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TMI Blog2014 (3) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... Apportionment of labour charges to Pondicherry unit – Held that:- The entire labour charges was incurred by the assessee at the work site Nagda - The assessee's Pondicherry unit was a specialized unit for manufacturing the critical items such as Saturator, Reactors, Clarifier, Filters, and Tanks & Pumps - Though the work undertaken by the assessee is a composite contract, the role of the assessee's Pondicherry unit was to supply only the above products - the assessee's Pondicherry unit did not have any role in the fabrication work undertaken by the assessee in the site – also, no materials were brought to show that the assessee's Pondicherry unit had any role in the execution of the activities rendered at the assessee's clients' site – thus, it is not necessity to allocate the expenses incurred by the assessee for the payment made to M/s.KRR Engineering Pvt. Ltd., by the Madras unit, to Pondicherry unit – there is no infirmity in the order of the CIT (A) – Decided against Revenue. Restriction of disallowance u/s 35AB of the Act – Technical know-how – Held that:- Disallowance of technical know-how fees of ₹ 10 lakhs which is restricted to 1/6th in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 2. Ld.CIT (A) had erred in deleting the disallowance of technical know-how fees of Rs.10 lakhs, which is to be allowed only to the extent of 1/6th of Rs. 10 lakhs in view of Sec.35AB of the Act. 4. The brief facts of the case are that the assessee is a company, engaged in manufacturing specialized machinery for chemical industries, filed its return of income for the assessment year 1994-95 on 30.11.1994. Though the return was processed U/s. 143(3) of the Act, the case was reopened and order was passed U/s. 147 of the Act on 28.03.2002. For the assessment year 1995-96, Ld. Assessing Officer passed order on the same day consequent to the order passed by Ld. CIT U/s. 263 of the Act, dated 24.03.2000. 5. Revenue's appeal 1994-95:- Reduction of Rs.22,60,870/- while computing the deduction U/s. 80IA of the Act:- The assessee in addition to the newly established unit at Pondicherry, which was eligible for deduction U/s. 80IA of the Act, had other industrial units at Chennai Trichy. During the year relevant previous year 1993-1994, the assessee had received conversion and service charges of Rs.1/- crore, which was credited in the books of the assessee's Pond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and State Govt. For instance Ranbaxy, a multinational pharmaceutical company as set up its plants for 7 M/s.Chemfab Welders Ltd. manufacture in Himachala Pradesh. This is only one of the various instances that can be cited. Grasim industries was palced different, separate and specific orders on CWL Pondy and CWL Madras. This is a contract between two independent commercial organizations who are well known having established themselves for more than two decades. This contract requires to be understood from the point of view of a businessman. The technical know how fee of Rs.100 lacs paid by GIL to CWL of Pondicherry cannot be compared with the trading commission of Rs.34.5 lacs paid for securing the total order to M/s.Kunaon Engg. Co Pvt Bombay by the appellant. The action of the AO in apportioning the consideration received for know how and engineering as per order placed by GIL on CWL Pondicherry, of Rs.100 lacs in the proportion of 2.6 : 8.9 which solely belong to Pondicherry unit, between Pondicherry and Madras units in the same manner as apportionment of trading commission of Rs.34.5 lacs paid and apportioned by the appellant in my view on the facts of the case and materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not rejected the books of accounts maintained by the assessee's Pondicherry unit and Trichy/Chennai units etc. Further, from the order of the Ld. Assessing Officer, summarized herein above, it is apparent that the Ld. Assessing Officer has not given a categorical finding on the issue, but merely came to the conclusion on the basis of certain presumptions inferred from some of the communications transacted between the assessee and its client. However, Ld.CIT (A) has examined the issue in detail and arrived at the conclusion that the assessee had engaged its Pondicherry unit for technical knowhow services. There was nothing brought before us to suggest that the Chennai/Trichy unit of the assessee has extended any know-how to the client of the assessee. From the facts and circumstances of the case, we do not have any reason to defer with the findings of the Ld.CIT (A) on this issue. Therefore, we hereby confirm the order of the Ld.CIT (A) on this issue. Accordingly this ground raised by Revenue is decided against it. 9. Revenue's appeal for A.Y. 1995-96:- 9.1 Ground No.1: Apportionment of labour charges to Pondicherry unit for Rs.51,11,940/- :- Ld.CIT vide his ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icherry unit also played a role in executing the composite project. (ii) There were overlapping of labour charges and other expense amongst different units and they were not allocated to the appropriate work centers. (iii) The assessee had not maintained cost records or conducted cost audit. 9.4 Thereafter the Ld. Assessing Officer arrived at the average ratio for allocating labour charges to Pondicherry unit at 40% of the total labour charges of Rs 1,27,79,870/-, which amounted to Rs 51,11,948/-. 9.5. On appeal, Ld. Ld. CIT (A) after examining the issue in detail, made a categorical finding that the entire works of fabrication executed by M/s.KRR Engineering Pvt. Ltd were at the site of the project and therefore, it did not have any relevance to the Pondicherry unit. 9.6. Ld. D.R argued in support of the order of the Ld. Assessing Officer while as Ld. A.R. relied on the order of the Ld. CIT(A). 9.7. We have heard both the parties and carefully perused the materials available on record. It is evident from the facts of the case that the entire labour charges disputed by the Ld. A.O of Rs 1,27,79,870/- was incurred by the assessee at the work site Nagda. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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