TaxTMI 
TaxTMI 
2016 (5) TMI 1443
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....locable the three manufacturing unit. 3. The Commissioner of Income Tax (Appeals) erred in holding the provision of Section 153A of the Act are only for the benefit of the Revenue such conclusion are opposed to the provision of Section 153A of the Act. 4. It is contended that the additions made in the Order U/s 153A are not qua search material and needs to be deleted. 5. That no corresponding seized material was found in the course of search for subject additions and the relevant Income Tax Return for the said Assessment Year was filed prior to the search in normal course suo moto. 6. That the assessment as contemplated U/s 153A is not a denovo assessment and additions made therein has to be necessarily, restricted to undisclosed income unearthed during the search. 7. That as per Supreme Court ruling in the case of in Manish Maheswari (289 ITR 341), present provision of Section 153A leading to six years assessment, being drastic in consequence needs to be interpreted most strictly and whenever possible to the favour of the assessee. 8. That since longest arm of revenue, being search action U/s 132 of the Act, stands exercised in....
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....e hearing of the appeal. A.Y.2006-07 ITA no. 1959/Del/10(Assessee's Appeal) GROUNDS OF APPEAL 1. The lower authority have erred in holding that the Royalty Payment of Rs. 6.00 crores and the sub licence income of Rs. 2.25 crores pertains to Jammu Unit. 2. It is contended that the Royalty Expenses of Rs. 4.25 crores and sub licence income of Rs. 1.96 crores are refferable to the Corporate Unit. The net of such outgoing and incoming are only allocable the three manufacturing unit. 3. The Commissioner of Income Tax (Appeals) erred in holding the provision of Section 153A of the Act are only for the benefit of the Revenue such conclusion are opposed to the provision of Section 153A of the Act. ITA no. 2106/Del/10(Department's Appeal) Grounds of Appeal 1. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in directing the AO to exclude only the net expenditure on royalty from the total profit of the eligible unit for the purpose of allowing deduction u/s 80-IB? 2. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law ....
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....profit. As per Form 10CCB furnished by the assessee with original return, profits and gains derived by the undertaking/enterprises from the eligible business has been shown at 1536.12 lacs and deduction u/s. 80IB has been claimed at Rs. 927.91 lacs. 2.3 Search & seizure operation in M/s. Flex Group of cases was conducted on 23.2.2006. This case was centralized with Central Circle-18, New Delhi by the CIT-II, New Delhi's order F. No. CIT-II/Centralization/2006-07/322 dated 19.5.2006. Notice u/s. 153A of the I.T. Act was issued on 28.6.2008 requiring the assessee to file return of income. In response thereto, return of income u/s. 153A was filed on 6.10.2006 declaring Nil income after claiming deduction u/s. 80IB on Jammu unit amounting to Rs. 9,24,60,551 (subject to gross total income). In the revised Form 10CCB, furnished with return u/s. 153A profits and gains derived by the undertaking/enterprises from the eligible business has been shown at Rs. 1841.33 lacs and deduction u/s. 80IB is shown at Rs. 1590.04 lacs. 2.4 A notice u/s. 143(2) was issued on 28.7.2007 fixing the case for hearing on 30.8.2007. In response to the above notice, Authorized Representative of the assessee....
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.... been sold at Rs. 141/- per Kg to Rs. 207 per Kg. The Ld.AO considered the sale at Rs. 207 per Kg and made an addition of Rs. 9,20 91,725/-to the expenses of Jammu unit thereby correspondingly reducing Mulanpur unit. 2.10 The Ld. AO further noted that in the profit and loss accounts of the units the assessee had credited an amount of Rs. 2,83,78,789 on account of CENVAT credit to Jammu unit. The Ld. AO held that the credit on account of excise duty refund was not eligible for deduction under section 80 IB, as the same was not the income derived from industrial undertaking. The Ld.AO held that Cenvat credit cannot be said to be profits or gains derived from industrial undertaking as its immediate and proximate sources not the industrial undertaking but the excise policy for refund of excise duty the Ld.AO relied upon various decisions of Supreme Court and high courts to support his addition. 3. Aggrieved by the order of the Ld. and AO the assessee preferred an appeal before the Ld.CIT(A). 3.1. The Ld. CIT (A) directed the AO to allow the netting of royalty to the profit and loss account while calculating the deduction under section 80 IB of the act, in respect of Jammu unit....
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....nd CIT vs. Kabul Chawla reported in 380 ITR 573. The Ld.AR submitted that assessee had shown the sum of royalty paid as well as received in Jammu unit in the return filed under section 139 (1) of the act. However in the returns filed under section 153A (1) the assessee has shown the royalty payout and the income as belonging to the corporate unit. The Ld. AR submits that as the assessment was pending as on the date of search and had abated within the meaning of 2nd proviso to section 153A(1) of the act. The Ld.AR submitted that the decision of this Tribunal in the case of Charchit Agarwal vs. ACIT reported in 34 SOT 348 is distinguishable to the facts of the present case because, in the case of Charchit Agarwal vs. ACIT (supra) the income stood accepted/processed under section 143(1) of the act before the date of search. Whereas in the assessee's case the assessment was pending as on the date of search. The Ld.AR thus submitted that the findings of the Ld.CIT(A) in respect of confining the royalty income to Jammu unit would not be appropriate. 4.2. The Ld.AR submitted that the Ld.CIT(A) has allowed the netting of the amount to be considered while determining the deduction under ....
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.... Supreme Court had considered a similar issue under section 80 HHC of the act: whether, on the facts and in circumstances of the case, the tribunal was justified in law in holding that the received from the sale of import entitlements could not be included in the income of the assessee for the purpose of computing the relief under section 80 HHC of the IT act, 1961? 12............... The question is to be charged regardless of this, and the question is whether the intervention of the raw NAFTA would justify the finding that the said products are not derived from refining of crude petroleum. The refining of crude petroleum produces various products at different stages. Row naphta is one such stage the further refining, or cracking of raw naphta results in the said products. The source of the said products is crude petroleum the said products must therefore be held to have been derived from crude petroleum." 13. We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in circumstances, only be said to be the export promotion scheme of the Central gover....
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....gh Court in the case of Zandu Pharmaceuticals Works Ltd (supra), we hold that the sums of rupees for Rs. 4.25 crores and Rs. 1.96 crores has to be shown under corporate division and the excess along with other corporate expenses has been rightly been allocated to the 3 manufacturing units by the assessee. 5.5. Accordingly we allow grounds raised by the assessee for assessment year 2005-06 and 2006-07 consequentially dismiss ground No. 1 and 2 raised by the revenue in assessment year 2005-06 and ground No. 1 raised by the revenue in assessment year 2006-07. 6. At this juncture the Ld. AR submitted that the assessee has raised additional ground for assessment years 2005 -06 and 2006-07. The Ld.AR submitted that these grounds were raised before the Ld.CIT (A), being ground numbers 5 and 5A in form 35 filed before him. However it has been pointed out by the Ld. AR that the Ld.CIT(A) has not adjudicated upon the same. He thus requested that these grounds may be sent back to the Ld.CIT(A) for being adjudicated. 6.1. The Ld.DR do not oppose for the submission of the ld.AR. Accordingly we send back these additional grounds to the files of the Ld.CIT (A) for consideration. In vi....
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....icial precedent as discussed above, it is held that the comparative analysis of sales made by the Malanpur unit shows that there IS no deflation of expenses in inter unit transfer of goods as held by the AO. The search u/s 132 of the Act was conducted at the premises of the appellant and no documents, or other evidence was found or seized which could indicate that the appellant had deflated the expenses of the Jammu unit. The addition of Rs. 9,20,91,725/- made by the A.O. to the expenses of the Jammu unit is, therefore, deleted." 9. Aggrieved by the order of Ld. CIT (A), the revenue is in appeal before us now. 9.1. The Ld. D.R. supported the findings of the Assessing Officer whereas the ld.AR, reiterated the submissions made by the assessee before the ld.CIT (A). 10. We have perused the orders passed by the authorities below and the arguments advanced by both the parties before us. 10.1. It is observed from the paper book filed that Mullanpur unit has transferred goods to Jammu unit at rates starting from Rs. 104/-per Kg to Rs. 196/-per Kg. The highest sale made by Mullanpur unit to Kothari products Ltd at Rs. 207 per Kg. Ld. CIT(A) has reproduced a chart wherein a comp....
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....t rate 187 23348.10 7.17 207 4382.72 5.83 Lowest rate 157 125343.40 38.48 120 2531.00 3.37 Other rate qty 177008.30 54.35 68199.88 90.80 Total qty 325699.80 100.00 75113.60 100.00 Average rate(kg.) 167 3259699.90 172 75113.60 Dec., 2004 Highest rate 190 14471.40 4.08 207 2111.64 7.69 Lowest rate 157 27082.20 7.63 152 2829.04 10.30 Other rate qty 313456.84 88.30 22535.49 82.02 Total qty 355010.44 100.00 27476.17 100.00 Average rate(kg.) 169 355010.44 184 27476.17 Jan., 2005 Highest rate 180 2040.00 0.70 197 9723.45 22.35 Lowest rate 164 90347.75 30.81 124 1934.00 4.45 Other rate qty 200818.41 68.49 31850.36 73.21 Total qty 293206.16 100.00 43507.81 100.00 Avera....
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....side parties between Rs. 187/- to Rs. 196/-. 10.4 The comparative study of sales to outside parties and inter unit transfer of goods leaves no scope for making any addition to the expenses of the Jammu unit. The comparative analysis of the sales made by the assessee shows that the assessee had sold 95025 kgs of material @ Rs. 207/-, which constitutes 4.51 % of the total goods. The A.O. had taken this figure as highest price and applied this rate to arrive at deflation of inter unit transfer of goods @ Rs. 37per kg. whereas the average rate for more than 96% of the goods to both inter transfer and sale to outside parties is the same. Further, it is held that search u/s 132 of the Act was conducted at the premises of the appellant and no incriminating documents, books of accounts were found / seized to indicate that the appellant had suppressed the profits of Malanpur unit and deflated the expenses of the Jammu unit. 10.5 On a bare perusal of these charts, it can be noticed that the difference in the p[rice is due to quality of shashet manufactured as per the requirement of the client. The A.O. has only taken the highest value of shashet sold to the outside parties especially M....
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....he Ld. D.R. supported the order passed by the ld.AO. 13.2.On the contrary, the Ld. A.R. submitted that this issue stands covered by the decision of coordinate benches of this tribunal wide order dated 29.04.2011, in the case of JK Aluminium Co. Ltd vs. ITO, in ITA number 3303/del/2010, a copy of which has been placed at pages 73 to 81 of the paper book. 14. We have perused the orders passed by the authorities below, the submissions made by both the parties and the judgments relied upon by them. 14.1. As submitted by the ld.AR, identical issue has arisen in the case of JK Aluminium Co. Ltd vs. ITO (supra). It is observed that the decision of CIT vs. Dharam Pal Pream Prakash Ltd (supra), relied upon by the assessee as well as the Ld. CIT (A) has been affirmed by the Hon'ble Supreme Court which has been placed at pages 105 to106 of the paper book, and therefore the issue has now reached finality. 14.2. Hon'ble Delhi High Court in the case of CIT vs. Dharam Pal Pream Prakash Ltd. (Supra), has laid down the procedure for granting of exemption under the scheme. The assessee in the 1st instance has paid excise duty from its account, the statement in respect to clearances made,....
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....l Government in providing the incentives to the new industrial units and substantial expansion of the existing units, was the generation of employment through acceleration of industrial development, to deal with the social problem of unemployment in the State, additional creating opportunities for self employment, hence a purpose in public interest. 26. In this view of the matte, the incentives provided to the industrial units, in terms of the New Industrial Policy, for accelerated industrial development in the State, for creation of such industrial atmosphere and environment, which would provide additional permanent source of employment top the unemployed in the State of Jammu and Kashmir were in fact, in the nature of creation of new assets of industrial atmosphere and environment, having the potential of employment generation to achieve a social object. Such incentives, designed to achieve public purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assessees alone. 27. Thus, looking to the purpose of eradication of the social problem of unemployment in the state by acceleration of the industrial d....
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....self with viable supplies of basic raw materials, has been able to recruit and retain the skilled staff and established itself in the area of Mullanpur. The determination of the existing license agreement for use of the manufacturing activity would have entailed the process of putting up the new manufacturing unit. Such installation of a new manufacturing unit would require identification of suitable industrial land, acquisition of plant and machinery, shifting of the skilled and trained staff, putting up the factory building, losing the customer base, building association with new suppliers and other business circumstances which a new manufacturing facility will be faced with. It is in the light of pros and cons of the available manufacturing facility that the appellant had agreed to the increased license fee. It is observed that subsequent to the commencement of license agreement M/s Flex industries Ltd had installed a high-capacity DG set 2562 KVA capacity at a cost of Rs. 5.40 crore in the month of March 2005. M/s Flex industries Ltd had also installed further capital equipment on the request of the appellant for an aggregate sum of Rs. 14.04 crores approximately. It was due to....
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....year 2006-07 stands partly allowed. 18. Ground No. 5 raised by the revenue for assessment year 2006-07 pertains to deleting the addition of Rs. 2,32,13,640/-made under section 68 of the act on account of unverifiable and unconfirmed advances from customers. 18.1. The Ld.AO observed that during the year under consideration the assessee had received Rs. 3,85,32,962/- he observed that the assessee had claimed cash sales of Rs. 2,658.86 Lacs during the year under consideration on account of advances from customers. The sales are in the form of on sales or across the counter sales. The Ld.AO had asked the assessee to furnish confirmation in respect of the parties from whom the assessee has claimed to have received advances. As the parties were not verifiable the AO made the addition of Rs. 2,32,13,640/- 19. Aggrieved by the order of the Ld.AO the assessee preferred an appeal before the ld.CIT (A). 19.1. The Ld.CIT (A), after noticing all the evidences gave a categorical finding in paragraph 10.3 of his order to ld.CIT (A) has observed that all the parties are regular customers purchasing goods from last many years from the assessee. In respect of the advances received, the a....