2022 (7) TMI 680 - AT - Income Tax

Deduction u/s 80IB - allocation of common expenses between exempted and non-exempted units are not accepted - HELD THAT - CIT (A) has erred inasmuch as the decision in the case of Goetze India Ltd. ( 2006 (3) TMI 75 - SUPREME COURT which is fully applicable on the facts of the case wherein proper and due revised return was held to be sine qua non for acceptance of the revised claim and it was clearly held that CIT (A) has no power to make any such concession stop. However, in the same order, it was held that the order in this case does not impinge upon the powers of the ITAT to admit and adjudicate upon grounds raised otherwise then by proper revised return. We direct that the revised claim is to be admitted and adjudicated upon by the AO. However, we note that in the assessment order framed qua deduction u/s 80IB, AO only dealt with and allowed the claim and discussed on merits only that aspect of claim under section 80IB which were mentioned in the original claim. However, as regards the revised claim, the merits have not been gone into by the AO and he has rejected the claim as unadmitted. CIT (A) has admitted the claim and decided the issue very laconically placing reliance upon several case laws. There is no discussion in the order of ld. CIT (A) as to who has examined the factual aspect of the case. He simply accepted the statement of the assessee and passed the same as his own order relying upon the case laws and proposition. Even after, referring to the decision in the case of Liberty India ( 2009 (8) TMI 63 - SUPREME COURT which expounded that indirect expenses which do not have any direct nexus with the undertaking cannot be deducted in computing the profit of the undertaking. He went on to accept that the assessee has been able to establish the direct nexus between income and expenses of the industrial units situated at Samba and Udhampur. He also noted that it is also argued that the indirect and head office expenses have been excluded from allocation amongst exempt and non-exempt units. Based on such reasoning, he has directed the Assessing Officer to re-compute the taxable income. We find that the above exhibits lack of proper application of mind. Without referring to any factual material on the basis of arguments and submissions, ld. CIT (A) has given finding on factual aspects which is not sustainable in law. As held in the case of Kapurchand Shrimal 1981 (8) TMI 2 - SUPREME COURT it is the duty of the appellate authority to correct the errors in the orders of authorities below and remand the matter for re-adjudication with or without direction unless prohibited by law. Accordingly, in the interest of justice, we remit this issue to the file of AO. AO shall examine the grounds which are rejected by him by duly considering the merits of the case, factual aspects and case laws in this regard. Appeal of the Revenue stands allowed for statistical purposes.

Summary

Issues Involved:
1. Reduction of claim under Section 80IB.
2. Allocation of R&D expenses to exempt and non-exempt units.
3. Acceptance of revised computation of income.
4. Treatment of excise duty refund as capital receipt.

Issue-wise Detailed Analysis:

1. Reduction of claim under Section 80IB:
The Revenue contended that the CIT(A) erred by not appreciating that the reduction of the assessee's claim under Section 80IB was based on the assessee's own working, which had been accepted in a previous assessment year (AY 2006-07). The Assessing Officer (AO) had examined the R&D expenditure and observed that the assessee had allocated expenses between units but claimed the entire R&D expenses for units not eligible for Section 80IB deduction. Consequently, the AO reduced the deduction claimed under Section 80IB by reallocating 25% of the R&D expenses to the exempt units, resulting in a reduced allowable deduction.

2. Allocation of R&D expenses to exempt and non-exempt units:
The AO determined that 25% of the R&D expenses should be allocated to the exempt units at Samba and Udhampur, thereby reducing the deduction claimed under Section 80IB. The assessee argued that the R&D expenses were incurred solely for products manufactured at non-exempt units. The CIT(A) accepted the assessee's submission, noting that the allocation of expenses should be based on the direct nexus between income and expenses of the industrial units.

3. Acceptance of revised computation of income:
The AO rejected the assessee's revised computation of income, which included a modified deduction under Section 80IB and allocation of common expenses, citing the Supreme Court's decision in Goetze India Ltd. that disallowed amendments to the original return without filing a revised return within the statutory period. The CIT(A), however, accepted the revised computation, directing that the excise duty refund be treated as capital receipts and the modified deduction under Section 80IB be accepted.

4. Treatment of excise duty refund as capital receipt:
The AO noted that the assessee had claimed the excise duty refund as a capital receipt in the revised computation, contrary to its treatment as revenue receipts in previous assessments. The CIT(A) agreed with the assessee, citing various judicial decisions, and directed that the excise duty refund be treated as capital receipts, thereby modifying the deduction under Section 80IB.

Conclusion:
The ITAT found that the CIT(A) erred by not adhering to the Supreme Court's decision in Goetze India Ltd., which requires a revised return for acceptance of modified claims. The ITAT remitted the issue back to the AO for re-examination, directing the AO to consider the merits, factual aspects, and relevant case laws, and to provide the assessee with an adequate opportunity to be heard. The appeal of the Revenue was allowed for statistical purposes.