Patto, Panaji, Goa v. M/S. Borkar Packaging Private Limited

1 Santosh IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEALS NO.62/2014 & 13/2015 Commissioner of Income Tax“Aaykar Bhavan”, Patto, Panaji, Goa. ….. Appellant. VersusM/s. Borkar Packaging Private Limited, Lake Plaza, Opp, Nehru Stadium,Fatorda, Margao, Goa. PAN NO.AAACB 7618N .….. Respondent. Ms. Suzan Linhares, Standing Counsel for the Appellant. Mr. S. R. Rivankar, Senior Advocate with Mr. Rama Rivankar,Advocate for the Respondent. Coram : M.S. Sonak & Dama Seshadri Naidu, JJ. Date : 29[th] September, 2020 ORAL JUDGMENT: (Per M.S. SONAK, J.) Heard Ms. Linhares, the learned Standing Counsel for theRevenue and Mr. S.R. Rivonkar, the learned Senior Advocate for theAssessee. 2.In so far as Tax Appeal 13/2015 is concerned, the AppealMemo makes reference to Assessment Year 2006-07. In fact, TaxAppeal No.62/2014 pertains to the Assessment Year 2006-07. Eventhe Memo of Appeal in Tax Appeal No.13/2015 is identical to the Memo of Appeal in Tax Appeal No.62/2014. 3.Ms. Linhares, however, pointed out that there may be amistake in stating the correct assessment year in the Memo of Appealin Tax Appeal No.13/2015. She submits that the relevant assessmentyear, in so far as the said appeal, would be 2007-08. She, therefore,orally applied for leave to amend the Memo of Appeal. 4.We were inclined to grant the leave to amend the Memo ofAppeal and we even indicated as such. However, later on Mr. S. R.Rivankar, the learned Senior Advocate appearing for the Respondentpointed out that vide Judgment and Order dated 13th January, 2015,this Court disposed of Tax Appeal No.64/2014 which pertained tothe Assessment Year 2007-08. 5.Upon the aforesaid being pointed out, Ms. Linhares did notpress for leave to amend the Memo of Appeal in Tax AppealNo.13/2015. It appears that by mistake two appeals have been filedin respect of Assessment Year 2006-07. Since, we propose to considerTax Appeal No.62/2014, which was instituted prior in point of time,it is not necessary to consider Tax Appeal No. 13/2015. Tax AppealNo.13/2015 is, accordingly, disposed of as infructuous or, in any case,on the ground that the same was filed inadvertently and, therefore,requires no consideration. 3 6.We now proceed to consider Tax Appeal No.62/2014 whichpertains to the Assessment Year 2006-07. 7.Tax Appeal No.62/2014 was admitted by order dated 1stOctober, 2014 on the following substantial questions of law : (A) Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal, is right in allowingdeduction under Section 80IB and under Section 80ICignoring the fact that the assessee has not furnished properlyfilled Form No.10CCB report. The statute requires suchobligation and it is seen from the 10CCB report that suchobligation has not been properly complied with. (B) Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal, is right in allowingdeduction under Section 80IC amounting toRs.2,95,50,892/- ignoring the fact that the Assessing Officerhas disallowed deduction under Section 80IC of the IT Act,for Nalagarh Unit on basis of alleged disparity in ratiobetween consumption of electricity and sales in differentassessment years in appellant different Unit ? (C) Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal, is right inadmitting the new evidences such as details of expendituresincurred by the assessee along with the copy of accounts andnecessary evidences in the shape of the bills, vouchers andother documents which were not produced earlier beforethe AO without giving any opportunity to the AO ? Tax Appeal No.13/2015 was admitted by order dated 9th 8.April, 2015 on the same substantial questions of law. 4 9.Accordingly, the learned Counsel for the parties agree thatboth these Appeals can be disposed of by a common Judgment andOrder. (C) Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal, is right inadmitting the new evidences such as details of expendituresincurred by the assessee along with the copy of accounts andnecessary evidences in the shape of the bills, vouchers andother documents which were not produced earlier beforethe AO without giving any opportunity to the AO ? Tax Appeal No.13/2015 was admitted by order dated 9th 8.April, 2015 on the same substantial questions of law. 4 9.Accordingly, the learned Counsel for the parties agree thatboth these Appeals can be disposed of by a common Judgment andOrder. 10.In this case, the Assessing Officer, in respect of both theassessment years, declined the Assessee deduction under Section80IB of the Income Tax Act, 1961, mainly on the ground that theAssessee had not properly filled in Form 10CCB. This form, interalia, relates to the details of number of workers working in various units of the Assessee. 11.The AO disallowed the Assessee deduction under Section80IC by reasoning that there was a serious disparity in the rate ofconsumption of electricity and the sales as between Nalagarh Unit ofthe Assessee and the other Units of the Assessee at Daman and Goa. 12.The Assessee appealed to the Commissioner of Income Tax(Appeals) and such appeals were allowed and deductions underSection 80IB and Section 80IC of the Income Tax Act were directedto be granted to the Assessee. 13. The Revenue then appealed to the Income Tax AppellateTribunal (ITAT) and by the impugned orders, the ITAT dismissedthe appeals. Hence, these Appeals which came to be admitted on theaforesaid substantial questions of law. 5 14.At the outset, we note that nothing was pointed out to usto suggest that the ITAT in these matters admitted any newevidences. In the absence of the ITAT admitting any new evidences,the substantial question of law 'C', as framed, really will not evenarise. 15.In so far as the substantial question of law 'A' is concerned,the only reason why the AO denied the Assessee deduction underSection 80IB was, because, the Assessee in Form No.10CCB failedto provide the details of number of workmen working in each of theUnits of the Assessee. Now, although it is true that there was thisomission on the part of the Assessee whilst filling in the Form10CCB, it is not as if this omission was not rectifiable. In fact, theAO should have granted the Assessee an opportunity for rectifyingthis omission. 16.Ultimately, the Assessee even prior to the assessment,produced material before the AO, which evidences that each of theUnits of the Assessee employed more than 10 workers. This meansthat there was material before the AO to conclude that the Assesseefulfilled the conditions required for claiming deduction underSection 80IB. In these circumstances, both, the Commissioner(Appeals), as well as the ITAT, were quite justified in directing grantof deduction under Section 80IB to the Assessee. 6 17.In the case of Hindustan Steel Limited vs. State of Orissa1the Hon'ble Supreme Court has held that mere furnishing ofdeduction form 10CCB could, at the most, be a default of technicaland venial nature. Such omission cannot be held to be so fatal as tomerit the penalty of disallowance of deduction under consideration.The view taken by the Commissioner (Appeals) and the ITAT is inconsonance with the law laid down by the Hon'ble Apex Court inHindustan Steel Limited (supra). Accordingly, the substantialquestion of law 'A' is required to be decided against the Revenue andin favour of the Assessee. 18.In so far as substantial question 'B' is concerned, the AO hascompared the consumption of electricity in various Units of theAssessee and on such basis, concluded that the profits in respect ofthe newly established Unit at Nalagarh appeared to be unreasonablyhigh. The AO has held that the profits are not matching with theconsumption of the electricity at the said Unit. On this basis, theAO denied the Assessee deduction under Section 80IC of theIncome Tax Act. 18.In so far as substantial question 'B' is concerned, the AO hascompared the consumption of electricity in various Units of theAssessee and on such basis, concluded that the profits in respect ofthe newly established Unit at Nalagarh appeared to be unreasonablyhigh. The AO has held that the profits are not matching with theconsumption of the electricity at the said Unit. On this basis, theAO denied the Assessee deduction under Section 80IC of theIncome Tax Act. 19.The record indicates that the Assessee, in this case, hadoffered detailed explanation as to why the production andconsequently profits at the Nalagarh Unit is higher than theproduction and profits at the Units in Goa and Daman. The 7 explanation is summarized in paragraph 6.2 of the AO's order, whichreads as follows : “6.2 The reasons for such peak performance in one unitselectivey were brought to the notice of the assessee'srepresentative. The assessee in its letter dated 09-11-2011has submitted that the comparison of the sales of Nalagarh Unit with the sales of the other units with regard to electricity expenses is for the following reasons: a) The machineries at Goa Units are 20 years old whereas the machineries at Daman are 10 years old, and machineries at Nalagarh Unit are less than 1 year old. b)) The Goa Unit is manufacturing only two colourprinting, whereas the Daman Unit is manufacturingprinting, whereas the Daman Unit is manufacturing six colour printing and Nalagarh Unit ismanufacturing in multiple colours. manufacturing in multiple colours. c) All the machineries are of different technologies. d) The machineries at Nalagarh are fully automatic and technically advanced with much higher output i.e.more than 10 times higher than machineries at Goaand Daman. more than 10 times higher than machineries at Goaand Daman. e) The requirements of the customers of NalagarhUnit is entirely different from the units of Goa &Daman. Unit is entirely different from the units of Goa &Daman. f) The sale value and contribution of Nalagarh Unit ismuch higher due to quality of printing as compared toother units.much higher due to quality of printing as compared toother units. g) The products manufactured at Goa & Daman are excisable products whereas Himachal Pradesh Unit isoperating under Excise Exemption for 10 years.Hence, no sales can be diverted from Goa & Damanto Nalagarh. operating under Excise Exemption for 10 years.Hence, no sales can be diverted from Goa & Damanto Nalagarh. h) Distance of Nalagarh Unit is 2300 km. from Goa and 1750 km from Daman. i) The customers of Nalagarh Unit are located in 8 Himachal Pradesh due tax advantages. j) The electricity power rates at Goa and Daman aredifferent the power rates at Himachal Pradesh. ” 20.The AO rejected the aforesaid explanation by observing thatthe consumption of electricity is increased only by 1497%, but thesales have increased by 7102%. 21.Now, both the Commissioner (Appeals) as well as theITAT, have quite correctly held that the alleged mismatch betweenthe production and the profits at the various Units as determined byconsumption of electricity at such units, cannot be the sole groundfor concluding that there has been some unreasonable inflation ofprofits. The two authorities have held that several factors cancontribute to the increased profits and upon consideration of suchseveral factors which were not only pleaded, but made good by theAssessee to conclude that there was no good ground to deny theAssessee deduction under Section 80IC of the Income Tax Act.According to us, the two authorities, having recorded the concurrentfindings on this issue, the substantial question 'B' does not deserve tobe answered in favour of the Revenue. 22.There is no perversity pointed out in the appreciation of thematerial on record by the Commissioner (Appeals) and the ITAT. Infact, these two authorities have applied the correct principles and thecorrect tests for determining whether there is indeed any inflation in 9 22.There is no perversity pointed out in the appreciation of thematerial on record by the Commissioner (Appeals) and the ITAT. Infact, these two authorities have applied the correct principles and thecorrect tests for determining whether there is indeed any inflation in 9 the production figures or in the consequent profits. These twoauthorities have held that it is not proper to focus on the singularaspect of the alleged disparity in the electricity consumption and theproduction figures. 23.The reasoning of the ITAT on this issue is to be found inparagraph 11.3 of the impugned order and the same reads as follows : “11.3 We have heard the rival contention of both theparties, looking to the facts of the circumstances of thecase, we find that the Assessing Officer has verified theelectricity consumed and sales in different unit situated atdifferent far way places. The Assessing Officer has verifiedthe disparity of electricity consumption of Nalagarh Unitand income of sales of Nalagrah Unit in comparison toother units were higher. The main contention of the AOthat in comparison to electricity consumed the sales ofNalagarh Unit has shown very high sales. We find that theassessee has explained before us that the machineries at GoaUnits are 20 years old whereas the various machineries atDaman are 10 years old, and machineries at Nalagarh Unitare less than 1 year old. All the machineries are of differenttechnologies. The Goa Unit is manufacturing only twocolour printing, whereas the Daman Unit is manufacturingsix colour printing and Nalagarh Unit is manufacturing inmultiple colours. The machineries at Nalagarh are fullyautomatic and technically advanced with much higheroutput i.e. more than 10 times higher than machineries atGoa and Daman which are capable of achieving thisproduction more efficiently with less than consumption ofelectricity. The requirements of customers at Goa Unit aredifferent from those of Daman Unit. The quality ofprinting, sale value and contribution of Nalagarh Unit ismuch higher as compared to other units. The products 10 manufactured at Goa & Daman are excisable productswhereas Nalagarh Unit is excise exempt for 10 years.Moreover the electricity power rate at Goa, Daman aredifferent from the power rates at Himachal Pradesh. Wefind that the Commissioner of Income Tax was of the viewthat the AO should bring out the reason of more sales atNalagarh Unit. We find that AO has not carried out anyexcise. We find that in the instant case, the AC has notrejected the books of account. We find that there are manyreasons for higher electricity consumption, therefore, onthis simple disparity the AO cannot disallow the deductionU/s 80IC. We find that the CIT(A) has dealt this issue indetail. Therefore, our interference is not required” 24.Again, we find that the view taken by both, theCommissioner (Appeals) as well as the ITAT, is a reasonable view.The findings arrived at by both the authorities are substantiallyturned out from the material on record. Accordingly, it cannot besaid that there is any perversity involved either in recording of thefindings, or in the approach adopted by the Commissioner (Appeals)and the ITAT. It will not be possible to answer the substantialquestion 'B' in favour of the Revenue and against the Assessee. 25.Since Ms. Linhares was unable to point out any documentswhich were said to have been admitted by the ITAT as new evidences,the substantial question 'C' does not arise and the same is notrequired to be answered. The subtantial questions of law at 'A' and'B', in the facts and circumstances of the present case, are answeredagainst the Revenue and in favour of the Assessee. 26. The Appeals are, accordingly, disposed of in the aforesaid terms. 27.There shall, however, be no order as to costs. Dama Seshadri Naidu, J. M.S. Sonak, J.