Jakson And Co., New Delhi vs Assessee

Jakson and Co. vs. ACIT 47, G.B. Road Central Circle-25 New Delhi 110 006. New Delhi. (PAN AAAFJ544IN)

(Appellant) (Respondent)

Appellant by : Shri Niren Gupta,CA Respondent by :Ms. Sulekha Verma, CIT(DR) Date of hearing :11.5.2015 Date of pronouncement : 02.06.2015 ORDER

PER G.C. GUPTA, VICE PRESIDENT

These two appeals filed by the assessee for the assessment years 2006-07 and

2007-08 are directed against the order of the CIT(A). These are being disposed of

with this consolidated order. Identical ground of appeal No. 1 in both these appeals

of the assessee is as under :-

" That the CIT(A) has on wrong interpretation of Sec. 153 A has erred in confirming the additions made by AO which are not based on any material found in the search or concealed income. That the addition not being sustainable in law be deleted."

2. Ld. Counsel for the assessee has not pressed this ground of the appeal of the

assessee which is accordingly dismissed.

3. Identical ground of appeal No. 2 of the assessee for both the years reads as

under:-

ITA Nos 6182,6183/Del/2013

2. "That the CIT(A) has erred in confirming the disallowance u/s 80IB in respect of scrap sales calculated at Rs. 1231865, for the assessment year 2006-07 and Rs. 1840749/- for the assessment year 2007-08 contrary to provisions of law.

That it may be held that sale of scrap generated in the manufacturing process is profit and gains derived from the industrial undertaking entitled to deduction u/s 80IB."

4. Ld. Counsel for the assessee submitted that identical issue of the disallowance

u/s 80IB of the Act in respect of scrap sales is involved in both the relevant

assessment years in appeal before the Tribunal. He submitted that the issue is

covered in favour of the assessee with the decision of the Delhi Tribunal in

assessee's own case for the year 2008-09 and 2009-10 in ITA No. 1238/Del/2013

and ITA No. 1239/Del/2013 dated 20.12.2013 wherein the issue of deduction u/s

80IB of the Act on scrap sales was allowed to the assessee. The Delhi Tribunal in

this case of the assessee has followed the decision of Hon'ble Jurisdictional High

Court in CIT- III vs. Sadhu Forging Ltd. 336 ITR 444 (Delhi) wherein held that

manufacturing activity of the type of material being undertaken by the assessee

would also generate scrap in the process of manufacturing . The receipts of sale of

scrap being part and parcel of the activity and being proximate thereto would also

be within the ambit of gains derived from industrial undertaking for the purpose of

computing deduction u/s 80IB.

5. Ld. CIT (DR) has opposed the submissions of the Ld. Counsel for the

assessee. She submitted that the assessee is in the business of manufacturing of DG

sets and the scrap is not a by-product of the process. She submitted that the

2 ITA Nos 6182,6183/Del/2013

decision of Hon'ble Jurisdictional High Court in the case of CIT-III vs. Sadhu Forging

Ltd. (supra) was distinguishable on facts and in that case the assessee was in the

business of forging resulting in generation of scrap to a large extent and in the case

of the assesee the scrap could not be said to be a by product of the process. She

submitted that the CIT(A) has rightly distinguished the decision of Hon'ble

Jurisdictional High Court in the case of CIT-III vs. Sadhu Forgings Ltd. (supra) and

observed that in that case the items manufactured was iron/steel forging whereas

in the case of assessee the item manufactured is DG sets and the scrap is generated

while cutting, resizing and fabricating the base frame, control panel and stand, fuel

tank, silencer etc. The CIT (A) has held that the two cases therefore were not

identical on facts and the decision of the Hon'ble Jurisdictional High Court was not

strictly applicable to the case of the appellant.

6. Ld. Counsel for the assessee in his rejoinder submitted that scrap was very

much generated in the manufacturing process itself and therefore the ratio of the

decision of Hon'ble Delhi High Court in the case of CIT-III vs.. Sadhu Forging Ltd.

(supra) was applicable to the facts of the case of the assessee. He submitted that in

decision of Hon'ble Punjab & Haryana High Court in the case of R.N. Gupta and Co.

Ltd. vs. CIT (2013) 351 ITR 369 (P & H) issue was decided in favour of the

assessee. He submitted that the decision of Hon'ble Supreme Court in the case of

Commissioner of Income Tax-VII, New Delhi vs. Punjab Stainless Steel Industries

2014 (5) TMI 238 covers the case of the assessee in its favour wherein held that

sale proceeds from the sale of scrap would not be included in the "total turnover"

u/s 80HHC of the Act.

3 ITA Nos 6182,6183/Del/2013

7. We have considered the rival submissions and have perused the order of

CIT(A) and AO. We find that the only issue in this ground of appeal of the assessee

is regarding that whether the assessee was entitled to deduction u/s 80IB in

respect of scrap sale for the relevant assessment years . The issue is covered in

favour of the assessee with the decision of Hon'ble Jurisdictional High Court in the

case of CIT-III vs. Sadhu Forging Ltd. (supra) wherein held that since

manufacturing activity of type of material being undertaken by the assessee would

also generate scrap in the process of manufacturing, receipts of sale of scrap being

part and parcel of activity and being proximate thereto would also be within ambit of

gains derived from industrial undertaking for purpose of computing deduction u/s

80IB of the Act. We find that the assessee is in the business of

manufacturing/assembling of DG sets and it would necessarily result in the

generation of scrap in the process undertaken by it for the purpose of making the

DG sets. The manufacturing process would generate scrap and the sale thereof

being part and parcel of activity and being proximate thereto would also be within

the ambit of gains eligible for deduction u/s 80IB of the Act. The Delhi Tribunal in

assessee's own case for the subsequent assessment years 2008-09 and 2009-10 has

allowed the deduction u/s 80IB to the assessee in identical facts vide its order dated

20 December , 2013 (supra) and followed the decision of the Hon'ble Jurisdictional

High Court in the case of CIT-III vs. Sadhu Forging Ltd.(supra). The CIT(A) has

wrongly distinguished the binding decision of the Hon'ble Jurisdictional High Court in

CIT -III vs. Sadhu Forging Ltd.(supra). The two cases could not be identical on facts

and it is a ratio of the decision by a superior court that has to be applied in the facts

of a case. The scraps were generated during the manufacturing / assembling

4 ITA Nos 6182,6183/Del/2013

process of making DG sets and the scrap was a necessary product and therefore we

hold that the decision of Hon'ble Jurisdictional High Court in the case of CIT-III vs.

Sadhu Forging Ltd.(supra) applies to the facts of the case of the assessee and

respectfully following the same we decide the issue in favour of the assessee and

the ground of appeal No. 2 of the assessee in both the assessment years before us

are allowed.

8. In the result both the appeals of the assessee are partly allowed.

Order pronounced in the Open Court on 02.06.2015.

Sd/- Sd/-

(T.S. KAPOOR) (G.C. GUPTA) ACCOUNTANT MEMBER VICE PRESIDENT Dated: 02.06.2015 *veena

Copy of the Order forwarded to:

1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard File By Order Dy. Registrar

5 ITA Nos 6182,6183/Del/2013

Sl. Description Date No.

1. Date of dictation by the Author 11.5.2015

2. Draft placed before the Dictating Member 12.5.2015

3. Draft placed before the Second Member

4. Draft approved by the Second Member

5. Date of approved order comes to the Sr. PS

6. Date of pronouncement of order

7. Date of file sent to the Bench Clerk

8. Date on which file goes to the Head Clerk

9. Date of dispatch of order

6