Income Tax Appellate Tribunal - Ahmedabad
Nirma Ltd.,, Ahmedabad vs Department Of Income Tax on 30 January, 2014
आयकर अपीलीय अिधकरण,
अिधकरण, अहमदाबाद Ûयायपीठ 'ए
ए' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, AHMEDABAD
BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND
SHRI KUL BHARAT, JUDICIAL MEMBER
ITA No. 541/Ahd/2005
A.Y. 2001-02
ACIT, Vs Nirma Ltd.
Central Circle-1(1), Ahmedabad.
Ahmedabad. PAN: AAACN5350N
(Appellant) (Respondent)
ITA No. 558/Ahd/2005
A.Y. 2001-02
Nirma Ltd. Vs ACIT,
Ahmedabad. Central Circle-1(1),
PAN: AAACN5350N Ahmedabad.
(Appellant) (Respondent)
Revenue by : Sh. Subhash Bains, Sr.D.R.
Assessee(s) by : Sh. S.N. Soparkar alongwith
Urvashi Shodhan, AR
सुनवाई कȧ तारȣख/
/ Date of Hearing : 30/01/2014
घोषणा कȧ तारȣख /Date of Pronouncement : 26/02/2014
आदे श/O R D E R
PER SHRI N.S. SAINI, ACCOUNTANT MEMBER:
These are the cross appeals filed by the Revenue and Assessee against the order of the CIT(A)-XI, Ahmedabad dated 10.12.2004.
2. Ground no. 1 of the appeal of the Revenue reads as under:
"The CIT(A) has erred in law and on facts in directing to restrict the addition of Rs 30,19,295/- made on account of disallowance of deduction claimed u/s 80IA of the I.T. Act, 1961 in respect of income represented by other sales of the Indore division and the Moraiya division to Rs 3,05,605/-."
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02 -2- Ground no. 3 of the appeal of assessee reads as under:
"In law and in the facts and circumstances of the Appellant's case, the Ld. CIT(A) has grievously erred in confirming disallowance of deduction u/s 80IA/80IB on other sales viz., Iron Scrap Sale, Misc Sales and Metal Scrap Sales."
Since the facts and issue involved in both these grounds of appeal are similar, they are being disposed of together as under:
3. The Assessing Officer made the disallowance by observing as under:
"3.1 Apart from the Trikampura Division, the assessee company has also claimed deduction u/s 80IA for Indore Division, Moraiya (Detergent) and Windfarm Division. In earlier assessment years, it has been the consistent stand of revenue to hold that other sales done by a particular division i.e. sales other than the sales of the manufactured article are not eligible for deduction u/s 80IA. In view of this, the assessee company was asked to furnish full details of other sales of these divisions for which deduction u/s 80IA was claimed. These details were furnished by the assessee vide submission dated 29.03.2004. In this, it was observed that these divisions had other sales as under:
Indore Division
i) Waste Wrapper sale Rs 22,943
ii) Waste Plastic sales Rs 16,816
iii) Sale of barrels Rs 3,444
iv) Iron scrap sale Rs 79,184
v) Bardan sales Rs 79,226
vi) Gani Bag sale Rs 21,68,878
vii) Soap Stone bardan sale Rs 2,12,409
viii) Box sale Rs 3,950
ix) Wrapper sale Rs 7,748 Rs 25,94,598 Trikampura Division
i) Plastic Waste Sale Rs 47,228
ii) Bardan Sales Rs 1,58,555
iii) Gani bag sale Rs 33,88,673
iv) Misc. sale Rs 30,975
v) Waste Scrap sales Rs 4,675 Rs 36,30,106 ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02 -3- Moraiya Division
i) Waste Wrapper Sale Rs 29,971
ii) Waste Plastic Sales Rs 1,12,179
iii) Sale of barrels Rs 7,87,098
iv) Iron scrap sale Rs 4,54,673
v) Bardan sales Rs 1,05,251
vi) Gani Bag sale Rs 32,54,267
vii) Soap Stone bardan sale Rs 18,57,991
viii) Misc. sale Rs 1,49,302
ix) Metal scrap Rs 3,33,525
x) Detergent cake waste Rs 23,615
xi) Plastic bardan soda Rs 3,59,850 Rs 74,69,722 3.2 In view of the consistent stand of revenue in A.Y. 2001-02 also, it is held that these other sales do not qualify for deduction u/s 80IA. However, in view of the findings in Section-2 of this order regarding disallowance of claim of deduction u/s 80IA for Trikampura Division, these other sales for this division are not separately excluded in the computation as per this order. Penalty u/s 271(1)(c) initiated."
4. The Ld. DR supported the order of the Assessing Officer and the Ld. AR of the assessee relied on the decision of the Hon'ble Gujarat High Court in the case of assessee itself in Tax Appeal No. 811 of 2013 order dated 27.01.2014 and submitted that the issue was covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court.
5. We have heard the rival submissions, perused the orders of lower authorities and material available on record. In the instant case, the Assessing Officer disallowed the deduction u/s 80IA to the assessee on sale of waste plastics, barrels, bardans etc. On appeal, the Ld. CIT(A) allowed the claim of the assessee on the ground that they are eligible for deduction u/s 8-IA as they form part and parcel of the industrial activity carried on by the assessee and that the sale of these items goes to reduce the cost of production and the cost of the same was debited in the accounts.
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02 -4-
6. The Ld. AR of the assessee has relied upon the decision of the Hon'ble Gujarat High Court in the case of the assessee itself wherein it was held as under:
"Insofar as question Nos. 2, 5 7 and 12 are concerned, it is an undisputed position that the issues are covered by a decision of this Court in the case of Dy. CIT Vs. Harijivandas Juthabhai Zaveri, 258 ITR 785 in which the court upheld the decision of the Tribunal granting benefit of deduction under section 801 of the Act on various incomes, such as job work receipt, sale of empty soda ash bardan, sale of empty barrels and plastic waste. Such questions are, therefore, not required to be considered."
7. In view of the above decision of the Hon'ble Jurisdictional High Court, we find no infirmity in the order of the Ld. CIT(A), hence ground no. 1 of Revenue's appeal and ground no. 3 of assessee's appeal both are dismissed.
8. Ground no. 2 of the appeal of Revenue is directed against the order of the Ld. CIT(A) directing the Assessing Officer to compute deduction u/s 80HHC on export profits arrived at on the basis of the export turnover and the total turnover exclusive of the receipts of excise duty and sale tax.
9. Both the parties before us agreed that the issue is now settled in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Lakshmi Machine Works (2007) 290 ITR 667 (SC) wherein it was held that sales tax and excise duty don't have any element of 'turnover' and that excise duty and sales tax are indirect costs which are recovered by the assessee on behalf of the Government and if they are made relatable to exports, the formula u/s 80HHC would become unworkable. Therefore, this ground of appeal of the Revenue is dismissed.
10. Ground no. 3 of the Revenue's appeal is directed against the order of the Ld. CIT(A) holding that deduction u/s 80IA of the Act was not to be ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02 -5- reduced from the profits of the business to compute the deduction u/s 80HHC of the Act.
11. Ground no. 4(2) of the assessee's appeal is directed against the order of the Ld. CIT(A) directing the Assessing Officer to reduce the profit of business by deduction u/s 80IA of Rs 2103.42 lakhs.
12. At the time of the hearing, both the parties before us agreed that the issue is now covered in favour of the assessee and by the decision of the Hon'ble Bombay High Court in the case of Associated Capsules Private Limited Vs. DCIT (2011) 197 taxmann 84 (Bom.) wherein it was held that "Section 80IA(9) does not affect computability of deduction under various provisions under heading 'C' of Chapter VI-A; it affects the liability of deduction computed under various provisions under heading 'C' of Chapter VI-A so that the aggregate deduction u/s 80IA and other provisions under heading 'C' of Chapter VI-A does not exceed 100% of the profits of the business of the assessee. This view is also supported by the CBDT Circular no. 772 dated 23.12.1998 wherein I is stated that section 80IA(9) has been introduced with a view to prevent the taxpayers from claiming repeated deductions in respect of the same amount of eligible income and that too in excess of the eligible profits. Thus, the object of the section 80IA(9) being not to curtail the deductions computable under various provisions under heading 'C' of the Chapter, it is reasonable to hold that section 80IA(1) affects the liability of deduction and not computation of deduction."
We therefore set aside the orders of lower authorities and remand the matter back to the file of the Assessing Officer to readjudicate the issue afresh as per law after taking into consideration the above quoted decision of the Hon'ble Supreme Court in the case of Associated Capsules Private Limited (supra). Thus, ground no. 3 of the Revenue's appeal is dismissed and ground no. 4(2) of assessee's appeal is allowed.
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02 -6-
13. Ground no. 4 of the appeal of the Revenue is directed against the order of the Ld. CIT(A) restricting the addition of Rs 1,07,34,486/- to Rs 22,95,198/- on account of disallowance of late payment of Provident Fund and ESI u/s 43B of the Act.
14. The brief facts of the case are that the Assessing Officer observed that the assessee had made payments of Provident Fund and ESI contribution beyond the prescribed due date, and therefore, by following the decision of Hon'ble Kerala High Court, he disallowed the deduction for the following payments:
Provident Fund Division Due date Date of payment Amount (Rs) Mandali 15.4.2001 16.4.2001 11,24,118 Udaipur 15.3.2001 22.3.2001 18,030 Moraiya 15.6.2000 17.6.2000 14,59,248 Moraiya 15.7.2000 17.7.2000 14,92,431 Moraiya 15.8.2000 16.8.2000 12,90,283 Moraiya 15.10.2000 18.10.2000 13,18,696 Moraiya 15.11.2000 16.11.2000 13,59,165 Moraiya 15.11.2000 17.11.2000 1,89,551 Moraiya 15.3.2001 27.3.2001 13,11,884 Moraiya 15.4.2001 18.4.2001 11,20,630 Total 1,06,84,036 ESIC Division Due date Date of payment Amount (Rs) Mandali 15.4.2001 16.4.2001 42,193 Udaipur 15.4.2001 1.5.2001 8,257 Total 50,450
15. On appeal, the Ld. CIT(A) directed the Assessing Officer to allow deduction for Provident Fund and ESI payments after proper verification if the payments were made during the relevant previous year.
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02 -7-
16. The Ld. DR supported the order of the Assessing Officer whereas the Ld. AR of the assessee submitted that the issue was now covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of CIT Vs. Alom Extrusions Limited (2009) 319 ITR 306 (SC) wherein it was held that if the contribution to PF and ESI was deposited by the assessee before the due date of filing of return under the Income Tax Act, then the assessee would be entitled to deduction. Therefore, we confirm the order of the Ld. CIT(A) and dismiss this ground of appeal of the Revenue.
17. Ground no. 5 of the Revenue's appeal is directed against the order of the Ld. CIT(A) deleting the addition of Rs 24,04,568/- on account of disallowance out of other expenses on account of provisions of section 37(1) of the Act.
18. The Assessing Officer disallowed Rs 24,04,568/- on account of other expenses by observing as under:
"6.1 On scrutiny of the details filed as per submission dated 30.3.2004 regarding other expenses incurred by the assessee company, it is held that part of these expenses as outlined below are not meant for business.
Mandali Division 1 Diwali Expenses Rs 3778 2 Hotel Expense Rs 100000 3 Entertainment Expense Rs 50000 4 Out of Tea & Coffee Exp. Rs 200000 5 Misc. expenses Rs 100000 6 Out of gift Exp. Rs 200000 7 Donation to grampanchapat Rs 275000 Rs 903778 Chhatral Division 1 Telephone Expenses Rs 100000 2 Out of misc. exp. Rs 2250 Rs 102250 Udaipur Division 1 Tea & Coffee expenses Rs 8970 2 Misc. expenses Rs 16280 3 Gift expenses Rs 1602 ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02 -8- Rs 26852 Trikampura Division 1 Advertisement exp. Rs 100000 2 Out of Misc. exp. Rs 1235 Rs 101235 Manpur Division 1 Out of Misc. exp. Rs 10230 2 Out of gift exp. Rs 43960 3 House maintenance exp. Rs 100000 Rs 154190 Indore Division 1 Diwali expenses Rs 27872 2 Out of hotel expenses Rs 50000 3 Out of Misc. expenses Rs 50000 4 Tea & coffee exp. Rs 72000 5 Gift expenses Rs 2000 Rs 202872 Allindra Division 1 Hotel expenses Rs 100000 2 Entertainment exp. Rs 7638 3 Misc. exp. Rs 100000 4 Gift expenses Rs 12253 5 Donation to grampanchapat Rs 3500 223391 Bhavnagar Division 1 Hotel expenses Rs 50000 2 Entertainment exp. Rs 200000 3 Misc exp. Rs 100000 4 Guest House exp. Rs 100000 5 Donation to employee Rs 17000 Rs 467000 Moraiya Division 1 Diwali expenses Rs 18000 2 Misc. exp. Rs 200000 3 Gift expenses Rs 5000 Rs 223000 6.2 The assessee's authorized representative was requested to show cause during assessment proceedings as to why the above expenses be not disallowed. The authorized representative stated that these expenses were incurred exclusively for business purposes. The A.R. relied on the submissions given on earlier years before the A.O. and the Ld. CIT(A) in support of these contentions. The contentions of the assessee are not acceptable. The issue of disallowance of these expenses is contended by revenue before the ITAT and hence following the consistent stand of Revenue they are disallowed u/s 37 of the I.T. Act and are added back to the total income, treating these expenses as having been incurred for non-business purposes."
19. On appeal, the Ld. CIT(A) deleted the disallowance by observing as under:
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02 -9- "I have considered the facts of the case and submissions of the A.R. of the appellant carefully. I have also gone through the decisions relied upon by the A.R. and the observations of the assessing officer in the assessment order. The ld. CIT(A)-I, Ahmedabad, while deciding the issue for A.Y. 1999-2000 in the appellant's own case has held vide his order dated 8.11.2002 that the disallowance out of various types of expenses have been made on an adhoc basis without pointing out as to how such expenses were for non business purposes and deleted the addition made. The above order has been followed by the undersigned while deciding the issue on similar facts for A.Y. 2000-01 vide appeal no. CIT(A)-XI/83/04-05 dated 29.11.2004. For the year under consideration the facts are the same and following the decision of the earlier assessment yeas, referred to above, the addition made on account of inadmissible expenses on adhoc basis is also deleted"
20. The Ld. DR relied on the order of the Assessing Officer whereas Ld. AR of the assessee supported the order of the Ld. CIT(A).
21. We have heard the rival submissions, perused the orders of lower authorities and material available on record. In the instant case, the Assessing Officer made disallowance out of other expenses of Rs 24,04,568/- on the ground that the expenses are not incurred wholly and exclusively for the business of the assessee and that similar disallowance was made by him in earlier years which was deleted by the Ld. CIT(A) and the Revenue was in appeal before the Tribunal.
22. On appeal, the Ld. CIT(A) following his order for the Assessment Years 1999-2000 and 2000-01 deleted the disallowance. Both the parties before us agreed that this issue is covered in favour of the assessee by the order of the Tribunal in Assessment Year 1999-2000 passed in ITA No. 175 and 523/Ahd/2003 and C.O. No. 9/Ahd/2003 order dated 31.07.2006 wherein the Tribunal observed as under:
"The second ground is pertaining to disallowance various expenses of Rs 11,17,625 of which details is reproduced by the CIT(A) in his order at page No. 17 and 18. The CIT(A) deleted the addition with the finding that A.O. has made adhoc addition without any basis. The ld. AR pointed out that identical adhoc disallowance were made in A.Y. 1998-99 which have been deleted by the CIT(A). After hearing both ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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sides we find that CIT(A) has rightly deleted the lum sum/adhoc addition which were made without any basis. We accordingly confirm the order of the CIT(A)."
Therefore, we do not find any infirmity in the order of the Ld. CIT(A) which is confirmed and the ground of the appeal of the Revenue is dismissed.
23. Ground no. 6 of the appeal of the Revenue reads as under:
"The CIT(A) has erred in law and on facts in directing to allow the claim of expenses of Rs 69,00,893/- which was disallowed in the order of assessment being prior period expenses for A.Y.s 2002-03 and 2003-04 and neither claimed in the books of account of the accounting year under consideration nor claimed in the return of income for the A.Y. 2001-02."
24. The Assessing Officer made the disallowance of the following prior paid expenses by observing as under:
"9.1 At the fag end of assessment proceeding, the assessee company for the first time vide submission dated 29.3.2004 submitted that following prior period expenses disallowed in the returns filed for A.Y. 2002-03 & 2003-04, which pertain to A.Y. 2001-02 should be allowed in the present assessment:
i) Prior period expenses accounted for
in A.Y. 2002-03 Rs 38,85,546
ii) Prior period expenses accounted for
In A.Y. 2003-04 Rs 30,15,347
Rs 69,00,893
9.2 Vide submission dated 29.3.2004, the assessee company contended that
these expenses are duly verified and certified by their auditors as pertaining to A.Y. 2001-02 and hence on the basis of their claim, the same should be allowed. This contention of the assessee company has been considered and is not found acceptable. As the assessee company has squarely failed to furnish the requisite details of the nature of these expenses and is failed to establish that they have been wholly and exclusively incurred for the purpose of business.
25. On appeal, the Ld. CIT(A) deleted the disallowance by observing as under:
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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"10.1 I have considered the facts of the case and submissions of the A.R. of the appellant carefully. I have also gone through the observations of the assessing officer in the assessment order. The assessing officer has not examined the issue in detail. For deciding the allowability of these expenses, each item will have to be examined and it will have to be seen when the liability has arisen/crystallized/ascertained and whether such expenses are allowable u/s 37(1). Having considered the facts of the case, the assessing officer is directed to verify when the liability has arisen. If the liability to pay the same has arisen during the year under consideration and if the expenses are allowable as per the provisions of the Act, the A.O. is directed to allow the same as the appellant company is following mercantile system of accounting. If the same has not arisen during the year under consideration or otherwise not allowable, the same should not be allowed. The assessing officer is directed accordingly."
26. The Ld. DR supported the order of the Assessing Officer.
27. The Ld. AR of the assessee supported the order of Ld. CIT(A).
28. Ld. DR could not point out any specific error in the order of the Ld. CIT(A) nor cold he explain the grievance caused to the Revenue by the above order of the Ld. CIT(A). Therefore, this ground of appeal of the Revenue is dismissed.
29. Ground no. 7 & 8 of the Revenue's appeal are general in nature and therefore, require no separate adjudication by us.
30. In the assessee's appeal, ground no. 1 is general in nature and therefore, requires no separate adjudication by us.
31. In ground no. 2 of the appeal of assessee, the grievance of the assessee is that the Ld. CIT(A) erred in confirming the disallowance of claim of deduction u/s 80IA and 80IB for Trikampura division. The Assessing Officer disallowed deduction u/s 80IA to the assessee by observing as under:
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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"2.5 The contentions as above on behalf of revenue are summarized as under:
i) As the assessee company during whole of the previous year had no employees on the rolls of the Trikampura Division and whole of its profit making system was leased out it ceased to be an 'industrial undertaking'. Thus, as per sub-sect ion- (2) of 80IA/80IB it became ineligible for deduction. Further, the mandatory condition of employing 20 or more workers was not satisfied by the assessee company, hence no deduction is allowable.
ii) Even If the contention of the assessee company that employees of its agent the job worker were Its own employees is taken at face value from the perusal of the contract between the assessee company and the job worker a "master - agent' is created only between the assessee company as a whole and job worker. The assessee company has not been able to establish that the job worker was the specific agent of the Trikampura Industrial Undertaking. As the onus to establish that the unit for which deduction is claimed satisfies all the mandatory requirements Is squarely on the assessee and the assessee has failed to discharge the same, no deduction allowable to the Trikampura Division.
iii) As the Trikampura Division had no employees .all ancillary manufacturing activities relating to the products manufactured by job worker, which are ascribed by the assessee company to Itself pertain to general Mandali Division of the assessee company and not to the Trikampura Division, Hence, it is held that during whole of the previous year, no manufacturing of any article or thing was done by the Trikampura Division.
iv) As all the machines of Trikampura Division were licenced to the job worker and no employees were there in the Trikampura to exercise any control over the use of the same, no part of manufacturing activity of the job worker can be ascribed to the Trikampura Division.
v) If the construction / interpretation given by the assessee to the section 80IA/8OIB is accepted the very purpose of these sections shall be defeated."
2.6 Penalty u/s 271(1) (c) initiated on this issue."
32. On appeal, the Ld. CIT(A) confirmed the order of the Assessing Officer by observing as under:
"5.2 I have considered the facts of the case and submissions of the A. R. of the appellant carefully. I have also gone through the decisions relied upon by the A. R. and the details produced by him before me. I have also gone through the observations of the assessing officer in the assessment order. With regard to the appellant's claim of deduction u/s.8oIB it is seen that the appellant has not fulfilled the condition as laid down as per the provisions of section 80IB of the Act. The Trikampura division for which the appellant has claimed deduction has ceased to be an industrial undertaking w.e.f. 30-11-1999. A careful examination of the terms and conditions of agreement dated 25-11-1999 between the appellant company and ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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Nisarg Enterprises Pvt. Ltd. makes ft clear that the appellant had given the possession and right to use the furniture, fittings equipments, tankages, plant & machineries on Plot No.3601 and 3602 situated at village Trikampura (Dist. Ahmedabad) together with electric connection, water connection and other amenities as stated in the Schedule attached to the said agreement. Further Nisrag Enterprises Pvt. Ltd. had to pay all the taxes, cess to Govt. authorities or anybody claiming as well as electricity charges, water charges and other government taxes etc. from the date of using and during its occupation of the said properties. Its clear from these terms and conditions of the agreement that the production has to be carried out by Nisarg Enterprises Pvt. Ltd., the plant & machineries along with electric fittings, connections etc. has been given to it, it is supposed to pay taxes, cess etc. to government authorities and the employees would be employed by Nisrag Enterprises Pvt. Ltd. only. It is seen from the Schedule to the agreement dated 30- 11-1999 that the appellant has leased out all the machinery and there were no employees of its own in the Trikampura Division. On careful perusal of the details and records, it is seen that in earlier years the division had power and salary expenses commensurate with the total production whereas in the year under consideration the expenses shown by the appellant are prima facie low with the total turnover of the year. Further, the salary payments shown by the appellant of Rs. 56,500/- in fact pertain to payments of earlier years in respect of settlement of labour dispute. It may be noted here that when there are no employees, the question of manufacturing activities carried out by the appellant at Trikampura division does not arise, it is further seen that sales and purchases, were carried out by the general division of the appellant company. The appellant company has also not been able to establish that the job workers are the specific agent of the Trikampura industrial undertaking and the/appellant was exercising any quality control as no employees were there in the said division to exercise any control over the reduction. The appellant's contention that the Supervisory Staff at the Head office was looking after the quality control and the raw materials purchased by the Head Office were provided to the job-worker does not hold good as the deduction claimed u/s.80IB is on "profits derived from" the Trikampura Division where actually the "industrial undertaking" ceased to exist with effect from 30-11-1999 from the point of view of eligibility for deduction u/s.80IB. It is necessary for the appellant to prove prima facie that the unit for which deduction is claimed satisfies all the mandatory conditions as laid down in section 80IB. The appellant has failed to discharge its onus in this regard. The reliance is placed on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Northern India Iron and Steel Company Ltd. 226 ITR 342 which was rendered on the issue of deduction u/s.80J which had identical conditions for allowability of deduction U/S.80IB. In the said case, the Hon'ble Delhi High Court held that the assessee is required to fulfill for claiming rebate is that it manufactures or produces articles and if the assessee has no control over the machinery, the question of grant of rebate u/s.80J does not arise, in the instant case there is no control over the machinery by the appellant and it has not manufactured or produced articles. The reliance is also placed in the case of CIT vs. Panwalt India Ltd. 196 ITR 813 (Bom) wherein the Bombay High Court has held that a part of processing or manufacturing activity must be done by the assessee. Whereas in the instant case there is no manufacturing activity being done by the appellant from the Trikampura Division. In the case of CIT vs. Sterling Foods 237 ITR 589 (SC), e Hon'ble Supreme Court held that there must be for the ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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application of the 'derived from', a direct nexus between the profits and gains, In the instant case, the appellant has not proved the nexus. In the instant case, there are peculiar facts like there are no workers employed by the industrial undertaking and there is no plant and machinery. The case laws relied upon by the appellant do not deal with such a set of facts and are distinguishable on facts. The contention of the A. R. of the appellant company that the provisions of Section 801A/80IB have been incorporated to give benefit to the assessee and therefore, these provisions should be interpreted liberally, can be accepted in a case where all the basic conditions laid down in that particular Section are satisfied. Where the assessee fails on any of the pre-requisites laid down under the law, the assessee will not be entitled for deduction and question of liberal interpretation would not arise. In the case of IPCA Laboratory Ltd. V. DCIT 266 ITR 530-531 while deciding the issue of correct interpretation of section 80HHC, the Hon'ble Supreme Court held that even though the provisions under chapter VIA of the I. T. Act have been incorporated to give benefit and incentives to the assessee, the interpretation of sections in Chapter VIA has to be given as per the wordings of the section and in no case, so liberal interpretation be given to these provisions that the very purpose of section is defeated.
5.2.1 In view of the above discussion, the appellant is not entitled for deduction under section 80IB of the Act for the income shown from Trikampura Division."
33. The Ld. AR relied on the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Panwalt India Ltd. (1992) 196 ITR 813 (Bom.) and submitted that it has been held by the Hon'ble High Court that "An assessee would be said to be engaged in manufacturing activity if it is doing a part of manufacturing activity by itself and for the rest of it engages the services of somebody else on a contract other than a contract of purchase. In the instant case, the assessee's manufacturing activity consisted of (i) conveying of orders (ii) preparing of designs and drawings on the basis of orders (iii) placing orders for the manufacture of machinery with T (iv) seeing that the manufacturing process was carried on by T under the direct supervision of the assessee (v) having a check over the quality control and last but not the least, being responsible for the proper functioning of the machinery granted for sale/services for a stipulated period. Out of so many activities except for one activity, namely, getting the machinery manufactured from T, all other activities were admittedly undertaken by the assessee.
In the circumstances, it was obvious that the assessee was engaged in the business of manufacture of sugar and tea machinery and was accordingly qualified for relief u/s 80-I".
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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He also relied on the decision of the Delhi Bench of the Tribunal in the case of Claas India Limited Vs. ACIT (2008) 21 SOT 580 (Delhi) wherein it was held that "Sub-section (2) of section 80IB provides certain conditions to be fulfilled by an industrial undertaking to claim deduction u/s 80IB. Admittedly, these conditions were fulfilled, in the instant case, in respect of manufacture and sale of harvester combine and the deduction had been granted. Sub-section (3) of section 80IB provides that amount of deduction in the case of an industrial undertaking shall be 25% of the profits and gains derived from such industrial undertaking. Therefore, the question for consideration arose as to whether the sale of spare parts and the components was due to the same being manufactured by the assessee or was simply a trading transaction so as to be excluded from reckoning for computing deduction as profits derived from such industrial undertaking. The assessee had supplied documents to suggest as to in respect of sale of various items of these spare parts and components of the further processes were being applied so as to finish the production process and to make it marketable. What were the various manufacturing processes to be applied to the various outsourced material, were filed in the form of instruction sheet being given by the management to the shop floor workers. Thus it was incorrect to say that the sale of spares/components was merely trading of goods and not sale of the goods manufactured by the assessee. Though the assessee might be outsourcing some of the spare parts by getting them manufactured, elsewhere after receiving the same, the assessee was applying further process so as to render them marketable as per the required standard. Thus, though various processes were being applied, the same was mistakenly treated as sale of trading goods and not of goods manufactured by the assessee. In the instant case, the lower authorities had explicitly accepted the position that the assessee was an industrial undertaking and fulfilled the 3 conditions contained in section 80IB(2) for deduction u/s 80IB. Once, the lower authorities accepted the fact that the industrial undertaking of the assessee manufactured or produced harvester combines, there was no justification of rational basis for denying deduction for manufacture or production of intermediate products like spare parts components or sub-assemblies. Admittedly, these spare parts were either produced by carrying out the various processes inside the factory or these were caused to be produced on the basis of drawings, designs and specifications supplied by the undertaking to the outside fabricators and after receipt of such components, the undertaking carried out further processes like painting, welding, salt hardening, tempering etc. on such components. The activity of manufacturing the components is thus an integral part of the activity of the industrial undertaking and there is no justification whatsoever to say that components are merely subjected o trading activity of the assessee. Spares and components are unquestionably the goods of the undertaking. These are being manufactured on the basis of the imported technology which is a capital asset of the industrial undertaking. The undertaking had adopted the technology and modified the designs and drawings so as to suit the Indian conditions. The drawing, designs and specifications, prepared by the industrial undertaking formed the very basis for production or manufacturing of the components. These components were either produced inside the factory or they were fabricated from outside under supervision and control of the industrial ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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undertaking. Cost of such operations debited in the books of account of undertaking has been duly loaded on the cost of the components which are either used for the assembly of the combines, machines or sold as integral part of machines. It would go without saying that components, spares and sub-assemblies were the goods of the industrial undertaking. These were reflected in the closing stock as goods under process. Even if these goods were treated as intermediate products in the process of manufacture of the final product that is the harvester combines, sale of such intermediate products had market value as accounted for in the books of the undertaking would qualify for deduction u/s 80IB. Various courts have time and again held that assessee need not own or possess plant and machinery to be a manufacturer of goods or to be treated as an industrial company for the purpose of claiming deduction. The manufacture may be either by the assessee itself or by someone under the assessee's supervisory control or direction. In the instant case, the assessee could not be considered as a 'trader simpliciter'. A trader merely purchases the goods which have already been manufactured by others and then sells them as it is. No further manufacturing process is being applied if the assessee is merely a trader. However, in the instant case, after purchasing some of the parts from outside suppliers, the assessee applied its own further processes to furnish he same and to make them marketable. Even the technology and specifications/drawing were supplied by the assessee to the outside manufacturer of components. In a way, the assessee as a manufacturer exercised complete control over the components manufacture outside and only after applying its own further process sold the same.
34. We have heard the rival submissions and perused the orders of lower authorities and material available on record. In the instant case, the assessee claimed deduction u/s 80IA of the Act o Rs 41,43,43,356/- on account of income from Trikampura Unit. The Assessing Officer observed that the assessee leased out its Trikampura Unit along with all its furniture, fittings, equipments, tankages, plant and machinery on plot no. 3601 and 3602 situated at village Trikampura, district Ahmedabad together with electric connection, water connection and other amenities as stated in the schedule attached to the agreement dated 25.11.1999 to M/s Nisarg Enterprises Private Limited on 30.11.1999, and thereafter all activities in that unit was carried out by the said lessee. The assessee had not employed any employee in Trikampura Unit during the year under consideration. In the opinion of the Assessing Officer, the ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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Trikampura Unit of the assessee ceased to be an industrial undertaking with effect from 30.11.1999. As the assessee has not satisfied the prerequisite conditions of manufacture of an article or thing at Trikampura Unit, the assessee was not eligible for deduction u/s 80IA of the Act.
35. On appeal, the Ld. CIT(A) confirmed the action of the Assessing Officer by observing as under:
"5.2 I have considered the facts of the case and submissions of the A. R. of the appellant carefully. I have also gone through the decisions relied upon by the A. R. and the details produced by him before me. I have also gone through the observations of the assessing officer in the assessment order. With regard to the appellant's claim of deduction u/s.8oIB it is seen that the appellant has not fulfilled the condition as laid down as per the provisions of section 80IB of the Act. The Trikampura division for which the appellant has claimed deduction has ceased to be an industrial undertaking w.e.f. 30-11-1999. A careful examination of the terms and conditions of agreement dated 25-11-1999 between the appellant company and Nisarg Enterprises Pvt. Ltd. makes ft clear that the appellant had given the possession and right to use the furniture, fittings equipments, tankages, plant & machineries on Plot No.3601 and 3602 situated at village Trikampura (Dist. Ahmedabad) together with electric connection, water connection and other amenities as stated in the Schedule attached to the said agreement. Further Nisrag Enterprises Pvt. Ltd. had to pay all the taxes, cess to Govt. authorities or anybody claiming as well as electricity charges, water charges and other government taxes etc. from the date of using and during its occupation of the said properties. Its clear from these terms and conditions of the agreement that the production has to be carried out by Nisarg Enterprises Pvt. Ltd., the plant & machineries along with electric fittings, connections etc. has been given to it, it is supposed to pay taxes, cess etc. to government authorities and the employees would be employed by Nisrag Enterprises Pvt. Ltd. only. It is seen from the Schedule to the agreement dated 30-11-1999 that the appellant has leased out all the machinery and there were no employees of its own in the Trikampura Division. On careful perusal of the details and records, it is seen that in earlier years the division had power and salary expenses commensurate with the total production whereas in the year under consideration the expenses shown by the appellant are prima facie low with the total turnover of the year. Further, the salary payments shown by the appellant of Rs. 56,500/- in fact pertain to payments of earlier years in respect of settlement of labour dispute. It may be noted here that when there are no employees, the question of manufacturing activities carried out by the appellant at Trikampura division does not arise, it is further seen that sales and ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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purchases, were carried out by the general division of the appellant company. The appellant company has also not been able to establish that the job workers are the specific agent of the Trikampura industrial undertaking and the/appellant was exercising any quality control as no employees were there in the said division to exercise any control over the reduction. The appellant's contention that the Supervisory Staff at the Head office was looking after the quality control and the raw materials purchased by the Head Office were provided to the job-worker does not hold good as the deduction claimed u/s.80IB is on "profits derived from" the Trikampura Division where actually the "industrial undertaking" ceased to exist with effect from 30-11-1999 from the point of view of eligibility for deduction u/s.80IB. It is necessary for the appellant to prove prima facie that the unit for which deduction is claimed satisfies all the mandatory conditions as laid down in section 80IB. The appellant has failed to discharge its onus in this regard. The reliance is placed on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Northern India Iron and Steel Company Ltd. 226 ITR 342 which was rendered on the issue of deduction u/s.80J which had identical conditions for allowability of deduction U/S.80IB. In the said case, the Hon'ble Delhi High Court held that the assessee is required to fulfill for claiming rebate is that it manufactures or produces articles and if the assessee has no control over the machinery, the question of grant of rebate u/s.80J does not arise, in the instant case there is no control over the machinery by the appellant and it has not manufactured or produced articles. The reliance is also placed in the case of CIT vs. Panwalt India Ltd. 196 ITR 813 (Bom) wherein the Bombay High Court has held that a part of processing or manufacturing activity must be done by the assessee. Whereas in the instant case there is no manufacturing activity being done by the appellant from the Trikampura Division. In the case of CIT vs. Sterling Foods 237 ITR 589 (SC), e Hon'ble Supreme Court held that there must be for the application of the 'derived from', a direct nexus between the profits and gains, In the instant case, the appellant has not proved the nexus. In the instant case, there are peculiar facts like there are no workers employed by the industrial undertaking and there is no plant and machinery. The case laws relied upon by the appellant do not deal with such a set of facts and are distinguishable on facts. The contention of the A. R. of the appellant company that the provisions of Section 801A/80IB have been incorporated to give benefit to the assessee and therefore, these provisions should be interpreted liberally, can be accepted in a case where all the basic conditions laid down in that particular Section are satisfied. Where the assessee fails on any of the pre-requisites laid down under the law, the assessee will not be entitled for deduction and question of liberal interpretation would not arise. In the case of IPCA Laboratory Ltd. V. DCIT 266 ITR 530-531 while deckling the issue of correct interpretation of section 80HHC, the Hon'ble Supreme Court held that even though the provisions under chapter VIA of the I. T. Act have been incorporated to give benefit and incentives to the assessee, the interpretation of sections in Chapter VIA has to be given as per the wordings of the section and in no case, so liberal interpretation be given to these provisions that the very purpose of section is defeated.
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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5.2.1 In view of the above discussion, the appellant is not entitled for deduction under section 80IB of the Act for the income shown from Trikampura Division."
36. Before us, the Ld. AR of the assessee submitted that the manufacturing at Trikampura Unit was carried out under the supervision and control of the assessee and therefore, the assessee was eligible for deduction u/s 80IA of the Act. He also placed reliance on the decision in the case of Hon'ble Bombay High Court in the case of CIV VS. Panwalt India Limited (supra) and the decision of the Delhi Bench of the Tribunal in the case of Claas India Limited (supra).
37. On the other hand, the Ld. DR supported the orders of lower authorities.
38. We find that no material was brought before us to show that the manufacturing activities at Trikampura Unit were carried out under the control and supervision of the assessee. No copy of the agreement entered into by the assessee with the lessee of the unit could be produced by the assessee. The assessee brought no material to controvert the finding of the Ld. CIT(A) that "the appellant company has also not been able to establish that the job workers are the specific agent of the Trikampura industrial undertaking and the appellant was exercising any quality control as no employees were there in the said division to exercise any control over the production."
39. Hon'ble Bombay High Court in the case of Panwalt India Limited has held that "an assessee would be said to be engaged in manufacturing activity if it is doing a part of manufacturing activity by itself and for the rest of it engages the services of somebody else on a contract other than a contract of purchase." However, in the instant case, the assessee has brought no material on record to show that any part of the manufacturing activity at Trikampura Unit was carried out by the ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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assessee. Therefore, in our considered view, the above cited decision of the Hon'ble Bombay High Court does not apply in the instant case.
40. Further in the case, of Claas India Limited (supra), the Delhi Bench of the Tribunal has held that " in the instant case, after purchasing some of the parts from outside suppliers, the assessee applied its own further processes to finish the same and to make them marketable." In contrast to the facts in that case, in the instant case, the assessee could not bring any material to show that it applied some process to convert the components purchased into furnished goods or into marketable goods. Therefore, it is observed that the facts of the case before the Delhi Bench of the Tribunal are distinguishable from the facts of the instant case.
41. In the instant case, no material could be brought before us to show that any part of the manufacturing activity was carried out by the assessee at Trikampura Unit. In the above circumstances, we do not find any good reason to interfere with the order of the lower authorities. Therefore, this ground of appeal of the assessee is dismissed.
42. Ground no. 4(1) of the appeal of assessee is directed against the order of the Ld. CIT(A) confirming part disallowance of claim of deduction u/s 80HHC on account of excluding 90% on gross interest income of Rs 7.66 crores.
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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43. The Assessing Officer observed that the contention of the assessee company that net interest income needs to be excluded in the computation of deduction u/s 80HHC is not acceptable. The assessee company has failed to establish the nexus between the interest income and interest expense. Therefore, he relying on the reasoning and findings on the issue in earlier years, he held that for the purposes of computation of deduction u/s 80HHC, gross interest of Rs 7.66 crore is to be excluded.
44. On appeal, the Ld. CIT(A) held that the contention raised by the assessee are similar to the ones given in Assessment Year 2000-01 wherein the issue was considered in detail in the appellate order for Assessment Year 2000-01 at para 10.2.3 to 10.2.5 in appeal no. CIT(A)-XI/83/04-05 dated 29.11.2004 and Assessing Officer is directed to follow the directions given therein.
45. The Ld. AR of the assessee filed before us copy of the order of the Tribunal in assessee's own case passed in ITA nos. 175 and 523/Ahd/2003 in Assessment Year 1999-2000 and C.O. No. 9/Ahd/2003 in Assessment Year 1999-2000 vide consolidated order dated 31.07.2006 wherein the Tribunal held as under:
"21.1 The assessee failed to point out any material or evidence against following finding of CIT(A) :-
"Next objection of the appellant is that the assessing officer has excluded 90% of gross interest income, while only net interest income as held by Commissioner of Income-tax (Appeals) in appellant's case for assessment year 1997-98 should have been considered. In this regard it has to be held that netting off of interest receipts and payments could be done only if both of hem are related to earning of interest income. For example if interest receipts are on account of bank deposits then only interest paid for acquiring such deposits could be set off against these receipts. Otherwise interest paid for the purposes of business of exports cannot be set off against such interest. It is, therefore, directed that the assessing officer will verify ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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the facts correctly and if the payment of interest is directly linked with receipt of interest then he shall allow the set off of the requisite amount. Otherwise the interest paid will be related to business income only and could not be set off against receipts. This is so because as discussed in the ground related to deduction under section 80HH and 80IA, this interest has to be taxed as income from other sources. The assessing officer will examine this issue and work, out relief as per these directions. "
22. After hearing both sides, we do not find any substance in ground No.2 and 3. Therefore, the order of GIT(A) is confirmed for the purpose of both grounds."
46. We have heard the rival submissions and perused the orders of lower authorities and material available on record. In the instant case, the Assessing Officer while computing deduction allowable u/s 80HHC has reduced 90% of gross interest receipt whereas the claim of the assessee was that only 90% of the net interest income, if any, after deduction of the interest payment out of interest receipt only is to be excluded.
47. On appeal, the Ld. CIT(A) held that if there is any nexus between interest receipt and interest payment then only such interest expense is to be reduced from the interest income and 90% of such reduced interest income is to be excluded for computing deduction u/s 80HHC of the Act.
48. The Ld. AR of the assessee relied on the decision of the Hon'ble Supreme Court in the case of ACG Associated Capsules (P) Ltd. Vs. CIT (2012) 343 ITR 89 (SC) for his submission that 90% of the net interest income only is required to be excluded for computing deduction u/s 80HHC of the Act.
49. The Hon'ble Supreme Court in the case of ACG Associated Capsules (P) Ltd. Vs. CIT (supra) has held as under:
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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"10. Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head "Profits and Gains of Business or Profession". The expression "included any such profits" in clause (1) of the Explanation (baa) would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and Gains of Business or Profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under Sections 30 to 44D of the Act and is not included in the profits of business as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining "profits of the business" of the assessee under Explanation (baa) to Section 80HHC."
50. In the instant case, we find that it is not in dispute that interest income earned by the assessee is assessable under the head profits and gains of business and as evidenced by the fact that Assessing Officer has excluded 90% of the gross interest income for computing profits of business out of the income under the head profits and gains of business. We, therefore, set aside the orders of lower authorities and direct the Assessing Officer to reduce 90% of net interest income while computing deduction u/s 80HHC as held by the Hon'ble Supreme Court in above cited decision. Therefore, ground no. 4(1) of appeal of assessee is allowed.
51. Ground no. 5 of the appeal of the assessee is directed against the order of Ld. CIT(A) directing to charge interest u/s 234C of the Act even when the return of income was filed under the provisions of section 115JB of the I.T. Act.
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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52. The facts of the case are that the Assessing Officer worked out the allowability to pay interest u/s 234C while computing income of the assessee under the provisions of section 115JB of I.T. Act.
53. The assessee in appeal before the Ld. CIT(A) submitted that in view of the decision in the case of Kwality Biscuits Limited Vs. CIT 243 ITR 519 of Hon'ble Kerala High Court and submitted that the decisions quoted by the Assessing Officer in the case of Assam, Bengal and Itarasi Oil 233 ITR 862 (Guwahati) and 250 ITR 686 (MP) are not applicable to the assessee and therefore, interest u/s 234C charged should be deleted.
54. We find that the Hon'ble Supreme Court in the case of JCIT Vs. Rolta Indian Ltd. (2011) 330 ITR 470 (SC) has decided the similar issue as under:
"The assessee furnished a return of income on 28th November, 1997, declaring total income of Rs. Nil. On 28th March, 2000, an order u/s.143(3) was passed determining the total income at nil after set-off of unabsorbed business loss and depreciation. The tax was levied on the book profit worked out at Rs.1,52,61,834, determined as per the provisions of section 115JA. The interest u/s.234B of Rs.39,73,167 was charged on the tax on book profit, as worked out in the order of assessment. Aggrieved by the said order, the assessee went in appeal before the Commissioner of Income-tax (Appeals). The appeal on the question in hand was dismissed. On charging of interest u/s.234B, the appeal was dismissed by the Tribunal on the ground that the case fell u/s.115JA and not u/s.115J, hence, the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. was not applicable. At one stage, the Bombay High Court decided the matter in favour of the Department, but later on, by way of review, it took the view, following the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd., that interest u/s.234B cannot be charged on tax calculated on book profits. Hence, the Commissioner of Income-tax went to the Supreme Court by way of civil appeal. The Supreme Court held that section 207 envisages that tax shall be payable in advance during the financial year on current income, in accordance with the scheme provided in section 208 to section 219, in respect of the total income of the assessee that would be chargeable to tax for the assessment year immediately following that financial year. Section 215(5) of the Act defines what is 'assessed tax'. Tax determined on the basis of regular assessment, so far as such tax relates to advance tax. The evaluation of the current income and the determination has to be made comprising section 115J/115JA of the Act. Hence, levying of interest was inescapable. The Supreme Court further held that it was clear from reading section ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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115JA and section 115JB that a specific provision is made on that section, which says all the provisions of the Act shall apply to the MAT company. Further, amendments have been made in relevant Finance Acts, providing for payment of advance tax u/s.115JA and u/s.115JB. As far as interest leviable u/s.234B was concerned, the Supreme Court held that the section was clear in that it applied to all companies.
The Supreme Court further held that the pre-requisite condition for applicability of section 234B is that the assessee is liable to pay tax u/s.208 and the expression 'assessed tax' is defined to mean tax on the total income determined u/s.143(1) or u/s.143(3), as reduced by the amount of tax deducted or collected at source. Thus, there is no exclusion of section 115JA in the levy of interest u/s.234B. The expression 'assessed tax' is defined to mean tax assessed on regular assessment which means tax determined on the application of section 115J/115JA in the regular assessment.
The Supreme Court observed that the question which remained to be considered was whether the assessee, which is a MAT company, was not in a position to estimate its profits of the current year prior to the end of the financial year on 31st March. In this connection, the assessee had placed reliance on the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. v. CIT, reported in (2000) 243 ITR 519; and, according to the Karnataka High Court, the profit as computed under the Income-tax Act, 1961 had to be prepared and thereafter the book profit, as contemplated u/s.115J of the Act, had to be determined; and then, the liability of the assessee to pay tax u/s.115J of the Act arose only if the total income, as computed under the provisions of the Act, was less than 30% of the book profit. According to the Karnataka High Court, this entire exercise of computing income or the book profits of the company, could be done only at the end of the financial year; and, hence, the provisions of section 207, section 208, section 209 and section 210 (predecessors of section 234B and section 234C) were not applicable until and unless the accounts stood audited and the balance-sheet stood prepared; because till then even the assessee may not know whether the provisions of section 115J would be applied or not. The Court, therefore, held that the liability would arise only after the profit is determined in accordance with the provisions of the Companies Act, 1956 and, therefore, interest u/s.234B and u/s.234C is not leviable in cases where section 115J is applied. This view of the Karnataka High Court in Kwality Biscuits Ltd. was not shared by the Gauhati High Court in Assam Bengal Carriers Ltd. v. CIT, reported in (1999) 239 ITR 862; and the Madhya Pradesh High Court in Itarsi Oil and Flours (P) Ltd. v. CIT, reported in (2001) 250 ITR 686; as also by the Bombay High Court in the case of CIT v. Kotak Mahindra Finance Ltd., reported in (2003) 130 Taxman 730 which decided the issue in favour of the Department and against the assessee. It appeared that none of the assessees challenged the decisions of the Gauhati High Court, Madhya Pradesh High Court as well as the Bombay High Court in the Supreme Court. The Supreme Court observed that the judgment of the Karnataka High Court in Kwality Biscuits Ltd.
was confined to section 115J of the Act. The order of the Supreme Court dismissing the special leave petition in limine filed by the Department against Kwality Biscuits Ltd. was reported in (2006) 284 ITR 434. Thus, the judgment of the Karnataka High Court in Kwality Biscuits Ltd. stood affirmed. However, the Karnataka High Court had thereafter, in the case of Jindal Thermal Power Co. Ltd. v. Deputy CIT, ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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reported in (2006) 154 Taxman 547, distinguished its own decision in the case of Kwality Biscuits Ltd. (supra) and held that section 115JB, with which the Supreme Court was concerned, was a self-contained code pertaining to MAT, which imposed liability for payment of advance tax on MAT companies; and, therefore, where such companies defaulted in payment of advance tax in respect of tax payable u/s.115JB, it was liable to pay interest u/s.234B and u/s.234C of the Act. The Supreme Court, therefore, concluded that interest u/s.234B and u/s.234C would be payable on failure to pay advance tax in respect of tax payable u/s.115JA/115JB. The Supreme Court further held that for the aforestated reasons, Circular No. 13 of 2001, dated November 9, 2001 issued by the Central Board of Direct Taxes, reported in (2001) 252 ITR (St.) 50, had no application. Moreover, in any event, para 2 of that Circular itself indicated that a large number of companies liable to be taxed under the MAT provisions of section 115JB were not making advance tax payments. In the said Circular, it had been clarified that section 115JB was a self-contained code and thus, all companies were liable for payment of advance tax u/s.115JB, and consequently the provisions of section 234B and section 234C, imposing interest on default in payment of advance tax, were also applicable."
In view of the above decision of the Hon'ble Supreme Court, we do not find any error in the order of the Ld. CIT(A) in directing the Assessing Officer to charge interest u/s 234C of the Act while computing the income of the assessee u/s 115JB of the Act. Hence, this ground of appeal is dismissed.
55. Ground no. 6 of the appeal of assessee is directed against disallowance of interest of Rs 21,70,47,967/- claimed as Revenue expenditure u/s 36(1)(iii).
56. The brief facts of the case are that Assessing Officer observed that in the notes to the return of income in note no. 10, assessee company submitted that it had capitalized interest expense of Rs 21,70,967/- in its books of account. This expense, though allowable, has not been claimed in the return of income. The Assessing Officer observed that the assessee during the course of hearing submitted that the expenses, though not claimed, were in principle allowable u/s 36(1)(iii). The Assessing Officer observed that during the course of assessment proceedings, the assessee company failed to furnish in details with regard to depreciation claimed on this capitalized expenses in Assessment Year 2001-02 and subsequent Assessment Year and therefore, ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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disallowed the claim of the assessee. The Assessing Officer also observed that on facts as well as law, the contention of the assessee is not acceptable because of the deliberations on the issue of allowability of expense u/s 36(1)(iii) in the order u/s 143(3) for Assessment Year 2000-01 as well as discussion on this issue in the orders u/s 143(3) read with section 147 for Assessment Year 1998-99 and 1999-2000. The Ld. AR relied on the decision in the case of the assessee itself passed in Tax Appeal No. 811 of 2013 wherein vide order dated 27.01.2014, the Hon'ble Gujarat High Court dismissed appeal of the Revenue by observing as under:
"The sole surviving question No. 13, pertains to disallowance of soda ash project interest expenses of Rs.3.33 crores (rounded off) and lab project interest of Rs.12.27 crores (rounded off). The Assessing Officer questioned the assessee on these expenses and deleted the same on two grounds, firstly that the interest was paid by way pre-operative expenditure and secondly the assessee had capitalized such expenditure.
The assessee carried the matter in appeal. CIT (Appeals) relying on a decision of this Court in the case of CIT v. Alembic Glass Industries Ltd., 103 ITR 715 (Guj) held in favour of the assessee. In addition to coming to the conclusion that there was commonality of business it was further held that the expenditure was in connection with the expansion of the existing business. On such ground, the expenditure was held allowable.
It is this order of the CIT (Appeal) which the Tribunal upheld in the impugned judgment.
Having heard the learned counsel for the parties and having perused the documents on record, we notice that CIT (Appeals) and the Tribunal concurrently came to the conclusion that there was interconnection, inter-lacing and inter-dependence of the management, financial and administrative control of various units of Nirma Limited. It was on this ground, the Tribunal held that the business in question is continuation of the existing business and not a new business. In this context, the decision relied on by the authorities below of this Court in the case of Alembic Glass Industries Ltd. (supra) laid down tests for ascertaining whether a business was part of existing business or the assessee was starting a new unit. It was held that merely because the unit was coming to a distant point by itself would not mean that it was a new business.
If the facts as recorded by the CIT (Appeals) and the Tribunal can be said to have achieved finality, it would emerge that the assessee through its existing administrative mechanism started a new facility for production of soda ash and had also set up facility for production of a material called 'lab' for its captive ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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consumption for the purpose of its existing manufacturing business. It is no doubt that the assessee is engaged in the business of manufacture of soap and the soda ash and 'lab' so produced is used by way of captive consumption. When such facts viewed in light of the findings of the CIT (Appeals) and the Tribunal, we have no reason to interfere with the ultimate conclusion. Had it been a case of entirely a new project undertaken by the assessee as canvassed by the counsel for the Revenue, a serious question of claiming pre-operative expenditure of interest by way of revenue expenditure would arise. However, when the authorities below found that it was an expansion of the existing business, applying the tests laid down by this Court in the case of Alembic Glass Industries Ltd. (supra). in view of the decision of the Supreme Court in the case of Deputy CIT v. Core Health Care Ltd, 298 ITR 194 (SC), the fact whether the borrowing is capital or revenue expenditure would be of no consequence.
In the result, Tax Appeal is dismissed."
Respectfully following the above decision of the Hon'ble Gujarat High Court, we set aside the order of the lower authorities and allow this ground of the appeal of the assessee.
57. Ground no. 7 of the appeal of the assessee is directed against the order of the Ld. CIT(A) in restoring back the matter to the file of Assessing Officer regarding allowability of prior paid expenses of Rs 69,00,893/-.
58. The Ld. AR of the assessee submitted that the Ld. CIT(A) directed the Assessing Officer to allow deduction according to mercantile system of accounting. The Assessing Officer passed order dated 06.01.2005 allowing the expense but in the computation part, effect was not given.
59. As this ground of appeal does not arise out of the order of the Ld. CIT(A) in appeal before us, therefore the same is dismissed.
60. Ground no. 8 of the appeal of assessee is directed against the order of Ld. CIT(A) in interfering on the ground relating to initiation of penalty proceedings u/s 271(i)(c) of the Act.
ITA Nos. 541 & 558 of 2005 Nirma Ltd. Vs ACIT, Central Cir.-1(1), Ahd For A.Y. 2001-02
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61. At the time of hearing, the Ld. AR did not press this ground of appeal, hence the same is dismissed for want of prosecution.
62. In the result, the appeal of the Revenue is dismissed and the appeal of the assessee is partly allowed.
Order pronounced in the Court on Wednesday, the 26th February, 2014 at Ahmedabad.
Sd/- Sd/-
(KUL BHARAT) ( N.S. SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 26/02/2014
Ghanshyam Maurya,
Maurya, Sr. P.
P.S.
TRUE COPY
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ(अपील) / The CIT(A)-III, Ahmedabad
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाईल / Guard file.
आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) उप/ आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद / ITAT, Ahmedabad