2016 (9) TMI 752 - AT - Income Tax

Admissible deduction u/s 80IC - AO has reduced the deduction on the ground that out of the 3 exempted and 3 non-exempted units owned by the assessee in different states the maximum N.P. rate for a taxable unit was 6.90% while that for an exempted unit the minimum NP rate was 13.4% - WHETHER the gap between the profits of the taxable units and non exempted units appears to be unrealistic? - Held that - The assessee has produced all the books of accounts and vouchers before the AO during the assessment proceedings. In fact, no show cause query was issued by the AO on this account during the assessment proceedings. The AO has not considered the fact that the units in exempted zones are mainly engaged in manufacturing on job work basis where there is either negligible or no input cost of raw material involved. It was noted that if the sales were made using their own raw material, there would be substantial difference in the GP rate insofar as, if the cost of raw material was excluded, the GP rate in all the units would remain the same. The fact that the exempted unit at Haridwar has shown a loss has not been referred to by the AO. Therefore, it is clear that no profit has been diverted to this unit. It was further noted that there has been no investigation or specific exercise to show that the amount claimed as deduction u/s 80-IC was wrong. We find considerable cogency in the finding of the Ld. CIT(A) that there is no ground for disallowing claim for job work expenses for the eligibility u/s 80-IC as the same is allowable as per the decision of his Predecessor for the AY 2009-10. Therefore, the Ld. CIT(A) has rightly deleted the addition 10,04,37,872/- - Decided against revenue

Summary

Issues:
Appeal against reduction of deduction under section 80IC by Assessing Officer invoking provisions of section 80IC(7) r.w.s. 80IA(10) - Disallowance of deduction amounting to ?10,04,37,872 - Appeal by Revenue against CIT(A) order deleting the reduction claim.

Analysis:
1. The assessee filed its return of income claiming a deduction of ?21,36,05,429 under section 80IC of the Income Tax Act, 1961. The Assessing Officer (AO) observed a close connection between exempted and taxable units, alleging that profits diverted to exempted units exceeded reasonable expectations. Consequently, the AO reduced the deduction to ?11,31,67,557, disallowing ?10,04,37,872.

2. The CIT(A) deleted the reduction claim by the AO, leading to the Revenue's appeal before the Tribunal. During the hearing, the Revenue argued for upholding the AO's order, while the Assessee's Counsel relied on past CIT(A) decisions favoring the Assessee. The Tribunal analyzed the case in detail, considering submissions and evidence.

3. The CIT(A) extensively discussed the issue, noting the AO's basis for reducing the deduction and the Assessee's defense. The CIT(A) found that the AO lacked substantial evidence and did not consider critical factors, such as the nature of units in exempted zones and job work basis operations. The CIT(A) emphasized that no investigation proved the deduction claim was incorrect.

4. The Tribunal concurred with the CIT(A)'s findings, citing consistency in past decisions favoring the Assessee. Referring to previous years' judgments and Delhi Tribunal decisions, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. The Tribunal emphasized the lack of grounds for disallowing job work expenses for eligibility under section 80IC.

5. Considering the precedents and the well-reasoned order by the CIT(A), the Tribunal found no need for interference and upheld the CIT(A)'s decision. The Tribunal dismissed the Revenue's appeal, affirming the deletion of the reduction claim under section 80IC by the CIT(A).

This comprehensive analysis highlights the key details and legal reasoning behind the judgment, focusing on the issues raised in the appeal and the Tribunal's decision based on the arguments presented by both parties.