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2022 (10) TMI 229 - ITAT RAJKOTDeduction u/s 80IC - independent unit v/s extension of unit - whether a new industrial undertaking can function independently of the existing industrial undertaking? - assessee is partnership firm and engaged in the business of manufacturing of Auto Parts - assessee has two different manufacturing units based in Rajkot and Rudrapur Uttaranchal - AO concluded that the Rudrapur Uttaranchal unit is not independent unit but the extension of Rajkot unit only thus the deduction claimed by the assessee u/s 80IC was disallowed and added to the total income of the assessee - HELD THAT:- Assuming for the moment that the new unit is not capable of independently producing the goods without taking the assistance of the existing plant and machinery of the old unit is no ground to reject the claim u/s 80-I - It all depends upon the mechanism and technology. As held by the Supreme Court in Textile Machinery Corporation [1977 (1) TMI 3 - SUPREME COURT], such a new industrially recognizable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. A doubt was also raised by the AO whether the eligible unit of the assessee was carrying out any work or it was merely acting as the selling out let of the non-eligible unit which is actually carrying out the manufacturing activity. We note that the assessee has claimed wages expenses which were subject to PF, electricity expenses. Likewise, there was huge investments in the plant and machinery. The assessee has also filed audit report in form 10 CCB, purchase details of the raw materials, the approval notification No. 283 /2006 of the eligible unit, but there was no doubt raised by the AO on these details. After considering the necessary details, we do not find any reason to interfere in the finding of CIT-A and thus, we direct the AO allow the claim to the assessee under the provisions of section 80 IC of the Act. Hence the ground of appeal of the revenue is hereby dismissed. Expenses apportioned by the AO to the non-eligible unit - HELD THAT:- We find that the AO was supplied with the audited financial statements of the eligible units pertaining to different financial years which are placed for the purpose of the comparison of the gross profit ratio but there was no adverse comment by the AO. Meaning thereby, the revenue has accepted the profit of the eligible unit in the earlier years. Therefore the same cannot be disturbed in the year under consideration keeping in view of the principles of consistency. AO was supplied with the computation of cost per unit with respect to the products manufactured at eligible unit - But no defect was pointed out by the AO during the assessment proceedings. With respect to the remuneration to the partners, we find that as per the deed of partnership, the partners were entitled for the remuneration only with respect to the profit of non-eligible unit subject to the maximum of ₹6 crores. The available profit of the non-eligible unit and the allowable remuneration was worked out at ₹16.08 crores but it was limited to the maximum of ₹6 crores only. Furthermore, it was also explained that none of the partner was taking active participation in the affairs of eligible unit. Moreover, there was no loss to the revenue for the reason that the amount of remuneration received by the partners is taxable in their hands subject to the provisions of section 40(b) of the Act. Allocation of factory overhead, transportation expenses, admin and selling expenses of Rs. 11,11,38,030.00 it was contended by the assessee before the AO that all the expenses pertaining to different units were booked respectively. The assessee to buttress its argument has also filed the chart of manufacturing expenses. Likewise, there was not much outward freight expenses in respect of eligible unit for the reason that goods were supplied within Rudrapur Unit but it was not so in case of Rajkot unit. It was also submitted by the assessee that except audit expenses which were born by the non-eligible unit in the entirety, there was no other expense which was shifted from eligible unit to non-eligible unit. There were term loans taken by both the units for acquiring the machineries and the corresponding interest and depreciation was accounted for in the respective units. All these submissions were made available during the assessment proceedings which can be verified from the paper book. However the AO has not pointed out any defect in the submission filed by the assessee. DR has not pointed out any infirmity in the finding of the learned CIT-A. Thus in view of the above and after considering the facts in totality, we do not find any reason to interfere the finding of the learned CIT-A. Accordingly, we uphold the same. Hence, the ground of appeal of the revenue is hereby dismissed.
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