Hitachi Metglas (India) Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 1256/DEL/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7862 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 14-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA SRDR
• Assessee Lawyers: G C SRIVASTAVA
• Keywords: Business income; Earning of tax free income; Initiation of penalty proceedings
• Section: 143(3); 234B; 10

Judgement Text

X IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.1256/DEL/2012 ASSESSMENT YEAR : 2007-08 HITACHI METGLAS (INDIA) ACIT, PRIVATE LIMITED, CIRCLE-12 (1), 1-C, VANDANA BLDG., NEW DELHI. 11-TOLSTOY MARG, NEW DELHI. V. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.C. SRIVASTAVA, ADVOCATE. RESPONDENT BY : SMT. ANUSHA KHURANA SR,DR. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-12 (1), NEW DELHI U/S 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961. THE GROUNDS OF APPEALS ARE AS UNDER:- BASED ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, T HE APPELLANT RESPECTFULLY SUBMITS THE FOLLOWING GROUNDS OF OBJECTION: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(1) NEW DELHI ('THE LEARNED AO') UNDER SECT ION 143(3) READ WITH SECTION 144C OF THE ACT, ON THE DIRECTIONS OF THE ITA NO1256/DEL/2012 2 HON'BLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') IS BA D IN LAW AND VOID AB- INITIO. 1.1 THAT ON FACTS AND IN LAW, WHILE PASSING THE ASSESSMEN T ORDER, THE LEARNED AD HAS ERRED IN COMPUTING THE TOT AL INCOME OF THE APPELLANT AT RS. 46,64,427 AS AGAINST RETURNED INC OME OF RS 12,17,712 AND THEREFORE, THE ORDER OF THE LEARNED A O IS BAD IN LAW AND NEEDS TO BE ANNULLED. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP HAS ERRED IN CONFIRMING AND ACCORDINGLY, THE LD AO HAS ERRED IN EXCLUDING THE INTEREST INCOME OF RS.3,32, 611/- FROM THE PROFIT OF BUSINESS OF THE UNDERTAKING WHILE COMPU TING THE DEDUCTION UNDER SECTION 10 A OF THE ACT WITHOUT UNDE RSTANDING THE FACTS OF THE CASE. 2.1.THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E HON'BLE DRP AND THE LEARNED AD HAVE FAILED TO APPRECIATE TH AT THE INTEREST INCOME WAS ALREADY EXCLUDED AND OFFERED TO T AX UNDER INCOME FROM OTHER SOURCES, THEREFORE EXCLUDING THE IN TEREST INCOME TWICE IS NOT WARRANTED. 3. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP HAS ERRED IN CONFIRMING AND ACCORDIN GLY, THE LEARNED AO HAS ERRED BY EXCLUDING THE MISCELLANEOUS I NCOME OF ` .9,35,639/- AND PROFIT ON DISPOSAL OF ASSETS OF ` .27,28,077/- FROM THE PROFITS OF BUSINESS OF THE UNDERTAKING WHILE COMPUT ING DEDUCTION UNDER SECTION 10 A OF THE ACT WITHOUT UNDE RSTANDING THE FACTS OF THE CASE. ITA NO1256/DEL/2012 3 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED IN CONFIRMING AND ACCORDINGLY, THE LEARNED AO HAS ERRED IN UNDERSTANDING THAT THE MISCEL LANEOUS INCOME SHOULD BE INCLUDED IN 'PROFITS OF BUSINESS OF THE UNDERTAKING' AS IT IS INEXTRICABLY LINKED TO THE BUSIN ESS OF THE UNDERTAKING. 3.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED IN CONFIRMING AND ACCORDINGLY, THE LEARNED AO HAS ERRED IN UNDERSTANDING THAT THE PROFIT ON DISPOSAL OF ASSETS HAD ALREADY BEEN EXCLUDED FROM THE PR OFITS OF THE BUSINESS OF THE UNDERTAKING WHILE COMPUTING THE DE DUCTION UNDER SECTION 10A OF THE ACT. THEREFORE, EXCLUDING T HE PROFIT ON DISPOSAL OF ASSETS TWICE IS NOT JUSTIFIED. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP AND THEREAFTER THE LEARNED AO HAS ERRED IN NOT PASSING A SPEAKING ORDER THUS VIOLATING PRINCIPLES OF N ATURAL JUSTICE. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN CHARGING INTEREST UNDER SECTION 2 34B OF THE ACT. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROCEEDIN GS UNDER SECTION 271 (1 )(C) OF THE ACT. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE & WITHOUT PREJUDICE TO EACH OTHER. ITA NO1256/DEL/2012 4 THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE, WITHDRAW ANY OF THE AFORESAID GROUNDS OF A PPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE AP PEAL. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON T HE ABOVE GROUNDS OF APPEAL AND FACTS AND CIRCUMSTANCES OF THE CA SE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF DESIGNING AND MANUFACTURING OF CORSE AND OTHER MAGNETIC METAL, TRANSMISSION AND DISTRIBUTION EQ UIPMENT AND OTHER RELATED PRODUCTS. THE CASE OF THE ASSESSEE WAS SELEC TED FOR SCRUTINY AND VARIOUS INFORMATION AND DOCUMENTS AS CALL ED FOR BY THE LD ASSESSING OFFICER WERE FILED DURING ASSESSMENT PROCEEDING. THE DRAFT ORDER U/S 144C OF THE ACT WAS FORWARDED TO ASSESSEE ON 12 .12.2010 IN RELATION TO ASSESSMENT ORDER PROPOSED TO BE PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE ACT. THE ASSESSEE FILED ITS O BJECTIONS TO THE DRAFT ORDER BEFORE LD DISPUTE RESOLUTION PANEL-I (FOR SHORT DRP-I), NEW DELHI. THE LD DRP-I CONSEQUENT TO FILING OF OBJECTIO NS GAVE DIRECTIONS TO THE ASSESSING OFFICER TO COMPLETE THE ASSESSMENT PROCEEDING S. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER FOR THE PURPO SE OF CALCULATION OF EXEMPT PROFIT U/S 10A OF THE ACT EXCL UDED THE FOLLOWING INCOME:- 1) INTEREST ON FIXED DEPOSIT. ` . 3,32,611/- 2) PROFIT ON DISPOSAL OF ASSETS. ` .27,28,077/- 3) MISC. INCOME. ` . 9,35,639/- 3. THE ASSESSEE HAS FILED APPEAL BEFORE THIS TRIBUNAL AGA INST THE EXCLUSION FOR THE PURPOSE OF CALCULATION OF EXEMPT PR OFIT U/S 10A OF THE ACT. ITA NO1256/DEL/2012 5 4. THE LD AR ARGUED BEFORE US THAT INTEREST ON FIXED DEPOSIT AND PROFIT ON DISPOSAL OF ASSETS HAS ALREADY BEEN REDUCED FR OM COMPUTATION OF INCOME FOR THE CALCULATION OF EXEMPT PROFIT U/S 10A. IN THIS RESPECT, HE TOOK US TO PAGE 2 OF THE PAPER BOOK, WHERE HE INVITED OUR ATTENTION TOWARDS THE REDUCTION MADE WHILE CALCU LATING THE EXEMPT INCOME U/S 10A. AS REGARDS MISC. INCOME OF ` .9,35,639/-, THE LD AR ARGUED THAT MISC. INCOME HAS ARISEN DURING THE COURSE O F BUSINESS OF ASSESSEE AND IS THEREFORE PART OF BUSINESS PROFITS OF THE ASSE SSEE ELIGIBLE FOR DEDUCTION U/S 10A. IN THIS RESPECT HE REL IED UPON THE JUDGMENT OF ITAT DELHI BENCHES IN THE CASE OF BIRLA S OFTWARE INDIA LTD. V. DCIT REPORTED AT 20 TAXMAN.COM 23 (DEL) WHEREIN MISC. INCOME WAS TREATED AS INCOME FROM UNDERTAKING ELIGIBLE U/S 10A. THE LD AR ARGUED THAT IN THAT CASE, THE MISC. INCOME HAS ARISEN ON ACCO UNT OF NOTICE, PAY RECEIVABLE FROM EMPLOYEE WORKING IN THE SOFTWARE UNI T, THE AMOUNT THUS WAS RECEIVED TOWARDS REDUCING THE SALARY COST DEBI TED IN THE P&L ACCOUNT OF ELIGIBLE UNDERTAKING. THE LD AR FURTHER ARGUED THAT THE HON'BLE TRIBUNAL IN THAT CASE HAD HELD THAT RECOVERY OF NOTICE PERIOD IS THE SUM RECOVERED FROM EMPLOYEES WHO HAD LEFT THE JOB PRIOR TO THE AGREED PERIOD OF RENDERING SERVICES. THIS AMOUNT WOUL D GO TO REDUCE THE EXPENSES ON ACCOUNT OF SALARY AND CONSEQUENT WILL R ESULT INTO INCREASE IN PROFITS. 5. THE LD DR, ON THE OTHER HAND, SUPPORTED THE FIND INGS OF ASSESSING OFFICER IN THE LIGHT OF DIRECTION OF DRP. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. REGARDING PROFIT ON DISPOSAL OF ASSETS AND INTEREST ON BANK DEPOSIT, WE FIN D FROM THE COMPUTATION OF INCOME THAT THESE INCOMES WERE ALREADY REDUCED BY ITA NO1256/DEL/2012 6 ASSESSEE FOR CALCULATION OF EXEMPT INCOME, THEREFORE, T HESE CANNOT BE REDUCED AGAIN. REGARDING MISC. INCOME OF ` .9,35,639/- WE HAVE OBSERVED THAT ASSESSING OFFICER HAD NOT GIVEN ANY FINDIN G ABOUT THE NATURE OF INCOME CREDITED UNDER THE HEAD MISC. INCOM E. THE INCLUSION OR EXCLUSION OF MISC. INCOME IN THE EXEMPT INCOME U/S 10A WILL DEPEND UPON THE NATURE OF MISC. INCOME. FOR EXAMPLE IF THE MISC. INCOME IS COMPRISED OF ANY INCOME WHICH COULD HAVE GONE TO RED UCE THE EXPENSES OF THE ASSESSEE THEN THAT INCOME CAN DEFINITELY BE CONSIDERED AS INCOME FROM UNDERTAKING ELIGIBLE FOR E XEMPTION U/S 10A. THE CITATION RELIED UPON BY THE LD AR CLARIFIES THAT IF THE NATURE OF INCOME IS SUCH WHICH COULD BE SAID TO HAVE REDUCED THE EXPENSES OF A PARTICULAR HEAD, IT WILL BE PART OF BUSINESS INCOME. T HE NATURE OF THIS INCOME IN THE PRESENT CASE IS NOT CLEAR FROM THE FACTS OF THE CASE, THEREFORE, WE REMIT THE CASE TO THE FILE OF ASSESSING OF FICER ON THIS POINT TO FIRST GIVE A FINDING ON THE NATURE OF MISC. INCOME AND ALLOW IT ACCORDINGLY AS PER LAW KEEPING IN VIEW THE NATURE OF INCOME. 7. THE CHARGING OF INTEREST U/S 234B & INITIATION OF PENALTY PROCEEDINGS U/S 271 (1)( C) ARE CONSEQUENTIAL IN NATUR E AND DO NOT REQUIRE ADJUDICATION AT THIS STAGE. 8. IN VIEW OF THE ABOVE, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. 9. ORDER PRONOUNCED IN THE OPEN COURT ON THE 15TH DAY OF JUNE, 2012. SD/- SD/- (R.P. TOLANI) (T.S. KAP OOR) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA NO1256/DEL/2012 7 DT. 15.6.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 15.5.2012 DATE OF DICTATION 4.6.2012 DATE OF TYPING 4.6.2012 DATE OF ORDER SIGNED BY 15.6.2012 BOTH THE MEMBERS & 25.6.2012 PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 25.6.2012 & SENT TO THE BENCH CONCERNED.