TMI Blog2014 (11) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, there is no violation of Rule 46A Decided against revenue. Allowability of exemption u/s 10B Assessee claimed that even job work got done from outside was under the supervision and control of the assessee company but it is not supported by bringing ant cogent material - Held that:- The expenses incurred by the assessee company on power, fuel and water is very negligible of ₹ 5.98 lacs only whereas the assessee has incurred huge sum on account of job work expenses of ₹ 117.24 lacs - as per clause (iii) of sub section (2) of section 10B, this is a pre requisite for availing deduction u/s 10B that the new business is not formed by transfer of machinery or plant previously used for any purpose - Apart from stating this that there is change in name, nothing is stated by the A..O. that new business was formed by the assessee by transfer of machinery or plant previously used for any purpose and hence, this objection of the AO is not valid but there is ample force in the his first objection that no manufacturing activity was carried out by the assessee because it has been seen that the assessee company was not even having sufficient technical experts to supervise an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion u/s 143(1) was issued to the assessee after issue of notice u/s 143(2), it cannot be said that an assessment order framed by the AO u/s 143(3) on a date after the date of such intimation is bad in law the additional ground is rejected Decided against assessee. Allowability of exemption of interest on FDRs u/s 10B Held that:- The assessee is not eligible for any deduction u/s 10B while deciding the appeal of the Revenue, the ground raised by the assessee have become infructuous because when the assessee is not eligible for any deduction u/s 10B, interest income on FDR alone cannot be considered for granting exemption u/s 10B of the Act Decided against assessee. Disallowance u/s 10B deleted Held that:- As decided in assessees own case for the earlier assessment year, it has been held that the assessee is not eligible for deduction u/s 10B because the assessee was not doing manufacturing activity since most of the processing work was outsourced by the assessee without having direct supervision and control - Since the present assessee has acquired the same undertaking from M/s MKU (Armours) Pvt. Ltd., which was not eligible for deduction u/s 10B of the Act, this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m foreign company is not exempt, no disallowance is called for u/s 14A in respect of such investment in shares of a foreign company the order of the CIT(A) is upheld Decided against revenue. - ITA No.612/LKW/2010, C.O. No.49/LKW/2010, ITA No.401/LKW/2011, C.O. No.33/LKW/2011, ITA No.179/LKW/2012, ITA No.152/LKW/2012 - - - Dated:- 21-11-2014 - Shri Sunil Kumar Yadav And Shri A. K. Garodia,JJ. For the Petitioner : Shri Vivek Mishra, CIT, D.R. For the Respondent : Shri S. K. Garg, Advocate , Shri P. K. Kapoor, C.A. ORDER Per A. K. Garodia, A. M. Out of this bunch, there is one appeal by the Revenue and Cross Objection filed by the assessee in the case of M/s MKU (Armours) Pvt. Ltd. for assessment year 2007-08, which are directed against the order of CIT(A)-II, Kanpur dated 15/07/2010. There is one appeal by the Revenue and Cross Objection filed by the assessee in the case of M/s MKU Pvt. Ltd., which are directed against the order of CIT(A)-II, Kanpur dated 31/03/2011. There are two appeals filed by the Revenue in the case of two different assessees i.e. M/s MKU (Armours) Pvt. Ltd. and M/s MKU Pvt. Ltd., which are directed against two separate orders of le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt documents could be produced during the course of assessment proceedings till the passing of order i.e. on 31.12.2009. 4. That the Commissioner of Income tax (Appeals)-II, Kanpur has erred in law and on facts by not appreciating the facts that the. 100% EOU has been formed by splitting and re-construction of old business carried by assessee group in the name of MKU Pvt. Ltd. 5. That the Commissioner of Income tax (Appeals)-II, Kanpur has erred in law and on facts by not appreciating the facts that the management and financial control were in the hands of parent company i.e. M/s. MKU Pvt. Ltd. 6. That the Commissioner of Income tax (Appeals)-II, Kanpur has erred in law and on facts by not appreciating the facts that the machine purchased on high seas by M/s. MKU Pvt. Ltd. has been transferred to 100%EOU. 7. That the Commissioner of Income tax (Appeals)-II, Kanpur has erred in law and on facts by not appreciating the facts in deleting the Consultancy Charges of ₹ 3,55,600/- paid to Shri Sharad Khandelwal without appreciating the fact that proper opportunity was provided by the Assessing Officer by issuing written questionnaire dated 20.11.2009 vide para-11 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court) (UR) (iii) Smt. Prabhavati S. Shah Vs Commissioner of Income-tax [1998] 231 ITR 1 (Bom) (iv) Commissioner of Income-tax Vs Dev Musco Lighting P. Ltd. [2009] 316 ITR 209 (Del) (v) Commissioner of Income-tax Vs Central Mall [2011] 332 ITR 320 (P H) (vi) Shilpa Associates Vs Income-tax Officer [2003] 263 ITR 317 (Raj) (vii) Mohindar Kaur (Smt.) Vs Central Government [1976] 104 ITR 120 (All) (viii) Commissioner of Income-tax Vs Nirbheram Daluram [1997] 224 ITR 610 (SC) (ix) Commissioner of Income-tax Vs K. Ravindranathan Nair [2004] 265 ITR 217 (Ker) (x) P. L. Patil vs. Income Tax Officer [2011] 60 DTR (Mum) (Trib.) (xi) CIT vs. Continental Engineers Ltd. [2011] 60 DTR (Del) 40 5. We have considered the rival submissions. We find that as noted by CIT(A) in Para 5.6, the Learned A.R. of the assessee has filed an affidavit dated 11/06/2010, sworn by Mr. Manish Khandelwal, Director of the assessee company. The CIT(A) has reproduced the relevant portion of this affidavit in his order. Thereafter, the CIT(A) has decided the issue as per Para 6 of his order. We also find that CIT(A) has examined the authenticity of the said affidavit and for this purpose, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere installed at the factory premises (at 118E, Shyam Nagar, Kanpur). That rest of 77 items of machineries were found to be installed at Jacket Division of M/s MKU (P) Ltd. 30, UPSIDC, Malwan Salempur (Rooma). It has also been stated that loose papers in Ann. LP-18 contained two bills dated 07.03.2005 and 09.03.2005 for engaging cranes and labours for shifting of Hydraulic Press Machine to Malwan from Gandhi Gram, Kanpur being one of the factory premises of MKU (P) Ltd. The Assessing Officer has alleged that the assessee group is formed to have claimed deduction/exemption u/s 80HHC, 10B u/s 80IC in succession on strength of basically the same infrastructure in flagrant violation of law. 2. The Assessing Officer's finding as per CIT(A) is based on the points mentioned at Para 11 page 16 of CIT(A) order as under- a) At the time of survey on 25.02.2008 at 118-E, Shyam Nagar, Kanpur which was the site of industrial undertaking of the appellant and approved also as EOU by the Asstt. Development Commissioner, Noida under section 14 of the Industries (Development Regulation) Act 1951 whole of the machineries as belonging to the appellant were not found to be installed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing were found in the premises of assessee. The outsourcing does not mean that 80% of machines are lent to some other concern for doing manufacturing on its behalf. Outside manufacturing of major portion is not within the ambit of outsourcing. 6. The observation of CIT(A) regarding definition of out sourcing is beyond the spirit of out sourcing work. 7. The provisions of section 10B(2) (ii) state as under:- 10(2) this section applies to any undertaking which fulfill all the following conditions, namely -- (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence; 8. The splitting is proved from the facts gathered at the time of survey. 9. It can be seen that the provisions of section 10B(2) is not fulfilled. 10. In the case of CIT West Bengal-II Vs Durga Prasad More 82 ITR 540(SC). The Hon'ble Supreme Court observed:- It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real...... ..... Science has not yet invented any instrument to lest the reliability of the evidence placed before a court or tribunal. Therefore, the counts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) CIT vs. Penwalt India Ltd. 196 CTR 813 (iii) Intimate Fashions (India) (P) Ltd. vs. ACIT [2012] 077 DTR (A.T.) 0068 8.2 Regarding the allegation of splitting up and reconstruction, he placed reliance on the following judicial pronouncements: (i) CIT vs. Quality Steel Tubes P. Ltd. [2006] 280 ITR 254 (All) (ii) CIT vs. Starlight Silk Mills Pvt. Ltd. [2006] 280 ITR 37 (Guj) (iii) Textile Machinery Corporation Ltd. vs. CIT [1977] 107 ITR 195 (iv) Hindustan Malleables and Forgings Ltd. vs. Income Tax Officer [1978] 112 ITR 389 (Patna) (v) CIT vs. Simmonds Marshall Ltd. [1986] 161 ITR 817 9. We have considered the rival submissions. We find that it is noted by the Assessing Officer in the assessment order that the assessee company is not an isolated company but belongs to a group of companies which comprised of M/s MKU Pvt. Ltd., M/s A. R. Thermosets Pvt. Ltd., M/s A. R. Polymers Pvt. Ltd. and M/s A. R. Plimsols Pvt. Ltd. The Assessing Officer has also noted that survey u/s 133A was carried out on 25/02/2008 at the premises of the assessee company at 118-E, Shyam Nagar, Kanpur including other business premises belonging to the assessee group. The Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that on page No. 38 of the paper book is Schedule-14 to the balance sheet as on 31/03/2007 and as per the same, the assessee has paid job work expenses of ₹ 117.24 lacs and has paid only ₹ 5.98 lacs for power, fuel and water. As per Schedule-14 appearing on page No. 39 of the paper book, the assessee has incurred only ₹ 13.87 lacs on account of wages and salary and therefore, the amount incurred on account of job work expenses is almost 8.5 times of wages and salary. It is also seen that the expenses incurred by the assessee company on power, fuel and water is very negligible of ₹ 5.98 lacs only whereas the assessee has incurred huge sum on account of job work expenses of ₹ 117.24 lacs. This is the claim of the assessee that even job work got done from outside was under the supervision and control of the assessee company but it is not supported by bringing ant cogent material on record because when only ₹ 13.87 lacs was incurred on account of wages and salary, it is not acceptable that the assessee was having sufficient technical experts to supervise and control the job work by outside agencies for whole of the year because monthly expenses on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to them for purchasing the raw material. It was also noted that the artisans made articles in different models. It further noted that the articles in raw form were examined by the assessee and then directions were given to the artisans to modify and polish the same. Under these facts, it was held by Hon'ble Allahabad High Court that the assessee company was a new company manufacturing or processing goods. In the present case, we have already seen that the assessee is incurring only an amount of ₹ 13.87 lac on account of wages and salary and it has not been shown that the assessee was having sufficient technical experts to supervise and control the manufacturing by job workers. When the assessee was not having technical experts to supervise and control the manufacturing process being carried out by job workers, this judgment of Hon'ble Allahabad High Court is not applicable in the facts of the present case. 9.2.2 The next judgment cited by Learned A.R. of the assessee is the judgment of Hon'ble Punjab Haryana High Court rendered in the case of Liberty Group Marketing Division (supra). There is no decision taken in this judgment and it was merely held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring any help to the assessee in the present case. 9.2.6 In addition to this, one more citation was given by the assessee i.e. 77 DTR 68. The Learned A.R. of the assessee was asked to furnish copy of this judgment but he has not done the same. We have also tried to locate this judgment but we find that no such judgment is reported on page 68 of 77 DTR. 9.2.7 In addition to this, reliance was also placed on various judgments in support of his contention that there is no splitting up or reconstruction as has been alleged by the Assessing Officer. We feel that in the present case, the assessee could not establish that the assessee is engaged in manufacturing then this aspect as to whether there is any splitting or reconstruction, is not relevant. Hence, we do not enter in this aspect particularly when the A.O. also has not alleged that there was any transfer of used machin to the assessee company. 10. As per the above discussion, we have seen that as per the facts of the present case, it cannot be accepted that the assessee is undertaking any manufacturing activity because we have seen that the assessee company is getting most of the work on job work basis and at the same tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. That the learned CIT (A) has failed to appreciate that the FDRs were taken for pledging the same by way of margin money, in order to meet essential business requirement as such interest on such FDRs was a part of business activity carried on by the EOU of the appellant company the same qualify for exemption u/s 10B of the Act. 14. The assessee has also raised additional grounds in the Cross Objection, which are as under: (iii) That in relation to ground No.2 as has been taken by the Revenue in the above mentioned appeal, the assessee/Cross Objector begs to submit that no additional evidence was taken into consideration by the Ld. CIT (Appeals), in upholding the appellant's claim for exemption under section 10B of the Act and the said ground is not maintainable at all. (iv) That there is no infirmity in the appellate order dated 15.7.2010, which is the subject matter of appeal filed by the Revenue, excepting the additional plea that the assessee seeks to take hereinafter. (v) That the applicability of second proviso below section 10B reading as Provided (further) that for the assessment year beginning on the 1st day of April, 2003, the deduction under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appeal are dismissed. 17. Learned A.R. of the assessee placed reliance on the following judicial pronouncements:- (i) Commissioner of Income-tax Vs Kelvinator of India Ltd. [2002] 256 ITR 1 (Del) (ii) Income-tax Officer Vs Delhi Development Authority [2001] 252 ITR 772 (SC) (iii) Commissioner of Income-tax Vs Meghalaya Steels Ltd. [2013] 356 ITR 235 (Gau) 18. On the other hand, Learned D.R. of the Revenue supported the order of CIT(A). 19. We have considered the rival submissions. We find that the judgment of Hon'ble Delhi High Court in the case of Kelvinator of India Ltd. (supra) was on the issue as to whether even for change of opinion by Income Tax Officer, action u/s 147 can be taken or not. Therefore, this judgment is not relevant for this issue raised by the assessee before us. The issue raised by the assessee is not regarding reopening u/s 147 on mere change of opinion and therefore, this judgment is not relevant in the present case. Learned A.R. of the assessee has also given a citation as 130 ITR 9. He has not given copy of this judgment and when we tried to find out this judgment, we find that there is no judgment on page No. 9 of 130 ITR. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in the Cross Objection have become infructuous because when the assessee is not eligible for any deduction u/s 10B, interest income on FDR alone cannot be considered for granting exemption u/s 10B of the Act. Hence, these grounds are also rejected. 25. In the result, the Cross Objection of the assessee stands dismissed. 26. Now we take up the appeal of the Revenue for assessment year 2008- 09 i.e. I.T.A. No.401/Lkw/2011. Ground No. 1 to 3 are inter-connected, which read as under: 1. The Ld. CIT(A)-II has erred in law and on facts in deleting the disallowance of ₹ 20,92,98,696/- claimed u/s 10B without appreciating the facts of the case that conditions for the claim of exemption u/s 10B were not satisfied. 2. The Ld. CIT(A) has erred in law and on facts by not appreciating the facts that the 100% EOU has been formed by splitting and re-construction of old business carried by the assessee group in the name of MKU Armours Pvt. Ltd. 3. The Ld. CIT(A) has erred in law and on facts by not appreciating the fact that M/s MKU Armours Pvt. Ltd. has not been amalgamated in M/s MKU Pvt. Ltd., therefore, exemption u/s 10B of the IT Act, 1961 is not allowable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by learned CIT(A) as per Para 8.1, which is reproduced below: 8.1 The payment for inspection of export cargo was made to an Egyption concern namely M/s. Ashmand Israil. The said person is Egyption resident and, therefore, the provisions of DTAA between India and Egypt (UAR) are applicable. Inspection work done by this concern in India may give rise to business connection in India, but would not constitute PE in India as it was a one-off activity and this concern did not have any establishment or branch office in India. In absence of PE in India no business income of this Egyptian Resident was taxable in lndia and thus, the appellant company was not required to deduct TDS in terms of section 195 of the Act. The addition made u/s. 40(a)(i) is, therefore, deleted. 31.1 From the assessment order, we find that the main basis of the Assessing Officer for making disallowance is that no TDS was deducted. As per the finding of CIT(A), it is seen that it is held by him that as per DTAA between India and Egypt (UAR), no TDS was deductible because there can be a business connection but it would not constitute PE in India of the payee company. This contention could not be controvert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WITHOUT PREJUDICE 2. The learned CIT (Appeal) was wrong in law and on facts in confirming the following additions/disallowances made by AO in the assessment order for Asstt. Year 2008-2009. (i) ₹ 3,08,937/- additions made for alleged excess stock found at the time of survey. (ii) Profit on alleged sale of short of stock found at the time of survey. (iii) ₹ 18,25,119/- disallowance of payments made to Defexco U/s 40(a)(ia). (iv) ₹ 90,000/- disallowance of exhibition expenses u/s 40 (a)(ia). (v) ₹ 1,47,00,000/- Loss in currency wrongly considered as speculative loss. (vi) ₹ 23,85,395/- claim of insurance disallowed. 3. The learned CIT (Appeal) has failed to appreciate the facts of the case and the written submission filed before him in respect of the aforesaid additions/disallowances. 4. In any case and without prejudice the additions/disallowance confirmed by CIT (Appeal) are high excessive. 36. Ground No. 1 and 2(i) to 2(v) were not pressed and accordingly these grounds are rejected as not pressed. 37. Regarding ground No. 2(vi), it was submitted by Learned A.R. of the assessee that this issue is covered by the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, exemption u/s 10B of the I.T. Act, 1961 is not allowable. 4. The Ld. CIT (A) has erred in law and on facts by not appreciating the Facts as mentioned in the assessment order of assessment year 2009-10 which are different from earlier years and also in addition to the facts discussed in detail in the year of earlier years and also in addition to the facts discussed in detail in the year of earlier Assessment order whereas appeal was allowed on the basis of Assessment order of Assessment Year 2008-09. 43. It was agreed by both the sides that the issue in above grounds is identical in respect of claim of the assessee for deduction u/s 10B and the same can be decided on similar line as per decision in assessment year 2007- 08 2008-09. In assessment year 2007-08 and 2008-09, we have decided this issue in favour of the Revenue and against the assessee. Accordingly, in this year also, this issue is decided in favour of the Revenue and against the assessee. These grounds of the Revenue are allowed. 44. Ground No. 5 is as under: 5. The Ld. CIT (A) has erred in law and on facts by accepting additional evidences or fresh evidences during appellate proceedings in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce is called for u/s 14A in respect of such investment in shares of a foreign company. Considering all these facts, we decline to interfere in the order of CIT(A). Ground No. 6 is also rejected. 50. In the result, the appeal of the Revenue stands partly allowed. 51. Now we take up the appeal of the Revenue for assessment year 2009- 10 i.e. I.T.A. No.152/Lkw/2012. In this appeal, the Revenue has raised the following grounds: 1. The order passed by the Ld. CIT (A) deserves to be quashed without going into its merits because it was passed in gross violation of principles of natural justice, i.e., without giving the Assessing Officer proper opportunity of being heard; without consulting the records of the assessment proceeding; without calling for a Remand Report u/s 250(4) of the Income Tax Act:, 1961 or even without obtaining statutory form Nos. I.T.N.S.-37 and I.T.N.S.51. Without prejudice to the Ground No. 1 above, the following further grounds are taken: 2. The impugned appellate order deserves to be quashed as being erroneous on facts as well as in law in as much as the Ld CIT(A) did neither summon the Register maintained u/s 301 of The Companies Act, 1956, whose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of other are things which do cost in monetary terms and which can be valued in monetary terms. 12. The Learned CIT(A) has erred on facts white rejecting the estimate of income ignoring the practice prevalent in the market. 13. The order passed by the CIT(A) is erroneous both on facts as well us in law, therefore, deserves to be quashed and that of the Assessing Officer be restored. 52. Learned D.R. of the Revenue supported the assessment order whereas Learned A.R. of the assessee supported the order of CIT(A). 53. We have considered the rival submissions. This issue was decided by learned CIT(A) by making following observations: I have considered the finding of the AO and the submissions of the appellant. I find that the Asstt. framed by the A.O. is neither proper nor in accordance with the provisions of the Act. It suffers from following infirmities: 1. About the compliances made by the appellant the AO has mentioned In response, Shri Pramod Kumar AR appeared from time to time and filed various replies, papers and documents in support. Cash book and ledger were produced and test checked. The case was discussed with him. There was therefore no justific ..... X X X X Extracts X X X X X X X X Extracts X X X X
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