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The DCIT, Circle 3(1), Aayakar Bhavan, Mum bai-400 020 Vs. M/s. Asian Electronics Ltd., 1219, Maker Chambers-V, Nariman Point, Mumbai-400 021
May, 22nd 2015
                   ,    `'   

  IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI

    .  ,                                  ,    
                                                

          BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND

              SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER


             / I.T.A. No. 4324/Mum/2011
           (   / Assessment
                    Year : 2007-08
The DCIT, Circle 3(1), /
                    M/s. Asian Electronics
Aayakar Bhavan,     Ltd.,
                       Vs.
Mum bai-400 020     1219, Maker Chambers-V,
                    Nariman Point,
                    Mumbai-400 021
    . /   . /PAN/GIR No. : AABCA 0832C
( /Appellant)   ..      (  / Respondent)
   / Appellant by:    Ms. Vandana Sagar
          /Respondent by:                          None


               / Date of Hearing
                                                          :13.05.2015
              /Date of Pronouncement :20.05.2015


                             / O R D E R


PER N.K. BILLAIYA, AM:

      This is an appeal by the Revenue preferred against the order of the
Ld. CIT(A)-7, Mumbai dt. 18.3.2011 pertaining to assessment year 2007-
08.
                                     2                     ITA. No. 4324/M/2011


2.     The Revenue has raised four substantive grounds of appeal. The
grievance of the Revenue revolves around the deduction claimed u/s. 80-
IC of the Act.


3.     Briefly stated the facts of the case are that the assessee is in the
business of manufacturing and selling of energy saving devices and
Lighting products. Return of income for the year was filed on 26.10.2007
declaring total income at Rs. 31,29,79,324/-. The return was selected for
scrutiny assessment.     While scrutinizing the return of income, the
Assessing Officer noticed that the assessee has claimed deduction u/s. 80-
IC of the Act for its Solan unit. The AO noticed that the sales of Solan
unit has been increased by an amount of Rs. 4,98,39,462/- on account of
Inter Divisional Sales. The AO found that the total sales of Solan unit is
at Rs. 168,01,15,066/- which includes Inter Divisional sales of Rs.
4,98,39,462/-. The AO further found that the profit from this unit has
been shown at Rs. 78,11,08,000/- and the profit eligible for deduction u/s.
80IC has been computed at Rs. 75,68,72,400/-.





3.1.   The AO was of the firm belief that Inter Divisional sales shown by
the assessee from one unit to another unit cannot be part of sales
generating business profit making it eligible for deduction. The AO
proceeded by reducing the business profit of Solan unit by Rs.
4,98,39,462/-.


4.     The assessee carried the matter before the Ld. CIT(A). It was
strongly contended before the Ld. CIT(A) that the AO has not considered
the purchases, other manufacturing and overhead expenses.            It was
explained that the assessee sells the product at the fixed rate whether it is
sold directly from the specified undertaking or through any branch. It
                                     3                    ITA. No. 4324/M/2011


was further explained that the Solan unit transfers goods at branches at
6% discount to listed price whereas the sales are made to the customers at
listed price. Thus, for the company, sales are recognized only when the
customer is taking delivery as no profit is earned till such stage as stocks
at all levels are always valued at cost. The Ld. CIT(A) was convinced
with this explanation and deleted the addition.


5.    Before us, none attended on behalf of the assessee therefore we
heard the Ld. Departmental Representative at length and carefully
perused the orders of the authorities below. We find that the Ld. CIT(A)
has deleted the addition accepting the entire contention of the assessee
without verifying whether details were filed before the AO or not. If the
goods are transferred from Solan unit at 6% discount to listed price, then
the stock cannot be valued at cost or at the most the receiving branch
must be valuing stock at 6% discount to listed price which means that
when the goods were sold from the branch, the branch is making atleast
6% profit. All these aspects have to be verified at the assessment stage.
We, therefore, restore this issue to the file of the AO to decide denovo
after giving reasonable and fair opportunity of being heard to the
assessee.


6.    Proceeding further, the AO noticed that part of the Head Office
expenses have been attributed towards Solan Unit before claiming
deduction. The assessee was asked to explain the basis on which such
amount has been worked out. In its reply, the assessee stated that 15% of
Nashik/Thane Head Office/Western Region site expenses are allocated to
Solan Unit and 10% of expenses of other units are allocated to Solan unit.
The AO observed that the assessee has not submitted any basis for
choosing the figure of 15% or 10%. In this respect the assessee explained
                                     4                     ITA. No. 4324/M/2011


that it is maintaining separate accounts for Solan unit wherein all related
expenditures are accounted for and subsequently 10% of total Head
Office expenditures are also attributed to Solan unit. Accordingly, total
expenses allocated to Solan unit was at Rs. 2,40,91,175/-. The AO was
not convinced with the reply filed by the assessee. In particular, the
selection of 15% or 10% without any basis or rationale.               After
considering the facts in totality, the AO proceeded to allocate common
expenses in the ratio of sales turnover and made an addition of Rs.
5,74,79,168/-.


7.    Before the Ld. CIT(A), the assessee strongly contended that there
is no reason to allocate common expenses relating to sales from oil
division. The Ld. CIT(A) though convinced by the allocation of expenses
in proportion to sale as a reasonable method made by the AO. However,
at the same time the Ld. CIT(A) observed that sale of oil division has
negligible correlation to the various expenses of head office and branch
office and therefore the sale of oil division need not been taken into
account and found the allocation         in the ratio of 15% and 10% as
reasonable and directed the AO to delete the addition of Rs. 5,74,79,168/-


8.    Before us, the Ld. DR strongly submitted that once again the Ld.
CIT(A) has simply accepted the version of the assessee without verifying
the details and calling for any remand report from the AO. The Ld. DR
pointed out that at para-5.2 on page-6 of his order the Ld. CIT(A) has
considered total sale of Rs. 225 crores whereas on page-7 of the
assessment order, the AO has mentioned total sales as shown by the
assessee at Rs. 367.44 crores. It is the say of the Ld. DR that such factual
discrepancies/differences need to be verified by the AO.
                                     5                     ITA. No. 4324/M/2011





9.     We have carefully perused the orders and given a thoughtful
consideration to the submissions made by the Ld. DR. We find force in
the submissions of the Ld. DR. Prima facie there appears to be difference
in the sale figure taken by the AO and by the Ld. CIT(A). Such factual
errors cannot be brushed aside lightly, therefore, in the interest of justice
and fair play, we restore this issue to the file of the AO. The AO is
directed to decide the claim of deduction denovo after giving reasonable
and sufficient opportunity to the assessee to explain the difference, if any,
in the sales.


10.    For the sake of the completion of adjudication, we have restored
the entire issue relating to the claim of deduction u/s. 80IC to the file of
the AO with a direction to decide the issue afresh as per the provisions of
law.


11.    In the result, the appeal filed by the Revenue is treated as allowed
for statistical purpose.


       Order pronounced in the open court on 20th May, 2015

                 Sd/-                                   Sd/-
       (D.MANMOHAN )                            (N.K. BILLAIYA)
  /VICE PRESIDENT                 / ACCOUNTANT MEMBER

  Mumbai;  Dated :20 May , 2015
                    th


. ../ RJ , Sr. PS
                             6          ITA. No. 4324/M/2011



        /Copy of the Order forwarded to :
1.  / The Appellant
2.     / The Respondent.
3.     () / The CIT(A)-
4.      / CIT
5.       ,     ,         
     / DR, ITAT, Mumbai
6.     / Guard file.
                                      / BY ORDER,
                    //True Copy//
                        / 
                     (Dy./Asstt. Registrar)
                     ,    / ITAT, Mumbai

 
 
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