TMI Blog2020 (8) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... ured through other in earlier years to self-manufacturing unit at Jammu and this has also created the fallacious and misleading findings by the AO as to the Jammu profit on which deduction u/s 80IB has been denied. Finally, we note that both the authorities below have failed to give a cogent and convincing reasons for reducing the claim of assessee u/s 80IB as various doubts and suspicion of the authorities below were duly addressed by the assessee by furnishing various details and information qua the various units. We are not in a position to sustain the order of CIT(A) wherein the order of Assessing Officer has been confirmed. Accordingly, we set-aside the order of CIT(A) and direct the Assessing Officer to allow the deduction u/S 80IB of the Act as claimed by the assessee. - Decided in favour of assessee. - ITA NO. 1709/MUM/2014 - - - Dated:- 6-8-2020 - Shri C.N. Prasad, Judicial Member And Shri Rajesh Kumar, Accountant Member Appellant by: Shri Prakash Jothwani Respondent by: Ms. Kavita Kaushik ORDER Rajesh Kumar, AM : This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-38, Mumbai (in sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng units at Daman and one at Jammu . Unit No. 1 was started in 1994, Unit No. 2 in 1999, Unit No. 3 in 2001, Unit No. 4 in 2003 and Jammu unit was started in 2005. The assessee has been claiming deduction under Section 80IB of the Act for all these units. During the year the Unit No. 1 is having no tax exemption available while for Unit Nos. 2 3, exemption was available equal to 30% of the tax and in respect of Unit No. 4 and Jammu unit, 100% of the profits were exempt during the year. The assessee is also engaged in purchasing of finished goods or getting finished goods manufactured for sale purposes, for trading activity or consignment sales, etc. According to the Assessing Officer, the alleged trading activity (qua goods manufactured by others ) is deliberately shown as at loss to set-off the profits arising from Unit Nos. 1, 2 3 having either no exemption or less exemption of tax. The Assessing Officer further held that since a portion of the trading activity has been transferred to Unit No. 4 and Jammu unit, loss to that extent is required to be disallowed. Besides, the Assessing Officer has worked out a formula, as stated at pages 12 and 13 of the assessment order, by whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch. The appellant to this suspicion conjecture of the AO has to submit as under: a) Search took place in November 2004 b) Without prejudice If papers were found, they could not pertain to A.Y. 2006-07. c) In assessments from A.Y. 1999-00 to 2005-06, u/s. 153A the AO has not raised a doubt on raw material consumption nor has he deliberated on any evidence found during search. Hence the reliance on findings of search is not justifiable. d) Each unit is Manufacturing a product which is not duplicated by the other unit. Hence material consumption of each unit cannot be compared with the other. Further year wise raw material consumption cannot be compared, as a product in one particular year may have been discontinued in the next year or may be a new product is substituted which would yield a higher or lower consumption ratio. Hence the comparison made by the AO is unfounded. Enclosed herewith is chart of raw material to sales ratio. 3(b). Further at Page 3, top para of the Assessment Order the AU has made a hard hitting allegation that nearly 100% of the raw material items found to have been manipulated at the time of search, which were all excipients. To this we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material issue was not made by the AO in the earlier assessment years as he was denying 80-IB in entirety on a/c of old machinery been installed. The appellant refuses this allegation. In the earlier years, the AO made inquiry but still did not make any addition nor did he discuss on the issue. The assessments was then looked into by CIT(A) who did not touch this issue. Further these search assessments were also looked into in 263 proceedings on the basis of seized material no proceedings were taken up on this issue of raw material or over invoicing. Thus the AO the higher authorities were convinced on the explanation given on raw material over invoicing hence no addition was made on this issue. 3(e). At para 9 at page 10, the AO has stated that the appellant has not been recorded purchases separately for each unit. The appellant has a purchase register with a cost centre based accounting for all the units. Each purchase is recorded to the respective cost centre unit is aggregated as one purchase of the company. Thus the appellant can identify costs per unit as it is separately recorded. With regard to the Jammu Unit, the purchase bills clearly show as Medley Jammu, thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O that while the entire deduction was denied, there was no reason for the A.O to allocate the profits between taxable and non-taxable units. The submission of the appellant in para nos. c, d, e and f of para no. 6 above, cannot be accepted for the reason that the submissions have not been proved by the appellant and such submissions without any evidences cannot be accepted. 8.2 Since the A.O had cited various reasons for estimating the profits such as the raw material to sale price ratio, abnormal variation in raw material cost to sale price, genuineness of the purchases having not been proved, lack of purchase bills for raw materials as well as packing materials, lack of stock of packing material at Bhiwandi etc. discussed in paragraph 5.1 to 5.5 above suggest that the profits have been manipulated between the units. The appellant failed to submit specific denials with supporting documents as against the issues discussed in the assessment order and the submissions of the appellant are very general in nature. In view of the above, the addition made by the A.O is hereby confirmed. 8. The learned AR vehemently submitted before us that the order passed by the CIT(A) is pate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the margin of the assessee. Thus the increase in excise duty is approx. 355%. In another product, the percentage of increase in excise duty is over 600%. Hence Assessing Officer has erred in applying 7.5% rebate only while working out the trading profit in place of losses shown by the appellant. The learned AR further submitted that the Assessing Officer did not consider that products have been shifted from manufacturing from others to self manufacturing at Jammu unit. Thus when the Assessing Officer made a working of estimated profit from trading, the Assessing Officer has taken 12% as the basis (net profit of the earlier year) reduced it by 7.5% and then estimated 4.5% of total trading receipts/income. If the Assessing Officer gives credit for goods manufactured at Jammu, where there is a net margin of 12%. If 4.5% is reduced by 12% (net margin of Jammu) then there is a loss which has been declared by the appellant. Thus the Assessing Officer s omission to apply the Jammu profits to the trading income has created an artificial profit on which Section 80IB has been denied. He further submitted that the products manufactured in each unit are separate and distinct. Thus a margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities qua the reduction of gross profit in the current year vis-a-vis the earlier years. In our considered opinion, this is not a case of diversion of profit from one unit to another or once division to another, but was done out of business expediency and commercial consideration. We also note that the assessee has sufficiently proved that the turnover of assessee having higher margin in the earlier years have reduced while the products where there is lower margin have increased substantially. We further find that there is not gross loss, but a fall in gross profit of the assessee which has also been explained by stating that with the increase in excise duty, margin of assessee has come down. The rate of excise duty earlier was 16.23% on MRP while after amendment, the said rate was applied on MRP less abatement and thus the effective increase in duty is approximately 355% while on some other products, percentage increase in excise duty was over 600%. Thus, we do not find any reason to concur with the observations of the Assessing Officer. Besides, the Assessing Officer did not consider the fact that assessee has shifted product manufactured through other in earlier years to sel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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