2017 (2) TMI 1008 - AT - Income Tax

Tribunal orders fresh consideration of Revenue's appeals, directing proper verification of facts and evidence

ITO, Vapi Ward-1/2, Vapi Versus M/s. Honey (India) Corporation

ITO, Vapi Ward-1/2, Vapi Versus M/s. Honey (India) Corporation - TMI Issues Involved:1. Deletion of disallowance of deduction under Section 80IB.2. Allowance of deduction under Section 80IB on disallowance under Section 40(a)(ia).Issue-wise Detailed Analysis:1. Deletion of Disallowance of Deduction under Section 80IB:The Revenue appealed against the deletion of disallowance of deduction under Section 80IB for the assessment years (AY) 2005-06, 2006-07, and 2007-08 for two group concerns. The Assessing Officer (AO) had disallowed the deduction on the grounds that the assessees did not carry out any manufacturing activity at the claimed premises. During a survey conducted on 17.03.2006, it was observed that only Division-II was operational, and no activities were conducted at Division-I. The AO found that the assessees did not employ the requisite number of workers and were merely preparing sales vouchers without actual production. The AO also noted discrepancies in the commencement date of manufacturing operations as certified by the Chartered Accountant (CA) and the actual operations, leading to the conclusion that no manufacturing activity was conducted.The assessees contended that the factory was closed during the survey due to the Holi festival and provided documentary evidence, including electricity bills and wage registers, to support their claim of manufacturing activities. The CIT(A) allowed the deduction, stating that the records clearly established manufacturing activities and that the AO’s proposal to disallow profits based on average working was incorrect. The CIT(A) also noted that the payment of excise duty corroborated the manufacturing activities.The Revenue argued that the CA’s certification of the commencement date was inconsistent and that the CIT(A) did not verify the change in the commencement date. The Revenue also contended that the survey evidence and impounded materials indicated no manufacturing activities and that the payment of excise duty did not conclusively prove manufacturing by the assessees.The Tribunal observed that the audit report/Form No. 10CCB issued by the CA was unsigned and undated, and there was no corroborative evidence of the commencement date. The Tribunal noted that the facts were not properly verified and set aside the appeals to the CIT(A) for fresh consideration after verifying the relevant facts and survey materials.2. Allowance of Deduction under Section 80IB on Disallowance under Section 40(a)(ia):The Revenue also appealed against the CIT(A)’s direction to allow deduction under Section 80IB on the disallowance under Section 40(a)(ia) for non-deduction of TDS. The AO had disallowed the payments made to M/s. Honey Paper Tube (HPT) for job work, arguing that the assessees did not deduct TDS, indicating that the transactions were not genuine. The CIT(A) allowed the deduction, stating that the disallowance would result in an enhancement of manufacturing and business profits, which would still be eligible for deduction under Section 80IB.The Revenue argued that the non-deduction of TDS indicated that the assessees were not engaged in genuine manufacturing activities and that the disallowance was rightly made. The Tribunal, noting that the facts were inter-connected with the allowability of deduction under Section 80IB, set aside the appeals to the CIT(A) for fresh consideration along with the main issue of deduction under Section 80IB.Conclusion:The Tribunal set aside all the Revenue’s appeals to the CIT(A) for fresh consideration after verifying the relevant facts, survey materials, and statements. The Tribunal directed the CIT(A) to decide the issues afresh, considering the proper verification of facts and evidence. All the Revenue’s appeals were allowed for statistical purposes.