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M/s Hexagon Nutrition Pvt. Ltd. Versus Dy. Commissioner of Income Tax, Mumbai

2015 (7) TMI 831 - ITAT MUMBAI

Allocation of expenses of the Non-10A unit to the 10A unit - Minimum Alternate Tax (MAT) on SEZ units - Salary & Bonus Expenses allocated in the ratio of turnover of both the units - Held that:- AO has very scientifically allocated the expenditure of the Non-10A unit to the 10A unit. The assessee had also agreed for allocation of expenditure of Non-10A unit to 10A unit on proportionate basis. The grievance of the assessee that the allocation was on higher side does not seem to be justified. Howe .....

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unit to 10A unit, if found correct, then to take it into consideration and decide accordingly. - Decided partly in favour of assessee for statistical purposes.

Disallowance u/s 40(a)(ia) paid to Star India Pvt. Ltd. on account of advertisement - Held that:- Assessee while drawing our attention to the page 76 of the paper book, has submitted that a certificate dated 31.05.07 u/s 197 of the Income Tax Act has been issued in favour of Star Ltd., therefore there was no requirement of ded .....

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ngly.- Decided in favour of assessee for statistical purposes.

Setting-off the losses of non SEZ unit with the profit of SEZ unit for the purpose of determining deduction U/s 10A - Held that:- This issue is squarely covered with the decision of Hon’ble Bombay High Court in the case of "CIT vs. Black & Veatch Consulting Pvt. Ltd.” (2012 (4) TMI 450 - BOMBAY HIGH COURT ) wherein held that the deduction under section 10A has to be given at the stage when the profits and gains of business .....

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ion of the co-ordinate Bench of the Tribunal in the case of "Genesys International Corpn. Ltd. vs. ACIT” [2012 (12) TMI 491 - ITAT MUMBAI] wherein observed that by the SEZ Act, sub-section (6) to section 115JB was also inserted providing that provisions of section 115JB shall not apply to the income accrued or arisen on or after 1.4.2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be. Hence, income of .....

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[(hereinafter referred to as CIT(A)] relevant to assessment year 2008-09. 2. The concise grounds of appeal taken by the assessee are reproduced as under: "1. On the facts and circumstances of the case as well as in law, the Learned Assessing Officer as well as Commissioner of Income Tax (Appeal) erred in allocating following expenses from Non-SEZ unit to SEZ units:- 1.1. Salary & Bonus Expenses to the extent of ₹ 99,48,894/- in the ratio of turnover of both the units, as against .....

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)(ia) of the Income Tax Act, 1961, paid to Star India Pvt. Ltd. on account of advertisement, without considering the fact that no TDS is required to be deducted on the said sum. 3. On the facts and circumstances of the case as well as in law, the Learned Assessing Officer as well as Commissioner of Income Tax (Appeal) erred in setting-off the losses of non SEZ unit with the profit of SEZ unit for the purpose of determining deduction U/s 10A of the Income Tax Act, 1961. 4. On the facts and circum .....

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observed that the assessee is engaged in the business of manufacturing and export of micronutrient premixes, veterinary feed supplement etc. The assessee was having two manufacturing units, one at Nasik which was not eligible for section 10A benefits/exemption and the other at Chennai which was eligible for benefits under section 10A of the Income Tax Act (hereinafter referred to as the Act). The AO observed that the turnover of both the units was almost equal whereas the expenditure at Non- 10 .....

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iture of Non-10A unit was claimed at ₹ 12,30,166/- whereas that of 10A unit was shown a very much less at ₹ 70,041/- only. Similarly, the expenditure in respect of Non-10A unit was shown at ₹ 1,83,30,717/- and that of 10A unit was at a very low figure of ₹ 5,32,172/-. Expenditure in relation to interest on cash credit was shown in respect of Non-10A unit at ₹ 13,76,463/- and in respect of 10A unit at Nil. The AO further observed that when the sales of both the units .....

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ect of telephone and communication expenses, the assessee company submitted that it had no objection of transferring 20% of telephone expenses from Nasik unit to Chennai unit. The AO accordingly allocated the sum of ₹ 51,038/- out of the auditors remuneration towards 10A unit out of the total expenditure claimed of ₹ 1,03,483/- with respect to Non-10A unit. The AO further allocated a sum of ₹ 246033/- towards 10A unit out of the telephone expenditure claimed with respect to Non .....

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revealed that the salaries of all the staff were debited in the P&L Account of Non-10A unit. When asked as to why the salaries of above persons be not allocated to 10A unit, the assessee replied that the salary of ₹ 4,31,196/- paid to Shri Vikram Kelkar be allocated at the rate of 100% whereas out of salary amount of ₹ 4,31,196/- paid to Shri Subhash Kelkar, director 20% of the said amount be allocated. The assessee further submitted that the salary paid of ₹ 98,073/- to M .....

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allocating his time towards both the units. He, therefore allocated the salary of Shri Subhash Kelkar in the turnover ratio i.e. at the rate of 49.32% to the 10A unit amounting to ₹ 2,12,666/- The AO further analysed the working pattern of both the units. He also made a chart indicating that which of the works were related to 10A unit and which were done by Non-10A unit and concluded that it was an interrelated integrated activity. The AO observed that the work carried out at head office .....

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ers was also needed to be done to the 10A unit. He, after analysing the overall facts and circumstances the working/manufacturing activity of the assessee and the chain of events involved, held that it would be most appropriate and logical method to apportion the balance salary of Non-10A unit to the 10A unit on the basis of turnover ratio and further allocated a sum of ₹ 86,74,787/- in relation to salaries and bonus of the employees towards the 10A unit. The AO further observed from the P .....

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the year funds had been transferred from non-10A unit to 10A unit, which showed that the cash credit facility had been utilized to transfer the funds to 10A unit. However, the interest paid on the said cash credit had not been bifurcated between Nasik and Chennai Unit. The Ld. AO further held that the funds transferred from Non-10A unit to 10A unit were interest bearing funds and that the interest paid on such funds had not been allocated to Chennai unit. The Ld. AO therefore allocated the inte .....

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penses of Non-10A unit to 10A unit. The AO had apportioned the expenses between the Non-10A unit and 10A unit on the basis of turnover ratio. The findings of the Ld. AO were well reasoned and the apportionment was also on very scientific basis. He therefore upheld the apportionment of expenses made by the AO. 5. Before us, the Ld. A.R. of the assessee has submitted that the allocation of expenditure by the AO from Non-10A unit to 10A unit was excessive. He has further submitted that in respect o .....

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evance of the assessee that the allocation was on higher side does not seem to be justified. However, so far the contention of the Ld. A.R. that the assessee had already debited the interest expenditure allocable to the 10A unit and that the further apportionment of interest expenditure from that of Non-10A unit was not justified is concerned, we restore this issue to the file of the AO for this limited purpose with a direction to examine as to whether the assessee has itself allocated the inter .....

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book, has submitted that a certificate dated 31.05.07 u/s 197 of the Income Tax Act has been issued in favour of Star Ltd., therefore there was no requirement of deduction of TDS for the sums paid by the assessee to the Star Ltd. Admittedly, the above stated document was not presented by the assessee before the AO at the time of assessment proceedings. This document is the shape of additional evidence and is required to be examined by the AO. We accordingly, restore this issue to the file of th .....

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e decision of Hon ble Bombay High Court in the case of "CIT vs. Black & Veatch Consulting Pvt. Ltd. (2012) 348 ITR 72 (Bom) wherein the Hon ble Bombay High Court has categorically held that the deduction under section 10A has to be given at the stage when the profits and gains of business are computed in the first instance and thus the brought forward unabsorbed depreciation of the unit which is not eligible for deduction u/s 10A cannot be set off against current profit of the eligible .....

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e of determining total income U/s 115JB of the Income Tax Act, 1961. The Ld. A.R. of the assessee, at the outset, has stated that this issue is also covered by the decision of the co-ordinate Bench of the Tribunal in the case of "Genesys International Corpn. Ltd. vs. ACIT (2012) 80 DTR (Mumbai) (Tri) 4 wherein the Tribunal, while adjudicating the identical issue, has observed as under: "20. We have considered submissions of ld representatives of parties and orders of authorities below. .....

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w.e.f 10.2.2006, a new section 10AA has been inserted which provide exemption to the units located in SEZ. Section 2 of SEZ Act, defines SEZ as under: "(za) Special Economic Zone - means each Special Economic Zone notified under the proviso to sub-section (4) of section 3 and sub-section (1) of section 4(including Free Trade and Warehousing Zone) and includes an existing Special Economic Zone" 21. It is evident from above that an existing SEZ unit will also be governed by Special Econo .....

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hat by the SEZ Act, sub-section (6) to section 115JB was also inserted providing that provisions of section 115JB shall not apply to the income accrued or arisen on or after 1.4.2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be. Hence, income of units located SEZ will not be included while computing book profit for the purpose of MAT as per section 115JB(6) of the Act. In view of above, we are of the .....

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