2006 (3) TMI 218 - AT - Income Tax

Deduction u/s 80-I - set-off of the brought forward losses - pro rata expenses allocated to various units - no profit in Unit Nos. II and III - Whether the allocation of expenses by the assessee was proper or not - CIT(A) to allowed the deduction u/s 80-I in respect of assessee's Unit Nos. II and III. In assessment year 1993-94 - In assessment year 1993-94, CIT(A) allowed deduction u/s 80-I before set-off of the brought forward losses - Difference of opinion between ld members - Third Member Order - 1. Whether the ld. Accountant Member is right in upholding the order of ld. CIT(A) in the two assessment years under consideration? 2. Whether ld. Judicial Member is correct in restoring the file to the Assessing Officer for re-adjudication of the issue of deduction u/s 80-I in terms indicated in his proposed order? HELD THAT - 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 Unit No. I. No investigations on above line were carried. The objection is why binding charges in Unit No. I when Unit No. II has e binding machines. However, objection is raised without any justification. Binding was done in Unit No. I and expenses claimed duly supported by audited books of account. The expenses claimed on binding in Unit No. I are not held to be fictitious. Likewise Unit No. III admittedly carried printing work without binding and without debiting binding expenses. The Assessing Officer placed no material on record to controvert the claim of the assessee. It is not clear as to on what material doubts has been raised in the proposed order by learned Judicial Member even on points accepted and not challenged by the Assessing Officer. Even the manner of carrying on of business is challenged. However, on doubts and surmises, it is not permissible to deny a claim and interfere with the impugned order. As already noted the question before the CIT(A) and before the Tribunal was whether the Assessing Officer had made out or shown that expenses in Unit No. I were inflated. Whether there was any material to support the conclusion of the Assessing Officer to deny claim of deduction to the assessee. Having regard to the principle that he who alleges shall prove, the onus was clearly on the Assessing Officer to establish the case set up by him. The above and related question whether the said onus was discharged was required to be examined. The assessee had rendered explanation only to remove doubts raised by the Assessing Officer in the impugned order. The explanation was held to be reasonable and claim rational and justified on facts. That was the question required to be examined by the Appellate Tribunal in accordance with the law. I have however find that instead of examining above questions, order proposed totally different an d new questions based on suspicions and doubts. A good explanation duly accepted by the ld. CIT(A) has been treated as bad after wrongly placing onus on the assessee which under the law was on the Revenue. It is clear from the assessment orders that income shown and expenses claimed by the assessee have been duly allowed in the assessment order. None of the expenditure has been treated as ingenuine or not connected or related to the business carried out by the assessee. In the above background and without any material, 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. Before concluding I would like to refer to certain pertinent observations made by the Privy Counsel and by the Hon'ble Supreme Court in the case of State of Kerala v. C. Velukutty 1965 (12) TMI 32 - SUPREME COURT relating to basis of assessment. In the case of CIT v. Laxminarain Badridas 1937 (2) TMI 1 - PRIVY COUNCIL , 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. 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 accounts with details and, therefore, correct position could have been ascertained from the material statement of relevant persons including management and staff of the assessee could have been examined. But without any investigation and without collecting any material an arbitrary assessment by holding that expenses in Unit No. I should be proportionate to those in Unit Nos. II and III was made. Assessment based on such inference has to be held as arbitrary. Thus, I agree with the order proposed by ld AM, confirming the impugned orders of CIT(A). Let the matter be now placed before the regular Bench for disposal in accordance with law in both the assessment years.

Summary

Issues Involved:
1. Deduction under section 80-I for Unit Nos. II and III.
2. Allocation of expenses among different units.
3. Set-off of brought forward losses before allowing deduction under section 80-I.

Detailed Analysis:

1. Deduction under section 80-I for Unit Nos. II and III:
The revenue challenged the CIT(A)'s direction to allow deduction under section 80-I for Unit Nos. II and III, arguing that the allocation of expenses among the units was arbitrary and inflated profits for Units II and III. The CIT(A) analyzed the working of various units and found the allocation of expenses by the assessee to be rational, thus justifying the deduction under section 80-I. The Tribunal upheld the CIT(A)'s findings, noting that the nature of printing and consumption of materials differed between the units, and the expenses were allocated on a rational basis.

2. Allocation of Expenses Among Different Units:
The Assessing Officer (AO) argued that the expenses in Unit No. I were inflated while those in Units II and III were deflated to claim higher deductions under section 80-I. The CIT(A) and the Tribunal found that:
- Paper Consumption: Unit No. I purchased paper, while Unit No. III did job work on paper supplied by publishers.
- Ink Consumption: Unit No. I had 14 old machines consuming more ink compared to Unit No. III's single modern machine.
- Salaries and Production Charges: Higher in Unit No. I due to senior workers and more machines.
- Subscription Deposit Scheme: Expenses were rightly allocated to Unit No. I as the scheme was in place since 1972, before the other units were established.

The Tribunal found no defects in the books of accounts maintained separately for each unit and upheld the CIT(A)'s decision, dismissing the revenue's appeal.

3. Set-off of Brought Forward Losses Before Allowing Deduction Under Section 80-I:
The revenue also challenged the CIT(A)'s direction to allow deduction under section 80-I before setting off brought forward losses. The CIT(A) clarified that any loss from earlier years should be adjusted from the current year's profit as per section 80-I(6). The Tribunal noted that there were no brought forward losses as the assessed income for 1992-93 was positive. Therefore, this ground of appeal was deemed academic and infructuous.

Separate Judgment by Judicial Member:
The Judicial Member disagreed with the Accountant Member's proposed order, arguing that the allocation of expenses was disproportionate and needed re-examination. He proposed restoring the matter to the AO for detailed enquiry and re-computation of deduction under section 80-I. However, the Third Member (President) concurred with the Accountant Member, confirming the CIT(A)'s order and dismissing the revenue's appeals.

Conclusion:
The Tribunal, by majority view, upheld the CIT(A)'s order allowing deduction under section 80-I for Unit Nos. II and III and found the allocation of expenses to be rational and justified. The issue of set-off of brought forward losses was rendered academic as there were no such losses. The revenue's appeals were dismissed.