Sheela Foam Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 950/DEL/2012

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5968 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 18-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 27-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K TIWARI
• Keywords: Business expenditure; Earning of tax free income
• Section: 14A; 80IB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI G BENCH, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER, AND SHRI N.K. BILLAIYA ACCOUNTANT MEMBER ITA NO. 3832 /DEL/20 09 [ASSESSMENT YEAR: 200 6 - 0 7 ] THE A . C .I.T VS. M/S SHEELA FOAM PVT LTD CIRCLE 8( 1 ) C - 55, PREET VIHAR NEW DELHI VIKAS MARG, NEW DELHI PAN : AAACS 0189 B ITA NO. 3294 /DEL/201 0 [ASSESSMENT YEAR: 200 7 - 0 8 ] & ITA NO. 950 /DEL/201 2 [ASSESSMENT YEAR: 200 8 - 09 ] M/S SHEELA FOAM PVT LTD VS. THE A.C.I.T C - 55, PREET VIHAR CIRCLE - 17 VIKAS MARG , NEW DELHI NEW DELHI PAN : AAACS 0189 B [APPELLANT] [RESPONDENT] DATE OF HEARING : 2 3 .0 5 .2018 DATE OF PRONOUNCEMENT : 2 5 .0 5 .2018 ASSESSEE BY : SHRI GAURAV JAIN, ADV MS. MANISHA SHARMA, ADV REVENUE BY : SHRI K. TIWARI SR. DR 2 ORDER PER N.K. BILLAIYA , ACCOUNTANT MEMBER, THE ABOVE APPEAL FILED BY THE REVENUE AND TWO APPEALS BY THE ASSESSEE ARE PREFERRED AGAINST THE ORDER OF THE CIT(A) X I , NEW DELHI PERTAINING TO A.Y S 2006 - 07, 2007 - 08 AND 200 8 - 0 9 RESPECTIVELY . SINCE ALL THESE APPEALS PERTAIN TO SAME ASSESSEE AND WERE HEARD TOGETHER INVOLVING COMMON ISSUES , THESE ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BRE VITY. ITA NO. 3832/DEL/2009 [REVENUES APPEAL FOR A.Y 2006 - 07 ] 2. FIRST GRIEVANCE OF THE REVENUE RELATES TO THE DELETION OF ADDITION OF RS. 18,03,341/ - MADE BY THE ASSESSING OFFICER OUT OF FOREIGN TRAVEL EXPENSES. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ETH ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS INCURRED FOREIGN TRAVELLING EXPENSES TO THE TUNE OF RS. 57 LAKHS OUT OF WHICH THE DIRECTOR OF THE COMPANY HA INCURRED RS. 18.03 LAKHS ON VISIT TO AUSTRALIA WHI CH IS RELATED TO ACQUISITION OF AN AUSTRALIAN COMPANY. THE ASSESSING OFFICER 3 WAS OF THE OPINION THAT SINCE THIS EXPENDITURE WAS INCURRED FOR ACQUISITION OF ANOTHER COMPANY, THE SAME CANNOT BE CONSIDERED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE AS SESSING OFFICER ACCORDINGLY DISALLOWED RS. 18.03 LAKHS. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND POINTED OUT THAT SIMILAR DISALLOWANCE WAS MADE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2005 - 06 WHEREIN THE DISALLOWANCE WAS DELETED . THE LD. CIT(A) FOUND THAT IN ITA NO. 199/2007 - 08 VIDE ORDER DATED 9.7.2008, THE LD. CIT(A) HAD DELETED THE DISALLOWANCE. FOLLOWING THE FINDING OF HIS PREDECESSOR, THE LD. CIT(A) DELETED THE DISALLOWANCE. 5. BEFORE US, THE LD. DR VEHEMENTLY STATED THAT THE LD. CIT(A) HAS NOT GIVEN ANY FINDINGS ON THE FACT. IT IS THE SAY OF THE LD. DR THAT THIS IS THE SECOND CONSECUTIVE YEAR WHEN THE DIRECTORS OF THE ASSESSEE COMPANY TRAVELLED TO AUSTRALIA. THE LD. DR STATED THAT THE ASSESSEE COULD NOT ESTABLISH THE BU SINESS CONNECTION AND THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE EXPENDITURE. 4 6. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES AND BROUGHT TO OUR NOTICE THAT THE DELETION OF ADDI TION IN ASSESSMENT YEAR 2005 - 06 WAS NEVER CONTESTED BY THE DEPARTMENT BEFORE THE TRIBUNAL, THEREFORE, THE ORDER OF THE LD. CIT(A) HAS ATTAINED FINALITY. 7. WE HAVE GIVEN CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND HAVE PERUSED THE ORDERS OF THE AUT HORITIES BELOW. THE ASSESSEE, IN THE BUSINESS OF MANUFACTURING AND SALES OF PU FOAM, PU FOAM PRODUCTS, COIR MATTRESSES, CUSHION, ETC. EXPENDITURE INCURRED ON VISITS TO AUSTRALIA RELATED TO AN AUSTRALIAN COMPANY JOYCE FOAM PVT LTD WHICH WAS ALSO IN THE SI MILAR BUSINESS AS THAT OF THE ASSESSEE. THEREFORE, IT CAN SAFELY BE CONCLUDED THAT THE ACQUISITION WAS NOT FOR A NEW BUSINESS BUT EXPANSION OF EXISTING BUSINESS. IN OUR CONSIDERED OPINION, EXPENDITURE INCURRED IS LEGITIMATE BUSINESS EXPENDITURE AND DESER VES TO BE ALLOWED. WE DECLINE TO INTERFERE. GROUND NO. 1 IS DISMISSED. 8. GROUND NO. 2 RELATES TO THE ALLOWANCE OF DEDUCTION U/S 80IB OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] AT RS. 3,73,60,972 INSTEAD OF RS. 3,00,35,1 90/ - . 5 9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE CHART OF ALLOCATION OF HEAD OFFICE EXPENSES, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB OF THE ACT IN THE CASE OF FOUR UNITS. THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE HAS INCURRED COMMON EXPENSES TO THE TUNE OF RS. 10.71 CRORES WHICH INCLUDED ALLOCABLE HEAD OFFICE EXPENSES OF RS. 7.18 CRORES AND FINANCIAL CHARGES RS. 3.53 CRORES. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT A LLOCATED FINANCIAL CHARGES OF RS. 3.53 CRORES TO VARIOUS UNITS. THE ASSESSING OFFICER REALLOCATED THE HEAD OFFICE EXPENSES AS UNDER: UNITS ELIGIBLE PROFIT BEFORE ALLOCATION (IN RS.) % OF TOTAL TURNOVER ALLOCABLE EXPENSES (IN RS.) ELIGIBLE PROFIT AFTER ALLOCATION (IN RS.) ELIGIBLE DEDUCTION @30% (IN RS.) UNIT - IV 36388481 4.71% 4849922 31538559 9461567.7 UNIT - V 17731296 4.36% 2421149 15310147 4593044.1 UNIT - IX 21164902 3.73% 3410140 17754762 5326428.6 UNIT - X 49251893 15.75% 13738059 35513834 10654150.2 30035190.6 10. ACCORDINGLY, DEDUCTION U/S 80IB OF THE ACT WAS ALLOWED AT RS. 3,09,35,190/ - 6 11. BEFORE THE LD. CIT( A), THE ASSESSEE POINTED OUT THAT ALL ELIGIBLE UNITS WERE HAVING SUFFICIENT SURPLUS FUNDS AND DID NOT USE ANY BORROWED FUNDS FROM THE HEAD OFFICE. THEREFORE, NO INTEREST EXPENDITURE SHOULD BE ATTRIBUTED BETWEEN THEM. AFTER CONSIDERING THE FACTS AND SUBMIS SIONS AND AFTER GOING THROUGH THE VARIOUS LEDGER ACCOUNT, THE LD. CIT(A) WAS CONVINCED THAT THE ELIGIBLE UNITS WERE NOT USING BORROWED FUND FROM THE HEAD OFFICE FOR THE PURPOSE OF THEIR BUSINESS. THE LD. CIT(A) FURTHER FOUND THAT ALL THE FOUR ELIGIBLE UNI TS WERE OLD AND HAVE GENERATED SUFFICIENT SURPLUS FUND OF THEIR OWN WHICH ARE USED AS SOURCE OF FINANCE FOR THEIR ACTIVITIES. THE LD. CIT(A) ACCORDINGLY DELETED THE DISALLOWANCE OF RS. 73,25,782/ - AND DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S 80IB OF THE ACT WITHOUT ALLOCATING FINANCIAL CHARGES. 12. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER. IT IS THE SAY OF THE LD. DR THAT THE ASSESSEE COULD NOT EXPLAIN THE REASON WHY THE HEAD OFFICE HAD BORROWED THE SUM OF RS. 40 CRORES. THE LD. DR CONTINUED BY SAYING THAT THE BORROWINGS BY THE HEAD OFFICE HAVE BEEN UTILIZED FOR BUSINESS OF THE ELIGIBLE UNITS AND THEREFORE, THE FINANCIAL CHARGES HAVE TO BE ALLOCATED BETWEEN THE ELIGIBLE UNITS AND THE ASSESSING OFFICER HA S RIGHTLY DONE SO. 7 13. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW AND WI TH THE ASSISTANCE OF THE LD. COUNSEL FOR THE ASSESSEE, WE HAVE CONSIDERED THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD IN THE FORM OF PAPER BOOK IN THE LIGHT OF RULE 18(6) OF THE ITAT RULES, 1962. EXHIBIT 36, 44,53 AND 62 EXHIBIT FINANCIAL STATEME NTS OF FOUR ELIGIBLE UNITS. IT CAN BE SEEN THAT IN ALL THESE ELIGIBLE UNITS, THE HEAD OFFICE ACCOUNT WAS SHOWING DEBIT BALANCE WHICH WAS CONVERTED INTO CREDIT BALANCE ONLY WHEN PROFIT FOR THE YEAR WAS TRANSFERRED. THEREFORE, IT CANNOT BE SAID THAT THE EL IGIBLE UNITS HAD BORROWED FUNDS FROM THE HEAD OFFICE. FURTHER, WE FIND THAT THE DEBTORS OF THE ELIGIBLE UNITS WERE REALIZED BY THE HEAD OFFICE AND ACCORDINGLY, NECESSARY ENTRIES WERE PASSED THROUGH HEAD OFFICE ACCOUNT. CONSIDERING THE FACTUAL MATRIX EXHI BITED IN THE STATEMENT OF ACCOUNT, IT CAN BE STATED THAT THE ELIGIBLE UNITS HAVE NOT BORNE ANY FINANCIAL CHARGES AND THEREFORE, NO ALLOCATION OF FINANCIAL CHARGES IS TO BE MADE BETWEEN THESE ELIGIBLE UNITS. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FIN DING OF THE LD. CIT(A). GROUND NO. 2 IS ACCORDINGLY DISMISSED. 8 15. GROUND NO. 3 RELATES TO DELETION OF ADDITION OF RS. 36,574/ - ON ACCOUNT OF DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION OF PROVIDENT FUND. 16. THE ASSESSING OFFICER NOTICED THAT FOR THE MONT H OF DECEMBER 2005 AND FEBRUARY 2006, THE ASSESSEE HAS DEBITED EPF CONTRIBUTION AFTER DUE DATE INCLUDING THE GRACE PERIOD. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED RS. 36,574/ - . 17. THE LD. CIT(A) FOUND THAT THE EPF CONTRIBUTION WAS DEPOSITED BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. FINDING THAT IN THE EARLIER YEAR THE TRIBUNAL HAS DELETED THE DISALLOWANCE SO MADE ON THIS ACCOUNT, THE LD. CIT(A) FOLLOWING THE ORDER OF THE TRIBUNAL DELETED THE DISALLOWANCE OF RS. 36,574/ - . 18. BEFORE US, TH E LD. DR SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER. 19. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE JUDGMENT OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007 - 08 IN ITA NO. 3079/DEL/2010 DATED 27.08.2010. 9 20. WE HAVE CONSIDERED T HE ORDER OF THE AUTHORITIES BELOW. WE FIND THAT THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS. AIMIL LIMITED 2010 - TIOL - 125 - HIGH COURT - DEL - IT HAS DECIDED THE IS S UE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. WE FIND THAT THE COORDINATE BENCH IN ASSESSEES OWN CASE [SUPRA] HAS FOLLOWED THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI. RESPECTFULLY FOLLOWING THE SAME, WE DECLINE TO INTERFERE WITH THE SAME. 21. APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO. 32 94 /DEL/20 1 0 [ ASSESSEE S APPEAL FOR A.Y 200 7 - 0 8] 2 2 . THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO THE ALLOCATION OF FINANCIAL CHARGES TO ELIGIBLE UNITS THEREBY REDUCING THE CLAIM OF DEDUCTION U/S 80IB OF THE ACT. 23. AN IDENTICAL ISSUE HAS BEEN CONSIDE RED BY US IN ITA NO. 3832/DEL/2009 VIDE GROUND NO. 2 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, THE APPEAL OF THE ASSESSEE IS ALLOWED. 10 24. APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 950 /DEL/20 12 [ ASSESSEE S APPEAL FOR A.Y 200 8 - 09] 25. FIRST G RIEVANCE OF THE ASSESSEE RELATES TO THE ALLOCATION OF FINANCIAL CHARGES THEREBY REDUCING THE CLAIM OF DEDUCTION U/S 80IB OF THE ACT. 26. THIS ISSUE HAS BEEN DISCUSSED ELABORATELY BY US IN ITA NO. 3832/DEL/2009 VIDE GROUND NO. 2 OF THAT APPEAL. FOR OUR DE TAILED DISCUSSION THEREIN, GROUND NO. 1 IS ALLOWED. 27. GROUND NO. 2 RELATES TO DISALLOWANCE U/S 14A OF THE ACT R.W.R 8D OF THE RULES AMOUNTING TO RS. 55,870/ - . 28. WE FIND THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDER ATION. THUS THIS GRIEVANCE OF THE ASSESSEE HAS TO BE ALLOWED FOLLOWING THE JUDGMENT OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF CHEMINVEST LTD VS. CIT 121 ITD 318 WHICH HAS BEEN AFFIRMED BY THE HON'BLE HIGH COURT OF DELHI 378 ITR 33 [DEL]. SIMILA R VIEW WAS TAKEN IN 399 ITR 483 AND BY THE HON'BLE 11 GUJARAT HIGH COURT IN THE CASE OF CORRTECH ENERGY PVT. LTD 372 ITR 97. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 55,870/ - . GROUND NO. 2 IS ALLOWED. 29. THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 30 . TO SUM UP, I N THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED WHEREAS THE APPEAL S OF THE ASSESSEE ARE ALLOWED . THE ORDER IS PR ONOUNCED IN THE OPEN COURT ON 2 5 .0 5 .2018. SD/ - SD/ - [ H.S. SIDHU ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 5 T H MAY, 2018 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI