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TMI Blog2022 (10) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain observations as detailed under: i. The manufacturing unit located at Uttaranchal was eligible for deduction u/s 80IC of the Act. Rudrapur Uttaranchal unit was purchasing the semi furnish goods which were manufactured at Rajkot unit. There was no forging or casting unit at Rudrapur Uttaranchal. Thus it appears that Rudrapur unit is not carrying any job work activity rather it is a selling outlet of Rajkot unit. ii. Under the provision of section 80IC of the Act, it was necessary for the assessee to increase investment in plant and machinery by at least 50% of the book value of the plant and machinery as on the first day of the previous year in which the substantial expansion is undertaken. Thus, the conditions as prescribed u/s 80IC of the Act were not fulfilled. iii. The assessee purposely has not produced the books of accounts in order to avoid un-favorable outcome which could have come on the basis of such books of accounts. 4. In view of the above, the AO concluded that the Rudrapur Uttaranchal unit is not independent unit but the extension of Rajkot unit only. Therefore, the deduction claimed by the assessee u/s 80IC of the Act for Rs. 6,58,98,942/- was disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of assumption and presumptions without pointing out any documentary evidences which lead to conclusion that no new manufacturing unit has came into existence at Rudrapur Unit. The appellant relied on various judgments, cited supra, including the recent Delhi High Court judgment in the matter of CIT v. Tej Pal Singh Kohli reported in (2015) 371 ITR 0011 wherein it is held that AO had proceeded more on the basis of doubts entertained by him as to the genuineness of claim, rather than some concrete material. If he had any reasons to disbelieve the correctness of the claim about manufacturing activity, he could have inspected the manufacturing unit of assessee. Without having undertaken any such exercise, rejecting the accuracy of the books of account and reaching on adverse conclusions was not justified. The appellant has further relied upon the decision in the case of DECK INTERNATIONAL vs. INCOME TAX OFFICER ITAT, CHANDIGARH 'B1 BENCH, reported in (2012) 134 ITD 0426, wherein it is held that: "As per the provisions of s. 80-IC(iv) the conditions to be fulfilled by the undertaking or the enterprises are enshrined. It is provided that for availing deduction under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve details in Audit Report of both the unit [page no.81 to 101 of paper book]. Further, during the assessment proceeding the respondent has made available details of purchases vide letter dated 11.03.2014 [page no. 133 to 139 of paper book] by Rudrapur unit from Rajkot Unit. From facts and evidence, it is clear that the Rudrapur unit is capable of producing initial goods and there were! manufacturing activities carried out. * Rudrapur Unit was new unit of the respondent firm which has obtained various separate licenses and numbers required to start the new unit at Rudrapur, Uttaranchal. Further, Rudrapur unit is working at Tata Vendor Park and duly approved vide notification no.283/2006. * As regards the allegation as to no forging or casting unit at Rudrapur, the respondent submits that even Rajkot main unit has also outsourced the forging required for item to be manufactured. Further, there are various manufacturing expense like wage paid, PF deducted on wages, huge electricity expenses incurred by the new unit at Rundrapur clearly establishes that manufacturing process has been duly undertaken. * Regarding the allegation that Rudrapur unit managed & controlled by the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of only those profits and gains which are derived from business (which are eligible under the relevant section) of the undertaking or enterprise when such income is also included in the gross total income of the assessee. Before we dwell upon the issue on hand, it is pertinent to note that the AO in the own case of the assessee in the immediate preceding assessment year has allowed the claim of deduction under section 80 IC of the Act. The copy of the assessment order under section 143(3) of the Act is placed on pages 292 to 296 of the paper book. Undeniably, there is no change in the year under consideration viz a viz in the immediate preceding assessment year. Everything remained the same. Thus, in our considered view the principles of consistency need to be applied in the given facts and circumstances. In this regard we find support and guidance from the judgment of Hon'ble Supreme Court in the case of CIT versus Excel Industries Ltd reported in 358 ITR 295 wherein it was held as under: 28. Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 taxmann.com 764 has held as under: 24. We are not able to understand the logic of the argument that the true test would be as to whether a new industrial undertaking can function independently of the existing industrial undertaking. If this argument of the Revenue is accepted, it will amount to adding a new clause in Section 80-I of the Act. Assuming for the moment that the new unit is not capable of independently producing the goods without taking the assistance of the existing plant and machinery of the old unit is no ground to reject the claim under Section 80-I of the Act. It all depends upon the mechanism and technology. As held by the Supreme Court in Textile Machinery Corporation (supra), such a new industrially recognizable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. 10.4 A doubt was also raised by the AO whether the eligible unit of the assessee was carrying out any work or it was merely acting as the selling out let of the noneligible unit which is actually carrying out the manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but he failed. (vii) Further, factory overhead, transportation expenses admin and selling expenses of Rs.11,11,38,030/- and partners remuneration of Rs.6,00,00,000/- were not apportioned between not eligible and eligible units. (viii) Books of accounts of any unit was not produced for verification. 12.2 In view of the above, the AO re-allocated the various expenses and the gross profit between the eligible and non-eligible unit in the manner as detailed below. Rudrapur Unit has 13.7% of total turnover. Apportioned as under: Proportionally allocated to Rudraput Unit (Rs.) Actually claimed at Rudraput Unit (Rs.) Difference added to total income (Rs.) GP on sale to Rudrapur Unit from rajko Unit @ 2.32% of Rs.12,95,30,904/- - - 30,05,116/- Administrative and selling expenses 13.7% of Rs.11,11,38,030/- 1,52,25,910/- 1,16,45,833/- 35,80,077/- Remuneration to partners - 13.7% of Rs.6,00,00,000/- 82,20,000/- 0 82,20,000/- 1,48,05,193/- 13. Aggrieved assesse preferred an appeal before the ld. CIT(A), who allowed the ground of appeal of the assessee by observing as under: It is seen that appellant firm has claimed "Deduction under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 12,95,30,904/- i.e. at Rs. 30,05,116/- without support of any documentary evidences can not be sustained. And addition on account of gross profit of Rs. 30, 05,116/- to be deleted. It is further seen that similarly, disallowances of Rs. 35, 80.077/- was made out of total Admin. & selling Expenses of Rajkot unit of Rs. 11, 11, 38,030/- on being apportioned to Rudrapur Unit, without support of any documentary evidences can not be sustained. Considering the facts of the case and submission of the appellant and the judgments relied upon in support, cited supra, I am of the opinion that the AO was not justified in making addition of remuneration of Rs. 82,20,000/- to partners to be allocated to Rudrapur Unit and disallowances of gross profit difference of Rs. J30,05,116/- as well as Admin. & Selling Expenses of Rs. 35.80.077/-. Thus, the addition of remuneration to partner, disallowances of the apportion of GP and administrative expenses etc. to the extent of Rs. 1,48,05,193 made by the assessing officer are deleted and this ground of appeal is allowed". 14. Being aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us. 15. The Ld. DR before us vehemently supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsolidated financial statement to the AO during the assessment proceeding. * During the course of assessment proceeding, the respondent has also made available details regarding purchase and jobwork expenses and bills etc of Rudrapur Undertaking and Rajkot Unit as per Annexure E of letter date 26.03.2014, Page no, 740 & 141 of paper book. * The remuneration to partners as per specific clause in partnership deed for remuneration purpose as evident from the copy of partnership deed available [page no.10 to 19 of paper book no.2 ] as per which remuneration of partners were payable only form the profit of the Rajkot unit and subject to maximum of Rs.3,00,00.000- to each partner. Thus, question of any proportionate remuneration of 13.70% to partners for Rudrapur unit at Rs.82.20,000/- cannot arise and cannot be submitted. * Further, addition of gross profit difference between the two units on assumption and presumption @ 2.32% on sales of Rs.12,95,30,904/- i.e. at Rs.30,05,116/- without supports of any documentary evidences cannot be sustained * Further, similar disallowance of Rs.35,80,077/- was made out of total admin, selling expense of Rajkot unit of Rs.11,11,38,030/- apport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 168/- (W.D.V as at 30/03/2011). 17.2 The assessee has also made available to the AO the copies of the sales bills and other supporting evidences to justify the higher amount of gross profit. Such details can be verified from pages 24 to 25 of the paper book. 17.3 All the above details were available but the same was not doubted by the AO during the assessment proceedings. Furthermore, we find that the AO was supplied with the audited financial statements of the eligible units pertaining to different financial years which are placed on pages 50 to 80 of the paper book for the purpose of the comparison of the gross profit ratio but there was no adverse comment by the AO. Meaning thereby, the revenue has accepted the profit of the eligible unit in the earlier years. Therefore the same cannot be disturbed in the year under consideration keeping in view of the principles of consistency. 17.4 We also note that the AO was supplied with the computation of cost per unit with respect to the products manufactured at eligible unit which are placed on pages 159 to 160 of the paper book. But no defect was pointed out by the AO during the assessment proceedings. 17.5 With respect to the remun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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