Vmt Spinning Co. Ltd., Ludhiana vs Assessee

of ld. CIT(Appeals)-II Ludhiana dated 30.10.2014 for

assessment year 2007-08.

2

2. We have heard ld. Representatives of both the parties

and perused the findings of authorities below. Both

appeals are decided as under.

ITA 1147/CHD/2014 (Assessee's Appeal)

3. Ground No. 1 is general and need no adjudication.

4. On ground No. 2, assessee challenged the order of ld.

CIT(Appeals) in reducing the profit eligible for deduction

under section 80IC of the Act by the following amounts :

i) Duty Draw Back : Rs. 69,26,088/-

ii) Misc. Receipts : Rs. 1,11,988/-

5. The Assessing Officer, with regard to deduction

claimed under section 80IC of the Act on Duty Draw Back

referred to the decision of the Hon'ble Supreme Court in

the case of Sterling Foods 237 ITR 579 and decisions of

Hon'ble Punjab & Haryana High Court in the cases of

Liberty India Vs CIT and M/s Nahar Exports Ltd. Vs CIT

and held that these incomes were not derived from

business and therefore, were not eligible for deduction

under section 80IC of the Act.

6. The assessee submitted before ld. CIT(Appeals) that

Duty Draw Back is an income arising in regular course of

business. The ld. CIT(Appeals), however, noted that these

incentives are paid by the government under various

incentive schemes and are not derived from the eligible

business. The source of these receipts is not the industrial 3

unit but incentive schemes of the government. These

incentives, therefore, do not qualify for deduction under

section 80IC of the Act. Matter is therefore, found covered

by decision of the Hon'ble Supreme Court in the case of

Liberty India Vs CIT 317 ITR 218.

7. After hearing rival submissions, we are of the view

that no interference is called for in the matter. Under

Section 80IC, deduction is allowable to the assessee where

the gross total income of the assessee includes any profits

and gains derived by an undertaking or an enterprise from

any eligible business referred to in the said Section. The

Duty Draw Back is paid by the government under various

incentive schemes and thus, are not derived from eligible

business.

8. Hon'ble Supreme Court in the case of Liberty India Vs

CIT (supra) held that, "The connotation of the wo r d s

" d e r i v e d f r o m" i s n a r r o we r a s c o m p a r e d t o t h a t o f t h e wo r d s

" a t t r i b u t a b l e t o " . B y u s i n g t h e e x p r e s s i o n " d e r i v e d f r o m"

Parliament intended to cover sources not beyond the f irst

degree." The issue is, therefore, covered against the

assessee by judgement of Hon'ble Supreme Court in the

case of Liberty India (supra). This ground of appeal of the

assessee is accordingly, dismissed.

8(i) The Assessing Officer with regard to Miscellaneous

Receipts of Rs. 1,11,988/- also similarly following the

above decisions held that this income was not derived from

business and therefore, was not eligible for deduction 4

under section 80IC of the Act. The assessee submitted

before ld. CIT(Appeals) that the miscellaneous receipts are

the amount that was received on account of brokerage of

ocean freight. The assessee submitted that shipping

companies granted discount to the assessee though

nomenclature used is brokerage against the amount of

ocean freight paid. The assessee relied upon order of ITAT

in the case of same assessee for assessment year 2001-02

dated 31.07.2007.

9. The ld. CIT(Appeals) considering the submissions of

the assessee noted that such brokerage are not derived

from industrial undertaking and cannot be held to be

income from manufacture or production or articles as

envisaged under section 80IC of the Act. The ld.

CIT(Appeals), therefore, confirmed the addition.

10. The ld. counsel for the assessee reiterated the

submissions made before authorities below and referred to

order of ITAT Chandigarh Bench in the case of the same

assessee in ITA No. 678/2014 for assessment year 2004-05

dated 10.02.2015 in which the brokerage on ocean freight

was considered with regard to calculating the deduction

under section 10B of the Act and the Tribunal following its

earlier decision held that brokerage is basically rebate

allowed by the shipping company as well as sale of sample

is directly related to the business of the assessee and since

same has already been held to be part of the business

income by the Tribunal. Therefore, following the earlier 5

decision in the case of the same assessee, it was held that

these receipts are part of the business income and eligible

for deduction under section 10B of the Income Tax Act.

The ld. counsel for the assessee, therefore, submitted that

once brokerage on ocean freight is held to be business

income, therefore, assessee would be entitled for deduction

under section 80IC of the Income Tax Act.

10(i) On the other hand, ld. DR relied upon orders of the

authorities below.

11. Considering the facts of the case in the light of the

earlier order of the Tribunal dated 10.02.2015, we are of

the view that brokerage on account of ocean freight is

business income as was already held by the Tribunal in the

case of the same assessee vide order dated 10.02.2015.

Therefore, assessee would be entitled for deduction under

section 80IC of the Act on said amount. The orders of

authorities below are accordingly, set aside and Assessing

Officer is directed to grant deduction under section 80IC to

the assessee.

12. In the result, this ground of appeal of the assessee is

partly allowed.

13. On ground No. 3, assessee challenged the order of ld.

CIT(Appeals) in reducing the profits eligible for deduction

under section 80IC of the Act by Rs. 5,06,634/- being 70%

of excess provisions written back of Rs. 7,23,763/-.

Regarding the provisions written back amounting to 6

Rs. 7,23,763/-, the Assessing Officer pointed out that the

assessee was claiming deduction under section 80IB @ 30%

in assessment year 2006-07. The Assessing Officer pointed

out that this was the 10th year of claim of deduction under

section 80IB and further pointed out that by adding back

this amount of Rs. 7,23,763/- during assessment year

under appeal 2007-08, the assessee will get exemption

from income tax @ 100% under section 80IC. The Assessing

Officer pointed out that assessee had accordingly evaded

tax on 70% of this income. If this provision had not been

created during the assessment year 2006-07, the assessee

would have got deduction of only 30% of this income and

would have been required to pay tax on 70% of this income.

The Assessing Officer, accordingly, held that 70% of this

provision was to be taxed during the year and accordingly

added back an amount of Rs. 5,06,634/- on this account.

14. The assessee submitted before ld. CIT(Appeals) that

the major provisions which were reversed, were in relation

to commission payable against exports etc. The assessee

relied upon decision of Hon'ble Punjab & Haryana High

Court in the case of CIT Vs Metalman Auto Pvt. Ltd. 336

ITR 434 and decision of the Tribunal in the case of

Vardhman Threads Ltd. Vs ACIT in ITA 556/2008. The

assessee further submitted that Assessing Officer has erred

in observing that the assessee had not paid taxes on 70%

of Rs. 7,23,763/- being amount of provision created in the

previous year. The assessee submitted that it had created

this provision in relation to routine business expenses and 7

as a result, net profit was reduced by the same amount.

The assessee did not know that it would be in a position to

claim 100% deduction in the order under consideration in

which the assessee had become eligible only after

completion of substantial expansion. The ld. CIT(Appeals),

however, noted that in assessee's case, Assessing Officer

has not held that provisions written back are not eligible

for deduction under section 80IC. The Assessing Officer

merely disallowed the claim to the extent of 70% out of the

provisions written back amounting to Rs. 7,23,763/-. The

Assessing Officer held that by creating the provision in

assessment year 2006-07 and then writing it back in the

year 2007-08, the assessee had obtained undue advantage

to the extent of Rs. 5,06,632/-. Therefore, addition was

confirmed.

15. The ld. counsel for the assessee referred to the

details of excess provision written back at page 13 of the

Paper Book and reiterated the submissions made before

authorities below. He has further submitted that there is

no provision under section 80IC to allow the deduction @

30% in this year being the first year of claim of deduction

under section 80IC of the Act.

15(i) On the other hand, ld. DR relied upon orders of the

authorities below.

16. We have considered rival submissions. The Assessing

Officer fond that assessee has claimed deduction under

section 80IB @ 30% in assessment year 2006-07 which was 8

10th year for such claim. The Assessing Officer further

pointed out that by adding this amount during the year

under consideration, assessee will get exemption of 100%

under section 80IC of the Act. The Assessing Officer,

therefore, found that assessee had evaded tax on 70% of

this income. It is, therefore, admitted fact that the

preceding assessment year 2006-07 being his 10th year for

claim of deduction under section 80IB, the assessment year

under appeal i.e. 2007-08 would be the first year for claim

of deduction under section 80IC of the Act. Therefore,

assessee would be eligible for deduction of 100% as per

provisions of Section 80IC of the Act. The ld. counsel for

the assessee, therefore, rightly contended that there is no

provision under section 80IC to allow the deduction @ 30%

in this year being the first year of 80IC. The ld.

CIT(Appeals) noted that Assessing Officer has not held that

the provisions written back are not eligible for deduction

under section 80IC of the Act because Assessing Officer

has merely disallowed 70% claim of the assessee. The

submissions of the assessee show that when provision was

created in the previous year, it would result net profit of

the assessee reduced in preceding assessment year

2006-07. Therefore, assessee would have also got lesser

deduction under section 80IB of the Act, as such, the

income of the assessee was reduced in preceding

assessment year. Therefore, assessee correctly claimed

that when provision was taken care in the year under

appeal, it would enhance the income of the assessee. Since 9

the income earned by the assessee was not disputed by the

Assessing Officer and Assessing Officer allowed part claim

of the assessee to the extent of 30%, would clearly show

that assessee was entitled for deduction under section 80IC

of the Act on the entire amount of provisions written back

in the year under consideration. We, therefore, set aside

the orders of authorities below and direct the Assessing

Officer to allow claim of assessee under section 80IC of the

Act on the entire claim made by the assessee.

17. The ground No. 3 of appeal of assessee is accordingly

allowed.

18. On ground No. 4, assessee challenged the orders of

authorities below in not calculating minimum alternate tax

to be carried forward to subsequent year in the correct

manner. The assessment order would reveal that the

Assessing Officer after computing the business income of

the assessee also made computation of profits under MAT

(Section 115JB). The assessment order was passed under

section 143(3) on 29.12.2009. The assessee preferred

appeal against this assessment order before ld.

CIT(Appeals) which was decided vide impugned order dated

30.10.2014. The assessee has filed grounds of appeal

raised before ld. CIT(Appeals) which are also reproduced in

the impugned order which disclosed that the assessee has

not challenged the computation of income made by

Assessing Officer under MAT provision. Therefore, there

was no occasion for ld. CIT(Appeals) to have considered 10

whether MAT provisions were correctly carried out or not.

It would also show that the assessee when could file appeal

before ld. CIT(Appeals) on as many as seven grounds of

appeal, could have challenged the computation under MAT

provisions but assessee choose not to challenge the order

of the Assessing Officer with regard to computation under

MAT provisions before ld. CIT(Appeals). Thus, the assessee

accepted the computation under the MAT provisions made

by the Assessing Officer. The assessee thus, raised ground

No. 4 for the first time before the Tribunal without seeking

even leave of the Tribunal to raise additional ground of

appeal. The ld. counsel for the assessee, during the course

of arguments admitted that this ground is not arising out

of the impugned order of ld. CIT(Appeals). He has,

however, submitted that on his oral request, this may be

admitted as additional ground of appeal.

19. The ld. DR, however, strongly objected to the oral

request of the ld. counsel for the assessee. The Hon'ble

Gujrat High Court in the case of Smt. Arundhati

Balkrishna & others Vs G.M. Singhvi, ITO, 103 ITR 763

held as under :

'Where, in an appeal to the Appellate Assistant Commissioner by the assessee against an order of assessment, the assessee has not questioned the decision of the Income-tax Officer on a point decided, and the Appellate Assistant Commissioner has not in his order considered that point, the assessee is not entitled to question the decision of the officer on that point in an appeal to the Appellate Tribunal against the order of the Appellate Assistant Commissioner and the Tribunal is not entitled to allow the assessee to agitate the question under the guise of granting leave under rule 11 of the Income-tax Appellate Tribunal) Rules, 1963."

11 20. The Hon'ble Allahabad High Court in the case of CIT

Vs Sahara India 347 ITR 331 held as under :

Held, allowing the appeal, that the Tribunal allowed the assessee to raise the additional ground in appeal for the first time and then decided the appeal on the merits not only setting aside the order of the Commissioner (Appeals) but setting aside the order of the Assessing Officer. Such approach was neither legal nor proper. The Tribunal had not given the reason for admitting the additional ground and overlooked the fact that the ground did not arise out of the order of the Commissioner (Appeals) which was challenged by both parties. Moreover, the assessment order was passed by the Assessing Officer under section 144 of the Act on the basis of the original return and not on the basis of the revised return. Therefore, the matter was remitted to the Commissioner (Appeals).

21. The Hon'ble Punjab & Haryana High Court in the case

of Echo Shella Vs CIT 293 ITR 234 held as under :

Dismissing the appeal, that the only submission made by counsel for the assessee was that while confirming the addition, the expenses on electricity, labour etc., had not been considered by the authorities below. A perusal of the orders of all the authorities below showed that no such claim was made at any stage. Accordingly, the same could not be permitted to be raised at this stage before the court. It was quite evident that the rates at which the valuation was made, were supplied by the partner of the assessee-firm itself. Once the assessment of the valuation had been made as per the material supplied by the assessee himself, there was no question of challenging the same either on the ground that the same was incorrect or that the assessee was not given proper opportunity to explain the same. The addition was valid."

22. Considering the facts of the case in the light of the

above decisions, it is clear that assessee has not filed any

application for admission of additional ground of appeal

and no reasons have been explained why no such request

was made in accordance with law and what was the reason

for not raising this issue before ld. CIT(Appeals). Since 12

this issue is not arising out of the order of ld. CIT(Appeals)

and assessee has not shown any justification for admission

of the additional ground of appeal, therefore, the oral

request of ld. counsel for the assessee cannot be accepted

at this stage. In the absence of any request in writing for

admission of the additional ground of appeal, ld. DR was

justified in contending that department would be seriously

prejudiced in their contention because no opportunity had

been given to the revenue to counter the request of the

assessee. This issue is also not arising from the order of

the ld. CIT(Appeals) and that no reason or justification had

been explained why such request should be admitted.

Therefore, considering the totality of the facts and

circumstances of the case, we do not find any justification

to accept the oral request by ld. counsel for the assessee in

admitting additional ground of appeal so raised in ground

No. 4 of the appeal of the assessee. Request of the ld.

counsel for the assessee is accordingly, rejected.

Resultantly, ground No. 4 of the appeal of the assessee is

rejected.

23. No other point is argued or pressed.

24. In the result, appeal of the assessee is partly

allowed.

ITA 12/CHD/2015 (Departmental Appeal)

25. The revenue challenged the order of ld. CIT(Appeals)

in increasing the deduction under section 80IC of the Act 13

on interest from customers and suppliers for

Rs.14,68,930/-. The Assessing Officer held that amount of

the interest received is income from other sources and

accordingly, did not allow deduction under section 80IC.

The assessee submitted before ld. CIT(Appeals) that

interest was received from customers and suppliers and

were taxable as business income. The assessee relied upon

decision of the Hon'ble Punjab & Haryana High Court in

the case of Phatela Cotgin Industries Pvt. Ltd. V CIT 303

ITR 411. The ld. CIT(Appeals) accepted the contention of

assessee and allowed this ground of appeal of assessee.

26. After hearing rival contentions, we do not find any

merit in this ground of appeal of the revenue. The ld.

counsel for the assessee referred to order of ITAT

Chandigarh Bench in the case of same assessee in

departmental appeal in ITA 979/2008 for assessment year

2005-06 dated 10.02.2015 in which on identical issue, the

departmental appeal was dismissed. The Tribunal followed

the decision of the Hon'ble Punjab & Haryana High Court

in the case of Phatela Cotgin Industries P. Ltd. (supra).

Therefore, the issue is covered in favour of the assessee by

judgement of the Hon'ble Punjab & Haryana High Court as

well as order of the Tribunal dated 10.02.2015 (supra).

This ground of appeal of the revenue is accordingly,

dismissed.

26(i) The revenue also challenged order of ld. CIT(Appeals)

in increasing the eligible profit under section 80IC of the 14

Act on insurance claim received for Rs. 2,50,125/-

regarding income from insurance claim. Regarding the

income from insurance claim, Assessing Officer referred to

the decision of the Hon'ble Supreme Court in the case of

Sterling Foods 237 ITR 597 and disallowed claim of

assessee. The ld. CIT(Appeals) considering the issue

directed the Assessing Officer to examine whether the

assessee had received any real income on this account and

to restrict disallowance accordingly. Findings of ld.

CIT(Appeals) at page 8 & 9 of the appellate order are

reproduced as under :

"On this issue the reference may be made to the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Vallabh Yarns (P) Ltd. 51 DTR 236 wherein it has been held that the assessee had not received any real income on account of insurance claim so exclusion for deduction under section 80IB is not warranted. Reference in this regard may also be made to a recent decision of the Hon'ble Delhi High Court in the case of Kohinoor Foods Ltd. v. CIT (2013) 353 ITR 264(Delhi)(HC). The Hon'ble High Court held that miscellaneous income like, sale of import license, interest, insurance claim, weighbridge income is not eligible for deduction under section 80IA (A.Ys. 1994-95, 1995-96). Therefore, income on account of insurance claim is not eligible for deduction u/s 80IB. The only issue is whether the appellant earned any real income on account of insurance claim.

Keeping in view the decision of the Hon'ble Punjab & Haryana High Court referred to above, the Assessing Officer is directed to examine whether the appellant had received any real income on this account and to restrict the disallowance accordingly."

27. After considering rival submissions, we do not find

any infirmity in the order of ld. CIT(Appeals). The ld.

CIT(Appeals) correctly considering the decisions of the

Hon'ble Punjab & Haryana High Court and the Delhi High

Court (supra) rightly directed Assessing Officer to examine 15

whether assessee had received any real income on this

account and to restrict the disallowance accordingly. No

infirmity has been pointed out in the order of the ld.

CIT(Appeals), therefore, we do not find any justification to

interfere with the order of ld. CIT(Appeals). This ground is

accordingly, dismissed.

28. In the result, departmental appeal is dismissed.

29. In view of the above discussion, appeal of the assessee

is partly allowed and departmental appeal is dismissed.

Order pronounced in the Open Court on 6th July,2015.

Sd/- Sd/-

(T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 6th July,2015. 'Poonam' Copy to:

The Appellant, The Respondent, The CIT(A), The CIT,DR

Assistant Registrar, ITAT Chandigarh