DELHI E BENCH (THIRD MEMBER) DEPUTY DELHI PRESS COMMISSIONER OF v. SAMACHAR PATRA (P) INCOME TAX LTD. March 21, 2006 JUDGMENT 101 ITD 253 DEPUTY COMMISSIONER OF INCOME-TAX, SPL. RANGE-7, NEW DELHI V. DELHI PRESS SAMACHAR PATRA (P.) LTD. [2006] 101 ITD 253 (DEL) (TM) VIMAL GANDHI, PRESIDENT (THIRD MEMBER),S.K. Yadav and D.R. Singh, Judicial Memberand Keshaw Prasad and P.M. Jagtap, Accountant Member IT Appeal Nos. 3900 and 4517 (Delhi) of 1997 Assessment Years 1993-94 and 1994-95 March 21, 2006 Order Per Keshaw Prasad, Accountant Member. - Both appeals have been directed by revenue against order of CIT(A) dated 8-4-1997 for assessment year 1993-94 and dated 30-5-1997 for assessment year 1994-95. As issues in both appeals are common, consolidated order is being passed. 2. In both appeals, revenue has challenged directions of CIT(A) to allow deduction under section 80-I of Act in respect of assessee's Unit Nos. II and III. In assessment year 1993-94, revenue has also challenged direction of CIT(A) to allow deduction under section 80-I before set off of brought forward losses. 3. Briefly facts of case are that assessee is company engaged in business of printing magazines and books. Its Unit No. I which is 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 assessment year 1989-90 at Sahibabad but is engaged only in binding of magazines and books. Unit No. III was set up in assessment year 1991-92 in Faridabad. This unit is modern printing machine and its capacity is very high. assessee claimed deduction under section 80-I of Act on its Unit Nos. II and III. However, Assessing Officer held that deduction under section 80-I can be worked out on basis of accounts furnished by assessee. allocation of expenses inter se amongst different units was arbitrary and had no rational basis. According to him, expenses in Unit No. I have been inflated whereas profits in Units II and III have been inflated. While coming to this conclusion, Assessing Officer made following observations:- (i) There is no consumption of paper in Unit No. III 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 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 same should have been debited to Unit Nos. II and III also. By allocating proportionate expenses to various units, Assessing Officer held that there was no profit in Unit Nos. II and III which could be allowed deduction under section 80-I of Act. For this purpose, Assessing Officer also relied on provisions of section 80- I(6) and 80-I(9) of Act. 5. On appeal, CIT(A) analysed working of various units and held that allocation of expenses by assessee had rationale and accordingly claim of deduction under section 80-I of Act was justified. While doing so, CIT(A) also observed that if any loss for earlier years remains to be set off Assessing Officer will adjust same from profit of year. 6. revenue is in appeal before us against findings of CIT(A). Ld. DR stated that Hon'ble Bombay High Court in case of Synco Industries Ltd. v. Assessing Officer of Income-tax [2002] 254 ITR 608 has held that when there are various units by assessee, expenses have to be allocated to various units. He stated that assessee had no rationale in allocating various expenses to various units. assessee has adopted method of inflating expenses of Unit No. I so that profit of Unit Nos. II and III are inflated claiming deduction under section 80-I of Act. 7. On other hand, ld. counsel relied on order of CIT(A). 8. We have considered rival submissions. only objection of revenue in denying claim of assessee for deduction under section 80-I of 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 Act. We have, therefore, examined as to whether allocation of expenses by assessee was proper or not. When Assessing Officer denied claim of 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 details furnished before Assessing Officer, we find that Unit No. I had done printing of magazines which are supplied with paper. Unit No. III has done printing on papers supplied by publishers and accordingly there is no consumption of paper in Unit No. III. nature of printing in both units are different. Unit No. I has done printing on paper purchased by assessee whereas Unit No. III has done only job work of printing and not purchased any paper. paper was supplied by other company. It was under these circumstances that there was no consumption of paper in Unit No. III whereas there was consumption of paper in Unit No. I. Had Assessing Officer examined this point from documents furnished by assessee, perhaps this confusion would have not arisen. 9. second reason given by Assessing Officer in denying claim of assessee was disproportionate expenditure of ink in different units. Assessing Officer has pointed out that in Unit No. I, consumption of ink, was very high whereas in Unit No. III, consumption of ink was much less. We find that Unit No. I had 14 machines whereas Unit No. III had only one machine. As mentioned earlier, Unit No. I came into existence in 1972 whereas Unit No. III came into existence in 1991-92. Thus, machinery used in Unit No. I were old and consumption of ink was much higher. As against this, only machine in Unit No. III was latest machine and consumption of ink and electricity was much lower. assessee allocated expenses of ink on actual consumption basis which is reflected by separate account books of each unit. No defects have been pointed out by Assessing Officer in account books maintained by each unit. We, therefore, hold that observations of Assessing Officer about disproportionate allocation of ink expenses to various units is also not justified. Assessing Officer had also pointed out that salary and production expenses in Unit No. I was much higher as compared to expenditure in other units. We find that while Unit Nos. I and II are located in Sahibabad (UP), Unit No. III is allocated in Haryana. persons working in one State cannot be transferred to other State. minimum wages are also fixed by 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 workers working on one machine in Unit No. III. Looking to these facts, it is clear that expenditure on salaries and production has to be higher in Unit No. I as compared to Unit No. III. 10. Assessing Officer has also observed that entire expenditure on subscription deposits was allotted to Unit No. I. We find that 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, question of allocating subscription deposit scheme to Unit Nos. II and III did not arise. These facts clearly indicate that assessee has allocated expenses to various units on rational basis. It is also admitted position that assessee has maintained books of account separately for each unit. Having not found any fault in these books, Assessing Officer cannot impose his own estimate in allocating expenses to various units. CIT(A) appreciated these facts and held that assessee has claimed deduction under section 80-I on rational basis. We do not find any infirmity in his findings and while upholding same, we dismiss ground of appeal raised by revenue. 11. We also find that revenue has challenged directions of CIT(A) for allowing deduction under section 80-I of Act before set off brought forward losses. But from order of CIT(A), it is clear that position is otherwise. In last para of his order, CIT(A) has observed that as per section 80(1)(6), if loss of earlier years remain to be set off, Assessing Officer will adjust same from profit of years. During course of hearing, ld. counsel has stated that there was no loss brought forward from earlier years. For this purpose, ld. counsel also filed assessment order for 1992-93 according to which assessed income came to Rs. 22.87 lakhs. perusal of this order indicates that except minor disallowances under rule 6D, prior period expenses, disallowance under rule 6B, income declared by assessee has been accepted. We, therefore, feel that this ground of appeal raised by revenue is merely academic and infructuous. We, therefore, dismiss this ground of appeal also. 12. In assessment year 1994-95 facts are similar and in view of our findings in assessment year 1993-94, we hold that as there was no infirmity in findings of CIT(A), while upholding same, we dismiss ground of appeal raised by revenue. In result, both appeals filed by revenue are dismissed. --------- 0 Per S.K. Yadav, Judicial Member. - I have privilege of going through erudite order proposed by my Learned Brother Shri 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 point of eligible deduction under section 80-I of Income-tax Act (hereinafter called as 'Act'). I, therefore, adjudicate issue of eligible deduction under section 80-I of Act independently as under: 2. Though my learned brother has narrated facts in his order but I wish to discuss it elaborately in order to adjudicate impugned issue judiciously. 3. assessee is engaged in business of printing magazines and books and its Unit No. I, which is printing press, was setup in 1972 in Sahibabad. It is engaged in cover printing of Magazine as also double colour printing for inside pages. Assessee setup another Unit No. II in assessment year 1989-90 at Sahibabad- II but it only binds books and magazines. Unit No. III was setup in 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. 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 course of assessment proceedings for assessment year 1993-94, assessee has furnished complete details unitwise wherefrom it is noted by Assessing Officer as under: Unit No. I Unit No. II Unit No. III Total receipts 3,62,26,613 1,29,03,964 1,28,42,490 Total expenses 4,95,88,803 42,04,492 51,31,306 Income ..... 87,01,472 77,11,184 Loss 1,33,62,190 ..... ..... 4. On examination of details, it was noted by Assessing Officer that expenses in Unit No. I were inflated resulting into heavy losses whereas, in Units No. II and III, expenses were reduced to increase profit in order to claim more deduction. Assessing Officer has also noticed that in Unit No. I there was amount of Rs. 2,36,62,145 debited on account of paper while no amount was shown under head of paper in Unit No. III though this unit is also engaged in printing. Similarly, amount of Rs. 76,80,945 was shown under head 'process of ink' in Unit No. I but no such expenses was shown in Unit No. III. Again another amount of Rs. 48,26,988 was shown under head ink in Unit No. I and only amount of Rs. 1,04,113 was shown under this head in Unit No. III. As such, total expenses under head ink was shown at Rs. 1,23,69,822 in Unit No. I as against sum of Rs. 1,04,113/ shown in Unit No. III. assessee was asked to explain these discrepancies and assessee filed revised chart showing slight variation in income and loss in all 3 units. 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 assessee has not brought out case that funds so generated under subscription deposit service scheme, was only utilized in Unit No. I and it has no relevance with Unit Nos. II and III. Assessing Officer has identified certain expenses, which were booked under Unit No. I and not in Unit Nos. II and III and reproduced same in tabulated form in his order. In order to understand facts of case, I extract same as under: Unit No. I Unit No. II Unit No. III Process of ink 76,80,945 - - Ink 46,88,877 - 2,22,223 Motor Vehicle exp. 2,55,870 22,845 41,804 Binding material 3,59,992 9,20,457 - Subscription+ 17,32,165 - - Deposit scheme Travelling 15,958 - - Salaries & production charges 38,76,712 4,58,665 3,41,208 Paper 2,36,62,145 - - 5. Assessing Officer further examined total receipts in Unit No. I which it is shown at Rs. 3,62,26,613 including cost of paper supplied. If cost of paper which is at Rs. 2,36,62,145 is reduced from total receipt, actual receipt comes to Rs. 1,25,64,468. Thus, 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 actual work done in Unit No. I at Rs. 1,25,64,468, assessee has shown total expenses under one head i.e., ink at Rs. 1,23,69,822. Thus, assessee had surplus of amount of Rs. 1,94,646 after accounting for just one raw material i.e., ink. Against receipt of Rs. 1.94 lakhs, 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 Officer has observed that assessee has not debited correct expenses in different units as such his case is fully covered under provisions of section 80-I(9) of IT Act. Assessing Officer has further noticed that almost all work was done by assessee for its associate concern M/s. Delhi Press Patra Prakashan Ltd. Considering all these facts, Assessing Officer concluded that correct profit of these 3 units cannot be worked out separately in assessee's case, therefore, deduction under section 80-I cannot be worked out on basis of accounts furnished by assessee. He further opined that assessee has not complied with provisions of section 80-I(6) of Act in respect of two units for which deduction under section 80-I was claimed. In remaining paragraphs Assessing Officer has dealt with issue of set off of brought forward losses while computing deduction under section 80-I of 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 main issue of disallowance of deduction under section 80- I of Act, assessee preferred appeal before CIT(A) and CIT(A) accepted claim of assessee after giving specific finding that assessee has rightly booked higher expenses in Unit No. I without dealing with specific reasons given by Assessing Officer on inflated expenses booked in Unit No. I under head 'Process of ink, and ink and subscription deposit service scheme and other miscellaneous expenses. 7. During course of hearing, learned DR Shri Rajul Awasthi invited our attention to observations of Assessing Officer that total receipt shown in Unit No. I i.e., Rs. 3,62,26,613 includes cost of paper supplied to assessee and if cost of this paper which is at Rs. 2,36,62,145 is reduced from total receipt, 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 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 Assessing Officer was not controverted by CIT(A) while accepting claim of assessee. learned DR further contended that even if it is accepted that Unit No. I contains old machines and Unit No. III contains modern machines but printing speed of modern machine is faster than old machine and consumption of ink always depends upon quantity of production and not quality of machine, which was used in printing. It is admitted fact that production of Unit No. III is higher than Unit No. I. In these circumstances, consumption of ink should be more in Unit No. III as compared to Unit No. I but 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. III which is not at all possible by any stretch of imagination even if it is presumed that consumption of ink in old machine is more than modern machine. ld. DR further pointed out that assessee has booked expenses at Rs. 17,32,165 under 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 assessee either before CIT(A) or before 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. learned DR further contended that when Unit No. II is set up exclusively for binding purpose, why assessee has debited expenses under head of binding material without placing material on record that whatever printing was done by Unit No. I, binding was done by itself by its own machines. 8. learned DR further invited our attention to comparative chart expenses booked under different units appearing at page 22 of compilation of assessee, with submission that in each and every head, assessee has booked higher expenses in Unit No. I because Unit No. I is no longer eligible for deduction under section 80-I of Act. Since defects in accounts raised by learned Assessing Officer were not properly met by learned CIT(A) in his order, finding of Assessing Officer with regard to rejection of books of account in this regard, deserves to be sustained. However, during course of hearing, learned DR himself has agreed that entire claim of deduction under section 80-I cannot be rejected. Assessing Officer rather should have reallocated proper expenses under different units in order to determine correct deduction under section 80-I of Act. 9. Learned counsel for assessee besides relying upon order of CIT(A) submitted that it has booked actual expenses under different units with regard to subscription deposit scheme. learned counsel for assessee further submitted that it was launched in 1972 and whatever receipt was collected by assessee, it was used in Unit No. I. Since 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 head of Ink and process of ink in Unit No. I, it was submitted that entire expenses does not pertain to ink consumed in Unit No. I but cost shown against processing of ink is in fact cost of ink which was sold by assessee. For other expenses booked under Unit No. I, Learned Counsel for assessee has relied upon observations of CIT (A). 10. Having considered rival submissions and from 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 capacity of printing 25,000 sheets per hour duly dried and folded. Though it is not clear, how much sheets were printed during impugned assessment year by Unit No. III and Unit No. I but from perusal of details of total receipt we find that it is less than Unit No. III as by reducing cost of paper from gross receipt total receipt for 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 basis of chart given in assessment order as no detail of complete expenses are furnished by assessee. major expenses were shown under head 'Subscription deposit scheme', 'Papers' and 'Ink'. While dealing with expenses booked on account of paper, my learned brother has observed in his order that in Unit No. I, paper was purchased by assessee whereas in Unit No. III only job work of printing was done and paper was supplied by publisher. He further observed that had Assessing Officer examined this point from documents furnished by assessee, perhaps this confusion would not have arisen. On perusal of Assessing Officer's order, I find that Assessing Officer has taken note of all these facts and has observed that assessee has booked expenses on account of paper at Rs. 2,36,62,145 and if this cost of paper is reduced from total receipt, actual receipt in Unit No. I comes to Rs. 1,25,64,468 against which assessee has shown expenditure of more than Rs. 1,86,10,519. These observations of Assessing Officer were not dealt with by CIT(A) in his order or by learned Accountant Member. If actual receipt of all units are taken into account, one would find that actual receipt from individual unit are almost similar subject to variation of few lakhs but expenses booked in Unit No. I are more than 10 times of 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 comparative chart appearing in assessment order. 11. It was also observed by Assessing Officer that assessee has booked expenses under head 'Process of ink' at Rs. 76,80,945 and under head of Ink at Rs. 46,88,877 totalling to Rs. 1,23,69,822 against total expenses under head 'Ink' booked at Rs. 2,22,223 in Unit No. III. With regard to expenses under head 'Process of ink', it was stated on behalf of assessee before CIT(A) that it was cost of ink, which was sold to other units, but no evidence was placed before Tribunal at any point of time in this regard. Had it been sold to other units by Unit No. I, why assessee has booked it under head 'process of ink', as expenses. No explanation to this effect was furnished before Tribunal during course of hearing. In absence of proper explanation, no inference can be drawn that expenses booked under head of 'process of ink' is cost of ink sold by Unit No. I to other units. In these circumstances, total expenses booked under head of 'ink' in Unit No. I comes to Rs. 1,23,69,822 against total expenses under head 'Ink' booked at Rs. 2,22,223 in Unit No. III whereas work done by Unit No. III is more than Unit No. I. This aspect was not examined by CIT(A) and he simply has held that expenses shown under '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 view that assessee has not properly apportioned expenses under head 'Ink' in Unit Nos. I and III whereas work done by Unit No. III is more than Unit No. I. I may agree to some extent that being 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 view of Assessing Officer that assessee has made disproportionate allocation of expenses under head of ink. 13. With regard to subscription deposit scheme, assessee has booked expense of Rs. 17,32,165 in Unit No. I whereas no expenses under this head are booked in Unit Nos. II and III. assessee's contention before Assessing Officer are that 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 Assessing Officer nor CIT(A), details of scheme were furnished by assessee. It is not evident from record that what was scheme? Whether it was launched in 1972 or thereafter, and whether it was closed or still continued? It is also not evident from record that how much amount was collected by 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 lower authorities or before Tribunal that what are these expenses. It is also not clear from record, whether assessee was 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 observation that proportionate expenses under head subscription deposit scheme should have been booked in other units also. But while accepting claim of assessee, CIT(A) did not spell out nature of scheme and reasons why entire expenses under this head was booked only in Unit No. I. In absence of complete details, stand of assessee cannot be accepted that these expenses only pertain to Unit No. I. In these circumstances, I am of view that this needs proper verification. 14. other objection of 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 salary and production charges may be more in Unit No. I being old unit, containing number of machines but it cannot be more than twelve times of Unit No. III whereas, work done in Unit No. III is more than Unit No. I. I have also examined expenses booked under head binding material at Rs. 3,59,992 in Unit No. I in light of facts that assessee had set up its Unit No. II for binding purposes consisting of perfect binding system, but failed to understand why expenses in head, binding material was booked in Unit No. I because nothing is placed on record that binding of printed material was done by Unit No. I itself and 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 Assessing Officer were not duly met by CIT(A) while directing Assessing Officer to accept claim of assessee. It is admitted fact that Unit No. I is no longer eligible for deduction under section 80-I of Act and Unit Nos. II and III are eligible for deduction. In light of these facts, CIT (A) was required to examine claim of deduction minutely and it has become all more necessary for him to make necessary verification before allowing claim of assessee when Assessing Officer has brought material on record. I am also unable to understand why assessee was running Unit No. I continuously when it has shown 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 view that Assessing Officer was justified in holding that 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 provisions under section 80-I(9) are attracted and Assessing Officer is directed to work out true expenses of different units after making detailed enquiry and investigation and thereafter to recompute deduction under section 80-I. Accordingly matter is restored to file of Assessing Officer to readjudicate issue of deduction under section 80-I in terms indicated above, after affording opportunity of being heard to assessee. 15. In result, appeal of revenue is partly allowed for statistical purpose. ----------------- 00 Per D.R. Singh, Judicial Member. - In terms of section 255(4) of Income-tax Act following two questions were referred to Hon'ble President of Income-tax Appellate Tribunal on account of difference of opinion between two Members of Bench:- '1. Whether on facts and in circumstances of case ld. Accountant Member is right in upholding order of ld. CIT(A) in two assessment years under consideration. 2. Whether on facts and in circumstances of case ld. Judicial Member is correct in restoring file to Assessing Officer for re- adjudication of issue of deduction under section 80-I in terms indicated in his proposed order.' 2. Now, in view of order dated 21-3-2006 passed by Hon'ble President, Shri Vimal Gandhi, as Third Member concurring with view taken by learned Accountant Member, wherein he confirmed order passed by learned CIT(A), as per majority view, instant appeals filed by revenue stand dismissed. 3. In result, instant appeals filed by revenue are dismissed. order announced in Open Court on 8-6-2006 on conclusion of hearing. ORDER [AS PER THIRD MEMBER] Order under section 255(4) of Incometax Act, 1961 Per Shri Vimal Gandhi, President - 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. effect is that order made by Accountant Member on 4-6-2003 is liable to be set aside and is so set aside. That being case, it leaves us with two conflicting orders; one passed by Accountant Member and one passed by Judicial Member. Thus, there being unresolved difference of opinion, we send matter back to Tribunal, to pass appropriate order in terms of sub-section (4) of section 255 of Income-tax Act, for resolution of difference in manner prescribed.' 2. In terms of section 255(4) of Income-tax Act, following two questions are framed to resolve difference between two learned Members of Bench: 1. Whether on facts and in circumstances of case ld. Accountant Member is right in upholding order of ld. CIT(A) in two assessment years under consideration? 2. Whether on facts and in circumstances of case ld. Judicial Member is correct in restoring file to Assessing Officer for re- adjudication of issue of deduction under section 80-I in terms indicated in his proposed order? 3. facts of 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 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 assessment year 1989-90 at Sahibabad and is engaged only in binding of magazines and books. Unit No. III was set up in 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. 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 assessment years 1993-94 and 1994-95. Under section 80-I of Income-tax Act deduction of 20% of income derived by industrial undertaking is allowed. It is agreed case that no deduction under above section is permissible on income of Unit No. I. Income of other two units is entitled to deduction. 5. In course of assessment of assessee and on examination of its account, Assessing Officer held 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 assessment year 1993-94 Assessing Officer noted that position of total receipt, total expenses, income and losses of three units was as under:- Total receipts Total expenditure Income Loss Unit I 3,62,26,613 4,98,29,500 - 1,36,02,887 Unit II 1,29,03,964 45,47,022 83,58,942 - Unit III 1,28,42,491 51,48,007 76,94,484 - 6. 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 said unit was also engaged in printing. Similarly Rs. 76,80,945 was shown under 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 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, assessee filed 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). 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. Assessing Officer further observed that Subscription Deposit, Service expenses amounting to Rs. 17,32,165 were debited in Unit No. I only. 7. assessee had explained that above scheme for supply of free magazines on deposit was started in year 1972, when Unit Nos. II and III were not in existence and, therefore, expenses on account of purchase and supply of magazines were incurred by Unit No. I alone as per Scheme. On this Assessing Officer observed, 'it cannot be assessee's case that funds so generated by deposits received were utilized only for Unit No. I. In fact all 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. Assessing Officer concluded that assessee had allocated expenses arbitrarily to reduce profit of Unit No. I and inflate profit in Unit Nos. II and III. To prove above point learned Assessing Officer prepared chart to show that several expenses were disproportionately claimed. chart is reproduced below:- Units I II III Subscription Deposit Scheme 17,32,165 - - Travelling 15,958 - - Salaries and production charges 38,76,712 4,58,668 3,41,208 Paper 2,36,62,145 - - Process of Ink 76,80,945 - - Motor Vehicle Exp. 2,55,870 22,845 41,804 Ink 46,88,877 - 2,22,223 Binding material 3,59,992 9,20,457 - 9. Assessing Officer found that total receipt of Unit No. I Rs. 3,63,26,613 included cost of paper supplied by publisher and therefore, this amount was to be deducted from total receipt of unit, when so done, actual receipt of Unit Nos. I, II and III and salaries claimed were as under:- Units I II III Work done 1,25,64,468 1,29,05,964 1,28,42,491 Salaries and production expenses 38,76,712 4,58,665 3,41,209 10. From above chart Assessing Officer tried to prove that assessee claimed disproportionate salaries in Unit No. I as against work done for Rs. 1.25 crores. 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 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. Assessing Officer concluded that assessee's case was fully covered by provision of section 80-I(9) of Income-tax Act and assessee was held to be not entitle to any deduction under above section. 11. assessee before Assessing Officer claimed that separate books of account were maintained by each of three units, but Assessing Officer in 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. 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 variation. Assessing Officer accordingly concluded that assessee was not entitled to any deduction under section 80-I of I.T. Act. Assessing Officer had also made issue of set off of brought forward losses under section 80-I(6) of Income-tax Act but that controversy has been resolved by Members and is no more subject of reference. 12. Similar order was passed by Assessing Officer for assessment year 1994-95 and deduction claimed under section 80-I was denied to assessee. Assessing Officer observed that audited account did not give separate income and expenses on account of 3 units. During course of assessment, separate accounts were filed but there was variation in expenses claimed for Unit Nos. II and III as different figures were claimed under different heads. Assessing Officer given table of these expenses in assessment order. He ultimately found that maximum expenses were claimed in Unit No. I to reduce its profit and enhance profit of Unit Nos. II and III. Details of expenses claimed in three units are reproduced in assessment order similar to one produced in order for assessment year 1993-94. Assessing Officer found that there was loss in Unit No. I and profit in Unit Nos. II and III which was artificially enhanced. He held that proper books were not maintained in different units and, therefore, provision of section 80-I was applicable. figure of receipt, expenses and profit/loss of three units is noted as under:- Total receipts Total expenditure Income Loss Unit I 5,59,05,188 5,92,64,478 - 33,59,290 Unit II 53,29,785 21,89,989 31,39,796 - Unit III 1,16,81,091 48,40,603 68,40,488 - 13. assessee impugned above order in appeal before CIT(A). controversy in assessment year 1993-94 was decided by learned CIT(A) vide its order dated 8-4-1997 in ITA No. 146/96/97. ld. CIT(A) noted kind of business carried on by assessee. He further noted year in which three units were set up by assessee at 3 different places and type of machinery employed by three units. learned CIT(A) also noted detail of various expenses claimed by 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. assessee during course of hearing of appeal explained to CIT(A) about number and type of machines employed and date of commencement of business at each of unit. It was explained that printing was done by Unit No. III as per paper supplied by publisher and, therefore, no consumption of paper was shown by said unit. Unit No. I had done printing on papers purchased by 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 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 sum of Rs. 76,80,945 taken as 'expenditure' under head 'Process of Ink' was not 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 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. III had only one modern machine. machines in Unit No. I, were old and use of ink was higher, whereas in modern machine in Unit No. III consumption of ink and electricity was much lower. 16. As regards salary and production expenditure, assessee explained that Unit Nos. I and II were at Sahibabad in U.P., whereas Unit No. III was at Faridabad in State of Haryana. Persons employed in one State could be transferred to 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. III 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. 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 year 1972 when other two units had not come into existence. Thus deposit was taken by Unit No. I and expenditure for carrying on scheme for supplying magazines free of cost were debited in account of Unit No. I, as said unit was running scheme. How could expenditure of above scheme debited in other units? investment in other units was made by assessee out of its own profits earned over years. assessee, therefore, explained before learned CIT(A) that expenditure in different units were properly charged and not inflated or deflated as observed by Assessing Officer in assessment order. 18. All above claims are fully noted and considered by learned CIT(A) at pages 3 and 4 of order. learned CIT(A) thereafter considered provisions of section 80-I of IT Act including sub-sections (1), (2) and (9) of section. He analyzed above provisions in light of decision of ITAT, Chandigarh Bench in case of Punjab Concast Steels Ltd., as is evident from pages 6 and 7 of CIT (Appeals)'s order. ld. CIT(A) allowed relief to assessee with following observations:- '5. I have duly considered facts of case. I find that 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, 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 modern unit. Unit No. I is very old having old generation machines consuming more ink. consumption of ink in heat offset machine is of liquid form and being new generation consumption of ink and electricity in Unit No. III 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. III which is modern new unit doing work mainly on automatic machines having few employees. Hence, Assessing Officer was not justified in drawing adverse interference on this account. Similarly 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, 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. Assessing Officer cannot change his opinion in subsequent years without there being any change of facts or change in provision of law. appellant fulfilled conditions for grant of deduction under section 80-I. Even sub-section (9) of section 80-I authorizes 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 Assessing Officer to deny deduction in its entirety. ratio of decision relied upon by appellant in case of Punjab Concast Steels Ltd. v. ACIT 49 ITD 130 is also applicable to facts of case. Hence, Assessing Officer is directed to allow deduction under section 80-I as ground on which he has denied 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, Assessing Officer will adjust same from profits of years. I order accordingly.' 19. Similar order was passed for assessment year 1994-95. successor CIT(A) in subsequent order again examined objections raised by Assessing Officer, noted details of expenses debited under different heads and held that facts and 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 relief be allowed to assessee. 20. Revenue being aggrieved challenged aforesaid orders of CIT(A) in appeal before Appellate Tribunal raising ground that direction of CIT(A) to allow deduction under section 80-I were erroneous. 21. Both appeals of Revenue were heard by ITAT, 'C' Bench, New Delhi. learned Accountant Member wrote and proposed order on behalf of Bench. In above proposed order, learned Accountant Member noted type of machines employed by different units in different years at Sahibabad and Faridabad. He also noted objection of Assessing Officer relating to claim of expenses under head 'Ink', salary and production charges and expenses relating to subscription deposit service. learned Accountant Member further considered analyses carried by learned CIT(A) of various expenses and their allocation to units which was held to be rational and justified. learned Accountant Member further noted submissions of parties and thereafter discussed question whether allocation of expenses by assessee was proper or not. various objections are discussed by 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, ld. CIT(A) noted that Unit No. III had done printing on paper supplied by publishers and therefore there was no purchase of paper. Thus, situation in two units was different. He further noted nature of printing in these units was different. Unit No. I had done printing on paper purchased by assessee whereas no purchase of paper was made by Unit No. III. Printing was done on paper supplied to assessee. Thus, non-consumption of paper by Unit No. III was fully explained. learned Accountant Member has observed, 'had Assessing Officer examined this point from documents furnished by assessee, perhaps this confusion would have not arisen.' (b) As regards disproportionate expenses of ink in different units 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. III came into existence in 1991-92. Thus machinery used in Unit No. I was old and consumption of ink was much higher than Unit No. III. According to learned Accountant Member no defects have been pointed out by Assessing Officer in books of account maintained by each unit. He was of opinion that observations of Assessing Officer about disproportionate expenditure in various units were also not justified. Regarding salary and production expenses ld. Accountant Member held that while Unit Nos. I and II are 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, learned Accountant Member noted that persons working in Unit No. I could not be transferred to other State (Haryana). minimum wages are also fixed by 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. III 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) 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 III had come into existence in 1989 and 1991 respectively. Thus, 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. Assessing Officer did not find any fault in books. In these circumstances Assessing Officer could not impose his own estimate in allocating expenses to various units. learned Accountant Member further observed that learned CIT(A) appreciated facts of case and held that claim of deduction by assessee was made on rational basis. learned Accountant Member did not find any infirmity in impugned order of CIT(A). (e) learned Accountant Member also dealt with question of adjustment of brought forward losses. He found that assessment of assessee for assessment year 1992-93 was made at income of Rs. 22.87 lakhs. He also noted that income declared by assessee was accepted subject to minor disallowance under rules 6B and 6D for prior period expenses. ground in appeal according to learned Accountant Member was merely academic and infructuous. As facts and circumstances of case were same, he held that similar view has to be taken in assessment year 1994-95. Accordingly, impugned order of CIT(A) was upheld in proposed order. 22. learned Judicial Member did not agree with above proposed order of learned Accountant Member. He examined reasons given by Assessing Officer in para Nos. 4 and 5 of impugned order. arguments of learned Departmental Representative and learned Representative of assessee are noted in paras 8 and 9 of Judicial Member's proposed order. He thereafter proposed to remit matter back to Assessing Officer for recomputation of deduction under section 80-I after working out 'true expenses of different units after making detailed enquiry and investigation and thereafter to re-compute deduction under section 80-I'. matter was, therefore, restored to Assessing Officer with following observation:- '10. Having considered rival submissions and from 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 capacity of printing 25,000 sheets per hour duly dried and folded. Though it is not clear, how much sheets were printed during impugned assessment year by Unit No. III and Unit No. I but from perusal of details of total receipt we find that it is less than Unit No. III as by reducing cost of paper from gross receipt total receipt for 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 basis of chart given in assessment order as no detail of complete expenses are furnished by assessee. major expenses were shown under head 'Subscription deposit scheme, Paper and Ink'. While dealing with expenses booked on account of paper, my learned brother has observed in his order that in Unit No. I, paper was purchased by assessee whereas in Unit No. III only job work of printing was done and paper was supplied by publisher. He further observed that had Assessing Officer examined this point from documents furnished by assessee, perhaps this confusion would not have arisen. On perusal of Assessing Officer's order, I find that Assessing Officer has taken note of all these facts and has observed that assessee has booked expenses on account of paper at Rs. 2,36,62,145 and if this cost of paper is reduced from total receipt, actual receipt in Unit No. I comes to Rs. 1,25,64,468 against which assessee has shown expenditure of more than Rs. 1,86,10,519. These observations of Assessing Officer were not dealt with by CIT(A) in his order or by learned Accountant Member. If actual receipt of all units are taken into account, one would find that actual receipt from individual units are almost similar subject to variation of few lakhs but expenses booked in Unit No. I are more than 10 times of 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 comparative chart appearing in assessment order. 11. It was also observed by Assessing Officer that assessee has booked expenses under head 'Process of Ink' at Rs. 76,80,945 and under head of 'Ink' at Rs. 46,88,877 totalling to Rs. 1,23,69,822 against total expenses under head 'Ink' booked at Rs. 2,22,223 in Unit No. III. With regard to expenses under head 'Process of Ink', it was stated on behalf of assessee before CIT(A) that it was cost of ink, which was sold to other units, but no evidence was placed before Tribunal at any point of time in this regard. Had it been sold to other units by Unit No. I, why assessee has booked it under head 'Process of Ink' as expenses. No explanation to this effect was furnished before Tribunal during course of hearing. In absence of proper explanation, no inference can be drawn that expenses booked under head of process of ink is cost of ink sold by Unit No. I to other units. In these circumstances, total expenses booked under head of ink in Unit No. I comes to Rs. 1,23,69,822 against total expenses under head 'Ink' booked at Rs. 2,22,223 in Unit No. III whereas work done by Unit No. III is more than Unit No. I. This aspect was not examined by CIT(A) and he simply has held that expenses shown under '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 view that assessee has not properly apportioned expenses under head 'Ink' in Unit Nos. I and III whereas work done by Unit No. III is more than Unit No. I. I may agree to some extent that being 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 view of Assessing Officer that assessee has made disproportionate allocation of expenses under head of ink. 13. With regard to subscription deposit scheme, assessee has booked expense of Rs. 17,32,165 in Unit No. I whereas no expenses under this head are booked in Unit Nos. II and III. assessee's contention before Assessing Officer are that 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 Assessing Officer nor CIT(A), details of scheme were furnished by assessee. It is not evident from record that what was scheme? Whether it was launched in 1972 or thereafter, and whether it was closed or still continued? It is also not evident from record that how much amount was collected by 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 lower authorities or before Tribunal that what are these expenses. It is also not clear from record, whether assessee was 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 observation that proportionate expenses under head 'Subscription deposit scheme' should have been booked in other units also. But while accepting claim of assessee, CIT(A) did not spell out nature of scheme and reasons why entire expenses under this head was booked only in Unit No. I. In these absence of complete details, stand of assessee cannot be accepted that these expenses only pertain to Unit No. I. In these circumstances, I am of view that this needs proper verification. 14. other objection of 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 salary and production charges may be more in Unit No. I being old unit, containing number of machines but it cannot be more than twelve times of Unit No. III whereas, work done in Unit No. III is more than Unit No. I. I have also examined expenses booked under head 'Binding material' at Rs. 3,59,992 in Unit No. I in light of facts that assessee had set up its Unit No. II for binding purposes consisting of perfect binding system, but failed to understand why expenses in head, binding material was booked in Unit No. I because nothing is placed on record that binding of printed material was done by Unit No. I itself and 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 Assessing Officer were not duly met by CIT(A) while directing Assessing Officer to accept claim of assessee. It is admitted fact that Unit No. I is no longer eligible for deduction under section 80-I of Act and Unit Nos. II and III are eligible for deduction. In light of these facts, CIT(A) was required to examine claim of deduction minutely and it has become all more necessary for him to make necessary verification before allowing claim of assessee when Assessing Officer has brought material on record. I am also unable to understand why assessee was running Unit No. I continuously when it has shown 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 view that Assessing Officer was justified in holding that 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 provisions of section 80-I(9) are attracted and Assessing Officer is directed to work out true expenses of different units after making detailed enquiry and investigation and thereafter to recompute deduction under section 80-I. Accordingly matter is restored to file of Assessing Officer to re-adjudicate issue of deduction under section 80-I in terms indicated above, after affording opportunity of being heard to assessee.' [Emphasis supplied] 23. learned Judicial Member thereafter wrote to Accoun-tant Member letter dated 3rd June, 2003 as under:- 'Dated 3rd June, 2003 Re: Appeal Nos. 3900 and 4517/DELHI/97 in case of DCIT v. Delhi Press Samachar Patra Pvt. Ltd. Dear brother, I have carefully perused order in appeals under subject, proposed by you but I could not convince myself with reasons given by you while accepting claim of deduction under section 80-I of Income-tax Act. I, therefore, prepare my own order on point of eligible deduction under section 80-I of Act and 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 question for reference to their member. With regards, Sincerely yours, Sd/-' I do not know what discussion took place between learned Members, but having regard to stand taken by learned Members, and perhaps out of frustration learned Accountant Member wrote in his hand below signed order of Judicial Member that 'he agreed with ultimate finding of his learned brother'. aforesaid manner of disposing of appeals was challenged by assessee in Writ Petition before Hon'ble Delhi High Court which resulted in order dated 1st March, 2004 reproduced above. 24. In light of direction of Hon'ble High Court both appeals were again fixed for hearing. learned Departmental Representative supported proposed order of Judicial Member for reasons given therein. He has also been referred to and relied upon reasoning given by Assessing Officer. Learned counsel for assessee on other hand, explained order of CIT(A) by submitting that said orders were based on surmises and conjectures without considering relevant record. ld. Counsel for assessee also drew my attention to proceedings before Tribunal and contended that at no stage doubts raised by ld. Judicial Member in proposed order were put to assessee for explanation. Question of wrong placement of burden on assessee was also raised. At my direction relevant books of account were also produced by assessee for my consideration as also for perusal and verification by learned Departmental Representative. 25. I have carefully considered material available on record in light of submission of parties, orders of revenue authorities and proposed orders of my learned brothers. short question involved here is whether assessee in 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 Income-tax Act. This according to revenue was done as no deduction was permissible on income derived by Unit No. I and same was permissible on income derived by Unit Nos. II and III. Relevant figures of deduction claimed are noted in earlier part of this order. Extract of observations of Assessing Officer and other authorities have also been reproduced. circumstances which led Assessing Officer to hold that expenses of Unit No. I were artificially inflated (enhanced) and that of Unit Nos. II and III deflated (reduced); 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. first object raised by Assessing Officer is that expenses under head 'Ink' in Unit No. I is excessive when compared with Unit No. III. Assessing Officer noted that assessee had claimed Rs. 76,80,945 under head 'Process of Ink' and Rs. 48,26,988 under 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 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. aforesaid finding of learned CIT(A) is not accepted by Judicial Member in proposed order as no evidence of sale of Ink by Unit No. I was placed before Tribunal at any point of time. 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. learned Judicial Member has further observed that above aspect was not examined by learned CIT(A) and he simply held that expenses shown under head 'Process of ink' was part of Ink sold by Unit No. I without any concrete evident. 27. During course of hearing of appeal learned Counsel for assessee submitted that CIT(A) has accepted assessee's claim and revenue had come up in appeal before Appellate Tribunal. It was therefore for revenue to establish that finding recorded by learned CIT(A) was erroneous and was wrong and that of Assessing Officer was correct. ld. Judicial Member wrongly placed burden on assessee to show that finding of CIT(A) was correct. He further submitted that Tribunal at no stage asked assessee to show material that findings of learned CIT(A) were correct. In above circumstances learned Counsel for assessee submitted that finding recorded by learned Judicial Member in proposed order were not only illegal but also against record. He drew my attention to books of account of 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 ledger. same is as under: Delhi Press Samachar Patra (P.) Ltd. Consolidated Control A/c. Unit-I Total Receipt 3,62,26,613.00 Less: 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 credit side under head 'Sales' in profit and loss account of relevant period. Copies of above entries in books of account were also verified by ld. Departmental Representative. It is settled law that books of account are part of record of assessment and can be examined by all facts finding authority including Appellate Tribunal. Entries in books of account leave no amount of doubt that in Unit No. I assessee received Rs. 76,80,945 on account of process of ink. aforesaid amount was credited in relevant account and could not be taken as part of expenses. Assessing Officer's findings which are approved by ld. Judicial Member are contrary to material on record and are erroneous. It has therefore to be held that assessee only claimed Rs. 48,26,988 on account of consumption of Ink and not Rs. 1,23,69,822 as made out in assessment order. On other hand, learned CIT(A) recorded factually correct finding. I see no justification for observations that no explanation was furnished by assessee during hearing of appeals. It was appeal of revenue wherein findings of ld. CIT(A) were challenged. On facts above challenge is not maintainable and liable to be rejected. 29. It is also 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. 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. III. 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. 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 machines. case of assessee could not be rejected on short ground that ink consumed by Unit No. I could not be 14 times more than ink consumed by Unit No. III. As no material is available on record to support 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 case and rightly rejected objection raised by Assessing Officer as not justified. 30. second objection raised by 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. 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. reason for above deduction was that paper was 'supplied to 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 assessee had explained that Unit No. II was not buying papers and was carrying printing work on paper supplied by customer. It was only carrying job work whereas Unit No. I was buying paper from Market. aforesaid claim was duly supported by entries in books of account and was accepted by learned CIT(A). It has also been accepted by learned Accountant Member in proposed order. learned Judicial Member however in proposed order observed that 'work done' by assessee in Unit 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. 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 assessee was running Unit No. I continuously when it had shown loss in assessment years 1993-94 and 1994-95'. This along with other facts led him to take 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 proposed order) in Unit Nos. II and III. learned Judicial Member further observed that above aspects raised by Assessing Officer in 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 assessee on account of consumption of paper. In Unit No. III assessee has claimed that Unit did not purchase any paper. printing was done by said Unit on paper supplied by publisher. Whereas Unit No. I carried on printing on paper purchased by said Unit from 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 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 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 'publisher' as observed in assessment order. publisher supplied paper to Unit No. III for printing and not to Unit No. I. said Unit had to buy paper from market and such purchases were debited in 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 justification of deducting cost of paper from total receipt in Unit No. I? What is justification for not accepting that Unit No. III did not purchase paper? What is wrong with explanation of assessee? I see no justification for interfering with finding recorded by learned CIT(A) in impugned order. impugned order of CIT(A) has been rightly been described by learned Accountant Member as rational and suffering from no infirmity. 32. One more objection raised by 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, Assessing Officer in assessment order for 1993-94 has observed 'Subscription Deposit Service Scheme followed by assessee wherein against sum refundable deposits, it supplied magazines to depositors and expenses on account of purchase of these magazines from associated concern is debited in Unit No. I'. Assessing Officer further observed, 'it cannot be assessee's case that funds so generated by deposit received is utilized only for Unit No. I. In fact all new investments have been made in Unit Nos. II and III'. Assessing Officer accordingly did not accept as correct debit of entire expenditure of scheme in Unit No. I. As against above ld. Judicial Member had recorded, 'neither before Assessing Officer nor before CIT(A) detail of Scheme were furnished by assessee. It is not evident from record what was Scheme? Whether it was launched in 1972 or thereafter and whether it was closed or still continued.' other observations of learned Judicial Member in proposed order have been separately noted. He has concluded that while accepting claim of assessee learned CIT(A) did not spell out nature of scheme and reasons why entire expenses under this head were booked only in Unit No. I. In his view this aspect needs proper verification. 33. From observations of Assessing Officer it is clear that he had taken note of scheme initiated by Unit No. I. Assessing Officer's objection was quite different and have been highlighted above. I see that doubts raised by ld. Judicial Member are against record and do not arise from facts of case. assessee placed full scheme before Assessing Officer as under: 'Note on subscription deposit scheme. Under this scheme readers are invited to deposit fixed amount of money with company to subscribe various magazines printed by 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 deposit is with company reader shall continue to get magazine free of charge. On refund of deposit magazines supply shall be stopped. This scheme is in vogue since 1968 and at present total subscribers are more than 15,000. On this deposit no interest is paid. To supply magazines Company buy magazines from Delhi Prakashan Vitran Pte Ltd. and purchase cost of these magazines are debited to Profit & Loss A/c. Detailed literature of scheme is attached.' 34. On appeal CIT(A) accepted explanation of assessee that Subscription Deposit Service Scheme was invoked in 1972 when other two Unit Nos. II and III did not come to existence and investment in two units were made by assessee out of profit as earned by it and not out of funds of scheme. When matter came up before Appellate Tribunal, learned Accountant Member in proposed order accepted impugned order of CIT(A) after discussion of facts and circumstances of case. 35. learned Judicial Member however made observations contrary to record as have been noted above, details of scheme were furnished and duly noted by Assessing Officer. No dispute about scheme or its operation was raised. 36. objection of 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 ld. Judicial Member has observed 'it is also not evident from record how much amount was collected by 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 situation then what case has been made by Assessing Officer? Only on doubt and surmises case was made and now being recommended to Assessing Officer for further examination. However, finding of Assessing Officer was challenged by assessee and learned CIT(A) accepted and recorded that assessee used its own profit for investment in Unit Nos. II and III as those units were set up much after launching of scheme. It is clear from record that books are supplied free of cost to subscriber who made deposit of requisite amount under scheme. Expenditure claimed by Unit No. I pertain to supply of books and magazines free of cost. scheme was launched by Unit No. I. deposits were received by said unit and, therefore, expenditure are debited in account of said unit.There is no dispute on above facts. objection of 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 felt short of recording specific finding to above effect. In assessment order he has merely observed that no doubt new investments were made in Unit Nos. II and III but as accepted by learned CIT(A) with reference to material on record including entries in books of account, assessee had sufficient profits of its own to utilize in Unit Nos. II and III. Where is question of debiting proportionate expenses of Scheme in Unit Nos. II and III? finding in proposed order of learned Judicial Member itself shows that Assessing Officer did not collect any details to challenge claim of assessee. So no case was made out against assessee by Assessing Officer. In my humble opinion on facts and circumstances of case, there is no justification for placing onus on assessee and for holding that stand of assessee cannot be accepted. All 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 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. Assessing Officer was duty bound to collect material to support inference drawn by him against assessee. No case was set up by assessee which was required to be established. Further case is held to be not examined by learned CIT(A) when simultaneously it is held that proper verification was not carried on by Assessing Officer to whom matter is sought to be remanded. This is fate of assessee on whom protracted litigation has been inflicted. 37. Assessing Officer and also learned Judicial Member in 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. ld. Judicial Member has observed that he failed to understand why business was done in Unit No. I. discrepancies pointed out by Assessing Officer were not considered by ld. CIT(A) while directing Assessing Officer to accept claim of assessee. ld. Judicial Member therefore agreed with approach of Assessing Officer except computation of deduction. 38. In my considered view, there is no confusion on facts involved in case. 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. 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. 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. Assessing Officer placed no material on record to controvert claim of assessee. It is not clear as to on what material doubts has been raised in proposed order by learned Judicial Member even on points accepted and not challenged by Assessing Officer. Even manner of carrying on of business is challenged. However, on doubts and surmises, it is not permissible to deny claim and interfere with impugned order. As already noted question before CIT(A) and before Tribunal was whether Assessing Officer had made out or shown that expenses in Unit No. I were inflated. Whether there was any material to support conclusion of Assessing Officer to deny claim of deduction to assessee. Having regard to principle that he who alleges shall prove, onus was clearly on Assessing Officer to establish case set up by him. above and related question whether said onus was discharged was required to be examined. assessee had rendered explanation only to remove doubts raised by Assessing Officer in impugned order. explanation was held to be reasonable and claim rational and justified on facts. That was question required to be examined by Appellate Tribunal in accordance with law. I have however find that instead of examining above questions, order proposed totally different and new questions based on suspicions and doubts. good explanation duly accepted by ld. CIT(A) has been treated as bad after wrongly placing onus on assessee which under law was on Revenue. 39. It is clear from assessment orders that income shown and expenses claimed by assessee have been duly allowed in assessment order. None of expenditure has been treated as ingenuine or not connected or related to business carried out by assessee. In above background and without any material, and without and justification on part of Assessing Officer some of expenses claimed by 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 assessment years is based on surmises and conjectures. ld. CIT(A) had passed fair, rational and just order. There was no scope to interfere with impugned orders as rightly held by learned Accountant Member in his proposed order. On similar facts claim in earlier years was allowed to assessee. 40. Before concluding I would like to refer to certain pertinent observations made by Privy Counsel and by Hon'ble Supreme Court relating to basis of assessment. In case of CIT v. Laxminarain Badridas [1937] 5 ITR 170, Privy Council had observed that Assessing authority must make what he believes to be fair estimate of proper figure of assessment and that assessment should not be dishonestly, vindictively or capriciously made. It should also not be arbitrary. 41. Their Lordships of Supreme Court in case of State of Kerala v. C. Velukutty [1966] 60 ITR 239 after referring to above decision of Privy Council observed as under: 'Judgment is faculty to decide matters with wisdom truly and legally. Judgment does not depend upon arbitrary caprice of Judge, but on settled and invariable principles of justice. Though there is element of guesswork in best judgment assessment, it should not be wild one, but should have reasonable nexus to available material and circumstances of each case.' 42. facts with reference to which aforesaid observations were made by their Lordships are noted at page 244/245 of report and are as under: 'Can it be said that in instant case impugned assessment satisfied said tests? From discovery of secret accounts in head office, it does not necessarily follow that corresponding set of secret accounts were maintained in branch office, though it is probable that such accounts were maintained. But, as accounts were secret, it is also not improbable that 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 head office. Be that as it may, maintenance of secret accounts in branch office cannot be assumed in circumstances of case. That apart, maintenance of secret accounts in branch office might lead to inference that accounts disclosed did not comprehend all transactions of branch office. But that does not establish or even probabilize finding that 135 per cent or 200 per cent or 500 per cent of disclosed turnover was suppressed. That could have been ascertained from other materials. branch office had dealings with other customers. Their names were disclosed in accounts. accounts of those customers of their statements could have afforded basis for best judgment assessment. There must also have been other surrounding circumstances, such as those mentioned in Privy Council's decision cited supra. But in this case there was no material before assessing authority relevant to assessment and impugned assessments were arbitrarily made by applying ratio between disclosed and concealed turnover in one shop to another shop of assessee. It was only capricious surmise unsupported by any relevant material. High Court, therefore, rightly set aside orders of Tribunal. Nor can we accede to request of learned counsel for State to remand matter to Tribunal for fresh disposal. sales tax authority had every opportunity to base its judgment on relevant material; but it did not do so. department persisted all through hierarchy of Tribunals to sustain impugned assessments. High Court, having regard to circumstances of case, refused to give department another opportunity. We do not think we are justified to take different view.' 43. I see some parallel between facts of above cited case and case in hand, because profit was disclosed in Unit Nos. II and III on which deduction under section 80-I 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 other two units. It was probable that more expenses were claimed in Unit No. I and some of expenses of Unit Nos. II and III were diverted and claimed in Unit No. I. But no presumption under law could be raised that expenses were so diverted. assessee has produced accounts with details and, therefore, correct position 'could have been ascertained from material statement of relevant persons including management and staff of assessee could have been examined.' But without any investigation and without collecting any material 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 above case also refused to give another opportunity to Department to make out case by remanding matter to Assessing Officer. There is therefore no justification for making thorough investigation. 45. In case of State of Orissa v. Maharaja Shri B.P. Singh Deo [1970] 76 ITR 690 (SC) Agricultural Income-tax Officer called upon assessee to produce books of account to support claim made in return. Books of account were rejected as unreliable and income was estimated and taxes levied. Appellate Asstt. Commissioner not only confirmed assessment but also enhanced same. Tribunal affirmed decision of Appellate Asstt. Commissioner, which was set aside by High Court. Their Lordships in appeal observed as under: 'The power to levy assessment on basis of best judgment is not arbitrary power; it is assessment on basis of best judgment. In other words, that assessment must be based on some relevant material. It is not power that can be exercised under sweet will and pleasure of concerned authorities. scope of that power has been explained over and over again by this Court. Agricultural Income-tax Tribunal gave no reasons in its order for affirming decision of Asstt. Collector. It appears to have been of view that once assessing authorities reject material placed before them as being unreliable those authorities can proceed to levy whatever tax they may levy. It failed to bear in mind scope of power of assessing authorities to levy assessment on basis of best judgment. Therefore, Tribunal was clearly in error in confirming decision of Asstt. Collector. Hence, High Court was justified in interfering with order of Tribunal.' 46. It is evident from above that even when material produced by assessee is rejected, authorities cannot proceed to levy whatever tax they may levy. 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. question which is raised in most of cases before Appellate Tribunal is whether assessment by Assessing Officer have been made in accordance with law. aforesaid question has to be determined objectively and not by raising merely doubts and certainly not by entertaining suspicion against assessee, or against people connected with assessment or disposal of appeals. If Appellate Tribunal does not discharge its duties with responsibility as enjoined under law, confidence that is placed by public on Appellate Tribunal would stand eroded. With aforesaid observations, I agree with order proposed by learned Accountant Member, confirming impugned orders of CIT(A). Let matter be now placed before regular Bench for disposal in accordance with law in both assessment years. *** DEPUTY COMMISSIONER OF INCOME TAX v. DELHI PRESS SAMACHAR PATRA (P) LTD.