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2016 (4) TMI 1116 - ITAT MUMBAI

2016 (4) TMI 1116 - ITAT MUMBAI - TMI - Allocation of Head Office expenses to units eligible for deduction u/s 80IB and 10B - 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 - Held that:- 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/Corpo .....

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has not given any transparent, scientific or concrete basis of bifurcation, nor has he given any 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 a .....

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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 No. 4837/Mum/2014, ITA No. 4737/Mum/2014 - Dated:- 16-3-2016 - Shri Sanjay Garg, Judicial Member And Shri Ashwani Taneja, Accountant Member For the Petitioner : Shri Vijay Mehta (AR) For the Respondent : Shr .....

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in the facts and circumstances of the case in confirming action of the Assessing Officer to allocate Head Office expenses to 801B and 10B units and reworking total disallowance at ₹ 79.92 lakhs. The Appellant prays that the said addition is unjustified and requires to be deleted. 2. The Hon'ble CIT(A) erred law and in the facts and circumstances of the case in confirming disallowance of Rs,20.00 lakhs on adhoc basis in respect of other income of 801B/10B units. The Hon'ble CIT(A) f .....

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.14A at ₹ 154.30 lacs as against the disallowance of ₹ 56.17 lacs computed by the Appellant. 5. The Hon'ble CIT(A) erred in law and in the facts and circumstances of the case in conf irming action of the Assessing Off icer in charging interest under section 234A of the Income Tax Act, 1961 even though there was no delay in filing the return of income. 6. Each one of the above grounds of appeal is independent and without prejudice to each other. 7. The appellant craves leave to ad .....

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#8377; 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 Off .....

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well as corporate office and the expenses debited in the books of accounts for corporate office pertain to head office only and no part thereby could be attributed to any of the units. The AO did not accept the submissions of the assessee and he worked out a sum of ₹ 96,87,500/- being head office expenditure related to the aforesaid Units by making and ad hoc addition of 25% in the allocation sheet, which was submitted by the assessee on the instructions of the AO, on no prejudice basis. .....

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ded that the employees of corporate office look after the broader policies of the company and deal with the matters relating to the affairs of the company with State/ Central Government. It was thus submitted in nutshell that no expenditure of the corporate office/HO should be allocated and entire addition made by the AO for ₹ 96,87,500/- should be deleted. The Ld. CIT(A) considered the submissions of the assessee but held that common expenses and head office expenses have to be apportione .....

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. Asea Brown Boveri Ltd. 110 TTJ (Mum) 502, in support of his view that the approach of the assessee defeats basic principle of taxation whereby only net income i.e. Gross Income less Expenditure 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 .....

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lant 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 by 25%. Under the circumstances, it is held that the allocation made by the A.O. also lacked a sound or scientific .....

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rates and taxes, insurance, postage and telegram, share department expenses/ share transfer agent fees, listing fee and printing and stationery expenses, travelling/ local conveyance/ vehicle running expenses of marketing and other staff, guest house expenses for factory staff, society maintenance charges, other (miscellaneous) expenses etc. The said working is attached as Annexure-A to this order. A perusal of the said working reveals that the expenses falling under this category are broadly th .....

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contains the following variations from the working furnished by the appellant:- Only 50% of the Managing Director's remuneration (Rs.13.1.$ lakhs) has been considered for allocation to the units and the balance ₹ 13.17 lakhs is considered attributable to investment activity involving management of investment portfolio of over ₹ 1800 crores. Payment to auditors has been apportioned equally among the units as well as the corporate office. Investment management fees (Sr.No.16) for d .....

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e 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 o .....

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can be allocated to all other units, whether taxable or tax exempt. He submitted a chart showing a working of head office expenses allocable to 10B and 80IB units as was done by the Ld. CIT(A). In support of his arguments, he relied upon the judgment of Hon ble Bombay High Court in the case of Zandu Pharmaceuticals Works Ltd. v. CIT 350 ITR 366, for the proposition that while computing profit and gains for an undertaking, only expenses relating thereto can be deducted. 4.6. On the other hand, Ld .....

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ng its taxable income. We respectfully accept the proposition advanced by the Ld. Counsel on the basis of aforesaid judgment. We find that lower authorities have already accepted this proposition and there is no quarrel by any one on this well settled proposition. But the issue involved here is that there are certain common expenses which have to be allocated in different units so that true profits of the units could be worked out. The assessee has also accepted this proposition that common expe .....

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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 .....

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xpenses 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 transparent, scientific or concrete basis of bifurcation, nor has he given any 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 creat .....

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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. Ground no.1 may be treated as partly allowed for statistical purposes. 5. Ground No.2: In this ground the assesse .....

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ved, the assessee contested the matter before Ld. CIT(A) and submitted that there is no reason to make disallowance of ₹ 20.00 lacs on estimate basis which was totally without any evidences. But Ld. CIT(A) without giving any specific findings confirmed the stand of the AO. 5.3. Since we have sent the issue raised in ground no.1, back to the file of the AO, and we find that the issue raised in ground no.2 is related to the issue raised in ground no.1 therefore, we find it appropriate to sen .....

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e 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 e .....

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e has also shown that no borrowed funds were used for the purpose of investment. It has been further brought to our notice that there is no change in the facts in this year, therefore, we find that findings of Ld. CIT(A) are in accordance with facts of this year and orders passed in earlier years. Thus, we uphold the order of Ld. CIT(A) with regard to interest. 6.3. With regard to disallowance of expenses, Ld. CIT(A) has not accepted voluntary disallowance made by the assessee aggregating to  .....

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was with respect to allocation of common HO expenses to units eligible for deduction u/s 10B or 80IB. But, on the contrary, while computing disallowance u/s 14A the assessee worked out common expenses of ₹ 4,81,82,918/-, out of which only ₹ 4,18,139/- ( i.e. 8.69%) was allocated to corporate office and the balance above 91% of expenditure was allocated among all the 13 units. It was further observed by him that the basis of allocation of common expenses were also peculiar and unaccep .....

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