DCIT, CHENNAI V. Arun Plasto Moulders India Pvt Ltd., CHENNAI

ITA 1274/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86313 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRAMOD NANGIA
• Keywords: Business income; Depreciation; Opportunity of being heard; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . ! '# , $ % BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ./ ITA NO.1274/MDS/2013 $ # '# / ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), CHENNAI - 600 034. V. M/S ARUN PLASTO MOULDERS INDIA PVT. LTD., NO.3C, PHASE-III, THIRU VI.KA. INDUSTRIAL ESTATE, REDDY STREET, EKKADUTHANGAL, CHENNAI - 600 097. PAN : AAECA 8066 H ()*/ APPELLANT) (+,)*/ RESPONDENT) )* - . / APPELLANT BY : SH. PRAMOD NANGIA, CIT +,)* - . / RESPONDENT BY : SH. PHILIP GEORGE, ADVOCATE ! - / / DATE OF HEARING : 13.01.2015 0' - / / DATE OF PRONOUNCEMENT: 25.02.2015 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I II, CHENNAI, DATED 20.02.2013 RELEVANT TO THE ASSESSMENT YEAR 20 09-10. 2 I.T.A. NO. 1274/MDS/2013 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS IN THE B USINESS OF MANUFACTURE AND SALE OF PLASTIC INJECTION MOULDINGS AND PLASTIC TUBING. THE ASSESSEE FILED ITS RETURN OF INCOME DE CLARING A TOTAL INCOME OF ` 27,41,328/- ON 30.09.2009. THE RETURN FILED BY TH E ASSESSEE WAS INITIALLY PROCESS UNDER SECTION 143(1) OF THE INCOME- TAX ACT, 1961 (IN SHORT 'THE ACT'). THEREAFTER, TH E ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT AND THE A .O. HAS DISALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 80-IC OF THE ACT AND ALSO DISALLOWED MOULD AMORTIZATION CHARGES. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. HAS OBSERVED TH AT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80-IC OF THE ACT, FOR THE FIRST TIME, TO THE TUNE OF ` 5,44,39,211/-. THE FORM 10BBA FILED ALONG WITH THE RETURN OF INCOME REVEALED THAT THE A SSESSEE CLAIMED DEDUCTION UNDER SECTION 80-IC OF THE ACT FOR ITS UN IT AT HARIDWAR AND THE INITIAL ASSESSMENT YEAR FOR WHICH THE DEDUCTION WAS CLAIMED IS ASSESSMENT YEAR 2009-10. ON EXAMINATION OF THE DET AILS FILED BY THE ASSESSEE WITH REGARD TO THE ALLOWABILITY OF ITS CLAIM UNDER SECTION 80-IC OF THE ACT AND BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE A.O. DISCUSSED THE CLAIM OF DEDUCT ION UNDER SECTION 80-IC OF THE ACT AS UNDER:- 3 I.T.A. NO. 1274/MDS/2013 (I) THE ASSESSMENT YEAR 2009-10 IS THE FIRST YEAR F OR THE HARIDWAR UNIT FOR WHICH THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80-IC OF THE ACT. (II) FOR ALL THESE YEARS, THE ASSESSEE WAS DOING BU SINESS AS ONLY ONE UNIT AT CHENNAI WHEREAS THIS IS THE FIRST YEAR IN WHICH THE ASSESSEE DECLARE THAT THE BUSINESS ACTIVI TIES WERE CARRIED ON FROM TWO UNITS, ONE AT CHENAI AND T HE OTHER AT HARIDWAR FOR WHICH THE DEDUCTION UNDER SEC TION 80-IC OF THE ACT HAS BEEN CLAIMED. (III) ON THE ANALYSIS OF THE DETAILS FOR FINANCIAL YEARS 2005-06, 2006-07, 2007-08 AND 2008-09 (WHICH IS EXTRACTED AT PAGE NO.2 OF THE ASSESSMENT ORDER), THE PERCENTAGE OF TURNOVER IN THE CHENNAI UNIT GOT DECLINED TO THE EX TENT OF 47.96% OVER THAT OF THE PREVIOUS YEAR FIGURE WHICH MEANS THAT THE ASSESSEE HAS SHIFTED ITS BUSINESS ACTIVITY FROM CHENNAI UNIT TO HARIDWAR UNIT. (IV) THE INCREMENTAL INCREASE IN THE SALES ALSO REV EALS THE SPLITTING UP OF ITS BUSINESS ACTIVITY FROM ITS ERST WHILE UNIT OF CHENNAI TO HARIDWAR UNIT. (V) THE TOTAL SALES FOR THE FINANCIAL YEAR 2007-08 WAS AT 37.13 CRORE WHICH WAS ATTRIBUTABLE TO CHENNAI UNIT WHEREA S FOR THE FINANCIAL YEAR 2008-09, THE TOTAL SALES OF ` 44.28 CRORE WAS ATTRIBUTABLE TO BOTH THE UNITS AT CHENNAI & HAR IDWAR. THE TOTAL SALES OF ` 44.28 CRORE FOR THE RELEVANT PERIOD GOT SPLIT INTO ` 23.87 CRORE FOR CHENNAI UNIT (ALREADY EXISTING) AND ` 20.41 CRORE (NEW UNIT). IT CLEARLY INDICATES THAT THE PROFITS OF HARIDWAR UNIT WHICH IS ALLEGEDLY CLAIMED AS A NEW UNIT BY THE ASSESSEE IS NOTHING BUT A SPLIT UP OF THE ASSESSEES BUSINESS WHICH IS ALREADY IN EXISTENCE. (VI) FOR HARIDWAR UNIT, THE ASSESSEE HAD RECORDED A WHOPPING NET PROFIT @ 26.41% ON THE TURNOVER WHEREAS IT HAS RECORDED ONLY A MEAGER PERCENTAGE OF NET PROFIT @ 2 .12% ON THE TURNOVER FOR THE CHENNAI UNIT FOR THE RELEVA NT PERIOD, THOUGH THE TURNOVER OF THE CHENNAI AND HARI DWAR UNITS AS REPORTED BY THE ASSESSEE ARE ALMOST EQUAL. IT IS A CLEAR INDICATION THAT THE ASSESSEE HAD SHIFTED ITS EXPENDITURE TO THE CHENNAI UNIT AND RECORDED A HIGH ER PROFIT FOR THE HARIDWAR UNIT SO AS TO CLAIM DEDUCTI ON UNDER SECTION 80-IC OF THE ACT. (VII) FOR ALL THESE YEARS INCLUDING THIS RELEVANT PERIOD, THE ASSESSEE HAD BUSINESS TRANSACTIONS MAINLY WITH HINDUSTAN UNILEVER LTD. FOR SUPPLY OF PLASTIC COMPO NENTS. THE ASSESSEE HAS ALSO ADMITTED THE SAME. THE ASSES SEE MANUFACTURES ACCORDING TO THE SPECIFICATIONS OF HIN DUSTAN 4 I.T.A. NO. 1274/MDS/2013 UNILEVER LTD. THERE IS NO CHANGE IN THE CUSTOMER M ADE SINCE THE ASSESSEE MANUFACTURES PLASTIC PRODUCED MA INLY TO HINDUSTAN UNILEVER LTD. WITH THE ABOVE OBSERVATION, THE A.O. CAME TO A CONC LUSION THAT THE HARIDWAR UNIT IS FORMED BY SPLITTING UP OF THE BUSI NESS ALREADY IN EXISTENCE AND ALSO IN THE PROCESS OF SHIFTING THE B USINESS OF CHENNAI UNIT TO HARIDWAR BY WAY OF RECONSTRUCTION. IT IS APPARENT THAT THE ASSESSEES CASE DOES NOT FULFILL THE CONDI TIONS LAID DOWN IN SECTION 80-IC(4)(I) OF THE ACT. HENCE, THE DEDUCTI ON CLAIMED BY THE ASSESSEE UNDER SECTION 80-IC(4) WAS DENIED. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(APPEALS). BEFORE THE LD. CIT(APPEALS), THE ASS ESSEE FILED THE DETAILS OF THE ASSETS OF HARIDWAR UNIT AS UNDER:- DETAILS OF ASSET AMOUNT IN ` `` ` 200 KW ELECTRICAL GENERATOR 12,52,160.00 AIR COOL COMPACT WATER CHILLER MODEL 20L 4,46,400.00 AIR COOL COMPACT WATER CHILLER MODEL 40L 5,81,541.00 B/F 22,80,101.00 DETAILS OF ASSET AMOUNT IN ` `` ` C/F 22,80,101.00 CONTROL INJECTION MOULDING M/C E C280N 2 - B 88,45,112.64 FIXED ASSET - BUILDING 4,32,71,138.42 FIXED ASSET - COOLING TOWER 93,337.50 FIXED ASSET - ELECTRICAL WEIGHING SCALE 39,375.00 FIXED ASSET - FREIGHT ELEVATOR 8,65,200.00 FIXED ASSET - LAND 69,07,572.39 FIXED ASSET - MACHINERY 42,50,106.00 5 I.T.A. NO. 1274/MDS/2013 FIXED ASSET - POWER TRANSFORMER 11,64,375.00 TOSHIPA MACHINE INJECTION MOULDING MACHINE 2,37,65,804.50 GRAND TOTAL 9,14,82,122.45 BASED ON THE OBSERVATION OF THE ABOVE DETAILS FILED BY THE ASSESSEE, THE LD. CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSES SEE UNDER SECTION 80-IC(4) OF THE ACT. 4. ON BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A PPEALS), REVENUE CAME IN APPEAL BEFORE THE TRIBUNAL. THE LD . D.R. POINTED OUT THAT THE DETAILS OF THE ASSETS OF HARIDWAR UNIT WERE NOT FILED BEFORE THE A.O. AND THOSE DETAILS WERE FILED ONLY BEFORE THE LD. CIT(APPEALS). HE FURTHER SUBMITTED THAT THE DETAIL S OF THE ASSETS OF THE ASSESSEE INCLUDING ALL EQUIPMENTS AND MACHINERI ES ARE NECESSARY TO BE EXAMINED TO ALLOW THE CLAIM OF THE ASSESSEE UNDER SECTION 80-IC OF THE ACT. THEREFORE, HE REQUESTED THAT THE MATTER MAY BE REMANDED BACK TO THE A.O. 5. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE DETAILS WERE FILED BEFORE THE LD . CIT(APPEALS) AND HE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT( APPEALS). 6. WE HAVE HEARD BOTH SIDES AND PERUSED THE RECORDS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE AND SALE OF PLASTIC INJECTION 6 I.T.A. NO. 1274/MDS/2013 MOULDINGS AND PLASTIC TUBING. THE ASSESSEE IS HAVI NG TWO UNITS ONE AT CHENNAI AND THE OTHER IS AT HARIDWAR. THE UNIT AT HARIDWAR IS A NEW UNIT AND THE ASSESSEE IS ELIGIBLE TO CLAIM BENE FIT UNDER SECTION 80-IC(4) OF THE ACT. THE A.O., AFTER EXAMINING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, HAS COME TO A CONCLUSION THAT THE ASSESSEE BY SPLITTING THE CHENNAI UNIT, IT HAS ESTA BLISHED THE HARIDWAR UNIT. THEREFORE, THE ASSESSEE IS NOT ELIG IBLE UNDER SECTION 80-IC(4) OF THE ACT AND FOR THE REASON THAT THE NET PROFIT OF HARIDWAR UNIT IS AT 26.41% ON THE TOTAL TURNOVER WHEREAS THE NET PROFIT OF CHENNAI UNIT IS AT 2.12% ON THE TOTAL TURNOVER. WE ALSO FIND THAT THE ASSESSEE HAS NOT FILED ANY DETAILS WITH REGARD TO M ACHINERIES, EQUIPMENTS AND ASSETS IN RESPECT OF NEWLY ESTABLISH ED HARIDWAR UNIT, BEFORE THE A.O. THESE DETAILS WERE FILED BEF ORE THE LD. CIT(APPEALS). UNDER THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT ALL THE DETAILS SUCH AS MACHINERIES, EQUIPMENT S AND OTHER ASSETS PURCHASED/ACQUIRED BY THE ASSESSEE, INCLUDIN G BILLS, IN RESPECT OF HARIDWAR UNIT ESTABLISHED BY THE ASSESSE E HAVE TO BE PRODUCED BEFORE THE A.O. THE A.O. IS DIRECTED TO D ECIDE THE ISSUE DE NOVO. 7. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER PAS SED BY THE LD. CIT(APPEALS) AND REMIT THE MATTER BACK TO THE F ILE OF THE A.O. FOR FRESH EXAMINATION. 7 I.T.A. NO. 1274/MDS/2013 8. REGARDING THE OTHER ISSUE RAISED BY THE REVENUE PERTAINING TO DISALLOWANCE OF MOULD AMORTIZATION CHARGES, THE A.O. HAS OBSERVED THAT THE ASSESSEE HAS DEBITED A SUM OF ` 1,43,08,556/- TOWARDS MOULD AMORTIZATION CHARGES IN THE PROFIT & LOSS ACCOUNT CLAIMING IT AS REVENUE EXPENDITURE. IT IS SEEN FRO M THE DETAILS FILED BY THE ASSESSEE THAT THESE ARE NOTHING BUT LEASE RE NTALS PAID TO M/S HINDUSTAN LEVEL LTD. (HLL) ON THE MOULDS. THE A.O. ASKED THE ASSESSEE WHY THIS EXPENDITURE SHOULD NOT BE TREATED AS A CAPITAL EXPENDITURE AND ONLY ELIGIBLE DEPRECIATION SHALL BE ALLOWED. THE ASSESSEE HAS REPLIED THAT THE MOULD IS BEING SUPPLI ED BY HLL AND THE ASSESSEE TO PAY A FIXED AMOUNT OF MONEY FOR EVE RY COMPONENT SOLD TO THEM. THE DETAILS FILED BY THE ASSESSEE AL SO REVEAL THAT THE ASSESSEE HAS NOT DEDUCTED ANY TAX AT SOURCE ON THE LEASE RENTALS PAID TO HLL. THEREFORE, THE A.O. IS OF THE OPINION THAT IT ATTRACTS PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THUS, ON BOTH THE COUNTS, THE ABOVE EXPENDITURE IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 9. ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(APPEALS). THE ASSESSEE SUBMITTED BEFORE THE LD . CIT(APPEALS) THAT THE CHARGES WERE PAID TO M/S HINDUSTAN UNILEVE R LTD. (HUL) AND OTHER PARTIES FOR MOULD OR DIE PROVIDED BY THEM . THE MOULD 8 I.T.A. NO. 1274/MDS/2013 COST HAS BEEN INCLUDED IN THE PRODUCT COST AND AMOR TISED AFTER TAKING CENVAT CREDIT BY THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTED THAT THE MOULDS LAST FOR A LIMITED TIME A ND THEREFORE DO NOT PROVIDE ANY ENDURING BENEFIT TO THE ASSESSEE. THE FACT THAT THE MOULD COST PAID IS BEING RECOVERED FROM M/S HUL BY WAY OF COST BEING INCLUDED IN THE SALE PRICE MAKES IT CLEAR THA T THE SAID EXPENDITURE IS NOT IN THE NATURE OF CAPITAL EXPENDI TURE. THE LD. CIT(APPEALS) HELD THAT THE AMOUNT IS PAID TOWARDS C OST OF THE PRODUCTION AND HENCE PROVISIONS OF TDS ARE NOT APPL ICABLE. THUS THE LD. CIT(APPEALS) ALLOWED THIS GROUND RAISED BY THE ASSESSEE. 10. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BE FORE THE TRIBUNAL. LD. D.R. SUBMITTED THAT THE MOULDS HAVE ENDURING BENEFIT SINCE THEY ARE NOT CONSUMED WITHIN A YEAR. HE ALSO SUBMITTED THAT THE PAYMENT MADE TO M/S HUL FOR THE MOULDS SUPPLIED BY IT IS IN THE NATURE OF LEASE RENTALS WHICH ATTRACT THE PROVISION S OF SECTION 40(A)(IA) OF THE ACT. 11. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSES SEE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(APPEALS). 12. WE HAVE HEARD BOTH SIDES AND PERUSED THE RECORD S AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE 9 I.T.A. NO. 1274/MDS/2013 LD. CIT(APPEALS) WITHOUT DISCUSSING ANYTHING ON THE MATTER SIMPLY ALLOWED THE GROUND RAISED BY THE ASSESSEE. NECESSA RY DOCUMENT LIKE AGREEMENT BETWEEN THE ASSESSEE AND M/S HUL AND THE LIFE TIME OF THE MOULDS PROVIDED BY M/S HUL ARE REQUIRED TO BE EXAMINED TO DECIDE THE ISSUE. THEREFORE WE SET ASI DE THE ORDER PASSED BY THE LD. CIT(APPEALS) AND REMIT THE MATTER BACK TO THE FILE OF THE A.O. TO EXAMINE THE AGREEMENT BETWEEN THE AS SESSEE AND M/S HUL AND OTHER DETAILS. THE A.O. IS DIRECTED TO DECIDE THE ISSUE AFRESH AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13. IN THE RESULT, APPEAL FILED BY THE REVENUE IS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON WEDNESDAY THE 25 TH OF FEBRUARY, 2015 AT CHENNAI. SD/- SD/- ( . ) ( . ! '# ) (A. MOHAN ALANKAMONY) (V. DURGA RAO) /ACCOUNTANT MEMBER $ /JUDICIAL MEMBER /CHENNAI, = /DATED, THE 25 TH FEBRUARY, 2015. KRI. 10 I.T.A. NO. 1274/MDS/2013 > - +$/?@ A@'/ /COPY TO: 1. )* /APPELLANT 2. +,)* /RESPONDENT 3. ! B/ () /CIT(A)-III, CHENNAI 4. ! B/ /CIT, CHENNAI-I, CHENNAI 5. @D' +$/$ /DR 6. 'E# F /GF.