Maruthi Tubes (P) Ltd, Secunderabad V. ACIT, Circle-16(1), Hyderabad

ITA 146/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61961 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 01-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MAYA MAHESWARI
• Keywords: Rule of consistency
• Section: 80IB; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.1650/HYD/2010 : ASSESSMENT YEAR 2 006-07 ITA NO.112/HYD/2011 : ASSESSMENT YEAR 20 07-08 ITA NO.146/HYD/2012 : ASSESSMENT YEAR 20 08-09 M/S. MARUTHI TUBES (P) LTD., SECUNDERABAD. ( PAN - AACCG 4619 A ) (APPELLANT) V/S ASST COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE 4, HYDERABAD (RESPONDENT) APPELLANT BY : SHRI C.SUBRAHMANYAM RESPONDENT BY : SMT. MAYA MAHESWARI DATE OF HEARING 10.7.2012 DATE OF PRONOUNCEMENT 19.7.2012 O R D E R PER D.KARUNAKARA RAO, ACCOUNTANT MEMBER: THESE THREE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST SEPARATE ORDERS OF THE CIT(A) V, HYDERABAD DATED 5. 10.2010 FOR ASSESSMENT YEAR 2006-07, DATED 23.12.2010 AND DATED 4.11.2011 FOR ASSESSMENT YEAR 2008-09. SINCE COMMON ISSUES ARE INVOLVED, THESE APPEALS ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.1650/HYD/2010 : ASSESSMENT YEAR 2006-07 2. FIRST EFFECTIVE GRIEVANCE OF THE ASSESSEE IN TH IS APPEAL RELATES TO ESTIMATION OF PROFIT OF MANUFACTURING DIVISION. ASSESSEES GROUNDS IN THIS BEHALF READ AS FOLLOWS- 1.1 THE LEARNED CIT(A) IS NOT CORRECT IN ESTIMATIN G THE PROFIT OF MANUFACTURING DIVISION WITHOUT ANY BASIS AND ERRED IN IGNORING THE DIVISION PROFITABILITY STATEMENTS RELATING TO MANUF ACTURING AND NON-MANUFACTURING DIVISIONS. ITA NO.1650/HYD/2010 & TWO OTHER S M/S. MARUTHI TUBES (P) LTD.,SECUNDERABAD. 2 1.2 THE LEARNED CIT(A) ERRED IN ESTIMATING THE PRO FITABILITY OF NON-MANUFACTURING DIVISION AT 8% OF GROSS CONTRACT RECEIPTS, UNILATERALLY, WITHOUT GIVING OPPORTUNITY, WHICH HAS NO BASIS, THIS IS ESPECIALLY SO WHEN THE LEARNED ASSESSING OFFICER ES TIMATED THE PROFIT RATE AT 5%. 3. FACTS OF THE CASE IN BRIEF RELATING TO THIS ISS UE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MA NUFACTURE OF HDPE PIPES AND ALSO ENGAGED IN CARRYING OUT CIVIL CONTRA CT WORKS. THE ASSESSEE HAS SHOWN COMBINED PROFIT OF RS.90,75,670 AND CLAIMED DEDUCTION U/S. 80IB AT 30% ON THE ABOVE PROFITS WHICH CAME T O RS.27,22,701. THIS PROFIT INCLUDES INTEREST ON BANK DEPOSITS OF RS.10, 76,660, WHICH IS NOT ELIGIBLE FOR DEDUCTION UNDER S.80IB OF THE ACT., S IMILARLY, AS THE ABOVE PROFIT INCLUDES PROFIT FROM MANUFACTURE OF HDPE PI LES AND PROFIT FROM CIVIL CONTRACT WORKS, ON THE GROUND THAT PROFIT FROM CIVI L CONTRACT WORKS IS NOT ELIGIBLE FOR DEDUCTION UNDER S.80IB OF THE ACT, TH E ASSESSING OFFICER PROCEEDED TO ESTIMATE THE PROFIT FROM MANUFACTURE O F HDPE PIPES WHICH ALONE QUALIFIES FOR RELIEF UNDER S.80IB OF THE ACT, BY EXCLUDING ESTIMATED PROFIT FROM CIVIL CONTRACT WORKS AND BANK INTEREST FROM THE COMBINED PROFIT. IN THIS PROCESS, AO NOTED FROM THE PROF IT & LOSS ACCOUNT, THAT THE ASSESSEE DISCLOSED THE CONTRACT RECEIPTS AT RS. 14,38,77,860. IN THE ABSENCE OF SEPARATE BOOKS OF ACCOUNT FOR CONTRACT I NCOME, 5% PROFIT IS ESTIMATED ON THE ABOVE RECEIPTS AS CONTRACT INCOME, WHICH CAME TO RS.71,73,893. REJECTING THE ASSESSEES CLAIM FOR RE LIEF UNDER S.80IB ON PROFIT FROM CIVIL CONTRACT WORKS AS WELL, THE ASSES SING OFFICER, EXCLUDING THE INTEREST INCOME OF RS.10,76,660 AND ESTIMATED P ROFIT FROM CIVIL CONTRACT WORKS OF RS.71,73,893 FROM THE COMBINED PR OFIT OF RS.90,75,670, ASSESSING OFFICER ARRIVED AT THE BALANCING FIGURE O F RS.8,05,117 WHICH IS TAKEN AS ASSESSEES PROFIT FROM MANUFACTU RING ACTIVITY, ELIGIBLE FOR RELIEF UNDER S.80IB OF THE A CT. 4. ON APPEAL BEFORE THE CIT(A), ASSESSEE FILED EL ABORATE WRITTEN SUBMISSIONS. THE CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING ITA NO.1650/HYD/2010 & TWO OTHER S M/S. MARUTHI TUBES (P) LTD.,SECUNDERABAD. 3 OFFICER. AFTER CONSIDERING THE SAID REMAND REPORT IN THE LIGHT OF THE CONTENTIONS OF THE ASSESSEE THEREON, THE CIT(A) EST IMATED THE PROFIT FROM NON-MANUFACTURING ACTIVITY, VIZ. EXECUTING CIVIL CO NTRACT WORKS AT 8% AS AGAINST 5% ADOPTED BY THE ASSESSING OFFICER, AND DE DUCTING THE BANK INTEREST OF RS.10,76,660 AND PROFIT OF CIVIL CONTRA CTS DIVISION OF RS.60,80,729 AGGREGATING TO RS.71,57,389, FROM THE COMBINED PROFIT DISCLOSED OF RS.90,75,670, ARRIVED AT THE BALANCING FIGURE OF RS.19,18,281. THE CIT(A) DIRECTED THE ASSESSING OFFICER TO TREAT THE SAID FIGURE OF RS.19,18,281 AS THE ASSESSEES PROFIT FRO M MANUFACTURING DIVISION ELIGIBLE FOR RELIEF UNDER S.80IB OF THE AC T. THUS, THE CIT(A) ENHANCED THE ASSESSMENT BY REDUCING THE RELIEF GRA NTED BY THE AO. 5. STILL AGGRIEVED, ASSESSEE PREFERRED THE PRESENT APPEAL BEFORE US ON THIS ISSUE. 6. LEARNED COUNSEL FOR THE ASSESSEE, REITERATING T HE CONTENTIONS URGED BEFORE THE LOWER AUTHORITIES, SUBMITTED THAT THE ASSESSING OFFICER HAS RESORTED TO ESTIMATION OF PROFIT OF MANUFACTURI NG DIVISION AND NON- MANUFACTURING DIVISIONS, WITHOUT POINTING OUT ANY D EFECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE AND WITHOUT REJE CTING THE SAME. HE FURTHER SUBMITTED THAT WHILE THE ASSESSING OFFICER HAS ESTIMATED THE PROFIT FROM NON-MANUFACTURING DIVISION APPLYING A RATE OF 5% ON GROSS CONTRACT RECEIPTS. HE SUBMITTED THAT THERE IS NO CONTROVERS Y ABOUT WHAT HAS BEEN ESTIMATED BY ASSESSING OFFICER, AND THE SAME HAS BE EN ACCEPTED BY THE ASSESSEE. HOWEVER, THE CIT(A), SUO MOTO , WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSEE, AND WITHOUT ANY BASIS ESTIMATED THE PERCENTAGE OF PROFIT FROM CIVIL CONTRACT WORKS AT 8 % AS AGAINST 5% ESTIMATED BY THE ASSESSING OFFICER AND ACCEPTED BY THE ASSESSEE. THE ACTION OF THE CIT(A) IN THIS BEHALF IN ENHANCING TH E ESTIMATION IS WITHOUT ANY MATERIAL IN HIS POSSESSION, ESPECIALLY, WHEN TH E ISSUE IS NOT BEFORE HIM, THE ACTION OF THE CIT(A) IS AGAINST THE PROVIS IONS OF LAW. ITA NO.1650/HYD/2010 & TWO OTHER S M/S. MARUTHI TUBES (P) LTD.,SECUNDERABAD. 4 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, STRONGLY SUPPORTED THE IMPUGNED ORDER OF THE CIT(A) . 8. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF T HE LOWER AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. IT IS EVIDENT FROM THE IMPUGNED ORDER OF THE ASSESSING OFFICER THAT NO DEF ECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE BEEN NOTED, AND THE BO OKS HAVE NOT BEEN REJECTED, AND IT IS WITHOUT REJECTING THE BOOK RESU LTS OF THE ASSESSEE THAT THE ASSESSING OFFICER RESORTED TO ESTIMATION OF PRO FIT AT 5% OF THE ASSESSEE. WE FURTHER FIND THAT THE CIT(A) HAS ALS O ENHANCED THE RATE OF PROFIT ADOPTED BY THE ASSESSING OFFICER AT 5% TO 8% . WHILE DOING SO, WE FIND THAT THE CIT(A) HAS NOT FOLLOWED THE PROCEDURE PRESCRIBED BY THE STATUTE, VIZ. SUB-SECTION (2) OF S.251 OF THE ACT, WHICH READS AS FOLLOWS- 251(1) (2) THE COMMISSIONER(APPEALS) SHALL NOT ENHANCE AN ASSESSMENT OR A PENALTY OR REDUCE THE AMOUNT OF RE FUND UNLESS THE APPELLANT HAS HAD A REASONABLE OPPORTUNITY OF S HOWING CAUSE AGAINST SUCH ENHANCEMENT OR REDUCTION. FROM THE IMPUGNED ORDER, IT IS EVIDENT THAT THE CIT (A) HAS NOT FOLLOWED THE ABOVE PROCEDURE BY GIVING REASONABLE OPPORTUNIT Y OF HEARING TO THE ASSESSEE BEFORE ENHANCING THE PROFIT ESTIMATED BY T HE ASSESSING OFFICER IN RESPECT OF MANUFACTURING DIVISION. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER OF THE CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR READJUDICATING ON THIS ISSUE IN VIEW OF OUR ABO VE OBSERVATIONS AND ACCORDANCE WITH LAW AND AFTER GIVING REASONABLE OPP ORTUNITY OF HEARING TO THE ASSESSEE. 9. THE NEXT ISSUE INVOLVED IN THIS APPEAL RELATES TO DISALLOWANCE OF EXPENDITURE INVOKING THE PROVISIONS OF S.40A(IA) OF THE ACT. THE RELEVANT GROUND OF APPEAL, BEING GROUND NO.1.3, REA DS AS UNDER- ITA NO.1650/HYD/2010 & TWO OTHER S M/S. MARUTHI TUBES (P) LTD.,SECUNDERABAD. 5 1.3 THE LOWER AUTHORITIES ERRED IN INVOKING THE P ROVISIONS OF SECTION 40A(AI) OF THE INCOME-TAX ACT, AND DISAL LOWING THE EXPENDITURE THERETO WHEN UNDER THE FACTS AND CIRCUM STANCES AND IN LAW THE CASE OF THE ASSESSEE IS NOT FALLING WITH IN THE MISCHIEF OF THE SECTION. 10. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASS ESSEE MENTIONED THAT THE ISSUE INVOLVED IN THE ABOVE GROUND IS ALRE ADY COVERED BY THE DECISION OF THE SPECIAL BENCH (VISAKHAPATNAM) OF TH E TRIBUNAL DATED 29 TH MARCH, 2012 IN THE CASE OF MERILYN SHIPPING & TRAN SPORTS VISAKHAPATNAM V/S. ACIT RANGE-I, HYDERABAD IN ITA NO.477/VIZ./200 8 FOR ASSESSMENT YEAR 2005-06. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON T HE OTHER HAND, STRONGLY RELIED ON THE ORDER OF THE ASSESSING OFFIC ER. 12. WE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. WE FIND T HAT THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF MERILYN SHI PPING & TRANSPORTS VISAKHAPATNAM (SUPRA) SQUARELY COVERS THE ISSUE IN DISPUTE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. RELEVANT PORT ION OF THE SAID DECISION IS REPRODUCED BELOW- . I HAVE GONE THROUGH THE DETAILED REASONS GI VEN BY SHRI MAHAVIR SINGH WHILE COMING TO THE CONCLUSION THAT THE WORD PAYAB LE USED IN SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 HAS TO BE GIVEN ITS NAT URAL MEANING, AND, GOING BY STRICT INTERPRETATION, I AM OF THE FIRM VIEW THAT S ECTION 40(A)(IA) OF THE ACT IS APPLICABLE ONLY TO EXPENDITURE WHICH IS PAYABLE AS ON 31ST MARCH OF EVERY YEAR AND CANNOT BE INVOKED TO DISALLOW THE AMOUNTS WHICH HAVE ALREADY BEEN PAID DURING THE PREVIOUS YEAR, WITHOUT DEDUCTING TAX AT SOURCE. I THEREFORE, AGREE WITH THE VIEW TAKEN BY SHRI MAHAVAIR SINGH, JM AND ANSWER THE QUESTION ACCORDINGLY. THE MATTER MAY NOW BE PLACED BEFORE TH E DIVISION BENCH FOR PASSING APPROPRIATE ORDERS, IN THE ABOVE LISTED CAS ES, IN THE LIGHT OF THE MAJORITY VIEW OF THE MEMBERS CONSISTING OF THE SPEC IAL BENCH. 13. IN THE LIGHT OF THE RATIO OF THE ABOVE DECISI ON, WE SET ASIDE THE IMPUGNED ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE CIT(A), WITH A DIRECTION TO ASCERTAIN WHETHER EXPENDITURE IS PAYABLE AS ITA NO.1650/HYD/2010 & TWO OTHER S M/S. MARUTHI TUBES (P) LTD.,SECUNDERABAD. 6 ON 31 ST MARCH OF EVERY YEAR ..HAVE ALREADY BEEN PAID DURI NG THE PREVIOUS YEAR WITHOUT DEDUCTING TAX AT SOURCE, AND ACCORDINGLY REDETERMINE THE AMOUNT OF EXPENDITURE, IF ANY, DISA LLOWABLE IN TERMS OF S.40(A)(IA) OF THE ACT. WE ARE RESTORING THIS ISSU E TO THE FILE OF THE CIT(A), AND NOT TO THE FILE OF THE ASSESSING OFFICE R, WHO IS ACTUALLY THE APPROPRIATE AUTHORITY, BECAUSE ON THE FIRST ISSUE RELATING TO THE ESTIMATION OF PROFIT FROM MANUFACTURING AND NON-MAN UFACTURING DIVISIONS, WE HAVE ALREADY RESTORED THE MATTER RELATING TO THA T ISSUE TO THE FILE OF THE CIT(A), AND IT WOULD, THEREFORE, BE CONVENIENT BESIDES BEING IN CONSONANCE WITH THE PRINCIPLE OF CONSISTENCY, IF TH IS ISSUE IS ALSO RESTORED TO THE FILE OF THE CIT(A). WE DO SO ACCORDINGLY, A ND DIRECT THE CIT(A) TO RE-EXAMINE THIS ISSUE IN ACCORDANCE WITH LAW AND AF TER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AS WELL AS T HE ASSESSING OFFICER. 14. THE NEXT GRIEVANCE OF THE ASSESSEE IN THIS APP EAL, CONTAINED IN GROUND NO.1.4 OF THIS APPEAL RELATES TO DISALLOW ANCE OF PART OF THE ASSESSEES CLAIM FOR RELIEF UNDER S.80IB OF THE ACT . AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE, DID NOT PRESS FOR THIS GROUND. IT IS ACCORDINGLY DISMISSED AS NOT PRESSED. 15. IN THE RESULT, APPEAL OF THE ASSESSEE FOR ASS ESSMENT YEAR 2006-07 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1650/HYD/2010 : ASSESSMENT YEAR 2007-08 ITA NO.146/HYD/2012 : ASSESSMENT YEAR 2008-09 16. THE ONLY GRIEVANCE OF THE ASSESSEE IN THESE APPEALS RELATES TO DISALLOWANCE OF EXPENDITURE MADE INVOKING PROVISION S OF S.40(A)(IA) OF THE ACT. ITA NO.1650/HYD/2010 & TWO OTHER S M/S. MARUTHI TUBES (P) LTD.,SECUNDERABAD. 7 17. EFFECTIVE GROUNDS OF THE ASSESSEE IN ITS APPE AL FOR ASSESSMENT YEAR 2007-08 READ AS FOLLOWS- 1.1. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT TH E DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF AUDIT FEE, SUB-CONTRAC T PAYMENTS IS UNWARRANTED AS THE PROVISIONS OF SECTION 40(A)(IA) OF THE I.T. ACT DO NOT APPLY TO THE FACTS OF THE CASE. 1.2 EVEN ASSUMING BUT WITHOUT CONCEDING THAT THE PR OVISIONS OF SECTION 40(A)(IA) OF I.T. ACT DO APPLY TO THE FACTS OF THE CASE, THE LEARNED CIT(A) OUGHT TO HAVE TAKEN NOTE THAT IF AT ALL, IF ANY DISALLOWANCE IS WARRANTED THE AMOUNT OF RS.1,74,47, 730/- SHOULD BE EXCLUDED FROM OUT OF THE ADDITION MADE SINCE AMO UNT TO THIS EXTENT HAS BEEN PAID DURING THE ASST. YEAR UNDER C ONSIDERATION. EFFECTIVE GROUNDS IN THE APPEAL FOR ASSESSMENT YEAR 2008-09 READ AS FOLLOWS- 1.1 THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS ) IS NOT CORRECT IN DISALLOWING EXPENDITURE WHEN PROVISIONS OF SECTION 40(A)(IA) ARE ATTRACTED ONLY WHEN THE AMOUNT IS PAY ABLE. WHEREAS IN THE PRESENT CASE SINCE THE AMOUNT HAS BEEN PAID THE DISALLOWANCE OF EXPENDITURE INVOKING PROVISIONS OF SECTION 40(A)(IA)IS BAD IN LAW. 18. WE HEARD BOTH THE PARTIES AND PERUSED THE ORDE RS OF THE LOWER AUTHORITIES AND OTHER MATERIAL AVAILABLE ON R ECORD. WE HAVE ALREADY CONSIDERED THE ISSUE RELATING TO DISALLOWANCE OF EX PENDITURE INVOKING THE PROVISIONS OF S.40(A)(IA) OF THE ACT, WHILE CONSIDE RING THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07 VIDE PARAS -12 AND 13 HEREINABOVE. FACTS AND CIRCUMSTANCES OF THE CASE FO R THE YEARS UNDER APPEAL BEING IDENTICAL, FOR THE REASONS DISCUSSED T HEREIN, WE SET ASIDE THE IMPUGNED ORDER OF THE CIT(A), AND RESTORE THIS ISSU E FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09 TO THE FILE OF THE ASSES SING OFFICER, WITH A DIRECTION TO REDETERMINE THE ACTUAL AMOUNT OF EXPEN DITURE DISALLOWABLE UNDER S.40(A)(IA) OF THE ACT, ASCERTAINING THE AMOU NT OF EXPENDITURE ALREADY PAID DURING THE PREVIOUS YEAR. THE ASSESSIN G OFFICER SHALL ITA NO.1650/HYD/2010 & TWO OTHER S M/S. MARUTHI TUBES (P) LTD.,SECUNDERABAD. 8 ACCORDINGLY REDECIDE THIS ISSUE IN ACCORDANCE WITH LAW AND AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 19. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSE E FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09 ARE ALLOWED FOR STATISTICAL PURPOSES. 20. TO SUM UP, WHILE APPEAL FOR THE ASSESSMENT YEA R 2006-07, BEING ITA NO.1650/HYD/2010 IS PARTLY ALLOWED FOR ST ATISTICAL PURPOSES, THE OTHER TWO APPEALS FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09, BEING ITA NOS. 112/HYD/2011 AND 146/HYD/2012 RESPECTIVELY , ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 19.7.2012 SD/- SD/- ( ASHA VIJAYARAGHAVAN) (D.KARUNAKARA RAO) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/- 19TH JULY, 2012 COPY FORWARDED TO: 1. 2 3 4 5. M/S. MARUTHI TUBES (P)LIMITED, 133, AL - KARIM TRADE CENTRE, RANIGUNJ, SECUDNERABAD-500 003 ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 16(2), HYD ERABAD COMMISSIONER OF INCOME-TAX(APPEALS) V, HYDERABAD COMMISSIONER OF INCOME-TAX IV, HYDERABAD DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD B.V.S.