M/s Cummins Technologies India Private Limited, Dewas V. THE ACIT CIRCLE 1(1), Ujjain

ITA 231/IND/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 5771 (ITAT-INDORE)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 16-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M JAVED
• Assessee Lawyers: GIRISH AGARWAL
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCHE, INDORE BEFORE SHRI C.M. GARG, JUDICIAL MEMBER, AND SHRI O.P. MEENA, ACCOUNTANT MEMBER ITA NO.231/IND/2016 ASSESSMENT YEAR: 2008-09 M/S. CUMMINS TECHNOLOGIES INDIA PRIVATE LIMITED (FORMERLY CUMMINS TURBO TECHNOLOGIES) INDUSTRIAL ARIA NO.2 A.B. RAOD, DEWAS-455001 (MP) / VS. ACIT, CIRCLE-1(1) UJJAIN(MP) (APPELLANT) (REVENUE ) P.A. NO.AABCT2018B APPELLANT BY SHRI GIRISH AGARWAL, (AR) REVENUE BY SHRI M. JAVED (CIT-DR) DATE OF HEARING: 23.02.2017 DATE OF PRONOUNCEMENT: 15.03.2017 / O R D E R PER C.M. GARG, J.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS), U JJAIN (IN SHORT CIT), DATED 07.12.2015 PASSED IN FIRST APP EAL NO. U- 509/2011-12 U/S 143(3) OF THE ACT FOR THE A.Y. 2008 -09. THROUGH GROUNDS RAISED BY THE ASSESSEE READS AS FOL LOWS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING ADDITION OF RS.11,09, 892/- ON ACCOUNT OF SHORTAGE OF TURBOCHARGER. CUMMINS TECHNOLOGIES INDIA PVT. 2 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RS.2,65,731/- ON ACCOUNT OF SALES PROMOTION EXPENSES . 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF 12,12 7 ON ACCOUNT OF COMMUNITY AND SOCIAL EXPENSES. 3. BRIEFLY STATED OF THE FACTS GIVING RISE TO THIS APP EAL ARE THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANU FACTURE AND SALE OF TURBOCHARGERS WHICH ARE USED IN AUTOMOT IVE AND NON-AUTOMOTIVE APPLICATIONS AND BASICALLY INCREASE THE POWER OF ENGINE AND HELP IN ACHIEVING THE EURO/INDIAN POL LUTION CONTROL NORMS. ADMITTEDLY, DURING THE ASSESSMENT YE AR, UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN GP OF 32.13% ON THE SALES OF RS. 278.07 CRORES. 4. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER PASS ED U/S 143(3) OF THE INCOME TAX ACT, 1961, (IN SHORT THE ACT) MADE THREE ADDITIONS ON ACCOUNT OF SHORTAGE OF TURBO CHA RGERS, DISALLOWANCE OUT OF SALES PROMOTION EXPENSES AND DISALLOWANCE OUT OF COMMUNITY & SOCIAL EXPENSES. TH E ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), BUT THE FIRST APPEAL OF THE ASSESSEE WAS DISMISSED UPHOLDING ALL THE THREE SAID ADDITIONS. 5. NOW, THE ASSESSEE IS BEFORE THE TRIBUNAL IN THE SECOND APPEAL WITH THE GROUNDS AS REPRODUCED HEREINABOVE. GROUND NO.1: 6. WE HAVE HEARD BOTH THE PARTIES AND ALSO PERUSED THE RELEVANT MATERIAL PLACED ON THE RECORD OF THE TRIBU NAL, INTER ALIA, ASSESSMENT ORDER, IMPUGNED ORDER OF THE LD. CIT(A) AND CUMMINS TECHNOLOGIES INDIA PVT. 3 ASSESSEES PAPER BOOK SPREAD OVER 220 PAGES INCLUDI NG WRITTEN SYNOPSIS OF THE ASSESSEE. THE LD. ASSESSEES REPRES ENTATIVE (AR) SUBMITTED THAT THE ACCOUNTS OF THE ASSESSEE WE RE DULY AUDITED AND NO DEFECT WAS FOUND BY THE TAX AUTHORIT IES THEREIN AND IN THE TAX AUDIT REPORT CLOSING STOCK FIGURE OF TURBO CHARGERS WAS REJECTED AFTER ADJUSTING FOR SHORTAGE/SAMPLES/RETURN OF 471 NOS. OF TURBO CHARGE RS. HE FURTHER SUBMITTED THAT THE ASSESSEE COMPANY DISTRIB UTED FREE OF CHARGE TO ITS CLIENTS/DEALERS 68 NOS. OF TURBO C HARGERS AND 403 NOS. OF TURBO CHARGERS WERE REJECTED AFTER QUAL ITY CHECK(QC). THE LD. AR FURTHER POINTED OUT THAT IN A .Y. 2004- 05 THE ADDITION WAS MADE BY THE ASSESSING OFFICER O N ACCOUNT OF SHORTAGE OF TURBO CHARGERS WHICH WAS PARTIALLY D ELETED BY THE LD. CIT(A) WHEREIN SHORTAGE OF 82 NOS. OF TURBO CHARGERS WAS ALLOWED WHICH WAS 0.07% OF THE TOTAL QUANTITATI VE SALES OF THAT YEAR. THE LD.AR FURTHER POINTED OUT THAT FRO M THE ORDER OF LD. CIT(A) FOR A.Y. 2004-05, IT WAS CONCLUDED TH AT THE SHORTAGE OF 82 CHARGERS WHICH IS A SMALL FRACTION O F TOTAL PRODUCTION AND THE ASSESSEE HAS FILED COMPLETE DETA ILS OF SCRAP ACCOUNT AND REJECTION REPORT OF TURBO CHARGERS FOR ACCOUNTING PERIOD F.Y. 2003-04. THE LD. AR FURTHER POINTED OUT THAT THE SHORTAGE OF 0.07% OF TOTAL PRODUCTION HAS BEEN ACCE PTED BY THE DEPARTMENT WHEREAS IN THE YEAR UNDER CONSIDERATION I.E. 2008- 09,.THE SHORTAGE OF 471 TURBO CHARGERS WAS 0.13% WH ICH IS LITTLE HIGHER IN COMPARISON TO A.Y. 2004-05 BUT DIS TRIBUTION OF SUCH FREE PRODUCTS/SAMPLES OF 68 TURBO CHARGERS TO THE DEALERS AND INTENDED CLIENTS IS OUT OF BUSINESS EXP EDIENCY WITH EXTENSION TO PROMOTE SALES OF THE ASSESSEE AND FOR THE CUMMINS TECHNOLOGIES INDIA PVT. 4 PURPOSE OF BUSINESS OF THE ASSESSEE, THEREFORE, IT CANNOT BE REJECTED. THE LD. AR FURTHER SUBMITTED THAT THE RET URN DURING THE MANUFACTURING PROCESS OF 103 TURBO CHARGERS HAS BEEN REPORTED IN THE SCRAP SALES UNDER THE PROFIT AND LO SS ACCOUNT. HE DREW OUR ATTENTION TOWARDS PAGE 24 OF LD. CIT(A) S ORDER PARA 3.1.7 AND PAGE NO.197 OF THE ASSESSEES PAPER BOOK WHEREIN SALE OF SCRAP OF RS.25,35,198/- HAS BEEN RE CORDED. 7. THE LD. AR FURTHER SUBMITTED THAT A DETAILED STOCK FREE SAMPLE OF 68 NOS. OF TURBO CHARGERS HAS BEEN PLACED THEREIN, INVOICE NO. DATE WISE AND NAME OF CUSTOMERS BEFORE THE AUTHORITIES BELOW AND FOR REMAINING 403 NOS. OF TUR BO CHARGERS, IT WAS EXPLAINED BEFORE THE ASSESSING OFF ICER THAT THESE WERE REJECTED DURING THE MANUFACTURING PROCES S FOR THE REASON OF QUALITY CONTROL AND REJECTED QUANTITY WAS SOLD AS SCRAP. THE LD. AR FURTHER DREW OUR ATTENTION TOWARD S PAPER BOOK PAGES 27 TO 155 AND ORDER OF LD. CIT(A) PAGE N O.11 PARA 6 (III) ALONG WITH PAGE NO. 197 OF THE ASSESSEES P APER BOOK TO SHOW THAT MONTH-WISE SCRAP SALES REPORT WAS SUBMITT ED ALONG WITH THE SCRAP SALE WHICH AMOUNTED TO RS. 25,17,438 /- AND THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY ALLEGATION, MATERIAL OR EVIDENCES TO SHOW THAT SCRAP SALES MADE BY THE ASSESSEE ARE OUT OF BOOK SALES. THE LD. AR SUBMITTE D THAT ITAT INDORE BENCH ON THE ISSUE OF SHORTAGE OF TURBO CHAR GERS IN ASSESSEES OWN CASE FOR A.YS. 2005-06 & 2006-07 ORD ER DATED 22.03.2013, AFTER CONSIDERING SUBMISSIONS OF THE AS SESSEE, HAS ALLOWED 0.08% SHORTAGE FOR A.YS. 2005-06 & 0.09 % SHORTAGE FOR A.Y. 2006-07 AND APPEAL OF THE ASSESSE E AGAINST THIS ORDER IS PENDING BEFORE THE HONBLE HIGH COURT OF M.P. THE CUMMINS TECHNOLOGIES INDIA PVT. 5 LD. AR SUBMITTED THAT CONSIDERING THE FACTS ON RECO RD, DETAILED SUBMISSIONS WITH CORROBORATIVE DOCUMENTARY EVIDENCE AND JUDICIAL PRUDENCE, THE ADDITION MADE BY THE ASSESSI NG OFFICER AND SUSTAINED BY THE LD. CIT(A) OUGHT TO BE DELETED . 8. REPLYING TO THE ABOVE THE LD. DR STRONGLY SUPPORTE D THE ACTION OF THE ASSESSING OFFICER AS WELL AS FIRST AP PELLATE ORDER WHICH UPHELD THE ADDITION PERTAINING TO SHORTAGE OF TURBO CHARGERS OF 0.13% OF TOTAL PRODUCTION. THE LD. DR F AIRLY ACCEPTED THAT ITAT, INDORE, BENCH IN ASSESSSEES OW N CASE BY ORDER DATED 22.03.2013(SUPRA) HAS ALLOWED SHORTAGE TO THE EXTENT OF 0.08% AND 0.09% FOR A.YS. 2005-06 & 2006- 07, RESPECTIVELY. 9. ON CAREFUL CONSIDERATION OF ABOVE NOTED RIVAL SUBM ISSION, AT THE VERY OUTSET, FROM THE RELEVANT PARA 4 OF THE AS SESSMENT ORDER, WE OBSERVE THAT THE ASSESSING OFFICER NOTED THAT AS PER HISTORY OF PRECEDING YEARS THE SHORTAGE ONLY TO THE EXTENT OF RS.0.07% IS ALLOWABLE. THE ASSESSING OFFICER FURTHE R OBSERVED THAT EVEN THE QUERY WAS RAISED AS TO HOW SUBSTANTIA TE THIS CLAIM. THE ASSESSEE HAVE NOT BROUGHT ON RECORD, TIL L THE CONCLUSION TO THE PRECEDING, ANY NEXUS BETWEEN THE SCRAP SALE AND SHORTAGE AND CLAIM AND ASSESSEE COULD NOT BE SUBSTANTIATED SATISFACTORILY IN THIS REPLY. WITH TH ESE OBSERVATIONS, THE ASSESSING OFFICER ALLOWED SHORTAG E OF 0.07% AND THE BALANCE SHORTAGE OF 0.06% I.E. 217 NOS. OF TURBO CHARGERS WAS ADDED TO THE RETURNED INCOME FURTHER F ROM THE RELEVANT IN OPERATIVE PART OF THE FIRST APPELLATE O RDER ON THIS ISSUE AT PARA 4.1. WE OBSERVED THAT THE LD. CIT(A) FOLLOWING THE ORDER OF ITAT DATED 22.03.2013 FOR A.YS. 2005-06 & 2006- CUMMINS TECHNOLOGIES INDIA PVT. 6 07(SUPRA) ALLOWED SHORTAGE TO THE EXTENT OF 0.08% A ND BALANCE ADDITION OF 0.05% WAS CONFIRMED GRANTING PART RELIE F TO THE ASSESSEE. 10. ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS OF BOTH THE SIDES AND ORDERS OF AUTHORITIES BELOW FOR A.Y. 2008-09, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFIC ER ALLOWED 0.07% SHORTAGE FOLLOWING THE ROLE OF CONSISTENCY IN THE LINE OF A.Y. 2004-05 AND FOLLOWING THE ORDER OF ITAT FOR A. YS. 2005-06 & 2006-07. THE FIRST APPELLATE AUTHORITY FURTHER GR ANTED PART RELIEF AND ALLOWED THE SHORTAGE TO THE EXTENT OF 0. 08%, AT THE SAME TIME WE OBSERVED THAT FOR A.Y. 2006-07 THE TRI BUNAL ALLOWED SHORTAGE OF 0.09% WHICH WAS ALSO NOTED BY T HE LD. CIT(A), HOWEVER, HE FOLLOWED THE ALLOWED SHORTAGE O F A.Y. 2005- 06 FOR THE YEAR UNDER CONSIDERATION ALSO. 11. IN THE LIGHT OF THE EARLIER DECISION OF ITAT FOR T HE PRECEDING ASSESSMENT YEARS, WHEN WE ANALYSE THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE THEN WE FIND THAT THERE IS NO DISPUTE REGARDING THIS FACT THAT FREE DISTRIBUTION OF CHARGERS AS SAMPLE IS FOR MARKETING PURPOSE WHICH IS FOR THE PU RPOSE OF BUSINESS ONLY AND SO FAR AS SHORTAGE ON ACCOUNT OF REJECTION UNDER QC IS HEARD. IT IS ALSO OBVIOUS THAT WHEN A C OMPANY IS MANUFACTURING TURBO CHARGERS WHICH INCREASED THE PO WER OF ENGINES AND HELPS ACHIEVING INTERNATIONAL AND NATIO NAL POLLUTION CONTROL NORMS FOR AUTOMOTIVE AND NON-AUTO MOTIVE MANUFACTURING SECTOR. HOWEVER, THE INCREASE OF SHOR TAGE PROVOKED THE ASSESSING OFFICER FOR MAKING PART ADDI TION AND THE LD. CIT(A) ALSO TOOK A BALANCED APPROACH BY FOL LOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR TH E PRECEDING CUMMINS TECHNOLOGIES INDIA PVT. 7 ASSESSMENT YEARS. IN VIEW OF ABOVE NOTED CONCLUSION , WE INCLINE TO HOLD THAT THE CAUSE OF SHORTAGE IS INEXT RICABLY LINKED WITH THE MARKETING AND SALES PROMOTION PURPOSES AND ALSO FOR MAINTAINING QUALITY CONTROL WHICH HAS BEEN DONE BY THE ASSESSEE FOR ITS BUSINESS PURPOSES AND REASONABLE S HORTAGE ON THESE ACCOUNTS CANNOT BE DISALLOWED. HOWEVER, IT IS PECULIAR INSTANCE OF A.Y. 2008-09 THAT THE SHORTAGE WAS INCR EASED TO 0.13% OF TOTAL PRODUCTION WHICH PROVOKED THE AUTHOR ITIES BELOW FOR MAKING DISALLOWANCE IS AND PART ADDITION ON THIS COUNT. FINALLY, AT THE LEVEL OF FIRST APPELLATE AUT HORITY I.E. LD. CIT(A) THE SHORTAGE OF 0.08% HAS BEEN ALLOWED WHERE BY THE TRIBUNAL HAS ALREADY ALLOWED 0.09% SHORTAGE FOR A.Y . 2006-07 AND RESPECTFULLY FOLLOWING THE SAME CONCLUSION, WE DIRECT THE ASSESSING OFFICER TO ALLOW 0.09% SHORTAGE OF TOTAL PRODUCTION FOR A.Y. 2008-09 ALSO. CONSEQUENTLY, ASSESSEE GETS PART RELIEF AND GROUND NO.1 OF THE ASSESSEE IS PARTLY ALLOWED I N THE MANNER AS INDICATED ABOVE. GROUND NO.2 12. APROPOS GROUND NO.2 OF THE ASSESSEE WE HAVE CAREFULLY CONSIDERED RIVAL ARGUMENTS AND CAREFULLY PERUSED TH E RECORD. THE LD. AR SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.2,65,731/- ON ACCOUNT OF SALES PROMOTION EXPENSES BY IGNORING THE FACT THAT ASSESS EE HAD PAID FRINGE BENEFIT TAX (FBT) ON SALES PROMOTION, I NCLUDING PUBLICITY IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE LD. AR VEHEMENTLY POINTED OUT THAT THE ASSESSING OFFICE R MADE AD HOC DISALLOWANCE OF A SUM OF 20% OF TOTAL EXPENSES DESPITE THE FACT THAT ALL RELEVANT VOUCHERS AND BILLS WERE EXAM INED BY HIM CUMMINS TECHNOLOGIES INDIA PVT. 8 ON TEST CHECK BASIS AND NO INFIRMITY HAS BEEN POINT ED OUT BY THE ASSESSING OFFICER THEREIN. THE LD. AR FURTHER C ONTENDED THAT LD. CIT(A) RESTRICTED THE DISALLOWANCE TO THE TUNE OF 10% WITHOUT BRINGING ANY MATERIAL ON RECORD AND WITHOUT FINDING ANY DISCREPANCY OR ANY OTHER DEFECT IN THE CLAIM OF THE ASSESSEE, THEREFORE, IMPUGNED ADDITION MADE KINDLY BE DELETED. 13. REPLYING THE ABOVE THE LD. DR SUPPORTED THE ACTION OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE O NLY OFFERED FBT OF 20%, THEREFORE, THE ASSESSING OFFICER WAS QU ITE JUSTIFIED IN MAKING DISALLOWANCE OF 20% OF BALANCE EXPENDITUR E. THE LD. DR FURTHER SUBMITTED THAT DURING THE FIRST APPE LLATE PROCEEDINGS AFTER CONSIDERING SUBMISSION OF THE ASS ESSEE THE LD. CIT(A) GRANTED PART RELIEF TO THE ASSESSEE AND UPHELD THE 10% OF ADDITION, THEREFORE, THERE COULD BE NO GRIEV ANCE OF THE ASSESSEE IN THIS REGARD. ON CAREFUL CONSIDERATION O F OUR SUBMISSIONS, WE OBSERVE THAT UNDISPUTEDLY THE ASSES SEE HAS PAID FBT OF RS.89,548/- ON ACCOUNT OF TOTAL EXPENSE S INCURRED BY THE ASSESSEE ON SALES PROMOTION EXPENSES. THE AS SESSING OFFICER MADE 20% DISALLOWANCE WHICH WAS REDUCED TO 10% BY THE LD. CIT(A) BUT NO DEFECT OR ANY OTHER DISCREPAN CY HAS BEEN POINTED OUT BY THE AUTHORITIES BELOW IN THE CLAIM O F THE ASSESSEE AND NO ADVERSE MATERIAL, ALLEGATION OR EVI DENCE HAS BROUGHT ON RECORD TO MAKE ADDITION OR TO SUSTAIN PA RT ADDITION. WE ALSO OBSERVE THAT THE ASSESSEE SUBMITT ED ALL THE RELEVANT BILLS AND VOUCHERS BEFORE THE AUTHORITIES BELOW WHICH WERE EXAMINED BY THEM ON TEST CHECK BASIS AND WITHO UT ANY POINTING OUT ANY DEFECT OR DISCREPANCY THEREIN THE ASSESSING CUMMINS TECHNOLOGIES INDIA PVT. 9 OFFICER PROCEEDED TO MAKE AD HOC DISALLOWANCE WHICH WAS REDUCED BY THE LD. CIT(A) TO 10% THAT TOO WITHOUT A NY BASIS. 14. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPI NION THAT AD HOC ADDITION AS MADE BY THE ASSESSING OFFICER WH ICH HAS BEEN PARTLY UPHELD BY THE LD. CIT(A) WITHOUT ANY RE ASONABLE CAUSE AND JUSTIFIED BASIS, THEREFORE, THE SAME CANN OT BE HELD AS SUSTAINABLE AND HENCE WE DISMISSED THE SAME. ACC ORDINGLY GROUND NO.2 OF ASSESSEE IS ALLOWED. GROUND NO.3 15. ON SPECIFIC QUERY FROM THE BENCH THE LD. AR FAIRLY SUBMITTED THAT ASSESSEE IS NOT SERIOUS TO PRESS GRO UND NO.3 HOWEVER, THE ASSESSEE IS NOT LEAVING HIS RIGHT AGIT ATING THE SAME, IF REQUIRED, IN OTHER ASSESSMENT YEARS ON THE SIMILAR IDENTICAL ISSUE. GROUND NO.3 OF THE ASSESSEE IS DIS MISSED AS NOT PRESSED WITH A DIRECTION THAT THE DISMISSAL OF GROUND NO.3 WOULD NOT PREVENT OR DEBAR THE ASSESSEE FOR AGITATI NG THE SAME IN OTHER ASSESSMENT YEARS, IF REQUIRED, AS PER FACT S AND CIRCUMSTANCES OF THAT YEAR. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 15.03.201 7. SD/- (O.P. MEENA) SD/- (C.M. GARG) /ACCOUNTANT MEMBER / JUDICIAL MEMBER INDORE; DATED :15/03/2017 PATEL, P.S/. . .