TMI Blog2006 (6) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... as if eligible unit was the only unit operated by the assessee. It will also have to be held that profits and gains mentioned in sub-section (1) of section 80-I cannot exceed in quantum terms the gross total income defined in section 80B. We are also of the view that the decision of Hon'ble Supreme Court in the case of IPCA Laboratories Ltd. v. Dy. CIT [ 2004 (3) TMI 9 - SUPREME COURT] supports our view for the reason that section 80HHC also uses the words profits derived by the assessee form the export of such goods or merchandize , which are similar to the words profits and gains derived by any eligible undertaking used in section. Thus, ground No. 1 of the appeal of the assessee is dismissed. Reallocation of expenses from Pimpri unit to Chakan unit - deduction u/s 80-IA - We are of the view that the learned CIT(A) has rightly come to the conclusion that the expenses which are properly relatable to one or the other unit should be allocated to that unit only. We are also in agreement with him that head office expenses and directors' remuneration should be allocated on the basis of turnover of the two units as that seems to be only the rational way to allocate these expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose there remained no unabsorbed loss of earlier years. In view of the fact that there were no carried forward losses, the order passed by lower authorities for adjustment of deemed losses against profit of assessment year 1998-99, be cancelled. 2. For calculating the eligible profits under section 80-IA of Chakan plant, the Hon'ble CIT(A) III erred in partly accepting the Assessing Officer's view of reallocating certain expenses amounting to Rs. 6,00,123/- from Pimpri plant to Chakan plant. Considering that separate books of account are maintained for both the plants and that expenses were already allocated on accepted accounting principles. The Hon'ble CIT(A) erred in accepting the reallocation of certain expenses incurred on salary, director's remuneration, printing stationery, telephone expenses, vehicle expenses on turnover basis. The assessee company had already allocated expenses wherever called for. Hence, in view of facts and circumstances the reallocation and shifting of expenses from Pimpri plant to Chakan plant as made by the Assessing Officer, be cancelled. 1.2 The revenue has taken up only one substantive ground of appeal to the effect that the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill have overriding effect over all other provisions of the Act. The legal fiction is created in that section to the effect that the profits and gains of eligible undertaking shall be computed as if such undertaking was the only business of the assessee from the date of its establishment till the date of admissibility of the deduction. Therefore, the income eligible was isolated from all other incomes of the assessee for the purpose of computing deduction under section 80-I. The learned counsel also referred to the decision of Hon'ble ITAT Mumbai Bench 'I', in the case of Addl. CIT v. Ashok Alco Chem Ltd. [2005] 96 ITD 160. The question before the Hon'ble Tribunal in that case was whether carry forward losses and unabsorbed depreciation of the eligible unit are to be considered or not while determining the deduction under section 80-IA even though such losses and depreciation have been actually set-off against profits of the assessee from other sources. The Hon'ble Tribunal pointed out that in terms of section 80-IA, the profits of the eligible units have to be ascertained as if it was only unit owned by the assessee and it had no other source of income. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent spheres. Section 80-I(6) deals with the computation of deduction and section 80-I(1) deals with the treatment given to such deduction for the purpose of arriving at the total income. In view thereof, it was held that while interpreting section 80-I(1), which refers the gross total income, one has to read the expression gross total income in section 80-I( ) to mean that income which is defined in section 80B(5). If deductions under Chapter VI-A are required to be claimed, then, the gross total income has to be sufficient to absorb such deduction. This, if gross total income is nil, then deduction under section 80-I cannot be allowed. Section 80-I(1) lays down the circumstances under which deduction can be claimed and section 80-I(6) lays down the method of determining the deduction. After calculating deduction under section 80-I(6), one has to go back to section 80-I(1), which enacts that the gross total income includes profits and gains derived from the eligible undertaking. The words includes any profits in section 80-I(1) are important and indicate that the gross total income should include profits from the eligible units. Coming to the facts, it was pointed out that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the matter against the assessee yet, we think it fit to deal with the submissions of the assessee regarding the issue of profits and gains of business and the gross total income. We are of the view that the confusion in the line of argument of the learned counsel arises out of insufficient appreciation of the import of the provisions contained in sub-section (5) and sub-section (1) of section 80-IA. Sub-section (5) creates a fiction that for the purpose of computing deduction under section 80-IA, the eligible unit was the only unit operated by the assessee in the initial assessment year and in subsequent years for which the deduction is available. Therefore, its carried forward losses and unabsorbed depreciation have to be kept separately from other units operated by the assessee, if any, as also its profits. Coming to sub-section (1), profits and gains constitute a sub-set of the gross total income. It is also clear from the language of this sub-section, which starts with the words where the gross total income of an assessee includes any profits and gains derived from eligible business . Looking to the language it is clear that profits and gains is a sub-set of the gross total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ESI, PF, bonus and staff welfare expenses were direct expenses and the work related to one or the other unit. Therefore, in respect of such expenses, there was no question of reallocation as they had been debited on actual basis. It was also represented that separate books of account have been maintained for the units and in view thereof reallocation made by the Assessing Officer was not sustainable at all. The learned CIT(A) considered the submissions. He agreed with the assessee that there was no need to reallocate direct expenses as such expenses were identifiable with one or the other unit and had been debited in the respective units on actual basis. There were certain expenses of the head office such as salary, printing and stationery, telephone expenses, vehicle expenses, which were common to both the units. Therefore, he came to the conclusion that such expenses should be allocated on turnover basis between the two units. He was also of the view that it will be fair to allocate the directors' remuneration on the basis of turnover as higher turnover would require more attention of the management. The assessee furnished the working of reallocation of all the expenses as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re barred by limitation. In view thereof, no legal proceedings could have been taken against these parties. These parties had withheld certain amounts on account of disputes raised by them and institution of legal proceedings would not have resulted into any recovery. It was also pointed out that debt of Rs. 1,853 /- from Cipla Ltd. was recovered in financial year 1999-2000, which was credited to profit loss account of that year. It was also pointed out that debts earlier written-off, amounting to Rs. 7,30,591 /- , were credited to profit loss account of this year, which were received in this year. Thus, the claim of the assessee was that the assessee was following prudent policy for writing off bad debts after a period of about 3 to 4 years and in case of any future recovery, the amounts were credited to the profit loss account in the year of recovery. 6.3 The learned CIT(A) considered various submissions made before him. It was pointed out that the debts had been shown under the head Operation and Other Expenses , which shows that the debts had been written-off and it was not a case of making provision of an equivalent amount. These debts were in respect of the sales effected in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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