M/s Rockman Industries Ltd., Ludhiana V. Principal Commissioner of Income Tax - 2, Ludhiana

ITA 569/CHANDI/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6920 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 25-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANDEEP DAHIYA
• Assessee Lawyers: SUBHASH AGGARWAL
• Section: 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 569/CHD/2015 ASSESSMENT YEAR: 2010-11 M/S ROCKMAN INDUSTRIES LTD., VS. THE PRINCIPAL CIT -2 LUDHIANA LUDHIANA PAN NO. AAACAR7866E (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUBHASH AGGARWAL RESPONDENT BY : SH. SANDEEP DAHIYA DATE OF HEARING : 26.07.2017 DATE OF PRONOUNCEMENT : 08.09.2017 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER OF PRINCIPAL COMMISSIONER OF INCOME TAX-2 [HE REINAFTER REFERRED TO AS PCIT], LUDHIANA DATED 28.03.2015 IN RELATION TO THE REVISION OF THE ASSESSMENT ORDER DONE BY HIM EXERCISING POWERS U/S 263 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). THE ASSESSEE HAS T AKEN AS MANY AS SEVEN GROUNDS OF APPEAL. 2. GROUND NOS. 1 & 4 ARE AGAINST THE EXERCISING OF JURISDICTION U/S 263 OF THE LD. PCIT. SHRI SUBHASH AGGARWAL, LD. COUNSEL FOR THE ASSESSEE HAS 2 STATED AT BAR THAT HE DOES NOT WANT TO PRESS THESE GROUNDS. HE HAS ALSO SIGNED THE NOTING IN THIS RESPECT ON THE MEMORANDUM OF GROUNDS OF APPEAL. THUS, GROUNDS NO. 1 & 4, ARE THEREFORE, DISMISSED. 3. GROUND NOS. 5, 6 & 7 ARE GENERAL IN NATURE AND D OES NOT REQUIRE ANY SPECIFIC ADJUDICATION. NOW WE ARE LEFT WITH GROUND NOS. 2 & 3. 4. GROUND NO. 2: IN GROUND NO.2 THE ASSESSEE HAS A GITATED THE ACTION OF THE PCIT IN ENHANCING THE INCOME OF THE ASSESSEE BY A SUM OF RS. 4,27,33,531/- ON ACCOUNT OF ALLEGED ALLOCATION OF E XPENSE BETWEEN LUDHIANA AND HARIDWAR UNIT. 5. THE ASSESSEE IS HAVING TWO PLANTS, ONE AT LUDHI ANA AND THE OTHER AT HARIDWAR. THE HARIDWAR UNIT IS AN ELIGIBLE UNIT FOR CLAIMING DEDUCTION U/S 80IC OF THE ACT. THE LD. PCIT OBSERVED THAT THE ASS ESSEE HAS NOT PROPERLY ALLOCATED THE EXPENSES RELATING TO THE AFORESAID UN ITS. HE WAS OF THE VIEW THAT ASSESSEE HAS DELIBERATELY ALLOCATED THE EXPENS ES RELATING TO THE LUDHIANA UNIT TOWARDS HARIDWAR UNIT. HE NOTED THAT THE ADMINISTRATIVE EXPENSES SUCH AS DIRECTORS REMUNERATION, PERKS AND CONTRIBUTION AS WELL AS AUDITORS REMUNERATION ETC. WERE REQUIRED TO BE A LLOCATED AS PER TURNOVER OF HARIDWAR UNIT AND LUDHIANA UNIT. HE FURTHER NOTE D THAT THE TURNOVER OF HARIDWAR UNIT WAS MORE THAN LUDHIANA UNIT. HE ACCO RDINGLY ALLOCATED 67% OF THE AFORESAID EXPENSES TOWARDS HARIDWAR UNIT AND 37% TOWARDS LUDHIANA UNIT MAKING THE ADDITIONS AND THEREBY ENHA NCEMENT OF INCOME TO THE TUNE OF RS. 4,27,33,531/- 6. BEFORE US, LD. COUNSEL FOR THE ASSESSEE HAS SUBM ITTED THAT THE ASSESSEE HAS BEEN MAINTAINING SEPARATE ACCOUNTS FOR BOTH THE UNITS. THAT THE EXPENSE OF EACH OF THE UNIT HAVE BEEN PROPERLY ALLOCATED. HE FURTHER 3 SUBMITTED THAT EVEN THE DIRECTORS REMUNERATION ETC . HAVE BEEN BOOKED AS PER THE ALLOCATION AND TIME OF THE DIRECTORS TOWARD S EACH OF THE UNIT. THAT THERE ARE NUMBER OF PARTS WHICH ARE MANUFACTURED AT LUDHIANA UNIT AS COMPARED TO HARIDWAR UNIT. HE HAS FURTHER SUBMITTED THAT EVEN LD. PCIT HAS NOT PROPERLY EXAMINED THE DETAILS FURNISHED BY THE ASSESSEE IN THIS RESPECT. THE LD. DR ON THE OTHER HAND, HAS RELIED U PON THE ORDER OF THE LD. PCIT. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND HAV E ALSO GONE THROUGH THE IMPUGNED ORDER OF THE PCIT. WE FIND THAT THE LD . PCIT HAS NOT DISCUSSED IN DETAIL ABOUT THE SUBMISSIONS AND DETAI LS GIVEN BY THE ASSESSEE. HE HAS SIMPLY ALLOCATED THE EXPENSES ON THE BASIS O F TURN OVER OF THE UNITS. WHEREAS THE PLEA OF THE LD. COUNSEL FOR THE ASSESSE E IS THAT THE ASSESSEE HAS FURNISHED ALL THE RELEVANT DETAILS AND EVIDENCE S WHICH WERE REQUIRED TO BE EXAMINED BY THE LD. PCIT BEFORE ENHANCING THE IN COME OF THE ASSESSEE ON THIS ISSUE. CONSIDERING THE ABOVE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE, IN OUR VIEW, THE ISSUE IS REQUIRED TO BE EXAMINED IN DETAIL. THEREFORE, WE SET ASIDE THIS ISSUE RELATING TO THE ADDITIONS / ENHANCEMENT BY THE LD. PCIT AND RESTORE THE MATTER ON THIS ISSU E BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE IN DE TAIL ALL THE EXPENSES ALLOCATED BY THE ASSESSEE TOWARDS EACH UNIT AND THE N TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER GIVING PROPER O PPORTUNITY TO THE ASSESSEE TO REPRESENT ITS CASE. 8. GROUND NO.3: THOUGH ON THE EARLIER DATE OF HEARI NG, THE LD. COUNSEL FOR THE ASSESSEE HAS STATED THAT GROUND NO.3 IS NOT PRESSED, HOWEVER, TODAY THE LD. COUNSEL HAS STATED THAT HE MAY BE ALLOWED T O ARGUE THIS GROUND. 4 CONSIDERING THE ABOVE PLEA OF THE LD. COUNSEL FOR T HE ASSESSEE THE ARGUMENTS ON GROUND NO.3 HAVE BEEN HEARD. 9. THE ISSUE RAISED IN GROUND NO.3 IS RELATING TO T HE ALLOWABILITY OF EXPENSES RELATING TO PROJECT WRITTEN OFF. THE LD. P CIT OBSERVED THAT ASSESSEE HAS CLAIMED HUGE EXPENSES RELATING TO THE PROJECT WRITTEN OFF. HE FURTHER OBSERVED THAT THE ASSESSING OFFICER HAD ALL OWED THESE EXPENSES WHILE RELYING UP THE JUDICIAL DECISION OF THE HON'B LE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. VARDHMAN SPINNI NG & GENERAL MILLS 176 TAXMAN 371 ON THE LEGAL GROUND THAT SUCH TYPE OF EXPENSE DO NOT GIVE RISE TO ASSET OF PERMANENT NATURE WITH ENDURING BEN EFIT. HOWEVER, THE ASSESSING OFFICER HAD NOT EXAMINED THE GENUINENESS OF THE EXPENSES. THE LD. PCIT OBSERVED THAT THE REQUIRED DETAILS WERE NO T AVAILABLE WITH THE ASSESSING OFFICER AND HENCE GENUINENESS OF THESE EX PENSES COULD NOT BE EXAMINED BY THE ASSESSING OFFICER. EVEN THERE WAS NO EVIDENCE AVAILABLE OTHER THAN THE SUBMISSIONS OF BILLS, REGARDING THE NATURE OF SERVICES RENDERED BY PERSONS TO WHOM THE ASSESSEE HAD MADE P AYMENTS. HE ACCORDINGLY RESTORED THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING THE GENUINENESS OF THE EXPENSES. 10. LD. COUNSEL FOR THE ASSESSEE, BEFORE US HAS SUB MITTED THAT THE ASSESSEE WAS NEVER ASKED BY THE LD. PCIT TO PROVE T HE GENUINENESS OF THE EXPENSES. HE HAS FURTHER SUBMITTED THAT EVEN THE L D. PCIT HAS FAILED TO POINT OUT ANY ERROR IN THE ORDER OF THE ASSESSING O FFICER. HE DREW OUR ATTENTION TO THE OBSERVATIONS OF THE LD. PCIT PER HAPS THE GENUINENESS OF THE EXPENDITURE WAS NOT EXAMINED AND HAS FURTHER STATED THAT EVEN THE LD. PCIT WAS NOT SURE AS TO WHETHER THE GENUINENESS OF THE EXPENDITURE WAS 5 EXAMINED BY THE ASSESSING OFFICER OR NOT. THE FIN DINGS GIVEN BY THE LD. PCIT REGARDING THE ERROR IN THE ORDER THUS WAS NOT DEFINITE. 11. ON THE OTHER HAND, LD. DR HAS INVITED OUR ATTEN TION TO THE REMAINING PART OF THE ORDER ON THIS ISSUE AND HAS STATED THAT IT IS APPARENT FROM THE PERUSAL OF THE ORDER OF THE LD. PCIT THAT NEITHER THE DETAILS RELATING TO THE SERVICES RENDERED BY THE PARTIES OR THE GENUINENESS OF THE EXPENSES WAS AVAILABLE BEFORE THE ASSESSING OFFICER NOR THE SAME WAS EXAMINED. 12. WE HAVE CONSIDERED HE RIVAL SUBMISSIONS. IN OUR VIEW, THE ORDER ON THIS ISSUE HAS TO BE READ IN ITS ENTIRETY. THE LD. PCIT AFTER GOING THROUGH THE RECORDS HAS GIVEN FINDING THAT THE DETAILS RELA TING TO THE SERVICES RENDERED BY THE PERSONS TO WHOM THE ASSESSEE HAD MA DE PAYMENTS AND GENUINENESS OF THE EXPENSES RELATING TO THE PROJECT HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER. THOUGH WHILE CONCLUDING H IS FINDINGS HE HAS PREFIXED THE WORDS PERHAPS WHILE HOLDING THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE GENUINENESS OF THE EXPENSES; HOWEV ER, THE ASSESSEE AT THE SAME TIME COULD NOT ESTABLISH THAT THE REQUIRED DET AILS IN FACT WERE EXAMINED BY THE ASSESSING OFFICER. IN VIEW OF THIS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. PCIT WHILE REFERR ING BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE ORDER OF THE LD. PCIT ON THIS ISSUE IS THEREFORE, UPHELD. 13. IT IS MADE CLEAR THAT THE ASSESSING OFFICER HAS TO EXAMINE ONLY AS TO WHETHER THE EXPENSES CLAIMED BY THE ASSESSEE WERE R ELATABLE TO THE ABUNDANT PROJECT AND WHETHER THE SAME WAS PAID IN L IEU OF THE SERVICES RENDERED BY THE PARTIES IN RELATION TO THAT PROJECT . HOWEVER, THE LEGAL PROPOSITION RELATING TO THE ADMISSIBILITY OF THE EX PENSES WILL REMAIN 6 APPLICABLE AS ORIGINALLY APPLIED BY THE ASSESSING O FFICER FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF CIT VS. VARDHMAN SPINNING & GENERAL MILLS (SUPRA). 14. IN VIEW OF THE FINDINGS GIVEN ABOVE THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/09/017 SD/- SD/- ( ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 8 TH SEPT, 2017 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR