TMI Blog1986 (11) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... Korba (Korba Unit No. 1) which went into commercial production on 1-3-1978. The balance sheet was drawn up in respect of the said undertaking (Korba Unit No. 1) as on 1-3-1978. In its profit and loss account drawn for the period ending 31-3-1978, a loss of Rs. 7,71,593 was disclosed. The assessee claimed deduction of Rs. 11,13,875 under section 80J(1) being 7.5 per cent of the capital employed in the said industrial undertaking of Rs. 1,48,51,466 on the basis of the following computation that was submitted before the ITO : Rs. "Fixed assets (building, plant and machinery, furniture and fixtures and motor vehicles) at cost 1,30,08,467 Capital goods in stock 1,48,489 Stores and spare parts 16,94,710 ----------------------- Capital employed Total 1,48,51,666" ------------------------ From the aggregate value of the assets so determined as on the first day of the computation period, the assessee did not deduct the liabilities as shown in the balance sheet of the following two amounts : Rs. Current liabilities and provision 16,72,903 Head office/division current account 1,31,78,763 ----------------------- Total 1,48,51,666 ----------------------- In regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re investment in Korba Unit No. 1, came out of its borrowed funds. In respect of Korba Unit No. 2, also the ITO on scrutiny of both the head office and newly established undertakings balance sheets found that 'the fund invested in the said plant did not come out of the capital of the company but out of the borrowed loan funds'. 6. For the assessment year 1981-82 the assessee set up two more industrial units at Kudra Mukh and Nasik. It claimed deduction under section 80J in respect of Korba Unit Nos. 1 and 2, aggregating to Rs. 12,89,426 and in respect of the newly established industrial undertakings at Kudra Mukh and Nasik it claimed Rs. 11,93,921 being the deficiency worked out by the assessee in the said units which was to be carried forward in terms of section 80J(3). The ITO for the reasons mentioned in the earlier years in respect of the assessee's claim pertaining to Korba Unit Nos. 1 and 2, rejected both the claims of the assessee. 7. The Commissioner (Appeals) by his consolidated order dated 31-5-1985 directed the ITO to allow deduction under section 80J as claimed by the assessee for each of the assessment years under appeal. The Commissioner (Appeals)'s observations i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the balance sheet figures of the assessee's undertakings and its head office found that the entire finances of the assessee in its industrial undertakings as reflected in the balance sheets drawn up for each undertaking have been made out of borrowed fund and/or debts owed by the assessee. Our attention was also drawn to the Supreme Court decision in the case of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 wherein it has been held that for computing the fair return on the 'capital employed' which is to be excluded from tax under section 80J(1), the owner's capital alone should be taken into account and borrowed monies should be excluded. In reply, the assessee's learned counsel stated that in terms of section 80J(1A), capital employed in an industrial undertaking is to be computed in accordance with clauses (II) to (IV) of the said section. Therefore, computation of capital is not of the assessee but of the industrial undertakings set up by the assessee. The assessee's learned counsel did not dispute the fact found by the ITO that the head office had no surplus funds and it financed the industrial undertakings out of borrowed funds and debts owed to third parties. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for granting the relief, it cannot be taken as borrowed monies or a debts owed by the assessee ....." 9. According to the assessee's learned counsel, the expression 'borrowed monies' and 'debts owed by the assessee' in section 80J(1A)(III) postulate the existence of third parties from whom monies are borrowed and debts are incurred. In the absence of any such third party, there is no scope for deduction of the said amount for arriving at the capital computation for the purpose of section 80J. The main plank of the learned counsel's submission is that in the balance sheet of the undertaking, the amount owing to the head office as shown, cannot fall within the expression 'debts owed by the assessee'. In other words, according to the learned counsel even though the head office financed the undertakings out of borrowed funds and/or debts owed by it to third parties, the same need not be taken into consideration in computing the capital of the assessee's undertakings under section 80J. We are not impressed with the learned counsel's submissions made in this regard as the undertakings admittedly are owned by the assessee and for accounting purpose only, separate balance sheets of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent borrowed money nor a debt owed to a third party but represented the surplus funds of the assessee. The said decision, therefore, is not applicable to the facts of the assessee's case. The Tribunal's order in the case of Alfred Herbert (India) Ltd. relied on by the assessee's learned counsel is also distinguishable on facts, as there was a clear finding that the money invested in the new unit came from its head office funds. We would, accordingly, by reversing the Commissioner (Appeals)'s order restore the ITO's order rejecting the assessee's claim under section 80J for each of the assessment years under appeal. 10. The only other ground raised for the assessment year 1979-80 pertains to the disallowance of Rs. 1,29,471 as capital expenditure, since deleted by the Commissioner (Appeals). 11. The ITO on scrutiny of the miscellaneous expenses account, came across with an expenditure debited of Rs. 1,27,471 being the office renovation expenses incurred by the assessee. The ITO found that beside the aforesaid expenditure, the assessee further incurred expenditure towards architect's fees paid of Rs. 2,000. On scrutiny, the ITO found that the expenditure was mainly on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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