2021 (9) TMI 20 - AT - Income Tax

Assessments completed us 153C - Deduction u/s 80IC - proof of manufacturing activities provided or not? - whether certain incriminating documents were seized during the course of search operation as mentioned in the so-called satisfaction note? - HELD THAT - On the basis of certain documents relating to the two months of the Financial Year 2008-09 have made consequential addition in the AY 2005-06, 2006-07, 2007-08 2008-09 and extrapolating the same other AY carries no logic without any material found during the course of search/survey and there is no basis for such extrapolating and, therefore, the conclusion for the Assessment Year 2005-06 to 2008-09 totally misplaced. No evidence have been brought on record to show the assessee has got work done for the sister concern in excess of what is recorded in the books of accounts and even the charges for the work done by the sister concern, is no way lower than the market rate and, therefore, the claim of deduction u/s 80IC for all the years i.e.; for Assessment Year 2005-06, 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11 as claimed by the assessee has rightly been allowed by the different CIT(A)s and the documents which have been found during the course of search have successfully been rebutted before us and before the authorities below. Even the department have not rejected the books of accounts of the assessee or of any sister concern and the fact that the Assessing Officer have no basis to disallow the claim u/s 80IC is borne out from the fact that contradictory stand have been made by the different Assessing Officer for part disallowance of deduction u/s 80IC before the search and even after the search, different formulas have been adopted for making ad-hoc disallowance of deduction us 80IC on surmises and conjectures and which has rightly been deleted by the CIT(A) For the Assessment Year 2012-13, the deduction of 30% as eligible to the assessee under section 80IC had been allowed by the Assessing Officer, which was subject matter of the action u/s 263 by the PCIT and the matter was carried to the ITAT 2016 (9) TMI 1604 - ITAT AMRITSAR which cancelled the order of the PCIT as passed us 263 and no further appeal was filed by the department - As issue have attained finality and further for Assessment Year 2013-14 2014- 15, the Assessing Officer had allowed the deduction as claimed by the assessee @30% as eligible deduction for that year in the order passed us 143(3) and since the facts and circumstances, for these years are the same as in the earlier years and, therefore, when on an issue, a particular claim has been settled one way or the other, then the consistency has to be maintained as per the binding judgment of the jurisdictional High Court in the case of Leader Valves Ltd. 2007 (1) TMI 70 - HIGH COURT, PUNJAB AND HARYANA and Berger Paint 2004 (2) TMI 4 - SUPREME COURT No merit in the argument of the department, and that the claim of the assessee for deduction u/s 80IC is hereby held to be legally justified and therefore, all the appeals of the department are dismissed.

Summary

Issues Involved:
1. Deduction under Section 80IC of the Income Tax Act.
2. Search and seizure operations and their implications on the assessment.
3. Validity of the Assessing Officer's methodology in disallowing deductions.
4. Consistency in the application of tax laws and deductions across different assessment years.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IC of the Income Tax Act:
The primary issue revolves around the deduction under Section 80IC claimed by the assessee. The Assessing Officer (AO) initially allowed the deduction at 20% of the profit, citing that not all manufacturing activities were carried out at the Gagret unit. However, the CIT(A) allowed 100% deduction, which was affirmed by the ITAT. The High Court remanded the case back to the ITAT for a detailed speaking order. The ITAT, upon review, found that the assessee had established a unit at Gagret with the latest machinery and was actively engaged in manufacturing activities. It was noted that only a negligible portion of printing and binding was outsourced, which did not justify the reduction in the deduction claimed under Section 80IC.

2. Search and Seizure Operations and Their Implications on the Assessment:
A search was conducted on the assessee's premises on January 22, 2009, and certain documents were seized. The AO used these documents to argue that substantial work was done outside the Gagret unit, leading to the disallowance of 80% of the deduction claimed. However, the ITAT found that the documents and statements relied upon by the AO did not conclusively prove that the majority of the work was outsourced. The ITAT emphasized that the AO's assumptions were based on incorrect data and misinterpretations.

3. Validity of the Assessing Officer's Methodology in Disallowing Deductions:
The AO's methodology in disallowing deductions was scrutinized. The ITAT noted that the AO compared the stock and employee numbers of the Gagret unit with multiple units at Jalandhar, which was not a fair comparison. The ITAT also highlighted that the AO did not reject the books of accounts or the method of accounting followed by the assessee. The ITAT found that the AO's reliance on certain seized documents and statements was misplaced and did not justify the disallowance of 80% of the deduction.

4. Consistency in the Application of Tax Laws and Deductions Across Different Assessment Years:
The ITAT observed inconsistencies in the approach of the department regarding the deduction under Section 80IC across different assessment years. For some years, the deduction was allowed fully, while for others, it was significantly reduced without substantial changes in the facts and circumstances. The ITAT emphasized the need for consistency and upheld the CIT(A)'s orders allowing the full deduction. The ITAT also noted that for subsequent years (2012-13 to 2014-15), the deduction was allowed without any disallowance, further supporting the assessee's claim for earlier years.

Conclusion:
The ITAT dismissed the appeals of the department, affirming the CIT(A)'s decision to allow the full deduction under Section 80IC for the assessment years in question. The ITAT found that the AO's disallowance was based on incorrect assumptions and misinterpretations of the seized documents and statements. The ITAT emphasized the need for consistency in the application of tax laws and deductions across different assessment years.