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Dharampal Premchand Ltd. Versus DCIT, Cent. Circle-4, New Delhi

2016 (2) TMI 197 - ITAT DELHI

Assessment under Section 153 A - Eligibility of deduction u/s 80IB and 80IC denied - Held that:- None of the material seized during the search relates to the year under appeal.None of the material found relate to the goods transfer to one unit from other for the period.

None of the material relates to the purchases from sister concerns.None of the material suggest that the material transferred to eligible undertaking is less than the market rate. None of the material suggest that the .....

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ng the course of search is not incriminating which even remotely suggest that assessee's claim of deduction u/s 80IC/80 IB is incorrect. - Decided in favour of assessee - ITA No. 5079/Del/2013, ITA No. 5080/Del/2013, ITA No. 5081/Del/2013 - Dated:- 8-1-2016 - SHRI A.T.VARKEY, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Sh.G. N. Gupta, Adv For The Respondent : Ms. Nandita Kanchan, CIT DR ORDER PER PRASHANT MAHARISHI, A. M. 1. These appeals filed by the assess .....

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ase, the learned Commissioner of Income Tax (Appeals)-XXXIII, New Delhi (hereinafter called the CIT(A) for short) erred in rejecting the contention of the appellant that the learned Deputy Commissioner of Income Tax, Central Circle-4, New Delhi (hereinafter called the AO for short) had no jurisdiction to scale down the deduction allowed u/s 80IB/80IC of the Income Tax Act, 1961 (hereinafter called the Act for short) in the original Assessment Order dated 14.06.2007 since the whittling down of th .....

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at on the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the appellant company had a close connection with M/s. S.H. Kelkar& Co. (P) Ltd within the meaning of that term in Section 80-1 A( 10) of the Act. 2.2. That on the facts and in the circumstances of the case, the learned CIT(A) failed to appreciate that although M/s. Dharampal Satyapal Ltd had a close connection with the appellant within the meaning of that term in Section 80-IA(!0) of the Act, ther .....

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able value of the notional royalty was required to be reduced to quantity deduction u/s 80IB/ 80IC of the Act. 2.4. That on the facts and in the circumstances of the case, the learned CIT (A) erred in holding that Sections 80 IA (10) of the Act applied to the appellant. 3.1. That on the facts and in the circumstances of the case, the learned CIT(A) erred in not adjudicating on the ground of appeal no. 7, taken before him which reads as "That on the facts and in the circumstances of the case .....

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lthough it is uncontroverted that whereas Shri Ravinder Kumar did not visit Agartala Unit, he used to travel to Damowala Unit to prepare 'Sugandhi' there. 3.3. That on the facts and in the circumstances of the case and without prejudice to the generality of ground of appeal no. 3.1 above, the learned CIT (A) erred in holding that the appellant was entitled to a deduction of ₹ 37,68,748/- only u/s 80IB/80IC of the Act against a deduction of ₹ 7,53,74,962/- allowed in the origi .....

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n of total income tax u/s 115JB was paid. DCIT, Circle 10(1), New Delhi framed assessment u/s 143(3) on 14.06.2007 at an income of ₹ 68508470/- under the normal provisions of the Act and at ₹ 10227194/- under the provision of section 115JB of the Act. During the regular assessment u/s 143(3) deduction u/s 80IB was restricted to ₹ 75374962/- against the claim of the assessee at ₹ 86250749/- on account of interest income of ₹ 10875787/- claimed by assessee of eligible .....

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and on late payment received from customers. ITAT confirmed the order of the learned Commissioner of Income-Tax (Appeals) order, which relates to interest on account of deposits with the bank and Govt. Departments. 4. On 02.01.2012 a search u/s 132 of the Act was carried out on DS Group i.e. M/s. Dharampal Satyapal which is engaged in the business of manufacturing and trading of chewing tobacco, a premium pan masala. It also involved in manufacturing of food products, banking/ hospitality, rubb .....

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sessee is mainly engaged in manufacturing of flavored chewing tobacco and Kiwam under the brand name BABA . The main ingredients for production of chewing tobacco are raw tobacco, perfumery compounds, sandal, saffron, menthol etc. The silver flakes are also used as raw material. The raw material like tobacco is purchased from open market in flakes and in the form of paste known as kiwam. The raw material tobacco is properly screened for its size, moisture contents, dust etc. The other raw materi .....

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ther units of the assessee manufacturing Baba Zarda. Some of the raw material are procured with the help of head office and after manufacturing of the goods they are transferred to various depots of the assessee company to be sold by the head office or marketing office at New Delhi. 6. Assessee Company is claiming deduction u/s 80IB and 80IC of the Act in respect of its income from manufacturing at Damowala Units located at Himachal Pradesh and Agartala units situated in Northeast. The Noida Uni .....

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fit u/s 80IB/IC. 8. During the course of assessment u/s 153A it was noticed that column No. 20 of Form 10CCB which prescribed the disclosure of transaction made by the eligible undertaking with a related concerned of the assessee or any other undertaking of the assessee does not show material transferred from Noida Unit of the assessee to the eligible units for deduction. It was found that against those columns certain transaction undertaken with the related person have been reported such as tra .....

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the assessee company, prepares Sugandhi, which is an essential material and key to the products manufactured by the company. It is also noted that Shri Ravindra Kumar Gupta knows its trade secret and visits Himachal Pradesh Units at periodical intervals of about two months, however, for Agartala Units the important raw material were obtained from Dharampal Satyapal limited according to formula laid down by Shri Ravindra Kumar and for perfumery compounds/ material were procured from M/s M/s. SH .....

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t at arm‟s Length Price and therefore the profits of the eligible undertaking are inflated resulting into the huge claim of deduction u/s 80IB/80IC. Based on this the AO was of the view that the profits of the eligible undertaking have to be apportioned between the various activities carried out by the individual units. According to him, limited activities are carried out of mixing and packing at eligible units. Further activities performed by the corporate office is also not incidental ac .....

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eduction allowed u/s 80IB/ 80IC of the Act as his findings were not based upon any documents seized during the course of search. It was submitted that there is no incriminating material found during the course of search, which suggests so. He argued that section 80IB are misread by AO as concept of arm‟s length price applied by AO for inter units transfers are not on the statute for these deductions. He contended that provision of section 80 IA (8) which only prescribed Market rate at whic .....

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by the assessee itself suggests that various annexure of the seized material contains details of material transfer challans to Noida unit, the movement of raw tobacco shows detail of purchase from sister concern, material outward register, raw material purchase register etc. Which were found during the course of search. According to learned Commissioner of Income, tax (Appeals) these documents, though not referred by the AO in assessment order but the AO taken them in to consideration to arrive .....

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(Appeals) has held that in form No. 10CCB relevant transaction with other industrial undertaking of the assessee was not reflected except role of Mr. Ravinder Kumar Gupta as well as purchase from M/s Dharam Pal Satya Pal Ltd, M/.s. SH Kelkar Pvt. Ltd. Due to this is inflation in the profit disclosed by the assessee and therefore provision of section 80IB (10) is applicable in the case of the assessee and hence he confirmed the attribution of profit of 5% to the eligible industrial undertaking fo .....

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ent order as well as the orders of CIT (A) to show that there is no reference of any material found during the course of search regarding deduction claimed by the assessee. He submitted that discrepancy pointed out by the AO that relevant details were not disclosed in Form No. 10 CCB but complete details were available at the time of original assessment framed u/s 143(3) of the Act. According to him, there is no material found which disclosed that assessee‟s claim u/s 80IB /IC was inflated .....

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from any documents seized during the search. He further referred to the details of the documents mentioned by learned Commissioner of Income-tax (Appeals) at Para 3.3 of the order which are pertaining to transfer of material to Noida Unit and bills of transportation of those material are already recorded in the books of accounts and are part of the accounting records of the firm. He contended that there is no mention in the order of AO as well as ld. CIT (A) that theses material are not forming .....

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material from Noida unit to various units. Therefore, his argument was that in absence of any seized incriminating material found during the course of search no disallowance or addition can be made in the hands of the assessee u/s 153A of the act for completed assessments. For this he relied on the decisions of a. Hon‟ble High Court in the case of CIT Vs. Kabul Chawla Dated 28th August 2015, b. Hon‟ble Special Mumbai Bench in the case of all Cargo Global Logistics Ltd. v. Dy. CIT 137 .....

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/s 143(3) the matter was referred u/s 144A to the Additional CIT for examining the claim of the assessee. During that assessment proceeding he drew our attention to letter dated 06.12.2006 submitted before Additional CIT wherein at Para No. 5 it was stated that details of miscellaneous income of Noida Unit of ₹ 23531790/- were shown and it was specifically stated that it includes silver processing charges charged from various units by silver processing units situated at Noida. It was also .....

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and purchase are debited as purchases by crediting the units of the respective suppliers in the accounts of eligible undertaking. He submitted that for the purpose of coordination only the corporate office is involved. There is no purchase accounted for by corporate office of these materials. Regarding the allocation of the expenditure of corporate office he submitted the detailed chart showing allocation of various expenses incurred by the corporate office between various units where 115 items .....

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ed that regarding the royalty for the intellectual rights Ravinder Kumar Gupta also stated that he does not charge such remuneration from company i.e. M/s. Dharam Pal Premchand Ltd. and therefore there is no requirement of reducing the profits of the eligible undertaking on this account. 15. Regarding the close connection between M/s. Dharampal Satyapal Ltd. it was stated that during the Financial Year 2004-05 to 2008-09 the assessee has brought goods from these companies and this company has su .....

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g and therefore the provision of section 80 IA (10) are not triggered. It was further stated that the purchase of goods are also shown to be comparable qua purchased from Dharampal Satyapal Ltd. as well as other parties and the assessee submitted this explanation before the AO vide letter dated 04.03.2013. These facts are not controverted by AO. 16. Further, regarding purchase made from M/s. SH Kelkar, company he submitted that there is no arrangement between the assessee as well as this company .....

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to higher profits by the industrial undertaking eligible for deduction. 17. He further submitted that Mr. Ravinder Kumar Gupta goes to only Damowala Unit and not to Agartala Unit of the assessee company and further there is no search in Damowala Unit which even remotely prove that any payment made to Ravinder Kumar Gupta. 18. Ld. DR submitted that there is an incriminating material found during the course of the search which are shown by learned Commissioner of Income-tax (Appeals) at Page No. .....

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dates of the documents are pertaining to FY 2010-11 but this shows the modus operandi of the assessee by the transfer of the goods and therefore the assessment u/s 153A made by the AO is purely on the basis of seized material found during the course of search. She relied upon the orders of the learned Commissioner of Income tax (Appeals) for this and the decision of Hon‟ble Delhi High Court in the case of Anil Bhatia. She vehemently stated that the non-disclosure in form 10CCB coupled wit .....

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she vehemently supported the order of the AO and learned Commissioner of Income tax (Appeals) for this. 20. In rejoinder, ld. AR submitted that incriminating documents that is mentioned by the AO as well as learned Commissioner of Income-tax (Appeals) which is at page no 43 paper book which is mentioned by the ld. DR is an amount pertaining to the concerned transport charges which are recorded in the books of account of the assessee and this are pertaining to payment made to transporter hence t .....

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years gross profit is also compared for FY 2003-04 and 2004-05 pertaining to assessment year prior to Assessment Year 2005-06, which is showing decreasing trend and it, is accepted by AO in assessments. Therefore, he submitted that transaction of the assessee‟s eligible undertaking with non-eligible undertaking or with other parties has not resulted into more than ordinary profits‟ in those units. Therefore, he submitted that assessment is not based on seized documents as well as the .....

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sessment proceeding u/s 153A, copies of the various decisions relied upon. Ld. DR also submitted a paper book showing material seized during the course of search as well as submission made by the assessee dated 17.01.2013 and 04.03.2013 in response to questionnaire issued by the AO on 30.11.2012. The basic questions involved here are two fold. a. Whether assessment u/s 153A made by AO disturbing the completed assessment u/s 143(3) on the basis of some material which are unearthed during the cour .....

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n u/s 80 IB and 80 IC of The Income tax Act. 22. We proceed to decide the first issue. During the course of search, the material relied upon by the AO, which was found as per annexure A-4 to annexure A-11. Ld. CIT (A) has tabulated them at para no 3.3 of his order-extracting letter dated 18/02/2013 of the assessee. S. No. Department Party Code Name & Address of location Pages 1. N-5 M/s. Dharampal Premchand Ltd.A-34/35, Sector-60, Noida (U.P.) 1-6 2. SN-7 M/s. Dharampal Premchand Ltd.1-62, S .....

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he period they belong to as well as their nature. The first annexure at Page 351 and 362 the annexure are the challans of transfer of goods from Dharampal Satypal, Noida unit into challan dated January for December 2010 to February 2011. Annexure A-5 from page no 301 to 350 is also material transfer challans to New Delhi Units from 02.12.2010 to 12.01.2011. Annexure A-6 is also relating to material transfer challans to Noida or Delhi Units starting from 04.10.2010 to 31.11.2010. Annexure A-7 is .....

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s. Page 1 to 62 of annexure A-4 is the material inward register of the assessee from April 2010 December 2010. Annexure A-5 is also material outward register of the assessee company for the same period. Page 53 to 57, 67-74 and 91 to 94 of Annexure-8 is details of raw material purchase by the assessee from various parties. These bills are not related to any material transfer from eligible units or to eligible units from other undertaking. Annexure A-9 and A-10 are also material inward register a .....

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ed to supply from or transfer to unrelated parties. From the seized material neither AO and nor Ld. CIT (A) could show any material that transactions are from related party and they are not carried on at market rate. Further during the course of assessment u/s 143(3) the assessee has explained all issue of determination u/s 80IB and 80IC in detail. The assessee is maintaining unit wise profit and loss account and balance sheet for working out deduction u/s 80IB and 80IC. In the unit wise profit .....

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n certain details cannot be said that the information of inter unit transfer and information of facilitation by Delhi office in procurement was not available with AO at the time of making assessment u/s 143(3). In any case, these forms were available with AO at the time of original assessment. Further, this is not the first year of deduction claimed by the assessee and allowed by the revenue. 24. Based on this we have come to conclusion that :- a. None of the material seized during the search re .....

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of the profit by assessee of eligible undertakings. g. None of the material suggest that appropriation of profit made by the assessee to derive the income of eligible undertaking is incorrect. h. None of the material suggest that eligible units earns more than Ordinary profits‟. In view of above, we confirm that the material found during the course of search is not incriminating which even remotely suggest that assessee‟ s claim of deduction u/s 80IC/80 IB is incorrect. 25. We would .....

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ch were not produced or not already disclosed or made known in the course of original assessment. Therefore, it is necessary that during search some material should unearth which should be incriminating to materially alter the already assessed income of the assessee. In this case, materials unearthed by revenue is not at all related to the years, which are under appeal for which assessed income u/s 143(3) is disturbed. Those documents also do not show any methodology or practice adopted by the a .....

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ncriminating documents found during the course of search for that particular year where loan was not disclosed in the regular return of the assessee. In this case, there is no instance of any document, which shows that particular income / expenditure assets or liabilities are not disclosed in the return of income. In that case, Hon. Delhi High court in para no 23 held that they are not concerned with a case where no incriminating material was found during the search conducted under Section 132 o .....

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aterial or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. (v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relata .....

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