Income Tax Appellate Tribunal - Chandigarh
Vmt Spinning Co. Ltd., Ludhiana vs Assessee on 6 July, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH,CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND SHRI T.R.SOOD, ACCOUNTANT MEMBER
ITA No. 1147/CHD/2014
Assessment Year: 2007-08
M/s VMT Spinning Co. Ltd., Vs The Addl. CIT,
Chandigarh Road, Range 1,
Ludhiana. Ludhiana.
PAN: AABCV8087C
&
ITA No. 12/CHD/2015
Assessment Year: 2007-08
The DCIT, Vs M/s VMT Spinning Co. Ltd.,
Circle 1, Chandigarh Road,
Ludhiana. Ludhiana.
PAN: AABCV8087C
(Appellant) (Respondent)
Appellant by : Shri Subhash Aggarwal
Respondent by : Dr. Amarveer Singh
Date of Hearing : 01.07.2015
Date of Pronouncement : 06.07.2015
O R D E R
PER BHAVNESH SAINI,JM Both the cross appeals are directed against the order of ld. CIT(Appeals)-II Ludhiana dated 30.10.2014 for assessment year 2007-08.
2
2. We have heard ld. Representatives of both the parties and perused the findings of authorities below. Both appeals are decided as under.
ITA 1147/CHD/2014 (Assessee's Appeal)
3. Ground No. 1 is general and need no adjudication.
4. On ground No. 2, assessee challenged the order of ld. CIT(Appeals) in reducing the profit eligible for deduction under section 80IC of the Act by the following amounts :
i) Duty Draw Back : Rs. 69,26,088/-
ii) Misc. Receipts : Rs. 1,11,988/-
5. The Assessing Officer, with regard to deduction
claimed under section 80IC of the Act on Duty Draw Back referred to the decision of the Hon'ble Supreme Court in the case of Sterling Foods 237 ITR 579 and decisions of Hon'ble Punjab & Haryana High Court in the cases of Liberty India Vs CIT and M/s Nahar Exports Ltd. Vs CIT and held that these incomes were not derived from business and therefore, were not eligible for deduction under section 80IC of the Act.
6. The assessee submitted before ld. CIT(Appeals) that Duty Draw Back is an income arising in regular course of business. The ld. CIT(Appeals), however, noted that these incentives are paid by the government under various incentive schemes and are not derived from the eligible business. The source of these receipts is not the industrial 3 unit but incentive schemes of the government. These incentives, therefore, do not qualify for deduction under section 80IC of the Act. Matter is therefore, found covered by decision of the Hon'ble Supreme Court in the case of Liberty India Vs CIT 317 ITR 218.
7. After hearing rival submissions, we are of the view that no interference is called for in the matter. Under Section 80IC, deduction is allowable to the assessee where the gross total income of the assessee includes any profits and gains derived by an undertaking or an enterprise from any eligible business referred to in the said Section. The Duty Draw Back is paid by the government under various incentive schemes and thus, are not derived from eligible business.
8. Hon'ble Supreme Court in the case of Liberty India Vs CIT (supra) held that, "The connotation of the wo r d s " d e r i v e d f r o m" i s n a r r o we r a s c o m p a r e d t o t h a t o f t h e wo r d s " a t t r i b u t a b l e t o " . B y u s i n g t h e e x p r e s s i o n " d e r i v e d f r o m"
Parliament intended to cover sources not beyond the f irst degree." The issue is, therefore, covered against the assessee by judgement of Hon'ble Supreme Court in the case of Liberty India (supra). This ground of appeal of the assessee is accordingly, dismissed.
8(i) The Assessing Officer with regard to Miscellaneous Receipts of Rs. 1,11,988/- also similarly following the above decisions held that this income was not derived from business and therefore, was not eligible for deduction 4 under section 80IC of the Act. The assessee submitted before ld. CIT(Appeals) that the miscellaneous receipts are the amount that was received on account of brokerage of ocean freight. The assessee submitted that shipping companies granted discount to the assessee though nomenclature used is brokerage against the amount of ocean freight paid. The assessee relied upon order of ITAT in the case of same assessee for assessment year 2001-02 dated 31.07.2007.
9. The ld. CIT(Appeals) considering the submissions of the assessee noted that such brokerage are not derived from industrial undertaking and cannot be held to be income from manufacture or production or articles as envisaged under section 80IC of the Act. The ld. CIT(Appeals), therefore, confirmed the addition.
10. The ld. counsel for the assessee reiterated the submissions made before authorities below and referred to order of ITAT Chandigarh Bench in the case of the same assessee in ITA No. 678/2014 for assessment year 2004-05 dated 10.02.2015 in which the brokerage on ocean freight was considered with regard to calculating the deduction under section 10B of the Act and the Tribunal following its earlier decision held that brokerage is basically rebate allowed by the shipping company as well as sale of sample is directly related to the business of the assessee and since same has already been held to be part of the business income by the Tribunal. Therefore, following the earlier 5 decision in the case of the same assessee, it was held that these receipts are part of the business income and eligible for deduction under section 10B of the Income Tax Act. The ld. counsel for the assessee, therefore, submitted that once brokerage on ocean freight is held to be business income, therefore, assessee would be entitled for deduction under section 80IC of the Income Tax Act.
10(i) On the other hand, ld. DR relied upon orders of the authorities below.
11. Considering the facts of the case in the light of the earlier order of the Tribunal dated 10.02.2015, we are of the view that brokerage on account of ocean freight is business income as was already held by the Tribunal in the case of the same assessee vide order dated 10.02.2015. Therefore, assessee would be entitled for deduction under section 80IC of the Act on said amount. The orders of authorities below are accordingly, set aside and Assessing Officer is directed to grant deduction under section 80IC to the assessee.
12. In the result, this ground of appeal of the assessee is partly allowed.
13. On ground No. 3, assessee challenged the order of ld. CIT(Appeals) in reducing the profits eligible for deduction under section 80IC of the Act by Rs. 5,06,634/- being 70% of excess provisions written back of Rs. 7,23,763/-. Regarding the provisions written back amounting to 6 Rs. 7,23,763/-, the Assessing Officer pointed out that the assessee was claiming deduction under section 80IB @ 30% in assessment year 2006-07. The Assessing Officer pointed out that this was the 10th year of claim of deduction under section 80IB and further pointed out that by adding back this amount of Rs. 7,23,763/- during assessment year under appeal 2007-08, the assessee will get exemption from income tax @ 100% under section 80IC. The Assessing Officer pointed out that assessee had accordingly evaded tax on 70% of this income. If this provision had not been created during the assessment year 2006-07, the assessee would have got deduction of only 30% of this income and would have been required to pay tax on 70% of this income. The Assessing Officer, accordingly, held that 70% of this provision was to be taxed during the year and accordingly added back an amount of Rs. 5,06,634/- on this account.
14. The assessee submitted before ld. CIT(Appeals) that the major provisions which were reversed, were in relation to commission payable against exports etc. The assessee relied upon decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs Metalman Auto Pvt. Ltd. 336 ITR 434 and decision of the Tribunal in the case of Vardhman Threads Ltd. Vs ACIT in ITA 556/2008. The assessee further submitted that Assessing Officer has erred in observing that the assessee had not paid taxes on 70% of Rs. 7,23,763/- being amount of provision created in the previous year. The assessee submitted that it had created this provision in relation to routine business expenses and 7 as a result, net profit was reduced by the same amount. The assessee did not know that it would be in a position to claim 100% deduction in the order under consideration in which the assessee had become eligible only after completion of substantial expansion. The ld. CIT(Appeals), however, noted that in assessee's case, Assessing Officer has not held that provisions written back are not eligible for deduction under section 80IC. The Assessing Officer merely disallowed the claim to the extent of 70% out of the provisions written back amounting to Rs. 7,23,763/-. The Assessing Officer held that by creating the provision in assessment year 2006-07 and then writing it back in the year 2007-08, the assessee had obtained undue advantage to the extent of Rs. 5,06,632/-. Therefore, addition was confirmed.
15. The ld. counsel for the assessee referred to the details of excess provision written back at page 13 of the Paper Book and reiterated the submissions made before authorities below. He has further submitted that there is no provision under section 80IC to allow the deduction @ 30% in this year being the first year of claim of deduction under section 80IC of the Act.
15(i) On the other hand, ld. DR relied upon orders of the authorities below.
16. We have considered rival submissions. The Assessing Officer fond that assessee has claimed deduction under section 80IB @ 30% in assessment year 2006-07 which was 8 10th year for such claim. The Assessing Officer further pointed out that by adding this amount during the year under consideration, assessee will get exemption of 100% under section 80IC of the Act. The Assessing Officer, therefore, found that assessee had evaded tax on 70% of this income. It is, therefore, admitted fact that the preceding assessment year 2006-07 being his 10th year for claim of deduction under section 80IB, the assessment year under appeal i.e. 2007-08 would be the first year for claim of deduction under section 80IC of the Act. Therefore, assessee would be eligible for deduction of 100% as per provisions of Section 80IC of the Act. The ld. counsel for the assessee, therefore, rightly contended that there is no provision under section 80IC to allow the deduction @ 30% in this year being the first year of 80IC. The ld. CIT(Appeals) noted that Assessing Officer has not held that the provisions written back are not eligible for deduction under section 80IC of the Act because Assessing Officer has merely disallowed 70% claim of the assessee. The submissions of the assessee show that when provision was created in the previous year, it would result net profit of the assessee reduced in preceding assessment year 2006-07. Therefore, assessee would have also got lesser deduction under section 80IB of the Act, as such, the income of the assessee was reduced in preceding assessment year. Therefore, assessee correctly claimed that when provision was taken care in the year under appeal, it would enhance the income of the assessee. Since 9 the income earned by the assessee was not disputed by the Assessing Officer and Assessing Officer allowed part claim of the assessee to the extent of 30%, would clearly show that assessee was entitled for deduction under section 80IC of the Act on the entire amount of provisions written back in the year under consideration. We, therefore, set aside the orders of authorities below and direct the Assessing Officer to allow claim of assessee under section 80IC of the Act on the entire claim made by the assessee.
17. The ground No. 3 of appeal of assessee is accordingly allowed.
18. On ground No. 4, assessee challenged the orders of authorities below in not calculating minimum alternate tax to be carried forward to subsequent year in the correct manner. The assessment order would reveal that the Assessing Officer after computing the business income of the assessee also made computation of profits under MAT (Section 115JB). The assessment order was passed under section 143(3) on 29.12.2009. The assessee preferred appeal against this assessment order before ld. CIT(Appeals) which was decided vide impugned order dated 30.10.2014. The assessee has filed grounds of appeal raised before ld. CIT(Appeals) which are also reproduced in the impugned order which disclosed that the assessee has not challenged the computation of income made by Assessing Officer under MAT provision. Therefore, there was no occasion for ld. CIT(Appeals) to have considered 10 whether MAT provisions were correctly carried out or not. It would also show that the assessee when could file appeal before ld. CIT(Appeals) on as many as seven grounds of appeal, could have challenged the computation under MAT provisions but assessee choose not to challenge the order of the Assessing Officer with regard to computation under MAT provisions before ld. CIT(Appeals). Thus, the assessee accepted the computation under the MAT provisions made by the Assessing Officer. The assessee thus, raised ground No. 4 for the first time before the Tribunal without seeking even leave of the Tribunal to raise additional ground of appeal. The ld. counsel for the assessee, during the course of arguments admitted that this ground is not arising out of the impugned order of ld. CIT(Appeals). He has, however, submitted that on his oral request, this may be admitted as additional ground of appeal.
19. The ld. DR, however, strongly objected to the oral request of the ld. counsel for the assessee. The Hon'ble Gujrat High Court in the case of Smt. Arundhati Balkrishna & others Vs G.M. Singhvi, ITO, 103 ITR 763 held as under :
'Where, in an appeal to the Appellate Assistant Commissioner by the assessee against an order of assessment, the assessee has not questioned the decision of the Income-tax Officer on a point decided, and the Appellate Assistant Commissioner has not in his order considered that point, the assessee is not entitled to question the decision of the officer on that point in an appeal to the Appellate Tribunal against the order of the Appellate Assistant Commissioner and the Tribunal is not entitled to allow the assessee to agitate the question under the guise of granting leave under rule 11 of the Income-tax Appellate Tribunal) Rules, 1963."11
20. The Hon'ble Allahabad High Court in the case of CIT Vs Sahara India 347 ITR 331 held as under :
Held, allowing the appeal, that the Tribunal allowed the assessee to raise the additional ground in appeal for the first time and then decided the appeal on the merits not only setting aside the order of the Commissioner (Appeals) but setting aside the order of the Assessing Officer. Such approach was neither legal nor proper. The Tribunal had not given the reason for admitting the additional ground and overlooked the fact that the ground did not arise out of the order of the Commissioner (Appeals) which was challenged by both parties. Moreover, the assessment order was passed by the Assessing Officer under section 144 of the Act on the basis of the original return and not on the basis of the revised return. Therefore, the matter was remitted to the Commissioner (Appeals).
21. The Hon'ble Punjab & Haryana High Court in the case of Echo Shella Vs CIT 293 ITR 234 held as under :
Dismissing the appeal, that the only submission made by counsel for the assessee was that while confirming the addition, the expenses on electricity, labour etc., had not been considered by the authorities below. A perusal of the orders of all the authorities below showed that no such claim was made at any stage. Accordingly, the same could not be permitted to be raised at this stage before the court. It was quite evident that the rates at which the valuation was made, were supplied by the partner of the assessee-firm itself. Once the assessment of the valuation had been made as per the material supplied by the assessee himself, there was no question of challenging the same either on the ground that the same was incorrect or that the assessee was not given proper opportunity to explain the same. The addition was valid."
22. Considering the facts of the case in the light of the above decisions, it is clear that assessee has not filed any application for admission of additional ground of appeal and no reasons have been explained why no such request was made in accordance with law and what was the reason for not raising this issue before ld. CIT(Appeals). Since 12 this issue is not arising out of the order of ld. CIT(Appeals) and assessee has not shown any justification for admission of the additional ground of appeal, therefore, the oral request of ld. counsel for the assessee cannot be accepted at this stage. In the absence of any request in writing for admission of the additional ground of appeal, ld. DR was justified in contending that department would be seriously prejudiced in their contention because no opportunity had been given to the revenue to counter the request of the assessee. This issue is also not arising from the order of the ld. CIT(Appeals) and that no reason or justification had been explained why such request should be admitted. Therefore, considering the totality of the facts and circumstances of the case, we do not find any justification to accept the oral request by ld. counsel for the assessee in admitting additional ground of appeal so raised in ground No. 4 of the appeal of the assessee. Request of the ld. counsel for the assessee is accordingly, rejected. Resultantly, ground No. 4 of the appeal of the assessee is rejected.
23. No other point is argued or pressed.
24. In the result, appeal of the assessee is partly allowed.
ITA 12/CHD/2015 (Departmental Appeal)
25. The revenue challenged the order of ld. CIT(Appeals) in increasing the deduction under section 80IC of the Act 13 on interest from customers and suppliers for Rs.14,68,930/-. The Assessing Officer held that amount of the interest received is income from other sources and accordingly, did not allow deduction under section 80IC. The assessee submitted before ld. CIT(Appeals) that interest was received from customers and suppliers and were taxable as business income. The assessee relied upon decision of the Hon'ble Punjab & Haryana High Court in the case of Phatela Cotgin Industries Pvt. Ltd. V CIT 303 ITR 411. The ld. CIT(Appeals) accepted the contention of assessee and allowed this ground of appeal of assessee.
26. After hearing rival contentions, we do not find any merit in this ground of appeal of the revenue. The ld. counsel for the assessee referred to order of ITAT Chandigarh Bench in the case of same assessee in departmental appeal in ITA 979/2008 for assessment year 2005-06 dated 10.02.2015 in which on identical issue, the departmental appeal was dismissed. The Tribunal followed the decision of the Hon'ble Punjab & Haryana High Court in the case of Phatela Cotgin Industries P. Ltd. (supra). Therefore, the issue is covered in favour of the assessee by judgement of the Hon'ble Punjab & Haryana High Court as well as order of the Tribunal dated 10.02.2015 (supra). This ground of appeal of the revenue is accordingly, dismissed.
26(i) The revenue also challenged order of ld. CIT(Appeals) in increasing the eligible profit under section 80IC of the 14 Act on insurance claim received for Rs. 2,50,125/- regarding income from insurance claim. Regarding the income from insurance claim, Assessing Officer referred to the decision of the Hon'ble Supreme Court in the case of Sterling Foods 237 ITR 597 and disallowed claim of assessee. The ld. CIT(Appeals) considering the issue directed the Assessing Officer to examine whether the assessee had received any real income on this account and to restrict disallowance accordingly. Findings of ld. CIT(Appeals) at page 8 & 9 of the appellate order are reproduced as under :
"On this issue the reference may be made to the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Vallabh Yarns (P) Ltd. 51 DTR 236 wherein it has been held that the assessee had not received any real income on account of insurance claim so exclusion for deduction under section 80IB is not warranted. Reference in this regard may also be made to a recent decision of the Hon'ble Delhi High Court in the case of Kohinoor Foods Ltd. v. CIT (2013) 353 ITR 264(Delhi)(HC). The Hon'ble High Court held that miscellaneous income like, sale of import license, interest, insurance claim, weighbridge income is not eligible for deduction under section 80IA (A.Ys. 1994-95, 1995-96). Therefore, income on account of insurance claim is not eligible for deduction u/s 80IB. The only issue is whether the appellant earned any real income on account of insurance claim.
Keeping in view the decision of the Hon'ble Punjab & Haryana High Court referred to above, the Assessing Officer is directed to examine whether the appellant had received any real income on this account and to restrict the disallowance accordingly."
27. After considering rival submissions, we do not find any infirmity in the order of ld. CIT(Appeals). The ld. CIT(Appeals) correctly considering the decisions of the Hon'ble Punjab & Haryana High Court and the Delhi High Court (supra) rightly directed Assessing Officer to examine 15 whether assessee had received any real income on this account and to restrict the disallowance accordingly. No infirmity has been pointed out in the order of the ld. CIT(Appeals), therefore, we do not find any justification to interfere with the order of ld. CIT(Appeals). This ground is accordingly, dismissed.
28. In the result, departmental appeal is dismissed.
29. In view of the above discussion, appeal of the assessee is partly allowed and departmental appeal is dismissed.
Order pronounced in the Open Court on 6th July,2015.
Sd/- Sd/-
(T.R.SOOD) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 6th July,2015.
'Poonam'
Copy to:
The Appellant, The Respondent, The CIT(A), The CIT,DR Assistant Registrar, ITAT Chandigarh