M/S. ADHUNIK SYNTHETICS LTD, MUMBAI v. THE ACIT 9(1), MUMBAI

ITA 451/MUM/2008 | 1999-2000
Pronouncement Date: 29-01-2010 | Result: Dismissed

Appeal Details

RSA Number 45119914 RSA 2008
Assessee PAN AACFB8785D
Bench Mumbai
Appeal Number ITA 451/MUM/2008
Duration Of Justice 2 year(s) 11 day(s)
Appellant M/S. ADHUNIK SYNTHETICS LTD, MUMBAI
Respondent THE ACIT 9(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 24-03-2010
Date Of Final Hearing 22-03-2010
Next Hearing Date 22-03-2010
Assessment Year 1999-2000
Appeal Filed On 18-01-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYA RAGHAVAN (JM) ITA NO.455/MUM/2008 ASSESSMENT YEAR- 2004-05 M/S. BABUBHAI PRANLAL & BROTHERS 281/3 MEHTA BLDG. SHAHID BHAGAT SINGH ROAD FORT MUMBAI-400 001 PAN-AACFB8785D VS. THE ACIT 12(1) MUMBAI (APPELLANT) (RESPONDENT) ITA NO.971/MUM/2008 ASSESSMENT YEAR- 2004-05 THE ACIT 12(1) MUMBA VS. M/S. BABUBHAI PRANLAL & BROTHERS 281/3 MEHTA BLDG. SHAHID BHAGAT SINGH ROAD FORT MUMBAI-400 001 (APPELLANT) (RESPONDENT) ITA NO.454/MUM/2008 ASSESSMENT YEAR- 2004-05 M/S. BABUBHAI ENTERPRISES 218/3 MEHTA BLDG. SHAHID BHAGAT SINGH ROAD FORT MUMBAI-400 001 PAN - AACFB8788Q VS. THE ACIT 12(1) MUMBAI (APPELLANT) (RESPONDENT) BABUBHAI PRANLAL & BROTHERS 2 ITA NO.970/MUM/2008 ASSESSMENT YEAR- 2004-05 THE ACIT 12(1) MUMBA VS. M/S. BABUBHAI PRANLAL & BROTHERS 281/3 MEHTA BLDG. SHAHID BHAGAT SINGH ROAD FORT MUMBAI-400 001 (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI CHETAN KARIA DEPARTMENT BY: MS. VANDANA SAGAR O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS IS A SET OF CROSS APPEAL TWO PREFERRED BY TH E ASSESSEE AND THE TWO PREFERRED BY THE REVENUE ARE DIRECTED AGAINST T HE ORDERS DT. 7.11.2007 PASSED BY THE LD. CIT(A)-XII MUMBAI FOR THE ASSESSMENT 2004-05. 2. THE FIRST GROUND OF APPEAL RAISED BY THE ASSESSE E READS AS FOLLOWS: THE LD. CIT(A)-XII ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE AND IN LAW ERRED IN CONFIRMING THE ADDITIO N TO THE EXTENT OF RS. 33 66 350/- ON ACCOUNT OF GROSS PROFI T ON ESTIMATED BASIS. 3. THE ASSESSEE HAD DECLARED A GROSS TOTAL LOSS AT 8.56% AMOUNTING TO RS. 33 66 350/-. THE ASSESSING OFFICER ESTIMATE D THE G.P. RATE AT 2.75% AMOUNTING TO RS. 10 16 515/-. THE AO OBSERVE D THAT THIS YEAR THE ASSESSEE DISCLOSED THE GROSS LOSS AT 8.56% OF T HE TURNOVER OF RS. 3.69 CRORES AS AGAINST GROSS LOSS AT 5.76% ONLY ON THE TOTAL TURNOVER OF RS. BABUBHAI PRANLAL & BROTHERS 3 4.18 CRORES LAST YEAR. THEREFORE HE ASKED THE ASS ESSEE TO EXPLAIN THE REASONS FALL IN THE G.P. RATIO PERCENTAGE. 4. THE ASSESSEE REPLIED AS FOLLOWS: THE PRICES OF THE RAW MATERIALS WENT UP MAINLY DUE TO INCREASE IN CRUDE AND PETRO CHEMICAL PRODUCTS. THE RE WAS STIFF COMPETITION FROM OTHER LARGE MANUFACTURERS AN D SINCE THE SALES PRICE WERE PRE-DETERMINED THE SAME COULD NOT BE INCREASED. THUS THE APPELLANT WAS FORCED TO SELL T HE PRODUCTS AT LOWER PRICES IN ORDER TO SURVIVE IN THE HIGHLY C OMPETITIVE MARKET. BECAUSE OF CONTINUED LOSSES THE APPELLANT ULTIMATELY DISCONTINUED THIS LINE OF BUSINESS IN THE SUBSEQUEN T YEAR AND DIVERSIFIED IN OTHER ACTIVITIES. IT WAS ALSO EXPLA INED THAT IF THE STOCK WOULD NOT HAVE BEEN SOLD OUT AT LOWER PRICES THE SAME WOULD HAVE RESULTED INTO PILING UP OF UNSOLD OBSOLE TE STOCK AND ONCE OUT OF FASHION THE LOSSES MUST HAVE BEEN FURTHER INCREASED. THEREFORE IT WAS A BUSINESS DECISION TO MINIMIZE THE LOSSES BY GETTING RID OF THE PILING OF STOCK IN VIEW OF THE COMMERCIAL EXPEDIENCY. 5. THE AO PROCEEDED TO ADOPT GP RATE AT 2.75% FOLLO WING THE ORDER IN THE CASE OF THE SISTER CONCERN OF THE ASSESSEE. TH E AO ALSO OBSERVED IN HIS ORDER THAT THE ASSESSEE DID NOT MAINTAIN THE ST OCK REGISTER AND THEREFORE THE AO DOUBTED THE CORRECTNESS OF THE VAL UATION OF THE CLOSING STOCK AS THE SAME HAD BEEN DETERMINED ON ESTIMATE B ASIS AS CERTIFIED BY THE PARTNER. 6. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A). BEFORE THE LD. CIT(A) FIRSTLY THE ASSESSEE DENIED THAT THERE IS A GROSS LOSS IN ITS CASE. THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE CLAIMED THAT THE TRADING LOSS APPEARING IS ONLY A NOTIONAL LOSS. IF THE TRADING ACCOUNT IS RECAST AFTER TAKING INTO CONSIDERATION T HE DUTY DRAW BACK EXCHANGE GAIN AND DFRC ETC. THERE WILL NOT BE ANY LOSS ON THE OTHER HAND THERE WILL BE A POSITIVE GROSS PROFIT OF RS. O NE CRORE. BABUBHAI PRANLAL & BROTHERS 4 7. SECONDLY THE AUTHORISED REPRESENTATIVE OF THE A SSESSEE SUBMITTED THAT THE AO HAD WRONGLY MENTIONED THAT NO STOCK REG ISTER WAS MAINTAINED. HE PRODUCED THE COPY OF TAX AUDIT REPO RT AND ALSO THE STOCK REGISTER BEFORE THE LD. CIT(A). THE AR SUBMI TTED THAT THE SAME WAS PRODUCED BEFORE THE AO AND FURNISHED THE QUANTITATI VE DETAILS OF RAW MATERIAL AND FINISHED GOODS BEFORE THE AO WOULD NOT HAVE BEEN POSSIBLE IF THE STOCK REGISTER WAS NOT MAINTAINED. FURTHER THE AR STATED THAT THE GROSS LOSS HAD FURTHER GONE UP BY 2.8% BECAUSE OF T HE RISE IN THE PRICES OF RAW MATERIALS AND STIFF COMPETITION IN THE MARKE T FROM BIG PLAYERS AND IN SUPPORT OF HIS CONTENTION COPIES OF INVOICES FOR THE PURCHASE OF GRANULES BEING 95% OF RAW MATERIALS WERE PRODUCED T O SHOW THE INCREASE IN THEIR PRICES. THE AR ALSO OBJECTED TO THE AOS REMARKS THAT THE STOCK WAS VALUED ON ESTIMATE BASIS AS CERTIFIED BY THE PA RTNERS. 8. THE LD. CIT(A) HELD AS FOLLOWS: THE UNDERSIGNED HAS CAREFULLY PERUSED THROUGH THE RIVAL CONTENTIONS. THE APPELLANT HAS TRIED TO EXPLAIN AL MOST ALL THE OBSERVATIONS MADE BY THE AO. HOWEVER THE UNDERSIG NED IS NOT CONVINCED WITH ATLEAST ONE EXPLANATION I.E. WH Y THE APPELLANT DID NOT REVISE ITS SALE PRICE DESPITE THE MOUNTING PRESSURE OF THE INCREASE IN THE PURCHASE PRICE OF R AW MATERIALS STIFF COMPETITION IN THE MARKET ESPECIA LLY WITH BIG PLAYERS MAY BE A MAJOR FACTOR; YET IT CANNOT BE AC CEPTED THAT THE APPELLANT WOULD CONTINUE TO SELL ITS GOODS AT L OSSES ONLY YEAR AFTER YEAR. THE APPELLANT HAS ALSO NOT EXPLAINED AS TO WHAT WO ULD HAVE BEEN THE SALE PRICE OF THE STOCK IF ALLOWED TO REMAIN UNSOLD AS AGAINST THE LESSER NON-COMPETITIVE PRICE AT WHICH IT HAD TO BE SOLD AND LOSSES INCURRED. HOWEVER IT IS ALSO NOTED BY THE UNDERSIGNED THAT THE AO HAS NOT GIVEN ANY CREDIT FOR THE GENUINE REASONS STATED BY THE APPELLANT FOR INCURRING CONTINUED LOSSES. ATLE AST HE SHOULD HAVE ACCEPTED THE EXPLANATION AS PARTLY TRUE. MOREO VER MANY OF HIS OBSERVATIONS ARE NOT CORRECT AS HIS REMARKS FOR THE NON- MAINTENANCE OF THE STOCK REGISTER ETC IS NOT FOUND CORRECT. BABUBHAI PRANLAL & BROTHERS 5 THE AO HAS ALSO NOT STATED THE BASIS FOR ADOPTING THE G.P. RATE AT 2.75% OF THE TURNOVER DESPITE THE FACT THAT IN EARLIER YEARS THE LOSS FIGURES WERE ACCEPTED. THE UNDERSIGNED AFTER GOING THROUGH THE RIVAL CONTENTIONS IS OF THE OPINION THAT THE LACUNAE PER SISTS IN THE APPROACH OF THE APPELLANT AS WELL AS IN THAT OF THE AO. THEREFORE IN THE REASONABLENESS AND FAIRNESS OF THE MATTER THE AO IS DIRECTED TO DISALLOW THE GROSS LO SS CLAIMED AT (-) RS. 33 66 350/- AND THUS TREAT THE G.P. AT RS. NIL. THEREFORE IN ACTUAL SENSE THE ADDITION TO THE EXTE NT OF RS. 33 66 350/- IS CONFIRMED AND THE ADDITION TO THE EX TENT OF RS. 10 16 515/- IS DELETED. THUS THE APPELLANT GETS PA RT RELIEF. THIS GROUND IS THEREFORE PARTLY ALLOWED. 9. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE U S. 10. WE HEARD BOTH THE PARTIES. WE HAD SEEN PAGE 57 OF THE PAPER BOOK WHERE THE ASSESSEE HAD REPLIED AS FOLLOWS: FURTHER IT IS INCORRECT TO STATE THAT THE TAX AUD IT REPORT REVEALS THAT NO STOCK REGISTER IS MAINTAINED. A CO PY OF TAX AUDIT REPORT IS ENCLOSED HEREWITH AND MARKED AS EX HIBIT-E AND A PERUSAL OF THE SAME WOULD INDICATE THAT NOWHE RE THE TAX AUDITORS HAVE MENTIONED THAT THE STOCK REGISTER IS NOT MAINTAINED. THE FACT OF THE MATTER IS THAT THE APP ELLANTS HAVE MAINTAINED STOCK REGISTER AND THE SAME WAS PRODUCED BEFORE HIM. IN ANY EVENT THE SAME IS ONCE AGAINST PRODUCE D BEFORE YOUR HONOUR FOR VERIFICATION. A FURTHER PERUSAL O F THE TAX AUDIT REPORT WOULD ALSO INDICATE THAT THE APPELLANT S HAVE ALSO FURNISHED QUANTITATIVE DETAILS OF THE FINISHED GOO DS AND RAW MATERIAL WHICH WOULD NOT HAVE BEEN POSSIBLE IF THE STOCK REGISTER IS NOT MAINTAINED. THUS AGAIN THE BASIS ON WHICH THE AO HAS MADE THE ADDITION ITSELF IS INCORRECT. A COPY OF ORDER U/S. 143(3) OF THE ACT FOR IMMEDIA TE PROCEEDING YEAR IS ALSO ENCLOSED HEREWITH AND MARKE D AS EXHIBIT-K WHICH INDICATES THAT EVEN IN THE EARLIER YEAR IN THE IDENTICAL CIRCUMSTANCES THE AO HAS ACCEPTED THE SO CALLED GROSS LOSS IN SCRUTINY ASSESSMENT. BABUBHAI PRANLAL & BROTHERS 6 11. IN OUR OPINION THERE IS NO LACUNA IN THE APPRO ACH OF THE ASSESSEE AS WELL AS THAT OF THE AO AS HELD BY THE LD. CIT(A) . THERE IS NO REASON FOR NOT RELYING ON THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND THE FIGURE OF THE GROSS LOSS SHOWN BY THE ASSESSEE IS T O BE ACCEPTED. FURTHER THE STOCK REGISTER HAS ALSO BEEN MAINTAINED. IN TH ESE CIRCUMSTANCES THE ADDITION TO THE EXTENT OF RS.33 66 350/- ON ACCOUNT OF GROSS PROFIT ON ESTIMATE BASIS IS TO BE DELETED. 12. THE SECOND GROUND OF APPEAL HAS NOT PRESSED BY THE ASSESSEE THEREFORE IT IS DISMISSED AS NOT PRESSED. 13. REGARDING GROUND NO. 3 THE LD. CIT(A) HAS ERRE D IN UPHOLDING THE DISALLOWANCE OF CLAIM OF DEDUCTION U/S. 80IB OF THE ACT OF RS. 12 18 169/-. 14. THIS GROUND IS GENERAL AND THE GROUND NOS. 4 TO 7 DEAL WITH SPECIFIC GROUNDS OF DISALLOWANCE AGAINST CERTAIN IN COME WHICH SHALL BE DEALT WITH HERE UNDER: 15. THE 4 TH GROUND OF APPEAL READS AS UNDER: THE LD. CIT(A) ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW ERRED IN CONFIRMING THE ACTION OF T HE AO IN HOLDING THAT INCOME OF RS. 60 80 295/- FROM DUTY DR AWBACK IS NOT DERIVED FROM INDUSTRIAL UNDERTAKING AND THE SAM E IS NOT TO BE CONSIDERED WHILE WORKING OUT ELIGIBLE PROFIT OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S. 80IB OF THE ACT. 16. THE AO OBSERVED THAT THE RECEIPT IS NOT DIRECTL Y RECEIVED FROM THE INDUSTRIAL UNDERTAKING THEREFORE THE SAME OUGHT TO BE EXCLUDED FROM THE PROFITS OF THE INDUSTRIAL UNDERTAKING AS THERE IS N O DIRECT NEXUS BETWEEN BABUBHAI PRANLAL & BROTHERS 7 THE RECEIPT AND THE INDUSTRIAL UNDERTAKING. THE LD . AO HAS REDUCED PROFIT BY DUTY DRAWBACK EXCHANGE GAIN DFRC AND S UNDRY CREDIT BALANCE WRITE BACK AND HAS ALLOWED DEDUCTION ACCORD INGLY FOLLOWING STERLING FOODS 237 ITR 579 (SC) AND PANDIAN CHEMIC ALS LTD. 262 ITR 278(SC). 17. THE LD. DEPARTMENTAL REPRESENTATIVE REFERRING T O THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY IN DIA LTD VS CIT 317 ITR 218 SUBMITTED THAT DUTY DRAWBACK DOES NOT FORM PART OF NET PROFIT OF ELIGIBLE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S. 80I/80IA/80IB OF THE I.T. ACT. 18. WE FIND THAT THE CO-ORDINATE BENCH OF THE MUMBA I TRIBUNAL IN THE CASE OF M/S. IPCA LABORATORIES LTD. VS ACIT IN ITA NO. 5046/MUM/2007 HAS HELD AS FOLLOWS: WE HAVE CONSIDERED RIVAL SUBMISSIONS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE AUTHORITI ES BELOW AND GONE THROUGH THE PAPER BOOK FILED BY THE ASSESSEE BEFORE US. WE HAVE ALSO GONE THROUGH THE DECISIONS CITED BEFORE US. WE FIND THE GROUND RAISE D BY THE REVENUE HAS TO BE ALLOWED IN VIEW OF THE LATEST DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. CITED SUPRA. WE DO NOT FIND MUCH FORCE IN THE ARGUMENTS ADVANCED BY THE LEARNED COUNSEL FOR THE ASSESSEE BY DISTINGUISHING THE DECI SION OF HONBLE SUPREME COURT. 6.1 WE FIND THE HONBLE SUPREME COURT IN THE SAID DECISION AT PAGES 233 TO 235 HAS HELD AS UNDER:- DEPB IS AN INCENTIVE. IT IS GIVEN UNDER THE DUTY EXEMPTION REMISSION SCHEME. ESSENTIALLY IT IS AN EXPORT INCENTIVE. NO DOUBT THE OBJECT BEHIND DEPB IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY PAYMENT ON THE IMPORT CONTENT OF EXPORT PRODUCT. THIS NEUTRALIZATION IS PROVIDED FOR BY CREDIT TO CUSTOMS DUTY AGAINST EXPORT PRODUCT. UNDER DEPB AN EXPORTER MAY APPLY FOR CREDIT AS A PERCENTAGE OF THE FOB VALUE O F BABUBHAI PRANLAL & BROTHERS 8 EXPORTS MADE IN FREELY CONVERTIBLE CURRENCY. CREDIT IS AVAILABLE ONLY AGAINST THE EXPORT PRODUCT AND AT RA TES SPECIFIED BY THE DGFT FOR IMPORT OF RAW MATERIALS COMPONENTS ETC. DEPB CREDIT UNDER THE SCHEME HAS TO BE CALCULATED BY TAKING INTO ACCOUNT THE DEEMED IMP ORT CONTENT OF THE EXPORT PRODUCT AS PER BASIC CUSTOMS DUTY AND SPECIAL ADDITIONAL DUTY PAYABLE ON SUCH DEEMED IMPORTS. THEREFORE IN OUR VIEW DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED B Y CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOM S ACT 1963 HENCE INCENTIVES PROFITS ARE NOT PROFIT S DERIVED FROM THE ELIGIBLE BUSINESS UNDER SECTION 80 -IB. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS. THE NEXT QUESTION IS WHAT IS DUTY DRAWBACK ? SECTION 75 OF THE CUSTOMS ACT 1962 AND SECTION 37 OF THE CENTRAL EXCISE ACT 1944 EMPOWER THE GOVERNMEN T OF INDIA TO PROVIDE FOR REPAYMENT OF CUSTOMS DUTY A ND EXCISE DUTY PAID BY AN ASSESSEE. THE REFUND IS OF T HE AVERAGE AMOUNT OF DUTY PAID ON MATERIALS OF ANY PARTICULAR CLASS OF DESCRIPTION OF GOODS USED IN TH E MANUFACTURE OF EXPORT GOODS OF SPECIFIED CLASS. THE RULES DO NOT ENVISAGE A REFUND OF AN AMOUNT ARITHMETICALLY EQUAL TO CUSTOMS DUTY OR CENTRAL EXC ISE DUTY ACTUALLY PAID BY AN INDIVIDUAL IMPORTER-CUM- MANUFACTURER. SUB-SECTION (2) OF SECTION 75 OF THE CUSTOMS ACT REQUIRES THE AMOUNT OF DRAWBACK TO BE DETERMINED ON A CONSIDERATION OF ALL THE CIRCUMSTAN CES PREVALENT IN A PARTICULAR TRADE AND ALSO BASED ON T HE FACTS SITUATION RELEVANT IN RESPECT OF EACH OF VARI OUS CLAUSES OF GOODS IMPORTED. BASICALLY THE SOURCE OF THE DUTY DRAWBACK RECEIPT LIES IN SECTION 75 OF THE CUSTOMS ACT AND SECTION 37 OF THE CENTRAL EXCISE AC T. ANALYSING THE CONCEPT OF REMISSION OF DUTY DRAWBACK AND DEPB WE ARE SATISFIED THAT THE REMISSION OF DUTY IS ON ACCOUNT OF THE STATUTORY/PO LICY PROVISIONS IN THE CUSTOMS ACT/SCHEME(S) FRAMED BY T HE GOVERNMENT OF INDIA. IN THE CIRCUMSTANCES WE HOLD THAT PROFITS DERIVED BY WAY OF SUCH INCENTIVES DO N OT FALL WITHIN THE EXPRESSION PROFITS FROM INDUSTRIAL UNDERTAKING IN SECTION 80-IB. BABUBHAI PRANLAL & BROTHERS 9 SINCE RELIANCE WAS PLACED ON BEHALF OF THE ASSESSEE(S) ON AS-2 WE NEED TO ANALYSE THE SAID STANDARD. AS-2 DEALS WITH VALUATION OF INVENTORIES. INVENTORIES ARE ASSETS HELD FOR SALE IN THE COURSE OF BUSINESS; IN THE PRODUCTION FOR SUCH SALE OR IN THE FORM OF MATERIALS OR SUPPLIES TO BE CONSUMED IN THE PRODUCTION. INVENTORY SHOULD BE VALUED AT THE LOWER OF COST AND NET REALIZABLE VALUE (NRV). THE COST OF INVENT ORY SHOULD COMPROMISE ALL COSTS OF PURCHASE COSTS OF CONVERSION AND OTHER COSTS INCLUDING COSTS INCURRED IN BRINGING THE INVENTORY TO THEIR PRESENT LOCATION AND CONDITION. THE COST OF PURCHASE INCLUDES DUTIES AND TAXES (OTHER THAN THOSE SUBSEQUENTLY RECOVERABLE BY THE ENTERPRISE FROM THE TAXING AUTHORITIES) FREIGHT IN WARDS AND OTHER EXPENDITURE DIRECTLY ATTRIBUTABLE TO THE ACQUISITION. HENCE TRADE DISCOUNTS REBATE DUTY DRAWBACK AND SUCH SIMILAR ITEMS ARE DEDUCTED IN DETERMINING THE COSTS OF PURCHASE. THEREFORE DUTY DRAWBACK REBATE ETC. SHOULD NOT BE TREATED AS ADJUSTMENT (CREDITED) TO THE COST OF PURCHASE OR MANUFACTURE OF GOODS. THEY SHOULD BE TREATED AS SEPARATE ITEMS OF REVENUE OR INCOME AND ACCOUNTED F OR ACCORDINGLY (SEE PAGE 44 OF THE INDIAN ACCOUNTING STANDARDS AND GAAP BY DOLPHY DSOUZA). THEREFORE FOR THE PURPOSES OF AS-2 CENVAT CREDITS SHOULD NOT BE INCLUDED IN THE COST OF PURCHASE OF INVENTORIES. EV EN THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (IC AI) HAS ISSUED GUIDANCE NOTE ON ACCOUNTING TREATMENT FO R CENVAT/MODVAT UNDER WHICH THE INPUTS CONSUMED AND THE INVENTORY OF INPUTS SHOULD BE VALUED ON THE BAS IS OF PURCHASE COST NET OF SPECIFIED DUTY ON INPUTS (I .E. DUTY RECOVERABLE FROM THE DEPARTMENT AT A LATER STA GE) ARISING ON ACCOUNT OF REBATES DUTY DRAWBACK DEPB BENEFIT ETC. PROFIT GENERATION COULD BE ON ACCOUNT OF COST CUTTING COST RATIONALIZATION BUSINESS RESTRUCTURING TAX PLANNING ON SUNDRY BALANCES BEIN G WRITTEN BACK LIQUIDATION OF CURRENT ASSETS ETC. THEREFORE WE ARE OF THE VIEW THAT THE DUTY DRAWBAC K DEPB BENEFITS REBATES ETC. CANNOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE BABUBHAI PRANLAL & BROTHERS 10 PROFIT AND LOSS ACCOUNT FOR PURPOSES OF SECTION 80IA/80IB AS SUCH REMISSIONS (CREDITS) WOULD CONSTITUTE INDEPENDENT SOURCE OF INCOME BEYOND THE FIRST DEGREE NEXUS BETWEEN PROFITS AND THE INDUSTRI AL UNDERTAKING. IN THE CIRCUMSTANCES WE HOLD THAT DUTY DRAWBACK RECEIPT/DEPB BENEFITS DO NOT FORM PART OF THE NET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF SECTION 80I/80IA/80IB OF THE 1961 ACT. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. CI TED SUPRA WE HOLD THAT THE RECEIPT ON ACCOUNT OF DUTY DRAWBACK/DEPB AND REBATE OF CENTRAL EXCISE DUTY ARE THE INCOME NOT DERIVED FROM THE MANUFACTURING UNIT OF THE SAID INDUSTRIAL UNDERTAKING AND THEREBY NOT ELIGIBLE FOR DEDUCTION U/S 80IB(4) OF THE ACT. WE H OLD AND DIRECT ACCORDINGLY. THUS THIS GROUND RAISED BY THE REVENUE IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE SAID DECISION WE DISMISS THIS GROUND OF THE ASSESSEE. 19. THE 5 TH GROUND RAISED BY THE ASSESSEE READS AS FOLLOWS: THE LD. CIT(A) ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW ERRED IN CONFIRMING THE ACTION OF T HE AO IN HOLDING THAT INCOME OF RS. 18 22 222/- FROM EXCHANG E GAIN IS NOT DERIVED FROM INDUSTRIAL UNDERTAKING AND THE SAM E IS NOT TO BE CONSIDERED WHILE WORKING OUT ELIGIBLE PROFIT OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S. 80IB OF THE ACT. 20. AS REGARDS THE OBSERVATION OF THE AO THAT 90% O F EXCHANGE GAIN AND SUNDRY BALANCE WRITTEN BACK SHOULD BE EXCLUDED FROM THE PROFIT OF THE BUSINESS UNDER EXPLANATION (BAA) OF SEC. 80HHC FOR COMPUTING DEDUCTION U/S. 80HHC IT IS SUBMITTED THAT THE SAME IS AGAINST THE PROVISIONS OF LAW AS THESE RECEIPTS ARE NOT GOVERNE D BY EXPLANATION (BAA) TO SEC. 80HHC NOR THESE RECEIPTS ARE AKIN TO ANY RE CEIPTS OF SIMILAR NATURE AND THEREFORE THE ACTION OF THE AO ON THIS G ROUND IS NOT JUSTIFIED. BABUBHAI PRANLAL & BROTHERS 11 21. THE GROUND RELATING TO SUNDRY CREDIT BALANCE WR ITTEN OFF WAS NOT PRESSED BEFORE THE TRIBUNAL. 22. ON THE ISSUE OF EXCHANGE GAIN THE ASSESSEE SU BMITTED THAT THE SAME IS NATURE OF SALE RECEIPTS AND THEREFORE HAS T O BE CONSIDERED IN QUANTIFYING DEDUCTION ALLOWABLE U/S. 80IB(10). THE ASSESSEE RELIES ON FOLLOWING JUDGEMENT: 1) 282 ITR 144 (GUJ) 2) 306 ITR 194 (BOM) AND 3) 306 ITR 1 (AT)(SB). 23. WE FIND THAT THIS ISSUE IS COVERED BY THE DECIS ION OF THE MUMBAI SPECIAL BENCH IN 306 ITR 1 (AT) AND THEREFORE DIREC T THE AO TO REDO THE ASSESSMENT IN THE LIGHT OF THE DECISION OF THE SPEC IAL BENCH DECISION. 24. GROUND NO. 6 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E AO IN HOLDING THAT INCOME OF RS. 53 56 061/- BEING DFRC R ECEIPTS IS NOT DERIVED FROM INDUSTRIAL UNDERTAKING AND THE SAM E IS NOT TO BE CONSIDERED WHILE WORKING OUT ELIGIBLE PROFIT OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S. 80IB OF THE ACT. 25. WE FIND THAT THIS ISSUE IS COVERED BY THE DECIS ION OF THE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. VS CIT 317 ITR 218. RESPECTFULLY FOLLOWING THE SAME WE DISMISS THIS GROUND RAISED B Y THE ASSESSEE. 26. THE 7 TH GROUND RAISED BY THE ASSESSEE READS AS FOLLOWS: BABUBHAI PRANLAL & BROTHERS 12 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E AO IN REDUCING ELIGIBLE PROFIT U/S. 80IB OF THE ACT FROM ELIGIBLE PROFIT OF THE BUSINESS FOR THE PURPOSES OF SECTION 80HHC I N VIEW OF SEC. 80IA(A)/80IB(13) OF THE ACT. 27. THE MATTER HAS BEEN DECIDED BY THE SPECIAL BENC H OF THE MUMBAI TRIBUNAL IN THE CASE OF M/S. HINDUSTAN MINT AGRO LT D. 315 ITR 401. RESPECTFULLY FOLLOWING THE DECISION OF THE MUMBAI T RIBUNAL WE REMIT THE ISSUE TO THE FILE OF THE AO TO REDO THE ASSESSMENT IN THE LIGHT OF THE SPECIAL BENCH DECISION. 28. GROUND NOS. 8 & 9 ARE GENERAL IN NATURE. 29. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 971/M/08-DEPARTMENTAL APPEAL 30. THE ONLY GROUND RAISED BY THE REVENUE READS AS FOLLOWS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN NOT CONFIRMING THE ACTION OF TH E AO IN EXCLUDING 90% OF EXCHANGE GAIN MISCELLANEOUS RECEI PTS AND SUNDRY BALANCES WRITTEN BACK FROM THE PROFITS OF TH E BUSINESS FOR COMPUTING THE DEDUCTION U/S. 80HHC WITHOUT APP RECIATING THE FACT THAT THESE RECEIPTS WERE NOT DERIVED DIREC TLY FROM THE EXPORT BUSINESS ALTHOUGH THEY WERE INCIDENTAL TO TH E BUSINESS. 31. THE ASSESSEE SUBMITTED THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN FOLLOWING JUDGEMENTS. 1) 282 ITR 144 (GUJ) 2) 306 ITR 01 (AT(SB) BABUBHAI PRANLAL & BROTHERS 13 32. THE ASSESSEE FURTHER SUBMITTED THAT MENTION OF OTHER RECEIPTS IN THE GROUND OF APPEAL SEEMS TO BE ERRONEOUS AS THE L D. CIT(A) HAS NOT ALLOWED THE CLAIM OF THE ASSESSEE IN RESPECT OF OTH ER RECEIPTS. 33. WE FIND THAT THE SAME IS COVERED BY THE DECISIO N OF THE MUMBAI SPECIAL BENCH IN THE CASE OF PRAKASH L. SHAH 306 IT R 01(AT)(SB). THEREFORE WE DIRECT THE AO TO REDO THE ASSESSMENT I N THE LIGHT OF THE DECISION IN THE CASE OF PRAKASH L. SHAH (SUPRA). 34. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 454/M/08- ASSESSEES APPEAL 35. THE FIRST GROUND RAISED BY THE ASSESSEE READS A S FOLLOWS: THE LD. CIT(A) ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW ERRED IN CONFIRMING THE ADDITION TO THE EXTENT OF RS. 12 92 015/- ON ACCOUNT OF GROSS PROFIT ON ESTIMATED BASIS. 36. THIS GROUND IS SIMILAR TO IN ASSESSEES APPEAL IN ITA NO. 455/M/08 IN THE CASE OF M/S. BABUBHAI PRANALAL & BROTHERS WH ERE AT PARA-11 IN WHICH IT HAS BEEN HELD AS FOLLOWS: IN OUR OPINION THERE IS NO LACUNA IN THE APPROACH OF THE ASSESSEE AS WELL AS THAT OF THE AO AS HELD BY THE L D. CIT(A). THERE IS NO REASON FOR NOT RELYING ON THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND THE FIGURE OF THE GR OSS LOSS SHOWN BY THE ASSESSEE IS TO BE ACCEPTED. FURTHER T HE STOCK REGISTER HAS ALSO BEEN MAINTAINED. IN THESE CIRCUMSTANCES THE ADDITION TO THE EXTENT OF RS. 12 92 015/- ON ACCOUNT OF GROSS PROFIT ON ESTIMATE BASIS IS TO BE DELETED. BABUBHAI PRANLAL & BROTHERS 14 37. GROUND NO. 2 HAS NOT PRESSED BY THE ASSESSEE TH EREFORE IT IS DISMISSED AS NOT PRESSED. 38. GROUND NO. 3 RELATES TO DISALLOWANCE OF CLAIM U/S. 80IB TO THE EXTENT OF RS. 5 86 024/-. GROUND NO. 4 TO 7 ARE SU PPORT GROUND NO. 3. 39. IN THE ASSESSMENT ORDER OTHER RECEIPTS HAS BEEN LISTED AT PAGE 5 AS FOLLOWS: DUTY DRAWBACK 37 50 464/- EXCHANGE GAIN 10 56 254/- SALE OF IMPORT LICENCE 32 63 188/- MISC. RECEIPTS 59 587/- ADVANCE FROM CUSTOMERS WRITTEN BACK 1 21 656/- 40. WE FIND THAT AS REGARDS ISSUE OF DUTY DRAW BACK THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY 317 I TR 218(SC) IS AGAINST THE ASSESSEE. 41. ON THE ISSUE OF EXCHANGE GAIN THE ASSESSEE SUBMITT ED THAT THE SAME IS NATURE OF SALE RECEIPTS AND THEREFORE HAS T O BE CONSIDERED IN QUANTIFYING DEDUCTION ALLOWABLE U/S. 80IB(10). THE ASSESSEE RELIES ON FOLLOWING JUDGEMENT: 1) 282 ITR 144 (GUJ) 2) 306 ITR 194 (BOM) AND 3) 306 ITR 1 (AT)(SB). BABUBHAI PRANLAL & BROTHERS 15 42. WE FIND THAT THIS ISSUE IS COVERED BY THE DECIS ION OF THE MUMBAI SPECIAL BENCH IN 306 ITR 1 (AT) AND THEREFORE DIREC T THE AO TO REDO THE ASSESSMENT IN THE LIGHT OF THE DECISION OF THE SPEC IAL BENCH DECISION. 43. AS REGARDS SALE OF IMPORT LICENSE THE JUDGEMENT OF HONBLE SUPREME COURT IN LIBERTY INDIA 317 ITR 218 (SC) IS AGAINST THE ASSESSEE. 44. THE GROUND NO. 8 RELATING TO MISCELLANEOUS RECE IPTS AND ADVANCE FROM CUSTOMERS WRITTEN OFF IS NOT PRESSED BY THE AS SESSEE THEREFORE IT IS DISMISSED AS NOT PRESSED. 45. GROUND NO. 9 IS AS FOLLOWS: THE LD. CIT(A) ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW ERRED IN CONFIRMING THE ACTION OF T HE AO IN REDUCING ELIGIBLE PROFIT U/S. 80IB OF THE ACT FROM ELIGIBLE PROFIT OF THE BUSINESS FOR THE PURPOSE OF SEC. 80HHC IN VIEW OF SEC. 80IA( A)/80IB(13) OF THE ACT. 46. THIS ISSUE HAS BEEN DECIDED BY THE SPECIAL BENC H OF THE MUMBAI TRIBUNAL IN THE CASE OF M/S. HINDUSTAN MINT AGRO LT D. 315 ITR 401. RESPECTFULLY FOLLOWING THE DECISION OF THE MUMBAI T RIBUNAL WE REMIT THE ISSUE TO THE FILE OF THE AO TO REDO THE ASSESSMENT IN THE LIGHT OF THE SPECIAL BENCH DECISION. 47. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 970/M/08 REVENUES APPEAL 48. THE ONLY GROUND RAISED BY THE REVENUE IN THIS A PPEAL IS SIMILAR TO ITA NO. 971/M/08 IN REVENUES APPEAL IN PARA NO. 3 1 TO 33. BABUBHAI PRANLAL & BROTHERS 16 49. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 29 TH DAY OF JANUARY 2010 SD/- SD/- (PRAMOD KUMAR) ( ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICI AL MEMBER MUMBAI DATED 29 TH JANUARY 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI BABUBHAI PRANLAL & BROTHERS 17 DATE INITIALS 1 DRAFT DICTATED ON: 15.12.09 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 21.12.09 ______ SR. PS/ PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______