ACIT, Ludhiana V. M/s Saimbhi Cycles & Auto Industries, Ludhiana

ITA 34/CHANDI/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2320 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N K SAINI
• Keywords: Business income; Fair market value
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 34/CHD/2011 ASSESSMENT YEAR: 2007-08 THE ACIT, VS M/S SAIMBHI CYCLES & AUTO INDUSTRIES , CIRCLE-1, LUDHIANA LUDHIANA PAN NO. AAUFS9783N & C.O. NO.24/CHD/2011 (IN ITA NO. 34/CHD/2011) ASSESSMENT YEAR: 2007-08 M/S SAIMBHI CYCLES & AUTO INDUSTRIES, VS THE ACI T, CIRCLE-1, LUDHIANA LUDHIANA PAN NO. AAUFS9783N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SHRI N.K. SAINI DATE OF HEARING : 16.4.2013 DATE OF PRONOUNCEMENT : 29.4.2013 ORDER PER T.R.SOOD, AM THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTIO N FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(A)-I , LUDHIANA DATED 29.10.2010 RELATING TO ASSESSMENT YEAR 2007-08. 2 2. THE REVENUE RAISED THE FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DE LETING THE ADDITION MADE BY AO OF RS. 49,97,319/- ON ACCOU NT OF SALE MADE TO SISTER CONCERN AT LOWER RATES IGNORING THE FACT THAT THE AO HAS CLEARLY BROUGHT OUT THE FACT THAT T HE SALE MADE TO SISTER CONCERN WAS AT THE RATES LOWER THAN THAT TO OTHER NON-RELATED CONCERNS. 2. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN AL LOWING DEDUCTION U/S 80IB ON INCOME EARNED FROM JOB WORK, WHEREAS THE INCOME FROM JOB WORK CARRIED OUT BY THE ASSESSEE DOES NOT FORM PART OF INCOME DERIVED FORM THE UNDERTAKING AND HAS NO NEXUS WITH THE BUSINESS OF INDUSTRIAL UNDERTAKING OF THE ASSESSEE. 3. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS DELET ING THE ADDITION MADE BY AO ON ACCOUNT OF BONUS (RS. 5,75,4 66/-) AND WAGES (RS. 1,38,346/-) WHEN THE AO HAS CLEARLY BROUGHT OUT IN THE ASSESSMENT ORDER THAT THE NO BON US AND LEAVE WITH WAGES PAYMENTS WERE MADE TO WORKERS AND THAT ONLY FALSE EXPENSES WERE BOOKED. 3. GROUND NO.1: AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT OUT OF TOTAL SALES OF RS. 8,28,44,016/-, THE ASSESSEE HAD MADE SALES A MOUNTING OT RS. 6,66,30,924/- TO ITS SISTER CONCERN M/S DARSHAN UDY OG. THE ASSESSEE WAS ASKED TO JUSTIFY THE RATAE OF SALES TO THE SISTER C ONCERN BECAUSE IT WAS OBSERVED THAT SALES HAVE BEEN MADE AT MUCH LOWER RA TE TO THE SISTER CONCERN. 3 IN RESPONSE TO THIS QUERY, THE ASSESSEE FILED REPLY VIDE LETTER DATED 8.12.2009 AND 14.12.2009, WHICH READ AS UNDER:- 1. SAIMBHI CYCLE & AUTO INDUSTRIES UNIT NO. 2 AND ITS SISTER CONCERN M/S DARSHAN UDYOG BOTH ARE PARTNERSHIP FIRM S AND PROFIT EARNING UNITS. SAIMBHI CYCLE AND AUTO INDUST RIES UNIT NO. 2 HAS DECLARED INCOME RS. 6,99,890/- AND DARSHA N UDYOG HAS DECLARED INCOME OF RS. 4,94,350/- DURING THE YE AR UNDER CONSIDERATION. IN CASE OF SAIMBHI CYCLE & AUTO INDU STRIES UNIT NO. 2, WE ARE CLAIMING DEDUCTION U/S 80IB OF T HE INCOME TAX, 1961@ 25% OF THE PROFIT WHERE DARSHAN UDYOG IS NOT ELIGIBLE FOR ANY SUCH DEDUCTION. AS SUCH, EFFECTIVE RATE OF INCOME TAX FOR SAIMBHI CYCLE AND AUTO INDUSTRIES UN IT NO. 2 AFTER CLAIMING DEDUCTION COMES TO 22.50% WHEREAS IN CASE OF DARSHAN UDYOG RATE OF INCOME TAX IS 30%. AS SUCH, T HERE IS NO BENEFIT IN SUPPRESSING INCOME IN CASE OF SAIMBHI CYCLE AND AUTO INDUSTRIES UNIT NO. 2. COPIES OF TRADING A ND PROFIT AND LOSS A/C, BALANCE SHEET, INCOME TAX ACKNOWLEDGE MENT RECEIPT AND COMPUTATION OF INCOME OF DARSHAN UDYOG HAVE ALREADY BEEN SUBMITTED WITH YOUR GOODSELF VIDE LETT ER DATED 02.12.2009. 2. SALE RATE TO SISTER CONCERN WITH SALE RATE TO OTHER PARTIES IS NOT COMPARABLE AS NO SALE HAS BEEN MADE TO OTHER PA RTIES DURING THE PERIOD IN WHICH SALE HAS BEEN MADE TO SI STER CONCERN. 3. CYCLE RIMS HAVE BEEN SOLD TO SISTER CONCERN IN LOOS E FORM WITHOUT PACKING WHEREAS TO OTHER PARTIES HAVE BEEN SOLD IN BUNDLES WHICH IS CLEAR FROM THE PACKING EXPENDITURE AS PER TRADING A/C OF DARSHAN UDYOG AS WELL AS DETAIL OF B UNDLE 4 CASES MENTIONED IN THE SALE BILLS. IN CASE OF SALE BILLS TO OTHER PARTIES, DETAIL OF BUNDLE / CASES HAS BEEN ME NTIONED. 4. THERE IS INCREASE IN PURCHASE RATE OF C.R. STRIP/SH EET. IT HAS INCREASED FROM RS. 34,700/- PER TON IN APRIL 2006 T O RS. 37,3000/- PER TON IN MARCH 2007. PURCHASE RATE OF N ICKEL HAS INCREASED FROM RS. 813/- PER KG IN APRIL 2006 TO RS . 2250/- PER KG IN MARCH, 2007. THE BILL WISE DETAILS SHOWIN G PURCHASE RATE IS ENCLOSED FOR YOUR KIND REFERENCE. THE PURCHASE RATES OF OTHER NICKEL CHEMICALS HAVE ALSO INCREASED. THESE HAVE RESULTED IN INCREASE IN SALE PRICE FROM TIME TO TIME. 5. SALE TO OTHER PARTIES HAS BEEN MADE IN THE MONTH OF FEBRUARY AND MARCH, 2007 WHEREAS SALE TO SISTER CONCERN HAS BEEN MADE FROM APRIL 2006 TO FEBRUARY 2007. AS SUCH, SAL E RATE TO OTHER PARTIES IN FEBRUARY / MARCH 2007 CANNOT BE CO MPARED WITH SALE RATE TO SISTER CONCERN FOR THE EARLIER PE RIOD DUE TO INCREASE IN PURCHASE RATE OF RAW MATERIAL AND NICKE L ETC. AS MENTIONED IN PARA 4 ABOVE. 6. SALE RATE DEPENDS UPON MANY FACTORS SUCH AS PURCHAS E RATE OF MATERIAL AND INPUT AS WELL AS QUALITY OF GOODS TO B E SUPPLIED NEGOTIATED WITH THE BUYERS AND THEIR DEMAND. SO, TH ERE CANNOT BE ANY HARD AND FAST RULE OF FIXATION OF SAL E RATE. BUSINESSMAN IS CONCERNED WITH THE PROFIT ONLY AND N EGOTIATES SALE RATE AND QUALITY OF GOODS TO BE SOLD ACCORDING LY. IT IS CLEAR FROM THE SUBMISSIONS AND DETAILS THAT N EITHER THE PROFIT OF THE FIRM HAS BEEN SUPPRESSED DUE TO DIFFERENCE I N SALE RATE TO 5 SISTER CONCERN WITH OTHER PARTIES NOR IT IS BENEFIC IAL FOR US TO SUPPRESS THE PROFIT. 4. HOWEVER, ASSESSING OFFICER WAS NOT SATISFIED AND HE WAS OF THE OPINION THAT SALES HAVE BEEN MADE AT A LOWER RATE A ND ULTIMATELY HE COMPUTED EXTRA GP ON ACCOUNT OF LOWER RATE OF SALES TO THE S ISTER CONCERN @ 7.50% AND MADE ADDITION OF RS. 49,97,319/- TO THE INCOME OF T HE ASSESSEE. 5. BEFORE LD. CIT(A) SIMILAR SUBMISSIONS WERE MADE. THE LD. CIT(A) AGREED WITH THE SUBMISSIONS AND DELETED THE ADDITIO N. 6. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE ORD ER OF THE ASSESSING OFFICER. 7. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE SUPPORTED THE IMPUGNED ORDER. HE ALSO RELIED ON THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF CIT & ANR VS GLAXO SMITHKLINE ASIA (P) LTD (2010) 236 CTR (SC) 113 WHEREIN IT HAS BEEN HELD THAT THE SALES MA DE TO THE SISTER CONCERN AT LOWER RATE WOULD BE OF NEUTRAL NATURE AND THERE WAS NO PROVISION IN THE ACT TO ESTIMATE THE FAIR MARKET VALUE OF SUCH SALES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. WE FIND THAT FIRST OF ALL THE ASSESSEE IS A CONCERN WHEREIN ASSESSEE W AS ENTITLED TO DEDUCTION U/S 80IB OF THE ACT @ 25% WHICH WOULD MEAN THAT EFFECT IVE TAX RATE WOULD BE 6 22.50% WHEREAS THE SISTER CONCERN M/S DARSHAN UDGOG IS REQUIRED TO PAY TAX @ 30%, THEREFORE, THERE WAS NO INCENTIVE TO MAKE SA LES AT LOWER RATE. IN ANY CASE, IN THE DETAILED SUBMISSIONS BEFORE THE ASSESS ING OFFICER AND CIT(A) IT DEMONSTRATED THAT THE PRACTICALLY NO SALES HAVE BEE N MADE TO OUTSIDE PARTIES AND THEREFORE, COMPARISON IS NOT CORRECT. IN ANY C ASE, THE HON'BLE SUPREME COURT IN THE CASE OF CIT V GLAXO SMITHKINE ASIA(P) LTD HAS CLEARLY HELD THAT SINCE THERE WAS NOT PROVISION TO MAKE ADDITION ON A CCOUNT OF RECEIPTS WHICH ARE AT LESS THAN THE FAIR MARKET VALUE, THEREFORE, SUCH ADDITIONS ARE NOT JUSTIFIED. IN THESE CIRCUMSTANCES, WE FIND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND WE CONFIRM THE SAME. 9. GROUND NO.2: AFTER HEARING BOTH THE PARTIES WE FIND THAT ASSES SEE HAD MADE CLAIM FOR DEDUCTION AGAINST TRADING RECEIPTS, LABOUR / JOB WORK INCOME, COMPUTER INCOME, INTEREST INCOME AND RENTAL INCOME. ACCORDING TO ASSESSING OFFICER, THESE INCOMES WERE NOT DERIVED F ROM INDUSTRIAL UNDERTAKING; THEREFORE, ASSESSEE WAS DENIED DEDUCTI ON U/S 80 IB OF THE ACT. 10. ON APPEAL BEFORE THE CIT(A), CERTAIN ITEMS WERE SURRENDERED AND IT WAS ADMITTED THAT DEDUCTION WAS NOT ADMISSIBLE AGAI NST TRADING RECEIPTS. HOWEVER, THE ASSESSEE INSISTED ON DEDUCTION ON OTHE R ITEMS. THE LD. CIT(A) DISCUSSED THE ISSUE IN DETAIL AND ALLOWED DEDUCTION U/S 80 IB ONLY IN RESPECT OF LABOUR RECEIPTS VIDE PARA 4.4 WHICH IS AS UNDER: - 7 IN VIEW OF THE ABOVE DISCUSSION, DISALLOWANCE OF D EDUCTION U/S 80 IB ON TRADING RECEIPTS, RENTAL INCOME, COMPU TER RECEIPTS AND INTEREST INCOME IS UPHELD AND IS ALLOW ED ON LABOUR RECEIPTS. 11. THE LD. DR STRONGLY SUPPORTED THE ASSESSMENT OR DER. 12. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS I MPEL FORGE ALLIED INDUSTRIES LTD (2009) 183 TAXMAN 38 (P&H) HAS HELD THAT DEDUCTION U/S 80 IB OF THE ACT IS AVAILABLE EVEN AGAIN THE JOB WORK. 13. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT HON'BLE PUNJAB & HARYANA HIGH COURT HAS CLEARLY HELD THAT ONCE IT IS FOUND THAT ASSESSEE IS DERIVING INCOME FROM ELIGIBLE BUSINESS COVERED BY U /S 80 IB, THEN ASSESSEE IS AT LIBERTY TO DO MANUFACTURING ACTIVITY NOT ONLY FO R HIMSELF BUT FOR OTHERS ALSO AND CONSEQUENTLY DEDUCTION U/S 80 IB WAS AVAIL ABLE IN RESPECT OF JOB WORK ALSO. FOLLOWING DECISIONS WOULD ALSO ENTITLE DEDUCTION U/S 80 IB IN RESPECT OF LABOUR CHARGES AND ACCORDINGLY WE CONFIR M THE ORDER OF LD. CIT(A). 14. GROUND NO.3 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAS MADE A CLAIM FOR BONUS AMOUNTING TO RS. 5,75,466/- AND L EAVE ENCASHMENT AMOUNTING TO RS. 1,38,346/-. ON VERIFICATION OF TH E SALARY AND WAGES 8 REGISTER, THE ASSESSING OFFICER FOUND THAT SOME OF THE SIGNATURES OF WORKERS DID NOT MATCH. THEREFORE, SOME OF THE WORKERS WERE SUMMONED AND WORKERS DID APPEAR BEFORE THE ASSESSING OFFICER ON THE BAS IS OF THE STATEMENTS RECORDED, THE ASSESSING OFFICER OBSERVED THAT WORKE RS WERE ABLE TO TELL THAT THEY HAVE WORKED FOR CERTAIN NUMBER OF YEARS BUT FA ILED TO TELL THE EXACT YEAR I.E. 2003 OR 2004 ETC. IN RESPECT OF THE QUERY RE GARDING SALARY, WORKERS TOLD THE FIGURES AS MENTIONED IN THE REGISTER. IN RESPE CT OF BONUS AND LEAVE SALARY, IT WAS STATED THAT BONUS IS PAID AT 20% AND LEAVE WITH WAGES FOR 15 DAYS BUT WORKERS COULD NOT TELL THE EXACT AMOUNT OF BONUS OR LEAVE WAGES. ON THE BASIS OF THIS BACKGROUND, THE ASSESSING OFFICER DISALLOWED THE AMOUNT. 15. ON APPEAL BEFORE THE LD. CIT(A) IT WAS SUBMITT ED THAT ASSESSEE WAS PAYING BONUS @ 20% OF THE WAGES AND LEAVE ENCASHMEN T WITH @ 15 DAYS WAGES. THE WORKINGS WERE PRESENTED BEFORE THE ASSES SING OFFICER WHO HAD CONFIRMED THESE PAYMENTS. ON 24.12.2009, SOME MORE WORKERS WERE PRODUCED. THE ASSESSING OFFICER REFUSED TO RECORD T HEIR STATEMENT AND THE ADDITION HAS BEEN MADE ON FLIMSY GROUNDS. THE LD. CIT(A) EXAMINED THOSE SUBMISSIONS AND DELETED THE ADDITION. 16. BEFORE US, THE LD. DR RELIED ON THE ORDER OF TH E ASSESSING OFFICER. 17. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE STRONGLY SUPPORTED THE IMPUGNED ORDER. 9 18. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE LD. CIT(A) HAS DEALT WITH THIS ISSUE VIDE PARAS 6.2 TO 6.5 WHI CH ARE AS UNDER:- 6.2 THE ASSESSEE HAS CLAIMED BONUS EXPENDITURE OF RS. 5,75,466/- AND LEAVE WITH WAGES OF RS. 1,38,346/-. ON VERIFICATION OF THE SALARY, BONUS AND LEAVE WITH WA GES REGISTERS, THE ASSESSING OFFICER FOUND THAT THE SIG NATURES OF THE RECIPIENTS DID NOT MATCH. THE ASSESSING OFFI CER THEREFORE, IMPOUNDED THE BOOKS FOR FURTHER VERIFICA TION. SOME OF THE WORKERS WERE SUMMONED BY THE ASSESSING OFFICER AND THEIR STATEMENTS WERE RECORDED. THE ASS ESSING OFFICER HAS OBSERVED THAT THE WORKERS WHO WERE PROD UCED BY THE ASSESSEE WERE PRODUCED AS PER ASSESSEES WIL L. THE ASSESSING OFFICER HAS OBSERVED THAT IN THEIR STATEM ENT, WORKERS HAVE TOLD THE NUMBER OF YEARS FOR WHICH THE Y WORKED BUT FAILED TO TELL THE YEAR. WHEN ASKED ABOU T THE SALARY THEY MERELY TOLD THE EXACT FIGURE AS WRITTEN IN THE SALARY REGISTER. THE WORKERS ALSO STATED THAT BONUS PAID WAS 20% AND LEAVE WITH WAGES WERE PAID OF 15 DAYS. THE WORKERS COULD NOT TELL THE ACTUAL AMOUNT OF BONUS A ND LEAVE WITH WAGES. THE WORKERS SAID THAT THEY USED T O SIGN ON THE RED REGISTER AND HAD NOT SEEN THE FILE COVER CONTAINING BONUS PAYMENT PROOF BEFORE. IN VIEW OF T HE ABOVE THE ASSESSING OFFICER CONCLUDED THAT BONUS AN D LEAVE WITH WAGES PAYMENTS ARE NOT ACTUALLY MADE AND ACCORDINGLY THE ASSESSING OFFICER DISALLOWED THE BO NUS EXPENDITURE OF RS. 5,75,466/- AND LEAVE WITH WAGES OF RS. 1,38,346/- TOTALING TO RS. 7,13,812/-. 10 6.3 THE AR, HOWEVER, HAS CONTENDED THAT THE ASSESSEE U NIT IS COVERED UNDER ESI AND PF ACT AND THE ASSESSEE IS ALSO MAINTAINING WAGES REGISTER AND BONUS REGISTER. THE WORKERS CONFIRMED THE RECEIPT OF PERCENTAGE OF BONU S AND LEAVE WITH WAGES. THEY HAVE ALSO IDENTIFIED AND CON FIRMED THEIR SIGNATURES ON THE REGISTERS AS PRESCRIBED UND ER LABOUR LAWS. THEY HAVE ALSO CONFIRMED THAT THEY WER E WORKING WITH THE APPELLANT FOR THE YEAR UNDER CONSIDERATION THE FACT WHICH WAS RECONFIRMED BY THE M IN THEIR CROSS EXAMINATION. 6.4 KEEPING IN VIEW OF THE ABOVE AND ALSO THE DETAILED SUBMISSIONS MADE BY THE AR AS REPRODUCED ABOVE, I A M OF THE OPINION THAT THE ASSESSING OFFICER HAS WRONGLY DISALLOWED THE ENTIRE BONUS AND LEAVE WITH WAGES AM OUNT ON WRONG APPRECIATION OF FACTS. IN FACT, THE AR HAS STATED THAT THE ASSESSING OFFICER ASKED THE APPELLANT ON 24.12.2009 TO PRODUCE MORE WORKERS ON 29.12.2009 BU T ON THAT DATE, THE ASSESSING OFFICER DID NOT RECORD THE IR STATEMENTS WHICH IS EVIDENT FROM THE ORDER SHEET EN TRY MADE ON THAT DATE: APPEARED MR. BAL MAHAJAN CA. WORKERS CROSS EXAMINED BY THE COUNSEL. NO OTHER STATEMENT RECORDED THOUGH WORKERS PRODUCED. 6.5 IN VIEW OF THE DISCUSSION, I AM OF THE OPINION THAT ADDITION MADE ON ACCOUNT OF BONUS AND LEAVE WITH WA GES IS UNJUSTIFIED, HENCE DELETED. 19. WE ARE OF THE OPINION THAT LD. CIT(A) HAS CORRE CTLY DELETED THE ADDITION BECAUSE WORKERS HAVE CLEARLY STATED THAT T HEY WERE BEING PAID BONUS 11 @ 20% AND LEAVE WITH WAGES FOR 15 DAYS. WORKERS SO ME TIME MAY NOT REMEMBER THE EXACT DATE OR YEAR FORM WHICH THEY STA RTED WORKING. IT IS VERY DIFFICULT TO EXPECT THE WORKERS TO REMEMBER THE EXA CT AMOUNT OF BONUS OR LEAVE WAGES. THE ASSESSING OFFICER HAS NOT GIVEN AN Y STRONG BASIS DISALLOWING THESE PAYMENTS. WE ARE OF THE VIEW THAT LD. CIT(A) HAS CORRECTLY DELETED THIS ADDITION. 20. IN THE RESULT, REVENUE APPEAL IS DISMISSED. C.O. NO. 24/CHD/2012 21. DURING THE COURSE OF HEARING, THE CROSS OBJECTI ONS WERE WITHDRAWN BY THE LD. COUNSEL FOR THE ASSESSEE AND THEREFORE, THE SAME ARE DISMISSED AS WITHDRAWN. 22. IN THE RESULT, CROSS OBJECTIONS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF APRIL, 2013. SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH APRIL, 2013 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR