MAMANIA FAMILY TRUST, MUMBAI V. ACIT CEN CIR-41, MUMBAI

ITA 7142/MUM/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6211 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 26-10-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 17-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: F V IRANI
• Assessee Lawyers: P PEERYA
• Keywords: Business income
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI S.V. MEHROTRA , ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A.NO . ASSESSMENT YEAR 7142/MUM/2008 2005-06 6084/MUM/2007 2004-05 909/MUM/2007 2003-04 MAMANIA FAMILY TRUST, C/O. APOLLO PLASTICS, 33 HUGES, 3 RD FL. OPP. PREMPURI ASHRAM, N.S. PARKAR MARG, GRANT ROAD (W), MUMBAI 400 007. PAN : AAAAM 1339 D VS. THE ASST.COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 41, AAYAKAR BHAVAN, ROOM NO. 655, M.K. ROAD, MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P. PEERYA RESPONDENT BY : SHRI F.V. IRANI O R D E R PER S.V. MEHROTRA, AM: THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE IMPUGNED ORDERS DATED 15.10.2008, 25.7.2007 AND 02.11.2006 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS), CENTRAL III, MUMBAI, FOR THE ASSESSMENT YEARS 2005-06, 2004-05 AND 2003-04 RESPECTIVELY. THESE APPEALS WERE HEARD TOGETHER AN D ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. IN ALL T HESE APPEALS THE MAIN ISSUE INVOLVED IS REGARDING ALLOWABILITY OF DEDUCTION U/S. 80-IB IN R ESPECT OF SCRAP SALES. FOR THE ASSESSMENT YEAR 2003-04 ONE ADDITIONAL GROUND IS ALSO TAKEN, WHICH IS DEDUCTION U/S.80IB(4) IN RESPECT OF INTEREST ON BANK FIXED DEPOSITS. 2. FIRST WE TAKE UP THE APPEAL FOR THE ASSESSMENT Y EAR 2003-04. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 1. INTEREST OF RS. 31,257/- RECEIVED ON BANK FIXED DEPOSITS BE TREATED AS BUSINESS INCOME FROM MANUFACTURING UNIT. 2. DEDUCTION U/S.80IB(4) BE ALLOWED IN RESPECT OF INTEREST OF RS. 31,257/- RECEIVED ON BANK FIXED DEPOSITS REFERRED TO IN (1) ABOVE. ITA NOS.7142/M/2008, 6084/M/2007 & 909/M/07 MAMANIA FAMILY TRUST 2 3. DEDUCTION U/S.80IB(4) BE ALLOWED IN RESPECT OF SCRAP SALES OF TO RS. 57,20,061/- BY TREATING THE SAME AS INCOME DERIVED FROM BUSINESS ACTIVITY OF THE INDUSTRIAL UNDERTAKING FOR THE PURP OSE OF DEDUCTION U/S.80IB(4). 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PRIVATE FAMILY TRUST ENGAGED IN THE BUSINESS ACTIVITIES IN TWO CONCERNS, NAMELY M/S. AP POLO PLASTICS, DAMAN UNIT -1 AND M/S. APPOLO PLASTICS, DAMAN UNIT II. THE DAMAN UNIT I STARTED COMMERCIAL PRODUCTION OF ELECTRICAL GOODS AND ACCESSORIES, PLASTIC MOULDING ARTICLES FROM DEC.1999. DAMAN UNIT II ENGAGED IN THE BUSINESS OF MANUFACTURING OF FANS AN D MOULDING ARTICLES, BRASS AND COPPER PARTS AND ELECTRICAL GOODS ETC. THE ASSESSING OFFIC ER NOTICED THAT THE ASSESSEE HAD RECEIVED INTEREST FROM BANK DEPOSITS AMOUNTING TO RS.31,257/ -. HOWEVER, WHILE COMPUTING THE BUSINESS INCOME FOR DEDUCTION U/S.80IB(4) THE ASSES SEE HAD NOT EXCLUDED THIS SUM. THE AO TREATED THIS INTEREST UNDER THE HEAD INCOME FROM OT HER SOURCES AS AGAINST ASSESSEES CLAIM OF THE SAME BEING BUSINESS INCOME AND FURTHER DISAL LOWED THE ASSESSEES CLAIM UNDER SECTION 80-IB(4). THE LEARNED CIT(A) CONFIRMED TH E A.O.S ACTION. 4. HAVING HEARD BOTH THE PARTIES, WE DO NOT FIND AN Y REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA, 317 ITR 218(SC), WHEREIN IT WAS H ELD THAT SECTION 80IB PROVIDES FOR ALLOWING OF DEDUCTION IN RESPECT OF PROFITS AND GAI NS DERIVED FROM THE ELIGIBLE BUSINESS. THE CONNOTATION OF THE WORDS DERIVED FROM IS NARROWER AS COMPARED TO THAT OF THE WORDS ATTRIBUTABLE TO. BY USING THE EXPRESSION DERIVED FROM PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. THEREFORE, GR OUND NOS.1 & 2 RAISED BY THE ASSESSEE ARE DISMISSED. 5. IN THE APPEALS FOR THE ASSESSMENT YEARS 2003-04, 2004-05 AND 2005-06 THE ASSESSEES CLAIM UNDER SECTION 80IB IN REGARD TO SC RAP SALES FROM UNIT I AND UNIT II WAS DISALLOWED AS UNDER: ASSESSMENT YEAR 2003-04 .. RS. 57,20,061/- 2004-05 .. RS. 98,78,838/- 2005-06 .. RS. 52,95,310/- ITA NOS.7142/M/2008, 6084/M/2007 & 909/M/07 MAMANIA FAMILY TRUST 3 THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CREDITED RECEIPTS FROM SCRAP SALES FROM UNIT I AND UNIT II RESPECTIVELY IN THE ABOVE ASSESSMENT YEARS AND HAD CLAIMED DEDUCTION U/S.80IB(4). HE REQUIRED THE ASSE SSEE TO OFFER ITS EXPLANATION WHY THE SCRAP SALES SHOULD NOT BE EXCLUDED FOR THE PURP OSE OF DEDUCTION U/S.80IB(4). ASSESSEE POINTED OUT THAT THE SCRAP HAD BEEN GENERA TED DURING THE MANUFACTURING PROCESS AND THEREFORE THE SAME WAS ALLOWABLE U/S.80 IB OF THE ACT. THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS: 1. CIT V. SUNDARAN CLAYTON LTD. 133 ITR 34 (MADRAS) 2. CIT V. WHEELS INDIA LTD. 141 ITR 754 (MADR AS) 3. CIT V. MANSINGHKA OIL MILLS P.LTD. 169 ITR 158 (BOM .) THE A.O. DID NOT ACCEPT THE ASSESSEES CONTENTION O BSERVING THAT SCRAP DOES NOT FORM PART OF BUSINESS INCOME AS THE SAME IS NOT DER IVED OUT OF BUSINESS ACTIVITY OF THE INDUSTRIAL UNDERTAKING. HE RELIED ON THE FOLLOW ING DECISIONS: CIT V. SIDDHA GANGA OIL EXTRAACTIONS P.LTD. ( 201 ITR 968) STERLING FOODS. V. CIT (150 ITR 290 (SC) 6. THE LEARNED CIT(A) CONFIRMED THE AOS ACTION, IN TER ALIA, OBSERVING THAT THE BUSINESS OF INDUSTRIAL UNITS WAS NOT OF GENERATING SCRAPS AND SELLING THEM. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORDS OF THE CASE. ADMITTEDLY, THE INCOME FRO M SCRAP SALES HAD BEEN CREDITED TO PROFIT AND LOSS ACCOUNT AND THE AO HAS NOT EXCLU DED THE SAME WHILE COMPUTING THE INCOME UNDER THE HEAD BUSINESS INCOME. THEREF ORE, THE AO HAS ACCEPTED THE ASSESSEES CLAIM THAT INCOME FROM SCRAP SALES WAS ASSESSABLE AS BUSINESS INCOME. NOW, THE ONLY ISSUE THAT REMAINS FOR CONSIDERATION IS WHETHER THE SCRAP WAS DERIVED FROM INDUSTRIAL UNDERTAKING AS PER THE MANDATE OF S ECTION 80IB OR NOT. THE GENERATION OF SCRAP TO THE EXTENT THE SAME IS INCID ENTAL TO THE INDUSTRIAL OPERATION MEETS THE TESTS LAID DOWN BY THE HONBLE SUPREME CO URT DECISION IN THE CASE OF LIBERTY INDIA (317 ITR 218). THE HONBLE SUPREME CO URT HAS OBSERVED THAT SECTION 80IB REFERS TO PROFITS DERIVED FROM ELIGIBLE BUSINE SS MEANING THEREBY THAT IT IS NOT THE OWNERSHIP OF THE BUSINESS WHICH ATTRACTS THE IN CENTIVES BUT WHAT ATTRACTS THE ITA NOS.7142/M/2008, 6084/M/2007 & 909/M/07 MAMANIA FAMILY TRUST 4 INCENTIVES U/S.80IB IS THE GENERATION OF PROFIT. TH E CONNOTATION OF THE WORDS DERIVED FROM IS NARROWER AS COMPARED TO THAT OF THE WORDS ATTRIBUTABLE TO. BY USING THE EXPRESSION DERIVED FROM PARLIAMENT INTENDED TO CO VER SOURCES NOT BEYOND THE FIRST DEGREE. 8. FROM THE ORDERS OF THE LOWER AUTHORITIES, IT IS NOT CLEAR AS TO HOW THE SCRAP WAS GENERATED AND THEREFORE, IN ORDER TO VERIFY WHE THER THE SCRAP HAD DIRECT NEXUS WITH THE INDUSTRIAL OPERATION OR IT WAS SCRAP OF OT HER NATURE, WE RESTORE THIS ISSUE TO THE FILE OF THE A.O. FOR NECESSARY VERIFICATION. TO THE EXTENT, THE SCRAP HAS DIRECT NEXUS WITH THE INDUSTRIAL OPERATIONS THEREBY IMPLYI NG THAT TO THE EXTENT SCRAP IS IN THE NATURE OF BYE-PRODUCT OF INDUSTRIAL OPERATIONS, THE SAME WOULD QUALIFY FOR DEDUCTION U/S.80IB. IN THE RESULT, GROUND NO.3 FOR A.Y. 2003-04 AND GROUND NO. 1 FOR A.YS. 2004-05 AND 2005-06 ARE ALLOWED FOR STATI STICAL PURPOSES. 9. IN THE RESULT, THE APPEALS ARE ALLOWED FOR STATI STICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF NOVEMBER, 2010 SD. SD. (VIJAY PAL RAO ) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED THE 30 TH NOVEMBER, 2010. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT,CENTRAL -IV, MUMBAI 4. THE CIT(A), CENTRAL -III, MUMBAI 5. THE DR F BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI