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2009 (4) TMI 547 - AT - Income TaxDeduction u/s. 80-IA and 80-IB - assessee has Head Office in Bombay and has eligible business at Silvassa and it enjoys the benefits of the provisions of section 80-IB - AO asked the assessee to explain as why the expenses pertaining to head office should not be charged to the profits of the eligible unit - assessee replied stating that the expenses actually incurred by Silvassa Division was only to be debited to the P L account of Silvassa Division, the eligible unit - CIT(A) confirmed the decision of AO in restricting the deduction u/s 80-IB against claimed by the assessee. Case of the assessee is that the common expenses, since they are not specific to the Silvassa Unit, must not be booked against the tax-free profits of the eligible business - revenue is that the provisions of section 80-IB do not permit such computation of profits and gains of the eligible business. HELD THAT - It is evident that section 80-IB provides for the allowing deduction in respect of the profits and gains derived from the eligible business. Sub-section (13) of section 80-IB provides for the applicability of the provisions of sub-section (5) and sub-sections (7) to (12) of sections 80-IA, so far as may be, applicable to the eligible business under section 80-IB. On perusal of the provisions of the said sub-section (5), it is noticed that it provides for manner of computation of the profits and gains of an eligible business. Accordingly, such profits and gains are computed as if such eligible business were the only source of income of the assessee. Therefore, it is fact that the assessee is under legal obligation by virtue of section 80-IB(1) to compute the profits and gains of the eligible business separately and that of the others separately. It is so held in the case of Eastern Medikit Ltd. 2005 (11) TMI 201 - ITAT DELHI-F too. The arguments of the Counsel, that common expenses, since they were not incurred in connection with the Silvassa Unit, should not be booked to the section 80-IB unit, we find that there are express provisions in the statute against the devices which inflates the tax-free profits of such eligible businesses. While sub-section (7) provides for auditing of the accounts of the eligible business and furnishing of the relevant report with the view to ensuring the accurate computation of the profits and gains of the eligible profits, sub-section (8) provides for applying the principles of an arm s length price (ALP) and its proviso conditionally permits AO to resort to reasonable estimations, although the same is in respect of the transactions between eligible business and others carried on by the assessee. Further, in the circumstances of disclosure of profits more than ordinary profits, sub-section (10) grants powers to AO to take the amounts of profits of eligible business for the purpose of computing profits and gains of such eligible business as may reasonable deemed to have been derived therefrom. Thus, section 80-IA/80-IB provide for the provisions against the disclosure of the excessive profits in respect of the eligible profits. In the instant case, such possibility is inevitable, as admittedly, the indirect expenses were booked only against the taxable profits of the non section 80-IB projects and not against the tax-free profits of section 80-IB unit. Therefore, any computation which supports disclosure of excessive profits of eligible business is against the provisions of section 80-IB/80-IA. The provisions of section 80-IB(1) r/w the deemed provisions of sub-section (5) (erstwhile sub-section (7) of section 80-IA with its overriding application, prescribe for the special mode/manner of computation of the profits and gains of the eligible business, which must be computed as if it the only source of income (Chaturvedi Pithisaria s Income-tax Law - 5th Edition). Further, the provisions of said sub-section (5) are the distinct and deemed provisions as held in the case of Dewan Kraft System (P.) Ltd. 2007 (2) TMI 149 - DELHI HIGH COURT . When such computation is undertaken as per the same, all the expenses of the business including the indirect or common or head office expenses have to be booked to all the ongoing projects, if not to the section 80-IB projects exclusively. On the principle of strict interpretation of section 80-IA(5) and consequently, the views are supported in principle by the decision of the Tribunal in the case of Goldmine Shares Finance (P.) Ltd. 2008 (4) TMI 405 - ITAT AHMEDABAD and other decision in the case of Eastern Medikit Ltd. (supra). Further, the Delhi Bench Tribunal has already taken view in support of the allocation of the head office expenses among all the section 80-IB units. Under these circumstances, we find no reason to interfere with the order of the CIT(A) in this regard. Accordingly, the ground of assessee s appeal is dismissed. The, appeal of the assessee is dismissed.
Issues Involved:
1. Application of Section 143(3) and Section 145(3) of the Income-tax Act, 1961. 2. Deduction under Section 80HHC concerning labour charge receipts. 3. Restriction of deduction under Section 80-IB. Detailed Analysis: 1. Application of Section 143(3) and Section 145(3) of the Income-tax Act, 1961: The revenue contended that the CIT(A) erred in not upholding the action of the Assessing Officer (AO) in applying the provisions of Section 143(3) and Section 145(3) of the Income-tax Act, 1961, which led to an addition of Rs. 1,79,70,997 due to alleged suppression of sales. The Tribunal referred to its earlier order for assessment years 1997-98 to 1999-2000, where similar additions were made and subsequently deleted by the CIT(A), a decision that was upheld by the Tribunal. The Tribunal found the facts of the current case to be identical and held that the CIT(A) was correct in not upholding the AO's action. Consequently, the grounds raised by the revenue were dismissed. 2. Deduction under Section 80HHC concerning labour charge receipts: The revenue challenged the deletion of the restriction of deduction under Section 80HHC to Rs. 8,96,811, arguing that labour charge receipts should not be considered as 'profit of the business.' The Tribunal examined its previous order for assessment years 2000-01 to 2002-03, where it was held that labour charges earned during the normal course of business should be included in the profits of the business for the purpose of Section 80HHC. The Tribunal found no reason to deviate from this position and confirmed the CIT(A)'s decision to allow the assessee's claim, dismissing the revenue's ground. 3. Restriction of deduction under Section 80-IB: The assessee contested the restriction of deduction under Section 80-IB to Rs. 14,80,138 as against their claim of Rs. 19,51,796. The AO had allocated head office expenses to the Silvassa Unit, which the assessee argued should not be included. The Tribunal examined the provisions of Section 80-IB and Section 80-IA(5), which mandate that the profits of the eligible business be computed as if it were the only source of income. This implies that all business expenses, direct or indirect, should be considered. The Tribunal cited various judgments, including the Delhi Bench's decision in Dy. CIT v. Eastern Medikit Ltd., which supported the allocation of head office expenses among all units. The Tribunal upheld the CIT(A)'s decision to restrict the deduction, dismissing the assessee's ground. Conclusion: Both the revenue's appeal and the assessee's appeal were dismissed. The Tribunal upheld the CIT(A)'s decisions on all contested issues, affirming that the application of Sections 143(3) and 145(3) was incorrect, labour charge receipts should be included in business profits for Section 80HHC, and head office expenses should be allocated to the eligible unit for Section 80-IB deductions.
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