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TMI Blog2014 (2) TMI 1377X X X X Extracts X X X X X X X X Extracts X X X X ..... les and Metal Scrap Sales." Since the facts and issue involved in both these grounds of appeal are similar, they are being disposed of together as under: 3. The Assessing Officer made the disallowance by observing as under: "3.1 Apart from the Trikampura Division, the assessee company has also claimed deduction u/s 80IA for Indore Division, Moraiya (Detergent) and Windfarm Division. In earlier assessment years, it has been the consistent stand of revenue to hold that other sales done by a particular division i.e. sales other than the sales of the manufactured article are not eligible for deduction u/s 80IA. In view of this, the assessee company was asked to furnish full details of other sales of these divisions for which deduction u/s 80IA was claimed. These details were furnished by the assessee vide submission dated 29.03.2004. In this, it was observed that these divisions had other sales as under: Indore Division i) Waste Wrapper sale Rs 22,943 ii) Waste Plastic sales Rs 16,816 iii) Sale of barrels Rs 3,444 iv) Iron scrap sale Rs 79,184 v) Bardan sales Rs 79,226 vi) Gani Bag sale Rs 21,68,878 vii) Soap Stone bardan sale Rs 2,12,409 viii) Box sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of this Court in the case of Dy. CIT Vs. Harijivandas Juthabhai Zaveri, 258 ITR 785 in which the court upheld the decision of the Tribunal granting benefit of deduction under section 801 of the Act on various incomes, such as job work receipt, sale of empty soda ash bardan, sale of empty barrels and plastic waste. Such questions are, therefore, not required to be considered." 7. In view of the above decision of the Hon'ble Jurisdictional High Court, we find no infirmity in the order of the Ld. CIT(A), hence ground no. 1 of Revenue's appeal and ground no. 3 of assessee's appeal both are dismissed. 8. Ground no. 2 of the appeal of Revenue is directed against the order of the Ld. CIT(A) directing the Assessing Officer to compute deduction u/s 80HHC on export profits arrived at on the basis of the export turnover and the total turnover exclusive of the receipts of excise duty and sale tax. 9. Both the parties before us agreed that the issue is now settled in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Lakshmi Machine Works (2007) 290 ITR 667 (SC) wherein it was held that sales tax and excise duty don't have any element of 'turnover' a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of the Revenue is directed against the order of the Ld. CIT(A) restricting the addition of Rs. 1,07,34,486/- to Rs. 22,95,198/- on account of disallowance of late payment of Provident Fund and ESI u/s 43B of the Act. 14. The brief facts of the case are that the Assessing Officer observed that the assessee had made payments of Provident Fund and ESI contribution beyond the prescribed due date, and therefore, by following the decision of Hon'ble Kerala High Court, he disallowed the deduction for the following payments: Provident Fund Division Due date Date of payment Amount (Rs) Mandali 15.4.2001 16.4.2001 11,24,118 Udaipur 15.3.2001 22.3.2001 18,030 Moraiya 15.6.2000 17.6.2000 14,59,248 Moraiya 15.7.2000 17.7.2000 14,92,431 Moraiya 15.8.2000 16.8.2000 12,90,283 Moraiya 15.10.2000 18.10.2000 13,18,696 Moraiya 15.11.2000 16.11.2000 13,59,165 Moraiya 15.11.2000 17.11.2000 1,89,551 Moraiya 15.3.2001 27.3.2001 13,11,884 Moraiya 15.4.2001 18.4.2001 11,20,630 Total 1,06,84,036 ESIC Division Due date Date of payment Amount (Rs) Mandali 15.4.2001 16.4.2001 42,193 Udaipur 15.4.2001 1.5.2001 8,257 &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 1 Hotel expenses Rs 100000 2 Entertainment exp. Rs 7638 3 Misc. exp. Rs 100000 4 Gift expenses Rs 12253 5 Donation to grampanchapat Rs 3500 223391 Bhavnagar Division 1 Hotel expenses Rs 50000 2 Entertainment exp. Rs 200000 3 Misc exp. Rs 100000 4 Guest House exp. Rs 100000 5 Donation to employee Rs 17000 Rs 467000 Moraiya Division 1 Diwali expenses Rs 18000 2 Misc. exp. Rs 200000 3 Gift expenses Rs 5000 Rs 223000 6.2 The assessee's authorized representative was requested to show cause during assessment proceedings as to why the above expenses be not disallowed. The authorized representative stated that these expenses were incurred exclusively for business purposes. The A.R. relied on the submissions given on earlier years before the A.O. and the Ld. CIT(A) in support of these contentions. The contentions of the assessee are not acceptable. The issue of disallowance of these expenses is contended by revenue before the ITAT and hence following the consistent stand of Revenue they are disallowed u/s 37 of the I.T. Act and are added back to the total income, tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t identical adhoc disallowance were made in A.Y. 1998-99 which have been deleted by the CIT(A). After hearing both sides we find that CIT(A) has rightly deleted the lum sum/adhoc addition which were made without any basis. We accordingly confirm the order of the CIT(A)." Therefore, we do not find any infirmity in the order of the Ld. CIT(A) which is confirmed and the ground of the appeal of the Revenue is dismissed. 23. Ground no. 6 of the appeal of the Revenue reads as under: "The CIT(A) has erred in law and on facts in directing to allow the claim of expenses of Rs. 69,00,893/- which was disallowed in the order of assessment being prior period expenses for A.Y.s 2002-03 and 2003-04 and neither claimed in the books of account of the accounting year under consideration nor claimed in the return of income for the A.Y. 2001-02." 24. The Assessing Officer made the disallowance of the following prior paid expenses by observing as under: "9.1 At the fag end of assessment proceeding, the assessee company for the first time vide submission dated 29.3.2004 submitted that following prior period expenses disallowed in the returns filed for A.Y. 2002-03 & 2003-04, which pertain to A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, ground no. 1 is general in nature and therefore, requires no separate adjudication by us. 31. In ground no. 2 of the appeal of assessee, the grievance of the assessee is that the Ld. CIT(A) erred in confirming the disallowance of claim of deduction u/s 80IA and 80IB for Trikampura division. The Assessing Officer disallowed deduction u/s 80IA to the assessee by observing as under: "2.5 The contentions as above on behalf of revenue are summarized as under: i) As the assessee company during whole of the previous year had no employees on the rolls of the Trikampura Division and whole of its profit making system was leased out it ceased to be an 'industrial undertaking'. Thus, as per sub-sect ion- (2) of 80IA/80IB it became ineligible for deduction. Further, the mandatory condition of employing 20 or more workers was not satisfied by the assessee company, hence no deduction is allowable. ii) Even If the contention of the assessee company that employees of its agent the job worker were Its own employees is taken at face value from the perusal of the contract between the assessee company and the job worker a "master - agent' is created only between the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ahmedabad) together with electric connection, water connection and other amenities as stated in the Schedule attached to the said agreement. Further Nisrag Enterprises Pvt. Ltd. had to pay all the taxes, cess to Govt. authorities or anybody claiming as well as electricity charges, water charges and other government taxes etc. from the date of using and during its occupation of the said properties. Its clear from these terms and conditions of the agreement that the production has to be carried out by Nisarg Enterprises Pvt. Ltd., the plant & machineries along with electric fittings, connections etc. has been given to it, it is supposed to pay taxes, cess etc. to government authorities and the employees would be employed by Nisrag Enterprises Pvt. Ltd. only. It is seen from the Schedule to the agreement dated 3011-1999 that the appellant has leased out all the machinery and there were no employees of its own in the Trikampura Division. On careful perusal of the details and records, it is seen that in earlier years the division had power and salary expenses commensurate with the total production whereas in the year under consideration the expenses shown by the appellant are prima fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being done by the appellant from the Trikampura Division. In the case of CIT vs. Sterling Foods 237 ITR 589 (SC), e Hon'ble Supreme Court held that there must be for the application of the 'derived from', a direct nexus between the profits and gains, In the instant case, the appellant has not proved the nexus. In the instant case, there are peculiar facts like there are no workers employed by the industrial undertaking and there is no plant and machinery. The case laws relied upon by the appellant do not deal with such a set of facts and are distinguishable on facts. The contention of the A. R. of the appellant company that the provisions of Section 801A/80IB have been incorporated to give benefit to the assessee and therefore, these provisions should be interpreted liberally, can be accepted in a case where all the basic conditions laid down in that particular Section are satisfied. Where the assessee fails on any of the pre-requisites laid down under the law, the assessee will not be entitled for deduction and question of liberal interpretation would not arise. In the case of IPCA Laboratory Ltd. V. DCIT 266 ITR 530-531 while deciding the issue of correct interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of an industrial undertaking shall be 25% of the profits and gains derived from such industrial undertaking. Therefore, the question for consideration arose as to whether the sale of spare parts and the components was due to the same being manufactured by the assessee or was simply a trading transaction so as to be excluded from reckoning for computing deduction as profits derived from such industrial undertaking. The assessee had supplied documents to suggest as to in respect of sale of various items of these spare parts and components of the further processes were being applied so as to finish the production process and to make it marketable. What were the various manufacturing processes to be applied to the various outsourced material, were filed in the form of instruction sheet being given by the management to the shop floor workers. Thus it was incorrect to say that the sale of spares/components was merely trading of goods and not sale of the goods manufactured by the assessee. Though the assessee might be outsourcing some of the spare parts by getting them manufactured, elsewhere after receiving the same, the assessee was applying further process so as to render them mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se goods were treated as intermediate products in the process of manufacture of the final product that is the harvester combines, sale of such intermediate products had market value as accounted for in the books of the undertaking would qualify for deduction u/s 80IB. Various courts have time and again held that assessee need not own or possess plant and machinery to be a manufacturer of goods or to be treated as an industrial company for the purpose of claiming deduction. The manufacture may be either by the assessee itself or by someone under the assessee's supervisory control or direction. In the instant case, the assessee could not be considered as a 'trader simpliciter'. A trader merely purchases the goods which have already been manufactured by others and then sells them as it is. No further manufacturing process is being applied if the assessee is merely a trader. However, in the instant case, after purchasing some of the parts from outside suppliers, the assessee applied its own further processes to furnish he same and to make them marketable. Even the technology and specifications/drawing were supplied by the assessee to the outside manufacturer of components. In a way, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at village Trikampura (Dist. Ahmedabad) together with electric connection, water connection and other amenities as stated in the Schedule attached to the said agreement. Further Nisrag Enterprises Pvt. Ltd. had to pay all the taxes, cess to Govt. authorities or anybody claiming as well as electricity charges, water charges and other government taxes etc. from the date of using and during its occupation of the said properties. Its clear from these terms and conditions of the agreement that the production has to be carried out by Nisarg Enterprises Pvt. Ltd., the plant & machineries along with electric fittings, connections etc. has been given to it, it is supposed to pay taxes, cess etc. to government authorities and the employees would be employed by Nisrag Enterprises Pvt. Ltd. only. It is seen from the Schedule to the agreement dated 30-11-1999 that the appellant has leased out all the machinery and there were no employees of its own in the Trikampura Division. On careful perusal of the details and records, it is seen that in earlier years the division had power and salary expenses commensurate with the total production whereas in the year under consideration the expenses shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no manufacturing activity being done by the appellant from the Trikampura Division. In the case of CIT vs. Sterling Foods 237 ITR 589 (SC), e Hon'ble Supreme Court held that there must be for the application of the 'derived from', a direct nexus between the profits and gains, In the instant case, the appellant has not proved the nexus. In the instant case, there are peculiar facts like there are no workers employed by the industrial undertaking and there is no plant and machinery. The case laws relied upon by the appellant do not deal with such a set of facts and are distinguishable on facts. The contention of the A. R. of the appellant company that the provisions of Section 801A/80IB have been incorporated to give benefit to the assessee and therefore, these provisions should be interpreted liberally, can be accepted in a case where all the basic conditions laid down in that particular Section are satisfied. Where the assessee fails on any of the pre-requisites laid down under the law, the assessee will not be entitled for deduction and question of liberal interpretation would not arise. In the case of IPCA Laboratory Ltd. V. DCIT 266 ITR 530-531 while deckling the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court does not apply in the instant case. 40. Further in the case, of Claas India Limited (supra), the Delhi Bench of the Tribunal has held that " in the instant case, after purchasing some of the parts from outside suppliers, the assessee applied its own further processes to finish the same and to make them marketable." In contrast to the facts in that case, in the instant case, the assessee could not bring any material to show that it applied some process to convert the components purchased into furnished goods or into marketable goods. Therefore, it is observed that the facts of the case before the Delhi Bench of the Tribunal are distinguishable from the facts of the instant case. 41. In the instant case, no material could be brought before us to show that any part of the manufacturing activity was carried out by the assessee at Trikampura Unit. In the above circumstances, we do not find any good reason to interfere with the order of the lower authorities. Therefore, this ground of appeal of the assessee is dismissed. 42. Ground no. 4(1) of the appeal of assessee is directed against the order of the Ld. CIT(A) confirming part disallowance of claim of deduction u/s 80HHC on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed in the ground related to deduction under section 80HH and 80IA, this interest has to be taxed as income from other sources. The assessing officer will examine this issue and work, out relief as per these directions. " 22. After hearing both sides, we do not find any substance in ground No.2 and 3. Therefore, the order of GIT(A) is confirmed for the purpose of both grounds." 46. We have heard the rival submissions and perused the orders of lower authorities and material available on record. In the instant case, the Assessing Officer while computing deduction allowable u/s 80HHC has reduced 90% of gross interest receipt whereas the claim of the assessee was that only 90% of the net interest income, if any, after deduction of the interest payment out of interest receipt only is to be excluded. 47. On appeal, the Ld. CIT(A) held that if there is any nexus between interest receipt and interest payment then only such interest expense is to be reduced from the interest income and 90% of such reduced interest income is to be excluded for computing deduction u/s 80HHC of the Act. 48. The Ld. AR of the assessee relied on the decision of the Hon'ble Supreme Court in the case of ACG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee is directed against the order of Ld. CIT(A) directing to charge interest u/s 234C of the Act even when the return of income was filed under the provisions of section 115JB of the I.T. Act. 52. The facts of the case are that the Assessing Officer worked out the allowability to pay interest u/s 234C while computing income of the assessee under the provisions of section 115JB of I.T. Act. 53. The assessee in appeal before the Ld. CIT(A) submitted that in view of the decision in the case of Kwality Biscuits Limited Vs. CIT 243 ITR 519 of Hon'ble Kerala High Court and submitted that the decisions quoted by the Assessing Officer in the case of Assam, Bengal and Itarasi Oil 233 ITR 862 (Guwahati) and 250 ITR 686 (MP) are not applicable to the assessee and therefore, interest u/s 234C charged should be deleted. 54. We find that the Hon'ble Supreme Court in the case of JCIT Vs. Rolta Indian Ltd. (2011) 330 ITR 470 (SC) has decided the similar issue as under: "The assessee furnished a return of income on 28th November, 1997, declaring total income of Rs. Nil. On 28th March, 2000, an order u/s.143(3) was passed determining the total income at nil after set-off of unabso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean tax on the total income determined u/s.143(1) or u/s.143(3), as reduced by the amount of tax deducted or collected at source. Thus, there is no exclusion of section 115JA in the levy of interest u/s.234B. The expression 'assessed tax' is defined to mean tax assessed on regular assessment which means tax determined on the application of section 115J/115JA in the regular assessment. The Supreme Court observed that the question which remained to be considered was whether the assessee, which is a MAT company, was not in a position to estimate its profits of the current year prior to the end of the financial year on 31st March. In this connection, the assessee had placed reliance on the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. v. CIT, reported in (2000) 243 ITR 519; and, according to the Karnataka High Court, the profit as computed under the Income-tax Act, 1961 had to be prepared and thereafter the book profit, as contemplated u/s.115J of the Act, had to be determined; and then, the liability of the assessee to pay tax u/s.115J of the Act arose only if the total income, as computed under the provisions of the Act, was less than 30% of the book p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. The Supreme Court, therefore, concluded that interest u/s.234B and u/s.234C would be payable on failure to pay advance tax in respect of tax payable u/s.115JA/115JB. The Supreme Court further held that for the aforestated reasons, Circular No. 13 of 2001, dated November 9, 2001 issued by the Central Board of Direct Taxes, reported in (2001) 252 ITR (St.) 50, had no application. Moreover, in any event, para 2 of that Circular itself indicated that a large number of companies liable to be taxed under the MAT provisions of section 115JB were not making advance tax payments. In the said Circular, it had been clarified that section 115JB was a self-contained code and thus, all companies were liable for payment of advance tax u/s.115JB, and consequently the provisions of section 234B and section 234C, imposing interest on default in payment of advance tax, were also applicable." In view of the above decision of the Hon'ble Supreme Court, we do not find any error in the order of the Ld. CIT(A) in directing the Assessing Officer to charge interest u/s 234C of the Act while computing the income of the assessee u/s 115JB of the Act. Hence, this ground of appeal is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held allowable. It is this order of the CIT (Appeal) which the Tribunal upheld in the impugned judgment. Having heard the learned counsel for the parties and having perused the documents on record, we notice that CIT (Appeals) and the Tribunal concurrently came to the conclusion that there was interconnection, inter-lacing and inter-dependence of the management, financial and administrative control of various units of Nirma Limited. It was on this ground, the Tribunal held that the business in question is continuation of the existing business and not a new business. In this context, the decision relied on by the authorities below of this Court in the case of Alembic Glass Industries Ltd. (supra) laid down tests for ascertaining whether a business was part of existing business or the assessee was starting a new unit. It was held that merely because the unit was coming to a distant point by itself would not mean that it was a new business. If the facts as recorded by the CIT (Appeals) and the Tribunal can be said to have achieved finality, it would emerge that the assessee through its existing administrative mechanism started a new facility for production of soda ash and had al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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