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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SHRI WASEEM AHMED, & SHRI SIDDHARTHA NAUTIYAL
आदेश/O R D E R PER BENCH:
The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income tax (Appeals)-2, Rajkot, dated 17/01/2016 arising in the matter of assessment order passed under s. 143 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2011-12.
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The interconnected issue raised by the Revenue in ground no. 1 and 2 is that the Ld. CIT(A) erred in granting deduction u/s 80IC of the Act, amounting to Rs. 6,58,98,942/-
Briefly stated facts are that the assessee in the present case is a partnership firm and engaged in the business of manufacturing of Auto Parts. The assessee has two different manufacturing units based in Rajkot and Rudrapur Uttaranchal. The AO during the assessment proceedings made certain observations as detailed under: i. The manufacturing unit located at Uttaranchal was eligible for deduction u/s 80IC of the Act. Rudrapur Uttaranchal unit was purchasing the semi furnish goods which were manufactured at Rajkot unit. There was no forging or casting unit at Rudrapur Uttaranchal. Thus it appears that Rudrapur unit is not carrying any job work activity rather it is a selling outlet of Rajkot unit. ii. Under the provision of section 80IC of the Act, it was necessary for the assessee to increase investment in plant and machinery by at least 50% of the book value of the plant and machinery as on the first day of the previous year in which the substantial expansion is undertaken. Thus, the conditions as prescribed u/s 80IC of the Act were not fulfilled. iii. The assessee purposely has not produced the books of accounts in order to avoid un-favorable outcome which could have come on the basis of such books of accounts.
In view of the above, the AO concluded that the Rudrapur Uttaranchal unit is not independent unit but the extension of Rajkot unit only. Therefore, the deduction claimed by the assessee u/s 80IC of the Act for Rs. 6,58,98,942/- was disallowed and added to the total income of the assessee.
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Aggrieved assessee preferred an appeal to the Ld. CIT(A) who has allowed the ground of appeal of the assessee by observing as under:
I have carefully considered the finding given by the AO as well as submission of the AR of the appellant with the support of judicial pronouncements, cited supra. It is noticed that the Assessing Officer has not properly considered the facts brought on record by the appellant. It is seen that Rudrapur was New Unit of the appellant firm which has obtained various separate licenses and numbers required for starting the new unit at Rudrapur, Uttaranchal. The AO contention that PAN of the Rudrapur Unit and main Rajkot unit are same can not be a ground to hold that no new unit had come into existence. It is further seen that there were various manufacturing expenses like wages paid, PF deducted on wages, huge electricity expenses incurred by the new unit Rudrapur by the appellant firm, it is also clear that there are huge investments made by the appellant firm for starting Rudrapur unit. In view of all the facts and evidences brought on record it is clear that new unit at Rudrapur has come into existences. Further it is also found that there are only two common manufactured items which are manufactured at both places at Rajkot main unit as well as Rudrapur Unit being 235F Revgear Shifter Sleelve and 236F Shifter S!eeve(3RS/4 th Speed). The appellant contended that, in the Rajkot main unit also, the appellant firm has out sourced the forging required for item to be manufactured and the same is the case with Rudrapur unit, as either units had no forging facility. Thus, the fact that Rajkot unit had sent forging item to Rudrapur unit can not be a ground to hold that no new unit has come into existence at Rudrapur. The appellant further contended that it had fulfilled the condition that the forging part supplied by the Rajkot unit to Rudrapur unit are sold at Arm length price even though that condition was not applicable for the year under consideration. Considering the overall facts of the case, { it is clear that new unit with separate identity had come into existence as Rudrapur j unit as per required conditions for claiming the deductions u/s 80IC of the Act, 1961. | Thus, the appellant firm is entitled for deduction of profit u/s 80IC of the Act. The AO has proceeded only on the basis of assumption and presumptions without pointing out any documentary evidences which lead to conclusion that no new manufacturing unit has came into existence at Rudrapur Unit. The appellant relied on various judgments, cited supra, including the recent Delhi High Court judgment in the matter of CIT v. Tej Pal Singh Kohli reported in (2015) 371 ITR 0011 wherein it is held that AO had proceeded more on the basis of doubts entertained by him as to the genuineness of claim, rather than some concrete material. If he had any reasons to disbelieve the correctness of the claim about manufacturing activity, he could have inspected the manufacturing unit of assessee. Without having undertaken any such exercise, rejecting the accuracy of the books of account and reaching on adverse conclusions was not justified. The appellant has further relied upon the decision in the case of DECK INTERNATIONAL vs. INCOME TAX OFFICER ITAT, CHANDIGARH 'B1 BENCH, reported in (2012) 134 ITD 0426, wherein it is held that: "As per the provisions of s. 80-IC(iv) the conditions to be fulfilled by the undertaking or the enterprises are enshrined. It is provided that for availing deduction under s. 80-IC the undertaking or enterprises is to fulfil the following conditions i.e. (i) it is not formed by splitting up or the reconstruction of the business already in existence; (ii) it is not formed by transfer to a new business or machinery or plant previously used for any purpose. It is not the Case of the Department that any machinery was previously used for any purposes, which has been transferred to the 'assessee. The issue to be addressed is whether firm was formed by splitting up or reconstruction of the business already in existence.
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In the light of the above facts and various judgment relied upon by the appellant firm, it is held that the appellant firm has set up a new enterprise as per the conditions laid down under section 80IC of the IT Act and it is entitled to deduction under section 80IC. I therefore direct the assessing officer to allow the appellant firm, the deduction u/s.80IC of Rs.6,58,98,9242/- thus this ground of appeal is allowed.
Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us.
The Ld. DR before us vehemently supported the order of the AO by reiterating the findings contained in the Assessment Order.
On the other hand the Ld. AR before us filed a set of two paper books running from pages 1 to 361 and 1 to 119 and contended that there was job work activity carried on at Rudrapur Uttaranchal unit on the goods supplied/sold by Rajkot unit. As such the Rajkot unit sold the goods to the Rudrapur unit at the market price. The Ld. AR further filed a written submission which is as detailed below:
Investment in plant & machinery are more than 6.00 crores WDV value for the year ended on 31.03.2011. From Rajkot after forging and other work, goods were sold to Rudrapur unit at market rate and thereafter many more precision job work activities on SPM machineries were done by the Rudrapur Under taking . Products sold are subject to VAT which were duly charge. Further, products sold are exempted from excide. This fact aptly prove that the manufacturing activiites were carried out at Rudrapur. • Respondent has also submitted Audit Report in Form no.lOCCB [page no.121 to 125 of paper book] which clearly establish that the respondent has satisfied all the condition laid down in section 80IC of the Act and eligible to claim deduction u/s.80ICoftheAct. • The respondent has also furnished quantitative details in Audit Report of both the unit [page no.81 to 101 of paper book]. Further, during the assessment proceeding the respondent has made available details of purchases vide letter dated 11.03.2014 [page no. 133 to 139 of paper book] by Rudrapur unit from Rajkot Unit. From facts and evidence, it is clear that the Rudrapur unit is capable of producing initial goods and there were! manufacturing activities carried out. • Rudrapur Unit was new unit of the respondent firm which has obtained various separate licenses and numbers required to start the new unit at Rudrapur, Uttaranchal. Further, Rudrapur unit is working at Tata Vendor Park and duly approved vide notification no.283/2006. • As regards the allegation as to no forging or casting unit at Rudrapur, the respondent submits that even Rajkot main unit has also outsourced the forging required for item to be manufactured. Further, there are various manufacturing expense like wage paid, PF
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deducted on wages, huge electricity expenses incurred by the new unit at Rundrapur clearly establishes that manufacturing process has been duly undertaken. • Regarding the allegation that Rudrapur unit managed & controlled by the same management at Rajkot and apportionment of profit by the partner, it is to submit that the Rudrapur unit is separate unit and all the expenses or income borne by them is duly recorded in their books of account. • It was also clarified that respondent is partnership firm and at the end of year profit/loss of all the branches/units has to be transferred to main unit and the net profit /loss has to be apportioned amongst the partners as per their share and as per the provision of partnership Act / Income-tax Act. Thus, allegation of AO' on this count is misplaced. • As regards the allegation as to not making investment fresh investment at least 50% of book of value in plant & machinery, it is submitted that new unit is not the extension/ expansion of Rajkot unit, but it is case of new unit started by the respondent firm at Rudrapur. • Thus, the Respondent has, fulfilled all the condition laid down in section 80IC regarding establishment of new unit. Further, the AO himself has allowed the claim of deduction U/S.80IC in the immediately preceding assessment year i.e. AY 2010-11. Copy of order is attached at page no.292 to 296 of paper book. 9. The Ld. AR vehemently supported the order of the Ld. CIT(A) by reiterating the findings contained in the appellate order.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that the assessee has claimed the deduction under section 80 IC of the Act which was denied by the AO on various reasons that the conditions as specified under section 80 IC of the Act were not fulfilled but the learned CIT-A was pleased to allow the same. The provisions of section 80 IC of the Act reads as under:
"80-IC Special provisions in respect of certain undertakings or enterprises in certain special category States.—(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub- section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3)."
10.1 A reading of afore-stated section 80-IC of the Act shows that deduction under section is allowable to an assessee with reference to or in respect of only those profits and gains which are derived from business (which are eligible under the relevant section) of the undertaking or enterprise when such income is also included
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in the gross total income of the assessee. Before we dwell upon the issue on hand, it is pertinent to note that the AO in the own case of the assessee in the immediate preceding assessment year has allowed the claim of deduction under section 80 IC of the Act. The copy of the assessment order under section 143(3) of the Act is placed on pages 292 to 296 of the paper book. Undeniably, there is no change in the year under consideration viz a viz in the immediate preceding assessment year. Everything remained the same. Thus, in our considered view the principles of consistency need to be applied in the given facts and circumstances. In this regard we find support and guidance from the judgment of Hon’ble Supreme Court in the case of CIT versus Excel Industries Ltd reported in 358 ITR 295 wherein it was held as under: 28. Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advance licences or under the duty entitlement pass book do not represent the real income of the assessee. Consequently, there is no reason for us to take a different view unless there are very convincing reasons, none of which have been pointed out by the learned counsel for the Revenue. 29. In Radhasoami Satsang Saomi Bagh v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC) this Court did not think it appropriate to allow the reconsideration of an issue for a subsequent assessment year if the same "fundamental aspect" permeates in different assessment years. In arriving at this conclusion, this Court referred to an interesting passage from Hoystead v. Commissioner of Taxation, 1926 AC 155 (PC) wherein it was said: "Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken."
10.2 At the time of hearing, the learned DR has also not brought anything on record suggesting that there was any material change in the facts and circumstances for the year under consideration viz a viz in the immediate preceding assessment year. Accordingly we are of the view that the assessee cannot be denied the benefit of deduction under section 80 IC of the Act.
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10.3 We also find that there is no prohibition under the provisions of section 80 IC of the Act that the eligible industrial undertaking cannot carry out the manufacturing process on the semi-finished goods supplied by the non-eligible unit of the assessee. The Hon’ble Gujarat High Court in the case of Gujarat Alkalies and Chemicals Ltd versus CIT reported in 20 taxmann.com 764 has held as under: 24. We are not able to understand the logic of the argument that the true test would be as to whether a new industrial undertaking can function independently of the existing industrial undertaking. If this argument of the Revenue is accepted, it will amount to adding a new clause in Section 80-I of the Act. Assuming for the moment that the new unit is not capable of independently producing the goods without taking the assistance of the existing plant and machinery of the old unit is no ground to reject the claim under Section 80-I of the Act. It all depends upon the mechanism and technology. As held by the Supreme Court in Textile Machinery Corporation (supra), such a new industrially recognizable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business.
10.4 A doubt was also raised by the AO whether the eligible unit of the assessee was carrying out any work or it was merely acting as the selling out let of the non- eligible unit which is actually carrying out the manufacturing activity. In this regard we note that the assessee has claimed wages expenses which were subject to PF, electricity expenses. Likewise, there was huge investments in the plant and machinery. The assessee has also filed audit report in form 10 CCB, purchase details of the raw materials, the approval notification No. 283 /2006 of the eligible unit, but there was no doubt raised by the AO on these details. In view of the above and after considering the necessary details, we do not find any reason to interfere in the finding of the learned CIT-A and thus, we direct the AO allow the claim to the assessee under the provisions of section 80 IC of the Act. Hence the ground of appeal of the revenue is hereby dismissed.
The second issue raised by the Revenue is that the Ld. CIT(A) erred in deleting the expenses apportioned by the AO to the non-eligible unit.
The AO during the assessment proceedings found that the assessee has not furnished the necessary details showing the cost/rate of units of the Auto
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component produced at the Rudrapur unit based on the documentary evidences. Accordingly, the AO was of the view that the true profit of both the units located at Rajkot and Rudrapur cannot be worked out.
12.1 Besides the above the AO also found that the assessee has diverted expenses pertaining to Rudrapur unit to the Rajkot unit being non-eligible unit in order to maximize the profit of the eligible unit and minimize the profit of non-eligible unit in order the tax liability. The view of the AO was based on the following observation: Without prejudiced to above the following facts were also noted. (i) Assessee also failed to mention what percentage of job work was done at Rajkot. (ii) He failed to furnish the details of of auto cost of each unit component produced at Rajkot Unit and supplied to Rudrapur Unit, (iii) He also failed to substantiate the price of each unit of auto component in relation to sale price to buyer i.e. TATA Motors & other. (iv) To claim higher deduction u/s 80-IC, the assessee has not booked various expenses at Rudrapur Unit i.e. eligible Unit for deduction but were booked at Rajkot Unit. (v) It is also noticed that major portion of job work wa^done^t^j^bl Unit and negligible was left for Rudrapur Unit. (vi) during discussion a detailed chart of each component was prepared and he was asked how he computed the cost/rate but he failed. (vii) Further, factory overhead, transportation expenses admin and selling expenses of Rs.11,11,38,030/- and partners remuneration of Rs.6,00,00,000/- were not apportioned between not eligible and eligible units. (viii) Books of accounts of any unit was not produced for verification.
12.2 In view of the above, the AO re-allocated the various expenses and the gross profit between the eligible and non-eligible unit in the manner as detailed below.
Rudrapur Unit has Proportionally Actually claimed at Difference added to 13.7% of total allocated to Rudraput Rudraput Unit (Rs.) total income (Rs.) turnover. Apportioned Unit (Rs.) as under: GP on sale to - - 30,05,116/- Rudrapur Unit from rajko Unit @ 2.32% of Rs.12,95,30,904/- Administrative and 1,52,25,910/- 1,16,45,833/- 35,80,077/- selling expenses
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13.7% of Rs.11,11,38,030/- Remuneration to 82,20,000/- 0 82,20,000/- partners – 13.7% of Rs.6,00,00,000/- 1,48,05,193/-
Aggrieved assesse preferred an appeal before the ld. CIT(A), who allowed the ground of appeal of the assessee by observing as under: It is seen that appellant firm has claimed "Deduction under Special provisions in respect of certain undertakings or enterprises in certain special category states. AO further noticed total turnover of said Unit as per P&L account as compared to overall financial position of the Assessee-firm. Appellant contended that when the method of accounting as applicable under Statute is prescribed, it does not suggest Segregation or bifurcation nor it was fair to draw imaginary line to compute separate profit of said Unit, since, said Unit had computed its' profit as per separately maintained books of account of eligible manufacturing activity. The appellant submitted that to implement the method of computation at standalone basis, as conveyed by AO, till the unit prepared profit & loss account of its manufacturing-cum- sale business activity. If Statute wanted to draw line of segregation between each of the unit, Statute should have made specific provision of demarcation. No fallacy or mistake detected in books of accounts of said Unit prepared on standalone basis through which only source of income/profit was manufacturing of specified product and therefore the AO's action of segregation was merely based upon hypothesis. Further it is seen that the Rajkot Unit has sold the goods to Rudrapur unit was of semi-finished goods and then it was but natural that there can't be same GP earned on when the goods sold are semi-finished goods as earned on finished goods. It is always less than the GP earned in case of finished goods. It is seen that the remuneration was paid to partners as per specific clause in partnership deed for remuneration purpose as evident from the copy of deed of partnership dated 01/04/2010 placed on record. It is contended by the AR of appellant that the remuneration to partners was payable only from the profits of the Rajkot unit and subject to a maximum limit of Rs. 3,00,00,000 to each of the partners, i. e. total Rs. 6,00,00,000. Thus question of any proportionate remuneration of 13.70 % out of total remuneration paid to partners of Rajkot unit of Rs. 6,00,00,0007- i.e. at Rs. 82,20,000/- to partners to be allocated to Rudrapur Unit can not arise And can not be submitted. I find that gross profit ratio of Rajkot unit and Rudrapur unit was more or less same during the year relevant. Hence, addition of gross profit difference between the two units on assumption and presumptions @ 2.32 % on sales of Rs. 12,95,30,904/- i.e. at Rs. 30,05,116/- without support of any documentary evidences can not be sustained. And addition on account of gross profit of Rs. 30, 05,116/- to be deleted. It is further seen that similarly, disallowances of Rs. 35, 80.077/- was made out of total Admin. & selling Expenses of Rajkot unit of Rs. 11, 11, 38,030/- on being apportioned to Rudrapur Unit, without support of any documentary evidences can not be sustained. Considering the facts of the case and submission of the appellant and the judgments relied upon in support, cited supra, I am of the opinion that the AO was not justified in making addition of remuneration of Rs. 82,20,000/- to partners to be allocated to Rudrapur Unit and disallowances of gross profit difference of Rs. J30,05,116/- as well as Admin. & Selling Expenses of Rs. 35.80.077/-. Thus, the addition of remuneration to partner, disallowances of the apportion of GP and administrative expenses etc. to the extent of Rs. 1,48,05,193 made by the assessing officer are deleted and this ground of appeal is allowed".
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Being aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us.
The Ld. DR before us vehemently supported the order of the AO by reiterating the findings contained in the Assessment Order.
On the other hand, the Ld. AR before filed a written submission which is detailed as under. • During the assessment proceeding the respondent has furnished details of job work of Rajkot unit and Rudrapur unit at per Annexure-D of letter dated 11.03.2014. It was clarified that on material purchase at Rudrapur unit precision operative have been carried out which is resulting lesser manual operation. . • Rajkot main unit has also outsourced the forging required for item to be manufactured as in the case of Rudrapur unit. In calculation of jobwork percentage in the notice dated 14.02.2014, there is error in not taking jobwork expense contract salary of Rs.1,04,60.239/- , if the same is considered then it will be of 4.06% of total sales. • Forging part supplied by the Rajkot Unit to Rudrapur Unit are sold at Arms' Length price. Copies of Audit Report and cost sheet of every part as required by the AO were also furnished by the respondent as per Annexure-A of letter dated 2803.2014 [page no.159 to 160 of paper book]. Further, the Rudrapur unit's Profit & loss account also reflects manufacturing expenses like electricity expense, wages, jobwork expenses, contract salary exp. Thus, the Rudrapur unit is an independent unit and not an extension or splitting of existing unit and eligible to claim deduction u/s.80IC of the Act. • As regards the allegation as to non substantiating of price of each unit of auto component in relation to sale price to buyer in Tata motors & others, it is submitted that calculation of average sale price per parts, margin etc of all the units were attached at Annexure-B of the letter dated 11.03.2014. Further, gross profit margin of both the units are more or less same during the year under consideration. • During the course of assessment proceeding the AO has not pointed out any defect or evidences to prove that the expenses are incurred at Rajkot for Rudrapur unit. • At the time of assessment proceeding the books of account i were taken to the office of the AO, however, the AO has not verified the same. However, most of ledgers, bills and vouchers were submitted by the respondent in various submission filed during the assessment. The respondent is maintaining separate books of account for all units and provided units wise and consolidated financial statement to the AO during the assessment proceeding. • During the course of assessment proceeding, the respondent has also made available details regarding purchase and jobwork expenses and bills etc of Rudrapur Undertaking and Rajkot Unit as per Annexure E of letter date 26.03.2014, Page no, 740 & 141 of paper book. • The remuneration to partners as per specific clause in partnership deed for remuneration purpose as evident from the copy of partnership deed available [page no.10 to 19 of paper book no.2 ] as per which remuneration of partners were payable only form the profit of the
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Rajkot unit and subject to maximum of Rs.3,00,00.000- to each partner. Thus, question of any proportionate remuneration of 13.70% to partners for Rudrapur unit at Rs.82.20,000/- cannot arise and cannot be submitted. • Further, addition of gross profit difference between the two units on assumption and presumption @ 2.32% on sales of Rs.12,95,30,904/- i.e. at Rs.30,05,116/- without supports of any documentary evidences cannot be sustained • Further, similar disallowance of Rs.35,80,077/- was made out of total admin, selling expense of Rajkot unit of Rs.11,11,38,030/- apportioned to Rudrapur unit without any support of sny documentary evidences.
16.1 The Ld. AR vehemently supported the order of the Ld. CIT(A) by reiterating the findings contained in the appellate order.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that it was alleged by the AO that the assessee to claim higher deduction under section 80 IC of the Act with respect to its eligible unit has shown less expenses in the eligible unit. As such the assessee has diverted more expenses to the non-eligible unit in order to show less profit in order to avoid the income tax liability. First of all we note that the AO himself in the assessment order has observed as under: “In support of claim assessee filed audit report in form No. 10 CCB and form No. 3 CB & 3 CD Separate audit reports u/s 44 AB of the Income Tax Act, for Rajkot Unit and Rudrapur Unit were called for, obtained and Record.
17.1 Besides the above the assessee has also contended before the AO that eligible unit was getting the benefits of tax incentive which has resulted more gross profit by 10 to 15%. The relevant submission before the AO vide letter dated 11 March 2014 reads as under: “ Your assessee has started Rudrapur unit for Tata Motors Limited. In Rudrapur Tata motors limited have their plant for manufacturing of various types of vehicles i.e mainly TATA ACE MINI truck i.e popularly known as Chhot hathi Tata motors limited is enjoying various fiscal benefit/incentives by the government of India i.e no excise duty, VAT and many other government benefit thereto . Hence they are saving about 25-30 % at Rudrapur. They have invited their parts supplier like us and many other to manufacture their parts there are supply to them, but there are huge investment in land, factory building and plant and machinery at such remote places no manufactyuring are ready to invest there. Hence they offered to share their above tax benefits between supplier of part and themselves i.e offering attractive pricing of its part and it resulting in more profit about 10 to 15% by parts suppliers. With these intention to optimize our profitability. We had planned to set up dedicated unit at Rudrapur exclusively for Tata Motors Ltd. Rudrapur and our investment in
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land factory building and plant machinery etc are of Rs. 12,92,60,168/- (W.D.V as at 30/03/2011).
17.2 The assessee has also made available to the AO the copies of the sales bills and other supporting evidences to justify the higher amount of gross profit. Such details can be verified from pages 24 to 25 of the paper book.
17.3 All the above details were available but the same was not doubted by the AO during the assessment proceedings. Furthermore, we find that the AO was supplied with the audited financial statements of the eligible units pertaining to different financial years which are placed on pages 50 to 80 of the paper book for the purpose of the comparison of the gross profit ratio but there was no adverse comment by the AO. Meaning thereby, the revenue has accepted the profit of the eligible unit in the earlier years. Therefore the same cannot be disturbed in the year under consideration keeping in view of the principles of consistency.
17.4 We also note that the AO was supplied with the computation of cost per unit with respect to the products manufactured at eligible unit which are placed on pages 159 to 160 of the paper book. But no defect was pointed out by the AO during the assessment proceedings.
17.5 With respect to the remuneration to the partners, we find that as per the deed of partnership, the partners were entitled for the remuneration only with respect to the profit of non-eligible unit subject to the maximum of ₹6 crores. The available profit of the non-eligible unit was ₹26.79 crores and the allowable remuneration was worked out at ₹16.08 crores but it was limited to the maximum of ₹6 crores only. Furthermore, it was also explained that none of the partner was taking active participation in the affairs of eligible unit. Moreover, there was no loss to the revenue for the reason that the amount of remuneration received by the partners is taxable in their hands subject to the provisions of section 40(b) of the Act.
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17.6 As regards the allocation of factory overhead, transportation expenses, admin and selling expenses of Rs. 11,11,38,030.00 it was contended by the assessee before the AO that all the expenses pertaining to different units were booked respectively. The assessee to buttress its argument has also filed the chart of manufacturing expenses. Likewise, there was not much outward freight expenses in respect of eligible unit for the reason that goods were supplied within Rudrapur Unit but it was not so in case of Rajkot unit. It was also submitted by the assessee that except audit expenses which were born by the non-eligible unit in the entirety, there was no other expense which was shifted from eligible unit to non-eligible unit.
17.7 There were term loans taken by both the units for acquiring the machineries and the corresponding interest and depreciation was accounted for in the respective units. All these submissions were made available during the assessment proceedings which can be verified from the paper book. However the AO has not pointed out any defect in the submission filed by the assessee.
17.8 At the time of hearing, the learned DR has not pointed out any infirmity in the finding of the learned CIT-A. Thus in view of the above and after considering the facts in totality, we do not find any reason to interfere the finding of the learned CIT-A. Accordingly, we uphold the same. Hence, the ground of appeal of the revenue is hereby dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the Court on 03/10/2022 at Ahmedabad.
Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 03/10/2022 Manish