M/s Chayagraphics (India) Pvt. Ltd., Bangalore V. CIT, Bangalore

ITA 910/BANG/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5569 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 03-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SURYAVAMSHI
• Keywords: Rule of consistency
• Section: 143(3); 234B; 80IB; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, BENGALURU BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO. 910 /BANG/20 16 (ASSESSMENT YEAR: 2006-07) M/S. CHAYAGRAPHICS (INDIA) PVT.LTD., NEAR KANNADA SAHITYA PARISHAD, CHAMARAJPET, BENGALURU-560018. PAN:AAACC 5904 E VS. APPELLANT DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 11(2), BENGALURU. RESPONDENT APPELLANT BY : SHRI RAVISHANKAR, ADVOCATE. RESPONDENT BY : SHRI VIKRAM SURYAVAMSHI, ACIT(DR) DATE OF HEARING: 31/01/2019 DATE OF PRONOUNCEMENT: 31/01/2019 O R D E R PER PAVAN KUMAR GADALE, JM : THE ASSESSEE HAS FILED THE APPEAL AGAINST THE ORDE R OF THE CIT(A), BENGALURU-2, BENGALURU, IN ITA NO.289/CIT(A )-2/14-15 DATED 24/02/2016 PASSED U/S 143(3) R.W.S. 250 OF TH E INCOME- TAX ACT,1961 ['THE ACT' FOR SHORT] FOR THE ASSESSME NT YEAR 2006- 07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING THE GROUN DS OF APPEAL: ITA NO.910/BANG/2016 PAGE 2 OF 6 I. THE ORDER OF THE LEARNED RESPONDENT IS BAD IN L AW AND OPPOSED TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DESERVES TO BE SET AS IDE. 2. THE LEARNED RESPONDENT HAS TRIED TO READ NON EXISTE NT PROVISION IN THE LAW WHILE HOLDING THAT THE DEDUCTION ENVISAGED IN SECTION 80 IB IS TO BE UNDERSTOOD ONLY FOR THE PROFITS AND GAINS DERIVED FROM THE MANUFACTURIN G ACTIVITY, WHEN THE FACTUAL POSITION IS THAT THE SECTION TALKS OF 'PROFITS AND GAINS OF ANY BUSINESS OF THE NEW INDUSTRIAL UNDERTAKING AND THEREBY ARRIVED AT WRONG CONCLUSION TO RESTRICT THE ACTUAL DEDUCTION U/S 80 IB. 3. THE LEARNED RESPONDENT HAS GROSSLY ERRED TO APPRECI ATE THE CONTENTS AND MEANING OF THE ACTUAL WORDINGS USED IN THE LAW, IN AS MUCH AS THE EMPHASIS IN THE SAID SECTION 80 IB IS ON THE PROFITS AND GAINS OF THE 'B USINESS OF THE NEW INDUSTRIAL UNDERTAKING' AND IT IS A SETTLED POSITION OF LAW TH AT THE TERM 'BUSINESS' IS WIDE ENOUGH TO ENCOMPASS ALL RELATED ACTIVITIES WHICH AR E INTEGRAL PART OF THE MANUFACTURING ACTIVITY. 4. THE HON'BLE CIT(A) HAS ERRED IN UPHOLDING THE ADDIT ION MADE AO ON ACCOUNT OF 'SERVICE INCOME' WHICH IS VERY MUCH INTEGRAL PAR T OF INDUSTRIAL UNDERTAKING AND ARE ELIGIBLE FOR DEDUCTION U/S 80IB. THE HON'BL E CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE INCOME REFLECTED AS 'S ERVICE INCOME' IS IN FACT INTEGRAL PART OF THE MANUFACTURING ACTIVITY OF THE APPELLANT. THE DEDUCTION PROVIDED UNDER SECTION 80IB IS FOR THE PROFITS AND GAINS OF ANY BUSINESS UNDERTAKEN BY THE NEW INDUSTRIAL UNIT AND THE ITEM OF INCOME REFLECTED UNDER 'SERVICE INCOME' FORMS PART OF THE INTEGRAL ACTIVIT Y OF THE UNDERTAKING. THEREFORE THE CONCLUSION TO RESTRICT THE ACTUAL DED UCTION U/S 80 IB, IS BAD IN LAW AND OPPOSED TO THE FACTS AND CIRCUMSTANCES OF THE C ASE. 5. THE HON'BLE CIT(A) HAS GROSSLY ERRED TO A PPRECIATE THE CONTENTS AND MEANING OF THE ACTUAL WORDINGS USED IN THE LAW., IN AS MUCH AS THE EMPHASIS IN THE SAID SECTION 80 IB IS ON THE PROFITS AND GAINS OF THE 'B USINESS OF THE NEW INDUSTRIAL UNDERTAKING' AND IT IS A SETTLED POSITION OF LAW TH AT THE TERM 'BUSINESS IS WIDE ENOUGH TO ENCOMPASS ALL RELATED ACTIVITIES WHICH AR E INTEGRAL PART OF THE MANUFACTURING ACTIVITY. 6. THE ABOVE POSITION OF LAW HAS NOT BEEN PRO PERLY INTERPRETED BY THE LEARNED RESPONDENT AND DUE TO HIS THE APPELLANT IS NOW SADD LED WITH TAX LIABILITY. HENCE THE ORDER OF THE RESPONDENT DESERVES TO BE SE T ASIDE. 7. THE APPELLANT CRAVES LEAVE TO ADD, DELETE, ALTER OR SUBSTITUTE ANY OF THE GROUNDS URGED ABOVE. 8. IN VIEW OF THE ABOVE FACTS AND PLEADINGS AND SUB MISSION, THE APPELLANT HUMBLY PRAYS THAT: I) THE ASSESSMENT ORDER IS BAD IN LAW AS THE DEDUCTION U/S 80 IB CLAIMED BY THE APPELLANT IS IN ACCORDANCE WITH THE PROVISIONS OF S ECTION 80IB AND DESERVES TO BE ALLOWED; ITA NO.910/BANG/2016 PAGE 3 OF 6 II) THE LEVY OF INTEREST UNDER SECTION 234B AND 234C AR E NOT IN ACCORDANCE WITH THE LAW UNDER THE FACTS AND CIRCUMS TANCES OF THE APPELLANT'S CASE AND NEEDS TO BE CANCELLED; III) GRANT OTHER SUCH RELIEF AND BENEFITS AS APPLICABLE TO THE APPELLANT IN ACCORDANCE WITH LAW. 9. IN VIEW OF THE ABOVE AND OTHER GROUNDS T HAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL, YOUR APPELLANT PRAYS THAT THE APPEAL MAY BE ALLOWED IN THE INTEREST OF JUSTICE AND EQUITY. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF CONTRAST MEDIA (REL ATED TO MEDICAL FILMS & X-RAY ACCESSORIES), MANUFACTURING OF AUTOMA TIC FILM PROCESSORS, X-RAY AND ULTRA SOUND EQUIPMENT DEALERS HIP, FILED THE RETURN OF INCOME FOR ASSESSMENT YEAR 2006-07 ON 28/11/2006 DECLARING TOTAL INCOME OF RS.1,07,63,125 /- AND THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE AC T. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AN D NOTICE U/S 143(2) OF THE ACT WAS ISSUED. IN COMPLIANCE, THE D IRECTOR OF THE ASSESSEE-COMPANY APPEARED AND FILED DETAILS AND BOO KS OF ACCOUNT WERE PRODUCED. THE AO FOUND THAT THE ASSES SEE CLAIMED DEDUCTION U/S 80-IB OF THE ACT TO THE EXTENT OF RS. 59,37,033/- BEING 30% OF PROFIT OF MANUFACTURING BUSINESS OF RS.1,67,00,158/-. THE AO OBSERVED THAT SAID PROFIT S WERE ARRIVED BY THE ASSESSEE AFTER CONSIDERING THE SERVICE INCOM E OF RS.56,90,789/- AND NET PROFIT WORKED THEREFROM BEIN G RS.14,46,239/-. WHEN SHOWCAUSE NOTICE WAS ISSUED B Y THE AO TO EXPLAIN REASONS FOR CLAIM OF DEDUCTION U/S 80-IB AN D PROFITS ON ITA NO.910/BANG/2016 PAGE 4 OF 6 SERVICE INCOME, THE ASSESSEE HAS FILED THE LETTER D ATED 10/12/2018. WHEREAS THE AO, ON PERUSAL OF THE PROV ISIONS, CAME TO CONCLUSION THAT DEDUCTION U/S 80-IB SHOULD BE R ESTRICTED TO PROFIT FROM MANUFACTURING ACTIVITIES, THEREFORE, THE CLAIM OF THE ASSESSEE THAT SERVICE CHARGES ARE INTEGRAL PART OF PROFITS IS NOT ACCEPTABLE AND THE AO HAS RECALCULATED THE DEDUCTIO N U/S 80-IB AND ASSESSED THE TOTAL INCOME AT RS.1,11,96,997/- A ND PASSED THE ORDER U/S 143(3) OF THE ACT DATED 15/12/2008. 4. AGGRIEVED BY THE ORDER, THE ASSESSEE PREFERRED A N APPEAL BEFORE THE CIT(A). WHEREAS THE CIT(A), AFTER HEARI NG THE SUBMISSIONS OF THE ASSESSEE CAME TO CONCLUSION THAT THE AO WAS CORRECT IN RESTRICTING THE CLAIM AND DISMISSED THE ASSESSEES APPEAL. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. BEFORE US, LEARNED AR O F THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENTITLED FO R DEDUCTION IN RESPECT OF SERVICE CHARGES WHICH FORM PART OF THE M ANUFACTURING ACTIVITY AND ALSO SUPPORTED HIS STAND WITH THE DECI SION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.1617/BNG/2016 DATED 05/05/2017 WHERE THE TRIBUNAL FOLLOWED THE DECISION FOR ASSESSMENT YEAR 2007-08 A ND DIRECTED THE AO TO RECOMPUTE DEDUCTION U/S 80-IB. THEREFORE , PRAYED THAT THE ASSESSEES APPEAL BE ALLOWED. ITA NO.910/BANG/2016 PAGE 5 OF 6 CONTRA, LEARNED DR SUPPORTED THE ORDER OF THE CIT( A). 6. WE HEARD RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. PRIMA FACIE, THE ONLY CLAIM OF THE ASSESSEE IN THE PRESENT APPEAL BEING THE CLAIM FOR DEDUCTION U/S 80-IB, AS THE LEA RNED AR SUBMITS IN RESPECT OF MANUFACTURING ACTIVITY AND SERVICE CH ARGES AND THE LEARNED AR BROUGHT TO THE NOTICE OF THE BENCH THAT THE DECISION ON THIS DISPUTED ISSUE IN ITA NO.1617/BANG/2016 IN PARA.6 OF THE ORDER, WHICH READS AS UNDER: 6. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, IT IS N OTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASS ESSMENT YEAR 2007-08 (SUPRA) IN PARA 9 AS UNDER: 9. IT WAS SUBMITTED BY THE LD. AR THAT ALTHOUGH T HE INCOME FROM THESE ACTIVITIES OF RENDERING OF SERVIC E AND EARNING SERVICE INCOME ETC. IS ELIGIBLE FOR DEDUCTION U/S.80IB BUT EVEN IF THESE ARE TO BE EXCLUDED, THEN ALSO NOT THE GROSS RECEIPTS BUT NET INCOME THEREFROM SHOULD BE REDUCED FROM BUSINESS PROFIT OF THE ASSESSEE FOR COMPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S. 80IB. LD. DR OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. TO MAINTAIN RULE OF CONSISTENCY AND BY FOLLOWING TH E DECISION OF THE CO-ORDINATE BENCH (SUPRA), THE ASSESSING OFF ICER IS DIRECTED TO RECOMPUTE THE DEDUCTION UNDER SECTION 8 0IB BY EXCLUDING THE NET INCOME OF SERVICE CHARGES AFTER R EDUCING THE EXPENSES INCURRED FOR EARNING SUCH INCOME. WE FOUND THAT THE DISPUTED ISSUE IN QUESTION IS ALS O APPLICABLE TO THE ASSESSEES CASE AND ACCORDINGLY, FOLLOWING JUDI CIAL PRECEDENCE AND RELYING ON THE ORDER OF THE CO-ORDINATE BENCH F OR ASSESSMENT YEAR 2009-10, WE DIRECT THE AO TO RECOMPUTE DEDUCTI ON U/S 80- ITA NO.910/BANG/2016 PAGE 6 OF 6 IB EXCLUDING NET INCOME OF SERVICE CHARGES AFTER RE DUCING EXPENSES INCURRED FOR EARNING SUCH INCOME. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST JANUARY, 2019. SD/- SD/- ( CHANDRA POOJARI ) ( PAVAN KUMAR GADALE ) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : BENGALURU D A T E : 31/01/2019. SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)- 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL BANGALORE