ACIT, CHENNAI V. M/s. Numeric Power Systems Ltd., CHENNAI

ITA 139/CHNY/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5281 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 28-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 80IB; 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH A : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NOS. 139 & 140/MDS/2011 ASSESSMENT YEARS : 2005-06 & 2006-07 THE ACIT COMPANY CIRCLE IV(4) CHENNAI VS M/S NUMERIC POWER SYSTEMS LTD NO.5, NUMERIC HOUSE P.S.SIVASAMI SALAI MYLAPORE CHENNAI 600 004 [PAN AAACN2366F] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI PHILIP GEORGE O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THESE APPEALS OF THE REVENUE, FOR ASSESSMENT YE ARS 2005-06 AND 2006-07, ARE DIRECTED AGAINST SIMILAR BUT SEPA RATE ORDERS DATED 22.10.2010, PASSED BY THE LD. CIT(A)-V, CHENNAI. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SSESSEE-COMPANY IS A PUBLIC LIMITED COMPANY, WHICH CARRIES ON THE B USINESS OF MANUFACTURE, TRADING AND SERVICING OF UN-INTERRUPTE D POWER SUPPLY(UPS) SYSTEMS. THE ASSESSEE-COMPANY HAS MANU FACTURING UNITS WHICH ARE ELIGIBLE FOR DEDUCTION U/S 80IA OF THE AC T AS UNDER: ITA 139&140/11 :- 2 -: (A) MANUFACTURING UNIT-III AND - ENTITLED TO 80IA/80I B UNIT-IV AT PONDICHERRY DEDUCTIONS AT THE RATE OF 100% (B) FABRICATION UNIT & - ENTITLED TO 30% DEDUCTION TRANSFORMER & STABILISER U/S 80IB UNIT AT CHENNAI 3. THE ASSESSEE ALSO IMPORTS CERTAIN SYSTEMS AND SUP PLIES THEM TO CUSTOMERS AND EARNS INCOME ON SUCH TRADING ACTIV ITY. IT ALSO PROVIDES INSTALLATION, COMMISSIONING, MAINTENANCE A ND WARRANTY SERVICES FOR MANUFACTURED ITEMS AND TRADED ITEMS WH ICH ARE TOGETHER SHOWN AS INCOME FROM SERVICE CENTRES. IN THE COURS E OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE MA NUFACTURING UNITS WHICH ARE ENTITLED TO DEDUCTION U/S 80IA/80IB HAVE SUBSTANTIAL PROFITS WHICH WERE ENTITLED TO TAX BENEFITS AND THAT THE PR OFITS OF THE SERVICE DIVISION HAVE NOT YIELDED SUBSTANTIAL INCOME. THE ASSESSING OFFICER PROCEEDED TO EXAMINE THE BOOKS OF INDIVIDUAL DIVISI ONS OF THE ASSESSEES BUSINESS AND IDENTIFIED THE ALLOCATION O F EXPENSE IN A MANNER DIFFERENT FROM THE ONE AS PER THE COMPUTATIO N OF PROFITS FILED BY THE ASSESSEE FROM SUCH UNITS. WHILE DOING SO, T HE ASSESSING OFFICER COMPUTED THE TOTAL INCOME BY RE-ALLOCATING CERTAIN EXPENSES IN THE FOLLOWING MANNER: 1) WHEREVER DIRECT EXPENDITURE WAS INCURRED BY THE RESPECTIVE UNITS THE SAME WAS ALLOCATED TO RESPECTIVE UNITS. 2) SERVICE CENTRE EXPENSES WERE ALLOCATED TO ALL THE UNITS ON THE BASIS OF THE TURNOVER. ITA 139&140/11 :- 3 -: 3) FINANCIAL OVERHEADS WERE ALLOCATED IN THE RATIO OF SALES TURNOVER OF RESPECTIVE UNITS TO THE TOTAL TURNOVER. 4) THE NET OF EXPENDITURE OF HEAD OFFICE ALLOCATED TO RESPECTIVE UNITS ON THE BASIS OF THE TURNOVER. 4. THE ASSESSEE WAS AGGRIEVED WITH THE RE-COMPUTATION OF PROFITS ATTRIBUTABLE TO EACH OF ITS UNITS BY THE ASSESSING OFFICER. WHILE DECIDING, THE LD. CIT(A) HAS FOLLOWED THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1997-98 T O 2002-03, WHICH IS DATED 14.12.2007, WHICH HAS BEEN FURTHER FOLLOWE D IN ASSESSMENT YEAR 2004-05 VIDE ORDER DATED 4.6.2009 IN I.T.A.NO. 2096/MDS/2008. THE QUESTIONS DECIDED ARE -: 1. WHETHER THE ASSESSING OFFICER IS CORRECT IN R E- ALLOCATING THE SERVICE CENTRE EXPENSES AMONG THE MANUFACTURING UNITS IN THE MANNER IN WHICH HE HAS DONE FOR THE PURPOSE OF COMPUTING THE INCOME? 2. WHETHER THE ASSESSING OFFICER IS CORRECT IN RE- ALLOCATING THE FINANCIAL OVERHEADS IN THE RATIO OF SALES TURNOVER OF RESPECTIVE UNITS TO THE TOTAL TURNOVER? 3. WHETHER THE ASSESSING OFFICER IS CORRECT IN RE- ALLOCATING THE EXPENDITURE OF THE HEAD OFFICE TO TH E RESPECTIVE UNITS ON THE BASIS OF THE TURNOVER? 5. THE LD. CIT(A) FOR DECIDING THE ABOVE QUESTIONS HAS OBSERVED AS UNDER: I HAVE GONE THROUGH THE RECORDS OF THE ASSESSEE COMPANY AS WELL AS THE APPELLATE ORDERS OF THE ASSESSEES OWN CASE AND I AGREE WITH THE APPELLANT CONSIDERING THE VOLUME AND NATURE OF TRANSACTIONS AND UNITS AND SERVICE CENTRES LOCATED AT DIFFERENT PLACES EXTENDING THROUGHOUT INDIA. HOWEVER, FROM TH E RECORDS IT ITA 139&140/11 :- 4 -: IS SEEN THAT THE SAME ISSUE OF APPROPRIATE PROFIT A TTRIBUTABLE TO EACH OF THE UNITS OF THE ASSESSEE COMPANY FOR THE PERIOD RELEVANT TO ASSESSMENT YEARS 1997-98 TO 2002-03 HAD BEEN THE SUBJECT MATTER OF APPEAL BEFORE MY PREDECESSOR. THE CIT (A) IN HIS ORDER FOR ASSESSMENT YEAR 2001-02 IN ITA NO. 22 6/05-06 DATED 28-02-2006 ELABORATELY DISCUSSED THE FACTS OF THE ASSESSEE'S CASE, THE NATURE OF ITS BUSINESS AND APP ROPRIATE COMMERCIAL PRINCIPLES APPLICABLE TO THE COMPUTATION OF THE PROFITS OF EACH OF ITS UNITS. THE CIT (A) LAID DOWN SEVERAL PRINCIPLES REGARDING THE ALLOCATION OF EXPENDITURE AND THE SAME WERE ACCEPTED BY THE ASSESSEE COMPANY AS IT HAD NOT PREFERRED ANY FURTHER APPEAL. HOWEVER, THE DEPARTME NT AGITATED THE ISSUES BEFORE THE I.TAT. THE HON'BLE I.TAT IN ITS ORDER DATED 14-12-2007 IN ITA NOS. 1289 & 1411-1415/MDS/0 6 FOR ASSESSMENT YEARS 2001-2002, 1997-98 1998-99, 1999-2 000, 2000-2001 & 2002-03 DISMISSED THE APPEAL FILED BY THE DEPARTMENT ON THE GROUND THAT THE CIT(A) HAD GIVEN A VERY COGENT BASIS OF ALLOCATION OF EXPENSES BETWEEN THE DIFFERENT UNITS OF THE ASSESSEE COMPANY. THE METHODOLOGY SUG GESTED BY THE CIT(A) WAS UPHELD IN ITS ENTIRETY BY THE ITA T. 6. NOW, THE REVENUE IS AGGRIEVED AND HAS TAKEN ALMOST COMMON GROUNDS IN BOTH THE YEARS. WE REPRODUCE HEREIN-BEL OW, THE GROUNDS TAKEN FOR ASSESSMENT YEAR 2005-06: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY T O LAW AND FACTS OF THE CASE. 2.1 THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ADOPT THE METHODOLOGY SUGGESTED BY THE CIT(A) IN HIS ORDERS FOR THE AYS 2001-02 AND 2004-05 WHICH HAD THE APPROVAL OF THE HON'BLE TRIBUNAL IN ITA NOS 1289& 14111415/MDS/06 AND 2096/MDS/2008. 2.2 IT IS SUBMITTED THAT THE IMPUGNED ISSUE HAS NO T REACHED FINALITY AND APPEAL BEFORE THE HON'BLE HIGH COURT HAS BEEN FILED BY THE DEPARTMENT. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDU CED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER O F THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF /THE ASSESSING OFFICER RESTORED. SIMILAR GROUNDS HAVE BEEN TAKEN IN ASSESSMENT YEAR 2006-07. ITA 139&140/11 :- 5 -: 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE C AREFULLY PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. FROM THE GROUNDS IT IS FOUND THAT THE LD. CIT(A) HAS DIRECTED THE ASSES SING OFFICER TO ADOPT THE METHODOLOGY APPROVED IN APPEALS PERTAINING TO A SSESSMENT YEARS 1997-98 TO 2004-05, PASSED IN I.T.A.NOS.1289 AND 1 411-1415/MDS 2006 AND 2096/MDS/2008. WE HAVE TREADED THROUGH TH E TRIBUNAL ORDERS. THIS FACT IS EVIDENT FROM THE EXTRACTED PO RTION OF LD. CIT(A)S ORDER. THEREFORE, BY RESPECTFULLY FOLLOWING THE VI EW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEARS, W E HAVE NO OPTION BUT TO DISMISS THE APPEALS OF THE REVENUE. 8. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE STAN D DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5.4 .2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 5 TH APRIL, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR