2010 (5) TMI 15 - HC - Income Tax

Deduction u/s 80HHB - The Revenue was of the view that the assessee had failed to attribute any head office expenses to the foreign branches of the assessee company and that the Assessing Officer has correctly estimated an amount of Rs 1.5 crores relating to the Assessment Year 2003-04 and Rs 1 crore relating to the Assessment Year 2004-05 as being the expenditure attributable to the foreign projects and consequently made an addition of Rs 30 lakhs in respect of the Assessment Year 2003-04 and a sum of Rs 20 lakhs relating to the Assessment Year 2004-05. - The second issue relates to the addition of Rs 10 lakhs made by the Assessing Officer on account of the expenditure allegedly incurred by the assessee on behalf of other companies alleged to have been in occupation of the building taken on lease by the assessee. Held that The manner in which the Assessing Officer has come to the computation of Rs 1.5 crores and Rs 1 crore as being attributable to the foreign projects is not at all based on facts or any logic. But, at the same time, as pointed out above, it is undeniable that some part of the head office expenses are to be attributed to the foreign projects matter remanded back regarding second issue we are of the view that the finding of the Tribunal that no evidence had been brought or found to show that the assessee had incurred any expenditure in relation to any other companies is contrary to the record and requires re-consideration tribunal order set aside matter remanded back

Summary

Issues:
1. Disallowance of deduction under Section 80HHB of the Income Tax Act, 1961.
2. Addition of expenditure allegedly incurred on behalf of other companies.

Issue 1: Disallowance of deduction under Section 80HHB:
The case involved appeals concerning Assessment Years 2003-04 and 2004-05, arising from the Income Tax Appellate Tribunal's order. The primary issue was the disallowance of deduction under Section 80HHB due to the failure of the assessee to attribute head office expenses to foreign branches. The Assessing Officer estimated amounts attributable to foreign projects, leading to additions of Rs 30 lakhs and Rs 20 lakhs for the respective years. The Tribunal found the disallowance unjustified as it was based on presumption without factual basis. The High Court acknowledged the need to attribute some head office expenses to foreign projects but remanded the matter to the Assessing Officer for a rational computation based on facts.

Issue 2: Addition of expenditure on behalf of other companies:
The second issue revolved around the addition of Rs 10 lakhs by the Assessing Officer for alleged expenditure incurred on behalf of other companies sharing the same building. The Tribunal noted the lack of evidence supporting the Assessing Officer's claim and the absence of proof that the assessee incurred expenses for other companies. The High Court found the Tribunal's finding contradictory to the record as the assessee admitted to other companies operating in the leased space and paying rentals. Consequently, the matter was remitted to the Assessing Officer for a re-computation based on concrete evidence, with directions to provide consequential benefits to sister companies if applicable. The High Court emphasized the importance of factual evidence in making such additions.

In conclusion, the High Court addressed the issues of disallowance under Section 80HHB and addition of expenditure for other companies, emphasizing the need for factual basis and rational computation in tax assessments. The judgments provided clarity on the requirements for attributing expenses and making additions based on concrete evidence, ensuring fair treatment for taxpayers and related entities.