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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Per Shri A.T.Varkey, JM This appeal filed by the revenue is against the order of CIT(A)-14, Kolkata, dated 22.01.2015 for AY 2010-11. 2. Ground no. 1 of revenue’s appeal is against the order of Ld. CIT(A) in deleting the addition of Rs.7,35,607/- on account of un-reconciled balance. For this, the revenue has raised the following ground no.1: “1. The Ld. CIT(A)-14, Kolkata is erred in fact and circumstances in deleting the addition of Rs.7,35,607/- on account of un-reconciled balance, although the AO has made the addition after observing the discrepancies in the parties u/s. 133(6) of the I. T. Act with the details submitted by the assessee and the assessee also failed to explain the discrepancies satisfactorily.”
Briefly stated facts as observed by the AO are that during the course of assessment proceedings for test verification of some of the purchasers shown in the statement of party wise details of the assessee firm’s purchases over Rs. 1 lac submitted before the AO, the AO issued letters u/s. 133(6) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) to three parties viz., M/s. M K. Patel Exim (P) Ltd., M/s. Shree Krishna Timber Co. (P) Ltd. and M/s. Singh Brothers Exim (P) Ltd. requiring them to furnish the details and particulars of their transactions with M/s. Shree Ram Saw Mill for the FY 2009-10 relevant to AY 2010-11. The details given by the said firm were compared with the details submitted by
2 ITA No. 374/Kol/2015 Shree Ram Saw Mill., AY 2010-11 the assessee firm, the AO found discrepancies and were pointed out to the assessee firm for its explanation and reconciliation, if any. On consideration of the explanation and reconciliation statement submitted by the assessee firm, the AO found that the assessee could not satisfactorily explain the discrepancy of Rs.7,35,607/- found in the statement of account of its transactions with M/s. Shree Krishna Timber Co. (P) Ltd. Hence, the un- reconciled balance amount i.e. Rs.7,35,607/- on account of transactions of the assessee firm with M/s. Shree Kirshna Timber Co. Pvt. Ltd. the AO treated the said sum of Rs.7,35,607/- as the assessee firm’s undisclosed profit from business and added the same to the assessee’s returned income and was consequently charged to tax. On appeal, the Ld. CIT(A) deleted the addition as made by the AO. Aggrieved, revenue is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the difference in the account, which was opening balance brought forward from earlier years and there is no difference in the transactions carried out during the year under consideration before us. Moreover, we note that the difference arose in the two accounts in the first place because the assessee did not accept certain bills raised by M/s. Shree Krishna Timber Co. Pvt. Ltd. Hence, we note that actually there is no difference in the transactions of the assessee firm with M/s. Shree Krishna Timber Co. Pvt. Ltd. The Ld. DR could not controvert this finding of the Ld. CIT(A) by producing any relevant material in this regard. While deleting the disallowance as made by the AO, the Ld CIT(A) has held as under: “5.2.3. I have carefully considered the facts of the case, the finding of the Assessing Officer and the arguments advanced on behalf of the appellant, I find merit in the submission put forth that the difference in the account, which is the opening balance brought forward from earlier year and that there is no difference in the transactions carried out during the year. The explanation that the difference in the two accounts is on account of deduction from bills raised which the appellant did not accept is convincing. Having regard to the facts, and the material placed on record I am of the view that the Assessing officer was not justified in making the impugned addition of Rs.7,35,607/- on account of unreconciled balance and therefore, the same is deleted. This ground of appeal is, thus, allowed.”
Since Ld. DR could not be able to bring on record any contrary material to the above finding of the Ld. CIT(A), we find no infirmity in his order and the same is hereby upheld. Therefore, this ground of appeal of revenue is dismissed.
3 ITA No. 374/Kol/2015 Shree Ram Saw Mill., AY 2010-11 6. Ground no. 2 of revenue’s appeal is against the order of Ld. CIT(A) in allowing deduction u/s. 80IB of the Act of Rs.79,35,252/-. For this, revenue has raised the following ground no. 2: “2. The Ld. CIT(A) erred in law and fact in allowing deduction u/s. 80IB of Rs.79,35,252/- although the AO has broadly narrated in the assessment order that the assessee is not eligible for it since Trading activity is not entitled to deduction u/s. 80IB of the I. T. Act.”
Briefly stated facts are that the assessee firm filed its return of income electronically on 05.10.2010 disclosing a gross total income from business of Rs.3,17,41,006/- and from the said gross total income assessee claimed deduction under Chapter VIA for an amount of Rs.79,35,252/- and disclosed the returned total income at Rs.2,38,05,750/-. During the course of assessment proceedings, the AO observed that the business operations of the assessee firm was mainly from imports of logs from foreign countries and sometimes makes local purchase and is shown to have sold 21.36% of its goods by way of trading sales without making any processing of the goods whatsoever. According to AO, since in trading operation, no manufacturing or production activity takes place, the assessee firm is not entitled to any deduction u/s. 80IB of the Act on the trading sales of Rs.40,31,96,442/-. During the course of assessment proceeding the AO also observed that at the processing work stated to have been executed by the assessee-firm is a very simple one of sawing or cutting the Logs into different sizes of timber in the shape of Buttoms, Beams, etc., there would not be any major difference between the cost of Trading Sales and the cost of purported Manufacturing Sales of the assessee-firm. So, according to AO, it would, therefore, be fair and reasonable to apportion the income of Rs.1,68,68,153/-, attributable to the Trading and Manufacturing Operations purported to have been carried on by the assessee-firm, in the ratio of the assessee-firm's Trading Sales and Manufacturing Sales. And accordingly Rs.36,03,037/- was treated as the profit of the assessee-firm attributable to its Trading Operations and the remaining amount of Rs.1,32,65,116/- was treated as the profit of the assessee-firm attributable to its purported Manufacturing Operations. According to the AO, the portion of profit from business of Rs. 36,03,037/- attributable to the assessee-firm's Trading activity, which is ineligible for deduction under Section 80-IB of the Income Tax Act, is excluded from the aggregate income of Rs. 1,68,68,153/- attributable to the Trading and Manufacturing Operations purported to have been carried on by the assessee-firm as discussed in Paragraph 30 of his Order. According to the AO, in the light of the abovementioned interpretation of the provisions of Section 80-IB of the Income Tax Act
4 ITA No. 374/Kol/2015 Shree Ram Saw Mill., AY 2010-11 by the Hon'ble Supreme Court as discussed in Paragraph 25 & 26 of his Order, it has to be seen as to whether the remaining amount of profit from business of the assessee-firm, attributable to its purported manufacturing operations, is covered within the sources of the first degree. He also found that the processing work stated to have been executed by the assessee-firm is a very simple one of sawing or cutting the Logs into different sizes of timber in the shape of Buttoms, Beams, etc. According to AO, for becoming eligible for deduction under Section 80-IB of the Act, the assessee has to be an industrial undertaking which manufactures or produces any article or thing. Therefore, the process of sawing or cutting of timber logs into different sizes and shapes does not result in manufacturing or production of any article or thing. And, therefore, according to AO, the assessee is not entitled to deduction under Section 80-IB of the Act on this remaining portion of its profits and gains from business attributable to its purported manufacturing operations and the same was, therefore, disallowed to the assessee-firm. In view of the above discussions the AO did not find the assessee-firm was eligible for getting the deduction of Rs. 79,35,252/- under Section 80-IB of the Act as claimed in the Return. On appeal, the Ld. CIT(A) relying on the Tribunal decision in assessee’s own case for AY 2005-06, which was confirmed by Hon’ble High Court of Calcutta and assessee’s own case for AY 2008-09 and 2003-04 and 2009-10 held that deduction u/s. 80IB of the Act is allowable for manufacturing activity alone and gave direction to AO accordingly which is reproduced as under: “Where interest income is treated as business income, the amount of interest to be reduced in terms of cl. (baa) of Explanation to s. 80HHC is the net interest, i.e. gross interest less expenditure incurred for the purpose of earning such interest." The judgement of Hon'ble Delhi High Court has been approved by Hon'ble Supreme Court in 343 ITR 89(SC). Under the scheme of the Act, the principle of law laid down in the above case is equally applicable to the facts in the appellant's case in respect of deduction under sec. 80lB of the Act. Therefore, having regard to the facts and circumstances of the case, and the legal position emerging from the foregoing discussion, I am of the view that in the appellant's case, the interest income earned has to be treated as business income, and what is to be reduced for arriving at the eligible profit for deduction under sec. 80-IB is the net interest, i.e. gross interest less expenditure incurred for the purpose of the business, even if proportionately taken for the manufacturing and trading activities, which would either negative or equal and has to be ignored for the purpose of computation of deduction under sec. 80lB of the Act. 5.1.6. Now, having regard to facts and circumstances discussed in the foregoing paragraphs, and following the appellate order dated 29.08.2012 for Assessment Year 2009-10, I am of the considered view that the issue in the present appeal also is squarely covered by a Coordinate Bench's decision in assessee's own case for assessment year 2005-06 and that the Hon'ble Calcutta High Court has also confirmed the said order of the Coordinate Bench. Therefore, following the decision of the Hon'ble I.T.A.T. in the Appellant's own case for the Assessment Year 2008-09 and 2003-04, and 2009-10, it is held that deduction u/s 80lB is allowable for
5 ITA No. 374/Kol/2015 Shree Ram Saw Mill., AY 2010-11 manufacturing activity. However, profit on trading through high sea sale is not entitled for this deduction. On scrutiny of the break-up of the total value of Sales shown by the assessee- firm, the Assessing Officer himself has found that 21.36% of the Total Sales of Rs. 188,74,69,607/-, amounting to Rs. 40,31,96,442/-, has been shown by the assessee-firm as its Trading Sales and 78.64% of the Total Sales, amounting to Rs. 148,42,73,165/- has been shown as its Manufacturing sales. Coming to adjustment on account of common expenses, we may gainfully refer to the provision contained section 80-IA(5), which mandates that the same have to be computed as if eligible business was the only source of income of the assessee during the previous year. Since, in this context, if certain expenses incurred by one business lead to benefit to the eligible business also, the expenses will have to be apportioned to it. Therefore, such an apportionment is necessary to work out eligible profits for deduction. Hence, the A.O. is directed to obtain details regarding profit earned from manufacturing and profit earned from high sea sales and to allow deduction u/s. 801B for profit earned in manufacturing only and profit earned on trading is not entitled for deduction u/s. 801B. This ground of appeal is decided accordingly.”
Aggrieved, revenue is in appeal before us.
We have heard rival submissions and gone through facts and circumstances of the case. We find that the issue is squarely covered by the decision of Coordinate Bench of this Tribunal in assessee’s own case for AY 2005-06, which decision has been confirmed by the Hon’ble Calcutta High Court . The Ld. CIT(A) has taken note of the decision of coordinate bench of this Tribunal in assessee’s own case for AY 2008-09, 2003-04 and 2009-10 and also the decision of Hon’ble Calcutta High Court confirming the action of the Tribunal in AY 2005-06 held that deduction u/s. 80IB of the Act is allowable only for manufacturing activity. Hence, he directed the AO to obtain details regarding profit earned from manufacturing and profit earned from high sea sales and to allow deduction u/s. 80IB of the Act for profit earned in manufacturing only and held that profit earned on trading was not entitled for deduction u/s. 80IB of the Act. Since the Ld. DR could not point out any change in facts or law, we endorse the action of Ld. CIT(A). Hence, we find no infirmity in the aforesaid order of the Ld. CIT(A) and the same is hereby upheld. This ground of appeal of revenue is dismissed.
In the result, appeal of revenue is dismissed.
Order is pronounced in the open court on 11th April, 2018. Sd/- Sd/- (J. Sudhakar Reddy) (A. T. Varkey) Accountant Member Judicial Member April, 2018 Dated: 11th Jd.(Sr.P.S.)
6 ITA No. 374/Kol/2015 Shree Ram Saw Mill., AY 2010-11 Copy of the order forwarded to:
Appellant – ACIT, Circle-47, Kolkata. 2 Respondent – M/s. Shree Ram Saw Mill, 16, PTR Siding, Shibpur, Howrah-711102. 3. The CIT(A) , Kolkata.
CIT , Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,
Sr. Pvt. Secretary