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TMI Blog2018 (4) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... cost is incurred at the head office and is not capable of being identified with any of the units which are running by the assessee. It is only because of this difficulty that the Assessing Officer and the assessee resorted to allocation of residual cost. When it comes to allocation of residual cost, it cannot be done arbitrarily. The allocation should have due regard to the efforts put at the head office level to be eligible. That can be done only by allocation on the basis of number of employees linked to factory operation divided by total number of employees into corporate office into sales of the eligible units divided by total sales. This allocation of residual cost done by the assessee was logical - Decided against revenue - I.T. A No. 2138/Kol/2009, I.T. A No.33/Kol/2010 - - - Dated:- 20-4-2018 - Shri N. V. Vasudevan, JM And Dr. A. L. Saini, AM Appellant by : Shri J. P. Khaitan,Sr. Advocate Respondent by : Shri G. Mallikarjuna, CIT-DR ORDER Per Dr. Arjun Lal Saini, AM These captioned cross-appeals filed by the assessee and Revenue, pertaining to Assessment Year 2005-06, is directed against an order passed by the Commissioner of Income Tax(Appeals)-XI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such corporate office residual cost with reference to the number of employees at the corporate office whose work was directly linked to the manufacturing activities. Such residual cost allocated to the manufacturing activities was thereafter further allocated to the eligible units on the basis of turnover. 3.Your petitioner states that the Assessing Officer, overlooking the fact that the bad debts written off related to non-eligible units for business carried on prior to the coming into existence of the eligible units, allocated such bad debts also to the eligible units in the ratio of sales. On appeal, the Commissioner of Income Tax (Appeals) affirmed the said action of the Assessing Officer. In such circumstances, your petitioner in its appeal against the order dated September 23, 2009 of the Commissioner of Income Tax (Appeals), being ITA No. 2138/Kol/2009, had taken the following ground:- Ground No. 3:- That, on the facts and in the circumstances of the case, the Ld. CIT(A) erred in upholding the action of AO in allocating bad debts written off to units eligible for deduction under sections 80IB 80IC of the Act, without appreciating the fact that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s prayer for verification by the Assessing Officer. 6. Your petitioner states that in respect of Ground no. 2 of the revenue s appeal regarding allocation of corporate office residual cost, the learned CIT (DR) only relied upon the order of the Assessing Officer and did not make any other submission. As such, on behalf of your petitioner, reliance was placed on the order of the Commissioner of Income Tax (Appeals). 3. This appeal was initially heard by this Tribunal and Ground No.3 raised by the assessee and Ground No.2 raised by the revenue were set aside to the Assessing Officer for fresh assessment. The assessee filed M.A No.73 74/Kol/2017 and pointed out certain apparent errors in the order of the Tribunal dated 06.01.2017. By an order dated 15.09.2017 in M.A No.73 74/Kol/2017 of this Tribunal, in its order dated 06.01.2017 in so far as it relates to Ground No.3 raised by the assessee, in its appeal and Ground No.2 raised by the revenue in its appeal, were recalled. Thereafter, this appeal was listed for hearing on Ground No.3 in assessee s appeal and Ground No.2 in revenue s appeal. 4. As far as Ground No.3 raised by the revenue is concerned, it is seen th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee these expenses primarily relates to the corporate office of the company. The benefit of which is derived by the whole organization including the eligible units, the allocation of cost incurred on account of residual cost among eligible and non-eligible units should have to be done in the ratio of eligible workers of eligible undertakings to the total number of workers across all the manufacturing units. The Assessing Officer, however, was of the following views: Regarding the issue of bifurcation of residual cost as has been discussed in detail in the earlier part of the order, the assessee has not applied the provisions of section 80IB of the Act properly especially sub-section (5) thereof which dearly states that the profit of the eligible unit has to be determined as if this is the only source of income of the assessee. The profit of the eligible unit has to be calculated in such a way as if this is the only source of income of the assessee. The relevant portion of the Section is reproduced as under- (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Moreover, the assessee's arguments that the accounts of the company are audited does not have a bearing on the deduction being claimed u/s 80IB/IC of the Act. The income-tax Act specifically provides that the profits of these undertakings is required to be computed in the manner as if these are independent and only source of income of the assessee company. This effect has probably not been given by the auditor who has filed the accountants report along with claim of deduction. This is also proved by the fact that this has not been mentioned by the auditor who has submitted the accountants report as per the provisions of section 80IB/IC as to the procedure for bifurcating the expenditure for the eligible units. In view of this, there is no force in the assessee s arguments and the same are rejected. The assessee was asked to furnish the revised working after allocating the residual cost in the manner as detailed above which was submitted by the a vide letter dated April 11, 2008 and made part of this order as Annexure A of this order. 6. On appeal by the assessee, the CIT(A) accepted the basis of apportionment of the residual cost as made by the assessee with the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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