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TMI Blog2018 (4) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80IE in view of increased profits in manufacturing activity. In this scenario, we hold that there is absolutely no basis for the conclusion of the AO that the differential profits figure of ₹ 41,44,392/- represents trading profit of the assessee. We hold that there is absolutely no case made out by the ld AO for shifting of profits from trading activity to manufacturing activity of the assessee and hence we have no hesitation in directing the ld AO to delete the addition of ₹ 41,44,392/- made in the assessment. - Decided in favour of assessee - I.T.A No. 1001/Kol/2017 - - - Dated:- 4-4-2018 - Shri Aby. T. Varkey, JM And Shri M.Balaganesh, AM For The Appellant : Shri Ashish Rastogi, AR. For The Respondent : Shri Saurabh Kumar, Addl. CIT Sr. DR ORDER Per M.Balaganesh, AM 1. This appeal by the assessee arises out of the order passed by the Learned Commissioner of Income Tax (Appeals) 10, Kolkata (in short the ld CITA) in Appeal No. 149/CIT(A)-10/34(2)/2015-16/Kol dated 01.02.2017 against the order passed by the ITO, Ward-34(2), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short the Act ) da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired, the assessee furnished profit and loss account for the trading activity, statement of party wise purchase and sales of trading goods, ledger account of Aristo Texcon Pvt Ltd and the percentage of shareholding of the partners in Aristo Texcon Pvt Ltd. As per the information furnished, three partners viz Manoj Kumar Sharma, Sandeep Sharma and Sri Rajib Sharma held 13.53%, 0.45% and 0.45% share respectively in Aristo Texcon Pvt Ltd during the financial year 2011-12. 4. The ld AO observed that the explanation of the assessee regarding maintenance of separate accounts and its merger was not found satisfactory as nothing is mentioned on this issue in the tax audit report. As per the audited profit and loss account the total turnover of the business including trading and manufacturing activity was ₹ 13,49,36,273/- . As per the profit and loss account of trading activity furnished, the trading sales was ₹ 9,71,44,973/- and trading purchase was ₹ 9,69,76,303/- and thus gross profit from trading was shown to be ₹ 1,68,670/- @ 0.17% of trading sales. Based upon information provided in the trading account, the gross profit from sale of manufactured goods was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti, Segmach Inc., Kolkata and Tashi Lamo Tshongkhang, Bhutan. Since the details as required were not filed by the assessee, the ld AO asked the assessee to explain as to why trading results shown in the profit and loss account furnished should not be rejected. The assessee was also asked to furnish the stock register for the financial year 2011-12, registers maintained as per the requirement of Central Excise Department to record production and removal of goods from the factory for the financial year 2011-12 and all sales bills along with corresponding challans, transport bills and copy of C forms and way bills for CST sales in respect of manufactured goods sold. 6. As regards trading results shown in the profit and loss account, the assessee explained that there was thin margin on trading activities and they had undertaken the same to strengthen top line and general profile of the firm. In respect of sales of manufactured goods, the assessee produced pre-printed sales invoices, challans and transport bills for sales made to Tashi Lamo Tshongkhang, Bhutan and computer generated sales invoices for domestic sales. The assessee stated that pre-printed sales invoices, challans, tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f transactions furnished by the assessee has no significance because the only verifiable information provided in the confirmation is the transfer of money from one account to another, which in no way proves that purchases and sales had taken place in the manner as shown in the confirmation. Accordingly the claim of the assessee that there was loss from trading business cannot be accepted. The ld AO applied the provisions of section 80IA(10) of the Act and concluded that the transactions with Aristo Texcon Pvt. Ltd had been made by the assessee with an arrangement that excess profits could be earned by the assessee in its manufacturing unit thereby resulting in higher claim of deduction u/s 80IE of the Act. The ld AO accordingly held that the assessee could have maximum earned net profit of ₹ 45,34,956/- @ 12% of total turnover of the manufactured goods as against the claim made in the sum of ₹ 86,79,348/-. Accordingly for the remaining amount of ₹ 41,44,392/-, the ld AO disallowed the claim of deduction u/s 80IE of the Act and treated the same as trading profit and added back to the returned income. 7. Before the ld CITA, the assessee stated that it had maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore him. The copy of the VAT audit report was also filed before the ld CITA in respect of trading sales made by the assessee. It was further pleaded that the books of accounts produced by the assessee was never rejected by the ld AO. It was submitted that the claim of deduction u/s 80IE of the Act for the Asst Years 2010-11 and 2011-12 were allowed by the ld AO. The ld CITA did not appreciate the contentions of the assessee and upheld the action of the ld AO. Aggrieved, the assessee is in appeal before us on the following grounds:- 1. GENERAL On the facts and in the circumstances of the case and in law, the Assessment Order passed by the learned Assessing Officer is arbitrary, perverse, against law, facts and evidences on record. 2. REDUCING THE PROFITS OF MANUFACTURING DIVISION AT 12% On the facts and in the circumstances of the case and in law the Commissioner of Income Tax (Appeals) erred confirming the action of the Assessing Officer in computing the profit of the manufacturing unit on an estimated/ arbitrary basis of 12%. 3. ADDING THE DISALLOWED AMOUNT OF PROFITS OF MANUFACTURING DIVISION TO TRADING DIVISION On the facts and in the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had incurred a loss of ₹ 4,34,216/- as under:- Purchase of trading goods ₹ 9,69,76,304 Salaries ₹ 2,88,000 Carriage Freight ₹ 3,14,885 ₹ 9,75,79,189 Less: Sales ₹ 9,71,44,973 Net Loss ₹ 4,34,216 8.2. We find that in the Manufacturing Activity, the assessee had made profit as under:- Sales ₹ 3,77,91,300 Closing Stock ₹ 2,50,72,599 ₹ 6,28,63,899 Less: Opening Stock ₹ 1,82,51,806 Less: Purchases ₹ 2,19,07,643 Less: Direct Expenses ₹ 23,81,827 Gross Profit ₹ 2,03,22,623 Add: Indirect Incomes ₹ 5,93,157 ** ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find that the books of accounts maintained for both trading and manufacturing activity separately have been produced before the ld AO, which were not rejected by the ld AO. Hence there is no scope for making estimated profit at 12% of turnover in manufacturing activity of the assessee. The ld AO has got power to invoke the provisions of section 80IA(10) of the Act. But the same has been proved as not applicable in the facts of the instant case in as much as there was no variation in selling price between the two concerns taken by the ld AO, which is evident from the aforesaid table. Moreover, the ld AO, without any basis, had held that the profits of the manufacturing activity would have to be determined only at 12% of sales. This has got no rationale supported by proper workings. In addition to this, the ld AO further stated that the differential profit figure of ₹ 41,44,392/- needs to be added back to the trading profit of the assessee, without any basis. There is absolutely no connection between the trading activity and manufacturing activity of the assessee. In fact we find that lot of common administrative expenses were in fact debited only in the manufacturing accou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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