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TMI Blog2018 (4) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... said M.A., were as follows: "1.Your petitioner is engaged in the business of manufacture and trading of consumer goods and pharmaceutical products. 2(a) Your petitioner states that for the assessment year 2005-06, it had claimed deduction under sections 80-IB and 80-IC of the Income Tax Act, 1961 (hereinafter referred to as "the Act") in respect of income of the eligible units. (b) In computing the income of the eligible units, your petitioner did not take into consideration the bad debts written off by your petitioner in its consolidated accounts since such debts related to the business carried on by the non- eligible units during the financial years 2001-02 and 2002-03 before the eligible units were set up in the financial years 2003- 04 and 2004-05. (c) Your petitioner states that the total expenditure as per its profit and loss account for the previous year ended March 31,2005 amounting to Rs. 717.26 crores included residual cost of Rs. 40.43 crores incurred at your petitioner's corporate office which could not be allocated to or identified with any single function or unit of your petitioner due to its general utility to all the units and functions of your petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the corporate office only looked after manufacturing activities ignoring the other activities of the corporate office. Your petitioner states that on appeal, the Commissioner of Income Tax (Appeals) accepted your petitioner's contentions and directed the Assessing Officer to accept the allocation of the corporate office residual cost as made by your petitioner. Your petitioner states that against the said decision of the Commissioner of Income Tax (Appeals), the Assessing Officer in his appeal being ITA No. 33/Kol/2010 had taken the following ground:- Ground No. 2: "On the facts and in the circumstances of the case, Ld. CIT(A) erred in deleting the re-computation of deduction u/ s 80IB & 80IC made by the A. O. though reallocation in the ratio of workers of eligible undertakings to the total number of workers of all manufacturing units made by the AO was more relevant. " 5. Your petitioner states that at the time of hearing before this Hon'ble Tribunal, with respect to Ground No.3 of your petitioner's appeal, on behalf of your petitioner, attention was invited to the details of bad debts written off submitted to the Assessing Officer in course of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial operation only on 08.12.2004 as it is evidenced by the Form No.10CCB, copy of the Page 101 of the assessee's Paper Book. The Unit No.4 commenced commercial operation w.e.f, 02.02.2005 which is evidence by Form No.10CCB from placed at Paper Book page 68. It can thus perusal of the bad debts written off would show that all the debts pertained to assessment year 2002-03 and earlier Financial Years. The units for which deduction u/s 80-IB and 80-IC were claimed by the assessee, came into existence only in F.Y. 2004-05. Thus, it is clear that the bad debts written off which was claimed as deduction did not pertain to any of the units for which the assessee claimed deduction u/s 80-IB and 80-IC of the Act. Therefore, apportionment of bad debt written off to the eligible units and registering profit of those eligible units for the purpose of allowing deduction u/s 80-IB and 80-IC, as done by the revenue authorities is unsustainable. The apportionment is directed to be deleted. Ground No.3 raised by the assessee is allowed. 5. As far as Ground No.2 raised by the revenue is concerned, this issue again pertains to apportionment of residual cost of Rs. 40.43 crores. The total cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible unit of the assessee has to be computed as if such eligible business were the only source of income of the assessee during the year. The above expenses, even though booked centrally in the head office books, have been incurred for all the units of the assessee company. Hence; in order to arrive at the true and correct value of the profits & gains derived from the eligible units, these expenses are required to be allocated to all the units in the proper manner. The best way to divide these expenses would be to allocate among eligible and non-eligible units in the ratio of workers of eligible undertakings to the total number of workers across all the manufacturing locations from where the assessee has sourced its requirements, instead of in the ratio of number of executives at the corporate office who are directly involved in the management of these eligible units to the total number of executives at the corporate office as has been done by the assessee company. This is because the expenditure incurred by the assessee company on the residual functions have also been used and benefited the whole company including the eligible units hence it has to be bifurcated in the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s directly linked to factory operation. This worked out to 21.78%. The ratio of sale of fiscal units to overall sales was 26.10%. The effective percentage of residual cost thus worked out to 5.68% (21.78% * 26.10%), which the appellant applied for allocating the residual cost to the eligible units. For allocation expenses, the appellant has taken into consideration number of person as well as sales of the eligible units. The AO has allocated the residual costs of the corporate office on the basis of the number of workers. Hence, I find more logic on the basis of allocation of expenses adopted by the appellant as the appellant has also taken turnover of the eligible units into consideration." 7. We have heard the rival submissions, the ld. DR reiterated the stand of the Assessing Officer as reflected in the order of the assessment. The ld. Counsel for the assessee relied on the order of the ld. CIT(A). We have given a careful consideration to the rival submissions, we note that the basis of allocation of residual cost to the eligible units has been done by the Assessing Officer is as follows: It can be seen from the above Chart that the allocation done by the assessee on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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