2015 (7) TMI 831 - AT - Income Tax

Allocation of expenses of the Non-10A unit to the 10A unit - Minimum Alternate Tax (MAT) on SEZ units - Salary & Bonus Expenses allocated in the ratio of turnover of both the units - Held that - AO has very scientifically allocated the expenditure of the Non-10A unit to the 10A unit. The assessee had also agreed for allocation of expenditure of Non-10A unit to 10A unit on proportionate basis. The grievance of the assessee that the allocation was on higher side does not seem to be justified. However, so far the contention of the Ld. A.R. that the assessee had already debited the interest expenditure allocable to the 10A unit and that the further apportionment of interest expenditure from that of Non-10A unit was not justified is concerned, we restore this issue to the file of the AO for this limited purpose with a direction to examine as to whether the assessee has itself allocated the interest expenditure towards 10A unit out of the interest expenditure allocated by the AO from Non-10A unit to 10A unit, if found correct, then to take it into consideration and decide accordingly. - Decided partly in favour of assessee for statistical purposes. Disallowance u/s 40(a)(ia) paid to Star India Pvt. Ltd. on account of advertisement - Held that - Assessee while drawing our attention to the page 76 of the paper book, has submitted that a certificate dated 31.05.07 u/s 197 of the Income Tax Act has been issued in favour of Star Ltd., therefore there was no requirement of deduction of TDS for the sums paid by the assessee to the Star Ltd. Admittedly, the above stated document was not presented by the assessee before the AO at the time of assessment proceedings. This document is the shape of additional evidence and is required to be examined by the AO. We accordingly, restore this issue to the file of the AO for verification as to whether the assessee was not required to deduct TDS for the payments made to Star Ltd. and if found correct, the AO to give relief accordingly.- Decided in favour of assessee for statistical purposes. Setting-off the losses of non SEZ unit with the profit of SEZ unit for the purpose of determining deduction U/s 10A - Held that - This issue is squarely covered with the decision of Hon ble Bombay High Court in the case of CIT vs. Black & Veatch Consulting Pvt. Ltd. (2012 (4) TMI 450 - BOMBAY HIGH COURT ) wherein held that the deduction under section 10A has to be given at the stage when the profits and gains of business are computed in the first instance and thus the brought forward unabsorbed depreciation of the unit which is not eligible for deduction u/s 10A cannot be set off against current profit of the eligible unit for computing the deduction under section 10A. - Decided in favour of the assessee. Not reducing deduction available u/s 10A of the Income Tax Act, 1961 from the book profit for the purpose of determining total income U/s 115JB - Held that - This issue is also covered by the decision of the co-ordinate Bench of the Tribunal in the case of Genesys International Corpn. Ltd. vs. ACIT 2012 (12) TMI 491 - ITAT MUMBAI wherein observed that by the SEZ Act, sub-section (6) to section 115JB was also inserted providing that provisions of section 115JB shall not apply to the income accrued or arisen on or after 1.4.2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be. Hence, income of units located SEZ will not be included while computing book profit for the purpose of MAT as per section 115JB(6) of the Act.- Decided in favor of assessee.

Issues Involved:
1. Allocation of expenses from Non-SEZ unit to SEZ units.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
3. Setting-off losses of non-SEZ unit with the profit of SEZ unit for deduction under Section 10A.
4. Non-reduction of deduction available under Section 10A from the book profit for determining total income under Section 115JB.

Issue-wise Detailed Analysis:

Issue 1: Allocation of Expenses from Non-SEZ Unit to SEZ Units

During the assessment proceedings, the Assessing Officer (AO) observed that the assessee had two manufacturing units: one at Nasik (Non-SEZ) and another at Chennai (SEZ). The AO noted that the expenditure at the Non-SEZ unit was disproportionately higher compared to the SEZ unit, despite similar turnovers. Specific expenses such as auditors' remuneration, salaries, and bonuses were either not apportioned or disproportionately allocated. The AO allocated these expenses based on the turnover ratio between the two units. The assessee accepted some allocations but contested others. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's apportionment as well-reasoned and scientifically based. The Tribunal found the AO's allocation method justified but remanded the issue of interest expenditure allocation back to the AO for verification, as the assessee claimed it had already debited the relevant interest expenses to the SEZ unit.

Issue 2: Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961

The assessee contested the disallowance of Rs. 12,44,050/- paid to Star India Pvt. Ltd. for advertisement, arguing that no TDS was required due to a certificate issued under Section 197 of the Income Tax Act. This certificate was not presented during the assessment proceedings. The Tribunal restored the issue to the AO for verification of the certificate and to determine if the assessee was indeed not required to deduct TDS, granting relief if found correct.

Issue 3: Setting-off Losses of Non-SEZ Unit with the Profit of SEZ Unit for Deduction Under Section 10A

The assessee argued against the AO's action of setting off losses of the Non-SEZ unit against the profits of the SEZ unit for determining the deduction under Section 10A. The Tribunal noted that the issue was covered by the Bombay High Court's decision in "CIT vs. Black & Veatch Consulting Pvt. Ltd.," which held that deduction under Section 10A should be computed without setting off losses from non-eligible units. Respectfully following this decision, the Tribunal ruled in favor of the assessee.

Issue 4: Non-reduction of Deduction Available Under Section 10A from the Book Profit for Determining Total Income Under Section 115JB

The assessee contended that the lower authorities erred in not reducing the deduction available under Section 10A from the book profit for the purpose of determining total income under Section 115JB. The Tribunal referred to its earlier decision in "Genesys International Corpn. Ltd. vs. ACIT," which held that units in SEZ are exempt from the applicability of Section 115JB. Following this precedent and the principle of consistency, the Tribunal ruled in favor of the assessee, excluding the SEZ unit's income from the book profit calculation under Section 115JB.

Conclusion:

The appeal was allowed for statistical purposes, with specific issues remanded for further verification by the AO. The Tribunal's order was pronounced in the open court on 8.5.2015.

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