ADDL CIT 2(1), MUMBAI V. ADOR WELDING LTD, MUMBAI

ITA 6479/MUM/2010

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3644 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 03-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANTANU KUMAR SAIKIA
• Assessee Lawyers: GIRISH BALEKUNDRI
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A; 80IB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV , JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. NO. 2468 /MUM/ 201 0 ( / ASSESSMENT YEAR : 200 6 - 0 7 ) ASSTT.COMMISSIONER OF INCOME TAX - 2 ( 1 ), ROOM NO. 561 , 5 TH FLOOR, AYAKAR BHAVAN,M.K.ROAD, MUMBAI - 400020 / VS. M/S ADOR WELDING LTD., 4 TH AND 5 TH FLOOR, ADOR HOUSE, 6K DUBHASH MARG, FORT, MUMBAI - 400001 ./ I.T.A. NO. 6479 /MUM/ 201 0 ( / ASSESSMENT YEAR : 200 7 - 08 ) ASSTT.COMMISSIONER OF INCOME TAX - 2 ( 1 ), ROOM NO. 5 75 , 5 TH FLOOR, AYAKAR BHAVAN,M.K.ROAD, MUMBAI - 400020 / VS. M/S ADOR WELDING LTD., 4 TH AND 5 TH FLOOR, ADOR HOUSE, 6K DUBHASH MARG, FORT, MUMBA I - 400001 ./ PAN : AAA C A 9 07 6B / A PPELLANT BY S HRI SANTANU KUMAR SAIKIA / R ESPONDENT BY SHRI GIRISH BALEKUNDRI / DATE OF HEARING : 10.8. 2016 / DATE OF PRONOUNCEMENT : 16. 8. 2016 / O R D E R PER RAJESH KUMAR, A. M: THE SE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER PASSED BY THE LD.CIT(A) - 4 , MUMBAI DATED 1.1. 201 0 AND 25.6.2010 FOR THE 2 6479 / MUM/201 0 2468/MUM/2010 ASSESSMENT YEAR S 200 6 - 07 AND 2007 - 08 . SINCE THESE APPEALS PERTAIN TO THE SAME ASSESSEE, THESE APPEALS ARE BEING DECIDED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE SHALL TAKE THE APPEAL IN ITA NO. 2468 /MUM/201 0 . 3. THE ISSUE RAISED IN THE GROUND NO.2 OF THE APPEAL BY THE REVENUE IS AGAINST THE HOLDING BY T HE LD.CIT(A) THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION OF RS.19,66,56,000/ - UNDER SECTION 80IB OF THE INCOME TAX ACT, 19621 (HEREINAFTER REFERRED TO AS THE ACT) IN RELATION TO ITS SILVASSA UNIT, BY IGNORING THE ADMISSION BY THE ASSESSEE VIDE LETTER DATED 24.12.2008 QUA CERTAIN EXPENSES WERE NOT PROPERLY ALLOCATED . 4. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF WELDING CONSUMABLES, EQUIPMENT AND PROJECT ENGI NEERING PRODUCTS. THE ASSESSEE WAS AN ASSOCIATE CONCERN OF J B ADVANI GROUP WITH THE SHARE HOLDING OF 49.84% HELD BY M/S J B ADVANI AND CO.PVT.LTD COMPANY. THE ASSESSEE HAS VARIOUS MANUFACTURING UNITS LOCATED AT CHENNAI, CHINCHWA D (PUNE), AHMEDNAGAR, BHANDUP , RAIPUR AND SILVASSA. SILVASSA UNIT BEING NEW INVESTMENT OF THE OPERATIVE UNIT FROM THE ASSESSMENT YEAR 2004 - 05 ALL THE FOUR UNITS OF THE ASSESSEE WERE ENGAGED IN MANUFACTURING OF CONSUMABLES OF ELECTRODES AND WELDING MATERIAL WHEREAS CHENNA I UNIT WAS ENGAGED IN THE MANUFACTURING OF ENGINEERING EQUIPMENTS. DURING THE YEAR THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE 3 6479 / MUM/201 0 2468/MUM/2010 ASSESSMENT YEAR 2006 - 07 DECLARING TOTAL INCOME OF RS.24,38,46,972/ - ON 21.2.2016 BY CLAIMING DEDUCTION UNDER SECTION 80IB OF RS.19,66,56,000/ - BEING 100% OF THE PROFITS OF INDUSTRIAL UNIT LOCATED AT SILVASSA. THE ASSESSEE ALSO FILED HER COPY OF TAX AUDIT REPORT AND OTHER DETAILS AND THEREAFTER THE CASE OF THE ASSESSEE WAS SCRUTINIZES AND DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO FURNISH DETAILS OF SALES AND OTHER INCOME, DIRECT EXPENSES, INDIRECT EXPENSES PERTAINING AND ALLOCABLE TO EACH OF THESE UNITS WHICH WERE FILED BY THE ASSESSEE VIDE LETTER DATED 24.12.2008 . ON THE BASIS OF SUCH INFO RMATION FURNISHED BY THE ASSESSEE , THE AO CAME TO THE CONCLUSION THAT THERE WAS MISMATCH BETWEEN THE PROFIT WORKED OUT AND THE TURNOVER OF THE UNIT, CERTAIN EXPENSES ARE DISPROPORTIONATE TO TURNOVER WHICH WAS NOT PERTAINING THE CRITERION FOR ALLOCATION OF EXPENSES , CERTAIN EXPENSES WERE NOT APPORTIONED AMONG THE UNIT WHOSE INCOMES ARE CLAIMED EXEMPT U/S 80IB . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE VIDE LETTER DATED 24.12.2008 ADMITTED THE LAPSES ON NON - ALLOCATION OF CERTAIN EXPENSE S TO SILVASSA UNIT AND CLAIM OF DEDUCTION U/S 80IB WAS REDUCED TO 1931.56 LAKHS AS AGAINST THE CLAIM AS CLAIMED EARLIER RS.1966.56 LAKHS AND THUS THEREBY REDUCING THE CLAIM OF RS.35 LAKHS. THE AO ALSO WORKED OUT SOME VARIATION UNDER VARIOUS HEAD AS REGARD ALLOCATION OF EXPENSES SUCH AS DEPRECIATION AND FINANCIAL CHARGES WHICH WAS CALCULATED AT RS.15 LAKHS, AND CLUBBED WITH 4 6479 / MUM/201 0 2468/MUM/2010 THE AMOUNT AS OFFERED BY THE ASSESSEE VIDE LETTER DATED 24.12.2008 AND THUS, TOTAL DEDUCTION U/S 80IB WORKED OUT TO RS.15 LAKHS ACCORDINGLY, THE DEDUCTION 80IB WAS REDUCED TO RS.1916.56 LAKHS. THE AO FINALLY PASSED THE ORDER UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 29.12.2008 BY ASSESSING THE INCOME OF THE ASSESSEE AT RS.25,17,02,430/ - BY MAKING VARIOUS DISALLOWAN CES INCLUDING THE REDUCTION UNDER THE SCHEME U/S 80IB OF THE ACT AS DISCUSSED ABOVE. THEREAFTER, THE ASSESSEE DURING THE COURSE OF HEARING BEFORE THE LD.CIT(A) EXPLAINED THE VARIOUS ANOMALIES AND DISCREPANCIES WHICH WERE ADMITTED BEFORE THE AO VIDE LETTER DATED 24.12.2008 AND ALSO EXPLAINED THE DIFFERENCE OF NON ALLOCATION OF EXPENSES AS CALCULATED BY THE ASSESSEE OF RS.15.78 LAKHS. FINALLY THE LD. CIT(A) AFTER CONSIDERING HE SUBMISSIONS AND ARGUMENTS OF THE LD.AR ALLOWED THE APPEAL OF TH E ASSESSEE ON TH IS GROUND BY DELETING THE ADDITION OF RS.15 LAK HS THEREBY RESTORED THE DEDUCTION 80IB BY OBSERVING AND HOLDING AS UNDER : 8. ACCORDING TO THE A.O. THE NET VARIATION OF RS.15.78 LAKH UNDER THE HEAD AS INDICATED ABOVE IS DIFFERENT FROM THE HEADS UNDER WHIC H ASSESSEE HAS ACCEPTED THE VARIATION IN ALLOTMENT OF EXPENSES I.E. DEPRECIATION AND FINANCIAL CHARGES WHICH ARE CHOSEN BY THE ASSESSEE WHEREAS THE VARIATION RELATED TO COST OF GOODS SOLD AND MANUFACTURING EXPENSES. ACCORDINGLY, THE A.O. HAS CLUBBED THE VA RIATION OF RS.15 LAKH WITH THE AMOUNT AS ACCEPTED BY THE ASSESSEE AND REDUCED THE SAME FROM THE CLAIM OF DEDUCTION U/S. 80IB BY QUANTIFYING THE REDUCTION AT RS.50 LAKH (RS.35 + 15 LAKH). 9. THE A.R. SUBMITTED THAT THE A.O. IS NOT JUSTIFIED IN REDUCING TH E DEDUCTION U/S. 80IB. ACCORDING TO HIM THE ASSESSEE HAS CLAIMED 5 6479 / MUM/201 0 2468/MUM/2010 DEDUCTION U/S. 80IB AS CERTIFIED BY THE C.A. IN FORM NO. 10CCB. HE HAS ALSO FILED A LETTER JUSTIFYING THE ALLOCATION OF EXPENSES TO SILVASSA UNIT WHICH REFERS TO FINANCIAL CHARGES IN RESPECT OF EXPORT BILL DISCOUNTING AND INTEREST THEREON. THE COMPANY IS A DEBT FREE COMPANY AND DID NOT UTILIZE BORROWED FUNDS. 10. THE A.R. FURTHER SUBMITTED THAT OUT OR TOTAL EXPORT FOR WHICH THE FINANCIAL CHARGES AND INTEREST IS ATTRIBUTABLE, THE ASSESSEE COM PANY DURING THE PREVIOUS YEAR HAS GIVEN THE FOLLOWING DETAILS: TOTAL EXPORTS FOR THE A.Y. 2006 - 07 RS.39,77,32,009/ - EQUIPMENT EXPORTS (MANUFACTURED IN PUNE PLANT) RS.13,33,32,415/ - TOTAL CONSUMABLE EXPORTS RS.26,43,99,594/ - EXPORT E:ALES FROM SI LVASSA PLANT RS.19,36,000/ - % OF EXPORTS FROM SILVASSA PLANT IS 0.48% TOTAL FINANCE COST INCLUDING INTEREST IS RS.72.51LAKH. INTEREST AND FINANCE CHARGES ATTRIBUTABLE TO SILVASSA PLANT RS.0.35 LAKH ONLY. 11. ACCORDINGLY THE A.R. SUBMITTED THAT THE ASSESSEE HAS ALLOCATED THE ACTUAL EXPENDITURE OF FINANCIAL CHARGES AMOUNTING TO RS.45 LAKH RELATING TO SILVASSA UNIT FOR EXPORT BUSINESS WHEREAS THE A .0. HAS COMPUTED. THE DISALLOWANCE AT RS.50 LAKH WHICH IS NOT CORRECT, IF THE METHOD FOLLOWED BY THE A.O. IS CORRECTLY APPLIED THEN PROPORTIONATE DISALLOWANCE WOULD BE R S. 35,000/ - ONLY. 12. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A.R. AND I FIND THAT THE AO HAS ALLOCATED THE EXPENSES ON THE BASIS OF THE TURNOVER OF THE COMPANY WHEREAS THE ASSESSEE HAS ALLOCATED THE EXPENSES ON ACTUAL BASIS. SINCE THE SILVASSA UNIT IS INVOLVED IN EXPORT BUSINESS ONLY, THE INTEREST ATTRIBUTABLE TO SILVASSA UNIT AMOUNTING TO RS.45 LAKH HAS BEEN ALLOCATED T O SILVASSA UNIT AS THE ASSESSEE IS A DEBTS FREE COMPANY AND NO BORROWED FUNDS HAVE BEEN USED. SINCE THE ASSESSEE HAS ALLOCATED THE ACTUAL EXPENSE IN RESPECT OF THE SILVASSA UNIT THE SAME IS REQUIRED TO BE ALLOWED. THE AO IS DIRECTED TO ALLOW DEDUCTION U/S 80IB AS CLAIMED BY THE APPELLANT. 6 6479 / MUM/201 0 2468/MUM/2010 5. WE HAVE CONSIDERED TH E RIVAL SUBMISSIONS AND PERUSED THE RECORD INCLUDING THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT THE ASSESSEE HAS COMMITTED MISTAKE IN DISCREPANCY IN THE ALLOCATION OF EXPENSES TO VARIOUS UNITS INCLUDING THE SILVASSA UNIT ON WHICH IT HAS CLAIMED DEDUCT ION U/ S 80IB AT RS.19,66,56,000/ - . HOWEVER, DURING THE APPEAL PROCEEDINGS BEFORE THE FAA, THE ASSESSEE EXPLAINED THAT THERE IS NO DISCREPANCIES IN THE ALLOCATION OF EXPENSES AS HE SAME WERE BOOKED ON ACTUAL BASIS IN SILVSSSA UNIT AND THEREFORE THE ADMIS SION AS MADE BY THE ASSESSEE VIDE LETTER DATED 24.12.2008 WAS WRONG AND WITHOUT ANY BASIS. THE LD. AR SUBMITTED BEFORE US THAT THE DISCREPANCY IN DEPRECIATION IN FINANCIAL CHARGES RS.15.78 LAKHS WAS ALSO EXPLAINED BEFORE THE LD. CIT(A) AND THEREFORE HEAVI LY RELIED ON THE ORDER PASSED BY T HE LD. CIT(A). PER CONTRA, THE LD. DR BROUGHT TO OUR NOTICE THAT THERE WERE DISCREPANCIES IN THE ALLOCATION OF EXPENSES AS REPRESENTED BY THE AO IN THE ASSESSMENT PROCEEDINGS AND RELIED ON THE ORDER OF AO BY MAKING SUBMIS SION THAT ORDER OF LD.CIT(A) BE SET ASIDE AND THAT OF AO BE RESTORED. 6 . THE PERUSAL OF THE ORDER OF LD.CIT(A) REVEALS THAT THE DISCREPANCIES AS POINTED OUT BY THE AO AND ADMITTED BY THE ASSESSEE DURING T HE COUR S E OF ASSESSMENT PROCEEDINGS REGARDING T HE F INDING OF FAC T S QUA THE SAID DISCREPANCIES BEING EXPLAINED FULLY A S T HE AS S E SS EE HAS BOOKED ALL THE EXPENSES ON THE BASIS OF ACTUAL AND THUS THERE WAS NO DIFFERENCE IN 7 6479 / MUM/201 0 2468/MUM/2010 ALLOCATION AND RESTORED THE DEDUCTION OF RS.1916.56 AS CLAIMED BY THE ASSESSEE. LOOK ING INTO FACTS AND CIRCUMSTANCES OF THE CASE IN TOTALITY, WE FIND NO DISCREPANCY OR INFIRMITY IN THE ORDER OF LD. CIT(A) WHICH AFTER CONSIDERING THE SUBMISSIONS OF THE LD.AR DIRECTED THE AO TO ALLOW THE CLAIM OF ASSESSEE FOR DEDUCTION U/S 80IB OF THE A CT AND THEREFORE THE SAME UPHELD BY DISMISSING THE APPEAL OF THE REVENUE ON THIS GROUND. 7 . GROUND NO.2 IS AGAINST THE HOLDING BY THE LD.CIT(A) THAT VALUE OF BONDS HELD BY THE ASSESSEE SHOULD BE EXCLUDED FROM THE VALUE OF INVESTMENTS WHILE COMPUTING DISA LLOWANCE U/S 14A OF THE IT ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO FOUND THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.67,74,600/ - AND ALSO INCURRED RS.28.28 LAKHS EXPENDITURE UNDER THE HEAD INTEREST EXPENSE. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS NOT ALLOCATED OR ATTRIBUTED ANY EXPENSES TO EARNING OF EXEMPT INCOME IN TERMS OF SECTION 14A R.W.RULE 8D AND CALCULATED THE DISALLOWANCE AT RS.17,05,460/ - COMPRISING RS.6,34,000 / - UNDER RULE 8D(2)(II) AND RS.10,71,460/ - UNDER RULE 8D(2)(III). DURING THE APPELLATE PROCEEDINGS BEFORE THE FAA IT WAS SUBMITTED THAT THE PROVI SIONS OF SECTION14A R.W.R 8D WERE NOT APPLICABLE TO THE ASSESSMENT YEAR 2006 - 07 WHICH IS THE YEAR UNDER CONSID ERATION AND WERE APPLICABLE FROM THE ASSESSMENT YE A R 2008 - 09. THE LD. COUNSEL ALSO SUBMITTED BEFORE THE LD. CIT(A) THAT THE ASSESSEE 8 6479 / MUM/201 0 2468/MUM/2010 HAS MADE INVESTMENT S WHICH WERE INCLU SIVE OF INVESTMENT IN BONDS, THE INCOME FROM WHICH IS LIABLE TO BE TAXED AND WAS NO T EXEMPT. AFTER CONSIDERING THE SUBMISSIONS OF THE LD.AR, THE FAA PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER : 5. I HAVE DULY CONSIDERED THE SUBMISSION OF THE A.R. AND I FIND THAT THE ASSESSEE WAS HAVING INTEREST INCOME FROM BONDS WH ICH IS NOT EXEMPT. IN ANY CASE THE ASSESSEE WAS HAVING INVESTMENT IN UNQUOTED SHARES TO THE EXTENT OF RS.225.82 LAKH WHICH WAS SOLD IN THIS YEAR. HENCE, 0.5% OF AVERAGE OF OPENING AND CLOSING BALANCE OF RS.225.82 LAKH WOULD AMOUNT TO RS.112.91 LAKH. ACCORD INGLY, THE DISALLOWANCE SHOULD BE RESTRICTED TO RS.8 9,000/ - AS COMPUTED ABOVE. THE A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCE TO RS.89,000 / - U/S. 14A. 6. I DO NOT AGREE WITH THE SUBMISSIONS OF THE A.R. THAT RULE BD IS NOT RETROSPECTIVE. THE HON'BLE IT AT, M UMBAI, IN THE CASE OF DAGA CAPITAL MANAGEMENT IN ITA NO.80541MUM/2003 DATED 20/10108 HAS HELD THAT RULE 8D IS RETRO SPECTIVE IN NATURE. HENCE, THE SAME IS APPLICABLE IN THE CASE OF THE APPELLANT FOR AY 2006 - 07. HOWEVER, THE AMOUNT IS REQUIRED TO BE RESTRICTED TO RS.89,000/ - AS MENTIONED ABOVE. THIS GROUND OF APPEAL IS PARTLY ALLOWED 8 . AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSING THE MATERIAL ON RECORD INCLUDING THE ORDERS OF AUTHORITIES BELOW WE FIND THAT THE LD. CIT(A) HAS DIRECTED THE AO TO EXCLUDE THE COST OF INVESTMENT MADE IN THE BONDS INCOME OF WHICH WAS NOT TAX FREE AND WAS LIABLE TO BE TAXED UNDER THE INCOME TAX ACT. THE DR ARGUED THAT THE LD CIT(A) HAS ERRED IN DIRECTING THE AO TO EXCLUDE THE INVESTMENTS IN BONDS WHILE CALCUL ATING THE DISALLOWANCE U/S 14A READ WITH RULE 8D WHEREAS THE LD AR HEAVILY RELIED ON 9 6479 / MUM/201 0 2468/MUM/2010 AND SUPPORTED THE ORDER OF CIT(A) WHO RIGHTLY DIRECTED THE AO TO EXCLUDE THE INVESTMENTS IN BONDS IN THE CALCULATION OF DISALLOWANCE U/S 14A. WE FIND NO MERIT IN THE AR GUMENT OF THE LD. D R THAT THE CIT(A) WAS WRONG IN HOLDING THAT THE INVESTMENTS IN BONDS BE EXCLUDED FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION14A R.W.R 8D . WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD.CIT(A) WHO HAS RECORDED THE FINDING OF FACT THAT THE INCOME FROM BONDS WAS TAXABLE AND WAS NOT EXEMPT AS NOTED BY THE AO AND DO NOT REQUIRE ANY INTERFERENCE . WE, THEREFORE UPHOLD THE ORDER OF LD. CIT ( A) AND DISMISS THE APPEAL OF THE REVENUE ON THIS ISSUE . RESULTANTLY, THE APPEAL OF THE REVENUE STAN DS DISMISSED ON THIS GROUND ALSO. 9 . NOW WE SHALL TAKE UP THE APPEAL IN ITA 6479 /MUM/201 0 10 . WE HAVE ALREADY DECIDED AN IDENTICAL ISSUE IN ITA NO. 2468/MUM/2010 (AY - 2006 - 07) AND THEREFORE, OUR DECISION IN ITA NO.2468/MUM/2010 , MUTATIS MUTANDIS , W OULD APPLY TO TH IS APPEAL AS WELL. THE AO IS DIRECTED ACCORDINGLY. 11 . IN THE RESULT, THE APPEAL S OF THE REVENUE ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 16 . 0 8 . 2016. SD SD ( SHAILENDRA KUMAR YADAV ) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 16 . 8 .2016 SR.PS:SRL: 10 6479 / MUM/201 0 2468/MUM/2010 / COPY OF THE ORDER FORWARDED TO : 1. / THE APP ELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI