Income Tax Appellate Tribunal - Mumbai
Grindwell Norton Ltd, Mumbai vs Assessee on 10 August, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "G", MUMBAI
BEFORE SHRI DINESH KUMAR AGARWAL (J.M.)
AND SHRI RAJENDRA SINGH (A.M.)
ITA No. 3324/Mum/2011
Assessment Year : 2000-01
M/s Grindwell Norton Ltd., Deputy Commissioner of
C/o Kalyaniwalla & Mistry, Income-Tax 1(1),
Army & Navy Building, Aayakar Bhavan, M.K. Marg,
3rd Floor, 148 M.G. Road, Fort, Vs. Mumbai.
Mumbai 400 001.
PAN : AAACG8725B
(Appellant) (Respondent)
ITA No. 3176/Mum/2011
Assessment Year : 2000-01
JCIT (OSD) - 1(1), M/s Grindwell Norton Ltd.,
Mumbai. Leela Business Park, 5th Level,
Andheri-Kurla Road, Marol,
Vs. Andheri (E),
Mumbai - 400 059.
PAN : AAACG8725B
(Appellant) (Respondent)
Shri M.M. Golvala
Assessee by :
Shri A.K. Khan
Department by : Shri Amar Deep
Date of hearing 02-8-2012
Date of pronouncement 10-8-2012
ORDER
PER DINESH KUMAR AGARWAL, J.M.
These cross appeals by the assessee and the Revenue are directed against the order dtd. 19-11-2010 passed by the ld. CIT(A) for the A.Y. 2000-01. Since the facts are identical and the issue involved is common, 2 ITA No. 3324/M/11 & 3176/M/11 both these appeals are disposed of by this common order for the sake of convenience.
2. Briefly stated facts of the case are that the assessee company is engaged in the business of manufacturing and sale of abrasive and refractory products. It filed the return of income declaring total income of Rs. 14,10,87,170/-. However, the assessment was completed on a total income of Rs. 16,16,55,953/- including the part disallowance of deduction u/s 80IA of the Income Tax Act, 1961 (the Act) in respect of DVC Plant which was allowed at Rs. 14,15,755/- as against assessee's claim of Rs. 16,60,364/- On appeal the ld. CIT(A) partly allowed the said claim of the assessee. On further appeal before the Tribunal, the Tribunal in ITA No. 7073/Mum/2004 for the same assessment year vide order dtd. 28-8-2008 has restored the matter to the file of the A.O. vide finding recorded in para 16 of the order which is reproduced as under:-
"We have heard both the sides and perused the record of the case. We find that Ld. CIT(A) has relied on the working filed by the assessee which was without prejudice to its submissions made before the Ld. CIT(A) regarding allocation of expenses based on actual working. These submissions [reproduced by Ld. CIT(A)] have not been considered and, therefore, we set aside the order of ld. CIT(A) on this issue and restore the matter back to the file of the AO to consider the submissions made before Ld. CIT(A) and then to decide the electricity expenses allocable to DVC plant. This ground is also allowed for statistical purposes."
Pursuant to the order of the Tribunal, the A.O. provided opportunity to the assessee and asked the asssessee to furnish details to substantiate the claim. The assessee vide letter dtd. 16-9-2009 furnished the reply. The A.O. after considering the assessee's reply observed that the 3 ITA No. 3324/M/11 & 3176/M/11 assessee has not brought any new material on record held that the assessee has not discharged its basic onus which arose after the order of the ITAT and has chosen to repeat its reply and, hence, he did not find any reason whatsoever for deviating from the stand taken by the A.O. in the original assessment order and accordingly he upheld the disallowance made by the A.O. On appeal the ld. CIT(A) while relying on the earlier appellate order dtd. 15-6-2004 directed the A.O. to take a sum of Rs. 7,94,075/- as expenditure related to electricity for working out deduction u/s 80IA of the Act for eligible profit of DVC plant.
3. Being aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us taking the following grounds of appeal :-
"1) Both the lower authorities erred in confirming the reduction of the deduction claimed u/s 80-IB in respect of DVC Plant.
2) Both the lower authorities erred in holding that the appellant had not produced any "new" facts or evidence to substantiate its claim.
3) Both the lower authorities erred in ignoring the assessment proceedings for Assessment Year 2002-03, when the same contentions were accepted for DVC Plant by the Assessing Officer.
4) Having regard to the facts and circumstances of the case, the appellant submits that the Assessing Officer be directed to restrict allocation of electricity expenses in respect of DVC Plant to Rs. 3,600/-, while computing deduction u/s 80-IB."
4. At the time of hearing, the ld. counsel for the assessee after giving brief background of the case refers to the relevant paras of the original assessment order, order of the ld. CIT(A) and order of the Tribunal appearing at pages 1 to 44 of the assessee's paper book. He also refers 4 ITA No. 3324/M/11 & 3176/M/11 to the letter dtd. 16-9-2009 filed before the A.O. to substantiate its claim appearing at pages 45 to 54 of the assessee's paper book. He further submits that in the immediately preceding A.Y. i.e. 1999-2000 the assessee had made a claim u/s 80IA of the Act Rs. 1,61,99,219/- including the claim of DVC plant Rs. 12,65,247/- vide chart of computation of income appearing at pages 78-79 of the assessee's paper book and the A.O. in the assessment order dtd. 26-3-2002 has allowed the same, copy of the assessment order is appearing at pages 80 to 84 of the assessee's paper book. He further submits that in the subsequent A.Y. 2001-02 the assessee after including the amount of power Rs. 3406/- has made a claim of Rs. 10,60,854/- u/s 80IB appearing at page 85 of the assessee's paper book and the A.O. has allowed the same in the assessment order appearing at pages 86 to 98 of the assessee's paper book. In the light of the above, he submits that since no addition/disallowance was made in the preceding assessment years and in subsequent year, therefore, the A.O. and the ld. CIT(A) on the similar sets of facts have erred in not accepting the claim of the assessee i.e. to restrict the electricity expenses in respect of DVC plant to Rs. 3600/- only and to allow deduction u/s 80IA of the Act accordingly in the year under consideration.
5. On the other hand, the ld. D.R. supports the order of the A.O. and the ld. CIT(A).
5 ITA No. 3324/M/11 & 3176/M/11
6. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that before the ld. CIT(A) the assessee, without prejudice to its claim, has filed the working relating to allocation of electricity charges attributable to Dry Vibration Cement (DVC) Plant Rs. 7,94,075/- as against the allocation of power consumption expenses worked out by the A.O. Rs. 8,15,360/- in the original assessment order. The ld. CIT(A) without considering the actual working furnished by the assessee based on the assessee's submission which was without prejudice to its claim has accepted the alternative submission of the assessee. On appeal the Tribunal after considering the totality of the facts while observing that the ld. CIT(A) without considering the actual allocation of expenses based on the actual working has restored the matter back to the file of the A.O. to consider the assessee's submissions made before the ld. CIT(A) and then to decide the electricity expenses allocable to DVC plant. We further find that pursuant to the order of the Tribunal, the A.O. asked the assessee to file his submissions and in response, the assessee filed its submissions dtd. 16-9-2009 before the A.O. inter alia stating that (page 47 - 48 & 52 to 54 of assessee's paper book) :
"The Assessing Officer has recomputed the deduction u/s 80IA in respect of Dry Vibration Cement (DVC) Plant, by allocating electricity expenses and reducing the profit. The Appellant submits that the allocation has been done behind its back, at the fag end of the limitation period. If adequate opportunity had been granted by the Assessing Officer, it would 6 ITA No. 3324/M/11 & 3176/M/11 have been demonstrated that the consumption of electricity is minimal because:-
a) DVC is a separate product line, wherein the bonding material is mixed in a specified ratio with Aluminium Oxide grains to form DVC.
The mixing is a highly skilled job. The DVC is then lines on furnace walls at the client's Plant, which is also a specialized job done by the assessee's skilled personnel.
b) DVC is a proprietary product of Saint-Gobain. There is no competition for this product in India. The only competition is by use of different products, such as, Ramming mass produced by Lafarge etc. These products employ a different technology compared to the assessee's product.
c) The order for supply of DVC is not only made on GNO for manufacture of the product, but also for the lining on the furnace walls of customers. Hence, the business of DVC is manufacture and installation (i.e. application of DVC lining on the large furnaces).
d) The production of DVC depends upon the requirement of customers depending upon the type of furnace/kiln used by the customers.
e) It is a product which is manufactured for specific orders since it is a specialized and high value product and not meant as an "off the shelf"
item.
f) The right mix of raw materials i.e. the accurate chemistry of mix and the perfect lining on the furnace walls is the success and trade secret of this business. Each order value is large and there are strict parameters/conditions specified by the customers, as this product and the lining needs to withstand the heat generated upto 1600 C temperature.
g) The business can be divided into two activities, i.e. manufacture in factory premises and furnace lining at customer's factories where the usage of electricity is onsite at customer's factory. The furnace lining is done by the assessee with the supervision of its own engineers.
h) The assessee encloses herewith a statement showing the major raw materials required for manufacture of DVC, a process flowchart, as also the estimated electricity consumption for the year under account. It is the submission of the Appellant that under no circumstances the electricity expenditure would exceed Rs. 3,600/- during the year.
The statements, certificates, etc. mentioned above are enclosed for your Honour's perusal (Annexure 2).
7 ITA No. 3324/M/11 & 3176/M/11
Annexure 2 GRINDWELL NORTON LTD.
ASSESSMENT YEAR : 2000-01 Major Raw material used for manufacture of DVC Products.
1. Brown/White Fused Alumina
2. Mortar Bond
3. Binders
4. Bead Burnt Magnesite
5. Packing Materials GRINDWELL NORTON LTD ASSESSMENT YEAR : 2000-01 DVC Process Flow Chart Order inflow form CSD ↓ Raw material inspection ↓ Mixing as per mix card ↓ Product Inspection NOT OK ↓ ↓ Reprocess and inspection OK ↓ Bagging ↓ Dispatch The process involves a mixer with a 5 KW motor. The batch size is 500 Kgs for which the motor is run for 30 minutes per batch.
Since the motor capacity is low and the running time is also low, the power consumption is very low. The motor consumes only 5 units per hour of running.
The total hours run per annum are 185.32 hours and hence the units consumed are 926.6 units.
8 ITA No. 3324/M/11 & 3176/M/11
GRINDWELL NORTON LTD Devanahalli Road, Off Old Madras Road, Bangalore-560 049 Tel: (80) 847-2900-4, Fax (80) 847-2905 Certificate DVC Production 1999-00 185.32 Motor Rating of the Equipment (KW) 5.0 Units per Hour of Running KWH 5.0 DVC Production MT 185.32 Batch size MT 0.5 Running time per batch Hours 0.5 Total Running time for Annual Production Hours 185.32 Total Power Units Consumed KWH 926.6 Rate Per Unit of Power Rs. 3.9 Total Power Cost 3567.41 Power Rate Rs. 3.85 (Rs. 3.40 + 0.25 Fuel Escalation charges + 0.2 tax). We have not considered MD charges of Rs. 150 per KVA, since it would also be insignificant for the consumption. Sd/-
M.R. Ramarathnam Factory Manager".
7. We further find that the A.O. after considering the assessee's submission, without pointing out any defect in the working given by the assessee to show that power cost computed by the assessee Rs. 3600/- in round figure is less than the actual cost of electricity pertaining to DVC plant, has rejected the claim of the assessee. Since the assessee has 9 ITA No. 3324/M/11 & 3176/M/11 discharged its onus and in the absence of any contrary material placed on record by the Revenue to show that the working given by the assessee is not based on the correct facts and also keeping in view that in the preceding assessment years no such disallowance was made inasmuch as in the subsequent assessment year i.e. in A.Y. 2001-02, the A.O. has accepted the cost of the power Rs. 3406/- while allowing the deduction u/s 80IB of the Act on the DVC plant Rs. 10,60,854/- as claimed by the assessee vide assessment order dtd. 30-1-2004 passed u/s 143(3) of the Act, we are of the view that the disallowance made by the A.O. in this regard and partly sustained by the ld. CIT(A) is not sustainable in law and accordingly we direct the A.O. to consider cost of power Rs. 3600/- only pertaining to DVC plant and work out the deduction u/s 80IA accordingly. The grounds taken by the assessee are, therefore, allowed as indicated above.
8. Grounds No. 5 & 6 read as under:-
"5) The learned Commissioner of Income-tax (Appeals) erred in not cancelling the allocation of interest of Rs. 76,66,624/- to the earning of dividend income for computing disallowance u/s 14A.
6) The learned Commissioner of Income-tax (Appeals) erred in not deleting the disallowance of expenditure of Rs. 15,08,703/- while computing disallowance u/s 14A read with Rule 8D(2)(iii)."
9. Grounds No. 1 & 1.1 in Revenue's appeal in ITA No. 3176/M/2011 for the same assessment year read as under:-
"1. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in rejecting the AO's working of expenses u/s 14A 10 ITA No. 3324/M/11 & 3176/M/11 as per rule 8D by observing that jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd. has decided this issue that rule 8D will be applicable only from A.Y. 2008-09 onwards.
1.1 The decision of the Hon'ble High Court in the case of Godrej Boyce has not been accepted & SLP has been filed against the said decision."
10. At the time of hearing the ld. Counsel for the assessee submits that that the Tribunal on the issue of disallowance u/s 14A has set aside the same to the file of the A.O. He further submits that against the said order the assessee has filed an appeal before the Hon'ble jurisdictional High Court and the Hon'ble jurisdictional High Court in Income Tax Appeal No. 1824 of 2009 order dtd. 16-11-2010 has restored the matter to the file of the A.O. to decide the same in accordance with law laid down in the case of Godrej Boyce Mfg. Co. Ltd. Vs. Dy. CIT (2010) 328 ITR 81 (Bom). He further submits that pursuant to the order of the Hon'ble jurisdictional High Court, the A.O. has passed an order giving effect to the order of the Hon'ble jurisdictional High Court wherein the A.O. held that 5% of dividend income as reasonable disallowance towards expenses incurred to earn dividend income and copy of the said order is appearing at page 75 of the assessee's paper book. He further submits that against the said order passed by the A.O., the assessee is not in appeal and, therefore, the grounds raised by the assessee and Revenue become infructuous which was not objected to by the ld. D.R. in respect of the grounds raised by the assessee as well as in Revenue's appeal. 11 ITA No. 3324/M/11 & 3176/M/11
11. That being so and in the absence of any contrary material placed on record by the parties we keeping in view the order passed by the A.O. dtd. 2-5-2011 giving effect to the order passed by the Hon'ble jurisdictional High Court (supra), reject the grounds taken by the assessee and the Revenue being infructuous.
12. In the result, assessee's appeal stands partly allowed and Revenue's appeal is dismissed.
Order pronounced on 10-8-2012.
Sd/- Sd/-
(RAJENDRA SINGH) (DINESH KUMAR AGARWAL)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated 10-8-2012.
RK
Copy to:
1. The Appellant
2. The Respondent
3. Commissioner of Income Tax (Appeals)- 1 Mumbai
4. Commissioner of Income Tax - 1, Mumbai
5. Departmental Representative, Bench 'G', Mumbai //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI