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TMI Blog2014 (3) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IA of the Act by apportioning the conversion and service charges of Rs.one crore received between Pondicherry and Chennai units in the ratio of the work order received viz. 8.9 : 2.6. 3. Revenue's appeal for A.Y. 1995-96:- Similarly in this appeal also, the Revenue has raised several grounds, however, the relevant grounds are reproduced herein below for adjudication:- 1. Ld. Ld. CIT (A) had erred in directing the Ld. Assessing Officer not to apportion the labour charges to Pondicherry unit, which were allocated by the assessing officer for the purpose of computing deduction U/s. 80IA of the Act. 2. Ld.CIT (A) had erred in deleting the disallowance of technical know-how fees of Rs.10 lakhs, which is to be allowed only to the extent of 1/6th of Rs. 10 lakhs in view of Sec.35AB of the Act. 4. The brief facts of the case are that the assessee is a company, engaged in manufacturing specialized machinery for chemical industries, filed its return of income for the assessment year 1994-95 on 30.11.1994. Though the return was processed U/s. 143(3) of the Act, the case was reopened and order was passed U/s. 147 of the Act on 28.03.2002. For the assessment year 1995-96, Ld. Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nning, working procedures in carrying out the contracts awarded to CWL by Tarapore Atomic Power Station from Government of India, Department of Atomic Energy, Tarapore Atomic Power Station. CWL was established in the year 1972 and is well known in the field of manufacture of chemical equipments, CWL has units in Madras, Trichy and it started unit in Pondicherry in 1993, in view of various concessions offered by Pondicherry Govt. It is not uncommon for established industries the set up its division/ branch in backward areas where various concessions are given by the Central and State Govt. For instance Ranbaxy, a multinational pharmaceutical company as set up its plants for 7 M/s.Chemfab Welders Ltd. manufacture in Himachala Pradesh. This is only one of the various instances that can be cited. Grasim industries was palced different, separate and specific orders on CWL Pondy and CWL Madras. This is a contract between two independent commercial organizations who are well known having established themselves for more than two decades. This contract requires to be understood from the point of view of a businessman. The technical know how fee of Rs.100 lacs paid by GIL to CWL of Pondiche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held. 8. We have heard both the parties and carefully perused the materials available on record. From the order of the Ld. Assessing Officer, it appears that the ld.AO had not examined the books of accounts of the respective units of the assessee before arriving at the conclusion that the amount of Rs.one crore received by the assessee as know-how fees are to be apportioned. The ld. Assessing Officer had also not examined to the nature of work executed by the assessee and the unit which imparted the know-how. As contended by the Ld. A.R., the ld. Assessing Officer had not rejected the books of accounts maintained by the assessee's Pondicherry unit and Trichy/Chennai units etc. Further, from the order of the Ld. Assessing Officer, summarized herein above, it is apparent that the Ld. Assessing Officer has not given a categorical finding on the issue, but merely came to the conclusion on the basis of certain presumptions inferred from some of the communications transacted between the assessee and its client. However, Ld.CIT (A) has examined the issue in detail and arrived at the conclusion that the assessee had engaged its Pondicherry unit for technical knowhow services. There wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... job work was done by M/s.KRR Engineering Pvt. Ltd., on the work site at Nagda after the equipments were shipped out from the Pondicherry unit. (iii) The work order placed by M/s.Grasim Indus. Ltd indicated that the entire project was composite contract. 9.3 For the above said reasons, Ld. Assessing Officer opined that the labour charges of Rs 1,27,79,870 have to be apportioned among different units because :- (i) A portion of the labour charges paid to M/s.KRR Engineering Pvt. Ltd., ought to be apportioned to the Pondicherry unit since the Pondicherry unit also played a role in executing the composite project. (ii) There were overlapping of labour charges and other expense amongst different units and they were not allocated to the appropriate work centers. (iii) The assessee had not maintained cost records or conducted cost audit. 9.4 Thereafter the Ld. Assessing Officer arrived at the average ratio for allocating labour charges to Pondicherry unit at 40% of the total labour charges of Rs 1,27,79,870/-, which amounted to Rs 51,11,948/-. 9.5. On appeal, Ld. Ld. CIT (A) after examining the issue in detail, made a categorical finding that the entire works of fabrication execute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the Ld.CIT (A) held the entire expenditure as allowable deduction by observing that Sec. 35AB of the Act is inapplicable considering the facts of the case. Before us, no further explanations were tendered by the Revenue to establish that the expenditure incurred by the assessee was a lump sum payment made for acquiring technical know-how. From the facts presented before us, it is also evident that the assessee is a manufacturer of specialized equipments in chemical industry. Therefore, we are of the considered view that the Ld.CIT (A) has judiciously considered the matter and decided the same appropriately. Accordingly, we hold this issue also in favour of the assessee.
11. Since both the Cross Objections of the assessee are in support of the orders of the Ld. CIT (A), who had held the issues in favour of the assessee and since we have dismissed the appeals of the Revenue and upheld the order of the Ld.CIT (A), the Cross Objections of the assessee stand allowed.
12. In the result, both the appeals of the Revenue are dismissed & both the Cross objections of the assessee are allowed.
Order pronounced on 25th February, 2014 at Chennai. X X X X Extracts X X X X X X X X Extracts X X X X
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