TaxTMI 
TaxTMI 
2020 (8) TMI 826
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....spect. 3. a) The Learned CIT(A) erred in confirming the action of the AO which was made on a baseless allegations that the Assessee was manipulating the raw material data (which was alleged to be found during the search proceedings), although no such thing was found, inferred or held otherwise, during the block assessment u/s. 153A for AY: 99-00 to 05-06. b) Without prejudice to the above, the disallowance, if any, on this ground should have been restricted to the amounts which were diverted or manipulated and not the entire deduction u/s. 80 IB should have been denied. 4. The learned CIT(A) erred in confirming the disallowance made by the AO, on the ground that trading profits had been shifted to tax free units when in Para 8.1, the CIT(A), gave a finding that there was no reason to allocate profits between taxable and non-taxable units. 3. The only effective ground raised in the grounds of appeal is against the order of CIT(A) confirming the restriction of deduction under Section 80IB of the Act to Rs. 5,90,33,441/- as against Rs. 8,88,99,369/- claimed by the assessee. 4. The facts in brief are that the assessee filed the return of income on....
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.... The Assessing Officer after drawing the aforesaid inference made a chart at page 12 of the assessment order and stated that if the net profit of Unit No. 4 and Jammu unit is 15.23%, the same profit rate should be applied to other units, viz. Unit Nos. 1, 2 and 3 and estimated profit which has been diverted to Unit no. 4 and Jammu unit and denied deduction under Section 80IB of the Act to the extent of Rs. 1,65,02,509/-. The AO further estimated the trading profit at Rs. 1,56,41,216/- in place of loss of Rs. 2.94 crores from the trading section. The above finding of the Assessing Officer during the course of assessment proceedings were strongly opposed by the assessee by submitting as under :- "3(a). At pg.2 of the order, the AO has reproduced a chart of raw material consumption. The appellant is not aware how the chart has been made nor the details were called for from the appellant to prepare such chart. The AO had asked for unit wise gross margin comparisons & not year wise to which the appellant had explained by letter dated 8.12.08 which is at Pg. 130 of the PB (II). The AO however stated that raw material cost varies from 1.18% to 81.26% for different products. Detai....
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....The appellant states that there is no proof of evidence to substantiate the same. This statement is a conjecture based on suspicion. In the same para, the AO has made a chart of 9 parties to whom summons were issued. Out of these 9 parties, 4 responded to the AO & for the other 5 either there was no response or the notices were returned. The appellant was never informed that notices were being sent to the parties for the appellant could have provided the parties new address. In the 4 parties who responded, the figures tallied except for some discrepancy which also could have been explained had the AO informed the appellant. Enclosed in the PB is a short note reconciling the figures. PB III- pg.256. The AO then further alleges that these parties have accommodated the appellant to keep it in good humor. The appellant submits that on each purchase, the appellant has the following: 1) Purchase order 2) Goods received note issued by Plant Stores of the appellant. 3) Lorry receipt which proves delivery of goods. 4) Payments made by cheques 5) Parties invoices 6) C-Forms towards the purchase for sales tax purpose. ....
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....urn of income by framing assessment under Section 143(3) of the Act vide order dated 18.12.2008. 7. In the appellate proceedings, the CIT(A) confirmed the order of Assessing Officer after considering the submissions of assessee and after calling for Remand Report from the Assessing Officer and observing and holding as under :- "8.0 The facts of the case, the stand taken by the A.O in the assessment order, the grounds of appeal and the written submissions filed by the appellant during the appeal proceedings have been carefully considered. 8.1 The submission of the appellant in para '6.0' above is general in nature and is not specific to the various discrepancies discussed by the A.O. in the assessment order. The appellant submits that the books of account have not been rejected by the A.O whereas the discussion in para no. 7 of the assessment order refers to show cause notice issued by the A.O asking the appellant to show cause as to why the books of account should not be rejected u/s. 145 of the Act clearly suggesting that the A.O examined the books of account and rejected the books of account on the basis of various discrepancies noticed in such books of accou....
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....e through appellate as well as 263 proceedings, the AO has accepted the profits and losses of the units and has not made out any case that the loss/profit shown are nongenuine, manipulated or erroneous. Thus when in earlier years the system has been accepted, there is no reasons for the AO to estimate profit in this year on the basis of the earlier years. The learned AR submitted that the appellant had put up several units so as to start manufacturing products on its own and earn higher profits. A major portion of products having higher gross margin which were being manufactured earlier by others were now being manufactured by the appellant's unit at Jammu and only where the margins were lower. In the event, the appellant's G.P from goods manufactured from others came down from 48.9% in the earlier year to 23.6% in this year the details whereof is filed at Pg. 275 - PB III. Consequently the G.P of Jammu for the year was approx. 45.80%. Thus, it is not a case of diversion but commercial sense to get the products self manufactured instead of from others. This explanation was given to the Assessing Officer and CIT(A) who did not care to comment on this aspect at all. He further submit....
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....it from one section to another section in order to claim higher benefit of exemption under Section 80IB of the Act. The learned DR took us through the various observations of Assessing Officer as given in the assessment order to justify the said restriction of exemption under Section 80IB of the Act. Defending the order of CIT(A), the learned DR submitted that the CIT(A) has given a very detailed findings after dealing with all the factual aspects of the matter and, therefore, the order of CIT(A) may kindly be confirmed by dismissing the appeal of the assessee. 10. We have heard the rival submissions and perused the material on record. We note that the deduction under Section 80IB of the Act was reduced to Rs. 5,90,33,441/- on ad hoc basis as against actual claimed by assessee of Rs. 8,88,99,369/-. We find that the Assessing Officer has given various reasons in the assessment order for reducing the claim of assessee, however, before resorting to making the said disallowance under Section 80IB of the Act by restricting the deduction, the Assessing Officer has not rejected the books of account under Section 145 of the Act and made the estimation of profit/disallowance of deduction....