80IA deduction allocation and compliance rules clarified, while section 40(a)(ia) applies to payments made and payable during the year.

For deduction under section 80IA, the Tribunal held that husk cost for steam and power generation had to be allocated on a realistic basis, and upheld apportionment at 10% because the assessee's method reflected actual use. It also accepted turnover-based apportionment of administrative and maintenance expenses for the eligible power unit. Late filing of Form 10CCB and absence of separate books did not defeat the deduction where profits of the unit could still be ascertained from the accounts. On the section 40(a)(ia) issue, the Tribunal applied the later High Court view that the provision covers amounts paid as well as amounts payable during the year.

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Issues: (i) whether the expenditure on husk used for steam generation and power generation had to be apportioned at 15.75% or at 10% for computing deduction under section 80IA; (ii) whether administrative and maintenance expenses were to be apportioned on turnover basis for the power unit; (iii) whether late filing of the report in Form 10CCB and absence of separate books of account defeated the deduction claim under section 80IA; and (iv) whether disallowance under section 40(a)(ia) could be sustained on the basis adopted by the revenue.

Issue (i): whether the expenditure on husk used for steam generation and power generation had to be apportioned at 15.75% or at 10% for computing deduction under section 80IA.

Analysis: The dispute turned on the correct allocation of the cost of steam generated from husk and used both in the power unit and in the rice mill. The Tribunal held that the relevant cost was the cost of steam as a whole and that it was not logical to split the process into separate stages and allocate normal loss in steam generation independently. Once the assessee's method showed that only 10% of the steam was used by the power unit, the related cost had to be allocated on that basis. The Tribunal also held that the comparable-case approach and the higher allocation made by the Assessing Officer were not justified on the facts.

Conclusion: The allocation at 10% was upheld and the assessee succeeded on this issue.

Issue (ii): whether administrative and maintenance expenses were to be apportioned on turnover basis for the power unit.

Analysis: The Tribunal accepted the approach already applied by the first appellate authority in the corresponding year and followed the coordinate-bench view that administrative expenses attributable to the eligible unit should be apportioned on the basis of turnover. The same method was directed to be applied consistently for the year under appeal.

Conclusion: The revenue's objection failed and the assessee obtained relief on this issue.

Issue (iii): whether late filing of the report in Form 10CCB and absence of separate books of account defeated the deduction claim under section 80IA.

Analysis: The Tribunal followed the binding High Court decisions that late filing of the audit report is not mandatory in the sense of defeating the deduction where the substantive requirements are otherwise satisfied. It also held that the books maintained by the assessee were adequate for determining the profits of the power-generation unit, and that the object of separate books was satisfied when profits could be ascertained from the accounts maintained.

Conclusion: The revenue's challenge failed and the deduction claim was not defeated on these grounds.

Issue (iv): whether disallowance under section 40(a)(ia) could be sustained on the basis adopted by the revenue.

Analysis: The Tribunal held that the view earlier adopted by the first appellate authority could not survive in light of the later High Court ruling that section 40(a)(ia) applies to amounts paid during the year as well as amounts payable at year end. On that legal position, the revenue's objection was accepted.

Conclusion: The revenue succeeded on this issue.

Final Conclusion: The assessee obtained relief on the core deduction-related issues under section 80IA, while the revenue succeeded only on the section 40(a)(ia) issue. The net result was a mixed outcome with both assessee and revenue succeeding in part.

Ratio Decidendi: For computation of deduction under section 80IA, the cost attributable to a common process must be allocated on a rational and realistic basis, substantive eligibility is not defeated by delayed filing of the audit report when the accounts otherwise enable determination of profits, and section 40(a)(ia) applies to both amounts paid and amounts payable during the year.

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