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2022 (7) TMI 546 - AT - Income TaxRectification u/s 154 - excess claim of deduction u/s. 80IB and 80IC needs to be disallowed - allocation of corporate overhead to tax holiday units - HELD THAT - AO passed the order on 04.01.2016 u/s.154 and he disallowed the excess claim of deduction in respect of Yanam unit and Baddi Unit. The assessee is running four units, which are eligible for deduction/exemptions as per u/s.10B, 80IB and 80IC. Assessee has vehemently submitted that there was a debatable issue to which the rectification cannot be made u/s 154 is not acceptable because, the corporate expenditures are not related only for the corporate office, the expenditure are relating to the controlling and managing of the entire business of the assessee, whether it is a exempted unit or non exempted unit. Therefore, the expenditures should be apportioned among the all business units of the assessee for true computation of the taxable profit. The assessee has not apportioned but the revenue authorities consistently apportioned the corporate expenditures. The assessee have four units out of which in two units, the assessee has not allocated the corporate expenditures. Considering the entire set of facts, we observed that there was no debatable issue involving in this case. Accordingly, the order passed by the AO is correct as per section 154 - Respectfully following the above judgment of the Coordinate Bench 2017 (1) TMI 1390 - ITAT HYDERABAD in assessee's own case, the alternate plea of the assessee is accepted. Accordingly, we direct to the AO for disallowances of excess claim of deduction of exempted units has to be calculated as per para No.64 cited (supra). Accordingly, the appeal of the assessee is partly allowed.
Issues Involved:
1. Whether the allocation of corporate overhead to tax holiday units is a debatable issue and whether it can be rectified under section 154 of the Income Tax Act. 2. Whether the Assessing Officer (AO) erred in passing the rectification order under section 154. 3. Whether the CIT(A) correctly applied the ruling of ITAT for previous assessment years to the current assessment year. 4. Whether the CIT(A) failed to consider the grounds of appeal raised by the assessee. Issue-wise Detailed Analysis: 1. Allocation of Corporate Overhead to Tax Holiday Units: The primary issue raised by the assessee was the allocation of corporate overheads to tax holiday units claiming deductions under sections 80IB and 80IC. The assessee argued that this allocation is a debatable issue and should not be rectified under section 154, which is meant for correcting apparent mistakes. The AO had issued a notice under section 154, proposing to rectify the order by allocating corporate overheads based on the turnover of each unit. The AO observed that the assessee had not allocated corporate overhead expenses to the eligible units and thus claimed excess deductions. 2. Rectification Order under Section 154: The AO passed the rectification order under section 154, disallowing the excess claim of deductions for Yanam and Baddi units. The assessee contended that the AO was reviewing the assessment order in the guise of rectification, which is not permissible under section 154. The assessee cited various court rulings to support the argument that a debatable issue cannot be rectified under section 154. However, the AO and CIT(A) held that the failure to allocate corporate overheads was a mistake apparent from the record and could be rectified under section 154. 3. Application of ITAT Ruling for Previous Assessment Years: The CIT(A) applied the ITAT's ruling for previous assessment years (2003-04 to 2006-07) to the current assessment year (2007-08). The ITAT had previously held that corporate overheads should be allocated to all units based on their turnover. The CIT(A) and AO followed this precedent, stating that the failure to allocate corporate overheads was a mistake apparent from the record. The ITAT had directed the AO to apportion the expenditure on the basis of turnover, which was not done in the original assessment order. 4. Consideration of Grounds of Appeal by CIT(A): The assessee argued that the CIT(A) did not consider all the grounds of appeal raised but confined himself to the issue of allocation of corporate overheads. The CIT(A) focused on the allocation of corporate overheads and upheld the AO's rectification order. The assessee contended that the CIT(A) should have addressed all the grounds raised in the appeal. Conclusion: The ITAT upheld the rectification order passed by the AO under section 154, stating that the failure to allocate corporate overheads was a mistake apparent from the record and could be rectified. The ITAT directed the AO to allocate the net corporate overhead expenditure among all units based on their turnover, following the ITAT's previous rulings. The appeal of the assessee was partly allowed for statistical purposes, directing the AO to calculate the disallowance of excess claims as per the ITAT's directions. The ITAT concluded that there was no debatable issue involved, and the rectification under section 154 was justified.
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