M/S Friends Castings (P) Ltd v. Commissioner Of Income Tax

ITA No. 456 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH M/s Friends Castings (P) Ltd. Versus Commissioner of Income Tax ITA No. 456 of 2010 Date of Decision: 20.9.2010 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Jorawar Singh Bhasin, Advocate for the appellant. ADARSH KUMAR GOEL, J. 1.This order will dispose of ITA Nos. 455 and 456 of 2010 asboth involve common questions. 2.ITA No. 456 of 2010 is an appeal by the assessee underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order of the Income Tax Appellate Tribunal, Amritsar Bench(hereinafter referred to as “the Tribunal) in ITA No. 68 (ASR)2009 dated9.10.2009, for the assessment year 2000-01, proposing followingsubstantial questions of law:- “i)Whether the order of the Tribunal, apparentlybeing non-specific and non-speaking, is liableto be set aside as such?being non-specific and non-speaking, is liableto be set aside as such? ii)Whether in the facts and in the circumstances of the case, the Tribunal was justified inupholding the findings of the ld. CIT (A) that jobwork charges, derived from industrial activity,could be excluded from the eligible profits ofthe industrial undertaking, for computing thededuction u/s 80-IA/80-IB? iii) Whether, the job work charges, being part ofthe business profits, could be considered at parwith brokerage, commission, interest, rent andother charges, under clause (baa) to section80HHC(4C), so as to exclude 90% of the samefrom business profits, for computing thededuction u/s 80HHC? iv) Whether on the facts and circumstances of thecase the Tribunal was justified in law in holdingthat in terms of Section 80-IA (9) of the Actwhere two deductions under Section 80HHCand 80-IB of the Act are available, then thededuction computed u/s 80-IB shall be reducedfrom the business profits to compute deductionu/s 80HHC on the resultant profits? v) Whether the order of the Tribunal is legallyunsustainable & bad in law and perverse?” 3.Learned counsel for the assessee fairly states that question(iii) could not be pressed in view of the judgment of this Court in LibertyIndia v. Commissioner of Income Tax, [2007] 293 ITR 520 (P&H). 4.A reading of question nos. (i) & (v) clearly shows that theyare general in nature and, thus, cannot be held to be substantialquestions of law. 5.Adverting to question no. (ii), the grievance of the assesseeis that job work charges which were derived from industrial activity couldnot be excluded from eligible profits for determining deduction underSection 80-IA/80-IB of the Act. Few facts essential for adjudicating thiscontroversy may be noticed. The income of the assessee as percomputation had been shown at Rs.36,42,280/-. The assessee hadclaimed deduction @ 30% thereon amounting to Rs.10,92,684/-.However, the same was computed by reducing the non-businessincome of the assessee in the shape of job work charges(Rs.3,66,850/-); interest on fixed deposit (Rs.8,96,859/-); sale ofincentives (Rs.10,00,328/-) and interest on income tax refund(Rs.57,981/-) from the income of Rs.36,42,280/- by the AssessingOfficer. The CIT (A) upheld the aforesaid disallowances. The CIT(A)while concurring with the Assessing Officer regarding exclusion of jobwork charges for calculating deduction under Section 80-IA/80-IBobserved as under:- “... The key ingredients for allowing deduction u/s80-IA are that the income should be derived fromindustrial undertaking and the assessee shouldmanufacture or produce an article or thing. Theassessee has been found to be eligible for deductionu/s 80-IA in respect of its own production of goods.However, the appellant has not led any evidence “... The key ingredients for allowing deduction u/s80-IA are that the income should be derived fromindustrial undertaking and the assessee shouldmanufacture or produce an article or thing. Theassessee has been found to be eligible for deductionu/s 80-IA in respect of its own production of goods.However, the appellant has not led any evidence before the A.O. that the job work charges werereceived for manufacturing or producing articles orthings. The only argument which has apparentlybeen advanced before the AO was that expenditurein respect of job work charges should also bereduced if the same were not being considered forspecial deduction u/s 80-IA. During the appellateproceedings also no such plea has been taken.Since the appellant has not been able to show thatthe job work charges were received formanufacturing or producing an article or thing from itsindustrial undertaking, deduction u/s 80-IA is notallowed in respect of these receipts. The case lawrelied upon by the appellant are not relevant since inthose cases there was a finding that the assesseewere manufacturing or producing articles or things.In this connection, it is worthwhile to note thatdeduction u/s 80-IA is not allowed on merelyprocessing of raw material, unless the processesresult in a new distinct commodity.” 6.The Tribunal upheld the findings of the CIT(A). Learnedcounsel for the assessee was unable to advance any argument todispel the findings recorded by the CIT(A) and upheld by the Tribunalthat the receipts on account of job work was not a result ofmanufacturing or by producing article or thing and, therefore, theassessee was not entitled to claim deduction thereon under Section 80-IA. Accordingly, question No. (ii) is not a substantial question of law.7.Referring to question No. (iv), the claim of the assessee isthat the assessee was entitled to deduction under Section 80-IA as wellas under Section 80HHC on the same amount. Necessary facts maybe referred to. The assessee had claimed deduction under section80HHC amounting to Rs.14,65,802/- in the return of income filed on2.11.2000. The Assessing Officer held that the assessee was entitledto deduction under Section 80HHC on the balance amount whichremained after allowing deduction under Section 80-IA. According tothe Assessing Officer such relief was in excess by Rs.1,73,903/-. Thiswas upheld by the CIT(A). The Tribunal while affirming the aforesaidview had recorded as follows:- “8.As regards the issue involved in Ground Nos. 7(i) to 7(iii) and 8(i) to 8(ii), in which the assessee hasraised the issue regarding calculation of profit undersection 80HHC after reducing the profit u/s 80-IA ofthe Act. As stated by the Ld. counsel for theassessee that the Ld. CIT(A) has wrongly calculatedthe profit u/s 80HHC at Rs.9,32,480/- against theclaim as per Audit report and ignoring the mode ofcalculation of profit u/s 80HHC, that it is independentand nothing to do with section 80-IA. The plea of theassessee regarding the provisions of law that section80AB is clarificatory in nature and supersedes all theprovisions of Chapter VI-A including section 80-IA(9)of the Act. “8.As regards the issue involved in Ground Nos. 7(i) to 7(iii) and 8(i) to 8(ii), in which the assessee hasraised the issue regarding calculation of profit undersection 80HHC after reducing the profit u/s 80-IA ofthe Act. As stated by the Ld. counsel for theassessee that the Ld. CIT(A) has wrongly calculatedthe profit u/s 80HHC at Rs.9,32,480/- against theclaim as per Audit report and ignoring the mode ofcalculation of profit u/s 80HHC, that it is independentand nothing to do with section 80-IA. The plea of theassessee regarding the provisions of law that section80AB is clarificatory in nature and supersedes all theprovisions of Chapter VI-A including section 80-IA(9)of the Act. 8.1After going through the impugned orders, weare of the considered opinion that the Ld. firstappellate authority has decided the issue in disputeagainst the assessee by following the order of theITAT (Special Bench), Chennai, in the case of ACITVs. Rogini Garments (2007) 294 ITR (AT) 15, whichis on the same issue. In the case of RoginiGarments, the Special Bench held that the restrictiveprovisions of section 80-IA(9) had to be given effectto, and the definition of business profit as containedin clause (baa) below section 80HHC(4C) has to beconstrued in light of these restrictions. The SpecialBench held that relief u/s 80-IA should be deductedfrom the profits & gains of the business beforecomputing the relief u/s 80HHC. The Ld. firstappellate authority had decided issue against theassessee by discussing the issue in dispute with thesupport of various judgments mentioned in theimpugned orders at paras 3.6 & 3.7 on page 12 & 13.The case law cited by the ld. counsel for theassessee has also been discussed by the ld. firstappellate authority. We have also gone through thesame and are of the considered opinion that recentlythis issue has been decided by the I.T.A.T. SpecialBench 'C' New Delhi, in the case of ACIT, Range-II,Moradabad Vs. M/s Hindustan Mint. & Agro Products Pvt. Ltd. Chandausi, consisting of five members,wherein they have discussed various case laws indetails and held that deduction is to be allowed underany other provision of Chapter VI-A with the heading'C' is to be reduced by amount of deduction allowedu/s 80-IB/80-IA of the Act and decided the issue indispute in favour of the Revenue vide order dated23[rd] June, 2009. Keeping in view of facts andcircumstances of the present case, we are of theview that the issue in dispute is squarely covered bythe decision of the ITAT, Special Bench 'C', NewDelhi (supra), in favour of the Revenue and againstthe assessee. Thus, respectfully following thedecision rendered by the ITAT, Special Bench 'C',New Delhi, in the case of ACIT, Moradabad Vs. M/sHindustan Mint & Agro Products Pvt. Ltd.,Chandausi, passed in ITA Nos. 1537, 1538 & 1539(DEL)/2007 for the assessment years 2001-02, 2003-04, 2004-05 dated 23[rd] June, 2009, we dismissGround Nos. 7(i) to 7(iii) and 8(i) to 8(ii) of theappeals of the assessee.” 8.Learned counsel for the assessee was unable to point outthat the approach of the authorities below was contrary to any statutoryprovision except to urge that the view taken by the Tribunal is erroneousas under Section 80-IA(9) which are also applicable in view of Section80-IB(13), the only restriction is that deduction should not exceed the ITA No. 456 of 2010 total profits and gains, and the restriction that deduction claimed andallowed under Section 80-IA or 80-IB could not be allowed under anyother provision should be read in the light of condition of deduction notexceeding total profits and gains. 9.We are unable to accept the submission. 10.The restriction under Section 80-IA(9) is not only that thetotal deduction should not exceed profits and gains, there is a furtherrestriction that deduction allowed under Section 80-IA or 80-IB will be abar to claim deduction under any other provision of the Chapter. ITA No. 456 of 2010 total profits and gains, and the restriction that deduction claimed andallowed under Section 80-IA or 80-IB could not be allowed under anyother provision should be read in the light of condition of deduction notexceeding total profits and gains. 9.We are unable to accept the submission. 10.The restriction under Section 80-IA(9) is not only that thetotal deduction should not exceed profits and gains, there is a furtherrestriction that deduction allowed under Section 80-IA or 80-IB will be abar to claim deduction under any other provision of the Chapter. 11.In view of above, we hold that no substantial question oflaw arises in this appeals. 12.The appeals are accordingly dismissed. (ADARSH KUMAR GOEL) JUDGE September 20, 2010gbs (AJAY KUMAR MITTAL)JUDGE ITA No. 456 of 2010 -9- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH M/s Friends Castings (P) Ltd. Versus Commissioner of Income Tax ITA No. 455 of 2010 Date of Decision: 20.9.2010 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Jorawar Singh Bhasin, Advocate for the appellant. ADARSH KUMAR GOEL, J. For orders, see ITA No. 456 of 2010 (M/s FriendsCastings (P) Ltd. v. Commissioner of Income Tax). (ADARSH KUMAR GOEL) JUDGE September 20, 2010gbs (AJAY KUMAR MITTAL) JUDGE