The Paragon Polymer products p. Ltd, Kottayam V. ACIt, Kottayam

ITA 246/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58223 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 06-04-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: V SATHYANARAYANAN
• Keywords: Difference of opinion; Change of opinion
• Section: 143(3); 80IB; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NO. 246/COCH/2010 ASSESSMENT YEAR:2004-05 THE PARAGON POLYMER PRODUCTS PVT. LTD., P.B. NO. 61, PARAGON BUILDINGS, KOTTAYAM. [PAN: AABCP 3052F] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOTTAYAM. (ASSESSEE-APPELLANT) (REVENUE-RES PONDENT) ASSESSEE BY SHRI V.SATHYANARAYANAN, CA REVENUE BY MS. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 21/11/2011 DATE OF PRONOUNCEMENT 20/01/2012 O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, KOCHI (CIT(A) FOR SHORT) DATED 19-02-2010 FOR THE ASSESSMENT YEAR (A.Y.) 2004-05, DISMISSING ITS APPE AL CONTESTING ITS ASSESSMENT UNDER SECTION 143(3) R.W.S 147 OF THE INCOME-TAX ACT, 196 1 ('THE ACT', HEREINAFTER) DATED 31-12- 2009. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE MA NUFACTURE AND PRODUCTION OF HAWAI CHAPPALS, WHICH ARE PRODUCED AT TWO UNITS LOCATED A T SALEM, TAMIL NADU AND HYDERABAD, ANDHRA PRADESH. OF THE TWO UNITS, THE SALEM UNIT I S AN ELIGIBLE UNDERTAKING UNDER SECTION 80IB OF THE ACT, EVEN THOUGH THEIR PRODUCTION IS SO LD, APART FROM THEIR RESPECTIVE LOCATIONS, FROM DIFFERENT OTHER PLACES, THROUGH A B RANCH NETWORK. FOR THE YEAR UNDER REFERENCE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30-10-2004, AND ITS ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 04-12- 2006. SUBSEQUENTLY, IT WAS OBSERVED I.T.A. NO. 246/COCH/2010 THE PARAGON POLYMER PRODUCTS P. LTD. VS. ACIT, KOTT AYAM 2 THAT THOUGH THE PROFIT AND LOSS ACCOUNT SHOWED THE SALE FIGURE IN RESPECT OF THE SALEM UNIT AT ` 1953.96 LAKHS, THE COMPUTATION OF DEDUCTION UNDER S ECTION 80IB BORE THE TURNOVER FIGURE IN RESPECT OF THE SAID UNIT AT ` 2185.25 LAKHS. THE SAID DEDUCTION, HAD THUS BEEN CLAIMED WITH REFERENCE TO AN INFLATED SALE FIGURE, AND THUS, WITH REFERENCE TO AN INFLATED PROFIT. NOTICE UNDER SECTION 148 WAS ISSUED ON 23.0 6.2008 IN VIEW OF THE SAID INCONSISTENCY, IN RESPONSE TO WHICH THE ASSESSEE FI LED A RETURN ON 10-09-2009, DECLARING AN INCOME OF ` 219.44 LAKHS, CLAIMING DEDUCTION U/S. 80IB AT ` 78,34,950/-, I.E., IN RESPECT OF SALEM UNIT, ADOPTING THE SALE FIGURE AS DONE ORI GINALLY ( ` 21,85,24,989/-). THE CONSOLIDATED ACCOUNTS SHOWING THE SALES OF THE SALE M UNIT AT ` 1953.96 LAKHS, THE DIFFERENCE WAS EXPLAINED BY THE ASSESSEE IN THE ENS UING PROCEEDINGS AS ON ACCOUNT OF THE FACT THAT A PART OF THE PRODUCTION OF THE ELIGIBLE SALEM UNIT WAS SOLD THROUGH THE BRANCHES, SO THAT THE CORRESPONDING TURNOVER STOOD REFLECTED IN THE BRANCH RETURNS. THE ENTIRE ACCOUNTS, I.E., INCLUDING OF THE BRANCH OFFICES, WH ICH WERE LOCATED AT BHIWADI, BHUBANESHWAR, KOLKATA AND VIJAYAWADA, ARE AUDITED, AND ALL THE OTHER FORMALITIES IN RESPECT OF THE CLAIM FOR DEDUCTION U/S. 80IB STAND COMPLIED WITH. A PART OF THE PRODUCTION OF BOTH THE PRODUCTION CENTRES IS TRANSFERRED TO TH E BRANCH OFFICES BY WAY OF STOCK TRANSFERS, SO THAT THEY BEAR NO SALE VALUE IN ITS R ESPECT, WHICH IS SUBSEQUENTLY EFFECTED AT THE PRICE ACTUALLY REALIZED AT THE TRANSFEREE OUTLE T. THERE IS NO PROMOTIONAL ACTIVITY OR VALUE ADDITION AT THE SAID BRANCHES, WHICH ACT ONLY AS SALE OUTLETS. FURTHER, THE ACCOUNTING PRACTICE, WHICH IS BEING FOLLOWED BY IT AS IN THE P AST, IS ONLY IN CONSONANCE WITH THE LEGAL REQUIREMENT WHICH PROVIDES FOR IT TO SHOW THE INTER -UNIT TRANSFERS AS A STOCK TRANSFER, AND THE SUBSEQUENT SALE AT THE BRANCH AS THE SALE OF TH E LOCATION WHERE THE TRANSACTION ACTUALLY MATURES. THE SAME HAS RESULTED IN A DIFFERENCE, TOW ARD EXPLAINING WHICH RECONCILIATION OF THE QUANTITY PRODUCED AT THE SALEM UNIT, AS WELL AS THE HYDERABAD UNIT, WITH REFERENCE TO THE QUANTITY SOLD, LOCATION WISE, AND ITS CONSIDERA TION, WAS FILED (ANN. I & II TO THE NOTES OF SUBMISSIONS). THE ASSESSING OFFICER (AO), HOWEVE R, WAS OF THE VIEW THAT THE ASSESSEE HAD CLAIMED EXCESS DEDUCTION UNDER SECTION 80IB, I. E., WITH REFERENCE TO THE SALES SHOWN IN EXCESS ( ` 231.29 LAKHS) FOR THE SALEM PLANT AND, ACCORDINGLY, RESTRICTED THE ASSESSEES CLAIM FOR DEDUCTION THEREUNDER TO ` 8,96,304/-, WITHDRAWING THE BALANCE OF ` 69,38,609/-. THE SAME WAS CONFIRMED IN APPEAL BY THE LD. CIT(A) FOR THE SAME REASON, I.E., THAT THE I.T.A. NO. 246/COCH/2010 THE PARAGON POLYMER PRODUCTS P. LTD. VS. ACIT, KOTT AYAM 3 TURNOVER AS PER THE OPERATING STATEMENT INCLUDES TH E SALES IN RESPECT OF BOTH THE SALEM AND HYDERABAD UNITS, WHILE IT IS ONLY THE FORMER WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB ON ITS PROFITS. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSEES FIRST OBJECTION IS BY WAY OF CHALLENGE TO THE RE-OPENING OF ITS ASSESSMENT IN-AS-MUCH AS THERE IS NO INFORMATION THAT HAS COME TO THE NOTICE OF TH E DEPARTMENT, SO THAT IT IS A CASE OF A MERE CHANGE OF OPINION, WHICH INVALIDATES ACTION UN DER SECTION 148 OF THE ACT. RELIANCE STANDS PLACED FOR THE PURPOSE ON THE DECISION IN TH E CASE OF CIT VS. KELVINATOR OF INDIA LTD., 256 ITR 1 (DELHI) (FB). THE CORRESPONDING GROUND (GROUND NO. 1) WAS NOT SERIOUSLY PRESSED AT THE TIME OF HEARING. IN FACT, WE FIND THAT SIMILAR GROUND HAD BEEN ASSUMED BEFORE THE FIRST APPELLATE AUTHORITY (VIDE GROUND NO. 1), AND WHO HAS ADJUDICATED THE SAME VIDE PARA 2 OF HIS ORDER. THE ASSESSEES CLAIM STANDS NEGATED ON THE BASIS THAT IT HAD FURNISHED WRONG INFORMATION ABOUT THE ELIGIBLE TURNOVER FOR CLAIMING DEDUCTION UNDER SECTION 80IB, SO THAT THE AO WAS WI THIN HIS RIGHT TO RE-OPEN THE ASSESSMENT BY THE ISSUE OF NOTICE UNDER SECTION 148 . THE ASSESSEE HAS NOT SHOWN US ANY INFIRMITY IN THE SAID FINDING. THOUGH WE MAY NOT T ERM IT AS `WRONG, THERE WAS WITHOUT DOUBT A CLEAR INCONSISTENCY BETWEEN THE TURNOVER OF THE SALEM UNIT AS PER THE CONSOLIDATED ACCOUNTS, AND THAT WITH REFERENCE TO W HICH THE DEDUCTION U/S. 80IB, WHICH IS ONLY IN RESPECT OF THE SAID UNIT, STOOD CLAIMED. FU RTHER, EXPLANATION 1 TO S. 147 CLEARLY PROVIDES THAT THE PRODUCTION OF ACCOUNT BOOKS OR OT HER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD HAVE BEEN DISCOVERED BY THE AO, WOUL D NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE SAID SECTION. THE RE-OPENING IN THE INSTANT CASE IS IN ANY CASE WITHIN A PERIOD OF FOUR YEARS (FROM THE EN D OF THE RELEVANT ASSESSMENT YEAR), SO THAT EVEN REFERENCE TO THE SAID PROVISION IS NOT TE CHNICALLY REQUIRED. THE VERY FACT THAT THE ASSESSEE WAS REQUIRED TO EXPLAIN THE VERACITY OF TH E TURNOVER FIGURE, I.E., AS ADOPTED IN ITS COMPUTATION OF DEDUCTION U/S. 80IB, REINFORCES THE REVENUES STAND IN THE MATTER. ALL THAT IS REQUIRED FOR AN ISSUE OF NOTICE UNDER SECTION 14 8 IS THE FORMATION OF A BELIEF BY THE AO ON THE BASIS OF MATERIAL IN HIS POSSESSION THAT THE RE HAS BEEN ESCAPEMENT FROM CHARGE TO TAX IN RESPECT OF INCOME LIABLE THERETO, AND WHICH STANDS EXPLAINED VIDE EXPLANATION 2 TO I.T.A. NO. 246/COCH/2010 THE PARAGON POLYMER PRODUCTS P. LTD. VS. ACIT, KOTT AYAM 4 S. 147 AS INCLUDING AN EXCESS ALLOWANCE UNDER THE A CT. THE ASSESSEE HAS NOT SHOWN ANY EXPRESSION OF OPINION IN THE MATTER IN THE FIRST AS SESSMENT AND, THEREFORE, ITS CLAIM OF THE SAME REPRESENTING A CHANGE OF OPINION WOULD BE OF N O MOMENT. THE ASSESSEE FAILS ON ITS FIRST GROUND. 4. THE SECOND AND THIRD GROUNDS CHALLENGE THE REDUC TION IN DEDUCTION U/S. 80IB, I.E., ON ITS MERITS. TOWARD THIS, WE FIND THE REVENUE TO HAVE NO CASE AT ALL. THE PRODUCTION AND THE SALE FIGURES, AS WELL AS THE LOCATION-WISE SALE PROFILE FILED BY THE ASSESSEE IN THE RE-ASSESSMENT PROCEEDINGS, IS NOT CHALLENGED OR DIS PUTED WITH REFERENCE TO ITS VERACITY. FURTHER, THE SAME IS IN ANY CASE IN AGREEMENT WITH THE BOOKS OF ACCOUNTS, AND DULY REPORTED TO THE REVENUE IN THE PRESCRIBED MANNER. THE ENTIRE OUTPUT OF THE SALEM UNIT, I.E., WHETHER SOLD AT SALEM OR AT ANY OTHER PLACE/B RANCH, WOULD FORM PART OF THE PROFITS OF THE ELIGIBLE BUSINESS AND, THUS, EXIGIBLE FOR DEDUC TION U/S. 80IB. IT IS NOT NECESSARY THAT THE PRODUCTION OF THE ELIGIBLE UNIT, TO QUALIFY FOR DEDUCTION UNDER THE SAID SECTION, IS TO BE SOLD AT THE PRODUCTION CENTRE ITSELF. FURTHER, SUCH OUT-STATION SALE WOULD, IN LAW, AS RIGHTLY CONTENDED BY THE ASSESSEE, CONSTITUTE THE SALE OF T HE LOCATION OF THE SALE; THE GOODS HAVING BEEN ACTUALLY SOLD ONLY THEREAT. THE LAW DOES NOT B IND, AND NEITHER COULD POSSIBLY, THE ASSESSEE TO CONDUCT HIS BUSINESS IN A PARTICULAR MA NNER. IT ONLY REQUIRES THE ASSESSEE TO REPORT THE PROFITS FROM ITS ELIGIBLE BUSINESS FULLY AND TRULY, MAINTAINING PROPER ACCOUNTS, WHICH WOULD ENABLE VERIFICATION OF ITS RETURNS/CLAI MS BY THE REVENUE, FURTHER OBLIGING THE ASSESSEE TO OBTAIN A REPORT QUA THE SAID PROFITS IN THE PRESCRIBED MANNER FROM A Q UALIFIED ACCOUNTANT, AND WHICH IS ONLY TOWARD LODGING AN IND EPENDENTLY VERIFIED AND AUTHENTICATED CLAIM, AND WHICH STANDS DULY COMPLIED WITH. IN THE INSTANT CASE, IT STANDS CLARIFIED BY THE ASSESSEE THAT OUT OF 6476988 UNITS PRODUCED AT SALEM, ONLY 5719448 UNITS HAVE BEEN ACTUALLY SOLD, SO THAT THE BALANCE 757540 UNITS STAND SOLD THROUGH DIFFERENT BRANCHES. IN FACT, AS THE PROFITS WOULD ARISE ONLY ON SALES, WITH THE UNSOLD PRODUCTION BEING RETAINED AT COST, WHILE THE SALES COULD ALSO INCLUDE GOODS CARRIED OVER BY WAY OF OPENING STOCK, THE ACTUAL SALE FOR THE CURRENT YEAR IS 815712 UNITS. ALSO, WE OBSERVE THAT THE AVERAGE SALE PRICE OF THE STOCK TRANSFERRED IS IN PARITY WITH THAT SOLD AT SALEM. IN FACT, THE SAME BEARING ADDITIONAL COST IN TERMS OF (SAY) FREIGHT, ADMINISTRATIVE COST, ETC., MAY I.T.A. NO. 246/COCH/2010 THE PARAGON POLYMER PRODUCTS P. LTD. VS. ACIT, KOTT AYAM 5 WELL HAVE BEEN SOLD AT A HIGHER RATE, WHICH IS OF C OURSE SUBJECT TO MARKET CONDITIONS/MARKET POLICY OF THE COMPANY; THE DEDUCT ION BEING RECKONED ONLY WITH REGARD TO THE NET PROFIT, I.E., AFTER DEDUCTION OF THE ENT IRE COSTS. IN FACT, THIS COMPRISES THE ASSESSEES ALTERNATE GRIEVANCE. THAT IS, THAT WHILE EXCLUDING THE ALLEGED INFLATED/EXCESS TURNOVER, THE REVENUE HAS ERRED IN NOT EXCLUDING TH E CORRESPONDING COST ALSO, AS IT ONLY THE NET MARGIN (WHICH IT CLAIMS TO BE AT 12% OF THE TURNOVER) WHICH IS INCLUDED IN THE GROSS TOTAL INCOME, AND COULD IN ANY CASE BE REDUCE D FROM THE ELIGIBLE PROFIT. THE ALTERNATE CLAIM IS PERFECTLY VALID, THOUGH BECOMES SUPERFLUOUS IN VIEW OF OUR ACCEPTING THE ASSESSEES CLAIM IN TOTO . ALSO, THE SAME, WHERE FOLLOWED, WOULD REQUIRE REM ISSION BACK TO THE FILE OF THE AO FOR COMPUTATION OF THE Q UANTUM; THERE BEING NO SPECIFIC FINDING THEREON BY THE AUTHORITIES BELOW. THE ASSESSEES C LAIM IS THUS UPHELD. FINALLY, IN VIEW OF OUR ACCEPTANCE AFORESAID, IT IS NOT DEEMED NECESSAR Y FOR US TO REFER TO ANY OF THE CASE LAW RELIED UPON BY THE ASSESSEE QUA THIS ISSUE, WHICH IT DOES BY CITING SOME DECISIONS BY THE TRIBUNAL; THE MATTER BEING IN ANY CASE BEING TOTALL Y FACTUAL. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 20TH JANUARY, 2012 GJ COPY TO: 1. THE PARAGON POLYMER PRODUCTS PVT. LTD., P.B. NO. 61, PARAGON BUILDINGS, KOTTAYAM. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1, KOTTAYAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, KOC HI 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE .