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2014 (12) TMI 96 - ITAT MUMBAIAllowability of deduction u/s 10B – Business activity carried by assessee amounts to manufacture or not – Applicability of section 10B(7) r.w.s.80IA(10) - Held that:- The word “industry” has a wide import, where there is a systematic activity, organized by cooperation between employer and employee (the direct and substantial element is commercial), for the production and/or distribution of goods and services calculated to satisfy human want and wishes (not spiritual or religious but inclusive of material things or services geared to celestial bliss), prima facie there is an “industry” in that enterprise - The true focus is functional and the decisive test the nature of activity - manufacturing and processing are not clearly demarcated fields - The test of manufacturing lies in the answer to the question whether what is processed or produced as the end product is commercially known differently from the raw material out of which the end product is produced - various items are mixed in a specified quantity with the help of man power and machine and the end product is commercially known differently, therefore, it can be said that the assessee is manufacturing unit. The observation made in the assessment order is that in comparison to sales of ₹ 5,83,65,060/- the total manufacturing expenses are merely ₹ 2,66,913/- which is only 0.45% of the sales expenses - the assessee is mixing the perfumery compounds in a specified required ratio with the help of man power and machine, therefore, it is always not necessary that manufacturing can be said to be complete only when there is comparatively high manufacturing expenses - It is like blending of compounds – Decided against revenue. Adoption of profit earned by the sister concern - Restriction of claim u/s 10B to 19.06% of sales – Held that:- In the case of sister concern net profit was earned/disclosed @ 19.03%, which is having the same management and also having same activity, whereas the net profit disclosed by the assessee at 38.86% and if the foreign exchange gain is excluded then the net profit comes to 25.09% - the assessee has disclosed more profit than the ordinary profit which might be expected to arose in such business more specifically when the sister concern M/s Pragati Aroma Oil distillers Pvt. Ltd. is dealing in the same business, itself shows the profit @ 19.03%, also having similar management and is not claiming any exemption - the assessee is supporting the conclusion of the CIT(A) itself, where the benefit was extended to the assessee and in the same breath opposing the conclusion on the taxability of profit, more specifically in the case of sister concern, in identical market conditions/management the net profit was disclosed at 19.03% - the assessee disclosed more profit, with different intention, which can be expected from a similar line of business without bringing any cogent material on record. Computation of capital gains in the hand of Successor Company – conversion of a firm in Part-IX Company - resultant company is further merged with another company - violation of proviso to sec. 47 (xiii) r.w.s 47A(3) - Held that:- The capital gain shall be assessed in the hands of successor company in the previous year in which violation had taken place - the successor company is liable for capital gain, if any and not the assessee - the computations made by the AO in respect of estimated sale consideration, cost of acquisition and tenure of holding of assets so as to constitute as short term capital gain or long term capital gain are no hypothetical basis only – CIT(A) held that the capital gain, if any, shall be liable to be assessed in the hand of the successor company, in the previous year in which violation took place - since, the assessee was not held liable therefore, how the assessee is aggrieved is not known – the order of the CIT(A) is upheld – Decided against assessee.
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