ITO, New Delhi V. Smt. Anita Kumar, New Delhi

ITA 4879/DEL/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52494 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-12-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GEETNALA MOHANANI
• Assessee Lawyers: S R WADHWA
• Keywords: Business income; Transfer pricing; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI B.K. HALDAR, ACCOUNTANT MEMBER I.T.A. NO.4879/D/2009 ASSESSMENT YEAR: 2006-07 INCOME TAX OFFICER, VS. SMT. ANITA KUMAR, PROPRIETO R, WARD-33(3), M/S OMEX INDUSTRIES,344,BAGH NEW DELHI KADE KHAN, KISHAN GANJ, N.D. PAN NO.AAIPK 9784 B (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. GEETNALA MOHANANI, SR. DR RESPONDENT BY : SHRI S.R. WADHWA, ADVOCATE ORDER PER B.K. HALDAR: AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LEARNED CIT(A)-XXVI, NEW DELHI DATED 14.10.2009 FO R ASSESSMENT YEAR 2006-07. REVENUE HAS TAKEN FOLLOWI NG GROUNDS OF APPEAL:- I) LEARNED CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 80IC TO THE TUNE OF `18,40,03,392/- IN FULL WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AS BROUGHT OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. II) CIT(A) HAS ERRED IN ALLOWING DEDUCTION U/S 80IC TO THE TUNE OF `18,40,03,392/- BY ADMITTING THE ADDITIONAL EVIDENCE WITHOUT CONSIDERING THE FACT THAT THE SAME WERE NEVER PRODUCED DURING THE ASSESSMENT PROCEEDINGS. 4879-2009-AK 2 2. THE ASSESSEE IS AN INDIVIDUAL. DURING THE RELEV ANT ASSESSMENT YEAR, SHE DISCLOSED TOTAL INCOME OF `2,5 9,774/- AFTER CLAIMING DEDUCTION U/S 80IC OF THE INCOME-TAX ACT AMOUNTING TO `18,40,03,392/-. THE ASSESSING OFFICE R REQUIRED THE ASSESSEE TO FURNISH FOLLOWING INFORMAT IONS: 1. PROFIT EARNED BY M/S MAHARAJA APPLIANCES LTD. 2. THE PROFIT ON PROPORTIONATE BASIS OF THE TOTAL SALES MADE TO M/S OMEX INDUSTRIES PROPRIETOR SMT. ANITA KUMAR BY M/S MAHARAJA APPLIANCES LTD. 3. PROFIT EARNED ON THE SALES MADE BY OMEX INDUSTRIES TO M/S MAHARAJA APPLIANCES LTD. 4. PROFIT EARNED BY M/S OMEX INDUSTRIES FROM THE SALES MADE TO OTHER PARTIES. 5. PROFIT EARNED BY M/S MAHARAJA APPLIANCES LTD. BY SELLING GOODS OF `28,52,80,117/- TO OTHER PARTIES. 2.1 THE ASSESSEE WAS ALSO ASKED TO SHOW AS TO HOW SHE WAS ENTITLED TO THE DEDUCTION U/S 80IC, AMOUNTI NG TO `18,40,03,392/-. 2.2 IN RESPONSE TO THE ABOVE, THE ASSESSEE FILED A LETTER DATED 29.12.2008, WHICH IS REPRODUCED HEREUN DER:- 4879-2009-AK 3 1. DURING THE YEAR A HAS MADE CERTAIN PURCHASE & SALES TO MAHARAJA APPLIANCE LIMITED. DETAILS IN THIS REGARD HAS ALREADY BEEN FILED WITH YOUR HONOUR. 2. IN RESPECT OF YOUR QUERY REGARDING PROFIT CALCULATIONS OF OMEX INDUSTRIES OR MAHARAJA APPLIANCES LIMITED IN RESPECT OF SALES OR PURCHASE MADE BETWEEN THEM. IT RESPECTFULLY SUBMITTED THAT IT IS NOT POSSIBLE TO CALCULATE THE EXACT FIGURES OF PROFITBILITY AS NEITHER THE ASSESSEE NOT MAHARAJA APPLIANCES LIMITED HAS MAINTAINED THE ACCOUNTS IN SUCH MANNER THAT FOR EACH PRODUCT OR VENDER PROFIT CAN BE CALCULATED. IN GIVEN CIRCUMSTANCES IT IS NOT POSSIBLE TO PROVIDE THESE FIGURES AS DESIRED BY YOUR HONOUR. 3. REGARDING ALLOWABILITY OF DEDUCTION U/S 80IC : ASSESSEE HAS CLAIMED DEDUCTION U/S 80IC. ASSESSEE HAS FILED ALL THE REQUISITE DOCUMENTS/DETAILS/A. REPORTS REQUIRED UNDER THE LAW OR AS CALLED FOR FROM TIME TO TIME BY YOUR HONOUR TO PROVE ITS ELIGIBILITY OF DEDUCTION U/S 80 IC OF INCOME-TAX ACT. IN CASE MY OTHER INFORMATION/DOCUMENTS IS REQUIRED, THE SAME MAY KINDLY BE CALLED FOR. IN VIEW OF THE DOCUMENTS, ACCOUNTS, AUDIT REPORT AND OTHER PAPER FILED. ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IC OF INCOME-TAX ACT WHICH MAY KINDLY BE ALLOWED. 2.3 ON THE BASIS OF THE INFORMATION FURNISHED BY T HE ASSESSEE, THE ASSESSING OFFICER NOTED THE FOLLOWING SALIENT FEATURES OF THE BUSINESS CARRIED ON BY THE ASSESSEE :- 4879-2009-AK 4 THE TOTAL TURNOVER OF THE ASSESSEE 49.65 CRORES THE TOTAL PROFITS 18.40 CRORES NET PROFIT RATE 37% GROSS PROFIT RATE 45% TOTAL PURCHASES FROM SISTER CONCERN (MAHARAJA APPLIANCES (P) LTD. 8,78,51,549/- SALES TO SISTER CONCERN (MAHARAJA APPLIANCES (P) LTD. 28,52,80,417/- PROFIT OF M/S MAHARAJA APPLIANCES PVT. LIMITED. NP RATE AND GP RATE OF MAHARAJA APPLIANCES PVT. LIMITED. - NP RATE AND GP RATE OF MAHARAJA APPLIANCES PVT. LTD. TOTAL PURCHASES OF THE ASSESSEE. 26,31,33,516/- SALES TO THE SISTER CONCERN OVER THE TOTAL SALES: 57.45% % OF PURCHASES FROM THE SISTER CONCERN OVER THE TOTAL PURCH- ASES: 33.38% 2.4 THE ASSESSING OFFICER NOTED THAT 57.45% OF THE TOTAL SALES OF THE ASSESSEE WERE TO THE SISTER CONC ERN MAHARAJA APPLIANCES (P) LTD. THE SISTER CONCERN MA HARAJA APPLIANCES (P) LTD. WAS SHOWING NET LOSS AND WAS NO T PAYING 4879-2009-AK 5 ANY TAXES. THE ASSESSEE ON THE OTHER HAND, WAS SHO WING VERY HIGH GROSS PROFIT RATE AS COMPARED TO THE MARK ET AVERAGE OF THE TRADE, THEREBY SHIFTING THE PROFIT O F THE SISTER CONCERN TO ITSELF AND CLAIMING DEDUCTION U/S 80IC. THE ASSESSING OFFICER OPINED THAT THE ASSESSEE DID NOT GIVE GROSS PROFIT RATE EARNED FROM SALE TO OUTSIDE PARTIES AND THE GROSS PROFIT RATE FROM SALE TO THE SISTER CONCERN SO THAT THE ABOVE VIEW OF SHIFTING THE PROFIT FROM NON-ELIGIBLE CONCE RNS INCOME TO THE ELIGIBLE CONCERN OWNED BY THE ASSESSEE COULD NOT BE FACTUALLY PROVED. ASSESSING OFFICER, THEREFORE, IN VOKED THE PROVISION OF SECTION 80IA(10) READ WITH SECTION 80I C(7) AND ESTIMATED REASONABLE VALUE OF SALES TO THE SISTER C ONCERN AT 50% OF DECLARED VALUE I.E., `14,26,40,208/-. THUS, PROFIT FROM ELIGIBLE BUSINESS OF THE ASSESSEE WAS WORKED O UT AT `4,14,30,609/-. ACCORDINGLY, DEDUCTION U/S 80IC WA S WORKED OUT AT `4,13,63,184/- AS AGAINST THE CLAIM MADE BY THE ASSESSEE AMOUNTING TO `18,40,03,392/-. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LEARNED CIT(A). 3. BEFORE THE LEARNED CIT(A), THE ASSESSEE POINTED OUT THAT THE SHOW CAUSE NOTICE WAS ISSUED BY THE AS SESSING OFFICER ON 23.12.2008 ON THE BASIS OF WHICH THE ASS ESSMENT WAS COMPLETED ON 31.12.2008. IF THE INTERVENING HO LIDAYS WERE TAKEN INTO ACCOUNT, ONLY ONE WORKING DAY WAS A VAILABLE TO THE ASSESSEE TO MAKE HER SUBMISSIONS. THUS, IT WAS CONTENDED THAT PROPER OPPORTUNITY WAS NOT ALLOWED T O THE 4879-2009-AK 6 ASSESSEE. THE ASSESSEE, THEREFORE, SOUGHT ADMISSION OF ADDITIONAL EVIDENCE BEFORE THE LEARNED CIT(A), WHIC H CONSISTED OF THE FOLLOWING: I) ALL SALES MADE TO THE SISTER CONCERN TO M/S MAHA RAJA APPLIANCES LTD. SUPPORTED BY SALES INVOICES. II) DETAILS OF PAYMENT WHICH WERE RECEIVED BY ACCOU NT PAYEE CHEQUES/DRAFTS. III) DETAILS OF SALES DULY SUPPORTED BY COPIES OF S ALES INVOICES TO PROVE THE SALES MADE TO M/S MAHARAJA APPLIANCES LTD. WERE AT ARMS LENGTH PRICE. IV) DETAILS OF THE SALES MADE BY M/S MAHARAJA APPLIANCES LTD. TO OTHER PARTIES, THEIR SALE INVOIC ES TO PROVE M/S MAHARAJA APPLIANCES LTD. HAD IN TURN SOLD THE GOODS PURCHASED FROM THE APPELLANT AT A PROFIT. V) COPY OF THE ACCOUNT OF M/S MAHARAJA APPLIANCES L TD. IN THE BOOKS OF THE APPELLANT. 3.1 IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) THAT FROM THE ABOVE EVIDENCE IT COUL D BE INFERRED THAT SALES MADE TO M/S MAHARAJA APPLIANCES LTD. WAS AT ARMS LENGTH PRICE. IT WOULD BE ALSO EVIDEN T THAT MAHARAJA APPLIANCES LTD. SOLD THE GOODS PURCHASED F ROM THE ASSESSEE AT A GP RATE OF AROUND 8.67%. 3.2 THE ADDITIONAL EVIDENCE FURNISHED BY THE ASSES SEE UNDER RULE 46A OF THE RULES WAS SENT TO THE ASSESSI NG 4879-2009-AK 7 OFFICER FOR HIS COMMENTS. THE ASSESSING OFFICER EX AMINED THE SAME AND FOUND THE CONTENTIONS OF THE ASSESSEE, MADE BEFORE THE LEARNED CIT(A), TO BE CORRECT. HOWEVER, THE ASSESSING OFFICER CONTENDED THAT AS THE ASSESSEE WA S GIVEN SUFFICIENT TIME DURING THE COURSE OF ASSESSMENT PRO CEEDINGS TO FURNISH EVIDENCE TO PROVE THE CORRECTNESS OF HER CLAIM AND SHE FAILED TO FURNISH ANY EVIDENCE, AS ALSO NET LOS S WAS RETURNED BY THE SISTER CONCERN M/S MAHARAJA APPLIAN CES LTD, THE ADDITIONAL EVIDENCE MAY NOT BE ADMITTED. 3.3 THE REMAND REPORT TOGETHER WITH THE COMMENTS O F THE ASSESSING OFFICER WAS FURNISHED TO THE ASSESSEE AND TAKING INTO CONSIDERATION THE SUBMISSIONS MADE BY T HE ASSESSEE, THE LEARNED CIT(A) ADMITTED THE SAID EVID ENCE. THE LEARNED CIT(A) ASKED THE ASSESSEE TO FURNISH A COPY OF THE TRADING AND MANUFACTURING ACCOUNT OF M/S MAHARA JA APPLIANCES LTD. AND ALSO TO COMPARE THE PURCHASES M ADE BY THE ASSESSEE FROM M/S MAHARAJA APPLIANCES LTD. VIS- A-VIS PURCHASES MADE FROM OUTSIDE PARTIES. FROM THE ABOV E DETAILS, IT WAS NOTED BY THE LEARNED CIT(A) THAT M/ S MAHARAJA APPLIANCES LTD. EARNED GP OF ABOUT 10.25% ON THE SA LES OF COMPONENTS MADE TO THE ASSESSEE. ALSO COMPARISON O F GP RATE ON SALES MADE BY THE ASSESSEE TO M/S MAHARAJA APPLIANCES LTD. VIS--VIS OTHER CONCERNS REVEALED T HAT THE AVERAGE RATE OF PROFIT IN RESPECT OF ALL ITEMS WAS HIGHER FOR OUTSIDE PARTIES THAN M/S MAHARAJA APPLIANCES LIMITE D. AS REGARDS THE SALE OF MANUFACTURED PLASTIC COMPONENTS AND 4879-2009-AK 8 ACCESSORIES BY M/S MAHARAJA APPLIANCES LTD. TO THE ASSESSEE, IT WAS SUBMITTED THAT NO COMPARATIVE FIGURES COULD BE GIVEN AS SUCH GOODS WERE SOLD ONLY TO THE ASSESSEE. 3.4 TAKING INTO CONSIDERATION THE FACTS AND CIRCUMSTANCES OF THE CASE AS NARRATED ABOVE, THE LE ARNED CIT(A) HELD THAT THERE WAS NO EVIDENCE ON RECORD ON THE BASIS OF WHICH THE SALES MADE TO THE SISTER CONCERN M/S MAHARAJA APPLIANCES LTD. COULD BE REDUCED BY 50% OF THE DECLARED VALUE IN TERMS OF SECTION 80IC(7) READ WIT H SECTION 80IA(10). HE, THEREFORE, DIRECTED THAT THE ELIGIBL E PROFIT OF THE UNDERTAKING FOR THE PURPOSE OF SECTION 80IC OF THE ACT SHOULD BE THAT AS CLAIMED BY THE ASSESSEE AND THE D EDUCTION UNDER THE SAID SECTION BE ALLOWED AS PER THE CLAIM MADE BY THE ASSESSEE. AGGRIEVED, THE REVENUE HAS FILED APPE AL BEFORE THE TRIBUNAL. 4. BEFORE US, THE LEARNED DR HAS RELIED ON THE ORD ER OF THE ASSESSING OFFICER. IT WAS EMPHASIZED BY HIM THAT THE ASSESSEE DID NOT CO-OPERATE WITH THE ASSESSING OFFI CER IN SO FAR AS DETAILS CALLED FOR WITH REFERENCE TO ALLOWAB ILITY OF DEDUCTION U/S 80IC OF THE ACT WERE NOT FURNISHED BY THE ASSESSEE. THE ASSESSING OFFICER, THEREFORE, HAD NO ALTERNATIVE BUT TO ESTIMATE THE DISALLOWANCE. 4.1 THE LEARNED AR FOR THE ASSESSEE, ON THE OTHER HAND, RELIED ON THE ORDER OF THE LEARNED CIT(A). I T WAS EMPHASIZED BY HIM THAT SUFFICIENT OPPORTUNITY WAS N OT GIVEN BY THE ASSESSING OFFICER TO FURNISH THE DETAILS CAL LED FOR AND, 4879-2009-AK 9 THEREFORE, THE LEARNED CIT(A) WAS JUSTIFIED IN ADMI TTING THE ADDITIONAL EVIDENCE SUBMITTED BEFORE HIM. IT WAS A LSO CONTENDED BY HIM THAT AS IS EVIDENT FROM ASSESSEES PAPER BOOK PAGE 44, THE ASSESSING OFFICER HAS ACCEPTED TH E CLAIM U/S 80IC OF THE ACT FOR ASSESSMENT YEAR 2007-08. A S PER DETAILS FILED SUBSEQUENTLY, IT HAS BEEN STATED THAT THE GROSS PROFIT AND NET PROFIT RATE OF THE ASSESSEE FOR ASSE SSMENT YEAR 2005-06 WAS 40.11% AND 37.81% RESPECTIVELY. 4.2 IT WAS FURTHER SUBMITTED BY HIM THAT AS IS EVI DENT FROM ASSESSEES PAPER BOOK PAGE 17, WHICH IS COMPAR ATIVE STATEMENT SHOWING PRODUCT-WISE RATES OF GOODS SOLD TO MAHARAJA APPLIANCES AND OTHERS, THE SALE MADE TO MA L WAS AT ARMS LENGTH PRICE. IN THE ABOVE FACT AND CIRCU MSTANCES OF THE CASE, IT WAS SUBMITTED THAT THE ORDER OF LEA RNED CIT(A) MAY PLEASE BE CONFIRMED. 4.3 WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. WE HAVE ALSO GONE THROUGH THE RELEVANT CAS E LAWS. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICE R WAS OF THE PRIMA FACIE OPINION THAT PROFIT OF INELIGIBLE B USINESS OF MAL WAS SHIFTED TO THE ELIGIBLE BUSINESS OF THE ASS ESSEE WITH A VIEW TO REDUCE INCIDENCE OF TAX. THE ASSESSING O FFICER WANTED TO EXAMINE THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH MAL AND VICE VERSA TO ASCERTAIN THE F ACTS. HE WAS NOT ALLOWED TO DO SO AS THE ASSESSEE DID NOT FU RNISH THE NECESSARY DETAILS. BEFORE THE LEARNED CIT(A), THE ASSESSEE FURNISHED SOME ADDITIONAL EVIDENCE AS MENTIONED IN THE 4879-2009-AK 10 EARLIER PART OF THIS ORDER. IT IS NOTICED THAT MAL SOLD MANUFACTURED PLASTIC COMPONENTS AND ACCESSORIES TO THE ASSESSEE ONLY (PAGE 9 PARA 10 OF CIT(A)S ORDER). NO COMPARATIVE PRICES COULD, THEREFORE, BE FURNISHED B Y THE ASSESSEE. THUS, QUERY NO.2 RAISED BY THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS HAS NOT BEEN COMP LIED WITH BY THE ASSESSEE EVEN DURING THE APPELLATE PROC EEDINGS BEFORE THE LEARNED CIT(A). THOUGH, THE ASSESSEE HA D FURNISHED COPY OF ACCOUNT OF MAL BEFORE THE LEARNED CIT(A) AS ADDITIONAL EVIDENCE, THE SAME IS NOT AVAILABLE I N ASSESSEES PAPER BOOK. THUS, THE NATURE OF TRANSAC TIONS ENTERED INTO BY THE ASSESSEE WITH MAL AND VICE VERS A IS STILL UNCLEAR. IT IS ALSO NOTED THAT MAL HAS TRADING AS WELL AS MANUFACTURING ACTIVITIES. MAL HAS SHOWN A GP RATE OF 10.2% ON MANUFACTURING ACTIVITY (APB 37). IF BOTH THE AS SESSEE AS WELL AS MAL WERE MANUFACTURING HOUSEHOLD APPLIANCES , THEN THIS MAY PROVE THE ALLEGATION OF THE ASSESSING OFFI CER. ALSO THE COMPARATIVE CHARTS FURNISHED BY THE ASSESSEE IN ASSESSEES PAPER BOOK ON PAGES 17 & 18 ARE ONLY SAM PLES AND NEED NOT SHOW THE TOTAL PICTURE. 4.4 IN THIS VIEW OF THE MATTER, WE ARE OF THE CONSIDERED OPINION THAT THE DISPUTED ISSUE IS REQUI RED TO BE RE-DECIDED BY THE ASSESSING OFFICER BY TAKING INTO CONSIDERATION ALL NECESSARY FACTS. WE, THEREFORE, SET ASIDE THE ORDERS OF AUTHORITIES BELOW ON THE DISPUTED ISS UES AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH 4879-2009-AK 11 THE DIRECTION THAT A FRESH ORDER BE PASSED AS PER L AW AFTER GIVING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING H EARD. 5. IN RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 6. THIS ORDER WAS PRONOUNCED IN OPEN COURT ON 12.08.2011. SD/- SD/- ( R.P. TOLANI ) ( B.K. HALDAR ) JUDICIAL MEMBER ACCOUNTANT ME MBER DT.12.08.2011. NS COPY FORWARDED TO:- 1. INCOME TAX OFFICER,WARD 33(3), NEW DELHI. 2. SMT. ANITA KUMAR, PROP. M/S OMEX INDUSTRIES, 344 , BAGH KADE KHAN, KISHAN GANJ, NEW DELHI. 3. THE CIT 4. THE CIT (A), NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 14/7/2011 DATE OF DICTATION 10/8/2011 DATE OF ORDER SIGNED BY THE HON'BLE MEMBER. 11-08-2011 DATE OF ORDER SENT TO THE CONCERNED BENCH 12-08-2011