J.K PETRO CHEMICALS,UDHAMPUR vs. THE INCOME TAX OFFICER,, UDHAMPUR

In both the appeals, the sole issue involved is that the CIT(A) erred in restricting the claim for deduction of Rs.3,42,62,680/- in the assessment year 2010-11 and Rs.3,46,21,000/- in the assessment year 2011-12 as against the claim of the assessee of Rs. 30,81,02,973/- in the assessment year 2010-11 and Rs.31,53,81,657/- in the assessment year 2011-12 u/s 80IB of the Act.

The AR of the assessee submitted that the assessee was allowed deduction u/s 80IB of the Act by the AO himself in all the assessment years starting from the assessment year 2007- 08 till assessment year 2009-10. He submitted that the order of the Assessing Officer for assessment year 2007-08 is placed at page nos. 3 to 7 of the paper book which is dated 29.12.2009 wherein deduction u/s 80IB of the Act claimed by the assessee was allowed to the assessee. He submitted that copy of assessment order for the assessment year 2009-10 is placed at page nos. 13 to 15 of the paper book which is dated 26.12.2011 wherein deduction u/s 80IB of the Act was allowed to the assessee. He further submitted that assessment order for the assessment year 2012-13 dated 19.03.2015 is placed at page nos. 30 to 36 of the paper book wherein deduction u/s 80IB of the Act claimed by the assessee was allowed. Hence, it was his submission that the Assessing Officer as well as the CIT(A) were not justified in denying the claim of deduction u/s 80IB of the Act to the assessee in the assessment years 2010- 11 and 2011-12.

On the other hand, the DR supported the orders of the lower authorities.

We have heard the rival submissions and perused the materials available on the record.

On appeal, the CIT(A) observed that in assessment year 2010-11, the appellant has reflected an exorbitant profit which does not reflect the normal profits expected in such industry. He observed that net profit amounting to Rs.30.81 crores of around 90% on gross turnover amounting to Rs.34.26 crores is shown in the assessment year 2010-11. Accordingly, the assessee was asked to explain the manufacturing process and reasons for such an exorbitant profit. The appellant provided a vague reply in which it was explained that it used certain materials which are different from the materials normally used by the industry which resulted in higher profit. The CIT(A) observed that appellant failed to name the materials used and also failed to justify how material used increased the profits many fold. Therefore, he opined that the appellant failed to explain the reasons for exorbitant profit. He observed that the appellant was provided copy of financial statements of a comparable case from the same industry M/s Saraswati Plastotech India Pvt. Ltd. having one unit in Jammu making Poly carbonate products have shown net loss in the financial year 2013-14 on a turnover of Rs.54.71% and Rs.85.05 crores respectively. He observed that even if it is assumed that the appellant has run its business very efficiently, it cannot earn a profit of more than 10%. The show cause notice was issued to the assessee on 13.03.2015 to submit reply by 25.03.2015. However, no reply was received from the partners or counsel

Being aggrieved by the order of the CIT(A), the assessee is in appeal before us. The only argument of the AR of the assessee is that in earlier years since assessment years 2007- 08 to 2009-10 deduction claimed u/s 80IB of the Act has been allowed to the assessee has claimed in the return of income also in assessment framed u/s 143(3) of the Act for

On the other hand, the Ld. Departmental Representative opposing the submissions of the Ld. AR of the assessee argued that each year is a separate year of assessment and therefore, finding in an earlier assessment year cannot be made applicable in the other year of assessment as the principle of res judicata are not applicable to income tax proceedings.

He further submitted that the CIT(A) before restricting the deduction u/s 80IB of the Act to 10% of the turnover of the assessee had given sufficient opportunity to the assessee to explain the exorbitant profit earned by it. The assessee filed vague replies and could not file any convincing reply with cogent material to support its claim. Therefore, the CIT(A) has rightly restricted the claim for deduction u/s 80IB of the Act to the assessee at 10% of the turnover of the assessee.

After considering the rival submissions and perusing the materials available on record, we find that it is undisputed fact that the assessee had claimed deduction u/s 80IB of the Act which worked out to 90% of the turnover of the assessee in both the assessment years being assessment years 2010-11 and 2011-12 under consideration. The CIT (A) required the assessee to explain the reason for the same. The CIT (A) in his order has observed that he had given sufficient opportunity and thereafter waiting of about one and half months when no reply was received by him from the assessee for earning

Before us, the only submission of the AR of the assessee is that since deduction u/s 80IB of the Act was allowed to the assessee as claimed by the assessee in an assessment framed u/s 143(3) of the Act in the preceding assessment years 2007- 08 to 2009-10 for which assessment orders of these years have been filed in the paper book, the claim for deduction u/s 80IB of the Act should be accepted as claimed in the returns of income for the years under appeal.

In the above facts of the case, in our considered opinion, the assessee failed to file evidence regarding its earning of profit of Rs.30.81 crores on a turnover of Rs.34.26 crores in the assessment year 2010-11 and profit of Rs.31.53 crores on a turnover of Rs.38.12 crores in the assessment year 2011-12. The assessee has also not filed material to show that it has earned similar profit in the preceding assessment years and subsequent assessment years and the same was accepted by the Department in assessment made u/s 143(3) of the Act. On the other hand, the CIT(A) has also not given basis for estimating profit of the assessee @10% of the turnover. Hence, in the interest of substantial justice, we set aside the orders of the CIT(A) and restore the matter back to his file to adjudicate the issue afresh in light of the discussion made hereinabove.

In the result, the appeals of the assessee are allowed for statistical purposes. (Order Pronounced in the Open Court on 19/03/2019)