Allocation of common business expenses to export and domestic segments was rejected where export services were outsourced and nexus was unproved.

Common expenses such as rent, power, telephone, communication and depreciation were not shown to have been incurred for the export business, where the export segment services were outsourced through third-party agencies. The factual finding that the unallocated expenses related to the domestic business was not displaced, so allocating those expenses to the export segment and making a corresponding addition to the domestic segment was unnecessary. On that basis, the addition was held unsustainable and the relief to the assessee was upheld.

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Issues: Whether the disallowance of common expenses comprising rent, power, telephone and communication expenses, and depreciation, by allocating them to the export segment and making a corresponding addition to the domestic segment was justified.

Analysis: The export segment services were found to have been outsourced through third-party agencies, and the expenses in dispute were not shown to have been incurred for the export business. The factual finding that the unallocated expenses related to the domestic business was not displaced. On that basis, the allocation made by the assessing authority was held to be unnecessary.

Conclusion: The addition was not sustainable and the relief granted to the assessee was upheld.

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