Tax Appeal Dismissed for Low Revenue Effect under CBDT Circular | Allocation Dispute Over Expenses

The revenue's appeal was dismissed due to the tax effect being below Rs. 10 lakhs as per CBDT Circular No.21/2015. The assessee's appeal contested the allocation of expenses between the Head office and SEZ unit. The Ld CIT(A) partially upheld the AO's allocation based on turnover ratios but disagreed on certain expenses. The Tribunal agreed with the revenue that common expenses were not accounted for in the SEZ unit, remanding the Block insurance policy issue for further examination. Ultimately, the assessee's appeal was partly allowed, challenging the partial sustainment of expenses allocation, while the revenue's appeal was dismissed.

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Issues:
Cross appeals against the order passed by Ld CIT(A)-27, Mumbai for the assessment year 2009-10. Appeal filed by revenue dismissed due to tax effect below Rs. 10 lakhs as per CBDT Circular No.21/2015. Appeal by assessee challenges the allocation of expenses between Head office and SEZ unit.

Analysis:
The revenue's appeal was dismissed as the tax effect was below Rs. 10 lakhs, complying with CBDT Circular No.21/2015. The assessee's appeal focused on the allocation of expenses between the Head office and SEZ unit. The AO allocated expenses to the SEZ unit based on turnover ratios, which the Ld CIT(A) partially upheld, disagreeing with certain expenses chosen by the AO.

The assessee contended that separate accounts were maintained for the SEZ unit, with expenses properly recorded. The nature of the SEZ unit's work was highlighted as less complex, requiring fewer general and administrative expenses. The Ld CIT(A) sustained an allocation of Rs. 16,29,934 out of the total expenses. The assessee challenged this partial sustainment.

The Ld D.R argued that the profit rates indicated certain common expenses were not accounted for in the SEZ unit to inflate profits. Common management and fund interlacing between units supported this argument. The Tribunal agreed, noting that expenses like foreign tours, motor car expenses, and office expenses could benefit both units.

The Tribunal found merit in the Ld D.R's contentions due to common management and fund interlacing between units, suggesting shared benefits from Head office expenses. The issue of the Block insurance policy was remanded to the AO for further examination to determine if it pertained solely to the Head office. The Tribunal upheld the Ld CIT(A)'s decision on the remaining expenses as reasonable based on sales ratios.

In conclusion, the appeal of the assessee was partly allowed, challenging the partial sustainment of expenses allocation, while the revenue's appeal was dismissed. The judgment was pronounced on 18.10.2016.

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