Income Tax Appellate Tribunal - Chandigarh
Asstt.Commissioner Of Income Tax, C-3, ... vs M/S Mrs.Bectors Food Specilties Ltd, ... on 18 January, 2019
sआयकर अपील य अ धकरण,च डीगढ़ यायपीठ "बी" , च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCH 'B' , CHANDIGARH
ी संजय गग , याय क सद य एवं ीमती अ नपणा
ू ग$ता
ु , लेखा सद य
BEFORE: SHRI SANJAY GARG, JM & SMT.ANNAPURNA GUPTA, AM
आयकर अपील सं./ ITA No.71/Chd/2018
नधा रण वष / Assessment Year : 2014-15
The A.C.I.T., बनाम M/s Mrs.Bectors Food
Circle-3, Ludhiana Specialties Ltd.,
B-XXXIII-324, G.T. Road
(West), Ludhiana.
थायी लेखा सं./PAN NO.AABCM9495K
अपीलाथ /Appellant यथ /Respondent
नधा रती क ओर से/Assessee by : Shri N.D.Gupta, Sr. DR
राज व क ओर से/ Revenue by : Shri Subhash Aggarwal, Adv.
सनवाई
ु क तार#ख/Date of Hearing : 20.12.2018
उदघोषणा क तार#ख/Date of Pronouncement: 18.01.2019
आदे श/ORDER
Per Anna pur na Gupta, Account ant Member:
The present ap peal has been fi l ed by the Re venue agai nst the order of the Commi ssi oner of I ncome Ta x ( Appeal s) -1, Ludhi ana (in short 'CI T( A) ' dated 3.11.2017 passed u/s 250( 6) of the I ncome Ta x At, 1961 ( hereinafter referred to as 'Act') .
2. At the outset i tsel f the Ld. counsel for assessee poi nted out that both the i ssues rai sed by the Revenue i n the present appeal s tand covered i n favour of the as sessee by the recent deci sion of the Coordinate Bench of the I . T.A. T. i n the case of the assessee i tsel f r el ati ng to assess ment years 2007-08, 2008-09 and 2010-11 to 2013-14 vi de thei r 2 ITA No.71/Chd/2018 A.Y.2014-15 consol i dated order i n I TA No.555/Chd/2017 & Others dated 21-05-2018.
The grounds rai s ed by the Revenue are as under:
"1. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in deleting the disallowance of Rs.45,60,985/- u/s. 80IC of the Income Tax Act, 1961 on job work charges received from the ITC Ltd.?
2. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in deleting the disallowance of Rs.53,56,667/- u/s. 80IC of the Income Tax Act, 1961 in lieu of indirect benefit received by assessee from the parent company M/s. Cremica Agro Foods Ltd.?"
3. Ground No.1 rel ates to the cl ai m of deducti on u/s 80I C of the Act i n respect of the i ncome from Tahl i wal uni t of the assessee l ocated i n Hi machal Pradesh on job work charges recei ved by the assessee from I TC Ltd. The A.O. had deni ed the sai d cl ai m stati ng that the deducti on u/s 80I C i s onl y avai l abl e on i ncome deri ved by an undertaki ng from the busi ness of man ufacturi ng or pr oduci ng any arti cl e or thi ng and the nature of i ncome of job work charges cannot be treated to hav e been deri ved by the under taki ng by manufacturi ng o r produci ng any arti cl e or t hi ng . The Ld. CI T( A) deci ded the i ssue i n favour of the assessee on fi ndi ng that i n assessm ent years 2006- 07 and 2007-08 thi s i ssue had been deci ded i n favour of the assessee by the CI T( A) , fol l o wi ng the deci si on of the Hon'bl e Juri sdi cti onal Hi gh Court Punjab & Har yana i n the case of I mpel Forge & Al l i ed I ndustri es Ltd. ( 2008) , I TA No.54 3 of 2008 dated 5.12.2008 and the deci si on of the Hon'bl e D el hi Hi gh Court i n the case of Northern Aromati cs Ltd. ( 2005) 196 C TR 479 ( D el) .
3 ITA No.71/Chd/2018A.Y.2014-15
4. Before us Ld. counsel for assessee poi nted out that thi s i ssue has al ready been deci ded i n favour of the assessee by the I TAT i n ea rl i er years i .e, assessment years 2007-08 to 2008-09 and 2010-11 to 2013-14, vi de thei r order I TA No.555/Chd/2017 & Others dated 21.5.2018.Our attenti on was dra wn to para 7 of the order, poi nti ng out therefrom that the I . T.A. T. had al l o wed the cl ai m on noti ng that i n the case of M/s Cre mi ca Agro Foods Pvt. Ltd., the I . T.A. T. had deci ded i denti cal i ssue in favour of the assessee in assessment year 2006-07. The rel evant fi ndi ngs of the I . T.A. T. at paras 7 to 7.4 of the order are as under:
"7. Issue of disallowance of Section 80IC on Job Work:-
A.Y. 2007-08: Ground No. 2 of the Revenue's appeal A.Y. 2010-11: Ground No. 2 of the Revenue's appeal A.Y. 2011-12: Ground No. 1 of the Revenue's appeal A.Y. 2012-13: Ground No. 1 of the Revenue's appeal A.Y. 2013-14: Ground No. 1 of the Revenue's appeal 7.1 The relevant portion of the Assessment Order pertaining to disallowance on job work is as under:
During the assessment proceedings vide order sheet entry dated 27.11.09 the assessee was asked why proportionate deduction u/s 80IC on Tahliwal Unit may not be disallowed for the job work done to M/s ITC Limited as per the observations in the assessment order for A.Y. 2006-07 in the case of M/s Cremica Agro Food Ltd., Ludhiana. The assessee vide letter 4.12.09 stated as under:-
"Regarding disallowance of deduction u/s 80IC in Tahliwal Unit on job work done for ITC limited in the assessment year 2006-07 it is submitted that since the facts of the case are similar, you are requested to please refer to our reply dated 11th December, 2008 and 17th December, 2008 filed during the assessment proceedings of Cremica Agro Foods Ltd. (AY 2006-07)."
Further the assessee vide letter dated 18.12.2009 submitted as under:-
Regarding disallowance of deduction u/s 80IC on Tahliwal unit on income earned from job charges of ITC Limited in the assessment year 2006-07, we submit that we have correctly claimed the deduction U/S 80IC of the Income Tax Act, 1961 on income earned from job charges.
Reliance is placed on the following case laws:4 ITA No.71/Chd/2018
A.Y.2014-15 ACIT Vs. Biotech Medicals P Ltd. (2009) Sec SOIB - Job Work/Conversion charges 170 Taxman 3 (2009) 310 ITR 47 (AT) received by an industrial undertaking -
(Hyd) (2009) 121 TTJ 858 entitled to 80IB. Profit on sale of scrap and interest on delayed payment have direct nexus with manufacturing activity.
CIT Vs. Northern Arometics Ltd. (2005) Sec-80IA - Assessee engaged in job work - 196 CTR 479 (Del) Warren Laboratories eligible for deduction u/s 801 A. VS. DCIT (2005) 3 SOT 638 (Mum - Trib) ITO, Ludhiana V/s Impel Forge P Ltd. S.80-IB - Deduction allowable to a (2008) 36 ITRep 454 (Chd) Affirmed in manufacturing unit who does the job work ( 2009) 183 Taxman 38 (P&H) involving the same processes for others.
Section-80 IB-assessee is at liberty to do manufacturing for itself or for others, which makes no difference for purpose of deduction u/s 80-IB. Allowable on job work.
In view of above submissions we have correctly claimed deduction U/S 801C on the profits earned on job work."
The assessee is doing job work for M/s ITC Ltd. at Tahliwal. The assessee has provided the copy of agreement between M/s ITC Ltd., Kolkatta and M/s Cremica Agro Foods Ltd. dated 14th June, 2004. On the perusal of the agreement it is clear that the assessee is providing labour, electricity etc. while the quality supervision during the manufacturing and packing process is done by the employees of M/s ITC Ltd. M/s ITC Limited has provided the plant and machinery required for manufacturing of biscuits, packing etc. M/s ITC Limited is also providing raw material and itself incurring the expenditure for the transportation of raw material and finished products. No separate record as per assessee is being maintained for labour or electricity expenses or any job work expenses incurred by the assessee. The cost of all items on the job work to be performed by the assessee has already been carried out in the agreement as per Annexure B. The know-how including recipe, technology, process information etc. has been provided. The machines are owned by M/s. ITC Ltd. and has been given on hire as per a separate machine hiring agreement to M/s. Mrs. Bector Food Specialities Ltd. Clause 2.1 of Article 2 of the agreement provides that certain machinery and equipments for ITC Ltd. is lying will be hired out by ITC Ltd. under a separate machine agreement. The assessee has provided certain utilities and assets as per Annexure F of the agreement. However, these are being used commonly and M/s ITC Ltd. has contributed 50% for the same/Therefore, all the machinery is provided M/s ITC Ltd. to the assessee. As per the agreement M/s ITC Ltd. is ying to the assessee for electricity and light diesel & oil (LDO) charges per kg of the production.
The assessee has received a sum of Rs.7,60,06,474/- as job charges from M/s ITC Limited during the year.
The Assessing Officer during the assessment proceedings of assessment year 2006-07 has observed on this issue in the case of M/s. Cremica Agro Foods Ltd. , which is relevant this year also as follows:-
5 ITA No.71/Chd/2018A.Y.2014-15 "9. The assessee is doing job work for M/s ITC at Tahliwal.
The assessee has provided the copy of agreement between M/s ITC Ltd., Kolkatta and M/s Cremica Agro Foods Ltd. dated 14th June, 2004. The know-how has been provided by M/s ITC to the assessee and it further provides that the machinery provided by it will be used only for the manufacturing and packing the products of M/s ITC Ltd. The details of the machinery have also been provided in the agreement as Schedule 2 and Annexure F. On the perusal of the agreement it is cleared that the assessee is providing labour, electricity etc. while the quality supervision during the manufacturing and packing process is done by the employees of M/s ITC Ltd. M/s ITC is providing raw material and itself incurring the expenditure for the transportation of raw material and finished products. No separate record as per assessee is being maintained for labour or electricity expenses. The assessee has received Rs.6,21,91,396/- as job charges.
10. The income u/s 80IC is exempted only which is derived by an undertaking from the business of manufacturing or producing any article or thing not prohibited by thirteenth schedule of the Income Tax Act, 1961. The nature of income of job charges cannot be treated to have been derived by the undertaking by manufacturing or producing any article or thing by providing only the labour and electricity. Therefore the proportionate income derived from the job work cannot be claimed as exempted u/s 80IC. Since the assessee has not maintain separate accounts for various expenses incurred on the job work done by it, the income earned from this activity cannot be determined accurately. However, to compute the exempted income and non exempted income u/s 80IC, I adopt the method to calculate it on proportionate basis i.e. Job charges received divided by total sales multiplied by the profits. The depreciation on the machinery provided by M/s ITC has also not been claimed by the assessee, although, it has paid nominal lease charges @ Rs. 12,000/- per annum. The amount to be disallowed is as follows: -
Job charges Rs. 6,21,91,396/- Total sales Rs. 46,23,23,692/- Gross profits (80IC) Rs. 1,21,63,320/-
Amount not exempted = 62191396/462323692 x 12163320 =16,36,199/-.
11. Therefore, an amount of Rs. 16,36,199/- is treated as not exempted u/s 80IC derived from Tahliwal unit ( Una) and will be added that to the income of the assessee. The deductions for depreciation will not be allowed since the machinery of the assessee has not been used.
12. As per form No 10CCB the units has started its activity on 05.10.2004 and the initial assessment year is 2005-06. The Tahliwal units has just commenced its operation and has earned profit of Rs. 1,21,63,320/- the net profit ratio is four times hire them the net profit of Phillaur units all those the gross profit ratio are almost the same. It shows that the assessee has planed the 6 ITA No.71/Chd/2018 A.Y.2014-15 units in such a way that is earned more profit than Phillaur units since the income is exempted from income tax."
The income u/s 80IC is exempted only which is derived by an undertaking from the business of manufacturing or producing any article or thing not prohibited by thirteenth schedule of the Income Tax Act, 1961. It has been held by the Hon'ble Supreme Court in CIT vs. Sterling Foods (237 ITR 579) that the expression 'profits and gains derived from' have been used deliberately by the legislature as the intention was to cover only those receipts which accrued due to actual conduct of the business. Had the intention of legislature been to cover receipts from other sources as well, then instead of using the words,' profits and gains derived from', the expression attributable to which has wider import, would have been used.
Further, to avail of the benefit of deduction provisions, the assessee has to establish that the profits and gains are derived from its industrial undertaking and it is not sufficient that a commercial connection was established between profits earned and the industrial undertaking. The industrial undertaking itself has to be the source of the profit. When the industrial undertaking is engaged in manufacturing then the profit earned from the manufacturing alone qualify for the deduction 80IB.
The nature of income of job charges cannot be treated to have £en derived by the undertaking by manufacturing or producing any article or thing by providing only the labour and electricity. Therefore, the proportionate income derived from the job work cannot be claimed as exempted u/s 80IC. Since the assessee has not maintained separate accounts for various expenses incurred on the job work done by it, the income earned from this activity cannot be determined accurately. However, to compute the exempted income and non exempted income u/s 80IC, I adopt the method to calculate it on proportionate basis i.e. Job charges received divided by total sales multiplied by the profits. The depreciation on the machinery provided by M/s ITC has also not been claimed by the assessee. The amount to be disallowed comes to Rs. 29,43,718/-, the details of same are as follows:-
Sales Rs.33,84,77,491/- Job charges Rs. 7,60,06,474/- Total (sales + job charges) Rs.41,44,83,965/- Net profits (80IC) Rs. 1,60,52,899/-
Amount not exempted = 7,60,06,474 /41,44,83,965 x 1,60,52,899 =29,43,718/-
Therefore, an amount of Rs.29,43,718/- is treated as not exempted u/s 80IC derived from Tahilwal (Una) and will be added that to the income of the assessee.
7.2 The Ld. CIT(A) deleted the addition following the earlier year's order.
7 ITA No.71/Chd/2018A.Y.2014-15 7.3 The matter has further travelled to the Tribunal in the A.Y. 2006-07 which stands adjudicated in the favour of the assessee. For the sake of brevity the relevant portion of the order of the ITAT in the case of the assessee in ITA No. 39 & 40/CHD/2017 dt. 08/12/2017 in the case of M/s. Cremica Agro Foods Pvt. Ltd. for the A.Y. 2006-07.
34. Ground of appeal N.5 raised by the Revenue reads as under:
"5. "Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of Rs.16,36,199/- made by the A.O. on deduction u/s 80IC on job work charges by simply relying on the submissions of the assessee and not by giving any independent findings?"
35. The above ground of appeal is regarding disallowance of deduct ion of proportionate profits of Rs.16,36,199/- on the job charges earned by the assessee from ITC Limited at the Tahliwal Unit . The assessee had received job charges of Rs.6,21,91,396/- from ITC Limited for the manufacture of biscuits. The Assessing Officer held that the assessee is not entitled to deduct ion u/s 80IC of the Act on the profits derived from the same which was computed on proportionate basis at Rs.16,36,199/- .
36. Before the Ld.CIT(Appeals) , the assessee relied upon on a number of case laws in support of its content ion that even vis-à-vis profits derived from job work charges the assessee is entitled u/s 80IC of the Act . The Ld.CIT(Appeals) relying upon the decision of the Hon'ble jurisdictional High Court in the case of CIT Vs. Impel Forge & Allied Industries Ltd. , 326 ITR 27 and the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Northern Aromatics Ltd. (2005) 196 CTR 479 held that the assessee was entitled to claim deduct ion on profits earned on account of job work undertaken by i t holding as under:
Further, the basic process is carried out by the appellant is the same whether the production is done for itself or job work. The Hon'ble Punjab and Haryana High Court in the case of CIT vs Impel Forge and Allied industries Ltd 326 ITR 27 has held that the assessee is at liberty to manufacture for itself or others which makes no difference for the purpose of deduction under section 80IB of the act. Similar view was taken by the Hon'ble Delhi High Court in the case of CIT vs Northern Aromatics Ltd (2005) 196 CTR (Delhi) 479. In view of the same, the reduction in the claim made by the appellant under section 80IC on this account deserves to be deleted. These grounds of appeal are allowed."
37. Before us, the Ld. DR did not point out any infirmity in the order of the Ld.CIT(Appeals) , nor did he bring to our notice any contrary decision of the jurisdictional High Court as opposed to that relied upon by the Ld.CIT(Appeals) while adjudicating the issue. In 8 ITA No.71/Chd/2018 A.Y.2014-15 view of the same, we uphold the order of the Ld.CIT(Appeals) in deleting the reduction in the claim made by the assessee on account of job work charges amount ing to Rs.16,36,199/- The ground of appeal No.5 raised by the Revenue is, therefore, dismissed.
38. Ground No.6 raised by the Revenue reads as under:
"6. "Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.15 Lakh made on account of disallowance out of claim of interest u/s 36(l)(iii) of the Income-tax Act, 1961 simply relying on the submissions of the assessee ignoring the facts that the assessee could not provide the copies of accounts of various persons covered u/s 40A(2)(b) of the Income-tax Act, 1961 despite being given ample opportunity to do so?"
7.4 As the matter stands adjudicated, following the ratio laid down which is squarely applicable to the appeals before us, the grounds raised by the Revenue on this issue are hereby dismissed."
5. The Ld. DR fai r l y conceded that the i ssue had been deci ded i n favour of the assessee i n earl i er years, though he rel i ed upon the order of the A.O.
6. I n vi e w of the above, si nce admi ttedl y the i ssue stands deci ded i n favou r of the assessee i n earl i er years ri ght from assessment year 2007-08 to 2013-14 and no di sti ngui shi ng facts havi ng been brought to our noti ce by the Ld. DR, we see no reason to i nterfere i n the order of the CI T(A) i n al l o wi ng the ass essee's cl ai m of deducti on u/s 8 0I C of the Act on job wor k i ncome earne d by Tahl i wal uni t of the assessee i n Hi machal Pradesh from I TC Ltd. Ground of appeal No.1 rai sed by the Revenue i s, therefore, dismi ssed.
7. Ground No.2 rai sed by the Revenue rel ates to reducti on of profi ts earned by Tahl i wal uni t of the assessee on whi ch i t had cl ai med deducti on u/s 80I C of the Act, by 10%, for the reason that t he enti re profi ts coul d not have b een earned 9 ITA No.71/Chd/2018 A.Y.2014-15 by thi s ne w i ndependent group wi thout havi ng e xperti se, e xperi ence, market share, goodwil l , trade name, know-ho w, etc. As per the A .O. the assessee had uti l i zed the e xperti se etc. of i ts parent uni t at Phi l l aur on account of whi ch i ndi rect benefi t had been deri ved by the assessee to the e xtent of 10% of the profi ts from the parent uni t, whi ch needed to be reduced from the same as per the provisi ons of secti on 80I A( 8) &( 10) of the Act r. w.s. 80I C of the Act. The Ld.CI T( A) al l o wed the assessee's appeal fol l o wi n g hi s order for assessment years 2006-07 and 2007-08.
8. Duri ng the course of heari ng before us i t was poi nted out that thi s i ssue al so had been deci ded i n favour of the assessee by the I TAT i n earl i er y ears i .e, assessment years 2007-08 to 2008-09 and 2010-11 to 2013-14 in I TA No.555/Chd/2017 & Others in thei r order dated 21.5.2018.Dra wi ng our attenti on to the rel evant para 6 of the order, i t was poi nted out that the I . T.A. T. had al l o wed the same on noti ng that i n the case of M/s Cremi ca Agro Foods Pvt. Ltd. the I . T.A. T. had deci ded i denti c al i ssue i n favour of the as sessee i n assess ment year 2006 -07. The rel evant fi ndi ngs of the I . T.A. T. at para 6 of the order are as under:
"6. Issue of disallowance of Section 80IC on indirect benefits A.Y. 2007-08: Ground No. 3 of the Revenue's appeal (Cremica) A.Y. 2010-11: Ground No. 3 of the Revenue's appeal (Cremica) A.Y. 2011-12: Ground No. 2 of the Revenue's appeal (Cremica) A.Y. 2012-13: Ground No. 2 of the Revenue's appeal (Cremica) A.Y. 2013-14: Ground No. 2 of the Revenue's appeal (Cremica) 6.1 The relevant portion of the Assessment Order pertaining to disallowance is as under:10 ITA No.71/Chd/2018
A.Y.2014-15 The assessee is running a unit at Tahliwal claiming exemption u/s 80IC of the Income Tax Act, 1961 established by M/s Cremica Agro Foods Limited in a industrial growth centre in the state of Himachal Pradesh as per section 80IC(2)(ii). M/s. Cremica Agro Foods Ltd. had taken the land on lease from Himachal Pradesh Government for establishing its unit in Himachal Pradesh. The funds and technical know how has been provided by the management since it was already running the similar business at Phillaur. The brand names, products, quantities, packing, sizes/ quantities of the saleable units of the products are the same, as per the discussions with the assessee during the assessment proceedings. The Tahliwal Unit has not paid any expenses for know how, goodwill, trade name, establishing expenses in the market for its products as it got a readymade market generated by Phillaur Units in the last 12 to 15 years, no patent rights expenses given to Phillaur Unit etc. All the Profits of Tahliwal Unit could not have been earned by a newly established independent group without having experience, expertise, market share, goodwill, trade name, know how etc. Therefore, as per Provisions of Section 80IA (8)&(10), 10% of the Profits earned by Tahliwal Unit are considered to be an indirect benefits derived from the parent unit i.e. Phillaur. It may not be out of place to mention that the group has struggled for twelve years to come at this level in the market through Phillaur Unit and had earned very small amount of profits as compared to Tahliwal Unit at present.
The assessee has submitted his reply on the issue as follows:- "Regarding estimated amount of disallowance @ 10% of deduction u/s 80IC in respect of Tahliwal Unit on account some alleged indirect benefits derived from Phillaur Unit by Tahliwal Unit by applying provisions of sub section 8 & 10 to section 801 A. In this regard " it is submitted that no such benefits have been derived by Talhliwal Unit. Moreover the provisions of sub section 8 & 10 to section 801A are not applicable in these circumstances as these provisions refer to transfer of goods and service. While in the 'instant case there is no such transfer of any goods or service and no business has been transacted between the eligible Unit and other Unit of the assessee company which resulted in excess profit to the eligible unit. Unless until any specific benefit is pointed out and expressed in monetary terms, no addition can be made on the basis of conjectures and surmises."
I have duly considered the reply of the assessee. It is observed that the exempted unit is using all the services, reputation, goodwill, experience, depots facilities, sharing of staff for sales and distribution, network of established non- exempted units etc. Therefore, the provisions of sub-section 8 & 10 of Section 80IA r.w.s. 14A of Income Tax Act, 1961 are applicable in the case of the assessee. The Assessing Officer during the assessment proceedings of assessment year 2006- 11 ITA No.71/Chd/2018 A.Y.2014-15 07 has observed on this issue in the case of M/s. Cremica Agro Foods Ltd. , which is relevant this year also as follows:-
"8. The assessee is running a unit at Tahliwal claiming exemption u/s 80IC of the Income Tax Act, 1961 being established in a industrial growth centre in the state of Himachal Pradesh as per section 80IC(2)(ii). The assessee has taken the land on lease from Himachal Pradesh Government for establishing its unit in Himachal Pradesh. The funds and technical know how has been provided by the management since it was already running the similar business at Phillaur. The brand names, products, quantities, packing, sizes/quantities of the saleable units of the products are the same, as per the discussions with the assessee during the assessment proceedings. The Tahliwal Unit has not paid any expenses for know how, goodwill, trade name, establishing expenses in the market for its products as it got a readymade market generated by Phillaur Units in the last 12 to 15 years, no patent rights expenses given to Phillaur Unit etc. All the Profits of Tahliwal Unit could not have been earned by a newly established independent group without having experience, expertise, market share, goodwill, trade name, know how etc. Therefore, as per Provisions of Section 80IA (8)&(10), 10% of the Profits earned by Tahliwal Unit are considered to be an indirect benefits derived from the parent unit i.e. Phillaur. It may not be out of place to mention that the group has struggled for twelve years to come at this level in the market mtpugh Phillaur Unit and had earned very small amount of profits as compared to Tahliwal at present. Therefore, 10% of the net profits claimed to be exempted by assessee for Tahliwal Unit will be determined to be the benefits pertaining to Phillaur Unit who is running the similar business. An amount of Rs. 12,16,332/- taken @ 10% of the amount claimed to be exempted (Rs. 1,21,63,320/-) u/s 80IC as per Audit report will be added in the business income of the assessee for taxation purposes."
In the facts and circumstances of the case and as held in the last assessment year in the case of M/s. Cremica Agro Foods Ltd., Ludhiana on this issue 10% of the net profits (claimed to be exempted by assessee) of Tahliwal Unit will be determined to be the benefits pertaining to Phillaur Unit which is running the similar business. An amount of Rs.16,05,289/- taken @ 10% of the amount claimed to be exempted (Rs.1,60,52,899/-) u/s 80IC will be added in the business income of the assessee for taxation purposes.
6.2 The Ld. CIT(A) has deleted the addition based on the decision taken in the case of the assessee for the A.Y. 2006- 07 in the Appeal no.03/ROT/IT/CIT(A)-l/LDH/2016-17 dated 26.10.2016 by holding as under:-
"I have considered the facts of the case, the basis of the additions made by the Assessing Officer and the arguments of the AR. The AO has reworked the claim under section80IC between the Tahliwal unit and the Phillaur unit on estimated 12 ITA No.71/Chd/2018 A.Y.2014-15 basis without bringing any evidence on record to show whether there has been any transaction between the two units. The appellant has made the allocation of all common expenses on turnover basis and the AO has failed to mention any expense which has not been considered in the said exercise. Thus, the reducing of the eligible profits to the extent of 10% by the AO without any sound basis is unwarranted and is hereby ordered to be deleted.
Further, the basic process is carried out by the appellant is the same whether the production is done for itself or job work. The Hon'ble Punjab and Haryana High Court in the case of CIT vs Impel Forge and Allied industries Ltd 326ITR 27 has held that the assessee is at liberty to manufacture for itself or others which makes no difference for the purpose of deduction under section 80IB of the act. Similar view was taken by the Hon'ble Delhi High Court in the case of CIT vs Northern Aromatics Ltd (2005) 196 CTR (Delhi) 479. In view of the same, the reduction in the claim made by the appellant under section 80IC on this account deserves to be deleted. These grounds of appeal are allowed".
6.3 The matter has further travelled to the Tribunal in the A.Y. 2006-07 which stands adjudicated in the favour of the assessee. For the sake of brevity the relevant portion of the order of the ITAT in the case of the assessee in ITA No. 39 & 40/CHD/2017 dt. 08/12/2017 in the case of M/s. Cremica Agro Foods Pvt. Ltd. for the A.Y. 2006-07.
28. Ground No.4 raised by the Revenue reads as under:
"4.Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance Rs.12,16,332/- made by the A.O. on deduction u/s 80IC claimed by the assessee on Tahliwal Unit without giving any reasons and by simply stating that the A.O. is highly unjustified in denying deduction u/s 80IC to the assessee on the basis of some notional expenses such as knowhow, goodwill, trade name etc. where the A.O. has very clearly held that the provisions of the section 80IA (8) and (10) read with section 80IC are applicable to the assessee's Tahliwal Unit only?"
29. The above ground is with respect to the deduct ion claimed u/s 80IC amounting to Rs.1,21,63,320/- in respect of Tahliwal unit which has been reduced by the Assessing Officer by 10% of the amount of net profits for the reason that the assessee is manufacturing biscuits on its own account as well as doing job work for ITC Limited at Tahliwal , H.P. and further i t is also manufacturing biscuits at Phillaur unit, which is not eligible for any deduct ion of its profits. The Assessing Officer has held that since same business is being done at Phillaur unit, Tahliwal unit has derived benefits by way of knowhow, goodwill, trade name, etc. of Phillaur Unit and held that 10% of the profits earned by the Tahliwal unit 13 ITA No.71/Chd/2018 A.Y.2014-15 were indirect benefits derived from the Phillaur Unit as per the provisions of sect ion 80IA(8) & (10) of the Act .The Assessing Officer reduced the same from the deduct ion claimed u/s 80IC of the Act amounting to Rs.12,16,332/- 30. Before the Ld.CIT(Appeals) the assessee contended that it had specified all conditions laid down u/s 80IC(2) (a) ( i i ) of the Act and had rightly claimed the deduct ion, while the Assessing Officer had wrongly interpreted the provisions of sub-sect ion (8) & (10) of sect ion 80IA of the Act since these sub-sect ions referred to transfer of goods and services to any other business or to any other person while in the case of the assessee there was no transfer of goods or service to any other business or to any other person. I t was pointed out that the assessee had already al located the common expenses incurred to various units on the basis of turnover and, therefore, the denial of deduct ion to the extent of 10% of the profits on the basis of some notional expenses such as knowhow, goodwill , trade name, etc. was highly unjustified.
31. The Ld.CIT(Appeals) after considering assessee's submissions held the deduct ion of eligible profits by the Assessing Officer as unwarranted deleting the same by holding that the entire exercise of the Assessing Officer was done on estimate basis without bringing any evidence on record to show whether there was any transact ion between the two units. The Ld.CIT(Appeals) held that the assessee having al located all common expenses on turnover basis and the Assessing Officer have not pointed out as to which expenses had not been considered, this al location of notional expenses by the Assessing Officer was unjustified and unwarranted. Relevant findings of the Ld.CIT(Appeals) at para 3.2 are as under:
"3.2 I have considered the facts of the case, the basis of the additions made by the Assessing Officer and the arguments of the AR. The AO has reworked the claim under section 80IC between the Tahliwal unit and the Phillaur unit on estimated basis without bringing any evidence on record to show whether there has been any transaction between the two units. The appellant has made the allocation of all common expenses on turnover basis and the AO has failed to mention any expense which has not been considered in the said exercise. Thus, the reducing of the eligible profits to the extent of 10% by the AO without any sound basis is unwarranted and is hereby ordered to be deleted.
32. Before us, the Ld. DR relied upon the order of the Assessing Officer while the Ld. counsel for assessee reiterated the content ion made before the Ld.CIT(Appeals) and relied upon the order of the Ld.CIT(Appeals) .
33. We find no infirmity in the order of the Ld.CIT(Appeals) . Undeniably, the reduction of profits to the extent of 10% has been done by the Assessing Officer on estimate basis without demonstrating by way of evidence whether any expenses on 14 ITA No.71/Chd/2018 A.Y.2014-15 account of knowhow, goodwill, trade name, etc. had been incurred by the Phillaur unit with respect to Tahliwal unit. The same has not been demonstrated even before us. Further as rightly held by the Ld.CIT(A) , the provisions of sect ion 80IA (8) and 80IA (10) cannot be invoked in the present case in the absence of any transact ion between the two units. The Ld. DR has not pointed out any infirmity in the order of the Ld.CIT(Appeals) . We, therefore, uphold the order of the Ld.CIT(Appeals) in deleting the reduction of profits of the Tahliwal unit by 10% of the profits amounting to Rs.16,16,332/-. The ground of appeal No.4 raised by the Revenue is, therefore, dismissed.
6.4 As the matter stands adjudicated, following the ratio laid down which is squarely applicable to the appeals before us, the grounds raised by the Revenue on this issue are hereby dismissed."
9. The Ld. DR fai r l y conceded that the i ssue had been deci ded i n favour of the assessee i n earl i er years, though he rel i ed upon the order of the A.O.
10. I n vi e w of the above, si nce admi ttedl y the i ssue stands deci ded i n favou r of the assessee i n earl i er years ri ght from assessment year 2007-08 to 2013-14 and no di sti ngui shi ng facts havi ng been brought to our noti ce by the Ld. DR, we see no reason to i nterfere i n the order of the CI T(A) i n al l o wi ng the ass essee's cl ai m of deducti on u/s 8 0I C of the Act on i ndi rect benefi t recei ved by the assessee from M/s Cremi ca Agro Food Ltd. Ground of appeal No.2 rai sed by the Revenue i s, therefore, di smi ssed.
1 1. I n t h e r es u l t , t h e a p p e a l of t h e R ev e n u e i s d i s m i sse d .
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/-
संजय गग अ नपणा
ू ग$ता
ु
(SANJAY GARG ) (ANNAPURNA GUPTA)
याय क सद य/ Judicial Member लेखा सद य/ Accountant Member
*दनांक /Dated: 18th January, 2019
*रती*
15 ITA No.71/Chd/2018
A.Y.2014-15
आदे श क त*ल+प अ,े+षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आय-त
ु / CIT
4. आयकर आय-त
ु (अपील)/ The CIT(A)
5. +वभागीय त न0ध, आयकर अपील#य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File
आदे शानसार
ु / By order,
सहायक पंजीकार/ Assistant Registrar
16 ITA No.71/Chd/2018
A.Y.2014-15
Draft dictated Sr.PS
Draft placed before author Sr.PS
Approved Draft comes to the Sr.PS/PS Sr.PS
Order signed and pronounced on
File sent to the Bench Clerk Sr.PS
Date on which file goes to the AR
Date on which file goes to the Head Clerk.
Date of dispatch of Order.