2012 (11) TMI 660 - AT - Income Tax

Allocation of administrative and general expenses Held that - Actual direct expenses are to be allocated directly and the common expenses, has to be apportioned on a reasonable basis, which has been done by the AO in the present case and hence, no interference is called for - allocation of administrative expenses and general expenses amounting to Rs.3.86 Lakhs and Rs.438.79 lakhs towards Daman & Baddi units respectively for computation of deduction u/s 80IB is upheld against assessee Disallowance u/s 14A of the Act in respect of the Director s Remuneration alleged that appellant has received dividend from mutual fund which is exempt u/s 10(35) of the I.T. Act Held that - matter remitted back to AO for fresh decision. Allocation of interest expenses - allocation of interest expenses to the Baddi unit in the ratio of turnover against the allocation made by the appellant on the basis of investment while calculating profit eligible for deduction u/s.80IC of I.T. Act alleged that appellant has a common pool of funds as well as common bank accounts for its entire business being carried out from headquarters - A.O. therefore allocated interest proportionately to this unit on the basis of ratio of sales of the undertaking Held that - Appellant has claimed that since no other specific loans were taken for establishment of the said unit, no interest cost should be allocated to the said unit - total investment in Baddi Unit and Daman Unit is very low inasmuch as 0.28% and 0.09% respectively, as compared to investment in other unit - It is perfectly justified in making the interest allocation at Rs.3.60 lakhs in case of Daman Unit and at Rs.1.16 lakhs in case of Baddi Unit on the basis of ratio of investment in fixed assets and in directing the AO to modify the calculation accordingly - in favour of the assessee Grant of relief to the extent of allocation of the salary already made by the assessee - allocation of salary expenses on the basis of the sales ratio on the Daman unit u/s. 80IB and Baddi unit u/s. 80IC of the Act Held that - To the extent of allocation of salary already made by the appellant, the same should be reduced to avoid double disallowance - direct the A.O. to grant relief accordingly - CIT(A) has in principle approved the stand of the A.O. but he has given direction to the A.O. that to the extent of allocation of salary already allocated by the assessee, the same should be reduced to avoid double disallowance. He has not given finding as to what extent, there is double disallowance - this aspect should be examined by the A.O - matter remanded back to the file of the A.O

Summary

Issues Involved:
1. Deduction under Section 80IA of the Income-tax Act, 1961.
2. Allocation of administrative and general expenses for Daman and Baddi units.
3. Disallowance under Section 14A of the Income-tax Act.
4. Allocation of interest expenses to the Baddi unit.
5. Allocation of salary expenses for Daman and Baddi units.
6. Levy of interest under Sections 234C and 234D.

Detailed Analysis:

1. Deduction under Section 80IA of the Income-tax Act, 1961:
The assessee claimed a deduction under Section 80IA for income derived from captive power plants (CPPs). The Assessing Officer (AO) allocated certain common headquarter expenses to the CPP unit on a pro-rata basis based on turnover, reducing the deduction claimed by the assessee. The CIT(A) provided partial relief by excluding general charges and miscellaneous expenses. Both parties agreed that this issue was covered by a previous Tribunal decision against the assessee for AY 2004-05. The Tribunal upheld the AO's allocation, following its earlier decision.

2. Allocation of administrative and general expenses for Daman and Baddi units:
The AO allocated administrative and general expenses to Daman and Baddi units based on sales ratios. The CIT(A) upheld this allocation, referencing decisions from previous assessment years. Both parties acknowledged that this issue was also covered by a previous Tribunal decision, which supported the AO's allocation method. The Tribunal upheld the allocation of administrative and general expenses to these units.

3. Disallowance under Section 14A of the Income-tax Act:
The AO disallowed a portion of the director's remuneration and other expenses under Section 14A, related to earning exempt dividend income. The CIT(A) directed the AO to recalculate the disallowance by excluding indirect expenses. The Tribunal remitted the matter back to the AO for fresh decision, considering relevant High Court decisions cited by both parties.

4. Allocation of interest expenses to the Baddi unit:
The AO allocated interest expenses to the Baddi unit based on turnover ratios, while the assessee argued for allocation based on investment. The CIT(A) favored the assessee's method, referencing decisions from previous years. The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by earlier Tribunal decisions in favor of the assessee.

5. Allocation of salary expenses for Daman and Baddi units:
The AO allocated salary expenses to Daman and Baddi units based on sales ratios, without considering the assessee's prior allocations. The CIT(A) directed the AO to verify and adjust for any double disallowance. The Tribunal remitted the matter back to the AO to examine the extent of double disallowance and decide accordingly, following its decision for AY 2006-07.

6. Levy of interest under Sections 234C and 234D:
The issue of interest levy under Sections 234C and 234D was deemed consequential, and the AO was directed to adjust accordingly.

Conclusion:
The appeals filed by the assessee and the Revenue were largely decided based on precedents from previous assessment years. The Tribunal upheld the AO's allocation methods for expenses related to deductions under Sections 80IA and 80IB/80IC, while remitting certain issues back to the AO for fresh consideration and correct calculation. The cross-objection filed by the assessee was dismissed as not pressed.