ACIT, UDAIPUR V. M/s. P.I. Industries Ltd., UDAIPUR

ITA 312/JODH/2009

• Counselvise Citation: 31223314 RSA 2009
• Duration Of Justice: 2 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R H GOHEL
• Keywords: Depreciation; Business expenditure; Capital expenditure
• Section: 143(3); 142(1); 37

Judgement Text

1 ITA 312-09 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH JODHPUR. ( BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ) ITA NO. 312/JODH/2009 ASSTT. YEAR : 2006-07. THE ACIT, CIRCLE-1, VS. M/S. P. I. INDUSTRIES, UDAIPUR. POST BOX NO. 20, UDAISAGAR ROAD, UDAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.H. GOHEL RESPONDENT BY : SHRI AMIT KOTHARI DATE OF HEARING : 07.12.2011. DATE OF PRONOUNCEMENT : 15.12.2011. ORDER DATED : 15/12/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2006-07. 2. BY GROUND NO. 1, THE DEPARTMENT IS OBJECTING IN DIRECTING THE ASSESSING OFFICER TO CONSIDER THE REVISED COMPUTATION OF DEPRECIATION AN D DEDUCTION UNDER SECTION 80-IA OF THE ACT ON CPP. 3. THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80I A AT RS. 1,72,31,805/-. THEREAFTER, THE ASSESSEE FILED A REVISED CALCULATION OF DEDUCTI ON FOR THE REASON THAT DUE TO MISTAKE, THE DEPRECIATION ON SOME ITEMS WAS CLAIMED ON HIGHER SI DE I.E. 25% AGAINST 15% AS ALLOWABLE. THEREFORE, A REVISED CHART WAS FILED VIDE LETTER DA TED 13.12.2008. THE ASSESSING OFFICER DID 2 NOT CONSIDER THIS CHART AND ALLOWED THE DEDUCTION A S CLAIMED ORIGINALLY. THE DETAILED WRITTEN SUBMISSIONS WERE FILED BEFORE LD. CIT (A) WHICH HAS BEEN RECORDED IN PARAS 4 TO 6 OF HIS ORDER ARE AS UNDER :- 4. DURING THE COURSE OF APPELLATE PROCEEDINGS TH E LD. A/R SUBMITTED AS UNDER:- 'THAT THE APPELLANT HAD FILED ITS RETURN OF INCOME ON 30.11.2006 DECLARING TOTAL INCOME OF RS. 34,37,748/- AND CLAIMED DEDUCTI ON U/S 80-IA OF IT ACT 1961 ON CAPTIVE POWER PLANT AT RS. 1,72,31,805/-. THAT DURI NG THE ASSESSMENT PROCEEDING AS DESIRED BY THE LD. AO THE APPELLANT FILED AUDIT REP ORT IN FORM 10-CCB FOR CLAIMING DEDUCTION U/S 80 IA ON CAPTIVE POWER PLANT AS THE R ETURN WAS FILED ELECTRONICALLY AND NO PAPERS OR ENCLOSURES WERE ALLOWED/ POSSIBLE. THA T THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS VIDE ITS LETTER DATED 30.12. 2008 REVISED THE CLAIM OF DEDUCTION U/S 80-IA ON THE CAPTIVE POWER PLANT (CPP ). THE CLAIM WAS REQUIRED TO BE REVISED BECAUSE DEDUCTION U/S 80 IA WAS WRONGLY CAL CULATED BY APPLYING WRONG RATE OF DEPRECIATION @ 25% (ON PLANT & MACHINERY) WHERE AS DURING THE YEAR UNDER APPEAL THE CORRECT RATE OF DEPRECIATION WAS 15% (IN ACCORD ANCE WITH INCOME-TAX RULES, 1962). THE CLAIM WAS REVISED ONLY TO BRING IT IN CO NFORMITY WITH THE CORRECT RATES OF DEPRECIATION. A COPY OF LETTER DATED 30.12.2008 ALO NGWITH REVISED DEPRECIATION CHART AND CLAIM OF DEDUCTION U/S 80 IA ON CPP IS ENCLOSED HEREWITH FOR YOUR READY REFERENCE. THAT THE LD. AO WHILE COMPLETING THE ASS ESSMENT U/S 143(3) OF THE IT ACT 1961 DID NOT CONSIDER THE REVISED CLAIM WITHOUT GIV ING ANY SPECIFIC REASON IN ASSESSMENT ORDER, WHICH IS UNJUSTIFIED UNWARRANTED AND BAD IN LAW AND SAME DESERVES TO BE CONSIDERED AND ALLOWED. 5. APPELLANT FURTHER RELIED ON THE VARIOUS JUDICIA L PRONOUNCEMENTSWH6REIN IT WAS HELD THAT ANY DEDUCTION/CLAIM ETC. WHICH WAS NO T CLAIMED IN THE RETURN OF INCOME CAN BE CHIMED ON OR BEFORE COMPLETION OF THE ASSESS MENT. THE LEARNED AO FORGOT HIS BOUNDEN DUTY TO DETERMINE THE TAX LIABILITY CORRECT LY IN ACCORDANCE WITH LAW, WHETHER OR NOT ASSESSEE MAKES A CLAIM OF A DEDUCTION OR NOT IF ALL THE NECESSARY FACTS WERE AVAILABLE TO THE ASSESSING OFFICER ON RECORD. THE A SSESSING OFFICER ACTING UNDER THE INCOME-TAX ACT HAS A PIOUS DUTY TO LEVY TAX WHICH I S NEITHER A PENNY LESS NOR A PENNY MORE- HE ACTING UNDER A DEMOCRATIC SETUP IN ACCORDA NCE WITH 'RULE OF LAW' AND NOT UNDER SOME `DESPOT' DETERMINED TO EXTRACT AS MUCH T AX AS POSSIBLE BY ALL POSSIBLE MEANS LEGAL OR ILLEGAL. THE CBDT HAS TIME AND AG AIN ADVISED THE FIELD OFFICERS (INCLUDING THE ASSESSING OFFICERS) TO ACT AS PUBLIC RELATIONS OFFICER FOR THE DEPARTMENT WHEN IT COMES TO ADVISING THE ASSESSEE IN MATTERS O F THEIR ENTITLEMENTS. 6. WHEN ANY RETURN IS PICKED UP FOR SCRUTINY U/S 1 43(3) , THE ENTIRE GAMUT OF DETERMINATION OF INCOME IS OPEN BEFORE THE ASSESSIN G OFFICER AND THE SAME IS NOT RESTRICTED TO WHAT IS WRITTEN AND MENTIONED IN THE RETURN OF INCOME. THE AO'S DUTY IS (,AS PER SECTION 143(3)(II)) ...AFTER HEARING SUCH EVIDENCE AS THE ASSESSEE. MAY PRODUCE AND SUCH OTHER EVIDENCE AS THE ASSESSING OF FICER MAY REQUIRE ON SPECIFIED POINTS, AND AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL WHICH HE HAS GATHERED, THE 3 ASSESSING OFFICER SHALL, BY AN ORDER IN WRITING, MA KE AN-ASSESSMENT OF THE TOTAL INCOME OR LOSS OF THE ASSESSEE, AND DETERMINE THE S UM PAYABLE BY HIM OR REFUND OF ANY AMOUNT DUE TO HIM ON THE BASIS OF SUCH ASSESSME NT. THE DUTY TO DETERMINE THE SUM PAYABLE BY ASSESSEE HAS TO BE IN ACCORDANCE WIT H SUBSTANTIVE PROVISIONS OF INCOME-TAX ACT WHETHER THAT PROVISION IS INVOKED BY THE AO HIMSELF OR POINTED OUT BY THE ASSESSEE. IT IS A NOT ONLY ILLEGAL BUT ALSO INEQUITABLE FOR THE AO TO CORRECT THE DEPRECIATION CLAIM IF IT IS BENEFICIAL TO THE REVEN UE, AND NOT TO CORRECT IT WHEN IT IS BENEFICIAL TO THE ASSESSEE. THIS APPROACH DOES NOT IT INTO THE QUASI -JUDICIAL STATUS GRANTED TO THE ASSESSING OFFICER AND THE ASSESSMENT PROCEEDINGS. UNDER THE ABOVE FACTS & CIRCUMSTANCE IT IS PRAYED THAT THE REVISED CLAIM OF DEDUCTION U/S 80IA MAY KINDLY BE ACCEPTED AND ALLOWED. THEREAFTER THE LD. CIT (A) ALLOWED THE ISSUE IN FAV OUR OF THE ASSESSEE BY GIVING HIS FINDING IN PARA 7 OF HIS ORDER ARE AS UNDER :- I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBM ISSION OF THE LD. A/R AND FOUND THAT THE APPELLANT ORIGINALLY CLAIMED DEDUCTI ON U/S 80IA OF THE ACT AT RS. 1,72,31,805/- IN THE RETURN OF INCOME FILED ON 30-11-2006, BUT LATER ON DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APP ELLANT REVISED THE CLAIM U/S 80IA TO RS.2,46,75.216/- ON THE GROUND THAT THE APPELLANT WRONGLY CLAIMED DEPRECIATION @ 25% ON PLANT AND MACHINERY OF CPP IN STEAD OF 15% ALLOWABLE AS PER ACT. THUS THE ELIGIBLE PROFIT FOR CLAIM U/S 80IA OF THE ACT RAISED TO 2,46,75,216/- (AFTER REDUCING THE DEPRECIATION TO 1 5%) INSTEAD OF RS. 1,72,31,805/- (AFTER CLAIMING DEPRECIATION @ 25%). THUS, THE APPELLANT REVISED THE CLAIM U/S 80IA VIDE LETTER DATED 30-12- 2008 I.E. BEFORE COMPLETION OF ASSESSMENT, AS THE ASSESSMENT IN THIS CASE WAS C OMPLETED ON 31-12-2008. `THE SECTION 143(3)(II)) SAYS THAT '...AFTER HEARI NG SUCH EVIDENCE AS THE ASSESSEE MAY PRODUCE AND SUCH OTHER EVIDENCE AS THE ASSESSING OFFICER MAY REQUIRE ON SPECIFIED POINTS, AND AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL WHICH HE HAS GATHERED, THE ASSESSING OFFICER SHALL, BY AN ORDER IN WRITING, MAKE AN ASSESSMENT OF THE TOTAL INCOME OR LOSS OF T HE ASSESSEE, AND DETERMINE THE SUM PAYABLE BY HIM OR REFUND OF ANY AMOUNT DUE TO HIM ON THE BASIS OF SUCH ASSESSMENT. ' THE DUTY TO DETERMINE THE SUM PA YABLE BY ASSESSEE HAS TO BE IN ACCORDANCE WITH SUBSTANTIVE PROVISIONS OF INC OME-TAX ACT WHETHER THAT PROVISION IS INVOKED BY THE AO HIMSELF OR POINTED O UT BY THE ASSESSEE'. IN THIS CASE THE APPELLANT ITSELF FURNISHED THE REVISED CLA IM U/S 80IA AFTER CONSIDERING THE REVISED RATE OF DEPRECIATION BEFORE THE AO DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, ITSELF, THEREFORE, THE AO SHOULD HAVE CONSIDERED THE SAME AND COMMENTED UPON. BUT THE AO HAS NOT CONSIDERED THE C LAIM OF THE APPELLANT, WHICH IS WRONG AS THE APPELLANT IS ENTITLED TO CLAI M/REVISE THE INCOME/DEDUCTION AS PER LAW. THEREFORE, THE AO WAS NOT JUSTIFIED IN NOT CONSIDERING THE REVISED CLAIM OF DEDUCTION U/S 80IA OF THE ACT. THE AO IS 4 DIRECTED TO CONSIDER THE REVISED COMPUTATION OF DEP RECIATION AND DEDUCTION U/S 80IA OF THE ACT ON CPP. THE APPEAL IS ALLOWED ON TH IS GROUND. 4. THE LD. D/R PLACED RELIANCE ON THE ORDER OF ASSE SSING OFFICER. 5. ON THE OTHER HAND, THE LD. COUNSEL OF THE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 6. AFTER CONSIDERING THE ORDERS OF THE ASSESSING OF FICER AND LD. CIT (A), WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A) WHICH ARE R EPRODUCED SOMEWHERE ABOVE IN THIS ORDER. THERE WAS A MISTAKE IN CLAIMING DEPRECIATION WHICH WAS RECTIFIED BY FILING A REVISED CHART. EVEN AND OTHERWISE, THE ASSESSING OFFICER HAS TO AL LOW THE DEPRECIATION AS PER PROVISIONS OF LAW AND IN THAT CASE IF DEDUCTION IS INCREASED THEN ALSO IT IS ALLOWABLE. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, AND IN VIEW OF THE DECISION OF L D. CIT (A), WE CONFIRM THE FINDING OF LD. CIT (A) ON THIS ISSUE. 7. REMAINING ISSUE IS AGAINST DELETING THE ADDITION OF RS. 34,36,058/- MADE BY ASSESSING OFFICER ON ACCOUNT OF APPORTIONMENT OF CO MMON EXPENSES AS PER SECTION 80IC. 8. THE BRIEF FACTS IN THIS RESPECT ARE THAT DURING THE YEAR THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IA OF RS.172,31,805/- OR CAPTIVE PO WER PLANT (CPP) AT PANOLI (GUNJRAT) FOR GENERATING ELECTRICITY WHICH WAS USED IN THE PROCES S OF MANUFACTURING OF AGRO CHEMICALS AND POLYMERS UNIT AT PANOLI. IN THE POWER GENERAT ION PLANT THE GAS WAS PURCHASED FROM THE GUJARAT GAS LTD FROM WHICH ELECTRICITY IS GENERATED AND USED IN VARIOUS PLANTS. FROM THE PERUSAL OF BALANCE SHEET,. P&L ACCOUNT AND DEPRECIA TION CHART FURNISHED BY THE ASSESSEE IT WAS NOTICED THAT MANY EXPENSES OF COMMON NATURE WER E NOT APPORTIONED AMONG THE UNIT CLAIMING DEDUCTION AND THE PRINCIPAL UNIT. THE AO A SKED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENSES SHOULD NOT THE APPORTIONED ON THE BASI S OF TURNOVER BETWEEN THE CPP AND 5 PRINCIPAL UNIT. THE ASSESSEE FURNISHED EXPLANATION VIDE LETTER DATED 31-12-2008 AND EXTRACTED IN THE ORDER ON PAGE 3 TO 7. 9. THE AO FURTHER OBSERVED THAT THE BASIS ON WHICH THE ASSESSEE WAS ASKED FOR THE APPORTIONMENT OF EXPENSES WAS AS PER SECTION 80IC(7 ) WHICH SPECIFIES THAT PROVISIONS CONTAINED IN SUB SECTION (5) AND SUB SECTION (7 TO 12) OF SECTION 80IA SHALL SO FAR AS MAY BE, APPLY TO THE ELIGIBLE UNDERTAKING OR ENTERPRISE UND ER THIS SECTION. THE A.O. ALSO EXTRACTED THE SUB SECTION (8) OF SECTION 80IA IN THE ORDER. SUB S ECTION (8) ESTABLISHES FILE SECOND MOST IMPORTANT PRINCIPLE FOR DETERMINATION OF PROFITS OF ELIGIBLE BUSINESS AND ALONGWITH SUB SECTION (5) LAYS DOWN THE CORE FOUNDATION OF THE PROCESS TO BE ADOPTED WHILE COMPUTING SUCH PROFIT. WHILE SUB SECTION (5) PLACES THE ELIGIBLE BUSINESS IN FOUR WALLS FROM ALL OTHER BUSINESS ACTIVITIES, SUB SECTION (8) PROVIDES THE ACCOUNTING MACHINERY TO DEAL WITH THE TRANSACTIONS BETWEEN THE ELIGIBLE BUSINESS AND OTHER BUSINESS OF THE ASSESSEE. THIS SUB SECTION EFFECTIVELY PUTS THE GUIDELINES FOR DETERMINING THE PRICE OF IN TRA GROUP TRANSFER OF GOODS AND SERVICES. THIS SUB SECTION PROVIDES THAT IF ASSETS FROM OTHER BUSINESS ARE USED FOR ELIGIBLE BUSINESS THE ELIGIBLE BUSINESS CHARGED FOR HIRING HIRE CHARGES S T MARKET PRICE. THE PLAIN READING OF SUB SECTION 80IA MAKES IT VERY CLEAR THAT THE BENEFIT PROVIDED UNDER THIS SECTION IS BOUND BY CERTAIN LIMITATIONS. THE ASSESSEE WAS REQUIRED TO F ULFILL CERTAIN CONDITIONS TO CLAIM THE ABOVE DEDUCTION. THE INTENTION OF THE LEGISLATURE SEEMS TO BE TWO FOLD, FIRSTLY IT SEEKS TO PROVIDE 100% TAX DEDUCTION ON CERTAIN ELIGIBLE BUSINESS ACT IVITIES BUT AT THE SAME TIME IT ASPIRES TO LIMIT SUCH BENEFIT TO THE REAL ELIGIBLE BENEFICIARI ES AND TO A QUANTUM OF PROFITS THAT WAS REASONABLY DERIVED FROM SUCH ELIGIBLE BUSINESS. IN THIS BACK DROP THE CASE OF THE ASSESSEE HAS BEEN ANALYZED AND IT WAS FOUND THAT THERE WAS NO FO RCE IN THE ARGUMENT OF THE ASSESSEE IN THIS REGARD. THE ASSESSEE WAS CLAIMING DEDUCTION U/S 80A IN RESPECT OF CPP BUT THERE WERE CERTAIN 6 SERVICES AND AMENITIES WHICH WERE USED BY 80IA UNIT IN ORDER TO ENABLE TO CARRY OUT DAY TO DAY FUNCTIONING AND THE FINANCIAL MANAGEMENT OR REL ATED ACTIVITIES. THESE SERVICES WERE BEING PROVIDED BY THE HO OF THE ASSESSEE, THE HO WA S NOT A SEPARATE PROFIT CENTRE IN THE ASSESSEE AND IT NOT CHARGING ANY SUM FOR 80IA UNITS FOR THE SERVICES PROVIDED BY THEM. THE HO SHOULD HAVE CHARGED MARKET VALUE IN RESPECT OF S ERVICES PROVIDED FOR THE 80IA UNITS TO ASCERTAIN THE TRUE AND FAIR PROFIT OF CPP. THE USE OF THE HO SERVICES BY THE CPP UNIT IS INEVITABLE IN ORDER TO ARRIVE AT THE ASSUMPTION THA T PROFIT HAS TO BE CALCULATED AS IF THE CPP UNIT WAS IN INDEPENDENT INDUSTRIAL UNDERTAKING. THE ASSESSEE CANNOT LITERALLY IGNORE THE EXPLICIT PROVISION OF SECTION 80IA UNITS AS DISCUSS ED ABOVE. HENCE ON THE BASIS OF ABOVE DISCUSSION THE COMMON EXPENSES WERE BEING APPORTION ED BETWEEN THE CPP UNIT AND THE PRINCIPAL UNIT. THE APPORTIONMENT OF EXPENSES WAS B EING DONE ON THE BASIS OF TURNOVER RATIO. THE TURNOVER OF BOTH THE UNITS AS WAS RS. 33779.00 LACS ( RS. 32679.13 + RS. 1100.86). THE SHARE OF PRINCIPAL UNIT IN THE TURNOVER WAS RS. 326 79.13 LACS AND THAT OF CPP UNIT WAS RS. 1100.86 LACS. THUS THE TURNOVER OF THE TWO UNITS CA ME OUT IN THE RATIO OF 97:3. THUS THE EXPENSES WOULD ALSO BE APPORTIONED IN THE SAME RATI O I.E. 97:3 AMONG PRINCIPAL UNIT AND CPP UNIT AS UNDER:- PRE- APPORTIONMENT POST APPORTIONMENT PARTICULARS TOTAL EXPENSES P. UNIT CPP UNIT P. UNIT CPP UNIT RENT 22898209 22896209 2000 22211263 686946 TRAVELING & CONVEYANCE 44647424 44647424 43308001 1339423 LEGAL & PROFESSIONAL 8691873 8691873 8431117 260756 COMMUNICATION 12221140 12221140 11854506 366634 AUDIT FEE 502281 502281 487213 15068 INSURANCE- VEHICLE 752360 752360 729789 22571 MANAGERIAL REMUNERATION 8549398 8549398 8292916 256482 EMPLOYEE WELFARE 10684918 10678918 6000 10364370 320548 7 DEPRECIATION BUILDING 2211449 2211449 2145106 66343 VEHICLE 279954 2799548 2715562 83986 FURNITURE & FIXTURE 843331 843331 818031 25300 TOTAL: 11480193 114793931 8000 111357874 3444057 AFTER APPLYING THE ABOVE METHOD OF APPORTIONMENT OF COMMON/GENERAL EXPENSES THE TOTAL AMOUNT WHICH WOULD BE TRANSFERRED FROM THE EXPENDIT URE CLAIMED IN THE PRINCIPAL UNIT TO CPP UNITS WAS RS.34,36,058/-. SINCE THE INCOME OF THE CPP UNIT WAS ELIGIBLE FOR 100% DEDUCTION, THEREFORE, THE ADDITION OF ABOVE AMOUNT TO THE EXPE NSES WOULD REDUCE THE INCOME ELIGIBLE FOR DEDUCTION, AT THE SAME TIME THE INCOME OF THE PRINC IPAL UNIT WOULD INCREASE IN THE SAME PROPORTION, THUS LEADING TO INCREASE IN THE TAXABLE INCOME OF THE ASSESSEE BY RS.34,36,058/-. 10. DETAILED SUBMISSIONS WERE FILED BEFORE LD. CIT (A) WHICH HAS BEEN DISCUSSED BY LD. CIT (A) IN PARA 11 OF HIS ORDER ARE AS UNDER :- 11. DURING THE COURSE OF APPELLATE PROCEEDINGS TH E LD. A/R, SUBMITTED AS UNDER:- 'THAT THE LD. AO HAS DISCUSSED THE ABOVE ISSUE AT P AGE 3 TO 12 OF THE ASSESSMENT ORDER AND RESTRICTED THE CLAIM OF DEDUCT ION U/S 80-IA BY APPORTIONED THE SO CALLED COMMON EXPENDITURE AND DE PRECIATION TO OTHER BUSINESS UNITS TO THE CAPTIVE POWER PLANT UNIT IN ' TOTAL TURNOVER-RATIO' AMOUNTING TO RS.34,44,058/- CALLING THEM COMMON EX PENSES, WHICH ISUNJUSTIFIED, UNWARRANTED AND BAD IN LAW DUE TO FO LLOWING FACTS. THAT DURING THE YEAR UNDER APPEAL THE APPELLANT HAD CLAIMED DED UCTION U/S 80-IA OF THE IT ACT 1961 AMOUNTING TO RS. 1,72,31,805/- FOR CAPTIVE POWER PLANT SITUATED AT PANOLI. THE YEAR UNDER CONSIDERATION IS THE FIRST Y EAR OF CLAIM OF DEDUCTION UNDER SECTION 80IA (2) .DURING THE ASSESSMENT PROCE EDING, THE APPELLANT FILED LETTER DATED 30.12.2008 (COPY ENCLOSED) EXPLAINING THE `BUSINESS PROCESS' OF THE CPP AND INVOLVEMENT/ ROLE OF THE OTHER MANUFACT URING UNIT THE SAME. THE CAPTIVE POWER PLANT (CPP) WAS SET UP AND COMMIS SIONED BY THE APPELLANT IN THE PRECEDING ASSESSMENT YEAR, I.E. (A Y 2005-06) BUT THE APPELLANT HAD EXERCISED THE OPTION U/S 80IA(2) FOR DEDUCTION FOR TEN YEARS STARTING FROM THE ASSESSMENT YEAR 2006-07. 8 THE CPP IS A GAS BASED POWER PLANT AND UTILIZES NAT URAL GAS WHICH IT PURCHASES FROM GUJARAT GAS LTD. AND GENERATES THE E LECTRICITY WHICH IS SUPPLIED TO AND USED AT OTHER PLANT OF THE APPELLAN T SITUATED AT PANOLI ITSELF. THE OPERATIONS OF THE CPP ARE SIMPLE, AS IT DOES NO T REQUIRE ELABORATE INFRASTRUCTURE TO RUN A TRADITIONAL MANUFACTURING F ACILITY/ OR COAL/FURNACE OIL BASED CPP. THE GAS IS SUPPLIED BY PIPE LINE TO THE PLANT DIRECTLY WHICH IS MEASURED BY A METER' INSTALLED AT THE SUPPLY LINE. THE APPELLANT DOES NOT STORE ANY GAS AS SUCH AND TH EREFORE THERE ARE NO HASSLES OF STORAGE AND INVENTORY MANAGEMENT ETC-TRA DITIONAL LOGISTIC ARRANGEMENTS LIKE ADMINISTRATIVE ACTIVITY OF LOCATI NG AND DEVELOPING SUPPLIERS AND PROCURING INPUTS ETC ARE ALSO NOT REQUIRED BECA USE THERE IS FIXED SUPPLIER. SINCE THERE ARE NO OUTSIDE CUSTOMERS TO SELL ANYTHI NG TO THEM, APPELLANT DOES NOT REQUIRE ANY INFRASTRUCTURE FOR MANAGING SALES O R THE CUSTOMERS. NO ELABORATE ACCOUNTING IS NEEDED EITHER. WHATEVER REC ORDS ARE REQUIRED ARE FOR (A) TECHNICAL OPERATIONS OF THE PLANT, AND (B) READING THE GAS SUPPLY METER ON THE ONE END AND ON THE OTHER END TO READ THE METER OF ELECTRICITY SUPPLIED AND (C) TO MAKE A MONTHLY BILL FOR SUPPLIES MADE TO ONE CUSTOMER- I.E. OTHER UNIT. TO SUMMARIZE THERE IS ONE FIXED SUPPLIER AND ONE CU STOMER. INPUT AND OUTPUT MEASUREMENT IS AUTOMATIC AND DOES NOT REQUIRE ANY T RANSPORTATION AS SUCH EITHER. IT DOES NOT REQUIRE MANPOWER OR INFRASTRUCTURE AS I S REQUIRED IN A CONVENTIONAL MANUFACTURING UNIT OR A POWER GENERATI ON PLANT WHICH IS HAVING MULTIPLE FUEL SUPPLIERS AND LARGE NUMBER OF CUSTOME RS. THE APPELLANT'S PLANT HAS ONE SUPPLIER AND ONE CUSTOMER AND QUANTUM OF SU PPLIES ARE MECHANICALLY/ AUTOMATICALLY MEASURED. IN SUCH A SITUATION TO ASSU ME THAT ANY EMPLOYEE AT THE HEAD QUARTERS OR ANY BUILDING, MACHINERY OR EQU IPMENT INSTALLED THERE IS REQUIRED TO OPERATE THE CPP IS ILLOGICAL, BECAUSE T HE CPP DOES NOT REQUIRE CORPORATE ENTITY RELATED EXPENSES OR EXPENSES IN CO NNECTION WITH OBTAINING ANY BUSINESS FROM ANY BODY, THERE BEING ONLY ONE CONSUM ER AND ONE SUPPLIER. FURTHER THE APPELLANT COMPANY KEPT SEPARATE BOOKS O F ACCOUNT FOR THE CPP AND THE SAME HAVE BEEN DULY AUDITED AND AUDIT R EPORT IN FORM 10CCB HAS BEEN SUBMITTED WITH THE RETURN OF INCOME. ( COP Y ENCLOSED).THE REQUIREMENT OF THE LAW IS THAT THE PROFIT OF POWER GENERATION UNIT IS TO BE COMPUTED AS IF THAT IS A STAND ALONE BUSINESS. THER EFORE, WHAT ONE HAS TO SEE IS AS TO WHETHER THE ELIGIBLE UNDERTAKING CAN STAND AN D FUNCTION ON THE BASIS OF EXPENSES SHOWN AFTER CONSIDERING THE NATURE AND EXT ENT OF BUSINESS. THAT ON PERUSAL OF THE AUDIT REPORT IN FORM NO. 10 CCB ALONGWITH P&L ACCOUNT OF THE AFORESAID UNIT YOUR HONOR WOULD APPRECIATE, ELIGIBLE 9 UNDERTAKING HAS SHOWN ALL THE EXPENSES RELATABLE TO IT INCLUDING THE DEPRECIATION ON THE PLANT AND MACHINERY OF THE CPP, INTEREST LIABILITY IN RESPECT OF LOANS TAKEN FOR THE CPP, ALL THE RUNNING AND MAINTENANCE EXPENSES OF THE PLANT AS ALSO SALARY / WAGES AND STATUTORY D UES OF THE MANPOWER DEPLOYED IN RUNNING AND MAINTAINING IT. MOREOVER, T HE APPELLANT ALREADY ALLOCATED AN AMOUNT OF RS. 100,000/- TOWARDS ANY MI SSED EXPENSES WHICH INADVERTENTLY MIGHT NOT HAVE BEEN BOOKED AS EXPENSE S IN THE ACCOUNTS OF THE CPP. THE HEAD OFFICE OF THE APPELLANT LOOKS AFTER MANY P LANTS AND BUSINESSES OF THE APPELLANT. SUCH BUSINESSES HAVE V ARIETY OF BUSINESS MODELS AND NEEDS LIKE BUSINESS AND MARKETING DEVELOPMENT, BRAND BUILDING AS ALSO EXPANSION OF BUSINESS. NONE OF SUCH ACTIVITY IS NEE DED FOR CPP. THE LEARNED AO ISSUED NOTICE U/S 142(1) OF THE IT A CT 1961DATED. 30.12.2008 VIDE WHICH HE HAD PROPOSED TO ALLOCATE C ERTAIN EXPENSES IN THE RATIO OF 97:3 (BEING TURNOVER RATIO OF THE MANUFACT URING UNIT AND THE CAPTIVE POWER PLANT (CPP)), PRE- APPORTIONMENT POST APPORTIONMENT PARTICULARS TOTAL EXPENSES P. UNIT CPP UNIT P. UNIT CPP UNIT RENT 22898209 22896209 2000 22211263 686946 TRAVELING & CONVEYANCE 44647424 44647424 43308001 1339423 LEGAL & PROFESSIONAL 8691873 8691873 8431117 260756 COMMUNICATION 12221140 12221140 11854506 366634 AUDIT FEE 502281 502281 487213 15068 INSURANCE- VEHICLE 752360 752360 729789 22571 MANAGERIAL REMUNERATION 8549398 8549398 8292916 256482 EMPLOYEE WELFARE 10684918 10678918 6000 10364370 320548 DEPRECIATION BUILDING 2211449 2211449 2145106 66343 VEHICLE 279954 2799548 2715562 83986 FURNITURE & FIXTURE 843331 843331 818031 25300 TOTAL: 11480193 114793931 8000 111357874 3444057 IN COMPLIANCE TO THE ABOVE NOTICE THE APPELLANT FIL ED REPLY VIDE LETTER DATED 31.12.2008 OBJECTING TO THE PROPOSED ALLOCATI ON OF VARIOUS INDIRECT EXPENSES OF THE MANUFACTURING UNIT TO THE POWER GEN ERATION UNDERTAKING. THE HEAD-WISE SUBMISSIONS ARE REPRODUCING HEREUNDER: 10 I) RENT : DURING THE YEAR UNDER REFERENCE THE TOTAL EXPENSES ON ACCOUNT OF RENT IS 2.28 CRORES, OUT OF WHICH ONLY A RENT OF RS. 200 0/-, IS DIRECTLY RELATED TO CPP, AND HENCE ALLOCATED BY US. AS AGAINST THIS ALL OCATION, YOUR GOODSELF HAD PROPOSED TO ALLOCATE RS. 6.86 LACS TO CPP. ON PERUS AL OF THE INFORMATION SUBMITTED, YOUR GOODSELF MAY PLEASE LIKE TO OBSERVE THAT THIS RENT OF RS 2.28 CRORES RELATES TO THE RENT ON COMPUTES INSTALLED IN THE MANUFACTURING FACILITY AT PANOLI, GURGAON AND BRANCH OFFICES SPREAD ALL OVER THE COUNTRY. THE LEASE RENTAL IS ON THE BUILDING, EQUIPMENTS LEASED FOR TH E PESTICIDES AND POLYMER BUSINESS. THESE BUILDING/ EQUIPMENTS ARE EXCLUSIVEL Y USED FOR THE PESTICIDES / POLYMER BUSINESS AND THEREFORE, APPORTIONMENT OF EX PENSES TO CPP IS NOT REQUIRED. THERE IS NO DIRECT OR INDIRECT OR EVEN IN CIDENTAL RELATIONSHIP WITH THE POWER GENERATION PLANT. AS STATED EARLIER THAT THE OPERATIONS OF THE CPP ARE VERY SIMPLE IN AS MUCH AS THAT THERE IS ONLY ONE SU PPLIER OF RAW MATERIAL (NATURAL GAS) AND ONLY ONE BUYER (I.E. MANUFACTURIN G UNIT) AND THEREFORE NO PROCUREMENT OR MARKETING ACTIVITY IS INVOLVED NOR D OES IT REQUIRE ANY BRAND BUILDING OR OTHER BUSINESS EXPENSES WHICH A CONVENT IONAL MANUFACTURING UNIT WOULD HAVE REQUIRED. II) TRAVELING & CONVEYANCE: YOUR GOODSELF HAD PROPOSED TO ALLOCATE RS. 13.39 LA CS TO CPP, OUT OF THE TOTAL EXPENSE OF RS. 4.46 CRORES. IN THIS REGAR D WE WISH TO SUBMIT THAT THE COMPANY HAVE A NUMBER OF DEPOTS/ BRANCHES IN VARIOU S STATES/ CITIES, WHERE IT HAS, SEPARATE STAFF FOR SALES AND MARKETING OF PEST ICIDES / POLYMER BUSINESS. DUE TO THE VERY NATURE OF PESTICIDES BUSINESS, THE MARKETING TEAM HAS TO DO EXTENSIVE TRAVELING IN THEIR REGION AND THESE EXPEN SES OF RS. 4.46 CRORES RELATES TO SUCH TRAVELING OF THE STAFF, AND THE CON SULTANTS ENGAGED FOR VARIOUS LEGAL MATTERS OF THE BUSINESS. THE RUNNING EXPENSES OF THE MOTOR CARS, AND VARIOUS OTHER VEHICLES AND LEASE RENTAL OF VEHICLES ALL RELATING TO THE PEST ICIDES , POLYMER DIVISION OF THE COMPANY AND THESE EXPENSES ARE INCURRED BY THE FIEL D STAFF OPERATING AT VARIOUS BRANCHES/ DEPOTS ACROSS THE COUNTRY.. NO TR AVELING ACTIVITY IS INVOLVED WITH REFERENCE TO POWER GENERATION UNDERTAKING AS S TATED IN OUR EARLIER SUBMISSION DUE TO PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE. WE DO NOT HAVE TO MARKET ANYTHING NOR CHASE THE SUPPLIERS OR CUSTOMERS. WE DO NOT REQUIRE TO GO OUT TRAVELING FOR COLLECTIONS OF OUTS TANDING DUES ETC EITHER. IN VIEW OF THIS, ALLOCATION OF THESE TRAVELING EXPENSE S IS NOT WARRANTED. LOOKING TO THE NATURE OF CPP, WHERE IT HAS SINGLE S OURCE FOR RAW MATERIAL (GAS) AND THE ENTIRE GENERATION OF OUTPUT IS SOLD FOR ITS OWN UNITS FOR CAPTIVE CONSUMPTION, NO TRAVELING, WHATSOEVER, IS R EQUIRED FOR CPP OPERATIONS. THE ONLY RAW MATERIAL, IE SUPPLY OF GAS AND THAT TOO IS THROUGH 11 PIPELINE AND HENCE PROCUREMENT / TRANSPORTATION OF RAW MATERIAL, WARRANTING TRAVEL BY THE STAFF OF CPP IS NOT THERE. III) LEGAL AND PROFESSIONAL: DURING THE YEAR THERE WERE NO LEGAL DISPUTES WITH A NYBODY RELATING TO POWER GENERATION UNIT. NO SUITS WERE FILED BY OR AG AINST THE POWER GENERATION UNIT. THERE WERE NO CONSULTANCY EXPENSES RELATING T O THE CPP WHICH WERE NOT BOOKED IN THE ACCOUNTS OF THE POWER GENERATION UNDE RTAKING. THERE WERE NO LABOUR DISPUTES OR ANY OTHER DISPUTE WITH ANY GOVER NMENTAL OR SEMI GOVERNMENTAL OR ANY AUTONOMOUS BODY RELATING TO CPP AND HENCE ALLOCATION OF THOSE EXPENSES TO CPP WITHOUT ANY FULL OR EVEN P ARTIAL RELEVANCE TO THE CPP WOULD RESULT IN GRAVE INJUSTICE. THE OUTPUT OF THE CPP DOES NOT ATTRACT CENTRAL EXCISE DUTY NOR ANY OTHER TAX IS PAYABLE ON CPP AND THEREFORE NO CONSULTANT OR LEGAL HELP OF ANY NATURE IS REQUIRED FOR CPP. EVEN THE ELECTRICITY DUTY ON GENERATION OF POWER IN GUJARAT IS EXEMPTED FOR THE CPP. A CERTIFICATE TO THAT EFFECT ISSUED TO THE COMPANY IS ENCLOSED HEREWITH. IN VIEW OF THIS, THE APPORTIONMENT OF EXPENSES UNDER THE HEAD LEGAL AND PROFESSIONAL TO CPP AS SUGGESTED IN YOUR NOTICE IS NOT REQUIRED. (IV) COMMUNICATION: YOUR GOODSELF HAD PROPOSED RS. 3.66 LACS TO CPP OUT OF RS. 1.22 CRORE UNDER COMMUNICATION, WHICH AGAIN IS NOT WARRANTED F OR THE REASONS MENTIONED ABOVE. ALL COMMUNICATION EXPENSES ARE INCURRED BY T HE MARKETING OFFICES SITUATED ACROSS THE COUNTRY. IN PESTICIDES BUSINES S, COMMUNICATION IS ESSENTIAL, AS THE TIMELY SUPPLY OF PESTICIDES IS VE RY IMPORTANT. ANY DELAY IN PEST CONTROL RESULT IN UNUSABLE / OBSOLETE INVENTOR Y AND THEREFORE THE COMMUNICATION CHANNEL WITH VARIOUS BRANCHES AND DEP OTS NEED TO BE VERY EFFICIENT. THE VERY NATURE OF BUSINESS OF CPP AND W ITH SINGLE SOURCE FOR RAW MATERIAL AND ITS OUT PUT SUPPLY AT ONE PLACE, DOE S NOT REQUIRE ANY COMMUNICATION. IN ANY CASE THIS WOULD BE A MINISCUL E AND INSIGNIFICANT AMOUNT, WHICH CAN VERY WELL BE TAKEN CARE BY THE AM OUNT OF RS. 1 LAC WHICH WAS ALLOCATED TO THE CPP BY US OURSELVES. (V) AUDIT FEES: YOUR GOODSELF HAD PROPOSED TO ALLOCATE RS. 15,000/- TO CPP, OUT OF RS. 5.02 LACS INCURRED BY THE COMPANY. AS MENTIONED EAR LIER, CPP HAS NOT MUCH OPERATIONS AND THE AUDIT FEES IS NORMALLY DECIDED B ASED ON THE TIME SPENT BY THE AUDITORS. LOOKING TO THE NATURE OF BUSINESS, TH E TIME SPENT BY THE AUDITORS FOR CPP IS NEGLIGIBLE NOT WARRANTING ANY APPORTIONM ENT, UNLIKE THE PESTICIDES DIVISION OF THE COMPANY, WHERE THE AUDITORS HAVE TO VISIT THE VARIOUS BRANCHES/DEPOTS OF THE COMPANY. IT WILL BE APPRECIA TED THAT THE NUMBER OF VOUCHERS FOR THE UNIT ARE VERY FEW IN COMPARISON TO THE NUMBER OF VOUCHERS 12 FOR THE ENTIRE COMPANY. IN, FACT, THE NUMBER OF VOU CHERS OF THE CPP WILL BE MUCH LESS THAN 1% OF THE TOTAL NUMBER OF VOUCHERS O F THE COMPANY. VI) INSURANCE VEHICLE: YOUR GOOD SELF HAD PROPOSED AN ALLOCATION OF RS 220 00/- TO CPP OUT OF RS. 7.5 LACS. THE REASONS FOR NOT ALLOCATING INSURA NCE TO CPP ARE THE SAME, AS SUBMITTED UNDER THE HEAD TRAVELING'. VII) MANAGERIAL REMUNERATION: YOUR GOODSELF HAD PROPOSED AN ALLOCATION OF RS. 2.5 6 LACS OUT OF RS.85.49 LACS ON ACCOUNT OF MANAGERIAL REMUNERATION TO CPP. SINCE THE COMPANY IS MAINTAINING SEPARATE BOOKS OF ACCOUNTS A ND HAVE DEDICATED STAFF FOR OPERATION OF CPP, THE DIRECTORS DO NOT GET INVO LVED IN THE DAY TO DAY OPERATIONS OF THE PLANT OR ANY OPERATIONAL DECISION MAKING. AT NO POINT OF TIME, THERE WILL BE ANY INVOLVEMENT OF THE DIRECTOR S IN THE RUNNING OF THE CPP AS HARDLY ANY POLICY MATTERS ARE INVOLVED IN RUNNIN G THE POWER GENERATION UNDERTAKING. NEITHER IT WAS POSTULATED NOR IT WAS D ESIRABLE TO HAVE ANY CUSTOMERS, NOR WAS IT POSSIBLE TO HAVE ANOTHER SUPP LIER OF THE INPUT /FEEDSTOCK. IN VIEW OF THIS THE APPORTIONMENT OF MANAGERIAL REM UNERATION TO CPP IS NOT WARRANTED. VIII) EMPLOYEE WELFARE: YOUR GOODSELF HAD PROPOSED TO ALLOCATE RS. 3.2 LACS OUT OF RS. 1.06 CRORES ON ACCOUNT OF EMPLOYEE WELFARE EXPENSES TO C PP. IN THIS REGARD WE WISH TO SUBMIT THAT THE COMPANY HAD ALREADY ALLOCAT ED RS. 6000/- ON ACTUAL BASIS ON THIS ACCOUNT AND THIS ALLOCATION IS JUSTIF IABLE TAKING INTO ACCOUNT THE NUMBER OF EMPLOYEES DEPLOYED THERE. YOUR GOODSELF M AY LIKE TO OBSERVE THAT THE COMPANY HAS A LARGE WORK FORCE BOTH AT THE MANU FACTURING UNIT AND AT THE MARKETING OFFICES SPREAD ACROSS THE COUNTRY AND THE SE EXPENSES PERTAIN TO STAFF/ EMPLOYEES LOCATED AT THE MANUFACTURING PLANT AND AT THE MARKETING OFFICES SPREAD ACCROSS THE COUNTRY. IN VIEW OF THIS THE APPORTIONMENT AS PROPOSED BY YOUR GOODSELF IS NOT WARRANTED. (IX) DEPRECIATION: YOUR GOODSELF HAD PROPOSED AN ALLOCATION OF RS. 1.7 5 LACS OUT OF DEPRECIATION CLAIM IN RESPECT OF BUILDING, VEHICLES AND FURNITURE & FIXTURES. IN THIS REGARD, WE WISH TO SUBMIT THAT DEPRECIATION ON THE ASSETS WHICH WERE USED IN THE POWER GENERATION UNDERTAKING WAS ALREADY PRO VIDED FOR AND TAKEN INTO CONSIDERATION. THE CPP WAS NOT USING ANY OF THESE A SSETS FOR ITS BUSINESS OPERATIONS NOR WAS IT NEEDED. MOREOVER,' CPP CAN RU N ITS PLANT EFFICIENTLY AND EFFECTIVELY WITHOUT THESE ASSETS AND THEREFORE, THE APPORTIONMENT IS NOT REQUIRED, AS THESE ASSETS HAVE NO NEXUS WITH CPP OP ERATIONS. 13 AS MENTIONED ABOVE, WE OF OUR OWN, HAVE ALLOCATED A SUM OF RS 1 LAC TO CPP, WHICH COVERS EXPENSES UNDER ALL THE ACCOUNT ING HEAD MENTIONED ABOVE AND UNDER WHICH YOUR GOODSELF WISH TO APPORTI ONED THE EXPENSES. THE LD. AO WITHOUT CONSIDERING THE ABOVE SUBMISSION . APPORTIONED THE ABOVE EXPENDITURES AND DEPRECIATION PERTAINING TO OTHER BUSINESS UNITS TO THE CAPTIVE POWER PLANT UNIT IN 'TOTAL TURNOVER-RAT IO' IS ILLEGAL, UNWARRANTED AND BAD IN LAW AND SAME DESERVES TO BE ALLOWED. FURTHER THE ABOVE ISSUE IS FULLY COVERED BY YOUR HO NOUR'S DECISION DATED 08.01.2008 IN THE APPEAL NO. 561/IT/UDR/2006- 07 OF M/S HINDUSTAN ZINC LIMITED UDAIPUR, FOR THE ASSESSMENT YEAR 2004- 05 AND YOUR HONOURS DECISION IN APPEAL NO 399/IT/UDR/2006-07 FOR THE AS SESSMENT YEAR 2004-05 IN THE CASE OF SECURE METERS LIMITED UDAIPUR. THE COPI ES OF DECISIONS ARE ENCLOSED HEREWITH FOR YOUR READY REFERENCE. UNDER THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE , APPELLANT SUBMITS THAT ABOVE APPORTIONMENT MADE BY THE SAID A.O. IS N OT JUSTIFIED AND THEREFORE APPELLANT'S CLAIM U/S 80 IA ON CPP UNIT DESERVES TO BE ALLOWED AS CLAIMED IN THE LETTER DATED 30.12.2008'. 12. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, LD. CIT (APPEALS) FOUND THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION. THE DETAILED REASON GIVEN BY LD. CIT (A) ARE RECORDED I N PARA 12 AT PAGE 16 TO 18 OF HIS ORDER ARE AS UNDER :- I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBM ISSION OF THE LD. A/R AND FOUND THAT THE AO APPORTIONED THE EXPENSES ON PRINCIPAL UNIT AND CPP UNIT ON THE GROUND THAT THE ASSESSEE WAS CLAIMI NG DEDUCTION U/S 80A IN RESPECT OF CPP BUT THERE WERE CERTAIN SERVICES AND AMENITIES WHICH WERE USED BY 80IA UNIT IN ORDER TO ENABLE TO CARRY OUT DAY TO DAY FUNCTIONING AND THE FINANCIAL MANAGEMENT OR RELATED ACTIVITIES. THESE S ERVICES WERE BEING PROVIDED BY THE HO OF THE ASSESSEE. THE HO WAS NOT A SEPARATE PROFIT CENTRE IN THE BOOKS OF THE ASSESSEE AND IT NOT CHARGING ANY S UM FOR 80IA UNITS FOR THE SERVICES PROVIDED BY THEM. THE HO SHOULD HAVE CHARG ED MARKET VALUE IN RESPECT OF SERVICES PROVIDED FOR THE 80IA UNITS TO ASCERTAIN THE TRUE AND FAIR PROFIT OF CPP. THE USE OF THE HO SERVICES BY THE CP P UNIT IS INEVITABLE IN ORDER TO ARRIVE AT THE ASSUMPTION THAT PROFIT HAS T O BE CALCULATED AS IF THE CPP UNIT WAS AN INDEPENDENT INDUSTRIAL UNDERTAKING. THE ASSESSEE CANNOT LITERALLY IGNORE THE EXPLICIT PROVISIONS OF SECTION 80IA .UNI TS AS DISCUSSED ABOVE. HENCE 14 ON THE BASIS OF ABOVE DISCUSSION THE COMMON EXPENSE S WERE BEING APPORTIONED BETWEEN THE CPP UNIT AND THE PRINCIPAL UNIT. THE APPORTIONMENT OF EXPENSES WAS- BEING DONE ON THE BASIS OF TURNOVE R RATIO. THE TURNOVER OF BOTH THE UNITS AS WAS RS.33779.00 LACS (RS.32679.13 + RS.1100.86). THE SHARE OF PRINCIPAL UNIT IN THE TURNOVER WAS RS.32679.13 L ACS AND THAT OF CPP UNIT WAS RS,.1100.86 LACS. THERE IS NO DISPUTE ABOUT THE CLAIM OF DEDUCTION U/S 80IA OF THE ACT. THE DISPUTE IS ABOUT THE APPORTION MENT OF THE AMOUNT OF DEPRECIATION ON HO ASSET AND EXPENSES ON HO. THE AO HAS REDUCED THE DEDUCTION U/S 80IA BY AN AMOUNT OF RS.34,36,058/- O N ACCOUNT OF THE FOLLOWING. : PRE- APPORTIONMENT POST APPORTIONMENT PARTICULARS TOTAL EXPENSES P. UNIT CPP UNIT P. UNIT CPP UNIT RENT 22898209 22896209 2000 22211263 686946 TRAVELING & CONVEYANCE 44647424 44647424 43308001 1339423 LEGAL & PROFESSIONAL 8691873 8691873 8431117 260756 COMMUNICATION 12221140 12221140 11854506 366634 AUDIT FEE 502281 502281 487213 15068 INSURANCE- VEHICLE 752360 752360 729789 22571 MANAGERIAL REMUNERATION 8549398 8549398 8292916 256482 EMPLOYEE WELFARE 10684918 10678918 6000 10364370 320548 DEPRECIATION BUILDING 2211449 2211449 2145106 66343 VEHICLE 279954 2799548 2715562 83986 FURNITURE & FIXTURE 843331 843331 818031 25300 TOTAL: 11480193 114793931 8000 111357874 3444057 THE CONCEPT OF THE CPP TOOK PLACE IN THE ASSESSMENT YEAR 2005-06 BUT THE APPELLANT HAS NOT CLAIMED DEDUCTION U/S 80IA IN THA T YEAR ON THE OPTION OF THE APPELLANT AS PROVIDED IN THIS SECTION BUT CLAIMED D EPRECIATION IN THE ASSESSMENT YEAR 2005-06. IN THIS CASE THE APPELLANT MAINTAINED BOOKS OF ACCOUNT SEPARATELY FOR HO AND CPP UNIT. THE APPELLA NT ALSO PREPARED P& L ACCOUNT SEPARATELY IN RESPECT OF HO AND CPP AND FUR NISHED ALONGWITH THE RETURN ALONGWITH AUDIT REPORT IN FORM NO.10CCB. THE APPELLANT DEBITED ALL THE EXPENSES AND DEPRECIATION IN RESPECT OF CPP UNIT IN P&L ACCOUNT OF CPP UNIT AND SIMILARLY THE EXPENSES AND DEPRECIATION IN RESP ECT OF HO DEBITED IN THE P&L ACCOUNT OF HO SEPARATELY. THEREFORE, THE QUEST ION OF APPORTIONMENT OF THE HO EXPENSES DOES NOT ARISE AS THE APPELLANT ITS ELF SHOWN THE EXPENSES ON ACTUAL BASIS. FURTHER ON GOING THROUGH THE P&L ACCO UNT OF CPP UNIT IT IS 15 NOTICED THAT THE APPELLANT ITSELF DEBITED RS. 1 LAC AS GENERAL EXPENSES IN CPP UNIT ACCOUNT. THEREFORE, LOOKING TO THE NATURE OF ACCOUNTS MAINTAINED AND EXPENSES DEBITED, NO FURTHER APPORTIONMENT OF EXPEN SES AND DEPRECIATION IS NEEDED. FURTHER SIMILAR ISSUE ON THE POINT OF APPORTIONMENT OF EXPENSES IN RESPECT OF TWO UNITS CAME UP FOR DECISION IN THE CA SE OF SECURE METERS LTD. FOR ASSESSMENT YEAR 2004-05 IN RESPECT OF CLAIM U/S 80IB/IC OF THE ACT. VIDE APPELLATE ORDER DATED 12-3-2007 IN APPEAL NO.399/20 06-07 HELD THAT THERE IS NO QUESTION OF APPORTIONMENT OF R&D EXPENDITURE AND SIMILARLY DEPRECIATION ON FIXED ASSETS ALSO AMONG THREE UNITS. IN THE CASE OF HINDUSTAN ZINC LTD VIDE ORDER DATED 8-1 2008 IN APPEAL NO.561/2006-07 SIMIL AR ISSUE IN RESPECT OF APPORTIONMENT OF EXPENSES AND DEPRECIATION ON CPP A ND HO IT HAS BEEN HELD THAT THE QUESTION OF APPORTIONMENT OF HO EXPENSES D OES NOT ARISE. IN THIS CASE ALSO SIMILAR IS THE POSITION. LOOKING TO THE SIMIL AR NATURE OF DISALLOWANCE, FOLLOWING THE ABOVE DECISION, I HOLD THAT THE AO WA S NOT JUSTIFIED IN REDUCING THE CLAIM OF DEDUCTION U/S 80IA OF THE ACT BY APPOR TIONING THE EXPENSES/DEPRECIATION OF HO AND CPP. THEREFORE, THE REDUCTION OF RS.34,36,058/- IS DELETED. THE APPEAL IS ALLOWED ON THIS GROUND. 13. THE LD. D/R PLACED STRONG RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. PAGES 9 TO 11 OF THE ORDER OF ASSESSING OFFICER WAS READ ALSO. PROVISIONS OF SECTION 80IA(8) WAS ALSO RELIED UPON. 14. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). BRIEF WRITTEN NOTE WAS ALSO FILED. RELIA NCE WAS PLACED ON VARIOUS CASE LAWS MENTIONED IN THE BRIEF NOTE. IT WAS ALSO SUBMITTED THAT IN RESPECT TO DEDUCTION UNDER SECTION 80IA ON CPP UNIT, SEPARATE BOOKS OF ACCOUNT HAVE BE EN MAINTAINED BY ASSESSEE. WHATEVER THE EXPENSES HAS BEEN CLAIMED ON THIS ACCOUNT, IT H AS BEEN RECORDED IN PROFIT & LOSS ACCOUNT PREPARED SEPARATELY. EVEN TO COVER UP CERTAIN LEAK AGE, ASSESSEE HAS FURTHER APPORTIONED RS. 1,00,000/- OF OTHER UNIT IN THIS UNIT. 15. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD , WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). THE LD. CIT (A) HAS HELD THAT THE APPORTI ONMENT MADE BY ASSESSING OFFICER OF THE 16 EXPENDITURE AND DEPRECIATION OF OTHER BUSINESS ASSE TS TO CAPTIVE POWER PLANT (CPP) IN RATIO OF THE TURNOVER WAS NOT CORRECT. ASSESSEE HAD CLAI MED DEDUCTION UNDER SECTION 80-IA IN RESPECT TO CPP PLANT SITUATED AT PANOLI FOR FIRST T IME IN THE YEAR UNDER CONSIDERATION AND SEPARATE BOOKS OF ACCOUNT HAD BEEN MAINTAINED BY TH E ASSESSEE. THE PURCHASES OF SUCH UNIT ARE FROM GUJARAT GAS LTD. AND ELECTRICITY GENERATED IS SUPPLIED TO OTHER PLANTS OF THE ASSESSEE. THEREFORE, THERE IS NO REQUIREMENT OF ANY MAN POWER OR OTHER INFRASTRUCTURE. THE ELECTRICITY GENERATED IS ALSO SUPPLIED TO ONE SUPPLIER ONLY AND THERE IS NO REQUIREMENT OF ANY ADMINISTRATIVE EXPENSES. MOREOVER, THE ASSESSEE HAD HIMSELF HAD ALLOCATED RS. 1,00,000/- TOWARDS ANY MISSED EXPENSES RELATED TO CPP UNIT. W E FURTHER NOTED THAT ALLOCATION OF VARIOUS EXPENSES LIKE RENT, TRAVELING, COMMUNICATIO N, REMUNERATION , DEPRECIATION OF OTHER UNITS RELATED TO CPP UNIT WAS NOT JUSTIFIED AS THEY WERE BEING DIRECTLY RELATE TO THE BUSINESS OF PESTICIDES AND POLYMER BUSINESS CARRIED OUT IN OTHE R UNITS. WE NOTED THAT DETAILED WRITTEN SUBMISSIONS WERE FILED BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE LD. CIT (A) IN THIS RESPECT AND THE LD. CIT (A) HAS CONSIDERED THEM IN RIGHT PERSPECTIVE. 16. IN CASE OF RAJASTHAN STATE WAREHOUSING CORPORAT ION, 242 ITR 450 (S.C), THE HONBLE SUPREME COURT HAS OBSERVED AT PAGE 450 AND 451 AS U NDER :- THE FOLLOWING PRINCIPLES MAY BE LAID DOWN : (I) IF THE INCOME OF AN ASSESSEE IS DERIVED FROM VARIOUS HEADS OF INCOME, HE IS ENTI TLED TO CLAIM DEDUCTION PERMISSIBLE UNDER THE RESPECTIVE HEAD, WHETHER OR N OT COMPUTATION UNDER EACH HEAD RESULTS IN TAXABLE INCOME; (III) IF THE INCOME OF AN ASSESSEE ARISES UNDER ANY OF THE HEADS OF INCOME BUT FROM DIFFERENT ITEMS , E.G., DIFFERENT HOUSE PROPERTIES OR DIFFERENT SECURITIES, ETC., AND INCOM E FROM ONE OR MORE ITEMS ALONE IS TAXABLE WHEREAS INCOME FROM THE OTHER ITEM IS EXEMPT UNDER THE ACT, THE ENTIRE PERMISSIBLE EXPENDITURE IN EARNING THE I NCOME FROM THAT HEAD IS DEDUCTIBLE; AND (III) IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR 17 PROFESSION WHEN AN ASSESSEE IS CARRYING ON BUSINES S IN VARIOUS VENTURES AND SOME AMONG THEM YIELD TAXABLE INCOME AND THE OTHERS DO NOT, THE QUESTION OF ALLOWABILITY OF THE EXPENDITURE UNDER SECTION 37 OF THE INCOME-TAX ACT, 1961, WILL DEPEND ON : (A) FULFILLMENT OF REQUIREMENTS OF THAT PROVISION, NAMELY THAT (I) THE EXPENDITURE SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE; (II) IT SHOULD H AVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION; AND (III) IT SHOULD HAVE BEEN EXPENDED IN THE PREVIOUS YEAR ; AND (B) ON THE FACT WHETHER ALL THE VENTURES CARRIED ON BY HIM CONSTITUTED ONE INDIVISIBLE BUSINESS OR NOT; IF THEY DO THE ENTIRE EXPENDITURE WILL BE A PERMISSIBLE DEDUCTION, BUT IF THEY DO NOT, THE PRIN CIPLE OF APPORTIONMENT OF THE EXPENDITURE WILL APPLY, BECAUSE THERE WILL BE NO NE XUS BETWEEN THE EXPENDITURE ATTRIBUTABLE TO THE VENTURE NOT FORMING AN INTEGRAL PART OF THE BUSINESS AND THE EXPENDITURE SOUGHT TO BE DEDUCTED AS THE BUSINESS EXPENDITURE OF THE ASSESSEE. HELD, REVERSING THE DECISION OF THE HIGH COURT, T HAT IN VIEW OF THE FACT THAT A PERUSAL OF THE QUESTION ITSELF DISCLOSED THAT INCOM E FROM VARIOUS VENTURES WAS EARNED IN THE COURSE OF ONE INDIVISIBLE BUSINESS, T HE IMPUGNED ORDER UPHOLDING THE APPORTIONMENT OF THE EXPENDITURE AND ALLOWING DEDUCTION OF ONLY THAT PROPORTION OF IT WHICH WAS REFERABLE TO T HE TAXABLE INCOME, WAS UNSUSTAINABLE. THE RATIO OF THE DECISION OF HONBLE APEX COURT IS SQUARELY APPLICABLE IN THE FACTS OF THE PRESENT CASE ALSO. THEREFORE, WE ARE OF THE VIEW T HAT LD. CIT (A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. ACCORDINGLY, WE CONFIRM THE FINDING OF LD. CIT (A) WHICH ARE REPRODUCED SOMEWHERE ABOVE IN THIS ORDER ON THIS IS SUE ALSO. 17. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. 18 18. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 .12.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JODHPUR, COPY FORWARDED TO :- THE ACIT, CIRCLE-1, UDAIPUR. M/S. P.I. INDUSTRIES, UDAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 312/JODH/2009) BY ORDER, AR ITAT JODHPUR.