M/s Metlonics Industries Pvt. Limited, Chandigarh V. DCIT, Chandigarh

ITA 995/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73568 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 18-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 995/CHD/2013 ASSESSMENT YEAR : 2007-08 METLONICS INDUSTRIES VS. D.C.I.T. C-1 (1), CHAND IGARH PVT LTD PLOT NO. 118, INDUSTRIAL AREA PHASE 2, CHANDIGARH AACCM 2009C (APPELLANT) (RESPONDENT) APPELLANT BY SHRI ANIL BATRA RESPONDENT BY: SHRI MANJIT SINGH DATE OF HEARING 11.3.2014 DATE OF PRONOUNCEMENT 20 .3.2014 O R D E R PER T.R.SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 17. 9.2013 OF THE LD CIT(A), CHANDIGARH. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING EFFECTIVE GROUNDS: 2 THE LD. CIT(A) HAS WITHOUT APPRECIATING THE FACT S AND CIRCUMSTANCES AND THE EXPLANATION OFFERED BY THE AP PELLANT ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 2,03,410/- BE ING 20% OF RS. 10,17,050/- INCURRED ON FOREIGN TRAVEL EXPENSES AS OF PERSONAL NATURE OF THE DIRECTORS. THE DISALLOWANCE BE DELET ED. 3 THE LD. CIT(A) HAS WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES AND WRITTEN SUBMISSIONS OF THE APPELL ANT ERRED IN SUSTAINING THE REDUCTION OF CLAIM U/S 80IB FROM RS. 9,42,617/- TO RS. 5,90,737/-. THE CLAIM OF THE APPELLANT BE ACCE PTED. 3 GROUND NO. 1 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS ASSESSING OFFICER NOT ICED THAT THE ASSESSEE-COMPANY HAS INCURRED AN EXPENDITURE OF RS. 1017050/- ON FOREIGN TRAVELING OF S/SH MANDEEP SING H, GAGANDEEP SINGH AND SUKHDEV SINGH. ON ENQUIRY IT W AS 2 SUBMITTED THAT THESE PERSONS HAVE GONE ABROAD FOR E XPLORING BUSINESS AVENUES. ACCORDINGLY TO THE ASSESSING OFF ICER THESE PERSONS WERE NOT EXPERT IN TECHNICAL FIELD THEREFOR E ENTIRE EXPENSES COULD NOT BE CLAIMED AS BUSINESS EXPENDITU RE PARTICULARLY IN VIEW OF THE FACT THAT EXPENSES OF PERSONAL ELEMENT COULD NOT BE RULED OUT. THEREFORE HE DISAL LOWED 20% OF THE EXPENSES. 4 ON APPEAL IT WAS SUBMITTED THAT THE DIRECTORS HAD EXPERTISE AND EDUCATIONAL QUALIFICATION AND SO IT C ANNOT BE SAID THAT SUCH PERSONS WHO HAVE GONE ABROAD WERE NOT TEC HNICAL EXPERTS. 5 THE LD. CIT(A) DID NOT FIND FORCE IN THE CONTENTI ONS AND OBSERVED THAT IN ANY CASE PERSONAL ELEMENT OF EXPEN DITURE COULD NOT BE RULED OUT AND THEREFORE HE CONFIRMED T HE ACTION OF THE ASSESSING OFFICER. 6 BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT SUKHDEV SINGH IS A GRADUATE AGED ABOUT 63 YEAR S AND HAD BUSINESS EXPERIENCE OF MORE THAN 35 YEARS. HE HAS SET UP VARIOUS UNITS AND WAS DIRECTOR IN MANY COMPANIES. GAGANDEEP SINGH WAS AN MBA GRADUATE AND WAS AN EXPERIENCED BUSINESSMAN. MANDEEP SINGH IS A COMMERCE GRADUATE AND HAVING BUSINESS EXPERIENCE OF 18 YEARS. THEREFORE T HESE PERSONS WERE TECHNICALLY QUALIFIED. IN ANY CASE TH E ASSESSEE HAS PAID FRINGE BENEFIT TAX (FBT) ON THESE ITEMS AN D THEREFORE NO DISALLOWANCE CAN BE MADE. 7 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE S TRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 8 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND T HAT THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE EXPEND ITURE WAS 3 GENUINE. ONCE THE EXPENDITURE IS ACCEPTED TO BE GE NUINE THEN IT IS NOT PROPER TO CONSIDER THE PERSONAL ELEMENT W ITHOUT ANY EVIDENCE. ADHOC ADDITIONS ARE NOT PERMISSIBLE UNDE R THE LAW. IN ANY CASE THE ASSESSEE HAS ALREADY PAID FBT ON TH IS ITEM OF EXPENDITURE THEREFORE WHAT EVER PERSONAL ELEMENT WA S THERE, WILL BE COVERED BY THE PAYMENT OF FBT AND THEREFORE DISALLOWANCE WAS NOT CALLED FOR. ACCORDINGLY WE SE T ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THIS ADDITION. 9 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICE NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB A MOUNTING TO RS. 9,42,670/-. HE NOTICED THAT SOME OF THE PRO CESSES WERE CARRIED OUT THROUGH JOB WORK IN ASSESSEES SISTER C ONCERN AS PER FOLLOWING DETAILS: M/S K.K. CORP RS. 1,37,12,770/- HARKO METAL RS. 1,78,42,263/- METLONICS CORP RS. 34,55,713/- RS. 3,50,10,746/- THEREFORE HE REDUCED 27.82% OF THE TOTAL TURNOVER A ND REWORKED THE DEDUCTION AT RS. 590737/-. 10 ON APPEAL THE WRITTEN SUBMISSIONS WERE GIVEN BEF ORE THE LD. CIT(A) AND THE RELEVANT PORTION HAS BEEN REPROD UCED BY HIM WHICH IS AS UNDER: DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE CO MPANY HAD EXPLAINED THAT IT WAS ENGAGED IN MANUFACTURING OF SHEET METALS COMPONENT WHICH INVOLVED A NUMBER OF STEPS VIZ., I) MACHINERY (II) PLATING III) BENDING IV) SHEERING (V) BLANKING (VI) PROFILE CUTTING AND GRINDING TO ARRIVE AT THE FINAL END PRODUCT AND THA T IT WAS NOT FULLY EQUIPPED TO CARRY OUT SOME INTERMEDIARY JOBS, HENCE ASSIGNED THE SOME OF THE PROCESS TO ITS SISTER CONCERNS. THE AS SESSING OFFICER HAS ERRONEOUSLY CONCLUDED THAT THE SISTER CONCERNS ARE THE ACTUAL MANUFACTURES AND HAS BROUGHT NOTHING ON RECORD TO E STABLISH SUCH A HYPOTHESIS. 11 THE LD. CIT(A) DID NOT FIND FORCE IN THESE SUBMI SSIONS AND ALSO OBSERVED THAT THE ASSESSEE HAD ALSO NOT R EDUCED THE 4 EXPORT INCENTIVE WHICH HAVE BEEN REDUCED BY THE ASS ESSING OFFICER AND THEREFORE DEDUCTION COMPUTED BY THE ASS ESSING OFFICER WAS JUSTIFIED. 12 BEFORE US, IT WAS MAINLY SUBMITTED THE ASSESSEE HAS CARRIED OUT MANY ACTIVITIES CONSISTING OF VARIOUS I NDUSTRIAL OPERATIONS LIKE I) MACHINING (II) PLATING III) BEND ING IV) SHEERING (V) BLANKING (VI) PROFILE CUTTING AND GRINDING. ON LY FEW PROCESSES FOR WHICH FACILITIES WERE NOT AVAILABLE, WERE GOT DONE FROM OUTSIDE. MERELY BECAUSE SOME ACTIVITIES HAVE BEEN GOT DONE FROM OUTSIDE IT CANNOT BE SAID THAT THE ASSESS EE IS NOT AN INDUSTRIAL UNDERTAKING AND THE DEDUCTION CANNOT BE REDUCED. IN THIS REGARD THE LD. COUNSEL FOR THE ASSESSEE BEFORE US RELIED ON THE DECISION OF CHANDIGARH BENCH OF THE TRIBUNAL IN CASE OF SOND BHARAT PPEDALS (INDIA) VS. ITO, 84 ITD 89. HE ALSO RELIED ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN CA SE OF CIT VS. ANGLO FRENCH DRUG CO. (EASTERN) LTD., 57 TAXMAN 008. 13 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE STRONGLY RELIED ON THE ORDER OF THE ASSESSING OFFICER. 14 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREF ULLY AND FIND THAT IT HAS NOT BEEN DENIED BY THE ASSESSING O FFICER THAT SOME PROCESSES WERE CARRIED OUT BY THE ASSESSEE. M ERELY BECAUSE ONE OR TWO PROCESSES WHICH WERE NOT AVAILAB LE AND WHICH WERE GOT CARRIED OUT FROM OUTSIDERS WILL NOT MAKE THE ASSESSEE NOT ELIGIBLE FOR DEDUCTION ON PROPORTIONAT E BASIS. IN CASE OF SOND BHARAT PEDALS (INDIA) VS. ITO (SUPRA) HEAD NOTE READS AS UNDER: SECTION 80 I OF INCOME -TAX ACT, 1961 DEDUCTIONS PROFITS AND GAINS FROM INDUSTRIAL UNDERTAKING, ETC. AFTER CERTA IN DATES ASSESSMENT YEAR 1990-91 ASSESSEE GOT MS WIRE AND MS ROUNDS CONVERTED INTO PEDAL AXLES AND PEDAL RODS THROUGH O UTSIDE AGENCIES, SENT THEM TO OTHER FABRICATORS FOR HEAT T 5REATMENT OF NICKEL PLATING, AND THEREAFTER ALL THESE COMPONENTS ADDED WITH 5 OTHER COMPONENTS PURCHASED FROM MARKET WERE FED TO POWER DRIVER MACHINES FOR TIGHTENING OF COMPONENTS RESULTING IN PRODUCTION OF BICYCLE PEDALS WHETHER IF ALL THESE ACTIVITIES WE RE TAKEN INTO ACCOUNT, ASSESSEE COULD BE SAID TO BE ENGATGED IN B USINESS OF MANUFACTURING PEDALS AS FINAL PRODUCT, I.E. , PEDA LS WERE DIFFERENT FROM RAW MATERIAL LIKE MS ROUNDS AND MS WIRE HELD , YES WHETHER ASSESSEE SHOULD NOT NECESSARILY CARRY OUT A LL MANUFACTURING OPERATIONS ITSELF, IN ORDER TO BE EN TITLED TO BENEFIT OF DEDUCTION U/S 80 I AND SUCH OPERATIONS CAN BE GOT DONE FROM OUTSIDERS ON PAYMENT OF LABOUR/SERVICE CHARGES HE LD, YES WHETHER ASSESSEE COULD BE SAID TO BE ENGAGED IN BUS INESS OF MANUFACTURING OF BICYCLE PEDALS AND, THEREFORE WA S AN INDUSTRIAL UNDERTAKING ENTITLED TO DEDUCTION U/S 80 I HELD, YES. HOWEVER, AT THE SAME TIME IF THE EXPORT INCENTIVES WERE NOT REDUCED THEY HAVE TO BE REDUCED WHILE COMPUTING THE DEDUCTION U/S 80IB IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT VS. STERLING FOODS, 237 ITR 579 (S.C). THEREFORE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER NOT TO REDUCE THE PROPORTIONATE T URNOVER BEFORE COMPUTING THE DEDUCTION U/S 80IB. HOWEVER, EXPORT INCENTIVES SHOULD BE REDUCED FROM COMPUTING THE DED UCTION. THEREFORE THIS GROUND IS PARTLY ALLOWED. 15 IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.3.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20.3.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR