DCIT 9(2), MUMBAI V. KRYFS POWER COMPONENTS LTD, MUMBAI

ITA 9106/MUM/2010

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2662 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 28-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A DHYANI
• Keywords: Tax effect
• Section: 80IB

Judgement Text

, IN THE INCOME-TAX APPELLATE TRIBUNAL -ABENCH M UMBAI , BEFORE S.SH.RAJENDRA,ACCOUNTANT MEMBER AND AMIT SHUKLA,JUDICIAL MEMBER /ITA NO.9106/MUM/2010, /ASSESSMENT YEAR 2006-07 DCIT-9(2) AAYAKAR BHAVAN ROOM NO.218 2 ND FLOOR, M.K. ROAD MUMBAI-400 020. VS. M/S. KRYFS POWER COMPONENTS LTD. 3 RD FLOOR, AZA HOUSE, 24 TURNER ROAD, BANDRA (WEST) MUMBAI-400 050. PAN:A AACK 2791 F ( / APPELLANT ) ( / RESPONDENT ) C.O. NO.88/M/2012 M/S. KRYFS POWER COMPONENTS LTD. MUMBAI-400 050. PAN:A AACK 2791 F VS. DCIT-9(2) MUMBAI-400 020. ( /CROSS OBJECTOR) ( / RESPONDENT ) / ASSESSEE BY :SHRI YOGESH THAR / REVENUE BY :SHRI R.A. DHYANI / DATE OF HEARING : 19.10. 2015 / DATE OF PRONOUNCEMENT : 04 .11.2015 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDER DATED OF THE CIT(A)-,MUMBAI,T HE ASSESSING OFFICER(AO)HAD FILED THE PRESENT APPEAL.THE ASSESSEE HAS FILED CROSS OBJECTI ONS. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING ELECTRIC LAMINATES ETC.,FILED ITS RETURN OF INCOME ON 20.10.2006,DECLARING INCOME OF RS.13.48 CRORES.ORIGINALLY, THE RETURN WAS PROCESSED U/S.143(1)OF THE ACT.LATER ON THE ASSESSING OFFICER(AO),ISSUED A NOTICE U/S.148 OF THE ACT AND COMPLETED THE ASSESSM ENT,U/S.147 R.W.S.143(3) OF THE ACT, ON 14.12.2009,DETERMINING THE INCOME OF THE ASSESSEE A T RS. 13,94,20,415/-. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT INCOME FROM SAL E OF SCRAP AND ITS ELIGIBILITY FOR DEDUCTION U/S.80IB OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CREDITED SCRAP SALES OF RS.1.37 CRORES INTEREST INCOME OF RS.8.66 LAKHS TO THE P&L A/C.AND HAD INCLUDED THOSE TWO ITEMS IN THE INC OME OF THE ELIGIBLE BUSINESS FOR DEDUCTION UNDER SECTION 80IB OF THE ACT.THE AO ASKE D IT TO SHOW AS TO WHY THE INCOMES FROM INTEREST AND SALE OF SCRAP SHOULD NOT BE EXCLU DED FROM THE PROFIT OF THE BUSINESS FOR COMPUTATION OF DEDUCTION U/S. 80IB, AS THE SAME WAS NOT DERIVED FROM THE UNDERTAKING. THE ASSESSEE SUBMITTED THAT THE SALE OF SCRAP WAS D IRECTLY RELATED TO MANUFACTURING ACTIVITY AND PART OF THE MANUFACTURING PROCESS.AFTER CONSIDE RING THE SUBMISSION OF THE ASSESSEE, THE AO HELD THAT THE INTEREST INCOME COULD NOT BE C ONSIDERED AS PROFIT FROM BUSINESS, THAT IT HAD DERIVED INTEREST FROM BANK DEPOSITS/FDS,THAT SAME WAS NOT DIRECTLY FROM THE BUSINESS,THAT THERE WAS NO COMMERCIAL CONNECTION BE TWEEN THE INTEREST AND BUSINESS ACTIVITY OF THE ASSESSEE,THAT THE IMMEDIATE AND EFF ECTIVE SOURCE OF INTEREST WAS THE APPLICATION OF SURPLUS FUND, THAT DIRECT AND EFFECT IVE SOURCE OF INCOME WAS THE DEPOSIT, THAT THE INDUSTRIAL UNDERTAKING COULD NOT BE TREATED THE ULTIMATE SOURCE OF INCOME.REFERRING TO 9106/10 KRYFS POWER 2 THE DECISIONS OF LIBERTY INDIA LTD.(317 ITR 218); P ANDIYAN CHEMICALS LTD. ( 262ITR278) AND STERLING FOODS LTD.( 237ITR579), THE AO HELD TH AT THE INCOME FROM SALE OF SCRAP HAD NOT BEEN DERIVED FROM INDUSTRIAL UNDERTAKING.FINALL Y, FD INTEREST INCOME OF RS.8.64 LACS (RS.7.09 LACS AND RS.1.57 LACS) AND INCOME FROM SA LE OF SCRAP (RS.1.37 CR.) WAS EXCLUDED FROM THE PROFITS OF THE UNDERTAKING FOR THE COMPUTA TION OF DEDUCTION U/S. 80IB OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS CONTENDED THAT IN TEREST INCOME WAS DIRECTLY RELATED TO THE BUSINESS, THAT THE SCRAP HAD RESULTED FROM THE ACTI VITY OF HIS ONLY INDUSTRIAL UNDERTAKING, THAT BOTH THE ITEMS WERE DIRECTLY DERIVED FROM THE UNDER TAKING ELIGIBLE FOR DEDUCTION. AFTER CONSIDERING THE SUBMISSION OF THEASSESSEE AND THE ASSESSMENT ORDER,THE FAA HELD THAT THE INTEREST INCOME HAD ARISEN OUT OF THE SURPLUS F UND INVESTED IN DEPOSITS, THAT THE DIRECT SOURCE WAS SURPLUS FUND AND NOT THE INDUSTRIAL UNDE RTAKING.RELYING UPON THE JUDGMENT OF LIBERTY INDIA(SUPRA),THE FAA UPHELD THE ORDER OF TH E AO.WITH REGARD TO THE INCOME FROM SALE OF SCRAP,THE FAA HELD THAT THE INCOME HAD RESULTED DIRECTLY FROM THE OPERATIONS OF THE UNDERTAKING,THAT THE ASSESSEE WAS ELIGIBLE FOR CLAI MING DEDUCTION U/S.80IB OF THE ACT, AMOUNTING TO RS.1.37 CRORES. 4 .BEFORE US,THE DEPARTMENTAL REPRESENTATIVE (DR)SUPP ORTED THE ORDER OF THE AO.THE AUTHRORISED REPRESENTATIVE(AR)CONTENDED THAT THERE WAS DIRECT RELATIONSHIP BETWEEN THE SALE OF SCRAP AND INDUSTRIAL UNDERTAKING.HE RELIED UPON THE CASES OF NIRMA LTD. (367 ITR 12) AND SADHU FORGING LTD. (336 ITR 444). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE AO HAD EXCLUDED THE INCOME ARISING OUT OF SALE OF S CRAP AS SHE WAS OF THE OPINION THAT IT DID NOT HAVE DIRECT NEXUS WITH THE MANUFACTURING ACTIVI TY OF THE UNDERTAKING, THAT THE ASSESSEE IS A MANUFACTURER OF ELECTRIC LAMINATES AND OTHER ARTICL ES, THAT THE SCRAP IS GENERATED FROM MANUFACTURING ACTIVITIES. WE FIND THAT IN THE CASE OF SADHU FORGING LTD. THE HONBLE DELHI HIGH COURT HAS DEALT THE ISSUE OF SALE OF SCRAP AND ITS ELIGIBILITY U/S.80IB OF THE ACT. FACTS OF THE CASE WERE THAT DURING THE ASSESSMENT YEAR 2004- 05, THE ASSESSEE HAD SHOWN GROSS RECEIPTS, WHICH APART FROM SALES OF GOODS INCLUDED SALES OF S CRAP, LABOUR CHARGES AND JOB WORKS CHARGES, AND CLAIMED DEDUCTION UNDER SECTION 80-IB OF THE ACT. THE AO OFFICER HELD THAT UNDER THE PROVISIONS OF SECTION 80-IB , THE ASSESSE ES INDUSTRIAL UNDERTAKING SET UP FOR THE PURPOSE OF MANUFACTURE OF STEEL FORGING, TRANSMISSI ON GEARS AND PARTS AND ACCESSORIES OF MOTOR VEHICLES, COULD NOT BE PERMITTED DEDUCTION ON SALE OF SCRAP, JOB WORK CHARGES AND LABOUR CHARGES AS THEY WERE NOT DERIVED FROM THE IN DUSTRIAL UNDERTAKING.THE FAA HELD THAT THE SCRAP GENERATION AT VARIOUS STAGES OF THE MANUF ACTURING PROCESS WAS PART OF THE MANUFACTURING ACTIVITY OF AN INDUSTRIAL UNIT AND TH US REPRESENTED PROFITS AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING.THE TRIBUNAL HELD T HAT SCRAP WAS GENERATED THROUGH THE PROCESS OF MANUFACTURING AND THUS PROFITS ON SALE O F SCRAP REPRESENTED PROFITS AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE TRIBUN AL ALSO HELD THAT JOB WORKS/LABOUR CHARGES INCOME RECEIVED BY THE ASSESSEE, BY UTILIZING ITS P LANT AND MACHINERY INSTALLED IN THE UNDERTAKING, GAVE RISE TO INCOME WHICH HAD A DIRECT NEXUS WITH THE ASSESSEES INDUSTRIAL UNDERTAKING, AND THUS WAS ENTITLED TO CLAIM OF DEDU CTION UNDER SECTION 80-IB OF THE ACT. DISMISSING THE APPEAL FILED BY THE DEPARTMENT,THE H ONBLE HIGH COURT HELD AS UNDER: THAT THE INDUSTRIAL UNDERTAKING SET UP BY THE ASSES SEE WAS FOR THE PURPOSE OF MANUFACTURE OF STEEL FORGING, TRANSMISSION GEARS AND PART AND ACCE SSORIES OF MOTOR VEHICLES AND THE SCRAP OF THESE ITEMS WAS STATED TO BE A BY PRODUCT OF MANUFA CTURING PROCESS. THE ACTIVITY OF FORGING 9106/10 KRYFS POWER 3 WAS MANUFACTURING WITHIN THE AMBIT OF SECTION 80- IB . IT WAS IMMATERIAL THAT THE ASSESSEE WAS DOING THE JOB OF FORGING ALSO FOR CUSTOMERS AND WAS CHARGING THEM ON JOB WORK BASIS OR ON THE BASIS OF LABOUR CHARGES. IT WOULD STILL BE Q UALIFIED AS CARRYING ON ELIGIBLE BUSINESS UNDER SECTION 80-IB. THE ACTIVITIES OF THE ASSESSEE WERE IN GIVING HEAT TREATMENT FOR WHICH IT HAD EARNED LABOUR CHARGES AND JOB WORK CHARGES. IT COULD THUS BE SAID THAT THE ASSESSEE HAD DONE A PROCESS ON THE RAW MATERIAL WHICH WAS NOTHIN G BUT A PART AND PARCEL OF THE MANUFACTURING PROCESS OF THE INDUSTRIAL UNDERTAKING . THESE RECEIPTS COULD NOT BE SAID TO BE INDEPENDENT INCOME OF THE MANUFACTURING ACTIVITIES OF THE UNDERTAKING OF THE ASSESSEE AND THUS COULD NOT BE EXCLUDED FROM THE PROFITS AND GAI NS DERIVED FROM THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTIO N 80-IB . THESE WERE GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING AND SO ENTITLED FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80-IB .THERE COULD NOT BE ANY TWO OPINIONS THAT MANUFACTURING ACTIVITY OF THE TYPE OF MATERIAL BEING UNDERTAKEN BY THE ASSESSEE WOULD ALS O GENERATE SCRAP IN THE PROCESS OF MANUFACTURING. THE RECEIPTS FROM SALE OF SCRAP BEIN G PART AND PARCEL OF THE ACTIVITY AND BEING PROXIMATE THERETO WOULD ALSO BE WITHIN THE AMBIT OF GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80-IB . RESPECFULLY,FOLLOWING THE ABOVE,WE HOLD THAT THE OR DER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.CONFIRMING THE SAME,WE D ECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. C.O.NO.88/MUM/2012(A.Y.2006-07)(BY ASSESSEE ): BEFORE US THE AR STATED THAT GROUND NO. 1 WAS ACADE MIC IN NATURE AND THAT CONSIDERING THE SMALLNESS OF TAX EFFECT THE ASSESSEE WAS NOT INTERE STED IN PRESSING THE REMAINING TWO GROUNDS. IN LIGHT OF THE STATEMENT OF THE AR,WE ARE DECIDING THE GROUNDS OF APPEAL AGAINST THE ASSESSEE AS NOT PRESSED. AS A RESULT,APPEAL FILED BY THE AO AND THE CO OF T HE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH NOVEMBER,2015. 04 ,2015 SD/- SD/- ( / AMIT SHUKLA ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, DATE: 04.11.2015 . . . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.