TaxTMI 
TaxTMI 
2018 (4) TMI 327
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....p firm engaged in the business of trading of fabrics and manufacturing of waddings, pillows, mattresses, cushions, mattress supports etc and the return of income for the Asst Year 2012-13 was filed by the assessee on 13.7.2012 declaring Nil income. As per the return, the gross total income was Rs. 86,79,348/- and assessee claimed deduction u/s 80IE of the Act to the tune of Rs. 86,79,348/- . The ld AO observed that during the relevant financial year, the assessee carried out both trading and manufacturing actvities. Deduction u/s 80IE of the Act was claimed in respect of profits and gains derived from manufacturing or production of eligible article or thing to the tune of Rs. 86,79,348/-. The ld AO observed that in view of provisions of section 80IE of the Act, separate account is required to be maintained and audit report in Form No. 10CCB is required to be furnished for the business in respect of which deduction u/s 80IE of the Act is claimed. The ld AO observed that the assessee furnished Consolidated Trading A/c, Profit and Loss Account and Balance Sheet for both trading and manufacturing activity and also failed to furnish the audit report in Form No. 10CCB. The assessee was a....
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....ceipt of goods, payments made in respect of trading purchases and address of the premises where goods were stored before sale and all sales bills, challans, transport bills, evidence of delivery of goods and payments received in respect of trading sales. The assessee was also asked to furnish item wise details of sales made to Aristo Texcon Pvt Ltd and copy of returns filed with Central Excise Department. 5. As regards high gross profit ration in respect of manufacturing activity, the assessee submitted that they were the first unit to manufacture polyster staple fibre mattresses in India, which are made from Polyster Staple fibre involving carding / lapping / wadding and finally the product is taken to batch oven. The polyster fibres are very light weight in comparison to traditional foam and coir mattress. The submission also accompanied a stock manufacturing journal to explain the gross profit ratio. The assessee furnished the profit and loss account of the manufacturing activity, which shows gross profit at Rs. 2,03,22,622/- . Thus the assessee claimed that rate of gross profit from sale of manufactured goods was 53.78% and that from sale of trading goods was 0.17%. The asse....
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.... that a good number of items were sold to Aristo Texcon Pvt. Ltd at a price higher than the price at which the same items wer sold to other domestic parties and Tashi Lamo Tshongkhang, Bhutan. The ld AO prepared a comparative chart of average sale price of products sold to others and arrived at the conclusion that the assessee had charged excess price to Aristo Texcon Pvt. Ltd to the tune of Rs. 27,68,136/-. The ld AO observed that since the assessee had failed to produce the pre-printed sales invoices, challans, transport bills, way bills and C forms in respect of domestic sales and also the registers maintained for the Central Excise Department, the actual price difference cannot be determined. The assessee stated that difference is due to weight, composition of the product, i.e quality of fabric and also due to higher transportation cost because sales are made inclusive of transportation i.e. delivered basis. So far as transportation is concerned, the difference as worked out in the table has been worked out in relation to sales made to Segmach Inc, which, like Aristo Texcan Pvt. Ltd is situated in Kolkata. As regards weight, the comparison has been made for sales of same produc....
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....alleged by the ld AO. It was pleaded that the ld AO had prepared a comparative chart in the assessment order regarding sales made to Aristo Texcon Pvt. Ltd and one M/s Segmach Inc., and as per assumption of ld AO, the assessee had charged excess from Aristo Texcon Pvt. Ltd in comparison to M/s Segmach Inc.. It was pleaded that Aristo Texcon Pvt. Ltd is an associate concern as the partners of the assessee firm viz. Manoj Kumar Sharma, Rajib Sharma and Sandeep Sharma, have stake in the said company. M/s Segmach Inc., is also an associate concern where Rajib Shama and Sandeep Sharma are partners. It was pleaded that the comparisons made by the ld AO was not of the same type of items with same specifications. The items sold to Aristo Texcon Pvt. Ltd and M/s Segmach Inc., is different in specification for one of example, Felt Block having description of 78x72x3 is not the same item as the Felt Block sold to M/s Segmach Inc., is of 6 kg and that of Aristo Texcon Pvt. Ltd is of 10.6 kg. Moreover such sales are excisable goods and have been duly recorded in returns of Central Excise and Central Sales Tax and cannot be discarded on assumptions of the ld AO. The stock ledger of both the item....
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....ooks of accounts for trading activity and manufacturing activity. We find that the assessee had claimed deduction u/s 80IE of the Act only in respect of profits derived from manufacturing activity only. It is not in dispute that the profits derived from manufacturing activity of the assessee is eligible for claim of deduction u/s 80IE of the Act. The Audit Report in Form No. 10CCB was made available to the revenue for supporting the claim of deduction u/s 80IE of the Act. It is not in dispute that the assessee had produced the books of accounts for trading and manufacturing activities. The initial assessment year for claim of deduction u/s 80IE of the Act was Asst Year 2010-11 as per Audit Report in Form No. 10CCB. The ld AR stated that no scrutiny assessments were framed by the ld AO for Asst Years 2010-11 and 2011-12. He also stated that subsequently for the Asst Year 2014-15, the scrutiny assessment was framed u/s 144 of the Act accepting the claim of deduction u/s 80IE of the Act for the manufacturing unit of the assessee. It is not in dispute that both Aristo Texcon Pvt Ltd and M/s Segmach Inc., are associated concerns of the assessee firm having common shareholding and common....
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....rties would explain the facts better :- From the aforesaid table, it could be seen that the assessee had sold goods to both M/s Aristo Texcon Pvt Ltd and M/s Segmach Inc at the same rate of Rs. 1920 per piece after 23.5.2011 onwards. The first sale of M/s Segmach Inc. of Felt Block had been made only 12.10.2011 at Rs. 1920 per piece. The same rate of Rs. 1920 per piece was adopted by the assessee in respect of Felt Block sale made to M/s Aristo Texcon Pvt. Ltd. Moreover, the ld AR submitted that both M/s Segmach Inc and M/s Aristo Texcon Pvt. Ltd are associate concerns of the assessee firm, in as much as, in the former concern, the partners of the assessee firm are having equity stake and in the latter concern, two of the partners of the assessee firm are partners. Hence it is found that there is no variation in rate per piece between the two associate concerns of the assessee firm. Hence the allegation of the ld AO in this regard is factually incorrect. In any case, we find that the books of accounts maintained for both trading and manufacturing activity separately have been produced before the ld AO, which were not rejected by the ld AO. Hence there is no scope for making esti....