2018 (1) TMI 781 - AT - Income Tax

Method of working out of profits eligible for deduction u/s 80IVA(4)(iv) - Allocation of indirect expenditure to the unit of power generation for the purpose of computing deduction u/s 80IA(4)(iv) - Held that - As decided in the case of Tide Water Oil Co.(India) Ltd. 2011 (11) TMI 451 - CALCUTTA HIGH COURT expenses which are directly related to units should be allocated to that particular unit.In the present case, the AO has applied the turnover key for allocation of common expenditure. We do not find any fallacy in application of turnover key for apportionment of common expenditure as turnover key is held to be good key for allocation of common expenditure. Hence, the ground of appeal is dismissed. Addition on account of prior period expenditure - CIT(A) has deducted prior period income From prior period expenditure - Held that - the approach of the CIT(A) is against the basic Principles governing allowbility of prior period expenditure. It is trite law that expenditure which is crystallized during the previous years relevent to assessment year under consideration should be allowed as deduction, different principle govern taxing prior income. Therefore, deducting prior period income From prior period expenditure is against well settled principles of law. Therefore, we remand this issue back to the file of the AO with a direction that after examining evidence filed before the CIT(A) to allow prior period expenditure, if liability of expenditure had occurred/crystallised during the previous year relevant to year under consideration and also to tax prior period income. Keeping in view the salutary principle of law income of the year alone should be taxed.

Summary

Issues Involved:
1. Allocation of indirect expenditure for computing deduction under Section 80IA(4)(iv) of the Income-tax Act.
2. Disallowance of prior period expenditure.
3. Levy of interest under Sections 234B and 234C of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Allocation of Indirect Expenditure for Deduction under Section 80IA(4)(iv):
The primary contention was whether the indirect expenditure should be allocated to the power generation unit for computing profits eligible for deduction under Section 80IA(4)(iv) of the Income-tax Act. The assessee argued that corporate expenses should not be allocated to the power generation unit, citing various judicial precedents. Conversely, the revenue maintained that such allocation was necessary. The Tribunal upheld the principle of allocation of common expenditure, referencing the High Court of Calcutta's decision in Tide Water Oil Co. (India) Ltd., which supported the allocation of expenses directly related to the unit. The Tribunal found no fault in the Assessing Officer’s (AO) use of the turnover key for this allocation, dismissing the assessee's appeal on this ground.

2. Disallowance of Prior Period Expenditure:
For assessment year 2009-10, the CIT(A) confirmed the addition of ?8,06,831 out of the total disallowed prior period expenditure of ?27,00,464. The Tribunal upheld this decision. For assessment year 2010-11, the CIT(A) reduced the disallowance from ?12,97,843 to ?1,20,864, which was contested by the revenue. The Tribunal remanded this issue back to the AO to verify whether the liability for the expenditure crystallized during the relevant year. For assessment year 2011-12, the Tribunal upheld the allocation of ?59,79,638 towards income from the power generation business, following the same reasoning as in previous years.

3. Levy of Interest under Sections 234B and 234C:
The assessee contested the levy of interest under Sections 234B and 234C, arguing that it should not be liable. However, this ground was not specifically adjudicated by the Tribunal, as it was deemed general in nature.

Separate Judgments:
The judgment was delivered as a common order for the appeals concerning assessment years 2009-10, 2010-11, and 2011-12, without separate judgments by different judges.

Conclusion:
The appeals filed by the assessee for all three assessment years were dismissed, upholding the allocation of indirect expenditure and the disallowance of prior period expenditure as determined by the CIT(A). The revenue's appeal was partly allowed for statistical purposes, with the matter of prior period expenditure remanded back to the AO for verification.