TMI Blog2013 (6) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 were not at market rates it is in agreement with the view taken by the Tribunal that in absence of any defect or manipulation found by the AO in the books maintained for Unit No.4 and in absence of any material to indicate that the amount charged by Unit No.4 from Unit No.1 was not at comparable market rates, it would not be open for the revenue to disregard the profits of Unit No.4 as disclosed by the assessee only on the basis that the profits were significantly higher than profits earned by the assessee from other undertakings. Given the fact that Unit No.4 carries on job work of printing only, the expenses attributable to Unit No.1 which relate to the publishing business cannot be allocated to Unit No.4. Only those expenses which relate to the printing work carried on by the assessee in Unit No.4 are liable to be deducted from the job charges to arrive at the profits eligible for deduction under Section 80-IA of the Act or 80-IB of the Act as the case may be. Thus Tribunal was correct in relying upon the orders passed in the preceding years for disposing of the appeals relating to the assessment year 2004-2005 as attention has not been drawn on any material change that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work basis for Unit no. 1 as well as for other entities. The assessee charged 77 paise per sheet as printing charges for printing work done for Indian Express Newspapers Ltd. and 70 paise per sheet for printing done for Unit no. 1. It is not in dispute that Indian Express Newspapers Ltd. is an independent entity unconnected with the assessee and the transactions entered into between the assessee and Indian Express Newspapers Ltd. was on arms length basis. The assessee maintained separate books of accounts for Unit no. 4. Unit no. 4 did not purchase any paper but was supplied paper by Unit no. 1 or other entities for whom the Unit carried on printing activity. Unit no. 4 only purchased ink and certain other consumables which were utilized for carrying on the printing activity. 5. The assessee claimed deduction under Section 80-IA of the Act with respect to the profits and gains derived from Unit no. 4 as the same qualified as a new industrial undertaking for the purpose of Section 80-IA of the Act. The Assessing Officer examined the profit and loss account of the assessee as a whole as well as the statement of profits for Unit no. 4. It was found that whereas assessee had earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gin. The reduction in the eligible profits from unit no. 4, by the Assessing Officer, was contested by the assessee as being without any basis. 7. The CIT (Appeals) allowed the appeal of the assessee vide its order dated 31.01.2001 while noticing that the assessee had explained the reasons for unit no. 4 having a higher profit margin. The assessee justified a higher rate of profit by unit no. 4 on account of the following reasons:- a) the speed of the machineries installed in unit no. 4 were 100 times faster than the machines installed in unit no. 1; b) the rate of wages payable by unit no. 4 were also lower as the workers were new appointees. c) minimum consumption of power, ink and other consumable items. 8. The CIT (Appeals) held that the Assessing Officer had not pointed out any instance of the assessee inflating the profits either by charging higher rates or suppressing expenditure and in absence of any such instance of manipulation, the Assessing Officer was not correct in re-computing the profits on the basis of estimation. 9. In respect of the subsequent assessment year 1998-99, the assessee filed its return of income showing profit of Rs. 6,56,09,074/- claiming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier decision, CIT (Appeals) allowed the appeal of the assessee. 11. The facts in relation to the subsequent assessment year 1999-00 are also similar. The profits declared by the assessee with respect to unit no. 4 were recomputed by the Assessing Officer by reallocating the expenses incurred by the assessee. The assessment order dated 20.03.2002 was carried in appeal by the assessee and the same was allowed by CIT (Appeals) by its order dated 28.06.2002. 12. Appeals were before the Tribunal in respect of the order passed by the CIT (Appeals) in respect of the assessment years 1997-98, 1998-99 1999-00, which were disposed of by the Tribunal by its order dated 24.03.2006. The only ground urged by the revenue while contesting the orders passed by CIT (Appeals) was with regard to allowing the deduction under Section 80-IA of the Act to the assessee on the basis of the book results of Unit no. 4. The Tribunal held that the nature of business of Unit no. 1 Unit no. 4 of the assessee were entirely different and there was no justifiable reason for the Assessing Officer to compare the profit margin of the two units. The Tribunal further noted that the assessee had maintained separ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T (Appeals) in directing the Assessing Officer to allow the deduction under Section 80-I of the Act. The Tribunal found that the issues raised in the appeal with regard to deduction under Section 80-IB of the Act were settled in favour of the assessee by its earlier decisions and rejected the appeal. 15. The facts in relation to assessment year 2004-05 are also almost identical. The Assessing officer passed the assessment order dated 15.12.2006 wherein the Assessing officer reallocated the expenses and re-computed the profits of Unit no. 4 and rejected the profit and loss account prepared by the assessee with respect to Unit no. 4 on the ground that the assessee had shown huge profits. The Assessing officer disallowed the deduction of Rs. 2,35,58,698/-, claimed by the assessee under Section 80-IB of the Act, on the ground that the cost of the raw material and forwarding charges were not considered while calculating the profits of Unit no. 4. The assessee preferred an appeal before the CIT (Appeals) which was allowed by CIT (Appeals) by his order dated 31.10.2007. The appeal preferred by the Revenue, before the Tribunal, inter alia, challenging the order of the CIT (Appeals) was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s engaged in the business of publishing. The publishing house arranges for articles to be published in the magazines from various authors, artists and photographers and incurs expenses for procuring such material. Unit No.1 also incurs expenditure for advertisement and publicity of magazines and other periodicals in its portfolio. The assessee has claimed that all such expenses relate directly to the publishing house as they are exclusively for the business of publishing. Receipts from sale of magazines and income from advertisements published in the magazines relate to the publishing business and are accounted for as income of Unit no.1. The assessee has also been allotted a quota for paper by Government of India and on the basis of such allocation Unit no.1 imports paper. The paper imported by the assessee cannot be sold and is for exclusive use of the assessee. The assessee has also established three other undertakings, which carry on printing activity through highly sophisticated machines. The said undertakings, namely, Unit nos.2, 3 4 are described as printing houses. In the present appeals, we are concerned only with Unit no.4 which was set up in the year 1994. Technologica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with an subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6). xxxxx xxxxx xxxxx xxxxx "(7) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (5) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made." xxxxx xxxxx xxxxx xxxxx "(9) Where any goods held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other business carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer held that the expenses relating to cost of paper and other expenses were liable to be allocated to Unit No.4 also, inasmuch as, in his view, Section 80-IA(7) of the Act required that the profits from the eligible business must be computed as if the legible business was the only source of income for the assessee. The ownership of newsprint, paper and other materials supplied by publishing houses to Unit No.4 for carrying on printing activity continue to vest with publishing houses. In cases where Unit No.4 carries on printing activity for other entities, the paper would not belong to the assessee, the paper as well as the rights on the content being printed in Unit No.4 would vest with other entities. In the case of the printing being done by Unit No.4 on behalf of Unit No.1, the paper would belong to the assessee but the costs of which are liable to be borne exclusively by the publishing business i.e. Unit No.1. 25. It is not in dispute that the printing charges charged by Unit No.4 to Unit No.1 were comparable to the market rates. It is a matter of record that during the period relevant to the assessment years 1997-1998 and 1999-2000 Unit No.4 was charging 77 p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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