TaxTMI 
TaxTMI 
2016 (11) TMI 252
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.... 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, without appreciating the fact that Dixon is also a partner in assessee firm. ....
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....ock 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 enquiries and rejecting book result of the assessee. 3.2 On the other hand, the learned Authorized Repr....
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.... 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 and Demurrage Charges'. 4.1 The Assessing Officer disallowed the expenses of Rs. 1,01,762/- debited under the head 'Detention and Demur....
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.....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 adverse comments in the remand report. It is clear from the perusal of the details and submission that these "Detention and demurrage charges" represent contractual ....
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....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 second ground that the assessee was running the industrial undertaking under a proprietorship which was converted into partnership on 01/04/2004, which resulted in transfer of plant and machinery previously used and....
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.... 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). The facts in brief in respect of issue in dispute are that the Assessing Officer compared the trading results of two units of the assessee with respect to the trading results of immediately preceding year. The Assessing Officer found that in respect of Noid....
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.... 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 made with the immediately preceding year. The assessee also challenged rejection of books of accounts only on the ground of low gross profit rate. The relevant submission of the assessee reproduced by the learned Commissioner of Income-tax (Appeals) in the impu....
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....aper 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. 1,59,84,211 in absolute terms, as compared to profit of Rs. 24,47,304/- during the immediately preceding previous year, i.e. an increase of about 653 %. On perusal of the nature of activity carried out by the appellant, it will kindly be appreciated that a simplistic comparison between the gross profit ratio of assessment year 2007-08 and ass....
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....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 - II. It would, therefore, be appreciated that the assessing officer erred in doubting the genuineness of the arrangement between the appellant and Dixon, which arrangement was also adhered to by an independent third party, viz Hotline. The price charged and the profit earned by appellant was very much comparable with the price and profit of an independent third party. Rebuttal of AO's allegation The assessing officer has, in the assessment order, alleged that d....
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....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 by the appellant transforms into per-unit addition of Rs. 333.50 (approx.). If aforesaid addition per unit of Rs. 333 is added to sale price of appellant of Rs. 2000-2200, it leads to price range of Rs. 2,333 -2533, which would be almost equivalent to final price of Rs. 2,571,64 awarded to Dixon by Elcot, and infact, much lower than the reduced price of Rs. 2,047 as per the purchase order. Meaning thereby, Dixon, after addition of Rs. 333, is left with nil/ negative margin, which it far from reality. The aforesaid calculation also exposes the error in the calculation/ estimations of the assessing offi....
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....t 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 when no entry in. the books of account was found to be erroneous, the Tribunal held. The Tribunal held that therefore, addition made by adopting G.P. rate of 15% as against 10.55% disclosed by assessee could not be justified. ● In Smt. Salinderjit Kaur v ITO (1995) 52 TTJ 388 (Chd) AO noted that the G.P. rate of the assessee has fallen from 21.7% to 15.9% and the assessee is not maintaining day to day production register. AO rejected the book results and made the addition. The Tribunal held that mere non-maintenance of production register cannot lead to rejection of book results of assessee. ● The Indore Bench of Tribunal in Jagdish Oil Mills v ITO (1995) 52....
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....n, 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) 100 TTJ 639 (JD) even held that even if stock register is not maintained, that could not be the sole'basis of rejecting the books of accounts. The Tribunal observed that the assessing officer had not pointed out any specific defect in the books of account and he had also not found any inflated purchase or suppressed sales. The Tribunal held that mere non-maintenance of stock register cannot be a basis of rejecting the books of accounts. The assessing officer having not pointed out any specific defect in the assessee's books of account, there was no basis for rejecting the books of account and applying a higher GP rate without citing any comparable case, the Tribunal held. ● In Keystone India (P) Limited V. DCIT: 99 TTJ 386 (Ahd....
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....he 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/erroneous appreciation of the facts of the case and the position in law and deserves to be deleted. It is, thus, respectfully prayed that huge addition of Rs. 15,69,58,867 made by the assessing officer calls for being deleted in toto." 6.2 The learned Commissioner of Income-tax (Appeals) also forwarded the submission of the assessee and additional evidences submitted by the assessee on the issue in dispute to the Assessing Officer for his comments, however, Assessing Officer did not offer any comment on the submission of the assessee whereas admission of the additional evidences was not objected by the Assessing Officer. After considering the remand report, submission and rejoinders of the assessee, the Ld. Commissioner of Income-tax (Appeals) deleted the addition ....
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....acturing 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 correspondingly there is a decline in G.P. on job work from 26.34% last year to 21.20% this year. But that is not a very major decline and is well explained by the fact that there are minimum over heads specially in form of "wages and workers expenses", which do not decrease proportionately i.e. in proportion to the decrease in job work volume. Over-all I find that appellant has done well in its business in terms of profitability and that is evident in form of over-all profit declared. Thus, the AO's observation of fall in G.P. is not found to be appropriate. Correspondingly the application of section 145A(3) and enhancement of G.P. by A.O. are also not sustainable. I delete the addition of Rs. 15,69,58,867/- In the result addition of Rs. 15,69,58,867/- is deleted." 6.3 Before us, the learned Commissioner of Income Tax (Departmental Representative) addressing the groun....