ACIT, Ludhiana V. M/s Jagraon Cycle Industries, Ludhiana

ITA 274/CHANDI/2012

• Counselvise Citation: 27421514 RSA 2012
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-06-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 29-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILESH GUPTA
• Assessee Lawyers: SUDHIR SEHGAL
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.274/CHD/2012 (ASSESSMENT YEAR : 2001-02) THE A.C.I.T., VS. JAGRAON CYCLE INDUSTRIES, CIRCLE 1, D-115, FOCAL POINT, LUDHIANA. LUDHIANA. PAN: AAAFJ8574H AND C.O.NO.15/CHD/2012 ARISING OUT OF ITA NO.274/CHD/2012 (ASSESSMENT YEAR : 2001-02) JAGRAON CYCLE INDUSTRIES, VS. THE A.C.I.T. D-115, FOCAL POINT, CIRCLE 1, LUDHIANA. LUDHIANA. PAN: AAAFJ8574H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUDHIR SEHGAL DEPARTMENT BY : SHRI AKHILESH GUPTA, DR DATE OF HEARING : 07.06.2012 DATE OF PRONOUNCEMENT : 22.06.2012 O R D E R PER SUSHMA CHOW LA, J.M, : THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, LUDHIANA DAT ED 13.12.2011 RELATING TO ASSESSMENT YEAR 2001-2002 AGAINST THE O RDER PASSED U/S 143(3) R.W.S. 254 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE HAS FILED CROSS OBJECTIONS AGAINST THE APP EAL FILED BY THE REVENUE. 2 2. THE APPEAL OF THE REVENUE AND THE CROSS OBJECTIO N FILED BY THE ASSESSEE ON THE SIMILAR ISSUE WERE HEARD TOGETHER A ND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONV ENIENCE. 3. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN I TA NO.274/CHD/2012 ARE AS UNDER: 1. THAT THE LD. CIT(A HAS ERRED IN LAW AND ON FACT S IN DIRECTING THE A.O. TO CALCULATE PROFIT ON SALE O F SCRAP BY APPLYING UNITARY METHOD BY IGNORING THE FACT THAT SCRAP IS GENERATED AS PART OF THE PRODUCTION PROCESS AND WAS A WASTE PRODUCT TO WHICH NO COST COULD BE ATTRIBUTED AND HENCE ANY RECEIPT ON SALE OF SCRAP WOULD BE THE PROFIT OF THE BUSINESS OF THE ASSESSEE. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSM ENT IN THE CASE WAS COMPLETED BY THE ASSESSING OFFICER ON 23.2.2004 AT TAXABLE INCOME OF RS.30,72,982, AS AGAINST THE RETURN OF INCOME FILED BY THE ASSESSEE AT RS.14,77,040/-. THE TRIBUNAL HAD SET ASIDE THE CAS E TO THE FILE OF THE ASSESSING OFFICER AND THE ASSESSING OFFICER REASSES SED THE INCOME AT RS.47,40,202 VIDE ORDER DATED 20.12.2007. 5. IN THE SECOND ROUND OF APPEAL BEFORE THE TRIBUNA L THE MATTER WAS SET ASIDE FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT WITH RESPECT TO SCRAP SALE, VIDE ORDER DATED 29.4.2 009. THE ASSESSING OFFICER WAS DIRECTED TO FOLLOW THE RATIO LAID DOWN IN M/S FLEXFIT INDUSTRIES VS. ACIT (ITA NO.142/CHD/2008) ORDER DAT ED 31.10.2008 WHEREIN IT WAS HELD THAT ONLY THE PROFIT EMBEDDED I N THE AMOUNT OF SCRAP SALES ALONE IS REQUIRED TO BE REDUCED FROM THE FIGU RE OF PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UND ER SECTION 80HHC OF THE ACT. IN THE SECOND ROUND OF PROCEEDINGS, SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AND REPLY OF THE ASSESSEE IS INCORPORATED AT PAGES 3 2 TO 4 OF THE ASSESSMENT ORDER. THE OBSERVATIONS O F THE ASSESSING OFFICER ARE AT PAGE 5 OF THE ORDER AND THE ASSESSIN G OFFICER CONCLUDED THAT NO EXPENDITURE WAS INCURRED ON GENERATION OF S CRAP AND THE DEDUCTION UNDER SECTION 80HHC OF THE ACT WAS RECOMP UTED BY REDUCING THE TOTAL SALE VALUE OF SCRAP AS PROFIT ON SALE OF SCRAP AT RS.67,39,197/-. THE CIT (APPEALS) ON DELIBERATING UPON THE SUBMISSI ONS MADE BY THE ASSESSEE THAT THE GENERATION OF SCRAP DEFINITELY IN VOLVED EXPENDITURE HELD AS UNDER: 6. I HAVE CONSIDERED THE FACTS OF THE CASE AND IT APPEARS THAT THE ASSESSING OFFICER IN WORKING OUT THE PROFIT ELEMENT EMBEDDED IN THE SCRAP SALES HAS TREATED THE ENTIRE AMOUNT AS PROFITS WHIC H WOULD MEANS THAT THE GENERATION OF SCRAP IS AN ACTIVITY LEADING TO 1 00% PROFITS AS AGAINST NORMAL 10% TO 15% PROFITS ON THE PRODUCTION OF FINI SHED OUT PUT OF THE ENTERPRISE. THE AO HAS REJECTED THE ARGUMENTS OF TH E ASSESSEE THAT THE GENERATION OF SCRAP WAS IN FACT AN INDICATOR OF INE FFICIENCY OF THE PRODUCTION PROCESS. I AM OF THE VIEW THAT LEVEL OF SCRAP GENER ATED BY ANY PRODUCTION PROCESS DETERMINES THE OVERALL PROFITABILITY OF THE ENTERPRISE WHICH MEANS THAT THE HIGHER THE SCRAP LOWERS WOULD BE PRO FITABILITY AND VICE- A-VERSA. IT THEREFORE FOLLOWS THAT IT WOULD ALWAYS BE EFFORT OF THE ORGANIZATION TO KEEP THE GENERATION OF SCRAP AT THE LOWEST POSSIBLE LEVEL AND IF THE ARGUMENT OF THE AO THAT GENERATION OF SC RAP IS 100% PROFITS IS ACCEPTED, THEN EVERY ENTERPRISE WOULD STRIKE TO MAX IMIZE THE GENERATION OF SCRAP WHICH IS NOT THE CASE. IN THE CIRCUMSTANCES T HE ARGUMENTS OF THE AR THAT UNITARY METHOD MAY BE ADOPTED SEEMS LOGICAL . THEREFORE,- THOUGH THERE COULD NOT BE ANY SCIENTIFIC JUSTIFICAT ION FOR COMPUTING PROFITS ON SALE OF SCRAP BY APPLYING UNITARY METHOD , KEEPING IN VIEW THE PROPOSITION THAT THE PROFIT EARNED BY AN ASSESS EE ON ACTIVITY OTHER THAN THE MAIN ACTIVITY WOULD BE LESS THAN OR AT THE MOST EQUAL TO THE PROFIT EARNED FROM THE MAIN ACTIVITY, THE PROFIT WO RKED OUT BY THE UNITARY METHOD APPEARS TO BE QUITE JUSTIFIED. KEEPI NG IN VIEW THE ABOVE DISCUSSION I WOULD AGREE WITH THE ALTERNATIVE CONTE NTION OF THE LD. COUNSEL THAT THE PROFIT, IF ANY EMBEDDED IN THE SAL E OF SCRAP IN THIS CASE WOULD BE AS PER THE CALCULATIONS GIVEN ABOVE I N THE PRECEDING PARAGRAPHS. THE A.O., IS, THEREFORE, DIRECTED TO RE DUCE ONLY THIS PROFIT 4 FROM THE PROFITS OF THE BUSINESS OF THE APPELLANT F OR THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 80HHC. 6. THE ASSESSING OFFICER HAS THEREAFTER PASSED AN O RDER GIVING EFFECT TO THE ORDER OF CIT (APPEALS), DATED 17.2.2012 UNDE R WHICH THE PROFITS ON SALE OF SCRAP HAD BEEN DETERMINED AT RS.2,98,598 /-. A COPY OF THE ORDER HAS BEEN PLACED ON RECORD BY THE LEARNED A.R. FOR THE ASSESSEE. 7. THE LEARNED D.R. FOR THE REVENUE PLACING RELIANC E ON THE ORDER OF THE ASSESSING OFFICER POINTED OUT THAT IN THE ABSEN CE OF ANY DETAIL BEING FILED BY THE ASSESSEE, THE INITIAL WORKING DONE BY THE ASSESSING OFFICER NEEDS TO BE UPHELD. 8. THE LEARNED A.R. FOR THE ASSESSEE, ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF THE CIT (APPEALS) AND POIN TED OUT THAT THE ASSESSING OFFICER HAD ALLOWED THE APPEAL EFFECT TO THE ORDER OF THE CIT (APPEALS) AND RECOMPUTED DEDUCTION UNDER SECTION 80 HHC, AGAINST WHICH IT HAD NO GRIEVANCE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE PRES ENT CASE WE ARE IN AGREEMENT WITH THE ORDER OF THE CIT (APPEALS) THAT ONLY THE PROFIT ELEMENT IN THE SALE OF SCRAP IS TO BE EXCLUDED FROM THE PROFITS OF THE BUSINESS FOR DETERMINING THE PROFITS ELIGIBLE FOR D EDUCTION UNDER SECTION 80HHC OF THE ACT. THE SAID RATIO WAS LAID DOWN BY THE TRIBUNAL IN ASSESSEE OWN CASE. THE MATTER WAS DELIBERATED UPO N BY THE CIT (APPEALS) AND SET ASIDE TO THE FILE OF THE ASSESSIN G OFFICER WITH DIRECTIONS. THE ASSESSING OFFICER GIVING EFFECT TO THE ORDER OF THE CIT (APPEALS), VIDE ORDER DATED 17.2.2012 HAD RECOMPUTE D DEDUCTION UNDER SECTION 80HHC OF THE ACT BY COMPUTING PROFITS ON SA LE OF SCRAP AT RS.2,98,598. THE LEARNED A.R. FOR THE ASSESSEE HAS PLACED ON RECORD THE 5 SAID ORDER OF THE ASSESSING OFFICER. IN VIEW THERE OF, WE FIND NO MERIT IN THE PRESENT GROUNDS OF APPEAL RAISED BY THE REVENUE AND HE SAME ARE DISMISSED. 10. THE LEARNED A.R. FOR THE ASSESSEE HAS WITHDRAWN ITS CROSS OBJECTIONS AND THE SAME IS DISMISSED AS WITHDRAWN. 11. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE A ND THE CROSS OBJECTIONS FILED BY ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DAY OF JUNE, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 22 ND JUNE, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH