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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi
Date of concluding the hearing : January 08, 2016 Date of pronouncing the order : January 13, 2016
O R D E R Per Shri P.M. Jagtap:- This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-VI, Kolkata dated 07.07.2010 for the assessment year 1997-98
The assessee in the present case is a Company, which is engaged in the business of manufacture and sale of polyester and nylon filaments yarns, engineering plastic, nylon industrial yarn, tyre cord fabrics, etc. The return of income for the year under consideration was filed by it on 21.11.1997 showing total income of Rs.32,66,13,040/-. In the assessment completed under section 143(3) vide an order dated 09.03.2000, the total income of the assessee was determined by the Assessing Officer at Rs.33,74,95,090/-. The records of the said assessment came to be ./2010 Assessment year: 1997-1998 Page 2 of 5 examined by the ld. CIT and on such examination, he found that the order passed by the Assessing Officer under section 143(3) had suffered, inter alia, from the following error:- “The assessee claimed deduction u/s. 80I/ 80IA amounting to Rs.7,46,64,648/- and for Rs.3,98,76,252/- for its unit no. 16 & 17 respectively. It was noticed from the records that the said deduction actually related to units no. 17 and 20 respectively. It was further noticed that while computing the income pertaining to thse units expenditures on account of commission paid for sales and transport handling and octroi duty were not taken into account although an amount of Rs.2,76,87,520/- and Rs.3,28,18,000/- were shown respectively under these heads in the Profit & Loss Account. Thus the income from the units no. 17 and 20 were computed at a higher figure and naturally the deduction u/s 80I / 80IA were allowed at a higher amount, reducing the income. Thus, on this point also, the assessment was erroneous and prejudicial to the interest of revenue”.
Notice under section 263, therefore, was issued by the ld. CIT(Appeals) calling for the explanation of the assessee. In reply, it was explained by the assessee that the sale of textile yarns was predominantly effected through dealers/agents and, therefore, commission was payable only in respect of such sales. It was submitted that the sale of Tyre yarn, on the other hand, was predominantly effected directly and no commission was payable for the sale. It was also submitted that in case of tyre-cord fabrics, the tyre manufacturers themselves used to arrange to lift the materials through their authorized transporters and since the freight cost was borne by them, hardly any freight expenditure was incurred by the assessee. This explanation of the assessee was not found acceptable by the ld. CIT in the absence of any evidence to support and substantiate the same and accordingly revising the order passed by the Assessing Officer under section 143(3), he directed the Assessing Officer to re-compute the deduction allowable to the assessee under section 80I/ 80IA after allowing opportunity of being heard to the assessee. As per the direction given by the ld. CIT vide order under section 263, a fresh order was passed by the Assessing Officer on 18.09.2002, wherein he reduced the claim of the assessee for deduction under section 80I and 80IA by ./2010 Assessment year: 1997-1998 Page 3 of 5 Rs.48,07,135/- after apportioning the commission and transportation expenses on the basis of sales among all the units of the assessee including Units No. 17 & 20, which are entitled for deduction under section 80I and 80IA.
Against the order passed by the Assessing Officer under section 143(3) read with section 263, an appeal was preferred by the assessee before the ld. CIT(Appeals) and after having failed to succeed therein, the assessee has preferred this appeal before the Tribunal on the following grounds:- (1) Based on the facts and the circumstances of the case and in law, the ld. CIT(A)-VI, Kolkata erred in not upholding the appellant’s claim for deduction of specific expenditure which has been accrued by the appellant on actual basis while determining amount of deduction under section 80I and 80IA, in respect of eligible units.
(2) Without prejudice to the above, the ld. CIT(A) erred in disregarding the appellant’s submission that even if the specific expenditure needs to be allocated to the eligible units, then such allocation should be undertaken in the ratio of external sales of the eligible unit (i.e. aggregate sales less inter-unit transfer) instead of aggregate sales, since the expenditure (i.e. transportation, handling & octroi and commission on sales) has not been incurred in relation to inter-unit transfers.
We have heard the arguments of both the sides and also perused the relevant material available on record. As regards the issue raised by the assessee in Ground No. 1, it is observed that the same was considered and decided by the ld. CIT in the order passed under section 263 vide Paragraph No. 5, which reads as under:- “5. In regard to the payment of commission paid for sales and transport handling and octroi duty it is seen that the assessee had not come out with the full facts. The assessee has not furnished any evidence in support of its contention that in the case of textile yarns and tyre cord fabrics no commission was payable by the agents rather the purchasers lift the goods from the premises of the assessee. A business house maintains some rules, regulations and systems which are uniform in all the ./2010 Assessment year: 1997-1998 Page 4 of 5
units. It may not be such that one unit reverses the procedures followed by other units, both belonging to the same management. The correct procedure would have been that total commission on sales should be divided by the total sales and multiplied by the sales made in that unit. The same procedure is to be applied in case of freight, octroi and transport charges. It will be found that a lesser amount of profit will arise in unit No. 17 and 20”.
It is manifest from the relevant portion of the ld. CIT’s order passed under section 263 as reproduced above that the issue was decided by the ld. CIT on merit holding that the commission on sales and transportation charges are required to be apportioned on the basis of sales of all the units of the assessee including Units No. 17 & 20, which are eligible for deduction under section 80I and 80IA. Since no appeal has been filed by the assessee against the order passed by the ld. CIT under section 263, as admitted by the ld. Counsel for the assessee at the time of hearing before us, this issue, in principle, has become final on merit and the assessee, in our opinion, is not entitled to raise the same in the present appeal, which is arising from the order of the Assessing Officer passed under section 143(3) read with section 263 giving effect to the order of the ld. CIT passed under section 263. We, therefore, find no merit in Ground No. 1 raised by the assessee and dismiss the same.
As regards Ground No. 2, we, however, find merit in the issue raised therein relating to the assessee’s alternative claim that while apportioning the sales commission and transportation expenses as per the direction given by the ld. CIT in his order under section 263, the Assessing Officer ought to have taken only the sales made to the third parties and not to the goods transferred from one unit of the assessee to other units, as there is no question of payment of any commission on such inter-unit sales and there is hardly any question of transportation involved in such inter-unit sales, which are located at one place. We, accordingly, direct the Assessing Officer to re-compute the deduction allowable to the assessee under section 80I and 80IA in respect of Units ./2010 Assessment year: 1997-1998 Page 5 of 5 No. 17 & 20 by apportioning the sales commission and transportation expenses in the ratio of sales made to third parties only. Ground No. 2 of the assessee’s appeal is accordingly allowed.
In the result, the appeal of the assessee is partly allowed.