Tribunal affirms AO's allocation of expenses for Section 80IC deduction, dismisses appeal without costs

The tribunal upheld the disallowance of Rs. 16,67,053/- under Section 14A, directing the AO to recompute based on the judgment in Godrej & Boyce Manufacturing Co. Ltd. Vs. Dy. CIT. Regarding apportionment of head office expenses for Section 80IC deduction, the CIT(A) and tribunal affirmed the AO's decision to allocate financial expenses to the Haridwar unit. The appellant's failure to justify the exclusion of common expenses led to the dismissal of the appeal without costs, with the tribunal finding no need for further relief.

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Issues Involved:
1. Computation of expenditure under Section 14A of the Income Tax Act, 1961.
2. Apportionment of head office expenses for computing deduction under Section 80IC.

Issue-wise Detailed Analysis:

1. Computation of Expenditure under Section 14A:
The tribunal upheld the disallowance of Rs. 16,67,053/- under Section 14A by following the Special Bench decision in ITO Vs. Daga Capital Management Pvt. Ltd., which stated that Section 14A applies to both direct and indirect expenses incurred for earning income not included in total income. The onus was on the assessee to prove no such expenditure was incurred. The tribunal noted that the decision in Godrej & Boyce Manufacturing Co. Ltd. Vs. Dy. CIT by the Bombay High Court held that Rule 8D is applicable prospectively from the assessment year 2008-09 and is not retrospective. The tribunal directed the Assessing Officer (AO) to recompute the disallowance based on this judgment and any subsequent decision by the Delhi High Court, thus treating this ground as allowed for statistical purposes.

2. Apportionment of Head Office Expenses for Computing Deduction under Section 80IC:
The appellant had three units, with only the Haridwar unit eligible for deduction under Section 80IC. The AO noted that the appellant did not allocate financial expenses of Rs. 1,30,91,339/- to the Haridwar unit and made an addition of Rs. 69,67,762/- to the deduction claim. This included Rs. 6,62,900/- for goods transferred from the Kasna unit to Haridwar at market value.

The CIT(A) upheld the AO's decision, noting that the appellant failed to justify why common expenses, including financial expenses, should not be allocated to the Haridwar unit. The CIT(A) directed the AO to verify and adjust certain expenses not claimed or pertaining to old periods.

The tribunal confirmed the CIT(A)'s findings, stating that the appellant did not provide unit-wise details to justify the exclusion of common expenses from the Haridwar unit. The tribunal agreed with the CIT(A)'s method of apportioning common expenses based on the turnover ratio and found no need for further relief. The tribunal also acknowledged the appellant's failure to bifurcate common head office expenses, which were also related to the Haridwar unit.

During the hearing, the appellant argued that the profit and loss account of the Haridwar unit already accounted for personal, administrative, selling, and financial expenses. However, the tribunal and CIT(A) found that the appellant did not substantiate the exclusion of head office expenses. The Supreme Court's decision in Liberty India Vs. Commissioner of Income Tax was cited, emphasizing that devices to reduce or inflate profits of eligible businesses must be checked, but the tribunal found it irrelevant to the appellant's case.

The tribunal's order was not found to be factually perverse, and the appeal was dismissed with no costs.

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