TMI Blog2013 (9) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... ted:- 12-6-2012 - SH. H.S. SIDHU, AND SH. B.P. JAIN, JJ. Appellant by: Sh. Subhash Jalan, CA Respondent by: Sh. R. L. Chhanalia, DR ORDER PER BENCH ; These cross appeals - five by the assessee and five by the Revenue arise from five different orders of the CIT(A), Jammu, as per details herein below: ITA No. Assessment year Date of CIT(A) s order 345(Asr)/2010 (A) 2004-05 07.07.2010 391(Asr)/2010 (D) 2004-05 07.07.2010 346(Asr)/2010 (A) 2006-07 07.07.2010 392(Asr)/2010 (D) 2006-07 07.07.2010 13(Asr)/2011 (A) 2007-08 16.11.2010 18(Asr)/2011 (D) 2007-08 16.11.2010 129(Asr)/2011 (A) 2008-09 16.02.2011 107(Asr)/2011 (D) 2008-09 16.02.2011 130(Asr)/2011 (A) 2009-10 23.03.2011 312(Asr)/2011 (D) 2009-10 23.03.2011 2. In ITA No.345(Asr)/2011, the assessee has raised following grounds of appeal: 1. The orders of the lower authorities are arbitrary, not based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1961 of Rs.1,00,90,46,836/-. a) Whether the Ld. CIT(A) was right in holding that the industrial undertaking of the assessee firm at Dadra was not formed by the splitting up or reconstruction of the existing business of M/s. Sun Phamaceuticals Industries Ltd. b) Whether the Ld. CIT(A) was right in holding that the assessee firm is entitled to deduction u/s 80IB(4) of the Income tax Act on the profits of its industrial undertaking at Dadra for the unexpired period in view of CBDT Circula F.No.15/5/63- IT(AI) dated 13.12.1963. 2. Regarding disallowance of deduction u/s 80IB read with sec. 80IA(10) of the Income Tax Act, 1961 of Rs.22,77,21,538/-. Whether the Ld. CIT(A) was right in deleting the disallowance made by the AO on account of deduction u/s 80IB(4) of the Act to the extent of Rs.22,77,21,538/- by applying the provisions of section 80-IB(13) read with section 80IA(10) of the Act. 3. Regarding disallowance of deduction u/s 80IB of the Act in respect of interest on delay payments from M/s. Aditya Medisales Ltd. amounting to Rs.4,96,67,120/- Whether the Ld. CIT(A) was right in deleting the disallowance u/s 80IB of the Income Tax Act, 1961 in respect of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the SPIL to the appellant at the lower prices. 5. Reg: Disallowance of deduction u/s 80IB(13) r.w.s.80IA(10 due to alleged selling and distribution expenses. a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) having allowed the assesse s appeals in respect of ground No. 4 to 7 regarding disallowance of deduction u/s 80IB in respect of refund received from Central Excise Duty paid by the appellant without appreciating that refund was received as a matter of procedure and that the said refund cannot be construed as an income. In any case, such refund is very much derived from the business of industrial undertaking and hence eligible for deduction us/ 80IB. 6. Reg: Disallowance of deduction u/s 80IB in respect of Central Excise Duty Refund of Rs.50,12,45,460/- (a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in upholding the findings of the AO regarding disallowance of deduction u/s 80IB in respect of refund received of Central Excise Duty paid by the appellant without appreciating that refund was received as a matter of procedure and that the said refund cannot be construed as an income. In any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0IB(4) of the Act to the extent of Rs.73,55,43,121/- by applying the provisions of section 80-IB(13) read with section 80IA(10) of the Act. 3. Regarding disallowance of deduction u/s 80IB of the Act in respect of interest on delay payments from M/s. Aditya Medisales Ltd. amounting to Rs.4,25,18,962/- Whether the Ld. CIT(A) was right in deleting the disallowance u/s 80IB of the Income Tax Act, 1961 in respect of interest on delayed payments from M/s. Aditya Medisales Ltd. aggregating to Rs.4,25,18,962/-. 4. Whether the Ld. CIT(A) was right in deleting the disallowance u/s 80IB of the Income Tax Act, 1961 on account of disallowance of remuneration u/s 40(b) of the Act amounting to Rs.60,82,14,815/-. 6. Whether the ld. CIT(A) was right in granting higher deduction u/s 80IB of the Act on account of disallowance u/s 43B of the Act amounting to Rs.12,86,748/-. 6. In ITA No.13(Asr)/2011, the assessee has raised following grounds of appeal: 1. The orders of the lower authorities are arbitrary, not based on proper evidences, without proper reasons, invalid and also bad in law. 2. Re:Initial assessment year u/s 80-IB(14)(c) read with sec.80-IB(2)(ii) a) On the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by SPIL on behalf of the appellant by Rs.14,80,67,301/-. 6. Regarding disallowance of deduction u/s 80IB in respect of Central Excise Duty Refund of Rs.80,72,19,118/-. a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in upholding the findings of the AO regarding disallowance of deduction u/s 80IB in respect of central excise duty paid by the appellant without appreciating that refund was received as a matter of procedure and that the said refund cannot be construed as an income. In any case, such refund is very much derived from the business of industrial undertaking and hence eligible for deduction u/s 80IB. b) The Ld. CIT(A) also erred in not appreciating that the section 80IB grants deduction in respect of any profits from any business of the industrial undertaking. c) Alternatively and without prejudice to the above, on the facts and circumstances of the case and in law, the AO and CIT(A) failed to appreciate that the Central Excise Duty refund is a capital receipt as, according to Central Government s Notifications, the said benefit is granted for promoting industrialization/setting up of the industries in the State of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration u/s 40(b) of the Act amounting to Rs.29,79,26,967/-. 5. Whether the ld. CIT(A) was right in granting higher deduction u/s 80IB of the Act on account of disallowance u/s 43B of the Act amounting to Rs.19,73,329/-. 6. Appellant craves to amend or add any one or more grounds of appeal. 8. In ITA No.129(Asr)/2011, for the assessment year 2008-09,the assessee has raised following grounds of appeal: 1. The orders of the lower authorities are arbitrary, not based on proper evidences, without proper reasons, invalid and also bad in law. 2. Re:Initial assessment year u/s 80-IB(14)(c) read with sec.80-IB(2)(ii) a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in reducing the deduction u/s 80IB(4) to 25% of profit from industrial undertaking at Dadra by considering the previous year as 7th year of operation as against te assesse s claim of 100% deduction considering the previous year as 5th year of operation. b) The Ld.CIT(A) has not appreciated the facts in the proper perspective and erred in not appreciating the legal position that, for the purpose of section 80-IB, the initial assessment year is to be reckoned from the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... un Pharmaceuticals Industries Ltd. b) The Ld. CIT(A) has erred in holding that the assessee firm is entitled to deduction u/s 80IB(4) of the Income tax Act on the profits of its industrial undertaking at Dadra for the unexpired period in view of CBDT Circula F.No.15/5/63- IT(AI) dated 13.12.1963. 2. Regarding disallowance of deduction u/s 80IB read with sec. 80IA(10) of the Income Tax Act, 1961 of Rs.113,46,08,260/-. (a) Whether the Ld. CIT(A) was right in deleting the disallowance made by the AO on account of deduction u/s 80IB(4) of the Act to the extent of Rs.102,02,09,152/- by applying the provisions of section 80-IB(13) read with section 80IA(10) of the Act. (b) The Ld. CIT(A) has erred in not considering the fact that no royalty or management fee has been charged by M/s. Sun Pharmaceutical Industries Limited from the assessee firm and major expenses on account of Selling and Distribution expenses of M/s. Sun Pharmaceuticals Industries are actually borne by M/s. Sun Pharmaceuticals Industries Limited. 3. Regarding disallowance of deduction u/s 80IB of the Act in respect of interest on delayed payments. Whether the Ld. CIT(A) was right in deleting the disallowance u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, without proper reasons, invalid and also bad in law. 2. Re:Initial assessment year u/s 80-IB(14)(c) read with sec.80-IB(2)(ii) a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in reducing the deduction u/s 80IB(4) to 25% of profit from industrial undertaking at Dadra by considering the previous year as 8th year of operation as against te assesse s claim of 100% deduction considering the previous year as 6th year of operation. b) The Ld.CIT(A) has not appreciated the facts in the proper perspective and erred in not appreciating the legal position that, for the purpose of section 80-IB, the initial assessment year is to be reckoned from the date of commencement of commercial production and not from the date of trial production. Holding the year under appeal as the 8th year for claiming deduction u/s 80IB(4) of the Act being bad in law the claim of the appellant treating the year as the 6th assessment year from the beginning with the initial assessment year needs to be allowed/accepted. 3. Re: Invoking the provisions of S.80IB(13) r.w.s.80IA(10): On the facts and in the circumstances of the case and in law, the ld. CIT(A) erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in not giving the finding on the issue as to whether the said profit falls under the head Income from other other sources or under the head Profits and gains from business or profession as pointed out by the assessee vide submission dated 14.03.2011. 8. Reg: Interest u/s 234C On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in giving specific direction to the AO to reduce the interest by Rs.4,152/- which was charged excessively by the AO in the assessment order. 9. Reg: Initiation of penalty proceedings u/s 271(1)(c) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in not striking down the initiation of penalty proceedings u/s 271(1)(c) of the Act. 9. In ITA No.312(Asr)/2011, for the assessment year 2009-10, the Revenue has raised following grounds of appeal: 1. Regarding disallowance of deduction u/s 80IB of the Income Tax Act, 1961 on profit from Dadra unit of assessee. a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the industrial undertaking of the assessee firm at Dadra was not formed by the splitting up or recons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt is a trading receipt or a capital receipt. b) Whether the Ld. CIT(A) was right in facts and circumstances and in law in not appreciating the judgments of Hon'ble Supreme Court of India in the case of Ponni Sugar Sawhney Steel and press works Ltd, wherein the Hon'ble Supreme Court had held such receipts to be the revenue receipts in as much as in that case payments were made only after the industries had been set up and payments were not made for purpose of setting up of industries. c) Whether the Ld. CIT(A) was right in facts and circumstances and in law in not considering the decision in the case of Seaham Harbour Dock Company which lays down two important tests for determining whether receipts is a trading receipt or a capital receipt. d). Whether the Ld. CIT(A) was right in facts and circumstances and in law in not appreciating and applied the purpose test as laid down by the judgments of the Hon'ble Supreme Court. In the case of assessee, the money received by the assessee on account of refund of Central Excise was not supposed to be spent in a particular manner for purpose of substantial expansion of the industry. 10. First of all, we take up appeal of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of the case. The assessee s grievance are two folds as argued by the Ld. AR. Firstly the invoking the provisions of section 80IB(13) r.w.s 80IA(10) of the Act, are factually and legally incorrect in as much as there is no close connection between the assessee and SPIL and no course of business between them is arranged so as to produce more than the ordinary profits. 14.1. As regards the disallowance of Rs.14,21,110/- confirmed by the Ld. CIT(A) in respect of purchase of raw material by the assessee from SPIL, it was argued by the ld. counsel for the assessee that the above disallowance is taken on the basis of CIT(A) s order of SPIL and further appeal is pending with ITAT, Ahmedabad Benches. The Ld. counsel for the assessee, therefore, pleaded that the disallowance on this issue should be restricted on the final outcome in the case of SPIL. 14.2. The Ld. DR, on the other hand, relied upon para 8.7 of CIT(A) s order and argued that the assessee has purchased certain raw material from SPIL on lower price than price of outsiders. Hence, the Ld. DR pleaded to uphold the order of the ld. CIT(A). 14.3. After considering the facts and submissions of both the parties, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. counsel therefore, argued that the assessee has incurred reasonable expenses on selling and distribution as compared to expenses incurred by SPIL. Even otherwise, the Ld. counsel argued that such comparison is not feasible as the assessee s business is only of manufacturing of formulations (medicines) and that also for domestic market, whereas SPIL s business is of bulk drugs, formulations of both domestic as well as overseas markets which requires training of medical representatives, overseas expenses etc. The Ld. counsel for the assessee also relied upon the following decisions: i) Reliance Energy Ltd. vs DCIT (2010) 40 SOT 314 (ITAT Mumbai). ii) ITO vs. Laxmi Dal Mills (2005) 146 Taxman 625 (All) iii) ITAT Chandigarh Bench in the case of ITO vs. M/s. A.K. Impex, Parwanoo, ITA Nos. 1323 1324/Chd/2010 for the assessment years 2005-06 2006-07, dated 24.11.2011 iv) ITAT Chandigarh Bench, in the case of ITO vs. M/s. Gilvert Ispat, Solan (HP) in ITA No.345/Chd/2011 for the A.Y. 2007- 15.4 He also relied upon CBDT Instruction No.574 dated 27.7.1973. He further argued that no disallowance needs to be made on account of selling and distribution expenses. 15.5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regards the arguments advanced by the Ld. DR that the expenses incurred by the assessee are meager and other arguments of the ld. DR cannot be of any help to the Revenue, we, therefore, are of the view that the disallowance on selling and distribution expenses made by the AO for Rs.6,84,95,290/- is not justified. Therefore sustenance of addition by Ld. CIT(A) of Rs.85,51,772/- is directed to be deleted. 16.2. Therefore, in view of our decision hereinabove with respect of selling and distribution expenses, the remaining disallowance of expenses of royalty (of 8% of the turnover) of Rs.14,15,34,443/- and management fee (of 1% of the turnover) of Rs.1,76,91,805/- are also directed to be deleted, as the same has been notionally considered by the AO, which in our view, is incorrect and not justified Thus, ground No.5 of the assessee is allowed and ground No.2 of the revenue is dismissed. 17. As grounds No.3 of the Revenue regarding disallowance of deduction u/s 80-IB of the Act in respect of interest on delayed payments from M/s. Aditya Medisales Ltd. amounting to Rs.4,96,67,120/-, it is observed that this issue is covered by the decision of ITAT, Amritsar Bench, dated 11.06.2010 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue, regarding invoking the provisions of section 80IB(13) r.w.s. 80IA(10) and disallowances with respect to royalty, management fees and purchase of raw material from SPIL and selling distribution expenses, the facts in the present grounds are identical to the facts in assessee s own case for the assessment year 2004-05, which has been decided by us hereinabove. Following the same, being on identical facts, the AO is directed to delete the disallowance in respect of royalty, management fees and selling distribution expenses. 23.1. As regards the purchase of raw material from SPIL, the AO is directed to make/compute so much of the disallowance as will be decided by the ITAT, Ahemabad Benches in the case of SPIL. Thus, ground Nos. 3 4 of the assessee are dismissed with the above observation and ground No.5 of the assessee is allowed and ground No.2 of the Revenue is dismissed. 24. As regards ground No.3 of the Revenue regarding disallowance of deduction under section 80-IB in respect of delayed payments from M/s. Aditya Medisales Ltd. amounting to Rs.4,25,18,962/-, the facts are identical to the facts in assessee s own case for the assessment year 2004-05 decided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering the impugned year as 6th year of operation. Thus, ground No.2 of the assessee is partly allowed and ground No.1 of the Revenue is dismissed. 32. As regards ground No.3, 4 5 of the assessee and ground No.2 of the Revenue regarding invoking the provisions of section 80IB(13) r.w.s. 80IA(10), the disallowance is with respect to royalty, management fees and purchase of raw material from SPIL and selling distribution expenses. The facts in the present grounds are identical to the facts for the assessment year 2004-05, which has been decided by us hereinabove. Following the same, being on identical facts, the AO is directed to delete the disallowance in respect of royalty, management fees and selling distribution expenses. 32.1. As regards the purchase of raw material from SPIL, the AO is directed to make/compute so much of the disallowance as will be decided by the ITAT, Ahemabad Bench in the case of SPIL. Thus, ground Nos. 3 4 of the assessee are dismissed with the above observation and ground No.5 of the assessee is allowed and ground No.2 of the Revenue is dismissed. 33. As regards ground No.3 of the Revenue regarding disallowance of deduction under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessment year 2004-05 which has been decided by us hereinabove. Following the same being on identical facts, the AO is directed to allow the deduction under section 80-IB of the Act in respect of Dadra unit accordingly by considering the impugned year as 7th year of operation. Thus, ground No.2 of the assessee is partly allowed and ground No.1 of the Revenue is dismissed. 41. As regards ground No.3 4 of the assessee and ground No.2 of the Revenue regarding invoking the provisions of section 80IB(13) r.w.s. 80IA(10), the disallowance is with respect to royalty, management fees and purchase of raw material from SPIL and selling distribution expenses. The facts in the present grounds are identical to the facts for the assessment year 2004-05, which has been decided by us hereinabove. Following the same, being on identical facts, the AO is directed to delete the disallowance in respect of royalty, management fees and selling distribution expenses. 41.1. As regards the purchase of raw material from SPIL, the AO is directed to make/compute so much of the disallowance as will be decided by the ITAT, Ahemabad Bench in the case of SPIL. Thus, ground No. 3 of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue with respect to deduction under section 80-IB in respect of Dadra unit, the facts in the present case are identical to the facts of assessee s own case for the assessment year 2004-05 which has been decided by us hereinabove. Following the same being on identical facts, the AO is directed to allow the deduction under section 80-IB of the Act in respect of Dadra unit accordingly by considering the impugned year as 8th year of operation. Thus, ground No.2 of the assessee is partly allowed and ground No.1 of the Revenue is dismissed. 50. As regards ground No.3 4 of the assessee and ground No.2 of the Revenue regarding invoking the provisions of section 80IB(13) r.w.s. 80IA(10), the disallowance is with respect to royalty, management fees and purchase of raw material from SPIL and selling distribution expenses. The facts in the present grounds are identical to the facts for the assessment year 2004-05, which has been decided by us hereinabove. Following the same, being on identical facts, the AO is directed to delete the disallowance in respect of royalty, management fees and selling distribution expenses. Thus, ground No.3 of the assessee is dismissed and ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecisions in respect of 80HHC. He, therefore, relied upon other decisions which go in favour of the assessee and are as under: i) ITO vs. Banyan Chemicals Ltd. (2009) 117 ITD 376 (Ahd. Trib) ii) T. Two International (P) Limited vs. ITO (2008) 122 ITD 255 (Bom. Trib.) He, therefore, pleaded to allow deduction on account of exchange rate fluctuation. 56. The Ld. DR, on the other hand, relied upon the orders of the authorities below. 57. We have heard the rival submissions and perused the facts of the assessee. The amount in question relates to EEFC which is not part of the export proceeds. We are of the view that the ld. CIT(A) has correctly confirmed the disallowance. Thus, ground No.7 of the assessee is dismissed. 58. As regards ground No.8 of the assessee with respect to mistake of Rs.4,152/- in charging interest under section 234C of the Act, the AO is directed to charge interest on the returned income in accordance with law. Thus, ground No.8 is allowed for statistical purposes. 59. As regards ground No.9 of the assessee regarding initiation of penalty proceedings u/s 271(1)(c) of the Act, this issue does nor arise from the impugned order of the ld. CIT(A). Hence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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