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Order under section 254(1) of Income Tax Act PER PAWAN SINGH JUDICIAL MEMBER:
1. 1. These two cross appeals under section 253 of Income Tax Act(‘Act’) are filed against the order of Ld. Commissioner of Income-tax(Appeals) 21, Mumbai, dated 08.12.2014 for Assessment Year(AY) 2011-12. As both the appeals are arising out of same order, thus both the appeal were clubbed together, heard and are decided by common order to avoid the conflicting decision.
2. In , the assessee has raised the following grounds of appeal: & 1565/Mum/2015 Parle Biscuit P Ltd.
Deduction under section 80-IC 1. The learned CIT(A) erred in confirming the action of the Deputy Commissioner of Income-tax, Range 9(2), Mumbai ('DCIT') in reducing the following other income while computing the deduction under section 80-le on the basis that it is not a first degree or the proximate profit of the business of the appellant: Sr.No. Particulars Amount (INR) 1. Interest on bank deposits, government 5,13,498 securities, security deposits and loan to employees 2. Scrap sales in the nature of iron and steel 5,79,686 3. Transport claim of depot transport 33,68,136 Total 44,61,736
Disallowance of expenses under section 14A 2.1 The learned CIT(A) erred in confirming the additional disallowance of INR 1,43,60,136 under section 14A read with Rule 8D. 2.2 The learned CIT(A) erred in not considering the decision of Hon'ble Mumbai Tribunal in the appellant's own case for assessment year 2008-09. 3 Each one of the above grounds of appeal is without prejudice to the other. 4 The appellant reserves the right to amend, alter or add to the above grounds of appeal.
3. In the revenue has raised the following grounds of appeal: 1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in treating the scrap sales as eligible for deduction u/s. 80IC without appreciating the fact that the same does not have direct nexus with the profit of the business of the assessee." 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the scrap sales as eligible for deduction u/s.80IC without appreciating that the income on account of scrap sales is not derived from or attributable to the business carried on by the assessee." 3. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that the income of Rs.1,25,82,977/- received on waste generated from manufacturing process is to be included in "Business Income" instead of "Income from Others Sources" for the purpose of deduction u/s 80IC."
4. We have heard ld. AR of the assessee and the ld DR for revenue and gone through the material placed before us. The learned AR of assessee argued that grounds of appeal raised in assessee’s appeal is covered in his favour and the issue ground raised in Revenue’s appeal is covered against assessee by various decision of this Tribunal in assessee’s own case for AY 2008-09, 2009-10 & & 1565/Mum/2015 Parle Biscuit P Ltd.
2010-11. The Ld. AR of the assessee filed a chart/ tabulation of grounds decided in earlier years. The ld. DR not disputed the factual position of various decisions placed on record by ld. AR of the assessee. First we shall take up appeal filed by assessee. (Assessee’s appeal) 5. Ground No.1 relates to reducing the other income while computing the deduction under section 80 IC to the extent of Rs. 44,61,776/- which consist of interest on Bank deposits, Government Securities, Security deposits and loans to employees of Rs. 5,13,498/-. Scrape sales in the nature of Iron & Steel of Rs. 5,79,686/-. Transportation claim of depot transport of Rs. 33,68,136/-.
We have seen that similar issue arise for AY 2008-09 & 2009-10 and again in AY 2010-11. The Co-ordinate Bench of this Tribunal while considering the identical grounds of appeal
in assessee’s own case for AY 2010-11 in while following the decision of earlier years (AY-2008-09 &2009-10) made the following order: “5. We have seen that similar issues arose for assessment 2008-09 and assessment year 2009-10 and the same with considered by Tribunal vide ITA No.8199/M/2011, wherein similar claims of interest income on bank deposits and transport claim was decided against the assessee and claim related with scrape sale was decided in favour of assessee holding as under: “8. We have considered the rival submissions and perused the orders of the lower authorities. Undoubtedly the assessee may have some arrangement with its bank which the amount exceeding a certain limit would automatically be converted into flexible deposit receipts. But nevertheless the nature of income is interest on bank deposits. Therefore we do not find any reason to tinker with the finding of ld CIT(A).
9. The second item relates to scrap sales of drum, the bags etc. The details of which were provided to the AO and the same have been exhibited at page 77 of the paper book. The AO was of the opinion that such a scrap sale has no direct link with the profit and gains derived from an industrial undertaking making it eligible for deduction under section 80 IC of the Act and profits from such undertaking has to be distinguished as to whether they belong to the category of “first-degree profit ”or ‘auxiliary profit’. The AO concluded that it cannot be said that scrap that has been generated is the first-degree approximate profit of business of the assessee. The business of the assessee is to make item of confectionery etc, and does not earn income by sale of such a scrap & 1565/Mum/2015 Parle Biscuit P Ltd. and accordingly excluded the entire sale of a scrap to the tune of Rs. 74,08,714/-from the eligible profit.
10. Before the ld CIT (A), the assessee once again furnished the details and submitted that out of the total scrap sales amounting to Rs. 74,08,714/-, Rs.27,14,604/- belonged to the waste occurred during biscuit manufacturing process and therefore it cannot be said that such a scrap sale has no direct nexus with the manufacturing activity of the assessee. The ld CIT(A) was convinced to this extent that waste occurred during biscuit manufacturing process are part of the manufacturing process and therefore are eligible for including deduction under section 80 IC. So far as the balance amount of Rs.46,94,110/- is concerned the ld CIT(A) agreed with the AO.
11. Before us, the learned counsel for the assessee drew our attention to pay 77 of the paper book and submitted that AO and the learned CIT(A) both have erred in not considering the sale of a scrap so far as part-B of the details is concerned.
12. We have carefully perused the details as exhibited at page 77 of the paper book . We find that there are few items which are part of plant and machinery is used in the manufacturing process. That being so, in our humble opinion, these items are part of capital asset and any sale of scrap would go to reduce the written down value of the asset. To this extent we have no hesitation to confirm the finding of the lower authorities. We find that the total of these items comes to Rs. 11,36,173/- 13. We accordingly direct the AO to restrict the exclusion from the eligibility profit under section 80 IC to the extent of Rs. 1136173/-only. Therefore assessee gets eligibility for deduction at Rs. 3557937/-under section 80 IC of the Act.
The next item relates to transport claim of depot transport to the tune of Rs. 15,34,970/-. It appears that this amount is included in the total miscellaneous receipt of Rs. 15,67,986/-. Details of which have been exhibited from pages 78 to 89 of the paper book. As the AO has excluded the entire miscellaneous receipt from the eligibility of the deduction under section 80 IC of the Act, he has not discussed the transport claim separately.
Before the ld CIT(A), the assessee retreated its submission but without any success.
Before us, the learned counsel for the assessee drawing our attention to pages 78 to 89 of the paper book submitted that these claims are made from the transporters for delay in transportation of goods to the parties. As per the agreement, if the transporters failed to transport the goods on the time, nominal charge was deducted from the transport payment. These charges being part of the business of the assessee therefore these should be allowed to be eligible for the claim of deduction under section 80 IC of the Act.
& 1565/Mum/2015 Parle Biscuit P Ltd.
Per contra, the learned Department Representative strongly relied upon the order of lower authorities..
We have carefully perused the details as exhibited from pages 78 to 89 of the paper book. We find that these claims have been made by the assessee for delay in services of goods. However, we find that the transportation expenses have been charged to profit and loss account by the assessee. Therefore, any recovery from the transporter for improper service would not, ipso facto, make it eligible for deduction under section 80IC of the Act as it is clear from the details, the claim of Rs. 15,34,970/- his income from other sources and the revenue authorities have rightly excluded this amount from the eligibility of section 80 IC of the Act. 18. To sum up the entire grievances of the assessee raised as per ground No.1, the assessee gets eligibility for deduction under section 80 IC to the extent of Rs. 355797/-. Ground No1 is partly allowed.” 6. Thus respectfully following the decision of coordinate bench for AY 2008- 09 the ground No.1 raised in the present appeal is decided with similar directions.
Thus, considering the decisions of earlier years in assessee’s own case and following the principal of consistency this ground of appeal
is allowed in favour of assesses with similar directions.
8. Ground No. 2 relates to the disallowance u/s 14A r.w. Rule 8D of the Act. We have seen that similar ground of appeal came up for consideration before the Tribunal in assessee’s own case for AYs 2008-09 & 2009-10 and further in AY 2010-11. And the co-ordinate bench of this Tribunal while relying on the decision of earlier year in for AY 2010-11 passed the following orders:
“9.Ground No.3 relates to the disallowance made under section 14 A of the Act. We have seen that similar grounds of appeal came up consideration before the Tribunal in assessee’s own case for assessment year 2008-09 and in 2009-10. The coordinate bench of this Tribunal in assessee’s own case in passed the following order:
7. The third grievance relates to the disallowance under section 14B amounting to Rs 38,12,000/-. The similar issue was considered by the Tribunal in AY 2008-09 qua ground No2. In ITA No.8199/M/11 and at para 24 the Tribunal held that disallowance of Rs. 100,000/- would meet the end of justice considering the balance-sheet of the assessee in 5 & 1565/Mum/2015 Parle Biscuit P Ltd. totality. In our considered opinion and respectfully following the decision of coordinate bench, a disallowance of Rs. 1,00,000/- would meet the end of justice. We, accordingly direct the AO to restrict the disallowance of Rs,100,000/-. Ground No.1 is partly allowed.” 10.Thus we respectfully following the order of coordinate bench in assessee’s own case in dated 20.05.2015, for assessment year 2009-10 the disallowance under section 14 A is restricted to Rs. 100,000/-. Accordingly this ground of appeal is partly allowed.”
9. Thus, considering the decisions of coordinate bench in assessee’s own case in earlier year’s case and following the principal of consistency this ground of appeal is allowed in favour of assesses with similar directions.
ITA No. 1565/Mum/2015 (Revenue’s appeal) 10. The revenue has raised only one ground of appeal which relates to deduction under section 80IC. We have seen that similar grounds of appeal came under consideration before this Tribunal in assessee’s own this for AY 2008-09 and 2009-10 & 2010-11. The coordinate bench of this Tribunal while considering the identical grounds of appeal in assessee’s own case for AY 2010-11 while following the decision of earlier orders for AY 2008-09 & 2009-10, made the following grounds: “12.The revenue has raised only one ground of appeal which relates to deduction under section 80IC. We have seen that similar grounds of appeal came under consideration before this Tribunal in assessee’s own this for AY 2008-09 and 2009-10. The coordinate bench of this Tribunal in for AY 2008-09 made the following order. “27. With this appeal, the revenue has challenged the correctness of the order of ld CIT(A) by raising to substantive grounds of appeal. Ground number one relates to the part relief given by ld CIT(Appeals) from the income received on scrap generated from wastage.
28. This issue has been decided by us in ground No.1, item No 2 and in paras 9 to 12 in ITA No. 8199/M/2011 and assessee’s appeal. This ground is accordingly decided partly in favour of the revenue.” (As quoted in AY 2009-10, ITA No. 8199/Mum/2011 above) 13.We have seen that when the similar issue was raised by revenue in AY 2009-10 in ITA N o. 6661/M/2012 the Tribunal has followed its order for earlier year. Thus we respectfully following the order of coordinate bench hold that revenue is entitled for the limited relief as per order in Revenue’s appeal for AY 2008-09 and 2009-10. We order accordingly.”
& 1565/Mum/2015 Parle Biscuit P Ltd.
Thus, keeping in view the principle of consistency, this issue is partly decided in favour of Revenue.
In the result appeal of the assessee is allowed and appeal of the Revenue is partly allowed.