Income Tax Appellate Tribunal - Chennai
Ucal Fuel Systems Ltd., Chennai vs Assessee on 17 January, 2007
आयकर अपील य अ धकरण, 'सी' यायपीठ, चे नई ।
IN THE INCOME TAX APPELLATE TRIBUNAL , 'C' BENCH, CHENNAI
ी ए. मोहन अलंकामणी, लेखा सद य
एवं ी च ला नागे साद, या यक सद य के सम ।
BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER
AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
आयकर अपील सं./I.T.A.No.353/Mds/2007
( नधारण वष / Assessment Year : 2003-04)
M/s. Ucal Fuel Syste m s Ltd. Assistant Comm issioner of
Unit 505, Del ta W ing Vs. Incom e tax,
Raheja Towers, Com pany Circl e-III(3),
177, Anna Salai,Chennai-2 Chennai.
PAN:AAACU0541K
(अपीलाथ /Appellant) ( यथ /Respondent)
&
आयकर अपील सं./I.T.A.No.873/Mds/2007
( नधारण वष / Assessment Ye ar : 2003-04)
Assistant Comm issioner of M/ s. Ucal Fuel Syst em s
Incom e tax, Vs. Ltd. Unit 505, Del ta W ing
Com pany Circl e-III(3), Raheja Towers,
Chennai. 177, Anna Salai,Chennai-2
PAN:AAACU0541K
(अपीलाथ /Appellant) ( यथ /Respondent)
Assessee by : Mr. R.Vijayaraghavan, Advocate
Revenue by : Mr. N.Madhavan, JCIT
सन
ु वाई क तार ख/ Da t e of he ar i ng : 10th February, 2014
घोषणा क तार ख /Da t e o f P r on o u nc e me n t : 27th February, 2014
आदे श / O R D E R
Per Challa Nagendra Prasad, JM:
These appeals are filed by the assessee and the Department against the order of the Commissioner of Income 2 ITA No.353 & 873 /Mds/2007 Tax (Appeals)-VIII, Chennai dated 17.1.2007 for the assessment year 2003-04.
ITA No.353/Mds/2007 (Assessee's appeal):
2. The first issue in the grounds of appeal of the assessee is that Commissioner of Income Tax (Appeals) erred in holding that Duty Exemption Entitlement Certificate (DEEC) utilized by the appellant for import of goods without payment of duty is an incentive to be excluded while computing relief allowable under section 80HHC of the Act.
3. The learned counsel Shri Vijayaraghavan submits that assessee did not obtain any profit on transfer of DEEC but assessee utilized in its own business for import of material without payment of duty. Therefore no profit has arisen from transfer of DEEC and notional benefit cannot be deducted from the profit and loss of the business. The counsel submits that assessee has not sold license, hence acquiring any profit on license being treated as incentive under section 28(iii) does not arise and submits that this issue is squarely covered 3 ITA No.353 & 873 /Mds/2007 in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Topman Exports Ltd. Vs. CIT (342 ITR 49).
4. The Departmental Representative relied on the orders of lower authorities.
5. Heard both sides. Perused the orders of lower authorities. The Assessing Officer while completing the assessment reduced 90% of DEEC license while computing eligible deduction under section 80HHC of the Act. The Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer in reducing 90% of DEEC license while computing relief allowable under section 80HHC. However, we are of the considered view that this issue has to be decided in the light of the decision of the Hon'ble Supreme Court in the case of Topman Exports vs. CIT (supra).Therefore, we restore this issue to the file of the Assessing Officer to examine the issue afresh in the light of the decision of the Hon'ble Supreme Court in the case of 4 ITA No.353 & 873 /Mds/2007 Topman Exports(supra). The Assessing Officer may call for details from the assessee and decide the issue accordingly.
6. The next issue in the grounds of appeal of the assessee is that Commissioner of Income Tax (Appeals) erred in holding that income computed / relief under section 80IA depreciation granted in respect of the assets of the unit but set off against the other profit of the company in earlier years should be notionally carried forward . At the time of hearing, the counsel for the assessee submits that this issue has been decided in favour of the assessee in its own case in ITA No.1487/Mds/2010 for the assessment year 2005-06 vide order dated 21.4.2011 and this view of the Tribunal was also affirmed by the jurisdictional High Court in the case of Velayudhaswamy Spinning Mills Ltd. Vs. ACIT (231 CTR
368).
7. On a perusal of the order of this Tribunal dated 21.4.2011 and the decision of the jurisdictional High Court cited above, we find that this issue is covered in favour of the assessee. The Tribunal decided this issue in favour of the 5 ITA No.353 & 873 /Mds/2007 assessee following the decision of jurisdictional High Court in the case of Velayudhaswamy Spinning Mills Ltd. (supra) observing as under:-
"8. We have perused the orders and heard the rival contentions. Hon'ble jurisdictional High Court in the case of Velayudhaswamy Spinning Mills Ltd. (supra) had clearly held that depreciation of an eligible unit which has set off against other income of years prior to initial assessment year, could not be notionally carried forward and set off against income of eligible unit for the initial assessment year before working out deduction under section 80-IA of the Act. In view of this, we are of the opinion that Commissioner of Income Tax (Appeals) was absolutely justified in giving a ruling in favour of the assessee that notional unabsorbed depreciation could not be carried forward to set off in the initial assessment year for the purpose of working out deduction under section 80IA of the Act. We do not find any reason to interfere."
8. Respectfully following the above decision of the co- ordinate Bench of this Tribunal and the jurisdictional High Court, we allow this ground of appeal of the assessee.
9. The next issue in the grounds of appeal of the assessee is that Commissioner of Income Tax (Appeals) erred in confirming allocation of common expenses such as rent, 6 ITA No.353 & 873 /Mds/2007 electricity etc. of Head Office while computing relief under section 80IA of the Act for the Pondicherry unit. At the time of hearing counsel for the assessee fairly concedes that this issue is decided against the assessee in assessee's cross objection filed before the Tribunal in C.O.No.128/Mds/2010 dated 21.4.2011 for the assessment year 2005-06. Following the decision of the co-ordinate Bench of this Tribunal in assessee's own case, we dismiss the ground of appeal of the assessee on this issue.
10. The next issue in the ground of appeal of the assessee is that Commissioner of Income Tax (Appeals) erred in confirming exclusion of deduction under section 80HHC while computing deduction under section 80IB of the Act.
11. The counsel submits that the issue in appeal is decided in favour of the assessee in its own case for the assessment year 2004-05 in ITA No.1519/Mds/2011 by order dated 30.11.2011 and this view was also affirmed by the 7 ITA No.353 & 873 /Mds/2007 jurisdictional High Court in the case of CIT Vs. MRF Ltd. in TC(A) No.1020 of 2009.
12. We have perused the order of the co-ordinate Bench of this Tribunal cited above in assessee's own case and find that this issue is decided in favour of the assessee following the decision of the jurisdictional High Court in the case of CIT Vs. MRF Ltd. in TC(A) No.1020 of 2009 dated 27.10.2009 and the decision of the Bombay High Court in the case of Associated Capsules Pvt. Ltd. Vs. DCIT (322 ITR 42). Respectfully following the above decision of the co-ordinate Bench of this Tribunal and the jurisdictional High Court, we allow the ground of appeal of the assessee.
13. The last issue in the grounds of appeal of the assessee is that Commissioner of Income Tax (Appeals) erred in confirming disallowance of `1,80,146/- being loss on discarded assets.
8 ITA No.353 & 873 /Mds/2007
14. The counsel for the assessee submits that loss on discarded assets claimed in books of account has also been added in the memo of income, therefore, further disallowance made by the Assessing Officer amounted to double deduction.
15. The Departmental Representative submits that matter may be sent back to Assessing Officer for verification and in case it has already been added back in the memo of income, appropriate directions may be given to the Assessing Officer to delete the same.
16. We restore this issue to the file of the Assessing Officer for a limited purpose of verification of computation of memo of income and the contention of the assessee that loss on discarded assets claimed in the books of account has also been added back in the memo of income. In such circumstances, we hold that if the loss on discarded assets has already been added back in the memo of income, such loss cannot be disallowed again. Therefore, we direct the 9 ITA No.353 & 873 /Mds/2007 Assessing Officer to verify and grant appropriate relief to the assessee.
ITA No.873/Mds/2007 (Revenue's appeal):
17. The first issue in the grounds of appeal of the Revenue is that Commissioner of Income Tax (Appeals) erred in holding that sales tax and excise duty will not be included in the total turnover for the purpose of computation of relief under section 80HHC.
18. At the time of hearing, counsel for the assessee submits that this issue in appeal is squarely covered against the Revenue and in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Lakshmi Machine Works (290 ITR 667).
19. We have heard Departmental Representative and considered the records and the above decision of the Hon'ble Supreme Court. We note that this issue is squarely covered against the Revenue and in favour of the assessee by the 10 ITA No.353 & 873 /Mds/2007 decision of the Hon'ble Supreme Court in the case of Lakshmi Machine Works (supra). Accordingly this issue is decided against the Revenue.
20. The next issue in the grounds of appeal of the Revenue is that Commissioner of Income Tax (Appeals) erred in deleting disallowance of provision made by the assessee towards replacement of defective parts. The Assessing Officer while completing the assessment disallowed provision created by the assessee for replacement of defective parts i.e. O rings stating that sales relating to above parts were accounted for in the earlier years, therefore creating provision for earlier years during the year under consideration is not proper. On appeal, Commissioner of Income Tax (Appeals) allowed the claim of the assessee following the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. Vs. CIT (245 ITR 248).
21. Before us, the Departmental Representative submits that Commissioner of Income Tax (Appeals) allowed this 11 ITA No.353 & 873 /Mds/2007 claim without giving any specific finding whether there was any scientific basis adopted by the assessee to claim that provision was in fact ascertained liability for the assessment year under consideration. He further contends that judgement in the case of Bharat Earth Movers Ltd. (supra) is not applicable in the present case unless and until there is a finding as to whether provision made by the assessee is based on a correct scientific method to prove that liability is an ascertained liability and that the same may be discharged in future.
22. The counsel for the assessee submits that assessee held meetings with Maruti Udyog Ltd. to which the parts i.e. O Rings were supplied as these parts were fitted into cars sold by Maruti Udyog Ltd. In the meeting held with the Maruti Udyog Ltd. authorities, it was decided that defective O Rings have to be replaced referring to letter dated 31.3.2003 issued by Maruti Udyog Ltd. and the details of meetings held with Maruti Udyog Ltd. are placed at pages 40 to 46 of the paper book. The cost of replacement of such parts have to be fully 12 ITA No.353 & 873 /Mds/2007 borne by the assessee which includes material, labour, packing transport, taxes, octroi, dealer service charges etc. The counsel, referring to page 47 of the paper book filed before us which is a summary of ISCV O ring and Throttle Body Replacement estimation, submits that it was a reasonable business estimate made by the assessee that 40% of parts could be defective and have to be replaced. The counsel submits that assessee has in fact accepted liability and replaced the defective O rings as and when vehicles were sent to the service centres. The counsel submits that the liability to replace O rings and incurring all expenses are accrued to the assessee during the assessment year but only exact quantification was not made and the assessee made a reasonable business estimate that 40% of O rings need to be replaced. The counsel further submits that in fact total replacement cost for defective O rings for Maruti vehicles actually incurred by the assessee in the assessment years 2004-05 and 2005-06 including provision of `2,66,62,467/- made in the assessment year 2003-04 was ` 705.62 lakhs. The counsel submits that 13 ITA No.353 & 873 /Mds/2007 assessee has claimed only ` 439 lakhs as deduction for two assessment years i.e. 2004-05 and 2005-06. In support of his contention that the provision made for defective parts is an ascertained liability, the counsel places reliance on the decision of the Hon'ble Supreme Court in the case of Rotork Controls (India) Pvt. Ltd. Vs. CIT (314 ITR 62). He also places reliance on the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. (supra).
23. Heard both sides. Perused orders of lower authorities and the decision relied on. The assessee has made provision of ` 2.66 crores towards liability of replacement of defective parts manufactured by them and fitted into cars. The Assessing Officer held that liability has not been crystallized in the current year and accordingly disallowed provision and added to the income of the assessee. The Commissioner of Income Tax (Appeals) allowed the claim of the assessee by following the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. (supra). Neither the Assessing Officer nor Commissioner of Income Tax (Appeals) 14 ITA No.353 & 873 /Mds/2007 has examined the issue in detail with reference to the correspondence made by the assessee with Maruti Udyog Ltd. and the reasonable business estimate made by the assessee for replacement of defective O rings. The assessee also accepted the liability and replaced O rings by incurring expenses more than the provision made by it. All these details have not been examined by the Assessing Officer. Therefore, we are of the view that this issue has to be examined by the Assessing Officer in detail with reference to the correspondence made by the assessee with Maruti Udyog Ltd. and the reasonable business estimate of 40% made by the assessee and the expenses incurred on replacement over a period of time and also keeping in view the decision of Hon'ble Supreme Court in the case of Rotork Controls (India) Pvt. Ltd. (supra) and in the case of Bharat Earth Movers Ltd. (supra). Thus, we restore this issue to the file of the Assessing Officer for de novo consideration. 15 ITA No.353 & 873 /Mds/2007
24. In the result, both the appeals of the assessee and Revenue are partly allowed for statistical purposes. Order pronounced in the open court on Thursday, the 27th day of February, 2014 at Chennai.
Sd/- Sd/-
(A.Mohan Alankamony) (Challa Nagendra Prasad)
Accountant Member Judicial Member
Chennai,
Dated the 27th February, 2014.
somu
Copy to: (1) M/s. Ucal Fuel Systems Ltd.
M/s.Subbaraya Aiyar
Padmanabhan & Ramamani
Advocates, 5A,
Dr.Radhakrishnan Salai,
Mylapore, Chennai-600 004.
(2) Assessing Officer (3) CIT
(4) CIT(A) (5) D.R.
(6) G.F.