TaxTMI 
TaxTMI 
2025 (7) TMI 1423
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.... cases. Grounds taken by the assessee and Revenue in appeal of AY 2013-14 are extracted here under: ITA No. 2622/Del/2018, A.Y. 2013-14 "1. The Assessee Company is aggrieved by action of CIT(A) in confirming the reduction of deduction u/s 80IC of the Act by Rs. 43,56,584/- on the ground that the allocation of Head Office indirect expenses has not been made to 80 IC units. The learned Commissioner of Income Tax (Appeals) has further erred in determining an incorrect amount of disallowance on account of incorrect determination of turnover and ignoring that an amount has already been allocated. 2. The Assessee Company is aggrieved by the order of CIT(A) on the computation of deduction u/s 10AA of the Act on the ground that the allocation of Head Office expenses amounting to Rs. 5,36,335/- made to 10AA unit has been made in excess of the amount already allocated and has further erred in determining an incorrect amount of disallowance on account of incorrect determination of turnover and ignoring that an amount has already been allocated. 3. The learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in disallowing on ad-hoc basis at....
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....s under: i. Deduction under section 80IC of the Act. ii. Deduction under section 10AA of the Act. iii. Disallowance under section 14A of the Act. iv. Disallowance of foreign travelling expenses. v. Disallowance of Club expenses. vi. Disallowance of depreciation on software license. 3. The relevant facts giving rise to these appeals of AY 2013-14 are that the assessee, manufacturer of electrical equipments; such as, switches, sockets, Air Circuit Breakers, Controls, Panels, Relays, etc., filed its income Tax Return ('ITR') of AY 2013-14 was filed on 20.11.2013 declaring income of Rs. 21,45,63,270/- under normal provisions of the Income Tax Act, 1961 ('Act') and book profit of Rs. 53,93,07,972/- under section 115JB of the Act. The case was picked up for scrutiny. Meanwhile, the assessee, noticing incorrect challan number of self-assessment tax mentioned in the ITR, revised its original ITR on 30.01.2014 though there was no change in the income declared in the original ITR. Again, the first revised ITR was further revised on 30.03.2015 showing income of Rs. 22,12,26,430/- under normal provision of the Act and book profit of Rs. ....
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....he Revenue; ITA No.2532/Del/2018 and ITA No.2533/Del/2018 of AYs 2013-14 and 2014-15 are not maintainable as per the CBDT Circular No.09/2024 dated 17.09.2024. Hence, these appeals stand dismissed accordingly. However, the Revenue has full liberty to file Miscellaneous Applications ('MA'), within stipulated time period, if tax effect in any of these cases is found above the threshold limit. Assessee's appeal; ITA No.2622/Del/2018: 5. Issues raised in assessee's appeal of AY 2013-14 are as under: i. Deduction under section 80IC of the Act on account of allocation indirect expenses of the Head Office of Rs. 43,56,584/- (Gr. No. 1) ii. Deduction under section 10AA of the Act on account of allocation of indirect expenses of Head Office of Rs. 5,36,335/- (Gr. No. 2) iii. Disallowance of foreign travelling expenses of Rs. 13,42,417/- (G. No. 3) iv. Disallowance of Club expenses of Rs. 1,59,005/- (Gr. No. 4). 6. The assessee has claimed deductions under section 80IC and 10AA of the Act for its units situated in Uttarakhand and NOIDA respectively. The AO, questioning the pricing of goods/material transferred to & from exempted to non-exempted un....
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.... to furnish the details of Head Office Expenses and to explain as to why the head office expenses related to the administration and establishment should not be allocated to the tax exempt unit because the head office activities relate to the entire business comprising of taxable units and not taxable units. 4.6 The assessee's submissions in this regard vide letter dated 16.03.2016 were as under: "We submit that, as per law, profits derived from SEZ and industrial undertakings are eligible for exemption u/s 10AA, deduction u/s 801C and exemption u/s 10B (though no exemption has been claimed by the assessee during the year under assessment) of the Income Tax Act, 1961 respectively. There is no concept of reducing indirect expenses of Head Office. However, to avoid litigation, the allocation of Head Office expenses is done keeping in view the turnover of the 10AA & 80IC units. Further, it will not be out of place to mention that the HO not merely cater to the demands and supply of support services to the industrial units but also is bound to handle secretarial work, planning for development of new business lines, studying the policies and patterns of competitors ....
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....over of the units including inter branch transfer the assessee has not allocated the expenditure towards salary and wages, Power and fuel, vehicle running and maintenance and miscellaneous expenses of CMD & MD and depreciation amounting to 4,05,20,654/- stating that they are looking after the corporate affairs since they are not looking after the affairs of the beneficiary units which are managed by independent staff these expenses in proportion to their salary cannot be allocated to the exempt units. The contention of the assessee cannot be accepted because it's not possible that a promoter/share holder will not look after the exempt units and leave them at the mercy of other staff members whose stake are limited to salary, wages and some perks where as he has put in his capital in that business and has to essentially apply himself to all aspects of business to safeguard his capital and increase profit. 4.8 Therefore, the assessee's contention having not been accepted for the reasons mentioned above the common expenses incurred by the head office aggregating to Rs. 4,05,20,654/- in respect of payments made to CMD & MD and the Director and depreciation are required....
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....ot followed, then what would stand allowed under Section 80IA would be inflated profits and not the net profits derived from the industrial undertaking in terms of the provisions of Sections 29 to 43." The expenses incurred by the head office are allocated between all units; tax exempt units as well as taxable units on the basis of their turnover. The share of common expenditure incurred by the head office toward payments to CMD & MD and the Director and depreciation as discussed above in respect of allocation of expenses to 80IC benefit unit is allocated to the 10AA benefit unit on the proportionate basis of its turnover. The assessee has sua moto allocated out of some heads of expenses an amount of Rs. 1,52,53,651/- as expenses of 10AA unit. However, by allocating the share of common expenditure incurred by the head office toward payments to CMD & MD and the Director and depreciation and including the expenses suo-moto allocated by the assessee the amount should have been Rs. 1,68,92,884/-. Thus, the total amount allocated out of the head office expenses other than out of heads of expenses already allocated by the assessee comes to Rs.16,39,233/- (Rs. 1,68,92,884-1,52,53....
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....given the finding that profit of eligible unit were not higher in comparison with the other business. The Hon'ble ITAT relied upon tribunal own order in the case of CAT Vision Products Ltd. (supra) and also mentioned that Ld. DR could not brought to our knowledge any contrary decision. These findings of the ITAT shows that factually the present case is different from A.Y. 2008-09. In the present case the appellant has not submitted details of gross profit and net profit ratio of eligible unit vis-à-vis other business units. In absence of these details, I do not see any reason to take a different stand and I intend to follow the order done in the case of appellant by my predecessor CIT(A) for A.Y. 2011-12. While deciding the appeal for A.Y. 2011-12 the Ld. CIT(A) has observed as follows: - "5. Ground no 1.2 and 2 pertain to allocation of certain Head Office expenses in the ratio of turn over to 80IC units and 10AA units. These expenses fall in four categories i.e. salaries of CMD/MD, interest expenses pertaining to car loan of CMD/MD, depreciation and exchange rate difference. In the assessment year 10-11, the CIT(A) held that the salaries of CMD and MD are to be....
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....the amount received from the sale of Scrap cannot be excluded for the purpose of computing deduction u/s 10A" For the A.Y. 2011-12, the CITIA) allowed the appeal on the same issue following ITAT decision. Following the above order of Hon'ble ITAT Bangalore, ground no. 2.1 of the appeal is allowed." 8. At the outset, the Ld. AR submitted that the Ld. CIT(A), following the finding of his predecessor's decision in the assessee's case for AY 2011-12 verbatim, directed the AO to restrict the claim of deductions under section 80IC and 10AA of the Act. However, the AO did not follow the same while giving effect to the impugned order. The relief by the CIT(A), as per the assessee, worked out to Rs. 23,01,067/- and Rs. 2,83,282/- under section 80IC and 10AA of the Act respectively (Thus, the Ld. CIT(A) upheld the addition of Rs. 43,56,584/- and Rs. 5,36,335/- under section 80IC and 10AA of the Act). However, the AO did not allow the said relief. Hence, the assessee filed applications for rectification in this regard. 9. The Ld. AR drew our attention to the order of the coordinate bench in assessee's own case in ITA No. 2033/Del/2014, 6178/Del/2014 & 3381/Del/2016, to subm....
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.... the same the ground is decided in favour of the assessee. 5. The Ground no. 1.1. The issue relates to deduction u/s 80IC denied by Ld. AO on the ground that the allocation of 'head office' expenses had not been made to benefit claiming 80IC units. It comes from the order of ld. CIT(A) that on page no. 22 he has discussed ground no. 2.1(i) and 2.2(i) which were on the connected issue but has not given any conclusive findings. Thus considering same to be declined the ground is being decided. Ld. AR has pointed out that vide ITA no. 3364/Del/2013 for A.Y. 2008-09, the issue has been discussed in favour of the assessee with following relevant findings and following the same the ground is decided in favour of assessee; "We noted that in the case of Catvision Products Ltd. 84 TTJ (Del) 241. This Tribunal has held that only the direct expenditure had to be considered while working out the profit for the purpose of deduction u/s 80IC. Mumbai Bench of the ITAT also in the matter of DCW Ltd. 132 TTJ (Mum.) 442 held for the purpose of section 80IA that indirect expenses cannot be reckoned in the computation of determining the profits of the eligible undertaking. Ld. DR even....
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.... entire head office expenses required to be apportioned between various units eligible/noneligible for deductions under section 80IC and 10AA of the Act. 12. We have heard both parties at length and have perused the material available on the record. On pointing out to the Ld. AR that the issue of apportionment of Head Office expenses for the purpose of claiming deduction under section 80IC of the Act decided by the Hon'ble Delhi High Court in assessee's case for AY 2006-07 in favour of the Revenue [ITA No.1155/2011 reported in 2011 TIOL-825-HC-DEL-IT], the Ld. AR distinguished the case in hand by submitting that the Hon'ble High Court had not decided any proposition of law and the said order was based on facts only. Further it was submitted that the Head Office expenses to a large extent had been apportioned amongst various units and disputed expenditure was only around 5% of Head Office expenditure. The disputed amount was around 5- 6% of Head Office expenses only. It was contended that the salary of three promotor directors; namely, Mr. Rishi Nath Khanna, Mr. Anuj Khanna and Mr. Aditya Khanna had been debited to respective units. Thus, the AO's claim that manufacturing units h....
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.... trend of disallowances made in this regard as highlighted by the Ld. CIT(A), we restrict the disallowances @ 10% and 20% of foreign travelling and club expenses instead of 15% and 33.33% upheld by the Ld. CIT(A). The respective grounds raised in this regard are thus stand partly allowed as above. The assessee gets consequential relief. 15. In the result, the assessee's appeal; ITA No.2622/Del/2018 is partly allowed as above. Assessee's appeals; ITA Nos.2623/Del/2018 and 7981/Del/2018: 16. The above finding will apply mutatis mutandis in these appeals. 17. In view of the above, we therefore, following the decision of the Coordinate Bench in assessee's own case in ITA No. 2033/Del/2014, 6178/Del/2014 & 3381/Del/2016, delete disallowances of Rs. 26,39,859/- and Rs. 7,10,295/- of AY 2014-15 and disallowances of Rs. 31,10,758/- and Rs. 9,07,524/- of AY 2015-16 under section 80IC and 10AA of the Act respectively by the AO and sustained by the Ld. CIT(A). The respective grounds raised in this regard in both appeals are thus stand allowed accordingly. The assessee gets consequential relief in both years. 18. The next issue is in respect to disallowances made out of foreign ....
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....y the disallowances of Rs. 40,84,091/- and Rs. 11,91,481/- made under section 80IC and 10AA of the Act deleted by the Ld. CIT(A). 24. In view of the above finding in ITA No. 2033/Del/2014, it is hereby inferred that the indirect expenses claimed under the Head Office expenses are required to be incurred for overall growth of the appellant company and such expenses have not directly impacted the profits 'derived from industrial undertaking'. Accordingly, Grounds Nos.1 and 2 raised by the Revenue fail. 25. The next issue is with respect to the disallowance of deduction under section 10AA of the Act arising from the scrap sale of Rs. 34,12,997/-. The AO disallowed it on the reasoning that the scrap sale was domestic sale and it had no relation with the export sale eligible for deduction under section 10AA of the Act. On the other hand, the assessee's claim is that it directly reduces the cost of inputs resulting export sale and thus, it has direct correlation with the deduction under section 10AA of the Act. The Ld. CIT(A), following the decision of the ITAT in the case of Wipro Ltd. in ITA No.972/Bang/2011, deleted the disallowance in this regard. The Ld. AR, placing reliance o....