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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. BILLAIYA
PER SAKTIJIT DEY, J.M.
Instant appeal by the assessee is directed against the order dated 17th January 2014, passed by the learned Commissioner (Appeals)–22, Mumbai, for the assessment year 2009–10.
Appeal filed by the assessee is time barred by 19 days. Assessee has filed a petition accompanied by affidavit seeking condonation of delay. On a perusal of the petition and the affidavit filed by the assessee, we are satisfied that there is a reasonable cause for not
Ganesh Polychem Limited 2 filing the appeal in time. Accordingly, we condone the delay and admit the appeal for hearing on merit.
Assessee has raised following grounds of appeal:–
“1. The order passed by the Learned Commissioner of Income Tax (Appeals) - 22 is bad in law and on facts. 2. Re: Adjustment of brought forward losses and depreciation before allowing exemption u/s 10B: 2.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) grossly erred in not deciding the principal issue of adjustment/set off of brought forward losses and depreciation of non eligible unit against profit of eligible unit for computing deduction u/s lOB and stating that the Assessing Officer has not made set off while computing deduction u/s 1013, hence contention of the Appellant is not acceptable. 3. Re: Reallocation of Salary of Rs. 10,88,678/- on the basis of turnover for computing profit eligible for deduction u/s 10B: 3.1 On the facts and in the circumstances of the case, the learned CIT (A) has grossly erred in confirming the Assessing Officer's action regarding reallocation of salary of Rs 10,88,678/- on turnover basis without appreciating that the Appellant had correctly allocated salary of actual basis. 4. Re: Non-consideration of additional ground of appeal in respect of the interest income of Rs 1,17, 254/- included twice while computing the Gross Total Income: 4.1 On the facts and in the circumstances of the case, the learned CIT(A) grossly erred in not adjudicating the additional ground of appeal filed by the Appellant in respect of the interest income of Rs. 1,17,254/- included twice while computing the Gross Total Income.”
Grounds no.1 and 5 being general in nature, do not require any specific adjudication.
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In grounds no.2 and 2.1, assessee has challenged the action of the Assessing Officer and learned Commissioner (Appeals) in adjusting the brought forward loss and depreciation before allowing exemption under section 10B of the Income Tax Act, 1961 (for short "the Act").
Briefly stated the facts are, assessee a company is engaged in the business of manufacturing of chemicals. For the assessment year under consideration, assessee filed its return of income on 26th September 2009, declaring nil income after claiming exemption under section 10B of the Act. During the assessment proceedings, the Assessing Officer, while verifying assessee’s claim of exemption under section 10B, noticed that assessee has two manufacturing units i.e., one at Vapi which is an eligible unit under section 10B and another unit at Dombivali, which is a non–eligible unit. He further noticed that in respect of the eligible unit at Vapi, assessee had declared net business income of ` 8,93,29,055, and in respect of non–eligible unit at Dombivali has shown net loss of ` 52,689. From the computation of income filed by the assessee, it was noticed by the Assessing Officer that assessee has claimed deduction of ` 7,58,07,650 under section 10B and thereafter has set–off brought forward unabsorbed depreciation and business loss, the Assessing Officer was of the view that claim of deduction under section 10B from total income before
Ganesh Polychem Limited 4 setting–off brought forward loss is incorrect. He also noticed that similar claim made in the assessment year 2008–09 was also disallowed in assessment completed under section 143(3) of the Act against which assessee is in appeal. Though, assessee contended that similar claim made for the assessment year 2007–08, by the assessee was upheld by the Tribunal while dismissing Department’s appeal but the Assessing Officer opining that the Department has preferred appeal before the Hon'ble Jurisdictional High Court against the order of the Tribunal ultimately held that before allowing assessee’s claim of exemption under section 10B, adjustment of unabsorbed depreciation and brought forward loss have to be made from the gross total income. Being aggrieved, assessee preferred appeal before the first appellate authority.
Before the learned Commissioner (Appeals), it was pleaded by the assessee that brought forward unabsorbed depreciation and business loss of non–eligible unit cannot be set–off of against the current profit of the eligible unit before computing deduction under section 10B of the Act. The learned Commissioner (Appeals), finding that the Assessing Officer before allowing assessee’s claim of deduction under section 10B has not made any such set–off unabsorbed depreciation and business loss of non–eligible unit against profits of eligible unit rejected assessee’s claim.
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The learned Counsel for the assessee submitted before us, unabsorbed depreciation and brought forward business loss cannot be set–off / adjusted against the current profit of the eligible unit before computing deduction under section 10B of the Act. For such proposition, he relied upon the decision of the co–ordinate bench in assessee’s own case for the assessment year 2005–06 to 2008–09 and the decision of the Hon'ble Jurisdictional High Court while dismissing department’s appeal for the assessment year 2006–07 and 2007–08.
The learned Departmental Representative, on the other hand, supported the order of the learned Commissioner (Appeals).
We have considered the submissions of the parties and perused the material available on record. On a careful reading of the impugned assessment order, we notice that though the Assessing Officer, in the assessment order has, observed that brought forward business loss has to be set–off before claim of deduction under section 10B but while computing the deduction under section 10B, the Assessing Officer in fact has not made any such adjustment / set–off of unabsorbed depreciation and brought forward business loss. However, on a perusal of the orders of the Tribunal for the assessment year 2005–06 to 2008–09 in assessee’s own case which were placed before us by the learned counsel in the course of hearing, we notice that the
Ganesh Polychem Limited 6 Tribunal is consistent in its view that unabsorbed depreciation and brought forward business loss of non–eligible unit cannot be set–off against the current profit of eligible unit while computing deduction under section 10B. Moreover, the High Court has upheld the aforesaid view of the Tribunal while dismissing Department’s appeal for the assessment year 2006–07 and 2007–08 in ITA no.2083 of 2012 and 2301 of 2011 respectively. Since the learned Commissioner (Appeals), while deciding ground no.3 raised by the assessee has directed the Assessing Officer to verify and allow assessee’s claim of set–off of unabsorbed depreciation and brought forward business loss, we direct the Assessing Officer to consider assessee’s claim of set–off / adjustment of unabsorbed depreciation and business loss keeping in view the decision of the Tribunal and Hon'ble Jurisdictional High Court in assessee’s own case holding that unabsorbed depreciation and brought forward loss of non–eligible unit cannot be set–off against the current profit of eligible unit while computing deduction under section 10B. The grounds raised by the assessee are considered to be allowed.
In grounds no.3 and 3.1, assessee has challenged the decision of the Departmental Authorities in reallocating salary expenditure of ` 10,88,678, while computing deduction under section 10B.
Ganesh Polychem Limited 7 12. Briefly stated the facts are, during the assessment proceedings, the Assessing Officer, while verifying the Profit & Loss account noticed that assessee has allocated salary expenditure of ` 10,88,678 only to the non–eligible unit at Dombivali which, according to the Assessing Officer, should have been allocated to both eligible and non–eligible unit on the basis of turnover. Accordingly, he re–allocated the salary expenditure between the two units on the basis of turnover. Being aggrieved of such re–allocation of salary expenditure, assessee challenged the same before the learned Commissioner (Appeals).
Before the first appellate authority, assessee pleaded, as it is maintaining separate books of account for both the units and expenditures also are bifurcated, accordingly, the salary expenditure claimed in respect of non–eligible unit (Dombivili Unit) cannot be re– allocated to both the units. The learned Commissioner (Appeals), after considering the submissions of assessee, noticed that as per Schedule–11 of the Profit & Loss account, expenditure under the head “manufacturing and other expenditure” wages, salary and bonus have been allocated separately to the eligible unit as well as non–eligible unit. Whereas, under Schedule–12 to the Profit & Loss account office administration expenditure consisting of salary expenditure of ` 10,88,678, has been fully allocated to the non–eligible (Dombivali) Unit without allocating any expenditure under the said head to the
Ganesh Polychem Limited 8 eligible (Vapi Unit). The learned Commissioner (Appeals) observed that when both the units have shown consumption of raw material, packing material as well as sales turnover at a substantially high figure, it is not possible that no expenditure under the head office and administrative expenditure consisting of salary expenditure would have been incurred for the eligible (Vapi) unit. He observed, without administrative staff, it would not be possible for the assessee to maintain the details of various expenditures under different heads. He held, when such huge turnover is reported by both the units, there is need for matching staff to carry out various administration and other related works. Accordingly, he upheld the decision of the Assessing Officer in re–allocating the salary expenditure to both the units on the basis of turnover.
Learned counsel reiterating the stand taken before the Departmental Authorities submitted, as the assessee has maintained separate books of account for both the units and allocated expenditure on actual basis, there is no reason for re–allocating the salary expenditure relating to Dombavili unit. Drawing our attention to Schedules–11 and 12 of the Profit & Loss account, learned counsel submitted, the observation of the Departmental Authorities to the effect that no salary expenditure was incurred by the eligible (Vapi) Unit is not correct as salary expenditure in respect of the eligible
Ganesh Polychem Limited 9 (Vapi) unit has been claimed under the head “personnel cost” as appearing in Schedule–11 to the Profit & Loss account and forms part of the amount of ` 67,57,752, shown as wages, salary and bonus. He, therefore, submitted, the conclusion drawn by the Departmental Authorities that salary expenditure has not at all been shown in respect of Vapi Unit is not correct.
Having considered the submissions of parties and perused of the materials on record, we are unable to accept the contention of the learned Counsel for the assessee. As could be seen from Schedule–11 to the Profit & Loss account, assessee has allocated all direct expenditure relating to both the eligible as well as non–eligible units. Similarly, all indirect expenditures have been allocated to both the units under Schedule–12 to the Profit & Loss account. It is interesting to note that while the assessee has allocated directed expenditure relating to wages, salary and bonus to both eligible and non–eligible units, as far as indirect expenditure relating to salary and bonus shown under the head “office and administration expenses” as per Schedule– 12 has only been allocated to the non–eligible unit without making any allocation to the eligible unit. This, in our view, is not acceptable. We agree with the learned Commissioner (Appeals) that when the assessee has shown consumption of raw material and packing material at a substantially high figure for both the units and sales turnover of
Ganesh Polychem Limited 10 both the units are also substantially high, it is highly improbable that assessee would be incurring indirect expenditure towards salary and bonus only in respect of non–eligible (Dombivali) unit without incurring any expenditure in respect of eligible (Vapi) Unit. When the assessee has set–up two units it is quite natural and logical that assessee must be maintaining administrative set–up for both the units incurring similar expenditure. Therefore, it cannot be accepted that assessee has not incurred any expenditure towards salary and bonus in respect of Vapi Unit when admittedly, it must have maintained an administrative set up also for Vapi Unit. The contention of the learned counsel that salary and bonus of Vapi Unit have been included under the head “Personnel Cost” as shown in Schedule–11, neither appears to common sense nor logical as in that case, there is no need to show such expenditure separately for Dombivali Unit as the assessee has also claimed such expenditure in respect of Dombivali unit under Schedule–11 like Vapi Unit. Therefore, as the assessee has failed to demonstrate with convincing reason that no indirect expenditure on account of salary and bonus was incurred in respect of Vapi Unit, we uphold the view of the Departmental Authorities that salary expenditure of ` 10,88,678, has to be allocated to both the units on the basis of turnover. Thus, grounds no.3.1 and 3.2 are dismissed.
Ganesh Polychem Limited 11 16. Ground no.4, relates to assessment of interest income of ` 1,17,254 twice by the Assessing Officer.
The learned Counsel for the assessee submitted before us, assessee treating the interest income of ` 1,17,254, as business income, has credited it to the Profit & Loss account. The Assessing Officer, while completing the assessment has assessed the interest income of ` 1,17,254, under the head “Income From Other Sources” without taking note of the fact that assessee has already credited it to the Profit & Loss account as business income. He, therefore, submitted that interest income of ` 1,17,254, has been taxed twice. The learned counsel submitted, though the assessee, through an additional ground has raised this issue before the first appellate authority but he has failed to adjudicate the same.
Learned Departmental Representative submitted, assessee has not raised any ground before the learned Commissioner (Appeals) on this issue, hence, there is no occasion for the first appellate authority to adjudicate the same.
We have considered the submissions of the parties and perused the material available on record. It is the plea of the assessee that interest income of ` 1,17,254, has been assessed twice as part of the business income having shown by the assessee in the Profit & Loss
Ganesh Polychem Limited 12 account and again as income from other sources by the Assessing Officer while completing the assessment. In this context, the learned counsel has drew our attention to Schedule–9 to the Profit & Loss account to demonstrate that interest income of ` 1,17,254 was credited to the Profit & Loss account and forms part of the other income of ` 9,78,786, shown in respect of GPL unit. Without entering into the controversy as to whether assessee has raised any additional ground before the learned Commissioner (Appeals) which he has failed to adjudicate, looking at the nature of dispute, we think it appropriate to direct the Assessing Officer to verify assessee’s claim and decide the issue accordingly. We make it clear that the Assessing Officer while deciding the issue should bear in mind that the same income cannot be taxed twice. Needless to mention, the Assessing Officer shall provide adequate opportunity of being heard to the assessee to establish its claim. Thus, ground no.4, is allowed.
In the result, appeal stands partly allowed for statistical purposes. Order pronounced in the open Court on 6th January 2016
Sd/- Sd/- SAKTIJIT DEY N.K. BILLAIYA ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 6th January 2016
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Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
(Dy./Asstt. Registrar) ITAT, Mumbai