2016 (4) TMI 1118 - AT - Income Tax

Method adopted for working out the profit - Held that - The assessee is engaged in the two similar business activities. There were certain common expenditures such as employment cost, administrative cost and depreciation cost which the AO apportioned 100% to the activity i.e. growing and manufacturing of tea leaves of the assessee on the ground that these cost have to be necessarily incurred by the assessee irrespective of any other the business activity. Therefore the allocation of these expenses is not required between the above sources is not required. However the ld. CIT(A) deleted the addition made by the AO. We understand that for any activity of the business several expenses are required to be incurred. The addition has been made by the AO on the surmise that these expenses are fixed in nature. The ld. DR also failed to bring anything on record contrary to the finding of the ld. CIT(A). Hence, we have no hesitation in upholding the order of Ld. CIT(A) and this ground of Revenue s appeal is dismissed. - Decided in favour of assessee Deduction u/s 80IB - Held that - The assessee did not submit the relevant details at the time return filing for the deduction under section 80IB of the Act on the presumption that the return of income was filed declaring loss. So there was no point to claim the deduction under section 80IB of the Act. However when the AO framed the assessment under section 143(3) of the Act at positive income then the assessee raised the issue of said deduction. However the same was disallowed by the AO in the absence of sufficient documents in support of the claim under section 80IB of the Act. In the instant case the order of the AO was reversed by the ld. CIT(A) and we upheld the order of the ld. CIT(A). So as a result the loss claimed by the assessee has been restored. Therefore in the event of the loss return filed by the assessee, the question for claiming the deduction under section 80IB of the Act does not arise. Accordingly in our considered view the issue of 80IB of the Act becomes irrelevant for the year under consideration. Therefore we are not adjudicating the same in the light of the provisions of the Act. Hence, we decide this effective ground against Revenue.

Summary

Issues Involved:
1. Justification of the method adopted by the AO for computing the income.
2. Eligibility for disallowance under Section 80IB of the Income Tax Act.

Detailed Analysis:

1. Justification of the Method Adopted by the AO for Computing the Income:

The first issue pertains to whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in holding that the method adopted by the Assessing Officer (AO) for computing the income was erroneous and prejudicial to the interest of the Revenue. The assessee, a private limited company engaged in the business of growing and manufacturing tea, had income from two sources: growing and manufacturing tea (40% taxable under Rule 8 of the Income Tax Rules, 1962) and manufacturing tea from purchased tea leaves (100% taxable).

The AO apportioned 100% of certain mixed expenditures (employment cost, administrative expenses, and depreciation) to the growing and manufacturing of tea, arguing that these costs were fixed and necessary regardless of the source of the tea leaves. The CIT(A) disagreed, stating that these expenses were incurred for both sources of income and should be allocated proportionately. The CIT(A) observed that these expenditures were essential for the overall business operations and could not be exclusively attributed to one source of income.

The Tribunal upheld the CIT(A)'s decision, noting that the AO's allocation was not justified and that the expenses should be proportionately allocated between the two sources of income. The Tribunal found no contrary evidence from the Revenue and dismissed this ground of the Revenue's appeal.

2. Eligibility for Disallowance under Section 80IB of the Income Tax Act:

The second issue involves the disallowance of the assessee's claim for deduction under Section 80IB of the Income Tax Act. The AO disallowed the claim on the grounds that the assessee failed to furnish supporting documents. The assessee argued that since the return of income was filed declaring a loss, there was no initial claim for deduction under Section 80IB. However, when the assessment was framed at a positive income, the claim was raised.

The CIT(A) allowed the deduction, noting that the assessee had submitted the necessary documents during the appellate proceedings and that the AO had not provided any specific reasons for denying the deduction. The Tribunal upheld the CIT(A)'s decision, stating that the AO had not brought any material evidence to show that the assessee did not meet the eligibility criteria for the deduction. However, since the Tribunal restored the loss claimed by the assessee, the question of claiming the deduction under Section 80IB became irrelevant for the year under consideration.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The method adopted by the AO for computing the income was found to be erroneous, and the allocation of mixed expenditures was directed to be done proportionately. The disallowance under Section 80IB was also overturned, but the issue became moot due to the restoration of the assessee's loss claim. The order was pronounced in the open court on 18/03/2016.