DCIT, New Delhi V. M/s Jakson Ltd., New Delhi

ITA 4718/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5563 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 15-02-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 14-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANOOP KUMA R SINGH
• Keywords: Bad and doubtful debts; Assessment record
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 4718/DEL/2009 ASSESSMENT YEAR: 2007-08 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE - 4(1), NEW DELHI VS. M/S. JACKSON LIMITED, 101, RATAN JYOTI BUILDING, 18 RAJENDRA PLACE, NEW DELHI. (APPELLANT) (RESPONDENT) PAN : AAACJ 5347 C APPELLANT BY : SH. ANOOP KUMAR SINGH, SR. DR RESPONDENT BY : SH. VIPIN JAIN, FCA O R D E R PER: C.L. SETHI, J.M. THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 0 1.10.2009 PASSED BY THE LD. CIT(A) FOR THE A.Y. 2007-08. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- 1. THE ORDER OF LEARNED CIT(APPEALS) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 67,58,988/- MADE BY TH E AO DISALLOWING THE DEDUCTION UNDER SECTION 8O IB OF TH E I.T. ACT. 3. THE LD. CIT(A) HAS IGNORED THE FACT THAT THE AO UNDER THE ADDITION AS PER THE PROVISION OF SECTI ON 80IB (13) READ WITH 80IA (7) OF THE I.T. ACT. ITA NO. 4718/DEL/2009 PAGE 2 OF 15 3. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 4. IN THE PRESENT CASE, THE AO HAS WORKED OUT THE A MOUNT OF DEDUCTION AVAILABLE TO THE ASSESSEE U/S. 80 IB OF T HE ACT AT RS. 17,38,33,299/-. WHILE WORKING OUT THE DEDUCTION U/ S. 80 IB, THE AO HAS ALLOCATED THE COMMON EXPENSES AMOUNTING TO RS. 1,44 ,07,911/- TO THE EOU UNIT IN RESPECT OF WHICH DEDUCTION U/S. 80 IB H AS BEEN ALLOWED. AS A RESULT OF SUCH ALLOCATION OF EXPENSES TO EOU UNIT , THE PROFIT OF EOU UNIT HAS BEEN REDUCED BY RS. 1,44,07,911/-. 5. ON AN APPEAL, THE CIT(A) WORKED OUT THE DEDUCTIO N AVAILABLE TO THE ASSESSEE U/S. 80 IB OF THE ACT AT RS. 18,05,92,287 /-, THERE BY THE DEDUCTION U/S. 80 IB ALLOWED BY THE AO TO THE ASSES SEE HAS BEEN INCREASED BY RS. 67,58,988/-. THE CIT(A)S DISCUSS ION AND WORKING HAS BEEN DISCUSSED IN PARA 6 TO 6.2 OF HIS ORDER, WHICH ARE AS UNDER:- 6. GROUND NO. 3 & 5 RELATE TO THE GRIEVANCE OF THE APPELLANT IN RESTRICTING THE CLAIM OF DEDUCTION UNDER SECTION 80-IB TO THE EXTENT OF RS. 17,38,33,299/-. IT IS OBSERVED THAT THE IDENTICAL ISSUE HAD COME UP IN TH E APPELLANT COMPANYS OWN CASE FOR ASSESSMENT YEAR 20 05- 06. MY PREDECESSOR-IN-OFFICE IN APPEAL NO. 196/07- 08 VIDE ORDER DATED 17.04.2008 HAD DECIDED THE ISSUE GRANTING PARTIAL RELIEF T THE APPELLANT. THE ABOVE DECISION OF MY PREDECESSOR-IN-OFFICE WAS FOLLOWED B Y THE UNDERSIGNED IN APPEAL NO. 19/2008-09 VIDE ORDER DAT ED 26.8.2009 FOR ASSESSMENT YEAR 2006-07. THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THIS GROUND IS DECIDED ACCORDINGLY ON THE BASIS OF THE M ETHOD ITA NO. 4718/DEL/2009 PAGE 3 OF 15 ADOPTED BY MY PREDECESSOR-IN-OFFICE. THE ADMINISTR ATIVE EXPENSES INCLUDE CERTAIN EXPENSES INCURRED AND DEBI TED BY THE APPELLANT COMPANY IN THE ACCOUNT BOOKS OF TH E NON-EOU UNIT, BUT THE BENEFIT OF WHICH HAS ALSO GON E TO THE EOU UNIT. THESE EXPENSES ARE AS FOLLOWS:- A) PAYMENT TO AUDITORS: RS. 2,00,000/- B) REMUNERATION TO DIRECTORS: RS. 1,36,98,144/- C) KEYMAN INSURANCE POLICY PREMIUM: RS. 21,46,000/- D) SALARY TO VP EXPORT AND OTHER EXPORT STAFF: RS. 9,72,390/- E) FOREIGN TRAVEL EXPENSES OF DIRECTORS AND EXPORT STAFF:- RS. 57,43,112/- TOTAL RS. 2,27,59,646/- 6.1 IN ORDER TO MEET THE ENDS OF JUSTICE AND TO COMPUTE THE PROFIT OF THE TWO UNITS MORE AUTHENTICA LLY, IT WOULD BE FAIR AND PROPER TO APPORTION ONLY THE EXPE NSES OF RS. 2,27,59,646/- TO THE EOU UNIT IN THE RATIO O F INCOME AS UNDER TO RE-COMPUTE THE DEDUCTION U/S. 80 IB OF THE ACT AS UNDER:- A) TOTAL TURNOVER FOR THE YEAR UNDER CONSIDERATION: RS. 4,17,39,28,779/- B) TOTAL TURNOVER OF THE EOU UNIT: RS. 87,13,31,109/- C) PERCENTAGE OF (B) TO (A) 20.88% D) 20.88% OF COMMON EXPENSES: RS. 47,52,214/- E) DEDUCTION U/S. 80IB OF THE EOU UNIT TO BE REDUCED BY RS. 47,52,214/ ITA NO. 4718/DEL/2009 PAGE 4 OF 15 F) DEDUCTION U/S. 80IB OF THE NON EOU UNIT TO BE INCREASED BY RS. 47,52,214/ 6.2 THUS THE ALLOWABLE DEDUCTION U/S. 80IB WOULD BE AS UNDER:- NON EOU (IN RS.) EOU (IN RS.) (I) PROFIT AS PER PROFIT & LOSS ACCOUNT 66,16,084/- 18,82,23,290/- LESS: INCOME ON WHICH DEDUCTION U/S. 80IB WAS NOT ALLOWED 75,71,818/- 40,17,733/- (II) COMMON EXPENSES AS PER PARA ABOVE. (+) 47,52,214/- (-) 47,52,214/- INCOME ON WHICH DEDUCTION U/S. 80IB IS TO BE ALLOWED 37,96,480/- 17,94,53,343/ - ALLOWABLE DEDUCTION 11,38,944/- (30 % OF RS. 37,96,480/-) 17,94,343/- (100% OF 17,94,53,343/-) TOTAL ALLOWABLE DEDUCTION U/S. 80IB 18,05,92,287/- AS WOULD BE EVIDENT FROM THE ABOVE THAT THE APPELLANT IS ENTITLED TO DEDUCTION UNDER 80-IB TO T HE EXTENT OF RS. 18,05,92,287/- AS AGAINST RS. 17,38,3 3,299/- ALLOWED BY THE AO. THUS, THE APPELLANT GETS FURTHE R DEDUCTION OF RS. 67,85,988/- UNDER SECTION 80-IB OF THE ACT. THUS, GROUND NO. 3 & 5 ARE PARTLY ALLOWED. 6. IN THE COURSE OF HEARING OF THIS APPEAL, THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE ISSUE WITH REGARD TO THE ALLOCATION OF ITA NO. 4718/DEL/2009 PAGE 5 OF 15 COMMON EXPENSES BETWEEN NON-EOU AND EOU UNIT HAD CO ME FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE PERTAINING TO THE A.Y. 2005-06, WHICH HAS BEEN DECIDED BY THE TRI BUNAL VIDE ORDER DATED 20 TH NOVEMBER 2009 IN ITA NO. 1995/DEL/2008 FILED BY TH E ASSESSEE AND ITA NO. 2517/DEL/2008 FILED BY THE REV ENUE. THE TRIBUNALS ORDER RUNS AS UNDER:- 2. THE ONLY ISSUE RAISED BY THE REVENUE IS AS UND ER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING RELIEF OF RS. 1,07,65,254/- U/S 80IB IGNORING THAT ACTION OF THE AO WAS BASED ON PROVISIONS OF SECTION 80IB (13) READ WITH 80IA (7) AND ALSO ON EXAMINATION OF THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 3. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 IS CONNECTED TO THE ABOVE ISSUE RAISED BY THE REVENUE. 4. GROUND NO. 1 RAISED BY THE ASSESSEE IS AS UNDER: - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AUTHORITIES BELOW HAVE ERR ED IN INVOKING AND IN APPLYING THE PROVISIONS OF SECTION 80-IA (10) READ WITH 80-IB (13) OF THE ACT, AND IN HOLDIN G THAT DEDUCTION U/S80-IB IS TO BE ALLOWED TO THE APPELLAN T COMPANY ON INCOME OF THE EOU AND NON EOU UNITS, DETERMINED AFTER ALLOCATING EXPENSES AGGREGATING RS . 1,81,48,900/- AS BELOW, BETWEEN THE TWO UNITS IN TH E RATIO OF THEIR RESPECTIVE REVENUE:- A) PAYMENTS MADE TO THE AUDITORS RS. 1,55,000/- B) REMUNERATION PAID TO THE DIRECTORS: RS. 1,32,89, 500/- C) SALARY PAID TO THE EXPORT STAFF RS. 7,95,300/- D) KEYMAN INSURANCE PREMIUM PAID RS. 21,45,990/- E) FOREIGN TRAVEL EXPENSES OF THE DIRECTORS RS. 12,92,532/- F) FOREIGN TRAVEL EXPENSES OF THE EXPORT STAFF RS. 4,70,578/- ITA NO. 4718/DEL/2009 PAGE 6 OF 15 TOTAL RS. RS. 1,81,48,900/- 5. SINCE THE ONLY ISSUE RAISED BY THE REVENUE AND T HE GROUND NO. 1 RAISED BY THE ASSESSEE ARE INTERCONNECTED, WE PROCEED TO DECIDE THEM TOGETHER. 6. THE FACTS RELATING TO THE ISSUE INVOLVED IN THES E GROUNDS RAISED BY REVENUE AS WELL AS BY ASSESSEE HAS BEEN E LABORATELY DISCUSSED AND DELIBERATED UPON BY THE LD. CIT(A). AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS DECIDED THE ISSUE BY HOLDING THAT THE DISALLOWA NCES OF DEDUCTION U/S 80IB MADE BY THE A.O. TO THE EXTENT O F RS. 1,27,99,343/- IS TO BE REDUCED BY RS. 1,07,65,245/- INASMUCH AS THE EXPENSES TO THE EXTENT OF RS. 1,07,65,245/- CANNOT BE ALLOCATED TO THE ELIGIBLE UNIT IN RESPECT OF WHICH DEDUCTION U/S 80IB IS ALLOWABLE. 7. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE LD. CIT(A) AND FIND THAT HE HAS DECIDED THIS ISSUE AFTER CONSI DERING ALL THE FACTS IN THEIR RIGHT AND CORRECT PERSPECTIVE. WE, T HEREFORE, FIND IT FIT TO REPRODUCE THE LD. CIT(A)S ORDER WHICH READS AS UNDER:- 1. THE APPELLANT IS A BODY CORPORATE, AND HAS TWO MANUFACTURING UNITS IN DAMAN, REFERRED TO AS NON EOU UNIT AND EOU UNIT. THE TWO UNITS ARE SEPARATED BY A DISTANCE OF MORE THAN 8 KILOMETERS. THE NON EOU UNIT WAS ESTABLISHED IN THE ASSESSMENT YEAR 1998-99. THE EOU UNIT WAS ESTABLISHED IN MARCH, 2004. THE APPELLANT COMPANY HAS SALES OFFICES IN DIFFERENT CITIES OF THE COUNTRY. THE EXISTING NON EOU UNIT AND THE NEWLY STARTED EOU UNIT, ARE BOTH ENGAGED IN THE PRODUCTION U/S 80 IB AT THE RATE OF 30% OF ITS PROFITS AND GAINS. THE EOU UNIT IS ELIGIBLE FOR DEDUCTION U/S 80 IB AT THE RATE OF 100% OF ITS PROF ITS AND GAINS. THE APPELLANT COMPANY CLAIMED DEDUCTION U/S 80 IB AT RS.10,07,70,343 ON PROFITS AND GAINS OF THE EOU UNIT. THE ASSESSING OFFICER ALLOWED THE DEDUCTION AT RS.8,79,71,122. DEDUCTION U/S 80 IB IS ALLOWED LES S BY RS.1,27,99,343. 2. BREAK UP OF REVENUE OF THE APPELLANT COMPANY IS AS UNDER (AMOUNT IN RS.): NON EOU UNIT EOU UNIT OTHERS TOTAL: INLAND SALES 167,6774386 36,01,54,179 9,47,59,924 2 13,16,88,489 ITA NO. 4718/DEL/2009 PAGE 7 OF 15 EXPORT SALES 2,11,96,414 12,67,35,035 - 14,79,31,44 9 OTHER INCOMES 1,69,61,692 - 29,83,193 1,99,44,885 TOTAL: 171,49,32,492 48,68,89,214 9,77,43,117 229,9 5,64,823 3. THE ASSESSING OFFICER EXAMINED THE ACCOUNT BOOKS OF THE APPELLANT COMPANY AND COMPARED THE EXPENSES OF THE TWO UNITS. THE ASSESSING OFFICER HELD THAT PROPORT IONATE EXPENDITURE OF THE EOU UNIT IS MUCH LESS WHEN COMPA RED TO THE EXPENDITURE OF THE NON EOU UNIT. EXPENSES U NDER WAGES IN THE NON EOU UNIT WAS SHOWN AT RS.33.58 LAKHS AS AGAINST ONLY RS.12.57 LAKHS SHOWN IN THE E OU UNIT. UNDER THE HEAD SALARIES, RS.1.70 CRORES WE RE DEBITED IN THE NON EOU UNIT, WHILE NIL EXPENDITURE WAS SHOWN IN THE PROFIT AND LOSS ACCOUNT OF THE EOU UN IT, RS.7,95,300 PAID AS SALARY TO MR. M. AMANUTULLAH, V ICE PRESIDENT (EXPORT DIVISION), MR. SUMIT SOOD (MANAGE R EXPORTS) AND AJIT KUMAR SERVICE ENGINEER, AND FOREI GN TRAVEL EXPENSES AGGREGATING RS.4,28,277 INCURRED BY THESE THREE PERSONS WERE ENTIRELY DEBITED IN THE PROFIT A ND LOSS ACCOUNT OF THE NON EOU UNIT, ALTHOUGH THESE THREE PERSONS ALSO HANDLED THE EXPORT BUSINESS OF THE EO U UNIT. EXPENSES ON DIRECTORS REMUNERATION, RS.1.30 CRORE, KEYMAN INSURANCE PREMIUM ON POLICY ON THE LI FE OF SHRI SAMEER GUPTA, MANAGING DIRECTOR AND SHRI SUNDE EP GUPTA, WHOLE TIME DIRECTOR, RS.21,45,990, AND FOREI GN TRAVEL EXPENSES OF DIRECTORS RS.15,67,140, WERE DEB ITED IN THE PROFIT AND LOSS ACCOUNT OF THE NON EOU UNIT. T HE ASSESSING OFFICER INVOKED AND APPLIED THE PROVISION S OF SECTION 80 IB (13) READ WITH 80 IA(7) OF THE I.T. A CT, AND REALLOCATED THE ADMINISTRATIVE EXPENSES OF THE TWO UNITS AGGREGATING RS.6,16,52,483 AS UNDER:- A) SALES OF THE NON EOU UNIT RS.1,69,79,70,800 (77.72%) B) SALES OF THE EOU UNIT RS.48,68,89,214 (22.28%) C) COMBINED SALES OF THE TWO UNITS RS.2,18,48,60,01 4 (100.00%) (A) ADMINISTRATIVE EXPENSES OF THE NON EOU UNIT RS.6,07,15,652 (B) ADMINISTRATIVE EXPENSES OF THE EOU UNIT RS. 9,36,831 ITA NO. 4718/DEL/2009 PAGE 8 OF 15 (C) TOTAL RS.6,16,52,483 ADMINISTRATIVE EXPENSES ALLOCATED BETWEEN THE TWO U NITS IN RATIO OF SALES: A) NON EOU UNIT : RS.4,79,16,310 (77.26% OF 6,16,52 ,483) B) EOU UNIT : RS.1,37,36,173 (22.28% OF 6,16,52, 483) RS.6,16,52,483 THE ASSESSING OFFICER REDUCED THE PROFITS OF THE E OU UNIT BY RS.1,27,99,343 (1,37,36,173 9,36,839), A ND ALSO REDUCED DEDUCTION U/S 80 IB BY THIS AMOUNT. 4. THE APPELLANT COMPANY SUBMITTED THAT THE EOU AND NON EOU UNIT AT DAMAN ARE INDEPENDENT UNITS, SEPARATED BY A DISTANCE OF APPROX. EIGHT KILOMETERS . THE NON EOU UNIT WAS SET UP IN THE ASSESSMENT YEAR 98- 99. THE EOU UNIT WAS SET UP MUCH LATER IN THE ASSESSMENT YEAR 2004-05 (AFTER NEARLY SIX YEARS). T HE TWO UNITS OPERATE FROM SEPARATE FACTORY LAND/BUILDING, OWN AND POSSESS SEPARATE PLANT & MACHINERY, HAVE SEPARA TE POWER CONNECTIONS, HAVE EMPLOYED SEPARATE TEAM OF WORKERS, EMPLOYEES, AND HAVE INCURRED ESTABLISHMENT EXPENSES. THE TWO UNITS ARE SEPARATELY REGISTERED WITH THE SALES TAX AUTHORITIES, THE CENTRAL EXCISE AUTHO RITIES, THE PF AUTHORITIES AND OTHER LIKE GOVERNMENT BODIES , AS INDEPENDENT UNITS. 5. THE APPELLANT COMPANY HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS OF THE EOU AND NON EOU UNIT, AND OF THE BRANCHES. AT THE END OF THE YEAR, THE EXPENSES OF THE BRANCHES ARE MERGED WITH EXPENSES OF THE NON EOU UN IT. THE APPELLANT COMPANY HAS PREPARED AND FILED WITH T HE ASSESSING OFFICER SEPARATE BALANCE SHEETS, PROFIT A ND LOSS ACCOUNTS, SCHEDULES, DETAILS ANNEXURE OF THE TWO UN ITS. PURCHASES, SALES AND EXPENSES OF THE TWO UNITS ARE VOUCHED AND SUPPORTED BY PROPER BILLS. THE ACCOUNTS ARE AU DITED. THERE IS NO INTERMIXING OF EXPENSES. PROFITS OF E OU UNIT ARE NOT INFLATED TO CLAIM HIGHER DEDUCTION U/ S 80 IB OF THE ACT. THE TWO UNITS HAVE SEPARATE CURRENT AC COUNTS WITH HDFC/CITY BANK. THERE IS NO INTER MIXING OF F UNDS OF THE TWO UNITS. ITA NO. 4718/DEL/2009 PAGE 9 OF 15 6.1 THE NON EOU UNIT SOLD 2476 DG SETS FOR RS.169,79,70,800 AT AN AVERAGE SALE PRICE OF RS.6,8 5,772. THE EOU ON THE OTHER HAND SOLD ONLY 244 DG SETS FOR RS.48,68,89,214 AT AN AVERAGE SALE PRICE OF RS.19,9 5,447. THERE IS NO INTERMIXING OF THE PRODUCTS MANUFACTURE D AND SOLD BY THE TWO UNITS. THE NON EOU UNIT SOLD DG SE TS OF MIXED RATINGS AS PER CUSTOMERS REQUIREMENT. IT HA S A LARGER CUSTOMER BASE, ATTENDED THROUGH SALES OFFICE S LOCATED IN DIFFERENT CITIES ACROSS THE COUNTRY. OP ERATING AND ESTABLISHMENT COST OF THE NON EOU UNIT ARE THUS MORE, AND NP RATE IS LOWER. THE EOU UNIT SOLD DG SETS OF HIGHER RATING, FROM ITS FACTORY. IT HAS A SMALLER CUSTOMER BASE. OPERATING AND ESTABLISHMENT COST OF THE EOU UNIT ARE LESSER, AND NP RATE IS HIGHER. 6.2 SHRI SAMEER GUPTA, SHRI SUNDEEP GUPTA, SHRI S.K . NARANG AND SHRI D.P. NADKARNI DIRECTORS OF THE COMP ANY ATTEND WHOLE TIME TO THE INLAND BUSINESS FO THE APP ELLANT COMPANY. MR. M. AANTULLAHA, EMPLOYED BY THE COMPAN Y IN THE YEAR 2002 HEADS THE EXPORT DIVISION AND LOOKS A FTER THE EXPORT BUSINESS OF THE COMPANY. THE COMPANY PAID KEYMAN INSURANCE PREMIUM AMOUNT OF RS.21,45,990 ON THE LIFE OF SHRI SAMEER GUPTA AND SHRI SUNDEEP GUPT A. OUT OF FOREIGN TRAVEL EXPENSES INCURRED AT RS.15,67 ,140, RS.2,74,608 WERE SPENT ON ATTENDING THE ANNUAL MEET ING AT SINGAPORE, AND RS.12,92,532 WERE SPENT ON VISITS TO THE OFFICES OF THE FOREIGN VENDORS (CUMMINS AND STAMFOR D) TO NEGOTIATE IMPORT OF ALTERNATORS AND ENGINES REQUIRE D IN THE MANUFACTURE OF DG SETS. THE APPELLANT COMPANY, SIN CE INCEPTION, HAS DEBITED (A) REMUNERATION PAID TO THE STATUTORY AUDITORS, DIRECTORS AND EXPORT STAFF, (B) KEYMAN INSURANCE PREMIUM AMOUNT PAID, AND (C) FOREIGN TRAV EL EXPENSES INCURRED BY THE DIRECTORS AND EXPORT STAFF , IN THE ACCOUNTS OF THE NON EOU UNIT. THERE IS NO CHANGE I N THE ACCOUNTING POLICY IN THE YEAR UNDER APPEAL. DEDUCT ION U/S 80 IB IN EARLIER YEARS WAS CLAIMED AND ALLOWED ON P ROFITS AND GAINS ARRIVED AT AFTER DEBITING THESE EXPENSES/PAYMENTS IN THE BOOKS OF THE NON EOU UNIT. 6.3 THE APPELLANT COMPANY FURTHER SUBMITTED THAT TH E ASSESSING OFFICER HAS WRONGLY INVOKED AND APPLIED T HE ITA NO. 4718/DEL/2009 PAGE 10 OF 15 PROVISIONS OF SECTION 80 IB(10)/80 IB(13) OF THE AC T, AND THAT THE FINANCIAL RESULTS OF THE EOU AND NON EOU U NIT SHOULD NOT BE DISTURBED. THE ASSESSING OFFICER DID NOT DISCLOSE HER MIND AND DID NOT PROVIDE ANY OPPORTUNI TY TO THE APPELLANT COMPANY TO PLEAD AND DEFEND ITS CASE. THE APPELLANT COMPANY NEVER CONSENTED TO THE EXPENDITU RE BEING ALLOCATED IN THE RATIO OF SALES, AS ALLEGED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. NO COGN IZANCE OF THIS STATEMENT OF THE ASSESSING OFFICER IS TO BE TAKEN. 6.4 THE ASSESSING OFFICER HAS ACTED ON MERE SURMISE AND CONJECTURE, AND HAS NOT APPLIED HER MIND JUDICI OUSLY TO THE FACTS OF THE CASE. IN ALLOCATING THE ADMINISTR ATIVE EXPENSES (RS.6,07,15,652), THE ASSESSING OFFICER SH OULD HAVE EXCLUDED EXPENSES OF THE BRANCHES (RS.4,03,68, 981), WHICH ARE LOCATED SEVERAL HUNDRED/THOUSAND KILOMETE RS AWAY FROM DAMAN, AND ON WHICH PROVISIONS OF SECTION 80 IA(10)/80 IB(13) CANNOT BE APPLIED. THE ASSESSING OFFICER SHOULD HAVE ALLOWED DEDUCTION U/S 80 IB ON THE ENHA NCED INCOME OF THE NON EOU UNIT, RESULTING FROM REALLOCA TION OF THE ADMINISTRATIVE EXPENSES. 7. THE APPELLANT COMPANY HAS FILED A STATEMENT COMPARING EXPENSES OF THE BRANCHES OF THE NON EOU U NIT FOR THE ASS. YEARS 2004-2005 AND 2005-2006, AND HAS SUBMITTED THAT THE BRANCHES INCURRED SUCH EXPENSES EVEN WHEN THE EOU UNIT DID NOT EXIST. THERE IS NO EXAGG ERATION OF EXPENSES IN THE YEAR UNDER APPEAL MERELY BECAUSE EOU UNIT AT DAMAN IS SET UP. THE APPELLANT COMPANY HAS ALSO FILED A STATEMENT COMPARING (A) INCOME, EXPENSES, G P AND NP EARNINGS OF THE NON EOU UNIT FOR THE A.Y. 2004-2 005 WITH THAT OF THE EOU/NON EOU UNITS (COMBINED ) FOR THE A.Y. 2005-2006. THE APPELLANT COMPANY HAS FILED AN OTHER STATEMENT COMPARING INCOME, EXPENSES, GP AND NP EARNINGS OF THE EOU AND THE NON EOU UNI5S, INTER SE , FOR THE A.Y. 2005-2006. 8. THE APPELLANT COMPANY HAS ALSO SUBMITTED THAT TH E PROVISIONS OF SECTION 80-IA(10) CAN ONLY BE INVOKED WHERE AN ASSESSEE CARIES ON AN ELIGIBLE BUSINESS, AND ARR ANGES ITS BUSINESS WITH ANY OTHER PERSON, OR FOR ANY OTHER RE ASON THE BUSINESS IS SO ARRANGED BY THE ASSESSEE WITHIN ITSE LF SO THAT ITA NO. 4718/DEL/2009 PAGE 11 OF 15 BUSINESS TRANSACTIONS BETWEEN THEM PRODUCES MORE TH AN ORDINARY PROFIT TO THE ELIGIBLE BUSINESS. THUS THE RE HAS TO BE A CONSCIOUS MIND WITH MOTIVE TO BENEFIT THE ELIG IBLE BUSINESS AT THE COST OF THE NON ELIGIBLE BUSINESS, TO EXTRACT BENEFITS OF LOWER INCIDENCE OF TAX. UNINTENDED AND ACCIDENTAL FALLS OUT OF GAINS AND BENEFITS TO THE E LIGIBLE BUSINESS CANNOT BE MADE AN EXCUSE TO INVOKE PROVISI ONS OF SECTION 80-IA(1). IN THE PRESENT APPEAL, THE NON E OU UNIT WAS IN OPERATION PRIOR TO SETTING UP OF THE EO U UNIT. THE APPELLANT COMPANY HAS NEITHER RE-ARRANGED ITS E XISTING BUSINESS STRUCTURE/MODULE BETWEEN THE NON EOU AND T HE EOU UNITS, OR ANY OTHER PERSON, NOR HAS INTRODUCED AND ADOPTED ANY NEW MEASURES, WITH A VIEW TO DIRECTLY O R INDIRECTLY BENEFIT THE EOU UNIT AND ALLOW THE EOU U NIT TO EARN MORE THAN THE ORDINARY PROFITS AT THE COST OF THE NON EOU UNIT. THE APPELLANT COMPANY HAS ALSO RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CIT VS DEWAN SYSTEM P. LTD 297 ITR 305, IN SUPPORT OF ITS SUBMIS SIONS MADE ABOVE. 9.1 AFTER CAREFUL CONSIDERED OF ALL RELEVANT FACTS, SUBMISSIONS MADE BY THE APPELLANT COMPANY AND AFTER PURSUING THE ASSESSMENT RECORDS AND THE DETAILS FIL ED, I AM OF THE OPINION THAT THE ACTION OF THE ASSESSING OFF ICER IS NOT ENTIRELY CORRECT. IT IS NOT IN DISPUTE THAT THE AP PELLANT COMPANY HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS O F ITS EOU AND NON EOU UNITS AND OF THE BRANCHES, FROM WHI CH THE PROFITS AND GAINS OF THE TWO UNITS CAN BE CORRE CTLY DETERMINED/ASCERTAINED. THE APPELLANT COMPANY HAS ALSO FILED WITH THE ASSESSING OFFICER SEPARATE BALANCE S HEETS, PROFIT AND LOSS ACCOUNTS WITH SCHEDULES, DETAILS ET C. OF THE TWO UNITS AND OF THE BRANCHES. PURCHASES, SALES AN D EXPENSES OF THE TWO UNITS ARE VOUCHED AND SUPPORTED BY PROPER DOCUMENTARY EVIDENCE. ACCOUNTS OF THE APPEL LANT COMPANY ARE ALSO AUDITED IN LAW. ADMINISTRATIVE EX PENSE OF THE EOU AND NON EOU UNITS ARE CONVEYANCE EXPENSE S, INSURANCE EXPENSES, LEGAL EXPENSES, PRINTING & STAT IONERY EXPENSES, RENT RATES AND TAXES, SALARIES AND AMENIT IES TO STAFF, TRAVELLING EXPENSES, POSTAGE, TELEGRAM AND TELEPHONE EXPENSES, PAYMENT TO AUDITORS, VEHICLE RE PAIRS AND MAINTENANCE EXPENSES, WATER & ELECTRICITY EXPEN SES, ITA NO. 4718/DEL/2009 PAGE 12 OF 15 COMPUTER SOFTWARE EXPENSES, REMUNERATION TO DIRECTO RS, REPAIRS AND MAINTENANCE EXPENSES AND BAD DEBTS WRIT TEN OFF. 9.2 PROVISIONS OF SECTION 80-IA(10) AS UNDER :- WHERE IT APPEARS TO THE ASSESSING OFFICER THAT, OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO WHICH THIS SEC TION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REAS ON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE AS SESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPEC TED TO ARISE IN SUCH ELIGIBLE BUSINESS, THE ASSESSING OFFI CER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTIO N, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED T O HAVE BEEN DERIVED THERE FROM. 9.3 THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD SPECIFIC INSTANCES TO SHOW THAT THE APPELLANT COMPA NY HAS DEBITED EXPENSES OF THE EOU UNIT IN THE ACCOUNT BOO KS OF THE NON EOU UNIT, WITH A VIEW TO INFLATE THE PROFIT S OF THE EOU UNIT AND CLAIM HIGHER DEDUCTION U/S 80-IB OF TH E ACT. THEREFORE ADHOC APPORTIONMENT OF THE ENTIRE ADMINISTRATIVE EXPENSES OF RS.6,16,52,483 TO THE EO U UNIT IN THE RATIO OF SALES AS DONE BY THE .. CANNOT BE ENTIRELY SUSTAINED, AS ONE WITHOUT BASIS. THE ACTI ON OF THE ASSESSING OFFICER WOULD CALL FOR MODIFICATION. A R EVIEW OF THE ADMINISTRATIVE EXPENSES LEAVES ONE WITHOUT DOUB T THAT THESE INCLUDE CERTAIN EXPENSES INCURRED AND DEBITED BY THE APPELLANT COMPANY IN THE ACCOUNT BOOKS OF THE NON E OU UNIT, BUT THE BENEFIT OF WHICH HAS ALSO RESULTED TO THE EOU UNIT. THESE EXPENSES ARE : A) PAYMENTS MADE TO THE AUDITORS: RS. 1, 55,000 B) REMUNERATION PAID TO THE DIRECTORS: RS.1,32,89,5 00 C) SALARY PAID TO THE EXPORT STAFF: RS. 7,95,300 D) KEYMAN INSURANCE PREMIUM PAID: RS. 21,45,990 E) FOREIGN TRAVEL EXPENSES OF THE DIRECTORS: RS. 12,92,532 F) FOREIGN TRAVEL EXPENSES OF THE EXPORT STAFF RS. 4,70,578 TOTAL COMMON EXPENSES: RS.1,81,48,900 ITA NO. 4718/DEL/2009 PAGE 13 OF 15 IN ORDER TO THEREFORE MEET THE ENDS OF JUSTICE, AND TO COMPUTE THE PROFITS OF THE TWO UNITS MORE AUTHENTIC ALLY, IT WOULD BE FAIR AND PROPER TO APPORTION ONLY THE ABOVE EXPE NSES OF RS.1,81,48,900 TO THE EOU UNIT IN THE RATIO OF INCO ME AS UNDER, AND RECOMPUTED THE DEDUCTION U/S 80 IB OF THE ACT: A) TOTAL REVENUE FOR THE YEAR: RS.229,95,64, 823 B) TOTAL REVENUE F THE EOU UNIT: RS.48,68,8 9,214 C) % OF (B) TO (A) ABOVE 21.17% D) 21.17% OF RS.1,81,48,900 ABOVE: R S.38,42,685 E) ADMN EXPENSES DEBITED IN THE BOOKS OF THE EOU RS.9,36,831 F) INCOME OF THE EOU UNIT TO BE REDUCED BY (D-E) RS.29,05,854 G) DEDUCTION U/S 80IB OF THE EOU UNIT TO BE REDUCED BY RS.29,05,854 H) DEDUCTION U/S 80IB OF THE NON EOU UNIT TO BE INCREASED BY 30% OF RS.29,05,854 ABOVE: RS.8,71,756 THE APPELLANT COMPANY IS ENTITLED TO RELIEF OF RS.1 ,07,65,245 (1,27,99,343 + 8,71,756 29,05,854) RELIEF ALLOWD: RS.1,07,65,245/- 8. FROM THE ORDER OF THE LD. CIT(A) AND IN THE LIGH T OF THE ARGUMENT MADE BY BOTH THE PARTIES, IT IS NOT IN DIS PUTE THAT THE ASSESSEE COMPANY HAS BEEN MAINTAINING SEPARATE BOOK S OF ACCOUNT OF THE EXEMPTED UNIT AND THE NON-EXEMPTED U NIT AND ALL ITS BRANCHES. THE EXPENSES OF THE BRANCHES ARE BOO KED IN NON- EXEMPTED UNIT. THE ASSESSEE COMPANY HAS PREPARED A ND FILED THE SEPARATE BALANCE SHEETS, PROFIT AND LOSS ACCOUN TS AND OTHER DETAILS AND ANNEXURES. THE PURCHASES AND SALES AS W ELL AS EXPENSES OF THESE UNITS ARE INDEPENDENTLY VOUCHED A ND SUPPORTED BY PROPER BILLS. THE ACCOUNTS ARE AUDITE D. THERE IS NO FINDING RECORDED BY THE A.O. THAT THE EXPENSES O F EXEMPTED UNIT ARE INCLUDED IN THE NON-EXEMPTED UNIT OR THERE IS ANY INTER- MIXING OF EXPENSES. THEIR BANK ACCOUNTS ARE ALSO S EPARATE. THERE IS NO INTER-MIXING OF FUNDS OF TWO UNITS. TH E LD. CIT(A) HAS ALSO CONSIDERED ABOUT THE SALE PRICE OF DG SETS SOLD IN NON- ELIGIBLE UNIT VIS--VIS DG SETS SOLD IN EXEMPTED UN IT, AND HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT BO OKED THE EXPENSES OF ELIGIBLE UNITS IN THE NON-ELIGIBLE UNIT WITH A VIEW TO INCREASE THE PROFIT OF ELIGIBLE UNIT WHICH IS EXEMP TED U/S 80IB OF THE ACT. HOWEVER, IT IS IMPORTANT TO NOTE THAT VAR IOUS OVERALL MANAGEMENT AND ADMINISTRATIVE EXPENSES AS POINTED O UT BY THE ITA NO. 4718/DEL/2009 PAGE 14 OF 15 LD. CIT(A) IN HIS ORDER ARE CERTAINLY RELATED TO BO TH THE UNITS. THEREFORE, THE LD. CIT(A) HAS ALLOCATED THESE EXPEN SES TO BOTH THE UNITS IN PROPORTION TO THE TOTAL REVENUE OF THE YEAR VIS--VIS THE REVENUE OF EXEMPTED UNIT AND NON-EXEMPTED UNIT. IN THE LIGHT OF THESE FACTS WHICH HAVE BEEN CATEGORICALLY FOUND BY THE LD. CIT(A) AND NOTHING CONTRARY TO THAT HAS BEEN BR OUGHT TO OUR NOTICE, WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION TO THE EXTENT OF RS. 1 ,07,65,254/- FROM THE TOTAL ADDITION MADE BY THE A.O. AND HAS RI GHTLY ALLOCATED THE VARIOUS EXPENSES AGGREGATING TO RS. 1 ,81,41,900/- , DETAILS OF WHICH ARE SET OUT IN THE LD. CIT(A)S ORDER, BOTH THE UNITS I.E. EXEMPTED UNIT AND NON-EXEMPTED UNIT IN P ROPORTION TO THEIR RESPECTIVE REVENUE. THEREFORE, ONLY GROUND R AISED BY REVENUE AND THE GROUND NO. 1 RAISED BY THE ASSESSEE ARE BOTH DISMISSED. 7. FROM THE ORDER OF THE CIT(A), IT IS CLEAR THAT T HE MANNER OF WORKING ABOUT THE ALLOCATION OF EXPENSES BETWEEN EOU UNIT A ND NON-EOU UNIT HAS BEEN DONE IN THE SAME MANNER AS SO DONE BY THE CIT(A) IN THE ASSESSEES OWN CASE FOR THE A.Y. 2005-06. THE CIT( A) HAS FURTHER MENTIONED THAT THE CIT(A)S ORDER FOR THE A.Y. 2005 -06 HAS ALSO BEEN FOLLOWED IN THE A.Y. 2006-07. THE CIT(A)S ORDER I N THE A.Y. 2005-06 HAS BEEN UPHELD BY THE TRIBUNAL BY REJECTING THE AS SESSEES APPEAL AS WELL AS THE REVENUES APPEAL ON THIS ISSUE AS NOTED ABOV E. THEREFORE, RESPECTFULLY FOLLOWING OUR ORDER PASSED IN THE A.Y. 2005-06, IN ITA NO. 1995/DEL/2008 FLED BY THE ASSESSEE, AND ITA NO. 251 7/DEL/2008 FILED BY THE REVENUE, WE UPHOLD THE ORDER OF THE CIT(A) IN T HIS ASSESSMENT YEAR WHERE THE CIT(A) HAS ALLOCATED THE COMMON EXPENSES BETWEEN EOU AND ITA NO. 4718/DEL/2009 PAGE 15 OF 15 NON-EOU UNIT WITH REFERENCE TO THE TURNOVER OF RESP ECTIVE UNIT IN THE SAME MANNER AS WAS DONE BY HIM IN A.Y. 2005-06. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. 9. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT I MMEDIATELY AFTER THE HEARING WAS OVER ON 15 TH FEBRUARY, 2010. SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBER SD/- (C.L. SETHI) JUDICIAL MEMBER DATED: 15 TH FEBRUARY, 2010 *NITASHA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. BY ORDER DEPUTY REGISTRAR