DIAMOND TOOL INDUSTRIES, MUMBAI V. DCIT 24(3), MUMBAI

ITA 255/MUM/2011

• Counselvise Citation: 25519914 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 16-09-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 11-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SALMAN KHAN
• Assessee Lawyers: HARI OM TULSIYA N
• Section: 80IB

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. . .. . . .. . , ,, , !'# !'# !'# !'# , ' ' ' ' BEFORE S/SH. I.P. BANSAL,JUDICIAL MEMBER & RAJENDRA ,ACCOUNTANT MEMBER /. ITA NO.255/MUM/2011 , $ $$ $ % % % % / ASSESSMENT YEAR-2006-07 DIAMOND TOOL INDUSTRIES 108, UDYOG BHAVAN, SONAWALA ROAD, GOREGAON (E) MUMBAI- 400063 VS. DCIT 24(3) C-11, PRATYAKSHAKAR BHAVAN, 7 TH FL, BANDRA KURLA COMPLEX, BANDRA(E) MUMBAI-400051 PAN:AAAFD4873A ( &' / APPELLANT) ( ()&' / RESPONDENT) &' &' &' &' * * * * ' '' ' / APPELLANT BY : SHRI HARIOM TULSIYAN ()&' + * ' / RESPONDENT BY : SHRI SALMAN KHAN $ $ $ $ + ++ + , , , , / DATE OF HEARING : 16-09-2013 -.% + , / DATE OF PRONOUNCEMENT : 20-09-2013 '/ / O R D E R PER RAJENDRA, AM FOLLOWING ARE THE GROUNDS OF APPEAL FILED BY THE AP PELLANT AGAINST THE ORDER DATED 30-11-2010 OF THE CIT(A)-34, MUMBAI FOR THE AY 2006-07: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AWS THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-34MUMBAI, IS ERRED IN CONFIRMING THE DISA LLOWANCE MADE BY THE A.O. ON ACCOUNT OF DEDUCTION U/S. 80IB OF THE ACT ON INTEREST AND SALES TAX INCE NTIVE RECEIVED BY THE APPELLANT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-34 MUMBAI, IS ERRED IN CONFIRMING THE ADD ITION MADE BY THE A.O. ON ACCOUNT OF 40A(2)(B) OF THE ACT, WITHOUT APPRECIATING THE FACTS OF THE CASE . 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR CHANGE ANY OR ALL GROUNDS OF APPEAL. ASSESSEE-FIRM,ENGAGED IN THE BUSINESS OF MANUFACTUR ING OF STONE-CUTTING TOOLS,FILED ITS RETURN OF INCOME ON 27.10.2006 DECLARING TOTAL INCOME OF RS. 50.12 LACS.ASSESSING OFFICER(AO) FINALISED THE ASSESSMENT ON 12.05.2008 DETERMINING THE INCOME OF THE ASSESSEE AT RS.70.53 LACS. 2. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT AS SESSEE HAD CLAIMED DEDUCTION U/S.80IB OF THE ACT UNDER THE HEAD SALES TAX INCENTIVES. HE FOUND THAT ASSESSEE WAS HAVING TWO UNITS AT GOA, THAT UNIT ONE STARTED PRODUCTION IN OCTOBER 1997 AND THE SECOND STARTED FROM MARCH 2003,THAT IT CLAIMED DEDUCTION U/S.80IB(4) ON THE PROFITS DERIVED FROM T HE UNIT @ 25% AND @ 100% FOR UNIT ONE AND TWO RESPECTIVELY. HE FURTHER FOUND THAT ASSESSEE HAD RE CEIVED INTEREST AMOUNTING TO RS. 41,108/- AND SALES TAX INCENTIVES OF RS.14,84,184/- IN RESPECT OF UNIT TWO FOR THE YEAR UNDER CONSIDERATION. AO CALLED FO R 2 ITA NO.255/MUM/2011 DIAMOND TOOL INDUSTRIES. . DETAILS FROM THE ASSESSEE IN THIS REGARD.AFTER CONS IDERING THE SAME, HE HELD THAT INTEREST RECEIVED BY THE ASSESSEE DID NOT HAVE ANY NEXUS WITH THE BUSINESS,T HAT INTEREST RECEIVED COULD NOT BE CONSIDERED AS INCOME DERIVED FROM THE BUSINESS OF THE ASSESSEE, T HAT SALES TAX INCENTIVES SCHEME WAS A BENEFIT GIVEN TO THE ASSESSEE BY THE STATE GOVERNMENT, THAT AMOUNT RECEIVED AS INCENTIVE COULD NOT BE TREATED INCOME DERIVED FROM THE BUSINESS OF THE ASSESSEE, THAT IT HAD NO DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. HE RELIED UPON THE ORDERS OF THE APEX COURT DELIVERED IN THE CASES OF STERLI NG FOODS (237 ITR 579) AND PANDIAN CHEMICALS LTD. (262 ITR 278). ACCORDINGLY, INTEREST RECEIVED AND SALES TAX INCENTIVES WERE NOT CONSIDERED INCOME DER IVED FROM THE BUSINESS FOR THE PURPOSE OF DEDUCTION U/S. 80IB. 3. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY(FAA).AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, HE HELD THAT THERE WAS NO MERIT IN THE ARGUMENTS/SUBMISSIONS MADE BY THE ASSESSEE, THAT THE ISSUE WAS COVERED AGAINST THE AS SESSEE BY THE DECISION OF THE HONBLE SUPREME COURT DELIVERED IN THE CASE OF LIBERTY INDIA (317 ITR 217 8), THAT THERE WAS NO LEGAL INFIRMITY IN THE ACTION OF THE AO IN RESTRICTING THE CLAIM OF DEDUCTION U/S. 8 0IB OF THE ACT. 4. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED THAT ASSESSEE WAS NOT INTERESTED IN PRESSING THE ISSUE OF INTEREST RECEIVED WITH REGARD TO 80IB DEDU CTION. HE FURTHER SUBMITTED THAT ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE MUMBAI TRIBUNAL.HE REFERRED TO ORDERS FOR THE AY 2005-06 (ITA NO. 136/MUM/2009) AND AY 2007-08 (ITA NO.2080/ MUM/2011). DEPARTMENTAL REPRESENTATIVE (DR)RELIED UPON THE ORDERS OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT SIMILAR ISSUE HAD ARISEN IN THE CASE OF THE ASSESSEE FOR AY 2005- 06. ALLOWING THE APPEAL OF THE ASSESSEE TRIBUNAL HELD AS UNDER: 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE HONBLE GAUHATI HIGH COURT IN THE CASE OF MEGHALAYA STEELS LTD.(SUPRA) AFTER CONSIDERING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LI BERTY INDIA (SUPRA) HAS HELD THAT CENTRAL EXCISE DUTY HAS A DIRECT NEXUS WITH THE MANUFACTURING ACTI VITY AND SIMILARLY THE REFUND OF THE CENTRAL EXCISE DUTY ALSO HAD A DIRECT NEXUS WITH THE MANUFA CTURING ACTIVITY. THE ISSUE OF PAYMENT OF CENTRAL EXCISE DUTY WOULD NOT ARISE IN THE ABSENCE OF ANY INDUSTRIAL ACTIVITY. IT WAS, ACCORDINGLY, HELD THAT THE REFUND OF EXCISE DUTY HAS TO BE TAKEN INTO ACCOUNT FOR PURPOSES OF SECTION 80IB. FOLLOWING THE RATIO OF THE SAID DECISION, WE ARE OF THE CONSIDERED OPINION THAT THERE IS AN INEXTRICABLE LINK BETWEEN THE MANUFACTURING ACTIVIT Y, THE PAYMENT OF SALES TAX AND THE SALES TAX INCENTIVE.THEREFORE, IN OUR OPINION,SUCH SALES TAX INCENTIVE WHICH HAS BEEN RETAINED BY THE ASSESSEE FROM THE SALES TAX COLLECTED HAS TO BE HELD AS DERI VED FROM THE INDUSTRIAL UNDERTAKING AND CONSEQUENTLY IS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. IN THIS VIEW OF THE MATTER, THE ORDER OF T HE ID. CIT(A) IS SET ASIDE AND THE A.O. IS DIRECTED NO T TO EXCLUDE THE SALES TAX INCENTIVE OF 12,94,109/- AND RS. 84,687/- FROM THE PROFIT OF UNIT-I AND UNIT -II RESPECTIVELY WHILE CALCULATING DEDUCTION U/S 8OIB OF THE ACT. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. WE FURTHER FOUND THAT FOR THE AY 2007-08 ALSO ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE.RESPECTFULLY FOLLOWING THE ORDER OF THE CO ORDINATE BENCHES,WE DECIDE GROUND NO. 1 IN FAVOUR OF THE ASSESSEE WITH REGARD TO SALES TAX INCENTIVES .AS FAR AS INTEREST INCOME IS CONCERNED SAME WAS NO T PRESSED BY THE ASSESSEE BEFORE US.THEREFORE,GROUND NO.1STANDS PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE . 6. NEXT GROUND OF APPEAL IS ABOUT ADDITION MADE BY THE AO ON ACCOUNT OF 40A(2)(B) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAD PAID COMMISSION OF SALES AMOUNTING TO RS. 53.47 LACS.ON VERIFYING THE DETAILS IT WAS NOTICED BY HIM THAT ASSESSEE WAS PAYING COMMISSION ON SALES AT DIFFERENT RATES TO DIFFERENT PARTIES, THAT IT HA D PAID COMMISSION @ 2.5% TO OTHER COMMISSION AGENTS , THAT IT HAD PAID COMMISSION @ 4.25% (RS.30.92 LACS) TO M/S. SHATUL COMMERCIAL COMPANY PVT. LTD.-A 3 ITA NO.255/MUM/2011 DIAMOND TOOL INDUSTRIES. . GROUP CONCERN.HE DIRECTED THE ASSESSEE TO SUBMIT A NOTE REGARDING EXCESS AMOUNT OF COMMISSION PAID TO THE SISTER CONCERN.AFTER CONSIDERING THE SUBMISS ION OF THE ASSESSEE,HE HELD THAT ASSESSEE COULD NOT SUBMIT DETAILS OF TECHNICAL SERVICES RENDERED BY TH E SISTER CONCERN, THAT PAYMENT OF EXCESSIVE AMOUNT OF COMMISSION WAS NOT JUSTIFIED,THAT NO COPY OF AGR EEMENT WITH THE OTHER COMMISSION AGENTS WERE FILED BY THE ASSESSEE TO SUBSTANTIATE THE CLAIM OF RENDERING OF SERVICES BY THEM.AFTER COMPARING THE COMMISSION PAID ON SALE TO OTHER PARTIES PAYMENT OF COMMISSION IN EXCESSIVE OF 2.5% PAID TO THE SISTER CONCERNED WAS CONSIDERED EXCESSIVE.AS A RESULT, HE DISALLOWED RS. 12.73 LACS AS EXCESSIVE PAYMENT BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B)OF THE ACT. 7. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. AFTER CONSIDERI NG THE SUBMISSION OF THE ASSESSEE, HE HELD THAT BECAUSE SERVICES CLAIMED TO HAVE BEEN REN DERED BY A SISTER CONCERNED WERE MORE THAN THOSE PROVIDED BY OTHER AGENTS WOULD NOT JUSTIFIED THE EN HANCEMENT OF PERCENTAGE OF COMMISSION.HE UPHELD THE ORDER OF THE AO. 8. BEFORE US,THE AR SUBMITTED THAT ISSUE WAS DECIDED A GAINST THE ASSESSEE BY THE TRIBUNAL IN THE EARLIER YEARS, THAT ASSESSEE HAD FILED AN APPEAL BEFORE THE HONBLE HIGH COURT OF MUMBAI IN THIS REGARD. DR RELIED UPON THE ORDERS OF THE FAA AND THE TRIBUNAL. WE FIND THAT WHILE DECIDING THE APPEAL FOR THE AY 2005-06 (SUPRA),TRIBUNAL HAS HELD AS UNDER: 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSIN G OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THE ONLY DISPUTE IN THE IMPUGNED GROUND IS REGARDING THE ALLOWABILITY OF TH E COMMISSION PAID TO M/S SHATUL COMMERCIAL CO. PVT. LTD. AT 3.75% OF THE TURNOVER AS AGAINST 2.5% IN TH E PRECEDING YEAR. THERE IS NO DISPUTE TO THE FACT T HAT M/S SHATUL COMMERCIAL CO. PVT. LTD. IS A RELATED PA RTY. IT IS THE CASE OF THE REVENUE THAT WHEN THE RA TE OF COMMISSION RANGES FROM I.5% TO 3% IN CASE OF UN-REL ATED PARTIES; HIGHER COMMISSION HAS BEEN GIVEN TO THE RELATED PARTY 3~75% WHICH IS EXCESSIVE. SINCE THE RELATED PARTY WAS GIVEN COMMISSION 2.5% IN THE PRECEDING ASSESSMENT YEAR, THEREFORE, THE A.O. ALLOWED THE COMMISSION UP TO 2.5% OF THE TURNOVER EFFECTED THROUGH THE RELATED PARTY AND DISALLOWED A N AMOUNT OF RS. 1157549/- U/S 40A(2) OF THE ACT. WE FIND THE ID. CIT(A) UPHELD TH.E ACTION OF THE A.O. ON THE GROUND THAT ANOTHER COMMISSION AGENT M/S SHA NTI UDYOG WHICH IS AN UN-RELATED PARTY WAS GIVEN COMMIS SION I.5% ON A TURNOVER OF RS. 852 LACS WHEREAS THE RATE OF COMMISSION PAID BY ASSESSEE COMPANY TO THE RELATED PARTY M/S SHATUL COMMERCIAL CO. PVT. LTD. 3.75% ON A TURNOVER OF RS. 869 LACS. SINCE T HE TURNOVER EFFECTED BY THE RELATED PARTY AS WELL A S THE UN-RELATED PARTY ARE ALMOST SAME, THEREFORE, THERE IS NO JUSTIFICATION IN GIVING HIGHER RATE OF COMMIS SION TO THE RELATED PARTY. IT IS THE SUBMISSION OF THE I D. COUNSEL FOR THE ASSESSEE THAT THE AREA OF OPERAT ION IN THE CASE OF M/S SHATUL COMMERCIAL CO. PVT. LTD. WAS ON ALL INDIA BASIS WHEREAS IN THE CASE OF UN-RELATED PARTIES, IT IS RESTRICTED TO PART OF AREA OF RAJAST HAN. THEREFORE COMPARISON CANNOT BE MADE WITH ALL I NDIA OPERATION AND RESTRICTED AREA OF OPERATION. WE DO N OT FIND MUCH FORCE IN THE ABOVE SUBMISSION OF THE I D. COUNSEL FOR THE ASSESSEE. THE ID. CIT(A) HAS ALREAD Y GIVEN A FINDING THAT THE QUANTUM OF SALES EFFECTE D THROUGH M/S SHANTI UDYOG WAS RS. 852 LACS AND THEY WERE PAID COMMISSION @ 1.5%. THE RELATED PARTY THROUGH WHOM THE SALES EFFECTED WAS RS. 869 LACS HA S BEEN PAID COMMISSION @ 3.75% COMMISSION. FROM THE ANALYSIS MADE BY THE A.O. IN THE BODY OF THE AS SESSMENT ORDER, WE FIND THE COMMISSION PAID TO UNRELATED PARTIES RANGES FROM 1.5% TO 3% WHEREAS CO MMISSION IN THE CASE OF RELATED PARTY IS 3.75%. EVEN ASSUMING THAT THE RELATED PARTY HAS RENDERED S OME EXTRA SERVICES SUCH AS GIVING MARKET INFORMATIO N FEEDBACK REGARDING CHANGING TRENDS AS WELL AS COMME RCIAL INFORMATION ETC. AND GIVING SERVICES ON ALL INDIA BASIS STILL SUCH HUGE INCREASE IN THE RATE OF COMMISSION APPEARS TO BE IN HIGHER SIDE. CONSIDERI NG THE TOTALITY OF THE FACTS OF THE CASE AND CONSIDERI NG THE FACT THAT THE COMMISSION TO UN-RELATED PARTI ES VARIES FROM 1.5 TO 3%, THEREFORE, PAYMENT OF COMMIS SION @ 3% TO THE RELATED PARTY AS AGAINST 2.5% ALLOWED BY THE A.O.,IN OUR OPINION, IS REASONABLE A ND WILL MEET THE ENDS OF JUSTICE.WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS A CCORDINGLY PARTY ALLOWED. WHILE DECIDING THE APPEAL FOR THE AY 2007-08,TRIBUN AL FOLLOWED THE ORDER FOR THE AY 2005-06. FOLLOWING THE ORDERS FOR THE ABOVE REFERRED TWO ASS ESSMENT YEARS, WE ALLOW THE APPEAL IN FAVOUR OF THE ASSESSEE, IN PART. 4 ITA NO.255/MUM/2011 DIAMOND TOOL INDUSTRIES. . AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED. 1 2 $1, 3 4 / 5, + !, 67. ORDER PRONOUNCED IN THE OP EN COURT ON 20 TH SEPTEMBER, 2013. '/ + -.% ' 8 , , , , 20 .2013 . + 9. SD/- SD/- ( . .. . . .. . , ,, , / I.P.BANSAL ) ( !'# !'# !'# !'# / RAJENDRA) / JUDICIAL MEMBER ' ' ' ' /ACCOUNTANT MEMBER / MUMBAI, :$ /DATE: 20.09 .2013 SK '/ '/ '/ '/ + ++ + (,; (,; (,; (,; <';%, <';%, <';%, <';%, / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / &' 2. RESPONDENT / ()&' 3. THE CONCERNED CIT(A)/ = > , 4. THE CONCERNED CIT / = > 5. DR D BENCH, ITAT, MUMBAI / ;?9 (,$ . , . . . 6. GUARD FILE/ 9 @ );, (, //TRUE COPY// '/$ / BY ORDER, A / 6 ! DY./ASST. REGISTRAR , /ITAT, MUMBAI