M/s. Fisher Sanmar Limited, CHENNAI V. ACIT, CHENNAI

ITA 813/CHNY/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4931 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 26-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation
• Section: 80HHC; 80HH; 143(2); 263; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI (BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER) .. I.T.A. NO. 813/MDS/2009 ASSESSMENT YEAR : 2004-05 M/S FISHER SANMAR LIMITED, 9, CATHEDRAL ROAD, CHENNAI 600 086. PAN : AAACF0483F (APPELLANT) V. THE ADDITIONAL COMMISSIONER OF INCOME TAX, COMPANY RANGE II, CHENNAI 600 034. (RESPONDENT) APPELLANT BY : SHRI R. VIJAYARAGHAVAN RESPONDENT BY : SHRI P.B. SEKARAN O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE ASSAILING AN ORDER DATED 26.3.2009 OF COMMISSIONER OF INCOME TAX, CHENNAI-I, CHENNAI, PASSED UNDER SECTION 263 OF INCOME-TAX ACT, 1961 (H EREINAFTER CALLED THE ACT). 2. AS PER THE ASSESSEE, THE CIT ERRED IN DIRECTING THE ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE ASSESSEE WITH R EGARD TO SERVICE I.T.A. NO. 813/MDS/09 2 INCOME, DEPOSIT WRITTEN BACK AND EXCESS PROVISION W RITTEN BACK, VIS-- VIS ITS CLAIM FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT. 3. SHORT FACTS APROPOS ARE THAT ASSESSEE CARRYING O N A BUSINESS OF INDUSTRIAL VALVES, HAD FILED ITS RETURN FOR THE IMP UGNED ASSESSMENT YEAR ADMITTING A TOTAL INCOME OF ` 9,87,77,385/-. ASSESSING OFFICER AFTER VERIFYING THE DETAILS FILED, COMPLETED THE AS SESSMENT, INTER ALIA, MAKING CERTAIN DISALLOWANCES AND ALSO RESTRICTING T HE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80HHC OF THE ACT. HOWEVER, THERE WAS NO DISALLOWANCE WITH REGARD TO DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80-IA OF THE ACT. LD. CIT O N 16.3.2009 ISSUED A NOTICE UNDER SECTION 263 OF THE ACT TO THE ASSESSEE. AS PER THIS NOTICE, ASSESSEE HAD NOT EXCLUDED SERVICE INCO ME OF ` 124.30 LAKHS AND MISCELLANEOUS INCOME OF ` 42.05 LAKHS FOR THE PURPOSE OF WORKING OUT DEDUCTION UNDER SECTION 80-IA OF THE AC T. AS PER LD. CIT, THESE INCOMES WERE NOT DERIVED FROM THE MANUFACTURI NG ACTIVITY CARRIED ON BY THE ASSESSEE AND HAD TO BE EXCLUDED F OR THE PURPOSE OF WORKING OUT THE DEDUCTION UNDER SECTION 80-IA OF TH E ACT. LD. CIT WAS OF THE OPINION THAT THE A.O. HAD NOT EXAMINED T HESE ASPECTS. I.T.A. NO. 813/MDS/09 3 ASSESSEE IN ITS REPLY TO THE NOTICE SUBMITTED THAT IT WAS REQUIRED TO GIVE GOOD SERVICE SUPPORT TO ITS CUSTOMERS, SINCE C ONTROL VALVES SUPPLIED BY IT WERE USED BY VARIOUS INDUSTRIES FOR INDUSTRIAL APPLICATIONS. ACCORDING TO THE ASSESSEE, SUCH SERV ICES WERE TO BE RENDERED ON A CONTINUOUS BASIS AND SERVICE CHARGES WERE RECEIVED FOR SUCH SERVICES RENDERED. AS PER THE ASSESSEE, T HE INCOMES RECEIVED ON SUCH SERVICES WERE CLOSELY RELATABLE TO ITS MANUFACTURING ACTIVITY AND THUS ENTITLED FOR DEDUCTION UNDER SECT ION 80-IA OF THE ACT. AMONG VARIOUS DECISIONS RELIED ON BY THE ASSESSEE, SPECIFIC RELIANCE WAS PLACED ON THE DECISION OF THIS TRIBUNAL IN ASSE SSEES OWN CASE IN I.T.A. NO. 698/MDS/1997 FOR ASSESSMENT YEAR 1992-93 . ACCORDING TO THE ASSESSEE, THIS TRIBUNAL HAD HELD THAT SUCH SERV ICES WERE VERY CRUCIAL TO KEEP GOOD MARKET RAPPORT AND FORMED PART OF THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HH AND 80-I OF THE ACT. VIS-- VIS NON-EXCLUSION OF MISCELLANEOUS INCOME, CONTENTI ON OF THE ASSESSEE WAS THAT A SUM OF ` 29,24,628/- COMPRISED IN THE TOTAL SUM OF ` 42,04,981/- REPRESENTED ERP SHARE RECEIVED FROM SI STER CONCERN, A SUM OF ` 2,01,425/- WAS EXCESS PROVISION WRITTEN BACK, AND THESE WERE ALL, AS PER THE ASSESSEE, INCOME DERIVED FROM INDUSTRIAL I.T.A. NO. 813/MDS/09 4 ACTIVITIES. THE LATTER, AS PER THE ASSESSEE, REPRE SENTED PROVISION FOR EXPENSES MADE IN THE EARLIER YEARS WHICH STOOD REDU CED FROM THE PROFITS FOR SUCH YEARS, THEREBY CONSTITUTING INCOME OF THE RELEVANT PREVIOUS YEAR. 4. LD. CIT WAS, HOWEVER, NOT IMPRESSED BY ABOVE EXP LANATIONS. ACCORDING TO HIM, ON VERIFICATION OF FORM 3CEB, WHI CH WAS AUDIT REPORT FURNISHED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM OF DEDUCTION UNDER SECTION 80-IA, THERE WAS SALE OF ONLY ` 68 TO M/S FISHER CONTROL INTERNATIONAL LLC, USA FROM WHICH IT HAD RECEIVED S ERVICE INCOME OF ` 118.56 LAKHS. AS PER LD. CIT, ASSESSEE HAD ALSO P AID AGENCY COMMISSION OF ` 39,00,971/- TO THE SAID COMPANY AND A DIVIDEND OF ` 3,94,72,500/-. LD. CIT ALSO NOTED THAT ASSESSEE HA D ALSO IMPORTED RAW MATERIAL WORTH ` 4,56,04,105/- FROM THE SAID COMPANY. THEREFORE, AS PER LD. CIT, IN SO FAR AS SUM OF ` 118.56 LAKHS OUT OF ` 124.30 LAKHS CLAIMED AS SERVICE INCOME, THERE WAS N O PROPER VERIFICATION DONE BY THE ASSESSING OFFICER FOR ASCE RTAINING THE NATURE OF SERVICE CHARGES RECEIVED, ESPECIALLY WHETHER IT WAS IN RELATION TO SALES EFFECTED BY THE ASSESSEE. IN SO FAR AS DEPOS IT WRITTEN BACK I.T.A. NO. 813/MDS/09 5 WHICH AS PER THE ASSESSEE WAS SHARE OF ERP EXPENSES RECOVERED FROM SISTER CONCERNS, LD. CIT WAS OF THE OPINION TH AT THE A.O. HAD NOT CONSIDERED WHETHER THE ERP EXPENSES EARLIER CLAIMED WERE CAPITALIZED AND WHETHER THE RECOVERY OF ERP CHARGES FROM GROUP CONCERNS WERE CREDITED TO PROFIT AND LOSS ACCOUNT O R SAME ADJUSTED AGAINST THE CAPITALIZED PART OF ERP EXPENSES OR NOT . VIS--VIS EXCESS PROVISION OF ` 2,01,424/- WRITTEN BACK, LD. CIT WAS OF THE OPINIO N THAT ASSESSING OFFICER HAD NOT VERIFIED WHETHER THE AMOU NTS EARLIER PROVIDED, A PART OF WHICH WAS REVERSED, HAD INDEED BEEN CLAIMED AND ALLOWED IN SUCH EARLIER YEARS, WITH CORRESPONDING R EDUCTION IN THE CLAIM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT F OR SUCH YEARS. HE WAS, THEREFORE, OF THE OPINION VIS--VIS THE ABOVE THREE ASPECTS, THE ORDER OF THE A.O. WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5. NOW BEFORE US, LEARNED A.R. SUBMITTED THAT IN SO FAR AS SERVICE INCOME WAS CONCERNED, THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1992-93 WAS DIRECTLY A PPLICABLE. PLACING RELIANCE ON A COPY OF THIS ORDER PLACED AT PAPER-BOOK PAGES I.T.A. NO. 813/MDS/09 6 21 TO 25, LEARNED A.R. SUBMITTED THAT THERE WAS A C LEAR FINDING AT PARA 7 REGARDING SERVICE CHARGES. ACCORDING TO LEARNED A.R., THIS TRIBUNAL HAD HELD THAT SERVICE CHARGES RECEIVED BY THE ASSES SEE WAS FOR CARRYING OUT AFTER SALES SERVICES, AND SUCH AFTER S ALES SERVICES WERE CRUCIAL TO KEEP GOOD MARKET RAPPORT AND FORMED INCO ME FROM INDUSTRIAL UNDERTAKING UNDER SECTION 80HH AND 80-I OF THE ACT. ACCORDING TO LEARNED A.R., WORDINGS OF SECTION 80HH AND 80-I AND 80-IA WERE PARA MATERIA, IN SO FAR AS IT CONCERNED INCOME DERIVED FROM INDUSTRIAL OPERATION. CONTINUING HIS ARGUMENT S, LEARNED A.R. SUBMITTED, BASED ON THE COPY OF NOTICE ISSUED UNDER SECTION 143(2) BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEED INGS, PLACED AT PAPER-BOOK PAGE 16, THAT THERE WAS A SPECIFIC QUERY AT POINT 21 REGARDING DEDUCTION CLAIMED UNDER SECTION 80-IA AND ASSESSEE HAD GIVEN A PROPER REPLY. THEREFORE,, AS PER THE LEARN ED A.R., ASSESSING OFFICER HAD CONSIDERED THE ISSUE REGARDING DEDUCTIO N UNDER SECTION 80-IA OF THE ACT AND CAME TO A CONCLUSION THAT IT W AS PROPERLY ALLOWABLE TO THE ASSESSEE. FURTHER, ACCORDING TO H IM, THOUGH THERE WAS NO SPECIFIC REFERENCE IN THE ASSESSMENT ORDER R EGARDING THE CORRECTNESS OF THE CLAIM UNDER SECTION 80-IA OF THE ACT, THE I.T.A. NO. 813/MDS/09 7 ASSESSING OFFICER HAD DEFINITELY CONSIDERED SERVICE INCOME AND MISCELLANEOUS INCOME IN SO FAR AS ITS CLAIM UNDER S ECTION 80HHC WAS CONCERNED. THEREFORE, ACCORDING TO HIM, IT COU LD NOT BE STATED THAT ASSESSING OFFICER WAS OBLIVIOUS TO THE CLAIM M ADE BY THE ASSESSEE UNDER SECTION 80-IA OF THE ACT ON SUCH INC OME. IN SO FAR AS SHARE OF ERP EXPENSES RECOVERED FROM GROUP COMPA NIES WAS CONCERNED, LEARNED A.R. SUBMITTED THAT IF SUCH AMOU NTS WERE NOT CREDITED TO THE P&L ACCOUNT, IT WOULD HAVE GONE TO REDUCE THE DEPRECIATION CLAIM AND THEREFORE, THE EFFECT ON PRO FIT WOULD HAVE BEEN NIL. ACCORDING TO HIM, THERE WAS NO REVENUE LOSS I NVOLVED ON THIS AND THEREFORE, NO PREJUDICE CAUSED TO THE REVENUE. AS FAR AS EXCESS PROVISION WRITTEN BACK WAS CONCERNED, IT WAS SUBMIT TED THAT HERE ALSO NO REVENUE LOSS WAS INVOLVED SINCE SUCH PROVISIONS WERE EARLIER ALLOWED AND DEDUCTION UNDER SECTION 80-IA OF THE AC T ALSO STOOD CORRESPONDINGLY REDUCED IN SUCH EARLIER YEARS. IN A NUTSHELL, HE ARGUED THAT AS FAR AS SERVICE INCOME WAS CONCERNED, THERE WAS NO ERROR IN THE ORDER AT ALL AND WHEREAS FOR THE OTHER ITEMS, EVEN IF THERE WAS ERROR, IT WAS NOT PREJUDICIAL TO THE INTEREST O F THE REVENUE. HENCE, ACCORDING TO HIM, INVOKING SECTION 263 OF TH E ACT WAS NOT I.T.A. NO. 813/MDS/09 8 CALLED FOR. LEARNED A.R., RELYING ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT V. MAX INDIA LTD. (295 ITR 282) ARGUED THAT WHEN TWO VIEWS WERE POSSIBLE AND A.O. HAD TAKEN ONE VIEW WITH WHICH CIT DID NOT AGREE, IT WAS NOT ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 6. PER CONTRA, LEARNED D.R. SUBMITTED THAT ORDER OF THE A.O. WAS CURT. THERE WAS PRIMA FACIE NON APPLICATION OF MIN D WITH REGARD TO CLAIM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT. ACCORDING TO HIM, INCOME LIKE EXCESS PROVISION WRITTEN BACK AND RECOV ERY OF ERP EXPENSES FALLING UNDER THE HEAD MISCELLANEOUS WER E DEFINITELY NOT PART OF INCOME DERIVED FROM INDUSTRIAL UNDERTAKING AND THUS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA OF THE A CT. IN SO FAR AS CLAIM OF SERVICE INCOME WAS CONCERNED, LEARNED D.R. SUBMITTED THAT NO EXAMINATION WHATSOEVER WAS DONE BY THE A.O., TO VERIFY WHETHER THE DECISION RELIED ON BY THE ASSESSEE IN ITS OWN C ASE FOR EARLIER YEARS WAS PARI MATERIA WITH FACTS AVAILABLE FOR THE IMPUGNED ASSESSMENT YEAR. THEREFORE, RELYING ON THE DECISIO N RENDERED BY HON'BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIA L CO. LTD. V. CIT I.T.A. NO. 813/MDS/09 9 (243 ITR 83), LEARNED D.R. SUBMITTED THAT THE ORDER WAS PREJUDICIAL TO THE REVENUE AND CLEARLY ERRONEOUS. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. NO DOUBT, IN THE ASSESSMENT ORDER IT IS MENTIONED T HAT THE ASSESSMENT WAS BEING COMPLETED AFTER VERIFYING THE DETAIL SUBMITTED BY THE ASSESSEE. ASSESSING OFFICER HAD DEALT IN DE TAIL WITH THE CLAIM OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. WHILE DOING SO, HE CONSIDERED WHETHER 90% OF EXCHANGE FLUCTUATION GAIN , SERVICE INCOME AND MISCELLANEOUS INCOME HAD TO BE EXCLUDED FOR COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. HOWEVER, THERE IS NOT EVEN A WHISPER REGARDING THE CORRECTNE SS OF THE CLAIM OF THE ASSESSEE UNDER SECTION 80-IA OF THE ACT. MAY B E, AN ORDER WHICH IS CRYPTIC WOULD NOT BY ITSELF MEAN THAT THERE WAS A LACK OF PROPER ENQUIRY AS HELD BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. GABRIEL INDIA LTD. (203 ITR 108). NEVERTHELESS, I F WE LOOK AT THE PAPER-BOOK FILED BY THE ASSESSEE, ITS CLAIM IS THAT THE A.O. HAD ISSUED A NOTICE UNDER SECTION 143(2) OF THE ACT WITH DETAI LED QUESTIONNAIRE WHICH, INTER ALIA, INCLUDED QUESTIONS REGARDING COM PUTATION OF DEDUCTION UNDER SECTION 80-IA OF THE ACT. COPY OF THE NOTICE UNDER I.T.A. NO. 813/MDS/09 10 SECTION 143(2) PLACED AT PAPER-BOOK PAGE 16 NO DOUB T SHOWS THAT THE A.O. HAD ENQUIRED REGARDING DEDUCTION UNDER SEC TION 80-IA OF THE ACT AS TO WHETHER IT WAS CLAIMED IN RESPECT OF OTH ER INCOME AND ALSO DETAILS REGARDING INITIAL YEAR OF CLAIM OF DEDUCTIO N. REPLY OF THE ASSESSEE IS PLACED AT PAPER-BOOK PAGES 18 TO 23. A SSESSEE HAS JUST GIVEN ONE-LINE ANSWERS TO EACH OF THE QUERIES RAISE D. STARTING FROM THE NAME AND ADDRESS ONWARDS, 23 QUERIES WERE RAISE D BY THE ASSESSING OFFICER IN A STANDARD FORMAT REGULARLY US ED, WHEN NOTICE UNDER SECTION 143(2) OF THE ACT IS ISSUED. AGAINST QUESTION NO.17, ASSESSEE HAS MENTIONED CLAIM OF DEDUCTION UNDER SEC TION 80-IA OF THE ACT OF ` 4,10,62,803/- AND THAT THIS WAS 10 TH YEAR AND NOTHING MORE. IN RESPECT OF QUESTION NO.21, THE ANSWERS OF THE ASSESSEE ARE REPRODUCED HEREUNDER:- A. WHETHER DEDUCTION HAS BEEN CLAIMED IN RESPECT OF OT HER INCOME, IF SO, WHY? NO. B. WHETHER ANY MANUFACTURING ACTIVITY HAS BEEN OUTSOURCE D, IF SO, PLEASE GIVE DETAILS. NO. C. IN CASE OF COMPANIES ENGAGED IN BOTH MANUFACTURING AND TRADING, PROVIDE SEPARATE P&L ACCOUNTS FOR TRADING AND MANUFACTURING UNITS. NOT APPLICABLE. I.T.A. NO. 813/MDS/09 11 D. PROVIDE DETAILS OF APPORTIONMENT OF COMMON COSTS BE TWEEN 80 IB/IA AND NUMBER OF 80 IB/IA UNITS. NOT APPLICABLE. CAN WE SAY ASSESSEE HAD GIVEN FULL PARTICULARS OF I TS CLAIM FROM THE ABOVE ANSWER? UNDOUBTEDLY, NO. HAVING NOT FURNI SHED FULL DETAILS REGARDING ITS CLAIM, TO SAY THAT ASSESSING OFFICER HAD PROPERLY APPLIED HIS MIND TO SUCH CLAIM WOULD NOT STAND THE TEST OF REASONING. IN THESE CIRCUMSTANCES, DEFINITELY THE CRYPTIC ORDER OF THE A.O. DOES SHOW THAT THERE WAS LACK OF ENQUIRY, AND SUCH LACK OF ENQUIRY DEFINITELY RENDERED THE ORDER ERRONEOUS AND PREJUDICIAL TO THE REVENUE. IN SO FAR AS THE OTHER TWO ISSUES, VIZ. ERP SHARE RECOVER Y AND EXCESS PROVISION WRITE BACK, WE FIND NOTHING WAS ASKED BY A.O. NOR ANY DETAILS FURNISHED BY THE ASSESSEE. THERE WAS NO CO NSIDERATION OF SUCH ITEMS BY THE ASSESSING OFFICER IN THE ASSESSME NT PROCEEDINGS, VIS--VIS ASSESSEES CLAIM FOR DEDUCTION UNDER SECT ION 80-IA OF THE ACT. NO DOUBT, IN THE CASE OF MAX INDIA LTD. (SUPR A), HON'BLE APEX COURT HELD THAT WHEN TWO VIEWS WERE POSSIBLE AND A. O. HAD TAKEN ONE VIEW WHICH WAS LAWFUL, THE ORDER OF A.O. COULD NOT BE CONSIDERED AS ERRONEOUS. HERE, THE A.O. HAD NOT TAKEN ANY VIE W AT THE TIME OF ASSESSMENT. THERE WAS TOTAL LACK OF ENQUIRY. THE ORDER OF A.O. WAS I.T.A. NO. 813/MDS/09 12 DEFINITELY ERRONEOUS IN SO FAR AS IT WAS PREJUDICIA L TO THE INTERESTS OF THE REVENUE. THE CIT WAS PERFECTLY JUSTIFIED IN IN VOKING THE PROVISIONS OF SECTION 263 OF THE ACT. WE DO NOT FI ND ANY REASON TO INTERFERE. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE STAN DS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 10 TH JUNE, 2011. SD/- SD/- (U.B.S. BEDI) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 10 TH JUNE, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT, CHENNAI-I, CHENNAI-34 (4) D.R. (5) GUARD FILE