DCIT, Cir.-1, Nashik V. Macks surface Treatment Pvt. ltd., Nashik

ITA 1166/PUN/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9938 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-09-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 16-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Fair market value; Revised return
• Section: 80IB

Judgement Text

N THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 1166/PN/2011 (ASSTT. YEAR : 2 008-09) DEPUTY COMMISSIONER OF INCOME TAX, APPELLANT CIRCLE -1, NASHIK V. MACKS SURFACE TREATMENT PVT. LTD. RESPONDENT H-3/9, MIDC, AMBAD, NASHIK 422010 PAN :AACCM4907H APPELLANT BY : MS. AN N KAPTHUAMA RESPONDENT BY : SHRI NIK HIL PATHAK DATE OF HEARING : 26/9/12 DATE OF PRONOUNCEMENT : 28- 9-12 O R D E R PER R.S. PADVEKAR, JM IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE IMP UGNED ORDER OF THE LD CIT(A)-I, NASHIK DATED 15/07/2011 FOR THE A. Y. 2008-09. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS : 1. IN THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF R S. 1065700/- U/S 80IB(3). 2. IN THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION O F RS. 1065700/- U/S 80 IB (3), WHEN THE ACTIVITY OF CROMOPLATING CARRIED ON BY THE ASSESSEE IS NOT A MANUFACTURING ACTIVITY AND AFTER CROMOPLATING THE METAL REMAINS METAL. 3. IN THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION M ADE BY THE AO ON ACCOUNT OF DISALLOWANCE OR REMUNERATION OF RS. 15,0 0,000/- TO DIRECTORS U/S 40A(2)? 2. WE HAVE HEARD THE PARTIES. SO FAR AS GROUND NOS . 1 & 2 ARE CONCERNED, IT IS ON THE ISSUE OF THE DEDUCTION U/S. 80 IB (3) OF THE ACT. 2 ITA NO. 1166/PN/2011 MACKS SURFACE TREATMENT PVT LTD. A.Y.2008-09 THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y . 2008-09 DECLARING TOTAL INCOME AT RS. 31,42,820/- WHICH WAS SUBSEQUEN TLY REVISED BY FILING THE REVISED RETURN AT RS. 19,02,200/-. THE ASSESSE E ENGAGED IN THE JOB WORK OF CHROMIUM PLATING MAINLY ON SHOCK ABSORBER UNITS I.E. CARRYING OUT HARD CHROMIUM PLATING ON THE INNER TUBES OF S HOCK ABSORBERS, MOSTLY FOR GABRIEL INDIA LIMITED. THE ASSESSEE HAS CLAIMED THE DEDUCTION OF RS. 10,65,700/- U/S. 80IB (3) OF THE ACT. THE A .O. DECLINED TO GRANT THE DEDUCTION CLAIMED BY THE ASSESSEE BY HOLDING TH AT THE ACTIVITY OF THE ASSESSEE DOES NOT INVOLVE THE PROCESS OF MANUFACTUR E NOR DOES IT PRODUCE ANY ARTICLE OR THING. THE LD CIT(A) ALLOWED THE CL AIM OF THE ASSESSEE. THE LD COUNSEL SUBMITS THAT THE ISSUE ARISING FROM GROUND NOS. 1 & 2 ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISI ON OF ITAT, PUNE A BENCH FOR THE A.YS. 2003-04 TO 2006-07 BEING ITA NO S. 1254 TO 1257/PN/2009, ORDER DATED 25 TH AUGUST 2011. THE COPY OF THE TRIBUNAL ORDER IS FILED IN THE COMPILATION AT PAGE NOS. 42 T O 44. THE LD D.R. FAIRLY CONCEDED THAT THE ISSUE OF DEDUCTION U/S. 80IB(3) I S COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASS ESSEES OWN CASE. 3. THE OPERATIVE PART OF THE TRIBUNAL ORDER IN ITA NOS. 1254 TO 1257/PN/2009, ORDER DATED 25 TH AUGUST 2011 IS AS UNDER : 3. THE NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE O F DEDUCTION U/S 80- IB(3) OF THE ACT. THE RELEVANT FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESSING WORK OF ELECTROPLATING/C HROMO PLATING. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80-IB(3) OF THE ACT FOR THE YEARS UNDER CONSIDERATION. THE ASSESSING OFFICER HAS MAD E DISALLOWANCE OF DEDUCTION U/S 80-IB(3) OF THE ACT ON THE GROUND THA T THE ACTIVITIES CARRIED OUT BY THE ASSESSEE DO NOT RESULT INTO NEW PRODUCT. FURTHER, AS PER THE ASSESSING OFFICER, THE ASSESSEE IS NOT LIAB LE TO SALES- TAX AND EXCISE DUTY AND HENCE THE ACTIVITIES OF THE ASSESSEE ARE NOT THE MANUFACTURING ACTIVITIES. ON APPEAL, T HE CIT(A) HELD THAT THE ACTIVITIES OF THE ASSESSEE ARE THE MA NUFACTURING ACTIVITIES AND THEREFORE, ENTITLED TO CLAIM DEDUCTI ON U/S 80- IB(3) OF THE ACT. ACCORDINGLY, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE U /S 80-IB(3) OF THE ACT. THE SAME HAS BEEN OPPOSED BEFORE US BY THE REVENUE. 3.1. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS TO CARRY O UT VARIOUS ACTIVITIES AND PROCESS AS UNDER: I) RAW MATERIAL I.E. INNER AND OUTER TUBES OF IRON RODS ARE OBTAINED/RECEIVED. THESE TUBES ARE CLEANED USING VA RIOUS CHEMICALS. II) THE SURFACE OF THE INNER AND OUTER TUBES OF IRO N RODS IS THEN SMOOTHENED BY USING POLISH PAPER AND ALSO CARR YING OUT BUFFING ACTIVITY. III) THESE INNER AND OUTER TUBES OF IRON ARE THEN D IPPED IN TO A TANK CONTAINING MAINLY NICKEL AND OTHER CHEMICALS . THE 3 ITA NO. 1166/PN/2011 MACKS SURFACE TREATMENT PVT LTD. A.Y.2008-09 INTENSE ELECTRICAL CURRENT IS PASSED THROUGH NIKEL AND OTHER CHEMICALS IN TANK AND ALSO THROUGH IRON TUBES. THES E TUBES INTENSE ELECTRICAL CURRENTS RESULTS INTO CHEMICAL R EACTION, WHICH RESULTS IN TO FINE FILM DEPOSITION OF NICKEL ON IRO N TUBES. IV) THESE TUBES ARE THEN REMOVED FROM THE TANK AND THE CHEMICAL REACTION CARRIED OUT (AS STATED IN PARA (I II) ABOVE) IS NEUTRALIZED BY DIPPING THE SAME IN CHEMICALS. THERE AFTER AGAIN THE TUBES ARE CLEANED AND DRIED. V) THESE INNER AND OUTER TUBES OF IRON ARE THEN DIP PED INTO A TANK CONTAINING MAINLY CHROMIUM AND OTHER CHEMICA LS. THE INTENSE ELECTRICAL CURRENT IS PASSED THROUGH CHROMI UM AND OTHER CHEMICALS IN TANK AND ALSO THROUGH IRON TUBES . THESE TWO INTENSE ELECTRICAL CURRENTS RESULTS INTO CHEMIC AL REACTION, WHICH RESULTS INTO FINE FILM DEPOSITION OF NICKEL I N IRON TUBES. VI) THESE TUBES ARE THEN REMOVED FROM THE TANK AND THE CHEMICAL REACTION CARRIED OUT (AS STATED IN PARA (V ) ABOVE) IS NEUTRALIZED BY DIPPING THE SAME IN CHEMICALS. THER EAFTER AGAIN THE TUBES ARE CLEANED AND DRIED. VII) THEREAFTER THE TUBES ARE CLEANED, POLISHED AND BUFFED TO THE EXTENT THAT THE SURFACE OF THE TUBES LOOKS LIKE MIRROR. VIII) THEN THESE GOODS ARE SENT TO LABORATORY OF QU ALIFY CONTROL DEPARTMENT. IN THIS LABORATORY THE COATING OF NICK EL AND CHROMIUM IS CHECKED FOR ITS THICKNESS (IN MICRON_ AND ITS STRENGTH. THE QUALITY AND PERFECTION OF THE COATIN G AND IS STRENGTH IS CHECKED BY USING COMPUTERIZED MACHINERY . IX) THE RESULTANT WASTAGE OF CHEMICALS DUE TO THE A BOVE PROCESSES IS TO BE COLLECTED IN TANKS AND THESE CHE MICALS ARE THEN NEUTRALIZED BY USING VARIOUS OTHER CHEMICALS A S PER STANDARD CONTROLS OF POLLUTION CONTROL DEPARTMENT: THE RESULTANT PRODUCT IS DIFFERENT PRODUCT AFTER CA RRYING OUT VARIOUS PROCESSES ON THE RAW MATERIAL REQUIRED FOR THE PRODUCT BY USING NICKEL, CHROMIUM, CHEMICALS AND USING ELEC TRIC CURRENT ETC. ONCE THE ACTIVITY/PROCESS IS COMPLETED PRODUCT CANNOT BE REVERTED BACK TO ITS ORIGINAL FORM. THERE FORE, THE ACTIVITIES CARRIED OUT BY THE ASSESSEE ARE MANUFACT URING ACTIVITIES. FOR CLAIMING THE DEDUCTION U/S 80-IB(3 ) HERE SHOULD BE SUBSTANTIAL INVESTMENT OF FRESH CAPITAL, THE IND USTRIAL UNDERTAKING SHOULD EMPLOY REQUISITE LABOUR FOR THE PURPOSE OF CARRYING OUT THE MANUFACTURING ACTIVITY AND THE UNI T SHOULD HAVE SEPARATE AND INDEPENDENT ACTIVITY. ALL THESE C ONDITIONS HAVE BEEN FULFILLED BY THE ASSESSEE. TAKING ALL F ACTS AND CIRCUMSTANCES INTO CONSIDERATION, THE DECISION OF T HE CIT(A) ON THIS ISSUE DOES NOT CALL FOR ANY INTERFERENCE AT OU R HAND. THE SAME IS UPHELD. 4. THE SAID DECISION HAS BEEN FOLLOWED BY THE TRIBU NAL IN ASSESSEES OWN CASE IN A.Y. 2007-08. AS THE FACTS ARE IDENTIC AL, WE FIND NO REASON TO TAKE DIFFERENT VIEW. WE, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, CONFIRM THE ORDER OF THE LD CI T(A) ON THIS ISSUE AND BOTH THE GROUNDS ARE DISMISSED. 4 ITA NO. 1166/PN/2011 MACKS SURFACE TREATMENT PVT LTD. A.Y.2008-09 5. SO FAR AS GROUND NO. 3 IS CONCERNED, IT IS A DIS ALLOWANCE OF THE REMUNERATION PAID TO THE DIRECTORS BY EVOKING THE P ROVISIONS OF SEC. 40A(2) OF THE ACT. THE ASSESSEE HAD CLAIMED THE EXP ENDITURE IN RESPECT OF THE REMUNERATION PAID TO THE DIRECTORS TO THE EXTEN T OF RS. 30,00,000/- TO SHRI RAHUL NIGAM AND RS. 6,00,000/- TO MRS. NITA RA HUL NIGAM. THE A.O. WAS OF THE OPINION THAT THE PAYMENTS MADE TO BOTH T HE DIRECTORS IS HIT BY THE PROVISIONS OF SEC. 40A(2)(B) OF THE ACT AS THE SAID PAYMENT WAS NOT IN ACCORDANCE WITH THE FAIR MARKET VALUE. 6. SO FAR AS THE DISALLOWANCE MADE IN RESPECT OF S HRI RAHUL NIGAM IS CONCERNED, WE FIND THAT THE ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE A.YS. 2003-04 TO 2006-07 (ITA NOS. 1254 TO 1254/PN/2007, ORDER DA TED 25.8.2011. MOREOVER, WE FIND THAT THE A.O HAS NOT BROUGHT ON R ECORD ANY MATERIAL EXCEPT SHOWING THE FINANCIAL RESULTS OF THE COMPANY AND THAT THE REMUNERATION PAID TO SHRI RAHUL NIGAM IS UNREASONA BLE. MOREOVER, THOUGH THE A.O HAS CONSIDERED THE FINANCIAL RESULTS FOR THE A.YS. 2006-07 AND 2007-08, WE FIND THAT IN BOTH THE A.YS. THE ISS UE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. WE, THE REFORE, FIND NO REASON TO TAKE DIFFERENT VIEW THAN THE VIEW TAKEN BY THE L D CIT(A). ACCORDINGLY, THE ORDER OF THE LD CIT(A) ON THE ISSUE OF THE REMU NERATION PAID TO SHRI RAHUL NIGAM IS CONFIRMED. 7. THERE IS ONE MORE ISSUE IN GROUND NO. 3 I.E. IN RESPECT OF REMUNERATION PAID TO MRS. NITA NIGAM, ANOTHER DIREC TOR OF THE COMPANY WAS TO THE EXTENT OF RS. 6,00,000/-. IN THE OPINIO N OF THE A.O, THERE IS NO RATIONAL BASIS FOR PAYMENT OF THE SAID SALARY TO MRS. NITA NIGAM. THE A.O HAS OBSERVED THAT THE PAYMENT OF THE SALARY IS TOTALLY ARBITRARY AND WITHOUT ANY RATIONAL BASIS. AGAIN, THE A.O HAS CON SIDERED THE FINANCIAL RESULTS OF THE COMPANY FOR THE A.YS. 2006-07 TO 20 08-09. ADMITTEDLY, SHE WAS PAID THE SALARY/REMUNERATION FOR THE FIRST TIME IN THE A.Y. 2008- 09. THE LD. COUNSEL SUBMITS THAT SHE IS THE POST G RADUATE AND NOTHING HAS BEEN BROUGHT ON RECORD BY THE A.O AT LEAST, PRI MA FACIE, TO SHOW THAT THE PAYMENT IS UN-REASONABLE. HE SUBMITS THAT OTHE RWISE ALSO, THERE IS NO REVENUE LOSS AS THE ASSESSEE IS ENJOYING THE BEN EFIT OF DEDUCTION U/S. 80 IB (3) OF THE ACT AND MRS. NITA NIGAM IS PAYING THE TAX ON THE SALARY. WE FIND THAT THE LD CIT(A) HAS DISCUSSED THIS ISSUE IN PARA NO. 5 OF HIS ORDER. HE HAS OBSERVED THAT THE A.O HAS WHILE MAKI NG THE DISALLOWANCE IN RESPECT OF MRS. NITA NIGAM HAS GIVEN THE IDENTIC AL REASON AS GIVEN BY 5 ITA NO. 1166/PN/2011 MACKS SURFACE TREATMENT PVT LTD. A.Y.2008-09 HIM IN THE CASE OF MR. RAHUL NIGAM. HE, THEREFORE, DECLINED TO SUPPORT THE ORDER OF THE A.O. IN OUR OPINION, NOTHING IS THERE ON RECORD TO SHOW THAT THE REMUNERATION PAID TO MRS. NITA NIGAM IS, I N FACT, UNREASONABLE. WE FIND NO REASON TO INTERFERE WITH THE ORDER OF TH E CIT(A). ACCORDINGLY, GROUND NO. 3 IS DISMISSED. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28TH SEPTEMBER 2012. SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (R.S.PADVEKAR ) JUDICIAL MEMBER PUNE, DATED THE 28TH SEPTEMBER, 2012 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-I, NASHIK 4. THE CIT(A)-I, NASHIK 5. THE D.R. A BENCH, PUNE 6. GUARD FILE /- TRUE COPY-/ BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE