2014 (4) TMI 483 - HC - Income Tax

Allowability of deduction u/s 80IB of the Act Requirement to set off of losses - Whether the assessee has disproportionately allocated the common expenses to arrive at more profits for the eligible units in order to claim more relief u/s 80IB of the Act Held that - This is a factual issue and the assessee was bound to place before the AO necessary documents to establish that the common expenses have not been disproportionately allocated so as to claim more relief u/s 80IB of the Act - no other record was produced by the assessee before the AO - When the matter was considered by the FAA, the FAA had erroneously shifted the burden on the AO stating that the AO did not bring on record any material or evidence to support its conclusion that the expenditure was disproportionately allocated. The onus is on the assessee to produce sufficient records to show that there were no disproportionate allocations and they were under an obligation to show as to how the profits were arrived at in respect of 12 units and particularly in respect of BNR-I and BNR-II for the purpose of claiming deduction u/s 80IB of the Act - The assessment order also does not state as to whether the common expenses were with reference to the 12 units or with reference to the two units alone, which was disproportionately distributed. Relief u/s 80IB of the Act - the order of the Tribunal is set aside and the matter is remitted back to the AO so as to work out the relief properly, particularly with reference to the expenses allocable to BNR-I and BNR-II units Decided in favour of Revenue.

Summary

Issues:
1. Interpretation of Section 80IB for deduction eligibility.
2. Allocation of expenses for deduction calculation.
3. Burden of proof on the assessee regarding expense allocation.

Issue 1: Interpretation of Section 80IB for deduction eligibility
The case involved a dispute over the deduction under Section 80IB of the Income Tax Act, 1961. The appellant, engaged in the business of Barytes minerals, claimed deduction under Section 80IB for establishing units in industrially backward areas. The Assessing Officer limited the deduction, citing disproportionate allocation of expenses. The First Appellate Authority and Tribunal disagreed, emphasizing the specific provisions of Section 80IB(5) and 80IB(13) and directing a re-determination of the eligible deduction. The High Court noted that the eligibility for deduction was not in dispute, but the allocation of expenses needed clarification. The Court set aside the Tribunal's order, directing the assessee to provide necessary evidence to substantiate the expense allocation for proper deduction calculation.

Issue 2: Allocation of expenses for deduction calculation
The Assessing Officer contended that the appellant had disproportionately allocated common expenses to inflate profits in eligible units for claiming more relief under Section 80IB. The First Appellate Authority and Tribunal found no evidence supporting this claim and directed a re-calculation of the deduction. However, the High Court observed that the burden of proof lay on the assessee to demonstrate proper expense allocation. The Court highlighted the lack of sufficient records presented by the assessee and emphasized the need for clarity on expense allocation for units entitled to deduction under Section 80IB.

Issue 3: Burden of proof on the assessee regarding expense allocation
The High Court emphasized that the onus was on the assessee to provide necessary documentation to establish that common expenses were not disproportionately allocated to claim excessive relief under Section 80IB. The Court noted the absence of records supporting the expense allocation methodology during assessment. While setting aside the Tribunal's decision, the Court directed the assessee to furnish relevant materials to the Assessing Officer for a proper determination of the deduction under Section 80IB. The Court stressed the importance of transparency in expense allocation to ensure accurate calculation of relief under the Act.