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Finolex Cables Limited Versus Dy. Commissioner of Income Tax, Circle 9, Pune and Vica-Versa

2015 (9) TMI 892 - ITAT PUNE

Deduction u/s. 80IB for Goa Unit in respect of sale of scrap - Held that:- Madras High Court judgment in the case of M/s Fenner India Ltd (1998 (4) TMI 67 - MADRAS High Court ) for the proposition that the profit on sale of scrap material since had a direct link or nexus with the industrial undertaking and therefore, it is eligible for deduction u/s 80IB, Considering the similarity in language used in sections 80HH and 80IB of the Act, we are of the considered opinion that the assessee should su .....

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ciation has been allowed for the three assessment years, the depreciation cannot be denied in the subsequent assessment years on the written down value. The asset cannot be taken out of block of assets. Similar view has been taken by the Tribunal in the case of Kodak Polychrome Graphics (I) (P) Ltd. Vs. ACIT (2013 (9) TMI 481 - ITAT MUMBAI ). - Decided in favour of assessee. - ITA No. 360/PN/2014, ITA Nos. 564 & 565/PN/2014 - Dated:- 31-8-2015 - SHRI R.K. PANDA AND SHRI VIKAS AWASTHY, JJ. For Th .....

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4 against the order of Commissioner of Income Tax (Appeals) for the assessment year 2007-08. 2. The Revenue in both the appeals have assailed the orders of Commissioner of Income Tax (Appeals) for respective assessment years on one ground i.e. allowing deduction u/s. 80IB of the Income Tax Act, 1961, for Goa Unit in respect of sale of scrap. The assessee in appeal has raised solitary ground which reads as under: On facts & in the circumstances of the case and in law, the learned CIT(A) erred .....

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appeals are common. All the appeals are taken up together for adjudication. 3. The brief facts of the case are The assessee is a company registered under the Companies Act and is engaged in manufacturing and sale of insulated wires and cables, optic fiber cables, corrugated PVC, foam sheets, finance, trading in goods, leasing etc. The assessee in its return of income for the impugned assessment years had claimed deduction u/s. 80IB for its unit located at Goa. In the claim of deduction, the ass .....

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sessee preferred appeals before the Commissioner of Income Tax (Appeals) against the additions/disallowances made by the Assessing Officer. The Commissioner of Income Tax (Appeals) vide impugned orders for the assessment years 2005-06 and 2007-08 accepted the plea of assessee with regard to deduction u/s. 80IB on income from sale of scrap at Goa Unit. With regard to disallowance of depreciation on intangible assets, the Commissioner of Income Tax (Appeals) upheld the findings of the Assessing Of .....

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that the assessee is eligible for claiming deduction u/s. 80IB. This view was subsequently followed by the Co-ordinate Bench of Tribunal in ITA No. 1975/PN/2013 for assessment year 2004-05. 5. Shri Rajesh Damor representing the department fairly admitted that this issue has been considered by the Tribunal in assessee s own case in assessment years 2002-03 and 2004-05. However, the ld. DR supported the findings of Assessing Officer on this issue. 6. We have heard the submissions made by the repr .....

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vant extract of the order of Tribunal in ITA No. 105/PN/2007 is as under: 27. Ground no. 6 relates to CIT(A)'s direction to the A.O to allow the deduction u/s 80-IB of the Act in respect of scrap generated out of manufacturing process treating the same as business income. The A.O observed that the scrap is not a bye product of the assessee and hence the sale of the same cannot be treated as the business income of the unit and hence not eligi9ble for deduction u/s 80-IB of the Act. As regards .....

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A) has confirmed the view taken by the A.O on this issue. 28. At the very outset, the Learned Counsel for the assessee has mentioned that the said issue is also covered in favour of the assessee by virtue of .Madras High Court judgment in the case of M/s Fenner India Ltd (241 ITR 803) for the proposition that the profit on sale of scrap material since had a direct link or nexus with the industrial undertaking and therefore, it is eligible for deduction u/s 80IB, Considering the similarity in lan .....

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cumstances in the impugned assessment years, we do not find any reason to take a different view. Accordingly, we uphold the order of Commissioner of Income Tax (Appeals) on this issue and dismiss both the appeals of the Revenue. 8. Now, we will take up the appeal of assessee. The assessee in its appeal has impugned the findings of Commissioner of Income Tax (Appeals) in denying depreciation on intangible assets. The ld. AR submitted that the assessee has set up a plant for manufacturing of optic .....

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of preform, worldwide. Since, Shin Etsu had substantial control over the world market, it become the single source supplier of preform to the assessee. As per the long term supply agreement dated 07-12-2000, Shin Etsu would supply 400 kgs of preforms per month for a period of three years starting from October, 2001. Thereafter, another agreement dated 20-01-2001 was executed. According to the second agreement 200 kgs preform per month would be supplied by Shin Etsu for a a period of 5 years star .....

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of 285 million Japanese Yen for the unsupplied quantity under 200 kg and 400 kg agreement. The rate of preforms was revised from 70.5 Japanese Yen to 38 Japanese Yen. The assessee agreed to pay a lumpsum amount of 285 million Japanese Yen to protect its business interest and secure source of supply of critical raw material. Since, the lumpsum payment was made to secure advantage of enduring nature, the assessee treated the same as capital in nature. Accordingly, it was added in the block of asse .....

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m payment and claiming depreciation on the same after capitalization of the amount. The Assessing Officer raised objection on the claim of depreciation on the said amount for the first time in assessment year 2007-08. The ld. AR of the assessee submitted that the depreciation was claimed on the written down value brought forward from assessment year 2006-07. The intangible assets were created on acquisition of commercial rights and were capitalized in assessment year 2004-05. The disallowance of .....

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is a trading transaction. No capital asset had come into existence on which depreciation can be claimed. The assessee has made payment without actual delivery of the alleged capital asset. In fact, the payment made by the assessee is in the nature of speculative loss. As far as reassessment proceedings are concerned, they have nothing to do with the disallowance of depreciation on intangible asset. The ld. DR pointed out that a perusal of reassessment order would show that the assessee has alrea .....

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chase of preforms at a reduced rate. It is neither speculative loss nor it is revenue expenditure. 11. We have heard the submissions of rival sides at length and have examined the orders of the authorities below. As far as the facts are concerned, the Revenue has not raised any dispute. The only point of contention is; Whether the assessee is eligible to claim depreciation on the payment of lumpsum amount paid by assessee to Shin Etsu for the supply of raw material (preform) at the reduced rate? .....

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n the ground that no capital asset was acquired by the assessee. No intangible asset, like technical knowhow, had come into existence, therefore, the assessee cannot claim depreciation on the payments made to Shin Etsu. In the first appeal, the Commissioner of Income Tax (Appeals) rejected the claim of assessee with following observations: 14. I have carefully considered the facts of the case as well as reply of the appellant, in this case, undisputed fact remains that the amount in question has .....

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nd reduce the prices of preforms. Therefore, 1 do not find any infirmity in the order of Assessing Officer, The claim of the appellant that the amount was part of WDV brought down from earlier years is also unsustainable as wrongly brought down WDV cannot be accepted as sacrosanct. Therefore, I do not find any merit in the ground taken and therefore, the same is dismissed. 12. The assessee in the period relevant to assessment year 2004-05 had capitalized the amount of 285 million Japanese Yen an .....

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