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: C .N. RAMACHANDRAN NAIR & P.S. GOPINATHAN, JJ. -------------------------------------------- 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 by the revenue is whether the Tribunal was justified in holding that the assessee is entitled to deduction under Section 80IA in respect of new industrial units set up by it even if it had not maintained separate accounts for the same. We have heard standing counsel appearing for the 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 for entitlement of deduction of 25% of the profit derived from such eligible units as provided under Section 80IA of the Act. In the normal course, the assessee should have maintained separate books of accounts to establish the profit derived from such eligible unit for claiming exemption. This is made very clear under sub-section (7) of Section 80IA. However, there is no specific provision in Section 80IA that ITA 622&985/09 2 non-maintenance of separate accounts for the new industrial unit will disentitle the assessee to the benefit under Section 80IA. It is seen from the Tribunal's orders that decisions of various High Courts are unanimous because all of them held that failure to maintain separate accounts for the new industrial unit will not be fatal for a claim under Section 80IA. We do not want to disturb this position even though we are satisfied that basically the provisions of Section 80IA require maintenance of separate accounts particularly by virtue of operation of sub-section (7) of Section 80IA. However, strangely, none of the authorities including the Tribunal held that Officer is free to verify the claim and work out a formula bifurcating the income from old industrial units and from new industrial units for the purpose of considering the correctness of the amount claimed as deduction under Section 80IA. In our view even if separate accounts are not maintained in regard to production and profit earned from the eligible unit, it is for the assessee to establish that the procedure adopted with regard to bifurcation of income and profit attributable to the new industrial unit are correct. In cases where the assessee does not maintain separate books of accounts, the assessing authority should critically examine the claim and ensure that profit worked out on proportionate basis from the ITA 622&985/09 3 eligible units more or less represents the actual profit with reference to which only the claim of deduction has to be granted under Section 80IA of the Act. In view of this view expressed by us, we feel the claim should be considered by the assessing officer and it is the duty of the assessee to satisfy how the profit of new industrial unit is worked out from out of total profit of the company, both for the old units ineligible for deduction as well as for new industrial units which are entitled to deduction under Section 80IA. Appeals are therefore disposed of upholding the order of the Tribunal but by restoring the quantum assesssed for consideration by the assessing officer and if he notices that any part of the claim of deduction is not attributable to the profit earned from the eligible unit, he is free to disallow such portion after giving opportunity to the assessee. (C.N.RAMACHANDRAN NAIR) Judge. (P.S. GOPINATHAN) Judge. kk