Income Tax Appellate Tribunal - Hyderabad
Visaka Industries Limited, ... vs Dy. Commissioner Of Income Tax, ... on 31 May, 2018
ITA Nos 1646 to 1648 and 1631 of 2017
Visaka Industries Ltd Secunderabad.
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' A ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri B. Ramakotaiah, Accountant Member
ITA No.1646 to 1648/Hyd/2017
(Assessment Years: 2008-09 to 2010-11)
M/s. Visaka Industies Ltd Vs Dy. Commissioner of Income
Secunderabad Tax, Circle 17(2)
PAN: AAACV7263K Hyderabad
(Appellant) (Respondent)
ITA No.1631/Hyd/2017
(Assessment Years: 2009-10)
Dy. Commissioner of Vs M/s. Visaka Industies Ltd
Income Tax, Circle Secunderabad
17(2), Hyderabad PAN: AAACV7263K
(Appellant) (Respondent)
For Assessee : Shri M.V. Anil Kumar
For Revenue : Smt. Gitender Mann, DR
Date of Hearing: 21.05.2018
Date of Pronouncement: 31.05.2018
ORDER
Per Smt. P. Madhavi Devi, J.M.
All these are assessee's appeals for the A.Y 2008-09 to 2010-11 and the cross appeal of the Revenue for the A.Y 2009-10 respectively.
ITA No.1646/Hyd/20172. This is assessee's appeal against the order of the CIT (A)-5, Hyderabad dated 24.07.2017 confirming the additions made by the AO u/s 143(3) r.w.s. 153A of the Act.
Page 1 of 16ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
3. Brief facts of the case are that the assessee company, engaged in the business of manufacturing of asbestos sheets, synthetic blended yarn and garments etc., filed its return of income for the A.Y 2008-09 on 29.09.2008 declaring total income of Rs.16,56,27,491. During the assessment proceedings u/s 143(3) of the Act, the AO, while calculating the profits eligible for deduction u/s 80IB of the Act, observed that the assessee has taken into account the other income of Rs.22,56,743/- also. He held that the same is not eligible for deduction u/s 80IB of the Act as it is not derived from its business of manufacturing. The assessee submitted that it is a part of the "other income" derived from sale of scrap and insurance income on damaged goods etc., and therefore, is eligible for deduction. The AO however, was not convinced with the assessee's contentions and disallowed the claim to the extent of Rs.6,77,023/-. Aggrieved, the assessee preferred an appeal before the CIT (A), who confirmed the order of the AO and the assessee preferred further appeal before the ITAT in ITA No.503/Hyd/2012 dated 27.11.2015. ITAT, vide orders dated 27.11.2015 has held that the assessee is eligible to claim income from scrap sales and also income from insurance etc., on the goods damaged after manufacturing and during transit, as income derived from industrial process and that the assessee is entitled to claim u/s 80IB of the Act on the same. Subsequently, the assessment was completed u/s 143(3) r.w.s. 153A of the Act vide orders dated 31.03.2016 by making the very same additions and the CIT (A) has confirmed the said addition and the assessee is in second appeal before us.
Page 2 of 16ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
4. The learned Counsel for the assessee submitted that there was no material found during the course of search relating to the deduction u/s 80IB and in the assessment u/s 143(3) r.w.s. 153A of the Act, the AO has repeated the additions made during the earlier assessment proceedings u/s 143(3) dated 30.12.2015. Therefore, according to him, the additions cannot be sustained.
5. The learned DR, on the other hand, supported the orders of the authorities below.
6. Having regard to the rival contentions and the material on record, we find that the very same addition had come up for consideration of the Coordinate Bench of this Tribunal (to which both of us are signatories) and the Tribunal has held that the assessee is eligible for deduction u/s 80IB of the Act in respect of income from sale of scraps and damaged sheets etc. For the sake of clarity and ready reference, the relevant paragraphs are reproduced hereunder:
"16. We have heard the arguments of both the parties and perused the material on record as well as the orders of revenue authorities. We have also applied our mind to the decisions cited. The AO disallowed the claim of assessee u/s 80IB by holding that other income was not derived from the business of assessee. The CIT(A) confirmed the action of the AO.
16.1 The cases referred by the assessee and the ratios laid down in these judgments were, the assessee had done a process on the raw material which was nothing but a part and parcel of the manufacturing process of the industrial undertaking. The receipts like job work, scrap and labour charges 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 gains derived from the industrial undertaking for the purpose of computing deduction u/s 80IB. Those Page 3 of 16 ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
were gains derived from the industrial undertaking and so, entitled for the purpose of computing deduction u/s 80IB.
16.2 Considering the above ratios laid down in the cases, we are of the opinion that the assessee is eligible to claim income from scrap sales. The scrap is part and parcel of any industrial undertaking, without which, there is no manufacturing activity. Hence, entitled to claim benefit u/s 80IB.
16.3 Coming to the income from insurance, the undertaking claimed loss from insurance company, it is nothing but compensation for the finished goods lost after manufacturing in the undertaking and during transit. It is similar to the scrap sales income derived as part of the industrial process. Similarly, the insurance income derived due to loss of manufactured finished goods. Hence, it is entitled to claim benefit u/s 80IB".
7. Respectfully following the same, we delete the disallowance confirmed by the CIT (A). The assessee is appeal is accordingly allowed.
ITA Nos. 1647 & 1631/2017 - A.Y 2009-10
8. Both the assessee as well as the Revenue are in appeals against the order of the CIT (A)-5, Hyderabad dated 24.7.2017. The assessee has raised the following grounds of appeal:
"1. Your Appellant submits that the Assessment under section 153A is bad in law in absence of any incriminating Material pertaining to that year and original assessment under section 143(3) was completed.
2. Your Appellant submits that in absence of incriminating material and assessment under section 143(3) completed, the proceeding under section 153A have abated. Therefore, the assessment order under section 143(3) r.w.s 153A is bad in law.
3. Your Appellant submits that the CIT(A) ought to have disposed of the grounds 4,5,6 & 7 on merits following his predecessor's order instead of stating that "since these issues (grounds nos. 4,5,6& 7) were already covered in the original assessment and subsequently adjudicated by my predecessor, Page 4 of 16 ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
the relevant grounds are not considered in this assessment made under section 153A."
4. The CIT(A) having given a finding that issues covered by ground nos. 45,6,& 7 are not made on the basis of any incriminating material discovered during the search, ought to have deleted the addition.
5. Your Appellant submits that the CIT(A) ought to have allowed Rs. 2,26,16,000 and Rs. 59,29,841/-, being amounts written off, incurred in the course of business and exclusively for the purpose of business in the year they have become not fruitful.
6. Your Appellant submits the CIT(A) erred in law and facts of the case in disallowing the amount of Rs. 2,26,16,000/- being the mount paid as advance to Mahindra Industrial Park Ltd for purchase of land to set up a textile unit, which was not viable and fruitful, as capital expenditure.
7. Your Appellant submits that the CIT(A) ought to have deleted the addition of Rs. 59,29,841/- following his predecessors order, being the amount paid to APGENCO.
8. Your Appellant submits that the amount of Rs. 59,29,841/- was paid to APGENCO for the purpose of up gradation of its operation and maintenance of fly ash extraction system in the past to be adjusted out of supply of fly ash, the balance was written off in the course of business and for the purpose of business in this year as the same became not fruitful or recoverable.
9. Your Appellant submits that the CIT(A) ought to have followed his predecessors order by directing the Assessing Officer not to restrict the deduction on Rs. 18,28,863/- under section 80IB of the Income Tax Act, 1961, being income derived from the business of the undertaking by way of sale of scrap, damaged sheets, gunnies etc.
10. The CIT (A) ought to have considered the income from sale of scrap, gunnies, damaged sheets as business income of the undertaking and thereby allowed the deduction u/s 80IB on such income also".
Page 5 of 16ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
9. As regards Grounds 1 to 4 are concerned, the learned Counsel for the assessee submitted that the assessee does not wish to press these grounds of appeal. They are accordingly rejected as not pressed.
10. As regards grounds 5 to 6 are concerned, brief facts are that the assessee, with a view to start apparel business, had entered into an agreement in 2005 with Mahindra Industrial Park Ltd having its registered office at Chennai for acquiring 7 acres of land at SEZ area, Chennai, on lease basis for 99 years for a consideration of Rs.224 lakhs. As the company could not go ahead with performance of its part of the contract due to adverse market condition, the lessor had terminated the contract and confiscated the advance lease amount given by the company, for breach of contract. The assessee claimed this as business expenditure u/s 37(1) of the Act. The AO however, held that this expenditure is capital in nature as it is in connection with the acquisition of land for its apparel business. Therefore, he disallowed the sum of Rs.2,26,16,000. The issue had come up for consideration before the Tribunal in ITA No.1048/Hyd/2013 for the A.Y 2009-10 and the Coordinate Bench of this Tribunal at Paras 14 to 14.1 has held as under:
"14. Considered the rival submissions and perused the material on record. We have noticed that assessee has entered into an agreement of lease with M/s Mahindra Industrial Park Ltd., Chennai for acquiring 7 acres of land at 562 on lease for 99 years for a consideration of Rs.224 lakhs and due to non- performance of conditions stipulated in the agreement by the assessee, the lessor has confiscated the advance. Similarly, assessee paid a security advance to purchase textile machinery for expansion of textile business to M/s Laxmi Machine Works of Rs.164 lakhs. Due to sluggish market condition, it had to drop the expansion plan and accordingly the security deposits were forfeited. Ld. CIT(A) has treated the above losses as the capital in nature and sustained the disallowance made by AO. Ld. DR also supported the views of the tax Page 6 of 16 ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
authorities and relied on following case law and we have analysed each case as below:
1. Hasimara Industries Ltd. (supra): in this case, assessee has diversified its activity into cotton business. In this process, it had deposited Rs. 20 lakhs to secure licence in pursuant to a leave and licence agreement. After expiry of scheduled period, the licensor company went into liquidation. The assessee could not recover the deposit and it was written off. The same was held to be capital loss. In the said case, the assessee was into diversification whereas in the case on hand, it was expansion of textile business. Hence, the said case is not applicable to the case under consideration.
2. Tata Honeywell Ltd. (supra): In this case, a machinery was leased out by CFSL to BSL for a period of 9 years. After expiry of 5 years, the assessee approached both the above companies for transposing it as lessee in the place of BSL for the remaining period of 4 years. The same was accepted and tripartite agreement was entered. There was a renewal clause, which gave right to the assessee to renew as much time as it wanted as long as it complied with the terms of agreement/deed. Since, assessee got enduring benefit M/s Visaka Industries Ltd., Sec'bad due to renewal clause, it was treated as leasehold rights in the machinery, therefore, it is treated as capital asset and the expenditure as capital expenditure. In the case before us, there is no renewal clause and it is for fixed period of 99 years. Since the assessee failed to perform its part of duty, it has last the advance payment. The assessee has not enjoyed the benefit. Therefore, it cannot be treated as any asset.
3. R.G. Scientific Enterprises (P) Ltd. (supra): In this case, assessee paid advance for purchase of premises. Due to some reasons, purchase could not be completed and seller refused to return the money. Assessee claimed this as revenue expenditure. It was held that it was advanced for purchase of a capital asset therefore it is capital loss. This transaction is not the regular business transaction of the assessee, it is independent transaction for purchase of capital asset unconnected to the business carried on by the assessee. Therefore, this issue cannot be considered in the present case on hand as the assesse wanted to expand the existing business in the textile.
4. EID Parry (India) Ltd. (supra): In this case also, assessee incurred expenditure for the purpose of setting up a new project. This project was abandoned subsequently. It was held that the expenditure should be treated as capital expenditure. Again this case also not applicable to the case on hand as it is for new project not for expansion.
5. Enterprising Enterprises (supra): This case also similar to Hasimara Industries Ltd. The question was whether lease rent paid is capital or not.
Again this case is not applicable to the facts of the case on hand.
6. Kanoria Chemicals (supra): In this case, the letter of intent was obtained to start a new project, which was abandoned. The case in hand is not about new project but expansion. Hence, not applicable.
7. Swadeshi Cotton Mills Co. Ltd., (supra): In this case, assessee entered into two contracts with two other parties for purchase of textile machinery in order Page 7 of 16 ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
to expand its factory, subsequently, having regard to altered circumstances, decided to cancel both contract. The cancellation of these contracts, assessee has to incur cost. These costs were claimed as revenue expenditure. It was held, the payment made to avoid a larger capital expenditure that would not have served the interest of the company. Such payment made is clearly in the nature of a capital expenditure and not an expenditure incurred wholly or exclusively for the purpose of the business.
14.1 The last case is on the subject of expansion. The Hon'ble Supreme Court has disallowed the claim of the assessee but we noticed in the subsequent decision in the case of Sasson J. David & Co. P. Ltd., 118 ITR 261, the Hon'ble Supreme Court expressed their opinion and discussed the similarities with section 10(2)(xv) of the I.T. Act, 1921 and pursuant to section 37 of I.T. Act, 1961, in the following para:
20. The next contention urged on behalf of the Department was that since Davids and Tatas were indirectly benefited by the retrenchment of the services of the employees of the company and payment of compensation to them and since there was no necessity to retrench the services of all the employees, the expenditure in question could not be treated as an expenditure laid out wholly and exclusively for the purposes of the company. It has to be observed here that the expression "wholly and exclusively" used in s. 10(2)(xv) of the Act does not mean "necessarily". Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under s. 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of s. 37 of the IT Act, 1961, which corresponds to s.
10(2)(xv) of the Act. An attempt was made in the IT Bill of 1961 to lay down the "necessity" of the expenditure as a condition for claiming deduction under s.
37. Sec. 37(1) in the Bill read "any expenditure.....laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed...." The introduction of the word "necessarily" in the above section resulted in public protest. Consequently, when s. 37 was finally enacted into law, the word "necessarily" came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law. This view is in accord with the following observations made by this Court in CIT vs. Chandulal Keshavlal & Co. : (1960) 38 ITR 601 (SC) : TC16R.507:
In the above discussion, the Hon'ble Supreme Court has allowed the appeal of the assessee u/s 10(2)(xv) of the I.T. Act, 1921 by observing that an expenditure which is incurred wholly and exclusively for the purpose of business and not necessarily for the purpose of the business is allowable. Therefore, in our view, there is clear possibility that in the case of expansion, the expenditure is for the purpose of business only".
11. We find that in the assessment proceedings u/s 153A of the Act, the AO has repeated the additions made by the AO u/s Page 8 of 16 ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
143(3) of the Act and there was no incriminating material found during the course of search relating to this transaction. Therefore, we are of the opinion that this issue is already decided by the Tribunal in favour of the assessee and respectfully following the same (to which JM is the signatory), the disallowance of Rs.2,26,16,000/- is deleted.
12. As regards Grounds 7 & 8 are concerned against the disallowance of Rs.59,27,841, we find that this issue also is covered in favour of the assessee by the decision of the Tribunal in the appeal against 143(3) order and at Para 22 of its order, the Tribunal has held as under:
"22. Considered the rival submissions and perused the material on record. Ld. AR has submitted that assessee has made the investment in order to get the benefit of procuring the fly Ash at a concessional rate. When the Bench asked to substantiate the submission, ld. AR brought on record the various purchase statements, which are part of record. In order to verify the claim of the assessee and for proper justice, we are inclined to refer this matter back to file of AO with limited purpose to verify the submission of the assessee, whether assessee has procured the fly ash on concession, which supports the investment decision. In case, it is found that assessee has purchased the fly ash at concessional rate ( less by Rs. 40/- per tonne) then the AO may allow the claim of the assessee, otherwise, addition may be sustained. Therefore, ground raised by revenue is allowed for statistical purposes.
13. Since the very same addition had been repeated u/s 153A of the Act, and the subject matter of appeal before us in this appeal is the same, respectfully following the decision of the Coordinate Bench, we remit this issue also to the file of the AO for reconsideration in accordance with the directions given in ITA Nos.1048 & 1058/Hyd/2013, dated 25.01.2018. Grounds 7 and 8 are accordingly treated as allowed for statistical purposes.
Page 9 of 16ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
14. Ground No.9 is against the restriction of the deduction u/s 80IB of the Act, by disallowing the income from sale of scrap, damaged sheets, gunnies etc., We find that this issue is covered in favour of the assessee by the decision of the Coordinate Bench in the assessee's own case for the A.Y 2008-09 and respectfully following the same, we direct the AO to allow the deduction on such income also.
15. In the result ITA No.1647/Hyd/2017 is partly allowed for statistical purposes.
ITA No.1631/Hyd/201716. In the Revenue's appeal, the issue is only against the partial relief granted by the CIT (A) on the disallowance made by the AO on the amount paid to the APGENCO for operation and maintenance of Fly Ash. In the assessee's appeal, Ground Nos. 7 & 8 are on the very same issue and since the issue has been set aside to the file of the AO, the grievance of the Revenue can also be considered by the AO. Therefore, the Revenue's appeal is also treated as allowed statistical purposes.
17. In the result, Revenue's appeal is dismissed.
ITA No.1648/Hyd/201718. This appeal is filed by the assessee against the order of the CIT (A)-5, Hyderabad, dated 24.7.2017. The assessee has raised the following grounds of appeal:
"1. Your Appellant submits that the Assessment under section 153A is bad in law in absence of any incriminating Page 10 of 16 ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
Material pertaining to that year and original assessment under section 143(3) was completed.
2. Your Appellant submits that in absence of incriminating material and assessment under section 143(3) completed, the proceeding under section 153A have abated. Therefore the assessment order under section 143(3) LW.S 153A is bad in law.
3. Your Appellant submits that the CIT(A) ought to have allowed Rs. 49,59,201 being the amount written off towards obsolete stocks, incurred in the course of business and exclusively for the purpose of business in the year they have become obsolete and not fit for production.
4. The CIT(A) and Assessing Officer have not disputed the fact that the obsolete stock have been identified, written off and reduced from the closing stock ought to have allowed the same.
5. Your Appellant submits that alternatively the same amount has been offered to tax in the next year and disallowance in this year would amount to double taxation of the same, this fact is evident from computation produced before the CIT(A) and Assessing Officer, ought to have deleted the addition in this year or given direction to reduce the same from income in the next assessment year. .
6. Your Appellant submits that other receipts include an amount of Rs. 4,23,753 comprised of sundry balances written back which are trade creditors, ought to/have allowed deducted under section 80IB on same, as these receipts are derived from the eligible business".
19. At the time of hearing, the learned Counsel for the assessee submitted that the assessee does not wish to press Grounds 1 & 2, they are accordingly rejected as not pressed.
20. As regards grounds 3 & 4 are concerned, we find that the AO has repeated the additions made during the assessment proceedings u/s 143(3) of the Act and this very same issue had travelled upto ITAT and the Tribunal in its order in ITA No. 172/Hyd/2014, dated 6.4.2018 has held as under:
Page 11 of 16ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
"5. The first issue for consideration is the addition on account of disallowance of provision for non-moving raw material. The first three grounds of appeal relate to the disallowance of a sum of Rs. 49,59,201/- debited by Assessee under the head 'other expenses' towards provision for non-moving raw material. Assessee had submitted before the A.O that it had identified old raw material in its Textile Division (Dyed Polyester, Dyed Viscose, Raw White Cottonised Flax, Scoured Wool White, Dyed Wool Tops, Raw White Acrylic, Raw White Polyester Cationic) which was not in good condition for processing the finished products, that there was no provision in the accounting system to write off stocks, that it had therefore made provision for this old stock by reducing the closing stock to this extent, that it had not added this provision to the taxable income since the provision had been reversed in the next year and offered to tax and that it had not claimed any deduction of income tax against that reversal or provision. Assessee submitted that since there was no impact on the tax on these entries as a whole, the expenditure should be allowed. Assessing Officer held that as per the provision of Income Tax Act, each assessment year was separate and the income for each assessment year was to be assessed separately.
5.1 Before Ld. CIT(A) it was submitted that the raw material concerned was not in good condition and not usable for production had not been disputed by the Assessing Officer. Assessee al so submitted that the fact that the stock had been written off was evident from the profit & loss account to which the sum had been debited and reduced from the closing stock. Further it was submitted that this stock did not have any realizable value in the market and therefore the disallowance was not warranted. Assessee also submitted that this stock had been written off in the books of the current year, it had been reversed and admitted to tax in the subsequent year and that al ternately, in case of disallowance in this year, it would amount to double taxation of the same item.
5.2 Ld. CIT(A) after considering the submissions held as under:
"4.4. I have considered the facts on record and the submissions of the AR. The appellant has not disputed the merits of the disallowance; it has merely pleaded about the equity of disallowing an Page 12 of 16 ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
amount which had been reversed by it in the subsequent year. However, the mere fact that the appellant has reversed this entry in the succeeding hear is of no consequence since each assessment year stands on its own footing for the purpose of income tax assessment. While there is merit in the plea of the AR that the disallowance of the provision may lead to doubt disallowance (in view of its reversal in the following year), that is a situation for which the appellant must explore alternate remedies. The disallowance of the provision for non- moving raw material for Rs. 49,59,201 is therefore, upheld and the first three grounds are dismissed."
5.3 Referring the paper book filed, it was the submission that Assessee is consistently following the method of accounting and there is no loss of revenue as the same amount was offered to tax in the later year and on the principle of consistency the same should be allowed.
5.4 After considering the rival submissions we are of the opinion that there is no need to interfere with the order of Ld. CIT(A). Assessee has furnished the following details of provision in various years:
Visaka Industries Ltd Provision for non-moving raw material grouped in other expenses of P&L A/c F.Y Date Debit Credit 2009-10 As on 31.03.10 49,59,201 2020-11 As on 31.3.11 19,20,000 49,59,201 Net provision 30,39,201 2011-12 0 2012-13 As on 31.3.13 86,34,000 19,20,000 Net provision 67,14,000 2013-14 As on 31.3.14 0 0 5.5 As can be seen from the above the provision was made for the first time in this year and the same was written back in later year. Thus, the obsolescence of stock Page 13 of 16 ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
was not established. Moreover, 'consistency principle' does not apply as the claim was made for the first time, which Assessing Officer has not allowed. Since Assessee f ailed to satisfy the condition for making a genuine claim u/s 37(1) of the IT Act, the provision as such cannot be allowed because no liability was actually existing at the time of making provision. Considering the facts and circumstances of the case, we do not find any reason to interfere from the order of the Ld. CIT(A). As far as the direction for reducing the same in next year, Ld. CIT(A) already gave a direction to Assessee to make necessary cl aims in later year. Assessee is free to make the claim before Assessing Officer for appropriate relief. We cannot give any specific direction as that year is not before us and Assessee has not furnished any evidence of making a cl aim even. The grounds 1 & 2 raised are dismissed and ground 3 is partly allowed.
6. The issue in ground 4 is with reference to the claim of 80IB of the IT Act on 'other income'. Assessing Officer has not considered various incomes shown as 'other income' in profit & loss account while computing the deduction u/s 80IB of the IT Act. Ld. CIT(A) has considered them in detail and allowed major amounts and rejected two items. One such amount rejected was claim on insurance on raw material to an extent of Rs. 4.72,244/-. Ld. CIT(A) rejected the claim stating as under:
"5.5 Similarly, it was held in the case of Khemka Container P Ltd V CiT 275 ITR 559 (P&H) that insurance claim received on account of loss of raw material in fire is not income 'derived from' industrial undertaking for 80IA. Applying the ration of this decision, deduction u/s 80IB cannot be allowed on the receipt of Rs. 4,72,244 as insurance claim on raw materials.
6.1 Ld. Counsel referred to the claim and submitted that the insurance claim is on raw material which directly effect the profit & loss account and the amount was 'derived' for the purpose of claim u/s 80IB of the IT Act. He relied on the decision of the Hon'ble Gujarat High Court decision in the case of CIT Vs. Sree Rama Multi Tech Ltd., reported in 33 taxman.com 194(Guj).
6.2 We have considered the rival contentions and perused the case law relied. Even though Ld. CIT(A) relied on the decision of Hon'ble Punjab and Haryana High Court, the judgment of Hon'ble Delhi High Court in the case of CIT Vs Sportking India Pvt Ltd., 324 ITR 283 (Del) and the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Sri Rama Multi Tech (supra) are in favour of Assessee. In the case of CIT Vs. Sri Rama Multi Tech (supra) it was held as under:Page 14 of 16
ITA Nos 1646 to 1648 and 1631 of 2017 Visaka Industries Ltd Secunderabad.
"If Assessee had either consumed the raw material in its industrial activity or sold the finished good but for the unfortunate fire, surely Assessee would have earned income. Such income would have been eligible for deduction under section 80-IA of the Act. If this much is undisputed, merely because of the fire and destruction of such goods before sale would hardly make any significant difference insofar as deduction under section 80-IA of the Act is concerned. What Assessee achieved through passing of the insurance claim was reduction of the loss arising out of the industrial undertaking. Such recouping or reduction of the loss cannot be kept out of consideration while computing Assessee's income eligible for reduction under section 80-IA of the Act".
6.3 Respectfully following the above, since these two decisions are in favour of assessee, we are of the opinion that the insurance claim on raw materials would be income eligible for deduction u/s 80IB of the IT Act. Assessing Officer is directed to allow the same. The ground is allowed.
21. Since there was no incriminating material found for bringing the above items to tax, respectfully following the decision of the Coordinate Bench in assessee's own case, the additions made are deleted and these grounds of appeal are allowed.
22. In the result, Assessee's appeal for A.Y 2008-09 to 2010- 11 are partly allowed and the Revenue's appeal for A.Y 2009-10 is partly allowed for statistical purposes.
Order pronounced in the Open Court on 31st May, 2018.
Sd/- Sd/-
(B. Ramakotaiah) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 31st May 2018.
Vinodan/sps
Page 15 of 16
ITA Nos 1646 to 1648 and 1631 of 2017
Visaka Industries Ltd Secunderabad.
Copy to:
1 C/o. M.Anandam & Co. CAs, 7A Surya Towers, SP Road, Secunderabad 2 Dy.CIT, Circle 17(2) Hyderabad 3 CIT (A)-5, Hyderabad 4 Pr. CIT - 5 Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File By Order Page 16 of 16