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2016 (8) TMI 1043 - GUJARAT HIGH COURT

2016 (8) TMI 1043 - GUJARAT HIGH COURT - TMI - Addition made on account of inflated purchase - Held that:- The assessee was manufacturing pharmaceutical medicines which are being exported. The assessee was maintaining the norms which are prescribed by the Government of India for a particular pharmaceutical medicine which is to be exported. Since there was a variation in the ratio, the Assessing Officer made addition based on the statement of the General Manager, in-charge production. In our view .....

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ne on different directions. - Decided in favour of the assessee. - TAX APPEAL NO. 1181 of 2008 With TAX APPEAL NO. 1182 of 2008 With TAX APPEAL NO. 1719 of 2010 With TAX APPEAL NO. 1720 of 2010 With TAX APPEAL NO. 1816 of 2008 TO TAX APPEAL NO. 1817 of 2008 - Dated:- 12-8-2016 - MR. KS JHAVERI AND MR. G.R.UDHWANI, JJ. FOR THE APPELLANT : MR NITIN K MEHTA, ADVOCATE FOR THE OPPONENT : MR TUSHAR P HEMANI, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) By way of these appeals under .....

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ting to computation of deduction under section 80-HHC by considering enhanced income of ₹ 1,06,51,980/- as having become infructuous on the ground that the assessee s appeal in regard to enhancement had been allowed? Tax Appeal No. 1182 of 2008: (1) Whether the Appellate Tribunal is right in law and on facts in deleting the addition made on account of inflated purchase of ₹ 1,95,62,054/-? (2) Whether the Appellate Tribunal is right in law and on facts in deleting the entire addition .....

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f raw materials? (C) Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance of 90% of interest received by the assessee from the profit of the business for the purpose of quantifying the deduction under section 80-HHC of the Act? (D) Whether the Appellate Tribunal is right in law and on facts in accepting the assessee s claim for inclusion of 90% of income from the sale of advance license while quantifying business profit under section 80-HHC of ₹ 1,92,500 .....

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r the revenue Mr. Mehta has submitted that he has not prepared in respect of question No. 2 in Tax Appeal No. 1182 of 2008 and therefore, he requires some time to prepare question No. 2. Tax Appeal No. 1816 of 2008 is filed against the penalty order issued by the Assessing Officer in respect of adjustment of ₹ 2,12,92,907/-. Since Tax Appeal No. 1182 of 2008 on this issue is kept on 31.8.3016, Tax Appeal No. 1816 of 2008 is not heard today. 4. Learned advocate appearing for the revenue Mr. .....

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e Commissioner of Income-tax (Appeals) has enhanced the addition by ₹ 1,06,51,980/- making the total addition to ₹ 1,95,62,054/- and directed to recompute deduction under section 80-HHC of the Act by considering enhanced income of ₹ 1,06,51,980/-. However, in further appeal before the Tribunal, the Tribunal has deleted the addition made on account of inflated purchases of ₹ 1,95,62,054/- by following its decision in the case of M/s. Gujarat Woolen Felt Mills in ITA No. 88 .....

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ined investment in the purchase of raw materials. ₹ 1,32,57,449/- on account of excess consumption of some of the raw materials as compared to standard input output norms prescribed by the Government of India for quantifying the export benefits given to exporters added as inflated purchases of raw materials. At the outset, the learned counsel of the assessee fairly stated that the issue is squarely covered in favour of the assessee by the decision of the ITAT Bench-C Ahmedabad in ITA No. 8 .....

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The quality control of these drugs is of high standards and the composition of the drugs will have to be maintained as per the prescribed norms and of internationally quality. For a particular medicine which is to be exported the Government of India has prescribed the input ratio of various raw materials which have been printed on the various sale invoices which have been mentioned by the appellant. As there was lot of variation in the ratio, to know the exact consumption of the raw material th .....

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e to the input out ratio prescribed by the Government and printed in the sale invoices. In reply to question No. 5, 6, and 8 he has categorically mentioned that the production of export items is as per the standard norms and these inputs are also mentioned at the bottom of export sales invoice. In reply to question No. 8 he has again confirmed that production of the item is as per the standard norms and the inputs are used as per the standard usage mentioned at the bottom of sales bills. If ther .....

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accordance with the standard input output ratio. The appellant s submission that the consumption depends on various factors like efficiency of the plant and process involved is only an afterthought because the production manager who is the in-charge of production has nowhere mentioned that there is even slight variation in consumption from the standard input out ratio. The appellant has also not proved with any other evidence that the consumption has been different because of factors mentioned b .....

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and excess is of different raw materials, there cannot be offset against each other as has been done by AO in the assessment order. The appellant s another argument that record are being examined by the excise department and sales tax department is of no relevance because the excise department is only concerned with the actual production and levy of excise duty rather than to examine the excess of deficiency of the raw materials which has been worked out only on the basis of standard input outpu .....

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on has been different because of factors mentioned by it. The fact remains that the appellant has not been in a position to explain the deficiency and the alleged extra consumption of raw material vis a vis the standard input output ratio in view of the statement of the production manager who has strictly confirmed that the raw material has been consumed as per standard input output ratio. On these facts, the CIT(A0 finally enhanced the addition vide para 2.2.3, by observing as under: 2.2.3 From .....

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e been inflated to reduce the profit of the company. Thus the total addition which is liable to be made is ₹ 1,95,62,054/-. After considering the addition of ₹ 89,10,074/-, the income which is to be further enhanced is ₹ 1,06,51,333/-. Therefore, the AO is directed to enhance the income by ₹ 1,06,51,980/-. Accordingly, this ground is dismissed with direction to enhance the income by ₹ 1,06,51,980/-. The learned counsel of the assessee referred the Tribunal s decisio .....

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ixed by the Handbook of the procedures, the percentage of wastage cannot be said to be excessive. In these circumstances, particularly in the absence of any specific material to show that the assessee has made a false claim of wastage, which in any case is within the parameters laid down under the Excise Duty Exemption Scheme, no addition can be made to the income of the assessee. The conclusion of the Assessing Officer, as observed by the CIT(A) is based on the production register upto the card .....

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tput ratio of consumption bu the assessee-company has clearly demonstrated that it would be better of had it imported the raw material as per the input output norms. The assesseecompany has claimed that it has consumed less than what is prescribed under the input output norms. The CIT(A) has wrongly relied on the input output consumption ratio and the facts in the present case are exactly identical what was before the Tribunal in the case of M/s. Gujarat Woolen Felt Mills (supra). Respectfully f .....

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facts and considering the decision in the case of M/s. Gujarat Woolen Felt Mills (supra) rightly deleted the addition made by the Assessing Officer. He further contended that the decision of the Tribunal in M/s. Gujarat Woolen Felt Mills (supra) is not challenged before any higher forum, the Tribunal has rightly followed its decision and deleted the addition. 6. Tax Appeal No. 1181 of 2008 is consequential to Tax Appeal No. 1182 of 2008. If Tax Appeal No. 1182 of 2008 is dismissed, this appeal b .....

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anager, in-charge production. In our view, the Assessing Officer has based his addition on the basis of the documents which are not available on the record and based on the statement of the General Manager, in-charge Production. Whether the assessee has followed the prescribed norms is not within the purview of the Income-tax Authority. In our view, the Tribunal has rightly held that the CIT(A) was wrong in relying on the input out consumption ratio. In our view, the Assessing Officer and the Co .....

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ed to 31.8.2016 on that point. Tax Appeal No. 1816 of 2008 arises out of a consequential penalty order passed by the Assessing Officer in respect of the adjustment made in international transaction relating to export of finished goods. Since Tax Appeal No. 1182 of 2008 is kept on 31.8.2016 for deciding this issue, Tax Appeal No. 1816 of 2008 is also kept on 31.8.2016. 7.2 Tax Appeal No. 1181 of 2008 is consequential to Tax Appeal No. 1182 of 2008. Since we have answered issue No. 1 in Tax Appeal .....

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