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2013 (7) TMI 409 - AT - Income TaxDeduction u/s 10A - assessee has claimed deduction from its STP unit admitting its inability to bifurcate and provide the P/L Account of the units - as per AO assessee has booked all the expenses which should have been allocated to all units in the non-STP units only thereby increasing the profits of the Unit which claimed exemption - Since loss deduction u/s 10A was not allowed similar adjustment was also made u/s 115JB - Held that - As seen from the 10A report submitted, the profits are arrived at notional basis having regard to the information and explanation given by the company and also relied on companies representation that approximately 24.2 sq.mtr. of area of the second floor was occupied by the STP unit. The report also qualifies that they relied upon the data submitted by the assessee to STP Bangalore and some of the other costs were also taken on the basis of the exertions made by the company. Even the current year s addition to fixed assets have been allocated to STP/non-STP units on the basis of area for which these are procured. Further, in note No. 9 it was also qualified that the Auditors are relied upon assessee s representations that Bangalore unit is self-sufficient unit and therefore no portion of common expenses are need to be attributed thereto in computing profits of the unit. These notes to the audit report do indicate that the claim of the assessee was not based on any reliable data while claiming the deduction. Even before the CIT(A) alternative submission was made that the profit that could be said to be derived would be at Rs.4,21,21,410/- as against Rs.5,25,96,228/- shown in the return of income. These indicate that the basis for arriving at the profit by the assessee is not correct and cannot be accepted at face value. Therefore allocation of expenses on the basis of the turnover made by the CIT(A) is reasonable and has to be upheld. Even though assessee tried to explain allocation of expenses made by the company including the past losses in other units, in the absence of any direct allocation of expenditure and preparation of separate P& L account of the unit reject assessee s ground.
Issues:
Determination of profits eligible for deduction under section 10A. Analysis: The appeal concerns the determination of profits eligible for deduction under section 10A. The assessee claimed a deduction from its STP unit, but the AO questioned the claim's correctness. The AO noted abnormal profits in the unit claiming exemption compared to other units, leading to suspicion of expenses being allocated only to non-exempt units. Consequently, the AO reallocated expenses resulting in a loss for the STP unit, disallowing the deduction under section 10A. The CIT(A) reviewed the case and disagreed with the assessee's method of expense allocation, directing reallocation based on turnover ratios. The revised profit for the STP unit was determined at Rs.2,05,53,072, leading to partial allowance of the appeal. Additionally, adjustments under section 115JB were contested, with the AO disallowing certain expenditures related to income under section 10A. The authorized representative argued that these adjustments were consequential. The CIT(A) upheld the AO's decision, resulting in the dismissal of the appeal. The assessee's counsel reiterated detailed submissions regarding expenditure allocation, emphasizing the direct nexus of profits derived from specific activities. Legal principles, including the distinction between 'derived from' and 'attributable to,' were highlighted. The counsel objected to turnover-based expense allocation and explained the differences in cost structures between units. On the other hand, the D.R. supported the AO's decision, citing discrepancies in the 10A audit report and endorsing turnover-based allocation due to the absence of direct expenditure allocation. Upon examination, the Tribunal found the assessee's profit calculation lacked reliable data and accepted the CIT(A)'s turnover-based expense reallocation as reasonable. Despite the counsel's explanations, the absence of direct expenditure allocation and separate P&L accounts for units led to upholding the CIT(A)'s decision. The Tribunal deemed the CIT(A)'s order as the only viable option given the circumstances, ultimately dismissing the appeal.
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