M/s Speed Craft Industries, Ludhiana V. ITO, Ludhiana

ITA 727/CHANDI/2015

• Counselvise Citation: 72721514 RSA 2015
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 10-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Opportunity of being heard; Question of law; Agreed addition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 727/CHD/2015 (ASSESSMENT YEAR: 2010-11) M/S SPEED CRAFT INDUSTRIES, VS. THE INCOME TAX OFFICER, 485, INDL. AREA-B, WARD V(4), LUDHIANA. LUDHIANA. PAN NO. AADFS7783H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PARIKSHIT AGGARWAL RESPONDENT BY : SHRI S.K. MITTAL, D.R. DATE OF HEARING : 27.11.2015 DATE OF PRONOUNCEMENT : 08.12.2015 O R D E R THIS APPEAL FILED BY THE ASSESSEE IS DIR ECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS)-2, LUDHIANA DATED 11.6.2015 RELATING TO ASSESSMENT YEAR 2010-11. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE WORTHY CIT(A) THROUGH HIS ORDE R DATED 11.06.2015 HAS ERRED IN PASSING THAT ORDER IN CONTRAVENTION OF PROVISIONS OF SECTION 250(6) OF TH E INCOME TAX ACT, 1961. 2 2. THAT ON FACTS, CIRCUMSTANCES AND LEGAL POSITION OF THE CASE, THE WORTHY CIT(A) HAS ERRED IN CONFIRMING THE REDUCTION OF DEDUCTION CLAIMED U/S 80IC BY RS.6,22,000/- (OUT OF ADDITION OF RS.7,40,000/-) BY ERRONEOUSLY HOLDING THAT WHILE APPORTIONING EXPENSES BETWEEN TAXABLE (LDH UNIT) AND EXEMPT (TAHLIWAL 80IC UNIT), THE INTEREST IS ALSO TO BE CONSIDERED AND IS TO BE APPORTIONED IN THE RATIO OF TURNOVER EVEN WHEN APPORTIONMENT OF INTEREST EXPENSE CAN AT MAXIMUM BE COMPUTED ON THE BASIS OF INTER UNIT TRANSFER OF FUND S AND NOT ON THE BASIS OF TURNOVER OF RESPECTIVE UNITS. 3. THAT ON FACTS, CIRCUMSTANCES AND LEGAL POSITION OF THE CASE, THE WORTHY CIT(A) HAS ERRED IN CONFIRMING THE REDUCTION OF DEDUCTION CLAIMED U/S 80-IC BY RS. 6,22,000/- (OUT OF ADDITION OF RS. 7,40,000/-) BY ERRONEOUSLY HOLDING THAT WHILE APPORTIONING EXPENSES BETWEEN TAXABLE (LDH UNIT) AND EXEMPT (TAHLIWAL 80- IC UNIT), THE INTEREST IS ALSO TO BE CONSIDERED EVEN WHEN THE APPELLANT HAS SUO-MOTTO TRANSFERRED/RECOGNIZED INTEREST INCOME OF RS. 2,91,394/- ON INTER UNIT TRANSFE R OF FUNDS WHICH INTEREST TOO WAS SUO-MOTTO CALCULATED B Y THE APPELLANT @ 12% P.A. 4. THAT ON FACTS, CIRCUMSTANCES AND LEGAL POSITION OF THE CASE, THE WORTHY CIT(A) HAS ERRED IN CONFIRMING THE REDUCTION OF DEDUCTION CLAIMED U/S 80IC BY RS. 6,22,000/- (OUT OF ADDITION OF RS. 7,40,000/-) BY ERRONEOUSLY HOLDING THAT WHILE APPORTIONING EXPENSES BETWEEN TAXABLE (LDH UNIT) AND EXEMPT (TAHLIWAL 80IC UNIT), THE INTEREST IS ALSO TO BE CONSIDE RED AND BOTH THE LOWER AUTHORITIES FAILED TO APPR ECIATE THAT EVEN IF ANY DISALLOWANCE BY APPORTIONMENT OF INTEREST IS TO BE MADE, THE INTEREST INCOME EARNED AND SUO-MOTTO CREDITED TO P&L A/C OF LDH TAXABLE UNIT DESERVES TO BE REDUCED THERE-FROM. 3 5. THAT ON FACTS, CIRCUMSTANCES AND LEGAL POSITION OF THE CASE, THE WORTHY CIT(A() HAS ERRED IN CONFIRMING THE REDUCTION OF DEDUCTION CLAIMED U/S 80IC BY RS.6,22,000/- (OUT OF ADDITION OF RS.7,40,000/-) BY ERRONEOUSLY HOLDING THAT THIS WAS AN AGREED ADDITION EVEN WHEN THE COUNSEL OF THE APPELLANT ONLY AGREED FOR APPORTIONMENT OF OTHER EXPENSES IN THE RATIO OF TURNOVER, NEVER AGRE ED FOR APPORTIONMENT OF INTEREST EXPENSE IN THE RATIO OF TURNOVER OF UNITS AND THE ISSUE OF INTEREST ON ACCOUN T OF INTER-UNIT TRANSFER OF FUNDS WAS ALWAYS AGITATED, REPLIED AND DULY DISCUSSED SEPARATELY IN THE IMPUGNED ASSESSMENT ORDER. 6. THAT ON FACTS, CIRCUMSTANCES AND LEGAL POSITION OF THE CASE, THE WORTHY CIT(A) HAS ERRED IN CONFIRMING THE REDUCTION OF DEDUCTION CLAIMED U/S 80IC BY RS. 6,22,000/- (OUT OF ADDITION OF RS. 7,40,000/-) BY ERRONEOUSLY HOLDING THAT THIS WAS AN AGREED ADDITION EVEN WHEN IT WAS NEVER AN AGREED ADDITION. ALTERNATIVELY, EVEN IF IT WAS AN AGREED ADDITION, THE APPEAL ON THE ISSUE WAS MAINTAINABLE ON THE BASIS OF PRINCIPLE OF 'NO ESTOPPEL AGAINST LAW' AND THE APPELLANT DULY POINTED OUT THE LEGAL DEFECT IN THE IMPUGNED ASSESSMENT ORDER. THE WORTHY CIT(A) HAS ERRED IN REJECTING THE GROUND BY ERRONEOUSLY HOLDING THAT THE ADDITION CHALLENGED WAS IN FACT AN AGREED-ADDITION AND THEREFORE NO APPEAL IS MAINTAINABLE THERE-AGAINS T. 7. THAT ON FACTS, CIRCUMSTANCES AND LEGAL POSITION OF THE CASE, THE WORTHY CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LD. AO TO AN EXTENT OF RS. 90,489/- WHERE BY THE LD. AO HELD VARIOUS CLAIMS OF REVENUE NATURE RELATING TO REPAIRS TO MACHINERY AS CAPITAL EXPENSE AND RELEGATING THE APPELLANT TO CLAIM OF DEPRECIATIO N INSTEAD OF ALLOWING*THE SAME AS REVENUE EXPENSE. 4 8. THAT THE APPELLANT CRAVES LEAVE FOR ANY ADDITIO N, DELETION OR AMENDMENT IN THE GROUNDS OF APPEAL ON OR BEFORE THE DISPOSAL OF THE SAME. 2. GROUND NOS.1 AND 8 OF THE APPEAL ARE GENERAL IN NATURE, AND HENCE NO COMMENTS ARE BEING GIVEN. 3. SHRI PARIKSHIT AGGARWAL, LEARNED COUNSEL FOR TH E ASSESSEE VIDE HIS LETTER DATED 30.9.2015 DID NOT PR ESS FOR GROUND NO.7 OF THE APPEAL, AND HENCE THE SAME IS DISMISSED AS NOT PRESSED. 4. AS REGARDS GROUND NOS.2 TO 6 OF THE APPEAL, THE RELEVANT FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CYCLE CRANK, FORGING, AUTO PARTS FORGINGS AND STEEL STRUCTURE FABRICATION. THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80IC O F THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE AS SESSEE HAD TWO UNITS LOCATED AT LUDHIANA AND TAHLIWAL. TH E DEDUCTION UNDER SECTION 80IC OF THE ACT WAS CLAIMED ON TAHLIWAL UNIT. THE ASSESSEE HAD MADE INVESTMENT TO THE EXTENT OF RS.1.74 CROROES IN FIXED ASSETS. THE AS SESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE SOURCE OF THESE INVESTMENTS MADE AT TAHLIWAL UNIT. IN THIS REGARD , THE CONTENTION OF THE ASSESSEE WAS THAT ALL THE INVESTM ENTS IN TAHLIWAL UNIT WERE MADE FROM OWN SOURCES AND NO INT EREST WAS PAID OR ANY LOAN RAISED FOR THIS PURPOSE. HOWE VER, FROM THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD BOR ROWED FUNDS TO THE TUNE OF RS.26,74,409/- AND RS.4,80,601 /-. 5 THE CONTENTION OF THE ASSESSEE WAS THAT ALL THE BOR ROWED FUNDS WERE UTILIZED FOR LUHDIANA UNIT ONLY. THE AS SESSING OFFICER DID NOT AGREE WITH THE CONTENTION OF THE AS SESSEE. THE ASSESSING OFFICER FURTHER POINTED OUT THAT THER E WERE CERTAIN OTHER EXPENSES, LIKE PARTNERS SALARY, CAR, TELEPHONE AND DIWALI EXPENSES, WHICH WERE COMMON TO BOTH THE UNITS AND WERE REQUIRED TO BE ALLOCATED TO BOTH THE UNITS IN PROPORTION TO TOTAL TURNOVER. THE AS SESSING OFFICER OBSERVED THAT THE ISSUE WAS DISCUSSED WITH THE ASSESSEE AND THE AUTHORIZED REPRESENTATIVE OF THE A SSESSEE ACCEPTED THE ASSESSING OFFICERS CONTENTION AND AGR EED TO PAY TAXES ON ADDITIONS MADE ON THIS ACCOUNT. THE ASSESSING OFFICER ACCORDINGLY, RESTRICTED THE DEDUC TION UNDER SECTION 80IC OF THE ACT TO RS.33,09,268/- AGA INST THE DEDUCTION CLAIMED OF RS.40,49,268/- AND DISALLO WED AN AMOUNT OF RS.7.40 LACS BY ALLOCATING THESE EXPEN SES TO THE TAHLIWAL UNIT. 5. ON APPEAL, THE LEARNED CIT (APPEALS) UPHELD THE ORDER OF THE ASSESSING OFFICER, AND HENCE THE ASSES SEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. SHRI PARIKSHIT AGGARWAL, LEARNED COUNSEL FOR TH E ASSESSEE CONTENDED THAT WHILE COMPUTING THE DISALLO WANCE ON APPORTIONMENT BASIS, THE ASSESSING OFFICER HAS APPORTIONED THE INTEREST BETWEEN TWO UNITS ON THE B ASIS OF TURNOVERS OF TWO UNITS AND NOT ON THE BASIS OF CAP ITAL BORROWED INTER UNIT. ACCORDING TO THE LEARNED COU NSEL FOR THE ASSESSEE, THIS METHOD OF APPORTIONMENT APPLIED BY THE 6 ASSESSING OFFICER IS TOTALLY INCORRECT. ACCORDING TO HIM, THE DISALLOWANCE OF INTEREST CAN BE MADE ONLY UNDER SECTION 36(1)(III) OF THE ACT, WHICH READS AS UNDER : '(III) 'THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION : PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET [FOR EXT ENSION OF EXISTING BUSINESS OR PROFESSION] (WHETHER CAPITALISED IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF TH E ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE , SHALL NOT BE ALLOWED AS DEDUCTION. 7. IN VIEW OF THE ABOVE PROVISION OF SECTION 36(1)(III) OF THE ACT, SHRI PARIKSHIT AGGARWAL, LE ARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR COMPUTA TION OF DISALLOWANCE IN RESPECT OF INTEREST, THE BASIS I S CAPITAL BORROWED BETWEEN THE PARTIES AND NOT THE TURNOVER. FURTHER, THE COMPUTATION OF DISALLOWANCE UNDER SECT ION 36(1)(III) OF THE ACT, IN RESPECT OF INTEREST WAS H ELD TO BE ON THE BASIS OF CAPITAL BORROWED BETWEEN THE PART IES IN A NUMBER OF JUDGMENTS OF THE TRIBUNAL AND THE HIGH CO URTS. 7.1 SHRI PARIKSHIT AGGARWAL, LEARNED COUNSEL FOR T HE ASSESSEE ALSO POINTED OUT THAT BOTH THE AUTHORITIES BELOW HAVE GIVEN THE FINDINGS THAT THE LEARNED COUNSEL FO R THE ASSESSEE AGREED TO ABOVE ADDITION. THE LEARNED CO UNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE ABOVE FINDINGS OF THE AUTHORITIES BELOW ARE COMPLETELY ERRONEOUS, AND HENCE NOT TENABLE. ACCORDING TO LE ARNED 7 COUNSEL FOR THE ASSESSEE, DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE AUTHORIZED REPRESENTATIVE OF THE A SSESSEE GAVE CONCESSION TO MAKE DISALLOWANCE ON PROPORTIONA TE BASIS, BUT THERE IS NO CONCESSION TO COMPUTE THIS PROPORTION ON THE BASIS OF TURNOVER. IN THE ABSEN CE OF AGREEMENT REGARDIDNG THE MANNER OF COMPUTATION OF DISALLOWANCE IN RESPECT OF INTEREST, THE SAME SHOUL D HAVE BEEN COMPUTED ON THE BASIS OF CAPITAL BORROWED INTER UNIT AND NOT ON THE BASIS OF TURNOVER OF RESPECTIVE UNITS. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR ARGUMENT SAKE, IF IT IS ACCEPTED THAT CONCESSION WA S GIVEN BY THE ASSESSEE TO MAKE DISALLOWANCE IN RESPECT OF INTEREST ALSO, THE SAID CONCESSION IS A CONCESSION ON QUESTION OF LAW. IT IS A SETTLED LEGAL POSITION OF LAW THAT CONCESSION ON A QUESTION OF LAW IS NOT BINDING ON T HE PRINCIPLE OF NO ESTOPPEL AGAINST LAW. THE LEARNE D COUNSEL FOR THE ASSESSEE FURTHER POINTED OUT THAT O N THE SAME LINES, THE APPEAL AGAINST CONCESSION ON A QUES TION OF LAW IS MAINTAINABLE. HE RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF HIMALAYAN COOPERATIVE GROUP HOUSING SOCIETY VS. BALWAN SINGH, CIVIL APPEAL NO.4360 OF 2015, DATED 29.4.2015. 8. IT IS OBSERVED THAT AT THE TIME OF ASSESSMENT PROCEEDINGS, THE ASSESSEE AGREED TO THE ALLOCATION OF PROPORTIONATE EXPENSES BUT HAD NOT GIVEN CONCESSION TO COMPUTE THIS PROPORTION ON THE BASIS OF TURNOVER . TAKING INTO CONSIDERATION THE SUBMISSIONS MADE BY T HE LEARNED COUNSEL FOR THE ASSESSEE, I HOLD THAT IN TH E 8 ABSENCE OF AGREEMENT REGARDING THE MANNER OF COMPUTATION OF DISALLOWANCE IN RESPECT OF INTEREST, THE SAME SHOULD HAVE BEEN COMPUTED ON THE BASIS OF CAP ITAL BORROWED INTER UNIT AND NOT ON THE BASIS OF TURNOV ER OF RESPECTIVE UNITS. THE LEARNED COUNSEL FOR THE ASSE SSEE HAS CORRECTLY POINTED OUT THAT THE DISALLOWANCE OF INTEREST CAN BE MADE ONLY UNDER SECTION 36(1)(III) OF THE AC T. AS PER THE PROVISION OF SECTION 36(1)(III) OF THE ACT, THE COMPUTATION OF DISALLOWANCE IS TO BE MADE ON THE BA SIS OF CAPITAL BORROWED BETWEEN THE PARTIES. THEREFORE , THE AUTHORITIES BELOW WERE NOT CORRECT IN MAKING THE DISALLOWANCE OF INTEREST ON THE BASIS OF TURNOVER. ACCORDINGLY, I SET ASIDE THE ORDER OF THE AUTHORITI ES BELOW ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO R E- COMPUTE THE DISALLOWANCE OF INTEREST ON THE BASIS O F CAPITAL BORROWED BY EACH UNIT AFTER AFFORDING REA SONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. NO OTHER POINT WAS RAISED OR ARGUED BEFORE ME. 7. IN THE ABOVE TERMS, THE APPEAL OF THE ASSESSEE IS ALLOWED PARTLY FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 8 TH DAY OF DECEMBER, 2015. SD/- (H.L.KARWA) VICE PRESIDENT DATED : 8 TH DECEMBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 9