2019 (5) TMI 101 - AT - Income Tax

Deduction claim u/s 80IC - Interest on FDR from fund of different unit - no finance charges debited in unit - allocation of HO expenses on estimation basis - HELD THAT - A.O. is directed to verify whether the assessee has reduced ₹ 62,91,275/- from deduction u/s 80IC and then give deduction on this amount. Regarding the finance charges of Rudrapur unit of ₹ 60,30,690/-, we note that the A.O. allocated ₹ 60,30,690/- as finance charges of Rudrapur unit without taking into account facts submitted by the assessee. The ld Counsel submitted before us explanation which has not been considered by the AO. We direct the AO to verify the facts as mentioned above and re-compute the deduction under section 80IC in accordance with law. Allocation of H.O. office expenses relating to Rudrapur Unit, on estimate basis we note that assessee s books of accounts are audited by a chartered accountant. The books of accounts are not rejected by the AO. We note that the AO could have ventured into estimation only after rejecting the books of accounts of the assessee u/s 145(3) and thereafter by best judgment assessment u/s 144 . Here in this case, the AO has not passed any order u/s 144 of the Act. AO thus without rejecting the books of account of the assessee has gone for estimation on suspicion and conjectures and made estimated disallowance of ₹ 3,00,000/-, which is not tenable and therefore, we delete the addition of ₹ 3,00,000/- Allowability of commission - HELD THAT - The assessee has raised ground relating commission paid of ₹ 5 lakhs, which has been disallowed.However, the said sum was disallowed in A.Y. 2009-10 also. Therefore, the A.O. is directed to verify the TDS payment and allow the claim of the assessee in accordance with law.

Summary

Issues Involved:
1. Disallowance of deduction under Section 80IC on account of allocation of interest from non-eligible unit.
2. Reduction of interest receipt in deduction under Section 80IC.
3. Disallowance under Section 40(a)(ia) of ?5,00,000.

Detailed Analysis:

1. Disallowance of Deduction under Section 80IC on Account of Allocation of Interest from Non-Eligible Unit:
The primary issue revolves around the disallowance of ?60,30,690 in the computation of deduction under Section 80IC. The Assessing Officer (AO) observed that the assessee did not debit any finance charge/interest in the profit & loss account of the Rudrapur Unit and did not allocate head office expenses to this unit. The AO allocated finance charges of ?60,30,690 to the Rudrapur Unit based on the ratio of fixed assets and current assets among the units. The assessee argued that no loan was taken for the Rudrapur Unit, and the funding was made from internal accruals. The Tribunal noted that the AO's allocation was based on an incorrect premise and directed the AO to verify the facts and re-compute the deduction under Section 80IC accordingly.

2. Reduction of Interest Receipt in Deduction under Section 80IC:
The AO reduced ?62,91,275 from the deduction under Section 80IC, arguing that the interest earned on fixed deposits from the Faridabad Unit could not be shown under the Rudrapur Unit. The assessee contended that this amount had already been reduced in the computation of deduction under Section 80IC, and the AO's action amounted to double reduction. The Tribunal directed the AO to verify whether the assessee had already reduced ?62,91,275 from the deduction and to adjust the deduction accordingly.

3. Disallowance under Section 40(a)(ia) of ?5,00,000:
The AO disallowed ?5,00,000 under Section 40(a)(ia) for late deposit of TDS, stating that it was not treated as an allowable business expenditure since it did not pass through the profit and loss account. The Tribunal directed the AO to verify the TDS payment and allow the claim of the assessee in accordance with the law.

Additional Observations:
- The Tribunal noted that the AO made an estimated disallowance of ?3,00,000 towards head office expenses without rejecting the books of accounts, which were audited by a chartered accountant. The Tribunal held that the AO's estimation was not tenable without rejecting the books of accounts under Section 145(3) and deleted the addition of ?3,00,000.
- The Tribunal also directed the AO to verify the TDS payment for the commission paid of ?5,00,000 and allow the claim accordingly.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to verify certain facts and re-compute the deductions under Section 80IC and Section 40(a)(ia) in accordance with the law. The order pronounced on 26.04.2019 emphasizes the need for proper verification and adherence to legal provisions in computing deductions and disallowances.