Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
In case of Heena Export Corporation [ Assessee] , trrthese are the bunch of 5 appeals filed by the learned Additional Commissioner Of Income Tax, Range – 1, Faridabad for assessment year 2008 – 09 to 2013 – 14 (ITA number 6570 – 6571 – 6572 – 6573 – 6574/Del/2017) and assessee has also filed 5 cross objections in these appeals for all these years (CO number 76, 77, 78, 79, 80/del/2020). Assessee has also preferred an appeal for assessment year 2007 – 08 in ITA number 2944/del/2017 in case of Heena export Corporation.
2. In case of Heena industries Private Limited, the learned assessing officer i.e. Deputy Commissioner Of Income Tax, Circle – 1, Faridabad has filed six appeals for assessment year 2008 – 09 to 2013 – 14 as per ITA number 6575, 6576, 6577, 6578, 6579 and 6580/del/2017 whereas the assessee (Heena industries private limited) has filed cross objection for assessment year 2008 – 09 to 2011 – 12 in CO number 81, 82, 83, 84/Del/2020.
Brief facts of the case shows that Messer’s Heena industries private limited as well as M/s Heena export Corporation both belong to Hina group of companies. a. M/S Heena export Corporation, a partnership firm, having six partners with equal profit and losses, engaged in the business of manufacturing of Mehandi, a hair dye powder, having manufacturing unit at Faridabad and the another units at Dehradun and Haridwar. It started manufacturing at Dehradun unit for assessment year 2007 – 08 to 2010 – 11 and at Haridwar unit from assessment year 2011 – 12 to 2013 – 14. For Dehradun unit the assessee claimed deduction u/s 80 IC of The Income Tax Act for assessment year 2007 – 08 to 2010 – 11 and similarly for Haridwar unit from assessment year 2011 – 12 to assessment year 2013 – 14. There is no dispute between the parties with respect to the eligibility of deduction u/s 80 IC of the Income Tax Act for both the units. b. Another assessee Hina industries private limited incorporated on 12 April 1996, a private limited company, is also engaged in manufacturing activity since 1996 and has also a trading unit – 2 at Faridabad setup in 2005 which additionally sells cosmetic products. It follows the mercantile system of accounting.
The brief history of the Hina group shows that a survey u/s 133A was carried out by the investigation wing Faridabad on the group on 23rd of October 2013. The findings of the survey and subsequent enquiries of the AO alleged that Heena export Corporation, which is claiming deduction u/s 80 IC of The Act has shown unusual high profit for the reason that the expenses that should have been debited to the books of Heena export Corporation were diverted to the books of Heena industries private limited. Thus, the profits of Heena export Corporation were artificially inflated for claiming higher deduction u/s 80 IC of The Income Tax Act.
5. The history of the case also shows that in assessment year 2011 – 12, i.e. the first year wherein the above findings were recorded by the learned assessing officer in the case of Heena export Corporation. Assessee, Heena export Corporation filed its return of income on 27/9/2011 at Rs Nil. During the assessment proceedings, the learned assessing officer restricted the deduction u/s 80 IC of the act in respect of Haridwar unit to Rs 2,31,74,567/–. The learned AO a. rejected the books of accounts by invoking the provisions of Section 145 (3) of the act. b. found that assessee has purchases from sister concern, he invoked the provisions of Section 40 A (2) (a) of the act for disallowance of expenditure for such purchases where it is different the fair market value of the goods. c. found that there is a difference between the gross profit earned in an eligible unit compared with a noneligible unit of assessee. He found that assessee has shown gross profit in eligible unit at 40.10% and in noneligible unit at 34.01%. d. restriction of the deduction is also based on the statement recorded during the course of survey of Shri JP Gupta. e. that advertisement and publicity expenses at Haridwar unit and interest on partners capital account as well as remuneration to the partners have not been claimed in the proportion to the turnover of both the units.
6. On appeal before the learned CIT – A, the action of the learned assessing officer was confirmed and assessee approached the coordinate bench. The coordinate bench dealt with this issue in ITA number 2345/Del/2016 per order dated 29/5/2017. The coordinate bench considered these grounds i.e. ground number 3 from paragraph number 21 at page number 20 of the order till paragraph number 43 at page number 44 of the order. Gist of the decision of coordinate bench is that a. the learned AO’s in rejecting the books of account u/s 145 (3) of the income tax is not proper in view of comparison of the profit of Hina industries private limited with Heena export Corporation for the reason that both are separate units and are also dealing in different products which have different utility and therefore there cannot be a comparison of consumption of raw material having two different products by the two separate legal entities . b. With respect to purchases from the sister concerns the coordinate bench categorically noted that no purchases have been made by the assessee from Heena industries private limited. Therefore there cannot be a ground for any excessive or unreasonable price paid. The coordinate bench specifically noted that assessee has sold finished goods to Hina industries private limited. c. The coordinate bench also examined the manufacturing of Heena industries private limited with the activities of manufacturing carried on by the Heena export Corporation. Coordinate bench found in paragraph number 31 that both are using different raw materials and therefore the turnovers are not comparable.
d. final product of both the entity is a different, marketability of products of both the entities are different, the raw metal consumption of both the entities are different, the sale price of the finished products for both the entities are different and therefore both the entities had having this similar and distinct fact which cannot be compared with each other for making any disallowance in the hands of the assessee. e. With respect to the comparability of the gross profit of the eligible unit and noneligible unit of Heena export Corporation, the coordinate bench in para number 34 – 37 wherein it has been noted that Haridwar unit has sold black rose Kali Mehandi to Hina industries private limited at lesser rate compared to the same material sought to the third parties and therefore there is no reason to allege that assessee has shown high profit. The coordinate bench also noted that gross profit is marginally higher in Haridwar unit due to low cost of manufacturing and administrative expenses. f. With respect to the statement of Mr J P Gupta recorded during the survey proceedings, the coordinate bench held that it does not have any evidentiary value relying on the decision of Honourable supreme court . g. with respect to the disproportionate claim of advertisement, publicity, partners salary and interest on capital expenditure in paragraph number 44 the coordinate bench held that they are in agreement with the contentions of the ld AO that the assessee has not debited any advertisement and publicity expenses at Haridwar unit and interest on partners capital and partners remuneration which has not been debited in proportionate to the turnover of both the units. Therefore it was held that out of the total expenditure of ₹ 8,132,030/– the assessee has claimed only Rs 22,10,037/– at the Haridwar unit and if the quantum of turnover of the both the units is considered then it can be clearly observed that the assessee has debited less ₹ 5,492,093/– in Haridwar division and this amounts have been excessively debited to Faridabad unit profit and loss account. Thus coordinate bench directed the learned assessing officer to re-compute the profit of Haridwar division by reducing it by ₹ 5,492,093/– to the profit and loss account for calculation of deduction u/s 80 IC of the act.Thus the claim of the assessee of deduction was reduced by RS 54,92,093/-.
7. Thus, the coordinate bench held that assessee is entitled to deduction u/s 80 IC of the income tax act and it has not inflated profits except to the extent of recomputation of lesser cost allocated to the eligible unit by ₹ 5,492,093/–. Consequently, for assessment year 2011 – 12 in case of Heena export Corporation the substantive addition made was deleted by the coordinate bench to the extent as above.
Both this parties submitted that this order of coordinate bench is in challenge by both the parties before the Honourable High court. 9. All these appeals and cross objections are on the same point. Now therefore on the identical facts and circumstances of the case all these appeals are filed by the rival parties wherein in case of Heena industries private limited substantive addition has been made by the learned assessing officer and deleted by the learned CIT appeal for assessment year 2008 – 09 to 2013 – 14. Therefore, revenue is in appeal. In the present case the substantive addition has been made by the learned assessing officer in case of Heena industries private limited and protective addition has been made by AO in the hands of Heena export Corporation. Therefore the learned assessing officer has filed appeal in both the cases and the assessee has filed cross objection. However for assessment year 2007 – 08 in case of Heena export Corporation assessee is in appeal. Assessee has filed cross objection in all these appeals. 10. The following grounds of appeal are raised:- –
[By the assessee]
(Heena export Corporation)
“ 1. Because the action is being challenged on the facts & law, for the assumption & misapplication of jurisdiction for reassessment proceedings and the sanction being 'a fit case for issue of notice7 is being challenged while completing the assessment u/s 147/143(3) at an amount of Rs.3,76,81,361/- 2. Because the action is being challenged on the facts & lawfor the concluding reassessment proceedings particularly since 7a person can't be a judge for himself7 whereby presently the order being u/s 143(3) [24.08.2009] for impugned year and there being a 'change of opinion7.
3. Because the action is being challenged on the facts & law, for not recording any satisfactory reasoning qua the escapement of income which is for the non-discharge of onus by the AO to point out the failure on the part of the assessee to disclose fully & truly all material facts necessary for its assessment. 4. a) Because the action is being challenged on facts & law, for revising the deduction u/s 80IC amounting to Rs. 4,06,10,597/- from the claim deduction of Rs. 7,64,34,692/- and by increasing turnover of Faridabad unit on the estimation basis thus reducing deduction u/s 80IC by Rs. 3,55,24,095/-. b) The quantum of revising of deduction u/s 80IC and the basis of estimation of turnover thereof too are under challenge.
Because the action is being challenged on facts & law, for relying 8 | P a g e on the report of DDIT based on enquiry for F.Y 2012-13 ignoring that no incriminating material/report available for the impugned year.
Because the action is being challenged on facts & law, for concluding the proceedings at the back of the assessee and not supplying reports of toll authorities of Faridabad and Meerut & survey report and additionally ignoring the method followed by assessee which was consistently accepted in preceding years.
Because the action is being challenged on facts & law, for having interchanged only the turnover amongst the indepe4ndent units and distributing the ratio of expenditure on ‘arbitrary’ basis ignoring the incurring and actual expenditure thereof whereby there is an erroneous assumption & application of jurisdiction without invoking the provisions of Section 145 of the Income Tax Act, 1961. “
ITAs. 6575,6576,6577,6578,6579&6580/Del/2017- [By the Department] (Heena industries private limited): AND 6571, 6572, 6573 & 6574/Del/2017 – [By the Department] : (Heena export Corporation)
“ a) Whether in the facts and circumstances of the case, the Ld. CIT(A), Faridabad has not erred in following the order of Hon’ble ITAT (ITA No.2345/Del/Ind/2016 dated 29.05.2017 in the case of M/s Henna Export Corporation for A.Y. 2011-12) by setting aside the order passed by the Assessing Officer granting benefit of section 80-IC of the Income Tax Act, 1961 to the sister concern M/s HEC (exempt Unit), whereas from the evidence available on the file it was very much clear that the course of business between the assessee and its sister concern M/s HEC (exempt unit) was so arranged that the business transacted between them produces to the sister concern HEC (exempt unit) more than the ordinary profits which might be expected to arise in such eligible business? b) Whether in the facts and in the circumstances of the case, the Ld. CIT(A) has not erred by following the Hon’ble ITAT order in the case of HEC (A.Y. 2011-12), wherein the Hon’ble ITAT has erred in ruling that key statement of Sh. J.P. Gupta (Partner HEC) recorded during the 9 | P a g e survey has no evidentiary value, which was not the case, as the statement of Sh. J.P. Gupta was taken far away from date of survey and inter assessee pricing and hence profit is determined by the partners/directors (of HEC/HIPL). c) Whether the impugned order passed by the Hon’ble ITAT in the case of sister concern HEC - A.Y. 2011-12 (and relied upon by Ld. CIT(A), Faridabad) is not in violation of section 80IC(7) and 801A(10) of the Income Tax Act, 1961? “
C. O. Nos. 76, 77, 78, 79 & 80/Del/2020 – [By the assessee] (Heena export Corporation)
“ 1. Because the action is being challenged on facts & law, for the assumption & misapplication of jurisdiction for reassessment proceedings and the sanction being 'a fit case for issue of notice' is being challenged while completing the assessment u/s 147/143(3).
Because the action is under challenge on facts and law for making addition made on account of the issues other than the issue in reasons recorded, when no addition has been made regarding issues in reasons recorded. 3 (a) Because the action is being challenged on facts & law, for revising the deduction u/s 801C amounting Rs.61,39,375/- by recomputing the profits of Dehradun unit by including the advertisement & publicity expenses, interest on partner’s capital & partners remuneration. (b) The quatum of revising of deduction u/s 801C is under challenge.
4. Praying for granting any addition, deletion, amendments, modification in the grounds of appeal and any consequential relief and or legal claim arising out of this appeal before the disposal of same in the interest of substantial justice. “ C. O. Nos. 81, 82, 83 & 84/Del/2020 – [By the assessee] (Heena industries private limited) ‘’ 1. Because the action is under challenge on facts & law for there being erroneous assumption and misapplication of reassessment jurisdiction and while the sanction having been obtained after due application of judicious mind as on aspect of being 'a fit case for issue of notice' for continuation of the re-assessment proceedings u/s 147-151 r/w Section 143(3).
2. Because the action for concluding the reassessment is being challenged on facts & law, for requiring the assessing officer to 'discharge the onus', on aspect of issuance of notice u/s 148 lacking to meet the pre-conditions as per settled principles of law and additionally there being lack of tangible material/reasonable cause.
3. Because the action is being challenged on facts & law, for relying on the report of DDIT based on enquiry for A.Y 2013- 14, ignoring the material fact containing material particular that no incriminating material/ report available for the impugned year yet there being re-assessment proceedings.
4. Prayer for granting any addition, deletion, amendments, modification in the grounds of appeal
and any consequential relief and or legal claim arising out of this appeal before the disposal of same in the interest of substantial justice. ‘’
11. Both the parties confirmed that all the issues in this appeal are squarely covered with respect to the disallowance of deduction u/s 80 IC of the act by the decision of the coordinate bench in assessee’s own case for assessment year 2011 –
12. Further against the order of the coordinate bench, the learned assessing officer as well as assessee are in appeal before the honourable Delhi High Court which is pending. Therefore, it was submitted that all the issues in this appeal so far as they relate to the deduction u/s 80 IC of the income tax act either in the case of Heena export Corporation or in case of Heena industries private limited squarely covered by the decision of the coordinate bench.
12. In view of the above submission of the assessee as well as the learned CIT DR we proceed to decide the ground involved in this appeal.
First, we come to the appeal in case of Heena export Corporation.Ground number 1 – 3 of the assessee’s appeal in ITA number 2944/del/2017 for assessment year 2007 – 08 and ground number 1 and 2 in cross objection number 76, 77, 78/del/2020 for assessment year 2008 – 09, 2009 – 10 and 2000 – 11 were not pressed before us and therefore same are dismissed. 14. With respect to ground number 4 – 7 of the assessee’s appeal in ITA number 2944/del/2017 and grounds of appeal
of the Department in ITA number 6570, 6571, 6572, 6573, 6574/del/2017 and ground number 3 in cross objection number 76, 77, 78 and ground number 1 in cross objection number 79/80/del/2024 12-13 and 13-14 wherein the learned CIT appeal has decided the issue partly allowing the appeal and confirming the part amount with respect to allocation of expenses between the eligible and noneligible unit. Therefore we do not find any infirmity in the order of the learned CIT – A except with respect to the allocation of profit between the noneligible unit and eligible unit for assessment year 2007 – 08 the assessee has submitted a chart based on the findings of the Coordinate bench for AY 2011-12, wherein the deduction claimed by the assessee is required to be reduced by a sum of ₹ 6,680,991 for assessment year 2007 – 08 in case of Heena export Corporation is required to be upheld.
15. Consequently in case of in a export Corporation, respectfully following the decision of the coordinate bench in assessee’s own case for assessment year 2011 – 12 we partly allow the appeal of the assessee to the extent of restriction of the disallowance u/s 80 IC of the income tax act to the extent of only ₹ 6,680,991 for AY 2007-08 and for other years dismiss the appeals of the revenue. Consequently the cross objections filed by the assessee are also dismissed.
Coming to the appeals of the revenue in case of Heena industries private limited, respectfully following the decision of the coordinate bench in case of Heena export Corporation for assessment year 2011 – 12, all the appeals filed by the learned assessing officer for assessment year 2008 – 09 to 2013 – 14 are dismissed.Cross objections filed by the assessee for assessment year 2008 – 09 to 2011 – 12 were not pressed and requested for withdrawal, hence, cross objections of the assessee are dismissed.
In view of this, the 11 appeals filed by the Ld AO in case of Heena export Corporation and Heena industries private limited are dismissed.Appeal filed by the assessee in case of Heena export Corporation for assessment year 2007 – 08 is partly allowed.Nine cross objections filed by the assessee in both these assessee’s case are dismissed.
Order pronounced in the open court on 23/06/2021 on conclusion of hearing