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TMI Blog2012 (12) TMI 1086X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case in deleting the disallowance of deduction u/s 80IC of the I.T. act, 1961 without appreciating: (a) that no evidence of movement of paper from Punjab to H.P. and of printed material/books from Himachal Pradesh and other states was provided by the assessee. (b) that the printed material was sold not from the assessee s premises but from that of MBD Enterprises Pvt. Ltd. (c) that though printing the NCERT books should cost 56% more than MBD books, the assessee had charged the reverse ratio of rate and that the assessee was inflating its sale price charged from its sister concerns. (d) that the lamination did not affect the cost of books significantly. (e) that in the absence of quantitative records, that low expenses indicated low expenses indicated low production and inflation of sale price. (f) that merely because the assessee had claimed to have employed a large number of workers and had incurred large expenses on electricity, freight and fuel/oil did not imply that the assessee had undertaken production activity to such a magnitude that there was sales/turnover of ₹ 17.19 crore. 2. The appellant craves leave to add o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in allowing deduction @ 100% of profit u/s 80IC of the Act ignoring the facts that the assessee did not have sufficient infrastructure and man power to manufacture the entire products on its own and getting it done as job work as is evident from the order of A.O. as also from the seized material. 2. The appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off. 3. It is prayed that the order of the CIT(A) be set-aside and that of the AO be restored. 7. The Revenue in ITA No.534(Asr)/2011 for the A.Y. 2009-10 has raised following grounds of appeal: 1. That the Ld. CIT(A) has erred both in law and on facts in allowing deduction @ 100% of profit u/s 80IC of the Act ignoring the facts that the assessee did not have sufficient infrastructure and man power to manufacture the entire products on its own and getting it done as job work as is evident from the order of A.O. as also from the seized material. 2. The appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off. 3. It is prayed that the order of the CIT(A) be set-aside and that of the AO be restore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation on the group and as a result thereof, the assessments u/s 153/143(3) were completed, wherein the A.O. allowed the deduction in respect of manufacturing process at the rate of 20% on ad-hoc basis and against a claim of ₹ 8,33,87,323/-, the deduction u/s 80IC was allowed to the tune of ₹ 1,65,30,534/-. Similarly for other years, on the same basis the deduction was allowed @ 20% from the assessment years 2005-06, 2006-07 to 2009-2010. The assessee filed an appeal before the CIT(A)-1, Ludhiana, who in a detailed order, allowed the deduction u/s 80IC and the department has filed an appeal before the ITAT in ITA No.507(Asr)/2011 for the same assessment year. 9.2. He further stated that for the assessment year 2005-06, the deduction u/s 80IC was allowed substantially in the order u/s 143(3) but it was disallowed on the sale of Raddi to the tune of ₹ 11,53,923/- and on printing got done from outside to the tune of ₹ 1,17,180/-. Thus, in this year, it was accepted as a matter of fact that the assessee was engaged in the manufacturing/publishing and printing of books at Village Gagret and for that purpose, a certificate on prescribed form from the Distt. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 153A/143(3) in assessment years 2005-06 to 2009- 2010. Thus, the whole basis of disallowance of deduction is against the facts and circumstances of the case. 9.3. The Ld. counsel for the assessee, Sh. Sudhir Sehgal submitted that in ITA No.27/Asr/2011 for the assessment year 2006-07 (regular assessment), on merits, the ld. CIT(A) has discussed the facts relating to disallowance u/s 80-IC made by the AO from para 2.1 to 2.10 of the order for the assessment year 2006-07 and which issue has been highlighted in the grounds of appeal alongwith another ground of appeal which have been taken vide letter dated 18.08.2010 by the department. In the additional ground of appeal, which is sought to be taken, it is submitted that the same cannot be allowed, since that has not been taken earlier and no reasons have been given for not taking this ground of appeal earlier. The grounds of appeal may be legal ground of appeal, but there has to be reason that why it could not be taken earlier and therefore, it was requested that the same could not be permitted to be taken. However, if the Bench decides to admit the above said ground of appeal, then it has to be decided that, how, the AO can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the order of the CIT(A) at pages 5 to 6 para (a) 2. The statement of two parties that paper was delivered at Jalandhar and Printing material and books supplied at Jalandhar in respect of Mikado/Choice Publication i. The work done for these two parties was just ₹ 9,60,500/- which constitutes just 0.5% of the total turnover and such material was never confronted to the assessee. ii. Even substantial evidences were filed for the movement of the paper from Jalandhar to factory at Gagret and evidences of Barrier receipts were submitted as per page-7 of the order of CIT(A) and enclosed the paper book at pages 100 to 195 and no doubt raised by the A.O. in the remand report or at the time of assessment. iii. The information obtained from Punjab School Education Board clearly stated that the supply of paper was made at Gagret and no adverse inference is drawn. The AO has indicated that there are no delivery challans and it is submitted that even if the delivery challans are not there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been no doubt about number of workers employed in the Unit and even photographs had been filed during the course of assessment proceedings, indicating the actual working carried out. ii). Even during survey in Jan., 2009, 138 employees were there as per attendance register and 132 employees were physically present and no doubt by the Assessing Officer and all these factors contributed towards the higher G.P. rate. This has been mentioned in Para 4.4 at Page 10 of the order of CIT(A). 7. The AO has applied 80IA(10 for restricting the claim of deduction u/s 80IC and has highlighted the issue as per order of the CIT(A) at page 11 and 12. Our reply in detail of each and every issue is recorded in para 5.1 page 12 to para 5.27 page 18. 9.5 The Ld. counsel for the assessee submitted that in the said reply, the Assessing Officer has not been able to controvert in the remand report, which has been reproduced at pages 19 to 21. He submitted that assessee s reply to the remand report is at pages 21 to 23 read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the AO in the Assessment completed u/s. 143(3) in the case of Modern Publisher and the finding recorded by the CIT(A) in para 8.1 that the assessee is not inflating its sale rate of books to divert the income of sister concern itself. It was also stated that the CIT (A) has also dealt with the issue of high profit and coupled with the fact that there is no evidence of inflation of sale rate of books has very rightly pass d the order, allowing the deduction u/s. 801C of the Act. 9.8. The Ld. counsel for the assessee placed reliance on the judgment of Shiva Export of Chandigarh Bench of he I.T.A.T., in which, the similar issue of deduction u/s. 801A was there and it has been held on the similar facts and circumstances that when State Industries department had verified the activities of the manufacturing carried out by the assessee and, as such, lower electricity expenses cannot be a ground for rejection or otherwise a valid claim u/s 801A. 9.9. As regards the additional ground of appeal, it was submitted that how the AO can justify the manufacturing activity to the extent of sale ignoring the documentary evidences of Industries department, number of workers found durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an arbitrary manner and without any basis, has restricted the deduction to 20% of the profit. He stated that this issue has been discussed by the CIT(A) on merits from para 10 page 36 of the order. He further stated that the process of manufacturing has been explained in detail at page 37 and printing and binding got done from outside and the percentage to the total turnover is very negligible, which is borne out from pages 37 38. The Ld. counsel submitted that the A.O. has not rejected the method of accounting followed by the assessee or the books of accounts and there is no estimation of profit by resorting to provisions of section 145 of the Act. Even 139 employees were found during the course of survey operation on 22.01.2009 at the factory premises and manufacturing activity was witnessed by the Income Tax department. He further submitted that the ld. CIT(A) has dealt with the issues raised by the AO during the course of survey operations, which have been mentioned at page 39 and 40 and it has been held that the AO has drawn a incorrect conclusion on the basis of statement of the employees and rather in appeal for the same year, it has been stated that only very negligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns the total paper received of five concerns and the Gate keeper as mentioned in the register as MP i.e. short name of Modern Publisher, which has been misread by the AO as MBD Printographic Pvt. Ltd. and thus any conclusion drawn on the basis of such noting is totally out of context and to prove that, papers have been enclosed in the paper books. Similarly with regard to Annexure A-15, there is a factual error on the part of the AO because this register contained the detail of work of the various concerns and the AO has wrongly mentioned it that it contained the work of the assessee only. 10.3. The Ld. counsel for the assessee submitted that even Annexure A-21 contains the detail for the month of January, 2009 where no work was done for the assessee by the MBD Enterprises. This is also inconformity with the records that are being maintained both at Gagret and Jalandhar. Similarly, with regard to Annexure A-19 and others it is absolutely clear that the AO has drawn wrong conclusion and which facts are easily explainable and as such the findings of the ld. CIT(A) deserves to be upheld. 10.4. The Ld. counsel for the assessee stated that the ld. CIT(A) has also dealt with at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower authorities are that the AO inquired into the assessee s claim that books were printed by it at Gagret. The AO asked the assessee to furnish delivery challans and lorry receipts for sale of books and in respect of paper supplied by the parties to show delivery of raw material at Gagret and of finished goods from Gagret. The assessee stated that no such documents were issued and received as per normal practice and there was no sales tax, excise or octroi on sale of books in Himachal Pradesh. The assessee submitted that copies of receipts issued at the State border of H.P. to show the movement of goods. The AO held that no evidence of movement of paper from Punjab to H.P. and of printed material/books from H.P. and other states was provided by the assessee. The AO also noticed that the assessee had got binding work of books done at Jalandhar itself through local book binder M/s. Vaneet Book Binding House, which showed, as per AO that the assessee had not dispatched books from Gagret, rather she held that the assessee had dispatched printed and unbound material from H.P. to Punjab, against without any delivery challan. The assessee failed to provide the delivery challans for sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and did not produce evidence of movement of paper to and from Gagret in this regard. It was stated that though sale of books was exempt from VAT but paper and printed material could not move across border without any stamp or verification by authorities and though the assessee had submitted some evidence of paper purchased and material like gum, ink etc. used in printing, it had failed to produce specific evidence of movement of paper and printed material. The AO then compared the rate of printing per book of Sanskrit class VII and VIII books for NCERT sold to M/s. Mikado Offset Printers and of Sanskrit class VII and VIII Sanskrit guide books printed for the MBD Group. The AO noted that the quality of paper supplied by Mikado Offset Printer was superior to the paper supplied by MBD. The information in respect of NCERT books was obtained by the AO from the purchase order placed by NCERT and its tender documents and that for MBD books were based on the books purchased from the market. The AO could not verify the order size for MBD groups in the absence of stock register. Ultimately, the AO came to the conclusion that though printing the NCERT books should cost 56% more than MBD book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndervalued, the work done at Jalandhar was higher. According to the AO the assessee was not engaged in manufacturing work in HP to the extent claimed. The AO held that merely because the assessee had claimed to have employed a large number of workers and to have incurred large expenses on electricity, freight and fuel/oil did not imply that the assessee had undertaken production activity to such a magnitude that there was sales turnover of ₹ 17.19 crore. 11.4. Based on the above discussions and findings, the AO invoked the provisions of section 80IA(10) of the Act. Further, the AO compared the assessee s account and business with that of MBD Enterprises (P) Ltd. and held that they were similar as discussed in para 20 22 of the assessment order. The AO compared the benefit accruing to the assessee on account of electricity and wage rate difference at Gagret for which benefit was given to the assessee in the revised computation of income u/s 80IA(1). He AO by applying the net profit ratio of MBD Enterprises (P) Ltd and giving the aforesaid benefit, the total income eligible for deduction u/s 80IC was recomputed to ₹ 31,78,771/- as against ₹ 8,33,87,323/- claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion submitted by the assessee himself, he is required to be informed of the proposed inference from this material so that he can defend himself and it is not sufficient that a post-decisional opportunity is available to the assessee. Additions made in violation of the principles of natural justice are liabale to be set-aside. He further observed that principles of natural justice have also been incorporated in the Income Tax Act and as per section 142(3), the AO is required to confront the assessee with the material which has been collectd by the AO and is proposed to be used in assessment. Defect on account of denial of natural justice cannot be cured by the appellate authority, as held by the Hon ble Supreme Court in the case of Tin Box Co. vs. CIT 249 ITR 216. The AO did not comment upon the specific submissions of the assessee on various counts on the comparison of the books. The assessee has pointed out specific instances showing that the nature of books compared were different, the number of pages including those in colour were different, and in some case even the number of pages of books mentioned in the assessment order were different. The AO has not pointed out any defect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the AO that for the same job same rate was charged for the sister concern as well as from outsiders. Even in the remand report, the AO has relied upon the assessment order in this respect. It was observed by the ld. CIT(A) that the assessee was not confronted with the data before using the same by the AO. The printing expenditure has been found to be the same as paid to the outsiders. Therefore, in such facts and circumstances, once explanation given by the assessee explains the situation in a reasonable manner and the instances/information relied upon by the AO are also found to be not acceptable for violation of principles of natural justice. Therefore, there remains no ground to invoke the provisions of section 80IA(10) of the Act. Unless it is found that the higher than ordinary profits have arisen due to close connection between the assessee and the other persons by arranging the affairs so as to achieve this aim, section 80IA(10) cannot be invoked. The finding that the rates of the transactions between the assessee and the sister concerns were at rates similar to those charged to the outsiders can only lead to a conclusion that the transactions with sister concerns were at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure rates in transactions with sister concerns. Section 80IA(10) requires that not only more than ordinary profits be shown to have been earned, it should also be shown that such profits arose due to the close connection and arrangement in the course of business between the eligible unit and other persons. Business transactions with sister concerns at prices which are not shown to be arranged so as to deliver higher than ordinary profits to the assessee cannot invoke the provision of section 80IA(10). The printing charges have been found to be at rates which are comparable to those charged to outsiders and in any case, is not sufficiently large to generate more than ordinary profits of ₹ 8.02 crores. Ultimately, the ld. CIT(A) vide para 9 of his order held that AO has failed to satisfy necessary condition to invoke the provisions of section 80IA(1o) of the Act and the disallowance of deduction u/s 80IC r.w.s 80IA(10) made by invoking such provision was directed accordingly to be deleted. 16. As regards the appeals relating to assessment made u/s 153C for the assessment years 2005-06 to 2009-2010, the facts are that a search was conducted by the Investigation Wing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods but did not allow on the sale of Raddi to the tune of ₹ 11,53,923/- and on printing got done from outside to the tune of ₹ 1,17,180/-. The Ld. CIT(A) in the appeal proceedings before him in the said assessment year allowed the claim of the assessee on sale of Raddi and printing got done from outside. The ITAT, Amritsar Bench, Amritsar, vide its order dated 08.06.2011 in ITA No.426(Asr)/2009 for the assessment year 2005-06 dismissed the appeal of the Revenue. The said order of the ITAT, Amritsar Bench, is on record at judgment paper book (pages 1-6). Therefore, the matter has attained finality for the claim of the assessee with regard to deduction under section 80-IC of the Act, on manufacturing, publishing, printing of books, sale of Raddi and printing got done from outside. The assessee was allowed deduction u/s 80IC of the Act by the Income Tax Department in the first year being initial year in which the assessee began to manufacture or production of the articles mentioned hereinabove. It was stated by the ld. counsel for the assessee, Sh. Sudhir Sehgal that the matter has attained finality since the Revenue has not preferred any appeal before the Hon ble P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO has allowed 20% deduction u/s 80IC of the Act for the assessment years 2005-06 to 2008-09 and under section 153A of the Act for the assessment year 2009-2010. 17.6. The Ld. CIT(A) allowed 100% of the profit and gain in all the appeals for which the Revenue is in appeal before us. 17.7. The Ld. counsel for the assesse, Mr. Sudhir Sehgal relied upon the decisions of various courts of law with specific reference to the decision of Hon ble Gujrat High Court in the case of Saurashtra Cement Chemicals Industries Ltd. vs. CIT 123 ITR 669 (Guj) and decision of Hon ble Bombay High Court in the case of CIT vs. Paul Brothers 216 ITR 548 (Mum) (Nagpur Bench) which decisions have been followed by the ITAT, Chandigarh Bench in the case of Shiva Exports vs. ITO reported in 28 SOT 512. The decision of ITAT, Chandigarh Bench in the case of Shiva Exports (supra) has been placed on record. The proposition by the ITAT, Chandigarh Bench, after considering the decisions of theHon ble Gujrat High Court in the case of Saurashtra Cement Chemicals Industries Ltd. vs. CIT (supra) and Hon ble Mumbai High Court in the case of CIT vs. Paul Brothers (supra) is that where in the first year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses as compared with the sister concern of the assessee, the AO allowed deduction u/s 80IC of the Act at 3.15% of the net profit rate of M/s. MBD Enterprises Pvt. Ltd. and allowed the deduction of ₹ 31,78,771/-. 17.9. The Ld. CIT(A) has discussed each and every aspect of assessee s case placed on record, which has been reproduced hereinabove on the basis of submissions made by the assessee before him. 18. We have gone through the arguments and brief synopsis filed before us by the ld. counsel for the assessee. The facts as emerging from the above said submissions/arguments, which has not been disputed by the ld. CIT(A) that investment in the fixed assets which was to the tune of ₹ 4,12,42,381/- as on 31.03.2005 had risen to ₹ 8,33,04,711/- as on 31.03.2009 which is based as per audited books of account filed before Income Tax Department and which fact is not disputed. No discrepancy in the books of account has been pointed out by the authorities below and each and every purchase has been backed by the vouchers and there is evidence in the shape of GRs and delivery challans for finished products of Gagret which is duly authenticated on the border of Punj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... starting from para 11 to 14 (pages 52 to 63) where the ld. CIT(A) has discussed each and every aspects and material found during assessment proceedings viz A-12, A-15, A-19 A-21 and argued at length which has been reproduced hereinabove. The arguments have been advanced by the ld. counsel for the assessee in shape of brief synopsis has not been rebutted by the ld. DR as mentioned above and we find no infirmity in the order of the ld. CIT(A) in para 11 to 14 of his order. 20. Regarding job work of printing material , the ld. counsel for the assessee placed reliance on the judgment of the Hon ble Gujrat High Court in the case of CIT vs. Harjivandas Juthabhai Zaveri 258 ITR 785 (Guj), judgment of Hon ble Mumbai high Court in the case of CIT vs. Paul Brothers 216 ITR 548 (Mum.(Nagpur Bench) and the judgment of Hon ble Punjab Haryana High Court in the case of CIT vs. Impel Forge Allied Industries Ltd. 326 ITR 27 for the proposition that deduction u/s 80IC of the Act would be available in respect of profits thereof from the job work. For this reliance was placed by the ld. counsel for the assessment in assessee s own case for the assessment year 2005-06 passed in ITA No.426(Asr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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