Income Tax Appellate Tribunal - Ahmedabad
Jitsan Enterprises, Nani Daman vs Department Of Income Tax on 5 June, 2009
-1-
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D" AHMEDABAD
Before S/Shri Mukul Kr. Shrawar, JM and D.C.Agrawal, AM
ITA No.2762/Ahd/2010
Asst. Year :2007-08
Income-tax Officer, Vapi Vs. M/s Jitsan Enterprise,
Ward-4, Daman. Plot No.361/13,Ganesh
Industrial Estate,
Kachigam, Nani Daman.
(Appellant) (Respondent)
..
Appellant by :- Shri S. S. Shukla, DR
Respondent by:- Shri S. N. L. Agarwal, AR
ORDER
Per D.C. Agrawal, Accountant Member.
This is an appeal filed by the Revenue raising following grounds :-
(1) On the facts and circumstances of the case and in law, the ld.
CIT(A) has erred in allowing the deduction u/s 80IB of the Act stating that disallowance of claim of deduction u/s 80IB of the Act on the sole ground that the assessee was not having factory license before it started manufacturing activities is without any merits.
(2) On the facts and circumstances of the case and in law, the ld.
CIT(A) has erred in not considering the point that the assessee has failed to prove that it has commenced the manufacturing activity on or before 31.03.2004 as stipulated in Section 80IB of the Act.
(3) On the facts and circumstances of the case and in law, the ld.
CIT(A) has erred in allowing the deduction u/s 80IB of the IT Act on disallowance of rs.63,332/-made on scrap sales income.
ITA No.2762/Ahd/2010Asst. Year 2007-08
2. The facts of the case are that assessee is a partnership firm engaged in the business of manufacturing of plastic moulded products having industrial undertaking in the Union Territories of Daman and Diu being a notified area. This was the fourth year of operation of the industrial undertaking. It claimed deduction u/s 80IB which was denied by the AO on the ground that factory lincense was issued to the assessee on 23.4.2004 on the basis of which deduction u/s 80IB was disallowed in Asst. Year 2005-06 and 2006-07. The ld. CIT(A) allowed the claim following the decision of the Hon. Apex Court in Liberty India vs. CIT 317 ITR 218 (SC) and the decision of the Tribunal in ITA No.1006/Ahd/2009 in the case of M/s Samarth Health Care pronounced on 5.6.2009.
3. We have heard the parties and carefully perused the material on record. The issue is now covered in favour of the assessee by the decision of the Tribunal in its own case for Asst. Year 2006-07. The Tribunal vide para 9 & 10 of its order pronounced on 30th June, 2010 in ITA No.892/Ahd/2010 has held as under :-
"9. We find that in the Assessment Year 2005-06 in Assessee's own case, the Tribunal allowed deduction under section 80IB of the Act on identical facts by observing as under:-
"5. We have heard both the parties and gone through the facts of the case. We notice that deduction u/s 80IB has been denied in the year under consideration for want of factory license in the preceding assessment year. Undisputedly, factory license was issued on 23.4.2004 i.e. in the year consideration. In these circumstances, especially when license had been issued on 23.4.2004 and undisputedly, the assessee fulfilled all the conditions stipulated u/s 80IB of the Act, there is no reason to disallow the claim for deduction u/s 80IB of the Act. Even otherwise, the assessee was allowed provisional registration as a Small Scale Industry on 13.2.2004 .Besides, the assessee obtained necessary NOC and power connection . We find that a co-ordinate Bench vide their order dated 05-06-2009 in the case of M/s Samrath Health Care in ITA No.1006/Ahd/2009 for the AY 2005-06, while adjudicating a similar issue, concluded as under:2 ITA No.2762/Ahd/2010
Asst. Year 2007-08
7. We have considered the submissions of the learned DR and carefully perused the orders of the lower authorities. In our considered view there is no case for interference in the order of the learned CIT(A). The learned CIT(A) has rightly mentioned that to obtain factory license is not a condition precedent for claiming deduction u/s 80 IB of the Act. If we presume that this condition is also required to be fulfilled by the assessee, then it would amount to legislation by inserting another condition in Section 80 IB for allowing deduction under that section though provided in the Statute. The AO did not doubt about raw material consumption, power consumption, sales and employment of workers. Further, no doubt was also expressed by the AO that assessee did not carry any manufacturing activity.Nonetheless, the assessee has applied for factory license prior to commencement of production though it was granted subsequently. The assessee has been given a permanent registration as a small scale industrial undertaking and has registered with the; sales tax and excise authorities. For claiming deduction u/s 80 IB of the Act only the conditions laid down under that section are required to be fulfilled and no more. The requirement under other Statutes cannot be borrowed for allowing/refusing deduction unless it is so provided in the IT Act itself. For example, the legislature thought it fit to bring the condition of employment of 10 or more workers if manufacturing activities are carried out with the help of power or more than 20 workers without the help of power. Similarly, if the legislature thought it fit to obtain factory license before allowing deduction u/s 80 IB of the Act then they would have so provided. In fact, there are several other requirements in different Act applicable to an industry but all these are not to be complied with for claiming deduction u/ s 80 IB of the Act. What is essential is that the assessee should manufacture or produce an article or thing. If there is any violation of any provisions of other statutes then the assessee has to explain the same to the authorities executing those Acts/ Statutes. Further for violation of the provisions under other Acts the assessee may face penal provisions as provided under those Acts. But for that commissions/omission under other Acts the decision under the IT Act cannot be affected unless so provided under the IT Act. We however, notice that this appeal is for AY 2005-06..and as per facts stated in the order by the learned CIT(A) the assessee has obtained factory license on 6-5-2004 which is financial year 2004-05. Therefore, there should be no case for disallowing the claim of the assessee u/s 80IB on the question of not obtaining factory license. As a result, we confirm the order of the learned CIT(A) and dismiss the grounds of appeal of the revenue."
5.1 Similarly, in the case of M/s Priya Printek in ITA No.2742/Ahd/2009, following the decision dated 16.11.2009 of the ITAT in the case of Adarsh Packaging vs. ITO in ITA Nos.2253 and 2254/Ahd/2009 for AYs 2005-06 and 2006-07, the Tribunal concluded vide their order dated 11.12.2009 as under:
3 ITA No.2762/Ahd/2010Asst. Year 2007-08 "9. In the light of the aforesaid orders of the Ahmedabad Benches of the Tribunal the fact that in the present case the assessee obtained the factory license only on 08-2-2007, before 31-3-2004 is irrelevant for the purpose of section 80IB. The question however remains as to whether the assessee actually started production before 31-3-2004. In this connection, the assessment order itself mentioned that on perusal of the SSI registration certificate it is seen that the production started on 31-3-2004. It therefore appears to us that the SSI egistration certificate was produced before the AO. The CIT(A) has however taken the view that since the factory license was issued only on 08.02.07 and it is an offence punishable under the Factories Act and | the Rules framed thereunder to commence manufacturing activity before issue of the said license, it would be against public policy to allow the benefit of deduction under one statute in respect of any expenditure incurred by the assessee in violation of the provisions of another statute which also invites penalty under that statute. Thus even the CIT(A) does not appear to have doubted the claim of the assessee that the manufacturing activity actually commenced before the 31-3-
2004. The reasoning of the CIT(A) has not been accepted as correct in the aforesaid orders passed by the Ahmedabad Benches of the Tribunal. Therefore respectfully following them, we hold that the assessee is eligible for the deduction under Section 80IB as claimed and accordingly direct the AO to allow the same."
5.2 Undisputedly, the AO did not doubt either consumption of raw material or power while sales of Rs.1,16,39,418/-have been made in the year under consideration. As already mentioned, this is the second year of production and undisputedly, factory license having been issued on 23-04-2004, there is no basis for disallowing the claim for deduction u/s 80IB of the Act in the year under consideration on the ground of not obtaining the factory license in the preceding assessment year. In the light of the view taken in the aforesaid decisions of the Tribunal, the AO was not justified in disallowing the deduction u/s 80IB of the Act for the year under consideration on the ground that the factory license was not obtained in the preceding assessment year. Therefore, ground no.1 in the appeal is allowed."
10. The Learned Departmental Representative could not show any good reason to not to follow the above quoted order of the Tribunal in the case of the assessee passed in the Assessment Year 2005-06. The Learned Departmental Representative also could not show that the above quoted order of the Tribunal was reversed in appeal by a higher forum. In the above facts and circumstances of the case, we do not find any good reason to interfere with the order of the Learned Commissioner of Income Tax(Appeals). It is confirmed and the ground of appeal of the revenue is dismissed.
4 ITA No.2762/Ahd/2010Asst. Year 2007-08 Respectfully following the above orders we allow the claim of the assessee. This ground of Revenue is rejected.
4. The next issue is regarding claim of deduction under section 80IB on scrap sales. The ld. AO was of the view that scrap sales are not part of manufacturing activities and hence not entitled for deduction under section 80IB. The ld. CIT(A), however, allowed the claim following the decision of Hon. Gujarat High Court in Harjivandas Jhuthabhai Zaveri and another vs. CIT 258 ITR 785 (Guj).
5. The ld. DR on the other hand submitted that on the facts and circumstances of the case and in law, the ld. CIT(A) has erred in directing not to exclude the income earned from sale of scrap from the profits eligible for deduction u/s 870IB though same have no direct or immediate nexus with the manufacturing activity of the assessee as per ratio laid down by the Hon. Apex Court in the cases CIT vs. Sterling Foods (1999) 237 ITR 579; Pandian Chemicals vs. CIT (2003) 262 ITR 278 (SC); CIT vs. Eastern Sea Foods Exports P. Ltd. 215 ITR 26 and Cambay Electric Supply Co. vs. CIT 113 ITR 84. The decision of the ld. CIT(A) is not acceptable, as there are contrary decisions on the issue. The Hon. M.P. High Court in the case of D.P. Agrawal vs. CIT 272 ITR 118 (MP) has held that the scrap income is not eligible for deduction u/s 80IB of the Act. Similarly, the Hon. Jurisdictional ITAT Ahmedabad in the case of Standard Oil and Greases (ITA No.3096/Ahd/2007) for Asst. Year 2005- 06 has given the same verdict. Further the Hon. Gujarat High Court has admitted the departmental appeal on the issue; vide Tax Appeal No.368 of 2008 dated 31.0.7.08 in the case of Shri Jikar A. Saiyed for Asst. Year 2001-02 which is pending. As the issue, is yet to be decided finally by the Hon. Gujarat High Court. Considering the above facts and in view of the 5 ITA No.2762/Ahd/2010 Asst. Year 2007-08 principles, laid down by the Hon. Apex Court in the case of CIT vs. Sterling Foods (1999) 237 ITR 579, the decision of the Hon. CIT(A) is not acceptable.
6. The ld. AR on the other hand submitted that similar issue has been decided by the Tribunal in the case of ITO vs. M/s Subh Paper Production in ITA No.2413/Ahd/2009 Asst. Year 2006-07 pronounced on 23rd October, 2009 wherein the Tribunal has held as under:-
"6. We have heard the learned DR and learned AR of the assessee. In our considered view, the issue whether assessee is entitled for deduction under Section 80IB on sale of scrap generated in the manufacturing activity is covered by the decisions of Hon'ble Supreme Court in Indian Cine Agencies Vs. CIT (2009) 308 ITR 98 (SC) and also by various other authorities as under:
(1) In [2005] 273 ITR (A.T.) 0001- Assistant Commissioner of Income-
tax vs. Maxcare Laboratories Ltd. Income-tax Appellate Tribunal-- Cuttack held that the income from sale of empty drums/containers, sale of useless materials was out of the business of industrial undertaking of the assessee. For determining the profits of business of the industrial undertaking the sale of empty drums/containers, sale of useless materials could be taken into account.
(2) In [2001] 251 ITR 0806- Ship Scrap Traders vs. Commissioner of Income-tax Bombay High Court has observed that for assessees engaged in ship breaking the scrap and, steel obtained by dismantling and breaking up of the ship must be regarded as a different commercial commodity from the ship itself, and the activity would amount to manufacture. Hence, the assessees would be entitled to the special deduction under sections 80HHA and 80-I. (3) In [1982] 133 ITR t)034- Commissioner»of Income-tax vs. Sundaram Clayton Ltd. Madras High Court held that the scrap sold by the assessee being the byproduct arising out of the manufactured items coming within the scope of a priority industry, the income arising from such sale would be attributable to the priority industry.
6 ITA No.2762/Ahd/2010Asst. Year 2007-08 (Cambay Electric Supply Industrial Co. Ltd. v. CIT[1978] 113ITR 84 (SC) applied.) (4) In [2005] 279 ITR (A.T.) 0024- Deputy Commissioner of Income-tax vs. Investwel Publishers P. Ltd. Income-tax Appellate Tribunal--Mumbai held that the raddi sales formed part of the income derived from the publishing business. The magazines which were not sold became obsolete and were sold as raddi and therefore this income was of the nature as income received by sale of magazines. Deduction under section 80-1 would be eligible on this income (5) In [2000] 241 ITR 0803- Fenner (India) Ltd. vs. Commissioner of Income-tax (No. 2) Madras High Court Held that in the industrial undertaking in the manufacture of V-Belts, oil seals, O- rings and rubber moulded products, certain scrap materials resulted which had a saleable value. The scrap materials had direct link or'nexus with the industrial undertaking. Therefore, profit from the sale of the scrap materials was eligible for deduction under section 80HH.
(6) In Nirma Industries Ltd. vs. Assistant Commissioner of Income-tax, Central Circle 2(1) Nirma Industries Ltd. V/s. ACIT , 95 ITD 199 (And.) (SB) it was held :
".........Regarding Sale of Bardana and Sale of Waste material:
22. At the time of hearing before us, it is submitted by the learned counsel that sale of Bardana and Waste material has generated during the course of production of the Industrial Undertaking. Therefore, it has direct and immediate nexus with the Industrial Undertaking. The learned DR could not controvert the above statement made by the learned counsel for the assessee. Moreover it was pointed out by the learned counsel for the assessee that the Hon'ble Jurisdictional High Court has decided identical issue in favour of the assessee in the case of Dy. CIT v. Harjivandas Juthabhai Zaveri vide [IT Reference No. 189 of 1999]. Since the Bardana Waste material has generated during the course of production of the Industrial Undertaking, we hold that it has a direct and immediate nexus with the Industrial Undertaking and therefore entitled to deduction under section 80HH/80-I. Accordingly, we uphold the order of the ClT(A) in this respect.
Revenue has relied on decision of Hon'ble M.P. High Court in D.P. Agarawal Vs. CIT 272 ITR 118 MP. However, the facts in that case are different. The assessee D.P. Agarwal was engaged in rerolling of Iron and Steels. It used to purchase old/discarded guns and used/their contents for rerolling. Certain brass scrap was separated from the guns which was sold separately. Hon'ble M.P. High Court held that generation of brass scrap and re-rolling Iron and Steel has no relationship. That, 7 ITA No.2762/Ahd/2010 Asst. Year 2007-08 assessee had obtained brass scrap by dismantling guns and not from the process of rerolling of steel. The generation of brass scrap could not be said to be from the process of manufacture or is not a product or byproduct from the activities of the assessee's industrial undertaking. In other words, brass scrap was generated prior to the start of rerolling process and was not a product or by product of the process of rerolling. However, brass scrap and final product manufactured by the assessee i.e. Iron and Steel had no common raw-material. Revenue has further relied on the decision of the Apex Court in CIT Vs. Sterling Foods (1999) 237 ITR 279 and Pandayan Chemicals Vs. CIT(2003) 262 ITR 278 (SC). These two decisions highlighted the distinction between "derived from"
and "attributable to" and Revenue has sought to emphasis that scrap is not derived from the business of manufacturing activity. At best it can be attributed to such activities. We do not subscribe to this view of the Revenue. Once a product or byproduct or waste is the result of some manufacturing process which has resulted in the finished goods sold by the assessee and if the finished goods can be said to be derived from manufacturing activity then there is no reason to hold that scrap resulted from the same activity is not derived from manufacturing activity. The same process is generating two times (i) Finished product sold by the assessee and the other, (ii) waste, byproduct or scrap. No such distinction can be created as if final product is derived from the manufacturing activity and other is not. Both are generated at the same time from the same process except that one has higher market value and other has not, and accordingly the same is treated as scrap. In any case, the issue is now fully covered in favour of the assessee by the later decisions of the Courts and also of the Apex Courts as noted above."
Respectfully following the above order of the Tribunal, we dismiss this ground of Revenue.
7. In the result, the appeal filed by the Revenue is dismissed.
Order was pronounced in open Court on 7-1-2011.
Sd/- Sd/-
(Mukul Kr. Shrawat) (D.C. Agrawal)
Judicial Member Accountant Member
Ahmedabad,
Dated : 7th January, 2011.
8
ITA No.2762/Ahd/2010
Asst. Year 2007-08
Mahata/-
Copy of the Order forwarded to:-
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad
1.Date of dictation 03/ 01/2011
2.Date on which the typed draft is placed before the Dictating 4/01 / 2011 Member................Other Member................
3.Date on which the approved draft comes to the Sr.P.S./P.S.............
4.Date on which the fair order is placed before the Dictating Member for pronouncement..............
5.Date on which the fair order comes back to the Sr.P.S./P.S...............
6.Date on which the file goes to the Bench Clerk...........
7.Date on which the file goes to the Head Clerk.............
8.The date on which the file goes to the Asstt. Registrar for signature on the order........................
9.Date of Despatch of the Order.................
9