Ita/622/2009 Of The Commissioner Of Income Tax,Cochin v. Souther Gas Ltd.,Udyogamandal,Kochi

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN TUESDAY, THE 2ND FEBRUARY 2010 / 13TH MAGHA 1931 ITA.No. 622 of 2009() --------------------- ITA.874/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: ----------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): RESPONDENT ------------------------- SOUTHERN GAS LTD. UDYOGAMANDAL, KOCHI. ADV. SRI.P.BALAKRISHNAN (E) FOR R1 THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 02/02/2010, ALONG WITH ITA NO.985 OF 2009, THE COURT ON 02/02/2010 DELIVERED THE FOLLOWING: -------------------------------------------- I.T.A. Nos. 622 & 985 OF 2009 -------------------------------------------- Dated this the 2nd day of February, 2010 JUDGMENT Ramachandran Nair, J. The common question raised in the connected appeals filed bythe revenue is whether the Tribunal was justified in holding that theassessee is entitled to deduction under Section 80IA in respect of newindustrial units set up by it even if it had not maintained separateaccounts for the same. We have heard standing counsel appearing forthe appellant, and counsel appearing for the respondent-assessee. 2. The assessment years involved are 1996-97 and 1997-98.During these years, the assessee set up new industrial units forentitlement of deduction of 25% of the profit derived from sucheligible units as provided under Section 80IA of the Act. In the normalcourse, the assessee should have maintained separate books of accountsto establish the profit derived from such eligible unit for claimingexemption. This is made very clear under sub-section (7) of Section80IA. However, there is no specific provision in Section 80IA that ITA 622&985/09 non-maintenance of separate accounts for the new industrial unit willdisentitle the assessee to the benefit under Section 80IA. It is seenfrom the Tribunal's orders that decisions of various High Courts areunanimous because all of them held that failure to maintain separateaccounts for the new industrial unit will not be fatal for a claim underSection 80IA. We do not want to disturb this position even though weare satisfied that basically the provisions of Section 80IA requiremaintenance of separate accounts particularly by virtue of operation ofsub-section (7) of Section 80IA. However, strangely, none of theauthorities including the Tribunal held that Officer is free to verify theclaim and work out a formula bifurcating the income from oldindustrial units and from new industrial units for the purpose ofconsidering the correctness of the amount claimed as deduction underSection 80IA. In our view even if separate accounts are not maintainedin regard to production and profit earned from the eligible unit, it is forthe assessee to establish that the procedure adopted with regard tobifurcation of income and profit attributable to the new industrial unitare correct. In cases where the assessee does not maintain separatebooks of accounts, the assessing authority should critically examine theclaim and ensure that profit worked out on proportionate basis from the ITA 622&985/09 eligible units more or less represents the actual profit with reference towhich only the claim of deduction has to be granted under Section80IA of the Act. In view of this view expressed by us, we feel theclaim should be considered by the assessing officer and it is the duty ofthe assessee to satisfy how the profit of new industrial unit is workedout from out of total profit of the company, both for the old unitsineligible for deduction as well as for new industrial units which areentitled to deduction under Section 80IA. ITA 622&985/09 eligible units more or less represents the actual profit with reference towhich only the claim of deduction has to be granted under Section80IA of the Act. In view of this view expressed by us, we feel theclaim should be considered by the assessing officer and it is the duty ofthe assessee to satisfy how the profit of new industrial unit is workedout from out of total profit of the company, both for the old unitsineligible for deduction as well as for new industrial units which areentitled to deduction under Section 80IA. Appeals are therefore disposed of upholding the order of theTribunal but by restoring the quantum assesssed for consideration bythe assessing officer and if he notices that any part of the claim ofdeduction is not attributable to the profit earned from the eligible unit,he is free to disallow such portion after giving opportunity to theassessee. (C.N.RAMACHANDRAN NAIR)Judge.Judge. (P.S. GOPINATHAN) Judge.