Lancer Pharmaceuticals Pvt. Ltd., Chandigarh V. Addl. CIT, Chandigarh

ITA 534/CHANDI/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51422 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 16-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: HARISH NAYYAR
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.534/CHD/2011 (ASSESSMENT YEAR : 2006-07) LANCER PHARMACEUTICALS PVT.LTD., VS. THE ADDL.C.I .T., CHANDIGARH. RANGE III, CHANDIGARH. PAN: AAAFL4537H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HARISH NAYYAR RESPONDENT BY : SHRI N.K. SAINI, DR O R D E R PER SUSHMA CHOWLA, J.M, : THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX(A), DATED 27.01.2011 REL ATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS UNDER : 1. THAT THE ORDER PASSED BY THE CIT(A) IN NOT ALLO WING THE APPEAL AND CONFIRMING ACTION OF THE ASSESSING OFFICER IS ILLEGAL, ARBITRARY, HAS BEEN PASSED IN A HASTE AND HAS IGNORED BASIC ASPECTS AND FACTS THUS CAUSING UNDUE HARDSHIP TO THE APPELLANT. THE SAME DESERVES TO BE QUASHED. 2. THAT THE CIT(A) HAS ERRED BOTH ONF ACTS AND LAW IN CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF A SUM OF RS.742000. THE ADDITION HAS BEEN MADE ON THE BASIS OF INCORRECT APPORTIONMENT OF DIRECTORS SALARY TO THE BADDI UNIT. THE ADDITION 2 WAS MADE WITHOUT ANY BASIS AND WITHOUT CONSIDERING THE NATURE OF PAYMENT AND IS THUS ILLEGAL, ARBITRAR Y AND DESERVES TO BE DELETED. IT IS PRAYED THAT ADDITION OF A SUM OF RS.742000 MAY KINDLY BE DELETED. 3. THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF DRUGS AND PHARMACEUTICALS. DURING THE YEAR UNDER CONSIDE RATION, THE ASSESSEE WAS OPERATING FROM TWO UNITS. THE ORIGINA L UNIT OF THE ASSESSEE WAS AT PANCHKULA WHERE IT WAS CARRYING ON THE MANUFACTURING OPERATIONS FOR THE PAST MANY YEARS, W HICH CONTINUED UPTO NOVEMBER 2005. DURING THE YEAR UNDE R CONSIDERATION, A NEW UNIT WAS SET UP BY THE ASSESS EE AT BADDI WHICH WAS UNDER CONSTRUCTION FROM FEBRUARY, 2005 AN D THE PRODUCTION AT THE SAID UNIT STARTED IN THE MONTH OF JUNE 2005. THIS WAS THE FIRST YEAR OF PRODUCTION AND THE ASSES SEE CLAIMED DEDUCTION UNDER SECTION 80IC OF THE INCOME TAX ACT ON THE PROFITS OF BADDI UNIT ONLY. THE PROFITS OF PANCHK ULA UNIT WERE NOT ELIGIBLE FOR SAID DEDUCTION UNDER SECTION 80IC OF THE ACT. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSM ENT PROCEEDINGS FOUND THE ASSESSEE TO BE ENTITLED TO TH E BENEFIT OF DEDUCTION UNDER SECTION 80IC OF THE ACT IN RESPECT OF BADDI UNIT. HOWEVER, FROM THE PERUSAL OF THE DETAILS FUR NISHED, THE ASSESSING OFFICER NOTED THAT THE TOTAL SALARY PAID TO THE DIRECTORS AT RS.10.54 LACS HAD BEEN DEBITED TO PANC HKULA UNIT ONLY. THE ASSESSEE WAS SHOW CAUSED AS TO WHY THE S AME SHOULD NOT BE PROPORTIONATELY DIVIDED BETWEEN PANCHKULA UN IT AND BADDI UNIT. THE ASSESSEE IN REPLY SUBMITTED AS UND ER : AS REGARDS DEBITING THE SALARY OF DIRECTORS TO PANCHKULA UNIT, IT IS STATED THAT SINCE HEAD OFFICE OF THE ASSESSEE COMPANY WAS LOCATED AT PANCHKULA, AND THE 3 DIRECTORS WERE FUNCTIONING FROM PANCHKULA, THE AMOU NT HAS BEEN DEBITED TO PANCHKULA ONLY. IN OUR SUBMISSION, THERE IS NO ANOMALY WITH CHARGING THE AMOUNT TO PANCHKULA. HOWEVER, IN CASE THE PRO RATA DISTRIBUTION OF SALARY IS TO BE MADE, THE SUM WILL WORK OUT AS UNDER : PANCHKULA BADDI APRIL-MAY 2 1.74 LACS 3.92 LACS JUNE TO NOV 6 1.30 LACS 3.48 LACS DEC-MARCH 4 3.03 LACS 7.42 LACS THE ABOVE CALCULATION HAS BEEN MADE ON THE BASIS OF ASSUMPTION THAT FOR THE FIRST TWO MONTHS, THE PRODUCTION WAS ONLY AT PANCHKULA FACTORY AND LAST F OUR MONTHS WAS AT BADDI FACTORY AND THE INTERVENING PER IOD OF SIX MONTHS PRO RATA DISTRIBUTION OF SALARY HAS B EEN MADE. 4. THE ASSESSING OFFICER REJECTING THE CONTENTION O F THE ASSESSEE HELD THAT PROPORTIONATE SALARY OF THE DIRECTORS TO THE T UNE OF RS.7,42,000/- IS ATTRIBUTABLE TO THE PROFITS OF BADDI UNIT AND CONSE QUENTLY THE DEDUCTION UNDER SECTION 80IC OF THE ACT WAS REWORKED. THE CI T(A) UPHELD THE ORDER OF THE ASSESSING OFFICER. 5. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORDER OF CIT(A). THE LEARNED A.R. POINTED OUT THAT TOTAL SALARY OF D IRECTOR IS DEBITED TO PANCHKULA UNT AND TOTAL SALARY PAID TO EMPLOYEES IS DEBITED TO BADDI UNIT AND IF RECONCILED, THEN THERE IS NO DIFFERENCE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD ST ARTED MANUFACTURING OPERATIONS FROM ITS UNIT IN BADDI FROM JUNE, 2005. THE ASSESSEE WAS INITIALLY CARRYING ON ITS MANUFACTURING ACTIVITIES FROM ITS UNIT AT PANCHKULA. THE ASSESSEE HAD CLAIMED THAT THE PROFI TS OF BADDI UNIT WERE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE AC T. NO SUCH DEDUCTION WAS ALLOWABLE AGAINST THE PROFITS OF THE UNIT AT PA NCHKULA. THE ASSESSING OFFICER HELD THE ASSESSEE TO BE ELIGIBLE FOR DEDUCTION UNDER 4 SECTION 80IC OF THE ACT IN RESPECT OF PROFITS OF TH E UNIT AT BADDI. HOWEVER, WHILE PERUSING THE DETAILS OF EXPENDITURE CLAIMED AT PANCHKULA UNIT, THE ASSESSING OFFICER NOTED THAT THE TOTAL SA LARY PAID TO THE DIRECTORS AT RS.10,54,000/- WAS DEBITED TO THE PANC HKULA UNIT ONLY. THE INCOME OF THE PANCHKULA UNIT WAS TAXABLE THOUGH DED UCTION WAS AVAILABLE UNDER SECTION 80IC OF THE ACT IN RESPECT OF PROFITS OF BADDI UNIT. THE EXPLANATION OF THE ASSESSEE WAS THAT AS THE HEAD OFFICE WAS LOCATED AT PANCHKULA AND THE DIRECTORS WERE FUNCTIO NING FROM PANCHKULA, THE AMOUNT WAS DEBITED TO PANCHKULA UNIT ONLY. HOW EVER, AN ALTERNATE PLEA WAS MADE VIDE WRITTEN SUBMISSIONS WHICH ARE RE PRODUCED BY US UNDER PARA 3 IN WHICH PRO RATA DISTRIBUTION OF DIRE CTORS SALARY WAS ESTABLISHED AS PER WHICH OUT OF TOTAL SUM OF RS.10, 54,000/- RS.3.03 LACS WAS CLAIMED TO BE ATTRIBUTABLE TO PANCHKULA UNIT AN D RS.7.42 LACS TO BADDI UNIT. THE SAID CALCULATION WAS ON THE BASIS OF THE ASSUMPTION THAT FOR FIRST TWO MONTHS THE PRODUCTION WAS ONLY AT PAN CHKULA UNIT AND FOR THE LAST FOUR MONTHS AT BADDI FACTORY AND FOR THE I NTERVENING PERIOD OF SIX MONTHS THERE WAS PRO RATA DISTRIBUTION OF BADDI AND PANCHKULA UNIT AND RECOMPUTED THE DEDUCTION UNDER SECTION 80IC OF THE ACT. THE ASSESSING OFFICER RECOMPUTED THE DEDUCTION UNDER SE CTION 80IC OF THE ACT BY DEBITING DIRECTORS SALARY OF RS.7,42,000/- (PROPORTIONATE). THE PLEA OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAD RAISED A PL EA THAT THE TOTAL SALARY PAID TO THE EMPLOYEES AT RS.17.22 LACS WAS E RRONEOUSLY FULLY CHARGED TO THE PROFIT & LOSS ACCOUNT OF BADDI UNIT AND ON THE OTHER HAND, SALARY PAID TO THE DIRECTORS AT RS.10,54,000/ - WAS FULLY DEBITED TO PROFIT & LOSS ACCOUNT OF PANCHKULA UNIT. THE ASSES SEE BEFORE THE CIT(A) CLAIMED THAT THE BREAK UP OF THE SALARY AND ALLOWANCES WAS PROVIDED AS ANNEXURE A TO THE ASSESSING OFFICER W HICH WAS NOT CONSIDERED BY THE ASSESSING OFFICER. THE CIT(A) VI DE PARA 7 NOTES THE 5 ASSESSEE TO HAVE FURNISHED LETTER NO.SM/DEC2K8DKSII I.70772 DATED 17.12.2008 TO THE ADDL. COMMISSIONER OF INCOME TAX, RANGE-2, CHANDIGARH AND VIDE PARA 2 OF THE LETTER IT WAS STA TED AS UNDER : AS REGARDS DEBITING THE SALARY OF DIRECTORS TO PANCHKULA UNIT, IT IS STATED THAT SINCE HEAD OFFICE OF THE ASSESSEE COMPANY WAS LOCATED AT PANCHKULA, AND THE DIRECTORS WERE FUNCTIONING FROM PANCHKULA, THE AMOU NT HAS BEEN DEBITED TO PANCHKULA ONLY. IN OUR SUBMISSION, THERE IS NO ANOMALY WITH CHARGING THE AMOUNT TO PANCHKULA. HOWEVER, IN CASE THE PRO RATA DISTRIBUTION OF SALARY IS TO BE MADE, THE SUM WILL WORK OUT AS UNDER : PANCHKULA BADDI APRIL-MAY 2 1.74 LACS JUNE TO NOV 6 1.30 LACS 3.92 LACS DEC-MARCH 4 3.48 LACS TOTAL 3.03 LACS 7.42 LACS THE ABOVE CALCULATION HAS BEEN MADE ON THE BASIS OF ASSUMPTION THAT FOR THE FIRST TWO MONTHS, THE PRODUCTION WAS ONLY AT PANCHKULA FACTORY AND LAST F OUR MONTHS WAS AT BADDI FACTORY AND THE INTERVENING PER IOD OF SIX MONTHS PRO RATA DISTRIBUTION OF SALARY HAS B EEN MADE. IN RESPECT TO OTHER EXPENDITURE NO PRO RATA DISTRIBUTION IS CALLED FOR AS EXPENDITURE HAVE BEEN DEBITED ONLY IN THE ACCOUNT OF THE UNIT IN RESPECT OF WHICH THESE HAVE BEEN INCURRED. 7. THE CIT(A) THUS NOTED THE CONTENTS OF THE LETTER FILED BY THE ASSESSEE IN WHICH IT HAD ADMITTED THAT NO PRO RATA DISTRIBUTION WAS CALLED FOR IN RESPECT OF ANY OTHER EXPENDITURE AS THE SAM E WAS DEBITED IN THE ACCOUNT OF THE RESPECTIVE UNITS IN WHICH THESE HAD BEEN INCURRED. THE CIT(A) ALSO PERUSED THE AUDITED TRADING AND PROFIT & LOSS ACCOUNT FOR THE TWO UNITS AND NOTED THAT THE SALARY AND ALLOWAN CES OF RS.17.22 LACS WERE DEBITED TO BADDI UNIT AND RS.1,61,823/- TO PAN CHKULA UNIT. THUS THE CLAIM OF THE ASSESSEE WAS REJECTED. 8. THE LEARNED A.R. FOR THE ASSESSEE BEFORE US HAS INVITED OUR ATTENTION TO THE ANNEXUREA WHICH IS AS UNDER : 6 APPORTIONMENT OF SALARY OF RS.1722050 DEBITED TO BA DDI UNIT ------------ ---------- ------------ ---------- ---------- PERIOD MONTHS PANCHKULA BADDI TOTAL ----------- ---------- ------------ ---------- - ---------- APRIL 2005 2 299900.00 0.00 299 900.00 JUNE 2005 6 325950.00 943127.00 126 9077.00 DEC 2005 4 0.00 153073.00 153073.00 -------------------- -------------- - ----- ------ 625850.00 1096200.00 1722050.00 -------------------- -------------- ----------- 9. THE CLAIM OF THE ASSESSEE IS THAT ONCE THE APPOR TIONMENT OF THE STAFF SALARY IS ALSO MADE, THE DIFFERENCE IN THE PR OFITS OF TWO UNITS WOULD BE MARGINAL. THE COPY OF THE WRITTEN SUBMISSIONS F URNISHED BEFORE THE CIT(A) HAVE ALSO BEEN FILED ON RECORD AND AS PER TH E SAME THE ASSESSEE CLAIMS AS UNDER : THE PANCHKULA UNIT FUNCTIONED FILL MAY, 2006, AND THEREAFTER THE MANUFACTURING ACTIVITIES WERE DISCON TINUED FROM THAT UNIT. THE PANCHKULA OFFICE THEREAFTER FUNCTIONED AS THE ADMINISTRATIVE OFFICE ONLY AND TH E SALARIES WERE PAID IN RESPECT OF STAFF PRESENT THER E. 10. IN THE TOTALITY OF FACTS AND CIRCUMSTANCES OF T HE CASE, WE FIND NO MERITS IN THE CLAIM OF THE ASSESSEE. ONCE THE PANC HKULA UNIT HAVE FUNCTIONED TILL MAY, 2006 AND MANUFACTURING ACTIVIT IES HAD DISCONTINUED THEREAFTER FROM THE SAID UNIT, THE SALARY AND ALLOW ANCE DEBITED TO THE BADDI UNIT CANNOT BE APPORTIONED BETWEEN PANCHKULA AND BADDI UNITS. AS POINTED OUT BY THE ASSESSEE ITSELF A SUM OF RS.1 ,61,823/- HAD BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT OF PANCHKULA U NIT. THE ASSESSEE CLAIMS THAT THE SALARY AT BADDI UNIT HAD TO BE APPO RTIONED TO PANCHKULA UNIT BUT NO EVIDENCE IN RESPECT OF THE SAID CLAIM W AS FURNISHED OR REFERRED TO BY THE LEARNED A.R. FOR THE ASSESSEE. IN THE ABSENCE OF THE SAME, WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE AND THE HENCE THE SAME IS REJECTED. WE ARE IN AGREEMENT WITH THE ORD ER OF THE CIT(A) IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN ALL OCATING THE 7 APPORTIONED SALARY PAID TO THE DIRECTORS TO THE EXT ENT OF RS.7.42 LACS TO BADDI UNIT AS THE MANUFACTURING IS BEING CARRIED OU T AT BADDI UNIT. UPHOLDING THE ORDER OF THE CIT(A) WE DISMISS THE GR OUNDS OF APPEAL RAISED BY THE ASSESSEE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DAY OF AUGUST, 2011. SD/- SD- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 24 TH AUGUST 2011 RATI COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH