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2009 (8) TMI 1203 - ITAT DELHI

2009 (8) TMI 1203 - ITAT DELHI - TMI - ITA No. 674/Del/2009 - Dated:- 7-8-2009 - SHRI G.E. VEERABHADRAPPA, VICE PRESIDENT AND SHRI I.P. BANSAL, JUDICIAL MEMBER. Assessee by : Shri G.N. Gupta, Advocate Revenue by : Shri M.L. Meena, Sr.DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER: This is an appeal filed by the assessee. It is directed against the order of the CIT (A) dated 26th December, 2008 for assessment year 2004- 05. Grounds of appeal read as under:- 1. On the facts and in law, the order of the .....

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ation? 4. On the facts and in law, whether the Ld. CIT (A) exceeded is jurisdiction in going beyond the subject matter of the assessment, rendering his order illegal and liable to be set aside? 5. On the facts and in law, whether the Ld. CIT (A) was bound to follow the Hon ble ITAT order dated 19.10.07 passed in the appellant s own case in IT No.4530/Del/03 along with CO No.119(Del)/06 for A.Y. 2000-01 and ITA No.3283(Del)/04 & ITA No. 3901(Del)/04 for A.Y. 2001- 02, which had already decide .....

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appellant craves leave to add, amend, alter, substitute, delete or withdraw any of the grounds of appeal on or before the date of disposal of the appeal. 2. The assessee company is engaged in the business activity of manufacturing and sale of water coolers and various types of air conditioners - room, split and package air conditioners. It runs two factories to manufacture these items. One unit is situated at Faridabad and other at Mainthapal Indl. Area, Kala Amb, Nahan Distt., Sirmour (HP). Thi .....

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d copy of such audited accounts were also filed. As the manufactured articles in both the units were same, the assessee from its Faridabad unit had transferred the unfinished goods to Kala Amb unit amounting to ₹ 6,65,52,250/-. It was further noticed by the Assessing Officer that a sum of ₹ 2,76,76,415/- as excise duty paid by Faridabad unit was not considered to arrive at the value of stock transfer from Faridabad unit to Kala Amb unit. According to the Assessing Officer, excise dut .....

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from Faridabad unit to Kala Amb unit was transferred in the shape of transfer of raw material to the tune of ₹ 88,33,254/-. The relevant calculation of the Assessing Officer in the assessment order are reproduced below:- Total sales of Faridabad unit 19,47,41,042 Excise duty 2,76,76,415 Sales net of excise duty 16,70,64,627 Stock transferred to Kala Amb unit (net of excise duty 6,65,52,250 - 23,36,16,877 Excise duty in respect of stock transferred to Kala Amb Unit 6,65,52,250 x 2,76,76,41 .....

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ished ₹ 31081188/- c) Director s remuneration ₹ 654550/- d) Staff welfare ₹ 79505/- f) Repairs & Maintenance charges (vehicles) ₹ 1168025/- Total (A) ₹ 57858105/- Raw materials Consumed in Faridabad (B) ₹ 147057380/- Total overheads percentage = A/B = 39.34% 9. The assessee has taken factory overhead @ 17% and other overhead @ 22% and added to the direct material cost to work out the total material cost as against the total overhead of 39.34% as worked out .....

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ss : Profit transferred to Kala Amb Unit ₹ 8833254/- 3. In this manner the Assessing Officer reduced the deduction claimed by the assessee in respect of Kala Amb unit u/s 80-IC. Aggrieved, the assessee filed an appeal before the Ld. CIT (A). The remand report from the Assessing Officer was also called for. Reference was made to earlier decision of ITAT to contend that adjustment made by the Assessing Officer could not be made in the light of the decision of ITAT in the case of assessee for .....

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Officer aware of the shortcomings in the order and he may choose to correct or overcome such shortcomings in future proceedings. Therefore, he observed that the order of ITAT in earlier years is not to be completely followed. It is in this manner the Ld. CIT (A) has dealt with such contention of the assessee. In para 5.8 Ld. CIT (A) observed that even the method suggested by Addl. CIT in his remand report is not correct because expenses under a few heads cannot be allocated to different unit wi .....

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how that the assessee has been claiming higher profit in the exempted unit and thereby the Ld. CIT (A) has enhanced the addition to a sum of ₹ 95,00,347/- ignoring the ITAT decision in the case of assessee for earlier years and by making his own calculations. It is against these findings of Ld. CIT (A) the assessee is aggrieved, hence, in appeal. 4. After narrating the facts, it was vehemently pleaded by Ld. AR that so as it relates to adjustment of profit made on account of excise duty re .....

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book. It was pleaded that it is against all principles of judicial propriety that Ld. CIT (A) has ignored the said decision of ITAT and has proceeded to decide the issue on his own. It was contended that whatever adjustment was required to be made, it was made by the assessee itself. The assessee has been making uniform allocation of expenses and the said computation of the assessee has been accepted by ITAT. It was pleaded that the method adopted by the Ld. CIT (A) regarding net profit concept .....

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over basis was the correct method and the Ld. CIT (A) was wrong in adopting the net profit method to hold that profits of Faridabad units were transferred to Kala Amb unit in the shape of low price transfer of unfinished goods. It was pleaded that the dispute, if any, could be in respect of direct remuneration, staff welfare and repair and maintenance charges, etc. of vehicles as so far as it relates to excise duty ld. Assessing Officer has accepted that the said adjustment could not be made. Th .....

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the addition of ₹ 95,00,347/- on this issue and his order should be upheld. 6. We have carefully considered the rival submissions in the light of the material placed on record. Copy of the remand report submitted by the Assessing Officer is placed at page 83 to 86 of the paper book. In para 2 the Assessing Officer has mentioned that adjustments regarding excise duty was made as assessee could not explain the basis of allocation of excise duty during the course of assessment proceedings. As .....

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to account by Ld. CIT (A) for holding that excess profit was shown by the assessee in its Kala Amb unit to claim higher deduction. It may be mentioned here that this issue is not a virgin issue as similar type of additions were being made by the department to the income of the assessee in earlier years also i.e., Assessment Year 2000- 2001 and 2001-02. The assessee has been following consistent method of transferring the semi finished goods from its Faridabad unit to Kala Amb unit and no discrep .....

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. The said addition was deleted by the CIT(A) whose order has been confirmed by ITAT and it will be relevant to reproduce the observations of the Tribunal on that issue: - 3. Ground no. 2 is to the effect that the learned CIT(A) erred in deleting the addition of ₹ 7,27,311/- made on account of excess profit shifted from Himachal Pradesh unit to Faridabad unit. In this connection, it is mentioned in the assessment order that Himachal Pradesh unit is eligible for 100% deduction of its profit .....

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oks of account had been maintained for the units, which had also been audited. Thus, there was nothing wrong either with the method of accounting employed for maintaining the books of account or in respect of debiting expenditure of respective units in their accounts. The learned CIT(A) came to the conclusion that the A.O. nowhere pointed out any discrepancy in the books of account or the method of accounting, which has been used consistently from year to year. The books have been maintained in .....

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ion which the material consumed carries to the stock received on transfer from Faridabad unit. In view thereof, ₹ 7,27,311/- were reduced from the profits of Himachal Pradesh unit and this amount were taken as profits of Faridabad unit. 3.2 In reply, the learned counsel explained that the assessee had transferred goods of the value of ₹ 1,25,46,983/- from Faridabad unit to Himachal Pradesh unit. It was explained to the A.O. that the products manufactured by the assessee are subject t .....

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ddition to the semi-finished goods made at Himachal Pradesh unit was ₹ 56,10,060/- although the unit incurred expenditure of ₹ 94,982/- only. Thus, the ratio of expenditure to net sales was 0.425% in Himachal Pradesh unit while such ratios were 11.30% and 9.20% in units I and II respectively at Faridabad. In the light of these facts, he came to the conclusion that the profit of Himachal Pradesh unit was to be reduced by an amount of ₹ 7,27,311/- and that of Faridabad unit had t .....

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it to Himachal Pradesh unit after carrying out the costing and the goods were transferred on cost plus 15% basis, which was consistent with Rule 8 of the Excise Rules. The learned CIT(A) specifically mentioned that no calculation was given regarding the reduction of profits of Himachal Pradesh unit by ₹ 7,27,311/- and that no defect was pointed out either in the books of account or the system of accounting employed by the assessee. Therefore, he rejected the finding of the Assessing Office .....

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al Pradesh unit at arm s length principle by employing cost plus 15% basis, as provided in rule 8 of the Central Excise Rules, which is nothing but fair market value of the goods transferred by Faridabad unit to Himachal Pradesh unit. Reliance was placed on the order of Hon'ble ITAT, Delhi Bench B , in the case of National Thermal Power Corporation Ltd. Vs.Addl. CIT, (2004) 91 ITD 101, in which it was pointed out that the provisions of sections 80-IA(8) and 80-IA(9) could be applied if it wa .....

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n future for such gas, but the price of such gas on the date of transfer in the open market was nil. Therefore, no adjustment could be made to the profits under the aforesaid provision. On the basis of this case, it was argued that the Assessing Officer did not bring any evidence on record to show that goods were transferred at less than fair market value. 3.3 We have considered the facts of the case and rival submissions. We find that the Assessing Officer has not stated his case properly in re .....

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this year. However, after doing so, he has not drawn any calculation as to how the profits were reduced by an amount of ₹ 7,27,311/-. The case of the learned counsel is that the goods were transferred at cost plus 15% basis, which is in consonance with rule 8 of Central Excise Rules. Since Faridabad unit is subject to levy of excise-duty on production of its goods, the transfer of goods at cost plus 15% was at reasonable price. In fact, the net profit ratio of Faridabad unit was 6.78% and .....

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r of the CIT(A) in this matter. Thus, ground no. 2 is dismissed. 8. When a plea was taken before CIT(A) that addition was not warranted for the reason that in earlier year CIT(A) has deleted the addition and the said order of CIT(A) has been confirmed by ITAT, the CIT(A) has discussed this plea in para 3.3 of the impugned order and the observations of ld. CIT(A) are reproduced for the sake of convenience: - 3.3. Now I come to the argument that this issue is covered by earlier appeal decisions of .....

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e in those years was deleted no such disallowance can be made in subsequent years. This deletion of some addition by higher judicial authority may rather make the A.O. aware of shortcomings in the order and he may choose to correct or overcome such shortcomings in future proceedings. In fact this has been clearly mentioned by the ITAT in first line of para 3.3 on page 19. Te issue was regarding cost of transferred goods. The ITT mentioned that A.O. has not made out proper case in respect of redu .....

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and if more and proper facts are gathered in a different year, obviously a different working of allocation of expenses can be justified. It may be mentioned that the issue under consideration is not a pure legal issue which, once decided by a higher judicial forum cannot be deviated by lower authorities. This is an issue of facts and actually only of mathematical working of correct working of Kala Amb unit. The relevant facts i.e., quantum & ratios of expenses, their specific purpose etc. a .....

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atio of profit of both the units and finally concluded that the profit of Kala Amb Unit was abnormally high as compared to Faridabd unit with an intention to claim higher deduction. It was explained by the assessee that the reason for more profit in Kala Amb profit are firstly; depreciation of Faridabd unit is more because of large number of heavy machineries and depreciation in respect of Kala Amb unit is less. Secondly; the rate of electricity in Faridabad is more as compared to rate of electr .....

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/- was raised for Faridabad unit. Sixthly; repair and maintenance charges of Faridabad units were higher at ₹ 25,25,795/- as compared to Kala Amb unit which are 6,63,224/-. Referring to these reasons of low profit in Faridabad unit it was submitted that various letters were filed during the course of assessment proceedings in which the detailed explanations were given regarding lower net profit in Faridabad unit and the same may also be referred. It was submitted that duly audited separate .....

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such submission of the assessee and he observed that there were certain other expenses just like annual maintenance charges, research and development facilities etc. which were not taken into account while computing the income and these expenses were debited only to Faridabad unit. Ld. CIT(A) has arrived at a conclusion that exceptionally higher profit was shown by the assessee in Kala Amb unit just to claim higher deduction. He observed that exact calculation could be made only if verification .....

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t and it is observed by him that the net profit which has been shown by the assessee in respect of Kala Amb unit @ 15.97% as against net profit rate of 0.78% of Faridabd, the net profit rate of Kala amb unit is higher by 5%. It is observed by him that combined net profit rate of both the units comes to 7.93%. Thus, he observed that it will be quite reasonable if the net profit rate of Kala Amb unit is taken at 10% which is higher than the net profit rate of the company. He observed that turnover .....

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₹ 1,59,02,474/-). This addition has been made on account of transfer of expenses from Faridabad unit to Kala Amb unit. Ld. CIT(A) further observed that this addition is made instead of sustained addition of ₹ 9,51,012/- as out of total addition made by the AO at a sum of ₹ 88,33,254/-, addition of ₹ 78,82,242/- made on account of excise duty has already been deleted by him. It is further observed that the reduced profit of Kala Amb unit after making such addition is still .....

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