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TMI Blog2013 (9) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings, the Assessing Officer observed that assessee had an office in Delhi wherein it was engaged in the areas of telecom access network, telecom power solutions and long distance telephony applications. The Assessing Officer further observed that the assessee had claimed to have set up a manufacturing unit in Parwanoo in Himachal Pradesh the income of which has been claimed to be exempt u/s 80IC of the Act. From the documents and records provided by the assessee, the Assessing Officer made the following observations:- i) That there was only five employees in the Parwanoo Unit which included one sweeper and it was not possible for such a small team of four persons who could generate production equivalent to Rs. 1,34,39,000/-. ii) That in Delhi Unit there were 23 employees who generated revenue of Rs. 36,68,846/- whereas in the Parwanoo Unit in a period of four months it generated turnover of Rs. 1,34,39,000/-. iii) That assessee failed to furnish list of employees with addresses and duties assigned to each of them. iv) That assessee failed to submit a copy of quarterly return of Himachali and Non Himachali empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with their addresses, nature of Duty, date of Employment and Qualification for Delhi and Parwanoo are once again enclosed in Annexure III. It may be noted that all the employees are registered with Employees Provident Fund and Payment of Salary to every employee is paid vide cheque. Claim of Deduction under See 801C of the Income Tax Act 1961: The Company with effect from September 2004 has started Manufacturing Facility in Parwanoo to produce telecom products and equipments after registration with Department of Industries (nodal agency). The Company has decided to enter into manufacturing in Parwanoo in addition to consultancy services of Design & Development services to telecom manufacturing companies at Delhi (no manufacturing or trading at Delhi for the year under reference or in the previous year and only consultancy activity at Delhi, kindly refer annual reports on records). being high technology equipments its always foreseen high profitability in manufacturing activity. At no point of time the unit can be said to be formed by splitting or shifting of the activity from Delhi so the conditions of 801C is fully complied in its entirety. It may be noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plitting of the Delhi unit. Refer the explanation given in point no. 4 above and the list of employees produced (most of the employees is in continued services from the previous year). The unit has not been formed by transferring business of machinery & plant previously used for any other purpose as certified by Department of Industries and addition to fixed assets given in the previous hearings. As mentioned above the Company was not manufacturing any telecom in the previous years and giving consultancy services only from Delhi Unit (providing design and telecom services) till setting up of manufacturing facility (telecom products) in Oct 2004 at Parwanoo unit. Hence No question of transfer of Plant and machinery or Fixed Assets arise. There cannot be a revenue correlation between design service business (Consultancy) being run at Delhi & manufacturing business being run at Parwanoo. The revenue and expenses of the Delhi unit can be only correlated with Delhi unit and is very much justified refer point no. 4 above and earlier submissions refer certified report of auditors also regarding the same. The activities at Delhi and Parwanoo are categorically di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts submitted by itself that the unit was not an exclusive independent unit. It was an extension of the Delhi Unit and the assessee has diverted the profit of the Delhi unit to this new branch along with some part of its activities. It is clear from the fact that even In the period of four months and with four employees only it had achieved the alleged huge production and revenue which surpassed its revenues of its main and bigger unit at Delhi. The observation also gets strength from the admission of the assessee itself that its Director Mr. Sankalp Srivastava was the major technical person In setting and giving technical assistance on the manufacturing unit at Parwanoo whose value addition on the. manufacturing activity is said to be out of estimation. If it was so even then why no expenses relating to the remuneration or any other nature for Mr. Srivastava were found debited to the account of the Parwanoo Unit. In view of the above facts and circumstances it is found that the explanation and reply of the assessee is not complete and specific to the issue and queries raised. Hence, it is held that conditions stipulated in the statute for allowing deduction u/s80IC of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Quoting the provisions of section 80IC, the Ld AR examined that all the conditions prescribed under the said section have been fulfilled by the appellant. It is further seen that the ratios of the decisions in the cases of CIT vs. Continental Engines Ltd., (2011) 60 DTR (Del) 40, and ACIT vs. Sobhagia Clothing Co., (2009) 125 TT J (Del) 980, relied upon by the appellant are clearly applicable in its case. In the aforesaid facts and circumstances of the case and in the light of the appellant's submission and the case laws relied upon by it, I am of the considered opinion that the disallowance of deduction u/s 80lC of the Act has been wrongly made by the ld. AD. Accordingly, the ground nos. 1 to 5 are allowed to the appellant with the direction to the AD to grant deduction u/s 80lC to it. 5. Aggrieved, the revenue is in appeal before us. 6. At the outset, the Ld DR submitted that assessee was engaged in the manufacturing of highly technical products and it had only four employees who were not technically qualified. In this respect, relevant portion of assessment order was read. The ld DR submitted that in a period of four months, without the help of technical pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tail of raw material purchased at paper book pages 69 to 76 and detail of sale in Parwanoo Unit from paper book pages 50 to 68. Our attention was also invited to paper book pages 94 to 99 where detail of out sourcing expenses incurred by the assessee were placed. In view of the above facts it was argued that assessee had set up the project and had installed necessary plant & machinery for its operation and it had started manufacturing from 27.11.2004 and it had filed sales tax return with the prescribed authority. Therefore, the Ld CIT(A) had rightly deleted the addition made by the Assessing Officer. 8. Ld AR further argued that the objection of Assessing Officer regarding non withdrawal of any salary from Parwanoo Unit is not relevant as the Managing Director of company had not derived any salary from Delhi Unit also. 9. In his rejoinder, the Ld DR took us to page 2 of assessment order and the profile of assessee company as submitted by it to Assessing Officer and invited our attention to paper book page 140 wherein a copy of letter written by the assessee to Ld CIT(A) was placed and in view of the contents of letter the Ld DR argued that as per step-4 even assembly of product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of total turnover. During remand proceedings, the Assessing Officer issued notice u/s 133(6) to four out of these five parties, out of which only one party namely M/s Valiant Communication Ltd. filed confirmation to whom turnover of only Rs. 1,37,000/- was made which constituted 1.02% of total turnover. Further one Mr. Rajesh Chadha landlord of assessee filed confirmation. One party M/s Kudal Telecom was not issued notice u/s 133(6) The rest of three parties which constituted the major turnover of assessee company did not file any reply with Assessing Officer. Even the reply filed by M/s Valiant Telecom Pvt. Ltd. as placed in paper book page 121 explains the transactions of assessee company of their Delhi Unit as is apparent from paper book page 128 where a copy of account of assessee company in the books of accounts -++++++ of M/s Valiant Communication Ltd. is placed. The above said ledger account clearly shows that M/s Valiant Communication Ltd. had credited the account of the assessee company on account of technical know how fee and provision for royalty. The turnover claimed to have been made from Parwanoo Unit vide Bill No.503 dated 9.3.2005 has been credited by Valiant Commu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has ignored these important facts and has just decided the issue in favour of assessee on the basis of entries of sales made by the assessee. The Assessing Officer had raised a point that in such a short period without the help of sufficient plant & machinery, production of such an amount was not possible which the Ld CIT(A) simply ignored and on the basis of books of accounts of the assessee allowed the claim. 13. The contentions of Ld AR before us included that there was sufficient evidence to support that unit was established and further he argued that turnover was reported to sales tax authorities. We do agree with the Ld AR that assessee had every document to support that unit was established and we also agree with Ld AR that turnover was intimated to Sales tax authorities but the important question remains whether the entries of sales and purchases were any book entries or actual entries. The doubt of book entries is further corroborated by the fact that out of turnover of Rs. 1,34,39,000/- during the year an amount of Rs. 1,06,53,550/- remained invested in sundry debtors and out of purchases of Rs. 51,19,374/- an amount of Rs. 33,48,468/- remained unpaid upto 31.3. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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