ITO, New Delhi V. Sh. Rajeev Bhatnagar (HUF), New Delhi

ITA 4504/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97342 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 20-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 23-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Assessee Lawyers: V K JAIN
• Keywords: Opportunity of being heard
• Section: 143(3); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F , NEW DELHI BEFORE SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER I.T.A.NO. 4504 /DEL/20 12 A.Y. 20 0 8 - 09 ITO, WARD 32(3) NEW DELHI 110 055 VS. SH.RAJEEV BHATNAGAR(HUF) 1 - 12, JANGPURA EXTENSION NEW DELHI 110 014 PAN: AA FHR 3821 K (APPELLANT) (RESPONDENT) A PPELLANT BY : SH. VIKRAM SAHAY, SR.D.R. RESPONDENT BY : SH. V.K.JAIN, C.A. ORDER PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AND IS DIRECTED AGAINST THE ORDER OF THE LD.CIT(A) - XXVI , DELHI DATED 18.06.2012 PERTAINING TO THE A.Y. 200 8 - 09 . 2. FACTS IN BRIEF : - THE FACTS OF THE CASE ARE BROUGHT OUT AT PARA S 2.0 TO 2.2 OF THE LD.CIT(A) S ORDER, WHICH IS EXTRACTED FOR READY REFERENCE. 2.0. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT, AN HUF, IS PROPRIET OR OF TWO CONCERNS (I) M/S. M.J. PACKAGING (II) M/S. M.J. INDUSTRIES. THE APPELLANT IS CARRYING ON THE BUSINESS OF MANUFACTURING OF PACKING MATERIAL IN THESE TWO PROPRIETARY CONCERNS. BOTH THE MANUFACTURING UNITS ARE LOCATED AT PLOT NO.59, HPSIDC, BADDI, S OLAN, HIMACHAL PRADESH. AS BOTH THESE MANUFACTURING UNITS ARE SITUATED IN AN INDUSTRIALLY BACKWARD AREA, THE APPELLANT CLAIMED 100% DEDUCTION IN RESPECT OF THE PROFITS EARNED FROM THESE UNITS UNDER THE PROVISIONS OF SECTION 80 IC OF THE INCOME - TAX ACT, 1961 . ITA NO. 4504/DEL/2012 A.Y. 2008 - 09 RAJEEV BHATNAGAR (HUF), NEW DELHI 2 2.1 IN VIEW OF THE FACTS DISCUSSED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER DATED 31.12.2010 AND RELYING ON VARIOUS JUDICIAL PRONOUNCEMENTS, THE ASSESSING OFFICER HELD THAT AS PER THE PROVISIONS STIPULATED IN SUB - SECTION 10 OF SECTION 80 - IA, T HE PROFITS OF THE APPELLANT FROM ITS TWO UNITS HAVE TO BE TAKEN AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. THEREFORE, TAKING RECOURSE TO THE PROVISIONS OF SECTION 80 IA(10) OF THE INCOME - TAX ACT, 1961, THE ASSESSING OFFICER RESTRICTED THE NET PROFIT AS SHOWN IN THE P&L ACCOUNT OF THE TWO PROPRIETARY CONCERNS TO 50% WHICH MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED AND TAKEN THEM FOR COMPUTING THE TOTAL TAXABLE INCOME OF THE APPELLANT. 2.2. IN VIEW OF THE ABOVE FINDINGS, THE ASSESSING O FFICER ALLOWED THE DEDUCTION AT 50% OF THE PROFITS OF M/S. M.J. PACING AT RS.65,21,971/ - IN RESPECT OF THE CLAIM OF DEDUCTION U/S.80IC WVITH REGARD TO THE DEDUCTION U/S.80IC IN RESPECT OF PROFITS OF M/S. M.J.INDUSTRIES, THE ASSESSING OFFICER OBSERVED THAT THE ISSUE OF MACHINERY USED BY THE APPELLANT (WITH REFERENCE TO THE CONDITIONS LAID DOWN IN CLAUSE (II) OF SUB SECTION (4) OF SECTION 80 IC WAS EXAMINED IN DETAIL IN THE ASSESSMENT YEAR 2006 - 07, AND IT WAS FOUND THAT THE VALUE OF OLD MACHINERY WAS MORE TH AN 20% OF THE TOTAL VALUE OF THE MACHINERY USED. THUS, THE APPELLANT WAS HELD TO BE INELIGIBLE FOR CLAIM OF DEDUCTION U/S.80LC IN RESPECT OF PROFITS OF M/S. M.J. INDUSTRIES. THIS ISSUE OF DEDUCTION OF PROFITS OF M/S. M.J. INDUSTRIES WAS DECIDED IN FAVOUR O F THE APPELLANT BY THE LEARNED CIT(A), AND THE DEPARTMENT FILED AN APPEAL BEFORE THE HON'BLE ITAT AGAINST THE ORDER OF THE LEARNED CIT(A). SINCE, THE APPEAL IS PENDING IN THE HON'BLE ITAT, THE ASSESSING OFFICER RELIED ON THE ASSESSMENT ORDER FOR THE ASSESS MENT YEAR 2006 - 07, FRAMED ON IDENTICAL ISSUE AND DISALLOWED THE APPELLANT'S CLAIM OF DEDUCTION U/S.80 IC IN RESPECT OF THE PROPRIETARY UNIT OF M/S. M.J. INDUSTRIES. 3. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY G RANTED RELIEF. ITA NO. 4504/DEL/2012 A.Y. 2008 - 09 RAJEEV BHATNAGAR (HUF), NEW DELHI 3 4. AGGRIEVED THE REVENUE HAS FILED THIS APPEAL BEFORE US ON THE FOLLOWING GROUNDS. 1. 'WHETHER LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE PROFIT OF BOTH THE PROPRIETORSHIP FIRM SHOWN BY THE ASSESSEE AS PER BOOKS OF ACCOUNTS @ 42.20% AND 78.46 % WHICH WAS RESTRICTED BY THE A O @ 50% OF SUCH PROFIT AS THE PROFIT WAS SHOWN VERY HIGH FOR CLAIMING DEDUCTION U/S 80IC OF I.T. ACT. WHEREAS ON THE SAME BUSINESS LINE AT THE SAME BUSINESS PLACES IN THE CASE OF M/S S.A. PACKAGING 113A, EPIP, JHARRNAGRI BADD I, H.P., WHICH HAS CLAIMED DEDUCTION 80LC, THE NET PROFIT RATIO COMES TO 4.58% FOR THE A.Y. 2008 - 09. IT IS CLEAR CASE OF COLORABLE DEVICE FOR BUILDING CAPITAL WITHOUT PAYING ANY TAXES. THE HON'BLE SUPREME COURT IN THE CASE OF M / S MC DOWELL & CO. LTD. VS. C T O (1985) 154 ITR 148 (SC) HELD THAT A COLORABLE DEVICE CANNOT BE A PART OF TAX PLANNING AS IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS A HONORABLE TO DEVICE PAYMENT OF TAXES BY RESORTING TO DUBIOUS METHOD. 2. WHETHER LD. CIT (A) WAS JUSTIFIED IN ALLOWING THE DISALLOWANCE OF DEDUCTION U/S 80IC IN RESPECT OF UNIT M/S MJ. INDUSTRIES, WHICH WAS DISALLOWED BY THE LD.AO ON THE BASIS OF DECISION OF A O PASSED U/S 143(3) LT. ACT, 1961 FOR A.Y. 2006 - 07, IN THE ASSESS EE'S OWN CASE ON THE SAME ISSUE FOR WHICH REVENUE APPEAL IS PENDING BEFORE THE IT AT. 3. 'THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY/ALL THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL'. 5. WE HAVE HEARD SHRI VIKR AM SAHAY, THE LD.SR.D.R. ON BEHALF OF THE REVENUE AND SHRI V K JAIN, THE LD.COUNSEL FOR THE ASSESSEE. 6. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, ON PERUSAL OF ORDERS OF LOWER AUTHORITIES, MATERIAL PLACED ON RECORD, WE HOLD AS FOLLOWS. 7. THE FIRST ISSUE IS WHETHER THE A.O. WAS RIGHT IN RESTRICTING THE NET PROFIT EARNED BY THE ASSESSEE COMPANY FROM ITS PROPRIETARY CONCERNS M/S MJ PACKAGING AND M/S MJ INDUSTRIES , WHICH ARE LOCATED IN BADDI, HIMACHAL PRADESH, TO 50% OF THE NET PROFIT CLAIMED BY THE ASSESSEE. THE A.O. RESTRICTED THE PROFIT BY INVOKING SUB SECTION 10 OF SEC.80(IA) OF THE INCOME TAX ACT, 1961 (THE ACT). THE REASONS GIVEN BY THE A.O. ARE: ( I ) THE NET PROFIT RATIO OF THESE PROPRIETARY CONCERNS, WHEN COMPARED WITH THE NET PROFIT RATE OF OTHER GROUP CONCERNS LOCATED AT PLACES, WHERE S.80 ( IB ) INCENTIVES ARE NOT AVAILABLE, SHOWS GREAT VARIANCE. ITA NO. 4504/DEL/2012 A.Y. 2008 - 09 RAJEEV BHATNAGAR (HUF), NEW DELHI 4 IN FACT THE OTHER TWO COMPANIES WHICH ARE IN THE SAME LINE OF BUSINESS I.E. M/S MJ PACKAGING AND M/S M.J.INDUSTRIES HAVE DECL ARED NET LOSS OF RS.3.2 CRORES AND RS. 1.23 CRORES RESPECTIVELY. ( II ) A TOTAL NUMBER OF 9 EMPLOYEES HAVE BEEN SHOWN IN THESE PROPRIETARY CONCERNS WHICH IS MINISCULE. THE EXPLANATION OF THE ASSESSEE THAT HE HAS CONTRACT EMPLOYEES, IN ADDITION TO THESE 9 REGULAR EMPLOYEES WAS REJECTED. THE ESI PAID IN RESPECT OF CONTRACT EMPLOYEES IS RS.1,434/ - AND THE SECURITY EXPENSES IS MINIMUM. THE EXPLANATION OF THE ASSESSEE THAT ESI B E CAME APPLICABLE ONLY FOR MARCH, 2008 IN RESPECT OF CONTRACTUAL EMPLOYEES WAS REJECTED. ( III ) MOST OF THE PURCHASES WERE FOR SISTER CONCERNS , WHICH HAVE SHOWN HEAVY LOSSES. ( IV ) M/S MJ PACKAGING HAS GOT PLANT & MACHINERY, THE WRITTEN DOWN VALUE OF WHICH IS ONLY RS.14,10,631/ - , AS ON 1.4.2007. THE ASSESSEE HUF HAS SHOWN RENTAL INCOME OF RS.3 LAKHS FROM PLOT NO.59, HBSIDC, BADDI , WHICH SHOWS THAT , THE ASSESSEE HAS LET OUT THIS PLOT ON RENT. HENCE THESE TWO PROPRIETARY CONCERNS CLAIM THAT THEY ARE LOCATED AND FUNCTIONING FROM THIS PLOT IS FALSE. ( V ) IN THE CASE OF M/S M J INDUSTRIES , MANUFACTURING R ECEIPTS OF RS.78.20 LAKHS HAVE BEEN SHOWN IN THE CURRENT YEAR. THE NET PROFIT WAS RS.61.36 LAKHS, WHICH IS 78.46% OF THE GROSS RECEIPTS OF MANUFACTURE. ( VI ) THE WRITTEN DOWN VALUE OF M/S MJ IND USTRIES AS ON 1.4.2007 IS NIL EPF CONTRIBUTION IS LESS THAN RS.2 ,000/ - WHICH DEMONSTRATES THAT THERE ARE NO EMPLOYEES. ( VII ) THE ASSESSEE REPLIED THAT THE CONTRACT BUSINESS OF M/S MJ INDUSTRIES CAME TO AN END IN JANUARY, 2008. AT PARA 11, THE A.O. HELD AS FOLLOWS. 11. IT WOULD BE QU I TE UNFORM A TT E D TO ANALYSIS TH E G.P./N.P. . RATI O S O F A LL T H E BUS I NESS CONCERNS OF T H E ASSESSEE WHICH A R E IN TH E SAME LI NE OF BUS I NESS I . E . MANUFACTUR I NG O F COR R UGATED BO X ES , PRINTING & PACK AG IN G A N D ALLI ED JOB - W O R K . THE NE T P R O FI T IN A LL T HESE BUSINESS ES I S N OR MALLY TH E S AME . ITA NO. 4504/DEL/2012 A.Y. 2008 - 09 RAJEEV BHATNAGAR (HUF), NEW DELHI 5 H O W E V ER , I N THE CASE OF THE ABOVE AS SE S SE E AND THE G R O UP CONC E RNS, T H I S I S NO T TH E SAME AS I S OBV I O U S FR OM THE DETAILS IN THE TABLE BELOW : NAME OF THE BUSINESS SALES (RS. LAKHS) NET PROFIT (RS. IN.P./SALES RATIO(%) CONCERN LAKHS) A .Y . A .Y . A .Y . A .Y . A .Y . A .Y . , 2008 - 09 2007 - 08 2008 - 09 2007 - 08 2008 - 09 2007 - 08 M/S MJ . ENTERPRISES 119 . 23 343 . 39 ( - )175.74 ( - )302:52 ( - )147 ( - )88 LTD., PLOTNO . 49 - 50 - 57 , LOSS LOSS HPSIDC. BADDI, HIMACHAL PRADESH . M/S M.J. INTERNATIONAL PVT.LTD. 278 . 31 263.05 ( - )79.54 ( - )123.06 ( - )28 ( - )47 LOSS LOSS M/S M.J.. GLOBAL LTD. 277 . 28 239 . 23 ( - )156.82 ( - )245.82 ( - ) 56 ( - )102 LOSS LOSS M/S M.J. . PACKAGING , 308.45 353 . 75 130 197.24 42 . 2 55 . 8 PLOTNO . 59,HPSID C . PROFIT PROFIT BADDI , HP M/S M.J. INDUSTRIES, 78 . 20 127.59 61 . 36 89 . 43 78.5 70 . 1 PLOT - 59,HPSIDC. PROFIT PROFIT BADDI, HP ( VIII ) THE ARGUMENT OF THE ASSESSEE THAT THE NET PROFIT IS HIGH BECAUSE THE MANAGEMENT HAS MADE ALL EFFORTS TO REDUCE THE COSTS AND MAXIMISE THE PROFIT WERE REJECTED. ( IX ) IT APPEARS THAT THE ASSESSEE HAS BEEN DEBITING SUBSTANTIAL EXPENSES OF THESE BUSINESS CONCERNS, TO OTHER SISTER CONCERNS AND THE ASSESSEE HAS BEEN DOING THE SAME TO CLAIM HIGHER DEDUCTION. 7.1. THE FIRST APPELLATE AUTHORITY HAS GRANTED RELIEF ON THE GROUNDS THAT: ( A ) THE BOOKS OF ACCOUNTS HAVE BEEN AUDITED AND THE A.O. HAS NOT BROUGHT OUT EVEN A SINGLE INSTANCE FROM THE AUDITED ACCOUNTS OF THE SE UNITS , TO POINT OUT AND GIVE HIS FINDING THAT THE PROFITS OF THESE UNITS WERE INFLATED. ITA NO. 4504/DEL/2012 A.Y. 2008 - 09 RAJEEV BHATNAGAR (HUF), NEW DELHI 6 ( B ) THE ASSESSEE WAS MAINTAINING HIGH PROFIT RATIO RIGHT FROM THE A.Y. 2004 - 05 TO THE A.Y. UNDER CONSIDERATION. ( C ) THE NET PROFIT RESULTS OF THESE TWO PROPRIETARY CONCERNS SITUATED IN BADDI, WERE NEVER DISTURBED IN THE PAST YEARS BY THE A.O. ( D ) HENCE THE ACTION OF AO IN TAKING RECOURSE TO PROVISIONS OF SUB SECTION (10) OF S.80 IA IS NOT JUSTIFIED. 8. THE LD.SR.D.R. SUPPORTED THE ORDER OF THE AO WHILE THE LD.A.R. SUPPORTED THE ORDER OF THE FIRST APPELLATE AUTHORITY. 9. AFTER HEARING RIVAL CONTENTIONS IN OUR VIEW THE PROFITS DECLARED BY THE ASSESSEE ON THESE TWO PROPRIETARY UNITS LOCATED IN BADDI HIMACHAL PRADESH , WHICH IS EXEMPT FROM TAXATION U/S 80 ( IB ), IS ABNORMAL. THE NET PROFITS DECLARED FOR THE A.Y. 2003 - 04, 2004 - 05 AND 2005 - 06 ARE 56.96%, 51.75% AND 52.88% FOR THE A.Y. 2006 - 07 AND 2007 - 08, THE PROFITS SHOT UP TO 79.87% AND 78.47%. SUCH ABNORMAL FIGURES IN THESE YEARS IS NOT EXPLAINED BY THE ASSESS EE. IT IS WELL SETTLED THAT WHEN THE ASSESSEE CLAIMS AN EXEMPTION, BURDEN LIES ON IT , TO PROVE THAT HE IS ENTITLED TO EXEMPTION. IN THIS CASE THE BURDEN HAS NOT BEEN DISCHARGED ON THE ISSUE OF QUANTUM OF EXEMPTION. 9 .1. S.80 I A (10) READS AS FOLLOWS. S.80(IA) (10) WHERE IT APPEARS TO THE ASSESSING OFFICER THAT, OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND G A INS OF SUCH ELIGIB LE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. ITA NO. 4504/DEL/2012 A.Y. 2008 - 09 RAJEEV BHATNAGAR (HUF), NEW DELHI 7 9 .2. THIS SUB SECTION WAS ENACTED TO ENSURE THAT THERE IS NO MISUSE OF THE CLAIM FOR EXEMPTION. 9 . 3. THE ORDER OF THE FIRST APPELLATE AUTHORITY, IN OUR VIEW IS NOT WELL REASONED. THE ORDER HAS NOT GIVEN ANY REASON AS TO WHY THE A.O. WAS WRONG ON EACH OF HIS CONCLUSIONS. 9 .4. IN THE LIGHT OF THE ABOVE DISCUSSION, AS SUGGESTED BY THE LD.SR.D.R. WE SET A SIDE THE MATTER TO THE FILE OF THE LD.CIT(A) WITH A DIRECTION TO PASS A SPEAKING AND REASONED ORDER ON EACH OF THE OBSERVATIONS OF THE LD.A.O., AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. 9 .5. IN THE RESULT GROUND NO.1 OF THE REVENUE IS ALLOW ED FOR STATISTICAL PURPOSES. 10 . GROUND NO.2 IS ON THE ISSUE OF DISALLOWANCE OF DEDUCTION U/S 80 IC IN RESPECT OF UNIT M/S MJ INDUSTRIES. THE ASSESSEE CLAIMS THAT THE TRIBUNAL HAD CONSIDERED THE ORDER OF THE LD.CIT(A) FOR THE A.Y. 2006 - 07 AND UPHELD THE SAME. 10 .1. WE FIND THAT THE LD.CIT(A) HAS FOLLOWED THE ORDER OF HER PREDECESSOR DT. 23.11.2009 FOR THE A.Y. 2008 - 09. 10 .2. THE ELIGIBILITY OF UNIT FOR DEDUCTION U/S 80IC, SHOULD BE EXAMINED IN THE FIRST YEAR OF THE CLAIM . ADMITTEDLY THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED, AFTER CONSIDERING THE VERY SAME OBJECTIONS OF THE AO, BY THE LD.CIT(A) , WHILE ADJUDICATING THE APPEAL FOR THE A.Y. 2008 - 09. THIS ORDER HAS NOT ATTAINED FINALITY. THUS WE DISMISS GROUND NO.2 OF T HE REVENUE. ITA NO. 4504/DEL/2012 A.Y. 2008 - 09 RAJEEV BHATNAGAR (HUF), NEW DELHI 8 1 1 . GROUND NO.3 IS GENERAL IN NATURE. 12 . IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER , 2015. SD/ - SD/ - [ I.C.SUDHIR ] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER DT. THE 11 TH SEPTEMBER , 2015 MANGA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES