Madras High Court
The Commissioner Of Income Tax vs M/S.Orchid Chemicals & ... on 29 June, 2016
Author: S.Manikumar
Bench: S.Manikumar
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 29.06.2016 CORAM: THE HONOURABLE MR.JUSTICE S.MANIKUMAR and THE HONOURABLE MR.JUSTICE D.KRISHNA KUMAR T.C.A.No.1457 of 2007 The Commissioner of Income Tax, Chennai. .. Appellant versus M/s.Orchid Chemicals & Pharmaceuticals Ltd., Orchid Towers, 313, Valluvar Kottam High Road, Nungambakkam, Chennai 600 034. .. Respondent Prayer: Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961, against the order made in I.T.A.No.1488/Mds/2005, dated 15.06.2007. For Appellant :Mrs.Hema Murali Krishnan, Junior Standing Counsel for Income-Tax For Respondent :Mr.L.Seetharaman for Mr.R.Sivaraman ORDER
(Order of the Court was made by S.MANIKUMAR, J.) Tax Case Appeal is directed against the order made in I.T.A.No.1488/Mds/2005, dated 15.06.2007, passed by the Income-Tax Appellate Tribunal, B Bench, Chennai, for the assessment year 2000-01.
2. Brief facts leading to the appeal are as follows:
The assessee is an export oriented undertaking, engaged in the business of manufacture and export of pharmaceuticals. The assessee filed its return of income for the assessment year 2000-01, declaring Nil income. After processing the return and completing the assessment, under Section 143(3), the assessing officer denied the exemption under Section 10B of the Act, in respect of income from sale of scrap and spent solution, and brought the same to tax under the head, other sources. Further, the assessing officer treated the loss from Aurangabad unit, as non-EOU unit, on the ground that the plant and machinery of the above stated unit had been transferred and that the said unit lost the eligibility of been classified under the EOU status and thus, completed the assessment.
3. Being aggrieved by the order of the assessing officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The appellate authority, vide order, dated 28.02.2005, deleted the addition made by the assessing officer, under the head other sources, holding that the scrap and spent solution, are part of the manufacturing process and therefore the income derived from the sale of such items should be treated as income derived from 100% EOU only.
4. As regards the income/loss acquired from Aurangabad Unit, the appellate authority has directed the assessing officer to exclude the loss from the unit from the non-EOU and include it in the EOU unit, as he felt that the assessing officer has not properly analyzed or appreciated the facts, and he also opined that the assessee has fulfilled the conditions to treat Aurangabad unit, as a part of the EOU operations and thus, held both the above issues, in favour of the assessee.
5. Being the aggrieved by the order of the appellate authority, dated 28.02.2005, in I.T.A.No.55/2003-04, the Deputy Commissioner of Income-Tax, Chennai, has filed an appeal before the Income-Tax Appellate Tribunal in I.T.A.No.1488/Mds/2005. After hearing both the parties and considering the material on record, the Tribunal, vide order, dated 15.06.2007, confirmed the order of the appellate authority. Thus, the present appeal has been filed on the following substantial questions of law, (1) Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is eligible for the benefit of Section 10B in respect of profit from sale of scrap and spent solution?
(2) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the loss incurred from the Aurangabad unit is includible in the EOU, when it is a separate unit, situated in a different state, and cannot be considered as a single undertaking of the assessee along with the EOU at Alathur?
6. Though referring to Section 10B of the Act, Mrs.Hema Murali Krishna, learned counsel made submissions that deduction of profits and gains as are derived by a hundred per cent export-oriented undertaking, can be made only from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be and further contended that such deduction cannot be extended to local sale of waste and scrap, this Court is not inclined to accept the said submissions, for the reason that the words, from the export of articles or things or computer software have been introduced by the Finance Act, 2000, with effect from 01.04.2001 only. In the instant appeal, we are concerned with the assessment year 2000-01.
7. Admittedly, the relevant assessment year involved in this appeal is 2000-01, ie., from 01.04.2000 to 31.03.2001. Added further, it is also worthwhile to consider the reasons assigned by the Income Tax Appellate Tribunal, 'B' Bench, Chennai, in I.T.A.No.1488/Mds/2005, dated 15.06.2007, for the assessment year 2000-01, which is as follows:
The first appellate authority after considering the above facts, held that scrap and spent solution have been generated directly from the manufacturing activity and hence, the Assessing Officer is not correct in excluding these items from the profits of EOU and bringing them to tax under the head 'other sources. From the records it is clear that the scrap and spent solution have been generated directly from the manufacturing activity and. hence profit on sale of such items is derived from the 100% EOU only. After considering the explanation given by the Assessee regarding the generation of scrap and spent solution, we are of the considered opinion that the scrap and spent solution are part of the manufacturing process and the C.I.T.(Appeals) was justified in directing the Assessing Officer to recompute the income/loss exempt under sec. 10B of the Act. In view of the above, we are of the considered opinion that the order of the first appellate authority is a well reasoned one. Hence, we uphold the finding of the C.I.T.(Appeals) on this issue.
8. On the second substantial question of law, raised in the instant appeal, the Income-Tax Appellate Tribunal, 'B' Bench, Chennai, at Paragraph 11, has ordered as follows:
11. We have heard both the parties and perused the relevant records available with us. It is observed from the records that as there was no specific finding on this issue, the first appellate authority asked the Assessing Officer to submit a report. After obtaining the report, the same has been forwarded to the Assessee calling for clarification which are discussed in paragraphs 12.1 and 12.2 of the C.I.T.(Appeals) order. Considering the report of the Assessing Officer and the submissions of the Assessee, the C.IT.(Appeals) has decided the issue in favour of the Assessee at para 12.4 which reads as under:
12.4 From the above facts it is seen that the Assessee has acquired existing unit at Aurangabad in January. 2000 and obtained EOU status in March, 2000. The total value of plant and machinery of such unit acquired forms 3.64% of total value of used in the EOU operations. Hence, the Assessee company has fulfilled the conditions to treat the Aurangabad unit as a part of the EOU operations. The Assessing Officer has not properly analysed or appreciated the facts. Hence, the Assessing Officer is not correct in treating the profit/loss from Aurangabad unit as a non-EOU operations. Hence, the Assessing Officer is directed exclude the loss from the Aurangabad division/unit from the non-EOU activities and include it in the EOU unit. Hence, this grounds of appeal is allowed. After going through the above facts as well as the order of the C.I.T.(Appeals), we are of the considered opinion that the Assessing Officer has not considered the relevant facts and the C.I.T.(Appeals) is correct in holding that the Assessee company has fulfilled the conditions to treat the Aurangabad unit as a part of the EOU operations. It is seen from the records that the unit at Aurangabad had been acquired during January 2000 and it was an existing unit located in the same place. Further, the Assessee applied to the Director, MEPZ and obtained the status of EOU during March. Hence, the Assessing Officer is not correct in treating the loss from Aurangabad unit as a non-EOU and including the loss from such unit in the total loss computed from non-EOU operations. Accordingly, we uphold the order of the C.I.T.(Appeals) on this issue.
9. In the light of the well considered decision of the Tribunal, on the aspect of treating profit/loss from Aurangabad Unit, to be included in the export oriented unit at Alathur, we are not inclined to accept the contentions of the appellant that the Tribunal has committed an error, in holding that the loss incurred from Aurangabad Unit, to be included in the export oriented unit. The findings of the Tribunal that the Unit at Aurangabad was also an integral part of the export oriented unit at Chennai, cannot be interferred with, though the unit at Aurangabad, was purchased only in the year 2000, whereas, the Unit in Chennai, it was existing from 1994 onwards. Both the substantial questions of law raised are answered against the revenue and in favour of the assessee.
10. In the result, the Tax Case Appeal is dismissed. No costs. Consequently, connected Miscellaneous Petition is also closed.
(S.M.K., J.) (D.K.K., J.)
29.06.2016
skm
To
The Income Tax Appellate Tribunal,
B Bench, Chennai.
S.MANIKUMAR, J.
AND
D.KRISHNAKUMAR, J.
skm
T.C.A.No.1457 of 2007
29.06.2016