Commissioner Of Income-Tax-I, Ludhiana v. M/S Vallabh Yarns (P) Ltd., Ludhiana

of 2010 -1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Income-tax Appeal No.468 of 2010 Date of decision: 27.9.2010 Commissioner of Income-Tax-I, Ludhiana ...Petitioner Versus M/s Vallabh Yarns (P) Ltd., Ludhiana ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Rajesh Katoch, Advocate for the petitioner. **** AJAY KUMAR MITTAL, J. 1.The revenue has preferred this appeal under Section260A of the Income Tax Act, 1961 (for short “the Act”) against theorder passed by the Income Tax Appellate Tribunal, ChandigarhBench 'A' Chandigarh, (in short “the Tribunal”) in ITANo.226/Chd/2009, for the assessment year 2004-05 claiming that thefollowing substantial questions of law arise in this appeal:- “(i).Whether on the facts and in law, the Hon'bleIncome Tax Appellate was justified in holding that theCIT has exceeded his jurisdiction which is notpermissible under the provisions of the Act, ignoring thefact that the order of the Assessing Officer passed u/s143(3) on 15.12.2006 was erroneous in so far as it was prejudicial to the interest of revenue? (ii).Whether on the facts and in law, the Hon'bleIncome Tax Appellate Tribunal was justified in observingthat the income earned on job work basis amounts tomanufacturing ignoring the fact that the income earnedon account of fabrication has no nexus with the businessof industrial undertaking of the assessee company? (iii).Whether on the facts and in law, the Hon'bleIncome Tax Appellate Tribunal was justified in observingthat the assessment was framed with due application ofmind whereas the Assessing Officer has nowherediscussed the issue under consideration in theassessment order? (iv).Whether on the facts and in law, the Hon'bleIncome Tax Appellate Tribunal was justified in viewingthat the expenditure incurred on repair which includedthe cost to be replaced against which insurance wasclaimed, the only excess amount, if any, can only bedisallowed ignoring the fact that the insurance claimreceipts has no nexus with the business of industrialundertaking and is not eligible for deduction u/s 80IB? (v)Whether on the facts and in law, the Hon'bleIncome Tax Appellate Tribunal was justified in theassessee's case restricting its decision to the justificationof the jurisdiction assumed u/s 263 of the Act and notdeciding the issue on merits of the case? *** 2.Briefly stated, the fact of the case are that therespondent-assessee-company derives income from manufacturingand sale of finished knitted fabrics and readymade garments. Theassessee filed return of income for the assessment year 2004-05 on21.10.2004 disclosing taxable income of Rs.34,57,734/-. The returnwas processed under Section 143(1) of the Act on 14.1.2005. Theassessment under Section 143 (3) of the Act was finalised on15.12.2006 at income of RS.36,43,252/-. The Assessing Officer hadallowed the deductions under Section 80IB of the Act to theassessee and disallowed deduction on receipts of lease rent onmachinery and interest income. 3.The Commissioner of Income Tax-I, Ludhiana (for short“the CIT”) in exercise of powers under Section 263 of the Act came tothe conclusion that the assessee was not entitled to deduction underSection 801B on the following amounts:- Accordingly, the CIT while invoking the powers underSection 263 of the Act concluded that order of the Assessing Officerwas erroneous and prejudicial to the interest of revenue. The CITdisallowed the fabrication charges on the ground that the assesseehad done the job work for others and was, thus, not entitled todeduction under Section 80IB of the Act. The insurance claim wasalso held not to be admissible for deduction under Section 80IB asthe same had no nexus with the business of industrial undertaking. *** 3.The Commissioner of Income Tax-I, Ludhiana (for short“the CIT”) in exercise of powers under Section 263 of the Act came tothe conclusion that the assessee was not entitled to deduction underSection 801B on the following amounts:- Accordingly, the CIT while invoking the powers underSection 263 of the Act concluded that order of the Assessing Officerwas erroneous and prejudicial to the interest of revenue. The CITdisallowed the fabrication charges on the ground that the assesseehad done the job work for others and was, thus, not entitled todeduction under Section 80IB of the Act. The insurance claim wasalso held not to be admissible for deduction under Section 80IB asthe same had no nexus with the business of industrial undertaking. *** 4.The respondent-assessee being aggrieved against theorder of CIT passed under Section 263 of the Act invoked theappellate jurisdiction of the Tribunal. The Tribunal allowed theappeal of the assessee observing that fabrication charges onaccount of job work done by the assessee for others amounted tomanufacturing and also that the assessee had not received any realincome on account of insurance claim which could be disallowed.The Tribunal, thus, concluded that the order of the CIT passed underSection 263 of the Act was unsustainable as the assessment orderdated 15.12.2006 passed by the Assessing Officer was neithererroneous nor prejudicial to the interest of revenue. 5.The Revenue being aggrieved against the order ofTribunal preferred the present appeal. 6.The issue for consideration in this appeal is whether theorder passed by the CIT under Section 263 of the Act was justified ornot. In order to arrive at the said conclusion, it would be worthwhileto delve on the merits of the issue as well. 7.As noticed earlier, CIT had exercised revisionaljurisdiction in respect of fabrication charges on account of job workdone for others and insurance claim. 8.Learned counsel for the revenue could not point out anyerror in the order of the Tribunal whereby the fabrication chargesreceived by the assessee on account of job work done for otherswas held to be on account of business of industrial undertaking ofthe assessee, more particularly in view of the decision of this Courtdated 5.12.2008 in ITA No.543 of 2008 (The Commissioner of Income tax I, Ludhiana Vs. M/s Impel Forge and Allied Industries Limited, Ludhiana) reported in (2010) 326 ITR 27 (P&H). 9.Further the Tribunal while allowing the appeal of theassessee regarding insurance claim in para 5 of the order hadrecorded the following finding:- “On the issue of insurance charges, it was explained bythe assessee that there was some damage to themachinery and insurance was given to the assesseecompany as repair expenses. It was contended that eventhe insurance charges are denied still no prejudice iscaused because still there is negative figure if theimpugned amount is denied because ultimately nothing isto be disallowed. We are of the view, that the expenditureincurred on repair which included the cost to be replacedagainst which insurance was claimed, the only excessincome, if any, can only be disallowed and if there is anyreal income from insurance company, can only bedisallowed. For this proposition, the assessee is fortifiedby the decision in the case of CIT Vs. G.K.Steel TubesPvt. Ltd. (2005) 27 IT Rep 349 (P&H). Even otherwise, inprinciple, the learned CIT itself agrees that assessee isdoing the activity of manufacturing. The learned CIT, onthe other hand, itself denied the deduction under section80 IB and did not ask the Assessing Officer to reexaminethe claim of the assessee. Such an order cannot besustained. In view of these facts, this appeal of the assessee is allowed. *** assessee is allowed. *** 10.The Tribunal had recorded that expenditure incurred onrepair which included the cost to be replaced against whichinsurance was claimed, the only excess income, if any, can bedisallowed. In other words, on facts, the Tribunal came to theconclusion that assessee had not received any real income onaccount of insurance claim which could be disallowed. The saidfinding has not been shown to be erroneous or perverse which maywarrant interference by this Court. Accordingly, no substantialquestion of law arises in this appeal which requires consideration bythis Court. 11.The appeal is consequently dismissed. (Ajay Kumar Mittal) Judge September 27, 2010Pka (Adarsh Kumar Goel) Judge