ADDL CIT RG 13(3), MUMBAI V. ZENITH WIRE INDUSTRIES, MUMBAI

ITA 927/MUM/2010

• Counselvise Citation: 92719914 RSA 2010
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 06-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 05-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN VED
• Assessee Lawyers: DR P DANIEL
• Keywords: Business income; Source of fund; Deemed to accrue or arise in india; Onus to prove
• Section: 69C; 43B; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, A ND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 927/MUM./2010 (ASSESSMENT YEAR : 2006-07 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-13(3), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S M/S. ZENITH WIRE INDUSTRIES 12-A, BHAGUBAI CHAMBERS 363, NARSI NATHA STREET MUMBAI 400 009 .... RESPONDENT REVENUE BY : MR. PAVAN VED ASSESSEE BY : DR. P. DANIEL DATE OF HEARING 29.03.2012 DATE OF ORDER 25.05.2012 O R D E R PER J. SUDHAKAR REDDY THE PRESENT APPEAL PREFERRED BY THE REVENUE, IS DIR ECTED AGAINST IMPUGNED ORDER DATED 30 TH NOVEMBER 2009, PASSED BY THE COMMISSIONER (APPEALS)XXIV, MUMBAI, FOR ASSESSMENT YEARS 2006-0 7. THE SOLE GROUND RAISED BY THE REVENUE, READS AS FOLLOWS:- THE LEARNED CIT(A) ON FACTS AND CIRCUMSTANCES ERRED IN DELETING THE ADDITION OF ` 1,26,40,000 MADE BY THE A.O. AFTER DISALLOWING THE CLAIM UNDER SECTION 80IB OF THE ACT. M/S. ZENITH WIRE INDUSTRIES 2 2. THE ASSESSING OFFICER CALLED FOR THE EXPLANATION OF THE ASSESSEE AND FOR VARIOUS REASONS GIVEN IN HIS ORDER, HELD THAT THE A SSESSEE IS NOT ENTITLED TO ANY DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT), FOR DEEMED INCOME ASSESSED UNDER SECTIO N 69A AND 69C OF THE ACT. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE T HE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPEALS), VIDE PARA-2.3 OF HIS ORDER, GRANTED RELIEF TO THE ASSESSEE BY OBSERVING AS FOLL OWS:- 2.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D COUNSEL AND THE CASE LAWS CITED AND RELIED UPON BY HIM AND I AM OF THE OPINION THAT THE APPELLANTS CLAIM FOR DEDUCTION UNDER SECT ION 80IB DESERVES TO SUCCEED BECAUSE IT IS HIS ADMISSION VIS--VIS THE S EIZED TORN PAPERS THAT HAS RESULTED IN THE DISCLOSURE OF UNDISCLOSED INCOME OF ` 1.5 CRORES AND THEREFORE THE FACT REMAINS THAT A SUM OF ` 23,60,000 PERTAINED TO TRADING ACTIVITIES AND THE BALANCE OF ` 1,26,40,000 PERTAINED TO THE MANUFACTURING ACTIVITIES, HAS TO B E EXAMINED AND THE AMOUNT OF ` 1,26,40,000 IS CLEARLY RELATABLE TO THE UNEXPLAINE D INCOME FROM MANUFACTURING ACTIVITY SINCE THE APPELLANT HAS NO OTHER BUSINESS OR SOURCE OF INCOME AND IN HIS STATEMENT ON OATH ON THE DATE OF SURVEY THE APPELLANT HAS STATED THAT THESE RECEIPTS RELATE D TO SALE OF SCRAP, JOB WORK ETC., WHICH ARE ELIGIBLE FOR DEDUCTION UND ER SECTION 80IB AND THEREFORE THE DEDUCTION UNDER SECTION 80IB TO THE E XTENT OF ` 1,26,40,000 IS ALLOWABLE AND THE DISALLOWANCE TO TH IS EXTENT IS DELETED AND THE APPELLANT GETS RELIEF OF ` 1,26,40,000 FOR CLAIMING DEDUCTION UNDER SECTION 80IB. THE BALANCE OF ` 23,60,000 RELATING TO TRADING ACTIVITIES IS DISALLOWED AS NOT BEING ELIGIBLE FOR SECTION 80IB RELIEF. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIB UNAL 5. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE, MR. PAWAN VED, REPRESENTING THE REVENUE, RELIED ON PARA-9.1 / PAGE -4, OF THE ASSESSMENT ORDER AND SUBMITTED THAT THE ASSESSEE HAS FAILED TO ESTABLISH BEYOND DOUBT THAT THERE IS NO OTHER ACTIVITY OTHER THAN MANUFACT URING ACTIVITY. DURING THE SURVEY PROCEEDINGS, EVIDENCE WAS FOUND OF HAVING DO NE JOB WORK, TRADING, ETC. WHICH HAS NO NEXUS WITH THE INDUSTRIAL UNDERTA KING. HE RELIED ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN FAKIR MOH MED HAJI HASAN VS CIT, M/S. ZENITH WIRE INDUSTRIES 3 [2001] 247 ITR 290 (GUJ.). HE REFERRED TO THE IMPUG NED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND SUBMITTED THAT THE CONCL USIONS ARE CONTRARY TO THE FACTS RECORDED BY THE FIRST APPELLATE AUTHORITY . HE POINTED OUT THAT THE ASSESSEE HAD ADMITTED TRADING ACTIVITY AND OF UNDER TAKING JOB WORK APART FROM MANUFACTURING ACTIVITY. HE EMPHASISED THAT THE BURDEN TO PROVE WHEN INCOME IS SOUGHT TO BE ASSESSED IS ON THE REVENUE A ND WHEREAS THE BURDEN OF PROOF WHEN IT IS CLAIMED THAT CERTAIN INCOME IS EXEMPT IS ON THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE FAILED TO PROVE THAT IT IS ENTITLED TO EXEMPTION ON THIS INCOME. HE POINTED OUT THAT THE A SSESSEE HAS NOT DECLARED ANY OTHER INCOME. HE DISTINGUISHED THE CASE LAWS RE LIED UPON BY THE COMMISSIONER (APPEALS). 6. THE LEARNED COUNSEL, DR. P. DANIEL, REPRESENTING TH E ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE ENTIRE ADDITION WAS BASED ON A STATEMENT AND IF THE STATEMENT IS TO BE DISPUTED, NO ADDITION WOU LD SURVIVE. HE SUBMITTED THAT THE STATEMENT WAS NOT DISPUTED BY THE REVENUE. HE VEHEMENTLY CONTENDED THAT HE CANNOT PROVE THE NEGATIVE I.E., T HAT THE INCOME WAS NOT EARNED OTHER THAN FROM THE INDUSTRIAL UNDERTAKING. HE SUBMITTED THAT THE ASSESSING OFFICER HAD NOT DOUBTED THAT THE ASSESSEE HAS CARRIED ON SOME OTHER ACTIVITY. REFERRING TO THE SCHEME OF THE ACT, THE INCOME HAS TO BE ASSESSED UNDER ONE OF THE HEADS OF INCOME AND IN TH IS CASE THE INCOME EARNED IS ASSESSED UNDER THE HEAD INCOME FROM BUSINESS . THE LEARNED COUNSEL RELIED HEAVILY ON THE ORDER PASSED BY THE C OMMISSIONER (APPEALS) AND SUBMITTED THAT THE ASSESSEE HAS INCOME ONLY FRO M MANUFACTURING ACTIVITY AND NOT FROM ANY OTHER SOURCES AND THAT TH E RECEIPT RELATING TO SALE OF SCRAP JOB WORK, ETC., ARE CONNECTED WITH INDUSTR IAL UNDERTAKING AND, HENCE, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. 7. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUSAL OF THE P APERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS FOLLOW S:- M/S. ZENITH WIRE INDUSTRIES 4 8. WHEN QUESTIONED ON THE SEIZED MATERIALS THE ASSESSE E HAS ADMITTED THAT IT HAD INCOME FROM (I) RECEIPT ON ACCOUNT OF SALE OF SCRAP; (II) RECEIPT FROM JOB WORKS DONE FOR OTHER CONCERNS WHICH IS ADM ITTEDLY UNDERTAKEN APART FROM MANUFACTURING ACTIVITIES; (III) RECEIPTS FROM TRADING ACTIVITIES FOR SOME OUTSTATION CLIENTS; (IV) CASH ADVANCES GIVEN TO THR EE PERSONS FOR PURCHASE OF PLOTS; (IV) ADDITIONS TO FIXED ASSETS. A PERUSAL OF THE ABOVE CLEARLY DEMONSTRATES THAT THE PROFITS AND GAINS IN QUESTION CANNOT BE SAID TO HAVE BEEN DERIVED BY AN UNDERTAKING. WHEN ADMITTEDLY THE ASSESSEE HAS INCOME FROM TRADING AND FROM JOB WORK, IT CANNOT BE UNDERS TOOD AS TO HOW THE COMMISSIONER (APPEALS) GRANTS RELIEF BY IGNORING TH E SETTLED PROPOSITIONS OF LAW. THE HON'BLE SUPREME COURT IN LIBERTY INDIA V/S CIT, [2009] 317 ITR 218 (SC), HELD AS FOLLOWS:- 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 UNDER SECTION 80-I / 80-IA / 80-IB OF THE INCOME-TAX ACT, 1961. THE INCOME-TAX ACT,1961, BROADLY PROVIDES FOR TWO TYPES OF TAX INCENTIVES, VIZ., INVESTMENT-LINKED INCENTIVES AND PROFIT-LINKED INCENTIVES. CHAPTER VI-A OF THE ACT WHICH PROVIDES FOR INCENTIVES IN THE FORM OF DEDUCTIONS ESSENTIALLY BELONGS TO THE CATEG ORY OF 'PROFIT-LINKED INCENTIVES'. THEREFORE, WHEN SECTION 80-IA / 80-IB REFERS TO PROFITS DERIVED FROM ELIGIBLE BUSINESS, IT IS NOT THE OWNER SHIP OF THAT BUSINESS WHICH ATTRACTS THE INCENTIVES : WHAT ATTRACTS THE I NCENTIVES UNDER SECTION 80-IA / 80-IB IS THE GENERATION OF PROFITS (OPERATIONAL PROFITS). IT IS FOR THIS REASON THAT PARLIAMENT HAS CONFINED DEDUCTION OF PROFITS DERIVED FROM ELIGIBLE BUSINESSES MENTIONED IN SUB-S ECTIONS (3) TO (11A). EACH OF THE BUSINESSES MENTIONED IN SUB-SECT IONS (3) TO (11A) CONSTITUTES A STAND-ALONE ITEM IN THE MATTER OF COM PUTATION OF PROFITS. SECTIONS 80-IB AND 80-IA ARE A CODE BY THEMSELVES A S THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. SECTION 80-IB PROVIDES FOR THE ALLOWING OF DEDUCTION IN RESPECT O F PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS. THE CONNOTATION OF THE WORDS 'DERIVED FROM' IS NARROWER AS COMPARED TO THAT OF T HE WORDS 'ATTRIBUTABLE TO'. BY USING THE EXPRESSION 'DERIVED FROM' PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGR EE. SECTIONS 80-I, 80-IA AND 80-IB ARE TO BE READ AS HAVING A COMMON S CHEME. SUB- SECTION (5) OF SECTION 80-IA (WHICH IS REQUIRED TO BE READ INTO SECTION 80-IB) PROVIDES FOR THE MANNER OF COMPUTATION OF TH E PROFITS OF AN ELIGIBLE BUSINESS. SUCH PROFITS ARE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THERE FORE, 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 80-IA(5). SECTIONS 80-I,80-IA AND 80-IB PROVIDE FOR INCENTIVE S IN THE FORM OF M/S. ZENITH WIRE INDUSTRIES 5 DEDUCTIONS WHICH ARE LINKED TO PROFITS AND NOT INVE STMENT. ON ANALYSIS OF SECTIONS 80-IA AND 80-IB IT BECOMES CLEAR THAT A NY INDUSTRIAL UNDERTAKING WHICH BECOMES ELIGIBLE ON SATISFYING SU B-SECTION (2) WOULD BE ENTITLED TO DEDUCTION UNDER SUB-SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH INDUS-TRIAL UNDERTAKING A FTER THE SPECIFIED DATE. APART FROM ELIGIBILITY, SUB-SECTION (1) PURPO RTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF T HE PROFITS. THIS IS THE IMPORTANCE OF THE WORDS 'DERIVED FROM AN INDUST RIAL UNDERTAKING' AS AGAINST 'PROFITS ATTRIBUTABLE TO AN INDUSTRIAL U NDERTAKING'. 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 DERIVED FROM ELIGIBLE BUSINESS UNDER SECTION 80-IB : THEY BELONG TO THE C ATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. PROFITS DERIVED BY WAY OF INCENTIVES SUCH AS DEPB/DUTY DRAWBACK CANNOT BE CREDITED AGAINST TH E COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THEY DO NOT FALL WITHIN THE EXPRESSION 'PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING' UNDER SECTION 80-IB . DECISIONS OF THE PUNJAB AND HARYANA HIGH COURT IN L IBERTY INDIA V. CIT [2007] 293 ITR 520 AND CIT V. LAKHWINDER SINGH [200 9] 317 ITR 209 OF THE DELHI HIGH COURT IN CIT V. RITESH INDUSTRIES LTD. [2005] 274 ITR 324 AND OF THE MADRAS HIGH COURT IN SHAKTI FOOTWEAR V. CIT (NO. 2) [2009] 317 ITR 199 AFFIRMED. 9. THUS, APPLYING THE AFORESAID PROPOSITIONS TO THE FA CTS OF THE CASE, WE HOLD THAT THE PROFITS AND GAINS IN QUESTION CANNOT BE SAID TO HAVE BEEN DERIVED FROM THE INDUSTRIAL UNDERTAKING AND, HENCE, THE ASSESSEE WOULD NOT BE ELIGIBLE FOR RELIEF UNDER SECTION 80IB OF THE AC T. 10. COMING TO THE CASE LAWS RELIED UPON BY THE LEARNED COUNSEL, WE FIND THAT IN S.A. BUILDERS V/S ITO, 50 DTR 299, THE TRIB UNAL WAS CONSIDERING DISALLOWANCE MADE UNDER SECTION 40A(IA) WHICH FALLS BETWEEN SECTIONS 30 AND 43B OF THE ACT. THE CASE ON HAND IS DIFFERENT. 11. COMING TO THE DECISION OF JODHPUR BENCH OF THE TRIB UNAL IN SWASTIC TEXTILES, 57 SOT 327, THE BENCH WAS CONSIDERING A C ASE WHERE THE FACT THAT THE ASSESSEE HAD NO OTHER SOURCES OF INCOME WAS NOT IN DISPUTE. IN THE CASE IN HAND, THE ASSESSEE HAS INCOME FROM JOB WORK AND INCOME FROM TRADING. M/S. ZENITH WIRE INDUSTRIES 6 12. IN CIT V/S ALLIED INDUSTRIES, 31 DTR 323, THE DISCL OSURE GIVEN WAS THE COVER UP OF TYPES OF DISCREPANCIES. THOSE WERE ASSE SSED AS BUSINESS INCOME AND NOT UNDER SECTION 69C. IN OUR CONSIDERED OPINIO N, THESE CASE LAWS DO NOT COME TO THE RESCUE TO THE ASSESSEE. THE OTHER CASE LAWS RELIED UPON BY THE LEARNED COUNSEL ARE ALSO DISTINGUISHABLE ON FACTS. 13. IN VIEW OF THE ABOVE DISCUSSION, WE AGREE WITH THE SUBMISSIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AND REVERSE THE ORDER OF THE COMMISSIONER (APPEALS) AND RESTORE THE ORDER OF THE ASSESSING OFFICER. 14. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MAY 2012 SD/- R.S. PADVEKAR JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 25 TH MAY 2012 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, G BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI