SAJJAN INDIA LTD, MUMBAI V. ACIT CIR 7(2), MUMBAI

ITA 8745/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5069 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 17-12-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 26-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARMINDER
• Keywords: Business income; Opportunity of being heard
• Section: 80HHC; 10B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E B ENCH, MUMBAI . . , , !'# , $ % BEFORE SHRI I.P. BANSAL, JM AND SHRI N.K. BILLAI YA, AM ./ I.T.A. NO.8745/MUM/2011 ( & & & & / ASSESSMENT YEAR :2002-03 M/S. SAJJAN INDIA LTD., C/O SHANKARLAL JAIN & ASSOCIATES, 12, ENGINEER BLDG., 265, PRINCESS STREET, MUMBAI-400 002 THE ACIT, CIR 7(2), MUMBAI ./ I.T.A. NO.628/MUM/2012 ( & & & & / ASSESSMENT YEAR :2002-03 THE ACIT, CIR 7(2), MUMBAI M/S. SAJJAN INDIA LTD., C/O SHANKARLAL JAIN & ASSOCIATES, 12, ENGINEER BLDG., 265, PRINCESS STREET, MUMBAI-400 002 ./ I.T.A. NO.8024/MUM/2011 ( & & & & / ASSESSMENT YEAR :2003-04 THE ACIT, CIR 7(2), MUMBAI M/S. SAJJAN INDIA LTD., C/O SHANKARLAL JAIN & ASSOCIATES, 12, ENGINEER BLDG., 265, PRINCESS STREET, MUMBAI-400 002 ' $ ./ () ./PAN/GIR NO. : AAACS 6498M ( '* /APPELLANT ) .. ( +,'* / RESPONDENT ) '* - / REVENUE BY : ` SMT. PARMINDER +,'* . - /ASSESSEE BY : SHRI S.L. JAIN . /0$ / DATE OF HEARING :17.12.2013 12& . /0$ / DATE OF PRONOUNCEMENT :20.12.2013 SAJJAN INDIA LTD. 2 3 / O R D E R PER N.K. BILLAIYA, AM: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE VERY SAME ORDER OF THE LD. CIT(A)-13, M UMBAI DT. 30.9.2011 AND 18.7.2011 RESPECTIVELY PERTAINING TO A.YRS. 200 2-03 & 2003-04. AS ALL THESE APPEALS WERE HEARD TOGETHER THEY ARE DISP OSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVIT Y. ITA NO. 8745/M/2011 A.Y. 2002-03 ASSESSEES APPE AL 2. GROUND NO. 1 RELATES TO THE DENYING OF NECESSARY DEDUCTION U/S. 10B ON THE RECEIPT FROM SALE OF SCRAP OF RS. 3,92,4 12/- BEING SALE OF USED BARDANA AND OTHER MANUFACTURING SCRAP. 3. THIS ISSUE HAS BEEN DISCUSSED BY THE AO UNDER TH E MARGINAL HEAD MISCELLANEOUS INCOME WHEREIN THE ASSESSING OFFICE R HAS HELD THAT SALE OF SCRAP IS NOT ELIGIBLE FOR DEDUCTION U/S. 10B OF THE ACT WHEREIN ONLY PROFIT AND GAINS DERIVED BY 100% EOU UNIT FROM EX PORT OF ARTICLES OR THING ARE EXEMPTED. THE AO WAS OF THE FIRM BELIEF THAT THE INCOME RECEIVED FROM SALE OF SCRAP IS NOT DERIVED FROM TH E EXPORT OF ARTICLES OR THINGS. 4. THE LD. CIT(A) CONFIRMED THE FINDINGS OF THE AO RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F PANDIAN CHEMICALS LTD. VS CIT 262 ITR 278. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STRO NGLY CONTENDED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF SAJJAN INDIA LTD. 3 THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS CORE HEALTHCARE LTD. 308 ITR 263. 6. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE LD. CIT(A). 7. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNS EL. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CORE HEALTHCARE L TD (SUPRA) HAS HELD THAT THE INCOME GENERATED ON SALE OF EMPTY CONTAINE RS COULD BE SET OFF AGAINST THE PURCHASE COAST, IN OTHER WORDS BRING DO WN THE PURCHASE PRICE OF RAW MATERIAL, OR IT COULD BE TREATED AS INCOME D IRECTLY RELATABLE TO THE ACTIVITY OF INDUSTRIAL UNDERTAKING. A SIMILAR VIE W HAS BEEN TAKEN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS SADH U FORGING LTD 336 ITR 444 WHEREIN THE DELHI HIGH COURT HAS HELD THAT WHEN THE ASSESSEE IS ENGAGED IN MANUFACTURE ACTIVITY OF THE TYPE BEING U NDERTAKEN BY THE ASSESSEE , GENERATES SCRAP IN THE PROCESS OF MANU FACTURING, THEREFORE, THE RECEIPTS OF SALE OF SCRAP BEING PART AND PARCEL OF THE SAID ACTIVITY AND BEING PROXIMATE THERETO CONSTITUTE GAINS DERIVED FR OM INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80-IB OF THE ACT. CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE WHICH IS MANUFACTURING OF DYES AND INTERMEDIATES, NAPHTHOLS, PIGMENTS, AG ROCHEMICALS AND OTHER CHEMICALS , GENERATION OF SCRAP IS THE NATURAL OUT COME OF SUCH MANUFACTURING PROCESS AND ANY RECEIPT FROM THE SALE OF SUCH SCRAP HAS A DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE. ON THIS NOTE THE FACTS ARE CLEARLY DISTINGUISHABLE FROM THE DECISION OF PANDIA N CHEMICALS[ SUPRA] THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE HONBLE GUJARAT HIGH COURT AND DELHI HIGH COURT (SUPRA), WE DIRECT THE AO TO ALLOW THE ASSESSEE EXEMPTION U/S. 10B ON THE RECEIPTS FROM TH E SALE OF SCRAP. GROUND NO. 1 IS ACCORDINGLY ALLOWED. SAJJAN INDIA LTD. 4 8. GROUND NO. 2 RELATES TO THE DENIAL OF DEDUCTION U/S. 80HHC ON INTEREST RECEIVED. 9. IT IS THE SAY OF THE LD. COUNSEL THAT AN IDENTIC AL ISSUE IN ASSESSEES OWN CASE HAS BEEN DECIDED BY THE TRIBUNAL IN A.Y. 2 003-04 IN ITA NO. 4673/M/06 AND FOR A.Y. 2004-05 IN ITA NO. 3245/M/07 . 10. THE LD. DR COULD NOT BRING ANY DISTINGUISHING F ACTS. WE FIND THAT THE TRIBUNAL IN ITA NO. 4673/M/06 AT PARA-4 ON PAG E-3 OF ITS ORDER HAS CONSIDERED AN IDENTICAL ISSUE AND AT PARA-4.2 FOLLO WED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEAR A ND HAS DIRECTED THE AO TO TREAT INTEREST INCOME AS BUSINESS INCOME AND WOR K OUT DEDUCTION U/S. 10B OF THE ACT ACCORDINGLY. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA), WE DIRECT THE AO TO TREAT THE INTEREST INCOME FOR WORKING OUT THE DEDUCTION U/S. 10B OF THE ACT. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 11. GROUND NO. 3 RELATES TO THE DISPUTE WHETHER CO NVERSION CHARGES ARE TO BE EXCLUDED UNDER EXPLANATION (BAA) TO SEC. 80HHC NET OF COST OF RAW MATERIAL AND MANUFACTURING EXPENSES OR IS TO BE EXCLUDED GROSS. 12. A PERUSAL OF THE RECORD SHOWS THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL FOR A.Y. 2001-02 IN ASSESS EES OWN CASE IN ITA NO. 4388/M/05 WHEREIN THE TRIBUNAL AT PARA-30 ON P AGE-11 OF ITS ORDER HAS HELD THAT: WE DIRECT THE AO TO EXCLUDE 90% OF THE NET CONVERS ION CHARGES FROM THE PROFITS OF THE BUSINESS WHILE COMP UTING THE DEDUCTION U/S. 80HHC OF THE ACT BUT INCLUDE THE CON VERSION CHARGES IN THE TOTAL TURNOVER WHILE COMPUTING THE D EDUCTION U/S. 80HHC OF THE ACT. SAJJAN INDIA LTD. 5 13. AS NO DISTINGUISHING FACTS HAVE BEEN BROUGHT ON RECORD BEFORE US, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, THE AO IS DIRECTED TO FOLLOW THE FINDINGS OF THE TRIBUNAL IN A.Y. 2001-02. GROUND NO. 3 IS ACCORDINGLY ALLOWED. 14. GROUND NO. 4 RELATES TO THE GRIEVANCE THAT ASS ESSEE IS NOT ENTITLED FOR DEDUCTION U/S. 80HHC FOR RECEIPT OF DEPB LICENC E. 15. THIS ISSUE IS NOW WELL SETTLED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COUNT IN THE CASE O F TOPMAN EXPORTS 342 ITR 49. AS FACTS BEING IDENTICAL, WE DIRECT TH E AO TO ALLOW DEDUCTION U/S. 80HHC IN THE LIGHT OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORT (SUPRA). GROUND NO. 4 IS ACCORDINGLY ALLOWED. 16. GRIEVANCE RAISED VIDE GROUND NO. 5 IS IDENTICAL TO THE GRIEVANCE RAISED AS PER GROUND NO. 4 ABOVE. WE DIRECT THE AO TO FOLLOW OUR DECISION GIVEN FOR GROUND NO. 4 HEREINABOVE. THIS GROUND IS ACCORDINGLY ALLOWED. 17. GROUND NO. 6 & 7 RELATE TO THE CHARGING OF INTE REST U/S. 220(2) OF THE ACT. 18. THIS BEING CONSEQUENTIAL IN NATURE. THE AO IS DIRECTED TO LEVY INTEREST AFTER GIVING APPEAL EFFECT TO OUR ORDER AS PER THE PROVISIONS OF THE LAW. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 628/M/2012 A.Y. 2002-03- REVENUES APPEAL 20. THE REVENUE HAS RAISED FOLLOWING 4 SUBSTANTIVE GROUNDS OF APPEAL: SAJJAN INDIA LTD. 6 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO ACCEPT TH E CLOSING STOCK OF FINISHED GOODS OF MUMBAI UNIT AT RS. 1,65, 43,279/- AND OPENING STOCK OF FINISHED GOODS OF MUMBAI UNIT AT RS. 5,61,16,525/- IGNORING THE FACT THAT APPEAL BEFORE THE HONBLE ITAT IS STILL PENDING FOR DISPOSAL. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO ACCEPT THE CLOSING STOCK OF FINISHED GOODS OF ANKLESHWAR UNIT AT RS. 7,96,86,484/- AND OPENING STOCK OF FINISHED GOODS O F ANKLESHWAR UNIT AT RS 1,84,65,836/- IGNORING THE FA CT THAT APPEAL BEFORE THE HONBLE ITAT IS STILL PENDING FOR DISPOSAL. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO ACCEPT THE NET CONVERSION CHARGES AT RS. 8,19,534/- ONLY AS AGAINS T RS. 22,77,709/- IGNORING THE FACT THAT THE CONVERSION C HARGES TAKEN AT RS. 20,77,709/- IS IN ACCORDANCE WITH THE INTENTION OF THE LEGISLATURE BEHIND INSERTING EXPLANATION (BA A) AND EXPLANATION (BA), 90% OF RS. 20,78,911/- WHICH IS P URELY ATTRIBUTABLE TO THE CONVERSION CHARGES IS TO BE RED UCED WHILE COMPUTING THE PROFITS OF THE BUSINESS FOR THE PURPO SE OF COMPUTING THE QUANTUM OF DEDUCTION U/S. 80HHC. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO ACCEPT THE NET CONVERSION CHARGES AT RS. 8,19,534/- ONLY AS AGAINS T RS. 20,77,709/- IGNORING THE FACT THAT THIS ISSUE IS BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS RAVINDRANATHAN NAIR 295 ITR 228(SC). 21. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASS ESSEE SUBMITTED THAT THE ISSUES RAISED BY THE REVENUE ARE SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSE ES OWN CASE FOR A.Y. 2003-04 IN ITA NO. 4673/M/06. SAJJAN INDIA LTD. 7 22. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONC EDED. WE FIND THAT IN A.Y. 2003-04, THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN A.Y. 2001-02 WHICH READS AS UNDER: WE HAVE HEARD BOTH SIDES AND PERUSED THE RECORDS. THE TRIBUNAL, IN THE ORDER CITED SUPRA, OBSERVED AS UND ER: WE HAVE CONSIDERED THE SUBMISSIONS OF LD. COUNSEL FOR THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS FI LED THESE DETAILS BEFORE THE AO AS CERTIFIED IN THE PAP ER BOOK BY THE ASSESSEE. THE DETAILS FILED BY THE ASS ESSEE HAS NOT BEEN CONSIDERED BY THE AO. WE AGREE WITH T HE CONTENTION OF THE ASSESSEE THAT IN A.Y. 2000-01 THE PLEA OF THE S. WAS REJECTED ONLY FOR THE REASONS TH AT AS PER AS-9, CLOSING STOCK HELD BY THE ASSESSEE AGAINS T CONFIRMED STOCK ORDERS ALONE CAN BE VALUED AT REALIZABLE VALUE AND THE ASSESSEE FAILED TO PROVE T HAT ITS VALUATION WAS AS PER AS-9. IN THIS A.Y, THE NECESSARY DETAILS HAVE BEEN FURNISHED BY THE ASSESS EE. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE PLEA OF THE ASSESSEE REQUIRES CONSIDERATION BY THE AO. WE, THEREFORE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMAND THE ISSUE TO THE AO FOR FRESH CONSIDERATION. IF THE ASSESSEE ESTABLISHES THAT TH E CLOSING STOCK IS VALUED (SOME OF THE ITEMS) AT REAL IZED VALUE AGAINST CONFIRMED STOCK ORDERS, THEN THE AO W ILL ACCEPT THE VALUATION AS DONE BY THE ASSESSEE. THE AO WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSES SEE BEFORE DECIDING THE ISSUE. RESPECTFULLY FOLLOWING THE ABOVE ORDER, WE SET ASID E THE ORDER OF THE CIT(A) ON THIS ISSUE AND REMIT THE MAT TER TO THE AO TO CONSIDER ALL THE RELEVANT DETAILS IN RESPECT OF CLOSING STOCK AND PASS THE ORDER AS PER LAW. 23. FACTS AND CIRCUMSTANCES BEING IDENTICAL, RESPEC TFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, TH E AO IS DIRECTED TO FOLLOW THE DIRECTIONS OF THE TRIBUNAL AS GIVEN IN E ARLIER YEARS. GROUND NO. 1 IS ALLOWED FOR STATISTICAL PURPOSE. SAJJAN INDIA LTD. 8 24. THE ISSUE RAISED VIDE GROUND NO. 2 (SUPRA) IS I N LINE WITH THE GRIEVANCE RAISED VIDE GROUND NO. 1. THEREFORE, THE AO IS DIRECTED TO FOLLOW THE DIRECTIONS OF THE TRIBUNAL AS GIVEN IN E ARLIER YEARS AS MENTIONED HEREINABOVE. GROUND NO. 2 IS ALLOWED FOR STATISTICAL PURPOSE. 25. GRIEVANCE RAISE VIDE GROUND NO. 3 & 4 ARE IDENT ICAL TO THE GRIEVANCE RAISED BY THE ASSESSEE IN GROUND NO. 3 I N ITA NO. 8745/M/2011. THE AO IS DIRECTED TO FOLLOW THE DECI SION IN ITA NO. 8745/M/11. THIS GROUND OF THE REVENUE IS DISMISSED . 26. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ITA NO. 8024/M/2011- A.Y. 2003-04 REVENUES APPEA L 27. THE ONLY GROUND RAISED BY THE REVENUE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN PARTLY ALLOWING THE AS SESSEES APPEAL ON THE ISSUE OF DIFFERENCE IN VALUATION OF O PENING STOCK ON REALIZABLE VALUE AND COST PRICE. 28. THE LD. CIT(A) HAS DECIDED THIS ISSUE AT PARA-3 OF HIS ORDER WHEREIN HE HAS FOLLOWED THE DECISION OF THE TRIBUNA L IN ASSESSEES OWN CASE FOR A.Y. 2003-04 AND 2004-05. THE LD. CIT(A) HAS FURTHER OBSERVED THAT THE APPEAL AGAINST THE ASSESSMENT ORD ER FOR A.Y. 2002-03 IS PENDING. THEREFORE, WHATEVER WILL BE THE VALUE DE TERMINED FOR CLOSING STOCK FOR A.Y. 2002-03, THE SAME SHALL BE ADOPTED A S OPENING STOCK FOR 2003-04. 29. THE LD. CIT(A) HAS VERY CORRECTLY HELD THAT THE VALUE OF OPENING STOCK WOULD DEPEND UPON THE VALUE OF CLOSING STOCK ADOPTED IN EARLIER SAJJAN INDIA LTD. 9 ASSESSMENT YEAR. WE, THEREFORE DO NOT FIND ANY REA SON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). ACCORDINGLY, THE G ROUND TAKEN BY THE REVENUE IS DISMISSED. 30. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE REVENUES APPEAL IN ITA NO. 628/M/12 IS PARTLY ALLOWED AND ITA NO. 8024/M/11 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.12.2013 . 3 . 2& $ 4 56 20.12.2013 2 . < SD/- SD/- (I.P. BANSAL ) (N. K. BILLAIYA) /JUDICIAL MEMBER $ / ACCOUNTANT MEMBER MUMBAI; 5 DATED 20.12.2013 . . ./ RJ , SR. PS 3 . +/ = &/ 3 . +/ = &/ 3 . +/ = &/ 3 . +/ = &/ / COPY OF THE ORDER FORWARDED TO : 1. '* / THE APPELLANT 2. +,'* / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. ?< +/ , , / DR, ITAT, MUMBAI 6. <@ A / GUARD FILE. 3 3 3 3 / BY ORDER, , / +/ //TRUE COPY// B BB B / C C C C ( ( ( ( (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI