APURVA INDIA LTD, MUMBAI V. ACIT 6(1), MUMBAI

ITA 77/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8490 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Appeal Filed On: 06-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Earning of tax free income; Bad and doubtful debts
• Section: 142(1); 10AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI G.S. PANNU , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 77 / MUM/ 20 15 ( / AS SESSMENT YEAR: 2011 - 12 ) APURVA INDIA LTD OFF NO.2 2 ND FLOOR, NEW UDYOG MA NDIR , PITAMBER LANE, MAHIM(W) MUMBAI 400 016 / VS. ACIT 6(1) AAYAKAR BHAVAN MUMBAI ./ ./ PAN/GIR NO. : AAC C A 0690 D ( / APPELLANT ) .. ( / RESPONDENT ) / I .T.A. NO. 673 / MUM/ 2015 ( / ASSESSMENT YEAR: 2011 - 12 ) DCIT CIR 6(1)(1) R.NO.506 5 TH FLOOR, AAYAKAR BHAVAN M.K. ROAD MUMBAI PIN: 400020 / VS. APURVA INDIA LTD OFF NO.2 2 ND FLOOR, NEW UDYOG MANDIR, PITAMBER LANE, MAHIM(W) MUMBAI 400 016 ./ ./ PAN/GIR NO. : AACCA 0690 D ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 03 - 11 - 2017 / DATE OF PRONOUNCEMENT : 08 .11. 2017 ASSESSEE BY : SHRI DEVENDRA JAIN, (AR) REVENUE BY: SHRI M.C. OMI NINGSHEN, (DR) M/S. APURVA INDIA LTD. MUMBAI 2 / O R D E R PER AMARJIT SINGH, J M: THE ASSESSEE AS WELL AS THE REVENUE HAVE FILED THE ABOVE MENTIO NED APPEAL S AGAINST THE ORDER DATED 03.11.2014 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 14 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] . R ELEVANT TO THE ASSESSMENT YEAR 2011 - 12. ITA NO.77 /MUM/2015 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GR OUNDS: - 1 . ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF PROVISION OF INSURANCE EXPENSES OF RS. 30,00,000. 2 . ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONSIDERING DISALLOWANCE OF INSURANCE EXPENSE OF RS. 30,00,000/ - TWICE; FIRST BY SEPARATELY DISALLOWING AND SECOND BY CONSIDERED WHILE APPORTIONING INSURANCE EXPENSES BETWEEN SEZ AND NON SEZ UNITS. THIS HAS RESULTED IN CONSIDERING THE SAME AMOUNT TWI CE FOR DISALLOWANCE. 3 . ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT ADJUDICATING WHETHER THE PROVISION FOR INSURANCE EXPENSES AMOUNTING TO RS. 30,00,000/ - WILL OR WILL NOT BE CONSIDERED WHILE CALCULATING BOOK PRO FIT AS PER EXPLANATION(1)(C) TO SECTION 11 5JB(2). THE APPELLANT CRAVES LEAVE TO ADD, AMEND, SUPPLEMENT, ALTER AND/OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE FILED ITS RETURN OF INCOME ON 30.09.20 11 DECLARING TOTAL INCOME TO THE TUNE OF RS. 12,88,310 . THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT . THE ASSESSEE HAS RETURNED BOOK PROFIT OF RS.57,59,175/ - AND THE PAID TAXES ON THE SAME. THE CASE WAS SELECTED FOR SCRUTINY AND A NOTICE U/S 143(2) DATED 12.09.2012 WAS M/S. APURVA INDIA LTD. MUMBAI 3 ISSUED AND SERVED UPON THE ASSESSEE . THEREAFTER, NOTICE U/S 143(2) & 142(1) DATED 09.07.2013 ALONGWITH A QUESTIONNAIRE WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURI NG OF PAIN TS AND EPOXY FLOORING, APPLICATORS OF PAINTS AND EPOXY FLOORING . THE ASSESSEE RAISED THE CLAIM U/S 10AA(9) R.W.S.80 - A(8) IN RESPECT OF APPORTIONMENT OF EXPENSES. THE ASSESSEE HAS CLAIMED THE EXEMPT INCOME U/S 10AA AN AMOUNT OF RS.1,18,65,674/ - . THE ASSESSE E WAS ASKED TO SUBMIT COPY OF CERTIFICATE IN FORM 56 - F AND UNIT - WISE P& L ACCOUNT IN COMPARATIVE FORMAT WHICH WERE SUBMITTED BY THE ASSESSEE VIDE LETTER DATED 23.10.2013. THEREAFTER, ON APPRAISAL OF THE DOCUMENT , IT WAS OBSERVED THAT THE ASSESSEE HAD D ISCL OSED PROFITS DERIVED BY THE ELIGIBLE SEZ UNIT (AT INDORE) AT RS.153.02 LAKHS ON A TURNOVER OF RS.497.04 LAKHS, AGAINST THE PROFITS AT RS.23.77 LAKHS ON THE TURNOVER RS.1364.60 LAKHS FROM THE NON - ELIGIBLE UNIT (AT MUMBAI) . THUS, THE RATE OF NET PROFIT IN RE SPECT OF SEZ UNIT CAME AT 30.79%, AS AGAINST IN RESPECT OF NON - SEZ UNIT AT 1 - 75% ONLY. THE ASSESSING OFFICER DID NOT FOUND APPORTIONMENT IN ACCORDANCE WITH LAW , THEREFORE, DISALLOWED AN AMOUNT OF RS.63,24,267/ - ON ACCOUNT OF ELIGIBLE UNIT. THE ASSESSEE ALS O CLAIM ED THE PROVISION FOR INSURANCE OF RS.30,00,000/ - WHICH WAS ALSO DISALLOWED AND THE INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS. 1,06,12,570/ - . FEELING AGGRIEVED , THE APPEAL WAS FILED BY THE ASSESSEE BEFORE THE CIT(A) AND THE CIT(A) ALLOWED THE CLAIM OF THE A SSESSEE IN CONNECTION WITH THE DISALLOWANCE OF RS. 63,24,265/ - BUT DISALLOWED THE INSURANCE EXPENSES TO THE TUNE OF RS.30,00,000/ - , THEREFORE, THE ASSESSEE AS WELL AS THE REVENUE FILED THE PRESENT APPEAL BEFORE US. M/S. APURVA INDIA LTD. MUMBAI 4 I SSUE NO.1 TO 3 4 . UNDER THESE ISSUES, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF THE PROVISION OF THE INSURANCE EXPENSES TO THE TUNE OF RS.30,00,000/ - . THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE MATTER OF C ONTROVERSY HAS BEEN ADJUDICATED BY THE MUMBAI TR IBUNAL IN THE CASE OF SHRI NIDHI CORPORATION VS. ACIT CIRCLE - 23 (3) (2014) 44 TAXMAN.COM 31 (MUMBAI TRIBUNAL) , SURI SONS VS. ACIT (2015) 155 ITD 825 . ON THE OTHER HAND, LD. R EPRESENTATIVE OF THE REVENUE HAS REFUTED THE SAID CONTENTION. KEEPING IN VIEW ARGUMENT ADVANCED LEARNED REPRESENTATIVE OF THE PARTIES AND PERUSING THE RECORD. WE NOTICE D THAT THE HONBLE ITAT MUMBAI BENCH HAS DECIDED THE MATTER OF CONTROVERSY IN FAVOUR OF ASSESSEE IN CASE SHRI NIDHI CORPORATION VS. ACIT CIRCLE - 23 (3) (2014) 44 TAXMAN.COM 31 (MUMBAI TRIBUNAL) . THEREAFTER, THE HONBLE ITAT AMRITSAR BENCH HAS PASSED THE FRESH ORDER IN WHICH THE CLAIM OF THE ASSESSEE IN CONNECTION WITH KEYMAN INSURANCE POLICY WAS ALLOWED IN CASE TITLED AS SURI SONS VS. ACIT (2015) 155 ITD 825. THI S ORDER WAS PASSED ON THE BASIS OF THE LAW SETTLED BY THE ITAT MUMBAI BENCH IN THE CASE OF SHRI NIDHI CORPORATION VS. ACIT CIRCLE - 23 (3) (2014) 44 TAXMAN.COM 31 (MUMBAI TRIBUNAL) , THE RELEVANT PARA IN THE SAID CASE IS HEREBY REPRODUCED AS UNDER.: - M/S. APURVA INDIA LTD. MUMBAI 5 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT THE ASSESSEE HAS BOUGHT TWO KEYMAN INSURANCE POLICIES VIZ., TATA AIG LIFE INSURANCE POLICY AND BAJAJ ALLIANZ ON 28 T H MARCH 2005, IN FAVOUR OF TWO PARTNERS. THESE POLICIES ARE LIFE INSURANCE POLICIES WHICH ARE EVIDENT FROM THE CLAUSE MENTIONED IN THE POLICY DOCUMENTS PLACED BEFORE US IN THE PAPER BOOK. THE PREMIUM OF THESE POLICIES HAS BEEN PAID BY THE ASSESSEE FIRM AND THE SAME HAS BEEN CLAIMED AS DEDUCTION UNDER KEYMAN INSURANCE POLICY. IT APPEARS THAT AFTER THE ASSESSEE HAS PURCHASED THESE POLICIES, IRDA CAME UP WITH CIRCULAR DATED 27 TH APRIL 2005 THAT PARTNERSHIP INSURANCE IN THE NAME OF PARTNER WILL NOT BE COVERED U NDER KEYMAN INSURANCE BUT AS A TERM INSURANCE COVER. THUS, SUCH IRDA CIRCULAR CANNOT BE ADVERSELY VIEWED IN CASE OF THE ASSESSEE AS WHEN THE ASSESSEE HAS TAKEN THE POLICY UNDER KEYMAN INSURANCNE SCHEME FROM TWO REPUTED INSURANCE COMPANIES THERE WAS NO SUCH REGULATION. THE OTHER OBJECTIONS OF THE REVENUE ARE THAT THE DEDUCTION OF THE PREMIUM UNDER KEYMAN INSURANCE CANNOT BE ALLOWED IN THE CASE OF PARTNERSHIP FIRM, IS NOT TENABLE IN VIEW2 OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN B.N. EXPORT S (SUPRA), WHEREIN, IT HAS BEEN HELD THAT IF THE KEYMAN INSURANCE POLICY IS OBTAINED ON A LIFE OF A PARTNER, TO SAFEGUARD THE FIRM AGAINST A DISRUPTION OF BUSINESS, THEN THE PAYMENT FOR PREMIUM ON SUCH POLICY IS LIABLE FOR DEDUCTION AS BUSINESS EXPENDITURE . THUS, EVEN IF A KEYMAN INSURANCE HAS BEEN TAKEN IN THE NAME OF A PARTNER BY THE PARTNERSHIP FIRM THEN ALSO THE DEDUCTION HAS TO BE ALLOWED ON THE PAYMENT OF PREMIUM. THE OTHER MAIN OBJECTIONS OF THE LD. COMMISSIONER(APPEALS) HAS BEEN THAT FIRSTLY, THESE ARE NOT INSURANCE POLICY AS SUCH BUT ARE MAINLY FOR CAPITAL APPRECIATION UNDER THE INVESTMENT SCHEME AND SECONDLY, THE ASSESSEE HAS NOT RECEIVED THE MATURITY SUM BUT IT HAS BEEN ASSIGNED TO THE PARTNERS, THEREFORE, THE ASSESSEE CANNOT BE GIVEN DEDUCTION F OR ANY PREMIUM PAID. INSOFAR AS THE FIRST OBJECTION OF THE LD. COMMISSIONER (APPEALS) IS CONCERNED, WE DECLINED TO AGREE WITH THIS CONCLUSION BECAUSE ONCE THE ASSESSEE HAS BOUGHT A POLICY UNDER A LIFE INSURANCE SCHEME, THEN WHETHER THE INSURANCE COMPANY IS MAKING INVESTMENT IN MUTUAL FUNDS FOR CAPITAL APPRECIATION OR UNDER ANY OTHER INVESTMENT SCHEME, WILL NOT MAKE ANY MATERIAL DIFFERENCE. INSOFAR AS THE ASSESSEE IS CONCERNED, IT HAS BOUGHT A LIFE INSURANCE POLICY, UNDER KEYMAN M/S. APURVA INDIA LTD. MUMBAI 6 INSURANCE POLICY ON WHICH PRE MIUM HAS BEEN PAID. ON A PERUSAL OF THESE DOCUMENTS, IT IS CLEARLY EVIDENT FROM THE CLAUSES OF THAT IT IS THESE POLICIES THAT IT IS FOR LIFE INSURANCE ONLY. NOW, COMING TO THE SECOND OBJECTION OF THE LD. COMMISSIONER (APPEALS) IT IS SEEN FROM THE POLICY DO CUMENT THAT IF THE ASSESSEE SURRENDERS THE POLICY WITHIN THE PERIOD OF THREE YEARS, THEN THERE IS NO SURRENDER OR MATURITY VALUE. UNDER BOTH THE POLICIES, THE MATURITY VALUE UP TO THREE YEARS IS ZERO. ONCE IT IS AN ADMITTED FACT THAT THE POLICY HAS BEEN SU RRENDERED AND IT HAS BEEN ASSIGNED TO THE POLICY HOLDERS ON WHICH NO M ATURITY AMOUNT OR SURRENDER VALUE HAS BEEN RECEIVED, THEN SUCH AN OBSERVATION OF THE LD. COMMISSIONER(APPEALS) DOES NOT MAKE ANY DIFFERENCE. MOREOVER, ONCE THE ASSESSEE AFTER NURSING THE SE POLICIES FOR SOME TIME BY PAYING PREMIUM THEREUPON, HAS BEEN ASSIGNED TO THE PARTNERS, THEN ALSO THE PAYMENT OF SUCH A PREMIUM HAS TO BE ALLOWED AS DEDUCTION IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN RAJAN NANDA (SUPRA). THUS, THE REASO NING AND CONCLUSION DRAWN BY THE LD. COMMISSIONER (APPEALS), CANNOT BE UPHELD CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LD. COMMISSIONER (APPEALS) AND HOLD THAT THE ASSESSEE IS ELIGIBLE FOR CLAIMING DEDUCTION OF RS. 10,00,481/ - TOWARDS PR EMIUM PAID IN RESPECT OF KEYMAN INSURANCE POLICY AND SHOULD BE ALLOWED ACCORDINGLY. THUS, THE GROUND RAISED BY THE ASS ESSEE IS TREATED AS ALLOWED. 5. ON APPRAISAL OF THE ABOVE SAID FINDING, WE NOTICED THAT HE FACTUAL POSITION IN THIS CASE IS ALSO THE SAME . HONORING THE ORDER OF THE HONBLE ITAT IN THE CASE OF SHRI NIDHI CORPORATION VS. ACIT CIRCLE - 23 (3) (2014) 44 TAXMAN.COM 31 (MUMBAI TRIBUNAL) , WE SET ASIDE THE FINDING OF THE CIT(A) ON THIS ISSUE AND ALLOWED THE CLAIM OF THE ASSESSEE. THEREFORE, ACCOR DING LY, THIS ISSUE IS BEING DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE . 6 . IN RESULT, THE APPEAL OF TH E ASSESSEE IS HEREBY ALLOWED . ITA NO.673/MUM/2015 M/S. APURVA INDIA LTD. MUMBAI 7 7 . THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 03.11.2014 PASSED BY TH E CIT(A) - 14 MUMBAI . RELEVANT TO THE AY.2011 - 12. 8 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1 .WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN HOLDING THAT THE DISALLOWANCE OF RS.63,24,265/ - U/S 10AA( 9) R.W.S.80IA(8) OF THE I.T. ACT MADE BY THE A.O. ON THE BASIS OF TURNOVER IS INCORRECT. 2 .WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO RESTRICT DISALLOWANCE TO RS.12,35,831/ - AS AGAINST RS .63,24,265/ - DISALLOWED U/S10AA(9) R.W.S. 80IA(8) OF THE I.T. ACT BASED ON FRESH EVIDENCE/DETAILS PRODUCED AT THE APPELLATE STAGE FOR THE FIRST TIME WITHOUT GIVING AN OPPORTUNITY OF EXAMINATION TO THE AO IN CONTRAVENTION OF RULE46A OF THE I.T. ACT. 1961 3 .THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE TO THE FILE OF AO OR CONFIRM THE ORDER OF THE AO. 4 .THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 9 . THE FACT S OF THE PRESENT CASE ARE QUITE SIMILAR TO THE FACTS OF THE ABOVE MENTIONED CASE , THEREF ORE, THERE IS NO NEED TO REPEAT THE SAME. ISSUE NO. 1 TO 2 10 . UNDER THESE ISSUES THE REVENUE HAS CHALLENGED THE CORRECTNESS OF THE CLAIM OF DISALLOWANCE OF RS. 63,24,265/ - U/S 1 0AA(9) READ WITH 80 - IA(8) OF THE INCOME TAX 1961 . THE FACTS OF THE CASE ARE THAT THE APPELLANT COMPANY SUPPLIES PROTECTIVE PAINTS AND FLOORING PRIMARILY USED BY THE CONSTRUCTION INDUSTRY. THE ASSESSEE HAS TWO UNITS (I) NON SEZ UNIT AT MUMBAI ( TARAPUR) (II) SEZ UNIT AT INDORE. T HE ASSESSEE M/S. APURVA INDIA LTD. MUMBAI 8 HAD DISCLOSED PROFITS DERIVED BY THE ELIGIBLE SEZ UNIT (AT INDORE) AT RS.153.02 LAKHS ON A TURNOVER OF RS.497.04 LAKHS, AGAINST THE PROFITS AT RS.23.77 LAKHS ON THE TURNOVER RS.1364.60 LAKHS FROM THE NON - ELIGIBLE UNIT (AT MUMBAI). THUS, THE RATE OF NET PROFIT IN RESPECT OF SEZ UNIT CAME AT 30.79%, AS AGAINST IN RESPECT OF NON - SEZ UNIT AT 1 - 75% ONLY. THE ASSESSING OFFICER DID NOT FOUND APPORTIONMENT IN ACCORDANCE WITH LAW, THEREFORE, DISALLOWED AN AMOUNT OF RS.63,24,267/ - ON ACCOUNT OF ELIGIBLE UNIT. NO DOUBT, THE SAID FINDING WAS CHALLENGED BEFORE THE CIT(A) WHO ALLOWED THE CLAIM OF ASSESSEE . IT IS REQUIRED TO BE SEEN IN WHICH CIRCUMSTANCES THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE. THE FINDING OF THE CIT(A) IS HEREB Y REPRODUCED BELOW : - I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND SUBMISSION OF THE APPELLANT. THERE IS NO DISPUTE ON THE ELIGIBILITY OF SEZ UNIT FOR DEDUCTION UNDER SECTION 10AA. THERE IS NO DISPUTE ON THE GENUI NE NESS OF THE EXPENDITURE I NCURRED. THE DISPUTE IS ONLY ON THE APPORTIONMENT OF EXPENSES BETWEEN SEZ AND NON - SEZ UN IT. F OR BETTER APPRECIATION OF FACTS, THE REASON OF THE AO SUBMISSION OF THE APPELLANT FOR APPROPRIATION OF EXPENSES IS REPRODUCED IN TABULAR FORM M/S. APURVA INDIA LTD. MUMBAI 9 COMPARATIV E CHART SR.NO NATURE OF EXPENDITURE AOS REASON APPELLANTS ARGUMENT 1 LABOUR CHARGES TOTAL RS.80,76,943/ - SEZ: NIL THE ASSESSEE IS ENGAGED IN MANUFACTURING ACTIVITY BOTH AT ITS MUMBAI(TARAPUR & SEZ (INDORE) UNITS, BUT STILL HAS NOT SHOWN ANY LABOUR CH AR GES UNDER THE SEZ UNIT, WHICH IS HIGHLY UNIMAGINABLE ASSESSEE MANUFACTURES PAINTS AND EPOXY FLOORINGS. NON - SEZ UNIT ALSO UNDERTAKES APPLICATION CONTRACTS FOR WHICH IT ENGAGES SUB - CONTRACTORS AND PAYS THEM AS PER THE WORK ASSIGNED, COMPLETE DETAILS AS REGAR DS NAMES, AMOUNTS AND SITE LOCATIONOF EACH SUB - CONTRACT SERVICE WAS GIVEN IN THE DETAILS OF LABOUR CHARGES SUBMITTED TO AO ENTIRE BILLING FOR SUCH APPLICATION CONTRACT HAS BEEN DONE FROM MUMBAI OFFICE I.E. NON SEZ UNIT. SEZ UNIT ONLY MANUFACTURES AND EXPOR TS. NO SERVICE IS PROVIDED FROM SEZ UNIT( IN FACT THE UNIT IN SEZ IS PRECLUDED FROM PROVIDING ANY SERVICE. FACTUAL EXPLANATION HAS BEEN COMPLETELY IGNORE. 2 PERSONNEL EXPENSES TOTAL:RS.2,95,89,785/ - SEZ:RS.27,87,5237 - EXPENSES SHOWN UNDER SEZ UNIT IS DIS PROPORTIONATELY LOW, BEING LESS THAN 10% OF TOTAL EXPENSES, COMPARED TO MUMBAI UNIT. EMPLOYEES ARE DEPLOYED AT VARIOUS LOCATIONS WHICH WERE EXPLICITLY STATED IN THE DETAILS SUBMITTED TO AO SEZ UNIT HAS BEEN SET UP IN AUGUST 2009. PERSONNEL EXPENSES OF ASSE SSEE(EXCLUDING SEZ): FY2007 - 08RS.206,20LAKHS - NO SEZ FY2008 - 09:RS.261.40LAKHS - (NO SEZ) FY2009 - 10: RS.222.65LAKHS(EXCL.SEZ) FY2010 - 11:RS.268,02 LAKHS(EXCL.SEZ) SEZ PERSONNEL COST: M/S. APURVA INDIA LTD. MUMBAI 10 FY2009 - 10:RS.12.91 LAKHS(FOR 8MONTHS) FY2010 - 11:RS.27.87LAKHS COMPANYS PRODU CTS ARE MEANT FOR BUILDING INDUSTRY; COMPANYS ADDITIONAL MANPOWER IS DUE TO MARKETING THRUST IN DOMESTIC MARKET. SEZ MANUFACTURES ONLY AGAINST SPECIFIC EXPORT ORDERS. IN OTHER WORDS, WHEN THERE ARE NO EXPORT ORDERS THERE IS VIRTUALLYNO ACTIVITY IN SEZ.(NU MBER OF PRODUCTION DAYS OF SEZ UNIT ENCLOSED HEREWITH) FURTHER, FULL SALARY OF A DIRECTOR HAS BEEN APPORTIONED TO SEZ EVEN THOUGH HE ALSO HANDLESS MUMBAI OFFICE. SEZ UNIT DOES NOT REQUIRE EXCESSIVE MANPOWER. RS. 83,865/ - PAID TO SEZ EMPLOYEES FROM MUMBAI H AS BEEN DEBITED IN MUMBAI ACCOUNTS THROUGH OVERSIGHT. 3 TRAVELLING - LOCAL:RS.27,57,313/ - SEZ RS.9,229/ - EXPENSES SHOWN UNDER SEZ UNIT IS DISPROPORTIONATELY LOW, BEING LESS THAN 0.33% OF TOTAL EXPENSES, COMPARED TO MUMBAI UNIT. THESE ARE ORIGIN/DESTINATION/ PURPOSE BASED. THERE CANT BE ANY PERCENTAGE BASED COMPARISON. RS.41,549/ - RELATING TO SEZ HAS BEEN DEBITED IN MUMBAI THROUGH OVERSIGHT. 4 TRAVELLING EXPENSES - FOREIGN TOTAL RS.5,64,608/ - SEZ NIL THE ASSESSEE ITSEL HAS ADMITTED THAT ALL SUCH EXPENSES ARE TREATED AS NON - SEZ EXPENSES, EVEN THOUGH THE ORDERS INVOLVING EXPORTS OF GOODS ARE EXECUTED FROM SEZ INCLUDES RS.1,97,652/ - RELATED TO APPLICATION CONTRACTS CARRIED OUT ABROAD FOR WHICH BILLING HAS BEEN DONE FROM MUMBAI. 5 CONVEYANCE:TOTAL RS.18,37,503/ - SEZ RS.2,50,028/ - EXPENSES SHOWN UNDER SEZ UNIT IS DISPROPORTIONATELY LOW, BEING LESS THAN 1.36% OF TOTAL EXPENSES, COMPARED TO MUMBAI UNIT. THESE ARE ORIGIN/DESTINATION/PURPOSE BASED. THERE CANT BE ANY PERCENTAGE BASED COMPARISON. SEZ RELATED EXPENDITURE HAS BEEN DEBITED IN SEZ M/S. APURVA INDIA LTD. MUMBAI 11 6 AUDIT FEES: TOTAL RS.1,10,300/ - AUDIT FEE HAS NOT BEEN APPORTIONED TO SEZ UNIT, EVEN THOUGH THOSE ACCOUNTS ARE ALSO SUBJECT TO AUDIT . 7 CONSULTANCY CHARGES: TOTAL RS.22,51,911/ - SEZ RS.15000/ - EXPENSES SHOWN UNDER SEZ UNIT IS DISPROPORTIONATELY LOW, BEING LESS THAN 0.67% OF TOTAL EXPENSES, COMPARED TO MUMBAI INIT. THESE ARE ASSIGNMENT SPECIFIC EXPENSES MAINLY RELATED TO MARKETING ACTIVITY IN DOMESTIC MARKET. THERE CANT BE ANY PERCENTAGE BASED COMPARISON 8 PRINTING & STATIONER Y: TOTAL RS.7,93,531/ - SEZ RS.12,390/ - EXPENSES SHOWN UNDER SEZ UNIT IS DISPROPORTIONATELY LOW, BEING LESS THAN 1.56% OF TOTAL EXPENSES, COMPARED TO MUMBAI UNIT. THESE ARE LOCATED BASED EXPENSES THERE CANT BE ANY PERCENTAGE BASED COMPARISON. IT IS PERTINE NT TO NOTE THAT THERE ARE ONLY 47 INVOICES FROM SEZ AS COMPARED TO 1929 INVOICES FROM MUMBAI 9 INSURANCE: TOTAL RS.36,08,411/ - SEZ RS.23,458/ - THE INSURANCE PREMIUM INCLUDES PREMIUM FOR KEYMAN INSURANCE POLICY FOR G.S. GUPTA AND ANIL PAWASKAR OF RS.2,34,3 63/ - AND PROVISION MADE FOR INSURANCE PREMIUM PAYABLE ON EMPLOYER EMPLOYEE POLICY OF G.S. GUPTA AND ANIL PAWASKAR OF 30,00,000/ - WHILE THE AMOUNT SPENT ON INSURANCE OF KEYMAN CANNOT BE SOLELY ATTRIBUTED TO MUMBAI UNIT, THE AFORESAID PROVISION MADE OF RS.30 ,00,000/ - IS CONSIDERED FOR DISALLOWANCE SEPARATELY, HENCE DEDUCTED FROM THE OVERALL INSURANCE EXPENSES UNDER THIS PARA. INSURANCE IS ASSET/RISK SPECIFIC EXPENDITURE. AO HAS COMPLETELY IGNORED SUBMISSIONS DESPITE GIVING SPECIFIC DETAILS ABOUT THE ASSETS/RI SKS. 10 BAD DEBTS WRITTEN OFF: RS.28,06,878/ - THE ASSESSEES HAS NOT SUBMITTED ANY DETAILS, THOUGH MENTIONED AS SUCH IN THE COVERING LETTER, HENCE THE SAID EXPLANATION CANNOT BE ACCEPTED. SEZ HAS COME INTO EXISTENCE FROM AUGUST 2009. ALL THE DETAILS WERE S UBMITTED DURING THE PROCEEDING. EVEN BY LOOKING AT THE NAMES OF THE PARTIES IT IS VERY CLEAR THAT THEY ARE LOCAL PARTIES INVOICE - WISE DETAILS OF EXPORTS FROM SEZ FROM INCEPTION TILL31.3.2011 ARE ENCLOSED. IT WOULD THUS BE CLEAR THAT THE BAD DEBTS WRITTEN O FF DO NOT RELATE TO ANY EXPORT SALES EFFECTED FROM SEZ AND CANNOT BE APPORTIONED M/S. APURVA INDIA LTD. MUMBAI 12 TO SEZ FROM PERUSAL OF THE AFORESAID EXPENSES I AGREE WITH THE ARGUMENT OF THE LD. AR THAT PERCENTAGE ALLOCATION OF EXPENSES IS NOT CORRECT IN ALL THE HEADS. THE EXPENSES HAVE TO BE ANALYZED AND ALLOCATED ON ACTUAL. EACH ITEM OF EXPENDITURE NEEDS ANALYSIS AND THEN INFERENCE HAS TO BE DRAWN WHETHER IT IS INCURRED FOR SEZ OR NON - SEZ UNIT. 4.5 DECISION 4.5.1 PERSONNEL EXPENSES AND LOCAL TRAVELLING EXPENSES, CONVEYANCE C ONSULTANCY CHARGES, PRINTING & STATIONARY BAD DEBTS WRITTEN OFF: - ON ANALYSIS OF THE EXPENSES INCURRED THE ARGUMENT OF THE APPELLANT IS IN ORDER. THE ALLOCATION DONE BY THE APPELLANT IS ON ACTUAL EXPENDITURE INCURRED. THEREFORE, THE APPORTIONMENT MADE BY THE AO IS INCORRECT AS IT IS NOT BOUND BY ANY CREDIBLE OR COGENT EVIDENCE. THE APPORTIONMENT MADE ON THIS ACCOUNT IS DELETED. 4.5.2 LOCAL TRAVELLING EXPENSE, AUDIT EXPENSE AND INSURANCE EXPENSE THE LOCAL TRAVELLING EXPENSES OF RS.5,64,608 WAS DISC USSED WITH THE LD. AR AT THE TIME OF APPELLATE PROCEEDINGS. ON VERIFICATION OF DETAILS PRODUCED HE AGREED THAT AN AMOUNT OF RS.3,66,956 TO SEZ. BASED ON SALES TURNOVER THE AO IS DIRECTED TO TAKE RS.29450 AS AUDIT EXPENSES INCURRED FOR SEZ. 4.5.3 SIMI LARLY BASED ON SALES TURNOVER THE AO IS DIRECTED TO TAKE RS.8,39,425/ - AS INSURANCE EXPENSES INCURRED FOR SEZ 4.5.4 THE AO IS DIRECTED TO ALLOCATE THE EXPENSE BETWEEN SEZ AND NO. SEZ UNIT AS PER ABOVE DIRECTION. 1 1 . ON APPRAISAL OF THE ABOVE MENTIONED ORDER , WE FIND THAT THE CIT(A ) ANALYSIS THE EXPENSES ON ACTUAL BASIS OF EACH UNIT AND M/S. APURVA INDIA LTD. MUMBAI 13 ACCORDINGLY T HE ASSESSING O FFICER WAS DIRECTED TO ALLOCATE THE EXPENSES ACCORDING TO U NIT WISE OF BOTH THE UNITS. THEREFORE, IN THE SAID CIRCUMSTANCES, NO DOUBT THE RATI O OF EXPENSES ASSESSED BY THE AO IS NOT JUSTIFIABLE . I N VIEW OF THE ABOVE SAID CIRCUMSTANCES , WE FIND THAT IT IS QUITE REASONABLE TO ASSESS THE EXPENSES UNIT WISE. FACTUAL POSITION IS THE SAME. F INDING NOTHING CONTRARY TO THE FINDIN G OF THE CIT(A) , W E ARE OF THE VIEW THAT CIT(A) HAS PASSED THE ORDER ON THIS ISSUE JUDICIOUSLY AND CORRECTLY WHICH IS NOT REQUIRED TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDING, THIS ISSUE IS DECIDED AGAINST THE REVENUE . ISSUE NO.3 &4: - 12 . THESE I SSUE S ARE FORMAL IN NATURE WHICH NOWHERE REQUIRE D ANY ADJUDICATION AT ALL. 1 3 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HERE BY ORDERED TO BE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 08. 11. 2017 . SD/ - SD/ - ( G.S. PANNU ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 08. 11. 2017 V.P. SINGH