ALCHMEIE FINANCIAL SERVICES LTD, MUMBAI V. DCIT 10(3), MUMBAI

ITA 334/MUM/2010

• Counselvise Citation: 33419914 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 13-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Keywords: Business expenditure; Opportunity of being heard
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A : MUMBAI BEFORE SHRI D. MANMOHAN, (VP) AND SHRI R.K. PANDA ,(AM) ITA NO.334/MUM/2010 ASSESSMENT YEAR :2003-04 ITA NO.335/MUM/2010 ASSESSMENT YEAR :2004-05 ALCHEMIE FINANCIAL SERVICES LIMITED 2 ND FLOOR, UDYOG KSHETRA MULUND GOREGAON LINK ROAD OFF L.B.S. ROAD, MULUND(W) MUMBAI-400 080. ..( APPELLANT ) P.A. NO. (AAACA 0948 C) VS. DY. COMMISSIONER OF INCOME TAX RANGE-10(3) MUMBAI. ..( RESPONDENT ) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : SHRI P .K.B. MENON O R D E R PER R.K. PANDA (AM). THE ABOVE TWO APPEALS FILED BY THE ASSESSEE ARE DIR ECTED AGAINST THE SEPARATE ORDERS DATED 5.11.2009 AND 9.11.2009 OF TH E CIT(A)XXII, MUMBAI RELATING TO ASSESSMENT YEARS 2003-04 AND 2004-05 RE SPECTIVELY. SINCE IDENTICAL ISSUES ARE INVOLVED IN BOTH THESE APPEALS , THEREFORE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER. ITA NO.334/M/2010 (ASSESSMENT YEAR : 2003-04): ITA NO.334 & 335/M/10 AY:03-04 & 04-05 2 2. IN GROUND OF APPEAL NO.1 THE ASSESSEE HAS CHALLE NGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OF FICER IN REALLOCATING EXPENSES BETWEEN FINANCIAL SERVICES AND MANUFACTURI NG ACTIVITIES FOR WORKING OUT THE PROFIT OF 80IB UNIT. 2.1 FACTS OF THE CASE IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80IB AMOUNTING TO RS.31,72, 217/-. HE NOTED THAT THE ASSESSEE COMPANY HAS A MANUFACTURING UNIT NAMEL Y M/S. AMULYA ENGINEERS, WHICH IS ENGAGED IN THE BUSINESS OF MANU FACTURING CHEMICAL PLANTS/EQUIPMENTS, SUCH AS RECEIVERS, STORAGE TANKS , REACTION VESSELS, HEAT EXCHANGERS, ALUMINUM VESSELS ETC. AND THE MANUFACTU RING UNIT ENJOYS DEDUCTION UNDER SECTION 80IB. HE OBSERVED THAT THE APPORTIONMENT OF EXPENSES BETWEEN FINANCIAL SERVICE AND MANUFACTURIN G ACTIVITIES OF THE ASSESSEE COMPANY WERE BEING DONE ON THE BASIS OF TH E RATIO OF THE FIXED ASSETS PERTAINING TO THE TWO ACTIVITIES. HE FURTHER NOTED THAT THE FIXED ASSETS ATTRIBUTED TO M/S. AMULYA ENGINEERS ARE ONLY 14% OF THE TOTAL ASSETS WHICH IS VERY LOW AS COMPARED TO THE ASSETS OF THE FINANCIAL SERVICE UNIT. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY I S CONSISTENTLY FOLLOWING THIS METHOD BUT HAS NOT DISCHARGED THE ONUS OF EXPL AINING AS TO HOW EACH ASSET OF THE ASSESSEE COMPANY IS EITHER ENGAGED IN FINANCE ACTIVITIES OR MANUFACTURING ACTIVITIES. HE FURTHER NOTED THAT OUT OF TOTAL TURNOVER OF THE COMPANY SHARE OF M/S. AMULYA ENGINEERS WAS 92.26%. THE ASSESSING OFFICER GAVE COMPLETE CHART OF EXPENSES IN ASSESSME NT ORDER IN PARA-4 ON PAGE-3 AND ARRIVED AT THE CONCLUSION THAT ASSESSEE COMPANY HAS ALLOCATED FROM THE COMMON EXPENSES, BEING BUSINESS EXPENSES A ND INTEREST IN FINANCIAL EXPENSES AN AMOUNT OF RS.4,15,035/- AS AG AINST REALLOCATED EXPENSES OF RS.18,23,101/- AND BY THIS METHOD OF AL LOCATION, IT HAS CLAIMED RS.14,08,066/- LESS EXPENSES TOWARDS MANUFACTURING ACTIVITY BY ATTRIBUTING SAME TOWARDS FINANCIAL ACTIVITY. THUS, MORE PROFIT WAS SHOWN IN THIS UNIT TO CLAIM HIGHER DEDUCTION UNDER SECTION 80IB. IN VIEW OF THE ABOVE FACTS, ASSESSING OFFICER REDUCED FROM THE PROFIT OF M/S. A MULYA ENGINEERS UNIT, THE ITA NO.334 & 335/M/10 AY:03-04 & 04-05 3 EXPENSES AT RS.14,08,066/- AND ALLOWED DEDUCTION @ 30% WHICH WORKS OUT TO RS.27,50,097/- AS AGAINST RS.31,72,217/- CLAIMED BY THE ASSESSEE. 2.2 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE HAS TWO TYPES OF BUSINESS ACTIVITY VIZ. ONE IS ENGINEERING DIVISI ON (AMULYA) AND THE OTHER IS LEASING AND FINANCING ACTIVITY. IT WAS STATED THAT THE ASSESSEE HAS A NEW INDUSTRIAL UNDERTAKING AT DADRA IN THE NAME OF M/S. AMULYA ENGINEERS AND THIS UNIT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 8 0 IB AND FORMS A PART OF MANUFACTURING ACTIVITY OF THE ASSESSEE. IT WAS SUB MITTED THAT THE ASSESSEE MAINTAINS SEPARATE BOOKS OF ACCOUNT FOR ITS LEASING AND FINANCIAL ACTIVITY AND FOR ITS MANUFACTURING UNIT AT DADRA. IT WAS STATED THAT SIMILAR PRACTICE OF ALLOCATING EXPENSES IS BEING FOLLOWED SINCE ASSESSM ENT YEAR 1997-98 AND IT HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER ASSESSMENT YEARS. THE ASSESSEE FURTHER STATED THAT THE ASSESSING OFFICER HAS RE-ALLOCATED EXPENSES AS EMPLOYEE COST, STAFF WELFARE, REPAIR AND MAINTEN ANCE ETC., WHICH IS NOT CORRECT. THE ASSESSEE ALSO STATED THAT THE METHOD OF ALLOCATION ADOPTED BY THE ASSESSING OFFICER IS INCORRECT. THE ASSESSEE A LSO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF STERLING FOODS (237 ITR 579). IN VIEW OF THE ABOVE THE ASSESSEE REQUESTED THAT RELIEF UND ER SECTION 80 IB MAY BE ALLOWED. 2.3 HOWEVER THE CIT(A) WAS NOT CONVINCED WITH THE EX PLANATION GIVEN BY THE ASSESSEE AND UPHELD THE ACTION OF THE ASSESSING OFFICER. WHILE DOING SO HE NOTED THAT THE ASSESSEE COULD NOT PROVIDE ANY BA SIS FOR THE ALLOCATION OF EXPENSES REGARDING EMPLOYEE COST, STAFF WELFARE, RE PAIR AND MAINTENANCE EXPENSES. SIMILARLY FOR COMMUNICATION COST THE ASS ESSEE FILED DETAILS WHICH INCLUDE CASH EXPENSES AND FOR WHICH THERE IS NO EVI DENCE BEING RELATED TO A PARTICULAR UNIT. THE TELEPHONE NO.25369935 CLAIMED TO BE INSTALLED AT THE BOMBAY OFFICE IS ACTUALLY INSTALLED AT THE RESIDENC E. THERE IS NO PROOF THAT ALLOCATION CLAIMED BY THE ASSESSEE IS FOOL PROOF. NO DETAILS REGARDING EXPENSES CLAIMED FOR PROFESSION AND LEGAL CHARGES W ERE FURNISHED. HE FURTHER NOTED THAT INTEREST AND BANK CHARGES IS DEB ITED TO LEASING UNIT ONLY ITA NO.334 & 335/M/10 AY:03-04 & 04-05 4 ON THE GROUND THAT MANUFACTURING UNIT IS HAVING SUF FICIENT CAPITAL. HOWEVER, HE NOTED FROM THE BALANCE SHEET OF M/S. AMULYA ENGI NEERS I.E. THE MANUFACTURING UNIT THAT THERE IS A LOAN OUTSTANDING . FURTHER THE ASSESSEE ALSO FAILED TO PROVE THAT THE BORROWED FUNDS WHICH WERE UTILIZED BY THE COMPANY WERE NOT UTILIZED BY THE MANUFACTURING UNIT DURING THE YEAR UNDER CONSIDERATION. THE DETAILS OF OTHER EXPENSES WERE ALSO NOT FILED. HE ACCORDINGLY REJECTED THE CONTENTION OF THE ASSESSEE THAT DIRECT EXPENSES ARE CLEARLY ATTRIBUTABLE TO PARTICULAR UNIT. FURTHER, THE CIT(A) IN PRECEDING ASSESSMENT YEAR HAS CONFIRMED THE ACTION OF THE ASS ESSING OFFICER IN ALLOCATING THE COMMON EXPENSES ON TURN OVER BASIS A ND THE ASSESSEE HAS NOT PREFERRED ANY APPEAL BEFORE THE TRIBUNAL WHICH SHOW S THAT THE ASSESSEE HAS ACCEPTED THE SAME. HE ALSO DISTINGUISHED THE VARIOU S DECISIONS CITED BEFORE HIM AND UPHELD THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED WITH SUCH ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US . 3. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITTED THAT THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION, SINCE THE DIRECT EXPENSES ATTRIBUTABL E TO A PARTICULAR UNIT HAS TO BE DEBITED TO THAT UNIT AND THE COMMON EXPENSES ARE TO BE ALLOCATED TO DIFFERENT UNITS ON THE BASIS OF FORMULA CONSISTENTL Y ADOPTED BY DIFFERENT ASSESSING OFFICERS IN DIFFERENT ASSESSMENT YEARS WH ICH HAS BEEN UPHELD BY THE CIT(A) AND FOR WHICH THE ASSESSEE HAS NOT GONE ON APPEAL. HE, ACCORDINGLY, SUBMITTED THAT THE MATTER MAY BE SET A SIDE TO THE FILE OF THE ASSESSING OFFICER. 4. THE LD. DR ON THE OTHER HAND WHILE SUPPORTING TH E ORDER OF CIT(A) FAIRLY AGREED THAT HE HAS NO OBJECTION IF THE MATTE R IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. 5. AFTER HEARING BOTH SIDES AND IN VIEW OF THE SUBM ISSION BY BOTH SIDES THAT MATTER SHOULD GO BACK TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION, WE IN THE INTEREST OF JUSTICE DEEM IT PROPER TO RES TORE THE ISSUE TO THE FILE OF ITA NO.334 & 335/M/10 AY:03-04 & 04-05 5 THE ASSESSING OFFICER FOR FRESH ADJUDICATION. WHIL E DOING SO THE ASSESSING OFFICER SHALL KEEP IN MIND THE ALLOCATION OF VARIOU S EXPENSES, BOTH DIRECT AND COMMON, TO VARIOUS UNITS AS DONE BY HIS PREDECESSOR S AND THE OUTCOME OF THE SAME ON APPEAL. THE ASSESSING OFFICER SHALL GI VE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND OF APPEAL NO.2 WAS NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE FOR WHICH THE LD. DR HAS NO OBJECTION. ACC ORDINGLY THE SAME IS DISMISSED AS NOT PRESSED. 7. GROUND OF APPEAL NO.3 BEING GENERAL IN NATURE IS BEING DISMISSED. ITA NO.335/MUM/2010 (ASSESSMENT YEAR 2004-05): 8. IN GROUND OF APPEAL NO.1 THE ASSESSEE HAS CHALLE NGED THE ORDER OF CIT(A) IN CONFIRMING REALLOCATION OF EXPENSES BET WEEN FINANCIAL SERVICES AND MANUFACTURING ACTIVITIES FOR WORKING OUT THE PROFIT OF 80IB UNIT. 9. AFTER HEARING BOTH SIDES WE FIND THAT THE ABOVE GROUND IS IDENTICAL TO GROUND NO.1 IN ITA NO.334/M/2010. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE ASSESSEE HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. FOLLOWING THE SAME RATIO WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. THIS GROUND BY THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 10. GROUND OF APPEAL NO.2 WAS NOT PRESSED BY THE LD . COUNSEL FOR THE ASSESSEE FOR WHICH THE LD. DR HAS NO OBJECTION, ACC ORDINGLY THE SAME IS DISMISSED. 11. GROUND OF APPEAL NO.3 BEING GENERAL IN NATURE I S DISMISSED. ITA NO.334 & 335/M/10 AY:03-04 & 04-05 6 12. IN THE RESULT, BOTH THE APPEALS BY THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30.6.2011. SD/- SD/- (D. MANMOHAN) ( R.K. PANDA ) VICE PRESIDENT ACCOUNTANT ME MBER MUMBAI, DATED: 30.6.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.