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TMI Blog2005 (11) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 206 are one and the same and as such aggregate of the profit and loss of these units have to be considered, not merely the profit of unit 196 only. The AO has further held that entire head office expenditure are to be allocated, not only 90 per cent as done by the assessee and in the process, he allocated remaining 10 per cent of head office expenditure to these three units only, not to all the units and accordingly, he deducted these expenditure from the aggregate profit and loss of these three units whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 reasons for clubbing the income of all 3 units. The GP rate of one unit is much lower as compared to the GP rate of other units. Further, there is a common finished goods register, which is being maintained by the assessee, and as such the activities of these units are one and the same and they are also located in the same locality. Further, unit 206 is selling only dies and moulds to other production units and as such cannot be treated as an independent unit. The learned Departmental Representative also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 diversion of profit from one unit to another. On the contrary, these transfer entries in the books of account confirm the fact that separate accounts are being maintained and each transaction is being properly documented and there is no mixing up between one unit and another. Had there been mixing up, these transfer entries would not have been there. This point also gets strengthened by the fact that in the past, the Department has accepted each, unit independently. Further, the AO except stating that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 given reasons for treating unit 206 as a separate unit is wrong as the CIT(A) in para 5 on p. 4 of the order has given a categorical finding to the effect that unit 206 is engaged in an activity which is entirely different from the activities of units 196 and 205. It has been further held in that order that unit 206 is a tool room and engaged in the manufacture of dies and tools which are not only consumed by all units of the assessee-company but are also sold to outside parties in earlier as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the CIT(A). 7. We have considered the arguments advanced by the Revenue as well as the assessee-company. Admittedly, in this case, the assessee-company is having various undertakings and has been maintaining separate accounts. Each of the units' profit and loss are being determined separately and there is no dispute regarding eligibility of its claim under s. 80-IA. The dispute is regarding the computation of the claim. The AO has allowed the claim at Rs. 39,01,627 as against the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. The various allegations made by the AO in the assessment order nowhere disturb this fact of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 regards the adjustment of the brought forward losses under the head office, the CIT(A) has rightly held that there is no reason to allocate these losses of all earlier years when there was profit in one unit and loss in other units and more so when all units were treated as separate industrial undertakings for computation of deduction under s. 80-IA in the earlier years. 7.5 There is another aspect, which we have noticed in this case and for that reason itself this ground of the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Tribunal where the above view has been upheld: 1. Bharat Commerce & Industries Ltd. vs. Dy. CIT, ITA No. 3344/D/2000, dt. 30th Nov., 2004. 2. BharatCommerce & Industries Ltd. vs. Dy. CIT, MA No. 62/Del/705 in ITA No: 4516/D/99, dt. 5th April 2005. 3. Bhagwan J. Bahirwani vs. ITO, ITA No. 3772/Del/2001, dt. January, 2005 4. Virender Kumar Bajaj vs. Asstt. CIT, ITA No. 2690/Del/2004, dt. 2nd Sept., 2005. In view of the above issue being squarely covered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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