TMI Blog2003 (1) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 1990-91. However, a manufacturing unit was established at NOIDA in the year under consideration for manufacture of dish antenna. The return for the year under consideration was filed declaring all income of Rs. 6,42,400 after claiming deduction under s. 80-I at Rs. 11,13,237. The assessee declared profit of Rs. 44,52,948 from the NOIDA unit on the sale of Rs. 1,15,57,701 whereas net loss was declared at Rs. 27,35,052 on the sales of Rs. 1,03,22,483 in the head office. The AO was of the view that normally in the manufacturing unit, the profits are less than those in the trading but the assessee was declaring reverse trend. According to the AO, the books of accounts were not produced. Accordingly, the deduction under s. 80-I was reduced to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO to allocate 46 per cent of the above said expenditure towards manufacturing unit and then recompute the profits derived from industrial undertaking. Still aggrieved, the assessee is in appeal before the Tribunal. 4. The learned counsel for the assessee Shri Sampath had assailed the order of the CIT(A) by submitting that no allocation was warranted since such expenditure were required to be incurred irrespective of the industrial unit. According to him, the words "derived from" have been used by the legislature in the restricted sense and, therefore, there must be direct nexus between the expenditure and the industrial activity. Since there is no direct nexus, no allocation was warranted. Alternatively, it was pleaded that allocatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts and expenditure incurred by it. There are various decisions on this issue in respect of receipts of the industrial undertaking but there is no decision available as to which expenditure could be allowed for determining the profits derived from industrial undertaking. After giving our deep thought to the issue, we are of the view that what is true to the receipts should also be true to the expenditure. Hence only those expenditure should be taken into consideration which have direct nexus for carrying on the activity of such undertaking and not the expenditure which may have indirect or remote nexus. 7. Let us now examine the contention of assessee s counsel in the light of above legal position. Firstly, we take up the director s re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture on such advertisement would have to be deducted in computing the profits derived from industrial undertaking. On the contrary if the advertisement is for goods traded by assessee, then such expenditure would be deducted while computing the profits of trading business. Therefore, in our opinion the approach of CIT(A) in apportioning the expenditure on the basis of sale ratio is erroneous and cannot be accepted. The order of CIT(A) is, therefore, modified and the AO is directed to ascertain the expenditure in respect of the above items which can be said to be directly related to industrial undertaking and then deduct the same in computing the profits from industrial unit. 9. As far as auditors remuneration is concerned, we find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. The last issue relates to the disallowance of Rs. 6,000 out of entertainment expenses. The assessee had incurred total expenses of Rs. 21,081 out of which Rs. 16,000 have been disallowed by the AO being in the nature of entertainment. On appeal it was contended that certain amount should be allowed relatable to the staff of the assessee in view of the Delhi High Court judgment in the case of CIT vs. Expo Machinery Ltd. (1992) 107 CTR (Del) 4 : (1991) 190 ITR 576 (Del). The CIT(A) accepted the contention of the assessee and restricted the disallowance to Rs. 6,000 only. In our opinion, no interference is called for. 14. Now, we take up the appeal of the Revenue. 15. The only issue arising out of this appeal is whether the CIT(A) was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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