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2017 (9) TMI 1403

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....ssessee was having profits of Rs. 4.65 crores during the relevant period." As emerged from the above grounds of appeal, the Revenue has challenged the deletion of addition made by the AO on account of - (i). disallowance of deduction u/s. 80IA Rs. 1,23,60,580/- (ii). disallowance of commission paid to directors Rs. 12,00,000/- 2. The brief facts, relevant to the first issue, are that the as per 3CD report, the assessee had claimed deduction u/s. 80IB (erstwhile 80IA) to the extent of Rs. 1,23,60,580/- on the consolidated profits of all the units. The AO noticed that the assessee company started its production in 1990 and was eligible for deduction u/s. 80I(IA) for ten years. It, however, opened a new unit as unit No.II, which started same production in September, 1997. The assessee company claimed that it had surrendered its manufacturing license in respect of Unit No. I in F.Y. 1999-2000 and started job work of Unit-II. The AO observed that in the year in which the deduction in respect of Unit-I was lapsing, the assessee company surrendered the manufacturing right of Unit-I and started doing job work of Unit -II by using the facilities and workers of Unit-I. It was also obs....

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....se in subsequent years Unit II got some of its manufacturing activities executed by Unit I on job work basis will not reverse the clock. It cannot be held that what was new and independent business stands transformed into a reconstructed old business, because of job work. Therefore, independent status of Unit II cannot be altered as proposed by AO due to job work executed by Unit I. Various authorities have clearly held that the business of manufacturing is sum total of various activities including procurement of order, design, specifications and manufacturing of goods as per their designs, supply, dispatch as per the satisfaction of customer and activities of completion of sales etc. Merely because the assessee gets the fabrication work done as per its design from Unit I, it will not tantamount to a finding that the assessee has not carried out the manufacturing activities. Our view is fortified by the ratio of decision of Hon'ble Supreme Court in the case of Textile Machinery Corpn. Ltd. (supra) and the order of ITAT in the case of Associated Capsules (P) Ltd, (supra). The allegation of the department that the assessee diverted the manufacturing activities to Unit I will an i....

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....rectors as profits or dividend had it not been paid as bonus/commission as contemplated u/s. 36(1)(ii) of the Act. Reliance was placed on the decision of Bombay High Court in Loyal Motor Service Co. Ltd. vs. CIT, 14 ITR 647. The ld. CIT(A) has deleted the addition vide impugned 6 order, which has been challenged by the Revenue by way of ground No. 2 of appeal. 5. We have heard the submissions of both the parties and have gone through the material on record. 6. The ld. DR relying on the order of Assessing Officer, submitted that the ld. CIT(A) was not justified in deleting the addition ignoring the fact that the profit of the assessee was siphoned off in disguise of bonus/commission. The AO took correct view in the light of decision of Hon'ble Bombay High Court in Loyal Motor Service Co. Ltd. vs. CIT (supra), which the ld. CIT(A) ignored while deleting the addition. 7. The ld. AR of the assessee, on the other hand, relying on the impugned order, submitted that the ld. CIT(A) was quite justified in deleting the addition. The ld. CIT(A) apart from relying the first appeal order dated 18.02.2013 for A.Y. 2008-09 whereby similar disallowance was deleted, also gave cogent reasoning as....

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....ere not being paid in the guise of bonus and in support of the claim it was pointed out that the payment of bonus was not in any way related to the shareholding of the directors. The relevant shareholding details and the bonus payment in respect of each director were given to the AO which he has reproduced in paragraph 3 of the assessment order. 16. These submissions were however rejected by the AO who held that on a proper reading of the section it was clear that if the company could have declared dividend on the shareholding but had not done so, then any payment of bonus/commission to the directors was hit by the section. He noted that no dividend was declared by the company despite substantial profits. According to him, the company was avoiding 13.5% dividend distribution tax and some more tax on income since individuals pay 5% less tax than companies, and thus the total tax avoided came to about 20% because of the payment of the bonus to the directors. He therefore disallowed the entire payment of bonus. 17. In the assessment year 2006-07, for substantially the same reasons the AO disallowed the entire bonus payment of Rs. 37,44,000 to the directors. 18. The CIT(A) in ....