Section 80-IC profit estimation cannot stand without defects in accounts or a factual basis for reworking unit profits.

The note discusses a section 80-IC deduction dispute where the Commissioner (Appeals) enhanced profits of the eligible unit by making a fresh estimate and reducing the deduction. It states that the assessee had maintained separate books, consistently followed the same transfer and expense-allocation method, and that an earlier order in the assessee's own case had already accepted that computation on similar facts. The commentary adds that, absent a demonstrated defect in the accounts or a rational factual basis for re-estimation, the revised profit allocation was not sustainable, and the deduction computation was restored on the assessee's accounting method.

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Issues: Whether the enhancement made by the Commissioner (Appeals) by estimating the profits of the eligible unit and reducing the deduction under section 80-IC was justified, and whether the earlier decision in the assessee's own case bound the authorities for the year under consideration.

Analysis: The assessee maintained separate books for both units and had consistently followed the same method of transferring semi-finished goods and allocating expenses. The earlier order in the assessee's own case had accepted the assessee's computation and had deleted a similar adjustment. The present enhancement was made on broad assumptions that the eligible unit showed abnormally high profit and that some common expenses were not allocated, but no proper defect in the books or a rational basis for the revised estimate was established. The Court treated the earlier appellate finding as binding on the same issue and held that a fresh estimate, without concrete factual foundation, could not justify disturbance of the assessee's computation.

Conclusion: The enhancement was unjustified and was deleted. The issue was decided in favour of the assessee.

Final Conclusion: The deduction computation of the eligible unit was restored on the basis of the assessee's consistent accounting method and the earlier appellate decision in its own case.

Ratio Decidendi: An estimated transfer of profits between two units under section 80-IC cannot be sustained in the absence of a demonstrated defect in the accounts or a rational factual basis, especially where the same method has been accepted in the assessee's own earlier year on identical facts.

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