ITO, New Delhi v. M/s Beverly Farms (P) Ltd.,, Delhi

ITA 3212/DEL/2009 | 2006-2007
Pronouncement Date: 22-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 321220114 RSA 2009
Bench Delhi
Appeal Number ITA 3212/DEL/2009
Duration Of Justice 6 month(s) 7 day(s)
Appellant ITO, New Delhi
Respondent M/s Beverly Farms (P) Ltd.,, Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 22-01-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 22-01-2010
Date Of Final Hearing 01-12-2009
Next Hearing Date 01-12-2009
Assessment Year 2006-2007
Appeal Filed On 15-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B: NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA VICE-PRESIDENT & SHRI C.L. SETHI JUDICIAL MEMBER ITA NO. 32/DEL/2008 ASSESSMENT YEAR : 2003-04 CAPITAL BUSINESS SYSTEMS LTD. 54/12 EAST PUNJABI BAGH NEW DELHI-110026. VS. INCOME TAX OFFICER WARD 3(1) CR BUILDING NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.N. GUPTA ADV. RESPONDENT BY : SHRI MANISH GUPTA D.R. O R D E R PER: C.L. SETHI J.M. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 10.12.2007 PASSED BY THE LD. CIT(A) IN THE MATTER OF AN ASSESSMENT MADE BY T HE A.O. U/S 143(3) OF THE INCOME TAX ACT 1961 (THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2003-04. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER:- 1. THAT THE ORDER PASSED UNDER SECTION 250 BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) RANGE-VI NEW DELHI IS BAD IN LAW AND ON FACTS. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE ACTION OF THE LD. ASSESSING OFFICER IN SUBTRACTING RS. 6 25 2 42/- AS AGAINST RS. 313024/- AS COMMON EXPENSES WHILE GIVING THE RELIEF U/S 80IA OF THE INCOME TAX ACT IS WITHOUT ANY BASIS THE PAST HISTO RY OF THE CASE AND THUS REDUCING DEDUCTION U/S 80IA IS UNJUST ILLEGAL AND ARBITRARY. 3. WITHOUT PREJUDICE TO ABOVE THIS ACTION IN TAKIN G THE BASIS OF APPORTIONING OF THE EXPENSES ACCORDING TO THE RATIO OF WORK CONTRACT RECEIVED TO THE TOTAL WORK CONTRACT OF THE APPELLAN T COMPANY AT 20.90% OF THE TOTAL WORK CONTRACT AS AGAINST THE METHOD FO LLOWED BY THE ITA NO. 32/DEL/2008 2 OF 6 APPELLANT COMPANY BEING 2.5% OF THE SALES AS DONE I N THE PAST AND ACCEPTED ALL ALONG BY THE AUTHORITIES IS WITHOUT AN Y BASIS UNJUST ILLEGAL AND ARBITRARY. 3. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS RUNNING THREE UNITS I.E. UNIT NO. 1 WHICH IS MANUFACTURING AND PRINTING LOTT ERY TICKETS UNIT NO. 2 IS PRINTING OF BALLOT PAPERS ETC. IN WHICH DEDUCTION U /S 80IA HAS BEEN CLAIMED AND UNIT NO. 3 IS MANUFACTURING PLASTIC FOLDERS ETC. T HE COMMON EXPENSES HAVE BEEN DEBITED IN UNIT NO. 1 PART OF WHICH HAS BEEN ALLOC ATED TO THE UNIT NO. 2 AT THE RATE OF 2.5% OF TURNOVER OF UNIT NO. 2 FOR WHICH D EDUCTION U/S 80IA WAS CLAIMED. IN THE ASSESSMENT THE A.O. HAD APPORTIONED THE COM MON EXPENSES IN THE RATIO OF TURNOVER OF ALL THE THREE UNITS. THE TURNOVER OF UN IT NO. 2 WAS WORKED OUT AT 20.9% OF THE TOTAL TURNOVER OF ALL UNITS. THE A.O. ACCORDINGLY WORKED OUT THE AMOUNT OF DEDUCTION AVAILABLE U/S 80IA AND ALLOWED THE SAME TO THE ASSESSEE. AS A CONSEQUENTIAL THE AMOUNT OF DEDUCTION U/S 80IA A S CLAIMED BY THE ASSESSEE WAS REDUCED. 5. BEING AGGRIEVED THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LD. CIT(A). 6. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED TH AT APPORTIONMENT OF EXPENSES AT THE RATE OF 2.5% OF THE TURNOVER OF ELI GIBLE UNIT WERE BEING ACCEPTED FROM YEAR TO YEAR AS WOULD BE EVIDENT FROM THE ORDE R DATED 18.01.2007 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2001-02. TH E ASSESSEE ALSO SUBMITTED ITA NO. 32/DEL/2008 3 OF 6 BEFORE THE LD. CIT(A) THAT THE INTEREST EXPENSES AR E TO BE NETTED OFF AND THEN TO BE APPORTIONED AMONGST THE THREE UNITS. 7. AFTER CONSIDERING THE A.O.S ORDER AND ASSESSEE S SUBMISSION THE LD. CIT(A) DECIDED THIS ISSUE BY OBSERVING AS UNDER:- 1.4 I HAVE CONSIDERED THE ARGUMENT OF LEARNED AR A ND GONE THROUGH THE OBSERVATIONS OF THE A.O. I FIND THAT I HAVE DEC IDED THIS ISSUE IN APPELLANTS CASE IN A.Y. 2004-05 AND VIDE APPEAL NO . 314/2006-07 ORDER DATED 07.09.2007 DENIED THE APPORTIONMENT OF EXPENS ES @2.5% MADE BY THE APPELLANT AS IT WAS ON ADHOC BASIS. HOWEVER TH E APPORTIONMENT OF EXPENSES BASED ON TURNOVER OF THE UNIT AS ADOPTED B Y THE AO WAS SCIENTIFIC ONE. SINCE THE FACT AND CIRCUMSTANCES O F THE APPELLANT CASE IS SIMILAR TO LAST YEAR I DO NOT FIND ANY BASIS TO DE VIATE THE FINDING GIVEN IN A.Y. 2004-05. 1.5 AS REGARDS ARGUMENT RELATING TO NETTING OF THE INTEREST EXPENDITURE I FIND THAT THERE IS NOT EVIDENCE THAT THE INTEREST EXPENSES WAS PERTAINING ONLY TO UNIT NO. 1. SECONDLY THE EXPENDITURE INCL UDING THE INTEREST HAVE BEEN APPORTIONED BY THE A.O. AND NOT THE INCOME WH ICH MAY BE RECEIPT BY WAY OF INTEREST. IN THIS SITUATION NETTING OF INTEREST WILL NOT BE JUSTIFIED. CONSIDERING THE FACT AND CIRCUMSTANCES OF THE CASE. I UPHOLD THE APPORTIONMENT OF EXPENDITURE ON TURNOVER BASIS AS ADOPTED BY THE A.O. THUS GROUNDS NO. 1 2 AND 3 ARE DECIDED AGAI NST THE APPELLANT. 8. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFOR E US. 9. IN THE COURSE OF HEARING OF THIS APPEAL THE ASS ESSEE SUBMITTED THAT EVEN IF THE METHOD ADOPTED BY THE A.O. ABOUT THE APPORTIONM ENT OF EXPENSES TO DIFFERENT UNITS IS ACCEPTED THE CORRECT AMOUNT OF EXPENSES A LLOCABLE TO THE UNIT NO. 2 FOR WHICH DEDUCTION U/S 80IA WAS CLAIMED WOULD BE RS. 4 92 900/- AS AGAINST RS. 6 25 242/- WORKED OUT BY THE A.O. IN THIS RESP ECT THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED A NOTE IN WRITING AS UNDER:- 1. THE EXPENSES OF THE MAIN UNIT HAVE BEEN COMPUTE D BY THE ITO AT RS. 29 91 591/- WHICH INCLUDE RS. 4 62 875/- BY WAY OF INTEREST PAID TO BANKS AND OTHERS. ITO HAS NOT TAKEN INTO ACCOUNT T HE FACT THAT THE MAIN UNIT HAS EARNED INTEREST INCOME OF RS. 28 63 107/- THEREFORE THE AFORESAID ITA NO. 32/DEL/2008 4 OF 6 AMOUNT OF RS. 4 62 875/- SHOULD HAVE BEEN NETTED OF F AGAINST THE INTEREST RECEIPTS OF RS. 28 63 107/-. THE EXPENSES OF THE MA IN UNIT WOULD THEREFORE AMOUNT TO ONLY RS. 25 28 716/-. (RS. 29 91 591/- - RS. 4 62 875/-). 2. CONSOLIDATED TURN OVER HAS BEEN TAKEN BY THE ITO AT RS. 5 99 596/- WHICH DOES NOT INCLUDE OTHER INCOME OF RS. 44 07 91 3/- (PAPER BOOK PAGE 48 REFERS). CONSOLIDATED TURN OVER THEREFORE WOR KS OUT TO RS. 6 43 17 509/-. THE TURNOVER OF UNIT II IS 1 25 20 9 76/-. THE PERCENTAGE OF TURN OVER OF UNIT II TO THE CONSOLIDATED TURNOVER THEREFORE WORKS OUT TO 19.5% AGAINST 20.9% ADOPTED BY THE ITO. 3. AFTER THE CORRECT EXPENSES OF THE MAIN UNIT AMOUNTI NG TO RS. 25 28 716/- ARE ALLOCATED AT 19.5% THE CORRECT ALL OCATION WOULD BE RS. 4 92 900/- AND NOT RS. 6 25 242/- ADOPTED BY THE AS SESSING OFFICER. 10. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE A.O.S ORDER. 11. WE HAVE CONSIDERED RIVAL CONTENTION OF BOTH THE PARTIES AND HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 12. AS TO THE METHOD OF ALLOCATION OF COMMON EXPENS ES TO DIFFERENT UNITS WE ARE OF THE CONSIDERED OPINION THAT ALL THE COMMON E XPENSES PERTAINING TO THREE UNITS ARE TO BE ALLOCATED WITH REFERENCE TO THE TUR NOVER OF EACH UNIT. THIS SYSTEM WOULD BE MORE LOGICAL AND ACCURATE AS AGAINST THE S YSTEM ADOPTED BY THE ASSESSEE TO ALLOCATE EXPENSES BY WORKING OUT THE SAME AT 2.5 % OF THE TURNOVER OF THE RESPECTIVE UNIT. THIS SYSTEM ADOPTED BY THE ASSESSE E WITH REFERENCE TO THE TOTAL EXPENSES INCURRED BY THE ASSESSEE IN ANY UNIT IS O UR CONSIDERED OPINION NOT JUSTIFIED. WE THEREFORE HOLD THAT THE LD. CIT(A) IS JUSTIFIED IN CONFIRMING THE A.O.S ORDER IN ALLOCATING THE COMMON EXPENSES TO E ACH UNIT WITH REFERENCE TO THE TURNOVER OF RESPECTIVE UNITS. WE THEREFORE UPHOL D THE ORDER OF LD. CIT(A) AND CONFIRMING THE A.O.S ACTION IN MAKING APPORTIONMEN T EXPENDITURE ON TURNOVER BASIS. A SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE I TAT PUNE BENCH A PUNE IN THE CASE OF KHINVASARA INVESTMENT PVT. LTD. VS. JCI T (2008) 110 ITD 198 (PUNE) ITA NO. 32/DEL/2008 5 OF 6 WHERE IT HAS BEEN HELD THAT THE EXPENSES WHICH WER E COMMON TO SEVERAL UNITS SHOULD BE ALLOCATED ON THE BASIS OF TURNOVER OF RES PECTIVE UNITS. 13. NOW WE SHALL PROCEED TO DETERMINE THE ACTUAL A MOUNT OF COMMON EXPENSES INCURRED BY THE ASSESSEE AS WELL AS THE TO TAL TURNOVER OF ALL THE UNITS AS WELL AS UNIT WISE TURNOVER. IN THIS CASE THE TOTA L EXPENSES OF THE MAIN UNIT HAVE BEEN WORKED OUT BY THE A.O. AT RS. 29 91 591/- WHI CH INCLUDES RS. 4 62 875/- BEING THE INTEREST PAID TO BANK AND OTHERS. HOWEVER THE ASSESSEE HAS ALSO EARNED INTEREST INCOME OF RS. 28 63 107/- WHICH IS MORE T HAN THE INTEREST PAID BY THE ASSESSEE. THE INTEREST PAID IS TO BE NETTED OFF AG AINST THE INTEREST RECEIPTS. THEREFORE THE TOTAL EXPENSES OF THE MAIN UNIT WOUL D BE ONLY RS. 25 28 716/- I.E. RS. 29 91 591/- - RS. 4 62 875/-. THESE EXPENSES S HALL BE CONSIDERED FOR THE PURPOSE OF APPORTIONMENT TO THE ELIGIBLE UNIT. 14. THE ASSESSEE HAS FURTHER POINTED OUT THAT THE T OTAL CONSOLIDATED TURNOVER OF ALL UNITS HAS BEEN TAKEN BY THE A.O. AT RS. 5 99 09 596/- WITHOUT INCLUDING THE OTHER INCOME OF RS. 44 07 913/-. WE ARE OF THE VIEW THAT IT IS COMMON THAT THE ASSESSEE MIGHT HAVE ALSO INCURRED CERTAIN EXPENSES IN EARNING THE OTHER INCOME OF RS. 44 07 913/-. THEREFORE FOR THE PURPOSE OF ALLO CATING THE TOTAL EXPENSES INCURRED BY THE ASSESSEE THE AMOUNT OF OTHER INCOM E IS TO BE TAKEN INTO ACCOUNT AND IN THAT WAY THE CONSOLIDATED TURNOVER WOULD BE RS. 6 43 17 509/- OUT OF WHICH THE TURNOVER OF ELIGIBLE UNIT IS RS. 1 25 20 976/-. THE PERCENTAGE OF THE TURNOVER OF ELIGIBLE UNIT TO THE CONSOLIDATED TURNO VER OF ALL UNITS WOULD THUS BE 19.5% AS AGAINST 20.9% WORKED OUT BY THE A.O. WE THEREFORE HOLD THAT 19.5% ITA NO. 32/DEL/2008 6 OF 6 OF THE TOTAL EXPENSE OF RS. 25 28 716/- AS WORKED O UT ABOVE SHALL BE ALLOCATED TO THE ELIGIBLE UNIT AND IF IT IS SO ALLOCATED IN THE MANNER ABOVE THE CORRECT ALLOCATION WOULD BE RS. 4 92 900/- AS AGAINST RS. 6 25 252/- WORKED OUT BY THE A.O. WE THEREFORE HOLD THAT THE EXPENSES AMOUNT TO RS. 4 92 900/- SHALL BE ALLOCATED TO THE ELIGIBLE UNIT I.E. UNIT NO. 2 FOR THE PURPOSE OF DETERMINING THE AMOUNT OF DEDUCTION AVAILABLE U/S 80IA OF THE ACT. THE A.O. IS THEREFORE DIRECTED TO COMPUTE THE DEDUCTION U/S 80IA ACCORDIN GLY. THUS THIS ISSUE RAISED BY THE ASSESSEE IS PARTLY ALLOWED IN ASSESSEES FAV OUR. 15. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 16. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 22 ND JANUARY 2010. SD/- SD/- (G.E. VEERABHADRAPPA) VICE PRESIDENT (C.L. SETHI) JUDICIAL MEMBER DATED: 22 ND JANUARY 2010. MAMTA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT NEW DELHI. BY ORDER DEPUTY REGISTRAR