TMI Blog2021 (3) TMI 1371X X X X Extracts X X X X X X X X Extracts X X X X ..... esulted in the reduction in the profit of EOU unit of Rs 27,92,178/- and consequently resulted in reduction of loss of Non EOU unit by the same amount. Despite these contentions, the ld CITA simply upheld the action of the ld AO without giving any independent findings. We find that since the allocation basis of common expenditure has been rejected by the lower authorities without any basis and by totally ignoring the various contentions raised thereon in respect of each of the behaviour of various units and the past assessments framed in the hands of the assessee u/s 143(3) We are inclined to grant relief to the assessee by applying the principle of consistency and in the absence of change in facts during the year under consideration. Accordingly, the reduction in profit of EOU unit and consequential reduction of loss of Non EOU unit by the same amount is hereby reversed and relief is granted to the assessee. Accordingly, the Ground No. 2 raised by the assessee is allowed. Inter related and deal with allocation of research development expenses to various units - assessee had claimed deduction u/s 35(1)(iv) towards capital expenditure on research and development - HELD TH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970. It is not in dispute that the assessee is already engaged in manufacturing pharma products. Accordingly, the assessee would be entitled for deduction u/s 35(2AB) of the Act. We hold that allocation of expenses to EOU units, allocation of deduction u/s 35(1)(iv) and allocation of deduction u/s 35(2AB) to other units is not warranted in the peculiar facts and circumstances of the instant case. - ITA No.5385/Mum/2012 - - - Dated:- 31-3-2021 - SHRI M.BALAGANESH, ACCOUNTANT MEMBER SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER Assessee by : Shri Sanjay R Parikh Revenue by : Shri Gurbinder Singh O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No.5385/Mum/2012 for A.Y.2006-07 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-7, Mumbai in appeal No.CIT(A)-7/DCIT-3(1)/IT-764/09-10 dated 03/04/2012 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.21% Panoli 13.79% R D 4.63% Bangalore EOU 27.53% 3.3. We find that the ld AO without finding fault with the workings of the assessee and without passing a speaking order, directly proceeded to allocate the head office expenses on the basis of turnover as under:- Mahad Rs 3,05,39,860.37 Taloja Rs 5,99,73,967.17 Panoli Non EOU Rs 2,30,97,963.36 Panoli EOU Rs 77,75,378.24 Bangalore EOU Rs 4,62,66,133.29 R D Rs 78,63,136.46 Rs 17,55,16,438.90 3.4. We find that the assessee before the ld CITA had pleaded that expenditure at CBD office are not in relation to specific unit as it is incurred as a common expenditure for all the units as a whole. Accordingly, such expenditure has been allocated by the assessee on the basis of certain scientific ratio i.e average of gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee by applying the principle of consistency and in the absence of change in facts during the year under consideration. Accordingly, the reduction in profit of EOU unit of Rs. 27,92,178/- and consequential reduction of loss of Non EOU unit by the same amount is hereby reversed and relief is granted to the assessee. Accordingly, the Ground No. 2 raised by the assessee is allowed. 4. The Ground Nos. 3, 4 5 raised by the assessee are inter related and deal with allocation of research development expenses to various units. 4.1. We have heard the rival submissions and perused the materials available on record. During the year under consideration, the assessee had claimed deduction u/s 35(1)(iv) of the Act towards capital expenditure on research and development to the tune of Rs. 1,47,44,014/-. The assessee also claimed deduction u/s 35(2AB) of the Act towards in house research and development expenses to the tune of Rs. 4,30,14,243/-. We find that the assessee has units manufacturing pharma products and agro chemicals and out of which, some units are eligible for deduction u/s 10B of the Act. The details of units eligible for deduction u/s 10B of the Act have alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) of the Act with respect to R D expenses of Rs.1,47,44,014/- and deduction u/s 35(2AB) of the Act of Rs.4,30,14,243/- was to be reduced from the profits of EOU units. This action of the ld AO was confirmed by the ld CITA. 4.4. We find from the perusal of the financial statements of the assessee enclosed in the paper book filed before us, R D unit is an independent unit having its own separate plant and situated in a different location. The activity carried out in the said R D unit is totally different from that carried out at the other units i.e research for developing new products and processes. The said R D unit has a separate electric meter, has independent staff, unit requires independent inputs or raw materials etc. Separate books of accounts are maintained for this R D unit so as to deduce the division wise profitability. The said unit does not need any support from any of the other units and can function independently having its own customers and capable of generating independent revenue on its own. Hence expenditure of R D unit cannot be apportioned to EOU units which has no connection with R D unit. 4.5. We further find that similar claim of the assessee was ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny evidence in this regard before us. Hence the entire allocation of expenses made by the ld AO stood ultimately quashed by the tribunal and had reached finality thereon. Asst Year 2005-06 143(3) dt 31.12.2007 Pg 276 of Paper Book We find that the ld AO had accepted R D Unit at Bangalore as a separate unit and deduction u/s 10B of the Act was not disturbed by the ld AO except for other income and miscellaneous income. 4.5.1. We find from the past behaviour of the department in the income tax scrutiny assessments of the assessee, the revenue had not sought to disturb the contentions of the assessee with regard to this impugned issue. No addition or disallowance could be made merely based on the concession given by the assessee on without prejudice basis that 5% of R D expenses could be allocated to other units. There is no estoppel against the statute. There is no basis also for the said allocation to be carried out. No contrary evidence has been brought on record by the ld DR before us at the time of hearing. Hence we are not inclined to accede to the request of the ld DR that atleast 5% of expenses should be subject matter of allocation to other units. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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