A.C.I.T. CIRCLE 7(2), MUMBAI V. SIYARAM SILK MILLS LTD., MUMBAI

ITA 2263/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2925 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 17-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 04-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJUNATHA R SWAMY
• Assessee Lawyers: F V IRANI
• Section: 80IB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E BE NCH, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER / I .T.A. NOS.1189 & 2263/MUM/2012 ( / ASSESSMENT YEARS:2007-08 & 2008-09 THE ACIT-7(2), M.K. ROAD, MUMBAI-400 020 / VS. M/S. SIYARAM SILK MILLS LTD., B-5, TRADE WORLD, KAMLA CITY, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400 013 ./ ./ PAN/GIR NO. : AAACS 6995D ( / APPELLANT ) .. ( / RESPONDENT ) / REVENUE BY: SHRI MANJUNATHA R. SWAMY / RESPONDENT BY: SHRI F.V. IRANI / DATE OF HEARING :28.09.2015 ! / DATE OF PRONOUNCEMENT :14.10.2015 '# / O R D E R PER N.K. BILLAIYA, AM: THESE TWO APPEALS BY THE REVENUE ARE PREFERRED AGAI NST TWO SEPARATE ORDERS OF THE LD. CIT(A)-13, MUMBAI DATED 22.10.2011 AND 7.1.2012 PERTAINING TO ASSESSMENT YEARS 2007-08 & 2 008-09 RESPECTIVELY. BOTH THESE APPEALS HAVE COMMON GRIEV ANCE, THEREFORE THEY WERE HEARD TOGETHER AND DISPOSED OF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. ITA. NO.1189 & 2263/M/2012 2 2. AT THE VERY OUTSET, REPRESENTATIVES OF BOTH SIDE S AGREED THAT FACTS IN ISSUES ARE IDENTICAL FOR BOTH THE YEARS TH EREFORE WE ARE CONSIDERING THE FACTS OF A.Y. 2007-08 IN ITA NO. 11 89/M/2012. 3. THE FIRST GRIEVANCE RELATES TO THE DELETION OF T HE DISALLOWANCE OF EXCESS RENT U/S. 40A(2)(B) OF THE ACT. 3.1. DURING THE COURSE OF THE SCRUTINY ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MAD E RENT PAYMENT TO PERSONS SPECIFIED U/S. 40A(2)(B) OF THE ACT. THE D ETAILS ARE AS UNDER: S. NO. NAME MOUNT IN LAKHS PREMISES 1. ASHADEVI R. PODDAR 4.41 KAMALA MILL COMPOUND 2. AVNISH PAWAN PODDAR 4.41 KAMALA MILL COMPOUND 3. RAJIV A. PODDAR 4.41 KAMALA MILL COMPOUND 4. TRIBENIDEVI M. PODDAR 4.41 KAMALA MILL COMPOUND 5. ANKIT P. PODDAR 4.41 KAMALA MILL COMPOUND 6. SHYAMLATA S. PODDAR 4.41 KAMALA MILL COMPOUND 3.2. THE AO FURTHER NOTICED THAT ALL THE PROPERTIES ARE IN BWING OF TRADE WORLD BUILDING, LOWER PAREL, MUMBAI HAVING AR EA OF 1225 SQ. FT EACH. THE AO FURTHER FOUND THAT RENT PAID TO M/ S. S.P. INVEST TRADE (INDIA) LTD IS ONLY RS. 1.47 LAKHS FOR SIMILAR PROP ERTY IN KAMLA MILL COMPOUND HAVING THE SAME AREA. ON RECEIVING NO SAT ISFACTORY EXPLANATION FOR THE DIFFERENTIAL PAYMENT OF RENT IN RESPECT OF PROPERTIES SITUATED IN THE SAME VICINITY, THE AO DI SALLOWED RS. 23.52 LAKHS U/S. 40A(2)(B) OF THE ACT. ITA. NO.1189 & 2263/M/2012 3 4. BEFORE THE LD. CIT(A), THE ASSESSEE STRONGLY CON TENDED THAT THE OFFICE OF M/S. S.P INVEST TRADE (INDIA) LTD WAS NOT IDENTICAL AND DID NOT HAVE THE PROPER SPACE UTILIZATION. IT WAS FUR THER BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT THE ASSESSEE HAS TAKE N INTEREST FREE DEPOSIT WHICH IT HAS NOT TAKEN FROM THE OTHER 8 LIC ENSOR. THEREFORE, THE COMPARISON OF THE OFFICE RENT IS NOT ON IDENTIC AL FACTS. STRONG RELIANCE WAS PLACED ON THE DECISION OF THE BOMBAY H IGH COURT IN THE CASE OF CIT VS INDO SAUDI SERVICES (TRAVEL) PVT. L TD. 310 ITR 306. 4.1. AFTER CONSIDERING THE FACTS AND THE DECISION O F THE HONBLE HIGH COURT, THE LD. CIT(A) WAS CONVINCED THAT THE DISALL OWANCE IS UNJUSTIFIED AND ACCORDINGLY DIRECTED THE AO TO DELE TE THE ADDITION OF RS. 23.52 LAKHS. 5. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY REL IED UPON THE FINDINGS OF THE AO. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. FOR THE DISALLOWANCE MADE U/S. 4 0A(2), THE CBDT HAS ISSUED A CIRCULAR 6-P WAY BACK IN JULY, 1968 W HEREIN THE CBDT HAS STATED THAT NO DISALLOWANCE IS TO BE MADE U/S. 40A(2) IN RESPECT OF THE PAYMENTS MADE TO THE RELATIVES AND SISTER CO NCERNS WHERE THERE IS NO ATTEMPT TO EVADE TAX. THIS CIRCULAR HA S BEEN CONSIDERED BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF INDO SAUDI SERVICES (TRAVEL) PVT. LTD (SUPRA). THE AO HAS SIM PLY DISALLOWED THE ITA. NO.1189 & 2263/M/2012 4 RENT STATING THAT FOR SIMILAR PROPERTIES THE ASSESS EE IS PAYING DIFFERENT RENT. HOWEVER, THERE IS NOT EVEN A WHISP ER OF ANY TAX EVASION. PROVISIONS OF SEC. 40A(2)(B) HAVE BEEN AP PLIED IN A MECHANICAL MANNER. DRAWING SUPPORT FROM THE DECISI ON OF THE HONBLE HIGH COURT OF BOMBAY (SUPRA) IN THE LIGHT O F THE CIRCULAR OF THE CBDT (SUPRA), WE DO NOT FIND ANY REASON TO INTE RFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1 IS ACCORD INGLY DISMISSED. 9. GROUND NO. 2 IS COMMON GROUND IN BOTH THE YEARS UNDER CONSIDERATION AND IT RELATES TO THE ALLOWANCE OF DE DUCTION U/S. 80IB OF THE ACT. 9.1. THE FACTS RELATING TO THIS GRIEVANCE ARE THAT THE ASSESSEE IS HAVING 6 DIVISIONS VIZ., FABRIC DIVISION, GARMENT D IVISION, YARN DIVISION, EXPORT DIVISION, FURNISHING DIVISION AND RETAIL DIVISION. THESE DIVISIONS ARE DISTINCTLY DIFFERENT FROM OTHER AND MANUFACTURING DIFFERENT PRODUCT. EACH DIVISION HAS ITS OWN MANUF ACTURING, TRADING AND MARKETING FACILITY AND THE BOOKS OF ACCOUNTS AR E MAINTAINED SEPARATELY. THE FOLLOWING CHART WILL GIVE A BIRDS EYE VIEW OF VARIOUS DIVISIONS AND THE CLAIM/ALLOWABILITY OF DEDUCTION U /S. 80IB. FABRIC MARKETING WEAVING WEAVING WEAVING WEAVING WEAVING HO MUMBAI TARAPUR H 3/2 TARAPUR D- 23 SAILY-I, SILVASSA SAILY-II SILVASSA SAILY-III SILVASSA NO 80IB NO 80IB NO 80IB 30% 80IB SINCE A.Y. 1998 - 99 30% 80IB SINCE A.Y. 2001 - 02 100% 80IB SINCE A.Y. 2003 - 04 GARMENTS 481/1-2, DABHEL, DAMAN 481/1-2 722, DABHEL, DAMAN 100% 80 IB SINCE A.Y. 2005-06 NO 80 IB ITA. NO.1189 & 2263/M/2012 5 FURNISHINGS EXPORT FURNISHINGS RETAIL MARKETING VISHAL FURNISHINGS MSD DIVISION NO 80IB NO 80IB NO 80IB YARN TARAPUR G-1, NO 80IB 10. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PR OCEEDINGS, THE AO AFTER SCRUTINIZING THE RELEVANT DETAILS FORMED A BELIEF THAT THE PERCENTAGE OF PROFIT OF 80IB UNITS IS MUCH HIGHER T HAN THE OVERALL PROFIT PERCENTAGE OF THE ASSESSEE. THE AO WAS OF T HE OPINION THAT THE ASSESSEE HAS INFLATED PROFIT OF THE 80IB UNIT BY TR ANSFERRING GOODS AT INFLATED RATES TO NON 80-IB UNITS. SECONDLY THE PR OFITS OF 80IB UNITS WERE INFLATED BY NOT CHARGING EXPENSES TO NON 80IB UNITS. THE AO ALSO NOTICED THAT THE ASSESSEE HAS NOT DEBITED INTE REST TO 80IB UNITS. CONSIDERING ALL THESE FACTORS IN TOTALITY, THE AO F INALLY CONCLUDED BY DENYING THE CLAIM OF DEDUCTION OF RS. 12.16 CRORES U/S. 80IB OF THE ACT. 11. THE MATTER WAS STRONGLY AGITATED BEFORE THE LD. CIT(A). IT WAS EXPLAINED THAT THE OVERALL BUSINESS OF THE ASSESSEE CONSISTS OF DIVERSE ACTIVITY WHICH ARE COMPLETELY DIFFERENT FROM EACH O THER AND OPERATE UNDER DIFFERENT CONDITIONS. THEREFORE, THE COMPARI SONS MADE BY THE AO ARE ERRONEOUS . IT WAS BROUGHT TO THE NOTICE O F THE LD. CIT(A) THAT THE AOS ALLEGATION THAT THE ASSESSEE HAS INFLATED ITS PROFITS OF THE 80- IB UNITS BY TRANSFERRING GOODS AT INFLATED PRICE TO NON 80-IB UNITS IS FACTUALLY INCORRECT. THE ASSESSEE SUBSTANTIATED IT S CLAIM BY FURNISHING THE FOLLOWING DETAILS/CHART: ITA. NO.1189 & 2263/M/2012 6 ARMS LENGTH TRANSACTION OF FABRIC MARKETING UNIT ( FMU):- FMU PROCURES FABRIC FROM INTERNAL UNITS AS WELL AS FROM THE MARKET TO MEET THE DEMAND. THE PRICES PAID FOR PURCHASES FROM INT ERNAL UNITS ARE MARKET DRIVEN. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, WE HAD ENCLOSED COPIES OF INVOICES SHOWING THE PRICES OF INTERNAL & EXTERNAL PROCUREMENT OF COMPARABLE PRODUCTS. THESE AMPLY DEMONSTRATE THE PARITY BETWEEN THESE PRICES & STRON GLY SUPPORT THE DOCTRINE OF ARMS LENGTH. THE AO HAS NOT CONSIDERE D THIS EVIDENCE AND HAS MADE NO MENTION OF THE SAME IN HIS ORDER. WE R EPRODUCE BELOW THE ANNEXURE SUBMITTED AT THE TIME OF ASSESSMENT. THE PROCUREMENT OF FABRICS AT MARKET DRIVEN, WHICH IS COMPARABLE EVEN WITH INTERNALLY PROCURED FABRICS. THIS IS EVIDENT FROM THE TABLE GIVEN BELOW: NAME OF THE PARTY INVOICE NO. & DATE FABRIC PROCURED RATE CHARGED /MTR ESHWAR SYNTHETICS 0705/06 DT. 16.3.07 SUITING MAGNETA 69.50 SILVASSA UNIT SSG 8230 DT. 23.3.07 SUITING BEAMER 70.35 BALAJI INDUSTRIES BO714 DT. 10.8.06 SHIRTING 32.67 SILVASSA UNIT SSG 1291 DT. 3.6.06 SHIRTING 32.06 12. IT WAS FURTHER BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT THE ELIGIBLE 80-IB UNIT MANUFACTURE GREY FABRICS AND I NTER-MEDIATE PRODUCTS WHICH DO NOT REQUIRE MARKETING AT ALL. 13. IN SO FAR AS NON-CHARGING OF INTEREST IS CONCER NED, IT WAS EXPLAINED THAT THE 80-IB ELIGIBLE UNIT REQUIRES FAR LESS WORKING CAPITAL. AFTER CONSIDERING THE FACTS AND THE SUBMI SSIONS, THE LD. CIT(A) WAS OF THE OPINION THAT THE PROFITABILITY OF THE ELIGIBLE UNIT HAS TO BE COMPARED WITH SIMILAR DIVISIONS (MANUFACTURIN G SIMILAR ITA. NO.1189 & 2263/M/2012 7 PRODUCTS/ACTIVITIES) AND NOT WITH OTHER UNITS AND B Y NO STRETCH OF IMAGINATION WITH THE OVERALL PROFIT OF THE WHOLE CO MPANY. 14. THE LD. CIT(A) FURTHER OBSERVED THE AO HAS ERRE D IN CONSOLIDATING THE OVERALL PROFITABILITY OF ALL UNIT S TOGETHER AND ALSO ERRED IN APPLYING THE AVERAGE PROFIT OF THE WHOLE C OMPANY TO ALL UNITS WITHOUT ANY ADVERSE MATERIAL ON RECORD. AFTER MAKI NG AN ELABORATE COMPARISON BETWEEN THE PROFITABILITY OF ELIGIBLE A ND NON ELIGIBLE 80- IB UNITS WHICH IS EXHIBITED AT PAGE-19 OF THE ORDER OF THE LD. CIT(A). THE LD. CIT(A) DELETED THE REDUCTION OF DEDUCTION U /S. 80IB OF THE ACT AND ALLOWED THE GRIEVANCE OF THE ASSESSEE. 15. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 16. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SU PPORTED THE FINDINGS OF THE AO. IT IS THE SAY OF THE LD. DR TH AT THE ASSESSEE IS SHOWING PROFIT OF 38% IN CASE OF ELIGIBLE 80-IB UNI T WHEREAS IN THE CASE OF NON-ELIGIBLE 890-IB UNIT, THE ASSESSEE IS S HOWING PROFIT @ 25%. 17. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE RE ITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES, STRONGLY RELYING UPON THE STATEMENT OF FACTS FURNISHED BEFORE THE FIRST APPEL LATE AUTHORITY. 18. HAVING HEARD THE RIVAL SUBMISSIONS, WE HAVE CAR EFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE S UM AND SUBSTANCE OF THE DISPUTE BETWEEN THE REVENUE AND THE ASSESSEE IS THAT THE ASSESSEE IS SHOWING HIGHER PROFIT IN ELIGIBLE 80-IB UNIT AND AT THE SAME TIME IT IS SHOWING LESSER PROFIT IN NON-ELIGIB LE 80-IB UNIT. HOWEVER, AFTER CONSIDERING THE FACTS IN TOTALITY, W E FIND THAT THE AO ITA. NO.1189 & 2263/M/2012 8 HAS BEEN CARRIED AWAY BY COMPARING THE PROFITABILIT Y OF THE ENTIRE COMPANY WITH THE PROFITABILITY OF THE ELIGIBLE 80IB UNIT. 18.1. IN SO FAR AS THE ALLEGATION OF EXPENSES BETWE EN VARIOUS UNITS IS CONCERNED, AN IDENTICAL DISPUTE WAS CONSIDERED BY T HE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 1995-96 AND 1997-987 IN ITA NOS. 6474/M/1998 AND 3866/M/2000. THE TRIBUNAL HAS GIVE N A FINDING THAT THESE UNITS DOES NOT REQUIRE ANY ADVERTISEMENT OR PUBLICITY AS THEY WERE MANUFACTURING GREY CLOTH WHICH WERE SOLD IN OPEN MARKET AND ALSO TO THE ASSESSEES OTHER UNITS WITHOUT ANY BRAND. THE TRIBUNAL FURTHER OBSERVED THAT SINCE THE GREY CLOTH DOES NOT HAVE ANY BRAND NAME, THE ASSESSEE DOES NOT REQUIRE ANY PUBLI CITY OR SALE PROMOTION. THE EXPENSES INCURRED THEREON COULD NOT BE ATTACHED TO THESE UNITS. THE TRIBUNAL FINALLY CONCLUDED BY HOL DING THAT SINCE THE GREY CLOTH WERE NOT REQUIRED TO BE SOLD IN OPEN MAR KET, IT IS NOT JUSTIFIED TO ATTRIBUTE ANY ADVERTISEMENT AND SALE P ROMOTION EXPENSES TOWARDS THESE MANUFACTURING UNITS. 18.2. A PERUSAL OF THE PAST HISTORY OF THE ASSESSEE SHOWS THAT NO DISALLOWANCE/DENIAL OF DEDUCTION U/S. 80IB OF THE A CT WAS MADE BY THE REVENUE SINCE ASSESSMENT YEAR 1999-2000 UP TO C URRENT YEAR EXCEPT FOR A.Y. 1997-98 AND 1998-99. THE DENIAL IN ASSESSMENT YEAR 1998-99 HAS BEEN ALLOWED BY THE TRIBUNAL IN ITA NO. 5249/M/02. 18.3. ANOTHER ALLEGATION OF THE AO IS THAT THE ASSE SSEE HAS SHOWN HIGHER PROFITABILITY IN ELIGIBLE 80-IB UNITS AS COM PARED TO NON 80-IB UNITS. THIS ALLEGATION ALSO DOES NOT HOLD ANY WATE R AND CAN BE WELL UNDERSTOOD FROM THE FOLLOWING CHART: ITA. NO.1189 & 2263/M/2012 9 GREY FABRICS MFG. UNITS. READYMADE GARMENTS UNITS. SAILY UNIT.I (ELIGIBLE 80IB) SAILY UNIT II (ELIGIBLE 80IB) SAILY UNIT III (ELIGIBLE 80IB) SAILY UNIT IV (NON- ELIGIBLE UNIT) DAMAN UNIT I (ELIGIBLE 80IB) DAMAN UNIT II (NON- ELIGIBLE UNIT) GP RATE YEAR 1994-95 - - - - - 24.55% 1995-96 - - - - - 33.07% 1996-97 - - - - - 31.98% 1997-98 26.04% - - - - 31.38% 1998-99 28.09% - - - - 35.57% 1999-00 28.96% - - - - 37.33% 2000-01 28.36% - - - - 37.25% 2001-02 24.67% 23.79% - - - 35.27% 2002-03 26.95% 27.07% 26.12% - - 33.89% 2003-04 22.80% 24.45% 23.95% - - 23.68% 2004-05 19.54 19.79% 19.46% 19.84% - 21.16% 2005-06 26.73% 26.73% 26.74% 26.61% 22.42% 21.19 % 2006-07 26.13% 26.20% 26.11% 26.45% 34.98% 33.56% 2007-08 24.75% 25.50% 25. 40% 25.59% 38.13% 34.81 % ITA. NO.1189 & 2263/M/2012 10 19. UNDER THESE FACTS AND CIRCUMSTANCES WITHOUT THE RE BEING ANY MATERIAL ON RECORD, WE DECLINE TO INTERFERE WITH TH E FINDINGS OF THE LD. CIT(A). GROUND NO. 2 IS ACCORDINGLY DISMISSED. 20. GROUND NO. 3 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION OF RS. 12.16 CRORES U/S. 80IB IGNORING THE FACT THAT TOTAL PROFI T OF 80IB UNITS AS PER FORM 10CCB IS RS. 26.69 AND SECTION 80IB ALL OWS FOR DEDUCTION OF PROFIT AND GAINS FROM GROSS TOTAL INCO ME AND SINCE THE GROSS TOTAL INCOME IS ONLY RS. 22.69 CRORE, SO THE PROFIT OF 80IB UNITS INCLUDED IN GROSS TOTAL INCOME CANNOT EXCEED RS. 22.69 CRORES. 21. THIS ALLEGATION OF THE REVENUE IS AGAINST THE F ACTS OF THE CASE BECAUSE FOR THE YEAR ENDING 31.3.2007, THE TOTAL IN COME AS PER THE COMPUTATION OF INCOME AT PAGE-8 OF THE PAPER BOOK I S RS. 22,69,29,102/- AND THE CLAIM OF DEDUCTION U/S. 80IB IS RS. 12,16,73,559/-. THUS THE CLAIM OF DEDUCTION IS LES S THAN THE TOTAL PROFIT FOR A.Y. 2007-08 AND SIMILARLY IN A.Y. 2008- 09 THE TOTAL INCOME IS AT RS. 6,48,06,681/- AND THE CLAIM OF DEDUCTION U/S. 80IB IS RS. 4,67,05,870/-. THEREFORE, THE ALLEGATION OF THE RE VENUE IS AGAINST THE FACTS OF THE CASE CALLING FOR NO INTERFERENCE WITH THE FINDINGS OF THE LD. CIT(A). 22. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH OCTOBER, 2015 SD/- SD/- (SANJAY GARG ) (N.K. BILLAIYA) $% ' /JUDICIAL MEMBER ' / ACCOUNTANT MEMBER & ' MUMBAI; (' DATED :14 TH OCTOBER, 2015 . % . ./ RJ , SR. PS ITA. NO.1189 & 2263/M/2012 11 !' #' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+, %%-. , -.! , & ' / DR, ITAT, MUMBAI 6. ,/0 1 / GUARD FILE. $ / BY ORDER, * % //TRUE COPY// % / $& ' (DY./ASSTT. REGISTRAR) , & ' / ITAT, MUMBAI