ANCHOR ELECTRICALS P.LTD, MUMBAI V. DCIT CEN CIR 7(2), MUMBAI

ITA 1015/MUM/2015

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5540 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 13-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: NITECH JOSHI
• Keywords: Bogus purchase; Transfer pricing; Initiation of penalty proceedings
• Section: 271(1)(c); 143(3); 80HHC; 80IB; 201; 80IC

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI RAMLAL NEGI (JM) I.T.A. NO. 1015 /MUM/ 2015 (ASSESSMENT YEAR 20 10 - 11 ) ANCHOR ELECTRICALS PVT. LIMITED 3 RD FLOOR, I - THINK TECHNO CAMPUS POKHARAN ROAD NO.2 THANE(W) - 400 607. PAN : AAECA2190C V S . DCIT CC - 7(2) MUMBAI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI NITECH JOSHI DEPARTMENT BY SHRI MANOJ KUMAR DATE OF HEARING 26 .10 . 201 8 DATE OF PRONOUNCEMENT 05 . 1 1 . 201 8 O R D E R PER B.R. BASKARAN (AM) : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER 12 - 12 - 2014 PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 144C(13) OF THE ACT FOR THE ASSESSMENT YEAR 2010 - 11. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE O F ELECTRICAL GOODS. 3. THE GROUND NO.1 IS GENERAL IN NATURE. 4. THE GROUND NUMBER 2 TO 8 RELATE TO THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. AT THE TIME OF HEARING, THE LD A.R SUBMITTED THAT THIS ISSUE HAS SINCE BEEN SETTLED UND ER MUTUAL AGREEMENT PROCEDURE FINALISED BETWEEN INDIA AND JAPAN. ACCORDINGLY HE DID NOT PRESS THESE GROUNDS. ACCORDINGLY, THESE GROUNDS ARE DISMISSED AS NOT PRESSED. ANCHOR ELECTRI CALS PVT. LIMITED 2 5. THE GROUND NO.9 RELATES TO THE DISALLOWANCE OF ALLEGED BOGUS PURCHASES OF RS.2,15, 614/ - MADE BY THE AO. THE REVENUE RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT OF GOVERNMENT OF MAHARASHTRA THAT CERTAIN DEALERS WERE PROVIDING ONLY ACCOMMODATION BILLS WITHOUT ACTUALLY SUPPLYING MATERIALS. IT WAS NOTICED THAT THE ASSESSEE HAS PURC HASED GOODS FROM TWO OF SUCH DEALERS AGGREGATING TO RS.2,15,614/ - . THE GOODS PURCHASED FROM THEM WERE IN THE NATURE OF CONSUMABLES LIKE DELIVERY CHALLANS, WEIGHMENT SLIPS, OCTROI SLIPS ETC. THE AO DISALLOWED THE SAME. 6. THE LD A.R SUBMITTED THAT TH E TOTAL PURCHASES CLAIMED BY THE ASSESSEE IS AROUND RS.419.96 CRORES. HENCE THE AO WAS NOT JUSTIFIED IN TREATING THE AMOUNT OF RS.2,15,614/ - AS BOGUS PURCHASES. HE SUBMITTED THAT THE ASSESSEE HAS MADE THE PAYMENTS TO SUPPLIERS THROUGH BANKING CHANNELS. ACCORDINGLY HE SUBMITTED THAT THE IMPUGNED DISALLOWANCE MAY BE DIRECTED TO BE DELETED. IN THE ALTERNATIVE, HE SUBMITTED THAT THE AO MAY BE DIRECTED TO ALLOW DEDUCTION U/S 80IC OF THE ACT AGAINST THE ABOVE SAID DISALLOWANCE. 7. WE HEARD LD D.R AND PER USED THE RECORD. THE IMPUGNED SUPPLIERS HAVE BEEN IDENTIFIED AS HAWALA DEALERS AND THEY HAVE ALSO ADMITTED BEFORE THE SALES TAX AUTHORITIES THAT THEY HAVE NOT SUPPLIED GOODS. AT THE SAME TIME, CONSIDERING THE QUANTUM OF PURCHASES MADE BY THE ASSESSEE, TH ERE MAY BE MERIT IN THE CONTENTIONS OF LD A.R THAT THERE WAS NOT REQUIREMENT FOR THE ASSESSEE TO ACCOUNT FOR BOGUS PURCHASES. SINCE THE SUPPLIERS HAVE DENIED SUPPLIES, WE ARE OF THE VIEW THAT THE DISALLOWANCE MAY BE RESTRICTED TO 10% OF VALUE OF ALLEGED B OGUS PURCHASES, I.E., TO RS.21,560/ - , WHICH WILL TAKE CARE OF REVENUE LEAKAGES, IF ANY, IN SUCH PURCHASES. WE DIRECT THE AO ACCORDINGLY. THERE IS MERIT IN THE ALTERNATIVE CONTENTION OF THE ASSESSEE. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IC OF THE ACT FOR HARIDWAR UNIT. IF THE ABOVE SAID PURCHASES HAVE BEEN MADE FOR HARIDWAR UNIT AND ACCOUNTED IN ITS PROFIT AND LOSS ACCOUNT, THEN THE ABOVE SAID DISALLOWANCE SHALL ALSO BE ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT, AS IT WOULD INCREASE THE ELIGIBLE PRO FIT. THE AO MAY VERIFY THIS ASPECT WHILE COMPUTING DEDUCTION U/S 80IC OF THE ACT. ANCHOR ELECTRI CALS PVT. LIMITED 3 8. THE NEXT ISSUES CONTESTED BY THE ASSESSEE RELATES TO THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IC OF THE ACT. THE GROUND NUMBERS 10 TO 13 RELATES TO THE QUANTUM OF DEDUCTION ALLOWED BY THE AO U/S 80IC OF THE ACT. THE AO COMPUTED ELIGIBLE AMOUNT OF DEDUCTION UNDER SECTION 80IC OF THE ACT AT RS.130.49 CRORES, BUT RESTRICTED THE DEDUCTION TO RS.98.31 CRORES, BEING THE AMOUNT OF PROFITS AND GAINS OF BUSINESS INCLUDED I N PROFIT AND LOSS ACCOUNT. THE LD DRP ALSO CONFIRMED THE SAME. 9. WE HEARD THE PARTIES ON THIS ISSUE. THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT FOR ITS HARIDWAR UNIT. THE PROFIT OF HARIDWAR UNIT COMPUTED AS PER THE PROVISIONS OF TH E ACT WAS RS.142.80 CRORES. ACCORDING TO THE ASSESSEE, THE ENTIRE AMOUNT OF RS.142.80 CRORES IS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. THE ASSESSEE IS ALSO HAVING VARIOUS OTHER UNITS AND THEY INCURRED LOSSES/PROFITS. AFTER AGGREGATION OF PROFITS/LO SSES OF ALL UNITS, IT DECLARED INCOME OF RS.98.31 CRORES UNDER THE HEAD BUSINESS. THE ASSESS E E ALSO DECLARED INCOME OF RS.21.12 CRORES UNDER THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY, THE GROSS TOTAL INCOME WAS COMPUTED AT RS.119.43 CRORES. 10 . THE DISPUTE HERE IS WITH REGARD TO THE QUANTUM OF DEDUCTION ACTUALLY ALLOWABLE U/S 80IC OF THE ACT. WHILE THE ASSESSEE CLAIMS THAT THE DEDUCTION U/S 80IC OF THE ACT SHOULD BE RESTRICTED TO THE AMOUNT OF GROSS TOTAL INCOME, THE AO, HOWEVER, RESTRICTED THE DEDUCTION TO THE AMOUNT OF PROFITS AND GAINS OF BUSINESS INCLUDED IN THE GROSS TOTAL INCOME, I.E. AT RS.98.31 CRORES. 11. WE NOTICE THAT THE CLAIM OF THE ASSESSEE IS SUPPORTED BY THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DEWAN KRAFT SYSTEM (P) LTD (297 ITR 305) AND OTHER DECISIONS NOTED BY THE AO IN PAGE 7 OF HIS ORDER. THE INCOME REPORTED BY THE ASSESSEE UNDER THE HEAD BUSINESS, I.E., RS.98.31 CRORES IS THE AGGREGATE AMOUNT PROFIT/LOSS OF VARIOUS BUSINESS UNDER TAKINGS RUN BY THE ASSESSEE. THE DEDUCTION U/S 80IC IS ALLOWED FOR HARIDWAR UNIT ONLY. AS PER THE PROVISIONS OF SECTION 80A(2) OF THE ACT, THE ANCHOR ELECTRI CALS PVT. LIMITED 4 DEDUCTION UNDER CHAPTER VIA SHOULD BE RESTRICTED TO THE AMOUNT OF GROSS TOTAL INCOME. AS PER THE RETURN OF INC OME OF THE ASSESSEE, THE PROFIT OF HARIDWAR UNIT ELIGIBLE FOR DEDUCTION IS RS.142.80 CRORES. THE INCOME DECLARED UNDER THE HEAD BUSINESS WAS RS.98.31 CRORES, WHICH WAS ARRIVED AT BY AGGREGATING PROFITS/LOSSES OF ALL UNDERTAKINGS, MEANING THEREBY, OTHER UND ERTAKINGS HAVE INCURRED LOSSES TO THE TUNE OF RS.44.49 CRORES. THE GROSS TOTAL INCOME WAS RS.119.43 CRORES. 12. AS PER THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF DEWAN KRAFT SYSTEM (P) LTD (SUPRA), WHAT IS REQUIRED TO BE COMPAR ED IS THE PROFIT OF HARIDWAR UNIT (WHICH IS ELIGIBLE FOR DEDUCTION) WITH THE GROSS TOTAL INCOME. IDENTICAL VIEW WAS EXPRESSED BY THE JURISDICTIONAL HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TRIDOSS LABORATORIES LTD (328 ITR 448). SINCE THE PROFIT A ND GAINS OF BUSINESS OF RS.98.31 CRORES INCLUDES THE PROFIT FROM ELIGIBLE BUSINESS (HARIDWAR UNIT) OF RS.142.80 CRORES, THE PROFIT OF ELIGIBLE UNIT IS REQUIRED TO BE COMPARED WITH THE GROSS TOTAL INCOME. ACCORDINGLY, WE FIND MERIT IN THE CONTENTIONS OF TH E ASSESSEE. ACCORDINGLY, WE DIRECT THE AO TO CONSIDER THE PROFIT OF HARIDWAR UNIT ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT AND RESTRICT THE DEDUCTION TO THE AMOUNT OF GROSS TOTAL INCOME. 13. IN GROUND NO.14, THE ASSESSEE IS CONTESTING THE REJECTION OF DEDUCTION U/S 80IC OF THE ACT ON THE REVENUE RECEIVED FROM SCRAP SALES AMOUNTING TO RS.323.12 LAKHS. IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR AY 2008 - 09 IN I TA NO.6930/MUM/2012 DATED 26 - 04 - 2017, WHEREIN IT W AS HELD THAT THE REVENUE RECEIVED ON SALE OF SCRAP IS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. THE TRIBUNAL, IN AY 2008 - 09, HAS FOLLOWED THE DECISION RENDERED IN THE ASSESSEES OWN CASE IN AY 2009 - 10 IN ITA NO.786/M/2014 DATED 23 - 9 - 2016. THE LD A.R AL SO SUBMITTED THAT THIS ISSUE IS COVERED BY THE RATIO LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEELS LTD (383 ITR 217). ANCHOR ELECTRI CALS PVT. LIMITED 5 14. FOLLOWING THE DECISION RENDERED BY THE CO - ORDINATE BENCHES IN THE ASSESSEES OWN CASE IN EARLIER YEARS, WE DI RECT THE AO TO ALLOW DEDUCTION U/S 80IC OF THE ACT ON REVENUE RECEIVED FROM SCRAP SALES FROM HARIDWAR UNIT. 15. THE NEXT ISSUE URGED IN GROUND NO.15 RELATES TO REJECTION OF DEDUCTION U/S 80IC OF THE ACT ON MISCELLANEOUS INCOME OF RS.27,18,800/ - . THE MISCELLANEOUS INCOME RELATING TO HARIDWAR UNIT REPORTED BY THE ASSESSEE CONSISTS OF FOLLOWING ITEMS: - EXCHANGE GAIN (NET) - 18,28,957 CASH DISCOUNT RECEIVED - 2,51,250 SUNDRY INCOME - 6,38,393 ----------------- 27,18,600 ============ IN RESPECT OF EXCHANGE GAIN, THE LD A.R PLACED HIS RELIANCE ON THE DECISION RENDERED BY CO - ORDINATE BENCH IN THE CASE OF MARICO LTD (2016)(70 TAXMANN.COM 214)(MUM), WHEREIN THE TRIBUNAL FOLLOWED THE DECISION RENDERED IN THE CASE OF RAGHUNATH EXPORTS (P) LTD (300 ITR 57)(CAL) IN THE CONTEXT OF SEC. 80HHC OF THE ACT AND HELD THAT THE FOREIGN EXCHANGE GAIN IS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. FOLLOWING THE SAME, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT IN RESPECT OF FOREIGN EXCHANGE GAIN OF RS.18.28 LAKHS. 16. IN RESPECT OF CASH DISCOUNT RECEIVED ON PURCHASES, WE NOTICE THAT THE CO - ORDINATE BENCH HAS CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF SEJAL ARCHITECTURAL GLASS LTD (ITA NO.1661/M UM/2010) HAS HELD THAT THE CASH DISCOUNT IS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. FOLLOWING THE SAME, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT IN RESPECT OF CASH DISCOUNT OF RS.2,51,250/ - . 17. THE REMAINING AMOUNT I S GROUPED AS SUNDRY INCOME. SINCE THE NATURE OF RECEIPTS IS NOT MENTIONED, WE RESTORE THIS TO THE FILE OF THE AO WITH THE DIRECTION TO ALLOW THE DEDUCTION U/S 80IC OF THE ACT, IF IT IS DIRECTLY RELATED TO THE MANUFACTURING ACTIVITY CARRIED OUT IN HARIDWAR UNIT. ANCHOR ELECTRI CALS PVT. LIMITED 6 18. THE NEXT ISSUE CONTESTED IN GROUND NO.16 - 18 RELATES TO THE INCOME EARNED FROM TRADING ACTIVITY. THE LD A.R SUBMITTED THAT THE ASSESSEE DID NOT INCLUDE THE PROFIT FROM TRADING ACTIVITIES WHILE COMPUTING ELIGIBLE PROFIT FROM HARIDWAR UNIT. A CCORDINGLY WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING THE CLAIM OF THE ASSESSEE AND IF IT IS FOUND TO BE CORRECT, THEN THE AO SHOULD NOT REDUCE THE DEDUCTION BY TRADING PROFITS. 19. THE NEXT ISSUE URGED IN GROUND NO.19 RELATES TO THE RE JECTION OF DEDUCTION U/S 80IC OF THE ACT ON STATUTORY DISALLOWANCES. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SUNIL VISHWAMBHARNATH TIWARI (388 ITR 630) AND THE CBDT CIRCU LAR NO.37/2016 DATED 02 - 11 - 2016. ACCORDINGLY WE DIRECT THE AO TO ALLOW DEDUCTION U/S 80IC OF THE ACT ON THE PROFIT ENHANCED BY STATUTORY DISALLOWANCES. 20. THE NEXT ISSUE URGED IN GROUND NO.20 RELATES TO THE LEVY OF INTEREST U/S 234C OF THE ACT. THE INTEREST U/S 234C OF THE ACT IS LEVIEBLE ON THE RETURNED INCOME AS PER THE PROVISIONS OF SEC. 234C OF THE ACT. ACCORDINGLY WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING THE INTEREST CALCULATION OF INTEREST CHARGED U/S 234C OF THE ACT. 21. THE LAST ISSUE URGED RELATES TO INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. IT IS PREMATURE AT THIS STAGE AND IT DOES NOT REQUIRE ADJUDICATION. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 05 . 1 1 . 201 8 . SD/ - SD/ - (RAMLAL NEGI) (B.R.BASKARAN) J U DICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 05 / 1 1 / 20 1 8 ANCHOR ELECTRI CALS PVT. LIMITED 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR P RIVATE S ECRETARY ) PS ITAT, MUMBAI