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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED&
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD [CONDUCTED THROUGH VIRTUAL AT AHMEDABAD] BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & Ms. MADHUMITA ROY, JUDICIAL MEMBER (Assessment Year: 2013-14) M/s. Torrent Pharmaceuticals Vs. DCIT (Sikkim), “Torrent House”, Off. Circle-5(2), Ashram Road, Ahmedabad-380009 Ahmedabad [PAN No.AAGFT5973H] (Appellant) .. (Respondent) Assessee by : Shri Vartik Chokshi, A.R. Revenue by : Shri Nilabhra Dasgupta, Sr. DR Date of Hearing 21.02.2022 Date of Pronouncement 14.03.2022 O R D E R PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the assessee is directed against the order dated 23.06.2017 passed by the Commissioner of Income Tax (Appeals)-5, Ahmedabad arising out of the order dated 08.03.2016 passed by the DCIT, Circle-5(2), Ahmedabad under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to “the Act”) for A.Y. 2013-14.
Ground No. 1:- Exclusion of miscellaneous income of Rs. 4,50,593/- being recovery of excess cost charged by suppliers of goods from the profits eligible for deduction under Section 80IE of the Act is the subject matter before us.
The assessee engaged in the business of manufacturing of pharmaceuticals products filed its return of income on 29.09.2013 declaring
M/s. Torrent Pharmaceuticals (Sikkim) vs. DCIT Asst.Year –2013-14 - 2 - total income at Rs. 7,49,80,780/-. During the course of assessment proceeding it was found that the assessee firm has credited several “other incomes” to the 80IE units including miscellaneous income of Rs. 4,50,593/-. According to the AO such incomes are not eligible income for the purpose of deduction under Section 80IE of the Act. Accordingly, the said income were excluded from the profits of eligible unit for calculation of deduction under Section 80IE and added to the taxable income of the assessee which was further been confirmed by the First Appellate Authority. Hence, the instant appeal before us.
We have heard the respective parties and also perused the relevant materials available on record.
This miscellaneous income is the debit note of Rs. 4,50,493/- for excess billing by vendor including punch card re-issue charges recovered of Rs. 100/-. The case of the assessee is this that this particular amount pertains to excess billing by KEPL Electricals Pvt. Ltd. and the entire cost charged by the vendor was included in the expenses and charged to profit and loss account of the appellant. When the debit note was raised by the appellant regarding such excess amount charged by the supplier such excess amount was credited to the profit and loss account as income. According to the assessee such recovery of excess billing is eligible for deduction under Section 80IE of the Act. It was further contended by the assessee that as the amount pertains to the recovery of excess cost which was already charged to the profit and loss account the revenue of the appellant was reduced to the extent of such cost. On that basis the appellant should be allowed to reduce the cost to the extent of such recovery which consequently would increase
M/s. Torrent Pharmaceuticals (Sikkim) vs. DCIT Asst.Year –2013-14 - 3 - the profit eligible for the computation of deduction under Section 80IE of the Act.
At the time of hearing of the instant appeal the Ld. Counsel also drawn out attention to the Page 61 of the Paper Book being the ledger account of miscellaneous income where the said entry is reflecting as follows: Miscellaneous Income Amount in Name of G/L Document Posting Assignment Document local Entry Date offsetting Text Account Date Date currency account *Debit Note KEPL KEPL - for Excess 32010509 ELECTRICALS 3700000354 6/1/2012 6/20/2012 6/20/2012 ELECTRICALS 365.702.00 Billing PO# P PVT. LTD. 480000801 Loss of CASH AT Attendance 32010509 20120921 1300000613 -100.00 9/21/2012 9/21/2012 9/21/2012 SIKKIM Punch Card PLANT (E700422) PO No. KEPL 4800008001 32010509 480008001 1700000148 -84.791.00 7/28/2012 9/14/2012 9/14/2012 ELECTRICALS – Penalty PVT. LTD. Charged 1% of Basic
The Ld. DR relied upon the order passed by the authorities below. However, he has not been able to controvert the above submission made by the Ld. AR.
We have further considered the order passed by the Ld. CIT(A) wherefrom it appears that the Ld. CIT(A) simply following the order passed by his predecessor rejected the above claim made by the assessee without dealing the issue on merit. Upon considering the entire facts we find that the recovery of excess cost charged by the supplier is extricably connected with income of the industrial undertaking as of the undertaking of the appellant company and therefore, is entitled to deduction under Section 80IE of the Act. We, thus, allow the said deduction in respect of the appellant company under Section 80Ie of the Act. The AO is directed to M/s. Torrent Pharmaceuticals (Sikkim) vs. DCIT Asst.Year –2013-14 - 4 - grant relief to the appellant accordingly. This ground of appeal preferred by the assessee is, therefore, allowed.
Ground No.2:- Exclusion of income earned in the nature of cash 8. discount amounting to Rs. 2,32,004/- from the profits eligible for deduction under Section 80IE of the Act is the issue before us.
We have heard the respective parties and also perused the relevant materials available on record.
The above cash discount amounting to Rs. 2,32,004/- was received for making prompt payments to the vendor on account of purchases made from them by the appellant. It is the case of the assessee that rather than reducing such discount from the purchase cost they have shown it separately under the head “other income” which, however, does not change its nature of having direct nexus with manufacturing activity carried out by the appellant undertaking and, therefore, the same is allowable to be claimed deduction under Section 80IE of the Act.
The Ld. DR relied upon the order passed by the authorities below. However, he has not been able to controvert such submission made by the Ld. AR.
We have further considered the order passed by the Ld. CIT(A) wherefrom it appears that the Ld. CIT(A) simply following the order passed by his predecessor rejected the above claim made by the assessee without dealing the issue on merit.
M/s. Torrent Pharmaceuticals (Sikkim) vs. DCIT Asst.Year –2013-14 - 5 - 12. On this aspect we have further considered the judgment passed by the Hon’ble Jurisdictional High Court in the case of Nirma Ltd. in Tax Appeal No. 810 of 2013 wherein while dealing with the identical issue the Hon’ble Court was pleased to observe as follows: “From the record it emerges that during the previous year relevant to assessment year 1997-98, the assessee received additional income of Rs. 29.02 lacs towards discount of the sales of raw materials which the assessee purchased. The assessee, therefore, claimed such amount as part of deduction under section 80IA/80HH of the Act. The Tribunal ultimately upheld the assessee’s contention. We see no reason to take a different view. If on the basis of the discounts given by the sellers, the total profit of the assessee from the activity which was otherwise eligible for deduction 80I/80HH of the Act was to that extent increased, there is no reason why such larger sum should qualify for deduction.”
Relying upon the above ratio laid down by the Jurisdictional High Court on the identical set of facts we find that the cash discount of Rs. 2,32,004/- received as above is eligible for deduction under Section 80IE of the Act and we, therefore, allow this ground of appeal in favour of the assessee.
13. Ground No.3:- Exclusion of interest income amounting to Rs. 75,95,224/- earned by the appellant from the profit eligible for deduction under Section 80IE of the Act by the Revenue has been challenged before us. Challenge is also in negating the alternative prayer of the appellant allowing the netting off of the interest expenses as against the interest income of the appellant while computing deduction under Section 80IE of the Act by the Ld. CIT(A).
14. The brief facts leading to the issue is this that the assessee has received interest income from bank of Rs. 73,44,765/- and interest income from partners of Rs. 2,50,459/- during the said assessment year. The M/s. Torrent Pharmaceuticals (Sikkim) vs. DCIT Asst.Year –2013-14 - 6 - interest income of Rs. 73,44,765/- pertains to deposits made during the course of business of eligible unit of the appellant and for the specific business only as the case made out by the assessee before us. The assessee, therefore, has credited the same in Profit and Loss Account and claimed under Section 80IE of the Act.
While arguing the matter the Ld. Counsel appearing for the assessee further submitted before us that in the event the interest income is not eligible for deduction under Section 80IE of the Act then netting off interest income shall be excluded from profits for deduction under Section 80IE of the Act. On this aspect he has relied upon the judgment passed by the Hon’ble Jurisdictional High Court in the case of Nirma Ltd. (supra) and the judgment passed by the Hon’ble Apex Court in the case of ACG Associated Capsules (P.) Ltd. vs. CIT, reported in 18 traxmann.com 137 (SC) and also the judgment passed by the Hon’ble Jurisdictional High Court in the case of CIT vs. Metrochem Industries Ltd., reported in 79 taxmann.com 440 (Guj.).
On the contrary, the Ld. DR relied upon the order passed by the authorities below. However, he has not been able to controvert such submission made by the Ld. AR.
We have further considered the order passed by the Ld. CIT(A) wherefrom it appears that the Ld. CIT(A) simply following the order passed by his predecessor rejected the above claim made by the assessee without dealing the issue on merit. On the aspect of netting off of interest income we have considered the judgment passed by the Jurisdictional High Court in M/s. Torrent Pharmaceuticals (Sikkim) vs. DCIT Asst.Year –2013-14 - 7 - the case of Nirmal Ltd. (Supra). While deciding the issue the Hon’ble Court has been pleased to observe as follows:
“2. In so far as question Nos. 1, 4, 8, 10 and 11 are concerned, they have a common element, namely, whenever certain income is to be excluded for the purpose of deduction under sections 80-I, 80-IA and 80HH, etc., gross income is to be excluded or only the net thereof is the question. In a separate order passed by us today in Tax Appeal No. 810 of 2013, we have rejected the Revenue's appeal making the following observations: "The question is when certain income of the assessee is excluded from the claim of deduction under section 80-I or section 80HH of the Act, should the gross income be excluded or should it be only net, that is, the total receipt minus the expenditure incurred by the assessee for earning such income which should be so excluded. Such a question in the context of deduction under section 80HHC came up for consideration before the Supreme Court in the case of ACG Associated Capsules P. Ltd. v. CIT [2012] 343 ITR 89 (SC). The Supreme Court held that for the purpose section 80HHC of the Act, it is not the entire amount received by the assessee on sale of DEPB credit, but the sale value of less the face value of the DEPB that will represent profit on transfer of DEPB credit by the assessee. Heavy reliance was placed in the case of Topman Exports v. CIT [2012] 342 ITR 49(SC). Extending such logic, it was further held that even other amounts, such as, interest or rent when are to be excluded for the purpose of Explanation (baa) to section 80HHC of the Act. Ninety per cent. of not the gross rent or gross interest, but the net thereof shall have be excluded. It was observed as under: 'If we now apply Explanation (baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under section 28 of the Act, and if any quantum of the rent or interest of the assessee is allowable as expense in accordance with sections 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head "Profits and gains of business or profession", ninety per cent. of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to section 80HHC. In other words, ninety per cent. of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profits of business of the assessee as computed under the head "Profits and gains of business or profession", is to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business.' In view of such decision, question No. 3 raised by the Revenue gets automatically answered since the amounts referred to in the said question are to be excluded for the purpose of deduction under section 80HHC of the Act.
M/s. Torrent Pharmaceuticals (Sikkim) vs. DCIT Asst.Year –2013-14 - 8 -
Learned counsel for the Revenue vehemently contended that the ratio of the decision in the case of ACG Associated Capsules Pvt. Ltd. (supra) cannot be applied to a situation where the exclusion from the claim of deduction relates to section 80HH or section 80-I of the Act. He strenuously urged that the language used in both the sets of provisions are different. Section 80HHC is also vitally different and that therefore the concept of netting may not be automatically applied to deduction under sections 80HH and 80-I of the Act. He submitted that number of tax appeals have been admitted by this court on this issue and this appeal may also be likewise admitted. He drew our attention to the order dated May 6, 2013 passed by this court in the case of Bloom Decor Ltd. v. Deputy CIT in Tax Appeal No. 447 of 2013 where at the instance of the assessee, similar question was not considered. On the other hand, learned counsel Shri Soparkar for the assessee, in addition to relying on the decision in the case of ACG Associated Capsules Pvt. Ltd. (supra), also placed heavy reliance on an order dated November 30, 2013 in Tax Appeal No. 213 of 2006 in the case of Rajoo Engineers Ltd. in which the Revenue's appeal raising such a question came to be dismissed relying on the decision in the case of ACG Associated Capsules Pvt. Ltd. (supra). The counsel also relied on a decision of the Delhi High Court in the case of Essel Shyam Communication Ltd. v. CIT [2012] 28 Taxmann.com 243 (Delhi), in which in detailed consideration, relying on the decision of the Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. (supra), exclusion was approved for deduction under section 80-IA of the Act. Having heard the learned counsel for the parties, we see no reason to entertain this tax appeal. The Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. (supra) has already laid down the foundation for the logic for excluding the net profit and not the gross profit from the claim of deduction when it is found that the source of income does not quality for such deduction under section 80HHC of the Act. It is true that section 80HHC represents vastly different scheme of deduction and also provides for complex formula for deriving for the eligible profit for deduction under different situations depending on whether the exporter is also engaged in the local business or not. However, this distinction would not be material in so far as central question of exclusion of certain profit from the activity which is not eligible for deduction under sections 80HH and 80-I are concerned. The logic being when the profit is being excluded from the claim of deduction, not the gross profit but the net thereof, that is the gross profit minus the expenditure incurred for earning such profit should be excluded. That is precisely how this court in the case of Rajoo Engineers (supra) viewed the situation. That is how the Delhi High Court in the case of Essel Shyam Communication (supra) held referring to the decision in the case of ACG Associated Capsules Pvt. Ltd. (supra). It is true that in the case of Bloom Decor Ltd., a question was suggested by the assessee which may have some bearing on the controversy on hand. However, the entire focus of the order of the court was regarding applicability of the decision of the Supreme Court in the case of Topman Exports (supra) and not on the question of M/s. Torrent Pharmaceuticals (Sikkim) vs. DCIT Asst.Year –2013-14 - 9 - netting. In any case, therein, the decision in the case of ACG Associated Capsules Pvt. Ltd. was not noticed."”
Respectfully relying upon the order passed by the Hon’ble Jurisdictional High Court, thus, on the identical facts we find it fit and proper to allow this ground of appeal filed by the assessee by directing the AO to re-compute the addition upon netting off of interest income by excluding the same from profits eligible for deduction under Section 80IE of the Act of the appellant undertaking, in the light of the above observation made by the Hon’ble Jurisdictional High Court in the case of Nirma Ltd. (supra).