ACIT, CHENNAI V. M/s. Chemfab Welders Ltd., CHENNAI

ITA 1726/CHNY/2008

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73755 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 24-01-2014
• Assessment Year: 1994-1995
• Appeal Filed On: 18-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHAM
• Assessee Lawyers: S SRIDHAR
• Keywords: Rejection of books of accounts
• Section: 143(3); 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . !' , # $ BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NOS.1726 & 1727/MDS./2008 ( / ASSESSMENT YEARS :1994-95 & 1995-96) & CROSS OBJECTIONS NOS.26 & 27/MDS./2009 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI 600 034. VS. M/S.CHEMFAB WELDERS LTD., ( NOW KNOWN AS M/S.TEAM COMPANY LTD .) GST ROAD, VANDALUR, CHENNAI -48. PAN AAACA 2615 A ( %& / APPELLANT ) ( '(%& / RESPONDENT / CROSS OBJECTOR ) / REVENUE BY : SHRI GURU BHASHAM JCIT D.R. / ASSESSEE BY : SHRI S.SRIDHAR,ADVOCATE / DATE OF HEARING : 24.01.2014 ! /DATE OF PRONOUNCEMENT : 25.02.2014 M/S.CHEMFAB WELDERS LTD. 2 ) / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THESE TWO APPEALS ARE FILED BY THE REVENUE AND TW O CROSS OBJECTIONS IN SUPPORT OF THE ORDER OF THE LD.CIT (A ) BY THE ASSESSEE, AGGRIEVED BY THE DIFFERENT ORDERS OF THE LEARNED CO MMISSIONER OF INCOME TAX (A) BOTH DATED 28.02.2008 IN ITA NOS.27/ 07-08 & 26/07- 08 PASSED U/S 143(3) R.W.S,147 & 250 AND 143(3) R .W.S 263 & 250 OF THE ACT FOR ASSESSMENT YEARS 1994-95 & 1995-96 RESP ECTIVELY. 2. REVENUES APPEAL A.Y.1994-95:- THE REVENUE HAS RAISED SEVERAL ARGUMENTATI VE GROUNDS, HOWEVER, THE CRUX OF THE ISSUE IS THAT THE LD.CIT ( A) HAD ERRED IN HOLDING THAT THE AO IS NOT CORRECT IN REDUCING THE SUM OF `. 22,60,870/- WHILE COMPUTING THE DEDUCTION U/S. 80IA OF THE ACT BY APPORTIONING THE CONVERSION AND SERVICE CHARGES OF `. ONE CRORE RECEIVED BETWEEN PONDICHERRY AND CHENNAI UNITS IN THE RATIO OF THE W ORK ORDER RECEIVED VIZ. 8.9 : 2.6 . M/S.CHEMFAB WELDERS LTD. 3 3. REVENUES APPEAL FOR A.Y. 1995-96:- SIMILARLY IN THIS APPEAL ALSO, THE REVENUE HAS RAI SED SEVERAL GROUNDS, HOWEVER, THE RELEVANT GROUNDS ARE REPRODUC ED HEREIN BELOW FOR ADJUDICATION:- 1. LD. LD. CIT (A) HAD ERRED IN DIRECTING THE LD . ASSESSING OFFICER NOT TO APPORTION THE LABOUR CHARGES TO PON DICHERRY UNIT, WHICH WERE ALLOCATED BY THE ASSESSING OFFICE R FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80IA OF THE ACT . 2. LD.CIT (A) HAD ERRED IN DELETING THE DISALLOWANC E OF TECHNICAL KNOW-HOW FEES OF `. 10 LAKHS, WHICH IS TO BE ALLOWED ONLY TO THE EXTENT OF 1/6 TH OF RS. 10 LAKHS IN VIEW OF SEC.35AB OF THE ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A COMPANY, ENGAGED IN MANUFACTURING SPECIALIZED MACHINERY FOR CHEMICAL INDUSTRIES, FILED ITS RETURN OF INCOME FOR THE ASSE SSMENT YEAR 1994-95 ON 30.11.1994. THOUGH THE RETURN WAS PROCESSED U/S . 143(3) OF THE ACT, THE CASE WAS REOPENED AND ORDER WAS PASSED U/S . 147 OF THE ACT ON 28.03.2002. FOR THE ASSESSMENT YEAR 1995-96 , LD. ASSESSING M/S.CHEMFAB WELDERS LTD. 4 OFFICER PASSED ORDER ON THE SAME DAY CONSEQUENT TO THE ORDER PASSED BY LD. CIT U/S. 263 OF THE ACT, DATED 24.03. 2000. 5. REVENUES APPEAL 1994-95:- REDUCTION OF `. 22,60,870/- WHILE COMPUTING THE DEDUCTION U/S. 80IA OF THE ACT:- THE ASSESSEE IN ADDITION TO THE NEWLY ESTABLISHE D UNIT AT PONDICHERRY, WHICH WAS ELIGIBLE FOR DEDUCTION U/S. 80IA OF THE ACT, HAD OTHER INDUSTRIAL UNITS AT CHENNAI & TRICHY. DU RING THE YEAR RELEVANT PREVIOUS YEAR 1993-1994, THE ASSESSEE HAD RECEIVED CONVERSION AND SERVICE CHARGES OF `. 1/- CRORE, WHICH WAS CREDITED IN THE BOOKS OF THE ASSESSEES PONDICHERRY UNIT. THIS AMOUNT WAS RECEIVED FROM M/S.GRASIM INDUSTRIES LTD., AGAINST T HE ORDER OBTAINED THROUGH M/S.KUNAON ENGINEERING CO.PVT.LTD, TOWARDS KNOW-HOW FEES. THE LD. ASSESSING OFFICER OPINED THAT THIS AMOUNT O F `. 1/- CRORE RECEIVED BY THE ASSESSEE AS ITS INCOME HAVE TO BE A PPORTIONED BETWEEN ITS PONDICHERRY UNIT AND CHENNAI & TRICHY UNITS FOR THE FOLLOWING REASONS:- M/S.CHEMFAB WELDERS LTD. 5 1. THE AMOUNT OF `. 1/- CRORE RECEIVED WAS TOWARDS KNOW- HOW ENGINEERING FEES FOR THE COMPOSITE CONTRACT EXE CUTED BY THE ASSESSEES UNITS. 2. THE AMOUNT OF `. 1/- CRORE RECEIVED WAS A CONSOLIDATE PAYMENT FOR THE JOB EXECUTED BY ALL THE UNITS OF TH E ASSESSEE COMPANY. 3. FROM THE FACT IT REVEALED THAT A GOOD PORTION O F THE MANUFACTURING WORK WAS DONE BY THE PONDICHERRY UNIT AND CHENNAI UNIT SUBSEQUENT TO WHICH THE EQUIPMENT WAS ERECTED AT SITE VIZ. NAGDA PROJECT. 4. THE ASSESSEE HAD NOT PRODUCED ITS SITE REPORTS /PROGRESS REPORTS TO DEMARCATE THE WORK CARRIED OUT BY THE ASSESSEES PONDICHERRY UNIT AND CHENNAI UNIT. 5. THE WORK ORDER CLEARLY INDICATES THE ASSESSEES RESPONSIBILITY FOR THE ENTIRE PROJECT INCLUDING FAB RICATION, LABOUR, MATERIAL, TECHNICAL KNOW-HOW EXPERTISE ETC. IN A COMPOSITE MANNER. M/S.CHEMFAB WELDERS LTD. 6 6. ON APPEAL, LD.CIT (A) AFTER EXAMINING THE ISSUE IN DETAIL, ACCEPTED THE CONTENTION OF THE ASSESSEE AND DIRECTE D THE ASSESSING OFFICER NOT TO REDUCE THE SUM OF `. 22,60,870/- WHILE COMPUTING DEDUCTION U/S. 80IA OF THE ACT. THE RELEVANT PORT ION OF ORDER OF THE LD.CIT (A) IS REPRODUCED HEREIN BELOW FOR REFERENC E:- I HAVE ALSO CONSIDERED THE VARIOUS SUBMISSIONS BY THE APPELLANT REGARDING THE RESEARCH ACTIVITIES AND EXECUTION OF CHALLENGING JOBS FROM 1981. THE APPELLANT FIELD BEFORE ME A COPY OF LETTER OF APPRECIATION DATED MARCH,20, 1981, REGARDING THE QUALITY CONSCIOUSNESS , RESOURCES PLANNING, WORKING PROCEDURES IN CARRYING OUT THE CO NTRACTS AWARDED TO CWL BY TARAPORE ATOMIC POWER STATION FROM GOVERNMEN T OF INDIA, DEPARTMENT OF ATOMIC ENERGY, TARAPORE ATOMIC POWER STATION. CWL WAS ESTABLISHED IN THE YEAR 1972 AND IS WELL KNOWN IN THE FIELD OF MANUFACTURE OF CHEMICAL EQUIPMENTS, CWL HAS UNITS I N MADRAS, TRICHY AND IT STARTED UNIT IN PONDICHERRY IN 1993, IN VIEW OF VARIOUS CONCESSIONS OFFERED BY PONDICHERRY GOVT. IT IS NOT UNCOMMON FO R ESTABLISHED INDUSTRIES THE SET UP ITS DIVISION/ BRANCH IN BACKW ARD AREAS WHERE VARIOUS CONCESSIONS ARE GIVEN BY THE CENTRAL AND STATE GOVT . FOR INSTANCE RANBAXY, A MULTINATIONAL PHARMACEUTICAL COMPANY AS SET UP ITS PLANTS FOR M/S.CHEMFAB WELDERS LTD. 7 MANUFACTURE IN HIMACHALA PRADESH. THIS IS ONLY ONE OF THE VARIOUS INSTANCES THAT CAN BE CITED. GRASIM INDUSTRIES WAS PALCED DIFFERENT, SEPARATE AND SPECIFIC ORDERS ON CWL PONDY AND CWL MADRAS. THIS IS A CONTRACT BE TWEEN TWO INDEPENDENT COMMERCIAL ORGANIZATIONS WHO ARE WELL K NOWN HAVING ESTABLISHED THEMSELVES FOR MORE THAN TWO DECADES. THIS CONTRACT REQUIRES TO BE UNDERSTOOD FROM THE POINT OF VIEW OF A BUSINESSMAN. THE TECHNICAL KNOW HOW FEE OF RS.100 LACS PAID BY GIL T O CWL OF PONDICHERRY CANNOT BE COMPARED WITH THE TRADING CO MMISSION OF RS.34.5 LACS PAID FOR SECURING THE TOTAL ORDER TO M/S.KUNAO N ENGG. CO PVT BOMBAY BY THE APPELLANT. THE ACTION OF THE AO IN A PPORTIONING THE CONSIDERATION RECEIVED FOR KNOW HOW AND ENGINEERING AS PER ORDER PLACED BY GIL ON CWL PONDICHERRY, OF RS.100 LACS IN THE PROPORTION OF 2.6 : 8.9 WHICH SOLELY BELONG TO PONDICHERRY UNIT, BETWEEN PONDICHERRY AND MADRAS UNITS IN THE SAME MANNER AS APPORTIONMEN T OF TRADING COMMISSION OF RS.34.5 LACS PAID AND APPORTIONED BY THE APPELLANT IN MY VIEW ON THE FACTS OF THE CASE AND MATERIALS PLACED BEFORE ME IS NOT CORRECT. THE BASIS ADOPTED BY THE AO IS NOT CORRECT . ON THE TOTAL APPRECIATION OF THE FACTS AND MATERI ALS PLACED BEFORE ME BY THE APPELLANT, I HOLD THAT THE TECHNICAL KNOW HO W FEE OF RS.100 LACS RECEIVED BY CWL PONDICHERRY UNIT FROM GIL UNDER SPE CIFIC CONTRACT HAS BEEN RIGHTLY ACCOUNTED BY THE APPELLANT AS INCOME O F PONDICHERRY UNIT. IN MY VIEW ON APPRECIATION OF FACTS THE TECHNICAL KNOW HOW FEE OF RS.100 LACS IS THE INCOME OF PONDICHERRY UNIT AND NO PORTI ON CAN BE APPORTIONED TO MADRAS UNIT. ACCORDINGLY, I HEREBY DELETE THE R EDUCTION OF RS.22,60,870/- MADE BY THE AO WHILE GRANTING DEDUCT ION U/S. 80-IA ALLOWABLE OF RS.1,14,04,764/-. THE AO IS DIRECTED T O GRANT DEDUCTION U/S. 80-IA OF RS.1,14,04,764/- AND RECOMPUTED THE TOTAL INCOME AND TAX PAYABLE. M/S.CHEMFAB WELDERS LTD. 8 7. THE LD. D.R ARGUED IN SUPPORT OF THE ORDER OF THE A.O AND SUBMITTED THAT, FROM THE FACTS OF THE CASE IT WAS E STABLISHED THAT THE ASSESSEE HAD TAKEN UP THE WORK ORDER IN COMPOSITE F ORM, AND THEREFORE, PAYMENT RECEIVED AGAINST THE WORK ORDER CANNOT BE IDENTIFIED AS TO WHICH UNIT IT BELONGED TO. THEREF ORE, THE LD. ASSESSING OFFICER HAD SCIENTIFICALLY APPORTIONED TH E RECEIPTS TO BOTH THE UNITS OF THE ASSESSEE. HENCE IT WAS ARGUED THAT , THE ORDER OF THE LD. ASSESSING OFFICER WAS JUDICIOUS AND IT MAY BE U PHELD. LD. A.R., ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE HAD MAINTAINED SEPARATE BOOKS OF ACCOUNTS, WHICH WAS NOT REJECTED BY THE LD. ASSESSING OFFICER. HE FURTHER STATED THAT THE INCOM E AND EXPENDITURE PERTAINING TO THE RESPECTIVE UNITS WAS CORRECTLY RE CORDED IN THE RESPECTIVE BOOKS OF THE UNITS OF ASSESSEE-COMPANY A ND THEREFORE, LD. ASSESSING OFFICER WAS NOT RIGHT IN APPORTIONING THE RECEIPTS PERTAINING TO THE PONDICHERRY UNIT TO THE CHENNAI U NIT. IT WAS THEREFORE, PLEADED THAT THE ORDER OF THE LD.CIT (A) MAY BE UPHELD. 8. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE ORDER OF THE LD. ASSESSING M/S.CHEMFAB WELDERS LTD. 9 OFFICER, IT APPEARS THAT THE LD.AO HAD NOT EXAMINED THE BOOKS OF ACCOUNTS OF THE RESPECTIVE UNITS OF THE ASSESSEE BE FORE ARRIVING AT THE CONCLUSION THAT THE AMOUNT OF `. ONE CRORE RECEIVED BY THE ASSESSEE AS KNOW-HOW FEES ARE TO BE APPORTIONED. THE LD. A SSESSING OFFICER HAD ALSO NOT EXAMINED TO THE NATURE OF WORK EXECUTE D BY THE ASSESSEE AND THE UNIT WHICH IMPARTED THE KNOW-HOW. AS CONTENDED BY THE LD. A.R., THE LD. ASSESSING OFFICER HAD NOT REJECTED THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEES PONDICHERR Y UNIT AND TRICHY/CHENNAI UNITS ETC. FURTHER, FROM THE ORDER OF THE LD. ASSESSING OFFICER, SUMMARIZED HEREIN ABOVE, IT IS A PPARENT THAT THE LD. ASSESSING OFFICER HAS NOT GIVEN A CATEGORICAL F INDING ON THE ISSUE, BUT MERELY CAME TO THE CONCLUSION ON THE BASIS OF C ERTAIN PRESUMPTIONS INFERRED FROM SOME OF THE COMMUNICATI ONS TRANSACTED BETWEEN THE ASSESSEE AND ITS CLIENT. HOWEVER, LD.C IT (A) HAS EXAMINED THE ISSUE IN DETAIL AND ARRIVED AT THE CON CLUSION THAT THE ASSESSEE HAD ENGAGED ITS PONDICHERRY UNIT FOR TECHN ICAL KNOWHOW SERVICES. THERE WAS NOTHING BROUGHT BEFORE US TO S UGGEST THAT THE CHENNAI/TRICHY UNIT OF THE ASSESSEE HAS EXTENDED AN Y KNOW-HOW TO THE CLIENT OF THE ASSESSEE. FROM THE FACTS AND CIRC UMSTANCES OF THE M/S.CHEMFAB WELDERS LTD. 10 CASE, WE DO NOT HAVE ANY REASON TO DEFER WITH THE F INDINGS OF THE LD.CIT (A) ON THIS ISSUE. THEREFORE, WE HEREBY CON FIRM THE ORDER OF THE LD.CIT (A) ON THIS ISSUE. ACCORDINGLY THIS GRO UND RAISED BY REVENUE IS DECIDED AGAINST IT. 9. REVENUES APPEAL FOR A.Y. 1995-96 :- 9.1 GROUND NO.1: APPORTIONMENT OF LABOUR CHARGES TO PONDICHERRY UNIT FOR `. 51,11,940/- :- LD.CIT VIDE HIS ORDER U/S. 263 OF THE ACT HAD DIR ECTED THE LD. ASSESSING OFFICER TO VERIFY WHETHER THE ALLOCA TION OF THE EXPENDITURE AMONGST THE VARIOUS UNITS OF THE ASSESS EE WAS APPROPRIATE, AND ALSO TO VERIFY WHETHER THE INCOME OF THE PONDICHERRY UNIT HAS BEEN INFLATED. ACCORDINGLY, LD. ASSESSIN G OFFICER SOUGHT EXPLANATION FROM THE ASSESSEE. IN RESPONSE TO THE QUERY RAISED BY THE LD. ASSESSING OFFICER, THE ASSESSEE MADE THE FO LLOWING SUBMISSIONS:- I) WHILE THE UNITS AT MADRAS AND TRICHY UNDERTOOK SIMPLE FABRICATION AND SITE FABRICATION OF EQUIPMENT AND R UBBER LINNING OF SAME, THE PONDICHERRY UNIT TOOK UP THE M ORE M/S.CHEMFAB WELDERS LTD. 11 SOPHISTICATED WORK OF PROVIDING KNOWHOW /TECHNOLOGY , MANUFACTURE AND SUPPLY OF HIGHLY CRITICAL MACHINERY AND FINAL ERECTION AND SUPERVISION OF PLANTS. II) SINCE THE JOB OF PONDICHERRY UNIT INVOLVED MORE SOPHISTICATED TECHNOLOGY ETC., THE GROSS PROFIT MAR GINS WERE BASICALLY HIGH. III) THERE IS NO INFLATION OF EXPENDITURE OF MADRAS UNIT BY TRANSFERRING SUCH EXPENSE FROM THE PONDICHERRY UNIT . 9.2 LD. ASSESSING OFFICER AFTER ANALYZING THE CAS E OBSERVED THAT:- (I) DURING THE YEAR THE ASSESSEE HAD COMPLETED THE WORK UNDERTOOK FROM M/S.GRASIM INDUSTRIES LTD., WITH RES PECT TO THE PRIMARY BRINE PLANT AT NAGDA AND APART FROM THIS VARIOUS OTHER WORK ORDERS WERE ALSO EXECUTED, ONE AMONGST THEM BE ING SUPPLY OF BARIUM SULFATE PLANT TO M/S.KADAKIA ALKAL IES & CHEMICALS ,ANKELESHWAR. DUE TO THE ABOVE ACTIVITIE S, THE PONDICHERRY UNIT INCURRED MORE EXPENSE TOWARDS SALA RY, WAGES & BONUS, CARRIAGE INWARDS &OUTWARDS, AND STAF F WELFARE M/S.CHEMFAB WELDERS LTD. 12 EXPENSE AND LESS EXPENSE WITH RESPECT TO TRAVELLING COMPARED TO OTHER UNITS. (II) WITH RESPECT TO OTHER CONTRACT PAYMENTS BY THE ASSESSEE, SUBSTANTIAL BILL FOR JOB WORK ON SITE FOR NAGDA PRO JECT WAS RAISED BY M/S.KRR ENGINEERING PVT. LTD., CHENNAI WH ICH WAS AGREED TO ` .83.05 LAKHS. THIS JOB WORK WAS DONE BY M/S.KRR ENGINEERING PVT. LTD., ON THE WORK SITE AT NAGDA AF TER THE EQUIPMENTS WERE SHIPPED OUT FROM THE PONDICHERRY UN IT. (III) THE WORK ORDER PLACED BY M/S.GRASIM INDUS. LTD INDICATED THAT THE ENTIRE PROJECT WAS COMPOSITE CONTRACT. 9.3 FOR THE ABOVE SAID REASONS, LD. ASSESSING OFFI CER OPINED THAT THE LABOUR CHARGES OF ` 1,27,79,870 HAVE TO BE APPORTIONED AMONG DIFFERENT UNITS BECAUSE :- (I) A PORTION OF THE LABOUR CHARGES PAID TO M/S.KR R ENGINEERING PVT. LTD., OUGHT TO BE APPORTIONED TO T HE PONDICHERRY UNIT SINCE THE PONDICHERRY UNIT ALSO PL AYED A ROLE IN EXECUTING THE COMPOSITE PROJECT. M/S.CHEMFAB WELDERS LTD. 13 (II) THERE WERE OVERLAPPING OF LABOUR CHARGES AND O THER EXPENSE AMONGST DIFFERENT UNITS AND THEY WERE NOT ALLOCATED TO THE APPROPRIATE WORK CENTERS. (III) THE ASSESSEE HAD NOT MAINTAINED COST RECORDS OR CONDUCTED COST AUDIT. 9.4 THEREAFTER THE LD. ASSESSING OFFICER ARRIVED AT THE AVERAGE RATIO FOR ALLOCATING LABOUR CHARGES TO PONDICHERRY UNIT AT 40% OF THE TOTAL LABOUR CHARGES OF ` 1,27,79,870/-, WHICH AMOUNTED TO ` 51,11,948/-. 9.5. ON APPEAL, LD. LD. CIT (A) AFTER EXAMINING T HE ISSUE IN DETAIL, MADE A CATEGORICAL FINDING THAT THE ENTIRE WORKS OF FABRICATION EXECUTED BY M/S.KRR ENGINEERING PVT. LT D WERE AT THE SITE OF THE PROJECT AND THEREFORE, IT DID NOT HAVE ANY RELEVANCE TO THE PONDICHERRY UNIT. 9.6. LD. D.R ARGUED IN SUPPORT OF THE ORDER OF THE LD. ASSESSING OFFICER WHILE AS LD. A.R. RELIED ON THE ORDER OF TH E LD. CIT(A). M/S.CHEMFAB WELDERS LTD. 14 9.7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS EVIDENT FROM T HE FACTS OF THE CASE THAT THE ENTIRE LABOUR CHARGES DISPUTED BY THE LD. A.O OF ` 1,27,79,870/- WAS INCURRED BY THE ASSESSEE AT THE WORK SITE NAGDA. THE ASSESSEES PONDICHERRY UNIT WAS A SPECIA LIZED UNIT FOR MANUFACTURING THE CRITICAL ITEMS SUCH AS SATURA TOR, REACTORS, CLARIFIER, FILTERS, AND TANKS & PUMPS. THOUGH THE WORK UNDERTAKEN BY THE ASSESSEE IS A COMPOSITE CONTRACT, THE ROLE OF THE ASSESSEES PONDICHERRY UNIT WAS TO SUPPLY ONLY THE ABOVE PRODUCTS. FROM THE FACTS OF THE CASE IT IS EVIDENT THAT THE ASSESSEES PONDICHERRY UNIT DID NOT HAVE ANY ROLE I N THE FABRICATION WORK UNDERTAKEN BY THE ASSESSEE IN THE SITE. MOREOVER, NO MATERIALS WERE BROUGHT BEFORE US TO SH OW THAT THE ASSESSEES PONDICHERRY UNIT HAD ANY ROLE IN THE EXE CUTION OF THE ACTIVITIES RENDERED AT THE ASSESSEES CLIENTS SITE . THEREFORE WE ARE OF THE VIEW THAT IT IS NOT NECESSITY TO ALLOCAT E THE EXPENSES INCURRED BY THE ASSESSEE FOR THE PAYMENT MADE TO M/ S.KRR ENGINEERING PVT. LTD., BY THE MADRAS UNIT, TO PONDI CHERRY UNIT. M/S.CHEMFAB WELDERS LTD. 15 HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT (A). THEREFORE, THIS ISSUE IS DECIDED AGAINST THE REVENU E. 10.1 GROUND NO.2: DISALLOWANCE OF TECHNICAL KN OW-HOW FEES OF `. 10 LAKHS WHICH IS RESTRICTED TO 1/6 TH IN VIEW OF SEC.35AB OF THE ACT:- LD. ASSESSING OFFICER DISALLOWED `. 10 LAKHS TECHNICAL KNOW-HOW FEES PAID BY THE ASSESSEE TO M/S.TITANIUM EQUIPMENT AND ANOVE MANUFACTURING CO. LTD. BY INVOKING SEC .35AB OF THE ACT, CONSIDERING IT TO BE AN LUMP SUM AMOUNT PAID F OR ACQUIRING TECHNICAL KNOW-HOW. CONSEQUENTLY THE LD.AO ALLOWED DEDUCTION OF ONE SIXTH OF `. 10 LAKHS WHICH WORKS OUT TO `. 1,66,667/-. ON APPEAL, LD.CIT (A) HELD THAT THE AMOUNT PAID BY THE ASSESSEE WAS ONLY FOR RENDERING SERVICES FOR THE MANUFACTURING O F SPECIALIZED MACHINERY PARTS FOR BARIUM SULPHET PLANT AND SINCE THE APPELLANT IS A MANUFACTURER OF CHEMICAL EQUIPMENTS, THE AMOUN T WAS PAID FOR ASSISTING THE ASSESSEE IN THE MANUFACTURE OF SP ECIALIZED MACHINERY FOR ASHOK ORGANICS INDUSTRIES LTD. THERE FORE, THE LD.CIT (A) HELD THE ENTIRE EXPENDITURE AS M/S.CHEMFAB WELDERS LTD. 16 ALLOWABLE DEDUCTION BY OBSERVING THAT SEC. 35AB OF THE ACT IS INAPPLICABLE CONSIDERING THE FACTS OF THE CASE. BE FORE US, NO FURTHER EXPLANATIONS WERE TENDERED BY THE REVENUE T O ESTABLISH THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS A LUMP SUM PAYMENT MADE FOR ACQUIRING TECHNICAL KNOW-HOW. FRO M THE FACTS PRESENTED BEFORE US, IT IS ALSO EVIDENT THAT THE AS SESSEE IS A MANUFACTURER OF SPECIALIZED EQUIPMENTS IN CHEMICAL INDUSTRY. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE L D.CIT (A) HAS JUDICIOUSLY CONSIDERED THE MATTER AND DECIDED THE S AME APPROPRIATELY. ACCORDINGLY, WE HOLD THIS ISSUE ALS O IN FAVOUR OF THE ASSESSEE. 11. SINCE BOTH THE CROSS OBJECTIONS OF THE ASSESS EE ARE IN SUPPORT OF THE ORDERS OF THE LD. CIT (A), WHO HAD H ELD THE ISSUES IN FAVOUR OF THE ASSESSEE AND SINCE WE HAVE DISMISS ED THE APPEALS OF THE REVENUE AND UPHELD THE ORDER OF THE LD.CIT (A), THE CROSS OBJECTIONS OF THE ASSESSEE STAND ALLOWED. M/S.CHEMFAB WELDERS LTD. 17 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED & BOTH THE CROSS OBJECTIONS OF THE ASSESSEE ARE ALL OWED. ORDER PRONOUNCED ON 25 TH FEBRUARY, 2014 AT CHENNAI. SD/- SD/- (V. DURGA RAO) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 25 TH FEBRUARY, 2014. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE