Montage Enterprises Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 1958/DEL/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7449 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 14-03-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 30-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Assessee Lawyers: SURESH ANANTHARAMAN F
• Keywords: Depreciation; Royalty expenses
• Section: 153A; 80IB; 132; 139; 68

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: 'E' NEW DELHI BEFORE SHRI G.D. AGARWAL, HONBLE VICE PRESIDENT AND SMT. BEENA PILLAI, JUDICIAL MEMBER I.T.A .NO.-1958 & 1959/DEL/20 10 AY-2005-06 AND 2006-07 MONTAGE ENTERPRISES PVT. LTD. C-53, SHASHI GARDEN POCKET-V, NEAR GURUDWARA, MAYUR VIHAR, PHASE-1 NEW DELHI AACCM8173N VS ACIT CENTRAL CIRCLE -18 NEW DELHI ITA NO. 2105 & 2106/DEL/2010 AY : 2005-06 & 2006-07 DCIT CENT. CIRCLE 18,ROOM NO. 327 3 RD FLOOR ARA CENTRE, JHANDEWALAN EXTN. NEW DELHI VS MONTAGE ENTERPRISES PVT. LTD. C-53, SHASHI GARDEN POCKET-V, NEAR GURUDWARA, MAYUR VIHAR, PHASE-1 NEW DELHI AACCM8173N ASSESSEE BY : SH. SURESH ANANTHARAMAN, F.CA REVENUE BY : MS. JYOTI KUMARI , CIT DR DATE OF HEARING : 17/03/2016 DATE OF PRONOUNCEMENT : 31/05/2016 ORDER PER BEENA PILLAI, JM : 2 I.T.A.NO. 1958,1959/DEL /2010 I.T.A.NO. 2105,2106/DEL/2010 THESE CROSS APPEALS HAS BEEN FILED BY THE ASSESSEE AND REVENUE AGAINST ORDER DATED 16.02.2010 PASSED BY LD .CIT(A) III, FOR ASSESSMENT YEAR 2005-06 & 2006-07, ON THE FOLLOWING GROUNDS: A.Y:2005-06: ITA NO. 1958/DEL/2010 GROUNDS OF APPEAL 1. THE LOWER AUTHORITY HAVE ERRED IN HOLDING THAT THE ROYALTY PAYMENT OF RS.4.25 CRORES AND THE SUB LICEN CE INCOME OF RS.1.96 CRORES PERTAINS TO JAMMU UNIT. 2. IT IS CONTENDED THAT THE ROYALTY EXPENSES OF RS.4. 25 CRORES AND SUB LICENCE INCOME OF RS.1.96 CRORES ARE REFFERABLE .TO THE CORPORATE UNIT. THE NET OF SUCH OUTGOING AN D INCOMING ARE ONLY ALLOCABLE THE THREE MANUFACTURING UNIT. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THE PROVISION OF SECTION 153A OF THE ACT AR E ONLY FOR THE BENEFIT OF THE REVENUE SUCH CONCLUSION ARE OPPO SED TO THE PROVISION OF SECTION 153A OF THE ACT. 4. IT IS CONTENDED THAT THE ADDITIONS MADE IN THE ORD ER U/S 153A ARE NOT QUA SEARCH MATERIAL AND NEEDS TO B E DELETED. 5. THAT NO CORRESPONDING SEIZED MATERIAL WAS FOUND IN THE COURSE OF SEARCH FOR SUBJECT ADDITIONS AND THE RELEVANT INCOME TAX RETURN FOR THE SAID ASSESSMENT YEAR WAS FILED PRIOR TO THE SEARCH IN NORMAL COURSE SUO MOTO. 6. THAT THE ASSESSMENT AS CONTEMPLATED U/S 153A IS NO T A DENOVO ASSESSMENT AND ADDITIONS MADE THEREIN HAS TO BE NECESSARILY, RESTRICTED TO UNDISCLOSED INCOME UNEAR THED DURING THE SEARCH. 7. THAT AS PER SUPREME COURT RULING IN THE CASE OF IN 3 I.T.A.NO. 1958,1959/DEL /2010 I.T.A.NO. 2105,2106/DEL/2010 MANISH MAHESWARI (289 ITR 341), PRESENT PROVISION O F SECTION 153A LEADING TO SIX YEARS ASSESSMENT, BEING DRASTIC IN CONSEQUENCE NEEDS TO BE INTERPRETED MOST STRICTL Y AND WHENEVER POSSIBLE TO THE FAVOUR OF THE ASSESSEE. 8. THAT SINCE LONGEST ARM OF REVENUE, BEING SEARCH AC TION U/S 132 OF THE ACT, STANDS EXERCISED IN PRESENT CAS E, ASSESSMENT U/S 153A NEEDS TO BE MADE ON THE BASIS O F HIDDEN ASSETS / UNACCOUNTED MONEY; INCRIMINATING MA TERIAL; UNEARTHED DURING THE SEARCH. 9. THAT THE ASSESSMENT U/S 153A ON THE BASIS OF SEARC H ACTION U/S 132 SHOULD NOT BE EQUATED TO REGULAR / N ORMAL SCRUTINY ASSESSMENT U/S 143(3). 10. THAT THE POWER OF REVIEW BEING NOT AVAILABLE TO SAM E AUTHORITY, UNDER ACT IN NORMAL CIRCUMSTANCES, MUST / SHOULD NOT BE ALLOWED IN PRESENT PROVISIONS OF SECTION 153 A WHERE LAST WEAPON IN ARSENAL OF THE DEPARTMENT (SEARCH) S TOOD USED AND OTHERWISE IT WOULD ALLOW ROVING AND FISHING ENQ UIRIES IN SEARCH BASED ASSESSMENT, WHICH IS NOT THE LEGISLATI VE INTENT. 11. THAT THE AFORESAID LEGAL POSITION STANDS ACCEPTED I N THE FOLLOWING ORDERS OF ITAT IN CONTEXT OF SECTION 153A OF THE ASSESSMENT. B) JODHPUR BENCH OF ITAT RULING IN SUNCITY ALLOYS P VT. LTD. VS. ACIT (2009) 124 TTJ 674. B) KOLKATA BENCH OF ITAT RULING IN L & J INTERNATIO NAL (119 TTJ 214) ITA NO. 2105/DEL/2010 GROUNDS OF APPEAL 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN D IRECTING THE AO TO EXCLUDE ONLY THE NET EXPENDITURE ON ROYALTY F ROM THE TOTAL PROFIT OF THE ELIGIBLE UNIT FOR THE PURPOSE O F ALLOWING DEDUCTION U/S 80-IB? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E 4 I.T.A.NO. 1958,1959/DEL /2010 I.T.A.NO. 2105,2106/DEL/2010 CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACT S IN DIRECTING THE AO TO ALLOCATE THE EXPENSES OF RS. 51,20,000/- ONLY TO MALANPUR AND NOIDA UNITS AS AGAINST THE ALLOCATION OF THESE EXPENSES BY THE AO AMONG THREE UNITS OF MALANPUR, N OIDA AND JAMMU. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE 4. ADDITION OF RS. 9,20,91,725/- MADE ON ACCOUNT OF DEFLATED PRICE OF INTER UNIT TRANSFER TO JAMMU UNIT (ELIGIBLE UNIT FOR DEDUCTION U/S 80-IB FROM MALANPUR UNIT? 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE 6. DISALLOWANCE OF CLAIM FOR DEDUCTION OF RS. 2,83,78,789/- U/S 80-IB ON ACCOUNT OF SELF CENVAT C REDIT AVAILMENT? 7. THE ORDER OF THE CIT(A) IS ERRONEOUS AND NOT TENABL E IN LAW AND ON FACTS. 8. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING T HE COURSE OF THE HEARING OF THE APPEAL. A.Y.2006-07 ITA NO. 1959/DEL/10(ASSESSEES APPEAL) GROUNDS OF APPEAL 1. THE LOWER AUTHORITY HAVE ERRED IN HOLDING THAT THE ROYALTY PAYMENT OF RS.6.00 CRORES AND THE SUB LICENCE INCOM E OF RS.2.25 CRORES PERTAINS TO JAMMU UNIT. 2. IT IS CONTENDED THAT THE ROYALTY EXPENSES OF RS. 4.25 CRORES AND SUB LICENCE INCOME OF RS.1.96 CRORES ARE REFFERABLE TO THE CORPORATE UNIT. THE NET OF SUCH OUTGOING AND INCOMING ARE ONLY ALLOCABLE THE THREE MANUFACTURING UNIT. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N HOLDING THE PROVISION OF SECTION 153A OF THE ACT AR E ONLY FOR 5 I.T.A.NO. 1958,1959/DEL /2010 I.T.A.NO. 2105,2106/DEL/2010 THE BENEFIT OF THE REVENUE SUCH CONCLUSION ARE OPPO SED TO THE PROVISION OF SECTION 153A OF THE ACT. ITA NO. 2106/DEL/10(DEPARTMENTS APPEAL) GROUNDS OF APPEAL 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTI NG THE AO TO EXCLUDE ONLY THE NET EXPENDITURE ON ROYALTY F ROM THE TOTAL PROFIT OF THE ELIGIBLE UNIT FOR THE PURPOSE O F ALLOWING DEDUCTION U/S 80-IB? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE ADDITION OF RS. 29,81,57,886/- MADE ON ACCOUNT OF DEFLATED PRICE OF INTER UNIT TRANSFER TO JAMMU UNIT (ELIGIBLE UNIT FOR DEDUCTION U/S 80-IB) FROM MALANPUR UNIT? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE ADDITION OF RS. 9,00,00,000/- MADE BY WAY OF DISALLOWANCE OF EXCESSIVE LICENCE FEE PAID TO M/S F LEX INDUSTRIES LTD.? 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE DISALLOWANCE OF CLAIM FOR DEDUCTION OF RS. 3,23,24, 485/- U/S 80-IB ON ACCOUNT OF SELF CENVAT CREDIT AVAILMEN T? 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE ADDITION OF RS. 2,32,13,640/- MADE U/S 68 ON ACCOUN T OF UNVERIFIABLE AND UNCONFIRMED ADVANCES FROM CUSTOMER S? 6. THE ORDER OF THE CIT(A) IS ERRONEOUS AND NOT TENABL E IN LAW AND ON FACTS. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURS E OF THE HEARING OF THE APPEAL. BRIEF FACTS OF THE CASE ARE AS UNDER: 2 . THE ASSESSEE IS A MANUFACTURING COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING & TRADING OF FLEXIBLE PACKAGING MATERIAL IN ROLL AND POUCH FORM. DURING T HE YEAR 6 I.T.A.NO. 1958,1959/DEL /2010 I.T.A.NO. 2105,2106/DEL/2010 UNDER CONSIDERATION, THE ASSESSEE HAD ACQUIRED TECH NICAL KNOW-HOW FOR MANUFACTURE OF IMPROVED SACHET POUCH WITH IMPROVED ADDITIONAL GUSSET ON BOTH SIDES OF THE SAC HET POUCH WITH A SCORING LINE IN THE FORM OF LASER CUT. THE ASSESSEE HAD PAID ROYALTY OF RS.4.25 CRORES AND HAD RECEIVED SUB- LICENSE INCOME OF RS.1.96 CRORES. 2.1 THE ASSESSEE HAS UNITS AT MALANPUR, JAMMU AND NOIDA. THE ASSESSEE MANUFACTURED PRINTED PACKAGING MATERIALS WHICH ARE USED FOR PACKING VARIOUS PRODUC TS. IN THE PROCESS OF MANUFACTURE, THE DIFFERENT COLOUR FO R DIFFERENT VERITIES OF THE PRODUCT AND DIFFERENT QUANTITY AND QUALITY OF ADHESIVES AND ADDITIVES ARE USED. THE PRICES OF ALL THESE RAW MATERIALS ALSO VARIES. THE SELLING PRICE GETS AFFEC TED BY VIRTUE OF THE DIVERSITIES IN THE PRODUCTION PROCESS . THE MATERIALS WERE SOLD BY THE ASSESSEE RANGING FROM TS .140/- TO RS.207/-. 2.2 THE ORIGINAL RETURN OF INCOME U/S.139 WAS FILED ON 31.10.2005 DECLARING NIL INCOME AFTER CLAIMING DEDU CTION U/S. 80IB AMOUNTING TO RS.9,27,91,834. TAX WAS PAID ON BOOK PROFIT. AS PER FORM 10CCB FURNISHED BY THE ASS ESSEE WITH ORIGINAL RETURN, PROFITS AND GAINS DERIVED BY THE UNDERTAKING/ENTERPRISES FROM THE ELIGIBLE BUSINESS HAS BEEN SHOWN AT 1536.12 LACS AND DEDUCTION U/S. 80IB HAS B EEN CLAIMED AT RS.927.91 LACS. 2.3 SEARCH & SEIZURE OPERATION IN M/S. FLEX GROUP O F CASES WAS CONDUCTED ON 23.2.2006. THIS CASE WAS CENTRALIZED WITH CENTRAL CIRCLE-18, NEW DELHI BY TH E CIT-II, 7 I.T.A.NO. 1958,1959/DEL /2010 I.T.A.NO. 2105,2106/DEL/2010 NEW DELHIS ORDER F. NO. CIT-II/CENTRALIZATION/2006 -07/322 DATED 19.5.2006. NOTICE U/S. 153A OF THE I.T. ACT W AS ISSUED ON 28.6.2008 REQUIRING THE ASSESSEE TO FILE RETURN OF INCOME. IN RESPONSE THERETO, RETURN OF INCOME U/S. 153A WAS FILED ON 6.10.2006 DECLARING NIL INCOME AFTER CLAIMING DEDUC TION U/S. 80IB ON JAMMU UNIT AMOUNTING TO RS.9,24,60,551 (SUBJECT TO GROSS TOTAL INCOME). IN THE REVISED FOR M 10CCB, FURNISHED WITH RETURN U/S. 153A PROFITS AND GAINS D ERIVED BY THE UNDERTAKING/ENTERPRISES FROM THE ELIGIBLE BU SINESS HAS BEEN SHOWN AT RS.1841.33 LACS AND DEDUCTION U/S . 80IB IS SHOWN AT RS.1590.04 LACS. 2.4 A NOTICE U/S. 143(2) WAS ISSUED ON 28.7.2007 FI XING THE CASE FOR HEARING ON 30.8.2007. IN RESPONSE TO T HE ABOVE NOTICE, AUTHORIZED REPRESENTATIVE OF THE ASSESSEE, ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FILED NECESSA RY DETAILS AS CALLED FOR. 2.5 THE LD.AO OBSERVED THAT AS PER THE P&L ACCOUNT OF JAMMU UNIT FURNISHED WITH THE ORIGINAL RETURN, NET PROFIT OF JAMMU UNIT WAS SHOWN AT RS.1536.12 LACS WHEREAS, IN THE RETURN FILED U/S. 153A THE SAME WAS SHOWN AT RS.184 1.33 LACS. ON PERUSAL OF THE TWO P & L ACCOUNTS OF JAMMU UNIT THIS DIFFERENCE OF RS.305.21 LACS IS FOUND TO BE ON ACCOUNT OF THE EXPENSES, WHICH WERE SHIFTED FROM JAMMU UNIT TO A NEWLY CREATED UNIT CALLED CORPORATE. THE DETAILS ARE AS UNDER: 8 I.T.A.NO. 1958,1959/DEL /2010 I.T.A.NO. 2105,2106/DEL/2010 JAMMU UNIT ORIGINAL RETURN U/S. 139(RS. IN LACS) RETURN FILED U/S. 153A (RS. IN LACS) OTHER MFG. EXPENSES 451.36 223.13 SALARY/WAGES 79.20 28.79 ADMINISTRATIVE/SELLING 124.45 97.88 TOTAL 655.01 349.80 DIFFERENCE 305.21 2.6 FURTHER, THE ASSESSING OFFICE OBSERVED DIFFEREN CE OF RS.61.64 LACS AND RS.59.50 LACS, ON ACCOUNTS OF RAW MATERIALS CONSUMED AND OTHER MANUFACTURING EXPENSES RESPECTIVELY, IN THE DETAILS OF THE P&L ACCOUNT OF JAMMU UNIT FILED WITH REPLY DATED 6.11.2007 VIS-A-VIS THE P&L ACCOUNT FILED WITH THE ORIGINAL RETURN OF INCOME. T HE ASSESSING OFFICER ALSO OBSERVED THAT THE DIFFERENCE OF RS.305.21 LACS POINTED OUT ABOVE REMAINS CONSTANT, AS THE EXPENSES MANIPULATED BY THE ASSESSEE HAVE BEEN SHIF TED TO ANOTHER UNIT. 2.7 FURTHERMORE, THE ASSESSING OFFICE OBSERVED THAT IN THE CONSOLIDATED UNIT-WISE P&L ACCOUNT FURNISHED WITH R EPLY DATED 6.11.2007, NO INCOME HAS BEEN CREDITED UNDER THE HEAD CORPORATE UNIT. BUT CERTAIN EXPENSES WERE DEBI TED TO THE CORPORATE UNIT:- 9 I.T.A.NO. 1958,1959/DEL /2010 I.T.A.NO. 2105,2106/DEL/2010 CORPORATE UNIT P & L A/C FILED U/S. 153A (RS. IN LACS) OTHER MANUFACTURING 228.22 SALARY 81.10 ADMIN/SELLING 42.61 DEPRECIATION 4.27 356.2 2.8 THE LD.AO DID NOT ALLOW THE ROYALTY INCOME RECE IVED AS PART OF GROSS TOTAL INCOME TO BE TAKEN INTO CONSIDE RATION WHILE WORKING OUT DEDUCTION U/S.80 IB OF THE ACT BY HOLDING THE SAME AS BEING DERIVED. THE LD.AO ALSO ALLOCAT ED THE CORPORATE EXPENSES TO OTHER UNITS. 2.9 THE LD. AO OBSERVED THAT THE PRICE OF THE GOODS TRANSFERRED FROM MULANPUR UNIT TO JAMMU UNIT WAS UNDERSTATED THE LD. AO OBSERVED THAT THE MATERIALS HAS BEEN SOLD TO OUTSIDE PARTIES RANGING BETWEEN RS.124 PER KG TO RS. 200 PER KG. SIMILARLY IN THE CASE OF MULANPU R UNIT, THE MATERIAL HAS BEEN SOLD AT RS.141/- PER KG TO RS .207 PER KG. THE LD.AO CONSIDERED THE SALE AT RS. 207 PER KG AND MADE AN ADDITION OF RS.9,20 91,725/-TO THE EXPENSES OF JAMMU UNIT THEREBY CORRESPONDINGLY REDUCING MULANPU R UNIT. 2.10 THE LD. AO FURTHER NOTED THAT IN THE PROFIT AN D LOSS ACCOUNTS OF THE UNITS THE ASSESSEE HAD CREDITED AN AMOUNT OF RS.2,83,78,789 ON ACCOUNT OF CENVAT CREDIT TO JA MMU UNIT. THE LD. AO HELD THAT THE CREDIT ON ACCOUNT OF EXCISE DUTY REFUND WAS NOT ELIGIBLE FOR DEDUCTION UNDER SE CTION 80 IB, AS THE SAME WAS NOT THE INCOME DERIVED FROM IND USTRIAL 10 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 UNDERTAKING. THE LD.AO HELD THAT CENVAT CREDIT CANN OT BE SAID TO BE PROFITS OR GAINS DERIVED FROM INDUSTRIAL UNDERTAKING AS ITS IMMEDIATE AND PROXIMATE SOURCES NOT THE INDUSTRIAL UNDERTAKING BUT THE EXCISE POLICY FOR RE FUND OF EXCISE DUTY THE LD.AO RELIED UPON VARIOUS DECISIONS OF SUPREME COURT AND HIGH COURTS TO SUPPORT HIS ADDITI ON. 3. AGGRIEVED BY THE ORDER OF THE LD. AND AO THE ASSES SEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). 3.1. THE LD. CIT (A) DIRECTED THE AO TO ALLOW THE N ETTING OF ROYALTY TO THE PROFIT AND LOSS ACCOUNT WHILE CALCUL ATING THE DEDUCTION UNDER SECTION 80 IB OF THE ACT, IN RESPEC T OF JAMMU UNIT. 3.2. IN RESPECT OF ALLOCATION OF EXPENSES, THE LD.C IT(A) DIRECTED THE LD.AO TO ALLOCATE THE EXPENSES TO MULA NPUR AND NOIDA UNITS. 3.3. THE ASSESSEE HAD FILED EXHAUSTIVE SUBMISSIONS ABOUT THE SALES MADE FROM MULANPUR UNIT TO JAMMU UNIT DUR ING THE APPELLATE PROCEEDINGS. THE SAME WERE SENT TO TH E LD.AO FOR HIS COMMENTS. THE ASSESSEE WAS ALSO DIRECTED TO SUBMIT THE ANALYSIS OF ENTIRE SALES OF THE MULANPUR UNIT O N MONTHLY ANALYSIS OF TRANSFER OF GOODS TO JAMMU UNIT AND THE SALES MADE TO THE OUTSIDE CUSTOMERS. THE CHART OF THE COMPARATIVE STUDY OF SALES MADE TO OUTSIDE CUSTOMER S AND INTER UNIT TRANSFERS TO JAMMU UNIT HAS BEEN REPRODU CED AT PAGES 16 TO 17 OF THE ORDER PASSED BY THE LD. CIT(A ). THE LD.CIT(A) DELETED THE ADDITION OF RS.9,20,91,725/- ON THE 11 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 BASIS THAT, THERE HAS BEEN NO DEFLATION OF EXPENSES IN THE INTER-UNIT TRANSFER OF THE GOODS AS HELD BY THE AO. THE LD.CIT(A) OBSERVED THAT THERE HAS BEEN NO DOCUMENTS OR ANY EVIDENCE THAT WERE FOUND OR SEIZED WHICH COULD INDICATE THAT THE ASSESSEE HAD DEFLATED THE EXPENSES OF THE JAMMU UNIT. 3.4. IN RESPECT OF THE CENVAT CREDIT CLAIMED BY THE ASSESSEE WHILE CALCULATING THE DEDUCTION UNDER SECTION 80 IB , THE LD. CIT(A), FOLLOWED THE DECISION OF HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF CIT VS. DHARAM PAL PREMA PRAKA SHAN LTD REPORTED IN 2021 CTR 133 AND DIRECTED THE AO TO ALLOW THE SAME, BEING DERIVED FROM THE INDUSTRIAL UNDERTA KING. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSESS EE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 4. AS THE ISSUES INVOLVED IN THESE TWO ASSESSMENT YE ARS ARE COMMON AND INTERLINKED WITH EACH OTHER, WE ARE INCLINED TO DISPOSE OF THESE APPEALS FOR BOTH THESE ASSESSMENT YEARS BY WAY OF A COMMON ORDER. WE SHALL 1 ST TAKE UP THE GROUNDS RAISED BY THE ASSESSEE IN ASSESSEES APPEAL FOR BOTH THE ASSESSMENT YEARS ALONG WITH GROUND NO. 1 AND 2 RAISED BY THE REVENUE FOR ASSESSMENT YEAR 2005-06 AND GROUND NO. 1 FOR ASSESSMENT YEAR 2006-07. 4.1. AT THE OUTSET THE LD.AR CONTENDS THAT THE ASSE SSEE IN ITS APPEAL HAS RAISED THE APPLICABILITY OF SECTION 153(A) OF THE I T ACT WHEREIN THE ASSESSEE CONTENDS THAT ONCE A RETURN 12 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 HAS BEEN FILED UNDER SECTION 153(A) OF THE ACT, THE RETURN FILED UNDER SECTION 139 HAS GOT NO RELEVANCE. THE A SSESSEE PLACED RELIANCE UPON THE DECISIONS OF HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF CIT VS. ANIL KUMAR BHATIA REPORTED IN 352 ITR FOR 93 AND CIT VS. KABUL CHAWLA REPORTED IN 380 ITR 573. THE LD.AR SUBMITTED THAT A SSESSEE HAD SHOWN THE SUM OF ROYALTY PAID AS WELL AS RECEIV ED IN JAMMU UNIT IN THE RETURN FILED UNDER SECTION 139 (1 ) OF THE ACT. HOWEVER IN THE RETURNS FILED UNDER SECTION 153 A (1) THE ASSESSEE HAS SHOWN THE ROYALTY PAYOUT AND THE INCOM E AS BELONGING TO THE CORPORATE UNIT. THE LD. AR SUBMITS THAT AS THE ASSESSMENT WAS PENDING AS ON THE DATE OF SEARCH AND HAD ABATED WITHIN THE MEANING OF 2 ND PROVISO TO SECTION 153A(1) OF THE ACT. THE LD.AR SUBMITTED THAT THE DE CISION OF THIS TRIBUNAL IN THE CASE OF CHARCHIT AGARWAL VS. A CIT REPORTED IN 34 SOT 348 IS DISTINGUISHABLE TO THE FA CTS OF THE PRESENT CASE BECAUSE, IN THE CASE OF CHARCHIT AGARW AL VS. ACIT (SUPRA) THE INCOME STOOD ACCEPTED/PROCESSED UN DER SECTION 143(1) OF THE ACT BEFORE THE DATE OF SEARCH . WHEREAS IN THE ASSESSEES CASE THE ASSESSMENT WAS PENDING A S ON THE DATE OF SEARCH. THE LD.AR THUS SUBMITTED THAT T HE FINDINGS OF THE LD.CIT(A) IN RESPECT OF CONFINING T HE ROYALTY INCOME TO JAMMU UNIT WOULD NOT BE APPROPRIATE. 4.2. THE LD.AR SUBMITTED THAT THE LD.CIT(A) HAS AL LOWED THE NETTING OF THE AMOUNT TO BE CONSIDERED WHILE DETERMINING THE DEDUCTION UNDER SECTION 80 IB IN RE SPECT OF THE JAMMU UNIT. THE LD.AR PLACED IS RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F ZANDU 13 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 PHARMACEUTICALS WORKS LTD. VS. CIT REPORTED IN 259 CTR 253. 5 . THE REVENUE IN ITS APPEAL HAS RAISED THAT THE NET TING OF ROYALTY INCOME AS DIRECTED BY THE LD. CIT(A) IS NOT PROPER. AS BOTH THESE GROUNDS OF ASSESSEE AS WELL AS REVENU E ARE INTERLINKED WITH EACH OTHER, THEY ARE DISPOSED OF T OGETHER FOR THE SAKE OF CONVENIENCE. 5.1. THERE IS NO DISPUTE THAT THE ASSESSEE IS ENTIT LED TO THE BENEFIT OF THE PROVISIONS OF SECTION 80 IB OF THE A CT WHICH PROVIDES THAT, WHERE THE GROSS TOTAL INCOME OF AN A SSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FROM AN INDU STRIAL UNDERTAKING, THERE SHALL BE ALLOWED, IN COMPUTING T HE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFI TS AND GAINS, AN AMOUNT SPECIFIED THEREIN. FURTHER WHILE COMPUTING THE PROFITS AND GAINS OF THE CONCERNED UNDERTAKING, ONLY EXPENSES RELATING THERETO CAN BE DEDUCTED. IN OTHER WORDS THE EXPENSES MUST BE INCUR RED, FOR AND ON BEHALF OF THE CONCERNED UNDERTAKING. THE EXP ENSES ATTRIBUTABLE TO ANY OTHER UNIT OR THE HEAD OFFICE E XPENSES WHICH HAVE NO RELEVANCE TO THE INDUSTRIAL UNDERTAKI NG, CANNOT BE DEDUCTED IN RESPECT OF THE SAID UNDERTAKI NG WHILE COMPUTING THE PROFITS AND GAINS OF THE UNDERTAKING. 5.2. IT IS NOT THE CASE OF THE REVENUE THAT THE TEC HNICAL KNOW-HOW OBTAINED BY THE ASSESSEE BY WAY OF LICENCE HAS BENEFITED ASSESSEE, IN ANY MANNER WHATSOEVER. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS MANUF ACTURED 14 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 THE SACHET WITH THE ASSISTANCE OF JAMMU UNIT. HOWEV ER IT IS IMPORTANT TO NOTE THAT THE ASSESSEE HAD OBTAINED TH E LICENCE OF THE TECHNICAL KNOW-HOW OF MANUFACTURING THE SACH ET FOR JAMMU UNIT, AS THE ASSESSEE HAD INSTALLED THE PLANT AND MACHINERY FOR UTILIZATION OF THAT TECHNICAL KNOW-HO W AT JAMMU UNIT. HOWEVER DUE TO SOME UNFORESEEN REASONS THE ASSESSEE COULD NOT USE THE TECHNICAL KNOW-HOW NEITH ER AT JAMMU UNIT NOR AT ANY OTHER UNITS. AS SUBMITTED BY THE LD.AR, THE ASSESSEE HAS COMMERCIALLY EXPLOITED THE SAME AND HAS EARNED RS. 1.96 CRORES FOR THE YEAR UNDER CONSIDERATION, BY SUBLETTING THE TECHNICAL KNOW-HOW TO AN OUTSIDE PARTY. 5.3. HONBLE BOMBAY HIGH COURT IN THE CASE OF ZANDH U PHARMACEUTICALS WORKS LTD VS. CIT REPORTED IN 259 C TR 253 OBSERVED AS UNDER: IN CIT VS. STERLING FOODS, REPORTED IN 237 ITR 579 , THE HONBLE SUPREME COURT HAD CONSIDERED A SIMILAR ISSU E UNDER SECTION 80 HHC OF THE ACT: WHETHER, ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE, THE TRIBUNAL WAS JUSTIFIED IN LAW IN HOLDING THAT T HE RECEIVED FROM THE SALE OF IMPORT ENTITLEMENTS COULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING THE RELIEF UNDER SECTION 80 HH C OF THE IT ACT, 1961? 12 THE QUESTION IS TO BE CHARGED REGARDLESS OF THIS, AND THE QUESTION IS WHETHER THE INTERVENTION OF THE RAW NAFTA WOULD JUSTIFY THE FINDING THAT THE SAID PRODUCTS ARE NOT DERIVED FROM REFINING OF CRUDE PETROLEUM. THE REFINING OF CRUDE PETROLEUM PRODUCES VARIOUS PRODUCTS AT DIFFERENT STAGES. ROW NAPHTA IS ONE SUCH STAGE THE FURTHER REFINING, OR CRACKING OF RAW NAPHTA RESULTS IN THE SAID PRODUCTS. THE SOURCE OF THE 15 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 SAID PRODUCTS IS CRUDE PETROLEUM THE SAID PRODUCTS MUST THEREFORE BE HELD TO HAVE BEEN DERIVED FROM CRUDE PETROLEUM. 13. WE DO NOT THINK THAT THE SOURCE OF THE IMPORT ENTITLEMENTS CAN BE SAID TO BE THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. THE SOURCE OF THE IMPO RT ENTITLEMENTS CAN, IN CIRCUMSTANCES, ONLY BE SAID TO BE THE EXPORT PROMOTION SCHEME OF THE CENTRAL GOVERNME NT PARENT THAT THE EXPORT ENTITLEMENTS BECOME AVAILABL E. THERE MUST BE, FOR THE APPLICATION OF THE WORDS DER IVED FROM, A DIRECT NEXES BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. IN THE INSTANT CASE THE NEXES IS NOT DIRECT BUT ONLY INCIDENTAL. THE INDUSTRIAL UNDERTAKING EXPORTS PROCESSED SEAFOOD. BY REASON OF SUCH EXPORT, THE EXPORT PROMOTION SCHEME APPLIES. THEREUNDER, THE ASSESSEE IS ENTITLED TO IMPORT ENTITLEMENTS, WHICH IT CAN SELL. THIS SALE CONSIDER ATION THEREFROM CAN NOT IN OUR VIEW BE HELD IT TO CONSTIT UTE A PROFIT AND GAINS DERIVED FROM THE ASSESSEES INDUST RIAL UNDERTAKING. 5.3.1 THE HONBLE BOMBAY HIGH COURT IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF STERLING FOODS (SUPRA), OBSERVED AS UNDER: THE SUPREME COURT HELD THAT THERE MUST BE FOR THE APPLICATION OF THE WORDS DERIVED FROM A DIRECT NE XUS BETWEEN THE PROFITS AND GAINS AND AN INDUSTRIAL UNDERTAKING. SECTIONS 80 I AND 80-IB ALSO USE THE EXPRESSION DERIVED FROM. IF THERE MUST BE A DIREC T NEXES BETWEEN THE PROFITS AND GAINS AND AN INDUSTRI AL UNDERTAKING, IT MUST FOLLOW EQUALLY THAT THERE MUST BE A DIRECT NEXES BETWEEN AN INDUSTRIAL UNDERTAKING AND THAT THE EXPENSES WHICH ARE SOUGHT TO BE APPORTIONED/ATTRIBUTABLE TO IT. EXPENSES WHICH DO N OT RELATE TO AN INDUSTRIAL UNDERTAKING/UNIT UNDER CONSIDERATION AND THEY RELATE TO OTHER UNITS OR TO THE HEAD OFFICE OF THE ASSESSEE, CANNOT BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE DEDUCTION UNDER T HE SAID PROVISIONS. 16 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 5.3.2 HONBLE BOMBAY HIGH COURT WHILE DECIDING THE DECISION IN THE CASE OF ZANDU PHARMACEUTICALS WORKS LTD (SUPRA) HAD RELIED UPON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF BUSH BOAK ALLEN (INDIA) LIMITED VERS US ACIT REPORTED IN 273 ITR 152. 5.4. IN OUR CONSIDERED OPINION ON THE PRESENT FACTS OF ASSESSEES CASE STANDS SQUARELY COVERED BY THE RATI O LAID DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF ZA NDU PHARMACEUTICALS WORKS LTD (SUPRA). THE ASSESSEE HAS PAID CERTAIN ROYALTY TOWARDS THE TECHNICAL KNOW-HOW OBTA INED BY ITAND IT HAD RECEIVED CERTAIN LICENSE FEE IN RESPEC T OF THE SAME TECHNICAL KNOW-HOW AS IT WAS PASSED OUT TO AN OUTSIDE PARTY. THE ASSESSEE COULD NOT EXPLOIT THE TECHNICAL KNOW- HOW FOR MANUFACTURE OF GOODS AT JAMMU UNIT AND THER EFORE THE ASSESSEE HAD SHOWN THE SUMS UNDER CORPORATE DIV ISION. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF ZANDU PHARMACEUTICALS WORKS LT D (SUPRA), WE HOLD THAT THE SUMS OF RUPEES FOR RS.4.2 5 CRORES AND RS.1.96 CRORES HAS TO BE SHOWN UNDER CORPORATE DIVISION AND THE EXCESS ALONG WITH OTHER CORPORATE EXPENSES HAS BEEN RIGHTLY BEEN ALLOCATED TO THE 3 MANUFACTUR ING UNITS BY THE ASSESSEE. 5.5. ACCORDINGLY WE ALLOW GROUNDS RAISED BY THE ASS ESSEE FOR ASSESSMENT YEAR 2005-06 AND 2006-07 CONSEQUENTIALLY DISMISS GROUND NO. 1 AND 2 RAISED BY THE REVENUE IN ASSESSMENT YEAR 2005-06 AND GROUND NO. 1 RAISED BY THE REVENUE IN ASSESSMENT YEAR 2006-07. 17 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 6 . AT THIS JUNCTURE THE LD. AR SUBMITTED THAT THE ASSESSEE HAS RAISED ADDITIONAL GROUND FOR ASSESSMEN T YEARS 2005 -06 AND 2006-07. THE LD.AR SUBMITTED THAT THES E GROUNDS WERE RAISED BEFORE THE LD.CIT (A), BEING GR OUND NUMBERS 5 AND 5A IN FORM 35 FILED BEFORE HIM. HOWEV ER IT HAS BEEN POINTED OUT BY THE LD. AR THAT THE LD.CIT( A) HAS NOT ADJUDICATED UPON THE SAME. HE THUS REQUESTED TH AT THESE GROUNDS MAY BE SENT BACK TO THE LD.CIT(A) FOR BEING ADJUDICATED. 6.1. THE LD.DR DO NOT OPPOSE FOR THE SUBMISSION OF THE LD.AR. ACCORDINGLY WE SEND BACK THESE ADDITIONAL GROUNDS T O THE FILES OF THE LD.CIT (A) FOR CONSIDERATION. IN VIEW OF THE ABOVE THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE FOR B OTH THE ASSESSMENT YEARS STANDS STATISTICALLY ALLOWED. 7 . THE ISSUES THAT REMAIN TO BE ADJUDICATED UPON IS, IN RESPECT OF THE GROUNDS RAISED BY THE REVENUE FOR AS SESSMENT YEAR 2005-06 AND 2006-07. 7.1. GROUND NO. 3 FOR ASSESSMENT YEAR 2005-06 AND GROUND NO. 2 FOR ASSESSMENT YEAR 2006-07 RAISED BY THE REVENUE ARE SIMILAR. THEREFORE WE ARE INCLINED TO D ISPOSE OF THE SAME TOGETHER. 7.2. IT IS OBSERVED THAT THE ASSESSING OFFICER HAS CONSIDERED THE TRANSFER OF GOODS BY MULLANPUR UNIT TO JAMMU UN IT WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB OF THE ACT AT MARKET PRICE. THE TOTAL VALUE OF THE GOODS TRANS FERRED BY 18 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 MULLANPUR UNIT TO JAMMU UNIT WAS AT RS. 1 70 PER KG AND THAT OF NOIDA UNIT TO JAMMU UNIT WAS AT RS.179 PER KG. ACCORDING TO THE LD. AO, THE PRIZE SO ADOPTED BY TH E ASSESSEE FOR INTER-UNIT TRANSFER IS IMPROPER AND DE FLATED. THE AO TOOK THE HIGHEST SALE VALUE OF RUPEES 207 PE R KG. ACCORDINGLY THE LD.AO ADDED THE DIFFERENCE OF RS. 3 7/-PER KG (RS. 207 BEING HIGHEST VALUE-RS. 1 70 AS PER THE AS SESSEES BOOKS OF ACCOUNTS). THE LD. AO DEBITED THE AMOUNT S O CALCULATED TO THE JAMMU UNIT THAT IS ELIGIBLE FOR D EDUCTION UNDER SECTION 80 IB. 8 . AGGRIEVED BY THE ORDER OF THE LD.AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT (A). 8.1. BEFORE THE LD. CIT (A) THE ASSESSEE CONTENDED THAT THE HIGHEST SALE PRICE OF RS.207 PER KG., REPRESENTED T HE SALE PRICE OF THE GOODS SOLD BY MULLANPUR UNIT TO KOTHAR I PRODUCTS LTD. THE ASSESSEE SUBMITTED BEFORE LD.CIT (A) THAT THE SUMMARY OF MONTH WISE QUANTITY, RATE AND PERCEN TAGE THEREOF OF THE PRIZE AT WHICH THE GOODS HAVE BEEN S OLD BY MULLANPUR UNIT TO OUTSIDE PARTIES, HAVE BEEN PLACED AT PAGES 16 TO 17 OF THE OF THE ORDER OF LD. CIT (A). THE ASSESSEE SUBMITTED THAT FROM THIS CHART THE VALUE O F GOODS SOLD AT RS. 170 PER KG. AS SHOWN BY THE ASSESSEE IS MUCH MORE THAN THE SALE VALUE TO OUTSIDE PARTIES EXCEPT FOR KOTHARI PRODUCTS LTD. 8.2. ON GOING THROUGH THE SUBMISSIONS, THE COMPARAT IVE ANALYSIS OF SALES MADE BY MULLANPUR UNIT AND THE JU DICIAL PRECEDENTS, THE LD.CIT(A) HELD THAT THERE IS NO DEF LATION OF 19 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 EXPENSES IN INTER-UNIT TRANSFER OF GOODS AS HELD BY THE LD. AO. HE ACCORDINGLY DELETED THE ADDITION MADE BY THE LD. AO TO THE EXPENSES OF JAMMU UNIT AND HELD AS UNDER: 6.10 IN VIEW OF TOTALITY OF FACTS AND CIRCUMSTANCE S AND JUDICIAL PRECEDENT AS DISCUSSED ABOVE, IT IS HELD T HAT THE COMPARATIVE ANALYSIS OF SALES MADE BY THE MALANPUR UNIT SHOWS THAT THERE IS NO DEFLATION OF EXPENSES I N INTER UNIT TRANSFER OF GOODS AS HELD BY THE AO. THE SEARC H U/S 132 OF THE ACT WAS CONDUCTED AT THE PREMISES OF THE APPELLANT AND NO DOCUMENTS, OR OTHER EVIDENCE WAS FOUND OR SEIZED WHICH COULD INDICATE THAT THE APPEL LANT HAD DEFLATED THE EXPENSES OF THE JAMMU UNIT. THE ADDITION OF RS. 9,20,91,725/- MADE BY THE A.O. TO T HE EXPENSES OF THE JAMMU UNIT IS, THEREFORE, DELETED. 9 . AGGRIEVED BY THE ORDER OF LD. CIT (A), THE REVEN UE IS IN APPEAL BEFORE US NOW. 9.1. THE LD. D.R. SUPPORTED THE FINDINGS OF THE AS SESSING OFFICER WHEREAS THE LD.AR, REITERATED THE SUBMISSIO NS MADE BY THE ASSESSEE BEFORE THE LD.CIT (A). 10 . WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHORIT IES BELOW AND THE ARGUMENTS ADVANCED BY BOTH THE PARTIE S BEFORE US. 10.1. IT IS OBSERVED FROM THE PAPER BOOK FILED THAT MULLANPUR UNIT HAS TRANSFERRED GOODS TO JAMMU UNIT AT RATES STARTING FROM RS.104/-PER KG TO RS.196/-PER K G. THE HIGHEST SALE MADE BY MULLANPUR UNIT TO KOTHARI PROD UCTS LTD AT RS. 207 PER KG. LD. CIT(A) HAS REPRODUCED A CHART WHEREIN A COMPARATIVE STUDY HAS BEEN MADE IN RESPEC T OF THE PRICE CHARGED TO INTER UNIT SALE TO OUTSIDE CUS TOMERS IN RESPECT OF BOTH THE ASSESSMENT YEARS. FOR THE SAKE OF 20 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 CONVENIENCE, WE ARE REPRODUCING HEREIN THE CHART RE FERRED TO BY LD. CIT(A) IN HIS ORDER FOR AY 2005-06, WHICH IS AS UNDER: 10.2 FOR THE SAKE OF CONVENIENCE, WE REPRODUCE BEL OW, MONTH-WISE QUANTITY, RATES AND PERCENTAGE FOR THE A Y 2005- 06 ONLY. HOWEVER, SIMILAR CHARTS HAVE BEEN REPRODU CED BY LD. CIT(A) IN HIS ORDER FOR THE ASSESSMENT YEAR 20 06-07 AT PAGES 21-22.:- MONTH TO JAMMU RATE QTY % OF TOTAL QTY TO OUTSIDE CUSTOM ERS RATE QTY. % OF TOTAL QTY. JULY, 2004 HIGHEST RATE LOWEST RATE OTHER RATE QTY TOTAL QTY AVERAGE RATE(KG.) 157 149 156.99 35217.50 1223.40 NIL 36440.90 36440.90 96.64 3.36 NIL 100.00 207 114 150 5083.85 1479.00 168038.23 174601.08 174601.08 2.91 0.85 96.24 100.00 AUG., 2004 HIGHEST RATE LOWEST RATE OTHER RATE QTY TOTAL QTY AVERAGE RATE(KG.) 177 139 152 849.00 1585.04 179737.89 182161.93 182161.18 0.46 0.87 98.67 100.00 207 106 139 8342.46 8141.60 152664.12 169148.18 169148.18 4.93 4.81 90.25 100.00 SEP., 2004 HIGHEST RATE LOWEST RATE OTHER RATE QTY TOTAL QTY AVERAGE RATE(KG.) 187 104 173 79143.63 806.76 131349.73 211300.12 211300.12 37.46 0.38 62.16 100.00 207 88 153 20551.39 4928.00 158975.46 184454.85 184454.85 11.14 2.67 86.19 100.00 OCT., 2004 HIGHEST RATE LOWEST RATE OTHER RATE QTY TOTAL QTY AVERAGE RATE(KG.) 187 125 176 84148.60 807.48 281369.47 366325/55 366325.55 22.97 0.22 76.81 100.00 207 127 160 16 00.52 2090.00 199190.41 202880.93 202880.93 0.79 1.03 98.18 100.00 NOV., 2004 HIGHEST RATE LOWEST RATE OTHER RATE QTY TOTAL QTY AVERAGE RATE(KG.) 187 157 167 23348.10 125343.40 177008.30 325699.80 3259699.90 7.17 38.48 54.35 100.00 207 120 172 4382.72 2531.00 68199.88 75113.60 75113.60 5.83 3.37 90.80 100.00 DEC., 2004 HIGHEST RATE LOWEST RATE OTHER RATE QTY TOTAL QTY AVERAGE RATE(KG.) 190 157 169 14471.40 27082.20 313456.84 355010.44 355010.44 4.08 7.63 88.30 100.00 207 152 184 2111.64 2829.04 22535.49 27476.17 27476.17 7.69 10.30 82.02 100.00 JAN., 2005 HIGHEST RATE LOWEST RATE OTHER RATE QTY TOTAL QTY AVERAGE RATE(KG.) 180 164 168 2040.00 90347.75 200818.41 293206.16 293206.16 0.70 30.81 68.49 100.00 197 124 180 9723.45 1934.00 31850.36 43507.81 43507.81 22.35 4.45 73.21 100.00 FEB., 2005 HIGHEST RATE LOWEST RATE OTHER RATE QTY 190 164 42976.71 69402.00 247915 11.93 19.26 68.81 197 136 3779.24 4189.37 55182.18 5.98 6.63 87.38 21 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 TOTAL QTY AVERAGE RATE(KG.) 173 360293.66 360293.66 100.00 182 63150.79 63150.79 100.00 MAR., 2005 HIGHEST RATE LOWEST RATE OTHER RATE QTY TOTAL QTY AVERAGE RATE(KG.) 196 125 176 18436.59 200.88 339890 358526.97 358526.97 5.14 0.06 94.80 100.00 197 136 180 950.91 10621.87 59998.01 71570.79 71570.79 1.33 14.84 83.83 100.00 DISTRIBUTION OF RATES OF MATERIALS SOLD/TRANSFERRED : TO JAMMU TO OUTSIDE PARTIES RATE RATE FROM TO QTY %AGE FROM TO QTY %AGE 104 806.76 0.03 88 104 6043.00 0.29 125 1008.36 0.04 105 125 211131.10 10.02 139 1585.04 0.06 126 139 171798.18 8.16 143 172 1521372.04 61.12 140 172 1265493.52 60.08 173 186 651001.34 26.16 175 186 93245.66 4.43 187 196 313191.99 12.58 187 196 263505.12 12.51 197 207 95025.50 4.51 TOTAL 2488965.53 100.00 2106242.08 100.00 10.3 FROM THE PERUSAL OF THE CHART ABOVE, IT IS OBSERVED THAT 61 % MATERIAL OUT OF TOTAL SALE TO JA MMU UNIT HAD BEEN SOLD @ RS.143 TO RS.172 PER KG. AND NEAR A BOUT 60% MATERIAL OUT OF SALE TO OUTSIDE PARTIES IS BETW EEN PRICE RANGE OF 140 TO RS.172 PER KG. APART FROM THIS 26 .16% MATERIAL HAD BEEN SOLD TO JAMMU UNIT BETWEEN RS.173 /- TO RS.186/- PER KG AND 4.43% MATERIAL HAS BEEN SOLD TO OUTSIDE PARTIES, BETWEEN RS.175/- TO RS.186/-, 12.5 8% MATERIAL HAS BEEN SOLD TO JAMMU UNIT BETWEEN RS. 18 7/- TO RS. 196/- AND 12.51% MATERIAL HAS BEEN SOLD TO OUTS IDE PARTIES BETWEEN RS. 187/- TO RS. 196/-. 10.4 THE COMPARATIVE STUDY OF SALES TO OUTSIDE PA RTIES AND INTER UNIT TRANSFER OF GOODS LEAVES NO SCOPE FO R MAKING ANY ADDITION TO THE EXPENSES OF THE JAMMU UNIT. THE 22 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 COMPARATIVE ANALYSIS OF THE SALES MADE BY THE ASSES SEE SHOWS THAT THE ASSESSEE HAD SOLD 95025 KGS OF MATER IAL @ RS. 207/-, WHICH CONSTITUTES 4.51 % OF THE TOTAL GO ODS. THE A.O. HAD TAKEN THIS FIGURE AS HIGHEST PRICE AND APP LIED THIS RATE TO ARRIVE AT DEFLATION OF INTER UNIT TRANSFER OF GOODS @ RS. 37PER KG. WHEREAS THE AVERAGE RATE FOR MORE THA N 96% OF THE GOODS TO BOTH INTER TRANSFER AND SALE TO OUTSID E PARTIES IS THE SAME. FURTHER, IT IS HELD THAT SEARCH U/S 13 2 OF THE ACT WAS CONDUCTED AT THE PREMISES OF THE APPELLANT AND NO INCRIMINATING DOCUMENTS, BOOKS OF ACCOUNTS WERE FOU ND / SEIZED TO INDICATE THAT THE APPELLANT HAD SUPPRESSE D THE PROFITS OF MALANPUR UNIT AND DEFLATED THE EXPENSES OF THE JAMMU UNIT. 10.5 ON A BARE PERUSAL OF THESE CHARTS, IT CAN BE NOTICED THAT THE DIFFERENCE IN THE P[RICE IS DUE TO QUALITY OF SHASHET MANUFACTURED AS PER THE REQUIREMENT OF THE CLIENT. THE A.O. HAS ONLY TAKEN THE HIGHEST VALUE OF SHASHE T SOLD TO THE OUTSIDE PARTIES ESPECIALLY M/S. KOTHARI PRODUCT S LTD. AND HAS COMPARED WITH THE LOWEST VALUE OF SHASHET C HARGED TO INTER UNIT TRANSFERS. M/S. KOTHARI PRODUCT LTD. BEING A LEADING ENTREPRENEUR IN PAN MASALAS, WOULD DEFINITE LY OPT FOR A HIGH QUALITY OF SHASHET AS COMPARED TO OTHER PARTIES. IN OUR CONSIDERED OPINION, SUCH A COMPARISON CANNOT BE MADE AS THE REQUIREMENTS IN RESPECT OF QUALITY AND QUANTITY OF EACH PARTY WOULD BE DIFFERENT. FURTHER, IT HAS BEEN OBSERVED THAT THERE HAS NO OTHER MATERIAL / DOCUMEN T / EVIDENCES BROUGHT ON RECORD BY THE A.O. TO PROVE T HAT THE ASSESSEE HAS DEFLATED THE EXPENSES OF INTER UNIT TR ANSFERS. 23 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 10.6 WE ARE THEREFORE IN AGREEMENT WITH THE FINDIN GS OF THE LD. CIT(A) THAT THERE IS NO DEFLATION IN THE IN TER-UNIT TRANSFER OF GOODS. ACCORDINGLY, THIS GROUND NO.3 F OR ASSESSMENT YEAR 2005-06 AND GROUND NO.2 FOR ASSESSM ENT YEAR 2006-07, RAISED BY THE REVENUE STAND DISMISSED . 11 . GROUND NO.4 FOR ASSESSMENT YEAR 2005-06 AND 2006- 07, RAISED BY THE REVENUE RELATES TO WHETHER THE EX CISE DUTY REFUND OF RS. 2.83 CRORES IN RESPECT OF JAMMU UNIT HAS BEEN DERIVED FOR, FOR THE PURPOSES OF DEDUCTION UNDER SECTION 80 IB OF THE ACT. 11.1. DURING THE ASSESSMENT PROCEEDINGS THE LD.AO N OTED THAT THE ASSESSEE HAS CREDITED CERTAIN AMOUNT ON AC COUNT OF SEND MAT CREDIT TO JAMMU UNIT IN THE PROFIT AND LOS S ACCOUNT. THE LD.AO HELD THAT THE CREDIT ON ACCOUNT OF EXCISE DUTY REFUND WAS NOT ELIGIBLE FOR DEDUCTION UNDER SE CTION 80 IB OF THE ACT, AS THE SAME WAS NOT THE INCOME DERIV ED FROM THE INDUSTRIAL UNDERTAKING. ACCORDINGLY THE LD.AO M ADE AN ADDITION. 12 . AGGRIEVED BY THE ORDER OF THE LD.AO ASSESSEE PRE FERRED AN APPEAL BEFORE THE LD.CIT(A). 12.1. THE ASSESSEE RELIED UPON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DRHARAM PAL PREAM PRAKASH LTD., REPORTED IN 317 ITR 353. THE LEARN IT CIT (A) RELYING UPON THE DECISION OF CIT VS. DHARAM PAL PRE AM PRAKASH LTD., (SUPRA) DELETED THE ADDITION MADE BY THE LD.AO. 13 . AGGRIEVED BY THE ORDER OF THE LD.CIT (A) THE REV ENUE IS IN APPEAL BEFORE US NOW. 13.1. THE LD. D.R. SUBMITTED THAT THERE IS NO DIREC T NEXUS BETWEEN THE REFUND OF EXCISE DUTY RECEIVED BY THE A SSESSEE AND THE BUSINESS ACTIVITY CARRIED ON BY THE ASSESSE E. HE 24 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 SUBMITTED THAT THERE WAS NO REASON TO EXCLUDE THE A MOUNT OF REFUND OF EXCISE DUTY IN ARRIVING AT THE PROFIT DERIVED, FOR THE PURPOSES OF CLAIMING DEDUCTION UNDER SECTION 80 IB OF THE ACT. THE LD. D.R. SUPPORTED THE ORDER PASSED BY THE LD.AO. 13.2.ON THE CONTRARY, THE LD. A.R. SUBMITTED THAT T HIS ISSUE STANDS COVERED BY THE DECISION OF COORDINATE BENCHE S OF THIS TRIBUNAL WIDE ORDER DATED 29.04.2011, IN THE CASE O F JK ALUMINIUM CO. LTD VS. ITO, IN ITA NUMBER 3303/DEL/2 010, A COPY OF WHICH HAS BEEN PLACED AT PAGES 73 TO 81 O F THE PAPER BOOK. 14 . WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHORIT IES BELOW, THE SUBMISSIONS MADE BY BOTH THE PARTIES AND THE JUDGMENTS RELIED UPON BY THEM. 14.1. AS SUBMITTED BY THE LD.AR, IDENTICAL ISSUE HA S ARISEN IN THE CASE OF JK ALUMINIUM CO. LTD VS. ITO (SUPRA) . IT IS OBSERVED THAT THE DECISION OF CIT VS. DHARAM PAL PR EAM PRAKASH LTD (SUPRA), RELIED UPON BY THE ASSESSEE AS WELL AS THE LD. CIT (A) HAS BEEN AFFIRMED BY THE HONBLE SU PREME COURT WHICH HAS BEEN PLACED AT PAGES 105 TO106 OF T HE PAPER BOOK, AND THEREFORE THE ISSUE HAS NOW REACHED FINALITY. 14.2. HONBLE DELHI HIGH COURT IN THE CASE OF CIT V S. DHARAM PAL PREAM PRAKASH LTD. (SUPRA), HAS LAID DOW N THE PROCEDURE FOR GRANTING OF EXEMPTION UNDER THE SCHEM E. THE ASSESSEE IN THE 1 ST INSTANCE HAS PAID EXCISE DUTY FROM ITS 25 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 ACCOUNT, THE STATEMENT IN RESPECT TO CLEARANCES MAD E, IS SUBMITTED TO THE CONCERNED AUTHORITIES OF CENTRAL E XCISE. THE AUTHORITIES AFTER VERIFYING THE CLAIM OF THE AS SESSEE ARE REQUIRED TO GRANT THE REFUND. THE HONBLE DELHI HIG H COURT IN THE CASE OF CIT VS. DHARAM PAL PREM PRAKASH LTD. (SUPRA), IT IS OBSERVED THAT THE HONBLE COURT OBSE RVED AND HELD AS UNDER: 22. PERUSAL OF THE OFFICE MEMORANDUM DT. 14 TH JUNE, 2002 INDICATING NEW INDUSTRIAL POLICY AND OTHER CONCESSI ONS FOR THE STATE OF JAMMU AND KASHMIR, MAKES IT EXPLIC IT THAT THE CONCESSIONS WERE ISSUED TO ACHIEVE TWIN OB JECTS VIZ. (I) ACCELERATION OF INDUSTRIAL DEVELOPMENT IN THE STATE OF JAMMU & KASHMIR, WHICH HAD BEEN FOUND LAGGING BEHIND IN SUCH DEVELOPMENT AND (II) GENERAT ION OF EMPLOYMENT IN THE STATE OF JAMMU & KASHMIR. AMENDMENT INTRODUCED TO THE OFFICE MEMORANDUM VIDE NOTIFICATION OF 28 TH NOV., 2003 OF THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY ( DEPARTM ENT OF INDUSTRIAL POLICY AND PROMOTION) ELOQUENTLY DEMONSTRATES THE CENTRAL GOVERNMENTS INTENTION, IN INTENDING THE INCENTIVES. THE GOVERNMENTS OBJECTI VE, AS CONVEYED BY HONBLE THE PRIME MINISTER AT SRINAG AR ON 19 TH APRIL, 2003, WAS, FOR CREATION OF ONE LAC EMPLOYMENT AND SELF-EMPLOYMENT OPPORTUNITIES IN JAMMU & KASHMIR STATE. 23. TO ACHIEVE THE PURPOSE AND OBJECTIVE REFERRED T O HEREINABOVE, IT WAS INTER ALIA, PROVIDED IN THE CEN TRAL EXCISE NOTIFICATIONS THAT THE EXEMPTIONS CONTAINED IN THE NOTIFICATIONS WOULD BE AVAILABLE ONLY ON PRODUCTION OF CERTIFICATE FROM GENERAL MANAGER OF THE CONCERNED DISTRICT INDUSTRY CENTRE TO THE JURISDICTIONAL DY. CCE O THE ASSTT. CCE, AS THE CASE MAY BE, TO THE EFFECT T HAT THE UNIT HAD CREATED REQUIRED ADDITIONAL REGULAR EMPLOYMENT, WHICH WOULD NOT, HOWEVER, INCLUDE EMPLOYMENT PROVIDED BY THE INDUSTRIAL UNITS TO DAIL Y WAGERS OR CASUAL EMPLOYEES ENGAGED IN THE UNITS. 26 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 24. A CLOSE READING OF THE OFFICE MEMORANDUM AND TH E AMENDMENT INTRODUCED THERETO WITH PARA NO.3 APPEARING IN THE CENTRAL EXCISE NOTIFICATION NOS. 5 6 AND 57 OF 11 TH NOV. 2002, THUS, MAKES IT AMPLY CLEAR THAT THE ACCELERATION OF DEVELOPMENT OF INDUSTRIES IN THE ST ATE WAS CONTEMPLATED WITH THE OBJECT OF GENERATION OF EMPLOYMENT IN THE STATE OF JAMMU & KASHMIR AND THE GENERATION OF EMPLOYMENT, SO CONTEMPLATED WAS NOT ONLY CASUAL OR TEMPORARY, BUT WAS ON THE OTHER HAND OF PERMANENT NATURE. 25. CONSIDERED THUS, THE PARAMOUNT CONSIDERATION OF THE CENTRAL GOVERNMENT IN PROVIDING THE INCENTIVES TO THE NEW INDUSTRIAL UNITS AND SUBSTANTIAL EXPANSION OF T HE EXISTING UNITS, WAS THE GENERATION OF EMPLOYMENT THROUGH ACCELERATION OF INDUSTRIAL DEVELOPMENT, TO DEAL WITH THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STAT E, ADDITIONAL CREATING OPPORTUNITIES FOR SELF EMPLOYME NT, HENCE A PURPOSE IN PUBLIC INTEREST. 26. IN THIS VIEW OF THE MATTE, THE INCENTIVES PROVI DED TO THE INDUSTRIAL UNITS, IN TERMS OF THE NEW INDUSTRIA L POLICY, FOR ACCELERATED INDUSTRIAL DEVELOPMENT IN T HE STATE, FOR CREATION OF SUCH INDUSTRIAL ATMOSPHERE A ND ENVIRONMENT, WHICH WOULD PROVIDE ADDITIONAL PERMANENT SOURCE OF EMPLOYMENT TOP THE UNEMPLOYED I N THE STATE OF JAMMU AND KASHMIR WERE IN FACT, IN THE NATURE OF CREATION OF NEW ASSETS OF INDUSTRIAL ATMOSPHERE AND ENVIRONMENT, HAVING THE POTENTIAL OF EMPLOYMENT GENERATION TO ACHIEVE A SOCIAL OBJECT. SUCH INCENTIVES, DESIGNED TO ACHIEVE PUBLIC PURPOSE, CAN NOT, BY ANY STRETCH OF REASONING, BE CONSTRUED AS PRODUC TION OR OPERATIONAL INCENTIVES FOR THE BENEFIT OF ASSESS EES ALONE. 27. THUS, LOOKING TO THE PURPOSE OF ERADICATION OF THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCELERATION OF THE INDUSTRIAL DEVELOPMENT AND REMOVING BACKWARDNESS OF THE AREA THAT LAGGED BEHIN D IN INDUSTRIAL DEVELOPMENT, WHICH IS CERTAINLY A PUR POSE IN THE PUBLIC INTEREST, THE INCENTIVES PROVIDED BY THE OFFICE MEMORANDUM AND STATUTORY NOTIFICATIONS ISSUE D IN 27 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 THIS BEHALF, TO THE APPELLANT ASSESSEES CANNOT BE CONSTRUE AS MERE PRODUCTION AND TRADE INCENTIVES, A S HELD BY THE TRIBUNAL. 14.3. ON THE BASIS OF THE ABOVE DISCUSSIONS AND RES PECTFULLY FOLLOWING THE DECISION OF CIT VS. DHARAM PAL PREAM PRAKASH LTD, WHICH HAS NOW BEEN UPHELD BY THE HONBLE SUPRE ME COURT, WE ARE INCLINED TO UPHOLD THE FINDINGS OF TH E LD.CIT (A). ACCORDINGLY GROUND NO. 4 RAISED BY THE REVENUE FOR ASSESSMENT YEAR 2005-06 AND 2006-07 STANDS DISMISSE D. 15 . GROUND NO. 3 FOR ASSESSMENT YEAR 2006-07 IN THE APPEAL FILED BY THE REVENUE, ALLOWABILITY OF RS. 9 CRORES ON ACCOUNT OF LICENSE FEE PAID. 15.1. DURING THE ASSESSMENT PROCEEDINGS THE LD.AO OBSERVED THAT THE ASSESSEE WAS PAYING A LICENSE FEE FOR THE FACTORY PREMISES TAKEN ON LEASE FOR MULLANPUR UNIT AT RS. 50 LACS PER MONTH FROM APRIL 2005 TO SEPTEMBER 2005. THEREAFTER THE LICENSE FEE HAS BEEN ENHANCED AT RS. 2 CRORES PER MONTH FROM OCTOBER 2005 TO MARCH 2006. 15.2. THE LD.AO HAS DISALLOWED A SUM OF RS. 9 CRORE S ON ACCOUNT OF LICENSE FEE PAID BY THE ASSESSEE ON THE GROUND THAT THE PAYEE BEING FLEX INDUSTRIES LTD (F I L), I S CLOSELY RELATED TO THE ASSESSEE. THE LD. AO FURTHER HOLDS T HAT THE LICENSE FEE PAID IS UNREASONABLE. 16 . AGGRIEVED BY THE ORDER OF THE LD.AO ASSESSEE PRE FERRED AN APPEAL BEFORE THE LD.CIT (A). 16.1. THE LD.CIT (A) HAS OBSERVED AND HELD AS UNDER : 28 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 8.3.I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS MADE BY THE COUNCIL AND THE REMAND REPORT DATED 13/01/2009 SUBMITTED BY THE AO. IT IS OBSERVED THAT THE FACTORY PREMISES AT MALANPU R WERE TAKEN ON LEASE BY THE COMPANY ON 13 APRIL, 200 2 AT A MONTHLY RENT OF RS. 40 LACS FROM M/S FLEX INDUSTRIES LTD. IT WAS INCREASED TO RS. 50 LACS PER MONTH W.E.F. 01/03/2005. IT IS SUBMITTED THAT M/S F LEX INDUSTRIES LTD INSISTED ON INCREASE IN THE LICENSE FEE OR GAVE THE OPTION TO TERMINATE THE LEASE AGREEMENT. T HE SITUATION OF TERMINATING THE LEASE AGREEMENT WOULD HAVE CONSIDERABLY DAMAGE THE BUSINESS INTEREST OF THE US APPELLANT. THE APPELLANT HAS BEEN ABLE TO CONSIDERA BLY DIVERSIFY ITS CUSTOMERS BASED WITHIN SHORT SPAN OF 4 YEARS. THE APPELLANT HAS ESTABLISHED ITSELF WITH VI ABLE SUPPLIES OF BASIC RAW MATERIALS, HAS BEEN ABLE TO R ECRUIT AND RETAIN THE SKILLED STAFF AND ESTABLISHED ITSELF IN THE AREA OF MULLANPUR. THE DETERMINATION OF THE EXISTIN G LICENSE AGREEMENT FOR USE OF THE MANUFACTURING ACTI VITY WOULD HAVE ENTAILED THE PROCESS OF PUTTING UP THE N EW MANUFACTURING UNIT. SUCH INSTALLATION OF A NEW MANUFACTURING UNIT WOULD REQUIRE IDENTIFICATION OF SUITABLE INDUSTRIAL LAND, ACQUISITION OF PLANT AND MACHINERY, SHIFTING OF THE SKILLED AND TRAINED STAF F, PUTTING UP THE FACTORY BUILDING, LOSING THE CUSTOME R BASE, BUILDING ASSOCIATION WITH NEW SUPPLIERS AND O THER BUSINESS CIRCUMSTANCES WHICH A NEW MANUFACTURING FACILITY WILL BE FACED WITH. IT IS IN THE LIGHT OF PROS AND CONS OF THE AVAILABLE MANUFACTURING FACILITY THAT T HE APPELLANT HAD AGREED TO THE INCREASED LICENSE FEE. IT IS OBSERVED THAT SUBSEQUENT TO THE COMMENCEMENT OF LICENSE AGREEMENT M/S FLEX INDUSTRIES LTD HAD INSTA LLED A HIGH-CAPACITY DG SET 2562 KVA CAPACITY AT A COST OF RS. 5.40 CRORE IN THE MONTH OF MARCH 2005. M/S FLEX INDUSTRIES LTD HAD ALSO INSTALLED FURTHER CAPITAL EQUIPMENT ON THE REQUEST OF THE APPELLANT FOR AN AGGREGATE SUM OF RS. 14.04 CRORES APPROXIMATELY. IT WAS DUE TO A COMBINATION OF ALL THESE FACTORS THAT THE APPELLANT HAD AGREED TO THE PAYMENT OF INCREASED LICENSE FEE. . 29 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 8.4. THERE MAY BE CIRCUMSTANCES LEADING TO SUSPICIO N, YET HAVING TAKEN ACTION UNDER SECTION 132 OF THE AC T AND ENQUIRIES MADE IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD NOT BROUGHT ANY POSITIVE MATE RIAL OR EVIDENCE TO INDICATE THAT THE TRANSACTION BETWEE N THE 2 PARTIES IS COLLUSIVE. MERELY BECAUSE OF SUBJECTIV E SATISFACTION THAT THE SHARP INCREASE IN THE LICENSE FEE IS MADE WITH THE INTENTION TO REDUCE THE PROFITS OF TH E UNIT, THE FACT ALONE WOULD NOT GIVE JURISDICTION TO THIS ALLOW THE GENUINE EXPENDITURE. IT IS WELL ESTABLISHED PRI NCIPLE OF JURISPRUDENCE THAT (A) SUSPICION HOWEVER GREAT C ANNOT TAKE TAKE THE PLACE OF EVIDENCE (B) THE SIZE THAT APPELLANT IS NOT REAL IS ON THE AO, SQUARELY APPLIC ABLE TO THE PRESENT CASE. 8.5. IN VIEW OF TOTALITY OF THE FACTS AND CIRCUMSTA NCES AND OBSERVATIONS OF THE JEWELLERY JURISDICTIONAL HI GH COURT ON THE SUBJECT IN THE AFORESAID CASE, DISALLO WANCE OF RS. 9, 00, 00, 000/-MADE BY THE AO IS DELETED. 17 . AGGRIEVED BY THE ORDER OF THE LD.CIT (A), THE RE VENUE IS IN APPEAL BEFORE US NOW. 17.1. WE HAVE PERUSED THE ORDERS PASSED BY THE AUTH ORITIES BELOW AND THE ARGUMENTS SUBMITTED BY BOTH THE PARTI ES. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT FOR LICE NSE WITH M/S FLEX INDUSTRIES LTD FOR A PERIOD OF 11 MONTHS S TARTING FROM THE 01/03/2005 TILL 31/01/2006 FOR A MONTHLY L ICENSE FEES OF RS. 50 LACS. SUBSEQUENTLY THERE WAS AN AMEN DMENT THAT WAS CARRIED OUT ON 10/10/2005 WHEREIN THE LICE NSE FEES WAS INCREASED TO RS. 2 CRORES. THIS AGREEMENT WAS MADE EFFECTIVE FROM 01/10/2005. THE ASSESSEE HAS NO T BEEN ABLE TO JUSTIFY THE SUDDEN RISE IN THE LICENSE FEE IN THE MIDDLE OF THE YEAR. THERE DOES NOT SEEMS TO BE ANY VALID REASON FOR SUCH AN INCREASE OF THE LICENSE FEES. IT IS ALSO EVIDENT FROM THE ORDER PASSED BY THE LD. AO THAT TH ERE IS NO 30 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 MATERIAL ON THE BASIS OF WHICH HE HAS MADE AN ADDIT ION OF RS. 9 CRORES TOWARDS THE LICENSE FEES. IT IS THEREF ORE JUST AND PROPER TO CONSIDER THE LICENSE FEE FOR THE PERIOD F ROM 01.03.2005 TO 31.01.2006 AT RS. 50 LACS PER MONTH A ND RS.2 CRORES FOR THE REMAINING MONTHS FROM 01.02.200 6 TO 31.03.2006. TO MEET THE ENDS OF JUSTICE WE THEREFOR E CONFIRM THE ADDITION TO AN EXTENT OF RS. 6 CRORE. A CCORDINGLY GROUND NO. 3 RAISED BY THE REVENUE IN ASSESSMENT YE AR 2006-07 STANDS PARTLY ALLOWED. 18 . GROUND NO. 5 RAISED BY THE REVENUE FOR ASSESSMENT YEAR 2006-07 PERTAINS TO DELETING THE ADDITION OF RS. 2,32,13,640/-MADE UNDER SECTION 68 OF THE ACT ON AC COUNT OF UNVERIFIABLE AND UNCONFIRMED ADVANCES FROM CUSTO MERS. 18.1. THE LD.AO OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD RECEIVED RS. 3,85,32 ,962/- HE OBSERVED THAT THE ASSESSEE HAD CLAIMED CASH SALE S OF RS. 2,658.86 LACS DURING THE YEAR UNDER CONSIDERATION O N ACCOUNT OF ADVANCES FROM CUSTOMERS. THE SALES ARE I N THE FORM OF ON SALES OR ACROSS THE COUNTER SALES. THE L D.AO HAD ASKED THE ASSESSEE TO FURNISH CONFIRMATION IN RESPE CT OF THE PARTIES FROM WHOM THE ASSESSEE HAS CLAIMED TO HAVE RECEIVED ADVANCES. AS THE PARTIES WERE NOT VERIFIAB LE THE AO MADE THE ADDITION OF RS. 2,32,13,640/- 19 . AGGRIEVED BY THE ORDER OF THE LD.AO THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT (A). 31 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 19.1. THE LD.CIT (A), AFTER NOTICING ALL THE EVIDEN CES GAVE A CATEGORICAL FINDING IN PARAGRAPH 10.3 OF HIS ORDER TO LD.CIT (A) HAS OBSERVED THAT ALL THE PARTIES ARE REGULAR C USTOMERS PURCHASING GOODS FROM LAST MANY YEARS FROM THE ASSE SSEE. IN RESPECT OF THE ADVANCES RECEIVED, THE ASSESSEE C OMPANY HAS APPLIED GOODS TO THESE PARTIES. THE LD.CIT (A) HAS ALSO TAKEN NOTE OF THE AVAILABLE CONFIRMATIONS 5. THE LD .CIT (A) HAS ALSO TAKEN NOTE OF THE REMAND REPORT OF THE LD. AO PLACED AT PAGE 576 OF THE PAPER BOOK FILED BY THE REVENUE. THE LD.CIT (A) HAS OBSERVED THAT AS THE AO IN THE REMAN D REPORT HAS NOT MADE ANY ADVERSE OBSERVATIONS/REMARKS, THE LD.CIT (A) DELETED THE ADDITION. 20 . AGGRIEVED BY THE ORDER OF LD.CIT (A), THE REVENU E IS IN APPEAL BEFORE US NOW. 20.1. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE RELEVANT PAGES OF THE PAPER BOOK PREFERRED BY LD.CIT (A). IT IS OBSERVED FROM THE REMAND REPORT A ND THE ASSESSMENT ORDER THAT THE ASSESSEE HAS FILED LEDGER ACCOUNTS OF THE CONCERNED PARTIES BEFORE THE AO. TH E TRADE CUSTOMERS AS APPEARING IN THE LIST ARE THE REGULAR CUSTOMERS MAKING PURCHASES FROM THE ASSESSEE FROM PAST MANY Y EARS IT IS EVIDENT FROM THE LEDGER ACCOUNT FOR THE CURRE NT AS WELL A SUBSEQUENT YEARS SHOWS THAT THE ASSESSEE HAS BEEN SUPPLYING GOODS TO THESE PARTIES IN THE NORMAL COUR SE OF THE BUSINESS AND THEREFORE THE REALISATION OF PROCEEDS THEREOF IS AN ONGOING PROCESS DURING THE COURSE OF THE BUSINES S ACTIVITY. THE ONLY FINDING OF THE AO THAT THE ASSES SEE HAS 32 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 NOT BEEN ABLE TO PRODUCE CONFIRMATIONS FROM FEW OF THE PARTIES CANNOT BE THE BASIS TO ARRIVE AT A CONCLUSI ON THAT THESE ARE UNVERIFIABLE AND UNCONFIRMED. 20.2. IN VIEW OF THE ABOVE FINDINGS AND OBSERVATION S WE ARE OF THE CONSIDERED OPINION TO UPHOLD THE FINDINGS OF THE LD.CIT (A). ACCORDINGLY GROUND NO. 5 RAISED BY THE REVENUE FOR ASSESSMENT YEAR 2006-07 STANDS DISMISSED. 21 . GROUND NUMBERS 5 AND 6 FOR ASSESSMENT YEAR 2005- 06 AND GROUND NO. 6 AND 7 FOR ASSESSMENT YEAR 2006-07 ARE GENERAL IN NATURE. 22 . IN VIEW OF THE ABOVE DISCUSSIONS THE APPEALS FILE D BY THE ASSESSEE AS WELL AS REVENUE FOR ASSESSMENT YEAR 2005- 06 AND 2006-07 STANDS DISPOSED OFF ACCORDINGLY. ORDER PRONOUNCED IN THE COURT ON 31 ST MAY 2016. SD./- SD./- (G.D. AGARWAL) (BEENA A PIL LAI) VICE PRESIDENT JUDICIAL MEMBER DATED: 31.05.2016 *BINITA*/SP COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR 33 I.T.A.NO. 1958,1959/DE L/2010 I.T.A.NO. 2105,2106/DEL/2010 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 12/5/16 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 31/5/16 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 31/5 SR. PS/PS 7 FILE SENT TO BENCH CLERK 1/6 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER