Income Tax Appellate Tribunal - Amritsar
The Asstt. Commissioner Of Income Tax, ... vs M/S Kaiser Industries Pvt. Ltd, Samba on 22 March, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH, AMRITSAR
Before Sh. N. S. Saini, Accountant Member
And
Sh. N. K. Choudhry, Judicial Member
ITA No. 381/Asr./2016 : Asstt. Year : 2006-07
Asstt. Commissioner of Income Vs M/s Kaiser Industries Pvt. Ltd.,
Tax, Circle-1, Jammu Industrial Growth Centre,
SIDCO, Samba
(APPELLANT) (RESPONDENT)
PAN No. AABCK0456G
Assessee by : Shri. Vasu Gupta, CA
Revenue by : Sh. Yashender Garg, DR
Date of Hearing :21.02.2019 Date of Pronouncement : 22.03.2019
ORDER
Per N. S. Saini, Accountant Member:
Thi s i s an appeal fil ed by the Revenue agai nst the order of Commi ssi oner of Income Ta x (Appeal s), Jammu dated 31.03.2016.
2. The sol e i ssue i nvolved in this appeal is that the Commi ssi oner of Income Tax (Appeal s) erred i n all owing the deducti on u/s 80IB(4) of the Income Tax Act, 1961 i n respect of Samba Uni t as the same was cl ai med to i nfl ate the profi t of eli gi bl e uni t for the moti ve of availi ng deducti on u/s 80IB.
3. The bri ef facts of the case are that the Assessi ng Offi cer observed that the appel l ant company i s doi ng the busi ness of manufacturi ng speci ally agro chemi cal s. It has two uni ts one at Bahadurgarh & other at Samba . It had filed i ts return of 2 ITA No. 381/Asr./2016 Kaiser Industries Pvt. Ltd.
i ncome for the assessment year 2006-07 at a total i ncome of Rs.20,81,617/- after cl ai ming 100% deducti on u/s 80IB of the Act amounti ng to Rs.2,96,22 ,328/- i n respect of Samba Uni t. The case was sel ected for scruti ny and assessment was made u/s 143(3) of the Act on 29.12 .2008 at a total i ncome of Rs.60,53,810/-. Subsequentl y, the case was re- opened u/s 148 of the Act for the reason that a sum of Rs.51,07,624/- on account of Exci se duty refund on whi ch deducti on u/s 80IB of the Act has been cl ai med does not quali fy for such deducti on. The assessment orde r u/s 143(3)/147 of the Act w as passed on 26.03.2013 and the cl ai m of deducti ons of Rs.2 ,96,22,328/- cl ai med u/s 80IB(4) of the Act i n respect of Samba Uni t was deni ed by i nvoki ng the provi si ons of sec. 80IB(13) read with sec. 80IA(10) of the Act.
4. On appeal , before the Commi ssi oner of Income Tax (Appeal s), the assessee submi tted as under:
"The Id. A.O. is unjustified i n denying these deductions enumerated as under:
1. Regarding denial of Deduction of Rs.2,96,22,328/- claimed u/s 80-IB(4) in respect of Samba Unit by invoking th e provisions of sec.80IB(13) r.w.s. 80IA(10) of the Income Tax Act,1961. The appellant is aggrie ved for denial of 80-1B(4) of the Income Tax Act, 1961 claim in respect of its Samba Unit for an amount of Rs.2,96,22,328/-. The pe rusal of the assessment orde r shall reveal that it is not the case that ce rtain conditions for eligibility of deduct ion u/s 80-1B are not fulfilled. The conditions which are to be fulfilled for claim of de duction u/s 80-1B is laid down as under:-
i) it is not formed by splitting up, or the reconst ruction, of a business alrea dy in existence 3 ITA No. 381/Asr./2016 Kaiser Industries Pvt. Ltd.
ii) It is not formed by the transfer to a new business of ma chinery or plant previously used for any purpose;
iii) It manufactures or produce s any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or ope rates one or m ore col d st ora ge plant or plan ts, in any part of India.
iv) in a case where the industrial undertaking manufactures or produces a rticle s or things, the undertaking empl oys ten or more worke rs in a manufacturing process ca rried on with the aid of power, or employs twenty or more worke rs in a manufacturing process carried on without the aid of power.
The records do reveal that A.O. is satisfied about these conditions stands fulfilled but the only section vide which this deduction has bee n denied is se ction 80-IA (10) which of course gets attracted by virtue of section 80-IB(13). F or the sa ke of convenience section 80-1A(10) is reproduce d:
Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies an d any othe r person, or f or any other reason, the course of business between them is so a rranged that the business transacte d between the produces t o the assessee more than the ordina ry profits which might be expecte d t o arise in such eligible business, the Assessing Officer shall, in com puting the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be rea sonably dee med to have been derived there f rom. Now, the perusal of this section nowhere empowe rs th e Ld. A.O. to withdraw the claim of deduction u /s 80-IB. It talks of only extra ordinary profit of th e eligible unit to be reduce d, if any, and then only when there a re certain business transacti ons between the 4 ITA No. 381/Asr./2016 Kaiser Industries Pvt. Ltd.
assessee and some other person . In fact that is also not the fact of the case. Section 80-IA(10) talk of extra ordinary profit, ow ing to the close connection between the appellant carrying on the eligible business t o which this se ction applies and any other person, or for any ot her reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more t han the ordinary profits which might be expected to arise in such eligible business.
Your goodself shall appreciate that Ld. A.O. has gone beyond what section 80-1A (10) of the I. Tax Act, 1961 empowers him to do so. Because , if at all there is some extraordinary profit due to some transactions then the profit a s m ay be rea sonably deemed to have been derived from eligibl e business was requi red to be det ermined whereas the Ld. A.O. has denied wh ole deduction u/s 80-IB. Further, the Ld. A.O. ha s done t he comparison of two units of the appellant by comparing its net profit and gross profit and to do so expenses like remuneration etc. have been com pared and finally alleged that remuneration of Bahadurga rh Unit should have been debited to Samba Unit ignoring the fact that even without Samba Unit this remuneration used to be incurred at Bahadurgarh Unit. Further the Ld. A.O. even after obse rving that there is profit rise due to ex cise duty refund as the refund of this duty amounting to Rs.5107624/- when paid t o Excise Deptt. ha s not been debited to the P&L A/c and t he consequential refund has been treated as recovery of amount paid to Excise Deptt. Thus primarily the figures of Rs.5107624/- given rise to the higher profits to Samba Unit. Had this unit been independent of Bahadurgarh Unit even then the profit w ould have remained the same. Thus the matter which cannot be factually denied is that:
First, Sec. 80-IA (10) should not have been invoked as there are no transactions/ reasons to believe that Samba Unit has earned extra ordina ry profit.5 ITA No. 381/Asr./2016
Kaiser Industries Pvt. Ltd.
Second, that without pre judice to item first, even if Sec. 80-IA (10) was to be invoked even then the then Ld. A.O. is not empow ered to withdraw deduction u/s 80-IB (4) as Sec. 8 0-IA (10) does not empower the Ld. A.O. t o do so bu t to determine the profit as deemed to have arri ved from eligible business. Thirdly, the re is no ex tra ordinary profit from Samba Unit from any close connection as referred to in Sec. 80-IA (10) be cause the profit in Samba Unit is excess by Rs.5107624/- due to factors elaborated above. Alth ough the Ld. A.O. has also attributed remuneration and rent as other factors yet so fa r as remunerati on is concerned the Ld. A.O. has failed to utter a w ord as your goodself in the assessment year 2009-10 has held salary to be genuine as have been debited to Bahadu rgarh Unit except for Rs.300000/- in the case of Mr. Sudershan Malhotra . Thus sala ry pa rt gets obsolete when Ld. A.O. has himself conceded the issue. Further, the Ld. A.O. has made compari son of rent with Samba Unit .The rented properties used for Bahadu rga rh Unit and for which rent has been paid in any case were not required to be compa red wit h Samba Unit for compa rison of profits. Thus under facts and circumstances, the order of Ld. A.O. is against facts.
Further, there cannot be just ice to apporti on expenses of Bahadurga rh unit to Samba Unit which already pertain to Baha durga rh unit.
Now, when an assessee st arts business with one unit and books all expenses in the accounts of that unit due to direct and exclusive benefit of such expenses for such unit, then apportionment of every expense incurred wholly and exclusively for such unit with the units established by the assessee later on sh ould not be apportioned amongst these units.
In this regard, we would like t o place on record about the company which the Ld. A.O. has not analysed. The appellant is a company and is engage d in the business of manufacture of chemicals viz. Emulsifiers / Surfactants which are specialty chemicals. There are va rious chemicals which 6 ITA No. 381/Asr./2016 Kaiser Industries Pvt. Ltd.
constitute raw materials an d consumed to manufacture the following finished products:
EMULSOL - 3522 EMULSOL - 7066 EMULSOL - 3144 EMULSOL - CCA EMULSOL - CCM EMULSOL -371A EMULSOL-371M EMULSOL - PAP EMULSOL - HP-85 These finished products are sold to different Agro chemical formulators but t o none of the pa rties having the close connections at all. These finished products a re manufactured at two different units i.e. at Samba and Bahadurgarh and sold to different clients but the re cipe of the finished products kee p changing based on the requirem ents of the client and also base d on the availability of raw material.
Samba unit doe s not have SS rea ctors, Filter Press, Boilers and Gla ss lined react ors due to which it is procuring raw material viz. B-1 0, B-11, C-9 and Methanol from Bahadu rga rh unit.
For a suppositi on let us say the appellant closes the Samba unit, then whether expenses of Bahadurga rh unit will become less? No, as the Bahadurgarh unit is working independently and was established first by the assessee thereafte r Sam ba uni t. The expenses of Bahadurgarh unit a re of fixed nature and do n ot need to be apportioned among other unit.
As the appellant has lesse r dema nd of its products manufactured by it in Bahadurgarh area , so the appellant sells/transfers the same to its Samba unit in J & K State (by adding a markup to the cost price and the same is also accepted by Central Excise Department) where the assessee has higher demand of its products and the same i s t rue as the sales in Samba unit are always higher tha n the Bahadurga rh unit which can be verified by going through the 7 ITA No. 381/Asr./2016 Kaiser Industries Pvt. Ltd.
profit and loss account of both the units for the various years. Infact, the appella nt has used its idle activity at Bahadurgarh unit by making such transfer of products to its Samba unit so as to do business which is not much in Bahadurgarh unit.
We would also like to bring to your kind notice that of the total stock manufactured and sold by Bahadurgarh unit for Rs. 619866 44.56, a stock of Rs. 43742291.20 have been t ra nsferred t o Samba unit and it constitutes only 37.52% of total purchases of Samba unit. Further the stocks so transferre d is excisable and Excise department has never objected or questioned about the price of this material being transferred to Samba unit. It is categori cally stated that Samba unit has not sold its finished products to any of its rela ted parties at all.
It is pe rtinent to st ate that common expenses viz. Directors remuneration and legal expenses have already been apportioned betwee n Bahadurga rh unit and Samba unit as is apparent from the details of Administrative and other expenses. So far as salary expenses of Rs. 1618884.00 debited to Bahadurgarh unit is concerned, it is also pe rtinent to state that the Ld. A.O. has already allowed t his expenditure as genuine in respect of Bahadurga rh unit. Finally there are rental expense s of R s. 900000 .00 being incurred by Bahadu rgarh unit for rented premises so this expenditure can also not be treated as common expense to be apportioned to Samba unit. The perusal of all other expenses debited under Administrative and other expenses do reveal that these are incurred for respe ctive units and cannot be treated as common expenses.
We are also enclosing herewith t he Profit and loss account of the Baha durga rh unit when the assessee do not have Samba unit. The perusal of this P & t account shall reveal that even without the Samba unit the assessee wa s ea rning from this taxable activity around 3 .23% which mea ns that there is no exaggeration of profits in Samba unit to claim 80-IB. Even if we compare the expenses of Baha durga rh 8 ITA No. 381/Asr./2016 Kaiser Industries Pvt. Ltd.
unit as on 2004 with 2006, then also it reveals that rise in all the expenses is not abnormal but related to business only.
It is pe rtinent to state that after due delibe rations the worthy CIT in the order passed u/s 264 dated 29.03.2014 for the assessment year 2010-11 has allowed deduction claimed u/s 80-IB in respect of Samba Unit. He has held that certain common expenses of Baha durga rh Un it were to be apportioned am ong units in the ratio of their turnover. The relevant part of the orde r reproduce d as under:-
"The Ld. A.O. in its report has inclined to state that the reasons pointed out in Asse ssment order a re not factually corre ct. She means t o state that legally Section 80-IA (10) cannot be invoked to disallow the claim of assessee u/s 80- IB (4) when all other conditions for claiming deducti on u/s 80-1B (a) are fulfilled. This is quite elaborated in her report. The A.O. admits that conditions for disallowance under Section 80-IB (4) a re not viol ated hence 80-IB (4) deduction should have been all owed. However, the Ld. A.O. in he r report ha s suggested apportionment of common expenditure. Having perused the details placed on records, I obse rve from the assessment orde r that common expenses which have been discussed to be debited in Baha durgarh unit are as under:
S . n o. Nat u re of t h e expen se Tot al am oun t (Rs.) Car ru n ni n g en d m ain t en an ce expen ses 21 9 80 8 .0 0 Di wal i expenses 9 80 9 0 .0 0 Key m an in su ran ce expen se 1 3 98 5 02 .0 0 Propert y t ax an d m ai n t en an ce at Mu m bai f l ats 76 3 10 .0 0 S al ary 3 1 00 0 0 0 .00 S t af f recru it m ent & t rai n in g expen ses 4 0 84 9 .0 0 Trav el l in g expen ses 50 4 57 5 .0 0 Loan processi n g f ees 7 1 54 5 1 .00 I n t erest on l oan 9 23 9 60 .0 0 I n t erest on car 71 4 51 .0 0 I n t erest on fl at 3 73 4 25 .0 0 The total of this expense works out to Rs 75,22,421.00. However from this figure, I do not 9 ITA No. 381/Asr./2016 Kaiser Industries Pvt. Ltd.
consider the Keyman insurance ex pense to be part of common expense as in the ve ry n ext year, the wh ole maturity from the policy have been offered to tax in Bahadurgarh unit. Fu rther fi nancial expenses incurred f or flat loan as well as l oan processing fees and loan f or Baha durga rh unit amounting to R s 325425.00, Rs.7,15,451.0 0 and Rs.9,23,960 .00 are not to be consi dered as part of common expenses as the Samba unit has independently incurred financial expenses amounting to Rs.40118093/-.
Similar is the position of Rajkot unit. However interest on Ca r l oan is t o be considered a s common expenses. Even the prope rty tax expenses and maintenance of Mumbai flats is not to be conside red as comm on expenses. Thus, the common expenses, which I direct the A.O. to be apportioned are:-
Car ru n ni n g an d m ain t en an ce expen ses 21 9 80 8 .0 0
Di wal i expenses 98 0 90 .0 0
S al ary 31 00 0 00 .0 0
S t af f recru it m ent & t rai n in g expen ses 40 8 49 .0 0
Trav el l in g expen ses 5 04 5 75 .0 0
I n t erest on car 7 14 5 1 .00
4 0 ,34 ,7 7 3 .00
Accordingly, in my considered opinion the common expenses which need to be a pportioned to samba , Bahadurgarh and Ra jkot unit amounts to Rs.4034773.00. I, therefore, di rect the A.O. to allow the claim of assessee u/s 80-IB ( 4) but rest rict it by apportioning the common expenses of Rs.4034773.00 in the rati o of tu rnover of three units which is Rs.149426660.00 for samba unit, Rs 283486948.00 for Bahadurgarh unit (both for trading and manufacturing turnover) and Rs.12573540.00 for Ra jkot unit which w orks out to Rs. 1353075.00 for Samba unit, Rs.2567583.00 for Bha durga rh Unit and Rs.114115.00 for Rajkot Uni t. Accordingly, the A.O. is di rected t o recompute the total income after redistributing/ a pportioning these common expenses and accordingly after giving relief u/s 80-IB for Samba unit, compute the total income of the assessee."10 ITA No. 381/Asr./2016
Kaiser Industries Pvt. Ltd.
Based on this order, the A.O. has also allowed deduction u/s 80-IB in respect of Samba Unit without invoking the provisions of sec.80IB(13) r.w.s 80IA(10) of the Income Tax Act,1 961 in assessment orde rs passed in respect of asse ssment years 2007- 08,2011-12 & 2012-13. The copies of these orde rs are enclosed.
We understand that this issue has been decide d against the asse ssee by y our goodself in the orde r passed for the assessment year 2009-10. In this regard it is stated that at that time clear facts of the case were not drawn before your goodself. Based on non-factual submissions importa nt aspects of the issue now brought to your kn owledge had remained unnoticed that time. This has contributed in infirmity or we can say error in your then judgment on which we pray and plea that your earlier decision needs to be reviewed under such facts an d circumstances so that justice is not denied to the appellant. The then Counsel of the appellant has mise rably failed to not to bring your kind knowle dge that stocks t ransferre d to Samba unit from Bhadurgarh u nit are at the same rate at which Bhadurga rh unit shall be able to sell it to outside rs. Since these are excisable items as such variation in rate cann ot be m ade. Further, the purchase price of raw material as procu red from Bhadurga rh unit which constitutes only 37.52% as submitted earlier, are at purcha se rates at which such goods a re available in the market. Keeping in view no variations in stock procu red from Bhadurga rh Unit it w ould be u njustified and un- factual to state that some profit s from Bhadu rga rh unit has been diverted in the books of Samba unit to avail the fraudulent profit u/s 80 -IB of the Income Tax Act,1961. The then Id. A.O. in the Remand report in the assessment year 200 9-10 have actually accepted what was submitted before you r goodself during appellate proceedings e xcept for ce rtain common expenses. But somehow t hen Counsel of the appellant has failed to substantiate whereby your goodself have felt to ign ore the acceptability of issue during remand. Ha d the then Counsel brought to your kn owledge the facts an d su bstantiated it with 11 ITA No. 381/Asr./2016 Kaiser Industries Pvt. Ltd.
evidence you would have acce pted the conditions of A.O. accepting the eligibility of claim of deduction u/s 80-IB of the Income Tax Act, 1961.
Therefore, respectfully following t he consistency and also in view of the facts narrated above it is requested t o allow the deducti on u/s 80-IB as neither the denial can be made u/s 80-IB(4) as all the conditions laid down in the section for its claim are fulfilled nor the provisions of Section 80-1A (10) can be said to be attracte d as th ere is no rea son to state that the appellant has earned more than ordina ry profits which might be e xpected to arise in such eligible business."
5. On appeal , the Commi ssi oner of Income Tax (Appeal s) all owed the appeal of the assessee by observi ng as under:
"I have considered the denial of Deduction of Rs.2,96,22,328/- claimed u/s 80-IB(4) by the AO in respect of Samba Unit by invoking the provisions of sec.80IB (13) r.w .s 80IA (10) of t he Income Tax Act, 1961. The basic reason of disallowing the deduction to the appellant u/s 80-IB (4) was based on the orde r passed by the AO for the Asstt. Year 2009-10. The case was reopened u/s 147 for the Assessment year under considerati on on the basis of disallowance made u/s 80 IB in the AY 2009-10. The AO disallowe d the claim of deductions made u/s 80 IB and the Ld. CIT (A) confirmed the order of the AO. The matte r travelled t o ITAT, Amritsa r Bench, Amritsar who de cided the issue against the order of the LD. CIT (A) and directed the AO t o foll ow the direction of the LD. CIT, Jammu who had dire cted the AO u/s 264 in the AY 2010-11 to allow the claim of the assessee u/s 80 IB (4) by allocating proportionate" expenditure of the Sambha Unit. The AO then followed the directi on of the ITAT and accordingly, allocated expenditure of Sambha Unit as directed by the Ld. CIT, Jammu and allowed the deductions u/s 80 IB (4). Now, coming to the appe al for the assessment year under con sideration, since 12 ITA No. 381/Asr./2016 Kaiser Industries Pvt. Ltd.
the deductions u/s 80 IB has bee n allowed in the AY 2009-10 on the similar facts and circumstances on basis of which the case was reopened in the AY 2006-07 the issue stand settled in view of the direction given by the Hon'ble ITAT in the AY 2009-
10. Thus, as a rule of consistency and respectfully following the decision of Hon'ble ITAT, Amritsar Bench, Am ritsar, the disallowa nce u/s 80-IB(4) amounting to Rs.2,96,22,328/- i s deleted and the appeal is allowed."
6. After consi deri ng the ri val submissi ons and perusi ng the materi al s avail abl e on record, we fi nd that the l d. Departmental Representati ve has si mpl y reli ed on the order of the Assessi ng Offi cer. He coul d not poi nt out any speci fi c error i n the order of the Commi ssi oner of Income Tax (Appeal s). Further, we fi nd that the Commi ssi oner of Income T ax (Appeal s) foll owi ng the order of t he Tri bunal dated 29.03.2016 in assessee's own case for assessment year 2009-10 has all owed the cl ai m for deducti on u/s 80IB of the Act. The l d. Departmental Representati ve coul d not point out any good reason as to why the Commi ssi oner of Income Tax (Appeal s) was not justi fi ed i n foll owing the order of the Tri bunal i n assessment year 2009-10. No ma teri al was brought on record to show that the order of the Tri bunal i n assessment year 2009-10 in assessee's own case was vari ed i n appeal by any hi gher forum. Hence, we fi nd no good re ason t o i nterfere wi th the orde r of the Commi ssi oner of Income Tax (Appeal s) whi ch i s hereby confi rm and the ground of the appeal of the Revenue i s di smi ssed.
13 ITA No. 381/Asr./2016Kaiser Industries Pvt. Ltd.
7. In the resul t, the appeal of the Revenue i s di smi ssed. (Orde r Pronounced i n the Open Court on 22/03/2019) Sd/- Sd/-
(N. K. Choudhry) (N. S. Saini)
Judicial Member Accountant Member
Dated: 22/03/2019
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR