2012 (10) TMI 360 - AT - Income Tax

Claim of deduction u/s 10-B - re computation by allocating proportionate Managing Director s remuneration debited to non-eligible units of the assessee company to the eligible unit - Held that - Under the provisions of section 10B the deduction is to be allowed on such profits & gains of business which are derived by 100% export oriented undertaking and in order to determine the profits & gains of the eligible units, all expenditure relatable to such units are to be deducted for computing the eligible profits. The remuneration paid to the Managing Director being common expenditure between the eligible units and the non-eligible unit run by the assessee company need to be allocated in order to determine the eligible profits of business under section 10B - against assessee.

Summary

Issues:
1. Disallowance of expenses for club subscription.
2. Reduction of deduction under section 10B of the Income Tax Act.
3. Interest charged under section 234-C.

Issue 1: Disallowance of Club Subscription Expenses:
The appeal concerned the disallowance of expenses amounting to Rs. 1900 for club subscription by the Commissioner of Income Tax (Appeals)-II, Ludhiana for the assessment year 2007-08. The appellant argued that the expenses, though related to the previous year, were crystallized and paid during the year under consideration. However, the appellant withdrew this ground during the appeal, leading to its dismissal.

Issue 2: Reduction of Deduction under Section 10B:
The primary issue in the appeal was the computation of deduction under section 10B of the Income Tax Act. The appellant, a company engaged in manufacturing and trading, claimed deduction under section 10B for two units - one at Lalru and another at Jalalpur. The dispute arose when the Assessing Officer reallocated expenses, including Managing Director's remuneration, to the eligible units, impacting the deduction calculation. The appellant contested this reallocation, emphasizing no inter-unit transfers and separate accounting for each unit. However, the Assessing Officer's reallocation was upheld by the CIT (Appeals), leading to the appeal. The appellant argued against the reallocation, citing relevant legal provisions and precedents. The Tribunal examined the provisions of section 10B and related sections, concluding that allocation of common expenses, like Managing Director's remuneration, to determine eligible profits for deduction was justified. Consequently, the appeal against reallocation of expenses and deduction computation was dismissed.

Issue 3: Interest Charged under Section 234-C:
The appellant contested the interest charged under section 234-C amounting to Rs. 5901046, arguing that the relevant income of Industrial Units accrued only on a specific date due to a High Court order. The appellant sought a reduction in interest to Rs. 63574 or any other justified figure. However, the appellant withdrew this ground during the appeal, resulting in its dismissal.

In summary, the Tribunal's judgment addressed the disallowance of club subscription expenses, the reallocation of expenses impacting deduction under section 10B, and the interest charged under section 234-C. The Tribunal upheld the reallocation of common expenses to determine eligible profits for deduction under section 10B, leading to the dismissal of the appeal.