TaxTMI 
TaxTMI 
2022 (6) TMI 955
X X X X Extracts X X X X
X X X X Extracts X X X X
....it amounting Rs. 50,82,383/- to Taloja EOU unit and thereby reducing the amount of exemption u/s 10B of the Income Tax Act. 3. The Learned Commissioner of Income Tax (Appeals) failed to appreciate that the incinerator plant at Dombivali unit is stand alone and independent unit and not a part of the Taloja unit. 4. The Learned Commissioner of Income Tax (Appeals) erred in upholding the el allowance in respect of expenditure of Research and Development Centre u/s 35(i)(vi) to the extent of Rs. 8,20,950/- in respect of Non-EOU unit instead of Rs. 2,49,50,202/- claimed in the return of income. 5. The Learned Commissioner of Income Tax (Appeals) erred in confirming the allocation of the Research & Development expenditure incurred at Bangalore of Rs. 2,02,26,011/- to the income of EOU units instead of Non EOU units. 6. The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 1,38,90,413/- u/s 14A of the Income Tax Act which was computed based on the investments which are not tax free and does not enter the computation formula prescribed under Rule 8D of the Income Tax Rules. 7. The Learned Commissioner of Income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing units, which are non-EOU units. 5. During the assessment proceedings, the assessee was asked to show cause as to why the expenses incurred at incinerator plant at Dombivali should not be allocated to the Taloja unit, which is basically an EOU unit. In reply, assessee submitted that its incineration unit at Dombivali was set up with a view to reduce the environmental impact due to generation of waste chemicals by the chemical units. The said unit was set up to carry out work for customers besides assessee's own requirements in Taloja and Mahad unit. The assessee further submitted that after setting up the unit, the Maharashtra Pollution Control Board set up their own incineration unit offering service at much lower cost via its central effluent treatment plant. In addition, the sharp increase in fuel oil prices made such unit uneconomical to run. 6. The Assessing Officer vide order dated 31/12/2009 passed under section 143(3) of the Act, inter-alia, after noting that as Dombivali incinerator plant was providing its services to Taloja unit and there is loss in Dombivali unit during the year, the assessee must allocate such expenses to the Taloja unit, while computing deduct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nit. The income of Dombivali unit consists of service invoices raised on the customer as well as the other units of the assessee. The expenditure incurred by the Dombivali unit consists of basic establishment and operation expenditure to run the factory. As the Dombivali unit was running as a separate and independent unit, therefore, the assessee has computed division-wise profitability also in respect of Dombivali unit. Thus, as per the assessee, the profit/loss of Dombivali unit, accordingly, merged with the aggregate profit/loss account of the company. 11. On 07/03/2007, survey was conducted at the premises of the assessee with respect to the enquiry for research and development work carried out at the Research and Development (R&D) unit of the assessee. During the course of survey proceedings, a specific question was raised regarding Dombivali unit, which reads as under: "Q.14 - It is seen that in Dombivali unit you don't have any substantial income. It is understood that this unit was started as an incineration unit for all your Taloja and Mahad units. Is it not fair if the net expenses of this unit is a portion on turnover basis to these two units?" In reply, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... expenditures are incurred for keeping the Dombivali plant running. While, on the other hand it is the case of the assessee that as the Dombivali unit was non-operational and thus no services were rendered to the Taloja EOU unit, the expenditure incurred for keeping the Dombivali unit running cannot be allocated to the EOU unit. At this stage, it is also pertinent to note that even Revenue has not denied that the Dombivali unit had also rendered services to outside customers and non-EOU units prior to the said unit become non-operational. Thus, if we assume that in case the assessee restarts its Dombivali unit, the same will cater to its own units apart from other outside customers and therefore assessee's own units will also have the benefit and for this reason expenditure was incurred for keeping Dombivali unit running. However, such a presumption cannot be extended to lead to the conclusion that whatever expenditure was incurred for purpose of keeping the Dombivali unit in running condition can be allocated to the EOU of the assessee, even when no services were rendered to EOU. As it has not been denied by the Revenue that the Dombivali unit had catered to both outside customers....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hile computing deduction under section 10B of the Act, is set aside. We, further, deem it appropriate to remand this issue to the file of Assessing Officer for de novo adjudication after examination of all the aspects as mentioned above. If upon fresh examination, it is found that any service was rendered by the Dombivali unit to EOU Taloja unit then the expenditure, to the extent, same pertain to such services shall be allocated to EOU Taloja unit. However, if upon examination it is found that the EOU Taloja unit of the assessee has not availed any service from Dombivali unit and rather the service of incineration were availed from any other units or from Maharashtra Pollution Control Board's incineration unit, during the year under consideration, and in respect of same, expenditure has already been incurred by the EOU unit then no additional expenditure is required to be allocated to the Taloja EOU of the assessee. As a result, grounds No. 2 and 3 raised in assessee's appeal are allowed for statistical purpose. 15. The issue arising in grounds No. 4 and 5, raised in assessee's appeal, is pertaining to allocation of R and D expenditure to EOU units. 16. The brief facts of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....O 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 Rs. 1,47,44,014/- and deduction u/s 35(2AB) of the Act for Rs.4,30,14,243/-. Accordingly, the ld AO held that the Bangalore R &D unit was not a standalone unit and allocated expenses to the extent of Rs.2,86,76,162/- to different EOU units. We find that the ld AO further held that deduction u/s 35(1)(iv) of the Act with respect to R&D expenses of Rs.1,47,44,014/- and deduction u/s 35(2AB) of the Act of Rs.4,30,14,243/- was to be reduced from the profits of EOU units. This action of the ld AO was confirmed by the ld CITA. 4.4. We find from the perusal of the financial statements of the assessee enclosed in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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, deduction u/s 35(1)(iv) of the Act expenses between Pharma EOUs and Bangalore R&D unit on the basis of turnover. But we find that this entire reopened assessment was ultimately quashed by this tribunal, against which , according to ld AR, no further appeal was preferred by the revenue before the Hon'ble High Court. The ld DR also was not able to provide any evidence in this regard before us. Hence the entire allocation of expenses made by the ld AO stood ultimately quashed by the tribunal and had reached finality thereon. Asst Year 2005-06 - 143(3) dt 31.12.2007 - Pg 276 of Paper Book ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....need not be allocated to EOU units." 19. The learned DR could not show any reason to deviate from the aforesaid order and no change in facts and law was alleged in the relevant assessment year. Accordingly, respectfully following the judicial precedent in assessee's own case cited supra, grounds No. 4 and 5 raised in assessee's appeal are allowed. 20. Ground No. 6 raised in assessee's appeal was not pressed during the course of hearing. Accordingly, the said ground is dismissed as not pressed. 21. The issue arising in grounds No. 7 and 8, raised in assessee's appeal, is pertaining to setting off of loss of non-EOU against income from EOU. 22. The brief facts of the case pertaining to this issue, as emanating from the record are: During the year under consideration assessee had suffered loss of Rs. 5,11,51,216 in non-EOU units. The Assessing Officer vide order passed under section 143(3) of the Act, while allowing deduction under section 10B of the Act adjusted the loss of non-EOU units against the profits of EOU units and allow deduction under section 10 B of the Act. In appeal, learned CIT(A) dismissed assessee's ground of appeal on this issue on the basis that the sam....