TaxTMI 
TaxTMI 
2011 (8) TMI 307
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....the assessee claimed deduction of a sum of Rs.19,33,104/- under Section 80-I of the Income Tax Act, 1961 relatable to the Hyderabad Unit. It was noted by the Assessing Officer that the expenditure in respect of Hyderabad Division was low when compared to the turnover of that Unit. In this context, the assessee was asked to explain why the expenses booked under the heads Advertisement and sales promotion and the traveling expenses and other were low. The assessee gave details of expenses relatable to the Hyderabad Unit, but not debited to Hyderabad Unit as Rs.19,43,834/-. The Revenue viewed that as these expenses related to the Hyderabad Unit, the same have to be reduced from the profit of the Unit for the purpose of computation of deduction under Section 80-I of the Income Tax Act, 1961. The assessee pointed out that the company had incurred a sum of Rs.1,42,27,766/- towards traveling expenses and Rs.1,34,17,689/- towards field staff costs for all the Pharmaceutical Divisions as a whole. The assessee submitted that since the Hyderabad Unit had full-fledged marketing set up in existence, even though sale of pharmaceuticals in Hyderabad Unit accounted for 38.77% of the total turnover....
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....ertain its true and actual profits. 6. The Commissioner of Income Tax (Appeals) pointed out that the assessee itself admitted to the apportionment made for the period prior to the merger. He further pointed out that the assessee had let in no evidence as regards the expenditure referable to the Hyderabad Unit. Considering the fact that the Assessing Officer had apportioned the cost on scientific basis by taking the total turnover of business at large to the turnover, in particular to the Hyderabad Unit, the Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer by substituting the figure at Rs.43,87,843/- and Rs.41,38,015/- towards traveling expenses and field staff cost respectively. Aggrieved by the same, the assessee went on appeal before the Income Tax Appellate Tribunal. 7. The assessee contended that even prior to merger, the assessee-company was marketing the products manufactured by M/s.TTK Chemicals Ltd., as a consignment agent and the assessee-company was reimbursed of the expenditure incurred; that for estimating the traveling expenses and the field staff cost, turnover could not be the basis. In support of the contention, learn....
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....s. ACIT reported in (1995) 54 ITD 352, which has no relevance to this case. 10. Per contra, learned counsel appearing for the assessee, supporting the order of the Income Tax Appellate Tribunal, pointed out that there is no dispute that expenses have to be apportioned. He further submitted that considering the fact that the same had to be with reference to the actual expenditure incurred after the merger, rightly, the Tribunal remanded the matter to the Assessing Officer for re-working the same; hence, there is no error in the order of the Income Tax Appellate Tribunal. 11. Heard the learned Standing Counsel appearing for the Revenue as well as the learned counsel appearing for the assessee and perused the material available on record. 12. It is seen from the records that the Hyderabad Unit was a separate Unit till 01.06.1988 and got merged with the assessee company on 01.06.1988. Till then, the assessee company was marketing the products manufactured by the Hyderabad Unit as a consignment agent and as regards the expenses incurred by the assessee, the same was reimbursed. The percentage of sales before the merger of M/s.TTK Chemicals Ltd., was at 6.47% and ....
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....he Assessing Officer. 14. As regards the claim of the assessee to treat the pre-merger expenses at 6.47% incurred in 1988 to be treated as the percentage of expenditure directly relatable to the Hyderabad Unit, we do not find such claim could be taken, supported by any material, as a correct reflection of the expenses incurred by the Hyderabad Unit. As rightly pointed out by the Commissioner of Income Tax (Appeals), if such course had been adopted, it would only result in an ad hoc disallowance without any basis. Thus, taking note of these facts, the Commissioner of Income Tax (Appeals) rightly confirmed the order of the Assessing Officer to take the ratio of the Hyderabad Unit s turnover to the total turnover. 15. As far as the Income Tax Appellate Tribunal s order is concerned, on a reading from the narration of the facts of the Delhi Tribunal s order in the case of Food Specialities Ltd. Vs. ACIT reported in (1995) 54 ITD 352, it is evident that there were two Units, one old Unit and the other, a new Unit. On the facts of the case, the Delhi Tribunal therein held that the increase in the overhead expenses incurred by the assessee had to be apportioned between the....