2011 (11) TMI 719 - AT - Income Tax

Deduction u/s 80-IB - allocation of interest expenditure of 12.64 lacs to the Daman unit - allocation of general expenses and administrative expenses for computation of deduction u/s 80-IB - allocation of loss of Daman unit to other units for computation of deduction u/s 80-IA and 80-IB - disallowance u/s 14A - allocation of interest expenses on the basis of investment ratio - allocated salary expenses - allocation of salary expenses for the Daman and Baddi units.

Summary

Issues Involved:
1. Allocation of common headquarter expenses for deduction under section 80-IA.
2. Allocation of interest expenditure for deduction under section 80-IB.
3. Allocation of general and administrative expenses for deduction under section 80-IB.
4. Allocation of loss of Daman unit for deduction under sections 80-IA and 80-IB.
5. Disallowance under section 14A.
6. Partial relief in respect of apportionment of headquarter expenses.
7. Allocation of interest expenses on the basis of investment ratio.
8. Relief for already allocated salary expenses.
9. Addition on account of allocation of salary expenses for Daman and Baddi units.

Detailed Analysis:

1. Allocation of Common Headquarter Expenses for Deduction Under Section 80-IA:
The first issue concerns the allocation of common headquarter expenses of Rs. 18.18 lakhs to the CPP units for allowing deduction under section 80-IA. The tribunal found that this issue was previously decided against the assessee in the assessment year 2004-05, where it was held that such expenses were rightly allocated by the A.O. to the CPP unit. The tribunal followed this precedent and decided the issue against the assessee.

2. Allocation of Interest Expenditure for Deduction Under Section 80-IB:
The second issue pertains to the allocation of interest expenditure of Rs. 12.64 lakhs to the Daman unit for computing deduction under section 80-IB. The tribunal noted that this issue was covered by its decisions in the assessee's own case for the assessment years 2003-04 and 2004-05, where it was held that interest expenditure should be allocated based on the investment in respective units. The tribunal upheld the CIT(A)'s order, which followed this method.

3. Allocation of General and Administrative Expenses for Deduction Under Section 80-IB:
The third issue involves the allocation of general expenses of Rs. 168.99 lakhs and administrative expenses of Rs. 49.49 lakhs for computation of deduction under section 80-IB. The tribunal referred to its earlier decision for the assessment year 2004-05, where it was held that common expenses should be apportioned on a reasonable basis. The tribunal upheld the allocation made by the A.O. and decided the issue against the assessee.

4. Allocation of Loss of Daman Unit for Deduction Under Sections 80-IA and 80-IB:
The fourth issue is the allocation of the loss of the Daman unit to other units for the computation of deduction under sections 80-IA and 80-IB. The tribunal distinguished the present case from the judgment of the Delhi High Court in Dewan Kraft Systems (P) Ltd., noting that all units in the present case were eligible for deductions under sections 80-IA/80-IB. The tribunal upheld the allocation of the loss of the Daman unit to the Baddi and CPP units.

5. Disallowance Under Section 14A:
The fifth issue regarding disallowance under section 14A was not pressed by the assessee due to the smallness of the amount. The tribunal decided this issue against the assessee.

6. Partial Relief in Respect of Apportionment of Headquarter Expenses:
The sixth issue concerns the partial relief of Rs. 22,43,803/- in respect of the apportionment made for the claim of headquarter expenses. The tribunal found that the judgment of the Delhi High Court in Dewan Kraft Systems (P) Ltd. was not applicable. It reversed the CIT(A)'s order and restored the A.O.'s order, allowing the revenue's appeal on this ground.

7. Allocation of Interest Expenses on the Basis of Investment Ratio:
The seventh issue is regarding the allocation of interest expenses of Rs. 12.81 lakhs on the basis of the investment ratio. The tribunal noted that this issue was covered in favor of the assessee by its decisions for the assessment years 2003-04 and 2004-05, where it was held that interest expenditure should be allocated based on the investment ratio. The tribunal rejected the revenue's ground.

8. Relief for Already Allocated Salary Expenses:
The eighth issue involves the relief allowed by the CIT(A) for already allocated salary expenses. The tribunal found that the CIT(A) had in principle approved the A.O.'s stand but directed the A.O. to avoid double disallowance. The tribunal set aside the CIT(A)'s order and restored the matter to the A.O. for examination, allowing the revenue's ground for statistical purposes.

9. Addition on Account of Allocation of Salary Expenses for Daman and Baddi Units:
The ninth issue concerns the addition on account of the allocation of salary expenses for the Daman and Baddi units. The tribunal rejected the assessee's contention that only the salary of employees managing corporate affairs should be allocated, deciding this ground against the assessee.

Conclusion:
The appeals of the assessee and the revenue were partly allowed, while the cross objection of the assessee was dismissed. The tribunal's decisions were primarily guided by precedents in the assessee's own case and relevant judicial pronouncements.