Addl. CIT, Range-9, Pune V. Kala Genset Pvt. Ltd., Pune

ITA 401/PUN/2013

• Counselvise Citation: 40124514 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 08-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Keywords: Depreciation
• Section: 10B; 10; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.401/PN/2013 (A.Y: 2009-10) ADDL. CIT, RANGE-9, PUNE APPELLANT VS. KALA GENSET PVT. LTD., PLOT NO.392/1, MAHALUNGE INGLE, TALEGAON CHAKAN RD, TQ: KHED, DIST: PUNE-410501 PAN: AAACK6784C RESPONDENT ITA NO.437/PN/2013 (A.Y: 2009-10) KALA GENSET PVT. LTD., PLOT NO.392/1, MAHALUNGE INGLE, TALEGAON CHAKAN RD, TQ: KHED, DIST: PUNE-410501 PAN: AAACK6784C APPELLANT VS. ADDL. CIT, RANGE-9, PUNE RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK DEPARTMENT BY : SHRI P.L. PATHADE DATE OF HEARING : 27.03.2014 DATE OF ORDER : 27.03.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: BOTH THESE CROSS APPEALS ARISING FROM THE COMMON O RDER OF COMMISSIONER OF INCOME TAX (APPEALS)-V, [(IN SHORT CIT(A)] PUNE DATED 15.11.2012 PERTAIN TO THE SAME ASSESSEE FOR A .Y. 2009-10. SO 2 THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF F BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. IN ITA NO.401/PN/2013, THE REVENUE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN ALLOWING THE ASSES SEE'S CLAIM OF RS.1,31,38,957/- CLAIMED AS DEDUCTION U/S 80IB(5 )(I) OF THE IT ACT, 1961, WHEN THE ASSESSEE IS NOT INVOLVED IN MANUFACTURING OR PRODUCING ACTIVITY BUT IS ONLY CAR RYING OUT THE ACTIVITY OF ASSEMBLING AT ITS SILVASSA UNIT. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN ALLOWING DEDUCTION U/S 80IB(5)(I) OF THE IT. ACT, BY HOLDING THAT ASSEMBLI NG OF VARIOUS COMPONENTS AMOUNTS TO MANUFACTURE; WITHOUT APPRECIA TING THAT NO MANUFACTURING ACTIVITY IS POSSIBLE WITHOUT SOPHISTICATED MACHINERY OR SKILLED MANPOWER. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN IGNORING THE SIGNI FICANCE OF AMENDMENT OF SEC.10A AND 10B BY THE FINANCE ACT, 20 00 WHEREBY DEFINITION OF MANUFACTURING, WHICH INCLUDED ANY PROCESS OR ASSEMBLING, HAS BEEN DELETED W.E.F. 01/04/2001 THEREBY MEANING THAT THOSE INVOLVED IN ASSEMBLING AND PROCESSING WOULD NOT BE ENTITLED TO BENEFITS INTENDED FOR MANUFACTURING CONCERNS. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN NOT APPLYING THE RATIO OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BABCOCK & WILCOX OF INDIA LTD REPORTED IN 241 ITR 583 WHEREIN IT HAS BEEN HELD THAT THE ACTIVITY OF ERECTING OF BOILER AT SITE BY ASSEMBLING OF PARTS CANNOT BE EQUATED WITH MANUFACTURE OF AN ARTI CLE OR THING. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN NOT APPLYING THE RATIO OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. N.C. BUDHIRAJA & CO. REPORTED IN 204 ITR 412, WHEREIN THE MEANING OF MANUFACTURE HAS BEEN ANALYZED IN DETAIL. 3 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN APPLYING THE SAME NET PROFIT RATIO IN RESPECT OF SILVASSA UNIT AS WELL AS CHAKAN UNIT, WITHOUT APPRECIATING THAT HEAVY EXPENDITURE LOADED ON CHAKAN UNIT TO REDUCE THE PERCENTAGE OF PROFIT AS C OMPARED TO THE SILVASSA UNIT'. 7. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE C!T(A) WAS JUSTIFIED IN DECIDING THE APPEA L IN FAVOUR OF THE ASSESSEE AS THE A.O. HAS NOT FOLLOWED PRINCI PLE OF CONSISTENCY WHEN THE A.O. HAS TAKEN ACTION TO RE-OP EN THE RELEVANT ASSESSMENTS FOR A.Y. 2005-06 AND 2006-07 ? 8. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER A NY OF THE ABOVE GROUNDS OF APPEAL. 3. IN ITA NO.437/PN/2013, THE ASSESSEE HAS FILED TH E APPEAL ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT - APPEALS ERRED BOTH ON FACT AND LA W IN MAKING VARIOUS ADDITIONS AS STATED IN GROUNDS OF AP PEAL. 2. THE LEARNED CIT - APPEALS ERRED PROPORTIONATELY LIM ITING THE DEDUCTION U/S 80IB(5) AND DISALLOWING AN AMOUNTING OF 86,56,465/- OUT OF THE TOTAL DEDUCTION CLAIMED BY A PPLYING THE SAME NET PROFIT RATIO IN RESPECT OF BOTH SILVASSA A S WELL AS CHAKAN UNITS WHEN SEPARATE BOOKS OF ACCOUNTS ARE BE ING MAINTAINED FOR BOTH THE UNITS AND AUDITED UNDER THE PROVISIONS OF THE IT. ACT, 1961. THE LEARNED CIT-APPEALS WRONGLY APPLIED SECTION 80I A(10) / 80IB(13) OF THE IT ACT, 1961 WHILE PASSING THE ORDE R AND DISALLOWING THE DEDUCTION CLAIMED. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR WITHDRAW ANY OF THE GROUND EITHER BEFORE OR AT THE TIME OF HEARING, AS MAY BE NECESSARY. 4. THE FIRST ISSUE PERTAINS TO ALLOWABILITY OF CLAI M OF 1,31,38,957/- U/S.80IB(5)(I) OF I.T. ACT. THIS ISS UE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE IN ASSESSEES OWN CASE FOR A. Y. 2007-08 AND 4 2008-09 IN ITA NO.2056 & 2057/PN/2012, WHEREIN IT W AS DECIDED BY OBSERVING AS UNDER: 4.2 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING GENERATOR SETS UNDER THE BRAND NAME KALA. THE ASSESSEE COMPANY HAS TWO UNITS AT CHAKAN AS STA TED ABOVE AND ONE UNIT AT SILVASSA. THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION IN RESPECT OF CHAKAN AND SILVASSA UNITS. THE DEDUCTION AVAILABLE AT CHAKAN UNIT WAS AT 30% OF TH E PROFIT WHILE IN RESPECT OF SILVASSA UNIT, THE DEDUCTION WA S AVAILABLE AT 100% OF THE PROFIT OF THE UNIT. 4.3 THUS, THE ASSESSEE COMPANY HAS CLAIMED DEDUCTIO N IN RESPECT OF PROFITS FOR BOTH UNITS. THE DEDUCTION C LAIMED IN RESPECT OF SILVASSA UNIT WAS OF RS.7,74,08,854/- FO R A.Y. 2007- 08. THE ASSESSING OFFICER HAD DISALLOWED THE CLAIM OF THE DEDUCTION MADE BY THE ASSESSEE IN RESPECT OF SILVAS SA UNIT BECAUSE THE ASSESSEE WAS NOT ENGAGED IN MANUFACTURI NG OF ARTICLE IN SILVASSA UNIT, BUT HE WAS SIMPLY ASSEMBL ING VARIOUS COMPONENTS OF GENSETS. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE ITSELF HAS ADMITTED THAT IT WAS ENGAGED IN THE ASSEMBLING WITH VARIOUS PARTS, HENCE DEDUCTION U/S. 80IB(5)(I) WAS NOT ALLOWABLE TO THE ASSESSEE. THE ASSESSING O FFICER HAS RELIED UPON THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BABCOCK AND WILCOX OF INDIA LTD. REPORTED I N (2000) 241 ITR 583 IN ORDER TO SUPPORT HIS CASE THAT THE DEDUC TION U/S.80IB(5)(I) WAS NOT AVAILABLE TO A UNIT ENGAGED IN ASSEMBLING OF VARIOUS PARTS. IN APPEAL BEFORE CIT(A), THE ASS ESSEE HAS EXPLAINED THE VARIOUS STEPS WHICH WERE FOLLOWED FOR MANUFACTURING OF GENSETS. THE ASSESSEE POINTED OUT THAT VARIOUS ITEMS LIKE ENGINES, ALTERNATORS, BATTERIES, CONTROL PANEL, CANOPIES, ETC. ARE PROCURED BY THE SILVASSA UNIT. T HEREAFTER, THE TECHNICAL TEAM INSPECTS THE MATERIAL RECEIVED AND O NLY AFTER THOROUGH CHECK UP, THE ITEMS ARE SENT FOR MANUFACTU RING. THE ASSESSEE FURTHER EXPLAINED THAT THE VARIOUS ENGINEE RS ASSEMBLE THE VARIOUS PARTS AND ALSO THEY HAVE TO ALIGN THE E NGINE AND THE ALTERNATOR. AFTER FINAL ASSEMBLY, VARIOUS TESTS LIK E VIBRATION TESTS, LOAD TEST, NOISE TEST, ETC. ARE CARRIED OUT. 4.4 IN THIS BACKGROUND, THE STAND OF ASSESSEE HAS B EEN THAT THERE IS NO DISPUTE THAT IT IS ENGAGED IN ASSEMBLY OF VARIOUS PARTS TO MANUFACTURE GENSET. THE ISSUE IS WHETHER A SSEMBLY AMOUNTS TO MANUFACTURE. THE HON'BLE BOMBAY HIGH CO URT IN THE CASE OF TATA LOCOMOTIVE AND ENGINEERING COMPANY LTD. [(1968) 68 ITR 325 (BOM)] HELD THAT MANUFACTURE INC LUDES ASSEMBLY OF VARIOUS PARTS. THE ASSESSEE ALSO PLACED RELIANCE ON 5 THE FOLLOWING DECISIONS WHEREIN IT HAS BEEN HELD TH AT ASSEMBLY AMOUNTS TO MANUFACTURE A. JACKSON ENGINEERS [ (2012) 341 ITR 518 (DEL H.C. )] B. MAHESH CHANDRA SHARMA [(2009) 308 ITR 222 (P&H)] 4.5 THE STAND OF THE ASSESSEE HAS BEEN THAT THE RAW MATERIALS WERE ENGINE, BATTERIES, CANOPIES, ALTERNATORS, ETC. AND THE FINAL PRODUCT WAS GENERATOR SET WHICH WAS TOTALLY DIFFERE NT PRODUCT HAVING A SEPARATE NAME AND IDENTITY IN THE MARKET. ACCORDINGLY, THE ASSESSEE SUBMITTED THAT ASSEMBLY A MOUNTS TO MANUFACTURE AND HENCE, THE DEDUCTION SHOULD BE ALLO WED. THE ASSESSEE HAS ASSEMBLED GENSETS. ACCORDING TO HIM, T HE ASSESSEE IS PAYING EXCISE DUTY ON THE GENSETS MANUF ACTURED. SECONDLY, HE HAS ALSO ACCEPTED THAT THE FINAL PRODU CT I.E. GENERATOR SET IS A NEW PRODUCT VIS-A-VIS THE RAW MA TERIAL USED. ACCORDINGLY, HE HAS ACCEPTED THE CLAIM OF THE ASSES SEE AND HAS ALLOWED THE DEDUCTION. THE HONBLE MADRAS HIGH COU RT IN THE CASE OF CHIRANJEEVI WIND ENERGY LTD.[2011-TIOL-91-H C-MAD- IT] HAS HELD THAT THE ASSESSEE ENGAGED IN THE ACTIV ITY OF PROCURING DIFFERENT PARTS OF WINDMILLS AND THEREAFT ER, ASSEMBLING THEM TO FORM WINDMILL WAS ENGAGED IN MANUFACTURING ACTIVITY. THE RELEVANT PARA OF THE DE CISION IS AS UNDER: 'THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF PROCUR ING DIFFERENT PARTS FOR ASSEMBLING WINDMILLS. ACCORDING TO THE APPELLANT, SINCE THE ASSESSEE MERELY PROCURED THE D IFFERENT PARTS OF THE WINDMILL AND ASSEMBLED THE SAME, IT CO ULD NOT AMOUNT TO EITHER 'MANUFACTURE' OR 'PRODUCTION' OF A NY ARTICLE OR THING, AS SPELT OUT IN SECTION 80IB(2)(I II). THUS SUCH CONTENTION WAS REJECTED BY THE TRIBUNAL. HAVING HEARD BOTH THE PARTIES, THE HIGH COURT HELD THAT: THE DIFFERENT PARTS PROCURED BY THE ASSESSEE BY THEMSELVES CANNOT BE TREATED AS WINDMILL. THOSE DIF FERENT PARTS BEAR DISTINCTIVE NAMES AND WHEN ASSEMBLED TOGETHER, THEY GET TRANSFORMED INTO A FINAL PRODUCT , WHICH IS COMMERCIALLY KNOWN AS A WINDMILL. HOWEVER, THERE CAN BE NO DIFFICULTY IN HOLDING THAT SUCH AN ACTIVITY C ARRIED OUT BY THE ASSESSEE WOULD AMOUNT TO 'MANUFACTURE' AS WE LL AS 'PRODUCTION' OF A THING OR ARTICLE AS SET OUT IN SE CTION 80IB(2)(III).' 6 4.6 THE HONBLE HIGH COURT OF DELHI IN THE CASE OF JACKSON ENGINEERS [(2012) 341 ITR 518(DELH)] HAS DECIDED A SIMILAR ISSUE. THE RELEVANT PORTION OF THE SAME IS AS UNDER : 'DEDUCTION UNDER S. 80-IAMANUFACTURE OR PRODUCTION ASSEMBLING OF DIESEL GENERATING SETSASSEMBLING OF VARIOUS COMPONENTS OF DIESEL GENERATING SETS INVOLV ES COUPLING AND ALIGNING THE ENGINE WITH THE ALTERNATO R CHAIN PULLEY BLOCKS ARE USED TO LIFT THE ENGINE AND THE ALTERNATOR AT THE TIME OF COUPLING, AS THESE ARE VE RY HEAVY COMPONENTSAFTER THE COUPLING IS DONE, THE ENGINE A ND THE ALTERNATOR ARE MOUNTED ON A BASE FRAMEENGINE A ND THE ALTERNATOR ARE AFFIXED TO THE BASE FRAME BY MEA NS OF NUTS AND BOLTS FITTED IN THE GROOVESOTHER COMPONEN TS ARE FITTED TO COMPLETE THE DG SETFUNCTION OF THE C ONTROL PANEL IS TO INDICATE THE VOLTAGE AND THE CURRENT TH AT IS GENERATEDIT IS FITTED WITH SWITCHES AND INSTRUMENT S TO REGULATE AND CONTROL THE POWER SUPPLYFUNCTION OF T HE BATTERY IS TO PROVIDE THE INITIAL CURRENT REQUIRED TO START THE ENGINE AND THE FUNCTION OF THE SILENCER IS TO D IMINISH THE SOUND OF THE DG SET WHEN IT RUNS WHILE THE FUNC TION OF THE RADIATOR IS TO MAINTAIN THE TEMPERATURE OF THE DG SETABOVE COMPONENTS CONSTITUTE THE INPUTS IN THE MANUFACTURE OF A DIESEL GENERATING SETDG SET IS TH E FINAL PRODUCT WHICH HAS A DISTINCTIVE NAME, CHARACTER AND FUNCTION DIFFERENT FROM EACH OF THE COMPONENTS THEREFORE, THE ACTIVITY OF ASSEMBLING GENSETS FROM VARIOUS COMPONENTS AMOUNTS TO MANUFACTURE OR PRODUCTION FOR THE PURPOSE OF DEDUCTION UNDER S. 80-IA.' AS DISCUSSED ABOVE, THE HON'BLE BOMBAY HIGH COURT I N THE CASE OF TATA LOCOMOTIVE AND ENGINEERING COMPANY LTD. (SU PRA) HAS DECIDED A SIMILAR ISSUE IN FAVOUR OF ASSESSEE. 4.7 THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF CIT V. BABCOCK AND WILCOX INDIA LTD. (SUPRA) IS NOT APPLIC ABLE TO THE FACTS OF THE PRESENT CASE. IN SAID CASE, THE ASSES SEE WAS ENGAGED IN THE ACTIVITY OF ERECTION OF BOILERS AS A SUB CONTRACTOR. IT WAS HELD THAT SUCH AN ACTIVITY OF ERECTION OF BO ILERS DID NOT AMOUNT TO MANUFACTURE. IN THE SAID CASE, THE ISSUE WAS WHETHER ASSEMBLY AMOUNTS TO MANUFACTURE WAS NOT INV OLVED. ACCORDINGLY, THE RATIO OF BABCOCK AND WILCOX INDIA LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THIS BACKGROUND, WE HOLD THAT CIT(A) WAS JUSTIFIED IN AL LOWING THE CLAIM OF THE ASSESSEE U/S.80IB(5)(I) BY HOLDING THA T ASSEMBLING VARIOUS COMPONENTS AMOUNTS TO MANUFACTURING. THIS REASONED FACTUAL AND LEGAL FINDING OF CIT(A) ON THE ISSUE NE EDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. S IMILAR ISSUE AROSE IN ITA NO.2057/PN/2012 FOR A.Y. 2008-09. FAC TS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, WE UPHOLD THE ORDER 7 OF CIT(A) ON THE ISSUE. ACCORDINGLY, WE HOLD THAT GROUNDS NOS.1-5 OF REVENUES APPEAL ARE DISMISSED. THE OTH ER GROUNDS RAISED BY REVENUE ARE SIMILAR TO THAT OF ISSUES RAI SED IN ASSESSEES APPEAL WHICH WILL BE TAKEN CARE IN THE A SSESSEES APPEAL ON THE SAID ISSUE. 4.8 AS A RESULT, BOTH THE REVENUES APPEALS ARE DIS MISSED. NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLEDGE ON BEHALF OF REVENUE. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDING OF C IT(A), WHO HAS ALLOWED THE CLAIM OF ASSESSEE U/S.80IB(5)(I) BY HOL DING THAT ASSEMBLING OF VARIOUS COMPONENTS AMOUNTS TO MANUFAC TURING. WE UPHOLD THE SAME. 5. THE NEXT ISSUE IS WITH REGARD TO ARTIFICIAL INFL ATION OF PROFIT OF SILVASSA UNIT IN ORDER TO CLAIM HIGHER DEDUCTION. A SIMILAR ISSUE AROSE IN THE ASSESSEES OWN CASE IN A.Y. 2007-08 IN ITA NO.1866 & 1867/PN/2012, WHEREIN IT WAS DECIDED BY US BY OBSER VING AS UNDER: 6.3 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT ACCORDING TO THE ASSESSING OFF ICER, THE PROFIT OF SILVASSA UNIT WAS ELIGIBLE FOR 100% DEDUC TION WHILE PROFIT OF CHAKAN UNIT WAS ELIGIBLE FOR DEDUCTION AT 30%. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HA S SHOWN HIGHER PROFIT IN SILVASSA UNIT. THE ASSESSING OFFI CER STATED THAT NET PROFIT RATIO OF CHAKAN WAS 1.78% WHILE THAT OF SILVASSA UNIT WAS 9.65%. THE ASSESSING OFFICER FURTHER STATED TH AT THE ASSESSEE HAS ARRANGED HIS AFFAIRS IN SUCH A MANNER THAT HIGHER PROFITS ARE SHIFTED TO SILVASSA UNIT. 6.4 THE ASSESSING OFFICER HAS STATED THAT CHAKAN UN IT HAS SOLD SAME TYPE OF CANOPY AT LESSER RATES TO SILVASS A UNIT VIS-A- VIS THE RATE CHARGED TO OTHER PARTIES. ACCORDING TO HIM, THE ASSESSEE HAD SOLD 25KVA CANOPY TO SILVASSA UNIT AT RS.52,300/- WHILE THE SALE PRICE TO OTHER PARTIES W AS RS.81,000/-. SIMILARLY, THE ASSESSING OFFICER HAS STATED THAT THERE ARE COMPARABLE INSTANCES OF 177 CANOPIES AND THE BENEFIT GRANTED WAS CALCULATED BY HIM AT RS.53,85,100/- IN RESPECT OF THE 177 CANOPIES AS DISCUSSED ABOVE. THE CHAKAN UN IT HAS SOLD 3141 CANOPIES TO SILVASSA UNIT AND A PROFIT MA RGIN OF RS. 10,000/-WAS CONSIDERED BY HIM TO HAVE BEEN THE INDI RECT BENEFIT GRANTED TO THE SILVASSA UNIT. THUS, HE HAS COMPUTED THE 8 INDIRECT BENEFIT BY REDUCING 177 CANOPIES FOR WHICH DIRECT EVIDENCE WAS AVAILABLE OUT OF 3141 CANOPIES SOLD DU RING THE YEAR AND HAS WORKED OUT THE EXCESS BENEFIT GRANTED TO SILVASSA UNIT AT RS.2,96,40,000/- AS DISCUSSED ABOVE. 6.5 THE ASSESSEE OBJECTED TO THE ACTION OF THE ASSE SSING OFFICER. HE HAS STATED THAT THE PRICE CHARGED BY C HAKAN UNIT WAS MUCH HIGHER THAN THE PRICE OF THE CANOPIES PURC HASED FROM THIRD PARTIES. THE STAND OF THE ASSESSEE HAS BEEN THAT THE COMPARABLE RATES ADOPTED BY THE ASSESSING OFFICER W ERE NOT CORRECT SINCE THE CANOPIES SOLD TO THIRD PARTIES I. E. KIRLOSKAR OIL ENGINES LTD. WERE HAVING TOTALLY DIFFERENT FEATURES . THE ASSESSEE ALSO EXPLAINED VARIOUS REASONS FOR WHICH THE NET MA RGIN IN THE CHAKAN UNIT WAS LESSER AS COMPARED TO THE NET MARGI N IN SILVASSA UNIT. IN APPEAL, THE CIT(A) HELD THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE THE VARIATION IN THE NET P ROFIT MARGIN BETWEEN THE TWO UNITS. ACCORDINGLY, IN PARA 24 OF H IS ORDER, THE CIT(A) HAS HELD THAT THE SAME NET PROFIT RATIO SHOU LD BE CONSIDERED FOR BOTH THE UNITS AND HENCE, HE HAS CAL CULATED THE EXCESS PROFIT LOADED TO SILVASSA UNIT AT RS. 1,38,7 5,693/-. WE FIND THAT MAIN REASON FOR MAKING ADDITION THAT THER E IS DIFFERENCE IN NET PROFIT RATIO OF BOTH UNITS. THE ALLEGATION IS THAT THE CANOPY SOLD BY CHAKAN UNIT TO SILVASSA UNIT WER E AT MUCH LESSER RATE AS COMPARED TO CHARGED TO THIRD PARTIES . THE STAND OF THE ASSESSEE HAS BEEN THAT HE HAS SOLD 33 CANOPI ES TO KIRLOSKAR OIL ENGINES LTD. APART FROM THIS SALE, T HE ASSESSEE HAS NOT SOLD TO ANY OTHER THIRD PARTY. IN THIS REG ARD, THE CONTENTION OF THE ASSESSEE IS THAT THE CANOPIES SOL D TO KIRLOSKAR WERE OF TOTALLY DIFFERENT FEATURES. ON PAGE 57 OF T HE PAPER BOOK, THE ASSESSEE HAS GIVEN THE POINTS OF DIFFERENCE IN RESPECT OF THE CANOPIES SOLD TO THE SILVASSA UNIT AND THOSE SOLD T O KIRLOSKAR. FROM THE ABOVE, WE FIND THAT THE CANOPIES SOLD TO S ILVASSA UNIT WERE SEMI FINISHED WHILE THOSE SOLD TO KIRLOSKAR WE RE FULLY FINISHED CANOPIES. MOREOVER, FROM THE EXPLANATION O F ASSESSEE, IT IS FOUND THAT THE SPECIFICATIONS WERE ALSO DIFFE RENT. THE NOISE LEVELS WERE ALSO DIFFERENT. THE GAUGE OF STEEL USE D IN ABOVE TWO WAS DIFFERENT. THE ASSESSEE ALSO GAVE DETAILS OF TH E DIFFERENCE IN THE COST OF THE MANUFACTURING THE CANOPIES AS ENCLO SED ON PAGES 91 & 92 OF THE PAPER BOOK. CONSIDERING THE DI FFERENT FEATURES AND SPECIFICATIONS IN THE CANOPIES SOLD TO KIRLOSKAR, THE ASSESSEE HAD CHARGED HIGHER RATE TO KIRLOSKAR A S EVIDENT FROM THE DETAILED WORKING OF COST DIFFERENCE SUBMIT TED BY THE ASSESSEE AS DISCUSSED ABOVE. CONSIDERING THE VARIO US DIFFERENCES BETWEEN THE CANOPIES SOLD TO KIRLOSKAR AND SILVASSA UNIT, THE COMPARISON MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED. 6.6 THE ASSESSEE FURTHER HAS EXPLAINED THAT IT HAD PURCHASED CANOPIES FROM THIRD PARTIES. THE RELEVANT DETAILS A RE ENCLOSED 9 ON PAGE 127 OF THE PAPER BOOK. AS PER THE DETAILS, IT WAS CLAIMED THAT THE RATE CHARGED BY CHAKAN UNIT WAS MU CH HIGHER IN RESPECT OF MOST OF THE CANOPIES VIS-A-VIS THE RA TE CHARGED BY THIRD PARTIES. THIS FACT HAS NOT BEEN DISPUTED BY T HE ASSESSING OFFICER. ACCORDINGLY, IT WAS SUBMITTED THAT THE PR ICE CHARGED BY CHAKAN UNIT WAS VERY REASONABLE AND THERE WAS NO IN DIRECT BENEFIT TRANSFERRED FROM CHAKAN UNIT TO SILVASSA UN IT. 6.7 MOREOVER, THE ASSESSEE HAS EXPLAINED THE VARIOU S REASONS FOR HIGHER NET PROFIT MARGIN IN SILVASSA UNIT. FIRS TLY, THE ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT F OR THE CHAKAN UNIT AND SILVASSA UNITS. THE ASSESSEE HAD C LARIFIED THAT DUE TO EXCESS DEPRECIATION, EXCESS EMPLOYEE AN D EXCESSIVE MANUFACTURING EXPENSES, THE PROFIT MARGIN OF CHAKAN UNIT WAS LOW. IT WAS FURTHER EXPLAINED THAT IN VIEW OF THE GUIDELINES ISSUED BY CENTRAL POLLUTION CONTROL BOARD, CERTAIN SPECIFIC DIRECTIONS FOR CONTROLLING NOISE LEVELS WERE TO BE MAINTAINED. HENCE, THE D.G. SETS COULD NOT BE SOLD WITHOUT CANO PIES WHICH ACT AS A NOISE DAMPENING AGENT. HENCE, THE ASSESSEE COMPANY STARTED MANUFACTURING CANOPIES IN CHAKAN UNIT. THE LOWER AUTHORITIES HAVE NOT APPRECIATED THAT THE DIFFERENC E IN DEPRECIATION WAS BASICALLY BECAUSE SUBSTANTIAL PLAN T AND MACHINERY WAS PERTAINING TO CANOPY MANUFACTURING DI VISION. THE RELEVANT CHART IS ENCLOSED ON PAGE 49 OF THE PA PER BOOK. THE HIGHER EMPLOYEE AND MANUFACTURING EXPENSES WERE BECAUSE OF THE FACT THAT THE CANOPIES WERE BEING MA NUFACTURED IN CHAKAN UNIT WHICH WAS NOT THE CASE IN SILVASSA U NIT. THE CHART GIVING THE DETAILS OF THE PROFIT EARNED BY TH E TWO UNITS AS ENCLOSED ON PAGE 146 OF THE PAPER BOOK. 6.8 THE ASSESSING OFFICER HAS INVOKED SUB SECTION 1 0 OF SECTION 80IA. IN THIS REGARD, THE STAND OF THE ASSE SSEE IS THAT SUB SECTION 10 IS NOT APPLICABLE SINCE IT IS APPLIC ABLE TO THE TRANSACTIONS BETWEEN THE ASSESSEE AND THIRD PERSON. IN THIS CASE BEFORE US, THE TRANSACTIONS ARE BETWEEN THE TW O UNITS OF THE ASSESSEE AND IF AT ALL, ANY PROVISION IS TO BE APPLIED I.E. SUB SECTION 8 OF SECTION 80IA. AS PER THE SAID SECTION, IF ANY GOODS ARE TRANSFERRED TO AN ELIGIBLE BUSINESS FROM OTHER BUSINESS AND THE CONSIDERATION OF THE GOODS TRANSFERRED DOES NOT CORRESPOND TO THE MARKET VALUE THEN THE ASSESSING OFFICER HAS THE POWER TO RE-COMPUTE THE PRICE AND DISALLOW THE DEDUCTION. F OR APPLYING THE PROVISIONS OF SUB SECTION (8), THE ASSESSING OF FICER CAN MAKE DISALLOWANCE ON CONCRETE BASIS AND NOT ON PRES UMPTIONS AND SURMISES. THE ASSESSING OFFICER HAS NOT BEEN ABLE TO POINT OUT THAT THE MARKET VALUE OF THE CANOPIES SOL D BY CHAKAN UNIT TO SILVASSA UNIT WAS MUCH HIGHER. THE ASSESSE E HAS CLARIFIED THAT THE CANOPIES SOLD TO KIRLOSKAR WERE NOT COMPARABLE TO THE CANOPIES SOLD TO SILVASSA UNIT. SECONDLY, HE HAS CONSIDERED AN INDIRECT BENEFIT OF RS.L0,000/- F OR THE 10 CANOPIES IN RESPECT OF WHICH NO COMPARABLE PRICE HA S BEEN CITED. THUS, THIS ADDITION IS NOT JUSTIFIED AND ME THOD ADOPTED BY THE ASSESSING OFFICER IS NOT CORRECT AND THE ADD ITION IN QUESTION IS ON PRESUMPTIONS AND SURMISES. THE LOWE R AUTHORITIES HAVE NOT PROPERLY APPRECIATED THE FACTS . THEY HAVE NOT PROPERLY CONSIDERED THE VARIOUS CONTENTIONS RAI SED ON BEHALF OF ASSESSEE FOR HIGHER NET PROFIT MARGIN IN SILVASSA UNIT. THE ASSESSEE HAS GIVEN DETAILED CHARTS GIVEN BASIS OF ALLOCATION OF COMMON EXPENSES TO BOTH THE UNITS. IN RESPECT OF COMMON EXPENSES, THE ASSESSEE HAS ALLOCATED MOST OF THE EX PENSES ON TURNOVER BASIS. THERE IS NO CONCRETE EVIDENCE THAT THE ASSESSEE HAD SHIFTED THE PROFITS OF CHAKAN UNIT TO SILVASSA UNIT AT SUCH MAG NITUDE AND HENCE, THE ADDITION SUSTAINED BY THE CIT(A) CANNOT BE SUSTAINED AS SUCH. AT THE SAME TIME OBJECTION OF R EVENUE AUTHORITIES ON THIS PART CANNOT BE REJECTED IN TOTA L. TAKING ALL FACTS AND CIRCUMSTANCES INTO CONSIDERATION, THE RED UCTION OF CLAIM OF DEDUCTION U/S.80IB(10) IS RESTRICTED TO 15 % AS AGAINST LOWER AUTHORITIES IN A.Y. 2007-08. FACTS BEING SIM ILAR IN A.Y. 2008-09 ON THE ISSUE OF REDUCTION OF CLAIMED DEDUCT ION U/S.80IB(10). FOLLOWING THE SAME REASONING, THE RE DUCTION OF CLAIM OF DEDUCTION IS REDUCED TO 15% AS AGAINST LOW ER AUTHORITIES. ACCORDINGLY, THE ASSESSEES APPEAL ON THIS ACCOUNT IS PARTLY ALLOWED. THE ASSESSING OFFICER IS DIRECT ED TO RE- COMPUTE DEDUCTION U/S.80IB(10). 6. NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLED GE ON BEHALF OF REVENUE. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, WE HOLD THAT THERE IS NO CONCRETE EVIDENCE THAT THE AS SESSEE HAS SHIFTED THE PROFIT OF CHAKAN UNIT TO SILVASSA UNIT AT SUCH A MAGNITURE AND HENCE, THE ADDITION SUSTAINED BY CIT(A) COULD NOT B E SUSTAINED, AS SUCH, AT THE SAME TIME, THE OBJECTION OF REVENUE AU THORITIES ON THIS POINT CANNOT BE REJECTED AS IN TOTO. TAKING INTO A LL THE FACTS AND CIRCUMSTANCES IN TO CONSIDERATION, THE DEDUCTION OF CLAIM U/S.80IB(5)(I) IS RESTRICTED TO 15% AS AGAINST DONE BY THE CIT(A). AS A RESULT, THIS ISSUE IS PARTLY ALLOWED. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D AND THAT OF APPEAL OF ASSESSEE IS PARTLY ALLOWED. 11 PRONOUNCED IN THE OPEN COURT ON THE DATE OF HEARING ITSELF I.E. 27 TH DAY OF MARCH, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 27 TH MARCH, 2014 GCVSR COPY TO:- 1. DEPARTMENT 2. ASSESSEE 3. THE CIT(A)-V, PUNE 4. THE CIT-V, PUNE 5. THE DR, A BENCH, I.T.A.T., PUNE. 6. GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE