Ita/324/2013 Of Commissioner Of Income Tax-1 Ludhiana v. M/S Saimbi Cycles Ludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.324 of 2013 (O&M)Date of decision: 28.04.2014 Commissioner of Income Tax-lI, Ludhian ....-- Appe Vs, M/s Saimbhi Cycles & Auto Industries, Focal Point, Ludhiana ..... Respond CORAM: HON’?BLE MR. JUSTICEK AJAY KUMAR MITTHON BLE MR. JUSTICE JASPAL SINGH Present:Mr.Rajesh Katoch, Advocate for the appellant. Ajay Kumar Mittal,J, inThis appeal been preferred by the revenue under Section 260Aof the Income Tax Act, 1961 (in short, “the Act’) against the order dated29.4.2013, Annexure A-III passed by the Income Tax Appellate Tribunal,Chandigarh Bench ‘A’ Chandigarh (in short, “the Tribunal’) in ITANo.34/CHD/2011, for the assessment year 2007-08, proposing to raisefollowing substantial questions of law for determination of this Court:- “'1) Whether on the facts and circumstances of the case, and ilaw, the Hon’ble Income Tax Appellate Tribunal was justifiedin confirming the action of the learned CIT(A) 1n deleting theGP addition on account of sales made to sister concern ignoringthe fact that the assessee had sold goods to independent partycharging GP rate of 10.20% as well as ignoring the fact that theGP rate declared by other assessee as referred 1n assessment order was 20% which is much higher than the GP rate chargedfrom the sister concern? 11) Whether on the facts and circumstances of the case and inlaw, the Hon’ble Income Tax Appellate Tribunal was justifiedin ignoring the fact that sales of sister concern were to the tuneotv6,66,30,924/- whereas sales to independent party were tothe tune ofL1,62,13,092/- and thus the comparison was rightlymade by the AO” 111) Whether on the facts and circumstances of the case and inlaw, the Hon’ble Income Tax Appellate Tribunal was justifiedin confirming the action of CIT(A), deleting the addition of42,33,337/- on account of disallowance of deduction claimedunder Section 80IB on income earned from job work carriedout by the assessee which does not form part of income derivedfrom the industrial undertaking? 1v) Whether on the facts and circumstances of the case and inlaw, the Hon’ble Income Tax Appellate Tribunal was justifiedin confirming the action of CIT(A), deleting the addition of42,33,337/- on account of disallowance of deduction claimedunder section 80IB following the decision of Hon’ble Punjaband Haryana High Court in the case of Impel Forge AlliedIndustries Limited (2009) 183 Taxman 38, as the same was notaccepted by department on merits but SLP was not filed as thetax effect was below the prescribed limit?” | |A few facts relevant for the decision of the controversyinvolved as narrated in the appeal may be noticed. The respondent assesseeis a firm. It 1s engaged in the business of manutacturing of cycle parts. Itfiled its return of income for the assessment year 2007-08 on 31.10.2007declaring income of“a6,39,890/-. The Assessing Officer completed theassessment under Section 143(3) of the Act on 29.12.2009, Annexure A.1 atan income of|“a52,50,004/- by making certain additions like |“a49.17,319/-on account of sales to sister concern M/s Darshan Udyog at lower rates as | |A few facts relevant for the decision of the controversyinvolved as narrated in the appeal may be noticed. The respondent assesseeis a firm. It 1s engaged in the business of manutacturing of cycle parts. Itfiled its return of income for the assessment year 2007-08 on 31.10.2007declaring income of“a6,39,890/-. The Assessing Officer completed theassessment under Section 143(3) of the Act on 29.12.2009, Annexure A.1 atan income of|“a52,50,004/- by making certain additions like |“a49.17,319/-on account of sales to sister concern M/s Darshan Udyog at lower rates as compared to non related parties;“a2,33,337/- on account of disallowance ofdeduction under Section 80IB of the Act on labour job carried out by theassessee which does not form part of income derived from industrialundertaking, -37,500/- on account of disallowance of additionaldepreciation and =a7,13,812/- on account of disallowance of expenses inrespect of payment of bonus and wages. Aggrieved by the order, theassessee filed appeal before the Commissioner of Income Tax (Appeals)-I[CIT(A)]. Vide order dated 29.10.2010, Annexure A.II, the CIT(A) partlyallowed the appeal, deleting the additions of|-49,97,319/- on account ofsales to the sister concern,Ly7,13,812/- on account of disallowance ofexpenses out of bonus and leave with wages and allowing the deductionunder section SOIB of the Act claimed at an2,33,337/-. Aggrieved by theorder, the revenue filed appeal before the Tribunal. Vide order dated29.4.2013, Annexure A.3, the Tribunal dismissed the appeal. Hence thepresent appeal by the revenue. 3]We have heard learned counsel for the appellant-revenue andperused the record, 4 The two issues that arise for consideration in this appeal are:-| (a)Whether the gross profit rate applied by the AssessingOfficer at the rate of 20% was appropriate and the CIT(A) as well as the Tribunal were justified 1n deleting thesame 1n respect of sales made to sister concern’?Officer at the rate of 20% was appropriate and the CIT(A) as well as the Tribunal were justified 1n deleting thesame 1n respect of sales made to sister concern’? (11)Whether the assessee was entitled to deduction underSection 8OIB of the Act on income earned from jobwork carried out by the assessee as it did not form partof income derived from industrial undertaking?Section 8OIB of the Act on income earned from jobwork carried out by the assessee as it did not form partof income derived from industrial undertaking? 4]After hearing learned counsel for the appellant, we do not find any merit in the appeal. 6.Taking up Issue No.(i), the CIIT(A) vide order dated29.10.2010, Annexure A.II, while accepting the plea of the assessee held asunder:- (11)Whether the assessee was entitled to deduction underSection 8OIB of the Act on income earned from jobwork carried out by the assessee as it did not form partof income derived from industrial undertaking?Section 8OIB of the Act on income earned from jobwork carried out by the assessee as it did not form partof income derived from industrial undertaking? 4]After hearing learned counsel for the appellant, we do not find any merit in the appeal. 6.Taking up Issue No.(i), the CIIT(A) vide order dated29.10.2010, Annexure A.II, while accepting the plea of the assessee held asunder:- “397 | have considered the facts of the case and submissionsmade by the AR. The assessee partnership firm is engaged inthe business of manufacturing of cycle parts. During the yearout of total sales of|=a8,28,44.016/-, the assessee has madesales ofLV6,66,30,924/- to its sister concern M/s DarshanaUdyog. In the course of assessment proceedings, the AssessingOfficer noticed that the assessee has made sales to its sisterconcerns at lower rate than the rates at which the sales to otherparties have been made. In this regard, the Assessing Officerhas referred to some instances of sales made by the assesseefirm to its sister concern and other parties as noted on page 5 ofthe assessment order and has come to the conclusion that theassessee has made sales to sister concerns at a less price thansales made to other parties. As noted 1n the assessment order ofM/s Darshana Udyog has shown GP of 5.4% against the GP ofmore than 11% shown by the assessee. The Assessing officerhas also rejected assessee’s contention that sales to sisterconcern are made in packing whereas sales to independentparties are made in loose form on the ground that the totalexpenditure on packing 1s only of<a4.79,640/-. However, theAR has stated that there is a mistake in writing the assessmentorder 1n as much as sales are made to the sister concern 1n looseform and to the other parties in packed form. In any case totalpacking expenditure of the assessee 1s onlya4,79,640/- whichwould not affect much the profit margin of the assessee,Regarding assessee’s contention about difference 1n purchaserates of raw material, the Assessing Officer has observed thataround 50% of the nickel where the difference is shown hasbeen sold by the assessee as trading sale. In view of the aboveand also relying on various judgments, the AO applied rate of715% to the sales made to the sister concern and made the addition ofan49,97,319/-. While doing so, the AO has alsoreferred to the case of Safari Bikes which has shown GP of20.10%. However, the AR has in his submission reproducedabout has countered various arguments of the Assessing Officerdiscussed above. After going through the facts discussed above,I intend to agree with the contentions raised by the AR againstincreasing the GP in respect of the sales made to sister concern,The Assessing Officer has referred to certain transactionswhere rates of sale made to sister concern are shown less thanthe rates of sale made to independent parties. However, the ARhas submitted that sale rates made to the sister concern and theindependent parties are comparable as noted 1n the chart givenin the submission reproduced above. It appears that AssessingOfficer has mislead himself in adopting the rates charged fromsister concern during much earlier period and comparing thesame with the sale rates of independent parties to whom thesales were made in the months of Feb and March, 2007. TheAR has stated that almost all the sales have been made to sisterconcern from April 2006 to 14[th]February 2007 whereas thesales to other parties have been made during the period from14[th]February 2007 to March 2007. No sales have been made toother parties during the period from I|[th]February 2007 toMarch 2007 except two bills No.33 dated 14.2.2007 and billNo.135 dated 31.3.2007. Bill No.33 1s regarding sale of cyclerims at the rate oTL76 per piece and same item has been soldto other parties on 15.2.2007 vide bill No.34 dated 15.2.2007 atthe rate of|=a76.5 per piece and thus rates are comparable. Thesecond bill No.135 relates to sale of cycle mudguards to thesister concern but the item has not been sold to other parties.3.3 From the discussion made above, | intend to agree with theAR’s contention that the Assessing Officer has wrongly appliedrates of the different parties to arrive at the conclusion thatsales have been made at less rate to the sister concern.Moreover, prices of raw material have gone up from the monthofApril 2006 to March 2007 as per the details submitted by the assessee on page 113-117 of the paper book. Though theAssessing Officer has observed that around 50% of the nickelhas been sold as trading sale by the assessee the fact howevercannot be ignored that the prices have gone up during theperiod which have affected the sale price at the later part ofthe year. The Assessing officer has not disputed this fact.Regarding GP shown by M/s Satari Bikes,the AR has statedthat the Safar1 Bikes Company is dealing in manufacturing andsale of complete bicycle and not in manufacturing of rims.Otherwise also the Assessing Officer has not providedopportunity to the assessee while relying on rate of GP shownby Safari Bikes. Various case laws relied upon by the AssessingOfficer are distinguishable as explained by the AR in hiswritten submissions. Moreover, in this case, the assessee 1Seligible for deduction under Section 80IB as also noted in page4 of the assessment order and, therefore, I see no reason fordiverting the profit to the sister concern. 3.4 In view of the above and considering the detailedsubmissions of the AR, I am of the opinion that the AssessingOfficer was not justified 1n making addition by adopting GP of7.5% in respect of the sales made to the sister concern.Accordingly, the addition made on this account 1s deleted.” ‘|. The above findings were affirmed by the Tribunal vide order dated 29.4.2013, Annexure A.III with the following observations:- 3.4 In view of the above and considering the detailedsubmissions of the AR, I am of the opinion that the AssessingOfficer was not justified 1n making addition by adopting GP of7.5% in respect of the sales made to the sister concern.Accordingly, the addition made on this account 1s deleted.” ‘|. The above findings were affirmed by the Tribunal vide order dated 29.4.2013, Annexure A.III with the following observations:- “8. We have considered the rival submissions carefully. We findthat first of all the assessee 1s a concern wherein assessee wasentitled to deduction under section 80IB of the Act @ 25%which would mean that effective tax rate would be 22.50%whereas the sister concern M/s Darshan Udyog is required topay tax @ 30%, therefore, there was no incentive to make salesat lower rate. In any case, in the detailed submissions beforethe Assessing Officer and CIT(A) it demonstrated thatpractically no sales have been made to outside parties andtherefore, comparison 1s not correct. In any case, the Hon’ble Supreme Court in the case of CIT vs. Glaxo Smithkine Asia (P)Limited has clearly held that since there was no provision tomake addition on account of receipts which are at less than thefair market value, therefore, such additions are not justified. Inthese circumstances, we find nothing wrong with the order oflearned CIT(A) and we confirm the same.” |The CIT(A) as well as the Tribunal had recorded that theassessee concern was entitled for deduction under Section 8OIB of the Actat the rate of 25% and therefore, the effective rate of taxation was 22.5%. Itwas further noticed that in the case of sister concern, the rate of taxation was30%. It was also observed that in such circumstances, there was noincentive for the assessee to make sales to the sister concern M/s DarshanUdyog at lower rate. The said finding has not been shown to be perverse orerroneous in any manner being finding of fact and thus does not call for anyinterference by this Court under Section 260A of the Act. Q In so far as second issue 1s concerned, the matter standsconcluded by judgment of this Court inCIT vs. Impel Forge and AlliedIndustries Limited,(2010) 326 ITR 27 wherein while discussing identicalissue, 1t was noticed as under:- "5S. Reference to section 80IB of the Act shows that onlyrequirement for its applicability 1s deriving of income frombusiness referred to in sub sections (3) to (11), (11A) and (11B)of the Act, apart from other conditions with which we are notconcerned. It 1s not the case of the revenue that the business ofthe assessee does not fall under sub sections (3) to (11), (LIA)or (11B) of the Act. The assessee 1s at liberty to do manufacturefor itself or for others, which makes no difference for purposesof section 80IB of the Act. The Tribunal has also relied uponsimilar view taken by Delhi High Court 1nCIT vs. NorthernAromatics Limited,(2005) 196 CTR (Del.) 479. The Tribunal had also adjudicated the issue in favour of the assessee andagainst the revenue by placing reliance upon the said judgment. Learnedcounsel for the revenue was unable to show that the said judgment was notapplicable to the facts and circumstances of this case. 10,In view of the above, no substantial question of law arises.Accordingly, finding no merit 1n the appeal, the same is hereby dismissed. (Ajay Kumar Mittal)Judge April 28, 2014=<%9 (Jaspal Singh)sudge