Capiq Engineering Pvt. Ltd., Ahmedabad V. The Income Tax Officer, Ward-1(1), Baroda

ITA 2752/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8141 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 15-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P MAURYA SR D R
• Keywords: Reopening of assessment; Business income
• Section: 14A; 10B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI, MANISH BORAD, ACCOUNTANT MEMBER I.T.A. NO.2752/AHD/2014 ( / ASSESSMENT YEAR : 2006-07) CAPIQ ENGINEERING PVT. LTD. D/6, BIDC ESTATE, GORWA INDUSTRIAL ESTATE, GORWA, REGINERY ROAD, VADODARA 390 016 VS. INCOME TAX OFFICER, WARD-1(1), 1 ST FLOOR, AAYKAR BHAWAN, RACE COURSE CIRCLE, BARODA 390 002 ! PAN/GIR NO. : AAACC 7894 H ( ' / APPELLANT ) .. ( #' RESPONDENT ) '$ APPELLANT BY : SHRI ANIL R. SHAH WITH MS. KINJAL SHAH, A.R. #'%$ / RESPONDENT BY : SHRI R. P. MAURYA, SR. D.R. & '(%)* / DATE OF HEARING 31/10/2017 +,-.%)* / DATE OF PRONOUNCEMENT 22/11/2017 / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-I, BARODA, DATE D 22.08.2014 FOR THE ASSESSMENT YEAR (AY) 2006-07, ON THE FOLLOWING GROUNDS: I. THE CIT(A) HAS ERRED BOTH IN LAW AND IN FACT IN UPH OLDING THE REOPENING OF ASSESSMENT MADE BY THE ASSESSING OFFIC ER U/S.148/147 OF THE INCOME-TAX ACT. IT IS SUBMITTED THAT ON FACT S OF THE CASE AND PROVISIONS OF LAW REOPENING IS BAD IN LAW AND VOID. ITA NO.2752/AHD /2014 CAPIQ ENGINEERING PVT LTD. VS. ITO ASST.YEAR 2006-07 - 2 - WITHOUT PREJUDICE IT IS SUBMITTED THAT THE CIT(A) H AS WRONGLY HELD THAT YOUR APPELLANT HAD NOT TAKEN GROUND OF REOPENI NG OF ASSESSMENT WHICH IS OBJECTED BY YOUR APPELLANT. II. YOUR APPELLANT FURTHER SUBMITS THAT CIT(A) HAS ERRE D IN UPHOLDING THE REOPENING OF ASSESSMENT U/S.148 WHICH CANNOT BE MADE FOR MAKING DISALLOWANCE U/S.14A OF THE ACT AND THAT ON FACTS OF THE CASE SEC.L4A DOES NOT APPLY AND NO DISALLOWANCE IS CALLE D FOR ADMINISTRATIVE CHARGES ON ADHOC BASIS. III. YOUR APPELLANT ALSO SUBMITS THAT THE CIT(A) HAS ERR ED IN UPHOLDING REOPENING OF ASSESSMENT U/S.148 WHICH CANNOT BE DON E FOR DEDUCTING/REDUCING RELIEF U/S.10B OF THE ACT WHICH WAS ALREADY CORRECTLY ALLOWED IN ASSESSMENT U/S.143(3) OF THE A CT. IV. YOUR APPELLANT ALSO SUBMITS THAT THE CIT(A) HAS ALS O ERRED IN CONFIRMING ADDITION OF THE RS.18,017/- U/S.40(IB) O F THE ACT ON ACCOUNT OF SECURITY TRANSACTION ACT ON SALE OF MUTU AL FUNDS. ON FACTS OF THE CASE IT IS AN ALLOWABLE EXPENDITURE AND PARTICULARLY BECAUSE THE SAID DISALLOWANCE WAS NOT PROPOSED AS P ER REASONS RECORDED FOR REOPENING THE DISALLOWANCE BE DELETED. V. THE ASSESSING OFFICER HAS ERRED BOTH IN LAW AND IN FACT IN CHARGING INTEREST U/S.234A/234D OF THE ACT WITHOUT PASSING A SPECIFIC AND SPEAKING ORDER. ON FACTS OF THE CASE AND AS PER PROVISIONS OF LAW I NTEREST OF RS.1,93,449/- U/S.234B AND RS.4,816/- U/S.234D ARE NOT CHARGEABLE AND THEREFORE THE SAME BE DELETED. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFA CTURING OF PRECISION COMPONENTS AND PRECISION ASSEMBLIES AS PE R CUSTOMERS DRAWING AND REQUIREMENTS. THERE ARE TWO DIVISIONS OF THE CO MPANY ENGINEERING ITA NO.2752/AHD /2014 CAPIQ ENGINEERING PVT LTD. VS. ITO ASST.YEAR 2006-07 - 3 - DIVISION & EOU DIVISION. THE TURNOVER AND GP RATIO FOR THE LAST 3 YEARS WERE AS UNDER: ENGINEERING DIVISION AY TURNOVER RS. GROSS PROFIT RS. RATIO 2006-07 4,21,091 1,22,388 29.06 2005-06 11,78,746 (-)1,03,215 (-)8.76 2004-05 17,26,980 4,62,179 26.76 EOU DIVISION AY TURNOVER RS. GROSS PROFIT RS. RATIO 2006-07 4,11,95,076 1,69,68,333 41.23 2005-06 5,14,80,910 2,09,73,149 40.74 2004-05 2,39,36,163 1,15,60,971 48.30 THE ASSESSEE HAS SHOWN NET PROFIT OF RS.55,57,371/- FROM EOU DIVISION. AFTER MAKING ADJUSTMENTS ON ACCOUNT OF DE PRECIATION ETC., THE ASSESSEE HAS SHOWN GROSS TOTAL INCOME OF RS.64,21,2 26/- OF THE ABOVE EOU DIVISION. THE ASSESSEE HAS CLAIMED DEDUCTION @1 00% ON THE ABOVE GROSS TOTAL INCOME U/S.10B OF THE INCOME-TAX ACT AS PER FORM NO.56G FURNISHED BY THE CHARTERED ACCOUNTANT. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, IT IS OBSERVED THAT THE ASSESSEE HAS I NCLUDED OTHER INCOME AMOUNTING TO RS.L3,70,298/- IN THE EXPORT TURNOVER. THE ASSESSEE WAS ASKED AS PER ORDER SHEET DATED 15.09.2008, TO JUSTI FY THE ASSESSEE'S CLAIM ITA NO.2752/AHD /2014 CAPIQ ENGINEERING PVT LTD. VS. ITO ASST.YEAR 2006-07 - 4 - OF DEDUCTION U/S.10B OF THE INCOME-TAX ACT @100% OF INCOME OF EOU INCLUDING OTHER INCOME AS DISCUSSED ABOVE. THE ASSE SSEE VIDE LETTER DATED 07.11.2008 HAS FURNISHED ITS EXPLANATION THE CONTEN TS WAS REPRODUCED AS UNDER: YOU HAVE STATED THAT THE OTHER INCOME SHOULD BE EX CLUDED FROM THE INCOME OF PROFIT AND GAINS TO DERIVE AT PROFIT OF E OU. IN THIS CONNECTION, WE WOULD LIKE TO CLARIFY THAT T HE E.O.U. HAS OTHER INCOME OF RS.137,09,28/- OUT OF WHICH DIVIDEND IS R S.5,59,169/- C.S.T. REFUND IS RS.21,72.02/- EXCESS PROVISION WRITTEN BA CK RS.153/- AND RS.5,93,774/- IS FOR SCRAP SATES. SIR, IN THIS CONNECTION IT MAY BE NOTED THAT THE PR OFIT OF BUSINESS OF E.O.U. DIVISION IS DERIVED AT AFTER DEDUCTION OF DI VIDEND OF RS.5,59,169/- FROM THE COMPUTATION OF INCOME FROM B USINESS. AS REGARDS C.S.T. REFUND AND EXCESS PROVISIONS WRITTEN BACK TH E SAME IS RELATING TO EXPENSE DEBITED IN P & L A/C. AND SINCE THE SAME IS NOT REDUCED FROM PURCHASE OR FROM EXPENSE, THE SAME IS SHOWN SEPARAT ELY. HENCE IT IS PART OF BUSINESS INCOME OF EOU. LASTLY AS REGARDS S CRAP SALES OF RS.5,93,774/-, IT IS ALSO A SALE OF EOU BUT LOCAL S ALES WHICH IS MADE OUT OF COMPULSION. HENCE THE PROFIT OF E.O.U. ALSO INCLUDES PROFIT ON SCRAP SALES WHICH IS TO BE PROPORTIONATELY SEPARATED FROM THE E.O.U. PRO FITS. WE ENCLOSE HEREWITH REVISED FORM 56G DATED 26.10.2006, IN WHIC H THE REVISED DEDUCTION UNDER SECTION 10B IS RS.6327337/- AGAINST THE ORIGINAL DEDUCTION CLAIMED OF RS.6421226/-. THIS IS DERIVED AS PER FORMULA GIVEN IN SECTION 108(4).' FROM THE ASSESSEES SUBMISSION IT IS CLEAR THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S.10B AMOUNTING TO RS.64,21,226 /- INSTEAD OF THE ALLOWABLE DEDUCTION OF RS.63,27,337/-. IN VIEW OF T HE ABOVE, THE DEDUCTION U/S.10B OF THE IT ACT IS RESTRICTED TO RS .63,27,337/- AND TOTAL INCOME WAS DETERMINED OF RS.2,55,861/-. ITA NO.2752/AHD /2014 CAPIQ ENGINEERING PVT LTD. VS. ITO ASST.YEAR 2006-07 - 5 - 3. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD.CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. NOW APPEAL IS BEFORE US. 5. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER. SO FAR GROUND NO.1 AND 2 ARE CONCERNED. LD. AR STATED THAT RULE 14A DOES NOT APPLY IN THE CASE OF THE ASSESSEE AND AT THAT P OINT OF TIME RULE 14A WAS NOT IN FORCE. THEREFORE, THIS LEGAL GROUND IS N OT MAINTAINABLE ON MERIT. LD. AR DREW OUR ATTENTION TOWARDS THE PAPER BOOK. IN PAPER BOOK AT PAGE NO.77, HIS CAPITAL, RESERVES AND SURPLUS, S UNDRY CREDITORS & PROVISIONS (WITHOUT INTEREST) ARE OF RS.4,06,88,821 /-, WHEREAS, HE HAS MADE INVESTMENT OF RS.30,50,679/-. MEANING THEREBY, ASSESSEE HAS SUFFICIENT OWN SURPLUS FUND. THEREFORE, NO DEDUCTIO N COULD BE MADE. WHILE VERIFYING THE BOOKS OF ACCOUNTS, THE ASSESSE E EXPLAINED AND EVIDENCES IN DETAIL THE PARTICULARS OF INTEREST EXP ENSES AMOUNTING TO RS.7,34,691/- WHEREIN ALL DETAILS OF INTEREST PAID FOR VARIOUS LOANS AND WORKING CAPITAL WAS EXPLAINED. ON VERIFICATION OF COMPLETE DETAILS, THE LD. AO AL SO HAD COME TO A CONCLUSION THAT THE BANK CHARGES ARE INCURRED FOR A VAILING VARIOUS BANKING SERVICES FOR THE BANKING WORKS. INTEREST WA S AN INCOME FOR THE PURPOSE OF BUSINESS, THE SAME CANNOT BE DENIED. THE REFORE, NO ITA NO.2752/AHD /2014 CAPIQ ENGINEERING PVT LTD. VS. ITO ASST.YEAR 2006-07 - 6 - DISALLOWANCE CAN BE MADE. IN THE RESULT, DISALLOWAN CE WERE MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) TO BE DELETED. 6. SO FAR GROUND NO.3 REGARDING LEGALITY OF DEDUCTI ON U/S.10B. THE APPELLANT HAD FURNISHED WITH EVIDENCES INCLUDING CE RTIFICATE OF CHARTERED ACCOUNTANT IN FORM NO.56G WITH NECESSARY CALCULATIO N OF DEDUCTION U/S.10B. LD. AR STATED THAT APPELLANT IS 100% EOU U NIT AND SECTION 10B IS APPLICABLE FROM YEAR TO YEAR AND ON THE SAME MET HOD AND BASIS THE APPELLANT HAD MADE CLAIM WHICH WERE DULY CONSIDERED BY THE ASSESSING OFFICER IN SCRUTINY PROCEEDINGS AND AFTER APPLICATI ON OF MIND AND RECORD HE HAD PROPERLY WORKED OUT AND ALLOWED THE CLAIM AN D FURTHER STATED THE DEDUCTION U/S.10B IN ORIGINAL ASSESSMENT ORDER WAS GRANTED RS.63,27,337/-, WHICH WAS AFTER MATURED APPLICATION OF MIND BUT UNDER THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER R EDUCED DEDUCTION U/S.10B AT RS.53,99,550/- IN PLACE OF 66,27,337/- A ND THEREBY INCREASING INCOME OF RS.9,27,784/-. WE HAVE GONE THROUGH THE R ELEVANT RECORD AND SEEN THE CALCULATION. IN OUR CONSIDERED OPINION, AS SESSEE IS ENTITLED FOR DEDUCTION U/S.10B OF RS.63,27,337/-. 7. SO FAR AS GROUND NO.4 REGARDING CONFIRMING ADDIT ION OF RS.18,017/- U/S.40(IB) OF THE ACT ON ACCOUNT OF SEC URITY TRANSACTION ACT ON SALE OF MUTUAL FUNDS IS CONCERNED. LD. AR STATED THAT DISALLOWANCE MADE IN THE ASSESSMENT ORDER UNDER APPEAL WAS NOT A PPEARING ANY REASONS RECORDED FOR REOPENING OF ASSESSMENT AND TH EREFORE, SUBMITTED THE ADDITION WITHOUT RECORDING THE REASON OF REOPEN ING IS BAD IN LAW. AR FURTHER SUBMITS THAT SECURITY TRANSACTION ACT OF RS .18,017/- HAS BEEN ITA NO.2752/AHD /2014 CAPIQ ENGINEERING PVT LTD. VS. ITO ASST.YEAR 2006-07 - 7 - INCURRED DURING THE PROCESS OF TRANSACTION ON SALE OF MUTUAL FUNDS AND FURTHER STATED THAT WITHOUT THIS PAYMENT TRANSFER O F MUTUAL FUNDS CANNOT BE EFFECTED. WE HAVE GONE THROUGH THE RELEVANT RECORD AND FIND T HAT THIS GROUND IS ALLOWED IN FAVOUR OF THE ASSESSEE BECAUSE WITHOU T THE SECURITY TRANSACTION ACT ON SALE OF MUTUAL FUNDS COULD NOT T AKE PLACE. THEREFORE, WE DELETE THE ADDITION OF RS.18,017/-. 8. SO FAR GROUND NO.5 RELATED TO CHARGING INTEREST IS CONCERNED. SAME ARE CONSEQUENTIAL AND NEED NOT BE ADJUDICATED. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 22/11/2017 SD/- SD/- EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM EKUHK CKSJM EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN YS[KK LNL; U;KF;D LNL; YS[KK LNL; U ;KF;D LNL; YS[KK LNL; U ;KF;D LNL; YS[KK LNL; U ;KF;D LNL; ( MANISH BORAD ) (MAHAVIR PRASA D) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 22/11/2017 PRITI YADAV, SR.PS ITA NO.2752/AHD /2014 CAPIQ ENGINEERING PVT LTD. VS. ITO ASST.YEAR 2006-07 - 8 - !'#$ %$' COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 012) & 3) / CONCERNED CIT 4. & 3) 45 / THE CIT(A)-I, BARODA. 5. 678 )'12 *12. 0 / DR, ITAT, AHMEDABAD 6. 89:( GUARD FILE. & ' / BY ORDER, #6) ) //TRUE COPY// (/' )* ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY 1. DATE OF DICTATION 03/11/2017 (DICTATION-PAD 6 PA GES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20/11/2017. 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER