TaxTMI 
TaxTMI 
2022 (7) TMI 546
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.... IT AT is a mistake apparent from record. The learned CIT(A) ignored the fact that the issue is debatable in nature as various recent rulings of Hon 'ble High Courts are in favour of assessee. 4. The learned CIT(A) erred in not considering and adjudicating the appeal with regard grounds of appeal as raised before him but in confining himself to the issue of allocation of corporate overheads to the units claiming deduction U/S 80IB/80lC. 2. From the above grounds, the sole substantive issue raised by the assessee is regard to challenging of the rectification order passed by the Assessing Officer (AO) u/s. 154 of the I.T.Act 1961and confirmed by the ld.CIT(A). 3. The brief facts of the case are that the AO completed the assessment u/s. 143(3) on 28.10.2011 determining the total income at Rs.401,50,38,460/-. Letter on within the four years, the AO issued notice u/s.154 of the I.T.Act on14.10.2015 proposing to rectify the order passed u/s. 143(3) of the I.T.Act. By observing as "excess claim of deduction u/s. 80IB and 80IC needs to be disallowed". Against this, the assessee filed letter, which is placed at paper book page NO.191. On 30.10.2015 the AO sent a letter to....
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....dry expenses 36,46,37,000 5 Interest and finance charges 47,96,82,000 Total 126,70,28,000 Thus, the total corporate overhead expenditure works out to Rs.126,70,28,000 which needs to be split between the units claiming deductions under section 80IB (Yanam) and 80IC (Baddi) units respectively. Yanam 80 IB Unit Baddi 80 IC Unit TTO of the Company (DRL) Sales/income 78,66,36,730 206,31,19,015 3828,03,81,450 % on TTo of the company (DRL) 2.05% 5.38% Corporate overhead expenditure allocated on the basis of % 2,59,74,074 6,81.66,106 Hence, these corporate overhead expenditure needs to be allocated based on the turnover as per the table above. The profits eligible for deduction after allocating the corporate overheads is worked out as under :- Yanam 80 IB Unit Baddi 80 IC Unit Profits as stated 37,49,35,794 100,41,99,143 Less : allocation of corporate overheads 2.59,74,074 6,81,66,106 Profits of eligible units 34,89,61,720 93.60,33.037 Eligible deduction (30%) 10,46,88,516 (100%) 93,60,33,037 Less: Deduction claim....
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.... of deduction needs to be disallowed and added back to the taxable income. At the outset, it is hereby submitted that the issue of allocation of corporate overheads for the current assessment year is only a result of change in opinion and reviewing an assessment already completed. For an issue to be covered u/s. 154, it should be a mistake, invariably of facts and figures, apparent from record. We have filed our objections with the AO on the ground that, the AO had undertaken review of the order in guise of rectification and debatable issue cannot be a reason for passing order u/s 154. Since allocation of corporate overhead to units eligible u/s 8018 and 80lC is a debatable issue before law and varied interpretations have been given by various courts on this as aspect, non- allocation of corporate overheads to units cannot be a reason to pass order u/s 154.However, without considering the objections made by the assessee, the A.O passed order u/s 154 on 04.01.2016 allocating corporate overheads to the units eligible u/s 80IB and 80lC. In this regard our submission is as follows: 1 . In case of Dr.Reddy's Laboratories Limited for the AY 03-04 &....
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....point of law cannot be treated as 'mistake apparent from record b.Similar decision was given by the Hon'ble Be in the case of TS Balaram vs, Volkart Brother [1971 AIR 2204, 1972 SCR (1) 30) In addition we rely on the following case laws to support our argument wherein it was held that debatable issue could be taken up regular assessment and not under sec. 154 a) DCIT Vs K.S. Venkatesh (ITA No. 416/2009) b) CIT VsRicha and Co (2001) 252ITR 40 (Del) c) CIT Vs Udaipur Distillarv Co Ltd (No 3) 267 ITR 366 (Raj); d) CIT Vs Udaipur Distillarv Co Ltd (No 1) (2004) 267 ITR 358 (Raj); e) Jasatdal June and Industries Ltd Vs CIT (2004) 266ITR 587 (Cal): IV. Submission on ground of merit Without prejudice to the above argument we would like to bring to your kind notice that the proposed allocation of corporate overhead by the AO is not warranted in view of the conditions placed by Se.80 IS & 80 IC restricting the deduction to the income derived from the said units which is also applicable in context of the expenditure thereby not requiring the allocation of corporate overhead. > Income Tax provisi....
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.... was incurred only for other than the tax exempted units and the directors have put in their efforts and work only for units not enjoying any deduction under the act. Their services were available for the entire organization including the units enjoying the deduction under the act, and the corporate expenditure needs to be allocated to all the units. This issue was also agitated by the assessee company before the Honourable ITAT. The Hon'ble !TAT vide ITA No.739 & 655/H/2007 in page No.4 to 5 had discussed the issue. They hold that: The next ground Is that the CIT(A) erred in confirming the assessing officer's allocating corporate administrative overheads and expenses on the basis of respective turnover vis-a-vis total turnover of the company in computing profits eligible u/s. 10B, 80IB and 80HHC of the IT Act. Brief facts of the issue with regard to allocation of administrative and other expenses to Units enjoying deduction u/s. 10B, 80IB, etc. The assessing officer noticed that the assessee company has not allocated the expenditure incurred on account of payment of sales commission to Directors, remuneration paid to directors and other general e....
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....of the above judgement, in our opinion, in the absence of identifying the expenditure of the export division, there is no basis other than allocating the total indirect cost on the basis of turnover. Accordingly, we direct the assessing officer to apportion the expenditure on the basis of turnover of various units. The issue is set aside to the file of assessing officer for fresh consideration, (emphasis supplied) Thus, the observation of the ITAT is clear and unambiguous. They have categorically held that in the absence of identification of the expenditure of the export division, there is no basis other than allocating the total indirect cost on the basis of turnover. The AO accordingly should have apportioned expenditure on the basis of turnover of various units. But the AO did not allocate the expenditure in the assessment or took any remedial action u/s 147 or 263 of the act. The AO rectified the assessment order u/s 154 of the Act holding the above issue as a mistake apparent from the record. The only contention of the assessee is that allocation of corporate overhead to the eligible units is at best a debatable point of law and any matter i....
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....nsonance with the observation of the ITAT. [PROCTER & GAMBLE INDIA LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX (2008) 113 TTJ 0682 followed]. In the result, the appeal is dismissed." 7. Aggrieved from the order of the ld.CIT(A), the assessee filed appeal before the Income tax Appellate Tribunal. 8. The ld. AR reattracted the submissions made before the lower authorities. He has also filed written synopsis which is as under:- SYNOPSIS Background:- 1. For the AY 2007-08, the assessee has claimed deduction/exemption of profits in respect of 4 units as under:- S.No. Name of the Unit Deduction claimed u/s. Comments 1 Paidi Bhimavaram Unit Section 10B Without allocating corporate overheads 2 Bachupally Unit Section 10B Without allocating corporate 3 Yanam Unit Section 80IB Without allocating corporate overheads 4 Baddi Unit Section 80IC Without allocating corporate overheads 2. We submit that, the assessee has claimed the deduction under respective sections, without allocating the corporate overheads to the tax holiday/special units while filing return of income. 3. It i....
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...., panel may not enhance on the issues on which no variation is proposed in the draft order and held that, department may take recourse available under 263 or 147 or otherwise permissible under the Act (Para 19.2 at page 144 of paper book). Final Assessment Order 11. The AO has passed the Final Assessment Order u/s 143(3) r.w.s 144C(S) dated 28.10.2011. The status of the of deduction claimed for 4 units is as under in the final assessment order:- S.No. Name of the Unit Deduction claimed u/s. Status in draft order 1 Paidi Bhimavaram Unit Section 10B Deduction allowed after allocation of corporate overheads 2 Bachupally Unit Section 10B 100% of deduction allowed 3 Yanam Unit Section 80IB 100% of deduction allowed 4 Baddi Unit Section 80IC 100% of deduction allowed ITAT 12. Aggrieved by the Final Assessment Order on the issue of allocation of corporate overhead for Paidi Bhimavaram 10B unit, the Appellant herein filed an appeal before the ITAT in ITA.No.2229/Hyd/2011 raising the ground that corporate overhead should not be allocated. The Hon'ble ITAT vide order dated 2 January 2....
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....mit that, there is no mistake in Final Assessment Order, which can be subject to rectification. However, in the subject case, the AO has sought to rectify the aforesaid Final Assessment Order, which is beyond his jurisdiction/power. 19. It is pertinent to note that for the subject AY for one 10B unit in Paidi Bhimavaram, the deduction was restricted by allocating net corporate overhead during the course of regular assessment proceedings. Therefore the principle of debatable issue does not arise for the same. However, in respect of 80lB and 80lC units are concerned the deduction was sought to be restricted in proceedings under section 154 of the Act. It is respectfully submitted that only in respect of adjustment made in 154 proceedings, it has to be adjudicated whether or not the issue is debatable. 20. Therefore, merely because the deduction was restricted for one unit under regular assessment, the same cannot be a basis to determine whether the said disallowance should be also restricted for 80lB and 80le units ignoring the fact that both the proceedings are completely different and only if the proceedings are legally valid the addition proposed could be sustain....
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....curred at corporate office while computing the deductions. The AO also cannot review his own order in support of his arguments, he relied on the following judgments 1.Hon'ble ITAT, Hyderabad Bench in ITA No.150 & 151/Hyd/2014 for AY 2003-04 & 2004-05 2.Hon'ble Surpeme court in the case of T.S.Balaram, ITO vs Volkart Brothers (82 ITR 50) 3. Hon'ble Supreme court in the case of Mepco Industries Ltd vs CIT 185 taxman 409 4. Hon'ble Gujarat High court in the case of Gujaraat State Seeds Coproation Ltd. vs. ITO 68 taxman.com 104 5. Hon'ble High court Rajasthan in the case of CIT vs. United Mercantile co.(p.) Ltd. 27 taxman 404 6. Hon'ble Kolkata Judgment in the case of CIT vs. Essel Mining & Industries Ltd. 53 taxmann.com 292 7. Hon'ble Bombay High court in the case of CIT v. Reliance Industries Ltd. 48 tamxnan.com 362 8. Hon'ble Allahabad High court in the case of Kesharwani Zarda Bhandar vs. CIT 30 tamxnan.com 362 9. Hon'ble chandigarh tribunal judgment in the case of S.R.Industries Ltd. vs. ACIT 62 taxmann.com 677 10. Hon'ble chandigarh Tribunal judgment in the case of S.R.Industries Ltd. vs ACI....
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....The assessee is running four units, which are eligible for deduction/exemptions as per u/s. 10B, 80IB and 80IC. The ld. AR of the assessee has vehemently submitted that there was a debatable issue to which the rectification cannot be made u/s 154 of the Act is not acceptable because, the corporate expenditures are not related only for the corporate office, the expenditure are relating to the controlling and managing of the entire business of the assessee, whether it is a exempted unit or non exempted unit. Therefore, the expenditures should be apportioned among the all business units of the assessee for true computation of the taxable profit. The assessee has not apportioned but the revenue authorities consistently apportioned the corporate expenditures and the Hon'ble ITAT in ITA No.2229/Hyd/2011 for AY 2007-08 held as under:- "59.As regards Ground No.13, brief facts are that the assessee claimed deduction u/s 10B of the Act for one Unit at Bajpally and another unit at Paidi Bhimavaram. During the assessment proceedings, assessee filed the copy of the Board of Industries only in the case of Bajpally Unit and for the other Unit, no such ratification letter was filed. T....
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....zers Ltd., In Re (145 Taxman 5) b) CIT vs. Kanmani Metals & Alloys Ltd (183 ITR 327(Bom.) c) Tide Water Oil Co. (India) Ltd vs. CIT (353 ITR 300(Cal.) d) Income Tax Appellate Tribunal's order in assessee's own case reported in (2014) 30 ITR (Trib.) 434. e) CIT vs. Hindustan Unilever Ltd (2014) 42 taxmann.com 132 (Mad). 61. Without prejudice to the above contention, the assessee prayed that the expenses are to be allocated to the respective units by taking the note of the expenditure for allocation. 62. The learned DR however, supported the orders of the authorities below and submitted that the corporate entity also has invested the time of its employees on the effective functioning of the 10B Unit and therefore, the corporate overheads are to be allocated amongst all the Units proportionate to their turnover. 63. Having regard to the rival contentions and the material on record, we find that in the assessee's own case for the A.Y 2006-07, the Coordinate Bench of this Tribunal at Mumbai has considered this issue at Para 12.5 and following the decision of the assessee's own case for A.Y 2003-04, this issue....