DCIT, Hyderabad V. M/s AVR Zine Products Ltd., Hyderabad

ITA 754/HYD/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3015 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 05-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: A V RAGHURAM
• Section: 80IB; 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.754/HYD/2009 ASSESSMENT YEAR: 2006-07 THE DY.CIT, CIRCLE 1 (1), HYDERABAD VS M/S AVR ZINC PRODUCTS LTD. HYDERABAD. (PAN AADCA 4720 D) (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. NIVEDITA BISWAS, DR RESPONDENT BY: SHRI A.V. RAGHURAM O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGA INST THE ORDER PASSED BY THE CIT(A)-II, HYDERABAD DATED 18.3.2009 AND PERTAINS TO THE ASSESSMENT YEAR 2006-07. 2. THE MAIN GRIEVANCE OF THE ASSESSEE IS THAT THE CIT( A) OUGHT TO HAVE UPHELD THE EXCLUSION OF MODVAT/CENVAT RECEIPTS FOR 80IB COMPUTATION AS THE SAME ARE AKIN TO OTHER INCOMES AS CREDITED I N THE PROFIT AND LOSS ACCOUNT. 2. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT THIS ISSUE WAS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (3 17 ITR 218) (HON'BLE SUPREME COURT) WHEREIN IT WAS HELD: DUTY DRAWBACK RECEIPTS AND DEPB BENEFITS DO NOT FOR M PART OF THE NET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKINGS FOR THE PURPOSE OF THE DEDUCTION U/S 80I/IA/IB OF THE IT ACT, 1961. THE IT ACT BROADLY PROVIDES FOR TWO TYPES OF TAX IN CENTIVES VIZ., INVESTMENT LINKED INCENTIVES AND PROFIT LINKED INCE NTIVES. CHAPTER VI-A ITA NO.754/H/2009 M/S AVR ZINK PRODUCTS LTD. 2 OF THE ACT WHICH PROVIDES FOR INCENTIVES IN THE FOR M OF DEDUCTIONS ESSENTIALLY BELONGS TO THE CATEGORY OF PROFIT LINK ED INCENTIVES. THEREFORE, WHEN SECTION 80 IA/IB REFERS TO PROFITS DERIVED FROM ELIGIBLE BUSINESS, IT IS NOT THE OWNERSHIP OF THAT BUSINESS WHICH ATTRACTS THE INCENTIVES: WHAT ATTRACTS THE INCENTIVES U/S 80IA, IB IS THE GENERATION OF PROFITS (OPERATIONAL PROFITS). IT IS FOR THIS R EASON THAT PARLIAMENT HAS CONFINED DEDUCTION OF PROFITS DERIVED FROM ELIGIBLE BUSINESS MENTIONED IN SUB SECTIONS (3) TO (11A). EACH OF THE BUSINES SES MENTIONED IN SUB SECTIONS (3) TO (11A) CONSTITUTES AS A STAND ALONE ITEM IN THE MATTER OF COMPUTATION OF PROFITS. SECTION 80IB AND 80IA ARE A CODE BY THEMSELVES AS T HEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. SEC. 80IB PROVIDES FOR THE ALLOWING OF DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS. THE CONNOTATION OF THE WORDS DERIVED FROM IS NARROWER AS COMPARED TO THA T OF THE WORDS ATTRIBUTABLE TO. BY USING THE EXPRESSION DERIVE D FROM PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGR EE. SEC.80IA, 80IB ARE TO BE READ AS HAVING A COMMON SC HEME. SUB SECTION (5) OF SECTION 80IA (WHICH IS REQUIRED TO B E READ INTO SECTION 80IB) PROVIDES FOR THE MANNER OF COMPUTATION OF THE PROFITS OF AN ELIGIBLE BUSINESS. SUCH PROFITS ARE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THER EFORE, DEVICES ADOPTED TO REDUCE OR INFLATE THE PROFITS OF THE ELI GIBLE BUSINESS HAVE TO BE REJECTED IN VIEW OF THE OVERRIDING PROVISIONS OF SECTION 80IA(5). SEC.80I, 80IA AND 80IB PROVIDE FOR INCENTIVES IN TH E FORM OF DEDUCTIONS WHICH ARE LINKED PROFITS AND NOT INVESTMENT. ON AN ALYSIS OF SECTIONS 80IA AND 80IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING WHICH BECOMES ELIGIBLE ON SATISFYING SUB SECTIONS (2) WOU LD BE ENTITLED TO DEDUCTION UNDER SUB SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING AFTER THE SPECIFIE D DATE. APART FROM ELIGIBILITY, SUB SECTION (1) PURPORTS TO RESTRICT T HE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF THE PROFITS. THIS IS THE IMPORTANCE OF THE WORDS DERIVED FROM AN INDUSTRIAL UNDERTAKING AS A GAINST PROFIT ATTRIBUTABLE TO AN INDUSTRIAL UNDERTAKING. DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM T HE SCHEMES FRAMED BY THE CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT, 1962. INCENTIVE PROFITS ARE NOT PROFITS DERIV ED FROM ELIGIBLE BUSINESS U/S 80IB, THEY BELONG TO THE CATEGORY OF A NCILLARY PROFITS OF SUCH UNDERTAKING. PROFITS DERIVED BY WAY OF INCENT IVES SUCH AS DEPB/DUTY DRAWBACK CANNOT BE CREDITED AGAINST THE C OST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THEY DO NOT FALL WITHIN THE EXPRESSION PROFIT DERIVED FROM INDUSTRIAL UNDERTAKINGS U/S 80IB. 3. BEFORE US THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE TRIED TO DISTINGUISH THE JUDGEMENT OF THE HONBLE SUPREME COURT, BUT WE ARE ITA NO.754/H/2009 M/S AVR ZINK PRODUCTS LTD. 3 OF THE OPINION THAT THE ARGUMENTS OF THE AUTHORISED REPRESENTATIVE IS DEVOID OF MERITS AND CONTRARY TO THE FACTS OF THE PRESEN T CASE AND ALSO AGAINST THE LAW AS LAID DOWN BY THE APEX COURT. AS SU CH, WE ARE NOT IN A POSITION TO CONSIDER THE ARGUMENT OF THE ASSESSEES COUNSEL . ACCORDINGLY WE REVERSE THE ORDER OF THE CIT(A) ON THIS GROUND IN THE LIGHT OF THE JUDGMENT CITED SUPRA AND ALLOW THE GROUN D TAKEN BY THE REVENUE. 4. THE NEXT GROUND RAISED BY THE ASSESSEE IS THAT: 3. THE CIT(A) OUGHT NOT TO HAVE DIRECTED TO NET OFF FREIGHT RECEIPTS AS AGAINST OF GROSS RECEIPTS EXCLUSION FOR 80IB COMPUT ATION. 5. THIS ISSUE WAS ALSO SQUARELY COVERED BY THE ORDER OF THIS TRIBUNAL IN THE CASE OF NIRMA INDUSTRIES LTD. VS. ACIT (95 ITD 119) (SB) (AHEMADABAD) WHEREIN IT WAS HELD THAT DEDUCTION U/S 8 0IA SHALL NOT ELIGIBLE FOR TRANSPORT RENT RECEIPTS. HOWEVER, ONLY TH E NET TRANSPORT RECEIPTS SHOULD BE CONSIDERED FOR THE PURPOSE OF EXCLUSION WHILE COMPUTING DEDUCTION U/S 80IA. IN VIEW OF THE ORDER OF THIS TRIBUNAL, WE ARE INCLINED TO CONFIRM THE ORDER OF THE CIT(A) ON TH IS ISSUE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 16.7.2 010 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 16 TH JULY, 2010 ITA NO.754/H/2009 M/S AVR ZINK PRODUCTS LTD. 4 COPY FORWARDED TO: 1. M/S AVR ZINK PRODUCTS LTD., D.NO.6-32, DURGA ESTATES, DEEPTHISREE NAGAR, MIYAPUR, HYDERABAD-50. 2. THE DCIT, CIRCLE 1 (1), HYDERABAD 3. CIT(A)-II HYDERABAD. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. NP