9911796707
TMI Blog2012 (12) TMI 1086X X X X Extracts X X X X X X X X Extracts X X X X ..... b to H.P. and of printed material/books from Himachal Pradesh and other states was provided by the assessee. (b) that the printed material was sold not from the assessee's premises but from that of MBD Enterprises Pvt. Ltd. (c) that though printing the NCERT books should cost 56% more than MBD books, the assessee had charged the reverse ratio of rate and that the assessee was inflating its sale price charged from its sister concerns. (d) that the lamination did not affect the cost of books significantly. (e) that in the absence of quantitative records, that low expenses indicated low expenses indicated low production and inflation of sale price. (f) that merely because the assessee had claimed to have employed a large number of workers and had incurred large expenses on electricity, freight and fuel/oil did not imply that the assessee had undertaken production activity to such a magnitude that there was sales/turnover of Rs. 17.19 crore. 2. The appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off. 3. It is prayed that the order of the CIT(A) be set-aside and that of the A.O. be res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t done as job work as is evident from the order of A.O. as also from the seized material. 2. The appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off. 3. It is prayed that the order of the CIT(A) be set-aside and that of the AO be restored." 7. The Revenue in ITA No.534(Asr)/2011 for the A.Y. 2009-10 has raised following grounds of appeal: "1. That the Ld. CIT(A) has erred both in law and on facts in allowing deduction @ 100% of profit u/s 80IC of the Act ignoring the facts that the assessee did not have sufficient infrastructure and man power to manufacture the entire products on its own and getting it done as job work as is evident from the order of A.O. as also from the seized material. 2. The appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off. 3. It is prayed that the order of the CIT(A) be set-aside and that of the AO be restored." 8. The Ld. DR, Mr. R.L. Chhanalia, at the outset relied upon the findings of the AO in all the appeals of the Revenue for different assessment years. He advanced common argument that there was no evidence of movement of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the deduction u/s 80IC was allowed to the tune of Rs. 1,65,30,534/-. Similarly for other years, on the same basis the deduction was allowed @ 20% from the assessment years 2005-06, 2006-07 to 2009-2010. The assessee filed an appeal before the CIT(A)-1, Ludhiana, who in a detailed order, allowed the deduction u/s 80IC and the department has filed an appeal before the ITAT in ITA No.507(Asr)/2011 for the same assessment year. 9.2. He further stated that for the assessment year 2005-06, the deduction u/s 80IC was allowed substantially in the order u/s 143(3) but it was disallowed on the sale of "Raddi" to the tune of Rs. 11,53,923/- and on printing got done from outside to the tune of Rs. 1,17,180/-. Thus, in this year, it was accepted as a matter of fact that the assessee was engaged in the manufacturing/publishing and printing of books at Village Gagret and for that purpose, a certificate on prescribed form from the Distt. Industries Centre, Una was placed on record that the assessee is engaged in the manufacturing, printing and binding of books w.e.f. 15.4.2004 and the said new Industrial Unit is located at Ram Nagar, Industrial Area, Gagret, Una, H.P. It was stated by the ld. c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 2006-07 (regular assessment), on merits, the ld. CIT(A) has discussed the facts relating to disallowance u/s 80-IC made by the AO from para 2.1 to 2.10 of the order for the assessment year 2006-07 and which issue has been highlighted in the grounds of appeal alongwith another ground of appeal which have been taken vide letter dated 18.08.2010 by the department. In the additional ground of appeal, which is sought to be taken, it is submitted that the same cannot be allowed, since that has not been taken earlier and no reasons have been given for not taking this ground of appeal earlier. The grounds of appeal may be legal ground of appeal, but there has to be reason that why it could not be taken earlier and therefore, it was requested that the same could not be permitted to be taken. However, if the Bench decides to admit the above said ground of appeal, then it has to be decided that, how, the AO can judge the manufacturing activity to the extent of profit as declared in the books of account, specially when the AO is not a technical person and they have been earlier allowing the full deduction in the assessment year 2005-06 or 3.15% for the assessment year 2006-07 earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as per page-7 of the order of CIT(A) and enclosed the paper book at pages 100 to 195 and no doubt raised by the A.O. in the remand report or at the time of assessment. iii. The information obtained from Punjab School Education Board clearly stated that the supply of paper was made at Gagret and no adverse inference is drawn. The AO has indicated that there are no delivery challans and it is submitted that even if the delivery challans are not there, there is a documentary evidence of movement of paper to Gagret Unit and printing material and section 145 does not require, delivery challans and these are not part of the books of accounts and, therefore, the books of accounts cannot be rejected u/s 145(3) on this issue for which section does not provide. 3. Inference about inflation of sale price in respect of Printing work of Haryana and Punjab. This has been dealt in 2nd paragraph of page 7 of the CIT(A) order viz-aviz the Assessing Officer has not compared the same book with the same pages and he has compared the book having 428 pages with books of 769 Pages of four colours and, thus, has arrived at wrong fining. Reliance on our submissions. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO, which clearly shows that higher charges from the sister concerns are taken only because of double size of books, number of coloured pages, lamination and size of the books. Reliance may be made to pages 23 to 24 of the order of the CIT(A). He further submitted that the Assessing Officer has not been able to rebut the same as per his 2nd remand report at pages 24 to 25 of the order of the CIT(A). It was submitted that the finding of the CIT (A) starts form Para 4 page 26 and he has dealt with each and every issue starting from Para 6 Page 27 and relevant finding starts from para 6.3 onwards and the same is being relied upon. 9.6. The ld. counsel for the assessee mentioned the findings of the ld. CIT(A) as under: a. The CIT (A) has stated that the appellant has given various reasons for variation in rates viz-a-viz sister concern and outside parties. The Assessing Officer has not been able to rebut the same and the comparison was based on actual facts. b. The evidence of movement of paper carrying the barrier of H.P. has not been disputed and reliance by the Assessing Officer on the statement of two parties, which is only very much negligible value, does not prove the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrier receipts and ad-hoc disallowance of 80% against 3.15% earlier made and full deduction u/s. 801C already given in Assessment Year 2005-06 contradicts the stand of the A.O. The Ld. counsel for the assessee submitted that there are many judgments including the Jurisdictional High Court that 80IA is allowable on job work also and which has been approved in assessee's own case in assessment year 2005- 6. He further placed reliance on the following judgments of various courts of law: i) Shiva Exports vs. ITO 28 SOT (Chd-Trib) 512 ii) ACIT vs. New Era Machineries (P) Ltd. 119 TTJ (Chd-Trib) 696. iii) DCIT vs. Harjivandas Juthabhai Zaveri 258 ITR 785 (Guj.) iv) DCIT vs. Investwel Publishers (P) Ltd. 96 TTJ (Mum-Trib) 994. v) Saurashtra Cement & Chemicals Industries Ltd. vs. CIT 123 ITR 669 (Guj.) vi) CIT vs. Paul Brothers 216 ITR 548 (Mum) (Nagpur Bench) vii) CIT vs. Impel Forge & Allied Industries Ltd. 326 ITR 27 (P&H) viii) Anand Affiliates vs. ITO 108 TTJ (Chd-Trib) 877 ix) Mahesh Chandra Sharma vs. ITO 15 SOT (Del-Trib) 294 x) ACIT vs. Biotech Medicals Pvt. Ltd. 121 TTJ (Hyd-Trib) 858. In view of the above submissions and reliance placed on the above cited j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated by the ld. CIT(A) at page 40 para (f) and it is being relied upon that on the basis of register seized during the course of search from Jalandhar, the observation of the AO that substantial work was being done at Jalandhar is factually incorrect and even during assessment proceedings, no adverse view has been taken. 10.2. The Ld. counsel for the assessee further submitted that the ld. CIT(A) has also held the Gagret Unit indicated stock of 724 Reels as compared to 1173 Reels at Focal Point, Jalandhar and this observation of the AO is also incorrect because at Jalandhar, there are five concerns and the stock of Reels are of 5 concerns, whereas at Gagret, there is only one unit, besides part of the stock belonging to the assessee was sent for job work was also available at Jalandhar. He further stated that the ld. CIT(A) has mentioned at page 41 of his order that two units at Jalandhar do not own any machinery and M/s. MBD Enterprises (P) Ltd. own very old negligible machinery and also mentioned that before the start of the Gagret unit, the staff strength at Jalandhar was 441 as against 406 at the time of survey on 22.01.2009 and as such the contentions of the AO have been fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of restricting the same to 20% in A.Y. 2009-10, then it cannot be applicable to every year starting from A.Ys. 2005-06 to 2008-09. He further submitted that there is no machinery belonging to the assessee at Jalandhar and only on the basis of doubt and suspicion, the deduction u/s 80IC has been curtailed and it is a settled law that doubt or suspicion, howsoever, strong it may be, cannot take the shape of evidence. Reliance is placed on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Ram Narain 224 ITR 180. 10.5. He further submitted that the accounts are audited and there is increase of turnover from 12.64 crores to 54.32 crores and how can the AO has held that 80% of work was done at Jalandhar and then, where the 80% of expenses have been debited has not been quantified and, there is no evidence or material to restrict the deduction. He placed reliance on the judgment of Shiva Export as mentioned supra and has been dealt with by the ld. CIT(A) at pages 49 and 50 of his order. It was further submitted that each and everything was supported by statutory record/register, purchase and sale vouchers, evident of transportation of material, Barrier receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terprises Pvt. Ltd; had done some printing at Jalandhar for the assessee, but since the material/paper never traveled to or from Gagret; the AO held that the printed material was not sold from assessee's premises but from that of MBD Enterprises (P) Ltd. 11.1. The AO also compared the rates charged by the assessee for printing books from outside parties and from its sister concerns for the same subjects and class and noted that the rates charged from the sister concern was 2 to 3 times and in one case, 20 times the rates charged from outside parties. The AO came to the conclusion that the assessee was diverting profit of group concerns to itself since it was entitled to 100% deduction of its profits u/s 80IC. The AO held that section 80IA(10) read with section 80IC(7) was applicable in this case. The AO gave a show cause to the assesse as to why the NP rate of M/. MBD Enterprises (P) Ltd. a sister concern engaged in printing , be not applied to the assessee's income. But the assessee submitted that there was difference in nature, quality, quantity and number of pages in the books printed for outsiders as compared to those printed for groups concerns. It was also stated that GP and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO also compared the rate of printing charged for Punjab State Education Board text books and for MBD guide books for physical education and found the rate charged to MBD 9 times the price charged to PSEB for same number of pages, size and colour. It was also held by the AO that lamination did not affect the cost of books significantly. The rates of printing and for sale of the same book were also compared by the AO and found printing rate at Rs. 35.23 per book as against Rs. 41.00 for sale of each book. Since paper formed a substantial part of the cost of a book, the AO opined that the printing charges had been over invoiced. The AO also noted that the assessee paid to its sister concern half the rate it paid to an outside party for the same work of printing , which indicated a very high GP rate of 100%. The AO held that this high GP rate was abnormally high and that the assessee's expenses were, therefore, under invoiced again leading to higher profits. The AO also compared the gross profit ratio and net profit ratio of the assessee with other concerns and found that the assessee's ratios were much higher when compared to its sister concerns as well as to outsiders. The AO also f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial unit and the written submissions which are available at Ld. CIT(A)'s order at pages 5 to 8. Before the ld. CIT(A), the assessee submitted an application for admission of additional evidence alongwith certain documents with regard to the fact that survey action u/s 133A of the Act was carried out on 22.01.2009 and during such action attendance register was found which indicated that more than 130 employees were physically present and working in the unit. This evidence supports the case of the assessee and falsifies the allegation of the AO that very little work was actually done at Gagret. At the time of survey, the survey party also prepared the trading account which indicate the GP rate for the current year upto the date of survey was 54.04% i.e. almost the same as shown during the impugned year A copy of the trading account prepared was also placed as an additional evidence. The submissions of the assessee were forwarded to the AO. The AO vide letter dated 12.05.2009 submitted the comments to the ld. CIT(A) which is available at pages 18 to 21 of the CIT(A)'s order. In response to the comments of the AO, the assessee submitted the rejoinder which again was forwarded to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ronted with the relevant material and therefore principles of natural justice had been violated in as much as the comparison done in paras 13, 13.1 and 14 which were confronted to the assessee. These comparisons were also based partly on material collected by the AO behind the assessee's back, as per para 13(i) of assessment order. The Ld. CIT(A) further observed that the AO collected certain information from some of the assessee's creditors regarding rates of printing of some books and compared them with the rates charged by the assessee for printing of similar books from its sister concerns. This was confronted to the assessee, to which the assessee responded that its accounts were in order and gave several reasons for the variation in rates, which included variation in the volume and size of pages of the books, colour printing, quantum of one time printing, lamination and nature of binding. The AO rejected such submissions of the assessee for the reasons that specific comparison in the number of pages, size of paper etc. of books based on which the AO came to the conclusion with regard to the inflation in the sale price. Such comparison, however, was not confronted to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assesse. Not a single instance of inflation of sale price of books has been pointed out by the AO. The AO has contended that the low over all cost indicated higher overall sales and profits but the AO has not given any instance how that higher than normal sale price was charged from sister concerns for sale of books or that any arrangement was made for charging of higher sale price than normal for the books. From the order of the AO especially in para 13.1 and various instances of inflation of printing charges, it is evident that it was only printing charges which were claimed to be inflated by design, and not the rate of sale of books. If there is no inflation of sale price of books, the reduction of the eligible profits u/s 80IC by Rs. 8,02,08,552/- u/s 80IA(10) only from inflation of printing receipts of around Rs. 3.12 crores is surely not possible. 14. It was observed by the Ld. CIT(A) if the AO believes that a sister concern is hiding the true high income from purchase of books from MBD Printographics Pvt. Ltd; it follows that the assessee is not inflating its sales rates of books to divert the income of sister concern to itself. This indictor may not be sufficient eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the years, as above said and profits were considered to be related to manufacturing process @ 20%. The Ld. CIT(A) after considering the explanation of the assessee was of the view that the AO has not brought on record any evidence to show that the assessee has got work done by the sister concern in excess of what is recorded in the books of account. It has also not been proved that the charges for work done by the sister concern is in any way lower than the market rates so as to boost the profitability of the assessee-company. Therefore, the ld. CIT(A) in all the orders directed to allow deduction as claimed in the return of income subject to additions confirmed in the case of the assessee for the assessment year 2005-06 by the CIT(A), Jalandhar. 17. We have heard the rival contentions and perused the facts of the case. The Revenue has taken additional ground in ITA No.27(Asr)2010, which is as under: "Whether on facts of the case, the ld. CIT(A) erred in not assuming plenary jurisdiction on certain issues such as AO's findings at several places in the assessment order that the assessee was not engaged inn the manufacturing activity at HP to the extent of the sales shown in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 153A to 153C under Chapter XIV of the Act alongwith regular assessment for the assessment year 2009-2010 under section 143(3) of the Act. The issue in all these appeals for the assessment years 2005-06 to 2008-09 and 2009-2010 is identical. The issue in the said appeals is that the assessee claimed deduction u/s 80-IC of the Act @ 100% of the profits and gains of the relevant years but the AO in all the years allowed 20% deduction as against 100% of the profits and gains of relevant year in all the years. The Ld. CIT(A) after considering the explanation of the assessee, remand report of the AO and the rejoinder of the assessee allowed the claim of the assessee in all the years and allowed 100% deduction u/s 80IC of the Act. The Ld.CIT(A) did not admit the additional evidence filed in ITA No.27(Asr)/2010 for the reasons mentioned in his order. 17.4. From the perusal of the case and material available on record and our findings hereinabove, the AO has allowed the deduction @ 3.15% of the profits and gains u/s 80IC of the Act originally u/s 143(3) of the Act for the assessment year 2006-07, which facts are borne out in the appeal of the Revenue in ITA No.27(Asr)/2010 at AO' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finality, as mentioned hereinabove. Therefore, the Income-tax department cannot change the stand in the subsequent year or for the said assessment year u/s 153A or u/s 143(3) of the Act. Therefore, the ld. CIT(A) has rightly allowed deduction @ 100% u/s 80IC and we do not find any infirmity in the order of the ld. CIT(A) for the assessment years 2005-06 to 2009-2010 in all the present appeals before us and in view of the decision of the ITAT, Chandigarh Bench, in the case of Shiva Exports vs. Income Tax Officer (supra). 17.8. Now we take up the issue on merit and to start the issue taken in ITA No.27(Asr)/2010 for the assessment year 2006-07, which has been followed by the ld. CIT(A) in all the other years in the appeals of the Revenue before us. During the said year, as mentioned above, the AO has allowed 20% deduction of the profit and gain as against 100%. The Ld. CIT(A) allowed 100% claim of the assessee. The main contention of the AO in the present case was that there has been inflation in the sale price by the assessee in respect of the books sold to the sister concern and also the AO in his order compared the rate of printing charged for text books of Punjab State Educatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 6.6 and also given opportunity to the AO to rebut the comparative chart of the books got printed by the assesse and the books printed for Punjab School Education Board and the AO in his remand report dated 12.05.2009 which has been reproduced from pages 18 to 21 has not been able to make detailed submissions on the factual aspect of the case and rather at page 19 asked the ld. CIT(A) to verify the claim made by the assessee. Regarding electricity charges, which have been proved by the assessee beyond any doubt and how it can be assumed that electricity charges in H.P. are far less than electricity charges in Punjab and that finding has not been rebutted by the ld. CIT(A). 18.1. He invited our attention to the printing double colour which facilitate in their unit at Jalandhar, which is having an old machinery. The Ld. CIT(A) has dealt each and every aspect from page 7 to 11 of his order and we are in agreement with the same. After going through all the factual position as brought out on record by the ld. CIT(A0 we have no hesitation in holding that the ld. CIT(A) has rightly deleted the addition to which we find no infirmity. Needless to add here, the comparative chart as reprod ..... X X X X Extracts X X X X X X X X Extracts X X X X
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