TaxTMI 
TaxTMI 
TaxTMI 
2018 (2) TMI 429
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....22 crore. Case selected for scrutiny through CASS. Notices u/s. 143(2) & 142(1) of the Act were duly served upon the assessee. After perusal of records and details filed by the assessee various additions were made which inter alia included disallowance of deduction u/s. 80IB of the Act for the alleged improper allocation of salary, wages and bonus expenses and disallowance of deduction u/s. 35(2AA) of the Act. Income assessed at Rs. 44.43 crore (approx). 3. Appeal by the assessee before Ld. CIT(A) brought part relief. 4. Now the assessee is in appeal before the Tribunal raising following grounds of appeal:- 1. The learned Commissioner of the Income Tax (Appeal) - III, Baroda ["the CIT(A)"] erred in fact and in law in confirming the action of the Additional Commissioner of Income Tax, Circle-4, Baroda ("the AO") in reducing the deduction u/s. 80IB of the Income Tax Act, 1961 ("the Act). 2. The learned CIT(A) erred in fact and in law in confirming the action of the AO in allocating managerial commission of Rs. 1,41,79,213/- and salary, wages & bonus of Rs. 5,06,56,289/- in the ratio of turnover to the Silvassa Unit II and thereby reducing the deduction u/s. 80IB of the Act. ....
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....penses of Rs. 1,42,69,569/- to the expenses claimed by the assessee for Silvassa Unit - II. Accordingly, net profit for Silvassa Unit - II was re-calculated at Rs. 8,96,03,511/- as against Rs. 10,38,73,080/- shown by assessee and accordingly, deduction u/s.80IB of the Act was calculated @30% at Rs. 2,68,81,053/-. Further ld. CIT(A) partly sustained the allotted allocation by the Assessing Officer. 9. We also observe that assessee which is claiming deduction u/s.80IB consistently since last many years, came in appeal before the Tribunal on the very same issue of allocation of Managerial remuneration, salary and wages and succeeded. Co-ordinate Bench in its order dated 17/01/2017 pertaining to assessee for Asst. Year 2008-09 and 2009-10 observed as follows: "18. We have given a thoughtful consideration to the orders of the authorities below. The factual matrix of the allocation of expenses by the assessee has already been exhibited elsewhere. In our considered opinion, only those expenses which have direct nexus with carrying on activity of undertaking has to be reduced for determining the quantum of deduction and those expenses which have indirect or remote nexus should not be de....
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....KA as well us to the decision of the Madhya Pradesh High Court reported in (2012) 81 CCH 031 PRESTIGE FOODS LIMITED v. CIT, and submitted that the common expenses be apportioned among the various units depending on the turnover. We do not find that the above stated decisions would be of any assistance to the Revenue, particularly the decision of the Apex Court. 4. A reading of the Apex Court decision reported in 248 ITR 432 CONSOLIDATED COFFEE LIMITED v. STATE OF KARNATAKA shows that it relates to the claim under the Karnataka Agricultural Income Tax Act, 1957 and a specific ride framed in 1957. The Apex Court referred to Rule 7 of the Karnataka Agricultural Income Tax Rules, which reads as follows:- "Computation of deduction on mixed income where a deduction in respect of any item admissible under Section 5 or under rule 5, is a common charge incurred (or the purpose of deriving agricultural income assessable under she Act and income chargeable under the Indian Income Tax Act, 1922, the deduction admissible under the Act shall be the actual amount relating to the income derived from agricultural operations and proved by accounts or other conclusive evidence. Where no such ac....
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....by the Head Office for the purpose of maintaining the units would nevertheless be subjected to the doctrine of proportionality for the purpose of deduction. 21. The Hon'ble High Court of Bombay in the case of Zandu Pharmaceutical Works Ltd. in Tax Appeal No. 8 of 2007 was seized with the following question of law. "Whether Tribunal was justified in confirming the allocation of research and development expenses incurred by the head office among the four manufacturing units on the presumption that (he expenditure so incurred was for the benefit of these manufacturing units?" 22. And the Hon'ble High Court held as under:- * The head office and each of the units have their own separate R&D departments, including laboratories. The R&D work related to the development of new medicinal products. None of the units manufactured these products. The manufacturing activities carried on all the units did not pertain to the new drugs developed/to be developed by the said R&D activities. (Para 5) * Is not the respondent's case that any of the units had benefited by the said R&D activities pertaining to the new drugs or had utilized the resultant benefit thereof, if any, ....
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.... 23.In the light of the judicial decisions discussed hereinabove, we find that the assessee has maintained separate books of accounts for Silvassa unit-l & II as evident from the two Audit Reports exhibited at pages 7 to 19 and 20 to 33 of the paper book. A perusal of the orders of the authorities below shows that the allocation of expenses have been made more out of compulsion then out of necessity. In our considered opinion and the understanding of the facts, the A.O. has not pointed out any flaw or defect in the allocations statement exhibited elsewhere. We find force in the contention of the Id. counsel that the Managerial Commission cannot be allotted to the Siivassa unit. We also agree that only expenses relating to the concerned undertaking should be deducted from the profits thereon. Inthe absence of any direct nexus brought on record by the revenue authorities for the impugned allocation of expenses, we do not find any merit in the said allocation. We, accordingly, direct the A.O. to delete the allocations re-drawn by him. This grievance is accordingly allowed" 10. We therefore in the given facts and circumstances of the case and respectfully following the decision of ....