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TMI Blog2014 (11) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2009-10. Since the undertaking owned by M/s MKU (Armours) Pvt. Ltd. was taken over by M/s MKU Pvt. Ltd. And the main dispute is about allowability of exemption u/s 10B in respect of this very unit, it was agreed by both the sides that these appeals are inter- connected and hence, the appeals and Cross Objections were heard together and are being disposed of by way of this common order for the sake of convenience. 2. First we take up the appeal of the Revenue in the case of M/s MKU (Armours) Pvt. Ltd. i.e. I.T.A. No.612/Lkw/2010. In this appeal, the Revenue has raised the following grounds: "1. That the Commissioner of Income tax (Appeals)-II, Kanpur has erred in law and on facts in deleting the disallowance of Rs. 3,29,28,386/- claimed u/s 10-B without appreciating the facts of the case. 2. That the Commissioner of Income tax (Appeals)-)II, Kanpur has erred in law and on facts in accepting the following additional evidences without providing opportunity to the Assessing Officer by violating the provisions u/r 46A(3) of the Income Tax Rules. (i) An Affidavit dated 11.06.2010 sworn by Shri Manish Khandelwal. Director of the company has been accepted without appreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad Khandelwal. 8. That the Commissioner of Income tax (Appeals)-II, Kanpur has erred in law and on facts in deleting the addition of Rs. 28,386/- without appreciating the fact that it was a Deferred Expenditure and claimed in P/L Account and it was not disallowed by the assessee while computing the total income. 9. That the Commissioner of Income tax (Appeals)-II, Kanpur has erred in law and on facts, even on the presumption that the Commissioner of Income Tax (Appeals)-II, Kanpur has collected the additional evidence (as referred in Ground No.2 Supra) and recorded the statement of one witness under Rule 46A(4), then also there was violation of Principle of Natural Justice by not providing opportunity to examine the evidences so collected and to cross examine the witness by the Assessing Officer and thus the order of the Commissioner of Income Tax (Appeals)-II, Kanpur being erroneous in law, deserves to be set-aside. 10. That the order of the Commissioner of Income Tax (Appeals)-II, Kanpur being erroneous, in law and on facts deserves to be vacated and that the order of the Assessing Officer be restored." 3. Regarding ground No. 2 i.e. regarding violation of Rule 46A, it was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection, Shri Manish Khandelwal attended with Shri G. C. Mishra, the technical staff and their statements were recorded on oath. The CIT(A) has also reproduced the relevant portion of their statements. Thereafter, the CIT(A) has decided the issue on the basis of these affidavits and statements. In our considered opinion, the statements were recorded of Shri Manish Khandelwal along with Shri G. C. Mishra on the direction of CIT(A) and therefore, the said statements are covered by section 250(4) and for these statements, there is no applicability of Rule 46A. Regarding the affidavit of Shri Manish Khandelwal, Director of the assessee also, we are of the considered opinion that affidavit of the Director of the assessee company cannot be considered as a new evidence effected by Rule 46A. On page No. 25 of his order, it is noted by CIT(A) that various documents were submitted by the assessee in pursuance of his specific directions given u/s 250(4) of the Act. Considering all these facts, in our considered opinion, there is no violation of Rule 46A and therefore, we do not find any merit in ground No. 2 raised by the Revenue. Accordingly, this ground is rejected. 6. Regarding other groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Distt, Fatehpur/Ruma Industrial Estate (promoted and development by UPSIDC), Kanpur; c) As per the material coming into possession of the Authorised Officers there existed evidence which went on show that some important machineries had been shifted from 13, Gandhi Gram, Kanpur to the site at Malwa; in this respect reference has been made to the loose papers showing payment of transportation charges for hydraulic machine; d) As per statement given by Sri. G.C. Mishra, Vice President of the "appellant" company most of the process connected with manufacturing, was being undertaken and carried out by the sister concern M/s MKU (P) Ltd. to whom job charges were being paid; e) The "appellant" had set up industrial unit only for claiming benefit under section JOB of the Act, as a sister concern engaged in the same business became disentitled for deduction under section 80HHC on its export turnover, because of change in law' and f) Raw-material etc. were being procured through the sister concern M/s MKU (P) Ltd. 3. The CIT(A) has admitted in Para 6.2.5 page 26 that the assessee has out sourced manufacturing activities as under- "6.2.5 There is no doubt that the appellant had ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents ..... 11. The Hon'ble Bench may be pleased to confirm the order of Assessing Officer as the provisions of section 10B(2) are not fulfilled." 7. In course of hearing, he also submitted that various judgments cited by the assessee are not applicable in the present case because facts are different. He also placed reliance on the judgment of Hon'ble Apex Court rendered in the case of Computer Graphics Ltd. Vs Commissioner of Income- tax [2009] 308 ITR 98 (SC). Reliance was also placed on a judgment of Hon'ble Karnataka High Court in the case of Jeans Knit (P.) Ltd. vs. DCIT [2013] 38 Taxmann.com 112 (Karnataka). He submitted a copy of this judgment. 8. As against this, Learned A.R. of the assessee supported the order of CIT(A). He also submitted that on page No. 109 to 125 of the paper book is an agreement dated 19/03/2007 with M/s MKU Private Limited regarding transfer of EOU Unit of the assessee to that company with effect from 01/04/200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that only 17 items were installed at the factory premises which is the EOU unit of the assessee at 118-E, Shyam Nagar, Kanpur and balance 77 items of the machineries were found to be installed at jacket division of M/s MKU Pvt. Ltd., 30 UPSIDC, Malwan. The Assessing Officer also noted that certain loose papers were also impounded and one bunch of loose papers marked as LOOSE PAPERS-18 contained two bills dated 07/03/2006 and 09/03/2005 for engaging crains and labours for shifting of Hydrolic Press machine to Malwan from 13, Gandhi Gram, Kanpur being one of the factory premises of M/s MKU Pvt. Ltd. and Assessing Officer has enclosed the scanned copy of these two bills with the assessment order. The Assessing Officer has also reproduced portion of the statement of Shri G. C. Mishra, Vice President of the assessee company, which was recorded on the date of survey and particularly he has noted question and answer no. 18. In reply to this question, it was submitted by Shri G. C. Mishra that there are 13 stages for manufacturing of helmet. Based on this statement, the Assessing Officer came to the conclusion that at the address of the manufacturing unit of the assessee company, the only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer that as per the provisions of section 10B, the business should not be formed by splitting up or reconstruction of business already in existence. In this regard, it was the reply of the assessee before the Assessing Officer that the business was not formed by splitting up or reconstruction of business already in existence. In this regard, it is noted by the Assessing Officer on page No. 14 of the assessment order that the undisputed fact is that earlier the name of the assessee company was M/s A. R. Plimsols Pvt. Ltd. and during financial year 2004-05, it was renamed as M/s MKU Armors Pvt. Ltd. and therefore, the assessee company was already in existence. In this regard, we feel that as per clause (iii) of sub section (2) of section 10B, this is a pre requisite for availing deduction u/s 10B that the new business is not formed by transfer of machinery or plant previously used for any purpose. Apart from stating this that there is change in name, nothing is stated by the A..O. that new business was formed by the assessee by transfer of machinery or plant previously used for any purpose and hence, this objection of the A.O. is not valid but there is ample force in the his fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he next judgment cited by Learned A.R. of the assessee is the judgment of Hon'ble Gujarat High Court rendered in the case of Prabhudas Kishordas Tobacco Products P. Ltd. (supra). In this case also, the decision is on the basis that the test is whether the outsider agency works directly under the supervision and control of the assessee and this is immaterial whether the processing is done by the workers employed by the assessee at a place outside the premises of the assessee. Hence, as per this judgment also, the real test is as to whether the outside agency has worked under direct supervision and control of the assessee. In the present case, the assessee was not having sufficient technical experts and it is not shown and established that the outside agency was working under its direct supervision and control and therefore, this judgment is also not rendering any help to the assessee in the present case. 9.2.4 The next judgment cited by Learned A.R. of the assessee is the Tribunal decision rendered in the case Sunrise Metal Industries (supra). In this case also, the decision of the Tribunal is on the same basis that when the outside agency working under direct supervision and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 11. Regarding the finding of CIT(A), we find that he has decided the issue by following three judgments, which we have already discussed in above paras and we have found that these judgments are not applicable because in those cases, this finding was given by Tribunal that the assessee was getting the work done from outside agency under its direct supervision and control whereas in the present case, we have seen that the assessee is not having sufficient technical experts to claim that such job work was done under its direct supervision and control. Hence, in the facts of the present case, the order of CIT(A) is not sustainable. We also find that in Para No. 6.2.9, it is stated by CIT(A) that mere this fact that some of its manufacturing process had been outsourced could not alter its status as manufacturing unit but we have seen that the facts are totally different. In the present case, we have seen that not some of the activities are outsourced but most of the activities are outsourced and very few activities were undertaken by the assessee which is established from this fact that the expenses incurred on job work charges is 8.5 times more than expenses incurred on wages and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee already stood assessed in terms of intimation under section 143(1) dated 20.3.2009, as had been issued by the Assessing Officer after making necessary enquiries. (vii) That the assessment so made, although captioned as "assessment/intimation under section 143(1), had all the attributes of an assessment made under section and the assessment so made being in force, no subsequent order could have been passed." 15. It was submitted by Learned A.R. of the assessee that additional ground No. (vi) & (vii) are only pressed along with main ground No. 1 & 2 and additional ground No. (iii), (iv) & (v) are not pressed. Accordingly, these three additional grounds are rejected as not pressed. 16. Regarding additional ground No. 6 & 7, it was submitted by Learned A.R. of the assessee that since intimation u/s 143(1) was issued on 20/03/2009, which is after the issue of notice u/s 143(2) on 30/07/2008, the assessment order passed by the Assessing Officer u/s 143(3) on 31/12/2009 is bad in law and should be quashed. This issue was decided by CIT(A) as per Para 4.2 of his order, which is reproduced below for the sake of ready reference:- "I have considered the arguments taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 201(1) and 201(1A). Hence, it is seen that in this case also, it was not in dispute as to whether after issue of intimation subsequent to issue of notice u/s 143(2) of the Act, an assessment order u/s 143(3) can be framed or not. Therefore, this judgment is not applicable in the facts of the present case. 21. As per above discussion, we have seen that none of the judgments cited by Learned A.R. of the assessee is rendering any help to the assessee. We also find that as per the provisions of section 143(1), intimation u/s 143(1) has to be issued for intimating the assessee after making adjustment, if any, on account of any arithmetical error in the return or for incorrect claim if such incorrect claim is apparent from the information in the return and no intimation is required to be issued to the assessee if no tax or interest is payable or refundable to him. As against this, assessment order u/s 143(3) is to be framed after issue of notice u/s 143(2) after granting hearing to the assessee and after considering the material brought on record by the assessee in course of such hearing. Hence, it is seen that the intimation u/s 143(1) and assessment order u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis that since the deduction was allowed by him in the case of M/s MKU (Armours) Pvt. Ltd., for assessment year 2007-08, deduction is allowable for assessment year 2008-09 because the same undertaking was taken over by this assessee. In this regard, we find that in assessment year 2007-08 in the case of M/s MKU (Armours) Pvt. Ltd., we have held that the assessee is not eligible for deduction u/s 10B because the assessee was not doing manufacturing activity since most of the processing work was outsourced by the assessee without having direct supervision and control. Since the present assessee has acquired the same undertaking from M/s MKU (Armours) Pvt. Ltd., which was not eligible for deduction u/s 10B of the Act, this assessee is also not eligible for deduction u/s 10B because this assessee has acquired an undertaking which was previously operating and was not eligible for deduction u/s 10B. Hence, even if this assessee is not getting the work done by outsourcing to job worker, this assessee is not eligible for exemption u/s 10B because this assessee is using used machineries and the earlier user was not entitled for exemption u/s 10B. Hence, there is violation of the condition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the claim of the assessee company was not finalized in the year under consideration." 33. Learned D.R. of the Revenue supported the assessment order whereas it is submitted by Learned A.R. of the assessee that on this issue, no relief was allowed by CIT(A) and therefore, this ground of Revenue is infructuous. He drawn our attention to Para 12.2 where CIT(A) has decided the issue against the assessee. We find that CIT(A) has decided the issue against the assessee as per Para 12.2 of his order. Hence, this ground of Revenue is infructuous and is rejected accordingly. 34. In the result, the appeal of the Revenue stands partly allowed. 35. Now we take up the appeal Cross Objection filed by the assessee for assessment year 2008-09 i.e. C.O. No.33/Lkw/2011. In this Cross Objection the assessee has raised the following grounds: "1. The learned CIT (Appeal) should have annulled the assessment on the following grounds:- (i) BECAUSE in any case notice under section 143(2) could not have been issued on the basis of "selection for scrutiny" under Computer Aided Scrutiny Scheme (CASS), as issued by the "Assessing Officer" was illegal, as issuance of such a notice has to be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l submissions. We find that it is noted by Assessing Officer in the assessment order that on 02/06/2004, a fire broke out in the factory and at that time, loss in file was claimed from the insurance company for a sum of Rs. 98,94,282/- and this amount was debited to insurance company. He has also noted that the claim was not settled by the insurance company till this year. In this year, the claim was settled for an amount of Rs. 75,08,888/- and the balance amount was written off by the assessee. Since in assessment year 2005-06, the entire amount was debited to the account of the insurance company and the same was also accounted for as income in that year, any write off in the present year is allowable u/s 36(1)(vii) because it takes a character of bad debts written off. In the Tribunal decision in assessee's own case for assessment year 2004-05, we find that the Tribunal has decided this issue in favour of the assessee and hence, in the present year also, this issue is decided in favour of the assessee. Ground No. 2(vi) is allowed. 40. In the result, the Cross Objection of the assessee stands partly allowed. 41. Now we take up the appeal of the Revenue for assessment year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance was made by the Assessing Officer in computation chart only without any discussion in the assessment order and without giving any reason. He has also noted the contention of Learned A.R. of the assessee that this amount of Rs. 9,65,072/- includes bad debts of Rs. 1,753/-, balance written off Rs. 54,542/- and preliminary expenses written off Rs. 9,08,777/-. In our considered opinion, no disallowance is called for out of these expenses and hence, we decline to interfere in the order of CIT(A) on this issue. Accordingly, ground No. 5 is rejected. 47. Ground No. 6 is as under: "6. The Learned CIT(A) has erred in law and facts by ignoring the facts elaborated by the Assessing Officer in the assessment order in respect of disallowance of Rs. 18,37,855/- U/s. 14A in detail." 48. Learned D.R. of the Revenue supported the assessment order whereas Learned A.R. of the assessee supported the order of learned CIT(A). He also placed reliance on the judgment of Hon'ble Bombay High Court rendered in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT [2010] 234 CTR (Bom) 1 and the judgment of Hon'ble Apex Court rendered in the case of S. A. Builders Ltd. Vs Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice that no reasons for transfer/sale have been assigned in the Transfer Agreement. 5. The Ld. CIT(A) has failed to notice that the mode of payment of transfer/sale consideration was not specified in the Transfer Agreement. 6. The Ld. CIT(A) has failed to notice that out of a total transfer consideration of Rs. 8,20,51,379.65, the transferee issued shares worth Rs. 3,22,40,230/- only and appropriated the balance consideration of Rs. 4,98,11,149.65 towards share premium. 7. The Ld. CIT (A) has failed to notice that, the Transferee Company never charged share premium from anyone, not even from the outsiders, before or after the allotment of shares to the assessee on 28.03.2008. 8. The Ld. CIT(A) has erred on facts as well as in law by not appreciating that, in the absence of any specific provisions in the Transfer Agreement in this regard, the acts of issue of shares as part consideration and appropriation of the balance consideration as shares premium were both subject matters of appropriate recordings to this respect in the Register maintained u/s 301 of the Companies Act, 1956. 9. The Ld. CIT (A) has erred in law equating the filling of explanation for non-production of Regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in before. It seems that the additions have been made on imagination, suspicion and purely on whims of AO. The law does not permit such types of additions which are purely based on surmises and conjunctures. Decisions cited by the learned AR are fully applying to the facts of the case. 4. Ground No.2 relates to the claim of loss during the year which has riot been pressed. However, there has not been business activities during the year, therefore, the loss claimed by the assessee is not allowed. Accordingly, the appeal on these grounds is denied. 5. On overall consideration of facts and circumstances of the case, the addition of Rs. 38 lakh is deleted and the claim of loss is denied." 54. From the above paras from the order of CIT(A), we find that the issue was decided in objective manner after considering all the aspects. We do not find any infirmity therein. Hence, we decline to interfere in the order of CIT(A). 55. In the result, the appeal of the Revenue stands dismissed. 56. In the combined result, the appeals of the revenue in I.T.A. No.612, 179 and 401 are partly allowed and in I.T.A. No.152 is dismissed and C.O. No. 49 is dismissed and C.O. No.33 is partly allowed. (O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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