Tribunal grants appeal, allows Section 80IB deduction.

The Tribunal allowed the assessee's appeal, directing the AO to permit the deduction under Section 80IB as claimed. The Tribunal found that the rejection of books of accounts and allocation of profits were not justified, emphasizing that the AO did not formally reject the books under Section 145 of the Act. Additionally, the Tribunal dismissed allegations of manipulation of raw material data and profit diversion, highlighting that the assessee provided reasonable explanations. The delay in pronouncing the order was excused due to the Covid-19 pandemic.

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Issues Involved:
1. Restriction of deduction under Section 80IB of the Income Tax Act.
2. Rejection of books of accounts.
3. Alleged manipulation of raw material data.
4. Allocation of profits between taxable and non-taxable units.

Issue-wise Detailed Analysis:

1. Restriction of Deduction under Section 80IB:
The primary issue in this appeal is the restriction of the deduction under Section 80IB of the Income Tax Act to Rs. 5,90,33,441/- as opposed to Rs. 8,88,99,369/- claimed by the assessee. The assessee argued that the Assessing Officer (AO) did not reject the books of account under Section 145 of the Act before making the estimation of profit and disallowance of deduction, which is contrary to the provisions of law. The AO had previously accepted the profits and losses of the units in earlier years under similar facts, and there was no finding that the profit/loss shown was manipulated or non-genuine. The Tribunal found merit in the assessee's contentions and directed the AO to allow the deduction under Section 80IB as claimed by the assessee.

2. Rejection of Books of Accounts:
The assessee contended that the AO presumed the books of accounts were rejected merely on account of a show cause notice, without a clear finding in the assessment order. The CIT(A) confirmed the AO's action, suggesting that the AO examined and rejected the books based on various discrepancies. However, the Tribunal noted that the AO did not formally reject the books of account under Section 145 of the Act, and thus the consequent estimation of profit and resultant addition was not sustainable.

3. Alleged Manipulation of Raw Material Data:
The AO alleged that the assessee was manipulating raw material data, citing discrepancies in raw material costs and findings from a search. The assessee argued that no material was found during the search to prove manipulation and that each unit manufactured distinct products, making raw material consumption comparisons unfounded. The Tribunal found that the assessee provided sufficient explanations and evidence to counter the AO's allegations, and the AO's reliance on suspicion and conjecture was not justified.

4. Allocation of Profits Between Taxable and Non-Taxable Units:
The AO held that trading profits were shifted to tax-free units, requiring disallowance of losses to that extent. The CIT(A) supported the AO's view, citing various reasons such as raw material to sale price ratio and abnormal variations in raw material costs. However, the Tribunal found that the assessee sufficiently explained the reduction in gross profit due to increased excise duty and the shift of manufacturing to self-manufacturing units at Jammu. The Tribunal concluded that the reduction in gross profit was due to business expediency and commercial considerations, not profit diversion.

Conclusion:
The Tribunal set aside the order of CIT(A) and directed the AO to allow the deduction under Section 80IB as claimed by the assessee. The Tribunal also addressed the procedural issue regarding the delay in pronouncement of the order, extending the period due to the extraordinary circumstances of the Covid-19 pandemic. The appeal of the assessee was allowed, and the order was pronounced in the open court on 6th August 2020.

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