H-One India (P) Ltd., Uttar Pradesh V. ACIT, Noida

ITA 4872/DEL/2009

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97849 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 20-10-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 29-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIMA BARNWAL
• Assessee Lawyers: D D BANSAL
• Keywords: Business expenditure; Revenue expenditure

Judgement Text

1 ITA NO. 4872.DEL.2009 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 4872/DEL/2009 (ASSESSMENT YEA R-2003-04) H - ONE INDIA (P) LTD. 12, UDYOG VIHAR GREATER NOIDA UTTAR PRADESH AAACH3032L (APPELLANT) VS ACIT NOIDA CIRCLE NOIDA (RESPONDENT) APPELLANT BY MS D.D. BANSAL, CA RESPONDENT BY MS. ANIMA BARNWAL, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 13/10/2009 PASSED BY LD. CIT(A)S GHAZIABAD FOR THE ASSESSMENT YEAR 2003-04. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS:- 1. FOR THE ASSESSING OFFICER ERRED IN FACTS AS WEL L AS IN LAW IN NOT ALLOWING EXPENDITURE OF RS.63,51,928/- ON THE ACCOU NT OF DIES MANUFACTURING EXPENSES. 2. FOR THE ASSESSING OFFICER ERRED IN DISALLOWING R S.3,00,317/- PAID AS CESS TO INDIAN GOVERNMENT UNDER R & D CESS ACT, 198 6, WHICH IS A STATUTORY AS WELL AS CONTRACTUAL LIABILITY OF THE C OMPANY. 3. FOR THAT THE LD. ASSESSING OFFICER ERRED IN NOT ALLOWING THE TRIMMING LOSS BELOW 1% (PROCESS LOSS) DURING CUTTING OF STEE L FROM COIL TO BLANK DATE OF HEARING 20.10.2015 DATE OF PRONOUNCEMENT 13.10.2015 2 ITA NO. 4872.DEL.2009 SIZE. DURING THE YEAR SUCH LOSS WAS 5.447 MT OUT O F 541.83 MT STEEL PROCESSED AT CUTTING CENTRE. 3. THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING OF SHEET METAL THROUGH PRESSED, WELDED PENAL AND SUB-ASSEMBLIES PA RTS FOR AUTO MOBILES AND OTHER EQUIPMENTS DESIGN, MANUFACTURING OF MOBILE FO RMING, DIES, WELDING JIGS AND INSPECTION FIXTURE. THE HONGO COMPANY LIMITED, JAPAN WAS HAVING 95% SHARE HOLDING IN THE ASSESSEE COMPANY AND SIEL LIMI TED, NEW DELHI AT 5%. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE S HOWED THE SALES OPERATING INCOME AT RS. 56,19,73,199/-, OTHER INCOME OF RS.1, 05,385/- AS AGAINST OF RS.51,90,18,622/- AND RS. 1,02,418/- RESPECTIVELY O F PREVIOUS YEAR. AGAINST WHICH, THE ASSESSEE CLAIM TOTAL EXPENDITURE OF RS.4 9,99,82,082/- AND DISCLOSED BOOK PROFIT OF RS.7,44,71,164/- AS AGAINST RS.4,50, 28,230/- AFTER CLAIMING EXPENDITURE OF RS.47,57,88,017/- FOR THE PREVIOUS Y EAR. 4. GROUND NO. 1, THE ASSESSEE RECEIVED THE PURCHASE ORDER FOR SUPPLY OF DIES FOR RS.2,00,00,000/- FROM HONDA SIEL CARS INDI A LTD OUT OF WHICH 3 DIES WERE MANUFACTURED BY THE ASSESSEE COMPANY IN THE OR DER OF OTHER DIES WERE GIVEN TO OUTSIDE PARTY. THE SAID ORDER WAS FURTHER INCREASED BY RS.34,61,000/- . THE COPY OF THE PURCHASE ORDER WAS FILED BY THE A SSESSEE TO THE ASSESSING OFFICER. THE DIES MANUFACTURED BY THE COMPANY WERE NOT SUPPLIED IN THE RELEVANT YEAR, BUT IN THE NEXT YEAR. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT ACCORDING TO THE SALE PRICE, THE VALUE OF THE DIES WAS TAKEN AT RS.46,31,000/-, THOUGH THE TOTAL EXPENSES FOR MAKING THE DIES IN THE FINANCIAL YEAR 2002-03 WHERE OF RS.1,07,01,674/- WH ICH INCLUDED THE SUPERVISION FEE COST OF RS.56,60,991/-. THE DIES W ERE TO BE SUPPLIED IN 67 PARTS OUT OF WHICH, THE COMPANY MADE IN HOUSE 3 MOS T CRITICAL PARTS DIES AND OTHER SMALL PARTS DIES WERE DEVELOPED OUTSIDE THE A SSESSEES OFFICE AS STATED BY THE ASSESSEE. THE ASSESSEE SUBMITTED BEFORE THE ASS ESSING OFFICER THAT THE SUPERVISION FEE SHOULD NOT BE INCLUDED IN THE COST OF DIE MAKING AND CLOSING STOCK OF IN HOUSE MADE DIES AS THE SUPERVISORS SENT BY THE PARENT COMPANY 3 ITA NO. 4872.DEL.2009 HAD ALSO WORKED ON THE DIES AS DEMANDED BY HONDA SI EL CARS INDIA LTD. AND SUBMITTED THAT THE VALUE OF THE CLOSING STOCK BE TA KEN AS DECLARED BY IT. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION GIVEN BY THE ASSESSEE BECAUSE THE EXPENSES RELATED TO THE MANUFACTURING O F THE DIES WHICH WERE SOLD IN THE SUBSEQUENT YEAR/NEXT YEAR I.E. IN THE MONTH OF SEPTEMBER 2003 AND THERE WAS NO SINGLE DIE RATHER IT INCLUDED 67 PARTS . THEREFORE, THE TOTAL COST WAS CONSIDERED AS THE PART OF THE CLOSING STOCK FOR DIES. ACCORDINGLY THE CLOSING STOCK WAS TAKEN AT RS.1,07,01,674/- AND INTEREST O F 46,31,000/-. HENCE, THE ASSESSING OFFICER MADE ADDITION OF RS.60,70,674/-A LONG WITH THE PAYMENT OF RS.2,81,254/- AS R & D CESS WITH R & D CESS DEPARTM ENT AGAINST DIES MANUFACTURE EXPENSES WHICH HAS NOT BEEN INCLUDED IN THE COST WORKED OUT BY THE ASSESSEE AT RS.1,07,01,674/-. THUS, THE ASSESS ING OFFICER MADE ADDITION OF 63,51,928/-. 4. THE LD. CIT(A) HAS UPHELD THE ORDER OF THE ASSES SING OFFICER . 5. THE AR SUBMITTED THAT FINDING GIVEN BY THE ASSES SING OFFICER AS WELL AS. CIT(A) ARE NOT PROPER, AS THE LOSS WERE IN RESPECT OF THE SUPERVISION FEE AND SUPERVISION COST WAS RS.56,60,991/-. THE AR FURTHE R SUBMITTED THAT THE R & D CESS IS A FOREIGN CESS AND THE SAME CANNOT BE INCLU DED IN THE INCOME/EXPENSES OF THE ASSESSEE. THE AR SUBMITTED THAT ALL THE RELEVANT PURCHASE ORDERS WERE SUBMITTED BEFORE THE ASSESSING OFFICER AS WELL BEFORE THE LD. CIT(A). 6. THE DR RELIED UPON THE ASSESSING OFFICER AS WELL AS CIT(A)S ORDER AND STATED THAT CONTRACT WITH HONDA SIEL INDIA LTD. DID NOT IN ANY WAY MADE ANY TERMS AS RELATING TO BIFURCATION TO IN HOUSE MANUFA CTURING AND OUT SOURCING MANUFACTURING. THEREFORE, THE ASSESSEE CANNOT TAKE THE PLEA THAT THE IN HOUSE MANUFACTURING IS A SEPARATE FROM OUTSIDE MANUFACTUR ING. 7. WE HAVE PERUSED ALL THE RELEVANT MATERIAL AND DO CUMENTS ON RECORD. WE HAVE HEARD BOTH THE PARTIES. IT IS CLEARLY STATED THAT IN THE ASSESSMENT ORDER THAT THE MANUFACTURING OF THE DIES WAS SOLD IN THE NEXT YEAR AND THERE WAS NO 4 ITA NO. 4872.DEL.2009 MENTION OF SINGLE DIE. RATHER, THE ENTIRE 67 WERE TAKING INTO ACCOUNT BY THE ASSESSEE AS WELL AS BY THE ASSESSING OFFICER AND LD . CIT(A). THE ASSESSEE GOT ORDER FROM HONDA SIEL CARS INDIA LTD. FOR SUPPLY OF DIES, WHICH WAS STATED TO BE COMPRISED 67 PARTS AND DIES WERE SUPPLIED BY THE AS SESSEE TO HONDA SIEL CARS INDIA LTD. IN SUBSEQUENT ASSESSMENT YEAR. DURING TH E YEAR, ASSESSEE HAS SHOWN THE VALUE OF CLOSING STOCK OF THESE DIES AT R S. 46,31,000/- WHILE THE ASSESSING OFFICER MENTIONED THAT THE TOTAL EXPENSES FOR MANUFACTURING OF THESE DIES AMOUNTED TO RS.1,09,82,928/-. THE CONTENTION O F THE AR THAT ONLY THREE DIES WERE MANUFACTURED BY THE ASSESSEE AND FOR THE REST, THE MANUFACTURING WAS OUTSOURCED, WILL NOT CHANGE THE ACCOUNTING OF T HE SAME MANUFACTURED BY OUTSIDE DIE MAKERS AND WILL EVENTUALLY GO INTO THE STOCK OF THE ASSESSEE ONLY. THUS, THE ASSESSEE WAS NOT ABLE TO ESTABLISH THAT T HERE WAS SEPARATE PURCHASE ORDERS FOR THE THREE DIES AND THE REST OF 64 DIES W HICH WAS OUTSOURCED. IN FACT, THE SAID OUTSOURCED DIES ALONG WITH THE 3 DIES MANU FACTURED BY THE ASSESSEE WAS IN ENTIRETY SUPPLIED TO HONDA SIEL CARS INDIA L IMITED ONLY, ON FUTURE DATE. THEREFORE, WE UPHOLD THE FINDING OF THE LD. CIT (A) AS WELL AS THE ASSESSING OFFICER. 8. IN RESULT, GROUND NO. 1 IS DISMISSED. 9. AS REGARDS TO GROUND NO. 2 THE ASSESSEE CLAI MED THE CESS TO THE CENTRAL GOVERNMENT AGAINST THE ROYALTY PAID/PAYABLE TO THE PARENT COMPANY OF RS.3,00,317/-. AS PER LETTER DATED 05.11.1997, THE APPROVAL GRANTED BY THE GOVERNMENT WAS OF 3% OF ROYALTY TO BE PAID TO THE P ARENT COMPANY BY THE ASSESSEE. THE ASSESSEE SUBMITTED THAT SUBJECT TO TA X MEANS THE TDS DEDUCTED FROM THE ROYALTY FOR WHICH THE CERTIFICATE IS ISSUE D TO THE CONCERN COMPANY AND THEY CLAIMED THE BENEFIT THEREOF IN THEIR INCOME TA X RETURN. THE ASSESSEE FURTHER SUBMITTED THAT THE CESS CLAIMED BY THEM WAS PAID TO THE CENTRAL GOVERNMENT AGAINST THE ROYALTY PAYABLE TO THE PAREN T COMPANY. THE ASSESSING OFFICER HELD THAT THE SUBMISSION OF THE ASSESSEE AS REGARDS TO THE TDS DEDUCTED FROM THE ROYALTY IS DIFFERENT FROM R & D C ESS AND THE SAME CANNOT BE DEDUCTABLE FROM ROYALTY. THIS WAS NOT ACCEPTED BY T HE A.O AND A.O DISALLOWED 5 ITA NO. 4872.DEL.2009 RS. 3,00,317/-. THE CIT(A) HELD THAT THE GOVERNM ENT HAS GRANTED APPROVAL FOR PAYMENT OF ROYALTY SUBJECT TO TAXES. THE TAXES MEANS OF TAXES AND, THEREFORE, NOT RESTRICTED TO TDS ONLY. THE CIT (A) UPHELD THE ORDERS OF THE ASSESSING OFFICER. 10. THE AR SUBMITTED THAT THE SAID FINDINGS ARE NOT IN ACCORDANCE WITH LAW, AS CESS TO THE CENTRAL GOVERNMENT AGAINST THE ROYAL TY CANNOT BE TREATED AS A REVENUE EXPENDITURE. THE AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS IGNORED THIS FACT HENCE THE ORDERS OF THE ASSESSING OFFICER AND CIT(A) WAS NOT ACCORDING TO THE APPROVA L OF THE CENTRAL GOVERNMENT. 11. THE DR RELIED UPON THE ORDER OF THE ASSESSING O FFICER AS WELL AS THE LD. CIT(A). 12. WE HAVE PERUSED ALL THE RELEVANT MATERIAL AND D OCUMENTS ON RECORD. WE HAVE HEARD BOTH THE PARTIES. WE HAVE NOTICED FROM T HE RECORDS THAT THE GOVERNMENT HAS GRANTED APPROVAL FOR PAYMENT OF ROYA LTY SUBJECT TO TAXES AND HENCE THE TAXES DOES NOT RESTRICT ONLY TO TDS ONLY. THE GOVERNMENT APPROVAL FOR PAYMENT OF ROYALTY THOUGH WAS SUBJECT TO TDS IT INCLUDES R & D CESS AS WELL. THEREFORE, DISALLOWANCE OF THE R&D CESS PAID/ PAYABLE AGAINST ROYALTY TO THE EXTENT OF RS.3,00,317/- WAS WRONGLY MADE BY THE ASSESSING OFFICER AND ALSO OVERLOOKED BY THE CIT(A). THUS, THE CONTENTION OF THE ASSESSEE IS SUSTAINED. 13. IN RESULT GROUND NO. 2 IS ALLOWED. 14. IN RESPECT OF GROUND NO. 3, THE ASSESSEE IMPORT ED THE IRON SHEET FROM HONDA TRADING LIMITED, JAPAN IN THE COIL FORM WEIGH ING 541.830 MT, WHICH WAS SENT TO MAHENDRA STEEL SERVICE CENTRE, PUNE FOR CUTTING IN THE BLANK SIZE. THEY AFTER CUTTING THE SAME, TRANSFERRED THE GOODS TO THE ASSESSEE COMPANY. THE GOODS SO TRANSFERRED WERE SHORT BY 5.447 MT, WH ICH WAS TREATED BY THE ASSESSEE AS TRIMMING ALLOWANCE I.E. LOSS OF MATERIA L IN PROCESS. THE ASSESSEE 6 ITA NO. 4872.DEL.2009 SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE SAI D MATERIAL HAS NOT BEEN RECEIVED BY THE ASSESSEE SO FAR, THEREFORE, NEITHER IT WAS THE PART OF THE ASSESSEE STOCK NOR IT CAN BE CONSIDERED AS SALE OF SCRAP. IT WAS FURTHER SUBMITTED THAT SHORT OF THE STOCK WAS DEMANDED FROM M/S. MAHENDRA STEEL SERVICE CENTRE, WHO HAS NEITHER ADJUSTED IN THE ACC OUNT NOR REMITTED THE SHORT MATERIAL AND ACCORDINGLY, THE SAME WAS TREATED AS T RIMMING ALLOWANCE BY THE ASSESSEE. 15. THE SUBMISSION OF THE ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HELD THAT IT HAS SI MPLY TRIED TO COVER UP THE SHORTAGE BY MAKING THE SUBMISSION. ACCORDINGLY, TH E SHORTAGE OF THE STOCK OF 5.441 MT BY TAKING AN AVERAGE VALUE OF RS.30/- PER KG. WAS INCLUSIVE OF CUSTOM DUTY, WHICH COMES TO RS.1,63,410/- AND THE SAME WAS ADDED TO THE INCOME OF THE ASSESSEE BY THE ASSESSING OFFICER. THE CIT(A) U PHELD THE ORDER OF THE ASSESSING OFFICER. 16 THE AR SUBMITTED THAT THE SHORT FALL OF 5.447 MT IS ON ACCOUNT OF THE PROCESS LOSS, WHICH COMES APPROXIMATELY 1% AND THE SAME WAS BORNE BY THE ASSESSEE AND THE SAID LOSS WAS ALLOWABLE UNDER BUSI NESS EXPENDITURE. 17. THE DR SUBMITTED THAT THE ASSESSING OFFICER AS WELL AS LD. CIT(A) HAS CORRECTLY DECIDED THE SAME AND THERE IS A DECISION OF JURISDICTIONAL HIGH COURT IN CASE OF CIT VS. CITI FINANCIAL CONSUMER FIN. LTD . [2012] 20 TAXMANN.COM 452 (DELHI) 18. WE HAVE GONE THROUGH THE RECORDS AND HEARD BOTH THE PARTIES. THE RECORD SHOW THAT THE ASSESSEE IMPORTED THE IRON SHE ET FROM HONDA TRADING LIMITED, JAPAN IN THE COIL FORM WEIGHING 541.830 MT , WHICH WAS SENT TO MAHENDRA STEEL SERVICE CENTRE, PUNE FOR CUTTING IN THE BLANK SIZE. THEY AFTER CUTTING THE SAME, TRANSFERRED THE GOODS TO THE ASSE SSEE COMPANY. THE GOODS SO TRANSFERRED WERE SHORT BY 5.447 MT, WHICH WAS TREAT ED BY THE ASSESSEE AS TRIMMING ALLOWANCE I.E. LOSS OF MATERIAL IN PROCESS . THE SHORT FALL OF 5.447 MT IS ON ACCOUNT OF THE PROCESS LOSS, WHICH COMES APPROXI MATELY 1% AND THE SAME 7 ITA NO. 4872.DEL.2009 WAS BORNE BY THE ASSESSEE AND THE SAID LOSS WAS ALL OWABLE UNDER BUSINESS EXPENDITURE. THEREFORE, THE ADDITION MADE BY THE AS SESSING OFFICER TO THE EXTENT OF RS.1,63,410/- WAS NOT PROPER AND THE CIT (A) HAS ALSO NOT GIVEN A CORRECT FINDING. 19. IN RESULT, GROUND NO. 3 IS ALLOWED. 20. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 13 TH OF NOVEMBER, 2015. SD/- SD/- (R.S. SYAL) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13/11/2015 R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 20.10.2015 PS 2. DRAFT PLACED BEFORE AUTHOR 21.10.2015 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .10.2015 JM/AM 8 ITA NO. 4872.DEL.2009 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 09.11.2015 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 13.10.2015 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.