ACIT, UDAIPUR V. M/s. Pyrotech Electronics Pvt. Ltd., UDAIPUR

ITA 390/JODH/2010

• Counselvise Citation: 39023314 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 14-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 14-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M N MAURYA
• Keywords: Business income
• Section: 80IB; 194C; 11

Judgement Text

1 ITA 390-10 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH JODHPUR. ( BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ) ITA NO. 390/JODH/2010 ASSTT. YEAR : 2007-08. THE ACIT, CIRCLE-1, VS. M/S. PYROTECH ELECTRONIC S PVT. LTD., UDAIPUR. F-16A, ROAD NO. 3, MIA, UDAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.N. MAURYA RESPONDENT BY : SHRI AMIT KOTHARI DATE OF HEARING : 14.12.2011. DATE OF PRONOUNCEMENT : ORDER DATED : /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 2007-08. 2. THE DEPARTMENT IS OBJECTING IN DIRECTING TO INCL UDE THE INTEREST INCOME FROM FD, AVVNL AND JOB RECEIPTS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80IB. 2.1. THE DEPARTMENT IS ALSO OBJECTING IN DIRECTING TO INCLUDE RS. 12,64,763/- WITHOUT BIFURCATING THE EXPENSES BETWEEN TWO UNITS ON THE B ASIS OF TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80IB. 2.2. IN GROUND NO. 3, THE DEPARTMENT IS OBJECTING I N DELETING THE ADDITION OF RS. 8,66,365/- MADE UNDER SECTION 40(A)(IA) OF THE ACT. 2 3. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS EARNED INTEREST ON FD AT RS. 2,19,117/-, INTERE ST ON DEPOSIT WITH AVVNL AT RS. 22,344/-, JOB RECEIPT AT RS. 67,35,629/- AND DEDUCT ION ON ACCOUNT OF DIRECTORS REMUNERATION/SALARY AT RS. 12,64,763/-. THE ASSESS EE WAS REQUIRED TO EXPLAIN WHY THESE AMOUNTS SHOULD NOT BE DISALLOWED FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80IB. DETAILED SUBMISSIONS WERE FILED. HOWEVER, A SSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION. ACCORDINGLY HE REDUCED THE A MOUNT OF INTEREST ON FDR, INTEREST ON DEPOSIT WITH AVVNL AND JOB RECEIPTS. THE ASSESSING OFFICER ALSO REDUCED THE AMOUNT OF DIRECTORS REMUNERATION/SALARY AT RS. 12,64,763/- BY BIFURCATING THE SALARY ON THE BASIS OF TURN OVER. DETAILED SUBMISSIONS WERE FILED BEFO RE LD. CIT (A) WHICH WERE TABULATED BY HIM AT PAGES 4 TO 18. EACH AND EVERY ISSUE WAS EXP LAINED BEFORE LD. CIT (A) BY THESE WRITTEN SUBMISSIONS. THE LD. CIT (A) AFTER CONSIDE RING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD HAS HELD THAT INTEREST INCOME OF RS. 22,344/- ON DEPOSIT WITH AVVNL WAS RIGHTLY REDUCED FOR THE PURPOSE OF DEDUCTION UN DER SECTION 80IB. HOWEVER, INTEREST ON FDR AND JOB RECEIPTS WERE HELD THAT THE ASSESSIN G OFFICER WAS NOT JUSTIFIED IN REDUCING THE SAME AS THEY ARE INCOME DERIVED FROM T HE UNDERTAKING. 3.1. REGARDING SALARY DISALLOWANCE ON PROPORTIONATE BASIS OF TURNOVER, THE LD. CIT (A) HELD THAT ON PROPORTIONATE BASIS OF TURNOVER, SALAR Y REDUCTION WAS NOT CORRECT AS ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT AND SALARY PAID TO THE DIRECTORS OF THE UNIT FOR WHICH DEDUCTION HAS BEEN CLAIMED UNDER SECTION 80IB HAS PAID MORE THEN THE SALARY PAID TO DIRECTORS OF THE UNIT WHERE DEDUCTION UNDER SECT ION 80IB WAS NOT ALLOWABLE. SEPARATE BOOKS OF ACCOUNT HAVE BEEN MAINTAINED AND SEPARATE SALARY HAS BEEN CLAIMED. 3 4. THE LD. D/R HAS PLACED STRONG RELIANCE ON THE OR DER OF THE ASSESSING OFFICER. SOME PART OF THE ORDER OF THE ASSESSING OFFICER WAS READ ALSO AND IT WAS STATED THAT THE ASSESSING OFFICER WAS CORRECT IN REDUCING THE AMOUN T OF FD WITH AVVNL DEPOSIT AND JOB RECEIPTS AS THEY ARE NOT DERIVED FROM THE BUSIN ESS OF THE UNDERTAKING. 5. ON THE OTHER HAND, THE LD. A/R PLACED RELIANCE O N THE ORDER OF LD. CIT (A). IT WAS FURTHER SUBMITTED THAT ISSUE IN RESPECT OF INTEREST ON AVVNL, HAS BEEN DECIDED AGAINST ASSESSEE. THEREFORE, THE DEPARTMENTS GROUND ON THI S ISSUE IS INFRUCTUOUS IN NATURE. 6. AFTER CONSIDERING THE ORDERS OF THE ASSESSING OF FICER AND LD. CIT (A), WE FIND THAT ISSUE IN RESPECT OF AVVNL, INTEREST HAS BEEN DECIDE D AGAINST ASSESSEE, THEREFORE, TO THIS EXTENT THE GROUND OF THE DEPARTMENT IS INFRUCTUOUS IN NATURE AND ACCORDINGLY DELETED. REGARDING FD INTEREST, WE NOTED THAT FD HAS BEEN OB TAINED FOR THE PURPOSE OF MARGIN MONEY DEPOSITED AGAINST OBTAINING LOAN FACILITIES, THE ASSESSEE HAS PAID INTEREST AND HAS RECEIVED INTEREST AND THERE WAS A DIRECT NEXUS. IN TEREST PAYMENT IS MORE THAN EARNING OF INTEREST. THEREFORE, NETTING OF THE SAME HAS TO BE ALLOWED AS HELD BY SPECIAL BENCH IN CASE OF LAL SONS. THEREFORE, WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A) ON THIS ISSUE. 6.1. REGARDING THE ISSUE IN RESPECT OF JOB RECEIPTS AND IN RESPECT OF SALARY PAID TO DIRECTORS, THE ISSUE HAS BEEN DISCUSSED BY LD. CIT (A) IN PARA (C) AND (D) AT PAGES 22 TO 27 OF HIS ORDER, ARE AS UNDER :- (C) AS REGARDS, THE EXCLUSION OF JOB RECEIPTS OF RS. 67,35,629/- FOR COMPUTING THE ELIGIBLE PROFIT FOR DEDUCTION U/S. 80 IB OF THE ACT, I HAVE EXAMINED THE ORDER AND VERIFIED THE RECORDS AND FOU ND THAT THE AO HAS MADE THE ADDITION BY EXCLUDING JOB RECEIPTS ON THE BASIS OF HIS OBSERVATION THAT THE APPELLANT COMPANY IS NOT ENTITLED TO DEDUC TION U/S. 801 OF THE ACT IN RESPECT OF SERVICE CHARGES FOR ERECTION AND COMM ISSIONING OF 4 MACHINERY. DURING APPELLATE PROCEEDINGS, THE AR HAS SUBMITTED THAT THE FACTS OF THE CASE WERE NOT PROPERLY APPRECIATED BY THE AO AND THE RATIO OF JUDGMENTS REFERRED BY THE AO IS NOT AT ALL APPLICAB LE CONSIDERING THE TRUE AND REAL FACTS OF THE APPELLANT. THE AR FURTHER SUB MITTED THAT THE JOB RECEIPTS IN QUESTION WERE THERE ON ACCOUNT OF INSTA LLATION AND COMMISSIONING OF CONTROL ROOMS, CONTROL PANELS, CON TROL DESKS ETC AT THE SITES OF ULTIMATE USERS MENTIONED BY THE CUSTOMERS OF APPELLANT IN THEIR PURCHASE ORDERS. IN THE CASE OF APPELLANT THE MAIN CUSTOMERS FOR THE PERIOD UNDER CONSIDERATION WERE BHEL, BANGLORE, INSTRUMENT ATION LIMITED KOTA, AREVA T & D LIMITED NOIDA, SECURE METERS SOLAN, DEP ARTMENT OF ATOMIC ENERGY, RELIANCE ENERGY LIMITED, JINGAL STEEL AND POWER LIMITED AND NTPC VISHAKAAPATNAM ETC. THE APPELLANT COMPANY IS S UB-CONTRACTOR OF THE ABOVE SAID COMPANIES WHO HAD ACCEPTED TURN KEY PROJECT CONTRACTS FROM THE VARIOUS POWER UNITS WHO ARE ULTIMATE USERS . THE APPELLANT COMPANY SUPPLIES THE CONTROL ROOMS, CONTROL PANELS, CONTROL DESKS ETC TO THE VARIOUS CUSTOMERS AT THEIR SITES WHICH REQUIRES RE-ASSEMBLING OF CONTROL ROOMS, CONTROL PANELS, CONTROL DESKS ETC ETC. AT TH E SITS MENTIONED BY THE BUYER'S IN THEIR PURCHASE ORDERS. FOR EXAMPLE, THE BUYERS OF THE APPELLANT COMPANY ARE BHEL BUT THE ULTIMATE INVESTOR AND USER IS NTPC. ALL THE BUYERS PLACED WORK ORDERS FOR INSTALLATION AND COMM ISSIONING ALONGWITH THE SUPPLY AT THE ULTIMATE USER'S SITE. FROM THE CO PY OF WORK ORDERS FILED I BEFORE AO DURING ASSESSMENT PROCEEDINGS AND PLACED ON RECORDS DURING APPELLATE PROCEEDINGS I FOUND THAT IN ALL SUCH ORDE RS THE CUSTOMERS HAVE CLEARLY MENTIONED THAT THE SCOPE OF APPELLANTS COMP ANY WHEREIN IT HAS BEEN MENTION THAT THE SCOPE IN ORDER INCLUDES DESIG N, MANUFACTURE, TESTING AND COMMISSIONING OF EQUIPMENT AS PER ORDER SPECIFI CATION AND DRAWINGS. THE SCOPE SHALL ALSO INCLUDE SHOP- TESTING, INSPECT ION ETC. SIMILARLY IN THE WORK ORDERS IN THE TERMS AND CONDITIONS IT HAS BEEN MENTIONED THAT ASSEMBLY CHARGES AT SITE WILL BE PAID EXTRA. IN MOS T OF THE ORDERS WE FOUND A CONDITION THAT 10% OF BASIC PRICE ALONGWITH THE A SSEMBLY CHARGES SHALL BE PAID WITHIN 15 DAYS OF SATISFACTORY INSTALLATION AND COMMISSIONING AT 5 SITE. INSPECTION SHALL BE CARRIED OUT BY THE EXPERT S OF BUYER OR THE ULTIMATE USER AS PER APPROVED QUALITY CONTROL PLAN. CONSIDER ING ALL THE ABOVE SAID NATURE OF CONDITIONS IN THE WORK ORDER _ITSELF_ GOE S TO PROVE THAT THE PRODUCTION ACTIVITY OF THE APPELLANT UNIT IS COMPLE TED AFTER INSTALLATION AND COMMISSIONING AND AFTER APPROVAL OF QUALITY BY THE BUYER/ ULTIMATE USER. FURTHER THE APPELLANT COMPANY RAISES SEPARATE INVOI CES FOR JOB WORK AND FOR SUPPLY. THE MAIN BUSINESS OF APPELLANT COMPANY IS MANUFACTURING, SUPPLY, INSTALLATION AND COMMISSIONING OF CONTROL R OOMS, CONTROL PANELS, CONTROL DESKS ETC. THE INSTALLATION AND COMMISSIONI NG ARE AN INTEGRAL PART OF THE SUPPLY OF THE MAIN PRODUCT. AS THE JOB INCOM E IS NOT SUBJECT TO SALES TAX, VAT TAX R EXCISE DUTY SO SEPARATE INVOICES ARE NECESSARY FOR ACCOUNTING AND FOR REQUIREMENT AS PER EXCISE AND CO MMERCIAL TAXES LAW. THE JOB RECEIPTS IN THE CASE OF THE APPELLANT COMPA NY CANNOT BE SEGREGATED FROM MANUFACTURING ACTIVITY AS THE JOB WORKS WERE E XECUTED BY UTITILIZING VERY SAME MACHINERY AND LABOUR/EMPLOYEE. FURTHER TH E JOB WORK CARRIED OUT FOR THOSE CUSTOMERS ONLY TO WHOM THE COMPANY HA S MADE SALES I.E. SUPPLY OF CONTROL ROOMS, CONTROL PANELS, CONTROL DE SKS ETC. AND THESE SERVICES ARE INEXTRICABLY LINKED WITH THE MANUFACTU RING OF CONTROL ROOMS, CONTROL PANELS, CONTROL DESKS ETC. THEREFORE, THE A R SUBMITTED THAT THE INSTALLATION AND COMMISSIONING CHARGES RECEIVED BY THE APPELLANT COMPANY IS I PURELY A BUSINESS INCOME HAVING DIRECT NEXUS W ITH THE MANUFACTURING AND SUPPLY OF CONTROL ROOMS, CONTROL PANELS, CONTRO L DESKS ETC TO THE BUYERS. FURTHER THE AR SUBMITTED THAT THE APPELLANT COMPANY IS UTILIZING THE VERY MACHINERY, LABOUR AND EMPLOYEES CONVERSED THE DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY OF THE APPELLANT COMPANY , HENCE THE JOB INCOME IS DERIVED FROM INDUSTRIAL UNDERTAKING ELIGIBLE FOR BENEFIT I/S. 80IB OF THE ACT. THE JOB WORK GOT DONE BY THE MANUFACTURER OR U NDER THE SUPERVISION OF THE MANUFACTURER IS CONSIDERED TO BE PART OF MAN UFACTURING PROCESS FOR GETTING THE BENEFIT U/S. 8OIB OF THE ACT. THE AR PL ACED RELIANCE ON THE FOLLOWING CASE LAWS: 6 I) CIT VS. UNITHERM ENGINEERS P) LTD. (2004) 141 TA XMAN 38 (MUM). II) CIT VS. INTERNATIONAL DATA MANAGEMENT LTD. 261 ITR 177 (BOM) III) ASST. CIT VS. BIOTECH MEDICALS (P) LTD. (2009) 121 TTJ (HYD) 858. IV) MIHIR ENGINEERS LTD. VS. JT. CIT (2007) 112 TTJ (MUM)940. THE AIR HAS FURTHER SUBMITTED THAT IN THE CASE OF T HE APPELLANT, THE INSTALLATION AND COMMISSIONING WAS COMPLETED AT THE BUYER'S PREMISES AND DULY INSPECTED, TESTED AND APPROVED BY THE END USER I.E. THE CUSTOMER AND CONSULTANT OF THE PROJECT. DUE TO LENGTH, EIGHT, HE IGHT AND TRANSPORTATION PROBLEM, THE COMPLETE CONTROL PANELS OR CONTROL DES KS COULD NOT BE DISPATCHED AS IT IS, AND THIS FACT IS ALSO WELL KNO WN TO THE CUSTOMER, THEREFORE PANELS, CONTROL DESKS ARE SENT IN PARTS A ND COSTLY EQUIPMENTS, PLC, ELECTRICAL FIXTURES ARE PACKED IN SEPARATE BOX ES AND WIRING IS ALSO KEPT LOOSE. MANY TIMES LENGTH OF THE PANELS ARE 40- 50 METERS LONG WHICH COULD NOT-BE TRANSPORTED AS IT IS. AFTER REACHING O F THE GOODS ID PARTS ETC. AT END USER'S SITE, IT, IS AGAIN RE-ASSEMBLED AND COMM ISSIONED BY THE APPELLANT'S ENGINEER, SUPERVISOR ETC. AND FOR WHICH SEPARATE INVOICES WERE ISSUED. WITHOUT PROVIDING SUCH SERVICES OF RE-ASSEM BLING AND COMMISSIONING OF CONTROL ROOMS, CONTROL PANELS, CON TROL DESKS ETC, THERE IS NO USE OF SUCH PANELS OR DESKS AND THE CONTRACT OF SUPPLY/PURCHASE ORDER IS ALSO NOT COMPLETED. HENCE, THE MANUFACTURING, INSTA LLATION AND COMMISSION AS INTEGRAL PART OF PRODUCTION OF UNDERT AKING OF THE APPELLANT AND CANNOT BE SEPARATED FOR DETERMINING THE PROFIT DERIVED ON THE PRODUCTION ACTIVITIES OF THE UNDERTAKING WHICH IS E LIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT. FURTHER IN THIS REGARD, ALTERNATIVELY WITHOUT PREJU DICE TO THE ABOVE SUBMISSIONS, THE R HAS INVITED MY ATTENTION TOWARDS THE FACT THAT THE AO HAS EXCLUDED THE WHOLE GROSS JOB RECEIPTS FOR THE P URPOSE OF CALCULATION OF ELIGIBLE PROFIT IGNORING THE PROPORTIONATE EXPENSES INCURRED BY THE APPELLANT TO EARN SUCH RECEIPTS. THE AR SUBMITTED T HAT THE EXCLUSION, IF REQUIRED AS PER LAW, FOR CALCULATION OF ELIGIBLE PR OFIT THEN IT SHOULD HAVE 7 BEEN OF NET INCOME, FROM THE JOB WORKS WHICH IS INC LUDED UNDER THE HEAD `INCOME FROM BUSINESS' AND NOT THE GROSS JOB RECEIP TS AS HAS BEEN DONE BY THE AO IN THE ORDER. HENCE, CORDING TO THE AR THE C ALCULATION AS WELL AS THE REDUCTION IN THE AMOUNT OF THE DEDUCTION LIMED U/S. 880TH IS WRONG ON THIS ACCOUNT ALSO. IN. VIEW OF THE ABOVE DISCUSSION, I FOUND THAT THE. FACTS OF THE CASE UNDER CONSIDERATION ARE DIFFERENT WITH THE FACTS OF THE CASE REFERRED BY THE AO. I FOUND FORCE IN SUBMISSION OF THE AR THAT THER E IS DIRECT NEXUS BETWEEN THE INCOME AND THE INDUSTRIAL UNDERTAKING 4 ONSIDERING THE WHOLE FACTS AND EVIDENCES PLACED ON RECORDS. THE DISCUSSI ONS MADE HEREIN ABOVE ESTABLISHES AND PROVES THAT THE ACTIVITY OF JOB OF INSTALLATION AND COMMISSIONING IS INEXTRICABILITY LINKED WITH THE MA NUFACTURING OF CONTROL ROOM, CONTROL ROOMS, CONTROL PANELS, CONTROL DES KS ETC MANUFACTURED, SUPPLIED, INSTALLED AND COMMISSIONED BY THE APPEL LANT COMPANY. FURTHER THE CASE REFERRED BY THE AR IS APPLICABLE IN THE CA SE OF THE APPELLANT COMPANY CONSIDERING THE NATURE OF PRODUCTION; INSTA LLATION AND COMMISSIONING ETC. ARE INEXTRICABLY LINKED WITH THE MANUFACTURING OF CONTROL ROOMS, CONTROL PANELS, CONTROL DESKS ETC AN D IS ALSO INTEGRAL PART OF PRODUCTION OF UNDERTAKING AND CANNOT BE SEPARATED F OR DETERMINING THE PROFIT DERIVED ON THE PRODUCTION ACTIVITIES OF THE UNDERTAKING. THE ULTIMATE SUPPLY/SALE COMPLETED AFTER COMPLETION OF INSTALLAT ION AND COMMISSIONING AS WELL AS PROPER RUNNING OF CONTROL ROOMS, CONTROL PANELS, CONTROL DESKS ETC. THE JOB WORK WAS DONE UNDER THE SUPERVISION OF APPELLANT'S ENGINEER AND SUPERVISORS AND THE SITE OF ULTIMATE USERS UTIL IZING THE VERY SAME MACHINERY AND LABOUR CONVERSED A DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY OF THE APPELLANT. HENCE, THE INCOME DERIVE D IS ELIGIBLE FOR DEDUCTION U/S. 8011B OF THE ACT. ACCORDINGLY, I HOL D THAT THERE WAS A DIRECT NEXUS BETWEEN THE JOB RECEIPTS WITH MANUFACT URING ACTIVITY OF THE APPELLANT, COMPANY; FENCE SUCH INCOME IS DERIVED FR OM INDUSTRIAL UNDERTAKING, ACCORDINGLY ELIGIBLE FOR SEDUCTION U/S . 801B OF THE ACT. I ORDER ACCORDINGLY. THE AO IS DIRECTED TO CONSIDER T HE JOB RECEIPT FOR 8 COMPUTING PROFIT ELIGIBLE FOR DEDUCTION U/S. 80TH O F THE ACT. THE APPEAL IS ALLOWED ON THIS ISSUE. D) AS REGARDS EXCLUSION OF DIRECTORS REMUNERATION/ SALARY OF EMPLOYEE FOR COMPUTATION OF ELIGIBLE PROFIT U/S. 80IB OF THE ACT. I HAVE EXAMINED THE ORDER AND VERIFIED THE RECORDS AND FOUND THAT THE A O HAS MADE THE ADDITION BY EXCLUDING THE ALLEGED EXCESS CLAIM BY T HE APPELLANT ON THE BASIS OF CALCULATION MADE BY HIM APPLYING PROPORTIO NATE EXPENSES FOR TWO DIFFERENT UNITS 6F THE APPELLANT. THE AO OBSERVED T HAT THE APPELLANT COMPANY HAS PAID REMUNERATION TO THE DIRECTORS AMOU NTING TO RS. 39,54,000/- AND SALARY TO THE EMPLOYEES COVERED U/S . 40A(2)(B) OF THE ACT AMOUNTING TO RS. 15,75,861/-. THE AO HAS ALLOCATED THESE EXPENSES ON THE BASIS OF TURNOVER OF UNIT-I AND UNIT-LI IN THE RATI O OF 1:8.07, HOLDING TAT SUCH EXPENSES ARE TO BE ALLOCATED ON THE BASIS OF T URNOVER ONLY. ACCORDINGLY, THE AO HAS MADE ADDITION OF RS. 12,64, 763/- MENTIONING THAT THE EXPENDITURE UPTO THIS EXTENT HAS BEEN CLAIMED I N EXCESS IN UNIT-II, HENCE EXCESS CLAIM OF DEDUCTION U/S. 801. THE AO RE LIED VARIOUS CASES MENTIONED HEREINABOVE. THE AR OF THE APPELLANT COMP ANY HAS SUBMITTED AT THE AO HAS ERRED AT LAW AS WELL AS ON FACT IN AR BITRARY RE-COMPUTING THE ELIGIBLE PROFIT IT CLAIMING; DEDUCTION U/S. 80IB JU ST ON THE BASIS OF ASSUMPTIONS AND PRESUMPTIONS IGNORING TRUE AND CORR ECT POSITION OF FACTS AND CIRCUMSTANCES OF THE APPELLANT. THE AO HAS NOT APPRECIATED THE NATURE AND SERVICES PROVIDED BY THE DIRECTORS/EMPLOYEES IN THE CONDUCT OF BUSINESS. THE AO IGNORED THE WRITTEN SUBMISSION FUR NISHED BY THE APPELLANT COMPANY AND THE RECORDS OF THE COMPANY PR ODUCED BEFORE HIM. IT WAS CLEARLY MENTIONED I THE SUBMISSION THAT BOTH THE UNITS OF THE APPELLANT COMPANY ARE SITUATED AT DIFFERENT LACE I. E. UNIT-I AT F-16A, ROAD NO. 3, MIA, UDAIPUR AND UNIT-II AT E-329, ROAD NO. 12, IIA, UDAIPUR WITH DIFFERENT LINE OF PRODUCTION. UNIT-I DEALS WIT H ELECTRONICS PRODUCTS WHEREAS UNIT-II DEALS WITH ELECTRICAL PRODUCTS. THE APPELLANT COMPANY IS NOT HAVING ANY COMMON HEAD OFFICE OR CORPORATE OFFI CE TO CONTROL BOTH THE UNITS. BOTH THE UNITS ARE RUN AND CONTROLLED IT SELF. UNIT-I IS LOOKED 9 AFTER BY ONE OF THE DIRECTORS, SHRI CP TALESARA WHO BE (ELECTRONICS & M.TECH. HAVING VAST EXPERIENCE OF R&D AND PRODUCTIO N WORK) WHEREAS UNIT-11 IS LOOKED AFTER BY DIRECTOR, SHRI PS TALESA RA WHO IS BE (ELECTRICALS WING VAST EXPERIENCE OF ELECTRICAL STR EAM). BOTH THE UNITS ARE 2 KMS. AWAY FROM EACH HER AND COMPLETE INDEPENDENT SET UP OF INFRASTRUCTURE AND MANPOWER. THE BOOKS OF ACCOUNT A RE SEPARATELY MAINTAINED AND SEPARATE BALANCE SHEET AND P&L ACCOU NTS OF BOTH THE UNITS HAVE BEEN ' PREPARED SINCE INCEPTION. THE DEP ARTMENT HAS BEEN REGULARLY ACCEPTING THE SEPARATE ACCOUNTS OF BOTH T HE UNITS FOR THE PURPOSES OF ASSESSMENT OF THE COME OF THE APPELLANT COMPANY SINCE INCEPTIONS OF BOTH THE UNITS. FOR SUCH PURPOSES AND FOR THE PURPOSES OF COMPANY LAW RETURNS, THE BALANCE SHEET IS GOT CONSO LIDATED. SIMILARLY, BOTH THE UNITS ARE HAVING SEPARATE SALES, PURCHASES, AND PRODUCTION-DEPARTMENT AND REGULARLY BOOKED THEIR RECEIPTS AND. EXPENSES I N SEPARATE SET OF BOOKS OF ACCOUNT. THE DECISION RELATED TO MANAGEMENT OF U NITS IS BEING TAKEN BY EACH UNIT DIRECTOR IN THE SEREST OF THEIR UNITS. AS THERE WERE NO COMMON EXPENSES AT ALL, THE ALLOCATION OF EXPENSES BY THE AO IS NOT JUSTIFIABLE, ESPECIALLY WHEN THE UNITS ARE TREATING THEMSELVES A S DIFFERENT PROFIT CENTRES AND KEEPING ALL BOOKS OF ACCOUNTS AND RECOR DS SEPARATELY. THE RECTORS ARE WHOLE TIME DIRECTORS GIVING THEIR TIME AND ATTENTION TO THEIR SPECIFIED UNIT ONLY. SAME IS THE CASE WITH EMPLOYEE S COVERED UNDER 40A(2)(B). THIS FACT IS ALSO VERIFIABLE FROM THE RE CORDS RELATED TO LABOUR LAWS AND OTHER RELEVANT RECORDS ALSO. THERE ARE DIF FERENT PAY ROLLS OF EACH UNIT HAVING DIFFERENT PF/ESI REGISTRATION NUMBER OF THE EMPLOYEES WORKING IN A PARTICULAR UNIT. THE AR FURTHER CONTENDED THAT THE AO HAS NOT POINTE D OUT ANY ERROR IN THE ACCOUNTING OF BOTH THE UNITS OF THE AP PELLANT. WITHOUT POINTING OUT ANY ERROR, THE AO WAS NOT, JUSTIFIED IN ARBITRA RY ALLOCATING THE EXPENSES IN QUESTION ON THE BASIS OF TURNOVER. THE AR HAS AL SO STATED THAT ALL RELEVANT EXPENSES, DIRECT OR INDIRECT ARE TO BE CON SIDERED TO ASCERTAIN PROFITS TO ARRIVE AT THE DEDUCTION ALLOWABLE U/S. 8 01B. WHEN DIRECT AND 10 INDIRECT EXPENSES WERE KNOWN IN RESPECT OF UNIT WHO SE INCOME IS DEDUCTIBLE U/S. 801B THEN OTHERWISE ALLOCATION CANN OT BE MADE. IN THE CASE OF THE APPELLANT, THE AO HAS ACCEPTED THE BOOK RESU LTS FOR ALL OTHER PURPOSES. HENCE, THE ALLOCATION OF COMMON EXPENDITU RE, IF ANY, CANNOT BE MADE ON THE BASIS OF REVENUE GENERATED. THE AR RELI ED ON LATEST DECISION IN THE 'CASE OF WIPRO LTD. VS. DCIT REPORTED AT (20 10) 34 DTR (BANGALORE TRIB.) 493. CONSIDERING THE ABOVE DISCUSSIONS, THE ALLOCATION M ADE BY THE AO ON-THE BASIS OF TURNOVER IS ILLOGICAL AND UNCALLED FOR IN THE CASE OF THE APPELLANT, ACCORDINGLY THE EXCLUSION OF RS. 12,64,7 63/- FOR COMPUTATION OF ELIGIBLE PROFIT FOR DEDUCTION U/S. 80IB OF THE ACT BY THE AO IS NOT JUSTIFIED. THE APPEAL IS ALLOWED ON THIS ISSUE. THE FINDINGS OF LD. CIT (A) ARE FINDING OF FACTS AN D ALSO IN VIEW OF VARIOUS DECISIONS ALREADY DECIDED AND THESE FINDINGS REMAINED UNCONTR OVERTED, THEREFORE, WE SEE NO REASON TO INTERFERE WITH THESE FINDINGS OF LD. CIT (A). A CCORDINGLY, WE CONFIRM THE FINDING OF LD. CIT (A) ON THIS ISSUE. IN THIS WAY GROUND NOS. 1 & 2 OF THE DEPARTMENT FAILS. 7. REMAINING GROUND IS IN RESPECT OF DELETING THE A DDITION OF RS. 8,66,365/- MADE UNDER SECTION 40(A)(IA) OF THE ACT. 8. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS MADE TOTAL PAYMENT OF RS. 9,78,635/- TO THREE P ARTIES I.E. M/S. JAI WORLD WIDE MOVERS, M/S. EXEL INDIA PVT. LTD. AND M/S. DHL EXPR ESS. OUT OF THE ABOVE PAYMENTS, RS. 97,679/- RELATED TO SERVICE CHARGES ON WHICH TA X WAS DULY DEDUCTED. BALANCE PAYMENT OF RS. 8,66,365/- WERE PAID ON ACCOUNT OF R EIMBURSEMENT OF EXPENSES. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE WAS REQUI RED TO DEDUCT TAX IN VIEW OF SECTION 11 194C WHICH HE FAILED TO DO SO. ACCORDINGLY HE MADE DISALLOWANCE BY ATTRACTING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 9. DETAILED SUBMISSIONS WERE MADE BEFORE LD. CIT (A ). IT WAS SUBMITTED THAT ALL THESE EXPENSES ARE ON ACCOUNT OF REIMBURSEMENT PAYM ENT TO CLEARING AND FORWARDING AGENTS ON RECEIVING THEIR BILLS AS THEY HAVE MADE EXPENSES ON BEHALF OF THE ASSESSEE ALREADY. IT WAS ALSO SUBMITTED THAT AT THE END OF THE YEAR THERE WAS NO AMOUNT PAYABLE. THEREFORE, FOR THIS REASON ALSO NO DISALLOWANCE COU LD HAVE BEEN MADE. RELIANCE WAS PLACED ON THE DECISION OF JVVNL, 123 TTJ 888. 10. AFTER CONSIDERING THE SUBMISSIONS, THE LD. CIT (A) FOUND THAT THESE EXPENSES ARE ON ACCOUNT OF REIMBURSEMENT AND, THEREFORE, THERE W AS NO LIABILITY OF TAX DEDUCTION AT SOURCE. RELIANCE WAS PLACED ON THE DECISION OF GRA NDPRIX FAB PVT. LTD., 34 DTR 248 (DEL.)(TRIB). THE LD. CIT (A) HAS ALSO OBSERVED TH AT SINCE THERE WAS NO AMOUNT OUTSTANDING, THEREFORE, IN VIEW OF THE DECISION OF JAIPUR BENCH OF THE TRIBUNAL IN CASE OF JVVNL (SUPRA), NO TDS WAS DEDUCTIBLE. 11. THE LD. D/R HAS PLACED STRONG RELIANCE ON THE O RDER OF THE ASSESSING OFFICER. 12. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 13. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE LD. CIT (A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE ON ACCOUNT OF THAT THESE PAYMENTS WERE MADE ON ACCOUNT OF REIMBURSEMEN T OF EXPENDITURE WHICH DO NOT CONSTITUTE ANY INCOME IN THE HANDS OF PAYEE. SIMIL AR VIEW HAS BEEN EXPRESSED BY HONBLE DELHI HIGH COURT IN CASE OF GRANDPRIX FAB P VT. LTD., 34 DTR 248. THEREFORE, 12 WE ARE OF THE VIEW THAT LD. CIT (A) WAS JUSTIFIED I N HOLDING THAT ON ACCOUNT OF REIMBURSEMENT OF EXPENSES NO LIABILITY WAS THERE UN DER SECTION 194C. 13.1. REGARDING THE FINDING THAT THERE WAS NO PAYME NT DUE AT THE END OF THE FINANCIAL YEAR, WE ARE NOT IN AGREEMENT WITH THE FINDING OF L D. CIT (A) AS THIS ISSUE IS NOW BEFORE SPECIAL BENCH. ACCORDINGLY, WE ARE NOT EXPRESSING ANY FINDING ON THE POINT THAT THERE WAS NO AMOUNT PAYABLE AT THE END OF THE FINANCIAL Y EAR. HOWEVER, WE CONFIRM THE ORDER OF LD. CIT (A) ON THE POINT THAT ON REIMBURSEMENT O F EXPENDITURE, THERE WAS NO LIABILITY TO DEDUCT TAX UNDER SECTION 194C. 14. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. 15. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JODHPUR, COPY FORWARDED TO :- THE ACIT, CIRCLE-1, UDAIPUR. M/S. PYROTECH ELECTRONICS PVT. LTD., UDAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 390/JODH/2010) BY ORDER, AR ITAT JODHPUR.