TMI Blog2016 (5) TMI 929X X X X Extracts X X X X X X X X Extracts X X X X ..... ands of the assessee, it is a profit or gain directly derived by the assessee from its industrial activity. The payment of central excise duty has a direct nexus with the manufacturing activity and similarly, the refund of the central excise duty also has a direct nexus with the manufacturing activity. The issue of payment of central excise duty would not arise in the absence of any industrial activity. There is, therefore, an inextricable link between the manufacturing activity, the payment of central excise duty and its refund. In the circumstances, we are of the opinion that question must be answered in the affirmative, in favour of the assessee and against the Revenue Addition on account of assumptions of less wages shown in Profit & Loss account - Held that:- From the details filed before us, we see that there is a vast difference between the amount of machinery installed by the assessee with that of M/s Industrial Equipment Company. The contention of the assessee that M/s Industrial Equipment Company is more labour intensive, therefore, pays more wages and since the operation of the assessee are automated which require lesser labour, seems to be a correct explanation. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (Appeals) as capital receipt not liable to tax under the provisions of Income Tax Act, 1961 (in short 'the Act'). 4. Briefly, the facts of the case are that the assessee had claimed deduction of ₹ 1,54,36,258/- under section 80IB of the Act on excise duty refund. The Assessing Officer disallowed the deduction claimed by the assessee applying the ratio of the decision of the Hon'ble Punjab Haryana High Court in the case of Liberty Shoes Ltd. Vs. CIT, 293 ITR 478. 5. Before the learned CIT (Appeals), apart from making detailed submissions with regard to merits of the case, it was submitted that deduction under section 80IB is allowable on excise duty refund in view of the decision of the I.T.A.T., Chandigarh Bench in the case of M/s Shivalik Agro Chemicals in ITA No.968/Chd/2010 dated 20.12.2011. After considering the submission of the assessee, the learned CIT (Appeals) allowed the appeal of the assessee on this ground, relying on the order of the I.T.A.T., Chandigarh Bench in the case of M/s Shivalik Agro Chemicals (supra). 6. Aggrieved by this, the Department has come up in appeal before us. The learned D.R. relied on the order of the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Dec., 2002 clarified that the refund is not on account of excess payment of excise duty but is basically designed to give effect to the exemption and to operationalise the exemption given by the notifications. In that sense, the central excise duty refund does not appear to bear the character of income since what is refunded to the assessee is the amount paid under the modalities provided by the Department of Revenue for giving effect to the exemption notifications. There is also nothing to suggest that the assessee has recovered or passed on the excise duty element to its customers. Even assuming the refund does amount to income in the hands of the assessee, it is a profit or gain directly derived by the assessee from its industrial activity. The payment of central excise duty has a direct nexus with the manufacturing activity and similarly, the refund of the central excise duty also has a direct nexus with the manufacturing activity. The issue of payment of central excise duty would not arise in the absence of any industrial activity. There is, therefore, an inextricable link between the manufacturing activity, the payment of central excise duty and its refund. In the circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduced by this amount and hence, deduction under section 80IC of the Act was also reduced by the same. 16. Before the learned CIT (Appeals), the assessee submitted that the Assessing Officer has erred in comparing wages of the assessee firm with its sister concern i.e. M/s Industrial Equipment Company, Panchkula for the purposes of wages without appreciating the fact that the nature of business activity is different at M/s Industrial Equipment Company Panchkula and M/s Green Field Enterprises, Kathua. In M/s Green Field Enterprises, Kathua, large number of DG sets are produced, where in Panchkula, DG sets are not produced at all. Further, it was submitted that since the partners in the said firm are different from the assessee, the comparison of expenses on the basis of that they are in same business and claimed same deduction, is wrong. M/s Industrial Equipment Company has factories in Chandigarh, Punjab, Haryana and J K, whereas the assessee firm has only one factory in J K. The production activities in both the firms are different as M/s Industrial Equipment Company deals in trading and manufacturing of DG sets and other items, whereas the assessee has not manufactured any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the learned CIT (Appeals). He opined that the estimation of wages reduced to ₹ 25 lacs is quite a reasonable estimate made by the learned CIT (Appeals). 20. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. We observe that the Assessing Officer got an impression from the books of the assessee that it is showing lesser wages and in order to quantify the understatement of wages he compared the said expenses of the assessee with that of its sister concern, M/s Industrial Equipment Company. After this exercise, the Assessing Officer estimated the wages to be 31,49,000/-. The explanation of the assessee before the Assessing Officer as well as the learned CIT (Appeals) was that the expenses on account of wages incurred by the assessee cannot be compared with M/s Industrial Equipment Company, even if it is a sister concern, some difference on account of different business model was brought to the notice of the Assessing Officer as well as the CIT (Appeals). Without looking into this explanation of the assessee. The Assessing Officer as well as the learned CIT (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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