TMI Blog2017 (11) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... brought into play to allocate expenses debited in the books of non eligible unit to eligible unit and restrict the claim of deduction u/s 10B of the Act. Accordingly, the grounds raised by the assessee are thus allowed. - ITA No. 1790/DEL/2013 And ITA No. 2239/DEL/2013 - - - Dated:- 26-10-2017 - SHRI S.K. YADAV, JUDICIAL MEMBER ANDSHRI B.P. JAIN, ACCOUNTANT MEMBER For The Assessee : Shri Gautam Jain, Adv Shri Lalit Mohan, CA For The Revenue : Smt. Paramita Tripathy, CIT-DR ORDER PER BENCH :- These cross appeals - one by the assessee and the other by the Revenue arise from the order of ld. CIT(A)-XXVII, New Delhi vide order dated 31.1.2013 for the A.Y. 2009-10. Since the appeals pertain to same assessee and were heard together involving identical issues, we are disposing them of by this consolidated order for the sake of convenience and brevity. 2. In ITA No.1790/D/2013, the assessee has raised following grounds of appeal: 1. That the learned Commissioner of Income Tax (Appeals) XVII, New Delhi has erred both in law and on facts in upholding disallowance of ₹ 46,62,180/- out of claim of deduction u/s 10B of the Act 1.1 That the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfied since the return of income was not filed on or before the due date. The AO also made an alternative finding that certain expenses relating to the 10B unit at Kundli-II was debited in the other units of the appellant and therefore the AO has apportioned these expenses in the ratio of turnover of various units and concluded that profit of the 10B unit needs to be reduced by ₹ 98,75,934/-. The AO also disallowed ₹ 1,75,197/- u/s 43B as the per audit report ₹ 3,75,000/- was added back being donation and ₹ 24,000/- was disallowed u/s 40(a)(ia) of the Act, 1961. The ld. CIT(A) vide order dated 31.1.2013 allowed the claim of deduction u/s 10B of the Act and as regards the alternative disallowance made of ₹ 98,75,934/- u/s 10B of the Act restricted the same to ₹ 46,62,180/- by holding that even if 80IA(8) is not applicable, however 80IA(10) is applicable. Both assessee and revenue being aggrieved have preferred the instant appeals. 5. In ITA No. 2239/D/2013, Grounds 1 and 2 raised by the revenue relates to denial of deduction u/s 10B of the Act on the ground that the return was filed beyond the due date provided u/s 139(1) of the Act. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act), the central Board of direct taxes hereby authorizes the assessing Officer to admit the return of income for Assessment Year 2009-10 filed by the assessee on 01.10.2009 as a return filed by the due date specified under section 139(1) of the Act and to deal with the return on merits as per the provision of law. 8. Thus, once CBDT has held that return has been filed within the due date u/s 139(1) of the Act, the dispute as to allowability of claim u/s 10B on the ground of delay in filing of return has ceased to exist. Ex-consequenti, the grounds raised by the revenue are not maintainable and are, therefore, rejected. 9. Ground 3 raised by the Revenue relates to deletion of disallowance of ₹ 24,000/- u/s 40(a))(ia) of the Act. The CIT(A) at page 14 in para 7 has held that since no sum was payable at the end of year, therefore expenditure incurred and claimed under the head legal expenses of ₹ 24,000/- could not be disallowed by invoking section 40(a)(ia) of the Act. However, during the course of hearing the learned counsel for the assessee fairly conceded that the issue is to be decided against the assessee in view of the judgment of the Hon'ble Apex Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit the AO could not have validly proceeds to allocate expenses from non- eligible unit to the eligible unit and that too when the books of account as maintained have been accepted as such, more particularly when each unit is at separate physical location and is engaged in manufacturing of different kinds of products. Reliance was placed on following judgments: i) CIT v. Translam Ltd. 231 Taxman 901 (All) ii) CIT v. Delhi Press Samachar Patra Prakashan (P) Ltd. 296 ITR 210 (AT) affirmed by the Hon ble Delhi High Court in the case of CIT v. Delhi Press Samachar Patra Prakashan 355 ITR 1 iii) Cadila Healthcare Ltd. v. Addl. CIT 67 SOT 110 (Ahd) iv) ACIT v. P.I. Industries 143 TTJ 353 (Jodh) v) ACIT v. Micro Turners ITA No. 4569/D/2011 dated 15.2.2013 13. The ld. CIT DR supported the stand of CIT(A) and submitted that allocation was fair and reasonable. She conceded that though books of accounts have not been rejected but the disallowance by invoking section 80IA(10) of the Act is valid and proper and has been made after due examination and facts on record. 14. We have considered the rival submission and perused the material on record. Section 80IA(10) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee more than the ordinary profits which might be expected to arise in such eligible business. Section 80-IA (10) of the Act further requires the AO to compute the profits and gains of the eligible business by taking the amount of profits as may be reasonably deemed to have been derived therefrom . The adjective reasonably carries with it the responsibility of the AO to base his conclusion on some empirical data. 8. In the present case the AO s conclusion that the profits of the Assessee were more than ordinary was based on surmises and conjectures. During the course of his submission, Mr Singh sought to suggest that a 40% GP ratio by itself should be taken to be more than ordinary . Neither the Court nor the CIT (A) or the ITAT can take judicial notice of what percentage of GP ratio should be considered to be more than ordinary . That decision will hinge upon a variety of factors including the line business, the market conditions, the geographical location, the standard practices peculiar to the line of business and so on. To be fair, Mr Singh pointed out that by a subsequent amendment with effect from 1st April 2013, the legislature has inserted a proviso t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) That the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits. There are other requirements in the said Section with which we do not wish to detail in as much as the same are not relevant to the dispute on hand. Section 80IA(10) is applicable to Section 80IC also because of provisions of Section 80IC(7). As per Section 80IA(10), where the Assessing Officer finds that owing to a close connection between the assessee carrying on eligible business and any other person doing any other business, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which arises in such business, the Assessing Officer is empowered to compute the profits of such business as may be reasonably deemed to have been derived therefrom. The two requirements of the Section, which in our view are of relevance in this case, have been enumerated earlier by us. The first is that there must be a close connection between the assessee and such other person. The second is that there must be an arrangement whereby the business tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribution. Having factually observed that there was no such payments made and neither was there any liability for such amounts, in our view the Assessing Officer was not empowered to reduce the profits on this score for the purpose of Section 80IA(10) of the Act. 8. In view of the aforesaid discussion, we find that the Assessing Officer not only wrongly invoked the provisions of Section 80IA(10) but also erred in interpreting the Partnership Deed so as to hold the assessee liable for reducing its profits on account of remuneration and interest to the partners for the purposes of Section 80IC of the Act. The order of the CIT(Appeals), on this ground is hereby affirmed. Thus, the Revenue fails on Ground No. 1 and 2. 5. The facts of the present case are identical to the facts before Tribunal in M/s Navakar Polyplast Company v ITO (supra) and ITO Vs M/s A.K. Impex (ITA No. 766/Chandi/2008). Following the ratio laid down by Tribunal in ITO Vs M/s A.K. Impex (supra), we find no infirmity in the order of CIT(A) in deleting the disallowance of deduction u/s 80IC of the Act. Upholding the order of CIT(A), we dismiss the ground of appeal raised by the Revenue. Following the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in law and on facts in deleting the addition made by the Assessing Officer pertaining to the salary paid to the partners. The DR further submitted that the Commissioner of Income Tax(A) wrongly observed that the Assessing Officer has not quoted any case law in support of the addition. Replying to the above submission, the assessee s representative submitted a copy of the judgment of ITAT F Bench Delhi in assessee s own case in ITA No. 554/Del/2009 for AY 2005-06 wherein the disallowance of salary paid to the partners has been deleted. From the impugned order para 2, we also observe that the Commissioner of Income Tax(A) following the above judgment of ITAT Delhi F Bench dated 17.9.2009 has deleted the disallowance of salary paid to the partners with the following observations:- 2. The appellant deriving income from manufacturing job work of precision turned components and fasteners, returned total income of ₹ 1,42,83,172/-. The appellant has five units in which two units are located in exempted area. The appellant firm has claimed salary to the partners amounting to ₹ 24.00 lacs. The AO allocated the salary paid to partners to exempt units and taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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