TMI Blog2018 (4) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) directing AO to allow deduction under section 80IC of the Act on the net profit of the Dehradun units as declared by the assessee after reducing the misc. income as taken in the P&L Account - Decided against revenue Disallowance of commission expenses - Held that:- It is settled proposition of law that the expense disallowed in respect of unit eligible for deduction under Chapter VI-A then the deduction will be available on the enhanced amount of profit i.e. disallowance made by the Authorities Below. CIT(A) has given a clear-cut finding that the consolidated profit and loss account was given along with separate profit and loss account of Dehradun unit DR has not advanced any argument against the finding of Ld. CIT(A). In view of the above, we are of the view that even the amount of Commission expenses of ₹ 5 crores is disallowed then the assessee would be eligible for deduction u/s. 80IC of the Act for the enhance amount. No reason to interfere in the order of Ld. CIT(A). - Decided against revenue - ITA No. 1257/Kol/2014 - - - Dated:- 20-4-2018 - Shri N.V.Vasudevan, Judicial Member And Shri Waseem Ahmed, Accountant Member By Appellant : Md. Usman, C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer during the assessment proceedings observed certain fact as detailed under:- i) The assessee claimed deduction u/s 80IC of the Act in respect of its manufacturing unit located at Dehradun in the Assessment Year 2008-09 which was allowed by AO but after apportioning the expenses on the basis of turnover pertaining to eligible and non- eligible units for deduction u/s 80IC of the Act. Accordingly, the deduction claimed u/s. 80IC of the Act in the AY 2008-09 was reduced by the then AO in the assessment order framed u/s 143(3) of the Act. The assessee against such order of AO preferred an appeal before Ld. CIT(A) who reversed the order of AO and allowed the claimed made by assessee u/s. 80IC of the Act vide order dated 31.01.2011. However, against such order of Ld. CIT(A) Revenue has gone in appeal before Tribunal. But the fate of such appeal before the ITAT Kolkata is not known to the Assessing Officer. ii) Similarly, the AO also observed that the deduction claimed by assessee in the AY 2009-10 u/s 80IC of the Act was disallowed by the AO vide order dated 11.12.2011 passed u/s 144 of the Act. The deduction was disallowed in the AY 2009-10 for the reasons that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) submitted as under:- a) Higher amount of profit was shown in respect of Dehradun Unit as there was no excise duty payable on the manufacturing of goods; b) The AO during the course of assessment proceedings did not ask for the unit-wise profit and loss account; c) There is no finding of AO referring the specific instances suggesting that the expenses of eligible units have been diverted to non-eligible units. d) A report in Form 10CCB from the qualified Chartered Accountant was filed before the AO regarding the deduction claimed u/s. 80IC of the Act. A separate profit and loss account of Dehradun unit was duly filed before AO at the time of assessment proceedings. e) The Ld. CIT(A) has allowed the deduction claimed by assessee u/s 80IC of the Act in respect of Dehradun unit. f) The assessment AY 2009-10 was framed u/s 144 of the Act on the ground that necessary details were not furnished. As the order was framed as ex parte, therefore, no reference / cognizance can be made to such assessment order. g) The manufacturing units are based in different geographical location and manufacturing different products which are supplied to different customers. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Profit of the appellant is ₹ 16,59,93,868/- and not ₹ 14,19,93,868/- as mentioned by him. He himself has taken this figure while computing taxable income of the appellant in page 10 of his order. Thus the net profit margin of the appellant as whole is 19.63% and not 16.S% as mentioned by him. Also from the P L of 80lC unit it is seen that commission of ₹ 5 crore has been debited to 80lC unit and not to non 80IC units to reduce profit of non eligible units. 4.6 It is also not disputed by the AO that the 80lC unit (Dehradun) of the appellant company enjoys excise exemption and therefore gross profit of that unit is bound to be higher in comparison to non 80lC units. 4.7 It is also not disputed by the AO that cost of production in Dehradun unit is lower as compared to other units because the new unit is newer one and has employed latest production technology. 4.8 In the case of the appellant for the assessment year 2008-09, a similar issue had been raised by the AO. The matter has been examined by the CIT(A)- V Chennai in detail in his order dated 4th February, 2014. For the said assessment year the AO had made a similar reduction in the claim made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the manufacturing units individually. But it has filed only consolidated profit and loss account. Accordingly, it was not possible for the AO to determine the amount of deduction u/s 80IC of the Act without the examination of the books of account of assessee. He vehemently relied on the order of AO. On the other hand, Ld. AR for the assessee has filed paper book which is containing pages from 1 to 13 and stated that Co-ordinate bench of this Tribunal in assessee s own case in ITA No.48/Kol/2015 pertaining to AY 2009-10 dated 20.09.2017 has decided the issue in favour of assessee. Accordingly, Ld. AR submitted that assessee was eligible for deduction u/s 80IC of the Act for the year under consideration. In rejoinder Ld. DR submitted the facts of one year can be different with another year. Therefore, no reliance on the order of this Tribunal in assessee s own case (supra) can be made. 6. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the deduction claimed by assessee u/s 80IC of the Act in respect of its manufacturing unit located at Dehradun. At the outset, we find that Co-ordinate Bench of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s derived from the unit at Dehradun. The AO noted that the assessee has declared total profit from the business a sum of ₹ 6,30,26,047/- and after claiming deduction u/s. 80IC of the Act for a sum of ₹ 4,70,63,306/- has arrived at a total income of ₹ 1,59,62,740/-. According to the AO, since the assessee did not produce the Form 10CCB and has not kept the separate books for the unit at Dehradun, the claim was not accepted by the AO. In the remand report also the AO reiterates that the assessee has not kept separate accounts for its unit at Dehradun. However, we wonder as to how the AO is able to get the figures of profit from each unit in his remand report without going through the separate accounts maintained for its different units. 5. We note that it is not the case of the revenue that the unit at Dehradun of the assessee is not eligible for deduction u/s. 80IC of the Act. The Ld. CIT(A) also took note of the fact that unit wise break up of sales and profit statement along with duly signed Form 10CCB by a Chartered Accountant was also submitted though at the first appellate stage. The reason for non-submission of the Form 10CCB was attributed to the closin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealization due to sales to end user and also on account of savings in cost, which resulted in a profit margin of 26.84% of turnover cannot be termed as unnatural. Whereas it was pointed out to the Ld. CIT(A) and AO (during remand proceedings) that in the other units of assessee located at Chennai and Lucknow, old machines were used and there was irregular production and, therefore, there was less profit. It has brought to the notice of the ld. CIT(A) that the work at Haridwar and Chennai units are too miniscule in comparison to the operation of the company at Dehradun. It was brought to the notice of the Ld. CIT(A) that Dehradun unit is under Excise exemption which is 14.42% of the sale value and as such the net profit increased by such percentage has the relevance of increase in prices. The Ld. CIT(A) took note of all these factors and noted that the assessee is maintaining separate accounts and books of account for each of its units located at different locations and no defects whatsoever could be detected by the AO in the books of account submitted before him. The Ld. CIT(A) has taken note of Form 10CCB which was duly signed by the Chartered Accountant in accordance to law and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of assessee therefore we are not inclined to adjudicate the issue raised by Revenue for rejection of books of account u/s 145(3) of the Act. The ground raised by Revenue does not require any separate adjudication and it becomes infructuous. Thus the grounds of appeal of the Revenue are dismissed. 6. Next issue raised by Revenue in ground No.(d) is that Ld. CIT(A) erred in deleting the addition made by AO for ₹ 5 crores on account of commission expenses. 7. The assessee, during the year has incurred commission of ₹ 5,01,67,682/- only which was claimed in the profit loss account. Out of such commission expenses a sum of ₹ 5 crores was aid to Narsingh Ispat Ltd. (NIL for short) and the balance amount of commission of ₹ 1,67,882/- was paid to three different parties. On being confronted for the commission expenses paid to NIL by it, the assessee submitted that it was paid for making contracts, for procuring orders, generating demand and creating indent with all the railways authorities and other companies / firm located in whole of India. The assessee also filed the copy of agreement with NIL in support of its claim. The amount of commission was pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld appreciate the Assessing Officer's allegation that the Commission payment was a device adopted to evade payment of tax. On the contrary the facts on record shows that the entire Commission paid was debited to the Profit Loss Account of the undertaking which enjoyed 100% tax exemption. In the circumstances I find merit in the A/R s submissions that there was no motive of either tax evasion or tax avoidance in making payment of commission. The assessee s contention stands fortified because of the fact that no tax benefit was availed by the assessee as a consequence of commission paid. In fact if the Assessing Officer's assumption is accepted at its face value then it would only mean that by incurring such non-genuine expenditure the assessee reduced its eligible deduction by the corresponding amount which is quite against human probabilities. I therefore do not find merit in Assessing Officer's conclusion that commission was paid as a measure of tax evasion or tax avoidance. 5.7 For an expense to be disallowed u/.s. 37 it is a sine qua non to show that the expenditure has not been incurred for business purposes. In other words, it has to be proved that the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not clear whether the commission expense was claimed against Dehradun unit. Accordingly, Ld. DR for the assessee prayed before us to restore the matter back to the file of AO for fresh adjudicating in accordance with law. The ld. AR in rejoinder further submitted that Commission expense was claimed against Dehradun Unit as evident from the profit and loss account of Dehradun unit which was filed before the Authorities Below. The ld. AR vehemently supported the order of the ld. CIT(A). 10. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates to the allowability of Commission expense claimed by assessee in its profit and loss account. It is settled proposition of law that the expense disallowed in respect of unit eligible for deduction under Chapter VI-A then the deduction will be available on the enhanced amount of profit i.e. disallowance made by the Authorities Below. In this regard, we find relevant to reproduce the necessary portion of Circular No.37 of 2016 issued by CBDT dated 02.11.2016 which is reproduced below:- 3. In view of the above, the Board has accepted the settled ..... X X X X Extracts X X X X X X X X Extracts X X X X
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