ACIT 7(2), MUMBAI V. SCHMETZ INDIA P.LTD, NAVI MUMBAI

ITA 485/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78746 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 17-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIWNI K MODI
• Assessee Lawyers: N H GAJRIA

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND , SHRI SANJAY ARORA, ACCOUNTANT MEMBER . / ITA NO.485/MUM/2013 / ASSESSMENT YEAR 2008-09 DY.COMMISSIONER OF INCOME TAX 7(2), ROOM NO.624, MK ROAD, MUMBAI 400 020. / VS. M/S. SCHMETZ INDIA PVT. LTD., E-218, TOWER NO.3, 2 ND FLOOR, VASHI INTERNATIONAL INFOTECH PARK, VASHI RAILWAY , NAVI MUMBAI 400 703 ! ./ ' ./ PAN/GIR NO. : AAFCS 7536M ( !# / APPELLANT ) .. ( $%!# / RESPONDENT ) !# & / APPELLANT BY: SHRI ASHIWNI K. MODI $%!# ' & / RESPONDENT BY : SHRI N.H.GAJRIA ' () / DATE OF HEARING : 21/04/2014 * ' () / DATE OF PRONOUNCEMENT : 21/04/2014 + / O R D E R PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DIR ECTED AGAINST ORDER PASSED BY LD. CIT(A)-13, MUMBAI DATED 02/11/2012 F OR THE ASSESSMENT YEAR 2008-09. GROUNDS OF APPEAL READ AS UNDER: 1. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN L AW IN DELETING THE DISALLOWANCE U/S 1OA.RELYING ON THE DECISION OF HON BLE HIGH COURT IN THE ASSESSEES OWN CASE FOR A.Y.2004-05 WITHOUT PROPERL Y APPRECIATING THE FACTUAL AND LEGAL MATRIX AS CLEARLY BROUGHT OUT BY THE ASSE SSING OFFICER. . / ITA NO.485/MUM/2013 / ASSESSMENT YEAR 2008-09 2 2. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN COMING TO THE CONCLUSION THAT THERE WAS NOTHING ON RECORDS TO SHOW THAT THE PROFIT ARRIVED AT BY THE ASSESSEE IN RESPECT OF THE 10A UNIT CARRYING ON THE BUSINESS OF MANUFACTURING INDUSTRIAL SEWING MACHINE NEEDLES WAS NOT IN THE NO RMAL COURSE OF ITS BUSINESS AND THAT THE ABNORMALLY HIGH PROFIT WAS DUE TO EXTR AORDINARY ARRANGEMENT BETWEEN THE ASSESSEE AND THE GERMAN COMPANY ENTERED INTO ONLY WITH A VIEW TO BOOST THE PROFITS OF ASSESSEE. 3. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT THERE WAS NO MATERIAL AVAILABLE WITH THE ASSESSING OFFICER TO ES TIMATE THE PROFITS OF THE 1OA UNIT ELIGIBLE FOR DEDUCTION BY INVOKING THE PROVISI ONS OF SECTION. 80 IA(1O) READ WITH SECTION 1OA(7) OF THE ACT. 4. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THE FACT THAT THE ESTIMATION OF PROFIT BY INVOKING THE PROVI SIONS OF SECTION 80 IA(1O) READ WITH SECTION 1OA(7) OF THE ACT, WAS BASED ON PROPER AND REASONABLE APPRAISAL OF THE MATERIAL AVAILABLE ON RECORD. 5. THE LD. CIT(A)S ORDER IS CONTRARY IN LAW AND ON FACTS AND DESERVES TO BE SET ASIDE. 6. THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO RESTORED. THE APPELLANT CRAVES L EAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND THAT MAY BE NECESSARY. 2. DURING THE YEAR UNDER CONSIDERATION THE AO HAS R ESTRICTED THE BENEFIT OF SECTION 10A TO THE EXTENT OF 60% IN RESPECT OF KAN DLA UNIT ON THE BASIS OF SIMILAR DECISION TAKEN IN RESPECT OF EARLIER YEARS . SUCH TREATMENT WAS GIVEN BY THE REVENUE IN RESPECT OF KANDLA UNIT OF THE ASSESS EE IN A.Y. 2004-05. LD. CIT(A) AFTER REFERRING TO THE FACTS IN RESPECT OF A .Y 2004-05 HAS COME TO THE CONCLUSION THAT SUCH ACTION OF A.O CANNOT BE APPRO VED AS THE ITAT IN A.Y 2004-05 HAS DISCARDED SUCH ACTION OF DEPARTMENT AN D HAS GRANTED RELIEF TO THE ASSESSEE AND THE SAID ORDER OF THE TRIBUNAL H AS BEEN CONFIRMED BY HONBLE JURISDICTIONAL HIGH COURT. IN THIS MANN ER LD. CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE. THE DEPARTMENT IS AGGRIEVE D, HENCE, HAS FILED AFOREMENTIONED GROUNDS OF APPEAL. 3. LD. AR OF THE ASSESSEE HAS FILED BEFORE US COPY OF THE ORDER OF THE TRIBUNAL IN RESPECT OF A.Y 2004-05 AND ALSO THE ORD ER OF HONBLE JURISDICTIONAL HIGH COURT DATED 04/09/2012, VIDE WHICH DEPARTMENTA L APPEAL HAS BEEN . / ITA NO.485/MUM/2013 / ASSESSMENT YEAR 2008-09 3 DISMISSED. COPY OF THESE ORDERS WERE ALSO GIVEN TO LD. DR. REFERENCE WAS ALSO MADE TO THE FOLLOWING SUBSEQUENT DECISIONS OF TRIBUNAL, IN WHICH FOLLOWING THE ORDER OF ASSESSMENT YEAR 2004-05 THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND DEPARTMENTAL APPEAL WAS DISMISSED. (I) ORDER DATED 30/11/2012 IN ITA NO.3604/MUM/2010 AND ITA NO.5781/MUM/2010 (CROSS APPEALS FOR A.Y 2005-06) (II) ORDER DATED 5/4/2013 IN ITA NO.1187/MUM /2012 FOR ASSESSMENT YEAR 2007-08. THUS, IT WAS CLAIMED BY LD. AR THAT THE ISSUE IS C OVERED IN FAVOUR OF ASSESSEE BY THE AFOREMENTIONED DECISIONS, THEREFORE, THE REV ENUES APPEAL SHOULD BE DISMISSED. 4. HOWEVER, LD. DR RELIED UPON THE GROUNDS OF APPEA L. 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. WE HAVE CAREFULLY GONE THROUGH THE ASS ESSMENT ORDER. IN THE ASSESSMENT ORDER AO HAS SIMPLY REFERRED TO THE EARL IER YEARS ORDERS FOR RESTRICTING THE PROFITS OF KANDLA UNIT TO 60%. THE REFORE, IT CANNOT BE SAID THAT FACTUAL OR LEGAL MATRIX WERE IN ANY WAY DIFFERENT IN EARLIER YEARS AS COMPARED TO THE FACTS OF THE PRESENT YEAR. IF IT IS SO, S INCE THE ORDER OF THE TRIBUNAL IN RESPECT OF A.Y 2004-05 HAS BEEN CONFIRMED BY THEI R LORDSHIPS OF BOMBAY HIGH COURT VIDE AFOREMENTIONED DECISION DATED 4/9/ 2012, WE DECLINE TO INTERFERE IN THE RELIEF GRANTED BY LD. CIT(A). FOR THE SAKE OF COMPLETENESS THE OBSERVATION OF THEIR LORDSHIPS OF HONBLE BOMBAY HI GH COURT IN ASSESSEES OWN CASE FOR A.Y 2004-05 ARE REPRODUCED BELOW: 7. IN SECOND APPEAL, THE TRIBUNAL BY ITS ORDER DAT ED 30.07.2008 HELD THAT MERELY BECAUSE AN ASSESSEE MAKES EXTRAORDINARY PROFITS, IT WOULD NOT LEAD TO THE CONCLUSION THAT THE SAME WAS ORGANISED/ARRANGED. TH IS ACCORDING TO THE TRIBUNAL WOULD PENALIZE EFFICIENT FUNCTIONING OF THE UNIT. T HE TRIBUNAL WAS OF THE VIEW THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO PROVE TH AT ANY ARRANGEMENT HAD BEEN ARRIVED BETWEEN THE PARTIES WHICH RESULTED IN EXTRA ORDINARY PROFITS TO THE . / ITA NO.485/MUM/2013 / ASSESSMENT YEAR 2008-09 4 RESPONDENT-ASSESSEES MANUFACTURING DIVISION AT KAN DLA. CONSEQUENTLY, THE REWORKING OF THE PROFITS BY THE ASSESSING OFFICER W AS NOT PROPER. THE ASSESSING OFFICER HAD COMPLETELY IGNORED THE FACT THAT AS TH E ENTIRE PRODUCTION OF THE RESPONDENT- ASSESSEE WAS BEING SOLD TO ITS GERMAN P RINCIPAL/HOLDING COMPANY, THEY DID NOT HAVE ANY EXPENSES OF MARKETING ETC. TH IS RESULTED IN IT BEING FOCUSED IN REDUCING THE COST OF OPERATION, WHICH RESULTED I N HIGHER PROFITS. THE TRIBUNAL THEREFORE, HELD THAT THE PROFITS DERIVED BY THE RES PONDENT-ASSESSEE FROM ITS EXPORT DIVISION AT KANDLA SHOULD BE TAKEN AT RS.20.53 CROR ES AND CONSIDERED FOR RELIEF UNDER SECTION 1OA OF THE ACT. SO FAR AS, THE SECOND ISSUE IS CONCERNED NAMELY WHETHER SECTION 1OA DEDUCTION BY KANDLA DIVISION SH OULD BE CLAIMED AFTER SETTING OFF THE LOSS OF ITS TRADING DIVISION AT MUM BAI OR PRIOR THERETO THE TRIBUNAL HELD THAT THE DEDUCTION TO THE KANDLA DIVISION WOUL D BE AVAILABLE ON ITS PROFITS UNDER SECTION 1OA OF THE ACT. THE LOSSES SUFFERED B Y MUMBAI DIVISION (TRADING DIVISION) SHOULD NOT BE SET OFF AGAINST THE PROFITS OF KANDLA DIVISION BEFORE CLAIMING THE DEDUCTION UNDER SECTION 1OA OF THE ACT . 8 SO FAR AS QUESTIONS (A) & (B) ARE CONCERNED, WE F IND THAT THE TRIBUNAL HAS CONSIDERED THE ENTIRE EVIDENCE AND ON FACTS COME TO THE CONCLUSION THAT THE PROFITS EARNED BY KANDLA DIVISION OF THE RESPONDENT-ASSESSE E IS NOT ABNORMALLY HIGH DUE TO ANY ARRANGEMENT BETWEEN THE RESPONDENT-ASSESSEE AND ITS GERMAN PRINCIPAL. THE TRIBUNAL CORRECTLY HELD THAT EXTRAORDINARY PROF ITS CANNOT LEAD TO THE CONCLUSION THAT THIS IS AN ARRANGEMENT BETWEEN THE PARTIES. THIS WOULD PENALIZE EFFICIENT FUNCTIONING. FURTHER, THE AUTHORITIES HAV E ALSO RECORDED A FINDING THAT THE INDUSTRIAL SEWING MACHINE NEEDLES IMPORTED AND TRAD ED BY THE MUMBAI DIVISION ARE DIFFERENT FROM THOSE MANUFACTURED & EXPORTED BY THE KANDLA DIVISION. CONSEQUENTLY, THIS ALSO NEGATIVES ANY ARRANGEMENT B ETWEEN THE PARTIES TO SHOW EXTRAORDINARY PROFITS IN RESPECT OF ITS KANDLA DIVI SION SO AS TO CLAIM DEDUCTION UNDER SECTION 1OA OF THE ACT. THESE ARE FINDINGS ON E OF FACT. THE APPELLANT- REVENUE HAVE NOT BEEN ABLE TO SHOW THAT THE FINDING S ARE PERVERSE OR ARBITRARY. IN THE CIRCUMSTANCES, QUESTIONS (A) AND (B) AS FORM ULATED BY THE APPELLANT/REVENUE DO NOT RAISE SUBSTANTIAL QUESTION S OF LAW IN THE PRESENT FACTS AND ARE THEREFORE DISMISSED. IN VIEW OF THE ABOVE DISCUSSION, FINDING NO MERIT I N REVENUES APPEAL, THE SAME IS DISMISSED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/04 /2014 + ' * - ./ 21 /04/2014 ' 0 1 SD/- SD/- ( / SANJAY ARORA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; . DATED 21/04/2014 . / ITA NO.485/MUM/2013 / ASSESSMENT YEAR 2008-09 5 + + + + ' '' ' $(2 $(2 $(2 $(2 32 ( 32 ( 32 ( 32 ( / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- 4. 4 / CIT 5. 250 $( , , / DR, ITAT, MUMBAI 6. 06 7 / GUARD FILE. + + + + / BY ORDER, %2( $( //TRUE COPY// 8 88 8 / 9 9 9 9 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ VM , SR. PS