2010 (1) TMI 1218 - AT - Income Tax

Summary

Issues Involved:
1. Validity of assuming jurisdiction under sections 147/148 of the Income Tax Act, 1961.
2. Allocation of common expenses for the purpose of computing deduction under section 80IA.
3. Apportionment of expenses on account of traveling and conveyance to Unit II.

Detailed Analysis:

1. Validity of Assuming Jurisdiction under Sections 147/148:
The assessee challenged the validity of the reassessment proceedings initiated under sections 147/148 of the Income Tax Act, 1961. The original assessment was completed under section 143(3) on 22.11.2000, and the notice under section 148 was issued on 30.03.2005, beyond the four-year period from the end of the relevant assessment year. The assessee argued that the reassessment proceedings were based on an audit objection and that there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The CIT(A) dismissed these contentions, stating that the notice was issued within six years, and the assessee failed to disclose full facts truly. The Tribunal, however, held that the notice under section 148 was barred by limitation as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal relied on the jurisdictional High Court decision in Haryana Acrylic Manufacturing Co. vs. CIT, emphasizing that the absence of an allegation of failure to disclose material facts in the reasons recorded for issuing the notice rendered the reassessment proceedings invalid.

2. Allocation of Common Expenses for Deduction under Section 80IA:
The assessee disputed the allocation of common expenses to different units on the basis of their respective turnover, arguing that expenses should be allocated at 2.5% of the sales of each unit, as done in the past. The CIT(A) upheld the AO's method of allocating expenses based on turnover, finding it more scientific and rational. The Tribunal supported this view, citing its own decision in the assessee's case for the A.Y. 2003-04 and the ITAT Pune Bench's decision in Khinvasara Investment Pvt. Ltd. vs. JCIT. The Tribunal directed the AO to determine the turnover and expenses in the same manner as held in the A.Y. 2003-04, where expenses were allocated based on the proportion of turnover, leading to a more accurate reflection of each unit's profitability.

3. Apportionment of Expenses on Account of Traveling and Conveyance to Unit II:
The assessee contested the AO's allocation of Rs. 2.50 lakhs (reduced from Rs. 5 lakhs by the CIT(A)) for traveling and conveyance expenses to Unit II, claiming it was based on surmises and conjectures. The Tribunal found that neither the AO nor the CIT(A) provided a rational basis or material evidence for this allocation. The Tribunal noted that the assessee had already debited traveling and conveyance expenses to Unit II, and the AO did not substantiate the claim that these expenses were meager or that they were debited to other units. Consequently, the Tribunal held that the allocation of Rs. 2.50 lakhs was unjustified and should not be made.

Conclusion:
The Tribunal allowed the appeal for the A.Y. 1998-99, canceling the reassessment proceedings as barred by limitation. For the A.Y. 2004-05, the Tribunal partly allowed the appeal, upholding the allocation of common expenses based on turnover but rejecting the additional allocation of traveling and conveyance expenses to Unit II.