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2015 (11) TMI 1268 - ITAT DELHI

2015 (11) TMI 1268 - ITAT DELHI - TMI - Eligibility of deduction u/s.80lC - CIT(A) allowed the claim - Held that:- The profits declared by the assessee on these two proprietary units located in "Baddi" Himachal Pradesh, which is exempt from taxation u/s 80(IB), is abnormal. The net profits declared for the A.Y. 2003-04, 2004-05 and 2005-06 are 56.96%, 51.75% and 52.88% for the A.Y. 2006-07 and 2007-08, the profits shot up to 79.87% and 78.47%. Such abnormal figures in these years is not explaine .....

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and reasoned order on each of the observations of the Ld.A.O. - Decided in favour of revenue for statistical purposes. - ITA No. 4504/Del/2012 - Dated:- 11-9-2015 - I. C. Sudhir, JM And J. Sudhakar Reddy, AM For the Petitioner : Shri Vikram Sahay, Sr DR For the Respondent : Shri V K Jain, CA ORDER Per J. Sudhakar Reddy, Accountant Member This is an appeal filed by the Revenue and is directed against the order of the Ld.CIT(A)-XXVI, Delhi dated 18.06.2012 pertaining to the A.Y. 2008-09. 2. Facts .....

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both these manufacturing units are situated in an industrially backward area, the appellant claimed 100% deduction in respect of the profits earned from these units under the provisions of section 80IC of the Income-tax Act, 1961. 2.1 In view of the facts discussed by the Assessing Officer in the assessment order dated 31.12.2010 and relying on various judicial pronouncements, the Assessing Officer held that as per the provisions stipulated in sub-section 10 of section 80-IA, the profits of the .....

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r allowed the deduction at 50% of the profits of M/s. M.J. Pacing at ₹ 65,21,971/- in respect of the claim of deduction u/s.80IC wvith regard to the deduction u/s.80IC in respect of profits of M/s. M.J.Industries, the Assessing Officer observed that the issue of machinery used by the appellant (with reference to the conditions laid down in clause (ii) of sub section (4) of section 80 IC was examined in detail in the assessment year 2006-07, and it was found that the value of old machinery .....

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assessment order for the assessment year 2006-07, framed on identical issue and disallowed the appellant's claim of deduction u/s.80 IC in respect of the proprietary unit of M/s. M.J. Industries." 3. Aggrieved the assessee carried the matter in appeal. The First Appellate Authority granted relief. 4. Aggrieved the Revenue has filed this appeal before us on the following grounds. 1. "Whether Ld. CIT(A) was justified in allowing the profit of both the proprietorship firm shown by the .....

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'ble Supreme Court in the case of M/s Mc Dowell & Co. Ltd. Vs. CTO (1985) 154 ITR 148 (SC) held that a colorable device cannot be a part of tax planning as it is wrong to encourage or entertain the belief that it is a honorable to device payment of taxes by resorting to dubious method. 2. Whether Ld. CIT (A) was justified in allowing the disallowance of deduction u/s 80IC in respect of unit M/s MJ. Industries, which was disallowed by the Ld.AO on the basis of decision of AO passed u/s 14 .....

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of orders of lower authorities, material placed on record, we hold as follows. 7. The first issue is whether the A.O. was right in restricting the net profit earned by the assessee company from its proprietary concerns M/s MJ Packaging and M/s MJ Industries, which are located in Baddi, Himachal Pradesh, to 50% of the net profit claimed by the assessee. The A.O. restricted the profit by invoking Sub Section 10 of Sec.80(IA) of the Income Tax Act, 1961 (the Act). The reasons given by the A.O. are: .....

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cule. The explanation of the assessee that he has contract employees, in addition to these 9 regular employees was rejected. The ESI paid in respect of contract employees is ₹ 1,434/- and the security expenses is minimum. The explanation of the assessee that ESI became applicable only for March, 2008 in respect of contractual employees was rejected. (iii) Most of the purchases were for sister concerns, which have shown heavy losses. (iv) M/s MJ Packaging has got plant & machinery, the .....

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is 78.46% of the gross receipts of manufacture. (vi) The written down value of M/s MJ Industries as on 1.4.2007 is nil EPF contribution is less than ₹ 2,000/- which demonstrates that there are no employees. (vii) The assessee replied that the contract business of M/s MJ Industries came to an end in January, 2008. At Para 11, the A.O. held as follows. "11. It would be quite unformatted to analysis the G.P./N.P. . ratios of all the business concerns of the assessee which are in the sam .....

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lotNo.49-50-57, HPSIDC. Baddi, Himachal Pradesh. 119.23 343.39 (-)175.74 LOSS (-)302:52 LOSS (-)147 (-)88 M/s M.J. International Pvt.Ltd. 278.31 263.05 (-)79.54 LOSS (-)123.06 LOSS (-)28 (-)47 M/s M.J.. Global Ltd. 277.28 239.23 (-)156.82 LOSS (-)245.82 LOSS (-) 56 (-)102 M/s M.J.. Packaging, Plot No.59, HPSIDC. 308.45 353.75 130 PROFIT 197.24 PROFIT 42.2 55.8 Baddi, HP M/s M.J. Industries, Plot-59,HPSIDC. Baddi, HP 78.20 127.59 61.36 PROFIT 89.43 PROFIT 78.5 70.1 (viii) The argument of the asse .....

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ance from the audited accounts of these units, to point out and give his finding that the profits of these units were inflated. (b) The assessee was maintaining high profit ratio right from the A.Y. 2004-05 to the A.Y. under consideration. (c) The net profit results of these two proprietary concerns situated in Baddi, were never disturbed in the past years by the A.O. (d) Hence the action of AO in taking recourse to provisions of Sub Section (10) of S.80 IA is not justified. 8. The Ld.Sr.D.R. su .....

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mal figures in these years is not explained by the assessee. It is well settled that when the assessee claims an exemption, burden lies on it, to prove that he is entitled to exemption. In this case the burden has not been discharged on the issue of quantum of exemption. 9.1. S.80 IA(10) reads as follows. "S.80(IA) (10) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any ot .....

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