2015 (6) TMI 832 - AT - Income Tax

Tribunal rules in favor of Assessee in interest allocation dispute under Income Tax Act

The Tribunal allowed the Assessee's appeal, canceling the impugned order by the Ld. CIT(A) regarding the allocation of interest and expenditure among ... Allocation of interest and expenditure on the basis of the utilization of loan amount among various units for the purpose of direction under section 80IA - Held that:- The issue regarding allocation of interest expenditure on the basis of the utilization of loan amount among various units for the purpose of deduction u/s. 80IA is squarely covered by the decision of the ITAT, Delhi ‘G’ Bench passed in assessee’s own case(A.Y. 2004-05) AND (A.Y. 2004-05). Respectfully, following the order of the Tribunal as aforesaid, we allow the appeal of the assessee on the similar lines and the impugned order is cancelled. - Decided in favour of assessee. Issues:Allocation of interest and expenditure among various units for deduction under section 80IA of the Income Tax Act, 1961.Analysis:The appeal by the Assessee was directed against the Order of the Ld. Commissioner of Income Tax (Appeals) regarding the allocation of interest and expenditure among various units for the purpose of deduction under section 80IA of the Income Tax Act, 1961 for the assessment year 2002-03. The Assessing Officer had raised concerns about the allocation of administrative and financial expenses, particularly focusing on Unit-III, where the net profit declared was substantially higher than the net profit of all five units combined. The AO's decision to restrict the deduction under section 80IA was based on the allocation of interest expenses. The ITAT admitted additional evidence filed by the Assessee, a certificate from the State Bank of Patiala, and directed the AO to reconsider the issue in light of this evidence. However, the AO, in the subsequent assessment order, disallowed the claim of the Assessee, leading to penalty proceedings under section 271(1)(c).The Assessee appealed to the Ld. First Appellate Authority, who upheld the AO's decision. The Assessee then filed an appeal against the Ld. CIT(A)'s order, citing precedents from the ITAT in their favor. The ITAT, after reviewing the orders passed by the authorities below and the Tribunal's previous decision in the Assessee's case for the assessment year 2004-05, found that the Ld. CIT(A) had not followed the Tribunal's order in the previous case. The Tribunal reproduced relevant findings from the previous case, highlighting the method of allocation of interest and financial charges among different units. The Tribunal noted that the Assessee maintained separate books of account for each unit and had provided evidence to support the allocation of interest based on sales figures. The Tribunal concluded that there was no infirmity in the CIT(A)'s order for not reducing the eligible profit of Unit-III by the interest amount allocated to other units.The Tribunal also referenced a previous order by the Ld. CIT(A) for the assessment year 2003-04, where the issue was decided in favor of the Assessee. The Tribunal expressed dissatisfaction with the Ld. CIT(A)'s failure to follow the previous orders and allowed the appeal of the Assessee, canceling the impugned order. The Tribunal emphasized that the issue of interest expenditure allocation among units for deduction under section 80IA was already settled in favor of the Assessee by previous Tribunal decisions. Consequently, the Assessee's appeal was allowed, and the impugned order was set aside.