DSP Precision Products P. Ltd.,, Baddi v. ITO,, Una

ITA 947/CHANDI/2007 | 2003-2004
Pronouncement Date: 31-07-2012 | Result: Partly Allowed

Appeal Details

RSA Number 94721514 RSA 2007
Assessee PAN AABCD4351K
Bench Chandigarh
Appeal Number ITA 947/CHANDI/2007
Duration Of Justice 4 year(s) 8 month(s) 22 day(s)
Appellant DSP Precision Products P. Ltd.,, Baddi
Respondent ITO,, Una
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 31-07-2012
Date Of Final Hearing 10-07-2012
Next Hearing Date 10-07-2012
Assessment Year 2003-2004
Appeal Filed On 08-11-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI H.L. KARWA VP AND SHRI T.R. SOOD AM ITA NO. 947/CHD/2007 ASSESSMENT YEAR: 2003-04 DSP PRECISION PRODUCTS PRIVATE V I.T. O. UNA LTD. BADDI DISTT. SOLAN (HP) DISTT. UNA (HP) AABCD 4351 K (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SURINDER BABBAR RESPONDENT BY: SHRI N.K. SAINI DATE OF HEARING: 10.07.201 2 DATE OF PRONOUNCEMENT: 31.07.2012 ORDER PER T.R. SOOD A.M IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS: 1 THAT THE LD. CIT(A) HAS GROSSLY ERRED BOTH IN L AW AND ON FACTS OF THE CASE IN CONCURRING WITH THE ASSESSING OFFICER I N DISALLOWING THE DEDUCTION OF RS. 16 06 360/- CLAIMED BY THE ASSESSE E U/S 80IB OF THE ACT BY HOLDING THAT THE APPELLANT DID NOT SATISFY THE C ONDITION CONTAINED IN SECTION 80IB(2)(II) AND 80IB(2)(IV). 2. WITHOUT PREJUDICE TO ABOVE AND ASSUMING WHILST DENYING THAT THE ASSESSMENT YEAR 1998-99 WAS THE FIRST YEAR OF PRODU CTION AND ACCORDINGLY 100% DEDUCTION WAS ALLOWABLE UPTO ASSE SSMENT YEAR 2002-03 AND DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE IS ELIGIBLE FOR 30% DEDUCTION AS AGAINST 100% CLAIMED BY IT AND THE LD. CIT(A) HAS ERRED IN CONCURRING WITH THE ASSESSING OFFICER IN D ISALLOWING EVEN 30% OF DEDUCTION BY HOLDING THAT THE APPELLANT DID NOT SAT ISFY THE CONDITION CONTAINED IN SECTION 80IB(2)(II) AND 80IB(2(IV). 3. THE LD. CIT(A) IS COMPLETELY UNJUSTIFIED IN CON CURRING WITH THE ASSESSING OFFICER IN NOT ACCEPTING THE BOOK RESULTS AND ASSUMING THE NP RATE OF 10% BY INVOKING THE PROVISIONS OF SECTION 8 0IA(8) AND 80IA(10) R W.S. 80IB(13) OF THE ACT AND EVEN DISALLOWING THE DEDUCTION ON ASSUMED PROFIT OF 10% FOR NON-FULFILLMENT OF CONDIT IONS LAID DOWN UNDER THE ACT. 4. THE LD. CIT(A) IS NOT JUSTIFIED IN CONCURRING W ITH THE ASSESSING OFFICER IN HOLDING THE BALANCE PROFITS AS EXCESS PR OFITS AND DEEMED TO BE THE INCOME OF THE ASSESSEE COMPANY FROM OTHER UNDIS CLOSED SOURCES AND CHARGED TO TAX ACCORDINGLY . 5. THAT THE LD. ASSESSING OFFICER IS WRONG IN HOLD ING THAT AS THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS AS LAID D OWN UNDER CLAUSE (II) AND (IV) OF SECTION 80IB(2) OF THE ACT HENCE THE AS SESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AMOUNTING TO RS. 1 6 06 360/- IN VIEW OF 2 EXPLANATION 1 TO SECTION 271(1)(C). THE INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) ARE HAD IN LAW AND NOT CALLED FOR. 2. OUT OF ABOVE AT THE TIME OF HEARING GROUNDS NO. 1 4 AND 5 WERE NOT PRESSED AND THEREFORE THE SAME ARE BEING DISMISS ED AS NOT PRESSED. 3. GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB @ 100%. HE FURTHER NOTE D THAT THE RETURN FOR THE FIRST YEAR I.E. ASSESSMENT YEAR 1998-99 WAS FILED D ECLARING LOSS OF RS. 655/-. ON PERUSAL OF THE RETURN IT WAS FURTHER NOTICED THA T THE ASSESSEE HAD PLANT AND MACHINERY WORTH RS. 3 38 649/-. THE ASSESSEE HAD S HOWN CONSUMPTION OF RAW MATERIAL FOR MANUFACTURING OF GOODS AMOUNTING TO RS . 48 032/- AND HAS ALSO SOLD GOODS AT RS. 66 090/-. FURTHER THE ASSESSEE H AD INCURRED MANUFACTURING EXPENSES AND ALSO ELECTRICITY EXPENSES. IN THE LIG HT OF THESE FACTS THE ASSESSING OFFICER CONCLUDED THAT INITIALLY ASSESSME NT YEAR FOR THE PURPOSE OF DEDUCTION U/S 80IB WOULD BE ASSESSMENT YEAR 1998-99 BECAUSE 100% DEDUCTION WAS ALLOWABLE ONLY FOR INITIAL FIVE YEARS . THEREFORE THE ASSESSEE AT BEST WAS ENTITLED TO DEDUCTION U/S 80IB @ 30%. 4. AFTER THE ABOVE DISCUSSION THE ASSESSING OFFICER ALSO OBSERVED THAT IF ASSESSMENT YEAR 1999-2000 WAS TAKEN AS FIRST YEAR THEN IN ASSESSMENT YEAR 1999-2000 THE UNIT WOULD NOT REMAIN ELIGIBLE FOR DE DUCTION BECAUSE THE MACHINERY INSTALLED IN THE FIRST YEAR WOULD BECOME OLD MACHINERY AND AS PER CLAUSE (II) OF SECTION 80IB (2) IF THE OLD MACHINER Y EXCEEDS. 20% OF THE TOTAL VALUE OF INSTALLED MACHINERY THEN UNIT IS NOT ELIGI BLE. THEREAFTER HE FURTHER DISCUSSED THAT THE ASSESSEE HAD NOT CONSISTENTLY EM PLOYED MORE THAN 10 WORKERS THOUGH THE ASSESSEE HAD CLAIMED EMPLOYMENT OF 11 WORKERS. ACCORDING TO THE ASSESSING OFFICER THERE WERE SOME WORKERS WHO HAD WORKED FOR LESS THAN 20 DAYS IN A MONTH AND EVEN SOME WORK ERS HAD WORKED FOR LESS THAN 10 DAYS A MONTHS. FURTHER IN NOVEMBER 2002 T WO WORKERS WERE EMPLOYED FOR JUST 2 DAYS EACH. HE ALSO NOTED THAT THERE WERE SEVERAL ACTIVITIES LIKE SECURITY LOADING AND UNLOADING STORING THE RAW MATERIAL AND FINISHED GOODS ISSUING SALE BILLS ISSUING GATE PASS SWEEP ER SERVING WATER OR TEA FOR 3 WHICH NO SEPARATE WORKERS WERE EMPLOYED. ON THIS B ASIS THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE HAD EMPLOYED LESS THAN 10 WORKERS AND THEREFORE THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S 80IB (2)(IV). 5. ON APPEAL THE ACTION OF THE ASSESSING OFFICER W AS CONFIRMED BY THE LD. CIT(A). 6. BEFORE US THE LD. COUNSEL OF THE ASSESSEE INITI ALLY MADE SUBMISSIONS IN RESPECT OF ISSUE RAISED IN GROUND NO. 1 BUT WHEN I T WAS POINTED OUT THAT THE ASSESSEE HAS SOLD THE GOODS DURING THE ASSESSMENT Y EAR 1998-99 THEN HE CONCEDED THAT INITIAL ASSESSMENT YEAR IS TO BE TAKE N AS ASSESSMENT YEAR 1998-99. THEREFORE HE DID NOT PRESS GROUND NO. 1 AND HE FURTHER STATED THAT THE ASSESSEE MAY BE ALLOWED DEDUCTION @ 30%. HE FU RTHER SUBMITTED THAT THE ASSESSING OFFICER WAS NOT RIGHT IN DENYING THE DEDU CTION ALL TOGETHER BECAUSE THE ASSESSEE HAD NOT EMPLOYED MORE THAN 10 WORKERS. THERE IS NO REQUIREMENT IN CLAUSE (IV) OF SECTION 80IB(2) THAT ALL THE 10 WORKERS SHOULD BE EMPLOYED THROUGHOUT THE YEAR WITHOUT ANY ABSENCE. SOMETIME THE WORKERS HAVE TO TAKE LEAVE FOR THEIR PERSONAL NEEDS WHICH C ANT BE DENIED. 7. ON THE OTHER HAND THE LD. DR FOR THE REVENUE S TRONGLY SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. WE DO NOT NEED TO DISCUSS THE ISSUES RAISED IN GROUND NO. 1 AS SAME W AS NOT PRESSED BEFORE US AND IT WAS CLEARLY STATED THAT AT BEST THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S 80IB @ 30%. AS FAR AS THE OBSERVATIONS REGARDING E MPLOYMENT OF WORKERS ARE CONCERNED THESE CONDITIONS ARE PRESCRIBED IN CLAUS E (IV) OF SECTION 80IB(2) AND READS AS UNDER: 80IB(2)(IV) ( IV ) IN A CASE WHERE THE INDUSTRIAL UNDERTAKING MANUFA CTURES OR PRODUCES ARTICLES OR THINGS THE UNDERTAKING EMPLOY S TEN OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITH THE AID OF PO WER OR EMPLOYS TWENTY OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITHOUT THE AID OF POWER. 9. A PLAIN READING OF THE CLAUSE SHOWS THAT THE REQ UIREMENT IS FOR 10 OR MORE WORKERS. IN SMALL SCALE INDUSTRIES THE ASSESS EE CANNOT POSSIBLY DENY THE 4 LEAVE WHICH MAY BE SOUGHT BY THE CONCERNED WORKERS FOR THEIR PERSONAL NEEDS. IT IS POSSIBLE TO GET THE WORK DONE FROM ANOTHER EM PLOYEE FOR THE ABSENTEE WORKER. FURTHER IN SMALL SCALE INDUSTRIES WE DO N OT THINK SEPARATE PEOPLE ARE REQUIRED TO BE EMPLOYED FOR SECURITY LOADING AND U NLOADING ISSUING OF SALE BILLS ISSUING OF GATE PASS ETC. COULD NOT HAVE BEE N DENIED ON THESE RELEVANT CONSIDERATIONS. ACCORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A) AND HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IB @ 30% DURING THE YEAR BEFORE US. 10. GROUND NO. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS DECLARED GP RATE @ 71.88% AND NP RATE @ 46% WHICH W AS FOUND TO BE EXCEPTIONALLY HIGH. IN RESPONSE TO THE QUERY IT WA S STATED AS UNDER: (I) THE GP RATE ACHIEVED BY THE ASSESSEE COMPANY IS 71.88% AS COMPARED TO 58.80% IN THE LAST YEAR AND 64.78% IN T HE LAST TO LAST YEAR. SINCE THE ASSESSEE IS ACHIEVING ALMOST SAME GP RATE WITH SLIGHT MARKET FLUCTUATIONS IN THE EARLIER YEARS AND THE DEPARTMEN T HAS ALREADY ACCEPTED THE GROSS PROFIT AND NET PROFIT RATE IT SHOULD NOT DISPUTE THE SAME IN THE YEAR UNDER ASSESSMENT. (II) THE ASSESSEE-COMPANY IS A HIGH PRECISION ENGIN EERING INDUSTRY AND IS MANUFACTURING DIFFERENT TYPES OF BALL PLUGS MADE OF BRASS AND CARBON. THE PRODUCT MANUFACTURED BY THE COMPANY IS AN IMPORT SUBSTITUTE AND THE PRODUCT IS BEING USED BY MARUTI COMPANY OEMS SUPPLIERS. THIS IS THE REASON FOR HIGH MARGIN OF P ROFIT. (III) BEING AN ENGINEERING INDUSTRY THE COST OF IN PUT IS ALWAYS VERY SMALL AS COMPARED TO SALE RATES. THE PRICE WHICH T HE COMPANY IS GETTING IS THE PRICE OF HIGH TECH PRECISION TECHNOLOGY IN A DDITION TO MATERIAL. (IV) ASSESSEE-COMPANY IS SITUATED AT BADDI WHOSE T HE LABOR IS CHEAP IN COMPARISON TO OTHER STATES. (V) THE ASSESSEE-COMPANY IS GETTING POWER AT CONCES SIONAL RATE AND IS ALSO ENJOYING CONCESSIONAL CENTRAL SALES TAX RAT E OF 1% AS COMPARED TO 4% IN OTHER STATES. (VI) THE PROFIT DECLARED BY THE ASSESSEE-COMPANY IS GENUINE PROFIT SUPPORTED BY BOOKS OF ACCOUNT AND OTHER RELEVANT RE CORD. 11. AFTER EXAMINING THE ABOVE SUBMISSIONS THE ASSES SING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN VERY LOW MANUFACTURING EXPENSES AT RS. 13 445/- STAFF WELFARE EXPENSES RS. 3510/-. FURTHER NO EXPE NSES WAS SHOWN IN RESPECT OF SECURITY LOADING AND UNLOADING SALESMAN ISSU ING GATE PASSES EXPENSES HAVE BEEN SHOWN. EVEN DEPRECIATION WAS NOT CLAIMED AS PER IT RULES. NO 5 SALARY WAS PAID EXCEPT TO THE DIRECTORS. ACCORDING LY IN THE LIGHT OF THESE OBSERVATIONS THE ASSESSING OFFICER WAS OF THE VIEW THAT THE NP RATE OF THE ASSESSEE SHOULD BE 10%. 12. ON APPEAL THE ACTION OF THE ASSESSING OFFICER W AS CONFIRMED BY THE LD. CIT(A). 13. BEFORE US BOTH THE PARTIES MADE DETAILED SUBMI SSIONS AND WHEN DEFECTS LIKE NO SALARY PAID AND EVEN CLAIM OF DEPRECIATION BEING NOT AS PER PROVISION OF INCOME TAX ACT WHICH IS AGAINST THE DECISION OF HON 'BLE BOMBAY HIGH COURT IN CASE OF INDIAN REYAN CORPORATION LTD V. CIT 261 IT R 98 WERE POINTED OUT THE LD. COUNSEL OF THE ASSESSEE CONCEDED THAT THE BENCH MAY ESTIMATE THE PROFIT. AFTER CONSIDERING THE SUBMISSIONS AND OVERALL CIRCU MSTANCES OF THE CASE WE ARE OF THE OPINION THAT THE REASONABLE PROFIT CAN B E ESTIMATED @ 30% WHICH WAS ACCEPTED BY THE LD. COUNSEL OF THE ASSESSEE. T HEREFORE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OF FICER TO ALLOW NP RATE AT 30% AT WHICH DEDUCTION U/S 80IB SHALL BE ALLOWED @ 30% AND BALANCE PROFIT MAY BE TAXED AS INCOME FROM OTHER SOURCES. 14. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 31.07.2012 SD/- SD/- (H.L. KARWA) (T.R. SOOD) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 31.07.2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/ THE DR 6