TMI Blog2016 (4) TMI 1116X X X X Extracts X X X X X X X X Extracts X X X X ..... ny reasoning as to why these expenses should be bifurcated on fifty-fifty basis. It is also noted by us that even lower authorities had not examined this aspect from this angle. This issue is likely to have far reaching implications and may create history in assessee’s hands in other years as well. Therefore, principally accepting the stand of the assessee that total expenses incurred by HO/CO are not available for allocation, but for determining that how much portion of these expenses is available for allocation to all the units, we send this issue back to the AO for reexamining this issue and finding out some fair, rational, transparent and scientific basis of bifurcation of these expenses and their allocation among all the units. The AO shall decided this issue afresh after considering all the facts and submissions and evidences as may be brought on record by the assessee in support of its contentions for which the AO shall give adequate opportunity of hearing. The assessee is free to raise all the legal and factual issues in this regard. Thus, with these directions we send this issue back to the file of the AO. - Decided in favour of assessee for statistical purposes. - ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, arguments were made by Shri Vijay Mehta, Authorised Representative (AR) on behalf of the Assessee and by Shri K. Mohandas, Departmental Representative (DR) on behalf of the Revenue. 4. In this ground the assessee has challenged the action of Lower Authorities in allocating Head Office expenses to units eligible for deduction u/s 80IB and 10B, and thereby reworking total disallowance at ₹ 79.92 lakhs. 4.1. The brief facts are that during the year under consideration the assessee was in the business of manufacturing cold rolled coils, galvanized coils, galvanized corrugated sheets, woven sacks, fabrics, jumbo bags and partially oriented yarn. Three units of the assessee are claiming deduction u/s. 80IB and 10B. Two units should claim deduction u/s 80IB and one unit u/s 10B. 4.2. During the course of assessment proceedings the AO noted that no part of expenditure of Head Office/Corporate Office and indirect expenses were allocated to any of the aforesaid units in respect of which deductions u/s 80IB and 10B had been claimed by the assessee (herein after called as tax exempt units). The AO held that part of the Head Office/ Corporate office expenses and other indire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is required to be taxed. He also relied upon another judgment of Delhi Bench of ITAT in case of DCIT vs. Eastern Medikit Ltd. 100 TTJ 382 (Del) for upholding the action of the AO in allocating the actual expenditure to all the units, unless there were valid reasons to exclude a particular unit. 4.4. But, with respect to quantification of head office expenses allocable to tax exempt units, Ld. CIT(A) did not fully accept stand of the AO and suggested another working on the basis of his own analysis. We find it appropriate that is observations of Ld. CIT(A) should be reproduced hereunder: Coming now to the quantum of HO expenses allocable to the three units eligible for deduction u/s.10B/80-IB, it is seen that the A.O. did not accept the allocation of ₹ 77.50 lakhs carried out by the appellant on the ground that the appellant had not furnished proper working as well as basis for the said allocation. However, it is found that instead of undertaking that exercise af ter identification of actual expenses incurred at the corporate off ice, the A.O. also adopted an ad hoc approach and calculated a sum of ₹ 96,87,500/- af ter increasing the appellant's allocation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the units as well as the corporate office. Investment management fees (Sr.No.16) for debentures (Rs.50.37 lakhs) is relatable to the activities carried out at the corporate office and has direct nexus with interest income earned by the corporate office. As such, this cannot be allocated among the units. 5.3.3 The A.O. is, therefore, directed to verify the revised working of allocable/common HO expenses from the record. Considering the aggregate of these sums for apportionment equally among 13 units of the appellant in line with past history of the case, the amount allocable to the three units eligible for deduction u/ss.10B and 801B comes to ₹ 79.92 lakhs (346.34 x 3 / 13) or ₹ 26.64 lakhs per unit. This turns out to be more or less close to the amount of ₹ 77.0 lakhs initially worked out by the appellant. The A.O. is, accordingly, directed to recompute the deductions u/s 10B and 80-lB in respect of the eligible units after considering the revised allocation of common HO expenses as worked out above. With these directions, Grounds bearing Nos.2 and 3 of the present appeal are allowed to the extent indicated above. 4.5. Being aggrieved, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50% should be charged to HO only. The only reasoning given by the Ld. Counsel of the assessee is that the head office has its own stream of income and therefore, only 50% of the expenses should be allocated. 4.8. We have carefully gone through the submissions of the Ld. Counsel and find some force therein. It is an accepted factual position that head office has its own stream of income. Thus, under these circumstances, it cannot be said that the entire expenses incurred by the Head Office/Corporate Office were incurred as common expenses. Therefore, under these circumstances the total expenses of the head office cannot be said to be available for allocation in other units. Thus, next question arises is that how much portion of total expenses of Head Office/Corporate Office can be attributed as common expenses, available for allocation to all the units. The Ld. Counsel has tried to justify that 50% of the total expenses of Head Office/Corporate Office, on an ad-hoc basis, should be taken as the expenses pertaining to the income earned by the head office, and balance 50% can be made available for allocation to all the units. But we find that Ld. Counsel has not given any transpar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ground no.1 above. Thus, ground no.2 also may be treated as allowed for statistical purposes. 6. Ground Nos. 3 4: These grounds are with regard to the issue of disallowance made by the AO u/s 14A which has been partly deleted by the Ld. CIT(A). The assessee has filed an appeal against disallowance sustained by the Ld. CIT(A) and revenue has come in appeal against the relief given by the Ld. CIT(A). 6.1. During the course of hearing, it has been submitted by the Ld. Counsel that these issues are covered by the judgment of the Tribunal in assessee s own case for A.Y. 2008-09 2009-10. 6.2. We have gone through the orders of lower authorities and submissions made by both the sides on this issue. It is noted that total disallowance made u/s 14A has two components i.e. interest and expenses. It is noted that with regard to interest of Ld. CIT(A) has given categorical finding relying upon the orders of earlier years that the assessee has paid interest on specific borrowing used for the specific purpose of business activities such as modernization of steel division, acquisition of plant and machinery for textile division and working capital for plastic division etc.; that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f disallowance of expenses (excluding interest) back to the file of the AO to be decided afresh, after giving adequate opportunity of hearing to the assessee. The assessee shall be free to raise all the factual and legal issues before the AO. Thus, ground nos. 3 4 are may be treated as partly allowed for statistical purposes. 7. Ground No.5: This ground is with regard to levy of interest and dismissed as consequential. 8. Ground Nos. 6 7: These grounds are general and do not need any specific adjudication and therefore dismissed. Now, we take up Revenue s Appeal ITA No.4737/Mum/2014 9. Ground Nos. 1 to 6: The solitary issue raised by the Revenue in these grounds is with regard to relief given by the Ld. CIT(A), out of disallowance made by the AO u/s 14A. 9.1. In our order while dealing with ground nos. 3 and 4 of assessee s appeal, we have already held that the disallowance of interest has been rightly deleted by the Ld. CIT(A). Therefore, Revenue s ground with regard to interest stands dismissed. With regard to grounds of the Revenue for disallowance of expenses u/s 14A, we have sent back the grounds of the assessee back to the file of the AO for reexamination a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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