HINDUSTAN ESSENTIAL OIL CO., MUMBAI V. DCIT 14(2), MUMBAI

ITA 6389/MUM/2013

• Counselvise Citation: 638919914 RSA 2013
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 22-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 30-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR DR
• Keywords: Notional interest
• Section: 10B

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NOS.6389 & 6390/MUM/2013 ASSESSMENT YEARS: 2005-06 & 2008-09 M/S HINDUSTAN ESSENTIAL OIL CO. 206, ANAND BHAVAN, 17, BABU GENU ROAD, PRINCESS STREET, MUMBAI-400002 / VS. DCIT-14(2), MUMBAI ( !' # /ASSESSEE) ( $ / REVENUE) P.A. NO. AAA FH2700G !' # / ASSESSEE BY SHRI NARESH JAIN $ / REVENUE BY SHRI JEETENDRA KUMAR-DR % $& ' # ( / DATE OF HEARING : 22/06/2015 ' # ( / DATE OF ORDER: 24/07/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) BOTH THESE APPEALS ARE BY THE ASSESSEE FOR ASSESSM ENT YEAR 2005-06 AND 2008-09 CHALLENGING THE IMPUGNED ORDERS DATED 05/08/2013 AND 13/08/2013 RESPECTIVELY OF M/S HINDUSTAN ESSENTIAL OIL CO. ITA NOS.6389 & 6390/MUM/2013 2 THE LD. FIRST APPELLATE AUTHORITY, MUMBAI, VALIDATI NG THE REOPENING PROCEEDINGS FOR ALLOCATION OF EXPENDITURE BETWEEN HEAD OFFICE AND NILAKOTTAI UNIT, A UNIT ELI GIBLE FOR DEDUCTION U/S 10B OF THE ACT, THROUGH GROUND NO.1 I N THE RESPECTIVE APPEAL. 2. DURING HEARING OF THESE APPEALS, SHRI NARESH JAIN, LD. COUNSEL FOR THE ASSESSEE, CONTENDED THAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION OF THE TR IBUNAL IN THE CASE OF ASSESSEE ITSELF (ITA NO.873 AND 2266/MUM/2013) ORDER DATED 25/11/2014. THE ASSESSE E ALSO FURNISHED THE COPY OF THE AFORESAID ORDER. TH IS FACTUAL MATRIX WAS NOT CONTROVERTED BY SHRI JEETENDRA KUMAR , LD. DR. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION FROM THE AFORESAID ORDER OF THE TRIBUNAL DATED 25/1 1/2014 FOR PERUSAL AND READY REFERENCE:- 2.2. FIRST WE SHALL TAKE UP THE APPEAL OF THE REVENUE, WHEREIN, THE FIRST GROUND PERTAINS TO ALLOWING DEDUCTION U/S 10B OF THE INCOME-TAX ACT, 1961 (HEREINAFTER THE ACT) HOLDING THAT THE BUSINES S ACTIVITY CARRIED OUT BY THE ASSESSEE IS A MANUFACTURING ACTIVITY, WITHOUT CONSIDERING THE APPLICABILITY OF SECTION 10B(7) R.W.S. 80IA(10) OF THE ACT. THE LD. DR SHREE JEETENDRA KUMAR ADVANCED HIS ARGUMENTS WHICH IS IDENTICAL TO THE GROUND RAIS ED M/S HINDUSTAN ESSENTIAL OIL CO. ITA NOS.6389 & 6390/MUM/2013 3 BY SUBMITTING THAT MIXING OF PERFUMERY COMPOUNDS AT BEST CAN BE SAID TO BE A PROCESSING ACTIVITY A ND CANNOT BE SAID TO BE MANUFACTURING, THUS, THE ASSESSMENT ORDER WAS SUPPORTED. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SHREE NARESH JAIN DEFENDED THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BY CONTENDING THAT THE ISSUE IS SETTLED BY THE DECISION OF THE TRIBUNAL AS WELL AS FROM THE HONBLE JURISDICTIONAL HIGH COURT AS IN THE PRECEDING YEAR THE CLAIMED EXEMPTION/DEDUCTION WAS ALLOWED IN FAVOUR OF THE ASSESSEE. 2.3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS IN THE BUSI NESS OF PRODUCTION OF PERFUMERIES COMPOUNDS. AS PER THE REVENUE, THE ASSESSEE IS MERELY MIXING CERTAIN COMPOUNDS; THEREFORE, THERE IS NO MANUFACTURING AS SUCH. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THERE WAS NO SIGNIFICANT SPENDING AS COMPARED TO SALES AS THE TOTAL MANUFACTURING EXPENSES WERE TO THE TUNE OF RS.2,66,913/- (RS.55,270/- ON GAS FOR GC. MAS, RS.54,664 ON POWER AND FUEL, RS.4,788/- ON GAS AND UTILITIES AND RS.1,52,191/- ON ELECTRICI TY) AGAINST THE SALE OF RS.5,83,65,060/-. IT WAS FURTH ER NOTICED THAT THE RATIO OF MANUFACTURING EXPENSES IN COMPARISON TO SALE IS MERELY 0.45% THUS MERELY MIXING IS NOT MANUFACTURING. ON APPEAL, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING THE DECISION OF THE TRIBUNAL/HONBLE HIGH COURT DECIDED M/S HINDUSTAN ESSENTIAL OIL CO. ITA NOS.6389 & 6390/MUM/2013 4 IN FAVOUR OF THE ASSESSEE AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL. WE ARE OF THE VI EW THAT THE WORD INDUSTRY HAS A WIDE IMPORT, WHERE THERE IS A SYSTEMATIC ACTIVITY, ORGANIZED BY COOPERATION BETWEEN EMPLOYER AND EMPLOYEE (THE DIRECT AND SUBSTANTIAL ELEMENT IS COMMERCIAL), FOR THE PRODUCTION AND/OR DISTRIBUTION OF GOODS AND SERVICE S CALCULATED TO SATISFY HUMAN WANT AND WISHES (NOT SPIRITUAL OR RELIGIOUS BUT INCLUSIVE OF MATERIAL TH INGS OR SERVICES GEARED TO CELESTIAL BLISS), PRIMA FACIE TH ERE IS AN INDUSTRY IN THAT ENTERPRISE. THE TRUE FOCUS I S FUNCTIONAL AND THE DECISIVE TEST THE NATURE OF ACTI VITY. ADMITTEDLY MANUFACTURING AND PROCESSING ARE NOT CLEARLY DEMARCATED FIELDS. THE TEST OF MANUFACTURI NG LIES IN THE ANSWER TO THE QUESTION WHETHER WHAT IS PROCESSED OR PRODUCED AS THE END PRODUCT IS COMMERCIALLY KNOWN DIFFERENTLY FROM THE RAW MATERIA L OUT OF WHICH THE END PRODUCT IS PRODUCED. IN THE C ASE OF THE ASSESSEE VARIOUS ITEMS ARE MIXED IN A SPECIF IED QUANTITY WITH THE HELP OF MAN POWER AND MACHINE AND THE END PRODUCT IS COMMERCIALLY KNOWN DIFFERENTLY, THEREFORE, IT CAN BE SAID THAT THE ASS ESSEE IS MANUFACTURING UNIT. WITHOUT ADVERTING FURTHER SINCE THE HONBLE HIGH COURT HAS ALREADY UPHELD THE ORDER OF THE TRIBUNAL HOLDING THAT THE ACTIVITY CAR RIED OUT BY THE ASSESSEE AMOUNTS TO MANUFACTURING FOR ASSESSMENT YEAR 2002-03 AND NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE BY THE REVENUE, THEREFORE , RESPECTFULLY FOLLOWING THE DECISION FROM THE HONBL E JURISDICTIONAL HIGH COURT, THAT TOO IN THE CASE OF ASSESSEE (ITA NO. 348/2011) ORDER DATED M/S HINDUSTAN ESSENTIAL OIL CO. ITA NOS.6389 & 6390/MUM/2013 5 13/01/2012, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS), CONSEQUENTLY, THIS GROUND OF THE REVENUE IS WITHOUT ANY MERIT, THEREFORE, DISMISSED. IN THE AFORESAID ORDER, WHILE DELIBERATING UPON THE ISSUE, THE TRIBUNAL HAS CONSIDERED THE FACTS AND AF TER FOLLOWING THE DECISION FROM HONBLE JURISDICTIONAL HIGH COURT IN ITA NO.348/2011, ORDER DATED 13/01/2012, THAT TO O IN THE CASE OF ASSESSEE, DECIDED IN FAVOUR OF THE ASSE SSEE ITSELF. IN VIEW OF THIS UNCONTROVERTED POSITION, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 3. THE NEXT GROUND PERTAINS TO NOTIONAL COST OF CAP ITAL AT THE RATE OF 12% AND ACCORDINGLY ATTRIBUTING ADDITIO NAL INTEREST OF RS.39,02,947/- TO NILAKOTTAI UNIT AND T HEREBY REDUCING THE ELIGIBLE PROFIT OF NILAKOTTAI UNIT AS WELL AS DEDUCTION U/S 10B FROM RS.49,72,486/- TO RS.19,12, 285/-. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT ASSESSING OFFICER HAS CALCULATED NOTIONAL INTEREST PAYABLE AT THE RATE OF 12% PER ANNUM ON PARTNERS CAPITAL CONTRIBUTION, WHEREAS, NO SUCH INTEREST IS PAYABLE TO THE PARTNERS AS PER THE PARTNERSHIP DEED. IT WAS REITE RATED THAT ASSESSEE STAND IS COVERED BY THE DECISION OF HONBL E ITAT, CHANDIGARH BENCH IN ITO VS GILVERT ISPAT ITA NO.345/CHD/2011 AND ALSO BY DECISIONS OF HONBLE IT AT ADHMEDABAD BENCH IN KAIZEN SWITCH GEAR PRODUCTS LTD . VS ACIT IN ITA NO.227/AHD/2014. THE ASSESSEE ALSO QUO TED ITO VS TWINA POLYPLAST UNIT ITA NO.2776 & 3139/AHD/ 2010 AND ALSO CIT VS MUNDRA PACAKAGING INDUSTRIES IN ITA M/S HINDUSTAN ESSENTIAL OIL CO. ITA NOS.6389 & 6390/MUM/2013 6 NO.615 AND 617 OF 2006 OF HONBLE GUJARAT HIGH COUR T. HE DISTINGUISHED THE DECISION IN ACIT VS MERIDIAN IMPE X (TS- 348-ITAT-2013 RAJKOT) RELIED UPON BY AUTHORITIES BE LOW HIGHLIGHTING THAT IT WAS A CASE WHERE PARTNERSHIP D EED STIPULATED FOR PAYMENT OF INTEREST AND REMUNERATION TO PARTNERS, WHICH WAS NOT PROVIDED IN THE BOOKS OF AC COUNTS LEADING TO INCREASE IN PROFITS, WHICH WERE EXEMPT U /S 10B. HE STATED THAT THE INSTANT ASSESSEE HAS NOT PROVIDE D FOR ANY INTEREST TO PARTNERS ON CAPITAL CONTRIBUTED BY THEM AND HENCE THERE WAS NO SUPPRESSION OF EXEMPT PROFIT U/S 10B OF THE INCOME TAX ACT. THE LD. DR RELIED UPON THE ORDE RS OF THE AUTHORITIES BELOW AND STATED THAT ASSESSEE HAS BY NOT PROVIDING FOR INTEREST ON PARTNERS CAPITAL HAS LED TO ENHANCEMENT OF EXEMPT PROFIT WHICH LED TO UNDER ASSESSMENT. HE RELIED UPON ACIT VS MERIDIAN IMPEX(S UPRA) TO SUPPORT HIS CONTENTION. WE HAVE CAREFULLY CONSI DERED THE MATERIAL ON RECORD AND CONTENTIONS OF RIVAL PARTIES AND OBSERVED THAT IN THE INSTANT CASE, THERE IS NO MATE RIAL ON RECORD TO HOLD THAT ASSESSEE HAS NOT PROVIDED FOR CONTRACTUAL INTEREST AS PER PARTNERSHIP DEED. ALREA DY BY THE ABOVE STATED JUDGMENTS, IT HAS BEEN HELD THAT NOTIO NAL INTEREST CANNOT BE CHARGED TO REDUCE THE PROFIT. RE SPECTFULLY FOLLOWING THE DECISION OF CHANDIGARGH BENCH OF ITA T IN ITO VS GILVERT ISPAT (SUPRA), THEREFORE, THIS GROUND IS IN FAVOUR OF THE ASSESSES. 4. SO FAR AS, IDENTICAL GROUND RAISED IN ITA NO.6390/MUM/2010 (A.Y. 2008-09) IS CONCERNED, SINCE , WE HAVE DEALT WITH THIS GROUND WHILE DEALING WITH THE IDENTICAL M/S HINDUSTAN ESSENTIAL OIL CO. ITA NOS.6389 & 6390/MUM/2013 7 GROUND IN ITA NO.6389/MUM/2010, THEREFORE, THE SAME REASONING/ORDER WILL BE APPLICABLE TO THIS GROUND A LSO, RESULTING INTO ALLOWING THIS GROUND IN FAVOUR OF TH E ASSESSEE. FINALLY, BOTH THE APPEALS ARE DECIDED IN FAVOUR OF THE ASSESSEE. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT, IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 22/06/2015. SD/ - (RAJENDRA) SD/ - (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER % & MUMBAI; * DATED : 24/07/2015 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. ,-./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. 2 2 % 3# ( ,- ) / THE CIT, MUMBAI. 4. 2 2 % 3# / CIT(A)- , MUMBAI 5. 5$6 0# , 2 ,-( , 7 , % & / DR, ITAT, MUMBAI 6. 8! 9& / GUARD FILE. / BY ORDER, 15-# 0# //TRUE COPY// / (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI