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Commissioner of Income Tax I, Ludhiana Versus M/s Superman Knitters (P) Limited

2016 (4) TMI 951 - PUNJAB AND HARYANA HIGH COURT

Revision u/s 263 - allocation of administrative expenses - Held that:- No finding had been given by the CIT under Section 263 of the Act as to how the debit of administrative expenses made in the profit and loss account of Unit No.1 prima facie resulted in excess profit in Unit No.II and how any of such expenses were relatable to Unit No.II. The CIT merely set aside the issue without finding any error in the assessment made by the Assessing Officer. The two conditions for invoking the provisions .....

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ahiya, Advocate Ajay Kumar Mittal, J. 1. Delay in refiling the appeal is condoned. 2. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, the Act ) against the order dated 22.9.2009, Annexure A.3 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A' Chandigarh (in short, the Tribunal ) in ITA No.491/CHANDI/2009, for the assessment year 2004-05, claiming following substantial questions of law:- (i) Whether on the facts and ci .....

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hat the order of CIT does not contain any firm decision as to how the debit of administrative expenses amounting to ₹ 9,77,010/- in the P&L account of Unit I has rendered the assessment as erroneous and prejudicial to the interest of revenue, whereas a firm decision and reasoning on this issue was given in the order passed under section 263 of the IT Act, 1961? (iii) Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal is justified in law in .....

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ssues during assessment proceedings or in the assessment order? 3. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The respondent assessee is a company engaged in the business of manufacturing and sale of hosiery goods. Return of income for the assessment year in question was filed by the assessee on 30.10.2004 showing income of ₹ 8,27,306/- which was processed under section 143(1) of the Act on 14.1.2005. The case was selected fo .....

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, deduction under section 80IB of the Act was allowed at ₹ 8,36,167/- against the claim of ₹ 9,86,167/- made by the assessee. Later on, it was observed by the Commissioner of Income Tax-I, Ludhiana (CIT) that the company had claimed deduction under section 80IB of the Act on the amount of ₹ 62,28,012/- credited on account of inter unit fabrication charges in the Profit and loss account of its Unit II. These fabrication receipts had no nexus with the business of the industrial u .....

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ived from the industrial undertaking i.e. Unit II as far as administrative expenses of ₹ 9,77,010/- were concerned. It was further observed by the CIT that the assessee company had been doing the business of manufacturing and sale of hosiery goods and section 80IB of the Act clearly laid down that deduction was allowable only on income derived from such industrial undertaking. Accordingly, provisions of section 263 of the Act were invoked in this case. Vide order dated 24.3.2009, Annexure .....

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the issues. Hence the instant appeal by the revenue. 4. We have heard learned counsel for the parties. 5. Learned counsel for the appellant-revenue submitted that the administrative expenses amounting to ₹ 9,77,010/- were in respect of Unit No.2 also and could not have been taken to be in respect of Unit No.1 alone. On the aforesaid premises, it was urged that the Tribunal was in error in setting aside the order of revision passed under section 263 of the Act. The claim of the assessee und .....

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T in exercise of revisional jurisdiction under section 263 of the Act was required to prima facie record that the assessment was erroneous and administrative expenses amounting to ₹ 9,77,010/- related to both the units and it was required to be on the basis of material on record. 7. After hearing learned counsel for the parties, we do not find any merit in the appeal. 8. It has been categorically recorded by the Tribunal that no finding had been given by the CIT under Section 263 of the Ac .....

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loss account of Unit No.1 rendered the assessment as erroneous and secondly how the same was prejudicial to the interest of the revenue. The relevant findings recorded by the Tribunal read thus:- 9. In the above situation, now we may examine the impugned order of the Commissioner dated 24.3.2009. We may consider the second aspect taken by the Commissioner at the outset. According to the Commissioner, the profit and loss account of Unit 1 showed administrative expenses amounting to ₹ 9,77, .....

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₹ 9,77,010/- are concerned. In this regard, we may notice the reply furnished by the assessee to the Commissioner, a copy of which has been placed in the paper book. The assessee contended that whatever expenses were relatable to the activities of Unit II, the same have been debited to the profit and loss account of the said unit and it was further submitted that the expenses amounting to ₹ 9,77,010/- are directly relatable to the activities of Unit I . In the context of such a cate .....

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enses on account of the business of the company as a whole. The Commissioner had the entire records before him and also the assertion of the assessee that none of the expenses comprised in ₹ 9,77,010/- was relatable to Unit II. Under these circumstances, the Commissioner has chosen to merely set aside the issue without first establishing any error in the assessment made by the Assessing Officer on this count. It is also trite law that before an order can be termed as erroneous, it has to b .....

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ssioner, the following observations of the Hon'ble Jurisdictional High Court in the case of CIT vs. Kanda Rice Mills, 178 ITR 446 (P&H) are worthy of notice:- A reading of the entire order of the Commissioner clearly goes to show that he did not furnish his opinion or consider the cited cases or the argument raised and merely observed that these were the points which deserved consideration and after setting aside the order of the Income Tax Officer, issued direction for making assessment .....

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ed in the light of the aforesaid observations of the Hon'ble Punjab and Haryana High Court, the order of the Commissioner on this aspect, in our view,is unsustainable as it does not contain any firm decision as to how the debit of administrative expanses amounting to ₹ 9,77,010/- in the profit and loss account of Unit 1 has rendered the assessment as erroneous and prejudicial to the interests of the revenue within the meaning of section 263 of the Act. Thus, on this aspect, the order o .....

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e Commissioner unsustainable. Quite clearly, the only point made by Commissioner is that the fabrication charges do not constitute income derived from the industrial undertaking. On this point also, we may again appraise the explanation furnished by the assessee before the Commissioner. Firstly, the assessee submitted that it has set up the industrial undertaking for the manufacture of cloth during the assessment year 1999-2000 and has been claiming deduction under section 80IB since then. The a .....

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(P) Limited (supra) in favour of the stand of the assessee. 12. Having noted the aforesaid submissions of the assessee, we find no cogent reasoning brought out by the Commissioner to deny the claim of the assessee for deduction under section 80IB of the Act. According to the Commissioner, the principle of resjudicata is not applicable to the proceedings under the Act. While in principle, the Commissioner may be right, so however it is equally important to adopt a consistent view in the income ta .....

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ut manufacturing activity for outside concerns were eligible for 80IB benefits. In this case. the Commissioner has been swayed merely by the fact that the assessee was undertaking job work and for that reason he has been proceeded to deny the deduction. There is no allegation, much less a finding by the Commissioner that the activity undertaken for earning job work charges was not a manufacturing activity. Therefore, under such circumstances, the action of the Assessing Officer in allowing deduc .....

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