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2015 (4) TMI 676 - ITAT DELHI

2015 (4) TMI 676 - ITAT DELHI - TMI - Revision of assessment order - Deduction u/s 80IC of Income Tax Act,1961 - Deduction already allowed in the immediately preceding assessment year - Sale to related companies at a high margin - Pre-requisite conditions of eligibility of deduction examined in first year itself - Held that:- it is observed that the assessee claimed deduction u/s 80IC for the first time in the immediately preceding assessment year, namely, AY 2005-06 in respect of profit from th .....

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nd year of the claim for deduction u/s 80IC. With the above background in mind, we will take up all the objections raised by the ld. CIT one by one and see if the assessment order can be held to be erroneous and prejudicial to the interest of the Revenue.

The first objection of the ld. CIT is that the assessee had not undertaken substantial expansion and, thus, the basic pre-requisite for deduction u/s 80IC was not satisfied.In view of the fact that the pre-requisite conditions can be .....

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shown, it was incumbent upon the AO to investigate this aspect of the matter further rather than stopping at the receipt of sales account. In our considered opinion, the ld. CIT was justified in directing the AO to re-examine this aspect of the assessee’s claim for deduction u/s 80IC. We uphold these objections taken by the ld.CIT. Objection no. 7 of the ld. CIT, It is obvious that Kapashera Delhi office was not undertaking any income producing activity and the loss of ₹ 65,326/- was only .....

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able on one of the various objections taken by the ld. CIT and not on others, the order is not vitiated. However, the direction to the AO by the ld. CIT gets restricted to the points on which the order is sustainable. As the impugned order is sustainable in respect of two objections only, we direct the AO to restrict himself only on these issues in the assessment to be finalized u/s 143(3) pursuant to the order u/s 263 of the Act. - Partly allowed in favour of assessee. - ITA No.1182/Del/2010 - .....

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eted u/s 143(3) of the Act on 4.6.2008 determining total income at ₹ 82,29,870/-, being the same amount at which the return of income was filed by the assessee. The assessee, inter alia, claimed deduction u/s 80IC. The ld. CIT, while exercising jurisdiction u/s 263, held the assessment order to be erroneous and prejudicial to the interest of the Revenue, on the following ten counts :- (i) The audit report in Form No. 10CCB at serial number 25(d) clearly says that the business had not under .....

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was also seen that as per the depreciation chart the value of machinery was only ₹ 69,274/- which did not appear adequate to carry out the magnitude of manufacture as would appear appropriate vis-a-vis the high turnover declared at ₹ 5,62,51,944/-. (iii) Manufacturing is done in the name of M/s Fortune a Baddi, Himachal Pradesh. Export is carried out in the name of M/s Da Milano, Gulmohar Park, New Delhi. Other related concerns involved in the trading process within the meaning of s .....

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in the circumstances of the case was not verified by the AO. (iv) One of the trade creditors was M/s. Fortune Leather Co. No verification was made on the lines as cited at (iii) above as was needed to be done. (v) Fabrication charges of ₹ 67.24 lakhs which was shown, as direct expenses were paid to M/s Kishan Enterprises and M/s Sandeep Leather Works as jobwork charges. As per the provisions of section 801C, manufacturing should have been carried out by the assessee itself-with the new mac .....

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had not examined whether those were direct manufacturing expenses or amounts reimbursed to the parties who carried out the job work. The AO had not called for or verified the electricity bills to make the necessary verifications. (vii) The assessee had one Unit of M/s Fortune at Baddi, Himachal Pradesh And another at Kapashera, DelhI. While In respect of the Kapashera Unit a loss of ₹ 65,326/-. was shown, in respect of the Baddi Unit substantial business profits claimed as exempt u/s 80IC .....

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ny existing business. Magnitude of manufacture, turnover, etc., of these parties should also have been verified where possible to find out if manufacturing activity carried out by any of them had been abandoned in favour of the Baddi Unit since in such a case it would mean that those existing business/businesses had been reconstructed at Baddi, Himachal Pradesh to avail tax benefit in violation of the provisions of section 80IC(4)(i). (ix) No effort was made by the AO to verify the actual existe .....

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thorough verification, had not been verified. (x) The sales expenses of ₹ 7,08,974/- shown in the P&L a/c under the head 'indirect expenses' was salary paid to six persons as per the details filed. The direct expenses were the packing expenses and the fabrication expenses comprising only job work expenses. This led to the conclusion that no actual manufacturing activity had been carried out by the assessee on its own in violation of the basic pre-requisite of section 80IC(2)(a .....

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8377; 44.77 lac with the overall GP rate of 40.7%, in comparison with the current year s total sales of ₹ 5.62 crore and gross profit of ₹ 2.87 crore, giving GP rate of 51.02%. The ld. CIT further observed that sales to two of the related concerns, namely, Orient Express and M/s Sundaram Enterprises increased from last year s 45% of the total sales to the current year s 79%. About Fabrication charges paid to M/s Kishan Enterprises and M/s Sandeep Leather Works, the ld. CIT observed t .....

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missions and perused the relevant material on record. We want to clarify that the mandate of section 263 is attracted only when the assessment order is found to be erroneous and prejudicial to the interest of the Revenue. These twin conditions have to be cumulatively satisfied for obtaining a valid jurisdiction under this section. Merely because an assessment order is prejudicial to the interest of the revenue is not enough, unless it is shown that the same is erroneous too. An assessment order .....

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pting one of the possible views. Only the former makes an assessment order erroneous and not the later. In other words, if there is a debatable issue and the AO has taken one of the possible and legally sustainable views, then that aspect goes outside the realm of revision. Another situation of an erroneous order may be when investigation was made by the AO, but the circumstances suggest that further investigation was warranted, which the AO failed to make. This would also make the assessment or .....

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no discussion in the assessment order on such aspects. If a view is taken that non-discussion of an issue in the assessment order on which the AO is satisfied, means the absence of application of mind by the AO, then probably all the assessment orders would become erroneous. It is so for the reason that the AO cannot be expected to discuss each and every, significant or insignificant aspect of assessment, in his order. The essence of the matter is that on the non-discussed relevant issues in th .....

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anufacturing unit established at Baddi in Himachal Pradesh. The assessment for the AY 2005-06 was taken up by the AO u/s 143(3) and the claim of deduction u/s 80IC was allowed as claimed. A copy of the assessment order for the AY 2005-06 is available on record. This shows that all the pre-requisites for the claim of deduction u/s 80IC were examined by the AO in finalizing the assessment for the earlier year and he got fully satisfied with the eligibility of deduction. The instant year is second .....

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assessee claimed deduction under this section for the second year in line. Such deduction was claimed for the first time in the immediately preceding year and the AO duly allowed the same, which automatically implies that all the pre-requisite conditions for the claim of deduction u/s 80IC were duly examined by the AO and found to be satisfied. Once all the prerequisite conditions for availability of deduction u/s 80IC have been considered by the AO and found to be satisfied, then it is not ope .....

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re, dismissed. 7. The second objection of the ld. CIT is that new machinery to the minimum extent of 80% of total machinery was to be used in the manufacturing activity by M/s Fortune at Baddi, Himachal Pradesh, being the eligible unit. Here again, we find that the ld. CIT is discussing about the eligibility conditions for claim of deduction u/s 80IC, which cannot be re-visited in the second year. 8.1. Objection nos. 3 and 4 of the ld. CIT are that the assessee made sales to its related concerns .....

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receding year s gross profit rate from sales to these companies at 40%. It can be observed from the material on record that no investigation was carried out to verify the price charged by the assessee from these companies. 8.2. This is an issue on which albeit investigation was started, but further investigation was required because of the attending facts suggesting a steep increase in the gross profit rate purportedly earned from the related concerns. Earning gross profit at more than 50% in th .....

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his aspect of the assessee s claim for deduction u/s 80IC. We uphold these objections taken by the ld.CIT. 9. Objection no. 5 of the ld. CIT is against payment for Fabrication charges amounting to ₹ 67.24 lac made to M/s Kishan Enterprises and M/s Sandeep Leather Works as job work. It was explained to the ld. CIT that these labour contractors were rendering services in the assessee s premises. In support of this contention, the assessee filed proof of its having made payment of ESI/PF, etc .....

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t sustainable. 10. Objection no. 6 of the ld. CIT is about the payment of Electricity expenses. The ld. CIT observed that the AO did not examine whether the electricity charges were direct manufacturing expenses or the amounts reimbursed to the parties who carried out job work. The assessee tendered before the ld. CIT that there was no reimbursement of expenses incurred by any third party and all the expenses incurred and claimed were for self, inasmuch as the assessee had sanctioned load of 58 .....

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t of M/s Fortune at Baddi, Himachal Pradesh and another at Kapashera, Delhi. He observed that in respect of Kapashera unit there was a loss of ₹ 65,326/-, whereas in respect of Baddi unit, there was substantial business profit for which deduction was claimed u/s 80IC. The assessee contended before the ld. CIT that only the Baddi unit had undertaken manufacturing and selling activity, whereas Kapashera Delhi was simply its administrative office which was not undertaking any business activit .....

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