ACIT Circle-4 (1), New Delhi V. Jindal Photo Ltd, New Delhi

ITA 3093/DEL/2008

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6745 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 07-09-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 10-10-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: UMESH CHANDER DUBEY
• Assessee Lawyers: RUPESH J AIN
• Keywords: Competent authority
• Section: 115JB; 80IB; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.3093/DEL./2008 (ASSESSMENT YEAR : 2005-06) ACIT, CIRCLE 4 (1), VS. M/S. JINDAL PHOTO LTD., NEW DELHI. 25, RAJENDRA BHAWAN, RAJENDRA PLACE, NEW DELHI. (PAN : AAACJ0090N) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RUPESH JAIN, ADVOCATE, REVENUE BY : SHRI UMESH CHANDER DUBEY, CIT DR DATE OF HEARING : 07.09.2016 DATE OF ORDER : 27.10.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, ASSISTANT COMMISSIONER OF INCOME-TAX , CIRCLE 4(1), NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE TH E IMPUGNED ORDER DATED 04.07.2008 PASSED BY THE COMMISSIONER OF INCO ME-TAX (APPEALS)-VII, NEW DELHI QUA THE ASSESSMENT YEAR 20 05-06 ON THE GROUNDS INTER ALIA THAT :- 1. THE ORDER OF THE LD. CIT (A) IS ERRONEOUS & CONTRARY TO FACTS AND LAW. ITA NO.3093/DEL./2008 2 2. THE LEARNED CIT (A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO RECOMPUTED THE DEDUCTION ALLOWABLE UNDER SECTION 80-IB OF THE INCOME TAX ACT, 1961 IN RESPECT OF UNIT III OF THE ASSESSEE COMPANY WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE HAS OVERSTATED THE PROFITS OF PPD UNIT III BY RS.2,14,64,799/-. 3. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2. BRIEFLY STATED THE FACTS OF THIS CASE ARE : ASSE SSEE COMPANY IS INTO THE MANUFACTURING AND TRADING OF PHOTOSENSITIV E GOODS, CHEMICALS AND PHOTOGRAPHIC EQUIPMENT AND IT HAS CLA IMED DEDUCTION UNDER SECTION 80IB OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) AT RS.22,50,55,364/- PERTAINING TO UNIT-III (PPD UNIT). ASSESSEE COMPANY COMPUTED BOOK PROFIT AT RS.30,13,30,903/- U/S 115JB OF THE ACT AND TAX LIAB ILITY WORKED OUT AT RS.2,36,28,109/-. DURING SCRUTINY PROCEEDINGS, IT IS NOTICED THAT DURING THE YEAR UNDER ASSESSMENT, ASSESSEE HAD PROD UCTION UNITS OF PHOTOSENSITIVE GOODS AND PHOTOGRAPHIC EQUIPMENT AT VARIOUS LOCATIONS. ASSESSEE CLAIMED DEDUCTION IN RESPECT O F INCOME EARNED BY 3 UNITS RUNNING AT DADRA. THE DDRF UNIT AT DADR A IS ELIGIBLE FOR 30% DEDUCTION OF PROFIT U/S 80IB BUT, DUE TO LO SS, NO DEDUCTION HAS BEEN CLAIMED. PPD UNIT IS ELIGIBLE FOR DEDUCTI ON U/S 80IB WHICH HAS COMMENCED PRODUCTION FROM 30.03.2005. AS SESSEE ITA NO.3093/DEL./2008 3 COMPANY SHOWN TOTAL VALUE OF MACHINERY AND PLANT AT RS.3.08 CRORES AND LOSS RS.63,07,125/- AND HENCE CLAIMED NO DEDUCTION U/S 80IB IN THE NEW UNIT. ASSESSEE COMPANY FILED AUDIT REPORT IN FORM NO.10CCB ONLY IN RESPECT OF PPD UNIT BY COMPUTING T HE PROFIT AT RS.22,50,55,364/- BUT NO DEDUCTION HAS BEEN CLAIMED IN RESPECT OF UNIT NO.1 & 2. ASSESSEE WAS CALLED UPON TO EXPLAIN TO SUBSTANTIATE THE DEDUCTION/S 80IB OF THE ACT. 3. AO NOTICED FORM THE RECORDS AND CONSOLIDATED PRO FIT & LOSS ACCOUNT THAT CERTAIN EXPENSES ARE BEING CLAIMED IN ORDER TO CLAIM HIGHER DEDUCTION U/S 80IB OF THE ACT AS THREE UNITS AT DADRA ARE LOCATED IN THE SAME PREMISES AND DEALING IN SAME PR ODUCTS WHEREAS ONE UNIT IS ELIGIBLE FOR DEDUCTION AT 70%, THE OTHE R AT 100% AND THE THIRD ONE IS NOT ELIGIBLE FOR ANY DEDUCTION. ASSES SEE COMPANY CLAIMED TO HAVE MAINTAINED SEPARATE BOOKS OF ACCOUN TS FOR ALL THE THREE UNITS. ASSESSEE IS ALSO RUNNING A UNIT AT BH ILAD WHICH DEALS IN CHEMICAL PRODUCTION AND AT DELHI FOR THE SALE OF MINI LAB EQUIPMENTS. AO NOTICED FROM THE COMPARATIVE STATUS OF ACCOUNTS OF THE ASSESSEE THAT THE EXPENDITURE IN PPD UNIT IS MUCH LESS AS COMPARED TO EXPENDITURE DEBITED IN THE BHILAD UNIT AND DELHI UNIT. AO CAME TO THE CONCLUSION THAT THE ENTRIES OF EXPEN SES HAVE NOT BEEN CORRECTLY RECORDED IN THE BOOKS AND HAVE NOT B EEN PROPERLY ALLOCATED. ITA NO.3093/DEL./2008 4 4. AO ALSO NOTICED THAT THE EXPENDITURE PERTAINING TO PPD UNIT IS ONLY 55% BUT THE CORRESPONDING SALES AND PURCHAS ES WERE 64% AND AS SUCH, EXPENDITURE IS ON LOWER SIDE AND THE A SSESSEE WAS CALLED UPON TO EXPLAIN. AO FOUND THE SUBMISSION MA DE BY THE ASSESSEE NOT TENABLE AND CAME TO THE CONCLUSION THA T THE PROFIT OF THE UNIT-III HAS BEEN OVERSTATED BY RS.2,14,64,799/ - AND CONSEQUENTLY DISALLOWED THE SAME. AO ALSO COMPUTED THE AMOUNT OF FOREIGN EXCHANGE FLUCTUATION TO BE DEBITED TO TH E PPD UNIT AT RS.26,83,392/- (93% OF RS.28,85,369/- AND REDUCED T HE DEDUCTION U/S 80IB ACCORDINGLY AND ASSESSED THE TOTAL INCOME AT RS.28,84,32,550/-. 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING THE APPEAL WHO HAS ALLOWED THE APPEAL. FEELI NG AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. UNDISPUTED FACTS OF THIS CASE ARE INTER ALIA THA T THE ASSESSEE IS INTO MANUFACTURING OF PHOTOSENSITIVE GOODS, CHEMIC ALS AND TRADING IN PHOTOGRAPHIC EQUIPMENTS THROUGH VARIOUS UNITS LO CATED AT ITA NO.3093/DEL./2008 5 DIFFERENT PLACES; THAT THE ASSESSEE HAS CLAIMED 100 % DEDUCTIONS U/S 80IB QUA UNIT NO.III PRODUCING PHOTOSENSITIVE MATER IAL SITUATED AT DADRA, NAGAR AND HAVELI; THAT THE ASSESSEE COMPANY HAS DEBITED FOREIGN EXCHANGE FLUCTUATION COST AMOUNTING TO RS.3 0,49,679/- IN THE BOOKS OF UNIT-III ON ACTUAL BASIS; THAT THE ASS ESSEE IN THE ORDINARY COURSE OF ITS BUSINESS OFFERS SEVERAL TYPE S OF COMMISSION/ DISCOUNT ON ITS VARIOUS PRODUCTS VIZ. CHEMICALS AND PHOTOGRAPHIC PAPER PRODUCED IN DIFFERENT UNITS. 8. IN THE BACKDROP OF THE AFORESAID UNDISPUTED FACT S, AO DISALLOWED DEDUCTIONS TO THE TUNE OF RS.2,14,64,799 /- ON TWO COUNTS : (I) UNDER THE HEAD OF FOREIGN EXCHANGE FL UCTUATION WHICH HE HAS COMPUTED BY PROPORTIONATELY ALLOCATING TO TH E THREE UNITS LOCATED AT DADRA TO THE TUNE OF RS.26,83,392/- I.E. 93% OF RS.28,85,369/- AND REDUCED THE DEDUCTION U/S 80IB A CCORDINGLY AND (II) PROPORTIONATELY ALLOCATED THE EXPENDITURE RELA TING TO SPECIAL DISCOUNT & COMMISSION QUA UNIT NO.II AND PPD UNIT-I II AND DISALLOWED THE DEDUCTION U/S 80IB ACCORDINGLY. 9. TO DECIDE THE CONTROVERSY AT HAND, THE FIRST QUE STION ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER LD. CIT (A) HAS ERRED IN DELETING TH E DISALLOWANCE OF DEDUCTION OF RS.26,83,392/- U/S 80I B OF THE ACT ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION EXPENSES TO UNIT-III? ITA NO.3093/DEL./2008 6 10. LD. CIT (A) DELETED THE DISALLOWANCE OF DEDUCTI ON OF RS.26,83,392/- U/S 80IB ON ACCOUNT OF FOREIGN EXCHA NGE FLUCTUATION TO UNIT-III BY MAKING FOLLOWING OBSERVATIONS :- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE ORDER OF THE ASSESSING OFFICER. IT IS NOT IN DOUBT THAT FOREIGN EXCHANGE FLUCTUATION EXPENSE ALLOCATED BY THE ASSES SING OFFICER RELATES TO IMPORT OF RAW MATERIALS. THE THR EE UNITS AT DADRA ARE SEPARATE AND INDEPENDENT UNITS WITH SEPAR ATE BOOKS OF ACCOUNT WHICH ARE EVEN BEING AUDITED BY CHARTERE D ACCOUNTANT. THE RAW MATERIAL PURCHASED WITH RESPECT TO THESE UNITS IS ALSO IDENTIFIED SEPARATELY WHICH HAS EVEN BEEN ACCEPTED BY THE ASSESSING OFFICER. IN SUCH CIRCUMST ANCES, IN PRINCIPAL, WHEN THE PURCHASE OF RAW MATERIAL IS IDE NTIFIED SEPARATELY, THE FOREIGN EXCHANGE FLUCTUATION EXPENS E IN CONNECTION THEREOF IS ALSO LIABLE TO BE ALLOCATED I N THE UNIT OF PURCHASE ON ACTUAL BASIS. IN VIEW OF THE ABOVE, I AM NOT IN' AGREEMENT WITH T HE ACTION OF THE ASSESSING OFFICER IN TREATING THE FOREIGN EX CHANGE FLUCTUATION EXPENSE ARISING ON ACCOUNT OF IMPORT OF RAW MATERIAL AS COMMON EXPENSE. COMING TO THE FACTS OF THE APPELLANT'S CASE, ON PER USAL OF ANNEXURE 'C' TO THE ASSESSMENT ORDER, WHICH CONTAIN S THE BASIS OF ALLOCATION OF ADMINISTRATIVE EXPENSES AMON GST VARIOUS UNITS OF THE APPELLANT COMPANY, IT IS OBSER VED THAT EXPENSE OF RS.30,49,679 HAS ALREADY BEEN DEBITED IN THE BOOKS OF UNIT III/PPD UNIT WHICH WAS ELIGIBLE FOR 1 00% DEDUCTION UNDER SECTION 80IB OF THE ACT. AS EXPLAIN ED BY THE APPELLANT, THE AFORESAID AMOUNT WAS DEBITED IN THE BOOKS ON ACTUAL BASIS. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS ALLOCATED RS.26,83,392 ON ACCOUNT OF NET FOREIGN EX CHANGE FLUCTUATION EXPENSE TOWARDS UNIT III ON THE BASIS O F RATIO OF ITS SALES WHICH IS, IN FACT, LESS THAN THE AMOUNT WHICH ALREADY STOOD ALLOCATED TO THE UNIT ON ACTUAL BASIS, AS DIS CUSSED ABOVE. THE ACTION OF THE ASSESSING OFFICER HAS RE SULTED IN DOUBLE DEDUCTION OF THE COST IN BOOKS OF UNIT III, FIRST, BY WAY OF DEDUCTION OF RS.30,49,679 ALREADY DEBITED IN THE BOOKS OF THAT UNIT AND, SECONDLY, BY WAY OF FURTHER ALLOCATI ON OF RS.26,83,392 MADE BY THE ASSESSING OFFICER IN THE A SSESSMENT ORDER. THE ACTION OF THE ASSESSING OFFICER IS A PAT ENT MISTAKE WHICH CALLS FOR RECTIFICATION AND, THEREFORE, I DIR ECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF DED UCTION ITA NO.3093/DEL./2008 7 UNDER SECTION 80IB OF THE ACT BY AMOUNT OF RS.26,83 ,392 ON ACCOUNT OF HIGHER DEDUCTION OF FOREIGN EXCHANGE FLU CTUATION EXPENSE TO UNIT III. 11. FROM THE FACTS AND CIRCUMSTANCES OF THE CASE AN D THE BOOKS OF ACCOUNT AND DOCUMENTS ANNEXED THEREWITH PERUSED BY THE AO AS WELL AS LD. CIT (A), IT IS PROVED THAT WHEN ALL THE THREE UNITS OWNED BY THE ASSESSEE HAVE BEEN MAINTAINING SEPARATE BOOK S OF ACCOUNT DULY AUDITED BY THE COMPETENT AUTHORITY AND THE RAW MATERIAL PURCHASED BY EACH OF THE UNIT IS SEPARATELY IDENTIF IABLE, THERE IS NO QUESTION OF TREATING THE FOREIGN EXCHANGE FLUCTUATI ON EXPENSES ON ACCOUNT OF IMPORT OF RAW MATERIAL AS COMMON EXPENSE S. MORE SO, WHEN THE ASSESSEE HAS ITSELF DEBITED EXPENSES OF RS .30,49,679/- IN THE BOOKS OF ACCOUNT ON ACTUAL BASIS REALLOCATING T HE AMOUNT OF RS.26,83,392/- ON THE BASIS OF PROPORTIONATE SALE B Y THE AO IS A PATENT ILLEGALITY, RESULTING INTO DOUBLE DEDUCTION OF THE COST IN THE BOOKS OF UNIT-III. SO, WE ARE OF THE CONSIDERED VI EW THAT FINDINGS RETURNED BY THE LD. CIT (A) QUA DELETION OF DISALLO WANCE OF RS.26,83,392/- OF DEDUCTION U/S 80IB OF THE ACT ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION EXPENSES TO UNIT - III NEED NO INTERFERENCE, HENCE UPHELD. 12. NOW, THE SECOND QUESTION ARISES FOR DETERMINATI ON IN THIS CASE IS : ITA NO.3093/DEL./2008 8 AS TO WHETHER EXPENDITURE RELATING TO SPECIAL DISC OUNT AND COMMISSION & DISCOUNT ARE REQUIRED TO BE ALLOCA TED LIKE OTHER EXPENDITURE PROPORTIONATE TO THE TURNOVE R AMONGST UNIT NO.II AND PPD UNIT NO.-III, AS HAS BEE N DONE BY AO? 13. FROM THE SCRUTINY OF BOOKS OF ACCOUNT AND VOUCH ER RELIED UPON BY THE ASSESSEE, AO NOTICED THAT IN THE COMMIS SION ACCOUNT, THE EXPENDITURE PERTAINING TO PPD UNIT IS ONLY 55% WHEREAS THE CORRESPONDING SALE PERCENTAGE IS 64% MEANING THEREB Y THE EXPENSES ARE ON LOWER SIDE. 14. WHEN IT IS NOT IN DISPUTE THAT THE CHEMICAL AS WELL AS PHOTOGRAPHIC PAPER SOLD BY THE ASSESSEE COMPANY ARE BEING PRODUCED BY INDEPENDENT UNITS, THE SPECIAL DISCOUNT OFFERED HAS TO BE CALCULATED INDEPENDENTLY FOR THE PURPOSE OF 80IB QUA UNIT-III. WHEN IT IS UNDISPUTED CASE OF THE ASSESSEE THAT, THE CUSTOMERS WHO PURCHASED CHEMICALS WERE ALSO ASKED TO PURCHASE THE PHOTOGRAPHIC PAPER PRODUCED AT VARIOUS OTHER UNITS OF THE ASSESSEE SO AS TO QUALIFY FOR COMMISSION, THE ACTUAL BENEFIC IARY OF THE DISCOUNT SCHEME IS THE PAPER PRODUCING DIVISION WHI CH IS UNIT-II AND PPD UNIT AT DADRA. IN OTHER WORDS, IF CLIENT DOES NOT PURCHASE PHOTOGRAPHIC PAPER THEN HE IS NOT ELIGIBLE FOR DISCOUNT ON CHEMICAL. SO, WE ARE OF THE CONSIDERED VIEW THAT T HE ENTIRE SCHEME FOR EXTENDING DISCOUNT HAS BEEN LAUNCHED TO INCREAS E THE SALE OF PHOTOGRAPHIC PAPER BEING PRODUCED AT UNIT-II AND PP D UNIT AND AS ITA NO.3093/DEL./2008 9 SUCH, EXPENDITURE RELATING TO DISCOUNT/COMMISSION I S REQUIRED TO BE ALLOCATED TO BOTH THE UNITS PROPORTIONATELY. 14. SO WHEN THE ASSESSEE HAS ITSELF BIFURCATED THE OTHER EXPENDITURE ON PROPORTIONATE BASIS ON THE TURNOVER THE EXPENDITURE PERTAINING TO SPECIAL DISCOUNT AND COMMISSION OR AL SO REQUIRED TO BE BIFURCATED, AS HAS BEEN DONE BY THE AO. 15. FINDINGS OF THE LD. CIT (A) THAT, THE COMMISSION EXPENSES BY ITS VERY NATURE IS PRODUCT SPECIFIC UNLESS SOME MATERIAL SUGGESTING OTHERWISE IS BROUGHT ON RECORD BY THE AS SESSING OFFICER, ARE NOT TENABLE BECAUSE WHEN IT IS ADMITTED CASE O F THE ASSESSEE THAT THE COMMISSION/DISCOUNT ON CHEMICAL I S AVAILABLE ONLY TO THE CUSTOMER WHO PURCHASES PHOTOGRAPHIC PAP ER ALSO WHICH IS BEING PRODUCED BY UNIT-II QUA FOR WHICH NO DEDUC TION HAS BEEN CLAIMED AND 100% DEDUCTION IS CLAIMED QUA PPD UNIT U/S 80IB. HAD THERE NOT BEEN ANY SUCH CONDITION TO PURCHASE T HE PHOTOGRAPHIC PAPER SO AS TO QUALIFY FOR DISCOUNT FO R PURCHASING CHEMICAL ALONG WITH PAPER FROM PPD UNIT, THERE WOUL D HAVE NOT BEEN ANY NEED TO BIFURCATE THE OTHER EXPENSES PROPO RTIONATELY. SO, IN THE INSTANT CASE, COMMISSION EXPENSES ARE NOT P RODUCTS SPECIFIC RATHER INTRICATELY INTER-WOVEN. SO, WE A RE OF THE CONSIDERED VIEW THAT THE LD. CIT (A) HAS ERRED IN D ELETING THE ALLOCATION OF THE COMMISSION EXPENSES AND DISALLOWI NG THE ITA NO.3093/DEL./2008 10 DEDUCTION U/S 80IB PROPORTIONATELY. SO, THE FINDIN GS RETURNED BY THE LD. CIT (A) ARE HEREBY SET ASIDE AND FINDINGS R ETURNED BY THE AO ARE HEREBY RESTORED. RESULTANTLY, PRESENT APPEA L FILED BY THE REVENUE IS HEREBY PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS DAY 27 TH OF OCTOBER, 2016. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) VICE PRESIDENT JUDICIAL MEMBER DATED THE 27 TH DAY OF OCTOBER, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-VII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.