ITO, WARD-1, YAMUNA NAGAR vs. M/S JAMNA AUTO INDUSTRIES LTD., YAMUNA NAGAR

आदेश/ORDER

PER A.D.JAIN, VICE PRESIDENT

These are Department’s appeals for assessment years

2012-13 and 2013-14 against the orders of the CIT(A) NFAC

Delhi dated 20.09.2022 and 27.09.2022, respectively. As the

issues, facts and circumstances are identical in both the

appeals, therefore, these were heard together and are being

disposed of by a common order.

ITA 689/CHD/2022

appeal :

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 2

manufacturing and marketing of leaf springs and parabolic

springs.

an amount of Rs.90,00,000/- had been given to Smt.Poonam

Gupta but no interest was charged from her although the

company was paying interest on its loans taken from various

financial institutions and parties. The assessee was,

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 3

therefore, asked vide order sheet entry dated 09.12.2014

about business expediency of the said advance and reasons

for not charging interest on the said advance. The assessee

vide its letter dated 24.12.2014 submitted as under :

"The company had given advance to the said party in the financial year 2008-09 relevant to the Assessment Year 2009-10 for the purchase of property at Vasant Kunj, New Delhi. The address of the property which was proposed to be purchased is as under: 1-B, Bhawani Kunj, Opposite Pocket D-l, Vasant Kunj, New Delhi

The agreement to sell was entered on 2nd Sept, 2008 for the above said property admeasuring 10 Biswas, Mustatil no. 73, Kila No. 5/2 &6/1 of village mehrauli, Tehsil Hauz Khas, New Delhi 110 070. The sale consideration was fixed at Rs. 4,55,00,000/- and an advance of Rs 90,00,000/- was paid on 2/9/2008 & 12/9/2008 for Rs. 10,00,000/- and Rs. 80,00,000/- respectively. The balance amount was to be paid by 30.11.2008. Unfortunately, the company had faced acute shortage of funds during the 2nd half of the financial year 2008-09 due to recession faced by automobile sector in India and the company had got almost half of its orders cancelled from TATA and Ashok Leyland during that period. In view of this, the company could not honour its commitment to pay the balance amount of Rs. 3,65,00,000/- due by 30-11-2008 i.e. the scheduled date of payment In the meantime, the owner had given extended time till 30th June, 2009 for making final payment to the company but the company could not make the said payment due to which the owner had given the notice for forfeiture of Rs. 90,00,000/- given as advance.

However, as the company was also in possession of the property on lease basis on the date of agreement and has continued to occupy the same till date, has not vacated the property, which is scheduled to be in its occupation till Dec, 2014 as per lease deed dated 4th April, 2012. In this regard, we are enclosing herewith copy of the "Agreetnent to Sell". Copy of the correspondence exchanged with the owner of the property is also attached for your kind consideration alongwith the lease deed dated 4th April 12, which clearly suggest that the advance was given only for the Business Purpose of the assessee company. Further, it may be noted from the correspondence enclosed that the owner of the premises was also claiming interest @ 18% PA on the unpaid amount of

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 4 the Rs. 3,65,00,000/- for 7 months, which on request was waived off by the owner of the premises. However, during the financial year 2013-14, the company had served notice on the said party for recovery of the said amount of Rs.90,00,000/-subsequent to which it was agreed by the said party to refund, the said amount of advance given for purchase of land and accordingly, cancellation agreement was entered into between the parties which stated that the said party Mrs. Poonam Gupta, shall return the advance for purchase of property by monthly Installments of Rs.2,50,000/- which was revised to Rs.3,00,000/- pm w.e.f. March 14. Copy of the cancellation agreement is enclosed for your kind consideration. The copy of account of the party as on 11-12-2014 is also enclosed herewith evidencing recovery of amount every month from her. The outstanding balance as on 11-12-2014 is Rs.29,50,000/-. As the above transaction with the owner of the property is for the purpose of Business of the Assessee Company, no adverse inference may be drawn."

4.1 The Assessing Officer did not accept the reply of the

assessee. The AO held that the assessee's contention that

the said advance was given for the purchase of property and

the deal regarding purchase of property could not be

finalized due to shortage of funds being faced by the

company, was not based on facts. The AO observed that on

the one hand, the assessee company had invested

approximately Rs.34 crores in addition of fixed assets, i.e.,

in factory building and plant & machinery, etc., during the

year under consideration and on the other, it had stated that

it could not arrange Rs.3.65 crores for payment of balance

amount of the purchase deal of the said property. The AO

observed that no person would want to lose its hard-earned

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 5 amount of Rs.90 Lacs just because of lack of availability of

funds even if it has to arrange the balance funds by taking

loans; and that the priority of the person would be to first

guarantee the custody of the advance already given and then

invest its balance money in other projects/for other

purposes. It was mentioned that assessee had earned an

income of Rs.42,84,12,922/- during the year and it was not

difficult to spare an amount of Rs.3.65 Crores to purchase

the property.

4.2 The Assessing Officer did not accept another

justification of the assessee, which was that due to recession

faced by the Automobile sector in India, it had got almost

one half of its orders cancelled by Tata and Ashok Leyland.

The AO rejected this contention as based on facts. The AO

observed that though the assessee company had tried to

justify its position, but it could not produce any

documentary evidence to support its claim; and that though

the assessee had claimed that half of its orders were

cancelled during the year but the accounts of the assessee

told another story, as the assessee's total turnover during

the year had increased by over 45% as compared to the

turnover of the earlier previous year. The Assessing Officer

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 6 concluded that the assessee had failed to prove that the

abovesaid advance was made for purchase of property for

business purpose. It was observed that the assessee had

further failed to prove that it did not have the resources to

get the deal of the property registered within the time

allowed. Hence, the Assessing Officer held that the advance

of Rs.90,00.000/- given to Smt. Poonam Gupta was not for

business purpose. The Assessing Officer held that the

assessee had taken interest-bearing loans from various

financial institutions and from other parties and was paying

interest on them, and on the other hand, it had made

interest-free advances to Smt. Poonam Gupta, which was not

for business purpose. Therefore, the payment of interest by

the assessee company on its secured & unsecured loans,

attributable to the amount advanced interest free to Poonam

Gupta was disallowed, treating the same to be not incidental

to the business purpose of the assessee company. The

Assessing Officer placed reliance on the judgment dated

04.08.2006, of the Hon'ble Punjab & Haryana High Court in

the case of ‘CIT Vs Abhishek Industries Limited, Ludhiana’,

wherein, it was held that once it is borne out from the record

that the assessee had borrowed certain funds on which,

there was a liability to pay interest, whereas, on the other

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 7 hand, certain amounts had been advanced to sister concerns

or others without carrying any interest and without any

business purpose, the interest to the extent the advance had

been made without carrying any interest is to be disallowed

under section 36(1)(iii) of the Income Tax Act, 1961; that

such borrowings, to that extent cannot possibly be held to be

for the purpose of business but are for supplementing the

cash diverted, without deriving any benefit out of it; and that

accordingly, the assessee will not be entitled to claim

deduction of the interest on the borrowings to the extent

those are diverted to sister concerns or other persons

without interest. The advance of Rs.90,00,000/- in the

opinion of the AO, was given to Smt. Poonam Gupta for a

purpose other than a business purpose. Accordingly, the AO

made an addition of Rs. 10,80,000/-.

the addition, giving rise to Ground Nos. 1 and 2.

contended that the Commissioner of Income Tax(Appeals)

was not right in deleting the disallowance of interest made

by the Assessing Officer under section 36(1)(iii) of the

Act,1961, without brushing aside the factual findings

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 8 recorded by the Assessing Officer in the assessment order

and the remand report; and that the order passed by the

Commissioner of Income Tax(Appeals) is not legally

sustainable in the wake of the decision of the Hon'ble

Jurisdictional High Court in the case of ‘Commissioner of

Income Tax-1 Vs. Abhishek Industries Limited’, reported as

[2006] 286 ITR 1(P&H).

placed strong reliance on the impugned order.

behalf of the Department, the ld. CIT(A) has gone wrong in

deleting the disallowance made by the AO u/s 36(1)(iii) of the

Income Tax Act. It is seen that the ld. CIT(A) has followed the

CIT(A)’s order dated 01.09.2021, for assessment year

2014-15, in the assessee's own case, for deleting the

disallowance. A copy of the said order of the ld. CIT(A) has

been placed before us by the assessee at APB pages 89-101.

As available from the said order, the assessee company had,

vide Lease Deed dated 08.01.2007 (from 15.01.2007 to

31.05.2008), taken the premises situated at 1-B, Bhawani

Kunj, Opposite Pocket D-1, Vasant Kunj, New Delhi on lease

from Smt. Poonam Gupta, for its Corporate Office. The said

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 9 Lease Agreement was renewed from time to time, upto

26.11.2015 (for the period from 01.12.2015 to 31.10.2016).

The said premises was, thus, used by the assessee company

as its corporate office from January,2007 till 30.06.2017.

The lease rent paid by the assessee for the said premises was

always allowed by the AO, right from Financial Year 2006-07.

The assessee company stated that it had insisted to

purchase the said leased premises, for which, it entered into

an agreement to sell with Smt. Poonam Gupta, for a total

consideration of Rs.4,55,00,000/-. It paid advance of Rs. 10

lacs on 02.09.2008 and Rs.80 lacs on 12.09.2008,

aggregating to Rs.90 lacs. The balance amount of

Rs.3,65,00,000/- was to be paid by 30.11.2008. However, it

could not be so paid, as there was a sudden worldwide

recession in 2008, which adversely affected the automobile

sector in India also, because of which, Tata Motors and

Ashok Leyland, the main customers of the assessee company,

cancelled their orders with the assessee. Due to the adverse

market conditions, the production and sales of the assessee

company were badly affected in the second half of Financial

Year 2008-09, relevant to assessment year 2009-10, whereas

the production in assessment year 2008-09, at 839 MT, had

come down to 68.012 MT in assessment year 2009-10. The

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 10 sales turnover decreased to Rs.452.45 Cr in assessment year

2009-10, from that of Rs.467.03 Cr in assessment year

2008-09. Thereby, the assessee company incurred a loss of

Rs.23.46 Cr in assessment year 2009-10, as compared to a

profit of Rs.15.60 Cr in assessment year 2008-09. Before the

ld. CIT(A), as available from the ld. CIT(A)’s order dated

01.09.2021, for assessment year 2014-15 (APB 89-101), the

assessee furnished a copy of the aforesaid Agreement to Sell,

dated 02.09.2008, and the relevant extract of the balance

sheet/Profit & Loss Account for assessment year 2009-10,

which also shows the figures for assessment year 2008-09.

In the first half of assessment year 2009-10, the production

was of 46,849 MT and the sales were of 45,726 MT. In the

second half, there was production of 21,163 MT and sales of

22,118 MT. Thus, there was a total production of 68,012 MT

and total sales of 67,844 MT, in assessment year 2009-10.

Since the assessee was facing an acute shortage of funds in

the second half of assessment year 2009-10, it could not

honour its commitment to pay the balance amount of

Rs.3,65,00,000/- to Smt. Poonam Gupta by 30.11.2008, the

due date. As such, the assessee corresponded from time to

time with Smt. Poonam Gupta for extension of time to make

the said balance payment to her and the time was extended

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 11 to 30.06.2009, subject to payment of interest @ 18% per

annum for such extended period, vide letter dated

09.04.2009. The assessee placed a copy of the said letter

before the ld. CIT(A). The assessee, however, could not make

payment to Smt. Poonam Gupta even till 30.06.2009.

Thereafter, Smt. Poonam Gupta, vide notice dated

11.07.2009, a copy whereof was also furnished by the

assessee before the ld. CIT(A), terminated the Agreement to

Sell dated 02.09.2008 by forfeiting the advance amount of

Rs.90 lacs. However, the assessee company remained to be

in possession of the leased premises and continued to pay its

lease rent to Smt. Poonam Gupta, as per the Lease

Agreement as renewed from time to time. Subsequently, the

assessee company served Smt. Poonam Gupta with a legal

notice dated 01.05.2013, for recovery of the advance amount

of Rs.90 lacs. A copy of this notice was placed before the ld.

CIT(A). Smt. Poonam Gupta, in response to the notice, vide

Cancellation Agreement dated 16.05.2013, a copy whereof

was also furnished by the assessee before the ld. CIT(A),

agreed to refund to the assessee the amount of Rs.90 lacs,

by making upfront payment of Rs.10.50,000/- and,

thereafter, paying monthly instalments, of Rs.2.30 lacs,

subject to no interest being payable by her. The said

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 12 monthly instalments were subsequently revised to Rs.3 lacs

per month, w.e.f. March, 2014 and to Rs.3,30,000/- per

month w.e.f. February,2015. The amount of Rs.90 lacs stood

fully recovered from Smt. Poonam Gupta by the assessee, as

on 10.10.2015. In this regard, a copy of the Ledger Account

of Smt. Poonam Gupta, for the period from 01.04.2008 to

31.10.2015, was also placed by the assessee before the ld.

CIT(A).

made disallowance of a sum of Rs.8,81,501/- u/s 36(1)(ii) of

the Act, on account of interest payable/paid, attributable to

the interest free advance of Rs.59,50,000/- to Smt. Poonam

Gupta, for non business purposes. The AO observed that the

assessee's Schedule of Loans and Advances showed that an

amount of Rs.90 lacs had been given to Smt. Poonam Gupta,

but no interest had been charged from her, although the

assessee company was paying interest on loans taken from

various financial institutions and parties; that on query

regarding the business expediency of the said advance and

the reasons for non-charging of interest thereon, the

assessee had filed reply, which was not acceptable; that the

assessee's contention that the said advance was given for the

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 13 purchase of property and the deal regarding purchase of

property could not be finalized due to shortage of funds

being faced by the company, was not based on facts; that the

said advance was given in September,2008 and was not

received back till 30.06.2013, i.e., almost five years had

elapsed and the assessee did not make effort to recover the

advance; that though the assessee had a turnover of

thousands of crores of rupees, the amount of Rs.90 lacs was

not a petty amount which was left in the lurch for no

consideration at all, whereas the assessee had been

incurring huge amounts on the interest costs to the banks;

that from the argument of the assessee, that it had incurred

losses in assessment year 2009-10, was a factor which might

have prompted the assessee to search for funds all around

and, under these circumstances, such huge amounts could

not have been left with anybody; that the contention of the

assessee that it could not arrange Rs. 3.65 Cr for payment of

the balance amount for the purchase of the property, was

not acceptable; that no person would want to lose its hard

earned amount of Rs.90 lacs just because of lack of

availability of funds, even if it has to arrange the balance

funds by taking loans; that the priority of the person would

be to first guarantee the custody of the advance already

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 14 given and to then invest its balance money in other

projects/for other purposes; that the assessee had earned an

income of Rs.33.52 Cr during the year and of Rs.42.84 Cr

during the earlier year and it was not difficult for the

assessee to spare an amount of Rs.3.65 Cr to purchase the

property; that it is a matter of common parlance that huge

interest cost is incurred in such big projects as that of the

assessee, where banks charge interest on a monthly basis

and, at times, even on a daily basis; that under these

circumstances, the assessee could not have taken the luxury

of divesting the company of its huge funds towards a project

that did not materialize even after five years and finally got

wound up; that no such justification had been brought on

record; that thus, it appeared that the alleged transaction

was not related to the actual intention of purchase of land

and it was evident from the facts that finally, the alleged

Agreement stood cancelled on 16.05.2013, and the

instalments were being received w.e.f. 30.06.2013; that it

appeared that the amount had been given as a certain kind

of security against use/rental of the property to the assessee

company and no interest whatsoever was charged on the

basis of an un-written understanding between the two

parties; that it could not be denied that Smt. Poonam Gupta

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 15 had used the funds of Rs.90 lacs for five years, without

incurring any cost whatsoever. The AO placed reliance on

the decision of the Hon'ble Punjab & Haryana High Court in

the case of ‘CIT Vs Abhishek Industries’ 286 ITR 1 (P&H),

observing that the advance of Rs.90 lacs had been given by

the assessee company to Smt. Poonam Gupta for purposes

other than a business purpose. The proportionate

disallowance on interest @ 12% was worked out by the AO at

Rs.8,81,507/-, of which, addition was made.

11 and 2011-12, an identical issue of disallowance of

interest on the same grounds had been decided by the ld.

CIT(A) in favour of the assessee. The relevant portion of the

ld. CIT(A)’s order dated 05.12.2017, for assessment year

2010-11 was extracted by the ld. CIT(A) while following the

said order in deleting the disallowance. It is seen that in the

said order for assessment year 2010-11, the ld. CIT(A)

observed that he found that the AO’s contention that the

assessee company never had any intention to purchase the

premises and that the Sale Agreement was executed merely

as a tool to divert interest-free funds to Smt. Poonam Gupta,

was based merely on presumptions and surmises; that Smt.

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 16 Poonam Gupta was not related to the Directors of the

company, or their relatives; that in fact, the assessee was a

lessee of the premises, which the assessee company had

hired for use as office premises; that thus, there was a pre-

existing business relationship between the assessee and

Smt. Poonam Gupta; that the business purpose for seeking

to acquire the said property, which was held for use on lease

rent basis, also could not be doubted, particularly when a

written agreement had been entered into between the

assessee and Smt. Poonam Gupta for the purpose, advance

amount as per the agreement had been paid through bank

cheques, and the bonafides of the purchaser’s and the

seller’s intention also stood established by the fact that the

required No Objection Certificate had duly been obtained

from the Government Authorities; that thus, he [the CIT(A)]

found that there was a nexus between the advance made and

the business purpose of acquiring a property for the office of

the assessee company in Delhi; that suspicion, however

strong could not take the place of evidence or proof; that the

addition had been made by the AO on the presumption that

the advance was extended for the personal use of Smt.

Poonam Gupta, which presumption did not stand borne out

by the entirety of the facts, or by any material placed on

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 17 record by the AO; that thus, the business expediency of the

advance given and the intention of the assessee to purchase

the premises could not be doubted in view of the facts on

record; that the adverse inference drawn by the AO on

account of the assessee having made investments in other

fixed assets to improve its manufacturing operations, and,

on account of the assessee allegedly showing lack of urgency

to get the Sale Deed registered, was also misplaced, because

the Revenue cannot assume the role of the Board of

Directors of the company and decide as to how the business

decisions are to be taken; that thus, in the facts and

circumstances of the case, the business purpose of the

advance made stood satisfactorily established by the

assessee and the reliance of the AO on the judgement of the

Hon'ble Punjab & Haryana High Court in the case of

Abhishek Industries, 286 ITR 1 (P&H), was misplaced; and

that therefore, no disallowance u/s 36(1)(iii) of the Act was

called for on the account of the advance of Rs.90 lacs made

against the intended purchase of property for corporate

office of the assessee company.

differ from the view taken on the issue by the ld. CIT(A) for

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 18 the earlier years as well as the subsequent years, i.e.,

assessment years 2010-11, 2011-12 and 2014-15,

respectively. (copies at APB 39-101). There is no rebuttal to

the finding of the ld. CIT(A) that the business expediency for

making advance by the assessee in favour of Smt. Poonam

Gupta stood duly and adequately proved. Moreover, the AO’s

doubt stands allayed amply by the fact that ultimately, after

long five years, the advance got returned to the assessee,

even though by the long-wound legal process. Accordingly,

finding no force in the grievance of the Department in this

regard for the year under consideration also, Ground Nos. 1

and 2 are rejected and the action of the ld. CIT(A) in deleting

the disallowance made by the AO is upheld.

contended that the ld. CIT (A) went wrong in concluding that

the assessee had successfully explained the fall in GP rate,

over-looking the aspect that the assessee devised a colorable

mechanism to divert its profit to its subsidiary entity for

claiming a higher deduction under Section 80IC of the IT

Act; and that the ld. CIT (A) went wrong in holding that the

AO, in his remand report, neither controverted, nor

disproved the contentions of the assessee, whereas the AO

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 19

had disputed the stance of the assessee with cogent reasons

and material.

again placed strong reliance on the impugned order. Further,

the ld. Counsel for the assessee has contended on this issue

that for assessment year 2009-10, the appeal filed by the

assessee against the ld. CIT(A)’s order dated 06.03.2017, was

allowed by the ITAT in ITA No. 836/CHD/2017; that the

Department preferred an appeal against the said Tribunal

order, through ITA No. 8531 of 2018 before the Hon'ble High

Court, which has been dismissed by the Hon'ble High Court

vide order dated 13.10.2023. A copy of the said High Court

order has been placed on record. Therein, the Hon'ble High

Court has dismissed the appeal filed by the Revenue, holding

as follows :

“2. The instant appeal (ITA No.8531 of 2018), under Section 260A of the Income Tax Act. 1961, has been filed against the order dated 19.06.2018 (Annexure A-3) passed by the Income Tax Appellate Tribunal, Chandigarh, in ITA No.836/CHD/2017, in respect of the assessment year 2009-10, whereby appeal filed by the respondent-assessee against the order dated 06.03.2017 passed by the Commission of Income Tax (Appeal), Karnal, has been allowed and the appeal filed by the revenue has been dismissed.

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 20

the purpose of calculating the percentage (%) of scrap generated during the year, the assessment worked out to 7.2% and not 6.8% as had been worked out by the assessee. The average scrap generated during the earlier three years worked out to 6.8%. The assessee had produced 0.4% more scrap during the year under assessment. The excess scrap was utilized for production of 4000.806 MTs of finished goods. The average sale prices is taken as Rs.64.008.26 per M.T. the working of the sale price of Rs.25,60,84,653/- is detailed as under:- “Total sale consideration declared in the printed booklet exclusive of excise duty 45245.30000 less sales to the subsidiary company SFG 171224220 Sale of finished goods 4353305780 Quantity of finished goods 68011.619 Average sale price 64008.26 per MT”

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 21

accounts for the assessment years 2009-2010 to 2014-2015, relevant portion thereof is reproduced as under:-

Assessment Semi Addition made by Treatment by CIT Treatment by Year Finished the AO (A) IT AT Goods sold by Assessee Co. to Jai Suspension Systems in Metric Ton 2009-10 3,434 MT Rs.25,20,84,653 Addition of Revenue's Rs.25,20,84,653 appeal deleted dismissed. 2010-11 11,448 MT Nil vide assessment NA NA order u/s 143 (3) dated 28.01.2013 2011-12 15,495 MT Nil vide assessment NA NA order u/s 143 (3) dated 28.04.2014 2012-13 23,067 MT Nil vide assessment NA NA order u/s 143 (3) dated 25.03.2015 2013-14 33,424 MT Nil vide assessment NA NA order u/s 143 (3) dated 29.02.2016 2014-15 29,513 MT Nil vide assessment NA NA order u/s 143 (3) dated 3(5.12.2017 and also vide TPO order u.s 92CA (3) dated 12.10.2017

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 22 addition has been made in the income of the appellant towards the sales of semi finished goods to M/s Jai Suspension Systems. 9. Keeping in view the above discussion, no ground is made out to interfere the impugned order as the same has been passed after appreciating the evidence in the right perspective. No substantial question of law arises for consideration. 10. Resultantly, finding no merits, present appeals i.e. ITA No.8531 of 2018 and ITA No.8532 of 2018 are dismissed.”

13.1 From the aforesaid elaborate self-speaking order, it is

evident and not disputed that for assessment years 2010-11

to 2014-15, no addition was made qua the semi-finished

goods manufactured by the assessee and sold outside the

books of account to its subsidiary. It is worth mentioning

here that the said High Court order records the presence of

counsel on behalf of the Department, i.e., the appellant

before the Hon'ble High Court.

10,95,77,393/- by estimating GP rate at 11.63% as against

that of 10.50% declared by the assessee, on account of

diversion of profit to its subsidiary entity, M/s Jai

Suspension Systems LLP.

14.1 The AO observed that on this issue, the contention of

the assessee was not acceptable; that the assessee company

was India's largest and the world's third largest

manufacturer of leaf springs and parabolic springs for

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 23 automobiles for the last forty years; that it had a very old

association with the major predominantly original equipment

manufacturers (OEMs), to whom it supplied its products,

whereas its subsidiary entity, M/s Jai Suspension Systems

LLP had come into existence only on 21.10.2010; that the

customer base of M/s Jai Suspension Systems was merely

because of the goodwill and the market standing of the

assessee company for the last forty years; that during the

year under consideration, the assessee had sold its

semifinished products, amounting to Rs. 153 crore, to M/s

Jai Suspension Systems, apart from doing job-work for it, for

Rs. 16 crore; that after purchasing the semi finished

products, the subsidiary entity further processed the same to

convert them into its finished products and sold them to its

customers; that the gross profit declared by the assessee

company was lesser than that of its subsidiary entity; that

for the year under consideration, the assessee company had

shown gross profit of Rs.101.55 crore (GP rate 10.50%),

whereas in the earlier year, i.e., A.Y. 2011-12, the assessee

had shown gross profit of Rs. 94.44 crore (GP rate 11.52%)

and gross profit of Rs. 65.72 crore (GP rate 11.57%) had

been shown in A.Y. 2010-11 also; that during the year under

consideration, there had been a fall of 1.02% in the GP rate

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 24 of the assessee, as compared to the earlier years; that it

appeared that the assessee company was diverting the major

part of its profits to its subsidiary entity M/s Jay

Suspension Systems LLP, which claimed deduction under

section 80IC to reduce its tax liability; that Jai Suspension

Systems LLP, in its return for AY 2012-13, had shown a total

income of Rs. 27,52,459/- after claiming of deduction under

Chapter VI-A of the IT Act, of Rs.26,43,23,769/-; that the

assessee company had charged a profit margin of 10% from

its subsidiary entity, whereas in the earlier years, the

assessee had declared GP rates of 11.52% and 11.57% in AYs

2011-12 and 2010-11, respectively; that therefore, there was

no justification in charging a 10% margin from the

subsidiary entity, particularly in view of the fact that the

subsidiary entity was utilizing the goodwill of the assessee

for making sales to the OEM with whom the assessee

company had an association of 40 years; that this was, in

fact, the main reason for the decline in the GP of the

assessee company in the year under consideration, as

compared to the previous years; and that in view of all these

facts, the explanation given by the assessee company

regarding the margin of profit shown by the assessee on the

lower side in comparison to the margin of profit shown by its

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 25 subsidiary entity, M/s Jai Suspension Systems LLP, was not

acceptable. The AO observed that the assessee had been

asked to furnish a comparative chart of gross profit rate or

net profit rate of the previous three years with reason for

shortfall, if any; that in compliance, the assessee had filed a

comparative chart of gross profit rate and net profit rate;

that from this chart, it was noticed that there was a shortfall

in GP rate by 1% in comparison to the GP rate of the

previous assessment year; that when asked to explain the

reason for the shortfall in GP rate, the assessee, vide written

reply filed on 9.12.2014, submitted that during the year, the

assessee had taken or repaid loans only from and to the

Bank, and details of secured and unsecured loans along with

ledger accounts were being enclosed, a comparative chart of

gross profit for the last three years was being enclosed, the

GP rate during the year was slightly less as compared to the

last year, since the rates of power and fuel had increased

substantially, which had had its impact on the profit during

the year; that the submission of the assessee was not

acceptable; that the assessee itself had not shown GP rate

less than 11.52% in the last two years, that is, AYs 2010-11

and 2011-12, where as in the year under consideration, a GP

rate of 10.50% only had been shown; that the reason given

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 26 for the decline in GP rate was that the rates of power and

fuel had increased substantially, which had had its impact

on the profit of the assessee during the year; that however,

the assessee could not substantiate its claim with

documentary evidence; that in fact, the main reason for the

decline in the GP rate of the assessee company was the

supply of the products made by the assessee company to its

subsidiary entity at a lower profit margin, for the purpose of

diverting its profit to its subsidiary entity, which was

claiming deduction under section 80 IC of the IT Act; that

keeping in view all the facts, it was fair and reasonable to

apply the average GP rate of the last two assessment years,

at 11.63%, especially with regard to the low rate of GP shown

by the assessee company; and that accordingly, the GP rate

of 11.63% was being applied on the total sales of Rs.

9,67,43,37,000/-. In this manner, the AO arrived at a gross

profit of Rs. 11,251,25,393/-. The assessee had shown a GP

of Rs.1,01,55,48,000/-. The difference of profit came to Rs.

10,95,77,393/- and this difference was added to the total

income of the assessee.

addition as made in the hands of the assessee company for

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 27 the alleged transfer or diversion of profit to M/s Jai Spring

Systems LLP, which was claiming deduction under Section

80 IC of the IT Act, was illegal, since addition, if at all, could

only be made in the hands of M/s Jai Spring Systems LLP,

which was the entity claiming deduction under Section 80 IC

of the IT Act, as there is a specific provision in the Act for

making such an addition in the hands of an entity which is

eligible for deduction under Section 80 IC of the IT Act, that

is, Section 80 IC (7) read with Section 80 IA (10). The

assessee contended that from a plain reading of Section 80

IA (10) of the Act, it was evident that there is a close

connection between the assessee carrying on eligible

business, i.e., M/s Jai Suspension Systems LLP, the

subsidiary entity, to which this section applies, and any

other person, i.e., the assessee company, Jamna Auto

Industries Limited, the holding entity and if there is any

business transacted between them, which produces more

than ordinary profit to the eligible business, in this case,

allegedly to M/s Jai Suspension Systems LLP, while

computing the profits and games of M/s Jai Suspension

Systems LLP can only make adjustment to the deductions

claimed by Jai Suspension Systems LLP under Section 80 IC

of the IT Act and not in the hands of the other company, that

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 28 is, the assessee company; that therefore, the addition as

made in the hands of the assessee company was illegal, since

the Act empowers only the AO of the entity carrying on the

eligible business to adjust the deduction claimed under

section 80 IC; and that the assessment in the case of the

subsidiary entity, M/s Jai Suspension Systems LLP had been

completed under section 143 (3) of the IT Act, vide order

dated 31.3.2015, where no such addition had been made. A

copy of the said assessment order dated 31.3.2015 was filed.

It was contended that as such, it was evident that there was

no diversion of profit by the assessee company to its

subsidiary entity, M/s Jai Spring Systems LLP; and that

moreover, the slight fall in GP rate having been

substantiated, the addition of Rs. 10,95,77,393/- by

estimating GP rate at 11.63% as against 10.50%, as

declared, deserved to be deleted.

Tax Act expressly provide that if the AO was of the opinion

that there was some diversion of profit by the assessee to its

subsidiary M/s Jai Suspension Systems LLP, which is

claiming deduction u/s 80IC of the Act, action should have

been taken u/s 80IC(7) read with Section 80IA(10) of the Act

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 29 and corresponding addition should have been made in the

hands of the subsidiary company, and that however, no such

addition had been made in the hands of the subsidiary

company by the AO, in the scrutiny assessment order dated

31.03.2015. It was on this legal basis itself, that the

addition made by the AO was deleted by the ld. CIT(A).

Further, the ld. CIT(A) took note of the assessee's

contentions on the merits of the issue, as submitted before

the ld. CIT(A) vide letter dated 12.04.2018. These

contentions stand reproduced in para 6.1, at pages 11 to 21

of the ld. CIT(A)’s order. The additional evidence filed by the

assessee, alongwith such submissions, were sent by the ld.

CIT(A) to the AO, for his comments. The AO furnished

Remand Report dated 19.09.2018. This Remand Report

stands reproduced in para 6.2, at pages 21 to 25 of the

impugned order. The assessee submitted Rejoinder dated

23.10.2018 to the AO’s said Remand Report. This Rejoinder

of the assessee has been reproduced by the ld. CIT(A) in the

order, in para 6.3, at pages 25 to 46 thereof.

16.1 After considering the above pleadings and additional

evidences, the ld. CIT(A) deleted the addition of Rs.10.95 Cr.

While doing so, it was observed that the disallowance of

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 30 Rs.10.95 Cr had been made by the AO on the ground of low

GP rate, for which, the AO had opined that the assessee had

not been able to substantiate its claim of the decline in GP

rate being due to the increase in the rates of power and fuel,

and that the assessee had sold products to its subsidiary,

M/s Jai Suspension Systems LLP, at the lower profit margin

for the purpose of providing its profit to its subsidiary, which

was claiming deduction u/s 80IC of the Act. The ld. CIT(A)

observed that contrary to such findings of the AO, the

assessee had submitted all necessary documents and

evidences, such as fuel invoices and Ledger Accounts of

power and fuel, etc., to substantiate its claim that the

increase in the rates of power and fuel had contributed to

the fall in GP, amounting to 1%; that the assessee had

submitted that if the rates of power and fuel had remained

constant and had not increased as a percentage of sales from

6.95% to 8.23%, the GP rate of the assessee for the year

under consideration would have worked out to 11.78%,

which would have been better than that of 11.52% for

assessment year 2011-12 and that of 11.75% for assessment

year 2010-11, which the AO had taken as a benchmark; and

that the comparative charts showing as to how the increase

in the rates of power and fuel had negatively impacted the

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 31 GP rate, as furnished by the assessee, clearly proved the

assessee's contention to be correct. The ld. CIT(A) noted

that the AO had neither controverted, nor disproved these

contentions of the assessee, in his Remand Report. The ld.

CIT(A) observed that in his Remand Report, the AO had

raised the questions as to how the assessee's subsidiary

company was declaring higher GP/NP rates compared to the

assessee company, when both were basically in the same

business; that however, vide its reply dated 05.07.2022

(reproduced in para 6.6 at pages 39 to 41 of the impugned

order), explaining as to why the profit margins of M/s Jai

Suspension Systems LLP were better than those of the

assessee company stated that the two companies were

operating in different market segments, that whereas the

sales of the assessee company constituted 7% high profit and

93% low profit margin products, M/s Jai Suspension

Systems LLP had 55% high profit and 45% low profit margin

products, that in such a scenario, naturally, M/s Jai

Suspension Systems LLP was showing better GP/NP rates

than those of the assessee company, and that since both the

companies were dealing with different product markets and

were operating in different market segments inter-se, their

GP/NP rates were not comparable.

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 32 16.2 The ld. CIT(A) further took note of the assessee's

contention that the low GP rate of the assessee was on

account of the fact that it had received non-compete fees of

Rs.5Cr +10Cr =Rs.15 Cr in assessment years 2009-10 and

2010-11 from M/s Jai Suspension Systems LLP, which

prevented the assessee from selling its products to the

principal customers of M/s Jai Suspension Systems LLP,

namely, Tata Motors Ltd. and Ashok Leyland Ltd., at

Rudrapur, and the replacement market all over the country,

except Haryana. The assessee's contention in this regard

stands reproduced by the ld. CIT(A) in para 6.8, at pages 42-

43 of the impugned order. The ld. CIT(A) observed that the

assessee's contention was that if the non compete fees were

to be taken into account, the assessee's GP rate would work

out to be substantially better, which fact had not been taken

into account at all by the AO while making the addition,

despite the fact that due income tax stood already paid by

the assessee on the non compete fees received by it in the

earlier assessment years. The ld. CIT(A) also observed that it

had been contended on behalf of the assessee (para 6.10, at

pages 43 to 54 of the impugned order), that since the very

first year of its commencement of operations, i.e., from

assessment year 2009-10, the assessee had always been

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 33 selling products to M/s Jai Suspension Systems LLP at a

cost plus 10% margin, which fact stood duly accepted by the

Department, after scrutiny, in all the earlier assessment

years, and that there had been no change whatsoever in the

facts and circumstances of the case for the year under

consideration.

successfully rebut the categorical findings of fact recorded

by the ld. CIT(A) while deleting the addition, either on the

legal issue, or on merits. The ld. DR has contended that the

ld. CIT(A) is not right in concluding that the assessee has

successfully explained the fall in GP rate of the assessee;

that while doing so, the ld. CIT(A) has ignored the aspect of

the assessee having devised a colorable mechanism to divert

its profit to its subsidiary entity for claiming a higher

deduction under the provisions of Section 80IC of the Act.

The ld. DR h s contended that the ld. CIT(A) is not correct in

holding that the AO had neither controverted nor disproved

the contentions of the assessee in the Remand Report,

whereas, on the other hand, the AO had disputed the stand

taken by the assessee with cogent reasons and material.

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 34 17.1 The ld. Counsel for the assessee, on the other hand,

has placed strong reliance on the impugned order.

17.1.1 Apropos the legal issue, Section 80IA(10) of the Act

provides that where it appears to the AO that owing to the

close connection between the assessee carrying on the

eligible business to which this Section applies and any other

person (the subsidiary of the assessee, M/s Jai Suspension

Systems LLP, in the present case), or for any other reason,

the course of business to them is so arranged that the

business transacted to them produces to the assessee more

than the ordinary profits which might be expected to arise in

such eligible business, the AO shall, in computing the profits

and gains of such eligible business for the purposes of the

deduction under this Section, take the amount of profits as

may be reasonably deemed to have been derived therefrom.

It is not disputed that the provisions of Section 80IA(10)

apply. M/s Jai Suspension Systems LLP is claiming

deduction u/s 80IC of the Act. The operative expression in

Section 80IA(10) is “shall” . Therefore, there is a statutory

mandate contained in the Section, as per which, all other

requirements of the provisions of the Section remaining

constant, the AO shall, in computing the profits and gains of

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 35 the eligible business, for the purpose of deduction under the

Section, take the amount of profits as may be reasonably

deemed to have been derived therefrom. Meaning thereby,

that addition, if any, needs must have been made in the

hands of the other person, i.e., M/s Jai Suspension Systems

LLP and not in the hands of the assessee company. Such

statutory mandate of the provisions of Section 80IA(10)

having undisputedly not been carried out in the present

case, the addition made in the hands of the assessee

company is unsustainable for this reason alone and the ld.

CIT(A) correctly deleted the disallowance on this score itself.

17.2 Then, the AO had made the disallowance of Rs.10.95

Cr by holding that the assessee had not been able to prove

that there had been a decline in its GP rate due to the

increase in the rates of power and fuel, and that the

assessee had sold its products to its subsidiary at a lower

profit margin in order to divert its profits to its subsidiary,

which was claiming deduction u/s 80IC of the Act. The

assessee, on the other hand, had filed material documentary

evidences like Fuel Invoices and Ledger Accounts of power

and fuel etc., in support of its contention that the increase

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 36 in the rates of power and fuel was the reason for the fall of

GP by 1%.

17.3 In the assessment proceedings, the assessee had

been asked to submit the details of transactions entered into

by it with its subsidiary entity, M/s Jai Suspension Systems

LLP. The AO had further questioned the assessee as to why

the margin of profit of the assessee company was less as

compared to that of its subsidiary. In response, the assessee

had explained before the AO in detail with regard to the fall

in GP rate and also the reason for the lower GP rate of the

assessee company, as compared to that of its subsidiary.

Vide letter dated 09.12.2014, the assessee had placed a

comparative chart of sales turnover, gross profit, GP rate,

net profit and NP rate for assessment years 2010-11 to 2012-

assessee. However, the addition was made, without

confronting the assessee to show cause as to why the

assessee had supplied its products to its subsidiary at a

lower profit margin, if not for the purpose of diverting its

profit to its subsidiary entity, which entity, it was, that was

claiming deduction u/s 80IC. The AO was factually incorrect

in observing that the assessee could not substantiate its

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 37 claim of decline in its GP rate for the reason of increase in

the rates of power and fuel substantially, impacting the

profit during the year and that the main reason for decline in

the GP rate was the supply of its products by the assessee to

its subsidiary company at a lower profit margin for the

purpose of diverting its profit to its subsidiary entity, which

was claiming deduction u/s 80IC. Vide the aforesaid letter

dated 09.12.2014, the assessee had submitted a comparative

chart of sales turnover, gross profit, GP rate, net profit and

NP rate for assessment years 2010-11 to 2012-13. It had

been submitted that during the year, the GP rate was slightly

less as compared to the earlier year, since there had been a

substantial increase in the rates of power and fuel,

impacting the profits of the assessee during the year. Vide

letter dated 18.03.2015, the assessee had filed a Note on the

increase in power and fuel cost which had had its impact on

the assessee's GP rate. In this Note (pages 15 to 17 of the

impugned order), the assessee had contended that the main

ingredient of the cost of production in the assessee's

business is raw material and power and fuel cost, which

accounts for approximately 78% of the sales; and that during

the year under consideration, the power and fuel cost had

sharply increased from Rs.56.67 Cr to Rs.79.83 Cr, i.e., from

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 38 6.95% of the sales to 8.23% thereof, meaning an increase of

18% over the immediately preceding assessment year, i.e.

assessment year 2011-12.

17.4 It was also submitted that the fuel utilized in the

Malanpur Plant of the assessee was mainly gas supplied by

GAIL, which Plant carries out almost 50% of the total

production of the assessee; that the fuel rate had risen from

Rs.15/- per unit in April,2010 to Rs.32/- per unit in

December,2011 and had settled at Rs.27/- per unit in

March,2012; that the average increase in the rate per unit

for assessment year 2011-12 was Rs.19/- and that for

assessment year 2012-13 was Rs.26/-, giving an increase of

37%. It was further stated that power rate had also

increased substantially during the year; that it had been

Rs.4.15 per unit at the start of assessment year 2011-12 and

had ended at Rs.5.46 per unit; that for assessment year

2011-12, the average rate per unit of power was Rs.4.60 and

that of Rs.5.27 for assessment year 2012-13, thereby giving

an increase of 15%. It had been submitted that since all the

ingredients of the power and fuel cost had increased, the

consumption figure for the year under consideration had also

risen substantially; that the rate of the major fuels, i.e., gas

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 39 and furnace oil had risen by approximately 37%, which had

had an impact on the overall power and fuel cost, which had

risen, as a percentage of the sales, from 6.95% to 8.23%.

The rise in cost of power and fuel, the assessee pointed out,

worked out to approximately 18% in the year under

consideration, as compared to assessment year 2011-12, and

it was therefore, that the GP rate had fallen by

approximately 1% as compared to the immediately preceding

assessment year, i.e., assessment year 2012-13. The

assessee submitted that all the other variables in the GP

ratio submitted were comparable to the immediately

preceding assessment year and there had been no major shift

in percentage terms. It was pleaded that since the rates of

power and fuel were not under the control of the assessee,

the fall of GP by 1% stood fully justified.

documentary evidence furnished by the assessee before the

AO, were illegally ignored by the AO. No communication has

been shown to exist on record, after the assessee had filed

its said letter dated 18.03.2015, raising any query, thereby

evincing the satisfaction of the AO with the explanation

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 40

offered by the assessee. However, still, the addition was

made. Such documentary evidences are as follows :

(i) Breakup of power & fuel for the AY 2012-13. (ii) Copies of ledger A/c of power of fuel for the AY 2012-13 (iii) Breakup of power & fuel for the AY 2011-12 (iv) Copies of ledger A/c of power of fuel for the AY 2011-12 (v) Comparative chart showing %age of increase in power & fuel for the assessment year 2012-13 in comparison to assessment year 2011-12 (vi) Comparative chart of rates per unit of power & fuel i.e. electricity, HSD, furnace oil and Gas etc. for the assessment year 2011-12 and 2012-13 (vii) Specimen copies of bills of electricity, HSD, furnace oil and Gas for each month for the assessment years 2011-12 and 2012-13.

by the assessee before the ld. CIT(A) as additional evidence,

though, in our considered opinion, these documents having

been furnished before the AO, could well have been read in

evidence as such only.

19.1 Further, the comparative charts filed by the assessee

before the AO amply substantiated the stand of the assessee

that the assessee and its subsidiary were operating

substantially in different segments.

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 41 19.2 Further, still the assessee had contended that it had

received non compete fees of Rs.5 Cr in assessment year

2009-10, vide Non Compete Agreement dated 05.03.2009,

and of Rs.10 Cr in assessment year 2010-11, vide Agreement

dated 05.02.2010, from its subsidiary. The relevant portions

of these Agreements were reproduced by the assessee in its

submissions. It was contended that in effect, the assessee

company had not been allowed to sell its products to the

main clients of its subsidiary, i.e., M/s Tata Motors Ltd. and

M/s Ashok Leyland Ltd. at Rudrapur and in the replacement

market all over India, except Haryana; and that due tax

stood paid by the assessee on the non compete fees received.

In support, the assessee had furnished the Non Compete Fee

Agreements, Income Tax Return and Computation for

assessment year 2009-10, extracts of the balance sheet,

Profit & Loss Account and Other Income for assessment year

2009-10, Income Tax Return and Computation in assessment

year 2010-11 and extracts of the Balance Sheet, Profit &

Loss Account and Other Income, for assessment year 2010-

buttress his conclusion that the assessee company had

diverted its profits to its subsidiary, which was claimed in

deduction u/s 80IC.

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 42 19.3 The assessee further placed on record scrutiny

assessment orders of both the entities for the earlier years to

show that the assessee and its subsidiary had been engaged

in the same business during the year under consideration as

in those years, wherein no similar addition on account of

alleged diversion of profit had been made. The assessee

specifically contended that the assessee had not changed its

method of charging margin from its subsidiary, such method

being cost plus 10% margin. Such stand taken by the

assessee was nowhere repelled by the AO, rendering the

basis of the addition to be merely surmises and conjectures.

19.4 The ld. CIT(A) remitted the matter to the AO, seeking

a Remand Report on the elaborate submissions made and the

evidences furnished by the assessee company. The AO filed

Remand Report dated 19.09.2018, to which, the assessee

furnished Rejoinder dated 23.10.2018. The AO observed in

the Remand Report that the assessee's contention that the

addition had been made by the AO without providing

reasonable and adequate opportunity to the assessee, was

unbelievable, since the assessee had itself mentioned the

queries raised by the AO and the replies furnished by it. The

assessee, on the other hand, stated that in so observing, the

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 43 AO had been factually incorrect and misleading, since the AO

had neither stated that he was not satisfied with the reply

furnished by the assessee concerning the lesser margin of

profit of the assessee company as compared to that of its

subsidiary, nor had the AO confronted the assessee with

regard to the alleged diversion of profit by the assessee to its

subsidiary, nor even was the quantum of addition proposed

confronted to the assessee.

19.5 The ld. CIT(A) found, and correctly so, merit in the

contention raised by the assessee. Nowhere has the AO been

shown to have enquired these matters of the assessee and

the addition has been made without confronting the assessee

in this regard. Therefore, the conclusion of the ld. CIT(A) in

this regard is found to be justified and not requiring any

interference at our hands.

brushed aside lightly the submissions made by the assessee,

wherein, the assessee had contended that it had been

submitted before the AO and reiterated later, that the fall in

GP rate was on account of increase in the rates of power and

fuel substantially. The AO neither controverted nor

disproved such contention of the assessee, which was duly

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 44

supported by documentary evidence. The AO merely stated

that the mere furnishing of detail of sale of leaf springs and

parabolic leaf springs as had been furnished during the

assessment proceedings did not make any difference, since

the fall in GP rate could not be justified. The AO also stated

that the assessee had not given any justification regarding

low profit as compared to the subsidiary. In juxtaposition to

these observations in the Remand Report, it does not stand

disputed that no query had been put to the assessee by the

AO after he had submitted his afore-discussed detailed reply

dated 18.03.2015, nor did the AO ask the assessee to furnish

evidence to prove the increase in the rates of power and fuel,

due to which, the GP rate had fallen during the year. On the

other hand, the assessee had furnished the following

documentary evidences to support its claim that it was the

increase in rates of power and fuel during the year, which

had led to the minor fall in GP during the year :

(i) Breakup of power & fuel for the AY 2012-13 (ii) Copies of ledger A/c of power of fuel for the AY 2012-13 (iii) Breakup of power & fuel for the AY 2011-12 (iv) Copies of ledger A/c of power of fuel for the AY 2011-12 (v) Comparative chart showing %age of increase in power & fuel for the assessment year 2012-13 in comparison to assessment year 2011-12

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 45

(vi) Comparative chart of rates per unit of power & fuel i.e. electricity, HSD, furnace oil and Gas etc. for the assessment year 2011-12 and 2012-13 placed at page 561. (vii) Specimen copies of bills of electricity, HSD, furnace oil and Gas for each month for the assessment years 2011-12 and 2012-13 placed at pages 562-826.

20.1 These evidences had also been furnished before the

ld. CIT(A) and on remand, the AO was not able to controvert

the same, due to which it was, that the AO merely stated,

and wrongly so, that it did not make any difference that the

assessee had furnished the sale details.

non compete fees of Rs.15 Cr from M/s Jai Suspension

Systems LLP. In the Remand Report, the AO observed that

there was no justification for determining the amount of

Rs.15 Cr only for such a high business deal in the form of

assuring of goodwill and supply of goods to the existing

buyers; that no prudent businessman would enter into such

deal with such a small consideration, knowing that the other

party will give 100% deduction of income u/s 80IC of the

Income Tax Act; that this had been done by the assessee

company for its subsidiary entity just to divert the profit to

claim higher deduction u/s 80IC in the subsidiary entity,

which was amply clear from the net profit rates shown by

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 46

both the entities and that thus, it was a clear cut case of

diversion of profit from a non-eligible unit to an eligible one,

for claim of deduction u/s 80IC. As stated by the assessee

in its Rejoinder, it remains unrebutted that the submissions

made by the assessee with regard to the non compete fees of

Rs.15 Cr charged by the assessee company from its

subsidiary, i.e., M/s Jai Suspension Systems LLP, in

assessment years 2009-10 and 2010-11, were not

controverted or disproved by the AO. The assessee had filed

the following evidences in this regard :

case that the aforesaid documentary evidence filed by the

assessee was either non-existent, or false.

22.1 Further, it also remains unrebutted that the said

receipt of non compete fee by the assessee from its

subsidiary was the factor which prevented the assessee to

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 47 sell its products to the principal customers of M/s Jai

Suspension Systems LLP, i.e., Tata Motors and Ashok

Leyland at Rudrapur and the replacement market all over the

country, except Haryana. The Non Compete Agreement for

both the years make the position amply clear and therefrom,

it is evident that it was agreed between the assessee and its

subsidiary that the subsidiary would pay a one time non

compete fee to the assessee and the assessee agreed that it

would not supply or sell tapered leaf or parabolic springs to

TML’s Pant Nagar, Uttrakhand Unit and will also not set up

any manufacturing unit in Uttrakhand. Evidently, the non

compete fee of Rs.15 Cr was received in assessment years

2009-10, and 2010-11, for five years. Thus, the assessee

received, at an average, Rs.3 Cr per year as non compete fee.

This, as rightly contended by the assessee and as also

rightly taken into consideration by the ld. CIT(A) while

deleting the addition, if added to the margin of 10% charged

from M/s Jai Suspension Systems LLP by the assessee,

would result in an additional margin of around 1.78%, i.e.

11.78%, rather than 10%. The GP rate would, thus, work

out to be substantially better. The AO erred in not taking

into account this aspect of the matter, despite the fact that

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 48 due Income Tax stood already paid on the non compete fee

received by the assessee.

22.2 The assessee had submitted that no addition on

account of GP rate could be made by comparing the GP rates

of the assessee and its subsidiary entity, as both the entities

were operating in substantially different segments, as per

the details filed. Again, such assertions on behalf of the

assessee remained uncontroverted. It was not disputed that

the assessee and its subsidiary were operating in

substantially different segments. This being so, again, as

rightly contended, the GP rates of the assessee and its

subsidiary entity were not comparable and, therefore, no

addition on account of GP rate could have been legally made

by comparing such GP rates.

22.3 Too, the assessee's contention to the effect that it was

always selling products to M/s Jai Suspension Systems LLP

at a cost + 10% margin, which process had been duly

accepted by the Department in scrutiny assessment

proceedings in the earlier years, as above, has not been

brought to challenge. As stated before the authorities below

by the assessee and reiterated before us, the assessee has

been selling semi-finished products to M/s Jai Suspension

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 49 Systems LLP on a margin of 10% above cost consistently

since 2009-10. In fact, as per the Excise Rules, which are

applicable to the assessee, since it is registered under the

Excise Act, the cost plus 10% margin method is the

prescribed method of valuation for transfer of semi-finished

goods to a related party. The assessee had also placed

before the authorities below, the Guidance Note of the

Institute of Cost & Work Accountants of India, at CAS-4. In

this Guidance Note, it has been stated that Rule 9 of the

Central Excise Valuation (Determination of Price of Excisable

Goods) Rules, 2000 deals with sales of a related person; that

“related person” has been defined in Section 4(3)(b) of the

Excise Act; that if a manufacturer sells goods to any related

person, it will be treated as goods sold to a related person;

that Rule 9 specifies that the goods can be sold to a related

person for two purposes, one for onward sales when the

related person is a dealer/distributor of the assessee and,

second, where the related person buys goods from the

assessee for consumption in the production or manufacture

of the articles, the value shall be determined in the manner

specified in Rule 8, i.e., assessable value to be 110% cost of

production as per the proviso to Rule 9. Further, it was also

brought on record that the assessee company has been

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 50 obtaining certificates from the qualified Cost Accountants

regularly/periodically for valuation as per the Excise Rules,

for fixing the rates to be charged on the cost plus 10%

margin method for semi-finished goods sold to M/s Jai

Suspension Systems LLP. Copies of such certificates were

also placed on record before the AO vide Note alongwith

letter dated 03.03.2015.

22.4 The adopting of the aforesaid method by the assessee

stands duly accepted by the Department consistently over

the years, under scrutiny assessment and no addition with

reference thereto has been made. The documentary evidence

furnished by the assessee in this regard stands tabulated in

the written submissions filed by the assessee before the ld.

CIT(A), as reproduced at pages 44 and 45 of the impugned

order.

has been any change in the facts and circumstances of the

case for the year under consideration vis-à-vis the said

earlier assessment years. It being so, there was no occasion

for the AO for taking a divergent view from that taken by the

Department in the earlier years in not making any deduction

in this regard.

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 51 24. The ld. CIT(A), it is seen, has duly taken into

consideration all the above factors and has recorded

elaborate findings of fact with regard thereto, and it is on the

basis of thereof that the ld. CIT(A) has, and, in our

considered opinion, rightly so, deleted the addition made by

the AO wrongly. It is, therefore, that we find that the

deletion ordered by the ld. CIT(A) requires no interference at

our hands.

24.1 Then, the order of the Tribunal on this issue, for A.Y.

2009-10, under exactly similar facts and circumstances as

present for the year under consideration, stands confirmed

by the Hon'ble High Court, vide its order (supra) dated

13.10.2023, passed during the pendency of the present

appeal before us. The said order of the Hon'ble High Court

has not been shown to have been reversed, or even stayed,

on appeal, or otherwise.

therein, Ground Nos. 3 and 4 raised by the Department are

rejected.

an allegation that the order passed by the ld. CIT(A) is a

perverse order. As to how it is so, has not been made out by

ITA 689&690/CHD/2022 A.Y. 2012-13 & 2013-14 52

the Department before us. Accordingly, this Ground is also

rejected.

in ITA No. 690/CHD/2022 to those of ITA No.

689/CHD/2022, our findings given in ITA No.

689/CHD/2022 would apply, mutatis-mutandis, to ITA No.

690/CHD/2022 also.

Order pronounced on 23rd January,2024.

Sd/- Sd/- (VIKRAM SINGH YADAV) (A.D.JAIN ) ACCOUNTANTMEMBER VICE PRESIDENT “Poonam” आदेश क� �ितिलिप अ�ेिषत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�/ CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड� फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar