DCIT, CHENNAI V. Hwashin Automotive India Private Limited, Kancheepuram

ITA 1916/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9374 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-04-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 31-08-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH IRS
• Keywords: Business income; Opportunity of being heard
• Section: 143(3); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . , BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBE R AND SHRI. G. PAVAN KUMAR, JUDICIAL MEMBER ./I.T.A. NO.1916/MDS/2015 / ASSESSMENT YEAR : 2003-2004. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(2) CHENNAI 600 034 VS. M/S. HWASHIN AUTOMOTIVE INDIA PVT. LTD, PLOT NO.65-A, SIPCOT INDUSTRIAL PARK, IRUNGATTUKOTTAI, SRIPERUMBUDUR TALUK, KANCHEEPURAM. [PAN AAACH 9909E] ( / APPELLANT) ( /RESPONDENT) ! ' # / APPELLANT BY : SHRI. A.V. SREEKANTH, IRS, JCIT. $% ! ' # /RESPONDENT BY : SHRI. RAGHUNATHAN SAMPATH, ADV & ' ' ( /DATE OF HEARING : 19-04-2016 ) ' ' ( /DATE OF PRONOUNCEMENT : 11-05-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AG AINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-6, CHENNAI IN ITA NO.138/CIT(A)-6/2010-2011, DT 02.03.2015 FOR THE AS SESSMENT YEAR 2003- ITA NO.1916/MDS/2015. :- 2 -: 2004 PASSED U/S.143(3) R.W.S. 147 AND 250 OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 2.1. THE ID. CIT(A) OUGHT NOT TO HAVE ALLOWED THE PRE-PRODUCTION INCOME OF THE ASSESSEE. 2.2 THE ID. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE EVEN DURING THE COURSE OF APPELLATE PROCEEDINGS, HAD NOT DISTINGUISHED THIS PARTICULAR ACTIVITY OF DISTRIBUT ION OF SAMPLES VIS--VIS WITH OTHER SALES TO SHOW BEYOND D OUBT THAT THE CLAIM WERE ACTUALLY FOR DELIVERING SAMPLES ONLY. 2.3. THE ID. CIT(A) BEFORE ALLOWING RELIEF OUGHT TO HAVE SOUGHT FOR THE CONFIRMATION FROM M/S. HYUNDAI MOTORS IN DIA LTD. 2.4. THE ID. CIT(A) OUGHT TO HAVE APPRECIATED TH AT WHEN THE ASSESSEE HAD OFFERED THE SAME FOR THE SALES TAX PURPOSES AND PAID DUE TAXES THEREON, THE SAME SHOULD HAVE BEEN OFFERED FOR THE PURPOSE OF THE INCOME TAX ALSO. 2.5 THE ID. CIT(A) ERRED IN NOT GIVING A SPECIFI C FINDING THAT THE SALES WERE NOT CHARGED FROM THE BUYER (NO LEDGE R ALC, DEBIT ETC.) I INVOICE RAISED 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE IS EN GAGED IN MANUFACTURING OF AUTOMOBILE COMPONENTS & SUB-ASSEMB LIES AND FILED RETURN OF INCOME ADMITTING A LOSS OF >6,89,46,779/- AND ASSESSMENT WAS COMPLETED U/S.143(3) DETERMINING LOSS OF >6,28,44,2 20/-. SUBSEQUENTLY, PROCEEDINGS U/S.263 OF THE ACT WAS INITIATED AND AS SESSMENT WAS FURTHER REVISED AND DETERMINED LOSS AT >4,41,29,379/-. THE ASSESSMENT WAS REOPENED INITIATING PROCEEDINGS U/S.147 OF THE ACT. THE ASSESSEE WAS IN THE INITIAL YEAR OF TRIAL PRODUCTION AND THE PRODUC TS ARE SENT TO THE CUSTOMERS TO CHECK THE QUALITY STANDARDS. THE ASSE SSEE COMPANY HAD ITA NO.1916/MDS/2015. :- 3 -: RAISED INVOICES TO COMPLY WITH THE PROVISIONS OF IN DIRECT TAX LAWS VAT/SALES TAX. THE LD. ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTIONS AND MADE ADDITION OF >2,39,18,377/- BEI NG THE DIFFERENCE OF TURNOVER DISCLOSED IN FINANCIAL ACCOUNTS AND IN S ALES TAX RETURN. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEA L BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HEARD THE ARGUMENTS AND SUBMISSIONS O F THE LD. AUTHORISED REPRESENTATIVE. FURTHER DISCUSSED ELABORATIVELY ON THE FINDINGS OF THE ASSESSING OFFICER AND THE ASSESSEE, AND CONCLUDED T HAT THE ASSESSEE HAS NOT RECEIVED ANY CONSIDERATION FROM HYUNDAI MOTORS IN RESPECT OF SUPPLY OF MATERIALS IN PRE-PRODUCTION PERIOD OBSERVED AT PARA NOS.4.2.1 TO 4.2.3 AS UNDER:- THE ASSESSEE BEFORE THE UNDERSIGNED REITERATED IT S SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER. THE ASSESSEE FURTHER SUBMITTED THAT SINCE THESE AUTOMOB ILE SPARES MANUFACTURED ON TRIAL RUN AND SEND TO HYUNDA I MOTORS INDIA LTD FOR QUALITY CHECKING DO NOT CARRY ANY VALUE, HYUNDAI MOTORS INDIA LTD WAS NOT UNDER ANY OBLIGATION TO PAY ANY AMOUNT TO THE ASSESSEE. HENCE THE ASSESSEE SUBMITTED THAT, THOUGH THERE WERE INVOICES AND DELIVERY CHALLANS ISSUED WHILE MOVING THE TRIAL RUN PRODUCED AUTOMOBILE SPARES TO HYUNDAI MOTORS AS PER THE COMPULSORY REQUIREMENT OF THE EXCISE DUTY / SAL ES TAX ACTS, THE ASSESSEE IS NOT GOING TO REALIZE ANY AMOU NT (VALUE) FROM HYUNDAI MOTORS INDIA LTD ON ACCOUNT OF THE SUPPLY OF THE TRIAL RUN PRODUCED AUTOMOBILE SPA RES. THUS, THE ASSESSEE CLAIMED THAT THESE ITEMS ARE LIK E FREE SAMPLES AND HENCE WILL NOT FORM PART OF SALES FOR T HE PURPOSE OF INCOME TAX AND HENCE EXCLUDED FROM THE TOTAL SALES IN THE P&L ACCOUNT. THE RELEVANT PORTIO N OF THE ASSESSEE'S SUBMISSIONS, AS CONTAINED IN THE STA TEMENT ITA NO.1916/MDS/2015. :- 4 -: OF FACTS ENCLOSED TO FORM NO.35 IS AS UNDER: THE APPELLANT IS A COMPANY ASSESSED TO INCOME TAX BY THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II (2) CHENNAI ON PAN AAACH9909E. THE APPELLANT HAD FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003-04 RETURNING A LOSS OF RS. 68, 946,779/ -. THE ASSESSMENT WAS COMPLETED AFTER SCRUTINY UNDER SECTION 143(3) DETERMINING A LOSS OF RS. 62, 844,220/- PROCEEDINGS UNDER SECTION 263 WAS INITIATED SUBSEQUENTLY, AND THE ASSESSMENT WAS FURTHER REVISED TO DETERMINE LOSS AT RS.44, 129,379/ -. THE ASSESSMENT WAS REOPENED INITIATING PROCEEDING UNDER SECTION 147. THE APPELLANT COMPANY WAS IN THE INITIAL YEARS OF PRODUCTION AND TRIAL PRODUCTION CARRIED ON IN THE RELEVANT ASSESSMENT YEAR AND THE PRODUCTS WERE SENT TO THE CUSTOMER TO CHECK, THEIR STANDARDS WERE CONFORMED. THE APPELLANT COMPANY HAD TO RAISE INVOICES ON RECORD TO COMPLY WITH THE PROVISIONS OF INDIRECT TAX. LAWS. THE ASSESSING OFFICER HAD REJECTED THE APPELLANT'S CONTENTION AND MADE ADDITIONS OF RS.23, 918,377/ BEING THE DIFFERENCE IN TURNOVER AS DISCLOSED IN ACCOUNTS TO THAT SALES TAX. RETURN. THE APPELLANT PREFERS THIS APPEAL AGAINST THE ORDER OF ASSISTANT COMMISSIONER. 4.2.2 I HAVE CONSIDERED THE ASSESSEE'S SUBMISSIONS CAREFULLY. THE ASSESSEE COMPANY HAS BEEN FLOATED FO R MANUFACTURING AND SUPPLYING CERTAIN AUTOMOBILE PARTS/SPARES, REQUIRED IN THE PRODUCTION OF HYUNDAI BRAND OF CARS IN INDIA, TO M/S. HYUNDAI MOTORS INDI A LTD. THUS, THE ASSESSEE IS EXCLUSIVELY MANUFACTURIN G THE SPECIALISED AUTOMOBILE PARTS REQUIRED FOR HYUNDAI MOTORS. ALL SALES ARE REQUIRED TO BE MADE TO HYUNDA I MOTORS INDIA LTD ONLY. THE MANUFACTURING AND SUPPLY OF THE AUTOMOBILE PARTS TO HYUNDAI MOTORS INDIA LTD, I S AS PER THE TERMS AND CONDITIONS SPECIFIED IN THE AGREE MENT BETWEEN THE ASSESSEE AND HYUNDAI MOTORS INDIA LTD. THE COMPANY COMMENCED ITS COMMERCIAL PRODUCTION OF MANUFACTURING THE AUTOMOBILE PARTS DURING THE FINAN CIAL YEAR 2002-03 RELEVANT TO THE CURRENT A.Y.2003-04. BEFORE THE COMMERCIAL PRODUCTION, THE ASSESSEE WAS REQUIRED TO MANUFACTURE THE SAID SPARES ON TRIAL RU N AND SEND TO HYUNDAI MOTORS INDIA LTD FOR QUALITY CHECKI NG. THE AUTOMOBILE PARTS SO PRODUCED AND SUPPLIED TO HYUNDAI MOTORS INDIA LTD WILL NOT CARRY ANY VALUE. HOWEVER, AS PER THE REQUIREMENT OF EXCISE DUTY/SALE S TAX, NO GOODS CAN BE REMOVED FROM THE FACTORY WITHO UT PAYING THE EXCISE DUTY. HENCE THE ASSESSEE HAD TO R AISE INVOICES AND DELIVERY CHALLANS WHILE SENDING THE PR E- PRODUCTION/TRIAL PRODUCTION ITEMS TO HYUNDAI MOTORS INDIA LTD FOR QUALITY TESTING. AS PER THE TERMS, TH E PRE- ITA NO.1916/MDS/2015. :- 5 -: PRODUCTION/TRIAL PRODUCTION ITEMS SENT TO HYUNDAI MOTORS INDIA LTD FOR QUALITY TESTING WILL NOT BE CH ARGED. HENCE, THESE PRE-PRODUCTION/TRIAL PRODUCTION ITEMS SENT TO HYUNDAI MOTORS INDIA LTD FOR QUALITY TESTING, TH OUGH SUFFERED EXCISE DUTY AND ALSO INCLUDED IN THE TOTAL SALES FOR THE PURPOSE OF SALES TAX ASSESSMENT, WERE NOT T O BE INCLUDED IN THE TOTAL SALES IN THE P&L ACCOUNT. IT IS ALSO IMPORTANT TO NOTE THAT THE ASSESSEE HAS NOT RECEIVE D ANY CONSIDERATION FROM HYUNDAI MOTORS ON ACCOUNT OF THE PRE-PRODUCTION/TRIAL PRODUCTION ITEMS SENT TO THEM 4.23. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTI FIED IN CONSIDERING THE PRE-PRODUCTION /TRIAL PRODUCTION ITEMS SENT HYUNDAI MOTORS AS PART OF SALES AND BRING THEM TO TAX IS NOT JUSTIFIED. THE ADDITION OF 2,39,18,377/- MADE BY THE ASSESSING OFFICER STANDS DELETED. THE ASSES SEE SUCCEEDS IN ITS APPEALS IN THIS REGARD. AND PARTLY ALLOWED THE APPEAL. AGGRIEVED BY THE ORD ER OF COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE HAS ASSAILED AN A PPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE MADE EXHAUSTIVE SUBMISSIONS THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) SHOULD HAVE CALLED FOR THE REMAND REPORT FROM THE ASSESSIN G OFFICER AND LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN NOT HIGHLIGHT OBSERVATIONS AS NO EVIDENCE WAS FILED ON RECORD OR CONFIRMATION TO SUBSTANTIATE THE CLAIM BY THE ASSESSEE AND PRAYED FOR ALLOWING THE APPEAL. ITA NO.1916/MDS/2015. :- 6 -: 6. CONTRA, THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND OPPOSED TH E GROUNDS OF THE REVENUE. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL ON RECORD. THE ASSESSEE IS IN THE MANUFACTURING OF AU TOMOBILE COMPONENTS USED FOR PASSENGER CARS. DURING THE FINANCIAL YEAR 2002-03 IT HAS SUPPLIED AUTOMOBILE PARTS TO THE HYUNDAI MOTORS FREE OF COST AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT. THE PRE-PRODUCTION V ALUE OF GOODS BEING >2,39,18,377/- FOR WHICH THE ASSESSEE COMPANY HAS R AISED THE INVOICES AND TO COMPLY WITH SALES TAX AND EXCISE DUTY PROVI SIONS. THE ASSESSEE ALSO RAISED DELIVERY CHALLANS FOR SENDING THE PRE-P RODUCTION/TRIAL PRODUCTION GOODS TO HYUNDAI MOTORS FOR QUALITY TEST ING AND NO CONSIDERATION WAS RECEIVED. THE LD. COMMISSIONER O F INCOME TAX (APPEALS) HAS DISCUSSED ELABORATELY IN HIS ORDER B UT NOT CALLED FOR ANY REPORT OR CONFIRMATION FROM THE HYUNDAI MOTORS IN R ESPECT OF SUPPLY OF GOODS. THE ASSESSEE HAS RAISED THE CLAIM AS SUPPLY IN THE NATURE OF SAMPLES DISTRIBUTED TO BE ALLOWED AS BUSINESS EXPE NDITURE. THE LD. AUTHORISED REPRESENTATIVE DREW ATTENTION TO THE AS SESSEE COMPANY AFFIDAVIT DATED 26 TH FEBRUARY, 2016 WERE THE SAMPLES DISTRIBUTED BY THE COMPANY ARE NOT CHARGED AND USED ONLY FOR QUALITY TESTING PURPOSE WITHOUT ANY MONETARY CONSIDERATIONS AND FILED RECON CILIATION OF THE SALES ITA NO.1916/MDS/2015. :- 7 -: TURNOVER. CONSIDERING THE APPARENT FACTS AND EVIDE NCE, WE ARE OF THE OPINION THAT THE MATTER HAS TO BE RE-EXAMINED BY TH E ASSESSING OFFICER COMPLETELY WITH PROPER RECONCILIATION AND CONFIRMAT ION OF VALUE AND QUANTITY FROM THE HYUNDAI MOTORS. WE SET ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND REMIT THE DISPUTED ISSUE TO THE ASSESSING OFFICER FOR ADJUDICATION. THE ASSESSI NG OFFICER SHALL PROVIDE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE PASSING THE ORDERS. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.1916/MDS/2015 IS ALLOWED FOR STATISTICAL PURPOS E. ORDER PRONOUNCED ON WEDNESDAY, THE 11TH DAY OF MAY , 2016 AT CHENNAI. SD/- SD/- ( . ! ' ) (A. MOHAN ALANKAMONY) $ % / ACCOUNTANT MEMBER ( & . ' ( ) (G. PAVAN KUMAR) ) % / JUDICIAL MEMBER *& / CHENNAI + / DATED:11TH MAY, 2016. VENU , ' $'./ 0/' / COPY TO: 1 . ! / APPELLANT 2. $% ! / RESPONDENT 3. 1' () / CIT(A) 4. 1' / CIT 5. /4 5 $'6 / DR 6. 5 7 8 & / GF