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2015 (9) TMI 61 - ITAT DELHI

2015 (9) TMI 61 - ITAT DELHI - TMI - Reduction in the disallowances under sections 80IA and 80IC - Allocation of remuneration to directors, audit fee and travelling expenses towards income of unit exempt under sec. 80IA and 80IC - Held that:- We do not find reason to interfere with the orders of the authorities below regarding the making of reduction in the disallowances under sections 80IA and 80IC of the Act on account of reallocation of directorsí remuneration, travelling expenses etc. on pro .....

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er Unit amounted to double directorsí remuneration, travelling expenses etc. for Kala Amb Unit. We thus set aside the matter to the file of the Assessing Officer to examine the alternative contention made by the Learned AR in this regard and while allocating the expenses to the eligible units take into consideration the expenses, if any, already debited by the assessee in these eligible units while computing the deduction claimed under sec. 80IA and 80IC of the Income-tax Act, 1961 on proportion .....

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ipt and business undertaking hence, it does not form part of net profit of eligible industrial undertaking and the same cannot be treated as income derived from industrial undertaking. The Learned CIT(Appeals) has upheld the same with this noting that the assessee did not furnish evidence to substantiate that the claim that these were only repair expenses and not capital expenses. He noted further that ₹ 2,00,921 on account of fall of factory wall was already taken into consideration by th .....

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eals, the assessee has questioned First Appellate Order on the common ground involving the issue as to whether the Learned CIT(Appeals) was justified in allocating the remuneration to directors, audit fee and travelling expenses towards income of unit exempt under sec. 80IA and 80IC of the Act and thereby reducing the exemption available under these sections? 2. Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and .....

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year 2007-08, the return of income was filed at a total income of ₹ 15,86,54,540 and the assessment was completed under sec. 143(3) after disallowing ₹ 85,76,544 under sec. 80IA and ₹ 18,36,000 under sec. 80IC of the Act. Learned CIT(Appeals) had confirmed the disallowance made by the Assessing Officer. However, the ITAT vide its order dated 07.1.2011 had set aside both the disallowances to the file of the Assessing Officer for fresh consideration based on the additional evide .....

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; 71,27,544 i.e. the addition made on account of valuation of power unit at the rate of ₹ 4.68 per unit upheld the remaining disallowances. 4. Similar are the facts with different amounts in the remaining assessment years involving the same issue i.e. reallocation of expenses for the eligible units under sec. 80IA for power unit and under sec. 80IC for paper unit at Kala Amb. 5. In support of the ground, the Learned AR reiterated submissions made before the authorities below. The Assessing .....

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expenses etc. of the separate directors and other staff were debited in the accounts of the respective unit. The Assessing Officer while restoring the disallowances made in the original assessment order has not pointed out any defect or any specific material in the accounts which would call for the allocation of expenses as made by him in the impugned assessment order. The Learned AR submitted further that observations of the Assessing Officer that no remuneration, travelling expenses of directo .....

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f the chartered accountant in the prescribed form No. 10CCB was also filed with the return. No defect in the said audit report was pointed out by the Assessing Officer. The Learned AR contended that the assessee had fully complied with the provisions of sec. 80IA(7) of the Act. Thus, allocation made by the Assessing Officer was arbitrary and unjustified. He submitted that when the services of directors are identifiable qua respective unit and that remuneration, travelling expenses were debited i .....

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is debited in the head office as per accounting principles and practice. The assessee maintained unit-wise books of account and the accounts of each of three units were duly audited and authenticated. No specific defect or discrepancy was pointed out by the Assessing Officer in the audit report. Thus, the deduction of the claim under sec. 80IA of the Act for the power unit in Punjab and under sec. 80IC for the paper unit in Kala Amb made by the Assessing Officer in the claim of eligible profit .....

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igible profit under sec. 80IA and 80IC of the Act by allocating directors remuneration, travelling expenses, etc. merely on estimate and not on concrete material on record is unjustified and wrong on facts and in law. He contended that the allocation made by the Assessing Officer is excessive and disproportionate in as much as the allocation of directors remuneration, travelling expenses etc. to the Punjab Paper Unit amounted to double Directors remuneration, travelling expenses, etc. for Kala A .....

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s resulted in the reduction in the eligible profit by further amount is totally unjustified and wrong. 8. In support of the above alternative submissions, the Learned AR for example submitted that in the assessment year 2009-10, directors remuneration amounting to ₹ 16,80,000 had already been debited in the account of the Kala Amb Paper Unit. Similarly, vehicle running and maintenance expenses of ₹ 1,62,851 was debited in the accounts of Kala Amb Paper Unit. In addition to this direc .....

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e plea is allowed then directors remuneration, travelling expenses, etc. between the two units, namely, the Power Unit and Punjab Paper Unit will be reallocated as under: If your honour does not allow our Ground No.2 in full as prayed in the grounds of appeal but accepts our above submissions then your honour will have to allocate the Directors remuneration, travelling expenses, etc. between the two units, namely the Power Unit and Punjab Paper Unit No. 1. This reallocation will be as under: Pun .....

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on the other hand tried to justify the orders of the authorities below with the submission that they have made and upheld the claimed disallowances after discussing the issue in detail in compliance of the order of the ITAT. The Assessing Officer in the second round again afforded sufficient opportunity to the assessee to establish genuineness of its claim made under sec. 80IA and 80IC of the Income-tax Act, 1961 to which the assessee has thoroughly failed to. The Assessing Officer was thus hav .....

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t against the paper unit at Kala Amb, the assessee submitted that it was having separate directors for power unit at Punjab and paper unit at Kala Amb and head office and accordingly, the profit and loss account of unit was prepared claiming salary of respective directors in distinguished units. Regarding the deduction claimed under sec. 80IA, in the power unit in Punjab, the Learned AR submitted that sale price of power @ ₹ 4.95 per unit was adopted by the assessee, the Assessing Officer, .....

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er sec. 80IA and 80IC of the Act, the appeal was preferred before the ITAT and the ITAT set aside the matter to the file of the Assessing Officer to decide the issues afresh after considering the information received under RTI Act by the assessee regarding the rate of power per unit and other submissions of the assessee justifying the claimed deduction under sec. 80IA of the Act for the power unit in Punjab and 80IC for the paper unit at Kala Amb. In compliance, the Assessing Officer after discu .....

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CIT(Appeals) has however, upheld the action of the Assessing Officer regarding the disallowance of ₹ 14,49,000/- under sec. 80IA in relation to power plant in Punjab and ₹ 18,36,000 under sec. 80IC with regard to paper unit at Kala Amb. The Assessing Officer has dealt with the issue in para No.3.2.2 to 3.2.3 of the assessment order reproduced hereunder: 3.2.2 In the course of present proceedings the assessee reiterated its earlier reply and also drew attention to para 3 of ITAT s or .....

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y and against all norms of accounting principles as well as general practice. First of all no evidence has been brought on record to prove that the MD did not do any thing, not even took any policy decision, for the other two units. Secondly by stating that the MD did not manage any unit directly , the assessee has at least conceded that he did not something indirectly for other units. In fact the argument is a total figment of imagination as far as power unit is concerned because not even a sin .....

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ting it specially when no professional help was engaged. Even otherwise the general practice is to allocate such expenses of head office to all the units as in the process of decision making the Head Office executives spend time in respect of each unit. In fact the theory of head office itself is full of holes. The head office is nothing but paper unit at Punjab whose profits are not eligible for any deduction under the Act. The assessee had the full liberty to designate any unit as Head Office. .....

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ccount of over pricing of power supply and non/undertaking of director s remuneration etc. are given effect to as under: Allocation of expenditure common to all units. Nomenclature of expenditure Total amount (in Lakhs) Turnover of Punjab Paper Unit (In lakhs) Turnover of Punjab Power Unit (In Lakhs) Turnover of HP (Kala) Paper Unit (In Lakhs) Rs.14920.57 Rs.11614.76 Rs.1461.15 Rs.1844.66 Director s remuneration ₹ 136.80 ₹ 106.49 ₹ 13.34 Rs.16.91 Directors Travelling ₹ 11 .....

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disallowances under sections 80IA and 80IC of the Act on account of reallocation of directors remuneration, travelling expenses etc. on proportionate basis by the Assessing Officer in absence of the evidence furnished by the assessee that all the expenses were separately maintained in the eligible units. We, however, find substance in the alternative arguments of the Learned AR that the allocation made by the Assessing Officer on the proportionate basis was excessive and disproportionate inasmuc .....

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computing the deduction claimed under sec. 80IA and 80IC of the Income-tax Act, 1961 on proportionate basis to avoid double addition, after affording opportunity of being heard to the assessee. The alternative plea is thus allowed for statistical purposes. The ground is allowed for statistical purposes. 12. In the assessment year 2008-09, one more issue has been raised regarding reduction of insurance claim received from the income eligible for exemption under sec. 80IC of the Act, reducing the .....

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