Indica Chemical Industries Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 5845/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65746 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 24-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 29-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: H MITTER
• Keywords: Search and seizure; Rule of consistency; Earning of tax free income
• Section: 14A; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER ITA NO. 5845/DEL/2011 ASSESSMENT YEAR: 2008- 2009 INDICA CHEMICAL INDUSTRIES PVT. LTD. VS. ADDL. CIT A-4, RANGE 11 GREATER KAILASH PART-1 C.R. BUILDING NEW DELHI 110 048 NEW DELHI. PAN AAACI0233Q (APPELLANT) (RE SPONDENT) APPELLANT BY : SHRI H MITTER, AR. RESPONDENT BY : SHR I SATPAL SINGH, SR. DR ORDER PER I.C. SUDHIR, JUDICIAL MEMBER THE ASSESSEE HAS QUESTIONED FIRST APPEL LATE ORDER ON SEVERAL GROUNDS INVOLVING TWO ISSUES. FIRSTLY AS TO WHETHER THE LD. CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE AO IN TREATING AND A PPORTIONING THE ENTIRE FOREIGN TRAVELING EXPENSES OF RS. 19,49,568/- TO EX PORTS BUSINESS EXEMPT U/S 10B OF THE ACT INSTEAD OF RS. 4,13,308/- APPORT IONED BY THE ASSESSEE COMPANY ? (GROUND NOS. 1.1 TO 1.4). SECONDLY, AS T O WHETHER THE LD. CIT(A) HAS ERRED IN SUSTAINING DISALLOWANCE UNDER S ECTION 14A READ WITH RULE 8D OF RS. 11,13,374/- BEING THE ESTIMATED EXPE NSES ALLEGEDLY INCURRED ITA NO. 5845/DEL/2011 2 IN EARNING THE DIVIDEND INCOME AND CAPITAL GAINS OV ER AND ABOVE THE DISALLOWANCE ALREADY MADE BY THE ASSESEE U/S 14A IN ITS RETURN OF INCOME ? (GROUND NOS. 2,2.1 TO 2.4) 2. AT THE OUTSET OF HEARING THE LD. AR P OINTED OUT THAT THE ASSESEE DOES NOT WISH TO PRESS ISSUE NO. 2. THE RELATED GRO UND NOS. 2,2.1 TO 2.4 ARE REQUIRED AS WITHDRAWN. 3. GROUND NO. 1 THE RELEVANT FACTS AR E THAT THE ASSESSEE HAS BEEN ENGAGED IN THE MANUFACTURE OF PERLITE FILTERAIDS A ND EXPANDED PERLITE PRODUCTS, PERLITE BLOCKS AT KOTDWAR FACTORIES, AU TOMOBILE FOAM PARTS AT NOIDA, PUNE & CHENNAI UNITS AND DIATOMACEOUS AND PE RLITE ORE TRADING AT DELHI AND PUNE. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS CLAIMED EXEMPTION U/S 1 0B OF THE ACT IN ITS EOU UNIT LOCATED AT NOIDA WHICH IS ESTABLISHED UNDER EOU SCHEME FOR THE MANUFACTURE AND EXPORT OF PART OF MOTOR CYCLES, INC LUDING AUTOMOBILE COMPONENTS ETC. THE AO NOTED THAT THE ASSESSEE WHIL E PREPARING THE PROFIT AND LOSS ACCOUNT OF EOU UNIT HAS DEBITED EXPENDITURE UNDER THE HEAD RAW MATERIAL CONSUMED, PACKING MATERIAL CONSUMED , POWE R GAS AND FUEL ETC. AS DIRECT EXPENSES. HOWEVER FOR OTHER EXPENSES UNDER T HE HEAD LIKE PERSONNEL EXPENSES, ADMINISTRATIVE AND SELLING EXPENSES ETC. HAVE NOT BEEN DEBITED ENTIRELY AGAINST THE SALE RECEIPT BUT HAVE BEEN ALL OCATED ON THE BASIS OF THE TURNOVER AMONG EXEMPT AND NON-EXEMPT UNITS. THE ASS ESSEE CLAIMED TO HAVE INCURRED FOREIGN TRAVELING EXPENSES AMOUNTING TO RS. 19,49,567/- ITA NO. 5845/DEL/2011 3 WHICH AS PER THE AO WAS NOT DEBITED TO THE PROFIT A ND LOSS ACCOUNT OF THE EXEMPT UNIT. THE AO WAS OF THE VIEW THAT SINCE THE ENTIRE TRAVELING EXPENSES HAS BEEN INCURRED FOR EARNING THE EXEMPT I NCOME, THE SAME NEED TO BE DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE EXEMPT UNIT. THE ASSESSEE WAS ASKED TO EXPLAIN BUT THE AO WAS NOT CO NVINCED WITH THE EXPLANATION FURNISHED BY THE ASSESSEE AND THUS DISA LLOWED THE CLAIMED EXPENSES OF RS. 19,49,567/-. THE ASSESSEE QUESTIONE D THE ABOVE ACTION OF THE AO BEFORE THE LD. CIT(A) AND IT WAS ALSO ARGUED THAT AN AMOUNT OF RS. 497311/- WAS ALREADY REDUCED BY THE ASSESSEE FROM THE EXPORT PROFIT WHILE ORIGINALLY CALCULATING THE DEDUCTION U/S 10B OF THE ACT AND THE AO SHOULD HAVE TAKEN COGNIGENCE OF THE SAME WHILE COMPUTING T HE REVISED PROFIT OF THE EOU UNIT. THE LD. CIT(A) DID NOT AGREE WITH THE ASSESSEE. HE HOWEVER DIRECTED THE AO TO REDUCE AN AMOUNT OF RS. 4,97,311 /- WHILE COMPUTING THE PROFIT OF EOU UNIT AS THE ASSESSEE HAD ALREADY REDUC ED THIS AMOUNT IN ITS CALCULATION OF DEDUCTION U/S 10B. 4. THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW ON THE ISSUE. HE SUBMITTED THAT SOME OF THE F OREIGN VISITS WERE COMMON HENCE IN ACCORDANCE WITH THE METHOD OF ACCOU NTING REGULARLY FOLLOWED BY THE ASSESSEE, THE SAME LIKE OTHER COMMO N EXPENSES WERE APPORTIONED TO THE EXEMPT AND NON EXEMPT UNITS IN R ATIO OF THEIR RESPECTIVE TURN OVER. ACCORDINGLY OUT OF TOTAL FOREIGN TRAVELI NG EXPENSES OF RS. 19,48,568/- RS. 4,13,308/- WERE APPORTIONED TO THE PROFIT AND LOSS ACCOUNT ITA NO. 5845/DEL/2011 4 OF EOU UNIT AND RS. 84,003/- TO KOTDWAR UNIT II IN THE RATIO OF THEIR TURNOVER LEAVING THE BALANCE CLAIM OF RS. 14,52,257 /-. HE SUBMITTED THAT THE APPORTIONMENT OF FOREIGN TRAVELING EXPENSES IN THE RATIO OF EXPORT TURN OVER TO EXEMPT TURNOVER HAS THROUGHOUT BEEN ACCEPTE D BY THE DEPARTMENT IN ALL THE EARLIER YEARS. IT IS ONLY DURING THE YEA R THE AO DISREGARDED THE RULE OF CONSISTENCY AND ALLOCATED THE ENTIRE FOREIGN TRA VELING EXPENSES TO EXPORT BASED ON MISCONCEIVED AND WRONG ASSUMPTIONS. HE POI NTED OUT THAT 90% OF RAW MATERIAL ARE IMPORTED FROM 31 FOREIGN SUPPLI ERS. HE POINTED OUT FURTHER THAT EVEN IN THE ASSESSMENT YEAR 2009-10 TH E AO HAS ACCEPTED THE ACCOUNT OF APPORTIONMENT OF FOREIGN TRAVELING EXPEN SES IN THE RATIO OF EXPORT TURN OVER AND EXEMPT TURNOVER ADOPTED BY THE ASSESSEE. THE LD. AR REFERRED PAGE NO. 4 TO 50 OF THE PAPER BOOK FILED O N BEHALF OF THE ASSESSEE. THESE ARE THE COPIES OF PROFIT AND LOSS ACCOUNT AND BALANCE SHEET ALONGWITH COPIES OF SCHEDULE 1 TO 4 AND 15. HE ALSO REFERRED PAGE NOS. 23 TO 39 OF THE PAPER BOOK. THESE ARE THE COPIES OF LIST OF SUPPLIE RS OF IMPORTED RAW MATERIAL AND THE COUNTRIES IN WHICH THEY ARE LOCATE D AND THE EXPORT BUYERS, INVOICES FOR EXPORT TO MIDDLE EAST COUNTRIES, INVOI CES FOR PARTICIPATION IN EP MINERALS DISTRIBUTORS MADE IN USA AND DETAILED AGEN DA, STATEMENT OF ASSESSABLE INCOME FILED ALONGWITH THE RETURN OF INC OME IN WHICH EXPENSES ATTRIBUTABLE TO EXEMPT INCOME WAS DISALLOWED. THESE DOCUMENTS WERE FILED BEFORE THE LD. CIT(A). HE ALSO REFERRED PAGE NOS. 1 3 TO 16 OF THE PAPER BOOK ( ASSESSEE) I.E. COPY OF LETTER DATED 18.10.20 10 FILED BEFORE THE AO. ITA NO. 5845/DEL/2011 5 THE LD. AR CONTENDED THAT WITHOUT CONSIDERING THE A BOVE SUBMISSIONS, THE AUTHORITIES BELOW HAVE DECIDED THE ISSUE AGAINST TH E ASSESSEE. 5. LD. DR ON THE OTHER HAND OPPOSE THE GROU ND AND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. 6. CONSIDERING THE ABOVE SUBMISSIONS ESPECIA LLY KEEPING IN MIND THAT IN EARLIER YEARS AND IN THE NEXT ASSESSMENT YEAR 20 09-10, THE AO HAS ACCEPTED THE SIMILAR METHOD OF APPORTIONMENT OF FOR EIGN TRAVELING EXPENSES IN THE RATIO OF EXPORT TURNOVER AND EXEMPT TURNOVER ADOPTED BY THE ASSESSEE, WE ARE OF THE VIEW THAT DUE CONSIDERATION HAS NOT BEEN GIVEN TO THE SUBMISSION OF THE ASSESSEE MADE IN THIS REGARD BY THE AUTHORITIES BELOW. WE ALSO FIND THAT THE ASSESSEE SHOULD HAVE F URNISHED DETAILS OF THE CLAIMED EXPENDITURE TO EXAMINE ITS CORRECTNESS AND GENUINENESS. WE THUS SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH CONSIDERATION AFTER AFFORDING OPPORTUNITY TO THE ASSESSEE TO FURNISH TH E DETAILS OF THE CLAIM AND REPRESENT ITS CASE. THE GROUND NOS. 1 TO 14 INVOLVI NG THE ISSUE ARE THUS ALLOWED FOR STATISTICAL PURPOSE. 6. CONSEQUENTLY APPEAL IS ALLOWED FOR STATIST ICAL PURPOSE. ORDER IS PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2012. SD/- SD/- (A.N. PAHUJA) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 30/10/2012 *VEENA COPY OF ORDER FORWARDED TO: ITA NO. 5845/DEL/2011 6 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR, ITAT