1. Both the appeals have been directed by the revenue against the order of the CIT(A) dated 8.4.1997 for assessment year 1993-94 and dated 30.5.1997 for assessment year 1994-95. As the issues in both the appeals are common, a consolidated order is being passed.
2. In both the appeals, the revenue has challenged the directions of the CIT(A) to allow deduction under Section 80-I of the Act in respect of assessee's Unit Nos. II and III. In assessment year 1993-94, the revenue has also challenged the direction of the CIT(A) to allow deduction under Section 80-I before set-off of the brought forward losses.
3. Briefly the facts of the case are that the assessee is a company engaged in the business of printing magazines and books. Its Unit No. I which is a printing press was set off in 1972 in Sahibabad. This Unit is engaged in cover printing of magazines as also double cover printing for inside pages. It uses 14 offset machines.
4. Unit No. II was established in the assessment year 1989-90 at Sahibabad but is engaged only in the binding of the magazines and books. Unit No. III was set up in assessment year 1991-92 in Faridabad.
This unit is a modern printing machine and its capacity is very high.
The assessee claimed deduction under Section 80-I of the Act on its Unit Nos. II and III However, the Assessing Officer held that the deduction under Section 80-I can be worked out on the basis of accounts furnished by the assessee. The allocation of expenses inter se amongst the different units was arbitrary and had no rational basis. According to him, the expenses in Unit No. I have been inflated whereas the profits in Units II and III have been inflated. While coming to this conclusion, the Assessing Officer made the following observations: (i) There is no consumption of paper in Unit No. Ill although this unit is also engaged in printing as Unit No. I. (ii) The consumption of ink in Unit No. I is much higher than Unit No. III. (iii) Salary and production charges for the various units are disproportionate.
(iv) Subscription deposit service expenses amounting to Rs. 17,32,165 has been debited to Unit No. I only whereas proportionatory the same should have been debited to Unit Nos. II and III also. By allocating proportionate expenses to various units, the Assessing Officer held that there was no profit in Unit Nos. II and III which could be allowed deduction under Section 80-I of the Act. For this purpose, the Assessing Officer also relied on the provisions of Section 80-I(6) and 80-I(9) of the Act.
5. On appeal, the CIT(A) analysed the working of various units and held that the allocation of expenses by the assessee had a rationale and accordingly the claim of deduction under Section 80-I of the Act was justified. While doing so, the CIT(A) also observed that if any loss for earlier years remains to be set off the Assessing Officer will adjust the same from the profit of the year.
6. The revenue is in appeal before us against the findings of the CIT(A). Ld. DR stated that Hon'ble Bombay High Court in the case of Synco Industries Ltd. v. Assessing Officer of Income-tax [2002] 254ITR 6081 has held that when there are various units by the assessee, the expenses have to be allocated to various units. He stated that assessee had no rationale in allocating various expenses to various units. The assessee has adopted the method of inflating the expenses of Unit No. I so that the profit of Unit Nos. II and III arc inflated claiming deduction under Section 80-I of the Act.
8. We have considered the rival submissions. The only objection of the revenue in denying the claim of the assessee for deduction under Section 80-I of the Act was that if pro rata expenses are allocated to various units, there will be no profit in Unit Nos. II and III authorising deduction under Section 80-I of the Act. We have, therefore, examined as to whether the allocation of expenses by the assessee was proper or not. When the Assessing Officer denied the claim of the assessee, his first objection was that there was no consumption of paper in Unit No. III although this unit was also engaged in printing as Unit No. I. From the details furnished before the Assessing Officer, we find that Unit No. I had done printing of magazines which are supplied with paper. Unit No. Ill has done printing on the papers supplied by the publishers and accordingly there is no consumption of paper in Unit No. III. The nature of printing in both the units are different. Unit No. I has done printing on the paper purchased by the assessee whereas the Unit No. Ill has done only job work of printing and not purchased any paper. The paper was supplied by the other company. It was under these circumstances that there was no consumption of paper in Unit No. Ill whereas there was consumption of paper in Unit No. I. Had the Assessing Officer examined this point from the documents furnished by the assessee, perhaps this confusion would have not arisen.
9. The second reason given by the Assessing Officer in denying the claim of the assessee was disproportionate expenditure of ink in different units. The Assessing Officer has pointed out that in Unit No.I, the consumption of ink, was very high whereas in Unit No. HI, the consumption of ink was much less. We find that Unit No. I had 14 machines whereas Unit No. in had only one machine. As mentioned earlier, Unit No. I came into existence in 1972 whereas Unit No. Ill came into existence in 1991-92. Thus, the machinery used in Unit No. I were old and the consumption of ink was much higher. As against this, the only machine in Unit No. Ill was the latest machine and the consumption of ink and electricity was much lower. The assessee allocated the expenses of ink on actual consumption basis which is reflected by separate account books of each unit. No defects have been pointed out by the Assessing Officer in the account books maintained by each unit. We, therefore, hold that the observations of the Assessing Officer about disproportionate allocation of ink expenses to various units is also not justified. The Assessing Officer had also pointed out that the salary and production expenses in Unit No. I was much higher as compared to the expenditure in other units. We find that while Unit Nos. I and II are located in Sahibabad (UP), the Unit No. III is allocated in Haryana. The persons working in one State cannot be transferred to the other State. The minimum wages are also fixed by the State Government. Unit No. I was established in 1971 and, therefore, workers of that unit have become quite senior. Similarly, Unit No. I has 14 machines and, therefore, it employs more workers than the workers working on one machine in Unit No. III. Looking to these facts, it is clear that the expenditure on salaries and production has to be higher in Unit No. I as compared to Unit No. III.10. The Assessing Officer has also observed that the entire expenditure on subscription deposits was allotted to Unit No. I. We find that the subscription deposit scheme has been invoked in 1972. In this year, only Unit No. I was in existence. Unit No. II came into existence in 1989 whereas Unit No, III came into existence in 1991 -92. Thus, the question of allocating the subscription deposit scheme to Unit Nos. II and III did not arise. These facts clearly indicate that the assessee has allocated the expenses to various units on rational basis. It is also admitted position that the assessee has maintained the books of account separately for each unit. Having not found any fault in these books, the Assessing Officer cannot impose his own estimate in allocating the expenses to various units. The CIT(A) appreciated these facts and held that the assessee has claimed the deduction under Section 80-I on a rational basis. We do not find any infirmity in his findings and while upholding the same, we dismiss the ground of appeal raised by the revenue.
11. We also find that the revenue has challenged the directions of the CIT(A) for allowing deduction under Section 80-I of the Act before set off the brought forward losses. But from the order of the CIT(A), it is clear that the position is otherwise. In the last para of his order, the CIT(A) has observed that as per Section 80(1)(6), if loss of earlier years remain to be set off, the Assessing Officer will adjust the same from the profit of the years. During the course of hearing, the Id. counsel has stated that there was no loss brought forward from earlier years. For this purpose, the ld. counsel also filed the assessment order for 1992-93 according to which the assessed income came to Rs. 22.87 lakhs. The perusal of this order indicates that except minor disallowances under Rule 6D, prior period expenses, disallowance under Rule 6B, the income declared by the assessee has been accepted. We, therefore, feel that this ground of appeal raised by the revenue is merely academic and infructuous. We, therefore, dismiss this ground of appeal also.
12. In the assessment year 1994-95 the facts are similar and in view of our findings in assessment year 1993-94, we hold that as there was no infirmity in the findings of the CIT(A), while upholding the same, we dismiss the ground of appeal raised by the revenue.
I have the privilege of going through the erudite order proposed by my Learned Brother Slid Keshaw Prasad, Accountant Member but with great respect and in spite of persuading myself to agree with it, even after discussion with him over it, I am unable to concur with him on the point of eligible deduction under Section 80-I of the Income-tax Act (hereinafter called as an 'Act'). I, therefore, adjudicate the issue of eligible deduction under Section 80-I of the Act independently as under: 2. Though my learned brother has narrated the facts in his order but I wish to discuss it elaborately in order to adjudicate the impugned issue judiciously.
3. The assessee is engaged in the business of printing magazines and books and its Unit No. I, which is a printing press, was set-up in 1972 in Sahibabad. It is engaged in cover printing of Magazine as also double colour printing for inside pages. Assessee set-up another Unit No. II in the assessment year 1989-90 at Sahibabad-II but it only binds books and magazines. Unit No. III was set-up in the assessment year 1991-92 at Faridabad, which has modern printing machines and its capacity of printing is 25,000 sheets per hour duly dried and folded.
The assessee claimed deduction under Section 80-I on Units Nos. II and III amounting to Rs. 5,43,142 and Rs. 4,81,949 respectively in assessment year 1993-94. During the course of assessment proceedings for the assessment year 1993-94, assessee has furnished the complete details unit-wise wherefrom it is noted by the Assessing Officer as under:Total receipts 3,62,26,613 1,29,03,964 1,28,42,490Total expenses 4,95,88,803 42,04,492 51,31,306Income ....
87,01,472 77,11,184Loss 1,33,62,190 ....
....
4. On examination of details, it was noted by the Assessing Officer that the expenses in Unit No. I were inflated resulting into heavy losses whereas, in Units No. II and III, the expenses were reduced to increase the profit in order to claim more deduction. Assessing Officer has also noticed that in Unit No. I there was an amount of Rs. 2,36,62,145 debited on account of paper while no amount was shown under the head of paper in the Unit No. Ill though this unit is also engaged in printing. Similarly, an amount of Rs. 76,80,945 was shown under the head 'process of ink' in Unit No. I but no such expenses was shown in Unit No. III. Again an another amount of Rs. 48,26,988 was shown under the head ink in Unit No. I and only an amount of Rs. 1,04,113 was shown under this head in Unit No. III. As such, the total expenses under the head ink was shown at Rs. 1,23,69,822 in Unit No. I as against a sum of Rs. 1,04,113/ shown in Unit No. III The assessee was asked to explain these discrepancies and the assessee filed a revised chart showing slight variation in income and loss in all the 3 units. The Assessing Officer has also noticed that other item such as subscription deposit service expenses amounting to Rs. 17,32,165 is shown in Unit No. I but no corresponding expenses were shown in Unit No. III. With regard to this subscription deposit service expenses, Assessing Officer observed that the assessee has not brought out a case that funds so generated under the subscription deposit service scheme, was only utilized in Unit No. I and it has no relevance with Unit Nos. II and III. The Assessing Officer has identified certain expenses, which were booked under Unit No. I and not in Unit Nos. II and III and reproduced the same in a tabulated form in his order. In order to understand the facts of the case, I extract the same as under:Ink 46,88,877 2,22,223Motor Vehicle exp. 2,55,870 22,845 41,804Binding material 3,59,992 9,20,457Salaries & prod 38,76,712 4,58,665 3,41,208uction charges 5. The Assessing Officer further examined the total receipts in Unit No. I which it is shown at Rs. 3,62,26,613 including cost of paper supplied. If the cost of paper which is at Rs. 2,36,62,145 is reduced from the total receipt, the actual receipt comes to Rs. 1,25,64,468.
Thus, the amount of actual work done in Unit No. I is Rs. 1,25,64,468 while actual work done in Unit No. II at Rs. 1,29,03,964 and Rs. 1,28,42,491 in Unit No. III. Against this total work done by this individual Unit No. 1, assessee has shown salaries and production charges at Rs. 38,76,712 against Rs. 4,58,665 and Rs. 3,41,209 shown in Units No. II and III respectively. From this comparative chart, Assessing Officer has further observed that against the actual work done in Unit No. I at Rs. 1,25,64,468, the assessee has shown the total expenses under one head i.e. ink at Rs. 1,23,69,822. Thus, the assessee had surplus of an amount of Rs. 1,94,646 after accounting for just one raw material i.e. ink. Against the receipt of Rs. 1.94 lakhs, the assessee had booked Rs. 38.76 lakhs under salaries and production charges, Rs. 9.13 lakhs on account of roller and plates and Rs. 18.86 lakhs on account of repairs. From these facts, Assessing Of ficer has observed that the assessee has not debited the correct expenses in different units as such his case is fully covered under the provisions of Section 80-I(9) of the IT Act. The Assessing Officer has further noticed that almost all the work was done by the assessee for its associate concern M/s. Delhi Press Patra Prakashan Ltd. Considering all these facts, Assessing Officer concluded that the correct profit of these 3 units cannot be worked out separately in the assessce's case, therefore, deduction under Section 80-I cannot be worked out on the basis of accounts furnished by the assessee. He further opined that the assessee has not complied with the provisions of Section 80-I(6) of the Act in respect of two units for which the deduction under Section 80-I was claimed. In remaining paragraphs the Assessing Officer has dealt with an issue of set-off of brought forward losses while computing deduction under Section 80-I of the Act. Since, I do not have any difference of opinion on these points with my learned brother, I express my concurrence with his view.
6. Against the main issue of disallowance of deduction under Section 80-I of the Act, assessee preferred an appeal before the CIT(A) and the CIT(A) accepted the claim of the assessee after giving specific finding that the assessee has rightly booked higher expenses in Unit No. I without dealing with the specific reasons given by the Assessing Officer on inflated expenses booked in Unit No. I under the head 'Process of ink, and ink and subscription deposit service scheme and other miscellaneous expenses.
7. During the course of hearing, the learned DR Shri Rajul Awasthi invited our attention to the observations of the Assessing Officer that the total receipt shown in Unit No. I i.e., Rs. 3,62,26,613 includes cost of paper supplied to the assessee and if the cost of this paper which is at Rs. 2,36,62,145 is reduced from the total receipt, the actual receipt comes to Rs. 1,25,64,468. Against this actual receipt, assessee has shown expenses on ink at Rs. 1,23,69,822 resulting into a surplus receipt of Rs. 1,94,646 against which assessee has booked Rs. 38.76 lakhs on account of salary and production charges and Rs. 18.86 lakhs on account of repairs resulting into heavy loss of Rs. 1,36,02,887 in Unit No. I. This specific finding of the Assessing Officer was not controverted by the CIT(A) while accepting the claim of the assessee. The learned DR further contended that even if it is accepted that Unit No. I contains old machines and Unit No. Ill contains modern machines but the printing speed of the modern machine is faster than the old machine and consumption of ink always depends upon the quantity of production and not the quality of machine, which was used in printing. It is an admitted fact that the production of Unit No. in is higher than the Unit No. I. In these circumstances, the consumption of ink should be more in Unit No. Ill as compared to Unit No. I but the assessee has shown consumption of ink at Rs. 1,23,69,822 against total consumption of ink at Rs. 2,22,223 in Unit No. Ill which is not at all possible by any stretch of imagination even if it is presumed that the consumption of ink in old machine is more than the modern machine. The Id. DR further pointed out that the assessee has booked the expenses at Rs. 17,32,165 under the head 'Subscription deposit scheme' but no corresponding expenses are booked in Units No.II and III Nothing has been placed on record on behalf of the assessee either before the CIT(A) or before the Tribunal that whatever amount was collected under this scheme, it was exclusively used in Unit No. I and none of its part was used for setting up of Unit Nos. II and III.The learned DR further contended that when Unit No. II is set up exclusively for binding purpose, why the assessee has debited the expenses under the head of binding material without placing the material on record that whatever printing was done by Unit No. I, the binding was done by itself by its own machines.
8. The learned DR further invited our attention to the comparative chart expenses booked under different units appearing at page 22 of the compilation of the assessee, with a submission that in each and every head, assessee has booked higher expenses in Unit No. I because the Unit No, I is no longer eligible for deduction under Section 80-I of the Act. Since the defects in accounts raised by the learned Assessing Officer were not properly met by the learned CIT(A) in his order, the finding of the Assessing Officer with regard to rejection of books of account in this regard, deserves to be sustained. However, during the course of hearing, the learned DR. himself has agreed that the entire claim of deduction under Section 80-I cannot be rejected. The Assessing Officer rather should have reallocated the proper expenses under different units in order to determine the correct deduction under Section 80-I of the Act.
9. The Learned Counsel for the assessee besides relying upon the order of CIT(A) submitted that it has booked the actual expenses under different units with regard to subscription deposit scheme. The learned Counsel for the assessee further submitted that it was launched in 1972 and whatever receipt was collected by the assessee, it was used in Unit No. I. Since the scheme has no relevance with Unit Nos. II and III, no expenditure under this head were debited in Unit Nos. II and III. With regard to expenses booked under the head of Ink and process of ink in Unit No. I, it was submitted that the entire expenses docs not pertain to ink consumed in Unit No. I but the cost shown against the processing of ink is in fact a cost of ink which was sold by the assessee. For other expenses booked under Unit No. I, the Learned Counsel for the assessee has relied upon the observations of CIT (A).
10. Having considered the rival submissions and from a careful perusal of records, I find that Unit No. I was set up in 1972 at Sahibabad and it was engaged in printing of magazines and books. Unit No. II was established in 1989-90 at Sahibabad-II and is engaged in binding of magazines and books and the Unit No. III was set up in 1991-92 at Faridabad having completely modern machines with a capacity of printing 25,000 sheets per hour duly dried and folded. Though it is not clear, how much sheets were printed during the impugned assessment year by Unit No. III and Unit No. I but from a perusal of the details of total receipt we find that it is less than the Unit No. III as by reducing the cost of paper from the gross receipt the total receipt for the work done in Unit No. I comes to Rs. 1,25,64,468 against total receipt of Rs. 1,28,42,490 in Unit No. III. Against this actual receipt of Unit No. I assessee has booked various expenses under different heads at more than Rs. 1,86,10,519 worked out on the basis of chart given in the assessment order as no detail of complete expenses are furnished by the assessee. The major expenses were shown under the head 'Subscription deposit scheme1, 'Papers' and 'Ink'. While dealing with the expenses booked on account of paper, my learned brother has observed in his order that in Unit No. I, the paper was purchased by the assessee whereas in Unit No. Ill only job work of printing was done and the paper was supplied by the publisher. He further observed that had the Assessing Officer examined this point from the documents furnished by the assessee, perhaps this confusion would not have arisen. On perusal of Assessing Officer's order, I find that the Assessing Officer has taken a note of all these facts and has observed that the assessee has booked the expenses on account of paper at Rs. 2,36,62,145 and if this cost of paper is reduced from total receipt, the actual receipt in Unit No. I comes to Rs. 1,25,64,468 against which assessee has shown an expenditure of more than Rs. 1,86,10,519. These observations of Assessing Officer were not dealt with by the CIT(A) in his order or by the learned Accountant Member. If the actual receipt of all units are taken into account, one would find that the actual receipt from individual unit are almost similar subject to variation of few lakhs but the expenses booked in Unit No. I are more than 10 times of the expenses booked in other independent units as in Unit Nos. II and III expenses are booked at Rs. 14,01,967 and Rs. 6,05,235 respectively as evident from the comparative chart appearing in assessment order.
11. It was also observed by the Assessing Officer that the assessee has booked the expenses under the head 'Process of ink' at Rs. 76,80,945 and under the head of Ink at Rs. 46,88,877 totalling to Rs. 1,23,69,822 against the total expenses under the head 'Ink' booked at Rs. 2,22,223 in Unit No. III. With regard to expenses under the h^ad 'Process of ink, it was stated on behalf of the assessee before the CIT(A) that it was a cost of ink, which was sold to other units, but no evidence was placed before the Tribunal at any point of time in this regard. Had it been sold to other units by Unit No. I, why the assessee has booked it under the head 'process of ink', as expenses. No explanation to this effect was furnished before the Tribunal during the course of hearing.
In the absence of proper explanation, no inference can be drawn that the expenses booked under the head of 'process of ink' is the cost of ink sold by Unit No. I to other units. In these circumstances, total expenses booked under the head of 'ink' in Unit No. I comes to Rs. 1,23,69,822 against the total expenses under the head 'Ink' booked at Rs. 2,22,223 in Unit No. III whereas the work done by Unit No. III is more than the Unit No. I. This aspect was not examined by the CIT(A) and he simply has held that the expenses shown under the 'process of ink' as part of ink sold by Unit No. I to other units without any concrete evidence.
12. In these circumstances, I am of the view that the assesscc has not properly apportioned the expenses under the head 'Ink' in Unit Nos. I and III whereas the work done by Unit No. in is more than Unit No. 1 I may agree to some extent that being the old machines in Unit No. I, consumption of ink may be more but it cannot be more than 50 times of new machine. I, therefore, agree with the view of the Assessing Officer that the assessee has made a disproportionate allocation of expenses under the head of ink.
13. With regard to subscription deposit scheme, assessee has booked an expense of Rs. 17,32,165 in Unit No. I whereas no expenses under this head are booked in Unit Nos. II and in. The assessee's contention before the Assessing Officer are that the scheme was launched in 1972 when Unit No. 1 was established and whatever collection was made, it was used in Unit No. I as such these expenses are booked in Unit No. I, but neither before the Assessing Officer nor the CIT(A), the details of the scheme were furnished by the assessee. It is not evident from the record that what was the scheme? Whether it was launched in 1972 or thereafter, and whether it was closed or still continued? It is also not evident from the record that how much amount was collected by the assessee under this scheme and in which year and whether this amount was solely used in Unit No. I or in setting up of Unit Nos. II and in It was also not explained either before the lower authorities or before the Tribunal that what arc these expenses. It is also not clear from the record, whether the assessee was a publisher or was doing only printing work and what are these expenses booked under Unit No. I.While rejecting these details of expenses, Assessing Officer has made the observation that the proportionate expenses under the head subscription deposit scheme should have been booked in other units also. But while accepting the claim of the assessee, CIT(A) did not spell out the nature of scheme and the reasons why the entire expenses under this head was booked only in Unit No. I. In the absence of complete details, the stand of the assessee cannot be accepted that these expenses only pertain to Unit No. I. In these circumstances, I am of the view that this needs a proper verification.
14. The other objection of the Assessing Officer was with regard to salary and production charges booked at Rs. 38,76,712 in Unit No. I against Rs. 4,58,665 in Unit No. H and Rs. 3,41,208 booked in Unit No.III. Admittedly Unit Nos. I and II are established at Sahibabad and Unit No. II at Faridabad. No doubt the salary and production charges may be more in Unit No. I being old unit, containing a number of machines but it cannot be more than twelve times of the Unit No. III whereas, the work done in Unit No. III is more than Unit No. I. I have also examined the expenses booked under the head binding material at Rs. 3,59,992 in Unit No. I in the light of the facts that the assessee had set up its Unit No. II for binding purposes consisting of perfect binding system, but failed to understand why the expenses in the head, binding material was booked in Unit No. I because nothing is placed on record that binding of printed material was done by the Unit No. I itself and the Unit No. I have its own binding machine whereas no expenses under this head was booked in Unit No. III. All these discrepancies pointed out by the Assessing Officer were not duly met by the CIT(A) while directing the Assessing Officer to accept the claim of the assessee. It is an admitted fact that the Unit No. I is no longer eligible for deduction under Section 80-I of the Act and Unit Nos. II and HI are eligible for deduction. In the light of these facts, the CIT (A) was required to examine the claim of deduction minutely and it has become all the more necessary for him to make necessary verification before allowing a claim of the assessee when Assessing Officer has brought the material on record. I am also unable to understand why the assessee was running the Unit No. I continuously when it has shown a loss of Rs. 1,33,62,190 in assessment year 1993-94 and Rs. 33,59,290 in assessment year 1994-95. All these facts lead me to take a view that Assessing Officer was justified in holding that the assessee has made disproportionate allocation of expenses under different units in order to claim higher depreciation in new units i.e., Unit Nos. II and III.I, therefore, hold that the provisions under Section 80-I(9) are attracted and the Assessing Officer is directed to work out true expenses of different units after making a detailed enquiry and investigation and thereafter to recompute the deduction under Section 80-I. Accordingly the matter is restored to the file of Assessing Officer to read judicate the issue of deduction under Section 80-I in terms indicated above, after affording an opportunity of being heard to the assessee.
15. In the result, appeal of the revenue is partly allowed for statistical purpose.
1. In terms of Section 255(4) of the Income-tax Act the following two questions were referred to the Hon'ble President of Income-tax Appellate Tribunal on account of difference of opinion between the two Members of the Bench: 1. Whether on facts and in the circumstances of the case ld. Accountant Member is right in upholding the order of ld. CIT(A) in the two assessment years under consideration.
2. Whether on the facts and in the circumstances of the case ld. Judicial Member is correct in restoring the file to the Assessing Officer for re-adjudication of the issue of deduction under Section 80-I in terms indicated in his proposed order.
2. Now, in view of the order dated 21.3.2006 passed by the Hon'ble President, Shri Vimal Gandhi, as Third Member concurring with the view taken by the learned Accountant Member, wherein he confirmed the order passed by the learned CIT(A), as per the majority view, the instant appeals filed by the revenue stand dismissed.
3. In the result, the instant appeals filed by the revenue are dismissed. The order announced in the Open Court on 8.6.2006 on conclusion of the hearing.
1. This matter has come up before me on account of following directions dated March 1, 2004 of Hon'ble Delhi High Court given in ITA Nos. 376 and 386/ 2003: The question is answered accordingly. The effect is that the order made by the Accountant Member on 4.6.2003 is liable to be set aside and is so set aside. That being the case, it leaves us with two conflicting orders; one passed by the Accountant Member and one passed by the Judicial Member. Thus, there being an unresolved difference of opinion, we send the matter back to the Tribunal, to pass an appropriate order in terms of Sub-section (4) of Section 255 of the Income-tax Act, for a resolution of the difference in the manner prescribed.
2. In terms of Section 255(4) of the Income-tax Act, the following two questions are framed to resolve the difference between the two learned Members of the Bench: 1. Whether on the facts and in the circumstances of the case Id.
Accountant Member is right in upholding the order of ld. CIT(A) in the two assessment years under consideration? 2. Whether on the facts and in the circumstances of the case Id.
Judicial Member is correct in restoring the file to the Assessing Officer for re-adjudication of the issue of deduction under Section 80-I in terms indicated in his proposed order? 3. The facts of the case are that assessee-company was carrying on business of printing and sale of magazines and books in three units designated as Unit No. I, Unit No. II and Unit No, III. Unit No. I is a printing press and was set up in 1972 in Sahibabad. This unit is engaged in colour printing for inside pages. It uses cold set offset machines.
Unit No. II was established in the assessment year 1989-90 at Sahibabad and is engaged only in binding of magazines and books. Unit No. III was set up in the assessment year 1991-92 in Faridabad. This unit has modern printing machine with very high capacity of printing 25,000 sheets per hour duly dried and folded.
4. The assessee claimed deduction under Section 80-I on income of Unit Nos. II and III amounting to Rs. 5,43,142 and Rs. 4,81,949 respectively in the assessment years 1993-94 and 1994-95. Under Section 80-I of the Income-tax Act a deduction of 20% of income derived by an industrial undertaking is allowed. It is an agreed case that no deduction under the above section is permissible on income of Unit No. I. Income of other two units is entitled to deduction.
5. In the course of assessment of the assessee and on examination of its account, the Assessing Officer held the view that expenses in Unit No. I were inflated and heavy losses were shown to reduce its income.
This was done in order to increase profits of Unit Nos. II and III and for getting excessive deduction. In assessment order for the assessment year 1993-94 the Assessing Officer noted that position of total receipt, total expenses, income and losses of three units was as under: Total receipts Total Income Loss expenditureUnit I 3,62,26,613 4,98,29,500 1,36,02,887Unit II 1,29,03,964 45,47,022 83,58,942 -Unit III 1,28,42,491 51,48,007 76,94,484 - 6. The Assessing Officer has further observed that from detail of expenses filed for three units, it is seen that Unit No. I and Unit No.III had carried on similar type of activities. While sum of Rs. 2,36,62,145 was debited on account of paper in Unit No. I, no such expenditure was shown in account of Unit No. III though the said unit was also engaged in printing. Similarly Rs. 76,80,945 was shown under the head "Process of ink" in Unit No. I. But no expenses was shown in Unit No. III. In Unit No. I another sum of Rs. 48,26,988 was shown under the head 'Ink', corresponding to that only Rs. 1,04,113 was shown under similar head in Unit No. III. He, accordingly, concluded that expenses on ink in Unit No. I were claimed at Rs. 1,23,69,822 against Rs. 1,04,113 in Unit No. I. When called upon to explain above discrepancies, the assessee filed a revised chart of receipt and expenses (noted above), in which there was some variation from details filed earlier (on comparison of details, it is seen that loan in Unit No. I was shown at Rs. 1,36,02,887 against Rs. 1,33,62,190 shown in earlier detail). The Assessing Officer held that no plausible reason was given as to why certain expenses were booked only in Unit No. I and not in Unit No. III. The Assessing Officer further observed that Subscription Deposit, Service expenses amounting to Rs. 17,32,165 were debited in Unit No. I only.
7. The assessee had explained that above scheme for supply of free magazines on deposit was started in the year 1972, when Unit Nos. II and III were not in existence and, therefore, expenses on ciccount of purchase and supply of magazines were incurred by Unit No. I alone as per the Scheme. On this the Assessing Officer observed, "it cannot be assessee's case that funds so generated by the deposits received were utilized only for Unit No. I. In fact all the due investments have been made in Unit Nos. II and III. Therefore, it is apparent that amount received on account of Subscription Deposit is utilized more for Unit Nos. II and III rather than for Unit No. I.8. The Assessing Officer concluded that assessee had allocated expenses arbitrarily to reduce the profit of Unit No. I and inflate the profit in Unit Nos. II and III. To prove above point the learned Assessing Officer prepared a chart to show that several expenses were disproportionately claimed. The chart is reproduced below:Units I II IIISubscriptioncharges 38,76,712 4,58,668 3,41,208Paper 2,36,62,145Motor Vehicle Exp.
2,55,870 22,845 41,804Ink 46,88,877 2,22,223Binding material 3,59,992 9,20,457 9. The Assessing Officer found that total receipt of Unit No. I Rs. 3,63,26,613 included cost of paper supplied by the publisher and therefore, this amount was to be deducted from total receipt of the unit, when so done, actual receipt of Unit Nos. I, II and III and salaries claimed were as under:Work done 1,25,64,468 1,29,05,964 1,28,42,491 10. From the above chart the Assessing Officer tried to prove that assessee claimed disproportionate salaries in Unit No. I as against work done for Rs. 1.25 crores. The assessee claimed expenses only under one head "Ink" Rs. 1,23,69,822 which would leave surplus of only Rs. 1,94,646 out of receipt yet assessee had claimed expenses of Rs. 38.76 lakhs under the head 'Salaries', Rs. 17.32 lakhs under subscription Deposit Service Scheme, Rs. 9.13 lakhs on account of roller and plates, Rs. 9.89 lakhs on account of electricity, Rs. 18.86 lakhs on account of repair in Unit No. I. These examples of disproportionate expenses showed that profit of Unit Nos. II and III were inflated in order to make more claim under Section 80-I, The Assessing Officer concluded that assessee's case was fully covered by provision of Section 80-I(9) of Income-tax Act and the assessee was held to be not entitle to any deduction under the above section.
11. The assessee before the Assessing Officer claimed that separate books of account were maintained by each of the three units, but Assessing Officer in the light of discussion referred to above, observed that such separate books were mostly self-serving and could not form basis of working out of true profits. The Assessing Officer also noted that there was variation in profit of Unit Nos. II and III shown from time to time. But no explanation was offered as to why there was such a variation. The Assessing Officer accordingly concluded that assessee was not entitled to any deduction under Section 80-I of I.T.Act. The Assessing Officer had also made an issue of set off of brought forward losses under Section 80-I(6) of Income-tax Act but that controversy has been resolved by the Members and is no more subject of reference.
12. Similar order was passed by the Assessing Officer for assessment year 1994-95 and deduction claimed under Section 80-I was denied to the assessee. The Assessing Officer observed that audited account did not give separate income and expenses on account of 3 units. During the course of assessment, separate accounts were filed but there was variation in the expenses claimed for Unit Nos. II and III as different figures were claimed under different heads. The Assessing Officer given table of these expenses in the assessment order. He ultimately found that maximum expenses were claimed in Unit No. I to reduce its profit and enhance the profit of Unit Nos. II and III. Details of expenses claimed in three units are reproduced in the assessment order similar to one produced in order for assessment year 1993-94. The Assessing Officer found that there was loss in Unit No. I and profit in Unit Nos.
II and HI which was artificially enhanced. He held that proper books were not maintained in different units and, therefore, provision of Section 80-I was applicable. The figure of receipt, expenses and profit/loss of three units is noted as under: Total receipts Total Income Loss expenditureUnit I 5,59,05,188 5,92,64,478 33,59,290Unit II 53,29,785 21,89,989 31,39,796Unit III 1,16,81,091 48,40,603 68,40,488 13. The assessce impugned above order in appeal before the CIT(A). The controversy in assessment year 1993-94 was decided by the learned CIT(A) vide its order dated 8.4.1997 in ITA No. 146/96/97. The Id.
CIT(A) noted the kind of business carried on by the assessee. He further noted the year in which three units were set up by the assessee at 3 different places and type of machinery employed by three units.
The learned CIT(A) also noted detail of various expenses claimed by the assessee in three units relating to consumption of paper, consumption of ink, salary and production charges and other items of expenses like one relating to subscription amounting to Rs. 17,32,165.
14. The assessee during the course of hearing of the appeal explained to CIT(A) about number and type of machines employed and date of commencement of business at each of the unit. It was explained that printing was done by Unit No. III as per paper supplied by the publisher and, therefore, no consumption of paper was shown by the said unit. Unit No. I had done printing on papers purchased by the Unit, while Unit No. III had not purchased any paper. Unit No. II had not done any printing as this unit was binding books and magazines with hot glow perfect system. In the above circumstances there was no question of expenditure on paper in Unit Nos. II and III.15. As regards expenditure on ink, it was pointed out that a sum of Rs. 76,80,945 taken as an "expenditure" under the head "Process of Ink" was not an expenditure but "receipt" recovered on account of ink from sister concerns. This way only Rs. 48 lakhs were claimed as expenditure on ink in Unit No. I against Rs. 1.25 crores taken by the Assessing Officer. It was explained that consumption of ink in Unit No. I was higher on account of 14 machines employed by Unit No. I, whereas Unit No. IE had only one modern machine. The machines in Unit No. I, were old and use of ink was higher, whereas in modern machine in Unit No.Ill consumption of ink and electricity was much lower.
16. As regards salary and production expenditure, the assessec explained that Unit Nos. I and II were at Sahibabad in UP., whereas Unit No. Ill was at Faridabad in the State of Haryana. Persons employed in one State could be transferred to the other State. Unit No. I was set up in 1972 and, therefore, workers employed in that unit were in service for more than 20 years. Their salaries because of above long period had risen exorbitantly, while Unit No. Ill set up in 1991 in Faridabad was only 3-4 years old. Besides, number of workers in Unit No. I for managing 14 old machines were much larger than workers to manage only one machine in Unit No. III. Thus, there could possible be no co-relation of expenses with receipts.
17. The assessee further explained that expenditure on subscription deposit related scheme started by Unit No. I and not by other units.
Subscription Deposit Scheme was started in the year 1972 when other two units had not come into existence. Thus deposit was taken by Unit No. I and expenditure for carrying on the scheme for supplying magazines free of cost were debited in the account of Unit No. I, as the said unit was running the scheme. How could expenditure of above scheme debited in the other units? The investment in other units was made by the assessee out of its own profits earned over the years. The assessee, therefore, explained before the learned CIT(A) that expenditure in different units were properly charged and not inflated or deflated as observed by the Assessing Officer in the assessment order.
18. All the above claims are fully noted and considered by the learned CIT(A) at pages 3 and 4 of the order. The learned CIT(A) thereafter considered provisions of Section 80-I of IT Act including Sub-sections (1), (2) and (9) of the section. He analyzed above provisions in the light of the decision of ITAT, Chandigarh Bench in the case of Punjab Concast Steels Ltd., as is evident from pages 6 and 7 of CIT (Appeals)'s order.
The ld. CIT(A) allowed relief to the assessee with the following observations: 5. I have duly considered the facts of the case. I find that the basis on which deduction under Section 80-I has been denied in this case does not hold good. Unit No. III has printed on paper supplied by Unit No. I hence, there was no question of any consumption of paper in Unit No. III. Hence, there was no expenditure. Unit No. I has done printing work on paper purchased for itself as well as for purchase of paper for Unit No. III. Unit No. II is only doing binding job and hence it has not purchased paper. Hence, there was no expenditure on paper. As regards expenditure of ink, since ink has been sold to sister concern by Unit No. I, the expenditure in Unit No. I on this account is bound to be higher. This is also so because Unit No. I has got 14 machines which will consume more ink as against Unit No. III which is a modern unit. Unit No. I is very old having old generation machines consuming more ink. The consumption of ink in heat-offset machine is of liquid form and being new generation consumption of ink and electricity in Unit No. Ill is much lower. Similarly expenditure on salary is higher in Unit Nos. I and II as they are older employing more people as against Unit No. Ill which is a modern new unit doing work mainly on automatic machines having few employees. Hence, the Assessing Officer was not justified in drawing adverse interference on this account. Similarly the subscription deposit scheme is in vogue since 1972 for Unit No. I only. Hence, expenditure on this account cannot be debited to Unit Nos. II and III. Hence, the Assessing Officer's contention cannot be accepted.
6. I also find that on similar facts deduction under Section 80-I has been allowed in previous years. The Assessing Officer cannot change his opinion in subsequent years without there being any change of facts or change in provision of law. The appellant fulfilled the conditions for grant of deduction under Section 80-I. Even Sub-section (9) of Section 80-I authorizes the Assessing Officer to make adjustment in profit in case certain expenditure in his opinion has been charged excessively and allow deduction accordingly. It does not authorize the Assessing Officer to deny the deduction in its entirety. The ratio of decision relied upon by the appellant in the case of Punjab Concast Steels Ltd. v. ACIT 49 ITD 130 is also applicable to the facts of the case. Hence, the Assessing Officer is directed to allow deduction under Section 80-I as the ground on which he has denied the same do not hold good.
However, as per provision of Sub-section (6) of Section 80-I, if any loss for earlier years remains to be set off, the Assessing Officer will adjust the same from the profits of the years. I order accordingly.
19. Similar order was passed for the assessment year 1994-95. The successor CIT(A) in the subsequent order again examined objections raised by the Assessing Officer, noted details of the expenses debited under different heads and held that the facts and the circumstances before him were similar to assessment year 1993-94. He followed and applied order of CIT(A) for assessment year 1993-94 and directed that the relief be allowed to the assessee.
20. The Revenue being aggrieved challenged aforesaid orders of CIT(A) in appeal before the Appellate Tribunal raising the ground that direction of CIT(A) to allow deduction under Section 80-I were erroneous.
21. Both the appeals of the Revenue were heard by ITAT, C Bench, New Delhi. The learned Accountant Member wrote and proposed order on behalf of the Bench. In the above proposed order, the learned Accountant Member noted type of machines employed by different units in different years at Sahibabad and Faridabad. He also noted the objection of Assessing Officer-relating to claim of expenses under the head "Ink", salary and production charges and expenses relating to subscription deposit service. The learned Accountant Member further considered the analyses carried by learned CIT(A) of various expenses and their allocation to units which was held to be rational and justified.
The learned Accountant Member further noted submissions of parties and thereafter discussed the question whether allocation of expenses by the assessee was proper or not. The various objections are discussed by the learned Member as under: (a) As regards non-consumption of paper by Unit No. III. Although this said unit was engaged in printing like Unit No. I, the ld. CIT(A) noted that Unit No. III had done printing on the paper supplied by the publishers and therefore there was no purchase of paper. Thus, situation in two units was different. He further noted the nature of printing in these units was different. Unit No. I had done printing on the paper purchased by the assessee whereas no purchase of paper was made by the Unit No. III. Printing was done on paper supplied to the assessee. Thus, non-consumption of paper by Unit No. III was fully explained. The learned Accountant Member has observed, "had the Assessing Officer examined this point from the documents furnished by the assessee, perhaps this confusion would have not arisen." (b) As regards disproportionate expenses of ink in different units the learned Accountant Member observed that Unit No. I had 14 machines whereas Unit No. III had only one. Unit No. I came into existence in 1972, whereas Unit No. in came into existence in 1991-92. Thus the machinery used in Unit No. I was old and the consumption of ink was much higher than Unit No. HI. According to the learned Accountant Member no defects have been pointed out by the Assessing Officer in the books of account maintained by each unit. He was of the opinion that observations of the Assessing Officer about disproportionate expenditure in various units were also not justified.
Regarding salary and production expenses the ld. Accountant Member held that while Unit Nos. I and II arc located in UP, Unit No. III is located in Haryana. Different units have different number of workers. Accordingly, expenditure on salaries and production charges has to be higher in Unit No. I as compared to Unit No. III, which has latest machines and consumption of ink and electricity was much lower.
(c) As regards higher expenses of salaries and production charges, the learned Accountant Member noted that persons working in Unit No. I could not be transferred to the other State (Haryana). The minimum wages are also fixed by the State Government Unit No. I was established in 1972 and, therefore, workers in that unit were quite senior. Learned Accountant Member further noted that there was 14 machines in Unit No. I and, therefore, more workers were employed in that unit than in Unit No. El which had only one machine. Looking to this fact it was clear that expenditure on salaries and production has to be more in Unit No. I as compared to Unit No. III. (d) The learned Accountant Member also examined question of claim of expenditure on subscription deposits in Unit No. I. He noted that Scheme was invoked by Unit No. I in 1972. Unit Nos. II and in had come into existence in 1989 and 1991 respectively. Thus, the question of debiting Subscription Deposit Scheme expenses in Unit Nos. II and III did not arise. He further noted that assessee has maintained books of account separately for each unit. The Assessing Officer did not find any fault in the books. In these circumstances the Assessing Officer could not impose his own estimate in allocating expenses to various units. The learned Accountant Member further observed that learned CIT(A) appreciated the facts of the case and held that claim of deduction by the assessee was made on a rational basis. The learned Accountant Member did not find any infirmity in the impugned order of the CIT(A).
(e) The learned Accountant Member also dealt with question of adjustment of brought forward losses. He found that assessment of the assessee for the assessment year 1992-93 was made at income of Rs. 22.87 lakhs. He also noted that income declared by the assessee was accepted subject to minor disallowance under Rules 6B and 6D for prior period expenses. The ground in the appeal according to learned Accountant Member was merely academic and infructuous. As facts and circumstances of the case were same, he held that similar view has to be taken in the assessment year 1994-95. Accordingly, impugned order of CIT(A) was upheld in the proposed order.
22. The learned Judicial Member did not agree with the above proposed order of learned Accountant Member. He examined the reasons given by the Assessing Officer in para Nos. 4 and 5 of the impugned order. The arguments of learned Departmental Representative and learned Representative of the assessee are noted in paras 8 and 9 of Judicial Member's proposed order. He thereafter proposed to remit the matter back to the Assessing Officer for recomputation of deduction under Section 80-I after working out "true expenses of different units after making a detailed enquiry and investigation and thereafter to re-compute the deduction under Section 80-I". The matter was, therefore, restored to the Assessing Officer with the following observation: 10. Having considered the rival submissions and from a careful perusal of records, I find that Unit No. I was set up in 1972 at Sahibabad and it was engaged in printing of magazines and books.
Unit No. II was established in 1989-90 at Sahibabad II and is engaged in binding of magazines and books and Unit No. III was set up in 1991-92 at Faridabad having completely modern machines with a capacity of printing 25,000 sheets per hour duly dried and folded.
Though it is not clear, how much sheets were printed during the impugned assessment year by Unit No. III and Unit No. I but from a perusal of the details of total receipt we find that it is less than the Unit No. III as by reducing the cost of paper from the gross receipt the total receipt for the work done in Unit No. I comes to Rs. 1,25,64,468 against total receipt of Rs. 1,28,42,490 in Unit No. II. Against this actual receipt of Unit No. I assessee has booked various expenses under different heads at more than Rs. 1,86,10,519 worked out on the basis of chart given in the assessment order as no detail of complete expenses are furnished by the assessee. The major expenses were shown under the head 'Subscription deposit scheme, Paper and Ink'. While dealing with the expenses booked on account of paper, my learned brother has observed in his order that in Unit No. I, the paper was purchased by the assessee whereas in Unit No. Ill only job work of printing was done and the paper was supplied by the publisher. He further observed that had the Assessing Officer examined this point from the documents furnished by the assessee, perhaps this confusion would not have arisen. On perusal of Assessing Officer's order, I find that the Assessing Officer has taken a note of all these facts and has observed that the assessee has booked the expenses on account of paper at Rs. 2,36,62,145 and if this cost of paper is reduced from total receipt, the actual receipt in Unit No. I comes to Rs. 1,25,64,468 against which assessee has shown an expenditure of more than Rs. 1,86,10,519.
These observations of Assessing Officer were not dealt with by the CIT(A) in his order or by the learned Accountant Member. If the actual receipt of all units are taken into account, one would find that the actual receipt from individual units are almost similar subject to variation of few lakhs but the expenses booked in Unit No. I are more than 10 times of the expenses booked in other independent units as in Unit Nos. II and III expenses are booked at Rs. 14,01,967 and Rs. 6,05,235 respectively as evident from the comparative chart appearing in assessment order.
11. It was also observed by the Assessing Officer that the assessee has booked the expenses under the head 'Process of Ink' at Rs. 76,80,945 and under the head of 'Ink' at Rs. 46,88,877 totalling to Rs. 1,23,69,822 against the total expenses under the head Ink' booked at Rs. 2,22,223 in Unit No. III. With regard to expenses under the head 'Process of Ink', it was stated on behalf of the assessee before the CIT(A) that it was a cost of ink, which was sold to other units, but no evidence was placed before the Tribunal at any point of time in this regard. Had it been sold to other units by Unit No. I, why the assessee has booked it under the head 'Process of Ink' as expenses. No explanation to this effect was furnished before the Tribunal during the course of hearing. In the absence of proper explanation, no inference can be drawn that the expenses booked under the head of process of ink is the cost of ink sold by Unit No. I to other units. In these circumstances, total expenses booked under the head of ink in Unit No. I comes to Rs. 1,23,69,822 against the total expenses under the head 'Ink' booked at Rs. 2,22,223 in Unit No. Ill whereas the work done by Unit No. III is more than the Unit No. I. This aspect was not examined by the CIT(A) and he simply has held that the expenses shown under the 'Process of ink' as part of ink sold by Unit No. I to other units without any concrete evidence.
12. In these circumstances, I am of the view that the assessee has not properly apportioned the expenses under the head 'Ink' in Unit Nos. I and III whereas the work done by Unit No. III is more than Unit No. II may agree to some extent that being the old machines in Unit No. I, consumption of ink may be more but it cannot be more than 50 times of new machines. I, therefore, agree with the view of the Assessing Officer that the assessee has made a disproportionate allocation of expenses under the head of ink.
13. With regard to subscription deposit scheme, assessee has booked an expense of Rs. 17,32,165 in Unit No. I whereas no* expenses under this head are booked in Unit Nos. II and III. The assessee's contention before the Assessing Officer are that the scheme was launched in 1972 when Unit No. I was established and whatever collection was made, it was used in Unit No. I as such these expenses are booked in Unit No. I, but neither before the Assessing Officer nor the CIT(A), the details of the scheme were furnished by the assessee. It is not evident from the record that what was the scheme? Whether it was launched in 1972 or thereafter, and whether it was closed or still continued? It is also not evident from the record that how much amount was collected by the assessee under this scheme and in which year and whether this amount was solely used in Unit No. I or in setting up of Unit Nos. II and III? It was also not explained either before the lower authorities or before the Tribunal that what are these expenses. It is also not clear from the record, whether the assessee was a publisher or was doing only printing work and what are these expenses booked under Unit No. I. While rejecting these details of expenses, Assessing Officer has made the observation that the proportionate expenses under the head 'Subscription deposit scheme' should have been booked in other units also. But while accepting the claim of the assessee, CIT(A) did not spell out the nature of scheme and the reasons why the entire expenses under this head was booked only in Unit No. I. In these absence of complete details, the stand of the assessee cannot be accepted that these expenses only pertain to Unit No. I. In these circumstances, I am of the view that this needs a proper verification.
14. The other objection of the Assessing Officer was with regard to salary and production charges booked at Rs. 38,76,712 in Unit No. I against Rs. 4,58,665 in Unit No. II and Rs. 3,41,208 booked in Unit No. III. Admittedly Unit Nos. I and II are established at Sahibabad and Unit No. III at Faridabad. No doubt the salary and production charges may be more in Unit No. I being old unit, containing a number of machines but it cannot be more than twelve times of the Unit No. III whereas, the work done in Unit No. III is more than Unit No. I. I have also examined the expenses booked under the head 'Binding material' at Rs. 3,59,992 in Unit No. I in the light of the facts that the assessee had set up its Unit No. II for binding purposes consisting of perfect binding system, but failed to understand why the expenses in the head, binding material was booked in Unit No. I because nothing is placed on record that binding of printed material was done by the Unit No. I itself and the Unit No. I have its own binding machine whereas no expenses under this head was booked in Unit No. III. All these discrepancies, pointed out by the Assessing Officer were not duly met by the CIT(A) while directing the Assessing Officer to accept the claim of the assessee.
It is an admitted fact that the Unit No. I is no longer eligible for deduction under Section 80-I of the Act and Unit Nos. II and III are eligible for deduction. In the light of these facts, the CIT(A) was required to examine the claim of deduction minutely and it has become all the more necessary for him to make necessary verification before allowing a claim of the assessee when Assessing Officer has brought the material on record. I am also unable to understand why the assessee was running the Unit No. I continuously when it has shown a loss of Rs. 1,33,62,190 in assessment year 1993-94 and Rs. 33,59,290 in assessment year 1994-95. All these facts lead me to take a view that Assessing Officer was justified in holding that the assessee has made disproportionate allocation of expenses under different units in order to claim higher depreciation in new units i.e., Unit Nos. II and III. I, therefore, hold that the provisions of Section 80-I(9) are attracted and the Assessing Officer is directed to work out true expenses of different units after making a detailed enquiry and investigation and thereafter to recompute the deduction under Section 80-I. Accordingly the matter is restored to the file of Assessing Officer to re-adjudicate the issue of deduction under Section 80-1 in terms indicated above, after affording an opportunity of being heard to the assessee.
23. The learned Judicial Member thereafter wrote to the Accountant Member letter dated 3rd June, 2003 as under: Re : Appeal Nos. 3900 and 4517/DELHI/97 in the case of DCIT v. Delhi Press Samachar Patra Pvt. Ltd. I have carefully perused the order in the appeals under subject, proposed by you but I could not convince myself with the reasons given by you while accepting the claim of deduction under Section 80-I of the Income-tax Act. I, therefore, prepare my own order on the point of eligible deduction under Section 80-I of the Act and the same is enclosed herewith for your kind perusal.
You are therefore, requested to kindly examine it and if you find yourself in agreement with it, kindly give your concurrence, otherwise purpose a question for reference to their member.
I do not know what discussion took place between the learned Members, but having regard to the stand taken by the learned Members, and perhaps out of frustration the learned Accountant Member wrote in his hand below signed order of the Judicial Member that 'he agreed with the ultimate finding of his learned brother'. The aforesaid manner of disposing of the appeals was challenged by the assessee in Writ Petition before the Hon'ble Delhi High Court which resulted in the order dated 1st March, 2004 reproduced above.
24. In the light of the direction of the Hon'ble High Court both the appeals were again fixed for hearing. The learned Departmental Representative supported proposed order of Judicial Member for the reasons given therein. He has also been referred to and relied upon reasoning given by the Assessing Officer. Learned Counsel for the assessee on the other hand, explained order of CIT(A) by submitting that the said orders were based on surmises and conjectures without considering relevant record. The Id. Counsel for the assessee also drew my attention to the proceedings before the Tribunal and contended that at no stage doubts raised by the Id. Judicial Member in the proposed order were put to the assessee for explanation. Question of wrong placement of burden on the assessee was also raised. At my direction relevant books of account were also produced by the assessee for my consideration as also for perusal and verification by the learned Departmental Representative.
25. I have carefully considered material available on record in the light of submission of parties, orders of the revenue authorities and proposed orders of my learned brothers. The short question involved here is whether the asscssee in the two assessment years under consideration claimed expenses in Unit No. I which in fact related to business carried on by Unit Nos. II and III in order to claim higher and excessive deductions under Section 80-I of the Income-tax Act. This according to the revenue was done as no deduction was permissible on income derived by Unit No. I and the same was permissible on income derived by Unit Nos. II and III. Relevant figures of deduction claimed are noted in the earlier part of this order. Extract of observations of Assessing Officer and other authorities have also been reproduced. The circumstances which led the Assessing Officer to hold that expenses of Unit No. I were artificially inflated (enhanced) and that of Unit Nos.
II and III deflated (reduced); a view with which learned CIT(A) and Accountant Member (in his proposed order) did not agree, but learned Judicial Member accepted are also given below.
26. The first object raised by the Assessing Officer is that expenses under the head "Ink" in Unit No. I is-excessive when compared with Unit No. III. The Assessing Officer noted that assessee had claimed Rs. 76,80,945 under the head "Process of Ink" and Rs. 48,26,988 under the head "Ink" in Unit No. I against expenses of Rs. 1,04,113 in Unit No.III in period relevant to assessment year 1993-94. On appeal learned CIT(A) held that amount of Rs. 76,80,945 shown as under the head "Process of ink" was in fact receipt for transfer of ink and thus expenses towards Ink were only claimed at Rs. 48,26,988 in Unit No. I.The aforesaid finding of learned CIT(A) is not accepted by Judicial Member in the proposed order as no evidence of sale of Ink by Unit No.I was placed before the Tribunal at any point of time. The learned Judicial Member has accordingly held that Ink in Unit No. I comes to Rs. 1,23,69,822 against Rs. 2,22,223 shown in Unit No. I. The learned Judicial Member has further observed that above aspect was not examined by the learned CIT(A) and he simply held that expenses shown under the head "Process of ink" was part of Ink sold by Unit No. I without any concrete evident.
27. During the course of hearing of the appeal the learned Counsel for the assessee submitted that CIT(A) has accepted assessee's claim and revenue had come up in appeal before the Appellate Tribunal. It was therefore for the revenue to establish that the finding recorded by the learned CIT(A) was erroneous and was wrong and that of the Assessing Officer was correct. The Id. Judicial Member wrongly placed burden on the assessee to show that finding of the CIT(A) was correct. He further submitted that Tribunal at no stage asked the assessee to show material that the findings of the learned CIT(A) were correct. In the above circumstances the learned Counsel for the assessee submitted that finding recorded by the learned Judicial Member in the proposed order were not only illegal but also against record. He drew my attention to books of account of the assessee wherein "Process of Ink Account" in computerized ledger stood credited at page No. 1. Thus total credit of "process of ink" is taken to consolidated profit and loss account which is at pages 92-93 of the ledger. The same is as under:Unit-I Total Receipt 3,62,26,613.00Less: Other Receipt 1,25,984.00 Paper Printing Binding 2,84,19,684.00 Process of Ink 76,80,945.00 Unit-II Work Done 1,29,05,964.00 Unit-III Work Done 1,28,42,490.00 Total 6,18,49,083.00 28. Above amount of Rs. 6,18,49,083 is duly shown on the credit side under the head "Sales" in the profit and loss account of the relevant period. Copies of above entries in the books of account were also verified by the Id. Departmental Representative. It is settled law that books of account are part of a record of assessment and can be examined by all facts finding authority including the Appellate Tribunal.
Entries in the books of account letive no amount of doubt that in Unit No. I assessee received Rs. 76,80,945 on account of process of ink. The aforesaid amount was credited in the relevant account and could not be taken as part of expenses. The Assessing Officer's findings which are approved by the Id. Judicial Member are contrary to the material on record and are erroneous. It has therefore to be held that the assessee only claimed Rs. 48,26,988 on account of consumption of Ink and not Rs. 1,23,69,822 as made out in the assessment order. On the other hand, the learned CIT(A) recorded a factually correct finding. I sec no justification for the observations that no explanation was furnished by the assessee during the hearing of appeals. It was the appeal of the revenue wherein findings of the Id. CIT(A) were challenged. On facts above challenge is not maintainable and liable to be rejected.
29. It is also a part of record that assessee was using 14 old machines in Unit No. I and only one heat set Web Offset printing machine in Unit No. III. The Assessing Officer did not carry on any analysis as to what quantity of Ink could be consumed by 14 machines in Unit No. I and one Heat Web Offset Printing Machine in Unit No. in. He did not refer to any comparable case to reach any reasonable conclusion that consumption of Ink shown by Unit No. I was excessive and that shown by Unit No. III was low. The Assessing Officer took wrong figures in to account. It cannot be disputed that different type of machine consume different quantity of ink depending upon type and kind of machines, type of printing carried and paper etc. used in the machines. The case of the assessee could not be rejected on short ground that ink consumed by Unit No. I could not be 14 times more than the ink consumed by Unit No.III. As no material is available on record to support the conclusion that claim made in Unit No. I was excessive, above finding has to be held to be based on surmises and conjectures particularly when it is not in dispute that machines employed in Unit No. I are old and of different type then one modern machine in Unit No. III. In my considered opinion, learned CIT(A) and Accountant Member carried proper analysis of facts and circumstances of the case and rightly rejected the objection raised by the Assessing Officer as not justified.
30. The second objection raised by the Assessing Officer pertained to higher expenses on account of consumption of paper. No expenses were shown in Unit No. III whereas expenses incurred on purchase of paper by Unit No. I were disclosed at Rs. 2,36,62,145. The cost of paper was deducted from gross receipt disclosed by Unit No. I at Rs. 3,62,26,613 and thus "actual work" done by Unit No. I was worked at Rs. 1,25,64,468. The reason for above deduction was that paper was "supplied to the publisher" at cost. Gross receipt shown by Unit No.III were more than actual work done by Unit No. I. Thus conclusion that disproportionate and excessive expenses were claimed by Unit No. I.31. In appellate proceeding the assessee had explained that Unit No. II was not buying papers and was carrying printing work on the paper supplied by the customer. It was only carrying job work whereas Unit No. I was buying paper from the Market. The aforesaid claim was duly supported by entries in the books of account and was accepted by the learned CIT(A). It has also been accepted by the learned Accountant Member in the proposed order. The learned Judicial Member however in the proposed order observed that "work done" by the assessee in U nit No. I was for Rs. 1,25,64,468 against which Unit No. I claimed expenses of Rs. 1,86,10,509. Thus expenses claimed were much more than receipts.
The learned Judicial Member further observed that there may be variation of few lakhs in actual receipts of Units but expenses booked should correlate with receipt. But in Unit No. I expenses are more than 10 times of expenses booked in other units. He has further observed. "I am unable to understand why the assessee was running Unit No. I continuously when it had shown loss in the assessment years 1993-94 and 1994-95". This along with other facts led him to take a view that Assessing Officer was justified in holding that assessee had made disproportionate allocation of expenses under different Units in order to claim deduction (wrongly written as depreciation in the proposed order) in Unit Nos. II and III. The learned Judicial Member further observed that above aspects raised by the Assessing Officer in the assessment order were not examined by learned CIT(A). On careful consideration of rival submissions, I wonder as to what case is being made against the assessee on account of consumption of paper. In Unit No. IE assessee has claimed that the Unit did not purchase any paper.
The printing was done by the said Unit on paper supplied by the publisher. Whereas Unit No. I carried on printing on paper purchased by the said Unit from the market. Purchase of paper is duly debited in books of account of Unit No. I. No attempt to challenge that expenses debited by Unit No. I on purchase of paper were wrong was made by the Assessing Officer. Likewise no enquiry or investigation was carried to establish that Unit No. III in fact purchased and used paper but did not debit the same in accounts. Without any challenge to audit books of account, various expenses are rejected on surmises. It is true that paper was supplied to the "publisher" as observed in the assessment order. The publisher supplied paper to Unit No. Ill for printing and not to Unit No. I. The said Unit had to buy paper from the market and such purchases were debited in the books of account. Thus when purchases has not been challenged nor there is any other material on record that expenditure was not incurred what is the justification of deducting cost of paper from total receipt in Unit No. I? What is the justification for not accepting that Unit No. III did not purchase paper? What is wrong with explanation of the assessee? I see no justification for interfering with the finding recorded by the learned CIT(A) in the impugned order. The impugned order of CIT(A) has been rightly been described by the learned Accountant Member as rational and suffering from no infirmity.
32. One more objection raised by the Assessing Officer relates to expenses of Rs. 17,32,165 relating to Subscription Deposit Service Scheme debited in accounts of Unit No. I. About these expenses, the Assessing Officer in assessment order for 1993-94 has observed "Subscription Deposit Service Scheme followed by the assessee wherein against sum refundable deposits, it supplied magazines to the depositors and expenses on account of purchase of these magazines from associated concern is debited in Unit No. I". The Assessing Officer further observed, "it cannot be assessee's case that funds so generated by the deposit received is utilized only for Unit No. I. In fact all new investments have been made in Unit Nos. II and III". The Assessing Officer accordingly did not accept as correct the debit of entire expenditure of scheme in Unit No. I.As against the above the Id. Judicial Member had recorded, 'neither before the Assessing Officer nor before the CIT(A) the detail of the Scheme were furnished by the assessee. It is not evident from record what was the Scheme? Whether it was launched in 1972 or thereafter and whether it was closed or still continued. The other observations of the learned Judicial Member in the proposed order have been separately noted. He has concluded that while accepting the claim of the assessee the learned CIT(A) did not spell out nature of the scheme and the reasons why the entire expenses under this head were booked only in Unit No. I. In his view this aspect needs proper verification.
33. From the observations of the Assessing Officer it is clear that he had taken note of the scheme initiated by Unit No. I. The Assessing Officer's objection was quite different and have been highlighted above. I see that doubts raised by the Id. Judicial Member are against record and do not arise from the facts of the case. The assessee placed full scheme before the Assessing Officer as under: Under this scheme the readers are invited to deposit a fixed amount of money with the company to subscribe various magazines printed by the company such as Sarita, Mukta, Champak, Grih Shobha, Suman Saurabh, Alive, Woman's Era, and other language magazines. This deposit is refundable at six months notice by either side. Till the deposit is with the company the reader shall continue to get the magazine free of charge. On refund of the deposit the magazines supply shall be stopped.
This scheme is in vogue since 1968 and at present the total subscribers arc more than 15,000.
To supply the magazines the Company buy magazines from Delhi Prakashan Vitran Pte Ltd. and the purchase cost of these magazines are debited to Profit & Loss A/c.
34. On appeal CIT(A) accepted the explanation of the assessee that Subscription Deposit Service Scheme was invoked in 1972 when other two Unit Nos. II and in did not come to existence and investment in two units were made by the assessee out of profit as earned by it and not out of funds of the scheme. When the matter came up before the Appellate Tribunal, the learned Accountant Member in the proposed order accepted the impugned order of CIT(A) after discussion of facts and circumstances of the case.
35. The learned Judicial Member however made observations contrary to record as have been noted above, the details of the scheme were furnished and duly noted by the Assessing Officer. No dispute about scheme or its operation was raised.
36. The objection of the Assessing Officer that funds collected by Unit No. I under this scheme were utilized for investments in Unit Nos. II and III are not based upon any material. Even the ld. Judicial Member has observed "it is also not evident from the record how much amount was collected by the assessee and in which year and whether amount was solely in Unit No. I or in setting up Unit Nos. II and III". If that is the situation then what case has been made by the Assessing Officer? Only on doubt and surmises case was made and now being recommended to Assessing Officer for further examination.
However, the finding of Assessing Officer was challenged by the assessee and learned CIT(A) accepted and recorded that the assessee used its own profit for investment in Unit Nos. II and III as those units were set up much after the launching of the scheme. It is clear from record that books are supplied free of cost to the subscriber who made deposit of requisite amount under the scheme. Expenditure claimed by Unit No. I pertain to supply of books and magazines free of cost.
The scheme was launched by Unit No. I. The deposits were received by the said unit and, therefore, expenditure are debited in account of the said unit. There is no dispute on above facts. The objection of the Assessing Officer is uncalled for as there is no material on record to show that deposits of scheme were utilized as investments in Unit Nos.
II and III. In fact, Assessing Officer fell short of recording a specific finding to the above effect. In the assessment, order he has merely observed that no doubt new investments were made in Unit Nos. II and III but as accepted by the learned CIT(A) with reference to the material on record including entries in the books of account, the assessee had sufficient profits of its own to utilize in Unit Nos. II and III. Where is the question of debiting proportionate expenses of Scheme in Unit Nos. II and III? The finding in the proposed order of the learned Judicial Member itself shows that Assessing Officer did not collect any details to challenge the claim of the assessee. So no case was made out against the assessee by the Assessing Officer. In my humble opinion on facts and circumstances of the case, there is no justification for placing onus on the assessee and for holding that stand of the assessee cannot be accepted. All the ingredients of scheme and all expenses claimed were made available on record which further reflect that assessee had sufficient profit to make investment in Unit Nos. II and III. It was, therefore, for the Assessing Officer to show from evidence that assessee was wrongly debiting expenses in Unit No. I which in fact pertained to Unit Nos. II and III. The Assessing Officer was duty bound to collect material to support inference drawn by him against the assessee. No case was set up by the assessee which was required to be established. Further the case is held to be not examined by the learned CIT(A) when simultaneously it is held that proper verification was not carried on by the Assessing Officer to whom the matter is sought to be remanded. This is the fate of the assessee on whom protracted litigation has been inflicted.
37. The Assessing Officer and also learned Judicial Member in the proposed order objected to certain other expenses claimed in Unit No. I like production charges including salary booked at Rs. 38,76,712 in Unit No. I against much lower amounts in Unit Nos. II and III. Other expenses were found to be debited only in Unit No. I and not in other units. It is also observed why expenses of binding material at Rs. 3,59,992 were debited in Unit No. I when assessee had set up Unit No.II for binding purposes consisting of perfect binding system and binding expenses are debited in Unit No. III. The Id. Judicial Member has observed that he failed to understand why business was done in Unit No. I. The discrepancies pointed out by the Assessing Officer were not considered by the Id. CIT(A) while directing the Assessing Officer to accept the claim of the assessee. The Id. Judicial Member therefore agreed with approach of the Assessing Officer except computation of the deduction.
38. In my considered view, there is no confusion on facts involved in the case. The assessee is carrying on printing work in Unit No. I. It has debited binding expenses in said unit also. It is nobody's case that after printing, binding work was not carried by Unit No. I. No investigations on above line were carried. The objection is why binding charges in Unit No. I when Unit No. II has binding machines. However, objection is raised without any justification. Binding was done in Unit No. I and expenses claimed duly supported by audited books of account.
The expenses claimed on binding in Unit No. I are not held to be fictitious. Likewise Unit No. III admittedly carried printing work without binding and without debiting binding expenses. The Assessing Officer placed no material on record to controvert the claim of the assessee. It is not clear as to on what material doubts has been raised in the proposed order by learned Judicial Member even on points accepted and not challenged by the Assessing Officer. Even the manner of carrying on of business is challenged. However, on doubts and surmises, it is not permissible to deny a claim and interfere with the impugned order. As already noted the question before the CIT(A) and before the Tribunal was whether the Assessing Officer had made out or shown that expenses in Unit No. I were inflated. Whether there was any material to support the conclusion of the Assessing Officer to deny claim of deduction to the assessee. Having regard to the principle that he who alleges shall prove, the onus was clearly on the Assessing Officer to establish the case set up by him. The above and related question whether the said onus was discharged was required to be examined. The assessee had rendered explanation only to remove doubts raised by the Assessing Officer in the impugned order. The explanation was held to be reasonable and claim rational and justified on facts.
That was the question required to be examined by the Appellate Tribunal in accordance with the law. I have however find that instead of examining above questions, order proposed totally different and new questions based on suspicions and doubts. A good explanation duly accepted by the ld. CIT(A) has been treated as bad after wrongly placing onus on the assessee which under the law was on the Revenue.
39. It is clear from the assessment orders that income shown and expenses claimed by the assessee have been duly allowed in the assessment order. None of the expenditure has been treated as in genuine or not connected or related to the business carried out by the assessee. In the above background and without any material, and without and justification on the part of the Assessing Officer some of the expenses claimed by the assessee were held to be inflated in Unit No. I and were deflated in Unit Nos. II and III. Entire case of Assessing Officer in both the assessment years is based on surmises and conjectures. The Id. CIT(A) had passed a fair, rational and just order.
There was no scope to interfere with the impugned orders as rightly held by the learned Accountant Member in his proposed order. On similar facts claim in earlier years was allowed to the assessee.
40. Before concluding I would like to refer to certain pertinent observations made by the Privy Counsel and by the Hon'ble Supreme Court relating to basis of assessment. In the case of CIT v. Laxminarain Badridas [1937] 5 ITR 170, the Privy Council had observed that Assessing authority must make what he believes to be a fair estimate of proper figure of assessment and that assessment should not be dishonestly, vindictively or capriciously made. It should also not be arbitrary.State of Kerala v.C. Velukutty after referring to the above decision of Privy Council observed as under: Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice of a Judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a best judgment assessment, it should not be a wild one, but should have a reasonable nexus to the available material and the circumstances of each case.
42. The facts with reference to which the aforesaid observations were made by their Lordships are noted at page 244/245 of the report and are as under: Can it be said that in the instant case the impugned assessment satisfied the said tests? From the discovery of secret accounts in the head office, it does not necessarily follow that a corresponding set of secret accounts were maintained in the branch office, though it is probable that such accounts were maintained. But, as the accounts were secret, it is also not improbable that the branch office might not have kept parallel accounts, as duplication of false accounts would facilitate discovery of fraud and it would have been thought advisable to maintain only one set of false accounts in the head office. Be that as it may, the maintenance of secret accounts in the branch office cannot be assumed in the circumstances of the case. That apart, the maintenance of secret accounts in the branch office might lead to an inference that the accounts disclosed did not comprehend all the transactions of the branch office. But that does not establish or even probabilize the finding that 135 per cent or 200 per cent or 500 per cent of the disclosed turnover was suppressed. That could have been ascertained from other materials.
The branch office had dealings with other customers. Their names were disclosed in the accounts. The accounts of those customers of their statements could have afforded a basis for the best judgment assessment. There must also have been other surrounding circumstances, such as those mentioned in the Privy Council's decision cited supra. But in this case there was no material before the assessing authority relevant to the assessment and the impugned assessments were arbitrarily made by applying a ratio between disclosed and concealed turnover in one shop to another shop of the assessee. It was only a capricious surmise unsupported by any relevant material. The High Court, therefore, rightly set aside the orders of the Tribunal.
Nor can we accede to the request of the learned Counsel for the State to remand the matter to the Tribunal for fresh disposal. The sales tax authority had every opportunity to base its judgment on relevant material; but it did not do so. The department persisted all through the hierarchy of Tribunals to sustain the impugned assessments. The High Court, having regard to the circumstances of the case, refused to give the department another opportunity. We do not think we are justified to take a different view.
43. I see some parallel between the facts of the above cited case and case in hand, because profit was disclosed in Unit Nos. II and III on which deduction under Section 80-1 was claimed and no profit was disclosed in Unit No. I on which no such deduction was permissible and expenses in aforesaid Unit No. I were much higher than this in the other two units. It was probable that more expenses were claimed in Unit No. I and some of the expenses of Unit Nos. II and III were diverted and claimed in Unit No. I. But no presumption under the law could be raised that expenses were so diverted. The assessee has produced accounts with details and, therefore, correct position "could have been ascertained from the material statement of relevant persons including management and staff of the assessee could have been examined." But without any investigation and without collecting any material an arbitrary assessment by holding that expenses in Unit No. I should be proportionate to those in Unit Nos. II and III was made.
Assessment based on such inference has to be held as arbitrary.
44. Their Lordships of Supreme Court in the above case also refused to give another opportunity to the Department to make out a Case by remanding the matter to the Assessing Officer. There is therefore no justification for making a thorough investigation.State of Orissa v. Maharaja Shri B.P. Singh Deo Agricultural Income-tax Officer assessee to produce books of account to support the claim made in the return. Books of account were rejected as unreliable and income was estimated and taxes levied. The Appellate Asstt. Commissioner not only confirmed the assessment but also enhanced the same. The Tribunal affirmed the decision of the Appellate Asstt. Commissioner, which was set aside by the High Court. Their Lordships in appeal observed as under: The power to levy assessment on the basis of best judgment is not an arbitrary power; it is an assessment on the basis of best judgment.
In other words, that assessment must be based on some relevant material. It is not a power that can be exercised under the sweet will and pleasure of the concerned authorities. The scope of that power has been explained over and over again by this Court.
The Agricultural Income-tax Tribunal gave no reasons in its order for affirming the decision of the Asstt. Collector. It appears to have been of the view that once the assessing authorities reject the material placed before them as being unreliable those authorities can proceed to levy whatever tax they may levy. It failed to bear in mind the scope of the power of the assessing authorities to levy assessment on the basis of best judgment. Therefore, the Tribunal was clearly in error in confirming the decision of the Asstt.
Collector. Hence, the High Court was justified in interfering with the order of the Tribunal.
46. It is evident from above that even when the material produced by the assessce is rejected, the authorities cannot proceed to levy whatever tax they may levy. The assessment must be based on some material. If it is not based on any material then it has to be held to be capricious and arbitrary. The question which is raised in most of the cases before the Appellate Tribunal is whether the assessment by the Assessing Officer have been made in accordance with law. The aforesaid question has to be determined objectively and not by raising merely doubts and certainly not by entertaining suspicion against the assessee, or against people connected with the assessment or disposal of appeals. If the Appellate Tribunal does not discharge its duties with responsibility as enjoined under the law, the confidence that is placed by the public on the Appellate Tribunal would stand eroded. With the aforesaid observations, I agree with the order proposed by learned Accountant Member, confirming the impugned orders of CIT(A). Let the matter be now placed before the regular Bench for disposal in accordance with law in both the assessment years.