Deduction cannot be allowed merely on consistency or on the basis of mere Footnote in Audited Balance Sheet

ITAT New Delhi held in Indo Count Industries Ltd Vs DCIT( ITAT New Delhi) that it all depends upon the facts of the case that whether the assesse was eligible to claim exemption u/s 10B for all the units as a single entity or every unit was independently eligible to claim exemption u/s 10B as a separate unit. It could not be decided upon the note given by the assesse as a foot note beneath the audited balance sheet that only 1 unit was eligible to claim exemption u/s 10B and it was not taking any exemption for the 2^nd unit. Also it could not be decided on the basis of consistency of the exempted or non-exempted unit claimed by the assesse every year.

Facts of the case:

The assesse was having 2 manufacturing units; unit 1 and unit 2.There was profit in unit 1 and loss in unit 2 and assesse had taken exemption u/s 10B for only unit 1 for whole of the profits and had not adjusted loss of unit 2 with profit of unit 1 on the basis that it’s both units were distinct units and out of that only unit 1 was eligible to claim exemption u/s 10B nor unit 2.But AO had not accepted the contention of the assesse and adjusted the loss of unit 2 with the profit of unit 1 on the basis that 100% EOU certificate was given to the assesse as a whole not to the single unit. The assesse was also issued green card which was in the name of assesse as a whole without any distinction of unit wise.

Contention of assesse:

Assessee was of the view that AO had not considered the full facts of the case and had just reduced the loss of unit 2 from the profits of unit 1. He (assesse) had never considered unit 2 as an eligible unit for exemption u/s 10B as he had also mentioned as a foot note in audited balance sheet. Moreover it was consistently following this criteria of treating unit 1 as eligible unit and unit 2 as non-eligible unit So the same should be also be considered by AO.

Further the discussion of green card was irrelevant.

Contention of revenue:

Revenue was of the view that as the green card which was issued to the assesse was in the name of assesse which covers both units; unit 1 and unit 2, So profit and loss of both the units should be clubbed for calculating exemption u/s 10B. It was also of the view that neither decision could be taken on the basis of the foot note mentioned in the audited balance sheet nor on the basis of consistency followed by the assesse.

Held by ITAT:
ITAT held after relying on the decision given in Textile Machinery Corporation Ltd 107, ITR 195 (SC)& ors that as the assesse failed to produce the evidence of the letter which the assesee would had given to the competent authority at the time of setting up of unit 2 from which it would be clear whether the same would be for the setting up of unit 2 or for the expansion of unit 1.  So there was no other evidence with the assesse from which it would be cleared that the unit 2 and unit 1 were two distinct entities. Reliance could not be place on the foot note mentioned in the audited balance sheet. Moreover the contention of the consistency followed by the assesse for exemption was also not to be considered. So the case should be remanded back to the AO for fresh adjudication considering all the relevant facts and circumstances.