Ess Dee Aluminium Ltd.,, Daman vs Assessee

आयकर अपील य अ धकरण, अहमदाबाद यायपीठ ''C'', अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, "C" BENCH ु द , लेखा सद#य एवं कुल भारत, नया यक सव ी ी अ नल चतव ् सदसय ् के सम( । BEFORE S/SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND KUL BHARAT, JUDICIAL MEMBER)

ITA No.2032/Ahd/2011 [Asstt.Year : 2008-2009]

M/s.Ess Dee Aluminum Ltd. बनाम/Vs. ACIT, Vapi Circle Plot No.124-133, Panchal Udyog Nagar Vapi. Bhimpore, Daman 397 210

PAN : AABCE 3113 G ITA No.2327/Ahd/2011 [Asstt.Year : 2008-2009]

ACIT, Vapi Circle बनाम/Vs. M/s.Ess Dee Aluminum Ltd. Vapi. Plot No.124-133, Panchal Udyog Nagar Bhimpore, Daman 397 210

(अपीलाथ+ / Appellant) (,-यथ+ / Respondent)

नधा रती क ओर से/ : Shri Rakesh Joshi Assessee by राज व क ओर से/ : Revenue by Shri Shelly Jindal, CIT-DR सन ु वाई क तार ख/ : Date of Hearing 11th May, 2015

घोषणा क तार ख/ : Date of Pronouncement 15-5-2015

आदे श / O R D E R

PER KUL BHARAT, JUDICIAL MEMBER : These are two cross appeals

by the assessee and the Revenue, and are directed against the order of the Commissioner of Income-tax (Appeals), Valsad dated 30.6.2011 pertaining to the Asstt.Year 2008-09. Both these appeals were taken up together for hearing, and being disposed of by way of this consolidated order for the sake of convenience.

ITA No.2032/Ahd/2011 - 2 2. First take up the assessee's appeal in ITA No.2032/Ahd/2011. The assessee has raised the following grounds of appeal.

"1. On the facts and in the circumstances of the case, the ld.CIT(A) erred in holding that the following income are not income derived from manufacturing activity and hence not eligible for deduction under section 80IB in respect of Daman unit as well as Goa unit:

Other Income Daman Unit Goa Unit (Rs.) (Rs.) 1. FDR Interest 1,62,09,403 51,49,279 2. Interest on staff loan 30,456 8,637 Total 1,62,39,859 51,57,916

3. Briefly stated facts of the case are that originally the assessee filed return of income on 29.9.2008 declaring total income of Rs.7,93,74,150/- and book profit of Rs.68,60,76,279/- under section 115JB, and the assessee revised its return declaring total income of Rs.1,31,88,670/- and the book profit of Rs.68,60,76,279/-. This return was also again revised on 26.10.2009 declaring total income of Rs.3,56,10,220/- and book profit at Rs.68,60,76,279/-. The case was, thereafter, picked up for scrutiny assessment, and the assessment under section 143(3) of the Act was framed by the order dated 8.10.2010. While framing the assessment, the AO made disallowance of deduction under section 80IB of the Act in respect of Daman undertaking. The AO also disallowed the claim for deduction in respect of foreign exchange difference. The AO made addition of Rs.2,11,45,659/- on account of under valuation of scrap sales. Against this, the assessee preferred appeal before the learned CIT(A), who, after considering the submissions of the assessee, partly allowed the appeal of the assessee. The ld. CIT(A) allowed the claim of deduction under section 80IB following the appellate orders pertaining to the assessment years 2005-06, 2006-07 and 2007-08. However, the learned CIT(A) confirmed the action of the AO to exclude the FDR interest from the eligible profit for claiming deduction under section 80IB. The learned CIT(A) also confirmed the -2- ITA No.2032/Ahd/2011 - 2

exclusion of interest on staff loan for claiming deduction under section 80IB of the Act. However, in respect of difference in foreign exchange, the ld.CIT(A) directed the AO to include the difference of foreign exchange for computation of deduction in the light of Bombay High Court in the case of CIT Vs. Rachna Udyog (Bom), ITA No.2394 of 2009 dated 13.1.2010.

4. Against this decision of the ld.CIT(A) for excluding the FDR interest and interest on staff loan, the assessee has preferred the present appeal before the Tribunal.

5. In respect of claim of deduction for interest on staff loan, the ld. Counsel for the assessee submitted that he did not wish to press this ground. Accordingly, this part of the ground is dismissed as not pressed.

6. Only effective ground raised in appeal by the assessee is against the confirmation of the action of the AO by the ld.CIT(A) for excluding the FDR interest amounting to Rs.1,62,09,403/- in respect of Daman Unit and Rs.51,49,279/- in respect of Goa Unit, as not eligible for deduction under section 80IB of the Act.

7. The learned counsel for the assessee submitted that the FDRs are kept for obtaining letter of credit and to offer bank guarantee, and the interest income therefrom is having direct nexus to the business activities of the assessee, and hence entitled for deduction under section 80IB of the Act. He further submitted that the issue was also raised in the previous assessment years 2006- 07 and 2007-08. The learned counsel for the assessee submitted that additional evidences have been filed to prove nexus of borrowed funds with FDRs created. The ld.counsel submitted that the netting of interest ought to have been allowed.

8. The ld. CIT-DR submitted that similar issue in the Asstt.Years 2006-07 and 2007-08 has been decided in favour of the Revenue by the Tribunal in ITA No.1751 and 1752/Ahd/2010 and Anr., dated 8.11.2013, and therefore, the -3- ITA No.2032/Ahd/2011 - 2

present appeal of the assessee, for the Asstt.Year 2008-09 is also liable to be dismissed.

9. We have heard submissions of both the parties and perused the material available on record. The assessee has filed certain papers to prove nexus of borrowed funds and FDR interest income. Since these documents were not filed before the AO and the CIT(A), we deem it proper to admit these documents since it goes to the root of the issue, and therefore, this issue is restored to the file of the AO to decide the same in accordance with law, after considering the additional evidences filed by the assessee. Thus, this ground of appeal of the assessee is allowed for statistical purpose.

10. Before parting, it is to point out that we are conscious of the fact that in the appeal of the assessee in the Asstt.Year 2006-07 and 2007-08, similar issue was raised, and the Tribunal vide order in ITA No.1751 and 1752/Ahd/2010 and Anr., dated 8.11.2013 decided the issue in favour of the Revenue, as in that case, the assessee had not placed evidences to prove its claim, as being done in the present case. Therefore, to decide the quantum of interest to be excluded, the evidences so filed, needs verification at the end of the Assessing Officer.

11. Now we take up the Revenue's appeal.

12. The Revenue has raised the following grounds of appeal:

"1) On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the assessee is eligible for deduction U/s.80IB amounting to Rs.56,46,56,078/-, without considering the fact that assessee failed to commence the production before the cut-off date for commencement of production i.e. on or before 31.03.2004, as provided in section 80IB(4) of the I.T. Act, 1961.

2) On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the assessee company is the expansion of existing old business carried out in the name of firm viz. M/s. Ess Dee Aluminium, without considering the fact that assessee company is new

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undertaking established with the investment of crores of rupees and registered with the various government departments as new unit?

3) On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the exchange rate difference of Rs.2,11,18,536/- is eligible for deduction U/s.80IB of the I.T. Act, 1961.

4) On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the sundry balance written back of Rs.1,19.678/- is eligible for deduction U/s.80IB of the I.T. Act, 1961.

5) On the fact and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of under valuation of scrap sale to the tune of Rs.2,11,45,659/-.

6) It is, therefore, prayed that the order of the learned CIT(A) be set aside and that the order of the AO be restored.

7) The appellant craves leave to add, alter or amend any grounds of appeal."

13. The ground nos.1 and 2 of the Revenue are against the order of the CIT(A) in holding that the assessee is eligible for deduction under section 80IB amounting to Rs.56,46,56,78/-.

14. The learned DR submitted that the ld.CIT(A) was not justified in deleting the disallowance of deduction under section 80IB, and he placed reliance on the assessment order. On the contrary, the learned counsel for the assessee pointed out that the learned CIT(A) has decided the issue following the decision in the assessment years 2005-06, 2006-07 and 2007-08. He submitted that the Revenue had filed appeal against the deletion of disallowance of deduction under section 80IB, and the Co-ordinate Bench of this Tribunal in ITA No.2014/Ahd/2010 and Others for the Asstt.Year 2005-06, 2006-07 and 2007- 2008 had decided the issue in favour of the assessee, and the grounds raised by the Revenue was dismissed.

-5- ITA No.2032/Ahd/2011 - 2 15. We have considered rival submissions and perused the material available on record. We find that the ld.CIT(A) has decided the issue following earlier year's order by observing as under:

"For Assessment years 2005-06, 2006-07 and 2007-08, this issue was decided in favour of the appellant vide appellate orders in Appeal No. (i) CIT(A)/VLS/118/09-10 dated 29.03.2010, (ii) CIT(A)/VLS/340/09-10 dated 30.03.21010 and (iii) CIT(A)/VLS/2is/09-iO dated 30.03.2010 respectively by the GIT(A), Valsad. The facts and circumstances of this issue being same, I am inclined to grant relief in this ground. The Assessing Officer is directed to allow deduction u/s.80IB to the appellant on profit derived from Daman Unit. Accordingly, this ground of appeal is Allowed."

16. The order of the ld.CIT(A) in the AssttYear 2005-06 was carried to the Tribunal, and the Tribunal has decided the issue in favour of the assessee by observing as under:

"9. We have heard rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the deduction claimed under section 80IB was denied by the AO on the ground that the assessee commenced production after 31.3.2004. The claim of the assessee is that it commenced production on 3.3.2004 was mainly not accepted by the AO on the ground that the premises which was claimed to have been taken by the assessee on rent for its manufacturing activities was found by the AO as not correct on the basis of the statement of Shri Debashish Chakravorty, who was an employee of Shri Khemchand Dhingra. On appeal, the learned CIT(A) found that the statement of Shri Debashish Chakravorty is not admissible evidence against the assessee, as the assessee requested for examining of Shri Khemchand Dhingra which was not allowed by the AO. For this, the learned CIT(A) placed reliance on the decision of Hon'ble Supreme Court in the case of Kishanchand Chellaram Vs. CIT, 125 ITR 713. Further, the learned CIT(A) found that Shri Khemchand Dhingra who was the owner of the premises and who gave the premises to the assessee, as per the claim of the assessee, was not examined by the AO. The claim of the assessee was supported by the MOU signed by the owner of the premises. The CIT(A) after detailed consideration of all the different aspects of the facts available on record found the claim of the assessee that the production in the industrial unit under consideration was commenced on 3.3.2004, and consequently allowed deduction under section 80IB of the Act to the assessee.

-6- ITA No.2032/Ahd/2011 - 2 10. We find that no specific error in any of the findings of the learned CIT(A) could be pointed out by the Revenue before us. In the absence of any specific error being pointed out, we do not find any infirmity in the order of the learned CIT(A), which was arrived at after consideration of the entire facts in details, and therefore, we do not find any good reason to interfere with the order of the learned CIT(A), which is confirmed, and thus common grounds raised in the appeals of the Revenue for all the years under consideration are dismissed."

17. Since the deduction has been allowed in the first year of operation i.e. in the Asstt.Year 2005-06, therefore, respectfully following the decision of the Co- ordinate Bench of the Tribunal cited supra, more so, when no material is placed on record by the Revenue suggesting that the order of the Tribunal is set aside or reversed by Hon'ble High Court or Hon'ble Apex Court, we do not find any infirmity in the order of the CIT(A), the same is hereby confirmed and the ground nos.1 and 2 of the Revenue are rejected.

18. The ground no.3 of the Revenue's appeal is against the findings of the ld. CIT(A) that the assessee is eilgible for exchange rate difference of Rs.2,11,18,536/-.

19. The learned CIT-DR submitted that the ld.CIT(A) is not justified in deleting the disallowance. He submitted that the ld.CIT(A) ought to have confirmed the order of the AO. The learned DR submitted that the ld.CIT(A) failed to take note of fact that in the case of Liberty India Vs. CIT, 317 ITR 218 (SC), the Hon'ble Supreme Court held that duty draw-back is not profit derived from the eligible business under section 80IB, but they belong to the category of ancillary profits of such undertaking.

20. On the contrary, the learned counsel for the assessee submitted that judgment of the Hon'ble Supreme Court was considered by the Hon'ble Bombay High Court in the case of CIT Vs. M/s.Rachna Udyog (Bom), and the learned CIT(A) has rightly decided the issue by restoring to the file of the AO,

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by directing the AO to allow the claim of the assessee in the light of Hon'ble Bombay High Court decision cited supra.

21. We have considered rival submissions and perused the material available on record. We find that the ld.CIT(A) has decided this issue in para 6.3(c) as under:

"(c) Difference on account of exchange rate fluctuation is liable to be allowed u/s.80IB. The exchange rate fluctuation arises out of and is directly related to the sale transaction involving the export of goods of the industrial undertaking. Respectfully following the decision of the Hon'be Bombay High Court I the case of CIT Vs. Rachna Udyog (Bom) ITA No.2394 of 2009 dated 13.01.2010 I direct the Assessing Officer to include the difference in foreign exchange for computation of deduction u/s.80IB of the Act."

22. We find merit in the contention of the learned counsel for the assessee that, as the Hon'ble Bombay High Court has considered the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Liberty India (supra), therefore, we do not find any reason to interfere with the order of the CIT(A) on this issue, and accordingly, the same is confirmed, and the ground no.3 of appeal of the Revenue is dismissed.

23. The ground no.4 is against the deletion of addition made on account of disallowance of deduction on the sundry balance written back of Rs.1,19,678/-.

24. The ld. DR submitted that ld.CIT(A) is not justified in deleting the disallowance. He supported the order of the AO. On the contrary, the learned counsel for the assessee supported the order of the CIT(A).

25. We have considered rival submissions and perused the material available on record. We find that the CIT(A) deleted the disallowance by observing in para 6.3(d) as under:

"(d) Prior period income/sundry balance written back were allowed as expenditure and profit was reduced and deduction u/s.80IB was allowed

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less in the earlier years and hence it is eligible for deduction u/s.80IB.

Accordingly, I hold that the sundry balances written back/prior period income shall not be reduced from the profit eligible for deduction u/s.80IB of the Act. Accordingly, this ground of appeal is allowed."

26. There is no dispute that the amount in question was treated as expenditure related to the manufacturing activity. Therefore, we do not find any good reason to interfere with the order of the CIT(A) on this issue, which is hereby confirmed and the ground no.4 raised by the Revenue is rejected.

27. The ground no.5 of the appeal of the Revenue is against deletion of addition of under valuation of scrap sale to the tune of rs.2,11,45,659/-.

28. The learned CIT-DR submitted that the AO made addition on the basis of show cause notice issued by the Excise Department, and the evidence was collected. He submitted that the ld.CIT(A) was not justified in deleting the addition. The learned DR placed on the reliance on the decision of the Co- ordinate Bench rendered in the case of ACIT Vs. Santro Tiles Ltd., in ITA Nos.1277 to 1280/Ahd/2012 order dated 23-1-2015. On the contrary, the learned counsel for the assessee placed reliance on the order of the ld.CIT(A) and submitted that the AO has made addition merely on the basis of the show cause notice issued. The AO has not collected any evidence to make the impugned addition.

29. We have considered rival submissions and perused the material available on record. We find that the Co-ordinate Bench of the Tribunal in the case of ACIT Vs. Santro Tiles Ltd. (supra) while considering the similar issue, set aside the issue back to the file of the CIT(A) with direction to decide the same as per fact and law in the light of final outcome in the excise proceedings. The relevant portion of the above order of the Tribunal is as under :

".....

-9- ITA No.2032/Ahd/2011 - 2 From the above, CIT(A) observed that assessee has resorted to large scale suppression of sale though various modus operandi. This suppression was also accepted by engaged parties. Assessing Officer accepted the contention that the quantum of suppression of sales should be based on ex-factory rate and has accordingly modified the quantum, determined by DGCEI, on the basis of MRP. The stand of assessee has been that it was at best provisional since the issues raised by Directorate General of Central Excise Intelligence (herein after referred as 'DGCEI') was not finally adjudicated. As such, figures adopted by Assessing Officer also be subjected to consequential modification. The DGCEI had observed that raw materials were purchased without bills or at reduced rates and freight and transport bills were obtained at a lower rate. In this background, learned Authorized Representative submitted that addition on account of suppression of sales has origin in investigation conducted by Directorate General of Central Excise Intelligence, Ahmedabad Zonal Unit has revealed that M/s. Santro Tiles Limited, Himatnagar, manufacturing of ceramics floor tiles were undervaluing their tiles.

They were declaring only 70% of actual MRP in the invoice and collecting the differential amounts in cash. Estimated duty evasion was to the tune of Rs.75 lacs. Case was investigated from Income Tax point of view by the ADIT(Inv)-II(2), Ahmedabad and total concealment to the tune of Rs.43,88,57,612/- was worked out on the basis of Annexures D-1, D-1, D-3 and D-4 to the report by the DGCEI, Ahmedabad in four assessment years. Statement recorded by DGCEI, Ahmedabad, dated 06.09.2008 Shri Prakashbhai Dahyabhai Patel, Director of M/s. Santro Tiles Limited has stated that due to market compulsion and general trade practice, they had been suppressing MRP and paying less central Excise Duty. He further stated that they have revised their MRPs of all the grades of ceramics floor tiles with effect from 24.02.2008 and onwards. From the above facts as mentioned in show cause notice issue by DGCEI dated 04.07.2009 which has been duly served upon assessee, it was found clear in the Excise proceeding that Santro Tiles Limited was suppressing MRP continues from 01.06.2004 to 31.03.2008 spreading over four financial years i.e. 2004-05 to 2007-08.

Under these circumstances, it was found in this case as well that by not declaring such amount of unaccounted sale price which was collected by company in cash from various dealers/distributors admitted by the Director as well company has not shown full amount of sales in regular books of account. The sale price worth Rs.7,94,25,558/- in A.Y. 2005-06, Rs.11,04,17,079/- in A.Y. 2006-07, Rs.10,21,40,223 in A.Y. 2007-08 have been under stated in trading account. This has resulted into escaping of income to the extent of Rs.7,94,25,558/-, Rs.11,04,17,079/-, Rs.10,21,40,223/- & Rs.14,68,74,752/- for A.Y. 2005-06, 06-07, 07-08 & 08-09 respectively. On the basis of material available on record Revenue authorities were of the opinion and have reason to believe that income -10- ITA No.2032/Ahd/2011 - 2

chargeable to tax of more than Rs.1 lac has escaped assessment for the year under consideration due to failure of assessee to disclose fully and truly all materials facts necessary fro assessment. Therefore, proceedings were initiated u/s.148 and consequential additions were made. In sum and substance, the stand of learned Authorized Representative is that proceeding which initiated at the strength of investigation conducted by DGCEI, Ahmedabad are basis for addition in income tax proceeding as well. It was submitted that proceeding with regards to evasion of exercise was pending before concern Tribunal and which will have bearing on the issue at hand. So, in the interest of justice, matter should be restored to CIT(A) with direction to decide the same as per fact and law in light of final outcome in the Excise proceeding as discussed above. Finding force in the contention of assessee, we set aside the order of CIT(A) and restore the matter to him with direction to decide the same as per fact and law including final outcome in Excise case, which was initiated at the strength on investigation by DGCEI, Ahmadabad and has bearing on the issue of additions in income tax proceeding as discussed above. Since we are restoring the matter to CIT(A) with preliminary issue as discussed above, so, we are refraining to comment on merit of issue at hand."

30. In the instant case also, Excise Department has not adjudicated the case. Therefore, following the order of the Co-ordinate Bench of Tribunal cited supra, we deem it proper to restore this issue to the file of the AO with direction to decide the issue afresh, after the adjudication order is passed by the Central Excise department, thus, this ground of the Revenue is allowed for statistical purpose.

31. The ground no.5 and 6 are general in nature, and hence, no separate adjudication is required by us.

32. In the result, both the appeals of the assessee and the Revenue are partly allowed for statistical purpose.

Order pronounced in Open Court on the date mentioned hereinabove.

Sd/- Sd/- (अ नल चतव ु द / ANIL CHATURVEDI) (कुल भारत/KUL BHARAT) लेखा सद#य /ACCOUNTANT MEMBER नया यक ् सदसय/JUDICIAL ् MEMBER

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