M/s Shivam Industries, Solan V. ITO, Parwanoo

ITA 616/CHANDI/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86126 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 01-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAKESH GUPTA
• Assessee Lawyers: MANJIT SINGH
• Keywords: Business income; Depreciation; Transfer pricing; Rule of consistency; Avoidance of tax
• Section: 80C; 143(3); 92F; 10AA; 80HHC; 80G; 10B; 32; 28; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 510/CHD/2012 ASSESSMENT YEAR: 2008-09 THE ITO, VS. M/S SHIVAM INDUSTRIES WARD PARWANOO, SECTOR-2 PARWANOO PARWANOO PAN NO.ABBFS1448Q & ITA NO. 616/CHD/2012 ASSESSMENT YEAR: 2008-09 M/S SHIVAM INDUSTRIES VS. THE ITO PARWANOO PARWANOO PAN NO. ABBFS1448 (APPELLANT) (RESPONDENT) APPELLANT BY : SH. MANJIT SINGH RESPONDENT BY : SH. RAKESH GUPTA & SH. MANOJ KUMA R DATE OF HEARING : 08/01/2015 DATE OF PRONOUNCEMENT : 13/01/2015 ORDER PER T.R.SOOD, A.M. THE APPEALS FILED BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDER DATED 23.2.2012 OF CIT(A), SHIMLA. 2. IN ITA NO. 616/CHD/2012 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) IS WRONG IN CONFIRMING THE ADDITI ON TO EXTENT OF RS. 13,92,931/- TO TAXABLE PROFITS MADE B Y LD. ASSESSING OFFICER BY ARBITRARILY APPLYING THE PROVI SIONS OF SECTION 80IA(10) OF INCOME TAX ACT, 1961 AND DISALL OWING THE DEDUCTION U/S 80IC BY IGNORING THE FACT THAT TH E ASSESSEE 2 FIRM HAS NOT EARNED ANY EXTRA PROFITS BY MAKING TRA NSACTIONS WITH THE SISTER CONCERN. 2. THE LD.CIT(A) IS WRONG IN CONFIRMING THE DISALLO WANCE OF DEDUCTION U/S 80IC TO THE EXTENT OF RS. 581518/- ON ACCOUNT OF ROYALTY, BY ARBITRARILY APPLYING THE PRO VISIONS OF SECTION 80IA(10) OF INCOME TAX ACT, 1961. 3. THE LD. CIT(A) IS WRONG IN CONFIRMING ADDITION O F RS. 1,80,000/- ON ACCOUNT OF NON DEBITING OF THE PARTNE RS REMUNERATION PROVIDED IN THE PARTNERSHIP DEED IN TH E PROFIT & LOSS ACCOUNT BY IGNORING THE FACT THAT THE DEBITI NG OF SUCH REMUNERATION WILL ONLY RESULT INTO REDUCTION OF MANUFACTURING PROFITS AND NO TAXABILITY WILL ARISE. 3. IN ITA NO. 510/CHD/2012, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES THE CIT(A ) HAS ERRED IN ALLOWING FULL DEDUCTION U/S 80IC OF THE AC T TO THE ASSESSEE AS AGAINST A LESSER DEDUCTION ALLOWED BY T HE A.O. BY INVOKING THE PROVISIONS OF SECTION 80IA(10). 2. THE CIT(A) HAS ERRED IN DELETING THE ADDITION MA DE BY THE A.O. ON ACCOUNT OF ROYALTY FOR USING THE NAME O F ADVANTA BY APPLYING THE PROVISIONS OF SECTION 80I A(10) OF THE ACT. 3. THE CIT(A) HAS ERRED IN DELETING THE ADDITION MA DE BY THE A.O. ON A/C OF ROYALTY TO SISTER CONCERN M/S SH IVAM INDUSTRIES, DELHI . 4. FIRST WE SHALL TAKE UP GROUND NOS.1 RAISED IN BOTH THE AP PEALS BY REVENUE AS WELL AS ASSESSEE. 5. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING GAS STOVES 3 WHICH WERE SOLD TO THE LPG DEALERS OF INDIAN OIL CO RPORATION (IOC) AND BPCL. THE ASSESSEE HAS SHOWN GP @ 39% ON TURN OVER OF RS . 37,27,69,178/- AND THE NET PROFIT SHOWN WAS 22.06%. DURING ASSESSMENT PROC EEDINGS, IT WAS NOTICED THAT ASSESSEE HAS CONDUCTED SUBSTANTIAL TRANSACTION S WITH HIS SISTER CONCERN. THE GIST OF TRANSACTIONS GIVEN BY THE ASSESSING OFFICER IN PARA 4 READS AS UNDER:- SL.NO. NAME OF THE ASSESSEE AND NATURE OF TRADE WITH ASSESSEE TURNOVER GROSS PROFIT/PERCENTAGE TRANSACTION WITH THE ASSESSEE ALONGWITH %AGE THEREOF FREIGHT OUT BORNE BY THESE CONCERNS 1 KARAN MALHOTRA, PROPRIETOR. M/S. MALHOTRA PLASTIC PRODUCTS, 50/52, WEST PUNJABI BAGH, DELHI PURCHASE OF GAS STOVE BODIES BY ASSESSEE. 14963298 1275639 / 8.53% 12616728 / 84.31% 352979 2 VARUN MALHOTRA, PROP. M/S. VARUN STEELS, 50/52, WEST PUNJABI BAGH, DELHI 14970077 895720 / 5.98% 13385568 / 89.41% 363894 3 SHIVAM STEELS & ALLOYS, H-41, UDYOG NAGAR, DELHI PURCHASE OF GAS STOVE BODIES BY ASSESSEE. 14919508 680563 / 4.56% 10157626 / 68% 402720 4 PANKAJ BRASSCO PVT. LTD.K-91, UDYOG NAGAR, DELHI PURCHASE OF GAS STOVE BODIES BY ASSESSEE. 14966294 992592/ 6.63% 12017242 / 80.29% 358907 TOTAL 59819177 48177164 1478500 6. IT WAS FURTHER NOTICED THAT ASSESSEE HAD MADE PU RCHASES OF RS. 4.81 CORES OUT OF THE TOTAL PURCHASE OF RS. 22.70 CRORES AND T HEREFORE, PURCHASES FROM SISTER CONCERN CONSTITUTED 22.2% OF THE TOTAL PURCHASES. FURTHER IN THE CASE OF SISTER CONCERN SALES MADE TO THE ASSESSEE WAS OF 80.53%. IT WAS ALSO NOTICED THAT GP SHOWN BY SISTER CONCERN WAS BETWEEN 4.5% TO 8.6% GI VING AN AVERAGE OF 6.4% 4 WHEREAS ASSESSEE HAD DISCLOSED GP RATE OF 39%. IT WAS FURTHER SEEN THAT ASSESSEE HAS PURCHASED GAS STOVE BODY (MINI / POLIS H) AT THE RATE OF RS. 95/- PER PIECE WHEREAS M/S TRIPUTI FOOD AND BEVERAGES, PARWA NNO WHICH WAS ALSO SELLING THE GAS STOVES TO THE SAME TO OIL COMPANIES @ 140/- PER PIECE. THEREFORE, IT WAS CONCLUDED THAT ASSESSEE WAS PURCH ASING GAS STOVE BODIES AT MUCH BELOW THE MARKET PRICE AND THE SISTER CONCERN HAD ALSO BORNE THE EXPENSES OF FREIGHT. THUS, ASSESSEE THROUGH THIS COLLUSIVE TRANSACTIONS HAS INCREASED PROFITS TO TAKE BENEFIT OF DEDUCTION. THE ASSESSEE WAS ISSUED A SHOW CAUSE NOTICE THAT WHY PROVISIONS OF SECTION 80IA (10) REA D WITH SECTION 80IC(7) SHOULD NOT BE INVOKED AND PROFITS RECOMPUTED ACCORD INGLY. IN RESPONSE, IT WAS MAINLY SUBMITTED THAT ONE OF THE SISTER CONCERN M/S MALHOTRA PLASTIC PRODUCTS IS IN EXISTENCE SINCE 1984 AND WAS HAVING SAME GP RATE SINCE LONG AND THERE WAS NO EFFORT OR EVIDENCE THAT PROFITS OF M/S MALHOTRA PLASTIC PRODUCTS WAS PASSED ON TO THE ASSESSEE. IT WAS FURTHER POINTED OUT THA T AVERAGE RATE OF GAS STOVE BODIES IS RS. 108/- AS AGAINST RS. 95/- STATED IN T HE SHOW CAUSE NOTICE. THE ASSESSEE ALSO REQUESTED ASSESSING OFFICER TO PROVID E DETAILS OF PROFITS OF M/S TRIPUTI FOOD AND BEVERAGES AND ALSO THE SPECIFICAT IONS OF THE GAS STOVE BODIES. IT WAS POINTED OUT THAT GAS STOVE BODY ITSELF IS AN INPUT AND CONSTITUTE ABOUT 15% OF THE TOTAL VALUE OF THE PRODUCT. IN THIS BACK GROUND IT WAS STATED THAT PROFIT COULD NOT BE COMPARED FOR THE WHOLE EQUIPME NT. IT WAS ALSO POINTED OUT THAT ASSESSEE WAS SELLING COMPLETE APPLIANCE WITH B .I.S QUALITY CERTIFICATION WHICH GENERALLY HAVE BETTER PROFIT. THE ASSESSEE WA S INFORMED REGARDING THE DETAILS OF M/S TRIPUTI FOOD AND BEVERAGES, WHICH IS AS UNDER:- I) THE GP OF M/S. TIRUPATI FOOD & BEVERAGES, PARWAN OO FOR THE YEAR UNDER CONSIDERATION IS 26.35% AS AGAINST G P OF 39% DECLARED BY YOU. IT WILL NOT BE OUT OF PLACE TO MEN TION HERE THAT M/S. DELTON INDUSTRIES, PARWANOO AND M/S. JAIN INDUSTRIAL CORPORATION, PARWANOO, WHICH ARE IN THE SAME LINE OF BUSINESS ARE DISCLOSING GP RATE OF 29.9% AND 27. 1%. 5 II) AS REGARDS M/S. SHIVAM ENTERPRISES, SISTER CONC ERN OF M/S. TIRUPATI FOOD & BEVERAGES, PARWANOO, THE COMPARISON OF THE GP RATE OF THIS CONCERN WITH THAT OF YOUR SISTER CO NCERNS IS NOT PRAGMATIC AS IT IS GETTING THE ENTIRE JOB WORK DONE INCLUDING FABRICATION FROM OUTSIDE PARTIES WHEREAS YOUR SISTER CONCERNS ARE MANUFACTURING THE ENTIRE GAS STOVE BOD IES THEMSELVES. IT WILL SUFFICE TO INFORM YOU THAT DESP ITE HAVING JOB WORK DONE FROM OUTSIDE PARTIES AND KEEPING IN M IND THAT THESE PARTIES WOULD ALSO HAVE EARNED PROFIT IN THE RANGE OF 8 TO 10% THEREFORE, M/S. SHIVAM ENTERPRISES HAS SHOWN A GP OF 9.29%. III) AS REGARDS SPECIFICATION OF MATERIAL USED IN G AS STOVE BODIES, NEITHER YOUR PURCHASE BILLS NOR THE PURCHAS E BILLS OF ANY OTHER CONCERN SPECIFIES THE SPECIFICATION OF MA TERIAL USED. THE FACT REMAINS THAT WHEN THE SUPPLIES ARE MADE TH ROUGH I.O.C, B.P.C.L OR HPCL, THE QUALITY SPECIFICATION H AVE TO BE ADHERED TO BY THE SUPPLIERS WHICH ARE NORMALLY ALSO CHECKED BY THESE COMPANIES. SO THE QUESTION OF THEIR PRODUC T BEEN OF DIFFERENT QUALITY THAN YOURS DOES NOT ARISE. PARA 3.2 TO 3.9 OF CIT(A) 7. IN RESPONSE IT WAS POINTED OUT THAT THERE WERE VARIOUS FACTORS RESULTING IN THE VARIATION OF GP RATIO LIKE PURCHASE PRICE, SAL E PRICE, MANUFACTURING COST, TRADING COST, SPECIFICATION OF PRODUCT, QUALITY OF THE PRODUCT. FURTHER DETAILS WERE SOUGHT IN THE CASE OF M/S TRIPUTI FOOD AND BEV ERAGES SUCH AS THE PURCHASE / SALE BILLS, MATERIAL SPECIFICATION, SIZE OF THE B ODY, WEIGHT OF THE COMPONENT ETC. THEREAFTE,R ASSESSING OFFICER NOTICED THE VARI OUS SPECIFICATIONS ETC. AND ULTIMATELY ALLOCATED 50% OF THE PROFITS IN RELATION TO THE PURCHASES MADE FORM SISTER CONCERN BY THE ASSESSEE AND DENIED DEDUCTIO N U/S 80IC TO THAT EXTENT AMOUNTING TO RS. 1,38,68,609/-. 8. ON APPEAL BEFORE LD. CIT(A), IT WAS MAINLY SUBMI TTED THAT FACTS OF THE CASE ARE SIMILAR TO THE IMMEDIATE PRECEDING ASSESSM ENT YEAR WHEREIN ASSESSMENT WAS FRAMED US/ 143(3) AND GP RATE OF 41.5% AS COMPA RED TO 39% WAS ACCEPTED. 6 IT WAS ALSO SUBMITTED THAT DESPITE THE FACT THAT CO ST OF GAS STOVE BODY CONSISTED ONLY 15% OF THE TOTAL APPLIANCE, THE ASSESSING OFFI CER HAD ALLOCATED 50% PROFITS. SUCH ALLOCATION HAD RESULTED IN UNUSUAL AB NORMAL PROFITS IN THE HANDS OF SISTER CONCERN. 9. THE LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS F OUND MERIT IN THE SAME AND RESTRICTED THE ALLOCATION OF RS. 13,92,321/-. THE REVENUE CHALLENGED THIS REDUCTION AND ASSESSEE HAS CHALLENGED THROUGH GROUN D NO.1 FOR PARTIAL CONFIRMATION OF THE ALLOCATION. 10. BEFORE US LD. DR CARRIED US THROUGH THE ASSESSM ENT ORDER AND SUBMITTED THAT ASSESSEE WAS SHOWING MUCH LOWER PROFIT IN THE SISTER CONCERN ON PURCHASES MADE FROM THEM WHICH WAS NOT FAIR AND, THEREFORE, A SSESSING OFFICER IS JUSTIFIED TO REDUCE THE PART OF PROFIT RELATABLE TO THE SIST ER CONCERN ON WHICH DEDUCTION U/S 80IC WAS RIGHTLY DENIED. 11. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT IN THE EARLIER YEARS REVENUE HAS ACCEPTED THE SAME RESULTS . IN FACT, GP WAS HIGHER AT 42.57% AND THE SAME WAS ACCEPTED U/S 143(3) AND FUR THER ALLOCATION MADE BY ASSESSING OFFICER WOULD RESULT IN UNUSUAL ABNORMAL PROFITS IN THE HANDS OF SISTER CONCERN. HE ALSO SUBMITTED THAT THERE IS NO JUSTIF ICATION IN PART ALLOCATION MADE BY LD. CIT(A). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT ISSUE WAS ADJUDICATED BY LD. CIT(A) VIDE PARAS 3.2 TO 3.9 WHICH ARE AS UNDER:- 3.2 IT WAS SUBMITTED THAT THE APPELLANT IS MAINTAIN ING THE COMPLETE BOOKS OF ACCOUNT ALONG WITH THE SUPPORTING DOCUMENTS. THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES O F THE CASE AS COMPARED TO THE IMMEDIATELY PRECEDING ASSESSMENT YE AR WHICH WAS ALSO ASSESSED U/S 143(3) WITHOUT ANY SUCH ADDITION. THE G.P. FOR IMMEDIATELY PRECEDING ASSESSMENT YEAR WAS HIGHER AT 41.57% AS COMPARED TO 39% OF THE YEAR UNDER CONSIDERATION. IT WAS ARGUED THAT THE PROVISIONS OF SECTION 92 TO 92 F HAVE BEEN APPLIED WITHOUT 7 ANY JURISDICTION AS THE INTENTION OF THE SAID PROVI SIONS IS TO CURTAIL AVOIDANCE OF TAXES BY SHIFTING OF PROFITS OUTSIDE I NDIA. RELIANCE WAS PLACED ON THE CASE OF PHILIPS SOFTWARE CENTRE (P) L TD. VS ACIT (2008) 15 DTR 505 (BANG)(TRIB.) AND CIRCULAR NO. 14 OF 2001 OF CBDT. IT WAS FURTHER ARGUED THAT THE LD. A.O. DESPI TE ACCEPTING THAT THE GAS STOVE BODIES CONSISTED OF APPROX. 15% ONLY OF THE SALE PRICE OF THE APPLIANCE, ARBITRARILY APPLIED THE RATE OF 5 0% WITHOUT THERE BEING ANY RELEVANT MATERIAL TO SUGGEST THE SAME. TH E APPELLANT ALSO AGITATED THE APPLICATION OF RULE 10 B(1)(D) WITHOUT THERE BEING ANY BASIS FOR THE SAME. IT WAS HIGHLIGHTED THAT THE MET HOD ADOPTED BY THE LD. A.O. HAD RESULTED IN AN ABNORMAL FIGURE OF PROFIT AT 35.18% FOR THE SISTER CONCERNS WHICH IS NOT AT ALL POSSIBL E IN THE GIVEN TRADE. THE LD. A.O. HERSELF HAS QUOTED THE G.P. RAT E OF 9.29% OF AN INDEPENDENT UNDERTAKING IN SIMILAR TRADE WHICH IS V ERY MUCH LOWER THAN 35.18%. THE APPELLANT ALSO SUBMITTED THE TRADI NG ACCOUNT OF ONE M/S SWASTIK INDUSTRIES, DELHI WHICH IS IN THE S AME TRADE AND HA DECLARED G.P. RATE OF 7.88%. IT WAS ARGUED THAT THE LD. A.O. HAS CALCULATED AND DIVIDED THE COMBINED GROSS PROFITS B ETWEEN THE APPELLANT AND ITS SISTER CONCERNS ARBITRARILY AND W ITHOUT COMMENTING ON THE HUGE MARKETING EXPENDITURE OF RS. 5,49,54,33 5/- AS WELL AS EXPENDITURE INCURRED BY THE APPELLANT ON SALES PROM OTION AND ADMINISTRATIVE HEADS. THE LD. A.O. ALSO COMPLETELY IGNORED THE FACT THAT THE APPELLANTS G.P. RATE IS HIGH DUE TO HIGHE R SALES PRICE BECAUSE OF HUGE MARKETING EXPENDITURE IN THE SHAPE OF COMMISSION, REBATE, ADVERTISEMENT AND ROYALTY. IT WAS VEHEMENTL Y ARGUED THAT ON THE ONE HAND THE LD. A.O. REFUSED TO PROVIDE THE RE QUISITE DOCUMENTS OF THE COMPARABLE CASE USED BY THE A.O. BY STATING THAT THE SAID DOCUMENTS WERE NOT BEING USED AS AN EVIDENCE AGAINS T THE APPELLANT, AND ON THE OTHER HAND MADE ADDITION ON THE BASIS OF CONJECTURES AND SURMISES CITING THE SAME CASE AS A BENCH MARK. APPELLATE FINDINGS 3.3 THE RIVAL SUBMISSION HAVE BEEN CAREFULLY CONSID ERED WITH REFERENCE TO THE FACTS OF THE CASE AND THE CASE LAW S RELIED UPON. IT IS NOTED THAT THE G.P. AND N.P. RATES RETURNED BY THE APPELLANT IN THE YEAR UNDER CONSIDERATION ARE LOWER THAN THOSE RETUR NED IN THE IMMEDIATELY PRECEDING YEAR WHICH WAS ALSO ASSESSED U/S 143(3) OF THE ACT. IT IS ALSO NOTED THAT THE LD. A.O. HAS ACC EPTED THAT THERE IS NO CHANGE IN THE NATURE AND PLACE OF BUSINESS OF TH E APPELLANT AS COMPARED TO THE EARLIER YEAR AND, THEREFORE, IT IS ELIGIBLE FOR DEDUCTION U/S 80-IC OF THE ACT. HOWEVER, THE LD. A. O. WAS NOT SATISFIED WITH THE RATES AT WHICH THE PURCHASES OF GAS STOVE BODIES WERE MADE BY THE APPELLANT FROM ITS FOUR SISTER CON CERNS. THE LD.A.O. HAS RECORDED THAT THE GROSS PROFIT OF THE S AID SISTER CONCERNS AVERAGES TO ABOUT 6.4% AS COMPARED TO 9.29 % G.P. SHOWN BY ONE M/S. SHIVAM ENTERPRISES, A SISTER CONCERN OF ONE M/S. TIRUPATI FOOD AND BEVERAGES, PARWANOO ENGAGED IN TH E SAME KIND OF BUSINESS. THE LD. A.O. ALSO NOTED THAT THE G.P. OF M/S. TIRUPATI FOOD & BEVERAGES WAS 26.35% AS AGAINST G.P. OF 39% DECLARED BY THE APPELLANT. THE LD. A.O. ALSO QUOTED THE EXAMPLE S OF M/S. DELTAN INDUSTRIES, PARWANOO AND M/S. JAIN INDUSTRIAL CORPO RATION, PARWANOO WHICH HAD DISCLOSED G.P. RATE OF 29.9% AND 27.1% RESPECTIVELY IN THE SAME LINE OF BUSINESS. IT WAS S UBMITTED BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDIN GS THAT THERE WERE MANY FACTORS RESULTING IN THE VARIATION OF G.P . , E.G. PURCHASE PRICE, SALE PRICE, MANUFACTURING COST, TRADING COST , SPECIFICATION OF PRODUCTS, QUALITY OF PRODUCT AND STANDARD OF MATERI AL ETC AND 8 ACCORDINGLY IT REQUESTED TO BE PROVIDED WITH ALL TH ESE DETAILS AND COPIES OF THE BALANCE SHEET, TRADING & P.L. A/C OF M/S. TIRUPATI FOOD AND BEVERAGES, M/S. SHIVAM ENTERPRISES, M/S. D ELTAN INDUSTRIES AND JAIN INDUSTRIAL CORPORATION. THE APP ELLANT ALSO EXPLAINED TO THE LD. A.O. THAT THE IOC HAD NOT SPEC IFIED ANY DESIGN AND WEIGHT AND THAT THE VENDORS WERE HAVING THEIR O WN STANDARD AND WERE MARKETING THEIR PRODUCT ON VARIOUS PRICES. THE REFORE, IT WAS NECESSARY TO ESTABLISH FOR THE LD. A.O. THAT THE AP PLES WERE BEING COMPARED WITH APPLES ONLY. IN RESPONSE TO THIS REQU EST OF THE APPELLANT THE LD. A.O. VIDE LETTER DATED 24/12/2010 INFORMED THE APPELLANT THAT THE G.P. & THE N.P. RATE OF THE GIVE N FOUR CONCERNS WERE NOT BEING USED AGAINST THE APPELLANT, BUT THEY SIMPLY SHOWED THAT THE APPELLANTS PROFITS WERE FAR HIGHER THATN THE PROFIT THAT COULD BE ARRIVED AT IN THE NORMAL COURSE OF BUSINES S. ON THIS PRETEXT, THE LD. A.O. REFUSED TO SUPPLY THE DOCUMEN TS DESIRED BY THE APPELLANT. THUS IT IS NOTED THAT THE A.O. REFUSED T O PROVIDE THE REQUISITE INFORMATION AND DOCUMENTS TO THE APPELLAN T FIRM SO AS TO ENABLE IT TO STUDY THE NATURE OF PRODUCT AND THE BO OK RESULTS OF M/S SHIVAM ENTERPRISES AND OF M/S TIRUPATI FOOD & BEV. PARWANOO. THE PLEA TAKEN BY THE LD. A.O. WAS THAT THE SAID RESULT S WERE NOT BEING USED AS EVIDENCE AGAINST THE APPELLANT FIRM. SINCE THE VERY SAID BOOK RESULTS OF THE GIVEN FIRM HAVE ULTIMATELY BEEN MADE THE CRITERION TO CONCLUDE THAT THE GROSS PROFIT RETURNE D BY THE SISTER CONCERNS OF THE APPELLANT FIRM WAS LESS, THE LD. A. O. SHOULD HAVE PROVIDED THE REQUISITE DOCUMENTS TO THE APPELLANT. 3.4 THE LD. A.O. ALSO ADMITTED THAT THERE MAY BE SO ME DIFFERENCE IN THE DESIGN AND DIMENSIONS OF THE FINAL PRODUCTS. THE LD. A.O. HAS FURTHER OBSERVED THAT ALL THE COMPLEX PROCESSES ARE MANAGED BY THE SISTER CONCERNS OF THE APPELLANT LOCATED AT DELHI A ND THAT THE APPELLANT WAS MERELY ENGAGED IN THE ASSEMBLING AND TESTING WORK AND, THEREFORE, COULD NOT HAVE EARNED GROSS MARGIN OF 39%. HOWEVER, THIS OBSERVATION OF THE LD. A.O STANDS IN CONTRADICTION TO THE FINDINGS EARLIER GIVEN THAT THE APPELLANT WAS E LIGIBLE FOR DEDUCTION U/S 80-IC AND THAT THE GAS STOVE BODIES P URCHASED FROM SISTER CONCERNS CONSTITUTED ONLY 15% OF THE COMPLET E APPLIANCE AND THE REMAINING 85% PERTAINED TO OTHER INPUTS, RAW MA TERIAL, EXPENSES ETC. THEREFORE, IT IS NOT JUSTIFIED ON THE PART OF THE LD. A.O. TO CONSIDER THE BODY COMPONENT ALONE AS THE MAJOR MANU FACTURING PROCESS. IT IS ALSO NOTED THAT THE APPELLANT HAS SH OWN THE PURCHASES FROM THE SISTER CONCERNS AT RATES RANGING FROM RS. 81/- TO RS. 125/-, AND THE LD. A.O. HAS NOT RESPONDED TO ITS PLEA THAT THE PRICES DEPEND UPON THE QUALITY AND SPECIFICATION OF THE MATERIAL. THE LD. A.O. HAS ALSO NOT SATISFACTORILY ADDRESSED THE FACT HIGHLIGH TED BY THE APPELLANT THAT ONE OF ITS SISTER CONCERNS, NAMELY M /S MALHOTRA PLASTIC PRODUCT WAS IN EXISTENCE SINCE 1984 AND WAS SHOWING ALMOST THE SAME G.P. IN EARLIER YEARS. THUS THE LD. A.O. H AS FAILED TO MAKE OUT A CASE THAT THERE WAS A DRASTIC FALL IN THE PRO FITS OF M/S MALHOTRA PLASTIC PRODUCTS BECAUSE OF SALES ON REDUC ED PRICES TO THE APPELLANT. 3.5 IT IS FURTHER NOTED THAT THE APPELLANT HAD ARG UED THAT IF AT ALL THE STANDARD RATE OF 10% WAS PROPOSED TO BE APPLIED BY THE LD. A.O. AS PER THE SHOW CAUSE NOTICE, THE SAME COULD BE APP LIED ONLY ON PURCHASES AND NOT IN RESPECT OF THE TOTAL SALES AS THE PURCHASED GAS STOVE BODIES WERE SOLD AFTER A GREAT DEAL OF VALUE ADDITIONS. IN RESPONSE TO THIS PLEA, THE LD. A.O. SIMPLY CHOSE TO REVISE HER EARLIER PROPOSAL AND DECIDED THAT OUT OF THE COMBINED PROFI TS OF THE 9 APPELLANT FIRM AND ITS SISTER CONCERNS, 50% WAS TO BE APPORTIONED TO THE APPELLANT FIRM. IT WAS ACCEPTED BY THE LD. A.O. THAT A SIGNIFICANT AMOUNT OF VALUE ADDITION WAS MADE BY THE ASSESSEE T O THE STOVE BODIES PURCHASED AND THEREFORE A HIGHER AMOUNT OF P ROFIT WAS ATTRIBUTABLE TO THE ASSESSEE. 3.6 THE APPLICATION OF PROVISIONS OF SECTION 92 TO 92F AND OF RULE 10B(1)(D) BY THE LD. A.O. IS NOT FOUND TO BE IN ORD ER ON THE GIVEN FACTS OF THE CASE IT IS NOT UNDERSTOOD AS TO HOW TH E LD. A.O. HAS IMPORTED THESE PROVISIONS WHILE DEALING WITH A CASE U/S 80IC. NOT ONLY DO THE SAID PROVISIONS HAVE NO APPLICABILITY T O THE APPELLANTS CASE, EVEN THE ESSENTIAL REQUIREMENTS MANDATORY UND ER RULE 10B(1)(D) HAVE NOT BEEN TAKEN CARE OF BY THE LD. A. O. WHILE MAKING THE CALCULATION OF THE GROSS PROFIT IN THE HANDS OF THE APPELLANT AND ITS SISTER CONCERNS. THE ENTIRE CASE HAS BEEN BUILT UP BY THE LD. A.O. PURELY ON CONJECTURES AND SURMISES WITHOUT CONDUCTI NG ANY WORTHWHILE INVESTIGATION AND WITHOUT POINTING OUT A NY DEFECTS WITH THE BOOKS OF ACCOUNT OF THE APPELLANT FIRM. 3.7 IT IS NOTED THAT THE LD. A.O. HAS ALLOCATED THE PRO FITS IN THE FOLLOWING MANNER: RATIO OF RELATED PARTY PURCHASES = 21.2% 21.2% OF TOTAL SALES OF RS. 37,27,69,177/- = 7,9 0,27,065/- (A) 39% G.P. SHOWN BY ASSESSEE ON RS. 7,90,27,065/- = 3,08,20,556/- (PROFIT SHOWN BY ASSESSEE ON RELEVANT PURCHASES ) TOTAL PURCHASES MADE FROM SISTER CONCERNS = 4,81 ,77,164/- (B) 6.4% G.P. SHOWN BY SISTER CONCERNS = 30,83,3 38/- (PROFIT SHOWN BY SISTER CONCERNS ON SAME TRANSACTIO NS) (COMBINED PROFIT (A+B) = 3,39,03,894/- (C) PROFIT ALLOCATED TO ASSESSEE @ 50% OF COMBINED PROFIT = 1,69,51,947/- DIFFERENCE (A)-(C) =1,38,68,609/- 3.8 HOWEVER, THE ABOVE MENTIONED WORKING ADOPTED BY THE LD. A.O. IS LOGICALLY NOT CORRECT. IF THE APPELLANT FIR M HAS MADE 21.2% OF ITS PURCHASES FROM ITS SISTER CONCERNS, IT DOES NOT MEAN THAT 21.2% OF THE TOTAL SALES OF THE APPELLANT ARE ATTRI BUTABLE TO THE SAID PURCHASES. AS ALREADY DISCUSSED, AND AS ALSO ADMITT ED BY THE LD. A.O. A GREAT DEAL OF VALUE ADDITION IS BROUGHT ABOU T IN THE FINAL PRODUCT SOLD BY THE APPELLANT. THIS IS EVIDENT FROM THE FACT THAT AGAINST THE TOTAL PURCHASES OF RS. 4,81,77,164/- FR O THE SISTER CONCERNS, THE APPELLANT HAS MADE TOTAL SALES AMOUNT ING TO RS. 37,27,69,177/-. 3.9 FURTHER, THE AO'S CASE IS THAT THE G.P. RETURNE D IN THE HANDS OF THE SISTER CONCERNS AT 6.4% IS LESS THAN 9.29% S HOWN IN THE CASE OF AN IDENTICAL BUSINESS CONCERN, NAMELY M/S. SHIVA M ENTERPRISES. THEREFORE, AT BEST, THE LD. A.O. COULD CALCULATE 9. 29% G.P. IN THE HANDS OF SISTER CONCERNS ON THE TOTAL SALES EFFECTE D BY THEM TO THE APPELLANT FIRM. BUT THE CALCULATION MADE BY THE LD. A.O. HAS GIVEN RISE TO IRRATIONAL RESULTS, AS THE SAME HAS RESULTE D IN A G.P. RATE AS HIGH AS 35.18% IN THE HANDS OF THE SISTER CONCERNS WHICH IS FAR HIGHER THAN THE BENCH MARK ADOPTED BY THE LD. A.O. HERSELF. APPLYING THE SAME BENCH MARK OF 9.29%, THE TOTAL G. P. SHOULD HAVE BEEN RS. 44,75,659/- IN THE HANDS OF THE SISTER CON CERNS AGAINST RS. 30,83,338/- SHOWN BY THEM. THUS THE DIFFERENCE OF R S. 13,92,321/- COULD AT BEST BE TREATED AS THE INFLATED CLAIM OF H E APPELLANT U/S 80IC OF THE ACT. IT IS NOTED THAT THE CASE QUOTED B Y THE APPELLANT, 10 NAMELY SWASTIK INDUSTRIES, DELHI HAS SHOWN 7.88% G. P., WHICH IS ALSO HIGHER THAN THE G.P. SHOWN BY THE APPELLANTS SISTER CONCERNS. IT IS, THEREFORE, CONSIDERED REASONABLE THAT 9.29% G.P. RATE RETURNED BY M/S SHIVAM ENTERPRISES, PARWANOO BE ADO PTED AS THE BENCHMARK TO ASSESS THE FAIR G.P. RATE IN THE HANDS OF THE APPELLANTS SISTER CONCERNS. THUS, THE DIFFERENCE O F RS. 13,92,321/- IS DIRECTED TO BE DEDUCTED FROM THE ELIGIBLE PROFIT S AND TREATED AS THE TAXABLE PROFITS OF THE APPELLANT IN THE LIGHT O F THE PROVISIONS OF SECTION 80IA(10). THUS THE APPELLANT SUCCEEDS PARTL Y ON THIS GROUND OF APPEAL. 13. IN OUR OPINION THE LD. CIT(A) HAS CORRECTLY ADJ UDICATED THE ISSUE PARTICULARLY BECAUSE OF THE HIGHER GP RATE WAS ACC EPTED BY REVENUE IN THE EARLIER YEARS. WE FIND THAT LD. CIT(A) WAS JUSTIFI ED BECAUSE SHE HAD RESTRICTED THE DISALLOWANCE BY APPLYING 9.29% GP RATE RETURNED BY THE SISTER CONCERN KNOWN AS M./S SHIVAM ENTERPRISES. THEREFORE, WE FIN D NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND WE CONFIRM THE SAME AND HEN CE GROUND NO.1 OF THE REVENUE AS WELL AS OF THE ASSESSEE IS REJECTED. 14. GROUND NO.2 OF REVENUE APPEAL : AFTER HEARING B OTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OF FICER NOTICED THAT ASSESSEE HAS PAID ROYALTY @ RS. 3/- PER GAS STOVE AMOUNTING TO RS. 7,65,915/- TO M/S MALBRO APPLIANCES PVT LTD. THE SAID ROYALTY WAS PA ID FOR USING THE TRADE NAME ADVANTA. FURTHER, M/S MALBRO APPLIANCES PVT LTD H AD ENTERED INTO AN AGREEMENT WITH BPCL. THE DIRECTORS OF M/S MALBRO AP PLIANCES PVT. LTD WERE IN THE SAID LINE OF BUSINESS SINCE LATE 70S AND HAD E XPERIENCE AND TECHNICAL KNOWHOW WHICH ENABLED THE ASSESSEE TO MAKE QUALITY GAS STOVES. THE GOODWILL GENERATED BY SAID COMPANY RESULTED IN GENERATION OF HUGE READYMADE MARKET TO THE ASSESSEE. FURTHER, THE SALE PRICE ON EACH GAS STOVE WAS RS. 850/- PER GAS STOVE AND ROYALTY OF RS. 3/- PER GAS STOVE WORKED O UT TO 0.4% WHICH WAS VERY LOW. THEREFORE, ASSESSEE WAS ISSUED A SHOW CAUSE NO TICE THAT WHY ROYALTY SHOULD NOT BE TAKEN @ 3% PER PIECE. IN RESPONSE, IT WAS MA INLY STATED THAT ROYALTY WAS PAID VIDE AGREEMENT DATED 1.4.2007. THE ASSESSING OFFICER DID NOT ACCEPT THESE 11 SUBMISSIONS AND WORKED OUT THE ROYALTY @ 3% AND RED UCED THE PROFITS ELIGIBLE FOR DEDUCTION US/ 80IC BY RS. 57,44,363/-. 15. ON APPEAL, IT WAS MAINLY SUBMITTED THAT ROYALTY WAS PAID @ RS. 2/- PER GAS STOVE IN THE IMMEDIATELY PRECEDING YEAR WHICH W AS ACCEPTED BY THE REVENUE IN THE ASSESSMENT FRAMED U/S 143(3). THEREFORE, FO LLOWING THE PRINCIPLE OF CONSISTENCY THE ROYALTY OF RS. 3/- PER GAS STOVE SH OULD HAVE BEEN ACCEPTED. 16. THE LD. CIT(A) FOUND MERIT IN THESE SUBMISSIONS AND DELETED THE REDUCTION OF PROFITS. 17. BEFORE US, LD. DR CARRIED US THROUGH THE ASSES SMENT ORDER AND POINTED OUT THAT ROYALTY OF 0.4% WAS FOUND TO BE VERY LOW B Y THE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT CONSIDERING THE FACT THAT M/ S MALBRO APPLIANCES PVT LTD HAD AGREEMENT WITH BPCL, THE ROYALTY ESTIMATE OF 3% WAS JUSTIFIED. 18. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE R EITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND CIT(A) AND PO INTED OUT THAT ROYALTY WAS PAID AT A VERY LOW RATE OF RS. 2/- PER PIECE IN THE IMMEDIATE PRECEDING YEAR WHICH WAS ACCEPTED. HE ALSO SUBMITTED THAT APART F ROM ROYALTY, ASSESSEE HAD PAID 10% COMMISSION TO BPCL FOR EFFECTING THE SALE AND, THEREFORE, SALES WERE MAINLY BECAUSE OF THE COMMISSION AND NOT BECAUSE OF THE TRADE NAME ADVANTA. 19. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT LD. CIT(A) ADJUDICATED THIS ISSUE VIDE PARA 4.3 WHICH READS AS UNDER:- 4.3 THE RIVAL SUBMISSIONS HAVE BEEN CAREFULLY CONS IDERED WITH REFERRED TO THE FACTS OF THE CASE AND THE CASE LAWS RELIED UPON. IT IS NOTED THAT THE APPELLANT HAD PAID THE ROYALTY FEE O F RS. 7,65,915/- DURING THE YEAR UNDER CONSIDERATION IN ACCORDANCE W ITH AN AGREEMENT DULY REDUCED TO WRITING. THE LD. A.O. HAS NOT POINTED OUT 12 ANY DEFECT WITH THE SAID AGREEMENT. SHE HAS SIMPLY PROCEEDED ON THE BASIS OF THE THEORETICAL INFORMATION CULLED FROM WI KIPEDIA AND CONCLUDED THAT THE ROYALTY FEE @ 0.4% OF THE TOTAL SALE PRICE PAID BY THE APPELLANT IS NEGLIGIBLE. THE LD. A.O. HAS BRUSH ED ASIDE THE WRITTEN AGREEMENT BY SIMPLY OBSERVING THAT THE RATE OF ROYALTY MUTUALLY DECIDED BY WAY OF AN AGREEMENT IS NOT RELE VANT AND THE A.O. IS EMPOWERED TO MAKE HIS OWN ESTIMATE OF THE R EASONABLE ARMS LENGTH ROYALTY THAT SHOULD HAVE BEEN PAID. HOWEVER, THE LD. A.O. HAS NOT ELABORATED AS TO HOW A CLOSE CONNECTION EXI STED BETWEEN THE APPELLANT AND MALBRO APPLIANCES PVT. LTD. AND HOW T HE COURSE OF BUSINESS WAS ARRANGED BETWEEN THE SAID TWO PARTIES. THE LD. A.O. HAS ALSO WRONGLY INVOKED THE PRINCIPLE OF ARMS LEN GTH PRICING ON THE GIVEN FACTS OF THE CASE. SHE HAS ALSO COMPLETEL Y IGNORED THE PREVIOUS HISTORY OF THE CASE AND HAS FAILED TO MAKE A CASE AS TO HOW THE APPELLANT HAS MANIPULATED ITS PROFITS IN AN UNU SUAL MANNER BY DIGRESSING FROM ITS PREVIOUS CONDUCT. THE LD. A.O. HAS ALSO NOT PAID ANY ATTENTION TO THE FACT THAT THE APPELLANT HAD SE PARATELY PAID ANNUAL CHANNELS ACCES FEE TO THE OWNER OF ADVANTA I N ADDITION TO THE COMMISSION OF RS. 2,23,27,903/- TO THE BPCL FOR EFFECTING SALES THROUGH BPCL. IN CASE OF SURYAFLAME BRAND ON THE CO NTRARY, ANNUAL CHANNEL ACCESS FEE WAS DIRECTLY PAID BY THE ASSESSE E TO IOC. THE APPELLANT HAS ALSO PAID A HEFTY COMMISSION OF RS. 2 ,23,27,903/- TO BPCL FOR EFFECTING HUGE SALES UNDER THE BRAND NAME ADVANTA. THEREFORE, THE LD. AO'S ARGUMENT THAT IT WAS NOT ON LY THE BRAND NAME ADVANTA WHICH WAS USED BY THE APPELLANT BUT AL SO THE BENEFIT OF SALES ENJOYED ON THE STRENGTH OF THE MOU BETWEEN BPCL AND M/S MALBRO APPLIANCES DOES NOT CARRY MUCH WEIGH T. THE VITAL FACT TO BE CONSIDERED IS THAT THE APPELLANT HAS INC URRED A HUGE EXPENDITURE IN THE FORM OF COMMISSION AND ANNUAL CH ANNEL ACCESS FEE FOR EFFECTING SALES THROUGH BPCL. THUS THE APPE LLANT HAS INCURRED EXPENDITURE CORRESPONDING TO THE GAINS MAD E BY IT THROUGH M/S MALBRO APPLIANCES PVT. LTD. THUS THE ADDITION M ADE BY THE LD. A.O. IS FOUND TO BE WITHOUT ANY COGENT BASIS. THE S AME IS, THEREFORE, NOT FOUND SUSTAINABLE AND IS DIRECTED TO BE DELETED . 20. IN OUR VIEW LD. CIT(A) HAD CORRECTLY ADJUDICATE D THE ISSUE PARTICULARLY IN THE LIGHT OF THE FACT THAT LOWER ROYALTY WAS ACCEPT ED IN THE EARLIER YEARS . FURTHER, THE ASSESSEE HAD PAID THE HUGE COMMISSION OF RS. 2,23,27,903/- TO M/S 13 BPCL, THEREFORE, WE FIND NOTHING WRONG WITH THE ORD ER OF LD. CIT(A) AND WE CONFIRM THE SAME. 31. GROUND NO. 3 OF REVENUE AND GROUND NO.2 OF ASSE SSEES APPEAL : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESS MENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS PAID RO YALTY TO ITS SISTER CONCERN DURING FINANCIAL YEAR 2004-05 FOR USING THE BRAND N AME SURYA FLAME BUT NO SUCH ROYALTY WAS PAID DURING THE YEAR. A SHOW CAUS E NOTICE WAS ISSUED THAT WHY ROYALTY AT THE RATE OF 3% SHOULD NOT BE REDUCED FOR ALLOWING DEDUCTION U/S 80IC. IN RESPONSE, IT WAS STATED THAT M/S SHIVAM ENTERPRI SES DELHI WAS PROPRIETORSHIP CONCERN OF M/S RAJIV MALHOTRA WHO WAS PARTNER IN TH E ASSESSEE FIRM. SINCE THE BRAND NAME WAS OWNED BY HIM AND HE WAS INTERESTED I N THE PRESENT BUSINESS ALSO, THEREFORE, THERE WAS NO LOGIC OF PAYING ROYAL TY. THE ASSESSING OFFICER DID NOT ACCEPT THESES SUBMISSIONS AND ULTIMATELY ESTIMA TED 1% ROYALTY CALCULATED ON SALE PRICE AND REDUCED PROFITS BY 24,71,451/- FOR T HE PURPOSE OF COMPUTING DEDUCTION U/S 80IC. 32. ON APPEAL THE CONTENTION RAISED BEFORE ASSESSIN G OFFICER WERE REITERATED. IT WAS ALSO POINTED OUT THAT ROYALTY OF RS. 50,000/ - WAS PAID IN THE IMMEDIATELY PRECEDING YEAR ON THE BASIS OF LUMP SUM AGREEMENT O F TWO YEARS WHICH WAS ACCEPTED BY THE DEPARTMENT. 33. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S ESTIMATED THE ROYALTY AT RS. 2 /- PER GAS STOVE AND RESTRICTED THE REDUCTION OF PROFIT OF RECOMPUTING DEDUCTION U/S 80IC TO RS. 5,81,518. THE REVENUE H AS CHALLENGED THE IMPUGNED ORDER FOR RESTRICTING THE ABOVE ADDITION TO RS. 5, 81,518/- AND ASSESSEE HAS CHALLENGED THROUGH GROUND NO.2 OF THE IMPUGNED ORD ER FOR CONFIRMING THE DISALLOWANCE TO RS. 5,81,518/-. 14 34. BEFORE US, LD. DR SUPPORTED THE ORDER OF ASSESS ING OFFICER. 35. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE R EITERATED THE SUBMISSION MADE BEFORE THE ASSESSING OFFICER AND CIT(A). 36. AFTER CONSIDERING THE RIVAL SUBMISSIONS AWE FIN D THAT THIS ISSUE HAS BEEN ADJUDICATED VIDE PARA 5.3 OF THE LD. CIT(A), WHICH READS AS UNDER:- 5.3 THE RIVAL SUBMISSIONS HAVE BEEN CAREFULLY CONS IDERED WITH REFERENCE TO THE FACTS OF THE CASE AND THE CASE LAW S RELIED UPON. IT IS NOTED THAT THE APPELLANT WAS PAYING ROYALTY FEE FOR THE USE OF THE BRAND NAME SURYAFLAME IN EARLIER YEARS, BUT NO SU CH ROYALTY EXPENDITURE WAS DEBITED IN THE YEAR UNDER CONSIDER ATION. THE LD. ASSESSING OFFICER HAS RIGHTLY OBSERVED THAT THE FIR M AND ITS PARTNERS ARE DISTINCT ENTITIES UNDER THE INCOME-TAX ACT AND THE AVOIDANCE OF THE BOOKING OF ROYALTY EXPENDITURE SERVES THE PURPO SE OF INFLATING PROFIT TO CLAIM DEDUCTION U/S 80IC OF THE ACT. THER E IS NO DENYING THE FACT THAT THE BRAND NAME SURYAFLAME HAD BEEN U SED BY THE APPELLANT, EVEN THOUGH THE AGREEMENT WAS ENTERED IN TO DIRECTLY BETWEEN THE APPELLANT AND THE IOC IN RESPECT OF THE SALE UNDER THE GIVEN BRAND. IT WILL MEET THE ENDS OF NATURAL JUST ICE IF THE ROYALTY @ RS. 2/- PER GAS STOVE AS IN THE CASE OF M/S MALBRO APPLIANCES PVT LTD IS CALCULATED AS A FAIR AND REASONABLE AMOUNT O F EXPENDITURE FOR USING THE BRAND NAME OF THE SISTER CONCERN. ACCOAR DINGLY AN ADDITION OF RS. 5,81,518/- (270759 GAS STOVES @ RS. 2/- EACH) IS DIRECTED TO BE MADE TO THE TAXABLE PROFITS OF THE A PPELLANT AFTER REDUCING AN EQUIVALENT AMOUNT FROM THE PROFITS CLAI MED AS ELIGIBLE FOR DEDUCTION U/S 80-IC. THE REMAINING ADDITION OF RS. 18,89,933/- (RS. 24,71,451 RS. 5,81,518/-) IS ACCORDINGLY DIR ECTED TO BE DELETED. 37. IN OUR OPINION THE LD. CIT(A) HAS CORRECTLY ADJ UDICATED THE ISSUE PARTICULARLY IN THE LIGHT OF THE FACT THAT ROYALTY WAS PAID IN EARLIEAR YEARS AND IN ANY CASE PARTNER AND FIRM ARE DIFFERENT ASSESSEES F OR TAX PURPOSES. THEREFORE, 15 WE CONFIRM THE ORDER OF LD. CIT(A). ACCORDINGLY, T HE GROUND RAISED BY THE REVENUE AS WELL AS THE ASSESSEE IS DISMISSED. 38. GROUND NO.3 OF ASSESSEES APPEAL: AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OF FICER NOTICED THAT AS PER PARTNERSHIP DEED THE WORKING PARTNERS WERE ENTITLED TO RECEIVE REMUNERATION OF RS. 5000/- EACH BUT NO SUCH REMUNERATION WAS ADDED TO THE PROFIT AND LOSS ACCOUNT, THEREFORE, THE ASSESSING OFFICER IN VIEW O F THESE CLEAR TERMS OF PARTNERSHIP DEED REDUCED THE PROFITS BY RS. 1,80,00 0/- FOR THE PROPOSE OF COMPUTING DEDUCTION U/S 80IC. 39. ON APPEAL, ADDITION HAS BEEN CONFIRMED BY LD. C IT(A). 40. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT PROVISIONS OF SECTION 80IA(10) CANNOT BE INVOKED TO REDUCE THE PR OFITS FOR REMUNERATION TO BE PAID TO THE PARTNERS BECAUSE THIS IS NOT AS COLLUSI VE ARRANGEMENT. 41. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF CIT(A). HE ALSO RELIED ON THE DECISION OF TRIBUNAL IN THE CASE OF I TO VS M/S GNG ENTERPRISES IN ITA NO. 606/CHD/2013. 42. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE CAS E OF ITO VS M/S GNG ENTERPRISES (SUPRA) AND THE SAME WAS ADJUDICATED VI DE PARAS 8 TO 13 WHICH ARE AS UNDER:- 8 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT BEFORE ALLOWING DEDUCTION UNDER CHAPTER VIA BASIC PROVISIO NS HAVE TO BE KEPT IN MIND. PROVISIONS OF SECTION 80A, 80AB AND 80B ARE RELEVA NT WHICH HAVE BEEN REPRODUCED AS UNDER: 16 SECTION - 80A - 80A. (1) IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE, THERE SHALL BE ALLOWED FROM HIS GROSS TOTAL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS CHAPTER, THE DEDUCTIONS SPECIFIED IN SECTIONS 80C TO [ 80U ]. (2) THE AGGREGATE AMOUNT OF THE DEDUCTIONS UNDER TH IS CHAPTER SHALL NOT, IN ANY CASE, EXCEED THE GROSS TOTAL INCOME OF THE ASSESSEE. [(3) WHERE, IN COMPUTING THE TOTAL INCOME OF AN AS SOCIATION OF PERSONS OR A BODY OF INDIVIDUALS, ANY DEDUCTION IS ADMISSIBLE UNDER SECTION 80G OR SECTION 80GGA [OR SECTION 80GGC ] OR SECTION 80HH OR SECTION 80HHA OR SECTION 80HHB OR SECTION 80HHC OR SECTION 80HHD OR SECTION 80-I OR SECTION 80-IA [OR SECTION 80-IB ] [OR SECTION 80-IC ] [OR SECTION 80-ID OR SECTION 80-IE ] OR SECTION 80J OR SECTION 80JJ , NO DEDUCTION UNDER THE SAME SECTION SHALL BE MADE IN COMPUTING THE TOTAL INCOME OF A MEMBER OF THE ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS IN RELATION TO THE SHARE OF SUCH MEMBER IN THE INCOME OF THE ASSOCIATION OF PER SONS OR BODY OF INDIVIDUALS.] [(4) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONT AINED IN SECTION 10A OR SECTION 10AA OR SECTION 10B OR SECTION 10BA OR IN ANY PROVISIONS OF THIS CHAPTER UNDER THE HEA DING CDEDUCTIONS IN RESPECT OF CERTAIN INCOMES , WHERE, IN THE CASE OF AN ASSESSEE, ANY AMOUNT OF PROFITS AND GAINS OF AN UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS IS CLAIMED AND ALLOWED AS A DEDUCTION UNDER ANY OF THOSE PROVISIONS FOR ANY ASSESSMENT YE AR, DEDUCTION IN RESPECT OF, AND TO THE EXTENT OF, SUCH PROFITS AND GAINS SHALL NOT BE ALLOWED UND ER ANY OTHER PROVISIONS OF THIS ACT FOR SUCH ASSESSMENT YEAR AND SHALL IN NO CASE EXCEED THE PRO FITS AND GAINS OF SUCH UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS, AS THE CASE MAY BE . (5) WHERE THE ASSESSEE FAILS TO MAKE A CLAIM IN HIS RETURN OF INCOME FOR ANY DEDUCTION UNDER SECTION 10A OR SECTION 10AA OR SECTION 10B OR SECTION 10BA OR UNDER ANY PROVISION OF THIS CHAPTER UNDER THE HEADING C.DEDUCTIONS IN RESPECT OF CERTAIN INCOMES, NO DEDUCTION SHALL BE ALLOWED TO HIM THEREUNDER.] [(6) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONT AINED IN SECTION 10A OR SECTION 10AA OR SECTION 10B OR SECTION 10BA OR IN ANY PROVISIONS OF THIS CHAPTER UNDER THE HEA DING CDEDUCTIONS IN RESPECT OF CERTAIN INCOMES, WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSIN ESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE OR WHERE ANY GOODS OR SERVICES H ELD FOR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE U NDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS AND, THE CONSIDERATION, IF ANY, FOR SUCH T RANSFER AS RECORDED IN THE ACCOUNTS OF THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSIN ESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF THE TRANSF ER, THEN, FOR THE PURPOSES OF ANY DEDUCTION UNDER THIS CHAPTER, THE PROFITS AND GAINS OF SUCH U NDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER, IN E ITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THAT DATE. EXPLANATION. FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESSI ON MARKET VALUE, ( I ) IN RELATION TO ANY GOODS OR SERVICES SOLD OR SUPP LIED, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD FETCH IF THESE WERE SOLD BY THE UNDE RTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS IN THE OPEN MARKET, SUBJECT TO STATUTORY OR REGULAT ORY RESTRICTIONS, IF ANY; ( II ) IN RELATION TO ANY GOODS OR SERVICES ACQUIRED, MEANS THE PRICE THAT SUCH GOO DS OR SERVICES WOULD COST IF THESE WERE ACQUIRED BY THE UNDERTAKING OR UNIT OR ENTERPRISE O R ELIGIBLE BUSINESS FROM THE OPEN MARKET, SUBJECT TO STATUTORY OR REGULATORY RESTRICTIONS, IF ANY;] [(III) IN RELATION TO ANY GOODS OR SERVICES SOLD, SUPPLIED OR ACQUIRED MEANS THE ARMS LENGTH PRICE A S DEFINED IN CLAUSE (II) OF SECTION 92F OF SUCH GOODS OR SERVICES, IF IT IS A SPECIFIED DO MESTIC TRANSACTION REFERRED TO IN SECTION 92BA .] [(7) WHERE A DEDUCTION UNDER ANY PROVISION OF THIS CHAPTER UNDER THE HEADING C.DEDUCTIONS IN RESPECT OF CERTAIN INCOMES IS CLAIMED AND ALLOWED IN RESPECT OF PROFITS OF ANY OF THE SPECIFIED BUSINESS REFERRED TO IN CLAUSE (C) OF SUB-SECTION ( 8) OF SECTION 35AD FOR ANY ASSESSMENT YEAR, NO DEDUCTION SHALL BE ALLOWED UNDER THE PROVISIONS OF SECTION 35AD IN RELATION TO SUCH SPECIFIED BUSINESS FOR THE SAME OR ANY OTHER ASSESSMENT YEAR. ]. 80AB - [DEDUCTIONS TO BE MADE WITH REFERENCE TO THE INCOM E INCLUDED IN THE GROSS TOTAL INCOME. - WHERE ANY DEDUCTION IS REQUIRED TO BE MADE OR ALLOWED UNDER ANY SECTION [* * *] INCLUDED IN THIS CHAPTER UNDER THE HEADING C.DEDUCTIONS IN RESPECT OF CERTAIN INCOMES IN RESPECT OF ANY INCOME OF THE NATURE SPECIFIED IN THAT SECTION WHICH IS IN CLUDED IN THE GROSS TOTAL INCOME OF THE ASSESSEE, THEN, NOTWITHSTANDING ANYTHING CON TAINED IN THAT SECTION, FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER THAT SECTI ON, THE AMOUNT OF INCOME OF THAT NATURE AS COMPUTED IN ACCORDANCE WITH THE PROV ISIONS OF THIS ACT (BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER) SHALL ALON E BE DEEMED TO BE THE 17 AMOUNT OF INCOME OF THAT NATURE WHICH IS DERIVED OR RECEIVED BY THE ASSESSEE AND WHICH IS INCLUDED IN HIS GROSS TOTAL INCOME.] 80B 80B. IN THIS CHAPTER ( 1 ) [* * *] ( 2 ) [* * *] ( 3 ) [* * *] ( 4 ) [* * *] ( 5 ) GROSS TOTAL INCOME MEANS THE TOTAL INCOME COMPU TED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT, BEFORE MAKING ANY DEDUCTION UNDER THIS CH APTER [* * *] [* * *]; ( 6 ) [* * *] ( 7 ) [* * *] ( 8 ) [* * *] ( 9 ) [* * *].] 9 READING OF ABOVE PROVISIONS CLEARLY SHOWS THAT DE DUCTION UNDER VARIOUS PROVISIONS OF THIS CHAPTER ARE ALLOWABLE ONLY IF TH E INCOME OF THE NATURE ON WHICH DEDUCTION IS CLAIMED HAS BEEN INCLUDED IN THE TOTAL INCOME AND FURTHER DEDUCTION HAS TO BE ALLOWED ON THE BASIS OF ABOVE GROSS TOTAL INCOME. GROSS TOTAL INCOME HAS ITSELF BEEN DEFINED IN SEC 80B WHICH CLEARLY SH OWS THAT DEDUCTION CAN BE ALLOWED ON THAT INCOME WHICH IS COMPUTED IN ACCORDA NCE WITH THE PROVISIONS OF THE ACT BEFORE ALLOWING DEDUCTION UNDER CHAPTER VIA . UNDER INCOME-TAX ACT THE INCOME HAS TO BE COMPUTED UNDER VARIOUS HEADS AS PE R THE PROVISIONS OF A PARTICULAR HEAD. THE INCOME UNDER THE HEAD BUSINE SS AND PROFESSION IS TO BE COMPUTED AS PER SEC 29 WHICH READS AS UNDER: SEC 29 - INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFES SION, HOW COMPUTED. THE INCOME REFERRED TO IN SECTION 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISION S CONTAINED IN SECTIONS 30 TO [ 43D ]. ABOVE CLEARLY SHOW THAT BEFORE ALLOWING DEDUCTION U /S 80IC THE INCOME HAS TO BE COMPUTED AS PER THE PROVISIONS OF SECTIONS 32 TO 43 OF THE ACT. 10 THIS POSITION HAS BEEN CONFIRMED BY THE HON'BLE SUPREME COURT IN CASE OF CIT V. KOTAGIRI INDUSTRIAL CO-OPERATIVE TEA FACTORY LTD. (SUPRA). IN THAT CASE THE ASSESSEE SOCIETY WAS CARRYING ON THE BUSINESS OF MA NUFACTURING OF TEA. THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80P(2). THERE W ERE SOME BROUGHT FORWARD LOSSES WHICH WAS SET OFF BY THE ITO BEFORE ALLOWING DEDUCTION. THIS ACTION WAS CHALLENGED BY THE ASSESSEE AND ULTIMATELY THE MATTE R TRAVELED TO THE HON'BLE SUPREME COURT. IT WAS OBSERVED AS UNDER: IN VIEW OF THE EXPRESS PROVISION DEFINING THE EXPR ESSION GROSS TOTAL INCOME IN CLAUSE (5) OF SECTION 80B OF THE I T A CT FOR THE 18 PURPOSE OF CHAPTER VIA OF THE ACT, IT IS NECESSARY FOR THE PURPOSE OF MAKING DEDUCTION U/S 80P OF THE ACT TO DETERMINE THE GROSS TOTAL INCOME IN ACCORDANCE WITH THE OTHER PROVISIONS OF THE ACT. THIS MEANS THAT THE GROSS TOTAL INCOME MUST BE DETERMINE D BY SETTING OFF AGAINST HE INCOME THE BUSINESS LOSSES OF THE EA RLIER YEARS AS REQUIRED U/S 72 OF THE ACT, BEFORE ALLOWING DEDUCTI ON U/S 80P. ON THE BASIS OF ABOVE OBSERVATION IT WAS HELD AS UN DER: HELD ACCORDINGLY REVERSING THE DECISION OF THE H ON'BLE HIGH COURT THAT BEFORE CONSIDERING THE MATTER OF DEDUCTI ON U/S 80P(2) THE INCOME TAX OFFICER HAD RIGHTLY SET OFF THE CARR IED FORWARD LOSSES OF THE EARLIER YEARS IN ACCORDANCE WITH SECTION 72 OF THE ACT AND FINDING THAT THE SAID LOSSES EXCEEDED THE INCOME, H AD RIGHTLY NOT ALLOWED ANY DEDUCTION U/S 80P(2). ABOVE POSITION HAS BEEN FOLLOWED LATER ON IN VARIOU S DECISIONS BY THE HON'BLE SUPREME COURT LIKE H.H. SIR RAMA VERMA V CIT, 205 I TR 435 AND MOTILAL PESTICIDES (I) PVT LTD. V CIT, 243 ITR 26 (S.C). TH EREFORE IT BECOMES CLEAR THAT DEDUCTION COULD HAVE BEEN ALLOWED ONLY AFTER COMPUT ING THE INCOME UNDER A PARTICULAR HEAD. IN THIS CASE THE INCOME IN THE HAN DS OF THE A FIRM WAS COMPUTED IN TERMS OF SEC 28 TO 43D AND SEC 40(B) IN RESPECT OF ALLOWANCE OF INTEREST AND SALARY FALLS BETWEEN THESE TWO PROVISIONS AND THERE FORE FULL EFFECT HAS TO BE GIVEN TO THIS PROVISIONS ALSO. 11 THERE IS ANOTHER CONTENTIONS THAT LATER ON IT WA S DECIDED NOT TO PAY SALARY AND INTEREST TO THE PARTNERS. THIS DOES NOT SEEMS TO BE CORRECT BECAUSE BEFORE THE ASSESSING OFFICER IT WAS ADMITTED THAT REMUNERA TION AND INTEREST HAS NOT BEEN PAID AS PER THE PARTNERSHIP DEED. FURTHER THERE IS NO EVIDENCE FOR THE SAME AND IN ANY CASE THIS WILL NOT MAKE A DIFFERENCE. THIS T YPE OF SITUATION CAME UP FOR CONSIDERATION OF HON'BLE BOMBAY HIGH COURT IN CASE INDIAN RAYON CORPORATION LTD. V CIT, 261 ITR 98. IN THAT CASE THE DEDUCTION FOR INDUSTRIAL UNDERTAKING WAS CLAIMED U/S 80HH BECAUSE INDUSTRY WAS LOCATED IN A BACKWARD AREA. THE DEDUCTION WAS CLAIMED ON THE PROFITS WITHOUT CLAIMI NG DEPRECIATION. THE ASSESSING OFFICER HELD THAT DEDUCTION WAS ALLOWABLE ONLY AFTER ALLOWING DEPRECIATION. THIS WAS CHALLENGED BY THE ASSESSEE AND THE MATTER TRAVELED TO THE HIGH COURT. HON'BLE HIGH COURT MADE FOLLOWING O BSERVATIONS: 261 ITR 98 INCOME-TAX IS A CHARGE ON AN ASSESSEE IN RESPECT OF HIS TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE P ROVISIONS OF THE ACT. HOWEVER, IN CASES WHERE THE TOTAL TAXABLE INCOME COMPRISES PROFITS DERIVED FROM A NEWLY ESTABLISHED UNDERTAKING U/S 80HH OF THE IT ACT, 1961, THEN SUCH PROFITS HAVE GO T TO BE 19 COMPUTED SEPARATELY AS LAID DOWN BY THE HON'BLE SUP REME COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPA NY. LTD V CIT, 113 ITR 84. THERE IS A DISTINCT DICHOTOMY BETWEEN THE CASES OF COMPUTATION OF NORMAL INCOME UNDER THE ACT DE HORS CHAPTER VI-A AND COMPUTATION OF TAXABLE INCOME WHERE THE ASSESSE E CLAIMS THE BENEFIT OF DEDUCTION UNDER CHAPTER VI-A. THE PROFI TS AND GAINS OF A NEWLY ESTABLISHED UNDERTAKING, THEREFORE HAVE GOT TO BE COMPUTED AS PER THE PROVISIONS OF SECTION 29 TO 43 AND IF THE ASSESSEE CLAIMS RELIEF UNDER CHAPTER VI-A OF EH ACT , THEN IT IS NOT OPEN TO THE ASSESSEE TO DISCLAIM DEPRECIATION ALLOW ANCE. THIS IS BECAUSE CHAPTER VI-A IS AN INDEPENDENT CODE BY ITSE LF FOR COMPUTING THESE SPECIAL TYPES OF DEDUCTION. IN OTH ER WORDS, ONE MUST FIRST CALCULATE THE GROSS TOTAL INCOME FROM WH ICH ONE MUST DEDUCT A PERCENTAGE OF INCOME CONTEMPLATED UNDER CH APTER VI-A. THEREFORE ONE CAN NOT EXCLUDE DEPRECIATION ALLOWANC E WHILE COMPUTING PROFITS DERIVED FROM NEWLY ESTABLISHED UN DERTAKING FOR COMPUTING DEDUCTIONS UNDER CHAPTER VI-A. 12 IN THIS CASE A SPECIFIC ARGUMENT WAS TAKEN THAT THE HON'BLE SUPREME COURT HAS CLEARLY HELD IN CASE OF CIT V. MAHENDRA M ILLS (SUPRA) THAT IF THE ASSESSEE DOES NOT CLAIM DEPRECIATION THEN SAME CANN OT BE THRUSTED ON THE ASSESSEE BY THE INCOME-TAX AUTHORITIES. THE COURT DEALT WITH THIS CONTENTIONS IN DETAIL AND OBSERVED AT PLACITUM G TO H THAT THE DEC ISION OF MAHINDA MILLS (SUPRA) IS NOT DECIDED IN RESPECT OF ALLOWABILITY OF DEDUCT ION WHICH READS AS UNDER: THE POINT AT ISSUE IS AMPLY CLEAR FROM THE ILLUSTRA TION GIVEN HEREINABOVE UNDER THE CAPTION POINT AT ISSUE. TH E ILLUSTRATION INDICATES THAT THE A E HAS NOT DISCLAIMED DEPRECIAT ION. THE POINT THEREFORE TO BE NOTED IS THAT THE ASSESSEE HAS ALSO CLAIMED DEPRECIATION, BUT AT A LATER STAGE AND THEREFORE TH E JUDGMENT OF HON'BLE SUPREME COURT IN MAHENDRA MILLS CASE, 243 I TR 56 HAS NO APPLICATION. ACCORDINGLY TO THE ASSESSEE THE PROFI TS DERIVED FROM THE UNIT WAS RS. 100 BECAUSE U/S 32(2) R.W.S 4 OF T HE IT ACT, THE CHARGEABILITY WAS IN RESPECT OF THE TOTAL INCOME A ND, THEREFORE THE RATE OF 20 PER CENT WAS APPLICABLE TO THE TOTAL IN COME OF RS. 100 WITHOUT DEDUCTING DEPRECIATION. SECONDLY IN ANY EV ENT, THE CONTROVERSY IN MAHENDRA MILLS CASE, 243 ITR 56 WAS NOT CONCERNING DEDUCTIONS UNDER CHAPTER VI-A OF THE INC OME TAX ACT. THEREFORE THAT JUDGMENT WOULD NOT APPLY TO THIS CAS E. THE IMPORTANT DISTINCTION WHICH IS REQUIRED TO BE NOTIC ED IN THIS CASE IS THAT WE ARE REQUIRED TO COMPUTE THE TOTAL TAXABLE I NCOME OF THE ASSESSEE WHO HAS CLAIMED SPECIAL DEDUCTION UNDER CH APTER VI-A. FOR THAT PURPOSE, ONE HAS TO KEEP IN MIND THE PROVI SIONS OF SECTION 80B(5) AND 80AB. CONSEQUENTLY SECTION 80HH INTER A LIA, LAYS DOWN THAT IF THE GROSS TOTAL INCOME INCLUDES PROFIT S FROM A NEWLY ESTABLISHED UNDERTAKING THEN 20 PER CENT OF SUCH PR OFITS WOULD BE DEDUCTIBLE FROM THE GROSS TOTAL INCOME IN ORDER TO ARRIVE AT THE TOTAL TAXABLE INCOME. THAT IN SUCH A CASE, PROFITS DERIVED FROM A NEWLY ESTABLISHED UNDERTAKING SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT I.E. SECTION 29 TO 43A. THEREFORE NET PROFIT WILL HAVE TO BE COMPUTED IN ACCORDANCE W ITH THE PROVISIONS OF THE ACT. THE ARGUMENT OF THE ASSESSE E IS THAT IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN MA HENDRA MILLS CASE, 243 ITR 56, IT IS OPEN TO THE ASSESSEE NOT TO CLAIM DEPRECIATION ALLOWANCE U/S 32 AND CONSEQUENTLY IT I S ARGUED THAT 20 PER CENT RATE OF DEDUCTION SHOULD BE APPLIED TO RS. 100 IN THE ABOVE ILLUSTRATION, WITHOUT TAKING INTO ACCOUNT THE DEPRECIATION. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT. THE SCH EME OF SECTION 4 AND SECTION 5 OF THE INCOME-TAX ACT DOES INDICATE THAT INCOME TAX IS A TAX IN RESPECT OF INCOME COMPUTED AS PER THE PROVISIONS OF THE ACT. THERE IS A DISTINCT DICHOTOMY BETWEEN CASES OF COMPUTATION OF NORMAL INCOME UNDER THE ACT DE HORS CHAPTER VI-A AND COMPUTATION OF TAXABLE INCOME WHERE THE ASSESSE E CLAIMS THE BENEFIT OF DEDUCTION UNDER CHAPTER VI-A BECAUSE THE LEGISLATURE HAS INTENDED THAT THESE SPECIAL DEDUCTIONS SHOULD B E RESTRICTED TO THE RECEIPT OF FOREIGN EXCHANGE. IF THIS OBJECT IS KEPT IN MIND, THEN 20 IT IS CLEAR THAT THE ANALOGY OF SECTION 32(2) GIVEN BY THE ASSESSEE WILL NOT APPLY IN CASES WHERE AN ASSESSEE CLAIMS SP ECIAL DEDUCTION UNDER CHAPTER VI-A. THE MATTER CAN BE LOOKED AT FR OM ANOTHER ANGLE. WHILE COMPUTING NORMAL INCOME, AN ASSESSEE MAY SET OFF DEPRECIATION AGAINST ITS GROSS INCOME. IN SUCH CAS ES, DEPRECIATION IS LIKE ANY OTHER ORDINARY EXPENSE. HOWEVER, SUCH DEPRECIATION CANNOT BE EQUATED WITH SPECIAL ED UNDER CHAPTER VI- A. IN ANY EVENT, IN THIS CASE ON THE FACTS, THE ASSESSEE CLAI MS DEPRECIATION OF RS. 75 FROM THE BALANCE INCOME OF RS. 80 AND THE REFORE THE JUDGMENT OF THE HON'BLE SUPREME COURT IN MAHENDRA M ILLS CASE, 243 ITR 56 HAS NO APPLICATION. THE ABOVE OBSERVATIONS VERY CLEARLY SHOWS THAT FOR MAKING DEDUCTION UNDER CHAPTER VIA THE PROFITS HAS TO BE COMPUTED SPECIFIC ALLY AS PER A PARTICULAR PROVISION OF A PARTICULAR HEAD OF INCOME BECAUSE O F THE DEFINITION OF GROSS TOTAL INCOME U/S 80B(5). 13 IN VIEW OF THE ABOVE CLEAR POSITION THE DEDUCTIO N U/S 80IC WAS ALLOWABLE ONLY AFTER REDUCING THE INTEREST AND REMUNERATION P AYABLE TO THE PARTNERS. THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SEC TION 80IA WHICH ARE NOT RELEVANT AND THE LD. CIT(A) HAS DECIDED THE ISSUE O NLY ON THIS DECISION WITHOUT LOOKING AT THE SPECIFIC PROVISIONS OF THE ACT AND T HE DECISION OF HON'BLE SUPREME COURT WHICH ARE BINDING ON ALL AUTHORITIES. THEREF ORE WE SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE THAT OF THE ASSESSING OFFIC ER (THOUGH ON A DIFFERENT REASONING). 43. FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE AGAIN ST THE ASSESSEE. 44. IN THE RESULT, APPEALS OF THE REVENUE AS WELL AS ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.01.2015 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH JANUARY, 2014 RKK COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR