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TMI Blog2010 (6) TMI 629X X X X Extracts X X X X X X X X Extracts X X X X ..... he deduction under s. 80-IB of the Act was not allowable to the unit commencing manufacturing/production or articles or things after 31st March, 2004. The CIT also noted that the audit report in Form No. 10CCB was not filed along with the return of income. The CIT found the AO to have allowed the claim of the deduction under s. 80-IB of the Act without application of mind on the facts and in law. The second point on which show-cause notice was issued to the assessee was the restriction on account of depreciation claimed on vehicles. The AO had disallowed Rs. 40,000 out of various expenses claimed on vehicles, however, no disallowance was made out of depreciation claimed on the same vehicles in the same proportion, in view of the provisions of s. 38 of the IT Act. Further, the audit report filed under s. 44AB of the Act, along with the return of income, did not account for the accounting results of the Parwanoo unit. According to the CIT, the AO had failed to take notice of the error in the audit report and allowed the deduction under s. 80-IB of the Act, without application of mind. 3. In reply, the learned counsel for the assessee submitted as under : (i) First allegation : repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not considered the provisions of s. 38 is not correct since addition of Rs. 40,000 made as per para 4 of the assessment order was made on lump sum and agreed basis and includes all expenses attributable to use of vehicles and expenses attributable to the use of vehicle also includes depreciation " 5. (iii) Third allegation : reply : Regarding the next allegation of your goodself that audit report under s. 44AB did not take into account the accounting results of Parwanoo unit. It is submitted that the assessee has filed separate audit report in respect of accounting results of Parwanoo unit which was filed with the return of income and once again filed herewith for your goodself's kind perusal. Also, having asked for so many details about Parwanoo unit, it cannot be said that no report of audit was there of Parwanoo unit. (iv) The assessee further submitted as under : Lastly, for sake of argument, it is clarified that we have received letter dt. 6th Nov., 2007 from the AO which was replied by us vide letter dt. 15th Nov., 2007 (copy of the letter is enclosed herewith as Annex.-IV) along with which we had filed report under s. 80-IC and audit report of Parwanoo unit. We are aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hanced by Rs. 1,31,748 by the CIT. The AO was directed to add back the said amount to the total income of the assessee. 8. The CIT further held that there was an apparent mistake in the order of AO wherein disallowance was made out of various expenses claimed on vehicle, but no reference was made to the depreciation on vehicles. The CIT further held that the expenses are allowed/disallowed with reference to s. 37 of the Act, whereas depreciation on vehicles is disallowable under s. 38 of the Act. The CIT thus directed the AO to disallow the depreciation on car in the same proportion as Rs. 40,000 disallowed out of car expenses, is to the total expenditure in respect of vehicles. 9. The learned Authorised Representative for the assessee pointed out that the original proceedings were completed under s. 143(3) of the Act and the AO made enquires in respect of the Parwanoo unit, which was started on 14th June, 2004. Our attention was invited to the replies filed at pp. 1 and 2 of the paper book and pp. 6 and 7 of the paper book. The learned Authorised Representative of the assessee further stated that in the return of income, the assessee by an error claimed the deduction under s. 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n had shown income from two units i.e. one in Ludhiana and the second in Parwanoo. The assessee had started the unit at Parwanoo on 14th June, 2004 and had claimed deduction under s. 80-IB of the Act against the profits of the Parwanoo unit. The AO during the course of assessment proceedings initiated in the case had enquired about the address of the units being run by the assessee and the copies of bank accounts, details of closing stock and the purchases account of the Parwanoo unit. However, no queries were raised in respect of the allowability of claim of deduction under s. 80-IB of the Act. The said claim of deduction under s. 80-IB of the Act was allowed by the AO vide order passed under s. 143(3) of the Act dt. 7th April, 2007. The CIT in exercise of his powers under s. 263 of the Act, on the perusal of record, show caused the assessee as to why the benefit of deduction allowed under s. 80-IB of the Act, be not withdrawn as the said benefit was allowable to the new industrial undertakings, which had commenced manufacture/production of articles or things by 31st March, 2004. The Parwanoo unit of the assessee had commenced production during the financial year 2004-05 and as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port under s. 44AB in Form Nos. 3CB and 3CD of M/s August Industries, 433/2-B/I, Ram Park, Basant Road, Civil lines, Ludhiana E. The audit report under s. 44AB was only in respect of Ludhiana unit and not of Parwanoo unit. The report did not include Parwanoo unit. F. As per the return no report in Form No. 10CCB was filed which was essential mandatory condition. G. The said report was not filed even at the time of assessment proceedings. H. The claim of computation was made under s. 80-IB and was never revised during the assessment proceedings. I. The AO accepted the claim of deduction under s. 80-IB without any discussion or verification on this point. J. In reply of the assessee there is no reference to this issue. K. There is no reference to this issue by the AO in the assessment record. L. As admitted by the assessee it was not entitled to deduction under s. 80-IB but under s. 80-IC. 13. From the abovesaid facts, the conclusion of the CIT was that the assessee had wrongly claimed the deduction under s. 80-IB of the Act. The CIT invoking the provisions of s. 263 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments available on record which were filed after the completion of the assessment under s. 143(3) but before the initiation of proceedings under s. 263 of the Act. 16. The assessee in its reply to the show-cause notice issued under s. 263 of the Act vide para 15 had clarified that it had received letter dt. 6th Nov., 2007 from the AO with regard to the claim of deduction under s. 80-IB/80-IC of the Act. The contention of the assessee was that vide letter dt. 15th Nov., 2007, the report under s. 80-IC and audit report of Parwanoo unit had been filed. The assessee also filed the abovesaid documents for the claim of deduction under s. 80-IC of the Act before the CIT during the proceedings under s. 263 of the Act. A plea was raised by the assessee that that "Therefore, from the documents which are very much available and were also available during the course of assessment proceedings, Your goodself can observe that the deduction is rightly available to the assessee. The documents are before Your Goodself even now and thus in the interest of justice and equity and for the sake of argument can be considered now also". 17. Under the provisions of s. 263 of the Act, the CIT is to form ..... X X X X Extracts X X X X X X X X Extracts X X X X
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