Molex India Tooling Pvt Ltd., Bangalore V. ACIT, Bangalore

ITA 839/BANG/2009

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9224 (ITAT-BANGALORE)
• Duration Of Justice: 7 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-10-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 18-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G R REDDY CITIDR
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Depreciation; Transfer pricing; International transaction; Condonation of delay; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER IT(TP)A NO.839/BANG/2009 ASSESSMENT YEAR : 2003-04 MOLEX INDIA TOOLING PVT. LTD., PLOT NO.6(A), SADARMANGALA INDUSTRIAL AREA, KADUGODI, BANGALORE 560 067. PAN: AAACM 6091N VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K.R. VASUDEVAN, ADVOCATE RESPONDENT BY : SHRI G.R. REDDY, CIT-I(DR) DATE OF HEARING : 26.10.2016 DATE OF PRONOUNCEMENT : 23.12.2016 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS WHICH ARE AS UNDER:- I. TRANSFER PRICING ADJUSTMENT 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) [HEREINAFTER REFERRED TO AS 'THE LEARNED CIT(A)'] E RRED IN DETERMINING THAT THE INTERNATIONAL TRANSACTIONS OF MOLEX INDIA TOOLING PRIVATE LIMITED (HEREINAFTER REFERRED AS MI TPL) WITH ITS IT(TP)A NO.839/BANG/2009 PAGE 2 OF 9 ASSOCIATED ENTERPRISES ARE NOT AT ARM'S LENGTH. THE LEARNED CIT (A) OUGHT TO HAVE OBSERVED THAT THE LOSS BY MITPL W AS NOT ACCOUNT OF TRANSFER PRICING CONSIDERATION AND WAS O N ACCOUNT OF GENUINE BUSINESS REASONS WHICH ARE AS FOLLOWS: A. THE COMPANY IS IN ITS SECOND YEAR OF COMMERCIAL OPE RATIONS, AND IT IS IN THE PROCESS OF ESTABLISHING ITSELF IN THE MARKET. THE COMPANY HAS SUBSTANTIAL INVESTMENTS IN PLANT AN D MACHINERY AND OTHER START UP COSTS. B. THE COMPANY HAS A PLANNED AND INSTALLED CAPACITY OF 62 TOOLS AT THE END OF PHASE 2 OF THE PRODUCTION PROCESS, AN D THE ACTUAL PRODUCTION DURING THE YEAR WAS ONLY 21 TOOLS, RESUL TING IN 34% OF NET UTILIZATION OF THE PRODUCTION CAPACITY. C. FIXED COSTS OF EMPLOYEES, DEPRECIATION, INTEREST AN D OTHER ADMINISTRATION CHARGES WERE HOWEVER COMMITTED MUCH EARLIER DURING THE YEAR, WHILE THE COMPANY STABILIZED THE P RODUCTION FOR PHASE 2 ONLY FROM FEBRUARY 2003. D. INEFFICIENCIES IN LEARNING CURVE DURING PRODUCTION RESULTED IN HIGHER MATERIAL COSTS DUE TO REJECTS AND REWORK. E. EXPECTED ORDERS DID NOT MATERIALIZE DURING THE YEAR. F. THE LOWER CAPACITY UTILIZATION AND PRODUCTION INEFF ICIENCIES OF THE COMPANY HAVE LED TO INCREASED ADMINISTRATIVE COSTS AND HIGH REPAIRS AND MAINTENANCE COSTS. 2. THE LEARNED CIT(A) ERRED IN STATING THAT THE TPO HAS CORRECTLY CONSIDERED THE FOLLOWING EXPENSES IN CALC ULATING THE GROSS MARGINS: A. RATES AND TAXES RS. 6,428/- B. REPAIRS & MAINTENANCE OF MACHINERY RS. 1,31,06,81 0/- C. DEPRECIATION RS. 2,27,07,331/- D. SALARIES AND WAGES TO THE EXTENT OF RS. 38,25,4 26/- 3. THE LEARNED CIT(A) OUGHT TO HAVE OBSERVED THAT EXPENDITURE INCURRED ON REPAIRS & MAINTENANCE OF MA CHINERY, RATES AND TAXES, DEPRECIATION AND SALARIES TO THE EXTENT AS SPECIFIED ABOVE WERE NOT DIRECT COSTS INC URRED IN THE IT(TP)A NO.839/BANG/2009 PAGE 3 OF 9 MANUFACTURE OF THE PRODUCTS. HENCE THESE EXPENSES O UGHT TO BE EXCLUDED IN CALCULATING THE GROSS MARGINS OF THE AP PELLANT COMPANY. 4. THE LEARNED CIT (A) OUGHT HAVE OBSERVED THAT THE COMPANY HAD FULLY RECOVERED ITS DIRECT COSTS AND AR E IN LINE WITH COMPARABLE COMPANIES. HENCE IT IS SUBMITTED THAT SI NCE THE INFERENCE DRAWN BY THE LEARNED CIT (A) THAT THE APP ELLANT COMPANY HAS NOT RECOVERED THE DIRECT COSTS DOES NOT HOLD GOOD AND IT CAN BE CONCLUDED THAT THE INTERNATIONAL TRAN SACTIONS OF THE APPELLANT COMPANY ARE AT ARM'S LENGTH PRICE. 5. NOTWITHSTANDING AND WITHOUT PREJUDICE TO THE ABOV E CONTENTION, THE LEARNED CIT(A) OUGHT TO HAVE PROVID ED APPROPRIATE ADJUSTMENTS FOR UNDER UTILIZATION OF PR ODUCTION CAPACITY OF THE ASSESSEE. II. CORPORATE TAX THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF RS. 33,14,764/- ON ACCOUNT OF SMALL MACHINE TOOLS WRITT EN OFF IN THE PROFIT AND LOSS ACCOUNT ON THE GROUND THAT THE SAME IS A CAPITAL EXPENDITURE. THE LEARNED CIT(A) OUGHT TO HAVE OBSER VED THAT THE SMALL MACHINE TOOLS DO NOT RESULT IN ANY ADVANTAGE OF ENDURING BENEFIT TO THE APPELLANT. THE LEARNED CIT(A) OUGHT TO HAVE OBSERVED FROM THE DETAILS OF THE SMALL MACHINE TOOLS WRITTEN OFF THAT THE SAME C ONSTITUTES REVENUE EXPENDITURE. FURTHER THE LEARNED CIT(A) OUG HT TO HAVE PLACED RELIANCE ON THE FOLLOWING DECISION: A) CIT V. MAHALAKSHMI TEXTILE MILLS LTD - 66 ITR 710 - SC B) CIT V. SHRI RANI LAKSHMI GINNING SPINNING & WEAVING MILLS LTD - 256 ITR 592 - MADRAS C) CIT V. SAKTHI TEXTILES LTD - 262 ITR 375 - MADRAS D) CO-OPERATIVE SUGARS MILLS V. CIT - 235 ITR 343 - KE RALA E) TUTICORIN SPINNING MILLS LTD V. CIT - 261 ITR 291 - MADRAS F) CIT V. JANAKIRAM MILLS LIMITED - 275 ITR 403 IT(TP)A NO.839/BANG/2009 PAGE 4 OF 9 THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER OR AMEN D ALL OR ANY OF THE AFORESAID STATED GROUNDS OF APPEAL. 2. DURING THE COURSE OF HEARING, OUR ATTENTION WAS INVITED TO THE FACT THAT THE CIT(APPEALS) HAS PASSED AN ORDER ON 30.07. 2008 AND THIS APPEAL WAS FILED BY THE ASSESSEE ON 18.08.2009, ALMOST AFT ER A YEAR FROM THE ORDER OF CIT(A), THEREFORE THIS APPEAL IS BARRED BY LIMITATION. 3. THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OU R ATTENTION TO THE APPLICATION FOR CONDONATION OF DELAY ALONG WITH THE AFFIDAVIT FILED BY THE ASSESSEE ON 18.11.2012, WITH THE SUBMISSION THAT TH OUGH THE ORDER WAS PASSED BY THE CIT(A) ON 30.07.2008 AND WAS DESPATCH ED TO THE ASSESSEE, BUT HE DID NOT FIND IT IN HIS RECORD. THEREAFTER I N THE MONTH OF MAY, 2009 WHEN THE OFFICE OF THE ASSESSING OFFICER (AO) HAD CONTACTED THE ASSESSEE WITH REGARD TO GIVING EFFECT TO THE ORDER OF CIT(A), IT CAME TO THE ASSESSEE'S KNOWLEDGE THAT THE APPELLATE ORDER HAD B EEN PASSED. THEREAFTER, IT CONTACTED THE POSTAL AUTHORITIES TO VERIFY WHETHER THE APPELLATE ORDER WAS SERVED ON THE ASSESSEE OR NOT. HOWEVER, THE POSTAL AUTHORITIES EXPRESSED INABILITY TO PROVIDE ANY DETAILS OF THE P OST. THEREAFTER, A CERTIFIED COPY WAS SOUGHT FOR FROM THE OFFICE OF CIT(A) ON 13 .05.2009 AND CERTIFIED COPY WAS FURNISHED ON 15.07.2009.AND THEREAFTER APP EAL WAS FILED ON 18.08.2009. THUS, THE APPEAL IS FILED IN TIME. IT(TP)A NO.839/BANG/2009 PAGE 5 OF 9 4. STRONGLY OBJECTING TO THE CONTENTIONS OF THE AS SESSEE, THE LD. DR HAS CONTENDED THAT ASSESSEE HAS NOT SPECIFICALLY ST ATED ABOUT THE SERVICE OF THE ORDER OF CIT(A). THE ASSESSEE SIMPLY MADE A VAGUE STATEMENT THAT ORDER WAS NOT AVAILABLE IN HIS RECORD. WHEREAS, I N THE ORDER OF CIT(A), THE OFFICE OF CIT(A) HAS MENTIONED THAT CERTIFIED COPY OF THE ORIGINAL ORDER WAS DESPATCHED ON 12.08.2008 VIDE DOCKET NO. EK30744675 91IN. SINCE THE ORDER OF CIT(A) WAS ISSUED AND SERVED UPON THE ASSE SSEE IN TIME, THAT TOO IN THE MONTH OF AUGUST 2008, THE APPEAL SHOULD HAVE BEEN FILED WITHIN A PERIOD OF 60 DAYS FROM THE DATE OF RECEIPT OF THE O RDER. SINCE THE APPEAL IS NOT FILED IN TIME, THE APPEAL IS BARRED BY LIMITATI ON AND DESERVES TO BE OUTRIGHTLY REJECTED. 5. THE LD. DR FURTHER CONTENDED THAT THOUGH ASSESS EE HAS MENTIONED IN HIS APPLICATION THAT HE WAS CONTACTED BY THE OFF ICE OF AO WITH REGARD TO GIVING EFFECT TO THE ORDER OF CIT(A), BUT IT HAS N OT MADE ANY SPECIFIC ASSERTION AS TO WHO HAS APPROACHED ASSESSEE FROM TH E OFFICE OF THE AO. ALL THESE ASSERTIONS ARE VAGUE AND ONLY RAISED TO C OVER THE DELAY IN FILING OF THE APPEAL. SINCE THE DELAY IS INTENTIONAL, IT SHO ULD NOT BE CONDONED AND APPLICATION BE REJECTED. 6. HAVING CAREFULLY EXAMINED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE RECORD, WE FIND THAT CIT(A) HAS PASSED HIS ORDER ON 30.07.2008 AND BEFORE THE CIT(A) THE ASSESSEE WAS DULY REPRESENTED BY THE PROFESSIONAL. THE ASSESSEE IS ALSO A PRIVATE LIMITED COMPANY, THEREFO RE IT CANNOT BE SAID THAT IT(TP)A NO.839/BANG/2009 PAGE 6 OF 9 IT IS IGNORANT ABOUT THE PROCEEDINGS BEFORE THE CIT (A). IN THE ORDER OF CIT(A), IT HAS BEEN MENTIONED BY THE OFFICE OF CIT( A) THAT CERTIFIED COPY OF THE ORIGINAL ORDER WAS DESPATCHED ON 12.8.2008 VIDE DOCKET NO.EK3074467591IN. AFTER THE CONCLUSION OF THE APP ELLATE PROCEEDINGS BEFORE THE CIT(A), THE ASSESSEE SHOULD HAVE BEEN VI GILANT ABOUT THE FATE OF ITS APPEAL AND TO MAKE NECESSARY ENQUIRY FROM THE O FFICE OF THE CIT(A) WITH REGARD TO DISPOSAL OF THE APPEAL. BUT IT APPEARS T HAT NO EFFORT WAS MADE BY THE ASSESSEE IN THIS REGARD. 7. THOUGH THE ASSESSEE HAS TAKEN A PLEA THAT IT DI D NOT FIND THE ORDER IN ITS RECORD AND ONLY CAME TO KNOW WHEN THE OFFICE OF THE AO CONTACTED IT WITH REGARD TO GIVING EFFECT TO THE ORDER OF CIT(A) , BUT IN THE APPLICATION FOR CONDONATION OF DELAY, THE ASSESSEE HAS NOT SPECIFIC ALLY CONTENDED THAT ORDER OF THE CIT(A) WAS NOT SERVED UPON IT. THE AS SESSEE SIMPLY STATED THAT IT DID NOT FIND THE ORDER IN ITS RECORD. NON- AVAILABILITY OF THE ORDER OF CIT(A) IN ITS RECORD DOES NOT MEAN THAT THE ORDER O F CIT(A) WAS NOT COMMUNICATED TO HIM. WHEREAS, IN THE ORDER OF CIT (A), IT HAS BEEN CATEGORICALLY MENTIONED BY THE OFFICE OF THE CIT(A) THAT CERTIFIED COPY OF THE ORDER WAS DISPATCHED ON 12.08.2008 VIDE DOCKET NO.E K3074467591IN. 8. WE DO NOT WISH TO MISS ONE IMPORTANT FACT THAT THIS APPEAL WAS FILED ON 18.08.2009. THOUGH ASSESSEE KNEW IT VERY WELL T HAT THE APPEAL WAS LATE AND HE IS REQUIRED TO FILE APPLICATION FOR CON DONATION OF DELAY ALONG WITH THE APPEAL, BUT IT DID NOT FILE ANY APPLICATION FOR CONDONATION OF DELAY. THIS IT(TP)A NO.839/BANG/2009 PAGE 7 OF 9 APPLICATION WAS FILED ON 18.11.2012 AFTER A NUMBER OF HEARINGS HAVING TAKEN PLACE BEFORE THE TRIBUNAL. IT SHOWS THAT THE ASSESSEE IS NOT VIGILANT TOWARDS ITS RIGHT AND INTEREST. SINCE IT HAS NOT B EEN ESTABLISHED BY THE ASSESSEE THAT THE ORDER OF THE CIT(A) WAS NOT SERVE D UPON HIM, IT HAS TO BE PRESUMED IN THE LIGHT OF THE NOTING OF THE OFFICE O F THE CIT(A) THAT ORDER OF CIT(A) WAS DULY SERVED UPON HIM IN THE MONTH OF AUG UST, 2008, WHEN IT WAS DISPATCHED ON 12.08.2008. THUS, THE ONUS IS UP ON THE ASSESSEE TO EXPLAIN THE DELAY IN FILING OF APPEAL FROM AUGUST, 2008, BUT WE DO NOT FIND ANY PLAUSIBLE EXPLANATION IN THE APPLICATION FOR CO NDONATION OF DELAY IN FILING THE APPEAL. 9. WE HAVE ALSO EXAMINED THE RELEVANT LEGAL POSITI ON WHILE DEALING WITH THE APPLICATION FOR CONDONATION OF DELAY AND W E FIND THAT IT HAS BEEN REPEATEDLY HELD THROUGH VARIOUS JUDGMENTS THAT THE APPELLANT MUST SHOW THAT HE WAS DILIGENT ALL ALONG FOR TAKING APPROPRIA TE STEPS AND DELAY WAS CAUSED NOTWITHSTANDING HIS DUE DILIGENCE. IF HE AP PEARS TO BE GUILTY OF LAPSES AND NEGLIGENCE AND DOES NOT TAKE PROPER STEP S FOR PURSUING HIS REMEDY TILL ABOUT THE CLOSE OF PERIOD PRESCRIBED FO R FILING OF APPEAL, HE MUST BE DEEMED TO HAVE HIS REMEDY BARRED WITHOUT ACCEPTI NG THE CONDONATION. THIS VIEW WAS EXPRESSED BY THE HONBLE PATNA HIGH C OURT IN THE CASE OF BALDLEO LAL ROY V. STATE OF BIHAR, 1960 11 STC 104 . SIMILAR VIEWS WERE ALSO EXPRESSED BY THE DIFFERENT HIGH COURTS IN THE FOLLOWING CASES:- IT(TP)A NO.839/BANG/2009 PAGE 8 OF 9 JAHAR MAHAL V. PRITCHAND (G.M.) AIR 1919 PAT. 503 KEDARNATH V. ZUMBERLAL, AIR 1916 NAG. 39 HAKIMIA V. GAMMON (J.C.), AIR 1930 NAG. 121 10. IT WAS ALSO HELD BY THE HONBLE ORISSA HIGH COU RT IN RADHARAMAN STORE V. ORISSA SALES TAX TRIBUNAL (1998) 108 STC 2 84 THAT EVEN THOUGH A LIBERAL APPROACH IS TO BE ADOPTED, THAT DOES NOT ME AN THAT ANY PLEA WITHOUT ANY PLAUSIBLE OR ACCEPTABLE BASIS, AND NOT EVEN BEA RING SEMBLANCE OR RATIONALITY HAS TO BE ACCEPTED, AND DELAY HAS TO BE CONDONED. THAT SHALL BE AGAINST THE VERY SPIRIT OF LAW. PRESCRIPTION OF TIME LIMIT FOR FILING OF APPEALS WOULD BECOME MEANINGLESS IN SUCH EVENT. ME RELY BECAUSE THE STATE IS INVOLVED, THAT DOES NOT MEAN THAT ANY LETH ARGIC OR SUPINE INACTION HAS TO BE CONDONED OR IGNORED AND EVEN IF NO REASON IS INDICATED, THAT WOULD BE INCONSEQUENTIAL. 11. IN THE LIGHT OF THE AFORESAID JUDICIAL PRONOUN CEMENTS, WE ARE OF THE VIEW THAT ASSESSEE HAS NOT MADE OUT A CASE THAT THE ORDER OF CIT(A) WAS NOT SERVED UPON IT AND IT ONLY CAME TO KNOW ABOUT T HE ORDER OF CIT(A) WHEN THE OFFICE OF THE AO HAS CONTACTED IT FOR GIVING EF FECT TO THE ORDER OF CIT(A), IN THE ABSENCE OF ANY COGENT EVIDENCE. THEREFORE, WE ARE OF THE VIEW THAT DELAY IN FILING OF APPEAL IS NOT DULY EXPLAINED AND WE ACCORDINGLY DECLINE TO CONDONE THE DELAY. ONCE THE DELAY IS NOT CONDONED, THE APPEAL CANNOT BE ADMITTED FOR HEARING. HENCE THE APPEAL IS DISMISSED BEING NOT ADMITTED. IT(TP)A NO.839/BANG/2009 PAGE 9 OF 9 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS D ISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF DECEMBER, 2016. SD/- SD/- ( S. JAYARAMAN ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 23 RD DECEMBER, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.