TMI Blog2022 (6) TMI 955X X X X Extracts X X X X X X X X Extracts X X X X ..... e case then allocation of expenditure of Dombivali unit to EOU, without availing any service, will result in additional allocation of expenditure to the EOU of the assessee. We are of the considered view that all the aspects in respect of this issue have not been examined by any of the lower authorities and in such a scenario, the impugned allocation of expenditure of Dombivali unit only to the Taloja EOU of the assessee, while computing deduction under section 10B of the Act, is set aside. We, further, deem it appropriate to remand this issue to the file of Assessing Officer for de novo adjudication after examination of all the aspects as mentioned above. Allocation of R and D expenditure to EOU units - As relying on own case [ 2021 (3) TMI 1371 - ITAT MUMBAI] we hold that there is no need to allocate expenses to EOU units and that assessee would be eligible for deduction u/s 35(1)(iv)and the same need not be allocated to EOU units. Setting off of loss of non-EOU against income from EOU - As relying on own business losses of a non-eligible unit, whose income is not eligible for deduction u/s 10A of the Act, cannot be set off against the profits of the undertaking eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuous ground of appeal being the ground of setting off of losses of Non-EOU units against the profit of the EOU units which is governed by exemption section 10B of the Income Tax Act. 8. The Learned Commissioner of Income Tax (Appeals) erred in setting off of the losses of non EOU units against the profits of the EOU units which is governed by exemption under section 10B of the Income-Tax Act and thereby not granting carry forward of losses of EOU units restricting the exemption u/s 10B of the Income Tax Act. 9. The appellant company prays that i. The exemption u/s 10B be granted at Rs. 29,20,37,176/- as claimed in the return of income. ii. The order confirming the reduction of the deduction u/s lOB by Rs. 50,82,383/- in respect of Taloja unit may be set aside as being passed without considering the submission made by the appellant company during the course of the appellate proceedings. iii. The deduction of expenditure u/s 35(1)(vi) be allowed at Rs.2,49,50,203-/ as claimed in the return of income. iv. The expenditure of Research Development amounting to Rs. 2,02,26,011/- be allocated to the income of non EOU units instead of EOU units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 50,82,383 of Dombivali plant to EOU Taloja unit. 7. The learned CIT(A) vide impugned order dated 03/04/2012 dismissed the appeal filed by the assessee on this issue following its order in assessee s own case for assessment year 2002 03 and 2003 04. Being aggrieved, assessee is in appeal before us. 8. During the course of hearing, learned Authorised Representative ( learned AR ) submitted that Dombivali unit was an independent unit set up with an incinerator plant, which after setting up of similar unit by Maharashtra Pollution Control Board and increase in price of the fuel become uneconomical to operate. Accordingly, since past 3 years the Dombivali unit was non-operational. However, certain expenses were incurred for keeping the plant running so that if the unit is required in future the same can be used, as restarting of completely shutdown unit will require incurring of more cost by the assessee. The learned AR further submitted that the learned CIT(A) orders in preceding assessment years were quashed by the Co-ordinate Bench of Tribunal on the issue of invocation of jurisdiction under section 147 of the Act and therefore there is no findings on fact by the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for customers besides assessee s own requirement in EOU Taloja unit and after setting up the unit by Maharashtra Pollution Control Board and increase in fuel price, it became uneconomical to run the unit. Based on the survey proceedings, the Assessing Officer, in the present case, allocated total expenses amounting to Rs. 50,82,383 of Dombivali unit to Taloja EOU unit. In appeal, learned CIT(A) also upheld the addition made by the Assessing Officer on this issue. 12. In the present case, it is not in dispute that assessee is having manufacturing units in respect of agrochemicals as well as Pharma products, which are EOU as well as non-EOU units. As is evident from the copy of assessment order for assessment year 2002 03, forming part of the paper book, the incinerator plant at Dombivali was set up in financial year 2001 02. Further, from the statement of profit and loss account for the year ending 31/03/2002, at page No. 195 of paper book, it is also evident that services were availed by Non-EOU Mahad unit and EOU Taloja unit from the Dombivali unit in respect of which internal unit transfers were made and income was earned by the Dombivali unit. Further, from the perusal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit cannot be allocated to only EOU Toluja unit without any basis or sufficient material available on record. In the present case, during survey proceedings assessee was asked if the net expenses of Dombivali unit can be apportioned on turnover basis to Taloja and Mahad units. However, the Assessing Officer vide assessment order allocated expenses of Dombivali unit only to Taloja EOU unit without any basis. Even if, expenditure is sought to be allocated on the basis of turnover such reasoning cannot justify allocation of expenditure only to EOU, as when the said unit was in operation, services were claimed to have been rendered to units other than EOU units as well. Further, even if Revenue allocates expenditure of Dombivali unit to EOU on basis of turnover such expenditure can neither similarly be allocated to other outside customers, to whom the services were earlier rendered and income was earned by the Dombivali unit, nor such outside customers will be ready to pay to the assessee proportionate expenditure, particularly, in a situation when no services were availed by them, during the year under consideration. In such a situation, similarly, when no such services, as claimed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of assessment proceedings, it was observed that assessee is carrying in-house R D for Pharma products at Bangalore (R D) unit. It was also observed that assessee is allocating 5% of total expenses of this unit to Bangalore EOU unit. The assessee was asked to show cause as to why R D expenses and depreciation in regard to R D, i.e. total expenses of Bangalore (R D) unit should not proportionately be allocated between Pharma EOU on basis of turnover. In reply, assessee submitted that in changing competitive scenario and in process of getting the better process of manufacturing APIs, a R D unit was established by the assessee at Bangalore for development of various Pharma products for our own Pharma plant and also developing know-how for outside parties on project basis. The assessee further submitted that the R D centre is a standalone unit generating income itself by sales of products developed and by transferring the know-how developed by it. The Assessing Officer vide order passed under section 143(3) of the Act after noting that the assessee is manufacturing Pharma APIs at Bangalore and Panoli units, which are 100% EOUs and assessee s main business of manufacturer of pharmaceut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arate 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 accepted by the revenue in the past scrutiny assessments. The details of the same are as under:- Asst Year 2002-03 143(3) dt 18.2.2005 Pg 227 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. Asst Year 2002-03 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 absolutely no change in the facts and circumstances of the case during the year under consideration and hence the revenue having accepted the stand of the assessee in earlier years has to strictly abide by the principle of consistency. Reliance in this regard has been rightly placed by the ld AR on the following decisions :- a) Deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . During the course of hearing, learned AR submitted that similar issue has been decided in favour of the assessee by Co-ordinate Bench of Tribunal in assessee s own case for preceding assessment year. On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities. 24. We have considered the rival submissions and perused the material available on record. We find that the Co-ordinate Bench of Tribunal in assessee s own case in M/s Hikal Ltd. v/s ACIT, in ITAs No. 1039 1040/ Mum./2007, vide order dated 16/07/2010, for assessment year 2003-04 and 2004-05, while deciding similar issue in favour of assessee, observed as under: 34. This issue is covered by the decision of the Madras Special Bench in the case of Scientific Atlanta India Technology Pvt. Ltd. v/s ACIT. The question before the Special Bench was as follows: Whether the business losses of a non-eligible unit whose income is not eligible for deduction u/s 10A of the Act, have to be set off against the profits of the undertaking eligible for deduction u/s 10A for the purpose of determining the allowable deduction u/s 10A of the Act? 35. The Tribunal held as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X
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