BRISTLECONE INDIA LTD, MUMBAI V. ACIT (OSD) 2(1), MUMBAI

ITA 7936/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3710 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 18-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRAVIN VARMA
• Assessee Lawyers: H P MAHAJANI
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 7936/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. BRISTLECONE INDIA LTD. VS. ACIT (OSD) - 2(1) CHAKRAVARTI ASHOK NAGAR AAYAKAR BHAVAN, M.K. ROAD ASHOK ROAD, KANDIVLI (E) MUMBAI 400020 MUMBAI 400101 PAN - AAACM5186E APPELLANT RESPONDENT APPELLANT BY: SHRI H.P. MAHAJANI RESPONDENT BY: SHRI PRAVIN VARMA DATE OF HEARING: 03.04.2013 DATE OF PRONOUNCEMENT: 08.05.2013 O R D E R PER B. RAMAKOTAIAH, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- 4, MUMBAI DATED 16.09.2010. 2. THE ISSUE IN THIS APPEAL IS WITH REFERENCE TO DETER MINATION OF THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A. T HE ASSESSEE HAS RAISED THE FOLLOWING GROUND: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN NOT ACCEPTING THE PROFITS E LIGIBLE FOR DEDUCTION U/S 10A AS COMPUTED BY THE APPELLANT IN THE RETURN OF INCOME AND INSTEAD DIRECTING THE LEARNED AO TO ALLOW DEDUCTION FOR PROFITS COMPUTED BY THE ALTERNATE WORKING SUBMITTED BY THE APPELLANT, WITHOUT PREJUDICE TO THE PROFITS COMPUTED IN THE RE TURN OF INCOME. 3. BRIEFLY STATED, ASSESSEE HAS CLAIMED DEDUCTION UNDE R SECTION 10A FROM ITS STP UNIT TO AN EXTENT OF ` 3,66,81,655/-. THE AO EXAMINED THE CORRECTNESS OF THE CLAIM OF EXEMPTION/DEDUCTION UND ER SECTION 10A RELATING TO THE PROFITS OF 100% EOU ESTABLISHED IN BANGALORE . THE ASSESSEE HAS VARIOUS UNITS AT MUMBAI, PUNE AND BANGALORE. ASSESS EE WAS ASKED TO ITA NO. 7936/MUM/2010 M/S. BRISTLECONE INDIA LTD. 2 SUBMIT SEPARATE P & L ACCOUNT FOR EACH OF THE UNITS AND ALSO CORPORATE OFFICE INDICATING THE EXPENSES, BOTH, DIRECT AND IN DIRECT, ATTRIBUTABLE TO SUCH UNITS AND THE BASIS OF APPORTIONMENT OF INDIRECT EX PENSES FOR THE LAST THREE YEARS. THE ASSESSEE ADMITTED ITS INABILITY TO BIFUR CATE AND PROVIDE THE P & L ACCOUNT OF THE UNITS EVENTHOUGH BROAD CATEGORISATIO N WAS MADE. THE AO NOTICED THAT THE ASSESSEE HAS BOOKED ABNORMAL PROFI TS OF ` 5.25 CRORES ON A TURN OVER OF ` 23.30 CRORES (@22.48%) IN CASE OF THE UNIT WHICH EN JOYS THE TAX EXEMPTION. HOWEVER, IN THE OTHER UNITS, ON A TU RNOVER OF ` 46.44 CRORES THE PROFITS BOOKED ARE JUST ` 25.71 LAKHS, I.E. AT 0.55%. IN VIEW OF THE ABOVE, THE AO FORMED AN OPINION THAT ASSESSEE HAS BOOKED A LL THE EXPENSES WHICH SHOULD HAVE BEEN ALLOCATED TO ALL UNITS IN THE NON- STP UNITS ONLY THEREBY INCREASING THE PROFITS OF THE UNIT WHICH CLAIMED EX EMPTION. THEREFORE, HE ASKED FOR THE DETAILS OF EACH HEAD OF EXPENDITURE A ND REALLOCATED THE EXPENDITURE BY DISCUSSING EACH OF THE AMOUNTS FROM PAGE 7 TO PAGE 14 OF THE ORDER. IN DOING SO HE ARRIVED AT A LOSS OF ` 2,72,31,032/- ON THE STP UNIT. SINCE THE PROFIT DERIVED BY THE AO WAS A LOSS DEDUC TION UNDER SECTION 10A WAS NOT ALLOWED. SIMILAR ADJUSTMENT WAS ALSO MADE U NDER SECTION 115JB AS ASSESSEES INCOME WAS ALSO ASSESSED UNDER SECTION 1 15JB. 4. ASSESSEE CONTESTED THE SAME BEFORE THE CIT(A) AND M ADE DETAILED SUBMISSIONS WHICH WERE RECORDED BY THE CIT(A) VIDE PARA 5 OF THE ORDER. THEREAFTER, DULY CONSIDERING THE SUBMISSIONS, THE L EARNED CIT(A) DECIDED AS UNDER: - 6. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A UTHORIZED REPRESENTATIVE. HOWEVER, I DO NOT AGREE WITH THE SU BMISSIONS OF THE AUTHORIZED REPRESENTATIVE THAT THE COMMON EXPENSES SHOULD BE REALLOCATED ON THE BASIS OF EMPLOYEES WORKING ON TH E PROJECT. THE A.O. HAS POINTED OUT IN THE ASSESSMENT ORDER THAT T HERE IS NO BASIS FOR ALLOCATING COMMON EXPENSES ON THE BASIS OF EMPL OYEES WORKING ON THE PROJECTS. HENCE, THE REALLOCATION SUBMITTED BY THE AUTHORIZED REPRESENTATIVE IN THE RETURN OF INCOME CANNOT BE AC CEPTED. THE A.O. HAS ALSO POINTED OUT THAT THE APPELLANT HAS NOT FIL LED SEPARATE P & L ACCOUNT OF TWO UNITS OF MUMBAI AND PUNE AND HEAD OF FICE EXPENSES WHICH ARE INCURRED BY THE PRINCIPAL OFFICE SITUATED AT MUMBAI. THEREFORE THE REALLOCATION SUBMITTED BY THE APPELLA NT CANNOT BE ACCEPTED. 7. I ALSO DO NOT AGREE WITH THE FINDINGS OF THE A.O . THAT THE EMPLOYEES COST SHOULD BE REALLOCATED IN THE RATIO O F 25% AND COMMON ITA NO. 7936/MUM/2010 M/S. BRISTLECONE INDIA LTD. 3 EXPENSES @ 45% FOR NON-STP UNITS. INSTEAD, IN MY CO NSIDERED OPINION, THE COMMON EXPENSES SHOULD BE REALLOCATED IN THE RA TIO OF TURNOVER OF THE UNITS. I ALSO DO NOT AGREE WITH THE SUBMISSIONS OF THE AUTHORIZED REPRESENTATIVE THAT STP UNITS EARNINGS ARE MORE AS THEY EARN FOREIGN EXCHANGE. IN ANY CASE THE TURNOVER OF THE RESPECTIV E UNITS SHOULD BE THE BASIS FOR THE REALLOCATION OF COMMON EXPENSES. THE APPELLANT HAS FILED DETAILS OF THESE COMMON EXPENSES AND REALLOCA TION OF THESE EXPENSES IN THE RATIO OF TURNOVER. THIS REALLOCATIO N IS ANNEXED WITH THIS ORDER. IT IS SEEN THAT THE REVISED PROFIT FOR THE STP UNIT WOULD WORK OUT TO RS.2,05,53,072/- AS AGAINST LOSS OF RS. 2,72,31,032/- COMPUTED BY THE A.O. THE A.O. IS DIRECTED TO RECOMP UTE THE 10A EXEMPTION AFTER REALLOCATING THE COMMON EXPENSES ON THE BASIS OF TURNOVER AS SUBMITTED BY THE APPELLANT IN THE ANNEX URE TO THIS ORDER. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 8. IN GROUND NO. 6 THE ASSESSEE IS AGGRIEVED BY ADJ USTMENT OF INCOME U/S. 115JB. IN THE ASSESSMENT ORDER THE A.O. HAS NOTED THAT SINCE THE INCOME DETERMINED U/S 115JB IS MORE THAN THE TAX ON NORMAL INCOME THE TAX HAS TO BE LEVIED ON THE TOTAL INCOME OF THE ASSESSEE U/S. 115JB AT RS.6,20,93,480/-. IN ARRIVIN G AT THIS FIGURE THE A.O. HAS DISALLOWED AND ADDED A SUM OF RS.18,21 ,49,523/- AS EXPENDITURE RELATABLE TO INCOME U/S. 10A AS UNDER: = 163158061/233945242 X 261176274 = 18,21,49,523/- 9. THE AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ADJUSTMENTS TO BOOK PROFIT U/S. 115JB IS PURELY CONSEQUENTIAL. IN VIEW OF THE ABOVE ORDER OF CIT(A), ASSESSEE IS A GGRIEVED AND RAISED THE GROUND. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE DETAILED SUBMISSIONS MADE BEFORE THE CIT(A) WITH REFERENCE T O ALLOCATION OF EXPENDITURE, DIRECT AND INDIRECT, AND ALSO WHY THE EXPENDITURE ALLOCATION MADE BY THEM ARE TO BE ACCEPTED. HE REFERRED TO THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A), PLACED IN THE PAPER BOOK AT PAGE 64 ONWARDS. (IN FACT THESE SUBMISSIONS WERE ALSO EXTRACTED BY THE C IT(A) IN HIS ORDER IN PARA 5.) AFTER MAKING VARIOUS SUBMISSIONS, THE LEARNED C OUNSEL FOR THE ASSESSEE REITERATED THE DIRECT AND INDIRECT COST ALLOCATED B Y THE ASSESSEE. AS FAR AS THE LEGAL PRINCIPLES ARE CONCERNED, IT WAS HIS SUBMISSI ON, THAT THE EXPRESSION PROFITS DERIVED FROM SHOULD HAVE DIRECT NEXUS. TH E EXPRESSION DERIVED FROM HAS A NARROWER CONNOTATION THAN THE EXPRESSION ATT RIBUTABLE TO AND HE RELIED UPON VARIOUS CASE LAWS INCLUDING THE HON'BLE SUPREME COURT IN THE ITA NO. 7936/MUM/2010 M/S. BRISTLECONE INDIA LTD. 4 CASE OF PANDIAN CHEMICALS LTD. 262 ITR 278. IT WAS HIS SUBMISSION THAT COST OF EMPLOYEES DIFFER FROM FIXED PRICE CONTRACT ENT ERED INTO AT MUMBAI AND PUNE TO THE TIME PRICE CONTRACT AT BANGALORE. THE REFORE, ALLOCATION ON NUMBER EMPLOYEES DOES NOT ARISE HE HAS OBJECTED TO THE ALLOCATION OF EXPENSES ON THE BASIS OF TURNOVER AND EACH OF THE H EADS CONTESTED BEFORE THE CIT(A) WERE AGAIN REFERRED TO AND EXPLAINED. 6. THE LEARNED D.R., HOWEVER, REFERRED TO THE ORDER OF THE AO AND SUBMITTED THAT THE SAME COUNSEL HAS SUBMITTED THE 1 0A AUDIT REPORT WHICH ITSELF WAS ADMITTED TO BE INCORRECT, AS CAN BE SEEN FROM THE ALTERNATIVE WORKING GIVEN BEFORE THE CIT(A). HE SUBMITTED THAT IN THE ABSENCE OF DIRECT ALLOCATION OF DIRECT AND INDIRECT EXPENDITURE, THE ACTION OF THE CIT(A) GOING BY THE TURNOVER BASIS HAS TO BE ACCEPTED AS THERE I S NO OTHER OPTION. HE ALSO RELIED ON VARIOUS LEGAL PRINCIPLES IN THIS REGARD. 7. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS AS AVAILABLE ON RECORD. AS SEEN FROM THE 10A REPORT SUBMITTED, THE PROFITS ARE ARRIVED AT NOTIONAL BASIS HAVING REGARD TO THE INFORMATION AND EXPLANATION GIVEN BY THE COMPANY AND ALSO RELIED ON COMPANIES REPRESENTATION THAT APPROXIMATELY 24.2 SQ.MTR. OF AREA OF THE SECOND FLOOR WAS OCCUPI ED BY THE STP UNIT. THE REPORT ALSO QUALIFIES THAT THEY RELIED UPON THE DAT A SUBMITTED BY THE ASSESSEE TO STP BANGALORE AND SOME OF THE OTHER COS TS WERE ALSO TAKEN ON THE BASIS OF THE EXERTIONS MADE BY THE COMPANY. EVE N THE CURRENT YEARS ADDITION TO FIXED ASSETS HAVE BEEN ALLOCATED TO STP /NON-STP UNITS ON THE BASIS OF AREA FOR WHICH THESE ARE PROCURED (IN THE ABSENCE OF ANY INDEPENDENT MEANS OF VERIFICATION RELIED ON MANAGEM ENT REPRESENTATION IN THIS REGARD). FURTHER, IN NOTE NO. 9 IT WAS ALSO QU ALIFIED THAT THE AUDITORS ARE RELIED UPON ASSESSEES REPRESENTATIONS THAT BANGALO RE UNIT IS SELF-SUFFICIENT UNIT AND THEREFORE NO PORTION OF COMMON EXPENSES AR E NEED TO BE ATTRIBUTED THERETO IN COMPUTING PROFITS OF THE UNIT. THESE NOT ES TO THE AUDIT REPORT DO INDICATE THAT THE CLAIM OF THE ASSESSEE WAS NOT BAS ED ON ANY RELIABLE DATA WHILE CLAIMING THE DEDUCTION. EVEN IN THE SUBMISSIO NS BEFORE THE CIT(A) DATED 2 ND AUGUST, 2010,( VIDE PARA 33 ON PAGE 68) AN ALTERNA TIVE SUBMISSION WAS MADE THAT THE PROFIT THAT COULD BE SAID TO BE D ERIVED WOULD BE AT ITA NO. 7936/MUM/2010 M/S. BRISTLECONE INDIA LTD. 5 ` 4,21,21,410/- AS AGAINST ` 5,25,96,228/- SHOWN IN THE RETURN OF INCOME. THESE INDICATE THAT THE BASIS FOR ARRIVING AT THE P ROFIT BY THE ASSESSEE IS NOT CORRECT AND CANNOT BE ACCEPTED AT FACE VALUE. THERE FORE, WE ARE OF THE OPINION THAT ALLOCATION OF EXPENSES ON THE BASIS OF THE TURNOVER MADE BY THE CIT(A) IS REASONABLE AND HAS TO BE UPHELD. EVEN THO UGH LD COUNSEL TRIED TO EXPLAIN ALLOCATION OF EXPENSES MADE BY THE COMPANY INCLUDING THE PAST LOSSES IN OTHER UNITS, IN THE ABSENCE OF ANY DIRECT ALLOCATION OF EXPENDITURE AND PREPARATION OF SEPARATE P& L ACCOUNT OF THE UNI T AND CONSIDERING THE SUBMISSIONS MADE BEFORE THE CIT(A), WE UPHOLD THE O RDER OF THE CIT(A) ON THIS ISSUE AS IT IS VERY REASONABLE AND, ON THE GIV EN FACTS, THE ONLY OPTION AVAILABLE IN DETERMINING THE PROFITS OF STP UNIT EL IGIBLE FOR DEDUCTION. IN VIEW OF THIS, WE UPHOLD THE ORDER OF THE CIT(A) AND REJE CT ASSESSEES GROUND. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH MAY, 2013. SD/- ( DR. S.T.M. PAVALAN ) ( B. RAMAKOTAIAH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 8 TH MAY, 2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV, MUMBAI 4. THE CIT II, MUMBAI CITY 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.