TaxTMI 
TaxTMI 
2024 (4) TMI 1416
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.... on the ground that portion of the expenses on staff welfare was in the nature of entertainment expenses disallowable u/s 37(2A) of the Act, the section 37(2A) having been deleted with effect from A. Y. 98-99, the disallowance ought to be deleted. 2. Learned Commissioner of Income Tax (Appeals) has erred in confirming that while computing deduction u/s 80IA following expenses are allocable to Kanjikode and Goa Unit. a. Rs. 995.18 Lacs out of Corporate Office Expenses b. Rs. 43.30 Lacs out of Corporate Advertisement Expenses and c. Rs. 132.48 Lacs out of Head Office Depreciation. On the facts and in the circumstances of the case, he ought to have held that the aforesaid expenses are not to be allocated while working out the profits of Goa and Kanjikode undertakings for the purpose of deduction u/s.80IA of the Without prejudice to the above, the Learned Commissioner of Income Tax (Appeals) erred in holding that the proper method of allocating the expenditure would be on the basis of the turnover. The Learned Commissioner of Income Tax (Appeals) ought to have held that only the incremental expenses incurred after Goa and Kanjikode undertaki....
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.... @30% and 100% respectively. 6. With regard to Ground No. 1 raised by the assessee, which is in respect of adhoc disallowance of staff welfare expenses, the relevant facts are, the Assessing Officer observed that assessee has claimed welfare expenses of Rs..170.30 lacs. It has filed the details of welfare expenses vide letter dated 21.12.2000 from which it was observed that the assessee has debited an amount of Rs..46,16,000/- on lunch, refreshment, tea, coffee etc. The Assessing Officer treated 10% of this expenses amounting to Rs..4,61,600/- is treated as not wholly and exclusively laid out for the purposes of business. Assessing Officer relied on the decision of Hon'ble Supreme Court in the case of L.H.Sugar Factory and Oil Mills Pvt. Ltd.v. CIT [125 ITR 293]. The Assessing Officer held that the onus is on assessee to bring all material facts on record to substantiate its claim. Accordingly, he held assessee has failed to do so, an amount of Rs..4,61,600/- is disallowed under section 37(1) of the Act and added to the total income of the assessee. 7. Aggrieved, assessee preferred appeal before Ld. CIT(A). Ld. CIT(A) after considering the submissions of the assessee, he ....
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.... same by restricting the disallowance @5% relying on the order of preceding assessment year. It is rightly brought to our notice by the Ld.AR of the assessee that in the preceding assessment year there was a specific section under section 37(2) of the Act to disallow the entertainment expenditures incurred by the assessee. Since section 37(2) was omitted from the A.Y. 1998-99, the expenditure on the welfare of the employees is recognized as an allowable expenditure. Therefore, the expenses incurred by the assessee on the welfare of the employees are allowed as expenditure. Since the expenditure incurred are relating to lunch, refreshment, tea, coffee etc., which was also confirmed by the Assessing Officer, therefore, this expenditure is purely relating to refreshment expenditure incurred by the assessee for the benefit of the employees. Therefore, in our view, this expenditure is incurred wholly for the purpose business and Assessing Officer cannot resort to disallow certain expenditure on adhoc basis. Accordingly, we direct the Assessing Officer to allow the expenses incurred by the assessee for the benefit and welfare of the employees. Accordingly, Ground No. 1 raised by the asse....
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....as asked to explain why the expenses under the above heads should not be allocated to the KKD and Goa Units. 15. In response, assessee vide its letter dtd. 19.01.2000 has stated that the company had manufacturing facility at Sweree, Mumbai for manufacture of Parachute Coconut Oil before setting up of new units at KKD and Goa. No separate establishment was set up for catering to KKD and Goa unit. Therefore, no substantial incremental expenses in the nature of establishment expenses has been incurred by the company for setting up of the KKD and Goa unit. It also submitted that it has considered all the expenses incurred at KKD and Goa unit under the relevant heads fully. It further argued that the corporate/ head office was in existence before the above units were commissioned. The expenses of corporate office are in nature of fixed costs which do not directly depend on any of the undertakings of the company and do not depend on the operations of the unit or for that matter, any other undertaking of the company. It also stated that the ITAT decisions in the case of Food Specialties Ltd. And TATA Unysis Ltd. does not apply to the facts of the case. Without prejudice to the above, i....
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....d submitted before him that Assessing Officer erred in holding that a sum of Rs..995.18 lacs out of corporate office expenses, a sum of Rs..43.30 lacs out of corporate advertisement expenses and a sum of Rs..132.48 lacs out of head office depreciation are allocable to KKD Unit and Goa Unit. It was submitted that the expenses even if allocable should have been allocated on the incremental basis. After considering the above submissions of the assessee, Ld. CIT(A) observed that identical issue in the case of assessee has also been decided against the assessee at the stage of First Appellate Authority. Accordingly, the ground raised by the assessee is rejected. 18. Aggrieved, assessee is in appeal before us and at the time of hearing, Ld.AR of the assessee brought to our notice relevant facts of the case and submitted that assessee had set-up the Kanjikode Unit in the previous year relevant to the A.Y. 1994-95 for production of edible coconut oil which has been marketed under the brand name 'Parachute' coconut oil. The said unit qualifies for claiming deduction under section 80-IA of the Act. It is an admitted position that, for the year under consideration, the assessee was....
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....ment and sales promotion expenses in relation to 'Parachute' coconut oil has been allocated to each of the said divisions manufacturing the same based on the proportion of their sales turnover to the aggregate turnover of Parachute coconut oil (page 14 for the Kanjikode Unit and page 21 for the Goa Unit). Advertisementand sales promotion expenses relating to other products marketed by the assessee and the corporate advertisement expenses have not been allocated to the Kanjikode and the Goa unit as they have no relevance to these units. This is because both these units are only engaged in manufacture of Parachute brand coconut oil. Emphasis has been laid on these aspects as, wherever necessary, the Appellant has already allocated a proportion of the expenditure. 20. Further, Ld.AR of the assessee submitted that in the assessment order, the Assessing Officer has relied upon the finding given by him in the block assessment order dated 31.12.1999 covering the period 13.10.1988 to 04.12.1997 allocating the corporate office expenses, depreciation relating thereto and corporate advertisement expenses to the Kanjikode and the Goa Unit (paragraphs 8 to 13 at pages 3 to 6....
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.... page 13 of the Paper book) and Rs..32.08 lakh to the Goa Unit (page 17 and Note no. 4 on page 20 of the Paper book). Therefore, funds borrowed, though by the corporate office, to the extent relatable to each of the units have also been allocated by the assessee. This is based on the main claim as per the original return of income. The assessee submits that, in the facts of the present case, it was fully justified in making the aforesaid allocation and thereafter not allocating anything further from the corporate office expenses for the following reasons :- "a. A bare perusal of section 80-IA(1) of the Act, as it stood prior to its amendment by the Finance Act, 1999 w.e.f. 01.04.2000 shows that in respect of profits and gains derived from the specified business an assessee would be entitled to deduction from its gross total income ofan amount equal to such percentage from the said profits. Hence, the profits and gains which qualify for deduction under the said section has to qualify the condition relating to 'derived from'. It is well settled by now that the expression 'derived from' has to receive strict construction and the first-degree nexus has to be es....
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....ct to the advertisement and sales promotion expenses, packing material and finance cost it has accepted that no part of the said expenditure needs to be allocated to the eligible unit where they have upheld the finding given by the CIT(A) in this regard (paragraph 22 to 26 at pages 144 and 145 of the Paper Book). The conclusion reached by the Tribunal and the basis thereof supports the assessee's case for the year under consideration. 23. Further, Ld. AR of the assessee submitted that the breakup of the head office expenses of Rs..1,038.48 lakhs, as has been allocated by the AO and upheld by the CIT(A) is at page 31 as also page 36 of the Paper book. It is submitted that the said expenditure represents general administrative expenses and has no direct co-relation with the Kanjikode or the Goa unit. Further, the Kanjikode unit was set-up in the previous year relevant to assessment year 1994-95 when Sewree and Jalgaon units were already in operation. Similarly, the Goa unit was set-up in the previous year relevant to assessment year 1998-99 when the units at Kanjikode, Sewree and Jalgaon were already in operation. Therefore, the corporate office was in existence before the set....
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....s already allocated the direct advertisements to the respective units, the general advertisement expenses of the corporate advertisement cannot be once again allocated to the eligible units unless it is relating to the brand "Parachute". Other than that for the general advertisement, it need not allocate to the eligible unit. 27. With regard to corporate expenses and depreciation relating to the assets installed at the corporate office, as discussed earlier these costs are not directly relating to the operation of eligible units. As per the provisions of section 80IA, income has to be derived from the eligible unit, that means the income has to be determined on the basis of revenue generated by the eligible unit and expenses incurred in the specific eligible unit and no other outside cost to be included unless there is direct nexus to it. In the given case, the assessee has already submitted stand alone revised profit and loss account to demonstrate that the eligible unit has already absorbed all the relevant expenses like manufacturing, marketing and relevant finance cost. The AO tries to allocate the general corporate expenses which has no direct nexus to the operation of the ....
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.... charged interest @18%. He submitted that the working capital is a running requirement and the method adopted by the Assessing Officer is not proper. Further, he brought to our notice Page No. 37 of the Paper Book which is the Balance Sheet of the company wherein assessee has sufficient funds at its disposal which is far more than the loan funds taken by the assessee i.e., shareholders funds of Rs..97.89 crores and loan funds of Rs..8.91 crores and the investments in fixed assets at Rs..60.52 crores. He submitted that therefore, the assessee has sufficient working capital at its disposal and he prayed that the method adopted by the Assessing Officer is not proper and the disallowance made by the Assessing Officer on finance cost be deleted. 31. On the other hand, Ld. DR relied on the orders of the lower authorities. 32. Considered the rival submissions and material placed on record, we observe that, Assessing Officer observed that assessee has shortage of working capital in the month of October, November and December and charged interest @18% to allocate the finance cost towards the working capital requirement of the Goa unit and to that extent he made adjustment while giving....
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....e observe that as the said additional ground is legal ground, wherein, the facts are on record and facts do not require fresh investigation, following the decision of Hon'ble Supreme Court in the case of National Thermal Power Co., Limited v. CIT 229 ITR 383 (SC), we admit the said additional ground of appeal. 37. At the time of hearing, Ld. AR of the assessee brought to our notice that the identical issue has been considered by the Co-ordinate Bench of this Tribunal in assessee's own case for the A.Y. 1996-97 in ITA No. 1251/MUM/2003 dated 30.08.2007 and Coordinate Bench has adjudicated the issue and remitted the issue back to the file of the Assessing Officer. He brought to our notice Para No. 15 of the order (copy of the order is placed on record). Ld.AR of the assessee prayed that the similar direction may be issued for the year under consideration. 38. On the other hand, Ld. DR has fairly accepted the submissions of the Ld.AR. 39. Considered the rival submissions and material placed on record, we observe from the record that identical issue is decided by the Coordinate Bench in assessee's own case for the A.Y. 1996-97 in ITA No. 1251/MUM/2003 dated 30.08.2....