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TMI Blog2014 (12) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... product valuation took place, also failed to produce the basic requirement of production of goods. III. For these any other reasons that may be urged at the time of hearing, it is requested that the order of the CIT(A) be quashed and that of the A.O. be restored. 2.1 The assessee has raised the following grounds:- I. On the facts and in the circumstances of the case, the ld. Commissioner of Income Tax (A) erred in directing the Assessing Officer to restrict the claim u/s 10B to 19.06% of sales (excluding foreign exchange gain), against Rs. 2,32,48,056/- as claimed by your appellant on the profit of Nilakottai Unit (a 100% EOU), although no defect was pointed out in the audited accounts by any of the lower authorities. II. On the facts and in the circumstances of the case, the ld. Commissioner of Income Tax (A) erred in giving observation regarding computation of capital gains in the hands of the successor company in the subsequent year, even though it has no jurisdiction go give any observation for the year and the assessee not in appeal 2.2. First we shall take up the appeal of the Revenue, wherein, the first ground pertains to allowing deduction u/s 10B of the Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmittedly 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. In the case of the assessee 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. Without adverting further since the Hon'ble High Court has already upheld the order of the Tribunal holding that the activity carried out by the assessee amounts to manufacturing for assessment year 2002-03 and no contrary decision was brought to our notice by the Revenue, therefore, respectfully following the decision from the Hon'ble Jurisdictional High Court, that too in the case of assessee (ITA No. 348/2011) order dated 13/01/2012, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income tax (Appeals), consequently, this ground of the Revenue is without any merit, therefore, dismissed. 2.4. Without prejudice to the above ground, the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain. Reliance was placed upon the decision in ITO vs Gilvert Ispat (ITA No.345/Chd/2011). Plea was also raised that purchases/sales from the related parties is comparatively negligible. On the other hand, the ld. DR strongly defended the conclusion drawn by the ld. Commissioner of Income tax (Appeals) by submitting that the ld. First Appellate Authority while coming to a particular conclusion sought remand report from the Assessing Officer and counter reply from the assessee. 3.2. We have considered the rival submissions and perused the material available on record. The assessee is aggrieved by adoption of profit earned by the sister concern on the ground that the Assessing Officer has not examined any comparable case for arriving at a reasonable profit. Keeping in view, the totality of facts available on record, we find that in the case of sister concern in the instant year 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 totality of facts clearly indicates that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequent year. The crux of argument on behalf of the assessee is that the ld. Commissioner of Income tax (Appeals) had no jurisdiction to make such type of observation when such appeal was not before him for adjudication. On the other hand, the ld. DR defended the conclusion drawn by the ld. Commissioner of Income tax (Appeals). 3.4. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion we are reproducing hereunder the concluding portion of the order of the ld. Commissioner of Income tax (Appeals). "I have carefully considered the facts stated in the assessment order and written submissions as well as oral arguments of the ld. AR. It is undisputed that assessee's firm was converted as company under the name M/s PPP Ltd and within short period the said M/s PPP Ltd was merged with the existing company M/s PAODP Ltd. Here the case is not of mere bona-fide conversion of a firm in Part-IX Company because resultant company is further merged with another company. The judicial pronouncements relied upon by the ld. AR are not applicable for the reason that sec. 47(x iii) was introduced with effect from 1.4.99 and also it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 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. The AO had not specified the legal basis for taking estimated sale consideration, estimated cost of acquisition and also holding period. In result the estimated short term capital gain as computed by the AO in instant year in the case of instant assessee is not liable to be assessed legally as well as factually. However the AO is free to assess the capital gain u/s 47 A(3) r.w.s. 47 (xvii) of the Act in relevant year in the case of immediate successor company or effective successor company as per law taking in to consideration statutory provisions in vogue and making necessary inquiry, if needed. In terms of discussion hereinabove the assessee is entitled for relief to that extent. 5. In result, for statistical purpose, appeal filed by the appellant - is treated as partly allowed." 3.5. If the observation made in the assessment order, conclusion drawn in the impugned order, material available on record and the assertions made by the ld. Respective counsels are kept in juxtaposition and analyzed, we n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not complied with." 3.6. The ld. Commissioner of Income tax (Appeals), in view of the apparent provision of the statute held that the capital gain, if any, shall be liable to be assessed in the hand of the successor company, in the pervious year in which violation took place meaning thereby the successor company shall be liable for capital gain, if any, as per law, taking into statutory provision after making necessary enquiry, if needed, and not the assessee. Since, the assessee was not held liable therefore, how the assessee is aggrieved is not known. At the same time, there is a clear direction to the Assessing Officer that he can only proceed, if he deem fit and that to within the four corners of law, therefore, we find no infirmity in the conclusion of the ld. Commissioner of Income tax (Appeals). So far as, the contention of the assessee that such issue was not pending adjudication before the ld. Commissioner of Income tax (Appeals), we note that such argument has been mentioned even in the statement of fact attached with form no. 35 and the issue raised before the ld. Commissioner of Income tax (Appeals), therefore, from this angle also we find no merit in the argument of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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