2018 (9) TMI 286 - AT - Income Tax

Assessee's Appeal Partially Allowed: Exempt Income Expenditure Disallowance Limited

Indica Industries Pvt. Ltd. Versus Addl. Commissioner of Income Tax, Range-11, New Delhi

Indica Industries Pvt. Ltd. Versus Addl. Commissioner of Income Tax, Range-11, New Delhi - [2018] 67 ITR (Trib) 403 Issues Involved:1. Exclusion of duty drawback from eligible income under Section 80IC.2. Apportionment allocation of common expenses to Unit 10B and Kotdwar Unit-III.3. Disallowance of expenditure incurred in relation to exempt income under Section 14A read with Rule 8D.Issue-wise Detailed Analysis:1. Exclusion of Duty Drawback from Eligible Income under Section 80IC:The assessee challenged the order of the CIT(A) confirming the action of the AO in excluding duty drawback of Rs. 57,771 from eligible income under Section 80IC for Kotdwar Unit-III. The AO followed the decision of the Supreme Court in Liberty India (317 ITR 218), which led to the exclusion. The assessee's counsel did not press this ground in light of the Supreme Court decision. Consequently, this ground was dismissed as not pressed.2. Apportionment Allocation of Common Expenses to Unit 10B and Kotdwar Unit-III:The assessee contested the CIT(A)'s decision to restrict and retain the apportionment allocation of Rs. 10,54,371 to Unit 10B and Rs. 1,05,305 to Kotdwar Unit-III under Section 80IC. The CIT(A) noted that the issue pertained to the allocation of common expenses towards profits of units eligible under Sections 10B and 80IC. The assessee argued that the AO wrongly assumed certain expenses pertained only to the Central Office/Head Office, while these expenses were actually incurred at seven non-exempt units and the Head Office. The CIT(A) found the revised working submitted by the assessee to be reasonable and directed the AO to recompute the disallowance based on the revised figures. Consequently, this ground was partly allowed. However, the counsel for the assessee later submitted a figure of Rs. 11,35,150 for disallowance, which was not substantiated by the grounds of appeal or the CIT(A)'s findings. The DR and the assessee's counsel agreed that the ground had become infructuous as the CIT(A) had already accepted the revised working. The Tribunal concluded that no further interference was required, and this ground was dismissed as infructuous.3. Disallowance of Expenditure Incurred in Relation to Exempt Income under Section 14A read with Rule 8D:The assessee challenged the CIT(A)'s order confirming the disallowance of Rs. 26,48,712 as expenditure incurred in relation to exempt income by applying Section 14A read with Rule 8D, against Rs. 4,01,209 claimed by the assessee. The AO observed that the assessee had earned significant exempt income but had not disallowed expenses incurred for earning the same. The assessee argued that the portfolio management and advisory services were handled by ICICI Prudential Asset Management Company Ltd., and the only expenditure incurred was the portfolio management fees of Rs. 2,01,209, with an additional Rs. 2 lakh disallowed for abundant caution. The AO, unsatisfied with this explanation, applied Rule 8D and made a disallowance of Rs. 26,48,712. The CIT(A) upheld the AO's action, stating that the AO was justified in invoking Rule 8D due to the lack of a reasonable basis for the assessee's claim. The Tribunal, however, found that the AO had not recorded any satisfaction about the incorrect claim made by the assessee and had not considered the correct amount offered by the assessee for disallowance. The Tribunal noted that similar issues were considered in the assessee's favor for the A.Y. 2012-2013. Consequently, the Tribunal set aside the orders of the authorities below and restricted the addition to Rs. 4,01,209 already offered by the assessee for disallowance, thus allowing this ground of appeal.Conclusion:The appeal of the assessee was partly allowed, with the Tribunal dismissing the grounds related to duty drawback and apportionment allocation of common expenses as either not pressed or infructuous, and allowing the ground related to the disallowance of expenditure incurred in relation to exempt income.