The Deputy Commissioner of Income Tax, Jammu V. M/s. Kesar Industries P.Ltd., Samba

CO 46/ASR/2013

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2046 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-03-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 14-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S SH SALIL KAPPOR; SUMIT LAL CHANDANI S
• Assessee Lawyers: R K SHARDA
• Keywords: Gift; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; Additional evidence; Non-deduction of tax; Assessment record; Capital receipt
• Section: 143(3); 234B; 80IB; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.168(ASR)/2013 ASSESSMENT YEAR: 2009-10 PAN : AABCK0456G M/S. KAISER INDUSTRIES LTD., VS. JT. COMMR. OF INCO ME TAX, INDUSTRIAL GROWTH CENTRE, RANGE-1, JAMMU. SIDCO, SAMBA ( J & K ). (APPELLANT) (RESPONDENT) ITA NO.295(ASR)/2013 ASSESSMENT YEAR: 2009-10 PAN : AABCK0456G JT. COMMR. OF INCOME TAX, VS. M/S. KAISER INDUSTRI ES LTD., RANGE-1, JAMMU. INDUSTRIAL GROWTH CENTRE, SIDCO, SAMBA ( J & K ). (APPELLANT) (RESPONDENT) C.O. NO.46(ASR)/2013 (ARISING OUT OF ITA NO.295(ASR)/2013) ASSESSMENT YEAR: 2009-10 PAN : AABCK0456G M/S. KAISER INDUSTRIES LTD., VS. JT. COMMR. OF INCOME TAX, INDUSTRIAL GROWTH CENTRE, RANGE-1, JAMMU. SIDCO, SAMBA ( J & K ). (APPELLANT) (RESPONDENT) ASSESSEE BY:S/SH. SALIL KAPPOR & SUMIT LAL CHANDANI , ADVOCATES RESPONDENT BY: SH.R.K.SHARDA, DR DATE OF HEARING: 02/02/2016 DATE OF PRONOUNCEMENT: 29/03/2016 ORDER ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 2 PER A.D. JAIN, JM: ITA NO.168(ASR)/2013 AND C.O. NO.46(ASR)/2013 HAVE BEEN FILED BY THE ASSESSEE, WHEREAS ITA NO.295(ASR)/2013 HAS BEEN FILED BY THE DEPARTMENT, FOR THE ASSESSMENT YEAR 2009-10, RESPE CTIVELY. 2. AS TO THE CONCURRENT MAINTAINABILITY OF BOTH, IT A NO. 168(ASR)/2013 AS WELL AS C.O. NO.46, IT HAS BEEN CO NTENDED THAT THE C.O. HAS BEEN FILED ON THE RECEIPT OF NOTICE REGARD ING THE DEPARTMENTS APPEAL IN ITA NO.295(ASR)/2013. 3. AS PER THE REGISTRY, THERE IS A DELAY OF 94 DAYS IN THE FILING OF C.O. NO.46(ASR)/2013. IN THIS REGARD, THE STAND OF THE A SSESSEE IS THAT FORM NO.36 IN THE DEPARTMENTS APPEAL IN ITA NO. 295(ASR )/2013 WAS RECEIVED BY THE ASSESSEE ON 13.09.2013 AND THE C.O. WAS FILE D ON 14.10.2013, 12.10.2013 & 13.10.2013 BEING SATURDAY AND SUNDAY. 4. THE ABOVE FACTS HAVE NOT BEEN DISPUTED. THE CROS S OBJECTION HAS BEEN FILED WITHIN LIMITATION. THEREFORE, THE OBJECT ION OF THE REGISTRY IN THIS REGARD IS DISMISSED. ITA NO.168(ASR)/2013 5. THE ASSESSEE HAS TAKEN THE FOLLOWING CONCISE GRO UNDS IN ITS APPEAL IN ITA NO.168(ASR)/2013: 1. THAT THE AO HAS IN VIEW OF THE FACTS AND CIRCUM STANCES OF THE CASE, GROSSLY ERRED IN LAW AND ON FACTS IN DISA LLOWING THE ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 3 DEDUCTION OF RS.3,79,92,598/- CLAIMED U/S 80IB AND THE CIT(APPEALS) HAS GROSSLY ERRED IN CONFIRMING THE SA ME. 2. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE CIT(APPEALS) HAS GROSSLY ERRED IN LAW AND ON FACTS CONFIRMING THE DISALLOWANCE OF RS.1,44,000/- OUT OF TOTAL DISA LLOWANCE OF RS.8,26,622/- U/S 40(A)(IA) OF THE INCOME TAX ACT, ADDITION/DISALLOWANCE MADE IS UNCALLED FOR, IS UNJU ST AND HIGHLY EXCESSIVE. 3. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE ASSESSING OFFICER HAS GROSSLY ERRED IN LAW AND ON F ACTS IN DISALLOWING SUM OF RS.31,00,000/- PAID TO SUNAYANA MALHOTRA AND SANJEEV MALHOTRA AS RENT FOR DIFFERENT PREMISES. THE CIT (A) HAS ALSO ERRED IN CONFIRMING THE SAME AND NOT APPRECIATING THE FACT THAT THE SAID WAS FOR BUSINESS PURPOSES AND NO TAX EVASION WAS INVOLVED. 4. THAT THE CIT(APPEALS) HAS IN VIEW OF THE FACTS A ND CIRCUMSTANCES OF THE CASE HAS GROSSLY ERRED IN FACT AND IN LAW IN SUSTAINING ADDITION OF RS.15,50,000/- OUT OF TOTAL ADDITION MADE BY AO ON ACCOUNT OF SALARIES PAID TO VARIOUS PERSONS. 5. THE CIT(APPEALS) HAS FAILED TO APPRECIATE THAT T HE PERSON TO WHOM THE SALARIES ARE PAID ARE WORKING FOR ASSESSEE COMPANY AND SAID PERSONS ARE ALSO ASSESSED TO INCOM E TAX AT THE HIGHEST RATE. 6. THAT THE ADDITIONS MADE ARE MERELY ON THE BASIS OF SURMISES AND CONJECTURE AND NOT BASED ON ANY MATERIAL ON REC ORD. THE EXPLANATION FIELD AND MATERIAL PLACED ON RECORD IS WRONGLY AND ILLEGALLY IGNORED. 7. THE ASSESSING OFFICER/CIT(APPEALS) HAS FAILED TO APPRECIATE THAT THE SAID EXPENSES HAD BEEN INCURRED IN THE EAR LIER YEARS AND HAS BEEN ALLOWED AS EXPENSES AND THE DEDUCTION U/S 80IB HAS BEEN ALLOWED ON IDENTICAL FACTS. 8. THAT THE INTEREST U/S 234B & 234C HAS BEEN WRONG LY AND ILLEGAL CHARGED AND HAS BEEN WRONGLY WORKED OUT. 9. THAT THE ADDITION/DISALLOWANCE MADE ARE UNJUST, ARBITRARY & HIGHLY EXCESSIVE. ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 4 6. GROUND NO.1 IS AGAINST THE ACTION OF THE LD. CIT (A) IN CONFIRMING THE DISALLOWANCE OF DEDUCTION OF RS.3,79,92,598/- CLAIMED UNDER SECTION 80IB OF THE ACT. 7. AS PER THE RECORD, THE ASSESSEE IS IN THE BUSINE SS OF MANUFACTURE AND SALE OF SPECIALTY AGRO CHEMICALS. IT OPERATES T WO UNITS, ONE AT BAHADURGARH IN HARYANA AND THE OTHER AT IGC SAMBA ( J&K). THE PROFIT FROM THE SAMBA UNIT WAS ELIGIBLE FOR DEDUCTION UNDE R SECTION 80IB OF THE INCOME TAX ACT, 1961, WHEREAS THE PROFIT FROM THE B AHADURGARH UNIT WAS LIABLE TO TAX. FOR THE YEAR UNDER CONSIDERATION, TH E LD. CIT(A) UPHELD THE DISALLOWANCE MADE BY THE AO BY OBSERVING THAT OWIN G TO THE CLOSE CONNECTION BETWEEN THE ELIGIBLE AND INELIGIBLE UNI TS, I.E., THE SAMBA UNIT AND THE BAHADURGARH UNIT, BEING TWO UNITS OF THE SA ME COMPANY, THE COURSE OF BUSINESS BETWEEN THEM HAD BEEN SO ARRANGE D THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCED TO THE EL IGIBLE UNIT, MORE THAN ORDINARY PROFIT WHICH MIGHT BE EXPECTED TO AR ISE IN THE ELIGIBLE UNIT; AND THAT, THEREFORE, INVOCATION OF SECTION 80IB(13) READ WITH SECTION 80IA(10) AND THE RESULTING DISALLOWANCE OF RS.3,79, 92,598/- WAS JUSTIFIED. 8. SO FAR AS REGARDS THE OBSERVATIONS OF THE LD. CI T(A) THAT THE AFFAIRS OF THE TWO UNITS OF THE ASSESSEE HAVE BEEN SO ARRAN GED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ELIGIBLE UNIT MORE THAN ORDINARY PROFITS EXPECTABLE AS ARISING IN THE ELIG IBLE UNIT, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED AN APPLICATION FOR ADDIT IONAL EVIDENCE, WHEREIN, ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 5 IT HAS BEEN STATED THAT THE ALLEGATION OF THE DEPAR TMENT WAS THAT CERTAIN TRANSACTIONS RELATING TO TRANSFER OF SEMI-FINISHED PRODUCTS FROM THE BAHADURGARH UNIT TO THE SAMBA UNIT, WERE NOT AT MA RKET RATE; THAT THIS WAS DENIED BY THE ASSESSEE, SEEKING SUPPORT FROM TH E CERTIFICATE FROM THE COST ACCOUNTANT; THAT THE SAID CERTIFICATE, WAS, HO WEVER, NOT ACCEPTED BY THE LD. CIT(A) AND IT WAS ASSUMED THAT THE TRANSFE R FROM THE BAHADURGARH UNIT TO THE SAMBA UNIT TOOK PLACE WITH OUT ANY MARK UP, SO AS TO INFLATE THE PROFITS OF THE SAMBA UNIT OF T HE ASSESSEE, AS SUCH, SO AS TO DRAW A COMPARISON, THE ASSESSEE IS FILING THE COPIES OF THE INVOICES OF THAT PERIOD, ISSUED TO THE THIRD PARTY. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT VIDE ORDER DATED 26.03.2013, PAS SED U/S 143(3) OF THE ACT, FOR THE ASSESSMENT YEAR 2010-11, THIS ISSU E WAS AGAIN DECIDED BY THE AO; THAT VIDE ORDER DATED 29.03.2014, PASSED U/S 264 OF THE ACT, FOR THE ASSESSMENT YEAR 2010-11, LD. CIT DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. COPIES THE SAID ORDERS HAVE BEEN PLAC ED ON RECORD, FOR THE ASSESSMENT YEAR 2010-11. 9. THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE GO ES TO THE ROOT OF THE ISSUE. THE LD. CIT(A) DID NOT ACCEPT THE COST A CCOUNTANT CERTIFICATE PRODUCE BY THE ASSESSEE. THE ASSESSEE IS NOW FILING THE COPIES OF INVOICES ISSUED TO THIRD PARTY, SHOWING THAT THE TRANSACTION RELATING TRANSFER OF SEMI-FINISHED PRODUCTS FROM ITS BAHADURGARH UNIT TO ITS SAMBA UNIT WERE NOT AT THE MARKET RATE. ACCORDINGLY, THIS ADDI TIONAL EVIDENCE IS ADMITTED. ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 6 10. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO DRAWN OUR ATTENTION TO THE AOS REMAND REPORT AS FILED BEFORE THE LD. CIT( A). IT IS CONTENDED THAT IN THE SAID REMAND REPORT REPRODUCED AT PAGES 4 TO 12 OF THE IMPUGNED ORDER, THE AO HAS HIMSELF HELD THE DEDUCTION CLAIM ED UNDER SECTION 80- IB OF THE ACT TO BE ALLOWABLE. 11. ON THE OTHER HAND, THE LD. DR HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER QUA THIS ISSUE. 12. ON THIS ISSUE, IT IS SEEN THAT THE LD. CIT(A) H AS ALSO NOT TAKEN INTO CONSIDERATION, THE REMAND REPORT SUBMITTED BY THE A O IN THIS REGARD. IN THE REMAND REPORT, THE AO HAS CLEARLY STATED THAT T HE CLAIM OF THE ASSESSEE U/S 80IB OF THE ACT COULD NOT HAVE BEEN RE JECTED ON THE GROUNDS OF MANIPULATION OF BOOKS AND DIFFERENT GP R ATIOS, SINCE SUFFICIENT EXPLANATION HAD BEEN OFFERED BY THE ASSESSEE; THAT THE COMPARISON OF OPERATING MARGIN AND EXPENSES OF THE SAMBA UNIT AN D THE BAHADURGARH UNIT SHOWED THAT SAMBA UNIT HAD TURNOVER OF RS.15,0 6,67,738/- ATTRIBUTABLE TO SALE OF AGROCHEMICALS HAVING HIGH MARK-UP RATE, WHEREAS THE BAHADURGARH UNIT HAD A TURNOVER OF RS.34,74,27, 893/- CONSISTING OF TURNOVER OF RICE TRADING OF RS.27,88,11,232/- (80.2 5%) AND REST OF RS.6,86,16,661/- (19.75%) ATTRIBUTABLE TO SALE OF A GROCHEMICALS; THAT THE ADMINISTRATIVE EXPENSES WHICH COULD BE SAID TO HAVE BEEN UTILIZED BY BOTH THE UNITS HAD ALREADY BEEN ALLOCATED BY THE AS SESSEE HIMSELF AND SO, REJECTION OF THE TOTAL CLAIM ON THIS BASIS WOUL D ALSO HAVE NOT BEEN JUSTIFIABLE SINCE THE SAMBA UNIT ENJOYS GREATER BE NEFITS DUE TO THE EXCISE ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 7 DUTY BENEFIT AND OTHER INDUSTRIAL POLICIES OF THE G OVT., WHEREAS NO SUCH INCENTIVES WERE AVAILABLE TO THE BAHADURGARH UNIT; THAT ALSO, SINCE THE SAMBA UNIT WAS IN A RURAL AREA, CHEAP AND ADEQUATE LABOUR AND SUBSIDIZED POWER, SUPERVISORY STAFF, LEASE PREMISES ETC., WERE AVAILABLE, GIVING RISE TO HIGHER OPERATING MARGINS TO THE SAMB A UNIT, THEREBY WIDENING THE GAP BETWEEN THE PROFITABILITY OF THE S AMBA UNIT AND THE BAHADURGARH UNIT, WHICH WAS LOCATED IN A HIGHLY URB ANIZED AREA; THAT BESIDES, TRANSFER OF PRODUCTS FROM ONE MANUFACTURI NG UNIT TO OTHER UNIT HAS BEEN PROVIDED FOR UNDER SECTION 80IA(10 OF THE ACT, THOUGH AT PREVAILING MARKET RATES, AND SO, THE ASSESSEES CLA IM U/S 80IB ALSO COULD NOT BE REJECTED ON THIS BASIS, THE ASSESSEE, HAVING ADEQUATELY EXPLAINED THE ISSUE AND HAVING FILE CERTIFICATE OF TRANSFER P RICING FROM AN INDEPENDENT COST ACCOUNTANT, SHOWING THE ACTUAL TRA NSFER PRICING AT A HIGHER RATE THAN THE COST WORKED OUT BY THE COST AC COUNTANT. 13. IT WOULD BE APPROPRIATE TO HERE REPRODUCE THE R ELEVANT PORTION OF THE AOS REMAND REPORT, AS EXTRACTED AT PAGES 4 TO 12 OF THE IMPUGNED ORDER: 3. SUBMISSIONS AND REMAND REPORT: SINCE THE SUBMISSION HAS BEEN REPRODUCED IN THE REMAND REPORT IT IS NOT MENT IONED SEPARATELY FOR BREVITY. THE REMAND REPORT IS AS UND ER: KINDLY REFER TO YOUR OFFICE LETTER BEARING NO. F. NO. CIT (A)/JMU/2011-12/377 DATED 11.07.2012 IN CONNECTION WITH SUBJECT CITED ABOVE. AS PER THE ABOVE MENTIONED LETTER, YOUR GOOD SELF H AS DESIRED THE UNDERSIGNED TO FURNISH COMMENTS ON THE WRITTEN SUBM ISSIONS FILED ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 8 BY THE APPELLANT AS MENTIONED ABOVE. I HAVE GONE TH ROUGH THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE AND THE A SSESSMENT RECORD FOR THE RELEVANT ASSESSMENT YEAR. THE ISSUES ON WHICH THE ADDITIONS/DISALLOWANCES WERE MADE BY THE THEN ASSES SING OFFICER, EXPLANATIONS OFFERED BY THE ASSESSEE AND THE COMMEN TS OF THE UNDERSIGNED ARE FURNISHED AS UNDER:- 3.1. ADDITION OF RS.37992598/- ON ACCOUNT OF DISALL OWANCE U/S 80 IB OF THE I.T. ACT, 1961. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING & SALE OF SPECIALTY AGRO CHEMICALS & OPERATES FROM TWO UNITS. ONE IS AT BAHADURGARH (HARYANA) & THE OTHER IS AT IGC SAMBA (J&K). PROFIT FROM SAMBA UNIT IS ELIGIBLE FOR DEDUCTION U/S 80 IB OF THE ACT WHERE AS PROFIT FROM BAHADURGARH UNIT IS LIABLE TO TAX. DURING THE YEAR THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80 IB OF THE INCOME TAX ACT,1961 TO THE TUNE OF RS.37992598/- @ 100% OF PROFIT DERIVED FROM ITS INDUSTRIAL UNIT AT IGC SAMBA (J&K) . THE DEDUCTION CLAIMED AT RS.37992598/- HAS BEEN DISALLOWED BY THE THEN ASSESSING OFFICER ON THE FOLLOWING GROUNDS: I) THE ASSESSEE HAS SHOWN OPERATING PROFIT OF SAMB A UNIT AT 24.70% OF SALES WHEREAS IN BAHADURGARH UNIT THERE IS OPERATING LOSS OF 4.05% OF SALES, IMPLYING THAT THE EXPENSES OF SAMBA UNIT HAVE BEEN BOOKED IN THE BOOKS OF BAHADURGARH UNIT IN ORDER TO SHOW MORE THAN ORDINARY PROFIT OF SAMBA UNIT WHERE DEDUCTION U/S 80 IB IS AVAILABLE & DECREASE THE PROFIT IN BAHADURGARH UNIT WITH THE MOTIVE OF TAX EVASION; ASSESSEE HAS BOOKED ONLY RS.87026/- UNDER SALARY & ALLOWANCES. OTHER ADMINISTRATIVE, SELLING & DISTRIBUTION AND FINANCIAL EXPENSES OF BAHADURGARH UNIT IS SHOWN AT RS.12661936/- WHERE AS THESE EXPENSES HAVE BEEN SHOWN IN SAMBA UNIT AT RS.7777858/- MEANING THEREBY THAT PROFIT OF ELIGIBL E UNIT IS INFLATED TO AVAIL DEDUCTION U/S 80 IB OF TH E INCOME TAX ACT; III) BOTH SAMBA AND BAHADURGARH PLANTS ARE UNITS OF SAME COMPANY & ARE CLOSELY CONNECTED AS SOME OF THE RAW MATERIAL AND SEMI FINISHED GOODS FROM BAHADURGARH UNIT ARE TRANSFERRED TO SAMBA UNIT; IV) BAHADURGARH UNIT OF THE ASSESSEE HAS MADE SALES/TRANSFERS OF RAW MATERIAL OF MORE THAN RS.5.0 0 CRORES TO THE SAMBA UNIT AND NEARLY 50% OF SALES OF FINISHED GOODS MADE BY BAHADURGARH UNIT HAVE BEEN ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 9 SOLD TO SAMBA UNIT. THE SAMBA UNIT HAS FURTHER MADE SALES TO THE SISTER CONCERN IN SAMBA NAMELY M/S SUDERSHAN CONSOLIDATED LTD; V) SAMBA UNIT OF THE ASSESSEE HAS RECEIVED SHOW CAUSE NOTICES FROM THE DEPUTY COMMISSIONER OF CENTRAL EXCISE DIVISION JAMMU FOR CLAIMING EXCESS REFUND OF CENTRAL EXCISE. THE THEN ASSESSING OFFICER HELD THAT ALL THE ABOVE ISSUES PROVE THAT BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT CORRECT AND ARE MANIPULATED TO SHOW HIGHER PROFIT AT ELIGIB LE UNIT AND HENCE, THE DEDUCTION U/S 80IB HAS BEEN DENIED I N TOTO; IN RESPONSE TO SHOW CAUSE NOTICE ISSUED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS IN THE APPEAL SUBMISSIONS, THE ASSESSEE HAS TAKEN FOLLOWING STAND : THE ALLEGATION OF INFLATION OF PROFIT AT SAMBA UNIT BY MISAPPROPRIATION OF EXPENSES OF SAMBA UNIT TO BAHAD URGARH UNIT AND MANIPULATION OF BOOKS OF ACCOUNTS IS NOT B ASED UPON ANY FINDING ON RECORD; EVEN IN THE ASSTT. ORDER ALS O, THE AO HAS NOT COME TO ANY SPECIFIC CONCLUSION BUT HAS MEN TIONED THAT THE REPLY FILED BY THE ASSESSEE'S COUNSEL IS N OT ACCEPTABLE AS IT APPEARS THAT THE BOOKS OF ACCOUNTS HAVE BEEN MANIPULATED BY THE ASSESSEE; FOR REJECTING THE APPELLANTS CLAIM U/S 80IB THE AO OUGHT TO HAVE DETECTED SOME SUCH ENTRIES OF EXPENSES WHICH I N HIS OPINION WERE MANIPULATED, REJECT THE BOOKS OF ACCOU NTS AND THEN PROCEED TO MAKE BEST JUDGMENT ASSESSMENT; DEDUCTION CLAIMED BY THE APPELLANT U/S 80 IB OF THE ACT IN EARLIER YEARS STANDS ALLOWED IN SCRUTINY ASSESSMENT S U/S 143 (3) OF THE ACT AS WELL AS VIDE INTIMATIONS ISSUED U /S 143(I) F OR AY 2005-06 ONWARDS. THE ASSESSING OFFICER HAS PERHAPS ASSUMED THAT ALL EXPENSES IN BAHADURGARH UNIT ARE IN FACT PERTAINING TO SAMBA UNIT AND THEREFORE THE WHOLE OF DEDUCTION U/S 80-IB OF INCOM E TAX ACT, 1961 IS FALSE & IS THEREFORE, DISALLOWED; SAMBA UNIT AND BAHADURGARH UNIT ADE TWO SEPARATE INDEPENDENT INDUSTRIAL UNITS & PROFIT CENTERS MANAG ED INDEPENDENTLY BY THE STAFF POSTED AT EACH UNIT, MAI NTAIN SEPARATE BOOKS OF ACCOUNTS, DIRECT AND INDIRECT INC OME AS WELL ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 10 AS ALL EXPENSES SEPARATE BOOK OF ACCOUNTS, DIRECT A ND INDIRECT INCOME AS WELL AS EXPENSES (ADMINISTRATIVE, SELLING , DISTRIBUTION, FINANCIAL EXPENSES) PERTAINING TO RES PECTIVE UNITS ARE DEBITED IN RESPECTIVE UNIT; COMMON EXPENSES SUCH AS DIRECTOR'S REMUNERATION HAS BEEN ALLOCATED TO BOTH THE UNITS IN THE RATIO OF 50:50; SEPARATE PROFIT & LOSS ACCOUNT & BALANCE SHEET IS D RAWN FOR EACH UNIT AT THE CLOSE OF THE YEAR AND SUBJECTED TO AUDIT BY TWO INDEPENDENT AUDITORS AND THIS METHOD OF ACCOUNT ING AND ALLOCATION OF EXPENSES HAS REGULARLY BEEN FOLLOWED ON CONSISTENT BASIS AND HAS BEEN ACCEPTED BY THE DEPAR TMENT IN SCRUTINY ASSESSMENTS U/S 143(3) OF THE ACT IN PRECE DING YEARS; COMPLETE BOOKS OF ACCOUNTS INCLUDING PRODUCTION REC ORDS, PAY REGISTERS OF SALARIES AND WAGES, BILLS/VOUCHERS, ST OCK REGISTERS IN SUPPORT OF PURCHASES, SALES AND EXPENS ES WERE SUBJECTED TO DETAILED SCRUTINY BY THE A.O. AND NOT EVEN A SINGLE TRANSACTION HAS BEEN POINTED OUT BY THE AO A S FOUND MANIPULATED OR NOT ATTRIBUTABLE / ALLOCABLE TO OTHE R UNIT; GROSS PROFITS OF TWO UNITS ARE NOT COMPARABLE UNLES S ADJUSTMENT IN REGARD TO SPECIAL INCENTIVES AVAILABL E TO ELIGIBLE UNIT AT SAMBA IS MADE AND AFTER THAT THE GP RATIOS ARE QUITE COMPARABLE; GROSS PROFIT RATIO OF SAMBA UNIT OF 28.09% INCLUDES VARIOUS INCENTIVES SUCH AS VAT REMISSION AMOUNTING TO RS. 26,83,311.00 AND EXCISE DUTY REFUND AMOUNTING TO RS . 64,79,057.00 WHEREAS NO SUCH INCENTIVES ARE AVAILAB LE TO BAHADURGARH UNIT (HAVING A G.P. RATIO OF 23.19%). IF SUCH BENEFITS ARE NOT CONSIDERED, GROSS PROFIT R ATIO OF SAMBA UNIT WOULD HAVE BEEN 22.51 % AS AGAINST GP RATIO OF BAHADURGARH UNIT AT 23.19% SHOWING THAT G.P. RATIO OF BAHADURGARH UNIT AND SAMBA UNIT ARE CORRECT AND ALS O PROVES THAT STOCK TRANSFERS MADE BY BAHADURGARH UNIT TO SA MBA UNIT WERE AT PREVAILING MARKET PRICE; APART FROM ABOVE, THE COMPARISON OF OPERATING MARGI N & EXPENSES OF SAMBA UNIT & BAHADURGARH UNIT IS MISPLA CED; SAMBA PLANT HAS A TURNOVER OF RS.15,06,67,738/- ATT RIBUTABLE TO SALE OF AGROCHEMICALS HAVING HIGH MARKUP RATE, A S AGAINST ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 11 WHICH BAHADURGARH UNIT HAS A TURNOVER OF RS. 34,74, 27,893/- CONSISTING OF TURNOVER OF RICE TRADING OF RS. 27,88 ,11,232/- (80.25%) AND REST RS. 6,86,16,661/- (19.75%) ATTRIB UTABLE TO SALE OF AGROCHEMICALS; RICE BUSINESS AT BAHADURGARH UNIT HAS A VERY LOW GR OSS PROFIT RATE OF 1.76%> WHILE THAT OF CHEMICAL BUSINESS IS COMPARATIVELY MUCH HIGHER (23.53%); COMPARISON OF NET OPERATING PROFIT MARGIN OF SAMBA UNIT WITH THAT OF BAHADURGARH UNIT HAS BEEN MADE WITHOUT CONSIDERING A FACT THAT BAHADURGARH UNIT DEALS IN TWO ACTIVITIE S WHERE THE TURNOVER IS MAINLY DERIVED FROM RICE TRADING (80.25 %) WITH A VERY MEAGER MARGIN OF JUST 1.76%, WHEREAS THE SAMBA UNIT DERIVES ITS TURNOVER ONLY FROM CHEMICAL BUSINESS WI TH A MARGIN OF 28.09%; FURTHERMORE, FOR ARRIVING AT CORRECT RESULTS, INDIR ECT EXPENSES INCURRED AT BAHADURGARH UNIT MUST BE APPORTIONED BE TWEEN BOTH THE BUSINESSES BEING CARRIED ON THERE WHEREAS THE LD. AO HAS ALLOCATED ALL THE EXPENSES ONLY AGAINST CHEM ICAL BUSINESS & THEREBY RESULTING INTO DISTORTED FIGURES OF MARGINS; ALSO, WHILE COMPUTING OPERATING PROFIT RATIO, NON-O PERATING INCOMES HAS BEEN EXCLUDED FROM THE NET PROFIT OF TH E BAHADURGARH UNIT (RENT EARNED FROM THE MUMBAI FLAT, REBATE ON PROPERTY FROM DLF, INTEREST INCOME) ON THE ONE H AND BUT THE EXPENSES DEBITED IN PROFIT & LOSS A/C FOR EARNI NG THESE NON-OPERATING INCOME (PROPERTY TAX AND MAINTENANCE CHARGES OF RS. 1,86,598.00, INTEREST ON HOUSING LOAN OF RS. 3,68,476.00, INTEREST TO DLF OF RS. 18,565.00 TOTAL ING TO RS. 5,73,639.00) HAVE NOT BEEN REDUCED WHICH FURTHER DI STORTED THE WORKING OF OPERATING LOSSES; SAMBA UNIT ENJOYS GREATER BENEFITS DUE TO GOVT, IND USTRIAL POLICY IN TERMS OF EXCISE DUTY BENEFIT, SALES TAX B ENEFIT, INTEREST SUBSIDY, OTHER INDUSTRIAL POLICY BENEFITS, WHEARAS NO SUCH INCENTIVES ARE AVAILABLE AT BAHADURGARH UNIT; ANOTHER MAJOR FACTOR OF ADDITIONAL PROFIT AT SAMBA UNIT, BEING RURAL AREA, IS AVAILABILITY OF CHEAP AND ADEGUATE L ABOUR, AVAILABILITY OF POWER AT SUBSIDIZED RATES, SUPERVIS ORY STAFF, LEASE PREMISES AT HIGHLY SUBSIDIZED RATES ETC. DUE TO WHICH SAMBA UNIT HAS HIGHER OPERATING MARGINS WHICH IS BO UND TO ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 12 WIDEN THE GAP BETWEEN PROFITABILITY OF SAMBA UNIT A ND BAHADURGARH UNIT WHICH IS HIGHLY URBANISED AREA; IT IS WRONG TO ASSUME THAT OPERATIONAL EFFICIENCY A ND PROFITABILITY ON THE PRODUCTS OF DIFFERENT UNITS SH ALL BE SAME IGNORING THE FACT THAT DIFFERENT INDUSTRIAL UNITS H AVE DIFFERENT PROFITABILITY AND GROWTH RATE. IT IS NOT UNCOMMON THAT THERE IS PROFIT IN ONE UNIT AND LOSS IN ANOTHER. THE DISTINGUISHING FACTORS SUCH AS GOVERNMENT GRANT S AND INCENTIVES AVAILABLE IN SAMBA UNIT, RENTED PREMISES AT BAHADURGARH UNIT TAKEN AT MARKET RENT FROM A PRIVAT E PERSON WHERE AS LEASED PREMISES AT SAMBA ALLOTTED BY J&K S IDCO, A GOVT .AGENCY AT A HIGHLY SUBSIDIZED PRICE UNDER I NDUSTRIAL PROMOTION SCHEME, SCALE OF OPERATIONS AND PRODUCTIO N, GEOGRAPHICAL LOCATION (URBAN AREA AND RURAL AREA) O F THE INDUSTRIAL UNITS, PLANT CAPACITY UTILIZATION OF RES PECTIVE UNITS, ETC. CANNOT BE IGNORED WHILE COMPARING THE OPERATIO NS OF BOTH UNITS; THE DEDUCTION HAS BEEN DISALLOWED ON A FALSE ASSUMP TION THAT ASSESSEE HAS BOOKED THE EXPENSES OF SAMBA UNIT IN THE BOOKS OF BAHADURGARH UNIT WITHOUT CONSIDERING THE F ACT THAT THE EXPENSES WHICH COULD BE APPORTIONED TO A PARTIC ULAR UNIT HAVE BEEN DONE SO ON THE BASIS OF PRESENCE OF COST DRIVERS. FOR EXAMPLE: DIRECTOR'S REMUNERATION HAS BEEN APPORTION ED BETWEEN BOTH THE UNITS EQUALLY IN THE RATIO OF 55.5 0; SALARY HAS BEEN CHARGED TO THE PROFIT LOSS A/C OF THE UNIT IN ACCORDANCE WITH THE STAFF EMPLOYED AND ACTUAL SALA RY PAID IN THE RESPECTIVE UNIT FOR THE SERVICES RECEIVED AND C AN'T BE APPORTIONED TO OTHER UNIT; RENT/ LEASE CHARGES OF R S. 40,00,000.00 IN BAHADURGARH UNIT AND RS. 24,000.00 IN SAMBA UNIT HAVE BEEN DEBITED TO THE PROFIT AND LOSS A/C OF THE RESPECTIVE PLANTS. (THE RENT OF BAHADURGARH PLA NT CAN'T BE COMPARED WITH THE LEASE CHARGES OF SAMBA PLANT NOR CAN BE APPORTIONED TO THE OPERATIONS OF SAMBA UNIT AS THE PREMISES AT SAMBA HAVE BEEN TAKEN ON LEASE FROM SIDCO, A GOV T AGENCY, AT A HIGHLY SUBSIDIZED LEASE RENT OF RS. 24 ,000.00 P. A. WHEREAS THE PREMISES AT BAHADURGARH UNIT HAVE BE EN HIRED AT MARKET RATE FROM A PRIVATE PARTY); ADMINISTRATIV E EXPENSES ON EPF, AMOUNT WRITTEN OFF, LEAVE ENCASHMENT, SERVI CE TAX PAID, RESEARCH AND DEVELOPMENT EXPENSES HAVE BEEN ACCOUNTED FOR IN RESPECTIVE UNIT AS PER ACTUAL AND CANNOT BE ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 13 TRANSFERRED FROM ONE TO ANOTHER AS THE EXPENSES INC URRED AT BAHADURGARH PLANT HAVE NO RELATION TO SAMBA UNIT AN D CANNOT BE APPORTIONED TO SAMBA UNIT; CAR AND VEHICLE EXPEN SES, INTEREST EXPENSES ON LOAN FOR PURCHASE OF CAR ETC. CAN ONLY BE DEBITED TO PROFIT AND LOSS A/C OF BAHADURGARH UNIT AS THE RESPECTIVE EXPENSES ACTUALLY PERTAIN TO THAT UNIT A S SAMBA UNIT OWNS NO CAR OR ANY OTHER VEHICLE; MUMBAI FLAT OWNED BY THE COMPANY IS RENTED OUT AND RENTAL INCOME ARISING FROM THE PROPERTY HAS SEPARATELY BEE N SHOWN IN THE INCOME TAX RETURN UNDER THE HEAD, 'INCOME FR OM HOUSE PROPERTY'. THE RELATED EXPENDITURES ON THIS PROPERT Y DEBITED IN PROFIT AND LOSS A/C OF BAHADURGARH UNIT HAVE BEEN A DDED BACK IN THE COMPUTATION STATEMENT OF THE APPELLANT. THUS, THESE NON-BUSINESS EXPENSES DEBITED IN P & L A/C OF BAHADURGARH UNIT DO NOT HAVE ANY IMPACT ON THE BUSI NESS INCOME OF BAHADURGARH UNIT; SIMILARLY, EXPENSES WHICH COULD BE APPORTIONED HAVE BEEN APPROPRIATELY APPORTIONED AS IS EVIDENT FROM THE FO LLOWING ACTUAL APPROPRIATIONS AND ALLOCATIONS WHEREIN THE S AMBA UNIT HAS GOT A LARGER SHARE IN THE APPORTIONMENT OF EXPE NSE DUE TO PRESENCE OF HIGHER COST DRIVERS . FOR EXAMPLE: PROP ORTIONATE COMMISSION AGAINST SALES BY SAMBA UNIT IS MORE THAN BAHADURGARH UNIT (BOTH RICE AND CHEMICAL BUSINESS) I.E., COMMISSION PAID BY SAMBA UNIT IS RS. 5.76 LACS ON T URNOVER OF RS. 15.07 CRORES , WHEREAS IN BAHADURGARH UNIT, COM MISSION PAID ON SALE OF RS. 34.74 CRORES AMOUNTED TO RS. 8. 27 LACS ONLY; FREIGHT, OCTROI & CARTAGE EXPENSES AT SAMBA U NIT ARE RS. 46.12 LACS AGAINST RS. 17.66 LACS AT BAHADURGAR H UNIT; REBATE AND DISCOUNT AT SAMBA UNIT ARE RS. 29.11 LAC S AGAINST RS. 0.27 LACS AT BAHADURGARH UNIT; SALES PR OMOTION EXPENSES AT SAMBA UNIT ARE RS. 5.60 LACS AGAINST RS . 0.47 LACS AT BAHADURGARH UNIT; INTEREST TO SUPPLIERS AT SAMBA UNIT ARE RS. 7.77 LACS AGAINST RS. 1.89 LACS AT BAHADURG ARH UNIT; AUDIT FEES AT SAMBA UNIT IS RS. 1.50 LACS AGAINST R S. 0.30 LACS AT BAHADURGARH UNIT; SOME EXPENSES LIKE DONATI ON, FILING FEES, GIFTS, RENT FREE ACCOMMODATION TO STAFF, WATE R EXPENSES AND ADVERTISEMENT EXIST AT SAMBA UNIT ONLY AND NO S UCH EXPENSES TOOK PLACE AT BAHADURGARH PLANT; THE SERVICES AGAINST SUCH EXPENSES HAVE BEEN RECEIV ED AT THE UNIT ITSELF AND THERE IS NO CASE WHERE THE EXPENSE THAT COULD HAVE BEEN APPORTIONED WAS NOT APPROPRIATELY APPORTI ONED NOR ANY SUCH INSTANCE HAS BEEN POINTED OUT BY THE ASSES SING ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 14 OFFICER. THE EXPENSES EXPENDED FOR AND ON A PARTICU LAR UNIT HAVE BEEN DEBITED PARTICULARLY TO ITS ACCOUNT AND N OT TO OTHER UNIT(S) AND THE LD. ASSESSING OFFICER HAS ALSO VERI FIED THIS FROM THE ACCOUNTS PRODUCED. EXPENSES AT ONE UNIT ARE NON-COMPARABLE WITH EXPENS ES AT OTHER UNIT AS IT VARIES FROM PLANT TO PLANT AND PLA CE TO PLACE DEPENDING UPON ITS BUSINESS, LINE OF OPERATIONS, AR EA OF OPERATION, CAPACITY UTILIZATION AND CANNOT BE EQUAT ED WITHOUT ISOLATING THESE SPECIAL FACTORS AND HENCE, IT IS CO MPLETELY UNMERITED TO MAKE COMPARISONS BETWEEN THE EXPENSES AND REVENUE OF BOTH THE UNITS; THE ASSUMPTIONS OF THE A.O. THAT THE BOOKS OF ACCOU NTS HAVE BEEN MANIPULATED SO AS TO SHOW HIGHER EXPENSES AT BAHADURGARH UNIT, IS NEITHER A FACT NOR IT IS SUPPO RTED BY ANY EVIDENCE NOR HAS THE LD. AO MADE ANY MENTION OF ANY SUCH INSTANCE WHERE THE EXPENDITURES OF SAMBA UNIT MIGHT HAVE BEEN BOOKED IN BAHADURGARH UNIT; THE FACT THAT BOTH UNITS BELONG TO SAME COMPANY & T HERE IS TRANSFER OF RAW MATERIAL & SEMI FINISHED STOCK FROM IN-ELIGIBLE UNIT TO ELIGIBLE UNIT CAN ALSO NOT BE A GROUND TO R EFUSE THE DEDUCTION U/S 80IB; SEC. 80IB (13) READ WITH SEC. 80IA(10) OF THE ACT I TSELF PROVIDES FOR AN EVENTUALITY OF INTER-UNIT TRANSACTION, INCLU DING TRANSFER OF PRODUCT FROM IN-ELIGIBLE UNITS TO 80IB ELIGIBLE UNIT; STOCK TRANSFERS ARE MADE BY BAHADURGARH UNIT TO SAMBA UNI T BY ADDING A MARKUP TO THE COST PRICES AS DETERMINED BY COST ACCOUNTANT; FOR EXAMPLE: UNITS OF CHEMICAL BIO WERE TRANSFERRED AT AN AVERAGE PRICE OF RS. 100.16 AS AG AINST COST OF PRODUCTION OF RS. 73.64 ON 10.04.2008, RS. 70.91 ON 12.06.2008 AND RS. 77.27 ON 14.02.2009, AS PER COST ACCOUNTANT'S CERTIFICATE. SIMILARLY, UNITS OF CHEMI CAL B LL WERE TRANSFERRED AT AN AVERAGE PRICE OF RS. 88.23 DURING THE YEAR WHEREAS PRODUCTION COST AS PER COST ACCOUNTANT'S CE RTIFICATE, WAS RS. 70.00 ON 10.04.2008 AND RS. 67.27 ON 23.02. 2009; ITEM WISE STATEMENT OF STOCK TRANSFERRED TO SAMBA U NIT WITH QUANTITY & VALUE ALONG WITH CERTIFICATES OF COST WO RKING AS PER COST ACCOUNTANT'S CERTIFICATES FOR VARIOUS BATCHES WERE VERIFIED BY THE A.O. WITH REFERENCE TO SUPPORTING RECORDS OF PURCHASE BILLS OF RAW MATERIAL, PRODUCTION CARDS, COST OF PR ODUCTION STATEMENTS WHICH SUFFICIENTLY PROVE THAT THESE MATE RIAL HAVE BEEN TRANSFERRED AT APPROPRIATE PRICE; ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 15 A.O. HAS NOWHERE IN THE ASSESSMENT ORDER MADE OUT A CASE THAT SUCH TRANSFERS ARE MADE TO YIELD EXTRA ORDINAR Y PROFIT TO 80IB ELIGIBLE UNIT, AS MANDATED VIDE SEC. 80IA(10), AT THE COST OF IN-ELIGIBLE UNIT LEADING TO TAX EVASION, HENCE, DISALLOWANCE OF BENEFIT OF SEC. 801B TO THE ASSESSEE BY INVOKING SEC. 80IA(10), IS WITHOUT MEETING THE PRE-CONDITION OF T HE SAID PROVISION AND IS THEREFORE ILLEGAL; TRANSFER OF PRODUCTS FROM ONE UNIT TO THE OTHER UNL ESS PROVED TO BE FALSE OR USED AS A TOOL FOR TAX EVASION, ARE TO BE TREATED AS USUAL BUSINESS TRANSACTIONS AND SEC. 801B ITSELF ENVISAGE SUCH TRANSACTIONS AND ABOVE THAT, ALL THESE TRANSAC TIONS HAVE DULY BEEN RECORDED IN EXCISE RECORDS AND SAME HAVE BEEN ACCEPTED BY THE CENTRAL EXCISE DEPARTMENT AS CORREC T FOR THE PURPOSE OF LEVY OF CENTRAL EXCISE DUTY; THE ALLEGATION THAT THE ASSESSEE HAS MADE SALES TO A SISTER CONCERN M/S SUDARSHAN CONSOLIDATED LTD IS ALSO WRON G; THE ALLEGATION THAT M/S SUDARSHAN CONSOLIDATED LIMITED IS A SISTER CONCERN OF THE ASSESSEE COMPANY IS BASED ON UN- VERIFIED FACTS AND RECORDS; M/S SUDARSHAN CONSOLIDA TED LIMITED (NOW WILLY AGROTECH LIMITED) IS NOT A SISTE R CONCERN OF THE APPELLANT AS NEITHER ANY DIRECTOR OR A SHAREHOL DER OF THE ASSESSEE COMPANY WAS THE DIRECTOR OR SHAREHOLDER IN M/S SUDARSHAN CONSOLIDATED LIMITED NOR DO THEY HAVE ANY INTEREST IN THE COMPANY M/S SUDARSHAN CONSOLIDATED LIMITED. HENCE, M/S SUDARSHAN CONSOLIDATED LIMITED CAN'T BE CONSIDERED AS THE SISTER CONCERN OF THE ASSESSEE CO MPANY AS HAS BEEN ALLEGED BY THE LD. ASSESSING OFFICER. THE APPELLANT STOUTLY REFUTES ANY SISTER CONCERN RELATIONSHIP WIT H M/S SUDARSHAN CONSOLIDATED LIMITED; SALE MADE BY THE SA MBA UNIT TO M/S SUDARSHAN CONSOLIDATED LIMITED ARE ONLY OF FINISHED PRODUCE OF SAMBA UNIT AT THE THEN PREVAILI NG MARKET PRICES AS WAS CHARGED FROM OTHER CUSTOMERS AND ARE THEREFORE NORMAL BUSINESS TRANSACTIONS; SUCH TRANSFER/SALE AT MARKET PRICES IS NEITHER ILLE GAL NOR A TOOL FOR TAX EVASION. THE ASSUMPTION THAT THESE TRANSACT IONS OF MATERIAL TRANSFER FROM ONE UNIT TO ANOTHER HAVE LED TO MANIPULATION OF BOOKS OF ACCOUNTS, ARE TOTALLY UNFO UNDED, AND DO NOT HAVE ANY BEARING, WHATSOEVER, ON THE QUESTIO N OF ALLOWABILITY OF DEDUCTION U/S 80 IB; ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 16 A MERE ISSUE OF A SHOW CAUSE NOTICE BY ANY STATUTOR Y / REGULATORY BODY OR ANY TAX AUTHORITY INCLUDING THE CENTRAL EXCISE DEPARTMENT, IN NO WAY LEADS TO A PRESUMPTION OF CRYSTALLIZATION OF ALLEGED VIOLATION ON THE PART OF SUCH NOTICEE & UNLESS FULLY ADJUDICATED AGAINST THE NOTICEE CANN OT BE USED AGAINST HIM. THE PRESUMPTION OF INCORRECTNESS AND MANIPULATION OF BOOKS OF ACCOUNTS ON THE MERE GROUN D OF ISSUE OF A SHOW CAUSE NOTICE, WITHOUT FULLY LOOKING INTO THE FACTS AND WITHOUT SEEING THE RESULTANT FINAL ORDER OF SUCH SH OW CAUSE NOTICE, IS VIRTUALLY CONDEMNING THE NOTICEE WITHOUT HEARING AND IS TOTALLY AGAINST THE PROVISIONS OF LAW AND CA NNOT STAND ANY SCRUTINY BEFORE ANY LEGAL FORUM; THE CENTRAL EX CISE DIVISION HAS DISPUTED THE EXCISE DUTY REFUND OBTAIN ED BY THE APPELLANT AGAINST REBATE AND DISCOUNT GIVEN TO ITS CUSTOMERS & FOR FREIGHT OUTWARD FOR WHICH NECESSARY REPLIES H AVE BEEN FILED WITH THE CENTRAL EXCISE DEPARTMENT, AFTER WHI CH THERE HAS BEEN NO FURTHER COMMUNICATION FROM THE CENTRAL EXCI SE DEPARTMENT; THE CENTRAL EXCISE DEPARTMENT HAS NOT R AISED ANY QUESTION ON THE ACCURACY AND FAIRNESS OF THE BOOKS OF ACCOUNTS WHICH HAVE ALREADY BEEN AUDITED BY AN INDE PENDENT AUDITOR AS WELL AS EXCISE DEPARTMENT AUDITOR AND HE NCE NO DISPUTE CAN BE RAISED; THE LD. ASSESSING OFFICER HAS NOT EVEN THOROUGHLY G ONE THROUGH THE ALLEGED NOTICES & WITHOUT GOING INTO TH E FACTS HAS PROCEEDED TO CONCLUDE THAT THE BOOKS OF ACCOUNTS AR E INACCURATE AND MANIPULATED. MERE RECEIPT OF NOTICE FROM THE EXCISE DEPARTMENT CANNOT BE A BASIS TO CONCLUDE THA T THE BOOKS OF ACCOUNTS ARE INCORRECT OR MANIPULATED; THE ACCOUNTS MAINTAINED BY THE ASSESSEE ARE SUBJECT ED TO SCRUTINY BY THE CENTRAL EXCISE DEPARTMENT AND THE COMMERCIAL TAX DEPARTMENT J&K GOVT, UNDER THE J&K V ALUE ADDED TAX ACT ,2005 AND BOTH THESE AGENCIES HAVE AL SO ACCEPTED THE ACCOUNTS MAINTAINED BY THE APPELLANT A S CORRECT FOR THE PURPOSE OF LEVY OF TAXES & DUTIES. THIS ALS O SHOWS THAT THERE IS NO MANIPULATION IN THE ACCOUNTS & THAT THE ACCOUNTS HAVE BEEN PROPERLY MAINTAINED AS REQUIRED UNDER LAW & DESERVES TO BE ACCEPTED; THE LD. ASSESSING OFFICER EVEN AFTER VERIFICATION O F THE BOOKS OF ACCOUNTS HAS NOT POINTED OUT ANY DISCREPANCY THE REIN AND HENCE, THE LD. AO'S CONTENTION OF MANIPULATION OF B OOKS OF ACCOUNTS, IS UN-FOUNDED AND INCORRECT; ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 17 THAT THE AO HAS JUST DISALLOWED THE LEGALLY AVAILAB LE DEDUCTION ONLY FOR THE SAKE OF DISALLOWING AND HE H IMSELF IS DOUBTFUL ON HIS OWN FINDING OF DISALLOWABILITY OF D EDUCTION U/S 80 IB AS IN CONCLUDING PARA ON PAGE 10 HE MENTIONS THAT THOUGH THE WHOLE OF DEDUCTION CLAIMED UNDER SECTION 801B OF THE INCOME TAX ACT, 1961 HAS BEEN DISALLOWED, YET I S PERTINENT TO MENTION THAT ALTERNATIVELY, NO DEDUCTI ON IS ALLOWED ON EXCISE DUTY REFUND, INTEREST SUBSIDY AND INCOME FROM OTHER SOURCE. THIS CLEARLY SHOW THAT THE A.O. HIMSELF IS DOUBTFUL OF HIS OWN FINDINGS OF DISALLOWABILITY OF DEDUCTION U/S 80IB ON THE PRESUMPTION OF INCORRECTNESS AND / OR MANIPULATION OF BOOKS OF ACCOUNTS BECAUSE IF THE AO WAS SURE OF HIS FINDINGS AND CORRECT IN HIS VERSION OF DISAL LOWABILITY OF BENEFIT OF SEC. 80IB, THEN THERE WAS NO NEED TO GIV E ANY ALTERNATE FINDING OF SOME PORTION OF THE PROFIT AS NON- DEDUCTIBLE; THE REJECTION OF CLAIM OF DEDUCTION IN TERMS OF SEC . 80IB OF THE ACT, ON ALL THESE PRESUMPTIVE GROUNDS, IS ILLEGAL A ND CANNOT STAND THE TEST OF LAW AND MUST THEREFORE BE QUASHED AND THE ASSESSEE'S CLAIM U/S 80IB BE RESTORED AS ALREADY AL LOWED IN PRECEDING YEARS EVER SINCE AY 2005-06. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND MATERIAL AVAILABLE ON ASSESSMENT RECORDS WITH ME AN D WHEN VERSION OF THE ASSESSEE IS COMPARED, IT SEEMS THAT THE CLAI M OF THE ASSESSEE U/S 801B COULD NOT HAVE BEEN REJECTED ON THE GROUND S OF MANIPULATION OF BOOKS AS WELL AS ON THE GROUND OF D IFFERENT GP RATIOS FOR WHICH SUFFICIENT PLEAS AND GROUNDS HAVE BEEN EX PLAINED BY THE ASSESSEE. THE COMPARISON OF OPERATING MARGIN & EXPE NSES OF SAMBA UNIT & BAHADURGARH UNIT SHOWS THAT SAMBA PLANT HAS A TURNOVER OF RS.15,06,67,738/- ATTRIBUTABLE TO SALE OF AGROCHEMI CALS HAVING HIGH MARKUP RATE, AS AGAINST WHICH BAHADURGARH UNIT HAS A TURNOVER OF RS. 34,74,27,893/- CONSISTING OF TURNOVER OF RICE T RADING OF RS. 27,88,11,232/- (80.25%) AND REST RS. 6,86,16,661/- (19.75%) ATTRIBUTABLE TO SALE OF AGROCHEMICALS; SECONDLY, THE ADMINISTRATIVE EXPENSES WHICH COULD B E SAID TO BE UTILIZED BY BOTH UNITS HAVE ALREADY BEEN ALLOCAT ED BY THE ASSESSEE HIMSELF AND HENCE, REJECTION OF CLAIM IN T OTO ON THIS GROUND MAY ALSO NOT BE JUSTIFIABLE IN VIEW OF THE FACT THA T SAMBA UNIT ENJOYS GREATER BENEFITS DUE TO GOVT, INDUSTRIAL POLICY IN TERMS OF EXCISE DUTY BENEFIT, SALES TAX BENEFIT, INTEREST SUBSIDY, OTHER INDUSTRIAL POLICY BENEFITS, WHEREAS NO SUCH INCENTIVES ARE AVAILABLE AT BAHADURGARH UNIT AND AT SAMBA UNIT, BEING IN RURAL AREA, THEE I S AVAILABILITY OF CHEAP AND ADEQUATE LABOUR, AVAILABILITY OF POWER AT SUBSIDIZED ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 18 RATES, SUPERVISORY STAFF, LEASE PREMISES AT HIGHLY SUBSIDIZED RATES ETC. DUE TO WHICH'/SAMBA MERIT HAS HIGHER OPERATING MARGINS WHICH IS BOUND TO WIDEN THE GAP BETWEEN PROFITABILITY OF SAMBA UNIT AND BAHADURGARH UNIT WHICH IS HIGHLY URBANISED AREA. THIRDLY, THE ASSESSEE CLAIM U/S 80IB CANNOT ALSO BE REJECTED ON THE GROUND OF TRANSFER OF PRODUCTS FROM ONE MANU FACTURING UNIT TO OTHER UNIT AS THE SIMPLE READING OF SEC. 80IA( 10) PROVIDES FOR SUCH AN EVENTUALITY ALBEIT THE TRANSFER PRICING HAS TO B E DONE AT PREVAILING MARKET RATES. FOR THIS ISSUE ALSO, THE ASSESSEE HAS ALREADY EXPLAINED AND ATTACHED THE CERTIFICATE OF TRANSFER PRICING FROM AN INDEPENDENT COST ACCOUNTANT WHICH SHOW THAT THE ACT UAL TRANSFER PRICING WAS DONE AT HIGHER RATE THAN THE COST WORKE D OUT BY THE COST ACCOUNTANT. 14. IT WAS IN EVIDENT OBLIVION OF THE CLEAR REMAND REPORT OF THE AO, THAT THE LD. CIT(A), WHILE UPHOLDING THE DISALLOWANCE, O BSERVED THAT IT STOOD CLEARLY ESTABLISHED THAT OWING TO THE CLOSE CONNECT ION BETWEEN THE ELIGIBLE UNIT I.E., THE SAMBA UNIT AND THE BAHADURGARH UNIT, BEING TWO UNITS OF THE SAME COMPANY, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCED TO THE ELIGIBLE UNIT MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPEC TED TO ARISE IN THE ELIGIBLE UNIT; AND THAT THEREFORE, THE INVOCATION O F SECTION 80IB(13) READ WITH SECTION 80-IA(10) AND DISALLOWANCE OF DEDUCTIO N U/S 80IB WAS JUSTIFIED. 15. WHILE MAKING THESE OBSERVATIONS WITHOUT ANY BAS IS, THE LD. CIT(A) HAS ERRONEOUSLY OMITTED IN MEETING THE SPECIFIC CO NTENTS OF THE REMAND REPORT OF THE AO, AS TAKEN NOTE OF HEREINABOVE. IT, THEREFORE, REMAINS UNCONTROVERTED THAT THE SAMBA UNIT OF THE ASSESSEE ENJOYS GREATER ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 19 BENEFIT DUE TO GOVT. INDUSTRIAL POLICY IN TERMS OF EXCISE DUTY BENEFIT, SALES TAX BENEFIT, INTEREST SUBSIDY AND OTHER INDUSTRIAL POLICY BENEFITS AND THAT AS JUXTAPOSE TO THIS NO SUCH INCENTIVES ARE AVAILAB LE TO THE BAHADURGARH UNIT; THAT BESIDES, THE SAMBA UNIT OF THE ASSESSEE IS LOCATED IN RURAL AREA AND SO, LABOUR, POWER, STAFF AS WELL AS PREMISES AR E AVAILABLE AT SUBSIDIZED/CHEAPER RATE AS COMPARED TO THE SAMBA UN IT, WHICH IS SITUATED IN AN URBAN AREA. FURTHER, IT HAS ALSO BEE N IGNORED THAT THE ACTUAL TRANSFER PRICING OF THE PRODUCTS FROM THE ON E MANUFACTURING UNIT TO THE OTHER WAS DONE AT HIGHER RATE THAN AT THE CO ST WORKED OUT BY THE COST ACCOUNTANT AND THE ASSESSEE FURNISHED DUE EXPL ANATION WITH REGARD THERETO, ACCOMPANIED BY THE CERTIFICATE OF SUCH TRA NSFER PRICING. IN THESE CIRCUMSTANCES, THE OBSERVATIONS OF THE LD. CIT(A) R EGARDING ALLEGED CLOSE CONNECTION BETWEEN THE ELIGIBLE SAMBA UNIT OF THE A SSESSEE AND ITS BAHADURGARH UNIT, ARE BUT THE RESULT OF ASSUMPTION S AND PRESUMPTION, AS AGAINST THE DOCUMENTARY MATERIAL BROUGHT ON REC ORD AS WELL AS THE REMAND REPORT OF THE AO 16. MOREOVER, VIDE ORDER 29.03.2014 PASSED BY THE L D. CIT, JAMMU, UNDER SECTION 264 OF THE ACT, FOR THE ASSESSMENT YE AR 2010-11, THIS ISSUES STANDS DECIDED IN FAVOUR OF THE ASSESSEE. 17. IN VIEW OF THE ABOVE, THIS ISSUE IS RESTORED TO THE AO TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW, KEEPING IN VIEW, PAR TICULARLY, THE ADDITIONAL EVIDENCE ADMITTED BY US, THE AOS REMAN D REPORT, AS REPRODUCED AT PAGES 4 TO 12 OF LD. CIT(A)S ORDER A ND THE ORDER DATED ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 20 29.03.2014 PASSED BY THE LD. CIT, JAMMU U/S 264 FOR THE ASSESSMENT YEAR 2010-11. 18. GROUND NO.2 CHALLENGES THE ACTION OF THE LD. CI T(A) IN CONFIRMING THE DISALLOWANCE OF RS. 1,44,000/- OUT OF TOTAL DIS ALLOWANCE RS.8,26,622/- UNDER SECTION 40(A)(IA) OF THE ACT. T HE AO DISALLOWED COMMISSION EXPENSES AMOUNTING TO RS.8,26,622/- UNDE R SECTION 40(A)(IA) ON ACCOUNT OF NON-DEDUCTION OF TAX ON THE SAID COMM ISSION EXPENSES. THE ASSESSEE MAINTAINED BEFORE THE LD. CIT(A) THAT OUT OF RS.8,26,622/-, TDS HAS BEEN DEDUCTED ON COMMISSION EXPENSES OF 6,8 2,822/- AND OUT OF ONLY RS.1,44,000/- ON ACCOUNT OF NON-DEDUCTION O F TDS, WAS CALLED FOR. THE ASSESSEE PRODUCED THE CHALLAN FOR DEPOSITS OF TDS DEDUCTED ON COMMISSION. THE LD. CIT(A) OBSERVED THAT THE ASSESS EE HAD DEDUCTED AND DEPOSITED THE TAX ON THE COMMISSION EXPENSES OF RS. 6,82,622/- AND THE CHALLAN FOR DEPOSITS OF SUCH PERIOD HAD BEEN VERIFI ED BY THE AO DURING THE REMAND PROCEEDINGS. IT WAS ON THIS BASIS THAT THE LD. CIT(A) ALLOWED THE RELIEF OF RS.6,82,622/- TO THE ASSESSEE AND CON FIRMED THE ADDITION TO THE EXTENT OF RS.1,44,000/-, AS ADMITTED BY THE ASS ESSEE ITSELF. 19. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD . CIT(A) IN THIS REGARD. IT IS THE SELF ADMITTED CASE OF THE ASSESSE E THAT THE ADDITION TO THE EXTENT OF RS.1,44,000/- IS JUSTIFIED. THEREFORE, GR OUND NO.2 LACKS MERIT AND IS REJECTED AS SUCH. 20. APROPOS GROUND NO.3, THE AO DISALLOWED AN AMOUN T OF RS.31,00,000/- PAID BY THE ASSESSEE TO MRS. SUNAYAN A MALHOTRA AND MR. ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 21 SANJEEV MALHOTRA AS RENT FOR DIFFERENT PREMISES. TH E LD. CIT(A) CONFIRMED THE DISALLOWANCE. THE ASSESSEE CONTENDS THAT THE A UTHORITIES BELOW HAVE FAILED TO APPRECIATE THAT THE PAYMENT IN QUESTION W AS FOR BUSINESS PURPOSES. 21. THE EXPENDITURE OF RS.25,00,000/- AND RS.6,00,0 00/-, REPRESENTING RENT PAYMENT, WAS BOOKED IN THE BAHADU RGARH UNIT OF THE ASSESSEE. IN RESPECT OF PROPERTY AT 371A, MIE BAHAD URGARH, THE ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT THE LAND AND BUILDING HAD NOT BEEN TRANSFERRED TO THE COMPANY AT THE TIME OF TAKEOVER FROM MRS. SUNAYANA, BUT ONLY RIGHT TO USE THE LAND AND BUILDING WAS G IVEN FOR A PERIOD OF NINE YEARS BY TAKING A REFUNDABLE SECURITY OF RS.8, 44,605/-; THAT AFTER THE EXPIRY OF THE SAID PERIOD OF NINE YEARS, THE SE CURITY WAS PAID BACK AND A RENT AGREEMENT WAS ENTERED INTO WITH MRS. SUN AYANA, A MAJORITY SHAREHOLDER, TO HIRE THE FACTORY PREMISES FOR A PER IOD OF ONE YEAR ON MONTHLY RENTAL OF RS.2,50,000/-; AND THAT OTHERWISE ALSO, MRS. SUNAYANA MALHOTRA WAS TAXED AT THE HIGHEST SLAB OF TAX AND, THEREFORE, THERE WAS NO QUESTION OF TAX EVASION. THE LD. CIT(A) WHILE DE CIDING THE MATTER AGAINST THE ASSESSEE HAS OBSERVED AS FOLLOWS: ON THE PERUSAL OF AUDITED FINANCIAL STATEMENT OF TH E BAHADURGARH UNIT, IT IS OBSERVED THAT THE LAND UNDE R QUESTION IS SHOWN UNDER FIXED ASSETS OF THE COMPANY AND FACT ORY BUILDING IS SHOWN SEPARATELY UNDER AS DEPRECIABLE A SSET AND DEPRECIATION IS CHARGED ON FACTORY BUILDING. THERE IS NO MENTION OF REFUNDABLE DEPOSIT FOR LAND OF ANY KIND IN THE AUDIT REPORT OR NOTES TO ACCOUNTS OF THE COMPANY. OVER TH E YEARS, THE LAND AND BUILDING IS SHOWN AS FIXED ASSETS OF T HE COMPANY. DURING THE YEAR UNDER CONSIDERATION, THE L AND UNDER ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 22 THE FIXED ASSETS IS SHOWN AS SOLD/TRANSFERRED DURIN G THE YEAR AND RENTAL OF RS.25,00,000/- WAS CLAIMED AS EXPENSE S IN THE YEAR UNDER CONSIDERATION IN RESPECT OF SAID PROPERT Y. THIS CLEARLY SHOWS THAT THIS IS A SHAM TRANSACTION ENTE RED INTO WITH A VIEW TO REDUCE THE TAX LIABILITY OF THE COMP ANY. THE APPELLANT HAS PRODUCED AN UNREGISTERED RENT AGREEME NT IN SUPPORT OF ITS CLAIM. THE UNREGISTERED RENT AGREEME NT BETWEEN THE MAJORITY SHAREHOLDER AND EMPLOYEE OF THE COMPAN Y COULD NOT BE ACCEPTED AS THE SAME APPEARS TO BE A DOCUMEN T CREATED WITH THE RELATED PARTY TO JUSTIFY A SHAM TR ANSACTION. THIS RENT AGREEMENT MENTIONS THAT M/S. SUNAIANA MAL HOLTRA WAS IN POSSESSION OF THE PROPERTY AT THE TIME OF SI GNING OF RENT AGREEMENT WHEREAS THE FACT IS THAT THE LAND AND BUI LDING WAS IN POSSESSION OF THE COMPANY OVER A NUMBER OF YEARS . THE ARGUMENT OF APPELLANT THAT MRS. SUNAINA MALHOTRA IS TAXED AT HIGHEST SLAB IS ALSO NOT SUSTAINABLE AS 30% DEDUCTI ON U/S 24 IS ALLOWABLE TO HER ON RENTAL INCOME AND ALSO SUCH TRANSACTION WILL HELP HER TO TAKE OUT MONEY FROM THE COMPANY WI THOUT PAYING DIVIDEND TAX. THEREFORE, THIS GROUND OF APPE AL OF THE APPELLANT IS DISMISSED. IN RESPECT OF RENT 371-C, ME BAHADURGARH, THE APPEL LANT HAS ARGUED THAT THE RENT HAS BEEN INCREASED FROM RS.75, 000/- TO RS.1,25,000/- PER MONTH AS THE APPELLANT WAS PAYING SAME RENTAL FOR LAST THREE YEARS AS PER THE LAST AGREEME NT AND INCREASED RENTAL FOR THE LAST THREE YEARS. ON THE PERUSAL OF THE SUBMISSION OF THE APPELLANT A ND FINDINGS OF THE AO, IT HAS BEEN OBSERVED THAT RENTAL PROPER TY BELONG TO MR. S.K. MALHOTRA, HUSBAND OF MRS. SUNAINA MALHOTRA , MAJORITY SHAREHOLDER. THE APPELLANT HAS CONSTRUCTED A BUILDING BY INVESTING MORE THAN RS.80 LAKHS ON SUCH RENTED BUILDING WITH RENT AGREEMENT OF ONLY THREE YEARS. T HIS CLEARLY SHOWS AN ARRANGEMENT BETWEEN THE APPELLANT AND THE HUSBAND OF MAJORITY SHAREHOLDER TO EVADE THE TAXES. THEREFORE, THE DISALLOWANCE OF RS.6,00,000/- MADE B Y THE AO BY ALLOWING THE RENTAL EXPENSES ONLY TO THE EXTENT OF THE RENT IN THE PREVIOUS YEAR I.E. RS.9,00,000/- IS JUSTIFIE D. THEREFORE, THIS GROUND OF APPEAL OF THE APPELLANT IS DISMISSED . 22. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT IN THE OTHER YEARS, THIS MATTER REGARDING BOTH, MRS. S UNAYANA MALHOTRA AS ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 23 WELL AS MR. SANJEEV MALHOTRA, I.E., FOR THE ASSESS MENT YEARS 2006-07 TO 2008-09, ASSESSMENT YEARS 2010-11 & 2011-12 ( AS PE R HISTORY CHART FILED BEFORE US AT PAGES 3-4 THEREOF), THIS ISSUE H AS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. 23. ON THE OTHER HAND, CONTENDING THAT EACH YEAR I S A SEPARATE YEAR, THE LD. DR HAS SOUGHT TO PLACE RELIANCE ON THE IMPU GNED ORDER IN THIS REGARD. 24. HAVING CONSIDERED THE RIVAL CONTENTIONS IN THE LIGHT OF THE MATERIAL ON RECORD REGARDING THIS ISSUE, WE FIND THAT INDEE D, INTER-ALIA, FOR THE ASSESSMENT YEARS 2010-11 & 2011-12, I.E., ASSESSMEN T YEARS SUBSEQUENT TO THE YEAR UNDER CONSIDERATION, I.E., 2009-10, UND ER SIMILAR FACTS AND CIRCUMSTANCES, THIS ISSUE HAS BEEN DECIDED IN FAVOU R OF THE ASSESSEE REGARDING BOTH MRS. SUNAYANA MALHOTRA AS WELL AS MR . SANJEEV MALHOTRA. THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2010-1 1 PASSED ON 26.03.2013 IN THE ASSESSEES CASE FOR THE AY 2010-1 1, HAS BEEN PLACED AT PAGES 24 TO 60 OF THE APPLICATION FOR ADDITIONAL EVIDENCE. THIS DOCUMENT BEING DIRECTLY RELEVANT TO THE ISSUE AT HA ND, IS ADMITTED. THE RELEVANT CONTENTS THEREOF SHOW THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE FOR THE A.Y. 2010-11. SIMILAR IS TH E POSITION WITH REGARD TO THE ORDER PASSED UNDER SECTION 264 OF THE ACT BY THE LD. CIT. THE RELEVANT OBSERVATIONS CONTAINED THEREIN ARE AT PAGE 47 FOR THE ASSESSMENT YEAR 2011-12, ALSO, THIS ISSUE HAS BEEN ALLOWED UNDER SCRUTINY. ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 24 25. THEREFORE, THIS MATTER IS REMITTED TO THE FILE OF THE AO, TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW, PARTICULARLY KEEPING IN VIEW THE AFORESAID DECISIONS TAKEN BY THE DEPARTMENT ITSELF IN THE ASSESSEES CASE FOR THE ASSESSMENT YEARS 2006-07 TO 2008-09 AND 201 0-11 & 2011-12. GROUND NO.3 IS, ACCORDINGLY, TREATED AS ACCEPTED FO R STATISTICAL PURPOSES. 26. APROPOS GROUND NOS. 4 & 5, THE AO FOUND THE AS SESSEE TO HAVE PAID THE FOLLOWING SALARIES AND CONSULTANCY FEE: S.NO. NAME OF PERSON AMOUNT PAID ( IN RS.) 1. SMT. SUNYANA MALHOTRA RS.24,00,000/- 2. SH. SANJEEV MALHOTRA RS. 4,00,000/- 3. SH. SUDERSHAN MALHOTRA RS. 3,00,000/- 4. SMT. SUMAN ROHELLA RS. 1,20,000/- 27. THE ASSESSEE OFFERED THE FOLLOWING JUSTIFICATIO N BEFORE THE AO: MRS. SUNAYNA MALHOTRA MRS. SUNAYNA MALHOTRA IS THE VICE PRESIDENT COMMERC IAL IN THE COMPANY AT BAHADURGARH UNIT. SHE HAS A VIDE EXPERIENCE IN THE BUSINESS OF MANUFACTURING OF AGRO SPECIALTY CHEMICALS. MRS. SUNAYNA MALHOTRA ENTERED INTO THE BUSINESS OF MANUFACTURING OF AGRO SPECIALLY CHEMICALS IN THE YEAR 1994 UNDER THE NAME OF M/S. KAISER INDUSTRIES INC. AS A SOLE PROPRIETOR. THIS C OMPANY AND THIS BUSINESS IS THE BRAIN CHILD OF MRS. SUNAYN A MALHOTRA WHO HAS NURTURED THE KAISER A INDUSTRIES I NC AS A PROPRIETOR TILL 1999 AND LATER ON KAISER INDUSTR IES LTD. AS DIRECTOR TILL AUG, 2005, AS THE BUSINESS OF KAIS ER INDUSTRIES INC WAS TAKEN OVER BY KAISER INDUSTRIES FOR THE DEVELOPMENT OF THE COMPANY IN ITS EARLY YEARS OF ESTABLISHMENT AND IN VIEW OF HER LONG EXPERIENCE IN THE LINE OF BUSINESS BEING CARRIED ON BY THE COMPANY, T HE COMPANY APPOINTED HER AS VICE PRESIDENT COMMERCIAL IN NOV. 2006 AT A CONSOLIDATED SALARY OF RS.2,00,000/- PER ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 25 MONTH WITH NO OTHER PERQUISITES OR ALLOWANCES. AFTE R HER JOINING THE COMPANY IN NOV. 2006 THE COMPANYS PERFORMANCE INCREASED MANY FOLD. IN TODAYS COMMER CIAL WORLD THE REMUNERATION OF TOP EXECUTIVES IS MUCH M ORE THAN WHAT IS OFFERED TO MRS. SUNYANA MALHOTRA. REMUNERATION OF RS.2,00,000/- PER MONTH TO MRS. SUNYANA MALHOTRA IS REASONABLE AND NOT EXCESSIVE H AVING REGARD TO THE SERVICES RENDERED BY HER, THE LEGITIM ATE NEEDS OF BUSINESS OF THE ASSESSEE & THE BENEFITS TH E COMPANY HAS GAINED FROM HER SERVICES. DUE TO THE GUIDANCE AND HARD WORK OF MRS. SUNAYNA MALHOTRA, TH E COMPANY HAS BEEN ABLE TO SUSTAIN AND GROW IN THIS COMPETITIVE ENVIRONMENT AND REACH THESE HEIGHTS. SA LARY DRAWN BY MRS. SUNAYNA MALHOTRA FROM THE COMPANY HAS BEEN ASSESSED IN HER PERSONAL HANDS AT THE HIGHEST RATE OF TAX. HENCE, THERE IS NO TAX AVOIDANCE AND THE TRANSACTION IS REVENUE NEUTRAL. SH. SANJEEV MALHOTRA SH. SANJEEV MALHOTRA HAS DRAWN A SALARY OF RS.400,0 00/- DURING THE YEAR WHICH IS VERY REASONABLE IN VIEW OF VAST EXPERIENCE OF SH. SANJEEV MALHOTRA IN MANAGING AND RUNNING OF MANY COMPANIES AND IS NOT EXCESSIVE HAV ING REGARD TO THE SERVICES RENDERED BY HIM. SALARY DRAW N BY SH. SANJEEV MALHOTRA FROM THE COMPANY HAS BEEN ASSESSED IN HIS PERSONAL HANDS AT THE MAXIMUM RATE OF TAX. HENCE, THERE IS NO TAX AVOIDANCE AND THE TRANS ACTION IS REVENUE NEUTRAL. SH. SUDERSHAN MALHOTRA SH. SUDERSHAN MALHOTRA IS THE GENERAL MANAGER IN BAHADURGARH UNIT OF THE COMPANY LOOKING AFTER THE GENERAL ADMINISTRATION OF THE UNIT. SALARY OF RS.25 000/- PER MONTH TO SH. SUDERSHAN MALHOTRA IS VERY REASONA BLE KEEPING IN VIEW THE PREVAILING MARKET CONDITIONS. E VEN THE SALARY OF CLASS 4 EMPLOYEES OF PSU IS MORE THAN 25 000/- PER MONTH THESE DAYS, WHILE, HE IS QUALIFIED AND EXPERIENCED. SMT. SUMAN ROHELLA AMOUNT OF RS.1,20,000/- HAS BEEN PAID TO M/S. ORGAN IC CONSULTANTS DURING THE YEAR AS CONSULTANCY CHARGES AS PER BUSINESS NEEDS OF THE COMPANY. 28. THE AO, HOWEVER, ADDED THE ENTIRE AMOUNT OF RS. 32,20,000/- REPRESENTING SALARY PAID, OBSERVING THAT: A) MRS. SUNAYNA MALHOTRA IS THE SUBSTANTIAL SHARE H OLDER OF THE COMPANY AND THE ASSESSEE HAS ONLY STATED THAT S HE IS ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 26 THE VICE PRESIDENT COMMERCIAL. THE ASSESSEE HAS NO T FURNISHED ANY EVIDENCE IN SUPPORT OF ITS CONTENTION . THE ASSESSEE HAS NOT FURNISHED ONLY EVIDENCE IN SUPPOR T OF ITS CONTENTION. SINCE, MRS. SUNAYANA MALHOTRA IS ONLY T HE SUBSTANTIAL SHARE HOLDER OF THE COMPANY SHE HAS BEE N BENEFITED ONLY FOR THIS PURPOSE. SO, THE SALARY OF RS.24,00,000/- PAID TO HER IS NOT ALLOWED AS AN EXP ENDITURE AND IS THEREFORE, ADDED BACK TO THE INCOME OF THE A SSESSEE. B) SH. SANJEEV MALHOTRA IS THE HUSBAND OF SUBSTANTI AL SHAREHOLDER OF MRS. SUNAYANA MALHOTRA. THE ASSESSEE S CONTENTION THAT THE VAST EXPERIENCE OF SH. SANJEEV MALHOTRA IN MANAGING AND RUNNING OF MANY COMPANIES AND HAVIN G REGARD TO THE SERVICES RENDERED BY HIM IS NOT ACCEP TED AS SH. SANJEEV MALHOTRA OPERATES MANY COMPANIES IN CH ENNAI AND IS THE DIRECTOR OF MANY OTHER COMPANIES. HE MAY NOT BE HAVING TIME TO MANAGE THE AFFAIRS OF THE COMPANY TH AT TOO AT OTHER FOR OF STATIONS. THE SALARY TO SH. SANJEEV MA LHOTRA HAS BEEN PAID ONLY TO BENEFIT HIM AS HE IS THE HUSBAND OF SUBSTANTIAL SHARE HOLDER. SO, THE SALARY OF RS.4,00 ,000/- PAID TO HIM IS NOT ALLOWED AS AN EXPENDITURE AND IS THEREFORE ADDED BACK TO THE INCOME OF THE ASSESSEE. C) SH. SUDERSHAN MALHOTRA IS THE FATHER-IN-LAW OF T HE SUBSTANTIAL SHARE HOLDER. THE ASSESSEE HAS NOT PROV ED THAT SH. SUDERSHAN MALHOTRA HAS DONE ANY WORK IN THE UNI T. NEITHER THE ASSESSEE HAS PROVED THAT HE WAS QUALIFI ED ENOUGH TO BE APPOINTED AS GENERAL MANAGER IN BAHADU RGARH UNIT OF THE COMPANY TO LOOK AFTER THE GENERAL ADMIN ISTRATION OF THE UNIT. THE SALARY OF RS.3,00,000/- PAID TO HI M IS ONLY TO BENEFIT THE FATHER-IN-LAW OF THE SUBSTANTIAL SHARE HOLDER. SO, THE SALARY PAID TO HIM IS NOT JUSTIFIED AND IS NOT THEREFORE ALLOWABLE. THE SAME IS ADDED TO THE INCOME OF THE A SSESSEE. D) SMT. SUMAN ROHELLA HAS BEEN PAID AN AMOUNT OF RS.1,20,000/- AND THE ASSESSEE HAS STATED THAT SHE HAS BEEN PAID ON ACCOUNT OF CONSULTANCY CHARGES. ON PERUSAL OF THE RECORDS IT IS SEEN THAT SHE IS THE WIFE OF DR. L.C. ROHELLA, DIRECTOR TECHNICAL OF THE ASSESSEE COMPANY AND SHE HAS BEEN BENEFITED FOR THAT REASON. MOREOVER, THE ASSES SEE COULD NOT FURNISH DETAILS WITH REGARD TO HER QUALIFICAT ION AND EXPERIENCE OF BEING A CONSULTANT. THEREFORE, THE AMOUNT OF RS.1,20,000/- PAID AS SALARY TO SMT. SUMAN ROHELLA CANNOT BE ALLOWED AS AN EXPENDITURE AND THEREFORE ADDED TO THE INCOME OF THE ASSESSEE. ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 27 IN VIEW OF ABOVE, TOTAL AMOUNT OF RS.32,20,000/- P AID AS SALARY BY THE ASSESSEE TO ITS RELATED PARTIES IS AD DED TO THE INCOME OF THE ASSESSEE. 29. THE LD. CIT(A) REDUCED THE DISALLOWANCE TO 50% OF THE SALARY PAID TO SMT. SUNAYANA MALHOTRA, SH. SANJEEV MALHOTRA, SH . SUDERSHAN MALHOTRA. THE ENTIRE AMOUNT OF RS.1,20,000/- REPRE SENTING CONSULTANCY FEE PAID TO SMT. SUMAN ROHELLA WAS ALLOWED. 30. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE FOLLOWING IS THE HISTORY OF DISALLOWANCES OF SALARY AND CONSU LTANCY FEE PAID ASSTT. YR. NAME OF THE EMPLOYEE SALARY CLAIMED SALARY DISALLOWED ALLOWED BY CIT(A) AMT. IN APPEAL ASSESSMENT U/S 2006- 07 MS. SUNYANA MALHOTRA MR. SANJEEV MALHOTRA MR. SUDERSHAN MALHOTRA 346500 0 150000 496500 0 0 NA NA 143(3) 2007- 08 MS. SUNYANA MALHOTRA MR. SANJEEV MALHOTRA MR. SUDERSHAN MALHOTRA 900000 0 300000 1200000 0 0 NA NA 143(3) 2008- 09 MS. SUNYANA MALHOTRA MR. 2400000 0 NA NA 143(3) ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 28 SANJEEV MALHOTRA MR. SUDERSHAN MALHOTRA 0 300000 2700000 0 2009- 10 MS. SUNYANA MALHOTRA MR. SANJEEV MALHOTRA MR. SUDERSHAN MALHOTRA 2400000 400000 300000 2400000 400000 300000 1200000 200000 150000 1200000 200000 150000 143(3) 2010- 11 MS. SUNYANA MALHOTRA MR. SANJEEV MALHOTRA MR. SUDERSHAN MALHOTRA 2400000 700000 300000 496500 0 0 0 NA NA 143(3) 2011- 12 MS. SUNYANA MALHOTRA MR. SUDERSHAN MALHOTRA 2400000 300000 0 0 NA NA 143(3) 31. THE FOLLOWING CASE LAW HAS ALSO BEEN RELIED ON : I) CIT VS. GUJARAT GUARDIAN LIMITED, 17 TAXMAN 4 34 (DEL.) ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 29 II) SHAHZADA NAND AND SONS VS. CIT, PATIALA,3 SC C 432 III) CIT VS. EDWARD PVT. LTD., AIR 1978 SC 1586 IV) HIVE COMMUNCATION PVT. LTD. VS. CIT, 181 (2011) D LT 151 V) J.K. WOOLLEN MANUFACTURERS VS. CIT, 1969 SCR (1) 525 VI) JAGADAMBA ROLLERS FLOUR MILL LTD VS. ACIT, 117 IT D 260 (NAG.) VII) SPANK HOTELS PVT. LTD., NEW DELHI, VS. DEPARTMENT OF INCOME TAX, [IT.A. NO.3306/DEL/2010] VIII) CIT VS. SUDARSAN CHITS (INDIA) LTD., 192 ITR 94 ( KER.) IX) CIT, BOMBAY VS. WALCHAND AND CO. PRIVATE LTD., [A IR 1967 SC 1435] X) ACIT VS. M/S. ALIDHARA TEXSPIN ENGINEERS, DADRA, OR DER DATED 16.11.2011 PASSED BY ITAT, AHMEDABAD, IN ITA NO. 2358/AHD/2009, FOR AY 2006-07. 32. THE LD. DR, ON THE OTHER HAND, PLACED STRONG RE LIANCE ON THE IMPUGNED ORDER. 33. IT IS SEEN THAT AS CORRECTLY CONTENDED, THE ABO VE HISTORY OF THE DISALLOWANCE HAS NOT BEEN CONSIDERED BY EITHER OF THE TAXING AUTHORITIES. ACCORDINGLY, THIS ISSUE IS REMITTED TO THE FILE OF THE AO TO REDECIDE, TAKING INTO CONSIDERATION THE HISTORY OF THE DISALLOWANCES AND THE CASE LAWS CITED BY THE ASSESSEE BEFORE US, AFTE R AFFORDING DUE AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . THE ASSESSEE SHALL, NO DOUBT, COOPERATE IN THE FRESH ASSESSMENT PROCEED INGS. ACCORDINGLY, GROUND NOS. 4 & 5 ARE TREATED AS ALLOWED FOR STATIS TICAL PURPOSES. ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 30 34. GROUND NOS. 6 & 7 STAND DECIDED WHILE DEALING WITH OTHER RESPECTIVE GROUNDS. 35. GROUND NO.8 IS CONSEQUENTIAL. 36. ITA NO.295(ASR)/2013 FOR THE AY 2009-10: THIS IS THE DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2009-10, TAKING THE FOLLOWING GROUNDS: 1 ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION MADE ON ACCOUNT OF D IFFERENCE IN VALUATION OF CLOSING STOCK WHEN THE CLOSING STOC K HAS BEEN VALUED AT COST PRICE ON THE BASIS OF INFORMATION FU RNISHED BY THE ASSESSEE IN FORM NO.3CD. 2. ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. CIT(A) WAS RIGHT IN RESTRICTING THE DISALLOWANCE OF SALARY TO 50% I.E. TO RS.15,50,000/- FROM RS.31,00,000/- WHEN THE SAID EXPENDITURE HAS BEEN CLAIMED BY THE ASSESSEE TO IN FLATE THE EXPENSES AND TO BENEFIT THE DIRECTORS AND ITS RELAT IVES WHICH ARE EVEN HELD EXCESSIVE AND UNREASONABLE BY THE LD. CIT(A). 37. THE AO FOUND THE ASSESSEE TO HAVE UNDER VALUED THE CLOSING STOCK OF BAHADURGARH UNIT BY RS.18,33,802/-, WORKING OUT SUCH UNDER VALUATION AS UNDER: A) VALUATION OF RAW MATERIAL: THE ASSESSEE COMPANY HAS SHOWN CLOSING STOCK OF RAW MATERIAL OF 144838.18 KG @ 55.35 PER KG., WHERE AS THE AVERAGE PURCHASE PRICE AS BEEN SHOWN AT RS.63 PER KG AND FREIGHT OF RS.2 (APPROX). THE ASSESSEE COMPANY IN FORM 3CD HAS MENTIONED THAT THE CLOSING STOCK HAS BEEN VALUED AT COST PRICE. THE VA LUATION OF CLOSING STOCK BY COST PRICE METHOD IS WORKED OUT AT RS.65 PER KG. FOR RAW MATERIAL WHICH COMES OUT TO RS.94,1 4,482/-. THEREFORE, AN ADDITION OF RS.13,97,588/- IS MADE ON ACCOUNT OF UNDER-VALUATION OF CLOSING STOCK OF RAW MATERIAL IN BAHADURGARH UNIT. B) FINISHED GOODS : THE ASSESSEE COMPANY HAS SHOWN CLOSING STOCK OF FINISHED GOODS OF 9652 KG. @ 51.17 PER KG ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 31 AMOUNTING TO RS.4,93,978/-, WHEREAS IN THE SAID UNI T THE GROSS PROFIT RATE IS 23.19% AND AS PER THE QUANTITA TIVE DETAILS THE AVERAGE SALES PRICE IS RS.125 PER KG. T HEREFORE, BY REDUCING GROSS PROFIT RATIO FROM THE SALE PRICE, TH E COST OF FINISHED GOODS COMES OUT TO BE RS.9,26,592/-. THERE FORE, AN ADDITION OF RS.4,36,214/- IS MADE ON ACCOUNT OF UND ER VALUATION OF CLOSING STOCK OF FINISHED GOODS IN BAH ADURGARH UNIT. 38. THE LD. CIT(A) DELETED THE ADDITION. THIS HAS G IVEN RISE TO GROUND NO.1 TAKEN BY THE DEPARTMENT BEFORE US. 39. THE LD. DR HAS CONTENDED THAT THE LD. CIT(A) H AS ERRED IN DELETING THE ADDITION MADE CORRECTLY BY THE AO ON ACCOUNT O F DIFFERENCE IN UNDER VALUATION OF CLOSING STOCK, WHEN THE CLOSING STOCK HAS BEEN VALUED AT COST PRICE ON THE BASIS OF THE INFORMATION FURNISHE D BY THE ASSESSEE IN FORM NO.3CD. 40. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. 41. IN THIS REGARD, IT IS UNDISPUTED THAT AS CONTEN DED BY THE ASSESSEE BEFORE THE LD. CIT(A), THE ASSESSEE VALUED THE CLOS ING STOCK AT COST PRICE BASED ON FIFO METHOD WHICH IS A RECOGNIZED METHOD FOR VALUATION OF CLOSING STOCK IN ACCORDANCE WITH ACCOUNTING STANDAR D NO.2 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS. THIS METHOD WAS CONSISTENTLY FOLLOWED BY THE ASSESSEE AND THIS IS NOT THE DEPART MENTS CASE THAT IT WAS NOT SO DONE. AS SUCH, THE AD-HOC ADDITION MADE BY THE AO BASED ON AVERAGE COST METHOD WITHOUT AFFORDING PROPER OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE, WAS NOT JUSTIFIED AND THE LD. CIT( A) WAS CORRECT IN ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 32 HOLDING SO AND DELETING THE ADDITION MADE. ACCORDIN GLY, GROUND NO.1 IS REJECTED. 42. BY WAY OF GROUND NO.2, THE DEPARTMENT HAS CHALL ENGED THE ACTION OF THE LD. CIT(A) IN RESTRICTING THE DISALLOWANCE OF SALARY TO 50%. 43. THE LD. DR HAS CONTENDED THAT THE LD. CIT(A) H AS ERRED IN RESTRICTING SALARY FROM RS.31,00,000/- TO RS.15,50, 000/-, PARTICULARLY WHEN THE EXPENDITURE HAD BEEN CLAIMED BY THE ASSES SEE ONLY IN ORDER TO INFLATE THE EXPENSES AND TO BENEFIT ITS DIRECTORS AND ITS RELATIVES; AND THAT THE LD. CIT(A) HAD HIMSELF HELD THE PAYMENTS TO BE EXCESSIVE AND UNREASONABLE. 44. THIS GROUND RAISED BY THE DEPARTMENT CORRESPOND S TO GROUND NOS. 4 & 5 TAKEN BY THE ASSESSEE IN ITS APPEAL IN ITA N O.168(ASR)/2013. SINCE THAT ISSUE HAS BEEN REMITTED BY US TO THE AO FOR THE REASONS RECORDED HEREINABOVE, THE ISSUE PERTAINING TO THIS GROUND RAISED BY THE DEPARTMENT ALSO GOES TO THE AO FOR THOSE VERY REAS ONS AND DIRECTIONS. ACCORDINGLY, GROUND NO. 2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 45. C.O. NO.46(ASR)/2013 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN I TS C.O: 1. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND LAW IN NOT REDUCING FROM THE TAXABLE INCOME RS.65,88,489/- BEI NG THE AMOUNT OF EXCISE DUTY SUBSIDY WHICH THOUGH HELD BY HIM TO BE CAPITAL RECEIPT, NO RELIEF WAS ALLOWED ON THE ER RONEOUS BASIS THAT THE SAME HAS NOT BEEN ROUTED THROUGH P & L ACCOUNT AND THAT NO SEPARATE ADDITION HAS BEEN MAD E BY THE AO IN THE COMPUTATION OF INCOME. THE TAXABLE IN COME OF ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 33 THE APPELLANT IS LIABLE TO BE REDUCED BY THE SAID A MOUNT OF CAPITAL RECEIPT INCLUDING FOR COMPUTING DEDUCTION U NDER SECTION 80-IB. 2. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND LAW IN NOT REDUCING FROM THE TAXABLE INCOME RS.14,30,530/- BEI NG THE AMOUNT OF INTEREST SUBSIDY WHICH THOUGH HELD BY HIM TO BE CAPITAL RECEIPT, NO RELIEF WAS ALLOWED ON THE ERRON EOUS BASIS THAT THE TREATMENT OF INTEREST SUBSIDY AS CAPITAL R ECEIPT WILL NOT EFFECT THE TAXABLE INCOME. THE TAXABLE INCOME O F THE APPELLANT IS LIABLE TO BE REDUCED BY THE SAID AMOUN T OF CAPITAL RECEIPT INCLUDING FOR COMPUTING DEDUCTION U NDER SECTION 80-IB. 46. THE ASSESSEE HAS MAINTAINED THAT THE MATTER OF REFUND OF CENTRAL EXCISE DUTY IN THE CASE OF THE ASSESSEE STANDS ALR EADY DECIDED IN FAVOUR OF THE ASSESSEE IN THEIR APPEAL FOR THE ASSESSMENT YEAR 2008-09, TITLED M/S. KAISER INDUSTRIES LTD., APPEAL NO. 288/10-11, DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT OF J & K, VIDE OR DER DATED 24.03.2011, HOLDING THE INCENTIVES TO BE CAPITAL RECEIPTS NOT L IABLE TO TAX (PAGE 13 OF THE IMPUGNED ORDER). 47. IN THIS REGARD, THE OBSERVATION OF THE LD. CIT( A) (AT PAGE 14 OF THE IMPUGNED ORDER) IS THAT : ALTHOUGH THE ASSESSEES CONTENTIONS MAY BE ACCEPTABLE, BUT SINCE THE DEPTT. HAS NOT AGREED WIT H THE VIEW TAKEN BY THE HONBLE HIGH COURT OF J & K, AND ALSO THAT THE SLP OF THE DEPTT. HAS BEEN ADMITTED BY THE HONBLE SUPREME COURT, THE VIE W TAKEN BY THE AO NEEDS TO BE SUSTAINED. ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 34 48. THUS, AS PER THE LD. CIT(A), INSPITE OF THE CON TINUING EXISTENCE HITHERTO OF THE ORDER/JUDGMENT OF THE JURISDICTIONA L HIGH COURT IN FAVOUR OF THE ASSESSEE, AS ABOVE, SINCE THE DEPARTMENT HA S NOT ACCEPTED THE SAID ORDER AND IT HAS FILED AN S.L.P. BEFORE THE HO NBLE SUPREME COURT, THE VIEW TAKEN BY THE AO REQUIRES TO BE SUSTAINED. NOW, THIS IS EVIDENTLY NOT THE LEGAL POSITION. RATHER, IT IS QUITE THE REV ERSE. THE ORDER/JUDGMENT OF THE JURISDICTIONAL HIGH COURT, PASSED IN FAVOUR OF THE ASSESSEE HAS NOT BEEN SHOWN TO HAVE BEEN STAYED BY THE HONBLE SUPRE ME COURT IN THE S.L.P. FILED BY THE DEPARTMENT. THUS, DESPITE THE F ACT THAT THE DEPARTMENT HAS PREFERRED AN S.L.P. BEFORE THE HONBLE SUPREME COURT, THE OPERATIVE ORDER/JUDGMENT IS THAT OF THE JURISDICTIONAL HIGH C OURT. IT IS FOR THIS REASON THAT THE AOS ORDER WHICH, STANDS REVERSED B Y THE HONBLE HIGH COURT, STANDS OBLITERATED BY THE DECISION OF THE HO NBLE HIGH COURT. IN THIS REGARD, IN SIEMENS INDIA LTD. VS. ITO, 143 I TR 120 (BOM), IT WAS HELD THAT MERELY BECAUSE AN APPEAL HAS BEEN FILED O R SPECIAL LEAVE APPLICATION IS PENDING AGAINST THE DECISION, IT WOU LD NOT DENUDE THE OPERATIVE DECISION OF ITS BINDING EFFECT AND UNTIL IT IS REVERSED, THAT DECISION IS BINDING ON ALL UPON WHOM IT OPERATES AS A BINDING PRECEDENT. 49. THE SAME POSITION IS APPLICABLE TO C.O. NO.2, I .E., THE ISSUE OF INTEREST SUBSIDY. ITA NO.168(ASR)/2013 CO. NO.46(ASR)/2013 ITA NO.295(ASR)/2013 35 50. ACCORDINGLY, BOTH THE GROUNDS IN THE C.O. RAI SED BY THE ASSESSEE ARE ACCEPTED. 51. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES, C.O. OF THE ASSESSEE IS ALLOW ED AND THE APPEAL OF THE DEPARTMENT IS ALSO PARTLY ALLOWED FOR STATISTICAL P URPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29/03/ 2016. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29/03/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. KAISER INDUSTRIES LTD. SAMBA ( J& K) 2. THE DCIT, CIRCLE-1, JAMMU 3. THE CIT(A), JAMMU. 4. THE CIT, JAMMU 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.