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TMI Blog2011 (11) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same. The addition has resulted into double addition as the same has already been accounted for as sales. 3. In not allowing deduction u/s 80IC of the Income Tax Act, 1961 even though the assessee had complied with all the conditionalties as provided under the said section. 3. The brief facts of the case are that the assessee had after claiming deduction u/s 80IC of the Act filed return of income declaring Nil income on 14.11.2007. The deduction u/s 80IC of the Act was claimed at Rs. 4,76,261. The case was picked up for scrutiny and as per para 2 of the assessment order the Ld. AR for the assessee attended the assessment proceedings and produced the books of account alongwith bills and vouchers. As per the Assessing Officer, the various information called and details as per the queries were also filed, which were examined with reference to the books of account. The above said findings of the Assessing Officer are part of para 2 at page 1 of the assessment order. 4. The assessee is a partnership concern consisting of father and his two sons and has derived income from manufacture of Venation Blinds. The production from the manufacturing unit was stated on 30.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment. The assessee was show caused to explain as to why the case be not considered as that of splitting up of business and deduction claimed u/s 80IC of the Act be disallowed. In reply, the assessee explained that it was not formed by splitting or from reconstruction of the business already in existence and there was not transfer to the new business of any machinery or plant previously used for purpose. The Assessing Officer was of the view that it was a case of splitting up of business already in existence of M/s Decor International, Delhi and Rai and the assessee did not qualify for exemption u/s 80IC of the I.T. Act. The Assessing Officer further noted the manufacturing process undertaken by the assessee and observed that the various basic items for said manufacturing process were not purchased by the assessee and only one scissor was used to get a turn over Rs. 24,82,148/-. Further, the assessee had employed only two workers during the manufacturing process. The Assessing Officer was of the view that from the abovesaid facts it can reasonably be inferred that no manufacturing activity was done at Parwanoo and if done was on a nominal scale. 5. The Assessing Officer also scr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remain the same in the bill book. The Assessing Officer thus held that inflated recording of the amounts in the books of account was to increase the profits and not to pay the taxes by taking the benefit of exemption u/s 80IC of the Act. Accordingly, the book results of the assessee were rejected as incorrect and the assessment was framed u/s 144 of the Act. The inflated sales of Rs. 3,70,907/- were held to be bogus sales and were included as income from other sources vis-a-vis the balance sales of Rs. 21,11,241/- taking the NP rate 19.176% shown by the assessee, income of Rs. 4,04,863/- was treated as income from business on which no deduction u/s 80IC of the Act was found to be admissible. Further, the Assessing Officer made addition on account of cash introduction by partners totaling Rs. 1,50,000/-. The CIT(A) dismissed the plea of the assessee against invoking the provisions of section 144 of the Act and also upheld the addition of Rs. 3,70,907/- as income from undisclosed sources and also denial of deduction u/s 80IC of the Act. The CIT(A) however, deleted the addition of Rs. 1,50,000/- on account of capital contribution by the partners, which as per the CIT(A) were to be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer and CIT(A) pointed out that the manufacture process was carried on with the help of only one scissor and two workers and the said findings of the Assessing Officer have not been disputed by the assessee. 8. We have heard the rival contentions and perused the records. The assessee during the year under consideration claims to have started a manufacturing unit at Panchkula. The production was started on 30.8.2006 and the year in appeal is the first year of production. The assessee had claimed deduction u/s 80IC of the Act against the profits of the said unit. The assessee firm constitutes of father and his two sons. The father was carrying on the business of manufacturing of Venation Blinds under his sole proprietorship concern of M/s Decor International at New Delhi and at Rai, Haryana. The brand name Decor was registered as the property of Shri Suresh Gupta, who is the senior partner in the assessee firm before us. The assessee claims to have started production of the venation blinds at Panchkula by using the connections of M/s Dector International, which was proprietorship concern of the partner. For carrying on the business, credit purchases were made through/from M/s Decor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticles or thing specified in 14th Schedule of the Act. The assessee before us had established its manufacturing unit in Himachal Pradesh, an industrial backward State specified in Eighth Schedule to the Income Tax Act. The initial year of manufacture was financial year 2006-07, in proof of which, certificate of Government department is placed on record. The assessee firm is registered under the Central Sales Act for manufacture and sale of venation blinds and the said certificate of registration is placed at pages 11 & 12 of the paper book. The assessee is further registered under the H.P. VAT Registration Act and the said certificate is enclosed at pages 13 & 14 of the paper book. The manufacturing unit of the assessee is also exigible to the excise Act and the provisional registration certificate is placed at pages 10 of the paper book. 11. As per the provisions of section 80IC(iv) of the Act, the conditions to be fulfilled by the undertaking or the enterprises are enshrined. It is provided that for availing deduction u/s 80IC of the Act, the undertaking or enterprises is to fulfill the following conditions i.e. (i) it is not formed by splitting up or the reconstruction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sister concern. The goods manufactured by the assessee were sold to the said sister concern as there is already an established market and sales network of the said concern and even the brand name of Decor is established in the market, which is the proprietory of M/s Decor International. The said concern is carrying on its activities as before and no part of business has been transferred to the assessee firm. In view thereof, we find no merit in the stand of the Assessing Officer that the business of the assessee before us was formed by splitting up or reconstruction of the business of the sister concern already in existence. 12. The second objection of the Assessing Officer in respect of the non carrying of the manufacturing activity was the lack of the machinery at the Parwanoo unit. The explanation of the assessee was that it was getting the goods manufactured on job work basis and hence the lack of machinery. Further, deduction u/s 80IC of the Act is allowable to an undertaking which is engaged in manufacture or production of any article or thing and the term production is wide enough to include many activities under it. 13. The next plank of the observation of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was an error on the part of the employees, in making entries in the sale bills, which was rectified before the goods were transferred to the party. The Assessing Officer rejected the explanation of the assessee and held the said sales to be bogus sales and included the same as income from other sources. We find no merit in the order of Assessing Officer in making the aforesaid addition without making the necessary verification in the case. The plea of the assessee that the sales reflected by it are duly reflected in its books of account stands accepted by the Sales Tax Department and in the interest of justice, we are of the view, that the stand of the assessee needs to be established by way of third party evidence. As pointed out by us in the paras hereinabove, the majority of sales have been made to the sister concern M/s Decor International and the veracity of the claim of the assessee can be established by reference to the aforesaid sales made during the year. Admittedly, 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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