DCIT, Rewari V. M/s. Nippon Leakless Talbros Pvt. Ltd., Rewari

ITA 2764/DEL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2791 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 16-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: V K AGARWAL
• Keywords: Fair market value; Commercial expediency
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI O. P. KANT, ACCOUNTANT MEMBER I.T.AS NO.2763, 2764, 5584/DEL/2016 ASSESSMENT YEARS: 2008-09, 2011-12 & 2012-13 DCIT, CIRCLE-REWARI, REWARI. V. M/S. NIPPON LEAKLESS TALBROS PVT. LTD., PLOT NO.125-A, SECTOR-06, HSIIDC, GROWTH CENTRE, BAWAL, REWARI. TAN/PAN: AACCN 0630J (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAVI KANT GUPTA, SR. D.R. RESPONDENT BY: SHRI V.K. AGARWAL, AR. DATE OF HEARING: 20 12 2017 DATE OF PRONOUNCEMENT: 22 12 2017 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEALS HAVE BEEN FILED BY THE REVENU E AGAINST SEPARATE IMPUGNED ORDERS DATED 14.03.2016 FOR THE ASSESSMENT YEAR 2008-09 AND 2011-12; AND ORDER DATED 17.08.2016 FOR ASSESSMENT YEAR 2012-13 PASSED BY LD. CIT (APPEALS), ROHTAK FOR THE QUANTUM OF ASSESSMENT PASSED U/S. 143(3)/144 OF THE INCOME TAX ACT, 1961. 2. SINCE ISSUES INVOLVED ARE BY AND LARGE COMMON, TH EREFORE, SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OF B Y WAY OF THIS CONSOLIDATED ORDER. I.T.AS. NO.2763, 2764 & 5584/DEL/2016 2 3. WE WILL FIRST TAKE UP THE APPEAL FOR THE ASSESSMENT Y EAR 2008-09, WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,23,27,262/-MADE ON ACCOUNT OF MANAGEMENT FEE PAID TO M/S TALBROS AUTOMATIVE COMPONENTS LTD. WHICH IS CLEARLY IN VIOLATION OF THE SECTION 40A (2)(B) OF THE I.T. ACT AND NO REASO NABLENESS HAS BEEN PROVED BY THE ASSESSEE WITH REGARD TO THE FAIR MARKET VALUE OF THE SERVICES/FACILITIES, LEGITIMATE NEEDS OF THE BU SINESS AND BENEFITS ACCRUED FOR THE SERVICES/FACILITIES FOR WHICH THE P AYMENT IS MADE AND NO SUCH SERVICES WAS NEEDED BY THE ASSESSEE COM PANY UPTILL A.Y. 2007-08 ALSO. 4. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE B Y THE JUDGMENT OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR TH E ASSESSMENT YEAR 2010-11. HE FURTHER SUBMITTED THAT THE LD. CIT (A) TOO HAS FOLLOWED THE SAID TRIBUNAL ORDER. 5. ON THE OTHER HAND, LD. D.R. STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 6. AFTER CONSIDERING THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AS WELL AS THE ORDER OF THE TRIBUNAL , WE FIND THAT ASSESSING OFFICER HAD NOTED THAT THE ASSESSEE HAD PAID MANAGEMENT FEES WORTH RS.1,23,27,262/- TO ITS SISTER CONCERN, NAMELY, M/S. TALBROS AUTOMOTIVE COMPONENTS LTD. THE A SSESSING OFFICER HAS MADE THE ADDITION AFTER OBSERVING AND HOLD ING AS UNDER:- I.T.AS. NO.2763, 2764 & 5584/DEL/2016 3 I. THE ASSESSEE MADE HUGE PAYMENTS TO ITS RELATED PART Y IN NAME OF THE MANAGEMENT FEES BUT DID NOT OFFER ANY EXPLANATION REGARDING THE FAIR MARKET VALUE. HENCE, THIS ARRANGEMENT IS CLEARLY IN VIOLATION OF THE SECTION 40A (2)(B) OF THE IT ACT. II. REGARDING THE DETAILS OF SERVICES RENDERED, THE ASS ESSEE HAD GIVEN GENERAL DESCRIPTION HOWEVER, NO SPECIFIC DETA ILS ARE PROVIDED SO AS TO REACH THE REASONABILITY & RATIONA LITY OF THE EXPENSES INCURRED. III. THE CRITERION OF MAKING PAYMENT TO THE TACL IS NOT BASED ON QUALITY AND QUANTITY OF WORK OR SERVICES. RATHER, I T IS A SIMPLE CONDUIT TO TRANSFER THE SUBSTANTIAL PART OF PROFIT TO ITS RELATED PARTY @ 10% PROFIT BEFORE TAX. THE SAID ARRANGEMENT IS BEYOND THE BUSINESS PRUDENCE AS NO BUSINESS MAN WOULD EVER DIVERT ITS SHARE OF PROFITS WHEN HE CANNOT WEIGH THE ACTUA L COST VIS-A- VIS THE BENEFIT DERIVED OUT OF IT. IV. THE AGREEMENT FURNISHED BY THE ASSESSEE SEEMS AN AFTERTHOUGHT PROCESS AND IT IS NOT AT STAMP DUTY PA PER, NO STAMP OF SIGNING AUTHORITIES IS THERE. FURTHER, NO SPECIFIC DETAILS, FLOWCHART, METHODOLOGY ETC IS GIVEN IN CLE AR TERMS. V. DURING THE PROCEEDINGS OF AY 2010-11, THE ASSESSEE HAD SET UP UNIT AT HARIDWAR WITHOUT ANY AID OF SUCH MANAGEM ENT SERVICES, AS EVIDENT FROM THE P&L ACCOUNT OF THE AS SESSEE COMPANY FOR AY 2010-11 & AY 2011-12. FOR INSTANCE, FOR AY 2011-12 THE MANAGEMENT CONSULTANCY FEES ARE DEBITED AS RS. 0/ - IN HARIDWAR UNIT AND RS 4,48,19,523/- IN BAWAL UNI T. IT SUGGESTS THAT THERE IS NO COMMERCIAL EXPEDIENCY FOR INCURRING SUCH HUGE EXPENSES FOR THE BAWAL UNIT AS WELL. FURTHER, NO SUCH SERVICES WERE NEEDED BY THE ASSESS EE UPTILL AY 2007-08 ALSO. VI. THE DECISION OF LUMPSUM PAYMENT ON BASIS OF THE PRO FITS DERIVED BY THE ASSESSEE COMPANY IN LIEU OF UNQUANTI FIED AND UNDETAILED SERVICES IMPLIES ONLY THE TAX EVASION TA CTICS OF THE ASSESSEE THE ENTIRE TRANSACTION OF DIVERTING PROFIT S SEEMS COLOURED AND RELIANCE IS ALSO PLACED HERE ON THE DE CISION OF APEX COURT IN CASE OF MCDOWELL AND CO. LTD. VS COMM ERCIAL TAX OFFICER WHEREIN IT WAS HELD THAT COLOURABLE DEV ICES ARE NOT PART OF TAX PLANNING. VII. ASSESSEE'S VIEW THAT TAX HAS BEEN DULY DEDUCTED ON THE PAYMENT BY THE COMPANY AND THE ASSESSEE IS ALSO NOT REASONABLE AS THE PRINCIPLES OF THE TAXATION STATES THAT RIGHT I.T.AS. NO.2763, 2764 & 5584/DEL/2016 4 PERSON SHOULD BE TAXED FOR THE RIGHT YEAR FOR THE R IGHT INCOME. FURTHER, THE ISSUE IS BEING DISCUSSED ABOUT CONTRAV ENTION OF PROVISIONS OF SECTION 40A OF THE IT ACT 1961, I.E. , NON-ADHERING OF THE STATUTE AND THE ENTIRE ARRANGEMENT OF AFFAIR S FROM VIEW OF REASONABILITY. VIII. THE CASE LAWS RELIED UPON BY THE ASSESSEE ARE VERY OLD AND GENERAL IN NATURE AND ARE MAINLY RELATED TO THE PRO VISIONS OF SECTION 37(1) & 36(1 )(III) EXCEPT ONE NAMELY CIT V S. PADMANI PACKAGING (P) LTD. [2006] WHICH IS WITH REFERENCE T O PROVISIONS OF SECTION 40A(2). IN THE SAID CASE LAW, ONLY THE I SSUE PAYING HIGHER COMMISSION EXPENSES WAS DISCUSSED. IN THE JU DGEMENT OF ROMESH KUMAR VS. CIT [2014], THE ISSUE HAS BEEN DECIDED IN FAVOUR OF REVENUE FOR THE COMMISSION EXPENSES IS SUE. IN VIEW OF ABOVE FACTS, THE MANAGEMENT FEES PAID BY THE ASSESSEE COMPANY WORTH RS 1,23,27,262/- ARE BEING DISALLOWED AND ARE ADDED TO THE TOTAL INCOME. 7. THE LD. CIT (A) FOLLOWING THE ORDER OF THE TRIBUN AL FOR THE ASSESSMENT YEAR 2010-11 HAS DELETED THE SAID ADDITION. 8. WE FIND THAT THE TRIBUNAL HAS DISCUSSED THIS ISSUE IN DETAIL AND HAS FINALLY CONCLUDED IN THE FOLLOWING MANNER:- WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. IT APPEARS FROM THE ASSESSMENT ORDER THAT T HE ASSESSING OFFICER HAD DISALLOWED THE IMPUGNED PAYME NT TO ITS SISTER CONCERN ON THE GROUND THAT THE APPELLANT HAD NOT PRODUCED ANY EVIDENCE IN SUPPORT OF HAVING RENDERED THE SERVICES BY M/S TALBROS AUTOMOTIVE COMPONENTS LTD. DURING THE COURSE OF HEARING, THE APPELLANT FILED THE ADDI TIONAL EVIDENCE IN SUPPORT OF THE SERVICES RENDERED WHICH WAS ADMITTED BY US AS MENTIONED IN PARAGRAPHS SUPRA. TH IS CLEARLY ESTABLISHES THAT THE APPELLANT HAD RECEIVED THE SERVICES FROM THE SAID COMPANY. THAT APART, IN OUR VIEW, AO HAD NOT MET THE REQUIREMENT OF THE PROVISIONS OF SE CTION 40A(2). A PLAIN READING OF THE PROVISIONS OF SECTION 40A(2) REVEALS THAT WHERE AN ASSESSEE INCURS ANY EXPENDITU RE IN RESPECT OF WHICH PAYMENT IS REQUIRED TO BE MADE OR HAS BEEN I.T.AS. NO.2763, 2764 & 5584/DEL/2016 5 MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF SEC TION 40A(2) OF THE ACT AND THE ASSESSING OFFICER IS OF THE OPIN ION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REG ARD TO (A) FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILIT IES FOR WHICH THE PAYMENT IS MADE; OR (B) THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE; OR (C) THE BENEFITS DERIV ED BY OR ACCRUING TO THE ASSESSEE ON RECEIPT OF SUCH GOODS, SERVICES OR FACILITIES, THEN THE ASSESSING OFFICER SHALL NOT AL LOW AS A DEDUCTION SO MUCH OF THE EXPENDITURE AS IS SO CONSI DERED BY THE ASSESSING OFFICER TO BE EXCESSIVE OR UNREASONAB LE. THEREFORE, IT BECOMES APPARENT THAT THE ASSESSING O FFICER IS REQUIRED TO RECORD A FINDING AS TO WHETHER THE EXPE NDITURE IS EXCESSIVE OR UNREASONABLE IN RELATION TO ANY ONE OF THE THREE REQUIREMENTS PRESCRIBED. THIS OPINION HAS TO BE FOR MED BY THE ASSESSING OFFICER BASED ON THE MATERIAL EVIDENCE AV AILABLE ON THE RECORD. THE ASSESSING OFFICER IS DUTY BOUND TO BRING ON RECORD THE COMPARABLE FAIR MARKET VALUE OF THE SERV ICES RENDERED TO SAY THAT THE VALUE PAID BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE. WE FIND NO EVIDENCE ON R ECORD TO NOTICE THAT THE ASSESSING OFFICER MADE EFFORTS IN T HIS DIRECTION. HE SIMPLY MADE DISALLOWANCE BASED ON THE SURMISES A ND CONJECTURES. 13. WE MAY ALSO REFER TO THE SCOPE OF SECTION 40A(2 ) AS EXPLAIN BY THE CBDT IN CIRCULAR NO. 6P, DATED 06.07 .1968. THE CBDT CLARIFIED THAT WHILE EXAMINING THE REASONA BLENESS OF EXPENDITURE THE ASSESSING OFFICER IS EXPECTED TO EXERCISE HIS JUDGMENT IN A REASONABLE AND FAIR MANNER. IT SHOULD BE BORNE IN MIND THAT THE PROVISION IS MEANT TO CHECK EVASIO N OF TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS RELATIVE S AND ASSOCIATE CONCERNS AND SHOULD NOT BE APPLIED IN A M ANNER WHICH WILL CAUSE HARDSHIP IN BONA FIDE CASES. 14. IN CIT VS. EDWARD KEVENTER (P.) LTD. [1972] 86 ITR 370, THE CALCUTTA HIGH COURT CONSIDERING IDENTICAL PROVI SION IN 1922 ACT, IT WAS HELD THAT THE SECTION PLACES TWO L IMITATIONS IN THE MATTER OF EXERCISE OF THE POWER. THE SECTION EN JOINS THE ASSESSING OFFICER IN FORMING ANY OPINION AS TO THE REASONABLENESS OR OTHERWISE OF THE EXPENDITURE INCU RRED MUST I.T.AS. NO.2763, 2764 & 5584/DEL/2016 6 TAKE INTO CONSIDERATION (I) THE LEGITIMATE BUSINESS NEEDS OF THE COMPANY AND (II) THE BENEFIT DERIVED BY OR ACCRUING TO THE COMPANY. THE LEGITIMATE BUSINESS NEEDS OF THE COMPA NY MUST BE JUDGED FROM THE VIEW POINT OF THE COMPANY ITSELF AND MUST BE VIEWED FROM THE POINT OF VIEW OF A PRUDENT BUSIN ESSMAN. IT IS NOT FOR THE ASSESSING OFFICER TO DICTATE WHAT TH E BUSINESS NEEDS OF THE COMPANY SHOULD BE AND HE IS ONLY TO JU DGE THE LEGITIMACY OF THE BUSINESS NEEDS OF THE COMPANY FRO M THE POINT OF VIEW OF A PRUDENT BUSINESSMAN. THE BENEFIT DERIVED OR ACCRUING TO THE COMPANY MUST ALSO BE CONSIDERED FRO M THE ANGLE OF A PRUDENT BUSINESSMAN. THE TERM BENEFIT TO A COMPANY IN RELATION TO ITS BUSINESS, IT MUST BE REM EMBERED, HAS A VERY WIDE CONNOTATION AND MAY NOT NECESSARILY BE CAPABLE OF BEING ACCURATELY MEASURED IN TERMS OF PO UND, SHILLINGS AND PENCE IN ALL CASES. BOTH THESE ASPECT S HAVE TO BE CONSIDERED JUDICIOUSLY, DISPASSIONATELY WITHOUT ANY BIAS OF ANY KIND FROM THE VIEW-POINT OF A REASONABLE AND HO NEST PERSON IN BUSINESS. 15. THE AFORESAID JUDGEMENT OF CALCUTTA HIGH COURT WAS AFFIRMED BY THE APEX COURT IN CIT VS. EDWARD KEVENT ER (P.) LTD. [1978] 115 ITR 149. IN THE SAME LINE IS THE JU DGMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. SHTRUNJAY DIAMONDS [2003] 261 ITR 258/128, TAXMANN, 759. 16. FOLLOWING THE RATIO LAID DOWN IN THE ABOVE CASES, W E HOLD THAT IN THE PRESENT CASE ALSO THERE IS NO WARR ANT FOR DISALLOWANCE OF SUM OF RS. 1,49,76,358/- PAID TO M/ S TALBROS AUTOMOTIVE PVT. LTD. AS THE ASSESSING OFFICER FAILE D TO DISCHARGE THE ONUS THAT WAS LYING UPON HIM AS PER T HE MANDATE OF THE PROVISIONS OF SECTION 40A(2) OF THE ACT. ACCORDINGLY, THE GROUNDS OF APPEAL FROM 3 TO 3.4 AR E ALLOWED. 9. SINCE THE ISSUES INVOLVED ARE IDENTICAL ARISING OU T OF SIMILAR FACTS AND REASONING GIVEN BY THE ASSESSING OF FICER AS WELL AS BY THE LD. CIT (A), THEREFORE, FOLLOWING THE JUDICI AL PRECEDENCE IN ASSESSEES OWN CASE, WE ALSO DIRECT THE ASSESSING OFF ICER TO DELETE I.T.AS. NO.2763, 2764 & 5584/DEL/2016 7 THE SAID ADDITION. THUS, GROUND RAISED BY THE REVENUE IS DISMISSED. 10. IN THE ASSESSMENT YEAR 2011-12, THE REVENUE HAS RA ISED FOLLOWING GROUNDS:- 1. THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF R S. L,49,39,841/-MADE ON ACCOUNT OF MANAGEMENT FEE PAID TO M/S TALBROS AUTOMATIVE COMPONENTS LTD. DESPITE THE FACT THAT NO REASONABLENESS HAS BEEN PROVED BY THE ASSESSEE WITH REGARD TO THE FAIR MARKET VALUE OF THE SERVICES/FACILITIES, LEGITIMATE NEEDS OF THE BUSINESS AND BENEFITS ACCRUED FOR THE SERVICES/FACILITIES FOR WHICH THE P AYMENT IS MADE. THE CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE COMPA NY IS NOT PAYING ANY MANAGEMENT FEES IN ITS EXEMPT UNIT SITUATED AT HARIDWAR, CLAIMING DEDUCTION U/S 80IC, DURING THE A.Y. CONCER NED BUT HAD CLAIMED ENTIRE MANAGEMENT FEES IN ITS TAXABLE UNIT SITUATED AT BAWAL, THEREBY NOT SUBSTANTIATING THE COMMERCIAL EXPEDIENC Y ON THE PART OF THE ASSESSEE. 2. CIT(A) IS ERRED IN DELETING THE ADDITION OF RS. 1, 20,03,861/- MADE ON ACCOUNT OF REALLOCATION EXPENSES BETWEEN TAXABLE AND EXEMPT UNIT WITHOUT GIVING ANY COMMENTS ON THIS IN HER ORDER, A ND EVEN THE ASSESSEE COMPANY IN ITS GROUND OF APPEAL TO CIT(A) HAS ADMITTED THAT THE PROPER ALLOCATION OF EXPENSES TO HARIDWAR UNIT (TAX EXEMPT) FROM BAWAL UNIT HAVE NOT BEEN MADE IN ITS BOOKS OF ACCOU NT AND ADMITTED TO ALLOCATE RS. 3,70,168/- TO HARIDWAR UNIT. THIS S HOWS THAT THE ASSESSEE COMPANY HAS NOT FOLLOWED THE ACT TO PROPER LY ALLOCATE THE EXPENSES TO ITS TAX EXEMPT UNIT. THE CRITERION OF T AKING THE PRODUCT RATIO FOR ALLOCATION OF THE EXPENSES BETWEEN THE UN ITS WAS VERY VAGUE AND UNREASONABLE. AS IT IS TURNOVER WHICH BEARS A P ROPORTIONATE RELATION WITH THE EXPENSES RATHER THAN NO. OF PRODU CTS. 11. SO FAR AS THE FIRST ISSUE IS CONCERN, ADMITTEDLY IT IS SIMILAR TO THE GROUND RAISED IN THE ASSESSMENT YEAR 2009-10, AN D THEREFORE, THE FINDING GIVEN THEREIN, THAT IT IS COVERED BY THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2010-11, WE HO LD THAT LD. CIT (A) HAS RIGHTLY FOLLOWED THE ORDER OF THE TRIBUNAL IN DELETING THE SAID ADDITION AND ACCORDINGLY, GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. I.T.AS. NO.2763, 2764 & 5584/DEL/2016 8 12. NOW SO FAR AS THE ISSUE RAISED IN GROUND NO.2 IS CONCERN, THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS HAVING TWO UNITS, ONE AT BAWAL WHICH IS TAXABLE UNIT; AND OTHER ONE IS AT HARIDWAR, THE PROFITS FROM WHERE IS LIABLE FOR DEDUCTION U/S. 8 0IC @ 100% ON SUCH AN UNDERTAKING. THE ASSESSING OFFICER NOTED THAT T HE TAXABLE UNIT (BAWAL) IS DEBITING HIGHER EXPENSES AS COMPARED TO THE TAX EXEMPT UNIT (HARIDWAR) AND NOTED THAT APPORTIONMENT/ALLOCA TION OF EXPENSES MADE BY THE ASSESSEE COMPANY IN RESPECT O F MAJORITY OF THE COMMON EXPENSES WERE NOT PROPERLY ALLOCATED. TH E EXPENSES CONSIDERED FOR ALLOCATION BY THE ASSESSEE WERE AS UN DER:- HEAD OF EXPENSE HARDIWAR UNIT BAWAL UNIT SALARY & WAGES 28,09,125 1,92,02,519 CONTRIBUTION TO PF 93,518 11,32,867 CONTRIBUTION TO ESI - 1,48,031 CONTRIBUTION TO HARYANA LABOUR WELFARE FUND - 5,800 STAFF WEL FARE & BENEFITS 1,29,140 38,14,662 CONTRIBUTION TO GRATUITY - 3,62,500 CONTRIBUTION TO LEAVE ENCASHMENT - 1,98,244 REPAIR & MAINTENANCE 2,59,295 27,99,317 RENT PAID FOR RESIDENCE OF DIRECTORS - 14,19,185 RATES & TAXES 26,384 1,91,517 INSURANCE 33,992 5,28,281 TRAVELLING - 10,52,444 SALES PROMOTION EXPENSES - 2 , 64,057 PACKING FREIGHT & FORWARDING 1,61,234 20 , 08,6 57 PRINTING & STATIONARY 69,583 2 , 37,879 POSTAGE, TELEPHONE & COURIER 77,222 6,05,910 REMUNERATION TO AUDITORS - 5,45,000 MANAGEMENT CONSULTANCY FEES MISCELLANEOUS EXPENSES 11,20,423 4,48,19,523 50,06,583 FOREIGN EXCHANGE FLUCTUATION - 56,13,569 BANK CHARGES 83 1,25,430 I.T.AS. NO.2763, 2764 & 5584/DEL/2016 9 13. THE ASSESSING OFFICER NOTED THAT THE ALLOCATION IS N OT IN COMMENSURATE WITH THE TURNOVER OF THE UNITS LIKE ADVERTISE MENT EXPENSES AND DIRECTORS SALARY HAS NOT BEEN SHOWN IN THE TAX EXEMPT UNIT, THE ASSESSING OFFICER ACCORDINGLY, PROCE EDED TO ALLOCATE THE INDIRECT EXPENSES IN PROPORTION OF THE TURNO VER WHICH WAS IN RATIO OF 79:21 IN RESPECT OF BAWAL AND HARIDWA R UNIT, RESPECTIVELY. THE EXPENSES ALLOCATED BY THE ASSESSING OFFICER WERE AS UNDER:- HEAD OF EXPENSE HARIDWAR UNIT BAWAL UNIT SALARY AND WAGES 4622445.24 17389199 CONTRIBUTION TO PF 257540.85 968844.15 CONTRIBUTION TO ESI 31086.51 116944.49 CON TRIBUTION TO HARYANA LABOUR WELFARE FUND 1218 4582 STAFF WELFARE & BENEFITS 828198.42 3115603.6 CONTRIBUTION TO GRATUITY 76125 286375 CONTRIBUTION TO LEAVE ENCASHMENT 41631.24 156612.76 REPAIR & MAINTENANCE 642308.52 2416303.5 RENT PAID FOR RESIDENCE OF DIRECTORS 298028.85 1121156.2 RATES & TAXES 45759.21 172141.79 INSURANCE 118077.33 444195.67 TRAVELLING 221013.24 444195.67 SALES PROMOTION EXPENSES 55454.97 208605.03 PACKING FREIGHT & FORWARDING 455677.11 1714213.9 PRINTING & STATIONARY 64567.02 242894.98 POSTAGE, TELEPHONE & COURIER 143457.72 539674.28 REMUNERATION TO AUDITORS 114450 430550 MANAGEMENT CONSULTANCY FEES 9412043.13 35407210 MISCELLANEOUS EXPENSES 1286671.26 4840334.7 FOREIGN EXCHANGE FLUCTUATION 1178849.49 4434719.5 BANK CHAR GES 26357.73 99155.27 I.T.AS. NO.2763, 2764 & 5584/DEL/2016 10 14. ACCORDINGLY, HE MADE THE DISALLOWANCE ON ACCOUNT OF EXCESS EXPENDITURE CLAIMED IN THE TAXABLE UNIT AT RS.1,2 0,30,861/- 15. LD. CIT (A), FIRST OF ALL NOTED THAT ASSESSEE IS MA INTAINING SEPARATE BOOKS OF ACCOUNT AND SEPARATE BANK ACCOUNTS FOR BOTH THE UNITS AND ALL THE EXPENSES PERTAINING TO EACH UNIT HAVE BEEN DEBITED TO THAT UNIT. HE ALSO TOOK NOTE OF THE FACT THAT IN BAWAL UNIT, THERE ARE 10 MAJOR CUSTOMERS AND 185 PRODUCTS W HICH ARE BEING MANUFACTURED, WHEREAS IN THE HARIDWAR UNIT THERE IS ONLY ONE CUSTOMER AND 12 PRODUCTS HAVE BEEN MANUFACTURED. HOWEVER, HE HELD THAT CERTAIN EXPENSES LIKE SALARY OF MANAGING DIRECTOR, TRAVELLING EXPENSES, AUDITORS REMUNERATION, ETC. ARE COMMON WHICH NEEDS TO BE ALLOCATED. HE FURTHER ACCEPTED THE AS SESSEES PLEA THAT IN CASE THE ALLOCATION IS TO BE MADE AND THE S AME IS TO BE ALLOCATED IN THE PRODUCT RATIO AND NOT IN THE TURNOVER RA TIO, BECAUSE ASSESSEE IS PRODUCING ONLY 15 PRODUCTS FROM HARIDWAR UNIT AND 185 PRODUCTS FROM BAWAL UNIT (IN THE RATIO OF 12:185) AND ACCORDINGLY, HE HELD THAT AN AMOUNT OF RS.3,70,168 /- HAVE TO BE ALLOCATED. THE RELEVANT OBSERVATION AND FACTS RECORD ED BY THE LD. CIT(A) IS AS UNDER:- A) SINCE THE STAFF AND LABOUR IS INDEPENDENT AT BOTH THE UNITS, AND IT IS ONLY MANAGING DIRECTOR, W HO IS COMMON TO BOTH, AT THE MOST, IT IS HIS SALARY AND OTHER RE LATED EXPENSES TO HIM WHICH CAN BE ALLOCATED IN THE PRODUCT RATIO AND NOT IN TURNOVER RATIO AS EXPLAINED IN PARA 28 ABOVE. THE A LLOCATION CAN BE AS UNDER IN THE RATIO OF 12:185: - I.T.AS. NO.2763, 2764 & 5584/DEL/2016 11 HE AD TOTAL EXPENSES HARIDWAR UNIT BAWAL UNIT SALARY 2727000 166112 2560888 TRAVELLING EXPENSES 254306 15491 238815 RENT 1419185 86448 1332737 TOTAL 4400491 278825 4121666 B) SIMILARLY AUDITORS REMUNERATION CAN BE ALLOCATED O NLY IN THE PRODUCT RATIO BECAUSE THE ACCOUNTS MAINTAINED F OR 10 PRODUCTS WILL BE 10 TIMES THAN THE ACCOUNTS FOR 1 P RODUCT. IT CANNOT BE IN THE RATIO OF TURNOVER BECAUSE AUDITOR HAS TO CHECK THE NUMBER OF ENTRIES AND NOT THE QUANTUM OF FIGURE IN ENTRY. WHETHER THE ENTRY IS FOR 1 LAC OR FOR 10 LACS, THE EFFORTS REQUIRED TO PUT IN BY THE AUDITOR REMAIN SAME. ACCORDINGLY A UDITOR REMUNERATION CAN BE ALLOCATED AS UNDER: - HEAD TOTAL EXPENSES HARIDWAR UNIT BAWAL UNIT AUDITOR REMUNERATION 545000 33198 511802 C) AS REGARDS FOREIGN EXCHANGE FLUCTUATION, THE RAW MATERIAL IMPORTED FROM JAPAN IS ENTERED IN THE BOOK S OF BAWAL UNIT. NO RAW MATERIAL IS TRANSFERRED TO HARIDWAR UN IT. IT IS ONLY SEMI-FINISHED PRODUCT WHICH IS TRANSFERRED TO HARID WAR UNIT. THE TOTAL COST OF IMPORT INCLUDES COST OF RAW MATERIAL, TOOLS AND DIES AND BOUGHT- OUT-PARTS. BOUGHT-OUT-PARTS AND RAW MAT ERIAL ARE USED ONLY IN BAWAL UNIT. IT IS ONLY TOOLS AND CONSU MABLES, A MINOR PART OF WHICH, ARE TRANSFERRED TO HARIDWAR UN IT. THEREFORE, FOREIGN EXCHANGE FLUCTUATION CAN BE APPORTIONED IN THE RATIO OF COST AS UNDER: - HEAD COST FOREIGN EXCHANGE FLUCTUATION HARIDWAR UNIT BAWAL UNIT (FEF) COST FEF COST F E RAW MATERIAL 166003649 4962865 0 0 166003649 4 9 6 TOOLS ETC. 13841900 579174 1389692 58145 12452271 5 2 BOUGHT- OUT-PARTS 12622032 102231 0 0 12622032 1 0 2 TOTAL 192467581 5644270 1389692 58145 191077952 5 5 (NOTE:- ALSO FEF AMOUNTING TO RS. -30699./- PERTAI NS TO EXPORT FROM BAWAL UNIT.) I.T.AS. NO.2763, 2764 & 5584/DEL/2016 12 D) THEREFORE, IF AT ALL SOME ALLOCATION IS TO BE DONE, IT COULD ONLY BE RS. 3,70,168/- (278825 + 33198 + 58145) FROM BAWAL UNIT TO HARIDWAR UNIT, OF COURSE, THIS IS WITHOUT PREJUDICE TO OUR CLAIM THAT , NO FURTHER ALLOCATION IS REQUIRED CONSIDERING THE FACTS OF THE CASE. 14.1 AT THIS JUNCTURE, IT WOULD BE RELEVANT TO TAKE NOTE OF THE FACT THAT IN THE ASSESSMENT YEAR 2012-13 ALSO, SIMILAR ALLOCATION HAS BEEN DONE BY THE ASSESSING OFFICER ON TURNOVER BA SIS FOR FOLLOWING EXPENSES:- EXPENSES ALLOCATED AS PER TURNOVER HEAD OF EXPENSE HARDIWAR UNIT BAWAL UNIT DISALLOWANCE OF EXCESS EXPENSES DEBITED TO BAWAL UNIT SALARIES WAGES & OTHER BENEFITS 10056640.16 25859931.84 5,620,003 REPAIR & MAINTENANCE MAINTENANCE 935407.76 2405334.24 576,475 RENT 444186.4 1142193.6 444,186 RATES & TAXES 59660.72 153413.28 30,686 INSURANCE 221322.64 569115.36 167,692 TRAVELLING 749685.16 1927761.84 745,040 SALES PROMOTIONS EXPENSES 67022.2 172342.8 67,022 PACKING FREIGHT & 618910.32 1591483.68 587,003 FORWARDING PRINTING & STATIONERY 86911.72 223487.28 42,632 POSTAGE TELEPHONE & COURIER 245384.16 630987.84 161,546 REMUNERATION TO AUDITORS 96600 248400 96,600 MISCELLANEOUS EXPENSES 2060363.48 5298077.52 709,680 FOREIGN EXCHANGE FLUCTUATION 2845130.4 7316049.6 2,845,130 BANK CHARGES 19077.24 49055.76 17,790 TOTAL DISALLOWANCES 1,21,11,486 14.2 LD. CIT (A) AFTER CONSIDERING THE ASSESSEES WOR KING HAS WORKED OUT THE ALLOCATION IN THE FOLLOWING MANNER:- A) SINCE THE STAFF AND LABOUR IS INDEPENDENT AT BOTH T HE UNITS, AND IT IS ONLY MANAGING DIRECTOR, WHO IS COMMON TO BOTH, AT THE MOST, IT IS HIS SALARY AND OTHER RELATED EXPENSES TO HIM WHICH CAN BE I.T.AS. NO.2763, 2764 & 5584/DEL/2016 13 ALLOCATED IN THE PRODUCT RATIO AND NOT IN TURNOVER RATIO AS EXPLAINED IN PARA 28 ABOVE. THE ALLOCATION CAN BE AS UNDER IN TH E RATIO OF 15:149 : - HEAD TOTAL EXPENSES HARIDW AR UNIT BAWAL UNIT SALARY 26,38,484 2,63,848 23,74,636 TRAVELLING EXPENSES 17,03,866 1,70,387 15,33,479 RENT 15,86,380 1,58,638 14,27,742 TOTAL 59,28,730 5,92,873 53,35,857 B) SIMILARLY AUDITOR REMUNERATION CAN BE ALLOCATED ONL Y IN THE PRODUCT RATIO BECAUSE THE ACCOUNTS MAINTAINED FOR 1 0 PRODUCTS WILL BE 10 TIMES THAN THE ACCOUNTS FOR 1 PRODUCT. IT CANNOT BE IN THE RATIO OF TURNOVER BECAUSE AUDITOR HAS TO CHECK THE NUMBER OF ENTRIES AND NOT THE QUANTUM OF FIGURE IN ENTRY. WHETHER THE ENTRY I S FOR 1 LAC OR FOR 10 LACS, THE EFFORTS REQUIRED TO PUT IN BY THE AUDITOR REMAIN SAME. ACCORDINGLY, AUDITOR REMUNERATION CAN BE ALLOCATED AS UNDER:- HEAD TOTAL EXPENSES HARIDWAR UNIT BAWAL UNIT AUDITOR REMUNERATION 3,45,000 34,500 3,10,500 C) AS REGARDS FOREIGN EXCHANGE FLUCTUATION, THE RAW MA TERIAL IMPORTED FROM JAPAN IS ENTERED IN THE BOOKS OF BAWA L UNIT. NO RAW MATERIAL IS TRANSFERRED TO HARIDWAR UNIT. IT IS ONL Y SEMI-FINISHED PRODUCT WHICH IS TRANSFERRED TO HARIDWAR UNIT. THE TOTAL COST OF IMPORT INCLUDES COST OF RAW MATERIAL, TOOLS AND DIES AND B OUGHT- OUT-PARTS. BOUGHT-OUT-PARTS AND RAW MATERIAL ARE USED ONLY IN BAWAL UNIT. IT IS ONLY TOOLS AND CONSUMABLES, A MINOR PART OF WHICH, ARE TRANSFERRED TO HARIDWAR UNIT. THEREFORE, FOREIGN EXCHANGE FLUCTUAT ION CAN BE APPORTIONED IN THE RATIO OF COST AS UNDER: - HEAD COST FOREX FLUCTUATION HARIDWAR UNIT BAWAL UNIT RAW-MATERIAL 246030203 7421011 COST / FE F 51168714 / 1543402 COST / FEF 194861489 / 5877609 TOOLS, ETC. 18566994994 1040811 576139 / 32297 17990855 / 1008514 BROUGHT OUT PARTS 25072272 1663626 0/0 25072272 / 1663 626 TOTAL 234055632 10125448 51744853/1575699 237924349 /8549749 D) THEREFORE, IF AT ALL SOME ALLOCATION IS TO BE DONE, IT COULD BE ONLY BE RS. 22,03,072/- (5,92,873 + 34,500/- + 15,7 5,699/-) FROM BAWAL UNIT TO HARIDWAR UNIT-------. I.T.AS. NO.2763, 2764 & 5584/DEL/2016 14 14.3 LD. CIT (A), ACCORDINGLY, CONFIRMED THE AD DITION OF RS. 22,03,072/- ON ACCOUNT OF ALLOCATION OF EXPENSES. 15. BEFORE US THE LD. SR. D.R. SUBMITTED THAT, BEFORE T HE ASSESSING OFFICER THE ASSESSEE COULD NOT FURNISH THE D ETAILS OF EXPENDITURE WITH SUPPORTING DOCUMENTS DEBITED UNDER BOTH THE UNITS, HENCE AO HAD NO OTHER WAY, EXCEPT FOR ALLOCATE THE EXPENDITURE. THE ASSESSING OFFICER HAD NOTED THAT CERTAI N EXPENSES LIKE DIRECTORS SALARY, TRAVELLING EXPENSE O F DIRECTORS, AUDITORS FEES, ETC., HAVE NOT BEEN DEBITED IN THE TAX EXEMPT UNIT, THEREFORE, HE HAD APPLIED THE TURNOVER RATIO FOR WORKIN G OUT THE DISALLOWANCE TO DISALLOW THE EXPENDITURE DEBITED IN TH E TAXABLE UNIT IN THE MANNER AS INCORPORATED ABOVE. 16. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACC OUNT AND SEPARATE BANK ACCOUNTS FOR BOTH THE UNITS WHICH FACT HA S NOT BEEN DISPUTED BY THE ASSESSING OFFICER AND ACCEPTED BY THE LD. CIT (A). ONCE THE SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED NOT ONLY FOR THE OPERATIONS BUT ALSO FOR ENTIRE INCOME AND EXPENDITU RE, THEN THERE WAS NO REQUIREMENT FOR ALLOCATING ANY EXPENDITU RE OR DISALLOWING ANY KIND OF EXPENDITURE FROM BAWAL UNIT. EACH AND EVERY EXPENDITURE ARE IDENTIFIABLE AND THIS FACT HAS N OT BEEN DENIED AND WHICH FACT HAS BEEN NOTED BY THE LD. CIT(A) , ON PERUSAL OF THE ENTIRE MATERIAL PLACED ON RECORD BEFORE HIM. H E HAS ALSO CALLED FOR THE REMAND REPORT OF THE ASSESSING OFFICER ON THIS POINT. IN ANY CASE AND WITHOUT PREJUDICE, THE ASSESSEE HAD GIVEN THE ALLOCATION OF CERTAIN EXPENDITURE LIKE SALARY OF THE D IRECTORS, TRAVELLING EXPENSES, RENT, AUDITORS REMUNERATION, FORE IGN EXCHANGE FLUCTUATION ETC. THE ALLOCATION KEY HAS BEEN ACCEPTED ON PRODUCT I.T.AS. NO.2763, 2764 & 5584/DEL/2016 15 RATIO BASIS, BECAUSE, IN HARIDWAR UNIT THE ASSESSEE I S ONLY REQUIRED TO MAINTAIN ITS ACCOUNT AND EXPENDITURE QUA FIFTEEN PRODUCTS ONLY AS COMPARED TO 185 PRODUCTS MANUFACTURED IN BAWAL UNIT. LD. CIT (A) HAS DULY EXAMINED THIS FACTOR AND HAS ACCEPTED THIS ALLOCATION KEY WHICH SHOULD BE ACCEPTE D AND ACCORDINGLY, THE ORDER OF THE LD. CIT (A) SHOULD BE C ONFIRMED. 17. IN THE REJOINDER, LD. SR. D.R. SUBMITTED EACH AND EVERY EXPENDITURE CANNOT BE ALLOCATED ON THE BASIS OF PRODUC T RATIO, FOR EXAMPLE, SALARY, TRAVELLING, RENT, ETC., THUS SUCH AL LOCATION KEY CANNOT BE ACCEPTED. HE ALSO POINTED OUT ONE IMPORTANT FA CT THAT AO HAS NOT ALLOCATED THE MANAGEMENT FEES PAID TO SIST ER CONCERN AS HE HAS MADE THE ADDITION SEPARATELY. IF THE MANAGE MENT FEES IS DELETED, THAT IT IS NOT DISALLOWABLE UNDER 40A (2)(B), THEN ALLOCATION OF THIS EXPENSES SHOULD ALSO BE DIRECTED. 18. LD. COUNSEL, ON THIS ISSUE SUBMITTED THAT THE ASSESSEE HAS ALLOCATED MANAGEMENT FEES TO HARDWAR UNIT IN A. Y. 2012 -13. THE FIRST YEAR OF HARDWAR UNIT WAS A. Y. 2011-12. THE MAN AGEMENT FEES WAS NOT ALLOCATED IN A. Y. 2011-12 ON THE FOLLOW ING GROUNDS:- I) SINCE A. Y. 2011-12 WAS THE FIRST YEAR OF HARDWAR UN IT WHICH WAS COMMISSIONED ON 31/03/2010, THE MANAGEMENT DECIDED TO RUN THE PLANT ON ITS OWN. THIS UNIT WAS DEDI CATED UNIT FOR THE NEW PLANT OF M/S HERO MOTO CORP WHICH WAS OPENED IN HARDWAR. THERE WAS NO OTHER CLIENT FOR HARD WAR UNIT. II) IN A.Y. 2011-12, THE HARDWAR UNIT PURCHASED INTERMEDIATE PRODUCT FROM BAWAL UNIT AND FURTHER DID REMAINING MANUFACTURING TO GET FINAL PRODUCT. THEREFOR E, ALL I.T.AS. NO.2763, 2764 & 5584/DEL/2016 16 THE PROCESSES FOR MANUFACTURING WERE NOT DONE IN HARI DWAR UNIT WHICH IS VERY CLEAR FROM PAGE 128 OF THE PAPER BOOK WHICH SHOWS THAT RAW MATERIAL CONSUMED IN HARIDWAR UNI T IS NIL. FOR PARTIAL MANUFACTURING, THE STAFF AT HARDWAR UN IT WAS COMPETENT ENOUGH AND NO NEED WAS FELT FOR GUIDANCE EI THER FROM M/S. NIPPON LEAKLESS CORPORATION, JAPAN OR FROM M/S. TALBROS AUTOMOTIVE COMPONENTS LTD. IN A. Y. 2012-13, HARIDWAR UNIT STARTED MANUFACTURING RIGHT FROM INITIAL PROCESS AS IS INDICATED ON PAGE 144 OF THE PAPER BOOK WHEREIN RAW MATERIAL CONSUMED IN HARIDWAR UNIT IS SH OWN AT RS.5,11,68,714/-. MOREOVER, NEW GASKETS FOR THE CHA NGED MODELS OF HERO MOTO CORP WERE TO BE DEVELOPED TO MEET THE REQUIREMENT OF THE BUYER FOR WHICH HARIDWAR UNIT DID N OT HAVE COMPETENT STAFF. THEREFORE, MANAGEMENT FEES WAS ALLOCATED W.E.F. A. Y. 2012-13 AND NOT A. Y. 2011-12. III) THE ORIGINAL AGREEMENT FOR MANAGEMENT FEES WAS ENTERED ON 01/10/2007 WHEN HARDWAR UNIT WAS NOT IN EXISTENCE. SINCE EARLIER THE AGREEMENT WAS ONLY FOR B AWAL UNIT, THERE WAS NO AUTHORITY FOR ALLOCATING MANAGEMENT F EE TO HARDWAR UNIT IN A. Y. 2011-12. TO ENABLE THE ALLOCATI ON OF MANAGEMENT FEES TO HARDWAR UNIT, ADDENDUM TO THE ORIGI NAL MANAGEMENT FEES AGREEMENT WAS SIGNED ON 01/04/2011 BETWEEN THE APPELLANT AND THE BOTH THE SERVICE PROVIDER S AS IS EVIDENT FROM PAGE 181 OF THE PAPER BOOK. THEREFORE , ON THE AUTHORITY OF THIS ADDENDUM, A MANAGEMENT FEE WAS ALLOC ATED TO HARDWAR UNIT IN A. Y. 2012-13. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PE RUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS AS WELL AS THE I.T.AS. NO.2763, 2764 & 5584/DEL/2016 17 MATERIAL REFERRED TO BEFORE US AT THE TIME OF HEARING . THE ASSESSEE IS CARRYING OUT OPERATION FROM TWO UNITS; BAWAL UNIT W HICH IS A TAXABLE; AND UNIT OF HARIDWAR WHICH IS ELIGIBLE FOR D EDUCTION 100% U/S.80IC ON ITS PROFITS DERIVED. THE REVENUES CASE I S THAT, THE ASSESSEE HAS LOADED MORE EXPENDITURE IN THE TAXABLE UN IT TO REDUCE THE PROFIT AND THEREFORE, INDIRECT EXPENDITURE H AVE BEEN ALLOCATED ON THE TURNOVER RATIO. WE FIND THAT IT IS AN U NDISPUTED FACT THAT THE ASSESSEE HAS BEEN MAINTAINING SEPARATE B ANK ACCOUNTS AND SEPARATE BOOKS OF ACCOUNT, WHEREIN INCO ME AND EXPENDITURE ARE SEPARATELY DEBITED AND CREDITED TO TH E RESPECTIVE BOOKS OF ACCOUNT. FROM THE PERUSAL OF THE EXPENSES ALL OCATED BY THE ASSESSING OFFICER, WE FIND THAT HE HAS IN GENERAL PICKED UP THE INDIRECT EXPENDITURES FOR THE PURPOSE OF ALLOCATION, W ITHOUT EVEN IDENTIFYING THE EXPENDITURE WHICH CAN BE RECKONED AS COMMON. THUS, THE BASIS FOR ALLOCATION OF EXPENDITURE WITHOUT E XAMINING THE SEPARATE BOOKS OF ACCOUNT BY THE AO ON THE FACTS AND CIRCUMSTANCES OF THE CASE IS NOT CALLED FOR AND SAME IS REJECTED. IT IS FURTHER SEEN THAT THOUGH, THE LD. CIT (A) HAS IDEN TIFIED CERTAIN EXPENDITURE WHICH CAN BE RECKONED AS COMMON, BUT HE TO O APPEARS TO HAVE NOT EXAMINED THE ACCOUNTS OF THE UNITS A S TO WHICH EXPENDITURES ARE IDENTIFIABLE QUA EACH UNIT. THEREFORE, WE ARE OF THE OPINION THAT THE MATTER SHOULD BE RESTORED BAC K TO THE FILE OF THE ASSESSING OFFICER FOR A LIMITED PURPOSE TO EXAMINE:- FIRSTLY , TO IDENTIFY THE EXPENDITURE QUA EACH UNIT FROM THE SEPARATE LEDGER ACCOUNTS; AND IF THE EXPENDITURES DEBI TED ARE ATTRIBUTABLE FOR THE PARTICULAR UNIT, THAT IS, THE EXPENDIT URE PERTAINS TO BAWAL UNIT ONLY THEN SAME SHOULD BE ALLOWE D FROM THE PROFITS OF BAWAL UNIT OR VICE-VERSA FOR THE HA RIDWAR I.T.AS. NO.2763, 2764 & 5584/DEL/2016 18 UNIT AND IN THAT CASE NO ALLOCATION SHOULD BE MADE FOR SUCH EXPENDITURES. SECONDLY, ONLY IN CASE WHERE EXPENDITURES ARE NOT IDENTIFIABLE AND ARE COMMON IN NATURE THAT ALONE SHOUL D BE CONSIDERED FOR THE ALLOCATION PURPOSE. LASTLY , AFTER IDENTIFYING THE COMMON EXPENDITURE, THE DETAILS OF WHICH WOULD BE PROVIDED BY THE ASSESSEE, T HE ASSESSING OFFICER WILL ALSO EXAMINE AS TO WHETHER THE ALLOCATION KEY SHOULD BE BASED ON PRODUCT RATIO OR TURNOVER RATIO, BECAUSE, THERE COULD BE CERTAIN EXPENSES, FOR EXAMPLE, SALES PROMOTION, PACKING AND FREIGHT ETC., DEFINITELY TH E SAME SHOULD BE ALLOCATED ON PRODUCT RATIO WISE; HOWEVER IF CERTAIN COMMON EXPENSES LIKE SALARY OF MANAGING DIRECTORS, TRAVELLING EXPENSES OF THE EMPLOYEES WHICH MAY BE COM MON FOR BOTH THE UNITS INCLUDING THAT OF THE DIRECTORS AND AUDITORS REMUNERATIONS, THEN SAME COULD BE TAKEN ON RA TIO OF TURNOVER BASIS. HOWEVER, THE ASSESSEE WILL PROVIDE THE NECESSARY DETAILS FOR ALLOCATION KEY TO COMMON EXPEN SES WHICH ARE IDENTIFIED AND ONLY IF SUCH EXPENSES REQUI RED ALLOCATION ON PRODUCT RATIO THEN SAME MAY BE EXAMINED AND IF NOT, THEN TURNOVER RATIO SHOULD BE TAKEN. 20. SO FAR AS ALLOCATION OF MANAGEMENT FEES IS CONCERNED, THERE COULD NOT BE ANY ALLOCATION IN THE AY 2011-12 FOR THE REASONS STATED BY THE LD. COUNSEL ABOVE, WHICH IS NOT DISPUTED B Y THE LD. DR AND HENCE, WE HOLD THAT FOR THE A.Y. 2011-12, THERE CANNOT BE ANY ALLOCATION. AS FOR THE A.Y. 2012-13, THE ASSESSEE HAS ALREADY ALLOCATED THE MANAGEMENT FEES AS ADMITTED ABOVE, HENCE N O I.T.AS. NO.2763, 2764 & 5584/DEL/2016 19 FURTHER ALLOCATION IS REQUIRED. THUS, ON THIS POINT, WE COMPLETELY AGREE WITH THE LD. COUNSEL AND REJECT THE ARGUMENTS RA ISED BY THE LD. DR. 21. ACCORDINGLY, IN VIEW OF OUR FINDING AND AFO RESAID DIRECTION THE MATTER IS REMANDED BACK TO THE ASSESSING OFFICER WH O SHALL PROVIDE AMPLE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIA TE ITS CASE ON THE ISSUE OF ALLOCATION IN VIEW OF OUR DIRECTION. HENCE GROUND NO.2 FOR THE ASSESSMENT YEAR 2011-12; AND GROUND NO.3 FOR THE ASSESSMENT YEAR 2012-13 OF THE REVENUE IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. 22. IN THE ASSESSMENT YEAR 2012-13 THE ISSUE RAISE D IN GROUND NOS.1 AND 2 IS COMMON TO THE GROUND RAISED IN ASSES SMENT YEAR 2009-10, 2011-12, THAT IS, DISALLOWANCE OF MANAGEMEN T FEES AND THEREFORE, IN VIEW OF THE FINDING GIVEN THEREIN, WE UP HOLD THE DELETION OF ADDITION MADE ON ACCOUNT OF MANAGEMENT FEE S PAID BY THE ASSESSEE TO ITS RELATED PARTY FOR SUM OF RS.1,63,5 0,000/- AND ORDER OF THE LD. CIT(A) IS THUS, CONFIRMED. 23. IN THE RESULT, THE REVENUES APPEAL FOR ASSESSMENT YEAR 2008-09 IS DISMISSED; AND APPEALS FOR THE ASSESSMENT YEAR 2011- 12 AND 2012-13 ARE PARTLY ALLOWED FOR STATISTICAL PURP OSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER, 2017. SD/- SD/- [O.P. KANT] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22 ND DECEMBER, 2017 PKK: COPY FORWARDED TO: I.T.AS. NO.2763, 2764 & 5584/DEL/2016 20 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR DATE 1. DRAFT DICTATED ON 2. DRAFT PLACED BEFORE AUTHOR 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE COMES BACK TO PS/SR. PS 8. UPLOADED ON 9. FILE SENT TO THE BENCH CLERK 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER.