TaxTMI 
TaxTMI 
2006 (3) TMI 218
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....ts of the case are that the assessee is a company engaged in the business of printing magazines and books. Its Unit No. I which is a printing press was set off in 1972 in Sahibabad. This Unit is engaged in cover printing of magazines as also double cover printing for inside pages. It uses 14 offset machines. 4. Unit No. II was established in the assessment year 1989-90 at Sahibabad but is engaged only in the binding of the magazines and books. Unit No. III was set up in assessment year 1991-92 in Faridabad. This unit is a modern printing machine and its capacity is very high. The assessee claimed deduction under section 80-I of the Act on its Unit Nos. II and III. However, the Assessing Officer held that the deduction under section 80-I can be worked out on the basis of accounts furnished by the assessee. The allocation of expenses inter se amongst the different units was arbitrary and had no rational basis. According to him, the expenses in Unit No. I have been inflated whereas the profits in Units II and III have been inflated. While coming to this conclusion, the Assessing Officer made the following observations:- (i) There is no consumption of paper in Unit No. in a....
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....t was also engaged in printing as Unit No. I. From the details furnished before the Assessing Officer, we find that Unit No. I had done printing of magazines which are supplied with paper. Unit No. III has done printing on the papers supplied by the publishers and accordingly there is no consumption of paper in Unit No. III. The nature of printing in both the units are different. Unit No. I has done printing on the paper purchased by the assessee whereas the Unit No. III has done only job work of printing and not purchased any paper. The paper was supplied by the other company. It was under these circumstances that there was no consumption of paper in Unit No. III whereas there was consumption of paper in Unit No. I. Had the Assessing Officer examined this point from the documents furnished by the assessee, perhaps this confusion would have not arisen. 9. The second reason given by the Assessing Officer in denying the claim of the assessee was disproportionate expenditure of ink in different units. The Assessing Officer has pointed out that in Unit No. I, the consumption of ink, was very high whereas in Unit No. III, the consumption of ink was much less. We find that Unit No. I ....
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....e facts and held that the assessee has claimed the deduction under section 80-I on a rational basis. We do not find any infirmity in his findings and while upholding the same, we dismiss the ground of appeal raised by the revenue. 11. We also find that the revenue has challenged the directions of the CIT(A) for allowing deduction under section 80-I of the Act before set off the brought forward losses. But from the order of the CIT(A), it is clear that the position is otherwise. In the last para of his order, the CIT(A) has observed that as per section 80(1)(6), if loss of earlier years remain to be set off, the Assessing Officer will adjust the same from the profit of the years. During the course of hearing, the ld. counsel has stated that there was no loss brought forward from earlier years. For this purpose, the ld. counsel also filed the assessment order for 1992-93 according to which the assessed income came to Rs. 22.87 lakhs. The perusal of this order indicates that except minor disallowances under rule 6D, prior period expenses, disallowance under rule 6B, the income declared by the assessee has been accepted. We, therefore, feel that this ground of appeal raised by the r....
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....ere inflated resulting into heavy losses whereas, in Units No. II and III, the expenses were reduced to increase the profit in order to claim more deduction. Assessing Officer has also noticed that in Unit No. I there was an amount of Rs. 2,36,62,145 debited on account of paper while no amount was shown under the head of paper in the Unit No. III though this unit is also engaged in printing. Similarly, an amount of Rs. 76,80,945 was shown under the head 'process of ink' in Unit No. I but no such expenses was shown in Unit No. III. Again an another amount of Rs. 48,26,988 was shown under the head ink in Unit No. I and only an amount of Rs. 1,04,113 was shown under this head in Unit No. III. As such, the total expenses under the head ink was shown at Rs. 1,23,69,822 in Unit No. I as against a sum of Rs. 1,04,113/ shown in Unit No. III. The assessee was asked to " explain these discrepancies and the assessee filed a revised chart showing slight variation in income and loss in all the 3 units. The Assessing Officer has also noticed that other item such as subscription deposit service expenses amounting to Rs. 17,32,165 is shown in Unit No. I but no corresponding expenses were s....
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.... The Assessing Officer has further noticed that almost all the work was done by the assessee for its associate concern M/s. Delhi Press Patra Prakashan Ltd. Considering all these facts, Assessing Officer concluded that the correct profit of these 3 units cannot be worked out separately in the assessee's case, therefore, deduction under section 80-I cannot be worked out on the basis of accounts furnished by the assessee. He further opined that the assessee has not complied with the provisions of section 80-I(6) of the Act in respect of two units for which the deduction under section 80-I was claimed. In remaining paragraphs the Assessing Officer has dealt with an issue of set-off of brought forward losses while computing deduction under section 80-I of the Act. Since, I do not have any difference of opinion on these points with my learned brother, I express my concurrence with his view. 6. Against the main issue of disallowance of deduction under section 80-I of the Act, assessee preferred an appeal before the CIT(A) and the CIT(A) accepted the claim of the assessee after giving specific finding that the assessee has rightly booked higher expenses in Unit No. I without dealin....
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....d that when Unit No. II is set up exclusively for binding purpose, why the assessee has debited the expenses under the head of binding material without placing the material on record that whatever printing was done by Unit No. I, the binding was done by itself by its own machines. 8. The learned DR further invited our attention to the comparative chart expenses booked under different units appearing at page 22 of the compilation of the assessee, with a submission that in each and every head, assessee has booked higher expenses in Unit No. I because the Unit No. I is no longer eligible for deduction under section 80-I of the Act. Since the defects in accounts raised by the learned Assessing Officer were not properly met by the learned CIT(A) in his order, the finding of the Assessing Officer with regard to rejection of books of account in this regard, deserves to be sustained. However, during the course of hearing, the learned DR himself has agreed that the entire claim of deduction under section 80-I cannot be rejected. The Assessing Officer rather should have reallocated the proper expenses under different units in order to determine the correct deduction under section 80-I of ....
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....s supplied by the publisher. He further observed that had the Assessing Officer examined this point from the documents furnished by the assessee, perhaps this confusion would not have arisen. On perusal of Assessing Officer's order, I find that the Assessing Officer has taken a note of all these facts and has observed that the assessee has booked the expenses on account of paper at Rs. 2,36,62,145 and if this cost of paper is reduced from total receipt, the actual receipt in Unit No. I comes to Rs. 1,25,64,468 against which assessee has shown an expenditure of more than Rs. 1,86,10,519. These observations of Assessing Officer were not dealt with by the CIT(A) in his order or by the learned Accountant Member. If the actual receipt of all units are taken into account, one would find that the actual "receipt from individual unit are almost similar subject to variation of few lakhs but the expenses booked in Unit No. I are more than 10 times of the expenses booked in other independent units as in Unit Nos. II and III expenses are booked at Rs. 14,01,967 and Rs. 6,05,235 respectively as evident from the comparative chart appearing in assessment order. 11. It was also observed by ....
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....t neither before the Assessing Officer nor the CIT(A), the details of the scheme were furnished by the assessee. It is not evident from the record that what was the scheme? Whether it was launched in 1972 or thereafter, and whether it was closed or still continued? It is also not evident from the record that how much amount was collected by the assessee under this scheme and in which year and whether this amount was solely used in Unit No. I or in setting up of Unit Nos. II and III? It was also not explained either before the lower authorities or before the Tribunal that what are these expenses. It is also not clear from the record, whether the assessee was a publisher or was doing only printing work and what are these expenses booked under Unit No. I. While rejecting these details of expenses, Assessing Officer has made the observation that the proportionate expenses under the head subscription deposit scheme should have been booked in other units also. But while accepting the claim of the assessee, CIT(A) did not spell out the nature of scheme and the reasons why the entire expenses under this head was booked only in Unit No. I. In the absence of complete details, the stand of th....
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....e Assessing Officer is directed to work out true expenses of different units after making a detailed enquiry and investigation and thereafter to recomputed the deduction under section 80-I. Accordingly the matter is restored to the file of Assessing Officer to readjudicate the issue of deduction under section 80-I in terms indicated above, after affording an opportunity of being heard to the assessee. 15. In the result, appeal of the revenue is partly allowed for statistical purpose. Per D.R. Singh, Judicial Member. 1. In terms of section 255(4) of the Income-tax Act the following two questions were referred to the Hon'ble President of Income-tax Appellate Tribunal on account of difference of opinion between the two Members of the Bench:- "1. Whether on facts and in the circumstances of the case Id. Accountant Member is right in upholding the order of ld. CIT(A) in the two assessment years under consideration. 2. Whether on the facts and in the circumstances of the case ld. Judicial Member is correct in restoring the file to the Assessing Officer for re-adjudication of the issue of deduction under section 80-I in terms indicated in his proposed order.....
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....ng of magazines and books. Unit No. Ill was set up in the assessment year 1991-92 in Faridabad. This unit has modern printing machine with very high capacity of printing 25,000 sheets per hour duly dried and folded. 4. The assessee claimed deduction under section 80-I on income of Unit Nos. II and III amounting to Rs. 5,43,142 and Rs. 4,81,949 respectively in the assessment years 1993-94 and 1994-95. Under section 80-I of the Income-tax Act a deduction of 20% of income derived by an industrial undertaking is allowed. It is an agreed case that no deduction under the above section is permissible on income of Unit No. I. Income of other two units is entitled to deduction. 5. In the course of assessment of the assessee and on examination of its account, the Assessing Officer held the view that expenses in Unit No. I were inflated and heavy losses were shown to reduce its income. This was done in order to increase profits of Unit Nos. II and III and forgetting excessive deduction. In assessment order for the assessment year 1993-94 the Assessing Officer noted that position of total receipt, total expenses, income and losses of three units was as under:- Total receipts....
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....y to reduce the profit of Unit No. I and inflate the profit in Unit Nos. II and III. To prove above point the learned Assessing Officer prepared a chart to show that several expenses were disproportionately claimed. The chart is reproduced below:- Units I II III Subscription Deposit Scheme 17,32,165 - - Travelling 15,958 - - Salaries and production charges 38,76,712 4,58,668 3,41,208 Paper 2,36,62,145 - - Process of Ink 76,80,945 - - Motor Vehicle Exp. 2,55,870 22,845 41,804 Ink 46,88,877 - 2,22,223 Binding material 3,59,992 9,20,457 - 9. The Assessing Officer found that total receipt of Unit No I Rs. 3,63,26,613 included cost of paper supplied by the publisher and therefore, this amount was to be deducted from total receipt of the unit, when so done, actual receipt of Unit Nos. I, II and III and salaries claimed were as under:- Units I II III Work done 1,25,64,468 1,29,05,964 1,28,42,491 Salaries and production expenses 38,76,712 4,58,665 3,41,209 10. From the above chart the Assessing Officer tried to prove that assessee claimed dis....
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....aimed in three units are reproduced in the assessment order similar to one produced in order for assessment year 1993-94. The Assessing Officer found that there was loss in Unit No. I and profit in Unit Nos. II and III which was artificially enhanced. He held that proper books were not maintained in different units and, therefore, provision of section 80-I was applicable. The figure of receipt, expenses and profit/loss of three units is noted as under:- Total receipts Total expenditure Income Loss Unit I 5,59,05,188 5,92,64,478 - 33,59,290 Unit II 53,29,785 21,89,989 31,39,796 - Unit III 1,16,81,091 48,40,603 68,40,488 - 13. The assessee impugned above order in appeal before the CIT(A). The controversy in assessment year 1993-94 was decided by the learned CIT(A) vide its order dated 8-4-1997 in ITA No. 146/96/97. The ld. CIT(A) noted the kind of business carried on by the assessee. He further noted the year in which three units were set up by the assessee at 3 different places and type of machinery employed by three units. The learned CIT(A) also noted detail of various expenses claimed by the assessee in three u....
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.... Subscription Deposit Scheme was started in the year 1972 when other two units had not come into existence. Thus deposit was taken by Unit No. I and expenditure for carrying on the scheme for supplying magazines free of cost were debited in the account of Unit No. I, as the said unit was running the scheme. How could expenditure of above scheme debited in the other units? The investment in other units was made by the assessee out of its own profits earned over the years. The assessee, therefore, explained before the learned CIT(A) that expenditure in different units were properly charged and not inflated or deflated as observed by the Assessing Officer in the assessment order. 18. All the above claims are fully noted and considered by the learned CIT(A) at pages 3 and 4 of the order. The learned CIT(A) thereafter considered provisions of section 80-I of IT Act including sub-sections (1), (2) and (9) of the section. He analyzed above provisions in the light of the decision of ITAT, Chandigarh Bench in the case of Punjab Concast Steels Ltd., as is evident from pages 6 and 7 of CIT (Appeals)'s order. The ld. CIT(A) allowed relief to the assessee with the following observatio....
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....ase. Hence, the Assessing Officer is directed to allow deduction under section 80-I as the ground on which he has denied the same do not hold good. However, as per provision of sub-section (6) of section 80-I, if any loss for earlier years remains to be set off, the Assessing Officer will adjust the same from the profits of the years. I order accordingly." 19. Similar order was passed for the assessment year 1994-95. The successor CIT(A) in the subsequent order again examined objections raised by the Assessing Officer, noted details of the expenses debited under different heads and held that the facts and the circumstances before him were similar to assessment year 1993-94. He followed and applied order of CIT(A) for assessment year 1993-94 and directed that the relief be allowed to the assessee. 20. The Revenue being aggrieved challenged aforesaid orders of CIT(A) in appeal before the Appellate Tribunal raising the ground that direction of CIT(A) to allow deduction under section 80-I were erroneous. 21. Both the appeals of the Revenue were heard by ITAT, 'C Bench, New Delhi. The learned Accountant Member wrote and proposed order on behalf of the Bench. In the above pr....
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....ted in Haryana. Different units have different number of workers. Accordingly, expenditure on salaries and production charges has to be higher in Unit No. I as compared to Unit No. III, which has latest machines and consumption of ink and electricity was much lower. (c) As regards higher expenses of salaries and production charges, the learned Accountant Member noted that persons working in Unit No. I could not be transferred to the other State (Haryana). The minimum wages are also fixed by the State Government Unit No. I was established in 1972 and, therefore, workers in that unit were quite senior. Learned Accountant Member further noted that there was 14 machines in Unit No. I and, therefore, more workers were employed in that unit than in Unit No. III which had only one machine. Looking to this fact it was clear that expenditure on salaries and production has to be more in Unit No. I as compared to Unit No. III. (d) The learned Accountant Member also examined question of claim of expenditure on subscription deposits in Unit No. I. He noted that Scheme was invoked by Unit No. I in 1972. Unit Nos. II and in had come into existence in 1989 and 1991 respectively. ....
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....et up in 1991-92 at Faridabad having completely modern machines with a capacity of printing 25,000 sheets per hour duly dried and folded. Though it is not clear, how much sheets were printed during the impugned assessment year by Unit No. III and Unit No. I but from a perusal of the details of total receipt we find that it is less than the Unit No. III as by reducing the cost of paper from the gross receipt the total receipt for the work done in Unit No. I comes to Rs. 1,25,64,468 against total receipt of Rs. 1,28,42,490 in Unit No. II. Against this actual receipt of Unit No. I assessee has booked various expenses under different heads at more than Rs. 1,86,10,514 worked out on the basis of chart given in the assessment order as no detail of complete expenses are furnished by the assessee. The major expenses were shown under the head 'Subscription deposit scheme, Paper and Ink'. While dealing with the expenses booked on account of paper, my learned brother has observed in his order that in Unit No. I, the paper was purchased by the assessee whereas in Unit No. III only job work of printing was done and the paper was supplied by the publisher. He further observed that had th....
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....examined by the CIT(A) and he simply has held that the expenses shown under the 'Process of ink' as part of ink sold by Unit No. I to other units without any concrete evidence. 12. In these circumstances, I am of the view that the assessee has not properly apportioned the expenses under the head 'Ink' in Unit Nos. I and III whereas the work done by Unit No. III is more than Unit No. 1.1 may agree to some extent that being the old machines in Unit No. I, consumption of ink may be more but it cannot be more than 50 times of new machines. I, therefore, agree with the view of the Assessing Officer that the assessee has made a disproportionate allocation of expenses under the head of ink. 13. With regard to subscription deposit scheme, assessee has booked an expense of Rs. 17,32,165 in Unit No. I whereas no expenses under this head are booked in Unit Nos. II and III. The assessee's contention before the Assessing Officer are that the scheme was launched in 1972 when Unit No. I was established and whatever collection was made, it was used in Unit No. I as such these expenses are booked in Unit No. I, but neither before the Assessing Officer nor the C....
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....ead was booked in Unit No. III. All these discrepancies, pointed out by the Assessing Officer were not duly met by the CIT(A) while directing the Assessing Officer to accept the claim of the assessee. It is an admitted fact that the Unit No. I is no longer eligible for deduction under section 80-I of the Act and Unit Nos. II and III are eligible for deduction. In the light of these facts, the CIT(A) was required to examine the claim of deduction minutely and it has become all the more necessary for him to make necessary verification before allowing a claim of the assessee when Assessing Officer has brought the material on record. I am also unable to understand why the assessee was running the Unit No. I continuously when it has shown a loss of Rs. 1,33,62,190 in assessment year 1993-94 and Rs. 33,59,290 in assessment year 1994-95. All these facts lead me to take a view that Assessing Officer was justified in holding that the assessee has made disproportionate allocation of expenses under different units in order to claim higher depreciation in new units i.e., Unit Nos. II and III. I, therefore, hold that the provisions of section 80-I(9) are attracted and the Assessing Officer is d....
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....w my attention to the proceedings before the Tribunal and contended that at no stage doubts raised by the ld. Judicial Member in the proposed order were put to the assessee for explanation. Question of wrong placement of burden on the assessee was also raised. At my direction relevant books of account were also produced by the assessee for my consideration as also for perusal and verification by the learned Departmental Representative. 25. I have carefully considered material available on record in the light of submission of parties, orders of the revenue authorities and proposed orders of my learned brothers. The short question involved here is whether the assessee in the two assessment years under consideration claimed expenses in Unit No. I which in fact related to business carried on by Unit Nos. II and III in order to claim higher and excessive deductions under section 80-I of the Income-tax Act. This according to the revenue was done as no deduction was permissible on income derived by Unit No. I and the same was permissible on income derived by Unit Nos. II and III. Relevant figures of deduction claimed are noted in the earlier part of this order. Extract of observations ....
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....o against record. He drew my attention to books of account of the assessee wherein "Process of Ink Account" in computerized ledger stood credited at page No. 1. Thus total credit of "process of ink" is taken to consolidated profit and loss account which is at pages 92-93 of the ledger. The same is as under: Delhi Press Samachar Patra (P.) Ltd. Consolidated Control A/c. Unit-I Total Receipt 3,62,26,613.00 Less: Other Receipt 1,25,984.00 Paper Printing Binding 2,84,19,684.00 Process of Ink 76,80,945.00 Unit-II Work Done 1,29,05,964.00 Unit-III Work Done 1,28,42,490.00 Total 6,18,49,083.00 28. Above amount of Rs. 6,18,49,083 is duly shown on the credit side under the head "Sales" in the profit and loss account of the relevant period. Copies of above entries in the books of account were also verified by the ld. Departmental Representative. It is settled law that books of account are part of a record of assessment and can be examined by all facts finding authority including the Appellate Tribunal. Entries in the ....
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....Officer pertained to higher expenses on account of consumption of paper. No expenses were shown in Unit No. III whereas expenses incurred on purchase of paper by Unit No. I were disclosed at Rs. 2,36,62,145. The cost of paper was deducted from gross receipt disclosed by Unit No. I at Rs. 3,62,26,613 and thus "actual work" done by Unit No. I was worked at Rs. 1,25,64,468. The reason for above deduction was that paper was "supplied to the publisher" at cost. Gross receipt shown by Unit No. III were more than actual work done by Unit No. I. Thus conclusion that disproportionate and excessive expenses were claimed by Unit No. I. 31. In appellate proceeding the assessee had explained that Unit No. II was not buying papers and was carrying printing work on the paper supplied by the customer. It was only carrying job work whereas Unit No. I was buying paper from the Market. The aforesaid claim was duly supported by entries in the books of account and was accepted by the learned CIT(A). It has also been accepted by the learned Accountant Member in the proposed order. The learned Judicial Member however in the proposed order observed that "work done" by the assessee in Unit No. I was for....
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....? What is wrong with explanation of the assessee? I see no justification for interfering with the finding recorded by the learned CIT(A) in the impugned order. The impugned order of CIT(A) has been rightly been described by the learned Accountant Member as rational and suffering from no infirmity. 32. One more objection raised by the Assessing Officer relates to expenses of Rs. 17,32,165 relating to Subscription Deposit Service Scheme debited in accounts of Unit No. I. About these expenses, the Assessing Officer in assessment order for 1993-94 has observed "Subscription Deposit Service Scheme followed by the assessee wherein against sum refundable deposits, it supplied magazines to the depositors and expenses on account of purchase of these magazines from associated concern is debited in Unit No. I". The Assessing Officer further observed, "it cannot be assessee's case that funds so generated by the deposit received is utilized only for Unit No. I. In fact all new investments have been made in Unit Nos. II and III". The Assessing Officer accordingly did not accept as correct the debit of entire expenditure of scheme in Unit No. I. As against the above the ld. Judicial Mem....
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....ed the impugned order of CIT(A) after discussion of facts and circumstances of the case. 35. The learned Judicial Member however made observations contrary to record as have been noted above, the details of the scheme were furnished and duly noted by the Assessing Officer. No dispute about scheme or its operation was raised. 36. The objection of the Assessing Officer that funds collected by Unit No. I under this scheme were utilized for investments in Unit Nos. II and III are not based upon any material. Even the ld. Judicial Member has observed "it is also not evident from the record how much amount was collected by the assessee and in which year and whether amount was solely in Unit No. 1 or in setting up Unit Nos. II and III". If that is the situation then what case has been made by the Assessing Officer? Only on doubt and surmises case was made and now being recommended Lo Assessing Officer for further examination. However, the finding of Assessing Officer was challenged by the assessee and learned CIT(A) accepted and recorded that the assessee used its own profit for investment in Unit Nos. II and in as those units were set up much after the launching of the scheme. I....
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....l Member in the proposed order objected to certain other expenses claimed in Unit No. I like production charges including salary booked at Rs. 38,76,712 in Unit No. I against much lower amounts in Unit Nos. II and III. Other expenses were found to be debited only in Unit No. I and not in other units. It is also observed why expenses of binding material at Rs. 3,59,992 were debited in Unit No. I when assessee had set up Unit No. II for binding purposes consisting of perfect binding system and binding expenses are debited in Unit No. III. The ld. Judicial Member has observed that he failed to understand why business was done in Unit No. I. The discrepancies pointed out by the Assessing Officer were not considered by the ld. CIT(A) while directing the Assessing Officer to accept the claim of the assessee. The ld. Judicial Member therefore agreed with approach of the Assessing Officer except computation of the deduction. 38. In my considered view, there is no confusion on facts involved in the case. The assessee is carrying on printing work in Unit No. I. It has debited binding expenses in said unit also. It is nobody's case that after printing, binding work was not carried by U....
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....and without and justification on the part of the Assessing Officer some of the expenses claimed by the assessee were held to be inflated in Unit No. I and were deflated in Unit Nos. II and HI. Entire case of Assessing Officer in both the assessment years is based on surmises and conjectures. The ld. CIT(A) had passed a fair, rational and just order. There was no scope to interfere with the impugned orders as rightly held by the learned Accountant Member in his proposed order. On similar facts claim in earlier years was allowed to the assessee. 40. Before concluding I would like to refer to certain pertinent observations made by the Privy Counsel and by the Hon'ble Supreme Court relating to basis of assessment. In the case of CIT v. Laxminarain Badridas [1937] 5 ITR 170, the Privy Council had observed that Assessing authority must make what he believes to be a fair estimate of proper figure of assessment and that assessment should not be dishonestly, vindictively or capriciously made. It should also not be arbitrary. 41. Their Lordships of Supreme Court in the case of State ofKeralav. C. Velukutty [1966] 60 ITR 239 after referring to the above decision of Privy Council obs....
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....ore, rightly set aside the orders of the Tribunal. Nor can we accede to the request of the learned counsel for the State to remand the matter to the Tribunal for fresh disposal. The sales tax authority had every opportunity to base its judgment on relevant material; but it did not do so. The department persisted all through the hierarchy of Tribunals to sustain the impugned assessments. The High Court, having regard to the circumstances of the case, refused to give the department another opportunity. We do not think we are justified to take a different view." 43. I see some parallel between the facts of the above cited case and case in hand, because profit was disclosed in Unit Nos. II and m on which deduction under section 80-I was claimed and no profit was disclosed in Unit No. I on which no such deduction was permissible and expenses in aforesaid Unit No. I were much higher than this in the other two units. It was probable that more expenses were claimed in Unit No. I and some of the expenses of Unit Nos. II and III were diverted and claimed in Unit No. I. But no presumption under the law could be raised that expenses were so diverted. The assessee has produced accou....