1 ITA NO. 4872.DEL.2009
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `C' NEW DELHI
BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER
AND
SMT SUCHITRA KAMBLE, JUDICIAL MEMBER
I.T.A .No.-4872/Del/2009
(ASSESSMENT YEAR-2003-04)
H-One India (P) Ltd. vs ACIT
12, Udyog Vihar Noida Circle
Greater Noida Noida
Uttar Pradesh (Respondent)
AAACH3032L
(APPELLANT)
Appellant by Ms D.D. Bansal, CA
Respondent by Ms. Anima Barnwal, Sr. DR
Date of Hearing 20.10.2015
Date of Pronouncement
13.10.2015
ORDER
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order dated 13/10/2009
passed by Ld. CIT(A)'s Ghaziabad for the Assessment Year 2003-04.
2. The grounds of appeal are as follows:-
"1. For the Assessing Officer erred in facts as well as in law in not
allowing expenditure of Rs.63,51,928/- on the account of Dies
Manufacturing Expenses.
2. For the Assessing Officer erred in disallowing Rs.3,00,317/- paid as
cess to Indian Government under R & D Cess Act, 1986, which is a
statutory as well as contractual liability of the company.
3. For that the Ld. Assessing Officer erred in not allowing the trimming
loss below 1% (process loss) during cutting of steel from coil to blank
2 ITA NO. 4872.DEL.2009
size. During the year such loss was 5.447 MT out of 541.83 MT
Steel processed at cutting centre.
3. The assessee Company is engaged in manufacturing of sheet metal
through pressed, welded penal and sub-assemblies parts for auto mobiles and
other equipments design, manufacturing of mobile forming, dies, welding jigs
and inspection fixture. The Hongo Company Limited, Japan was having 95%
share holding in the assessee company and Siel Limited, New Delhi at 5%.
During the year under consideration, the assessee showed the sales operating
income at Rs. 56,19,73,199/-, other income of Rs.1,05,385/- as against of
Rs.51,90,18,622/- and Rs. 1,02,418/- respectively of previous year. Against
which, the assessee claim total expenditure of Rs.49,99,82,082/- and disclosed
book profit of Rs.7,44,71,164/- as against Rs.4,50,28,230/- after claiming
expenditure of Rs.47,57,88,017/- for the previous year.
4. Ground No. 1, the assessee received the purchase order for supply of
dies for Rs.2,00,00,000/- from Honda Siel Cars India Ltd out of which 3 dies
were manufactured by the assessee company in the order of other dies were
given to outside party. The said order was further increased by Rs.34,61,000/-
. The copy of the purchase order was filed by the assessee to the Assessing
Officer. The dies manufactured by the company were not supplied in the
relevant year, but in the next year. The assessee submitted before the
Assessing Officer that according to the sale price, the value of the dies was
taken at Rs.46,31,000/-, though the total expenses for making the dies in the
Financial Year 2002-03 where of Rs.1,07,01,674/- which included the
supervision fee cost of Rs.56,60,991/-. The dies were to be supplied in 67
parts out of which, the company made in house 3 most critical parts dies and
other small parts dies were developed outside the assessee's office as stated by
the assessee. The assessee submitted before the Assessing Officer that the
supervision fee should not be included in the cost of die making and closing
stock of in house made dies as the supervisors sent by the parent company
3 ITA NO. 4872.DEL.2009
had also worked on the dies as demanded by Honda Siel Cars India Ltd. and
submitted that the value of the closing stock be taken as declared by it. The
Assessing Officer has not accepted the explanation given by the assessee
because the expenses related to the manufacturing of the dies which were sold
in the subsequent year/next year i.e. in the month of September 2003 and
there was no single die rather it included 67 parts. Therefore, the total cost
was considered as the part of the closing stock for dies. Accordingly the closing
stock was taken at Rs.1,07,01,674/- and interest of 46,31,000/-. Hence, the
Assessing Officer made addition of Rs.60,70,674/-along with the payment of
Rs.2,81,254/- as R & D Cess with R & D Cess Department against dies
manufacture expenses which has not been included in the cost worked out by
the assessee at Rs.1,07,01,674/-. Thus, the Assessing Officer made addition
of 63,51,928/-.
4. The Ld. CIT(A) has upheld the order of the Assessing Officer .
5. The AR submitted that finding given by the Assessing Officer as well as.
CIT(A) are not proper, as the loss were in respect of the supervision fee and
supervision cost was Rs.56,60,991/-. The AR further submitted that the R & D
Cess is a foreign Cess and the same cannot be included in the
income/expenses of the assessee. The AR submitted that all the relevant
purchase orders were submitted before the Assessing Officer as well before the
Ld. CIT(A).
6. The DR relied upon the Assessing Officer as well as CIT(A)'s order and
stated that contract with Honda Siel India Ltd. did not in any way made any
terms as relating to bifurcation to in house manufacturing and out sourcing
manufacturing. Therefore, the assessee cannot take the plea that the in house
manufacturing is a separate from outside manufacturing.
7. We have perused all the relevant material and documents on record. We
have heard both the parties. It is clearly stated that in the assessment order
that the manufacturing of the dies was sold in the next year and there was no
4 ITA NO. 4872.DEL.2009
mention of single die. Rather, the entire 67 were taking into account by the
assessee as well as by the Assessing Officer and Ld. CIT(A). The assessee got
order from Honda Siel Cars India Ltd. for supply of dies, which was stated to be
comprised 67 parts and dies were supplied by the assessee to Honda Siel Cars
India Ltd. in subsequent assessment year. During the year, assessee has
shown the value of closing stock of these dies at Rs. 46,31,000/- while the
Assessing Officer mentioned that the total expenses for manufacturing of these
dies amounted to Rs.1,09,82,928/-. The contention of the AR that only three
dies were manufactured by the assessee and for the rest, the manufacturing
was outsourced, will not change the accounting of the same manufactured by
outside die makers and will eventually go into the stock of the assessee only.
Thus, the assessee was not able to establish that there was separate purchase
orders for the three dies and the rest of 64 dies which was outsourced. In fact,
the said outsourced dies along with the 3 dies manufactured by the assessee
was in entirety supplied to Honda Siel Cars India Limited only, on future date.
Therefore, we uphold the finding of the Ld. CIT (A) as well as the Assessing
Officer.
8. In result, Ground No. 1 is dismissed.
9. As regards to Ground No. 2 the assessee claimed the cess to the Central
Government against the Royalty paid/payable to the parent company of
Rs.3,00,317/-. As per letter dated 05.11.1997, the approval granted by the
Government was of 3% of Royalty to be paid to the parent company by the
assessee. The assessee submitted that subject to tax means the TDS deducted
from the royalty for which the certificate is issued to the concern company and
they claimed the benefit thereof in their Income Tax Return. The assessee
further submitted that the cess claimed by them was paid to the Central
Government against the royalty payable to the parent company. The Assessing
Officer held that the submission of the assessee as regards to the TDS
deducted from the royalty is different from R & D Cess and the same cannot be
deductable from royalty. This was not accepted by the A.O and A.O disallowed
5 ITA NO. 4872.DEL.2009
Rs. 3,00,317/-. The CIT(A) held that the Government has granted approval
for payment of royalty subject to taxes. The taxes means of taxes and,
therefore, not restricted to TDS only. The CIT (A) upheld the orders of the
Assessing Officer.
10. The AR submitted that the said findings are not in accordance with law,
as cess to the Central Government against the royalty cannot be treated as a
revenue expenditure. The AR further submitted that the Assessing Officer as
well as the CIT(A) has ignored this fact hence the orders of the Assessing
Officer and CIT(A) was not according to the approval of the Central
Government.
11. The DR relied upon the order of the Assessing Officer as well as the Ld.
CIT(A).
12. We have perused all the relevant material and documents on record. We
have heard both the parties. We have noticed from the records that the
government has granted approval for payment of royalty subject to taxes and
hence the taxes does not restrict only to TDS only. The Government approval
for payment of royalty though was subject to TDS it includes R & D Cess as
well. Therefore, disallowance of the R&D Cess paid/payable against royalty to
the extent of Rs.3,00,317/- was wrongly made by the Assessing Officer and
also overlooked by the CIT(A). Thus, the contention of the Assessee is
sustained.
13. In result Ground No. 2 is allowed.
14. In respect of Ground No. 3, the assessee imported the iron sheet from
Honda Trading Limited, Japan in the coil form weighing 541.830 MT, which
was sent to Mahendra Steel Service Centre, Pune for cutting in the blank size.
They after cutting the same, transferred the goods to the assessee company.
The goods so transferred were short by 5.447 MT, which was treated by the
assessee as trimming allowance i.e. loss of material in process. The assessee
6 ITA NO. 4872.DEL.2009
submitted before the Assessing Officer that the said material has not been
received by the assessee so far, therefore, neither it was the part of the
assessee stock nor it can be considered as sale of scrap. It was further
submitted that short of the stock was demanded from M/s. Mahendra Steel
Service Centre, who has neither adjusted in the account nor remitted the short
material and accordingly, the same was treated as trimming allowance by the
assessee.
15. The submission of the assessee was not accepted by the Assessing
Officer. The Assessing Officer held that it has simply tried to cover up the
shortage by making the submission. Accordingly, the shortage of the stock of
5.441 Mt by taking an average value of Rs.30/- per kg. was inclusive of custom
duty, which comes to Rs.1,63,410/- and the same was added to the income of
the assessee by the Assessing Officer. The CIT(A) upheld the order of the
Assessing Officer.
16 The AR submitted that the short fall of 5.447 MT is on account of the
process loss, which comes approximately 1% and the same was borne by the
assessee and the said loss was allowable under business expenditure.
17. The DR submitted that the Assessing Officer as well as Ld. CIT(A) has
correctly decided the same and there is a decision of Jurisdictional High Court
in case of CIT vs. Citi Financial Consumer Fin. Ltd. [2012] 20 taxmann.com
452 (Delhi)
18. We have gone through the records and heard both the parties. The
record show that the assessee imported the iron sheet from Honda Trading
Limited, Japan in the coil form weighing 541.830 MT, which was sent to
Mahendra Steel Service Centre, Pune for cutting in the blank size. They after
cutting the same, transferred the goods to the assessee company. The goods so
transferred were short by 5.447 MT, which was treated by the assessee as
trimming allowance i.e. loss of material in process. The short fall of 5.447 MT is
on account of the process loss, which comes approximately 1% and the same
7 ITA NO. 4872.DEL.2009
was borne by the assessee and the said loss was allowable under business
expenditure. Therefore, the addition made by the Assessing Officer to the
extent of Rs.1,63,410/- was not proper and the CIT(A) has also not given a
correct finding.
19. In result, Ground No. 3 is allowed.
20. Accordingly, the appeal of the assessee is partly allowed.
The order is pronounced in the open court on 13th of November, 2015.
Sd/- Sd/-
(R.S. SYAL) (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 13/11/2015
R. Naheed*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
Date
1. Draft dictated on 20.10.2015 PS
2. Draft placed before author 21.10.2015 PS
3. Draft proposed & placed before .10.2015 JM/AM
the second member
8 ITA NO. 4872.DEL.2009
4. Draft discussed/approved by JM/AM
Second Member.
5. Approved Draft comes to the 09.11.2015 PS/PS
Sr.PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk PS
13.10.2015
8. Date on which file goes to the AR
9. Date on which file goes to the
Head Clerk.
10. Date of dispatch of Order.
|
