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Before: SHRI C.N. PRASAD & SHRI ASHWANI TANEJA
1 Anchor Electricals IN THE INCOME TAX APPELLATE TRIBUNNAL MUMBAI BENCH ‘’K’’, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A.No.6930/Mum/2012 - AY 2008-09 I.T.A.No.326 /Mum/2012 - AY 2011-12
Anchor Electricals Pvt Ltd V/s Dy.CIT, Cent.Cir. 7(2), Mumbai 3rd Floor, I-Think Techno Campus, Pokharan Road No.2 Thane (W) 400 067
PAN : AAECA2190C Appellant Respondent
Appellant by Shri Nitesh Joshi Respondent by Shri Mahesh Kumar CIT
Date of hearing 22.03.2017 Date of order 26.04.2017
O R D E R Per Ashwani Taneja, AM:- These appeals pertain to same assessee for two different assessment years involving identical issues, therefore, these were heard together and are disposed of by this common order.
First we shall take up appeal for AY 2008-09 filed by the assessee against the final assessment order of the AO dated 15-10-2012 passed u/s 143(3) r.w.s.
2 Anchor Electricals 144C(13) of the Act in pursuance to directions u/s 144C(5) of the Act issued by Dispute Resolution Panel-I, Mumbai, vide order dated 28-09-2012, on the following grounds:-
“Based on the facts and circumstances of the case and in law, Anchor Electricals Private Limited (hereinafter referred to as the 'Appellant') craves leave to prefer an appeal against e order passed by the learned Assistant Commissioner of Income Tax, Central Circle 41 Mumbai (hereinafter referred to as 'learned AO' or 'AO') under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel - I, Mumbai (hereinafter referred to as the 'DRP') on the following grounds, each of which are without prejudice to one another:
A. Transfer pricing adjustments Non consideration of comparability analysis as documented in 1. the transfer pricing study report On the facts and in the circumstances of the case and in law, the learned DRP! AO/ Deputy Commissioner of Income-tax - Transfer Pricing - 1(6) ('TPO') erred in not considering/ accepting the comparability analysis as documented by the Appellant in the Transfer Pricing study report (prepared as per provisions of the Act! Income-tax Rules, 1962) for benchmarking the international transaction of payment of royalty to AE.
Determining arms length price of royalty as Nil On the facts and in the circumstances of the case and in law, the learned DRP! AO! TPO erred in considering the Appellant as the economic owner of the brand name/ trademarks owned by its AE, Matsushita Electric Works Limited ('MEW') without any basis. Factual error made while passing the order 3.
On the facts and in the circumstances of the case and in law, the learned DRP! AO/ TPO erred in making a factually incorrect observation that the Appellant used brands/ trademarks currently owned by its AE, MEW in earlier years without paying any royalty.
3 Anchor Electricals 4. Ignorance of transfer pricing principles On the facts and in the circumstances of the case and in law, the learned DRP! AO, by stating that the country specific nature of the brands/ trademarks under consideration made them redundant to be used elsewhere in the world, erred in appreciating the fact that the payment of royalty by the Appellant to its AE is in line with dealings between third parties which is the essence of transfer pricing principles. 5. Benefit Test On the facts and in the circumstances of the case and in law, the learned DRP / AO / TPO erred in not appreciating the benefits received/ receivable by the Appellant on account of usage of brand name/ trademarks owned by its AE, MEW. Incorrect application of CUP method for benchmarking 6. purposes On the facts and in the circumstances of the case and in law, the learned DRP I AO / TPO erred in not appreciating the non- applicability of Comparable Uncontrolled Price ('CUP') method for bench marking the international transaction of payment of royalty by the Appellant to its AE, MEW.
Incorrect rejection of TNMM for benchmarking purposes 7. On the facts and in the circumstances of the case and in law, the learned DRP / AO / TPO erred in rejecting the Transactional Net Margin Method ('TNMM') adopted by the Appellant for benchmarking the international transaction of payment of royalty by the Appellant to its AE, MEW.
Adjustment on account of service fees/ handling charges 8. towards Oracle software
On the facts and in the circumstances of the case and in law, the learned DRP! AO/ TPO erred in law and in facts by making an adjustment to the total income of the Appellant on account of service fees/ handling charges paid by the Appellant to its AE in respect of Oracle software.
Commercial expediency challenged 9. On the facts and in the circumstances of the case and in law, the
4 Anchor Electricals learned DRP / AO / TPO erred in challenging the commercial expediency of the Appellant in relation to payment of royalty and service fees/ handling charges by the Appellant to its AEs.
B. Corporate tax adjustments I. Adjustments to book profit while computing income under section II5JB of the Act Disallowing provisions for doubtful debts 10. On the facts and in the circumstances of the case and in law, the learned AO has erred in making an addition in respect of provision for doubtful debts of Rs 201 000,000 while computing book profit under section 11 5JB of the Act, as per the directions of the DRP. Disallowing provisions for slow moving inventory 11. On the facts and in the circumstances of the case and in law, the learned AO has erred in making an addition in respect of provision for slow moving inventories of Rs 445,000,000 while computing book profit under section 11 5JB of the Act, as per the directions of the DRP. Disallowing provisions loans and advances 12. On the facts and in the circumstances of the case and in law, the learned AO has erred in making an addition in respect of provision for loans and advances of Rs 40,000,000 while computing book profit under section 11 5JB of the Act, as per the directions of the DRP. Disallowing provision for warranty 13. On the facts and in the circumstances of the case and in law, the learned AO has erred in making an addition in respect of provision for warranty of Rs 106,400,000 while computing book profit under section 11 5JB of the Act, as per the directions of the DRP. Factual error made while passing the order 14. On the facts and in the circumstances of the case and in law, the learned DRP/ AO erred in making a factually incorrect
5 Anchor Electricals observation, contrary to the submission on record, that the past performance of the warranty expenses vis-á-vis sales made in the case of Appellant doesn't support or rationalize the provision so made.
II. Additions/ disallowances for computing income under normal provisions of the Act Not granting deduction under section 801C of the Act in 15. respect of scrap sales On the facts and in the circumstances of the case and in law, the learned AO has erred in not allowing deduction under section 801C of the Act on scrap sales of Rs 1,182,475 derived from the manufacturing activity of Haridwar unit, as per the directions of the DRP. Not granting deduction under section 80IC of the Act in 16. respect of interest income On the facts and in the circumstances of the case and in law, the learned AO has erred in not allowing deduction under section 8010 of the Act on interest income on fixed deposits of Rs 110,910, as per the directions of the DRP. Reallocation of expenses while computing deduction under 17. section 80IC of the Act On the facts and in the circumstances of the case and in law, the learned AO has erred in reallocating the indirect expenses of Rs 173,036,096 incurred by the branches to the Haridwar unit for computing deduction under section 80IC of the Act, without allocating the corresponding margins earned by the branches while selling the products to ultimate customers, as per the directions of the DRP. Reducing the allocation of branches profit while 18. computing deduction under section 80IC of the Act On the facts and in the circumstances of the case and in law, the learned AO has erred in reducing the profits eligible for deduction under section 801C of the Act by Rs 14,931,244 on the
6 Anchor Electricals ground that same is earned from trading activity, as per directions of the DRP. Disallowance of provision for warranty 19.
On the facts and in the circumstances of the case and in law, the learned AO has erred in disallowing the provision of warranty amounting to Rs 106,400,000, as per the directions of the DRP. 20. Initiation of penalty proceedings under section 27(1)(c) of the Act On the facts and in the circumstances of the case and in law, the learned AO has erred in initiating he penalty under section 271(1)(c) of the Act for various disallowances / additions.” 3. In these grounds, the issue involved is with regard to transfer pricing adjustment made by the TPO on the amount of royalty paid to by the assessee to its (AE), viz. Matsushita Electric Works Ltd (MEW).
It has been informed that this issue was referred by the AE of the assessee for mutual agreement procedure between India – Japan with Japanese Competent Authorities. The order has been passed under MAP on 07-07-2014 wherein the payment of royalty has been agreed to be allowable @1.15%. Our attention was also drawn upon the Order Giving Effect to Mutual Agreement Procedure dated 13-03-2015 passed by the AO.
Under the aforesaid circumstances, these grounds were not pressed by Ld. Counsel of the assessee as these have become infructuous as on date.
Per contra, Ld. CIT-DR did not raise any objection. Under these circumstances, these grounds are dismissed as not pressed.
Grounds 8 & 9 were not pressed in view of smallness of the amounts; hence, these are dismissed.
7 Anchor Electricals 8. Grounds 10, 11 & 12: It was informed by the Ld. Counsel of the assessee that appropriate relief has been granted in subsequent years on the basis of actual claim, therefore, these grounds have become infructuous. Therefore, these are dismissed as such.
Grounds 13, 14 & 19 : In these grounds, the assessee is aggrieved with the action of the lower authorities in making disallowance for warranty expenses of Rs.10,64,00,000/- and also in making addition of the said disallowance while computing total income under the normal provisions of the Act and also book profits u/s 115JB of the Act.
The brief background of the assessee is that during the year the assessee company was engaged in the business of manufacturing and trading of electrical goods, e.g. electrical switches, MCBs, and Control Panels etc. During the assessment proceedings it was noted by the AO that assessee had made claim of provision for warranty for the aforesaid amount. The AO confronted the assessee as to why the same should not be disallowed being unascertained and contingent liability. In response, assessee placed reliance on the judgment of Hon’ble Supreme Court in the case of Rotork Controls India Pvt Ltd vs CIT 314 ITR 62 (SC) wherein it was held that provision for warranty estimated on scientific basis is not unascertained liability, since it takes care of the obligations of the assessee to be discharged in future but accrued during the year. Therefore, it can be claimed as deduction against the income booked during the year. However, AO was not satisfied with the reply of the assessee for two reasons. The first reason given by the AO was that there was no scientific basis of estimating the amount of provision and the second reason was that during the year under consideration, the assessee had changed its method of accounting whereby the assessee has started making claim by way
8 Anchor Electricals of provision for warranty whereas upto the last year, the assessee made the claim on the basis of actual expenses incurred on replacements under warranty only. It was noted by the AO that during the year the assessee has also made claim on actual basis amounting to Rs.5,03,93,000, thus, double claim was made by the assessee. Under these circumstances, the AO disallowed the amount of provision for warranty for Rs.10,64,00,000. The DRP endorsed the observations of the AO and confirmed the disallowance.
During the course of hearing before us, Ld. Counsel made arguments in detail to contest the actions of the lower authorities. It was submitted that provision for warranty was made on the basis of statistics of immediately preceding year. Our attention was drawn on the chart submitted by the assessee showing that in subsequent years up to AY 2014-15, the actual amount of warranty expenses was far more than the amount provided for in the year which indicates that the amount estimated by the assessee was not only scientific but also highly conservative, thus, the claim made was very reasonable and it should be allowed.
12 With regard to the other reasons given by the AO, i.e. change of method of accounting from actual to provision basis, it was submitted by the Ld .Counsel that admittedly, the assessee has changed the method of accounting in this year. Therefore, a claim has been made on actual basis also and the provision has also been made on account of the sales achieved during the impugned year. However, no double deduction has been claimed because the claim made on actual basis was on account of the sales effected in earlier years whereas the amount of provision is on account of the sales effected during the year. Undoubtedly, the amount of claim has been made on two counts, therefore it is on the higher sides during the year but since it is the year of
9 Anchor Electricals transition, the assessee is entitled to the claim on dual basis. In support of this arguments he placed reliance upon the judgment of Hon’ble Bombay High Court in the case of Melmould Coperation v. CIT 202 ITR 789 (Bom) wherein it was held that in case of change of method of accounting, the assessee would obviously make higher claim in the year in which changed takes place; however in the same cannot be disallowed merely because the claim is higher as compared to other years. Reliance was also placed on the judgment of Hon’ble Delhi High Court in the case of CIT v. Vinitiec Corporation Ltd. 278 ITR 337 Delhi (Del) for the preposition that assessee is entitled to change method of accounting from ‘’actual basis” to “provision basis””. With regard to the adjustment made in the book profit compute u/s 115JB by the AO on account of provision of warranty, it was submitted that Ld. Counsel that the provision for warranty is not unascertained liability and therefore it cannot be added to the book profit u/s 115JB as was held by Hon’ble Delhi High Court in the case of CIT v. Beton Dickason India (P) Ltd. 29 Taxmann.com 80 (DR).
Ld. Counsel also made an alternative prayer that in case any amount of disallowance his sustained, then the amount of profit eligible for deduction u/s 80IC should be accordingly increased and the benefit of deduction should be allowed on the higher amount of profit computed after the disallowance. It was further submitted by him that alternative prayer can be made by assessee even in absence of as specific ground in view of the judgment of Hon’ble Bombay High Court in the case of CIBA of India Ltd. V. CIT 202 ITR 1 (Bom) wherein it was held that Tribunal has ample powers for allowing an alternative claim and the claim of the assessee should not have been turned down by the Tribunal even without any specific ground or claim in this regard before the Tribunal or before the lower authorities.
10 Anchor Electricals 14. Per contra, Ld. CIT-DR vehemently opposed the arguments of the Ld. Counsel and supported the orders of the lower authorities. It was submitted by him that no scientific basis has been adopted by the assessee to make estimation of the amount of provision. It was submitted that the information provided by way of chart was not only unauthentic but also incorrect on the face of it which shall be evident from the fact that the computation of the provision has been made by extrapolating the figures of 5.5 months i.e. April, 2007 to 15th September, 2007 whereas the factual amount of complete 12 months of the financial year 2007-08 was very much available. But the amount of provision has been notionally and wrongly worked out. It was submitted by him that if the ratio of actual expenses incurred during the financial year 2007- 08 is worked out on the turnover of financial year 2006-07, as has been made the basis by the assessee to estimate the provisions of financial 2007-08, then the ration comes to around 0.60% whereas assessee has wrongly computed the same at 1.18%. It was submitted by him that assessee has been absolutely negligent and misleading in its approach. However with regard to the allegation of the AO about making double claims by the assessee, nothing was shown to us by the Ld. CIT DR if there was any actually occasion of double deduction on account of warranty expenses or provision for warranty expenses made by assessee within the year before us or in any subsequent or earlier years.
With regard to alternative prayer made by the assessee it was submitted Ld. CIT-DR that no such ground has ever been taken either before the lower authorities or before the Tribunal. Therefore, this ground should not be admitted at this stage.
In reply, Ld. Counsel of the assessee fairly submitted that there has been some computation mistake while making estimate of the provision for
11 Anchor Electricals warranty expenses. It was submitted by him that if the correct computation is made of ratio of actual claim made in financial year 2007-08 to the turnover of the financial year 2006-07, then it admittedly comes to 0.60%. He submitted a chart showing that if provision is made @ 0.60% of turnover to the financial year 2007-08 being Rs. 900.52 crores, then it comes to around Rs. 5,49,85,586/-. Therefore, amount of provision should be allowed to this extent. It was further submitted by him that subsequent years’ figures would show that actual amount of expenses is far more than this amount, therefore, by any conservative or scientific method, this much amount would in any case be allowed, by any standard.
We have gone through facts and circumstances of the case. The undisputed facts before us are that assessee is in the business of manufacturing and trading of various electrical goods for which warranties are issued by it to its customers. The assessee has been claiming warranty on actual basis in earlier years and the same has been allowed as per the information brought before us. Therefore, liability of warranty expenses is not in doubt. The AO has doubted that provision has not been computed or estimated on scientific and transparent basis and claim has been made in this year on account of actual basis on account of provision for warranty expenses. The assessee has replied that assessee has changed method of accounting and, therefore, dual claim has been made during the year and there was no other option before the assessee and assessee cannot be denied the benefit of dual claim in the year of transition. With regard to the method of calculation it was fairly submitted before us that correct computation can be re-worked as discussed above and if the computation s made accordingly, then the amount of provision is highly conservative in comparison to the expenditure incurred on actual basis in all the subsequent years i.e. upto the financial year 2013-14.
12 Anchor Electricals 18. We have considered all the arguments. It is noted by us that in this year assessee changed its method of accounting, as a result of which the amount of provision on account of warranty has been made. It is further noted by us that in all subsequent years assessee has consistently followed the new method of accounting whereby claim has been made by way of ‘provision for warranty’ and not on actual basis. Thus, assessee’s approach cannot be said to be non- bonafide nor can it be said that assessee had any ulterior motive to evade tax or to distort the profits of the year. The claim has been made on actual basis as well as on account of provision because in the year of transition, there was no other option before the assessee but to make the claim as per both the methods. Further, we find force in the reasoning given by the Ld. Counsel of the assessee that no double deduction would be made in this manner because claim made by the assessee on actual basis is on account of sales which have been effected in earlier years whereas the amount of provision created in the year is on account of sales pertaining to the impugned year, i.e. the year before us. This reasoning has not been rebutted on facts or logic by the Ld. CIT-DR. Further, our attention was brought to the judgment of Hon’ble Bombay High Court in the case of Melmould Corporation (supra) wherein excess amount of claim was held to be allowable by the Hon’ble High Court on account of change in method of valuation of closing stock. The facts in the said case were that in the year under consideration, the assessee changed its method of valuation of closing stock and valued the closing stock on the basis of cost price only whereas the opening stock was valued by adding overheads to the cost of the stock. The AO revalued the opening stock also and the action of AO was upheld by the Tribunal. But Hon’ble High Court accepted the claim of the assessee and held that opening stock is not required to be revalued when the assessee has been permitted to change the method of valuation of closing stock for that
13 Anchor Electricals year. It was also held that value of closing stock will automatically become value of opening stock of the next year. Therefore, no adjustment is required to be made. The observations made by the Hon’ble High Court are reproduced herein below:- “The assessee had adopted the cost price as a basis for valuing its stock. For the earlier previous year, however, the assessee determined cost price by adding overheads to the cost of the stock, while in the relevant assessment year, it decided to change this method by determining cost price without taking into account overheads. The decision of the Tribunal is on the footing that since the closing stock was valued by adopting a certain method, the same method should be adopted in valuing the opening stock. In other words, the change in the method of valuation, according to the Tribunal, should commence with valuing the opening stock of any previous year by the new method which is to be adopted for valuing the closing stock as well. The assumption so made by the Tribunal appears to be contrary to the normally accepted accounting principles. The value of the closing stock of the preceding year must be the value of the opening stock of the next year. The change, therefore, has to be effected by adopting the new method for valuing the closing stock which will, in its turn, become the value of the opening stock of the next year. If instead, a procedure is adopted for changing the value of the opening stock, it will lead to a chain reaction of changes in the sense that the closing value of the stock of the year preceding will also have to change; and correspondingly the value of the opening stock of that year and so on. Whenever there is a change in the method of valuation, there is bound to be some distortion in the calculation of profit in the year in which the change takes place. But if the change is brought about bona fide and is in accordance with the normally accepted accounting practice, there is no reason why such a change should not be permitted. The direction given by the Tribunal to revise and determine the value of the opening stock also by excluding all overhead expenses, is not justified.” (Emphasis supplied in bold and underline) 19. Thus, from the perusal of the above, it may be noted that Hon’ble High Court has taken note of this crucial aspect that in the year of change, there is
14 Anchor Electricals bound to be some distortion in the calculation of profit of the year in which the change takes place. However, if the change brought out is bonafide and is in accordance with the normally accepted commercial practice, then there is no reason why such a change should not be permitted. 20. In the facts of the case before us, there is no allegation that the change in the method of accounting of making the claim by way of provision as against on actual basis was not bonafide or it was due to some ulterior motive of evasion of tax. It is also noted that Hon’ble Supreme Court in the case of Rotork Controls India (P) Ltd (supra) has held that assessee is entitled to make claim on account of warranty expenses by way of provisions by estimating the amount on some scientific basis. Further, the Hon’ble Delhi High Court in the case of CIT vs Vinitec Corporation (supra) has held that assessee is entitled to change the method of accounting with respect to claim of warranty expenses from ‘actual basis’ to ‘provision basis’. Thus, taking into account the facts and circumstances of the case and legal position as discussed above, we find that assessee was entitled to make claim on account of provision for warranty expenses in the year before us. 21. However, the amount quantified for the provision is also under dispute and rightly so. It is brought before us that computation made by the assessee for estimating the provision was incorrect. Ld. Counsel has also fairly agreed to this position. We have verified the facts and figures. It is informed that the basis for making provision in this year was on the basis of actual claim booked in FY 2007-08 as compared to the turnover of FY 2006-07. It is informed that the amount of actual claim booked in financial year 2007-08 was Rs.5,03,93,000 and the amount of turnover for the FY 2006-07 was to the tune of 825,30,47,487 (i.e. Rs.825.31 crores). Thus, the ratio of the two comes
15 Anchor Electricals to around 0.61%. Now if we apply the ratio of 0.61% to the turnover of FY 2007-08 which is Rs.900.52 crores, then we get an amount of Rs.5,49,85,586 as per the chart provided by the assessee, which is reproduced below:- Particulars Amount in INR 9,00,51,92,314 Sales for the year ended March 31, 2008 Rate to be applied as per ratio of warranty expense to sales of previous year 0.61% Provision for warranty 5,49,85,586
Rate of provision for warranty to be applied in FY 2007-08
Particulars Amount in INR
Net Replacement cost as on 31 March 2008 5,03,93,000 Sales for financial year ending 31 March 2007 8,25,30,47,487 Ratio based on last years sale 0.61%
The said figure has been accepted as correct by Ld. CIT-DR also. Thus, we find it proper that amount of provision should be allowed for the said figure of Rs.549,85,586. The AO is accordingly directed to delete the disallowance to this extent and the balance of disallowance, if any, is upheld. The assessee gets part relief.
16 Anchor Electricals 23. With regard to the adjustment in book profit u/s115JB is concerned, it is noted that this issue is squarely covered in favour of the assessee by the judgment of Hon’ble Delhi High Court in the case of CIT v. Becton Dickason India (P) Ltd. (supra), wherein it has been held that the provision for warranty cannot be treated as provision for diminution in value of any assets so as to be covered by Explanation 1(i) to section 115JB (2) and thus no additions to book profit can be made. Further, Hon’ble Supreme Court in the case of Rotork Controls India (P) Ltd. (supra) held that amount of provision made on account of warranty expenses cannot be said to be unascertained liability. Thus, taking into account both these decisions, we find that no addition could have been made u/s 115JB for this amount. Therefore, addition to book profit is directed to be totally deleted.
As far as alternative prayer of assessee is concerned, we find force in the argument of Ld. Counsel. It is an automatic and spontaneous process. In case disallowance is made on account of provision of warranty expenses, then assessee should be granted benefit of deduction u/s 80IC on the larger amount of profits, which are revised and increased as a result of aforesaid disallowance. In our considered opinion, it is the bounden duty of the AO to compute the income and tax payable thereon strictly as per law. Article 265 of constitution of our country clearly lays down that no tax can be collected without authority of law. In our considered opinion, this claim is automatic and should be considered by AO on its own even if no such claim has been made by the assessee before the lower authorities. The objective of income tax proceeding is to arrive at the amount of total income and tax payable thereon by an assessee in the most fair, justified, legal and transparent manner.
17 Anchor Electricals 25. Ld. Counsel of the assessee has rightly placed reliance on the judgment of Bombay High Court in the case of CIBA of India Ltd. v. CIT (supra) wherein it has been held that in case claim of the assessee is turned down, then alternative claim of the assessee must be considered in the interest of justice.
Thus, with a view to uphold the law and to render justice, we direct the AO to examine and grant the claim of the assessee u/s 80IC on the amount of profit which may be recomputed after adding back all the disallowances as are sustained finally. Thus, grounds 13, 14 and 19 are partly allowed in terms of our directions as given above.
Ground 15: In this ground, assessee is aggrieved by the action of lower authorities in denying benefit of deduction u/s 80IC on the amount of scrap sales. 28. The brief background is that AO denied benefit of deduction on the amount received the assessee of sales of scrap generated on the ground that receipt on sale of scrap does not form part of the business income since it is not derived from business activity of the industrial undertaking for the purpose of deduction u/s 80IC.
During the course of hearing before us, Ld. Counsel of the assessee drew of our attention upon the decision of the Tribunal passed in assesses’s own case for AY 2009-10 in ITA NO. 786/M/2014 dated 23/9/2016.
Per contra Ld. CIT-DR relied upon the orders of lower authorities and submitted that in absence of proper details disallowance was rightly made by the AO and upheld by the DRP.
We have gone through the orders passed by the lower authorities as well as order passed by the Tribunal in assessee’s own case for AY 2009-10. It is
18 Anchor Electricals noted that the Tribunal has noted in its order that scrap has been generated in the course of manufacturing and production process and therefore it is eligible for the benefit of deduction 80IC. Relevant part of the order of Tribunal is reproduced below:-
“9. In Grounds of appeal No.14 & 15, the issue relates to exclusion of income by way of scrap sales for the purposes of deduction u/s. 80IC of the Act. On this aspect, the Assessing Officer has excluded a sum of Rs.12,40,48,000/-, which ostensibly is the figure of sale of scrap of the assessee as a whole and not in relation to the section 80IC eligible Haridwar Unit. Therefore, the adoption of the figure of Rs.12,40,48,000/- by the Assessing Officer is anyway incorrect. The scrap sales in relation to the Haridwar Unit is only at Rs.1,19,22,639/-. In any case, on the merit of the claim, it is quite clear that income by way of sale of scrap generated in the manufacturing and production process is also entitled for claim of deduction u/s. 80IC of the Act. Before us, the Ld. Representative for the assessee has relied upon the following judgments in support of such claim:- (i) CIT vs. Sandhu Forging Limited, 336 ITR 0444 (Del) (ii) CIT & Another vs. Modi Xerox Ltd.,265 ITR 200 (All) (iii)Asia Investments Ltd. vs. DCIT, 90 ITD 0630 (Mum.Trib) (iv)CIT vs. Micro Turners , 205 Taxman 18. 9.1 On this aspect also, we deem it fit and proper to restore the matter back to the file of the Assessing Officer with a direction that while re-computing the eligible deduction u/s. 80IC of the Act, sale of scrap generated during the manufacturing and production process be included for the benefit of section 80IC of the Act.” 32. Thus, from the perusal of the above, it is clear that the Tribunal on considering the facts of the case and various judgements held that assessee is eligible for deduction u/s 80IC on the amount of sale of scrap. Therefore, we direct the AO to grant the benefit of deduction u/s 80IC on the amount of sale of scrap. This ground is allowed.
19 Anchor Electricals 33. Ground No. 16: In this ground, assessee is aggrieved by the action of lower authorities in denying the benefit of deduction u/s 80IC on the amount of interest income on FD of Rs.1,10,910/-. During the course of hearing, Ld. Counsel relied upon the judgment of Hon’ble Supreme Court in the case of CIT v. Karnal Cooperative Sugar Mill Ltd. 243 ITR 2(SC). Per contra, Ld. DR relied upon the orders of lower authorities and also placed reliance on the judgment of Hon’ble Supreme Court in the case of Pandian Chemicals Ltd. v. CIT 262 ITR 278(SC).
We have gone through the facts of the case and find that this issue also came up before the Tribunal for AY 2009-10 wherein the Tribunal held that the claim of deduction u/s 80IC benefit shall not be allowed on the interest income. Therefore, respectfully following the order of the Tribunal for AY 2009-10 this ground is decided against the assessee and the action of AO is upheld.
Grounds 17 to 20 were not pressed, hence dismissed.
Now, we shall take up appeal for AY 2011-12. The only ground pressed in this appeal is with regard to denial of benefit u/s 80IC in respect of revenue generated through sale of scrap of Rs.1,23,89,316. During the course of hearing, both the parties jointly stated that facts and circumstances of this case as well as legal position are same as in AY 2008-09. We have already held that benefit deduction u/s 80IC is available to the assessee on the amount of scrape sales. Therefore, following our orders, this ground is allowed in favour of the assessee.
All other grounds are dismissed as not pressed.
In the result of appeals of the assessee are partly allowed.
20 Anchor Electricals Order was pronounced in the open court on 26 .4.2017 .
Sd/- sd/-
(C.N. PRASAD) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dt : 26.04.2017 pk/- Copy to : 1. The appellant 2. The respondent 3. The CIT(A) 4. The CIT 5. The Ld. Departmental Representative for the Revenue, “K”, Bench (True copy) By order
ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES