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Income Tax Appellate Tribunal, DELHI BENCH “E”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI ANADI N. MISHRA
Date of Hearing : 25-07-2016 Date of Order : 09-08-2016
ORDER PER H.S. SIDHU : JM
The Revenue has filed the present appeal against the impugned order dated 10/2/2014 passed by the Ld. Commissioner of Income Tax (Appeals), Rohtak on the following grounds:-
1. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in law and in facts by reducing
the deduction u/s 80lC amounting to Rs.10,04,37,872/- by Assessing Officer by invoking the provisions of section 80IC(7) r. w .s. 801A( 10) of the I.T. Act as according to the AO it appeared that owing to the close connection between the exempted units and the taxable units as also the concern related to the assessee firm, the course of business between them was so arranged that the business transacted between them produce to the exempted units of the assessee firm more than the ordinary profits which might be reasonably be expected to arise and no sustainable documentary evidence was furnished in this regard or in support of the expenses debited in manufacturing, trading and in profit and loss account was furnished during assessment proceedings; the Ld
CIT(A) deleted the said addition. without appreciating the facts of the case mentioned in details in assessment order.
2. That the appellant craves for the permission to add,
delete or amend the ground of appeal before or at the time of hearing of appeal.
The facts in brief are that the assessee has filed its Return of income showing total income of Rs.5,34,49,511/- claiming deduction of Rs. 21,36,05,429/- under section 80IC of the Income Tax Act, 1961 (hereinafter referred as the Act). The case was picked up for scrutiny and AO issued statutory notice u/s. 143(2) on 30.8.2011 and thereafter a notice u/s. 142(1) alongwith a detailed questionnaire was issued on 1.8.2012. under section 80HHC. On assignment of jurisdiction over this case, another notice u/s. 143(2) of the Act was issued on 23.10.2012 by the JCT, Rohtak Range, Rohtak and in response to the same assessee’s Authorised Representatives attended the proceedings. AO observed that owing to the close connection between the exempted units and the taxable units as also the concern related to the assessee firm, the course of business between them is so arranged that the business transacted between them produce to the exempted units of the assessee firm more than the ordinary profits which might reasonably be expected to arise. Provisions of section 80IC(7) read with section 80IA(10) of the Act were invoked and the deduction admissible u/s. 80IC was worked out and restricted the claim of deduction from Rs. 21,36,05,429/- to Rs. 11,31,67,557/- and thus made a disallowance of Rs. 10,04,37,872/- to the total income of the assessee vide his order dated 28.3.2013 passed u/s. 143(3) of the I.T. Act, 1961.
Aggrieved with the aforesaid assessment order, assessee preferred an appeal before the Ld. CIT(A), who vide his impugned order dated 10.2.2014 has deleted the reduction claim u/s. 80IC by Rs. 10,04,37,872/- and allowed the appeal of the assessee.
Now the Revenue is aggrieved against the impugned order and filed the present appeal before the Tribunal.
At the time of hearing Ld. DR relied upon the order of the AO and reiterated the contentions raised by the Revenue in the grounds and requested that Appeal of the Revenue may be allowed.
On the contrary, Ld. Counsel of the Assessee has relied upon the order of the Ld. CIT(A) and stated that in the assessment years 2005-06 and 2009-10 in assessee’s own case, the Ld. CIT(A) has deleted the similar additions which was upheld by the Tribunal.
Therefore, he requested that following the consistent view, the addition in dispute in the instant assessment year i.e. 2010-11, may be deleted by upholding the CIT(A)’s order and Revenue’s Appeal may be dismissed.
We have heard both the parties and perused the records, especially the impugned order passed by the Ld. CIT(A). We find that Ld. First Appellate Authority has elaborately discussed the issue in dispute by considering the submissions of the assessee and adjudicated the issue as under:-
“I have examined the facts on record and the submissions made by the assessee. The AO has reduced the deduction admissible u/s. 80 IC of the IT Act by Rs
10,04,37,557/- on the ground that out of the 3 exempted and 3 non-exempted units owned by the assessee in different states the maximum N.P. rate for a taxable unit was 6.90% while that for an exempted unit the minimum
NP rate was 13.4%. The AO has held that all units derive income from the same business activity and therefore, the gap between the profits of the taxable units and non exempted units "appears" to be unrealistic. Reference has also been made to transactions made in respect of purchases and job work expenses made with related concerns or units of the assessee's firms. Taking all these factors into account the AO has stated that no evidence in respect of manufacturing, trading and P&L a/c have been submitted during the assessment proceedings.
However, the appellant has produced all the books of accounts and vouchers before the AO during the assessment proceedings. In fact, no show cause query was issued by the AO on this account during the assessment proceedings. The AO has not considered the fact that the units in exempted zones are mainly engaged in manufacturing on job work basis where there is either negligible or no input cost of raw material involved. If the sales were made using their own raw material, there would be substantial difference in the GP rate insofar as, if the cost of raw material was excluded, the GP rate in all the units would remain the same. The fact• that the exempted unit at Haridwar has shown a loss has not been referred to by the AO. Therefore, it is clear that no profit has been diverted to this unit. There has been no investigation or specific exercise to show that the amount claimed as deduction u/s 80-IC was wrong.
There is no ground for disallowing claim for job work expenses for the eligibility u/ s 80-IC as the same is allowable as per the decision of my. Ld. Predecessor in appeal no. 467 /RTK/2011-12 for the AY 2009-10.
In view of the above, the reduction of claim u/s. 80-ICI by Rs 10,04,37,872/- is deleted and the ground of appeal is allowed.”
7.1 After going through the findings of the Ld. CIT(A), as aforesaid, we are of the view that the AO has reduced the deduction admissible u/s. 80 IC of the IT Act by Rs 10,04,37,557/- on the ground that out of the 3 exempted and 3 non-exempted units owned by the assessee in different states the maximum N.P. rate for a taxable unit was 6.90% while that for an exempted unit the minimum NP rate was 13.4%. We further find that the AO held that all units derive income from the same business activity and therefore, the gap between the profits of the taxable units and non exempted units "appears" to be unrealistic. Reference has also been made to transactions made in respect of purchases and job work expenses made with related concerns or units of the assessee's firms. Taking all these factors into account the AO has stated that no evidence in respect of manufacturing, trading and P&L a/c have been submitted during the assessment proceedings. However, the assessee has produced all the books of accounts and vouchers before the AO during the assessment proceedings. In fact, no show cause query was issued by the AO on this account during the assessment proceedings. The AO has not considered the fact that the units in exempted zones are mainly engaged in manufacturing on job work basis where there is either negligible or no input cost of raw material involved. It was noted that if the sales were made using their own raw material, there would be substantial difference in the GP rate insofar as, if the cost of raw material was excluded, the GP rate in all the units would remain the same. The fact that the exempted unit at Haridwar has shown a loss has not been referred to by the AO. Therefore, it is clear that no profit has been diverted to this unit. It was further noted that there has been no investigation or specific exercise to show that the amount claimed as deduction u/s 80-IC was wrong. We find considerable cogency in the finding of the Ld. CIT(A) that there is no ground for disallowing claim for job work expenses for the eligibility u/s 80-IC as the same is allowable as per the decision of his Predecessor in appeal no. 467 /RTK/2011-12 for the AY 2009-10. Therefore, the Ld. CIT(A) has rightly deleted the addition 10,04,37,872/-. We also note that the addition in dispute relevant to preceding assessment year 2009-10, the Tribunal also upheld the deletion of addition by holding as under, (as mentioned at page no. 4 of the impugned order passed by the Ld. CIT(A)).
“The Ld. Commissioner of Income Tax (A), it is seen, Ld. CIT(A) has followed the principle of consistency in deleting the addition made by the AO. No changes in facts from the earlier years have been brought on record. Moreover, the ld. CIT(A) has followed the decision of Delhi Tribunal, Third Member, Delhi in the case of DCIT vs. Delhi Press Samachar Patra 103 TTJ (Del) 45 wherein it was held that apportionment of expenses between different units without any investigation and collection any material is arbitrary.”
7.2 We further note that ITAT, Delhi ‘F’ Bench in assessee’s own case for the assessment year 2005-06 in vide order dated 17.9.2009 has upheld the order of the Ld. CIT(A) by citing the exactly the same case law of the ITAT i.e. DCIT vs. Delhi Press Samachar Patra 103 TTJ (Del) 45 (Supra).
In the background of the aforesaid discussions and respectfully following the precedents of the Coordinate Bench in assessee’s own case relevant for the assessment year 2005-06 and 2009-10, we are of the considered view that the Ld. CIT(A) has passed a well reasoned order which does not need any interference on our part, hence, we uphold the same.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 09/08/2016.