Kerala H.C : Whether eligibility for deduction under section 80-IB is only for profit derived by eligible unit and, therefore, an assessee cannot transfer final products from other industrial unit on cost price to inflate artificially profit of eligible unit to claim ineligible deduction

High Court Of Kerala

CIT, Cochin VS. M.E. Meeran

Section : 80-IB

C.N. Ramachandran Nair And M.L. Joseph Francis, JJ.

IT Appeal No. 1675 Of 2009

January 3, 2011

JUDGMENT

C.N. Ramachandran Nair, J. – The only question raised is whether the Tribunal is Justified in cancelling the disallowance of portion of the relief claimed by the assessee under section 80-IB of the Income-tax Act, 1961, in respect of an industrial unit at Adimaly.

2. We have heard senior standing counsel for the appellant and Shri Arun Raj, counsel appearing for the respondent-assessee.

3. The assessee is engaged in manufacture and sale of curry powder, masala etc. He had factories at Theni in Tamil Nadu State and at Adimaly, Idduki district in Kerala State. Idduki being a backward district, he was entitled for deduction under section 80-IB on the profit derived from industrial unit at Adimaly. However in the course of assessment, the Assessing Officer noticed that in order to boost up the income of the eligible industrial unit at Adimaly, there was transfer of goods from Theni unit to the Adimaly unit at cost price, accounting profit on sale as attributable to Adimaly unit and claiming the benefit under section 80-IB. Therefore the Assessing Officer after discussions with the assessee made a part disallowance as attributable to the profit of final products brought from Theni unit and sold from the Adimaly unit. The assessment is confirmed in first appeal and in second appeal by the assessee, the tribunal held that the assessee was entitled to account transfers of goods from Theni unit to Adimaly unit on cost price basis. This finding of the Tribunal is under challenge in this appeal filed by the revenue.

4. After hearing both sides and on going through orders of the Tribunal, we notice that the assessment is an agreed assessment and the assessee’s representative in fact did not oppose the partial disallowance by the officer. In our view the assessee has no right of appeal against this order. Therefore the appeal filed challenging the disallowance itself is not tenable. In any case, since the matter is decided by the Tribunal, we are persuaded to consider the case on merits.

5. We do not know how the Tribunal can direct the Assessing Officer to treat the stock transfer of final products from Theni unit to Adimaly unit at cost price. In fact the finished products on sale obviously gets profits and assessee has also no case that the profit is not derived on the sale of the products. The order of the Tribunal only helps to artificially jack up the profit of eligible industrial unit located in the backward area. Admittedly the eligibility for deduction under section 80-IB is only for the profit derived by the eligible unit and therefore the assessee cannot transfer final products from other industrial unit on cost price to inflate artificially the profit of the eligible unit to claim ineligible deduction. After making a claim of Rs. 3,65,98,935 the assessee requested the officer to make necessary adjustment in the claim. This obviously means that assessee himself was admitting that the claim is high and the Assessing Officer is free to refix the claim eligible limit, it is thereafter the Assessing Officer in consultation with the assessee’s auditor made a part disallowance by adjusting the profit attributable to final products transferred to the eligible unit. We are of the view that the Tribunal had no authority to intervene with this order confirmed in first appeal. Consequently we allow the appeal by reversing the order of the Tribunal and by restoring assessment confirmed in first appeal.

[Citation : 353 ITR 281]

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