Nahar Spinning Mills Ltd., Ludhiana V. JCIT, Ludhiana

ITA 64/CHANDI/2011

• Counselvise Citation: 6421514 RSA 2011
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 20-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: NAVDEEP SHARMA
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.64 /CHD/2011 (ASSESSMENT YEAR: 2007-08) NAHAR SPINNING MILLS LTD., VS. THE J.C.I.T., 373, INDUSTRIAL AREA-A, RANGE VII, LUDHIANA. LUDHIANA. PAN: AAACN5710D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NAVDEEP SHARMA RESPONDENT BY : SHRI N.K.SAINI, DR DATE OF HEARING : 19.07.2012 DATE OF PRONOUNCEMENT : 09.08.2012 O R D E R PER SUSHMA CHOWLA, J.M. : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA D ATED 01.11.2010 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORD ER PASSED U/S 143(3) OF INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE WORTHY CIT (A) ERRED IN LAW AND ON FACTS IN NOT ALLOWING THE EXPENSES AMOUNTING TO RS,1900/- ON ACC OUNT OF SUBSCRIPTION TO CLUB, WHICH THOUGH RELATES TO PREVIOUS YEAR BUT CRYSTALLIZED AND PAID DURING THE YEAR. DIRECTIONS M AY BE GIVEN TO ALLOW THE SAME AS THIS WAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. 2. THAT THE WORTHY CIT (A) ERRED IN LAW AND ON FACTS IN SUS TAINING THE ACTION OF ASSESSING OFFICER OF REDUCING THE CLAIM O F DEDUCTION U/S 10-B OF ITS 100% EOU TO RS.83170843/- OF ITS UNITS AT JA LALPUR AND LALRU BY ASSUMING THE JURISDICTION TO REALLOCATE THE EXPENSE S AND FURTHER REDUCING PROPORTIONATE EXPENSES OF MANAGING DIRECTOR'S REMUN ERATION FROM THE PROFITS OF THE UNDERTAKINGS WHICH IS NOT AUTHORIZED BY THE PROVISIONS OF SECTION 10B OF THE ACT. DIRECTIONS MAY BE GIVEN TO ALLOW DEDUCTIONS AS CLAIMED BY THE APPELLANT IN ITS RETURN. 2 3. THAT THE WORTHY CIT (A) ERRED IN LAW AND ON FACTS I N NOT DELETING THE INTEREST CHARGED U/S 234-C AT RS.5901046/- AS THE R ELEVANT INCOME OF INDUSTRIAL UNITS OF M/S NAHAR EXPORTS LTD ACCRUED/ AROSE ONLY ON 21.12.2006 I.E. DATE OF HIGH COURT ORDER PASSED BY HON'BLE PUNJAB & HARYANA HIGH COURT IN AMALGAMATION/ DEMERGER SCHEME . DIRECTIONS MAY BE GIVEN TO REDUCE INTEREST AT RS.63 574/- ONLY AS CALCULATED BY THE APPELLANT IN ITS RETURN OR ANY OT HER FIGURE AS DEEM FIT AND JUSTIFIED. 3. GROUND NO.1 RAISED BY THE ASSESSEE IS NOT PRESS ED AND THE SAME IS DISMISSED AS NOT PRESSED. 4. GROUND NO.3 RAISED BY THE ASSESSEE IS WITHDRAWN BY THE ASSESSEE AND THE SAME IS DISMISSED AS WITHDRAWN. 5. THE ONLY EFFECTIVE GROUND OF APPEAL RAISED BY TH E ASSESSEE IN THE PRESENT APPEAL IS GROUND NO.2 WHICH IS IN RELATION TO THE COMPUTATION OF DEDUCTION UNDER SECTION 10B OF THE ACT. THE ASSESS ING OFFICER HAD RECOMPUTED DEDUCTION UNDER SECTION 10B OF THE ACT B Y REALLOCATION OF EXPENDITURE TO THE ELIGIBLE UNITS AT JALALPUR AND L ALRU AND ASSESSEE IS IN APPEAL AGAINST THE SAME. 6. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY WAS ENGAGED IN THE MANUFACTURING AND TRADING OF DIFFERE NT KINDS OF YARN, HOSIERY GOODS AND KNITTED CLOTH. THE ASSESSEE DURI NG THE YEAR HAD NINE DIFFERENT UNITS, OUT OF WHICH IT HAD CLAIMED DEDUCT ION UNDER SECTION 10B OF THE ACT IN RESPECT OF TWO UNITS I.E. ONE UNIT NO .3 AT LALRU AND ANOTHER UNIT AT JALALPUR. IN RESPECT OF LALRU UNIT, IT WAS 5 TH YEAR OF CLAIM OF DEDUCTION AND IN RESPECT OF JALALPAUR UNIT, IT WAS 3RD YEAR OF CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT. THE ASSESS EE CLAIMED TO HAVE MAINTAINED SEPARATE BOOKS OF ACCOUNT IN RESPECT OF EACH AND EVERY UNIT. THE EXPENSES IN EACH AND EVERY UNIT WERE DEBITED ON ACTUARIAL BASIS. THE MAIN UNIT WAS GARMENT UNIT SITUATED AT LUDHIANA IN WHICH THE ASSESSEE HAD DEBITED THE MANAGING DIRECTORS REMUNE RATION OF RS.2.09 3 CRORES. THE FIRST PLEA OF THE ASSESSEE WAS THAT NO EXPENSES SHOULD BE REALLOCATED TO THE ELIGIBLE UNITS AT LALRU AND JALA LPUR. HOWEVER, WITHOUT PREJUDICE TO THE SAME THE ASSESSEE HIMSELF ADMITTED THAT THE PROPORTIONATE EXPENSES OF THE MANAGRING DIRECTORS REMUNERATION ALLOCABLE TO LALRU UNIT WAS RS.15,70,985/- AND JALA PUR UNIT WAS RS.9,78,877/-. THE ASSESSEE THOUGH STRESSED THAT N O SUCH REALLOCATION WAS MADE IN ANY OF THE EARLIER YEARS. THE ASSESSIN G OFFICER APPORTIONED THE MANAGING DIRECTORS SALARY TO LALRU UNIT AND JA LALPUR UNIT TO THE EXTENT OF RS.15,70,985/- AND RS.9,78,877/- RESPECTI VELY AND RECOMPUTED THE DEDUCTION UNDER SECTION 10B OF THE ACT. THE CI T (APPEALS) UPHELD THE ORDER OF THE ASSESSING OFFICER. 7. THE ASSESSEE IS IN APPEAL AGAINST THE RE-ALLOCAT ION AND POINTED OUT THAT NO REALLOCATION OF THE SAID EXPENDITURE BEING COMMON EXPENDITURE IS WARRANTED WHILE COMPUTING DEDUCTION UNDER SECTION 1 0B OF THE ACT. OUR ATTENTION WAS DRAWN TO SECTION 10B OF THE ACT, WHIC H REFERS TO SECTION 80IA(8) AND 80IA(10) OF THE ACT. IT WAS FURTHER POI NTED OUT BY THE LEARNED A.R. FOR THE ASSESSEE THAT BOTH THE UNITS W ERE 100% EXPORT ORIENTED UNITS AND NO GOODS WERE TRANSFERRED INTER- SE BETWEEN THE UNITS. THE LEARNED A.R. FOR THE ASSESSEE FURTHER PLACED RE LIANCE ON THE DECISION OF CHANDIGARH BENCH OF TRIBUNAL IN THE CASE OF M/S PUNJAB CON-CAST STEEL LTD., LUDHIANA VS. ACIT, CC-IV, LUDHIANA IN I TA NO.1845/CHANDI/1992 & ACIT, LUDHIANA VS. M/S PUNJAB CON-CAST STEEL LTD., LUDHIANA IN ITA NO.1893/CHANDI/1992 RELATING TO ASSESSMENT YEAR 1989-90 ORDER DATED 19.3.1993 AND ON THE DECISION OF PUNJAB & HARYANA HIGH COURT IN CIT VS. M/S PUNJAB CONCAST ST EELS LTD., ITR NO.410 OF 1995 DATE OF DECISION 2.7.2010 AND IN TH E CASE OF D.C.W. LTD. VS. ADDL.CIT IN ITA NO.5969/MUM/2008 & DCIT VS . D.C.W. LTD. IN ITA NO.5960/MUM/2008 RELATING TO ASSESSMENT YEAR 2005-06 DATE OF ORDER 29.7.2010. 8. THE LEARNED D.R. FOR THE REVENUE PLACING RELIANC E ON THE RATIO LAID 4 DOWN BY MUMBAI BENCH OF THE TRIBUNAL IN ACIT VS. AS EA BROWN BROWN BOVERI LIMITED 110 TTJ 502 (MUM) RELATING TO ASSESS MENT YEAR 2006-07 DATE OF DECISION 5.4.2007 SUBMITTED THAT A REFERENC E TO ANY OTHER PERSON IN THE PROVISIONS OF THE ACT IMPLIES OTHER UNITS OF THE ASSESSEE. THE RELIANCE OF THE LEARNED A.R. FOR THE ASSESSEE IS SA ID TO BE MISPLACED. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. UNDER THE PROVISIONS OF SECTION 10B OF THE ACT DEDUCTION OUT OF PROFITS & GAINS ARE ALLOWED TO 100% EXPORT ORIENTED UNDERTAKING FRO M THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIO D OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING FROM THE ASSESSMENT YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS OR COMPUTER SOFTWARE. THE SAID DEDUCTION IS ALLOWABLE TO AN UNDERTAKING WHICH FULFILLS THE CONDITIONS LAID OUT IN SUB-SECTI ON (2) TO SECTION 10B OF THE ACT. UNDER SUB-SECTION (4) TO SECTION 10B OF T HE ACT FOR COMPUTING THE DEDUCTION UNDER SECTION, THE PROFITS DERIVED FR OM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL THE AMOUNT WHI CH BEARS TO THE PROFITS OF BUSINESS OF THE UNDERTAKING THE SAME PRO PORTION AS THE EXPORT TURN OVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURN OVER OF THE BUSINESS CARRIED ON B Y THE UNDERTAKING. UNDER SECTION 10B(5) OF THE ACT, THE REQUIREMENT IS TO FURNISH AUDIT REPORT IN THE PRESCRIBED FORM ALONGWITH RETURN OF I NCOME. UNDER SECTION 10B (7) OF THE ACT IT IS PROVIDED THAT THE PROVISIONS OF SUB- SECTIONS (8) AND (10) OF SECTION 80IA OF THE ACT SH ALL APPLY. SECTION 80IA(8) OF THE ACT TALKS OF RECOMPUTATION OF DEDUCT ION WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSE OF ELIGIBLE BUSINE SS ARE TRANSFERED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE AND THE C ONSIDERATION FOR SUCH TRANSFER DOES NOT CORRESPOND TO THE MARKET VALUE OF THE GOODS OR THE SERVICES SO TRANSFERRED. SECTION 80IA(10) OF THE A CT REFERS TO CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON ELIGIBL E BUSINESS WITH ANY OTHER PERSON WHERE THE COURSE OF BUSINESS BETWEEN T HEN IS SO ARRANGED 5 THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS, WHICH MIGHT BE ACCEPTED TO ARISE IN SUCH ELIGIBLE BUSINESS. 10. READING THE PROVISIONS OF SECTION 80IA (8) OF T HE ACT IT IS APPARENT THAT THE SAME ARE APPLICABLE ONLY WHERE THE GOODS O R SERVICES ARE TRANSFERRED FROM THE ELIGIBLE BUSINESS TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE OR VICE VERSA. IN THE FACTS OF THE PR ESENT CASE BEFORE US, ADMITTEDLY THERE IS NO SUCH TRANSFER OF GOODS OR SE RVICE BETWEEN DIFFERENT UNITS RUN BY THE ASSESSEE. THE ASSESSING OFFICER IN THE PRESENT CASE HAS RECOMPUTED THE ELIGIBLE PROFITS UNDER SECT ION 10B OF THE ACT ON ACCOUNT OF REALLOCATION OF THE EXPENDITURE OF MANAG ING DIRECTORS REMUNERATION DEBITED TO ANOTHER UNIT OF THE ASSESSE E FIRM, BEING RELATABLE TO THE ELIGIBLE UNIT. 11. THE PROVISIONS OF SECTION 80IB(10) REFER TO THE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS AND ANY OTHER PERSON AND WHERE THE BUSINESS TRANSACTED BETWEEN THEM IS SO AR RANGED THAT IT PRODUCES MORE THAN ORDINARY PROFITS WHICH MIGHT ARI SE IN SUCH ELIGIBLE BUSINESS. THE REFERENCE IN SECTION 80IB(10) IS TO AN ASSOCIATION BETWEEN PERSON CARRYING ON ELIGIBLE BUSINESS AND ANY OTHER PERSON. WE FIND NO MERIT IN THE STAND OF THE REVENUE THAT THE REFERENC E SO MADE IS BETWEEN DIFFERENT UNITS OF THE ASSESSEE ITSELF AND BY WAY O F DEBITING COMMON EXPENDITURE TO A NON-ELIGIBLE UNIT, THE ASSESSEE BY SHOWING HIGHER PROFITS OF BUSINESS HAD CLAIMED HIGHER DEDUCTION UN DER SECTION 10B OF THE ACT. WE FURTHER FIND THAT THE RELIANCE BY THE LEARNED A.R. FOR THE ASSESSEE ON CIT VS. M/S PUNJAB CONCAST STEELS LTD. (SUPRA) IS MISPLACED AS THE FACTS IN THE CASE OF CIT VS. M/S PUNJAB CONC AST STEELS LTD. (SUPRA) BEFORE THE HON'BLE PUNJAB & HARYANA HIGH CO URT AND BEFORE US ARE AT VARIANCE. 12. NOW COMING TO THE RECOMPUTATION OF THE PROFITS IN THE CASE OF THE 6 BUSINESS BY ALLOCATING PROPORTIONATE MANAGING DIREC TORS REMUNERATION, DEBITED TO NON-ELIGIBLE UNITS OF THE ASSESSEE COMPA NY, TO THE ELIGIBLE UNIT OF THE ASSESSEE COMPANY IS ADMISSIBLE OR NOT. UNDER THE PROVISIONS OF SECTION 10B OF THE ACT THE DEDUCTION IS TO BE AL LOWED ON SUCH PROFITS & GAINS OF BUSINESS WHICH ARE DERIVED BY 100% EXPOR T ORIENTED UNDERTAKING AND IN ORDER TO DETERMINE THE PROFITS & GAINS OF THE ELIGIBLE UNITS, ALL EXPENDITURE RELATABLE TO SUCH UNITS ARE TO BE DEDUCTED FOR COMPUTING THE ELIGIBLE PROFITS. THE REMUNERATION P AID TO THE MANAGING DIRECTOR BEING COMMON EXPENDITURE BETWEEN THE ELIGI BLE UNITS AND THE NON-ELIGIBLE UNIT RUN BY THE ASSESSEE COMPANY NEED TO BE ALLOCATED IN ORDER TO DETERMINE THE ELIGIBLE PROFITS OF BUSINESS UNDER SECTION 10B OF THE ACT. WE ARE IN CONFORMITY WITH THE ORDERS OF T HE AUTHORITIES BELOW IN THIS REGARD AND UPHOLDING THE SAME WE DISMISS GR OUND NO.2 RAISED BY THE ASSESSEE. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 9 TH AUGUST, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 9 TH AUGUST, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH