TMI Blog2011 (11) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... rned at the Silvasa Unit, if there is none in real sense obviously, no other expenditure at the corporate level which is remotely or indirectly related should be taken into consideration. - I.T.A. No.795 of 2008, I.T.A. No.796 of 2008, I.T.A.No.797 of 2008, I.T.A.No.129 of 2010 - - - Dated:- 3-11-2011 - JUSTICE KALYAN JYOTI SENGUPTA, JUSTICE KANCHAN CHAKRABORTY, JJ. K.J. Sengupta, J.:- All the above appeals were admitted for decision of this Court on the following identical points as points involved therein are identical. (i) Whether the learned Tribunal misdirected itself in law, and it adopted a wholly erroneous approach, in interpreting the provisions of Section 80 IA (5) of the Income Tax Act, 1961 to hold that the corporate expenses in the sum of Rs.1,75,73,406/- incurred by the assessee-company at its Registered and Head Office at Calcutta, during the financial year relevant to the assessment year 2000-01 were essential expenses and had direct nexus with the running of its Silvasa unit and were therefore, deductible in computing the profits and gains derived from the eligible business for the purpose of subsection (1) of Section 80 IA of the said Act and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) after discussion had come to the conclusion that the assessment made, was erroneous and prejudicial to the interest of the Revenue. In view of the same we do not find any infirmity of the order of the CIT. Pursuant to the said order, the A.O. made a fresh assessment at a total income of Rs.4,50,32,240/-, while doing so the A.O. made addition of Rs.1,75,73,406/- on account of proportionate corporate expenses out of the profit of the Silvasa Unit, and thus reduced deduction under Section 80IA of the Act to the extent as against the deduction of Rs.9,02,62,048/- allowed under Section 80IA as per original order dated 30th March, 2001. The assesseeappellant thereafter preferred appeal before the learned CIT (Appeal) who by order dated 9th April, 2007 modified the said order of assessment with direction upon the Assessing Officer to restrict the amount of corporate expenses to be deducted from the income of Silvasa Unit to Rs.3,40,34,620/- as against the entire amount of Rs.1,75,73,406/- shown by the assessee as the Head Office expenses eligible to Silvasa Unit on the basis of the sale of the Unit. Aggrieved by the said order dated 9th April 2007 of the Commissioner of Income Tax (Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company for the first time in relation to the assessment year 1998-99 which is the first year of its operation. Similar computations of total income of assessee-company as a whole including in respect of the Silvasa Unit were also filed for each of the subsequent years and these are part of the records of the tax authorities including this Hon ble Court. The Registered Office and Head Office at Calcutta only looks after the corporate functions of the assessee-company in accordance with the provisions of the Companies Act, 1956. The Board of Directors of the assessee-company sits at Calcutta, which is the Registered Office as well as Head Office of the assesseecompany. All corporate functions including share transfer etc. are executed and carried out at Calcutta. The Directors Board Meetings and General Meetings of the shareholder of the assessee-company are all held in Calcutta. The corporate expenses incurred in Calcutta and recorded in the Head Office books of the assessee-company maintained in the usual course of business in Calcutta has no direct nexus nor connection whatsoever with the manufacturing or selling operation of any of the manufacturing centers/units, including in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80 IA/80 IB of the said Act in this case. He also relied on the decisions of the Supreme Court in case of Pandian Chemicals Ltd. v. CIT reported in (2003) 262 ITR 278 (SC) and also in the case of CIT v. Sterling Foods reported in (1999) 237 ITR 579 (SC) that the words derived from denotes direct nexus between the profits and gains and the industrial undertaking. According to him in the facts and circumstances of this case the expenses in the Head office and corporate office has got no direct nexus between the profits and gains at Silvasa Unit. He further contends that the words derived from used in the various sections of Income Tax Act 1961, like sections 80HH, 80IA, 80IB should be given restrictive meaning as the legislature uses the narrower expression derived from as against the wider expression attributable to. In a recent decision of the Supreme Court in case of Liberty India v. CIT (2009) 317 ITR 218 it is held that mere commercial connection between the profit earned and the industrial undertaking is not sufficient. The expression derived from has been explained in the said judgment to the effect that the words derived from are narrower in connotation as compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaking. A mere commercial connection between profits earned and the industrial undertaking is not sufficient. He explains that the principle which has been laid down by different courts in interpreting the words profits and gains derived from any business or any industrial undertaking would equally apply to both receipts as well as the expenses. In other words, only those receipts can be considered for the purpose of allowing deduction under Section 80IA and 80IB of the said Act which have direct nexus for first degree source with the eligible industrial undertaking. Following the same principle the expenses is to be deducted from such receipts, that would also have direct nexus of first degree source in connection with the receipts of the industrial undertaking in question. Similarly incidental commercial connection with the business at the industrial undertaking would not make the relevant expenditure deductible in computing the profits derived from the eligible industrial undertaking for the purpose of allowing deduction under Section 80IA/80IB of the said Act. Every business expenditure, although deductible in computing the business income under Sections 28, 29 read wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure thereof do not have direct nexus whatsoever with the running of any of the five manufacturing units including inter alia the unit at Silvasa. He submits that findings recorded by the learned Tribunal in its impugned order dated 29th August, 2008, followed by subsequent impugned order dated 8th April, 2010 are wholly unreasonable based on irrelevant consideration, contrary to the facts and evidences on record and/or other purpose. The learned Tribunal failed to appreciate that advertisement, selling and marketing expenses of the manufacturing units were directly and fully debited and recorded in the respective manufacturing units as was the case of Silvasa unit as well, whose advertisement expenses in the aggregate sum of Rs.1,10,59,241/- and selling and marketing expenses in aggregate sum of Rs.61,53,630/- in respect of the assessment year 1998-99 were independently and separately recorded directly in the books of accounts of the Silvasa Unit, as evident from page 151 of Paper Book, Volume-I in respect of the said year. Similarly advertisement expenses in the aggregate sum of Rs.1,52,70,208/- and selling and marketing expenses in the aggregate sum of Rs.43,69,645/- both of Silv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have read the judgment of the learned Tribunal carefully and also that of the Courts. We are of the view that in this matter there is no scope for fresh interpretation of Section 80IA for its applicability to the aforesaid relevant assessment years by reason of the fact that the learned Tribunal D Bench Calcutta in ITA 1408 (Kol) of 2003 for assessment years 1999-2000 (at page 226 of Paper Book Vol III) and in ITA No.2753/Kol/2003 (at page 229 of the Paper Book Vol II) 2000-01 delivered judgments holding on 29th March, 2004 and 10th September, 2004 respectively on this issue, that the corporate expenditure essentially incurred for the Silvasa unit has to be taken into account for the purpose of allowing benefit under the aforesaid section. Both the judgments aforesaid were rendered on identical points. These judgments have even accepted by the assessee. We, therefore, quote the relevant portion of the said earlier judgment and order of the learned Tribunal: We have considered rival contentions and carefully perused the orders of the authorities below, and deliberated on the case laws referred to by both the lower authorities as well as cited at Bar by the learned A.R. and D. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Poddar does not require any consideration as rightly recorded by the learned Tribunal. It is true that there is no question of estoppel as against the provision of law but when an appropriate authority having jurisdiction has interpreted provision of law in its own way, and such interpretation is accepted by the parties concerned, this Court under Section 260A of Act cannot upset the aforesaid accepted binding decision of the learned Tribunal on identically mixed question of fact and law. On reading we notice the learned Tribunal really wanted proportionately essential expenses incurred at the corporate office for the Silvasa Unit alone should be taken into consideration for working out the figure of the profit of Silvasa Unit which is not being assessed separately as independent assessee. It is one of units of the appellant who is the assessee. We are not commenting as to whether for the purpose of Section 80IA only Silvasa Unit is to be treated and other unit is to be excluded. However, while reading the impugned judgment we think that the learned Tribunal has encouraged guesswork made by the Assessing Officer. We are of the view accepting argument of Mr. Poddar such decis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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