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TMI Blog2024 (5) TMI 1559X X X X Extracts X X X X X X X X Extracts X X X X ..... gulatory compliances with such fact of cost center basis and transaction linked evidences & supporting confirming the said cost center basis accounting. ii. Wrongly alleging in the process without going into the back ground facts of the case that the assessee to have adopted the allocation / apportionment of expenses only at such time and stage when attention with respect to not similarly apportioning expenses under some minor expense heads such eligible units in the course of the assessment proceedings, however while doing so on the basis of unit wise turnover, ignoring the fact that the assessee having already done its accounting on 'cost center Basis' both in respect of direct cost and expenses as well as in respect of material indirect expenses on the basis of a logical mathematical calculation applied to factual transaction data. 2. The Learned CIT(A)- NFAC, Delhi bye passing the sanctity of audited books of accounts which having been maintained in regular course of business on the basis of actual transaction values supported by underlying supporting documents which having been subjected to audit and ratified by an independent firm of auditors of repute and senio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all to Rs. 36,36,581/- or 6.97% of the total expenses under Four Expense Accounts Groups out of the total direct and indirect expenses groups amounting in all to Rs. 5,21,82,928/- and based on the bias arising on account of such faulty approach, disregarding the entire cost center basis accounting supported by underlying documents having already been carried out at the time of occurrence of the transaction to reflect the true correct commercial profits of each unit considering the same as an independent Unit. [Section 10AA] 5. The learned AO has further erred in law and on facts in wrongly calculating Higher tax by Rs. 96,35,163 and Interest under different sections of the act totaling in all to Rs. 45,15,671 additionally payable by the assessee firm based on such aforesaid wrong approach and application of law in the impugned order. [ General Ground] 6. The assessee reserves its rights to raise additional grounds of appeal or alter or modify any ground/s of appeal before the date of hearing of appeal. [General Ground]" 3. Succinctly, the fact as culled out from the records is that the return in this case was filed on 17.10.2016 declaring a total income of Rs. 3,82,48,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, the ld. AO did not consider the submission of the assessee and has based on the percentage of 62 to non eligible unit and 38% to eligible unit the apportioned the expenditure without appreciating the basis of the assessee for allocation of expenses and thereby addition of Rs. 1,57,63,792/- was made in the hands of the assessee. 4. Aggrieved from the order of the assessment, assessee preferred an appeal before the ld. CIT(A)/NFAC. Apropos to the grounds so raised the relevant finding of the ld. CIT(A)/NFAC is reiterated here in below: "5. I have gone through the assessment order and the submissions made by the appellant. Ground No. 1 to 3 are all relating to addition made by the AO to the income of the non-eligible units by treating the expenditure debited in non-eligible units pertaining to the eligible units u/s. 10AA of the Act. The facts of the case are that the appellant is having four units in all, out of which two units are SEZ units and other two are normal units. The contention of the AO in making the addition is that out of the total turnover of the appellant of Rs.44.97 crore, 63% turnover is from non-eligible units and only 37% of the turnover is from eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y allocated so as to claim more relief under Section 80IB of the Act. Thus, the Courts have held that the assessees have to maintain proper records to show that the allocation of expenditure has been done appropriately between the units else the assessing officer can make proper allocation which may result in addition to the income declared. In the instant case, as seen from the assessment order, the appellant has not given the proper allocation between the eligible units and non-eligible units which has resulted in the AO making addition. 5.2 During the appellate proceedings, the appellant has given various reasons for non- allocation of indirect expenses to the eligible units. The reasons being independent operations, independent material movement, independent stock records, customs controls etc. However, these reasons are not convincing as to why the indirect expenses cannot be debited on proportionate basis to the eligible units and why they are to be debited only in the non-eligible units. Even the appellant stated that the actual finance cost incurred by the main unit (non-eligible unit) for the eligible units is Rs.20,39,923/-. Then the question arises as to why this amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Paper Book] that all material/ major expenses have been accordingly booked and accounted for on voluntary basis by the appellant firm. 3. Accordingly, the AR outright refutes and rejects the findings by the CIT(A)/ NFAC in his Order dt. 23.08.23 in Para 5.2. at Page 14 holding as under to be factually incorrect and wrong, misleading and solely directing to a baseless bias in the mind of the CIT(A): ".... Even the appellant stated that the actual finance cost incurred by the main unit (non-eligible unit) for the eligible units is Rs. 20,39,923/-. Then the question arises as to why this amount was not allocated to the eligible units before filing the return and why this plea is taken only when the AO has made the addition. At the same time, it is seen that the appellant does not have a proper system of allocation of indirect expenses against all the units by applying proper criteria of using particular facility or on the basis of turnover etc. When the appellant has not done the allocation by applying proper criteria, the AO was constrained to apply the criteria of turnover which resulted in the allocation and addition. The submissions made by the appellant are not at al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... body of the impugned CIT(A)'s Order dt. 23.08.23 itself at Pages 8 to 10 and closed in the following manner at the top of page 10 of the CIT(A)'s Order: x. Average rate of the two assumed for applying to Funds used by the Two SEZ Units calculated on daily product basis as per working sheet attached Marked Annex. 11 @ 13% xi. Interest applied to SEZ- G1_41 Unit & Rs. 12,91,094 xii. Interest applied to SEZH1-72 Units Rs. 7,48,829 xiii. Total Interest as above correspondingly credited in Main Unit Rs. 20,39,923 Rs. 20,39,923 The aforesaid working at Annex.11 was explained to the AO and working sheet for determination of 2 SEZ Units cost of funds @ average rate of 13% was shared with the AO in the course of assessment proceedings, but was ignored without giving any adverse finding w.r.t. the same as to why same not considered. (Annex. 7-10) Further extracts from the order dt. 23.08.23 of CIT(A): From Page 10.....Manufacturing Exp. .. these expenses primarily represents Labour Charges paid to Job Workers on work basis booked separately for each nature of processing / manufacturing separately at each Unit f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oportion considered by the AO in her Order 62.00% Together 38% From Page 13..... Para 5. "............................... The AO held that the indirect expenses such as travelling, administrative and selling expenses, export expenses etc. should have been allocated between the eligible units and non-eligible units in proportion to their turnover. However, it was found by the AO that most of the indirect expenses have not been apportioned on the basis of the turnover............................... ............. Hence, the AO has apportioned various indirect expenses in Table - II reproduced on page 3 & 4 of the assessment order wherein all the indirect expenses which should have been apportioned on the basis of the turnover / income earned and has worked out that the indirect expenses to the tune of Rs. 1,57,63,792/- has been allotted in excess to non-eligible units and which actually should have been allocated to eligible units." 6. From all the aforesaid, the Groupings of the Profit & Loss A/c ; maintaining separate books of accounts at the respective location of the respective units, maintenance of separate stock register Unit wise at respective loca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f mind made by the CIT(A) in respect to which at most the apportionment may be further possible or done in the ratio of turnover of the respective Units . 9. Furthermore, as argued and submitted by the AR relying upon various decisions of the courts holding that any systematically adopted method of accounting and allocation of expenses followed by assessee should not be replaced or substituted by another method without dealing with the objections and submissions made by the appellant and doing otherwise would be biased and perverse, placing reliance upon the Judgements of : i. Divine Chemtec Ltd. v. IT Dept. NFAC [2023] 153 taxmann.com 528 (A P & Telangana) ii. Sreeleathers [2022] 143 taxmann.com 435 (Calcutta) iii. [2022] 141 taxmann.com 305 (Allahabad) S.R. Cold Storage v. UOI iv. [2019] 103 taxmann.com 424 (Madras) CIT V. Swelect Energy Systems Ltd. v. Jayanthi Natarajan v. ACIT [2018] 100 taxmann.com 511 (Madras) 10. Attention also drawn by the AR in his submissions that the proportion of Turnover of the Two SEZ Units totalled to Rs. 16,46,65,819/- or just 35.71% of the Total turnover and other incomes collectively of all Four Units of Rs. 46,11,51,088/- and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r maintained on accounting software. 58-66 V. Unit wise Gross Profit working with total GP for the year and preceding year. 67 Written Submissions made multiple times, first time during physical hearing on hearing on 08.11.19; then on 18.12.19; then on 08.01.21 then on 11.02.21 and then finally on 27.06.22. 5. Unit wise Stock Summary details (opening+ purchases+ production+ sales+ closing stocks) for FY 2015-16 as submitted with 3CD particulars as well as on 26.11.18 before the AO 68-71 6. Debtors Columnar Summary of respective Units for FY 2015- 16 reflecting Party wise Sales by each Unit. 72-75 7. Table - II from Pages 3 & 4 of Asst. Order dt. 21.12.2018 Extracted and Analysed. 76 8. Assessment Order u/s 143(3) dt. 17/12/2019 with Income Tax Computation for AY 2017-18 77-81 9. Assessment Order u/s 143(3) dt. 15.03.21 with Income Tax Computation for AY 2018-19 82-87 10 Unit wise Grouping of P&L items for FY 2017-18 88-91 11 Written Submissions and Cases relied in Support 92-98 7. The ld. AR of the assessee in addition the written submission so relied vehemently argued drawing our attention to page 76 of his paper book that separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly attributable to represent unit and allocating the same on the percentage basis is not correct approach when the separate set of books are maintained by the assessee, get them audited by an independent chartered accountant and the same being regularly and consistently maintained. Those book results were not rejected. The ld. AR of the assessee fairly admitted that the assessee under the bona fide belief has not apportioned the expenditure to the extent of Rs. 49,94,866/- to the exempted unit and he has consented that if the same is allocated in the same ratio as decided by the ld. AO i.e. 68% to the non-eligible unit and 32% to eligible unit. Therefore, based on these observations, the ld. AO is directed to make suitable addition @ 32% of Rs. 49,94,860/- less if any amount already allocated by the assessee if demonstrated by assessee at the time of passing appellate order and the balance amount is directed to be deleted. In terms of these observations, the appeal of the assessee is partly allowed. Since all the grounds of appeal are related to apportion of expenditure and since we have partly considered plea of the assessee. We have not decided each ground of separately and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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