DCIT, Circle-7(1), Kolkata, Kolkata V. M/S. Madras Elastomers Ltd., Kolkata

ITA 48/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1392 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 13-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMAR
• Keywords: Reasonable cause
• Section: 43B; 144

Judgement Text

1 ITA NO.48/KOL/2015 MADRAS ELASTOMERS LTD., AY 2009-10 , B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE .., /AND , ) [BEFORE SHRI A. T. VARKEY, JM & SHRI WASEEM AHMED, AM] I.T.A. NO. 48/KOL/2015 ASSESSMENT YEAR: 2009-10 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-7, KOLKATA VS. M/S. MADRAS ELASTOMERS LTD. (PAN: AACCM8669A) APPELLANT RESPONDENT DATE OF HEARING 06.07.2017 DATE OF PRONOUNCEMENT 20.09.2017 FOR THE APPELLANT SHRI NIRAJ KUMAR, CIT, DR FOR THE ASSESSEE/CROSS OBJECTOR SHRI MIRAJ D. SHAH , A.R ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL PREFERRED BY THE REVENUE IS AGAINST THE ORDER OF LD. CIT(A), VIII, KOLKATA DATED 15.10.2014 FOR AY 2009-10. REVENUES APPEAL IS DELAYED BY ONE DAY AND CONDONATION PETITION HAS BEEN FILED. SINCE THE LD. AR DID NOT RAISE ANY OBJECTION TO CONDONE THE DELAY, WE CONDONE THE DELAY AND ADMIT THE APPEA L FOR HEARING. 2. GROUND NOS. 1 AND 2 OF REVENUES APPEAL IS AGAIN ST THE ACTION OF LD. CIT(A) IN ALLOWING DEDUCTION U/S. 80IC OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) OF RS.4,70,63,306/- IN VIOLATION OF RULE 46A OF THE INCOME-TAX RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES). 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CL AIMED FOR ITS DEHRADUN UNITS DEDUCTION U/S. 80IC OF THE ACT OF RS.4,70,63,306/-. AO HAS P ASSED THE BEST JUDGMENT ASSESSMENT U/S. 144 OF THE ACT AND REJECTED THE CLAIM OF THE ASSESS EE BY STATING THAT THE ASSESSEE DID NOT COOPERATE OR PRODUCE FORM 10CCB BEFORE HIM, AS WELL AS TAKING NOTE OF THE PREVIOUS YEAR ASSESSMENT I.E. AY 2008-09 OF THE ASSESSEE, WHEREIN THE AO IN THAT YEAR MADE DISALLOWANCE ON PROPORTIONATE BASIS U/S. 80IC OF THE ACT ( NOT R EJECTED THE CLAIM). AGGRIEVED, THE 2 ITA NO.48/KOL/2015 MADRAS ELASTOMERS LTD., AY 2009-10 ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO DECIDED IN FAVOUR OF THE ASSESSEE AND, THEREFORE, THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE MATERIALS AVAILABLE ON RECORD. WE NOTE THAT THE AO HAS PASSED THE ASSESSMENT ORDER I.E THE BEST JUDGMENT ASSESSMENT U/S. 144 OF THE ACT. THE ASSESSEE HAS BROUGHT TO THE KN OWLEDGE OF THE LD. CIT(A) THAT ITS DEHRADUN OPERATION AND CHENNAI OFFICE WERE VIRTUALL Y CLOSED DOWN BECAUSE OF THE LABOUR UNREST. AND SINCE THE OFFICE AT CHENNAI WAS CLOSED DOWN, IT DID NOT RECEIVE ANY NOTICE ISSUED BY THE AO FROM HER CHENNAI OFFICE. CITING T HE REASON THAT THERE WAS UNREST AT CHENNAI AND SINCE THE CHENNAI OFFICE WAS NON-FUNCTI ONAL, THE ASSESSEE APPLIED FOR TRANSFER OF ASSESSMENT TO KOLKATA NEXT ASSESSMENT YEAR. IT WAS BROUGHT TO THE KNOWLEDGE OF THE LD. CIT(A) THAT FORM 10CCB WAS OBTAINED IN TIME, HOWEVE R, IT COULD NOT BE SUBMITTED BEFORE THE AO DURING THE HEARING STAGE. IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT IN THE EARLIER AY 2008-09 THE AO GAVE PROPORTIONATE DEDUCT ION WHICH ORDER WAS CHALLENGED BY THE ASSESSEE BEFORE THE LD. CIT(A)-V, CHENNAI WHO B Y HIS ORDER DATED 31.03.2011 ALLOWED THE ASSESSEES FULL CLAIM FOR DEDUCTION U/S. 80IC O F THE ACT. FIRST OF ALL, WE NOTE THAT THE MAIN GRIEVANCE OF THE REVENUE IS THAT THERE IS A VI OLATION OF RULE 46A OF THE RULES WHILE PASSING THE IMPUGNED ORDER. IN THIS CONTEXT FIRSTL Y, WE NOTE THAT WHILE PASSING THE IMPUGNED ORDER, THE LD. CIT(A) HAS SOUGHT THE REMAND REPORT FROM THE AO AND THE REMAND REPORT OBTAINED FROM AO HAS BEEN REPRODUCED BY LD CIT(A) A T PAGES 5, 6, 7 AND 8 OF THE ORDER, SO THE GROUND OF CHALLENGE OF REVENUE IS PER-SE WEAK. HOWEVER, WE WOULD LIKE TO DISCUSS THE BRIEF FACTS OF THE CASE. WE NOTE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING TAILOR- MADE RUBBER MOLDED AND METAL BONDED ITEMS. THE ASS ESSEE SUPPLIES TO INDIAN RAILWAYS AND TO APPROVED WAGON BUILDERS AS PER THE DRAWINGS AND SPECIFICATION OF INDIAN RAILWAYS UNDER THE CATEGORY OF EXCLUSIVE COMMODITY. ASSESSEE HAS D ECLARED A TOTAL TURNOVER OF RS.62,51,97,114/- FOR THIS ASSESSMENT YEAR. DURING ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD UNITS AT LUCKNOW, KOLKATA, CH ENNAI AND DEHRADUN. FOR THE DEHRADUN UNIT, THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IC OF THE ACT FROM THE PROFITS DERIVED FROM THE UNIT AT DEHRADUN. THE AO NOTED THAT THE ASSESS EE HAS DECLARED TOTAL PROFIT FROM THE BUSINESS A SUM OF RS.6,30,26,047/- AND AFTER CLAIMI NG DEDUCTION U/S. 80IC OF THE ACT FOR A SUM OF RS.4,70,63,306/- HAS ARRIVED AT A TOTAL INCO ME OF RS.1,59,62,740/-. ACCORDING TO THE AO, SINCE THE ASSESSEE DID NOT PRODUCE THE FORM 10C CB AND HAS NOT KEPT THE SEPARATE 3 ITA NO.48/KOL/2015 MADRAS ELASTOMERS LTD., AY 2009-10 BOOKS FOR THE UNIT AT DEHRADUN, THE CLAIM WAS NOT A CCEPTED BY THE AO. IN THE REMAND REPORT ALSO THE AO REITERATES THAT THE ASSESSEE HAS NOT KE PT SEPARATE ACCOUNTS FOR ITS UNIT AT DEHRADUN. HOWEVER, WE WONDER AS TO HOW THE AO IS A BLE TO GET THE FIGURES OF PROFIT FROM EACH UNIT IN HIS REMAND REPORT WITHOUT GOING THROUG H THE SEPARATE ACCOUNTS MAINTAINED FOR ITS DIFFERENT UNITS. 5. WE NOTE THAT IT IS NOT THE CASE OF THE REVENUE THAT THE UNIT AT DEHRADUN OF THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IC OF THE ACT. THE LD. CIT(A) ALSO TOOK NOTE OF THE FACT THAT UNIT WISE BREAK UP OF SALES AND PR OFIT STATEMENT ALONG WITH DULY SIGNED FORM 10CCB BY A CHARTERED ACCOUNTANT WAS ALSO SUBMITTED THOUGH AT THE FIRST APPELLATE STAGE. THE REASON FOR NON-SUBMISSION OF THE FORM 10CCB WAS ATTRIBUTED TO THE CLOSING DOWN OF THE OFFICES AT CHENNAI DUE TO LABOUR UNREST. WE NOT E THAT THERE WAS A REASONABLE CAUSE FOR THE ASSESSEE NOT TO PRODUCE THE DOCUMENT BEFORE THE AO DURING ASSESSMENT STAGE. HOWEVER, DURING THE REMAND PROCEEDINGS BEFORE THE AO, THE AS SESSEE HAS PLACED THE 10CCB AND OTHER BOOKS SEPARATELY MAINTAINED FOR DIFFERENT UNITS AND THE AO HAS TAKEN OUT FIGURES FROM VERY SAME BOOKS SEPARATELY MAINTAINED BY THE ASSESSEE FO R DIFFERENT UNITS LOCATED AT DIFFERENT PLACES. 6. WE NOTE THAT THE FIRST YEAR OF SEC. 80IC DEDUCT ION WAS CLAIMED BY THE ASSESSEE WAS IN THE PREVIOUS AY 2008-09 WHICH CLAIM WAS ALLOWED IN PART BY THE AO. HOWEVER, ON APPEAL, THE LD. CIT(A) HAS ALLOWED THE ENTIRE CLAIM OF SEC. 80IC DEDUCTION OF THE DEHRADUN UNIT FOR A.Y 2008-09. LET US HAVE A LOOK AT THE PREVIOUS YE AR AND COMPARE WITH THIS RELEVANT ASSESSMENT YEAR UNDER APPEAL; WE NOTE THAT IN THE P REVIOUS ASSESSMENT YEAR I.E. AY 2008-09 THE ASSESSEES TURNOVER WAS RS.34.82 CR. WHEREAS IN THE ASSESSMENT YEAR UNDER CONSIDERATION THE TOTAL TURNOVER WAS RS.62.10 CR. THE NET PROFIT OF AY 2008-09 WAS RS.2.50 CR. AND IN THIS ASSESSMENT YEAR IS RS.6.24 CR. WE NOTE THAT THE NE T PROFIT PERCENTAGE WAS 7.18% FOR AY 2008-09 AND NET PROFIT PERCENTAGE FOR THIS YEAR WAS 10.84%. THE TURNOVER OF DERHADUN UNIT FOR AY 2009-09 WAS RS.5.59 CR. WHEREAS IN THE RELEV ANT ASSESSMENT YEAR IT IS RS.17.51 CR. DEHRADUN PROFIT FOR AY 2008-09 WAS RS.2.52 CR. WHE REAS IN THE RELEVANT ASSESSMENT YEAR IT WAS RS.4.70 CR. THUS, THE DEHRADUN NET PROFIT PERC ENTAGE FOR AY 2008-09 WAS 48.04% AND FOR THE RELEVANT AY IT IS ONLY 26.84%. THUS, WE NO TE THAT THE DEHRADUN UNITS NET PROFIT PERCENTAGE IN THE PREVIOUS ASSESSMENT YEAR WAS 45.0 8% WHEREAS IN THE RELEVANT ASSESSMENT YEAR IT IS 26.84% WHICH IS LESS THAN THE PREVIOUS Y EAR AND IN THE PREVIOUS ASSESSMENT YEAR 4 ITA NO.48/KOL/2015 MADRAS ELASTOMERS LTD., AY 2009-10 THE AO HIMSELF HAS ALLOWED PROPORTIONATE DEDUCTIONS WHICH WAS LATER GIVEN FULL DEDUCTION BY LD. CIT(A) ON APPEAL BY ASSESSEE. THE ASSESSEE EXPLAINED THE REASON FOR BETTER TURNOVER AND PRODUCTION OF GOODS BY STATING THAT THE PRODUCT ION FACILITY AT DEHRADUN COMPRISES OF NEW MACHINES AND IT CAN PRODUCE DOUBLE QUANTITY AT THE SAME TIME. FURTHER, THERE ARE FEWER BREAKDOWNS RESULTING IN SAVINGS IN RAW MATERIALS WA STAGE AND ALSO LOWER COST. THE ASSESSEE ALSO BROUGHT TO THE KNOWLEDGE OF THE LD. CIT(A) THA T SAVINGS ON ACCOUNT OF EXCISE DUTY, HIGHER REALIZATION DUE TO SALES TO END USER AND ALS O ON ACCOUNT OF SAVINGS IN COST, WHICH RESULTED IN A PROFIT MARGIN OF 26.84% OF TURNOVER C ANNOT BE TERMED AS UNNATURAL. WHEREAS IT WAS POINTED OUT TO THE LD. CIT(A) AND AO (DURING RE MAND PROCEEDINGS) THAT IN THE OTHER UNITS OF ASSESSEE LOCATED AT CHENNAI AND LUCKNOW, O LD MACHINES WERE USED AND THERE WAS IRREGULAR PRODUCTION AND, THEREFORE, THERE WAS LESS PROFIT. IT HAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT THE WORK AT HARIDWAR AND CHENNAI UN ITS ARE TOO MINISCULE IN COMPARISON TO THE OPERATION OF THE COMPANY AT DEHRADUN. IT WAS B ROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT DEHRADUN UNIT IS UNDER EXCISE EXEMPTION WHICH IS 14.42% OF THE SALE VALUE AND AS SUCH THE NET PROFIT INCREASED BY SUCH PERCENTAGE HA S THE RELEVANCE OF INCREASE IN PRICES. THE LD. CIT(A) TOOK NOTE OF ALL THESE FACTORS AND NOTED THAT THE ASSESSEE IS MAINTAINING SEPARATE ACCOUNTS AND BOOKS OF ACCOUNT FOR EACH OF ITS UNITS LOCATED AT DIFFERENT LOCATIONS AND NO DEFECTS WHATSOEVER COULD BE DETECTED BY THE AO IN T HE BOOKS OF ACCOUNT SUBMITTED BEFORE HIM. THE LD. CIT(A) HAS TAKEN NOTE OF FORM 10CCB W HICH WAS DULY SIGNED BY THE CHARTERED ACCOUNTANT IN ACCORDANCE TO LAW AND TOOK NOTE OF THE AUDITED COPY OF ACCOUNT OF THE ELIGIBLE UNIT I.E. DEHRADUN UNIT WHICH WAS FILE D BEFORE THE AO DURING THE REMAND PROCEEDINGS. THE LD. CIT(A) TOOK NOTE OF THE FACT THAT THE ASSESSEES UNITS ARE SITUATED IN DIFFERENT STATES WHICH ARE SUBJECT TO DIFFERENT LOC AL LAWS. THE LD. CIT(A) TOOK NOTE OF THE STATEMENT OF SALES AND PROFITS OF EACH UNIT. THE L D. CIT(A) TOOK NOTE OF THE FACT THAT THE AO WAS UNABLE TO BRING ANY MATERIAL OR EVIDENCE TO SUG GEST INFLATED EXPENSES OF NON-ELIGIBLE UNITS WHICH COULD SUGGEST SHIFTING OF EXPENSES OF E LIGIBLE UNIT TO NON-ELIGIBLE UNITS THEREBY CLAIM HIGHER DEDUCTION. THE LD. CIT(A) TOOK NOTE O F THE FACT THAT THE NET PROFIT MARGIN IN THE RELEVANT AY 2009-10 WAS LOWER AT 24.84% OF TURN OVER AS AGAINST 45.08% IN AY 2008- 09 AND THE AO UNLIKE THE PRESENT AO ALLOWED DEDUCTI ON BUT ON PROPORTIONATE BASIS. 7. TAKING ALL THESE FACTS INTO CONSIDERATION, THE L D. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE AND DIRECTED THE AO TO ALLOW DEDUCTION UND ER SECTION 80IC OF THE ACT ON THE NET 5 ITA NO.48/KOL/2015 MADRAS ELASTOMERS LTD., AY 2009-10 PROFIT OF THE DEHRADUN UNITS AS DECLARED BY THE ASS ESSEE AFTER REDUCING THE MISC. INCOME AS TAKEN IN THE P&L ACCOUNT. WE CONCUR WITH THE VIEW EXPRESSED BY THE LD. CIT(A) TAKING INTO CONSIDERATION THE FACT THAT THE AO COULD NOT P OINT OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT MAINTAINED SEPARATELY FOR THE DEHRADUN UNIT AND DURING REMAND PROCEEDINGS WHEN THE FORM 10CCB WAS PRODUCED BEFORE THE AO, HE COULD NOT POINT OUT ANY FAULT. WE ALSO NOTE THAT THERE WAS NO MATERIAL TO ALLEGE THAT THER E WAS SHIFTING OF EXPENSES OF ELIGIBLE UNIT TO NON-ELIGIBLE UNIT SO THAT HIGHER DEDUCTION CAN B E CLAIMED FOR 80IC UNIT AT DEHRADUN. THE DEHRADUN UNIT HAD NEW MACHINERIES AND THERE WERE EX CISE EXEMPTION ALSO AND THUS, THE PROFITS GENERATED AT DEHRADUN UNIT CANNOT BE TERMED AS UNNATURAL WITHOUT ANY MATERIAL TO SUGGEST THE OTHER WAY; AND TAKING INTO CONSIDERATIO N THE RESULTS OF THE PREVIOUS YEAR ALSO WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. C IT(A) WHICH WARRANTS OUR INTERFERENCE. IN SUCH A SCENARIO, WE CONCUR WITH THE VIEW OF THE LD. CIT(A) AND WE ARE INCLINED TO DISMISS THE APPEAL PREFERRED BY THE REVENUE ON THIS ISSUE. 8. GROUND NO. 3 IS AGAINST THE ACTION OF THE LD. CI T(A) IN DELETING THE SUM OF RS.2,78,838/- OUT OF THE TOTAL ADDITION OF RS.17,36 ,842/- UNDER THE HEAD MISC. EXPENSES. 9. BRIEF FACTS OF THE CASE ARE THAT THE AO DISALLOW ED THESE EXPENSES ON THE GROUND THAT THESE EXPENSES WERE CLAIMED TWICE IN THE P&L ACCOUN T I.E. ONE OF RS.11,53,793/- AND ANOTHER OF RS.17,36,842/-. THE LD. CIT(A) HAS TAKE N NOTE OF THE DETAILS OF THESE EXPENSES AND OBSERVED THAT IT APPEARS THAT THIS HEADING ARE ACCUMULATION OF EXPENSES INCURRED UNDER VARIOUS HEAD OF INCOMES AND SO HE DID NOT AGREE WITH THE AO THAT THE EXPE NSES HAVE BEEN CLAIMED TWICE. HOWEVER, AFTER PERUSAL OF THE DETAILS SUBMITTED BEFORE HIM FOR RS.17,36,842/- THE LD. CIT(A) OBSERVED THAT A SUM OF RS.14,58,007/- WAS ON ACCOUNT OF TAX AGAINST STOCK TRANSFER. THE ASSESSEE WAS ASKED TO EXPLAIN THE NATURE OF SUCH PAYMENTS AND SINCE THE ASSESSEE FAILED TO OFFER ANY SATISFACTORY EXPLANATION FOR THE SAME, THE ASSESSEES CLAIM FOR SUCH EXPENSES WERE NOT ALLOWED BY THE LD. CIT(A) AND, THEREFORE, HE DEDUCTED THE SAID AMOUNT FROM THE TOTAL MISC. EXPENSES CLAIMED O F RS.17,36,842/- AND DIRECTED THE AO TO ALLOW ONLY RS.2,78,838/-. AGAINST THE SAID ORDER O F LD. CIT(A) THE LD. DR WAS UNABLE TO POINT OUT ANY DEFECT OR INFIRMITY WHICH NEED OUR IN TERFERENCE. THEREFORE, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) AND W E CONFIRM THE SAME. 6 ITA NO.48/KOL/2015 MADRAS ELASTOMERS LTD., AY 2009-10 10. THE NEXT ISSUE IS AGAINST THE ORDER OF THE LD. CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE IN RESPECT TO CUSTOM DUTY AND ENTRY TAX OF RS.12,74,450/-. THE LD. CIT(A) HAS NOTED THAT THE AO DID NOT UNDERSTAND THE NATURE OF CUSTOM DUTY AND ENTRY TAX. THE LD. CIT(A) RIGHTLY STATED THAT CUSTOM DUTY IS PAID ON G OODS IMPORTED AND IS NOWHERE RELATED TO EXPORT SALE OF THE COMPANY. THE LD. CIT(A) RIGHTLY NOTED THAT ENTRY TAX IS PAYABLE FOR PURCHASES FROM OUTSIDE THE LOCAL AREA OF THE CITY. THE LD. CIT(A) HAS TAKEN NOTE OF THE LEDGER COPY OF BOTH CUSTOM DUTY AND ENTRY TAX SUBMI TTED BY THE ASSESSEE BEFORE HIM AND RETURNED A FINDING THAT THE ENTIRE AMOUNT OF RS.12, 74,450/- WAS PAID DURING THE YEAR ITSELF AND THERE WAS NO OUTSTANDING AT THE YEAR END AND TH US, THE LD. CIT(A) HELD THAT DISALLOWANCE U/S. 43B OF THE ACT ALSO DOES NOT ARIS E. THE LD. CIT(A) TOOK NOTE OF THE FACT THAT AO IN THE REMAND PROCEEDINGS COULD NOT CONTROV ERT THE AFORESAID FACTS. BEFORE US ALSO, THE LD. DR COULD NOT FIND ANY INFIRMITY IN THE ACTI ON OF THE LD. CIT(A), SO WE DO NOT WISH TO INTERFERE IN THE IMPUGNED ORDER AND WE CONFIRM T HE SAME. THIS GROUND OF REVENUES APPEAL IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 20.09.201 7 SD/- SD/- (WASEEM AHMED) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :20TH SEPTEMBER, 2017 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CENTRAL CIRCLE-7, KOLKATA. 2 RESPONDENT M/S. MADRAS ELASTOMERS LTD., 32, GANES H CHANDRA AVENUE, KOLKATA-13. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, SR. PVT. SECRETARY