2011 (11) TMI 492 - AT - Income Tax

Deduction u/s 80IC - disallowance as capital, control and management of the affairs of the business was that of sister concern Held that - For claiming deduction u/s 80IC, undertaking should not be formed by splitting up or reconstruction of business already in existence. Merely because certain purchases are made from the sister concern or the capital was introduced by the partner by way of certain payments on behalf of the assessee does not establish such fact . The said sister concerns are carrying on its activities as before and no part of business has been transferred to the assessee firm. Therefore, assessee is entitled to benefit of deduction u/s 80IC - in favour of assessee. Assessee getting goods manufactured on job work basis - Held that - The term Manufacture is wide enough to include many activities under it. Thus, manufacture through job work qualify for deduction u/s 80IC - in favour of assessee. Validity of invoking provisions of Section 144 - Held that - Since A.O. found discrepancies in books of account hence, invoking the provisions of section 144 to complete the assessment in a summary manner is justified - against assessee. Difference in sales in bills vs books - Held that - There is a discrepancy in the sales bill which as per the assessee was corrected by way of cuttings which are reflected in the sales bills forwarded to the party but the duplicate bill was not corrected. The assessee is thus directed to establish its claim by way of any third party evidence and in the absence of the same, the addition in any case, stands confirmed - Issue remitted back to AO for reconsideration - in favor of assessee by way of remand.

Summary

Issues Involved:
1. Invocation of provisions of section 144 of the Income Tax Act.
2. Addition of Rs. 3,70,907/- as income from undisclosed sources.
3. Denial of deduction under section 80IC of the Income Tax Act.

Analysis:

Invocation of Provisions of Section 144:
The assessee contested the invocation of section 144 by the Assessing Officer (AO), arguing that all notices were complied with and there was no default in appearance. The AO invoked section 144 due to discrepancies in sales bills and entries in the books of account. The Tribunal found no merit in the assessee's ground, noting that the discrepancies justified the application of section 144 for summary assessment. The Tribunal thus upheld the AO's invocation of section 144.

Addition of Rs. 3,70,907/- as Income from Undisclosed Sources:
The AO noted discrepancies in sales bills totaling Rs. 3,70,907/- and treated this amount as income from undisclosed sources. The assessee explained that the discrepancies were due to employee mistakes, which were corrected before goods dispatch. The Tribunal found the AO's rejection of this explanation and the resultant addition as income from other sources to be without merit. The Tribunal directed the assessee to establish its claim through third-party evidence and remanded the issue back to the AO for verification, allowing the ground for statistical purposes.

Denial of Deduction under Section 80IC:
The assessee claimed deduction under section 80IC for its manufacturing unit in Himachal Pradesh. The AO denied the deduction, arguing that the unit was formed by splitting up or reconstructing an existing business, Decor International, and that no substantial manufacturing activity was carried out. The Tribunal examined the facts, noting that the unit was registered under various government acts and had started production in the relevant financial year. The Tribunal concluded that the unit was not formed by splitting up or reconstructing an existing business, as Decor International continued its operations independently. The Tribunal also found that the lack of machinery was explained by the job work basis of manufacturing. Consequently, the Tribunal reversed the CIT(A)'s order and allowed the deduction under section 80IC, finding no merit in the AO's objections.

Conclusion:
The Tribunal partly allowed the appeal, upholding the invocation of section 144 but remanding the issue of the addition of Rs. 3,70,907/- for further verification and allowing the deduction under section 80IC.