TMI Blog2013 (9) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... 51,19,374/- an amount of ₹ 33,48,468/- remained unpaid upto 31.3.2005. Though Ld CIT(A) has mentioned that money was received from debtors but the fact remains that turnover was made hurriedly in a period of four months that to without realizing the debtors. The profiles of buyers of assessee needs to be investigated to ascertain as to whether these persons actually dealt in the goods purchased from the assessee and further sellers profiles also needs to be investigated to ascertain as to whether they really dealt into the items sold by them to assessee. - Decided in favor of revenue for statistical purpose. - ITA No.1355/Del/2012 - - - Dated:- 23-8-2013 - Rajpal Yadav And T S Kapoor, JJ. For the Appellant : Shri Sukhveer Chaudhary, SR (DR) For the Respondent : Shri V K Aggarwal, AR ORDER:- PER : T S Kapoor This is an appeal filed by the revenue against the order of Ld CIT(A) dated 3.12.2011. The grounds raised by the revenue are as under:- 1. The order of Ld CIT(A) is erroneous and contrary to facts and law. 2. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting the addition of ₹ 78,56,533/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances, the Assessing Officer held that the Unit at Parwanoo does not appear to have been established physically. Therefore, the assessee was asked to show cause as to why deduction claimed u/s 80IC of the Act should not be disallowed. In response to the show cause notice, the assessee submitted as under:- In response to the show cause notice on the claim of deduction u/s 80IC of the Act the assessee furnished a detailed submission which is reproduced hereunder for the sake of convenience and discussion. It may be noted that the Parwanoo unit is altogether a manufacturing unit and no other activity exists at Parwanoo. The profit and loss for the Parwanoo unit is the manufacturing account for the company. Copy of Manufacturing Account is enclosed as per Annexure II. The company was providing Consultancy services like Design Development services to telecom manufacturing companies within India and have high end employees to develop Design for Telecom Companies in India. Salary to the Employees is the main expenses in order to generate this consultancy Income at Delhi Unit. The salary of ₹ 25,98,946/- is paid in the year under reference to generate consultan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (In section) then kitting is done sent for assembly by local partners. The key manufacturing activity involved in these systems is of testing calibration which is carried out using automatic test equipment under supervision of employees. The other key operation involves programming of embedded parts. Both these operations use computerized machinery and are not labour intensive hence we can produce a very large quantity with limited production staff. The services of third party assembly companies which are in turn employing a large number of people in Himachal Pradesh. It may be noted that the Director of the Company Mr. Sankalp Srivastava is IIT (BE Electronics and Communication) is the major technical person in setting and giving technical assistance on the manufacturing unit at Parwanoo whose value addition on the manufacturing activity cannot be ascertained and estimated. The Gross Margin on the sale in Parwanoo is 58% approx. Please note further that the production at Parwanoo unit consists mainly manufacturing testing card sets/systems using electronic components sub assemblies as stated above. These operations have been verified by the department of industries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit. Refer Form 1 issued by Department of Industries, Govt. of H.P. copy attached. Also refer certified reports of Auditors. The production at Parwanoo unit consists mainly manufacturing testing card sets/systems using electronic components sub assemblies. These operations have been verified by the department of industries before granting the permanent registration, we are categorically stating that the percentage of Himachal staff employed at Parwanoo unit was 75% in FY 04-05 this is an essential condition for getting the permanent registration - a copy of which has been submitted to you. The Purchase of ₹ 34,19,250 attributed for purchase of sub assembly the goods manufactured by sub vendors used for final products, a raw material component forming part of final product on which lot of value addition has been done as explained above. 3. The Assessing Officer after going through the reply of the assessee did not consider the assessee to be eligible for deduction u/s 80IC of the Act and disallowed the same by holding as under:- After careful consideration of the above explanation and submissions made by the assessee defending the deduction claimed u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 4 months with 4 employees only, the Parwanoo unit cannot attain the production and revenue declared and that no remuneration was paid to Mr. Sankalp Srivastava, Director. It is seen that while stating the aforesaid findings in the assessment order, the Id. AO has neither given any basis therein for arriving at such conclusions nor has brought incriminating material on record to support his stand. The Id. AR has furnished satisfactory explanation to all the doubts raised by the Id. AD and has vehemently argued that the disallowance was made on surmises and conjectures without any basis. The Id. AR has explained that the accounts of the two units are duly audited and the same show that both the units have entirely independent separate activities. It was averred by the Id. AR that the Id. AO himself has accepted the figure of revenue and hence, his subsequent disallowance of deductions u/s 80lC is arbitrary. Even the discrepancies pointed out by the Id. AO as per the remand report, were satisfactorily explained by the appellant. During the course of the appellate proceedings, the Id. AR filed copies of various documents, e.g. rent agreement for the premises taken on lease in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this letter and therefore the Ld CIT(A) after going through the submission has allowed the deduction. Our attention was also invited to paper book page 77 wherein a copy of Form No.12 issued by the Department of Industries certifying that the assessee was having a registered unit for assembly of embedded system of software was placed. Our attention was also invited to paper book page 78 where a copy of Permanent Registration Certificate issued by the Member Secretary, S.W.S.A. Parwanoo was placed wherein the date of production was mentioned as 27.11.2004. Our attention was also invited to paper book pages 29 to 86 wherein copy of form filed by the assessee for obtaining registration certificate was placed. Paper book page 100 was also referred in support of the fact that assessee had filed its sales tax return under the Act and had declared the entire turnover with the Sales tax authorities. We were also taken to paper book page 9 where a consolidated P L Account consisting of Delhi Parwanoo Unit was placed. Our attention was also invited to the fact that in the present year the profit of Delhi unit has increased as compared to earlier year and therefore the allegation of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... believe that the persons were really technically qualified as the monthly remuneration ranged from ₹ 3000/- to ₹ 8000/-. 10. We have heard the rival submissions of both the parties and have gone through the material available on record. We observe from the documents filed before Assessing Officer and Ld CIT(A) which ranges from lease deed, telephone connection, registration with the prescribed authority, detail of plant machinery etc. that the assessee had all documents in support of its claim of having set up a manufacturing unit at Parwanoo. The copy of Sales Tax Order filed by the assessee also establishes that assessee had achieved a turnover of ₹ 1,39,43,000/-. The main point to be considered by us is as to whether the profits earned by Parwanoo Unit really represented profits from manufacturing activity at Parwanoo Unit or not. From paper book page 60 we find that assessee had made its entire sales to only five parties. The relevant name of parties and turnover made to them is as under:- 1. Pragati Electrocom Co. Pvt. Ltd. Gurgaon. ₹ 4,65,000/- 2. Kudal Teleco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of this company related to Delhi Unit and the differences in the account statements may not have a bearing on the issue under consideration, yet it highlights one point that accounts of the assessee at Delhi Unit were also maintained in a casual manner. The Ld CIT(A) in his order has written that the remaining parties had filed their confirmed copies of accounts with him and therefore on the basis of confirmed copies of accounts he allowed the claim of the assessee. The Ld CIT(A) did not confront the same to the Assessing Officer and instead allowed the claim. 11. The major objection of the Assessing Officer was that in such a short period of four months without the help of technical people, it was not possible to achieve the said turnover. The Ld AR before Ld CIT(A) had submitted that operations of the assessee were not labour intensive and with the help of computerized machinery the assessee was able to produce large quantities with limited production staff. From the schedule of fixed assets of Parwanoo Unit placed at paper book page 40 we find that assessee had total fixed assets to the tune of ₹ 1,60,542/- which included furniture fixture to the extent of ₹ 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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