TaxTMI 
TaxTMI 
2012 (12) TMI 1086
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.... (a) that no evidence of movement of paper from Punjab to H.P. and of printed material/books from Himachal Pradesh and other states was provided by the assessee. (b) that the printed material was sold not from the assessee's premises but from that of MBD Enterprises Pvt. Ltd. (c) that though printing the NCERT books should cost 56% more than MBD books, the assessee had charged the reverse ratio of rate and that the assessee was inflating its sale price charged from its sister concerns. (d) that the lamination did not affect the cost of books significantly. (e) that in the absence of quantitative records, that low expenses indicated low expenses indicated low production and inflation of sale price. (f) that merely because the assessee had claimed to have employed a large number of workers and had incurred large expenses on electricity, freight and fuel/oil did not imply that the assessee had undertaken production activity to such a magnitude that there was sales/turnover of Rs. 17.19 crore. 2. The appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard ....
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....ion @ 100% of profit u/s 80IC of the Act ignoring the facts that the assessee did not have sufficient infrastructure and man power to manufacture the entire products on its own and getting it done as job work as is evident from the order of A.O. as also from the seized material. 2. The appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off. 3. It is prayed that the order of the CIT(A) be set-aside and that of the AO be restored." 7. The Revenue in ITA No.534(Asr)/2011 for the A.Y. 2009-10 has raised following grounds of appeal: "1. That the Ld. CIT(A) has erred both in law and on facts in allowing deduction @ 100% of profit u/s 80IC of the Act ignoring the facts that the assessee did not have sufficient infrastructure and man power to manufacture the entire products on its own and getting it done as job work as is evident from the order of A.O. as also from the seized material. 2. The appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off. 3. It is prayed that the order of the CIT(A) be set-aside and that of the AO be restor....
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.... the group and as a result thereof, the assessments u/s 153/143(3) were completed, wherein the A.O. allowed the deduction in respect of manufacturing process at the rate of 20% on ad-hoc basis and against a claim of Rs. 8,33,87,323/-, the deduction u/s 80IC was allowed to the tune of Rs. 1,65,30,534/-. Similarly for other years, on the same basis the deduction was allowed @ 20% from the assessment years 2005-06, 2006-07 to 2009-2010. The assessee filed an appeal before the CIT(A)-1, Ludhiana, who in a detailed order, allowed the deduction u/s 80IC and the department has filed an appeal before the ITAT in ITA No.507(Asr)/2011 for the same assessment year. 9.2. He further stated that for the assessment year 2005-06, the deduction u/s 80IC was allowed substantially in the order u/s 143(3) but it was disallowed on the sale of "Raddi" to the tune of Rs. 11,53,923/- and on printing got done from outside to the tune of Rs. 1,17,180/-. Thus, in this year, it was accepted as a matter of fact that the assessee was engaged in the manufacturing/publishing and printing of books at Village Gagret and for that purpose, a certificate on prescribed form from the Distt. Industries Centre, Una was....
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....ears 2005-06 to 2009- 2010. Thus, the whole basis of disallowance of deduction is against the facts and circumstances of the case. 9.3. The Ld. counsel for the assessee, Sh. Sudhir Sehgal submitted that in ITA No.27/Asr/2011 for the assessment year 2006-07 (regular assessment), on merits, the ld. CIT(A) has discussed the facts relating to disallowance u/s 80-IC made by the AO from para 2.1 to 2.10 of the order for the assessment year 2006-07 and which issue has been highlighted in the grounds of appeal alongwith another ground of appeal which have been taken vide letter dated 18.08.2010 by the department. In the additional ground of appeal, which is sought to be taken, it is submitted that the same cannot be allowed, since that has not been taken earlier and no reasons have been given for not taking this ground of appeal earlier. The grounds of appeal may be legal ground of appeal, but there has to be reason that why it could not be taken earlier and therefore, it was requested that the same could not be permitted to be taken. However, if the Bench decides to admit the above said ground of appeal, then it has to be decided that, how, the AO can judge the manufacturing activit....
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....ice Publication i. The work done for these two parties was just Rs. 9,60,500/- which constitutes just 0.5% of the total turnover and such material was never confronted to the assessee. ii. Even substantial evidences were filed for the movement of the paper from Jalandhar to factory at Gagret and evidences of Barrier receipts were submitted as per page-7 of the order of CIT(A) and enclosed the paper book at pages 100 to 195 and no doubt raised by the A.O. in the remand report or at the time of assessment. iii. The information obtained from Punjab School Education Board clearly stated that the supply of paper was made at Gagret and no adverse inference is drawn. The AO has indicated that there are no delivery challans and it is submitted that even if the delivery challans are not there, there is a documentary evidence of movement of paper to Gagret Unit and printing material and section 145 does not require, delivery challans and these are not part of the books of accounts and, therefore, the books of accounts cannot be rejected u/s 145(3) on this issue for which section does not provide. ....
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....80IC and has highlighted the issue as per order of the CIT(A) at page 11 and 12. Our reply in detail of each and every issue is recorded in para 5.1 page 12 to para 5.27 page 18. 9.5 The Ld. counsel for the assessee submitted that in the said reply, the Assessing Officer has not been able to controvert in the remand report, which has been reproduced at pages 19 to 21. He submitted that assessee's reply to the remand report is at pages 21 to 23 read with comparative chart to point the discrepancy as per comparison made by the AO, which clearly shows that higher charges from the sister concerns are taken only because of double size of books, number of coloured pages, lamination and size of the books. Reliance may be made to pages 23 to 24 of the order of the CIT(A). He further submitted that the Assessing Officer has not been able to rebut the same as per his 2nd remand report at pages 24 to 25 of the order of the CIT(A). It was submitted that the finding of the CIT (A) starts form Para 4 page 26 and he has dealt with each and every issue starting from Para 6 Page 27 and relevant finding starts from para 6.3 onwards and the same is being relied upon. 9.....
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.... held on the similar facts and circumstances that when State Industries department had verified the activities of the manufacturing carried out by the assessee and, as such, lower electricity expenses cannot be a ground for rejection or otherwise a valid claim u/s 801A. 9.9. As regards the additional ground of appeal, it was submitted that how the AO can justify the manufacturing activity to the extent of sale ignoring the documentary evidences of Industries department, number of workers found during the course of search/survey operations, movement of goods from Jalandhar to Gagret, Barrier receipts and ad-hoc disallowance of 80% against 3.15% earlier made and full deduction u/s. 801C already given in Assessment Year 2005-06 contradicts the stand of the A.O. The Ld. counsel for the assessee submitted that there are many judgments including the Jurisdictional High Court that 80IA is allowable on job work also and which has been approved in assessee's own case in assessment year 2005- 6. He further placed reliance on the following judgments of various courts of law: i) Shiva Exports vs. ITO 28 SOT (Chd-Trib) 512 ii) ACIT vs. New Era Machineries (P) Ltd. 119 TT....
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.... the Act. Even 139 employees were found during the course of survey operation on 22.01.2009 at the factory premises and manufacturing activity was witnessed by the Income Tax department. He further submitted that the ld. CIT(A) has dealt with the issues raised by the AO during the course of survey operations, which have been mentioned at page 39 and 40 and it has been held that the AO has drawn a incorrect conclusion on the basis of statement of the employees and rather in appeal for the same year, it has been stated that only very negligible percentage of job work was done from sister concern and rather this supports the case of the assesse. The same fact have been stated by the ld. CIT(A) at page 40 para (f) and it is being relied upon that on the basis of register seized during the course of search from Jalandhar, the observation of the AO that substantial work was being done at Jalandhar is factually incorrect and even during assessment proceedings, no adverse view has been taken. 10.2. The Ld. counsel for the assessee further submitted that the ld. CIT(A) has also held the Gagret Unit indicated stock of 724 Reels as compared to 1173 Reels at Focal Point, Jalandhar and this ....
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.... even Annexure A-21 contains the detail for the month of January, 2009 where no work was done for the assessee by the MBD Enterprises. This is also inconformity with the records that are being maintained both at Gagret and Jalandhar. Similarly, with regard to Annexure A-19 and others it is absolutely clear that the AO has drawn wrong conclusion and which facts are easily explainable and as such the findings of the ld. CIT(A) deserves to be upheld. 10.4. The Ld. counsel for the assessee stated that the ld. CIT(A) has also dealt with at page 48 of his order that there is no basis for estimating the adhoc estimation of profit of industrial undertaking and if there is no basis of restricting the same to 20% in A.Y. 2009-10, then it cannot be applicable to every year starting from A.Ys. 2005-06 to 2008-09. He further submitted that there is no machinery belonging to the assessee at Jalandhar and only on the basis of doubt and suspicion, the deduction u/s 80IC has been curtailed and it is a settled law that doubt or suspicion, howsoever, strong it may be, cannot take the shape of evidence. Reliance is placed on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT vs.....
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....nt of paper from Punjab to H.P. and of printed material/books from H.P. and other states was provided by the assessee. The AO also noticed that the assessee had got binding work of books done at Jalandhar itself through local book binder M/s. Vaneet Book Binding House, which showed, as per AO that the assessee had not dispatched books from Gagret, rather she held that the assessee had dispatched printed and unbound material from H.P. to Punjab, against without any delivery challan. The assessee failed to provide the delivery challans for supply of paper for printing and binding done through others, though bills were produced. The AO noted that assessee's sister concern M/s. MBD Enterprises Pvt. Ltd; had done some printing at Jalandhar for the assessee, but since the material/paper never traveled to or from Gagret; the AO held that the printed material was not sold from assessee's premises but from that of MBD Enterprises (P) Ltd. 11.1. The AO also compared the rates charged by the assessee for printing books from outside parties and from its sister concerns for the same subjects and class and noted that the rates charged from the sister concern was 2 to 3 times and in one case, ....
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....ed for the MBD Group. The AO noted that the quality of paper supplied by Mikado Offset Printer was superior to the paper supplied by MBD. The information in respect of NCERT books was obtained by the AO from the purchase order placed by NCERT and its tender documents and that for MBD books were based on the books purchased from the market. The AO could not verify the order size for MBD groups in the absence of stock register. Ultimately, the AO came to the conclusion that though printing the NCERT books should cost 56% more than MBD books, the assessee had charged the reverse ratio of rate and that the assessee was inflating its sale price charged from its sister concerns. 11.3. The AO also compared the rate of printing charged for Punjab State Education Board text books and for MBD guide books for physical education and found the rate charged to MBD 9 times the price charged to PSEB for same number of pages, size and colour. It was also held by the AO that lamination did not affect the cost of books significantly. The rates of printing and for sale of the same book were also compared by the AO and found printing rate at Rs. 35.23 per book as against Rs. 41.00 for sale of each b....
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....) Ltd. and held that they were similar as discussed in para 20 & 22 of the assessment order. The AO compared the benefit accruing to the assessee on account of electricity and wage rate difference at Gagret for which benefit was given to the assessee in the revised computation of income u/s 80IA(1). He AO by applying the net profit ratio of MBD Enterprises (P) Ltd and giving the aforesaid benefit, the total income eligible for deduction u/s 80IC was recomputed to Rs. 31,78,771/- as against Rs. 8,33,87,323/- claimed in the return of income. 12. Before the Ld. CIT(A), the assessee filed the exhaustive paper book containing documents submitted before the AO alongwith photographs of the industrial unit and the written submissions which are available at Ld. CIT(A)'s order at pages 5 to 8. Before the ld. CIT(A), the assessee submitted an application for admission of additional evidence alongwith certain documents with regard to the fact that survey action u/s 133A of the Act was carried out on 22.01.2009 and during such action attendance register was found which indicated that more than 130 employees were physically present and working in the unit. This evidence supports the case of t....
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....thority, as held by the Hon'ble Supreme Court in the case of Tin Box Co. vs. CIT 249 ITR 216. The AO did not comment upon the specific submissions of the assessee on various counts on the comparison of the books. The assessee has pointed out specific instances showing that the nature of books compared were different, the number of pages including those in colour were different, and in some case even the number of pages of books mentioned in the assessment order were different. The AO has not pointed out any defect in the explanation of the assessee or has not brought on record that such contention of the assessee was wrong. The AO's report dated 12.05.2009 admitting that assessee was not confronted with the relevant material and therefore principles of natural justice had been violated in as much as the comparison done in paras 13, 13.1 and 14 which were confronted to the assessee. These comparisons were also based partly on material collected by the AO behind the assessee's back, as per para 13(i) of assessment order. The Ld. CIT(A) further observed that the AO collected certain information from some of the assessee's creditors regarding rates of printing of some books and comp....
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....no ground to invoke the provisions of section 80IA(10) of the Act. Unless it is found that the higher than ordinary profits have arisen due to close connection between the assessee and the other persons by arranging the affairs so as to achieve this aim, section 80IA(10) cannot be invoked. The finding that the rates of the transactions between the assessee and the sister concerns were at rates similar to those charged to the outsiders can only lead to a conclusion that the transactions with sister concerns were at arms length prices. It was also observed that the AO has only picked out instances of printing charges charged from sister concerns to point out inflation of sale prices and income of the assesse. Not a single instance of inflation of sale price of books has been pointed out by the AO. The AO has contended that the low over all cost indicated higher overall sales and profits but the AO has not given any instance how that higher than normal sale price was charged from sister concerns for sale of books or that any arrangement was made for charging of higher sale price than normal for the books. From the order of the AO especially in para 13.1 and various instances of inflat....
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....s of Rs. 8.02 crores. Ultimately, the ld. CIT(A) vide para 9 of his order held that AO has failed to satisfy necessary condition to invoke the provisions of section 80IA(1o) of the Act and the disallowance of deduction u/s 80IC r.w.s 80IA(10) made by invoking such provision was directed accordingly to be deleted. 16. As regards the appeals relating to assessment made u/s 153C for the assessment years 2005-06 to 2009-2010, the facts are that a search was conducted by the Investigation Wing of the Income Tax Department in the MBD Groups of cases and also surveys were conducted at the business premises of the assessee's group. On the basis of incriminating documents, the assessment was completed in all the years, as above said and profits were considered to be related to manufacturing process @ 20%. The Ld. CIT(A) after considering the explanation of the assessee was of the view that the AO has not brought on record any evidence to show that the assessee has got work done by the sister concern in excess of what is recorded in the books of account. It has also not been proved that the charges for work done by the sister concern is in any way lower than the market rates so as to boos....
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....Act, on manufacturing, publishing, printing of books, sale of Raddi and printing got done from outside. The assessee was allowed deduction u/s 80IC of the Act by the Income Tax Department in the first year being initial year in which the assessee began to manufacture or production of the articles mentioned hereinabove. It was stated by the ld. counsel for the assessee, Sh. Sudhir Sehgal that the matter has attained finality since the Revenue has not preferred any appeal before the Hon'ble Punjab & Haryana High Court. The Ld. DR has not controverted this fact. 17.3. A search operation was carried out on the assessee on 22.01.2009. The matter for assessment years 2005-06 to 2008-09 were subject matter of assessment under section 153A to 153C under Chapter XIV of the Act alongwith regular assessment for the assessment year 2009-2010 under section 143(3) of the Act. The issue in all these appeals for the assessment years 2005-06 to 2008-09 and 2009-2010 is identical. The issue in the said appeals is that the assessee claimed deduction u/s 80-IC of the Act @ 100% of the profits and gains of the relevant years but the AO in all the years allowed 20% deduction as against 100% of the pr....
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....lowed by the ITAT, Chandigarh Bench in the case of Shiva Exports vs. ITO reported in 28 SOT 512. The decision of ITAT, Chandigarh Bench in the case of Shiva Exports (supra) has been placed on record. The proposition by the ITAT, Chandigarh Bench, after considering the decisions of theHon'ble Gujrat High Court in the case of Saurashtra Cement & Chemicals Industries Ltd. vs. CIT (supra) and Hon'ble Mumbai High Court in the case of CIT vs. Paul Brothers (supra) is that where in the first year the deduction u/s 80IA has been allowed and the same cannot be disturbed in the subsequent year. Therefore, in the initial assessment year i.e. 2005-06, the department has accepted deduction claimed @ 100% u/s 80IC, which decision has attained finality, as mentioned hereinabove. Therefore, the Income-tax department cannot change the stand in the subsequent year or for the said assessment year u/s 153A or u/s 143(3) of the Act. Therefore, the ld. CIT(A) has rightly allowed deduction @ 100% u/s 80IC and we do not find any infirmity in the order of the ld. CIT(A) for the assessment years 2005-06 to 2009-2010 in all the present appeals before us and in view of the decision of the ITAT, Chandigarh Ben....
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....4,12,42,381/- as on 31.03.2005 had risen to Rs. 8,33,04,711/- as on 31.03.2009 which is based as per audited books of account filed before Income Tax Department and which fact is not disputed. No discrepancy in the books of account has been pointed out by the authorities below and each and every purchase has been backed by the vouchers and there is evidence in the shape of GRs and delivery challans for finished products of Gagret which is duly authenticated on the border of Punjab & Himachal Pradesh and this documentary evidence has been admitted by the AO and simply copies were placed in the paper book before us at pages 101 to 110. We also find that the ld. CIT(A) has dealt at length the issue of inflation of sale price from para 6 to 6.6 and also given opportunity to the AO to rebut the comparative chart of the books got printed by the assesse and the books printed for Punjab School Education Board and the AO in his remand report dated 12.05.2009 which has been reproduced from pages 18 to 21 has not been able to make detailed submissions on the factual aspect of the case and rather at page 19 asked the ld. CIT(A) to verify the claim made by the assessee. Regarding electricity ch....