TMI Blog1997 (1) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT(A) erred in law and on facts in holding that deduction under sections 80HH 80-I be allowed to the appellant from the profits of Unit-I without deducting loss incurred in Unit-II." 3. Briefly stated the facts of the case are that the assessee company manufactures polypropylene filament yarn. The factory in question had been set up atUdaipur(Rajasthan) notified as a backward area. In this connection it is notable that the first industrial undertaking (Unit No. 1) was set up by the assessee in May 1986 in collaboration with M/s Cola Engineering Switzerland. During the period 1990 to March 1991 relevant for the assessment year 1991-92, under appeal, the assessee set up another plant (Unit No. 2) in collaboration with two Italian concerns M/s. STP Impianti, S.P.A. and M/s. Scam Engineering S.R.L. The assessee in view of the aforesaid facts claimed that Unit No. 2, set up during the previous year relevant to the assessment year 1991-92 is a separate and new industrial undertaking from Unit No. 1. However, the Assessing Officer rejected this claim and held that Unit No. 1 and Unit No. 2 formed only one industrial undertaking. Feeling aggrieved by the order of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question in paras 3 to 9 of the order impugned and has rightly concluded that Unit No. 2 is a separate industrial undertaking and in view of these facts this is the only conclusion which could be drawn in view of the facts and circumstances of the case. Proceeding further it was contended that even if setting up of Unit No. 2 is termed as an expansion of old Unit No. 1 yet Unit No. 2 would be entitled to be treated as a separate industrial undertaking for purposes of deduction under sections 80HH and 80-I. He also pointed out that every new creation in business is some kind of expansion and an expansion by setting up a new unit does not deprive the assessee of the said benefit. Under the facts and circumstances of the case it is to be seen whether the new Unit has been founded either by spliting up or reconstruction of the old unit. But from the facts it is clear that it was not so in the present case. It is evident from the facts that a completely new machinery was imported from new collaborators of a different country for the purpose of installing Unit No. 2. Proceeding further it was contended that the true test is whether the new unit is an independent and viable unit capabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tests of a new separate industrial undertaking laid down in the said judgment. Therefore he contended that it is a separate unit. The counsel for the assessee contended that although separate accounts were not maintained for the two units, the profit had been allocated on a scientific basis, a detailed allocation report was prepared which indicated the basis of allocating each item of profit and loss account between the two units. This allocation report duly checked and certified by the auditors of the company, was filed alongwith the return of income. In view of these facts non-maintenance of separate account was not a hindrance to the term of Unit No. 2 as a separate and new industrial undertaking. The counsel for the assessee has also clarified that there are number of decisions including that of the Hon'ble Delhi High Court and several decisions by Delhi Benches of the Tribunal to the effect that maintenance of separate account books is not necessary in this regard. In support of his contention he has placed reliance on the following decisions : (1) CIT v. Dunlop Rubber Co. (I) Ltd. [1977] 107 ITR 182 (Cal.) ; (2) CIT v. J.K. Synthetics Ltd. (No. 1) [1990] 182 ITR 125 (Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised in this appeal is whether the CIT(Appeals) was justified in holding that the deduction under sections 80HH and 80-I be allowed to the assessee from the profits in unit no. 1 without deducting the loss incurred in unit no. 2. The CIT(Appeals) in the order impugned held that the deduction should be allowed from the profits of unit no. 1 without deducting the same from the loss suffered in unit no. 2. The CIT(Appeals) decided the issue after taking into account all facts into consideration in favour of the assessee by holding that the deduction should be allowed from the profits of Unit No. 1 without reducing the same by the loss suffered in Unit No. 2. From the facts it is clear that this issue is directly connected with the first ground of appeal in respect of which we have already confirmed the finding of the CIT(Appeals) that unit nos. 1 and 2 are separate industrial undertakings. Consequently the profit/loss of unit no. 1 and unit no. 2 have to be computed separately. As per computation of income filed by the assessee it is clear that unit no. 1 which is entitled to deduction under sections 80HH and 80-I had earned the profit during the year while unit no. 2 has incurred a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al institutions from whom the assessee had taken loans in foreign currency for purchase of such plant and machinery. The claim was made under section 43A of the Act. The Assessing Officer disallowed the claim of the assessee in its entirety. On appeal, the CIT(Appeals) decided the issue in favour of the assessee thereby directing the Assessing Officer to verify the claim of the assessee and to recompute the depreciation allowable to the assessee. Feeling aggrieved by the order of the CIT(Appeals) the department has filed second appeal before us. 10. The increased liability of Rs. 20,75,534 is comprised of the following two items-- (a) Rs. 2,46,814 on the date of actual payment of instalments during the relevant previous year, and (b) Rs. 18,28,720 closing balance of loans as on31-3-1991. 10.1 The learned D.R. strongly placed reliance on the order of the Assessing Officer. However, he did not give any plausible reason for not allowing depreciation on increased liability of Rs. 2,46,814 on the dates of actual payment of instalments. He only disputed the allowance of depreciation on the increased liability of Rs. 18,28,720 on closing balances of loans as on 31-3-1991 i.e. the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red view that depreciation under section 43A is allowable only on increased liability of Rs. 20,75,534 which consisted of increased liability on dates of actual payment of instalments as well as the increased liability of the closing balances of loans as on 31-3-1991 i.e. the last date of the previous year. Under the circumstances we do not find anything wrong in the order of the CIT(Appeals) whereby he has directed the Assessing Officer to allow the claim of the assessee. Accordingly, the ground taken by the Department in view of these facts is rejected. 13. The last ground raised in this appeal is as under : "That the learned CIT(Appeals) erred in law and on facts in allowing the claim of deduction of Rs. 25,315 relating to expenses of earlier years." 14. The learned D.R. relied upon the finding of the Assessing Officer in the assessment order whereas the authorised representative of the assessee relied upon the finding of the CIT(Appeals). 15. We have heard the rival submission of the parties and have gone through the orders of the authorities below and the relevant material available on record. We find that the sum of Rs. 25,315 comprised of small items of expenditure w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems specially those relating to manufacturing account and selling expenses were allocated on the basis of production ratio or turnover ratio. In regard to other items various other scientific ways of allocation for arriving at the correct income of the two units were adopted. The basis of allocation of each item was indicated in the last column of the allocation report, copy of which appears as Annexure '1D' of the paper book. The counsel for the assessee has further drawn our attention that in respect of administrative and other expenses, basis of installed capacity ratio calculated on the basis of period of working of each unit was adopted as this was the only correct and appropriate method to allocate those expenses. He, however, contended that in view of the detailed and appropriate allocation made by the assessee, the learned CIT(Appeals) ought to have accepted the same in its entirety including the allocation of administrative and other expenses. 19.1 Proceeding further the counsel for the assessee contended that the production ratio adopted by the CIT(Appeals) is incorrect and the basis of installed capacity ratio adopted by the assessee is scientific method and as such h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee contended that the CIT(A)-IX came to the conclusion in the assessment year 1993-94 that the allocation of administrative and other expenses on the basis of production ratio will not be reasonable but he failed to give full relief to the assessee. He emphasised that there was no basis for the finding of the learned CIT(Appeals)-IX that average of the two methods should be adopted. He further emphasised that the basis of installation capacity ratio as applied by the assessee should be adopted. 20. The learned D.R. on the other hand strongly placed reliance on the order of the CIT(Appeals) and contended that the CIT(Appeals) was right in his decision and as such the ground taken by the assessee is untenable. 21. We have heard the rival submissions of the parties and have gone through the orders of the authorities below as well as the order of the CIT(Appeals)-IX for assessment year 1993-94 and other relevant material available on record, including the allocation report. The allocation of each item of income and expenditure of the profit and loss account between unit no. 1 and unit no. 2 has indeed been made by the assessee on a scientific and appropriate basis suita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction under sections 80HH and 80-I and in further directing to verify the allocation of profits in respect of Unit-I and Unit II and allow the same by applying the allocation on actual basis or on the basis of production, following the CIT(A)'s order for assessment year 1991-92. The order of the CIT(Appeals) for assessment year 1991-92 has not been accepted by the department." "2. That the learned CIT(Appeals) erred in law and on facts in allowing deduction under sections 80HH and 80-I of Unit-I without deduction of loss of Unit-II following the order of CIT(Appeals) for the assessment year 1991-92. The order of CIT(Appeals) has not accepted by the department." 24. We have heard the rival submissions of the parties. Identical issues as raised herein came up for consideration before us in revenue's appeal for assessment year 1991-92 being ground nos. 1 2 and the issue has been discussed elaborately in paras 3 to 7 of this order wherein we have confirmed the finding of the CIT(Appeals) holding that Unit no. 2 was a new and separate industrial undertaking for the purpose of deduction under sections 80HH and 80-I and that the CIT(Appeals) was justified in directing the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) : 30. Ground no. 1 raised in this appeal is as under :-- "That, having regard to the facts and circumstances of the case and the relevant provisions of law, the learned Commissioner of Income-tax (Appeals)-XIV, New Delhi erred in holding that for the purposes of determining the income of the industrial Unit I for allowing deductions under sections 80HH and 80-I of the Income-tax Act, 1961 therefrom the allocation of administrative and other expenses between Unit I and Unit II should be made on actual basis or on the basis of production and not on the basis of installed capacity." 31. We have heard the rival submissions of the parties on the issue in question and have gone through the relevant material available on record. Identical issue has been dealt by us in paras 18 to 21 above while dealing with assessee's appeal for assessment year 1991-92. The CIT(Appeals) for assessment year 1991-92 has directed that administrative and other expenses be allocated between the two units on the basis of production in that year we have set aside the said finding of the CIT(Appeals) and have directed the Assessing Officer to allow administrative and other expenses by allocating installed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the profit and loss account of the industrial undertaking. Hence, he submitted that the same was received from two concerns who had done job work of carrying out crimping process on the yarn produced by the appellant. In order to maintain quality of the job work done by these concerns, the appellant's technical staff worked for some time in the factories of these concerns for guidance and supervision. Therefore, the appellant had paid job charges amounting to Rs. 5,15,734 to these two concerns. He could only recover Rs. 25,378 from them by way of salary etc. of his staff for the period of work in these two concerns. According to A.R., therefore, the assessee paid lesser job work charges to these two concerns, hence, deduction under sections 80HH and 80-I should not have been disallowed in respect of said sum of Rs. 25,378. 36. On the other hand, the learned D.R. strongly placed reliance on the order of the CIT(Appeals) on the issue in question. 37. After considering the rival submissions of the parties and having gone through the relevant material available on record we are of the opinion that the sum of Rs. 25,378 does not represent an item of income but is only recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,54,703 (b) Refund of advance income-tax paid to the Income-tax Department for the assessment years 1990-91 and 1991-92 Rs. 6,48,276 (c) Trade advances to parties Rs. 42,420 (d) on security for godown taken on rent for keeping finished goods Rs. 24,520 (e) Petty other similar items Rs. 10,350 ----------------------- Total Rs. 15,80,277 ----------------------- It was pointed out by him that the deposits and advances on which interest has been received were necessary for complying with the statutory requirements or for carrying on the business of the assessee and therefore interest received is not taxable under the head "Income from other sources" but is part of the business profits of the industrial undertaking. In this connection he drew our attention to the ratio of the following case laws :-- (1) CIT v. Dunlop India Ltd. [1992] 197 ITR 34 (Cal.) ; and (2) CIT v.South IndiaShipping Corpn. Ltd. [ 1995] 216 ITR 651 (Mad.). He, therefore, contended that it is an allowable deduction and the authorities below were not justified in disallowing the same. 43. The learned D.R., on the other hand, strongly relied upon the order of the CIT(Appeals) in this regard. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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