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TMI Blog2016 (5) TMI 1443X X X X Extracts X X X X X X X X Extracts X X X X ..... o the 3 manufacturing units by the assessee. Deflation in the inter-unit transfer of goods - Difference in the price - Held that:- Difference in the price is due to quality of shashet manufactured as per the requirement of the client. A.O. has only taken the highest value of shashet sold to the outside parties especially M/s. Kothari Products Ltd. and has compared with the lowest value of shashet charged to inter unit transfers. M/s. Kothari Product Ltd. Being a leading entrepreneur in Pan Masalas, would definitely opt for a high quality of shashet as compared to other parties. Such a comparison cannot be made as the requirements in respect of quality and quantity of each party would be different. Further, it has been observed that there has no other material / document / evidences brought on record by the A.O. to prove that the assessee has deflated the expenses of inter unit transfers. Thus no deflation in the inter-unit transfer of goods proved - decided against revenue. Whether the excise duty refund in respect of Jammu unit has been “derived for”, for the purposes of deduction under section 80 IB? - Held that:- The paramount consideration of the central Government in pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Suresh Anantharaman, F.CA Revenue by : Ms. Jyoti Kumari , CIT DR ORDER PER BEENA PILLAI, JM: These cross appeals has been filed by the assessee and revenue against order dated 16.02.2010 passed by Ld.CIT(A) III, for assessment year 2005-06 2006-07, on the following grounds: A.Y:2005-06: ITA No. 1958/Del/2010 GROUNDS OF APPEAL 1. The lower authority have erred in holding that the Royalty Payment of ₹ 4.25 crores and the sub licence income of ₹ 1.96 crores pertains to Jammu Unit. 2. It is contended that the Royalty Expenses of ₹ 4.25 crores and sub licence income of ₹ 1.96 crores are refferable .to the Corporate Unit. The net of such outgoing and incoming are only allocable the three manufacturing unit. 3. The Commissioner of Income Tax (Appeals) erred in holding the provision of Section 153A of the Act are only for the benefit of the Revenue such conclusion are opposed to the provision of Section 153A of the Act. 4. It is contended that the additions made in the Order U/s 153A are not qua search material and needs to be deleted. 5. That no corresponding seized material was found in the course of search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts in deleting the 4. Addition of ₹ 9,20,91,725/- made on account of deflated price of inter unit transfer to Jammu unit (eligible unit for deduction u/s 80-IB from Malanpur Unit? 5. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the 6. Disallowance of claim for deduction of ₹ 2,83,78,789/- u/s 80-IB on account of Self Cenvat Credit availment? 7. The order of the CIT(A) is erroneous and not tenable in law and on facts. 8. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal. A.Y.2006-07 ITA no. 1959/Del/10(Assessee s Appeal) GROUNDS OF APPEAL 1. The lower authority have erred in holding that the Royalty Payment of ₹ 6.00 crores and the sub licence income of ₹ 2.25 crores pertains to Jammu Unit. 2. It is contended that the Royalty Expenses of ₹ 4.25 crores and sub licence income of ₹ 1.96 crores are refferable to the Corporate Unit. The net of such outgoing and incoming are only allocable the three manufacturing unit. 3. The Commissioner of Income Tax ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials which are used for packing various products. In the process of manufacture, the different colour for different verities of the product and different quantity and quality of adhesives and additives are used. The prices of all these raw materials also varies. The selling price gets affected by virtue of the diversities in the production process. The materials were sold by the assessee ranging from Ts.140/- to ₹ 207/-. 2.2 The original return of income u/s.139 was filed on 31.10.2005 declaring Nil income after claiming deduction u/s. 80IB amounting to ₹ 9,27,91,834. Tax was paid on book profit. As per Form 10CCB furnished by the assessee with original return, profits and gains derived by the undertaking/enterprises from the eligible business has been shown at 1536.12 lacs and deduction u/s. 80IB has been claimed at ₹ 927.91 lacs. 2.3 Search seizure operation in M/s. Flex Group of cases was conducted on 23.2.2006. This case was centralized with Central Circle-18, New Delhi by the CIT-II, New Delhi s order F. No. CIT-II/Centralization/2006-07/322 dated 19.5.2006. Notice u/s. 153A of the I.T. Act was issued on 28.6.2008 requiring the assessee to file return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h reply dated 6.11.2007, no income has been credited under the head corporate unit. But certain expenses were debited to the Corporate Unit:- Corporate Unit P L A/c filed u/s. 153A (Rs. In lacs) Other manufacturing 228.22 Salary 81.10 Admin/selling 42.61 Depreciation 4.27 356.2 2.8 The Ld.AO did not allow the royalty income received as part of gross total income to be taken into consideration while working out deduction u/s.80 IB of the Act by holding the same as being derived . The Ld.AO also allocated the corporate expenses to other units. 2.9 The Ld. AO observed that the price of the goods transferred from Mulanpur unit to Jammu unit was understated the Ld. AO observed that the materials has been sold to outside parties ranging between ₹ 124 per Kg to ₹ 200 per Kg. Similarly in the case of Mulanpur unit, the material has been sold at ₹ 141/- per Kg to ₹ 207 per Kg. The Ld.AO considered the sale at &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs. Dharam pal Prema Prakashan Ltd reported in 2021 CTR 133 and directed the AO to allow the same, being derived from the industrial undertaking. Aggrieved by the order of the Ld.CIT(A), the assessee as well as the revenue are in appeal before us. 4. As the issues involved in these two assessment years are common and interlinked with each other, we are inclined to dispose of these appeals for both these assessment years by way of a common order. We shall 1st take up the Grounds raised by the assessee in assessee s appeal for both the assessment years along with Ground No. 1 and 2 raised by the revenue for assessment year 2005-06 and Ground No. 1 for assessment year 2006-07. 4.1. At the outset the Ld.AR contends that the assessee in its appeal has raised the applicability of section 153(A) of the I T act wherein the assessee contends that once a return has been filed under section 153(A) of the act, the return filed under section 139 has got no relevance. The assessee placed reliance upon the decisions of Hon ble jurisdictional High Court in the case of CIT vs. Anil Kumar Bhatia reported in 352 ITR for 93 and CIT vs. Kabul Chawla reported in 380 ITR 573. The Ld.AR submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputing the profits and gains of the undertaking. 5.2. It is not the case of the revenue that the technical know-how obtained by the assessee by way of licence has benefited assessee, in any manner whatsoever. It is also not the case of the revenue that the assessee has manufactured the sachet with the assistance of Jammu unit. However it is important to note that the assessee had obtained the licence of the technical know-how of manufacturing the sachet for Jammu unit, as the assessee had installed the plant and machinery for utilization of that technical know-how at Jammu unit. However due to some unforeseen reasons the assessee could not use the technical know-how neither at Jammu unit nor at any other units. As submitted by the Ld.AR, the assessee has commercially exploited the same and has earned ₹ 1.96 crores for the year under consideration, by subletting the technical know-how to an outside party. 5.3. Hon ble Bombay High Court in the case of Zandhu Pharmaceuticals Works Ltd vs. CIT reported in 259 CTR 253 observed as under: In CIT vs. Sterling Foods, reported in 237 ITR 579, the Hon ble Supreme Court had considered a similar issue under section 80 HHC of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking/unit under consideration and they relate to other units or to the head office of the assessee, cannot be taken into consideration while computing the deduction under the said provisions. 5.3.2 Hon ble Bombay High Court while deciding the decision in the case of Zandu Pharmaceuticals Works Ltd (supra) had relied upon the decision of Madras High Court in the case of Bush Boak Allen (India) limited versus ACIT reported in 273 ITR 152. 5.4. In our considered opinion on the present facts of assessee s case stands squarely covered by the ratio laid down by Hon ble Bombay High Court in the case of Zandu Pharmaceuticals Works Ltd (supra). The assessee has paid certain royalty towards the technical know-how obtained by itand it had received certain license fee in respect of the same technical know-how as it was passed out to an outside party. The assessee could not exploit the technical knowhow for manufacture of goods at Jammu unit and therefore the assessee had shown the sums under corporate division. Respectfully following the decision of Hon ble Bombay High Court in the case of Zandu Pharmaceuticals Works Ltd (supra), we hold that the sums of rupees for S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee preferred an appeal before the Ld.CIT (A). 8.1. Before the Ld. CIT (A) the assessee contended that the highest sale price of ₹ 207 per Kg., represented the sale price of the goods sold by Mullanpur unit to Kothari products Ltd. The assessee submitted before ld.CIT (A) that the summary of month wise quantity, rate and percentage thereof of the prize at which the goods have been sold by Mullanpur unit to outside parties, have been placed at pages 16 to 17 of the of the order of Ld. CIT (A). The assessee submitted that from this chart the value of goods sold at ₹ 170 per Kg. as shown by the assessee is much more than the sale value to outside parties except for Kothari products Ltd. 8.2. On going through the submissions, the comparative analysis of sales made by Mullanpur unit and the judicial precedents, the Ld.CIT(A) held that there is no deflation of expenses in inter-unit transfer of goods as held by the Ld. AO. He accordingly deleted the addition made by the Ld. AO to the expenses of Jammu unit and held as under: 6.10 In view of totality of facts and circumstances and judicial precedent as discussed above, it is held that the comparative analysis of sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96.24 Total qty 36440.90 100.00 174601.08 100.00 Average rate(kg.) 156.99 36440.90 150 174601.08 Aug., 2004 Highest rate 177 849.00 0.46 207 8342.46 4.93 Lowest rate 139 1585.04 0.87 106 8141.60 4.81 Other rate qty 179737.89 98.67 152664.12 90.25 Total qty 182161.93 100.00 169148.18 100.00 Average rate(kg.) 152 182161.18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90.80 Total qty 325699.80 100.00 75113.60 100.00 Average rate(kg.) 167 3259699.90 172 75113.60 Dec., 2004 Highest rate 190 14471.40 4.08 207 2111.64 7.69 Lowest rate 157 27082.20 7.63 152 2829.04 10.30 Other rate qty 313456.84 88.30 22535.49 82.02 Total qty 355010.44 100.00 27476.17 100.00 Average rate(kg.) 169 355010. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83.83 Total qty 358526.97 100.00 71570.79 100.00 Average rate(kg.) 176 358526.97 180 71570.79 Distribution of rates of materials sold/transferred: To Jammu To outside parties Rate Rate From to Qty %age From To Qty %age 104 806.76 0.03 88 104 6043.00 0.29 125 1008.36 0.04 105 125 211131.10 10.02 139 1585.04 0.06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant and no incriminating documents, books of accounts were found / seized to indicate that the appellant had suppressed the profits of Malanpur unit and deflated the expenses of the Jammu unit. 10.5 On a bare perusal of these charts, it can be noticed that the difference in the p[rice is due to quality of shashet manufactured as per the requirement of the client. The A.O. has only taken the highest value of shashet sold to the outside parties especially M/s. Kothari Products Ltd. and has compared with the lowest value of shashet charged to inter unit transfers. M/s. Kothari Product Ltd. Being a leading entrepreneur in Pan Masalas, would definitely opt for a high quality of shashet as compared to other parties. In our considered opinion, such a comparison cannot be made as the requirements in respect of quality and quantity of each party would be different. Further, it has been observed that there has no other material / document / evidences brought on record by the A.O. to prove that the assessee has deflated the expenses of inter unit transfers. 10.6 We are therefore in agreement with the findings of the Ld. CIT(A) that there is no deflation in the inter-unit transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee as well as the Ld. CIT (A) has been affirmed by the Hon ble Supreme Court which has been placed at pages 105 to106 of the paper book, and therefore the issue has now reached finality. 14.2. Hon ble Delhi High Court in the case of CIT vs. Dharam Pal Pream Prakash Ltd. (Supra), has laid down the procedure for granting of exemption under the scheme. The assessee in the 1st instance has paid excise duty from its account, the statement in respect to clearances made, is submitted to the concerned authorities of Central excise. The authorities after verifying the claim of the assessee are required to grant the refund. The Hon ble Delhi High Court in the case of CIT vs. Dharam Pal Prem Prakash Ltd. (supra), it is observed that the Hon ble court observed and held as under: 22. Perusal of the Office Memorandum Dt. 14th June, 2002 indicating new industrial policy and other concessions for the State of Jammu and Kashmir, makes it explicit that the concessions were issued to achieve twin objects viz. (i) Acceleration of industrial development in the State of Jammu Kashmir, which had been found lagging behind in such development and (ii) Generation of employment in the State of J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of industrial atmosphere and environment, having the potential of employment generation to achieve a social object. Such incentives, designed to achieve public purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assessees alone. 27. Thus, looking to the purpose of eradication of the social problem of unemployment in the state by acceleration of the industrial development and removing backwardness of the area that lagged behind in industrial development, which is certainly a purpose in the public interest, the incentives provided by the office memorandum and statutory notifications issued in this behalf, to the appellant assessees cannot be construe as mere production and trade incentives, as held by the Tribunal. 14.3. On the basis of the above discussions and respectfully following the decision of CIT vs. Dharam Pal Pream Prakash Ltd, which has now been upheld by the Hon ble Supreme Court, we are inclined to uphold the findings of the ld.CIT (A). Accordingly ground No. 4 raised by the revenue for assessment year 2005-06 and 2006-07 stands dismissed. 15. Ground No. 3 for assessment year 2006-07 in the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facility that the appellant had agreed to the increased license fee. It is observed that subsequent to the commencement of license agreement M/s Flex industries Ltd had installed a high-capacity DG set 2562 KVA capacity at a cost of ₹ 5.40 crore in the month of March 2005. M/s Flex industries Ltd had also installed further capital equipment on the request of the appellant for an aggregate sum of ₹ 14.04 crores approximately. It was due to a combination of all these factors that the appellant had agreed to the payment of increased license fee. . 8.4. There may be circumstances leading to suspicion, yet having taken action under section 132 of the act and enquiries made in the assessment proceedings, the assessing officer had not brought any positive material or evidence to indicate that the transaction between the 2 parties is collusive. Merely because of subjective satisfaction that the sharp increase in the license fee is made with the intention to reduce the profits of the unit, the fact alone would not give jurisdiction to this allow the genuine expenditure. It is well established principle of jurisprudence that (a) suspicion however great cannot take take th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances. As the parties were not verifiable the AO made the addition of ₹ 2,32,13,640/- 19. Aggrieved by the order of the Ld.AO the assessee preferred an appeal before the ld.CIT (A). 19.1. The Ld.CIT (A), after noticing all the evidences gave a categorical finding in paragraph 10.3 of his order to ld.CIT (A) has observed that all the parties are regular customers purchasing goods from last many years from the assessee. In respect of the advances received, the assessee company has applied goods to these parties. The Ld.CIT (A) has also taken note of the available confirmations 5. The Ld.CIT (A) has also taken note of the remand report of the ld.AO placed at page 576 of the paper book filed by the revenue. The Ld.CIT (A) has observed that as the AO in the remand report has not made any adverse observations/remarks, the Ld.CIT (A) deleted the addition. 20. Aggrieved by the order of Ld.CIT (A), the revenue is in appeal before us now. 20.1. We have perused the orders of the authorities below and the relevant pages of the paper book preferred by Ld.CIT (A). It is observed from the remand report and the assessment order that the assessee has filed Ledger accounts of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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