BHAVANI INDUSTRIES INDIA LLP,RAJKOT vs. ACIT, CIRCLE-2(1), RAJKOT, RAJKOT

3. Although, these appeals filed by the Revenue and Assessee contain multiple ground of appeals. However, at the time of hearing we have carefully perused all the grounds raised by the Revenue as well as raised by the Assessee. Most of the grounds raised by the Revenue as well as Assessee, are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of Revenue and the Assessee as well. With this background, we summarize and concise the grounds raised by the Revenue as well as Assessee, as follows: (1) The Ld. CIT(Appeals), NFAC, Delhi has erred in law and on facts in directing to allow deduction claimed by the assessee u/s 80IC of the I.T. Act amounting to Rs. 2,88,50,633/-, on the Rudrapur Unit despite the fact that no books of accounts of either Rudrapur unit or Rajkot unit were produced for verification, and also without appreciating the fact that, the Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

Rudrapur unit on which huge deduction has been claimed, does not have any manufacturing capacity but is only capable to process semi-finished goods sent by the Rajkot Unit. [This is Ground No.1 of Revenue`s appeal in for A.Y.2010-11, Ground No.1 in for A.Y.2012-13, Ground No.1 in ITA No.248/RJT/2024 for A.Y.2013-14, Ground No.1 in ITA No.250/RJT/2024 for A.Y.2018-19 ] (2) The Ld. CIT(Appeals), NFAC, Delhi has erred in law and on facts in not appreciating the fact that the conditions stipulated under section 80IC has not been fulfilled in as much as the Rudrapur Unit neither produces nor manufactures any items and that there is no increase in the investment in Plant and Machinery by at least 50% of the book value as on the first day of the previous year. [This is Ground No.2 of Revenue`s appeal in ITA No.260/RJT/2024 for A.Y.2010-11, Ground No.2 in ITA No.247/RJT/2024 for A.Y.2012-13, Ground No.2 in ITA No.248/RJT/2024 for A.Y.2013-14, Ground No.2 in ITA No.250/RJT/2024 for A.Y.2018-19 ] (3) The Ld. CIT(Appeals), NFAC, Delhi has erred in law and on facts in directing to allow deduction claimed in during the course of assessment, by the assessee u/s 80-1A of the I.T. Act, amounting to Rs. 1,02,46,156/-, which was not claimed in original return of income. [This is Ground No.3 of Revenue`s appeal in for A.Y.2010-11, Ground No.3 in ITA No.247/RJT/2024 for A.Y.2012-13, Ground No.3 in ITA No.248/RJT/2024 for A.Y.2013-14 ] (4) The Ld. CIT(Appeals), NFAC, Delhi has erred in law and on facts in deleting to disallowance of deduction u/s 80IC of the I.T. Act of Rs.28,21,215/-, made by the AO after apportion of various expenses of Rajkot Unit between Rajkot unit and Rudrapur Unit. [This is Ground No.4 of Revenue`s appeal in ITA No.260/RJT/2024 for A.Y.2010-11, Ground No.4 in ITA No.247/RJT/2024 for A.Y.2012-13, Ground No.4 in ITA No.248/RJT/2024 for A.Y.2013-14 ] (5) The Ld. CIT(Appeals), NFAC, Delhi has erred in law and on facts in deleting to disallowance of deduction u/s 801C of the I.T. Act of Rs.40,17,063/- made by the AO after set off the loss of Rs.40,17,063/-, of Rudrapur unit-11, against the profit of unit-1, Rudrapur. [ This is ground No.5 in Revenue`s appeal in ITA No.247/RJT/2024 for A.Y.2012-13]

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

"The CIT(A)'s order for AY 2010-11 is based on the ITAT's decision for AY 2011-12, which erroneously relied on the non-existent assessment order for AY 2010-11 (assessment order for AY 2010-11 was overturned by the order of Ld. CIT-2, Rajkot vide their order u/s 263 passed on 19.01.2015). Since the ITAT's order itself is flawed, the validity of the CIT(A)'s order for AY 2010-11 is also in question, necessitating appropriate rectification."

(1)The ld. CIT(A) erred on facts as also in law, in confirming action of assessing officer in restricting disallowance of deduction under section 80-IC of Rs.1,18,45,693/-, on protective basis, on the alleged ground of inflated profit of Rudrapur unit, being sale by Rajkot unit, in respect of item code 235F and 236F to Rudrapur unit-1. The disallowance made by the assessing officer and retained by CIT(A), is totally unjustified, uncalled for and deserves to be deleted, may kindly be deleted. [This is ground No.2 in assessee`s appeal in for assessment year 2010–11, ground No.2 in assessee`s appeal in 2012–13, ground No.2 in assessee`s appeal in for assessment year 2013–14] (2) (i) The ld. CIT(A) erred in upholding the addition of Rs. 59,241/- made by the assessing officer on account of late payment of PF and ESI. (ii). The ld. CIT(A) erred in not directing the assessing officer to allow the claim of deduction under section 80- IC of the Act for and amount of Rs.59,241/-, after sustaining the disallowance of said amount made by the assessing officer on account of late payment of PF and ESI. The assessing officer may be directed to allow deduction under section 80-IC of the Act for the amount of addition sustained. [This is ground Nos. 3 and 4 of assessee appeal in 2024, for assessment year 2013–14]

(2) The Ld. CIT(Appeals), NFAC, Delhi has erred in law and on facts in not appreciating the fact that the conditions stipulated under section 80IC has not been fulfilled in as much as the Rudrapur Unit neither produces nor manufactures any items and that there is no increase in the investment in Plant and Machinery by at least 50% of the book value as on the first day of the previous year. [This is Ground No.2 of Revenue`s appeal in for A.Y.2010-11, Ground No.2 in for A.Y.2012-13, Ground No.2 in ITA No.248/RJT/2024 for A.Y.2013-14, Ground No.2 in ITA No.249/RJT/2024 for A.Y.2017-18, Ground No.2 in ITA No.250/RJT/2024 for A.Y.2018-19 ] The Revenue has raised additional grounds of appeal in which is reproduced below: "The CIT(A)'s order for AY 2010-11 is based on the ITAT's decision for AY 2011-12, which erroneously relied on the non-existent assessment order for AY 2010

11. (assessment order for AY 2010-11 was overturned by the order of Ld. CIT-2, Rajkot vide their order u/s 263 passed on 19.01.2015). Since the ITAT's order itself is flawed, the validity of the CIT(A)'s order for AY 2010-11 is also in question, necessitating appropriate rectification."

Summarised and concise grounds of appeal in assessee`s appeals are as follows: (1)The ld. CIT(A) erred on facts as also in law, in confirming action of assessing officer in restricting disallowance of deduction under section 80-IC of Rs.1,18,45,693/-, on protective basis, on the alleged ground of inflated profit of Rudrapur unit, being sale by Rajkot unit, in respect of item code 235F and 236F to Rudrapur unit-1. The disallowance made by the assessing officer and retained by CIT(A), is totally unjustified, uncalled for and deserves to be deleted, may kindly be deleted. [This is ground No.2 in assessee`s appeal in for assessment year 2010–11, ground No.2 in assessee`s appeal in , for assessment year Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

2012–13, ground No.2 in assessee`s appeal in for assessment year 2013–14]

4. Therefore, it is prayed that the Hon'ble Tribunal may kindly allow withdrawal of the present appeal in the case of BHAWANI Industries India LLP, PAN: AACFB8046R (AY 2017-18).”

Turnover Gross profit GP ratio Rajkot 1,19,34,35,481 10,30,67,450 33.46% Sanand N.A. N.A. N.A Rudrapur-I 14,46,11,771 6,06,72,651 41.96% Rudrapur-II N.A. N.A. N.A. Gurgaon 7,12,88,777 48,11,266 6.75% The Rudrapur unit showed net profit of Rs. 3,32,20,406/- and claimed deduction u/s 80-IC of the Act of Rs.2,88,50,633/-, after reducing loss of Rs.43,69,773/-. In support of its claim, assessee filed audit report in form No. 10CCB and form No. 3CB & 3CD. The separate audit reports u/s 44AB of the Act, for Rajkot Unit and Rudrapur Unit were called for, by the assessing officer, and assessee submitted the same before the assessing officer.

(2). employment of requisite labour therein, (3). manufacture or production of articles in the said undertaking, (4). earning of profits clearly attributable to the said new undertaking, and (5) above all, a separate and distinct identity of the industrial unit set up. The Court is of the view that so far as the fifth test is concerned, that is, a separate and distinct identity, only because to a certain extent the new undertaking is dependent on the existing unit, will not deprive the new undertaking the status of a separate and distinct identity.

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

(vii). The Undertaking employs more than ten workers in a manufacturing process carried on with aid of power. (viii). The said Industrial Undertaking is not formed as a result of reconstruction or revival of the business. (ix). The production capacity of undertaking increased. (x). Production and Profit of the New industrial Undertaking is ascertainable. (xi). The undertaking is managed by independent managerial personnel. Hence, the assessee submitted, before the assessing officer that an interpretation to the words 'New Industrial Undertaking` in Section 15C of the Income-tax Act, so that in all bona fide cases, the concession would be admissible. The question is largely one of facts of each particular case. The broad principle which will, however, be borne in mind in this connection that which are calculated to make a substantial addition to the existing output. Minor extensions of the existing undertaking and replacements of the existing installed capacity would be of course, not be eligible for the concession.In support of the above submissions, the assessee placed reliance on the following decisions. (1). Textile Machinery Corporation Ltd. Vs. CIT (1977) 107 ITR 195 (SC); (2). CIT v. Indian Aluminium Co. Ltd. (1977) 108 ITR 367 (SC); (3). CIT v. Shree Digvijay Cement Co. Ltd. (1983) 144 ITR 532 (Guj); (4). CIT v. Shri Digvijay Cement Co. Ltd. (1986) 159 ITR 253 (Guj); (5). Saurashtra Cement and Chemical Industries Ltd. v. CIT (1980) 123 ITR 669, (6). Bajaj Tempo Ltd. v. Commissioner of Income Tax (1992) 196 ITR 188 (SC); Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

(7). Broach District Cooperative Cotton Sales, Ginning and Pressing Society Ltd, Vs. Commissioner of Income Tax (1989) 177 ITR 418 (SC). (8). Commissioner of Income Tax v. Gwalior Rayon Silk Manufacturing Co. Ltd. (1992) 196 ITR 149 (SC) (9). In Textile Machinery Corporation Limited v. CIT (1977) 107 ITR 195 (SC).

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

Therefore, assessee stated that deduction under section 80-IC should be allowed.

Rajkot unit. In the same manner, 235C REVGEAR SHIFTER SLEEVE part which is supplied semi- finished and remaining some operation to be carried out by Tata Motors -Puna, at Rs. 152.42 and if assessee add 50% other overhead charges incurred by Tata Motors Ltd, that is, 50% of Rs. 152.42, which is Rs. 76.21 it comes to Rs. 228.63 ( Rs. 152.42 + Rs. 76.21). Hence there price difference of Rs. 70.41, that is, 30.80%. The total sales turnover of these two items are of Rs. 694.89 lacs (414.72 + 280.17) and total turnover of Rudrapur unit-1 are of Rs. 1453.28 lacs. Hence total turnover of these two items are 47.81%. In the same manner there is difference of prices i.e. 15-20% for other items, which manufactured at Rudrapur unit and supplied to Tato Motors Ltd., Rudrapur. Hence, there is more G.P. margin that is, of 41.96%, as compare to Rajkot unit of 35.71% and accordingly assessee claimed deduction u/s. 80IC for Rudrapur unit-

1. 1. Further in there are other benefits offered by the state government as well as central government i.e. in cheap power tariff rate etc.

21. In addition to that the assessee was asked in the notice of AO dated 14.12.2015 to give item-wise and consignment wise details of transfer of goods from one unit/ premises to another unit/premises in the tabular format. Similar details regarding components transferred to Rudrapur Unit is being asked in the above notice. In response to that the assessee has submitted the following details.

(a) The item-wise details of all the components which are transferred from Rajkot unit to Rudrapur Unit. The detail contains list of items there manufacturing cost to the Rajkot unit and the price at which it is transferred to the Rudrapur unit. (b) Item-wise list of all the finished components which are finally sold to TATA Motors by the Rudrapur Unit.

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

(c) Item-wise details of the products which are transferred from Rajkot Unit to Sanand Unit. And similarly the list containing details of the products transferred from Sanand unit to TATA Motors. (d) Item-wise details of the products and components which are transferred from Rajkot unit to Gurgaon unit and thereafter from Gurgaon unit to Maruti Suzuki. These details were submitted by the assessee, before the assessing officer.

24. Aggrieved by the order of the assessing officer, the assessee carried the matter, in appeal before learned CIT (A), who has allowed the reduction under section 80-IC of the Act. The ld.CIT(A) considered the AO's findings and submission made by the assessee and also followed Hon'ble ITAT's order in assessee's own case, which was passed by the ITAT, on merit, wherein facts and law position is similar for this assessment year, under consideration. The ld.CIT(A) held that AO was not justified in denying deduction u/s 801C of the Act and directed the assessing officer to delete the addition.

25. Aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before us and assessee has also filed cross appeals, in respect of protective addition and various disallowances made by the assessing officer, which are connected with the deduction under section 80-IC of the Act. 26.Learned CIT-DR for the Revenue and Ld. Sr. D.R. for the Revenue, both have argued that assessee’s appeal for Assessment Year 2011-12, was allowed by the ld.CIT(A) holding that Tribunal has allowed the appeal of the assessee in Assessment Year 2010-11 on same facts and law. However, Assessment Year 2010-11, was subjected to revision proceedings u/s. 263 of the Act, that is, later on, the revision proceedings were started in respect of Assessment Year 2010- 11 by the ld.PCIT under section 263 of the Act. Therefore, the findings of the Tribunal, in assessee`s own case should be relooked, because learned PCIT revised the assessment order of the assessing officer, pertaining to assessment year 2010-11, under section 263 of the Act. The Ld. D.R. for the Revenue, Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.) again submitted that Asst. Year 2010-11 was reviewed by Ld. PCIT u/s 263 of the Act and thereafter the consequential order was passed u/s 143(3) r.w.s. 263 of the Act, in which disallowance was made by the Assessing Officer. Since the Asst. Year 2011-12, was decided based on Asst. Year 2010-11, however in Asst. Year 2010-11, the PCIT has revised the assessment order, therefor Asst. Year 2010-11 cannot be taken as a base to allow the appeal of the assessee.

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.) which we have gone through. The sum and substance of the written submission of the ld. CIT-DR for the revenue is that since the goods retain the same name, character, and use, the process does not meet the definition of "manufacture" under Section 2(29BA)(a) of the Act. The lack of transformation into a new and distinct object with different properties means the activity is not manufacturing for tax exemption purposes. The definition of "manufacture" under Section 2(29BA)(a) is exclusive and requires a cumulative change in name, character, and use. Legal precedents support the interpretation that all three elements must undergo transformation for an activity to qualify as manufacturing. In the given scenario, since the goods retain the same name, character, and use, the process does not constitute manufacturing under the Income Tax Act.

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

its Tata Vendor Park to the assessee. The assessee- firm has started construction on that land and has installed various machineries. The Rudrapur Unit of assessee started manufacturing from 15-04-2008. The said unit is located at TATA Vendor Park Industrial Area, which is duly approved as a notified area u/s. SOIC(2)(a)(ii) vide Notification No. 283/2006. In the first year that is, assessment year (A.Y.) 2009-10, the assessee- firm had not made any claim under section 80-IC, being loss year but started to claim under section 80- IC of the Act, from assessment year (AY) 2010-11 and since then assessee - firm is claiming deduction u/s 80-IC of the I.T. Act. The assessee- firm has maintained separate books of accounts for Rudrapur Unit and also of Rajkot unit and other units and submitted the same to the Department. The assessee also submitted copy of audited accounts of Rudrapur Unit, and Rajkot Unit for assessment year (AY) 2010-11, and copy of Audit Report obtained in form 10CCB for making claim under section 80-IC of Rudrapur Unit for the year under consideration, were submitted before the assessing officer.

03/10/2022, in assessee`s own case, in has dismissed the appeal of the department. We have gone through the order of the Tribunal vide its order dated 03/10/2022, in assessee`s own case, in and noticed that all findings are on merit, and only a reference was given for assessment year 2010-11.

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

38.It is to be noted that investment in plant and machinery are more than 9.83 Crore W.D.V. value at the year ended 31-03-2012.In view of the above there is no doubt that it is independent Unit. Further, Report of Auditor in Form No. 10CCB, for satisfying all the conditions laid down u/s. 80-IC has been satisfied by assessee and therefore eligible for deduction u/s. 80-IC of the Act.

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

40.From the above manufacturing expenses, it may be noted that expenditure like electric expenses, labour expenses etc, which is required for manufacturing the goods are incurred by Rudrapur Unit. Further the details of manufacturing process carried out at Rudrapur Unit on each part is submitted by the assessee. Besides, the reason for nomenclature of the goods supplied by Rajkot Unit to Rudrapur unit is same that of finished goods supplied by Rudrapur Unit to Tata Motors, which is meant for identification of the finished parts corresponding to Purchase order of the customer i.e. TML. In other words to identify the raw material and parts with respect to finished goods similar nomenclature has been used and accepted by the customer TML and others. It is submitted that one should go with process carried out instead nomenclature of the goods. We note that raw goods ( ram material) received from Rajkot- Unit, thereafter many process are being carried out at Rudrapur Unit and there is substantial value addition in the goods. Therefore, there is price difference between Rajkot Unit Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.) charged for raw material and Rudrapur Unit Charged for finished goods. We note that after getting the raw material from Rajkot unit, further substantial process is required to be carried out at Rudrapur Unit before selling the same to Tata Motors. Hence, it falls in the definition of manufacture.

Your assessee has started Rudrapur unit for Tata Motors Limited. In Rudrapur Tata motors limited have their plant for manufacturing of various types of vehicles i.e. mainly TATA ACE MINI truck i.e. popularly known as Chhota Hathi, Tata motors limited is enjoying various Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.) fiscal benefit/incentives by the government of India i.e no excise duty, VAT and many other government benefit thereto. Hence they are saving about 25-30% at Rudrapur. They have invited their parts supplier like us and many other to manufacture their parts there are supply to them, but there are huge investment in land, factory building and plant and machinery at such remote places no manufacturar are ready to invest there. Hence they offered to share their above tax benefits between supplier of part and themselves i.e offering attractive pricing of its part and it resulting in more profit about 10 to 15% by parts suppliers. With these intention to optimize our profitability. We had planned to set up dedicated unit at Rudrapur exclusively for Tata Motors Ltd Rudrapur and our investment in land factory building and plant machinery etc are of Rs. 12,92,60,168/-(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. 17.5With respect to the remuneration to the partners, we find that as per the deed of partnership, the partners were entitled for the remuneration only with respect to the profit of non-eligible unit subject to the maximum of 6 crores. The available profit of the non-eligible unit was 26.79 crores and the allowable remuneration was worked out at 16.08 crores but it was limited to the maximum of 6 crores only. Furthermore, it was also explained that none of the partner was taking active participation in the affairs of eligible unit. Moreover, there was no loss to the revenue for the reason that the amount of remuneration received by the partners is taxable in their hands subject to the provisions of section 40(b) of the Act. 17.6 As regards the allocation of factory overhead, transportation expenses, admin and selling expenses of Rs. 11,11,38,030/- it was contended by the assessee before the AO that all the expenses pertaining to different units were booked respectively. The assessee to buttress its argument has also filed the chart of manufacturing expenses. Likewise, there was not much outward freight expenses in respect of eligible unit for the reason that goods were supplied within Rudrapur Unit but it was not so in case of Rajkot unit. It was also submitted by the assessee that except audit expenses which were born by the non-eligible unit in the entirety, there was no other expense which was shifted from eligible unit to non-eligible unit. 17.7There were term loans taken by both the units for acquiring the machineries and the corresponding interest and depreciation was accounted for in the respective units. All these submissions were made available during the assessment proceedings which can be verified Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.) from the paper book. However the AO has not pointed out any defect in the submission filed by the assessee. 17.8 At the time of hearing, the learned DR has not pointed out any infirmity in the finding of the learned CIT-A. Thus in view of the above and after considering the facts in totality, we do not find any reason to interfere the finding of the learned CIT-A. Accordingly, we uphold the same. Hence, the ground of appeal of the revenue is hereby dismissed."

42. We find that above findings of the Tribunal, in assessee`s case is on merit, and not by a covered case, and following ITAT's order in assessee's own case as discussed above, wherein facts and law position is similar for this assessment year under consideration, the learned CIT(A) deleted the disallowance of deduction u/s 80-1C of the Act, to the tune of Rs. 2,88,50,633/-. Besides, we have examined the assessee`s facts independently, on merit, and noticed that disallowance made by the assessing officer, deserve to be deleted. On a careful reading of the Ld.CIT(A) order and the findings thereon, we do not find any valid reason to interfere with the decision and findings of the Ld.CIT(A) in holding that the assessee is entitled for deduction under section 80-IC of the Act. Hence we sustain the order of the Ld.CIT(A) and reject the summarised and concise grounds Nos. 1, and 2 and additional ground raised by the Revenue.

43. Now coming to the assessee`s summarised and concise ground No.1 of appeal, which relate to restricting the disallowance of deduction under section 80-IC of Rs.1,18,45,693/-, on protective basis, on the alleged ground of inflated profit of Rudrapur unit, being sale by Rajkot unit, in respect of item code 235F and 236F to Rudrapur unit-1. We have already recorded the arguments of learned Counsel for the assessee and learned DR for the revenue, in respect of this ground. We note that Assessing Officer has disallowed the deduction claimed by the assessee u/s 80IC of the Act, to the tune of Rs.2,88,50,633/-, solely on the reason that Rajkot unit sold the raw goods to Rudrapur unit, therefore, Rudrapur unit is not an independent unit. The Assessing officer also 32 Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.) noticed that Rudrapur unit does not fall in the definition of “manufacture” and it is not manufacturing any goods/articles which are defined in section 80-IC of the Act. The Assessing Officer was of the view that Rudrapur unit only processes the semi- finished goods/raw goods, which are received from Rajkot unit. Therefore, it does not fall in “manufacture” of any article or things, which are defined in section 80-IC of the Act. Therefore, deduction u/s 80-IC of the Act was not allowed by the assessing officer.

44. The assessee, is in appeal, before us, against the addition of Rs.1,18,45,693/- which was made by the Assessing Officer, stating that there is transfer of products from non-eligible unit Rajkot to eligible unit Rudrapur, and after getting the raw-products/raw-articles/semi-finished goods from the Rajkot unit, the Rudrapur unit does not do the value addition. Therefore, the Assessing Office made the addition to the tune of Rs.1,18,45,693/- and stated that to that extent the deduction claimed by the assessee to the tune of Rs.2,88,50,633/- will get reduce. Therefore, we find that Assessing Officer has disallowed the deduction u/s 80-IC of the Act to the tune of Rs.2,88,50,633/- and simultaneously, the Assessing Officer has also disallowed the amount which pertains to transfer of raw-products/articles from non-eligible unit Rajkot to eligible Rudrapur unit of Rs.1,18,45,693/-. Therefore, the amount of Rs.1,18,45,693/-, is a part of the deduction claimed by the assessee to the tune of Rs.2,88,50,633/-. The Assessee, as well as Revenue, are not claiming that it is a separate disallowance of Rs.1,18,45,693/-, u/s 80-IC of the Act. Since the Assessing Officer has disallowed this amount on the view that there is transfer of raw-products/articles from non-eligible unit Rajkot to eligible unit Rudrapur to the extent of Rs.1,18,45,693/- and therefore the Assessing Officer wants to reduce the deduction of the assessee, which is claimed by the assessee to the tune of Rs.2,88,50,633/-. Therefore, we find that the disallowance of Rs.1,18,45,693/- is in real sense, is not a protective addition made by the Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

Assessing Officer, in fact, it is part of the main disallowance of deduction to the tune of Rs.2,88,50,633/-. Therefore, both the issues are inter-connected and mix and hence, if the ld.CIT(A) deleted the main disallowance of Rs. 2,88,50,633/-, then separate disallowance of Rs. 1,18,45,693/-, which is very much connected with 80-IC deduction, will go, and gets deleted automatically.

45.As we have pointed out that the addition made by the Assessing Officer to the tune of Rs.1,18,45,693/- is on account of transfer of raw-products/articles from non-eligible unit Rajkot to eligible unit Rudrapur- unit and because of this reason, we find that Assessing Officer was of the view that Rudrapur unit does not fall in the definition of “manufacture” as the goods are transferred from non-eligible unit Rajkot to eligible Rudrapur- unit. Therefore, Assessing Officer was of the view that Rudrapur unit is not an independent unit and it does not do any manufacturing activities. Therefore, Assessing Officer disallowed the deduction claimed by assessee to the tune of Rs.2,88,50,633/- and simultaneously also made the addition on account of transfer of raw-products from non-eligible unit Rajkot to eligible unit Rudrapur to the tune of Rs.1,18,45,693/-. We find that since the Ld.CIT(A) has deleted the main addition or disallowance of deduction u/s 80-IC of the Act, which was claimed by the assessee to the tune of Rs.2,88,50,633/-, holding that Rudrapur- unit falls in the definition of “manufacture” and Rudrapur unit is an independent unit. Therefore, we find that the separate disallowance made by the Assessing Officer on account of transfer of raw-products/goods from non-eligible unit Rajkot to eligible unit Rudrapur to the tune of Rs.1,18,45,693/- is very much part of the main deduction claimed by the assessee to the tune of Rs.2,88,50,633/-. Since, Ld.CIT(A) has deleted the disallowance of deduction u/s 80-IC of the Act of Rs.2,88,50,633/-, therefore the transfer of raw- goods/articles from non-eligible unit Rajkot to eligible unit Rudrapur amounting Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.) to Rs.1,18,45,693/-, which is part and parcel of the main deduction of Rs.2,88,50,633/-, should also be deleted, however, ld.CIT(A) retained the said disallowance, which is not acceptable. Therefore, the disallowance to the tune of Rs.1,18,45,693/- which is part and parcel of the main disallowance of Rs.2,88,50,633/- should also be deleted because Assessing Officer disallowed the deduction of Rs.2,88,50,633/- mainly on the reasons that Rudrapur unit does not fall in the definition of “manufacture” and it is not an independent unit because there is a transfer of raw-products/articles from non-eligible unit Rajkot to eligible unit Rudrapur. Therefore, we find that the amount of Rs.1,18,45,693/- is part and parcel of the main deduction claimed by the assessee to the tune of Rs.2,88,50,633/-. Since the main disallowance of the deduction of Rs.2,88,50,633/- has been deleted by Ld.CIT(A), therefore, Ld.CIT(A) ought to have deleted the said addition of Rs.1,18,45,693/-.

(a) The item-wise details of all the components which are transferred from Rajkot unit to Rudrapur Unit. The detail contains list of items there Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.) manufacturing cost to the Rajkot unit and the price at which it is transferred to the Rudrapur unit. (b) Item-wise list of all the finished components which are finally sold to TATA Motors by the Rudrapur Unit. (c) Item-wise details of the products which are transferred from Rajkot Unit to Sanand Unit. And similarly the list containing details of the products transferred from Sanand unit to TATA Motors. (d) Item-wise details of the products and components which are transferred from Rajkot unit to Gurgaon unit and thereafter from Gurgaon unit to Maruti Suzuki. These details were submitted by the assessee, before the assessing officer. 47.Further, we also find that in subsequent assessment years, the assessing officer/ transfer pricing officer, has accepted the above price at arm`s length price, based on the same facts and circumstances, and did not make any addition in the hands of the assessee. Therefore, taking into account this factual position also, the disallowance restricted by the learned CIT(A) to the tune of Rs.1,18,45, 693/- should be deleted, accordingly, we delete the same.

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

(2) (i) The ld. CIT(A) erred in upholding the addition of Rs. 59,241/- made by the assessing officer on account of late payment of PF and ESI. (ii). The ld. CIT(A) erred in not directing the assessing officer to allow the claim of deduction under section 80- IC of the Act for and amount of Rs.59,241/-, after sustaining the disallowance of said amount made by the assessing officer on account of late payment of PF and ESI. The assessing officer may be directed to allow deduction under section 80-IC of the Act for the amount of addition sustained. [This is ground Nos. 3 and 4 of assessee appeal in 2024, for assessment year 2013–14]

58. In the result, summarised and concise ground No.3, raised by the revenue, is dismissed, in the following years: for A.Y.2010-11, (ii)Ground No.3 in for A.Y.2012-13, (iii)Ground No.3 in ITA No.248/RJT/2024 for A.Y.2013-14. 59. Summarised and concise ground No.4, raised by the revenue, is reproduced below for ready reference:

(4) The Ld. CIT(Appeals), NFAC, Delhi has erred in law and on facts in deleting to disallowance of deduction u/s 80IC of the I.T. Act of Rs.28,21,215/-, made by the AO after apportion of various expenses of Rajkot Unit between Rajkot unit and Rudrapur Unit. [This is Ground No.4 of Revenue`s appeal in for A.Y.2010-11, Ground No.4 in for A.Y.2012-13, Ground No.4 in ITA No.248/RJT/2024 for A.Y.2013-14 ]

the claim of the assessee that these expense should not be apportioned between the two units. "As regard your point for allocation of proportionate various expenses etc. our clarifications are as under: Remuneration to partners: Income only and paid as per clause of partnership deed. Further as per clause and I.T. Rules Book Profit comes to Rs. 21,28,16,629/- from which profit of Rudrapur unit of deduction u/s. 80IC at Rs. 2,88,50,633/- (Profit for the year of Rs. 3,32,56,106/- after reducing loss of Rs. 43,69,773/- for A.Y.2010-11) available profit for remuneration comes to Rs. 18,39,65,996/- and as per that allowable remuneration comes to Rs. 11,04,69,598/-. However, as per clause maximum remuneration allowable comes to the Rs. 1,50,00,000/-. Hence, remuneration paid Rs. 1,50,00,000/- and it is from profit of Rajkot unit only. It is further clarified that no partners is looking after day to day affairs or managing the affairs industrial undertaking of Rudrapur and no partners has frequently visited industrial undertaking of Rudrapur during the year under consideration. As partners are not looking after day to day affairs or managing the affairs industrial undertaking of Rudrapur, the undertaking is wholly managed by independent appointed managerial personal, hence no proportionate remuneration to partners are allocated to the said unit, as per I.T. Rules of the Act. Further, plant head has been appointed with all the powers like day to day affairs and to appear against all the government authorities and power to sign bank cheques for Industrial undertaking of Rudrapur, copy of Letter of mandate, Letter of Authority etc. are attached as per Annexure 4. Despite of the same, if your good- self calculate proportionate remuneration to partners for industrial undertaking at Rudrapur, it will be exempted in the hands of partners. For the said our clarifications are as under: (a) Prior to 01.04.93. (1) Section 40(b): As per above section in case of the firm, any payment of Interest, Salary, Bonus, Commission or remuneration made by the firm to any partner of the firm shall not be deducted in computing the income chargeable under the head Profit and gains of business of profession. Thus interest/remuneration paid to partners in case of firm were added to the total income of the firm. (ii) Section 67: As per section 67 interest/remuneration etc paid to partner shall be deducted from the total income of the firm and balance ascertained and apportioned amongst the partner. Further the share of firm has to apportioned under the various heads of income in the same manner in which the income or loss of the firm has been determined under each head of income. (c) Section 80A(3) (3) Where, in computing the total income of firm, association of persons or body of individuals, any deduction is admissible under section 80G or section 80GGA or section 80HH or section 80HHA or section 80HHC or section 80HHD or section 80-1 or section 80JJ, no deduction under the same section shall be made in computing the total income of a 42 Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

Partner of the firm or, as the case may be, of a member of the association of persons or body of individuals in relation to the share of such partner in the income of the firm or the share of such member in the income of the association of persons or body of individuals. Thus as per section 40(b) mentioned above interest/remuneration etc. paid to partner has been added to the total income of the firm and as per section 80A(3) no further deduction U/s. 80G, 80GGA, 80HH, 80HHA or section 801 or section 801 or 80JJA were allowable in case of the partner. (b) After 01.04.93: As per Finance Act 1992 w.e.f. 01.04.93, the whole scheme of assessing firm has been changed and as per section 40(b) any Interest remuneration paid to partners as per limit prescribed under that section is an allowable deduction in case of the firm. Section 67: has been omitted whereas Section 80A(3) (3) Where, in computing the total income of an association of persons body of individuals, any deduction is admissible under section 80G or section 80 GGA or section 80HH or section 80HHA or section 80HHC or section 80HHD or section 80-1 or section 80-1A or section 801 or section 80JJ, no deduction under the same section shall be made in computing the total income of a member of the association of persons or body of individuals in relation to the share of such member in the income of the association of persons or body of individuals. Thus, the words ‘of a partner of the firm" has been omitted from section 80A(3) of the Act is that means the effect after 01.04.93 the deductions admissible under section 80G or section 80GGA or section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 801 or section 801A or section 80J or section 80JJ are allowable in case of the partner also. Which prior to 01.04.1993 were not allowable. Further two new sections has been inserted into the Act. i.e. section 10(2A) and section 28(v) of the Act. As per section 10(2A) of the Act share of profit of the firm has been exempt in case of the partner. Whereas as per section 28(v) of the Act any interest/remuneration etc. paid to partner and allowed u/s 40(b) of the Act as deduction in case of the firm has to be assessed under the head of business and profession of the Act. Thus after 01.04.93 as per new scheme of assessment of the firm interest remuneration etc. paid to partner has to be allowed as deduction allowable up to the allowable limit laid down in section 40(b) of the Act in case of the firm whereas share of profit received is exempted in case of the partner and interest/remuneration received by the partner is assessable as business and/or professional income in case of the partner. Thus, prior to 01.04.93 there was a double taxation inclusive of interest & remuneration etc. paid to partner in case of firm has been taxed in case of firm ofter allowing deduction under chapter VI-A and again in case of partner from the allocation of total income computed in case of firm amongst partner as per provision of section 67 of the Act. Whereas after 01.04.93 there is only a single taxation of income i.e. in case of the firm interest/remuneration in accordance with the provision of section 40(b) has been deducted from the income of firm and on balance income of the firm deduction under chapter VI-A is to be allowed and balance income is taxed in case of the firm where as share of profit in hands of the partners are exempt as per section 10(2A) of the Act, Whereas interest/remuneration 43 Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.) paid to partners etc. allowed as deduction as per provision of section 40(b) of the Act are taxable in case of the partner as per newly introduce/inserted section 28(v) of the Act under the head business and profession of the Act. But at the same time there is a further amendment in section 80A(3) of the Act and restriction Chapter VI-A in case of the partner has been removed, means after 01.04.93 these deduction are allowable in case of the partners also out of business income of the partners i.e interest/remuneration etc taxed u/s. 28(v) of the Act and only after allowing those deduction on a balance total income the partners are liable to pay taxes. (iv) Following example will further clear the provisions prior to 01.04.93 and amendments made and position after 01.04.93 Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

Thus the partner has to pay Income tax on above Rs. 18,750/- whereas total deduction u/s 801A remain the same at Rs. 25000/- prior to 01.04.93 and after 01.04.93 (Rs.12,500/- Firm +6250+6250 partner) by way of deleting words "a partner of a firm" from section 80A(3) of the Act. Likewise firm & partners total income 37500+37500-75000 also remains the same as per prior 01.04.93 firm's income. Thus by new scheme of taxation of firm only single point tax system has been adopted as against dual tax system prior to 01.04.93. (4a) The Assessing Officer per para 3 of the assessment order has disallowed the claim of deduction u/s 801A of the Appellant on the ground that 'Interest and Remuneration received by the partner cannot be said to have been derived from the business of an industrial undertaking (a) But it is a very well settled law that a firm is not a legal person even though it has same attributes of personality. In Income Tax law a firm is a unit of assessment by special provision but, it is not a full person. These cannot be a contract of service, in contract law between a firm and one or more of its partners. Thus the payment of salary to a partner would represent a special share of profit and would retain the same character of the income of the firm. Likewise interest, salary, bonus, commission or remuneration due to or received by a partner of a firm etc. also represent a special share of profit and would represent a same character of the income of the firm.

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

(b) Therefore, all above allocation between partners are assessable under the head of "business and profession" even when there was no specific provision prior to 01.04.93 in section 28 of the Act and after 01.04.93 by virtue of section 28(v) now specifically brought the interest/remuneration paid to partner as income under the head of business & profession up to the extent allowed u/s 40(b) of the Act in case of firm. And the character of the said interest/remains the same as that of the firm. (d) We rely on the following judgements (i) CIT Vs. R.M. Chidambaram Pillai etc. 1977 CTR (SC) 71/(1977)106ITR 292(SC) In the above case it has held that the firm is not a legal person even though it has some attributes of personally. In Income Tax law a firm is a unit of assessment by special provision but it is not a full person. In the above case the partnership firm was deriving income from considered as partly agricultural and partly non- agricultural. And on the above fact it has been further held that the salary paid to a partner by the firm was exempt from tax under rule 24 of the Indian IT Rules, 1922 to the extent of 60% thereof representing agricultural income and was liable to tax only to the extent of 40%. Thus, it is clear that the character of salary paid to the partner has the same character of the income of the firm. (ii) CIT Vs. Ramniklal Kothari (1969) 74 ITR 57 (SC) In the above matter the supreme court has held that business carried on by a firm is business carried on by the partners and profit of the firm are profits earned by all the partners in carrying on the business. Their lordship also has clearly held that the share of the partners is business income in their hands and being business income expenditure necessary for the purpose if earning that income and appropriate allowances were deductible there from in determining the taxable income of the partner.

(iii) Motichand Rawat Vs. ACIT (1993) 46TTJ (JP)452 In the above matter the Assessment year is 1989-90 i.e. prior to amendment made to scheme of taxing firm and partners income. The firm has paid interest to partners. The Income of the firm was from export and totally exempt u/s 80HHC of the I. T. Act, 1961. The partner in their return of income has not included interest received from the above firm from their capital invested in the firm. The Assessing Officer has taxed the above interest on the ground that the benefit of exemption from tax under section 80HHC, which once been extended to the partnership firm could not be available to the partners in the computation of their income even though the partners urged before the ITO that their interest incomes from the partnership firm which had the character of business income being part of their share income and as such exempt from tax u/s.80HHC of the Act. The members of the ITAT applying the above two Supreme court judgments and also relying on the following High Court judgments have held that (a) Chhotalal Keshavram Vs. CIT (1978) CTR (MP) 118/ (1998) 115 ITR 347(MP) (b) CIT VS. Maharani Lalita Raiya Laxmi Sahe(1979) CTR (PAT) 215/(1980) 121 ITR1012 (PAT)

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.) and also relying on the CBDT circular/letter No F.178/152/91-ITA-1 dated 31st July, 1992 i.e. after amendment made per Finance Act 1992 w.e.f. 1st April 1993 and also considering various sections of the Act as above mentioned has held that Interest received from firm by partner had the chartered of business income being the allotted share of profit by the firm interest received by partners from firm was not liable to be taxed in their hand. Deduction allowed to the firm would be available to partners in computing their income. Considering above facts and various judgments, if your good- self calculate, proportionate remuneration to partners for industrial undertaking at Rudrapur, it will be exempted in the hands of partners. Hence, your good self are requested to give consequential effect for the same i.e. to consider exempt income i.e. remuneration in the hands of the partners. Liasion Expenses As regard liaison expenses of Rs. 38,06,690/-, it is to be clarified that for looking after domestic market i.e. Mahendra & Mahendra, Mumbai, Maruti Udyog Ltd. Gurugaon, Force Motors, Pune, Tata Motors LTd., Jamshedpur & Pune, Maruti Udyog Ltd., Gurfaon. And from Rudrapur Unit all items sold to Tata Motrs Limited, Rudrapur only. Hence, there is no apportionment of liaison expenses is required. Copy of account of Liasion expenses and copy of various bills are attached as per Annexure 5. Travelling Expenses As regard Travelling Expenses, total local travelling expenses are of Rs. 27,20,238/-out of which of Rajkot unit are of Rs. 25,67,631/-, Rudrapur unit of Rs. 1,52,607/- and foreign travelling expenses are of Rs. 11,42,099/-incurred by Rajkot unit for their export turnover of Rs. 17,76,24,987/-. As all travelling expenses of respective units borne by itself, there is no requirement of apportionment of travelling expenses. Copy of accounts as well as various bills are attached as per Annexure 5. Technical Consultancy As regard technical consultancy expenses of Rs. 20,30,300/- at Rajkot and Rs 5,40,385/- at Rudrapur unit, it is included in legal and professional fees. It is clarified that all expenses are incurred by Rajkot unit for advisory services and technical services provided for metallurgy, heat treatment, NOC for pollution control board, software engineering etc. As all technical consultancy expenses of respective units borne by itself, there is no requirement of apportionment of travelling expenses. Copy of accounts as well as various bills, are attached as per Annexure 5.

Advertisement Expenses As regard advertisement expenses, total advertisement expenses are of Rs. 2,06,870/-. All advertisement expenses of respective units borne by itself, there is no requirement of apportionment of expenses. Copy of accounts submitted in our earlier submission dated. 16/12/2015.

Depreciation car Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

As regard depreciation on motor car of Rs. 11,97,617/-, it is clarified that all the cars are used at Rajkot unit only. In Rudrapur unit 1, depreciation on motor care of 1,54,016/- (1,04,546 + 49,470) and those cars at Rudrapar unit 1 only. As all motor car depreciation expenses of respective units borne by, itself there is no requirement of apportionment of motor car depreciation expenses. Copy of accounts submitted in our earlier submission Dtd. 16/12/2015.

In notice u/s. 142(1) of the Act dated 27.05.2015 the assessee was asked vide question number 7 which is reproduced below: "The units in Rudrapur are managed, controlled and financed by the management sitting at Rajkot. The units are also under the same PAN number which is assessed at Circle-2(1) Rajkot. In view of this you are requested to submit why the "Administrative Staff Expenses" should not be allocated to Rudrapur Units also on proportionate basis?"

In response to which the assessee submitted that "It is clarified that the Rudrapur unit of Bhavani Industries is located at Rudrapur and independent unit for manufacturing of automobile parts for TATA ACE being managed by independent duly appointed plant head and key managerial personnel as well administrative personnel. The unit has also appointed consultant for looking after the affairs of Pollution control, Provident Fund, ESI, Electricity board, and other government department etc. The branch has separate sanction of term loan of Rs.439 lacs from the Andhra Bank as per sanction letter for purchase of plant and machinery. All the expenses related to the above i.e. Salary, wages, Bonous, consulting charges, interest on bank loan etc, are incurred at the unit/branch location therefore there is no matter of allocation/apportionment of the HO administrative/finance overheads to the unit/branch.

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

Bhavani Industries India LLP to 250 /RJT/2024 & Ors. (AYs : 2012-13, 2013-14 & Ors.)

67. In the result, summarised and concise ground No.4, raised by the revenue, is dismissed, and year -wise, following appeals of the revenue, are dismissed: (i)Ground No.4 in for A.Y.2010-11, (ii)Ground No.4 in for A.Y.2012-13, (iii)Ground No.4 in ITA No.248/RJT/2024 for A.Y.2013-14.

71. In the result, summarised and concise ground No.5, raised by the revenue, (in for A.Y.2012-13) is dismissed.

Order is pronounced in the open court on 27/08/2025