TaxTMI 
TaxTMI 
2015 (5) TMI 364
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....y plausible reason for arriving at such finding when the assessing officer has clearly brought in the assessment order that the sister concern of the assessee firm as made an arrangement in such a manner that it has produced more than ordinary profits to the assessee than might be expected to arise." 2. The brief facts of the case, as reproduced at pages 1 to 12 of AO's order, are reproduced hereinbelow: "In this case return of income declaring net taxable income of Rs. 63,63,100/- was e-filed by the assessee on 29.09.2009. the case was selected for scrutiny under CASS and accordingly notice under section 143(2) dated 30.08.2010 was issued and served upon the assessee by the Deputy Commissioner of Income tax. Circle-1, Jammu. Notice u/s 142(1) of the Income Tax Act.1061, alongwith a detailed questionnaire was issued to the assessee on 07.02.2011 by him and the case was fixed for 14.02.2011. Thereafter, the case was assigned to the undersigned by the Joint Commissioner of Income Tax, Range-1, Jammu vide letter no. 695 dated 11.10.2011, placed on record. Accordingly, a fresh notice u/s 142(1) of the I.T. Act, 1961 was issued to the assessee on 15.11.2011 fixing the case for....
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....heee Unit' no new Industrial Undertaking came into existence. This fact is proved by the following facts and evidences on record. i) The Industries department registered the unit way back in the year 1985 vide registration no. 07/04/02565/PMT/SSI. Therefore, approval for additional activity was given for manufacture of vanaspati ghee and refined oils. No new registration in respect of the additional lines was given to the assessee as a separate industrial undertaking and it continued to be registered under the same registration given in the year 1985. Thus, the unit of the assessee came into existence in the year 1985. The initial assessment year in the case of the assessee thus was AY 1996-97. ii) The unit was registered by the Sales tax/Commercial tax Authorities vide certificate dated 17.5.1984. It still continues to be registered under the same certificate. No new CST/GST/TIN No. was allotted in respect of the additional line of activity (Vanaspati Unit), referred to above. It is pertinent to mention that the sales in respect of 'Oil Unit' and 'Vanaspati Unit' have been conducted under the same TIN. Thus, the Commercial tax Authorities also recognize b....
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....mu stated in its proposal that the then Assessing Officer while finalizing the assessment in the case, allowed deduction @ 100% u/s 80-IB of the I.T Act, 1961 claimed by the assessee. It is seen that the assessee has been running 'oil unit' and manufacture of mustard oil under DIC Registration No.07/04/02565/PMT/SSI dated 14.05.1985. Further, it has taken additional line of activity for manufacturing of 'refined vegetable oils' and 'vanaspati ghee' from DIC, Jammu vide letter Nos. 2769- IND/4347 dated 19.05.2004 and 2354/IND/7443 dated 24.02.2003 respectively which it has shown as additional lines of activities under a separate unit 'vanaspati ghee' and claimed deduction u/s 80-IB of the I.T. Act, 1961 on the net profit of Rs. 1,53,23,659/- earned from this unit. Thus, it appears that the assessee have carried out only the expansion of the existing unit by installing additional machinery and has not established any new industrial undertaking which would entitle it to deduction @ 100% u/s 80IB of the I.T. Act, 1961." 2.8. The worthy CIT after considering the objection of the assessee held as under: "The above explanation of the assessee has been....
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....orrect appreciation of the facts. In fact the income from refined vegetable oil is not reflected separately but is reflected in the Vanaspati Unit itself. The assessee has not claimed deduction u/s 80IB of the I.T.Act,1961. In respect of new unit as newly established undertaking but clubbed its income with the income of old unit. The income of both the units has been clubbed but the deduction has been claimed only in respect of 'Vanaspati Unit'. Both the units shall be entitled to claim 100% deduction u/s 80IB of the I.T. Act for the remaining tow years and thereafter deductions u/s 80IB shall be available @ 25% in respect of both units. Even the, assessee has not claimed deduction in respect of the old unit it has claimed deduction in respect of the Vanapati Unit only which is the so called new unit. 2.10. Thus, while passing the above order the Worthy CIT has not taken into consideration the fact that the Unit was established in the year 1985 and the additional lines taken in the year 2003 and 2004 were only an extension of the unit already in existence by virtue of which the assessee was not entitled for any deduction u/s 80IB of the I.T. Act,....
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....-10 following facts were observed that M/s J.K. Oil Industries Trading Wing had made major purchases including that of the packing material mainly from its sister concerns. Almost all of these concerns were claiming deduction u/s 80IB of the I.T. Act,1961. Further perusal of the books of accounts revealed that the firm had allowed a huge discount and rebate of Rs. 40,52,044/- to its customers. It was seen that the discount was around 61% of the total gross profit from trading. This was appreciated to be quite abnormal. In fact, if discount was also taken into consideration for determination of the gross profit, the ratio vis-à-vis sales would only be a meager 0.27% which in any case was quite low keeping in view the line of trade of the firm. Further, it was also noticed that no such discount was passed on by the trading wing to the sister concern of M/s J.K. Oil Trading Wing. During the year out of total sale of Rs. 59,08,25,904/- sales of Rs. 57,09,07,249/- which is 96.63% of total sales had been made to this concern. No discount offered by the Trading Wing had been passed on to the assessee. Accordingly, vide notice u/s 142(1) dated 21.12.2012, the assessee was asked to e....
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....lear that income derived by M/s J.K. Oil Industries is quite reasonable and accordingly 25% deduction u/s 80IB of the I.T Act,1961 is rightly claimed so provisions claimed u/s 80IA(10) read with 80IB (13) of the I.T.Act,1961 do not apply. Since M/s J.K. Oil Industries have sold the goods at reasonable market rates and have not derived income more income be selling the goods. So far, the point raised by your goodself in respect of discount given by M/s J.K. Oil Industries Trading Wing is concerned, it is a trade practice of the firm M/s J.K. Oil Industries Trading Wing to attract more and more customers in order to boost the sales in a competitive system and get the earlier system of payments." 3.3 The explanation of the Ld. Counsel for the assessee has been considered. He has stated that out of purchases of 93 crores, the sister concern of the assessee has made sales of Rs. 57 cores to it. The balance purchase by the sister concern has been made from other parties. It will be worthwhile to have a look at the purchases made by the M/s J.K. Oil Industries Trading Wing whose case is also assessed with undersigned:- S. No. Name of sister concern Total sales (Rs) Sales....
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....URCHASE AND DESPATCH OF FIVE TRUCKS Rs. 55000/- ON PURCHASE AND DESATCH OF SEVEN TRUCKS Rs. 84000/- ON PURCHASE AND DESPATCH OF EIGHT TRUCKS Rs. 104000/- ON PURCHASE AND DESPTACH OF TEN TRUCKS Rs. 150000/- TERMS AND CONDITION: 1. EACH TRUCK WEIGHT IS 16 MT OF JUMBO AND TAJ MAHAL MUSTARD OIL ONLY 2. ONLY PURCHAE AND DESPTACH MAE BETWEEN 19/2/09 TO 31/03/09 IS VALID. 3. IF DELIVERY IS NOT TAKEN IN THIS PERIOD I.E.BY 31ST MARCH THEN QUANTITY WILL NOT BE INCLUDED THIS SCHEME BY ANY WAY. 3.6 It will be noted that the advertisement clearly states that the discounts are being offered by the Manufacturers of JUMBO and TAJ MAHAL Mustard Oil. The manufacturers of the above brands of Mustard Oil is the assessee and not M/s J.K. Oil Industries Trading Wing. Thus, again own advertisement of the assessee, it is amply clear that the discounts were offered by the Manufacturers and not M/s J.K. Oil Industries Trading Wing. However, in order to benefit the assessee and also avoid payment of tax, M/s J.K Oil Industries Trading Wing did not pass on the benefit of discount to the assessee but debited it in its own books of accounts. This is nothing but a colorable devise used by....
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....ertain the belief that it is honorable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges" 3.8. Keeping in view the above facts, it is clear that M/s J.K. Oil Industries Trading Wing has not deliberately passed on the discounts to the assessee in order to lessen it tax liability and to benefit the assessee. Therefore, in view of the above legal pronouncements and the provisions of section 80IA(10) r.w. sec. 80IB (13) of the I.T. Act.1961 such an arrangement has produced more than ordinary profits to the assessee than might be expected to arise. Therefore, an amount of Rs. 7,13,634/- being 0.5% of 25% of sales made by the assessee to its sister concern M/s J.K. Oil Industries Trading Wing is considered to be such profit and the deduction on this amount is disallowed. Since, the entire amount of discount offered by M/s J.K. Oil Industries Trading Wing has been disallowed in its case, this addition is being made on protective basis so that the interest of revenue is protected. In addition in the case of the assessee, the entire deduction u/s 80IB of the I.T. Act, 1961 has been....
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....axes) and also having one power connection. The first unit was setup in 1985, second unit setup in 2002 and the third unit was setup in 2004. The respondent has claimed deduction u/s 80IB for II & III unit which were (Clubbed) whereas first unit was not eligible for 80IB deduction as it has completed 10 years. So the unit of Vanaspati Gheee and Refined Oil are formed by new plant and machinery and operating independently as industrial under taking. The respondent made fresh capital investment for installation of these new units. iv. That this identical issue has been settled by the Hon'ble ITAT Bench, Amritsar in Fill Industries Ltd. in para 11.1. of the order which reads as under: "11.1 After reading statutory provision as contained in section 80IB(1), 80IB(2) & 80IB(4) of the Act, we find that provisions do not provide in any way separate registration or maintenance of separate records for claiming deduction u/s80IB of the Act. The requirement under section 80IB (1), 80IB(2) and 80IB(4) is that profit must derive from an industries undertaking. It was held in the case of Textile Machinery Corporation Ltd. 107 ITR 195 (SC) that the new industrial undertaking must be a ne....
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....d when unit-2 was set up in assessment year 2000-01, no such proceedings were initiated and the proceedings for the assessment year 2001-01 had attained finality, through it cannot be reopened on period of limitation as argued by the ld. Counsel for the assessee under section 149 of the Act. As regards the principles laid down by the various courts of law, the issue is with regard to formation of industrial undertaking has been examined in the initial assessment year and once the claim has been allowed especially under assessment u/s 143(3), the same cannot be denied in the succeeding assessment year without first recording of any adverse finding of the year of formation. There is no citation referred by the ld. Counsel for the revenue to take a different view on the matter. Accordingly, we uphold the claim of the assessee u/s 80IB of the Act, which is in accordance with law." vii. As per para 14 of the order which reads as under: "The judgment relied upon by the Ld. Counsel for the Revenue have no application to the facts of the present assessee's case. In view of findings hereinabove, denial of deduction under section 80IB of the Act amounting to Rs. 7,01,56,903/- is de....
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....ate and independent industrial undertakings and it was the case of extension of business of Unit-1 for which deduction u/s 80IB of the Act is not available being eleventh year of operation u/s 80IB of the Act. The AO observed that the assessee is having three industrial undertakings at a common place having common statutory registration from Excise Department, Sales Tax Deptt., Pollution Deptt. etc. and are having common record. The assessee is having one power connection and all the purchase and sale invoices are in the name of the assessee and not in the name of separate Unit-2 & Unit-3. Having heard the parties and perusal of records, the dispute before us, when the assessee is having maintained common record of Excise Duty, Sales Tax, Service tax and having common registration and no separate permission from Pollution Department, having common electricity connection can be a basis to deny deduction u/s 80IB of the Act. As per reading of the provisions of section 80IB(1), 80IB(2) and 80IB(4) jointly, it shows that where gross total income of the assessee includes any profits and gains derived from any industrial undertaking in Jammu & Kashmir, the assessee shall be eligible to d....
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....dras High Court, in the case of CIT vs. Premier Cotton mills Ltd. 240 ITR 434 (Mad) that a single legal entity may own and operate more than one industrial undertaking and the fact of common ownership does not render undertakings which are otherwise capable of being separate into a common undertaking. What is of relevance is the existence of all the facilities including factory buildings, plant, machinery godowns and things which are incidental to the carrying on of manufacture or production, all of which are capable of being regarded as an industrial undertaking. When an existing industrial undertaking is substantially expanded and the manner of such expansion is such that the newly installed plant, machinery and other facilities such as factory buildings, godowns etc; when taken together are capable of being regarded as industrial undertaking, the requirements of the section are met. The fact that the industrial undertaking so established by way of substantial expansion is at a location which is adjacent to the existing undertaking would not in any way render such an undertaking any the less a new undertaking for the purpose of determining its eligibility under section 80J of the....
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....ee's submission that it has treated each undertaking as separate and independent in its accounts. It is also not the case of the department that any of the negative tests laid down in section 80-I(2) is attracted in the case before us. It was held that findings recorded as also the order passed by him and consequently ground taken by the department, was dismissed. 11.5. In the case of CIT vs. Quality Steel Tubes Pvt. Ltd. 280 ITR 254 (All), it was held that a new project was set up but no separate profit & loss account prepared. According to the AO, the common use of the two projects of the land, building, splitting machine, galvanized plant, threading machine, store room, workshop, generating set and factory office proved that it was a case of splitting up of the old business. On the aforesaid fact, merely because some of the facilities were common that would not mean reconstruction or splitting up. 12 From the reading of the decisions of various courts of law mentioned hereinabove, we are of the view that expansion of an industrial undertaking is not a bar for claim of deduction u/s 80IB of the Act. The same product or same location, common procurement, manufacturing an....
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.... exhibit for sale or distribute any insecticide. The application not been made by any industrial undertaking per se in fact, sub-rule(2) of Rule 9 is provides, if an insecticide is proposed to be manufactured at more than one place, separate applications shall be made and separate licenses shall be issued in respect of every such place. In the instant case, the manufacturing is being done by the three separate undertakings at the same place i.e. within the same compound and is not a case where insecticide is manufactured at more than one places and as such, one common license has been obtained by the assessee company. In view of the above, it is obvious that no separate registration is required to the assessee company." 7. From the decision of ITAT, Amritsar Bench in the case of FIL Industries Ltd., (supra), we find that the FIL Industries Ltd., (supra), was having three industrial units having common statutory registration from DIC, Jammu, Excise Department, Sales Tax Department, Pollution Control Department and also having one power connection. The first unit was established in the year 1995 and unit-II was set up in 1999 by constructing new building, machinery and plant and t....