TMI Blog2005 (11) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... that units 196 and 205 are one and the same and accepted by the CIT(A) for units 196 and 205 is not correct. There is nothing to justify, in view of the express provisions of the Act, to hold that units 196, 205 and 206 need to be clubbed for computing deduction under s. 80-IA. Accordingly, so long an undertaking fulfils the requirement of these provisions, the deduction under s. 80-IA cannot be denied or reduced by adjusting loss of other undertakings. In this case it is clear that these undertakings are located in different premises, being Nos. 196, 205 and 206. The plant and machinery are also independent and there is no allegation in the assessment order that in these undertakings there is a mixing up of machinery or plant. This is important because as per sub-s. (2) of this section for claiming exemption as an industrial undertaking one has to fulfil the condition that the undertaking has not been formed by transfer to a new business of machinery or plant previously used for any purpose. In view of this fact, it cannot be held that these undertakings are not independent undertakings and each of the undertakings, i.e., 196,205 and 206 are independent undertakings. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first ground of appeal, the Revenue has objected to the order of the CIT(A) allowing deduction under s. 80-IA at Rs. 97,97,898 as against Rs. 31,01,627 restricted by the AO. 3. The brief facts of the case are that the assessee is a company engaged in the business of manufacture and sale of medical disposals like cannula, blood bags, I.V., etc. It has got various units. Out of the total 7 units, 5 units are engaged in the manufacturing activity whereas the remaining 2 units in the head office are in respect of share business and other business. The assessee-company has been maintaining separate accounts and computing its profit and loss of each of its units separately and computing the deduction under s. 80-IA in respect of each of the units independently as per the provisions of the Act. For the assessment year under consideration, the assessee filed its IT return claiming deduction under s. 80-IA. Since there was a profit of Rs. 4,59,10,915 in unit 196, a deduction of Rs. 1,37,73,275 was claimed being 30 per cent of Rs. 4,59,10,915. The AO, however, while completing the assessment restricted this claim to Rs. 39,01,627. The basis for doing this was that unit 196, unit 205 and unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted against the current year's income of units 196 and 205 as in all earlier years to which these brought forward losses pertain there were profit in one unit and loss in other units and also all the units are treated as separate industrial undertakings for computation of s. 80- IA deduction. 4.2 The CIT(A) on the issue of allocation of head office expenditure held that the AO was not justified in allocating the remaining 10 per cent of the expenditure to the 3 units only. These expenditure have to be allocated to all the units in the way 90 per cent of the expenditure have beep allocated by the assessee. On the basis of the above reasoning, the CIT(A) recomputed the deduction under s. 80IA at Rs. 97,97,898 as against Rs. 39,01,627 computed by the AO. It is against these findings of the CIT(A) that the Revenue is in appeal. 5. The learned Departmental Representative has contended that the CIT(A) was not justified in holding that unit 206 is an independent unit. The order passed by the learned CIT(A) is a non-speaking order and no reason has been given why unit 206 should be treated as independent unit. He further contended that in the assessment order, the AO has given valid re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in the assessment order that the GP rate for one of the units is very much lower as compared to the GP rate of other units, the reason for the same was the export order where the margin of profit was higher. The AO has nowhere controverted this explanation. Further, the AO despite making this observation has accepted the books of account. He has not rejected the books of account, meaning thereby that the results declared as per books of account have been accepted and no adverse inference can be drawn against the assessee on this pretext. 6.2 As regards the transfer of raw materials sometimes from one unit to another, it was submitted that this fact has been duly explained to the AO and was also explained to the CIT(A). In case of shortage of material in a unit, the raw material of other unit used to be transferred sometimes but the transfer was need based and always at cost price which did not affect the profit or loss of one unit or the other. It was just like instead of purchasing from the market, the same was procured from other unit at the same cost at which it was bought by that unit. This was merely a facilitation explained before the AO. There was absolutely no diversi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking and as such, as and when a new undertaking is set up by an assessee, the income of that undertaking will be eligible for deduction under this section. The profit/loss of other undertaking cannot be adjusted or clubbed against income of this new undertaking on the ground that the new undertaking is manufacturing the same goods or items, which are being done by the other units. The deduction under this section is undertaking specific. On the basis of above explanation, it was contended that what was submitted before the AO for claiming deduction under s. 80-IA was correct though the CIT(A) has held that units 196 and 205 need to be clubbed and unit 206 need not be clubbed. Since the assessee has not filed an appeal against the said order in view of the nil impact being there on the tax liability, still on merit, the action of the CIT(A) even in clubbing of the two units, i.e., 196 and 205 is against the provisions of the law as explained above. Further, the CIT(A) has given valid reasons for holding that unit 206 is an independent unit. It was argued by the learned Authorised Representative that the contention of the learned Departmental Representative that the CIT(A) has not g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) in para 3 on p. 4 has given a categorical finding that there is no reason to allocate brought forward losses of head office as in all earlier years there were profits in one unit and loss in other units and also all units were treated as separate industrial undertakings for computation of deduction under s. 80-IA. The CIT(A) has further held that even if at all brought forward losses of HO (Others) is to be allocated, it should be allocated to all the units in earlier years to which it pertains to and not in the year under appeal. In his argument, the learned Departmental Representative could not point out any mistake in the reasoning given by the CIT(A) in his order and as such on this reasoning itself the action of the CIT(A) is justified. On merit also each unit has to be treated under provisions of s. 80-IA(5) as an independent unit as if such unit were the only source of income of the assessee during the relevant previous year. If that be so, then the profit and loss of other units under no circumstances can be allocated to other units and that too in the subsequent year. On the basis of the above reasoning, the learned Authorised Representative supported the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, so long an undertaking fulfils the requirement of these provisions, the deduction under s. 80-IA cannot be denied or reduced by adjusting loss of other undertakings. 7.2 As regards the computation of deduction under sub-s. (7) of s. 80-IA, as it was at that point of time for the assessment year under consideration, it has been provided that: Notwithstanding anything contained in any provisions of the Act, the profits and gains of eligible business to which the provisions of this section apply for the purpose of determining the quantum of deduction shall be as if such undertaking were the only source of income of the assessee during the relevant assessment year . Thus, the above provisions treat each undertaking as independent undertaking and nowhere it has been provided that profit or loss of other undertaking is to be merged or aggregated. In this case it is clear that these undertakings are located in different premises, being Nos. 196, 205 and 206. The plant and machinery are also independent and there is no allegation in the assessment order that in these undertakings there is a mixing up of machinery or plant. This is important because as per sub-s. (2) of this se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there cannot be clubbing of units 196, 205 and 206. The contention of the Revenue on this point is being rejected. 7.3 As regards the allocation of the balance 10 per cent head office expenditure which have been allocated by the CIT(A) to all the units proportionately instead of allocating only to the 3 units as has been done by the AO, we are in agreement with the argument given by the learned Authorised Representative. Though in his arguments the learned Authorised Representative has raised the issue that allocation of 10 per cent of expenditure need not be made as the same pertains to head office activities and has nothing to do with any of the units but we are not giving our findings on this issue as the assessee is not in appeal. Any allocation of the expenditure of the head office has to be done to all the units which are operating under the head office, unless there are valid reasons to exclude any particular unit. The learned Departmental Representative could not point out any infirmity in the formula adopted by the CIT(A) and more so when the allocation of 90 per cent head office expenditure done by the assessee to all the units has been accepted by the AO as well. 7.4 As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2005) 272 ITR 652 (Mad) 3. CIT vs. Wheels India Ltd. (2005) 197 CTR (Mad) 284 : (2005) 275 ITR 319 (Mad) 4. CIT vs. Chloride India Ltd. (2002) 178 CTR (Cal) 432 : (2002) 256 ITR 625 (Cal) 5. CIT vs. K. Rajendranathan Nair (2004) 187 CTR (Ker) 201 : (2004) 265 ITR 35 (Ker) 6. CIT vs. Bharat Earthmovers Ltd. (2004) 188 CTR (Kar) 488 : (2004) 268 ITR 232 (Kar) 7. CIT vs. Wolkmen India Ltd. (2002) 178 CTR (Raj) 301 : (2003) 132 Taxman 7 (Raj). 10. We have considered the arguments of both the sides. Since the above issue is squarely covered by the judgments of the various High Courts, we hereby uphold the order of the CIT(A) on this ground that excise duty is to be excluded from the total turnover while computing deduction under s. 80HHC. 11. As regards the loss in the share business activity, the learned Authorised Representative has submitted that the assessee has been maintaining separate books of account and share business activity is an independent business as profit and loss of that activity cannot be taken into account while computing deduction under s. 80HHC. For this, the learned Authorised Representative has placed reliance on the following judgments of the Delhi Bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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