DCIT, NEW DELHI vs. SMT. DEEPTI AGARWAL, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 3609/Del/2013 (Assessment Year: 2009-10) DCIT, Vs. Deepti Agarwal, Circle-31(1), Room No. 1405, Prop M/s. Superior Fabrics, 14th Floor, E-2, Block, Maharaja Lane, Civil Lines, Prataykshkar Bhawan, Dr. New Delhi Shyama Prasad, Mukherjee Civc PAN: AAMPA0573C Centre, JN Nehru Marg, New Delhi (Appellant) (Respondent)

CO No. 234/Del/2013 (In ITA No. 3609/Del/2013) (Assessment Year: 2009-10) Deepti Agarwal, Vs. DCIT, Prop M/s. Superior Fabrics, Circle-31(1), Room No. 1405, 14th Floor, E-2, Maharaja Lane, Civil Lines, New Delhi Block, Prataykshkar PAN: AAMPA0573C Bhawan, Dr. Shyama Prasad, Mukherjee Civc Centre, JN Nehru Marg, New Delhi (Appellant) (Respondent)

Revenue by : Ms. Ashima Neb, Sr. DR Assessee by: Dr. Rakesh Gupta, Adv Sh. Somil Aggarwal, CA Date of Hearing 25/01/2018 Date of pronouncement 23/04/2018

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the revenue and the cross objection filed by the assessee against the order of the ld CIT(A)-XXVI, New Delhi dated 30.03.2013 for the Assessment Year 2009-10. 2. The revenue has raised the following grounds of appeal in ITA No. 3609/Del/2013-:- Page | 1

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) “1. The CIT(A) has erred in law in deleting the provisions of Section 145(3) invoked by the AO for rejecting the books of accounts of the assessee. 2. The CIT(A) has erred in law by allowing deduction to the assessee u/s 80IC to the tune of Rs. 4,67,93,495/- for her Dehradun Unit whereas the assessee had not fulfilled all the conditions required for claiming deduction u/s 80IC in the year under consideration and ignored the other circumstantial evidences relied upon by AO for disallowing the claim. 3. The CIT(A) erred by not restricting the amount of addition to Rs. 62,19,406/- as calculated by the AO in his remand report on account of sham transactions behind inflated purchases.”

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) property. Assessee filed her return of income on 30.09.2009 at Rs. 5472734/-. During the year the assessee has business at Delhi, Ghaziabad and Dehradun. In Delhi and Ghaziabad assessee is carrying on trading activities, whereas in Dehradun assessee is carrying on manufacturing activity. The assessee got contract from defense department for supply of net. The assessee is claiming that in Dehradun unit it is manufacturing and has claimed deduction u/s 80IC of Rs. 46793494/-. The ld Assessing Officer rejected the claim of the assessee. The ld AO rejected the books of accounts of the assessee u/s 145(3) of the Income Tax Act, 1961 holding that there is a discrepancy in purchase register holding that raw material purchased from one party is entered in the stock book a day prior to the receipt of goods on frequent occasion. Further, the purchases have been used inter-changeably between two types of nets. The sale of one kind of net is recorded as sales of another kind of net. Cheques issued to the various parties to the tune of Rs. 5.07 crores were not cleared as not presented despite a considerably long time. Hence, according to the ld Assessing Officer the books of accounts are rejected u/s 145(3) of the Act. Further, disallowance of deduction u/s 80IC was also made holding that assessee was having machinery of Rs. 78758/- only and assessee has employed only 31 laborers but did not produce wages register. The assessee in the end submitted that the labours are employed through KB Singh Enterprise only. However, the bills of the labour supplier was not produced. Only one bills was produced that to was in the name of another concern where the assessee is a director. The assessee did not produce the register of labour, ESIC details. The assessee further did not produce the production and manufacturing process chart and quantitative details of each of the raw material. Further, most of the purchases are made of raw material are from sister concern. The ld Assessing Officer further noted that at many days the stock of finished goods was Nil. No details of wastage were also produced. On two occasions the assessee has shown sales of net but was

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) not having the stock of the finished goods for the sale. In view of the above facts the ld Assessing Officer stated that entire operation of manufacturing is a mala fide manner to claim undue deduction u/s 80IC of the Act. According to the ld AO instead of showing the trading transaction of the net the assessee has shown manufacturing transaction. Therefore, he disallowed the deduction u/s 80IC of the Act. After that the ld Assessing Officer computed the profit at Dehradun unit disallowing the job work expenses of Rs. 2076219/- paid to KB Singh Securities where TDS was not paid in time and further the bills were in the name of sister concern. Further, disallowances were made of Rs. 193489/- u/s 40A(3) of the Act. Therefore, accordingly, he computed the profit of Dehradun Unit at Rs. 49063194/- against profit shown by the assessee of Rs. 46793495/-. Further, the ld Assessing Officer disallowed the purchases of Rs. 2.02 crores stating that assessee is purchasing goods at Delhi Unit from the party to which the same goods have been sold by its Dehradun Unit. Accordingly, the difference in purchase price at Delhi Unit and sale price of Dehradun Unit, he held that it is an over invoice purchase and hence, a sum of Rs. 20265026/- was added. He made a further addition of Rs. 50778113/- on account of cheque issued but not presented by the parties. He further held that income from interest in FDR and other interest of Rs. 6780459/- is income from other sources. With respect to the business loss of Ghaziabad unit where the net profit of the assessee is shown to be Rs. 4802714/- wherein, the interest income is credited of Rs. 6780459/- and loss of Rs. 1977745/- is shown he computed the income at Rs. 58382404/- disregarding the loss, considering the interest income as income from other sources and disallowance of Rs. 50778113/- as unexplained liability. 5. Accordingly, total income was determined at Rs. 129076513/- against the returned income of Rs. 5472734/- vide order u/s 143(3) of the Act dated 22.12.2011. the assessee aggrieved filed appeal before the ld CIT(A) who partly allowed the appeal of the assessee. Therefore, revenue is in appeal

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) against the order of the ld CIT(A) rejecting the reasons for rejection of the books of account, deleting the disallowance u/s 80IC of Rs. 46793495/- and not restricting the addition of Rs. 6219406/- as per remand report of the assessee. 6. The assessee is in appeal contesting the following additions upheld by the ld CIT(A). a. Disallowance of Rs. 1185685 u/s 40a(ia) b. Disallowance of Rs. 315117/- u/s 14A of the Act c. Holding that interest income of Rs. 6780459/- is taxable as income from other sources and not as business income.

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) valid reasons to show that the assessee is not carrying on manufacturing activities. 9. The ld AR vehemently submitted that nothing specific was brought on record of the ld AO and therefore, there is no reason to reject the books of account by the ld AO. He vehemently supported the order of the ld CIT(A). he further submitted that to reject the books of account the ld AO should have pointed out sum patent mistakes in the books of account. The ld AR on section 80IC referred to the various pages of the paper book filed to show that the manufacturing activities carried on by the assessee are duly evidenced and also certified by another govt authority i.e. Central Excise. He further referred to the various findings of the ld CIT(A) and submitted that claim of the assessee has been examined in detail and therefore, should be allowed. He further submitted that in Assessment Year 2008-09 the claim of the assessee was examined and allowed. Further, for Assessment Year 2010-11 also the claim of the assessee was examined and allowed. In view of this he submitted that the order of the ld CIT(A) is on the correct appreciation of the facts upholding the reliability of the books of account and allowing deduction u/ 80IC of the Act. 10. We have carefully considered the rival contentions. The ld CIT(A) has dealt with the above issue vide para No. 7 to 16 of his order as under:-

“7. Ground nos. 1(a), (b), (c), (i) and (j) pertains to the rejection of books of accounts and also disallowance of the claim of deduction u/s 80IC of the IT Act, 1961. 7.1 In these grounds of appeal, the appellant has challenged the action of the Assessing Officer in rejecting the books of accounts u/s 145(31 and in not allowing the deduction u/s 80 1C in respect of the profits derived by the appellant from her Dehradun Unit and thus assessing the income of Dehradun Unit Tax. In the assessment order dated 22.12.2011, the Assessing Officer had discussed the issue of rejecting the books of accounts of the appellant at pages 22 to 26. It was observed by the Assessing Officer that while pointing out the discrepancies in the books of the appellant and the show cause to the appellant as to why the books of the appellant Page | 6

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) should not be rejected u/s 145(3), the appellant offered no . reply- Further, vide order sheet entry dated 15.12.2011, the appellant was again confronted by the Assessing Officer on the treatment of “cheques issued but not presented” in the books and reasons as to why the books of account of the appellant be not rejected u/s 145(3) owing to the fact that the cheques issues were already expired and no cognizance of the same was taken in the books. Vide reply dated 19.12.2011, the appellant submitted as under. "Kindly refer to the order sheet entry dated 15.12.2011 whereby we have been directed to file details and explanation in respect of three points. Necessary compliance is as under: 1. So far as the account of cheques issued but not presented is concerned, the same is an old account carried out from the earlier year. Opening balance was Rs.57830819/- out of which cheques of rupees 8307976/- were encashed in this year leaving a balance of Rs.50778113/-. This being an old account coming from the last year as per the balance sheet and accepted in the last year, there is no question of any application of section 145(3] which is applicable in the following three situations. (a) When the AO is not satisfied about the correctness or completeness of the account. (b) The method of accounting as provided in section 145(1) and (2) has not been regularly followed. (c) The AO can make the assessment in a manner provided in section 144. No defect or discrepancy in my books of account has been found. Correctness or completion of the account is not under challenge. The provision of section 145(1) or (2) have also been followed and therefore the provisions of section 145(3) are not applicable in my case. In any case I have been directed to explain as to why the department should not treat the following' (a) Such liabilities has been settled outside the books of accounts. (b) The liabilities does not exist anymore. I am submissions in this regard are many fold. The Income- tax does not permit any assumption or presumption. Sweet will also cannot play in income tax proceedings and nor the Page | 7

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) income tax provide any arbitrary treatment. Nothing has been brought on record so far to conclude firstly that the assesse has settled the liability outside the books and secondly the liabilities do not exist anymore. At least we have not been given any reasons evidence or basis for such treatment." 8. In the remand report dated 04.03.2013, the Assessing Officer offered his comments as under: "complete books of accounts with complete bills and vouchers were produced by the assessee during the course of assessment proceedings. No show cause letter was issued by the Ld. AO before rejecting books of accounts, as such assessee was under a bonafide impression that the Id. AO is satisfied with the books and bills / voucher produced. Ld. AO stated at page 24 of the impugned order that there were some discrepancy in purchase register and rejected the books of the assessee. Assessee produced and placed on record copy of purchase register for purchases made in Dehradun Unit, from which AO made opinion that assessee has recorded the material received a day prior to the receipt of goods, whereas the fact was that assessee recorded the bill date only. We have submitted the revised purchase register wherein we have just added the column of receipt date. Ld. AO did not ask to furnish this purchase register in amended form, and therefore, assessee did not furnish the same. Thus, assessee was not granted adequate opportunity to furnish the amended purchase register showing the date of receipt of the goods, and in any case it does not affect the book results declared by the assessee, but-Ld. AO made the same as basis for rejection of books of accounts. Assessee‟s case for filling the additional evidences is therefore, covered under clause (d) of rule 46A of the income Tax Rules." 3.2 In this regard, it is submitted that assessee never produced complete bills and vouchers before the A.O. though the Ld. A/R were time & again repeatedly asked to produced complete bills & vouchers but assessee failed in this regard till the date of final discussion of the case. Therefore, the claim that “complete books of accounts with complete bills and vouchers were produced by the assessee during the course of assessment proceedings" is not factually correct. The assessee was show caused vide note sheet dt. 30.11.2011 (refer to scanned ordersheets above) pointing out discrepancies in the books of the assessee and asking for as to why books of the assessee should not be rejected U/s 145(3) of the Income-tax Act, 1961. Therefore, it is very much clear <6 evident that assessee was show caused Page | 8

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) regarding rejection of books of account U/s 145(3) of the Income-tax Act, 1961 (scanned ordersheets above of this report may kindly be referred). This shows that assessee was confronted regarding the issue and duly show caused for the same as well. Therefore, the contention of the assessee that "No show cause letter was issued by the Ld. AO before rejecting books of accounts, as such assessee was under a bonafide impression that the Id. AO is satisfied with the books and bills / voucher produced." is incorrect and may kindly be rejected." 9. In the course of the appeal proceedings, the AR of the appellant filed the following submissions. "Kindly refer to the order sheet entry dated 15.12.2011 whereby we have been directed to file details and explanation in respect of three points. Necessary compliance is as under: 1. So far as the account of cheques issued but not presented is concerned, the same is an old account carried out from the earlier year. Opening balance was Rs. 57830819- out of which cheques of rupees 8307976/- were encashed in this year leaving a balance ofRs. 50778113/-. This being an old account coming from the last year as per the balance sheet and accepted in the last year, there is no question of any application of section 145(3) which is applicable in the following three situations. (a) When the assessing officer is not satisfied about the correctness or completeness of the account. (b) The method of accounting as provided in section 145(1) and (2) has not been regularly followed. (c) The Assessing Officer can make the assessment in a manner provided in section 144. No defect or discrepancy in my books of account has been found. Correctness or completion of the account is not under challenge. The provision of section 145(1) or (2) have also been followed and therefore the provisions of section 145(3) are not applicable in my case. In any case I have been directed to explain as to why the department should not treat the following ' (a) Such liabilities has been settled outside the books of accounts.

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) (b) The liabilities does not exist anymore. I am submissions in this regard are many fold. The Income- tax does not permit any assumption or presumption. Sweet will also cannot play in income tax proceedings and nor the income tax provide any arbitrary treatment. Nothing has been brought on record so far to conclude firstly that the assessee has settled the liability outside the books and secondly the liabilities do not exist anymore. At least we have not been given any reasons evidence or basis for such treatment. The matter also does not relate to this year. In case there in any evidence with the department for such treatment the same may kindly be given to me for my further submission." 10. I have gone through the facts of the case, perused the assessment order dated 22.12.2011 and considered the submissions made by the appellant. I have also examined the remand report submitted by the Assessing Officer and the rejoinder filed by the appellant. I have also called for the assessment record for the year under consideration and perused the same. The main issue in this ground is pertaining to the rejection of books of accounts of the appellant invoking the provisions of sec. 145(31 of the Income Tax Act and thereby disallowing the claim of the appellant u/s 80IC of the IT Act, 1961. On perusal of the material on record, I find that nothing specific which is adverse was brought on record by the Assessing Officer to invoke the provisions of section 145(3) of the IT Act. The provisions laid down in section 145(3) is reproduced here as under. "145. (1) Income chargeable under the head "Profit and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub- section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assesses or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1J or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment order in the manner provided in section 144." Page | 10

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) 10.1 From the above provisions of section 145(3), it is evident that this section can be invoked only if the Assessing Officer is not satisfied about the correctness or completeness of the accounts .of- fhe-appettant. In the present case, the accounts of the appellant were audited by the statutory auditors. The deficiencies pointed out by the Assessing Officer are not of the nature which can be made the basis for rejecting the books of the accounts of the appellant. The provisions of sub-section 1 and sub-section 2 of section 145 are not applicable in the present case. Merely because, the purchases were recorded, a day prior to the receipt of the goods and if these have been recorded by the appellant in accordance with the date of the bills, the same cannot be the ground for rejection of the books of account. The Assessing Officer did not bring on record any adverse material to show that there were some bills which were found not recorded or bills recorded were disowned by the parties who issued those bills etc. 10.2 Similarly, the cheques issued expired and no cognizance of the same was taken in the books is also no reason for rejecting the books of accounts of the appellant. Dissatisfaction of the Assessing Officer with regard to the completeness or correctness of books of accounts need to be explicit and with reasons so as to bring on record, the effect of examination of incomplete or incorrect books of accounts which can be a ground to conclude to reject the books of accounts of the appellant. The Assessing Officer did not summon the parties u/s 131 or issued notices u/s 133(6) and made necessary enquiries regarding these parties. Rather the confirmations placed on record by the appellant were not disproved by the Assessing Officer in any manner. From the details submitted, I also find that these parties have also been paid in the subsequent period and that too through the banking channels only. 10.3 The Assessing Officer did not bring on record any adverse finding with regard to the maintenance of books of accounts to state or to show that there was a change in the method of accounting followed by the appellant as provided in section 145(1) and 145(2) or in the manner in which the appellant was regularly following the accounting principles. It is also pertinently mentioned here that after rejecting the books of accounts, the assessment was not framed by the Assessing Officer as per the provisions laid down in section 144 of the IT Act but was framed u/s 143(3). The Assessing Officer did not bring any adverse material on record with corroborative evidences to state that the appellant settled her liabilities outside the books of accounts or that the liabilities did not exist or that such liabilities were fictitious. In the absence of any such finding, this observation of the Assessing Officer is based on doubts, surmises and conjectures. In case, if the Assessing Officer Page | 11

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) found that there was a cessation of liabilities in some manner, the same should have been dealt with by invoking and applying the provisions of sec. 41 of the IT Act, 1961 but no such action was found to be taken by the Assessing Officer. I have also examined the order sheets recorded by the Assessing Officer dated 30.11.2011 and 15.12.2011 and find that there was no such reason which can be made the basis for rejecting the books results declared by the appellant. 10.4 In the course of the assessment proceedings, the Assessing Officer pointed out to a discrepancy in the books of the appellant stating that the raw materials purchased was entered in a stock book a day prior to the receipt of goods on frequent basis. I have examined the issue and considered the submissions made by the appellant. In spite of pointing out the above discrepancy, the Assessing Officer did not bring on record any adverse material or a finding to show the modus operandi employed by the appellant to defraud the revenue by purchasing the raw material from the sister concerned i.e. M/s. Superior Caltech Private Ltd. It is also a point to mention here that no addition was made by the Assessing Officer by invoking the provisions of sec. 40A(2)(b) of the IT Act, 1961. 10.5 In the course of the assessment proceedings, the Assessing Officer noticed that the appellant purchased “coated polyster net” and showed it as “camouflage net” in her books. With regard to the same, I have also examined the copies of the bills and purchase registers submitted in the paper book and also perused the assessment record consisting of these details and find that purchases of materials were recorded as per the date on bills and nothing pointing out like above i.e. regarding description of raw materials has been noticed. However, while recording the same in the stock register, these were wrongly recorded as “camouflage nets” instead of “coated polyster net”. I find that this mistake is a human error and is of clerical nature which has not effected the principles of accounting in any manner and did not prove any manipulation by the appellant due to the fact that the items purchased as raw material are entirely different from the items sold i.e. camouflage net. The appellant purchased raw materials from the sister concern and sold the finished goods. During the course of the appeal proceedings, the appellant demonstrated the raw material and the finished manufactured product which show that the polyester net is the raw material and the finished product is the camouflage net manufactured after various processes carried out on the same. 11. With regard to the observations of the Assessing Officer for disallowing the deduction u/s 80IC of the IT Act, 1961, I have examined in detail and also discussed at length with the AR in the Page | 12

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) course of the appeal proceedings. The Assessing Officer stated that the appellant had only a machinery worth Rs.78,758/- Which included three power presses. It was further observed by the Assessing Officer that only 31 employees were engaged by the appellant for production/manufacture and the wage register was not produced for verification, payments to labour and employees were made in cash, appellant was not registered with ESI/PF authorities and the use of labourers were provided by M/s. KB Singh Enterprises Security. The Assessing Officer doubted the bills pertaining to M/s. KB Singh Enterprises Security, the bills were raised in the name of the appellant as M/s. Super Fabrics Private Ltd. instead of M/s. Superior Fabrics and therefore the Assessing Officer opined that the expenses were not incurred by the appellant. According to the Assessing Officer, the appellant neither had machinery, nor the labour and most of the purchases were made from the sister concern and were recorded prior to the date of receipt of goods i.e. the bill date. It was also observed by the Assessing Officer that the appellant did not show the use of cotton cloth in the process of manufacturing and the purchase of cotton cloth was made from one party M/s. Texco India only and no payment was made to them during the year against the purchases made. It was also observed by the Assessing Officer that the inventory of finished goods was shown at zero on regular intervals and no details of wastage was found to be recorded. The sale of finished/manufactured goods to M/s. Trimurti Petro Chemicals and the re-purchase of the same from them by the appellant‟s Delhi Unit and other discrepancies noticed as discussed by him in the impugned order were made the basis by him to reject the claim of the appellant u/s 80IC of the Act. 12. In the remand report dated 04.03.2013, the Assessing Officer submitted as under. "4.1 The assessee vide her present submission has claimed that the manufacturing process requires more of manual efforts on simple machinery like power presses. She has also submitted a sample of camouflage net. It would be relevant to submit that the AO during the course of assessment proceeding has observed that the assessee is having machinery only worth Rs.78,758/- and could produce bills for 3 power presses worth Rs.54,987/-. It is submitted that this fact has not been disputed even in the additional evidence though the assessee has claimed that the manufacturing process is more of manual and the three power presses were enough for the quantum of production. This may be the case of assessee that she is indulged in manufacturing of 'Anti I.R. Camouflage Net through manual process but there is another Page | 13

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) observation of AO that the assessee has shown engagement of 31 labourers for production/management activities but despite giving a number of opportunities could not produce evidence to show their attendance in the business of assessee. The assessee claimed that the labourers were engaged through M/s KB. Singh Enterprises Security but after examination, the AO noted that all but one bill were raised in the name of Superior Fabric Pvt. Ltd., another company owned by assessee. This fact has again not been disputed in the present submission and the evidences (copies of bills raised by M/s KB. Singh Enterprises Security at page No.288 to 298 of volume II) furnished by assessee infact prove the AO correct. As far as the assessee's claim that payment have been made through account payee cheque, I would like to argue that making payment through account payee cheque is not proving the case of assessee that these laborers were actually performed their work in the unit of assessee situated at Dehradun. The assessee vide her present submission also could not prove conclusively that the 31 labourers were actually used / deployed in manufacturing activities in her Dehradun Unit. 4.2 As far as the entry in stock register and entering date prior to the date of receipt of goods, the assessee has explained that in the stock register, the date mentioned for raw material is the date of bill and not the date of receipt of goods. It is important to point out that in the same submission, the assessee agreed that there is hardly any time left of one or two days when the supplier send the material, raises the bill and receipt of goods by assessee. This admission atleast prove that the stock register is not maintained in a proper manner so as to give a correct picture of availability of raw material as on the date of utilization thereof towards consumption for production. 4.3 The AO has also observed that vide Bill No.60 dated 24.12.2008, the assessee has sold 40 nets (Size 11x11) and 50 nets (size 4 x 4 14) to M/s Trimurti Petrochemical Pvt. Ltd. whereas as per production/sale register, the assessee had only 50 nets as on 23.12.2008 with her. In light of this, the AO held that the assessee has actually purchased the finished product from Superior Calltech Pvt. Ltd. and then sold to Trimurti Petrochemical Pvt. Ltd. without any value addition. The assessee has submitted that she had actually purchased Coated Polyster net from Superior Calltech Pvt. Ltd. whereas the sale made to Trimurti Petrochemical Pvt. Ltd. was Pre Garnished Anti I.R. Camouflage net i.e. the finished product. Page | 14

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) It has also been pointed out that copies of bills annexed with the order as annexure A-l (page 5 to 8) and annexure A-2 (page 4 & 5) itself clarifies the difference in items. The assessee has also submitted sample of material which have also been seen / examined. Infact, by the bill of Superior Calltech Pvt. Ltd., the assessee has purchased coated polyester net whereas the items sold to Trimurti Petrochemical Pvt. Ltd. is Pre Garnished Anti I.R. Camouflage net. Admittedly, the items are different. 4.4 However, there is another peculiar fact noted by AO that the assessee has purchased entire cotton cloth from one party M/s Texco India to whom no payment was made in the year under consideration against the purchases. Here again, the assessee has not disputed the observation of AO but has claimed that the 'cotton cloth' was not used for manufacturing Camouflage Net rather the cloth was required for packaging of the finished product. The assessee has also submitted copies of A/c of Texco India at page No. 764 to 767B in support of her claim that M/s Texco India is an old party who grant credit to assessee. Perusal of the same reveal that the value of purchases made from Texco India in F.Y. 2008-09 relevant for A.Y. 2009-10 has been actually paid in F.Y. 2011-12 on 26.03.2012 i.e. almost after the end of three F.Ys. Moreover, part of the goods purchased (approx. Rs.14 lakhs) from Texco India has also been returned back in subsequent year which itself creates a doubt on the utilization thereof in the production activities. Accordingly, the AO has rightly disallowed deduction U/s80IC of the Income-tax Act, 1961." 13. In the above context, I have also examined the detailed submissions made by the AR. On perusal of the material on record, the remand report and rejoinder thereto, I am of the considered opinion that there was no discrepancy in the books of account of the appellant, that would invite the action of the Assessing Officer to reject the books of account of the appellant. It may not be out of place to mention here that these books of account were again examined by the Assessing Officer in the remand proceedings, and no note worthy mistake was pointed out by the Assessing Officer, rather the Assessing Officer himself admitted that purchases made from M/s. Super Caltech Pvt. Ltd. and sales made to M/s. Trimurti Petro Chemical Pvt. Ltd. admittedly were different products. Therefore, the action of the Assessing Officer in rejecting the books of account of the appellant by invoking the provisions of section 145(8) of the Act is not based on well founded ground is held as

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) bad in law. Therefore the book results are admitted for the purpose of computation of income. 14. Regarding the disallowance made by the Assessing Officer u/s 80 IC of the Act, to carry on the discussion further, at the outset, one has to elaborate the provisions of sec.80IC and for this purpose, an extract of sec. 80IC of the Act is reproduced below. "Special provisions in respect of certain undertakings or enterprises in certain special category states (2), there shall; in accordance with the subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits arid gains, as specified in sub-sectfon (3). (2) This section applies to any undertaking or enterprises;- (a) Which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning- (i) on the 23ni day of December, 2002 and ending before the 1" day of Apri4 (2007], in any Export Processing Zone or integrated Infrastructure Development Centre Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park of Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Sikkim; or (ii) on the 7" day of January, 2003 and ending before the /' day ofApri4 2012, in any Export Processing Zone or integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate of Industrial park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Himachal Pradesh or the State of Uttaranchal or (iii) on the 24th day of December, 1997 and ending before the III day ofApri 2007, in any Export Processing Zone or integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Page | 16

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in any of the North Eastern States;, (b) which has begun or begins to manufacture or produced any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any articles or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning. (i) on the 23rd day of December, 2002 and ending before the 1st of April (2007) in the State of Sikkim; or (ii) on the T" day of January, 2003 and ending before the t' day of Apri4 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or (Hi) on the 241" day of December, 1997 and ending before the Isi day of April, 2007, in any of the North- Eastern States. (3) The deduction referred to in sub-section (1) shall be- (i) in the case of any undertaking or enterprises referred to in sub-clauses (i) and (iii) of clause (a) or sub¬clause (i) and (iii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for the assessment years commencing with the initial assessment year; (ii) in the clause of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment and thereafter twenty five percenter thirty percent where the assessee is a company) of the profit and gain. (4) This section applies to any undertaking or enterprise which fulfils all the following conditions, namely;- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence; Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re- establishment, reconstruction or revival by the assessee of the business of any such undertaking as it referred to in section 33B, in the circumstances and within the period specified in that section: Page | 17

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation- The provisions of Explanations 1 and 2 to sub- section (3) of section 80IA shall apply for the purpose of clause (ii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (5) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or section 10B, in relation to the profits and gains of the undertaking or enterprise. (6) Not Withstanding anything contained in this Act, no deduction shall be allowed to any undertaking or enterprise under this section, where the total period of deduction inclusive of the period of deduction under this section, or under the second proviso to sub-section (4) of section 801B or under section IOC, as the case may be, exceeds ten assessments. (7) The provisions contained in sub-section (5) and sub- sections (7) to (12) of section 80-1 A shall; so far as may be, apply to eligible undertaking or enterprise under this section. (8) For the purposes of this section- (i) Industrial Area" means such areas, which the board, may, by notification in the official gazette, specify in accordance with the scheme framed and notified by the Central Government. (ii) "Industrial Estate" means such estates, which the Board, may be notified in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government. (iii) "Industrial Growth Centre" means such centres, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government. (iv) "Industrial Park" means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government. (v) "Initial assessment year" means the assessment year relevant to the previous year in which the undertaking or the Page | 18

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expansion; (vi) "Integrated Infrastructure Development Centre" means such centres, which the Board, may, by notification in the Official Gazette, specify, in accordance with the scheme framed and notified by the Central Government; (vii) "Software Technology Park" means any part set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry; (ix) "Substantial Expansion" means increase 'in the investment in the plant and machinery by at least fifty percent of the book value of plant and machinery (before taking depreciation in any year), as on the first day of previous year in which the substantial expansion is undertaken; (x) "Theme Park" means such park, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government." 15. In the course of the appeal proceedings, the appellant also submitted a copy of the number 177/2004 (S0741)(F. No: 142/47/2003-TPL) dated 28.06.2004 issued by the Central Board of Direct Taxes which notified the khasra numbers in respect of tehsils or sub-tehsils in the state of Uttranchal, as industrial estates or industrial areas designated for the purpose of section 80IC. The appellant‟s unit is situated in khasra no. 1388 in Charba, Langha Road, Ghamoli, Vikas Nagar which is a notified khasra no. and is therefore the profits derived from these units are eligible for deduction u/s 80 IC of the Act. Besides the above, the appellant also submitted copies of the following documents to substantiate its claim u/s 80IC of the Act. "1. Copy of Form 1-A (Water), issued by Uttaranchal Environment Protection and Pollution Control Board, Dehradun, "Consent Seeking form". 2. Copy of Form No. 298 issued by General Manager, District Industries Centre, Dehradun, showing the commencement of manufacturing activities w.e.f. 25.2.2008, from Khasra No. 1388, Industrial Area Langha Road, Charba

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) Dehradunn, for manufacturing of item "Tailoring / Assembling Textile Made-upsi Camouflage Net". 3. Copy of PART II, Form for setting up a Micro, Small or Medium Enterprise, submitted to General Manager, District Industries Centre,, Dehradun, showing the product to be manufactured "Camouflage Net" and various other items. 4. Copy of letter dated 8.4.2009 submitted to the Commissioner, Customs & Central Excise, Meerut-1, Mangal Pandey Nagar, Meerut, for filing of Quarterly Return in terms of Notification No. 3/2008-CE(NT) dated 18.1.2008. 5. Copies of Electrical bills for Electric connection installed at Langha Road, Unit of the appellant. 6. Copy of letter issued by Office of the Superintendent, Central Excise Range, Dehradun, certifying the exemption availed by the unit of the assessee located at Khasra No. 1388, Langha Road, Industriat Area, Charba, Dehradun, engaged in manufacture and clearances of "PVC Pregarnished Anti Ilf Camouflage Net with Superstructure (Army Camouflage Tent with Support System of PVC Poles) etc." 7. Copy of Notification No 50/2003CE dated 10.6.2003."

15.1 In addition to the above, the appellant also submitted the copies of the bills issued by M/s. KB Singh Enterprises Security for supply of labour on contractual basis to the appellant at her factory at 1388, Langha Road, Tehsil Vikas Nagar, Distt. Dehradun during the year under consideration. Evidence of tax deducted at source from time to time on the payment made to M/s. KB Singh Enterprises Security, confirmation of account from M/s. KB Singh Enterprises showing that the payments were made through cheques other than a nominal payment of Rs.60,000/- in cash was furnished by the appellant. Copies of the transport documents for transport of raw materials purchased to Dehradun and bills for transport of finished manufactured goods from Dehradun which were sold were furnished. Copies of corresponding purchase and sale bills which bears the stamp of the govt, agencies justify the transportation of raw material and finished goods. After examining all the above evidences brought on record by the appellant, the Assessing Officer did not rebut anyone of them in his remand report, rather the Assessing Officer himself admitted that the items procured by the appellant as raw material and sold by the appellant as a finished product were different which substantially prove that the appellant carried on the manufacturing activities during the year under

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) consideration from her factory located at khasra no. 1388, Langha Road, Industrial Area, Charbha, Vikas Nagar, Dehradun. 15.2 On perusal of the above evidences, material on record, it is found that the appellant is engaged in the manufacture of “PVC Pre Garnished Anti IR Camouflage Net”. For this purpose, the appellant purchased different raw materials from various sellers and then manufactured them in the factory located in Dehradun, Uttranchal. In support of such activity, the appellant submitted purchase bills, transport bills, bills for labour deployed and other related documents. On perusal of these bills, it is noted that various items like coated polyster nets, pigments (chemicals), coated polyster fabrics, PVC Pipes, washers, tag pin, cotton yarn (thread), plastic fittings etc are the raw materials used in manufacturing of PVC Pre Garnished Anti IR Camouflage Net. The appellant also furnished a flow chart showing the various stages of manufacturing which was placed on record but the Assessing Officer did not appreciate and consider it. He has not brought on record any reason as to why he was rejecting the manufacturing activity undertaken by the appellant. There was no comment by the Assessing Officer on the process undertaken by the appellant regarding the manufacturing of camouflage net. 15.3 “Manufacture” is defined as an “organized activities of making of goods and services for sale". It is “the act of making something (a product) from raw material”, put together. Collins dictionary defines manufacture as “assemble, build, compose, construct, create, fabricate, forge, form, make, mass-production, mould, produce, process, put together, shape, tune out etc.” Manufacture‟ or „production‟ or „process‟ have different meanings and are to be read in an ordinary meaning but they convey broader sense. “Manufacturing” of goods normally involves a creation of something (e.g. making or assembling machines, clothing etc.) or the shaping, stamping or forming of an object out of something (e.g. steel rails, wire rails, wood moldings etc). Production means the process and methods employed to transform tangible inputs (ideas, information and knowledge) into goods and services. Processing of goods usually refers to a technique of preparation, handling or other activity designed to effect a physical or a chemical change in an article or substance other than natural growth for e.g. galvanizing iron, creosoting fence posts, dehydrating foods, homogenizing and pasteurizing dairy products etc. In all the above processes, the end product is entirely different from the raw- material used. In view of the above discussion that the product is different from the raw material, it is seen that the manufacturing of “PVC Pre Page | 21

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) Garnished Anti IR Camouflage Net” falls under the definition of "manufacture" or "production". The Assessing Officer has made an incorrect observation regarding the activity undertaken by the appellant. He also did not bring any adverse material on record contrary to that of the appellant and formed an opinion without any basis to substantiate his view. The Assessing Officer did not point out any discrepancies in the different stages of flow chart submitted by the appellant to state that she was not engaged in the manufacture of PVC Pre Garnished Anti IR Camouflage Net. In the absence of any such finding or reason, it is unjustified to deny the business activity undertaken by the appellant. 15.5 In the course of the appeal proceedings, on perusal of the flow chart, it is seen that it clearly explained the procedure and the final product manufactured by the appellant. In the order, the Assessing Officer had stated that the appellant was not having sufficient machinery for undertaking any manufacturing but from the flow chart and the procedures demonstrated by the appellant during the course of the appellate proceedings, it is evident that the manufacturing activity undertaken by the appellant was mostly manual and did not require much of a machinery as it involved activity like coating of the pigments, tailoring and seaming of the edges where the membrane and the camouflage nets were combined and thereafter which was made to a single product, flame retardant and stated to be additionally coated with an infra red camouflage colour. It was stated that these processes were imminent in order to avoid not only detection by the radar and thermal imaging but also against the reduction in near infra red region. After going through the detailed manufacturing process, in my opinion this kind of manufacturing activity is a layered process as they are particularly used by armed forces to conceal equipment and personnel, which enable them to blend with their surroundings. On the demonstration of the product in the course of the appeal proceedings, I find that the coated fabric is incised to create a three dimensional leafy effect to create a look of a vegetation form, from a thread distance as a complete cover. It was stated that chemicals are applied on this fabric which is called membrane for anti radar reflecting and absorbing properties. It was also explained to me that these nets may also comprise low emissivity fabric which may be strategically placed to cover hot areas of a concealed object in order to produce a multi spectral camouflage system. The membrane material is a fabric coated with laminated synthetic materials or polyster coated with polyvinyl chloride. The appellant is using polyster coated with polyvinyl chloride (PVC) as its membrane raw material. Therefore from this process, it is understood that manual labour was deployed in the process of tailoring and seaming with a chemical binder. The manual labour which was deployed by Page | 22

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) M/s. KB Singh Enterprises Security was paid through the banking channel. It is also understood that the manufacturing activity of the appellant does not involve a detailed procedure of manufacturing of a final product from raw material and it is a mostly labour oriented work. 15.6 The above evidences placed on record clearly show that the appellant was well within the norms that make her eligible to claim deduction u/s 80IC. The Assessing Officer did not bring on record any adverse material to deny the claim of the appellant. He has not issued summons u/s 131 of the IT Act, 1961 or issued a commission to enquire about the appellant‟s manufacturing activity at Dehradun. In the absence of any such finding, it is unjustified to disallow the claim of the appellant u/s 80IC. In my considered opinion, the appellant is running a unit in a notified area which is approved and periodically inspected by the various government agencies like Industries Department, Central Excise Department etc. The appellant periodically is filing the returns to the Central Excise Department regarding this manufacturing activity, a sample of the same placed on record. These agencies did not point out any irregularities or discrepancies regarding the appellant‟s business activity, instead affirmed the existence of a new unit where the appellant is manufacturing PVC Pre Garnished Anti IR Camouflage Net. It is also a point to mention that the Assessing Officer checked the books of accounts of the appellant in the remand proceedings but he did not point out any defect or discrepancy which can be said of a nature to rebut the claim of the appellant. 15.7 There are certain basic conditions to be fulfilled for the allow ability of deduction u/s 80IC of the IT Act, 1961. Section 80IC(2)(a)(ii) is applicable in the appellant‟s case. According to the, this provision, the undertaking or an enterprise should be engaged in the manufacture or produce an article or thing not specified in the Thirteenth Schedule, if the manufacturing work is done in the area notified under the scheme. The appellant‟s unit is situated in Industrial area notified in the state of Uttaranchal and appellant is engaged in the manufacturing of “PVC Pregarnished Anti IR Camouflage Net” which is not an item of Schedule 13 or 14 of the Income Tax Act. 15.8 For claiming the deduction u/s 80IC there are certain other conditions stipulated to be satisfied under the IT Act, 1961. "a) The return of the income should be furnished u/s 80IC within the time limit specified u/s 139(1) of the IT Act, 1961. The appellant filed his return u/s 139(1) on 30.9.2009 which is well within time,

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) b) The accounts of the enterprise or an undertaking should be audited by the Chartered Accountant for relevant year on which the deduction is claimed. The audit report in Form 10CCB certified by the CA should be furnished along with the return and duly signed by the Chartered Accountant. The appellant submitted both these documents during assessment proceedings and have also placed the same in the paper book. They are in form 3CB u/s 44AB and in form 10CCB u/s 80IC duly signed by the Chartered Accountant. c) The undertaking should be new and should not be formed by splitting up or reconstruction of an existing business. This fact is affirmed by the certificate issued by member secretary, department of Industries, which stated that the unit is a “new industrial undertaking" and commenced its commercial production w.e.f. 4.2.2008. Besides, this electrical installation approval dated 12.2.2008, given by the Executive Engineer, Electricity Distribution „Divison (R), U.P.C.L. Dehradun, amply shows that it is a new unit. d) The industrial undertaking should be setup in certain special category of states. The appellant set up his unit at Khasra No. 1388, Langha Road,Charba, Dehradun, which is a notified area as per the notification issued and published in Gazette of India. e) The industrial undertaking should manufacture/produce specified goods. The appellant is producing “PVC Pregarnished Anti IR Camouflage Net" which is not covered under Schedule 13 of the Income Tax Act." 16. To sum up in the present case, it is seen that the appellant‟s new unit is set up in a notified industrial area of Uttranchal and commenced production with effect from 25.02.2008 which has been certified by the department of Industries, Govt, of Uttranchal. The appellant has filed her return of income within the specified time limit u/s 139(1) of the IT Act, 1961 i.e. 30.09.2009. The appellant submitted an audit report in Form 3CB u/s 44AB of the IT Act, 1961. This audit report is also supported by an audit report u/s 80IC in Form 10CCB duly signed by the Chartered Accountant. Flowever, the Assessing Officer, some how doubted the claim of the appellant u/s 80IC and did not consider any of the submissions made by the appellant in support of her case and simply without any cogent reason denied the claim. An assessment cannot be based on surmises and the Assessing Officer has not brought on record any adverse material contrary to that of the appellant to say that the appellant's claim u/s 80IC was not genuine. Without giving Page | 24

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) any such finding, denial of the claim of the appellant is not warranted. The appellant also cited many case laws delivered by the Flon‟ble Supreme Court and Hon‟ble Delhi High Court and also by various benches of Delhi ITAT where the judicial decisions are in the favour of the appellant. In view of the above discussions and on the basis of the material available on record and also relying on various judicial decisions, I hold that the appellant‟s claim for deduction u/s 80IC is valid and correct. Therefore, the Assessing Officer is directed to pass a consequential order accepting the claim of the appellant and allow deduction u/s 80IC (2)(a)(ii) as per law. In the result, the above grounds no. 1(a), (b), (c), (d), (i) and (j) of the appeal are decided in favour of the appellant.”

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) sales made by the appellant to M/s. Trimurti is Rs. 14.53 crores and that party sold the same goods to the Delhi Unit of the assessee for Rs. 16.55 crores. The claim of the assessee was that the said party was engaged in several services such as procuring the order and Liasoning with defense department. It was further explained that if the services of that party had not been availed, assessee would not have got this supply contract. Even otherwise, if the sale price is taken at Rs. 16.55 crores then the full profit would have been tax free u/s 80IC of the Act. The ld AO rejected the contention and made an addition of Rs. 20265026/- in the hands of the assessee. 13. Before the ld CIT(A) assessee reiterated the same submissions. The ld AO submitted a remand report in detail to which the assessee submitted a rejoinder and the ld CIT(A) deleted the addition vide para No. 28 of the order. 14. The revenue agitated this ground before us and reiterated what is stated in the order of the ld Assessing Officer and in the remand report. 15. The ld AR vehemently supported the order of the ld CIT(A). 16. We have carefully considered the rival contentions. The ld CIT(A) in para No. 25.1 to 28 as under:- “25. Ground no. 1(g) relates to the addition of Rs.2,02,65,206/-. 25.1 In this ground appellant has challenged the action of A.O in making addition of Rs. 2,02,65,206/- on account of suppression of profits made through transactions with M/S Trimurti Petrochemical Allied & Services Pvt. Ltd. In the course of the assessment proceedings, the A.O observed that the appellant‟s Dehradun unit sold finished PVC pre¬garnished Anti IR Camouflage Net with superstructure size. 11x11 and 4 1/2 x4 1/2 to M/s. Trimurti Petrochemical Allied & Services Pvt. Ltd. at the rate of Rs. 30,500/- & Rs.8,750/- per net respectively and again purchased the same at much higher rate in her Delhi unit thereby booking an inflated purchases of Rs. 2.02 crores. 25.2 In response to the query made by the Assessing Officer, the appellant submitted that the total sales made by the appellant to M/s Trimurti Petrochemical Allied & Services Pvt. Ltd. was Rs. 14.53 crores and M/s Trimurti Petrochemical Allied & Services Pvt. Ltd. sold the goods to Delhi unit for Rs. 16.55 crores. The appellant stated that there was no avoidance of tax as M/s Trimurti Petro chemical allied & Services Pvt. Ltd. Page | 26

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) was instrumental in rendering various activities and services to the appellant, such as procuring of the order from Defence department, liasoning and finally getting the goods approved at Delhi by way of inspection. It was explained that if the services of M/s. Trimurti Petrochemical Allied & Services Pvt. Ltd. would not have been availed, the appellant would have suffered a great loss by way of rejection of goods. The appellant further submitted that had the goods would have been sold at Rs. 16.55 crores than the profit earned would also been tax free in the hands of the appellant since the same would have arrived to the appellant being earned from the exempted unit and in any case there was no loss to revenue as M/s Trimurti Petrochemical Allied & Services Pvt. Ltd. had paid Tax on Income earned by them in these transactions for amounting to Rs. 16,68,000/-. 25.3 The A.O asked the appellant to justify the involvement of M/s. Trimurti Petro chemical allied & Services Pvt. Ltd. In reply to the same, the appellant submitted before the A.O that there was no direct evidence for such services rendered by M/s Trimurti Petrochemical Allied & Services Pvt. Ltd. and stated that the appellant would file an affidavit from M/s. Trimurti Petrochemical Allied & Services Pvt. Ltd. to support the services rendered by them, if required. The appellant also requested the Assessing Officer to summon the directors of the said Company in case of any doubt as there was no malafide intention on the appellant to reduce the taxable income and if there would be any intention to avoid any tax this transaction would not have been taken place. However the Assessing Officer did not believe the submission made by the appellant and made the impugned addition of Rs. 2,02,65,026/- (Rs. 16,55,86,576-14,53,21,550) being the difference between purchases shown at Delhi office and sales made from Dehradun office. According to Assessing Officer, the appellant could have at the best paid commission for any such service rendered by such M/s Trimurti Petrochemical Allied & Services Pvt. Ltd. 26. In the remand report submitted A.O stated as under. "7. Addition of Rs.2,02,65,206/- on account of suppression of profit made through sham transaction in conigence with Trimurti Petrochemical Allied & Services Pvt. ltd. 7.1 During the course of assessment proceeding, the AO observed that the assessee's Dehradun Unit sold finished „PVC Pregarnished Anti I.R. Camouflage Net, with 'Super Structure' of size 11x11 and 4 14 x4x

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) to M/s Trimurti Petrochemicals & Alied Services Pvt. Ltd. @ Rs.30,500/- and Rs.8,750/- per net respectively and again purchased the same at a higher rate. The AO noted that the Dehradun Unit of assessee has made total sales of Rs.14,53,21,550/- to Trimurti Petrochemicals & Allied Services Pvt. Ltd. which is again being purchased by Delhi Unit of assessee for a sum of Rs.16,55,86,576/- from M/s Trimurti Petro Chemicals & Alied Services Pvt. Ltd. Thus, the AO held that the assessee has indulged in the sham/colorable transaction to reduce its income by the amount of Rs.2,02,65,026/- (Rs.16,55,86,576/- - Rs.14,53,21,550/-] and make the addition as over invoice purchase by the Delhi unit. 7.2 Vide present submission, the assessee has contended that her Dehradun Unit is entitled to claim deduction U/s 80IC equal to 100% of its profit for the entire sale of Rs.14,53,21,550/- to M/s Trimurti Petrochemicals & Alied Services Pvt. Ltd. which has again being purchased by Delhi Unit from Trimurti at Rs.16,55,86,576/-. The contention of the assessee is that even if the sale was directly made to the Ordinance Factories by assessee's Dehradun Unit, then the entire profit would have been qualified for deduction U/s 80-IC. The assessee further claimed that by routing the transaction though Trimurti Petrochemicals & Alied Services Pvt. ltd., the assessee has infact not gained any tax benefit. 7.3 I have examined the above submission of assessee and also verified the facts of the case/evidences now furnished. The sale of'PVC Pregarnished Anti I.R. Camouflage Net' with 'Super Structure' Size 11x11 and 4 x 4 x Vz to M/s Trimurti Petrochemicals & Alied Services Pvt. Ltd. @ Rs.30,500/- and Rs.8,750/- per net respectively is undisputed. Similarly, the value of purchases by assessee's Delhi Unit is also undisputed. The assessee has now furnished copy of audited balance sheet & P&L A/c of M/s Trimurti Petrochemicals & Alied Services Pvt. Ltd. (at page 867 & 868) according to which, the company has made purchases of Rs.13,98,77,173/-. It has also been observed that in the year under consideration, M/s T^ivYi11K+,' rhomimh & Alied Services Pvt. Ltd. has made total sales of Rs.16,04,52,850/-. To verify the contention of assessee, quantitative details of sale made by Superior Fabric Dehradun and purchases made by Superior Fabrics Delhi Unit during the year under consideration was looked into. Following is the abstract of quantitative details of sale & purchase by both the units:- Details of sales of Dehradun Unit for the F.Y. 2008-09 A.Y. 2009-10 Item name Quantity Rate Amount Camouflage net (Big) 4012 30500 122366000 Page | 28

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) Camouflage net (Small) 1843 8750 16126250 138492250 Debit notes 6793500 5855 Scrap sales 35800 Total sales 145321550 Details of purchases of Delhi Unit for the F.Y. 2008-09 A.Y. 2009-10 Item name Quantity Rate Amount Camouflage net (Big) 4529 31730 143705170 Camouflage net (Small) 1840 9102 16747680 160452850 Gloves 1600 375 600000 Other purchases 15726 Winter overall 2510 1800 4518000 4518000 Total purchases 165586576

The AO has worked out the difference of Rs.2,02,65,026/- after deducting the value of sale made by Dehradun Unit from the value of purchases made by Delhi Unit. Now, if we see the above table, then the value of sales made by Dehradun Unit to Trimurti Petrochemicals & Alied Services Pvt. Ltd. comes to Rs.13,84,92,250/-. It can however be seen that the Delhi unit of assessee's concern has made purchases of more quantity than sold by its Dehradun Unit. 7.4 Following is the working of inflated purchase for the quantity sold by Dehradun Unit. Item name Quantity Rate sold Amount of sale Quantity Rate Amount of value purchase sold purchased purchased value Camouflage net 4012 30500 122366000 4012 31730 127300760 (Big) Camouflage net 1843 8750 16126250 1843 9102 16774986 (Small) Total 5855 138492250 5855 144075746

According to above, the Delhi unit of assessee has made purchases of5855 Camouflage net (Big & Small sizes) for Rs.14,40,75,746/- which infact was sold for a sum of Rs.13,84,92,250/-. It is important to point out that there is no dispute on the fact the transaction has been routed through M/s Trimurti Petrochemicals & Alied Services Pvt. Ltd. and excess cost of Rs.55,83,496/- (Rs.14,40,75,746/- - Rs.13,84,92,250/-) has been incurred in routing the transaction. Thus, undoubtedly through this sham transaction, the assessee has reduced profit to the extent of Rs.55,83,496/- and it is requested that addition to this exent may kindly be confirmed.

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) 7.5 There is another issue for the remaining quantity which is as under:- Item name Quantity Rate sold Amount of Quantity Difference Rate Amount of sold by by ... sale value purchased purchased purchase

Dehradun Dehradun by by Delhi value for Unit Unit Dehradun Unit the Unit extra quantity Camouflage 4012 30500 122366000 4529 517 (4529- 31730 16404410 net (Big) 4012) Camouflage 1843 8750 16126250 1840 9102 net (Small) Total 5855 138492250 5855 16404410

Admittedly, the 517 pieces of camouflage net were sold by assessee in previous year to Trimurti Petrochemical Allied Services Ltd. and as such the cost pertaining to these pieces was also booked in A.Y. 2008-09 but it is also true that the assessee has paid extra amount on re-purchase of additional 517 Camouflage Net of big size from Trimurti Petrochemical Allied Services Ltd. The difference for this quantity comes to Rs.6,35,910/- (Rs.31,730/- - Rs.30,500/- = Rs.l,230/-x 517) which is also covered under inflated cost/ sham transaction. To this extent, the addition made by AO is further correct and may kindly be upheld." 27. In the course of the appeal proceedings, the appellant submitted as under: "Ld. A.O. made addition of Rs. 2,02,65,206/- to the income of Delhi unit (Para-4 at Page 30-36 of the assessment order) on the ground that purchases have been inflated by the said amount. According to Ld. A.O., appellant in her Delhi Unit purchased the same product from M/s Trimurti Petro Chemical Allied Services P. Ltd. for Rs. 16,55,86,576/- whereas the said purchases were made by M/s Trimurti Petro Chemical Allied Services P. Ltd. from appellant's Dehradun unit only, for Rs. 14,53,21,550/-. Thus, Ld. A.O. held that the excess purchase price i.e. Rs. 2,02,65,206/- (16,55,86,576/-14,53,21,550/-) was the excessive expenditure claimed by Delhi Unit. It is respectfully submitted that Dehradun Unit of the appellant which is entitled to claim deduction u/s 80IC equal to the 100% of its profits, sold the product namely Camoufage Net for an Page | 30

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) aggregate amount of Rs. 14,53,21,550/- to M/s Trimurti Petro Chemical Allied Services P. Ltd., which in turn were purchased by Delhi unit of the appellant from M/s Trimurti Petro Chemical Allied Services P. Ltd. at Rs. 16,55,86,576/-. There is no loss to the revenue in this transaction. In fact, Had the sales been made directly from Dehradun Unit at Rs. 16,55,86,576/-, entire profits would had qualified for deduction u/s 80IC. In fact, there was immense contribution by M/s Trimurti Petro Chemical Allied Services P. Ltd. in terms of various activities and services rendered by M/s Trimurti Petro Chemical Allied Services P. Ltd. such as help in producing orders from Defense Department, licensing and getting the goods approved by way of inspection at Delhi. It was explained to Ld. A.O. vide letter dated 15.12.2011 (PB 606-608) that but for the valuable contribution of M/s Trimurti Petro Chemical Allied Services P. Ltd., the goods could not have been approved and assessee would have been put into a great loss. It was also requested to Ld. A.O. vide letter dated 19.12.2011 (PB 621-625) that appellant is in no way connected with M/s Trimurti Petro Chemical Allied Services P. Ltd. and having furnished the names and address of the directors of M/s Trimurti Petro Chemical Allied Services P. Ltd., it was requested to Ld. A.O. that summons be issued to these two directors and their statements may please be recorded. It was also explained to Ld. AO that the said amount has been offered as income in the income tax return by M/s Trimurti Petro Chemical Allied Services P. Ltd. placed at PB 861. Therefore, when there is no tax benefit available to the appellant in this transaction, no motive can be attributed to the assessee. Rather it is the assessee which has lost in terms of tax advantage by entering into transaction with M/s Trimurti Petro Chemical Allied Services P. Ltd. But that was a business expedient decision, given the contribution of M/s Trimurti Petro Chemical Allied Services P. Ltd., in the development of the appellant's business. It is quite strange that when appellant made request to Ld. A.O. to get this fact verified from M/s Trimurti Petro Chemical Allied Services P. Ltd. and its directors, its request was not acted upon and yet adverse inference was drawn by Ld. A.O. Therefore having regard to the pleadings made and evidences adduced by the appellant, it is prayed that the addition made by Ld. A.O. to the profits of Delhi Unit may please be deleted. In the rejoinder submitted, Appellant submitted that A.O himself admitted that addition should be restricted to Rs.55,83,496/- and Rs.6,35,910/- instead ofRs. 2,02,65,206/-. However the appellant stressed on the submissions made and stated that if these nets were sold directly to the Defence its profit of Dehradun unit would have been larger and routing the sale through M/s Trimurti Page | 31

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) Petrochemical Allied and Services Pvt. Ltd. does not have any consequences. Appellant further stated thatA.O's contention of the addition ofRs. 6,35,910/- is misplaced." 28. I have considered submissions made by the appellant, Assessing Officer's report and the appellant's rejoinder thereto and also perused the assessment order dated 22.12.2011. There is no doubt that if the sales were made directly from the appellant‟s Dehradun unit to Defence there would have been a larger profit to Dehradun unit and that would be with no tax effect. Therefore the appellant is not benefitted in any manner by making a sale to M/s Trimurti Petrochemical Allied & Services Pvt. Ltd. and purchasing the same again at her Delhi office to make a sale to Defence since the appellant was to make supplies to Defence directly. I have also seen that M/s Trimurti Petrochemical Allied & Services Pvt. Ltd. had paid tax on the income earned from these transactions. In fact, there was no loss to revenue and there was no direct benefit to the appellant in any manner. Therefore I do not find any reason to sustain the addition either of Rs.2.02 cr. as made by the Assessing Officer in the impugned Assessment order or to restrict the addition to the extent of Rs.55,83,496/- and Rs.6,35,910/- as suggested by the Assessing Officer in Remand Report. As the appellant had shown the sales of what has been manufactured by her from Dehradun unit to M/s Trimurti Petrochemical Allied & Services Pvt. Ltd. and any sales made in the earlier year has no relevancy to consider the same in the year under consideration. Similarly the purchases made by Delhi unit is also not disturbed as the purchases made by Delhi unit from M/s Trimurti Petrochemical Allied & Services Pvt. Ltd. was sold to Delhi unit which include their opening stock. In view of the above observations, the addition of Rs.2.02 crores is hereby deleted.

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) order of ld CIT(A) in deleting the above addition wholly. In the result ground No. 3 of the appeal of the revenue is dismissed. 18. Accordingly, appeal filed by the revenue is dismissed. 19. Now we come to the cross objection filed by the assessee wherein, the first ground relates to the disallowance u/s 40a(ia) of Rs. 1185685/-. The brief facts of the issue has been discussed by the ld CIT(A) in para No. 17 to 20 as under:- “17. Ground no. 1(e) pertains to the disallowance of job work charges and addition of Rs.20,76,210/-. 17.1 In the course of the assessment proceedings, the Assessing Officer observed that the appellant paid a sum of Rs.20,76,210/- to M/s. KP Singh Enterprises Security for which the TDS was deducted but deposited only in June 2009 and hence liable for disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 except for the month of March, 2008. Further, since the bills were raised in the name of the company, M/s. Superior Fabrics Pvt. Ltd. and the appellant paid the amount as a Director of the said company and that the expenses pertained to the company M/s. Superior Fabrics Ltd. the Assessing Officer observed that the expense did not relate to the appellant and therefore he disallowed the claim of expenses of Rs.20,76,210/-. 18. In the remand report, the Assessing Officer submitted as under. "5.1 During the course of assessment proceeding, the AO has observed that the assessee has paid a sum of Rs.20,76,219/- to M/s K.B. Singh Enterprises Security on which tax at source has been deducted but deposited in June, 2009. Vide present submission, the assessee has claimed that as the tax has been deposited in June, 2009 i.e. before the due date or filing of return, disallowance U/s 40(a)(ia) was not called for. 5.2 Kind attention is invited to the provision of section 40(a)(ia], according to which any sum on which tax is deductible / deducted and is not paid upto the prescribed date is disallowable. The relevant clause (ia) of section 40(a) of the Income-tax Act, 1961 is reproduced below:- (ia) Any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under chapter XVII-B and Page | 33

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) such tax has not been deducted or after deduction, has not been paid- (A) In a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or. (B) In any other case, on or before the last day of the previous year. Perusal of the above shows that in cases where amount has been credited/paid upto February, 2009, the amount of TDS was required to be deposited by the end of the F.Y. i.e. 31.03.2009.4s per the copy of TDS return furnished by assessee as additional evidence / paper book at page 751 to 755, only an amount of Rs.8,56,815/- has been paid / credited on 31.03.2009 to M/s K.B. Singh Enterprises Security and as such in accordance to sub-clause (A) of clause (ia) of section 40(a), the benefit for payment /deposit of tax by due date can only be given to the extent of this amount. 4s per the documents at page No.752 to 755, the assessee has made payment/credited the amount of Rs.11,58,685/- before 28th February, 2009 and has paid / deposited the tax in the month of June, 2009, no benefit for deposit of tax by due date can be given in accordance to sub-clause (B) of clause (ia) of section 40(a) of the Income-tax Act, 1961. It is also a matter of record that the assessee has not submitted (in the present submission) the date of payment / credit for the remaining amount and as such, the AO has rightly invoked the provision of section 40(a)(ia). However, the assessee can be given benefit to the extent of Rs.8,56,815/- only. The Id. A/R in course of verification proceeding contended that even if the disallowance of Rs. 1.58 lacs is to be made in Dehradun Unit's income, the same will be tax neutral since the entire income is exempt U/s 80IC. However, this plea of assessee is not a justification for allowing any expenditure which is otherwise liable to be disallowed in accordance to the provision of the Income-tax Act, 1961. 5.3 The AO also observed that since the bills were not raised in the name of assessee‟s proprietorship concern, rather have been found to be issued in the name of Superior Fabrics Pvt. Ltd., the expenses of third party is not allowable. To this, the assessee claims that the entire paytment have been made through account payee cheque and as such, the disallowance is not called for. In this regard, it is submitted that the assessee has annexed copies of bills at page No.288 to 298 perusal of which reveals that only a bill dated 01.06.2008 amounting to Rs.2,81,700/- has been raised in the name of Superior Farbics Dehradun and all other bills pertain to Page | 34

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) M/s Superior Fabrics Pvt. Ltd. Thus, the observation of AO is not contradicted by the present evidence. The assessee has though also furnished a clarificatory letter issued by K.B. Singh Enterprises Security (at page 756) according to which, the name of Superior Fabrics Pvt. Ltd. is stated to be inadvertently mentioned. However, this document does not prove that labourrers were actually supplied and has also worked in the Dehradun Unit of assessee and not in Superior Fabrics Pvt. Ltd. which is also situated in Dehradun (as per copy of bills filed in paper book). In view of this, the AO has rightly disallowed the expenses and it is requested that the entire addition should be confirmed U/s 37(1) of the Income-tax Act, 1961." 19. In the course of the appeal proceedings, the AR of the appellant filed the following submissions. "Ld. A.O. has disallowed job work charges of Rs. 20,76,210/- (vide Para—3 at Page—29 of the assessment order) on the ground that the said expenses represents security charges paid to M/s. K.B Enterprises on which though the tax was deducted but the same was deposited in June, 2009 and also that the bills were raised not in the name of the assessee i.e. M/s Superior Fabrics but issued in the name of M/s Superior Fabrics P. Ltd. First, it is submitted that TDS deposited in June, 2009 i.e. before the due date of filing of return does not give rise to disallowance u/s 40(a)(ia) as held in the following judicial decisions:- • CIT vs. Virgin Creations (Cal)(HC) • Alpha Projects vs. DCIT IT A 2869/Ahd/2011 dated 23.3.2012 • Raja Mahendri Shippping & Oil Field Services Ltd. vs. Addl. CIT ITA 352/vizag/2008 dated 13.4.2012 • Piyush C. Mehta vs. ACIT ITA 1321/Mum/2009 dated 11.4.2012 Moreover, name of the assessee's proprietary concern was wrongly mentioned by the supplier M/s K.B. Singh Enterprises and it was requested to Ld. A.O. vide letter dated 05-12-2012 at PB 278-286 to summon him for clarification but the request of the assessee was not complied with and adverse inference was drawn on that basis. Enclosed in the paper book at PB 478-577 is letter dated 08.12.2011 in which it was submitted that bills of M/s KB Singh Enterprises were paid by account payee cheques (PB 234) issued from the head office at Delhi. Therefore, the disallowance was made by Ld. AO without any basis and it is requested that the disallowance may please be deleted." Page | 35

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) In the rejoinder submitted appellant further stated that as per the case laws mentioned, assessee is entitled for the deduction of entire amount. The AO has not disputed that the payments have been made to M/s. K.B. Singh Enterprises vide account payee cheques and that no summons was issued to the supplier for seeking all clarifications." 20. I have examined the details filed by the appellant and perused the assessment order, remand report of the Assessing Officer and considered the submissions made by the appellant and the rejoinder to the remand report. I have also examined the various evidences discussed by the Assessing Officer and the appellant with regard to the bills issued by M/s. KB Singh Enterprises Security in the name of M/s. Superior Fabrics Pvt. Ltd. On perusal of the material on record, I find that though the name was mentioned as M/s. Superior Fabrics Pvt. Ltd., the address mentioned on the bill was 1388, Langha Road, Industrial Area, Dehradun, Uttranchal. It seems that the Assessing Officer did not appreciate the probability of a mistake and ignored this fact totally. Moreover it is not the case of the Assessing Officer that M/s. Superior Fabrics Pvt. Ltd. is also working from the above said address whereas infact the appellant‟s unit is Superior Fabrics which only functions from the said address. The appellant furnished a copy of the ledger account of M/s. KB Enterprise Security for the period 01.04.2008 to 31.03.2009 which show that the bills were credited and the amount was paid to them. It was observed by the Assessing Officer that where the amount has been credited/paid upto February, 2009, the amount of TDS was required to be deposited by the end of financial year i.e. 31.03.2009. Fie stated that as per the TDS return filed by the appellant , an amount of Rs.8,56,815/- has been paid/credited on 31.03.2009 to M/s. KB Singh Enterprises Security and as such in accordance to sub-clause A of clause (ia) of sec. 40(a), the benefit of payment deposit of tax by due date can only be given to the extent of this amount. The appellant credited/or made payment before 28.02.2009 for an amount of Rs. 11,58,685/- and deposited the tax in the month of June, 2009 and as such no benefit or deposit of tax can be given in accordance to sub-clause (B) of clause (ia) of section 40(a) of the Income Tax Act. 20.1 I have considered the facts of the case, the written submissions of the AR of the appellant and the findings of the Assessing Officer. I have also perused the case laws relied upon by the AR of the appellant. The Hon‟ble Special Bench of ITAT Mumbai has taken a contrary view in the case of Bharati Shipyard Limited vs. Deputy CIT (2011) 132 ITD 53 / 141 TTJ 129/13 taxmann.com 101 (Mum.). The Flon‟ble President of the ITAT Mumbai, on a reference made by a Division Bench, had constituted the Special Bench of three Members by posting the following question for their consideration and decision:

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) “"Whether on the facts and in the circumstances of the case, the amendment brought out by the Finance Act, 2010 to section 40(a)(ia) w.ef. 01.04.2010, is remedial and curative in nature and is, therefore, retrospective in nature." 20.2 The Hon‟ble Special Bench while answering the question posed before them in negative, in favour of the department and against the assessee, have held that the amendment brought out by the Finance Act, 2010 to section 40(a)(ia) with effect from 1.4.2010, is not remedial and curative in nature and therefore, the amendment carried out by the Finance Act, 2010 with retrospective effect from 1.4.2010 cannot be held to be retrospective from the assessment year 2005-06. Therefore, respectfully following the order of the Flon‟ble Mumbai Special Bench, I also hold that the said amendment to section 40(a)(ia) cannot be held to be retrospective with effect from 1.4.2005, the date on which section 40(a)(ia) has been inserted by the Finance (No.2) Act, 2004. Thus, the action of the Assessing Officer in making the impugned disallowance u/s 40(a)(ia) of the Income-tax Act, 1961 was justified. Accordingly, the addition of Rs.20,76,219/- made by the Assessing Officer is restricted to Rs. 11,85,685/- and direct the Assessing Officer to pass a consequential order accordingly.”

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) 23. The second ground of cross objection is with respect to the confirmation of disallowance of Rs. 315117/- u/s 14A of the Act. 24. Brief facts of the case shows that the ld Assessing Officer has recalculated the income of Ghaziabad Unit at Rs. 58382404/- against the loss shown by the assessee of Rs. 1977745/-. The ld Assessing Officer has held that interest income is chargeable to tax under the head income from other sources of Rs. 6780460/-. The ld AO further disallowed the above loss. On appeal before the ld CIT(A) the above issue is dealt with in para No. 33-36 as under:- “33. Ground No. 2 and 11 relates to the disallowance of expenses of Rs. 19,77,745/- incurred in Ghaziabad Unit. 33.1 in these grounds, the appellant has challenged the action of Assessing Officer in disallowing the loss of Rs. 19,77,745/- and further action of the Assessing Officer in calculating the income from Ghaziabad unit at Rs.5,83,82,404/-. In the course of the assessment proceedings, the Assessing Officer observed that the appellant had shown interest on FDR income as income from business and had shown a net profit of Rs.48,02,714/- . The profit of Rs. 48,02,714/- was worked out by the appellant in the Profit and Loss Account after considering the interest from FDRs and interest from saving bank account which amounted to Rs.67,80,460/-(67,38,618 + 41,842/-) and if this amount was excluded there would be a loss from the business of Rs. 19,77,745/-. Since the appellant failed to produce sale/ purchase register and any bills/ vouchers for the expense at Ghaziabad unit the Assessing Officer disallowed the loss of RS. 19,77,745/- and assessed income of Ghaziabad unit as under: - Income from business Nil (loss disallowed ) Income from Other Sources Rs. 67,80,459/- Unexplained liabilities Rs. 5,07,78,113/- Rs. 5.75.58.572/- Addition Income from House property (as shown in the computation) Rs. 8,23,832/- Rs. 5.83.82.404/-

Therefore, the Assessing Officer assessed the income from Ghaziabad unit in the above manner at Rs.5,83,82,404/-. Page | 38

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) 34. In the remand report, the Assessing Officer stated as under. "8. Disallowance of expenses of Rs.19,77,745/- incurred in Ghaziabad Unit 8.1 As per para '7' of the assessment order, the AO has disallowed the business expenditure debited in P&L A/c of assessee‟s Ghaziabad unit amounting to Rs.19,77,745/-. /4s per the P&L A/c of the Ghaziabad Unit, the assessee has brought over the gross profit of Rs.7,087/- on total turnover of Rs.16,84,630/-. Further, other income such as interest on FDR/Bank A/c and also rent have also been credited in P&L A/c and net profit of Rs.48,02,714/- has been shown. Since despite providing ample opportunities, the assessee did not produce evidences with regard to purchase/sale and also bills & vouchers for expenses at Ghaziabad Unit, the AO disallowed the entire expenses to the tune of Rs.19,77,745/-." 35. In the written submissions the appellant submitted that she had enclosed in the paper book, the registers, bills and vouchers and therefore the very basis for disallowance of Rs.19,77,745/- did not exist and prayed to be deleted. In the rejoinder the appellant reiterated that the disallowance made of Rs.19,77,745/- be deleted since the Assessing Officer mentioned that bills and vouchers in this regard are verifiable. With regard to the observations made in the remand report for disallowing the interest of Rs.25,17,394/-, the appellant stated that interest had been paid in respect of the borrowed funds used in Dehradun and Ghaziabad Units and the breakup of Rs.25,17,394/- was Rs. 19,20,389/- for Dehradun and Rs.5,97,005/- for Ghaziabad. The appellant submitted that the Dehradun unit was eligible for exemption under section 80IC and if the interest was disallowed it would enlarge the profit of 80IC which would have to be allowed. 35.1 The appellant further submitted that with regard to the observation made by the Assessing Officer in the remand report at para 8.7 and 8.8 the disallowance made u/s 14A at an aggregate amount of Rs. 8,72,137/- (i.e. Rs. 5,67,020/- as interest under rule 8D(2)(ii) and Rs. 3,05,117/- as the administrative expenses in terms of Rule 8D(2)(iii). Appellant submitted that since interest received was Rs. 67 lakhs which was far more than the interest paid of Rs. 25,17,394/- nothing should be taken out from the interest paid for the purpose of disallowance under section14A read with rule with rule 8D. 36. I have perused the assessment order and other details filed by the appellant. I have also considered the written submissions Page | 39

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) made by the appellant, remand report of the Assessing Officer and rejoinder filed by the appellant thereto. On perusal of the material on record, I find that the Assessing Officer had examined the bills and vouchers with complete books of accounts of the appellant and confirmed in the remand report that the expenses claimed by the appellant were verifiable. However, the Assessing Officer pointed out that substantial investment was made in shares and securities and tax free bonds which attracted the disallowance under section 14A read with rule 8D of the Income Tax Rules 1962. The Assessing Officer worked out the quantum of interest to be disallowed amounting to Rs. 5,67,020/- and administrative expenses of Rs. 3,05,117/-. On the contrary the appellant argued that no disallowance be made in respect of the interest which worked out amounting to Rs. 5,67,020/- as the appellant had paid an interest amounting to Rs. 25,17,394/- as against interest received and declared Rs. 67 lakhs which was far more than the interest paid of Rs. 25,17,394/- and more over the interest debited in P&L Ale was in respect of funds utilized for income earned from exempted unit of Dehradun. I find force in the argument of the appellant and as such no disallowance is made in respect of interest paid since the appellant paid interest of Rs. 25,17,394/- which included interest of Rs. 19,20,389/-. The balance interest debited by the appellant was in respect of Ghaziabad Unit. Assessee had also declared interest income in her Ghaziabad unit amounting to Rs. 67.80 lacs. In view of these fact no disallowance is attracted u/s 14A read with rule 8D(2)(ii). However, since the assessee is silent with regard to disallowance proposed by the Assessing Officer under rule 8D(2)(iii) amounting to Rs. 3,05,117/- and donation paid of Rs. 10,000/-, I therefore, restrict the addition made by the Assessing Officer to the extent of Rs. 3,05,117/- + Rs. 10,000/-, out of total addition made of Rs. 19,77,745/-. Therefore, the addition is restricted to the amount of Rs.3,15,117/- and direct the Assessing Officer to pass a consequential order accordingly.”

DCIT Vs. Deepti Agarwal, ITA No. 3609/Del/2013 & CO No. 234/Del/2013 (Assessment Year: 2009-10) disallowance of Rs. 305117/- as administrative expenses for earning exempt income and further Rs. 10000/- on account of donation expenditure which is not allowable. The ld Authorised Representative could not show us any infirmity in the order of the ld CIT(A) in restricting the above disallowance. In view of this the ground No. 2 of the appeal of the assessee is dismissed. 28. Ground No. 3 of the appeal was not pressed and ground No. 4 is general in nature hence, same are dismissed. 29. Accordingly, cross objection of the assessee is partly allowed. 30. In the result appeal of the revenue is dismissed and Cross objection of the assessee is partly allowed. Order pronounced in the open court on 23/04/2018. -Sd/- -Sd/- (H.S.SIDHU) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23/04/2018 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi