Whether when Revenue has failed to establish that business was so arranged that more profit could be attributed to eligible unit, even then benefit of Sec 80IA can be denied - NO: HC

THE issue before the Bench is - Whether when the assessee maintains separate books for its unit located in backward area and the Revenue has failed to establish that business was so arranged that more profit could be attributed to the eligible unit, even then benefit of Sec 80IA can be denied. And the answer goes in favour of the assessee.

Facts of the case

The assessee company set up a new unit for manufacture and sale of Lamination tordials cores and transformers. It was claimed by the assessee that said unit was located in industrially backward area therefore the profits and gains of the said unit were eligible for 100% deduction u/s 80IA. For the purpose, the component of income included the interest income earned by the assessee company on account of charge of overdue interest from customers to whom sales were executed from new unit on account of late payment of their dues and also towards bank interest. The total claim for the deduction u/s 80 IA was at Rs. 65,24,023/-, but the A.O. allowed partial deduction of Rs. 25,93,772/-. The remaining amount was disallowed by the A.O. and the same was upheld by the CIT(A). However, the Tribunal allowed entire claim of the assessee.

On Appeal before the HC the Revenue's Counsel submitted that the interest income cannot be allowed u/s 80 IA as it had nothing to do with the backwardness of the area. It was also submitted that all the units of the assessee company were intermixed and the expenses on account of interest, advertisement and publicity, packing and forwarding miscellaneous expenses etc. were mostly debited in head office account though they may pertain to the new unit.

The Assessee's Counsel submitted that the Himachal unit was established with the funds which came out from the head office. The expenses were debited with the head office account and the Himachal unit was not commensurate with the comparative figures with the sales effected at the head office and at the eligible unit. He also submitted that the assessee maintained the separate account books for the eligible units therefore, the A.O. had made out a case purely on presumption and surmises. According to the counsel for the assessee, Section-80 IA(10) was not applicable in the instant case as the A.O. had not brought any evidence on record to prove any material against the assessee, so the A.O. had wrongly applied the said provision.

Having heard the parties, the HC held that,

++ the assessee was maintaining the separate accounts for each unit as mentioned by the Tribunal, so, the assessee is entitled for the benefit u/s 80 IA and specially when the necessary condition of Section-80 IA (10) has not been fulfilled by the A.O. to prove that the business between the eligible units and other units are so arranged that the business transaction between them produces more profit to the eligible business. The A.O. has not given any adverse finding on the basis of books of account produced by the assessee. The A.O. has also not pointed out any specific item of the eligible unit which is debited by the head office. The assessee is entitled for benefit of Section-80 IA;

++ regarding the component of interest, it may be mentioned that Delhi High Court in the case of CIT Vs. Advance Detergents Ltd. 2009-TIOL-744–HC–DEL-IT observed that, Interest received from the trade debtors is deductible under Section-80 IA. In the light of the above discussion No reason to interfere with the impugned order passed by the Tribunal.