Ms. Mahavir Cycle Industries through its Partner Shri Jeevan Prabhat Jain V. The Commissioner of Income Tax, Ludhiana and another

ITA/823/2008

AI Insights

The case involves Ms. Mahavir Cycle Industries, which appealed against the decision of the Income Tax Appellate Tribunal, Chandigarh, concerning the exclusion of profits from the sale of scrap in the computation of deductions under Section 80HHC of the Income Tax Act. The Tribunal had upheld the exclusion of the entire turnover from the profits of the business without ascertaining the profit embedded in the turnover of sale of scrap. The High Court's decision referenced a similar case by the Kerala High Court, which found that profits from the sale of scrap should be included in the business profits for the purpose of calculating deductions under Section 80HHC.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 818770 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 08-04-2011
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax-III, Ludhiana vs. Bicycle Wheels (India), The Commissioner of Income Tax, Cochin vs. Kar Mobiles Limited
• Laws Referred To: Income-Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: RAJESH KATOCH
• Assessee Lawyers: RADHIKA SURI
• Keywords: Deduction under section 80HHC; Income Tax; Sale of scrap; Total Turnover; Profit of Business
• Section: 148; 154; 80HHC; 260A; 143(1)(a)

Judgement Text

" I- a:= :J- 0 U :I: C) - :I: < Z ~ -->~ < :I: C Z < ca < \"'\"\") z :;:) a. Income Tax Appeal No. 823 of 2008 1 M' - /' IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. Income Tax Appeal No. 823 of 2008 Date Qf decision: 8.4.2011 Ms. Mahavir Cycle Industries through its Partner Shri Jeevan Prabhat Jain --- Appellant Versus The Commissioner of Income Tax, ludhiana and another. --- respondent CORAM: HON'BlE MR. JUSTICE ADARSH KUMAR GOEl HON'BlE MR. JUSTICE AJAY KUMAR MITTAl Present: Mr. Radhika Suri, Advocate for the appellant. Mr. Rajesh Katoch, Standing counsel for the respondents-Revenue. AJAY KUMAR MITTAl, J. I This appeal under Section 260A of th/e Inpome-Tax Act, 1961 i (for &hort \"the Act\") has been filed by the assesse6 against the order i i i dateq 29.9.2008, passe9 by the Income Tax Appell,ate Tribunal Cha~digarh Bench 'B', Chandigarh (in short \"the Tribunat\") in ITA No. 1014/Chandi/2008, relating to the assessment year 1999-2000. 2. The appeal was admitted by this Court for determination of the -following substantial questions of law: \"(i) Whether in the facts and circumstances of the case the ITAT was right in law in holding that th~ profit on sale of scrap ~ ,--- .,,__.\"h-- -\",\"\"~-'\" ~ -\",' '--'-- , t- e::: ::> 0 u J: C) - J: '« Z ~ a:: « J: 0 Z « en « '\"\"\"') z ::J a. Income Tax Appeal No. 823 of 2008 2 2. The appeal was admitted by this Court for determination of the following substantial questions of law: \"(i) Whether in the facts and circumstances of the cas'e the ITAT was right in law in holding that the profit on sale of scrap should be excluded from the profit of business for the purposes of computing deductions under Section 8QHHC when the production of scrap was incidental to the business of the which 1000/0 I Oriented was a Export assessee Undertaking? (ii) Whether in the facts and circumstances of the case' the ITAT was right in law in upholding the order of the CIT (AJ who had directed the exclusion of entire amount of turn over from the profits of business without ascertaining the profit embedded in the turn over of sale of scrap?\" 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the assessee-firm is dealing in trading and manufacturing of cycle parts. It claims that the scrftP is bi-product of . i manufacturing which is not part of total turnover. On 29.11: 1999 the I , asses~ee filed its orig'inal' return for the assessme~t year 1999-2000 declar!ng total income as Nil. The assessee claimed deduction of Rs. , 1,73,5b,957/- under Section 80HHC of the Act. The return was processed under'Section 143(1 )(a) on 21.3.2001. The case was re-opened under Section 148 of the Act. During the assessment proceedings, it was found that the assessee had made sale of scrap amounting to Rs. 79,25,489/-. According to the viewpoint of the Revenue, the sale procee<;.fsof the scrap was a part of the total turnover though the assessee had ignored to r-~ ~ I I- ~ :J 0 U :J: ~ - J: cd: Z ~ ~ « J: c z « cc « ., z ::) a. il I i I I ~I :1 .. I . Income Tax Appeal No. 823 of 2008 3 include the amount of sale of scrap, while computing deduction. under . Section 80HHC of the Act. At the same time, the assessing' officer excluded the profit on sale of scrap from the profit of the business on proportionate basis for the purposes of calculation of deduction under Section 80HHC. The assessing officer, thus, vide order dated '10:7.2006 modified the deduction admissible under Section 80HHC. 4. The assessee filed appeal before the Commissioner of Income Tax (Appeals) [for short \"the CIT(A)\"]. The CIT(A)held that the assessing officer fell in legal error by including the sale of scrap in the total turnover , . for the purpose of computation of deduction under Section 80HH9. It was also clarified that the sale of scrap shall not be' considered while computing the profits of the business and accordingly by its order dated 25.9.2006, t,he CIT(A)allowed the appeal. 5. The order giving effect to the order of the CIT(A)was passed on 3.10.2006 by the assessing officer wherein total income was assessed at NIL. However, later on the' assessing officer was of the opinion that while giving effect to the order of the CIT(A), a mista~e apparent on the face of the record had oC9urred as the scrap salesl amou~t'ing to Rs. i 79,25,489/- had to be excluded from the total turnover./as well' as from the profits) of the business for computing deduction under Section 80HHC. ! The ~ssessing officer, rectified its earlier order giving appeal effect by exercise of powers under Section 154 of the Act vide order. dated 28.11.2006 and re-computed the deduction by excluding the entire turn- over of sale of scrap from the, profits of the business. The assessee again filed appeal before the CIT(A) challenging the order dated 28.11.2006 of the assessing officer., The CIT(A), however, dismissed the appeal vide ~ il '!i1~ ~l . f, ~ ' ) I- ~ ::> 0 (.) J: C) - ::I: « Z ~ ~ c.. Income Tax AQQeal No. 823 of 2008 4 order dated 28.12.2007 in the light of its earlier order dated .25.9.2006, holding that under Section 154 the assessing officer was competent to initiate proceedings to exclude the turnover of sale of scrap from the profit of business for the purpose of computation of deduction under Section 80HHC. The assessee further took the matter in appeal before the Tribunal, impugning the orders passed by the CIT(A) dated 28.12.2007 and 25.9.2006. The main submission that was raised on behalf of the assessee was that the CIT(A)had erred in holding that the entir~ turn,over of sale of scrap was to be excluded from profits of business while computing the deduction under Section 80HHC. 6. The Tribunal, vide order dated 29.9.2008, under appeal before us, held that the deduction under Section 80HHC of the Act should be computed after excluding the profit on sale of. scrap from the profit of business and the sale of scrap also would not form part of the total turn . I over, for the purpose of calculation of deduction under Section 80HHC and dismissed both the appeals of the assessee. 7. This is how the. assessee is in appeal befqre us. , i . i . We have heard learned counsel for th~ parties and have 8. perused the record. 9. Learned counsel for the assessee candiidly admitted that in- sO-f4r as sale of scrap has been ordered to be excluded from the total I turnover of the assessee for computation of deduction under Section '80HHC of the Act is concerned, the same is I unsustainable in view of decision of this Court in Income Tax Appeal No. 31 of 2002 (Commissioner of Income Tax-III, Ludhiana vs. Bicyles wheels (India) decided on 11.10.2010. ~ I- ~ ::::> -.0u J: ~ - J: - J: