PYRAMID ENTEK P. LTD, MUMBAI V. ASST CIT RG 3, THANE, MUMBAI

ITA 567/MUM/2012

• Counselvise Citation: 56719914 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 27-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A
• Assessee Lawyers: C N VAZE
• Section: 10B; 10

Judgement Text

PYRAMID ENTEK P. LTD. - 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH JKTSUNZ FLAG YS[KK LNL; ,OA JH LAT; XXZ U;KF;D LNL; DS LE {K BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO.567/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2008-09 PYRAMID ENTEK P. LTD 2B/1303 PHASE VI, SIDDHACHAL COMPLEX, NR. VASAHNT VIHAR, THANE (W) PAN: AADCP6430H CUKE@ VS. ASSISTANT CIT RG 3. THANE VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY SHRI C.N. VAZE & MRS. ACHALA VAIDYA IZR;FKHZ DH VKSJ LS @ RESPONDENT BY SHRI R.A PANT VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 23.11.2011 OF CIT(A) FOR THE ASSESSMENT YEAR 2008-0 9. THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING ADDITION MADE BY AO U/S 10B (7) READ WITH SECTION 80IA (10). 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WHO WAS IN THE BUSINESS OF EXPORT, HAD REIMBURSED A SUM OF RS. 1987718/-TO PYR AMID CONSULTING ENGINEERING PVT. LTD. (PCEPL) WHICH IS GROUP COMPA NY ON ACCOUNT OF COST OF LQUOKBZ DH RKJH[K@ DATE OF HEARING 30-7-2013 ?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT 7-8-2013 PYRAMID ENTEK P. LTD. - 2 - EMPLOYEES HIRED FROM THAT CONCERN. THE EMPLOYEES HA D BEEN REIMBURSED BY THE ASSESSEE ON COST BASIS. THE AO REFERRED TO THE PROVISIONS OF SECTION 10B(7) READ WITH SECTION 80IA (10) AS PER WHICH OWI NG TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE EL IGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON OR FOR AN Y OTHER REASON, IF THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MO RE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH E LIGIBLE BUSINESS, THE AO SHALL COMPUTE THE PROFIT AND GAINS OF ELIGIBLE BUSI NESS BY TAKING INTO ACCOUNT THE PROFIT AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PAYMENT SHOULD NOT BE ESTIMATED UNDER THE PROVISIONS OF SECTION 10B(7) READ WITH SECTION 80IA (10). THE AO OBSERVED THAT THE ASSESSEE DID NOT SUB MIT ANY EXPLANATION. THE AO, THEREFORE, CONCLUDED THAT BY TAKING THE SERVICE S OF EMPLOYEES OF THE SISTER CONCERN, THE ASSESSEE HAD SHOWN MORE THAN OR DINARY PROFITS. HE NOTED THAT THE EMPLOYEES COST IN CASE OF THE ASSESSEE INC LUDING THE HIRED EMPLOYEES COST OF WHICH WAS RS.7084790/- AND THE R EVENUE EARNED WAS RS 2.69 CRORE. HE, THEREFORE, COMPUTED REVENUE PROPORT IONATE TO THE EMPLOYEES COST AT RS. 1987718/- BEING THE COST OF HIRED EMPLO YEES AT RS. 7570683/-. AO OBSERVED THAT THE ASSESSEE HAD EARNED INCOME OF RS.7570683/- WHEREAS THE PAYMENT TO THE SISTER CONCERN WAS ONLY RS. 1987 718/-. HE ACCORDINGLY ADDED A SUM OF RS. 3989097/- (7570683-1987718) TO T HE TOTAL INCOME. IN APPEAL CIT(A) OBSERVED THAT SERVICE OF FIVE EMPLOY EES HAD BEEN PROVIDED BY THE SISTER CONCERN TO ASSESSEE AT COST WITHOUT CHAR GING ANY PROFIT AND, THEREFORE, THE ASSESSEE HAD PRODUCED MORE THAN ORDI NARY PROFIT. HE ACCORDINGLY, CONFIRMED THE ADDITION MADE BY AO ON T HIS ACCOUNT, AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 3. BEFORE US, THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT THE METHOD ADOPTED BY AO FOR APPLICATION OF SECTION 80I (10) W AS NOT CORRECT. HE HAS COMPUTED THE REVENUE CORRESPONDING TO THE EMPLOYEE HIRED AND HAD TREATED PYRAMID ENTEK P. LTD. - 3 - THE SAME AS PROFIT EARNED BY THE ASSESSEE WHICH WAS INCORRECT. THERE WAS NO MATERIAL PRODUCED TO SHOW THAT THE PAYMENT MADE BY THE ASSESSEE FOR HIRING OF THE EMPLOYEE OF SISTER CONCERN WAS LESS THAN THE MARKET VALUE. IT WAS ALSO SUBMITTED THAT THE PROFIT RATE BEFORE TAX IN CASE O F THE ASSESSEE IN THIS YEAR WAS ALMOST THE SAME AS IN THE PREVIOUS YEAR AT ABOU T 8%. THERE WAS, THEREFORE, NO PROFIT PRODUCED WHICH WAS MORE THAN O RDINARY. THE LEARNED DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED MATTE R CAREFULLY. THE DISPUTE IS REGARDING APPLICATION OF PROVISIONS OF S ECTION 10B(7) READ WITH SECTION 80IA (10) AS PER WHICH IF OWING TO THE CLOS E CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON OR FOR ANY OTHER REASON, THE COURS E OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BE TWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS THE AO FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 10B) MAY TAKE THE AMOUNT OF PROFIT AS MAY BE REASONABLY DEEMED TO HAVE BEEN EARNED BY THE ASSESS EE. IN THIS CASE THE ASSESSEE WHICH IS ENGAGED IN THE BUSINESS OF EXPORT HAD HIRED SOME EMPLOYEES FROM THE SISTER CONCERN WHICH HAD BEEN RE IMBURSED AT COST. THE AO, THEREFORE, HAS CONCLUDED THAT THE ASSESSEE HAS PRODUCED MORE THAN ORDINARY PROFIT CORRESPONDING TO THE REVENUE EARNED IN RELATION TO THE HIRED EMPLOYEES WHICH HAS BEEN COMPUTED ON PROPORTIONATE BASIS AT RS. 757068/- . AO HAD TREATED THE ENTIRE REVENUE AS PROFIT EARNE D AFTER DEDUCTING THE COST OF EMPLOYEES HIRED. THE APPROACH ADOPTED BY THE AO IS PRIMA FACIE INCORRECT. FOR APPLYING THE PROVISIONS OF SECTION 10 B(7) READ WITH SECTION 80IA(10), AO HAS FIRST TO SHOW THAT COST OF HIRING EMPLOYEES BY THE ASSESSEE HAD RESULTED INTO MORE THAN ORDINARY PROFIT. THIS COULD HAPPEN ONLY IF THE ASSESSEE HAD PAID LESS THAN THE MARKET VALUE TO THE SISTER CONCE RN ON ACCOUNT OF HIRED EMPLOYEES. THERE IS NO MATERIAL ON RECORD TO SHOW T HAT SISTER CONCERN HAD HIRED THE EMPLOYEES AT LESS THAN MARKET PRICE BECAU SE ONLY IN THAT CASE IT COULD BE SAID THAT THE ASSESSEE HAD PAID LESS THAN THE MARKET PRICE. IN THE PYRAMID ENTEK P. LTD. - 4 - ABSENCE OF ANY SUCH MATERIAL IT CANNOT BE SAID THAT ASSESSEE HAD PRODUCED MORE THAN THE ORDINARY PROFIT BECAUSE OF CLOSE CONN ECTION WITH THE SISTER CONCERN OR THAT IT HAD DECLARED MORE PROFIT IN ORDE R TO CLAIM MORE EXEMPTION. IN OUR VIEW THE APPROACH ADOPTED BY LOWER AUTHORITI ES TO ADD PROPORTIONATE REVENUE IS INCORRECT. WE, THEREFORE SET ASIDE THE O RDER OF CIT(A) AND DELETE THE ADDITION MADE. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 7-8-2013 SD/- SD/- (SANJAY GARG) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 7.8.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI