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TMI Blog1993 (3) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... e electric arc furnace. SMS-IV was added in March 1988. It had also an induction furnace. SMS-V was also added in 1988. Steel Rolling Mill was started in 1976-77. C.I. Foundry Unit was added in 1980 and the Oxygen Plant Unit was set up in September 1983. 17. The assessee-company claimed deduction under section 80-I amounting to Rs. 1,96,26,951 in respect of four units as per the following details: (i) SMS-II Rs. 1,14,75,095 (ii)SMS-III Rs. 54,57,021 (iii)SMS-IV Rs. 14,72,070 (iv) Oxygen P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that sale of all the steel ingots from different units was routed through SMS-I and that the sales had been made at the average price of month at which the ingots were sold by SMS-I in the market. As regards the manufacturing expenses, it was noted that only directly relatable manufacturing expenses and other nominal expenses had been put in the various units and so the transfer price of goods of the other units was held to be excessive by the Assessing Officer. The Assessing Officer invoked the provisions of section 80-I(8) and made certain adjustments on the basis of production in terms of tonnage of each unit. Thus, the Assessing Officer re-cast the profit and loss account of the various units for the purposes of allowing relief under section 80-I. This is indicated and illustrated in Annexure 'A' to the assessment order. From the profits thus arrived at, the Assessing Officer reduced the claim of the assessee under section 32AB of the Act in respect of SMS-II and Oxygen Plant. He also made an adjustment on account of depreciation as per Income-tax Rules and allowed deduction under section 80-I of Rs. 15,61,250 in respect of SMS-II and Rs. 9,78,500 in respect of Oxygen Plant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re no claim under section 80-I was made to the extent of 20% of those profits and the balance to be adjusted against the profits where claim under section 80-I was made. 23. The learned counsel for the assessee submitted that the assessee was manufacturing different types of steel, that in the beginning steel was made in the electric arc furnace and later on in the induction furnace which involved a different process. It was submitted that complete books of account were maintained in respect of each unit and that in the earlier years also deduction claimed under section 80-I had been allowed without disturbing the books of the assessee. It was vehemently argued that the Assessing Officer had recorded a finding of fact at page 6 of the assessment order that the purchases of raw material and consumable stores of all the units were made in SMS-I (the head office) and from that unit those raw materials and consumable stores etc. were transferred to various units and their cost was debited to the respective units. It was also submitted that another finding of fact was recorded by the Assessing Officer to the effect that the sale or transfer of steel ingots from other units to SMS-I was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year relevant to the initial assessment year and every subsequent assessment year. It was submitted that this provision was enacted because the profits and gains of each industrial undertaking had to be computed and brought forward loss and unabsorbed depreciation etc. had to be adjusted against the profits and gains of that unit, or undertaking. It was vehemently argued that this section also did not give power or authority to the revenue authorities to disturb the allocation made by the assessee in the normal course of business as per books of account. 25. In the alternative, it was submitted that even if some adjustments had to be made in the allocation of expenses which were otherwise not permitted by law, even then the assessee had debited expenses in various units which compared favourably with such expenses in the earlier years which had been accepted by the revenue and hence the expenses claimed were reasonable. Pointing to page 26 and onwards of the assessee's compilation, it was submitted that the percentage of manufacturing expenses with reference to sale value of production of three induction furnace units, namely SMS-III, SMS-IV and SMS-V shall be that manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich relief under section 80-I had been claimed. It was, therefore, submitted that though the learned CIT(A) had given a partial relief in this regard, there was no justification for reducing any amount from the profits for computing the relief under section 80-I. 27. It was finally submitted that the assessee's claim under section 80-I may be allowed without making any adjustment on account of allocation of expenses. 28. The learned D.R. submitted that section 80-I(8) was definitely applicable in this case and even if the revenue had not specifically challenged the finding of the learned CIT(A), the issue needed adjudication by the Appellate Tribunal. It was submitted that when it was not possible to arrive at correct profits and gains or such computation presented exceptional difficulties, then section 80-I(8) had to be applied and a reasonable basis found to adjust the market price. It was submitted that the method of adjustment adopted by the Assessing Officer was correct because it was based on the tonnage of production whereas the assessee had made the adjustment on the basis of sale value of production which gave a lop-sided or distorted picture because in those furnaces wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer may compute such profits and gains on such reasonable basis as he may deem fit. 30. From the scheme of section 80-I(8), it is clear that this section can be invoked only if the goods from the industrial undertaking to any other units of the assessee and vice versa are not transferred at the market price. The proviso comes into play only if section 80-I(8) first comes into play. If it is found as a fact that the goods have been transferred from various units to the industrial undertaking and vice versa at less than the market price, then and then alone the provisions of section 80-I(8) are attracted. In that event, the Assessing Officer has to compute the profits and gains of the industrial undertaking as if the transfer had been made at the market value of such goods. It is only when the provisions of section 80-I(8) are attracted and the Assessing Officer is confronted with exceptional difficulties in computing the profits and gains of the industrial undertaking that the law permits him to compute such profits and gains on such reasonable basis as he may deem fit. Where the main provisions contained in section 80-I(8) are not applicable, the proviso has no application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking, etc. is to be ascertained as if such industrial undertaking were an independent unit owned by the assessee concerned and the assessee had no other source of income. The purpose of this sub-section was that the unabsorbed loss, unabsorbed depreciation etc. relating to the eligible industrial undertaking etc. should be taken into account in determining the quantum of deduction under section 80-I even though these may actually have been set off against the profits of the assessee from other sources. The celebrated authors, Chaturvedi and Pithisaria in Fourth Edition of their "Income-tax Law" have also expressed a similar view with regard to the interpretation of section 80-I(6) at p. 2594. 33. If the scope of section 80-I(6) is what has been explained above, then this sub-section does not also give a handle to the revenue authorities to re-allocate the expenses in various units. In our considered view, the entire exercise embarked upon by the Assessing Officer and the learned CIT(A) regarding re-allocation of expenses was not called for and the aforesaid sections, namely, section 80-I(8) and section 80-I(6) do not clothe the revenue authorities to re-allocate the expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise transferred and shall accordingly be chargeable to income-tax as the income of that previous year. It was vehemently argued that the machinery purchased had been identified as to belong to rolling mill, cast iron foundry unit and SMS-V, in respect of which no deduction under section 80-I had been claimed. It was also submitted that while section 32AB allowed deduction from the total income of the assessee, relief under section 80-I had to be allowed on the basis of profits and gains. 36. As regards the claim under section 32AB, the learned D.R. submitted that even the partial relief allowed by the learned CIT(A) was not correct as was pointed out in ground No. 2 of the cross appeal. 37. We have considered the rival submissions and we find considerable merit in the arguments by the learned Counsel for the assessee. Since the claim under section 32AB has been made in respect of cast iron foundry, SMS-V and rolling mill on which no deduction under section 80-I has been claimed, the question of reducing the assessee's claim under section 32AB for purposes of computing relief under section 80-I does not arise. While the assessee's submission on the point is accepted, the revenue's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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