M/s Maruthi Tubes (P) Ltd.,, Secunderabad v. DCIT, Hyderabad

ITA 500/HYD/2009 | 2005-2006
Pronouncement Date: 11-02-2010 | Result: Dismissed

Appeal Details

RSA Number 50022514 RSA 2009
Assessee PAN AABCM5529J
Bench Hyderabad
Appeal Number ITA 500/HYD/2009
Duration Of Justice 9 month(s) 26 day(s)
Appellant M/s Maruthi Tubes (P) Ltd.,, Secunderabad
Respondent DCIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 11-02-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 11-02-2010
Date Of Final Hearing 03-02-2010
Next Hearing Date 03-02-2010
Assessment Year 2005-2006
Appeal Filed On 15-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.:500/HYD/2009 ASSTT. YEAR : 2005-06 M/S MARUTI TUBES (P) LTD. SECUNDERABAD (AABCM 5529 J) VS DT. CIT CIRCLE 16 (2) HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI C. SUBRAMANIYAM RESPONDENT BY : SHRI H. PHANI RAJU DR O R D E R PER : CHANDRA POOJARI ACCOUNTANT MEMBER THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE CIT(A)-V HYDERABAD DATED 13.2.2009 AND PERTAINS TO THE AY 2005-06. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS: 1. THE CIT(A) ERRED BY STATING THAT THE COMPANY HAS IN CURRED LOSS FROM MANUFACTURING ACTIVITY AND BY NOT ALLOWING THE CLAI M OF DEDUCTION U/S 80IB. 2. THE CIT(A) ERRED BY HOLDING THAT THE CONTRACT WORKS UNDERTAKEN BY THE ASSESSEE COMPANY IS SEPARATE LINE OF ACTIVITY WHERE AS IT IS EXTENSION OF MANUFACTURING ACTIVITY. 3. WITHOUT PREJUDICE TO THE ABOVE THE CIT(A) ERRED BY NOT RELYING ON THE EXPLANATION PUT FORWARD FOR ERRONEOUS DIVISION WISE PROFITABILITY STATEMENT FILED BY THE ASSESSEE COMPANY WITHOUT APP ORTIONING THE COMMON EXPENDITURE LIKE SALARIES AND WAGES ADMIN. SELLING EXPENSES AND FINANCIAL CHARGES INCURRED FOR THE COMPANY AS A WHOLE. 4. THE CIT(A) SHOULD HAVE ALLOWED THE APPORTIONMENT OF COMMON EXPENDITURE AMONG DIVISIONS AS PER THE GENERALLY AC CEPTING ACCOUNTING PRINCIPLES. 2 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRI VATE LIMITED COMPANY ENGAGED IN MANUFACTURE OF HDPE PIPES A ND EXECUTION OF WORKS CONTRACTS AND FILED ITS RETURN OF INCOME FOR TH E ASSESSMENT YEAR 2005-06 ON 30.5.2005 SHOWING INCOME RS.48 11 390 AFTER CLAIMING DEDUCTION AT RS.20 62 026 U/S 80IB OF THE IT ACT. HOWEV ER THE ASSESSING OFFICER NOTED THAT THE STATUTORY CONDITION THAT THE VALUE OF THE PLANT AND MACHINERY SHOULD BE LESS THAN 1 CRORE IS NOT SATISFIED IN THE CASE OF ASSESSEE. HE THUS HELD THAT THE ASSESSEE IS NOT A SMALL SCALE INDUSTRIAL UNDERTAKING AND HENCE IS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S 80IB OF THE ACT. WITHOUT PREJUDICE TO THE ABOVE HE FURTHER OBSERVED THAT THE ASSESSEE WOULD BE ENTITLED TO CLAIM SUCH DEDUCTION IF IT IS ENGAGED IN INDUSTRIAL ACTIVITY AS ENVISAGED IN SUB SECTION (2) OF SECTION 80IB. FROM VERIFICATION OF DETAILS FURNISHED BY S THE ASSESSEE HE FOUND THAT THE ASSESSEE HAS DECLARED LOSS FROM ITS MANUFACT URING DIVISION AND THE PROFITS EARNED BY UNDERTAKING CONTRA CT WORKS WAS NETTED WITH THE LOSS OF MANUFACTURING DIVISION. HE THU S NOTED THAT THE ASSESSEE HAS CLAIMED SUCH DEDUCTION IN RESPECT PROFIT ACTUALLY EARNED FROM THE CONTRACT G DIVISION. SINCE THE PROFIT ON WHI CH THE ASSESSEE HAS CLAIMED SUCH DEDUCTION HAS NOT BEEN DERIVED FROM THE IN DUSTRIAL ACTIVITY/MANUFACTURING UNIT THE ASSESSING OFFICER HELD TH AT THE ASSESSEE CANNOT BE ALLOWED AND DEDUCTION U/S 80IB OF THE ACT AS SUCH HE DISALLOWED THE CLAIM OF THE ASSESSEE U/S 80IB OF THE ACT. WITH THE ABOVE DISALLOWANCE INTER ALIA HE DETERMINED THE INCOM E AT RS.1 04 63 750. ON APPEAL TO CIT(A) THE ORDER OF T HE ASSESSING OFFICER IS CONFIRMED. FURTHER AGGRIEVED THE ASSESSEE IS IN APPEA L BEFORE US. 4. THE LEARNED AR SUBMITTED THAT THE ASSESSEE CARRIED ON THE ACTIVITIES OF CONTRACT FOR THE PURPOSE OF FACILITATING T HE INDUSTRIAL ACTIVITY OF THE ASSESSEE. ACCORDINGLY TO ASSESSEE COUNSEL CONTRACT WORKS CARRIED ON BY THE ASSESSEE IS HAVING DIRECT NEXUS WITH THE INDUSTR IAL UNDERTAKING AND HAD THE ASSESSEE NOT CARRIED ON THIS ACTIVITY THE AS SESSEE COULD NOT 3 3 HAVE RUN THE INDUSTRIAL UNDERTAKING. ACCORDING TO THE ASSESSEE COUNSEL CONTRACT WORKS IS PART AND PARCEL OF THE INDUSTRIAL ACTIV ITY OF THE ASSESSEE AND IT IS INDISPENSABLE AND TO BE TREATED AS ACTIVI TY OF THE INDUSTRIAL UNDERTAKING. HE SUBMITTED THAT THE ASSESSEE BUSINESS IS COMPOSITE IN NATURE. THE ASSESSEE BEING RECOGNIZED AS SMALL SCALE INDUSTRIES ELIGIBLE FOR DEDUCTION U/S 80IB OF THE IT ACT. IN THE COURSE OF CARRYING OUT THE MANUFACTURE OF HDPE PIPES AND SALE OF THESE THE ASSESSEE HAS TO UNDERTAKE THE PHYSICAL LAYING OF PIPES WITH OUT WHICH THE ASSESSEE CANNOT PROCURE ORDERS FOR SUPPLY OF HDPE PIPES AND THE EXECUTION OF CONTRACT LAYING OF PIPES IS INCIDENTAL TO T HE MANUFACTURING ACTIVITY OF THE ASSESSEE. ACCORDING TO ASSESSEE COUNSEL MANUFA CTURING OF PIPES AND LAYING OF THE PIPES ARE INTER RELATED. AS SUCH THE PROFIT DERIVED FROM WAS CONTRACT IS HAVING DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKING AND ELIGIBLE FOR U/S 80IB DEDUCTION. FO R THIS PURPOSE HE RELIED ON THE ORDER OF THE HYDERABAD BENCH IN THE CASE OF ACIT VS. BIO TECH MEDICALS (P) LTD. (19 DTR 157) WHEREIN HELD THAT WHEN THE ASSESSEE BEING AN INDUSTRIAL UNDERTAKING CARRIED ON THE J OB WORK BY UTILIZING THE VERY SAME MACHINERY AND LABOUR JOB WOR K CHARGES HAVE A DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSE SSEE HENCE IT IS DERIVED FROM THE INDUSTRIAL UNDERTAKING ELIGIBLE FOR U/S 80IB DEDUCTION. FURTHER HE RELIED ON THE ORDER OF THE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. ARIVND CONSTRUCTION COMPANY LTD. (3 17 ITR 276) WHEREIN THEIR LORDSHIP HELD THAT INTEREST EARED BY A SSESSEE ON RBI BONDS IS THE INCOME DERIVED BY IT FROM THE BUSINESS OF I NDUSTRIAL UNDERTAKING SO AS TO BE ELIGIBLE FOR DEDUCTION U/S 80HHB OF THE IT ACT. FURTHER THEY HELD THAT THE ASSESSEE ENTITLED FOR DEDUCT ION U/S 80IA OF THE ACT IN RESPECT OF RECEIPT FROM THE TRANSPORTATION OF SLEEPERS AT RAILWAY SITE. 5. WITHOUT PREJUDICE TO THE ABOVE ARGUMENTS THE LE ARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAS BEEN MAINTAINING CON SOLIDATED 4 4 BOOKS OF ACCOUNTS BOTH FOR MANUFACTURING AND AS WELL AS F OR THE CONTRACTS EXECUTED. AT THE TIME OF ASSESSMENT THE ASSESSEE W ITHOUT KNOWING THE CONSEQUENCES AND WITHOUT THE KNOWLEDGE OF A PPROPRIATING INDIRECT EXPENSES GAVE SOME FIGURES ON WHICH THE ASSESSING O FFICER HAD SIMPLY ADOPTED THESE WITHOUT EVEN EXAMINING THE VERACI TY OF THE STATEMENT FILED BEFORE HIM IN THIS REGARD. THE ASSESSING OFFICER TOOK ADVANTAGE OF THE IGNORANCE OF THE ASSESSEE WHILE TAKING INTO ACCOUNT THE EXPENDITURE STATEMENT PREPARED WHICH HAS NO BASIS WHICH HE OUGHT NOT HAVE TO DO KEEPING IN VIEW THE BOARD CIRCULAR IN THIS REGARD. AS IS EVIDENT FROM THE STATEMENT WHICH IS REPRODUCED IN CIT( A) ORDER IN THIS THERE WAS A LOSS FROM MANUFACTURING ACTIVITY AND PROFIT FROM NON MANUFACTURING ACTIVITY. WHILE PREPARING THIS IT CAN BE NOTED FROM THERE THAT CERTAIN COMMON EXPENSES LIKE SALARIES AND WAGES ADMIN ISTRATIVE AND FINANCIAL EXPENSES HAVE NOT BEEN BIFURCATED BETWEEN THESE TWO. IN VIEW OF THE ABOVE HE SUBMITTED THAT THE METHODOLOGY ADOPTED BY THE ASSESSING OFFICER AND APPROVED BY THE CIT(A) IS NOT CORRECT THE SAME NEEDS TO BE REWORKED FOR WHICH THE HONBLE BENCH IS REQ UESTED TO GIVE NECESSARY DIRECTIONS IN THIS REGARD. HE ALSO FILED A REVI SED STATEMENT SHOWING THE BIFURCATION OF EXPENSES BETWEEN THE MANUFAC TURING ACTIVITY AND NON MANUFACTURING ACTIVITY. 6. ON THE OTHER HAND THE DEPARTMENTAL REPRESENTATIV E SUBMITTED THAT THE ASSESSEE IS HAVING NO PROFITS FROM MA NUFACTURING ACTIVITY AND ALSO THE ALLOCATION EXPENSES BETWEEN THE MA NUFACTURING ACTIVITY AND NON MANUFACTURING ACTIVITY HAS BEEN CONSI DERED BY THE LOWER AUTHORITIES AS PER INFORMATION FURNISHED BY THE ASSESSEE AND NOW THE ASSESSEE WANTS TO REWORK THE EXPENSES FOR THE PURPOSE OF SHOWING THE PROFIT FROM MANUFACTURING ACTIVITIES WHICH IS ONLY AFTER THOUGHT AND SELF SERVING. HE RELIED ON THE ORDER OF THE TRIBUNAL LARGER BENCH DATED 26/10/2009 IN THE CASE B.T. PATIL & SONS BELGAUM CONSTR UCTION (P) LTD. 5 5 VS. ACIT IN ITA NO.1408 & 1409/HYD/2003 FOR THE ASSESSME NT YEAR 2000-01 AND 2001-02. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE MAIN CONTENTIONS OF THE ASSESSEE COUNSEL IS T HAT THE CONTRACT WAS CARRIED OUT BY THE ASSESSEE AS PART AND PARCEL O F THE INDUSTRIAL ACTIVITY OF THE INDUSTRIAL UNDERTAKING O F THE ASSESSEE. THE WORD DERIVED FROM IN SECTION 80IB MUST BE UNDERSTOOD AS SOMETHING WHICH HAS DIRECT OR IMMEDIATE NEXUS WITH THE ASSESSEES IND USTRIAL UNDERTAKING. ALTHOUGH THE ASSESSEE EARNED INCOME BY EX ECUTING CONTRACT WORK IT IS NOT FROM THE MANUFACTURING ACTIVIT Y OF THE INDUSTRIAL UNDERTAKING. IT CANNOT BE SAID TO FLOW DIRECTLY FROM INDUSTRIAL UNDERTAKING ITSELF. WHERE THE WORDS UNEQUIVOCAL TH ERE IS NO SCOPE FOR IMPORTING ANY RULE OF INTERPRETATION AS ARGUED BY T HE ASSESSEE COUNSEL. IN OUR OPINION PROFIT DERIVED FROM CONTRACT WORKS DOE S NOT QUALIFY FOR RELIEF U/S 80IB OF THE ACT. THE LAYING PIPES BY THE A SSESSEE COULD NOT BE SAID TO BE ENGAGED IN THE MANUFACTURE OR PRODUCTION OF ARTICLES . THE PROCESS OF LAYING THE PIPES WAS A WORKS CONTRACT IT WAS NO DIFFERENT FROM ANY OTHER WORKS CONTRACT WHICH WERE DONE ON THE SPO T. THE LAYING OF PIPES DOES NOT LEADS TO GENERATION OR MANUFACTURE O F ANY NEW ARTICLE OR PRODUCT. THERE WAS NO PRODUCTION OF ANY NEW ARTIC LE OR ARTICLES. WE PLACE RELIANCE ON THE JUDGEMENT OF HONBLE SUPREME COU RT IN THE CASE OF CIT VS. N.C. BHUDHARAJA & CO. AND ANOTHER (204 ITR 4 12). ALSO WE PLACE RELIANCE ON THE JUDGEMENT IN THE CASE OF CIT VS. S TERLING FOODS (GOA ) (213 ITR 851) (SC) WHEREIN HELD THAT UNLESS T HE NEW COMMODITY OR ARTICLE EMERGES AS A RESULT OF PROCESSING IT CANNOT BE SA ID THAT MANUFACTURING OR PRODUCTION OF ARTICLES. IN OUR OPINI ON THE LAYING OF PIPES CANNOT BE CONSIDERED AS AN INTEGRAL PART OF THE ACTIVITY OF INDUSTRIAL UNDERTAKING OF THE ASSESSEE AND HAVING NO NE XUS WITH INDUSTRIAL ACTIVITY OF THE ASSESSEE. THE MANUFACTURING A CTIVITY COULD BE CARRIED ON BY THE ASSESSEE INDEPENDENTLY WITHOUT CAR RYING ON THE 6 6 ACTIVITY OF LAYING PIPES AND IN OUR OPINION LAYING O F PIPES HAVE NO NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. ACCORDIN GLY THE ASSESSEE IS NOT ENTITLE FOR RELIEF U/S 80IB ON INCOME EAR NED FROM LAYING OF PIPES. 7.1. FURTHER THE ASSESSEE COUNSEL ARGUED TO RE-COMPUTE THE ALLOCATION OF EXPENSES BETWEEN MANUFACTURING ACTIVITY A ND NON MANUFACTURING ACTIVITY AND FILE A STATEMENT OF ALLOCAT ION OF EXPENSES ON ACTIVITY WISE. WE HAVE CAREFULLY CONSIDERED THIS ARGUM ENT. THE ARGUMENT OF THE ASSESSEE COUNSEL IS NOT BASED ON ANY EVIDE NCE ON RECORD. THE ASSESSEE HAS FILED DIVISION WISE PROFITABILITY STATEMENT BEFORE THE LOWER AUTHORITIES. NOW THE ASSESSEE WANTS TO REVISE THE SAME BY SAYING THAT ON EARLIER OCCASION AT THE TIME OF THE ASSESSMENT THE ASSESSEE WAS IGNORANT ABOUT THE CONSEQUENCES AND THE ASSESSI NG OFFICER CANNOT TAKE BENEFIT OF ASSESSEES IGNORANCE. THIS A RGUMENT OF THE ASSESSEE COUNSEL IS DEVOID OF MERITS. THE ASSESSEE FILED THE DIVISION WISE PROFITABILITY STATEMENT ON ITS OWN BASED ON BOOKS O F ACCOUNTS OF THE RELEVANT ASSESSMENT YEAR WHICH HAVE BEEN AUDITED BY THE COMPETENT CHARTERED ACCOUNTANT AND ALSO REPRESENTED BY CA BEFORE THE ASSESSING OFFICER AND IT WAS ALSO NOTICED BY THE LOWER AUTH ORITIES THAT EXPENSES ARE PROPERLY ALLOCATED BETWEEN THE TWO DIVISIO NS. BEFORE US THE ASSESSEE IS NOT ABLE TO POINT OUT THE SPECIFIC MISTAKE CR EPT IN THE STATEMENT FILED BEFORE THE ASSESSING OFFICER AND WITHOUT POINTING OUT THE SPECIFIC ERROR THE ASSESSEE WANTS TO REVISE THE STATEMENT REA LLOCATING THE EXPENSES. IN OUR OPINION THIS IS AFTER THOUGHT. THE AUTHORITIES WHEN THEY GIVEN A FINDING THAT THERE IS NO PROFIT EA RNED BY THE MANUFACTURING ACTIVITY OF THE ASSESSEE AND THE PROFIT EARNED FROM THE NON MANUFACTURING ACTIVITY IS NOT ENTITLED FOR THE DED UCTION U/S 80IB THEN THE ASSESSEE WANTS TO FIND OUT NEW ALTERNATIVE TO A VAIL DEDUCTION U/S 80IB FOR WHICH THE TRIBUNAL CANNOT BE PARTY. ACCORD INGLY WE ARE OF THE OPINION AT THIS STAGE WE CANNOT ALLOW THE ASSESSEE T O REALLOCATE THE 7 7 EXPENSES AND THEREBY RE-COMPUTE THE PROFIT OF THE MAN UFACTURING ACTIVITY AND NON MANUFACTURING ACTIVITY. IN THE RESULT THE APPEAL OF THE ASSESSEE DISMISSED. ORDER PRONOUNCED IN THE COURT 11.2.2010 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 11 TH FEBRUARY 2010 COPY FORWARDED TO: 1. M/S. MARUTI TUBES (P) LTD. 133-A ALKARIM TRADE C ENTRE RANIGUNJ SECUNDERABAD 2. DY. CIT CIRCLE 16(2) HYDERABAD 3. CIT(A)- V HYDERABAD. 4. CIT HYDERABAD 5. THE D.R. ITAT HYDERABAD. NP