2010 (11) TMI 601 - AT - Income Tax

Disallowed - Deduction u/s 80IC - assessee was maintaining separate books of account for eligible unit (Parwanoo unit). This aspect had been established by the report of the auditor - held that - revenue has not brought any positive material on record to show that there was over or inflated billing for enhancing the profit - assessee was enjoying tax exemption from central excise duty for eligible unit which had led to the higher rate of profit for this unit - The higher rate of profit was also on account of exemption from payment of excise duty and differentiation in the product - assessee has established that the price of multiple MCBs cannot be aggregate of equal number of single pole MCBs - The units located at Jalandhar, Noida and Murthal are old units which are having old machinery in comparison to the newly established unit at Parwanoo which had also given higher rate of profitability - Decided in favour of the assessee

Summary

Issues Involved:
Reducing claim from deduction u/s 80IC of the Income-tax Act

Analysis:
The appeal was filed by the revenue against the order of CIT (Appeals)-XV, New Delhi for the assessment year 2005-06. The only issue involved was regarding reducing the claim from deduction u/s 80IC of the Income-tax Act to Rs.3,48,54,665/-. The revenue contended that even if separate books of account are maintained, the working of deduction u/s 80IC can be disturbed if the facts warrant it. The revenue sought to set aside the order of CIT (A). On the other hand, the assessee argued that in previous and subsequent assessment years, the claim of deduction u/s 80IC had been accepted by the Assessing Officer. The assessee maintained that separate books of account were indeed maintained for the eligible unit and corporate office expenses were allocated based on turnover. The assessee also refuted claims of overvalued stock transfers, understated costs, and profit diversion. The assessee emphasized the principle of consistency and cited relevant case law to support its position. The CIT (A) had accepted the reliability of the assessee's books of account and upheld the claim.

The ITAT found that the assessee had indeed maintained separate books of account for the eligible unit and that the revenue failed to provide evidence of over or inflated billing to enhance profits. The ITAT also noted that the revenue did not substantiate the claim of expenses being understated to inflate profits. The ITAT acknowledged that the tax exemption for the eligible unit led to higher profitability, especially due to product differentiation and manufacturing premium products like RCCBs and MCBs. The ITAT highlighted the significant increase in sales for the eligible unit and the unique nature of the products manufactured there compared to other units. The ITAT upheld the order of the CIT (A) based on the established facts and circumstances. Consequently, the appeal of the revenue was dismissed.

In conclusion, the ITAT's detailed analysis considered the maintenance of separate books of account, allocation of expenses, product differentiation, and profitability factors to uphold the order of the CIT (A) regarding the deduction u/s 80IC for the assessment year 2005-06. The judgment emphasized the importance of factual evidence and consistency in tax proceedings while dismissing the revenue's appeal.