR COMPUTING DEDUCTION UNDER SECTION 80-IA THUS IS NOT JUSTIFIABLE FROM TH IS ANGLE ALSO.' THEREFORE, THERE IS NO REASON WHY AMOUNT RECEIVED F ROM THE INSURANCE COMPANY BY THE ASSESSEE-COMPANY SHOULD NOT BE TAKEN INTO ACCOUNT I N DETERMINING THE PROFITS AND GAINS OF AN INDUSTRIAL UNDERTAKING OF THE TYPES SPECIFIED UN DER SECTION 80-IA. SIMILAR VIEW WAS EXPRESSED BY HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SHREE RAM MULTI TECH LTD., 215 TAXMAN 90 HOLDING I NSURANCE CLAIM FOR LOSS OF RAW MATERIAL/FINISHED PRODUCTS ELIGIBLE FOR DEDUCT ION UNDER SECTION 80IA OF THE ACT. 8. IN THE PRESENT CASE, THE ASSESSEE HAS RECEIVED COMPENSATION ON REDEMPTION OF ERP. MAN, MATERIAL, MACHINES AND MO NEY ARE THE KEY ELEMENT OF MANUFACTURING OPERATION. QUALIFIED AND SPECIALI ZED WORK FORCE AT WHATEVER LEVEL OF AN ORGANIZATION IS EQUALLY IMPORTANT AS MA TERIAL FOR PROFITABLE RUNNING OF AN UNDERTAKING. AS POINTED EARLIER THAT THIS IS THE ONLY BUSINESS OF ASSESSEE AND THE ASSESSEE HAD TAKEN POLICY FOR THE RETENTION OF ITS TWO KEY EMPLOYEES 9 . 6929/ / 2017 (%. . 2012-13 ) ITA NO.6929/MUM/2017A.Y.2012-13) I.E. MR. SAMEER GALA AND MR. VIJAY GALA, WHO HAD SP ECIALISATION IN THEIR RESPECTIVE FIELDS IN HANDLING MANUFACTURING, MARKET ING, PROCUREMENT OF MATERIAL ETC. I.E. THE ELEMENT NECESSARY FOR EFFICI ENT WORKING OF AN INDUSTRIAL UNDERTAKING. THE ASSESSEE HAS BEEN DEBITING PREMIUM PAID ON ERP TO P&L ACCOUNT AND THE SAME WAS ALLOWED TO THE ASSESSEE. THIS CLEARLY INDICATE THAT THE DEPARTMENT HAD ACCEPTED THE FACT THAT ERP TAK EN BY ASSESSEE IN THE NAME OF MR. SAMEER GALA AND MR. VIJAY GALA HAD DIRE CT NEXUS WITH THE BUSINESS OF THE ASSESSEE ELIGIBLE FOR DEDUCTION U NDER SECTION 80 IB OF THE ACT. NOW, THE REVENUE CANNOT BE ALLOWED TO TAKE A CONTRA RY STAND WHEN THE ASSESSEE HAS RECEIVED SUM ON REDEMPTION OF ERP AFTE R BOTH THE EMPLOYEES IN WHOSE NAME ERP WAS TAKEN LEFT THE EMPLOYMENT OF ASS ESSEE. DRAWING ANALOGY AND SUPPORT ON ELIGIBILITY OF INSURANCE CLAIM ON LO SS OF GOODS BEING ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB, WE HOLD THAT THE AMO UNT RECEIVED BY THE ASSESSEE ON REDEMPTION OF ERP, THERE IS FIRST DEGRE E NEXUS WITH THE PROFITS AND GAINS DERIVED FROM BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB OF THE ACT . 9. WE FIND MERIT IN GROUND NO.1 OF THE APPEAL BY A SSESSEE. THE FINDINGS OF THE CIT(A) ON THIS ISSUE ARE REVERSED AND GROUND NO .1 OF THE APPEAL IS ALLOWED. 10. GROUND NO.2 OF THE APPEAL IS AN ALTERNATE PRAYE R TO ASSESSEES ELIGIBILITY TO CLAIM DEDUCTION UNDER SECTION 80 IB OF THE ACT O N REDEMPTION ON ERP. SINCE, WE HAVE ALLOWED GROUND NO.1 OF THE APPEAL, THE CONTENTIONS RAISED IN GROUND NO.2 HAVE BECOME ACADEMIC AND THUS, ARE NOT DELIBERATED UPON. 11. IN GROUND NO.3 OF THE APPEAL, THE ASSESSEE HAS ASSAILED INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE GROUND RAISED BY THE ASSESSEE IS PREMATURE AT THIS STAGE, HENCE, THE SAME IS DISMISSED AS SUCH. 10 . 6929/ / 2017 (%. . 2012-13 ) ITA NO.6929/MUM/2017A.Y.2012-13) 12. IN THE LAST GROUND OF APPEAL, THE ASSESSEE HA S ASSAILED CHARGING OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT. C HARGING OF INTEREST UNDER SECTION 234B & 234C OF THE ACT IS MANDATORY AND CON SEQUENTIAL, HENCE , THIS GROUND OF APPEAL IS DISMISSED. 13. IN THE RESULT, APPEAL BY ASSESSEE IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY, THE 23 RD DAY OF FEBRUARY, 2021. SD/- SD/- (S.RIFAUR RAHMAN) (VIKAS A WASTHY) &' / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 4 %/ DATED 23/02/2021 VM , SR. PS (O/S) -.5 6&2. COPY OF THE ORDER FORWARDED TO : 1. , / THE APPELLANT , 2. -. / THE RESPONDENT. 3. 7. ( )/ THE CIT(A)- 4. 7. CIT 5. 89-.% , . . . , / DR, ITAT, MUMBAI 6. 9:;< / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI