Arun Plasto Moulders India Pvt Ltd., ... vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, CHENNAI ी ए. मोहन अलंकामणी, लेखा सद य एवं ी वी. दग ु ा# राव, या$यक सद य केसम%

BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER

आयकर अपील सं./ITA No.1274/Mds/2013 $नधा#रण वष# /Assessment Year : 2009-10

M/s Arun Plasto Moulders India The Deputy Commissioner of Pvt. Ltd., Income Tax, v. No.3C, Phase-III, Company Circle - I(1), Thiru Vi.Ka. Industrial Estate, Chennai - 600 034. Reddy Street, Ekkaduthangal, Chennai - 600 097.

PAN : AAECA 8066 H (अपीलाथ*/Appellant) (+,यथ*/Respondent)

अपीलाथ* क- ओर से/Appellant by : Sh. Pramod Nangia, CIT +,यथ* क- ओर से/Respondent by : Sh. Philip George, Advocate

सन ु वाई क- तार ख/Date of Hearing : 13.01.2015 घोषणा क- तार ख/Date of Pronouncement: 25.02.2015

आदे श /O R D E R

PER V. DURGA RAO, JUDICIAL MEMBER:

This appeal filed by the Revenue is directed against the

order of the Commissioner of Income Tax (Appeals)-III, Chennai,

dated 20.02.2013 relevant to the assessment year 2009-10. 2 I.T.A. No. 1274/Mds/2013

2. Facts are in brief that the assessee is in the business of

manufacture and sale of plastic injection mouldings and plastic

tubing. The assessee filed its return of income declaring a total

income of ` 27,41,328/- on 30.09.2009. The return filed by the

assessee was initially process under Section 143(1) of the Income-

tax Act, 1961 (in short 'the Act'). Thereafter, the assessment was

completed under Section 143(3) of the Act and the A.O. has

disallowed the claim of the assessee under Section 80-IC of the Act

and also disallowed mould amortization charges. During the course

of assessment proceedings, the A.O. has observed that the

assessee has claimed deduction under Section 80-IC of the Act, for

the first time, to the tune of ` 5,44,39,211/-. The Form 10BBA filed

along with the return of income revealed that the assessee claimed

deduction under Section 80-IC of the Act for its unit at Haridwar and

the initial assessment year for which the deduction was claimed is

assessment year 2009-10. On examination of the details filed by

the assessee with regard to the allowability of its claim under

Section 80-IC of the Act and based on the facts and circumstances

of the case, the A.O. discussed the claim of deduction under

Section 80-IC of the Act as under:-

3 I.T.A. No. 1274/Mds/2013

(i) The assessment year 2009-10 is the first year for the Haridwar unit for which the assessee has claimed deduction under Section 80-IC of the Act.

(ii) For all these years, the assessee was doing business as only one unit at Chennai whereas this is the first year in which the assessee declare that the business activities were carried on from two units, one at Chenai and the other at Haridwar for which the deduction under Section 80-IC of the Act has been claimed.

(iii) on the analysis of the details for financial years 2005-06, 2006-07, 2007-08 and 2008-09 (which is extracted at page no.2 of the assessment order), the percentage of turnover in the Chennai unit got declined to the extent of 47.96% over that of the previous year figure which means that the assessee has shifted its business activity from Chennai unit to Haridwar unit.

(iv) The incremental increase in the sales also reveals the splitting up of its business activity from its erstwhile unit of Chennai to Haridwar unit.

(v) The total sales for the financial year 2007-08 was at 37.13 crore which was attributable to Chennai unit whereas for the financial year 2008-09, the total sales of ` 44.28 crore was attributable to both the units at Chennai & Haridwar. The total sales of ` 44.28 crore for the relevant period got split into ` 23.87 crore for Chennai unit (already existing) and ` 20.41 crore (new unit). It clearly indicates that the profits of Haridwar unit which is allegedly claimed as a new unit by the assessee is nothing but a split up of the assessee's business which is already in existence.

(vi) For Haridwar unit, the assessee had recorded a whopping net profit @ 26.41% on the turnover whereas it has recorded only a meager percentage of net profit @ 2.12% on the turnover for the Chennai unit for the relevant period, though the turnover of the Chennai and Haridwar units as reported by the assessee are almost equal. It is a clear indication that the assessee had shifted its expenditure to the Chennai unit and recorded a higher profit for the Haridwar unit so as to claim deduction under Section 80-IC of the Act.

(vii) For all these years including this relevant period, the assessee had business transactions mainly with Hindustan Unilever Ltd. for supply of plastic components. The assessee has also admitted the same. The assessee manufactures according to the specifications of Hindustan 4 I.T.A. No. 1274/Mds/2013

Unilever Ltd. There is no change in the customer made since the assessee manufactures plastic produced mainly to Hindustan Unilever Ltd.

With the above observation, the A.O. came to a conclusion that the

Haridwar unit is formed by splitting up of the business already in

existence and also in the process of shifting the business of

Chennai unit to Haridwar by way of reconstruction. It is apparent

that the assessee's case does not fulfill the conditions laid down in

Section 80-IC(4)(i) of the Act. Hence, the deduction claimed by the

assessee under Section 80-IC(4) was denied.

3. The assessee carried the matter in appeal before the Ld.

CIT(Appeals). Before the Ld. CIT(Appeals), the assessee filed the

details of the assets of Haridwar unit as under:-

Details of Asset Amount in ` 200 Kw Electrical Generator 12,52,160.00 Air Cool Compact Water Chiller Model - 20L 4,46,400.00 Air Cool Compact Water Chiller Model - 40L 5,81,541.00 b/f 22,80,101.00

Details of Asset Amount in ` c/f 22,80,101.00 Control Injection Moulding M/c E C280N 2-B 88,45,112.64 Fixed Asset - Building 4,32,71,138.42 Fixed Asset - Cooling Tower 93,337.50 Fixed Asset - Electrical Weighing Scale 39,375.00 Fixed Asset - Freight Elevator 8,65,200.00 Fixed Asset - Land 69,07,572.39 Fixed Asset - Machinery 42,50,106.00 5 I.T.A. No. 1274/Mds/2013

Fixed Asset - Power Transformer 11,64,375.00

Toshipa Machine Injection Moulding Machine 2,37,65,804.50 Grand Total 9,14,82,122.45

Based on the observation of the above details filed by the assessee,

the Ld. CIT(Appeals) allowed the claim of the assessee under

Section 80-IC(4) of the Act.

4. On being aggrieved by the order of the Ld. CIT(Appeals),

Revenue came in appeal before the Tribunal. The Ld. D.R. pointed

out that the details of the assets of Haridwar unit were not filed

before the A.O. and those details were filed only before the Ld.

CIT(Appeals). He further submitted that the details of the assets of

the assessee including all equipments and machineries are

necessary to be examined to allow the claim of the assessee under

Section 80-IC of the Act. Therefore, he requested that the matter

may be remanded back to the A.O.

5. On the other hand, the Ld.counsel for the assessee

submitted that the details were filed before the Ld. CIT(Appeals)

and he strongly supported the order of the Ld. CIT(Appeals).

6. We have heard both sides and perused the records and

gone through the orders of the authorities below. The assessee is

in the business of manufacture and sale of plastic injection 6 I.T.A. No. 1274/Mds/2013

mouldings and plastic tubing. The assessee is having two units one

at Chennai and the other is at Haridwar. The unit at Haridwar is a

new unit and the assessee is eligible to claim benefit under Section

80-IC(4) of the Act. The A.O., after examining the entire facts and

circumstances of the case, has come to a conclusion that the

assessee by splitting the Chennai unit, it has established the

Haridwar unit. Therefore, the assessee is not eligible under Section

80-IC(4) of the Act and for the reason that the net profit of Haridwar

unit is at 26.41% on the total turnover whereas the net profit of

Chennai unit is at 2.12% on the total turnover. We also find that the

assessee has not filed any details with regard to machineries,

equipments and assets in respect of newly established Haridwar

unit, before the A.O. These details were filed before the Ld.

CIT(Appeals). Under these circumstances, we are of the opinion

that all the details such as machineries, equipments and other

assets purchased/acquired by the assessee, including bills, in

respect of Haridwar unit established by the assessee have to be

produced before the A.O. The A.O. is directed to decide the issue

de novo.

7. In view of the above, we set aside the order passed by the

Ld. CIT(Appeals) and remit the matter back to the file of the A.O. for

fresh examination.

7 I.T.A. No. 1274/Mds/2013

8. Regarding the other issue raised by the Revenue pertaining

to disallowance of mould amortization charges, the A.O. has

observed that the assessee has debited a sum of ` 1,43,08,556/-

towards mould amortization charges in the Profit & Loss account

claiming it as revenue expenditure. It is seen from the details filed

by the assessee that these are nothing but lease rentals paid to M/s

Hindustan Level Ltd. (HLL) on the moulds. The A.O. asked the

assessee why this expenditure should not be treated as a capital

expenditure and only eligible depreciation shall be allowed. The

assessee has replied that the mould is being supplied by HLL and

the assessee to pay a fixed amount of money for every component

sold to them. The details filed by the assessee also reveal that the

assessee has not deducted any tax at source on the lease rentals

paid to HLL. Therefore, the A.O. is of the opinion that it attracts

provisions of Section 40(a)(ia) of the Act. Thus, on both the counts,

the above expenditure is disallowed and added back to the income

of the assessee.

9. Assessee carried the matter in appeal before the Ld.

CIT(Appeals). The assessee submitted before the Ld. CIT(Appeals)

that the charges were paid to M/s Hindustan Unilever Ltd. (HUL)

and other parties for mould or die provided by them. The mould 8 I.T.A. No. 1274/Mds/2013

cost has been included in the product cost and amortised after

taking CENVAT credit by the assessee. The assessee further

submitted that the moulds last for a limited time and therefore do not

provide any enduring benefit to the assessee. The fact that the

mould cost paid is being recovered from M/s HUL by way of cost

being included in the sale price makes it clear that the said

expenditure is not in the nature of capital expenditure. The Ld.

CIT(Appeals) held that the amount is paid towards cost of the

production and hence provisions of TDS are not applicable. Thus

the Ld. CIT(Appeals) allowed this ground raised by the assessee.

10. On being aggrieved, the Revenue is in appeal before the

Tribunal. Ld. D.R. submitted that the moulds have enduring benefit

since they are not consumed within a year. He also submitted that

the payment made to M/s HUL for the moulds supplied by it is in the

nature of lease rentals which attract the provisions of Section

40(a)(ia) of the Act.

11. On the other hand, the Ld.counsel for the assessee strongly

supported the order of the Ld. CIT(Appeals).

12. We have heard both sides and perused the records and

gone through the orders of the authorities below. We find that the 9 I.T.A. No. 1274/Mds/2013

Ld. CIT(Appeals) without discussing anything on the matter simply

allowed the ground raised by the assessee. Necessary document

like agreement between the assessee and M/s HUL and the life

time of the moulds provided by M/s HUL are required to be

examined to decide the issue. Therefore we set aside the order

passed by the Ld. CIT(Appeals) and remit the matter back to the file

of the A.O. to examine the agreement between the assessee and

M/s HUL and other details. The A.O. is directed to decide the issue

afresh after giving reasonable opportunity of being heard to the

assessee.

13. In the result, appeal filed by the Revenue is allowed for

statistical purposes.

Order pronounced on Wednesday the 25th of February, 2015

at Chennai.

Sd/- sd/- (ए. मोहन अलंकामणी) (वी. दग ु ा# राव) (A. Mohan Alankamony) (V. Durga Rao) लेखा सद य/Accountant Member या$यक सद य/Judicial Member

चे नई/Chennai, th =दनांक/Dated, the 25 February, 2015.

Kri. 10 I.T.A. No. 1274/Mds/2013

आदे श क- +$त?ल@प अAे@षत/Copy to: 1. अपीलाथ*/Appellant 2. +,यथ*/Respondent 3. आयकर आयुBत (अपील)/CIT(A)-III, Chennai 4. आयकर आयुBत/CIT, Chennai-I, Chennai 5. @वभागीय +$त$न ध/DR 6. गाड# फाईल/GF.