2013 (4) TMI 577 - AT - Income Tax

Excess deduction under section 80-IA - Held that - Allocation of expenditure is based on the expenditure of utilization of the goods and services under various Heads during the relevant period and this method is being regularly followed by the assessee and accepted by the department for past several years. The Assessing Officer has resorted to adhoc disallowance of a round-sum. If the Assessing Officer had any apprehension as to the correctness of the allocation of expenditure, he should have examined and ascertained the same and pinpointed as to how the various items of expenditure are not allocated properly. In these circumstances, the issue is remitted back to the Assessing Officer to allocate overhead expenses between the eligible units in the power generation unit and the non-eligible units in the cement manufacturing unit, clearly pinpointing the expenditure to be allocated. This appeal is therefore, set aside for statistical purposes.

Issues:
1. Disallowances/additions made by Assessing Officer in scrutiny assessment proceedings.
2. Adjustments made by Assessing Officer related to Hydel Power Units and deduction under section 80IA.
3. Appeal filed by assessee against Order under section 154.
4. Appeal filed by department against Order of CIT (A).
5. Reduction in deduction claimed under section 80IA.
6. Allocation of expenditure between eligible and non-eligible units.
7. Adhoc disallowance made by Assessing Officer.
8. Decision of the ITAT on the appeal.

Analysis:

1. The Assessing Officer made disallowances/additions during scrutiny assessment proceedings, including excess deduction under section 80-I.A. and deduction under section 40A(9). The Assessing Officer also adjusted the number of Hydel Power Units and allocated an expenditure to power generation units, affecting the deduction allowable under section 80IA claimed by the assessee.

2. The Assessing Officer's adjustments regarding Hydel Power Units and deduction under section 80IA were challenged by the assessee, leading to a revision under section 154. The Assessing Officer revised the deduction amount, which was further contested by the assessee, resulting in an appeal before CIT (A).

3. The CIT (A) directed the Assessing Officer to adopt a realistic unit rate based on power purchase agreements and addressed the issue of expenditure allocation. The department then appealed to the ITAT against the CIT (A)'s order.

4. The ITAT held that the CIT (A) cannot decide debatable issues under section 154 and dismissed the department's appeal. Subsequently, the assessee filed an appeal with a delay, which was admitted by the CIT (A).

5. The reduction in the deduction claimed under section 80IA was a key issue. The CIT (A) dismissed the appeal on this ground, stating that the Assessing Officer's disallowance of Rs. 10 lakhs was not arbitrary, as the allocation of expenditure was not properly substantiated by the assessee.

6. The allocation of expenditure between eligible and non-eligible units was a significant point of contention. The assessee argued that the method of allocation had been consistently followed and accepted by the department in previous years. However, the Assessing Officer's adhoc disallowance was deemed unjustified.

7. The ITAT remitted the issue back to the Assessing Officer, directing a proper allocation of overhead expenses between eligible and non-eligible units. The ITAT emphasized the need for a detailed examination of expenditure allocation and granted the assessee a reasonable opportunity to present their case.

8. Ultimately, the ITAT allowed the appeal of the assessee for statistical purposes, indicating that the decision was made primarily to correct the record without altering the substantive rights of the parties involved.

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