M/s Praveen Industries Ltd., New Delhi V. DCIT, New Delhi

ITA 1790/DEL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3822 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 12-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 28-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Keywords: Reasonable cause; Assessment record
• Section: 43B; 10B; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI F BENCH, NEW DELHI BEFORE SHRI S.K. YADAV , JUDICIAL MEMBER. SHRI B.P. JAIN, ACCOUNTANT MEMBER AND ITA NO. 17 90 /DEL/201 3 [A.Y. 20 09 - 10 ] M/S PRAVEEN INDUSTRIES LTD VS. THE DY .C.I.T 32, PHASE II, BADLI INDUSTRIAL ESTATE CIRCLE 1 4 (1) NEW DELHI NEW DELHI P AN : AA A C P 4029 K ITA NO. 2239 /DEL/201 3 [A.Y. 20 09 - 10 ] THE DY. C.I.T VS. M/S PRAVEEN INDUSTRIES LTD CIRCLE 14 (1) 32, PHASE II, BADLI INDUSTRIAL ESTATE NEW DELHI NEW DELHI P AN : AA A C P 4029 K [APPELLANT] [RESPONDENT] DATE OF HEARING : 25 . 1 0.2017 DATE OF PRONOUNCEMENT : 26 . 1 0.2017 ASSESSEE BY : SHRI GAUTAM JAIN, ADV SHRI LALIT MOHAN , CA REVENUE BY : S MT. PARAMITA TRIPATHY , CIT - DR 2 ORDER PER B ENCH : - THESE CROSS APPEALS - ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE FROM THE ORDER OF LD. CIT(A) - XXVII , NEW DELHI VIDE ORDER DATED 3 1.1.2013 FOR THE A.Y. 20 09 - 10 . SINCE THE APPEALS PERTAIN TO SAME ASSESSEE AND WERE HEARD TOGETHER INVOLVING IDENTICAL ISSUES, WE ARE DISPOSING THEM OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2 . IN ITA NO. 1790/D/2013 , T HE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1 . THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) XVII, NEW DELHI HAS ERRED BOTH IN LAW AND ON FACTS IN UPHOLDING DISALLOWANCE OF RS. 46,62,180/ - OUT OF CLAIM OF DEDUCTION U/S 10B OF THE ACT 1 . 1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT ONCE THERE ARE SEPARATE BOOKS OF ACCOUNTS MAINTAINED FOR EACH OF THE UNITS AND NO DEFECT WAS POINTED OUT IN SUCH BOOKS OF ACCOUNTS, THE CONCLUSION TO REDUCE THE ELIGIBLE PROFITS FOR CLAIM O F DEDUCTION ON ACCOUNT OF ALLEGED COMMON EXPENSES IS INCORRECT AND UNSUSTAINABLE. 3 2. THAT WITHOUT PREJUDICE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THAT THE METHOD ADOPTED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME T AX TO ALLOCATE THE ALLEGED EXPENSES ON TURNOVER BASIS INSTEAD OF ORDER BASIS IS NOT JUSTIFIED AND THUS, UNTENABLE. IT IS THEREFORE PRAYED THAT DISALLOWANCE MADE AND SUSTAINED OF RS. 46,62,180/ - MAY KINDLY BE DELETED AND APPEAL OF THE APPELLANT COMPANY BE ALLOWED. 2 IN ITA NO. 2239/D/2013 , THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1 . THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE 4 TH PROVISO TO SECTION B OF THE ACT IS MERELY DIRECTORY AND NOT MANDATORY BY IGNORING THE FACT THAT HIS PROVISO WAS INSERTED AS AN AMENDMENT WITH SPECIFIC LEGISLATIVE INTENT. 2 . THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING DEDUCTION U/S 10B OF TH E ACT WHEREAS THE ASSESSEE HAD NO REASONABLE CAUSE FOR JUSTIFICATION FOR DELAY IN FILING ITS INCOME TAX RETURN. 3 . THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT, WHEREAS THE ASSESSEE HAD NOT DEDUCTED TA X AT SOURCE AT THE TIME OF CREDIT OR INCOME TAX RETURN. 4 4 THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH GROUNDS OF APPEAL AND/OR DELETED OR AMEND ANY OF THE GROUNDS OF APPEAL. 3. THE BRIEF FACTS IN THE PRESENT APPEAL S ARE THAT THE ASSESSEE IS A MANUFACTURER OF OIL FIELD EQUIPMENTS AND ON E OF THE UNIT AT KUNDLI IS ELIGIBLE FOR EXEMPTION U/S 10B OF THE I.T. ACT, 1961. THE ASSESSEE FILED ITS RETURN OF INCOME ON 1.10.2009 DECLARING A TOTAL INCOME OF RS. 32,33,15,220/ - . SUBSEQUENTLY , A REVISED RET URN WAS FILED ON 8.9.2010 AT AN INCOME OF RS. 32,37,34,480/ - . THE ASSESSEE CLAIMED 10B EXEMPTION OF RS. 11,97,02,143/ - FOR ITS KUNDLI UNIT - II ALONE. THE ASSESSMENT ORDER WAS COMPLETED ON 29.12.2011 AFTER DISALLOWING 10B DEDUCTION OF RS. 11,97,02,143/ - . TH E AO HELD THAT THE ASSESSEE IS NOT ENTITLED FOR 10B DEDUCTION AS THE CONDITION LAID DOWN AS PER THE PROVISO TO SECTION 10B(1) IS NOT SATISFIED SINCE THE RETURN OF INCOME WAS NOT FILED ON OR BEFORE THE DUE DATE. THE AO ALSO MADE AN ALTERNATIVE FINDING THAT CERTAIN EXPENSES RELATING TO THE 10B UNIT AT KUNDLI - II WAS DEBITED IN THE OTHER UNITS OF THE APPELLANT AND THEREFORE THE AO HAS APPORTIONED THESE EXPENSES IN THE RATIO OF TURNOVER OF VARIOUS UNITS AND CONCLUDED THAT PROFIT OF THE 10B UNIT NEEDS TO BE REDU CED BY RS. 98,75,934/ - . THE AO ALSO DISALLOWED RS. 1,75,197/ - U/S 43B AS THE PER AUDIT REPORT RS. 3,75,000/ - WAS ADDED BACK BEING DONATION AND RS. 24,000/ - WAS DISALLOWED U/S 40( A ) (IA) OF THE ACT, 1961. THE LD. CIT(A) 5 VIDE ORDER DATED 31.1.2013 ALLOWED T HE CLAIM OF DEDUCTION U/S 10B OF THE ACT AND AS REGARDS THE ALTERNATIVE DISALLOWANCE MADE OF RS. 98,75,934/ - U/S 10B OF THE ACT RESTRIC TED THE SAME TO RS. 46,62,180/ - BY HOLDING THAT EVEN IF 80IA(8) IS NOT APPLICABLE, HOWEVER 80IA(10) IS APPLICABLE . BOTH ASSESSEE AND REVENUE BEING AGGRIEVED HA VE PREFERRED THE INSTANT APPEALS. 5 . IN ITA NO. 2239/D/2013 , GROUNDS 1 AND 2 RAISED BY THE REVENUE RELATES TO DENIAL OF DEDUCTION U/S 10B OF THE ACT ON THE GROUND THAT THE RETURN WAS FILED BEYOND THE DUE DATE PROVIDED U/S 139(1) OF THE ACT. IT HAS BEEN CONTENDED THAT 4 TH PROVISO TO SECTION 10B OF THE ACT IS MANDAT ORY AND SINCE ASSESSEE HAD NO REASONABLE CAUSE FOR DELAY IN FILING OF RETURN, CLAIM OF DEDUCTION OUGHT TO HAVE BEEN DISALLOWED. 6 THE CIT(A) WHILE ALLOWING THE CLAIM OF DEDUCTION HAS HELD AS UNDER: THE ASSESSMENT RECORDS AND THE ORDER SHEET ENTRIES GA VE NO INDICATION OF ANY QUERY BEING RAISED BY THE AO REGARDING THE BELATED FILING OF RETURN. FROM THE EVIDENCE AVAILABLE THE RETURN OF INCOME MUST HAVE BEEN EITHER FILED ON 30.09.2009 OR ON 01.10.2009 AS THE DATE OF FILING REFLECTED IN THE EFILING RECEIPTS IS 01.10.2009. THE POSSIBILITY OF ANY COMPUTER HITCH HAPPENING AROUND THE MIDNIGHT OF 30.09.2009 CANNOT BE RULED OUT COMPLETELY. THE LIKELIHOOD OF COMPUTER ACCEPTING THE RETURN 6 FILED BY THE APPELLANT AFTER MIDNIGHT OF 30.09.2009 AND THEREFORE GIVING THE A CKNOWLEDGEMENT DATE AS 01.10.2009 CANNOT BE RULED OUT. THERE IS NOTHING ON RECORD TO INDICATE THE TIME WHEN THE APPELLANT STARTED ENTERING THE DETAILS REGARDING THE RETURN OF INCOME IN THE DEPARTMENTS COMPUTER SYSTEM AND AT WHAT TIME THIS PROCESS WAS ACTU ALLY COMPLETED. THE PROVISIONS RELATING TO THE FILLING OF RETURN ENVISAGES MANUAL FILING OF RETURN WHICH USUALLY CORRESPONDS WITH OFFICER HOURS W HILE E - FILING CAN TAKE PLACE EVEN AFTER OFFICE HOURS. THE E - FILING IS ALSO A TIME CONSUMING PROCESS AND EVEN IF THE RETURN IS FILED BEFORE MIDNIGHT THE ACCEPTANCE BY THE SYSTEM AND THE GENERATION OF ACKNOWLEDGEMENT MAY HAVE HAPPENED AFTER MIDNIGHT. THUS, THE POSSIBILITY OF THE APPELLANT BEING DENIED THE BENEFIT OF SECTION 10B DUE TO THE IMPROPER FUNCTIONING OF DEPA RTMENT COMPUTER NETWORK CANNOT BE RULED OUT IN THIS CASE AS THE DELAY IN THIS CASE MAY BE COUPLE OF SECOND OR EVEN HOURS. I AM OF THE VIEW THAT IN SUCH CIRCUMSTANCES IN THE ABSENCE OF ANY CONCRETE EVIDENCE THE BENEFIT OF DOUBT SHOULD BE IN FAVOUR OF THE AP PELLANT WHO HAD BEEN DENIED 10B DEDUCTION AMOUNTING TO RS. 11,97,02,143/ - . 7 . HAVING CONSIDERED THE RIVAL SUBMISSION S , WE FIND THAT IN THE INSTANT CASE THE RETURN OF INCOME WAS FILED ON 1.10.2009 AS AGAINST THE DUE DATE 30.9.2009. THE CBDT VIDE ORDER DATED 19.11.2014 U/S 119(2)(A)/119(2)(B) OF THE ACT IN F.NO. 197/1/2013 - ITA BY DCIT - OSD ( ITA. 1) HAS CONDONED THE DELAY IN FILING OF RETURN AND OBSERVED IN THE ORDER AS UNDER: 7 IN EXERCISE OF THE POWERS CONFERRED UPON IT BY SECTION 119(2)(B) OF THE INCOME TAX ACT, 1961( THE ACT) , THE CENTRAL BOARD OF DIRECT TAXES HEREBY AUTHORIZES THE ASSESSING OFFICER TO ADMIT THE RETURN OF INCOME FOR ASSESSMENT YEAR 2009 - 10 FILED BY THE ASSESSEE ON 01.10.2009 AS A RETURN FILED BY THE DUE DATE SPECIFIED UNDER SECTION 139(1) OF THE ACT AND TO DEAL WITH THE RETURN ON MERITS AS PER THE PROVISION OF LAW. 8 . THUS , ONCE CBDT HAS HELD THAT RETURN HAS BEEN FILED WITHIN THE DUE DATE U/S 139(1) OF THE ACT , THE DISPUTE AS TO ALLOWABILITY OF CLAIM U/S 10B ON THE GROUND OF DELAY IN FILING OF RETURN HAS CEASED TO EXIST. EX - CONSEQUENTI , THE GROUNDS RAISED BY THE REVENUE ARE NOT MAINTAINABLE AND ARE , THEREFORE , REJECTED. 9 . GROUND 3 RAISED BY THE REVENUE RELATES TO DELETION OF DISALLOWANCE OF RS. 24,000/ - U/S 40(A))(IA) OF THE ACT. THE CIT(A) AT PAGE 14 IN PARA 7 HAS HELD THAT SINCE NO SUM WAS PAYABLE AT THE END OF YEAR, THEREFORE EXPENDITURE INCURRED AND CLAIMED UNDER THE HEAD LEGAL EXPENSES OF RS. 24,000/ - COULD NOT BE DISALLOWED BY INVOKING SECTION 40(A)(IA) OF THE ACT. HOWEVER , DURING THE COURSE OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT THE ISSUE IS TO BE DECIDED AGAINST THE ASSESSEE IN VIEW OF THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF PALAM GAS SERVICE V. CIT 394 ITR 300. IN 8 VIEW OF THE ABOVE SUBMISSION , DISALLOWANCE MADE IS UPHELD AND, GROUND RAISED IS ALLOWED. ITA NO. 1790/D EL /2013 (ASSESSEE S APPEAL ) 10 . NOW WE TAKE UP ASSESSEES APPEAL. ALL THE GROUNDS RAISED RELATE TO THE DISALLOWANCE SUSTAINED BY THE CIT(A) U/S 10B OF THE ACT. THE FACTUAL MATRIX OF THE CASE IS THAT AO HAS HELD THAT ALTERNATIVELY DEDUCTION U/S 10B IS TO BE RESTRICTED BY RS. 98,75,934/ - . THE AFORESAID FIGURE WAS ARRIVED BY ALLOCATING COMMON EXPENDITURE ON TURNOVER BASIS TO THE ELIGIBLE UNIT. THE CIT(A) HAS RESTRICTED THE AFORESAID ALLOCATION TO RS. 46,62,180/ - FOR WHICH THE ASSESSEE IS IN APPEAL BEFORE US AND THERE IS NO APPEAL BY THE REVENUE AGAINST THE RELIEF GRANTED OF RS. 52,13,754. 11 . THE CIT(A) WHILE APPROVING THE ALLOCATION HAS RELIED ON THE PROVISIONS CONTAINED IN SECTION 80IA(10) OF THE ACT. HE HAS HELD AS UNDER: EVEN IF 801A(8) IS NOT APPLI CABLE, 80A(10) IS CLEARLY APPLICABLE IN THIS CASE IN VIEW OF 10B (7) AND THE RELEVANT PROVISIONS OF SECTION 80A (10) IS AS FOLLOWS: 9 WHERE IT APPEARS TO THE AO THAT, OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION 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 AO SHALL, IN COMPUTING THE PROFITS AND GAINS OF 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 THERE FROM. IT IS CLEAR FROM THE ASSESSMENT ORDER THAT MORE THAN ORDINARY PROFITS HAVE ARISEN TO THE ELIGIBLE BUSINESS AND THEREFORE THE PROVISIONS OF SECTION 80A(10) ARE APPLICABLE IN THE CASE OF THE APPELLANT. 12 . DURING THE COURSE OF HEARING BEFORE US, THE LD. AR SUBMITTED THAT SECTION 80IA(10) OF THE ACT HAS NO APPLICATION. HE HAS RELIED ON THE DECISION ON THE DECISION OF CHANDIGARH BENCH IN THE CASE OF ITO V. GILVERT ISPAT ITA NO. 1303/CHD/2012 DATED 27.2.2013 AND JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. KULJEET SINGH KOCHAR ITA NO. 390/2017 DATED 24.2.017. AS REGARDS ALLOCATION OF EXPENSES HE CONTENDED ONCE SEPARATE BOOKS OF ACCOUNT HAVE BEEN MAINTAINED FOR EACH UNIT THE AO COULD NOT HAVE VALIDLY PROCEEDS TO ALLOCATE EXPENSES FROM NON - ELIGIBLE UNIT TO THE ELIGIBLE UNIT AND THA T TOO WHEN THE BOOKS OF ACCOUNT AS MAINTAINED HAVE BEEN ACCEPTED AS SUCH, MORE 10 PARTICULARLY WHEN EACH UNIT IS AT SEPARATE PHYSICAL LOCATION AND IS ENGAGED IN MANUFACTURING OF DIFFERENT KINDS OF PRODUCTS. RELIANCE WAS PLACED ON FOLL OWING JUDGMENTS: I) CIT V. TRANSLAM LTD. 231 TAXMAN 901 (ALL) II) CIT V. DELHI PRESS SAMACHAR PATRA PRAKASHAN (P) LTD. 296 ITR 210 (AT) AFFIRMED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. DELHI PRESS SAMACHAR PATRA PRAKASHAN 355 ITR 1 III) CADI LA HEALTHCARE LTD. V. ADDL. CIT 67 SOT 110 (AHD) IV) ACIT V. P.I. INDUSTRIES 143 TTJ 353 (JODH) V) ACIT V. MICRO TURNERS ITA NO. 4569/D/2011 DATED 15.2.2013 13 . THE LD. CIT DR SUPPORTED THE STAND OF CIT(A) AND SUBMITTED THAT ALLOCATION WAS FAIR AND REASONABLE. SHE CONCEDED THAT THOUGH BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED BUT THE DISALLOWANCE BY INVOKING SECTION 80IA(10) OF THE ACT IS VALID AND PROPER AND HAS BEEN MADE AFTER DUE EXAMINATION AND FACTS ON RECORD. 14 . W E HAVE CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. SECTION 80IA(10) OF THE ACT WHICH HAS BEEN MADE THE BASIS FOR IMPUGNED ALLOCATION PROVIDES AS UNDER: (10) WHERE IT APPEARS TO THE ASSESSING OFFICER THAT, OWING TO THE CLOSE CONNE CTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN 11 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 ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF 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 . 15 . THE PERUSAL OF THE AFORESAID SAID SECTION SHOWS THAT SAME IT COMES INTO APPLICATION ONLY WHERE THERE IS ANY SATISFACTION OF THE ASSESSING OFFICER THAT OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS AND ANY OTHER PERSON OR FOR ANY OTHER REASON THE COURSE BETWEEN THERE IS SO ARRANGED THAT BUSINESS TRANSACTED PRODUCES MORE THAN ORDINARY PROFITS. IN OTHER WORDS THE STATUTORY AND MANDATORY PRECONDIT ION FOR INVOKING SECTION 80IA(10) OF THE ACT IS THAT THERE MUST BE TRANSACTION BETWEEN AN ASSESSEE CARRYING ON ELIGIBLE BUSINESS AND ANY OTHER PERSON WHEREBY THERE ARE MORE THAN ORDINARY PROFITS IN THE ELIGIBLE BUSINESS. IN THE INSTANT CASE FROM THE PERU SAL OF MATERIAL ON RECORD, IT IS NOTED THAT THERE ARE NO TRANSACTION BETWEEN THE ELIGIBLE UNIT AND ANY OTHER PERSON WHO IS CLOSELY CONNECTED WITH THE ASSESSEE COMPANY. THUS SINCE THERE ARE NO THIRD PARTY TRANSACTION WHICH ARE ACCOUNT OF CLOSE CONNECTION , THE APPLICATION OF SECTION 80IA(10) IS NOT JUSTIFIED. 12 16 . MOREOVER THE EDIFICE OF INVOKING OF SECTION 80IA(10) IS BASED ON %AGE OF PROFITS WHICH BY ITSELF HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT KULJEET SINGH KOCHAR ITA NO. 390 /2017 TO BE NOT A VALID BASIS. IT HAS BEEN HELD THEREIN AS UNDER: 7. THIS COURT IS UNABLE TO ACCEPT THE AFORESAID SUBMISSIONS. FOR THE PURPOSES OF SECTION 80 - IA (10) OF THE ACT, IT IS NOT ENOUGH FOR THE AO TO SHOW THAT THERE WAS A CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS AND THE OTHER PERS ON WITH WHOM IT HAS TRANSACTIONS. THE AO HAS TO FURTHER SHOW THAT THE BUSINESS BETWEEN THEM IS SO ARRANGED THAT IT PRODUCES FOR THE ASSESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE BUSINESS. SECTION 80 - IA (10) OF THE ACT FURTHER REQUIRES THE AO TO COMPUTE THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS BY TAKING THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. THE ADJECTIVE REASONABLY CARRIES WITH IT THE RESPONSIBILITY OF THE AO TO BASE HIS CONCLUSION ON SOME EMPIRICAL DATA. 8. IN THE PRESENT CASE THE AOS CONCLUSION THAT THE PROFITS OF THE ASSESSEE WERE MORE THAN ORDINARY WAS BASED ON SURMISES AND CONJECTURES. DURING THE COURSE OF HIS SUBMISSION, MR SINGH SOUGHT TO SUGGEST THA T A 40% GP RATIO BY ITSELF SHOULD BE TAKEN TO BE MORE THAN ORDINARY. NEITHER THE COURT NOR THE CIT (A) OR THE ITAT CAN TAKE JUDICIAL NOTICE OF WHAT PERCENTAGE OF GP RATIO SHOULD BE CONSIDERED TO BE MORE THAN ORDINARY. THAT DECISION WILL HINGE UPON A VA RIETY OF FACTORS INCLUDING THE LINE BUSINESS, 13 THE MARKET CONDITIONS, THE GEOGRAPHICAL LOCATION, THE STANDARD PRACTICES PECULIAR TO THE LINE OF BUSINESS AND SO ON. TO BE FAIR, MR SINGH POINTED OUT THAT BY A SUBSEQUENT AMENDMENT WITH EFFECT FROM 1ST APRIL 20 13, THE LEGISLATURE HAS INSERTED A PROVISO TO SECTION 80 - IA (10) OF THE ACT TO ACKNOWLEDGE THE COMPLEXITY OF THE EXERCISE. 9. IT IS NOT IN EVERY CASE THAT THE CIT (A) HAS TO ASK FOR A REMAND REPORT FROM THE AO TO MAKE UP FOR WHAT WAS MISSED TO BE DONE IN THE FIRST PLACE BY THE AO. IN THE CIRCUMSTANCES, THE CIT (A) AND THE ITAT CANNOT BE FAULTED FOR NOT UNDERTAKING THEMSELVES THE REQUIRED EXERCISE UNDER SECTION 80 - I (10) OF THE ACT. 17 . ALSO THE CHANDIGARH BENCH OF TRIBUNAL IN THE CASE OF ITO V. GILVERT ISPAT ITA N O . 1303/CHD/2012 HAS SPECIFICALLY HELD THAT SECTION 80IA(10) OF THE ACT HAS NO APPLICATION VIZ - A - VIZ ALLOCATION OF COMMON EXPENSES. IT HAS BEEN HELD AS UNDER: 7 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007 - 08 AND THE SAME WAS DECIDED AGAINST THE REVENUE VIDE PARA 5 WHICH READS AS UNDER: 5 WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE CHANDIGARH TRIBUNAL IN THE CASE OF M/S NAVKAR POLYPLAST COMPANY V. ITO IN ITA NO. 953/CHD/2009 ORDER DATED 9.4.2010, RELATING TO ASSESSMENT YEAR 2004 - 05, WHEREIN THE TRIBUNAL IN TURN RELYING ON 14 ITS EARLIER ORDER IN THE CASE OF ITO V. A.K. IMPEX IN ITA NO. 766/CHANDI/2009 RELATING TO ASSESSMENT YEAR 2004 - 05 VIDE ORDER DATED 26 .11.2008 IT HAD HELD AS UNDER: 7 W E HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY. WITH REGARD TO THE DISPUTE IN HAND, THE CASE MADE OUT BY THE REVENUE IS ON THE STRENGTH OF SECTION 80IA(10) WHICH WE REPRODUCE HEREINAFTER: '80IA(10) - WHERE IT APPEARS TO THE ASSESSING OFFICER THAT, OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THE M 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 ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF 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.' A PERUSAL OF THE SAID SECTION, IN SO FAR AS IT IS NECESSARY FOR THE PRESENT CASE, REVEALS THAT IN ORDER TO INVOKE SOME ESSENTIAL REQUIREMENTS ARE: A) THAT THERE MUST BE CLOSE CONNECTION BETWEEN THE ASSESSEE AND THE OTHER PERSON; 15 B) THAT THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MOR E THAN THE ORDINARY PROFITS. THERE ARE OTHER REQUIREMENTS IN THE SAID SECTION WITH WHICH WE DO NOT WISH TO DETAIL IN AS MUCH AS THE SAME ARE NOT RELEVANT TO THE DISPUTE ON HAND. SECTION 80IA( 10) IS APPLICABLE TO SECTION 80IC ALSO BECAUSE OF PROVISIONS OF SECTION 80IC(7). AS PER SECTION 80IA(10), WHERE THE ASSESSING OFFICER FINDS THAT OWING TO A CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON ELIGIBLE BUSINESS AND ANY OTHER PERSON DOING ANY O THER BUSINESS, 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 ARISES IN SUCH BUSINESS, THE ASSESSING OFFICER IS EMPOWERED TO COMPUTE THE PROFITS OF SUCH BUSINESS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. THE TWO REQUIREMENTS OF THE SECTION, WHICH IN OUR VIEW ARE OF RELEVANCE IN THIS CASE, HAVE BEEN ENUMERATED EARLIER BY US. THE FIRST IS THAT THERE MUST BE A CLOSE CONNECTION BETWEEN T HE ASSESSEE AND SUCH OTHER PERSON. THE SECOND IS THAT THERE MUST BE AN ARRANGEMENT WHEREBY THE 'BUSINESS TRANSACTED' BETWEEN THEM PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS. IN THE PRESENT CASE, THE CHARGE OF ASSESSING OFFICER IS THAT THE ASSE SSEE HAS NOT DEBITED ANY EXPENDITURE ON REMUNERATION TO ITS PARTNERS AND INTEREST ON PARTNERS' CAPITAL CONTRIBUTION AND THEREFORE, SUCH ARRANGEMENT BETWEEN THE ASSESSEE AND ITS PARTNERS HAVE RESULTED IN MORE THAN ORDINARY PROFITS TO THE ASSESSEE. IN SO FAR AS THE FIRST CONDITION IS CONCERNED, REGARDING 16 CLOSE CONNECTION OSTENSIBLY, THE SAME STANDS FULFILLED AS THE ASSESSEE AND ITS PARTNERS CAN BE SAID TO HAVE A CLOSE CONNECTION. THE MOOT QUESTION IS AS TO WHETHER THERE CAN BE SAID TO BE AN ARRANGEMENT OF TRA NSACTION OF BUSINESS BETWEEN THE ASSESSEE AND ITS PARTNERS WHEREBY THE ASSESSEE EARNED MORE THAN THE ORDINARY PROFITS. A RELATED QUESTION IS AS TO WHETHER PAYMENT OF REMUNERATION AND INTEREST ON CAPITAL CONTRIBUTION TO THE PARTNERS CAN BE SAID TO BE AN ACT IVITY FALLING WITHIN THE SCOPE OF THE EXPRESSION 'BUSINESS TRANSACTED BETWEEN THEM'. IN OUR VIEW, THE MEANING OF EXPRESSION 'BUSINESS TRANSACTED BETWEEN THEM' APPEARING IN SECTION 80IA(10) ONLY REFERS TO SUCH TRANSACTIONS WHICH RELATE TO THE TRADING ACTIVI TY OF THE ASSESSEE. VIEWED IN THIS LIGHT, THE PAYMENT OF REMUNERATION AND INTEREST ON CAPITAL CONTRIBUTION TO PARTNERS CANNOT BE SAID TO BE FALLING WITHIN THE SCOPE OF TRADING ACTIVITIES OF THE ASSESSEE SO AS TO FALL WITHIN THE EXPRESSION 'BUSINESS TRANSAC TED BETWEEN THEM' FOR THE PURPOSES OF SECTION 80IA(10) OF THE ACT. MOREOVER, IN THE PRESENT CASE, THERE IS NO DISPUTE TO THE FACT POSITION THAT THE ASSESSEE HAS NOT ACTUALLY INCURRED ANY LIABILITY ON PAYMENT OF REMUNERATION OR INTEREST ON CAPITAL CONTRIBUT ION TO THE PARTNERS. THE CIT(APPEALS) HAS CULLED OUT THE RELEVANT CLAUSE OF THE PARTNERSHIP DEED WHICH AUTHORIZES THE PARTNERS TO REDUCE OR WAIVE THE PAYMENT OF REMUNERATION AND INTEREST ON CAPITAL CONTRIBUTION BY A MUTUAL AGREEMENT WITHOUT EXECUTION OF AN Y FRESH DEED. THE FACTUM OF THE PARTNERS HAVING APPENDED THEIR SIGNATURES TO THE PROFIT AND LOSS ACCOUNT WHEREBY NO CLAIM WAS MADE ON REMUNERATION AND INTEREST ON PARTNER'S CAPITAL CONTRIBUTION, ITSELF SHOW THEIR MUTUAL AGREEMENT NOT TO OBTAIN 17 SUCH PAYMENT S FROM THE FIRM. THUS, THE CONDUCT OF THE PARTNERS SHOW THAT THEY HAVE NOT ACTED UPON THE CLAUSE OF THE DEED WHICH OTHERWISE AUTHORIZES THEM TO TAKE REMUNERATION AND INTEREST ON THEIR CAPITAL CONTRIBUTION. HAVING FACTUALLY OBSERVED THAT THERE WAS NO SUCH P AYMENTS MADE AND NEITHER WAS THERE ANY LIABILITY FOR SUCH AMOUNTS, IN OUR VIEW THE ASSESSING OFFICER WAS NOT EMPOWERED TO REDUCE THE PROFITS ON THIS SCORE FOR THE PURPOSE OF SECTION 80IA(10) OF THE ACT. 8. IN VIEW OF THE AFORESAID DISCUSSION, WE FIND THAT THE ASSESSING OFFICER NOT ONLY WRONGLY INVOKED THE PROVISIONS OF SECTION 80IA(10) BUT ALSO ERRED IN INTERPRETING THE PARTNERSHIP DEED SO AS TO HOLD THE ASSESSEE LIABLE FOR REDUCING ITS PROFITS ON ACCOUNT OF REMUNERATION AND INTEREST TO THE PARTNERS FOR TH E PURPOSES OF SECTION 80IC OF THE ACT. THE ORDER OF THE CIT(APPEALS), ON THIS GROUND IS HEREBY AFFIRMED. THUS, THE REVENUE FAILS ON GROUND NO. 1 AND 2. 5. THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS BEFORE TRIBUNAL IN M/S NAVAKAR POLYPLAST CO MPANY V ITO (SUPRA) AND ITO VS M/S A.K. IMPEX (ITA NO. 766/CHANDI/2008). FOLLOWING THE RATIO LAID DOWN BY TRIBUNAL IN ITO VS M/S A.K. IMPEX (SUPRA), WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF DEDUCTION U/S 80IC OF THE ACT. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE. 'FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE AGAINST THE REVENUE. 18 18 FURTHERMORE , THE HON'BLE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT V. DELHI PRESS PATRA PRAKASHAN 355 ITR 1 HAS HELD AS UNDER: 26. IN THE PRESENT CASE, THERE IS NO MATERIAL TO SUPPORT THE VIEW THAT THE JOB WORK CHARGES CHARGED BY UNIT NO.4 FROM UNIT NO. 1 WERE NOT AT MARKET RATES. WE ARE AGREEMENT WITH THE VIEW TAKEN BY THE TRIBUNAL THAT IN ABSENCE OF ANY DEFECT OR MANIPULATION FOUND BY THE ASSESSING OFFICER IN THE BOOKS MAINTAINED FOR UNIT NO.4 AND IN ABSENCE OF ANY MATERIAL TO INDICATE THAT THE AMOUNT CHARGED BY UNIT NO.4 FROM UNIT NO. 1 WAS NOT AT COMPARABLE MARKET RATES, IT WOULD NOT BE OPEN FOR THE REVENUE TO DISREGARD THE PROFITS OF UNIT NO.4 AS DISCLOSED BY THE ASSESSEE ONLY ON THE BASIS THAT THE PROFITS WERE SIGNIFICANTLY HIGHER THAN PROFITS EARNED BY THE ASSESSEE FROM OTHER UNDERTAKINGS. 19 LIKEWISE THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. TRANSLAM LTD. 231 TAXMAN 901 FOLLOWING THE ABOVE DECISION HAS HELD AS UNDER: 10. ON THE SIMILAR ANALOGY, THE HON'BLE APEX COURT IN THE CASE OF ARISUDANA SPIN N ING MILLS LTD . V. CIT [2012] 348 ITR 385/210 TAXMAN 233/26 TAXMANN.COM 39 HELD THAT BENEFIT UNDER SECTION - 80 IA IS NOT APPLICABLE WHEN THE ASSESSEE HAD NOT MAINTAINED THE ACCOUNTS FOR MANUFACTUR E OF YARN ACTUALLY PRODUCED AS A PART OF THE INDUSTRIAL UNDERTAKING. 11. IN THE INSTANT CASE, THE ASSESSEE WAS MAINTAINING THE SEPARATE ACCOUNTS FOR EACH UNIT AS MENTIONED BY THE TRIBUNAL, 19 SO, THE ASSESSEE IS ENTITLED FOR THE BENEFIT UNDER SECTION - 80 IA AN D SPECIALLY WHEN THE NECESSARY CONDITION OF SECTION - 80 IA (10) HAS NOT BEEN FULFILLED BY THE A.O. TO PROVE THAT THE BUSINESS BETWEEN THE ELIGIBLE UNITS AND OTHER UNITS ARE SO ARRANGED THAT THE BUSINESS TRANSACTION BETWEEN THEM PRODUCES MORE PROFIT TO THE E LIGIBLE BUSINESS. THE A.O. HAS NOT GIVEN ANY ADVERSE FINDING ON THE BASIS OF BOOKS OF ACCOUNT PRODUCED BY THE ASSESSEE. THE A.O. HAS ALSO NOT POINTED OUT ANY SPECIFIC ITEM OF THE ELIGIBLE UNIT WHICH IS DEBITED BY THE HEAD OFFICE. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT ASSESSEE IS ENTITLED FOR BENEFIT OF SECTION - 80 IA. 20 IN FACT , THE DELHI BENCH OF TRIBUNAL IN THE CASE OF ACIT V. MICRO TURNER ITA NO. 4569/D/2011 (SUPRA) IN THE CONTEXT OF SALARY PAID TO PARTNERS HAS HELD AS UNDER: 4. LD. DR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER PERTAINING TO THE SALARY PAID TO THE PARTNERS. THE DR FURTHER SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(A) WRONGLY OBSERVED THAT THE ASSESSING OFFICER HAS NOT QUOTED ANY CASE LAW IN SUPPORT OF THE ADDITION. REPLYING TO THE ABOVE SUBMISSION, THE ASSESSEES REPRESENTATIVE SUBMITTED A COPY OF THE JUDGMENT OF ITAT F BENCH DELHI IN ASSESSEES OWN CASE IN I TA NO. 554/DEL/2009 FOR AY 2005 - 06 WHEREIN THE DISALLOWANCE OF SALARY PAID TO THE PARTNERS HAS BEEN DELETED. FROM THE IMPUGNED ORDER PARA 2, WE ALSO OBSERVE THAT THE 20 COMMISSIONER OF INCOME TAX(A) FOLLOWING THE ABOVE JUDGMENT OF ITAT DELHI F BENCH DATED 1 7.9.2009 HAS DELETED THE DISALLOWANCE OF SALARY PAID TO THE PARTNERS WITH THE FOLLOWING OBSERVATIONS: - 2. THE APPELLANT DERIVING INCOME FROM MANUFACTURING & JOB WORK OF PRECISION TURNED COMPONENTS AND FASTENERS, RETURNED TOTAL INCOME OF RS.1,42,83,172/ - . THE APPELLANT HAS FIVE UNITS IN WHICH TWO UNITS ARE LOCATED IN EXEMPTED AREA. THE APPELLANT FIRM HAS CLAIMED SALARY TO THE PARTNERS AMOUNTING TO RS. 24.00 LACS. THE AO ALLOCATED THE SALARY PAID TO PARTNERS TO EXEMPT UNITS AND TAX ABLE UNITS ON THE BASIS OF TURN OVER. THE SALES INCLUDING JOB WORK OF TAXABLE UNITS IS RS. 83,45,26,173/ - AND THAT OF THE EXEMPTED UNITS IS RS. 54,88,14,641/ - . THE AO DISALLOWED THE SALARY ALLOCABLE TO EXEMPT UNITS OF RS.9,52,155/ - , WORKED OUT ON THE BASIS OF TURNOVER. THE ABOVE ACT ION OF THE AD WAS CONTESTED IN GROUND NO. 3 OF APPEAL. BEFORE ME, THE AR SUBMITTED THAT THERE WAS NO MATERIAL TO CONCLUDE THAT PART OF SALARY PAID TO PARTNERS PERTAINS TO EXEMPT UNITS AND AS SUCH THE DISALLOWANCE IS BASED ON SURMISES AND CONJECTURES. THE A R SUBMITTED THAT THE AD HAS NO POWER TO ALLOCATE EXPENSES ARBITRARILY AS HELD IN THE CASE OF DCIT VS DELHI PRESS SAMACHAR PATRA (P) LTD. 296 ITR 210 (DEL.). FURTHER, IN THE CASE OF THE APPELLANT ITSELF, HON'BLE ITAT DELHI BENCH 'F' IN ITA NO. 554 (DEL.) 20 09 FOR THE AY 2005 - 06 VIDE ORDER DATED 17.09.2009, DELETED THE DISALLOWANCE OF SALARY PAID TO PARTNERS. WITHOUT PREJUDICE TO THE ABOVE, THE PARTNERS TO WHOM THE SALARY OF RS. 24.00 LACS WAS 21 PAID, ARE ASSESSED TO TAX AND PAYING TAX AT 30% AND AS SUCH THERE IS NO LOSS TO REVENUE. 5. IN VIEW OF ABOVE FINDINGS OF LD. COMMISSIONER OF INCOME TAX(A), WE ARE INCLINED TO HOLD THAT WE ARE UNABLE TO SEE ANY AMBIGUITY OR PERVERSITY IN THE IMPUGNED ORDER IN THIS REGARD AND GROUND NO. 1 OF THE REVENUE IS DEVOID OF MERI T. ACCORDINGLY, RESPECTFULLY FOLLOWING THE JUDGMENT OF ITAT DELHI F BENCH (SUPRA) WE HOLD THAT IN THE PRESENT CASE, GROUND NO. 1 IS SQUARELY COVERED BY THE ABOVE JUDGMENT AND THE LD. COMMISSIONER OF INCOME TAX(A) RIGHTLY FOLLOWED THE SAME AND DELETED THE ADDITION. FINALLY, WE HOLD THAT GROUND NO. 1 OF THE REVENUE DESERVES TO BE DISMISSED AND WE DISMISS THE SAME. 21 . SIMILAR VIEW HAS BEEN EXPRESSED BY JODHPUR BENCH OF TRIBUNAL IN THE CASE OF ACIT V. P.I. INDUSTRIES 144 TTJ 353 . 22 . HAVING REGARD TO THE ABOVE JUDICIAL PRECEDENTS AND IN ABSENCE OF ANY CONTRARY DECISION CITED BEFORE US, WE ARE INCLINED TO FOLLOW THE BINDING PRECEDENTS INCLUDING THE JURISDICTIONAL HIGH COURT TO HOLD THAT SECTION 80IA(10) OF THE ACT CANNOT BE BROUGHT INTO PLAY TO ALLOCATE EXPENSES DEBITED IN THE BOOKS OF NON ELIGIBLE UNIT TO ELIGIBLE UNIT AND RESTRICT THE CLAIM OF DEDUCTION U/S 10B OF THE ACT. ACCORDINGLY, T HE GROUNDS RAISED BY THE ASSESSEE ARE THUS ALLOWED. 22 23 . IN THE RESULT , APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED WHEREAS THE APPEAL FILED BY ASSESSEE IS ALLOWED. THE ORDER IS PRONOUN CED IN THE OPEN COURT ON 2 6 . 1 0.2017. SD/ - SD/ - [ S.K. YADAV ] [B.P. JAIN] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 6 T H OCTOBER , 2017 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI