TaxTMI 
TaxTMI 
2016 (11) TMI 252
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....arges and these penal charges never fall within the ambit of section 37 of the I.T. Act, 1961. 3. That the learned CIT (A) has erred in law and on facts in allowing the deduction u/s 80IB resulting in deletion of Rs. 5, 97,794/-, without appreciating the fact that as per provisions of sub clause-(ii) of section 80IB(2) 'Industrial undertaking should not be formed by the transfer to a new business of machinery or plant previously used for any purpose'. The assessee was running the industrial undertaking under a proprietor ship which was converted into partnership on 1.4.2004, resulting in transfer of plant & machinery previously used. 4. That the learned CIT (A) has erred in law and on facts in deleting the trading addition of Rs. 15,69,58,867/- without considering the facts put forth by the AO in the assessment order. In the remand report, the issue was not answered on merit 5. That the learned CIT (A) has erred in law and on facts in accepting the submission that M/s Dixon Technologies (India) Pvt. Ltd.(Dixon) had been awarded contract for supply of 9,00,000 colour televisions(CTVs) and out of said contract appellant was sub- contracted 4.70 lakh CTVs, w....
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....espect of the items of Rs. 40,08,683/- and thus the assessee had suppressed the value of the closing stock to the tune of Rs. 40,08,683/-, accordingly, he made addition to the returned income of the assessee. Before learned Commissioner of Income-tax (Appeals), the assessee contended that all the items referred by the Assessing Officer were duly accounted for in the closing stock declared by the assessee. The assessee furnished additional evidences in this respect which were forwarded by the learned Commissioner of Income- tax( Appeals) to the Assessing Officer. The Assessing Officer after taking into account the additional evidences, sent remand report to the learned Commissioner of Income-tax (Appeals), in which he admitted that the assessee's contention was appeared to be correct. After taking into account the remand report of the Assessing Officer as well as analyzing submission of the assessee, the learned Commissioner of Income-tax (Appeals) deleted the addition. 3.1 Before us, the learned Commissioner of Income Tax (Departmental Representative) relied on the findings of the Assessing Officer and stated that addition was made by the Assessing Officer after making due....
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.... of stock of Jammu Unit had not been taken into account by the Assessing Officer at the time of assessment proceedings. We find that in remand proceedings, the Assessing Officer himself has analysed the submission of the assessee and satisfied himself that the items worth Rs. 48,08,683/, under reference, were appearing in the closing stock. In our opinion, once the Assessing Officer has himself admitted that there was no understatement of the stock and accordingly on the basis of his comments, the learned Commissioner of Income-tax (Appeals) has allowed relief to the assessee and then subsequently filing further appeal on the same issue is not justified unless any discrepancy or intentional misreporting of facts by the Assessing Officer in remand report is observed. In our opinion, the findings of the learned Commissioner of Income-tax (Appeals) on the issue in dispute is well reasoned, and no interference on our part is required, accordingly, we confirm the finding of the learned Commissioner of Income-tax (Appeals) on the issue in dispute . The ground of the Revenue is dismissed. 4. The ground No. 2 relates to deletion of addition of Rs. 1,01,762/- under the head 'Detention an....
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....a Pvt. Ltd. on account of Prisma Electronics, included a sum of Rs. 1,000/- paid towards one day detention charges. Similarly, bill no. 1349 dated 01.05.2007 for Rs. 8,700/- raised by M/s. Pal Road Carriers upon Dixon Technologies India Pvt. Ltd. on account of Prisma Electronics, included a sum of Rs. 5,000 paid towards one day detention charges." 4.5 The complete detail of the expenditure under reference including invoices raised by the parties were forwarded to the Assessing Officer, who did not dispute the expenses were in violation of the statutory acts or laws and therefore not allowable under section 37 of the Act. 4.6 The learned Commissioner of Income-tax (Appeals) has given his finding on the issue in dispute as in under: "5.2.6. After careful consideration of all the facts on record and rival submissions as contained in assessment order and in appellant's submission, my observations/conclusions in respect of Ground of appeal No.4 , are as under:- On this issue also the appellant has brought on record a copy of invoices raised in respect of "Detention and demurrage charges". The same has been verified by the A.O. and the A.O. has not made any ....
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.... the transfer to a new business of machinery plant previously used for any purpose. 5.1 Before the learned Commissioner of Income-tax(Appeals) the assessee furnished the additional evidences in support of the claim that it satisfied both the conditions. It was explained by the assessee that Labourers were hired through labour contractor and Provident Fund (PF) and Employees State Insurance(ESI) in respect of those labourers were paid by the assessee, which were sufficient proof in support of employing 10 or more workers. In respect of second condition, the assessee submitted that deduction under section 80IB was disallowed in earlier years on this ground but the Tribunal in assessment year 2005-06 and 2006-07 has allowed the issue in favour of the assessee. 5.2 The learned Commissioner of Income-tax (Appeals) forwarded the submission and additional evidences of the assessee to the Assessing Officer and after considering the remand report, and submission and rejoinder of the assessee, the learned Commissioner of Income-tax (Appeals) deleted the disallowance of deduction under section 80IB of the Act. 5.3 Before us, the Revenue has challenged the disallowance only on the sec....
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.... justified in dismissing the appeals of the revenue holding that the assessee was entitled for deduction under Section 80-IB of the Act and was not hit by the provisions of Section 80-IB(2)(i) of the Act. The Tribunal was also justified in holding that upon conversion of the proprietorship concern to a partnership concern there was no transfer of plant and machinery to the partnership firm, inasmuch as there was a transfer of the industrial undertaking as a whole along with its assets and liabilities. Consequently, for the reasons stated aforesaid, all the appeals fail and are dismissed. The questions of law as indicated aforesaid are answered accordingly." 5.7 Thus respectfully, following the finding of the Hon'ble jurisdictional High Court, we uphold the finding of the learned Commissioner of Income-tax (Appeals) on the issue in dispute. The ground of the appeal is dismissed. 6. The grounds No. 4, 5 and 6 of the appeal are related to the issue of rejection of books of accounts and estimating gross profit which led to addition of Rs. 15,69,58,867/- by the Assessing Officer. This addition has been deleted by the learned Commissioner of Income-tax (Appeals). ....
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....rred to the addition of closing stock, and disallowance of deduction under section 80IB of the Act and held that he was not satisfied with the correctness and completeness of the accounts maintained with assessee and accordingly rejected the book results of the assessee and estimated gross profit rate of 20% on the turnover declared by the assessee, which resulted into addition of Rs. 15,69,58,867/-. 6.1 Before the learned Commissioner of Income-tax (Appeals), the assessee made a detailed submission explaining that there was no fall in gross profit rate during the year under consideration as compared to the immediately preceding year. The submission of the assessee had been reproduced by the learned Commissioner of Income-tax (Appeals) in the impugned order. The assessee explained that in the immediately preceding year, out of the total turnover of Rs. 1,01,88,242/- the amount of Rs. 96,59,400/- was towards job work charges, whereas in the year under consideration job work charges constitutes very small amount and major amount out of turnover of Rs. 86,47,15,391/- were sales and, therefore, no comparison of results of year under consideration could have been ma....
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....k' basis only, whereunder the appellant received Rs. 95 per set as conversion/ labour charges. Copy of ledger account maintained by the appellant in respect of job work carried out for Dixon for AY 2007-08 has been submitted in submissions dated November 22, 2010, attached herewith at pages 26 to 109 (@63 to 73) of the Paper book-I. On perusal of the aforesaid, it will kindly be appreciated that in the assessment year 2007-08, the appellant received job charges of Rs. 96.59,400, out cf total receipts of Rs. 1,01,88,242 of the Noida Unit. During the relevant previous year, the appellant manufactured 4,70,581 CTV's on subcontract basis, which were sold to Dixon. The appellant sold CTV's to Dixon at a price of Rs. 2,000-2,200 approx per CTV (depending upon the model), which was fixed in such a manner that after removing the cost of raw material and other direct manufacturing cost, the appellant was left with the agreed margin of Rs. 95 per set, as was earned when the appellant manufactured television sets for Dixon on job work basis. Due to higher volume of business, the appellant, during the relevant previous year, earned substantial profit of Rs. 1,59,84,2....
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....Noida Unit Jammu Unit F.Y. 2007-08 2006-07 F.Y. 2007-08 2006-07 Sales 86,47,15,391/- 1,01,88,242/- 9,04,75,218/- 4,04,67,454/- Gross Profit 1,59,84,211/- 24,47,304 83,07,015/- 40,60,915/- GP Rate 1.85% 24% 9.18% 10.03% The aforesaid simplistic comparison of the profit rates, without appreciating the business model was bound to give misleading results. It is thus, respectfully submitted that there was no fall in the gross profit rate as compared to the earlier year. Independent comparable instance It is further respectfully submitted that, as stated above, Dixon had sub-contracted a part of the manufacturing activity to an independent third party, viz. M/s Hotline Electronics Ltd. ('Hotline') under an agreement dated 19.09.2007, whereunder, Hotline, too, agreed to manufacture televisions for Dixon at a margin/conversion charges of Rs. 95 per television. Copies of sample invoices raised by Hotline on Dixon and the detailed calculation of the working of margin of Rs. 95 earned by Hotline under the said agreement are placed at pages 408 to 420 of the Paper book ....
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.... The observation of the assessing officer that the appellant manufactured CTV's worth Rs. 86,61,331/- only for supply to ELCOT is, therefore, factually incorrect. In that view of the matter, the aforesaid allegation made by the assessing officer is, it is respectfully submitted, devoid of any merit and is based on incorrect appreciation of facts. Addition made by AO - totally unrealistic It is further submitted that huge addition of Rs. 15,69,58,867 made by the assessing officer leads to unrealistic figures, which further substantiates the contention of the appellant that the assessing officer has proceeded on totally erroneous basis, as explained hereunder: As stated above, the appellant sold CTV's to Dixon at a price of Rs. 2,000-2,200 approx per CTV (depending upon the model). Dixon, on the other hand, had been awarded contract for supplying 9,00,000 CTV's at per unit price of Rs. 2,571.64 vide purchase order dated 25.01.2007, which was further reduced to Rs. 2,047 in subsequent purchase order dated 31.07.2008 (refer page 421 of the Paper book - II). Addition of Rs. 15,69,58,867, made by the assessing officer, on 4,70,581 units supplied b....
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....fit without any other defect being found in the account books is not a sufficient ground for rejection of accounts. ● The Chandigarh Bench of Tribunal in ITO v Janta Pharmacy (1996) 84 Taxman 38 (Chd) (Mag) held that books of accounts could not be rejected simply because gross profit was slightly low compared to earlier years and inventory had not been prepared when no defects were found in accounts. ● In Bhagwati Emporium v ITO: (1995) 80 Taxman 227 (Ahd.) the assessee carried on business in cloth of different variety and readymade garments on retail basis. The ITO found that cash hook, ledger, purchase register, etc. were duly maintained, but not the stock register. The ITO observed that though it was true that in the business of cloth generally the stock register was not maintained, in the instant case, there was no way to verify the closing stock. The Tribunal observed that it was not possible for the assessee to furnish details of monthly sales of the cloth of each mill. It was impossible to maintain a record of this nature. The failure to furnish those details could not have been a valid ground for rejecting the entire book results particularly w....
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....on made by the ITO observing that the rate of profit of the contractor fell by 20% is unjustified and deleted the same. ● In Harlal Hemraj v ITO (1982) 14 TTJ 505 (Jai) the Tribunal held that occurrence of minor discrepancies in the normal course and fall in profit rate during previous year would not form basis for rejection of trading results. ● In ITO v Arun Oil Industries (1985) 13 ITD 769 (JP) assessee carried on business of extraction and sale of groundnut oil. ITO rejected accounts of assessee on ground that stock register maintained by it showing yield of oil from groundnut was imaginary, worked out yield of oil at higher percentage than that shown by assessee. The Tribunal observed that no omission, manipulations, etc. was pointed out by ITO nor was there any information on record in respect of other manufacturers regarding purchase, quality, witness, and climate, efficiency of crushing and other relevant variables. The Tribunal held that ITO was not justified in rejecting book results of assessee and making addition on account of alleged shortage of yield of oil. ● The Jodhpur Bench of the Tribunal in ITO v Prakash Chand : (2006....
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....mediately preceding assessment year, which is much higher than gross profit rate of 24% declared in the said year. There was, thus, no fall at all in the GP rate as compared to the immediately preceding assessment year. That apart, in the assessment order the assessing officer has not been able to pinpoint any discrepancy, whatsoever, in the accounts maintained by the appellant. Thus, even assuming without admitting that there was a fall in the G.P. rate, that fact, by itself, could not have resulted in rejection of the books of accounts and estimation of the trading profits. In view of the aforesaid, it is submitted that the assessing officer erred in rejecting the books of accounts of the appellant that, too, on an erroneous basis that there was fall in the GP rate of the appellant. Conclusion In view of the aforesaid, it is respectfully submitted that the assessing officer erred in estimating the profits of the appellant on an ad-hoc basis on the ground that there was fall in the gross profit as compared to profits as shown in the immediately preceding year. The aforesaid action of the assessing officer is, therefore, based on incorrect/errone....
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....nt of sale of Rs. 6,14,857/- last year. The appellant had actually earned a loss on the manufacturing and sale activity last year, but because of the huge contract awarded, it earned a healthy G.P. of 1.85%, resulting indeed a hefty gross profit of 1,48,87,501/- on its manufacturing and sale activities; which,when combined with the profit of Rs. 25,44,153/-on job work activity, give an overall gross profit of Rs. 1,59,84.211/-. Thus, when the entire details and break up of activities in the two years are compared minutely; we find that the comparison between 24.02% of last year with 1.85% G.F. declared of this year is actually erroneous because the two figures are not comparable since they represent different activities. The correct comparison is available in a chart brought on record by the appellant when accounts are separated for (a) manufacturing and sale activities, and (b) job work activity. As mentioned above, the major activity this year is of manufacture and sale , on which appellant has earned a healthy G.P. rather than a loss in the last year. After segregation, we find that the job work activity has decreased as compared to last year and correspondingl....