TaxTMI 
TaxTMI 
2024 (5) TMI 1559
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....asis in respective accounts maintained unit wise for regulatory compliances with such fact of cost center basis and transaction linked evidences & supporting confirming the said cost center basis accounting. ii. Wrongly alleging in the process without going into the back ground facts of the case that the assessee to have adopted the allocation / apportionment of expenses only at such time and stage when attention with respect to not similarly apportioning expenses under some minor expense heads such eligible units in the course of the assessment proceedings, however while doing so on the basis of unit wise turnover, ignoring the fact that the assessee having already done its accounting on 'cost center Basis' both in respect of direct cost and expenses as well as in respect of material indirect expenses on the basis of a logical mathematical calculation applied to factual transaction data. 2. The Learned CIT(A)- NFAC, Delhi bye passing the sanctity of audited books of accounts which having been maintained in regular course of business on the basis of actual transaction values supported by underlying supporting documents which having been subjected to audit ....
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....t units all of which being of non material and insignificant values totaling in all to Rs. 36,36,581/- or 6.97% of the total expenses under Four Expense Accounts Groups out of the total direct and indirect expenses groups amounting in all to Rs. 5,21,82,928/- and based on the bias arising on account of such faulty approach, disregarding the entire cost center basis accounting supported by underlying documents having already been carried out at the time of occurrence of the transaction to reflect the true correct commercial profits of each unit considering the same as an independent Unit. [Section 10AA] 5. The learned AO has further erred in law and on facts in wrongly calculating Higher tax by Rs. 96,35,163 and Interest under different sections of the act totaling in all to Rs. 45,15,671 additionally payable by the assessee firm based on such aforesaid wrong approach and application of law in the impugned order. [ General Ground] 6. The assessee reserves its rights to raise additional grounds of appeal or alter or modify any ground/s of appeal before the date of hearing of appeal. [General Ground]" 3. Succinctly, the fact as culled out from the records is that ....
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....ts allocation of finance cost based on actual usage of fund and other expenses on actual basis. However, the ld. AO did not consider the submission of the assessee and has based on the percentage of 62 to non eligible unit and 38% to eligible unit the apportioned the expenditure without appreciating the basis of the assessee for allocation of expenses and thereby addition of Rs. 1,57,63,792/- was made in the hands of the assessee. 4. Aggrieved from the order of the assessment, assessee preferred an appeal before the ld. CIT(A)/NFAC. Apropos to the grounds so raised the relevant finding of the ld. CIT(A)/NFAC is reiterated here in below: "5. I have gone through the assessment order and the submissions made by the appellant. Ground No. 1 to 3 are all relating to addition made by the AO to the income of the non-eligible units by treating the expenditure debited in non-eligible units pertaining to the eligible units u/s. 10AA of the Act. The facts of the case are that the appellant is having four units in all, out of which two units are SEZ units and other two are normal units. The contention of the AO in making the addition is that out of the total turnover of the appellan....
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....he Assessing Officer necessary documents to establish that the common expenses have not been disproportionately allocated so as to claim more relief under Section 80IB of the Act. Thus, the Courts have held that the assessees have to maintain proper records to show that the allocation of expenditure has been done appropriately between the units else the assessing officer can make proper allocation which may result in addition to the income declared. In the instant case, as seen from the assessment order, the appellant has not given the proper allocation between the eligible units and non-eligible units which has resulted in the AO making addition. 5.2 During the appellate proceedings, the appellant has given various reasons for non- allocation of indirect expenses to the eligible units. The reasons being independent operations, independent material movement, independent stock records, customs controls etc. However, these reasons are not convincing as to why the indirect expenses cannot be debited on proportionate basis to the eligible units and why they are to be debited only in the non-eligible units. Even the appellant stated that the actual finance cost incurred by the ....
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....g the totals of expenses under respective heads of expenses to support the contentions of the appellant assessee [refer to pages 52 to 56 of the Paper Book] that all material/ major expenses have been accordingly booked and accounted for on voluntary basis by the appellant firm. 3. Accordingly, the AR outright refutes and rejects the findings by the CIT(A)/ NFAC in his Order dt. 23.08.23 in Para 5.2. at Page 14 holding as under to be factually incorrect and wrong, misleading and solely directing to a baseless bias in the mind of the CIT(A): ".... Even the appellant stated that the actual finance cost incurred by the main unit (non-eligible unit) for the eligible units is Rs. 20,39,923/-. Then the question arises as to why this amount was not allocated to the eligible units before filing the return and why this plea is taken only when the AO has made the addition. At the same time, it is seen that the appellant does not have a proper system of allocation of indirect expenses against all the units by applying proper criteria of using particular facility or on the basis of turnover etc. When the appellant has not done the allocation by applying proper criter....
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....ferent units based on actual usage of funds all of which working furnished both to the AO as well as to the CIT(A)'s and all of which also elaborately extracted and reproduced in the body of the impugned CIT(A)'s Order dt. 23.08.23 itself at Pages 8 to 10 and closed in the following manner at the top of page 10 of the CIT(A)'s Order: x. Average rate of the two assumed for applying to Funds used by the Two SEZ Units calculated on daily product basis as per working sheet attached Marked Annex. 11 @ 13% xi. Interest applied to SEZ- G1_41 Unit & Rs. 12,91,094 xii. Interest applied to SEZH1-72 Units Rs. 7,48,829 xiii. Total Interest as above correspondingly credited in Main Unit Rs. 20,39,923 Rs. 20,39,923 The aforesaid working at Annex.11 was explained to the AO and working sheet for determination of 2 SEZ Units cost of funds @ average rate of 13% was shared with the AO in the course of assessment proceedings, but was ignored without giving any adverse finding w.r.t. the same as to why same not considered. (Annex. 7-10) Further extracts from the order dt. 23.08....
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.... Thus an error in calculations, which is explained by the chart below: Unit wise Profit & Loss Groupings for the Year 2015-16 PARTICULARS Main EPIP SEZ G1-41 SEZ -H1-72 2015-2016 Actual Proportion 63.40% 0.89% 15.50% 20.21% 100.00% Together 35.71% Proportion considered by the AO in her Order 62.00% Together 38% From Page 13..... Para 5. "............................... The AO held that the indirect expenses such as travelling, administrative and selling expenses, export expenses etc. should have been allocated between the eligible units and non-eligible units in proportion to their turnover. However, it was found by the AO that most of the indirect expenses have not been apportioned on the basis of the turnover............................... ............. Hence, the AO has apportioned various indirect expenses in Table - II reproduced on page 3 & 4 of the assessment order wherein all the indirect expenses which should have been apportioned on the basis of the turnover / income ear....
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....location of material indirect cost without any changes. 8. It is also evident from the extracted para 5 of the impugned order quoting the AO that all along while the point of disagreement was primarily w.r.t. 'indirect expenses and their apportionment', all of which totalled to a mere Rs. 49,94,866/- as detailed at page 76 of the paper book and not Rs.1,57,63,792/- as noted above by the AO and on which issue and figure no application of mind made by the CIT(A) in respect to which at most the apportionment may be further possible or done in the ratio of turnover of the respective Units . 9. Furthermore, as argued and submitted by the AR relying upon various decisions of the courts holding that any systematically adopted method of accounting and allocation of expenses followed by assessee should not be replaced or substituted by another method without dealing with the objections and submissions made by the appellant and doing otherwise would be biased and perverse, placing reliance upon the Judgements of : i. Divine Chemtec Ltd. v. IT Dept. NFAC [2023] 153 taxmann.com 528 (A P & Telangana) ii. Sreeleathers [2022] 143 taxmann.com 435 (Calcutta) ....
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.... ii. Unit wise/Cost Centre wise Columnar Grouping of P&L items attached with Audit Report u/s 44AB of ITA 52-56 iii. Working of Interest on Unsecured and Secured Borrowings with month wise transaction totals from accounting software to arrive at Average rate of Borrowings of total funds 57 iv. SEZ Unit wise summarised day wise totals with period of use of such funds to determine cost of funds used by the respective Two Nos. of SEZ Units with individual entry wise Ledger account containing each transactions made as featuring in Main Units Ledger maintained on accounting software. 58-66 V. Unit wise Gross Profit working with total GP for the year and preceding year. 67 Written Submissions made multiple times, first time during physical hearing on hearing on 08.11.19; then on 18.12.19; then on 08.01.21 then on 11.02.21 and then finally on 27.06.22. 5. Unit wise Stock Summary details (opening+ purchases+ production+ sales+ closing stocks) for FY 2015-16 as submitted with 3CD particulars as well as on 26.11.18 before the AO 68-71 6. Debtors Columnar Summary of respective Units for FY 2015- 16 refl....
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....n taking the view that the assessee has not done the allocation by applying proper criteria. Before us the ld. AR of the assessee placed reliance on the chart at page 76 of the assessee's paper book which is reproduced here in below; On perusal of the above chart comparing with the tabulated profit and loss account submitted by the assessee in his paper book page 54 to 56 the bench noted that manufacturing expenses, Insurance Vehicle & Staff, Travelling Expenses & Adm. & Selling excluding Rent, Security, VAT, Legal & Professional charges, staff welfare, Export Expenses, Finance Charges, Bank Charges & Internet and Mobile expenses are directly attributable to represent unit and allocating the same on the percentage basis is not correct approach when the separate set of books are maintained by the assessee, get them audited by an independent chartered accountant and the same being regularly and consistently maintained. Those book results were not rejected. The ld. AR of the assessee fairly admitted that the assessee under the bona fide belief has not apportioned the expenditure to the extent of Rs. 49,94,866/- to the exempted unit and he has consented that if the same is allocated....