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TMI Blog2017 (10) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... ble CIT (A) erred in upholding the proportionate allocation of the head office ('HO') expenses made by the Learned AO of Rs. 78,42,574, being 43.36 % of total HO expenses of Rs. 1,80,87,118 to the ioA/ioB units. 2.2 The Appellant prays that the Learned AO be directed to delete the above allocation of the HO expenses to the ioA/ioB units. III Ground No. 3 3.1 Without prejudice to Ground No. 2 above, the Hon'ble CIT (A), erred in upholding the allocation made by the Learned AO of the HO expenses without giving effect to the following adjustments under the Income-tax Act, 1961 ('the Act'): i. Allocating tax depreciation of the head office of Rs. 15,52,067 as against book depreciation of the head office of Rs. 8,73,919 to the units claiming deduction under sections 10A and 10B of the Act; ii. Allowances / disallowances under sections 40(a), 43B etc of the Act. 3.2 The Appellant prays that if Ground No 2 is dismissed, the Learned AO be directed to allocate head office expenses after giving effect of allowances / disallowances for adjustments required under the Act." 2. The assessee also filed a petition for admission of additional ground on 20-03- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. In response, the authorized representative of the assessee appeared from time to time and filed necessary details, as called for. The assessment was completed u/s 143(3) on 14-03-2013 determining total income at Rs. 50,36,30,985 inter alia making additions / disallowances towards 50% of foreign travel expenses and disallowance of deduction claimed u/s 10A / 10B of the Act. Aggrieved by the assessment order, the assessee has filed appeal before CIT(A). The assessee has filed elaborate written submissions before the CIT(A) to challenge the additions made by the AO in respect of 50% disallowance of foreign travel expenses on the ground that the assessee has incurred foreign travel expenses for its top executives, who had undertaken foreign travel in connection with its export business to discuss business strategies, for this, necessary evidence had been filed before the AO. The AO has not disputed the correctness of claim made by the AO; however, disallowed on the sole ground that the assessee has failed to file necessary proof of meeting between the employees of the assessee and its foreign clients. Insofar as disallowance of deduction claimed u/s 10A / 10B on allocation of head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident and other officials, purpose of visit, places visited, amounts spent and stated that its personnel have visited countries like Canada, UAE, Singapore and other countries for the purpose of business meetings with its clients. The assessee also furnished sample copies of vouchers along with passports and visas to justify its foreign visits by its employees. The assessee further submitted that it is in the business of export of goods and merchandise and its export turnover is more than 88% of its total turnover. He further submitted that during the financial year its export turnover has been increased to Rs. 211.79 crores as against Rs. 135.38 crores in immediately preceding year. Therefore, there is a relevance of expenditure incurred in respect of foreign travel expenses to its business receipts. Therefore, there is no reason for disallowance of foreign travel expense. The AO, after considering the explanation of the assessee has disallowed 50% of the total foreign travel expenses for the reason that the assessee has failed to submit any evidence of business meeting attended by its employees with its customers abroad. The AO further observed that though the assessee furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign travel expenses cannot be disallowed despite furnishing of evidences to prove the expenditure. The assessee further submitted that foreign travel expenditure incurred by the assessee is in relation to travelling undertaken by its vice president and top executives, who had frequently visited many countries, where the assessee is having business relationship to have necessary meetings with its clients for which all evidences have been furnished before the AO. The assessee has filed various documents including passports / visas of the employees, who travelled and also sample copies of vouchers which clearly indicate the purpose of visit. Therefore, the AO was incorrect in disallowing adhoc 50% foreign travel expenses. 11. Having heard both the sides, we find force in the arguments of the assessee for the reason that merely because no evidence has been filed to establish foreign travel undertaken by its executives to attend meetings with its clients, foreign travel expenses incurred by the assessee cannot be disallowed on adhoc basis despite furnishing of evidences. The AO has not pointed out any incorrect claim made by the assessee. The AO has accepted the fact that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover of the units. According to the AO, the assessee has parked its head office expenses for the units generating taxable income without any valid reasons for not allocating expense to the units claiming exemption u/s 10A / 10B. The assessee claims that head office expenditure in no way connected to the units claiming exemption u/s 10A / 10B and the units are functioning independently. Therefore, the AO was incorrect in allocating head office expenses to the units claiming exemption u/s 10A / 10B. We do not find any merits in the arguments of the assessee for the reason that on perusal of the details of expenditure incurred by the assessee it is difficult to accept explanation of the assessee that head office expenditure has no relevance to the units claiming exemption u/s 10A / 10B. The assessee is having four units based at various locations which were controlled through its headquarter. The expenditure incurred by head office like travel and conveyance, communication expenses, legal and professional charges and rates and taxes definitely is having relevance to its total business. Therefore, we are of the view that the AO was right in allocating head office expenses to the unit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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