HONEYWELL AUTOMATION INDIA LTD (FORMERLY KNOWN AS TATA HONEYWEL LTD.), Pune V. DCIT,Cir.7, Pune

ITA 149/PUN/2008

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5295 (ITAT-PUNE)
• Duration Of Justice: 6 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-09-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 14-03-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VERMA
• Keywords: Revised return
• Section: 145; 148

Judgement Text

IN 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. 149 /PN/20 08 ASSESSMENT YEAR : 2004 - 05 DY. COMMISSIONER OF INCOME TAX, CIR CLE - 7, PUNE VS. HONEYWELL AUTOMATION INDIA LTD. (FORMERLY TATA HONEYWELL LTD.), 56 & 57, HADAPSAR INDUSTRIAL ESTATE, PUNE - 411013 (APPELLANT) (RESPONDENT) PAN NO. AAACT3904F APPELLANT BY: SMT. M.S. VERMA RESPONDENT BY: SHRI RAJAN VORA DATE OF HE ARING : 12 - 09 - 2013 DATE OF PRONOUNCEMENT : 13 - 11 - 2013 ORDER P ER R.S. PADVEKAR , JM : - THIS APPEAL IS FILED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT(A) - III, PUNE DATED 31 - 10 - 2007 FOR THE A.Y. 2004 - 05. THE REVENUE HAS TAKEN FOLLOWIN G GROUNDS IN THE APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE AO REGARDING DEDUCTION CLAIMED U/S. 10A WITH RESPECT TO THE STPI UNITS BY INVOKING SECTION 145, WHEREAS THERE WERE INSTANC ES OF DISCREPANCIES POINTED OUT WITH REGARDS TO THE CLAIM OF DEDUCTION U/S. 10A AND THE BOOKS RESULTS SHOWN BY THE STPI UNITS OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE U/S. 1 0A IN RESPECT OF THE STPI UNITS WITHOUT GIVING AN OPPORTUNITY TO THE DEPARTMENT ALTHOUGH LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE ON SIMILAR LINES U/S. 10A FOR A.Y. 2001 - 02. 2 ITA NO. 149/PN/2008, HONEYWELL AUTOMATION INDIA LTD., PUNE 3. IN THE LIGHT OF THE ABOVE FACTS, THE ORDER OF THE CIT(A) BE VACATED AND THAT OF THE AO BE RESTORED. 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE HAS SET UP UNDERTAKINGS AT SOFTWARE TECHNOLOGY PARKS (STP) IN PUNE AND CHENNAI AND IS ENTITLED TO RELIEF U/S. 10A OF THE INCOME - TAX ACT. SO FAR AS A.Y. 2004 - 0 5 IS CONCERNED THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 10A OF THE ACT OF RS.22.21 CRORES IN RESPECT OF THE PUNE UNIT AND RS.2.67 CRORES IN RESPECT OF CHENNAI UNIT. THE SAID CLAIM WAS REJECTED BY THE ASSESSING OFFICER FOR THE REASONS GIVEN IN THE ASSESSMEN T ORDER. THE ASSESSING OFFICER ALSO CAME TO THE CONCLUSION THAT THE BOOKS OF ACCOUNT OF THE STP UNDERTAKINGS AND THE RESULTANT BOOKS RESULTS DO NOT GIVE THE CORRECT PICTURE OF THE FINANCIAL STATES OF AFFAIRS AND HENCE, BOOKS OF ACCOUNT NEED TO BE REJECTED U/S. 145 OF THE INCOME - TAX ACT . THE ASSESSING OFFICER PROCEEDED TO ESTIMATE THE BUSINESS PROFITS IN RESPECT OF THE STP UNITS AFTER CONSIDERING THE COMPARABLE INDUSTRY STANDARDS. THE ASSESSING OFFICER RESTRICTED THE DEDUCTION QUANTIFIED BY SAME AT RS.15. 63 CRORES AS AGAINST RS.24.35 CRORES CLAIMED BY THE ASSESSEE AND TO THE EXTENT OF RS.8.71 CRORES THE CLAIM OF DEDUCTION OF THE ASSESSEE U/S. 10A WAS DISALLOWED. THE ASSESSING OFFICER REFERRED TO THE ASSESSMENT ORDER FOR THE A.Y. 2001 - 02 IN WHICH THE FINDI NG WAS GIVEN THAT THE PROFITS OF STP UNDERTAKINGS WERE EXCESS OF THE PROFIT ESTIMATES SUBMITTED TO THE CO - PROMOTERS OF THE ASSESSEE COMPANY I.E. HONEYWELL INC, USA. IN THE OPINION OF THE ASSESSING OFFICER FOR THE A.Y. 2004 - 05 , THE PROFITABILITY OF THE STP UNITS WAS HIGHER COMPARED TO THE OTHER INDUSTRIES IN SAME LINE. THE ASSESSING OFFICER PLACED HIS RELIANCE MAINLY ON ASSESSMENT ORDER FOR A.Y. 2001 - 02 IN WHICH YEAR THE BOOK RESULTS WERE REJECTED AND DEDUCTION WAS INDEPENDENTLY WORKED OUT. THE SAME APPRO ACH WAS ADOPTED BY THE ASSESSING OFFICER IN THE A.Y. 2004 - 05 AS HE 3 ITA NO. 149/PN/2008, HONEYWELL AUTOMATION INDIA LTD., PUNE WAS OF FIRM OPINION THAT THE PROFITS SHOWN FOR CLAIMING THE DEDUCTION U/S. 10A ARE MUCH MORE AT HIGHER SIDE THAN IT SHOULD BE IN REALITIES. 3. THE ASSESSING OFFICER ALSO REFERRED TO TH E A.YS. 1999 - 2000, 2000 - 01, 2002 - 03 AND 2003 - 04 AND IN THOSE YEARS THE ASSESSMENT WERE REOPENED AND THE ASSESSEE HAD TO FILE REVISED CLAIMS IN PURSUANCE OF THE NOTICES ISSUED U/S. 148 OF THE INCOME - TAX ACT. IN THOSE YEARS ALSO THE BOOK RESULTS WERE REJECT ED ON THE BASIS OF THE FINDINGS GIVEN IN THE A.Y. 2001 - 02. IN SUM AND SUBSTANCE THE ASSESSING OFFICER CONTINUED THE HISTORY CONSIDERING THE ESTIMATION MADE IN THE PAST YEARS IN RESPECT OF THE PROFITS DECLARED OF THE STP UNDERTAKINGS. IN THE OPINION OF TH E ASSESSING OFFICER , THE PROFITS OF STP UNITS WERE REQUIRED TO BE SCALED DOWN ON THE BASIS OF COMPARISON MADE WITH THE PROFITS OF STP UNDERTAKINGS TO TWO OTHER COMPANIES I.E. W IPRO AND GEOMETRIC SOFTWARE. 4. THE ASSESSING OFFICER, THEREFORE, AFTER CONSI DERING THE PAST HISTORY OF THE ASSESSEE , ESTIMATED THE PROFITS OF THE STP UNDERTAKINGS AT 50% OF COSTS BASED ON THE SIMILAR ESTIMATES MADE IN PRECEDING YEARS RIGHT F ROM A.Y. 1999 - 2000 WHICH WERE BASED ON COMPARISON WITH THE BOOKS RESULTS OF WIPRO AND GEOME TRIC SOFTWARE. IN THOSE CASES ALSO DEDUCTION U/S. 10A WAS CLAIMED. IN SUM AND SUBSTANCE CONSIDERING THE PRECEDING YEARS IN THE OPINION OF THE ASSESSING OFFICER THE PROFITABILITY BEING ROUGHLY 40% AFTER ALLOCATION OF COST IN THE CASE OF THE STP UNITS WAS INCORRECT . IN THE OPINION OF THE ASSESSING OFFICER , THE ASSESSEE SHOULD HAVE FILED THE REVISED RETURN REDUCING THE CLAIM OF DEDUCTION. THE ASSESSING OFFICER, THEREFORE, FINALLY ESTIMATED THE PROFITS AT 50% OF THE COSTS AND THAT RESULTED INTO REDUCTION IN THE DEDUCTION U/S. 10A OF THE ACT. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE LD. CIT(A). THE LD. CIT(A) DID NOT AGREE WITH THE APPROACH OF THE 4 ITA NO. 149/PN/2008, HONEYWELL AUTOMATION INDIA LTD., PUNE ASSESSING OFFICER AND ALLOWED THE ENTIRE CLAIM OF THE ASSESSEE AND DELETED THE AD DITION MADE. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. THE LEARNED COUNSEL HAS RELIED ON THE PLETHORA OF DECISION S IN SUPPORT OF THE ORDER OF THE LD. CIT(A) THAT THERE WAS NO NECESSARY FOR THE ASSESSING OFFICER TO REJECT THE BOOK RESULTS. THE LEARNED COUNSEL ARGUED THAT THE ASSESSING OFFICER CANNOT RECOMPUTE THE SEGMENTAL PROFITS OF THE ASSESSEE WITHOUT POINTING OUT ANY SPECIFIC DEFECTS IN ARRIVING AT THE PROFITS YEAR UNDER C ONSIDERATION. HE SUBMITS THAT THE ENTIRE APPROACH OF THE ASSESSING OFFICER IS TOTALLY PREJUDICIAL AND B ASSED THE ASSESSMENT FOR THE A.Y. 2001 - 02. HE POINTED OUT THAT MERELY BECAUSE IN THE PARTICULAR YEAR THE BOOKS OF ACCOUNT WERE REJECTED ON CERTAIN DEFE CTS THEN HOW THE SAME DEFECTS ARE ALSO THERE IN THE SUBSEQUENT YEARS ARE TO BE DEMONSTRATED BY THE ASSESSING OFFICER. HE SUBMITS THAT ENTIRE ASSESSMENT FOR THE A.Y. 2004 - 05 IS BASED ON THE PRESUMPTION THAT THE PROFITS SHOWN BY THE ASSESSEE FOR CLAIMING TH E DEDUCTION U/S. 10A ARE MANIPULATED AND SHOWN AT VERY MUCH HIGHER SIDE . HE SUBMITS THAT AT EACH STAGE OF DISCUSSION , THE ASSESSING OFFICER REFERS TO THE PROCEEDINGS FOR THE A.Y. 2001 - 02. HE PLEADED THAT THE CIT(A) HAS RIGHTLY CONSIDERED THE ENTIRE FACTS AND ALLOWED THE DEDUCTION AND HENCE, THE ORDER OF THE CIT(A) MAY BE CONFIRMED AS ADMITTEDLY NO INDEPENDENT ADVERSE MATERIAL IS BROUGHT ON RECORD FOR REJECTION OF THE BOOK RESULTS. 6. WE HAVE ALSO HEARD THE LD. CIT (DR), WHO PLEADS THAT CONSIDERING THE HISTORY OF THE ASSESSEE , THE ASSESSEE IS NOT SHOWING THE CORRECT PROFITS BUT PROFITS SHOWN BY THE ASSESSEE ARE MANIPULATED AND SHOWN AT HIGHER SIDE FOR CLAIMING THE DEDUCTION U/S. 10A EVEN IN A.Y. 2004 - 05 . SHE PLEADS FOR RESTORING THE ORDER OF THE ASSESSI NG OFFICER. 5 ITA NO. 149/PN/2008, HONEYWELL AUTOMATION INDIA LTD., PUNE 7. WE HAVE GIVEN OUR ANXIOUS CONSIDERATION TO THE RIVAL SUBMISSIONS AS WELL AS THE REASONS GIVEN BY THE ASSESSING OFFICER FOR REJECTING THE BOOK RESULTS. IN THIS CASE, ENTIRE DEDUCTION IS NOT DENIED BUT THE ASSESSING OFFICER HAS RESTRICTED T HE DEDUCTION TO RS.15.63 CRORES AS AGAINST RS.24.35 CRORES . WE FIND THAT AS RIGHTLY ARGUED BY THE LEARNED COUNSEL , NO INDEPENDENT DEFECT HAS BEEN POINTED OUT AS TO HOW THE COST IS NOT PROPERLY ALLOCATED BETWEEN THE TAX HOLIDAY UNIT TO NON - TAX HOLIDAY UNI T. THE OBSERVATION AND REASONING OF THE ASSESSING OFFICER ARE OF THE GENERAL IN NATURE WHICH ARE BASED ON THE A.Y. 2001 - 02 AND ON THE BASIS OF THE A.Y. 2001 - 02 , T HE ASSESSMENT S FOR THE A.Y. 1999 - 2000 ONWARDS WERE REOPENED ON THE SAME REASON S THAT THE PROF ITS OF TAX HOLIDAY UNIT ARE DECLARED AT HIGHER SIDE COMPARED TO THE NON - TAX HOLIDAY UNIT. THERE IS NO PROPER ALLOCATION OF THE COST VIZ - A - VIZ PROFITS PERCENTAGE. IN OUR OPINION , IF THE BOOK RESULTS IN THE PARTICULAR YEAR ARE REJECTED ON POINTING OUT SPEC IFIC DEFECTS WHICH WERE DEMONSTRATED , THEN THE ASSESSING OFFICER CANNOT CARRY THE SAME REASONING FOR REJECTING THE BOOK RESULTS IN THE SUBSEQUENT YEAR S UNLESS THE ASSESSING OFFICER INDEPENDENTLY DEMONSTRATE THAT THE DEFECTS IN BOOKS OF ACCOUNT POINTED OUT IN A.Y. 2001 - 02 ARE ALSO THERE IN THE A.Y. 2004 - 05 . W E DO NOT FIND THAT ASSESSING OFFICER HAS DEMONSTRATED INDEPENDENTLY ANY DEFECTS IN BOOKS OF ACCOUNT FOR A.Y. 2004 - 05 NOR THERE IS ANY DISCUSSION EXCEPT REFERENCE TO THE PRECEDING YEARS . W E , THEREFORE, DO NOT FIND ANY REASON NOT TO AGREE WITH THE CIT(A). WE, ACCORDINGLY, CONFIRM THE ORDER OF THE CIT(A). 8 . THE REVENUE HAS ALSO TAKEN A CONTENTION THAT NO OPPORTUNITY WAS GIVEN TO THE DEPARTMENT EVEN IF ON THE SIMILAR REASONS THE DISALLOWANCE MADE IN THE A.Y. 2001 - 02 HAS BEEN CONFIRMED BY THE CIT(A) . I N OUR OPINION, SUCH PLEA OF THE DEPARTMENT IS NOT TENABLE . W E HAVE ALREADY HELD THAT THE ASSESSING OFFICER HAS NOT INDEPENDENTLY POINTED OUT ANY DEFECT S IN A.Y. 2004 - 05 AND THE ASSESSING OFFICER CANNOT REJE CT THE BOOKS 6 ITA NO. 149/PN/2008, HONEYWELL AUTOMATION INDIA LTD., PUNE OF ACCOUNT MERELY RELYING ON THE REASONS GIVEN FOR REJECTION S OF BOOKS OF ACCOUNT IN PRECEDING YEARS AS EACH ACCOUNTING YEAR IS INDEPENDENT ONE. ACCORDINGLY , ALL THE GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. 9 . IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 13 - 11 - 2013 SD/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 13 TH NOVEMBER, 20 1 3 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - III, PUNE 4 THE CIT - III, PUNE 5 THE DR, ITAT, A BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE