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TMI Blog2014 (12) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... t is commercially known differently, therefore, it can be said that the assessee is manufacturing unit. The observation made in the assessment order is that in comparison to sales of ₹ 5,83,65,060/- the total manufacturing expenses are merely ₹ 2,66,913/- which is only 0.45% of the sales expenses - the assessee is mixing the perfumery compounds in a specified required ratio with the help of man power and machine, therefore, it is always not necessary that manufacturing can be said to be complete only when there is comparatively high manufacturing expenses - It is like blending of compounds – Decided against revenue. Adoption of profit earned by the sister concern - Restriction of claim u/s 10B to 19.06% of sales – Held that:- In the case of sister concern net profit was earned/disclosed @ 19.03%, which is having the same management and also having same activity, whereas the net profit disclosed by the assessee at 38.86% and if the foreign exchange gain is excluded then the net profit comes to 25.09% - the assessee has disclosed more profit than the ordinary profit which might be expected to arose in such business more specifically when the sister concern M/s Praga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicability of section 10B(7) r.w.s.80IA(10). II. Without prejudice to the above the ld. Commissioner of Income tax (Appeals), has failed to considering the fact that whether manufacturing expenses of just 0.45% of the sales, wherein the assessee unable to show how the raw material and finished product valuation took place, also failed to produce the basic requirement of production of goods. III. For these any other reasons that may be urged at the time of hearing, it is requested that the order of the CIT(A) be quashed and that of the A.O. be restored. 2.1 The assessee has raised the following grounds:- I. On the facts and in the circumstances of the case, the ld. Commissioner of Income Tax (A) erred in directing the Assessing Officer to restrict the claim u/s 10B to 19.06% of sales (excluding foreign exchange gain), against ₹ 2,32,48,056/- as claimed by your appellant on the profit of Nilakottai Unit (a 100% EOU), although no defect was pointed out in the audited accounts by any of the lower authorities. II. On the facts and in the circumstances of the case, the ld. Commissioner of Income Tax (A) erred in giving observation regarding computation of capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l), for the production and/or distribution of goods and services calculated to satisfy human want and wishes (not spiritual or religious but inclusive of material things or services geared to celestial bliss), prima facie there is an industry in that enterprise. The true focus is functional and the decisive test the nature of activity. Admittedly manufacturing and processing are not clearly demarcated fields. The test of manufacturing lies in the answer to the question whether what is processed or produced as the end product is commercially known differently from the raw material out of which the end product is produced. In the case of the assessee various items are mixed in a specified quantity with the help of man power and machine and the end product is commercially known differently, therefore, it can be said that the assessee is manufacturing unit. Without adverting further since the Hon ble High Court has already upheld the order of the Tribunal holding that the activity carried out by the assessee amounts to manufacturing for assessment year 2002-03 and no contrary decision was brought to our notice by the Revenue, therefore, respectfully following the decision from the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lose connection between the assessee and other person or otherwise. It was contended that in the case of sister concern i.e. M/s Pragati Aroma Oil Distiller Pvt. Ltd., dealing in same business derived taxable profits and did not claim any exemption. It was pointed out that the sister concern earned approximately net profit at 20% but has no foreign exchange gain. Reliance was placed upon the decision in ITO vs Gilvert Ispat (ITA No.345/Chd/2011). Plea was also raised that purchases/sales from the related parties is comparatively negligible. On the other hand, the ld. DR strongly defended the conclusion drawn by the ld. Commissioner of Income tax (Appeals) by submitting that the ld. First Appellate Authority while coming to a particular conclusion sought remand report from the Assessing Officer and counter reply from the assessee. 3.2. We have considered the rival submissions and perused the material available on record. The assessee is aggrieved by adoption of profit earned by the sister concern on the ground that the Assessing Officer has not examined any comparable case for arriving at a reasonable profit. Keeping in view, the totality of facts available on record, we find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, which can be expected from a similar line of business without bringing any cogent material on record. Thus, we find no infirmity in the conclusion of the ld. Commissioner of Income tax (Appeals). 3.3. Through ground no.2, the assessee is also aggrieved by the observation made regarding computation of capital gains in the hand of Successor Company in subsequent year. The crux of argument on behalf of the assessee is that the ld. Commissioner of Income tax (Appeals) had no jurisdiction to make such type of observation when such appeal was not before him for adjudication. On the other hand, the ld. DR defended the conclusion drawn by the ld. Commissioner of Income tax (Appeals). 3.4. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion we are reproducing hereunder the concluding portion of the order of the ld. Commissioner of Income tax (Appeals). I have carefully considered the facts stated in the assessment order and written submissions as well as oral arguments of the ld. AR. It is undisputed that assessee's firm was converted as company under the name M/s PPP Ltd and within short period the said M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplied with. In view of such apparent provisions of the statute, the capital gain, if any shall be le to be assessed in the hands of successor company in the previous year in which violation had taken place. In other words, the successor company is liable for capital gain, if any and not the assessee. Even otherwise the computations made by the AO in respect of estimated sale consideration, cost of acquisition and tenure of holding of assets so as to constitute as short term capital gain or long term capital gain are no hypothetical basis only. The AO had not specified the legal basis for taking estimated sale consideration, estimated cost of acquisition and also holding period. In result the estimated short term capital gain as computed by the AO in instant year in the case of instant assessee is not liable to be assessed legally as well as factually. However the AO is free to assess the capital gain u/s 47 A(3) r.w.s. 47 (xvii) of the Act in relevant year in the case of immediate successor company or effective successor company as per law taking in to consideration statutory provisions in vogue and making necessary inquiry, if needed. In terms of discussion hereinabove the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or intangible asset not charged under section 45 by virtue of conditions laid down in the proviso to clause (xiii) or the proviso of clause (xiv) of section 47 shall be deemed to be the profits and gains chargeable to tax of the successor company for the previous year in which the requirements of the proviso to clause (xiii) or the proviso to clause (xiv), as the case may be, are not complied with. 3.6. The ld. Commissioner of Income tax (Appeals), in view of the apparent provision of the statute held that the capital gain, if any, shall be liable to be assessed in the hand of the successor company, in the pervious year in which violation took place meaning thereby the successor company shall be liable for capital gain, if any, as per law, taking into statutory provision after making necessary enquiry, if needed, and not the assessee. Since, the assessee was not held liable therefore, how the assessee is aggrieved is not known. At the same time, there is a clear direction to the Assessing Officer that he can only proceed, if he deem fit and that to within the four corners of law, therefore, we find no infirmity in the conclusion of the ld. Commissioner of Income tax (Appeals). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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