Facts

Assessee was engaged in refinery, petrochemical and polyester staple fibre business. Assessee set up three units for production of separate and distinct products. Assessing Officer allowed deduction under section 80HH and section   80I off he Income-tax Act, 1961 after examining the  unit wise profit and loss statement filed by the assessee. Commissioner revised the order under section 263 and disallowed the claim for deduction holding that the assessee should have maintained segregated accounts for each of the three units to avail benefit of section 80HH and section 80I. In appeal, the Tribunal held that though there was no statutory requirement to maintain unit-wise accounts, in the facts      of the case, the assessee should submit unit wise audited accounts and claim deduction under section 80HH and 80I. On appeal, High Court set aside the order    of the Tribunal in so as far as it required the assessee to submit unit wise audited accounts.

Issue

Whether assessee is bound to maintain segregated accounts for each of its units    for claiming deduction under section 80HH and 80I

View

Deductions under sections 80HH and 80-I can be claimed by an assessee who is engaged in carrying on eligible business mentioned therein. Deduction is granted on the profits and gains derived from the eligible business. It may so happen that an assessee may have more than one eligible business undertaking or one eligible and one non-eligible undertaking. In such situations, disputes arise as to whether profits of each undertaking have been correctly determined by properly allocating the expenses and whether an assessee is obliged to maintain its  accounts unit wise so as to be eligible for claiming deduction.

Held

Supreme Court held that neither section 80HH nor section 80I statutorily obliged the assessee to maintain its accounts unit wise. Supreme Court further held that it was open to the assessee to maintain its accounts in a consolidated form. Supreme Court remitted the matter to the Assessing Officer to ascertain whether the assessee had correctly calculated the unit wise net profits for claiming deduction under section 80HH and 80I. Supreme Court further observed that if profits were not correctly determined, auditors could determine and certify the unit wise net profit computation from the consolidated books of accounts and place the same before the Assessing Officer. (From the judgment in Bongaigaon Refinery and Petrochemicals Ltd. v. CIT (2005) 274 ITR 379 (Gau) (HC) (AY. 1992-93) (CA No. 1679 of 2004 dt. 5-9-2012)

Editorial: Though it is not required to maintain unit wise accounts, assessee should be in a position to demonstrate the manner in which unit wise profits have been calculated from the consolidated accounts.

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