SAMMAAN FABRICS P.LTD, MUMBAI v. DCIT 10(2), MUMBAI

ITA 3079/MUM/2010 | 2007-2008
Pronouncement Date: 15-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 307919914 RSA 2010
Assessee PAN AADCS9527J
Bench Mumbai
Appeal Number ITA 3079/MUM/2010
Duration Of Justice 1 year(s) 6 month(s) 25 day(s)
Appellant SAMMAAN FABRICS P.LTD, MUMBAI
Respondent DCIT 10(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-11-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 15-11-2011
Date Of Final Hearing 15-11-2011
Next Hearing Date 15-11-2011
Assessment Year 2007-2008
Appeal Filed On 20-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH MUMBAI. BEFORE SHRI PRAMOD KUMAR ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER I.T.A NO.3079/ MUM/2010 ASSESSMENT YEAR: 2007-08 SAMMAAN FABRICS PVT LTD. .. APPELLANT SAMRAT MILLS COMPOUND L.B.S.MARG VIKHROLI(W) MUMBAI PA NO.AADCS 9527 J VS DCIT 10(2) .. RESPONDENT MUMBAI. APPEARANCES: SUNIL JUMANI FOR THE APPELLANT PARTHASARATHI NAIK FOR THE RESPONDENT DATE OF HEARING : 15.11.2011 DATE OF PRONOUNCEMENT : 15-11-2011 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL THE ASSESSEE HAS CALLED I NTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 11 TH MARCH 2010 IN THE MATTER OF 2 ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT 1961 FOR THE ASSESSMENT YEAR 2007-08 ON THE FOLLOWING GROUNDS: 1. THE LD CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING DISALLOWANCE OF RS.12 44 695 BEING DEDUCTION @ 30% U/S.80IB ON TOTAL AMOUNT OF RS.192 95 805 (CONSISTING OF RS.11 13 531 ESTIMATED TRADING PROFIT RS.18 00 000 MACHINERY COMPENSATION INCOME AND RS.9 20 496 INSURANCE CLAIM RECEIPT FOR DAMAGE OF G OODS IN FLOOD DURING THE YEAR)CONSIDERING THE SAME NOT TO BE INCO ME FROM MANUFACTURING ACTIVITY OF UNIT NO.II ENTITLED FOR D EDUCTION U/S. 80IB. 2. THE LD CIT(A) ERRED IN LAW AND ON FACTS OF THE C ASE IN CONFIRMING DISALLOWANCE OF RS.38 248 BEING 10% OF SALES PROMOT ION EXPENSES. 2. BRIEFLY STATED THE RELEVANT MATERIAL FACTS ARE L IKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFF ICER NOTICED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURE OF SYNTHETIC TEXTILE I.E. SHIRTING AND SUITINGS. IT HAS TWO MANUFACTURING UNI TS ONE LOCATED IN VIKROLI AND ANOTHER NEW UNIT LOCATED IN MIDC MAHAPE NEW M UMBAI. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB IN RESPECT OF INCOME FROM UNIT LOCATED AT MIDC MAHAPE NEW MUMBAI. THE AO COMPLE TED THE ASSESSMENT U/S 143(3) INTER ALIA DISALLOWING RS.12 44 695 BE ING DEDUCTION @ 30% U/S 80IB ON THE TOTAL AMOUNT OF RS.1 92 95 805 CON SISTING OF RS. 11 13 531 TOWARDS TRADING PROFIT RS.18 00 000 TOWARDS MACHIN ERY RENT INCOME AND RS. 9 20 496 ON INSURANCE CLAIM RECEIPT. . THE A O ALSO DISALLOWED RS.76 946 TOWARDS SALES PROMOTION EXPENSES. AGGRIE VED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). TH E CIT(A) FOLLOWING THE ASSESSMENT YEAR 2006-07 IN ASSESSEES OWN CASE CON FIRMED THE AOS ACTION IN DISALLOWING RS.12 44 695 U/S. 80IB AND RE STRICTED THE DISALLOWANCE TO 10% OF TOTAL AMOUNT OF RS.76 496. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT(A) THE ASSESSEE IS IN APPEAL B EFORE US. 3. BEFORE US LEARNED COUNSEL FOR THE ASSESSEE PROD UCED DECISION DATED 4 TH FEBRUARY 2011 BY A COORDINATE BENCH OF THIS TRIBU NAL IN ASSESSES OWN CASE IN ITA NO.993/M/2010 FOR THE ASSESSMENT YEAR 2 006-07 WHEREIN ON 3 SIMILAR FACTS THE TRIBUNAL IN RESPECT OF CLAIM OF DEDUCTION U/S. 80IB HAS RESTORED THE ISSUE TO THE FILE OF THE AO FOR QUANTI FICATION OF DISALLOWANCE AND PARTLY ALLOWED THE INSURANCE CLAIM. 4. HAVING HEARD THE RIVAL PARTIES WE FIND THAT THE ISSUE IN RESPECT OF DEDUCTION U/S. 80IB AND INSURANCE CLAIM IN THIS APP EAL IS SQUARELY COVERED BY A COORDINATE BENCHS DECISION IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07 WHEREIN THE TRIBUNAL HAS INTER ALIA OBSERVED AS FOLLOWS 11. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED WE HOLD AS FOLLOWS. 12. ON THE FIRST ISSUE OF COMPUTATION OF RELIEF U/S 80IB WE FIND THAT ON THE FIRST DAY OF SEPTEMBER 2005 THERE IS AN AG REEMENT BETWEEN SAMMAN FABRICS PVT. LTD. AND M/S SHREE TEXTILES A PROPRIETARY CONCERN OF MR. DEEPAK R. GUPTA WHEREIN M/S SHREE T EXTILES WAS DESIROUS OF CONDUCTING THE SAID TEXTILE FACTORY OF SAMMAN FABRICS P. LTD. M/S SHREE TEXTILES APPROACHED THE ASSESSEE TO ALLOW THE USE OF THE SAID TEXTILE FACTORY WITH ALL THE EXISTING EQUI PMENTS LOOMS TOOLS MACHINES ACCESSORIES AND ELECTROMOTIVE POWERS. AT CLAUSE 9 PAGE 6 OF THE AGREEMENT WHICH IS AT PAGE 29 OF THE ASSESSEE S PAPER BOOK THE CONDUCTOR AGREED TO PAY A SUM OF RS.1 50 000/- BY W AY OF MONTHLY CONDUCTING CHARGES OF COMPENSATION. THE ASSESSEE HA S PURCHASED THE CLOTH FROM M/S SHREE TEXTILES AND THEREAFTER SOLD T HE SAME MAKING CERTAIN PROFIT. UNDER THESE CIRCUMSTANCES IT IS NO T CORRECT TO SAY THAT THE ASSESSEE HAS MANUFACTURED CLOTH AND THUS ELIGIB LE FOR CLAIM OR DEDUCTION U/S 80IB. WHAT THE ASSESSEE RECEIVED BY WAY OF COMPENSATION CHARGES IS NOT ON ACCOUNT OF MANUFACT URE BUT WAS ONLY IN THE NATURE OF RENT. THE AGREEMENT BETWEEN THE AS SESSEE COMPANY AND SHREE TEXTILES DOES NOT SHOW THAT THE ASSESSEE HAS IN ANY WAY PARTICIPATED IN THE MANUFACTURE OF CLOTH. AT CLAUSE 6 OF THE AGREEMENT IT IS CLEARLY STATED THAT THE GOODS STOCK IN TRADE ETC. BELONG TO SHREE TEXTILES. IT IS THE CONDUCTOR WHO EMPLOYEES THE WOR KMEN AND THE ELECTRICITY CHARGES AND TELEPHONE CHARGES ARE ALSO REQUIRED TO BE REIMBURSED BY HIM WITHIN 24 HOURS OF THE OWNER PAYI NG THE SAME. THUS THE INCOME OF THE ASSESSEE CANNOT BE IN ANY W AY SAID TO BE 4 CONNECTED WITH THE ACTIVITY OF MANUFACTURE AND THUS IN OUR CONSIDERED OPINION THE REVENUE AUTHORITIES WERE RI GHT IN DENYING DEDUCTION U/S 80IB ON THE RENTAL INCOME EARNED BY T HE ASSESSEE. 13. COMING TO THE JUDGMENT IN THE CASE OF PENWALT I NDIA LTD. (SUPRA) THE ASSESSEE WAS ENGAGED IN MANUFACTURING ACTIVITY WHICH CONSISTED OF FIVE DISTINCT ACTIVITIES. OUT OF THESE FIVE ACTIVITIES ONLY ONE ACTIVITY WAS GIVEN ON CONTRACT. UNDER THOSE CIR CUMSTANCES THE HONBLE COURT DECIDED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF SUGAR AND IS ENTITLED TO RELIEF U/S 80IB. IT IS NOT A CASE THAT THE ASSESSEE HAS RECEIVED RENTAL INCOME. SIMIL ARLY IN THE CASE OF TRIBHOVANDAS BHIMJI ZAVERI (SUPRA) THE ASSESSEE WA S NOT RECEIVING RENTAL INCOME AND IT WAS A CASE WHERE JEWELLERY WAS MADE BY KARIGARS AT MUMBAI UNDER THE SUPERVISION AND CONTROL OF THE ASSESSEES EMPLOYEES. THUS THIS CASE DO NOT COME TO THE RESCUE OF THE ASSESSEE. 14. COMING TO THE ISSUE OF TRADING PROFIT THE ASSE SSEE HAS PURCHASED CERTAIN GRAY CLOTH FROM SHREE TEXTILES AN D AFTER GETTING PROCESS FROM PALAK FABRICS UNDER THE FAMILY CONCER N OF ANOTHER DIRECTOR SOLD THE SAME AND MAKES SOME PROFIT. THE ISSUE IS WHETHER THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IB ON S UCH PROFIT. WE HAVE NO HESITATION TO HOLD THAT THE ASSESSEE DONE TRADIN G IN THIS CASE AND IT IS NOT THE CASE OF MANUFACTURE. THUS THE PROFITS DE RIVED ON SUCH TRADING ACTIVITY CANNOT BE ELIGIBLE FOR DEDUCTION U /S 80IB. AS FAR AS THE QUANTIFICATION OF DISALLOWANCE IS CONCERNED WE AGREE WITH THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE AO HAS NO T GIVEN ANY BASIS FOR SUCH QUANTIFICATION. THUS WE SET ASIDE THE ISS UE TO THE FILE OF THE AO FOR QUANTIFICATION. THE AO SHALL GIVE THE BASIS OF QUANTIFICATION AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSE E. 15. COMING TO THE ISSUE OF INSURANCE COMMISSION TH E HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KHEMKA C ONTAINERS P. LTD. 275 ITR 559 AT PAGE 562 HELD AS FOLLOWS : WE HOWEVER MAKE IT CLEAR THAT THE AMOUNT OF RS.1 50 733 IS THE AMOUNT RECEIVED FROM THE INSURANCE COMPANY IN R ESPECT OF THE CLAIM OF RAW MATERIAL DESTROYED IN FIRE. HOWEVE R WHILE COMPUTING THE PROFITS OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF DEDUCTION UNDER SECTION 80-I WHAT HAS TO BE EXCLUDED IS NOT THE GROSS RECEIPT BUT THE INCOME AR ISING OUT OF THIS RECEIPT. SUCH INCOME CAN ONLY BE COMPUTED BY D EDUCTING THE COST OF RAW MATERIAL DESTROYED IN FIRE FROM THE GROSS RECEIPT OF INSURANCE CLAIMS. THE RAW MATERIAL HAD BEEN ADMI TTEDLY 5 PURCHASED DURING THE YEAR UNDER CONSIDERATION AND I TS COST DEBITED IN THE PURCHASE ACCOUNT OF THE YEAR. THE AO HAS NOT APPLIED THIS PART OF THE JUDGMENT T HOUGH HE HAS RELIED ON THIS CASE LAW. AS RIGHTLY POINTED OUT BY THE LEA RNED COUNSEL FOR THE ASSESSEE EVEN IN THE CASE OF REPAIRS AND MAINTENAN CE TO PLANT AND MACHINERY THE EXPENDITURE IS DEBITED TO PROFIT AND LOSS ACCOUNT AND UNDER THOSE CIRCUMSTANCES ONLY THE NET AMOUNT AT BE ST BE HELD AS NOT ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80IB. WE SET AS IDE THIS ISSUE TO THE FILE OF THE AO TO ELIMINATE ONLY SUCH PROFITS FROM INSURANCE RECEIPT AFTER DEDUCTING THE EXPENDITURE WHILE COMPUTING RE LIEF U/S 80IB BY APPLYING THE DECISION OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KHEMKA CONTAINER P. LTD. THUS THIS GROUND IS ALL OWED IN PART. 5. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH AND WE ARE I N CONSIDERED AGREEMENT WITH THE SAME. ACCORDINGLY THE ISSUE IN RESPECT OF DEDUCTION U/S.80IB IS RESTORED TO THE FILE OF THE AO FOR QUAN TIFICATION OF DEDUCTION AND IN RESPECT OF INSURANCE CLAIM TO ALLOW THE REL IEF BY APPLYING THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KHEMKA CONTAINER P LTD. (SUPRA). 6. SO FAR AS DISALLOWANCE IN RESPECT OF SALES PROMO TION EXPENSES IS CONCERNED WE FIND THAT THE AO HAS DISALLOWED 20% O F SALES PROMOTION ON THE GROUND THAT NO SUPPORTING EVIDENCE WAS PRODUCED TO ESTABLISH THAT THESE EXPENSES WERE INCURRED FOR THE PURPOSES OF BU SINESS OF THE COMPANY. THE CIT(A) HAS RESTRICTED THE DISALLOWANC E TO 10% ON THE GROUND THAT CERTAIN EXPENSES ARE REQUIRED TO BE MAD E TO ENTERTAIN THE CUSTOMERS. BEFORE US ALSO NO EVIDENCE WAS PRODUCE D TO ESTABLISH THAT THE TOTAL EXPENSES ARE INCURRED FOR THE BUSINESS PURPOS ES. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A ) TO INTERFERE. ACCORDINGLY WE UPHOLD THE SAME/ 6 7. IN THE RESULT APPEAL IS PARTLY ALLOWED FOR STAT ISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH NOVEMBER 2011 SD/- (VIJAY PAL RAO) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI DATED 15 TH NOVEMBER 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS) 22 MUMBAI 4. COMMISSIONER OF INCOME TAX 10 MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH J MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAIFS