TMI Blog2009 (10) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal raised in the appeal of assessee. 3. Before us the learned counsel of assessee has submitted that addition made by A.O. is unjustified, unwarranted and bad in law. It is submitted that complete details of transportation expenses claimed in respect of above parties were submitted before A.O. and CIT(A). No defect or mistake is found in the same and therefore addition made by A.O. and upheld by CIT(A) is not justified. Confirmation filed by assessee indicates that such parties are assessed to tax and Permanent Account No. is provided in the confirmations. A.O. on same lines has made addition of ₹ 2,42,.219/- for Mama Co. in Asstt. Year 2004-05. The said addition is deleted by CIT(A) in appeal of assessee for Asstt. Year 2004-05. Revenue has accepted the said decision and no appeal is filed challenging the decision of CIT(A) in Asstt. Year 2004-05. CIT(A) having accepted same confirmation (P- 105) in Asstt. Year 2004-05 had no justification to not to accept the same in Asstt. Year 2005-06. Regular books of accounts are maintained and audited statements are not rejected by A.O. All payments are made by account payee cheques. On all payments tax is deducted at source a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The same A.O. has made addition of ₹ 2,42,219/- in respect of transport expenses relating to Mama Associates. The aforesaid addition has been deleted by CIT(A) vide his order dated 24/01/2008 in para 14 15 at page 12 for the assessment year 2004-05. The Revenue Authorities have accepted that decision and same has not been challenged in appeal. We find that there is no justification for not accepting the same confirmation for the assessment year 2005-06 when the very same confirmation has been accepted by Revenue in the A.Y. 2004-05. The assessee has maintained regular books of account and payment of transport charges have been paid by cheques. The assessee has by submitting confirmation from parties have explained the claim of transport charges as recorded in its books of account. A.O. and CIT(A) has not found any difference in claim of expenses and as confirmed by various parties to whom transport charges have been paid. It was explained before us that difference between amount as shown by assessee and as recorded by various transporters is on account of TDS not considered by aforesaid parties as well as difference in recording the date of bills issued by such parties. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission before A.O. the complete details of stock as on 31/3/2005 was explained. A.O. has not found any defect in the same. At the time of search itself assessee had explained the computer print outs to be error of Software package. In extensive search neither any evidence of unrecorded turnover was found nor any transaction was found not recorded in books of accounts. The perusal of assessment order does not indicate that A.O. has found any transactions outside the books of accounts. Same A.O. while completing the assessment for Asstt. Year 200607 in the case of assessee has taken opening stock as shown in the books at ₹ 525.65 lacs. This itself indicate that closing stock as on 31/3/2005 could not be more than ₹ 525.65 lacs. It is submitted that addition as made by A.O. and sustained by CIT(A) is unjustified. In the case of assessee quantitative details of stock production and sales for Asstt. Year 2004-05 and Asstt. Year 2006-07 have been accepted without adverse observation. The papers which have been accepted by A.O. to be on account of error in Software Package cannot be valid basis for making any addition at the hands of assessee. No corroborative evidence was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware is acceptable. It is seen from loose paper that quantity observed at 3,48,488.390 MT and 19.369.40 MT is in respect of transportation of fines and iron ore as is evident on page 115 and 116 of the paper book. The quantity of 57442 MT and 29167 MT is in respect of Traded fines and Traded lumps as is evident on Page 118 and 119. The CIT(A) has found that quantity in respect of Traded goods are included in the quantity of transportation noted on page No. 115 116. The CIT(A) has accordingly reduced the aforesaid quantity from unaccounted stock computed by A.O. We do not find any reason to interfere with finding as recorded by CIT(A) in this respect as we are of the opinion that transported quantity as mentioned in assessment order can not be aggregated with further quantity of Traded fines and lumps for the purpose of computing the stock as on 31/03/2005. We also find from the communication dated 19/11/2007 addressed to A.O. and placed in paper book at page 107 to 111 wherein complete details of valuation of closing stock along with quantitative details has been submitted before A.O. No mistake omission or defect in closing stock quantity as reported in financial statement and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 13,50,126/- is hereby directed to be deleted. The ground of appeal is allowed. Consequently Ground No. 9 of the appeal of the revenue is dismissed.. 10. In Ground No. 2 assessee has challenged the validity of assessment framed on various legal facets as described in grounds of appeal. 11. Before us learned counsel of assessee submitted that similar grounds were raised before CIT(A) wherein detailed written submissions were made which have been reproduced in appellate order. The counsel of the assessee has placed reliance and submitted that he has nothing more to add than what has been submitted in written submission reproduced in the order of CIT(A). It is submitted that in the facts of present case no opportunity was granted by Addl. CIT before granting approval as provided u/s 153D of Income tax Act, 1961 and in view of above order passed in the case of assessee is bad in law. Reliance for this is placed on 1994 TAX L.R. 468 in case of Kamala Properties vs. Inspecting ACIT (Cal.). The assessee was being assessed by DCIT, Company Circle-12(1) and subsequently case was transferred to DCIT, Central Circle-(1), Bangalore. Order of transfer was not communicated to assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submission of assessee has accepted the claim of assessee u/s 10B of I.T. Act 1961 and directed to allow the claim of assessee u/s 10B as claimed in the return of income. 16. The learned D.R. submitted that various ground as raised in memo of appeal can be summarised into three issues for making disallowance u/s 10B of I.T. Act 1961. He submitted that assessee is not engaged in manufacture and production of an article or thing in its EOU Unit and is therefore not eligible for benefit of deduction u/s 10B. It is submitted that on the basis of fact and evidence on record 100% EOU is not a new unit of assessee and it formed by splitting up or reconstruction of existing business and therefore assessee is not eligible for benefit of deduction u/s 10B of I.T. Act 1961. It is thus submitted that the requisite conditions for grant of deduction u/s 10B of I.T. Act 1961 are not satisfied in the case of assessee. The claim of deduction u/s 10B of I.T. Act 1961 has been rightly denied by A.O. in the case of assessee. It is submitted that assessee inflated the profit of 100% EOU Unit and suppressed the profit in Non-EOU unit of assessee. It is submitted that A.O. has made detailed discussi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is inapplicable to the facts in the case of assessee. The observation of A.O. that activity in custom bonded area clearly falls short of even processing let alone manufacture or production is unjustified. In the case of assessee approval of 100% EOU is for entire undertaking of mining and observation of A.O. thus are unjustified. The observation of A.O. at para 32 that operational cost is less than 1% is factually incorrect. The mining and other operative expenses are ₹ 3656.75 lacs. As is evident from page 31 of paper book being Profit Loss Account of 100% EOU. In view of above assessee is engaged in production of iron ore and thus condition prescribed u/s 10B(2)(i) stands satisfied in the case of assessee. As regard to issue that 100% EOU is not formed by splitting up or reconstruction of a business already in existence, it is submitted that 100% EOU is established in 2003 and is holding requisite approval from Government. EOU is set up under Special Economic Zone and copy of approval is submitted in paper book at page 94 to 96. It is set up by installing new Plant Machinery of ₹ 283.49 lacs and aggregate value of fixed assets of ₹ 300.14 lacs as is evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. for the proposition that 100% EOU is not formed by splitting up or reconstruction of existing business. In view of above submissions condition provided u/s 10B(2)(ii) of Income Tax Act, 1961 also stand satisfied. As regard to variation in profit in 100% EOU unit and NON EOU unit it is submitted that assessee company has maintained separate books of accounts for MEL (EOU) undertaking and other undertakings of the company. The books of accounts of each undertaking are audited by Chartered Accountants and no adverse observation is given by the auditors of the assessee company. The MEL (NON EOU) has not supplied any goods or services to MEL (EOU) undertaking as is evident from the Audited Profit Loss Account of MEL (EOU) placed in paper book at P28 to P-41. In view of observation of A.O. to the above effect at Para 19 to 21 are factually incorrect. Infact A.O. has not spelt out of a single service or goods supplied from MEL (NON EOU) to MEL (EOU). It is submitted that provisions of sec.10B(7) are inapplicable in the facts in the case of assessee. In the absence of any service or goods having been supplied from MEL (NON EOU) to MEL (EOU), the condition precedent for application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced at page 14 15 to show that none of the items discussed by A.O. at para 12 are material to disturb the results of audited statements. Keyman Insurance Policy is made out considering the profit of earlier years which are essentially of NON EOU undertaking as EOU undertaking has commenced during the year under consideration. It is for this reason that Keyman Insurance premium is for NON EOU unit. Moreover on surrender or claim of Keyman Insurance policy the income would be assessable and would be of NON EOU unit only. The turnover of NON EOU has increased from 124.15 crores to 275.36 crores during the year under consideration which fully justified the premium paid for Keyman.. Business promotion expenses, advertisement expenses, retainer charge, traveling expenses and staff welfare expenses are incurred for NON EOU unit alone and are debited in its books of accounts. Details were submitted and no item of expenditure is found to be relating to EOU unit. The total investment in EOU is 19.17 crores and company has capital, reserves and surplus at more than the above sum as is evident from the balance sheet of the company. It is not the case of A.O. that any borrowed amount of NON ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ron Ore is one integrated activity. The conclusion that mining and production facility are two separate business is an act of hair splitting by A.O. and is not justified. In Iron Ore Industry the activity of mining comprises of excavating earth and processing it into iron ore at production plant. Observation of A.O. thus are not justified. Considering the various submission made hereinabove it is submitted that CIT(A) has correctly directed to allow exemption u/s 10B of Income Tax Act, 1961 as claimed. There is no merits in various grounds of appeal of revenue and same be dismissed. 18. We have considered the rival submission and perused the evidence on record. The brief facts in the case of assessee are that assessee has set up 100% EOU which is engaged in production of iron ore. The assessee has received approval of 100% EOU from the Government. The certificate of approval is placed in paper book at page 94 to 96. First we shall take objection of A.O. that assessee is not engaged in manufacture or production of article or thing. It is seen that such dispute is no more res integra in view of the decision of Apex Court in the case of CIT vs Sesa Goa Ltd. reported at 271 ITR 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loss Account and Balance Sheet is placed in paper book at page 28 to 41. The perusal of audited statement would indicate that 100% EOU is set up by installing plant machinery of ₹ 283.29 lacs during the year under consideration. The 100% EOU is approved by Government and necessary approvals is placed in paper book at page 89 to 96. The perusal of audited statement would indicate that no plant machinery in respect of other undertaking of the assessee has been used for the purpose of production at 100% EOU. In the course of search no incriminating evidence or any other material was found nor has been brought on record by A.O. during assessment proceedings to demonstrate that existing business of assessee has been reconstructed to set up 100% EOU . We also find that existing business of assessee which has been titled as Non-EOU unit has also increased substantially as compare to earlier year. Separate books of accounts are maintained in respect of NON EOU activities and audited statement in respect of such transaction are placed in paper book at page 4 to 27. The profit loss account of NON EOU activity in the paper book indicate that turnover of assessee has registered inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., (iii) 108 ITR 367 (S.C.) in the case of Indian Aluminum Co. Ltd. vs. CIT , (iv) 137 ITR 851 (Del.) in the case of CIT vs. Hindustan General Industries Ltd. , (v) 92 ITR 160 (Mad.) in the case of CIT vs. Ganga Sugar Corporation Ltd., (vi) 125 ITR 361 (All.) in the case of CIT vs. Modi Spinning Manufacturing Mills Co. Ltd. Respectfully following the same we hold that 100% EOU is not formed by splitting up or reconstruction of business already in existence. 19.2 Considering the totality of facts and circumstance and evidences on record we are of the opinion that assessee has set up 100% EOU unit which is a new unit of the company and there is no case for revenue to hold that there is splitting up or reconstruction of business. In view of above denial of exemption u/s 10B of I.T. Act 1961 for the above reason by A.O. is held to be not justified. We hold that assessee having set up a new unit which is 100% EOU there is no violation of condition as provided u/s 10B(2)(ii) of I.T. Act 1961. We hold that CIT(A) has correctly held that there is no splitting up or reconstruction or already existing business. 20. As regard to computation of income u/s 10B of I.T. Act 1961 A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result have to be of like business. In the facts of the present case we are of the opinion that activity of Non-EOU and 100% EOU is not alike and therefore comparison of financial result in terms of percentage as made by A.O. is not justified. It is seen that purchases in NON EOU constitutes 24.18% of turnover as against 7.07% in EOU. It is further seen that mining and other operative expenses are 56.2% of turnover in Non-EOU and 59.61% of turnover in EOU Unit. We find that mining and other operative expenses in 100% EOU are more than in Non EOU unit of the assessee. This clearly belies the apprehension of A.O. that expenditure of 100% EOU is suppressed by assessee in order to avail a larger claim u/s 10B of I.T. Act 1961. We also find that bifurcation of total profit by A.O. is as per book profit and not as per computation made under provisions of Act which is not justified. The decision of co-ordinate bench of ITAT, Bangalore Bench in the case of Digital Equipments Ltd. Vs CIT reported at 103 TTJ 329 fully supports the submission of assessee. In the said case income shown in separate books of account has been accepted for grant of deduction u/s 10A. Similarly ITAT Nagpur Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by A.O. at para 10 to 21 of the assessment order are held to be not justified. We therefore hold that there is no merit in submission of revenue with regard to bifurcation of profit in between 100% EOU and Non-EOU undertaking of the assessee. Considering the totality of facts and circumstances and evidence on record we are of the opinion that claim of assessee u/s 10B as made in return of income stand fully substantiated and we do not find any mistake in the same. CIT(A) has correctly granted relief as prayed in appeal before him and we do not find any reason to interfere in the relief provided by CIT(A) in his order. We do not find any justification or merit in ground of appeal of Revenue. In view of above ground of appeal of revenue are dismissed. 21. In Ground No. 9 of appeal of revenue the addition deleted on account of closing stock is under challenge. CIT(A) in his appellate order has granted partial relief in respect of addition made by A.O. on account of closing stock. The assessee has contested the addition sustained by CIT(A) in Ground 1(c) of Appeal No.527/Bang/2009. The disputed issue is same and submission of the counsel of assessee and revenue were identical to tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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