DCIT, Mohali V. Sh. Deepak Verma, Mohali

ITA 1026/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77158 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 07-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: B N M ONGA
• Keywords: Depreciation; Bad and doubtful debts; Reason to believe

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1026/CHD/2013 ASSESSMENT YEARS : 2010-11 D.C.I.T. CIRCLE 6(1) VS DEEPAK VERMA MOHALI 395, PHASE I SECTOR 55, MOHALI ACKPV 7983 P (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AKHILESH GUPTA RESPONDENT BY: S/SHRI RAVI SHANKAR & B.N. M ONGA DATE OF HEARING 22.5.2014 DATE OF PRONOUNCEMENT 19 .06.2014 O R D E R PER T.R. SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 21. 8.2013 OF THE LD CIT(A), CHANDIGARH. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE . 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS. 5019196/- THAT WAS MADE BY REALLOCATING THE EXP ENSES BOOKED UNDER THE HEAD PURCHASE AND CONSUMABLE FRO M B.M. PACKAGING, MOHALI (NON EXEMPT UNIT) TO B.M. MACHINES, BADDI (EXEMPT UNIT) AS THE ASSESSEE WAS BOOKING EXPENSES OF ITS BADDI UNIT (EXEMPT UNIT) AG AINST THE INCOME OF MOHALI UNIT (NON EXEMPT UNIT). 2 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT THE A SSESSEE IS A PROPRIETOR OF TWO BUSINESS CONCERNS NAMELY M/S B.M. PACKAGING, MOHALI AND M/S B.M. MACHINES, BADDI. THE ASSESSEE HAS CLAIMED THE INCOME FROM M/S B.M. MACHINES, BADDI AS EXEMPT UNDER THE PROVISIONS OF SECTION 80IC OF THE ACT. DURING ASSE SSMENT PROCEEDINGS THE ASSESSING OFFICER ASKED THE ASSESSE E TO PRODUCE SUPPORTING DOCUMENTARY EVIDENCE TO JUSTIFY THE CLAI M OF DEDUCTION U/S 80IC. THESE DOCUMENTS WERE DULY SUBMITTED. THE ASSESSEE WAS FURTHER ASKED TO FILE COMPARATIVE CHART IN RESPECT OF EXPENSES CLAIMED, GROSS RECEIPTS, PURCHASES AND NET PROFIT E TC. THE ASSESSEE IN RESPONSE FILED FOLLOWING CHART: PARTICULAR HEAD M/S B.M. PACKAGING MOHALI M/S B.M . MACHINES BADDI SALES 33621732 15355926 OTHER INCOME 351309 7508 PURCHASE & CONSUMABLES 26936764 4989773 OPENING STOCK 2617570 0 CLOSING STOCK 3888510 15850 EXPENSES FREIGHT & CARTAGE, LABOUR, TOLL TAX 41063 122928 E.S.I 27092 JOB WORK/LABOUR 974169 323354 WAGES & SALARIES 864924 619828 ELECTRICITY & WATER 10293 142667 STAFF WELFARE 36512 99684 PRINTING & STATIONARY 24225 2409 TELEPHONE & TRUNK- CALLS 112093 2323 BANK CHARGES & INTEREST 82006 205 ACCOUNTING CHARGES 65100 LEGAL & PROFESSIONAL 76300 25000 RENT 117100 SALES & BUSINESS PROMOTION 645284 85000 ADVERTISEMENT & PUBLICITY 29854 3 BAD DEBTS 96656 FREIGHT OUTWARDS, LOADING & UNLOADING 31000 48804 SERVICE TAX 322 INTEREST-OTHERS 78 REBATE & DISCOUNT 51626 AUDITOR REMUNERATION 30000 REPAIR & MAINTENANCE 87595 113892 TOUR & TRAVEL 410531 119450 MISC./ OFFICE EXPENSES 17901 1350 RATES, FEE & TAXES 289362 SALARIES 385500 FESTIVAL EXPENSES 75000 DEPRECIATION 219863 247991 NET PROFIT 42,55,630/- 76,85,061/- FROM THE ABOVE ASSESSING OFFICER NOTED THAT THE EXP ENSES IN CASE OF B.M. PACKAGING MOHALI WHICH IS NON EXEMPT UNIT ARE MUCH HIGHER AS COMPARED TO EXPENSES CLAIMED IN RESPECT OF B.M. MAC HINES, BADDI WHICH IS AN EXEMPT UNIT. IT WAS FURTHER NOTED THAT ON SALE OF 3.6 CRORES IN CASE OF B.M. PACKAGING, MOHALI GROSS PROF IT WAS RS. 6038367/- AND NET PROFIT WAS RS. 4255630/- WHICH GA VE GROSS PROFIT AND NET PROFIT OF 17.95% AND 12.66% RESPECTIVELY WH EREAS IN CASE OF EXEMPT UNIT B.M. MACHINEDS, BADDI THE SALES WERE RS . 1,53 CRORES ON WHICH GROSS PROFIT WAS RS. 8852691/- AND NET PRO FIT WAS RS. 7685061/- GIVING GROSS PROFIT AND NET PROFIT OF 57. 95% AND 50.04% RESPECTIVELY. THUS CLEARLY THERE WAS HUGE VARIATIO N IN THE GROSS PROFIT AND NET PROFIT OF THESE UNITS. IN VIEW OF T HIS DIFFERENCE THE ASSESSING OFFICER ASKED THE ASSESSEE THAT WHY THE E XPENSES CLAIMED IN RESPECT OF THESE UNITS SHOULD NOT BE REA LLOCATED. IN RESPONSE THE ASSESSEE FILED FOLLOWING SUBMISSIONS V IDE LETTER DATED 30.1.2013: AS REGARDING THE VARIATION IN THE GROSS PROFIT RAT ES AND NET PROFIT RATES OF THE B.M. PACKAGING, MOHALI AND B.M. MACHINES, 4 BADDI, THIS IS FOR YOUR KIND INFORMATION THAT THE T ECHNOLOGIES FOR MAKING THE VARIOUS PACKING MACHINES OF THE BOTH UNI TS ARE DIFFERENT HENCE THE COST OF MAKING THE MACHINES AT THESE TWO UNITS ARE NOT COMPARATIVE. ALSO EACH PACKING MACHINE HAS DIFFEREN T PROFIT MARGIN AS DEPENDING ON THE CUSTOMER TO CUSTOMER AND THE TY PES & MODELS OF PACKING MACHINES MADE AT THE BOTH UNITS ARE DIFF ERENT, HENCE THE MACHINES MADE AT THE BOTH THESE UNITS ARE NOT COMPA RATIVE, AND THIS WILL ALSO RESPONSIBLE FOR THE VARIATION IN THE GROS S PROFIT RATES AND NET PROFIT RATES OF THE B.M. PACKAGING, MOHALI AND B.M. MACHINES, BADDI. AS THE TECHNOLOGIES OF B.M. MACHINES, BADDI IS MUCH IMPROVED AND LATEST AS COMPARATIVE TO B.M. PACKAGIN G, MOHALI, HENCE THE COSTING AT B.M. MACHINES, BADDI IS LESS T HAN AS COMPARATIVE TO B.M. MACHINES, BADDI IS LESS THAN AS COMPARATIVE TO B.M. PACKAGING , MOHALI WHICH IS ALSO ONE OF THE RE ASON FOR THE VARIATION IN THE GROSS PROFIT RATES AND NET PROFIT RATES. AS REGARDS, THE VARIATION OF EXPENSES OF THE B.M. P ACKAGING, MOHALI AND B.M. MACHINES, BADDI, THE MAIN REASONS F OR SUCH VARIATION IS THE PERIOD OF OPERATION OF SUCH UNITS. AS THE B.M. MACHINES, BADDI HAS STARTED IN THE F.Y. 2009-10 ONL Y, AND IN SUCH FINANCIAL YEAR, THE UNIT WAS IN OPERATION FOR THREE MONTHS ONLY, WHILE THE B.M. PACKAGING, MOHALI WAS IN OPERATION F OR THE FULL YEAR. HENCE, THE EXPENSES FOR THE THREE MONTHS IN T HE CASE OF THE B.M. MACHINES, BADDI CANNOT BE COMPARING WITH THE E XPENSES FOR THE FULL FINANCIAL YEAR IN THE CASE OF THE B.M. PAC KAGING, MOHALI. 4. BOTH THESE CONTENTIONS RAISED IN THE ABOVE REPLY WERE NOT FOUND CORRECT AND THE ASSESSING OFFICER ANALYZED TH ESE CONTENTIONS VIDE PARA 9(I) & (II) AND THE RELEVANT PORTIONS ARE AS UNDER: 9 (I) IN THE FIRST PARA, THE MAIN CONTENTION GIVEN BY THE ASSESSEE JUSTIFYING THE VARIATION IN G.P. AND N.P. RATES OF BOTH THE UNITS IS THAT THE TECHNOLOGIES OF PLANT & MACHINERY INSTALLED AT B.M. MACHINES, BADDI IS MUCH IMPROVED AND LATEST AS COMPARED TO THAT OF B.M. PACKAGING, MOHAL I. HENCE THE COST OF PRODUCTION AT B.M. MACHINES, BADDI IS L ESS AS COMPARED TO THAT OF B.M. PACKAGING, MOHALI. 5 IN THIS REGARD, IT IS PERTINENT TO MENTION HERE TH AT A PERUSAL OF FIXED ASSETS SCHEDULE OF BADDI UNIT (EXE MPT UNIT) REVEAL THAT PLANT & MACHINERY WORTH RS. 6,60,972/ - WAS PUT IN PLACE IN THE BADDI UNIT, WHEREAS DURING THE SAME PERIOD THE VALUE OF PLANT AND MACHINERY WHICH EXI STED AT MOHALI UNIT (NON EXEMPT UNIT) WAS RS. 55,15,306/-. THE ABOVE MENTIONED FIGURES ITSELF CONTRADICT THE CLAIM OF THE ASSESSEE THAT THE PLANT AND MACHINERY INSTALLED AT BADDI UNIT (EXEMPT UNIT) IS MUCH MORE EFFICIENT THAN THAT INST ALLED AT MOHALI UNIT (NON EXEMPT UNIT) AS THE VALUE OF PLANT AND MACHINERY INSTALLED AT MOHALI UNIT (NON EXEMPT UNIT ) IS ABOUT NINE TIMES MORE THAN THAT OF THE BADDI UNIT ( EXEMPT UNIT). THUS IT IS HIGHLY UNLIKELY THAT A MUCH MORE EFFICIENT MACHINE WOULD COST LESS THAN A LESS EFFICIENT MACHI NE. HENCE, THIS CONTENTION OF THE ASSESSEE IS DEVOID O F MERITS AND CAN NOT BE ACCEPTED. (II). IN THE SECOND PARA, THE ASSESSEE HAS STATED THAT THE MAIN REASON FOR VARIATION OF EXPENSES OF THE TWO UN ITS IS THAT THE UNIT AT BADDI STARTED ITS OPERATIONS IN THE F.Y . 2009-10 ONLY, AND IN THAT FINANCIAL YEAR THE UNIT WAS IN OP ERATION ONLY FOR THREE MONTHS, WHEREAS THE MOHALI UNIT WAS IN OP ERATION FOR THE WHOLE YEAR. ACCORDINGLY, THE EXPENSES FOR T HE THREE MONTHS IN THE CASE OF THE B.M. MACHINES, BADDI CANN OT BE COMPARED WITH THE EXPENSES FOR THE FULL FINANCIAL Y EAR IN THE CASE OF THE B.M. PACKAGING, MOHALI. IN THIS REGARD, THE CONTENTION OF THE ASSESSEE IS THAT THE BADDI UNIT (EXEMPT UNIT) WAS IN OPERATION ONLY FOR THREE MONTHS AND THEREFORE ITS EXPENSES WERE LESS THAN CO MPARED TO THOSE OF THE MOHALI UNIT (NON EXEMPT UNIT). HOWEVER , THE MOOT POINT OF DISCUSSION IN THIS CASE IS THAT THE S ALES AND PRODUCTION FROM BOTH THE UNITS SHOULD BE COMMENSURA TE WITH THE EXPENSES INCURRED. IF A UNIT OPERATES ONLY FOR THREE MONTHS IN A YEAR IT IS UNDERSTANDABLE THAT IT MAY I NCUR LES EXPENSES AS COMPARED TO A UNIT WHICH OPERATES FOR T HE WHOLE YEAR. HOWEVER, IT IS NOT POSSIBLE FOR A UNIT WHICH OPERATES FOR THREE MONTHS IN A YEAR TO HAVE A NET PROFIT WHICH IS FOUR 6 TIMES MORE THAN THE NET PROFIT OF THE UNIT WHICH OP ERATES FOR A WHOLE YEAR. IF A UNIT OPERATES FOR THREE MONTHS IN A YEAR ITS EXPENSES CAN BE LESS THAN THE UNIT OPERATING THROUG HOUT THE YEAR, BUT THAN THE SAME WOULD THEN ALSO HELD TRUE I N THE CASE OF ITS PRODUCTION AND SALES. HENCE, THIS CONTENTION OF THE ASSESSEE IS ALSO DEV OID OF MERITS AND CAN NOT BE ACCEPTED AS WORKING FOR ONLY THREE MONTHS IN A YEAR DOES IN NO WAY INCREASE THE PRODUC TIVITY AND EFFICIENCY OF A UNIT. 5. THE ASSESSING OFFICER ALSO OBSERVED THAT BADDI UNIT WAS NEW WHERE NEW MACHINERY HAS BEEN INSTALLED AND THEREFOR E IN THE IN THE INITIAL YEARS THE EXPENSES WOULD BE MORE. MOREOVER UNIT WAS AWAY FROM OTHER PLACES OF BUSINESS, THEREFORE EVEN THE A DMINISTRATIVE EXPENSES ARE LITTLE MORE. SHE ALSO OBSERVED THAT U NITS IN THE HILLY AREA REQUIRE MORE EXPENSES DUE TO LACK OF PROPER IN FRASTRUCTURE, DIFFICULT TERRAIN AND LACK OF AVAILABILITY OF SKILL ED WORKERS. HOWEVER, IN CASE OF ASSESSEE PROFIT SHOWN AT BADDI WAS ALMOS T FOUR TIMES HIGHER THAN MOHALI AREA. IN THE ABOVE BACKGROUND I T WAS FURTHER OBSERVED THAT NATURE OF BUSINESS IN BOTH THE UNITS WAS IDENTICAL BECAUSE BOTH THE UNITS WERE MANUFACTURING PACKAGING , LABELING AND PACKING MACHINES. THEREFORE THE PRODUCTS MANUFACTU RED WERE OF SAME NATURE. RAW MATERIAL WAS PURCHASED FOR BOTH TH E UNITS FROM SAME SOURCE AND EVEN THE CUSTOMERS WERE SAME. ACCOR DING TO HER THE ASSESSEE HAS INFLATED PROFITS OF EXEMPT UNIT TO CLAIM HIGHER AMOUNT OF DEDUCTION U/S 80IC. SHE REFERRED TO DECI SION OF CHANDIGARH BENCH OF THE TRIBUNAL IN CASE OF CORAL T ELECOM LTD. IN ITA NO. 203/CHD/2005 WHERE REALLOCATION OF EXPENSES WAS UPHELD. ON THE BASIS OF THESE OBSERVATION THE GROSS PROFIT WAS REWORKED AS UNDER:- 7 SALES DURING THE RELEVANT PERIOD IN RESPECT OF B.M. PACKAGING, MOHALI (NON-EXEMPT UNIT) RS. 3,36,21,732/- SALES DURING THE RELEVANT PERIOD IN RESPECT OF B.M. MACHINES, BADDI (EXEMPT UNIT) RS. 1,53,55,926/- GROSS SALES OF BOTH THE UNITS RS. 4,89,77,658/- % AGE OF SALES MADE FROM MOHALI UNIT (NON-EXEMPT UN IT) 68.65% % AGE OF SALES MADE FROM BADDI UNIT (EXEMPT UNIT) 3 1.35% 6. ON THE BASIS OF ABOVE ADJUSTMENT WAS WORKED AT UNDER:- PURCHASE SHOWN IN RESPECT OF B.M. PACKAGING, MOHALI (NON-EXEMPT UNIT) RS. 2,69,36,764/- PURCHASES SHOWN IN RESPECT OF B.M. MACHINES, BADDI (EXEMPT UNIT) RS. 49,89,773/- GROSS PURCHASES OF BOTH THE UNITS RS. 3,19,26,537 PURCHASES TO BE ALLOCATED TO B.M. PACKAGING, MOHALI (NON- EXEMPT UNIT) AS PER THE ABOVE RATIO (I.E. 68.65% OF RS. 3,19,26,537) RS. 2,19,17,568/- DIFFERENCE BETWEEN THE PURCHASES SHOWN BY THE ASSES SEE AND PURCHASES REALLOCATED (I.E. 2,69,36,764 2,19, 17,568) RS. 50,19,196/- IN VIEW OF THIS A SUM OF RS. 5019196/- WAS ADDED TO THE INCOME OF THE ASSESSEE. 7 OTHER EXPENSES WERE ALSO REALLOCATED AND FURTHER ADDITION OF RS. 522028/- WAS MADE. THIS ADDITION WAS NOT AGITA TED BEFORE THE LD. CIT(A) AND, THEREFORE, WE ARE NOT REQUIRED TO A DJUDICATE THIS. 8. ON APPEAL IT SEEMS THAT CONTENTIONS MADE BEFORE ASSESSING OFFICER WERE REITERATED BECAUSE LD. CIT(A) HAS NOT MENTION ED THE CONTENTIONS OF THE ASSESSEE. THE LD. CIT(A) HAS DECIDED THE ISSUE VIDE PARA 4.1, WHICH READS AS UNDER:- 4.1 REGARDING REALLOCATION UNDER THE HEAD PURCHAS ES & CONSUMABLES, IT IS SEEN THAT THE ASSESSING OFFICER HAS MADE 8 THE REALLOCATION IN RESPECT OF THE EXEMPT AND NON-E XEMPT UNITS IN THE RATIO OF THE SALES DECLARED IN THE RES PECTIVE UNITS. THE LD. COUNSEL HAS ARGUED THAT REALLOCATION IN RESPECT OF PURCHASES CANNOT BE MADE AND I AM ENTIRE LY IN AGREEMENT WITH THE ARGUMENT OF THE LD. COUNSEL, SIN CE MOST OF THE PURCHASES IN RESPECT OF BOTH THE UNITS ARE M ADE FROM THE SAME SOURCES (IT HAS BEEN DULY MENTIONED BY ASS ESSING OFFICER HERSELF IN PARA 10(III) OF THE ASSESSMENT O RDER) AND THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DISCR EPANCY IN THE PURCHASE BILLS OR EVEN IN THE SALE BILLS. THE P ROFITS AND GAINS OF THE ELIGIBLE BUSINESS FOR THE PURPOSES OF DEDUCTION U/S 80IC CAN BE RECOMPUTED AS PROVIDED IN SECTION 8 0IC(7) READ WITH SECTION 80IA(10) OF THE ACT. THIS MEANS T HAT REALLOCATION OF PURCHASES BETWEEN EXEMPT AND NON-EX EMPT UNIT CANNOT BE DONE EXCEPT AS PROVIDED IN SECTION 8 0IA(10) OF THE ACT AND CERTAINLY NOT WITHOUT POINTING OUT S PECIFIC DISCREPANCY IN THIS REGARD. HENCE, IT IS HELD THAT THE ADDITION OF RS. 50,19,196/- ON ACCOUNT OF REALLOCA TION OF PURCHASES HAS WRONGLY BEEN MADE BY THE ASSESSING OF FICER AND THE ADDITION MADE ON THIS ACCOUNT IS DELETED. G ROUND OF APPEAL TAKEN IN THIS REGARD IS ALLOWED. 9. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE ORD ER OF ASSESSING OFFICER 10. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSE E STRONGLY SUPPORTED THE IMPUGNED ORDER. HE FURTHER SUBMITTED THAT MACHI NES MANUFACTURED AT BADDI UNIT WERE TECHNOLOGICALLY SUPERIOR AND COST L ESS. IT WAS ALSO SUBMITTED THAT ASSESSING OFFICER IS WRONG IN OBSERV ING THAT AT MOHALI UNIT, THE ASSESSEE HAS PUT UP PLANT AND MACHINERY OF RS. 55,15,306/-. IN THIS REGARD HE REFERRED TO PAGE NO. 15 OF THE PAPER BOOK WHICH IS SHOWING ASSETS FOR MOHALI UNIT. HE POINTED OUT THAT ASSESSI NG OFFICER HAS ADOPTED THE FIGURE OF TOTAL ASSETS WHICH INCLUDED THE INDUS TRIAL PLOT ALSO OTHERWISE THE TOTAL MACHINERY WAS ONLY OF RS. 23,000/-. IT W AS SUBMITTED THAT ASSESSEE WAS OPERATING IN A RENTED PREMISES WHICH W AS VERY SMALL AND 9 FURTHER TAKE ADVANTAGE OF THE TAX INCENTIVE THE ASS ESSEE PUT UP A UNIT WITH BETTER TECHNOLOGY AT BADDI. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT SUB SECTION (7) OF SECTION 80IC UNDER WHICH THE ASS ESSEE HAS CLAIMED DEDUCTION READS AS UNDER:- (7) THE PROVISIONS CONTAINED IN SUB-SECTION (5) AN D SUB- SECTIONS (7) TO (12) OF SECTION 80-IA SHALL, SO FAR AS MAY BE, APPLY TO THE ELIGIBLE UNDERTAKING OF ENTERPRISE UND ER THIS SECTION. FROM THE ABOVE, IT BECOMES CLEAR THAT PROVISIONS OF SUB SECTION (5) AND SUB SECTION (7) TO SUB SECTION (12) OF SECTION 80IA ARE ALSO APPLICABLE FOR CONSIDERING THE CLAIM OF DEDUCTION UNDER THIS SECTI ON. SECTION 80IA (10) READS AS UNDER;- (10) WHERE IT APPEARS TO THE ASSESSING OFFICER THA T, OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SEC TION APPLIES AND ANY OTHER PERSON , OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE AS SESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND GAINS O F SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM: 12. THE READING OF THE ABOVE PROVISION CLEARLY SHOW S THAT IF ASSESSING OFFICER IS OF THE OPINION FOR ANY REASON IF THE BU SINESS IS ARRANGED SO AS TO INFLATE PROFITS OF AN ELIGIBLE UNIT, THEN THE AS SESSING OFFICER HAS THE POWER TO COMPUTE THE PROFITS OF ELIGIBLE UNIT ON RE ASONABLE BASIS. ADMITTEDLY, IN THE CASE BEFORE US, THE PURCHASES A RE MADE FROM THE 10 COMMON SOURCES. SOME OF THE CUSTOMERS ARE ALSO COMM ON. THE PRODUCTS MANUFACTURED BY THE ASSESSEE ARE ALSO COMMON. EVEN MAJORITY OF THE EXPENDITURE IS ALSO COMMON AND IN FACT THE ASSESSEE HAS ALREADY CONCEDED BEFORE THE LD. CIT(A) THAT EXPENSES WERE N OT PROPERLY ALLOCATED AND HAS ACCEPTED THE REALLOCATION OF EXPENDITURE. IN ADDITION TO THESE FACTS, THE ASSESSEE HAS SHOWN NET PROFIT RATE OF 12 .66% ON SALES OF RS. 3.36 CRORES IN MOHALI UNIT WHEREAS ON TURN OVER OF RS. 1.53 CRORES, THE NET PROFIT IS 57.95% AT BADDI UNIT WHICH IS VERY HIGH. DURING THE COURSE OF HEARING, WE HAD ASKED THE ASSESSEE TO FILE COPY OF THE INVOICES TO FIND OUT IF THE PRODUCTS WERE OF SO CALLED BETTER TECHNOLOGY WERE SOLD AT A HIGHER PRICE AND SALE INVOICES FOR BOTH THE UNITS WERE FIE LD ON 22.5.2014. 13. THE ASSESSING OFFICER IN PARA 9 ANALYZED THE RE ASONS AGAIN BEFORE HIM FOR HIGHER PROFITS AT BADDI UNITS. THE FIRST PO INT MENTIONED IS THAT ACCORDING TO ASSESSING OFFICER, THE MOHALI UNIT HAD MACHINERY OF ABOUT RS. 55,15,306/- WHEREAS THE MACHINERY AT BADDI UNIT WAS RS. 6,60,972/- AND THEREFORE, TECHNOLOGY COULD NOT BE BETTER FOR B ADDI UNIT. HOWEVER, WE AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL FOR T HE ASSESSEE THAT MACHINERY AT MOHALI UNIT WAS CONSISTED OF ONLY TWO ITEMS I.E. TOOLS AND EQUIPMENTS WHICH HAD THE OPENING WDV OF RS. 4386.35 AND MACHINERY WITH A WDV OF RS. 18,379.30. THUS THE TOTAL MACHIN ERY IS LESS THAN RS. 23,000/- WHICH CANNOT BE CALLED MACHINERY AND IT WA S ADMITTED DURING THE HEARING THAT THIS WOULD CONSIST OF SOME SCREW DRIVE RS AND DRILLING MACHINE. AT THE SAME TIME THE MACHINERY AT BADDI UN IT IS ALSO STANDS AT RS. 6,60,972/- AND ASSESSEE COULD NOT GIVE EXACT DE TAILS OR HOW THE BETTER TECHNOLOGY COULD BE ADOPTED THROUGH THIS SMALL MACH INE. THE OTHER REASON HAVE BEEN DISCUSSED AT POINT- II IN PARA 9 W HICH HAVE ALREADY BEEN REPRODUCED ABOVE. BUT IGNORING EVEN THOSE POIN TS IF WE COMPARE THE SALES AT BOTH THE PLACES, WE FIND NO PRICE DIFFEREN CE. FOR EXAMPLE IN CASE 11 OF MOHALI UNIT OUT OF 38 INVOICES IN 17 CASES THE A SSESSEE HAD SOLD SOAP WRAPPING MACHINE MDT-13K. WE ARE GIVING FEW INSTA NCES BELOW:- SL. NO. DATE OF SALE NAME OF CUSTOMER PRODUCT NUMBER OF PRODUCT RATE PER PRODUCT (IN RS.) 1. 10.04.2009 M/S POWER SOAPS LTD. SOAP WRAPPING MACHINE- MDT- 13K 02 525000.00 2 14.04.2009 M/S POWER SOAPS LTD. SOAP WRAPPING MACHINES- MDT- 13K 02 525000.00 3 24.04.2009 M/S KISHORESONS DETERGENT PVT. LTD. SOAP WRAPPING MACHINE- MDT-13K 03 500000.00 4 07.05.2009 M/S FENA PVT. LTD. WRAPPING MACHINES- MDT-13K 02 550000.00 5 22.05.2009 M/S KISHORESONS DETERGENT PVT. LTD. SOAP WRAPPING MACHINE- MDT- 13K 02 625000.00 6 17.07.2009 DIVIJ DETERGENTS AND CHEMICALS PVT. LTD. SOAP WRAPPING MACHINE- MDT-13K CHANGE PARTS 01 01 600000.00 20000.00 7 05.12.2009 M/S PATANJALI AYURVED LTD. SOAP WRAPPING MACHINE- MDT-13K 04 625000.00 14. IN BADDI UNIT ALSO OUT OF TOTAL 16 SALES DURING THE YEAR, IN SIX CASES THE ASSESSEE HAS SOLD THE SAME MACHINERY I.E. SOAP WRAPPING MACHINE MDK-13K AND THE DETAILS IN FEW CASES IS AS UNDER:- 15. THE ABOVE CLEARLY SHOWS THAT THE SAME PRODUCTS ARE BEING SOLD FROM BOTH THE UNITS AND AT THE SAME PRICE RANGING BETWEE N RS. 5,25,000/- TO RS. 6,25,000/- IN BOTH CASES. HOW THE MACHINES WER E COSTING LESS AT SL. NO. DATE OF SALE NAME OF CUSTOMER PRODUCT NUMBER OF PRODUCT RATE PER UNIT (IN RS.) 1. 17.01.2010 M/S JYOTHY LABORATORIES LTD.- II SOAP PACKING MACHINE- MDT- 13K 02 594044.55 2. 24.02.2010 INTERNATIONAL TRADERS SOAP WRAPPING MACHINE- MDT-13 K 01 579208.00 3. 24.02.2010 PRECISION MACHINISTS SOAP WRAPPING MACHNE- MDT- 13 K 01 500000.00 4. 24.03.2010 RAHUL HEALTH CARE SOAP WRAPPING MACHINE- MDT- 13K 02 600000.00 12 BADDI WAS NOT EXPLAINED. WHEN THE END PRODUCT IS SAME, THE COST WOULD ALSO BE THE SAME. BY INSTALLING A MACHINE OF RS. 6 LAKHS IT CANNOT BE SAID THAT THE ASSESSEE IS ACHIEVING ECONOMY OF SCALE OR SOME OTHER TECHNOLOGICAL DEVELOPMENT. IT IS A SIMPLE CASE OF I NFLATION OF PROFITS IN THE ELIGIBLE UNIT AND IN SUCH SITUATION THE ASSESSING O FFICER HAS CLEAR POWERS IN TERMS OF SECTION 80IA(10) TO COMPUTE THE REASONA BLE PROFIT. THE LD. CIT(A) HAS MISDIRECTED HIMSELF BY OBSERVING THAT AS SESSING OFFICER HAS NOT POINTED OUT ANY DISCREPANCY BECAUSE THE ASSESSI NG OFFICER HAS CLEARLY POINTED OUT WRONG ALLOCATION OF VARIOUS EXP ENSES WHICH WAS ACCEPTED BY THE ASSESSEE BEFORE THE CIT(A). FURTHER , THE ASSESSING OFFICER HAS ALSO GIVEN REASONS SHOWING THAT PROFIT S IN EXEMPT UNIT HAVE BEEN INFLATED. IN SECTION 80IA(10), IT IS CLEARLY PROVIDED THAT IF ASSESSING OFFICER HAS REASONS THAT THE BUSINESS HAS BEEN SO A RRANGED TO SHOW INFLATED PROFITS IN ELIGIBLE UNIT THEN ASSESSING OF FICER HAS POWER TO RECOMPUTE THE PROFITS OF SUCH ELIGIBLE UNIT. AS S EEN FROM THE SALE INVOICE THERE IS DEFINITELY A REASON TO BELIEVE THAT ASSESS EE HAS INFLATED THE PROFITS IN ELIGIBLE UNIT BECAUSE THE SAME PRODUCT I S BEING SOLD FORM BOTH THE UNITS FOR ALMOST IDENTICAL PRICE. IN THIS BACK GROUND, WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THAT OF ASSESSING OFFI CER 16. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 19.06.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19.06.2014 SURESH/RKK COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR