2023 (10) TMI 659 - AT - Income Tax

Appeal Partly Allowed: Tribunal Upholds Deductions Under Section 80JJA for AY 2012-13 and AY 2013-14, Dismisses Section 14A Issue

M/s SVP Industries Ltd. Versus The ACIT Circle 22 (2), New Delhi

The Tribunal partly allowed the appeal for AY 2012-13, directing the Assessing Officer to allow the deduction of Rs. 5,29,61,675/- under Section 80JJA as ... Deduction u/s. 80JJA - Computation of profits - reduction of profits and gains of the unit eligible for deduction u/s 80JJA by the proportionate indirect expenses and the depreciation of plant and machinery of the whole business in ratio of total turnover of the business and total turnover of the exempt unit as made by the CIT (Appeals) - HELD THAT:- We note that in the case of CIT vs Sterling Food [1999 (4) TMI 1 - SUPREME COURT] held that there must by a direct nexus between the profits and gains and the activities of eligible undertaking in the present case there is no dispute regarding turnover claimed by the assessee. In the case of Zandu Pharaceutical Works [2012 (9) TMI 620 - BOMBAY HIGH COURT] after following the proposition of Hon’ble Supreme Court (supra) held that the principal of direct nexus between the profit and gains of eligible industrial undertaking is equally applicable to the expenses also and there must be direct nexus between the eligible industrial undertaking and the expenses which were sought to be apportioned by the AO. In the present appeal AO rightly deducted the depreciation as the amount of depreciation related to eligible ETP unit and findings recorded in this regard are upheld and the amount of depreciation and proportionate depreciation reduced by the CIT(A) is restricted to the said deduction of depreciation and contention of ld. counsel against action of Assessing Officer reducing depreciation amount from the claim of deduction is dismissed. Other expenses like administrative manufacturing and selling are concerned the CIT(A) could not establish any direct nexus or relation with the eligible ETP unit and the audited accounts of assessee clearly shows that the same are related to eligible distillery unit therefore no apportionment or reduction was required to be made in this regard and the action of the ld. CIT(A) allocating such unrelated expenses with the eligible unit is not correct and justified. Accordingly, findings of AO are upheld and action of ld. CIT(A) further reducing claim is set aside. Amount calculated by the AO eligible for deduction u/s. 80JJA is quite correct and as per mandate of the law and hence, the Assessing Officer is directed to allow the deduction accordingly. Issues Involved:1. Allowability of deduction under Section 80JJA of the Income-tax Act, 1961.2. Reduction of profits and gains of the unit eligible for deduction by proportionate indirect expenses and depreciation.3. Deduction of depreciation amount not connected with the eligible unit.4. Disallowance of expenses under Section 14A of the Act.Summary:Issue 1: Allowability of Deduction under Section 80JJAThe assessee contested the denial of deduction claimed under Section 80JJA, arguing that the enhancement of income by Rs. 5,29,61,675/- was arbitrary and excessive. The Tribunal noted that the CIT(A) had reduced the deduction by including depreciation and other expenses not directly related to the eligible unit, which was contested by the assessee. The Tribunal upheld the Assessing Officer's deduction of Rs. 1,12,94,053/- for depreciation related to the eligible ETP unit but rejected the CIT(A)'s further reduction of the deduction by unrelated expenses, directing the Assessing Officer to allow the deduction as initially calculated.Issue 2: Reduction of Profits and Gains by Proportionate Indirect Expenses and DepreciationThe Tribunal found that the CIT(A) had improperly allocated indirect expenses and depreciation between the eligible and non-eligible units without establishing a direct nexus. The Tribunal emphasized that expenses must have a direct connection to the eligible unit to be considered for reduction, citing precedents like CIT vs. Sterling Foods and Zandu Pharmaceuticals Works Ltd. vs. CIT. Consequently, the Tribunal set aside the CIT(A)'s allocation of such expenses and upheld the Assessing Officer's original calculation.Issue 3: Deduction of Depreciation Amount Not Connected with the Eligible UnitThe Tribunal upheld the Assessing Officer's deduction of Rs. 1,12,94,053/- for depreciation related to the eligible ETP unit but rejected the CIT(A)'s additional reduction for proportionate depreciation. The Tribunal concluded that only the depreciation directly related to the eligible unit should be deducted, aligning with the assessee's argument and relevant case laws.Issue 4: Disallowance of Expenses under Section 14AThe assessee withdrew the ground related to the disallowance of expenses under Section 14A, leading to its dismissal by the Tribunal.ConclusionFor AY 2012-13, the Tribunal partly allowed the appeal, directing the Assessing Officer to allow the deduction of Rs. 5,29,61,675/- under Section 80JJA as initially calculated. For AY 2013-14, the Tribunal applied the same conclusions, upholding the deduction of Rs. 5,23,02,007/-. The appeals were thus partly allowed in the indicated manner.