ACIT, Hyderabad V. M/s Microsal Power Ltd., Hyderabad

ITA 766/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66129 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 10-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V RAMANA RAO
• Assessee Lawyers: A V RAGHURAM
• Keywords: Depreciation
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.766/HYD/2009 : ASSESSMENT YEAR 2005- 06 ASST. COMMISSIONER OF INCOME - TAX CIRCLE 16(2), HYDERABAD (APPELLANT) V/S M/S. MICRO S OL POW E R LTD., HYDERABAD ( PAN - AACCM 3677 J ) (RESPONDENT) APPELLANT BY : SHRI V.V.RAMANA RAO RESPONDENT BY : SHRI A.V.RAGHURAM DATE OF HEARING 1.8.2012 DATE OF PRONOUNCEMENT 3.8.2012 O R D E R PER D.KARUNAKARA RAO, ACCOUNTANT MEMBER: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) V, HYDERABA D DATED 30.3.2009 FOR THE ASSESSMENT YEAR 2005-06. 2. THE ONLY ISSUE THAT ARISES FROM THE GROUNDS RAI SED IN THIS APPEAL RELATES TO NON-ALLOCATION OF CERTAIN INDIREC T EXPENSES FOR THE NON- EOU UNIT/PERIOD THAT RESULTED IN UNDER-VALUATION OF INVENTORIES OF ELIGIBLE EOU UNIT/PERIOD. 3. IT IS ALLEGED BY THE REVENUE THAT THE PROFITS A RE INFLATED IN RESPECT OF THE ELIGIBLE UNIT OF THE ASSESSEE, AND T HAT INFLATION IS CONSEQUENT TO THE METHOD AND MANNER OF INVENTORISIN G THE CLOSING STOCK. IT IS ALLEGED BY THE REVENUE THAT THE ASSESSEES AC T OF NOT BOOKING THE PROPORTIONATE INDIRECT EXPENDITURE ON ACCOUNT OF IN TEREST AND ADMINISTRATIVE EXPENDITURE, DEPRECIATION, ETC. TO T HE INVENTORIES OF THE NON-ELIGIBLE UNDERTAKING, HAS RESULTED IN UNDERVA LUATION OF THE OPENING ITA NO.766/HYD/2009 M/S. MICROSOL POWER LTD., HYDERABAD 2 STOCK OF RAW-MATERIAL AND THE FINISHED GOODS OF THE EOU DIVISION, WHICH RESULTED IN THE INFLATION OF THE PROFITS OF THE EOU DIVISION AND LOWER PROFITS OF THE NON-EOU DIVISION, WHICH IN TURN RESULTED IN REDUCTION OF TAX LIABILITY OF THE ASSESSEE. IN THIS REGARD, THE CASE OF THE A SSESSEE IS THAT INVENTORIES ARE MADE AS PER THE ACCOUNTING STANDARD NO.2, WHEREIN IT IS MENTIONED AS FOLLOWS- 12. INTEREST AND OTHER BORROWINGS COSTS ARE USUALL Y CONSIDERED AS NOT RELATING TO BRINGING THE INVENTOR IES TO THEIR PRESENT LOCATION AND CONDITION AND ARE, THERE FORE, USUALLY NOT INCLUDED IN THE COST OF INVENTORIES. THOUGH THE REVENUE IS ALLEGING THAT THE CIT(A) SHOU LD NOT HAVE SOLELY RELIED ON THE AUDIT REPORT IN FORM NO.56G AND ACC OUNTING STANDARD NO.2 ON THE VALUATION OF INVENTORIES, REVENUE FAILED TO GIVE REASONS FOR NOT ACCEPTING SUCH ACCOUNTING STANDARD NO.2, WHICH IS A PPROVED BY THE CBDT FOR THE PURPOSES OF INCOEM0-TAX ACT. 4. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF T HE LOWER AUTHORITIES. WE FIND THAT THE CIT(A) AFTER DETAILE D CONSIDERATION OF THE SUBMISSIONS OF THE ASSESSEE ON THIS ISSUE, GAVE HIS FINDINGS IN PARAS 6.1 TO 6.3 OF THE IMPUGNED ORDER. RELEVANT PORTION OF THE IMPUGNED ORDER OF THE CIT(A) IN THIS BEHALF READS AS FOLLOWS- 6.3 HAVING REGARD TO THE ABOVE SUBMISSIONS AND ALS O THE DOCUMENTS FURNISHED DURING THE ASSESSMENT PROCEEDI NGS, AND FURTHER CONSIDERING THE SUBMISSIONS MADE BEFORE ME AS DISCUSSED ABOVE, IT MAY BE SEEN THAT THERE IS NO JU STIFICATION ON THE PART OF THE ASSESSING OFFICER IN RECOMPUTING THE PROFIT IN THE CASE OF THE APPELLANT PERTAINING TO THE EOU PERIOD. FURTHER, WHEN THE APPELLANT HAS MAINTAINED BOOKS OF ACCOUNTS SEPARATELY, BOTH FOR THE NON-EOU AND EOU P ERIOD, AND IT HAS CLARIFIED THAT IT IS FOLLOWING THE GUIDE LINES CONTAINED IN AS-2, FOR VALUATION OF INVENTORIES, WI THOUT BRINGING ON RECORD ANY SPECIFIC ABNORMAL FEATURE, I N MY VIEW, THE ASSESSING OFFICER IS NOT JUSTIFIED IN STA TING THAT THE APPELLANT HAS SHOWN ABNORMAL PROFITS IN RESPECT OF THE EOU PERIOD. HAVING REGARD TO THE COMPLETE RECORDS MAIN TAINED BY THE APPELLANT BOTH FOR THE EOU AND NON-EOU FOR THE PERIOD, AND THE FACT THAT SUCH ACCOUNTS ARE AUDITED U/S. ITA NO.766/HYD/2009 M/S. MICROSOL POWER LTD., HYDERABAD 3 44AB OF THE ACT, IN ABSENCE OF ANY SPECIFIC ABNORMA LITY POINTED OUT BY THE ASSESSING OFFICER, THE PROFIT AS SHOWN BY THE APPELLANT IN RESPECT OF THE EOU UNIT/PERIOD, H AS TO BE ACCEPTED. THEREFORE, THE PROFIT OF RS.85,28,960 AS ARRIVED AT BY THE APPELLANT IN THE COMPUTATION FILED WITH THE RETURN OF INCOME, IS ACCEPTABLE IN PRINCIPLE, FOR THE PURPOSE OF COMPUTING EXEMPTION U/S. 10B OF THE ACT. HOWEVER, AS SEEN FROM THE EOU PROFIT AND LOSS ACCOUNT, THE SAID PROFIT HAS BEEN ARRIVED AFTER INCLUDING AN AMOUNT OF RS.9, 35,573 TOWRDS OTHER INCOME. SINCE IT HAS NOT BEEN CLARIFIE D AS TO HOW SUCH OTHER INCOME SAH ARISEN IN THE EOU UNIT DU RING THAT PERIOD, AND MOREOVER, AS SUCH INCOME HAS NO NE XUS WITH THE BUSINESS OPERATION CARRIED OUT BY THE EOU, IN MY VIEW, THE SAME CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 10B OF THE ACT ACCORD INGLY, THE ASSESSING OFFICER IS DIRECTED TO EXCLUDE THE SA ID AMOUNT FROM THE AMOUNT OF RS.85,28,960 CONSIDERED BY THE APPELLANT TOWARDS BUSINESS PROFIT OF EOU, FOR THE P URPOSE OF COMPUTING THE BUSINESS PROFIT OF THE EOU FOR THE PU RPOSE OF COMPUTING EXEMPTION U/S. 10B OF THE ACT. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) GRANT ED RELIEF TO THE ASSESSEE IN VIEW OF THE AS-2 AND THE CONTENTS THERE OF. NOTHING IS BROUGHT TO OUR NOTICE THAT THE SAID AS-2 IS NOT REL EVANT TO THE INSTANT CASE. IT IS ALSO NOT THE CASE OF REVENUE THAT THE A SSESSEE HAS NOT BEEN CONSISTENTLY FOLLOWING THE SAID AS-2 IN THE PAST OR FUTURE ASSESSMENT YEARS , IF ANY, AND THE ASSESSING OFFICER HAS CORRE CTLY ASSUMED JURISDICTION UNDER S.145(3) OF THE ACT. WE FIND NO INFIRMITY IN THE ABOVE FINDINGS OF THE CIT(A). THE SAME ARE ACCORDINGLY UPHELD AND THE GROUNDS OF THE REVENUE IN THIS APPEAL ARE DISMISSED. 5. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 03.08.2012 SD/- SD/- ( ASHA VIJAYARAGHAVAN) (D.KARUNAKARA RAO) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/- 3RD AUGUST, 2012 ITA NO.766/HYD/2009 M/S. MICROSOL POWER LTD., HYDERABAD 4 COPY FORWARDED TO: 1. M/S. MICROSOL POWER LTD., PLOT NO.B-27, PHASE-I, IDA JEEDIMETLA, HYDERABAD . 2 . 3. ASTT. COMMISSIONER OF INCOME - TAX CIRCLE 16(2) , HYDERABAD COMMISSIONER OF INCOME-TAX(APPEALS)-V HYDERABAD 4 . COMMISSIONER OF INCOME - TAX IV , HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S.