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TMI Blog2019 (1) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... r orders undertaken by the non-STPI unit were transferred to the STPI unit. The two lines of business were separate. The finding that the two lines of business were separate has not been questioned. Expenditure declared and disclosed as incurred for non-exempt unit cannot be treated and transposed as expenditure incurred on exempt unit, on assumptions and surmises by referring to difference in turnover, expenses and net profit rate of exempt and non-exempt units. This cannot justify the AO’s direction to shift 90% of the expenditure from the non-exempt unit and treat it as expenditure of the exempt unit, thereby reducing the profit in the STPI unit. Inference and deduction solely based and predicated on net profit rate is nothing but a surmise and conjecture. U/s 144 book results cannot be rejected only on the ground of decrease or difference in gross profit rate compared to other years or another assessee. Neither can the book results be rejected for the reason that gross or net profit rates in the two lines of business are different. The difference can be the starting point of investigation and verification but not the essence to reject the book results and make best judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er for this reason held that the respondent-assessee had shifted huge expenses to the unallocated segment. On the said assumption the Assessing Officer inferred that the expenses claimed as personnel expenses and operative, administrative and other expenses relate to software development unit i.e. the exempt unit. The claim of depreciation in the ratio of 50:50, he observed, appeared to be disproportionate and without cogent basis. Computer, office equipment, furniture and fixtures, vehicles etc. must have been used for software development activity and, therefore, should be suitably accounted in both the eligible and non-eligible units. Bad debt of ₹ 1,23,80,391/- written off in the unallocated segment should have been allocated to exempt segment. The Assessing Officer noticed that the Transfer Pricing Officer had accepted the price charged as Arms Length Price, but this he observed did not matter for the Transfer Pricing Officer had not verified whether the expenditure claimed was correct. Recording the aforesaid findings, the Assessing Officer disallowed the entire claim of ₹ 1,48,89,090/- under section 10A of the Act. 5. The aforesaid addition was deleted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .07% Net Profit Rate based on its consolidated profit Loss Account. However, the net Profit of the Software Division was 15.63% while in the unallocated segment, there was a Net Loss of 11.20% therefore he came to the conclusion on analysis of facts and details that the assessee has shifted huge expenses to the unallocated segment. Evan, the Depreciation claim of 50:50 ratio also appeared to him to be disproportionate and without any cogent basis. As regard Bad Debts claim also, as written off reflected in the unallocated segment, the AO observed that the said amount represented the Date of the previous years, pertaining to its software operations and therefore, bad debt should have been allocated to the software development segments. Therefore, the AO took recourse to provisions of section 10A(7) r.w.s 80IA(10) of the Act. 4.1.2 Section 10A of the Act provides for a deduction of profits derived from export orientated units (EOUs) set up in free trade zones (FTZs), electronic hardware technology parks (EHTPs), software technology parks (STPs) or Special Economic Zones (SOZs). The deduction is allowable in respect of profits and gains derived by an undertaking from the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht be expected to arise in the business undertaking claiming exemption u/s 10A of the Act on one hand also by claiming huge loss in the eligible unit for the purpose of carry forward set off the loses in future years against the positive income, when tax holiday period expires. However, the word appears cannot be taken in isolation de hors the qualifying words so arranged with the business, more than the ordinary profits in the eligible business. While on the first aspect, there is not much dispute, the second requirement, viz, it is a course of business so arranged as to result in an inflated profit for the eligible business by way of shifting huge expenses to unallocated unit, is not forthcoming from the order of the AO. The appellant is maintaining separate books of account for its STPI Domestic business has recorded all the corresponding expenditure as well as income/receipts. The Assessing Officer was only required to find out the correctness of the books of accounts as regards the allocation of common expenditure for export domestic business complete the assessment accordingly. The Assessing Officer has in turn rejected the assessee s books of account in effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onvertible foreign exchange. Therefore, the appellant is denied the benefit of exemption u/s 10A of the Act but on separate reasons. This disposes of the first two grounds of appeal, in effect essence and against the appellant. 6. The Tribunal, on an appeal preferred by the Revenue, has partly accepted the same by correcting two factual inaccuracies in the order of the Commissioner of Income Tax (Appeals), and thereby excluded ₹ 16,59,42,925/- and also ₹ 36,28,383/- from the income exempt under Section 10A of the Act. However, on the substantive aspect and reasoning, the Tribunal agreed with the findings recorded by the Commissioner of Income Tax (Appeals) that the Assessing Officer was not justified in transposing expenditure from non-exempt to exempt unit on the general assumption that net profit in distinct lines cannot be different and must be the same. Separate and segregated accounts cannot be rejected on the ground that the profit margin of the STPI unit was higher than the profit margin of the non-STPI unit, without pointing out any discrepancy, error or mistake in the accounts. 7. The findings are unchallengeable. The Assessing Officer was unable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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