ACIT, New Delhi V. M/s Sidwal Refrigiration Industries Ltd., New Delhi

ITA 3830/DEL/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 6766 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 09-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RIS GILL

Judgement Text

ITA NOS. 3620&3830/DEL/2009 A.Y. 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3620/DEL/2009 A.Y. : 2006-07 M/S SIDWAL REFRIGERATION INDUSTRIES LTD., 108-A, MADANGIR, NEW DELHI 110 062 (PAN: AABCS2363L) VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-8, NEW DELHI AND ITA NO. 3830/DEL/2009 A.Y. : 2006-07 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-8(1), ROOM NO. 163, CR BUILDING, NEW DELHI VS. M/S SIDWAL REFRIGERATION INDUSTRIES LTD., 108-A, MADANGIR, NEW DELHI 110 062 (PAN: AABCS2363L) (APPELLANT S ) (RESPONDENT S ) ASSEESSEE BY : SH. G.N. GUPTA, CA DEPARTMENT BY : S H. RIS GILL, C.I.T.(D.R.) ORDER PER SHAMIM YAHYA: AM THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENU E EMANATE OUT OF ORDER OF THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) DATED 3.6.1999 AND PERTAINS TO ASSESSMENT YEAR 2006-07. ITA NOS. 3620&3830/DEL/2009 A.Y. 2006-07 2 ASSESSEES APPEAL 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCO ME TAX (APPEALS) HAS ERRED IN REDUCING THE DEDUCTION OF ` 4,53,87,393/- CLAIMED BY THE ASSESSEE U/S 80IC OF THE IT ACT BY ` 1,62,57,270/-. HE ERRED IN HOLDING THAT THE NET PROFIT OF THE KALA A MB UNIT COULD NOT EXCEED 8.78% DESPITE THE FACT THAT THE ASSESSEE HAD DISCLOSED A CONSIDERABLE HIGHER NET PROFIT. IT IS FURTHER BE EN URGED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS IGNORED THE ORDER OF THE ITAT, DELHI FOR THE ASSESSMENT YEAR 2000-01 AND 200 1-02 IN ASSESSEES OWN CASE ON THE SAME ISSUE. 3. AT THE OUTSET OF HEARING LD. COUNSEL OF THE ASSE SSEE SUBMITTED THAT THE ISSUE RAISED IS COVERED BY VARIOUS DECISI ONS OF THE ITAT IN ASSESSEES OWN CASE AS THE FACTS REMAIN THE SAME IN THIS YEAR ALSO. 3.1 LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONSIDE RED THAT THE ISSUE RELATING TO DEDUCTION U/S. 80IC OF THE IT ACT IS CO VERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE. 3.2 WE FIND THAT ITAT IN ASSESSEES OWN CASE IN ITA NO. 3027/DEL/2010 FOR ASSESSMENT YEAR 2007-08 VIDE O RDER DATED 27.8.201 HAS ADJUDICATED THE ISSUE AS UNDER:- 3. AFTER HEARING BOTH THE SIDES, WE FIND THAT THE ISSU E RAISED IN GROUND NO.1 IS COVERED BY VARIOUS DECISIONS OF HON BLE ITAT. THE LD.CIT(A) DELETED THE ADDITION MADE BY T HE A.O. BY HOLDING AS UNDER. 4.1 IN THE APPELLANTS OWN CASE THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE APPELLANT BY THE LD. ITAT FOR THE EARLIER YEARS AND FOR THE A.Y. 05- 06, FOLLOWING THE DECISIONS OF LD. ITAT, I HAVE ACCEPTED THE SUBMISSION OF THE APPELLANT. AS ITA NOS. 3620&3830/DEL/2009 A.Y. 2006-07 3 THERE IS NO ADDITIONAL MATERIAL ON RECORD BROUGHT BY A.O. HENCE I HEREBY ORDER THE A.O. TO DELETE THE ADDITION OFRS.82,11,789/- WHICH WAS NOT ALLOWED BY HIM AS DEDUCTION U/S 80IC. 3.1 THE HONBLE ITAT WHILE DECIDING ITA 674/DEL/09 IN ASSESSEES OWN CASE FOR A.Y. 2004-05 HAS HELD AS UNDER. FROM THE ABOVE ORDER OF CIT(A) WE OBSERVE THAT HE HAS ENHANCED THE INCOME ONLY ON THE BASIS OF ASSUMPTIONS AND PRESUMPTIONS. HE HAS NOT PROPERLY APPRECIATED THE SUBMISSIONS OF THE ASSESSEE VIDE WHICH IT WAS EXPLAINED THAT HOW THERE WAS DISPARITY BETWEEN THE NET PROFIT SHOWN IN THE FARIDABAD UNIT AND KALA AMB UNIT. THE REASONS WERE EXPLAINED, WHICH HAVE NOT BEEN PROPERLY APPRECIATED. LD.CIT(A) HAS PROCEEDED TO MAKE AN ESTIMATE SIMPLY ON THE BASIS THAT WITH RESPECT TO EXPENSES LIKE AMC AND R&D ALLOCATION WAS NOT MADE. IN OUR OPINION THAT DOES NOT JUSTIFY THE ENHANCEMENT MADE BY LD.CIT(A). HE HAS SIMPLY IGNORED THE DECISION OF LD.CIT(A) AND ITAT IN EARLIER YEAR IN WHICH THE COMPUTATION MADE BY THE ASSESSEE WAS ACCEPTED. THE COMPUTATION OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION ALSO BASED ON SAME PRINCIPLE. IT HAS BEEN STATED BY LD.AR THAT FOR A.YS 2000-01 AND 2001-02 VIDE WHICH THE NECESSARY RELIEF WAS GIVEN BY THE ITAT VIDE ITS ORDER DT. 19 TH OCTOBER, 2007, THE DEPARTMENT HAS NOT FILED ANY APPEAL AGAINST THIS ISSUE AND THUS, THE ORDER OF THE TRIBUNAL HAS BECOME FINAL. THIS HAS SO BEEN SPECIFICALLY STATED IN GROUND NO.5. WE DO NOT APPRECIATE THE MANNER IN WHICH LD.CIT(A) HAS DEVIATED FROM THE EARLIER FINDINGS GIVEN BY THE APPELLATE AUTHORITY IN ASSESSEES OWN CASE. THE ISSUE IS SAME. DEVIATING FROM EARLIER YEARS IS NOT IN THE INTEREST OF JUSTICE AS PER WELL ITA NOS. 3620&3830/DEL/2009 A.Y. 2006-07 4 ESTABLISHED PRINCIPLES OF LAW. DECISION OF HIGHER APPELLATE AUTHORITY IS BINDING ON CIT(A) AS WELL. LD.CIT(A) HAS NOT MADE OUT ANY CASE TO JUSTIFY HIMSELF FOR DEVIATING WITH THE EARLIER DECISION IN THE CASE OF ASSESSEE BY HIS PREDECESSOR AS WELL AS BY THIS TRIBUNAL. WE HAVE ALREADY REPRODUCED THE RELEVANT PORTION OF ORDER OF ITAT VIDE WHICH SUCH ISSUE WAS DECIDED IN FAVOUR OF ASSESSEE. WE HAVE NO REASON TO DIFFER WITH THE SUCH FINDINGS OF ITAT IN ASSESSEES OWN CASE. THEREFORE, THERE IS NO JUSTIFICATION IN THE ORDER OF CIT(A) VIDE WHICH THE IMPUGNED ENHANCEMENT HAS BEEN MADE. THE SAME IS DELETED. 4. RESPECTFULLY FOLLOWING THE DECISION (SUPRA), WE DISMISS GROUND NO.1 OF REVENUES APPEAL. GROUND NO.2 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 3.3 SINCE THE FACTS IN THE PRESENT CASE ARE IDENTI CAL AND BOTH THE COUNSEL HAVE AGREED THAT THE ISSUE IS COVERED. RE SPECTFULLY, FOLLOWING THE PRECEDENT, WE SET ASIDE THE ORDERS OF THE AUTH ORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. REVENUES APPEAL 4. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOM E TAX (APPEALS) ERRED IN DELETING THE ADDITION OF ` 12,78 ,85,496/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INFLATED EXPEN SES AT FARIDABAD UNIT. 5. ON THIS ISSUE ASSESSING OFFICER NOTED THAT DURI NG THE YEAR UNDER CONSIDERATION AS IN EARLIER ASSESSMENT YEARS THE AS SESSEE COMPANY HAS TWO FACTORIES WHERE IT IS MANUFACTURING WATER CO OLERS, AIR ITA NOS. 3620&3830/DEL/2009 A.Y. 2006-07 5 CONDITIONERS, AS WELL AS PACKAGED AIR CONDITIONERS . ONE UNIT IS SITUATED AT FARIDABAD AND ANOTHER UNIT IS SITUATED A T MAINTHAPAL INDL. AREA, KALA AMB, NAHANT DISTT. SIRMOUR (H.P.). ASSESSEE HAD CLAIMED THE PROFIT OF KALA AMB @ 100% U/S 80IC OF THE ACT. ASSESSING OFFICER FURTHER NOTED THAT ASSESSEE HAD MAINTAINED SEPARATE ACCOUNT FOR FARIDABAD AND KALA AMB UNITS. ASSESSING OFFICER PRO CEEDED TO ANALYSE THE SALES OF THE TWO UNITS AND OBSERVED AS UNDER:- I. THE MATERIAL CONSUMPTION RATIO IS HIGHER AT FARI DABAD UNIT BY 37.2% (88.85 51.65). SIMILARLY, THE MANUFACTURING EXPENSES RATIO IS HIGHER BY 3.41% (6.7 8 3.37). THIS SHOWS THAT FARIDABAD UNIT HAS INFLAT ED THE MATERIAL CONSUMPTION BY ` 11,71,38,623/- AND MANUFACTURING EXPENSES BY ` 1,07,46,873/-. IN OTHER WORDS, THE TOTAL EXPENSES HAS BEEN INFLATED BY ` 12,78,85,496/- (11,71,38,623 + 1,07,46,873). THE ARGUMENT GIVEN BY THE ASSESSING OFFICER ON SIMILAR ISSUE FOR THE A.Y. 2000-01 ALSO HOLDS GOOD FOR THE CURRENT ASSESSMENT YEAR WHICH HAS BEEN REINFORCED B Y THE ORDER OF THE HONBLE ITAT, DELHI BENCH FOR ASSESSEES OWN CASE IN THE A.Y. 2000-01. THE MOO T POINT STILL REMAINS THAT THE EXPENSES NEED TO BE ALLOCATED PROPORTIONATELY BETWEEN THE EXEMPTED UNIT AND THE NON-EXEMPTED UNIT. MOREOVER, IF THE PRODUCTION FROM THE KALA AMB UNIT HAS BEEN ACHIEVED AT SUCH LOW COST, THEN THERE WAS NO RATIONALE FOR T HE ASSESSEE TO CONTINUE ITS PRODUCTION AT FARIDABAD UN IT. IN OTHER WORDS, IT CAN BE ARGUED THAT THE ASSESSEE HAD TRIED TO SHIFT THE PROFITS OF THE FARIDABAD UNIT WH ICH IS ITA NOS. 3620&3830/DEL/2009 A.Y. 2006-07 6 NOT ELIGIBLE FOR DEDUCTION TO THE KALA AMB UNIT WHI CH IS 100% EXEMPT U/S 80IC OF THE INCOME TAX ACT, 1961. II. IN VIEW OF THE FOREGOING DISCUSSION, IT IS CLE AR THAT THE ASSESSEE COMPANY HAS ATTEMPTED TO SUPPRESS THE INCOME OF THE FARIDABAD UNIT BY INFLATING THE COST OF MATERIAL CONSUMPTION AND MANUFACTURING EXPENSES. BECAUSE, NO PRUDENT BUSINESS SENSE WOULD ALLOW TO INCUR SUCH HEAVY LOSSES AS HAS HAPPENED IN THE CASE OF FARIDABAD UNIT OF THE ASSESSEE. III. SO, IT IS CONCLUDED THAT THE ASSESSEE HAS MANIP ULATED THE ACCOUNTS IN A MANNER WHICH WILL BEST SUIT HIS INTEREST. THE ALLOCATION OF EXPENSES HAS NOT BEE N DONE (MANUFACTURING AND OTHER DIRECT EXPENSES) PROPORTIONATELY BETWEEN THE UNITS OF THE ASSESSEE A S LAID DOWN BY THE ORDER OF THE HONBLE ITAT, DELHI IN ASSESSEES OWN CASE FOR THE A.Y. 2000-01. IV. IN VIEW OF THE ABOVE, THE AMOUNT OF INFLATED EX PENSES TO THE TUNE OF ` 12,78,85,496/- IS TAKEN AS THE SUPPRESSED INCOME OF THE ASSESSEE FOR THE YEAR UNDE R CONSIDERATION AND ADDITION OF THE SAME IS MADE TO THE TAXABLE INCOME OF THE ASSESSEE. 6. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD AS UNDER:- IT IS FOUND THAT THE ASSESSING OFFICER MADE A CH ART ON PAGE 7 OF THE ASSESSMENT ORDER WHEREIN HE ITA NOS. 3620&3830/DEL/2009 A.Y. 2006-07 7 COMPARED THE RATIO OF EXPENSES OF THE TWO UNITS TO T HE TURNOVER OF THE RESPECTIVE UNIT. THE MAIN EXPENSES CONSIDERED FOR COMPARISON WERE THE MATERIAL CONSUMED AND MANUFACTURING EXPENSES WHICH WERE THE DIRECT EXPENSES RELATING TO THE MANUFACTURING ACTIVITIES. THE CONCLUSION DRAWN BY THE ASSESSI NG OFFICER ON THE BASIS OF COMPARISON IN THIS TABLE HA VE ALREADY BEEN REPRODUCED IN PARA 2.1 ABOVE. IT IS FOUND THAT IN POINT NO. (I) THE ASSESSING OFFICER HAS ARRIVED AT THE SAME CONCLUSION WHEN HE SAYS THAT T HE EXPENSES NEED TO BE ALLOCATED PROPORTIONATELY BETWEEN THE EXEMPTED AND NON-EXEMPTED UNITS (UNDER LINED PART). HE HAS ALSO CONCLUDED THAT THE APPELLANT HAD TRIED TO SHIFT PROFIT OF FARIDABAD UNI T (NON ELIGIBLE) TO KALA AMB (ELIGIBLE) TO CLAIM MORE DEDUCTION. THEREFORE, THE CONCLUSION OF THE ASSESS ING OFFICER WAS VERY MUCH SIMILAR TO THOSE DRAWN BY THE ASSESSING OFFICER IN THE EARLIER YEARS ORDERS. EV EN IN POINT NO. (III) THE ASSESSING OFFICER HAD MENTIONE D THAT THE ALLOCATION OF EXPENSES BETWEEN THE TWO UNI TS HAS NOT BEEN DONE PROPORTIONATELY. HOWEVER, RATHER ITA NOS. 3620&3830/DEL/2009 A.Y. 2006-07 8 THAN REALLOCATION OF OTHER ALL EXPENSES BETWEEN TW O UNITS ON SOME REASONABLE BASIS, THE ASSESSING OFFI CER WENT ON TO DISALLOW HUGE AMOUNT OF ` 12.78 CRORES I N FARIDABAD UNIT. HE ARRIVED AT THIS FIGURE BY APPLYIN G THE EXPENSE RATIO OF KALA AMB UNIT TO FARIDABAD UNIT. THE AMOUNT IN EXCESS OF THAT WORKED OUT ON PROPORTIONATE BASIS, WAS HELD TO BE INFLATION OF EXPENSES IN FARIDABAD UNIT AND WAS DISALLOWED WHIC H RESULTED IN INCREASE OF OVER ALL PROFIT OF THE COMPA NY BY THAT AMOUNT. ON THE OTHER HAND THE PROFITS OF K ALA AMB UNIT AS WELL AS THE DEDUCTION CLAIMED U/S 80IC WERE LEFT UNTOUCHED. THERE IS NO BAR IN ARRIVING AT DIFFERENT CONCLUSION THAN OTHER ASSESSMENT YEARS BECAUSE EVERY ASSESSMENT IS SEPARATE PROCEEDINGS. HOWEVER, TO DEVIATE FROM THE CONSISTENCY THERE HAVE TO BE PROPER REASONS AND BASIS TO SUPPORT THE DIFFERENT CONCLUSIONS. THE ASSESSING OFFICER HAS DISALLOWED LARGE PART OF EXPENSES AT FARIDABAD UNIT . HE HAS HOWEVER NOT POINTED OUT AS TO WHICH PARTICUL AR EXPENSES HE WAS DISALLOWING. AN ITEM OF EXPENDITURE CAN BE DISALLOWED IF, EITHER IT IS BOGUS EXPENSE (N OT ITA NOS. 3620&3830/DEL/2009 A.Y. 2006-07 9 INCURRED AT ALL BUT CLAIMED) OR IF IT WAS NOT INCUR RED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY OF T HE ABOVE CONDITION BEFORE MAKING DISALLOWANCE. HE SIMPLY APPLIED THE RATIO OF EXPENSES OF KALA AMB UNI T TO FARIDABAD UNIT AND WORKED OUT THE EXCESS. HERE AGAIN THE ASSESSING OFFICER DID NOT EVEN DISCUSSED AS TO WHY THE EXPENSE RATIO OF KALA AMB UNIT WAS TO BE APPLIED TO FARIDABAD UNIT. THEREFORE, THE ACTION OF THE ASSESSING OFFICER REMAINS UNSUPPORTED AND UNSUBSTANTIATED. THE DISALLOWANCE HAS BEEN MADE ARBITRARILY WITHOUT ANY MATERIAL OR BASIS TO DO SO. IN FACT THERE IS NO SYNCHRONIZATION IN THE OBSERVATION S MADE ON THE BASIS OF EARLIER YEARS ORDERS AND THE ACTION TAKEN BY HIM. THEREFORE IN MY OPINION THE DISALLOWANCE OF ` 12,78,85,496/- IS ARBITRARY BASEL ESS AND DESERVES TO BE DELETED. 7. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 8. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S ELABORATELY OBSERVED THAT ASSESSING OFFICER DISALLOWED LARGE P ART OF EXPENSES OF FARIDABAD UNIT. HOWEVER HE HAS NOT POINTED OUT AS TO WHICH PARTICULAR ITA NOS. 3620&3830/DEL/2009 A.Y. 2006-07 10 EXPENSES HE HAS DISALLOWED. LD. COMMISSIONER OF INC OME TAX (APPEALS) ALSO CORRECT IN HOLDING THAT EXPENSES CA N BE DISALLOWED IF, EITHER IT IS BOGUS EXPENSE OR IF IT WAS NOT INCURRE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSE SSING OFFICER HAS NOT POINTED OUT ANY OF THE ABOVE CONDITION BEFORE MAKING DISALLOWANCE. HE HAS SIMPLY APPLIED THE RATIO OF EXPENSES OF KALA AMB UNIT TO FARIDABAD UNIT AND WORKED OUT THE EXCESS. HERE AGAIN THE ASSESSING OFFICER DID NOT EVEN DISCUSSED AS TO WHY THE EXPEN SE RATIO OF KALA AMB UNIT WAS TO BE APPLIED TO FARIDABAD UNIT. MOREOVER , TRIBUNAL IN EARLIER YEAR IN ASSESSEES OWN CASE HAVE DECIDED TH E ISSUE OF BIFURCATION OF EXPENSES IN ASSESSEES FAVOUR. LD . DEPARTMENTAL REPRESENTATIVE FAIRLY CONCEDED TO THIS. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CO MMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY, WE UPHOLD THE S AME. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12/11/2010. SD/- SD/- [C.L. SETHI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 12/11/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES