TaxTMI 
TaxTMI 
2010 (2) TMI 790
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....he assessee u/s. 80 IB of the Act at Rs. 17,38,33,299/-. While working out the deduction u/s. 80 IB, the AO has allocated the common expenses amounting to Rs. 1,44,07,911/- to the EOU unit in respect of which deduction u/s. 80 IB has been allowed. As a result of such allocation of expenses to EOU unit, the profit of EOU unit has been reduced by Rs. 1,44,07,911/-. 5. On an appeal, the CIT(A) worked out the deduction available to the assessee u/s. 80 IB of the Act at Rs. 18,05,92,287/-, there by the deduction u/s. 80 IB allowed by the AO to the assessee has been increased by Rs. 67,58,988/-. The CIT(A)'s discussion and working has been discussed in para 6 to 6.2 of his order, which are as under:- "6. Ground no. 3 and 5 relate to the grievance of the appellant in restricting the claim of deduction under section 80-IB to the extent of Rs. 17,38,33,299/-. It is observed that the identical issue had come up in the appellant company's own case for assessment year 2005- 06. My predecessor-in-office in appeal No. 196/07-08 vide order dated 17.04.2008 had decided the issue granting partial relief t the appellant. The above decision of my predecessor-in-office was followed by ....
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....f this appeal, the ld. counsel for the assessee pointed out that the issue with regard to the allocation of common expenses between non-EOU and EOU unit had come for consideration before the Tribunal in the assessee's own case pertaining to the A.Y. 2005-06, which has been decided by the Tribunal vide order dated 20th November 2009 in ITA no. 1995/Del/2008 filed by the assessee and ITA no. 2517/Del/2008 filed by the Revenue. The Tribunal's order runs as under:- "2. The only issue raised by the revenue is as under:- "2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing relief of Rs. 1,07,65,254/- u/s 80IB ignoring that action of the AO was based on provisions of section 80IB (13) read with 80IA (7) and also on examination of the books of accounts of the assessee." 3. The issue raised by the assessee in ground No. 1 is onnected to the above issue raised by the revenue. 4. Ground No. 1 raised by the assessee is as under:- "1. That on the facts and in the circumstances of the case and in law, the authorities below have erred in invoking and in applying the provisions of section 80-IA (10) read with 80-IB (13)....
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.... Deduction u/s 80IB is allowed less by Rs.1,27,99,343. 2. Break up of revenue of the appellant company is as under (amount in Rs.):- Non EOU Unit EOU Unit Others Total Inland Sales 167,6774386 36,01,54,179 9,47,59,924 213,16,88,489 Export Sales 2,11,96,414 12,67,35,035 - 14,79,31,449 Other Incomes 1,69,61,692 - 29,83,193 1,99,44,885 Total 171,49,32,492 48,68,89,214 9,77,43,117 229,95,64,823 3. The Assessing Officer examined the account books of the appellant company and compared the expenses of the two units. The Assessing Officer held that proportionate expenditure of the EOU Unit is much less when compared to the expenditure of the Non EOU Unit. Expenses under "wages" in the Non EOU unit was shown at Rs.33.58 lakhs as against only Rs.12.57 lakhs shown in the EOU Unit. Under the head "Salaries", Rs.1.70 crores were debited in the Non EOU Unit, while nil expenditure was shown in the profit and loss account of the "EOU Unit", Rs.7,95,300 paid as salary to Mr. M. Amanutullah, vice president (Export Division), Mr. Sumit Sood (Manager Exports) and Ajit Kumar Service Engineer, and foreign travel expenses aggregating Rs.4,28,277 incurred by....
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....pany has prepared and filed with the Assessing Officer separate balance sheets, profit and loss accounts, schedules, details annexure of the two units. Purchases, sales and expenses of the two units are vouched and supported by proper bills. The accounts are audited. There is no intermixing of expenses. Profits of "EOU Unit" are not inflated to claim higher deduction u/s 80 IB of the Act. The two units have separate current accounts with HDFC/City Bank. There is no inter mixing of funds of the two units. 6.1 The Non EOU Unit sold 2476 DG sets for Rs.169,79,70,800 at an average sale price of Rs.6,85,772. The EOU on the other hand sold only 244 DG sets for Rs.48,68,89,214 at an average sale price of Rs.19,95,447. There is no intermixing of the products manufactured and sold by the two units. The Non EOU Unit sold DG sets of mixed ratings as per customer's requirement. It has a larger customer base, attended through sales offices located in different cities across the country. Operating and establishment cost of the Non EOU Unit are thus more, and NP rate is lower. The "EOU Unit" sold DG sets of higher rating, from its factory. It has a smaller customer base. Operating....
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....pplied. The Assessing Officer should have allowed deduction u/s 80IB on the enhanced income of the Non EOU Unit, resulting from reallocation of the administrative expenses. 7. The appellant company has filed a statement comparing expenses of the branches of the Non EOU Unit for the Ass. Years 2004-2005 and 2005-2006, and has submitted that the branches incurred such expenses even when the EOU unit did not exist. There is no exaggeration of expenses in the year under appeal merely because EOU unit at Daman is set up. The appellant company has also filed a statement comparing (a) income, expenses, GP and NP earnings of the Non EOU unit for the A.Y. 2004-2005 with that of the EOU/Non EOU Units (combined) for the A.Y. 2005-2006. The appellant company has filed another statement comparing income, expenses, GP and NP earnings of the EOU and the Non EOU Units, inter se, for the A.Y. 2005-2006. 8. The appellant company has also submitted that the provisions of section 80-IA(10) can only be invoked where an assessee caries on an eligible business, and arranges its business with any other person, or for any other reason the business is so arranged by the assessee within itsel....
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....IA(10) as under:- "Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived there from." 9.3 The Assessing Officer has not brought on record specific instances to show that the appellant company has debited expenses of the EOU Unit in the account books of the Non EOU Unit, with a view to inflate the profits of the EOU Unit and claim higher deduction u/s 80-IB of the Act. Therefore adhoc apportionment of the entire Administrative expenses of Rs.6,16,52,483 to the EOU Unit in the ratio of sales as done by the .............. cannot be entirely sustained, as one without basis. The action of the Asse....
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....ate. There is no inter-mixing of funds of two units. The ld. CIT(A) has also considered about the sale price of DG sets sold in noneligible unit vis-à-vis DG sets sold in exempted unit, and has come to the conclusion that the assessee has not booked the expenses of eligible units in the non-eligible unit with a view to increase the profit of eligible unit which is exempted u/s 80IB of the Act. However, it is important to note that various overall management and administrative expenses as pointed out by the ld. CIT(A) in his order are certainly related to both the units. Therefore, the ld. CIT(A) has allocated these expenses to both the units in proportion to the total revenue of the year vis-à-vis the revenue of exempted unit and non-exempted unit. In the light of these facts which have been categorically found by the ld. CIT(A) and nothing contrary to that has been brought to our notice, we are of the considered view that the ld. CIT(A) has rightly deleted the addition to the extent of Rs. 1,07,65,254/- from the total addition made by the A.O. and has rightly allocated the various expenses aggregating to Rs. 1,81,41,900/-, details of which are set out in the ....