Section 80IA profit allocation requires direct nexus; general corporate overheads and ad hoc staff welfare disallowance were rejected.

In computing deduction under section 80IA, only expenses with a direct nexus to the eligible undertaking can be loaded to its profits, so general corporate office costs, head office depreciation and non-specific corporate advertisement expenses were not allocable to the units. Ad hoc disallowance of staff welfare expenditure for lunch, refreshments, tea and coffee was also unsustainable where the entertainment-expense restriction had been omitted and no business-purpose defect was shown. Interest attributed to an alleged working-capital deficit of the Goa undertaking was deleted because the deficit was assessed selectively and the assessee showed sufficient own funds. A purely legal additional ground on lease rent and depreciation was admitted and dealt with for statistical purposes.

---

---

Issues: (i) Whether ad hoc disallowance of staff welfare expenditure could be sustained for the year in which the entertainment-expense restriction stood omitted; (ii) whether corporate office expenses, corporate advertisement expenses and head office depreciation were allocable to the eligible undertakings for computing deduction under section 80IA; (iii) whether interest attributable to alleged working capital deficit of the Goa undertaking was allocable to that unit for section 80IA computation; and (iv) whether the additional ground relating to lease rent and depreciation could be admitted and consequentially allowed for statistical purposes.

Issue (i): Whether ad hoc disallowance of staff welfare expenditure could be sustained for the year in which the entertainment-expense restriction stood omitted?

Analysis: The expenditure consisted of lunch, refreshment, tea and coffee for employees. The earlier pattern of disallowance was carried forward despite the omission of the entertainment-expense restriction for the relevant assessment year. The expenditure was not shown to be outside business purposes, and no material justified an ad hoc percentage disallowance under the general business-expense provision.

Conclusion: The disallowance was not sustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether corporate office expenses, corporate advertisement expenses and head office depreciation were allocable to the eligible undertakings for computing deduction under section 80IA?

Analysis: Deduction under section 80IA has to be computed on the standalone profits of the eligible unit, with a direct nexus between the expense and the undertaking. The assessee had already allocated direct unit-wise costs, including relevant finance and brand-specific marketing costs. General corporate overheads and depreciation relating to the head office did not have a direct nexus with the eligible undertakings, and general corporate advertisement could not again be loaded on the units unless specifically relatable to the relevant brand.

Conclusion: Allocation of corporate office expenses and head office depreciation was deleted, and the issue was decided in favour of the assessee.

Issue (iii): Whether interest attributable to alleged working capital deficit of the Goa undertaking was allocable to that unit for section 80IA computation?

Analysis: The working capital position was examined selectively for deficit months only, without considering the overall period and the surplus that arose subsequently. The assessee had also demonstrated availability of sufficient own funds. On that basis, the method adopted for loading interest on the unit was held to be improper.

Conclusion: The interest allocation to the Goa undertaking was deleted and the issue was decided in favour of the assessee.

Issue (iv): Whether the additional ground relating to lease rent and depreciation could be admitted and consequentially allowed for statistical purposes?

Analysis: The additional ground was purely legal, the facts were already on record, and no fresh factual inquiry was required. It was therefore admitted. Following the earlier coordinate-bench approach in the assessee's own case, consequential examination of the lease-rental receipt was directed.

Conclusion: The additional ground was admitted and allowed for statistical purposes.

Final Conclusion: The appeal succeeded on all substantive issues, with the assessee obtaining relief on staff welfare disallowance, section 80IA expense allocation, and interest allocation, and the additional legal ground being admitted and disposed of favourably for statistical purposes.

Ratio Decidendi: For section 80IA, only expenses having a direct nexus with the eligible undertaking can be loaded to its profits, and general corporate overheads lacking such nexus cannot be allocated to reduce the unit's deduction.

---