D.C.I.T CIR - 1,KOLATA, KOLKATA vs. M/S JUPITER INTERNATIONAL LTD., KOLKATA

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:- “

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.

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.”

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

In the result, the appeal of the revenue is partly allowed for statistical purposes.