The ACIT, Circle-4, Baroda V. M/s Transpek Silco Industry Ltd, Baroda

ITA 1073/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9460 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 12-01-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 18-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN KUMAR
• Keywords: Depreciation; Question of law; Tax effect
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NOS: 1073 & 1074/AHD/2013 (ASSESSMENT YEARS: 2008-09 & 2009-10) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, BARODA V/S M/S. TRANSPEK SILOX INDUSTRY LTD. KALALI ROAD, ATLADRA, VADODARA-390012 (APPELLANT) (RESPONDENT) ITA. NOS: 1086 & 1087/AHD/2013 (ASSESSMENT YEARS: 2008-09 & 2009-10) M/S. TRANSPEK SILOX INDUSTRY LTD. KALALI ROAD, ATLADRA, VADODARA-390012 V/S ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, BARODA (APPELLANT) (RESPONDENT) PAN: AAACT3739J APPELLANT BY : SHRI PRAVIN KUMAR, SR. D.R . RESPONDENT BY : SHRI MILIN MEHTA, A.R. ( )/ ORDER DATE OF HEARING : 12 -01-201 7 DATE OF PRONOUNCEMENT : 17 -01-2017 ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 2 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NOS. 1073 & 1074/AHD/2013 ARE APPEALS OF THE RE VENUE PREFERRED AGAINST TWO SEPARATE ORDERS OF THE LD. CIT(A)-III, BARODA DATED 17.01.2013 PERTAINING TO A.Y. 2008-09 AND ITA NOS. 1086 & 1087 /AHD/2013 ARE CROSS APPEALS OF THE ASSESSEE PREFERRED AGAINST THE VERY SAME ORDERS OF THE LD. CIT(A)-III, BARODA PERTAINING TO A.Y. 2008-09 & 200 9-10 RESPECTIVELY. 2. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE DISPO SED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS. 1073 & 1074/AHD/2013 FOR A.YS. 2008-09 & 2 009-10 3. A PERUSAL OF THE TAX EFFECT QUA THE GRIEVANCE OF TH E REVENUE IN THE IMPUGNED APPEALS SHOW THAT IN ITA NO. 1073/AHD/2013 THE TAX EFFECT COMES TO RS. 8,55,473/- FOR A.Y. 2008-09 AND THE TA X EFFECT IN ITA NO. 1074/AHD/2013 IS RS. 8,53,024/- FOR A.Y. 2009-10. 4. BOTH THESE APPEAL HAVE TO BE DISMISSED IN THE LIGHT OF THE CBDT CIRCULAR NO. 21 OF 2015 DATED 10.12.2015. 5. IN THE LIGHT OF THE AFOREMENTIONED CBDT CIRCULAR, B OTH THE APPEALS OF THE REVENUE ARE DISMISSED. ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 3 ITA NO. 1086 & 1087/AHD/2013 FOR A.Y. 2008-09 & 2 009-10 ASSESSEES APPEAL 6. THE COMMON GRIEVANCE IN THE IMPUGNED APPEALS RELATE TO THE ALLOCATION OF MANAGERIAL COMMISSION AND SALARY AND WAGES IN THE R ATIO OF TURNOVER TO THE SILVASSA UNIT-I AND II. 7. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE A SSESSEE COMPANY HAS CLAIMED DEDUCTIONS U/S. 80IB IN RESPECT OF TWO UNIT S AT SILVASSA AS UNDER:- UNIT-I : RS. 469,11,370/- (30% OF THE PROFIT) UNIT-2 : RS. 842,25,227/- (100% OF THE PROFIT) 8. APART FROM THESE TWO UNITS THE ASSESSEE COMPANY HAS THREE OTHER UNITS AT ATLADWRA, EKALBARA AND BHIWANDI. 9. COMPARING THE PROFITABILITY OF ALL THESE FIVE UNITS , THE A.O. WAS OF THE OPINION THAT PROPORTIONATE EXPENSES SHOULD BE APPOR TIONED TO THESE UNITS. THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAIN AND JU STIFY THE CLAIM AND ALSO TO EXPLAIN WHY PROPORTIONATE EXPENSES SHOULD NOT BE APPORTIONED TO THESE UNITS PROFIT. ASSESSEE FILED A DETAILED REPLY VIDE LETTER DATED 10.12.2010, THE ASSESSEE EXPLAINED THE NATURE OF BUSINESS ACTIVITIE S IN ALL ITS FIVE UNITS AND FURNISHED THE DETAILS OF THE ALLOCATION OF EXPENSES WHICH IS AS UNDER:- ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 4 ACCOUNT HEAD TOTAL EXPENSES COMMON EXPENSES ALLOCATION TO UNIT- I UNIT-II SALARY, WAGES & BONUS 128146357.00 25802505.00 1597657.00 815065.00 CONTRI. TO PROVIDENT FUND & OTHERS 21549148.00 0.00 0.00 0.00 WELFARE EXPENSES 15289908.00 0.00 0.00 0.00 MANAGERIAL COMMISSION 2132862.00 0.00 0.00 0.00 RENT 292275.00 0.00 0.00 0.00 INSURANCE 3112905.00 3103648.00 543739.00 225526.00 RATES 85 TAXES 2767932.14 0.00 0.00 0.00 DOMESTIC TRAVELLING 5163193.99 723992.00 354128.00 180663.00 FOREIGN TRAVELLING 2933613.70 0.00 0.00 0.00 CONVEYANCE EXPENSES 5188978.00 0.00 0.00 0.00 VEHICLE EXPENSES 649502. 00 0.00 0.00 0.00 SECURITY SERVICE CHARGES 3463998.00 0.00 '0.00 0.00 COMMUNICATION CHARGES 3999966.34 0.00 0.00 0.00 PRINTING & STATIONERY 1471295.50 0.00 0.00 0.00 LEGAL & PROF. CHARGES 11735442.00 6086477.00 1821158.00 929088.00 CHARGES AUDITOR'S REMUNERATION 500000.00 225931.00 149607.00 76324.00 ADVERTISEMENT 776951.00 776951.00 232474.00 118600.00 DONATION 972000.00 972000.00 290836.00 148375.00 ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 5 EXCHANGE DIFFERENCE 23147.23 0.00 0.00 0.00 LOSS ON SALE OF ASSETS 610141.00 0.00 0.00 0.00 ASSETS WRITTEN-OFF 400613.98 0.00 0.00 0.00 MISCELLANEOUS 9513581.40 217875.00 65191.00 33258.00 COMMISSION 27409058.00 0.00 0.00 0.00 TRANSPORT & OTHER CHARGES 79001895.18 0.00 0.00 0.00 TOTAL FINANCE CHARGES 50361477.08 28381179.87 8492039.00 4332328.00 AMORTIZATION OF EXPENSES 3399487.00 3399487.00 0.00 0.00 DEPRECIATION 36933824.00 36938824.00 0.00 0.00 TOTAL 417804553 106628870 13546829 6859227 10. AFTER COMPARING THE AFOREMENTIONED CHART, THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS NOT ALLOCATED THE EXPENSES PR OPERLY TO ITS SILVASSA UNIT THEREBY INCREASED THE PROFITS OF SILVASSA UNIT WHICH ARE ELIGIBLE FOR DEDUCTION U/S.80IB OF THE ACT. 11. THE A.O. WAS OF THE FIRM BELIEF THAT ALL THE UNITS ARE NOT ONLY INTER DEPENDENT RATHER THE TURNOVER AS WELL AS TOTAL PROF IT OF BOTH UNITS AT SILVASSA DEPENDS UPON THEIR OTHER UNITS. THE A.O. C ONCLUDED BY HOLDING THAT THE PROFIT OF THE TWO UNITS AT SILVASSA ARE NOT COR RECTLY DRAWN FOR CLAIMING DEDUCTION U/S. 80IB AND ACCORDINGLY RE-COMPUTED THE PROFITS OF TWO UNITS AT SILVASSA BY ALLOCATING THE FOLLOWING EXPENSES. ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 6 MANAGERIAL COMMISSION RS. 21,32,862/- FOREIGN TRAVEL RS. 29,33,613 VEHICLE RS. 6,49,502 BROAD BANK USAGE RS. 10,83,929 SUBSCRITPTION RS. 2,50,890 REST HOUSE EXP. RS. 52,566 PARTY EXP. RS. 2,26,977 HOTEL/RESTARUANT RS. 66,833 LOCAL EXPENSES RS. 34,35,933 SELLING EXPENSES RS. 1,02,928 ECGC PREMIUM RS. 16,43,268 TOTAL 1,25,99,291 12. SINCE THE ASSESSEE HAS ALREADY ALLOCATED RS. 6,62,9 0,558/- BEING COMMON OVERHEADS, EXPENDITURE TOTALING TO RS. 7,88,89,849/ - ALLOCATED ON SALES RATIO OF TWO UNITS AT SILVASSA. 13. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 14. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ONLY GRIEVANCE RELATE TO THE ALLOCATION OF MANAGERIAL COMMISSION A ND SALARY & WAGES. IT IS THE SAY OF THE LD. COUNSEL THAT THESE EXPENSES CANN OT BE ALLOTTED TO THE SILVASSA UNIT. THE LD. COUNSEL STATED THAT THE ROLE OF THE MANAGING DIRECTOR IS MORE ON STRATEGIC MATTERS, NEW PROJECTS, FUTURE DEVELOPMENTS ETC. AND NOT ON DAY TO DAY OPERATIONS. THEREFORE, IT WOULD B E INCORRECT TO ALLOCATE ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 7 EXPENSES OF THE MD BASED ON THE TURNOVER. THE LD. C OUNSEL FURTHER STATED THAT THE ASSESSEE HAS ALREADY INCLUDED THE COMMISSI ON PAID TO THE MANAGING DIRECTOR WHILE ALLOCATING THE SALARY OF TH E MD TO THE SILVASSA UNIT. THE LD. COUNSEL POINTED OUT THAT THE ASSESSEE HAS A LLOCATED 5% OF THE SALARY TO THE SILVASSA UNIT WHICH INCLUDES MANAGERIAL COMM ISSION AND ALSO OTHER CONTRIBUTIONS TO VARIOUS FUNDS. 15. THE LD. COUNSEL VEHEMENTLY STATED THAT WHILE COMPUT ING THE PROFITS AND GAINS OF THE CONCERNED UNDERTAKING, ONLY EXPENSES R ELATING THERETO CAN BE DEDUCTED. THE EXPENSES ATTRIBUTABLE TO ANY OTHER UN IT OR THE HEAD OFFICE EXPENSES WHICH HAVE NO RELEVANCE TO THE INDUSTRIAL UNDERTAKING CANNOT BE DEDUCTED IN RESPECT OF THE SAID UNDERTAKING WHILE C OMPUTING THE PROFITS AND GAINS OF THE UNDERTAKING. 16. THE LD. COUNSEL FURTHER STATED THAT INVOKING THE PR OVISIONS OF SECTION 80IA(5) R.W.S 80IB(13) IS ERRONEOUS IN LAW. 17. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE REVENUE AUTHORITIES. 18. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. THE FACTUAL MATRIX OF THE ALLOCATION OF EXPE NSES BY THE ASSESSEE HAS ALREADY BEEN EXHIBITED ELSEWHERE. IN OUR CONSIDERED OPINION, ONLY THOSE EXPENSES WHICH HAVE DIRECT NEXUS WITH CARRYING ON A CTIVITY OF UNDERTAKING HAS TO BE REDUCED FOR DETERMINING THE QUANTUM OF D EDUCTION AND THOSE ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 8 EXPENSES WHICH HAVE INDIRECT OR REMOTE NEXUS SHOULD NOT BE DEDUCTED. FOR THIS PROPOSITION, WE DERIVE SUPPORT FROM THE DECISI ON OF THE CO-ORDINATE BENCH DELHI IN THE CASE OF CATVISION PRODUCTS LTD. 142 TAXMANN.COM 104 IN ITA NO. 4436 AND 4590/DEL/1996. 19. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS . HINDUSTAN LEVER LTD. IN TAX CASE (APPEAL) NO. 219 OF 2006 AND 267, 269, 27 0,273 & 274 OF 2008 HAD THE OCCASION TO CONSIDER THE FOLLOWING QUESTION OF LAW:- WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE COMMON HEAD OFFICE EXPENSES CANNOT BE APPORTIONED TO THE VARIOUS UNITS ON THE BASIS OF THEIR RESPECTIVE TURN OVER FOR THE PURPOSE OF CALCULATION OF DEDUCTION UNDER SECTION 10B, 80I AND 80HH? 20. AND THE HONBLE HIGH COURT HELD AS UNDER:- 3. A PERUSAL OF THE ORDER OF THE TRIBUNAL SHOWS THA T IT FOLLOWED THE ORDERS RELATING TO ASSESSMENT YEARS 1981-82 TO 1991-92 DATED 28.5.2 002 DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. THUS, THE ASSESSEE'S APPEAL S WERE ALLOWED. LEARNED COUNSEL FOR THE ASSESSEE PLACED BEFORE THIS COURT T HE TRIBUNAL'S ORDER PASSED IN THE ASSESSEE'S OWN CASE ON THE IDENTICAL CLAIM DEAL T WITH UNDER PARAGRAPH 28 OF THE ORDER RELATING TO ASSESSMENT YEAR 1984-85, PARA GRAPH 53 OF THE ORDER RELATING TO ASSESSMENT YEAR 1987-88 AND PARAGRAPH 77 OF THE ORDER RELATING TO ASSESSMENT YEAR 1990-91. THE TRIBUNAL POINTED OUT THAT THE HEA D OFFICE MONITORED THE REQUIREMENT OF FINANCE AND OTHER ACTION WHICH WERE NECESSARY FOR RUNNING ALL THE UNITS. CONSEQUENTLY, THE ADMINISTRATIVE EXPENSES TH OUGH RELATABLE TO THE VARIOUS UNITS, ARE EXPENSES INCURRED IN GENERAL, TOWARDS TH E WELL BEING OF THE BUSINESS. THUS, THE TRIBUNAL GRANTED THE RELIEF TO THE ASSESS EE HOLDING THAT THE HEAD OFFICE EXPENSES COULD NOT BE PROPORTIONATELY DISTRIBUTED A MONG THE VARIOUS UNITS OR ALLOTTED TO ANY PARTICULAR UNIT INDEPENDENTLY. THE ORDER PASSED BY THE TRIBUNAL ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 9 HAD NOT BEEN CANVASSED BY THE REVENUE BEFORE THIS C OURT BY WAY OF FILING ANY TAX CASE (APPEAL) AND THAT THE ORDER OF THE TRIBUNAL HA D ATTAINED FINALITY. PRESENT TAX CASE (APPEAL) IS FILED BY THE REVENUE AS AGAINS T THE ORDERS OF THE TRIBUNAL RELATING TO ASSESSMENT YEARS 1991-92, 1993-94, 1994 -95, 1995-96, 1996-97 AND 1997-98. WHEN THE SAME WAS POINTED OUT TO THE LEARN ED STANDING COUNSEL, HE PLACED RELIANCE ON THE DECISION OF THE APEX COURT R EPORTED IN 248 ITR 432 CONSOLIDATED COFFEE LIMITED V. STATE OF KARNATAKA A S WELL AS TO THE DECISION OF THE MADHYA PRADESH HIGH COURT REPOR TED IN (2012) 81 CCH 031 PRESTIGE FOODS LIMITED V. CIT, AND SUBMITTED THAT T HE COMMON EXPENSES BE APPORTIONED AMONG THE VARIOUS UNITS DEPENDING ON THE TURNOVER. WE DO NOT FIND THAT THE ABOVE STATED DECISIONS WOULD BE OF AN Y ASSISTANCE TO THE REVENUE, PARTICULARLY THE DECISION OF THE APEX COURT. 4. A READING OF THE APEX COURT DECISION REPORTED IN 248 ITR 432 CONSOLIDATED COFFEE LIMITED V. STATE OF KARNATAKA S HOWS THAT IT RELATES TO THE CLAIM UNDER THE KARNATAKA AGRICULTUR AL INCOME TAX ACT, 1957 AND A SPECIFIC RULE FRAMED IN 1957. THE APEX COURT REFERR ED TO RULE 7 OF THE KARNATAKA AGRICULTURAL INCOME TAX RULES, WHICH READS AS FOLLO WS:- 'COMPUTATION OF DEDUCTION ON MIXED INCOME WHERE A D EDUCTION IN RESPECT OF ANY ITEM ADMISSIBLE UNDER SECTION 5 OR UNDER RULE 5, IS A COMMON CHARGE INCURRED FOR THE PURPOSE OF DERIVING AGRICULTURAL INCOME ASSESSA BLE UNDER THE ACT, AND INCOME CHARGEABLE UNDER THE INDIAN INCOME TAX ACT, 1922, T HE DEDUCTION ADMISSIBLE UNDER THE ACT SHALL BE THE ACTUAL AMOUNT RELATING T O THE INCOME DERIVED FROM AGRICULTURAL OPERATIONS AND PROVED BY ACCOUNTS OR O THER CONCLUSIVE EVIDENCE. WHERE NO SUCH ACCOUNTS OR EVIDENCE IS PRODUCED THE AGRICULTURAL INCOME TAX OFFICER SHALL PROCEED TO ASSESS THE INCOME TO THE B EST OF HIS JUDGMENT.' 5. REFERRING TO RULE 5 OF THE KARNATAKA AGRICULTURA L INCOME TAX RULES, THE SUPREME COURT POINTED OUT THAT THE CRUCIAL WORDS IN THE SAID RULE ARE THAT THE DEDUCTIONS ADMISSIBLE UNDER THE ACT SHALL BE THE AC TUAL AMOUNT RELATING TO THE INCOME DERIVED FROM AGRICULTURAL OPERATIONS AND PRO VED BY ACCOUNTS OR OTHER CONCLUSIVE EVIDENCE. WHERE NO SUCH ACCOUNTS OR EVID ENCE AVAILABLE, THE ASSESSING OFFICER CAN PROCEED TO ASSESS THE INCOME TO THE BES T OF HIS JUDGMENT. IN ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 10 CONFIRMING THE VIEW OF THE KARNATAKA HIGH COURT, TH E SUPREME COURT ALSO AFFIRMED THE SIMILAR VIEW RENDERED BY THIS COURT IN THE DECISION REPORTED IN 130 ITR 908 CIT V. MANJUSHREE PLANTATIONS LIMITED. 6. AS FAR AS THE ABOVE STATED DECISION IS CONCERNED , THE DEDUCTION IS BASED ON RULE 5. IN THE ABSENCE OF ANY SPECIFIC PROVISION IN THE INCOME TAX ACT, AND MORE SO IN THE ABSENCE OF ANY SUCH PROVISION, THERE BEING NO M ATERIAL TO SHOW THAT THE EXPENDITURE THOUGH COMMON WERE WITH REFERENCE TO IN DIVIDUAL UNITS RELATABLE TO THE INCOME EARNED, WE DO NOT FIND ANY JUSTIFIABLE G ROUND TO ACCEPT THE PLEA OF THE REVENUE. THE ASSESSEE HAD TAKEN THE CONTENTION THAT THE EXPENSES INCURRED WAS FOR THE OVERALL MANAGEMENT OF THE UNITS AS WELL AS FOR PROVIDING FINANCE. IN THE CIRCUMSTANCES, THE DECISION OF THE APEX COURT IS MI SPLACED. 7. AS FAR AS THE DECISION OF THE MADHYA PRADESH HIG H COURT REPORTED IN (2012) 81 CCH 031 PRESTIGE FOODS LIMITED V. C1T, IS CONCERNED , THE ASSESSEE DID NOT FURNISH THE EXPENSES INCURRED BY THE UNITS FOR THE PURPOSE OF CONSIDERING THE DEDUCIBILITY. THE MADHYA PRADESH HIGH COURT VIEWED THAT IN THE ABSENCE OF ANY DETAILS BEING MADE AVAILABLE BY THE ASSESSEE TO EST ABLISH THAT THE PARTICULAR EXPENSES WERE INCURRED FOR ITS PARTICULAR UNIT OUT OF ITS TWO UNITS, THE EXPENSES HAD TO BE TREATED AS ONE FOR BOTH THE UNITS WHICH H AS TO BE DIVIDED BASED ON THE PROPORTIONATE TO THE TURNOVER. THE QUESTION THAT AR ISES FOR CONSIDERATION IS NOT THE SAME AS HAD BEEN CONSIDERED IN THE MADHYA PRADESH H IGH COURT. IT IS NOT DENIED BY THE REVENUE THAT ASSESSEE'S UNITS HAVE SEPARATE ACCOUNTS INDICATING THEIR INCOME AND THE EXPENSES. THE ASSESSEE DOES NOT CLAI M ANY DEDUCTION ON THE EXPENSES INCURRED BY THE HEAD OFFICE. THE ONLY QUES TION IS AS TO WHETHER THE COMMON EXPENSES INCURRED BY THE HEAD OFFICE FOR THE PURPOSE OF MAINTAINING THE UNITS WOULD NEVERTHELESS BE SUBJECTED TO THE DOCTRI NE OF PROPORTIONALITY FOR THE PURPOSE OF DEDUCTION. 21. THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF ZAN DU PHARMACEUTICAL WORKS LTD. IN TAX APPEAL NO. 8 OF 2007 WAS SEIZED W ITH THE FOLLOWING QUESTION OF LAW. ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 11 WHETHER TRIBUNAL WAS JUSTIFIED IN CONFIRMING THE A LLOCATION OF RESEARCH AND DEVELOPMENT EXPENSES INCURRED BY THE HEAD OFFICE AM ONG THE FOUR MANUFACTURING UNITS ON THE PRESUMPTION THAT THE EXPENDITURE SO IN CURRED WAS FOR THE BENEFIT OF THESE MANUFACTURING UNITS? 22. AND THE HONBLE HIGH COURT HELD AS UNDER:- THE HEAD OFFICE AND EACH OF THE UNITS HAVE THEIR OW N SEPARATE R&D DEPARTMENTS, INCLUDING LABORATORIES. THE R&D WORK RELATED TO THE DEVELOPMENT OF NEW MEDICINAL PRODUCTS. NONE OF THE UNITS MANUFACTURED THESE PRODUCTS. THE MANUFACTURING ACTIVITIES CARRIED ON AT THE UNITS DI D NOT PERTAIN TO THE NEW DRUGS DEVELOPED/TO BE DEVELOPED BY THE SAID R&D ACTIVITIE S. [PARA 5] IT IS NOT THE RESPONDENT'S CASE THAT ANY OF THE UNI TS HAD BENEFITED BY THE SAID R&D ACTIVITIES PERTAINING TO THE NEW DRUGS OR HAD UTILI ZED THE RESULTANT BENEFIT THEREOF, IF ANY, IN ANY MANNER WHATSOEVER. IT IS NOT THE RES PONDENT'S CASE THAT THE ASSESSEE MANUFACTURED THE SAID NEW DRUGS THROUGH OR EVEN WIT H THE ASSISTANCE OF THESE UNITS. EXCEPT ON THE BASIS OF PRESUMPTIONS, IT IS NOT EVEN THE RESPONDENT'S CASE THAT THE EXISTING ACTIVITIES OF ANY OF THE UNITS IN FACT BEN EFITED FROM OR COULD BENEFIT FROM THE SAID R&D ACTIVITIES. IT IS ALSO IMPORTANT TO NO TE THAT EACH OF THE UNITS MANUFACTURES DIFFERENT ITEMS AND, THEREFORE, ALSO C ARRIES OUT INDEPENDENT R&D WORK. [PARA 8] WHILE COMPUTING THE PROFITS AND GAINS OF THE CONCER NED UNDERTAKING, ONLY EXPENSES RELATING THERETO CAN BE DEDUCTED. IN OTHER WORDS, THE EXPENSES MUST BE INCURRED, FOR AND ON BEHALF OF THE CONCERNED UNDERT AKING. THE EXPENSES ATTRIBUTABLE TO ANY OTHER UNIT OR THE HEAD OFFICE E XPENSES WHICH HAVE NO RELEVANCE TO THE INDUSTRIAL UNDERTAKING, CANNOT BE DEDUCTED I N RESPECT OF THE SAID UNDERTAKING WHILE COMPUTING THE PROFITS AND GAINS O F THE UNDERTAKING. [PARA 10] REVENUE SUBMITTED THAT ANY RESEARCH AND DEVELOPMENT ACTIVITY CARRIED OUT BY THE HEAD OFFICE WOULD AUTOMATICALLY ENSURE TO THE BENEF IT OF THE UNITS/INDUSTRIAL UNDERTAKINGS. ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 12 THE SUBMISSION PROCEEDS ON AN ERRONEOUS BASIS AND D OES NOT TAKE INTO CONSIDERATION THE FACTS OF THE CASE AT ALL. IN THE INSTANT CASE, THE SAID R&D ACTIVITIES WERE IN RELATION TO THE NEW DRUGS. THERE IS NOTHING TO INDICATE THAT IN THE EVENT OF THE ASSESSEE DECIDING TO COMMERCIALLY EXPL OIT THE BENEFITS OF THE R&D WORK, THE PRODUCTS WOULD BE MANUFACTURED BY THE SAI D UNITS. THE FALLACY IN THE SUBMISSIONS PROCEEDS ON THE HYPOTHETICAL BASIS THAT THE SAID PRODUCTS WOULD BE MANUFACTURED BY EACH OF THE UNITS OR ANY ONE OF THE M. [PARAS 16 & 17] THE FALLACY ALSO ARISES ON ACCOUNT OF AN ERRONEOUS PRESUMPTION THAT THE BENEFIT OF ANY R&D ACTIVITY CAN ONLY BE EXPLOITED BY AN ENTERP RISE UTILIZING THE SAME IN ITS MANUFACTURING ACTIVITIES. THAT IS NOT SO. AN ENTERP RISE CAN ALWAYS ASSIGN THE BENEFIT THEREOF TO A THIRD PARTY. IT CAN ALWAYS GRA NT A LICENCE IN RESPECT OF ANY PATENT OR DESIGN TO A THIRD PARTY. IN THAT EVENT, T HE OTHER UNITS WOULD NOT DERIVE ANY BENEFIT IN RESPECT THEREOF. THE PRESUMPTION OF A NEXUS BETWEEN THE R&D ACTIVITIES AND THE UNITS IS NOT WELL FOUNDED. [PARA 18] THEREFORE, THE TRIBUNAL WAS NOT JUSTIFIED IN CONFIR MING THE ALLOCATION OF R&D EXPENSES INCURRED BY THE HEAD OFFICE AMONG MANUFACT URING UNITS. [PARA 19] 23. IN THE LIGHT OF THE JUDICIAL DECISIONS DISCUSSED HE REINABOVE , WE FIND THAT THE ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR SILVASSA UNIT-I & II AS EVIDENT FROM THE TWO AUDIT REPORTS EXHIBITED AT PAGES 7 TO 19 AND 20 TO 33 OF THE PAPER BOOK. A PERUSAL OF THE ORDERS OF TH E AUTHORITIES BELOW SHOWS THAT THE ALLOCATION OF EXPENSES HAVE BEEN MAD E MORE OUT OF COMPULSION THEN OUT OF NECESSITY. IN OUR CONSIDERED OPINION AND THE UNDERSTANDING OF THE FACTS, THE A.O. HAS NOT POINTE D OUT ANY FLAW OR DEFECT IN THE ALLOCATIONS STATEMENT EXHIBITED ELSEWHERE. W E FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL THAT THE MANAGERIAL C OMMISSION CANNOT BE ALLOTTED TO THE SILVASSA UNIT. WE ALSO AGREE THAT O NLY EXPENSES RELATING TO THE CONCERNED UNDERTAKING SHOULD BE DEDUCTED FROM T HE PROFITS THEREON. IN ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 13 THE ABSENCE OF ANY DIRECT NEXUS BROUGHT ON RECORD B Y THE REVENUE AUTHORITIES FOR THE IMPUGNED ALLOCATION OF EXPENSES , WE DO NOT FIND ANY MERIT IN THE SAID ALLOCATION. WE, ACCORDINGLY, DIRE CT THE A.O. TO DELETE THE ALLOCATIONS RE-DRAWN BY HIM. THIS GRIEVANCE IS ACCO RDINGLY ALLOWED. 24. THE SECOND GRIEVANCE RELATES TO THE DOUBLE ALLOCATI ON OF MANAGERIAL COMMISSION. THE LD. COUNSEL BROUGHT TO OUR NOTICE T HAT THE ASSESSEE HAS ALLOCATED COMMON EXPENSES TO THE PROFITS OF SILVASS A UNIT WHILE COMPUTING DEDUCTION U/S. 80IB WHICH INCLUDED MANAGERIAL REMUN ERATION, SALARY AND WAGES. THE LD. COUNSEL FURTHER POINTED OUT THAT IN THE ASSESSMENT ORDER, THE A.O. FURTHER ALLOCATED EXPENDITURE AND THE ADDI TIONAL ALLOCATION WORKED OUT BY THE A.O. ONCE AGAIN INCLUDE MANAGERIAL COMMI SSION AND REMUNERATION. THE LD. D.R. COULD NOT BRING ANY DIST INGUISHING FACT. 25. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE SUB MISSIONS OF THE LD. COUNSEL. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. WE FIND THAT THE ASSESSEE HAS ALREADY INCLUDED THE MANAGERIAL CO MMISSION AND REMUNERATION WHILE ALLOCATING COMMON EXPENSES TO TH E SILVASSA UNIT. THE A.O. HAS ONCE AGAIN INCLUDED THESE EXPENSES WHILE C OMPUTING THE RE- ALLOCATION. WE, ACCORDINGLY, DIRECT THE A.O. TO VER IFY THE COMPUTATION ONCE AGAIN AND DECIDE THE ISSUE AFRESH IN THE LIGHT OF O UR FINDINGS GIVEN FOR GROUND NO. 1. GROUND NO. 2 IS TREATED AS ALLOWED FO R STATISTICAL PURPOSE. ITA NOS. 1073,1 074,1086 & 1087/A/2013 . A.YS. 2008-09 & 2009-10 14 26. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSE ORDER PRONOUNCED IN OPEN COURT ON 17 - 01- 20 17 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 17 /01/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD