Remson and Rallison Electricals Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 2107/DEL/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0047 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Assessee
• Bench Allotted: F
• Next Hearing Date: 07-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-05-2012
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Keywords: Business income

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ES: F , NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI AT VARKEY, JUDICIAL MEMBER ITA NO. 2107/DEL/2012 AY: 200 8 - 09 REMSON AND RALLISON ELECTRICALS LTD. VS. ACIT, RANGE 15 10072, GALI ZAMIR WALI NEW DELHI NAWAB GANJ, PUL BANGASH NEW DELHI 110 006 PAN: AADCR 0362 A (APPELLANT) (RESPONDENT) A PPELLANT BY : SH. K.SAMPATH, ADV. RE SPONDENT BY : SH. VIKRAM SAHAY, SR. D.R. ORDER PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS DIRECTED AGAINST THE ORDER OF THE LD.CIT(A) - XVIII, NEW DELHI DATED 20.1.2012 PERTAINING TO THE A.Y. 2008 - 09. 2. FACTS IN BRIEF: - THE ASSESSEE IS A COMPANY AND IS ENGAGED IN MANUFACTURE AND TRADING OF ELECTRICAL GOODS (GEYSERS, FANS ETC.), CABLES, METALS, CLOTH AND APPLIANCES. THE ASSESSEE HAS S A MANUFACTURING UNIT AT MANPURA (BADDI) HIMACHAL PRADESH AND BRANC HES AT GHAZIABAD AND PATNA. THE HEAD OFFICE IS IN NEW DELHI. THE ASSESSEE CLAIMED DEDUCTION U/S 80 IC ON THE PROFITS AND GAINS EARNED FROM ITS BUSINESS INCOME OF ITS MANPURA UNIT. THE ISSUE BEFORE US IS THE COMPUTATION OF RELIEF U/S 80 IC OF THE ACT. 2 3. THE FIRST APPELLATE AUTHORITY HAS GIVEN THE FOLLOWING FACTUAL FINDINGS. THE TRADING AND PROFIT & LOSS A/C OF THE MANPURA UNIT WAS EXAMINED TO VERIFY THE FACTS. UNIT/BRANCH OFFICE STOCK TRANSFERRED IN UNIT/BRANCH FROM WHICH TRANSFERRED STOCK TRANSFERRED OUT UNIT/BRANCH FROM WHICH TRANSFERRED MANPURA (BADDI) RS.18,15,009/ - DELHI RS.18,67,305/ - RS.43,73,839/ - GHAZIABAD DELHI (H.O.) DELHI RS.43,73,839/ - RS. 8,60,325/ - MANPURA GHAZIABAD RS.18,15,009/ - MANPURA GHAZIABAD RS.18,67,305/ - MANPURA RS.8,60,325/ - DELHI PATNA NIL THUS THERE IS STOCK TRANSFER FROM MANPURA UNIT TO GHAZIABAD BRANCH WORTH RS.18,67,305/ - AND TO HEAD OFFICE DELHI WORTH RS.43,73,839/ - . FROM THE DELHI HEAD OFFICE STOCK HAS BEEN TRANSFERRED TO MANPURA WORTH RS.18,15,009/ - . SIMILARLY, THE DELHI OFFICE HAS RECEIVED STOCK FROM MANPURA AS WELL AS GHAZIABAD. THE GHAZIABAD UNIT HAS ALSO RECEIVED STOCK FROM MANPURA AND TRANSFERRED STOCK TO DELHI. BESIDES, PERUSAL OF THE LIST OF ITEMS SOLD BY DELHI OFFICE, AS PER THE STOCK REG ISTER, SHOWS THAT THE ITEMS SOLD BY THE DELHI UNIT INCLUDES GEYSERS AND FANS I.E. THE ITEM WHICH ARE MANUFACTURED AT MANPURA. SIMILARLY FROM GHAZIABAD SALES OF GEYSERS AND FANS FORM A SUBSTANTIAL PORTION OF THE TOTAL SALES. THUS, THE APPELLANT ASSERTIONS THAT, ONLY GOODS WHICH ARE NOT MANUFACTURED BY MANPURA UNIT ARE SOLD BY DELHI OFFICE IS WRONG. HOWEVER, AT THE PATNA BRANCH THERE HAS BEEN NO SALES DURING THE YEAR. 4. FURTHER AT PAGE 9 THE LD.CIT(A) HAS CONCLUDED AS FOLLOWS. 3 IN THE CASE OF THE ASSESSEE THE FACTS CLEARLY REVEALS THAT THERE IS CLOSE INTERLINKING OF THE UNITS LOCATED AT MANPURA, WHICH IS ADMISSIBLE FOR DEDUCTION U/S 80IC, THE BRANCH AT GHAZIABAD AND THE HEAD OFFICE AT DELHI. THERE IS FREQUENT AND SUBSTANTIAL TRANSFER OF GOODS MANU FACTURED AT MANPURA TO THE OTHER UNITS. SIMILARLY, THERE IS STOCK TRANSFER TO MANPURA FROM THE DELHI HO. SIMILAR GOODS I.E. GEYSERS AND FANS WHICH ARE MANUFACTURED AT MANPURA ARE BEING TRANSACTED BY THE VARIOUS BRANCHES AND THE HEAD OFFICE. IT IS ONLY A T THE PATNA UNIT THAT NO MUTUAL TRANSFER OF GOODS HAS TAKEN PLACE DURING THE YEAR. THESE FACTS SHOW THAT THE ENTIRE PROFITS OF THE MANPURA UNIT ARE NOT ATTRIBUTABLE TO MANUFACTURING ACTIVITY BUT IS ALSO PARTLY DERIVED FROM TRADING ACTIVITY. CONSIDERING T HE ABOVE FACTS THE AO DECISION OF REDUCING THE LOSS ON PATNA UNIT FROM NET PROFIT OF THE MANPURA UNIT FOR COMPUTATION OF ADMISSIBLE DEDUCTION U/S 80IC IS DELETED. THE DECISION OF THE AO OF REDUCING LOSS IN RESPECT OF GHAZIABAD UNIT I.E. RS.1,46,591/ - FROM THE NET PROFIT OF MANPURA UNIT FOR COMPUTATION OF DEDUCTION U/S 80IC IS THUS CONFIRMED. 5. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS. 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON THE POSITION OF LAW, THE LD.AO HAS ERRED IN ASSESSING THE DEDUCTION CLAIMED U/S 80IC OF THE ACT BY THE ASSESSEE. THE ORDER PASSED IS IN AN ARBITRARY MANNER, WITHOUT ASSIGNING ANY COGENT REASONING. 2. THAT THE LD.AO HAS ERRED IN MAKING THE FOLLOWING ADDITIONS BY DISALLOWING DEDUCTION U/S 80IC OF THE ACT THE ASSESSEE WHICH WHILE CONSIDERING THE LEGAL POSITION OF LAW AND FACTS OF THE MATTER NEED TO BE DELETED. THE LD.CIT(A) - XVIII, N.DEL HAS ALSO ERRED IN CONFIRMING THE ADDITIONS MADE BY THE AO. (I) THE LD.AO IS NOT JUSTIFIED IN CONSIDER ING THE ENTIRE LOSS OF GHAZIABAD UNIT AMOUNTING TO RSL1,46,591/ - AS LOSS OF BADDI (MANPURA) UNIT. HOWEVER, SUCH LOSS ENTIRELY RELATES TO GHAZIABAD. (II) THE LD.AO IS NOT JUSTIFIED IN DISALLOWING RS.632434/ - ON ESTIMATED BASIS BY TAKING 1% PROFITS ON TURNO VER OF RS.63243409/ - OF BADDI UNIT, CONSIDERING THEM AS PROFITS DERIVED FROM HEAD OFFICE AND BRANCHES ON ACCOUNT OF GETTING SERVICES, WHICH ARE TAKEN ON ABSURD AND HYPOTHETICAL ASSUMPTIONS. 4 3. THAT THE APPELLANT RESERVES THE RIGHT TO CREATE, LEAVE, ADD, M ODIFY AND AMEND ANY GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING THE CASE. 6. THE LD.COUNSEL FOR THE ASSESSEE MR.K.SAMPATH SUBMITTED THAT: ( I ) SEPARATE ACCOUNTS ARE BEING MAINTAINED BY THE UNIT AT BADDI AND THESE BOOKS ARE AUDITED AND A REPORT THEREOF FILED WITH THE REVENUE AS REQUIRED U/S 80 IC OF THE ACT. ( II ) A STATUTORY REPORT IN FORM NO.10 CCB CERTIFYING THE CLAIM OF DEDUCTION U/S 80IC WAS FILED ALONG WITH THE RETURN OF INCOME. ( III ) THERE IS NO DISCREPANCY FOUND OR ALLEGED ON THE INVENTORY OF THE ASSESSEE. ( IV ) THE BOOKS OF ACCOUNTS HAVE BEEN ACCEPTED AND HENCE THE PROFITS DISCLOSED THEREIN CANNOT BE INTERFERED WITH BY WAY OF ESTIMATION ETC. ( V ) THE UNIT AT BADDI HAD TRANSFERRED THE GOODS IN QUESTION AT COST. THIS FACT THAT BADDI UNIT HAD TRANSFERRED THE GOODS AT C OST WAS BROUGHT TO THE NOTICE OF THE AO VIDE LETTER DT. 8.11.2010. SIMILAR SUBMISSIONS WERE MADE VIDE SUBMISSIONS DT. 1.12.2011 BEFORE THE LD.CIT(A). THE LD.CIT(A) AT PARA 5.7 PAGE 7 REITERATED THE SAME. UNDER THESE CIRCUMSTANCES THERE CANNOT BE A HYPO THETICAL DEDUCTION OF 1% OF THE PROFITS FOR BADDI UNITS IN RESPECT OF INTER UNIT TRANSFERRED. ( VI ) THERE WAS A REVERSE TRANSFER OF RS.18.15 LAKHS FROM BRANCHES TO BADDI UNITS. WITHOUT PREJUDICE TO THE PRIMARY CONTENTION THAT THE PROFITS OF BADDI UNITS ARRIVED AT BY MAINTAINING BOOKS OF ACCOUNTS IS WRONGLY ADJUSTED BY CONJECTURES AND ESTIMATES , T HE STOCK TRANSFER S SHOULD BE NETTED . 7. THE LD.DR MR. VIKRAM SAHAY ON THE OTHER HAND RELIED ON THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE ASSESSEE S ASSERTION T HAT THE ITEMS SOLD BY THE DELHI UNIT DOES NOT CONSIST OF GOODS MANUFACTURED BY MANPURA UNIT IS FACTUALLY WRONG. HE ARGUED THAT GOOD PRODUCED BY 5 MANPURA UNIT ARE TRANSFERRED TO HEAD OFFICE AND BRANCHES AND THEY ARE IN TURN SOLD AT A PROFIT AND HENCE THE EN TIRE PROFITS OF MANPURA UNIT SHOULD NOT BE ATTRIBUTABLE TO MANUFACTURING ACTIVITY. HE SUBMITTED THAT THE PROFITS ARE PARTLY DERIVED FROM TRADING ACCOUNT AND UNDER THOSE CIRCUMSTANCES THE FIRST APPELLATE AUTHORITY RIGHTLY CONFIRMED THE ORDER OF THE AO. 8. AFTER HEARING RIVAL CONTENTIONS AND PERUSING THE PAPERS ON RECORD AND ORDERS OF THE AUTHORITIES BELOW, WE HOLD AS FOLLOWS. 9. THE ASSESSEE IN ITS LETTER DT. 8.11.2010 WHICH I S PUT AT PAGE 150 OF THE PAPER BOOK , STATED BEFORE THE AO AT PARA 4 AS FOLLOWS: THE VALUATION OF STOCK AT BADDI UNIT IS MADE ON COST BASIS WHICH IS ALSO APPLIED IN OTHER UNITS ON A CONSISTENCY BASIS. THE VALUE OF STOCKS TRANSFERRED TO BRANCHES HAS BEEN TAKEN ON COST BASIS. THE VALUE OF STOCK TRANSFER TO BRANCHES HAS BEEN TAKEN ON COST BASIS. 9.1. THE LD.CIT(A) IN HIS ORDER AT PARA 5.1 PAGE 7 RECORDED AS FOLLOWS. 5.1. FURTHER, THE LD.AR VIDE WRITTEN SUBMISSION DT. 1.12.2011 HAS ARGUED AS UNDER: DURING THE AY 2008 - 09, THE BADDI (SALES) UNIT HAS TRANSFERRED THE FINISHED MANUFAC TURED GOODS TO DELHI UNIT FOR RS.43,73,839.55 TO GHAZIABAD BRANCH FOR RS.18,67,305.00. ALL THE FREIGHT EXPENSES TO TRANSFER THE GOODS TO ITS OTHER UNITS WERE BORNE BY THE BADDI UNIT ITSELF AND NO EXPENSE OF FREIGHT WERE BORNE BY ITS OTHER UNITS WHICH CAN BE VERIFIED FROM THE INDIVIDUAL PROFIT AND LOSS ACCOUNT OF ITS UNITS. THERE IS NO EXPENDITURE INCURRED BY DELHI UNIT WHICH HAS MADE EXPENSES AGAINST THE TRADING SALES OF RS.20,92,52,796/ - . THE GHAZIABAD BRANCH HAS INCURRED RS.24,169/ - ON CARTAGE WHICH RE LATED TO LOCAL CARTAGE AGAINST THE LOCAL SALES MADE. THE BADDI UNIT HAS TRANSFERRED THE GOODS TO ITS UNITS BY VALUING THE GOODS ON COST BASIS. 6 9.2. THIS FACTUAL CLAIM HAS NOT BEEN CONTROVERTED BY EITHER THE AO OR BY THE LD.CIT(A) OR BY THE LD.DR BEFORE US. WHEN BADDI UNIT HAD TRANSFERRED THE GOODS TO OTHER UNITS ON COST BASIS, AND WHEN SEPARATE ACCOUNTS ARE MAINTAINED BY BADDI UNIT AND PROFITS ARRIVED AT, THE QUESTION OF COMING TO A CONCLUSION THAT THIS PROFIT SO ARRIVED AT CONTAINS TRADING PROFIT IS A GAINST THE FACTS OF THE CASE. THE SEPARATE BOOKS MAINTAINED HAVE NOT BEEN REJECTED. UNDER THESE CIRCUMSTANCES WE AGREE WITH THE CONTENTIONS OF THE LD.COUNSEL FOR THE ASSESSEE AND ALLOW THE GROUNDS RAISED BY THE ASSESSEE. 9.3. THE AO IS DIRECTED TO ALLOW THE DEDUCTION U/S 80IC OF THE ACT AS CLAIMED BY THE ASSESSEE. 10. IN THE RESULT THE ASSESSEE S APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 2 N D M AY , 2015. S D / - S D / - ( A.T. VARKEY ) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 2 N D MAY , 2015 MANGA 7 COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR