Income Tax Appellate Tribunal - Chandigarh
Micro Instruments Co. , Ambala vs Department Of Income Tax on 28 December, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'B' CHANDIGARH
BEFORE SHRI H.L.KARWA, VICE PRESIDENT
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No.1116/CHD/2010
Assessment year 2007-08
DCIT, V M/s Micro Instruments Co.,
Ambala. Industrial Area,
Ambala Cantt.
PAN: AAACM-8666K
(Appellant) (Respondent)
Department by: Shri N.K.Saini
Assessee by : Shri Ashok Kumar Goyal
Date of Hearing : 28.12.2011
Date of Pronouncement : 04.01.2012
ORDER
PER MEHAR SINGH, AM
The present appeal filed by the Revenue is directed against the order dated 16.06.2010, passed by the ld. CIT(A) u/s 250(6) of the Income-tax Act,1961 (in short 'the Act').
2. In this appeal, the Revenue has raised the following Grounds of Appeal:
"1. Whether on the facts and circumstances of the case, the ld. CIT(A) is right in deleting the addition made u/s 145(3) at Rs.2,10,97,492/- by ignoring the f act that invoking of provisions of Section 145(3) were validly invoked as the assessee did not maintain inventory of opening and closing stock without which it is not possible to determine the correct income of the assessee f or the year under consideration.2
2. Whether on the facts and circumstances of the case, the ld. CIT(A) is right in holding that deduction u/s 80IB amounting toRs.22,95,197/- in respect of ne w unit was admissible notwithstanding that the conditions laid down u/s 80IB are not satisf ied and no deduction has been allo wed in the assessment year 2003-04 ?
3. It is prayed that the order of ld. CIT(A) be set aside and that of the AO be restored.
4. The appell ant craves leave to add or amend the grounds of appeal bef ore the appeal is heard and disposed off."
3. In the course of present appellate proceedings, it was stated by the ld. 'AR' and ld. 'DR' that the issues in question are covered by the decision of the Hon'ble ITAT in assessee's own case, as decided in ITA No. 537/Chd/2009, assessment year 2006-07, dated 24.06.2009.
4. The CI T(A), following the decision of the Tribunal, adjudicated the issue in favour of the assessee. The relevant part of the decision of the CIT(A) is reproduced hereunder :
"4. I have caref ully considered arguments of the counsel f or the appellant and have gone through the assessment order. I have also caref ully gone through the order of my predecessor f or the assessment year 2006-07 dated 11.3.2009. The f irst ground of appeal is regarding addition of Rs.22,95,197/- by disallo wing the deduction u/s 80IB of the IT Act. The AO has made disallo wance of the deduction on the ground that such disallowance was made in the earlier years and the f acts are identical. The counsel has argued that such additions have been deleted by the Hon'ble ITAT in the earl ier years and the AO has not brought 3 any ne w f act on record. The AO has herself mentioned in the assessment order that the addition has been deleted by the Hon'ble ITAT vide its order No.129/Chandi/2007 dated 31.07.2008 and the f acts of the case this year are identical. Respectf ully following the Hon'ble ITAT order in ITA No.129/Chandi/2007 dated 31.07.2008, the addition made by the AO is ordered to be deleted. This ground of appeal is allo wed.
5. Ground No.2 of appeal is regarding addition of Rs.2,10,97,492/- on account of low GP rate. The AO has made the addition on the ground that there is steep f all in the GP rate this year as compared to the earl ier years and the assessee has not f urnished inventory of closing and opening stock and has not maintained stock register. The AO appl ied GP rate of 30% as against the decl ared GP rate of 19.90%. The counsel on the other hand, has argued that such addition have been deleted by the appell ate authorities in the earl ier years and no ne w f acts have been brought on record by the AO. Moreover, the reasons f or f all in GP rate were explained to the AO during the assessment proceedings and it was stated that the main reason f or f all in GP rate was the sharp increase in prices of raw material like copper, aluminum etc. The counsel f urther argued that my predecessor had discussed all the details in his order for the assessment year 2006-07.
5.1 On caref ul consideration of the above f acts and submissions, I f ind f orce in the arguments of the counsel that such addition have been deleted by the Hon'ble ITAT in the appell ant's o wn case f or the assessment year 2003-04 and my predecessor had deleted the addition vide his order in Appeal No.59/AMB/08-09 dated 11.03.2009. Since no new f acts have been brought on record by the AO, 4 respectf ully f ollowing the Hon'ble ITAT order f or the assessment year 2003-04, the addition of Rs.2,10,97,492/- made by the AO is ordered to be deleted. This ground of appeal is allo wed."
5. In Ground No. 1& 2, both the parties stated that the issues are covered by the decision of the Hon'ble ITAT, Chandigarh in assessee's own case in ITA No. 537/Chd/2009, assessment year 2006-07, dated 24.06.2009.
A perusal of the said decision in assessee's own case, wherein another order in assessee's own case for the assessment year 2004-05 and 2005-06 (I TA No. 1049 & 1050/Chd/2008) has been followed, covers both the issues raised by the revenue in the grounds of appeal. The relevant part of the said decision is reproduced hereunder :
"These appeals are filed by the Revenue against the order of the learned CIT(A) dated 22.9.2008 on the ground whether the learned CIT(A) was right in holding that deduction under section 80 IB amounting to Rs. 6,41,175/- and Rs.16,88,816/- respectively in respect of new unit was admissible notwithstanding that the conditions laid down under section 80 IB are not satisfied and no deduction has been allowed in assessment year 2000-01, the initial assessment year and also whether the learned first appellate authority was right in deleting the addition of Rs.9,68,841/- and Rs. 15,59,039/- respectively made under section 145 (3) by ignoring the fact that invoking of provisions under section 145(3) was valid as the assessee did not maintain inventory of opening and closing stock, therefore, without stock register it was not possible to determine the correct income of the assessee for the year.5
2. During arguments, we have heard Smt. Sarita Kumari learned DR and Shri Sudhir Sehgal ld counsel for the assessee. At the outset, it was pointed out that the impugned issues are covered by the decision of the Tribunal for assessment year 2003-04 in the case of assessee itself (ITA No. 129/Chd/2007). Mr Sehgal also pointed out that ground No. 1 raised by the Revenue is wrong to the effect that no deduction was allowed in assessment year 2000-01 (initial assessment year) as neither any claim was made by the assessee nor it was allowed as the production was only for two days. This factual finding was not controverted by the Revenue.
3. We have considered the rival submissions and perused the material available on the file. Brief facts are that the assessee is engaged in the business of manufacturing of electrical motors, electrical fans and sales thereof. For assessment year 2004-05, the assessee declared total income of Rs. 45,91,250/- in its return filed on 1.111.2004 which was also accompanied with audit report, audited statement of accounts. The assessee claimed Rs. 6,41,175/- as deduction under section 80 IB. The plea of the learned Assessing Officer is that since similar deduction amounting to Rs. 16,22,661/- was disallowed, therefore, the impugned deduction is also disallowed and added back to the income of the assessee. For assessment year 2005-06, the assessee declared total income of Rs. 1,00,98,060/-, which was processed on 23.12.2005, under section 143 (1) of the Act. The assessee claimed Rs. 16,88,816/- as deduction under section 80 IB. The claim was disallowed on identical lines as mentioned for assessment year 2004-05. However, we have found and also as argued by the learned counsel for the assessee that the Tribunal vide order dated 31.7..2008 for assessment year 2003-04, allowed the claim of the assessee, therefore, we are reproducing herewith the relevant portion of the aforesaid order:-
"2. The appellant is a partnership firm which is engaged in the business of manufacturing electric motors, electric fans and sales thereof. For the assessment year under consideration it filed a return of income declaring an income of Rs.86,21,400/- which included a claim of deduction under section 80IB of the Income Tax Act,1961 (in short 'the Act' ) in respect of Unit II amounting to Rs.16,22,661/-. The return 6 of the assessee was subject to scrutiny assessment under section 143(3) of the Act and the Assessing Officer has passed an order thereof whereby the total income of the assessee has been assessed at Rs.1,21,66,830/-. In the said assessment, the Assessing Officer has inter-alia denied the claim of deduction under section 80IB, rejected the trading results, made disallowances out of depreciation, expenses on foreign travel, interest, car running & telephone, etc. All the additions made were challenged in appeal before the CIT(A) unsuccessfully. The CIT(A) has dismissed the appeal of the assessee and the order of the Assessing Officer has been sustained. Against such order of the CIT(A) the assessee is in appeal before us.
3. In the said background we have heard the submissions of the rival counsels with respect to each of issues raised in appeal and perused the record to which our attention has been drawn in the course of the hearing.
4. The Ground Nos. 1 (a) to 1(d) in the Memo of Appeal relate to the action of the CIT(A) in sustaining the denial of deduction under section 80IB of the Act to the assessee. The factual position in this regard is discussed by the Assessing Officer in paras 10 and 11 of the order. The Assessing Officer observed that the assessee has two units. In unit I it was manufacturing '2 pole electric motor' and electric fans while it manufactured '4 pole electric motor' inlet and outlet valve in unit II. On being asked to justify the claim of deduction under section 80IB of the Act in relation to the profits and gains of unit II the assessee filed the relevant details and also submitted that the claim of the assessee under section 80IB was discussed in the assessment proceedings of the earlier years and allowed as such. From the discussion made in the assessment order it appears that the Assessing Officer conducted a verification exercise in this regard. The Assessing Officer noticed that no separate books of account were maintained for the unit II; that the partners of the both the units are same; that no separate wage/salary register has been maintained for unit II; that no separate power connection was obtained for unit II; that the job work charges claimed in the two units were so manipulated to claim higher deduction under section 80IB; that the unit II could not be said to be an independent unit but was only an extension of the business of the industrial undertaking in unit I. He therefore denied the claim of deduction under section 80IB of the Act. The CIT(A) has also sustained such denial on the reasoning similar to that adopted by the Assessing Officer.
5. Before us, the Ld. Representative for the appellant firm submitted that the lower authorities were not justified in denying the claim of deduction in this year for the reasons mentioned in the assessment order; for, in the earlier assessment years of 2001-02 and 2002-03 the claim under section 80IB has been duly examined and allowed to the assessee with regard to the profits and gains of unit II. It was submitted that for the assessment year 2001-02, the claim 7 was examined in the course of assessment proceedings under section 143(3) of the Act and allowed. It was submitted that once the relief under section 80IB has been allowed to the assessee in the initial year, then it is not open for the Assessing Officer to examine such question again and decide to deny the relief, especially in a situation whereby the relief allowed in the initial year is not disturbed. It was explained that the initial assessment year for the claim of 80IB relief in question was assessment year 2001-02 wherein such relief stood allowed. For the said proposition the assessee has relied upon the following decisions:-
i) Saurashtra Cement & Chemical Industries Ltd. vs. CIT 123 ITR 669 (Guj) ii) CIT vs. Paul Brothers 216 ITR 548 (Nag.) iii) CIT vs. P. Muncherji & Co. (1987) 167 ITR 671 (Bom.) iv) Russel Properties (P) Ltd. vs. A. Chowdhury, Addl. CIT (1977) 109 ITR 229 (Cal) v) K. N. Agarwal vs. CIT (1991) 189 ITR 769 (All) 6. Apart from the aforesaid the Ld.
Representative has relied upon the submissions made before the CIT(A) with regard to the claim of deduction under section 80IB to the effect that the same is otherwise also allowable to the assessee as it fulfills all the conditions prescribed in the said section.
7. On the other hand the Ld. D. R. has primarily relied upon the orders of the lower authorities in support of the case of the Revenue. The reasons to deny the claim have been reiterated before us on the same lines as noticed by us earlier in paragraph 4 above.
8. We have carefully examined the rival stands with regard to the claim of the assessee firm for relief under section 80IB of the Act in relation to unit II. Section 80IB governs deduction in respect of profits and gains from certain industrial undertakings for such number of assessment years as specified in the section. Sub-section 2 deals with the conditions which are required to be fulfilled by an industrial undertaking in order to be eligible for the relief. The assessee initially claimed deduction under section 80IB for the impugned unit in the assessment year 2001-02 and the same was allowed. In this assessment year the claim of the assessee was in continuation of the claims made in the earlier assessment years for the impugned assessment year falls within the number of assessment years as specified in the section in which the claim is eligible. The Revenue has sought to deny the claim in this year on the ground that the unit II does not fulfill the conditions specified in the section. It 8 is also a pertinent fact position that the claim allowed to the assessee in the initial assessment year of 2001-02 and thereafter in the assessment year 2002-03 has not been withdrawn. This aspect has been pleaded by the assessee before the Assessing Officer as well as before the CIT(A). Before us this aspect has been reiterated and we find no controvertion from the Revenue either at the stage of the proceedings before the lower authorities or even before us. Thus, factually speaking the claim of the assessee for deduction under section 80IB stands admitted in the initial assessment year and also thereafter up to the assessment year prior to the year under consideration. On this factual matrix, we find no justification for the Assessing Officer to deny the claim of the assessee for deduction under section 80IB. The implication of the earlier assessment made for the initial assessment year under section 143(3) is that the assessee has fulfilled the conditions prescribed in the said section. Thereafter it is not open for the Assessing Officer to re-examine the issue all over again and come to a different conclusion in a subsequent year without justifying such departure. In the assessment order, we do not find any discussion by the Assessing Officer on this aspect inspite of the fact that the appellant assessee had taken a specific position based on the relief allowed in the past. Further, the claim accepted by the Assessing Officer in the assessment years 2001-02 and thereafter in 2002-03 have not been disturbed. Clearly in a such a situation the onus which was on the Revenue has not been discharged. We are conscious of the legal position that in so far as the justification for the claims of exemption/tax reliefs are concerned the onus is on the assessee to establish and justify the claims. So however in a situation like the present situation what we are trying to say is that the Assessing Office ought to have justified his departure from the earlier accepted position whereby similar claim has been accepted in the past. It is in this background that we are of the opinion that the onus was on the Assessing Officer to justify the denial of deduction under section 80IB in view of the past history. In our considered opinion the erroneous approach of the lower authorities in this regard stands clearly manifested in view of the judgments of the Hon'ble High Courts of Gujarat and Bombay in Saurashtra Cement & Chemical Industries Ltd. (supra) and Paul Brothers (supra) respectively. Therefore, in this background we find no justification to uphold the stand of the income tax authorities to deny the claim of the assessee for deduction under section 80IB in relation to the profits and gains of unit II. Accordingly on this Ground the assessee succeeds".
As far as the contention regarding deleting the addition made under section 145(3) of Rs. 9,68,841/- and Rs.15,59,039/- respectively by invoking the provisions of section 145(3) is concerned, the Tribunal has also deliberated upon this issue for assessment year 2003-04, the relevant portion of the aforesaid order is reproduced herewith:-
9"9 The Ground Nos. 2(a) to 2(d) in the Memo of appeal relate to the action of the CIT(A) in sustaining an addition of Rs.14,75,940/- made by the Assessing Officer on account of trading results. In brief the dispute relates to the action of the Assessing Officer in invoking the provisions of section 145 of the Act to reject the trading results declared in the books of account maintained by the assessee. The reasons stated by the Assessing Officer to reject the book results are as follows. The Assessing Officer noticed that the G. P. rate in the present year had declined to 28.5% as against 34.04% and 33.28% in the preceding assessment years of 2002-03 & 2001-02 respectively. The explanation furnished by the assessee with regard to the decline in the G. P. rate has not been accepted by the Assessing Officer. Secondly the Assessing Officer noticed that the assessee had made payments by way of job charges to M/s Micro Motion Pvt. Ltd., a sister concern and such payments have not been duly reported in the Audit Report annexed with the return of income. Further the Assessing Officer found no justification for incurring of such expenditure. Considering the above reasons, the Assessing Officer inferred that the account books maintained by the assessee did not reflect the true and correct picture of the trading results and hence rejected the same by invoking the provisions of section 145 of the Act. The Assessing Officer computed the gross profit by applying a G. P. rate of 30% on the sales as declared by the assessee and the difference amounting to Rs.14,75,940/- was added to the income returned by the assessee. In appeal before the CIT(A) the assessee made varied submissions. According to the assessee its books of account are audited and all purchases/sales are fully vouched; that the decline in G. P. rate was on account of reduction in sale price due to supplies from China and increase in generator expenses, manufacturing expenses and job work charges; that the product of the assessee is subject to excise and complete record in this regard was maintained and inspected by the excise authorities. The aforesaid submissions of the assessee have not found favour with the CIT(A) and the addition made by the Assessing Officer has since been sustained. Against such sustenance of addition the assessee is in appeal before us.
10. Before us the Ld. Representative for the appellant firm submitted that the lower authorities were not justified in rejecting the trading results declared in the books of account. The Ld. Representative pointed out that the declined in G. P. rate was fully explained in the course of assessment proceedings by way of written communications, copies of which have been placed in the Paper-book at pages 43 to 49. It was explained that the sale prices of the products had declined due to competition from Chinese market. The assessee has also referred to the Paper-book wherein are placed copies of the invoices raised on few customers showing the decline in sale prices this year in comparison to the sales in the preceding years. Our reference has been invited to pages 74 to 117 in this regard.
10Secondly it is submitted that expenses have also risen in the year under consideration and this aspect has been admitted by the Assessing Officer himself in para 3.2 of the order. The Ld. Counsel explained the increase in generator expenses also. It was explained that the manufacturing process of the assessee required uninterrupted regulated electric power supply and therefore the assessee had not availed of any regular power connection but was entirely dependent on the power supplied by its own generator. The prices of diesel had increased in the year under consideration. The Ld. Counsel further drew our attention to page 118 of the Paper- book wherein is placed an analysis of all these factors on the G. P. rate, which show that the aforesaid factors had effected the G. P. rate by as much as 7%. Thus the decline in the G. P. rate by mere 5.54% in comparison to the immediate preceding year was quite justified. Even with regard to the job work charges paid to M/s Micro Motion Pvt. Ltd., it was submitted that the expenditure was incurred, as in the past years for the work actually undertaken for the assessee. The Ld. Counsel contended that the Assessing Officer was wrong in observing that the job charges were unverifiable for the reason that the payee concern was also filing its return of income regularly. In this connection the written submissions made to the Assessing Officer have been referred to. Infact the Ld. Counsel pointed out that the payee concern was also filing assessed with the same Assessing Officer. It was pointed out that the said concern had duly accounted for the incomes earned from the assessee and there is no dispute on this aspect. The other arguments taken before the CIT(A) have been reiterated even before us. In nutshell, it is submitted that there was no justification with the Assessing Officer to reject the trading results and resort to estimation of the gross profit.
11. On the other hand Ld. D. R., apart from relying on the orders of the lower authorities pointed out that the assessee could not furnish the requisite quantitative stock details and therefore the Assessing Officer was justified in rejecting the trading results declared by the assessee.
12. In reply the Ld. Representative for the assessee pointed out that the assessee was maintaining complete quantitative records as prescribed by the excise authorities and the stand of the Revenue on this aspect was untenable.
13. We have considered the rival submissions carefully. Section 145(3) of the Act empowers an Assessing Officer to reject the trading results declared by an assessee. If the Assessing Officer is not satisfied about the correctness of completeness of the accounts maintained by the assessee or where the method of accounting as notified is not followed by the assessee, the Assessing Officer is empowered to reject the results so declared and make an assessment to the best of his judgement. In the present case, the Assessing Officer noted that the GP rate declared was low in comparison to the two preceding assessment 11 years. The second objection relates to the non-reporting of payments made to a sister concern covered within the meaning of Section 40A(2)(b) of the Act. Thirdly, the Assessing Officer has also not found any justification for incurring payment of job work charges to the said sister concern. The point to be examined is as to whether there are any justified reasons for the Assessing Officer to reject the books of account maintained by the assessee. In this connection, we find that none of the objections brought out by the Assessing Officer are strong enough to negate the Book results declared by the assessee. Firstly with regard to the fall in GP rate, we find that the assessee had furnished a detailed explanation. The assessee had explained the decrease in sale price as also its reasons. The reasons were also substantiated on the basis of the sale bills of the respective years showing fall in prices of finished products of the assessee. In fact, in its written communication to the Assessing Officer placed at page 43 to 45 of the Paper book, the assessee also pointed out that the fall in sale price was also a subject matter of examination by the excise authorities with no adverse findings. Further, the assessee explained the increase in expenses this year in comparison to the earlier years. In fact, we find that the Assessing Officer himself has admitted that the purchase price of the raw materials have risen during the year under consideration. We, therefore, on the basis of the material on record are satisfied with the explanation rendered by the assessee with regard to the fall in GP rate is plausible and could not be a ground to reject the books of account. Similarly, non-reporting of transactions with a concern covered u/s 40A(2)(b), at best, can be attributed to the auditors of the assessee and cannot be a ground to reject the reliability of the account books. Further, with regard to the incurring of job work payments to the sister concern, we find that the assessee had explained the reasons for making the payment. It has been explained that earlier the job work was being got done from outside parties and in view of the secrecy and confidentiality of the manufacturing process, the same was now being undertaken from the sister concern. It is submitted that no un-reasonable expenditure has been incurred on job work payments to the sister concern in as much as it would have incurred such expenditure even if the job work was got done from other parties. We find that there is no negation to the fact position that the work has been indeed been undertaken for the assessee by the sister concern M/s Micro Instruments Pvt.Ltd. The assessee has explained even before the lower authorities the circumstances in which the payments have been made. There is nothing unreasonable in this regard. In any case, even for applying the provisions of Section 40A(2)(b), it is for the Assessing Officer to make out a case that the expenditure incurred is excessive or unreasonable having regard to the fair market value of such services. No effort in this regard has been made by the Assessing Officer. Therefore, considering the aforesaid, we do not find any justification for the Assessing Officer to invoke the provisions of Section 145(3) of the Act and reject the reliability of the 12 account books maintained by the assessee. Thus, the addition made by computing the gross profit on estimate basis is hereby set aside. Accordingly, the assessee succeeds on this Ground"
If the facts of the aforesaid order are kept in juxtapositon with the facts of the present appeal, the same were argued by the respective counsel to be identical. Even otherwise, the learned first appellate authority while coming to a particular conclusion had followed the aforesaid decision of the Tribunal for assessment year 2003-04. Therefore, respectfully following the aforesaid order, we have not found any merit in the appeals of the Revenue, consequently dismissed."
6. In view of the detailed findings in assessee's own case as reproduced above, on the identical grounds, these grounds of appeal of the revenue are dismissed.
7. Ground Nos. 3 & 4 are general in nature and need no separate adjudication. Hence, the same are dismissed.
8. In the result, appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 4 t h Jan.,2012.
Sd/- Sd/- (H.L.KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 4 t h Jan.,2012. 'Poonam' Copy to:
The Appellant, The Respondent, The CI T(A), The CI T,DR Assistant Registrar, ITAT Chandigarh