The ACIT, Circle-7, Ahmedabad V. M/s. Ashish Chemicals, Ahmedabad

ITA 50/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94338 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 06-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI KUL BHARA T, J.M) I.T. A. NO. 50 /AHD/2012 (ASSESSM ENT YEAR: 2008-09) ACIT CIRCLE-7, AHMEDABAD V/S M/S. ASHISH CHEMICALS LANE NO. 13, BLOCK NO. 246, SATYAGRAH CHHAVNI, SATELITE ROAD, AHMEDABAD-380015 (APPELLANT) (RESPONDENT) PAN: AABFA 6775F APPELLANT BY : SHRI NARENDRA SINGH, SR. D .R. RESPONDENT BY : MS. URVASHI SHODHAN, A.R. ( )/ ORDER DATE OF HEARING : 27-08-2015 DATE OF PRONOUNCEMENT : 04 -09-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF CIT(A)-XIV, AHMEDABAD DATED 04.10.2011 FOR A.Y. 2008-09. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF SYNTHETIC, ORGANIC REA CTIVE DYES AND ITA NO 50/AH D/2012 . A.Y. 2008-09 2 CHEMICALS. ASSESSEE ELECTRONICALLY FILED ITS RETUR N OF INCOME FOR A.Y. 2008- 09 ON 14.09.2008 DECLARING TOTAL INCOME AT RS. 7,65 ,410/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 30.12.2010 AND THE TOTAL IN COME WAS DETERMINED AT RS. 1,39,00,220/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 04.10 .2010 GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY TH E AFORESAID ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDIT ION OF RS.1,31,16,642/- MADE ON ACCOUNT OF REALLOCATION OF EXPENSES RELATIN G TO RAW MATERIALS, MANUFACTURING EXPENSES, ADMINISTRATIVE EXPENSES, SE LLING EXPENSES AND FINANCIAL EXPENSES AMONGST UNIT-I & UNIT-II IN PROP ORTION TO THE SALES IN THESE UNITS. 2. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO APPORTION ONLY T HE EXPENSES RELATING TO CONSULTANCY CHARGES, INCOME TAX APPEAL FEE, MEMBERS HIP FEE & PROFESSIONAL TAX IN THE RATIO OF THE TURNOVER OF BO TH THE UNITS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSES SING OFFICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 4. BEFORE US, LD. D.R. SUBMITTED THAT GROUND NO. 3 & 4 ARE GENERAL AND THEREFORE REQUIRES NO ADJUDICATION AND THEREFORE DISMISSED AS NOT PRESSED. 5. LD. D.R. SUBMITTED THAT GROUND NO. 1 & 2 ARE INTERC ONNECTED. ITA NO 50/AH D/2012 . A.Y. 2008-09 3 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE WAS HAVING 2 UNITS NAMELY UNIT-I & UNIT-II. THE PROFIT S OF THE UNIT-I WAS NOT EXEMPT FROM TAX WHILE PROFIT FROM UNIT-II, BEING A 100% EXPORT ORIENTED UNIT, ENJOYED TAX EXEMPTION U/S. 10B OF THE ACT AND THAT BOTH THE UNITS WERE LOCATED ADJACENT TO EACH OTHER. WHILE VERIFYING THE GROSS PROFIT RATIO OF BOTH THE UNITS, HE NOTICED THAT THE GROSS PROFIT RATIO F OR UNIT-I, WHICH WAS A TAXABLE UNIT, HAS COME DOWN TO 7.57% FROM 10.66% AN D ON THE OTHER HAND THE GROSS PROFIT OF UNIT-II (EOU) HAD JUMPED TO 49. 83% AS AGAINST 41.65% IN THE PRECEDING YEAR. THE A.O THEREFORE ASKED THE ASSESSEE TO EXPLAIN THE REASONS FOR VARIATIONS IN THE GROSS PROFIT RATIOS. THE SUBMISSIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE A.O. HE N OTICED THAT NUMBER OF EXPENSES UNDER THE HEAD MANUFACTURING AND ADMINIST RATIVE WERE APPEARING ONLY IN UNIT-I AND NOT IN UNIT-II AND THE EXPENSES FOR WAGES AND SALARIES HAVE INCREASED IN UNIT-I BUT DECREASED IN UNIT-II T HOUGH THE PROCESS OF MANUFACTURING ACCORDING TO HIM WAS ALMOST SIMILAR I N BOTH THE UNITS. HE THEREFORE CONCLUDED THAT THERE WAS NO APPARENT REAS ON FOR A DECLINE IN GROSS PROFIT RATIO IN UNIT-I AND STEEP RISE IN GROSS PROF IT RATIO OF UNIT-II. HE WAS OF THE VIEW THAT ASSESSEE HAS INCREASED THE EXEMPT PRO FIT IN UNIT-II BY DEBITING EXCESSIVELY EXPENSES IN UNIT-I TO TRIM DOWN THE TAX ABLE PROFITS. HE ACCORDINGLY RE-ALLOCATED THE EXPENSES IN PROPORTION OF TURNOVER AND RE- WORKED THE NET PROFITS FROM UNIT-I AND UNIT-II. AG GRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE GRANTED PARTIAL REL IEF BY HOLDING AS UNDER:- 2.3 I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER A ND THE SUBMISSIONS GIVEN BY THE APPELLANT. THE A. O. AFTER EXAMINING THE G. P. RATIO OF -EOU AND THE DOMESTIC UNIT NOTED THAT THE G. P. OF EOU HAS INCREASED AND THE G. P. OF THE DOMESTIC UNIT ITA NO 50/AH D/2012 . A.Y. 2008-09 4 HAS DECLINED. HE, THEREFORE, RELOCATED THE EXPENSES IN PROPORTION TO THE SALES IN BOTH UNITS. THE APPELLANT HAS SUBMITTED THAT IT WAS MAINTAININ G SEPARATE SET OF ACCOUNTS FOR BOTH THE UNITS AND THE ACCOUNTS HAVE B EEN SEPARATELY AUDITED. SEPARATE EXCISE RECORDS WERE ALSO MAINTAINED. IT WA S FURTHER POINTED OUT BY HIM THAT SIMILAR ACTION BY THE A. O. IN THE PRECEDING Y EAR WAS DISAPPROVED BY MY PREDECESSOR IN THE APPELLATE ORDER FOR A. Y. 2007-0 8. THE A. O. HAS NOT POINTED OUT ANY SPECIFIC DEFECT OR INCORRECTNESS IN THE BOO KS OF ACCOUNT WHICH WERE TAX AUDITED U/S. 44AB OF THE ACT AND THE BOOKS OF ACCOU NTS HAVE ALSO NOT BEEN REJECTED. THE APPELLANT HAS MAINTAINED SEPARATE REC ORDS FOR VARIOUS OUTGOING EXPENDITURES LIKE PURCHASE OF RAW MATERIALS, LABOUR CHARGES AND WAGES, ELECTRICITY CONSUMPTION, MANUFACTURING, ADMINISTRAT IVE AND FINANCIAL EXPENSES. FULL DETAILS OF ALL THE EXPENSES WERE AVAILABLE WHI CH HAVE BEEN VERIFIED AND AUDITED BY THE AUDITORS OF THE APPELLANT. LABOUR AN D STAFF PERTAINING TO RESPECTIVE UNITS WERE DISTINCTLY ALLOCATED AND HENCE THERE WAS NO QUESTION OF ANY ALLOCATION OF THESE EXPENSES. THE APPELLANT, THEREFORE, SUBMIT TED THAT ACTUAL EXPENSES PERTAINING TO UNIT - 1 & UNIT - II WERE DEBITED TO THE ACCOUNTS OF THAT UNIT RESPECTIVELY. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AP PELLANT HAS ALSO GIVEN A CHART REFLECTING ALL THE ITEMS IN THE P & L ACCOUNT AND THE AMOUNT OF EXPENDITURE INCURRED IN BOTH THE UNITS INDICATING THE BASIS ON WHICH THE EXPENDITURE HAS BEEN DEBITED TO EOU OR UNIT - I. THE CHART HAS BEEN REP RODUCED IN THE PRECEDING PAGES. AN EXAMINATION OF THE CHART SHOW THAT MOST O F THE EXPENSES HAVE BEEN BOOKED BY KEEPING SEPARATE SET OF ACCOUNTS FOR BOTH THE UNITS. IT IS ALSO NOTED THAT THE APPELLANT HAS KEPT SEPARATE PRODUCTION REC ORD FOR BOTH THE UNITS WHICH INDICATES THE QUANTITY OF THE RAW MATERIAL CONSUMED AND PRODUCTION AS PER THE EXCISE LAW. IT IS ALSO NOTED THAT RAW MATERIAL PURC HASES FOR BOTH THE UNITS ARE MADE SEPARATELY. OTHER ITEMS OF EXPENDITURE SUCH AS MANUFACTURING, ADMINISTRATIVE, SELLING AND DISTRIBUTION AND FINANC IAL EXPENSES HAVE ALSO BEEN BY AND LARGE ACCOUNTED FOR ACCORDING TO THE UNIT FOR W HICH IT IS INCURRED. CONSIDERING THE FACT THAT A. O. HAS NOT RECORDED ANY SPECIFIC F INDINGS AND POINTED OUT ANY ITA NO 50/AH D/2012 . A.Y. 2008-09 5 DEFECT IN THE BOOKS OF ACCOUNT OF BOTH THE UNITS SH OWN BY THE APPELLANT, THE A. O. WAS NOT JUSTIFIED IN REALLOCATING THE EXPENSES IN P ROPORTION TO THE SALES IN BOTH THE UNITS. HOWEVER, DURING THE COURSE OF PROCEEDINGS, I T WAS NOTED THAT THE APPELLANT WAS NOT ABLE TO EXPLAIN AND GIVE ANY SUPPORTING DOC UMENTARY EVIDENCE REGARDING DISTRIBUTION OF CONSULTANCY CHARGES, INCOME TAX APP EAL FEE, MEMBERSHIP FEE & PROFESSIONAL TAX. IT WAS NOTED THAT THE PROCEDURE F OLLOWED BY THE APPELLANT FOR ALLOCATING THESE EXPENSES BETWEEN THE TWO UNITS WAS NOT LOGICAL AND WITHOUT ANY DOCUMENTARY EVIDENCE. THEREFORE, THE ALLOCATION OF THE EXPENSES SHOWN BY THE APPELLANT IN THE BOOKS OF ACCOUNTS IN RESPECT OF TH E FOLLOWING EXPENSES ARE NOT ACCEPTED. THE EXPENDITURE SHOULD IDEALLY BE DISTRIB UTED ON THE BASIS OF TURNOVER OF BOTH THE UNITS AS THIS EXPENDITURE PERTAINS TO B OTH THE UNITS. THE A. O. IS, THEREFORE, DIRECTED TO APPORTION THE ABOVE MENTIONE D EXPENSES IN RATIO OF THE TURNOVER OF BOTH THE UNITS. REGARDING THE OTHER EXP ENSES, AS HAS BEEN HELD ABOVE, THE REALLOCATION DONE BY THE A.O IS DIRECTED TO BE DELETED. THE GROUNDS OF APPEAL ARE, THEREFORE, PARTLY ALLOWED. 7. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 8. BEFORE US, LD. D.R. POINTED TO THE VARIOUS FINDINGS OF A.O AND SUPPORTED HIS ORDER. LD. A.R. ON THE OTHER HAND REITERATED THE SU BMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND FURTHER SUBMITTED THAT ON ID ENTICAL FACTS IN ASSESSEES OWN CASE FOR A.Y. 2007-08, THE APPEAL OF REVENUE WAS DISMISSED. SHE PLACED ON RECORD THE COPY OF THE AFO RESAID ORDER. SHE THUS SUPPORTED THE ORDER OF LD. CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE GRANTING PARTIAL RELIEF HAS NOTED THAT SIMILAR ADDITION MADE BY THE A.O IN THE PRECEDING YEAR WAS NOT APPROVED BY HIS ITA NO 50/AH D/2012 . A.Y. 2008-09 6 PREDECESSOR IN 2007-08 AND FURTHER A.O HAS NOT POIN TED OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNTS WHICH HAVE BEEN AUD ITED. HE HAS FURTHER GIVEN A FINDING THAT ASSESSEE HAS KEPT SEPARATE PRO DUCTION RECORD FOR BOTH THE UNITS WHICH INDICATE THE QUANTITATIVE OF RAW MA TERIAL CONSUMED AND PRODUCTION AS PER EXCISE LAW. HE THEREFORE HELD THA T A.O WAS NOT JUSTIFIED IN RE-ALLOCATING THE EXPENSES IN PROPORTION TO THE SAL E IN BOTH THE UNITS. HOWEVER, WITH RESPECT TO CERTAIN OTHER EXPENSES, HE HAS NOTED THAT THE PROCEDURE FOLLOWED BY ASSESSEE FOR ALLOCATING THE E XPENSES WERE NOT LOGICAL AND WITHOUT ANY DOCUMENTARY EVIDENCE AND WITH RESPE CT TO THOSE EXPENSES HE HAD DIRECTED TO THE A.O TO APPORTION THE EXPENSE S IN THE RATIO OF TURNOVER. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF LD. CIT(A). WE FURTHER FIND THAT WHILE DISMISSING THE APPEAL OF REVENUE FOR A.Y. 2007-08 IN ASSESSEES OWN CASE IN ITA NO. 1044/A/2011 THE CO-ORDINATE BENCH OF TRIBUNAL HELD AS UNDER:- 7.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT NO DEFECT OR THE DIFFERENCES IN THE PRODUCT, PROCES S, RAW MATERIALS, END USERS ETC. HAVE BEEN POINTED BY REVENUE AND THE A.O HAS PROCEEDED TO CALCULATE THE INCOME OF THE 2 UNITS ON A WRONG ASSU MPTION. HE HAS FURTHER NOTED THAT THE ADDITION HAS BEEN MADE ON A HYPOTHET ICAL FORMULA BY THE A.O. CIT(A) WHILE DELETING THE ADDITION HAS ALSO RE LIED ON THE DECISIONS OF AHMEDABAD TRIBUNAL AND THE DECISION OF HONBLE GUJA RAT HIGH COURT WHICH HAS NOT BEEN CONTROVERTED BY REVENUE BEFORE U S. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WIT H THE ORDER OF LD. CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. ITA NO 50/AH D/2012 . A.Y. 2008-09 7 10. IN VIEW OF THE AFORESAID FACTS AND RELYING ON THE D ECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUNDS OF REVENUE ARE D ISMISSED. 11. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 04 - 09 - 20 15. SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD