ITO, New Delhi v. M/s Sahara Electronics Pvt. Ltd., New Delhi

ITA 1951/DEL/2009 | 2005-2006
Pronouncement Date: 29-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 195120114 RSA 2009
Assessee PAN AAFCS4634L
Bench Delhi
Appeal Number ITA 1951/DEL/2009
Duration Of Justice 8 month(s) 18 day(s)
Appellant ITO, New Delhi
Respondent M/s Sahara Electronics Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 29-01-2010
Date Of Final Hearing 19-01-2010
Next Hearing Date 19-01-2010
Assessment Year 2005-2006
Appeal Filed On 11-05-2009
Judgment Text
ITA NO. 1951/DEL/2009 A.Y. 2005-06 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI R.P. TOLANI JUDICIAL MEMBER & SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO. 1951/DEL/2009 A.Y.: 2005-06 INCOME TAX OFFICER WARD7(2) VS. M/S SAHASRA E LECTRONICS PVT. LTD. ROOM NO. 306 CR BUILDING HOUSE NO. 33 POCKE T-1 IP ESTATE NEW DELHI JASOLA NEW DELHI [PAN: AAFCS4634L] (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI BRIJESH MATHUR CA DEPARTMENT BY : SHRI KISHORE B. SR. DR O R D E R PER SHAMIM YAHYA : AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDERS OF THE LD. CIT(A) DATED 5.3.2009 PERTAINING TO ASSESSM ENT YEAR 2005- 06. 2. THE FIRST ISSUE RAISED READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 15 91 821/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF VALUE OF FREE OF COST MATERIA L 2.1 ON THIS CASE THE AO NOTED THAT ASSESSEE COMPANY HAS REDUCED FROM THEIR EXPORT SALES A SUM OF RS. 15 91 821/- O N ACCOUNT OF VALUE OF RAW MATERIAL SUPPLIED BY CUSTOMERS ON FREE OF COST BASIS. UPON MAKING ENQUIRY IN THIS REGARD THE AO NOTED THA T VIDE LETTER ITA NO. 1951/DEL/2009 A.Y. 2005-06 2 DATED 25.8.2008 THE AR HAS SUBMITTED COPIES OF A F EW BILLS RAISED BY THEM IN RESPECT OF EXPORT SALES MADE. ON PERUSA L OF THESE BILLS INVOICE NO. 10 14 32 82 86 88 100 101 105 109 113) IT IS APPARENT THAT THE ITEMS RECEIVED FREE OF COST BY THE ASSESS EE COMPANY HAVE BEEN SUBSEQUENTLY REDUCED FROM THE INVOICE VALUE A ND THEREAFTER THE BALANCE IS THE NET RECEIVABLE VALUE. HENCE HE ADDED RS. 15 91 821/- TO NET PROFIT. 2.2 UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT AO HAD DULY EXAMINED THE INVOICES AND FROM THE INVOICES HE NOT ICED THAT ITEMS OF FREE OF COST BASIS WERE REDUCED FROM THE INVOICE S VALUE AND THE BALANCE THEREAFTER IS THE NET REALIZABLE VALUE. L D. CIT(A) FURTHER NOTED THAT ASSESSEE HAS BEEN ACCOUNTING FOR MATERIA L RECEIVED ON FREE OF COST BASIS ONLY BY REDUCING IT FROM THE GRO SS VALUE OF GOODS SOLD AS PER INVOICES EVEN IN EARLIER YEARS AND A SSESSMENTS WERE COMPLETED FOR A.Y. 2003-04 AND A.Y. 2004-05 UNDER S ECTION 143(3) WITHOUT ANY SUCH ADDITIONS. HENCE THE LD. CIT(A) DELETED THE ADDITION. 2.3 AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 2.4 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT AO HAS NOT APPRECIATED THE SYSTEM OF ACCO UNTING OF THE ASSESSEE. THOUGH AO HAS DULY NOTED THAT ASSESSEE RECEIVED CERTAIN RAW MATERIALS ON FREE OF COST FROM THE CUST OMERS AND WHEN THE INVOICES IS MADE THE VALUE OF ITEM RECEIVED F REE OF COST BASIS IS REDUCED THEREFROM. THERE IS NO IN-COMPREHENSIBLE ITEM IN THIS REGARD WHEN THE SYSTEM OF ACCOUNTING HAS BEEN AC CEPTED BY THE ITA NO. 1951/DEL/2009 A.Y. 2005-06 3 REVENUE IN EARLIER ASSESSMENT YEARS. UNDER THE CIRC UMSTANCES WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY WE AFFIRM THE SAME. 3. THE NEXT ISSUE RAISED PERTAINS TO DELETION OF R S. 60 910/- ON ACCOUNT OF INTEREST ON BANK OVERDRAFT ACCOUNT AND S UPPOSED EXPENSES TO EARN INTEREST INCOME. 3.1 ON THIS ISSUE THE AO NOTED AS UNDER:- THE ASSESSEE COMPANY HAS EARNED INTEREST INCOME O F RS. 1 58 366/-. HOWEVERAGAINST THIS SUM THE ASSESSEE H AS CLAIMED THE FOLLOWING DEDUCTIONS: RS. 50 082/- AS INTEREST ON BANK OVER DRAFT. RS. 10 828/- BEING EXPENSES CLAIMED @10% OF INTERES T INCOME. HOWEVER RS. 50 082/- INTEREST ON BANK OVER DRAFT H AS ALSO BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER F INANCE CHARGES. FURTHER THE ASSESSEE COMPANY COULD NOT PROVIDE ANY BASIS FOR CLAIMING THE 10% DEDUCTION ON ACCOUN T OF SUPPOSED EXPENSES. THEREFORE A SUM OF RS. 60 910/- IS BEING ADDED BAC K TO THE NET PROFIT. 3.2 UPON ASSESSEES APPEAL LD. CIT(A) ACCEPTED THE SUBMISSIONS OF THE ASSESSEE AND HELD AS UNDER:- A) THAT RS. 10 820/- WAS TREATED BY THE ASSESSEE A S EXPENSES INCURRED FOR EARNING NET INTEREST INCOME I .E.; RS. 1 58 365/- REFLECTED AS INTEREST INCOME IN THE SCHEDULE 8 OF ITS BALANCE SHEET AS AT 31.3.2005 AS REDUCED BY RS. 50 082/- REFLECTED AS BANK INTEREST ON OD IN SCHEDULE 12 OF ITS BALANCE SHEET AS AT 31.3.2005 AND HENCE WAS ADDED BACK TO THE NET ITA NO. 1951/DEL/2009 A.Y. 2005-06 4 PROFIT AS PER PROFIT AND LOSS ACCOUNT TO WORK OUT I TS BUSINESS INCOME. B) IT REDUCED THE NET INTEREST (1 58 365 50 082) I.E; RS. 1 08 283/- FROM THE PROFIT AS PER PROFIT AND LOSS ACCOUNT TO ASSESSEE IT AS INCOME FROM OTHER SOURCES AND TREATED RS. 10 828/- AS ATTRIBUTABLE EXPENDITU RE IN EARNING THAT INCOME. C) WHEN THE ASSESSEE REDUCED RS. 1 08 283/- FROM TH E PROFIT AS PER PROFIT AND LOSS ACCOUNT TO ASSESSEE IT AS INTEREST INCOME IT ACTUALLY DISALLOWED RS. 50 082/- ON ACCOUNT OF INTEREST ON O AND REDUCED IT BY RS. 1 58 365/- TO ASSESSEE RS. 1 08 283/- AS INCOME FROM OTHER SOURCES. 6.4 IN OTHER WORDS WHEN THE AO DISALLOWED RS. 60 910/- ON ACCOUNT OF INTEREST ON BANK OD AND RELATED EXPENDITURE OF RS. 10 828/- CLAIMED HE ACTUALLY DID WHAT THE ASSESSEE HAD DONE IN ITS COMPUTATION OF INCOME BUT WHEN HE WAS TO WORK OUT THE BUSINESS INCOME HE SHOULD HAVE REDUCED ONLY RS. 1 08 283/- FROM THE PROFIT AND LOSS ACCOUNT TO ARRIVE AT BUSINESS INCOME AND SHOULD HAVE ASSESSED ONLY RS. 1 08 283/- AS INTEREST INCOME UNDER OTHER SOURCES. 6.5 THEREFORE SINCE INTEREST ON OD OF RS. 50 082/- WAS A BUSINESS EXPENSES IT SHOULD NOT HAVE BEEN DISALLOWED IN WORKING OUT THE BUSINESS INCOME. IF HE HAD NOT DISALLOWED RS. 50 082/- IT WOULD HAVE BEEN RIGHT FOR HIM TO HAVE DECREASED BUSINESS INCOME BY RS. 1 58 365/- AND ASSESSEE RS. 1 58 365/- AS INCOME FROM OTHER SOURCES WHICH HE HAD DONE. IN VIEW OF THE ABOVE DISCUSSION DISALLOWANCE OF R S. 50 082/- INCURRED AS INTEREST ON OD IN COMPUTING BUSINESS INCOME WAS NOT IN ORDER AND IS DELETED. 3.3 AS REGARDS THE DISALLOWANCE OF RS. 10082/- LD. CIT(A) HELD AS UNDER: - ITA NO. 1951/DEL/2009 A.Y. 2005-06 5 IN VIEW OF THE ABOVE DISCUSSION DISALLOWANCE OF R S. 10 082/- MADE BY THE ASSESSEE TO WORK OUT ITS BUSINESS INCOM E AND ITS SETTING OFF AGAINST INTEREST INCOME WAS IN ORDER A ND ADDITION OF RS. 10 082/- MADE BY THE AO IS TO BE DELETED. FURTHER IF THE DISALLOWANCE BY THE ASSESSEE OF RS. 10 082/- FROM BUSINESS INCOME WAS CONSIDERED AS NO T CORRECTLY DONE (WHICH HAS BEEN SO HELD BY THE AO) T HEN HE SHOULD HAVE REFRAINED FROM ADDING BACK RS. 10 082/- AS PART OF RS. 60 910/- DISALLOWED ALONGWITH INTEREST ON OD OF RS. 50 082/-. 3.4 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND ON THESE ISSUES LD. CIT(A) HAS VERBATIM RE PRODUCED ASSESSEES SUBMISSION IN HIS ORDER. IN THE SUBMI SSION ASSESSEE HAS ALSO ALLEGED THAT IT WAS A MISTAKE OF UNDERSTAN DING OF FACTS BY THE AO. IN OUR CONSIDERED OPINION THE MATTER SHO ULD GO BACK TO THE AO TO CONSIDER IT AFRESH IN LIGHT OF THE MATERI AL AVAILABLE WITH HIM ON RECORD AND FRESH SUBMISSION BEING MADE BY TH E ASSESSEE. ACCORDINGLY WE REMIT THIS ISSUE TO THE FILES OF TH E AO TO DECIDE THE SAME AFRESH. NEEDLESS TO ADD THAT THE ASSESSEE SHOU LD BE GIVEN ADEQUATE OPPORTUNITY OF BEING HEARD. 4. THE LAST ISSUE RAISED IS THAT LD. CIT(A) ERRED I N DIRECTING TO RE- COMPUTE THE PROFITS ELIGIBLE FOR DEDUCTION UNDER S ECTION 10A OF THE INCOME TAX ACT. ITA NO. 1951/DEL/2009 A.Y. 2005-06 6 4.1 ON THIS ISSUE AO NOTED THAT ASSESSEE HAS CLAIME D EXEMPTION UNDER SECTION 10A AS PER FORM 56F AMOUNTING TO RS. 2 10 16 417/- HENCE THOUGH AO HAD MADE THE SOME RECOMPUTATION I N THE NET PROFIT HE RESTRICTED THE CLAIM UNDER SECTION 10A AS PER FORM 56F. 4.2 BEFORE THE LD. CIT(A) THE ASSESSEE APPEALED T HAT THE ACTION OF AO IN NOT REWORKING THE PROFIT ELIGIBLE UNDER SECT ION 10A OF THE ACT EQUAL TO 100% PROFITS FROM ELIGIBLE BUSINESS AS WO RKED OUT BY HIM BUT RESTRICTING THE DEDUCTION TO RS. 2 10 16 417/- AS CLAIMED BY THE ASSESSEE ON THE BASIS OF PROFITS FROM ELIGIBLE BUSINESS IN FORM 56F CERTIFIED BY THE AUDITORS. LD. CIT(A) REFERRED TO THE PROVISION OF SECTION 10A AND DIRECTED THE AO TO ALLOW 100% OF EX EMPTION FROM ELIGIBLE BUSINESS ON THE BASIS OF BUSINESS INCOME O N THE ELIGIBLE BUSINESS. 4.3 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. BOTH THE COUNSELS FAIRLY AGREED THAT IT IS A SETTLE D PROPOSITION THAT WHEN THE ASSESSEE IS CLAIMING EXEMPTION UNDER SECTI ON 10A AND ASSESSEES PROFIT FROM ELIGIBLE BUSINESS BY THE AO IS RECOMPUTED THE DEDUCTION UNDER SECTION 10A IS ALSO TO BE ALLOW ED ON THE RECOMPUTED PROFIT UNDER SECTION 10A. HENCE WE DO N OT FIND ANY ITA NO. 1951/DEL/2009 A.Y. 2005-06 7 INFIRMITY OR ILLEGALITY IN THE ORDER OF THE LD. CIT (A) IN THIS REGARD. ACCORDINGLY WE CONFIRM THE SAME. 5. IN THE RESULT THE REVENUES APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29/01/2010. SD/- SD/- [R.P. TOLANI) [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 29 /01/ 2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES