LOVABLE LINGERIE LTD, MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 6233/MUM/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9898 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 08-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESH
• Assessee Lawyers: SUBODH RATNAPARKHI LD
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A; 154

Judgement Text

ITA NO 6233 & 6234/MUM/2014 LOVABLE LINGERIE LIMITED ASSESSMENT YEARS- 2010-11 & 2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO. 6233 & 6234/MUM/2014 ( / ASSESSMENT YEARS: 2010-11 & 2011-12) LOVABLE LINGERIE LIMITED A-46, STREET NO.22 MIDC, ANDHERI (E) MUMBAI 400 093 / VS. DEPUTY COMMISSIONER OF INCOME TAX RANGE 8(2) AAYKAR BHAWAN M.K.ROAD MUMBAI -400 020 ./ ./PAN/GIR NO. AAACL-1016-G ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) ASSESSEE BY : SUBODH RATNAPARKHI, LD.AR REVENUE BY : SAURABH DESHPANDE, LD. DR / DATE OF HEARING : 24/08/2017 / DATE OF PRONOUNCEMENT : 06 /09/2017 ITA NO 6233 & 6234/MUM/2014 LOVABLE LINGERIE LIMITED ASSESSMENT YEARS- 2010-11 & 2011-12 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THESE ARE TWO APPEALS BY ASSESSEE FOR ASSESSMEN T YEARS [AY] 2010-11 & 2011-12 WHICH ASSAILS SEPARATE ORDERS OF FIRST APPELLATE AUTHORITY. SINCE COMMON ISSUES ARE INVOLVED, WE DIS POSE-OFF THE SAME BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENI ENCE & BREVITY. FIRST WE TAKE UP ITA NO. 6233/MUM/2014 FOR AY 2010-11 WHI CH CONTESTS THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-1 7 [CIT(A)], MUMBAI DATED 30/07/2014 QUA CONFIRMATION OF CERTAIN DISALLOWANCE U/S 80-IC . 2. FACTS LEADING TO THE SAME ARE THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED AS MANUFACTURER OF HOSIERY / GARMENTS PRODUCTS WAS ASSESSED U/S 143(3) FOR IMPUGNED AY ON 06/11/2 012 AT RS.8,79,61,670/- AS AGAINST RETURNED INCOME OF RS.8 ,59,26,850/- E-FILED BY THE ASSESSEE ON 30/09/2010. THE WHOLE DISPUTE RE VOLVES AROUND ALLOCATION / APPORTIONMENT OF CERTAIN EXPENSES AMONGST SECTION 80-IC ELIGIBLE UNITS AND OTHER UNITS WHICH ULTIMATELY AFF ECTS THE QUANTUM OF DEDUCTION U/S 80-IC . 3. DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THAT THE ASSESSEE HAD SET UP A NEW MANUFACTURING UNIT AT KHASARA, ROORKEE, UTTRANCHAL PARDESH [ROORKEE UNIT] WHICH WAS ELIGIBLE FOR DEDUCTION U/S 80-IC TO THE EXTENT OF 100% OF PROFITS DERIVED FROM THE SAID UND ERTAKING. IT WAS FURTHER NOTED THAT THE ASSESSEE HAD REGISTERED OFFICE / FACTORY / GODOWNS / BRANCHES AT VARIOUS OTHER PLACES AND HENCE THE COMMON EXPENSES ITA NO 6233 & 6234/MUM/2014 LOVABLE LINGERIE LIMITED ASSESSMENT YEARS- 2010-11 & 2011-12 3 INCURRED BY THE ASSESSEE REQUIRED ALLOCATION / APPORTIONMENT BETWEEN ELIGIBLE AND NON-ELIGIBLE UNITS. THE ASSESSEE IDENT IFIED THE COMMON EXPENSES AND SUBMITTED ALLOCATION THEREOF IN THE RA TIO OF TURNOVER IN THE FOLLOWING MANNER:- NO. PARTICULARS OTHERS ROORKEE TOTAL 1. SALES 78,29,70441/- 8,53,02,870/- 86,82,73,311/- 2. SALES RATIO 90.18 9.82 100 3. MANAGERIAL REMUNERATION 47,17,218/- 5,13674/- 52 ,30,892/- 4. AUDIT FEES 2,83,485/- 30,870/- 3,14,355/- 5. ADVERTISING & PUBLICITY (OTHERS) 1,33,54,997/- 14,54,270/- 1,48,09,267/- TOTAL 19,98,814/- RESULTANTLY, THE AMOUNT OF RS.19,98,814/- WAS DEDUC TED FROM THE PROFITS OF THE ROORKEE UNIT WHICH RESULTED INTO REDUCED DEDUCTION U/S 80-IC TO THAT EXTENT. 4. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITHO UT ANY SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 30/07/2 014 WHERE THE ASSESSEE EXPLAINED THAT THE ROORKEE UNIT WAS ENGAGED IN THE BUSINESS OF LAMINATED FABRIC WHEREAS BANGALORE UNIT WAS ENGAGED IN THE BUSINESS OF LINGERIE PRODUCTS . IT WAS FURTHER STATED THAT LAMINATED FABRIC WAS NOT USED AS INPUT IN THE MANUFACTURING OF LINGERIE PRODUCTS BUT DIRECTLY SOLD TO ONE PARTY. SINCE ADVERTISEMENT EXPENSES WERE DON E FOR LINGERIE PRODUCTS ONLY, THE ALLOCATION THEREOF AMONGST THE ELIGIBLE U NIT WAS NOT JUSTIFIED. HOWEVER, NOT CONVINCED, LD. CIT(A) CONFI RMED THE STAND OF LD. AO ON THE PREMISE THAT THE ALLOCATION WAS DONE BY T HE ASSESSEE HIMSELF AND THE ADVERTISEMENT EXPENSES WERE RELATED TO BUIL DING THE BRAND NAME OF THE COMPANY WHICH BENEFITS ALL THE UNITS IN EQUAL PROPORTION. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. ITA NO 6233 & 6234/MUM/2014 LOVABLE LINGERIE LIMITED ASSESSMENT YEARS- 2010-11 & 2011-12 4 5. THE LD. REPRESENTATIVE FOR THE ASSESSEE, WHILE D RAWING OUR ATTENTION TO THE DOCUMENTS PLACED IN THE PAPER BOOK, REITERATED THE STAND TAKEN BEFORE LD. CIT(A) AND CONTENDED THAT SINCE AD VERTISING EXPENSES INCURRED BY THE ASSESSEE WERE NOT RELATABLE TO GOOD S MANUFACTURED AT THE ROORKEE UNIT AND THE ASSESSEE WAS IN POSSESSION OF SUFFICIENT DOCUMENTARY EVIDENCES TO DEMONSTRATE THE SAME, ALLO CATION THEREOF WAS NOT JUSTIFIED. THE LD. AR FURTHER ASSAILED THE STAN D OF LOWER AUTHORITIES ON THE GROUND THAT ALLOCATION OF EXPENSES WAS GIVEN AT THE BEHEST OF LD. AO, HOWEVER THE SAME WAS NEVER ACCEPTABLE TO THE AS SESSEE. NEVERTHELESS, THE LD. AR FAIRLY STATED THAT ALLOCAT ION OF MANAGERIAL REMUNERATION AND AUDIT FEES AMONGST THE UNITS WAS JUSTIFIED & ACCEPTABLE SINCE THE SAME WERE COMMON EXPENSES. PER CONTRA, LD. DR PLACED RELIANCE ON THE STAND OF LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. THE ASSESSEE, IN THE FIRST GROUND, HAS C ONTESTED THE ORDER OF FIRST APPELLATE AUTHORITY ON THE GROUND OF CONDONAT ION OF DELAY. WE FIND THAT THE ASSESSEES APPEAL BEFORE FIRST APPELLATE A UTHORITY WAS FILED WITH A DELAY OF 109 DAYS AND THE LD. CIT(A) WAS NOT CONV INCED WITH THE EXPLANATION FURNISHED BY THE ASSESSEE IN THAT REGAR D. HOWEVER, WE FIND THAT LD. CIT(A) HAS APPRECIATED THE ISSUE ON MERITS ALSO AND THEREFORE, THIS GROUND RAISED BY THE ASSESSEE BECOMES INFRUCTOUS . 7. PROCEEDING FURTHER ON MERITS, AT THE OUTSET, WE CONFIRM THE ALLOCATION OF MANAGERIAL REMUNERATION AND AUDIT FEES AMONGST THE ROORKEE UNIT & OTHER UNITS IN THE RATIO OF TURNOVER SINCE THE SAME, WITHOUT ANY DISPUTE OR QUARREL, CONSTITUTED COMMON EXPENSES AND ALLOCATION THEREOF IN THE RATIO OF TURNOVER WAS FAI R & REASONABLE. ITA NO 6233 & 6234/MUM/2014 LOVABLE LINGERIE LIMITED ASSESSMENT YEARS- 2010-11 & 2011-12 5 8. PROCEEDING FURTHER, A PERUSAL OF FINANCIAL STAT EMENTS OF THE ASSESSEE FOR IMPUGNED AY REVEALS THAT THE ASSESSEE HAS DEBITED A SUM OF RS.1,16,05,031/- UNDER THE HEAD SALES PROMOTION EXPENSES AND RS.1,49,10,277/- UNDER THE HEAD ADVERTISEMENT EXPENSES. HOWEVER, THE FIGURE TAKEN FOR THE PURPOSE OF ALLOCATION AMONGST THE UNITS IS RS.1,48,09,267/-, THE BASIS OF WHICH IS NOT DISCERN IBLE FROM THE MATERIAL ON RECORD. 9. PROCEEDING FURTHER, THE LD. AR HAS CONTESTED TH E ALLOCATION OF EXPENSES AND STATED THAT THE SAME HAS BEEN DONE AT THE BEHEST OF LD. AO ONLY AND THE SAME WAS NOT ACCEPTABLE TO THE ASSE SSEE. UPON PERUSAL OF DOCUMENTS PLACED IN THE PAPER BOOK, WE F IND THAT THE ASSESSEE HAS PROVIDED QUANTITATIVE DETAILS OF RAW M ATERIAL AND FINISHED GOODS AT PAGE NO. 41. THE DETAILS OF SALES OF ROORKEE UNIT PROVIDED AT PAGE NO. 42 AND SAMPLE SALE INVOICES PLACED ON PAGE NOS. 43-44 REVEALS THAT THE ASSESSEE HAS MADE ALL SALE TO A CO NCERN NAMELY SHRUTI SALES CORPORATION. THE DETAILS OF ADVERTISEMENT EXPENSES WITH SAMPLE INVOICES HAVE BEEN PLACED ON PAGE NOS. 45 TO 65. A PERUSAL OF THE SAME LENDS SOME STRENGTH TO THE ARGUMENT OF LD. AR. AT THE SAME TIME, LD. CIT (A), WITHOUT ANY ELABORATIONS, HAS NOTED TH AT THE ADVERTISEMENT EXPENSES RESULTS INTO BRAND BUILDING FOR THE ASSESS EE AND BENEFIT ALL THE UNITS, WHICH IS ALSO TRUE TO SOME EXTENT. 10. THEREFORE, ON THE TOTALITY OF FACTS AND CIRCUMS TANCE, WE FIND THAT THE MATTER REQUIRES RE-APPRECIATION AT THE LEVEL OF LD. CIT(A). HENCE, WE DEEM IT FIT TO RESTORE THE SAME TO LD.CIT(A) TO APP RECIATE THE VARIOUS ASPECTS OF THE ISSUE INCLUDING NATURE OF TRANSACTIO N BETWEEN ROORKEE UNIT AND THE SOLE BUYER VIS--VIS TRANSACTIONS BETWEEN SOLE BUYER AND ITA NO 6233 & 6234/MUM/2014 LOVABLE LINGERIE LIMITED ASSESSMENT YEARS- 2010-11 & 2011-12 6 NON-ELIGIBLE UNITS, IF ANY AND DECIDE THE SAME AS PER LAW AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . RESULTANTLY, THIS GROUND OF ASSESSEES APPEAL STANDS ALLOWED FOR STAT ISTICAL PURPOSES. 11. SIMILAR ARE THE FACTS IN ITA NO.6234/MUM/2014 F OR AY 2011-12, WHERE THE PROFIT OF THE ROORKEE UNIT HAS BEEN REDUCED TO THE EXTENT OF RS.65,54,796/- BY ALLOCATION / APPORTIONMENT OF EXP ENSES. SINCE, THE FACTS ARE QUITE SIMILAR EXCEPT FOR VARIATIONS IN FI GURES ETC., WE CONFIRM THE ALLOCATION OF MANAGERIAL REMUNERATION AND AUDIT FEES OF RS.2,53,124/- BUT RESTORE THE ALLOCATION OF ADVERTISEMENT EXPENSE S TO THE FILE OF LD. CIT(A) FOR RE-APPRECIATION WITH SIMILAR DIRECTIONS. RESULTANTLY, THIS GROUND OF ASSESSEES APPEAL STAND ALLOWED FOR STATISTICAL PURPOSES. 12. THE ASSESSEE HAS CONTESTED ANOTHER ADDITION OF RS.23,76,033/- U/S 14A IN THIS YEAR. IT WAS NOTED THAT THE ASSESSEE EA RNED EXEMPT DIVIDEND INCOME OF RS.5,10,524/- AND CONSEQUENTLY, LD. AO CO MPUTED DISALLOWANCE AS PER RULE 8D AT RS.48.76 LACS WHICH WAS SUBSEQUENTLY REDUCED U/S 154 TO RS.23.76 LACS AS PER RULE 8D(2)( III). THE SAME, UPON CONFIRMATION BY LD. CIT(A), HAS FURTHER BEEN C ONTESTED BEFORE US. 13. THE LD. AR DREW OUR ATTENTION TO THE FACT THAT THE ASSESSEE HAS SUFFERED DISALLOWANCE OF RS.23.76 LACS AGAINST EXEM PT INCOME OF RS.5.10 LACS, WHICH WAS NOT, AT ALL, JUSTIFIED. THE LD. DR SUPPORTED THE ADDITIONS SINCE THE COMPUTATION HAD TO BE WORKED OU T ONLY AS PER THE PRESCRIBED FORMULA PROVIDED IN RULE 8D(2)(III). AFT ER HEARING, WE FIND THAT THIS ISSUE SQUARELY STOOD IN ASSESSEES FAVOR BY TH E JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN JOINT INVESTMENTS PRIVATE LTD. VS CIT [ITA NO. 117/2015 DATED 25/02/2015] WHERE THE HONBLE COURT HAS OBSERVED THAT THE DISALLOWANCE CANNOT EXCEED THE EXEMPT INCO ME. RESPECTFULLY ITA NO 6233 & 6234/MUM/2014 LOVABLE LINGERIE LIMITED ASSESSMENT YEARS- 2010-11 & 2011-12 7 FOLLOWING THE SAME, WE RESTRICT THE IMPUGNED DISALL OWANCE TO RS.5,10,524/-, BEING EXEMPT INCOME EARNED BY THE AS SESSEE. THIS GROUND OF ASSESSEES APPEAL PARTLY SUCCEEDS. RESUL TANTLY, THE ASSESSEES APPEAL STANDS PARTLY ALLOWED. 14. IN NUTSHELL, THE ASSESSEES APPEAL ITA NO.6233/ MUM/2014 FOR AY 2010-11 STANDS PARTLY ALLOWED FOR STATISTICAL PURPO SES WHEREAS ITA NO. 6234/MUM/2014 FOR AY 2011-12 STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH SEPTEMBER, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 06 . 09.2017 SR.PS:- THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. , ( ) / THE CIT(A) 4. , / CIT CONCERNED 5. #&. , . , / DR, ITAT, MUMBAI 6. / / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI