Surinder Malik, New Delhi V. CIT-XI, New Delhi

ITA 1182/DEL/2010

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9970 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 06-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 16-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAMESH CHANDRA
• Assessee Lawyers: S KUMAR
• Keywords: Business income; Depreciation
• Section: 143(3); 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : G : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM ITA NO.1182/DEL/2010 ASSESSMENT YEAR : 2006-07 SURINDER MALIK, E-12, CONNAUGHT PLACE, NEW DELHI. PAN: AAUPM0141Q VS. CIT-XI, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. KUMAR, ADVOCATE DEPARTMENT BY : SHRI RAMESH CHANDRA, CIT, DR DATE OF HEARING : 06.04.2015 DATE OF PRONOUNCEMENT : 08.04.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 19.02.2010 PASSED BY THE COMMISSIONER OF INCOME-TAX (CIT) U/S 263 OF ITA NO.1182/DEL/2010 2 THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) OF THE ACT ON 4.6.200 8 DETERMINING TOTAL INCOME AT RS.82,29,870/-, BEING THE SAME AMOUNT AT WHICH THE RETURN OF INCOME WAS FILED BY THE ASSESSEE. THE ASSESSEE, INTER ALIA, CLAIMED DEDUCTION U/S 80IC. THE LD. CIT, WHILE EXERCISIN G JURISDICTION U/S 263, HELD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF THE REVENUE, ON THE FOLLOWING TEN COUNTS :- (I) THE AUDIT REPORT IN FORM NO. 10CCB AT SERIAL NUMBER 25(D) CLEARLY SAYS THAT THE BUSINESS HAD NOT UNDERTAKEN S UBSTANTIAL EXPANSION. THUS, THE BASIC PREREQUISITE AS PER PROV ISIONS OF SECTION 80IC(2)(A) OF THE IT ACT, 1961 WAS NOT SATISFIED FO R ELIGIBILITY OF DEDUCTION OF RS. 2,65,13,712/- CLAIMED AND ALLOWED U/S 801C. (II) AS PER THE PROVISIONS, NEW MACHINERY TO A MINIMUM E XTENT OF 80% OF THE TOTAL MACHINERY WAS TO BE USED IN THE MANUFACTURING ACTIVITY BY M/S. FORTUNE AT BADDI, HIMACHAL PRADESH . NO ITA NO.1182/DEL/2010 3 VERIFICATION HAD BEEN MADE THAT NEW MACHINERY WAS U SED IN THE MANUFACTURING PROCESS. BESIDES, IT WAS ALSO SEEN TH AT AS PER THE DEPRECIATION CHART THE VALUE OF MACHINERY WAS ONLY RS. 69,274/- WHICH DID NOT APPEAR ADEQUATE TO CARRY OUT THE MAGN ITUDE OF MANUFACTURE AS WOULD APPEAR APPROPRIATE VIS-A-VIS T HE HIGH TURNOVER DECLARED AT RS. 5,62,51,944/-. (III) MANUFACTURING IS DONE IN THE NAME OF M/S FOR TUNE A BADDI, HIMACHAL PRADESH. EXPORT IS CARRIED OUT IN THE NAM E OF M/S DA MILANO, GULMOHAR PARK, NEW DELHI. OTHER RELATED CO NCERNS INVOLVED IN THE TRADING PROCESS WITHIN THE MEANING OF SECTION 40A(2)(B) AS PER FORM NO. 10CCB(COLUMN 28) WERE M/S ORIENT EXPRESS AND M/S SUNDARAM ENTERPRISES. TOTAL SALES TO THESE PARTIES RAN INTO SEVERAL CRORES OF RUPEES. NO ATTEMPT HAD B EEN MADE BY THE AO TO VERIFY WHETHER THE SALES WERE MADE AT THE PRE VAILING MARKET PRICE OR WHETHER THE PROFIT SHOWN IN RESPECT OF THE BADDI UNIT WAS MORE THAN NORMAL PROFITS THAT WOULD ACCRUE IN SUCH BUSINESS. THUS, VIOLATION OF PROVISIONS OF SEC. 80IC(7) READ WITH S EC. 80IA(8) WHICH ITA NO.1182/DEL/2010 4 HAD TO BE NECESSARILY VERIFIED IN THE CIRCUMSTANCES OF THE CASE WAS NOT VERIFIED BY THE AO. (IV) ONE OF THE TRADE CREDITORS WAS M/S. FORTUNE L EATHER CO. NO VERIFICATION WAS MADE ON THE LINES AS CITED AT (III ) ABOVE AS WAS NEEDED TO BE DONE. (V) FABRICATION CHARGES OF RS. 67.24 LAKHS WHICH WA S SHOWN, AS DIRECT EXPENSES WERE PAID TO M/S KISHAN ENTERPRISES AND M/S SANDEEP LEATHER WORKS AS JOBWORK CHARGES. AS PER TH E PROVISIONS OF SECTION 801C, MANUFACTURING SHOULD HAVE BEEN CAR RIED OUT BY THE ASSESSEE ITSELF-WITH THE NEW MACHINERY INSTALLED BY IT. THE MANUFACTURING, IF AT ALL ANY, IN THIS CASE WAS CARR IED OUT BY M/S. KISHAN ENTERPRISES AND M/S SANDEEP LEATHER WORKS WI TH THEIR MACHINERY AND NOT BY THE ASSESSEE. THE AGREEMENTS B ETWEEN THE ASSESSEE AND THE ABOVE TWO PARTIES HAD ALSO NOT BE EN EXAMINED TO VERIFY THE NATURE OF BUSINESS AND NEXUS BETWEEN THE M. (VI) FROM THE COPIES OF ACCOUNTS RELATING TO ELEC TRICITY EXPENSES, IT WAS NOT PROVED THAT THE SAME WERE INCURRED BY TH E ASSESSEE FOR ITA NO.1182/DEL/2010 5 MANUFACTURING PURPOSES. THE AO HAD NOT EXAMINED WHE THER THOSE WERE DIRECT MANUFACTURING EXPENSES OR AMOUNTS REIMB URSED TO THE PARTIES WHO CARRIED OUT THE JOB WORK. THE AO HAD N OT CALLED FOR OR VERIFIED THE ELECTRICITY BILLS TO MAKE THE NECESSA RY VERIFICATIONS. (VII) THE ASSESSEE HAD ONE UNIT OF M/S FORTUNE AT BADDI, HIMACHAL PRADESH AND ANOTHER AT KAPASHERA, DELHI. W HILE IN RESPECT OF THE KAPASHERA UNIT A LOSS OF RS. 65,326/ -. WAS SHOWN, IN RESPECT OF THE BADDI UNIT SUBSTANTIAL BUSINESS PRO FITS CLAIMED AS EXEMPT U/S 80IC WERE SHOWN. THE CIRCUMSTANCES LEADI NG TO LOSS IN ONE UNIT AND PROFIT IN ANOTHER IN THE SAME LINE OF BUSINESS WERE NOT EXAMINED BY THE AO IN THE LIGHT OF PROVISIONS OF SE CTION 80IC TO VERIFY IF THERE WEAS TRANSFER OF PROFITS FROM ONE U NIT TO OTHER TO AVOID TAX LIABILITY. (VIII) PURCHASE BILLS OF MACHINERY ETC., SHOULD HAV E BEEN VERIFIED IN RESPECT OF KAPASHERA UNIT, M/S. DA MILANO AND OTHER RELATED PARTIES{U/S 40A(2)(B)}, WHERE POSSIBLE, TO SEE IF T HERE WAS ANY SPLITTING UP OR RECONSTRUCTION OF ANY EXISTING BUSI NESS. MAGNITUDE OF ITA NO.1182/DEL/2010 6 MANUFACTURE, TURNOVER, ETC., OF THESE PARTIES SHOUL D ALSO HAVE BEEN VERIFIED WHERE POSSIBLE TO FIND OUT IF MANUFACTURIN G ACTIVITY CARRIED OUT BY ANY OF THEM HAD BEEN ABANDONED IN FAVOUR OF THE BADDI UNIT SINCE IN SUCH A CASE IT WOULD MEAN THAT THOSE EXIST ING BUSINESS/BUSINESSES HAD BEEN RECONSTRUCTED AT BADDI , HIMACHAL PRADESH TO AVAIL TAX BENEFIT IN VIOLATION OF THE P ROVISIONS OF SECTION 80IC(4)(I). (IX) NO EFFORT WAS MADE BY THE AO TO VERIFY THE A CTUAL EXISTENCE OF MANUFACTURING ACTIVITY VIS-A-VIS FACTORY, VALUE OF MACHINERY, CONSUMPTION OF POWER FOR MANUFACTURE BY THE ASSESSE E, EVIDENCE OF FREIGHT INWARD OF RAW MATERIALS/FREIGHT OUTWARDS OF MANUFACTURED GOODS THROUGH TRANSPORT BILLS SHOWING THE DESTINATI ONS ETC. NEITHER HAD ANY EFFORT BEEN MADE TO DRAW A COMPARISON BETWE EN INFRASTRUCTURE AVAILABLE AND MAGNITUDE OF MANUFACTU RE LEADING TO THE MASSIVE TURNOVER. THUS, EXISTENCE OF ACTUAL MANUFAC TURE AS MANDATORY U/S 80IC(2)(A) WHICH NECESSARILY MERITED THOROUGH VERIFICATION, HAD NOT BEEN VERIFIED. ITA NO.1182/DEL/2010 7 (X) THE SALES EXPENSES OF RS. 7,08,974/- SHOWN IN THE P&L A/C UNDER THE HEAD 'INDIRECT EXPENSES' WAS SALARY PAID TO SIX PERSONS AS PER THE DETAILS FILED. THE DIRECT EXPENSES WERE THE PACKING EXPENSES AND THE FABRICATION EXPENSES COMPRISING ONLY JOB WO RK EXPENSES. THIS LED TO THE CONCLUSION THAT NO ACTUAL MANUFACTU RING ACTIVITY HAD BEEN CARRIED OUT BY THE ASSESSEE ON ITS OWN IN VIOL ATION OF THE BASIC PRE-REQUISITE OF SECTION 80IC(2)(A). 3. THE ASSESSEE FURNISHED POINT WISE REPLY ON THE A BOVE TEN OBJECTIONS OF THE LD. CIT, WHICH HAS BEEN REPRODUCE D IN THE IMPUGNED ORDER. AFTER CONSIDERING THE SAME, THE LD. CIT OBS ERVED THAT ALTHOUGH IN RESPECT OF SOME POINTS, THE REPLY OF THE ASSESSEE W AS SATISFACTORY, BUT, THE MAJOR ISSUES RELATING TO ALLOWABILITY OF DEDUCT ION U/S 80IC REMAINED UNEXPLAINED. THE LD. CIT FURTHER OBSERVED THAT TOT AL SALES DURING THE PRECEDING YEAR WERE TO THE TUNE OF RS.1.11 CRORE GI VING GROSS PROFIT OF RS.44.77 LAC WITH THE OVERALL GP RATE OF 40.7%, I N COMPARISON WITH THE CURRENT YEARS TOTAL SALES OF RS.5.62 CRORE AND GRO SS PROFIT OF RS.2.87 CRORE, GIVING GP RATE OF 51.02%. THE LD. CIT FURT HER OBSERVED THAT ITA NO.1182/DEL/2010 8 SALES TO TWO OF THE RELATED CONCERNS, NAMELY, ORIEN T EXPRESS AND M/S SUNDARAM ENTERPRISES INCREASED FROM LAST YEARS 45% OF THE TOTAL SALES TO THE CURRENT YEARS 79%. ABOUT FABRICATION CHARG ES PAID TO M/S KISHAN ENTERPRISES AND M/S SANDEEP LEATHER WORKS, T HE LD. CIT OBSERVED THAT THE AO DID NOT EXAMINE THE MEMORANDUM OF UNDERSTANDING. IN THE ULTIMATE PARA, THE LD. CIT H ELD THAT THE CLAIM OF DEDUCTION U/S 80IC WAS NOT PROPERLY EXAMINED BY THE AO INASMUCH AS CERTAIN DETAILS WHICH WERE REQUIRED TO BE TAKEN NOT E OF WERE NOT LOOKED INTO. HE, THEREFORE, SET ASIDE THE ASSESSMENT ORDE R WITH THE DIRECTION TO THE AO TO VERIFY THE DETAILS AND COMPUTE THE CORREC T AMOUNT OF DEDUCTION U/S 80IC OF THE ACT. THE ASSESSEE IS AGG RIEVED AGAINST THIS ORDER. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE WANT TO CLARIFY THAT THE MA NDATE OF SECTION 263 IS ATTRACTED ONLY WHEN THE ASSESSMENT ORDER IS FOUN D TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THESE T WIN CONDITIONS HAVE TO BE CUMULATIVELY SATISFIED FOR OBTAINING A VALID JUR ISDICTION UNDER THIS ITA NO.1182/DEL/2010 9 SECTION. MERELY BECAUSE AN ASSESSMENT ORDER IS PREJ UDICIAL TO THE INTEREST OF THE REVENUE IS NOT ENOUGH, UNLESS IT IS SHOWN TH AT THE SAME IS ERRONEOUS TOO. AN ASSESSMENT ORDER CAN BE TERMED AS ERRONEOUS IN SEVERAL CIRCUMSTANCES. NON-INVESTIGATION BY THE AO ON THE RELEVANT ISSUES, WHICH ARE REQUIRED TO BE PROPERLY LOOKED IN TO, MAKES AN ASSESSMENT ORDER ERRONEOUS. HOWEVER, NON-EXAMINATI ON OF THE TRIVIAL OR INSIGNIFICANT ISSUES CANNOT LEAD TO MAKING AN ASSES SMENT ORDER ERRONEOUS. MAKING DUE INVESTIGATION BUT THEREAFTE R TAKING A PATENTLY ERRONEOUS VIEW, ALSO MAKES AN ASSESSMENT ORDER ERRO NEOUS. A LINE OF DISTINCTION SHOULD BE DRAWN BETWEEN PATENTLY ERRONE OUS VIEW AND ACCEPTING ONE OF THE POSSIBLE VIEWS. ONLY THE FORM ER MAKES AN ASSESSMENT ORDER ERRONEOUS AND NOT THE LATER. IN O THER WORDS, IF THERE IS A DEBATABLE ISSUE AND THE AO HAS TAKEN ONE OF THE P OSSIBLE AND LEGALLY SUSTAINABLE VIEWS, THEN THAT ASPECT GOES OUTSIDE TH E REALM OF REVISION. ANOTHER SITUATION OF AN ERRONEOUS ORDER MAY BE WHEN INVESTIGATION WAS MADE BY THE AO, BUT THE CIRCUMSTANCES SUGGEST THAT FURTHER INVESTIGATION WAS WARRANTED, WHICH THE AO FAILED TO MAKE. THIS WO ULD ALSO MAKE THE ASSESSMENT ORDER ERRONEOUS. BUT THE MERE FACT THAT THE AO CHOOSES NOT ITA NO.1182/DEL/2010 10 TO INCORPORATE CERTAIN ISSUES IN THE ASSESSMENT ORD ER ON WHICH HE GETS SATISFIED DURING THE COURSE OF HEARING AFTER PROPER EXAMINATION, CANNOT BE LEAD TO THE PASSING OF AN ERRONEOUS ASSESSMENT O RDER. IF MATERIAL ON RECORD SUGGESTS THAT THE AO DID EMBARK UPON THE INV ESTIGATION AND GOT SATISFIED AND FURTHER THERE IS NOTHING TO PROMPT FU RTHER INVESTIGATION, THEN THE ASSESSMENT ORDER CANNOT BE CHARACTERIZED A S ERRONEOUS SIMPLY BECAUSE THERE IS NO DISCUSSION IN THE ASSESSMENT OR DER ON SUCH ASPECTS. IF A VIEW IS TAKEN THAT NON-DISCUSSION OF AN ISSUE IN THE ASSESSMENT ORDER ON WHICH THE AO IS SATISFIED, MEANS THE ABSENCE OF APPLICATION OF MIND BY THE AO, THEN PROBABLY ALL THE ASSESSMENT ORDERS WOULD BECOME ERRONEOUS. IT IS SO FOR THE REASON THAT THE AO CANN OT BE EXPECTED TO DISCUSS EACH AND EVERY, SIGNIFICANT OR INSIGNIFICAN T ASPECT OF ASSESSMENT, IN HIS ORDER. THE ESSENCE OF THE MATTER IS THAT ON THE NON-DISCUSSED RELEVANT ISSUES IN THE ASSESSMENT ORDER, SO LONG AS THERE IS MATERIAL TO SUGGEST THAT THE AO CONDUCTED INQUIRY AND THE ASSES SEE DID FILE REPLY ON THEM, THE ASSESSMENT ORDER CANNOT BE HELD AS ERRONE OUS, UNTIL IT IS SHOWN THAT THE CIRCUMSTANCES REQUIRED THE AO TO CONDUCT F URTHER INQUIRY ON SUCH ISSUES. ITA NO.1182/DEL/2010 11 5. COMING TO THE FACTS OF THE INSTANT CASE, IT IS OBSERVED THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80IC FOR THE FIRST T IME IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, NAMELY, AY 2005-06 IN RE SPECT OF PROFIT FROM THE MANUFACTURING UNIT ESTABLISHED AT BADDI IN HIMACHAL PRADESH. THE ASSESSMENT FOR THE AY 2005-06 WAS TAKEN UP BY T HE AO U/S 143(3) AND THE CLAIM OF DEDUCTION U/S 80IC WAS ALLOWED AS CLAIMED. A COPY OF THE ASSESSMENT ORDER FOR THE AY 2005-06 IS AVAILABL E ON RECORD. THIS SHOWS THAT ALL THE PRE-REQUISITES FOR THE CLAIM OF DEDUCTION U/S 80IC WERE EXAMINED BY THE AO IN FINALIZING THE ASSESSMENT FOR THE EARLIER YEAR AND HE GOT FULLY SATISFIED WITH THE ELIGIBILITY OF DEDU CTION. THE INSTANT YEAR IS SECOND YEAR OF THE CLAIM FOR DEDUCTION U/S 80IC. W ITH THE ABOVE BACKGROUND IN MIND, WE WILL TAKE UP ALL THE OBJECTI ONS RAISED BY THE LD. CIT ONE BY ONE AND SEE IF THE ASSESSMENT ORDER CAN BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 6. THE FIRST OBJECTION OF THE LD. CIT IS THAT THE A SSESSEE HAD NOT UNDERTAKEN SUBSTANTIAL EXPANSION AND, THUS, THE BAS IC PRE-REQUISITE FOR DEDUCTION U/S 80IC WAS NOT SATISFIED. WE CANNOT AC CEPT THIS OBJECTION OF ITA NO.1182/DEL/2010 12 THE LD. CIT FOR THE REASON THAT THE ASSESSEE CLAIME D DEDUCTION UNDER THIS SECTION FOR THE SECOND YEAR IN LINE. SUCH DEDUCTION WAS CLAIMED FOR THE FIRST TIME IN THE IMMEDIATELY PRECEDING YEAR AND TH E AO DULY ALLOWED THE SAME, WHICH AUTOMATICALLY IMPLIES THAT ALL THE PRE-REQUISITE CONDITIONS FOR THE CLAIM OF DEDUCTION U/S 80IC WERE DULY EXAMINED BY THE AO AND FOUND TO BE SATISFIED. ONCE ALL THE PRER EQUISITE CONDITIONS FOR AVAILABILITY OF DEDUCTION U/S 80IC HAVE BEEN CONSID ERED BY THE AO AND FOUND TO BE SATISFIED, THEN IT IS NOT OPEN TO ANY A UTHORITY TO RECONSIDER SUCH PREREQUISITE CONDITIONS IN THE SUBSEQUENT YEAR S AS WELL. THERE IS NO DEARTH OF JUDICIAL PRECEDENTS FOR THIS PROPOSITION. IN VIEW OF THE FACT THAT THE PRE-REQUISITE CONDITIONS CAN BE EXAMINED IN THE FIRST YEAR OF THE CLAIM, WHICH WERE DULY FOUND TO HAVE BEEN FULFILLED IN THE PRECEDING YEAR, WE ARE OF THE CONSIDERED OPINION THAT THIS OB JECTION OF THE LD. CIT THAT THE ASSESSEE DID NOT UNDERTAKE SUBSTANTIAL EXP ANSION, IS BEREFT OF ANY FORCE. THE SAME IS, THEREFORE, DISMISSED. 7. THE SECOND OBJECTION OF THE LD. CIT IS THAT NEW MACHINERY TO THE MINIMUM EXTENT OF 80% OF TOTAL MACHINERY WAS TO BE USED IN THE ITA NO.1182/DEL/2010 13 MANUFACTURING ACTIVITY BY M/S FORTUNE AT BADDI, HIM ACHAL PRADESH, BEING THE ELIGIBLE UNIT. HERE AGAIN, WE FIND THAT THE LD. CIT IS DISCUSSING ABOUT THE ELIGIBILITY CONDITIONS FOR CLAIM OF DEDUC TION U/S 80IC, WHICH CANNOT BE RE-VISITED IN THE SECOND YEAR. 8.1. OBJECTION NOS. 3 AND 4 OF THE LD. CIT ARE THAT THE ASSESSEE MADE SALES TO ITS RELATED CONCERNS, NAMELY, M/S ORIENT E XPRESS, M/S SUNDARAM ENTERPRISES AND M/S FORTUNE LEATHER COMPANY AND THE AO DID NOT VERIFY WHETHER THE SALES WERE MADE AT THE PREVAILIN G MARKET PRICE OR WHETHER THE PROFIT IN RESPECT OF BADDI UNIT WAS MOR E THAN NORMAL PROFIT WHICH WOULD ACCRUE IN SUCH BUSINESS. WE FIND SOME FORCE IN THIS OBJECTION FOR THE REASON THAT THE LD. CIT FOUND THA T THE ASSESSEE MADE SALE TO ITS TWO RELATED COMPANIES DEPICTING GROSS P ROFIT MARGIN OF MORE THAN 51% IN THIS YEAR IN COMPARISON WITH THE PRECED ING YEARS GROSS PROFIT RATE FROM SALES TO THESE COMPANIES AT 40%. IT CAN BE OBSERVED FROM THE MATERIAL ON RECORD THAT NO INVESTIGATION W AS CARRIED OUT TO VERIFY THE PRICE CHARGED BY THE ASSESSEE FROM THESE COMPANIES. ITA NO.1182/DEL/2010 14 8.2. THIS IS AN ISSUE ON WHICH ALBEIT INVESTIGATI ON WAS STARTED, BUT FURTHER INVESTIGATION WAS REQUIRED BECAUSE OF THE A TTENDING FACTS SUGGESTING A STEEP INCREASE IN THE GROSS PROFIT RAT E PURPORTEDLY EARNED FROM THE RELATED CONCERNS. EARNING GROSS PROFIT AT MORE THAN 50% IN THIS LINE OF MANUFACTURING DOES NOT INSPIRE CONFIDENCE O F ACCEPTANCE AT THE FACE VALUE, MORE SO, WHEN THE PROFIT OF SUCH ELIGIB LE UNIT IS SUBJECT TO FULL DEDUCTION. AS SALES TO THE RELATED COMPANIES CONSTITUTED ROUGHLY 80% OF THE TOTAL TURNOVER AND THERE WAS ABNORMAL PR OFIT SHOWN, IT WAS INCUMBENT UPON THE AO TO INVESTIGATE THIS ASPECT OF THE MATTER FURTHER RATHER THAN STOPPING AT THE RECEIPT OF SALES ACCOUN T. IN OUR CONSIDERED OPINION, THE LD. CIT WAS JUSTIFIED IN DIRECTING THE AO TO RE-EXAMINE THIS ASPECT OF THE ASSESSEES CLAIM FOR DEDUCTION U/S 80 IC. WE UPHOLD THESE OBJECTIONS TAKEN BY THE LD.CIT. 9. OBJECTION NO. 5 OF THE LD. CIT IS AGAINST PAYMEN T FOR FABRICATION CHARGES AMOUNTING TO RS.67.24 LAC MADE TO M/S KISHA N ENTERPRISES AND M/S SANDEEP LEATHER WORKS AS JOB WORK. IT WAS EXPL AINED TO THE LD. CIT THAT THESE LABOUR CONTRACTORS WERE RENDERING SE RVICES IN THE ITA NO.1182/DEL/2010 15 ASSESSEES PREMISES. IN SUPPORT OF THIS CONTENTION , THE ASSESSEE FILED PROOF OF ITS HAVING MADE PAYMENT OF ESI/PF, ETC., I N RESPECT OF PAYMENT MADE TO THE WORKERS OF THESE TWO CONTRACTORS TO WHO M SUCH FABRICATION CHARGED WERE PAID. THIS EXPLANATION HAS REMAINED U NCONTROVERTED AT THE END OF THE LD. CIT. IT IS BUT NATURAL THAT IF THE ASSESSEE GETS THE JOB WORK DONE IN ITS OWN PREMISES AND UNDER ITS OWN CONTROL AFTER DEDUCTING EMPLOYEES PROVIDENT FUND, ETC. FROM THE PAYMENT MA DE TO THE LABOUR, IT CAN BE CONSTRUED AS MANUFACTURING ACTIVITY UNDERTAK EN BY THE ASSESSEE ALONE. THIS OBJECTION TAKEN BY THE LD. CIT IS NOT SUSTAINABLE. 10. OBJECTION NO. 6 OF THE LD. CIT IS ABOUT THE PAY MENT OF ELECTRICITY EXPENSES. THE LD. CIT OBSERVED THAT THE AO DID NOT EXAMINE WHETHER THE ELECTRICITY CHARGES WERE DIRECT MANUFACTURING E XPENSES OR THE AMOUNTS REIMBURSED TO THE PARTIES WHO CARRIED OUT J OB WORK. THE ASSESSEE TENDERED BEFORE THE LD. CIT THAT THERE WA S NO REIMBURSEMENT OF EXPENSES INCURRED BY ANY THIRD PARTY AND ALL THE EX PENSES INCURRED AND CLAIMED WERE FOR SELF, INASMUCH AS THE ASSESSEE HA D SANCTIONED LOAD OF 58 KW AND THE ELECTRICITY CHARGES PAID WERE FOR THE CONSUMPTION OF ITA NO.1182/DEL/2010 16 ELECTRICITY AT THE UNDERTAKING ALONE. COPIES OF BIL LS WERE ALSO ENCLOSED TO THE LD. CIT. SINCE THESE DETAILS HAVE NOT BEEN REF UTED BY THE LD. CIT, THE INFERENCE HAS TO BE DRAWN IN FAVOUR OF THE ASSESSEE THAT THE ELECTRICITY EXPENSES WERE IN RESPECT OF ITS OWN UNIT AND AS SUC H THE AO WAS JUSTIFIED IN ACCEPTING THE ASSESSEES CLAIM ON THIS ASPECT OF THE MATTER. 11.1. OBJECTION NO. 7 OF THE LD. CIT IS THAT THE ASSESSEE HAD ELIGIBLE UNIT OF M/S FORTUNE AT BADDI, HIMACHAL PRADESH AND ANOTHER AT KAPASHERA, DELHI. HE OBSERVED THAT IN RESPECT OF K APASHERA UNIT THERE WAS A LOSS OF RS.65,326/-, WHEREAS IN RESPECT OF BA DDI UNIT, THERE WAS SUBSTANTIAL BUSINESS PROFIT FOR WHICH DEDUCTION WAS CLAIMED U/S 80IC. THE ASSESSEE CONTENDED BEFORE THE LD. CIT THAT ONLY THE BADDI UNIT HAD UNDERTAKEN MANUFACTURING AND SELLING ACTIVITY, WHER EAS KAPASHERA DELHI WAS SIMPLY ITS ADMINISTRATIVE OFFICE WHICH WAS NOT UNDERTAKING ANY BUSINESS ACTIVITY. THE LD. CIT DID NOT CONTROVERT THE ARGUMENT OF THE ASSESSEE. 11.2. IT IS OBVIOUS THAT KAPASHERA DELHI OFFICE WAS NOT UNDERTAKING ANY INCOME PRODUCING ACTIVITY AND THE LOSS OF RS.65 ,326/- WAS ONLY ITA NO.1182/DEL/2010 17 TOWARDS ADMINISTRATIVE EXPENSES INCURRED BY IT, AS SUCH, THERE CAN BE NO QUESTION OF SHIFTING PROFIT FROM THE ELIGIBLE UNIT AT BADDI TO KAPASHERA DELHI. WE, THEREFORE, REJECT THIS OBJECTION TAKEN BY THE LD. CIT. 12. THE OTHER OBJECTIONS TAKEN AT SL. NO. 8, 9 AND 10, NAMELY, EXAMINATION OF SPLITTING UP OR RE-CONSTRUCTION OF A NY EXISTING BUSINESS; EXAMINATION OF ACTUAL EXISTENCE OF MANUFACTURING AC TIVITY VIS--VIS FACTORY; AND NO ACTUAL MANUFACTURING ACTIVITY HAVI NG BEEN CARRIED OUT BY THE ASSESSEE ON ITS OWN, ARE IN THE REALM OF PRE-RE QUISITE CONDITIONS FOR THE ELIGIBILITY OF DEDUCTION U/S 80IC, WHICH CAN BE EXAMINED WHEN THE CLAIM OF DEDUCTION IS MADE FOR THE FIRST TIME. SIN CE THE ASSESSEE WAS ALLOWED DEDUCTION U/S 80IC FOR THE FIRST TIME IN TH E IMMEDIATELY PRECEDING ASSESSMENT YEAR, WE ARE OF THE CONSIDERED OPINION THAT THERE CAN BE NO LOGIC IN ONCE AGAIN TAKING UP SUCH OBJECT IONS IN THE SECOND YEAR OF CLAIM OF DEDUCTION U/S 80IC. THESE OBJECTI ONS ARE DISMISSED AS THE ASSESSMENT ORDER CANNOT BE HELD TO BE LACKING O N THESE ASPECTS. 13. THE SUM AND SUBSTANCE OF THE ABOVE DISCUSSION I S THAT THE ORDER OF THE LD. CIT IS SUSTAINABLE ON OBJECTION NOS. 3 AND 4 AND NOT ON THE ITA NO.1182/DEL/2010 18 REMAINING EIGHT. IN SUCH A SCENARIO, THE ENTIRE ORD ER CANNOT BE SET ASIDE. IT GOES WITHOUT SAYING THAT IF THE ORDER PASSED U/S 263 IS SUSTAINABLE ON ONE OF THE VARIOUS OBJECTIONS TAKEN BY THE LD. CIT AND NOT ON OTHERS, THE ORDER IS NOT VITIATED. HOWEVER, THE DIRECTION TO TH E AO BY THE LD. CIT GETS RESTRICTED TO THE POINTS ON WHICH THE ORDER IS SUSTAINABLE. AS THE IMPUGNED ORDER IS SUSTAINABLE IN RESPECT OF TWO OBJ ECTIONS ONLY, WE DIRECT THE AO TO RESTRICT HIMSELF ONLY ON THESE ISS UES IN THE ASSESSMENT TO BE FINALIZED U/S 143(3) PURSUANT TO THE ORDER U/S 2 63 OF THE ACT. 14. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 08.04.201 5. SD/- SD/- [C.M. GARG] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 08 TH APRIL, 2015. DK ITA NO.1182/DEL/2010 19 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.