ORDER :

Akil Kureshi, J.

The petitioner has challenged a notice dated 30.03.2015 issued by the respondent Assessing Officer for reopening the assessment of the petitioner for the assessment year 2008-09.

2. Brief facts are as under.

3. The petitioner is a company registered under the Companies Act. For the assessment year 2008-09, the petitioner filed return of income declaring total income of Rs. 3.75 crores (rounded off). The return was taken in scrutiny. The Assessing Officer passed order under section 143(3) of the Act on 22.12.2012 assessing assessee's total income at Rs. 13.16 crores. To reopen such assessment, impugned notice came to be issued. The Assessing Officer had recorded following reasons for issuing the notice.

“In the present case, assessment under section 143(3) of the Act was completed on 22.12.2010 by making following additions/disallowances:

(i) Disallowance under section 40A(2)(b) of the Act.

(ii) Disallowance of deduction claimed under section 80-IA(4) of the Act.

(iii) Disallowance under section 14A of the Act.

During the year under consideration, the assessee company has shown turnover of Rs. 79,19,95,350/& the Gross profit of Rs. 13,24,86,180/(GP margin 16.73%) from Tea Division and turnover of Rs. 3,51,63,701/& the Gross profit of Rs. 3,22,03,435/(GP margin 91.58%) from Windmills division.

The assessee has two lines of business i.e. trading in the tea (income of which are subject to normal provisions of taxation) and generation of power (the income of which is eligible for deduction). The assessee has debited the financial charges between the respective lines of business, as per the loans taken. It is also seen that assessee has also distributed the relevant manufacturing expenses. As per law, the expenses which have direct nexus with any line of business should be debited to such respective business, whereas the indirect expenditure (or common expenditure needs to be split between the different lines of business.

However, regarding the administrative expense and the other expenses, it is evident that the assessee company has debited a sub of Rs. 1,72,48,250/- and Rs. 58,43,886/respectively on these account, out of which only Rs. 1,36,829/(only 0.59%) has been debited to the wind mills division, claiming deduction under section 80IA. It is seen that the assessee company has not debited a single rupee, spent on Directors remuneration, the establishment expenses of the head office like electricity, vehicles, rates and taxes etc and staff expenses in the windmill division. No such office expenses has been debited to the windmill divisions.

Any line of business cannot function on its own. The assessee company seems to have debited only direct expenses to the windmill divisions. Where all the common expenses have been debited to the tea division, thereby artificially pumping its income eligible for deduction under section 80IA leading to lower returned income and consequently lower taxes.

Hence, the common expenses, needs to be allocated between both lines of business in order to arrive at true picture. Since, one line of business is a trading concern (tea division) and other is manufacturing concern (generation of electricity), the ratio of turnover cannot be a correct ratio owing in the difference in their basic character. Turnover of a trading concern can be high, without requirement of higher capital and efforts, but the profit percentage is low, as compared to a manufacturing concern. Hence, for allocation of common costs, owing to difference in character of both lines of business, the average of profit ratio and the gross asset ratio.

A. Calculation of gross asset ratio:

B. Calculation of profit ratio.