TMI Blog2022 (10) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. A doubt was also raised by the AO whether the eligible unit of the assessee was carrying out any work or it was merely acting as the selling out let of the non-eligible unit which is actually carrying out the manufacturing activity. We note that the assessee has claimed wages expenses which were subject to PF, electricity expenses. Likewise, there was huge investments in the plant and machinery. The assessee has also filed audit report in form 10 CCB, purchase details of the raw materials, the approval notification No. 283 /2006 of the eligible unit, but there was no doubt raised by the AO on these details. After considering the necessary details, we do not find any reason to interfere in the finding of CIT-A and thus, we direct the AO allow the claim to the assessee under the provisions of section 80 IC of the Act. Hence the ground of appeal of the revenue is hereby dismissed. Expenses apportioned by the AO to the non-eligible unit - HELD THAT:- We find that the AO was supplied with the audited financial statements of the eligible units pertaining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not pointed out any infirmity in the finding of the learned CIT-A. Thus in view of the above and after considering the facts in totality, we do not find any reason to interfere the finding of the learned CIT-A. Accordingly, we uphold the same. Hence, the ground of appeal of the revenue is hereby dismissed. - ITA No. 108/Rjt/2016 - - - Dated:- 3-10-2022 - Shri Waseem Ahmed, Accountant Member, And Shri Siddhartha Nautiyal, Judicial Member For the Revenue : Shri Aarsi Prasad, CIT. D.R For the Assessee : Shri Mehul Ranpura, A.R ORDER PER BENCH: The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income tax (Appeals)-2, Rajkot, dated 17/01/2016 arising in the matter of assessment order passed under s. 143 of the Income Tax Act, 1961 (here-in-after referred to as the Act ) relevant to the Assessment Year 2011-12. 2. The interconnected issue raised by the Revenue in ground no. 1 and 2 is that the Ld. CIT(A) erred in granting deduction u/s 80IC of the Act, amounting to Rs. 6,58,98,942/- 3. Briefly stated facts are that the assessee in the present case is a partnership firm and engaged in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here are huge investments made by the appellant firm for starting Rudrapur unit. In view of all the facts and evidences brought on record it is clear that new unit at Rudrapur has come into existences. Further it is also found that there are only two common manufactured items which are manufactured at both places at Rajkot main unit as well as Rudrapur Unit being 235F Revgear Shifter Sleelve and 236F Shifter S!eeve(3RS/4 th Speed). The appellant contended that, in the Rajkot main unit also, the appellant firm has out sourced the forging required for item to be manufactured and the same is the case with Rudrapur unit, as either units had no forging facility. Thus, the fact that Rajkot unit had sent forging item to Rudrapur unit can not be a ground to hold that no new unit has come into existence at Rudrapur. The appellant further contended that it had fulfilled the condition that the forging part supplied by the Rajkot unit to Rudrapur unit are sold at Arm length price even though that condition was not applicable for the year under consideration. Considering the overall facts of the case, { it is clear that new unit with separate identity had come into existence as Rudrapur j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the order of the Ld. CIT(A), the Revenue is in appeal before us. 7. The Ld. DR before us vehemently supported the order of the AO by reiterating the findings contained in the Assessment Order. 8. On the other hand the Ld. AR before us filed a set of two paper books running from pages 1 to 361 and 1 to 119 and contended that there was job work activity carried on at Rudrapur Uttaranchal unit on the goods supplied/sold by Rajkot unit. As such the Rajkot unit sold the goods to the Rudrapur unit at the market price. The Ld. AR further filed a written submission which is as detailed below: Investment in plant machinery are more than 6.00 crores WDV value for the year ended on 31.03.2011. From Rajkot after forging and other work, goods were sold to Rudrapur unit at market rate and thereafter many more precision job work activities on SPM machineries were done by the Rudrapur Under taking . Products sold are subject to VAT which were duly charge. Further, products sold are exempted from excide. This fact aptly prove that the manufacturing activiites were carried out at Rudrapur. Respondent has also submitted Audit Report in Form no.lOCCB [page no.121 to 125 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of new unit. Further, the AO himself has allowed the claim of deduction U/S.80IC in the immediately preceding assessment year i.e. AY 2010-11. Copy of order is attached at page no.292 to 296 of paper book. 9. The Ld. AR vehemently supported the order of the Ld. CIT(A) by reiterating the findings contained in the appellate order. 10. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that the assessee has claimed the deduction under section 80 IC of the Act which was denied by the AO on various reasons that the conditions as specified under section 80 IC of the Act were not fulfilled but the learned CIT-A was pleased to allow the same. The provisions of section 80 IC of the Act reads as under: 80-IC Special provisions in respect of certain undertakings or enterprises in certain special category States.-(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in subsection (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken. 10.2 At the time of hearing, the learned DR has also not brought anything on record suggesting that there was any material change in the facts and circumstances for the year under consideration viz a viz in the immediate preceding assessment year. Accordingly we are of the view that the assessee cannot be denied the benefit of deduction under section 80 IC of the Act. 10.3 We also find that there is no prohibition under the provisions of section 80 IC of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has not furnished the necessary details showing the cost/rate of units of the Auto component produced at the Rudrapur unit based on the documentary evidences. Accordingly, the AO was of the view that the true profit of both the units located at Rajkot and Rudrapur cannot be worked out. 12.1 Besides the above the AO also found that the assessee has diverted expenses pertaining to Rudrapur unit to the Rajkot unit being non-eligible unit in order to maximize the profit of the eligible unit and minimize the profit of non-eligible unit in order the tax liability. The view of the AO was based on the following observation: Without prejudiced to above the following facts were also noted. (i) Assessee also failed to mention what percentage of job work was done at Rajkot. (ii) He failed to furnish the details of of auto cost of each unit component produced at Rajkot Unit and supplied to Rudrapur Unit, (iii) He also failed to substantiate the price of each unit of auto component in relation to sale price to buyer i.e. TATA Motors other. (iv) To claim higher deduction u/s 80-IC, the assessee has not booked various expenses at Rudrapur Unit i.e. eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account of eligible manufacturing activity. The appellant submitted that to implement the method of computation at standalone basis, as conveyed by AO, till the unit prepared profit loss account of its manufacturing-cumsale business activity. If Statute wanted to draw line of segregation between each of the unit, Statute should have made specific provision of demarcation. No fallacy or mistake detected in books of accounts of said Unit prepared on standalone basis through which only source of income/profit was manufacturing of specified product and therefore the AO's action of segregation was merely based upon hypothesis. Further it is seen that the Rajkot Unit has sold the goods to Rudrapur unit was of semi-finished goods and then it was but natural that there can't be same GP earned on when the goods sold are semi-finished goods as earned on finished goods. It is always less than the GP earned in case of finished goods. It is seen that the remuneration was paid to partners as per specific clause in partnership deed for remuneration purpose as evident from the copy of deed of partnership dated 01/04/2010 placed on record. It is contended by the AR of appellant th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also outsourced the forging required for item to be manufactured as in the case of Rudrapur unit. In calculation of jobwork percentage in the notice dated 14.02.2014, there is error in not taking jobwork expense contract salary of Rs.1,04,60.239/- , if the same is considered then it will be of 4.06% of total sales. Forging part supplied by the Rajkot Unit to Rudrapur Unit are sold at Arms' Length price. Copies of Audit Report and cost sheet of every part as required by the AO were also furnished by the respondent as per Annexure-A of letter dated 2803.2014 [page no.159 to 160 of paper book]. Further, the Rudrapur unit's Profit loss account also reflects manufacturing expenses like electricity expense, wages, jobwork expenses, contract salary exp. Thus, the Rudrapur unit is an independent unit and not an extension or splitting of existing unit and eligible to claim deduction u/s.80IC of the Act. As regards the allegation as to non substantiating of price of each unit of auto component in relation to sale price to buyer in Tata motors others, it is submitted that calculation of average sale price per parts, margin etc of all the units were attached at Anne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own less expenses in the eligible unit. As such the assessee has diverted more expenses to the non-eligible unit in order to show less profit in order to avoid the income tax liability. First of all we note that the AO himself in the assessment order has observed as under: In support of claim assessee filed audit report in form No. 10 CCB and form No. 3 CB 3 CD Separate audit reports u/s 44 AB of the Income Tax Act, for Rajkot Unit and Rudrapur Unit were called for, obtained and Record. 17.1 Besides the above the assessee has also contended before the AO that eligible unit was getting the benefits of tax incentive which has resulted more gross profit by 10 to 15%. The relevant submission before the AO vide letter dated 11 March 2014 reads as under: Your assessee has started Rudrapur unit for Tata Motors Limited. In Rudrapur Tata motors limited have their plant for manufacturing of various types of vehicles i.e mainly TATA ACE MINI truck i.e popularly known as Chhot hathi Tata motors limited is enjoying various fiscal benefit/incentives by the government of India i.e no excise duty, VAT and many other government benefit thereto . Hence they are saving about 25-30 % ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking active participation in the affairs of eligible unit. Moreover, there was no loss to the revenue for the reason that the amount of remuneration received by the partners is taxable in their hands subject to the provisions of section 40(b) of the Act. 17.6 As regards the allocation of factory overhead, transportation expenses, admin and selling expenses of Rs. 11,11,38,030.00 it was contended by the assessee before the AO that all the expenses pertaining to different units were booked respectively. The assessee to buttress its argument has also filed the chart of manufacturing expenses. Likewise, there was not much outward freight expenses in respect of eligible unit for the reason that goods were supplied within Rudrapur Unit but it was not so in case of Rajkot unit. It was also submitted by the assessee that except audit expenses which were born by the non-eligible unit in the entirety, there was no other expense which was shifted from eligible unit to non-eligible unit. 17.7 There were term loans taken by both the units for acquiring the machineries and the corresponding interest and depreciation was accounted for in the respective units. All these submissions were mad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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