TaxTMI 
TaxTMI 
2021 (3) TMI 1371
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....s for the purpose of determining division wise profitability. 3.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee company is engaged in the business of manufacturing and export of agro chemicals & drug intermediates. The assessee is having the following manufacturing units :- • MAHAD - Manufacturing agrochemicals • TALOJA - Manufacturing agrochemicals in an Export Oriented Unit (EOU) and claiming deduction u/s 10B of the Act • PANOLI - Manufacturing pharma products of lactam & cydohexidine in an Export Oriented Unit (EOU) and claiming deduction u/s 10B of the Act • PANOLI - Manufacturing agrochemicals for local markets in Non-EOU • BANGALORE - Manufacturing pharma products for export in an Export Oriented Unit (EOU) and claiming deduction u/s 10B of the Act • BANGALORE (R&D) - Company is doing Research & Development (R&D) in Non-EOU for in-house pharma products • DOMBIVALI - Company is having incineration plant which is non-operational for last 3 years • BANGALORE (Non-EOU) - In this plant, Company does solvent reco....
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..... Therefore, the assessee company had adopted the balanced approach by taking the average of gross block of assets, turnover and manpower employed in the respective units for the purpose of allocation of common expenses. It was pleaded that the result of the allocation of common expenses on the basis of turnover had resulted in the reduction in the profit of EOU unit of Rs 27,92,178/- and consequently resulted in reduction of loss of Non EOU unit by the same amount. Despite these contentions, the ld CITA simply upheld the action of the ld AO without giving any independent findings. We find that since the allocation basis of common expenditure has been rejected by the lower authorities without any basis and by totally ignoring the various contentions raised thereon in respect of each of the behaviour of various units and the past assessments framed in the hands of the assessee u/s 143(3) of the Act. The copies of various assessment orders passed in the case of the assessee in earlier years are as under:- Asst Year 2002-03 - 143(3) dt 18.2.2005 - Pg 227 of Paper Book 143(3) rws 147 dt 31.12.2009- Pg 235 of paper book Asst Year 2003-04- 143(3) dt 10.1.2006 - Pg 245 of P....
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.... assessee had billed separately to its customers in the said unit and generated revenue which are enclosed in pages 144 to 193 of the paper book filed before us. Accordingly, the assessee pleaded that there is no need to allocate R&D expenditure to other units as R&D unit is a separate unit by itself capable of generating independent revenue having its own customers. 4.2. However, without prejudice to the said argument, the assessee submitted that maximum 5% of expenses and depreciation of R&D unit may be allocated to Bangalore EOU unit. 4.3. We find that these submissions did not hold any water and the ld AO observed that assessee was not allocating expenses of R&D unit to EOU unit in order to claim higher deduction u/s 10B of the Act. We find that the ld AO also did not accept the Bangalore R &D unit as a standalone unit as assessee had claimed deduction u/s 35(2AB)(1) of the Act and in the opinion of the ld AO, the deduction u/s 35(2AB) of the Act could be claimed only by a company manufacturing or producing any drugs etc. The ld AO further noted that the Bangalore R&D unit had generated revenue of Rs. 4,09,20,348/- against claim of deduction u/s 35(1)(iv) of the Act for R....
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....at the ld AO had accepted R& D Unit at Bangalore as a separate unit and deduction u/s 10B of the Act was not disturbed by the ld AO except for other income and miscellaneous income. Asst Year 2003-04- 143(3) rws 147 dt 31.12.2009 - Pg 249 of Paper book We find that in this assessment, deduction claimed u/s 10B of the Act was adjusted only in respect of Taloja unit of the assessee which has nothing to do with the Bangalore Pharma unit and R &D unit apart from making disallowance u/s 14A of the Act. Asst Year 2004-05 - 143(3) dt 23.2.2006 - Pg 258 of Paper Book We find that the ld AO had accepted R& D Unit at Bangalore as a separate unit and deduction u/s 10B of the Act was not disturbed by the ld AO except for other income and miscellaneous income. Asst Year 2004-05 - 143(3) rws 147 dt 31.12.2009 - Pg 261 of paper book We find that in this reopened assessment, the ld AO sought to make allocation of total expenses of R&D unit to Bangalore EOU after observing that assessee itself had allocated 5% of total expenses thereon. Accordingly, the ld AO made adjustment of allocation of expenses by allocating Bangalore R&D Unit expenses, de....