Survey discrepancies in machinery valuation do not justify disallowance of section 80IC deduction or depreciation without rejecting books of account; late return does not bar deduction if Form 10CCB filed timely before assessment.

आदेश/ORDER 

PER PRABHASH SHANKAR [A.M.] :-

The above captioned appeals preferred by the Revenue emanate from the orders passed by the Learned Commissioner of Income-tax, Appeal, CIT(A) 49, Mumbai [hereinafter referred to as “CIT(A)”] pertaining to assessment order u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Years [A.Ys.] 2016- 17 and 2018-19. Since the issues are common and interlinked and also the fact that the appeals were heard together, they are being taken up together for adjudication vide this composite order for the sake of brevity. We take up appeal in ITA No. 6857/Mum/2025 first.

2. The grounds of appeal are as under:-

ITA no.6857/MUM/2025(ay 2016-17)

1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not considering the fact that the disallowance of deduction u/s 80IC to the tune of Rs. 3,15,64,674/-was made by the AO on the basis of the fact that the assessee was involved in interunit purchase/transfer of pre used plant and machinery and its value was more than 20% of the total value of plant & machinery, which was in violation of the conditions stipulated u/s 801C?

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not considering the fact that the addition made by the AO to the tune of Rs. 3,45,376/ was on the basis of discrepancies in the value of machinery found at the premises ie. Pantnagar Unit I and II and the amount appearing in 10CCB audit reports?

3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of the bogus expense/accommodation entry made u/s 69C of the Act from Ms. Radhika Enterprises at the rate 12% by merely relying on the fact that the gross profit of the assessee during the earlier A.Ys. was @12% without considering the fact that the whole expense is bogus?”

3. Ground no.1 pertains to deduction u/s 80IC of the Act. The assessee filed its return of income for the year declaring total income at Rs. 45,38,34,990/- under the normal provisions of the Act and book profit at Rs. 97,72,09,302/- u/s 115JB of the Act. According to the assessment order, the assessee is engaged in the business of manufacturing of plastic barrels/drums and other plastic products. In this case, survey action u/s 133A of the Act was carried out 02.01.2015 by DDIT (Inv.), Unit 2(1), Mumbai. During the course of survey, evidence of violations of conditions specified in section 80IB were gathered with respect to Pantnagar Unit-I and Pantnagar Unit-II of the assessee company. Physical inventory of the Plant & Machinery installed at the said two units was taken and various documents in this regard were also found and impounded. It was found that there was inter-unit purchase/transfer of pre-used plant & machinery in Unit-I & II of Pantnagar. It was also noticed that the value of pre-used plant & machinery in Pantnagar Unit I & II was more than 20% of total value of plant & machinery. Further, the assessee had taken accommodation entries from various parties. Discrepancies were also found in the value of machinery found at Pantnagar Unit I & II.

3.1 The AO noted that during the year under consideration, the