Tribunal Upholds Auditors' and Directors' Remuneration Apportionment under Section 80IC

The Tribunal upheld the apportionment of auditors' remuneration of Rs. 59,800 to the eligible unit under section 80IC. For directors' remuneration, it upheld the apportionment of Rs. 3 lacs to the eligible unit. As a result, the disallowance of the deduction claimed under section 80IC was upheld to the extent of Rs. 3,59,800. The assessee's appeal was partly allowed.

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Issues Involved:
1. Apportionment of Auditors Remuneration to the eligible unit under section 80IC.
2. Apportionment of Directors Remuneration to the eligible unit under section 80IC.
3. Basis of allocation of expenses between units.

Detailed Analysis:

Issue 1: Apportionment of Auditors Remuneration to the eligible unit under section 80IC
The assessee had two units, one in Ludhiana and another in Pant Nagar, Uttarakhand, with the latter eligible for deduction under section 80IC of the Income Tax Act. The Assessing Officer (AO) noticed that the assessee had claimed auditors remuneration solely for the Ludhiana unit. The AO apportioned Rs. 59,800 of the auditors remuneration to the Pant Nagar unit, reducing its profits and the corresponding section 80IC deduction. The CIT (Appeals) upheld this apportionment, noting the increased duties of auditors for the newly set-up Pant Nagar unit. The assessee did not challenge this apportionment before the Tribunal, and thus, it was upheld.

Issue 2: Apportionment of Directors Remuneration to the eligible unit under section 80IC
The AO also apportioned Rs. 6,93,424 of directors remuneration to the Pant Nagar unit, which the CIT (Appeals) upheld. The assessee contended that separate books were maintained for both units, with no inter-unit transactions, and that the directors' remuneration increase was due to the induction of a new director who had no responsibilities towards the Pant Nagar unit. The CIT (Appeals) found no evidence supporting the claim that directors had no duties vis-à-vis the exempt unit and upheld the AO's apportionment based on turnover. The Tribunal agreed with the CIT (Appeals), stating that directors are responsible for the entire company's profitability, including strategic decisions for the Pant Nagar unit. Therefore, the argument that no portion of directors remuneration should be apportioned to the eligible unit was rejected.

Issue 3: Basis of allocation of expenses between units
The assessee challenged the turnover-based allocation of directors remuneration, arguing that only the increase in remuneration from the previous year should be apportioned since the eligible unit was not operational in the preceding year. The Tribunal agreed with this contention, noting that the increase in directors remuneration was Rs. 9.75 lacs, and apportioning Rs. 6.93 lacs to the eligible unit was unjustified. The Tribunal deemed it reasonable to apportion Rs. 3 lacs of directors remuneration to the eligible unit, considering the directors' efforts in setting up the new unit.

Conclusion:
The Tribunal upheld the apportionment of auditors remuneration of Rs. 59,800 to the eligible unit. For directors remuneration, it upheld the apportionment of Rs. 3 lacs to the eligible unit. Consequently, the disallowance of deduction claimed under section 80IC was upheld to the extent of Rs. 3,59,800. The assessee's appeal was partly allowed.

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