M/S HALYCON LIFE SCIENCES PVT. LTD.,CHANDIGARH vs. PR. CIT (CENTRAL), GURGAON

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ITA 578/CHANDI/2016Status: DisposedITAT Chandigarh06 March 2018AY 2010-115 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that excise incentives, interest on FDRs made for business compulsions, and income from scrap sales are integral parts of the business and eligible for deduction under Section 80IB. Therefore, the Pr. CIT's order under Section 263 was not justified.

What were the facts?

The Principal CIT (Pr. CIT) invoked Section 263 to revise an assessment order, holding that the Assessing Officer (AO) had erroneously allowed deduction under Section 80IB on income not derived from the industrial undertaking, such as excise incentives and interest on FDRs. The assessee appealed this revision order.

What were the issues?

Whether excise incentives, interest on FDRs, and scrap sale income are eligible for deduction under Section 80IB, and if the Pr. CIT was justified in revising the AO's assessment under Section 263.

Which sections of the Income-tax Act were involved?

Section 263,Section 153A,Section 143(3),Section 80IB

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, DIVISION BENCHES ‘A’, CHANDIGARH

Before: MS. DIVA SINGH & DR. B.R.R.KUMAR

For Appellant: Shri Ved Jain
For Respondent: Dr. Gulshan Raj
Hearing: 11.12.2017Pronounced: 06/03/2018

PER DR. B.R.R.KUMAR, AM:

The present appeal has been filed by the Assessee against the order passed under section 263 of the Income Tax Act, by the Pr. CIT(Central), Gurgaon dt. 28/03/2016.

2.

In the present appeal assessee has raised the following effective grounds:

2.

That the Ld. PCIT(Central) has wrongly set aside the assessment order of the Ld. Assessing Officer under section 263 of the Income Tax Act. 3. That the Ld. PCIT(Central) has wrongly passed order under section 263 on the issue already decided by the Assessing Officer in order passed under section 153A(1)(b) r.w.s 143(3) of the Act.

3.

Brief facts of the case are that the assessment in the case has been completed under section 153A (1) (b) by the DCIT, Central Circle-2 Chandigarh on 03/03/2014 accepting the returned income. Subsequent to the passing of assessment order the Ld. PCIT, Central Gurgaon has invoked powers conferred by Section 263 and passed an order on 28/03/2016. The order of the Ld. Pr. CIT passed under section 263 of the Income Tax Act, reads as under:

A perusal of the assessment records shows that:

"total income was assessed at Rs. 12,46,210/- after allowing , deduction of Rs. 2,66,88,138/- u/s 80 IB thereafter, tax was charged u/s 115JB on book profit of Rs. 2,7,34,595/-. However, it appears that the deduction u/s 80IB has been wrongly allowed on income other than income arising from the business of an industrial undertaking viz. Excise Incentive, Interest on FDR, Miscellaneous write off and other miscellaneous Income, amounting in all to Rs. 4.01,69.808/-. As per the principles laid down by-various courts, deduction u/s 80 IB is available only on income derived from industrial undertaking and not on income which is merely attributable to it. The failure on the part of the Assessing Officer to draw adverse inference in the matter has rendered the assessment order erroneous as well as prejudicial to the interest of revenue”

2.

Accordingly, a show cause notice was issued to the assessee vide this office letter F. No. Pr. CIT(C)/GGN/15-16/Revision-9/4983 dated 16/11/2015 why proceedings u/s 263 be not initiated.

3.

The assessee vide his letter dated December 12th, 2015 has objected to the proceedings u/'s 263: (a) That proceedings u/s 263 does not lie.

(b) Cited various case laws that the income arising from Excise Incentive. Interest on FDR, Miscellaneous write off and other miscellaneous Income, amounting to Rs. 4.01.69.808/- are not to be excluded for the purposes of deduction u/s 80 IB.

4.

The facts of the case have been considered. The details of other income amounting to Rs. 4,01,69,808/- is as under:

Sr. Particulars Amount No . 1 Excise Incentives 4,01,20,670/- 2. Interest on FDR 18,931/- 3. Misc. W/OIT 1,222/- 4. Misc. Income 258,985/- Total 4,01,69,808/-

The Hon’ble Supreme Court in the case of Liberty India Vs. CIT 317 ITR 218 05. (SC) held, " Continuing our analysis of Sections 80-IA/80-IB it may be mentioned that sub-section (13) of Section 80-IB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) of Section 80-IA, sofa-as may be, applicable to the eligible business under Section 80-IB. Therefore, at the outset, we stated that one needs to read Sections 801, 80-IA and 80-IB as having a common Scheme. On perusal of sub-section (5) of Section 80-IA, it is noticed that it provides for manner of computation of profits of an eligible business. Accordingly, such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business has got to be rejected of the overriding provisions of sub- section (5) of Section 80-IA, which are also required to be read into Section S0-1B. /see Section 80-IB(13}]. We may reiterate that Sections 801, 80- IA and 80-IB have a common scheme and if so read it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investment. On analysis of Sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-

section(2), would be entitled to deduction under sub-section (I) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section(l) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking". Profit generation could be on account of cost cutting, cost, rationalization, business restructuring, tax planning on sundry balances being written back, liquidation of current assets etc. Therefore, we are of the view that duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods; debited in the Profit & Loss account for purposes of Sections 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the fifsCdegree nexus between profits and the industrial undertaking."

6.

Following the principle laid down by Hon'ble Supreme Court, the Excise Incentive. Interest on FDR. Miscellaneous write off and other miscellaneous Income are not income "derived from industrial undertaking." 7. Accordingly, the AO has erred in allowing deduction u/s 80 IB in respect of income i.e. Excise Incentive. Interest on FDR. Miscellaneous write off and other miscellaneous Income, amounting to Rs. 4,01,69,808/-.The order of the AO fs. therefore, erroneous and prejudicial to the interest of the revenue. 8. The AO is therefore directed to recalculate die deduction u/s 80 IB by excluding the income from Excise Incentive. Interest on I'DR. Miscellaneous write off and other miscellaneous Income. The AO is directed to re-compute the deduction u/s 80-IB as per aforesaid directions.

4.

Before us the Ld. AR argued that the observations of the Ld. Pr. CIT on excise incentives as not eligible for deduction cannot be accepted in view of the various judgments. The Ld. AR relied on the judgment of Hon’ble Supreme Court in the case of CIT Vs. M/s Shri. Balaji Alloys (2016) (4) TMI wherein the Hon’ble Supreme Court decided the issue of incentive in favour of the assessee by applying the ratio in the case of Ponni Sugars and Chemicals Ltd. (2008) 9 SCC 377. Similarly in the case of Balaji Alloys, Hon’ble Punjab & Haryana High Court has dismissed the appeal of the Revenue in the case of Shivalik Agro Chemical Ltd. 2016 (10) TMI 811.

4.1 Further in the case of CIT Vs. Dharmpal Prem Chand Ltd. 2008 (11) TMI 231 wherein Delhi High Court held that excise incentive is eligible for deduction as it would constitute profits and gains derived from any business. Similarly in the case of Green Field Enterprises Vs. Addl. CIT(2016) (5) TMI 929 the coordinate Bench has treated excise incentive as eligible for deduction.

5.

Ld. CIT, DR strongly relied on the order of the Ld. Pr. CIT.

6.

We have gone through the judgments quoted and also the order of the Pr. CIT. We find that the companies availing the benefit of notification no. 56/2002 CE dt. 14/11/2002 to Central Excise which under a special procedure the manufacturers located in J&K first pay excise duty and cess and there after claim the refund of the same under Central Excise Tariff. Thus it makes an integral part of the profits of the business which would be eligible for deduction under section 80IB.

7.

The order of the Pr. CIT holds that the excise incentive is not eligible for deduction which is in contravention with the established judicial position as detailed above. Hence, the order of the Ld. Pr. CIT cannot be held to be valid under this head.

8.

Regarding the FDR’s amount of Rs. 18,931/- the Ld. AR submitted that the amount represents the income from FDRs opened for sales tax and electricity department in Jammu which are required under respective law to run business of the assessee and they have direct nexus with the business income. Since the FDR’s made for the purpose of the business the interest and is also eligible for deduction. The Ld. Pr. CIT has also held that the interest on FDR’s of Rs. 18,931/- and Misc. income of Rs. 1,222/- and income out of the scrap sale of Rs. 2,58,985/- is not eligible for deduction under Chapter VI-A.

9.

From the perusal of the record and submissions it was found that the FDR’s have been made for the purpose of electricity connection for the Jammu Unit. Since the FDR’s have been made out of business compulsion, the interest earned would be eligible for deduction under section 80IB. Reliance is placed on the judgment of Hon’ble Delhi High Court in the case of Pr. CIT Vs. Universal Precision Screws in ITA No. 392/2015 dt. 06/10/2015 and also on the judgment of Hon’ble Delhi High Court in the case of Riviera Home Furnishing Vs. Addl. CIT in ITA No. 459/2015 dt. 19/11/2015.

10.

The sale of scrap is an integral part of the manufacturing activity thus it would be directly related to business and eligible for deduction. Reliance is placed on the judgment of Hon’ble Delhi High Court in the case of CIT Vs.

Saadhu Forging Ltd. 336 ITR 444. Similarly the misc. income written off of Rs. 1,222/- is a part of the business income and would be eligible for deduction.

11.

Since the additions proposed by the Ld. Pr. CIT on account of excise incentives, sale of scrap, interest on FDR’s are squarely covered by the judicial precedence’s, it cannot be said that allowing of such deduction by the Assessing Officer is erroneous or prejudicial to the interest of Revenue. Hence we found no justification in invoking the provisions under section 263 of Income Tax Act in relation to the assessment done by the DCIT, Central Circle-II Chandigarh.

12.

Thus all the grounds taken by the assessee are treated to be allowed.

In the result, appeal of the assessee is allowed. 13.

Order pronounced in the Open Court.

Sd/- Sd/- (DIVA SINGH) (DR.B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER

Date: 06/03/2018 AG Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR

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