M/s. Hindustan Zinc Limited, UDAIPUR V. CIT, UDAIPUR

ITA 335/JODH/2014

• Counselvise Citation: 33523314 RSA 2014
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 23-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Assessee Lawyers: K SAMPATH SHRI DINESH GUPTA
• Keywords: Transfer pricing; Charitable institution; Opportunity of being heard; Principle of natural justice; Period of limitation; Tangible material; Difference of opinion; Scheme of amalgamation; Prejudicial to interest; Change of opinion
• Section: 143(3); 92F; 263; 63

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL JODHPUR BENCH: JODHPUR ( BEFORE SHRI H.M. MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ) I.T.A. NO. 335 /JODH/201 4 ASSTT. YEAR - 200 9 - 1 0 M/S HINDUSTAN ZINC LIMITED VS THE CIT, YASHAD BHAWAN, SAHELI MARG, UDAIPUR. UDAIPUR. PAN NO. AAACH 7354K (APPELLANT) (RESPONDENT) ASSESSEE S BY : SHRI K. SAMPATH . SHRI DINESH GUPTA DEPARTMENT BY : SHRI O.P. MEENA, CIT - D.R. DATE OF HEARING : 1 3 /0 8 /201 4 DATE OF PRONOUNCEMENT : 28 /0 8 /2014 O R D E R P E R HARI OM MARATHA, J.M : - THIS APPEAL OF THE ASSESSEE - COMPANY FOR A.Y. 200 9 - 1 0, IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TA X, UDAIPUR, DATED 3 1.03.201 4 , PASSED U/S 263 OF THE INCOME TAX ACT, 1961 (THE ACT FOR SHORT). 2 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY WHO MINES, MANUFACTURES AND SELLS ZINC, LEAD AND ITS BY - PRODUCTS LIKE SILVER, SULPHU RIC ACID AND OTHER MINOR METALS. THE PROCESSING PLANTS OF THE ASSESSEE ARE SITUATED IN THE STATE OF RAJASTHAN. DURING THE F.Y. 2008 - 09 [RELEVANT TO A.Y. 2009 - 10], THE ASSESSEE COMPANY HAS SET UP AN UNDERTAKING AT SIDKUL, HARIDWAR, IN UTTARA N CHAL STATE, W HI C H IS A NOTIFIED AREAS FOR CLAIMING DEDUCTION U/S 80IC OF THE ACT. THIS UNIT IS DULY APPROVED BY SIDKIL AND OTHER AUTHORITIES, INCLUDING THE EXCISE DEPARTMENT, SALES TAX DEPARTMENT AND VAT DEPARTMENT, SERVICE TAX DEPARTMENT ETC. THUS, THE ASSESSEE HAS CLAIMED THAT THIS HARIDWAR UNIT IS ELIGIBLE FOR 100% DEDUCTION U/S 80IC(2)(A)(II ) OF THE ACT, OF ITS PROFITS AND GAINS FOR THE FIRST FIVE YEARS AND 30% [IN THE CASE OF OTHER THAN COMPANY 25%] OF THE PROFITS AND GAINS IN THE SUBSEQUENT FIVE YEARS, FROM THE YEAR IT BEGINS TO MANUFACTURE OR PRODUCE THE GOODS OR ARTICLE. THIS UNIT HAS STATED REQUISITE PRODUCTION IN THE F.Y. 2008 - 09. THIS ELIGIBILITY IS FURTHER SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS LAID DOWN IN SUB - SECTION (4) OF SECTION 80IC OF THE ACT . THE HARIDWAR UNIT IS A ZINC REFINING AND PROCESSING UNIT, WHICH REFINES AND PROCESSES ZINC - CATHODE - SHEETS AND PRODUCES ZINC INGOTS. THE ASSESSEE COMPANY HAS INVESTED RS. 118 CRORES AND ODD IN THE HARIDWAR PLANT. AS PER THE PROVISIONS OF SUB - 3 SECTION (8) OF SECTION 80IA OF THE ACT, IF THE ASSESSEE HAS TRANSFERRED ANY GOODS OR SERVICES TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE AND VICE - VERSA, AND IF IT IS FOUND BY THE A.O THAT FOR SUCH TRANSFER AS RECORDED IN THE BOOKS OF THE ELIGIBLE BUSINESS, THE PRICE ADOPTED DOES NOT CORRESPOND TO THE MARKE T VA L UE OF SUCH GOODS OR SERVICES AS ON THE DATE OF TRANSFER THEN FOR THE PURPOSE OF DEDUCTION UNDER THIS SECTION, THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS MAY BE COMPUTED BY THE A.O CONSIDERING THE TRA NSFER AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE D ATE OF T RANSFER. THE ASSESSEE COMPANY H AS BEEN SENDING INC - CATHODE SHEETS FROM THE RAJASTHAN BASED UNITS TO HARIDWAR UNIT AT THE RATE OF 10% MARK UP ON COST INCURRED UPTO THE STATE OF PRODUCIN G SINC E CATHODE SHEETS. THE PRICE IS DETERMINED BY THE ASSESSEE COMPANY FOR TRANSFER TO THE HARIDWAR UNIT AT COST PLUS 10% MARK UP. THE A.O HAS ALLOWED CLAIM OF THE ASSESSEE COMPANY OF DEDUCTION OF RS. 1,18,26,40,303/ - , VIDE HIS ORD ER DATED 28.12.2011, P ASSED FOR THE A.Y. 2009 - 10. SUBSEQUENTLY, THE LD. CIT, UDAIPUR, CALLED FOR THE RECORDS OF THIS ASSESSMENT ORDER AND AFTER EXAMINATION HE FOUND THAT THIS ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IN TERMS OF SECTION 2 63 OF THE ACT. HE HAS, THEREFORE, AFTER ISSUING SHOW CAUSE NOTICE U/S 263 OF THE ACT TO THE ASSESSEE COMPANY DATED 6.3.2014, HAS REVISED THE ORDER AND HAS 4 DIRECTED THE A.O TO REFRAME THE ORDER IN SO FAR AS CLAIM OF DEDUCTION U/S 80IC IS CONCERNED. HE HAS FOUND THAT THE A.O HAS ALLOWED EXCESSIVE CLAIM OF THIS DEDUCTION BY ACCEPTING THE PROFIT ASSUMED ON THE BASIS OF INCORRECT MARKET VALUE. THE SHOW CAUSE NOTICE DATED 6.3.2014 READS AS UNDER: IN THIS CASE, THE ASSESSMENT FOR A Y. 2009 - 10 WAS COMPLETED U/S 143(3) OF THE I.T. ACT, BY THE ADDL. CIT, RANGE - 2, UDAIPUR ON 28 .12.2011 AT TOTAL INCOME OF RS. 2106, 24,08,070/ - AS AGAINST RETURNED INCOME OF RS. 1658,68,95,850/ - . THE ASSESSE E HAS CLAIMED DEDUCTION U/S 80IC AMOUNTING TO RS. 118.26,40,303/ - , THE AO ALL OWED THE CLAIM OF RS. 103,10,85,231/ - (118,26,40,303 - 15,15,55,072) OF DEDUCTION U/S 80IC I N THE ASSESSMENT ORDER DATED 28 - 12 - 2011 WITH REFERENCE TO THE ABOVE ASSESSMENT ORDER THE FOLLOWING POINTS ARE NOTICED : - I) IT HAS BEEN NOTICED THAT THE SAID COMPA NY HAD SET UP A MANUFACTURING UNIT IN HARIDWAR, UTT A RANCHAL TO PRODUCE ZINC METAL, INGOTS USING ZINC CATHODE SHEETS. FOR THIS PLANT, COMPANY HAS CLAIMED DEDUCTION OF 100% PROFIT IN TERMS OF SECTION 801C OF THE ACT . I I ) FOR THIS PLANT THE INTERMEDIATE PROD UCT KNOWN IN ASSESSEE COMPANYS PARLANCE AS CATHODE SHEET IS TRANSFERRED FROM VARIOUS UNITS 5 OF THE COMPANY SITUATED IN RAJASTHAN. THE COMPANY IS ENGAGED IN MINING OF ZINC, LEAD AND SILVER. THESE ORES ARE PROCESSED AT RAJASTHAN UNITS. THE PRODUCT AT THIS LE VEL IS NOT SOLD IN THE OPEN MARKET, BUT THESE CATHODE SHEETS ARE BEING TRANSFERRED TO ITS PLANT AT HARIDWAR AT COST + 10% MARK - UP. III) ON VERIFICATION OF BUSINESS ACTIVITIES OF COMPANY AND MANUFACTURING PROCESS IT IS SEEN THAT THAT THE ASSESSEE COMPANY IS ENGAGED IN MINING OF ORE WHICH CONTAINS ZINC, LEAD AND SILVER. ALL MINES OF THE COMPANY ARE SITUATED IN RAJASTHAN AT UDAIPUR & CHITTORGARH DISTRICTS. ZINC, LEAD AND SILVER ORE IS EXTRACTED FROM THE EARTH IN FORM OF BOULDERS WHICH ARE TAKEN TO CRUSHING P LANT WHERE BOULDERS ARE CUT DOWN TO SMALL PIECES AND AFTER SOME OTHER PROCESS ZINC & LEAD RAW MATERIAL IS OBTAINED AND IT IS PROCESSED TO ALMOST FINAL LEVEL AT VARIOUS UDAIPUR PLANTS AND THEN IT IS TRANSFERRED TO HARIDWAR PLANT FOR FURTHER SMALL PROCESSING WHICH RESULTS IN FINAL PRODUCT I.E. 99.99% ZINC. HENCE, MAIN PROCESSING STEP OF ZINC PROCESSING CAN BE SUMMARIZED AS UNDER : I) MINING ORE II) CRUSHING OF BOULDERS ZINC RAW MATERIAL III) ROASTING, LEACHING AND ELECTROLYSIS PROCESS ZINC CATHODE SHE ETS IV) REFINING / CASTING OF CATHODE FINAL PRODUCT ZINC INGOTS 2. THE PROCESSES AT STEPS I) TO III) ARE CARRIED OUT AT UDAIPUR PLANTS AND PROCESS AT STEP 4 IS CARRIED OUT AT HARIDWAR PLANT. THE PROCESSES AT STEPS 1 TO 3 ARE MAIN AND IMPORTA NT PROCESSES AND THEREBY MAJOR EXPENDITURE IS INCURRED AS 90 - 95% OUT OF THE WHOLE PRODUCTION ACTIVITIES UPTO FINAL STAGE IS CARRIED OUT BY THESE VARIOUS PROCESSES 6 WHICH ARE CONDENSED INTO THREE STEPS HERE - IN - ABOVE FOR THE PURPOSE OF BREVITY WHICH IS ALSO C LEAR FROM THE QUANTUM OF MANUFACTURING EXPENSES OF VARIOUS UDAIPUR UNITS. EXPENSES AT STEP - 4 ARE VERY LESS BECAUSE MOST OF THE PRODUCTION ACTIVITIES RIGHT FROM MINING OF THE ORE, EXTRACTING THE ORE FROM THE MINES, REMOVING THE OVER BURDEN, CRUSHING OF THE BOULDERS, REMOVING THE IMPURITIES BY FOLLOWING VARIOUS PHYSICAL AS WELL AS CHEMICAL PROCESSES MORE IMPORTANT AMONG THEM BEING ROASTING, LEACHING AND ELECTROLYSES PROCESS AND THEREBY REMOVING MOST OF THE IMPURITIES LEAVING ONLY VERY SMALL PERCENTAGE OF IMPU RITIES, ARE BEING DONE IN STEPS I) TO HI). THE COMPANY HAS CLAIMED 80IC DEDUCTION U/S 80IC IN A,Y, 2009 - 10 IN RESPECT OF THIS PLANT. 3. IN THIS REGARD, IT IS RELEVANT TO CONSIDER SUB - SECTION 7 OF 80IC, WHICH REFERS THAT SUB - SECTION 5 AND SUB - SECTION 7 TO 12 OF SECTION 80IA WILL APPLY TO ELIGIBLE UNDERTAKING UNDER THIS SECTION. FOR THE SAKE OF CLARITY THE RELEVANT PROVISIONS OF SECTION 80IA(S) ARE REPRODUCED BELOW 'WHERE ANY GOODS (OR SERVICES) HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFER RED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS (OR SERVICES) HELD FOR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS (OR SERVICES) AS ON THE DATE OF THE TRANSFER, THEN, FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, THE PROFITS AND GAINS OF SUCH ELIG IBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS (OR SERVICE) AS ON THAT DATE 7 THUS SECTION 80IA( 8) PRESCRIBES THAT IF VALUE OF GOODS TRANSFERRED FROM ANY OTHER BUSINESS TO THE ELIGIBLE BUS INESS DOES NOT CORRESPOND TO MARKET VALUE AS ON THE DATE OF TRANSFER, THEN FOR THE PURPOSE OF DEDUCTION THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF TRANSFER, HAD BEEN MADE AT MARKET VALUE OF SUCH GOODS. FURTHER THE MARKET VALU E HAS ALSO BEEN DEFINED IN THE EXPLANATION BELOW THE SECTION AS TO THE PRICE THAT WOU LD ORDINARILY FETCH IN THE OPEN MARKET. 3.1 IT IS SEEN THAT TO CALCULATE THE PROFIT OF EXEMPTION CLAIMING UNIT AT HARIDWAR, THE ASSESSEE SHOULD TAKE MARKET VALUE FOR THE INT ERMEDIATE GOODS AS THE CONSIDERATION FOR SUCH TRANSFER OF INTERMEDIATE GOODS FROM THE NON EXEMPTED UDAIPUR PLANTS. HOWEVER, THE ASSESSEE HAS NOT TAKEN THE MARKET VALUE AND HAS TAKEN THE VALUE BY JUST MARKING UP THE COST AT UDAIPUR PLANTS BY 10% WITHOUT ANY REASONABLE BASIS. THE ASSESSEE HAS ASSUMED THAT OUT OF THE TOTAL PROFITS EARNED ON THE GOODS SOLD FROM HARIDWAR PLANT, PROFIT ONLY TO THE EXTENT OF 10% OF THE COST IS ATTRIBUTABLE TO UDAIPUR PLANTS BEING NON EXEMPTED UNITS AND ALL OTHER REMAINING PROFIT I S ATTRIBUTABLE TO EXEMPTED PLANT, WHICH IS QUITE ABSURD AND TOTALLY DEFIES ANY LOGIC. DURING THE A.V. 2009 - 10 THE COST OF GOODS AT UDAIPUR PLANT WAS TAKEN AT RS. 126.58 CRORE. ON THIS ONLY 10% WAS ASSUMED AS PROFIT AT UDAIPUR PLANTS WHICH COMES TO RS. 12. 66 CRORE AND FOR HARIDWAR PLANT THE COST WAS PRESUMED AS RS. 139.24 CRORE (I.E. 126.58 + 12.66 CRORE), THE TOTAL PROFIT ON THE GOODS SOLD FROM HARIDWAR PLANT BROADLY COMES TO RS. 152.10 CRORE OUT OF WHICH ONLY RS. 12,66 CRORE WAS SHOWN AS PERTAINING TO VAR IOUS PLANTS SITUATED IN RAJASTHAN AND REMAINING RS, 139,44 CRORE WAS SHOWN AS PERTAINING TO HARIDWAR PLANT WHEREAS AT HARIDWAR THE EXPENSES INCURRED WERE ONLY RS. 49.41 CRORE. 8 4. NOW THE MOOT ISSUE IS AS TO WHETHER THE ASSESSEE HAS TAKEN THE MARKET VALUE OF T HE ZINC CATHODE SHEETS WHILE TRANSFERRING THEM FROM RAJASTHAN UNITS TO HARIDWAR UNIT ? 4.1 FIRSTLY, NOWHERE IN THE INCOME TAX ACT, COST PLUS 10% MARK - UP HAS BEEN PRESCRIBED AS THE METHOD FOR DETERMINING MARKET VALUE. SECONDLY T HE PRESUMED BASIS TAKEN BY THE A SSESSEE BY CONSIDERING THE CUSTOM AND EXCISE RULES IS NOT DIRECTLY APPLICABLE IN THE INCOME TAX ACT. IN THE INCOME TAX ACT PARTICULARLY IN SECTION 801C OR 80IA, IT HAS RIOT BEEN PRESCRIBED THAT FOR DETERMINING THE MARKET VALUE, OF INTERMEDIATE PRODUCT SO T RANSFERRED FROM NON - EXEMPTED TO EXEMPTED UNIT, IS TO BE TAKEN AS PER CENTRAL EXCISE AND CUSTOMS RULES OR NOTIFICATION. 10% MARKUP WHICH WAS SO SHOWN / CLAIMED BY THE ASSESSEE COMPANY AND THEREBY ATTRIBUTING / ASSUMING VERY HIGH PROFIT TO THE HARIDWAR PLANT , NOT COMMENSURATE WITH THE EXPENDITURE INCURRED OR INVESTMENT MADE AND ACCEPTING THE CLAIM OF VERY HIGH DEDUCTION U/S 80IC IN RESPECT OF HARIDWAR 4.2 THUS THE ASSESSEE COMPANY HAS ESTIMATED MARKET VALUE OF ITS CATHODE SHEET PRODUCED AT VARIOUS UDAIPUR PL ANTS WHICH ARE TRANSFERRED TO HARIDWAR PLANT ON 10% NOTIONAL PROFIT ATTRIBUTABLE TO ALL THE VARIOUS PLANTS SITUATED AT DIFFERENT PLACES IN RAJASTHAN TAKEN TOGETHER AND HAS ESTIMATED MUCH HIGHER PROFIT FROM SM ALL PLANT AT HARIDWAR, ONLY CLAIMING HIGHER DED UCTION U/S 80IG, MOREOVER, THE ABOVE ANALYSIS SHOWS THAT MAJOR PORTION OF ALL MANUFACTURING EXPENSES IS INCURRED AT NON - EXEMPTED UNITS I.E. OTHER THAN HARIDWAR PLANT. AROUND 72% OF EXPENDITURE IS INCURRED AT NON EXEMPTED UNITS WHEREAS ONLY AROUND 9% PORTIO N OF OVERALL PROFIT IS ASSUMED AT ALL THE 9 UDAIPUR PLANTS IN TOTALITY. THUS MARKET VALUE SO ASSUMED AT COST + 10% IS NOT JUSTIFIABLE AND NOT CORRECT IN VIEW OF THE AFORESAID FACTS ALSO. 5. IT CAN BE SEEN THAT THE PROFIT IS ASSUMED @ 10% NOTIONAL BASIS OF A LL THE VARIOUS UDAIPUR PLANTS WHICH IS RESULTING IN BULK OF PROFITS BEING ASSUMED IN THE BOOKS OF HARIDWAR PLANT. THIS PLANT IS CLAIMING EXEMPTION U/S 80IC SO MAJOR PORTION OF OVERALL PROFITS ARE CLAIMED AS DEDUCTION RESULTING IN OVERALL LOW TAXABLE PROFIT S 5.1. THIS AFORESAID CLAIM OF THE ASSESSEE COMPANY HAS BEEN ERRONEOUSLY ACCEPTED BY THE AO IN THE ASSESSMENT ORDER. IN VIEW OF THE ABOVE DISCUSSION IT IS CLEAR THAT THE ASSESSMENT ORDER SO PASSED BY THE AO BY JUST ERRONEOUSLY ASSUMING THE MARKET RATE OF THE CATHODE SHEET AT COST +10% MARKUP WHICH WAS SO SHOWN/CLAIMED BY THE ASSESSEE COMPANY AND THEREBY ATTRIBUTING/ASSUMING VERY HIGH PROFIT TO THE HARIDWAR PLANT NOT COMMENSURATE WITH THE EXPENDITURE INCURRED OR INVESTMENT MADE AND ACCEPTING THE CLAIM OF VERY HIGH DEDUCTION U/S80IC IN RESPECT OF HARIDWAR PLANT. THUS OVERALL TAXABLE PROFIT OF THE ASSESSEE COMPANY HAS BEEN REDUCED BY ALLOWING SUCH HIGHER CLAIM OF DEDUCTION U/S 80IC OF THE I T. ACT AND THEREFORE, THE ASSESSMENT ORDER SO PASSED IS PREJUDICI AL TO THE INTEREST OF REVENUE. 5.2 IN VIEW OF ABOVE IT WOULD HAVE BEEN JUSTIFIABLE TO DETERMINE THE CORRECT MARKET VALUE OF THE ZINC CATHODE SHEET AND IF DETERMINATION OF CORRECT MARKET VALUE WAS NOT POSSIBLE, 10 THEN OBVIOUSLY THE EXPENDITURE BY WAY OF VALUE OF RAW MATERIAL FOR THE HARIDWAR PLANT IS NOT CORRECTLY ASCERTAINABLE. CONSEQUENTLY THE DETERMINATION OF PROFIT OF THE HARIDWAR PLANT IS NOT POSSIBLE OR ATLEAST PRESENTING EXCEPTIONAL DIFFICULTIES, THEN THE AO WOULD HAVE COMPUTED SUCH PROFITS AND GAINS ON SUCH REA SONABLE BASIS, BY INVOKING THE PROVISO TO SECTION 80IA(8) R.W.S. 80IC(7). ONE OF THE REASONABLE WAY TO COMPUTE THE PROFIT AND GA INS OF EXEMPTED UNIT IS TAKING THE DIVIDING THE OVERALL PROFIT FROM THE RAW MATERIAL TO FINISHED PRODUCT IN THE RATIO OF EXPENDITURE INCURRED IN THE NON - EXEMPTED UNITS SITUATED AT DIFFERENT PLACES IN RAJASTHAN AND EXEMPTED UNIT AT HARIDWAR. 6. BY NOT DOING SO AND ACCEPTING THE INCORRECT CLAIM OF THE ASSESSEE COMPANY THE AO HAS ERRED AND THE ASSESSMENT ORDER SO PASSED IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE, WHICH IS PROPOSED TO BE SUITABLY MODIFIED / ENHANCED / CANCELLED BY INVOKING THE PROVISIONS OF SECTION 283 OF THE I.T. ACT. BEFORE DOING SO, AN OPPORTUNITY OF BEING HEARD IS GIVEN ON 18.03.2014 AT 11.30 A.M. IN THE OFFICE OF THE COMMISSIONER OF INCOME TAX, UDAIPUR AT 18, MOOMAL TOWER, SAHELI MARG, UDAIPUR. ON THIS DATE, YOU ARE REQUIRED TO ATTEND EITHER PERSONALLY OR THROUGH AN AUTHORIZED REPRESENTATIVE AIONGWITH WRITTEN SUBMISSION. T HE DOCUMENTS, IF ANY, WHICH YOU WISH TO FURNISH IN THIS REGARD, SHOULD BE PAGE - NUMBERED IN AN INDEXED PAPER BOOK FORM DULY MAKING CROSS REFERENCES IN THE WRITTEN SUBMISSION. 3. THE ASSESSEE REPLIED TO THE ABOVE NOTICE VIDE WRITTEN REPLY DATED 18.3.2014 W HICH IS CONTAINED IN PAGES 15 TO 42 F THE PAPER BOOK AND IS AS UNDER: 11 WE ARE IN RECEIPT OF A NOTICE DATED 06.03.2014 U/S 263 OF THE ACT FROM YOUR OFFICE. IN THE SAID NOTICE, YOU HAVE PROPOSED TO REVISE / AMEND THE ORDER DATED 28.12.2011 PASSED UNDER SECTI ON 143(3) OF THE ACT BY THE THEN LEARNED ASSESSING OFFICER[THE AO], INVOKING THE POWERS ENTRUSTED UPON BY SECTION 263 TO A COMMISSIONER OF INCOME TAX [CIT]. IN THE SAID NOTICE YOU HAVE ALLEGED THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THIS REGARDS IT HUMBLY SUBMITTED THAT THE SAID ACTION OF YOUR GOODSELF UNDER SECTION 263 OF THE ACT, IS MOST ARBITRARY, PALPABLY ERRONEOUS AND TOTALLY UNLAWFUL AND WITHOUT JURISDICTION UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. THE NOTICE ISSUED U/S 263 IS LIABLE TO BE QUASHED AS IT IS BASED UPON MERE CHANGE OF OPINION AND ATTEMPTS TO REVISE AN ORDER WHICH HAS BEEN PASSED BY THE AO AFTER CONSIDERING ALL THE RELEVANT INFORMATION ASKED FOR AND SUPPLIED DURING THE COUR SE OF ASSESSMENT. THE ASSESSEE WISHES TO HIGHLIGHT THE FOLLOWING POINTS IN THIS REGARD - A SUBMISSION ON TECHNCALS 1 SECTION 263 WAS INSERTED IN THE STATUTE WITH THE MAIN OBJECTIVE OF EQUIPPING THE COMMISSIONER OF INCOME TAX WITH THE POWERS OF REVISING AN Y ORDER OF THE AO, WHERE THE ORDER IS ERRONEOUS AND RESULTED IN PREJUDICE TO THE INTEREST OF THE REVENUE. WHILE THE POWER IS NOT MEANT TO BE A SUBSTITUTE FOR THE POWER OF THE AO TO MAKE ASSESSMENT, THE SAME CAN CERTAINLY BE EXERCISED WHEN THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. WHETHER OR NOT THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE HAS TO BE 12 DECIDED FROM CASE TO CASE. THE PROVISIONS OF SECTION 263 READ AS UNDER: 263. (1) THE COMMISSIONE R MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE [ASSESSING] OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSES SEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSES SMENT AND DIRECTING A FRESH ASSESSMENT. [ EXPLANATION . FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB - SECTION, ( A ) AN ORDER PASSED [ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988] BY THE ASSESSING OFFICER SHALL INCLUDE ( I ) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMISSIONER[OR DEPUTY COMMISSIONER] OR THE INCOME - TAX OFFICER ON THE BASIS OF THE DIRECTIONS ISSUED BY THE [JOINT] COMMISSIONER UNDER SECTION 144A; ( II ) AN ORDER MADE BY THE[JOINT] COMMISSIONER IN EXERCIS E OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTIONS OF AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BOARD OR BY THE CHIEF 13 COMMISSIONER OR DIRECTOR GENERAL OR COMMISSIONER AUTHORISED BY THE BOARD IN THIS BEHALF UNDER SECTION 120; ( B ) 'RECORD'[SHALL INCLUDE AND SHALL BE DEEMED ALWAYS TO HAVE INCLUDED] ALL RECORDS RELATING TO ANY PROCEEDING UNDER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE COMMISSIONER; ( C ) WHERE ANY ORDER REFERRED TO IN THIS S UB - SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTER OF ANY APPEAL 60 [FILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988], THE POWERS OF THE COMMISSIONER UNDER THIS SUB - SECTION SHALL EXTEND 60 [AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED] TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL.] 61 [(2) NO ORDER SHALL BE MADE UNDER SUB - SECTION (1) AFTER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED.] (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB - SECTION (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASSED AT ANY TIME IN THE CASE OF AN ORDER WHICH HA S BEEN PASSED IN CONSEQUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING OR DIRECTION CONTAINED IN AN ORDER OF THE APPELLATE TRIBUNAL, 62 [NATIONAL TAX TRIBUNAL,] THE HIGH COURT OR THE SUPREME COURT. EXPLANATION . IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB - SECTION (2), THE TIME TAKEN IN GIVING AN OPPORTUNITY TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROCEEDING UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUDED. 14 2 FROM THE PERUSAL OF THE PROVISIONS OF SECTION 263 OF THE ACT, IT CAN BE OBSERVED THAT IT EMPOWERS THE CIT TO REVISE, AMEND OR CANCEL AN ORDER PASSED BY THE AO IF SUCH ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. AS PER THE PROVISION OF THE ACT, THE CIT HAS TO ESTABLISH THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AND IS PREJUDICIAL TO THE I NTEREST OF THE REVENUE. THE TWIN CONDITION ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE HAS TO BE SIMULTANEOUS AND TOGETHER NOT IN ISOLATION. AN ORDER, PASSED BY THE AO WHO HAS CONSIDERED AN ISSUE IN DETAIL, SOUGHT LENGTHY DETAILS A ND EXPLANATIONS FROM THE ASSESSEE AND CONSIDERED THE SAME, APPLIED HIS MIND WHILE FORMING AN OPINION ON THE ALLOWANCE OR DISALLOWANCE OF ANY PARTICULAR CLAIM OF THE ASSESSEE, MADE ELABORATE DISCUSSION IN THE ASSESSMENT ORDER WHILE ACCEPTING / ALLOWING THE CLAIM OF THE ASSESSEE, CANNOT BE SAID TO BE ERRONEOUS. THIS ISSUE WAS CONSIDERED BY THE BOMBAY HIGH COURT IN THE CASE OF CIT V. GABRIEL INDIA LTD. , (203 ITR 108). THE HIGH COURT, AFTER THE CONSIDERING THE FACTS OF THE CASE AND PERUSING THE ORDERS OF LOWER AUTHORITIES, OPINED THAT THE POWER OF SUO MO T TO REVISION U/S.263(1) WAS IN THE NATURE OF SUPERVISORY JURISDICTION AND COULD BE EXERCISED ONLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXISTED. TWO CIRCUMSTANCES MUST EXIST TO ENABLE THE CIT TO EXERCISE POWER O F REVISION U/S 263: THE ORDER OF AO MUST BE ERRONEOUS; AND BY VIRTUE OF THE ORDER BEING ERRONEOUS, PREJUDICE IS CAUSED TO THE INTEREST OF THE REVENUE. 3 THE HIGH COURT HELD THAT IF THE AO ACTING IN ACCORDANCE WITH LAW MAKES CERTAIN ASSESSMENT, IT CANNOT B E TERMED AS ERRONEOUS BY THE CIT, THE AO HAD EXERCISED THE QUASI - JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT A CONCLUSION. SUCH A CONCLUSION COULD NOT BE TERMED AS ERRONEOUS SIMPLY BECAUSE THE CIT DID NOT FEEL 15 SATISFIED WITH THE CONC LUSION. IN SUCH A CASE, IN THE OPINION OF THE CIT, THE ORDER MAY BE PREJUDICIAL TO THE INTEREST OF THE REVENUE, BUT IT CANNOT BE HELD TO BE ERRONEOUS FOR THE EXERCISE OF REVISIONARY JURISDICTION U/S.263. ACCORDING TO THE COURT, FOR AN ORDER TO BE ERRONEOUS , IT MUST BE AN ORDER WHICH IS NOT IN ACCORDANCE WITH THE LAW OR WHICH HAS BEEN PASSED BY THE AO WITHOUT MAKING ANY INQUIRY IN UNDUE HASTE. ASSESSEE FURTHER PLACES RELIANCE ON THE FOLLOWING DECISIONS DAWJEEDADABHOY& CO. V. S. P. JAIN &ANR., (31 ITR 872) (CAL.). ADDL. CIT V. MUKUR CORPORATION, (111 ITR 312) (GUJ.) 4 A SIMILAR ISSUE HAS BEEN EXAMINED BY THE DELHI HIGH COURT IN THE CASE OF CIT V. ASHISH RAJPAL , (320 ITR 674). IN THAT CASE, IN THE COURSE OF SCRUTINY, SEVERAL COMMUNICATIONS WERE ADDRESSED BY T HE ASSESSEE TO THE AO, WHEREBY THE INFORMATION, DETAILS AND DOCUMENTS SOUGHT FOR, WERE ADVERTED TO AND FILED, WHICH WERE SUBJECT TO GROUNDS OF REVISION U/S.263. ON APPEAL BY THE REVENUE BEFORE THE HIGH COURT, THE HIGH COURT, AFTER CONSIDERING THE DECISION S ON THE SUBJECT, EXPLAINED THE MEANING OF THE EXPRESSION ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AS UNDER: QUOTE . . . . (III) AN ORDER IS ERRONEOUS WHEN IT IS CONTRARY TO LAW OR PROCEEDS ON AN INCORRECT ASSUMPTION OF FACTS OR IS IN BREACH OF PRINCIPLES OF NATURAL JUSTICE OR IS PASSED WITHOUT APPLICATION OF MIND, THAT IS, IS STEREOTYPED, INASMUCH AS, THE AO, ACCEPTS WHAT 16 IS STATED IN THE RETURN OF THE ASSESSEE WITHOUT MAKING ANY ENQUIRY CALLED FOR IN THE CIRCUMSTANCES OF THE CASE, THAT IS, PROCEEDS WITH UNDUE HASTE. [SEE GEE VEE ENTERPRISES V. ACIT , (99 ITR 375) (DEL.)] UNQUOTE 5 THE RATIO OF DECISIONS IN THE CASE OF CIT V. GABRIEL INDIA LTD. AND CIT V. ASHISHRAJPAL , (320 ITR 674), (SUPRA) IS EQUALLY APPLICABLE TO THE CASE OF THE ASSESSEE. IN THE CASE OF THE ASSESSEE, THE THEN LEARNED AO HAS MADE ELABORATE QUERIES DURING THE ASSESSMENT PROCEEDINGS ON THE ISSUE OF SECTION 80IC DEDUCTION. THE VARIOUS QUERIES RAISED BY THE AO WERE ANSWERED IN DETAIL BY THE ASSESSEE FROM TIME TO TIME, VIDE ITS REPLIES DATED 03.11.2011 . THE AO AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, MADE A DETAILED DISCUSSION/ELABORATION IN HIS ORDER ON THE ENTITLEMENT AND QUANTUM OF THE DEDUCTION AVAILABLE BEFORE ACCEPTING THE CLAIM OF THE ASSESSEE U/S 80IC. THE THEN AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AS IT. HE APPLIED HIS MIND ON THE SUBJECT AND REDUCED THE CLAIM MADE BY THE ASSESSEE U/S 80IC BY A SUM OF RS 15,15,55,072. THUS THE ORDER PASSED BY THE AO CAN NOT BE SAID TO ERRONEOUS IN THE LIGHT OF DECISIONS OF BOMBAY HIGH COURT IN CIT V. GABRIEL INDIA LTD. AND DELHI HIGH COURT IN THE CASE OF CIT V. ASHISH RAJPAL , (320 ITR 674). 6 THE FULL BENCH OF THE GAUHATI HIGH COURT IN THE CASE OF CIT V. JAWAHAR BHATTACHARJEE , (67 DTR 217), AFTER E XTENSIVELY CONSIDERING THE LEGAL DECISIONS AND PRECEDENTS ON THE SUBJECT, EXPLAINED THE EXPRESSION ERRONEOUS ASSESSMENT IN CONTEXT OF 17 SECTION 263 IS AN ASSESSMENT MADE ON WRONG ASSUMPTION OF FACTS OR ON INCORRECT APPLICATION OF LAW OR WITHOUT DUE APPLIC ATION OF MIND OR WITHOUT FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE. THOUGH THE DECISIONS OF THE BOMBAY HIGH COURT IN THE CASE OF GABRIEL INDIA LTD. (SUPRA) AND THE DELHI HIGH COURT IN THE CASE OF ASHISHRAJPAL (SUPRA) WERE NOT SPECIFICALLY REFERRED TO IN THE AFORESAID DECISION, THE RATIO OF THESE JUDGMENTS WERE ACCEPTED BY THE FULL BENCH IN THE DECISION. 7. THE KARNATAKA HIGH COURT IN THE CASE OF INFOSYS TECHNOLOGIES LTD. HAS HELD THAT THE AO SHOULD RECORD REASONS FOR HIS CONCLUSIONS AND FINDINGS IN THE ASSESSMENT ORDER, IRRESPECTIVE OF WHETHER THE ISSUE HAS BEEN ACCEPTED OR NOT BY THE AO. IN CASE THE ASSESSMENT ORDER DOES NOT CONTAIN THE REASONS FOR HIS FINDINGS AND CONCLUSIONS, THEN IT MAY BE CONSTRUED AS AN ORDER WHICH IS ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF THE REVENUE. IN SUCH CASES THE ORDER OF THE AO MAY BE REVISED UNDER THE PROVISION OF SECTION 263 BY THE CIT. THE RATIO OF THIS JUDGMENT GOES IN FAVOUR OF THE ASSESSEE AS THE ORDER OF THE AO SPECIFICALLY RECORDS THE REASONS FOR GRANTING THE D EDUCTION U/S 80IC IN THE CASE OF THE ASSESSEE. THE AO HAS SPECIFICALLY RECORDED THE REASONS IN THE ASSESSMENT ORDER WHILE EXAMINING THE CLAIM OF THE ASSESSEE. 8 IN THE FOLLOWING DECISIONS IT HAS BEEN HELD THAT MERELY BECAUSE THE AO SHOULD HAVE GONE DEEPE R INTO THE MATTER OR SHOULD HAVE MADE MORE ELABORATE DISCUSSION COULD NOT BE A GROUND FOR EXERCISING POWER U/S.263: 18 CIT V. DEVELOPMENT CREDIT BANK LTD., (323 ITR 206) (BOM.); CIT V. HINDUSTAN MARKETING AND ADVERTISING CO. LTD., (341 ITR 180) (DEL.); CIT V. GANPATI RAM BISHNOI, (296 ITR 292) (RAJ.); CIT V. UNIQUE AUTOFELTS (P) LTD., (30 DTR 231) (P&H); HARI IRON TRADING CO. V. CIT, (263 ITR 437) (P&H); AND CIT V. GOYAL PRIVATE FAMILY SPECIFIC TRUST, (171 ITR 698) (ALL.). 9 AS PER THE PROVISION OF SEC TION 263, THE CIT IS NEVER REQUIRED TO COME TO A FIRM CONCLUSION BEFORE EXERCISING HIS POWERS OF REVISION, IT IS EQUALLY TRUE THAT THE CIT BEING A QUASI - JUDICIAL AUTHORITY, IS ALSO REQUIRED TO SATISFY HIMSELF AND GIVE REASONS BEFORE INVOKING THE POWERS OF REVISION. THIS LEGAL PROPOSITION IS ALSO APPROVED IN THE FOLLOWING DECISIONS RENDERED IN THE CONTEXT OF SECTION 263: CIT V. T. NARAYANAPAI, (98 ITR 422) (KAR.); CIT V. ASSOCIATED FOOD PRODUCTS, (280 ITR 377) (MP); CIT V. JAI MEWAR WINE CONTRACTORS, (251 ITR 785) (RAJ.); CIT V. DUNCAN BROTHERS, (209 ITR 44) (CAL.) CIT V. KANDA RICE MILLS, (178 ITR 446) (P&H); CIT V. TRUSTEES, ANUPAM CHARITABLE TRUST, (167 ITR 129) (RAJ.) CIT V. R. K. METAL WORKS, (112 ITR 445) (P&H); 10 THUS FROM THE ABOVE JUDICIAL PRONOUNCEMENT IT CAN BE OBSERVED THAT, THE REVISIONARY PROVISIONS UNDER SECTION 263 OF THE ACT ARE INTENDED TO PROVIDE POWERS TO THE CIT IN THE CASES WHERE THE AO HAS PASSED AN ORDER WITHOUT APP LICATION OF MIND. AND HAS NOT I F THE AO HAS APPLIED HIS MIND AND PROBED IN TO THE ISSUE DURING THE 19 COURSE OF ASSESSMENT, IT IS NOT NECESSARY FOR HIM TO RECORD THE SAME IN HIS ORDER WHILE ACCEPTING A CLAIM OF THE ASSESSEE. IN SUCH CIRCUMSTANCES, THE PROVISIONS OF SECTION 263 DO NOT ENTITLE CIT TO REVISIT THE CASE FOR REVISING/ AMENDING. IF AN OTHERWISE VIEW IS TAKEN, WHEREIN THE REASONS FOR THE CONCLUSIONS AND FINDINGS ARE ONLY SPELT OUT WITH REGARD TO THE ISSUES WHERE THE CLAIMS OF THE ASSESSEES ARE NOT ACCEPTED, SUCH A VIEW MAY GIVE A FREE HAND TO THE CIT TO EXERCI SE POWERS OF REVISION U/S.263 IN ALMOST ALL CASES AND REVISE ALL SUCH SETTLED ASSESSMENTS, WHICH IS UNWARRANTED. SINCE IN THE CASE OF THE ASSESSEE THE THEN AO HAS MADE ELABORATE DISCUSSION IN THE ASSESSMENT ORDER REGARDING THE CLAIM OF THE ASSESSEE U/S 80 IC, THE CLAIM HAS BEEN ALLOWED ONLY AFTER CONSIDERING THE SUBMISSIONS AND EXPLANATIONS OFFERED BY THE ASSESSEE TO THE QUERIES RAISED, THE ORDER OF THE AO CANNOT BE SAID TO ERRONEOUS. 11 FOR ASSUMING POWER U/S 263, SINCE THE ORDER OF THE AO SHOULD BE BOTH ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE BOTH THE PRECONDITION SHOULD BE FULFILLED BEFORE THE POWERS U/S 263 CAN BE ASSUMED IN THE PRESENT CASE. THE ORDER PASSED BY THE ASSESSING OFFICER IS NOT ERRONEOUS, THE JURISDICTION IS ASSUMED U/S 263 IS NOT VALID. WITHOUT PREJUDICE TO OUR SUBMISSION ON THE ABOVE TECHNICAL GROUNDS THAT THE ASSUMPTION OF THE JURISDICTION U/S 263 IS NO T VALID, THE ASSESSEE SUBMIT IT S SUBMISSION ON MERIT OF THE CASE AS FOLLOWING - 20 B MERIT OF THE CASE YOU HAVE DISPUTED THAT THE CLAIM MADE BY THE ASSESSE E UNDER SECTION 80IC OF THE INCOME TAX ACT 1961 (HEREIN AFTER REFERRED TO AS THE ACT) AND ALLEGED THAT THE ASSESSEE HAS CLAIMED AN EXCESSIVE DEDUCTION IN RESPECT TO HARIDWAR UNIT/UNDERTAKING, WHICH IS ELIGIBLE F OR DEDUCTION UNDER SECTION 80IC OF THE ACT. THE ASSESSEE HAS BEEN PROVIDED AN OPPORTUNITY TO EXPLAIN THE CASE. AT THE OUTSET, THE ASSESSEE COMPANY HUMBLY SUBMITS THAT THE INFERENCE OF EXCESSIVE DEDUCTION U/S 80IC IS NOT BASED ON FACTS. THE ASSESSEE IS ELIG IBLE FOR CLAIMING THE DEDUCTION UNDER 80IC. THE PROVISION OF SECTION 80IC ARE REPRODUCED HEREWITH [ SPECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKINGS OR ENTERPRISES IN CERTAIN SPECIAL CATEGORY STATES ] 80 - IC. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB - SECTION (2), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS, AS SPECIFIED IN SUB - SECTION (3). (2) THIS SECTION APPLIES TO ANY UNDERTAKING OR ENTERPRISE, ( A ) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THI NG SPECIFIED IN THE THIRTEENTH SCHEDULE, OR WHICH MANUFACTURES OR PRODUCES ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE 21 THIRTEENTH SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING ( I ) . ( II ) ON THE 7TH DAY OF JANUARY, 2003 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2012, IN ANY EXPORT PROCESSING ZONE OR INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GROWTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE BOARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS REGARD, IN THE STATE OF HIMACHAL PRADESH OR THE STATE OF UTTARANCHAL; OR ( III ) ( B ) WHICH HAS BEGUN OR BEGINS TO MANUFACTU RE OR PRODUCE ANY ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE, OR WHICH MANUFACTURES OR PRODUCES ANY ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPECIFIE D IN THAT SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING ( I )..OR ( II ) ON THE 7TH DAY OF JANUARY, 2003 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2012, IN THE STATE OF HIMACHAL PRADESH OR THE STATE OF UTTARANCHAL; OR ( III ) 22 (3) THE DEDUCTION REFERRED TO IN SUB - SECTION (1) SHALL BE ( I ) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB - CLAUSES ( I ) AND ( III ) OF CLAUSE ( A ) OR SUB - CLAUSES ( I ) AND ( III ) OF CLAUSE ( B ), OF SUB - SECTION (2), ONE HUNDRED PER CENT OF SUC H PROFITS AND GAINS FOR TEN ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR; ( II ) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB - CLAUSE ( II ) OF CLAUSE ( A ) OR SUB - CLAUSE ( II ) OF CLAUSE ( B ), OF SUB - SECTION (2), ONE HUNDRED PER C ENT OF SUCH PROFITS AND GAINS FOR FIVE ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESSMENT YEAR AND THEREAFTER, TWENTY - FIVE PER CENT (OR THIRTY PER CENT WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS. II. ELIGIBILITY UNDER SECTION 80IC 1. TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF ZINC, LEAD AND ALSO MANUFACTURES SEVERAL BY - PRODUCTS LIKE SILVER, SULPHURIC ACID AND OTHER MINOR METALS. THE PROCESSING PLANTS OF THE ASSESSEE ARE SITUATED IN THE STATE OF RAJASTHAN. DURING THE FINANCIAL YEAR 2008 - 0 9, THE ASSESSEE HAS SET UP AN UNDERTAKING AT SIDKUL HARIDWAR, UTTARANCHAL WHICH IS A NOTIFIED AREA FOR THE CLAIM OF DEDUCTION UNDER SECTION 80IC. THE UNDERTAKING OF THE ASSESSEE IS DULY APPROVED BY SIDKUL AND OTHER AUTHORITIES SUCH AS EXCISE DEPARTMENT, SA LES TAX & VAT DEPARTMENT, SERVICE TAX DEPARTMENT ETC.. THE KHASRA NOS. OF THE LAND ON WHICH THE UNIT IS SITUATED ALSO FALL WITHIN THE NOTIFIED AREA. THE APPROVALS AND REGISTRATION CERTIFICATES OF THE VARIOUS AUTHORITIES IN THIS REGARD ARE AT PAGE NO ___ TO PAGE NO ___ OF THE PAPER BOOK . FROM A 23 PERUSAL OF THOSE DOCUMENTS, IT CAN BE SEEN THAT THE UNIT IS FULLY APPROVED AND ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 80IC. 2. SECTION 80IC WAS INSERTED INTO THE STATUTE BOOK BY FINANCE ACT 2003 WITH EFFECT FROM 01 .04.2004 AND PROVIDES FOR TAX BREAKS IN RESPECT OF CERTAIN UNDERTAKINGS OR ENTERPRISES IN CERTAIN SPECIAL CATEGORY STATES TO INCENTIVIZE INDUSTRIES TO SET UP MANUFACTURING UNITS IN SUCH STATES TO PROMOTE THEIR GROWTH AND INDUSTRIALIZATION. IT PROVIDES FOR A DEDUCTION OF 100% OF THE PROFIT OF THE ELIGIBLE UNDERTAKING FOR THE FIRST FIVE YEARS AND 30% FOR NEXT FIVE YEARS (WHICH IS SITUATED IN A NOTIFIED AREA OF CERTAIN STATES), FROM THE YEAR IN WHICH THE UNDERTAKING STARTS TO MANUFACTURE OR PRODUCE ARTICLE OR THING. THE RELEVANT PORTION OF SECTION 80IC IS PRODUCED HEREWITH: 2.1 A BARE READING OF THE SECTION REVEALS THAT SUB - SECTION (1) OF SECTION 80 - IC PROVIDES A DEDUCTION IN RESPECT OF PROFIT AND GAINS DERIVED BY AN UNDERTAKING FROM ANY BUSINESS REFERRED TO IN SUB - SECTION (2) WHILE COMPUTING THE TOTAL INCOME OF AN ASSESSEE. SUB - SECTION (2) HAS FURTHER SUB - SECTIONS AND IN THE CASE OF ASSESSEE, THE CLAUSE APPLICABLE IS 80 - IC 2 (A)(II) AS THE ASSESSEE HAS ESTABLISHED THE UNDERTAKING AT HARIDWAR IN UTTARANCHAL. O NE OF THE CONDITIONS PRESCRIBED IN SUBSECTION(2)(A) IS THAT THE UNDERTAKING HAS BEGUN OR BEGINS TO MANUFACTURE ANY ARTICLE OR THING, WHICH ARE NOT SPECIFIED IN THIRTEENTH SCHEDULE. THUS, THE UNDERTAKING OF THE ASSESSEE SHOULD NOT MANUFACTURE ANY ARTICLE OR THING WHICH IS SPECIFIED IN THIRTEENTH SCHEDULE. APART FROM THIS, THE ACTIVITY OF MANUFACTURE SHOULD COMMENCE BETWEEN THE PERIOD STARTING WITH 7TH DAY OF JANUARY 2003 AND ENDING ON 1ST APRIL 2012. IT 24 SHOULD BE AT THE PLACE NOTIFIED BY THE BOARD IN ACCORDA NCE WITH THE SCHEME. ALL THE CONDITIONS AS MENTIONED IN THIS SECTION ARE FULFILLED AS - A - THE UNIT OF THE ASSESSEE HAS NOT MANUFACTURED ANY ARTICLE OR THING MENTIONED IN THIRTEENTH SCHEDULE. B - THE UNIT OF ASSESSEE HAS BEEN ESTABLISHED AT HARIDWAR IN THE STATE OF UTTARANCHAL, THEREFORE, THE UNIT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC (2)(A)(II) 2.2 SUB - SECTION (3) OF THE SECTION 80IC PROVIDES QUANTIFICATION OF DEDUCTION AND PROVIDES THAT AN UNDERTAKING IS ELIGIBLE UNDER SECTION 80IC (2)(A)(II) FOR A DEDUC TION OF 100% OF ITS PROFIT AND GAINS FOR FIRST FIVE YEARS AND 30% (IN THE CASE OF OTHER THAN COMPANY 25%) OF THE PROFITS AND GAINS IN SUBSEQUENT FIVE ASSESSMENT YEAR, FROM THE YEAR IN WHICH IT BEGINS TO MANUFACTURE OR PRODUCE THE GOODS OR ARTICLE. THE CASE OF THE ASSESSEE FALLS WITHIN THE SUB CLAUSE (II) OF CLAUSE (A) OF SUBSECTION (2) OF SECTION 80IC, SINCE THIS UNIT STARTED PRODUCTION IN FY 2008 - 09 RELEVANT TO AY 2009 - 10, FALLING WITHIN THE VALIDITY PERIOD. THEREFORE, ASSESSEES UNIT IS ELIGIBLE FOR A DED UCTION AS FOLLOWS - A - 100% FOR A PERIOD OF FIVE YEARS FROM AY 2009 - 10 TO 2013 - 14 B - 30% FOR A PERIOD OF FIVE YEARS FROM AY 2014 - 15 TO 2018 - 19. 2.3 FURTHER TO THE ABOVE PROVISION OF SECTION 80IC, THE SECTION PROVIDES THAT THE DEDUCTION IS AVAILABLE TO AN UNDE RTAKING IF THE UNDERTAKING FULFILS CERTAIN CONDITIONS MENTIONED IN SUBSECTION 4 OF SECTION 80IC. 25 3. FOR ADMISSIBILITY OF THE DEDUCTION UNDER SECTION 80IC, AN IMPORTANT MILESTONE TO BE ACHIEVED BY THE ELIGIBLE UNIT IS THAT IT MANUFACTURES OR PRODUCES ANY ARTICLE OR THINGS. EXPRESSION 'MANUFACTURE' HAS BEEN DEFINED IN SECTION 2(29BA) WHICH READS AS UNDER: (29BA) 'MANUFACTURE', WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON - LIVING PHYSICAL OBJECT OR ARTICLE OR THING, - (A) RESULTING IN TRANSFOR MATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE'. 3.2 IMPORTANT PARAMETERS TO DEFINE THE MEANING OF MANUFACTURE ARE SOMETHING IS PRODUCED AND BROUGHT INTO EXISTENCE WHICH IS DIFFERENT FROM THAT OUT OF WHICH IT IS MADE. A - THINGS PRODUCED IS BY ITSELF IS A COMMERCIAL COMMODITY CAPABLE OF BEING SOLD OR SUPPLIED. B - THE MATERIAL FROM WHICH THE THING OR PRODUCT IS MANUFACTURED SHOULD NECESSARILY LOSE ITS IDENTITY. C - MANUFACTURE IS THE END RESULT OF ONE OR MORE PROCESSES THROUGH WHICH THE ORIGINAL COMMODITIES ARE MADE TO PASS. THERE MAY BE VA RIOUS PROCESSES AND ON EACH PROCESS THE ORIGINAL PRODUCT SUFFERS CHANGES. 3.3 THE UNDERTAKING OF THE ASSESSEE AT HARIDWAR IS ENGAGED IN THE MANUFACTURE OF ZINC INGOTS FROM THE ZINC CATHODE SHEETS PROCURED FROM ITS UNITS SITUATED IN THE STATE OF RAJASTHAN. THE CATHODE SHEETS ARE THE INTERMEDIATE PRODUCTS WHICH ARE NOT SALEABLE IN THE MARKET. THE HARIDWAR PLANT, DURING THE 26 PROCESS OF REFINING AND PROCESSING, REMOVES ALL THE IMPURITIES THAT THE INTERMEDIATE PRODUCT CONTAINS AND A NEW COMMERCIALLY SALABLE PROD UCT ZINC INGOT CONTAINING 99.995 PURE ZINC EMERGES. THE PROCESS CARRIED OUT AT HARIDWAR PLANT OF THE ASSESSEE PRODUCES A DISTINCT PRODUCT FROM THE INTERMEDIATE PRODUCT, HAVING A DISTINCT COMMERCIAL IDENTITY AND VALUE, THUS MEETING THE REQUIREMENT OF MAN UFACTURING AS PER CRITERIA LAID DOWN IN THE ABOVE RULING BY THE APEX COURT. 4. AS PER SUB - SECTION (7) OF SECTION 80 - IC OF THE INCOME TAX ACT 1961, SUB - SECTION (5) AND SUB SECTIONS (7 - 12) OF SECTION 80 - IA ARE ALSO APPLICABLE IN THE CASE OF AN ASSESSEE WHO IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 - IC. THE RELEVANT PORTION OF SECTION 80IA IS REPRODUCED AS UNDER (7) [THE DEDUCTION] UNDER SUB - SECTION (1) FROM PROFITS AND GAINS DERIVED FROM AN [UNDERTAKING] SHALL NOT BE ADMISSIBLE UNLESS THE ACCOUNTS OF TH E [UNDERTAKING] FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR FOR WHICH THE DEDUCTION IS CLAIMED HAVE BEEN AUDITED BY AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB - SECTION (2) OF SECTION 288 , AND THE ASSESSEE FURNISHES, ALONG WITH HIS RETURN OF INCOME, THE REPORT OF SUCH AUDIT IN THE PRESCRIBED FORM DULY SIGNED AND VERIFIED BY SUCH ACCOUNTANT. (8) WHERE ANY GOODS [OR SERVICES]HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS [OR SERVICES] HELD FOR THE PURPOSES OF ANY OTH ER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE 27 ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS [OR SERVICES] AS ON THE DATE OF THE TRANSFER, THEN, FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS [OR SERVICES] AS ON THAT DATE : PROVIDED THAT WHERE, IN THE OPINION OF THE ASSESSING OFFICER, THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICULTIES, THE ASSESSING OFFICER MAY C OMPUTE SUCH PROFITS AND GAINS ON SUCH REASONABLE BASIS AS HE MAY DEEM FIT. [EXPLANATION. FOR THE PURPOSES OF THIS SUB - SECTION, 'MARKET VALUE', IN RELATION TO ANY GOODS OR SERVICES, MEANS ( I ) THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET; OR ( II ) THE ARM'S LENGTH PRICE AS DEFINED IN CLAUSE ( II ) OF SECTION 92F , WHERE THE TRANSFER OF SUCH GOODS OR SERVICES IS A SPECIFIED DOMESTIC TRANSACTION REFERRED TO IN SECTION 92BA . ] (9) WHERE ANY AMOUNT OF PROFITS AND GAINS OF AN [UNDERTAKING]OR OF AN ENTERPRISE IN THE CASE OF AN ASSESSEE IS CLAIMED AND ALLOWED UNDER THIS SECTION FOR ANY ASSESSMENT YEAR, DED UCTION TO THE EXTENT OF SUCH PROFITS AND GAINS SHALL NOT BE ALLOWED UNDER ANY OTHER PROVISIONS OF THIS CHAPTER UNDER THE HEADING ' C. DEDUCTIONS IN RESPECT OF CERTAIN INCOMES ', AND SHALL IN NO CASE EXCEED THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS OF [ UNDERTAKING]OR ENTERPRISE, AS THE CASE MAY BE. 28 (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 RE ASON, 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 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: [ PROVIDED THAT IN CASE THE AFORESAID ARRANGEMENT INVOLVES A SPECIF IED DOMESTIC TRANSACTION REFERRED TO IN SECTION 92BA , THE AMO UNT OF PROFITS FROM SUCH TRANSACTION SHALL BE DETERMINED HAVING REGARD TO ARM'S LENGTH PRICE AS DEFINED IN CLAUSE ( II ) OF SECTION 92F . ] (11) THE CENTRAL GOVERNMENT MAY, AFTER MAKING SUCH INQUIRY AS IT MAY THINK FIT, DIRECT, BY NOTIFICATION IN THE OFFICIAL GAZETTE, THAT THE EXEMPTION CONFERRED BY THIS SECTION SHALL NO T APPLY TO ANY CLASS OF INDUSTRIAL UNDERTAKING OR ENTERPRISE WITH EFFECT FROM SUCH DATE AS IT MAY SPECIFY IN THE NOTIFICATION. (12) WHERE ANY UNDERTAKING OF AN INDIAN COMPANY WHICH IS ENTITLED TO THE DEDUCTION UNDER THIS SECTION IS TRANSFERRED, BEFORE THE EXPIRY OF THE PERIOD SPECIFIED IN THIS SECTION, TO ANOTHER INDIAN COMPANY IN A SCHEME OF AMALGAMATION OR DEMERGER ( A ) NO DEDUCTION SHALL BE ADMISSIBLE UNDER THIS SECTION TO THE AMALGAMATING OR THE DEMERGED COMPANY FOR THE 29 PREVIOUS YEAR IN WHICH THE AMALGA MATION OR THE DEMERGER TAKES PLACE; AND ( B ) THE PROVISIONS OF THIS SECTION SHALL, AS FAR AS MAY BE, APPLY TO THE AMALGAMATED OR THE RESULTING COMPANY AS THEY WOULD HAVE APPLIED TO THE AMALGAMATING OR THE DEMERGED COMPANY IF THE AMALGAMATION OR DEMERGER HAD NOT TAKEN PLACE. [(12A) NOTHING CONTAINED IN SUB - SECTION (12) SHALL APPLY TO ANY ENTERPRISE OR UNDERTAKING WHICH IS TRANSFERRED IN A SCHEME OF AMALGAMATION OR DEMERGER ON OR AFTER THE 1ST DAY OF APRIL, 2007.] 4.1 SECTION 80IA (7) PROVIDES THAT FOR CLAIMI NG THE DEDUCTION UNDER SUB - SECTION (1) OF 80IA FROM PROFITS AND GAINS DERIVED FROM AN ELIGIBLE UNDERTAKING, THE ACCOUNTS OF THE UNDERTAKING, FOR THE YEAR FOR WHICH THE DEDUCTION IS BEING CLAIMED, SHOULD BE AUDITED BY AN ACCOUNTANT, AS DEFINED IN THE EXPLAN ATION BELOW SUB - SECTION (2) OF SECTION 288 , THE SECTION FURTHE R PROVIDES THAT SUCH AUDITED ACCOUNTS SHOULD BE FURNISHED BY THE ASSESSEE, ALONG WITH ITS RETURN OF INCOME. THE SECTION PROVIDES THAT THE REPORT OF SUCH AUDIT IN FORM NO 10CCB BE DULY SIGNED AND VERIFIED BY SUCH ACCOUNTANT. THE ASSESSEE HAS COMPLIED WITH THE REQUIREMENT OF THIS PROVISION AND HAS SUBMITTED A REPORT OF THE AUDITOR IN FORM NO 10CCB ALONG WITH THE RETURN OF INCOME, THUS FULFILLING THIS CRITERIA. II. BACKGROUND 5. IN THIS REGARD, IT IS SUBMITTED THAT THE ASSESSEE, HINDUSTAN ZINC LIMITED [HZL] , IS A PUBLIC LIMITED COMPANY LISTED ON BOMBAY STOCK EXCHANGE AND NATIONAL STOCK EXCHANGE. HZL IS 30 ENGAGED IN THE BUSINESS OF MINING, SMELTING AND REFINING OF THE ORE AND SELLING THE FINISHED PRODUCTS AND BY - PRODUCTS PRODUCED FROM THE ORE. THE PRINCIPAL PRO DUCTS INCLUDE ZINC METAL AND LEAD METAL WHILE SULPHURIC ACID, SILVER ETC. FORM THE MAJOR BY - PRODUCTS. HZL HAS MINES AT RAMPURA AGUCHA, RAJPURA DARIBA, SINDESAR KHURD AND ZAWAR SITUATED IN AND AROUND UDAIPUR, IN THE STATE OF RAJASTHAN. THE SMELTING FACILITI ES OF HZL ARE SITUATED AT ZINC SMELTER AT DEBARI, DARIBA SMELTING COMPLEX AND CHANDERIYA LEAD AND ZINC SMELTING COMPLEX IN THE STATE OF RAJASTHAN. IN THE YEAR 2008 - 09, THE ASSESSEE ESTABLISHED A ZINC REFINING AND PROCESSING UNIT AT HARIDWAR, UTTARANCHAL FO R REFINING AND PROCESSING THE ZINC CATHODE SHEETS AND PRODUCING ZINC INGOTS, HZL HAS INVESTED APP. RS. 118 CRORE IN THE HARIDWAR PLANT. III. PRICING METHODOLOGY ADOPTED BY ASSESSEE 6. AS PER THE PROVISION OF SUB - SECTION (8) OF SECTION 80 - IA, FROM THE E LIGIBLE UNDERTAKING, IF THE ASSESSEE HAS TRANSFERRED ANY GOODS OR SERVICES TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE AND VICE VERSA, AND IF IT IS FOUND BY THE A.O THAT FOR SUCH TRANSFER AS RECORDED IN THE BOOKS OF THE ELIGIBLE BUSINESS, THE PRICE AD OPTED DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF TRANSFER THEN FOR THE PURPOSE OF DEDUCTION UNDER THIS SECTION, THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS MAY BE COMPUTED BY THE ASSESSING OFFICER CONSIDERING TH E TRANSFER AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF TRANSFER. 31 7. THE ASSESSEE HAS BEEN SENDING THE ZINC CATHODE SHEETS FROM THE RAJASTHAN BASED UNITS TO HARIDWAR UNIT AT 10% MARK - UP ON COST INCURRED UPTO THE STAGE OF PRODUCING THE ZINC CATHODE SHEETS. THE PRICE IS DETERMINED BY THE ASSESSEE FOR TRANSFER TO HARIDWAR UNIT AT COST PLUS 10% MARK - UP FOR THE FOLLOWING REASONS: 7.1 THE CATHODE SHEETS ARE NOT MARKETABLE AS SUBMITTED EARLIER ALSO, THE ZINC CATHODE SHEETS ARE INPUT MATERIA L FOR THE PROCESSING AND REFINING PROCESS. THE ZINC CATHODE SHEETS CONTAIN VARIOUS IMPURITIES AND THUS CANNOT BE USED FOR THE INTENDED FINAL CONSUMPTION. THE PURE ZINC HAS THE FOLLOWING APPLICATION/ USAGES - GALVANIZING: ZINC IS ONE OF THE BEST FORMS OF PROTECTION AGAINST CORROSION AND IS USED EXTENSIVELY IN BUILDING, CONSTRUCTION, INFRASTRUCTURE, HOUSEHOLD APPLIANCES, AUTOMOBILES, STEEL FURNITURE ETC. GALVANIZING ACCOUNTS FOR AROUND 48% OF GLOBAL ZINC USAGE AND EVEN LARGER IN THE INDIAN CONTEXT. THIS IS DONE MAINLY BY STEEL MANUFACTURERS. DIE CASTINGS: ZINC IS AN IDEAL MATERIAL FOR DIE CASTING AND IS EXTENSIVELY USED IN HARDWARE, ELECTRICAL EQUIPMENTS, AUTOMOTIVE AND ELECTRONIC COMPONENTS ETC. 17% OF ZINC USED IN THE WORLD IS THROUGH DIE CASTINGS. OTHE R INDUSTRIAL USAGE: ZINC COMPOUND IS THE MOST WIDELY USED METAL COMPOUND. ZINC OXIDE IS USED IN THE VULCANIZATION OF RUBBER, AS WELL AS IN CERAMICS, PAINTS, ANIMAL FEED, PHARMACEUTICALS, FERTILIZER AND SEVERAL OTHER PRODUCTS AND 32 PROCESSES. A SPECIAL GRADE OF ZINC OXIDE HAS LONG BEEN USED IN PHOTOCOPIERS. 10% OF GLOBAL ZINC USAGE IS IN THIS SEGMENT. IN ALL THE ABOVE MENTIONED APPLICATIONS OF ZINC OF THE PUREST FORM IS REQUIRED AS ZINC INGOT, THE FINAL PRODUCT OF HARIDWAR UNIT. FOR THE FINAL CONSUMPTION, THE ZINC SHOULD BE FREE FROM ALL IMPURITIES AND FOREIGN METAL CONTENT WHICH CAN BE VERY DAMAGING FOR THE END - USERS. PURITY LEVEL REQUIRED FOR MAKING THE ZINC INGOT SALABLE IN THE MARKET IS 99.995%. THIS PURITY LEVEL CAN BE ACHIEVED ONLY AT ZINC INGOT STAGE NO T AT CATHODE STAGE . DUE TO IMPURITIES AND DROSS CONTENT IN THE ZINC CATHODE SHEETS, THE ZINC CATHODE SHEET DOES NOT HAVE A COMMERCIAL VALUE IN THE OPEN MARKET. THE PROCESS OF REFINING AND PROCESSING ADDS MARKETABLE VALUE TO MANUFACTURE ZINC INGOT. BUT FOR THE PURIFICATION PROCESS THE ZINC CATHODE SHEETS ARE NOT FIT FOR INTENDE D USE FOR THE FOLLOWING REASONS : A) IMPURITIES MAY LEAD TO EXPLOSION AS EXPLAINED, PURE ZINC INGOT IS TO BE MELTED FOR COATING THE CUSTOMERS PRODUCTS AND THE HIGH CONTENT OF IMPURIT IES IN THE ZINC CATHODE SHEETS CARRIES A SIGNIFICANT RISK OF EXPLOSION IN THE METAL BATH. WITHOUT REMOVAL OF THE DROSS AND OTHER IMPURITIES AT THE PURIFICATION STAGE, ZINC CATHODE SHEETS CANNOT BE USED FOR COATING PURPOSE. IN THIS CONTEXT, WE HAVE ALREADY SUBMITTED SAMPLE OF SOME CUSTOMER COMPLAINTS SHOWING HOW IMPORTANT THE ELIMINATION OF IMPURITIES IS FOR THE CUSTOMER AND THE IMPURITY PROFILE OF ZINC CATHODES AND THE IMPURITY PROFILE OF ZINC INGOTS, HIGHLIGHTING THE IMPORTANCE OF THE ELIMINATION OF THESE IMPURITIES FOR THE CUSTOMER, AS OUTLINED IN THE CUSTOMER COMPLAINTS. 33 B) NO HARMONIZED SYSTEM [HS] CODE EXISTS AT LONDON METAL EXCHANGE - AS EXPLAINED EARLIER, THE MARKET PRICE OF THE FINAL PRODUCTS OF THE METAL INDUSTRY, WHICH THE ASSESSEE IS A PART OF, IS DETERMINED BY THE RATES OF PRODUCTS PREVAILING ON THE LONDON METAL EXCHANGE [LME]. AT LME, A HS CODE IS ALLOCATED TO ALL THE SALEABLE PRODUCTS. A PRODUCT HAVING THE HS CODE ONLY CAN TRADE ON LME. NO SUCH CODE EXISTS FOR THE ZINC CATHODE OR ANY OTHER METAL CATHODE(S). THUS THE CATHODES ARE NOT A RECOGNIZED PRODUCT CATEGORY TRADABLE IN THE MARKETS, INCLUDING LME. A CLEAR INFERENCE CAN BE DRAWN FROM THIS THAT THE PRODUCT IS NOT MARKETABLE. THERE IS NO WILLING BUYER FOR ZINC CATHODE SHEETS AND THERE IS NO WILLI NG SELLER TOO, AS THERE IS NO TRADING OF SUCH A PRODUCT IN THE MARKET. 7.2 MAJOR VALUE IS ADDED AT THE PLANT IN HARIDWAR AS PER ABOVE DISCUSSION, A SITUATION EMERGES THAT TILL THE LEVEL OF ZINC CATHODE, NO MAJOR VALUE IS ADDED BY THE PROCESS PERFORMED AT THE UNITS IN RAJASTHAN. THE ENTIRE PROCESS TILL THIS STAGE DOES NOT MAKE THE PRODUCT MARKETABLE. IN ORDER TO BE MARKETABLE, IT IS A PREREQUISITE THAT THE ZINC CATHODE SHEETS UNDERGO THE PROCESS OF PROCESSING AND REFINING PERFORMED AT HARIDWAR PLANT TO REMOVE THE IMPURITIES. ANY COMMERCIAL VALUE TO A PRODUCT IS ONLY ADDED AT THE STAGE WHERE IT BECOMES MARKETABLE. THE REAL VALUE ADDITION IS WHAT MAKES THE PRODUCT FETCH BASIC REVENUE AND THE PREMIUM. BUT FOR THE PROCESS PERFORMED AT HARIDWAR PLANT, THE ASS ESSEE WOULD NOT HAVE BEEN SELL THE PRODUCT, LET ALONE COMMAND THE PRICES. AN EXAMPLE OF THE DRUG INDUSTRY IN THIS REGARD BECOMES PERTINENT TO MENTION. 34 THE MANUFACTURE OF A DRUG AS A CHEMICAL REQUIRES MAXIMUM PART OF ITS PROCESSING, HOWEVER THE ACTIVE CHEMI CAL IS NOT SALABLE IN THE MARKET AS IT CANNOT BE CONSUMED AS SUCH. IT IS ONLY AFTER THE ACTIVE CHEMICAL IS COMBINED WITH OTHER INGREDIENTS AND CONVERTED TO THE RELEVANT DOSAGE FORM THAT IT CAN BE CONSUMED BY THE PATIENT AND BECOMES MARKETABLE. THE CATHODE SHEETS ARE COMPARABLE TO ACTIVE CHEMICAL, WHICH THOUGH MAY HAVE TAKEN SIGNIFICANT EFFORTS AND COSTS TO PRODUCE, BUT TILL CONVERTED TO THE RELEVANT DOSAGE FORM, ITS USAGE MAY NOT BRING THE INTENDED RESULTS AND HENCE HAS LITTLE MARKETABILITY. 7.3 RATIONAL E OF METHOD ADOPTED THE ASSESSEE HAS CHOSEN TO ADOPT COST+10%, USED CONSISTENTLY FOR MANY YEARS: (A) AS EARLIER STATED THAT, THE FINAL REALIZATION OF THE ASSESSEES PRODUCT IS SUBJECT TO THE VOLATILITY OF FORCES OF DEMAND AND SUPPLY IN THE MARKET. END SEL LING PRICES ACCORDINGLY FLUCTUATE, WHEREAS THE COST REMAINS RELATIVELY CONSTANT OR VARIATION IS VERY LOW. THE ASSESSEE CHOSE TO ADOPT A MORE CONSISTENT POLICY FOR TRANSFERRING THE PRODUCT I.E. AT COST +10% DESPITE ANY CHANGES IN THE ULTIMATE REALIZATION WH ICH MAY VARY AT TIMES. THE COST IS SOMETHING WHICH CAN BE CONTROLLED, WHILE FINAL PRODUCT PRICES ARE SUBJECT TO FORCES BEYOND THE ASSESSEES CONTROL. THIS EFFECTIVELY PASSES ON THE RISK OF MARKET FLUCTUATIONS TO THE HARIDWAR UNIT , TREATING THE RAJASTHAN SM ELTERS MORE AS A CONTRACT - MANUFACTURER WITH STABLE MARGINS. (B) IN THIS REGARD, THE ASSESSEE PLACES RELIANCE ON PARA 2.39 OF THE OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL 35 ENTERPRISES AND TAX ADMINISTRATIONS, JULY 2010 EDITION WHICH PROVIDES THAT COST PLUS IS THE MOST APPROPRIATE METHOD FOR PRICING THE TRANSFER OF SEMI - FINISHED GOODS BETWEEN RELATED PARTIES . THE RELEVANT EXTRACT FROM THE OECD IS REPRODUCED BELOW FOR YOUR REFERENCE: QUOTE 2.39 THE COST PLUS METHOD BEGINS WITH THE COSTS INCURRED BY THE SUPPLIER OF PROPERTY (OR SERVICES) IN A CONTROLLED TRANSACTION FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED TO AN ASSOCIATED PURCHASER. AN APPROPRIATE COST PLUS MARK - UP IS THEN ADDED TO THIS COST, TO MAKE AN APPROPRIATE PROFIT IN LIGHT OF THE FUNCTION S PERFORMED AND THE MARKET CONDITIONS. WHAT IS ARRIVED AT AFTER ADDING THE COST PLUS MARK UP TO THE ABOVE COSTS MAY BE REGARDED AS AN ARM'S LENGTH PRICE OF THE ORIGINAL CONTROLLED TRANSACTION. THIS METHOD PROBABLY IS MOST USEFUL WHERE SEMI - FINISHED GOODS ARE SOLD BETWEEN ASSOCIATED PARTIES , WHERE ASSOCIATED PARTIES HAVE CONCLUDED JOINT FACILITY AGREEMENTS OR LONG - TERM BUY - AND - SUPPLY ARRANGEMENTS, OR WHERE THE CONTROLLED TRANSACTION IS THE PROVISION OF SERVICES (EMPHASIS SUPPLIED). UNQUOTE (C) THE SUBSE QUENT PROCESS IS AN EXTENSION OF THE PREVIOUS PROCESS AND SEPARATING IT FROM THE PREVIOUS PROCESS IS NOT FEASIBLE. ALL THE PROCESSES ARE INTEGRAL PART OF THE ZINC PRODUCTION AND WITHOUT EACH PROCESS, THE PRODUCTION OF ZINC INGOT IS NOT POSSIBLE. THUS SEVER ING THE PROCESSES AT RAJASTHAN 36 BASED UNITS FROM HARIDWAR UNIT PROCESS IS NOT POSSIBLE. THE PROCESS OF ZINC PRODUCTION IS COMPLETE ONLY IF ALL THE PROCESSES HAVE BEEN PUT IN PLACE. THERE IS NO REAL TRANSFER INVOLVED FROM RAJASTHAN UNITS TO HARIDWAR UNIT PER SE. IT IS JUST THE PHYSICAL LOCATION OF THE UNIT WHICH HAS PROMPTED THE TRANSPORTATION OF THE SEMI - FINISHED MATERIAL FROM RAJASTHAN TO HARIDWAR, HOWEVER, FOR ALL PRACTICAL PURPOSES THERE IS NO TRANSFER. THEREFORE THE PRODUCT SHOULD IDEALLY BE RECORDED AT COST, NOT EVEN AT COST PLUS 10% MARKUP. THE ASSESSEE HAS USED COST PLUS METHODOLOGY ONLY TO BE COMPLIANT WITH THE RULE 8 OF CENTRAL EXCISE VALUATION (DETERMINATION OF PRICE OF EXCISABLE GOODS) RULES, 2000 (CENTRAL EXCISE RULES) WHICH READS AS FOLLOWING WHERE THE EXCISABLE GOODS ARE NOT SOLD BY THE ASSESSEE BUT ARE USED FOR CONSUMPTION BY HIM OR ON HIS BEHALF IN THE PRODUCTION OR MANUFACTURE OF OTHER ARTICLES, THE VALUE SHALL BE ONE HUNDRED AND TEN PER CENT OF THE COST OF PRODUCTION OR MANUFACTURE OF SU CH GOODS . FURTHER, THE ASSESSEE WOULD ALSO LIKE TO SUBMIT THAT WHILE UNDERTAKING THIS TRANSACTION, IT HAS COMPLIED WITH RELEVANT REGULATIONS AND FRAMEWORK OF CENTRAL EXCISE RULES AND THEREFORE, IT WOULD NOT BE APPROPRIATE TO DISTURB THE PRICING BASIS ADOP TED BY THE ASSESSEE. IN THIS REGARD, THE ASSESSEE WISHES TO PLACE RELIANCE ON THE CASE OF THYSSENKRUPP INDUSTRIES INDIA PVT. LTD VS. ACIT (ITA NO.6460/MUM/2012) , WHEREIN HONBLE MUMBAI ITAT HELD AS FOLLOWS QUOTE 37 14.3. AFTER CONSIDERING THE RIVAL SUBMISSIO NS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE ENTERED INTO COLLABORATION AGREEMENT WITH ITS AE FOR PAYMENT OF 2% OF CONTRACT VALUE FOR MANUFACTURING, DRAWING AND ENGINEERING SERVICES AND 5% OF THE SELLING PRICE AS ROYALTY. THE ASSESSEE APPLIED TO THE RBI SEEKING APPROVAL IN RESPECT OF PAYMENT OF ROYALTY AND TECHNICAL FEE THROUGH CENTRAL BANK OF INDIA. A COPY OF LETTER ADDRESSED BY THE CENTRAL BANK OF INDIA TO THE RBI DATED 26.03.2008 IS AVAILABLE ON PAGE 240 OF THE PAPER BOOK. T HROUGH THIS LETTER, THE CENTRAL BANK OF INDIA FORWARDED RELEVANT DOCUMENTS ALONG WITH A COPY OF THE AGREEMENT. THE RBI VIDE ITS LETTER DATED 21.04.2008 REQUESTED CENTRAL BANK OF INDIA TO CONSIDER THE ASSESSEES CASE IN ACCORDANCE WITH ITS AP (DIR SERIES) N O.76 DATED 24.02.2007. IT IS IN PURSUANCE TO THE DEEMED APPROVAL BY RBI UNDER THE AUTOMATIC APPROVAL SCHEME THAT THE ASSESSEE MADE PAYMENT OF ROYALTY AND TECHNICAL FEE TO ITS AE. IT IS RELEVANT TO NOTE THAT SUCH PAYMENT HAS BEEN APPROVED OR DEEMED TO HAVE BEEN APPROVED BY THE RBI. WHEN A PAYMENT IS MADE AFTER OBTAINING DUE APPROVAL FROM THE RBI, HOW ITS ALP CAN BE COMPUTED AT `NIL, IS ANYBODYS GUESS. THE FACT OF APPROVAL OF THE PAYMENT BY THE RBI HAS BEEN SUCCINCTLY RECORDED BY THE TPO IN HIS ORDER AS WELL . HE STILL CHOSE TO PROPOSE ADJUSTMENT IN RESPECT OF FULL PAYMENT. IN OUR CONSIDERED OPINION, WHEN THE RATE OF ROYALTY PAYMENT AND FEE FOR DRAWINGS ETC. HAS BEEN APPROVED OR DEEMED TO HAVE BEEN APPROVED BY THE RBI, THEN SUCH PAYMENT HAS TO BE CONSIDERED AT ALP. WE, THEREFORE , DIRECT TO DELETE ADDITION OF RS. 4.29 CRORE MADE BY THE A.O. IN THIS REGARD. UNQUOTE [EMPHASIS SUPPLIED] 38 BASED ON THE ABOVE FACTS, THE ASSESSEE SUBMITS THAT ONCE THE PRICING BASIS IS IN ACCORDANCE WITH THE NORMS/RULES PROVIDED IN ONE O F THE GOVERNMENT LEGISLATION, SUCH BASIS SHOULD NOT BE INTERFERED UNLESS IT IS SHOWN THAT SUCH TRANSFER IS VITIATED BY FRAUD, BIAS OR A PATENT MISTAKE. (D) THE HARIDWAR UNIT ALSO BEARS THE CUSTOMER - RISK AND QUALITY - RISK . SO IF THERE IS A CUSTOMER REJECTION , IF THERE IS A BAD - DEBT, IF THERE IS A DISCOUNT TO BE GIVEN... ALL THESE RISKS ARE BORNE BY THE HARIDWAR UNIT AND ARE NOT PASSED ON TO THE RAJASTHAN UNITS. 7.4 SALE PRICE IS AN INDICATOR OF MARKET VALUE THE BEST INDICATOR OF MARKET VALUE OF ANY PRODUCT ON DATE OF TRANSFER IS ACTUAL SALE PRICE OF THAT PRODUCT. SINCE IN THE CASE OF THE ASSESSEE, THE CATHODE SHEETS DO NOT HAVE ANY SALE PRICE, THERE IS NO MARKET VALUE OF SUCH PRODUCT. EVEN IF AN ATTEMPT IS MADE TO ARTIFICIALLY IMPUTE ANY VALUE AT THIS STAGE, T HAT VALUE SHALL HAVE NO SUSTAINABLE BASIS AS COMMERCIALLY THERE WILL NOT BE SIGNIFICANT VALUE TO THAT PRODUCT. ATTRIBUTING THE PRICE OF ONE PRODUCT TO ANOTHER PRODUCT CAN PRODUCE GROSSLY MISLEADING RESULTS FOR E.G. BOTH GRAPHITE AND DIAMONDS ARE VERY PURE AND HIGHLY STABLE FORMS OF CARBON (GRAPHITE HAS SLIGHTLY HIGHER IMPURITIES), BUT GRAPHITE SELLS AT A FRACTION OF THE PRICE OF DIAMOND, CAN ONE ATTRIBUTE THE PRICE OF GRAPHITE BY LOOKING AT THE PRICE OF DIAMOND ? 7.5 THE COMPARABLE MARKET VALUE SHOULD EXI ST FOR APPLICATION OF 80IA SUB - SECTION (8) IT WILL BE RELEVANT HERE TO MENTION THAT NO SPECIFIC STATUTORY PROVISION HAS BEEN ENACTED IN THE INCOME TAX ACT FOR COMPUTATION OF TRANSFER PRICE IN RELATION TO TRANSFER OF MATERIAL FROM ONE UNIT TO THE OTHER UN IT FOR CAPTIVE CONSUMPTION FOR THE PURPOSES OF GRANT OF DEDUCTION TO THE ELIGIBLE UNITS UNDER SECTION 80IC. IN SECTIONS 80IA (8) 39 & (10), IF THE TRANSFER PRICE DOES NOT CORRESPOND TO THE MARKET VALUE, AS ON THE DATE OF THE TRANSFER, THE A.O. MAY DETERMINE MARKET VALUE WHICH SUCH GOODS WOULD ORDINARILY FETCH IN THE OPEN MARKET. THIS NECESSARILY IMPLIES THE EXISTENCE OR AVAILABILITY OF COMPARABLE MARKET VALUE OF THE PRODUCT. THE FACTORS SUCH AS NEEDS OF BUSINESS, BUSINESS EXIGENCIES, INTER - DEPENDENCE ETC. AL SO HAVE TO BE COMPARABLE. THE SIZE OF THE MARKET AND OTHER CONDITIONS PREVAILING IN THE MARKET SHOULD ALSO BE SAME. IN THE CASE OF THE ASSESSEE, SINCE NO COMPARABLES EXIST FOR ZINC CATHODE SHEETS, THE ASSESSEE HAS CONSIDERED THE TRANSFER PRICE OF THE GOODS FROM THE RAJASTHAN BASED UNIT TO HARIDWAR UNIT AT COST+ 10% MARK UP. IN THE CIRCUMSTANCES ENUMERATED ABOVE, THIS IS THE ONLY POSSIBLE AVAILABLE PRICING FORMULA FOR TRANSFER OF A PRODUCT WHICH DOES NOT HAVE A MARKET PRICE. IV. APPORTIONMENT OF PROFITS BA SED ON EXPENSES NOT F AIR 8. YOUR GOODSELF, IN THE AFORESAID NOTICE, HAS ALLEGED THAT THE EXPENDITURE INCURRED AT RAJASTHAN BASED UNIT AND HARIDWAR UNIT ARE IN THE RATIO OF 72% AND 9% AND YOU HAVE TRIED TO COMPUTE THE DISALLOWANCE BY DISTRIBUTING THE PROF ITS OF THE ELIGIBLE UNIT IN THE RATIO OF EXPENDITURE INCURRED IN RAJASTHAN BASED UNITS AND EXPENDITURE INCURRED IN HARIDWAR UNIT. AND HAVE PROPOSED THAT THE DEDUCTION AS CLAIMED BY THE ASSESSEE, BE RESTRICTED TO RS IN THE RATIO OF % OF EXPENDITURE INCURRED . IT IS HUMBLY SUBMITTED THAT THE PROPOSAL OF COMPUTATION THE DEDUCTION CLAIMED BASIS RATIO - OF - EXPENSES, IS PATENTLY WRONG AND IS LIABLE TO BE SET ASIDE FOR THE FOLLOWING REASONS : 8 .1 NO EXCEPTIONAL DIFFICULTY - AS PER THE PROVISIONS OF SUB - SECTION (8) O F SECTION 80 - IA WHERE IN THE OPINION OF THE A.O., THE COMPUTATION OF PROFITS AND GAINS OF 40 ELIGIBLE BUSINESS AS PER THE MANNER ADOPTED BY THE ASSESSEE PRESENTS EXCEPTIONAL DIFFICULTY, THE A.O. MAY COMPUTE SUCH PROFIT AND GAINS ON SUCH REASONABLE BASIS AS H E MAY DEEM FIT. HENCE, IN ORDER TO INVOKE THE PROVISIONS OF THIS PROVISO TO SUB - SECTION (8) OF SECTION 80 - IA, IT IS NECESSARY FOR THE A.O. TO ESTABLISH THAT SOME GOODS OR SERVICES HAVE BEEN TRANSFERRED BY THE ELIGIBLE UNIT TO SOME OTHER UNIT OF THE ASSESSE E OR BY SOME OTHER UNIT OF THE ASSESSEE TO THE ELIGIBLE UNIT AND THEN HE HAS TO FURTHER ESTABLISH THAT FOR RECORDING SUCH TRANSFER, THE VALUE ADOPTED IN THE BOOKS IS NOT AS PER MARKET VALUE OF SUCH GOODS OR SERVICES AND THEN AO HAS TO ESTABLISH THAT THERE IS EXCEPTIONAL DIFFICULTY IN COMPUTATION OF PROFIT OF ELIGIBLE UNIT AS PROVIDED IN SUB - SECTION (8) OF SECTION 80 - IA AND THEN ONLY HE CAN PROCEED TO COMPUTE THE PROFITS OF ELIGIBLE UNIT ON A REASONABLE BASIS AS HE MAY DEEM FIT. EVEN IN SUCH CIRCUMSTANCES, T HE BASIS ADOPTED BY THE A.O. SHOULD BE REASONABLE BASIS. HERE THE ASSESSEE HAS ADOPTED A VERY SIMPLE METHODOLOGY OF DETERMINING THE PRICE OF ZINC CATHODE SHEETS WHEREIN ALL THE EXPENDITURE UP TO PRODUCTION STAGE HAS BEEN ADDED UP AND A MARGIN OF 10% HAS B EEN ADDED TO THAT COST TO ARRIVE AT A REASONABLE PRICE FOR TRANSFERRING THE ZINC CATHODE SHEETS TO THE ELIGIBLE UNIT IN THE ABSENCE OF THE MARKETABILITY OF THE PRODUCT. YOUR GOODSELF HAS PROPOSED TO ADOPT A FORMULA WHERE THE PROFITS OF THE UNITS BE DIVIDED IN THE RATIO OF THE EXPENDITURE INCURRED BY RAJASTHAN BASED UNITS AND HARIDWAR UNIT. THE PROPOSED FORMULA DOES NOT HOLD WATER IN THE LIGHT OF ABOVE DISCUSSION WHERE THE ASSESSEE HAS GIVEN THE REASON FOR ADOPTING THE FORMULA OF COST + 10%. THERE IS NO REQU IREMENT AS TO DIVIDING THE EXPENDITURE IN VARIOUS UNITS IN THE LIGHT OF THE FACT THAT THE HARIDWAR UNIT IS JUST AN EXTENSION OF THE EXISTING UNITS ONLY. THE TERM EXCEPTIONAL DIFFICULTY HAS NOT BEEN 41 DEFINED ANYWHERE IN THE ACT. HOWEVER THE TERM MAY BE ANALY ZED FROM ITS DICTIONARY MEANING. THE TERM HAS TO BE SPLIT INTO TWO WORDS TO LOOK AT THE DICTIONARY MEANING, NAMELY EXCEPTIONAL AND DIFFICULTY. AS PER CAMBRIDGE DICTIONARY THE MEANING OF THE EXCEPTIONAL IS MUCH GREATER THAN USUAL AND DIFFICULTY MEANS THE FACT OF NOT BEING EASY TO DO OR UNDERSTAND . BOTH THE WO RDS PUT TOGETHER MEAN MUCH GREATER THAN USUAL AND NOT BEING EASY TO DO OR UNDERSTAND. THE FACT IS THAT THE COST + 10% MARK - UP ADOPTED BY THE ASSESSEE DOES NOT POSE ANY DIFFICULTY IN COMPUTING THE PROFITS AND GAINS OF THE ELIGIBLE UNIT, LEAVE APART AN EXC EPTIONAL DIFFICULTY. SINCE THERE IS NO EXCEPTIONAL DIFFICULTY POSED IN COMPUTING THE TAXABLE PROFIT OF THE ELIGIBLE UNIT BY USING THE COST+10% MARK UP, SECTION 80IA(8) IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. 8.2 NO REASONABLE BASIS - AS PER THE SEC TION 80IA(8), EVEN IF THE ASSESSING OFFICER FINDS IT EXCEPTIONALLY DIFFICULT TO COMPUTE PROFITS AND GAINS OF THE ELIGIBLE UNIT AS PER METHOD ADOPTED BY THE ASSESSEE, HE MAY PROCEED TO COMPUTE THE PROFIT AND GAINS OF SUCH UNDERTAKING ON A REASONABLE BASIS. AGAIN THE TERM REASONABLE BASIS HAS NOT BEEN DEFINED, AS PER CAMBRIDGE DICTIONARY, THE MEANING OF THE WORD REASONABLE BASIS MEANS BASED ON OR USING GOOD JUDGMENT , FAIR OR PRACTICAL. THIS MEANS THAT TO BE REASONABLE, A PERSON HAS TO APPLY HIS GOOD JUDGEMENT AND FAIRNESS IN THINKING. WITHOUT THESE INGREDIENTS, ONE CANNOT SAID TO BE REASONABLE. REASONABLE CONNOTES THE FAIRNESS AND USE OF GOOD JUDGMENT. THE BASIS AS SUGGESTED BY YOUR GOOD SELF TO DIVIDE THE INCOME OF THE ELIGIBLE UNIT IN T HE RATIO OF EXPENDITURE INCURRED BY VARIOUS UNITS IS NEITHER A USE OF GOOD JUDGEMENT, NOR IS FAIR. THE EXPENDITURE INCURRED CANNOT BE TAKEN AS THE CRITERIA TO COMPUTE THE INCOME OF ANY BUSINESS. EVEN IF THIS PLEA IS TAKEN FOR A MOMENT, CAN IT BE SAID 42 THAT INCOME IS EARNED ONLY BY INCURRING THE EXPENDITURE, PROBABLY NOT. HAD THAT BE THE CASE, NO ASSESSEE WOULD HAVE EVER MADE LOSSES. ALSO, HIGHER THE EXPENSE, HIGHER THE PROFIT - IF THIS PARADIGM WAS TO BE CORRECT, WHICH IS OBVIOUSLY NOT THE CASE. THE PROFIT I S EARNED NOT BY MAKING EXPENDITURE ONLY, BUT BY APPLYING THE SKILFUL AND GAINFUL EMPLOYMENT OF RESOURCES. FURTHER, THE MARKETABILITY CHARACTERISTICS OBTAINED BY THE FINAL PRODUCT FROM THE REFINING PROCESS IN THE HARIDWAR UNIT THAT FETCHES THE SALE PRICE FR OM CUSTOMERS CANNOT MERELY BE MEASURED BY THE EXPENSES INCURRED, SINCE WITHOUT THIS KEY VALUABLE CHARACTERISTICS THE PRODUCT WOULD HAVE NO MARKET VALUE. 8.3 SECTION 80IA(8) DOES NOT PROVIDE SUCH METHODOLOGY IN FURTHERANCE TO OUR SUBMISSION ON THE APPRO ACH TO DIVIDE THE PROFITS OF THE UNIT IN THE RATIO OF EXPENDITURE, WE HUMBLY SUBMIT THAT THE SECTION 80IA(8) PROVIDES FOR A RE - COMPUTATION OF PROFIT AND GAINS OF THE ASSESSEE BASED ON SOME REASONABLE BASIS, BUT DOES NOT PROVIDE FOR ANY METHODOLOGY. IT SIMP LY PROVIDES FOR REASONABLE COMPUTATION OF INCOMES, WHICH THE ASSESSEE HAS DONE TRANSFERRING THE ZINC CATHODE SHEETS AT COST +10%. 8.4 CLAIM HAS BEEN APPLIED PROVIDE AFTER VERIFICATION OF RELEVANT INFORMATION - THE FIRST TIME CLAIM WAS MADE BY THE ASSESSE E IN THE ASSESSMENT YEAR 2008 - 09. THE THEN ASSESSING OFFICER HAD VERIFIED THE CLAIM IN DETAIL AND ALLOWED THE ASSESSEES CLAIM ON MERIT AFTER DUE VERIFICATION OF ALL FACTS AND DISCUSSION IN BY WAY OF A SPEAKING ORDER ON THE SUBJECT. ON THE BASIS OF ABOVE SUBMISSION, ASSESSEE PRESSED CLAIM OF DEDUCTION U/S 80IC WHICH WAS EXAMINED CAREFULLY. FROM THE EVIDENCES FURNISHED BY THE ASSESSEE, IT IS NOTICED THAT THE UNDERTAKING IS SITUATED IN THE NOTIFIED AREA AND THAT IT IS INVOLVED IN MANUFACTURING 43 OF ARTICLE OR THINGS NOT COVERED BY SCHEDULE THIRTEEN. THEREFORE, THE UNDERTAKING OF THE ASSESSEE DULY FALLS WITHIN THE CATEGORY SPECIFIED IN SUB SECTION 2 (A) (II) OF SECTION 80IC AND IS FOUND EL IGIBLE FOR DEDUCTION U/S 80IC. ) THE THEN AO HAS PASSED A SPEAKING ORDER AFTER VERIFICATION OF ALL RELEVANT INFORMATION BEFORE FORMING AN OPINION FOR ALLOWANCE OF THE DEDUCTION U/S 80IC AFTER CONSIDERING THE TRANSFER PRICE OF CATHODE SHEETS AT COST +10% TO HARIDWAR PLANT FROM RAJASTHAN UNITS. THE REVISION OF THE SAME SHALL TA NTAMOUNT TO BE REAPPRAISAL OF AN EXISTING FACTS, AS DECIDED IN VARIOUS COURT DECISION, IS NOT PERMITTED. THE PROVISIONS OF SECTION 80IC ARE BENEFICIAL PROVISIONS ENACTED TO INCENTIVIZE THE INDUSTRIES WHICH ESTABLISH THEIR UNITS IN THE INDUSTRIALLY BACKW ARD STATES. SUCH PROVISIONS ARE INTENDED TO PROMOTE INDUSTRIAL GROWTH IN SUCH INDUSTRIALLY BACKWARD STATES SO AS TO GENERATE EMPLOYMENT AND ECONOMIC OPPORTUNITIES FOR LOCAL MASSES. THE BENEFICIAL PROVISIONS OF A TAXING STATUTE SHOULD BE CONSTRUED IN THE CO NTEXT IN WHICH THEY ARE ENACTED AND BE IMPLEMENTED IN A MANNER WHICH IS MORE BENEFICIAL TO A TAXPAYER. IN THIS REGARD THE RELIANCE HAS BEEN PLACED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF BAJAJ TEMPO LTD. VS. CIT [1992] 62 TAXMAN 480, WHERE IN THE HONBLE COURT HAS OBSERVED AS FOLLOWING: A PROVISION IN THE TAXING STATUTE GRANTING INCENTIVES FOR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE INTERPRETED LIBERALLY, SINCE A PROVISION INTENDED FOR PROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERA LLY, THE RESTRICTION ON IT TOO HAS TO BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE OF THE PROVISION AND NOT TO FRUSTRATE IT ACCORDINGLY THE ASSESSEE REQUESTS YOUR GOODSELF TO INTERPRET THE PROVISIONS OF SECTION 80IC IN A MANNER WHICH IS BENEFICIAL TO THE A SSESSEE 44 AND CONTINUE TO PROVIDE THE DEDUCTION UNDER SECTION 80IC AS PER EARLIER YEARS. THE ASSESSEE, IN THE LIGHT OF ABOVE SUBMISSION, HUMBLY SUBMITS THAT BASED ON FACTUAL AND LEGAL POSITION, NO EXCESS CLAIM HAS BEEN MADE AND REQUEST TO KINDLY DROP THE PR OPOSAL OF DISTRIBUTION OF INCOME OF THE ELIGIBLE UNIT IN THE RATIO OF EXPENDITURE INCURRED BY THE DIFFERENT UNITS I.E. RAJASTHAN BASED UNITS AND THE HARIDWAR UNIT. 4. AFTER CONSIDERING THE SAME AND AFTER DISCUSSING THE MATTER WITH THE AUTHORIZED REPRESE NTATIVE OF THE ASSESSEE, THE LD. CIT HAS FOUND THE ASSESSMENT ORDER IN RESPECT OF THE ISSUE OF CLAIM OF DEDUCTION U/S 80IC ALLOWED BY THE A.O AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFORE, HE SET ASIDE THE SAME AND RESTORED THIS I SSUE BACK TO THE FILE OF THE A.O WITH THE DIRECTION TO PASS FRESH ASSESSMENT ON THIS ISSUE. 5. AGAINST THIS FINDING GIVEN ON 31.3.2014 WHICH IS UNDER CHALLENGE, THE ASSESSEE HAS COME IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUND: THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT, UDAIPUR HAS ERRED IN HOLDING THAT THE A.O HAD ALLOWED VERY EXCESSIVE CLAIM OF DEDUCTION U/S 80IC OF THE ACT AND SO THE ORDER OF ASSESSMENT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE R EVENUE AND WAS THUS LIABLE TO BE SET ASIDE U/S 263 OF THE ACT FOR PASSING A FRESH ORDER. THE LD. CIT(A) BEING 45 ARBITRARY, ERRONEOUS AND CONTRARY TO FACTS AND LAW MERITS TO BE QUASHED FORTHWITH WITH THE DIRECTIONS FOR RELIEF. 6. THE LD. A.R SHRI SAMPAT HA S REPEATED THE ARGUM ENTS TAKEN BEFORE THE LD. CIT INCLUDING THE WRITTEN REPLY GIVEN IN RESPECT OF NOTICE U/S 263 OF THE ACT AND EXTRACTED ABOVE, AND HAS FURTHER SUBSTANTIATED THEM WITH THE HELP OF DECISIONS AND OTHER MATERIAL AND WITH REFERENCE TO LENGTHY PAPER BOOK FILED BEFORE US. 7. THE LD. CIT - DR SHRI O.P. MEENA HAS VEHEMENTLY SUPPORTED THE REASONS GIVEN BY THE LD. CIT TO COME TO HIS IMPUGNED CONCLUSION. HE HAS ALSO RELIED ON TH E DECISIONS WHICH THE LD. CIT HAS RELIED ON AND APART FROM THE SAME RELIA NCE HAS BEEN MADE ON SOME SPECIFIC DECISIONS WHICH ARE CONTAINED IN THE COMPILATI ON OF JUDGMENTS FILED BY HIM . IN NUTSHELL, B EFORE US BOTH THE PARTIES HAVE REITERATED THEIR EARLIER ARGUMENTS. 8. WE HAVE CAREFULLY COGITAT ED THE ENTIRE RECORD VIS A VIS THE WRITTEN AND ORAL SUBMISSIONS OF THE PARTIES. BEFORE WE DEAL WITH THE IMPUGNED ISSUE, WE WOULD LIKE TO EXAMINE THE LEGAL POSITION OBTAINING ON TH E SUBJECT OF REVISION U/S 263 OF THE ACT . IT IS TRITE THAT AN ORDER CAN BE REVISED ONLY AND ONLY IF TWIN CONDIT IONS VIZ., ERROR IN THE ORDER 46 AND PREJUDICE CAUSED TO THE REVENUE CO - EXIST IN THE GIVEN CASE UNDER REVISION . THE SUBJECT OF REVISION UNDER SECTION 263 HAS BEEN DEEPLY EXAMINED AND ANALY Z ED BY VARIOUS COURTS INCLUDING THAT OF HONBLE APEX COURT. THE REVISIONAL POWER CONFERRED ON THE CIT VIDE SECTION 263 IS OF VIDE AMPLITUDE. IT ENABLES THE CIT TO CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDING UNDER THE ACT. IT EMPOWERS THE CIT TO MAKE OR CAUSE TO BE MADE SUCH AN ENQUIRY AS HE DEEMS NECESSARY IN ORDER TO FIND OUT IF ANY ORDER PASSED BY ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE ONLY LIMITATION ON HIS POWERS IS THAT HE MUST HAVE SOME MATERIAL(S) WHICH WOULD ENABLE HIM TO FORM A PRIMA FACIE O PINION THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ONCE HE COMES TO THE ABOVE CONCLUSION ON THE BASIS OF THE MATERIAL THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AN D ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE CIT IS EMPOWERED TO PASS AN ORDER AS THE CIRCUMSTANCES OF THE CASE MAY WARRANT. HE MAY PASS AN ORDER ENHANCING THE ASSESSMENT OR HE MAY MODIFY THE ASSESSMENT. HE IS ALSO EMPOWERED TO CANCEL THE ASSE SSMENT AND DIRECT TO FRAME A FRESH ASSESSMENT. HE IS EMPOWERED TO TAKE RECOURSE TO ANY OF THE THREE COURSES INDICATED IN SECTION 263. SO, IT IS CLEAR THAT THE CIT DOES NOT HAVE UNFETTERED AND UNCHEQURED 47 DISCRETION TO REVISE AN ORDER. THE CIT IS REQUIRED TO EXERCISE REVISIONAL POWER WITHIN THE BOUNDS OF THE LAW AND HAS TO SATISFY THE NEED OF FAIRNESS IN ADMINISTRATIVE ACTION AND FAIR PLAY WITH DUE RESPECT TO THE PRINCIPLE OF AUDI ALTERAM PARTEM AS ENVISAGED IN THE CONSTITUTION OF INDIA AS WELL AS IN SECT ION 263. AN ORDER CAN BE TREATED AS ERRONEOUS IF IT WAS PASSED IN UTTER IGNORANCE OR IN VIOLATION OF ANY LAW; OR PASSED WITHOUT TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS OR BY TAKING INTO CONSIDERATION IRRELEVANT FACTS. THE PREJUDICE THAT IS C ONTEMPLATED UNDER SECTION 263 IS THE PREJUDICE TO THE INCOME TAX ADMINISTRATION AS A WHOLE. THE REVISION HAS TO BE DONE FOR THE PURPOSE OF SETTING RIGHT DISTORTIONS AND PREJUDICES CAUSED TO THE REVENUE IN THE ABOVE CONTEXT. THE FUNDAMENTAL PRINCIPLES WHI CH EMERGE FROM THE SEVERAL CASES REGARDING THE POWERS OF THE CIT UNDER SECTION 263 MAY BE SUMMARIZED BELOW: (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SECTION 263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS, THAT THE SECTION WILL BE ATTRACTED. 48 (III) AN INCORRE CT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SUFFICE FOR THE REQUIREMENT OR ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND IF THE ASSESSING OFFICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW UNDER WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE UNDER THE LAW. (VI ) IF WHILE MAKING THE ASSESSMENT, THE ASSESSING OFFICER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APP LIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER SECTION 263, IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE ASSESSING OFFICER. (VI I) THE ASSESSING OFFICER EXERCISE QUASI - JUDICIAL POWER VESTED IN HIM AND IF HE EXERCISE S SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AS A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH TH E CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER SECTION 263, MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE ASSESSING OFFICER HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BE A LETTER IN WRITING AND THE ASSESSING OFFICER ALLOWED THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE ASSESSING OFFICER CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 49 9 . APART FROM THE ABOVE, WE WOULD LIKE TO DISCUSS THE PRECEDENTS/DECISIONS RELIED BEFORE US BY BOTH THE PARTIES WHICH ARE SPECIFIC TO THE ISSUE INVOLVED IN THIS APPEAL. ALL THOSE DEC ISIONS SHALL BE DISCUSSED AND REFERRED TO AT THE RELEVANT PLACES. 1 0 . AD VERTING TO THE FACTS OF THIS CASE , WE HAVE FOUND THAT THE ASSESSEE COMPANY HAS MADE A CLAIM U/S 80IC OF THE ACT WHICH HAS BEEN ALLOWED TO THE EXTENT BY THE A.O. THE LD. CIT(A) HAS AL LEGED THAT THE ASSESSEE COMPANY HAS CLAIMED EXCESSIVE DEDUCTION IN RESPECT OF HARIDWAR UNIT UNDERTAKING WHICH IS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MINING AND SALE OF ZINC, LEAD AND ITS BYE PRODU CTS. THE ACCOUNTS OF THE ASSESSEE ARE SUBJECT TO MANDATORY AUDIT AS PER THE ACT. 1 1 . BEFORE THE A.O, THE ASSESSEE HAS EXPLAINED WITH THE HELP OF PROCESS FLOW CHART DEPICTING CHARGING OF C ATHOD E AND USE OF VARIOUS CHEMICALS IN ELECTRIC INDUCTION FURNA CE F OR MELTING CATHODE , PRODUCTION OF BYE PRODUCTS ARE PRODUCED IN THE PROCESS WHICH ARE DROSS AND 50 METALLIC . IT IS ALSO EXPLAINED AS TO HOW GRAPHITE PUMPS, CASTING, STAMPING, CLAMPING ETC. ARE DONE IN THE PROCESS. FINALLY, IT WAS EXPLAINED THAT THE ZINC INGO TS SO PRODUCED CONTAINED 99.999% PURITY AND USED IN GALVANIZING, MANUFACTURING OF ZINC OXIDE, DIE CASTING ETC. THE HARIDWAR ZINC PLANT IS THE ONLY PURCHASER OF THIS PRODUCT. THE RAW MATERIAL ZINC CATHODE DOES NOT HAVE HARMONIZED SYSTEM CODE AND IT IS NOT A SALEABLE COMMODITY HAVING NO MARKET ANYWHERE. AS PER THE ASSESSEE, DEDUCTION U/S 80IC IS PERMISSIBLE TO THE UNIT UNDER CLAUSE (A) ( II ) OF SUB - SECTION (2) OF SECTION 80IC OF THE ACT WHICH READS AS UNDER: (2) THIS SECTION APPLIES TO ANY UNDERTAKING OR ENTERPRISE, ( A ) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEENTH SCHEDULE, OR WHICH MANUFACTURES OR PRODUCES ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SPEC IFIED IN THE THIRTEENTH SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING ( I ) ON THE 23RD DAY OF DECEMBER, 2002 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2012, IN ANY EXPORT PROCESSING ZONE OR INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GROWTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE BOARD IN ACCORDANCE WITH THE SCHEME 51 FRAMED AND NOTIFIED 59 BY THE CENTRAL GOVERNMENT IN THIS REGARD, IN THE STATE OF SIKKIM; OR ( II ) O N THE 7TH DAY OF JANUARY, 2003 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2012, IN ANY EXPORT PROCESSING ZONE OR INTEGRA TED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GROWTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED BY THE BOARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED 59 BY THE CENTRAL GOVERNMENT IN THIS REGARD, IN THE STATE OF HIMACHAL PRADESH OR THE STATE OF UTTARANCHAL; OR ( III ) ON THE 24TH DAY OF DECEMBER, 1997 AND ENDING BEFOR E THE 1ST DAY OF APRIL, 2007, IN ANY EXPORT PROCESSING ZONE OR INTEGRATED INFRASTRUCTURE DEVELOPMENT CENTRE OR INDUSTRIAL GROWTH CENTRE OR INDUSTRIAL ESTATE OR INDUSTRIAL PARK OR SOFTWARE TECHNOLOGY PARK OR INDUSTRIAL AREA OR THEME PARK, AS NOTIFIED 59 BY THE BOARD IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS REGARD, IN ANY OF THE NORTH - EASTERN STATES; 1 2 . FROM THE A SSESSMENT ORDER, IT BECOMES EVIDENTLY CLEAR THAT THE AO FOUND THAT HEAD OFFICE EXPENSES ARE NOT APPORTIONED TO THE HARIDWAR ZINC PLANT [HZP, IN SHORT] AN D THAT ADMINISTRATIVE AS WELL AS SELLING EXPENSES ARE SHOWN AT A VERY LOW PERCENTAGE OF THE TURNOVER. 52 ACCORDINGLY HE HA S APPORTIONED REASONABLE EXPENSES UNDER BOTH THE HEADS TO THE HZ P BROADLY IN PROPORTION TO THE TURNOVER OF HARIDWAR PLANT AND OTHER PLANTS SITUATED IN RAJASTHAN. IN THIS WAY HE HAS DISALLOWED A PART OF THE CLAIM U/S 80 - IC OF THE ACT. T HE A O HAS EXCLUDED OTHER INCOME WHILE CALCULATING THE EXEMPTION U/S 80 - IC OF THE ACT HOLDING IT BE NOT A PROFIT DERIVED FROM THE UNDERTAKING QUALIFYING FOR REBATE U/S 80 - IC OF THE ACT. ACCORDINGLY, A SUM OF RS.15.55 CRORES H AS BEEN DISALLOWED OUT OF THE TOTAL DEDUCTION CLAIMED BY THE ASSESSEE U/S 80 - IC OF THE ACT. THUS, THE A.O HAS COMPLETED ASSESSMENT AT TOTAL INCOME OF RS. 21,06,24,08,070/ - AS AGAINST RETURNED AT RS. 16,58,68,96,850/ - . THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IC OF RS. 1,18,26,40,303/ - 13 . THE LD. CIT HAS OBSERVED THAT THE AO DI D NOT ENQUIRE INTO THE IMPORTANT ASPECT VIZ. THE REASONABLE RATE OR PRICE OR VALUE AT WHICH THE INTERMEDIATE PRODUCT, KNOWN IN THE APPELLANT COMPANYS PARLANCE AS ZINC CATHODE SHEETS, WAS TRANSFERRED FROM RAJASTHAN U NITS TO HARIDWAR UNIT. THE LD. CIT OBSERVED THAT SUCH WAS SHOWN BY THE APPELLANT AT A VERY UNREASONABLY LOW VALUE AT COST PLUS 10% MARK UP. THE TRANSFER PRICE SO SHOWN WAS THUS NOT THE MARKET VALUE OF THE INTERMEDIATE PRODUCT AS PROVIDED U/S 80 - IA(8) OF TH E ACT WHICH 53 PROVISION WAS MADE APPLICABLE TO SECTION 80 - IC BY ITS SUB - SECTION (7). THE LD. CIT OBSERVED THAT THE AO HAD NOT EXAMINED THIS ISSUE AT ALL AND THEREBY ACCEPTED AND ALLOWED EXCESS CLAIM U/S 80 - IC OF THE ACT FOR THE HARIDWAR PLANT AS LODGED BY TH E APPELLANT COMPANY. THEREFORE, HE HAS OBSERVED THAT THE ASSE SSMENT ORDER PASSED BY THE AO IS ERRONEOUS, IN SO FAR AS, IT I S PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THIS CONTEXT THE APPELLANT COMPANY WAS PUT TO NOTICE U/S 263 OF THE ACT ON 06.03.20 14. 1 4 . DURING THE PROCEEDINGS THE ASSESSEE CONTENDED BEFORE THE LD. CIT THAT THE ORDER PASSED BY THE AO WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THAT THE APPELLANT HAD SATISFIED THE CONDITIONS FOR ALLOWABILITY OF DEDUCTION U /S 80 - IC OF THE ACT; THAT THE CATHODE SHEETS WERE NOT MARKETABLE DUE TO THE IMPURITIES AND DROSS CONTENT; THAT THE CATHODE SHEETS HAD NO MARKET RATES; THAT FOR M ARKETABILITY THE PREREQUISITE I S THAT THE SHEETS HAVE TO UNDERGO FURTHER PROCESSING AND REFININ G; THAT THE APPELLANT HAD CHOSEN TO ADOPT A PROPER FORMULA FOR TRANSFERRING THE PRODUCT AT COST PLUS TEN PERCENT DESPITE ANY CHANGES WHICH MAY BE THERE IN ULTIMATE REALIZATION OF THE FINISHED PRODUCT; THAT THE SUBSEQUENT PROCESS AT HARIDWAR WAS AN EXTENSIO N OF THE PREVIOUS PROCESSES AND INTEGRAL TO IT; THAT THERE WAS 54 NO REAL TRANSFER INVOLVED FROM RAJASTHAN UNITS TO HARIDWAR UNIT; THAT THE VALUATION AT COST PLUS TEN PERCENT MARKUP WAS IN ACCORDANCE WITH CENTRAL EXCISE VALUATION RULES PLUS ACTUAL TRANSPORT C OST WAS A CORRECT BASIS WHICH IS SUPPORTED BY THE RATIO OF THE DECISION IN THYSSENKRUPP INDUSTRIES INDIA PVT. LTD. VS. ACIT (ITA NO. 6460/MUM/2012). IT WAS SUBMITTED THAT THE VALUATION FORMULA ADOPTED BY THE ASSESSEE DID NOT POSE ANY DIFFICULTY IN COMPUTIN G THE CORRECT PROFITS AND GAINS AND AS SUCH, IN THE CIRCUMSTANCES THE PROVISIONS OF SECTION 80 - IA(8) WAS NOT ATTRACTED. THE SUM AND SUBSTANCE OF THE LD. A.R;S SUBMISSION IS THAT THE ORDER PASSED BY THE AO WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO INTEREST OF REVENUE IN VIEW OF THE RATIO OF DECI DENDI OF THE CASES CIT VS. GABRIEL INDIA LTD. (1993) 203 ITR 108 (MUM), DAWJEE DADABHOY & CO. VS. S.P. JAIN & ANR. (1957) 31 ITR 872 (CAL), ADDL. CIT VS. MUKUR CORPORATION (1976) 111 ITR 312 (GUJ) & CIT VS. ASHISH RAJ PAL (2010) 320 ITR 674(DEL). 1 5 . HOWEVER, T HE LD. CIT HAS REJECTED THE AFOREMENTIONED ARGUMENTS OF THE APPELLANT COMPANY. HE HAS HELD THAT THE AO HAD NOT MADE ANY ENQUIRY AS TO WHETHER THE VALUE TAKEN FOR TRANSFER OF INTERMEDIATE PRODUCT [ZINC - CATHODE - SHE ETS] FROM PLANTS AT RAJASTHAN UNITS TO HARIDWAR UNITS IS, IN FACT ITS MARKET PRICE. IN HIS OPINION, 10% MARKUP 55 OVER THE COST COULD NOT BE CONSIDERED EQU IVALENT TO THE MARKET VALUE OF THE INTERMEDIATE PRODUCT EMERGING FROM THE RAJASTHAN PLANTS AS AGAINST PR OFITS OF 40 TO 50% EARNED AT THE HARIDWAR PLANT. H E HAS OBSERVED THAT THE AO HA S NOT ENQUIRED INTO THE IMPORTANT ASPECT OF THE CORRECTNESS OF THE VALUE AS TAKEN FOR THE INTERMEDIATE PRODUCT. THE DECISION IN THE CASE OF GABRIEL INDIA (SUPRA) AS CITED WAS OF NO HELP TO THE ASSESSEE. THE DECISION IN DAWJEE DADABHOY & CO. (SUPRA) WAS IN A DIFFERENT CONTEXT AND THE OTHER DECISION IN THE CASE OF MUKUR CORPORATION (SUPRA) WAS IN FAVOUR OF THE REVENUE. 1 6 . IT WAS POINTED OUT BY THE LD. CIT THAT IF WHILE MAKING TH E ASSESSMENT THE AO HAD ALLOWED DEDUCTION IN EXCESS OF WHAT WAS DUE, ALTHOUGH IT WAS NOT NECESSARILY A PURE CASE OF ESCAPEMENT OF INCOME YET THE PREJUDICE THEREBY CAUSED TO THE INTERESTS OF THE REVENUE COULD BE CURED BY REVISING THE ORDER TO THAT EXTENT. C ITING THE AUTHORITIES OF THE APEX COURT IN RAMPYARI DEVI SARAOGI VS. CIT (1968) 67 ITR 84 (SC) AND TARA DEVI AGGARWAL (SMT.) VS. CIT (1973) 88 ITR 323 (SC) THE L D. CIT HAS OBSERVED THAT IF NO ENQUIRY I S MADE BY THE AO ON A PARTICULAR ISSUE THE ORDER IS TO BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDING TO HIM, NO ENQUIRY WAS MADE ON ISSUE OF REASONABLENESS OF THE VALUE TAKEN FOR TRANSFER OF INTERMEDIATE 56 PRODUCT FROM RAJASTHAN TO THE HARIDWAR UNIT WHILE ALLOWING THE CLAIM U/S 80 - IC OF THE ACT. 1 7 . THE L D. CIT THEREAFTER EXAMINED THE MERITS OF THE MATTER AND ADVERTED TO THE ACTIVITIES OF THE APPELLANT AT THE VARIOUS LOCATIONS OF THE COMPANY. ACCORDING TO HIM THE ZINC AND LEAD RAW MATERIALS OBTAINED AT VARIOUS LOCATIONS WERE PROC ESSED AT THE RAJASTHAN PLANTS AND THEN SUCH PRODUCTS WITH 95 - 97% PURITY WERE TRANSFERRED TO HARIDWAR PLANT FOR A FURTHER SMALL PROCESS WHICH RESULTED INTO THE FINAL PRODUCT OF ZINC OF 99.99 PURITY. HE FURTHER NOTICED THAT 70 TO 90% OF THE PRODUCTION EXPEND ITURE UPTO FINAL STAGE WAS INCURRED IN VARIOUS PROCESSES CARRIED OUT IN RAJASTHAN PLANTS AND THAT AT HARIDWAR PLANT ONLY A SMALL PERCENTAGE OF IMPURITIES WERE REMOVED AND LESSER EXPENSES WERE INCURRED. 18 . THE LD. CIT HAS FURTHER OBSERVED THAT TO CALCULAT E THE PROFIT FOR THE EXEMPTED HARIDWAR UNIT THE ASSESSEE OUGHT TO TAKE THE MARKET VALUE FOR THE INTERMEDIATE GOODS AS THE VALUE FOR TRANSFER FROM NON - EXEMPTED RAJASTHAN PLANTS BUT THE ASSESSEE HA S TAKEN COST PLUS 10% MARKUP WITHOUT ANY REASONABLE BASIS. TH E ASSUMPTION OF THE ASSESSEE THAT OUT OF TOTAL PROFITS EARNED ON GOODS SOLD FROM HARIDWAR PLANT 57 PROFIT ONLY TO THE EXTENT OF TEN PERCENT OF THE COST WAS ATTRIBUTABLE TO THE RAJASTHAN PLANTS BEING NON - EXEMPT UNITS AND ALL OTHER REMAINING PROFIT I S ATTRIBUTA BLE TO EXEMPT PLANT I S QUITE ABSURD AND HAS TOTALLY DEFIED LOGIC. 19 . THE L D. CIT FURTHER OBSERVED THAT DURING THE A.Y. COST OF GOODS AS TRANSFERRED FROM THE UDAIPUR/RAJASTHAN PLANTS HAS BEEN TAKEN AT RS.126.58 CRORES. PROFIT ON THIS I S ASSUMED AT TEN PER CENT IN A SUM OF RS.12.66 CRORES AND SO THE CO ST ASSUMED FOR HARIDWAR PLANT I S RS.139.44 CRORES I.E. (RS.126.58 + RS.12.66). THE TOTAL PROFIT ON GOODS SOLD FROM HARIDWAR PLANT BROADLY CAME TO RS.152.10 CRORES OUT OF WHICH RS.12.66 CRORES WAS ATTRIBUTED TO RAJASTHAN PLANT. THUS REMAINING PROFIT FOR HARIDWAR PLANT CAME TO RS.139.44 CRORES. THE EXPENS ES INCURRED AT HARIDWAR PLANT A RE RS.49.41 CRORES. IN THIS WAY BY INCURRING AN EXPENDITURE OF RS. 4 9.41 CRORES THE HARIDWAR PLANT H AS DERIV ED VERY HIGH AND UNREAL ISTIC PROFIT OF RS. 139.44 CRORES WHICH G IVES A RATE OF 282%. THIS SHOWED THAT THE ASSESSEE HAD NOT TAKEN THE CORRECT MARKET VALUE OF CATHODE SHEETS WHILE TRANSFERRING THEM FROM THE RAJASTHAN PLANTS TO THE HARIDWAR PLANT. REGARDING APPLICABILITY OF CENTRAL EXCISE NOTIFICATION HE HAS OBSERVED THAT T HE COST PLUS TEN PERCENT FORMULA AS PER CEN TRAL EXCISE NOTIFICATION/RULE I S NOT DIRECTLY 58 APPLICABLE AND AVAILABLE UNDER THE INCOME TAX ACT. SO, HE HAS OPINED THAT T HE ASSESSEE COMPANY HA S ESTIMATED MUCH HIGHER AN D RATHER UNREALISTIC PROFIT FOR THE SMALL PLANT AT HARIDWAR ONLY FOR THE PURPOSE OF CLAIMING HIGHER DEDUCTION U/S 80 - IC OF THE ACT. THE LD. CIT FURTHER OBSERVED THAT AN ANALYSIS OF THE EXPENDITURE INCURRED SHOW S THAT MAJOR PORTION OF THE MANUFACTURING EXPE NSES AT 72% WAS INCURRED AT NON - EXEMPTED UNITS WHEREAS ONLY 9% OF THE OVERALL PROFIT WAS ASSUMED FOR THESE UNITS WHICH SHOW S THAT THE COST PLUS TEN PERCENT FORMULA I S INCORRECT. THE APPLICATION OF SUCH A FORMULA FOR TRANSFER HAS RESULTED INTO BULK OF PROFI TS FOR HARIDWAR PLANT. ACCORDING TO HIM, THIS HAS BEEN DONE ONLY TO CLAIM HIGHER DEDUCTION U/S 80 - IC OF THE ACT. 20 . FURTHER, ACCORDING TO T HE LD. CIT THERE I S NO SIMILARITY BETWEEN THE MANUFACTURE OF PHARMACEUTICAL AND THE PRODUCTION OF ZINC. THE FORMER INVOLVE S CHEMICAL PROCESS WHEREAS THE LATTER INVOLVE S MINIMAL CHARGE IN THE PHYSICAL QUALITIES. THE LD. CIT ALSO POINTED OUT THAT THE OECD HAS RECOMMENDED SEVERAL FORMULA FOR TRANSFER PRICING PURPOSES. THUS THE TEN PERCENT MARKUP FORMULA COULD NOT BE SAID TO BE THE ONLY CORRECT METHOD. THE RELIANCE BY THE ASSESSEE ON THE OBSERVATIONS CONTAINED IN THE DECISION IN BAJAJ TEMPO LTD. VS. CIT 62 TAXMAN 480 ARE FOUND TO BE INAPPLICABLE TO THE FACTS OF T HE SUBJECT CASE BECAUSE 59 THERE I S NO POSSIBILITY OF TWO INTERPR ETATIONS IN THE INSTANT CASE. FINALLY, T HE L D. CIT HAS CONCLUDED THAT THE CLAIM OF THE ASSESSEE U/S 80 - IC OF THE ACT HA S BEEN WRONGLY ALLOWED BY THE AO BY ASSUMING THE MARKET VALUE OF CATHODE SHEETS AT COST PLUS TEN PERCENT WHICH HAS RESULTED IN TO VERY HIG H DEDUCTION U/S 80 - IC OF THE ACT AND THIS ACT OF THE A.O IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HE GOES ON MENTIONING THAT T HE ASSUMPTION AS MADE WAS NOT IN CONFORMITY WITH THE REQUIREMENTS OF PROVISO TO SECTION 80 - IA(8) READ WITH SECTION 80 - IA(7). THE TRANSFER FROM THE RAJASTHAN UNIT TO THE HARIDWAR UNIT HA S TO BE EFFECTED AT MARKET VALUE WHICH HAS NOT BEEN DONE. ACCORDING TO HIM, I N THE EVENT OF THE MARKET VALUE BEING INDETERMINATE THEN, IN TERMS OF THE PROVISO TO SECTION 80 - IA(8), A R EASONABLE BASIS HAS TO BE ADOPTED. HE HAS ALSO FOUND THAT A REASONABLE BASIS , TO COMPUTE THE PROFITS OF THE EXEMPTED UNIT , CAN BE FOUND BY DIVIDING THE OVERALL PROFIT IN THE RATIO OF EXPENDITURE INCURRED IN NON - EXEMPT UNITS AND THE EXEMPT UNIT. 2 1 . STRON GLY ASSAILING THE ORDER OF THE L D. CIT , THE LD. A.R FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HA S MADE ALL THE RELEVANT ENQUIRIES AS MAY BE NECESSARY FOR THE PURPOSE OF ALLOWING REBATE U/S 80IC OF THE ACT. INVITING OUR ATTENTION TO PAGE 179 OF THE IMPUGNED 60 ASSESSMENT ORDER THE LD. COUNSEL POINTED OUT THAT THE QUESTION WITH REGARD TO THE RATE OR PRICE OR VALUE AT WHICH THE INTERMEDIATE PRODUCT KNOWN IN THE ASSESSEE COMPANYS PARLANCE AS ZINC CATHODE SHEET WAS TRANSFERRED FROM RAJASTHAN TO HARIDWA R UNIT WAS SPECIFICALLY POSED BY THE AO DURING THE ASSESSMENT PROCEEDINGS VIDE PART E OF THE QUERY. THUS FOR THE L D. CIT TO SAY THAT NO ENQUIRY HAS BEEN MADE BY THE A.O ON THIS POINT OR THAT THE ASSESSING OFFICER HAD NOT EXAMINED THIS ISSUE AT ALL I S AGA INST THE FACTS AND IS APPARENTLY INCORRECT . IT WAS SUBMITTED THAT THE LD. CIT WAS WRONG IN OBSERVING THAT THE TRANSFER HAD BEEN EFFECTED AT UNREASONABLY LOW VALUE. THE ITEMS IN QUESTION WERE TRANSFERRED AT THEIR COST PLUS 10% MARK UP FORMULA AS APPROVED UN DER THE EXCISE RULES AND ALSO UNDER THE TRANSFER PRICING LAWS. IT WAS SUBMITTED THAT U NLESS ERROR CAUSING PREJUDICE I S ESTABLISHED BY THE LD. CIT THROUGH SPECIFIC ENQUIRIES AND WITH PLAUSIBLE MATERIAL, THE OPTION TO INTERFERE IN THE MAT TER UNDER SEC. 263 O F THE ACT I S NOT AVAILABLE TO HIM. THE L D. COUNSEL CITED THE OBSERVATIONS OF THE APEX COURT CONTAINED IN PARAS 6, 7 AND 9 OF THE ORDER IN THE CASE OF MALABAR INDUSTRIAL CO. LIMITED V. CIT (2000) 243 ITR 83 TO SUBMIT THAT ERROR WITH PREJUDICE WAS IMPERATIVE FOR THE PURPOSE OF SEC 263. IT WAS FURTHER SUBMITTED THAT THE RATE AS ADOPTED WAS PRE - EMINENTLY REASONABLE AND JUSTIFIED. THE MATERIAL AS TRANSFERRED BY THE NON - 61 EXEMPT UNITS AT RAJASTHAN TO EXEMPT UNIT AT HARIDWAR I N THE FORM OF CATHODE SHEETS HAS NO MARK ET , AT ALL , BECAUSE OF THE IMPURITIES AND DROSS CONTENT [LEAST VALUABLE PART] THEREIN. IT WAS BECAUSE OF THE CRUCIAL VALUE ADDITION MADE AT HARIDWAR PLANT THAT THE ITEMS IN QUESTION ATTAIN MARKETABILITY. IT WAS STATED THAT IN TERMS OF SEC. 80IA ( 8) OF THE ACT, THE DISCRETION I S OF THE ASSESSING OFFICER TO OPT AND ADOPT A PRICE AND SO LONG AS HE DID THAT, THE CIT COULD NOT INTERFERE UNLESS HE WERE TO DEMONSTRATE PERVERSITY. IN SUPPORT OF THESE PROPOSITIONS, RELIANCE WAS PLACED BY THE LD. COUNSEL FIRSTLY ON T HE DECISION OF THE JURISDICTIONAL HIGH COURT IN CIT V. TRUSTEES ANUPAM CHARITABLE TRUST (1987) 167 ITR 129 TO SUBMIT THAT THE ERROR ENVISAGED BY SECTION 263 WAS NOT ONE WHICH DEPENDED ON POSSIBILITY OR GUESSWORK, BUT IT SHOULD BE ACTUALLY AN ERROR EITHER O F FACT OR OF LAW. THE LD. COUNSEL ALSO CITED IN THIS BEHALF THAT THE DECISION OF HONBLE GUJARAT HIGH COURT IN RAYON SILK MILLS V. CIT (1996) 221 ITR 155 TO SAY THAT THE CONCLUSION OF THE LD. CIT THAT THE ORDER WAS PREJUDICIAL TO THE INTEREST OF THE REVEN UE WAS NOT A MATTER OF SUBJECTIVE SATISFACTION OF THE LD. CIT . 2 2 . IT WAS SUBMITTED THAT THE ASSESSING OFFICER AT BEST HAD TAKEN ONE VIEW POINT AS AGAINST THE OTHERS THAT COULD BE POSSIBLY TAKEN. IN SUCH A 62 SITUATION UNLESS IT WAS DEMONSTRATED THAT THE MET HOD AS ADOPTED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, THE LD. CIT COULD NOT INTERFERE. IN THIS CONTEXT THE LD. COUNSEL RELIED UPON THE DECISIONS OF THE APEX COURT IN CIT V. GREEN WORLD CORPORATION (2009) 314 ITR 81 AND CIT V. MAX INDIA LIMITED (2007) 295 ITR 282. IN THE EVENT OF THE LD. CIT HOLDING THAT THE OPINION OF THE ASSESSING OFFICER EMANATING FROM THE IMPUGNED ORDER WAS ERRONEOUS THEN THAT COULD BE DONE BY THE LD. CIT ONLY ON THE BASIS OF TANGIBLE MATERIAL. NONE SUCH WAS BROUGHT ON RECORD IN THIS CASE BY THE LD. CIT . THE LD. COUNSEL ALSO RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CIT V. SUNBEAM AUTO LIMITED (2011) 332 ITR 167 TO STRESS THAT IF THE AO HAD TAKEN ONE OF THE TWO POSSIBLE VIEWS THE LD. CIT COULD NOT SIMPLY ON THAT BASIS ALLEGE AN ERROR UNLESS SUCH WAS DEMONSTRATED EITHER ON FACTS OR LAW. THE SATISFACTION OF THE LD. CIT WAS TO BE FOUNDED ON OBJECTIVE MATERIAL AFTER ASSESSING THE CONTENTIONS RAISED BY THE ASSESSEE. THE LD. COUNSEL FURTHER CITE D THE DECISION BY THE HONBLE MADRAS HIGH COURT IN CIT V. MEPCO INDUSTRIES LTD. (2007) 294 ITR 121 TO SAY THAT LD. CIT MUST BE SATISFIED OF THE EXISTENCE OF THE TWIN CONDITIONS OF ERROR AND PREJUDICE. IT WAS SUBMITTED THAT POWER U/S 263 OF THE ACT COULD NO T BE EXERCISED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR. IT WAS ONLY WHEN AN ORDER WAS SHOWN TO BE ERRONEOUS 63 AND CAUSED PREJUDICE TO THE REVENUE THAT THE SECTION WAS ATTRACTED. INVITING OUR ATTENTION TO THE OBSERVATIONS OF THE LD. JUDGES IN PARAS 13, 14, 17 AND 18 OF THE ORDER IN CIT V. NEW DELHI TELEVISION LTD. (2013) 360 ITR 44 THE LD. COUNSEL POINTED OUT THAT A MERE ALLEGATION BY THE LD. CIT OF A PREJUDICE WITHOUT IDENTIFYING THE ERROR WOULD NOT SUFFICE THE REQUIREMENTS OF SECTION 263 OF THE AC T. THE LD. CIT S FINDINGS OUGHT TO BE SUBSTANTIATED BY THE MATERIAL EVIDENCE. THE LD. COUNSEL ALSO DREW OUR ATTENTION TO ANOTHER DECISION OF THE HONBLE DELHI HIGH COURT IN ITO V. D.G. HOUSING PROJECTS LTD. (2012) 343 ITR 329 TO SAY THAT THERE WAS A DIFFE RENCE BETWEEN LACK OF ENQUIRY AND NO ENQUIRY. IN THE CASE OF LACK OF ENQUIRY IT WAS INCUMBENT ON THE LD. CIT TO IDENTIFY THE LAPSE OR OMISSION EXISTING IN THE ASSESSMENT ORDER. THE LD. A.R VEHEMENTLY ARGUED THAT THE JURISDICTION FOR REVISION WAS AVAILABLE ONLY IN A CASE WHERE NO ENQUIRY HA S BEEN MADE IN ASSESSMENT. 2 3 . NOTHING HAD BEEN BROUG HT ON RECORD BY THE LD. CIT TO SHOW THAT THE VALUE AS ADOPTED FOR TRANSFER IN ASSESSMENT WAS AGAINST THE PROVISIONS OF SECTION 80(IA(8) OF THE ACT AND WAS INCORRECT. T HE LD. COUNSEL FOR THE ASSESSEE EXPLAINED THAT THE FORMULA AS ADOPTED WAS BASED ON EXCISE VALUATION RULES. IN THE EVENT OF A VIOLENT RATE FLUCTUATION OF THE FINISHED PRODUCT ON THE LONDON METAL EXCHANGE 64 (LME) THE FORMULA AS DEVISED BY THE ASSESSEE WAS PITC HED HIGHLY IN FAVOUR OF THE NON - EXEMPTED UNITS. POINTING TO THE PROJECTIONS MADE BY THE LD. CIT ON THE PROFITABILITY OF THE EXEMPTED UNIT AT 282% T HE L D. COUNSEL SUBMITTED THAT THE L D. CIT HAD OMITTED TO ACCOUNT FOR THE MATERIAL COST WHICH WAS WHY SUCH GRO SSLY ANOMALOUS PERCENTAGE HAD BEEN ARRIVED AT BY THE L D. CIT . THE L D. COUNSEL POINTED OUT THAT THE GROSS PROFIT IS ALWAYS COMPUTED ON SALES FOR THERE CAN BE NO PROFIT EARNED UNLESS THE GOODS ARE ACTUALLY SOLD. INEVITABLY THE COST OF GOODS SOLD WOULD BE THE MOST RELEVANT FACTOR FOR CONSIDERATION. AS TO THE LD. CIT DISTINGUISHING THE EXAMPLE OF PHARMA INDUSTRY THE L D. COUNSEL POINTED OUT THAT SUCH WAS DONE ONLY TO DEMONSTRATE THAT UNLESS MARKETABILITY OF THE PRODUCT WAS PROVIDED THE BASE MATERIAL HAD VERY LIT TLE VALUE BY ITSELF. THIS WAS OMITTED TO BE APPRECIATED BY THE L D. CIT . 2 4 . THE LD. A.R SUBMITTED THAT THE REASONABLE BASIS AS ADOPTED BY THE A.O FOR COMPUTATION OF THE TRANSFER HAS BEEN CRITICIZED BY THE LD. CIT WITHOUT POINTING OUT AS TO WHAT WAS THE MA RKET PRICE AND AT WHICH MARKET SUCH PRICE PREVAILED. 65 2 5 . THE NEXT ARGUMENT OF THE LD. A.R WAS THAT THE LD. CIT HAD IGNORED THE FACT THAT THE ASPECT OF QUANTUM OF REBATE U/S 80IC OF THE ACT HAS BEEN THE SUBJECT MATTER OF CONSIDERATION BY THE CIT (A) IN A PPEAL. DRAWING OUR ATTENTION TO PAGES 89 TO 257 OF THE PAPER BOOK THE L D. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE CIT(A) HAD PASSED AN ORDER IN THE SUBJECT CASE ON 28.03.2013 IN ITA NO.450/IT/UDR/2011 - 12. ADVERTING TO EXPLANATION C TO SUB - SEC (1) O F SECTION 263 IT WAS POINTED OUT BY THE LD. COUNSEL THAT THE POWER OF THE LD. CIT UNDER SUB - SECTION EXTENDED TO SUCH MATTER AS HAS NOT BEEN CONSIDERED AND DECIDED IN APPEAL. IT WAS THE CASE OF THE L D. COUNSEL FOR THE ASSESSEE THAT THE WORD MATTER AS USE D IN THE EXPLANATION PERTAINED TO THE WHOLE OF THE SUBJECT MATTER I.E. IN THE SUBJECT CASE TO THE REBATE U/S 80IC OF THE ACT. THE LD COUNSEL FOR THE ASSESSEE ALSO POINTED OUT THAT THE A O HAD QUERIED ON THE VARIOUS FACETS OF CLAIM UNDER SECTION 80 - IC OF THE ACT AS MADE BY THE ASSESSEE. THE L D. CIT(A) , THEREFORE , HAD JURISDICTION OVER THE ENTIRETY OF THE ISSUE INCLUDING A POWER TO ENHANCE. THE CIT(A) HAVING ALREADY INTERCEDED IN THE CASE T HE LD. CIT I S BARRED FROM ANY POSSIBLE INTERFERENCE ON THE POINTS AS CO NSIDERED BY THE LD. CIT (A). IN THIS CONNECTION THE L D. C OUNSEL FOR THE ASSESSEE RELIED UPON THE OBSERVATIONS CONTAINED IN PARA 11 OF THE DECISION IN CIT V. SHALIMAR HOUSING & FINANCE LTD. (2010) 320 ITR 157 (MP). IT WAS 66 POINTED OUT THAT THE SLP FILED BEFOR E THE APEX COURT IN THE CASE HAD BEEN DISMISSED AS REP ORTED IN 322 ITR (ST.) 14. THE L D. COUNSEL ALSO POINTED OUT THE DECISIONS OF THE HONBLE CALCUTTA HIGH COURT IN STRAW PRODUCTS LTD. V. ACIT (2001) 252 ITR 444 AND OF THE HONBLE KARNATAKA HIGH COURT IN DCIT V. VARMA INDUSTRIAL LTD. (2001) 250 ITR 472 AT PAGE 474 OF THE ORDER ON THE ASPECT OF MERGER OF THE ASSESSMENT ORDER WITH THAT OF THE CIT(APPEALS). IN THIS WAY IT WAS SUBMITTED THAT THE PRESUMPTION AND ASSUMPTION OF THE LD. CIT TO THERE BEING NO ENQUI RY WAS WRONG AND THAT NOTHING HAD BEEN BROUGHT ON RECORD BY THE LD. CIT TO DEMONSTRATE ANY ERROR CAUSING A PREJUDICE TO THE REVENUE. AT ANY RATE IT WAS REITERATED THAT THE LD. CIT WAS BARRED FROM INTERFERING IN THE CASE BECAUSE THE ISSUE HAD ALREADY BEEN V ISITED B EFORE HIM BY THE LD. CIT(A ). 2 6 . PER CONTRA , L D. CIT - DR STRONGLY SUPPORTED THE ACTION OF THE LD. CIT . HE EMPHASIZED THAT THE ASSESSMENT ORDER PASSED BY THE ADDL. LD. CIT OF INCOME TAX GRANTIN G REBATE U/S 80 - IC OF THE ACT I S ERRONEOUS AND PREJUDICI AL TO THE INTEREST OF THE REVENUE, IN AS MUCH AS, THE QUESTION OF MARKET VALUE FOR THE ZINC CATHODE SHEETS HAD NOT BEEN GONE INTO BY THE AO DURING ASSESSMENT. IN THE CIRCUMSTANCES THE NEED TO MAKE ENQUIRIES ON THIS POINT WAS IMPERATIVE AND SO THE ORDER PAS SED BY THE 67 LD. CIT DIRECTING AN ENQUIRY WAS JUSTIFIED. IT WAS URGED THAT THE METHOD OF 10% MARKUP BASED ON THE EXCISE DUTY RULES AS ADOPTED BY THE ASSESSEE HA S NO SANCTION UNDER THE INCOME TAX LAW AND SO THE AOS ORDER IN ADOPTING THAT BASIS I S CLEARLY ERR ONEOUS. HE REPUDIATED THE ARGUMENT OF THE ASSESSEE THAT DUE TO THE SUPERVENING OF THE ORDER OF THE CIT (APPEALS) THE JURISDICTION OF THE L D. CIT STOOD OUSTED. THE LD. D.R POINTED OUT THAT THE POINT CONCERNING MARKET VALUE OF THE CATHODE SHEE TS I S NOT RAIS ED BEFORE THE CIT (A) AND SO THE QUESTION OF MERGER OF THE ASSESSMENT ORDER WITH THE APPELLATE ORDER OF THE CIT (A) DOES NOT , AT ALL , ARISE. IN SUPPORT OF HIS CONTENTION THAT THE ORDER OF THE LD. CIT DIRECTING AN ENQUIRY WAS VALID AND PROPER HE CITED THE AP EX COURT DECISIONS IN TARA DEVI AGGARWAL VS. CIT (1973) 88 ITR 323 AND RAMPYARI DEVI SARAOGI (1968) 67 ITR 84 AND ALSO THE DECISION OF THE DELHI HIGH COURT IN GEE VEE ENTERPRISES VS. ADDL. CIT (1975) 99 ITR 375. SINCE THE ASSESSMENT ORDER SUFFERED FROM NON - APPLICATION OF MIND AS TO MARKET VALUE OF THE CATHODE SHEETS TRANSFERRED FROM THE MAIN UNITS AT RAJASTHAN TO THE HARIDWAR UNIT THE ORDER DIRECTING REVISION IN TERMS OF RATIO OF THE SECTION 263 WAS APPROPRIATE AND PERFECTLY VALID IN TERMS OF THE RATIO OF T HE JUDGMENT OF THE JURISDICTIONAL HIGH COURT DECISION IN CIT VS. EMERY STONE MANUFACTURING CO. (1995) 213 ITR 843 (RAJ). THE CIT - DR ALSO CITED THE DELHI HIGH COURT DECISION IN CIT VS. EASTERN 68 MEDIKIT LTD. (2011) 337 ITR 56 TO POINT OUT THAT IN THE CASE OF A DEDUCTION PROVIDED UNDER AN INCENTIVE PROVISION WHERE THERE WAS LACK OF INQUIRY/INVESTIGATION THE AVENUE OF REV ISION U/S 263 OF THE ACT I S AVAILABLE. LD. CIT - DR VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT . 2 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE GONE THROUGH THE ORDER OF THE LD. CIT DIRECTING A RECONSIDERATION OF THE DEDUCTION U/S 80 - IC OF THE ACT, THE ASSESSMENT ORDER PASSED BY THE ADDL. L D. CIT OF INCOME TAX, THE APPELLATE ORDER PAS SED BY THE CIT(A) ON THE DISPUTED POINTS ARISING OUT OF THE ASSESSMENT AND THE PAPER BOOK FILED BY THE ASSESSEE WHICH CONTAINS THE SHOW CAUSE NOTICE FOR THE PROPOSED ACTION U/S 263 OF THE ACT AND THE ASSESSEES REPLY THERETO. THOUGH THE LD. CIT ADMITS THAT THE AO HAD PRUNED THE RELIEF SOUGHT BY THE ASSESSEE U/S 80 - IC YET HE OBSERVES THAT THE AO HAS FAILED TO ENQUIRE INTO THE CORRECTNESS OF THE TRANSFER PRICE OF THE INTERMEDIATE PRODUCT BEING ZINC CATHODE SHEETS. THIS FINDING OF THE LD. CIT IS UNSUSTAINABLE ON FACTS FOR WE HAVE FOUND FROM THE ASSESSMENT ORDER THAT THE AO HAD INDEED MADE SPECIFIC AND DIRECT ENQUIRIES DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS ABOUT THE JUSTIFICATION OF THE TRANSFER PRICE FOR THE INTERMEDIATE PRODUCT. THIS IS CLEARLY STATE D ON PAGE 179 OF THE ASSESSMENT ORDER. 69 THE ANSWERS GIVEN IN THIS CONTEXT BY THE ASSESSEE WERE ACCEPTED BY THE AO. CLEARLY, THEREFORE, IN THE CIRCUMSTANCES OF THE CASE, THE ALLEGATION OF THE LD. CIT THAT THE AO MADE NO ENQUIRY IS WRONG. THE AUTHORITIES RELI ED UPON BY THE LD. CIT IN GEE VEE ENTERPRISES (SUPRA) DO NOT ADVANCE HIS CASE. THAT AUTHORITY CAN BE INVOKED ONLY IN THE CASE OF NO ENQUIRY. LIKE - WISE THE AUTHORITIES CITED BY THE LD. CIT - DR AS TARA DEVI AGGARWAL (SUPRA) AND RAMPYARI DEVI SARAOGI (SUPRA) W OULD ALSO HAVE NO APP LICATION. ON THE OTHER HAND WE HAVE FOUND THAT THE CITATIONS GIVEN BY THE ASSESSEE AS SUNBEAM AUTO LTD. (2011) 332 ITR 167 (DEL) AND DG HOUSING PROJECTS LTD. (2012) 343 ITR 329 (DEL) ARE IN DIRECT SUPPORT OF THE ASSESSEES ARGUMENTS. 2 8 . TO THE POINTED QUERY ABOUT THE METHOD OF VALUATION OF THE INTERMEDIATE PRODUCT FOR PURPOSES OF TRANSFER THE ASSESSEE HAD STATED THAT IN THE ABSENCE OF THE AVAILABILITY OF A MARKET RATE, THE VALUATION WAS DONE ON THE BASIS OF THE EXCISE RULES AT COST P LUS TEN PERCENT FOR PROFIT AS EMBEDDED IN THE PRODUCT AND THAT, AS SUCH, THE METHOD AS ADOPTED WAS AN ACCEPTABLE METHOD FOR DETERMINATION OF THE ARMS LENGTH PRICE EVEN ACCORDING TO THE TRANSFER PRICING NORMS. ASSESSEE FURTHER JUSTIFIED THE FORMULA AS ADOPT ED BY POINTING OUT THAT IT WAS IMMUNE TO THE VAGARIES OF PRICE FLUCTUATIONS OF THE END PRODUCT WHICH 70 WAS SO COMMON ON THE LONDON METAL EXCHANGE FOR THIS PRODUCT. WHILE THE LD. CIT HAS REPEATEDLY EMPHASIZED THAT THE FORMULA AS ADOPTED BY THE ASSESSEE DID NO T ACCORD WITH THE MARKET VALUE YET HE HAS HIMSELF HAS NEITHER POINTED OUT AS TO WHAT WAS THE ACTUAL MARKET VALUE NOR ANY ACCEPTABLE OR APPROVED METHOD FOR ARRIVING AT THE SAME. IT IS NOW WELL SETTLED THAT IF THE AO CHOOSES A CERTAIN METHOD OUT OF A PLURALI TY OF CHOICES AVAILABLE TO HIM THE LD. CIT CANNOT INTERCEDE U/S 263 OF THE ACT CALLING IT ERRONEOUS MERELY BECAUSE HE HOLDS A DIFFERENT VIEW IN THE MATTER. IT IS INCUMBENT ON THE LD. CIT TO ESTABLISH THE FALLACY IN THE METHOD CHOSEN BY THE AO WITH MATERIAL EVIDENCE. A MERE ALLEGATION BY A SUPERIOR AUTHORITY WITHOUT THE BACKING AND SUPPORT OF PLAUSIBLE MATERIAL OR LEGAL AUTHORITY CANNOT RENDER THE ORDER PASSED BY THE SUBORDINATE AUTHORITY ERRONEOUS EITHER ON FACTS OR IN LAW. WHILE THE VIEW AS ADOPTED BY THE AO CANNOT BE FAULTED, THE LD. CIT HAS NOT BROUGHT ANY MATERIAL ON RECORD TO ESTABLISH THE ERROR IN THE ACTION OF THE AO. AUTHORITIES FOR THIS PROPOSITION AS CITED ON BEHALF OF THE ASSESSEE DURING THE COURSE OF THESE PROCEEDINGS AS GREEN WORLD CORPORATION ( SUPRA), MAX INDIA LTD. (SUPRA), SUNBEAM AUTO LTD. (SUPRA) AND D.G. HOUSING PROJECTS LTD. (SUPRA) NEW DELHI TELEVISION LTD. (SUPRA) ARE ALL APPROPRIATE AND APPLICABLE. 71 29 . THE ASSESSMENT AS FRAMED BY THE AO HAS BEEN THE SUBJECT MATTER OF CONSIDERATION BY T HE FIRST APPELLATE AUTHORITY VIZ. THE CIT (APPEALS) INCIDENTALLY THE POINT AS TO THE CORRECTNESS OF THE CLAIM FOR THE REBATE WAS CONSIDERED BY THE CIT(A). THE CIT(A) HAS RULED IN FAVOUR OF THE NON - INCLUSION OF THE CERTAIN OVERHEAD EXPENSES AND THE INCLUSIO N OF INCOME FROM OTHER SOURCES AS QUALIFYING FOR THE COMPUTATION OF THE REBATE. THE ASPECT OF THE COSTING OF THE INTERMEDIATE PRODUCT WAS INDEED DIRECTLY AND SPECIFICALLY QUESTIONED BY THE AO WHICH WAS ACCEPTED AFTER THE ASSESSEES EXPLANATIONS. IT NEED N OT BE A GAIN SAID THAT THE CIT (A) HAD THE ENTIRE ISSUE OF THE REBATE U/S 80 - IC OF THE ACT UNDER HIS SCRUTINY AND CONSIDERATION. IN THIS WAY, IT IS CORRECTLY ARGUED ON BEHALF OF THE ASSESSEE THAT THE ORDER OF ASSESSMENT HAD MERGED INTO THE ORDER OF THE CIT(A ) WITH REGARD TO THIS MATTER AT THE TIME WHEN THE ADMINISTRATIVE LD. CIT TOOK UP THIS POINT FOR HIS CONSIDERATION AND ACTION. IN TERMS OF EXPLANATION (C) TO SUB - SECTION (1) OF SECTION 263 OF THE ACT, A L D. CIT CAN INTERFERE WITH AN ASSESSMENT ONLY WITH REG ARD TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN APPEAL. IT IS A CASE WHERE THE AO HAD CONSIDERED THE ISSUE SPECIFICALLY AND DIRECTLY DURING ASSESSMENT THUS PROVIDING A DIRECT INTERFACE TO THE CIT(A) TO INTERVENTION IF SO DESIRED. THE WORD MAT TER AS USED IN THE EXPLANATION, AS RIGHTLY ARGUED BEFORE US IN TERMS OF THE MEANING ASSIGNED TO THE 72 WORD IN RAMANATHA IYERS LAW LEXICON, BLACKS LAW DICTIONARY AND WHARTONS LAW LEXICON ALL WOULD REFER TO THE SUBJECT AS A WHOLE. THE WORD MATTER IN THE GIV EN CONTEXT IS INCLUSIVE OF ALL ISSUES THAT CAN BE PERCEIVED IN THE CONTEXT OF THE SECTION 80 - IC REBATE. THE AUTHORITIES CITED IN SUPPORT OF THE PREPOSITION THAT THE LD. CIT WAS BARRED FROM REVISING AN ASSESSMENT ORDER FOR ERROR CAUSING PREJUDICE ON ACCOUNT OF THE MERGER OF SUCH ORDER INTO THE APPELLATE ORDER ARE APPOSITE. THE AUTHORITIES CITED BY THE ASSESSEE AS SHALIMAR HOUSING (SUPRA), STRAW PRODUCTS (SUPRA) AND VARMA INDUSTRIAL (SUPRA) ARE DIRECTLY ON THE POINT AND SUPPORT THE ASSESSEES SUBMISSIONS. THE ARGUMENT TAKEN BY TH E CIT - DR THAT SINCE THE LD. CIT(A ) DID NOT EXPLICITLY CONSIDER THE VALUATION POINT AND SO THERE WAS NO MERGER , IS WITHOUT MERIT. 30 . THE LD. CIT HAS HELD THAT THE GROSS PROFIT OF THE HARIDWAR UNIT IN TERMS OF THE INPUTS AS PROVIDED F OR BY THE ASSESSEE COMES TO 282% WHICH IS ILLOGICAL AND ABSURD. THE ASSESSEES COUNTER ARGUMENT THAT SUCH PERCENTAGE OF 282% AS WORKED OUT BY THE LD. CIT HAS BEEN ARRIVED AT AFTER IGNORING THE MATERIAL COST OF THE ITEMS IS WELL TAKEN. THE OVERALL PROFIT PE RCENTAGE OF THE COMPANY FOR THE YEAR IS POINTED OUT TO BE AT 59% AS AGAINST WHICH THE PROFIT OF THE EXEMPTED UNIT AT HARIDWAR IS ONLY 42%. WITH SUCH FIGURES IT CANNOT BE CONTENDED THAT THE FORMULA 73 ADOPTED BY THE AO IS BIASED IN FAVOUR OF THE ASSESSEE CAUSI NG PREJUDICE TO THE REVENUE OR THAT IT IS ILLOGICAL. 3 1 . THE LD. CIT(A) IN HIS ORDER SUGGESTS THAT THE TRANSFER PRICE OF THE INTERMEDIATE MATERIAL FROM THE NON - EXEMPT UNITS AT RAJASTHAN TO THE EXEMPTED UNIT AT HARIDWAR COULD BE MADE IN THE RATIO OF EXPEND ITURE INCURRED AT BOTH LOCATIONS DURING THE COURSE OF MANUFACTURE. THE METHOD AS SUGGESTED BY THE LD. CIT IS ADMITTEDLY ONE AMONGST THE MANY THAT ARE AVAILABLE. THE METHOD AS ADOPTED BY THE ASSESSEE, AS NOTICED EARLIER, IS AN APPROVED METHOD IN TERMS OF EX CISE RULES AND TRANSFER PRICING NORMS. THE ASSESSEE COULD LEGITIMATELY ADOPT SUCH A METHOD FOR ARRIVING AT THE TRANSFER PRICE OF THE INTERMEDIATE PRODUCT. IT IS A WELL KNOWN PROPOSITION OF LAW THAT IF A STATUTE IS SILENT ON A POINT AND SUCH POINT STANDS CO NSIDERED AND EXPOSITED BY A SISTER STATUTE THEN IT IS PERMISSIBLE TO ADOPT SUCH A BASIS IN THE CASE OF THE FORMER. WHILE THE LD. CIT HAS NOT BEEN ABLE TO POINT OUT ANY ERROR, DEFICIENCY OR SHORT COMING IN THE METHOD AS ADOPTED BY THE ASSESSEE, HE HAS AT TH E SAME TIME, NOT BEEN ABLE TO POINT OUT ANY AUTHORITY OR TEXTUAL SUPPORT IN SUPPORT OF HIS OWN FORMULA BASED ON EXPENSES INCURRED AT THE VARIOUS LOCATIONS. IT IS NOW WELL ESTABLISHED THROUGH A CATENA OF DECISIONS THAT EVEN IF A METHOD ADOPTED BY AO IN ASSE SSMENT 74 CAUSES A LOSS TO THE REVENUE YET THAT BY ITSELF COULD NOT BE A GROUND FOR CULLING AN ORDER ERRONEOUS SUCH AS TO EXPOSE THE CASE TO THE PROCESS OF A REVISION UNDER THE PROVISION OF U/S 263 OF THE ACT UNLESS AN ERROR IS DEMONSTRATED. FOR THE ABOVE R EASONS WE FAIL TO SEE ANY ERROR RESULTING INTO A PREJUDICE IN TERMS OF THE METHOD OF VALUATION OF INTERMEDIATE PRODUCT BY THE ASSESSEE FOR SECTION 80 - IC PURPOSES. 3 2 . FOR THE REASONS GIVEN ABOVE WE FIND THAT THE ORDER OF THE LD. CIT IS WITHOUT MERIT AND U NSUSTAINABLE. WE VACATE THE SAME AND RESTORE THE ASSESSMENT ORDER. THE GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED. 3 3 . IN THE RESULT THE APPEAL OF THE ASSESSEE IN ITA NO. 335/JU/2014 FOR A.Y. 209 - 10 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2014. SD/ - SD/ - ( N.K. SAINI ) ( HARI OM MARATHA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28 TH AUGUST , 2014 75 VL / - COPY FORWARDE D TO : - 1. APPELLANT BY ORDER 2. RESPONDENT 3. THE CIT (A) 4. THE CIT SR. P.S. 5. THE D/R ITAT, JODHPUR