Income Tax Appellate Tribunal - Mumbai
Grauer & Meil (India) Ltd, Mumbai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES, 'G', MUMBAI
BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND
SHRI VIJAY PAL RAO, JUDICIAL MEMBER
ITA No. 782/Mum/2010
(Assessment Year: 2006-07)
Grauer and Meil (India) Ltd
Growal House, Akruli road
Kandivali(E),
Mumbai-400201
PAN: AAACG3741K ......Appellant
Vs
Addl. CIT Rg(9)(1)
Aayakar Bhavan
M K Road-
Mumbai-400020 ... Respondent
Assessee by : Shri Nitesh Joshi
Revenue by : Shri Manoj Mishra
O R D E R
PER VIJAY PAL RAO,JM This appeal by the assessee is directed against the order dated 09.11.2009 of the learned CIT(A)-19, Mumbai for the assessment year 2006-07.
2. Only ground raised by the assessee in this appeal is as under :
"1. the ld. CIT(A) erred in upholding the order of the assessing officer recomputing the deduction under section 80IB of the Act by excluding following receipts from the profits derived by the eligible undertakings of the appellant company Particular of receipts Dadra undertaking (Rs).
Barotiwala undertaking(Rs) Total (Rs) Plating and services charges 6,400/-
33,615 40,015 Scrap sales 11,90,405 4,40,822 16,31,227 Insurance claim 25,344 0/-
25,344 Interest from customers for delayed payments 10,06,470 13,95,882 24,02,352 Total 22,28,619 18,70,319 40,98,938
3. The assessee is having two units one at Dadra and another at Barotiwala. Both are eligible for deduction u/s 80IB. During the assessment proceeding, the AO noticed that the assessee has included the following receipt for the purpose of claiming deduction under section 80IB:
Head of income/units Dadra undertaking (Rs).
Barotiwala undertaking(Rs Plating and services charges 6,400/-
33,615 Miscellaneous receipts 12,94,926 6,16,855 Interest received 10,06,470 13,95,882 Total 23,07,796 20,46,352
4. By following the decisions of the Hon. Supreme Court in CIT V/s Stearling Foods ltd 237 ITR 579 (SC), Pandian Chemicals Ltd. Vs. CIT [(2003) 262 ITR 278 (SC)] and Indian Leather Corporation Ltd V/s CIT 222 ITR 552(SC), the AO has held that the above receipt are not derived from industrial undertaking. Since these receipts did not have direct nexus with the profit and gain and the undertaking, accordingly, the AO excluded thee receipts while computing the deduction u/s 80IB.
5. On appeal the CIT(A) has confirmed the exclusion made by the AO.
6. Before us, the learned AR of the assessee has submitted that the business of the assessee is manufacturing Electro Plate Chemicals and equipment. The plating and service charges are regarding the job wok and services provided by the assessee by using infrastructure of the undertaking therefore the said charges are directly related to the working of the undertaking and part and parcel of the profit derived by the industrial undertaking. As regards the scrap sale , the ld. AR has submitted that the scrap has been generated in the process of manufacturing, therefore the scrap is also a part and parcel of the industrial undertaking and eligible for deduction. As regards insurance claim is concerned, the ld. AR has submitted that though it is not recorded by any authorities as for what purposes the insurance claim was received by the assessee, however, as per the instructions received by him this insurance claim was received for damage of sock- in- trade. Therefore, the same is eligible for deduction u/s 80IB. He has relied upon the decision of the jurisdictional High Court in the case of CIT V/s M/s Pfizer Ltd In Income Tax Appeal (Lodg) No.128 of 2009 wherein the honorable High Court has held that the insurance claim on account of stock-in-trade does not constitutes independent income or receipt of nature similarly brokerages commission, interest rent or charges.
7. As regards the issue of interest from customers for delayed payment, the learned AR has submitted that when the interest is only due to delay in making the payment by the customers then the same has a direct nexus with the sale proceeds and eligible for deduction u/s 80IB. He has pointed out that the interest part has a direct nexus with the sale proceeds of the assessee cannot be treated separate or independent income then the profit derived from industrial undertaking. The ld. AR has also pointed out that the issue has already been considered and decided by this Tribunal in assessee's own case for the assessment years 2003-04, 2003-04, 2004-05 and 2005-06 vide orders passed in 1353/Mum/2007, 6121/Mum/2008 dated 31.7.2009 and 15.09.2009. The ld. AR also relied on the decision of the Delhi High Court in the case of CIT V/s Advance Detergents Ltd reported in (2010) 228 CTR (Del) 356 and the decision of the hon. Gujarat HIGH Court in the case of Nirma Industries ltd V/s DCIT reported in 283 ITR 402 (Guj).
8.. On the other hand, the learned DR has submitted that since the said receipt did not have direct nexus to the profit, of the undertaking. Therefore, these are only incidental to the business carried out by the assessee and hence not eligible for deduction u/s 80IB. He has relied upon the decision of the Honourable Supreme Court in the case of Liberty India V/s CIT reported in 317 ITR 218(SC) as well as the orders of the lower authorities.
9.. We have considered the rival contentions and relevant record. Since the plating and service charges were the income earned by the assessee for doing the job work and service charges by utilizing the plant and machinery and infrastructure of the undertaking itself, therefore, the same is part of the profit and gain derived from the business undertaking the same is illegible for deduction u/s 80IB. The provisions of section 80IB requires that the profits and gains should be derived from any business of the industrial and not from the undertaking. This Tribunal has been decided the issue in assessee's own case for the assessment years 2003-04 in ITA No.1353/MUM/2007 vide order dated 31.7.2009 and held in paragraph 18 as under :
"18. We have considered the rival submissions and perused the record of the case. As far as the decision in the case of Pandian Chemicals (supra) is concerned, this has been rendered u/s 80HH where the term used is "derived from industrial undertaking" whereas in section 80IB the term used is "derived from any business" which is much wider in connotation and would cover the income derived from business. The Hon'ble Delhi High Court in the case of Eltek SGS P Ltd (supra) has held that there is a material difference between the language used in sections 80HH and 80IB of the IT Act. While section 80HH requires that the profits and gains should be derived from the industrial undertaking, section 80IB of the Act requires that the profits and gains should be derive ed from any business of the industrial undertaking. In other words, there need not necessarily be a direct nexus between the activity of an industrial undertaking and the profits and gains. An assessee would be entitled to special deduction under section 80 IB in respect of customs duty draw back. There cannot be any dispute that sale of scrap and insurance claim had direct nexus with assessee's business though it may not have direct nexus with industrial undertaking. Therefore, respectfully following the decision in the case of ELTEC SGS P ltd (supra), we dismiss this ground"
10. Further, the Hon. Delhi High Court in the case of CIT V/s Advance Detergents Ltd (supra) have also considered this issue regarding the profit and gain derived from the business of the industrial undertaking after considering the decision of the Hon. Supreme Court in the case of Liberty India V/s CIT (supra). Accordingly, we are of the view that when the income was earned by the assessee by using the industrial undertaking or plant and machinery of the industrial undertaking the same is eligible for deduction.
11. As regards, the scrap sale is concerned this issue is also covered by the order of this Tribunal in assessee's own case (supra) as well for the assessment year 2005-06, wherein this issue was considered in paragraph 10 and 11 in ITA No.6121/Mum/2008. We further note that when the scrap has been generated during the process of manufacturing activities of the industrial undertaking of the assessee then the income from the sale of scrap has direct nexus to the business of undertaking. It is not the case of the revenue that the scrap has not been generated in the process of manufacturing activity of the undertaking. Therefore the same is part and parcel of the profits derived by the business of the undertaking and eligible for deduction u/s 80IB.
12. As regards, the insurance claim, it is not clear from the record whether this claim is for the damage of stock-in-trade or other asset or items. The Hon. Jurisdictional High Court in the case of Pfzer Ltd (supra) has held in para 11 as under :
"11 In the present case, the insurance claim, it must be clarified, related to the stock I trade and it is only an insurance claim of that nature which forms the subject matter of the appeal. Now, it cannot be disputed that if the stock- in-trade of the aseseee were to be sold, the income that was received from the sale of goods would constitute the profits of the business as computed under the head of profits and gains of business or profession. The income emanating from the sale would not be sustainable to a reduction of ninety percent for the simple reason that it would not constitute a receipt of a nature similar to brokerage, commission, interest, rent or charges. A contract of insurance is a contract of indemnity. The insurance claim in essence indemnifies the assessee for the loss of the stock- in- trade. The indemnification that is made to the assessee must stand on the same footing as the income that would have been realized by the assessee on the sale of the stock in trade. In these circumstances, we are clearly of the view that the insurance claim on account of the stock in trade does not constitute an independent income or a receipt of a nature similar to brokerage, commission, interest rent or charges. Hence, such a receipt would not be subject to a deduction of ninety per cent under clause (1) of Explanation (baa).
11A Counsel appearing on behalf of the revenue submitted that the insurance claim has no element of export turnover and that consequently it must sustain a reduction of ninety percent under explanation(baa). Now it is necessary to note that explanation (baa) in terms does not refer to export turnover. Sub-section 91) of section 80HHC contemplates a deduction to the extent of profits derived by the aseseee from the export of goods or merchandise to which the section applies. The basic issue therefore is to determine the extent of profits derived by the assessee from the export of such goods or merchandise, the formula in sub-section (3) of section 80HHC has been provided by parliament, for the purposes of such section (1) to compute the profits derived from the export of goods. Clause (a) of sub-section (3) specified that where the export is of goods or merchandise manufactured or processed by the assessee the profits derived from the export shall be the amount which bears to the profits of business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. In other words, in determining the profits derived from the export of goods or merchandise the proportion of the export turnover to the total turnover of the business is applied to the profits of the business. The profits of the business in turn are defined in explanation (baa) to section 80HHC. Hence, the element of export turnover is a facet which has been taken care of by the legislature in the application of the formula which is referred to in sub-section (3) of section 80HHC. In determining the profits of the business for the purposes of explanation (baa), the incomes which are susceptible to a reduction of ninety percent are those which are specifically prescribed by the legislature. These are inter alia the incomes referred to in clauses (iiia), (iiib) and (iiic) of section 28 and receipts by way of brokerage, commission, interest, rent charges or receipts of a similar nature included in such profits. Therefore, before a receipt is liable to be excluded to the extent of ninety percent, it must be a receipt of a nature similar to brokerage, commission interest, rent or charges. For the reasons which we have already indicated, we have come to the conclusion that the claim on account of insurance for the stock in trade did not constitute a receipt of a similar nature within the meaning of explanation (baa) and was therefore not liable to be reduced to the extent of ninety percent. The first question will therefore not raise any substantial question of law"
13. Accordingly, we are of the view that if the claim is regarding damage of stock-in-trade the same is eligible for deduction u/s 80IB. However, this fact has not been verified and ascertained by the lower authorities. Therefore we remit this issue to the record of the AO for limited purpose to ascertain whether the insurance claim is for damage of stock-in-trade or not and then decide the issue as claimed by the assessee. This issue is allowed for statistical purposes.
14. The interest from customers for delayed payment. This issue has been settled by the Delhi High Court in the case of CIT V/s Advance Detergents Ltd (supra) , the Hon. High Court has decided the issue after considering the decision of the hon. Supreme Court in the case of Liberty India (supra) as well as the decision of the Hon. Gujarat High Court in Nirma Industries reported in 283 ITR 402. Respectfully following the decision of the Hon.Delhi High Court, we decide this issue in favour of the assessee and hold that when the interest was due and received on the delayed payment by the customers against the sale then the same is part and parcel of the profit derived from the business of the industrial undertaking.
15. The decisions relied upon by the revenue are not applicable in the facts and circumstances of the case and the issue in question.
16. In the result the appeal by the assessee is partly allowed for statistical purposes.
Pronounced in the Open Court on 30.09.2010
Sd sd
(P.M.JAGTAP) (VIJAY PAL RAO)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated 30 th Sep 2010
SRL:24910
copy to:
1. Appellant
2. Respondent
3. CIT Concerned
4. CIT(A) concerned
5. DR concerned Bench
BY ORDER
True copy
ASSTT. REGISTRAR, ITAT, MUMBAI
PAGE 11
ITA No. 782/Mum/2010
(Assessment Year: 2006-07)