2014 (6) TMI 910

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ing both the parties we find that the assessee is a proprietor of two business concerns namely M/s B.M. Packaging, Mohali and M/s B.M. Machines, Baddi. The assessee has claimed the income from M/s B.M. Machines, Baddi as exempt under the provisions of section 80IC of the Act. During assessment proceedings the Assessing Officer asked the assessee to produce supporting documentary evidence to justify the claim of deduction u/s 80IC. These documents were duly submitted. The assessee was further asked to file comparative chart in respect of expenses claimed, gross receipts, purchases and net profit etc. The assessee in response filed following chart: Particular Head M/s B.M. Packaging Mohali M/s B.M. Machines Baddi Sales 33621732 15355926 Other Income 351309 7508 Purchase & Consumables 26936764 4989773 Opening Stock 2617570 0 Closing Stock 3888510 15850 Expenses     Freight & Cartage, Labour, Toll Tax  41063 122928 E.S.I 27092   Job Work/Labour 974169 323354 Wages & Salaries 864924 619828 Electricity & Water 10293 142667 Staff Welfare 36512 99684 P....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....its are different, hence the machines made at the both these units are not comparative, and this will also responsible for the variation in the Gross Profit Rates and Net Profit Rates of the B.M. Packaging, Mohali and B.M. Machines, Baddi. As the technologies of B.M. Machines, Baddi is much improved and latest as comparative to B.M. Packaging, Mohali, hence the costing at B.M. Machines, Baddi is less than as comparative to B.M. Machines, Baddi is less than as comparative to B.M. Packaging , Mohali which is also one of the reason for the variation in the Gross Profit Rates and Net Profit Rates. As regards, the variation of expenses of the B.M. Packaging, Mohali and B.M. Machines, Baddi, the main reasons for such variation is the period of operation of such units. As the B.M. Machines, Baddi has started in the F.Y. 2009-10 only, and in such financial year, the unit was in operation for three months only, while the B.M. Packaging, Mohali was in operation for the full year. Hence, the expenses for the three months in the case of the B.M. Machines, Baddi cannot be comparing with the expenses for the full financial year in the case of the B.M. Packaging, Mohali." 4. Both thes....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....tes only for three months in a year it is understandable that it may incur les expenses as compared to a unit which operates for the whole year. However, it is not possible for a unit which operates for three months in a year to have a net profit which is four times more than the net profit of the unit which operates for a whole year. If a unit operates for three months in a year its expenses can be less than the unit operating throughout the year, but than the same would then also held true in the case of its production and sales. Hence, this contention of the assessee is also devoid of merits and can not be accepted as working for only three months in a year does in no way increase the productivity and efficiency of a unit. 5. The Assessing Officer also observed that Baddi unit was new where new machinery has been installed and therefore in the in the initial years the expenses would be more. Moreover unit was away from other places of business, therefore even the administrative expenses are little more. She also observed that units in the hilly area require more expenses due to lack of proper infrastructure, difficult terrain and lack of availability of skilled workers. Howev....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....s seen that the Assessing Officer has made the reallocation in respect of the exempt and non-exempt units in the ratio of the sales declared in the respective units. The Ld. Counsel has argued that reallocation in respect of purchases cannot be made and I am entirely in agreement with the argument of the Ld. Counsel, since most of the purchases in respect of both the units are made from the same sources (it has been duly mentioned by Assessing Officer herself in para 10(iii) of the assessment order) and the Assessing Officer has not pointed out any discrepancy in the purchase bills or even in the sale bills. The profits and gains of the eligible business for the purposes of deduction u/s 80IC can be recomputed as provided in section 80IC(7) read with section 80IA(10) of the Act. This means that reallocation of purchases between exempt and non-exempt unit cannot be done except as provided in section 80IA(10) of the Act and certainly not without pointing out specific discrepancy in this regard. Hence, it is held that the addition of Rs. 50,19,196/- on account of reallocation of purchases has wrongly been made by the Assessing Officer and the addition made on this account is deleted. ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....f an eligible unit, then the Assessing Officer has the power to compute the profits of eligible unit on reasonable basis. Admittedly, in the case before us, the purchases are made from the common sources. Some of the customers are also common. The products manufactured by the assessee are also common. Even majority of the expenditure is also common and in fact the assessee has already conceded before the Ld. CIT(A) that expenses were not properly allocated and has accepted the reallocation of expenditure. In addition to these facts, the assessee has shown net profit rate of 12.66% on sales of Rs. 3.36 crores in Mohali unit whereas on turn over of Rs. 1.53 crores, the net profit is 57.95% at Baddi unit which is very high. During the course of hearing, we had asked the assessee to file copy of the invoices to find out if the products were of so called better technology were sold at a higher price and sale invoices for both the units were field on 22.5.2014. 13. The Assessing Officer in para 9 analyzed the reasons again before him for higher profits at Baddi units. The first point mentioned is that according to Assessing Officer, the Mohali unit had machinery of about Rs. 55,15,306....