2015 (6) TMI 444 - AT - Income Tax

Computation of relief u/s 80 IC - Held that - When Baddi Unit had transferred the goods to other units on cost basis, and when separate accounts are maintained by Baddi Unit and profits arrived at, the question of coming to a conclusion that this profit so arrived at contains trading profit is against the facts of the case. The separate books maintained have not been rejected. Under these circumstances we agree with the contentions of the Ld. Counsel for the assessee and allow the grounds raised by the assessee. The AO is directed to allow the deduction u/s 80IC of the Act as claimed by the assessee. - Decided in favour of assessee.

Issues involved:
Computation of relief under section 80 IC of the Income Tax Act for a company engaged in manufacturing and trading of electrical goods, cables, metals, cloth, and appliances.

Detailed Analysis:

1. Factual Findings by First Appellate Authority:
The First Appellate Authority examined the trading and profit & loss account of the Manpura unit to verify facts related to stock transfers among different units. The Authority noted substantial stock transfers between Manpura, Ghaziabad, and Delhi units, indicating interlinking operations. Sales data revealed that goods manufactured at Manpura, such as geysers and fans, were sold by various branches and the head office, challenging the appellant's claim that only non-Manpura goods were sold by the Delhi office. However, the Patna branch had no sales during the year.

2. Conclusions of the Ld.CIT(A):
The Ld.CIT(A) concluded that the profits of the Manpura unit were not solely from manufacturing but also from trading activities due to significant inter-unit transfers. The Authority disagreed with the AO's decision to reduce the loss of the Patna unit from the net profit of the Manpura unit for computing deduction under section 80IC. The decision to reduce the loss of the Ghaziabad unit from the net profit of the Manpura unit was confirmed.

3. Grounds of Appeal by the Assessee:
The appellant raised grounds challenging the AO's assessment of deduction under section 80IC, alleging arbitrariness and lack of reasoning. Specific objections were made regarding the treatment of losses from the Ghaziabad unit and disallowance based on estimated profits derived from head office and branches.

4. Arguments by Ld.Counsel and Ld.DR:
The Ld.Counsel argued that separate accounts were maintained, books audited, and no discrepancies found in inventory. He emphasized that goods were transferred at cost and disputed the hypothetical deductions made by the AO. The Ld.DR contended that profits from Manpura unit were partly derived from trading activities, supported by the sales data.

5. Tribunal's Decision:
After considering submissions and reviewing the facts, the Tribunal found that the profits of the Manpura unit, arrived at through separate accounts and cost-based transfers, did not contain trading profits as alleged. As the factual claims were not contradicted, the Tribunal allowed the appeal, directing the AO to grant the deduction under section 80IC as claimed by the assessee.

In conclusion, the Tribunal's decision favored the assessee, emphasizing the importance of factual evidence and maintaining separate accounts to determine the eligibility for deductions under section 80IC of the Income Tax Act.

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