TaxTMI 
TaxTMI 
2019 (4) TMI 355
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....for the instant year. The claim of deduction u/s.80IC was made with respect to the industrial unit at Baddi, Himachal Pradesh. The initial assessment year for the claim was Assessment Year 2008-09 and uptill 2012-13, the assessee had claimed deduction of 100%, which stood allowed to the assessee. Since assessment year 2013-14 was the sixth year of the claim on which deduction @ 30% was claimed and same was allowed by the Assessing Officer in the scrutiny proceedings u/s.143(3). The assessee is unlisted public company incorporated on 23rd October, 1996, which is mainly engaged in the business of food processing. The total revenue for the Assessment Year 2013-14 from its entire units was reported at Rs. 45.09 crores. Its first unit was at Delhi, which was not a manufacturing unit but was mainly into trading and sale of oat based products like, whole oats, white oats, oats for atta, oats, poha, etc. Second unit was Baddi unit, (which availed deduction u/s.80IC) engaged in manufacturing of Muesli (ready to eat breakfast cereals), which is made of whole grains, nuts, fruits, berries, honey, etc., in various healthy and delicious combinations. The third unit was Newai unit which wa....
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....tion @30% in the instant assessment year; (viii) reason for downfall in gross profit ratio from 42.66% in A.Y. 12-13 to 38.17% in instant year for the unit in Baddi. • Lastly, the Assessing Officer has failed to invoke the provisions of Section 80IA (10) read with section 80lC(7). 5. In response to the show cause notice, assessee filed detailed submission vide reply dated 14.03.2018 along with voluminous supporting documents, the contents of the said reply has been incorporated in the impugned order from pages 3. In sum and substance, assessee submitted that:- • Firstly, it was pointed out that it would be incorrect to hold that this year net profit from eligible unit was shown @ 37.33%; and net loss @ 14.51% from non eligible unit, because the net profit and eligible unit was Rs. 33.73% and correct information of unit turnover and profitability was given in the following manner: Consolidated Baddi (Muesli Unit) Newai (Wheat Flour Unit) Other (Oats & Other Units) Revenue 42,81,63,162 22,10,07,155 64,33,722 20,07,22,285 Net ProfitZ(Loss) before tax (a) 5,26,45,050 12.30% 7,45,36,216 33.73% -39,07,443 - 60.....
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....ed by company at other two units (non-eligible units) nor the company au/sources Muesli from third party. Therefore booking stock transfer as sales in Baddi unit to increase the eligible profit/or deduction u/s 80IC of the Act will not help the assesse at all. Sales from both these depots were made during the year from time to time to different parties including modern trades. We have duly received payment from these parties. The transporters who transport from Baddi to these depots are paid mainly by cheque only as far as possible from our side. The company used to file various VAT returns, Entry tax and excise return reflecting the above transfer of goods to these depots from time to time and on time. The transporter has to generate Form No. 26Afor each movement 0/ goods from Baddi to send it to VAT department and the same was generated for these stock transfers also." • Fourthly, it would be completely erroneous to hold that Assessing Officer has failed to examine the material facts, because assessee from time to time had submitted all the documents, details of material facts before the Assessing Officer as and when required and by these documents ....
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....on in Oats Segment due to new entrance of big players like Saffola, Quaker, Kellogg, Horlicks, Euro Garden etc apart from regional competition and our marketing expenses also increased abnormally in addition to normal annual increase due to increase in retailers and Consumer Schemes. b) Though, we tried to pass on, a little part of the increase in the input cost to the consumer but looking to the circumstances we were forced to offer additional discounts, rebate, brokerage, commission and claims apart from other substantial sales promotion and conference expenses. c) In this connection please also please refer our written submission in reply to 14 points questionnaire by the then AO Smt Shivani Bansal, DCIT particularly vide page no 270, 271 to 311. Also please refer specific query and our written submission in reply to 10 points questionnaire by the then AO Smt. Shivani Bansal, DCIT particularly vide page no 189 d) In case of Newai Unit (wheat flour mill, a noneligible unit), this unit was re-started from Feb-I3 and operated for only one and half months. Due to which there was significant production loss and Overhauling Expenditure incurred at initial ph....
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....ase in the input cost to the consumer but looking to the circumstances we were forced to offer additional discounts, rebate, brokerage, commission and claims apart from other substantial sales promotion and conference expenses. 4. Sales in volume of Oat products have dropped substantially in current financial year 2012-13 in comparison to previous year 2011-12. 5 Increase in Repair & Maintenance due to re-starting of Newai Flour Mill; 6 Reduction in Other Income in comparison to previous year (i.e. Rs. 2.27 Crores from 3.50 Crores). 7 There is a substantial loss on sale of investments." And gross profit ratio was also explained in the following manner: " The main reasons are furnished below for the fall in Gross Profit Ratio. i. There is a increase in the input cost mainly raw material cost, For examples-Increase in Major raw material (Oats, Dry Fruit & Flakes) cost. ii. Substantial increase in manufacturing (e.g. processing charges, Power & Fuel). iii. Increase in other direct expenses (i.e. Wages Cost, Repair & Maintenance of Plant & Machinery. etc iv. We like to further add that prices of oats wh....
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....on-eligible units, (iv) Whether the expenses for marketing the products of eligible unit through branch offices or depots are debited in eligible unit, (v) Whether provisions. of sub-section (l0) of section 80IA were required to be invoked, Since these issues have not been examined by the Assessing Officer, therefore, in view of Explanation-2 to Section 263 it is deemed that Assessment Year passed by the Assessing Officer is erroneous in so far as prejudicial to the interest of revenue and accordingly he set aside the assessment order in the following manner: "8. In view of the discussion in paras 5 and 6, it is established beyond doubt that the assessment in the instant case was completed without proper enquiries into the claim of the assessee. By invoking the deeming provision in the Explanation 2 to section 263 of the Act, it is held that the order u/s 143(3) of the Act dated 17-02- 2016 is erroneous in so far as it is prejudicial to the interests of the revenue and is therefore cancelled. The Assessing Officer is directed to conduct proper enquiries in respect of the issues raised in this order and frame the assessment afresh." 7. Before us, lea....
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.....B.323- Newai unit is a wheat flour unit and different from muesli & oats- this Newai unit was restarted from Feb 13 and operated for one & half month etc. 8. He thus, submitted that, it is self-evident that the assessment proceeding which spanned over 18/19 months, in continuation, were in depth proceedings where voluminous details, documents and books of accounts filed by the assessee were examined by the AO. It is after receiving the details and the documents on several hearings and after perusing the same Assessing Officer called for further related details/documents in respect of issues examined earlier. He also informed us that after the passing of the assessment order on 17.10.2016, Assessing Officer vide letter dated 16.05.2016 informed that audit party has made certain observation that the net profit in eligible unit was shown at Rs. 33.73%, while in non eligible unit has declared loss and the allocated expenses percentage was very high in non eligible units and accordingly assessee was required to explain the same. In response, the assessee has filed very detail reply and information which has been placed at paper book from pages 324 to 328. It was explained that the i....
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....that Assessing Officer has not carried out any inquiry or verification. In case there was any inadequate inquiry by the Assessing Officer, then Ld. PCIT must record a finding based on fact that the inquiry made by the Assessing Officer is erroneous and this can be done only when Ld. PCIT himself has conducted some kind of inquiry or verification to point out the error or mistake made by the Assessing Officer. The matter cannot be remitted to the Assessing Officer for a fresh decision or to conduct further inquiry without finding that the assessment order is erroneous. In support he relied upon the following judgments:- (i) ITO vs. DG Housing Projects Ltd. 2012-TIOL-195-HC-DEL-IT (ii) PCIT Vs Modicare Ltd. 2017-TIOL-1946-HC-Del-IT (iii) CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del) (iv) Amira Pure Foods Pvt. Ltd. - ITA No. 3205/Del/2017 dated 29.11.2017 10. On the other hand, learned Department Representative after referring to the various observations made in the impugned order submitted that in the instant case, Pr. CIT while conducting proceedings under section 263 has observed that AO had issued two questionnaires raising various queri....
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....h enquiries in this regard. The inquiry made by the Assessing Officer was, no inquiry at all. The Assessing Officer has to discharge twin functions of adjudicator as well as investigator. Merely obtaining certain details or papers from the assessee and keeping it on record cannot amount to making a proper inquiry expected from an Assessing Officer. 10.1 He also referred to the judgment of Hon'ble Jurisdictional High Court in the case of Nagesh Network Pvt. Ltd., 345 ITR 135 and NIIT vs. CIT (2015) 60 taxmann.com 2013. During the course of proceedings u/s 263, this issue was considered and after considering the relevant material on record and giving due opportunity of being heard to the assessee, the CIT came to a logical and judicious conclusion that many vital issues were not considered and examined by the AO. 10.2 Again in his written submission he has referred to various judgments which are more on scope of 263. The list of such judgment reads as under: 1. "Hon'ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. vs. ITO(Appeal No. 2396/2017) dated 29.11.2017. (copy enclosed). In this group of cases, Hon'ble Supreme Court has dismissed SLPs in c....
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....sioner of Income-tax (Central-II) [2015] 60 taxmann.com 313 (Delhi - Trib), Hon'ble E bench ITAT Delhi has analysed plethora of judgments on the issue and through order dated 27.03.2015, gave a ratio that the AO is required to conduct the inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry." Decision 11. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material placed on record. The facts in detail have already been discussed above. Here in this case, the assessee is having three units, one which is at Baddi, was carrying out manufacturing of Muesli; other Unit is at Delhi which is a trading Unit which carries out trading of oats along with various depots; and third is Nawai Unit which is a wheat flour unit. In so far as claim of deduction u/s.80IC of Baddi Unit is concerned in the earlier years same have been allowed. This was the sixth year of cl....
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....ourse of assessment proceedings in response to the various notices/queries raised by the Assessing Officer from time to time. Learned counsel has drawn our attention to those letters and documents placed in the paper book, the gist of which we have already incorporated while discussing the submission of the learned counsel. Main allegation of the ld. Pr.CIT that; firstly, Assessing Officer has failed to inquire about comparison of GP and NP ratio of eligible and non eligible range; secondly, whether expenses shown in all eligible units are actually pertaining to that unit or not; thirdly, whether the various expenses relating to managerial expenses are debited only in non eligible unit and same has been operated the same between eligible and non eligible unit; fourthly, marketing of products of eligible unit through branch office have been shifted to non eligible units; and lastly, whether u/s.80IA(10) and 80IC(7) were required to be invoked. On all these points, it is seen that, not only before the Assessing Officer but also before the ld. Pr.CIT, assessee has given very detailed submission and reasoning which though has been partly acknowledged and incorporated in the impugned or....
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....nit have been booked in their respective books, then it cannot be held that the expenses needs to be compared. Had there been similar products and market, then one can compare the profitability and margin, otherwise one has to benchmark with comparable third parties. Nowhere in the entire impugned order has Ld. PCIT identified that any particular nature or kind of expenditure pertaining to eligible unit has been shifted to non eligible unit and without such finding the assessee's contention cannot be rejected. The assessee has also explained the overall fall in NP ratio and the comparative chart which is also there in the paper book. It has been explained that the overall decrease in the GP & NP ratio was due to increase in the cost of inputs/raw materials, increase in the manufacturing expenses, increase in the advertisement and promotional expenses due to stiff competition, substantial decrease in sales of oats, increase in repair and maintenance expenses due to restarting of the Newai Unit, reduction in other income, and sale of old investments in equity shares, etc. Apart from that, from the perusal of the replies filed before the Assessing Officer, we find that the assessee ha....
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....f assessee had filed all the details, then it cannot be held that Assessing Officer has framed the assessment without any inquiry or examination of record. We have already observed above that the finding of the ld. Pr.CIT that these documents are not available on assessment record has been found to be incorrect. For sake of ready reference the details of replies and documents filed and submissions made by the Ld. Counsel before Ld. PCIT are reproduced herein below:- "AO conducted extensive enquiries, raised queries and examined the books of account, expenses, related party transactions, reason for fall in NP. a) The assessment proceedings spanned over continuous 18 or 19 months, where voluminous details / documents / books of account asked for and were examined by the AO. The AO on receiving details / documents in one hearing, perused and considered same and accordingly, called for further related details documents in respect of issues examined earlier. b) On perusal of the questionnaire dated 22/04/2015 (reiterated on page 16),it would be seen that a query was raised to furnish reasons and make disclosure in support of various claims made in the return o....
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....ssessment order or in the assessment proceedings note sheet that the same was not shown despite requisition. Detailed GP /NP ratio charts were submitted before the AO as above. After verification of the said charts, the assessing officer raised specific query regarding drastic fall in the net profit. The reasons for decrease in the net profit were explained to the AO as stated above who got satisfied with the reply filed by the assessee. g) The assessing officer raised specific query regarding related party transaction vide para 5 of the questionnaire dated 22/04/2015. The related party transactions were properly disclosed in the various audit reports. Details of related party transactions including the processing charges paid to the sister concern were submitted before the AO (Refer page 251-255 of the PB) which were accepted by her after verification. Importantly, the assessing officer examined and verified the books of account and it clearly means that she was satisfied on all counts which have been raised by the PCIT. Production of the books of account satisfies the entire possible queries. h) The AO raised various queries about the expenses ....