KEESARA PLASTICS PVT LTD.,CHENNAI vs. DCIT, CHENNAI

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

2.0 Grounds of appeal for both the Assessment Years are common and the issues are also common on the same facts. Therefore, both the appeals are taken up together and disposed off in common order for the sake of convenience.

3.0 The only issue in these appeals is whether the assessee is carrying on any manufacturing activity or not at Dehradun Unit which is eligible for deduction u/s.80IC. The Revenue has disallowed the deduction u/s.80IC for the AY 2010-11 amounting to Rs.4,29,58,857/- and for the AY 2011- 12 amounting to Rs.1,58,86,862/, on the ground that the assessee is not carrying manufacturing activity at Dehradun Unit and claiming the false deduction u/s.80IC from the Dehradun Unit. The assessee is having two manufacturing units one is at Chennai and other one is at Dehradun and manufacturing ‘PY seals’ for dry batteries and torch lights for ‘Nippo Brand’. The assessee is entitled for deduction u/s.80IC in case of profits derived from the Dehradun unit and the profits of the Chennai unit are taxable as normal income. Therefore, the AO is of the opinion that the assessee, in order to claim the excess benefit u/s.80IC of the Act, invoicing the finished goods manufactured at Chennai from Dehradun Unit or the expenses relating to Dehradun unit were claimed in Chennai unit.

The AO suspected that the assessee is making claim of excess deduction u/s.80IC from the Dehradun unit and suppressing the taxable income of the Chennai unit. Accordingly, the AO held that the assessee has transferred the stocks from Chennai unit to Dehradun unit and debited the & 2209/Mds/2015 :- 3 -: expenses relating to Dehradun unit in the account of Chennai unit, and claimed the excess deduction u/s.80IC and accordingly rejected the deduction claimed u/s.80IC and made the addition.

4.0 Aggrieved by the order of the AO, the assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) confirmed the order of the AO following the order of this before this Tribunal. In the assessee’s own case for the AYs 2007-08 & 2008-09 in & 1327 dated 17.07.2013.

5.0 Aggrieved by the Ld.CIT(A)’s Order, the assessee is on appeal before this Tribunal.

Appearing for the assessee, the Ld.AR argued that the AO has disallowed the claim u/s.80IC on the contention that the assessee is not carrying on any manufacturing activity in Dehradun Unit, which was factually incorrect. He submitted that the assessee has carried on manufacturing activity at Dehradun Unit which could be seen from the Profit & Loss A/c wherein the assessee has transferred less quantity of stocks, the separate VAT is paid and separate books of accounts are maintained. Therefore, the Ld.AR contended that facts of the earlier order in the assessee’s own case is not applicable for the AY under consideration and requested to allow the appeal of the assessee. On the other hand, the Ld.DR taken our attention to the details of various expenses debited to the Profit & Loss A/c and argued that it is evident from the expenses & 2209/Mds/2015 :- 4 -: debited to the Dehradun Unit and Chennai unit that the assessee has not carried on any manufacturing activity at Dehradun except invoicing the finished goods from the Dehradun unit and not eligible for deduction u/s.80IC of Income Tax Act and argued that the orders of the Tribunal in the assessee’s own case for the earlier AYs are squarely applicable for the AY under appeal.

6.0 We have considered the submissions of both parties and perused the material placed on record.

The only issue which arises for determination is whether the assessee is carrying on any substantial manufacturing activity at Chennai or Dehradun unit. During the appeal, the Ld.AR argued that the assessee is carrying on manufacturing activity both at Chennai and Dehradun units and the order of this Tribunal in the earlier years cited supra are not applicable for the Assessment Years under appeal.

7.0 We have gone through the assessment order in Page No.2, the AO has furnished the breakup of the various expenses debited to P&L A/c which are reproduced as under for the AY 2010-11:

The breakup of certain expenses incurred & sales made in Chennai (Non 80IC deduction and Dehradun Unit (80IC unit) is given below:

& 2209/Mds/2015 :- 5 -:

2010 Chennai Unit Dehradun Unit (Non-80IC Unit) (80IC Unit) Sales 1,25,91,156 22,27,60,542 Expenses Cost of production 48,44,596 15,11,06,996 Selling & Distribution 22,60,550 2,62,97,540 overheads Admn. Overhead 21,98,071 12,59,891 Salaries & wages 79,63,574 67,64,229 Repairs & maintenance 33,27,731 55,950 Power consumption 28,04,127 46,245 Finance charges 29,516 2,37,255 Director’s remuneration 6,00,000 9,00,000 Addn. Fixed assets WDV Addn Del WDV Del made Assets acquired 60183187 11692904 4839904 1109817 363590 - Out of the above moulds 32646054 6047918 - 249080 57590 - 7.1 For the AY 2011-12 also the AO has furnished the details of various expenses which are reproduced as under:

Chennai Unit Dehradun Unit (Non-80IC Unit) (80IC Unit) Sales 323,72,693 16,85,49,406 Labour receipts 53,50,893 - Other receipts 25,71,745 19,209 Expenses Cost of production 3,33,50,052 13,66,30,664 Selling & Distribution 18,72,754 71,42,622 overheads Admn. Overhead 27,18,984 14,01,011 Salaries & wages 82,43,997 72,99,910 Repairs & maintenance 9,94,802 41,987 Power consumption 25,91,463 48,071 Finance charges 3,02,849 2,35,437 Director’s remuneration 6,00,000 9,00,000 WDV Addn Del WDV Addn Del Fixed assets 6,70,36,187 1,06,44,130 1,82,88.540 14,73,407 1,03,671 - Assets acquired - - - - - - Out of the above 3,84,44,892 35,82,328 1,34,18,375 3,06,670 45,000 - moulds

The expenses debited in the Profit & Loss A/c which are re-produced for the AY 2010-11 and 2011-12 clearly indicates that no substantial manufacturing activity was carried out by the assessee from the Dehradun & 2209/Mds/2015 :- 6 -: unit. On comparison of sales admitted by the assessee in Dehradun Unit and Chennai Unit, the expenses are highly disproportionate to the sales of Dehradun Unit though the sales are at astronomical figure in Dehradun unit and the sales are comparatively low in Chennai Unit, the expenses are very high. This fact is evident from the expenses debited under power consumption repairs and maintenance, administrative overheads and the assets deployed. Out of the total expenses incurred on power Rs.28,50,372/- the Chennai unit has accounted for a sum of Rs.28,04,127/- and Dehradun unit is Rs.46,245/- which clearly shows no manufacturing activity is being done at Dehradun unit. Similarly other production expenses accounted for in Dehradun unit were meager or nominal compared to Chennai unit, though the assessee is declaring huge sales from the Dehardun unit and compared to Chennai unit. Therefore we are of the considered opinion that the assessee is not carrying on any manufacturing activity in Dehradun Unit and the Hon’ble ITAT’s Order in the assessee’s own case for the AYs 2007-08 & 2008-09 is squarely applicable. We reproduce here under the relevant paragraphs of the order of this Tribunal in & 1327/Mds/2012 & ITA No.917/Mds/2013 dated 17.07.2013 for the sake of convenience as under:

circumstances show that the assessee is invoicing majority of finished goods from Dehradun whereas that substantial production is carried out at Chennai. The assessee has adopted colourable devise to take undue advantage of benevolent provisions of the Act. We are of the considered opinion that the assessee is not entitled to claim deduction u/s. 80IC of the Act. Since we do not find any difference in the facts of the case we hold that the assessee is not carrying on substantial manufacturing activity in Dehradun unit and not entitled for deduction u/s.80IC and uphold the orders of the Ld.CIT(A).

8.0 In the result, the appeal of the assessee is dismissed.

Order pronounced in the Open Court on 12th May, 2017, at Chennai.