M/s. Tajmahal Agro Industries P Ltd., CHENNAI V. ACIT, CHENNAI

ITA 580/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61081 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-05-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 19-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P VIJAYAKUMAR
• Assessee Lawyers: P KUMAR
• Keywords: Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AN D SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 580/MDS/2010 ASST. YEAR : 2004-05 M/S. UCAL MACHINE TOOLS LTD., 177, MOUNT ROAD, CHENNAI 600 002. PAN : AAACU0826D. (APPELLANT) V. THE INCOME TAX OFFICER, COMPANY WARD III(1), CHENNAI. (RESPONDENT) APPELLANT BY : SHRI P. KUMAR RESPONDENT BY : DR. P. VIJAYAKUMAR, CI T DATE OF HEARING : 27 TH AUGUST 2012 DATE OF PRONOUNCEMENT : 25 TH SEPTEMBER 2012 O R D E R PER ABRAHAM P GEORGE, A.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST A N ORDER DATED 04.3.2010 OF CIT(APPEALS) THE ASST. YEAR 2004-05. FIRST GRIEVANCE IS THAT CIT(APPEALS) UPHELD THE ALLOCATION OF HEAD OFFICE E XPENSES DONE BY THE ASSESSING OFFICER FOR COMPUTING DEDUCTION UNDER SEC .80AB OF THE I.T. ACT, 1961 FOR THE IMPUGNED ASST. YEAR. AS PER THE ASSESSEE, EXPENSES INCURRED IN THE HEAD I.T.A. NO.580/MDS/2010 2 OFFICE WERE OF AN INDIVISIBLE NATURE AND PRINCIPLE OF APPORTIONMENT COULD NOT BE APPLIED. 2. FACTS APROPOS ARE THAT THE ASSESSEE ENGAGED IN MANUFACTURE OF AUTOMOBILE COMPONENTS, SUB ASSEMBLIES, DIES AND MOU LDS AND PRESSURE DIE CASTINGS HAD FILED ITS RETURN DECLARING AN INCOME O F F1,59,81,916/-. ON VERIFICATION OF THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE UNDER SEC.80IB OF THE ACT, ASSESSING OFFICER NOTED THAT ONLY AN AMOUNT OF F8,60,000/- OUT OF HEAD OFFICE EXPENSES WERE ALLOCATED TO PONDICHERRY UNIT, ON WHICH SUCH DEDUCTION WAS CLAIMED. ASSESSEE WAS HAVING UNITS BOTH AT MARAIMA LAI NAGAR AS WELL AS PONDICHERRY AND THE CLAIM OF DEDUCTION UNDER SEC.80 IB OF THE ACT WAS ONLY FOR THE PONDICHERRY UNIT. THE SUM OF F 8,60,000/- LAKHS AL LOCATED BY THE ASSESSEE TO PONDICHERRY UNIT PERTAINED TO SALARY PAID TO ITS DI RECTOR, PRESIDENT AND COMPANY SECRETARY AND SUCH ALLOCATIONS WERE DONE BASED ON T URNOVER. HOWEVER, OFFICE RENT, CHAIRMANS RESIDENCE RENT AND OTHER EXPENSES OF HEAD OFFICE WERE NOT ALLOCATED TO PONDICHERRY UNIT. TOTAL EXPENDITURE O F THE HEAD OFFICE CAME TO F. 2,27,36,506/-. CONTENTION OF THE ASSESSE THAT SUCH EXPENDITURE INCLUDED CONSULTANCY FEE OF F 12.93 LAKHS AND RETAINER FEE O F F 31.80 LAKHS DIRECTLY ATTRIBUTABLE TO MARAIMALAI NAGAR UNIT, WAS ACCEPTED BY THE ASSESSING OFFICER. A.O., THEREFORE, DEDUCTED FROM THE TOTAL HEAD OFFIC E EXPENSES OF F 2,27,36,506, THE AGGREGATE OF CONSULTANCY AND RETAINER FEE PAID FOR MARAIMALAI NAGAR UNIT AND BALANCE AMOUNT WAS ALLOCATED BETWEEN PONDICHERRY U NIT AND MARAIMALAI NAGAR I.T.A. NO.580/MDS/2010 3 UNIT BASED ON THE TURNOVER. ALLOWANCE UNDER SEC.8 0IB OF THE ACT CLAIMED WAS CURTAILED BECAUSE OF SUCH ALLOCATION. AGAINST THE CLAIM OF F 16,78,291/- WHAT WAS ACTUALLY ALLOWED WAS F 8,40,480/-. 3. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT ASSESSING OFFICER NOT ONLY HAD COMMITTED A MIS TAKE IN MAKING THE ALLOCATION OF HEAD OFFICE EXPENSES BASED ON TURNOVER, BUT HAD ALSO GOT THE PERCENTAGE OF TURNOVER OF PONDICHERRY UNIT TO THE TOTAL TURNOVER, WRONG. ACCORDING TO THE ASSESSEE, TURNOVER OF PONDICHERRY UNIT WAS ONLY 14. 21% OF THE TOTAL TURNOVER AGAINST 20% CONSIDERED BY THE ASSESSING OFFICER. AS PER THE ASSESSEE, IT WAS CARRYING ON AN INDIVISIBLE BUSINESS AND WHEN AN IND IVISIBLE BUSINESS WAS BEING CARRIED ON, APPORTIONMENT OF EXPENSES COULD NOT BE DONE. RELIANCE WAS PLACED ON THE DECISION OF HONBLE APEX COURT IN THE CASE O F RAJASTHAN STATE WAREHOUSING CORPORATION V. CIT (245 ITR 450) AND THE DECISION O F A CO-ORDINATE BENCH IN THE CASE OF ACIT V. TAMIL NADU SILK PRODUCERS FEDERATIO N LTD. (104 ITD 623) HOWEVER, THE CIT(APPEALS) WAS NOT IMPRESSED BY THE PLEA THAT ALLOCATION BASED ON TURNOVER WAS INAPPROPRIATE. CIT(APPEALS) NOTED THAT IN ASSESSEES OWN CASE FOR ASST. YEAR 2002-03, THIS TRIBUNAL HAD RESTORED THE SAME ISSUE TO THE ASSESSING OFFICER FOR CONSIDERING THE DECISION OF T HE HONBLE APEX COURT IN THE CASE OF OF RAJASTHAN STATE WAREHOUSING CORPORATION V. CIT (SUPRA) AND DECIDING THE ISSUE AFRESH. IN ANY CASE, ACCORDING TO HIM TH E DECISION RELIED ON BY THE ASSESSEE IN SUPPORT OF ITS CASE, WAS WITH REGARD TO APPLICABILITY OF SEC.14A OF THE I.T.A. NO.580/MDS/2010 4 ACT WHICH DEALT WITH APPORTIONMENT OF EXPENSES AGAI NST EXEMPT INCOME. THESE WERE NOT APPLICABLE ON FACTS IN THE CASE OF THE ASS ESSEE. NEVERTHELESS, HE HELD THAT THE ASSESSING OFFICER HAD TO CONSIDER THE ACTU AL TURNOVER AS SUBMITTED BY THE ASSESSEE FOR THE PONDICHERRY UNIT WHILE MAKING THE SAID APPORTIONMENT. BUT FOR THIS DIRECTION, THE CIT(APPEALS) UPHELD THE ORDER O F THE ASSESSING OFFICER. 5. BEFORE US, THE AUTHORISED REPRESENTATIVE STRONG LY ASSAILING THE ORDER OF THE LOWER AUTHORITIES SUBMITTED THAT THE RATIO O F THE DECISION OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. KINGS EXPO RTS 318 ITR 100 SUPPORTED THE CASE OF THE ASSESSEE. ACCORDING TO HIM, EXPEN SES OF HEAD OFFICE WERE INDIVISIBLE AND WHEN IT WAS INDIVISIBLE THERE WAS N O QUESTION OF ANY PRINCIPLE APPORTIONMENT BEING APPLIED. FURTHER, APPORTIONMEN T BASED ON TURNOVER WAS NOT APPROPRIATE IN ASSESSEES CASE. HE, THEREFORE, PLE ADED THAT CURTAILMENT OF DEDUCTION UNDER SEC.80IB OF THE ACT WAS NOT JUSTIFI ED. 6. PER CONTRA, THE DEPARTMENTAL REPRESENTATIVE SU PPORTED THE ORDER OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE VIEW TAKEN BY THE LOWER AUTHORITIES WERE SUPPORTED BY TRIBUNALS DECISION IN ASSESSEES OWN CASE FOR ASST. YEAR 2003- 04. ACCORDING TO HIM, THE VERY SAME ISSUE WAS CONS IDERED BY THIS TRIBUNAL AND REMITTED BACK TO THE ASSESSING OFFICER FOR MAKING A PPROPRIATE ALLOCATION OF EXPENDITURE OF THE HEAD OFFICE BASED ON ACTUAL TURN OVER OF THE PONDICHERRY UNIT. I.T.A. NO.580/MDS/2010 5 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IT IS NOT DISPUTED THAT ASSESSEE HAD ALLOCATED ONLY A SUM OF F 8,60,000/- OF THE TOTAL HEAD OFFICE EXPENSES TOWARDS ITS PONDICHERY UNIT. A S AGAINST THIS, THE TOTAL EXPENDITURE OF THE HEAD OFFICE EXPENSES, EXCEPT FO R THE AMOUNT WHICH ASSESSEE COULD SHOW AS DIRECTLY INCURRED FOR MARAIMALAI NAGA R UNIT, WAS ALLOCATED BY THE ASSESSING OFFICER BETWEEN PONDICHERRY AND MARAIMALA I NAGAR UNITS BASED ON TURNOVER. IN OUR OPINION, CLAIM OF THE ASSESSEE TH AT HEAD OFFICE EXPENSES WHICH WERE IN THE NATURE OF OFFICE RENT, CHAIRMANS RESID ENCE RENT AND THE LIKE WAS TO BE CHARGED ONLY ON MARAIMALAI NAGAR UNIT CANNOT BE ACC EPTED. HEAD OFFICE WAS, BY ITSELF, NOT EARNING ANY INCOME. OPERATIONS OF THE ASSESSEE AND ITS BUSINESS WERE DONE FROM THE UNITS AT MARAIMALAI NAGAR AND PONDICH ERRY. ALLOCATION OF EXPENDITURE, BASED ON TURNOVER WHEN IT CANNOT BE DI RECTLY CHARGED TO THE UNITS, IS A METHODOLOGY WHICH HAS BEEN ACCEPTED AND FOLLOWED WORLD-WIDE. WE CANNOT SAY THAT ASSESSING OFFICER HAD MADE ANY ERROR IN MA KING AN ALLOCATION BASED ON THE TURNOVER. IT MAY BE TRUE THAT AN INCORRECT TU RNOVER OF PONDICHERRY BUSINESS WAS CONSIDERED FOR SUCH ALLOCATION. LD. CIT(APPEAL S) HAD ADDRESSED THIS ANOMALY AND DIRECTED THE ASSESSING OFFICER TO CONSIDER THE ACTUAL TURNOVER RATIO. AS FOR THE RELIANCE PLACED BY THE ASSESSEE ON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KINGS EXPORTS (SUPRA) TH ERE THE ISSUE WAS WHETHER DEDUCTION CLAIMED UNDER SEC.36(1)(VII) OF THE ACT C AN BE RESTRICTED APPLYING SEC.14A OF THE ACT ON A REASONING THAT EXPENDITURE WAS INCURRED FROM EXPORT I.T.A. NO.580/MDS/2010 6 INCOME ON WHICH DEDUCTION UNDER SEC.80HHC WAS CLAI MED. HONBLE PUNJAB & HARYANA HIGH COURT HELD THAT SEC.14A WAS NOT APPLIC ABLE IN SUCH A SITUATION. FACTS HERE ARE ENTIRELY DIFFERENT. WE ALSO FIND TH AT SIMILAR ISSUE HAD COME FOR CONSIDERATION BEFORE THIS TRUIBUNAL IN THE CASE OF THE ASSESSEE FOR ASST. YEAR 2003-04 WHERE IT WAS HELD THAT ALLOCATION BASED ON TURNOVER WAS APPROPRIATE. CO-ORDINATE BENCH WHILE ARRIVING AT THIS CONCLUSION HAD ALSO CONSIDERED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RAJASTHAN STATE WAREHOUSING CORPORATION V. CIT (SUPRA). EVEN OTHERWISE, IN THE CASE OF RAJASTHAN STATE WAREHOUSING CORPORATION V. CIT CASE (SUPRA), ASSESS EE WAS CARRYING ON AN INDIVISIBLE BUSINESS AND THE QUESTION WAS REGARDING APPORTIONMENT BETWEEN TAXABLE AND EXEMPT INCOME. DEDUCTION UNDER SEC.80I B OF THE ACT IS NOT EQUIVALENT TO A CLAIM OF EXEMPTION. AS FOR THE DE CISION OF CO-ORDINATE BENCH IN THE CASE OF TAMILNADU SILK PRODUCERS FEDERATION LTD . V. CIT (SUPRA) THERE IT WAS HELD THAT SEC.14A OF THE ACT WAS NOT APPLICABLE FOR BUSINESS DEDUCTIONS CLAIMED UNDER CHAPTER VIA OF THE ACT. HERE, IN THE CASE BE FORE US ALSO, THERE IS NO QUESTION REGARDING APPLICATION OF SEC.14A OF THE AC T AT ALL, BECAUSE THE SAID CLAIM WAS FOR A DEDUCTION UNDER SEC.80IB AND NOT AN EXEMP TION COMING UNDER SEC.10. THUS, NONE OF THE CASES RELIED ON BY THE ASSESSEE W ILL HELP ITS CASE. WE, THEREFORE, DO NOT FIND ANY MERITS IN THE APPEAL FIL ED BY THE ASSESSEE. I.T.A. NO.580/MDS/2010 7 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 9. ORDER PRONOUNCED IN THE OPEN COURT AFTER HEARIN G ON TUESDAY, THE 25 TH DAY OF SEPTEMBER 2012. SD/- SD/- ( VIKAS AWASTHY ) ( ABRAHAM P GEORGE ) JUDICIAL MEMB ER ACCOUNTANT MEMBER CHENNAI, DATED : 25 TH SEPTEMBER 2012 JLS. COPY TO:- (1) APPELLANT (2) RESPONDENT (3) CIT(A)-II, COIMBATORE (4) CIT-III, COIMBATORE (5) D.R., (6) GUARD FILE