The ITO, Ward-5(2), Ahmedabad V. Reclamation Welding Pvt. Ltd., Ahmedabad

ITA 2954/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1931 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-12-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 29-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Set aside
• Section: 80IA; 201; 274

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' (BEFORE S/SHRI T K SHARMA AND D C AGRAWAL) ITA NO.2954/AHD/2006 (ASSESSMENT YEAR: 2003-04) THE INCOME-TAX OFFICER, WARD-2(5), AHMEDABAD V/S RECLAMATION WELDING PVT. LTD., 129/129A, G V M M ESTATE, ODHAV ROAD, AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY :- SHRI RAJEEV AGARWAL, CIT DR RESPONDENT BY:- SHRI S N SOPARKAR, SENIOR ADVOCATE O R D E R PER D C AGRAWAL (ACCOUNTANT MEMBER) : THIS IS AN APPEAL BY THE REVENUE RAISING THE FOLLOWING GROUNDS: 1 THE LD. CIT(A)-XI, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN ALLOWING THE DEDUCTION OF RS.20,81,061/- UNDER SECT ION 80IA OF THE INCOME-TAX ACT, 1961. 2 THE LD. CIT(A)-XI, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN DELETING THE ADDITION MADE OF RS.19,45,247/- ON ACC OUNT OF DISALLOWANCE OF FREIGHT AND OCTROI EXPENSES. 3 THE LD. CIT(A)-XI, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN DELETING THE ADDITION MADE OF RS.74,46,147/- BEING THE DIFFERENCE IN THE AMOUNT OF CONVERSION CHARGES CREDITED IN HE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AND THE PAYMENT OF CONVERSI ON CHARGES AS STATED IN THE TAX AUDIT REPORT OF THE PRINCIPAL I.E . AIA ENGINEERING LIMITED. 2 4 THE LD. CIT(A)-XI, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN DELETING THE ADDITION OF RS.90,92,580/- THE UNDISCL OSED CONVERSION CHARGES ON ACCOUNT OF CLAIMING EXCESS BURNING LOSS. 5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)- XI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 6 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CI T(A)-XI, AHMEDABAD MAY BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED . 2 THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF JOB WORK / CONVERSION WORK, WHIC H IS DONE FOR ITS HOLDING COMPANY- AIA ENGINEERING LIMITED. REGAR DING THE FIRST GROUND, THE LEARNED AO NOTED THAT THE ASSESSE E HAD FURNISHED AUDIT REPORT IN FORM NO.10CCB DATED 10-10 -2003 FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80IA OF THE I NCOME-TAX ACT, 1961 [THE ACT FOR SHORT]. ACCORDING TO HIM, THE PRESCRIBED FORM FOR THIS PURPOSE CONTAINS 22 COLUMNS SEEKING V ARIOUS DETAILS / CLARIFICATIONS SUCH AS - DATE OF COMMENCEMENT OF OPERATION BY THE UNDERTA KING - INITIAL ASSESSMENT YEAR FROM WHEN DEDUCTION IS B EING CLAIMED - EXCISE REGISTRATION NO. AND OFFICE WHERE REGISTER ED - SALES TAX REGISTRATION NO. AND OFFICE WHERE RE GISTERED - LOCAL / STATE AUTHORITIES FROM WHOM APPROVAL IS T AKEN (ATTACH COPY OF APPROVAL) IN ADDITION TO THIS, THE AO NOTICED THAT THE AUDITO RS HAD NOT GIVEN ESSENTIAL CERTIFICATE AS UNDER: IN MY OPINION HE UNDERTAKING SATISFIES THE CONDITI ONS STIPULATED IN SECTION 80-IA AND THE AMOUNT OF DEDUCTION CLAIMED U NDER THIS SECTION 3 IN ITEM 21 IS AS PER THE PROVISIONS OF THE INCOME-T AX ACT AND MEETS THE REQUIRED CONDITIONS. ACCORDING TO HIM, THESE ARE THE MANDATORY CONDITION S AND IN ABSENCE OF THESE CONDITIONS AND AUDIT REPORT IN PRE SCRIBED FORM, THE CONDITIONS REQUIRED FOR CLAIMING DEDUCTION U/S 80IA ARE NOT FULFILLED. HE ACCORDINGLY DENIED THE CLAIM OF RS.20 ,81,061/- MADE U/S 80IA OF THE ACT. 3 THE LEARNED CIT(A) ALLOWED THE CLAIM ON THE GROU ND THAT THE FACTS AND CIRCUMSTANCES IN ASSESSEES CASE HAVE NOT BEEN CHANGED SINCE 1994-95, IT IS ENGAGED IN THE MANUFAC TURING THE CASTINGS ON JOB WORK BASIS, UNDER THE SAME CONDITIO NS AS EARLIER, THE ASSESSEE HAS FILED THE AUDIT REPORT IN CORRECT FORM BEFORE COMPLETION OF ASSESSMENT, AND MERELY BECAUSE THE SA ID REPORT WAS NOT ENCLOSED WITH THE RETURN, DEDUCTION U/S 80I A COULD NOT BE DENIED. 4 WE HAVE HEARD THE LEARNED DR AND THE LEARNED AR. THE LEARNED DR BASICALLY RELIED ON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GUJARAT OIL AND ALLIED INDUSTRIES (1993) 201 ITR 325 (GUJ) AND CIT VS. MAYUR FOUNDATION (2005) 274 ITR 562 (GUJ) FOR THE PROPOSITION THAT EVEN IF AUDIT REPORT IS NOT FILED ALONG WITH THE RE TURN, BUT IF IT IS FILED BEFORE COMPLETION OF THE ASSESSMENT, THEN THE CLAIM OF THE ASSESSEE COULD NOT BE DENIED. SINCE THE ISSUE IS DI RECTLY COVERED IN FAVOUR OF THE ASSESSEE AND IT IS NOT DISPUTED TH AT THE ASSESSEE HAS FILED THE AUDIT REPORT IN CORRECT FORM BEFORE M AKING OF THE ASSESSMENT, THERE IS NO CASE FOR DISALLOWING THE CL AIM. IN ANY 4 CASE, THE BREACH IS TECHNICAL, THE FACTS AND CIRCUM STANCES OF THE CASE REMAIN THE SAME, THERE IS NO CASE FOR DISALLOW ING THE CLAIM. AS A RESULT, THIS GROUND OF REVENUE IS REJECTED. 5 THE SECOND GROUND RELATES TO DISALLOWANCE OUT OF FREIGHT AND OCTROI EXPENSES. THE AO EXAMINED THE AG REEMENT DATED 2/5/2000 OF THE ASSESSEE WITH THE HOLDING COM PANY AIA ENGINEERING LIMITED AND NOTICED THAT AIA ENGINEERIN G LIMITED WOULD PAY FREIGHT AND OCTROI IN RESPECT OF INCOMING RAW MATERIAL AND ALSO IN RESPECT OF FINAL DISPATCH OF CASTINGS B UT THE ASSESSEE CLAIMED A SUM OF RS.19,45,247/- AS FREIGHT AND CART AGE EXPENSES. IT WAS EXPLAINED THAT THE EXPENDITURE WAS INCURRED FOR BUSINESS PURPOSE BUT RELYING ON THE STIPULATION IN THE AGREE MENT, THE AO DISALLOWED THE CLAIM AND MADE THE ADDITION. 6 THE LEARNED CIT(A) NOTICED THAT THE ASSESSEE HAS NEITHER CLAIMED FREIGHT ON RAW MATERIAL BROUGHT INT O THE FACTORY NOR ON FINISHED GOODS SENT TO THE PRINCIPAL. THE EX PENDITURE SO CLAIMED IS WITH REGARD TO STORES MATERIALS AND CONS UMABLES WHILE MANUFACTURING CASTINGS. DURING THE YEAR UNDER CONSI DERATION, THE ASSESSEE PURCHASED STORES AND CONSUMABLES AT RS.59, 46,629/- WHICH INCLUDED MATERIALS LIKE REFECTORIES, RAMMING MASS ETC. WHICH INVOLVED HIGHER FREIGHT. THE ASSESSEE WAS ALS O REQUIRED TO PAY OCTROI ON SUCH PURCHASES. SINCE THE ADDITION MA DE BY THE AO WAS WITHOUT POINTING OUT AS TO IN RESPECT OF WHICH RAW MATERIAL OR FINISHED GOODS THE ASSESSEE HAS INCURRED FREIGHT AND OCTROI EXPENSES, THE LEARNED CIT(A) DELETED THE ADDITION. 7 WE HAVE HEARD THE LEARNED DR AND THE LEARNED AR. THE LEARNED DR BASICALLY RELIED ON THE ORDER OF THE AO AND THE LEARNED AR RELIED ON THE ORDER OF THE LEARNED CIT(A ). AFTER 5 HEARING THE PARTIES, WE DECLINE TO INTERFERE IN THE ORDER OF LEARNED CIT(A). IT IS NOT POINTED OUT BY THE DEPARTMENT AS TO WHETHER FREIGHT AND OCTROI HAVE BEEN PAID IN RESPECT OF RAW MATERIALS BROUGHT FROM THE PRINCIPAL OR FINISHED GOODS SUPPLI ED BACK TO THE PRINCIPAL. UNDER THESE CIRCUMSTANCES, THE FINDINGS GIVEN BY THE LD. CIT(A) THAT THE FREIGHT AND OCTROI EXPENDITURE CLAIMED BY THE ASSESSEE WERE INCURRED ON PURCHASE OF CONSUMABLES A ND STORES MATERIALS CANNOT BE DISTURBED. AS A RESULT, THIS GR OUND OF REVENUE IS REJECTED. 8 THE THIRD GROUND RELATES TO CLAIM OF CONVERSION CHARGES BEING THE DIFFERENCE BETWEEN THE FIGURES RE CORDED IN THE BOOKS OF ASSESSEE AND THE FIGURES RECORDED IN THE B OOKS OF PRINCIPAL I.E. AIA ENGINEERING LIMITED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAS SHOWN CONVERSION CHARGES OF RS.13,58,40,825/- AS RE CEIPT FROM AIA ENGINEERING LIMITED. ON VERIFICATION OF THE AUD IT REPORT OF THE PRINCIPAL, IT WAS NOTICED BY HIM THAT THE HOLDI NG COMPANY HAS DEBITED A SUM OF RS.14,32,86,972/- IN ITS ACCOUNTS. THE AO ACCORDINGLY SOUGHT TO TAX THE DIFFERENCE. IT SEEMS THAT THE AO WAS NOT SATISFIED WITH THE EXPLANATION AND THE ADDI TION WAS ACCORDINGLY MADE. 9 THE CIT(A) EXAMINED THE ISSUE AND NOTICED THAT T HE AO HAS SIMPLY RELIED ON THE COMMENTS GIVEN IN THE T AX AUDIT REPORT BUT THE PRINCIPAL COMPANY HAD PASSED DEBIT N OTES AND HAVE REDUCED THE CONVERSION CHARGES. THE ISSUE OF T DS CERTIFICATE MATCHES WITH THE FIGURE SHOWN BY THE AS SESSEE IN ITS BOOKS. ONCE NECESSARY CORRECTIONS HAVE BEEN CARRIED OUT BY THE 6 PRINCIPAL, THERE IS NO CASE FOR MAKING ADDITION. IT WAS ACCORDINGLY DELETED. 10 WE HAVE HEARD THE LEARNED DR AND THE LEARNED AR . IT IS NOT POINTED OUT BY THE REVENUE THAT THE ASSESSEE HAS CLAIMED IN ITS PROFIT & LOSS ACCOUNT A SUM OF RS.14,32,86,9 72/ AND ACCORDINGLY THE PROFITS HAVE BEEN STATED IN THE RET URN. ONCE NECESSARY CORRECTIONS HAVE BEEN CARRIED OUT AND AS POINTED OUT BY THE LEARNED AR THAT THE RETURN HAS BEEN FILED ON TH E BASIS OF CORRECTED FIGURES, THEN THERE IS NO CASE FOR PRESUM PTION THAT THE ASSESSEE IS ENTITLED FOR THE HIGHER CONVERSION CHAR GES ON THE BASIS OF AUDIT REPORT. PRESENTLY WE ARE RELYING ON THE STATEMENT GIVEN BY THE LEARNED AR AND IN CASE THE REVENUE FIN DS THE FACTS DIFFERENT I.E. THE PRINCIPAL CLAIMS HIGHER DEDUCTIO N OF CONVERSION CHARGES IN THE P&L ACCOUNT, IT CAN COME UP IN MISCE LLANEOUS APPLICATION. ACCORDINGLY, THIS GROUND OF REVENUE IS REJECTED. 11 THE FOURTH GROUND RELATES TO UNDISCLOSED CONVER SION CHARGES ON ACCOUNT OF EXCESS BURNING LOSS. THE AO N OTICED THAT THE BURNING LOSS CLAIMED THIS YEAR IS 10.96% WHICH IS HIGHER CONSIDERING THE TYPE OF FURNACE USED BY THE ASSESSE E I.E. ELECTRIC FIRED FURNACE WHICH YIELD HIGHER PRODUCTION COMPARE D TO COAL- FIRED FURNACE OR OIL-FIRED FURNACE. A SURVEY U/S 13 3A WAS CARRIED OUT BY THE DEPARTMENT, STATEMENTS OF PRODUC TION MANAGER / MELTING MANAGER WERE RECORDED U/S 131. FROM THIS IT WAS INFERRED THAT AVERAGE MELTING LOSS IS NOT MORE THAN 5%. HE ACCORDINGLY ALLOWED THE CLAIM OF LOSS AT 5%, WORKED OUT THE ADDITION BY DISALLOWING THE CLAIM OF LOSS AT 5.96%. THIS RESULTED IN AN ADDITION OF RS.90,92,580/-. 7 12 THE CIT(A) NOTICED THAT THE SURVEY INFORMATIONS PERTAINED TO SUBSEQUENT YEAR AND INFORMATIONS SO CO LLECTED DURING THE SURVEY DID NOT PERTAIN TO THE ENTIRE PRO CESS. FURTHER, THE OFFICERS WHOSE STATEMENTS WERE RECORDED ARE NOT AWARE OF ENTIRE PROCESS OF JOB WORKS. THEREFORE, THEIR SWORN STATEMENTS CAN NOT BECOME THE BASIS FOR DECIDING THE AMOUNT OF CONVERSION CHARGES. THE CIT(A) ACCORDINGLY DELETED THE ADDITIO N. 13 WE HAVE HEARD THE LEARNED DR AND THE LEARNED AR . IN OUR CONSIDERED VIEW, THE ISSUE CAN NOT DECIDED WITH OUT COMPLETE DATA. THE PARTIES HAVE NOT FURNISHED THE INDUSTRY-W ISE LOSS OR THE HISTORY OF THE LOSS IN THE CASE OF THE ASSESSEE FOR LAST 4/5 YEARS, THE LOSS INCURRED DURING VARIOUS PROCESS UNDERTAKEN BY THE ASSESSEE, PERCENTAGE OF LOSS IN EACH PROCESS UNDERT AKEN BY THE ASSESSEE, COMPARISON OF SUCH LOSS IN DIFFERENT PROC ESSES INDUSTRY- WISE AND VARIOUS ASSESSMENT YEAR-WISE IN CASE OF TH E ASSESSEE, OTHER COMPARATIVE INSTANCES, THE REASONS FOR INCURR ING LOSS AND OTHER FACTORS SUCH AS TYPE OF MACHINERY USED, CLAIM OF MANUFACTURER OF MACHINES AS TO THE AMOUNT OF LOSS L IKELY TO OCCUR WHEN WORK IS DONE ON THEIR MACHINES. ACCORDINGLY, W E RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING IT A FRESH. AS A RESULT, THIS GROUND OF REVENUE IS ALLOWED BUT FOR S TATISTICAL PURPOSE. 14 GROUND NOS.5 AND 6 ARE GENERAL IN NATURE AND TH EY DO NOT REQUIRE ANY ADJUDICATION. 8 15 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 31-12-2009 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (D C AGRAWAL) ACCOUNTANT MEMBER DATE : 31-12-2009 COPY OF THE ORDER FORWARDED TO : 1. RECLAMATION WELDING PVT. LTD., 129/129A, G V M M ESTATE, ODHAV ROAD, AHMEDABAD 2. THE ITO, WARD-2(5), AHMEDABAD 3. THE CIT CONCERNED 4. THE CIT(A)-XI, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR, ITAT, AHMEDABAD