Case Law Details
Aristo Industries Vs ITO (ITAT Kolkata)
It is not in dispute that the assessee had maintained separate books of accounts for trading activity and manufacturing activity. We find that the assessee had claimed deduction u/s 80IE of the Act only in respect of profits derived from manufacturing activity only. It is not in dispute that the profits derived from manufacturing activity of the assessee is eligible for claim of deduction u/s 80IE of the Act. The Audit Report in Form No. 10CCB was made available to the revenue for supporting the claim of deduction u/s 80IE of the Act. It is not in dispute that the assessee had produced the books of accounts for trading and manufacturing activities. The initial assessment year for claim of deduction u/s 80IE of the Act was Asst Year 2010-11 as per Audit Report in Form No. 10CCB. The ld AR stated that no scrutiny assessments were framed by the ld AO for Asst Years 2010-11 and 2011-12. He also stated that subsequently for the Asst Year 2014-15, the scrutiny assessment was framed u/s 144 of the Act accepting the claim of deduction u/s 80IE of the Act for the manufacturing unit of the assessee. It is not in dispute that both Aristo Texcon Pvt Ltd and M/s Segmach Inc., are associated concerns of the assessee firm having common shareholding and common partners. It is not in dispute that the assessee had maintained proper quantitative details separately for trading as well as for manufacturing activities in its stock register. The Central Excise registers, transport challans, way bills, C forms etc as required by the ld AO could not be produced by the assessee in view of the fact that the said records were lying at Assam i.e at the manufacturing unit . Infact the assessee had made several representations before the ld AO and Administrative CIT for transfer of jurisdiction from Kolkata to Assam which was not considered by the revenue. Accordingly, certain documents as called for by the ld AO could not be produced before him.
We find that the ld AO in order to arrive at the conclusion that the assessee had made abnormal profits in its manufacturing activity had stated that the assessee had sold goods to its associate concern M/s Aristo Texcon Pvt Ltd at higher prices than the sales made to M/s Segmach Inc..
From the table presented by Assessee, it could be seen that the assessee had sold goods to both M/s Aristo Texcon Pvt Ltd and M/s Segmach Inc at the same rate of Rs 1920 per piece after 23.5.2011 onwards. The first sale of M/s Segmach Inc. of Felt Block had been made only 12.10.2011 at Rs 1920 per piece. The same rate of Rs 1920 per piece was adopted by the assessee in respect of Felt Block sale made to M/s Aristo Texcon Pvt. Ltd. Moreover, the ld AR submitted that both M/s Segmach Inc and M/s Aristo Texcon Pvt. Ltd are associate concerns of the assessee firm , in as much as, in the former concern, the partners of the assessee firm are having equity stake and in the latter concern, two of the partners of the assessee firm are partners. Hence it is found that there is no variation in rate per piece between the two associate concerns of the assessee firm. Hence the allegation of the ld AO in this regard is factually incorrect. In any case, we find that the books of accounts maintained for both trading and manufacturing activity separately have been produced before the ld AO, which were not rejected by the ld AO. Hence there is no scope for making estimated profit at 12% of turnover in manufacturing activity of the assessee. The ld AO has got power to invoke the provisions of section 80IA(10) of the Act. But the same has been proved as not applicable in the facts of the instant case in as much as there was no variation in selling price between the two concerns taken by the ld AO, which is evident from the aforesaid table. Moreover, the ld AO, without any basis , had held that the profits of the manufacturing activity would have to be determined only at 12% of sales. This has got no rationale supported by proper workings. In addition to this, the ld AO further stated that the differential profit figure of Rs 41,44,392/- needs to be added back to the trading profit of the assessee, without any basis. There is absolutely no connection between the trading activity and manufacturing activity of the assessee. In fact we find that lot of common administrative expenses were in fact debited only in the manufacturing account as could be evident from the independent profit and loss account summarized supra, without making apportionment of common expenses between trading and manufacturing activity. If the same is done, then the assessee would be entitled for higher deduction u/s 80IE of the Act in view of increased profits in manufacturing activity. In this scenario, we hold that there is absolutely no basis for the conclusion of the ld AO that the differential profits figure of Rs 41,44,392/-represents trading profit of the assessee.
In view of the aforesaid findings in the facts and circumstances of the case, we hold that there is absolutely no case made out by the ld AO for shifting of profits from trading activity to manufacturing activity of the assessee and hence we have no hesitation in directing the ld AO to delete the addition of Rs 41,44,392/- made in the assessment. Accordingly, the grounds raised by the assessee are allowed.
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