M/s Octave Exports, Ludhiana V. ITO, Ludhiana

CO 33/CHANDI/2011

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9813 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 4 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 13-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Additional evidence; Question of law; Wrong claim
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.779 /CHD/2008 ASSESSMENT YEAR : 2005-06 THE A.C.I.T., VS. M/S OCTAVE EXPORTS, CIRCLE VII, B-XIX-807/2, AHSAN ROAD, LUDHIANA. CIVIL LINES, LUDHIANA. PAN: AAAFO4946P ITA NO.762 /CHD/2008 ASSESSMENT YEAR : 2005-06 M/S OCTAVE EXPORTS, VS. THE A.C.I.T., B-XIX-807/2, AHSAN ROAD, CIRCLE VII, CIVIL LINES, LUDHIANA. LUDHIANA. PAN: AAAFO4946P ITA NO.1283 /CHD/2010 ASSESSMENT YEAR : 2006-07 THE INCOME TAX OFFICER, VS. M/S OCTAVE EXPORTS, II(2), LUDHIANA. GOKAL ROAD, LUDHIANA. PAN: AAAFO4946P AND C.O.NO.33/CHD/2011 IN ITA NO.779 /CHD/2008 ASSESSMENT YEAR : 2006-07 M/S OCTAVE EXPORTS, VS. THE INCOME TAX OFFICER, GOKAL ROAD, II(2), LUDHIANA. LUDHIANA. PAN: AAAFO4946P (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI SUDHIR SEHGAL & ASHOK GOYAL DEPARTMENT BY : SHRI AKHILESH GUPTA, DR DATE OF HEARING : 08.07.2014 DATE OF PRONOUNCEMENT : 28.08.2014 2 O R D E R PER SUSHMA CHOWLA, J.M. : THE ASSESSEE AND THE REVENUE HAS FILED CROSS-APPEA LS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DATED 16.06.2008 RELATING TO ASSESSMENT YEAR 2005-06 AGAINST THE ORD ER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHO RT 'THE ACT') FURTHER, THE REVENUE HAS FILED AN APPEAL AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DATED 20.08.20 10 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED UN DER SECTION 143(3) OF THE ACT. THE ASSESSEE HAS FILED CROSS OBJECTION S AGAINST THE APPEAL FILED BY THE REVENUE RELATING TO ASSESSMENT YEAR 20 06-07. 2. ALL THE THREE APPEALS OF THE ASSESSEE AND REVENU E AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE WERE HEARD TOGETHE R AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE REVENUE IN ITA NO.779/CHD/2008 HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT (A)-II HAS ERRED IN DELET ING THE ADDITION OF RS. 97,34,564/- OUT OF THE TOTAL ADDITION OF RS. 1,22,3 8,136/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U/S 801C OF THE L.T. ACT. 2. THAT WHILE ALLOWING RELIEF AS MENTIONED IN P ARA 1 ABOVE. (I) THE LD. CIT (A) HAS ERRED IN IGNORING THE EVIDE NCE PLACED ON RECORD THAT ALL THE PURCHASES MADE BY THE ASSESSEE WERE MADE FR OM LUDHIANA AND DELIVERED AT THE ADDRESS OF SISTER CONCERN AT LUDHIANA AND NO T DIRECTLY AT THE PLACE OF WORK AT PARWANOO. (II) THE LD. CIT(A) HAS GROSSLY ERRED IN IGNORING T HE FACT THAT THE PRINTING AND BLEACHING OF RAW MATERIAL AS WELL AS SEMI-FINISHED PRODUCTS WAS CARRIED OUT AT LUDHIANA AND NOT PARWANOO THEREBY PUTTING A QUESTIO N MARK ON THE MANUFACTURING PROCESS AT PARWANOO THEREBY CREATING BOTH THE QUESTION OF LAW AS WELL AS FACT. FROM THIS AN IMPORTANT QUESTION AR ISES AS TO WHETHER PRINTING AND BLEACHING IS A PURL OF MANUFACTURING PROCESS OR NOT? 3 (III) THE LD. C1T(A) HAS ERRED IGNORING THE EVIDENC E BROUGHT ON RECORD TO ESTABLISH THAT A NUMBER OF VEHICLES CARRYING THE AL LEGEDLY RAW MATERIAL DID NOT CROSS THE BARRIER AT PARWANOO AND AS SUCH THE A.O. WAS MORE THAN JUSTIFIED IN HOLDING THAT NO RAW MATERIAL REACHED PARWANOO. (IV) THE LD. CIT(A) HAS ERRED IN LAW AND FACTS BY N OT TAKING COGNIZANCE OF THE FACT THAT A NUMBER OF VEHICLES ALLEGED TO BE USED B Y THE ASSESSEE FOR TRANSPORTATION OF RAW MATERIAL WERE OF CLASS LIKE M OTOR CYCLE/TRACTOR/MINI BUS OR THE VEHICLE DID NOT EXIST AT ALL. (V) THE LD. CIT(A) HAS ERRED IN LAW AND FACTS BY NO T GIVING ANY CREDENCE TO THE STATEMENT OF SH. KAPIL SOOD WHEREIN THE PERSON HAS STATED THAT ONLY 10-12 WORKERS WORKED IN THE UNIT OF OCTAVE IMPORTS AND THE UNIT U SUALLY REMAINED CLOSED AS THERE WAS NO WORKING/MANUFACTURING. (VI) THE LD. CIT(A) HAS ERRED IN FACTS BY IGNORING THAT ONLY 13 SEWING MACHINES WERE PUT INTO OPERATION AT THE UNIT OF M/S OCTAVE EXPORTS, AT PARWANOO AND SUBSTANTIATED BY THE ENQUIRY FROM DEPARTMENT OF INDUSTRIES, PARWANOO. (VII) THE LD. CIT(A) HAS ERRED IN FACTS IN IGNORING NOT GIVING ANY VALUE TO THE EVIDENCE BROUGHT ON RECORD BY A.O. IN FORM OF REPOR T OF HIMACHAL PRADESH STATE ELECTRICITY, BOARD WHICH STATES THAT THE ELECTRICITY CONSUMPTION IS TOO LOW TO JUSTIFY A TURNOVER OF MORE THAN KS. 3.72 CRORES. (VIII) THE LD. CIT(A) HAS GROSSLY ERRED IN DEVALUIN G THE EVIDENCE IN THE FORM OF PHOTOGRAPHS AND VIDEO CLIPS SHOWING THE UNIT TO BE CLOSED AND FURTHER SHOWING THAT THE SPACE AVAILABLE IN THE UNIT IS TOO SMALL TO CARRY O UT ANY WORK FOR A TURNOVER REACHING RS.3.72 CRORES. (IX) THE LD. C1T(A) HAS TOTALLY IGNORED THE STATEM ENT OF PERSONS RECORDED OUTSIDE THE ASSESSEES UNIT AT PARWANOO WHERE IT H AS BEEN SLATED THAT NO WORK HAS BEEN CARRIED OUT AT THE BUSINESS PREMISES OF T HE ASSESSEE NEITHER ANY MOVEMENT OF VEHICLE FOR TRANSPORT OF GOODS HAS BEEN SEEN NOR ANY GUARD/CHOWKIDAR HAS BEEN SEEN FUNCTIONING AT THE PLACE. (X) THE LD. CIT(A) HAS GROSSLY ERRED IN IGNORING TH E EVIDENCE OBTAINED FROM INDIA INDUSTRIAL GARMENTS MANUFACTURING PVT. L TD. A REPUTED CONCERN IN THE FIELD OF SEWING MACHINE USED FOR KNITTED PURPOSES W HICH CLEARLY BRING OUT THE FACT THAT THE ASSESSEE CONCERN DID NOT FULFILL THE MINIMUM SEWING MACHINE AND LABOUR REQUIREMENT FOR CARRYING OUT THE MANUFACTURI NG SO AS TO GIVE TURNOVER OF RS. 3.72 CRORES. (XI) THE LD. CIT(A) HAS CUED IN LAW FIND FACTS IN IGNORING THE COMPARISON OF O.I', RATE DRAWN BETWEEN THE ASSESSEE M/S OCTAVE EX PORTS AND ITS SISTER CONCERN NAMELY OCTAVE APPAREL, CARRYING OUT THE SAME BUSINE SS WHEREBY IT IS PROVED THAT THE PROFITS OF M/S OCTAVE EXPORTS ARE TOO HIGH TO E STABLISH THE ASSESSEE'S INTENTION TO CLAIM DEDUCTION U/S 801C. (XII) THE LD. CIT(A) HAS AGAIN ERRED IN 1 FACTS IN IGNORING THE COMPARISON OF PLANT AND MACHINERY DRAWN BETWEEN THE ASSESSEE M/S OCTAVE EXPORTS AND THE SISTER CONCERN M/S OCTAVE APPAREL, WHICH SHOWS THAT THE P LANT AND MACHINERY USED AT M/S OCTAVE APPAREL IS 9.1 LIMES MORE AT M/S OCTAVE APPARELS WHEREAS THE TURNOVER IS ONLY 3.53 TIMES MORE. (XIII) THE LD. C1T(A) HAS ERRED IN NOT GIVING ANY C REDENCE TO THE EVIDENCE PUT ON RECORD BY THE AO TO ESTABLISH THAT NO OLD SEWING MA CHINE AS SUCH EXISTED AT PARWANOO, AGAINST THE ASSESSEE'S CLAIM THAT ELEVEN OLD MACHINES WERE USED AT PARWANOO, 4 (XIV) THE LD. CIT(A) HAS GROSSLY ERRED IN PARTLY AL LOWING THE APPEAL OF THE ASSESSEE WHEN THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAD ALRE ADY BEEN REJECTED ON THE GROUND THAT THERE WAS NO STOCK REGISTER MAINTAINED BY THE ASSESSEE AND THE BILLS FOR THE TRANSPORTATION OF GOODS WERE NOT FOUND TO B E GENUINE. (XV) THE LD. CIT(A) HAS ERRED IN LAW WHEN IT HAS BE EN PROVED ON RECORD THAT IF ANY OLD SEWING MACHINE WERE USED IN BUSINESS AT PAR WANOO ITS VALUE WAS MORE THAN 32% OF TOTAL VALUE OF PLANT AND MACHINERY WHICH IS AGAINST THE PROVISIONS OF LAW AND CLAIM OF DEDUCTION U/S KOIC AS IT CONTRAVENES (HE E XPLANATION (2) TO SUB-SECTION (3) OF SECTION 80IA WHICH HAS TO BE READ ALONGWITH CLAUSE (II) OF SUB-SECTION (4) OF SECTION 801C. (XVI) THE LD. CIT(A) HAS ERRED IN LAW IN PARTLY ALLOWING THE APPE AL OF THE ASSESSEE WHEN IT HAS BEEN CLEARLY BROUGHT ON RECORD THAT WHO LE OF THE MANUFACTURING PROCESS HAS NOT BEEN CARRIED OUT AT PARWANOO WITH PRINTING; AND BLEACHING HAS BEEN EARNED OUT AT LUDHIANA. 4. THE REVENUE IN ITA NO.779/CHD/2008 HAS ALSO RAIS ED THE ADDITIONAL GROUNDS OF APPEAL, WHICH READ AS UNDER: 1. THAT THE LEARNED CIT(A) HAS ERRED IN ALLOWING T HE DEDUCTION U/S 80IC(2)(A)(II) WHEREAS THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IC (2)(B) IN THE ASSTT YEAR UNDER CONSIDERATION AS WELL AS IN THE A.Y. 2004-05 AND A. Y. 2006-07. 2. THAT THE LEARNED CIT(A) ERRED IN ALLOWING THE DE DUCTION U/S 80IC(2)(A) (II) AS THE ASSESSEE WAS MANUFACTURING ITEM OTHER THAN THOS E MENTIONED IN THE SCHEDULE XIV. 3. THAT THE LEARNED CIT(A) HAS ERRED IN ALLOWING DE DUCTION U/S 80IC(2)(A)(II) WHEREAS THE ASSESSEE ASSESSEE DID NOT FULFILL THE C ONDITION LAID DOWN FOR CLAIM OF DEDUCTION U/S 801C(2)(A)(II) I.E; IT IS NOT LOCATED IN ANY OF THE NOTIFIED AREA. 5. THE ASSESSEE IN ITA NO.762/CHD/2008 HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APP EALS)-!!, LUDHIANA HAS ERRED IN HOLDING THAT PROFIT OF RS. 25,03,572/- INCLUDED IN THE PROFIT OF RS. 1,22,38,136/- (ON WHICH 100% DEDUCTION U/S 80IC WAS CLAIMED BY TH E APPELLANT AND DISALLOWED BY THE ASSESSING OFFICER) WAS NOT THE PR OFIT EARNED FROM MANUFACTURING OF ANY GOODS AT PARWANOO AND THE APPE LLANT WAS THEREFORE, NOT ENTITLED FOR ANY DEDUCTION U/S 80IC ON THE INCOME O F RS. 25,03,572/-. 2. THAT THE REJECTION OF CLAIM U/S 80 1C ON THE INC OME OF RS. 25,03,572/- BY THE LD. CIT (APPEALS) ON THE BASIS THAT SOME OF VEHICLES DI D NOT CROSS PARWANOO BARRIER, IS NOT CORRECT IN VIEW OF THE FACT THAT TH E APPELLANT FILED ST-XXVI-A FORMS ISSUED BY THE HIMACHAL PRADESH EXCISE AND TAX ATION DEPARTMENT DULY STAMPED EVIDENCING THAT THESE VEHICLES DID CROSS TH E PARWANOO BARRIER ON THE RESPECTIVE DATES AND THAT GOODS WERE TRANSPORTED FR OM LUDHIANA TO PARWANOO BY THE APPELLANT IN SUCH VEHICLES. 5 3. THAT DEDUCTION U/S 80IC ON RS. 25,03,572/- AS PE R ABOVE PARAS HAS BEEN DISALLOWED AGAINST THE FACTS AND CIRCUMSTANCES OF T HE CASE. 6. THOUGH THE REVENUE HAS RAISED ELABORATE GROUNDS OF APPEAL BUT THE ISSUE RAISED BY THE SAID GROUNDS OF APPEAL IS A GAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN REWORKING T HE DEDUCTION UNDER SECTION 80IC OF THE ACT. 7. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FIRM WAS CONSTITUTED ON 08.09.1999 WITH THREE PARTNERS I.E. M/S BALBIR KUMAR & SONS, HUF, M/S HARISH KUMAR & SONS, HUF AND SHRI AB HISHEK ARORA. THE ASSESSEE ESTABLISHED A UNIT AT PARWANOO ON 08.0 8.2003 IN ORDER TO AVAIL TAX BENEFIT OF EXCISE DUTY, CST AND THE DEDUC TION UNDER SECTION 80IC OF THE ACT. THE UNIT WAS STARTED IN A RENTAL PREMISES WHICH WERE TAKEN ON LEASE FROM H.P. AGRO INDUSTRIES LTD. ON A MONTHLY RENTAL OF RS. 35,571/-. THE TOTAL AREA UNDER OCCUPATION WAS 6352 SQ.FT. THE ASSESSEE WAS ENGAGED IN MANUFACTURING AND TRADING O F READYMADE GARMENTS AND HOSIERY GOODS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN TURNOVER OF RS. 3,72,00,692/- ON WHICH NET PROFIT OF RS. 1,22,38,137/- WAS DECLARED. THE ASSESSEE CL AIMED DEDUCTION UNDER SECTION 80IC OF THE ACT AND RETURN OF INCOME WAS FILED AT NIL. THE ASSESSEE HAD FILED FORM NO. 10CCB ALONGWITH THE RETURN OF INCOME IN WHICH IT WAS MENTIONED THAT THE ASSESSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 80IC(2)(B) OF THE ACT. THE ASSESSEE HAD ALSO REPORTED IN THE SAID FORM THAT IT HAD STARTED OPERA TION ON 04.03.2004 AT PARWANOO (H.P.). THE ASSESSING OFFICER MADE A VISI T TO PARWANOO ALONGWITH THE INSPECTOR ON 23.09.2006. HOWEVER, ON REACHING THERE, IT WAS FOUND THAT THE ASSESSEE HAD CLOSED DOWN ITS BUS INESS AND SOME OTHER BUSINESS WAS BEING CARRIED OUT BY SOME OTHER CONCERN. THE ASSESSING OFFICER MADE ENQUIRIES FROM THE LOCAL PEO PLE REGARDING THE 6 EXISTENCE AND WORKING OF THE ASSESSEE AT THE SAID P LACE. THE STATEMENT OF SHRI KAPIL SOOD, BRANCH INCHARGE OF H.P. AGRO IN DUSTRIES LTD., PARWANOO WAS RECORDED. FURTHER ENQUIRY FROM DEPART MENT OF INDUSTRIES, PARWANOO WAS MADE BY THE ASSESSING OFFI CER. THE ASSESSING OFFICER NOTED THAT BEFORE STARTING THE OP ERATIONS AT PARWANOO, ELIGIBILITY CERTIFICATE HAD TO BE OBTAINE D FROM THE DEPARTMENT OF INDUSTRIES AND THE TOTAL DETAILS OF M ACHINERY TO BE INSTALLED HAD TO BE SUBMITTED. THE ASSESSING OFFIC ER TABULATED THE LIST OF MACHINERY INSTALLED IN THE PREMISES AT PART OF P AGES 8 & 9 OF THE ASSESSMENT ORDER AND HAS ALSO ENCLOSED THE PHOTO CO PIES OF PURCHASE BILLS OF PLANT & MACHINERY AS ANNEXURE A-4 TO THE A SSESSMENT ORDER. AS PER THE ASSESSING OFFICER, NOT MORE THAN 13 SEWI NG MACHINES WERE ALLEGEDLY INSTALLED AT PARWANOO UNIT FOR MANUFACTUR ING GOODS TOTALING RS. 3.72 CR BY EMPLOYING WORKERS LESS THAN 10. THE ASSESSING OFFICER ALSO MADE ENQUIRY FROM THE HIMACHAL PRADESH STATE E LECTRICITY BOARD, PARWANOO AND THE SANCTIONED LOAN WAS 39.9 KV AND TH E COPY OF THE CERTIFICATE WAS ENCLOSED AS ANNEXURE A-5 TO THE ASS ESSMENT ORDER. THE ASSESSING OFFICER OBSERVED THAT THE CONNECTION LOAD WAS TOO LOW TO JUSTIFY THE PRODUCTION OF MATERIAL I.E. TURNOVER OF RS. 3.72 CR. THE ASSESSING OFFICER ALSO OBTAINED THE DETAILS OF CONS UMPTION BY THE ASSESSEE WHICH ARE TABULATED UNDER TABLE 3 AT PAGE 10 OF THE ASSESSMENT ORDER. AS PER THE ASSESSING OFFICER, THE FACTS REFLECT THAT THE CONSUMPTION OF ELECTRICITY WAS TOO LOW TO JUSTI FY THE PRODUCTION OF UNIT OF SUCH HIGH SCALE. 8. WHILE GATHERING THE INFORMATION FROM DEPARTMENT OF INDUSTRIES AND HPSEB, PARWANOO THE ASSESSING OFFICER CAME TO K NOW THAT THE PREMISES OF THE ASSESSEE WAS SHIFTED TO KASAULI ROA D, PARWANOO. IN ORDER TO JUSTIFY THE FACTS, ENQUIRIES WERE CONDUCTE D AT THE SECOND PLACE 7 OF BUSINESS AND IMPORTANT EVIDENCES IN THE FORM OF STILL PHOTOGRAPHS AND VIDEO CLIPS WERE COLLECTED, BOTH OF WHICH ARE E NCLOSED AS ANNEXURE A-7 AND A-8 TO THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS SCANNED AND REPRODUCED THE PHOTOGRAPHS AT PAGES 12 TO 16 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER FURTHER OB SERVED THAT THE BUSINESS AT KASAULI ROAD, PARWANOO WAS CARRIED OUT FROM SPACE OF BARELY 200 SQ.FT. AND THIS IS LOCATED AT A RESIDENT IAL AREA ON THE FIRST FLOOR OF THE BUILDING. THE BUILDING WAS IN A DILAP IDATED CONDITION AND ALL THE ENTRIES TO THE BUILDING WERE LOCKED. THE AS SESSING OFFICER WAS OF THE VIEW THAT NO BUSINESS WAS BEING CARRIED OUT AT THE ALLEGED PRINCIPAL PLACE OF BUSINESS TO CLAIM THE DEDUCTION UNDER SECTION 80IC OF THE ACT. 9. THE ASSESSING OFFICER FURTHER MADE ENQUIRIES FRO M THE PURCHASERS AND THE ASSESSEE WAS ASKED TO FURNISH DE TAILS OF PARTIES FROM WHOM PURCHASES ABOVE RS. 1 LAC HAD BEEN MADE. SUMMONS WERE ISSUED TO VARIOUS PARTIES AND THEY WERE SPECIFICALL Y ASKED TO SPECIFY THE PLACE OF DELIVERY OF RAW MATERIAL PURCHASED BY THE ASSESSEE. FROM THE DETAILED ENQUIRIES, THE ASSESSING OFFICER CONCL UDED THAT THE GOODS/RAW MATERIAL WERE DELIVERED AT LUDHIANA AND T HE DETAILS OF THE SAME ARE PROVIDED BY THE ASSESSING OFFICER UNDER TA BLE-4 AT PAGE 20 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER OBTA INED THE COPIES OF INVOICES OF SALE BILLS OF THE SAID PARTIES AND THE SAME ARE ENCLOSED AS ANNEXURE A-10 TO THE ASSESSMENT ORDER ON WHICH IT I S CLEARLY MENTIONED THAT THE GOODS WERE DELIVERED AT LUDHIANA OFFICE AND SOME OF THE GOODS WERE DELIVERED TO THE ADDRESS OF THE S ISTER CONCERN M/S OCTAVE APPARELS AT G.T.ROAD, JALANDHAR BYPASS. THE ASSESSING OFFICER, THUS CONCLUDED THAT ALL THE RAW MATERIAL H AD BEEN PURCHASED FROM THE PARTIES AT LUDHIANA AND WHERE THE ASSESSEE HAD NO OCCUPATION 8 OR PLACE OF BUSINESS. THE ASSESSING OFFICER THUS, QUESTIONED WHETHER THE RAW MATERIAL WAS EVER DELIVERED TO THE ASSESSEE . THE ASSESSING OFFICER FURTHER OBSERVED THAT THE GOODS WERE DELIVE RED AT THE SISTER CONCERN OF THE ASSESSEE WHICH WAS ENGAGED IN THE SA ME LINE OF BUSINESS. FURTHER, THE GOODS WERE KNITTED CLOTH, S HIRTING AND WOVEN FABRICS FOR CARRYING OUT THE ALLEGED MANUFACTURING ACTIVITY. THE ASSESSING OFFICER THUS QUESTIONED AS TO WHETHER ANY MANUFACTURING ACTIVITY WAS CARRIED OUT AT PARWANOO UNIT. 10. THE ASSESSING OFFICER ALSO MADE ENQUIRIES FROM PRINTING & BLEACHING HOUSE AND THE STATEMENT OF THE PRINTER WA S RECORDED WHO IN- TURN SUBMITTED THAT THE ASSESSEE WAS DELIVERING THE GOODS AND PICKING UP THE GOODS GIVEN FOR PRINTING AND IN CASE ANY DEL IVERY HAD TO BE MADE, IT WAS MADE AT LUDHIANA OFFICE. SIMILAR REPL Y WAS GIVEN IN RESPECT OF BLEACHING OF THE PRODUCT. THE ASSESSEE WAS CONFRONTED WITH THIS INFORMATION AND THE STATEMENT OF THE PARTNER S HRI BALBIR KUMAR, KARTA OF BALBIR KUMAR, HUF WAS RECORDED ON 15.01.20 07 IN WHICH HE DETAILED THE MANUFACTURING PROCESS CARRIED ON AND T HE MACHINERY INSTALLED FOR THE ABOVESAID PURPOSES. HE ALSO STAT ED THAT 30 TO 45 LABOURERS WERE DEPLOYED FOR MANUFACTURING PROCESS. THE ASSESSING OFFICER, IN VIEW THEREOF, OBSERVED THAT THERE WAS I NCONSISTENCY IN THE STATEMENT OF THE PARTNER AS HE HAD STATED THAT THER E WERE AROUND 30 SEWING MACHINES INSTALLED AT PARWANOO BUT AS PER RE CORD, ONLY 13 MACHINES WERE INSTALLED I.E. ON THE BASIS OF THE EV IDENCE COLLECTED FROM THE DEPARTMENT OF INDUSTRIES. FURTHER, HE HAS SUBMITTED THAT 30 TO 45 LABOURERS WERE DEPLOYED FOR MANUFACTURING PRO CESS AT PARWANOO WHEREAS AS PER THE STATEMENT OF SHRI KAPIL SOOD, NO T EVEN 10 PERSONS WERE FOUND WORKING AT THE PRINCIPAL PLACE OF MANUFA CTURING. 11. THE ASSESSING OFFICER FURTHER MADE ENQUIRIES IN RELATION TO 9 TRANSPORT OF GOODS THROUGH THE PARWANOO BARRIER. T HE ASSESSEE WAS ASKED TO FURNISH COMPLETE DETAILS OF THE VEHICLES U SED/SENT FOR TRANSPORTATION OF THE RAW MATERIAL FROM LUDHIANA TO PARWANOO. THE ASSESSEE, IN RESPONSE FURNISHED COMPLETE DETAILS OF THE VEHICLES SUPPOSED TO HAVE CARRIED THE RAW MATERIAL FROM LUDH IANA TO PARWANOO. THE ASSESSING OFFICER, THEREAFTER MADE ENQUIRIES FR OM THE EXCISE & TAXATION DEPARTMENT, HIMACHAP PRADESH AS THERE WAS A TOLL BARRIER BETWEEN KALKA AND PARWANOO. THE DETAILS SUBMITTED BY THE ASSESSEE ARE TABULATED UNDER TABLE-5 AT PAGES 30 AND PART OF 31 OF THE ASSESSMENT ORDER AND THE RESULTS OF THE ENQUIRIES M ADE FROM THE GOVERNMENT AGENCY IS TABULATED UNDER TABLE-6 AT PAR T OF PAGE 31 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER, ON COMPAR ISON OBSERVED THAT NUMBER OF VEHICLES HAD NOT CROSSED THE BARRIER ON T HE SPECIFIED DATES, IMPLYING THEREBY THAT THE RAW MATERIAL HAD NEVER RE ACHED THE PLACE OF DESTINATION. THE ASSESSING OFFICER FURTHER MADE EN QUIRIES REGARDING THE NATURE/CLASS OF VEHICLES AS SUBMITTED BY THE AS SESSEE IN THE LIST FOR TRANSPORTATION OF GOODS AND LETTERS WERE ISSUED TO THE DISTRICT TRANSPORT OFFICERS AND SDMS AND THE REPLIES RECEIVE D HAVE BEEN TABULATED UNDER TABLE-7 AT PAGE 32 OF THE ASSESSMEN T ORDER UNDER WHICH IT WAS REPORTED THAT SOME OF THE VEHICLES WER E LIGHT GOODS VEHICLES BUT THE LIST ALSO INCLUDED THE MOTORCYCLES , MINI BUS, LML SCOOTER, ETC. 12. THE ASSESSING OFFICER, THEREAFTER MADE ENQUIRIE S REGARDING THE MANUFACTURING PROCESS AND ITS REQUIREMENT FROM ONE M/S INDIA INDUSTRIAL GARMENTS MANUFACTURING PVT. LTD. AT LUDH IANA WHO WAS ENGAGED IN SIMILAR LINE OF MANUFACTURING. THE ASSE SSING OFFICER THEREAFTER CONSIDERED THE LIST OF MACHINERY INSTALL ED AT PARWANOO AND ALSO THE INFORMATION FROM THE DEPARTMENT OF INDUSTR IES, PARWANOO AND 10 OBSERVED THAT FOR CARRYING ON THE MANUFACTURING ACT IVITY, MINIMUM OF 26 TO 30 MACHINES WERE REQUIRED WHEREAS IN THE CASE OF THE ASSESSEE, THERE WERE ONLY 13 SEWING MACHINES AND THE ASSESSEE HAS SHOWN A TURNOVER OF RS. 3.72 CR WHICH WAS IMPOSSIBLE TO ACH IEVE BY USING 13 SEWING MACHINES. 13. ANOTHER EXERCISE CARRIED ON BY THE ASSESSING OF FICER WAS THE COMPARISON OF THE RESULTS SHOWN BY M/S OCTAVE EXPOR TS I.E. ASSESSEE BEFORE US AND ITS SISTER CONCERN M/S OCTAVE APPAREL S. THE ASSESSING OFFICER HAS TABULATED THE TURNOVER, WAGES AND OTHER EXPENSES INCURRED BY THE TWO CONCERNS UNDER TABLE-10 AT PAGE 39 OF TH E ASSESSMENT ORDER AND CONCLUDED THAT THE EXPENSES BOOKED AT PARWANOO UNIT WERE MUCH LESS THAN THE EXPENSES BOOKED BY THE SISTER CONCERN AT LUDHIANA. AS PER THE ASSESSING OFFICER, THE EXPENSES BOOKED AT P ARWANOO UNIT WERE TOO LOW TO JUSTIFY ANY WORKING. FURTHER, A COMPARI SON BETWEEN PLANT & MACHINERY OF THE TWO CONCERNS WAS ALSO MADE AND I T WAS FOUND THAT THE TURNOVER WHICH WAS 1/3 RD OF ITS SISTER CONCERN, THE ASSESSEE HAD DONE THE SAME WORK WITH JUST 1/10 TH OF THE MACHINERY. FURTHER, THE NET PROFIT SHOWN BY THE ASSESSEE WAS MUCH HIGHER THAN I TS SISTER CONCERN. AS PER ASSESSING OFFICER, THE ABOVE ESTABLISHES THA T NO WORK AS SUCH, HAD BEEN CARRIED OUT AT PARWANOO AND THE ASSESSEE W AS NOT ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80HHC OF THE A CT. THE ASSESSEE WAS ACCORDINGLY, SHOW CAUSED BY THE ASSESSING OFFIC ER. THE REPLY OF THE ASSESSEE EXPLAINING THAT IT HAD OBTAINED VARIOU S REGISTRATIONS FOR ESTABLISHING THE UNIT AT PARWANOO AND THE LIST OF M ACHINERY INSTALLED WAS FILED. FURTHER, THE ASSESSEE REPLIED TO EACH O F THE POINTS RAISED BY THE ASSESSING OFFICER AND THE SAID REPLY IS REPRODU CED AT PAGES 43 TO 55 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER, THEREAFTER HAS ELABORATELY REBUTTED TO EACH OF THE SUBMISSIONS MAD E BY THE ASSESSEE 11 AND HELD THAT THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT MADE BY THE ASSESSEE WAS BOGUS FOR VARIOUS REASONS AND THE SAME WAS THUS, REJECTED. 14. ANOTHER ASPECT NOTED BY THE ASSESSING OFFICER W AS THAT THE ASSESSEE HAD NOT MAINTAINED ANY STOCK REGISTER WHIC H WAS THE BASIC REQUIREMENT FOR A CONCERN CARRYING ON MANUFACTURING OF GARMENTS AND CLAIMING DEDUCTION UNDER SECTION 80IC OF THE ACT. IN THE ABSENCE OF SUCH STOCK REGISTER, THE DETAILS OF YIELD OF FINISH ED PRODUCTS, PERCENTAGE OF YIELD, THE SHORTAGE AND EXCESS, IF AN Y COULD NOT BE DERIVED AT. 15. THE ASSESSING OFFICER, THEREAFTER DELIBERATED U PON THE LEGAL INFIRMITIES IN THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. THE FIRST ISSUE WAS THE TRANSFER OF 11 OLD SEWING M ACHINES FROM LUDHIANA TO PARWANOO. AS PER THE ASSESSING OFFICER , IN CASE THE ASSESSEE HAS SO TRANSFERRED 11 OLD MACHINES, THEN I T HAS VIOLATED THE PROVISIONS OF SECTION 80IC(2) OF THE ACT. THE ASSE SSING OFFICER, THEREAFTER HAS TABULATED THE VALUE OF MACHINERY PUR CHASED IN JANUARY,2001 AND AFTER DEPRECIATION, THE WDV AS ON 31.3.2003 HAS BEEN WORKED OUT AT RS. 1,27,230/-, AS AGAINST WHICH THE ASSESSEE HAD VALUED THE SAID MACHINERY AT RS. 9500/-. THE ASSES SEE, AS ON 01.04.2004 HAD MACHINERY OF RS. 2,67,270/- AND IF T HE TOTAL VALUE OF THE OLD MACHINERY IS CONSIDERED, THEN IT IS MORE TH AN 20% OF THE TOTAL VALUE OF MACHINERY. FURTHER, AS THE ASSESSEE HAD C ARRIED OUT THE PRINTING AND BLEACHING FROM LUDHIANA WHICH WERE NOT THE PLACES OF EXEMPTION, HENCE THE ASSESSEE WAS NOT ENTITLED TO C LAIM DEDUCTION UNDER SECTION 80IC OF THE ACT. 16. THE ASSESSEE WAS ALSO SHOW CAUSED THAT SCHEDULE XIV OF THE 12 INCOME TAX ACT PROVIDES THE LIST OF ARTICLES OR THI NGS WHICH ARE TO BE SPECIFICALLY MANUFACTURED FOR CLAIM OF DEDUCTION UN DER SECTION 80IC OF THE ACT. IN THE CASE OF THE ASSESSEE, THE SPECI FIC ITEM LIES AT S.NO. 9 OF PARA C OF SCHEDULE XIV AND THE LISTED ITEMS IS WOVEN FABRIC AND AS SUCH THE ASSESSEE WAS NOT ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. IN REPLY TO THIS SHOW CAU SE NOTICE ISSUED BY THE ASSESSING OFFICER, THE ASSESSEE STATED THAT 'DURING THE YEAR WE HAVE CLAIMED DEDUCTION UNDER SECTION 80IC UNDER SUB -SECTION 2(A)(II).UNDER THIS PROVISION OF SECTION 80IC ASSES SEE WHO MANUFACTURED ANY ARTICLE OR THING NOT BEING ARTICLE SPECIFIED IN SCHEDULE IS ENTITLED TO THE DEDUCTION. WE ARE NOT C OVERED UNDER SECTION OTHER CONDITIONS OF SECTION 80IC HAVE BEEN COMPLIED WITH . THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD C HANGED ITS CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT THAT IT WAS TO BE ALLOWED UNDER SECTION 80IC(2)(A) AND NOT UNDER SECTION 80IC (2)(B) OF THE ACT, THOUGH IN THE AUDIT REPORT, THE ASSESSEE HAD MADE A CLAIM UNDER SECTION 80IC(2)(B) AND NOT UNDER SECTION 80IC(2)(A) OF THE ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT BECAUSE OF T HE LEGAL INFIRMITIES IN THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT, THE ASSESSEE HAS CHANGED ITS STAND. FURTHER, THE ASSESSEE IN AS SESSMENT YEAR 2004-05 AND ALSO IN ASSESSMENT YEAR 2006-07 HAD MAD E A CLAIM OF DEDUCTION UNDER SECTION 80IC(2)(B) OF THE ACT NOT U NDER SECTION 80IC(2)(A) OF THE ACT. THE ASSESSING OFFICER THUS HELD THAT THE ASSESSEE WAS UNJUSTIFIED IN CLAIMING THE SAID DEDUC TION UNDER DIFFERENT CLAUSES OF SECTION 80IC OF THE ACT IN DIFFERENT ASS ESSMENT YEARS FOR CARRYING ON THE SAME WORK. THE ASSESSING OFFICER A LSO NOTED THAT THE ASSESSEE IN THE AUDIT REPORT HAD STATED THAT IT WAS CARRYING ON BOTH MANUFACTURING AND TRADING OF READYMADE GARMENTS AND HOSIERY GOODS AND DEDUCTION UNDER SECTION 80IC OF THE ACT COULD N OT BE ALLOWED ON 13 TRADING OF GOODS. THE ASSESSING OFFICER, DISMISSIN G THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT HELD AS UND ER: THE GIST OF THE FACTUAL INFIRMITIES IS PROVIDED BEL OW:- (I) ENQUIRIES CONDUCTED AT PARWANOO INDICATE THAT NO WORK HAS BEEN CARRIED OUT AT THE ELIGIBLE PLACE OF BUSINESS. (II) THE EVIDENCE FROM SETTERS OF RAW MATERIAL REG ARDING THE DELIVERY OF GOODS AT THE PREMISE OF SISTER CONCERN AND NOT AT PARWANO O IS VERY IMPORTANT. (III) THAT NO TRANSPORT OF GOODS TOOK PLACE FROM LUDHIANA TO PARWANOO AS EVIDENCED BY ENQUIRIES FROM VARIOUS STATE AGENCIES LIKE EXCISE AND TAXATION COMMISSIONER, HIMACHAL PRADESH AND SDMS AN D DTOS ALL ACROSS THE STATE OF PUNJAB. (IV) THE PRINTER DELIVERED THE PRINTED PANELS A T THE ADDRESS OF SISTER CONCERN AT LUDHIANA. THE BLEACHED GARMENTS WERE DELIVERED AT T HE PREMISE OF SISTER CONCERN AT LUDHIANA. (V) THE INADEQUATE INFRASTRUCTURE AT PARWANOO AS EVIDENCED BY THE REPORT OF HGM PVT LTD. (VI) UNREASONABLE DIFFERENCE BETWEEN THE PROFIT RATIOS OF M/S OCTAVE EXPORTS AS COMPARED TO THE SISTER CONCERN I.E. M/S OCTAVE APPA RELS THOUGH SAME WORK HAS BEEN CARRIED OUT AT BOTH THE PLACES. (VII) THE BOOKS HAVE BEEN REJECTED ON GROUNDS OF DISCREPA NCIES FOUND AND ABSENCE OF STOCK DETAILS. THE GIST OF LEGAL INFIRMITIES IS BEING P ROVIDED BELOW:- (I) THE VALUE OF OLD SEWING MACHINES IN THE BUS INESS IS MORE THAN 32% OF THE TOTAL VALUE OF PLANT & MACHINERY. (II) A PART OF THE MANUFACTURING PROCESS HAS BE EN SHOWN TO BE DONE OUT OF THE ELIGIBLE PLACE OF BUSINESS. (III) THE RAW MATERIAL BEING PURCHASED IS THE SAME AS THE PRODUCT WHICH NEEDS TO BE MANUFACTURED FOR CLAIMING DEDUCTION U/S 80IC. SO THE CLAIM OF THE ASSESSEE OF DEDUCTION U/S 80 1C OF THE I.T ACT NEEDS TO BE DISALLOWED ON LEGAL GROUNDS AS WELL THE FACTUAL ABE RRATIONS WHICH HAVE ALREADY BEEN DISCUSSED IN THE BODY OF THE ORDER ABO VE. 17. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) , THE ASSESSEE FILED WRITTEN SUBMISSIONS AND VARIOUS EVIDENCES WHI CH ARE REPRODUCED UNDER PARA 4.2 AT PAGES 14 TO 25 OF THE APPELLATE O RDER. THE ASSESSING OFFICER ALSO SUBMITTED REPORTS VIDE LETTERS DATED 1 0.04.2008 AND 22.04.2008. IN REJOINDER, THE ASSESSEE FURNISHED W RITTEN SUBMISSIONS WHICH WERE ALSO PLACED ON RECORD BY THE COMMISSIONE R OF INCOME TAX 14 (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS ), ON THE PERUSAL OF THE RECORD AND THE ENQUIRIES MADE BY THE ASSESSING OFFICER, DELIBERATED UPON THE ISSUE VIDE PARAS 5 ONWARDS. T HE OBJECTIONS OF THE ASSESSING OFFICER WERE MET WITH BY THE COMMISSI ONER OF INCOME TAX (APPEALS) PARAWISE. THE FIRST OBJECTION RAISED BY THE ASSESSING OFFICER WAS WITH REGARD TO THE ENQUIRIES MADE AT PA RWANOO WHERE HE NOT ONLY VISITED THE PREMISES OF THE ASSESSEE BUT A LSO RECORDED STATEMENT OF ONE SHRI KAPIL SOOD WHO STATED THAT ON LY 10 TO 12 WORKERS WERE WORKING IN THE CONCERN. THE COMMISSIO NER OF INCOME TAX (APPEALS) CONSIDERED THE EXPLANATION OF THE ASS ESSEE THAT IT HAD CLOSED ITS BUSINESS AT SHED NO. 1,SECTOR 2, PARWANO O WHERE IT HAD TAKEN 6352 SQ.FT. AREA ON LEASE AND THE SAID PREMIS ES WAS VACATED ON 31.05.2005. THE MANUFACTURING ACTIVITY WAS STOPPED BY THE ASSESSEE ON 04.03.2006 AND HENCE, ON 29.09.2006 WHEN THE ASS ESSING OFFICER VISITED THE PREMISES, THE MANUFACTURING WAS BEING C ARRIED OUT AT THE NEW PREMISES. THE ASSESSING OFFICER HAD ALSO RELIE D UPON STATEMENT OF SHRI KAPIL SOOD AGAINST WHICH THE ASSESSEE HAD A SKED FOR CROSS- EXAMINATION WHICH WAS NOT ALLOWED TO THE ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IN V IEW THEREOF, WHERE THE ASSESSING OFFICER HIMSELF HAD CONSIDERED THE EVIDENCE TO BE MINOR EVIDENCE AND UNLESS CROSS-EXAMINATION WAS ALL OWED TO THE ASSESSEE, THE SAID EVIDENCE COULD NOT BE USED AGAIN ST THE ASSESSEE. 18. THE SECOND OBJECTION RAISED BY THE ASSESSING OF FICER WAS AGAINST NUMBER OF MACHINES INSTALLED IN THE UNIT. THE ASSE SSING OFFICER HAD RECEIVED INFORMATION THAT BEFORE THE DIRECTOR OF IN DUSTRIES, HIMACHAL PRADESH, THE ASSESSEE HAD MENTIONED ABOUT 13 SEWING MACHINES WHEREAS THE ASSESSEE HAD SUBSEQUENTLY TRANSFERRED 1 1 MORE HAND DRIVEN MACHINES AND HAD ALSO INVESTED IN MORE MACHI NES AFTER GETTING 15 ELIGIBILITY CERTIFICATE FROM THE DEPARTMENT OF INDU STRIES. THE ASSESSEE HAD INITIALLY PURCHASED 11 MACHINES FOR RS. 14,000/ - ON 20.04.2001 AND THE SAME WERE REFLECTED IN THE BALANCE SHEET FO R THE FINANCIAL YEAR 2001-02. DURING THE APPELLATE PROCEEDINGS AND ALSO BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAD FURNISHED THE E VIDENCE OF TRANSPORT OF THE SAID MACHINES FROM LUDHIANA TO PARWANOO AND ALSO THE BARRIER RECEIPTS DATED 26.11.2003 FOR TRANSPORTATION. THE ASSESSING OFFICER HAD REJECTED THE PLEA OF THE ASSESSEE IN RESPECT OF THE HAND DRIVEN MACHINES AS ON THE DATE OF INSPECTION, ONLY IMPORTE D MACHINES WERE FOUND INSTALLED AT THE PREMISES. THE ASSESSEE, HOW EVER PRODUCED THE EVIDENCE THAT IN THE PHOTOGRAPHS AND THE VIDEO CLIP PING ITSELF, THE NATURE OF THE MACHINERY CAN BE DETERMINED THAT BESI DES THE IMPORTED MACHINES, THERE WERE HAND DRIVEN MACHINES INSTALLED ALSO. FURTHER, THE TRANSPORTATION RECEIPTS ESTABLISHED THE CASE OF THE ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS) WAS IN AGREEME NT WITH THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT IT COULD NOT BE PRESUMED THAT ONLY THE MACHINES INSTALLED AS PER THE INFORMA TION GIVEN TO THE DIRECTOR OF INDUSTRIES, HIMACHAL PRADESH WERE THE O NLY MACHINERY AT PARWANOO UNIT. 19. ANOTHER ADVERSE INFERENCE DRAWN BY THE ASSESSIN G OFFICER WAS ON ACCOUNT OF CONSUMPTION OF THE ELECTRICITY. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT SIMPLY BECAUSE T HE EXPENSES WERE ON THE LESSER SIDE, IT CANNOT BE PRESUMED THAT NO M ANUFACTURING ACTIVITIES HAD BEEN CARRIED OUT AT THE UNIT. FURTH ER RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE CHANDIGARH BENCH OF T RIBUNAL IN SHOGHI COMMUNICATION LTD. VS DCIT IN ITA NO. 359/CHD/2005, ORDER DATED 04.08.2006 REPORTED IN 9 SOT 489 (CHD) AND IT WAS H ELD THAT LOWER ELECTRICITY EXPENSES COULD NOT BE THE GROUND FOR RE FUSING THE CLAIM OF 16 DEDUCTION UNDER SECTION 80IC OF THE ACT. IN ANY CA SE, THE SAID LOWER EXPENDITURE CANNOT GIVE RISE TO THE INFERENCE THAT NO MANUFACTURING ACTIVITY HAD BEEN CARRIED OUT BY THE ASSESSEE AT PA RWANOO UNIT. 20. ANOTHER INFERENCE DRAWN BY THE ASSESSING OFFICE R WAS ON ACCOUNT OF THE PHOTOGRAPHS AND THE VIDEO CLIPPINGS OF THE PREMISES. THE SAID VIDEO CLIPPINGS WERE OF THE NEW PREMISES W HERE THE PRODUCTION HAD STOPPED ON THE DATE WHEN THE ASSESSI NG OFFICER VISITED THE PREMISES. IN VIEW THEREOF, WHEN THE MANUFACTUR ING HAD ALREADY STOPPED, THE COMMISSIONER OF INCOME TAX (APPEALS) H ELD THAT SAME CANNOT BE USED AS EVIDENCE UNLESS THE SAME WAS CONF RONTED TO THE ASSESSEE WITH FULL EVIDENCE AND IT WAS GIVEN AN OPP ORTUNITY TO CROSS- EXAMINE THE PERSONS WHOSE STATEMENTS WERE RECORDED. 21. THE NEXT OBJECTION OF THE ASSESSING OFFICER WAS VIS--VIS THE PLACE OF DELIVERY OF THE RAW MATERIAL AT LUDHIANA. THE ASSESSING OFFICER WAS OF THE VIEW THAT IF ALL THE MATERIAL HA D BEEN DELIVERED AT THE FACTORY PREMISES OF THE SISTER CONCERN OF THE A SSESSEE IN LUDHIANA, HOW CAN ANY MANUFACTURING ACTIVITY BE ACTUALLY CARR IED OUT AT THE PARWANOO UNIT. THE ASSESSING OFFICER ALSO QUESTION ED THE NECESSITY OF THE RAW MATERIAL BEING PURCHASED I.E. WOVEN FABRIC, KNITTED CLOTH AND SHIRTING AND WHETHER THE SAME WERE RAW MATERIAL OR WERE IN THE NATURE OF FINISHED GOODS. AS PER THE ASSESSING OFFICER, T HE PURCHASE OF SUCH TYPE OF MATERIAL DID NOT ENTITLE THE ASSESSEE TO TH E CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED THE OBSERVATION OF THE ASSESSING OFFICER HOLDING THAT THE RAW MATERIAL TO BE UTILIZED BY A CONCERN C AN VARY FROM THE NATURE OF THE ACTIVITIES CARRIED OUT AND WHERE THE ASSESSEE'S UNIT AT PARWANOO IS ENGAGED IN MANUFACTURING ACTIVITY OR NO T IS TO BE INDEPENDENTLY SEEN. AS PER THE ASSESSEE, THE FABRI C WAS THE RAW 17 MATERIAL FOR THE ASSESSEE'S UNIT AS IT WAS MANUFAC TURING T-SHIRTS OF DIFFERENT VARIETIES. SINCE NEW PRODUCT EMERGED, TH E ASSESSEE WAS HELD TO BE ENGAGED IN MANUFACTURING ACTIVITY. 22. THE SECOND ASPECT OF THE SAME ISSUE WAS THE DEL IVERY OF THE RAW MATERIAL AT LUDHIANA. AS PER THE ASSESSEE, THE SAI D RAW MATERIAL BEFORE BEING SENT TO PARWANOO WAS CHECKED/INSPECTED BY ONE OF THE PARTNERS AT LUDHIANA AND DISPATCHED ON TEMPO LOAD B ASIS AS PER THE REQUIREMENTS OF PARWANOO UNIT. THE SAID FACT WAS A LSO ADMITTED BY THE PARTNER SHRI BALBIR KUMAR. THE COMMISSIONER OF INC OME TAX (APPEALS) WAS OF THE VIEW THAT SUCH DELIVERY OF THE RAW MATERIAL AT LUDHIANA FOR CHECKING PURPOSE DOES NOT ENTITLE THE ASSESSING OFFICER TO DRAW AN ADVERSE INFERENCE. SIMILARLY, THE COMMI SSIONER OF INCOME TAX (APPEALS) FOUND NO MERIT IN THE ADVERSE INFEREN CE DRAWN BY THE ASSESSING OFFICER ON ACCOUNT OF ENQUIRIES MADE FROM THE PRINTER & BLEACHING HOUSE WHICH CARRIED THE JOB WORK AT LUDHI ANA. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT ONLY APPROXIMATELY 5% OF THE T-SHIRTS WERE SENT FOR PRINTING OR BLEACH ING AND THERE WAS NO QUESTION OF MAKING TOO MANY TRIPS TO LUDHIANA FO R THE PURPOSE OF. THE OBSERVATIONS OF THE ASSESSING OFFICER IN THIS R EGARD WERE THUS, HELD TO BE INCORRECT AND UNJUSTIFIABLE. 23. FURTHER, BEFORE COMMISSIONER OF INCOME TAX (APP EALS), THE ASSESSEE FURNISHED ADDITIONAL EVIDENCE IN THE FORM OF CERTIFICATE FROM KNITWEAR CLUB (REGD.) LUDHIANA UNDER WHICH THE ASSE SSEE HAD POINTED OUT THAT PRINTING AND BLEACHING WERE NOT THE INTEGR AL PART IN THE MANUFACTURING PROCESS OF THE T-SHIRTS. THE SAID AD DITIONAL EVIDENCE WAS ADMITTED AND THE ASSESSING OFFICER IN THE REMAN D PROCEEDINGS HAD RECORDED THE STATEMENT OF SHRI CHARANJEET SINGH, SE CRETARY, KNITWEAR CLUB ON 09.04.2008. THE ASSESSING OFFICER REPORTED THAT THE PLEA OF 18 THE ASSESSEE THAT PRINTERS THAT PRINTING AND BLEACH ING WAS NOT PART OF THE MANUFACTURING PROCESS OF T-SHIRTS, COULD NOT BE ACCEPTED AS IN THE STATEMENT RECORDED, THE SAID PERSON HAD SUBMITTED T HAT BOTH PRINTING AND BLEACHING WAS PART OF THE MANUFACTURING ACTIVIT Y. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT PRINTING AND BLEACHING WAS REQUIRED WHEREVER IT WAS NEEDED CONSI DERING THE TYPE OF T-SHIRTS BEING MANUFACTURED AND IT WAS HELD THAT TH E EXPLANATION OF THE ASSESSEE NOWHERE CONTRADICTS THE STATEMENT RECORDED BY THE ASSESSING OFFICER AS THE BLEACHING WAS REQUIRED ONLY FOR THE MANUFACTURE OF SUPER WHITE QUALITY T-SHIRTS. ACCEPTING THE CONTEN TION OF THE ASSESSEE THAT ONLY 5% OF THE MANUFACTURED PRODUCTS WERE SENT FOR PRINTING OR BLEACHING, IT WAS HELD BY THE COMMISSIONER OF INCOM E TAX (APPEALS) THAT THE SAME IN NO WAY CONTRADICTS THE STATEMENT O F SHRI CHARANJEET SINGH. THE INFERENCE DRAWN BY THE ASSESSING OFFICE R ON THE BASIS OF THE SAID QUERIES MADE FROM PRINTING & BLEACHING HOU SE WERE HELD TO BE NOT SUSTAINABLE. 24. THE NEXT ASPECT CONSIDERED BY THE COMMISSIONER OF INCOME TAX (APPEALS) WAS THE STATEMENT OF SHRI BALBIR KUMAR, K ARTA OF BALBIR KUMAR, HUF PARTNER RECORDED DURING THE COURSE OF AS SESSMENT PROCEEDINGS. HE STATED THAT AROUND 30 SEWING MACHI NES WERE INSTALLED AT PARWANOO UNIT AND 30 TO 35 LABOURERS WERE DEPLOY ED FOR MANUFACTURING PROCESS. THE SAID STATEMENT OF THE PARTNER WAS NOT BELIEVED BY THE ASSESSING OFFICER BEING INCONSISTEN T WITH THE DETAILS FILED WITH THE DIRECTOR OF INDUSTRIES, HIMACHAL PRA DESH. FURTHER, IN RESPECT OF THE NUMBER OF EMPLOYEES, THE ASSESSING O FFICER OBSERVED THAT ONE SHRI KAPIL SOOD, THE EMPLOYEE OF ANOTHER C ONCERN FROM THE SAME PREMISES HAD STATED THAT NOT EVEN 10 PERSONS W ERE WORKING IN THE UNIT OF THE ASSESSEE. AFTER CONSIDERING THE EVIDEN CE FILED BY THE 19 ASSESSEE, THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT MERELY BECAUSE THE ASSESSEE HAD INTIMATED 13 MACHINES FOR START OF PROJECT TO THE DIRECTOR OF INDUSTRIES, HIMACHAL PRADESH, THERE WAS NO BAR TO BRING IN OTHER MACHINES SPECIALLY WHERE THE ASSESSE E HAD EXPLAINED THAT 11 OLD MACHINES HAD BEEN TRANSFERRED FROM THE LUDHIANA UNIT TO PARWANOO UNIT. FURTHER, THE ASSESSEE ALSO FURNISHE D THE LIST OF 30 WORKERS WITH COMPLETE NAMES AND ADDRESSES AND WITHO UT MAKING ANY ENQUIRIES, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE SAME AND RELYING UPON THE STATEMENT OF A THIRD PARTY, WI THOUT ALLOWING CROSS-EXAMINATION TO THE ASSESSEE IN RESPECT THEREO F. 25. THE ASSESSING OFFICER FURTHER HAD MADE ENQUIRIE S IN RESPECT OF THE MANUFACTURING PROCESS EMPLOYED BY THE ASSESSEE. THE ASSESSING OFFICER HAD CONCLUDED ON THE BASIS OF THE SAID ENQU IRIES THAT FOR THE PURPOSE OF ACHIEVING THE TURNOVER CLAIMED TO HAVE B EEN MADE BY THE ASSESSEE, MINIMUM OF 26 MACHINES AND 30 WORKERS WER E REQUIRED. HOWEVER, IN VIEW OF THE INTIMATION OF 13 MACHINES T O DIRECTOR OF INDUSTRIES, HP AND RELYING ON THE STATEMENT OF SHRI KAPIL SOOD THAT ASSESSEE HAD EMPLOYED 8 TO 10 WORKERS, THE ASSESSIN G OFFICER HAD HELD THAT IT IS NOT POSSIBLE TO ACHIEVE THE TURNOVER. T HE COMMISSIONER OF INCOME TAX (APPEALS), IN VIEW OF THE FACTS AND CIRC UMSTANCES, CONSIDERED IN THE PARAS ABOVE, DID NOT ACCEPT THE P LEA OF THE ASSESSEE. FURTHER, DURING THE APPELLATE PROCEEDINGS, THE ASSE SSEE HAD FURNISHED A CERTIFICATE FROM INDIAN INDUSTRIAL GARMENTS MANUFAC TURING (IIGM) PVT. LTD. WHEREIN THEY HAD CERTIFIED THAT THE TYPE OF MA CHINERY WHICH THE ASSESSEE HAD INSTALLED, WAS SUFFICIENT FOR MANUFACT URING GOODS WHICH THE ASSESSEE HAD MANUFACTURED AND SOLD. THE SAID C ERTIFICATE WAS ADMITTED BY THE COMMISSIONER OF INCOME TAX (APPEALS ) UNDER RULE 46A OF THE IT RULES. THE ASSESSING OFFICER IN THE REMAND REPORT 20 DATED 10.04.2008 HAD STATED THAT THE PRICE LIST OF VARIOUS MACHINE MODELS FROM IIGM CARRIED NO VALUE AT ALL. THE COMM ISSIONER OF INCOME TAX (APPEALS), HOWEVER HELD THAT THE ADVERSE INFERENCE DRAWN BY THE ASSESSING OFFICER IN THIS REGARD WAS NOT IN ORDER. 26. THE NEXT ASPECT CONSIDERED BY THE COMMISSIONER OF INCOME TAX (APPEALS) WAS THE ORDER OF ASSESSING OFFICER DEALIN G WITH THE EXPENSES SHOWN BY THE ASSESSEE UNDER VARIOUS HEADS BEING LESS THAN THE EXPENSES CLAIMED BY THE SISTER CONCERN, WHO WAS ENGAGED IN SIMILAR MANUFACTURING ACTIVITY AT LUDHIANA. THE AS SESSEE HAD FURNISHED THE EXPLANATION BEFORE THE COMMISSIONER O F INCOME TAX (APPEALS) AND ALSO ASSESSING OFFICER THAT THE PROFI T MARGIN WAS HIGHER IN RESPECT OF EXPORT BECAUSE OF HIGHER RATES AND AL SO ON ACCOUNT OF SAVINGS OF EXCISE DUTY TO THE TUNE OF 16%. FURTHER , THE ELECTRICITY WAS CHEAPER IN HIMACHAL PRADESH THAN IN PUNJAB AND HENCE, LESSER EXPENSES. FURTHER, THE ASSESSEE JUSTIFIED THAT THE EXPENSES INCURRED BY THE ASSESSEE WERE ON THE LOWER SIDE BECAUSE OF VARI OUS REASONS INCLUDING NO ADVERTISEMENT, LESS DAILY EXPENSES AND VERY LESS OFFICE EXPENSES. THE COMMISSIONER OF INCOME TAX (APPEALS) WAS OF THE VIEW THAT JUST BECAUSE LOWER EXPENSES HAD BEEN CLAI MED IN THE PARWANOO UNIT, IT COULD NOT BE HELD THAT NO MANUFAC TURING ACTIVITY WAS BEING CARRIED OUT IN THAT UNIT. THE TWO ASPECTS I. E. CLAIM OF LESSER EXPENSES AND NOT CARRYING ON OF ANY MANUFACTURING A CTIVITY WERE DIFFERENT ASPECTS AND HENCE, THE INFERENCE DRAWN BY THE ASSESSING OFFICER ON THIS ACCOUNT WAS HELD TO BE NOT JUSTIFIE D. SIMILARLY, THE STAND OF THE ASSESSING OFFICER THAT THE ASSESSEE HA D LESSER MACHINERY THAN THE SISTER CONCERN WAS ALSO NOT ACCEPTED IN VI EW OF THE ENQUIRIES MADE FROM IIGM WHICH IN-TURN STATED THAT THE MACHIN ERIES USED BY THE ASSESSEE WERE SUFFICIENT TO GIVE DESIRED RESULTS. 21 27. THE ASSESSING OFFICER HAD ANOTHER OBJECTION AS TO THE VALUE OF 11 OLD MACHINES CLAIMED TO HAVE BEEN TRANSFERRED FR OM LUDHIANA TO PARWANOO. THE ASSESSEE HAD DECLARED THE COST OF TH E SAID MACHINES AT RS. 9500/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE NATURE OF MACHINES DID NOT JUSTIFY THE PRICE ADOPTED BY THE A SSESSEE WHO ESTIMATED THE VALUE OF SUCH MACHINES @ RS. 23500/- (APPROXIMATE). THE WDV OF THE SAID MACHINES AS ON 31.03.2003 WAS C ALCULATED AT RS. 127,230/-. THE ASSESSING OFFICER, THEREFORE, O BSERVED THAT THE VALUE OF THE OLD MACHINES BEING MORE THAN 32% OF TH E TOTAL VALUE OF MACHINERY AS ON 31.03.2003 AT RS. 394,500/- WAS MOR E THAN 20% OF THE VALUE OF THE TOTAL MACHINERY AND HENCE, THE ASSESSE E DID NOT QUALIFY FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. HOWEV ER, THE ASSESSEE BEFORE THE ASSESSING OFFICER AND THE COMMISSIONER O F INCOME TAX (APPEALS) CLAIMED THAT IT HAD ONLY 11 HAND DRIVEN O LD MACHINES AND THE VALUE OF THE SAID MACHINES WAS ONLY RS. 9500/- WHICH WAS MUCH BELOW 20% VALUE OF THE PLANT & MACHINERY. THE ASSE SSING OFFICER HAD RECORDED THE STATEMENT OF ONE SHRI GURCHARAN SI NGH, PARTNER OF M/S DARBAR SALES (INDIA) WHEREIN HE HAD STATED THAT THE MACHINES COULD BE USED FOR STRAIGHT STITCHING AND NOT DOUBLE STITCHING QUALITY. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED T HAT THE ASSESSING OFFICER HAS NOT DISCUSSED WHETHER THE ASS ESSEE HAD USED ONLY DOUBLE STITCHING MACHINES IN THE MANUFACTURE O F T-SHIRTS AND NOT THE SINGLE STRAIGHT BLEACHING MACHINE, WHICH WAS PO SSIBLE BY THE USE OF INDIAN MADE MACHINES. THE CLAIM OF THE ASSESSEE WAS THAT IT HAD MANUFACTURED THE T-SHIRTS USING THE SAID INDIAN MAC HINES ALONGWITH OTHER IMPORTED MACHINES INSTALLED AT PARWANOO. THE ASSESSEE MADE REQUEST BEFORE THE ASSESSING OFFICER TO VISIT THE P REMISES WHICH WAS NOT ACCEPTED AND IN THE ABSENCE OF THE SAME, THE CO MMISSIONER OF INCOME TAX (APPEALS) HELD THAT THERE IS NO JUSTIFIC ATION IN THE 22 OBSERVATIONS OF ASSESSING OFFICER IN THIS REGARD AN D IN COMPUTING THE VALUE OF THE OLD MACHINE AT SUCH A HIGHER RATE. RE JECTING THE SAME, THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THERE WAS NO MERIT IN THE ORDER OF ASSESSING OFFICER IN THIS REG ARD. 28. THE NEXT OBJECTION RAISED BY THE ASSESSING OFFI CER WAS IN RESPECT OF THE CLAIM OF DEDUCTION UNDER SECTION 80I C(2)(B) OF THE ACT. IN THE AUDIT REPORT FURNISHED ALONGWITH THE RETURN OF INCOME, THE ASSESSEE HAD CLAIMED THE SAID DEDUCTION UNDER SECTI ON 80IC(2)(B) OF THE ACT. SINCE THE GOODS MANUFACTURED BY THE ASSES SEE WERE INCLUDED IN THE XIVTH SCHEDULE, THE ASSESSING OFFICER HELD T HAT THE ASSESSEE COULD NOT CLAIM THE SAID DEDUCTION. THE EXPLANATIO N OF THE ASSESSEE BEFORE ASSESSING OFFICER WAS THAT THE SAME WAS TYPO GRAPHICAL MISTAKE AND THE ASSESSEE WAS ENTITLED TO THE DEDUCTION UNDE R SECTION 80IC(2)(A)(II) OF THE ACT. HOWEVER, THE ASSESSING OFFICER DENIED THE DEDUCTION AS THE ASSESSEE HIMSELF HAD CLAIMED THE D EDUCTION UNDER SECTION 80IC(2)(B) FOR ASSESSMENT YEARS 2004-05 AND 2006-07. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT IT WAS UNDISPUTED THAT THE ASSESSEE WAS ENTITLED FOR DEDUC TION UNDER SECTION 80IC(2)(A)(II) OF THE ACT AND IF THE ASSESSEE HAD W RONGLY MENTIONED SECTION 80IC(2)(B) FOR CLAIMING DEDUCTION, JUST BEC AUSE THE SAME HAS BEEN WRONGLY MENTIONED, THE LEGITIMATE CLAIM OF DED UCTION COULD NOT BE DENIED TO THE ASSESSEE. SIMILAR WRONG CLAIM WAS MADE BY THE ASSESSEE IN ASSESSMENT YEAR 2004-05D AND 2006-07 AL SO BUT IN VIEW OF THE EXPLANATION OF THE ASSESSEE AND IT NOT BEING IN DISPUTE THAT THE ASSESSEE DID QUALIFY FOR DEDUCTION UNDER SECTION 80 IC(2)(A)(II) OF THE ACT, THERE WAS NO REASON TO DENY THE SAID DEDUCTION TO THE ASSESSEE. THE ORDER OF THE ASSESSING OFFICER IN THIS REGARD W AS THUS, REVERSED. 29. THE NEXT OBJECTION RAISED BY THE ASSESSING OFFI CER WAS THAT IN 23 THE AUDIT REPORT, THE ASSESSEE HAD MENTIONED THAT I T WAS ENGAGED BOTH IN TRADING AND MANUFACTURE OF READYMADE GARMENTS, A ND HENCE, NO DEDUCTION ON THE TRADED GOODS HAD TO BE ALLOWED UND ER SECTION 80IC OF THE ACT. THE EXPLANATION OF THE ASSESSEE WAS THAT IT HAD NOT CARRIED OUT ANY TRADING OF READYMADE GARMENTS DURING THE YE AR BUT WAS ONLY ENGAGED IN THE MANUFACTURE OF GARMENTS AND AS SUCH WAS ENTITLED TO DEDUCTION UNDER SECTION 80IC OF THE ACT. THE COMMI SSIONER OF INCOME TAX (APPEALS) IN THE ABSENCE OF ANY EVIDENCE ON RECORD TO SHOW THAT THE ASSESSEE HAD CARRIED OUT TRADING ACTI VITIES HELD THAT THE DEDUCTION CLAIMED UNDER SECTION 80IC OF THE ACT COU LD NOT BE DISALLOWED JUST BECAUSE THE AUDITOR IN THE AUDIT RE PORT HAD MENTIONED THAT THE ASSESSEE WAS CARRYING ON TRADING OF READYM ADE GARMENTS. 30. ANOTHER ASPECT NOTED BY THE COMMISSIONER OF INC OME TAX (APPEALS) WAS ON THE BASIS OF EVIDENCE FILED BY THE ASSESSEE THAT ALL THE PURCHASERS MADE ENQUIRIES AND PLACED ORDERS AT PARWANOO ADDRESS AND GOODS SOLD BY THE ASSESSEE WERE SENT THROUGH R EPUTED COURIER FROM PARWANOO ONLY. IN VIEW THEREOF, THE COMMISSIO NER OF INCOME TAX (APPEALS) HELD THAT THE CONCLUSION DRAWN BY THE ASSESSING OFFICER THAT NO MANUFACTURING WAS DONE BY THE ASSESSEE AT P ARWANOO UNIT COULD NOT BE ACCEPTED. 31. ANOTHER ASPECT NOTED BY THE COMMISSIONER OF INC OME TAX (APPEALS) WAS WITH REGARD TO THE ENQUIRIES MADE FRO M THE COMMISSIONER, EXCISE & TAXATION, HIMACHAL PRADESH W ITH REGARD TO THE VEHICLES CROSSING THE SALES TAX BARRIER EN-ROUT E TO PARWANOO. THE ASSESSEE WAS DIRECTED TO FURNISH THE COMPLETE DETAI LS OF THE VEHICLES AND THEIR NUMBERS THROUGH WHICH THE RAW MATERIAL WA S TRANSPORTED FROM LUDHIANA TO PARWANOO. CERTAIN DISCREPANCIES W ERE NOTED BY THE ASSESSING OFFICER IN THE SAID INFORMATION FILED BY THE ASSESSEE AND THE 24 INFORMATION COLLECTED FROM THE EXCISE & TAXATION DE PARTMENT, H.P. THE ASSESSING OFFICER CAME TO A FINDING THAT THOUGH THE ASSESSEE CLAIMS THAT IT TRANSPORTED THE SAID GOODS THROUGH T HE SAID VEHICLES WHICH HAD CROSSED THE BARRIERS BETWEEN KALKA AND PA RWANOO, THE SAME WERE FOUND TO BE AT VARIANCE WITH THE RECORD MAINTA INED BY THE EXCISE & TAXATION, H.P., THE TABULATED DETAILS OF THE SAME ARE ENCLOSED TO THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 32. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) , THE PLEA OF THE ASSESSEE WAS TWO-FOLD THAT SOME OF THE VEHICLES HAD CROSSED THE BARRIER BETWEEN KALKA AND PARWANOO AND SOME OF THE GOODS WERE TRANSPORTED THROUGH BARRIER AT MOHALI (PUNJAB). SO , THERE WAS NO MERIT IN THE ORDER OF THE ASSESSING OFFICER IN THIS REGAR D. FURTHER, THE ASSESSEE POINTED OUT THAT THERE WAS CERTAIN TYPOGRA PHICAL ERROR IN MENTIONING THE NUMBER OF THE VEHICLES THROUGH WHICH RAW MATERIAL WAS TRANSPORTED. SOME OF THE VEHICLES WERE FOUND TO BE NOT REGISTERED AS TEMPOS BUT WERE VEHICLES RANGING BETWEEN A TRACTOR TO MOTORCYCLE, ETC. THE COMMISSIONER OF INCOME TAX (APPEALS) WENT THROU GH THE DETAILS FURNISHED IN THE CHART PLACED AT ANNEXURE-A TO THE APPELLATE ORDER AND NOTED VIDE PARAS 5.21 TO 5.32 THAT SOME OF THE DISC REPANCIES POINTED OUT BY THE ASSESSING OFFICER HAVE BEEN PROPERLY EXP LAINED BY THE ASSESSEE AND NO ADDITION IS WARRANTED IN THIS REGAR D. HOWEVER, FOR SOME OF THE VEHICLES, THERE WERE DULY STAMPED RECEI PTS AVAILABLE WITH OF THE ASSESSEE OF PARWANOO BARRIER ON THE RESPECTI VE DATES. HOWEVER, THE COMMISSIONER EXCISE & TAXATION, H.P. IN THE INF ORMATION SENT BY HIM TO THE ASSESSING OFFICER HAD CATEGORICALLY INFO RMED THAT NONE OF THE SAID VEHICLES CROSSED THE BARRIER ON THE SAID D ATES. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS COMPUTED T HE TOTAL VALUE OF THE RAW MATERIAL CLAIMED TO BE TRANSPORTED THROU GH THESE VEHICLES AT 25 RS. 45,33,495/-. SINCE THE ASSESSEE HAD SHOWN GP R ATE OF 37% FOR THE YEAR UNDER CONSIDERATION, THE COST OF RAW MATERIAL OF RS. 45,33,495/- AS PER THE COMMISSIONER OF INCOME TAX (APPEALS) WOU LD CORRESPOND TO SALES OF RS. 67,66,410/-. THEREAFTER, GP RATE OF 3 7% TO THE SAID SALE WAS APPLIED TO COMPUTE THE PROFIT AT RS. 25,03,572/ - AND IT WAS HELD THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM OF DEDU CTION UNDER SECTION 80IC OF THE ACT ON THE SAID INCOME OF RS. 25,03,57 2/-. THE COMMISSIONER OF INCOME TAX (APPEALS) RECOMPUTED THE DEDUCTION UNDER SECTION 80IC(2)(A)(II) OF THE ACT AT RS. 97,3 4,564/- AS AGAINST THE CLAIM OF THE ASSESSEE AT RS. 122,38,136/-. 33. THE REVENUE IS IN APPEAL AGAINST THE RELIEF ALL OWED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IN OBSERVING T HAT THE ASSESSEE HAD CARRIED OUT MANUFACTURING ACTIVITIES AND WAS EN TITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT EXCEPT O N THE ADDITION MADE ON ACCOUNT OF THE NON-PASSING OF THE VEHICLE T HROUGH BARRIER THROUGH WHICH RAW MATERIAL WAS PASSED ON FROM LUDHI ANA TO PARWANOO. 34. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON T HE ORDER OF THE ASSESSING OFFICER AND ELABORATELY TOOK US THROUGH V ARIOUS PARAS OF THE ASSESSMENT ORDER TO POINT OUT THAT ELABORATE EXERCI SE WAS CARRIED OUT BY THE ASSESSING OFFICER TO COLLECT THE INFORMATION AND THE SAME ESTABLISHED THAT THE ASSESSEE WAS NOT CARRYING ON A NY MANUFACTURING ACTIVITY. THE LD. DR FOR THE REVENUE FURTHER POINT ED OUT THAT THE ASSESSEE CHANGED ITS STAND THAT DEDUCTION WAS COVER ED UNDER SECTION 80IC(2)(A)(II) OF THE ACT AND NOT UNDER SECTION 80I C(2)(B) OF THE ACT. THE LD. DR FOR THE REVENUE FURTHER POINTED OUT THAT IN ASSESSMENT YEAR 2004-05, ASSESSEE HAD MADE SIMILAR CLAIMS AND IT CA NNOT BE ALLOWED TO CHANGE ITS STAND AT THIS STAGE. 26 35. THE LD. DR FOR THE REVENUE CLARIFIED THAT UNDER SECTION 80IC(2)(B) ARE THE ITEMS MANUFACTURED UNDER SCHEDUL E XIV WHEREAS SECTION 80IC(2)(A)(II) TALKS OF THE UNITS ESTABLISH ED IN HIMACHAL PRADESH. THE LD. DR FOR THE REVENUE POINTED OUT TH AT THE ENQUIRIES FROM THE BARRIER REFLECTED THAT THERE WAS DISCREPAN CY IN THE CLAIM OF THE ASSESSEE AND POST-ENQUIRIES MADE BY THE ASSESSI NG OFFICER, NO BENEFIT COULD BE GIVEN TO THE ASSESSEE. RELIANCE WA S PLACED ON THE ADDITIONAL GROUND OF APPEAL RAISED BY THE REVENUE. 36 THE LD. AR FOR THE ASSESSEE FILED BRIEF SYNOPSIS AND ALSO FURNISHED TABULATED DETAILS IN RESPECT OF THE VARIO US ISSUES RAISED BY THE ASSESSING OFFICER WHICH IS AS UNDER : SL.NO. RELEVANT GROUND ISSUE RELEVANT PARA OFCIT(A) REMARKS 1 20) DELIVERY OF RAW MATERIAL AT LUDHIANA 5.6 I). THE DELIVERY OF RAW MATERIAL FOR PARWANOO U NIT AT LUDHIANA WAS TAKEN FROM DIFFERENT PARTIES, SINCE ONE OF THE PARTNER USED TO INSPECT THE CLOTH AND OTHER RAW MAT ERIAL FOR THE PURPOSES OF MANUFACTURING AT PARWANOO AND EVEN, DIF FERENT OTHER RAW MATERIAL FROM OTHER SUPPLIERS WERE ALSO BOUGHT AND THEN COMBINED GOODS WERE SENT IN A TEMPO. THIS WAS DONE BECAUSE IF, THE RAW MATERIAL WAS NOT FOUND TO BE OF THE QUALITY DESIRED, THE SAME SHOULD NOT BE SENT PARWANOO. ALSO IF WE COLLEC T THE MATERIAL AT ONE POINT AND DISPATCH IN ONE TEMP LOAD, IT SAVES THE FREIGHT. THE AO HAD MADE ENQUIRIES DURING THE ASSESSMENT PRO CEEDINGS FROM SOME OF THE PARTIES, WHO HAD CATEGORICALLY STA TED THAT THAT THE GOODS WERE DELIVERED AT LUDHIANA, THOUGH, THE BILLS HAD BEEN ISSUED IN THE NAME PARWANOO UNIT WITH ADDR ESS OF PARWANOO AND THE PARTIES HAVE CONFIRMED THE SUPPLY OF THE GOODS AND EVEN ON THE BILL, THE ADDRESS IS OF PARWANOO. R ELIANCE IS BEING PLACED AT ANNEXURE A-10, PLACED AT PAGES 21 T O 32 OF THE ASSESSING OFFICER'S ORDER AND THIS MODUS OPERAN D! OF ASSESSEE IS PROVED FROM THE DOCUMENTARY EVIDENCES I N RESPECT OF THE FACT THAT DIFFERENT ITEMS OF RAW MAT ERIAL WERE COLLECTED AT LUDHIANA OFFICE AND SENT BY THE ASSESS EE THROUGH TEMPO LOAD. KINDLY REFER TO PAGES 59 TO 68 OF THE PAPER BOOK. III). SIMILAR IS THE SAMPLE COPIES ATTACHED AT PAGES 87 TO 91 OF THE PAPER BOOK. THUS, NO FAULT CAN BE FOUND OF THE DELI VERY OF THE MATERIAL AT LUDHIANA. 2. 2 (II) JOB WORK OF 5.7,5.8 & A). ONLY 5% OF THE T/SHIRTS WERE THERE, WHERE THE P RINTING 27 PRINTING & BLEACHING 5.9 AND BLEACHING WAS CARRIED OUT AND THIS IS AN UNDISP UTED FACT, THEREFORE, THE CONTENTION OF THE ASSESSING OFFICER THAT AFTER MANUFACTURING OF T/SHIRTS AT PARWAN OO, IT COULD NOT BE ECONOMICALLY VIABLE TO SENT THE GOODS TO LUD HIANA AND THEN AGAIN TO PARWANOO IS NOT CORRECT, THUS, I THE ASSESSING OFFICER HAVING OVER LOOKED THIS F ACT FOR REJECTION OF MANUFACTURING ACTIVITY ON THIS ISSU E WAS I NOT PROPER. B).REGARDING THE FACT THAT WITHOUT BLEACHING AND PR INTING, IT CANNOT LEAD TO MANUFACTURING IS NOT CORRECT. IN THI S REGARD, THE FINDING HAS BEEN GIVEN IN PARA 5.9 OF THE ORDER OF THE CIT (A), THAT THE BLEACHING IS REQUIRED ONLY FOR MANUFACTURI NG OF SUPER QUALITY T-SHIRTS AND PRINTING WAS ALSO REQUIRED OF A VERY NEGLIGIBLE QUANTITY AND, THEREFORE, IT WAS HELD BY THE CIT (A), THAT THERE IS NO BAR IN GETTING THE PRINTING AND BL EACHING ONLY ON THE 5% PRODUCTS FROM OUTSIDE PARTIES AND, THERE IS NO CONTRADICTION IN THE STATEMENT OF SH. CHARANJIV SIN GH, SECRETARY, KNITWEAR CLUB AND WHICH STATEMENT WAS RE LIED UPON BY THE ASSESSING OFFICER AND, LATER ON ALSO, HE HAD CLARIFIED THIS ASPECT IN HIS STATEMENT BEFORE AO AND, THUS NO ADVE RSE VIEW TAKEN BY THE CIT (A). C). CERTIFICATE OF KNITWEAR CLUB IS AT PAGE 137 OF THE PAPER BOOK. FOR SUCH JOB WORK, THE CHALLANS SUPPORTED BY BARRIER RECEIPTS ARE AVAILABLE FOR WHICH SAMPLE COPIES ARE AT PAGES 106 TO 120 OF THE PAPER BOOK. THEN, THE ASSESSEE IS SOL E JUDGE TO CARRY ON THE BUSINESS IN THE MANNER, HE LIKES BEST AND AO CANNOT INTERPRET IN THIS REGARD. RELIANCE IS BEING PLACED ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF S.A. BUILD ERS AS REPORTED IN 288 ITR1. 3. 2(III) CROSSING OF BARRIERS AT PARWANOO 5.20, 5.21, 5.22, 5.23 & 5.24 FOR THE CROSSING OF BARRIER AT PARWANOO BY THE VEHI CLES, CARRYING THE RAW MATERIAL AT PARWANOO, WE HAVE ENCL OSED SAMPLE LIST OF MOVEMENT OF VEHICLES WITH REMARKS AT PAGES 59 TO 91 ALONG WITH EVIDENCES FROM PAGE 222 TO 251, ALONG WI TH ANOTHER CHART AT PAGES 252 TO 253 AND WHICH HAS BEEN DOUBTE D BY THE ASSESSING OFFICER, WITH REMARKS ALONGWITH EVIDENCE UPTO PAGE 306, WHICH ARE DOCUMENTARY EVIDENCES AND CANNO T BE BRUSHED ASIDE. WE HAVE IN OUR PAPER BOOK AT PAGES 5 9 TO 91 GIVEN THE COMPUTERIZED BARRIER RECEIPTS OF | PUNJAB & HIMACHAL ALONG WITH COPY OF THE RELEVANT BILLS IN RESPECT OF PURCHASE ; OF RAW MATERIAL AND THESE COMPUTERIZED I RECEIPTS ARE DOCUMENTARY EVIDENCES AND CANNOT BE BRUSHED ASIDE. THEN AGAIN VARIOUS OTHER DISCREPANCIES ARE THERE IN THE INFORMATION GIVEN BY THE HIMACHAL BARRIER, GOES TO PROVE THAT INFORMATION CANNOT BE R ELIED UPON. HOW AND UNDER WHAT CIRCUMSTANCES, THE INFORMATION W AS GIVEN BY HIMACHAL AUTHORITIES IS NOT KNOWN TO ASSESSEE AN D THAT WAS CONFRONTED ONLY AT THE FAG END OF LIMITATION PE RIOD, WE HAVE EVIDENCES THAT EACH VEHICLE CROSSED THE BARRIE R WITH MATCHING ENTRIES OF TIME WITH MOHALI BARRIER. 4. 2(IV) CROSSING OF BARRIERS AT PARWANOO 5.21, 5.22 & 5.23 OUR CONTENTIONS ARE SAME AS ABOVE AND BESIDES THAT REGARDING CERTAIN VEHICLES, THE FINDING HAS BEEN GIVEN BY THE CIT(A) IN PARA 5.21, 5.22 AND 5.23 AS UNDER:- A). THE FINDING GIVEN IN PARA 5.21 IS THAT; THE NUM BER IS INCORRECT. THE CORRECT I NUMBER IS PB-10-K-9515 AS PER BARRIER I RECEIPT AND THIS VEHICLE HAD CROSSED I PARWANOO B ARRIER AND, THEREFORE, NO J ADVERSE VIEW CAN BE TAKEN. 28 B). THE CIT IN PARA 5.22 HAD DOUBTED THAT THE VEHIC LE DID CROSS THE BARRIER AND THOUGH, THE TYPE OF VEHICLE H AS NOT BEEN MENTIONED CORRECTLY, BUT THE APPELLANT HAD COMPUTER IZED RECEIPT NO., BUILTY, OCTROI RECEIPT AND COMPUTERIZE D TIME OF PASSING THE VEHICLE, WHICH CLEARLY PROVES THAT THE GOODS HAD BEEN TRANSPORTED TO PARWANOO, C). THE FINDING OF THE CIT (A) IS IN PARA AND THE C IT HAS HELD THAT THE VEHICLE HAD PASSED THE PARWANOO B ARRIER AND, THUS, THE TRANSPORTING OF RAW MATERIAL IS THER E AND MERE MENTIONING OF LIGHT COMMERCIAL VEHICLE, WHICH ARE, IN TEMPOS WILL NOT JUSTIFY THE OBSERVATION OF THE ASSESS ING OFFICER. D).. REFERENCE MAY BE MADE TO THE CHART AT PAGES 25 2 TO 306 WHICH EXPLAINS THAT EACH AND EVERY VEHICLE HAS CROS SED THE BARRIER. 5. 2(V) STATEMENT OF SH. KAPIL SOOD, (PASSERBY) 5.1 A). THE ASSESSING OFFICER HAD HIMSELF STATED THAT T HIS IS A VERY MINOR ISSUE BECAUSE THE STATEMENT HAD BEEN RECORDED AT THE BACK OF THE ASSESSEE AND WHEREABOUTS OF ONE SH. KAPIL SOOD, WHO WAS JUST A PASSERBY ARE NOT KNOWN. ALSO, SINCE THE ASSESSING OFFICER VISITED THE PREMISES IN SEPTEMBER, 2006 AND , SINCE THE MANUFACTURING ACTIVITY AT THE EARLIER PLACE, WAS ST ARTED DUE TO THE CHANGE IN THE EXCISE POLICIES AND THE MACHINERY WAS SHIFTED TO THE NEW PREMISES TO AVOID UNNECESSARY EXPENDITURE, THUS, SINCE AT NEW PREMISES, NO MANUFACTURING ACTIVITY AF TER MARCH, 2006 WAS CARRIED OUT, THE ASSESSING OFFICER'S FINDI NG THAT NO MANUFACTURING HAD BEEN CARRIED IN FINANCIAL YEAR 20 04-05, ON THE BASIS OF HIS VISIT TO THE NEW PREMISES IN SEPT. ,2006 CANNOT BE ACCEPTED. B). BESIDES, THAT THE ASSESSING OFFICER HAS HIMSELF CONSIDERED THIS AS A MINOR EVIDENCE AND ALSO STATEMENT OF SH. KAPIL SOOD AS RECORDED BY THE AO AS PER ANNEXURE A-3 IS TOTALLY M ISLEADING IN THE SENSE THAT IN HIS STATEMENT, HE HAS GIVEN CONTR ADICTORY FACT. 6. 2(VI) INSTALLATION OF MACHINERY AND ENQUIRIES FROM THE DIRECTOR INDUSTRIES, HP 5.2 A). WHEN THE UNIT WAS STARTED INITIALLY, 13 MACHINE S WERE INSTALLED AND SUBSEQUENTLY, MORE MACHINES WERE SENT THROUGH TRANSPORTATION AS PER EVIDENCE OF THE SAME IN THE SHAPE OF DECLARATION ISSUED BY THE EXCISE AND TAXATION DEPARTMENT AND EVIDENCE OF PASSING SUCH MACHINES THROUGH BARRIER FILED, COPIES OF THE BILLS, WHEREIN TYPE OF PASSING THE VEHICLE IS ALSO MENTIONED AND FINDIN G OF THE AO ON THE BASIS OF HIS VISIT IN SEPTEMBER, 2006 IS NOT RELEVANT. THE INFORMATION TO THE INDUSTRIES DEPARTMENT OF 1 3 MACHINES WAS GIVEN INITIALLY AT THE TIME OF STARTING THE UNI T AND LATER ON, THERE IS NO PROVISION FOR GIVING THE INFORMATIO N OF INSTALLATION OF MORE MACHINES FROM TIME TO TIME. B). REFERENCE MAY BE MADE TO PAGES 92, 93, 94, 95 A ND 96 OF THE PAPER BOOK-I. C). AS PER BALANCE SHEET AS ON 31.3.2004, VA LUE OF MACHINE WAS RS. 3.05.452A AS PER PAGE 10 OF THE PAPER BOOK-L AND AS ON 31.03.2005, FURTHER ADDITION TO THE TUNE OF RS. 53,638/- WAS MADE AS PE R PAGE 29 OF THE PAPER 7. 2(VII) ON THE BASIS OF ELECTRICITY 5.3 A). THE ELECTRICITY EXPENSES ARE LESS, BECAUSE OF M ANY REASONS, SUCH AS LOW ELECTRICITY TARIFF IN H.P. THAN IN PUNJ AB, NO 29 BILLS REQUIREMENT OF AIR CONDITIONER, SINCE THE UNIT WAS IN HILL STATION AND NO OTHER ADVERSE EVIDENCE BROUGHT IN BY THE ASS ESSING OFFICER, THE CIT (A) RELIED UPON THE JUDGMENT OF IT AT, JURISDICTIONAL BENCH IN THE CASE OF 'SOGHI COMMUNICATION LTD', THAT LESSER ELECTRICITY IS NOT A GROUND FOR HOLDING THAT NO MANUFACTURING ACTIVITY HAS BEEN CARRIED OUT. 8. 2(VIII) VIDEO CLIPPING OF NEW PREMISES 5.4 THE ASSESSEE HAD FURNISHED THE EVIDENCE OF SHIFTING TO THE NEW PREMISES AND OF CLOSING THE MANUFACTURING ACTIV ITY AND, THEREFORE, THE VIDEO CLIPPING MADE IN SEPT., 2006 C ANNOT BE THE EVIDENCE THAT NO MANUFACTURING ACTIVITY HAD BEEN CA RRIED OUT IN 2004-05, SINCE SUCH VIDEO CLIPPING WERE CLICKED IN SEPTEMBER, 2006 WHEN PRODUCTION HAD BEEN STOPPED IN MARCH 2006 AND THE SHIFTING HAD ALSO TAKEN PLACE AT THAT TIME TO NEW PREMISES. BESIDES, IN VIDEO CLIPPINGS, WHICH WERE SHOT IN SEPT.2006, ALL THE SEWING MACHINES CAN BE SEEN VER Y CLEARLY AT THE NEW PREMISES. 9. 2(IX) STATEMENT OF PERSONS RECORDED OUTSIDE PARWANOOS UNIT 5.1 THE CIT HAS DEALT WITH THIS ISSUE | ELABORATELY AND WITHOUT ANY IDENTITY OF THE PERSONS, THERE IS NO EVIDENTIAR Y VALUE OF SUCH STATEMENTS. OUR CONTENTIONS ARE SAME AS PER GROUND OF APPEAL 2(V). 10. 2(X) ENQUIRIES MADE FROM INDIA INDUSTRIAL GARMENTS AND MANUFACTURING FOR MANUFACTURING PROCESS 5.11, 5.12 & 5.13 A). HERE AGAIN, IIGM HAD CERTIFIED THAT 26 MACHINE S AND 30 WORKERS ARE I REQUIRED FOR THE TURNOVER AS ACHIE VED BY I THE APPELLANT AND THE ASSESSING OFFICER ON THE BASIS OF SUCH UNRELIABLE STATEMENT OF SH. KAPIL SOOD HAD CONCLUDE D THAT ON 8 TO 10 WORKERS ARE THERE AND THE NUMBER OF MACHINE S 13 ONLY AND WHICH FACTS HAVE BEEN PROVED TO BE WRONG BY THE CIT (A) ON THE BASIS OF EVIDENCE ON RECORD. B). RELIANCE IS BEING PLACED AT PAGES 138 TO 143. 11. 2(XI) REGARDING G.P. OF SISTER CONCERN REGARDING PROFIT EARNED BY THE ASSESSEE VIZ-A-VIZ O CTAVE APPARELS. THE FINDING HAS BEEN GIVEN BY THE CIT (A) IN PARA 5 .13 AND RELIANCE IS BEING PLACED ON THE ORDER OF THE ITAT, CHANDIGARH BENCH IN THE CASE OF SHIVA EXPORT. FURTHER, PROFITS ARE REASONABLE TAKEN INTO CONSIDERATION THE FACT THAT THERE WAS NO EXCISE DUTY, 12. 2 (XII) COMPARISON OF MACHINERY VIZ. SALES A). COMPA RISON OF MACHINERY BETWEEN THE ASSESSEE AND THE OCT AVE APPARELS, IT MAY BE STATED THAT M/S OCTAVE APPARELS CAME INTO EXISTENCE IN 1991 AND THE TURNOVER IN ASSTT. YEAR 2005-06 IS TO THE TUNE OF RS. 13,16,84,593/ - AND THE SALES OF ASSESSEE WERE TO THE TUNE OF RS. 3,72,00,692/-. IN OCTAVE APPARELS, MANY MORE OTHER PRODUCTS WERE BEING MANUFACTURED AND IN THE CASE OF APPELLANT, MAINLY T -SHIRTS WERE BEING MANUFACTURED. B). BESIDES THAT THERE CAN BE NO COMPARISON OF THE ASSESSEE;S UNIT WITH OTHER UNIT BECAUSE EACH UNIT HAVE ITS OWN FACTS AND INSTALLATION OF MACHINERY HAS NO RELEVANT THE PERFORMANCE. 13. 2(XIII) VALUE OF 11 OLD MACHINES 5.15 OF CIT(A) TRANSFERRED FROM LUDHIANA TO PARWANOO THE ASSESSING OFFICER HAD STATED THAT THE VALUE OF OLD MACHINE TRANSFERRED, WAS VERY MUCH LESS AND HE HAD WORKED OUT THE WDV AS ON 31.3.2003 AT RS. 1,27,2307- ON THE BASIS OF HIS OWN PRESUMPTION. THE QUOTATION FROM INDIAN MADE SEWING MACHINES VARIOUS FROM RS. 14007- TO 200 07- PERMACHINE AND, THEREFORE, THE DEPRECIATED VALUE O F MACHINE WAS FAR LESS AND, AS SUCH, THE STATEMENT OF ONE SH. GURCHARAN SINGH OF DARBAR SALES INDIA COULD NOT BE RELIED UPON, SINCE SOME O THER MACHINES HAD ALSO BEEN BOUGHT AND SENT TO PARWANOO AND ALSO THE 30 APPELLANT INVITED THE ASSESSING OFFICE RTO OVERSEE THE PRODUCTION AT PARWANOO AND ALSO THE FACT THAT THE FINDING OF T HE ASSESSING OFFICER WITH REGARD TO THE DOUBLE STITCHI NG HAS NOT BEEN FOUND TO BE CORRECT AND NEITHER THERE IS ANY EVIDEN CE ON RECORD AND, THEREFORE, IT WAS HELD BY THE CIT (A) IN PARA 5.15 THAT THE FINDING OF THE ASSESSING OFFICER IS | ONLY ON THE B ASIS OF SURMISES AND CONJECTURES. 14. 2(XIV) STOCK REGISTER A). WE HAVE GIVEN THE CLOSING STOCK AND OPENING STO CK LIST AND ALL OUR PURCHASES AND SALES ARE FULLY VOUCHED AND BOOKS OF ACCOUNTS CANNOT BE REJECTED IF THERE IS NO STOCK REGISTER. R ELIANCE IS BEING PLACED ON THE VARIOUS JUDGMENTS. B). REGARDING THE BILLS OF TRANSPORTATION OF GOODS, IT IS SUBMITTED THAT WE HAVE ALL THE COMPUTERIZED RECEIPTS AND ALSO SALES WERE MADE TO DIFFERENT PARTIES AND FOR WHICH, THE PAPERS ARE THERE AT PAGES 124 TO 136 AND THE LIST OF SALE IS AT PAGES 2 07 TO 214 ALONG WITH RELEVANT BILLS OF COURIER AT PAGES 215 T O 217 AND WHICH HAVE NOT BEEN DOUBTED BY THE DEPARTMENT. 15 2(XV) VALUE OF OLD MACHINES 5.15 OF CIT(A) TTHE APPELLANT HAS PROVED BEYOND ANY DOUBT THAT VAL UE OF OLD MACHINE IN 2001 WAS ONLY RS. 1400 TO RSTL500/- PER SEWING MACHINE AS PER PHOTOGRAPHS ALSO AND, THUS, NO CASE OF DISALLOWANCE OF DEDUCTION/S 80! (C). 16 2(XVI) T-SHIRTS COULD NOT BE PREPARED WITHOUT BLEACHING AND PRINTING 5.7, 5.8, 5.9 OF CIT(A) ALREADY COVERED IN GROUND NO. II 37. ANOTHER PLEA RAISED BY THE LD. AR FOR THE ASSES SEE WAS AS UNDER : 5. BESIDES THAT, THE SALE TAX ASSESSMENT FOR ASSTT. YEAR 2003-04 AND 2004-05 HAVE BEEN COMPLETED BY HIMACHAL SALES TAX DEPARTMENT AND MANUFACTURING ACTIVITY ACCEPTED. REFER TO PAGE 152 TO 153. 6. WE HAVE BEEN RECEIVING THE ORDERS FROM DIFFERENT PARTIES AT PARWANOO ADDRESSES OF UNIT FOR WHICH THE EVIDENCE IS THERE AT PAGES 307 T O 322. 7. THE MANUFACTURED GARMENTS HAVE BEEN SENT THROUGH REPUTED COURIER FROM PARWANOO AND, THUS, IT PROVES THAT MANUFACTURING AC TIVITY HAD BEEN CARRIED OUT AT PARWANOO. EVIDENCE IS AT PAGES 207 TO 214 AND BILLS AS RAISED BY COURIER ARE AT PAGES 215 TO 217. 38. THE LD. AR FOR THE ASSESSEE FAIRLY ADMITTED THA T ADDITIONAL GROUND OF APPEAL BE ADMITTED AS IT WAS BORNE OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). IN RESPECT O F THE CHANGE IN CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT, I T WAS POINTED OUT BY THE LD. AR FOR THE ASSESSEE THAT AS PER THE CIRC ULAR ISSUED BY THE 31 CBDT, THE ASSESSING OFFICER IS DUTY BOUND TO ASSIST THE ASSESSEE TO CLAIM THE CORRECT DEDUCTION AND IN CASE CERTAIN DED UCTION WAS ALLOWABLE TO THE ASSESSEE, THE SAME CANNOT BE REFUS ED MERELY BECAUSE A WRONG SECTION HAS BEEN USED BY THE ASSESSEE WHILE C LAIMING THE SAID DEDUCTION. IN ANY CASE, THE SAID MISTAKE COMMITTED BY THE AUDITOR COULD NOT BE BLAMED TO THE ASSESSEE. IT WAS FURTHER CLARIFIED THAT ASSESSEE WAS MANUFACTURING T-SHIRTS INITIALLY AT LU DHIANA BUT THEREAFTER THERE WAS AN EXCISE DUTY LEVIED FROM 01. 04.2003 @ 16% UPON THE ASSESSEE AND HENCE, THE UNIT WAS SHIFTED T O HIMACHAL PRADESH, WHERE THERE WAS NO EXCISE DUTY APPLICATION . THE PREMISES AS DETAILED AT PAGES 52 TO 54 OF THE PAPER BOOK WERE T AKEN ON RENT FROM HIMACHAL PRADESH AGRO INDUSTRIES W.E.F. 05.08.2003 AND THE MANUFACTURING WAS STARTED FROM MARCH, 2004. HOWEVE R, THE SAID PREMISES WERE CLOSED, AS BY WAY OF NOTIFICATION DAT ED 09.07.2004, THE EXCISE DUTY ON GARMENTS WERE ROLLED BACK. IN RESPE CT OF THE ENQUIRIES MADE FROM THE COMMISSIONER, EXCISE & TAXATION DEPAR TMENT REGARDING THE PLEA OF THE ASSESSEE THAT THE SAID TR UCKS HAD CROSSED THE BARRIER, IT WAS POINTED OUT BY THE LD. AR FOR THE A SSESSEE THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO PLEAD THE CASE OF THE ASSESSEE THAT CERTAIN GOODS, VEHICLES HAD CROSS ED THE BARRIER AT MOHALI, PUNJAB. 39. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAD SET UP ITS UNIT AT PARWANOO IN ASSESSM ENT YEAR 2004-05 FOR THE MANUFACTURE AND SALE OF READYMADE GARMENTS. THE ASSESSEE WAS MANUFACTURING THE SAID ITEMS AT LUDHIANA AND TH EREAFTER, IT HAD TAKEN ON LEASE THE SHED AT PARWANOO. THERE WAS AN EXEMPTION FROM EXCISE DUTY AND OTHER DUTY AND FURTHER THE ASSESSEE WAS ENTITLED TO CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT ON THE PROFITS EARNED 32 BY THE ASSESSEE AT THE UNIT ESTABLISHED IN HIMACHAL PRADESH. PRIOR TO STARTING THE MANUFACTURING ACTIVITIES, THE ASSESSEE OBTAINED VARIOUS REGISTRATIONS FOR THE SAID FIRM AT PARWANOO, H.P. A ND THE COPIES OF THE SAID REGISTRATION CERTIFICATES ARE PLACED IN THE PA PER BOOK AND THE LIST IS AS UNDER : (I) STATE SALES TAX NO.SOL/111/7671 DATED 7.10. 2003 (II) CENTRAL SALES TAX NO.SOL/CST/7626 DATED 7. 10.2003 (III) RELEASE OF ELECTRICAL CONNECTION OF 39.900 K.W ON 17.12.2003 (IV) NO OBJECTION CERTIFICATE FROM POLLU TION CONTROL BOARD ON 4.9.2003 (V) CENTRAL EXCISE REGISTRATION NO.AAAF04946PXM 001 DATED 26.8.2003 (VI) A PROVISIONAL REGISTRATION NO.020909672 WAS I SSUED ON 22.8.2003 AND PERMANENT REGISTRATION CERTIFICATION FROM DEPARTMEN T OF INDUSTRIES BEARING NO.02/09/04193/PMT WAS ISSUED ON 27.9.2005 40. FURTHER, THE ASSESSEE INSTALLED MACHINERY AT TH E PARWANOO UNIT TOTALING NO. 13 AS UNDER : (I) JUKI-DDL-8300N SINGLE NEEDLE LOCK STITCH MACH INE . (II) TWO NEEDLE FOUR THREAD OVER EDGING MACHINE (III) INDUSTRIAL FOUR THREAD SEWING MACHINE (OVERLO OK) (IV) INDUSTRIAL SEWING MACHINE (FLAT LOCK) (V) SPOT REMOVING GUN (VI) ELECTRIC OPERATED GARMENT CUTTING MACHINE WIT H BLADE 8' VII) 1 PACK BLADE 8' (VIII) 1 PACK BELTS (IX) ONE CHAIN STITCH OVER EDGING MACHINE (X) HAND DRIVEN SEWING MACHINES (XI) ELECTRONIC WEIGHTING SCALE (XII) PRESSES (XIII)FEW HAND DRIVEN SEWING MACHINES OF THEIR OWN WERE ALSO BROUGHT BY THE TAILORS THEM SELVES. 41. THE ASSESSEE HAD OBTAINED THE ELIGIBILITY CERTI FICATE FROM DEPARTMENT OF INDUSTRIES, HIMACHAL PRADESH FOR MANU FACTURING THE 33 GARMENTS AT PARWANOO UNIT AND WHILE OBTAINING THE S AID ELIGIBILITY CERTIFICATE, THE ASSESSEE HAD INTIMATED THE DIRECTO R OF INDUSTRIES THAT IT WAS ESTABLISHING 13 MACHINES. HOWEVER, THE ASSESSE E INITIALLY HAD 11 HAND DRIVEN MACHINES AT ITS LUDHIANA UNIT WHICH IN- TURN WERE TRANSFERRED ON A LATER DATE TO PARWANOO UNIT. THE ISSUE RAISED REGARDING THE SAID TRANSFER WAS WHETHER IT HAD ACTU ALLY TAKEN PLACE AND THE VALUE OF THE ASSET TRANSFERRED. ADMITTEDLY, TH E ASSESSEE IN THE EARLIER AUDIT REPORT FURNISHED FOR CARRYING ON THE BUSINESS AT LUDHIANA HAD DECLARED THAT IT HAD PURCHASED 11 HAND DRIVEN M ACHINES IN FINANCIAL YEAR 2001-02 ON WHICH IT HAD CLAIMED DEPR ECIATION FROM YEAR TO YEAR TILL ITS TRANSFER TO THE PARWANOO UNIT. TH E COST OF THE SAID MACHINES WAS RS. 11,000/- AND THE WDV ON THE DATE O F TRANSFER WAS RS. 9500/-. THE ASSESSEE, HOWEVER DID NOT CLAIM AN Y DEPRECIATION ON THE SAID MACHINERY WHILE COMPUTING THE PROFIT OF BU SINESS IN ASSESSMENT YEAR 2005-06. 42. THE ASSESSING OFFICER, IN THIS REGARD RAISED TW O OBJECTIONS. FIRST OBJECTION WAS THAT NO SUCH MACHINERY WAS SHIF TED TO THE PARWANOO UNIT AND SECOND OBJECTION WAS THE VALUE OF THE MACHINERY. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS DEALT WITH BOTH THE ISSUES AND HAS GIVEN A FINDING THAT THE NECESSARY E VIDENCE OF CROSSING BARRIER BETWEEN KALKA AND PARWANOO IN RESPECT OF TH E 11 HAND DRIVEN MACHINES WAS FILED BEFORE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME TAX (APPEALS) BOTH, WHICH IN-TURN ESTABLISHE D THE TRANSPORT OF THE SAID MACHINERY. THE EXISTENCE OF THE MACHINERY STANDS ESTABLISHED FROM THE DECLARATION OF THE ASSESSEE IN THE BALANCE SHEET FILED FOR ASSESSMENT YEAR 2002-03 ONWARDS. IN THE ENTIRETY O F THE SAID FACTS AND CIRCUMSTANCES AND IN THE ABSENCE OF ANY EVIDENCE FO UND TO THE CONTRARY THAT THE MACHINERY ORIGINALLY HELD BY THE ASSESSEE HAD EITHER 34 BEEN SOLD OR STOLEN, ONCE UNIT HAS BEEN TRANSFERRED FROM LUDHIANA TO PARWANOO, WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT THE SAID MACHINERY HAS BEEN TRANSFERRED TO THE MANUFACTURING UNIT. THE ASSESSING OFFICER, ON THE ONE HAND, HAD REJECTED TH E PLEA OF THE ASSESSEE THAT IT HAD NOT TRANSFERRED ANY MACHINERY TO PARWANOO UNIT, BUT ON THE OTHER HAND, HAS ALSO HELD THAT THE CLAIM WAS NOT ALLOWABLE AS THE VALUE OF THE MACHINERY TRANSFERRED WAS MORE THAN 20% VALUE OF THE TOTAL MACHINERY INSTALLED BY THE ASSESSEE WHICH IN-TURN WAS IN CONTRAVENTION OF THE PROVISIONS OF SECTION 80IC(2) OF THE ACT. 43. WE FIND NO MERIT IN THE STAND OF THE ASSESSING OFFICER IN THIS REGARD ESPECIALLY IN THE FACTS OF THE CASE WHERE TH E ASSESSEE WAS HELD ENGAGED IN THE MANUFACTURE OF READYMADE GARMENTS AN D THE PROFIT FROM THE SALE HAS BEEN DECLARED IN THE EARLIER YEARS AND ALSO IN THE SUBSEQUENT YEARS. THE REJECTION OF THE PLEA OF THE ASSESSEE THAT IT WAS CARRYING ON MANUFACTURING ACTIVITY WAS PURELY A HYP OTHETICAL EXERCISE SPECIALLY IN VIEW OF THE FACT THAT THE EARLIER MACH INERY HELD BY THE ASSESSEE STANDS DULY DECLARED IN THE RESPECTIVE BAL ANCE SHEET FILED BY THE ASSESSEE FROM ASSESSMENT YEAR 2002-03 I.E. THE YEAR IN WHICH THE SAID MACHINERY WAS PURCHASED. IN THE TOTALITY OF T HE FACTS AND CIRCUMSTANCES, WE ARE IN CONFORMITY WITH THE FINDIN GS OF COMMISSIONER OF INCOME TAX (APPEALS) THAT THE OLD M ACHINERY HELD BY THE ASSESSEE HAS BEEN TRANSFERRED FROM LUDHIANA TO PARWANOO WHICH IN-TURN WAS USED FOR THE MANUFACTURING PROCESS UNDE RTAKEN BY THE ASSESSEE AND THE TOTAL VALUE OF THE SAID PLANT & MA CHINERY TRANSFERRED WAS OF RS. 9500/- ONLY. IN THE FIRST YEAR OF START OF BUSINESS, THE ASSESSEE HAD ESTABLISHED PLANT & MACHINERY TOTALING RS.3,94,500/- AND THE VALUE OF RS. 9500/- BEING LESS THAN 20% COST OF MACHINERY, WE FIND NO MERIT IN THE PLEA OF THE ASSESSING OFFICER IN TH IS REGARD AND 35 UPHOLDING THE OBSERVATIONS OF COMMISSIONER OF INCOM E TAX (APPEALS), WE HOLD THAT THE ASSESSEE WAS ENTITLED TO CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. 44. NOW COMING TO THE OTHER OBJECTION OF REJECTION OF CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT, THE ASSESS ING OFFICER HAD MADE ENQUIRIES FROM THE VARIOUS DEPARTMENTS AND THE PARTIES WHO HAD UNDERTAKEN BOTH PRINTING AND BLEACHING ACTIVITIES. THE PARTNERS OF THE ASSESSEE FIRM WERE PURCHASING THE RAW MATERIALS AND THE SAME WAS BROUGHT TO LUDHIANA FOR CHECKING AND THEREAFTER IT WAS TRANSFERRED TO PARWANOO FOR ITS UTILIZATION FOR MANUFACTURING ACTI VITIES. THE ASSESSING OFFICER HAD INFERRED THAT IN THE ABSENCE OF THE ASSESSEE HAVING PURCHASED THE MATERIAL AT PARWANOO, NO MANUF ACTURING ACTIVITY HAD BEEN CARRIED OUT. HOWEVER, THE ASSESSEE FURNISH ED COMPLETE DETAILS INCLUDING THE RECEIPTS OF THE RAW MATERIAL CROSSING EXCISE & TAXATION BARRIER BETWEEN KALKA AND PARWANOO WHICH IN-TURN ES TABLISHED THE CLAIM OF THE ASSESSEE THAT IT HAD TRANSFERRED THE R AW MATERIAL FROM LUDHIANA TO PARWANOO WHICH IN-TURN WAS UTILIZED FOR MANUFACTURING GARMENTS. FURTHER, THE MANUFACTURING ACTIVITY UNDE RTAKEN BY THE ASSESSEE IS EXCISABLE AND COMPLETE DETAILS IN THIS REGARD WERE MAINTAINED BY THE ASSESSEE AND NO DISCREPANCY HAS B EEN FOUND BY THE EXCISE TEAM IN THE SALES DECLARED BY THE ASSESSEE. THE ASSESSEE HAD FURTHER FURNISHED THE SALES TAX ASSESSMENT ORDERS F OR THE ASSESSMENT YEAR 2003-04 AND 2004-05. THE MANUFACTURING ACTIVI TY CARRIED OUT BY THE ASSESSEE HAS BEEN ACCEPTED. ACCORDINGLY, WE FI ND NO MERIT IN THE OBSERVATION OF THE ASSESSING OFFICER IN THIS REGARD THAT THE ASSESSEE WAS NOT CARRYING ON ANY MANUFACTURING ACTIVITY. 45. ANOTHER ASPECT NOTED BY THE ASSESSING OFFICER W AS THAT THE JOB WORK OF PRINTING AND BLEACHING WAS CARRIED OUT AT L UDHIANA. AS THE 36 COMPLETE PROCEDURE WAS NOT BEING CARRIED OUT IN HIM ACHAL PRADESH, THE ASSESSEE WAS NOT ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. DURING THE APPELLATE PROCEEDINGS, EVID ENCE WAS FILED BY THE ASSESSEE THAT ONLY 5% OF THE TOTAL MANUFACTURED GOODS WERE SUBJECTED TO PRINTING AND BLEACHING PROCESS WHICH A DMITTEDLY WAS BEING CARRIED OUT AT LUDHIANA. THE LD. DR FOR THE REVENUE FAILED TO CONTROVERT THE SAID FINDINGS OF THE COMMISSIONER OF INCOME TAX AND IN THE ABSENCE OF THE SAME, WE FIND NO MERIT IN THE OR DER OF THE ASSESSING OFFICER IN HOLDING THAT THE ASSESSEE WAS NOT ENTITL ED TO THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. 46. THE ASSESSING OFFICER HAD ALSO REJECTED THE CLA IM OF THE ASSESSEE PURSUANT TO AN INSPECTION CARRIED OUT AT THE PREMIS ES OF THE ASSESSEE ON 23.09.2006. THE ASSESSEE HAD ESTABLISHED ITS UN IT IN PARWANOO ON 08.08.2003 BUT THE SAID UNIT WAS SHIFTED ON 31.05.2 005 AND WAS CLOSED ON 04.03.2006. THE TEAM OF THE ASSESSING OFFICER V ISITED THE PREMISES AFTER THE CLOSURE OF THE MANUFACTURING UNIT AND ANY CONCLUSION DRAWN ON SUCH BASIS I.E. AFTER THE CLOSURE OF THE FACTORY AGAINST THE ASSESSEE CANNOT BE RELIED UPON TO DENY THE CLAIM OF DEDUCTIO N TO THE ASSESSEE UNDER SECTION 80IC OF THE ACT. THE PLEA OF THE ASS ESSEE WITH REGARD TO THE MANUFACTURING ACTIVITY WAS TWO-FOLD THAT IT HAD STARTED MANUFACTURING PROCESS IN THE STATE OF HIMACHAL PRAD ESH IN ORDER TO ESCAPE THE RIGORS OF EXCISE LEVIES. HOWEVER, ONCE THE EXCISE DUTY WAS LEVIED ON MANUFACTURE OF GARMENTS, IT HAD CLOSED IT S BUSINESS IN HIMACHAL PRADESH AND SHIFTED ITS UNIT. WE FIND MER IT IN THE PLEA OF THE ASSESSEE IN THIS REGARD AND ACCEPTING THE SAME, WE HOLD THAT DURING THE RELEVANT PERIOD, THE ASSESSEE WAS ENGAGED IN CA RRYING ON OF MANUFACTURING ACTIVITY AND MERELY BECAUSE THE UNIT WAS CLOSED ON A SUBSEQUENT DATE, THE CLAIM OF DEDUCTION UNDER SECTI ON 80IC OF THE ACT 37 CANNOT BE DENIED. 47. FURTHER, THE ASSESSING OFFICER HAD DENIED THE S AID DEDUCTION UNDER SECTION 80IC OF THE ACT OBSERVING THAT THE AS SESSEE DID NOT HAVE SUFFICIENT NUMBER OF MACHINES AND SUFFICIENT NUMBER OF WORKERS TO CARRY OUT THE MANUFACTURING ACTIVITIES. THE RESULT S SHOWN BY THE ASSESSEE AND THE EXPENDITURE BOOKED BY IT WAS COMPA RED TO THE SISTER CONCERN OF THE ASSESSEE AND IT WAS FOUND THAT IN TH E ABSENCE OF THE REQUISITE NUMBER OF MACHINERY AND/OR WORKERS, IT WA S NOT POSSIBLE TO CARRY OUT THE MANUFACTURING ACTIVITIES AND HENCE, T HE SAID CLAIM OF THE ASSESSEE WAS UNFOUNDED. 48. THE COMMISSIONER OF INCOME TAX (APPEALS), ON TH E OTHER HAND, HAS ELABORATELY CONSIDERED THE ASPECTS OF THE MANUF ACTURING ACTIVITIES CARRIED ON BY THE ASSESSEE AND THE PLEAS RAISED BY THE ASSESSEE AND THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE, WHICH IN -TURN WAS CONFRONTED TO THE ASSESSING OFFICER, AND HAD COME T O A FINDING THAT IN ADDITION TO THE 13 MACHINES REPORTED TO THE DIRECTO R OF INDUSTRIES, HIMACHAL PRADESH, THE ASSESSEE WAS ALSO USING 11 OL D HAND DRIVEN MACHINES WHICH IN-TURN WERE TRANSFERRED FROM LUDHIA NA TO PARWANOO. FURTHER, THE REQUISITE NUMBER OF WORKERS I.E. ABOUT 30 WAS BEING MAINTAINED BY THE ASSESSEE. THE ASSESSING OFFICER HAD RELIED ON STATEMENT OF ONE SHRI KAPIL SOOD WHO HAD STATED THA T THE UNIT OF THE ASSESSEE HAD LESS THAN 10 WORKERS, COULD NOT BE USE D AGAINST THE ASSESSEE AS THE ASSESSING OFFICER HAS FAILED TO ALL OW CROSS- EXAMINATION TO THE ASSESSEE AND HENCE, THE SAID PLE A OF THE REVENUE IS DISMISSED. 49. THE ASSESSING OFFICER ALSO COMPARED THE RESULTS SHOWN BY THE ASSESSEE AND THE RESULTS SHOWN BY THE SISTER CONCER N AND OBSERVED THAT 38 THE ASSESSEE HAD SHOWN LESSER EXPENDITURE AND HIGHE R PROFIT. HOWEVER, AS POINTED OUT BY THE LD. AR FOR THE ASSES SEE, THE MARGIN OF PROFIT ON THE EXPORT BUSINESS WAS ON HIGHER SIDE AN D FURTHER EXPENDITURE INCURRED IN PARWANOO ON A LOWER SIDE TH AN THE EXPENDITURE CLAIMED IN LUDHIANA BY SISTER CONCERN OF THE ASSESS EE. THE ASSESSING OFFICER HAS FOUND NO DISCREPANCY IN THE SALE OF MAN UFACTURED ITEMS AND HAD NOT REJECTED THE BOOKS OF ACCOUNT, BUT HAD COMPARED THE GP OF THE ASSESSEE WITH THE SISTER CONCERN AND HELD THAT THE SAME CANNOT BE ACCEPTED. WE FIND NO MERIT IN THE SAID EXERCISE CA RRIED ON BY THE ASSESSING OFFICER AND UPHOLDING THE ORDER OF COMMIS SIONER OF INCOME TAX (APPEALS) WE HOLD THAT THE RESULTS DECLARED BY THE ASSESSEE MERITS TO BE ADMITTED. 50. THE NEXT ASPECT TO BE CONSIDERED IS THE FULFILL MENT OF THE REQUISITE CONDITIONS OF SECTION 80IC OF THE ACT. O N ONE HAND THE ASSESSING OFFICER HAD STATED THAT THE ASSESSEE HAD INSTALLED ONLY 13 MACHINES AS REPORTED TO THE DIRECTOR OF INDUSTRIES, HIMACHAL PRADESH BUT ON THE OTHER HAND, THE ASSESSING OFFICER HAD CO NSIDERED THE TRANSFER OF 11 OLD MACHINES TO PARWANOO BY THE ASSE SSEE FROM LUDHIANA AND OBSERVED THAT THE VALUE OF THE OLD MAC HINES WAS HIGHER THAN 20% MANDATED UNDER SECTION 80IC OF THE ACT IN RESPECT OF THE OLD MACHINERY. THE SAID MACHINERY WAS PURCHASED BY THE ASSESSEE IN THE YEAR 2001 I.E. AT THE START OF THE OPERATION AND WD V OF THE MACHINERY AS ON 01.04.2004 WAS ONLY RS. 9500/-. THE ASSESSEE ON THE OTHER HAND, HAD INVESTED RS.394,500/- IN THE PURCHASE OF 13 MAC HINES AND IN THE ABSENCE OF ANY EVIDENCE FOUND TO DISBELIEVE THE VAL UE OF THE MACHINERY DECLARED BY THE ASSESSEE, WE FIND NO MERI T IN THE EXERCISE CARRIED ON BY THE ASSESSING OFFICER IN ESTIMATING T HE VALUE OF THE OLD MACHINERY IN THE HANDS OF THE ASSESSEE. REJECTING THE SAME, WE 39 APPROVE THIS PART OF THE ORDER OF COMMISSIONER OF I NCOME TAX (APPEALS) ALSO. 51. FURTHER, THE ASSESSEE DURING THE APPELLATE PROC EEDINGS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) HAD FURNISHED CERTIFICATE FROM IIGM WHEREIN THEY HAD CERTIFIED THAT THE TYPE OF MA CHINERY WHICH THE ASSESSEE HAD INSTALLED WAS SUFFICIENT FOR MANUFACTU RING GOODS WHICH THE ASSESSEE HAD MANUFACTURED AND SOLD, THE SAID CE RTIFICATE FURNISHED BY THE ASSESSEE WAS ADMITTED AS ADDITIONAL EVIDENCE AFTER GETTING THE REMAND REPORT FROM ASSESSING OFFICER AND IN VIEW OF THE SAID EVIDENCE, WE FIND NO MERIT IN THE PLEA OF THE ASSES SING OFFICER THAT ONLY 13 MACHINES WERE INSTALLED IN THE PARWANOO UNI T OF THE ASSESSEE.) 52. ANOTHER OBJECTION RAISED BY THE ASSESSING OFFIC ER WAS WITH REGARD TO THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT VIS-- VIS THE SUB-SECTION TO BE APPLIED. IN THE AUDIT RE PORT FURNISHED ALONGWITH THE RETURN OF INCOME, THE ASSESSEE HAD DE CLARED THAT IT WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC(2)(B) OF THE ACT. HOWEVER, SCHEDULE XIV OF THE ACT PROHIBITED THE MANUFACTURE OF GARMENTS AS BEING ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC(2)( B) OF THE ACT. CONSEQUENTLY, THE ASSESSEE WAS SHOW CAUSED AS TO WH Y THE DEDUCTION CLAIMED UNDER SECTION 80IC(2)(B) OF THE ACT SHOULD NOT BE WITHDRAWN FROM THE ASSESSEE. THE PLEA OF THE ASSESSEE BEFORE THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME TAX (APPEALS ) WAS THAT BY AN INADVERTENT ERROR, THE AUDITOR IN THE AUDIT REPORT HAD REPORTED THE DEDUCTION CLAIMED UNDER SECTION 80IC(2)(B) OF THE A CT. HOWEVER, THE UNIT BEING ESTABLISHED IN HIMACHAL PRADESH, THE ASS ESSEE WAS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80IC(2)(A)( II) OF THE ACT. WE FIND MERIT IN THE CLAIM OF THE ASSESSEE IN THIS REG ARD THAT AFTER ESTABLISHING THE UNIT IN HIMACHAL PRADESH THE ASSES SEE HAD CLAIMED 40 DEDUCTION UNDER THE REQUISITE PROVISION OF THE ACT BUT MERELY A WRONG SUB-SECTION WAS MENTIONED, DOES NOT DISENTITLE THE ASSESSEE FROM THE CLAIM OF DEDUCTION. THE CBDT HAS TIME AND AGAIN PR ESCRIBED VIDE CIRCULARS THAT THE ASSESSING OFFICER IS TO HELP THE ASSESSEE IN DETERMINING THE CORRECT SECTION/INCOME IN HIS/HER H ANDS IRRESPECTIVE OF THE CLAIM MADE BY THE ASSESSEE. ACCORDINGLY, MERE REPORTING OF A WRONG SUB-SECTION DOES NOT DISENTITLE THE ASSESSEE TO THE CLAIM OF DEDUCTION WHICH OTHERWISE WAS ALLOWABLE TO THE ASSE SSEE. 53. ONE MORE ASPECT OF THE MENTIONING OF THE NATURE OF ACTIVITIES IN THE AUDIT REPORT AS TRADING AND MANUFACTURING OF GA RMENTS, DOES NOT DISENTITLE THE ASSESSEE TO ANY DEDUCTION UNDER SECT ION 80IC OF THE ACT IN THE ABSENCE OF ANY EVIDENCE LED BY THE ASSESSING OFFICER TO HOLD THAT THE ASSESSEE HAD CARRIED OUT ANY TRADING ACTIV ITIES DURING THE YEARS SPECIALLY IN VIEW OF THE NEGATIVE CLAIM OF TH E ASSESSEE OF HAVING TRADED IN ANY GOODS. 54. NOW THE ONLY OTHER ITEM LEFT FOR DELIBERATION I S THE MODE OF TRANSPORT USED FOR TRANSPORTING THE RAW MATERIAL FR OM LUDHIANA TO PARWANOO. THE CASE OF THE ASSESSEE BEFORE THE AUTH ORITIES BELOW AND BEFORE US WAS THAT THE PARTNERS USED TO SELECT THE RAW MATERIAL AT LUDHIANA AND TRANSFER THE SAME BY VARIOUS MODES TO PARWANOO. THE REQUISITE DETAILS OF THE SAID TRANSFER OF RAW MATER IAL VIDE DIFFERENT VEHICLES IS INCORPORATED IN CHART-A ANNEXED TO THE COMMISSIONER OF INCOME TAX (APPEALS)S ORDER. THE ASSESSING OFFICE R OBTAINED INFORMATION FROM THE EXCISE & TAXATION COMMISSIONER , HIMACHAL PRADESH VIS--VIS VEHICLES WHICH HAD CROSSED THE BA RRIER BETWEEN KALKA AND PARWANOO AND CERTAIN DISCREPANCIES WERE N OTED IMPLYING THAT THE GOODS HAD NOT CROSSED THE BARRIER. HOWEVER , THE ASSESSEE EXPLAINED THE DISCREPANCIES IN RESPECT OF QUOTING O F THE VEHICLE 41 NUMBER AND ALSO STATED THAT CERTAIN GOODS HAD BEEN TRANSPORTED THROUGH THE BARRIER AT MOHALI, PUNJAB AND NOT THROU GH THE BARRIER BETWEEN KALKA AND PARWANOO. 55. THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE P ARAS 5.21 TO 5.24 HAD CARRIED OUT THE EXERCISE OF INVESTIGATING THE CLAIMS MADE BY THE ASSESSEE AND HAD OBSERVED THAT THE DISCREPANCIE S STAND EXPLAINED BY THE ASSESSEE TO SOME EXTENT. HOWEVER, IN RESPEC T OF FEW VEHICLES, THE EXPLANATION GIVEN BY THE ASSESSEE WAS FOUND TO BE INCORRECT AND CONSEQUENTLY PROFIT TO THE EXTENT OF RS. 25,03,572/ - WAS WORKED OUT TO BE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. THE RELEVANT PARA 6 IN THIS REGARD OF COMMISSIONER OF I NCOME TAX (APPEALS) READS AS UNDER : 6. IN VIEW OF THE ABOVE DISCUSSIONS, THOUGH THE CONCLUSIONS OF THE AO. THAT NO MANUFACTURING ACTIVITIES WERE CARRIED O UT BY THE APPELLANT AT PARWANOO AND THAT FURTHER THE APPELLANT WAS NOT LEGALLY ENTITLED TO DEDUCTION U/S 80IC COULD NOT BE ACCEPTED, IN THE LA CE OF THE DISCREPANCIES WITH REGARD TO SOME VEHICLES REMAINING UNEXPLAINED, AS DISCUSSED IN THE PRECEDING PARAGRAPHS, IT HAS TO BE CONSIDERED THAT THE MATERIAL CLAIMED TO HAVE BEEN TRANSPORTED BY THESE VEHICLES WAS NOT AVA ILABLE FOR MANUFACTURING GOODS AT PARWANOO. AS PER THE DETAILS GIVEN IN ANNEXURE 'A' TO THIS ORDER, THE TOTAL OF THE RAW MATERIAL CL AIMED TO BE TRANSPORTED THROUGH THESE VEHICLES COME TO RS.45, 33,495/-. THE APPELLANT HAS SHOWN GP OF 37% FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE COST OF RAW MATERIAL OF RS.45,33,495/- WOULD CORRESPOND TO SALE S OF RS. 67,66,410/-. APPLYING THE G.P. RATE OF 37% TO THESE SALES THE PR OFIT WOULD COME TO RS.25,03,572/-. THEREFORE, IT HAS TO BE HELD THAT T HE PROFIT OF RS.25,03,572/- INCLUDED IN THE PROFIT OF RS. 1,22,3 8,136/- BY THE APPELLANT FOR THE ASSESSMENT YEAR UNDER CONSIDE RATION WAS NOT THE PROFIT EARNED FROM MANUFACTURING ANY GOODS AT PARWA NOO AS CLAIMED. THE APPELLANT, WAS, THEREFORE, NOT ENTITLED FOR ANY DED UCTION U/S 80IC ON THIS INCOME OF RS.25,03,572/-. THEREFORE, THE ALLOWABLE DEDUCTION U/S 80IC TO THE APPELLANT WOULD COME TO RS.97,34,564/-. AFTER A LLOWING DEDUCTION U/S 80IC(2)(A) OF THE ACT TO THE APPELLANT AT RS.97,34, 564/-, THE TAXABLE INCOME WOULD REMAIN AT RS.25,03,572/-. THE A.O. IS, THEREFORE, DIRECTED TO CONSIDER THE TOTAL TAXABLE INCOME OF THE APPELLA NT AT RS.25,03,572/- AND THE APPELLANT WOULD GET A RELIEF OF RS. .97,34, 564/-. 42 56. IN VIEW OF THE EXPLANATION FILED BY THE ASSESSE E BEFORE THE ASSESSING OFFICER AND ALSO BEFORE COMMISSIONER OF I NCOME TAX (APPEALS) AND IN VIEW OF THE DISCREPANCIES IN MENTI ONING THE NUMBERS OF VARIOUS VEHICLES AND ALSO CO-RELATING THE INFORM ATION RECEIVED FROM THE COMMISSIONER EXCISE & TAXATION, HIMACHAL PRADES H WITH THE FACTS OF THE CASE, WE ARE IN CONFORMITY WITH THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN THIS REGARD. WE, ACCORDING LY UPHOLD THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND I N VIEW OF THE FACT THAT THE ASSESSEE HAS FAILED TO RECONCILE THE PASSAGE OF VEHICLE THROUGH THE BARRIER CARRYING THE RAW MATERIAL, CERT AIN DISALLOWANCE OF DEDUCTION UNDER SECTION 80IC IS MERITED IN THE CASE . THE TOTAL COST OF RAW MATERIAL CLAIMED TO BE TRANSPORTED THROUGH SUCH VEHICLES WAS RS. 45,33,495/- AND THE SAME CORRESPONDS TO SALES OF RS . 67,66,410/-. THE ASSESSEE HAD DECLARED GP RATE OF 37% AND APPLYING T HE SAME TO THE SALES, THE PROFIT WORKS OUT TO RS. 25,03,572/-. TH EREFORE, WE HOLD THAT THE PROFITS OF THE ELIGIBLE BUSINESS ARE TO BE RE-W ORKED AND PROFITS TO THE EXTENT OF RS. 25,03,572/- ARE NOT LIABLE FOR CL AIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. HOWEVER, DEDUCTION UNDER SECTION 80IC(2)(A)(II) OF THE ACT IS TO BE ALLOWED TO THE A SSESSEE ON BALANCE SALES OF RS. 97,34,564/-. 57. UPHOLDING THE ORDER OF COMMISSIONER OF INCOME T AX (APPEALS), WE DISMISS GROUNDS OF APPEAL RAISED BY THE REVENUE AND ALSO THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE. ITA NO. 1283/CHD/2010 :: A.Y. 2006-07 (REVENUES APPEAL) 58. THE REVENUE IN ITA NO.1283/CHD/2010 HAS RAISED THE FOLLOWING 43 GROUNDS OF APPEAL: 1. THAT THE LD.CIT(A)-I, LUDHIANA HAS ERRED LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 74,76,594/- MADE BY THE AO ON ACCOU NT OF DISALLOWANCE OF DEDUCTION US 80IC OF THE INCOME TAX ACT, 1961 RELYI NG ON THE ORDER OF ID. CIT(A)-II, LUDHIANA IN THE ASSESSEE'S OWN CASE FOR AY 2005-06 WITHOUT GOING INTO THE FACTS OF THE CASE.. 2. THAT WHILE ALLOWING RELIEF AS MENTIONED IN PARA 1 ABOVE: (I) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS BY NOT GIVING ANY CREDENCE TO THE STATEMENT OF SH. KAPIL SOOD WHEREIN THE PERSON HAS STATED THAT ONLY 10-12 WORKERS WORKED IN THE UNIT OF M/S O CTAVE EXPORTS AND THE UNIT USUALLY REMAINED CLOSED AND THERE WAS NO WORK/ MANUFACTURING. (II) THE LD.CIT(A) HAS ERRED IN FACTS BY IGNORING T HAT ONLY 13 SEWING MACHINES WERE PUT INTO OPERATION AT THE UNIT OF M/S OCTAVE EXPORTS, AT PARWANOO AND SUBSTANTIATED BY THE ENQUIRY FROM D EPARTMENT OF INDUSTRIES, PARWANOO. (III) THE LD.CIT(A) HAS ERRED IN FACTS IN IGNORING NOT GIVING ANY VALUE TO THE EVIDENCE BROUGHT ON RECORD BY A.O. IN FORM OF ELECT RICITY BILLS OF HIMACHAL PARDESH STATE ELECTRICITY, BOARD WHEREIN T HE TOTAL CONSUMPTION OF ELECTRICITY DURING THE YEAR WAS 912 UNITS ONLY FOR THE SALES TURNOVER OF RS.2,11,96,310/-. (IV) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN IGNORING THE EVIDENCE PLACED ON RECORD THAT ALL THE PURCHASES MA DE BY THE ASSESSEE WERE MADE FROM LUDHIANA AND DELIVERED AT THE ADDRES S OF SISTER CONCERN AT LUDHIANA AND NOT DIRECTLY AT THE PLACE OF WORK AT P ARWANOO. (V) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN IGNORING THE EVIDENCE PLACED ON RECORD IN THE FORM OF REPORT FRO M EXCISE AND TAXATION OFFICER, PARWANOO REGARDING THE TRANSPORTATION OF G OODS WHICH STATES THAT ALL THE VEHICLES AS PER LIST/ CHART PROVIDED HAVE C ROSSED THE PARWANOO BARRIER IN THE MONTHS OF AUGUST, 05 TO DECEMBER, 05 WHEN THERE WAS NO WORK IN PROGRESS AT PARWANOO BECAUSE THERE WAS NO E LECTRICITY CONSUMED AS PER ENQUIRY MADE FROM ASSISTANT ENGINEER, HPSEB, PA RWANOO. 3. THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND T HAT OF THE A.O. BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 59. THE ASSESSEE IN C.O.NO.33/CHD/2011 HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APP EALS),LUDHIANA IN LAW AND ON FACTS HAS RIGHTLY DELETED THE ADDITION OF 74 ,74,594/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF DED UCTION U/S 80IC OF THE INCOME TAX ACT, 1961 AFTER CONSIDERING ALL THE FACT S AND GIVING DETAILED REASONS FOR DELETION OF ADDITION OF 74,76,504/- MAD E BY THE ASSESSING OFFICER. 2. IT IS THEREFORE, REQUESTED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BE NOT INTERFERED. 44 3. THAT THE CROSS OBJECTOR CRAVES LEAVE TO ADD OR A MEND ANY ROUND OF CROSS- OBJECTIONS BEFORE THE APPEAL IS FINALLY HEARD OR DISPOSED OFF . 60. THE ISSUE RAISED IN THE PRESENT APPEAL IS IDENT ICAL TO THE ISSUE RAISED IN ASSESSMENT YEAR 2005-06. WE HAVE ALREADY ADJUDICATED THE ISSUE IN THE PARAS HEREIN ABOVE IN RELATION TO THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. 61. THE SIMILAR CLAIM OF DEDUCTION UNDER SECTION 80 IC OF THE ACT WAS DENIED TO THE ASSESSEE BY THE ASSESSING OFFICER FOLLOWING THE SAME LINE OF REASONING AS IN ASSESSMENT YEAR 2005-0 6. HOWEVER, THE ASSESSING OFFICER HAD MADE ENQUIRIES IN RESPECT OF THE VEHICLES CROSSING THE BARRIER CARRYING RAW MATERIAL FROM LUD HIANA TO PARWANOO AND NO DISCREPANCY WAS FOUND IN THE SAID MATERIAL B EING SHIFTED FROM LUDHIANA TO PARWANOO. IN THE ABSENCE OF ANY EVIDEN CE FOUND THAT THE GOODS HAD NOT CROSSED THE BARRIER, THE COMMISSIONER OF INCOME TAX (APPEALS) HAD ALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT ON SAME REASONING BUT IN ENTIRETY, THOUGH I N ASSESSMENT YEAR 2005-06, PARTIAL DISALLOWANCE WAS MADE IN THE HANDS OF THE ASSESSEE. IN VIEW OF OUR HOLDING THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURING ACTIVITIES CARRIED OUT AT ITS PARWANO O UNIT AND ALLOWING THE DEDUCTION UNDER SECTION 80IC OF THE ACT PARTLY, IN VIEW OF THE DISCREPANCIES FOUND IN THE CROSSING OF BARRIER FOR THE TRANSPORTATION OF RAW MATERIAL FROM LUDHIANA TO PARWANOO, WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2006-0 7. UPHOLDING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), WE A LLOW CLAIM OF ASSESSEE IN ENTIRETY VIS--VIS THE DEDUCTION CLAIME D UNDER SECTION 80IC OF THE ACT. THE GROUNDS OF APPEAL RAISED BY THE RE VENUE ARE THUS, DISMISSED. 45 C.O. NO. 33/CHD/2011 IN ITA NO. 779/CHD/2008 62. THE LD. AR FOR THE ASSESSEE STATED THAT THE CRO SS OBJECTIONS ARE IN SUPPORT OF THE ORDER OF THE COMMISSIONER OF INCO ME TAX (APPEALS). HENCE, THE SAME ARE DISMISSED. 63. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NOS . 779/CHD/2008 AND ITA NO. 1283/CHD/2010 ARE DISMISSED AND THE ASS ESSEE'S APPEAL IN ITA NO. 762/CHD/2008 AND C.O. NO. 33/CHD/2011 IN ITA NO. 779/CHD/2008 ARE ALSO DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF AUGUST, 2014. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28 TH AUGUST, 2014 POONAM COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH