ACIT, Jaipur v. M/S DIGICONTROLS NORTHERN PVT.LTD, Jaipur

ITA 510/JPR/2010 | 2006-2007
Pronouncement Date: 23-09-2011 | Result: Dismissed

Appeal Details

RSA Number 51023114 RSA 2010
Bench Jaipur
Appeal Number ITA 510/JPR/2010
Duration Of Justice 1 year(s) 4 month(s) 6 day(s)
Appellant ACIT, Jaipur
Respondent M/S DIGICONTROLS NORTHERN PVT.LTD, Jaipur
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 23-09-2011
Assessment Year 2006-2007
Appeal Filed On 17-05-2010
Judgment Text
1 ITA 510-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 510/JP/2010 ASSTT. YEAR : 2006-07. THE ACIT CIRCLE-6 VS. M/S. DIGICONTROLS NORTHE RN PVT. LTD. JAIPUR. B-39 GOYAL HOUSE TRIVENI NAGAR TONK ROAD JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINOD JOHARI RESPONDENT BY : SHRI SATISH GUPTA DATE OF HEARING : 07.09.2011 DATE OF PRONOUNCEMENT : 23.09.2011. ORDER DATE OF ORDER : 23/09/2011. PER R.K. GUPTA J.M. THIS IS AN APPEAL BY DEPARTMENT AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2006-07. 2. THE FOLLOWING GROUNDS OF APPEAL HAVE BEEN TAKEN BY THE DEPARTMENT :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN I) DELETING THE ADDITION MADE BY THE AO BY RESTRICT ING THE CLAIMED DEDUCTION UNDER SECTION 80IC. IT IS ADMITTED THAT T HE AO MISAPPLIED THE LAW AND MADE ADDITION IN WRONG MANNE R. HOWEVER NOTHING STOPS THE CIT (A) IN CORRECTLY APPLYING LAW AFTER CONSIDERING THE FACTS OF THE CASE IN TOTALITY. 2 II) NOT DECIDING WHETHER THE GOODS WHICH ARE TRANSF ERRED TO ITS BRANCHES AT 60% OF MRP IS THE MARKET PRICE AS PER S ECTION 80IC(8). III) NOT CONSIDERING THAT THE OTHER UNIT/BRANCHES M ARKETING GOODS WERE INCURRING LOSS OR SHOWING MEAGER PROFIT WHILE THE M ANUFACTURING UNIT AT HARIDWAR IS SHOWING PROFIT IN RESPECT OF WH ICH DEDUCTION UNDER SECTION 80IC HAS BEEN CLAIMED. THE CIT (A) SH OULD HAVE DETERMINED THE PROFIT OF HARIDWAR UNIT FOR CLAIMING DEDUCTION UNDER SECTION 80IC AS PER PROVISIONS OF SECTION 80I A(8). IV) IN ACCEPTING THE WORKING OF ASSESSEE FOR COMBIN ED PROFIT AT 2.23 CRORE WHICH IS COMPLETELY AT VARIANCE WITH ACTUAL S TATE OF AFFAIRS. THE LD. CIT (A) ONLY CONSIDERED SALES FIGURES BUT C OMPLETELY OVER LOOKED THE EXPENSES INCURRED IN MAKING THOSE SALES. 3. BRIEF FACTS OF THE CASE RECORDED IN PARA 2.1 IN THE ORDER OF LD. CIT (APPEALS) ARE AS UNDER :- 2.1. THE FACTS OF THE CASE 'ARE THAT THE APPELLA NT IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF TELECOMMUN ICATION EQUIPMENTS AND ELECTRONIC PRODUCTS INCLUDING WEIGHING SCALES. THE RETURN OF INCOME WAS FILED ON 27.10.2006 DECLARING A TOTAL INCOME AT NIL AFTER CLAIMING DEDUCTION OF RS. 47 64 197/- U/S 80-IC OF THE ACT AGAINST THE ALLOWABLE PROFIT (THOUGH THE ASSESSEE WAS ENTITLED TO DEDUCTI ON OF RS. 54 78 927/- U/S 80-IC OF THE I. T. ACT AS PER THE AUDITORS' CERTIFI CATE). THE CASE WAS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT PROCEE DINGS THE AO OBSERVED THAT THE ASSESSEE WAS NOT MAINTAINING DAY TO DAY DE TAILS OF THE CONSUMPTION OF THE RAW MATERIAL AND THE PRODUCTION OF THE GOODS. THE AO ALSO NOTED THAT THE ASSESSEE HAD ALSO MADE SALES F TRANSFER OF ITS PRODUCTS TO ITS OWN UNITS ON MRP RATE BASIS WHEREAS IT WAS A S ETTLED LAW THAT THE GOODS COULD NOT BE SOLD TO ONESELF. THEREFORE THE AO REJECTED THE BOOK RESULTS. FURTHER IN RESPECT OF THE APPELLANT'S CLA IM FOR DEDUCTION U/S 80-IC OF THE ACT THE AO OBSERVED THAT THE ASSESSEE WAS H AVING THE MANUFACTURING UNIT AT HARIDWAR AND THAT THE PROFIT OF THE HARIDWAR UNIT WAS CLAIMED AS DEDUCTION U/S 80-IC OF THE ACT. THE AO FURTHER NOTED THAT 3 THE APPELLANT WAS TRANSFERRING THE GOODS MANUFACTUR ED AT HARIDWAR UNIT TO ITS BRANCHES AT NAIDA CHENNIA HYDERABAD CALCUTTA BOMBAY AND DELHI AT 60% OF THE MRP WHEREAS THE BRANCHES WERE SELLIN G THOSE GOODS TO THE AGENTS FOR AN AMOUNT WHICH WAS LESS THAN THE MRP. THEREFORE THE AO WAS OF THE VIEW THAT THE APPELLANT WAS FOLLOWING TH AT PRACTICE TO MAXIMIZE THE PROFIT (AND CONSEQUENTLY THE CLAIM OF DEDUCTIO N U/S 80-IC OF THE ACT) OF ITS HARIDWAR UNIT. HENCE THE AO RAISED QUERY IN THAT REGARD. IN RESPONSE THE ASSESSEE FILED WRITTEN SUBMISSIONS. H OWEVER AS PER DISCUSSION CONTAINED ON PAGES 4 TO 7 THE AO NOTICE D VARIOUS DISCREPANCIES IN THE MANUFACTURING AND TRADING DETA ILS SUPPLIED BY THE APPELLANT AND HENCE DID NOT ACCEPT THE SAID REPLY GIVEN BY THE ASSESSEE. THEREAFTER THE AO AS PER DISCUSSION ON PAGES 7 & 8 OF THE ASSESSMENT ORDER HELD THAT APPELLANT WAS ENTITLED TO DEDUCTIO N U/S 80-IC OF THE I.T. ACT TO THE EXTENT OF RS. 6 82 245/- ONLY. WHILE WOR KING OUT THE SAID FIGURE THE AO HAS TAKEN THE COST OF RAW MATERIAL OF ALL TH E UNITS TREATING THE SAME AS COST OF PRODUCTION AT RS. 13 24 85 834/- AND A CCORDINGLY AS PER THE COMPUTATION GIVEN HAS WORKED OUT THE PROFIT OF THE HARIDWAR UNIT AT RS. 6 82 245/- ELIGIBLE FOR DEDUCTION U/S 80-IC OF THE ACT. 4. ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A). D ETAILED WRITTEN SUBMISSIONS FILED ALONG WITH PAPER BOOK. AFTER CONSIDERING THE DETAI LED SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD THE LD. CIT (A) NOTED THAT AO W AS NOT JUSTIFIED IN REFUSING DEDUCTION UNDER SECTION 80IC OF THE ACT AS CLAIMED BY THE ASS ESSEE. ACCORDINGLY HE ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. 5. NOW THE DEPARTMENT IS IN APPEAL HERE BEFORE THE TRIBUNAL. 6. THE LD. D/R STRONGLY PLACED RELIANCE ON THE ORDE R OF AO. THE LD. D/R FURTHER SUBMITTED THAT THE ASSESSEE HAS CLAIMED HIGHER PROF IT IN RESPECT TO ONE UNIT WHEREIN THE ASSESSEE HAS CLAIMED UNDER SECTION 80IC. HOWEVER I N OTHER UNIT THE ASSESSEE HAS SHOWN 4 LOSS. DISPROPORTIONATE EXPENSES HAVE BEEN SHOWN BY THE ASSESSEE. THEREFORE THE AO WAS CORRECT IN REDUCING THE DEDUCTION UNDER SECTION 80IC. 7. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESS EE FIRSTLY PLACED RELIANCE ON THE ORDER OF LD. CIT (A). IT WAS FURTHER SUBMITTED THA T IN GROUND NOS. 1 & 2 RAISED BY DEPARTMENT THERE IS FACTUAL MISTAKES. IN THE GROUN D NO. 1 THE DEPARTMENT HAS ITSELF ADMITTED THAT IT IS ADMITTED THAT AO MIS-APPLIED TH E LAW AND MADE ADDITION IN WRONG MANNER. IT IS FURTHER MENTIONED HOWEVER NOTHING STOPPED THE LD. CIT (A) IN CORRECTLY APPLYING LAW AFTER CONSIDERING THE FACTS OF THE CAS E IN TOTALITY. ACCORDINGLY IT WAS SUBMITTED BY LD. A/R THAT WHEN THIS FACT IS ADMITTE D BY THE DEPARTMENT THEN WHAT IS THE MISTAKE IN THE ORDER OF LD. CIT (A). IN GROUND NO . 2 IT IS MENTIONED THAT NOT DECIDING WHETHER THE GOODS WHICH ARE TRANSFERRED TO ITS BRAN CHES AT 60% OF MRP IS THE MARKET PRICE AS PER SECTION 80IC(8). IN THIS REGARD IT WA S SUBMITTED THAT AGAIN THIS GROUND RAISED BY THE DEPARTMENT IS WRONG AS AO HIMSELF ADMITTED T HAT ASSESSEE HAS TRANSFERRED GOODS AT BRANCHES AT 60% OF MRP. ATTENTION OF THE BENCH WAS DRAWN AT PAGE/PARA OF THE ORDER OF THE AO WHERE THIS FACT HAS BEEN NOTED BY T HE AO. ACCORDINGLY IT WAS SUBMITTED THAT THE LD. CIT (A) AFTER CONSIDERING DETAILED WRI TTEN SUBMISSIONS WHICH HAS BEEN REPRODUCED IN THE ORDER OF LD. CIT (A) THEN CAME T O THE CONCLUSION THAT THE DEDUCTION CLAIMED BY THE ASSESSEE IS JUSTIFIED. RELEVANT POR TION OF ORDER OF LD. CIT (A) WAS EXPLAINED ALSO. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED T HEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERI AL ON RECORD WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). DETAILED WRITTEN SUBMI SSIONS WERE FILED BEFORE LD. CIT (A) EXPLAINING EACH ASPECT OF THE CASE. THEREAFTER THE LD. CIT (A) HAS TAKEN A VIEW THAT 5 DEDUCTION UNDER SECTION 80IC WAS WRONGLY REDUCED BY THE AO. THOUGH THE WRITTEN SUBMISSIONS FILED BY LD. A/R ARE VERY LENGTHY HOWE VER TO UNDERSTAND THE CASE IN A BETTER MANNER THE WRITTEN SUBMISSIONS FILED BEFORE LD. CIT (A) ARE TABULATED HERE AS UNDER WHICH ARE RECORDED IN PARA 2.2 (1.1)PAGE 3 TO 9 IN THE ORDER OF LD. CIT (A). THE PETITIONER HEREBY BEGS TO STATES AS UNDER: 1.1 THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF TELECOMMUNICATION EQUIPMENTS AND ELECTRONIC PRODUCT S INCLUDING WEIGHING SCALES AT ITS MANUFACTURING UNIT SITUATED AT F-1 INDUSTRIAL AREA HARIDWAR (UTTRANCHAL). THESE MANUFACTURED GOODS ARE PARTLY SOLD BY THE MANUFACTURING UNIT SELF AND PARTLY THROUGH ITS MAR KETING UNITS (BRANCHES) LOCATED OUTSIDE THE STATE OF UTTRANCHAL. APART FROM THIS MARKETING UNITS ARE ALSO RESELLING OTHER PRODUCTS AT THEIR OWN. 1.2 THAT SEPARATE BOOKS OF ACCOUNTS FOR THE MANUFA CTURING FACILITIES LOCATED AT HARDWAR ARE MAINTAINED AND ANNUAL ACCOUN TS ARE PREPARED AND AUDITED BY THE AUDITORS UNDER SECTION BOIC OF THE I NCOME TAX ACT 1961 READ WITH RULES 10 CCB OF THE INCOME TAX RULES. THE AUDITED STATEMENTS OF ACCOUNTS AND AUDITOR'S REPORT IN FORM 10CCB WERE SUBMITTED TO THE ASSESSING OFFICER. THE AUDITOR HAS QUANTIFIED DEDUC TION OF RS. 54 78 926 U/S 80IC BUT THE DEDUCTION WAS RESTRICTED TO AVAILA BLE PROFITS OF RS. 47 64 197/-. 1.3 THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION B OIC OF THE INCOME TAX ACT FOR THE ASSESSMENT YEAR 2005-2006 AND THE S AME WBS ALLOWED AS PER ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT (APB 83-88). 1.4(A). THAT THE ASSESSEE HAS MAINTAINED DETAILED B OOKS OF ACCOUNT INCLUDING PRODUCTION RECORDS STOCK REGISTER FOR PU RCHASE OF RAW MATERIALS 6 AND FINISHED GOODS SALES RECORDS AND THE SAME WERE PRODUCED BEFORE THE ASSESSING OFFICER AT THE TIME OF HEARING. SEPARATE BOOKS OF ACCOUNT ARE ALSO MAINTAINED BY ITS VARIOUS MARKETING BRANCHES. 1.4(B). THE MANUFACTURING UNIT HAS TRANSFERRED STOC K OF THE MANUFACTURED GOODS TO ITS MARKETING BRANCHES AT A PRICE WHICH IS 60% OF MRP AS ALLOWED VIDE NOTIFICATION ISSUED UNDER SECTION 4A O F THE CENTRAL EXCISE DEPARTMENT MENTIONED AT S.NO. 69 UNDER HEADING NO . 84.70. COPY OF NOTIFICATION IS ENCLOSED (APS 92-93).5 IT IS FURTHER SUBMITTED THAT TRANSFER OF STOCK TO S ELF (BRANCHES) IS ALSO CONTEMPLATED' IN SECTION 80IC SUB-SECTION(7) R EAD WITH SUB-SECTION (7) TO (12) OF SECTION 80IA OF THE INCOME TAX ACT. 1.5 WHILE PREPARING THE FINAL ACCOUNTS OF THE COMP ANY AS A WHOLE TRANSFER OF STOCK FROM MANUFACTURING UNIT TO BRANCH ES IS KNOCKED OFF AND THE NET SALES OF THE ASSESSEE AS A WHOLE IS REFLECT ED IN THE FINAL CONSOLIDATED AUDITED STATEMENT OF ACCOUNTS. 1.6 THE ASSESSING OFFICER HAS NOT APPRECIATED THE FACTS AND CIRCUMSTANCES OF THE CASE IN ITS RIGHT PERSPECTIVE AND HAS ALLOWED ONLY DEDUCTION OF RS. 6 82 245/- U/S 80IC AS AGAINST THE AVAILABLE DEDUCTION OF RS. 47 64 196/- AS PER INCOME TAX RETURN MED BY THE ASSESSEE. 1.7 THE ASSESSING OFFICER HAS NOT APPRECIATED THE PROVISIONS OF TAX DEDUCTED AT SOURCE AND OTHER PROVISIONS AS CONTAINE D IN THE INCOME TAX ACT WHILE MAKING AN ADDITION OF RS.10 70 941/- UND ER SECTION 40(A) (IA). GROUND NO.1 & 2 2.1 THE LD. DCIT HAS ERRED IN LAW AS WELL AS ON FA CTS IN MAKING THE OBSERVATION AT PAGE NO. 2 PARA NO.1&2 OF THE ASSESS MENT ORDER WITHOUT APPRECIATING AND CONSIDERING ALL FACTS AND RECORDS PRODUCED BEFORE HIM. 7 FOR THE SAKE OF CONVENIENCE PARA NO. 1 IS REPRODUCE D BELOW: PAGE 2 PARA NO.1 OF THE ASSESSMENT ORDER READS AS U NDER: THE ASSESSEE HAVE NOT BEEN MAINTAINED THE DAY TO D AY WISE DETAILS OF THE CONSUMPTION OF THE RAW MATERIAL; AND PRODUCTION OF THE GOODS THE S ALES ARE TRANSFERRED TO ITS SELF UNIT ON MRP RATE BASIS WHEREAS IT IS SETTLED LAW THAT THE GOODS COU LD NOT BE SALE TO HIMSELF. AS THE POINT ARE IN DETA IL DISCUSSED IN THE ASSESSMENT ORDER. THEREFORE THE RE SULT THE BOOK OF ACCOUNTS IS NOT DECLARED THE FAIR AND TRUE INCOME OF THE ASSESSEE THEREFORE THE SAME ARE HEREBY REJECTED. 2.2 IT IS SUBMITTED THAT THE ASSESSEE HAD PRODUCED ALL BOOK OF ACCOUNTS INCLUDING STOCK REGISTER OF RAW MATERIAL CONSUMPTI ON AND FINISHED GOODS. AT NO POINT OF TIME ANY DISCREPANCY WHATSOEVER IN T HE BOOKS OF ACCOUNT AS MAINTAINED BY THE ASSESSEE COMPANY WAS DETECTED BY THE LD. DCIT. WE ARE PRODUCING BEFORE YOUR GOODSELF ALL BOOKS OF ACC OUNTS INCLUDING STOCK REGISTER FOR YOUR HONOR'S KIND PERUSAL AND RETURN. 2.3 THE LD. DCIT HAS NOT APPRECIATED/CONSIDERED TH E PROVISIONS OF SECTION 80IC SUB-SECTION 7 OF THE INCOME TAX ACT TH AT SUB-SECTION 5 7 TO 12 OF SECTION 80-IA ARE ALSO APPLICABLE TO SECTION 80IC. FOR YOUR READY REFERENCE TEXT OF SUB-SECTION 7 OF SECTION 80LA IS PRODUCED AS UNDER: THE SUB-SECTION 7 OF 80LA IS REPRODUCED HERE AS UND ER: THE DEDUCTION UNDER SUB-SECTION (1) FROM PROFITS AND GAINS DERIVED FROM AN UNDERTAKING SHALL NOT BE ADMISSIBLE UNLESS THE ACCOUNTS OF THE UNDERTAKING FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR FOR WHICH THE DEDUCTION IS CLAIMED HAVE BEEN AUDITED BY AN ACCOUNTANT AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288 AND THE ASSESSES FURNISHES ALONG WITH HIS RETURN OF INCOME THE REPORT OF SUCH AUDIT IN THE P RESCRIBED FORM DULY SIGNED AND VERIFIED BY SUCH ACCOUNTANT. THE SUB-SECTION B OF 80LA IS ALSO REPRODUCED HERE A S UNDER: WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSE O F THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE OR WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF ANY OTHER BUSINES S CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS AND IN EITHER CASE THE CONSIDERATION IF ANY FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBL E BUSINESS DOES NOT CORRESPOND TO THE 8 MARKET VALUE OF SUCH GOODS AS ON THE DATE OF TRANSF ER THEN FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER IN EITHER CASE HAD BE EN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THAT DATE: PROVIDED THAT WHERE IN THE OPTION OF THE ASSESSING OFFICER THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS IN T HE MANNER HEREINABOVE SPECIFIED PRESENTS EXCEPTIONAL DIFFICULTIES THE ASSESSING OFFICER MAY COMPUTE SUCH PROFITS AND GAINS .ON SUCH REASONABLE BASIS AS HE DEEM FIT. 2.4 THAT THE LD. DCIT HAS WRONGLY INTERPRETATED TH E PROVISIONS OF THE ACT AND ACCORDING TO THE PROVISIONS OF THE ACT AS C ITED ABOVE THE ASSESSEE COMPANY IS PERMITTED TO TRANSFER THE GOODS TO ITS B RANCHES. IT IS SUBMITTED THAT AS A MATTER OF PRACTICE HARDW AR UNIT IS TRANSFERRING GOODS TO ITS MARKETING UNITS AT 60% OF MRP PRICE AS PER CENTRAL EXCISE RULES. WE ARE ATTACHING HERE WITH NO TIFICATION ISSUED BY EXCISE AUTHORITY UNDER SECTION 4A FOR CLAIMING ABAT EMENT AS PERCENTAGE OF RETAIL SELLING PRICE. (KINDLY SEE PAGE NO.92-93 S.NO.69 ITEM NO. 8470). 2.5 THE HARDWAR UNIT IS RECORDING STOCK TRANSFER TO ITS BRANCHES AS SALE IN ITS BOOKS AND THE SAME WERE RECORDED AS PUR CHASES IN THE BOOKS OF BRANCHES. WHILE PREPARING FINAL ACCOUNTS THE TRANSFER OF GOO DS (SALES) FROM HARDWAR TO BRANCHES IS KNOCKED OFF AND ONLY THE NET SALES MADE TO OUTSIDE PARTIES/CLIENTS ARE TREATED AS SALES. IT IS THEREFORE PRAYED THAT THE OBSERVATIONS AND FINDINGS MADE BY LD. DCIT ARE NOT CORRECT. FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 80 IC IT IS SUBMITTED THAT:- 9 (A) SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED AT IT S MANUFACTURING UNIT AT HARDWAR AND ARE BEING AUDITED BY A QUALIFIED AUD ITOR UNDER THE PROVISIONS OF INCOME TAX ACT. IN PURSUANCE TO THIS OUR AUDITED STATEMENT OF ACCOUNTS WERE SUBMITTED TO THE INCOME TAX DEPART MENT AND THE AUDITOR HAS QUANTIFIED THE ALLOWABLE DEDUCTION UNDE R SECTION 80IC FOR RS.54 78 926/-. (APB 5-21). (B) THAT THE UNIT IS REGISTERED WITH THE DIRECTOR OF SSI UNIT AT UTTRANCHAL. COPY OF THE REGISTERED CERTIFICATE IS E NCLOSED. (APB 102- 103). (C) THAT THE UNIT IS ALSO REGISTERED WITH CENTRAL EXCISE DEPARTMENT. THE COPY OF THE LETTER ISSUED BY THE EXCISE DEPARTM ENT IS ENCLOSED. (APB 89-91 & 104-106). 2.6 THE ASSESSEE COMPANY DURING THE COURSE OF ASSE SSMENT PROCEEDINGS HAS SUBMITTED TO THE LD. DCIT LETTERS DATED 28.11.2008 AND 05.12.2008. (03.12.2008) COPIES OF THE LETTERS ARE ENCLOSED HEREWITH. (APB 108-118). 2.7 THE LD. DCIT HAS NOT CONSIDERED THE SUBMISSION S IN ITS RIGHT PERSPECTIVE. 2.8 TOTAL SALES OF THE MANUFACTURED GOODS OF THE H ARDWAR UNIT ARE AS FOLLOWS:- 1. DIRECT SALES TO CUSTOMERS RS. 1 84 70 216 2. SALES THROUGH STOCK TRANSFER TO BRANCHES RS. 1 3 70 22 180 TOTAL SALES OF HARDWAR UNIT RS. 15. 54. 92.39 6 THE VALUE OF RS. 13 70 22 180/- REPRESENTS THE AMOU NT OF STOCK TRANSFERRED TO ITS BRANCHES @ 60% OF MRP AND THE SA ME GOODS HAVE BEEN SOLD BY THE BRANCHES FOR RS.15 87 41 228/- AS DETAI LED BELOW (IN FACT BRANCHES HAVE EARNED GROSS PROFIT OF RS. 2 17 19 04 8/-) : 10 TOTAL OF MANUFACTURED GOODS SOLD RS.17 71 17 049 LESS: SALES MADE BY HARDWAR UNIT RS. 1 83 15 821 SALES MADE BY BRANCHES RS. 15 87 41 228 LESS: VALUE OF STOCK TRANSFER TO BRANCHES BY HARDWAR UNIT RS. 13 70 22 128 GROSS PROFIT EARNED BY THE BRANCHES RS. 2 17 19 048 THEREFORE THE ASSESSEE WAS RATHER AT LOSS BY CLAIMI NG DEDUCTION U/S 80LC BY TAKING SALE VALUE OF GOODS AT STOCK TRANSFE R PRICE-60% OF MRP AS AGAINST ACTUAL SALE PRICE TO THE CUSTOMERS BECAUSE THE STOCK TRANSFER PRICE WAS ALWAYS LESS THAN ACTUAL SALE PRICE TO THE CUSTO MERS. THE CLAIM OF THE ASSESSEE UNDER SECTION 80 IC WOULD HAVE BEEN MUCH H IGHER HAD THE ACTUAL SALE PRICE OF GOODS TO THE CUSTOMERS WAS CONSIDERED AS SALE PRICE OF THE ASSESSEES FOR CLAIMING DEDUCTION (KINDLY REFER TO A PB-95). 2.9 IN PAGE NO.6 OF THE ASSESSMENT ORDER THE LD. A O HAS DONE SOME WORKING. THIS WORKING SUFFERS FROM THE BLUNDER MIST AKE THAT HE HAS COMPLIED CERTAIN DETAILS FROM THE SCHEDULE GIVEN IN THE NOTES ON ACCOUNTS OF THE MAIN BALANCE SHEET. IN THIS SCHEDULE THERE A RE DETAILS UNDER TWO HEADS NAMELY COMMUNICATION PRODUCTS & WEIGHING SCAL ES. HOWEVER THE LD. A.O. HAS TAKEN FACTS AND FIGURES OF ONLY ONE IT EM I.E. WEIGHING SCALE AND TOTALLY IGNORED THE FIGURE OF SALE OF COMMUNICA TION PRODUCTS. TOTAL SALES FOR THE YEAR AS PER AUDITORS' REPORT AR E AS FOLLOWS:- SALES TELECOM PRODUCT WEIGHING SCALES TOTAL SALES TRADING 1 17 13 480 15 59 072 1 32 72 552 MANUFACTURING 13 85 33 845 1 36 60 718 15 21 94 563 EXPORTS 2 42 40 981 4 63 500 2 47 04 481 TOTAL 17 44 88 307 1 56 83 290 19 01 71 597 CONSOLIDATED SALES OF THE COMPANY ARE RS.19 01 71 5 97/-. THEREFORE THE FIGURE PRESENTED IN AUDITORS' REPORT UNDER ABOVE FORMAT AND 11 CONSOLIDATED SALES AS SHOWN IN THE PROFIT AND LOSS ACCOUNT IS VERIFIABLE. THEREFORE THE ENTIRE WORKING DONE BY THE LEARNED A O IS AWAY FROM THE FACTS OF THE CASE (APB 26). 2.10 AT PARA 5 ON PAGE 7 OF THE AO'S ORDER THE LD . AO HAS RECOMPUTED THE AMOUNT OF ELIGIBLE DEDUCTION UNDER S ECTION 80ICOF THE ACT. HE HAS OBSERVED THAT THE WARRANTY PERIOD EXPEN SES HAVE TO BE DEBITED TO THE MANUFACTURING UNIT. AND THEREFORE THE LD. A O HAS ALLOWED DEDUCTION UNDER SECTION 80LC OF ONLY RS. 6 82 245/- AS AGAINST DEDUCTION OF RS. 54 78 926/- CERTIFIED BY THE AUDITORS OF THE ASSESSEE. 2.11 THE LD. AO HAS NOT CONSIDERED THE AMOUNT OF OP ENING STOCK AND CLOSING STOCK. HE HAS ONLY TAKEN THE AMOUNT OF CONS OLIDATED PURCHASES MADE BY THE MANUFACTURING UNIT AND ITS BRANCHES AS RAW MATERIAL CONSUMED. THE COLLECT POSITION OF CONSOLIDATED AMOU NT OF CONSUMPTION OF RAW MATERIAL BY THE MANUFACTURING UNIT VIS--VIS CO NSUMPTION OF MATERIAL BY THE BRANCHES DURING THE COURSE OF WARRANTY PERIO D IS SUMMARIZED BELOW: 12 COMMUNICATION PRODUCTS WIGHING SCALES TOTAL A. OPENING STOCK RAW MATERIAL 2 871 127 - 2 871 127 CONSUMABLE STORES 25 480 - 25 480 SUB TOTAL 2 896 607 - 2 896 607 FINISHED GOODS 4 560 592 1 003 675 5 564 267 SUB TOTAL 7 457 199 1 003 675 8 460 874 TRADED ITEMS 132 274 448 968 581 242 GRAND TOTAL (RS.) A 7 589 473 1 452 643 9 042 116 A. PURCHASES RAW MATERIAL 121 462 934 8 161 766 129 624 700 CONSUMABLE STORES 2 861 133 - 2 861 133 SUB TOTAL 124 324 067 8 161 766 132 485 833 TRADED ITEMS 12 273 945 859 511 13 133 456 TOTAL (RS.) B 136 598 012 9 021 277 145 619 289 GRAND TOTAL (A+B) 144 187 485 10 473 920 154 661 405 A. CLOSING STOCK RAW MATERIAL 3 468 550 368 552 3 837 102 CONSUMABLE STORES 142 660 - 142 660 SUB TOTAL 3 611 210 368 552 3 979 762 FINISHED GOODS 5 507 949 1 853 250 7 361 199 SUB TOTAL 12 730 369 2 590 354 15 320 723 TRADED ITEMS 500 557 - 500 557 TOTAL (RS.) C 13 230 926 2 590 354 15 821 280 NET TOTAL (RS.)(A-C) 130 956 559 7 883 566 138 840 125 CONSUMPTION OF RAW MATERIAL & CONSUMABLES STORES TOTAL OF OPENING STOCK 2 896 607 ADD : TOTAL OF PURCHASES 132 485 833 135 382 440 LESS : CLOSING STOCK 3 979 762 131 402 678 IT IS SUBMITTED THAT THE AMOUNT OF RAW MATERIAL CON SUMED TAKEN BY THE LD. DCIT IS NOT 13 24 85 834/- BUT IT IS RS.13 14 02 678/- GIVING A DIFFERENCE OF RS. 10 83 156/- AS EXCESS CONSUMPTION OF RAW MATERIAL AND CONSUMABLES BY BRANCHES AND MANUFACTURING UNIT (APB 26). 13 2.12 IT IS FURTHER SUBMITTED THAT AS PER AUDITED S TATEMENTS OF HARDWAR UNIT (KINDLY REFER TO APB PAGE NO.7) THE CONSUMPTIO N OF RAW MATERIAL FOR THE PURPOSE OF MANUFACTURING AT HARDWAR WAS ONL Y RS. 12 77 16 634/-. THE LD. DCIT HAS TAKEN THE CONSUMPTION OF RAW MATER IAL FOR RS. 13 24 85 833/- THUS THE LD. DCIT HAS WRONGLY UNJ USTIFIABLY WITHOUT CONSIDERING FULL FACTS AND RECORDS OF THE COMPANY H AS TAKEN EXCESS CONSUMPTION OF RAW MATERIAL BY RS. 47 69 199/- (RS. 13 24 B5 833/- - RS.12 77 16 634/-). IN THIS REGARD IT IS SUBMITTED THAT AS PER TRADE PRACTICE VARIOUS MARKETING BRANCHES OF THE ASSESSEE COMPANY ARE PROVIDING NECESSARY SUPPORT SERVICES TO THE CUSTOMERS DURING THE WARRANTY PERIOD. FOR THIS PURPOSE THEY ARE INCURRING EXPENDITURE ON CONSUMABLES STORE ITEMS. 2.13 THEREFORE ONCE AGAIN WE SUBMIT THAT THE LD. AO HAS ERRED IN TAKING THE COST OF THIS CONSUMABLES ITEMS OF RS. 13 24 85 834/- AS COST OF HARDWAR UNIT WITHOUT GIVING ANY CORRESPONDING BENEF IT OF PROFIT EARNED BY THE THESE MARKETING BRANCHES BEING DIFFERENCE OF SE LLING PRICES TO THE CUSTOMERS AND THEIR PURCHASE COST FROM HARDW8R UNIT WHICH WAS AT STOCK TRANSFER PRICE-WHICH IS 60% OF MRP. THEREFORE THE ENTIRE WORKING DONE BY LD. AO IN WORKING OUT THE AMOUNT OF ELIGIBLE DED UCTION UNDER SECTION BO IC AT RS. 6 82 245/- IS WRONG. 2.14 THE LD. AD HAS TWO OPTIONS BEFORE HIM:- OPTION 1 TO TAKE THE SALE VALUE OF HARDWAR UNIT AT RS. 15 54 92 396 BEING FULL PRICE FOR DIRECT SALE TO CUSTOMERS AND AT 60% OF MRP-BEING STOCK TRANSFER PRICE FOR SALE TO MARKETING UNITS AND IGN ORE THE EXPENSES INCURRED BY THE MARKETING UNITS ON CONSUMABLE STORES-CONSUME D BY SUCH UNITS FOR PROVIDING SUPPORT TO CUSTOMER DURING THE WARRANTY P ERIOD. THE AUDITORS' OF THE ASSESSEE HAVE GIVEN THEIR REPORT UNDER SECTI ON BOIC ON THIS BASIS 14 ONLY. ON THIS BASIS THE AMOUNT OF ELIGIBLE DEDUCTIO N COMES TO RS.54 78 926/- AS CERTIFIED BY THE AUDITORS' OF THE ASSESSEE. OPTION 2 A. TO TAKE THE VALUE OF SALE OF HARDWAR UNIT AS SA LE PRICE RECEIVED FROM THE CUSTOMER AS PER MAIN BALANCE SHEET OF THE COMPANY FOR MANUFACTURED GOODS AT RS. 17 71 17 049 WHICH INCLUD ES TOTAL SALE OF MANUFACTURED GOODS BY HARDWAR UNIT AND BY ALL THE M ARKETING UNITS TO THE CUSTOMERS AND ALSO CONSIDER THE EXPENSES INCURRED B Y THE MARKETING UNITS ON CONSUMABLE STORES AS AN ITEM OF EXPENSES AS SUG GESTED BY THE LD. AO. B. IT IS SUBMITTED THAT THE SCHEME FOR CLAIMING DE DUCTION UNDER SECTION 80 IC ALSO PRESCRIBE THAT 'INTER DIVISIONAL OR BRANCH TRANSFER OF GOODS OR SERVICES SHOULD BE AT MARKET VALUE'. SECTI ON 80IC(7) SAYS THAT PROVISIONS AS CONTAINED IN SUB SECTION 5 AND SUBSEC TION 7 TO 12 OF SECTION80 IA SHALL APPLY TO THE ELIGIBLE UNDERTAKIN G UNDER THIS SECTION ALSO. SECTION 80LA (B) SAYS THAT PROFITS AND GAINS OF SUC H ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER HAD BEEN MADE AT THE MARKET VALUE OF GOODS. THEREFORE BY VIRTUE OF PROVISIONS OF SUB SECTION 7 OF SECTION 80 IC THE SAME RULE WILL APPLY ON UNDERTAKINGS CLAIMING DEDUC TION UNDER SECTION 80IC. C. THEREFORE THE AMOUNT OF DEDUCTION ALLOWABLE TO THE ASSESSEE UNDER SECTION 80IC AS PER OPTION 2 SHALL BE COMPUTED AS U NDER:- TOTAL SALES OF THE MANUFACTURED GOODS OF THE ASSESS EE AT MARKET PRICE RS. 17 71 17 049 LESS'- COST OF RAW MATERIAL (AS TAKEN BY AO) RS. 13 24 85 834 DIRECT EXPENSES (AS TAKEN BY AO) RS.1 47 73 297 ADMN. AND OTHER EXPENSES (AS TAKEN BY AO) RS. 74 28 342 DEPRECIATION (AS TAKEN BY AO) RS. 1 22 676 TOTAL RS. 15 48 10 151 DEDUCTION UNDER SECTION 80LC RS. 2 23 06 898 15 THE DEDUCTION COMPUTED AS ABOVE SHOULD BE RESTRICTE D TO THE TOTAL PROFITS OF THE ASSESSEE COMPUTED UNDER THE HEAD INC OME FROM BUSINESS AND PROFESSION. IN VIEW OF THE ABOVE SUBMISSIONS IT IS REQUESTED T HAT FULL DEDUCTION UNDER SECTION 80LC AS CLAIMED BY THE ASSE SSEE AND AS COMPUTED BY THE AUDITOR OF THE ASSESSEE MAY BE GIVEN. 8. THEREAFTER THE LD. CIT (A) HAS GIVEN THE FINDIN GS RECORDED IN PARA 2.3 AS UNDER :- 2.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF LD. AR. I HAVE ALSO PERUSED THE RELE VANT DETAILS I DOCUMENTS I MATERIAL AVAILABLE ON RECORDS. ON PERUS AL OF THE SAME I FIND SUBSTANCE IN THE CONTENTIONS / ARGUMENTS RAI SED BY THE LD. AR IN SUPPORT OF THIS GROUND OF APPEAL. IT IS OBSER VED THAT THE MAIN ISSUE INVOLVED IN THIS GROUND OF APPEAL IS AS TO WH ETHER THE APPELLANT IS ENTITLED TO DEDUCTION U/S 80-LC OF THE I.T. ACT TO THE EXTENT OF RS. 6 82 245/- (AS WORKED OUT BY THE LD. AO) OR TO THE EXTENT OF RS.54 78 927/- (AS WORKED OUT BY THE AUDI TORS IN THEIR REPORT) WHICH WAS ACTUALLY CLAIMED TO THE EXTENT O F ALLOWABLE PROFIT OF RS.47 64 1971- BY THE ASSESSEE. IN THIS R EGARD IT IS OBSERVED THAT THE DIFFERENCE IN THE AFORESAID TWO F IGURES HAS COME BECAUSE OF THE FACT THAT WHILE WORKING OUT THE PROF IT OF THE HARIDWAR UNIT THE APPELLANT HAS TAKEN THE COST OF RAW MATERIAL AT RS.12 77 16 634/- (PERTAINING TO ONLY HARIDWAR UNIT ) WHEREAS THE LD. AO HAS TAKEN THE COST OF RAW MATERIAL AT RS. 13 24 85 834/- (PERTAINING TO HARIDWAR UNIT AND ALL THE OTHER UNIT S). IT IS OBSERVED THAT THE AO HAS CONSIDERED THE COST OF RAW MATERIAL OF ALL THE UNITS WHILE WORKING OUT THE PROFIT OF THE HARIDWAR UNIT ON THE GROUND THAT THE SAME CONSTITUTED THE COST OF PRODUCTION AN D HENCE WERE TO 16 BE TAKEN INTO ACCOUNT FOR WORKING OUT THE PROFIT OF THE HARIDWAR MANUFACTURING UNIT OF THE APPELLANT. HOWEVER LD. A R HAS CONTESTED THE SAME ON THE GROUND THAT IF THE LD. AO WAS TO TAKE THE COST OF PRODUCTION OF ALL THE UNITS INTO ACCOUNT T HEN HE SHOULD HAVE CONSIDERED THE ENTIRE SALES OF ALL THE UNITS ALSO I NTO ACCOUNT WHILE WORKING OUT THE PROFIT OF THE MANUFACTURING UNIT AT HARIDWAR. LD. AR POINTED OUT THAT; BY THAT METHOD THE PROFIT OF THE HARIDWAR UNIT WOULD HAVE BEEN MUCH HIGHER I.E. AT RS. 2 23 0 6 898/- AND ACCORDINGLY THE APPELLANT WOULD HAVE BEEN ENTITLED TO THE DEDUCTION U/S 80-LC OF THE ACT AMOUNTING TO RS. 2 2 3 06 898/- WHEREAS THE APPELLANT HAS CLAIMED THE DEDUCTION U/S 80IC OF THE ACT ONLY TO THE EXTENT OF RS.47 64 197/- (AGAINST T HE ELIGIBLE DEDUCTION OF RS. 54 78 926/- AS PER THE AUDIT REPOR T). ON GOING THROUGH THE RELEVANT FIGURES OF THE MANUFACTURING A ND TRADING ACCOUNTS OF THE HARIDWAR UNIT AND OF THE OTHER UNIT S OF THE APPELLANT I FIND THAT THE AFORESAID CONTENTION OF LD. AR IS CORRECT. THEREFORE AFTER CONSIDERING THE ENTIRE RELEVANT MA TERIAL ON RECORD IT IS HELD THAT THE LD. AO WAS NOT JUSTIFIED IN RES TRICTING THE AMOUNT OF ELIGIBLE DEDUCTION U/S 80-IC OF THE ACT TO RS. 6 82 245/- AGAINST THE CLAIMED DEDUCTION U/S 80-IC OF THE I.T. ACT IN THE APPELLANT'S CASE. CONSEQUENTLY THIS GROUND OF APPEAL IS ALLOWE D. THESE FINDINGS OF LD. CIT (A) ARE FINDING OF FACT W HICH NEITHER COULD BE CONTROVERTED NOR ANY MATERIAL WAS BROUGHT ON RECORD TO HOLD OTHERWIS E. IF THE DETAILED WRITTEN SUBMISSIONS FILED BEFORE LD. CIT (A) WHICH ARE REPRODUCED SOMEW HERE ABOVE IN THIS ORDER ARE TAKEN INTO CONSIDERATION THEN THE CASE BECOMES CRYSTAL C LEAR THAT IF ASSESSEE COULD NOT HAVE TRANSFERRED THE MATERIAL TO ITS BRANCHES THEN IT WO ULD HAVE EARNED MORE PROFIT IN THE UNIT IN WHICH DEDUCTION UNDER SECTION 80IC HAS BEEN CLAI MED. HOWEVER THE ASSESSEE TRANSFERRED THE GOODS AT 60% MRP TO ITS BRANCHES AN D IN THIS WAY THE PROFIT WHICH WOULD 17 HAVE BEEN EARNED IN THE BRANCH IN WHICH DEDUCTION U NDER SECTION 80IC HAS BEEN REDUCED AND THEREFORE DEDUCTION UNDER SECTION 80IC HAS BE EN CLAIMED ON A LESSER AMOUNT. THIS ASPECT HAS BEEN EXAMINED BY LD. CIT (A) AND THEN ON LY HAS HELD THAT ASSESSEE HAS CLAIMED DEDUCTION RIGHTLY. ACCORDINGLY THE ORDER OF AO WAS REVERSED BY LD. CIT (A). THE ORDER OF LD. CIT (A) REMAINED UNCONTROVERTED THEREFORE WE SEE NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT (A). ACCORDINGLY THE SAME IS CON FIRMED. 9. IN THE RESULT APPEAL OF THE DEPARTMENT IS DISMI SSED. 10. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 23 .9.2011 SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR D/- COPY FORWARDED TO :- THE ACIT CIRCLE-6 JAIPUR. M/S. DIGICONTROLS NORTHERN PVT. LTD. JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 510/JP/2010) BY ORDER AR ITAT JAIPUR.