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O R D E R PER A. K. GARODIA, A. M.:
All these three appeals are for the same Assessment Year i.e. A. Y.
2007 – 08. Out of these, two appeals are filed by the assessee including one appeal in course of proceedings u/s 263 and the second appeal of the assessee is in course of proceedings u/s 143 (3) r.w.s. 263 of I. T. Act. The appeal of the revenue is in course of proceedings u/s 143 (3) r.w.s. 263 of the Act.
All these appeals were heard together and are being disposed of by this common order for the sake of convenience.
First we take up the assessee’s appeal in section 263 proceedings i.e. ITA 77/bang/2012.
Learned AR of the assessee made various arguments in which he contended that the assessment is neither erroneous nor prejudicial to the interest of the revenue and hence, the order passed by CIT u/s 263 is without jurisdiction. Learned DR of the revenue supported the order of CIT passed u/s 263.
We have considered the rival submissions. We find that main objection of CIT is this that the A.O. in the assessment order allowed deduction u/s section 80 IB on “other Incomes” like service income, duty drawback, octroi, interest and misc income etc. This is a settled position that deduction u/s 80IB is allowable for those incomes only which are derive4d from eligible industrial undertaking and Duty Drawback is not eligible for this deduction as per the judgment of Hon’ble Apex Court rendered in the case of Liberty India vs. CIT as reported in 317 ITR 218. This judgment of Hon’ble Apex Court is dated 31.08.2009 but courts do not make law and it only declares what is law and therefore, it has to be accepted that 3 1789/B/2013 & 7/B/2014 before this judgment also, granting of deduction u/s 80IB for Duty Drawback makes the assessment order erroneous. Hence, we find no infirmity in the impugned of CIT passed u/s 263. 6. In the result, this appeal of the assessee is dismissed. 7. Now, we take up the cross appeals in course of proceedings u/s 143 (3) r.w.s. 263 of I. T. Act. The grounds raised
by the assessee are as under in ITA No. 7/B/2014. “1. The Order of the Hon'ble CIT, are opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant's case.
2. The Hon'ble CIT(A) has erred in partially upholding the addition made AO on account of "Other Incomes" which are very much integral part of Industrial Undertaking and are eligible for deduction u/s 80IB. The Hon'ble CIT(A) has failed to appreciate the fact that the income reflected as "Other Income" is in fact integral part of the manufacturing activity of the appellant. The deduction provided under Section 80IB is for the profits and gains of any business undertaken by the new industrial unit and the item of income reflected under "Other Incomes" forms part of the integral activity of the undertaking. Therefore the conclusion to restrict the actual deduction u/s 80 IB, is bad in law and opposed to the facts and circumstances of the case.
3. The Hon'ble CIT(A) has grossly erred to appreciate the contents and meaning of the actual wordings used in the law., in as much as the emphasis in the said section 80 IB is on the profits and gains of the "business of the new industrial undertaking" and it is a settled position of law that the term "business is wide enough to encompass all related activities which are integral part of the manufacturing activity.
4. The above position of law has not been properly interpreted by the learned respondent and due to his the appellant is now saddled with huge tax liability. Hence the order of the respondent deserves to be set aside.
5. The Appellant craves leave to add, delete, alter or substitute any of the grounds urged above. In view of the above facts and pleadings and submission, the 6. Appellant Humbly prays that: i) The assessment order is bad in law as the deduction u/s 80 IB claimed by the appellant is in accordance with the provisions of Section 80IB and deserves to be allowed; 4 1789/B/2013 & 7/B/2014 The levy of interest under section 234B and 234C are not in ii) accordance with the law under the facts and circumstances of the Appellant's case and needs to be cancelled; iii) Grant other such relief and benefits as applicable to the Appellant in accordance with law.
In view of the above and other grounds that may be urged at the time of hearing of the appeal, your Appellant prays that the appeal may be allowed in the interest of Justice and Equity.”
Similarly, the grounds raised
by the revenue are as under in ITA No. 1789/B/2013. “1. The order of the Learned CIT (Appeals) is opposed to law and the facts and circumstances of the case.
2. The CIT(A) erred in directing the AO to workout the expenses incurred for earning other incomes and allow deduction u/s 80IB after giving opportunity to the appellant without appreciating the fact that the directions issued are beyond the mandate of the provisions of Sec. 251(1)(a) of the IT Act which does not empower the CIT(A) to set aside the issue and not appreciating that his powers are coterminous with that of the AO.
3. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed and that of the Assessing Officer be restored.
4. The appellate craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the appeal.”
It was submitted by the learned AR that although the income from these activities of rendering of service and earning service income etc is eligible for deduction u/s 80IB but even if these are to be excluded, then also not the gross receipts but net income therefrom should be reduced from business profit of the assessee for computing deduction allowable to the assessee u/s 80IB. Learned DR of the revenue supported the assessment order.
We have considered the rival submissions. We do not find any merit in this contention of the learned AR of the assessee that activities of rendering of service and earning service income etc. is eligible for deduction u/s 80IB, but we find force in this contention of the learned AR of the assessee that if the assessee can establish that any expenses was incurred by the assessee for these incomes then the amount to be reduced from business profit of the assessee for computing deduction allowable to the assessee u/s 80IB should be not gross receipts but net income after reducing those expenses from these incomes. Although the direction of CIT (A) to the A.O. is on similar line but learned CIT(A) is not empowered to set aside the matter to A.O. Hence, we set aside the order of CIT(A) and restore the matter back to A.O. for a fresh decision with the direction that if the assessee establishes that any expenses debited to P & L Account was incurred for earning service income etc. included in other incomes, then such expenses should be reduced from other incomes and only such net other incomes should be reduced from business income of the assessee for the purpose of computing deduction allowable to the assessee u/s 80IB.
In the result, the appeal of the assessee and revenue in course of proceedings u/s 143 (3) r.w.s. 263 of I. T. Act are allowed for statistical purposes.
In the combined result, the appeal of the assessee in proceedings u/s 263 is dismissed and cross appeals in course of proceedings u/s 143 (3) r.w.s. 263 of I. T. Act are allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.