9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (5) TMI 12 - AT - Income TaxRejection of accounts and estimation of profit - HELD THAT - Assessee states of the AO having not followed the directions by the Jt. CIT u/s. 144A, he does not explain as to in what manner, nor has made these directions a part of the paper-book. In fact, the AO himself states of the assessment order of it being in deference to the guidance issued u/s. 144A. We consider it pertinent to mention this as a direction/s u/s. 144A is binding on the AO, so that any action by him inconsistent therewith, cannot hold. Deduction u/s. 80IB - consolidated income from two units, christened Unit I and Unit II - whether the second unit was an extension of the first unit or a separate unit? - HELD THAT - What is decisive of the matter, and the test therefore of a new unit is its independence, i.e., from the first (existing) unit. We say so as this only would distinguish a case of extension substantial or otherwise, of a unit from establishing a new undertaking. The ld. CIT(A), though appreciates this as the issue (para 3, pg. 4 of the impugned order), does not issue any finding thereon, merely stating that there is no splitting or reconstruction of the existing unit. The assessment, is set-aside back to the file of the AO for proper determination, who shall examine the issue in all its aspects, and decide afresh, taking into account the material deemed relevant, including that the assessee may wish to additionally rely upon. This, then, decides the issue as regards deduction u/s. 80-IB. Capital receipt - The only issue is if the same is, as claimed by the assessee, reduced from the cost of the relevant plant and machinery for claim of depreciation. If so, that is the end of the matter. If not, the same would need to be adjusted for computing the depreciation admissible (refer Explanation 8 to s. 43(1)). - Revenue s appeal is allowed for statistical purposes.
Issues Involved:
1. Eligibility of deduction under Section 80-IB for the second unit. 2. Classification of capital subsidy as a capital receipt and its impact on depreciation claims. 3. Validity of the Assessing Officer's (AO) rejection of accounts and estimation of profit. Detailed Analysis: 1. Eligibility of Deduction under Section 80-IB for the Second Unit: The primary issue is whether the second unit established by the assessee qualifies as a separate, independent unit eligible for a 100% deduction under Section 80-IB of the Income Tax Act, 1961. Assessing Officer's Findings: The AO concluded that the second unit was not a separate entity but an extension of the first unit. This conclusion was based on several observations: - Both units operated from the same premises without additional land purchase. - No separate records for EPF, labor, and electricity bills for Unit II were produced. - Both units manufactured the same products. - There was substantial capital transfer from Unit I to Unit II. - A significant decline in sales and profits of Unit I was observed, suggesting a shift of profits to Unit II to benefit from tax exemptions. The AO inferred that the assessee shifted production and profits to the new unit to exploit the 100% deduction under Section 80-IB, citing the decision in Orient Paper Mills Ltd. v. CIT [1989] 176 ITR 110 (SC). CIT(A)'s Findings: The CIT(A) found that the second unit was indeed a separate entity based on: - Separate registration certificates from the District Industry Centre (DIC) for both units. - Separate power load connections and pollution certificates. - Fulfillment of all conditions under Section 80-IB, as the second unit was not formed by splitting up or reconstruction of an existing business. Tribunal's Observations: The Tribunal noted several key points: - The satisfaction of Section 80-IB conditions was not in question, as the AO allowed deductions at a reduced rate of 25%. - The CIT(A) did not provide a definitive finding on whether the second unit independently satisfied Section 80-IB conditions. - The CIT(A) failed to address the AO's findings adequately. The Tribunal emphasized the need for a detailed examination of whether the second unit could operate independently of the first unit. It suggested a process chart and verification of the new plant and machinery to determine if the second unit was genuinely independent. The Tribunal set aside the assessment back to the AO for a thorough re-examination of all aspects, including the independence of the second unit and the transfer of capital. 2. Classification of Capital Subsidy as a Capital Receipt: The second issue revolves around the classification of the capital subsidy received by the assessee and its impact on depreciation claims. Assessing Officer's Findings: The AO brought the capital subsidy of ?136.27 lacs to tax. CIT(A)'s Findings: The CIT(A) classified the subsidy as a capital receipt based on decisions from the Apex Court in Ponny Sugar and CIT v. Meghalaya Steels Ltd. [2016] 383 ITR 217 (SC). Tribunal's Observations: The Tribunal agreed with the CIT(A) that the subsidy was a capital receipt. The only remaining issue was whether the subsidy amount was reduced from the cost of the relevant plant and machinery for depreciation claims. If so, no further adjustments were needed. If not, the subsidy would need to be adjusted for computing admissible depreciation. 3. Validity of AO's Rejection of Accounts and Estimation of Profit: The third issue concerns the AO's rejection of the assessee's accounts and the estimation of profit. Assessing Officer's Findings: The AO estimated the profit rate at 17.5%, based on historical data, due to unverifiable cash expenditures and unexplained declines in profits. CIT(A)'s Findings: The CIT(A) found no substance in the AO's rejection of accounts and estimation of profit, noting that no defects were pointed out by the AO. Tribunal's Observations: The Tribunal did not explicitly address this issue in detail but implied that the AO's findings needed re-examination in light of the overall assessment being set aside. Conclusion: The Tribunal set aside the assessment back to the AO for a detailed re-examination of the eligibility of the second unit for deduction under Section 80-IB and the classification of the capital subsidy. The Revenue's appeal was allowed for statistical purposes, and the AO was directed to decide afresh based on a comprehensive evaluation of all relevant material and explanations provided by the assessee.
|
