M/s Mineral Enterprises Ltd., Bangalore V. DCIT, Bangalore

ITA 527/BANG/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0599 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 27-08-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 25-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K P DIWANESHRI P
• Keywords: Unexplained investment; Loose papers; Cost of acquisition; Benefit of exemption; TDS
• Section: 10B; 80IA; 80HH; 145

Judgement Text

ITA.527,645,493 & CO.40/B/09 PAGE - 1 IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A' BEFORE SHRI. K. P. T. THANGAL, VICE PRESIDENT AND SHRI. K. K. GUPTA, ACCOUNTANT MEMBER 1. I.T.A.NOS.527/BANG/2009 (ASSESSMENT YEAR : 2005-0 6) M/S. MINERAL ENTERPRISES LTD., 300/B, 16TH CROSS SADASHIVNAGAR, BANGALORE .. APPELLANT V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -1(1), BANGALORE .. RESPONDENT 2-3. I.T.A.NOS.645 & 493/BANG/2009 (ASSESSMENT YEAR : 2005-06 & 200 6-07) (BY THE REVENUE) 4. CROSS OBJECTION NO.40/BANG/2009 (IN ITA NO.493/BANG/2009) (ASSESSMENT YEAR : 2006-07) (BY THE ASSESSEE) APPELLANT BY : SHRI. K. P. DIWANE/SHRI.P. TIWARI. RESPONDENT BY : SHRI. JASON P. BOAZ O R D E R PER K. P. T. THANGAL, VICE PRESIDENT : THE ASSESSEE AS WELL AS REVENUE HAVE FILED APPEAL IN RESPECT OF ORDER PASSED BY COMMISSIONER OF INCOME TAX (APPE ALS) DATED 30/3/2009. ITA NO.527/BANG/2009 2. IN GROUND NO. 1(A) & (B) ASSESSEE HAS CHALLENGE D THE ADDITION MADE BY A.O. IN RESPECT OF TRANSPORT EXPEN SES AT RS.98,61,526/-. A.O. HAS DISCUSSED THE ADDITION AT PARA 52 OF THE ITA.527,645,493 & CO.40/B/09 PAGE - 2 ASSESSMENT ORDER. A.O. HAS OBSERVED THAT ASSESSEE HAS NOT BEEN ABLE TO RECONCILE THE DIFFERENCE WITH THE CONCERNED CONCERNS AND IT IS FOUND THAT ASSESSEE HAS SHOWN EXCESS AMOUNT AT R S.98,61,526/- IN RESPECT OF FIVE PERSONS. THE AFORESAID ADDITION HAS BEEN UPHELD BY COMMISSIONER OF INCOME TAX (APPEALS) BY DISMISSI NG THE GROUND OF APPEAL RAISED IN THE APPEAL OF ASSESSEE. 3. BEFORE US THE LEARNED COUNSEL OF ASSESSEE HAS S UBMITTED THAT ADDITION MADE BY A.O. IS UNJUSTIFIED, UNWARRANTED A ND BAD IN LAW. IT IS SUBMITTED THAT COMPLETE DETAILS OF TRANSPORTA TION EXPENSES CLAIMED IN RESPECT OF ABOVE PARTIES WERE SUBMITTED BEFORE A.O. AND CIT(A). NO DEFECT OR MISTAKE IS FOUND IN THE SAME AND THEREFORE ADDITION MADE BY A.O. AND UPHELD BY CIT(A) IS NOT J USTIFIED. CONFIRMATION FILED BY ASSESSEE INDICATES THAT SUCH PARTIES ARE ASSESSED TO TAX AND PERMANENT ACCOUNT NO. IS PROVI DED IN THE CONFIRMATIONS. A.O. ON SAME LINES HAS MADE ADDITIO N OF RS.2,42,.219/- FOR MAMA & CO. IN ASSTT. YEAR 2004- 05. THE SAID ADDITION IS DELETED BY CIT(A) IN APPEAL OF ASSESSEE FOR ASSTT. YEAR 2004-05. REVENUE HAS ACCEPTED THE SAID DECISION AN D NO APPEAL IS FILED CHALLENGING THE DECISION OF CIT(A) IN ASSTT. YEAR 2004-05. CIT(A) HAVING ACCEPTED SAME CONFIRMATION (P- 105) I N ASSTT. YEAR 2004-05 HAD NO JUSTIFICATION TO NOT TO ACCEPT THE S AME IN ASSTT. ITA.527,645,493 & CO.40/B/09 PAGE - 3 YEAR 2005-06. REGULAR BOOKS OF ACCOUNTS ARE MAINTA INED AND AUDITED STATEMENTS ARE NOT REJECTED BY A.O. ALL PA YMENTS ARE MADE BY ACCOUNT PAYEE CHEQUES. ON ALL PAYMENTS TAX IS DEDUCTED AT SOURCE AND DEPOSITED TO THE ACCOUNT OF CENTRAL GOVE RNMENT. PAYMENTS OF TRANSPORTATION CHARGES ARE TO UNRELATED PARTIES. QUANTITATIVE DETAILS OF TRANSACTION ARE NOT DISPUTE D. IT IS SUBMITTED THAT NO ADDITION CAN BE MADE ON CONJUNCTURE AND SUR MISES. THE DIFFERENCE WAS EXPLAINED TO BE ON ACCOUNT OF TDS NO T CONSIDERED BY THE PARTIES AND ONLY NET AMOUNT OF CHEQUE RECEIV ED BY PARTIES WAS CONSIDERED AND DIFFERENCE IN RECORDING OF DATES OF BILLS ISSUED BY SUCH PARTIES. IN ANY CASE AFTER HAVING SUBMITTE D CONFIRMATION OF PARTIES THERE REMAIN NO DISCREPANCY IN THE CLAIM O F TRANSPORTATION CHARGES. IN VIEW OF ABOVE IT IS SUBMITTED THAT ADD ITION MADE IN THE CASE OF ASSESSEE BE DIRECTED TO BE DELETED. 4, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS STR ONGLY RELIED UPON THE ORDER OF LOWER AUTHORITIES. IT IS SUBMITT ED THAT ASSESSEE HAS NOT BEEN ABLE TO RECONCILE THE DIFFERENCE AND T HEREFORE THE ADDITION MADE BY A.O. AND UPHELD BY CIT(A) WAS CORR ECT AND THERE IS NO MERIT IN GROUND OF APPEAL OF THE ASSESSEE AND SAME IS THEREFORE LIABLE TO BE DISMISSED. ITA.527,645,493 & CO.40/B/09 PAGE - 4 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE EVIDENCE ON RECORD. IT IS SEEN THAT ASSESSEE HAS S UBMITTED COMPLETE DETAILS IN RESPECT OF TRANSPORT EXPENSES CLAIMED IN RESPECT OF PARTIES DISCUSSED AT PARA 52 OF THE ASSESSMENT ORDER. OUR ATTENTION WAS INVITED TO THE WRITTEN SUBMISSION MADE BEFORE CIT(A ) WHICH IS PLACED IN PAPER BOOK AT PAGE 97 TO 106. THE ASSESSE E HAS ENGAGED SERVICES OF VARIOUS TRANSPORTERS FOR TRANSPORTATION OF ORE FROM MINES TO THE PRODUCTION PLANT AND FURTHER TO THE PO RT. THE PAYMENT TO VARIOUS TRANSPORTERS HAS BEEN MADE BY ACCOUNT PA YEE CHEQUES AND TAX HAS BEEN DEDUCTED AT SOURCE IN RESPECT OF V ARIOUS TRANSPORT CHARGES PAID BY THE ASSESSEE. A.O. HAS NOT DISPUTE D THE GENUINENESS OF TRANSACTION WITH REGARD TO ABOVE PAR TIES. THE ASSESSEE HAS ALSO SUBMITTED CONFIRMATION OF TRANSAC TION FOR FINANCIAL YEAR UNDER CONSIDERATION FROM THE RECIPIE NTS OF TRANSPORTATION CHARGES. CONFIRMATION INDICATES PER MANENT ACCOUNT NUMBER OF THE PARTIES TO WHOM SAID TRANSPORT CHARGE S ARE PAID. IT IS SEEN THAT IN RESPECT OF M/S MAMA ASSOCIATES CONF IRMATION OF TRANSACTION IS PLACED AT PAGE 105 OF THE PAPER BOOK . THE AFORESAID CONFIRMATION RELATED TO TRANSACTION FOR THE ASSESSM ENT YEAR 2004-05 AND 2005-06. IN THE AFORESAID CONFIRMATION IN RESP ECT OF ASSESSMENT YEAR 2004-05 THERE WAS TAX DEDUCTED AT S OURCE AT RS.2,42,219/-. THE SAME A.O. HAS MADE ADDITION OF R S.2,42,219/- ITA.527,645,493 & CO.40/B/09 PAGE - 5 IN RESPECT OF TRANSPORT EXPENSES RELATING TO MAMA A SSOCIATES. THE AFORESAID ADDITION HAS BEEN DELETED BY CIT(A) VIDE HIS ORDER DATED 24/01/2008 IN PARA 14 & 15 AT PAGE 12 FOR THE ASSES SMENT YEAR 2004-05. THE REVENUE AUTHORITIES HAVE ACCEPTED THA T DECISION AND SAME HAS NOT BEEN CHALLENGED IN APPEAL. WE FIND TH AT THERE IS NO JUSTIFICATION FOR NOT ACCEPTING THE SAME CONFIRMATI ON FOR THE ASSESSMENT YEAR 2005-06 WHEN THE VERY SAME CONFIRMA TION HAS BEEN ACCEPTED BY REVENUE IN THE A.Y. 2004-05. THE ASSESSEE HAS MAINTAINED REGULAR BOOKS OF ACCOUNT AND PAYMENT OF TRANSPORT CHARGES HAVE BEEN PAID BY CHEQUES. THE ASSESSEE HA S BY SUBMITTING CONFIRMATION FROM PARTIES HAVE EXPLAINED THE CLAIM OF TRANSPORT CHARGES AS RECORDED IN ITS BOOKS OF ACCO UNT. A.O. AND CIT(A) HAS NOT FOUND ANY DIFFERENCE IN CLAIM OF EXP ENSES AND AS CONFIRMED BY VARIOUS PARTIES TO WHOM TRANSPORT CHAR GES HAVE BEEN PAID. IT WAS EXPLAINED BEFORE US THAT DIFFERENCE B ETWEEN AMOUNT AS SHOWN BY ASSESSEE AND AS RECORDED BY VARIOUS TRANSP ORTERS IS ON ACCOUNT OF TDS NOT CONSIDERED BY AFORESAID PARTIES AS WELL AS DIFFERENCE IN RECORDING THE DATE OF BILLS ISSUED BY SUCH PARTIES. IT IS ALSO SEEN THAT QUANTITY OF TRANSPORTED GOODS IS NOT DISPUTED BY A.O. THE QUANTITATIVE DETAILS ARE ACCEPTED BY A.O. THE PAYMENT OF TRANSPORT CHARGES IS NOT TO RELATED PARTIES. WE THEREFORE HOLD THAT ASSESSEE HAS EXPLAINED SATISFACTORILY THE CLAIM OF EXPENSES OF ITA.527,645,493 & CO.40/B/09 PAGE - 6 TRANSPORT CHARGES AS CLAIMED IN THE RETURN OF INCOM E. WE THEREFORE HOLD THAT ADDITION MADE BY A.O. AND UPHELD BY CIT(A ) IN RESPECT OF TRANSPORT EXPENSES OF RS.98,61,524/- IS UNJUSTIF IED. WE THEREFORE DIRECT TO DELETE THE ADDITION MADE BY A.O . AT RS.98,61,524/-. THE GROUNDS OF APPEAL ARE ALLOWED. 6. IN GROUND NO. 1(C) ASSESSEE HAS CHALLENGED THE ADDITION MADE BY A.O. AND UPHELD BY CIT(A) OUT OF CLOSING ST OCK AT RS.13,50,126/-. THE A.O. HAS DISCUSSED THE ADDITIO N AT PARA 45 TO 51 AT PAGE 17 TO 19 OF THE ASSESSMENT ORDER. A.O. HAS REFERRED TO CERTAIN LOOSE PAPERS SEIZED AT THE TIME OF SEARCH. IT WAS EXPLAINED BEFORE A.O. THAT AFORESAID FIGURES ARE NOT CORRECT AS THERE WAS ERROR IN SOFTWARE PACKAGE OF COMPUTER BY WHICH QUANTITATI VE DETAILS AND THE VALUE WERE SOUGHT TO BE INTEGRATED BY ASSESSEE . A.O. HAS ACCEPTED THE CONTENTION OF ASSESSEE THAT THERE WAS ERROR IN SOFTWARE PACKAGE. A.O. HOWEVER BY TAKING QUANTITATIVE FIGUR E IN RESPECT OF TRANSPORTATION AND TRADED ITEMS COMPUTED THE TOTAL QUANTITY OF 87476 MT AS UNACCOUNTED STOCK AND MADE ADDITION OF RS.8,54,64,296/- AS UNACCOUNTED CLOSING STOCK AS ON 31/3/2005. THE CIT(A) AFTER ACCEPTING EXPLANATION OF ASSESSEE PARTLY RESTRICTED THE ADDITION TO RS.13.50,126/-. THE AFORESAID ADDI TION SUSTAINED BY CIT(A) IS CONTESTED IN APPEAL FILED BY ASSESSEE AND ADDITION DELETED ITA.527,645,493 & CO.40/B/09 PAGE - 7 BY CIT(A) IS CHALLENGED IN GROUND NO.9 OF THE APPE AL OF REVENUE IN ITA NO.645/BANG/2009. 7. BEFORE US THE LEARNED COUNSEL OF THE ASSESSEE SU BMITTED THAT ADDITION MADE BY A.O. IS UNJUSTIFIED , UNWARRANTED AND BAD IN LAW. IT IS SUBMITTED THAT THE FIGURES MENTIONED IN THE S EIZED DOCUMENTS (P- 114) ARE OBSERVED AT PARA 47 OF ASSESSMENT ORDE R. IT WAS EXPLAINED THAT FIGURES STATED ARE ON ACCOUNT OF ERR OR IN SOFTWARE. THE A.O. HAS EXAMINED THE CONTENTION AND ACCEPTED T HE CONTENTION OF ASSESSEE THAT THERE IS ERROR IN SOFTWARE PACKAG E AS OBSERVED AT PARA 48 OF ASSESSMENT ORDER. THE A.O. HOWEVER PROC EEDED TO TAKE VERY SAME FIGURES TO DETERMINE UNACCOUNTED STOCK OF 87476 MT AND MADE ADDITION AT RS.854.64 LACS WHICH IS REDUCE D BY CIT(A) TO RS.13.50 LACS. IN WRITTEN SUBMISSION BEFORE A.O. THE COMPLETE DETAILS OF STOCK AS ON 31/3/2005 WAS EXPLAINED. A. O. HAS NOT FOUND ANY DEFECT IN THE SAME. AT THE TIME OF SEARCH ITSEL F ASSESSEE HAD EXPLAINED THE COMPUTER PRINT OUTS TO BE ERROR OF SO FTWARE PACKAGE. IN EXTENSIVE SEARCH NEITHER ANY EVIDENCE OF UNRECOR DED TURNOVER WAS FOUND NOR ANY TRANSACTION WAS FOUND NOT RECORDE D IN BOOKS OF ACCOUNTS. THE PERUSAL OF ASSESSMENT ORDER DOES NOT INDICATE THAT A.O. HAS FOUND ANY TRANSACTIONS OUTSIDE THE BOOKS O F ACCOUNTS. SAME A.O. WHILE COMPLETING THE ASSESSMENT FOR ASST T. YEAR 2006- ITA.527,645,493 & CO.40/B/09 PAGE - 8 07 IN THE CASE OF ASSESSEE HAS TAKEN OPENING STOCK AS SHOWN IN THE BOOKS AT RS.525.65 LACS. THIS ITSELF INDICATE THAT CLOSING STOCK AS ON 31/3/2005 COULD NOT BE MORE THAN RS.525.65 LACS . IT IS SUBMITTED THAT ADDITION AS MADE BY A.O. AND SUSTAIN ED BY CIT(A) IS UNJUSTIFIED. IN THE CASE OF ASSESSEE QUANTITATIV E DETAILS OF STOCK PRODUCTION AND SALES FOR ASSTT. YEAR 2004-05 AND ASSTT. YEAR 2006-07 HAVE BEEN ACCEPTED WITHOUT ADVERSE OBSERVA TION. THE PAPERS WHICH HAVE BEEN ACCEPTED BY A.O. TO BE ON A CCOUNT OF ERROR IN SOFTWARE PACKAGE CANNOT BE VALID BASIS FOR MAKING ANY ADDITION AT THE HANDS OF ASSESSEE. NO CORROBORATIV E EVIDENCE WAS FOUND IN SEARCH OR IS BROUGHT ON RECORD BY A.O. I N THE ASSESSMENT PROCEEDINGS TO SHOW THAT ASSESSEE WAS IN POSSESSION OF STOCK MORE THAN AS FOUND RECORDED IN BOOKS OF ACCOUNTS. AS ON DATE OF SEARCH NO EXCESS STOCK WAS FOUND AS IS EVIDENT FROM THE AS SESSMENT ORDER FOR ASSTT. YEAR 2006-07. BANKS HAVE ACCEPTED THE S TOCK AS SHOWN IN BOOKS OF ACCOUNTS. THE QUANTITY OF PURCHASE OF GOODS WAS ALSO TRANSPORTED AND WAS ALREADY PART OF QUANTITY TRANSP ORTED. THE A.O. HAS AGGREGATED THE QUANTITY TRANSPORTED AND PURCHAS ED WHICH HAS RESULTED IN TO TAKING THE SAME QUANTITY TWICE WHICH HAS BEEN DELETED BY CIT(A). THE MINOR VARIATION IN QUANTITY DETAILS WAS EXPLAINED TO BE WEIGHMENT DIFFERENCE WHICH IS LESS THAN .3 % OF TOTAL QUANTITY IS FAIR AND REASONABLE. THE GENUINE NESS OF ITA.527,645,493 & CO.40/B/09 PAGE - 9 TRANSPORTATION CHARGES PAID IS NOT IN DISPUTE. PAY MENT OF TRANSPORTATION CHARGES ARE TO UNRELATED PARTIES. I T IS SUBMITTED THAT THERE IS NO CASE FOR MAKING ANY ADDITION AT THE HA NDS OF ASSESSEE BY RAISING INFERENCES AND PRESUMPTION. 8. THE LEARNED D.R. HAS SUBMITTED THAT ADDITION MAD E BY A.O. WAS CORRECT AND IS ON HE BASIS OF DOCUMENTS FOUND D URING THE COURSE OF SEARCH. THE LEARNED D.R. PLACED STRONG R ELIANCE ON THE ORDER OF A.O. AND SUBMITTED THAT THERE IS NO MERIT IN APPEAL OF ASSESSEE AND ALSO THERE IS NO JUSTIFICATION FOR CI T(A) TO GRANT REDUCTION IN VALUE OF ADDITION ON ACCOUNT OF CLOSIN G STOCK. IN VIEW OF ABOVE IT WAS PRAYED THAT APPEAL OF THE ASSESSEE SEEKING RELIEF IN ADDITION SUSTAINED BY CIT(A) BE DISMISSED AND THAT AS PER GROUND NO.9 OF DEPARTMENTAL APPEAL RELIEF GRANTED BY CIT(A ) BE REVERSED AND ADDITION AS MADE BY A.O. BE SUSTAINED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERU SED THE EVIDENCE ON RECORD. IT IS SEEN THAT CERTAIN LOOSE PAPERS WERE INVENTORISED DURING THE COURSE OF SEARCH AND AT THE TIME OF SEARCH ASSESSEE ITSELF EXPLAINED THAT FIGURES FOUND IN LOO SE PAPER ARE ON ACCOUNT OF ERROR IN SOFTWARE PACKAGE TO THE DY. DIR ECTOR OF INVESTIGATION WING BY ITS COMMUNICATION DATED 17TH SEPTEMBER 2005 WHICH IS PLACED IN PAPER BOOK AT PAGE 112 TO 1 13. THE ITA.527,645,493 & CO.40/B/09 PAGE - 10 ASSESSEE HAS EXPLAINED THAT VALUE AS SHOWN IN STOCK SUMMARY IS INCORRECT AND SAME IS ON ACCOUNT OF ERROR IN SOFTWA RE OF COMPUTER. SIMILAR EXPLANATION WAS ALSO MADE BEFORE A.O. AND S AME HAS BEEN ACCEPTED BY A.O. AS IS EVIDENT FROM HIS OBSERVATION AT PARA 48 OF THE ORDER. A.O. HAS OBSERVED THAT CONTENTION OF AS SESSEE THAT ERROR IN SOFTWARE IS ACCEPTABLE. IT IS SEEN FROM LOOSE P APER THAT QUANTITY OBSERVED AT 3,48,488.390 MT AND 19.369.40 MT IS IN RESPECT OF TRANSPORTATION OF FINES AND IRON ORE AS IS EVIDENT ON PAGE 115 AND 116 OF THE PAPER BOOK. THE QUANTITY OF 57442 MT AN D 29167 MT IS IN RESPECT OF TRADED FINES AND TRADED LUMPS AS IS EVIDENT ON PAGE 118 AND 119. THE CIT(A) HAS FOUND THAT QUANTI TY IN RESPECT OF TRADED GOODS ARE INCLUDED IN THE QUANTITY OF TRA NSPORTATION NOTED ON PAGE NO. 115 & 116. THE CIT(A) HAS ACCORDINGLY REDUCED THE AFORESAID QUANTITY FROM UNACCOUNTED STOCK COMPUTED BY A.O. WE DO NOT FIND ANY REASON TO INTERFERE WITH FINDING AS RECORDED BY CIT(A) IN THIS RESPECT AS WE ARE OF THE OPINION THA T TRANSPORTED QUANTITY AS MENTIONED IN ASSESSMENT ORDER CAN NOT B E AGGREGATED WITH FURTHER QUANTITY OF TRADED FINES AND LUMPS FOR THE PURPOSE OF COMPUTING THE STOCK AS ON 31/03/2005. WE ALSO FIND FROM THE COMMUNICATION DATED 19/11/2007 ADDRESSED TO A.O. AN D PLACED IN PAPER BOOK AT PAGE 107 TO 111 WHEREIN COMPLETE DETA ILS OF VALUATION OF CLOSING STOCK ALONG WITH QUANTITATIVE DETAILS HAS BEEN ITA.527,645,493 & CO.40/B/09 PAGE - 11 SUBMITTED BEFORE A.O. NO MISTAKE OMISSION OR DEFEC T IN CLOSING STOCK QUANTITY AS REPORTED IN FINANCIAL STATEMENT A ND IN DETAILS SUBMITTED BEFORE A.O. IS FOUND. THE LEARNED D.R. HA S ALSO NOT BEEN ABLE TO CONTROVERT THE ABOVE FINDING OF CIT(A) AND SUBMISSION OF COUNSEL BEFORE US. AS REGARD TO QUANTITY OF 1321.6 0 MT FOR WHICH ADDITION HAS BEEN SUSTAINED BY CIT(A) IT IS SEEN TH AT AFORESAID QUANTITY WORKS OUT TO .3% OF THE TOTAL QUANTITY TR ANSPORTED BY ASSESSEE IN THE COURSE OF CARRYING ON BUSINESS. IT WAS EXPLAINED THAT TRANSPORT CHARGES ARE PAID AT THE TIME OF WEIG HMENT MADE AT LOADING STAGE AND SAME HAS TO BE TRANSPORTED FROM PRODUCTION PLANT TO PORT. THE DIFFERENCE OF WEIGHT OF VEHICLE HAS TO BE TAKEN AT DIFFERENT WEIGH BRIDGES. THE IRON ORE BEING NATUR AL PRODUCE CONTAINS MOISTURE AND THERE IS MINOR PILFERAGE DURI NG THE TRANSIT OF THE GOODS AND CONSIDERING THE SAME TOTAL QUANTITY DIFFERENCE OF 1321 MT IS NEGLIGIBLE AND NORMAL. WE FIND SUBSTAN TIAL FORCE IN SUBMISSION AS MADE BEFORE US. IT IS ALSO SEEN THAT IN THE CASE OF ASSESSEE AN ACTION U/S 132(1) HAS BEEN TAKEN PLACE ON 22/07/2005 AND IN THE COURSE OF SEARCH NO EXCESS STOCK WAS FO UND. THE SEARCH OF THE ASSESSEE HAS NOT YIELDED ANY UNRECORDED TRAN SACTION IN RESPECT OF PURCHASE AND SALE AS IS EVIDENT FROM ASS ESSMENT ORDER FOR THE A.Y. 2005-06 AS WELL 2006-07 FOR WHICH APPEAL I S BEFORE US. IT IS ALSO SEEN THAT REGULAR ASSESSMENT FOR THE A.Y. 2 006-07 HAS BEEN ITA.527,645,493 & CO.40/B/09 PAGE - 12 COMPLETED ON 31/12/2007 BY SAME A.O. WHEREIN OPENI NG STOCK HAS BEEN TAKEN AT RS.525.65 LACS. A.O. HAVING BEEN TAKEN THE OPENING STOCK AS ON 01/04/2005 AT RS,525.65 LACS CO ULD NOT HAVE MADE ADDITION FOR CLOSING STOCK AS ON 31/03/2005.TH E ASSESSEE HAS MAINTAINED REGULAR BOOKS OF ACCOUNT AND SAME ARE DU LY SUPPORTED BY QUANTITATIVE DETAILS MAINTAINED AND SUBMITTED AL ONG WITH RETURN OF INCOME. A.O. HAS NOT FOUND ANY MISTAKE OR DEFE CT IN AUDITED BOOKS OF ACCOUNTS MAINTAINED AND QUANTITATIVE DETAI LS AS SEARCH HAD NO JUSTIFICATION TO MAKE SEPARATE ADDITION ON ACCOU NT OF CLOSING STOCK AT THE HANDS OF ASSESSEE. WE FIND THERE IS NO EVIDENCE ON RECORD TO SHOW THAT ASSESSEE WAS HAVING EXCESS QUAN TITY OF STOCK THAN AS SHOWN IN BOOKS ON 31/3/2005. IN THE ABSENC E OF ANY EVIDENCE FOR EXCESS STOCK ON RECORD NO ADDITION CAN BE MADE FOR UNEXPLAINED INVESTMENT IN STOCK. WE THEREFORE HOLD THAT ADDITION AS MADE AT RS.854.64 LACS IS UNJUSTIFIED AND UNSUST AINABLE. IN VIEW OF ABOVE GROUND OF APPEAL OF ASSESSEE STANDS ALLOWE D. THE ADDITION MADE BY A.O. AND SUSTAINED BY CIT(A) AT RS .13,50,126/- IS HEREBY DIRECTED TO BE DELETED. THE GROUND OF AP PEAL IS ALLOWED. CONSEQUENTLY GROUND NO. 9 OF THE APPEAL OF THE REVE NUE IS DISMISSED.. ITA.527,645,493 & CO.40/B/09 PAGE - 13 10. IN GROUND NO. 2 ASSESSEE HAS CHALLENGED THE VAL IDITY OF ASSESSMENT FRAMED ON VARIOUS LEGAL FACETS AS DESCR IBED IN GROUNDS OF APPEAL. 11. BEFORE US LEARNED COUNSEL OF ASSESSEE SUBMITTED THAT SIMILAR GROUNDS WERE RAISED BEFORE CIT(A) WHEREIN DETAILED WRITTEN SUBMISSIONS WERE MADE WHICH HAVE BEEN REPRODUCED IN APPELLATE ORDER. THE COUNSEL OF THE ASSESSEE HAS PLACED RELI ANCE AND SUBMITTED THAT HE HAS NOTHING MORE TO ADD THAN WHAT HAS BEEN SUBMITTED IN WRITTEN SUBMISSION REPRODUCED IN THE O RDER OF CIT(A). IT IS SUBMITTED THAT IN THE FACTS OF PRESENT CASE N O OPPORTUNITY WAS GRANTED BY ADDL. CIT BEFORE GRANTING APPROVAL AS PR OVIDED U/S 153D OF INCOME TAX ACT, 1961 AND IN VIEW OF ABOVE O RDER PASSED IN THE CASE OF ASSESSEE IS BAD IN LAW. RELIANCE FO R THIS IS PLACED ON 1994 TAX L.R. 468 IN CASE OF KAMALA PROPERTIES VS. INSPECTING ACIT (CAL.). THE ASSESSEE WAS BEING ASSESSED BY DCI T, COMPANY CIRCLE-12(1) AND SUBSEQUENTLY CASE WAS TRANSFERRED TO DCIT, CENTRAL CIRCLE-(1), BANGALORE. ORDER OF TRANSFER W AS NOT COMMUNICATED TO ASSESSEE NOR OPPORTUNITY OF HEARD W AS PROVIDED TO ASSESSEE BEFORE TRANSFER OF CASE AND THUS ORDER PASSED IS BAD IN LAW. ITA.527,645,493 & CO.40/B/09 PAGE - 14 12. THE LEARNED D.R. ON THE OTHER HAND SUBMITTED TH AT IN THE FACTS OF THE PRESENT CASE THE JURISDICTION HAS BEEN TRANSFERRED FROM ONE A.O. IN THE CITY OF BANGALORE TO THAT WITH ANOT HER A.O. IN THE SAME CITY. THE LEARNED D.R. INVITING OUR ATTENTION TO PROVISIONS OF SECTION 127(3) OF I.T. ACT 1961 SUBMITTED THAT THER E IS NO NECESSITY OF GRANTING OPPORTUNITY ASSESSEE ON TRANSFER OF CAS E FROM ONE A.O. TO ANOTHER IN THE SAME CITY. IT WAS SUBMITTED IN V IEW OF CLEAR MANDATE OF PROVISIONS OF SECTION 127(3) OF I.T. ACT 1961 THE CONTENTION OF ASSESSEE AS RAISED IN GROUNDS OF APPE AL IS NOT JUSTIFIED AND GROUNDS OF APPEAL OF ASSESSEE DESERVES TO BE DI SMISSED. THE LEARNED D.R. ALSO INVITED OUR ATTENTION TO PARA 6 O F THE APPELLATE ORDER WHEREIN CIT(A) HAS RECORDED A FINDING THAT RE CORD SHOWS THAT ADDITIONAL CIT HAS APPROVED THE ASSESSMENT ORDER O N 31/12/2007 IN COMPLIANCE TO TERMS OF SECTION 153D OF I.T. ACT 1961. IT IS SUBMITTED THAT IN VIEW OF CLEAR FINDING AS NOTED BY CIT(A) IN HIS APPELLATE ORDER THERE IS NO MERIT IN APPEAL OF ASS ESSEE AND THEREFORE GROUND AS RAISED IN MEMO OF APPEAL BE DISMISSED. 13. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE EVIDENCE ON RECORD. IT IS SEEN THAT SIMILAR LEGAL GROUNDS WERE RAISED BEFORE CIT(A) AND DETAILED SUBMISSIONS AS MA DE BY ASSESSEE BEFORE CIT(A) ARE RECORDED IN APPELLATE ORDER. WE HAVE PERUSED ITA.527,645,493 & CO.40/B/09 PAGE - 15 THE ORDER OF CIT(A) AND FIND THAT ALL LEGAL FACETS OF THE ASSESSMENT FRAMED HAVE BEEN DELIBERATED UPON IN LIGHT OF THE DECISIONS REFERRED TO IN THE APPELLATE ORDER. WE ARE OF THE OPINION THAT GROUNDS OF APPEAL AS RAISED BEFORE CIT(A) HAVE BEEN CORRECTLY DISMISSED AND DOES NOT CALL FOR ANY INTERFERENCE. IN VIEW OF ABOVE WE ARE OF THE OPINION THAT THERE IS NO MERIT IN GRO UNDS OF APPEAL OF ASSESSEE AND SAME ARE LIABLE TO BE DISMISSED. GR OUND NO. 2 RAISED IN MEMO OF APPEAL IS DISMISSED HAVING NO MER IT IN THE SAME. 14. THE APPEAL IS PARTLY ALLOWED. ITA NO.645/BANG/2009 15. IN GROUND NO. 1 TO 8 OF APPEAL OF REVENUE THE RELIEF ALLOWED BY CIT(A) WITH REGARD TO CLAIM OF DEDUCTION U/S 10B HAS BEEN CHALLENGED. A.O. HAS GIVEN VARIOUS REASONS FO R NOT ACCEPTING THE CLAIM OF ASSESSEE IN RESPECT OF DEDUCTION U/S 1 0B OF I.T. ACT 1961 OF ITS INCOME FROM 100% EOU. THE CIT(A) AFTER EXAMINING THE DETAILS AND CONSIDERING THE SUBMISSION OF ASSES SEE HAS ACCEPTED THE CLAIM OF ASSESSEE U/S 10B OF I.T. ACT 1961 AND DIRECTED TO ALLOW THE CLAIM OF ASSESSEE U/S 10B AS CLAIMED IN T HE RETURN OF INCOME. ITA.527,645,493 & CO.40/B/09 PAGE - 16 16. THE LEARNED D.R. SUBMITTED THAT VARIOUS GROUND AS RAISED IN MEMO OF APPEAL CAN BE SUMMARISED INTO THREE ISSUES FOR MAKING DISALLOWANCE U/S 10B OF I.T. ACT 1961. HE SUBMITTE D THAT ASSESSEE IS NOT ENGAGED IN MANUFACTURE AND PRODUCTION OF AN ARTICLE OR THING IN ITS EOU UNIT AND IS THEREFORE NOT ELIGIBLE FOR BENEFIT OF DEDUCTION U/S 10B. IT IS SUBMITTED THAT ON THE BAS IS OF FACT AND EVIDENCE ON RECORD 100% EOU IS NOT A NEW UNIT OF AS SESSEE AND IT FORMED BY SPLITTING UP OR RECONSTRUCTION OF EXISTI NG BUSINESS AND THEREFORE ASSESSEE IS NOT ELIGIBLE FOR BENEFIT OF DEDUCTION U/S 10B OF I.T. ACT 1961. IT IS THUS SUBMITTED THAT THE RE QUISITE CONDITIONS FOR GRANT OF DEDUCTION U/S 10B OF I.T. ACT 1961 ARE NOT SATISFIED IN THE CASE OF ASSESSEE. THE CLAIM OF DEDUCTION U/S 1 0B OF I.T. ACT 1961 HAS BEEN RIGHTLY DENIED BY A.O. IN THE CASE OF ASSESSEE. IT IS SUBMITTED THAT ASSESSEE INFLATED THE PROFIT OF 100% EOU UNIT AND SUPPRESSED THE PROFIT IN NON-EOU UNIT OF ASSESSEE. IT IS SUBMITTED THAT A.O. HAS MADE DETAILED DISCUSSION IN THE ASSES SMENT ORDER AND HAS THEREFORE COMPUTED THE PROFIT INDEPENDENTLY IN RESPECT OF EOU UNIT AND NON EOU IN THE ASSESSMENT ORDER. THE LEAR NED D.R. PLACED STRONG RELIANCE ON THE DISCUSSION AS MADE I N THE ASSESSMENT ORDER AT PAGE 3 TO 17 TO SUPPORT VARIOUS SUBMISSIO N MADE HEREINABOVE. IT IS SUBMITTED THAT CIT(A) HAS ACCEP TED THE EXPLANATION OF ASSESSEE AND DIRECTED TO GRANT EXEMP TION U/S 10B OF ITA.527,645,493 & CO.40/B/09 PAGE - 17 I.T. ACT 1961 WITHOUT CORRECTLY TAKING INTO CONSIDE RATION THE REASONS INDICATED IN ASSESSMENT ORDER. IT IS SUBMI TTED THAT RELIEF GRANTED BY CIT(A) IS UNJUSTIFIED AND UNWARRANTED UN DER THE FACTS AND CIRCUMSTANCE IN THE CASE OF ASSESSEE. IT WAS P RAYED THAT ADDITION AS MADE BY A.O. BE RESTORED AND THAT ORDER OF CIT(A) GRANTING RELIEF BE REVERSED. 17. THE LEARNED COUNSEL OF ASSESSEE ON THE OTHER HA ND RELIED UPON ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND SUBMITTED THAT RELIEF GRANTED BY CIT(A) IS IN ACCOR DANCE WITH LAW. IT WAS SUBMITTED ON ALL THREE ISSUES ASSESSEE HAD SATISFACTORILY EXPLAINED BEFORE CIT(A) THAT THESE ARE NO VALID RE ASON FOR DENIAL OF BENEFIT ALLOWABLE UNDER SECTION 10B AS CLAIMED . IT IS SUBMITTED THAT MINING OF IRON ORE IS PRODUCTION OF AN ARTICLE OR THING. RELIANCE FOR THIS IS PLACED ON (I) 271 ITR 331 (S.C.) CIT VS. SESA GOA LTD., (II) 225 ITR 60 (KAR.) CIT VS. GOGTE MINERALS (III) 266 ITR 126 (BOM.) CIT VS. SE SA GOA LTD. IT IS SUBMITTED THAT A.O. AT PARA 40 PAGE 15 OF ASSESSM ENT ORDER HIMSELF HAS OBSERVED THAT ASSESSEE IS ENGAGED IN PR ODUCTION OF IRON ORE. IN THE ABOVE PARA OBSERVATION OF A.O. THAT PR ODUCTION IS SHIFTED FROM MEL (NON EOU) TO MEL (EOU) IS FACTUALL Y INCORRECT AND CONTRARY TO EVIDENCE ON RECORD. IT I S SUBMITTED THAT ITA.527,645,493 & CO.40/B/09 PAGE - 18 DECISION OF TARA AGENCIES REPORTED AT 292 ITR 444 ( SC) REFERRED TO AT PARA 38 OF ASSESSMENT ORDER IS IN RESPECT OF PUR CHASE OF TEA AND ITS BLENDING. IT IS ON THESE FACTS IT WAS HELD THA T BLENDING IS PROCESSING AND NOT PRODUCTION AS IT WAS CASE OF PUR CHASE OF TEA. THE FACTS ARE DISTINGUISHABLE AS IN THE PRESENT CAS E IT IS WINNING OF IRON ORE FROM EARTH AND IT AMOUNTS TO PRODUCTION OF AN ARTICLE OR THING. THE DECISION OF APEX COURT REPORTED AT 271 ITR 331 (SC) IS DIRECTLY ON THE ISSUE AS MINING OF IRON ORE WAS UND ER CONSIDERATION FOR ALLOWABILITY OF DEDUCTION U/S 80I OF INCOME TAX ACT, 1961 LANGUAGE IN SEC. 80I AND SEC. 10B IS IDENTICAL. TH E DECISION OF TARA AGENCIES IS DISTINGUISHABLE ON FACTS AND IS IN APPLICABLE TO THE FACTS IN THE CASE OF ASSESSEE. THE OBSERVATION OF A.O. THAT ACTIVITY IN CUSTOM BONDED AREA CLEARLY FALLS SHORT OF EV EN PROCESSING LET ALONE MANUFACTURE OR PRODUCTION IS UNJUSTIFIED. IN THE CASE OF ASSESSEE APPROVAL OF 100% EOU IS FOR ENTIRE UNDER TAKING OF MINING AND OBSERVATION OF A.O. THUS ARE UNJUSTIFIE D. THE OBSERVATION OF A.O. AT PARA 32 THAT OPERATIONAL COS T IS LESS THAN 1% IS FACTUALLY INCORRECT. THE MINING AND OTHER OPERA TIVE EXPENSES ARE RS.3656.75 LACS. AS IS EVIDENT FROM PAGE 31 OF PAPE R BOOK BEING PROFIT & LOSS ACCOUNT OF 100% EOU. IN VIEW OF ABOV E ASSESSEE IS ENGAGED IN PRODUCTION OF IRON ORE AND THUS CONDITIO N PRESCRIBED U/S 10B(2)(I) STANDS SATISFIED IN THE CASE OF ASSES SEE. AS REGARD TO ITA.527,645,493 & CO.40/B/09 PAGE - 19 ISSUE THAT 100% EOU IS NOT FORMED BY SPLITTING UP O R RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE, IT IS SUBMITTED THAT 100% EOU IS ESTABLISHED IN 2003 AND IS HOLDI NG REQUISITE APPROVAL FROM GOVERNMENT. EOU IS SET UP UNDER SPEC IAL ECONOMIC ZONE AND COPY OF APPROVAL IS SUBMITTED IN PAPER BOOK AT PAGE 94 TO 96. IT IS SET UP BY INSTALLING NEW PLAN T & MACHINERY OF RS.283.49 LACS AND AGGREGATE VALUE OF FIXED ASSET S OF RS.300.14 LACS AS IS EVIDENT FROM P- 33 OF PAPER BOOK BEING SCHEDULE OF FIXED ASSETS IN RESPECT OF 100% EOU. . IT IS OPERATING N EW MINES OBTAINED AT RED HILL AREA FROM SHRI K.P. PODDAR ON LEASE. THE EOU HAS NOT USED ANY OLD PLANT & MACHINERY OWNED BY ASSESSEE AS IS EVIDENT FROM SEPARATE AUDITED ACCOUNTS OF EOU AND NON EOU. IT IS SUBMITTED THAT THERE IS NO BAR OF ANY EMPLOYEE EARLIER WORKING IN ANOTHER UNIT OF ASSESSEE TO WORK WITH EO U. IT CANNOT BE TERMED AS RECONSTRUCTION OF BUSINESS. RELIANCE FOR THIS IS PLACED ON: 115 ITD 95 (CHENNAI). A.O. HAS ASSESSED THE IN COME OF BUSINESS OTHER THAN EOU AND THUS EARLIER BUSINESS I S NOT CLOSED. IT IS NOT THE CASE OF A.O. THAT EXISTING UNIT IS BIFUR CATED. IN OLD BUSINESS THE TURNOVER IS RS.275.36 CRORES AND IN EA RLIER YEAR IT WAS RS.124.15 CRORES AS IS EVIDENT FROM P- 7 BEING PRO FIT & LOSS ACCOUNT OF NON EOU. THIS CLEARLY DEMONSTRATE THAT NO ACTIVITY OF THE EXISTING BUSINESS IS DIVERTED OR BIFURCATED. THE ASSESSEE IS ITA.527,645,493 & CO.40/B/09 PAGE - 20 HOLDING APPROVAL OF 100% EXPORT ORIENTED UNIT BY C SEZ ITSELF PROVES THAT IT IS A NEW INDUSTRIAL UNDERTAKING. ON E ARM OF THE GOVERNMENT HAVING RECOGNIZED UNIT AS 100% EOU THE REVENUE AUTHORITIES CANNOT SAY THAT BENEFIT OF EXEMPTION IS NOT AVAILABLE TO THE ASSESSEE. THE A.O. HAS ACCEPTED THE GENUINENES S OF THE AGREEMENT OF MINING LEASE OBTAINED FROM SHRI K.P. PODDAR AND ALLOWED MINING EXPENSES OF RS.25 LACS. THIS ITSELF SUGGESTS THAT A NEW UNDERTAKING HAS COME INTO EXISTENCE. THE SCHED ULE OF FIXED ASSETS OF EOU & NON EOU UNDERTAKINGS CLEARLY DEMONS TRATES THAT NO EXISTING ASSET IS USED BY NEW UNDERTAKINGS AND THUS THERE IS NO CASE FOR REVENUE THAT THERE IS RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCES. OBSERVATION OF A.O. AT PARA 43 THAT SAME MACHINERY IS USED FOR MINING IS NOT BASED ON ANY EVIDENCE ON RECORD AND IS FACTUALLY INCORRECT. THE ENTIRE PLANT & MACHINERY OWNED BY EOU IS AT PRODUCTION CENTRE. THE WORK OF EXCAVATING E ARTH WITH IRON DEPOSITS FROM MINE AND ITS TRANSPORT IS DONE BY CON TRACTORS WITH THEIR EQUIPMENT. RELIANCE IS PLACED ON (I) 129 C TR (SC) 265 MUNICIPAL COMMISSIONER VS. CENTURY ENKA LTD. (II ) 2008 (TIDL) 302 HC DEL CIT VS. MAHAAN FOODS LTD., ( III) 108 ITR 367 (S.C.) INDIAN ALUMINUM CO. LTD. VS. CIT, (IV ) 137 ITR 851 (DEL.) CIT VS. HINDUSTAN GENERAL INDUSTRIES LTD. , (V) 92 ITR 160 (MAD.) CIT VS. GANGA SUGAR CORPORATION LTD. (VI) 125 ITR 361 ITA.527,645,493 & CO.40/B/09 PAGE - 21 (ALL.) CIT VS. MODI SPINNING & MANUFACTURING MILL S CO. LTD. FOR THE PROPOSITION THAT 100% EOU IS NOT FORMED BY SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS. IN VIEW OF AB OVE SUBMISSIONS CONDITION PROVIDED U/S 10B(2)(II) OF INCOME TAX ACT , 1961 ALSO STAND SATISFIED. AS REGARD TO VARIATION IN PROFIT IN 100% EOU UNIT AND NON EOU UNIT IT IS SUBMITTED THAT ASSESSEE COMP ANY HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR MEL (EOU) UNDERTAKING AND OTHER UNDERTAKINGS OF THE COMPANY. THE BOOKS OF ACCOUNTS OF EACH UNDERTAKING ARE AUDITED BY CHARTER ED ACCOUNTANTS AND NO ADVERSE OBSERVATION IS GIVEN BY THE AUDITORS OF THE ASSESSEE COMPANY. THE MEL (NON EOU) HAS NOT SUPPLIED ANY GOO DS OR SERVICES TO MEL (EOU) UNDERTAKING AS IS EVIDENT FRO M THE AUDITED PROFIT & LOSS ACCOUNT OF MEL (EOU) PLACED IN PAPER BOOK AT P- 28 TO P-41. IN VIEW OF OBSERVATION OF A.O. TO THE ABOVE EFFECT AT PARA 19 TO 21 ARE FACTUALLY INCORRECT. INFACT A.O. HAS NOT SPELT OUT OF A SINGLE SERVICE OR GOODS SUPPLIED FROM MEL (NON EOU) TO MEL (EOU). IT IS SUBMITTED THAT PROVISIONS OF SEC. 10B(7) ARE INAPPLICABLE IN THE FACTS IN THE CASE OF ASSESSEE. IN THE ABSENCE OF ANY SERVICE OR GOODS HAVING BEEN SUPPLIED FROM MEL (NON EOU) TO MEL (EOU), THE CONDITION PRECEDENT FOR APPLICATI ON OF PROVISIONS OF SEC. 10B(7) R.W.S. 80IA(8) OF INCOME TAX ACT, 1961 IS ABSENT AND THUS DETERMINATION OF PROFIT U/S 10B INDEPENDENT OF ITA.527,645,493 & CO.40/B/09 PAGE - 22 AUDITED PROFIT & LOSS ACCOUNT IS UNJUSTIFIED. IT IS SUBMITTED THAT A.O. HAS NOT POINTED OUT SINGLE ITEM OF EXPENDITURE WHICH ACCORDING TO HIM RELATES TO MEL (EOU) WHICH HAS BEE N DEBITED IN THE BOOKS OF MEL (NON EOU). IN THE ABSENCE OF ANY DEFECT OR MISTAKE IN THE BOOKS OF ACCOUNT SO AS TO JUSTIFY I NVOCATION OF SEC. 145 OF INCOME TAX ACT, 1961 THE PROFIT AS SHOWN IN THE AUDITED STATEMENT OF ACCOUNT OF MEL (EOU) CANNOT BE DISTUR BED. A.O. AT PARA 11 HAS OBSERVED VARIATION IN G.P. AND N.P. RAT IO OF EOU & NON EOU UNDERTAKING AS PER BOOKS. NON EOU UNDERTAK ING IS HAVING LARGE SCALE TRADING ACTIVITY WHEREAS EOU UNI T IS PURELY MANUFACTURING UNIT. AS THE UNDERTAKINGS ARE NOT DOI NG SIMILAR ACTIVITIES THE RESULTS IN THE MANNER A.O. HAS SOUGH T TO COMPARE AT PARA 11 OF ASSESSMENT ORDER IS UNJUSTIFIED. IT IS SETTLED VIEW THAT ONLY LIKES CAN BE COMPARED IN TERMS OF FINANCIAL RE SULTS. OUR ATTENTION WAS INVITED TO WRITTEN SUBMISSION BEFORE CIT(A) AS REPRODUCED AT PARA 17 PAGE 12 & 13 OF APPELLATE OR DER WHICH CLEARLY DEMONSTRATES THAT PURCHASE COST OF MATERIAL IN NON EOU IS 24.18% OF TURNOVER AND IN EOU UNIT IT IS 7.07%. SI MILARLY MINING AND OTHER OPERATIVE EXPENSES ARE 56.27% OF TURNOVER IN NON EOU UNIT AND 59.61% OF TURNOVER IN EOU UNIT. IT IS S UBMITTED THAT THIS CLEARLY DISPELS THE DOUBT OF A.O. THAT EXPENSES OF EOU UNIT ARE SOUGHT TO BE TRANSFERRED TO NON EOU UNIT. IT IS TH E GROSS PROFIT ITA.527,645,493 & CO.40/B/09 PAGE - 23 BEING MORE IN EOU UNIT BEING MANUFACTURING UNIT THE QUANTUM OF PROFIT IS BETTER. BIFURCATION OF TOTAL PROFIT BY A.O. ON THE BASIS OF TURNOVER OF EOU & NON EOU AT PARA 22 IS UNJUSTIFIED AS ACTIVITY IN BOTH UNIT IS NOT ALIKE AND NO DEFECT IN SEPARATE AUDITED BOOKS OF EACH UNIT IS FOUND BY A.O. WORKING AT PARA 22 IS AS PER BOOK PROFITS AND NOT AS PER COMPUTATION OF INCOME AT PAG E 1 TO 3 AND THIS INDICATES NON APPLICATION OF MIND OF A.O. AND ENTIRE CALCULATION MADE BY A.O. IS UNJUSTIFIED. RELIANCE IS PLACED ON (I) 103 TTJ (BANG.) 329 DIGITAL EQUIPMENT INDIA LTD. V S. CIT (II) ITA NO.105/NAG/98 & C.O. NO. 67/NAG/99 DCIT VS. MANILAL DAYAJI & CO. VIDE ORDER DATED 12/9/2001 TH AT WHEN SEPARATE BOOK OF ACCOUNTS ARE MAINTAINED FOR ELIGI BLE UNIT THE PROFIT SHOULD NOT BE DISTURBED IN THE ABSENCE OF AN Y DEFECT IN THE SAME. RELIANCE IS PLACED ON W/S BEFORE CIT(A) REP RODUCED AT PAGE 14 & 15 TO SHOW THAT NONE OF THE ITEMS DISCUS SED BY A.O. AT PARA 12 ARE MATERIAL TO DISTURB THE RESULTS OF AUDI TED STATEMENTS. KEYMAN INSURANCE POLICY IS MADE OUT CONSIDERING THE PROFIT OF EARLIER YEARS WHICH ARE ESSENTIALLY OF NON EOU UNDE RTAKING AS EOU UNDERTAKING HAS COMMENCED DURING THE YEAR UNDER CONSIDERATION. IT IS FOR THIS REASON THAT KEYMAN IN SURANCE PREMIUM IS FOR NON EOU UNIT. MOREOVER ON SURRENDER OR CLAIM OF KEYMAN INSURANCE POLICY THE INCOME WOULD BE ASSESSABLE AND WOULD BE OF ITA.527,645,493 & CO.40/B/09 PAGE - 24 NON EOU UNIT ONLY. THE TURNOVER OF NON EOU HAS IN CREASED FROM 124.15 CRORES TO 275.36 CRORES DURING THE YEAR UNDER CONSIDERATION WHICH FULLY JUSTIFIED THE PREMIUM PAI D FOR KEYMAN.. BUSINESS PROMOTION EXPENSES, ADVERTISEMENT EXPENSES , RETAINER CHARGE, TRAVELING EXPENSES AND STAFF WELFARE EXPENS ES ARE INCURRED FOR NON EOU UNIT ALONE AND ARE DEBITED IN ITS BOOK S OF ACCOUNTS. DETAILS WERE SUBMITTED AND NO ITEM OF EXPENDITURE I S FOUND TO BE RELATING TO EOU UNIT. THE TOTAL INVESTMENT IN EOU I S 19.17 CRORES AND COMPANY HAS CAPITAL, RESERVES AND SURPLUS AT MO RE THAN THE ABOVE SUM AS IS EVIDENT FROM THE BALANCE SHEET OF T HE COMPANY. IT IS NOT THE CASE OF A.O. THAT ANY BORROWED AMOUNT OF NON EOU UNIT IS UTILIZED FOR INVESTMENT IN EOU UNIT. SECURE D LOAN BORROWED FOR EOU UNIT IS SHOWN IN EOU UNIT AND FINANCE CHA RGES ARE SHOWN IN THE EOU BOOKS ITSELF. IN NON EOU THE FINA NCE CHARGES INCLUDE EXCHANGE RATE DIFFERENCE OF RS.157.18 LACS (P- 14) WHICH IS SPECIFICALLY RELATED TO NON EOU TRANSACTIONS. MINE S MAINTENANCE OF RS.451.01 LACS IS NOT APPEARING SEPARATELY IN P ROFIT & LOSS ACCOUNT MEL (NON EOU) BUT IN FACT A.O. HAS AGGREGA TED CERTAIN EXPENSES OUT OF MINING EXPENSES CLAIMED IN NON EOU UNIT AT RS.2183.05 LACS (P- 25). A.O. IS FACTUALLY INCORRE CT THAT NO SUCH EXPENSES ARE IN EOU UNIT. MINING EXPENSES UNDER SI MILAR HEADS ARE INCURRED AT RS.758.81 LACS IN EOU UNIT (P- 40). THE DIFFERENCE ITA.527,645,493 & CO.40/B/09 PAGE - 25 IS ON ACCOUNT OF FACT THAT QUANTITY OF MINING IN VA LUE AND TONS IN BOTH THE UNITS IS DIFFERENT. IN NON EOU UNIT THE F OLLOWING OTHER INCOMES ARE ALSO SHOWN WHICH WOULD GO TO RE DUCE THE MINING EXPENSES (A) EXCAVATION AND SCREENING INCOM E RS.425.27 LACS., (B) RAISING CHARGES RS.177.01 LACS & (C) ROAD REPAIR & MAINTENANCE INCOME - RS.212.84 LACS. THE A.O. HAS TOTALLY OVERLOOKED THE ABOVE ASPECT. THE GENUINENESS OF EXP ENDITURE INCURRED IS NOT DISPUTED BY A.O. CONSIDERING ABOVE FACTS THE REASONS OF A.O. TO DISTURB THE FINANCIAL RESULTS OF EOU AND NON EOU ARE NOT JUSTIFIED. ACCORDING TO A.O. THE ACTIV ITY OF CUSTOM AREA BONDED ALONE SHALL BE TAKEN AS 100% EOU. IT I S SUBMITTED THAT UNDERTAKING IS RECOGNIZED AS 100% EOU. IT IS SUBMITTED THAT MINE AREA CONTAINS EARTH WHICH HAS IRON DEPOSITS. THE EARTH CONTAINING IRON ORE IS EXCAVATED AND IS BROUGHT TO PLANT FOR PRODUCING IRON ORE. THE EARTH CONTAINING IRON ORE IS NOT A TRADEABLE COMMODITY. IT IS IRON ORE WHICH IS PRODUCED BY AS SESSEE IS A NEW ARTICLE OR THING PRODUCED. AT MINE ONLY EARTH IS E XCAVATED AND BROUGHT FOR PRODUCTION OF IRON ORE AT PRODUCTION PL ANT. CUSTOM BONDED AREA IS MADE ONLY AT THE PRODUCTION CENTRE F OR SUPERVISION OF EXCISE/CUSTOM DUTY FOR CENTRAL GOVERNMENT. IN E VERY INDUSTRIAL UNIT IT IS THE PRODUCTION CENTRE WHICH IS CLASSIFIE D AS BONDED AREA. THE MINES FROM WHICH IRON ORE IS PRODUCED BELONGS T O 100% EOU ITA.527,645,493 & CO.40/B/09 PAGE - 26 AND THIS FACT IS NOT IN DISPUTE. THE CLASSIFICATION OF THE MINES BY A.O. AS PART OF NON EOU IS NOT JUSTIFIED AS OBSERVE D AT PARA 15 TO 18 OF ASSESSMENT ORDER. THE MINES AND PRODUCTION P LANTS ARE NOT SEPARATE BUSINESSES OF ASSESSEE. THE ACTIVITY OF M INING AND PRODUCTION OF IRON ORE IS ONE INTEGRATED ACTIVITY. THE CONCLUSION THAT MINING AND PRODUCTION FACILITY ARE TWO SEPARA TE BUSINESS IS AN ACT OF HAIR SPLITTING BY A.O. AND IS NOT JUSTIFIED. IN IRON ORE INDUSTRY THE ACTIVITY OF MINING COMPRISES OF EXCA VATING EARTH AND PROCESSING IT INTO IRON ORE AT PRODUCTION PLANT. O BSERVATION OF A.O. THUS ARE NOT JUSTIFIED. CONSIDERING THE VARIOUS SU BMISSION MADE HEREINABOVE IT IS SUBMITTED THAT CIT(A) HAS CORRECT LY DIRECTED TO ALLOW EXEMPTION U/S 10B OF INCOME TAX ACT, 1961 AS CLAIMED. THERE IS NO MERITS IN VARIOUS GROUNDS OF APPEAL OF REVENUE AND SAME BE DISMISSED. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PER USED THE EVIDENCE ON RECORD. THE BRIEF FACTS IN THE CASE OF ASSESSEE ARE THAT ASSESSEE HAS SET UP 100% EOU WHICH IS ENGAGED IN PR ODUCTION OF IRON ORE. THE ASSESSEE HAS RECEIVED APPROVAL OF 10 0% EOU FROM THE GOVERNMENT. THE CERTIFICATE OF APPROVAL IS PLA CED IN PAPER BOOK AT PAGE 94 TO 96 . FIRST WE SHALL TAKE OBJECT ION OF A.O. THAT ASSESSEE IS NOT ENGAGED IN MANUFACTURE OR PRODUCTIO N OF ARTICLE OR ITA.527,645,493 & CO.40/B/09 PAGE - 27 THING. IT IS SEEN THAT SUCH DISPUTE IS NO MORE RE S INTEGRA IN VIEW OF THE DECISION OF APEX COURT IN THE CASE OF CIT VS S ESA GOA LTD. REPORTED AT 271 ITR 331 (S.C.). HONBLE APEX COU RT IN THE SAID CASE HAS HELD THAT EXTRACTION AND PROCESSING OF IRO N ORE AMOUNTS TO PRODUCTION. HONBLE APEX COURT HAS UPHELD THE DECI SION OF HONBLE BOMBAY HIGH COURT IN THE CASE CIT VS SESA G OA LTD. REPORTED AT 266 ITR 126 (BOM.) WHEREIN IT IS HELD THAT WINNING AND EXTRACTING OF ORE AMOUNTS TO PRODUCTION OF AN A RTICLE OR THING. THE ACTIVITY OF ASSESSEE COMPANY IS IDENTICAL TO TH AT IN THE CASE OF SESA GOA LTD. THE RATIO LAID DOWN BY HONBLE APEX COURT IN THE CASE OF SESA GOA LTD. SQUARELY APPLIES TO THE FACTS IN THE CASE OF ASSESSEE. AS REGARD TO DECISION REPORTED AT 292 IT R 444 (S.C.) REFERRED TO BY A.O. IN PARA 38 IT IS SEEN THAT AFOR ESAID CASE PERTAINS TO PURCHASE OF TEA OF VARIOUS QUALITIES WHICH WERE BLENDED TO MAKE DIVERSE GRADES OF TEA. IT WAS HELD THAT IT DOES NOT AMOUNT TO MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING. IN FACT IN THE AFORESAID DECISION IT HAS BEEN OBSERVED THAT TEA IS PRODUCED IN THE TEA GARDEN AND THIS FIRST STAGE IS CALLED PRODUCTIO N OF TEA. THESE OBSERVATIONS THUS SUPPORT THE CASE OF ASSESSEE. IN THE FACTS OF THE PRESENT CASE IRON ORE IS EXTRACTED FROM MINES AND T HUS THE FACTS IN THE CASE OF ASSESSEE ARE DISTINGUISHABLE FROM THE F ACTS OF THE CASE TARA AGENCIES REFERRED TO BY A.O. IN ASSESSMENT OR DER. IN VIEW OF ITA.527,645,493 & CO.40/B/09 PAGE - 28 ABOVE WE HOLD THAT CIT(A) HAS CORRECTLY HELD THAT A SSESSEE IS ENGAGED IN BUSINESS OF MANUFACTURE OR PRODUCTION OF IRON ORE AND THEREFORE CONDITION FOR GRANT OF EXEMPTION U/S 10B( 2)(I) OF I.T. ACT 1961 STAND FULFILLED BY ASSESSEE. THE DENIAL OF DE DUCTION U/S 10B BY A.O. FOR THE REASON THAT ASSESSEE IS NOT ENGAG ED IN MANUFACTURE AND PRODUCTION OF ARTICLES OR THING IS THUS HELD T O BE NOT JUSTIFIED. IT IS ALSO SEEN THAT A.O. IN PARA 40 OF ASSESSMENT ORDER HIMSELF HAS OBSERVED THAT ASSESSEE IS ENGAGED IN PRODUCTION OF IRON ORE. IN VIEW OF ABOVE A.O. WAS NOT JUSTIFIED IN HOLDING THAT THE RE IS NO MANUFACTURE AND PRODUCTION OF ARTICLE OR THING IN T HE CASE OF ASSESSEE. 19. AS REGARD TO OBSERVATION OF A.O. THAT THERE IS SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSINESS. WE ARE OF THE OPINION THAT CIT(A) HAS CORRECTLY ACCEPTED THE CONTENTION OF ASS ESSEE THAT ASSESSEE HAS SET UP SEPARATE 100% EOU UNIT AND THER E IS NO CASE OF SPLITTING UP OR RECONSTRUCTION OF EXISTING BUSIN ESS. IN THE CASE OF ASSESSEE SEPARATE BOOKS OF ACCOUNTS HAVE BEEN MA INTAINED IN RESPECT OF 100% EOU AND ITS PROFIT & LOSS ACCOUNT A ND BALANCE SHEET IS PLACED IN PAPER BOOK AT PAGE 28 TO 41. T HE PERUSAL OF AUDITED STATEMENT WOULD INDICATE THAT 100% EOU IS S ET UP BY INSTALLING PLANT & MACHINERY OF RS.283.29 LACS DURI NG THE YEAR ITA.527,645,493 & CO.40/B/09 PAGE - 29 UNDER CONSIDERATION. THE 100% EOU IS APPROVED BY GOVERNMENT AND NECESSARY APPROVALS IS PLACED IN PAPER BOOK AT PAGE 89 TO 96. THE PERUSAL OF AUDITED STATEMENT WOULD INDICATE THA T NO PLANT & MACHINERY IN RESPECT OF OTHER UNDERTAKING OF THE AS SESSEE HAS BEEN USED FOR THE PURPOSE OF PRODUCTION AT 100% EOU. IN THE COURSE OF SEARCH NO INCRIMINATING EVIDENCE OR ANY OTHER MATER IAL WAS FOUND NOR HAS BEEN BROUGHT ON RECORD BY A.O. DURING ASSE SSMENT PROCEEDINGS TO DEMONSTRATE THAT EXISTING BUSINESS O F ASSESSEE HAS BEEN RECONSTRUCTED TO SET UP 100% EOU . WE ALSO FI ND THAT EXISTING BUSINESS OF ASSESSEE WHICH HAS BEEN TITLED AS NON-EOU UNIT HAS ALSO INCREASED SUBSTANTIALLY AS COMPARE T O EARLIER YEAR. SEPARATE BOOKS OF ACCOUNTS ARE MAINTAINED IN RESPEC T OF NON EOU ACTIVITIES AND AUDITED STATEMENT IN RESPECT OF SUCH TRANSACTION ARE PLACED IN PAPER BOOK AT PAGE 4 TO 27. THE PROFIT & LOSS ACCOUNT OF NON EOU ACTIVITY IN THE PAPER BOOK INDICATE THAT TU RNOVER OF ASSESSEE HAS REGISTERED INCREASE FROM 124.15 CRORES IN A.Y. 2004- 05 TO RS.275.36 CRORES IN A.Y. 2005-06. IT IS NOT THAT ANY OF THE EXISTING ACTIVITY HAS BEEN BIFURCATED TO CARRY ON S EPARATE BUSINESS. 100% EOU HAS BEEN SET UP BY OBTAINING LEASE OF MI NES FROM SHRI K.P. PODDAR AS IS EVIDENT FROM RECORD. IN THE CASE CIT VS GANGA SUGAR LTD. REPORTED AT 92 ITR 160 THE HONBLE DELHI HIGH COURT HAS HELD AS UNDER ITA.527,645,493 & CO.40/B/09 PAGE - 30 THE IMPORTANT QUESTION WHICH ARISES FOR DETERMINAT ION IS WHETHER THE INDUSTRIAL UNDERTAKING IN QUESTION WAS FORMED BY THE RECONSTRUCTION OF BUSINESS ALREADY IN EXISTE NCE. IN THE RECONSTRUCTION OF A BUSINESS, AS IN THE RECONSTRUCT ION OF A COMPANY, THERE IS AN ELEMENT OF TRANSFER OF ASSETS AND OR SOME CHANGE, HOWEVER PARTIAL OR RESTRICTED IT MAY B E, OF OWNERSHIP OF THE ASSETS. THE TRANSFER, HOWEVER, NE ED NOT BE OF ALL THE ASSETS. IT IS NONETHELESS IMPERATIVE TH AT THERE SHOULD BE CONTINUITY AND PRESERVATION OF THE OLD UN DERTAKING THOUGH IN AN ALTERED FORM. THE CONCEPT OF RECONSTR UCTION OF BUSINESS WOULD NOT BE ATTRACTED WHEN A COMPANY WHIC H IS ALREADY RUNNING ONE INDUSTRIAL UNIT SETS UP ANOTHER INDUSTRIAL UNIT. THE NEW INDUSTRIAL UNIT WOULD NO T LOSE ITS SEPARATE AND INDEPENDENT IDENTITY EVEN THOUGH IT HA S BEEN SET UP BY A COMPANY WHICH IS ALREADY RUNNING AN IN DUSTRIAL UNIT BEFORE THE SETTING UP OF THE NEW UNIT. THE OB JECT OF S. 15C IS TO PROVIDE AN INCENTIVE FOR THE SETTING UP O F NEW INDUSTRIES SO AS TO ACCELERATE THE PROCESS OF INDUSTRIALIZATION. IT DOES NOT APPEAR TO HAVE BEEN THE INTENTION OF THE LEGISLATURE, AS ENVISAGED BY S. 15 C, THAT THE BENEFIT OF THE SAID SECTION WOULD BE CONFINED TO TH E INDUSTRIAL UNDERTAKING OF THOSE PARTIES WHO HAD NOT ALREADY SE T UP SUCH UNDERTAKINGS IN THE PAST BUT WOULD NOT BE EXTENDED TO PARTIES WHO HAVE PAST EXPERIENCE OF RUNNING SIMILAR UNDERTA KINGS. THE AFORESAID DECISION OF HONBLE DELHI HIGH COURT HAS BEEN APPROVED BY HONBLE APEX COURT IN THE CASE OF TEXT ILE MACHINERY ITA.527,645,493 & CO.40/B/09 PAGE - 31 CORPORATION LTD. VS CIT REPORTED AT 107 ITR 195. T HE RATIO OF THE SAID DECISION SQUARELY APPLIES TO THE FACTS IN THE CASE OF ASSESSEE. 19.1 WE ARE OF THE OPINION THAT RATIO LAID DOWN BY FOLLOWING AUTHORITIES RELIED UPON BY COUNSEL REFERRED TO IN THE SUBMISSION OF ASSESSEE FULLY SUPPORTS THE CASE OF ASSESSEE (I) 1 29 CTR (SC) 265 IN THE CASE OF MUNICIPAL COMMISSIONER VS. CENTURY ENKA LTD. , (II) 2008 (TIDL) 302 HC DEL I T IN THE CASE OF C IT VS. MAHAAN FOODS LTD., (III) 108 ITR 367 (S.C.) IN THE CASE OF INDIAN ALUMINUM CO. LTD. VS. CIT , (IV) 137 ITR 851 ( DEL.) IN THE CASE OF CIT VS. HINDUSTAN GENERAL INDUSTRIES LTD. , (V) 92 ITR 160 (MAD.) IN THE CASE OF CIT VS. GANGA SUGAR CO RPORATION LTD., (VI) 125 ITR 361 (ALL.) IN THE CASE OF CIT VS. MODI SPINNING & MANUFACTURING MILLS CO. LTD. RESPECTFULLY FOLLO WING THE SAME WE HOLD THAT 100% EOU IS NOT FORMED BY SPLITTING UP OR RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. 19.2 CONSIDERING THE TOTALITY OF FACTS AND CIRCUMST ANCE AND EVIDENCES ON RECORD WE ARE OF THE OPINION THAT ASSE SSEE HAS SET UP 100% EOU UNIT WHICH IS A NEW UNIT OF THE COMPANY AN D THERE IS NO CASE FOR REVENUE TO HOLD THAT THERE IS SPLITTING UP OR RECONSTRUCTION OF BUSINESS. IN VIEW OF ABOVE DENIAL OF EXEMPTION U/S 10B OF I.T. ACT 1961 FOR THE ABOVE REASON BY A.O. IS HELD TO BE NOT JUSTIFIED. ITA.527,645,493 & CO.40/B/09 PAGE - 32 WE HOLD THAT ASSESSEE HAVING SET UP A NEW UNIT WHIC H IS 100% EOU THERE IS NO VIOLATION OF CONDITION AS PROVIDED U/S 10B(2)(II) OF I.T. ACT 1961. WE HOLD THAT CIT(A) HAS CORRECTL Y HELD THAT THERE IS NO SPLITTING UP OR RECONSTRUCTION OR ALREADY E XISTING BUSINESS. 20. AS REGARD TO COMPUTATION OF INCOME U/S 10B OF I .T. ACT 1961 A.O. HAS HELD THAT THE ASSESSEE HAS INFLATED PROFI TS IN RESPECT OF 100% EOU UNIT AND SUPPRESSED THE PROFIT IN NON EOU UNIT. A.O. HAS THEREFORE BIFURCATED THE INCOME BY AGGREGA TING THE PROFIT IN RESPECT OF TWO BUSINESS ACTIVITIES AND DIVIDED THE SAME ON THE BASIS OF TURNOVER OF THE RESPECTIVE UNIT. IN THE F ACTS AND EVIDENCE ON RECORD IT IS EVIDENT THAT ASSESSEE HAS MAINTAINE D SEPARATE BOOKS OF ACCOUNT IN RESPECT OF BOTH THE ACTIVITIES I.E. 1 00% EOU AND NON- EOU. THE BOOKS OF ACCOUNT OF EACH UNDERTAKING ARE AUDITED BY CHARTERED ACCOUNTANT AND NO ADVERSE OBSERVATION IS GIVEN BY THE AUDITORS OF THE COMPANY WITH REGARD TO PROFITABILIT Y OF EACH UNDERTAKINGS SEPARATELY. IT IS ALSO EVIDENT FROM A UDITED STATEMENT THAT MEL NON EOU HAS NOT SUPPLIED ANY GOODS OR SE RVICE TO MEL EOU UNDERTAKING. THE AFORESAID CONTENTION MADE BY COUNSEL OF ASSESSEE BEFORE US HAS NOT BEEN CONTROVERTED BY LEARNED D.R. BY PLACING ANY EVIDENCE ON RECORD. IN VIEW OF ABOVE OBSERVATIONS OF A.O. IN THE ASSESSMENT ORDER AT PARA 19 TO 21 ARE HELD TO BE ITA.527,645,493 & CO.40/B/09 PAGE - 33 FACTUALLY INCORRECT. WE ALSO FIND FROM PERUSAL OF THE ASSESSMENT ORDER THAT A.O. HAS NOT POINTED OUT ANY ONE ITEM OF GOODS OR SERVICES SUPPLIED FROM MEL NON EOU TO MEL EOU. IN VIEW OF ABOVE WE HOLD THAT PROVISIONS OF SECTION 10B(7) R.W .S. 80IA(8) ARE INAPPLICABLE. IN VIEW OF ABOVE WE DO NOT FIND ANY JUSTIFICATION FOR DETERMINATION OF PROFIT U/S 10B INDEPENDENT OF PROF IT & LOSS ACCOUNT AS SUBMITTED BY ASSESSEE. WE ALSO FIND THA T A.O. HAS NOT FOUND ANY DEFECT OR MISTAKE IN BOOKS OF ACCOUNT SO AS TO JUSTIFY INVOCATION OF SECTION 145 OF I.T. ACT 1961. IN FAC T A.O. HAS ACCEPTED THE BOOKS PROFIT AS SHOWN IN RESPECT OF EO U PROFIT & LOSS ACCOUNT AS WELL AS THAT OF NON EOU . A.O. HAS AGGREGATED THE PROFIT AND TURNOVER OF BOTH THE UNDERTAKINGS AN D REDETERMINED PROFIT ON THE BASIS OF TURNOVER. A.O. HAS NOT DISP UTED THE TURNOVER AS WELL AS THE NET PROFIT AS SHOWN BY ASSESSEE IN R ESPECTIVE UNDERTAKINGS. IN THE ABSENCE OF ANY DEFECT IN BOOK S OF ACCOUNT THERE WAS NO JUSTIFICATION FOR REDETERMINATION OF P ROFIT OF EOU UNDERTAKING IN THE RATIO OF TURNOVER BY AGGREGATING THE PROFIT SHOWN IN RESPECT OF TWO UNDERTAKINGS. WE ALSO FIND THAT CIT(A) HAS CONSIDERED SUBMISSIONS OF APPELLANT THAT ACTIVI TY IN NON-EOU IS LARGELY TRADING WHEREAS IN THE CASE OF 100% EOU IT IS MANUFACTURING AND PRODUCTION OF AN ARTICLE OR THING S. IT IS SETTLED PROPOSITION OF LAW THAT COMPARISON OF FINANCIAL RES ULT HAVE TO BE OF ITA.527,645,493 & CO.40/B/09 PAGE - 34 LIKE BUSINESS. IN THE FACTS OF THE PRESENT CASE WE ARE OF THE OPINION THAT ACTIVITY OF NON-EOU AND 100% EOU IS NOT ALIKE AND THEREFORE COMPARISON OF FINANCIAL RESULT IN TERMS OF PERCENTA GE AS MADE BY A.O. IS NOT JUSTIFIED. IT IS SEEN THAT PURCHASES I N NON EOU CONSTITUTES 24.18% OF TURNOVER AS AGAINST 7.07% IN EOU. IT IS FURTHER SEEN THAT MINING AND OTHER OPERATIVE EXPENS ES ARE 56.2% OF TURNOVER IN NON-EOU AND 59.61% OF TURNOVER IN EOU U NIT. WE FIND THAT MINING AND OTHER OPERATIVE EXPENSES IN 1 00% EOU ARE MORE THAN IN NON EOU UNIT OF THE ASSESSEE. THIS CL EARLY BELIES THE APPREHENSION OF A.O. THAT EXPENDITURE OF 100% EOU I S SUPPRESSED BY ASSESSEE IN ORDER TO AVAIL A LARGER CLAIM U/S 10 B OF I.T. ACT 1961. WE ALSO FIND THAT BIFURCATION OF TOTAL PROFI T BY A.O. IS AS PER BOOK PROFIT AND NOT AS PER COMPUTATION MADE UNDER P ROVISIONS OF ACT WHICH IS NOT JUSTIFIED. THE DECISION OF CO-ORD INATE BENCH OF ITAT, BANGALORE BENCH IN THE CASE OF DIGITAL EQUIPM ENTS LTD. VS CIT REPORTED AT 103 TTJ 329 FULLY SUPPORTS THE SUBM ISSION OF ASSESSEE. IN THE SAID CASE INCOME SHOWN IN SEPARAT E BOOKS OF ACCOUNT HAS BEEN ACCEPTED FOR GRANT OF DEDUCTION U/ S 10A. SIMILARLY ITAT NAGPUR BENCH NAGPUR IN THE CASE OF DCIT VS MANILAL DAYAJI JAIN IN ITA NO. 105/NAG/98 VIDE ORDE R DATED 12/09/2001 HAS HELD THAT THERE IS NO JUSTIFICATION FOR ALLOCATION OF HEAD OFFICE EXPENSES TO INCOME OF NEW INDUSTRIAL UN DERTAKING FOR ITA.527,645,493 & CO.40/B/09 PAGE - 35 THE PURPOSE OF GRANT OF DEDUCTION U/S 80HH & 80IA O F I.T. ACT 1961. THE RATIO AS LAID DOWN BY THE SAID DECISION SQUARELY APPLIES TO THE FACTS IN THE CASE OF ASSESSEE. A.O. HAS NOT RECORDED ANY FINDING THAT ANY SPECIFIC ITEM OF EXPENDITURE RELAT ING 100% EOU IS RECORDED IN BOOKS IS OF NON EOU. A.O. HAS HOWEVER OBSERVED THAT CERTAIN EXPENSES DEBITED IN MEL (NON EOU) ARE DISPROPORTIONATE AS COMPARED TO EXPENSES SHOWN IN 1 00% EOU BOOKS OF ACCOUNT. THE AFORESAID OBSERVATION OF A.O . WAS EXPLAINED IN DETAILS BEFORE CIT(A) WHICH HAS BEEN R EPRODUCED IN APPELLATE ORDER OF CIT(A) AT PAGE 14 15 OF THE OR DER. THE DETAILED REASONING GIVEN BEFORE CIT(A) AND SUBMISSI ONS MADE BEFORE US AND RECORDED IN THIS ORDER HEREINABOVE CL EARLY EXPLAINS THE REASONS OF INCURRING OF EXPENDITURE DEBITED IN RESPECTIVE ACTIVITIES OF NON EOU AND EOU UNDERTAKINGS. THE EX PLANATION GIVEN BY ASSESSEE WITH REGARD TO EACH EXPENDITURE H EREINABOVE IS FAIR AND REASONABLE. WE ARE OF THE OPINION THAT TH ERE IS NO JUSTIFICATION FOR DISTURBING THE BOOK PROFIT AS SHO WN IN AUDITED STATEMENT. THE BUSINESS OF 100% EOU IS THAT OF PRO DUCTION OF IRON ORE. THE AFORESAID ACTIVITY COMPRISE OF EXTRACTION OF EARTH FROM MINE WHICH AFTER SCREENING AND OTHER PROCESS IS CON VERTED IN IRON ORE AT PRODUCTION PLANT OF 100% EOU. THE ACTIVIT Y OF PRODUCTION OF IRON ORE IS CONDUCTED AT PRODUCTION PLANT. PRIO R TO THE ACTIVITY IN ITA.527,645,493 & CO.40/B/09 PAGE - 36 PRODUCTION PLANT THE ASSESSEE MERELY EXCAVATE EARTH FROM MINE FIELD CONTAINING IRON DEPOSIT. THE EXCAVATION OF E ARTH TO BE BROUGHT IN PRODUCTION PLANT CAN NOT BE CONSIDERED AS SEPARA TE BUSINESS ACTIVITY. IN VIEW OF ABOVE VARIOUS OBSERVATION OF A.O. THAT ACTIVITY BEFORE PRODUCTION PLANT IS A SEPARATE BUSI NESS IS NOT ACCEPTABLE AND IS UNJUSTIFIED. MINES FROM WHICH EA RTH CONTAINING IRON DEPOSIT IS EXCAVATED IS TAKEN ON LEASE BY 100% EOU UNIT AS IS EVIDENT FROM RECORD. IN VIEW OF ABOVE WE FIND NO I NFIRMITY IN CLAIM OF DEDUCTION U/S 10B AS MADE BY ASSESSEE IN H IS RETURN OF INCOME WHICH IS DULY CERTIFIED BY CHARTERED ACCOUNT ANT IN HIS STATUTORY REPORT AS PROVIDED UNDER PROVISIONS OF A CT. CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES IN THE CAS E OF ASSESSEE VARIOUS OBSERVATION MADE BY A.O. AT PARA 10 TO 21 O F THE ASSESSMENT ORDER ARE HELD TO BE NOT JUSTIFIED. WE THEREFORE HOLD THAT THERE IS NO MERIT IN SUBMISSION OF REVENUE WIT H REGARD TO BIFURCATION OF PROFIT IN BETWEEN 100% EOU AND NON-E OU UNDERTAKING OF THE ASSESSEE. CONSIDERING THE TOTAL ITY OF FACTS AND CIRCUMSTANCES AND EVIDENCE ON RECORD WE ARE OF THE OPINION THAT CLAIM OF ASSESSEE U/S 10B AS MADE IN RETURN OF INCO ME STAND FULLY SUBSTANTIATED AND WE DO NOT FIND ANY MISTAKE IN THE SAME. CIT(A) HAS CORRECTLY GRANTED RELIEF AS PRAYED IN APPEAL BE FORE HIM AND WE DO NOT FIND ANY REASON TO INTERFERE IN THE RELIEF P ROVIDED BY CIT(A) ITA.527,645,493 & CO.40/B/09 PAGE - 37 IN HIS ORDER. WE DO NOT FIND ANY JUSTIFICATION OR MERIT IN GROUND OF APPEAL OF REVENUE. IN VIEW OF ABOVE GROUND OF APPE AL OF REVENUE ARE DISMISSED. 21. IN GROUND NO. 9 OF APPEAL OF REVENUE THE ADDITI ON DELETED ON ACCOUNT OF CLOSING STOCK IS UNDER CHALLENGE. CIT(A ) IN HIS APPELLATE ORDER HAS GRANTED PARTIAL RELIEF IN RESPE CT OF ADDITION MADE BY A.O. ON ACCOUNT OF CLOSING STOCK. THE ASSESSEE HAS CONTESTED THE ADDITION SUSTAINED BY CIT(A) IN GROUND 1(C) OF APPEAL NO.527/BANG/2009. THE DISPUTED ISSUE IS SAME AND S UBMISSION OF THE COUNSEL OF ASSESSEE AND REVENUE WERE IDENTICAL TO THAT IN GROUND 1(C) OF ITA NO.527/BANG/2009 REFERRED TO HEREINABOV E. WE HAVE DISCUSSED IN DETAILS AND HELD THAT THERE WAS NO CAS E OF ANY ADDITION TO BE MADE AT THE HANDS OF ASSESSEE IN RESPECT OF V ALUATION OF CLOSING STOCK AS ON 31/03/2005 FOR THE DETAILED REA SONS INDICATED AT PARA 9 OF THIS ORDER. WE DO NOT FIND MERIT IN GROU ND OF REVENUE AND SAME IS ACCORDINGLY REJECTED. THE GROUND OF APPEAL OF REVENUE IS DISMISSED. ITA NO.493/BANG/2009 - ASSTT. YEAR : 2006-07 22. GROUND NO.1 TO 8 OF THE APPEAL OF REVENUE ARE IDENTICAL TO THAT RAISED BY REVENUE IN ASSTT. YEAR 2005-06 IN IT A ITA.527,645,493 & CO.40/B/09 PAGE - 38 NO.645/BANG/2009. THE COUNSEL OF THE ASSESSEE AND REVENUE HAVE ADOPTED ARGUMENTS AS MADE BY THEM FOR APPEAL OF REV ENUE FOR ASSTT. YEAR 2005-06 IN ITA NO.645/BANG2009. THE FA CTS AND CIRCUMSTANCES IN THE CASE OF ASSESSEE IN ASSTT. YEA R 2006-07 ARE IDENTICAL TO THAT IN ASSTT. YEAR 2005-06. THE REAS ONS OF A.O. FOR MAKING DISALLOWANCE OF DEDUCTION U/S 10B AND DELETI ON BY CIT(A) ARE ALSO IDENTICAL. FOR THE DETAILED REASONS INDIC ATED IN OUR ORDER ON GROUND NO.1 TO 8 OF APPEAL OF REVENUE IN ASSTT. YEAR 2005-06 IN ITA NO.645/BAG/2009 WE ARE OF THE OPINION THAT THERE IS NO REASON TO INTERFERE WITH THE FINDINGS RECORDED BY C IT(A). CIT (A) HAS CORRECTLY DIRECTED TO GRANT DEDUCTION U/S 10B A S CLAIMED IN THE RETURN. CONSIDERING THE TOTALITY OF FACTS AND CIRC UMSTANCES IN THE CASE OF ASSESSEE WE FIND NO MERIT IN THE GROUNDS O F APPEAL OF REVENUE. 23. THE GROUNDS OF APPEAL OF REVENUE IS DISMISSED. C.O.40/BANG/2009 - BY THE ASSESSEE - ASSESSMENT YEA R.2006-07: 24. SIMILARLY GROUNDS RAISED IN CROSS OBJECTION ARE IDENTICAL TO GROUND NO.2 RAISED IN APPEAL OF ASSESSEE FOR ASSTT. YEAR 2005-06 IN ITA NO.527/BANG/2009. FOR THE DETAILED REASONS GIV EN AT PARA.13 THERE IS NO MERIT IN THE GROUNDS OF CROSS OBJECTION OF ASSESSEE AND SAME ARE DISMISSED. ITA.527,645,493 & CO.40/B/09 PAGE - 39 25. IN THE RESULT, ASSESSEE'S APPEAL IN ITA.527/B/0 9 IS PARTLY ALLOWED, REVENUE'S APPEALS IN ITA.493 AND 645/B/09 ARE DISMISSED AND THE CROSS OBJECTION BY THE ASSESSEE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON 9.10.2009. SD/- SD/- (K. K. GUPTA) (K. P. T. THANGAL) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED : 9TH OCTOBER, 2009 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, NEW DELHI 7. GF, ITAT, BANGALORE