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TMI Blog2017 (1) TMI 1203X X X X Extracts X X X X X X X X Extracts X X X X ..... 55,473/- for A.Y. 2008-09 and the tax effect in ITA No. 1074/Ahd/2013 is Rs. 8,53,024/- for A.Y. 2009-10. 4. Both these appeal have to be dismissed in the light of the CBDT Circular No. 21 of 2015 dated 10.12.2015. 5. In the light of the aforementioned CBDT Circular, both the appeals of the Revenue are dismissed. ITA No. 1086 & 1087/Ahd/2013 for A.Y. 2008-09 & 2009-10 Assessee's appeal 6. The common grievance in the impugned appeals relate to the allocation of Managerial Commission and salary and wages in the ratio of turnover to the Silvassa Unit-I and II. 7. Briefly stated the facts of the case are that the assessee company has claimed deductions u/s. 80IB in respect of two units at Silvassa as under:- Unit-I : Rs. 469,11,370/- (30% of the profit) Unit-2 : Rs. 842,25,227/- (100% of the profit) 8. Apart from these two units the assessee company has three other units at Atladwra, Ekalbara and Bhiwandi. 9. Comparing the profitability of all these five units, the A.O. was of the opinion that proportionate expenses should be apportioned to these units. Therefore, the assessee was asked to explain and justify the claim and also to explain why proportionate expenses should n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also other contributions to various funds. 15. The ld. counsel vehemently stated that while computing the profits and gains of the concerned undertaking, only expenses relating thereto can be deducted. The expenses attributable to any other unit or the head office expenses which have no relevance to the industrial undertaking cannot be deducted in respect of the said undertaking while computing the profits and gains of the undertaking. 16. The ld. counsel further stated that invoking the provisions of Section 80IA(5) r.w.s 80IB(13) is erroneous in law. 17. Per contra, the ld. D.R. strongly supported the findings of the revenue authorities. 18. We have given a thoughtful consideration to the orders of the authorities below. The factual matrix of the allocation of expenses by the assessee has already been exhibited elsewhere. In our considered opinion, only those expenses which have direct nexus with carrying on activity of undertaking has to be reduced for determining the quantum of deduction and those expenses which have indirect or remote nexus should not be deducted. For this proposition, we derive support from the decision of the Co-ordinate Bench Delhi in the case of Catv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the common expenses be apportioned among the various units depending on the turnover. We do not find that the above stated decisions would be of any assistance to the Revenue, particularly the decision of the Apex Court. 4. A reading of the Apex Court decision reported in 248 ITR 432 CONSOLIDATED COFFEE LIMITED v. STATE OF KARNATAKA shows that it relates to the claim under the Karnataka Agricultural Income Tax Act, 1957 and a specific rule framed in 1957. The Apex Court referred to Rule 7 of the Karnataka Agricultural Income Tax Rules, which reads as follows:- "Computation of deduction on mixed income where a deduction in respect of any item admissible under Section 5 or under rule 5, is a common charge incurred for the purpose of deriving agricultural income assessable under the Act, and income chargeable under the Indian Income Tax Act, 1922, the deduction admissible under the Act shall be the actual amount relating to the income derived from agricultural operations and proved by accounts or other conclusive evidence. Where no such accounts or evidence is produced the Agricultural Income Tax Officer shall proceed to assess the income to the best of his judgment." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of deduction. 21. The Hon'ble High Court of Bombay in the case of Zandu Pharmaceutical Works Ltd. in Tax Appeal No. 8 of 2007 was seized with the following question of law. "Whether Tribunal was justified in confirming the allocation of research and development expenses incurred by the head office among the four manufacturing units on the presumption that the expenditure so incurred was for the benefit of these manufacturing units?" 22. And the Hon'ble High Court held as under:- * The head office and each of the units have their own separate R&D departments, including laboratories. The R&D work related to the development of new medicinal products. None of the units manufactured these products. The manufacturing activities carried on at the units did not pertain to the new drugs developed/to be developed by the said R&D activities. [Para 5] * It is not the respondent's case that any of the units had benefited by the said R&D activities pertaining to the new drugs or had utilized the resultant benefit thereof, if any, in any manner whatsoever. It is not the respondent's case that the assessee manufactured the said new drugs through or even with the assistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit-I & II as evident from the two Audit Reports exhibited at pages 7 to 19 and 20 to 33 of the paper book. A perusal of the orders of the authorities below shows that the allocation of expenses have been made more out of compulsion then out of necessity. In our considered opinion and the understanding of the facts, the A.O. has not pointed out any flaw or defect in the allocations statement exhibited elsewhere. We find force in the contention of the ld. counsel that the Managerial Commission cannot be allotted to the Silvassa unit. We also agree that only expenses relating to the concerned undertaking should be deducted from the profits thereon. In the absence of any direct nexus brought on record by the revenue authorities for the impugned allocation of expenses, we do not find any merit in the said allocation. We, accordingly, direct the A.O. to delete the allocations re-drawn by him. This grievance is accordingly allowed. 24. The second grievance relates to the double allocation of Managerial Commission. The ld. Counsel brought to our notice that the assessee has allocated common expenses to the profits of Silvassa unit while computing deduction u/s. 80IB which included manage ..... X X X X Extracts X X X X X X X X Extracts X X X X
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