DCIT CIR 3(1), MUMBAI V. ASIAN ELECTRONICS LTD, MUMBAI

ITA 4324/MUM/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0684 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 13-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 27-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Keywords: Business income; Opportunity of being heard

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . , , BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO . 4324/MUM/2011 ( / ASSESSMENT YEAR : 2007 - 08 THE DCIT, CIRCLE 3(1), AAYAKAR BHAVAN, MUM BAI - 400 020 / VS. M/S. ASIAN ELECTRONICS LTD., 1219, MAKER CHAMBERS - V, NARIMAN POINT, MUMBAI - 400 021 ./ ./ PAN/GIR NO. : AABCA 0832C ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: MS. VANDANA SAGAR / RESPONDENT BY : NONE / DATE OF HEARING : 13 . 0 5 .2015 / DATE OF PRONOUNCEMENT : 20 .0 5 .2015 / O R D E R PER N.K. BILLAIYA, AM: THIS IS AN APPEAL BY THE REVENUE PREFERRED AGAINST THE ORDER OF THE LD. CIT(A) - 7 , MUMBAI DT. 18.3.2011 PERTAINING TO ASSESSMENT YEAR 200 7 - 0 8 . ITA. NO. 4324/M/2011 2 2. THE REVENUE HAS RAISED FOUR SUBSTANTIVE GROUNDS OF APPEAL. THE GRIEVANCE OF THE REVENUE REVOLVES AROUND THE DEDUCTION CLAIMED U/S. 80 - IC OF THE ACT. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND SELLING OF ENERGY SAVING DEVICES AND LIGHTING PRODUCTS. RETURN OF INCOME FOR THE YEAR WAS FILED ON 26.10.2007 DECLARING TOTAL INCOME AT RS. 31,29,79,32 4/ - . THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80 - IC OF THE ACT FOR ITS SOLAN UNIT. THE AO NOTICED THAT THE SALES OF SOLAN UNIT H AS BEEN INCREASED BY AN AMOUNT OF RS. 4,98,39,462/ - ON ACCOUNT OF INTER DIVISIONAL SALES. THE AO FOUND THAT THE TOTAL SALES OF SOLAN UNIT IS AT RS. 168,01,15,066/ - WHICH INCLUDES INTER DIVISIONAL SALES OF RS. 4,98,39,462/ - . THE AO FURTHER FOUND THAT THE PROFIT FROM THIS UNIT HAS BEEN SHOWN AT RS. 78,11,08,000/ - AND THE PROFIT ELIGIBLE FOR DEDUCTION U/S. 80IC HAS BEEN COMPUTED AT RS. 75,68,72,400/ - . 3.1. THE AO WAS OF THE FIRM BELIEF THAT INTER DIVISIONAL SALES SHOWN BY THE ASSESSEE FROM ONE UNIT TO ANOT HER UNIT CANNOT BE PART OF SALES GENERATING BUSINESS PROFIT MAKING IT ELIGIBLE FOR DEDUCTION. THE AO PROCEEDED BY REDUCING THE BUSINESS PROFIT OF SOLAN UNIT BY RS. 4,98,39,462/ - . 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). IT WAS STRONGLY CONTENDED BEFORE THE LD. CIT(A) THAT THE AO HAS NOT CONSIDERED THE PURCHASES, OTHER MANUFACTURING AND OVERHEAD EXPENSES . IT WAS EXPLAINED THAT THE ASSESSEE SELLS THE PRODUCT AT THE FIXED RATE WHETHER IT IS SOLD DIRECTLY FROM THE SPECIFIED UNDERTAKING OR T HROUGH ANY BRANCH. IT ITA. NO. 4324/M/2011 3 WAS FURTHER EXPLAINED THAT THE SOLAN UNIT TRANSFERS GOODS AT BRANCHES AT 6% DISCOUNT TO LISTED PRICE WHEREAS THE SALES ARE MADE TO THE CUSTOMERS AT LISTED PRICE. THUS, FOR THE COMPANY, SALES ARE RECOGNIZED ONLY WHEN THE CUSTOMER IS TAKING DELIVERY AS NO PROFIT IS EARNED TILL SUCH STAGE AS STOCKS AT ALL LEVELS ARE ALWAYS VALUED AT COST. THE LD. CIT(A) WAS CONVINCED WITH THIS EXPLANATION AND DELETED THE ADDITION. 5. BEFORE US, NONE ATTENDED ON BEHALF OF THE ASSESSEE THEREFORE WE HEA RD THE LD. DEPARTMENTAL REPRESENTATIVE AT LENGTH AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD. CIT(A) HAS DELETED THE ADDITION ACCEPTING THE ENTIRE CONTENTION OF THE ASSESSEE WITHOUT VERIFYING WHETHER DETAILS WERE FILED B EFORE THE AO OR NOT. IF THE GOODS ARE TRANSFERRED FROM SOLAN UNIT AT 6% DISCOUNT TO LISTED PRICE, THEN THE STOCK CANNOT BE VALUED AT COST OR AT THE MOST THE RECEIVING BRA NCH MUST BE VALUING STOCK AT 6% DISCOUNT TO LISTED PRICE WHICH MEANS THAT WHEN THE GOODS WERE SOLD FROM THE BRANCH, THE BRANCH IS MAKING ATLEAST 6% PROFIT. ALL THE SE ASPECTS HAVE TO BE VERIFIED AT THE ASSESSMENT STAGE. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE AO TO DECIDE DENOVO AFTER GIVING REASONABLE AND FAIR OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. PROCEEDING FURTHER, THE AO NOTICED THAT PART OF THE HEAD OFFICE EXPENSES HAVE BEEN ATTRIBUTED TOWARDS SOLAN UNIT BEFORE CLAIMING DEDUCTION. THE ASSESSEE WAS ASKED TO EXPLAIN THE BASIS ON WHICH SUCH AMOUNT HAS BEEN W ORKED OUT. IN ITS REPLY, THE ASSESSEE STATED THAT 15% OF NASHIK/THANE HEAD OFFICE/WESTERN REGION SITE EXPENSES ARE ALLOCATED TO SOLAN UNIT AND 10% OF EXPENSES OF OTHER UNITS ARE ALLOCATED TO SOLAN UNIT. THE AO OBSERVED THAT THE ASSESSEE HAS NOT SUBMITTE D ANY BASIS FOR CHOOSING THE FIGURE OF 15% OR 10%. IN THIS RESPECT THE ASSESSEE EXPLAINED ITA. NO. 4324/M/2011 4 THAT IT IS MAINTAINING SEPARATE ACCOUNTS FOR SOLAN UNIT WHEREIN ALL RELATED EXPENDITURES ARE ACCOUNTED FOR AND SUBSEQUENTLY 10% OF TOTAL HEAD OFFICE EXPENDITURES ARE ALSO ATTRIBUTED TO SOLAN UNIT. ACCORDINGLY, TOTAL EXPENSES ALLOCATED TO SOLAN UNIT WAS AT RS. 2,40,91,175/ - . THE AO WAS NOT CONVINCED WITH THE REPLY FILED BY THE ASSESSEE. IN PARTICULAR, THE SELECTION OF 15% OR 10% WITHOUT ANY BASIS OR RATIONALE. A FTER CONSIDERING THE FACTS IN TOTALITY, THE AO PROCEEDED TO ALLOCATE COMMON EXPENSES IN THE RATIO OF SALES TURNOVER AND MADE AN ADDITION OF RS. 5,74,79,168/ - . 7. BEFORE THE LD. CIT(A), THE ASSESSEE STRONGLY CONTENDED THAT THERE IS NO REASON TO ALLOCATE COMMON EXPENSES RELATING TO SALES FROM OIL DIVISION. THE LD. CIT(A) THOUGH CONVINCED BY THE ALLOCATION OF EXPENSES IN PROPORTION TO SALE A S A REASONABLE METHOD MADE BY THE AO. HOWEVER, AT THE SAME TIME THE LD. CIT(A) OBSERVED THAT SALE OF OIL DIVISION HA S NEGLIGIBLE CORRELATION TO THE VARIOUS EXPENSES OF HEAD OFFICE AND BRANCH OFFICE AND THEREFORE THE SALE OF OIL DIVISION NEED NOT BEEN TAKEN INTO ACCOUNT AND FOUND THE ALLOCATION IN THE RATIO OF 15% AND 10% AS REASONABLE AND DIRECTED THE AO TO DELETE TH E ADDITION OF RS. 5,74,79,168/ - 8. BEFORE US, THE LD. DR STRONGLY SUBMITTED THAT ONCE AGAIN THE LD. CIT(A) HAS SIMPLY ACCEPTED THE VERSION OF THE ASSESSEE WITHOUT VERIFYING THE DETAILS AND CALLING FOR ANY REMAND REPORT FROM THE AO. THE LD. DR POINTED OUT THAT AT PARA - 5.2 ON PAGE - 6 OF HIS ORDER THE LD. CIT(A) HAS CONSIDERED TOTAL SALE OF RS. 225 CRORES WHEREAS ON PAGE - 7 OF THE ASSESSMENT ORDER, THE AO HAS MENTIONED TOTAL SALES AS SHOWN BY THE ASSESSEE AT RS. 367.44 CRORES. IT IS THE SAY OF THE LD. DR THAT SUCH FACTUAL DISCREPANCIES/DIFFERENCES NEED TO BE VERIFIED BY THE AO. ITA. NO. 4324/M/2011 5 9. WE HAVE CAREFULLY PERUSED THE ORDERS AND GIVEN A THOUGHTFUL CONSIDERATION TO THE SUBMISSIONS MADE BY THE LD. DR. WE FIND FORCE IN THE SUBMISSIONS OF THE LD. DR. PRIMA FACIE THERE APPEARS TO BE DIFFERENCE IN THE SALE FIGURE TAKEN BY THE AO AND BY THE LD. CIT(A). SUCH FACTUAL ERRORS CANNOT BE BRUSHED ASIDE LIGHTLY , THEREFORE , IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE TO THE FILE OF THE AO. THE AO IS DIR ECTED TO DECIDE THE CLAIM OF DEDUCTION DENOVO AFTER GIVING REASONABLE AND SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE DIFFERENCE, IF ANY , IN THE SALES. 10. FOR THE SAKE OF THE COMPLETION OF ADJUDICATION, WE HAVE RESTORED THE ENTIRE ISSUE RELAT ING TO THE CLAIM OF DEDUCTION U/S. 80IC TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH AS PER THE PROVISIONS OF LAW. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. OR DER PRONOUNCED IN THE OPEN COURT ON 20 TH MAY , 2015 SD/ - SD/ - ( D.MANMOHAN ) (N.K. BILLAIYA) /VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI ; DATED : 20 TH MAY , 2015 . . ./ RJ , SR. PS ITA. NO. 4324/M/2011 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI