DCIT 7(2), MUMBAI V. SIYARAM SILK MILLS LTD, MUMBAI

ITA 5443/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3398 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 08-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHIDANAN DUBEY
• Assessee Lawyers: R P SHAH; D J THAKKAR
• Keywords: Depreciation; Onus to prove
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI BEFORE SHRI RAJENDRA, AM AND SHRI SANDEEP GOSAIN, J M ./ I.T.A. NO. 5443/MUM/2013 ( / ASSESSMENT YEAR: 2010-11) & ./ I.T.A. NO. 6713/MUM/2012 / ASSESSMENT YEAR: 2009-10) DY. COMMISSIONER OF INCOME-TAX-7(2) ROOM NO. 624, M.K. ROAD, MUMBAI-400 020. / VS. M/S SIYARAM SILK MILLS LTD., B-5, TRADE WORLD PREMISES, KAMALA CITY, SENAPATI BAPAT MAG, LOWER PAREL (WEST), MUMBAI-400 013. ./ ./PAN/GIR NO. AAACS 995D ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI SACHIDANAN DUBEY / RESPONDENT BY : SHRI D.J. THAKKAR & SHRI R.P. SHAH / DATE OF HEARING : 19/11/2015 !'# / DATE OF PRONOUNCEMENT : 23/03/2016 $% / O R D E R PER SANDEEP GOSAIN, J. M.: THESE TWO APPEALS FILED BY THE REVENUE ARE AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 13, DATED 24 /08/2012 FOR ASSESSMENT YEARS 2009-10 & 2010-11 RESPECTIVELY. 2 ITA NO. 5443 /M/13 & 6713/M/12 (A.Y.10-11& 09-10) DCIT VS. M/S. SIYARAM SILK MILLS LTD. 2. SINCE GROUNDS OF BOTH THE APPEALS ARE IDENTICAL IN BOTH THE ASSESSMENT YEARS HENCE WE REPRODUCE AS LEAD GROUNDS OF APPEAL FOR A. Y. 2010-11 BEARING ITA NO. 5433/MUM/2013 AS UNDER: (I) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE REDUCTION OF DEDUCTION U/S 80IB AS WORKED OUT BY THE ASSESSIN G OFFICER WITHOUT PROPERLY APPRECIATING THE FACTUAL AND LEGAL MATRIX AS CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. (II) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FAC TS IN NOT APPRECIATING THE FACT THAT NET PROFIT FROM 80IB UNITS WERE MUCH HIGH ER THAN NON 80IB UNITS DESPITE OF THE FACT THAT THE BUSINESS WAS THE SAME. (III) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FA CTS IN NOT APPRECIATING THAT WHERE INCOME FROM EXEMPTED UNIT IN RESPECT OF ELIGI BLE BUSINESS WAS HIGHER THAN THE NORMAL PROFIT IN CASE OF EXISTING UNITS, A BURDEN OF PROOF OF VERY HIGH ORDER WAS CAST ON ASSESSEE TO PROVE CORRECTNES S OF SUCH PROFIT AND ASSESEE FAILED TO DISCHARGE THIS ONUS. (IV) THE LD. CIT(A)S ORDER IS CONTRARY IN LAW AND ON FACTS AND DESERVES TO BE SET ASIDE. 3 ITA NO. 5443 /M/13 & 6713/M/12 (A.Y.10-11& 09-10) DCIT VS. M/S. SIYARAM SILK MILLS LTD. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E ENGAGED IN THE BUSINESS OF MANUFACTURE AND MARKETING OF FABRICS, VALUE ADDED Y ARN, READYMADE GARMENTS AND FURNISHING FABRICS. THE ASSESSEE HAS ITS MANUFACTUR ING FACILITIES AT TARAPUR, SILVASSA, DAMAN AND ALSO MARKETS ITS READYMADE GARM ENTS UNDER THE BRAND LIKE OEXEMBERG, MSD AND J HAMPSTEAD. DURING THE YEAR UND ER CONSIDERATION THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB TO EXTENT O F RS.6,26,68,195/- AND DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS FOUND BY THE AO THAT CERTAIN DISALLOWANCES WERE MADE ON ACCOUNT OF RE-WORKING OF THE ELIGIBLE DEDUCTION U/S 80IB CLAIM. THEREFORE, THE AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SAME WAS ALSO NOT BEEN MADE IN THE YEAR UNDER CONSI DERATION ALSO. THE ASSESSEE FILED ITS DETAILED REPLY BEFORE THE AO VIDE REPLY D ATED 03.01.2013 AND 19.11.2012 IN ADDITION ANOTHER ADDITIONAL REPLY VIDE LETTER DA TED 08.12.2011 WAS ALSO FURNISHED BEFORE THE AO. 3. AFTER CONSIDERING THE REPLIES, AND THE INFORMATI ON GATHER DURING THE COURSE OF ASSESSMENT PROCEEDING. THE AO PASSED ORDER OF ASSES SMENT AND MADE DISALLOWANCES IN QUANTUM OF 80IB DEDUCTION AND ALSO MADE CERTAIN DISALLOWANCES OUT OF THE CLAIM OF EXPENSES AND DEPRECIATION AND M ADE ADDITION ON ACCOUNT OF DIFFERENCE BETWEEN OPENING STOCK AND CLOSING STOCK. 4 ITA NO. 5443 /M/13 & 6713/M/12 (A.Y.10-11& 09-10) DCIT VS. M/S. SIYARAM SILK MILLS LTD. 4. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) PARTLY ALLOWED THE APPEAL. 5. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE FILED THE PRESENT APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREIN ABOVE. GROUND NO. I,II,III:- SINCE ALL THE GROUNDS RAISED BY THE REVENUE ARE IN TER-CONNECTED AND INTER- RELATED THEREFORE WE THOUGHT IT FIT TO DISPOSE OFF THE SAME THROUGH PRESENT COMMON ORDER. 6. WE HAVE NOTICED THAT THE LD. CIT(A) HAS DEALT WI TH THESE GROUNDS IN PARA NO. 2 AND THE OPERATIVE PORTION OF THE SAID GROUND IS R EPRODUCED BELOW. I HAVE CONSIDERED THE FACTS OF THE CASE. AS EXPLAI NED ABOVE, THE APPELLANT HAD DIFFERENT MANUFACTURING DIVISIONS AND THE DIVISIONS HAD DIFFERENT UNITS. THE PROFIT EARNED FORM THE SOME OF THE DIVISIONS/UNITS WERE ENTITLED FOR DEDUCTION U/S 80-IB OF THE ACT. I N THE YEAR UNDER CONSIDERATION, THE APPELLANT HAD CLAIMED DEDUCTION U/S 80-IB OF THE ACT AT RS.6,26,68,195/- ON PROFITS EARNED FROM ELIG IBLE UNITS. IN EARLIER YEARS ALSO, THE APPELLANT WAS HAVING ELIGIBLE UNITS ENTITLED FOR DEDUCTION U/S 80IB OF THE ACT ON PROFITS OF ELIGIBL E UNITS. IN ASSESSMENT ORDERS OF EARLIER YEARS I.E. FROM AY 2007-08 , 2008 -09 AND 2009-10, 5 ITA NO. 5443 /M/13 & 6713/M/12 (A.Y.10-11& 09-10) DCIT VS. M/S. SIYARAM SILK MILLS LTD. THE AO REWORKED OUT THE PROFITS OF ALL UNITS OF THE BUSINESS AND REALLOCATED EXPENSES TO ALL THE UNITS CONSEQUENTLY RECALCULATING THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80-IB OF THE ACT . IN THE ASSESSMENT ORDERS OF THE EARLIER YEARS, THE AO NOTED THAT THE APPELLANT'S ENTIRE BUSINESS AS A WHOLE WAS HAVING CERTAIN PERCENTAGE O F PROFIT. SUCH PERCENTAGE OF PROFIT OF WHOLE BUSINESS WAS APPLIED BY THE AO ON 80-IB ELIGIBLE UNITS/NON-ELIGIBLE UNITS AND THEREBY REWOR KED OUT THE PROFITS OF ALL UNITS, ALLOCATING EXPENSES TO ALL UNITS AND THE REBY REWORKED OUT THE PROFITS OF THE 80-IB ELIGIBLE UNITS. BY APPLYING A FIXED PERCENTAGE OF PROFIT, THE AO THEREFORE, REDUCED THE APPELLANT'S C LAIM OF DEDUCTION U/S 80-IB OF THE ACT IN THE ASSESSMENT ORDER OF EARLIER YEARS. ON APPEAL FILED BY APPELLANT FOR AY 2007-08,2008-09 & 2009-10, MY PREDECESSORS I.E. CIT (A) HAVE NOT APPROVED AO'S AC TION OF (I) APPLYING FIXED PERCENTAGE OF PROFIT TO ALL ELIGIBLE/NON-ELIG IBLE UNITS (II) ALLOCATION OF EXPENSES MADE BY AO TO ALL UNITS (III) RECALCULA TION OF PROFITS OF ALL UNITS. IN APPEAL ORDERS OF EARLIER YEARS, THE CIT ( A) HAVE NOT CONFIRMED THE AO'S ACTION OF REDUCING THE APPELLANT'S CLAIM O F DEDUCTION U/ S 80-IB OF THE ACT. THUS, THIS ISSUE OF REDUCTION OF APPELLANT'S CLAIM OF DEDUCTION IX] S 80- IB OF THE ACT WAS ALSO THERE IN EARLIER YEARS. I HA VE PERUSED THE APPEAL ORDERS OF EARLIER YEARS. IN APPEAL ORDER OF A Y 200 9-10, MY PREDECESSOR HAS MADE A DETAILED DISCUSSION IN RESPECT OF APPELL ANT'S DIFFERENT UNITS, PROFITS OF ELIGIBLE/NON-ELIGIBLE UNITS, OVERALL PER CENTAGE OF NET PROFIT OF BUSINESS AND PERCENTAGE OF HIGH PROFIT SHOWN IN 80- IB UNITS, ALLOCATION OF MAJOR EXPENSES TO DIFFERENT UNITS, REJECTION OF BOOK RESULT BY THE AO. 6 ITA NO. 5443 /M/13 & 6713/M/12 (A.Y.10-11& 09-10) DCIT VS. M/S. SIYARAM SILK MILLS LTD. AFTER MAKING A DETAILED DISCUSSION, MY PREDECESSOR IN APPEAL ORDER OF AY 2009-10 HELD THAT 'THE FACTS OF THE CASE UNDER CONSIDERATION IS IDENT ICAL TO THE PRECEDING YEAR I.E. AY 2007-08 AND 2008-09, THE ISSUE HAS BEE N DEALT EXTENSIVELY BY ME AND THE ORDER HAS BEEN PASSED DATED 22-10-201 1 AND 17-11-2012 RESPECTIVELY, THEREIN THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE COMPANY BECAUSE OF THE FOLLOWING REASONS.' IN APPEAL ORDER, MY PREDECESSOR HELD THAT IT CANNOT BE SAID THAT THE PROFIT IS TRANSFERRED FROM ONE UNIT/DIVISION TO OTH ER DIVISION BY WAY OF UNDER OR OVER INVOICING. MY PREDECESSOR FURTHER HEL D THAT THE PROFITABILITY OF ELIGIBLE UNITS HAD TO BE COMPARED WITH SIMILAR DIVISIONS (MANUFACTURING SIMILAR PRODUCTS/ACTIVITIES) AND NOT WITH OTHER UNITS (MANUFACTURING DIFFERENT PRODUCTS/CARRYING DIFFEREN T ACTIVITIES) AND BY NO STRETCH OF IMAGINATION WITH THE OVERALL AVERAGE PROFIT OF THE WHOLE COMPANY. MY PREDECESSOR HELD THAT THE AO ERRED IN C ONSOLIDATING THE OVERALL PROFITABILITY OF ALL UNITS TOGETHER AND APP LYING AVERAGE PROFIT OF WHOLE COMPANY TO ALL UNITS WITHOUT ANY ADVERSE MATE RIAL ON RECORD IS NOT MAINTAINABLE. MY PREDECESSOR FURTHER HELD THAT SEPA RATE BOOKS OF ACCOUNTS OF ALL THE UNITS HAVE BEEN MAINTAINED AND THEREFORE, AO'S STAND IN CONSOLIDATING THE PROFITS OF WHOLE COMPANY WAS T HEREFORE, INCORRECT AND WAS BASED ON CONJECTURES, SURMISES AND ASSUMPTI ONS. MY PREDECESSOR FURTHER HELD THAT WITHOUT ANY MATERIAL ON RECORD APPLYING CONSOLIDATING/AVERAGE PROFIT @ 1.83% OF THE GROSS R ECEIPTS TO ALL THE UNITS I.E. ELIGIBLE 80-IB UNITS/NON-ELIGIBLE 80-IB UNITS IS NOT MAINTAINABLE. THE REDUCTION OF DEDUCTION /L S 80-IB CLAIMED BY APPELLANT AT RS.5.56 CRORES TO RS.1.39 CRORES BY THE AO WAS T HEREFORE, DELETED BY MY PREDECESSOR IN APPEAL ORDER FOR A Y 2009-10. 7 ITA NO. 5443 /M/13 & 6713/M/12 (A.Y.10-11& 09-10) DCIT VS. M/S. SIYARAM SILK MILLS LTD. THE FACTS OF THE YEAR UNDER CONSIDERATION ARE IDENT ICAL TO THOSE OF EARLIER YEARS. BY FOLLOWING FINDINGS OF EARLIER YEARS' ASSE SSMENT ORDER, IN THE YEAR UNDER CONSIDERATION ALSO THE AO HAS REALLOCATE D THE EXPENSES TO ALL UNITS AND THEREBY RECALCULATING THE PROFITS OF ALL UNITS BY APPLYING THE NET PROFIT RATE OF 4.57% TO ALL UNITS. SUCH NET PROFIT RATE OF 4.57% WAS PERCENTAGE OF PROFITS OF BUSINESS AS A WHOLE AND NO T OF INDIVIDUAL DIVISION/UNIT. BY APPLYING THIS PERCENTAGE OF PROFI T OF 4.57% THE AO HAS REWORKED PROFITS OF THE ELIGIBLE UNITS U/ S 80-IB O F THE ACT. SUCH ALLOCATION OF EXPENSES/RECALCULATION OF PROFITS CL. '1D APPLICATION OF FIXED NET PROFIT RATE OF 4.57% TO ALL UNITS BY AO W AS ON ASSUMPTION BASIS ONLY WITHOUT POINTING OUT ANY DEFECT, ERROR IN THE BOOKS OF ACCOUNTS OF ALL UNITS MAINTAINED SEPARATELY. WITHOUT QUOTING ANY EX AMPLE, ON ASSUMPTION BASIS, THE AO HELD THAT THE TRANSACTIONS WERE NOT AT ARM'S LENGTH BETWEEN THE ASSOCIATE ENTERPRISES. THE AO HA S NOT EXPLAINED AS TO HOW HE WAS NOT SATISFIED ABOUT THE CORRECTNESS OR C OMPLETENESS OF THE ACCOUNTS OF THE APPELLANT. THE AO HAS ALSO NOT GIVE N ANY FINDING THAT THE METHOD OF ACCOUNTING HAS NOT BEEN REGULARLY FOLLOWE D BY THE APPELLANT. SINCE THE AO DID NOT POINT OUT ANY DEFECT IN THE BO OKS OF ACCOUNTS, THE AO WAS NOT JUSTIFIED IN REJECTING APPELLANT'S BOOKS OF ACCOUNTS BY INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT. I N MY CONSIDERED VIEW, FOLLOWING THE APPEAL ORDERS OF EARLIER YEARS, THERE WERE NO CIRCUMSTANCES/FACTS ATTRACTING THE APPLICATION OF P ROVISIONS OF SECTION 145(3) OF THE ACT. THE AO'S ACTION OF REJECTING THE BOOKS OF ACCOUNTS IS THEREFORE, DISAPPROVED. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES AND A LSO CONSIDERING THAT THE FACTS OF THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THOSE OF 8 ITA NO. 5443 /M/13 & 6713/M/12 (A.Y.10-11& 09-10) DCIT VS. M/S. SIYARAM SILK MILLS LTD. EARLIER YEARS, BY FOLLOWING THE APPEAL ORDERS OF EA RLIER YEARS, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN APPLYING THE NET P ROFIT RATIO OF 4.57% TO DETERMINE THE PROFITS OF UNITS ELIGIBLE FOR DEDUCTI ON U ] S 80-IB OF THE ACT. THE AO'S ACTION OF REDUCING THE APPELLANT'S CLAIM O F DEDUCTION U /S 80-18 AT RS. 6,26,68,195 J- TO RS.1 ,32,12,000/ - IS THER EFORE, DISAPPROVED. CONSEQUENTLY, THE DISALLOWANCE MADE BY AO ON ACCOUN T OF REDUCING THE APPELLANT'S CLAIM OF 80-IB OF THE ACT IS DELETED. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED. 4. WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY THE REVENUE AUTHORITIES. AFTER ANALYZING THE FINDINGS RECORDED BY THE CIT(A) WE ARE OF CONSIDERED VIEW THAT THE FINDINGS ARE WELL REASONED AND ARE BASED ON FACTUAL AND LEGAL POINTS THEREFORE, THERE IS NEED NO NEED TO IN TERFERE OR DEVIATE. HENCE, WE DISMISS THESE GROUNDS OF APPEAL AND UPHELD THE ORDE R OF CIT(A). GROUND NO. (IV) AND (IV) ARE GENERAL IN NATURE AND NEEDS NO SEPARATE ADJUDICATION IN VIEW OF ABOVE DECISION. IN THE NET RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 9 ITA NO. 5443 /M/13 & 6713/M/12 (A.Y.10-11& 09-10) DCIT VS. M/S. SIYARAM SILK MILLS LTD. ITA NO. 6713/MUM/2012 (A.Y.2009-10): 5. SINCE, GROUNDS IN THE PRESENT APPEAL ARE ALSO SI MILAR TO GROUNDS RAISED BY THE REVENUE IN ITA NO. 5443/MUM/2013 (A.Y.-2010-11) WHE REIN THE FINDINGS ARE SAME THEREFORE, BASED ON OUR FINDINGS IN ITA NO. 54 33/MUM/2013 WE DISMISSED THIS APPEAL AS WELL. 6. IN THE RESULT, BOTH THE REVENUE APPEALS ARE DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23RD MARCH, 2016 SD/- SD/- (RAJENDRA) ( SANDEEP GOSAIN) $ / ACCOUNTANT MEMBER &' $ / JUDICIAL MEMBER ( ) MUMBAI; *$ DATED :23.03.2016 PS. ASHWINI / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT - CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI