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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri M. Balaganesh, AM & Shri K. Narasimha Chary, JM]
ORDER Per Shri M. Balaganesh, AM:
This appeal by revenue is arising out of order of CIT(A)-I, Kolkata vide appeal No. 367/CIT(A)-I/C-1/12-13 dated 24.05.2013. Assessment was framed by DCIT, Cir-1, Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2010-11 vide his order dated 13.02.2013.
The first issue to be decided in this appeal is as to whether the assessee is entitled for deduction u/s 80IC of the Act in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is engaged in imports and dealing of computer peripherals and consumables in its Trading Division and manufacturing of Compact Disc Recordable (CDR) at Baddi in the State of Himachal Pradesh in its Manufacturing Division. The manufacturing unit was qualified for 100% deduction u/s 80IC of the Act. The ld AO observed that the assessee had claimed deduction u/s 80IC of the Act in the sum of Rs. 5,04,72,933/- in respect of profit from manufacturing unit at Baddi which was also supported by Audit Report in Form No. 10CCB together with the audited accounts of the manufacturing unit and the computation of deduction u/s 80IC of the Act. According to ld AO, the assessee had shown the profit of manufacturing unit disproportionately higher than its trading unit. The assessee was asked to explain why the expenses of the two units show considerable variation. The assessee explained that the Jupiter International Ltd., AY 2010-11 difference arise due to labour absorption variance, machine depreciation variance due to 24 hours running of the manufacturing unit. The ld AO on making comparison of the cost of production of manufacturing unit and cost of absorption of variation for the 3 years and also found certain common expenses like directors remuneration and management remuneration were not allocated between manufacturing and trading segment. On the contrary such expenses were fully debited only in trading segment. He observed that as these expenses were not been taken into account, he added 50% of this expenses of Rs. 79,59,942/- was added to the manufacturing unit. He also observed that the interest income from fixed deposits amounting to Rs. 1,92,485/- is not directly attributable to manufacturing unit so as to qualify for deduction u/s 80IC of the Act and in any case the same would be taxable only under income from other sources. Based on the aforesaid adjustments, the ld AO observed that there is no profit available for deduction u/s 80IC of the Act and brought the same to Nil. The ld CITA deleted the disallowance u/s 80IC of the Act by placing reliance on the tribunal decision in assessee’s own case for the Asst Year 2008-09 (ITA No. 708/Kol/2011) and for Asst Year 2009-10 (ITA NO. 1641/Kol/2012). Aggrieved, the revenue is in appeal before us on the following grounds:- “
1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing deduction u/s. 80IC amounting to Rs.4,89,17,026/-.
2. That on the facts and in the circumstances of the case the Ld. CIT(A0 has erred in restricting the Director’s remuneration attributable to manufacturing activity to Rs.13,63,419/-.”
4. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR argued that the issue is covered by the decisions of this tribunal in assessee’s own case for the Asst Years 2008-09 and 2009-10 which were subsequently approved by the Hon’ble Calcutta High Court for which he referred to the necessary pages in his paper book.
We have heard the rival submissions and perused the materials available on record including the paper book comprising of various tribunal and high court orders in assessee’s own case in the impugned issue. We find that the main reason for the variance is on account of difference between the standard cost and actual cost. The assessee has followed the standard costs at various levels of manufacturing and the accounting was also done on that basis. When the actual costs are incurred, they are accounted for and the variances are calculated. The assessee has calculated the variances and shown the same at various levels.
Jupiter International Ltd., AY 2010-11 The ld AO therefore made adjustment in the computation of eligible profit as worked out by the assessee and ignored the actual costing incurred by the assessee. We find that there is no scope for siphoning the profits from manufacturing unit to trading unit by accounting for variances. The adjustment so made by the ld AO is devoid of any merit.
We find that the issue in dispute before us is squarely covered in favour of the assessee by the earlier orders of the tribunal which were subsequently approved by the Hon’ble Calcutta High Court. This tribunal in Asst Year 2008-09 in dated 18.3.2013 had held as under:- “4. So far the adjustment, on account of the variances due to standard costing is concerned, we are of the view that the AO could not appreciate the cost accounting standard followed by the assessee. This variance has nothing to do with the cost incurred by the assessee. This is being recorded only for cost accounting purposes so that the actual cost can be compared with the standard cost. Thus, this does not represent the actual expenditure incurred by the assessee. In view of this fact, we are of the view that the CITA has rightly appreciated the accounting system followed by the assessee. Therefore, this is not a fit case, which warrants our interference. Thus, this ground also stands dismissed.”
This order of the tribunal was approved by the Hon’ble Calcutta High Court in G. A. No. 2589 of 2013 ITAT NO. 146 of 2013 dated 29.11.2013 by holding as under:-
The Court : The Assessing Officer due to misapprehension as regards accounting procedure disallowed some of the expenditure. The assessee approached the CIT (Appeal). Considering that the error on the part of the Assessing Officer was obvious reversed the order disallowing the expenditure. Aggrieved by the order of CIT(Appeals) the revenue went to the tribunal and the tribunal upheld the order of the CIT (Appeals). We have heard Ms. Bhargava appearing for the appellant and are of the opinion that no question of law is involved. The appeal, as such , is dismissed.
This order was followed by both tribunal (ITA No. 1641/Kol/2012 dated 19.4.2013) and by the Hon’ble High Court (G A No. 223 of 2014 ITAT No. 14 of 2014 dated 10.4.2014) in the Asst Year 2009-10 while granting relief to the assessee on the impugned issue.
Respectfully following the aforesaid decisions, we dismiss the ground no. 1 raised by the revenue.
With regard to the apportionment of Directors Remuneration, we hold that the same is to be apportioned between the manufacturing and trading unit in the turnover ratio of each unit as it could not be said that there was no role for the Director in the manufacturing unit justifying his payment of remuneration. For this proposition, both the ld AR and the ld DR
Jupiter International Ltd., AY 2010-11 also fairly agreed during the course of hearing. Accordingly, we direct the ld AO to rework the deduction u/s 80IC of the Act by apportioning the directors remuneration to both the units in turnover ratio. Hence, the ground no. 2 raised by the revenue is allowed for statistical purposes.
In the result, the appeal of the revenue is partly allowed for statistical purposes.
Order pronounced in the open court on 10.08.2016