DCIT 7(2), MUMBAI vs. SIYARAM SILK MILLS LTD, MUMBAI

आदेश / O R D E R Per Sandeep Gosain, J. M.: These two appeals filed by the Revenue are against the order of learned Commissioner of Income Tax (Appeals)- 13, dated 24/08/2012 for Assessment Years 2009-10 & 2010-11 respectively.

hence we reproduce as lead grounds of appeal for A.Y. 2010-11 bearing as under:

(ii) The Learned CIT(A) has erred in law and on facts in not appreciating the fact that net profit from 80IB units were much higher than non 80IB units despite of the fact that the business was the same.

(iii) The Learned CIT(A) has erred in law and on facts in not appreciating that where income from exempted unit in respect of eligible business was higher than the normal profit in case of existing units, a burden of proof of very high order was cast on assessee to prove correctness of such profit and assesee failed to discharge this onus.

(iv) The ld. CIT(A)’s order is contrary in law and on facts and deserves to be set aside.” manufacture and marketing of fabrics, value added yarn, readymade garments and furnishing fabrics. The assessee has its manufacturing facilities at Tarapur, Silvassa, Daman and also markets its readymade Garments under the brand like Oexemberg, MSD and J Hampstead. During the year under consideration the assessee has claimed deduction u/s 80IB to extent of Rs.6,26,68,195/- and during the course of assessment proceeding it was found by the AO that certain disallowances were made on account of re-working of the eligible deduction u/s 80IB claim. Therefore, the AO asked the assessee to show cause as to why the same was also not been made in the year under consideration also. The assessee filed its detailed reply before the AO vide reply dated 03.01.2013 and 19.11.2012 in addition another additional reply vide letter dated 08.12.2011 was also furnished before the AO.

CIT(A) and the CIT(A) partly allowed the appeal.

Ground No. i,ii,iii:-

Since all the grounds raised by the revenue are inter-connected and inter- related therefore we thought it fit to dispose off the same through present common order.

6. We have noticed that the ld. CIT(A) has dealt with these grounds in para no. 2 and the operative portion of the said ground is reproduced below.

“I have considered the facts of the case. As explained above, the appellant had different manufacturing divisions and the divisions had different units. The profit earned form the some of the divisions/units were entitled for deduction u/s 80-IB of the act. In the year under consideration, the appellant had claimed deduction u/s 80-IB of the act at Rs.6,26,68,195/- on profits earned from eligible units. In earlier years also, the appellant was having eligible units entitled for deduction u/s 80IB of the Act on profits of eligible units. In assessment orders of earlier years i.e. from AY 2007-08 , 2008-09 and 2009-10,

5 /M/13 & 6713/M/12 (A.Y.10-11& 09-10) DCIT vs. M/s. Siyaram Silk Mills Ltd. the AO reworked out the profits of all units of the business and reallocated expenses to all the units consequently recalculating the profits eligible for deduction u/s 80-IB of the Act. In the assessment orders of the earlier years, the AO noted that the appellant's entire business as a whole was having certain percentage of profit. Such percentage of profit of whole business was applied by the AO on 80-IB eligible units/non-eligible units and thereby reworked out the profits of all units, allocating expenses to all units and thereby reworked out the profits of the 80-IB eligible units. By applying a fixed percentage of profit, the AO therefore, reduced the appellant's claim of deduction u/s 80-IB of the Act in the assessment order of earlier years.

On appeal filed by appellant for AY 2007-08,2008-09 & 2009-10, my predecessors i.e. CIT (A) have not approved AO's action of (i) applying fixed percentage of profit to all eligible/non-eligible units (ii) allocation of expenses made by AO to all units (iii) recalculation of profits of all units. In appeal orders of earlier years, the CIT (A) have not confirmed the AO's action of reducing the appellant's claim of deduction u/ s 80-IB of the Act.

Thus, this issue of reduction of appellant's claim of deduction ix] s 80- IB of the Act was also there in earlier years. I have perused the appeal orders of earlier years. In appeal order of A Y 2009-10, my predecessor has made a detailed discussion in respect of appellant's different units, profits of eligible/non-eligible units, overall percentage of net profit of business and percentage of high profit shown in 80-IB units, allocation of major expenses to different units, rejection of book result by the AO.

6 /M/13 & 6713/M/12 (A.Y.10-11& 09-10) DCIT vs. M/s. Siyaram Silk Mills Ltd. After making a detailed discussion, my predecessor in appeal order of AY 2009-10 held that "The facts of the case under consideration is identical to the preceding year i.e. AY 2007-08 and 2008-09, the issue has been dealt extensively by me and the order has been passed dated 22-10-2011 and 17-11-2012 respectively, therein the issue has been decided in favour of the company because of the following reasons."

In appeal order, my predecessor held that it cannot be said that the profit is transferred from one unit/division to other division by way of under or over invoicing. My predecessor further held that the profitability of eligible units had to be compared with similar divisions (manufacturing similar products/activities) and not with other units (manufacturing different products/carrying different activities) and by no stretch of imagination with the overall average profit of the whole company. My predecessor held that the AO erred in consolidating the overall profitability of all units together and applying average profit of whole company to all units without any adverse material on record is not maintainable. My predecessor further held that separate books of accounts of all the units have been maintained and therefore, AO's stand in consolidating the profits of whole company was therefore, incorrect and was based on conjectures, surmises and assumptions. My predecessor further held that without any material on record applying consolidating/average profit @ 1.83% of the gross receipts to all the units i.e. eligible 80-IB units/non-eligible 80-IB units is not maintainable. The reduction of deduction /l s 80-IB claimed by appellant at Rs.5.56 crores to Rs.1.39 crores by the AO was therefore, deleted by my predecessor in appeal order for A Y 2009-10.

The facts of the year under consideration are identical to those of earlier years. By following findings of earlier years' assessment order, in the year under consideration also the AO has reallocated the expenses to all units and thereby recalculating the profits of all units by applying the net profit rate of 4.57% to all units. Such net profit rate of 4.57% was percentage of profits of business as a whole and not of individual division/unit. By applying this percentage of profit of 4.57% the AO has reworked profits of the eligible units u/ s 80-IB of the Act. Such allocation of expenses/recalculation of profits CL."1d application of fixed net profit rate of 4.57% to all units by AO was on assumption basis only without pointing out any defect, error in the books of accounts of all units maintained separately. Without quoting any example, on assumption basis, the AO held that the transactions were not at arm's length between the associate enterprises. The AO has not explained as to how he was not satisfied about the correctness or completeness of the accounts of the appellant. The AO has also not given any finding that the method of accounting has not been regularly followed by the appellant. Since the AO did not point out any defect in the books of accounts, the AO was not justified in rejecting appellant's books of accounts by invoking provisions of section 145(3) of the Act. In my considered view, following the appeal orders of earlier years, there were no circumstances/facts attracting the application of provisions of section 145(3) of the Act. The AO's action of rejecting the books of accounts is therefore, disapproved.

Considering the above facts and circumstances and also considering that the facts of the year under consideration are identical to those of 8 /M/13 & 6713/M/12 (A.Y.10-11& 09-10) DCIT vs. M/s. Siyaram Silk Mills Ltd. earlier years, by following the appeal orders of earlier years, it is held that the AO was not justified in applying the net profit ratio of 4.57% to determine the profits of units eligible for deduction u ] s 80-IB of the Act. The AO's action of reducing the appellant's claim of deduction u /s 80-18 at Rs. 6,26,68,195 j- to Rs.1 ,32,12,000/ - is therefore, disapproved. Consequently, the disallowance made by AO on account of reducing the appellant's claim of 80-IB of the Act is deleted.

In the result, this ground of appeal is allowed.

Ground No. (iv) and (iv) are general in nature and needs no separate adjudication in view of above decision.

In the net result, the appeal filed by the revenue is dismissed.

9 /M/13 & 6713/M/12 (A.Y.10-11& 09-10) DCIT vs. M/s. Siyaram Silk Mills Ltd. ITA No. 6713/Mum/2012 (A.Y.2009-10): 5. Since, grounds in the present appeal are also similar to grounds raised by the revenue in (A.Y.-2010-11) wherein the findings are same therefore, based on our findings in ITA No. 5433/Mum/2013 we dismissed this appeal as well.

Sd/- Sd/- (Rajendra) (Sandeep Gosain) लेखा सद�य / Accountant Member �या�यक सद�य / Judicial Member मुंबई Mumbai; �दनांक Dated :23.03.2016 Ps. Ashwini आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. आयकर आयु�त(अपील) / The CIT(A) 4. आयकर आयु�त / CIT - concerned 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard File आदेशानुसार/ BY ORDER,