M/s. Garg Steels, New Delhi V. ITO, New Delhi

CO 294/DEL/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8681 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-07-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-05-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 22-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MOHD SHOAIB
• Assessee Lawyers: SATPAL SINGH
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C: NEW DELHI) BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 3033/DEL/ 2012 (ASSESSMENT YEAR: 2009-2010) ITO, VS. GARG STEELS, WARD 28(4), ROOM NO. 214, 287, PHATAK KAROR, DRUM SHAPE BLDG., I.P. ESTATE, AJMERI GATE, NEW DELHI. NEW DELHI. PAN NO. AAHFG5722E (APPELLANT ) (RESPONDENT) & CROSS OBJECTION NO. 294/DEL/2012 (IN ITA NO. 3033/DEL/2012) ASSESSMENT YEAR: 2009-10 GARG STEELS, VS. ITO, 287, PHATAK KAROR, WARD 28(4), AJMERI GATE, NEW DELHI. ROOM NO. 214, AAHFG5722E DRUM SHAPED BLDG., I.P. ESTATE, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SATPAL SINGH, SR. DR RESPONDENT BY : SH. MOHD. SHOAIB, ADV. ITA NO. 3033/DEL/2012 & CO NO. 294/DEL/2012 2 ORDER PER S.V. MEHROTRA, A.M. THIS APPEAL, FILED BY THE REVENUE, IS DIRECTED AGAI NST THE ORDER OF LD. CIT(A) DATED 18/04/2012 FOR A.Y. 2009-10. ASSESSEE HAS ALSO FILED CROSS OBJECTION. 2. BRIEF FACTS OF THE CASE ARE THAT IN THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURI NG OF DOOR HINGES/BUILDER AND HARDWARE. IT HAD FILED ITS RETU RN OF INCOME DECLARING NIL INCOME, AFTER CLAIMING DEDUCTION U/S 80IC OF RS . 84,32,597/-. THE ASSESSING OFFICER RESTRICTED THE CLAIM U/S 80IC AT RS. 67,45,999/-, THUS, MAKING AN ADDITION OF RS. 16,85,513/-. HE FURTHER DISALLOWED RS. 5,00,000/- IN RESPECT OF EXPENSES INCURRED FOR MAIN TAINING THE OFFICES AT DELHI & NOIDA. HE, THEREFORE, DETERMINED THE TOTAL INCOME AT RS. 21,85,510/-. THE ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) WHO ALLOWED THE ASSESSEES APPEAL. 3. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), TH E DEPARTMENT IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: ITA NO. 3033/DEL/2012 & CO NO. 294/DEL/2012 3 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. THE LD.CIT(A)-XXV, NEW DELHI HAS ERRED IN DELETING THE ADDITION OF RS. 5,00,000/- ON ACCOUNT OF ESTABLISHMENT WITHOUT APPRECIATING THE FACTS BROUGHT OUT BY AO ON RECORD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-XXV, NEW DELHI HAS ERRED IN ALLOWING DEDUCTION U/S 80IC OF THE I.T. ACT AMOUNTING TO RS. 16,85,513/- WITHOUT THE FACTS BROUGHT OUT BY AO ON RECORD. 4. FIRST WE WILL CONSIDER GROUND NO. 2. 4.1 BRIEF FACTS APROPOS THIS ISSUE ARE THAT WITH RE FERENCE TO DEDUCTION CLAIMED U/S 80IC AT RS. 84,32,567/-, THE AO ISSUED SHOW CAUSE NOTICE REQUIRING ASSESSEE TO EXPLAIN AS TO WHY DEDUCTION U /S 80IC BE NOT DISALLOWED FOR THE FOLLOWING REASONS: 1. YOU ARE MAINTAINING OFFICES AT DELHI AS WELL AS NOIDA. 2. YOU ARE MAINTAINING BANK ACCOUNTS AT DELHI & NOIDA. 3. SALES OF GOODS AND PURCHASE OF RAW MATERIALS IS BEING MADE AT DELHI AS WELL AS NOIDA. 4. YOU HAVE MADE EXPENSES UNDER THE HEAD ADVERTISEMENT, BANK CHARGES, LEGAL AND PROFESSIONAL ITA NO. 3033/DEL/2012 & CO NO. 294/DEL/2012 4 CHARGES, MAINTENANCE COMPUTERS, PHOTOSTATE AND FAX, PRINTING AND STATIONERY, SALARY, DEPRECIATION, MISC. EXPENSES, MOBILE & INTERNET EXPENSES, INTERES T ON TERM LOAN, LEASE RENT AND COMMISSION ON SALES. ALL THESE EXPENSES RELATE TO THE SALES AND PURCHASE S BEING MADE AT DELHI AS WELL AS NOIDA, WHY THE PART OF DEDUCTION CLAIMED SHOULD NOT BE DISALLOWED. 5. THE ASSESSEE EXPLAINED AS UNDER: 1. THE FIRM HAD MANUFACTURING UNIT AT RUDARPUR WHEREFR OM ALL PRODUCTION AND SALES ACTIVITY IS CARRIED OUT. PROFIT FROM WHICH EXEMPT U/S 80IC. IT WAS FURTHER CLARIFIED TH AT THE FIRM HAD REGISTERED OFFICE AT DELHI AND SALES MADE TO NOIDA PARTIES FROM GARG STEELS RUDARPUR ONLY. FURT HER ALL ACCOUNT BOOKS ARE MAINTAINED FACTORY AT RUDARPU R; 2. THERE IS NO RESTRICTION UNDER INCOME TAX ACT U/S 80 IC THAT THE FIRM ELIGIBLE FOR DEDUCTION CANNOT OPEN ACCOUNT AT ANY OTHER PLACE OUTSIDE THE FACTORY AREA; 3. THE FIRM PURCHASES GOODS FROM THE PLACE WHEREVER IT IS AVAILABLE AT CHEAPER RATE AND SALE THE GOODS TO THE PERSON FROM WHOM THE ORDER IS RECEIVED. AND ALL PURCHASES AND SALES ARE MADE AT FROM RUDARPUR ONLY; 4. THE EXPENSES AS MENTIONED IN POINT NO. 4 HAVE BEEN INCURRED FOR THE MANUFACTURING UNIT LOCATED AT RUDA RPUR AND THERE IS NO RESTRICTION IN THE AW THAT UNIT ENT ITLED FOR EXEMPTION SHOULD INCURRED THE EXPENSES ONLY AT FACT ORY ARE ITA NO. 3033/DEL/2012 & CO NO. 294/DEL/2012 5 ONLY. ALL THE GOODS PURCHASE HAS BEEN USED AT FACT ORY AT RUDARPUR AND ALL THE EXPENSES HAVE BEEN INCURRED TO CARRY ON THE BUSINESS OF THE FIRM, ENTITLED FOR EXEMPTION U/S 80IC. ALL THE STATE HAS BEEN MADE OF GOODS MANUFACTURED A T RUDARPUR. ALL THE EXPENSES INCURRED FOR PURCHASE A ND SALES PERTAIN TO RUDARPUR FACTORY ONLY. 6. THE AO FOUND THAT THE ASSESSEE WAS MAINTAINING H EAD OFFICE & REGISTERED OFFICE AT 287, PHATAK KARROR, AJMERI GAT E, DELHI AND A BRANCH OFFICE AT NOIDA. THE ASSESSEE STATED THAT IT MADE SALES THROUGHOUT INDIA FROM RUDRAPUR ONLY. TO VERIFY THE ASSESSEES CLAIM REGARDING VARIOUS SALES, PURCHASES AND EXPENSES, NOTICES WERE ISSUED TO VARIOUS PARTIES. THE AO HAS OBSERVED THAT ALL OF THEM CONFIRMED THAT THE ASSESSEES BUSINESS WAS BEING CONDUCTED FROM DELHI & NOIDA, TH OUGH, THE FACTORY WAS SITUATED AT PANT NAGAR. 6.1 IN THE BACKDROP OF THESE FACTS, THE AO AGAIN IS SUED NOTICE TO ASSESSEE DATED 23/12/2011, TO EXPLAIN THAT WHY A PA RT OF THE PROFITS CLAIMED AS ACCRUING TO PANT NAGAR FACTORY SHOULD NO T BE ATTRIBUTED TO THE ACTIVITIES BEING CARRIED AT DELHI & NOIDA. THE ASS ESSEE REITERATED THE SUBMISSIONS MADE EARLIER AND STATED THAT THE PROFIT S PERTAIN SOLELY TO RUDARPUR FACTORY. THE AO HELD 20% OF THE PROFITS O F THE FIRM AS ITA NO. 3033/DEL/2012 & CO NO. 294/DEL/2012 6 ATTRIBUTABLE TO ITS ACTIVITIES AND ESTABLISHMENTS I N DELHI & NOIDA OBSERVING AT PAGE 4 AS UNDER: THE ISSUE RAISED TO THE ASSESSEE HAD TWO LIMITS ( I) IT WAS POINTED OUT THAT IT HAS DONE BUSINESS ACTIVI TIES AT DELHI & NOIDA (II) SECONDLY THE EXPENSES INCURRED A T DELHI & NOIDA OFFICES HAVE NOT BEEN BROUGHT INTO BO OKS OF ACCOUNTS. HAD THESE EXPENSES INCURRED IN DELHI & NOIDA BEEN BROUGHT INTO THE BOOKS OF ACCOUNTS IT WO ULD HAVE ESTABLISHED THAT THE BUSINESS WAS BEING CARRIE D OUT FROM OUTSIDE PANT NAGAR AS WELL. BY OPERATING FROM DELHI THE ASSESSEE WAS ABLE TO SELL ITS GOODS AT BETTER RATE AND THROUGH OUT INDIA . SO, RELEVANT OF DELHI & NOIDA OFFICES FOR EARNING THE P ROFITS AND DOING THE BUSINESS WAS THERE. THE ASSESSEE WAS RUNNING THE ESTABLISHMENTS AT DELHI & NOIDA FOR ITS BUSINESS INTERESTS. HENCE, THE ASSESSEE HAS NOT ON LY MADE SALES FROM DELHI & NOIDA FOR EARNING BETTER PR OFITS BUT HAS ALSO NOT INCURRED/CONCEALED THE EXPENSES INCURRED IN DELHI & NOIDA IN ITS IN BOOKS OF ACCOUN TS. HENCE, IT IS HELD THAT THE PROFITS AS RETURNED AND CLAIMED TO BE EXEMPT U/S 80IC DID HAVE COMPONENT WH ICH PERTAINED TO DELHI & NOIDA. 6.2 HE, THEREFORE, MADE A DISALLOWANCE OF RS. 16,85 ,513/-. ITA NO. 3033/DEL/2012 & CO NO. 294/DEL/2012 7 7. LD. CIT(A) DELETED THE DISALLOWANCE, INTER-ALIA, OBSERVING THAT ASSESSEE HAD MANUFACTURING UNIT AT PANT NAGAR WHICH WAS NOT DISPUTED. FURTHER, HE POINTED OUT THAT IT WAS NOT DISPUTED TH AT ASSESSEE FULFILLED ALL THE CONDITIONS FOR DEDUCTION U/S 80IC. HE OBSERVED THAT AO HAD NOT MADE OUT A CLEAR AND PROPER CASE WITH ANY SUBSTANTI AL EVIDENCE TO REDUCE THE CLAIM OF DEDUCTION U/S 80IC. 8. LD. DR REFERRED TO PAGE 23 OF PAPER BOOK, WHEREI N FORM NO. 10CCB FOR CLAIMING DEDUCTION U/S 80IC IS CONTAINED AND PO INTED OUT THAT NO DATE OF COMMENCEMENT OF PRODUCTION OR MANUFACTURE OF ART ICLE/THING IS GIVEN AND ONLY ASSESSEE HAS MENTIONED 2007-08. HE SUBMIT TED THAT NO DETAILS ARE THERE ON RECORD. IN THIS REGARD, HE FURTHER P OINTED OUT THAT NOTIFICATION IS ALSO NOT THERE. LD. COUNSEL SUBMITTED THAT ASSE SSEE HAD ONLY ONE UNIT AT RUDARPUR WHICH WAS UNDER THE DIRECT CONTROL OF C ENTRAL EXCISE AND SALES TAX AUTHORITY AND, THEREFORE, THERE WAS NO DI SPUTE REGARDING THE MANUFACTURING ACTIVITIES BEING CARRIED OUT BY ASSES SEE. 8.1 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE ONLY DISPUTE I N THE PRESENT APPEAL IS WHETHER ANY PROFITS COULD BE ALLOCATED TO BE BELONG ING TO ITS ACTIVITIES AND ESTABLISHMENTS IN DELHI & NOIDA. THE AO HAS NOT DI SPUTED THAT NO ITA NO. 3033/DEL/2012 & CO NO. 294/DEL/2012 8 MANUFACTURING ACTIVITY WAS CARRIED OUT AT NEW DELHI & NOIDA BUT KEEPING IN VIEW THE FACT THAT THE ASSESSEE WAS MAINTAINING OFFICES AND BANK A/CS AT DELHI AS WELL AS NOIDA AND AFTER TAKING INTO CON SIDERATION THE REPLIES OF VARIOUS PARTIES, WHO CONFIRMED THAT ASSESSEES BUSI NESS WAS BEING CONDUCTED AT DELHI & NOIDA THOUGH THE FACTORY WAS S ITUATED AT PANT NAGAR, CONCLUDED THAT BY OPERATING FROM DELHI THE A SSESSEE WAS ABLE TO SELL ITS GOODS AT BETTER RATE THROUGHOUT INDIA. TH EREFORE, RELEVANCE OF DELHI & NOIDA OFFICES FOR EARNING THE PROFITS AND D OING THE BUSINESS WAS THERE. HE, ACCORDINGLY, ATTRIBUTED 20% PROFITS OF THE FIRM TO DELHI & NOIDA AND, THUS, DENIED THE CLAIM OF DEDUCTION U/S 80IC T O THIS EXTENT. SECTION 80IC ENTITLES THE ASSESSEE DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE WHICH IS LOCATED IN CERTAIN SPECIAL CATEGORY STATES. THE ASSESSEE HAD ESTABLIS HED ITS FACTORY IN THE STATE OF UTTARANCHAL AND, THEREFORE, WAS ELIGIBLE F OR DEDUCTION U/S 80IC(2)(A)(II). THERE IS NO DISPUTE REGARDING ALLO WABILITY OF DEDUCTION IN TERMS OF SEC. 80IC. THE ASSESSEE WAS HAVING ONLY O NE UNIT AT RUDARPUR AND THERE WAS NO OTHER PROFIT CENTRE FROM WHICH ASS ESSEE DERIVED ANY PROFITS AND GAINS. THE ONLY REQUIREMENT OF SECTION 80IC IS THAT GROSS TOTAL INCOME OF ASSESSEE SHOULD INCLUDE PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFE RRED TO IN SUB-SECTION ITA NO. 3033/DEL/2012 & CO NO. 294/DEL/2012 9 (2). THEREFORE, THE AO WAS NOT RIGHT IN TREATING 2 0% OF THE PROFITS BEING ATTRIBUTABLE TO DELHI & NOIDA OFFICES. THERE IS NO RESTRICTION U/S 80IC FROM MAINTAINING ANY BANK ACCOUNT OUTSIDE THE PERMISSIBL E AREAS AS CONTEMPLATED U/S 80IC. UNLESS THERE WAS ANY BUSINE SS ACTIVITY EITHER AT NOIDA OR AT DELHI, NO DISALLOWANCE WAS CALLED FOR. WE ARE IN AGREEMENT WITH THE FINDINGS OF LD. CIT(A) THAT AO HAD NOT MAD E OUT A CLEAR CUT CASE WITH ANY SUBSTANTIAL EVIDENCE TO DENY THE CLAIM OF DEDUCTION U/S 80IC. 9. IN THE RESULT, THIS GROUND IS DISMISSED. 10. NOW COMING TO GROUND NO.1, THE AO HAD POINTED O UT THAT EXPENSES INCURRED IN DELHI & NOIDA HAVE NOT BEEN BROUGHT IN THE BOOKS OF ACCOUNT AND, THEREFORE, HE ESTIMATED RS. 5 LAKHS ON MAINTAI NING OF THESE TWO OFFICES. 11. LD. CIT(A) DELETED THE DISALLOWANCE OBSERVING T HAT AO HAD MADE AN ESTIMATED DISALLOWANCE PURELY ON AD-HOC MANNER WITH OUT BRINGING ANY MATERIAL EVIDENCE ON RECORD OF ANY UNACCOUNTED EXPE NDITURE. 11.1 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. IN THE SUBMIS SIONS MADE ON ITA NO. 3033/DEL/2012 & CO NO. 294/DEL/2012 10 18/04/2012 BEFORE LD. CIT(A) CONTAINED AT PAGE 42 T O 43 OF PAPER BOOK, IT WAS STATED THAT IT IS TOTALLY WRONG AND BASELESS TH AT ASSESSEE WAS MAINTAINING TWO OFFICES AT DELHI & NOIDA. THE ASSE SSEES SUBMISSION IS THAT IT HAD NO OFFICE AT NOIDA & DELHI OFFICE WAS O NLY REGISTERED OFFICE FOR ADMINISTRATIVE PURPOSES. DELHI OFFICE BELONGS TO O NE OF THE PARTNERS OF THE FIRM. IT IS FURTHER STATED THAT NEITHER ASSESSEE H AD DONE ANY SALES FROM NOIDA NOR INCURRED ANY EXPENSES FROM DELHI & NOIDA. THEREFORE, THERE WAS NO QUESTION OF ANY EXPENSES BEING INCURRED RELA TING TO THESE PLACES. ALL PURCHASES AND SALES WERE MADE FROM PANT NAGAR F ACTORY. THE AO HAS ONLY RELIED ON THE REPLIES OF VARIOUS PARTIES W HO MERELY STATED THAT ASSESSEES BUSINESS WAS CONDUCTED FROM DELHI & NOID A BUT HE HAS NOT ESTABLISHED THAT ASSESSEE WAS HAVING OFFICES AT NOI DA & DELHI APART FROM REGISTERED OFFICE BEING AT DELHI ONLY. UNDER SUCH CIRCUMSTANCES, AN AD- HOC ADDITION OF RS. 5 LAKH ON MAINTAINING THESE TWO OFFICES WAS WHOLLY UNWARRANTED. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). 12. AS FAR AS CROSS OBJECTION OF ASSESSEE IS CONCER NED, THE SAME IS IN SUPPORT OF THE FINDINGS OF LD. CIT(A). AS WE HAVE DISMISSED THE ITA NO. 3033/DEL/2012 & CO NO. 294/DEL/2012 11 DEPARTMENTS APPEAL, THE CROSS OBJECTION FILED BY T HE ASSESSEE BECOMES INFRUCTUOUS. 13. IN THE RESULT, THE DEPARTMENTS APPEAL IS DISMI SSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED AS BEI NG INFRUCTUOUS. ORDER PRONOUNCED IN OPEN COURT 19/07/2013 SD/- SD/- (A.D. JAIN) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19/07/2013 * KAVITA COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT (ITAT), NEW DELHI TRUE COPY BY ORDER ASSISTANT REGISTRAR