Tribunal Decision: Allowance of Appeal, Expense Allocation Upheld, Disallowance Remanded for Verification

The Tribunal allowed the appeal for statistical purposes, remanding specific issues for further verification by the Assessing Officer. The Tribunal upheld the allocation of expenses from the Non-SEZ unit to SEZ units, except for interest expenditure allocation, which was referred back to the AO for verification. The disallowance under Section 40(a)(ia) was restored to the AO for examination of the certificate regarding TDS deduction. The Tribunal ruled in favor of the assessee regarding setting off losses of the Non-SEZ unit against profits of the SEZ unit for deduction under Section 10A. Additionally, the Tribunal excluded the SEZ unit's income from the book profit calculation under Section 115JB, following precedent.

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Issues Involved:
1. Allocation of expenses from Non-SEZ unit to SEZ units.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
3. Setting-off losses of non-SEZ unit with the profit of SEZ unit for deduction under Section 10A.
4. Non-reduction of deduction available under Section 10A from the book profit for determining total income under Section 115JB.

Issue-wise Detailed Analysis:

Issue 1: Allocation of Expenses from Non-SEZ Unit to SEZ Units

During the assessment proceedings, the Assessing Officer (AO) observed that the assessee had two manufacturing units: one at Nasik (Non-SEZ) and another at Chennai (SEZ). The AO noted that the expenditure at the Non-SEZ unit was disproportionately higher compared to the SEZ unit, despite similar turnovers. Specific expenses such as auditors' remuneration, salaries, and bonuses were either not apportioned or disproportionately allocated. The AO allocated these expenses based on the turnover ratio between the two units. The assessee accepted some allocations but contested others. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's apportionment as well-reasoned and scientifically based. The Tribunal found the AO's allocation method justified but remanded the issue of interest expenditure allocation back to the AO for verification, as the assessee claimed it had already debited the relevant interest expenses to the SEZ unit.

Issue 2: Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961

The assessee contested the disallowance of Rs. 12,44,050/- paid to Star India Pvt. Ltd. for advertisement, arguing that no TDS was required due to a certificate issued under Section 197 of the Income Tax Act. This certificate was not presented during the assessment proceedings. The Tribunal restored the issue to the AO for verification of the certificate and to determine if the assessee was indeed not required to deduct TDS, granting relief if found correct.

Issue 3: Setting-off Losses of Non-SEZ Unit with the Profit of SEZ Unit for Deduction Under Section 10A

The assessee argued against the AO's action of setting off losses of the Non-SEZ unit against the profits of the SEZ unit for determining the deduction under Section 10A. The Tribunal noted that the issue was covered by the Bombay High Court's decision in "CIT vs. Black & Veatch Consulting Pvt. Ltd.," which held that deduction under Section 10A should be computed without setting off losses from non-eligible units. Respectfully following this decision, the Tribunal ruled in favor of the assessee.

Issue 4: Non-reduction of Deduction Available Under Section 10A from the Book Profit for Determining Total Income Under Section 115JB

The assessee contended that the lower authorities erred in not reducing the deduction available under Section 10A from the book profit for the purpose of determining total income under Section 115JB. The Tribunal referred to its earlier decision in "Genesys International Corpn. Ltd. vs. ACIT," which held that units in SEZ are exempt from the applicability of Section 115JB. Following this precedent and the principle of consistency, the Tribunal ruled in favor of the assessee, excluding the SEZ unit's income from the book profit calculation under Section 115JB.

Conclusion:

The appeal was allowed for statistical purposes, with specific issues remanded for further verification by the AO. The Tribunal's order was pronounced in the open court on 8.5.2015.

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