ACIT CIR 3, THANE V. PYRAMID ENTEK P.LTD, THANE

ITA 6400/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79378 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 18-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIKANT NAMDER
• Assessee Lawyers: C N VAZE
• Keywords: Question of law
• Section: 43B; 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 6186/MUM/2012 (ASSESSMENT YEAR: 2009-10) PYRAMID ENTEK PVT. LTD. 2B/1303 PHASE VI SIDDHACHAL COMPLEX NEAR VASANT VIHAR THANE (W)-400 610. VS. ACIT , CIRCLE - 3 THANE. (APPELLANT) (RESPONDENT) ITA NO.6400/MUM/2012 (ASSESSMENT YEAR: 2009-10) ACIT , CIRCLE - 3 THANE. VS. PYRAMID ENTEK PVT. LTD. 2B/1303 PHASE VI SIDDHACHAL COMPLEX NEAR VASANT VIHAR THANE (W)-400 610. ( CROSS OBJECTOR ) (RESPONDENT) P ERMANENT ACCOUNT N O. : AADCP 6430 H ASSESSEE BY : SHR I C.N. VAZE REVENUE BY : SHRI SHRIKANT NAMDER DATE OF HEARING : 08/07/2014 DATE OF PRONOUNCEMENT : 10/07/2014 O R D E R PER VIJAY PAL RAO, JUDICIAL MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 25/07/2012 OF CIT(A) FOR THE ASSESSMENT YEAR 2009-1 0. THE SOLITARY GROUND RAISED BY THE ASSESSEE IN ITS APPEAL READS A S UNDER :- ITA NO. 6186/M/12 &ITA NO.6400/M/12 AY: 2009-10 2 1. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDI TION OF RS.20,33,505/- MADE BY ASSESSING OFFICER ON ACCOUNT OF THE PROVISIONS OF SECTION 10B(7) R.W.S. 80IA(10) TO THE TOTAL INCOME OF ASSESSEE. 2. THE ASSESSEE IS AN EXPORT ORIENTED UNIT SEEKING EXEMPTION U/S. 10B. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTED THAT DURING THE YEAR ASSESSEE REIMBURSED AN AMOUNT OF RS.45,30, 492/- TO ITS GROUP CONCERN (NOT ELIGIBLE UNDER SECTION 10B) NAMELY PYR AMID CONSULTING ENGINEERING PVT. LTD.(PCEPL) THIS AMOUNT WAS PAID F OR COST OF EMPLOYEES OF PCEPL WHICH WERE HIRED BY ASSESSEE (PEPL) FOR DO ING THE WORK. THE ASSESSEE HAS SHOWN THIS AS PROFESSIONAL FEE GIVEN T O SISTER CONCERN. THE AO WAS OF THE VIEW THAT PROVISIONS OF SECTION 10B(7 ) R.W.S. 80IA (10) ARE APPLICABLE IN THE CASE OF THE ASSESSEE AND HELD THA T THE PROFIT OF THE ASSESSEE TO THE EXTENT OF RS.20,33,505/- ARE MORE T HAN ORDINARY PROFITS BECAUSE OF TRANSACTIONS WITH ITS GROUP CONCERN. ACC ORDINGLY THE AO MADE AN ADDITION OF RS.20,33,505/- BY DISALLOWING THE BE NEFIT OF SECTION 10B. ON APPEAL, CIT(A) HAS UPHELD THE ACTION OF THE AO. 3. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITT ED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 VIDE ORDER DATED 07/08/2013 IN ITA NO.567/MUM/2012. HE HAS THUS SUB MITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDER OF THIS TRIBUNAL IN THE CASE OF ASSESSEE. THE LD. DR HAS RELIED UPON TH E ORDERS OF AUTHORITIES BELOW. 4. HAVING CONSIDERED THE SUBMISSIONS OF THE LD. AR AND LD. DR AS WELL AS THE RELEVANT MATERIAL AVAILABLE ON RECORD WE NOT E THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008-09 (SUP RA). THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN PARA-4 AS UNDER :- ITA NO. 6186/M/12 &ITA NO.6400/M/12 AY: 2009-10 3 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED MATT ER CAREFULLY. THE DISPUTE IS REGARDING APPLICATION OF PROVISIONS OF SECTION 10B(7) READ WITH SECTION 80IA (10) AS PER WHICH IF OWING T O THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELI GIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM I S SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS THE AO FOR THE PURPOSE OF ALLOWING DEDUCTION U/S L0B MAY TAKE THE AMOUNT OF P ROFIT AS MAY BE REASONABLY DEEMED TO HAVE BEEN EARNED BY THE ASS ESSEE. IN THIS CASE THE ASSESSEE WHICH IS ENGAGED IN THE BUSINESS OF EXPORT HAD HIRED SOME EMPLOYEES FROM THE SISTER CONCERN WHICH HAD BEEN REIMBURSED AT COST. THE AO, THEREFORE, HAS CONCLUDE D THAT THE ASSESSEE HAS PRODUCED MORE THAN ORDINARY PROFIT COR RESPONDING TO THE REVENUE EARNED IN RELATION TO THE HIRED EMPLOYE ES WHICH HAS BEEN COMPUTED ON PROPORTIONATE BASIS AT RS. 757068/ - . AO HAD TREATED THE ENTIRE REVENUE AS PROFIT EARNED AFTER D EDUCTING THE COST OF EMPLOYEES HIRED. THE APPROACH ADOPTED BY THE AO IS PRIMA FACIE INCORRECT. FOR APPLYING THE PROVISIONS OF SECTION 1 0 B(7) READ WITH SECTION 80IA(10), AO HAS FIRST TO SHOW THAT COST OF HIRING EMPLOYEES BY THE ASSESSEE HAD RESULTED INTO MORE TH AN ORDINARY PROFIT. THIS COULD HAPPEN ONLY IF THE ASSESSEE HAD PAID LESS THAN THE MARKET VALUE TO THE SISTER CONCERN ON ACCOUNT O F HIRED EMPLOYEES. THERE IS NO MATERIAL ON RECORD TO SHOW T HAT SISTER CONCERN HAD HIRED THE EMPLOYEES AT LESS THAN MARKET PRICE BECAUSE ONLY IN THAT CASE IT COULD BE SAID THAT THE ASSESSEE HAD PAID LESS THAN THE MARKET PRICE. IN THE ABSENCE OF ANY SUCH MATERIAL IT CANNOT BE SAID THAT ASSESSEE HAD PRODUC ED MORE THAN THE ORDINARY PROFIT BECAUSE OF CLOSE CONNECTION WIT H THE SISTER CONCERN OR THAT IT HAD DECLARED MORE PROFIT IN ORDE R TO CLAIM MORE EXEMPTION. IN OUR VIEW THE APPROACH ADOPTED BY LOWE R AUTHORITIES TO ADD PROPORTIONATE REVENUE IS INCORRECT. WE, THER EFORE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION MADE. 4.1 SINCE THE AO HAS NOT GIVEN ANY FINDING THAT BY HIRING THE EMPLOYEES/PROFESSIONALS FROM THE SISTER CONCERN THE ASSESSEE HAD PAID LESS THAN MARKET PRICE RESULTING IN SHIFTING OF PRO FIT FROM ITS NON ELIGIBLE UNIT TO ELIGIBLE UNIT UNDER SECTION 10B, THEREFORE, FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE WE DE CIDE THIS CASE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ITA NO. 6400/MUM/2012 ( REVENUES APPEAL) :- 5. REVENUE HAS RAISED ONLY A SINGLE GROUND IN ITS A PPEAL WHICH READS AS UNDER :- ITA NO. 6186/M/12 &ITA NO.6400/M/12 AY: 2009-10 4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHE R THE CIT(A)-1, THANE WAS JUSTIFIED IN RESTRICTING THE AMOUNT OF DI SALLOWANCE U/S. 40(A)(IA) TO THE EXTENT OF THE AMOUNT OF EXPENDITUR E PAYABLE AS ON 31.03.2009. 6. THE AO ALSO DISALLOWED A SUM OF RS.45,30,492/- U NDER SECTION 40(A)(IA) OF THE INCOME TAX ACT AS THE ASSESSEE DID NOT DEDUCT THE TDS ON THE PROFESSIONAL CHARGES PAID TO ITS SISTER CONCERN . THE ASSESSEE CONTENDED BEFORE CIT(A) THAT THIS AMOUNT WAS PAID T O THE SISTER CONCERN AS RE-IMBURSEMENT OF COST OF EMPLOYEES AND, THEREFO RE, THERE WAS NO ELEMENT OF PROFIT AND CONSEQUENTIALLY NO TAX WAS RE QUIRED TO BE DEDUCTED UNDER SECTION 194J/192 OF THE ACT. THE ASSESSEE ALS O RELIED UPON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF MERLYN SHIPPING & TRANSPORTS VS. ADDL. CIT (2012) (146 TTJ 7) AND CONTENDED THAT NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A )(IA) WHEN THE AMOUNTS ARE PAID. THE CIT(A) ACCEPTED THE CONTENTIO N OF THE ASSESSEE IN VIEW OF THE DECISION OF THE SPECIAL BENCH AND DIREC TED THE AO TO DISALLOW UNDER SECTION 40(A)(IA) ONLY TO THE EXTENT OF AMOU NT PAYABLE AS ON 31/03/2009. CIT(A) HAS FURTHER HELD THAT THE DISALL OWANCE MADE UNDER SECTION 40(A)(IA) IS ELIGIBLE FOR EXEMPTION U/S. 1 0B AS IT WAS ALSO RECORDED BY THE AO IN THE ASSESSMENT ORDER THOUGH D EDUCTION WAS NOT ALLOWED. FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. (233 CTR 240) CIT(A) DIRECTED TO GRANT CONSEQUENTIAL EXEMPTION UNDER SEC TION 10B ON THE ADDITION SUSTAINED UNDER SECTION 40(A)(IA). 7. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. WITHOUT GOING INTO THE ISSUE OF CORRECTNESS OF DISALLOWANCE UNDER SECTION 40(A)(IA) WE FIND THAT E VEN THE AMOUNT IN QUESTION IS LIABLE TO BE DISALLOWED UNDER SECTION 4 0(A)(IA), THE SAME WOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B AS IT W OULD INCREASE THE ELIGIBLE PROFITS OF THE ASSESSEE. CIT(A) HAS RELIED UPON THE DECISION OF ITA NO. 6186/M/12 &ITA NO.6400/M/12 AY: 2009-10 5 HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA), WHEREIN WHILE DECIDING THE QUESTION OF GR ANTING OF EXEMPTION UNDER SECTION 10A ON THE ENHANCED INCOME DUE TO DISALLOWANCE OF EMPLOYERS AS WELL AS EMPLOYEES CONT RIBUTION TOWARDS PF/ESIC, THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD IN PARA-12 AS UNDER :- 12. BY REASON OF THE JUDGMENT OF THE SUPREME COURT IN CIT V. ALOM EXTRUSIONS LTD. [2009] 319 ITR 306 THE EMPLOYE R'S CONTRIBUTION WAS LIABLE TO BE ALLOWED, SINCE IT WAS DEPOSITED BY THE DUE DATE FOR THE FILING OF THE RETURN. THE PECULIA R POSITION, HOWEVER, AS IT OBTAINS IN THE PRESENT CASE ARISES O UT OF THE FACT THAT THE DISALLOWANCE WHICH WAS EFFECTED BY THE ASS ESSING OFFICER HAS NOT, THE COURT IS INFORMED, BEEN CHALLENGED BY THE ASSESSEE. AS A MATTER OF FACT THE QUESTION OF LAW WHICH IS FO RMULATED BY THE REVENUE PROCEEDS ON THE BASIS THAT THE ASSESSED INC OME WAS ENHANCED DUE TO THE DISALLOWANCE OF THE EMPLOYER'S AS WELL AS THE EMPLOYEES' CONTRIBUTION TOWARDS PROVIDENT FUND/ESIC AND THE ONLY QUESTION WHICH IS CANVASSED ON BEHALF OF THE R EVENUE IS WHETHER ON THAT BASIS THE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO GRANT THE EXEMPTION UNDER SECT ION 10A. ON THIS POSITION, IN THE PRESENT CASE IT CANNOT BE DIS PUTED THAT THE NET CONSEQUENCE OF THE DISALLOWANCE OF THE EMPLOYER 'S AND THE EMPLOYEE'S CONTRIBUTION IS THAT THE BUSINESS PROFIT S HAVE TO THAT EXTENT BEEN ENHANCED. THERE WAS, AS WE HAVE ALREAD Y NOTED, AN ADD BACK BY THE ASSESSING OFFICER TO THE INCOME. AL L PROFITS OF THE UNIT OF THE ASSESSEE HAVE BEEN DERIVED FROM MANUFAC TURING ACTIVITY. THE SALARIES PAID BY THE ASSESSEE, IT HAS NOT BEEN DISPUTED, RELATED TO THE MANUFACTURING ACTIVITY. TH E DISALLOWANCE OF THE PROVIDENT FUND/ESIC PAYMENTS HAS BEEN MADE B ECAUSE OF THE STATUTORY PROVISIONS - SECTION 43B IN THE CASE OF THE EMPLOYER'S CONTRIBUTION AND SECTION 36(V) READ WITH SECTION 2( 24)(X) IN THE CASE OF THE EMPLOYEE'S CONTRIBUTION WHICH HAS BEEN DEEMED TO BE THE INCOME OF THE ASSESSEE. THE PLAIN CONSEQUENCE O F THE DISALLOWANCE AND THE ADD BACK THAT HAS BEEN MADE BY THE ASSESSING OFFICER IS AN INCREASE IN THE BUSINESS PR OFITS OF THE ASSESSEE. THE CONTENTION OF THE REVENUE THAT IN COM PUTING THE DEDUCTION UNDER SECTION 10A THE ADDITION MADE ON AC COUNT OF THE DISALLOWANCE OF THE PROVIDENT FUND/ESIC PAYMENTS OU GHT TO BE IGNORED CANNOT BE ACCEPTED. NO STATUTORY PROVISION TO THAT EFFECT HAVING BEEN MADE, THE PLAIN CONSEQUENCE OF THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER MUST FOLLOW. THE SECO ND QUESTION SHALL ACCORDINGLY, STAND ANSWERED AGAINST THE REVEN UE AND IN FAVOUR OF THE ASSESSEE. ITA NO. 6186/M/12 &ITA NO.6400/M/12 AY: 2009-10 6 7.1 SINCE THE CIT(A) HAS FOLLOWED THE ABOVE DECISIO N OF HON'BLE JURISDICTIONAL HIGH COURT WHILE GRANTING THE DEDUCT ION UNDER SECTION 10B IN RESPECT OF DISALLOWANCE MADE UNDER SECTION 4 0(A)(IA) THEREFORE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF CIT(A) QUA THIS ISSUE. THE GROUND RAISED BY THE REVENUE HAS ACCORDINGLY BE COME ACADEMIC IN NATURE. 8. IN THE RESULT ASSESSEES APPEAL IS ALLOWED AND R EVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY, 2014. SD/- SD/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER (VIJAY PAL RAO ) JUDICIAL MEMBER MUMBAI, DATED: 10/07/2014. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.