M/S. TECHNOCRAFT INDUSTRIES (INDIA) LTD, MUMBAI V. THE ADDL CIT RG 8(3), MUMBAI

ITA 6376/MUM/2007

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8245 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2004-2005
• Appeal Filed On: 17-10-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Wholly owned subsidiary
• Section: 80HHC; 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI R S SYAL, AM & SHRI VIJAY PAL RAO, JM ITA NO. 6376/MUM/2007 (ASST YEAR 2004-05 ) TECHNOCRAFT INDUSTRIES (I)LTD A-25 MIDC MAROL INDL. AREA, ST NO.3 OPP ESIC HOSPITAL, ANDHERI (E) - MUMBAI 93 VS THE ADDL COMMR OF INCOME TAX RANGE 8(3), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAACT2724P ASSESSEE BY SHRI PANKAJ R TOPRANI REVENUE BY SHRI S DSRIVASTAVA DT.OF HEARING 14 TH NOV 2012 DT OF PRONOUNCEMENT 16 TH NOV 2012 PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 11.8.2007 OF THE CIT(A) FOR THE AY 2004-05. THOUGH, THIS APPEAL OF THE ASSESSEE WAS DISPOSED OFF BY THIS TRIBUNAL VIDE ORDER DATED 8.4.2011; HOWEVER , SOME OF THE ISSUES RAISED IN GROUND NOS 3 TO 7 WERE LEFT UN-ADJUDICATED; THEREFO RE, THE ASSESSEE FILED A MISCELLANEOUS APPLICATION NO.319/MUM/2011 WHICH WAS FINALLY DECIDED BY THIS TRIBUNAL VIDE ORDER DATED 21.9.2012 WHEREBY THE ORD ER OF THIS TRIBUNAL DATGED 8.4.2011 HAS BEEN RECALLED FOR LIMITED PURPOSES TO DECIDE THE GROUND NOS. 3 TO 7. CONSEQUENTLY, THE APPEAL OF THE ASSESSEE IS LISTED FOR HEARING AND PLACED BEFORE US FOR THE LIMITED PURPOSES FOR DECIDING THE GROUNDS N O.3 TO 7 WHICH ARE REPRODUCED AS UNDER: 3. THE LEARNED CIT (A) FURTHER ERRED IN DISALLOWING DED UCTION U/S 8OHHC ON DEPB LICENCE SALE (EXPORT INCENTIVE) OF RS. 1264900 63/-. ITA NO 6376/M/07 TECHNOCRAFT INDUSTRIES (I)LTD . 2 THE LEARNED CIT(A) FURTHER ERRED IN NOT APPRECIATING T HE FACT THAT IF AT ALL ANY EXCLUSION FROM DEPB SALE AMOUNT IS CALLED FOR WHILE CALCULATING 8OHHC DEDUCTION IT CAN BE ONLY THE INCOME FROM DEPB LICEN CE SALE I.E. THE DIFFERENCE BETWEEN THE FACE VALUE AND SALE VALUE OF DEPB LICENCE. 4 THE LEARNED CIT (A) ERRED IN SUSTAINING THE ADDITI ON OF RS. 4894385/- TO THE CLOSING STOCK ON ACCOUNT OF MODVAT CREDIT UNDER SECT ION 145A OF THE ACT BY REJECTING THE APPELLANTS SUBMISSION THAT THE CLAIM UNDER MODVAT OF RS. 89191023/- WHICH IS REDUCED BY APPELLANT FROM THE CO ST OF THE RAW MATERIAL CONSUMED INCLUDES THIS CVD AMOUNT OF RS.4894385/- A ND ADDITION OF THE SAME AGAIN TO THE INCOME AMOUNTS TO DOUBLE TAXATION . 5. THE LEARNED CIT(A) ERRED IN SUSTAINING THE ADDIT ION OF RS. 13 10797/- MADE BY THE ASSESSING OFFICER BEING COST OF FREE POWER SUPP LY GIVEN TO APPELLANTS 100% SUBSIDIARY COMPANY FOR SOME TIME WITHOUT APPREC IATING THE FACT THAT FREE POWER WAS GIVEN FOR ONLY A LIMITED PERIOD IN THE INITIAL YEAR OF THE SUBSIDIARYS PRODUCTION ON THE GROUND OF COMMERCIAL E XPEDIENCY. 6. THE LEARNED CIT(A) FURTHER ERRED IN SUSTAINING AN ADDITION OF RS.925000/- OUT OF THE TOTAL DISALLOWANCE OF RS.3528128/- MADE U/S 14A BY THE ASSESSING OFFICER, CONSIDERING THE SAME AS EXPENSES INCURRED FOR EARNING EXEMPT DIVIDEND INCOME, WHEN NO EXPENSES WERE INCURRED. 7. THE LEARNED CIT (A) FURTHER ERRED IN CONFIRMING TH E ACTION OF THE ASSESSING OFFICER OF REDUCING GROSS INTEREST RECEIVED OF RS. 12671 663/- FROM BUSINESS INCOME AND ASSESSING THE SAME AS INCOME FROM OTHER S OURCES. 2 GROUND NO.3 IS REGARDING DEDUCTION U/S 80HHC ON DEPB. 3 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD.. THIS ISSUE IS NOW SETTLED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS V. COMMISSIONER OF INCOME- TAX REPORTED IN 342 ITR 49. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO A LLOW THE CLAIM OF THE ASSESSEE IN TERMS OF THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA). 4 GROUND NO. 4 IS REGARDING ADDITION TO THE CLOSING STOCK ON ACCOUNT OF MODVAT CREDIT U/S 145A. 4.1 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD AR OF THE ASSESSEE HAS POINTED OUT THAT AN ITA NO 6376/M/07 TECHNOCRAFT INDUSTRIES (I)LTD . 3 IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2003-04 IN ITA NO.4792/MUM/2006 VIDE ORDER DATED 2 9.10.2010. 4.2 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THIS ISSUE REQUIRED TO BE RECONSIDERED BY THE ASSESSING OFFICER IN THE LIGHT OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MA HALAXMI GLASS WORKS P LTD.,318 ITR 116(BOM). 5 AT THE OUTSET, WE NOTE THAT THE TRIBUNAL IN ASSES SES OWN CASE FOR THE AY 2003- 04 HAS CONSIDERED AND DECIDED THIS ISSUE IN PARAS 4 & 5 AS UNDER: 4. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS BEFORE US THAT THE ISSUE FOR OUR ADJUDICATION IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF A CO- ORDINATE BENCH OF THIS TRIBUNAL, IN ASSESSEA OWN CA SE, DECIDED IN ITA NO.5787/MUM./2004, FOR ASSESSMENT YEAR 2001-02, VIDE ORDER DATED 13TH JUNE 2007. WE WERE, THUS, URGED TO DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAN D, RATHER DUTIFULLY RELIES UPON THE ORDERS OF THE AUTHORITIES BELOW, AND DOES NOT DISPUTE THE FACT THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION CITED BY THE LEARNED COUNSEL. 5. IN VIEW OF THE ABOVE POSITION, AND RESPECTFULLY F OLLOWING THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 20 00-01, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE; TO THAT EXTENT MODIFY TH E ORDER OF THE ID. CIT(A) AND DELETE THE ADDITION OF RS 2,24,26,952/- TO THE CLOSING STOCK ON ACCOUNT OF MODVAT CREDIT UNDER SECTION 145A CONFIRMED BY THE CIT (A). THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 5.1 HOWEVER, IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THEE CASE OF MAHALAXMI GLASS WORKS P LTD (SUPRA), I F THE ADDITION IS MADE IN THE CLOSING STOCK OF MODVAT, THEN THE CORRESPONDING ADD ITION OF OPENING MODVAT HAS TO BE MADE IN THE OPENING STOCK ALSO. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO MAKE THE CORRESPONDING ADJUSTMENT N THE OPENING STO CK BY THE OPENING BALANCE OF MODVAT CREDIT, IF ANY. ITA NO 6376/M/07 TECHNOCRAFT INDUSTRIES (I)LTD . 4 6 GROUND NO.5 IS REGARDING ADDITION ON ACCOUNT OF C OST OF FREE POWER SUPPLY GIVEN TO THE SUBSIDIARY. 6.1 DURING THE COURSE OF ASSESSMENT PROCEEDINS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS PROVIDED POWER SUPPLY TO ONE OF IT S ASSOCIATE CONCERNS, M/S DANUBE FASHIONS LTD WITHOUT CHARGING ANY MONEY. T HE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF THE POWER SUPPLY MADE TO ITS SUBSIDIARY. THE ASSESSEE INFORMED THAT NO SEPARATE ACCOUNTS WERE MAINTAINED IN RESPEC T OF THE SUPPLY OF POWER TO ITS SUBSIDIARY. IT WAS CONTENDED THAT THE ASSESSEE IS AUTHORISED TO GIVE POWER TO ITS 100% SUBSIDIARY COMPANY AS PER THE RESOLUTION O F THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY AND THEREFORE, THE ASSESSEE IS NOT GIVING POWER SUPPLY TO ANY OTHER PARTY FROM ITS POWER PLANT; BUT TO ITS OWN 1 00% SUBSIDIARY, WHICH IS ALLOWABLE EXPENDITURE. THE ASSESSING OFFICER WORKED OUT THE COST OF THE POWER SUPPLY TO THE SUBSIDIARY ON THE BASIS OF THE PRODUCTION AND ACCOR DINGLY, A SUM OF ` 13,10,797/- WAS DISALLOWED OUT OF THE FUEL AND POWER EXPENSES FOR PROVIDING FREE POWER SUPPLY TO ITS SUBSIDIARY. 6.2 ON APPEAL, THE CIT(A) HAS ALSO CONFIRMED THE D ISALLOWANCE MADE BY THE ASSESSING OFFICER. 7 BEFORE US, THE LD AR HAS SUBMITTED THAT IN THE CA SE OF THE SUBSIDIARY COMPANY OF THE ASSESSEE M/S DANUBE FASHIONS LTD THE ASSESS ING OFFICER REJECTED THE BOOKS OF ACCOUNT BY RESORTING TO THE PROVISIONS OF SECTION 145(3) AND ACCORDINGLY ESTIMATED THE INCOME OF THE SUBSIDIARY AT 20% OF THE SALE TUR NOVER. THE MATTER WAS CARRIED TO THE TRIBUNAL AND THIS TRIBUNAL VIDE ITS ORDER DATED 19.10.2009 IN ITA NO.6651/MUM/2007 REMANDED THE ISSUE TO THE RECORD O F THE ASSESSING OFFICER. ACCORDINGLY, THE LD AR HAS SUBMITTED THAT THIS ISSU E IN THE ASSESSEES APPEAL IS ALSO ITA NO 6376/M/07 TECHNOCRAFT INDUSTRIES (I)LTD . 5 REQUIRED TO BE DECIDED AS PER THE OUTCOME OF THE IS SUE IN THE CASE OF THE SUBSIDIARY OF THE ASSESSEE, SET ASIDE TO THE ASSESSING OFFICER BY THE TRIBUNAL. HENCE, THE LD AR HAS SUBMITTED THAT THE ISSUE IN ASSESSES APPEAL MA Y ALSO BE REMANDED TO THE ASSESSING OFFICER TO DECIDE THE SAME AS PER THE OUT COME IN THE CASE OF THE SUBSIDIARY OF THE ASSESSEE. 7.1 ON THE OTHER HAND, THE LD DR HAS RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. 8 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE TRIBUNAL, IN THE CASE OF THE SUBSIDIAR Y OF THE ASSESSEE HAS CONSIDERED AND DECIDED THE ISSUE IN PARA 7 AS UNDER: 7 WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED MATERI AL ON RECORD. THE ASSESSEE COMPANY WAS SET UP IN A VILLAGE DHANIWAL, MURBAD ROAD, DIST. THANE, WHICH IS ADJACENT TO THE PRODUCTION UNIT OF YARN DIVISION OF ASSESSEES HOLDING COMPANY VIZ., TILL THE CASE O THE ASSESSEE WAS THAT THE ASSESSEE HAD PURCHASED CERTAIN MACHINERIES OF 8.62 CRORES OUT OF WHI CH RS.2,91,85,252/- WAS NOT PUT TO USE ON OR BEFORE 31-3-2004, ACCORDINGL Y DEPRECIATION ON THE UNUSED ASSETS WAS NOT CLAIMED ASSESSEE FOR THE AS SESSMENT YEAR 200405. THE ASSESSEE HAD, VIDE ITS SUBMISSIONS DATED 17-6-2006 HAD CONFIRMED THAT OUT OF THE TOTAL MACHINERY PURCHASED DURING THE YEAR, MACH INERIES WORTH ` .5,68,12,721/-- WERE DULY INSTALLED AND PUT TO USE D URING SHE YEAR ITSELF AND ACCORDINGLY DEPRECIATION OF RS.71,01,590/- WAS CLAIME D ON SUCH MACHINERIES. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSE SSEE ON THE GROUND THAT NO DOCUMENTARY EVIDENCE WAS FURNISHED BY THE ASSESSE E TO PROVE THAT POWER WAS SUPPLIED TO ASSESSEE BY THE HOLDING COMPA NY EXCEPT THE - RESOLUTION PASSED BY THE DIRECTORS. EVEN BEFORE THE CI T(APPEALS) NO MATERIAL WAS PRODUCED THAT THE HOLDING COMPANY HAD SUPPLIED POWER TO THE ASSESSEE. THEREFORE, THE CIT(APPEALS) UPHELD THE ORDER OF THE ASSESSING OFFICER. WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE, THE MATTER SHOULD GO BACK TO THE ASSESSING OFFICER TO EXAMINE THE ISSUE AFRESH. THEREFORE, THE ORDER OF THE CIT(APPEAL) ON THIS ISSUE IS SET ASIDE AND T HE MATTER REMITTED TO THE PIE OF THE ASSESSING OFFICER. THE ASSESSEE MAY FURNISH NE CESSARY DETAILS WITH REGARD TO THE AMOUNT OF POWER GENERATED, CONSUMED AND SUPPLIED BY THE HOLDING COMPANY TILL, TO THE ASSESSEE. THE ASSESSIN G OFFICER IS DIRECTED TO PASS FRESH ORDER AFTER AFFORDING REASONABLE OPPORTUNI TY OF HEARING TO THE ASSESSEE. ITA NO 6376/M/07 TECHNOCRAFT INDUSTRIES (I)LTD . 6 8.1 AS EVIDENT FROM THE ORDER OF THIS TRIBUNAL IN T HE CASE OF THE SUBSIDIARY OF THE ASSESSEE THE CLAIM OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER INTER-ALIA ON THE GROUND THAT NO DOCUMENTARY EVIDENCE WAS FURNISH ED BY THE ASSESSEE TO PROVE THAT THE POWER WAS SUPPLIED BY HOLDING COMPANY; THE REFORE, THE ISSUE OF POWER SUPPLY WAS ALSO ONE OF THE ASPECT IN THE CASE OF TH E SUBSIDIARY COMPANY. SINCE THE ISSUE HAS BEEN SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER AND THE ORDER IS YET TO BE PASSED BY THE ASSESSING OFFICER IN THE CASE OF THE SUBSIDIARY COMPANY; THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE INTEREST OF JUSTICE, WE SET ASIDE THIS ISSUE TO THE RECORD O F THE ASSESSING OFFICER TO DECIDE THE SAME AFRESH AFTER CONSIDERING THE ISSUE AS INVOLVED IN THE CASE OF THE SUBSIDIARY COMPANY. 8.2 SINCE THE QUANTUM OF DISALLOWANCE HAS TO BE THE SAME IN BOTH ASSESSEE AS WELL S SUBSIDIARY COMPANY AND THEREFORE, THE FINDIN G ON THIS ISSUE IN EITHER OF THE CASE WOULD HAVE A BEARING ON THE OTHER CASE. THE LD AR HAS UNDERTAKEN TO INTIMATE THE ASSESSING OFFICER THE FINDING OF THE EITHER OF THE ASSESSING OFFICER DECIDE THE ISSUE FIRST TO THE OTHER ASSESSING OFFICER. 9 GROUND NO.6 IS REGARDING DISALLOWANCE U/S 14A. 10 WE HAVE HEARD THE LD AR AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS ISSUE IS REQUIRED TO BE RECONSIDERED IN THE LIGHT OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX REPORTED IN 328 ITR 81. ACCORDINGLY, THIS ISSUE IS SET ASIDE TO THE RECORDS OF THE ASSESSING OFFICER TO DECIDE THE SAME AFRESH IN LIGHT OF THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD.(SUPRA). ITA NO 6376/M/07 TECHNOCRAFT INDUSTRIES (I)LTD . 7 11 GROUND NO.7 IS REGARDING REDUCING GROSS INTEREST FROM BUSINESS INCOME AND ASSESSING HE SAME AS INCOME FROM OTHER SOURCES. 12 AT THE TIME OF HEARING, THE LD AR OF THE ASSESSE E HAS STATED THAT THE ASSESSEE DOES NOT PRESS THE GROUND NO.7 AND THE SAME BE DISM ISSED AS NOT PRESSED. THE LD DR HAS NO OBJECTION, IF THE GROUND NO.7 IS DISMISSE D AS NOT PRESSED. ACCORDINGLY, WE DISMISS THE GROUND NO.7 BEING NOT PRESSED. 13 IN THE RESULT, THE GROUND NOS 3 TO 6 ARE DISPO SED OFF IN THE TERMS AS STATED ABOVE AND THE GROUND NO. 7 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH , DAY OF NOV 2012. SD/- SD/- ( R S SYAL ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 16 TH , NOV 2012 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI