Revere Pentland Pvt. Ltd, New Delhi vs Department Of Income Tax

DCIT vs. Revere Pentland Pvt. Ltd. Circle 15(1), B-1, F4, C.R. Building, Mohan Co-operative Industrial Area, C.R. Building, I.P. Estate Main Mathura Road, Badarpur New Delhi. New Delhi (PAN AABCR5951P) (Appellant) (Respondent)

Appellant by : Shri B.K. Anand, FCA Respondent by : Shri Vikram Sahay, Sr. DR

ORDER

PER DIVA SINGH, JM

This is an appeal filed by the assessee against the order dated

21.5.2010 of CIT (A) XVIII, New Delhi pertaining to 2006-07 assessment year on

the following grounds :-

1. "That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the amount of Rs. 59,77,538/- on account of financial charges reimbursed towards cost of goods sold are part of the assessable income derived from the industrial undertaking and hence is entitled to benefits of section 80-IC of the I.T. Act.

2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the amount of Rs. 28,66,235/- on account of commission received on consignment sale and Rs.

8,01,754/- as discount received are part of the assessable income derived from the industrial undertaking and hence is entitled to benefits of section 80-IC of the I.T. Act.

2 ITA 4201/Del/2010

3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 3,40,450/- on account of disallowance of loan processing charges being capital in nature by the AO."

2. The relevant facts of the case relatable to the issue under consideration

are that the assessee engaged in the business of manufacturing cum trading of

shoes and apparel returned nil income. The said return was picked up for

scrutiny. The AO vide his order u/s 143(3) observed that the assessee in its

claim of deduction u/s 80IC for its two units at villages Bangran and Bhuppur at

Paonta Sahib, District Sirmour, Himachal Pradesh had included amongst the

various incomes financial charges and commission on consignment basis amount

to Rs. 59,77,538/- and Rs. 28,66,235/- in its claim of deduction u/s 80IC. The AO

held that to the above extent the claim was not allowable as deduction was

allowed only to the extent that the profits and gains were directly generated

from business of manufacturing or production to units in certain special category

States which have begun or begins to manufacture or produce any article or

thing, not being any article or thing specified in 13th schedule. The income so

accrued to the above extent according to the AO could not be said to be directly

connected with the business of manufacture or production. Accordingly the

assessee's claim to the said extent was disallowed. These facts would address

ground 1 and 2 raised by the revenue in the present proceedings. The CIT(A)

considering the facts and the judicial precedent allowed the assessee's claim.

Aggrieved by this the revenue is in appeal before the Tribunal.

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3. Ld. Sr. DR inviting attention to the assessment order and the impugned

order alongwith the paper book filed on behalf of the assessee submitted that

no doubt the CIT (A) has remanded the issue to the AO and in the remand

report which has been placed by the assessee at paper book between pages 10

and 11 the AO mainly repeats what has been said in the assessment order.

However it was his submission that it is not clear from the facts qua ground No.

1 and 2 whether the financial charges and the discounting of bills to the

customers pertains to only the eligible units or the some other non eligible units

also. Similarly the claim of the assessee that these were not appearing as part

of the income for the eligible units the reduction of the said income by the said

amounts which are given has been accepted by the CIT(A). Accordingly it was

his submission that the issue may be remanded so as to bring out the correct

facts.

4. The Ld. AR on the other relying upon the impugned order and inviting

attention to the asstt. order and the paper book placed on record submitted that

the assessee's claim is confined to eligible units only and there is no material on

record on the basis of which the Ld. Sr. DR. is trying to create doubts. The

judicial precedent relied upon on facts it was his submission has not been

assailed. In the circumstances it was his prayer that the request for remand

should not be accepted.

5. We have heard the rival submissions and perused the material available

on record. A perusal of the same shows that the facts on record have not been 4 ITA 4201/Del/2010

disputed and all evidences have already been looked into by the AO wherein no

infirmity on facts has been brought to our notice. It is also seen that the law as

laid down by the Jurisdictional High Court in CIT vs Deluxe Enterprises in ITA

No.-1270/2008 dtd. 03.11.2008 and Nirma Industries Ltd. vs DCIT 283 ITR 402

(Guj.) has been considered. In the light of these decisions we are of the view

that the following finding on facts arrived at by the CIT(A) which stand

unrebutted cannot be faulted with:-

4.4. "I have carefully considered the assessment order, remand report of the AO as well as the written submissions made by the Ld. AR. As regards the first ground, it is argued by the ld. AR that for the two industrial undertakings of the appellant company set up in the hilly region of Himachal Pradesh on which deduction u/s 80IC is being claimed, the appellant has taken both term and working capital loans from banks and financial institutions. The appellant has paid during the relevant year Rs.52,43,626 as interest on working capital loan by way of bill discounting charges. The amount of Rs.59,77,538 shown as income in accounts was in fact a recovery of such interest/charges from its customers for discounting their bills in advance and this being a mode of recovery of price of goods sold from these units, it has a direct nexus to the sales made. Under such circumstances it could not be said that the income was not derived from the industrial undertaking. The ld. A.R. further has placed reliance on judgement of the Hon'ble Delhi High Court in the case of CIT Delhi-VIII v. Deluxe Enterprises (supra) and the Hon'ble Gujarat High Court in Nirma Industries Ltd. vs Dy.CIT 283 ITR 402. It is further argued that the basic requirements of section 80 I, 80 IB and 80 IC are the same and the above principles of law laid down by the Hon'ble High Courts would apply equally to the case of the appellant under 80 IC. On careful examination of the matter, I find that the AO in his remand report has also not given any comments on the above issue except for mechanically reproducing the para from the Hon'ble High Courts. I am of the opinion that the financial charges of Rs.59,77,538/- are to be treated as income derived from the units and are not be reduced from the profit of the industrial undertaking for computing deduction u/s 80IC of the Act.

The AO is accordingly directed to recomputed the deduction u/s80IC on the above basis. Ground Nos. 1 and 2 of the appellant are accordingly allowed.

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4.6. As regards ground no.3 relating to reduction of rs.28,66,235/- being commission on consignment sale and Rs.8,01,754/- being discount received in respect of profit derived from industrial undertaking, it is submitted by the ld. AR that both these amounts were appearing as part of the income of the appellant for the relevant previous year. However, neither of them was included in the working statement for determining the eligible deduction u/s 80IC arrived by the appellant at Rs.2,10,16,799/-. Therefore, there was no scope for the AO to have reduced these amounts in computing the profit of industrial undertaking. I find that the AO in his remand report has also not refuted the above claim of the ld. AR. In view of the above, I am of the opinion that the said amounts should not be reduced in the assessment order in computing the profit eligible for deduction u/s 80 IC of the Act. The AO is accordingly directed to do recomputed the deduction u/s 80 IC on the above basis. Ground No.3 of the appellant is accordingly allowed."

5.1. In view of the above and in the absence of any argument on facts and law

the departmental ground nos. 2 & 3 are rejected.

6. The facts relatable to Ground No.3 of the department have been

addressed by the CIT(A) in paras 6 to 6.1. For ready-reference we reproduce

para 6.1 from the impugned order:-

6.1. "I have carefully considered the assessment order, the remand report and the written submissions made by the ld. AR of the above issue.

It is argued by the ld. AR that the amount of Rs.3,40,450/- was paid by the appellant as loan processing charges to Punjab National Bank and Himachal Pradesh Finance Corporation. The AO has simply stated in the assessment order that "From perusal of the record it was also gathered that the assessee has debited Rs.3,40,450/- in its profit and loss accounts under the head loan processing charges. This loan processing charge being capital in nature is being disallowed". The ld. AR in his written submissions has argued that the above loan processing charges was paid to the bank/financial institution for processing the loan application prior to sanction of the loan. The loan had been used for the purpose of appellant's business. The Ld. AR has relied on the decision of the Hon'ble Supreme Court in the case of India Cement Ltd. v CIT 60 ITR 52 wherein the Hon'ble Apex Court had held that the loan processing charges paid to the financial institution was not in the nature of capital expenditure and was laid out or expanded wholly and exclusively for the purpose of assessee's business and was therefore allowable as a revenue 6 ITA 4201/Del/2010

expenditure. I also find that the remand report of the AO is completely silent on the above matter. In any case, the AO has not made any adverse comment on the appellant's submission of the above issue. In view of the above, and respectfully following the Hon'ble Apex Courts decision as cited above, I am of the opinion the impugned amount of Rs.3,40,450/- is a revenue expenditure allowable u/s 371(1) of the Act. The said addition is therefore deleted."

7. Ld. DR relies on the assessment order and Ld. AR on the other hand

submits that in the absence of any specific argument by the Ld. DR he has no

alternate but to rely on the impugned order.

8. We have heard the rival submissions and perused the material available

on record. Considering the peculiar facts and circumstances of the case, we find

that the departmental ground deserves to be dismissed.

9. In the result the appeal of the Revenue is dismissed.

Pronounced in the open Court on 18th Feb.2015.

Sd/- Sd/- (R.S. SYAL) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated:18th February, 2015 *Veena & Amit Kumar*

Copy of the order forwarded to:- 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR By Order Deputy Registrar, ITAT.