Vardhman Holdings Limited, Ludhiana V. ACIT, Ludhiana

ITA 786/CHANDI/2008

• Counselvise Citation: 78621514 RSA 2008
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 1998-1999
• Appeal Filed On: 03-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY SHARMA
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Business income; Proportionate interest
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: CHANDIGARH BENCH B BEFORE HONBLE MS SUSHMA CHOWLA, JM AND HONBLE SHRI MEHAR SINGH, AM ITA NO. 786/CHANDI/2008 ASSESSMENT YEAR 1998-99 VARDHMAN HOLDINGS LTD V. A.C. I.T. CIRCLE - !, LUDHIANA (FORMERLY KNOWN AS VARDHMAN SPG. & GENL MILLS, LTD) CHANDIGARH ROAD LUDHIANA PAN: AAACV 5824 C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH AGGARWAL RESPONDENT BY: SHRI AJAY SHARMA DATE OF HEARING: 29.8.2011 DATE OF PRONOUNCEMENT: .8.2011 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE ASSESSEE, FOR ASSE SSMENT YEAR 1998-99, IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), LUDHIANA-I DATED 23.7.2008, U/S 250(6) OF THE INCOME-TAX ACT ( FOR SHORT IN ACT). 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1 THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S WHILE REDUCING THE DEDUCTION U/S 80I/80IA BY RS. 53.42 LA CS ON ACCOUNT OF COMMON EXPENDITURE OF HEAD OFFICE APPOR TIONED OVER THE UNITS WHEREIN DEDUCTION U/S 80IA HAS BEEN CLAIMED. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS WHILE ALLOCATING PCD INTEREST ON NOTIONAL BASIS TO UNITS CLAIMING ITA NO. 786/CHANDI/2008 VARDHMAN HOLDINGS LTD. V. ACIT 2 BENEFITS U/S 80I/80IA AGAINST WHICH IS ALREADY ALLO CATED ON ACTUAL BASIS BY THE ASSESSEE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ORDER U/S 1 43(3) WAS PASSED, IN THE CASE ON 30.3.2001. AT THE TIME OF C OMPLETING THE ASSESSMENT, CERTAIN ADDITIONS WERE MADE INCLUDING T HE ADDITION ON ACCOUNT OF COMMON EXPENSES OF HEAD OFFICE FOR CLAIM ING DEDUCTION U/S 80IA AND 80I. THE ASSESSEE WENT IN APPEAL BEFO RE THE LD. CIT(A), WHO DECIDED THIS ISSUE IN FAVOUR OF THE ASS ESSEE. HOWEVER VIDE ORDER DATED 23.3.2006 IN ITA NO. 213/CHANDI/20 05, THE HON'BLE ITAT, CHANDIGARH BENCH, CHANDIGARH HAS SET ASIDE TH IS ISSUE TO THE FILE OF THE AO. THE AO ACCORDINGLY, PROCEEDED TO C OMPLETE THE ASSESSMENT FOR DECIDING THIS ISSUE WHICH WAS SET AS IDE BY THE HON'BLE ITAT. IN ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE EXPENSES OF HEAD OFFICE RELATED TO THE UNITS OF THE ASSESSEE COMPANY. THE AO, THEREFORE, CONCLUDED THAT THE EXP ENSES WOULD BE ALLOCATED PROPORTIONATELY TO THE UNITS CLAIMING DED UCTION U/S 80IA AND 80I IN THE RATIO OF THEIR SALES TO THE TOTAL SA LES. THE AO FURTHER OBSERVED THAT THE INCOME OF THE HEAD OFFICE WAS ALS O TO BE CONSIDERED AND EXPENSES NET OF THE INCOME I.E. RS. 6.65 CR. WERE ONLY REQUIRED TO BE SO APPORTIONED. DURING ASSESSME NT PROCEEDINGS THE AO HELD THAT THE ASSESSEE CLAIMED EXCESS DEDUCT ION U/S 80IA OF THE ACT OF RS. 73.26 LACS. 4. THE LD. CIT(A) NOTED THAT SIMILAR ALLOCATION OF HEAD OFFICE EXPENSES (NET OF INCOME) TO VARIOUS UNITS CLAIMING DEDUCTION U/S 80IA / 80I ON PROPORTIONATE BASIS WAS UPHELD BY LD. CIT(A) IN THE APPEAL RELATING TO ASSESSMENT YEAR 2003-04. FURTHE R THE FINDINGS OF LD. CIT(A) ARE REPRODUCED HEREUNDER: I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE AR FOR THE ASSESSEE AND PERUSED THE RELEVANT RECORD. IT SEEN THAT THIS ISSUE HAD COME UP FOR DISCUSSION IN APPELLANTS OWN CASE FOR EARLIER ASSESSMENT YEARS. HOWEVER FOR THE REASONS DISCUSSED IN DETAILS THEREIN VIDE O RDER DATED 8.5.2008 IN APPEAL NO. 8/37-IT/CIT(A)-I FOR ASSESSM ENT YEAR 2002-03 IT WAS HELD THAT THE AO WAS FULLY JUSTIFIED IN ALLOCATING HEAD OFFICE EXPENSES (NET OF INCOME) TO THE VARIOUS UNITS ITA NO. 786/CHANDI/2008 VARDHMAN HOLDINGS LTD. V. ACIT 3 CLAIMING DEDUCTION U/S 80IA AND 80I ON PROPORTIONAT E BASIS. THE ACTION OF THE AO IN REDUCING DEDUCTION U/S 80IA AND 80I ON PROPORTIONATE BASIS. THE ACTION OF THE AO IN RE DUCING DEDUCTION U/S 80IA AND 80I CLAIMED BY THE APPELLANT TO THE EXTENT OF SUCH ALLOCATED EXPENSES FOR DIFFERENT UNI TS WAS, THEREFORE, UPHELD. FOR THE SAME REASONS, THE ACTION OF THE AO IN ALLOCATING SUCH HEAD OFFICE EXPENSES TO THESE UN ITS ON PROPORTIONATE BASIS FOR COMPUTING THEIR RESPECTIVE DEDUCTION U/S 80IA IS UPHELD FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO. DURING APPEAL PROCEEDINGS, IT IS, HOWEVER, EXPLAINE D BY SHRI JAIN, C.A. THE A.R FOR THE APPELLANT THAT THE APPEL LANT HAD ALREADY ALLOCATED PROPORTIONATE INTEREST OF PCD AMO UNTING TO RS. 178.74 LALCS (73.68 + 106.06). THIS AMOUNT IS INCLUDED IN FINANCIAL EXPENSE OF HEAD OFFICE AMOUNTING TO RS. 6 79.62 CR. IT IS, THEREFORE, SUBMITTED THAT THE AO SHOULD NOT HAV E AGAIN ALLOCATED ALL THE HEAD OFFICE EXPENSES INCLUDING FI NANCIAL EXPENSES AS ABOVE. THE LD. AR THEREFORE, SUBMITTED THAT THERE IS DOUBLE ADDITION OF FINANCIAL EXPENSES AND WHICH WAS CLEARLY UNJUSTIFIED. THE ABOVE CONTENTION OF SHRI JAIN, C.A. IS VERIFIED TO BE CORRECT. THE AO HAS ALLOCATED TOTAL NET EXPENSES O F RS. 6.65 CR. WHICH INCLUDE RS. 3,34,27,800/- ON ACCOUNT OF INTEREST ON PCD. HOWEVER WHILE COMPUTING DEDUCTION U/S 80IA AN D 80I OUT OF THIS INTEREST, THE APPELLANT HAS ALREADY TAK EN INTO ACCOUNT INTEREST OF RS. 73,67,522/- IN UNIT NO. II AND RS. 1,05,05,541/- IN UNIT NO. III. THEREFORE, FOR ALLOC ATING THE EXPENSES, THE AO SHOULD HAVE CONSIDERED RS. 4.86 CR . (RS. 6.65 CR 1.79 CR.) BEING THE TOTAL HEAD OFFICE EX PENSES WHICH REQUIRE SUCH ALLOCATION. FOR THE SAME PROPOR TION AS CONSIDERED BY THE AO IN THE ORDER UNDER APPEAL, THE PROPORTIONATE EXPENSE RELATING TO THE THREE UNITS W OULD COME TO RS. 86 LACS (71.41/403 X 4.86). IN THE SAME RAT IO AS CONSIDERED BY THE AO, FOR ALLOCATING SUCH EXPENSES TO UNITS I, II & III, THE ALLOCATION OF RS. 86 LACS IN THE THRE E UNITS WOULD COME TO RS. 13,29 LACS, RS. 33.25 LACS AND RS. 39.4 6 LACS RESPECTIVELY. EXCESS DEDUCTION CLAIMED IN RESPECT O F THESE UNITS WOULD, THEREFORE, COME TO RS. 53.42 LALCS (30 % OF (13.29 LACS + 33.25 LACS) + 100% OF RS. 39.46 LACS). THER EFORE, THE AO IS DIRECTED TO CONSIDER EXCESS CLAIM OF DEDUCTIO N U/S 80IA AT RS. 53.42 LACS AS AGAINST THAT OF RS. 73.26 LAC CONSIDERED BY HIM IN THE ORDER UNDER APPEAL. THIS GROUND OF A PPEAL IS, THEREFORE, PARTLY ALLOWED. 5. THE AR FOR THE ASSESSEE POINTED OUT THAT THE T OTAL EXPENDITURE TO BE ALLOCATED IS RS. 6.65 CR OUT OF W HICH THE ASSESSEE HAD ALREADY APPORTIONED INTEREST ON PCD AMOUNTING T O RS. 3.34. CR TO THE RESPECTIVE UNITS. OUR ATTENTION WAS DRAWN T O THE DETAILS ANNEXED AT PAGE 1 TO 3 AND IT WAS FURTHER POINTED O UT BY THE LD. AR FOR THE ASSESSEE THAT OUT OF RS. 3.34 CR I.E. INTER EST ON PCD, RS. ITA NO. 786/CHANDI/2008 VARDHMAN HOLDINGS LTD. V. ACIT 4 1.78 CR RELATES TO TWO EXEMPT UNITS AND THE BALANCE RELATED TO OTHER UNITS OF THE ASSESSEE. THE LD. AR FOR THE ASSESSE E FAIRLY ADMITTED THAT THE BALANCE IS TO BE ALLOCATED IN THE SAME PRO PORTION AS DONE BY THE AO. 6. THE DR POINTED OUT THAT THE DEDUCTION AVAILABLE U/S 80IA IS TO BE RECOMPUTED IN VIEW OF THE HEAD OFFICE EXPENSES. 7. WE HAVE CAREFULLY PERUSED THE FACTS OF THE CASE AND THE SUBMISSIONS OF BOTH THE PARTIES. THE ASSESSEE DURI NG THE YEAR UNDER CONSIDERATION HAD CLAIMED DEDUCTION U/S 80IA AND 80I OF THE ACT ON THREE UNITS. THE CLAIM OF THE ASSESSEE IS T HAT OUT OF TOTAL NET EXPENSES OF RS. 6.65 CR., THE EXPENDITURE ON ACCOUN T OF INTEREST ON PCD TOTALING TO RS. 3,34,CR. HAD BEEN ALLOCATED BY THE ASSESSEE TO THE RESPECTIVE UNITS. THE ASSESSEE HAS FURNISHED O N RECORD RECASTED PROFIT AND LOSS ACCOUNT OF THE HEAD OFFICE AT PAGE 1 OF THE PAPER BOOK UNDER WHICH THE TOTAL INCOME EARNED BY T HE HEAD OFFICE IS RS. 6.10 CR AND THE TOTAL EXPENDITURE BOOKED IS RS. 12.76 CR. THE NET LOSS AFTER SET OFF OF INCOME IS RS. 6.65 CR . THE BREAK UP OF FINANCIAL EXPENSES TOTALING RS. 6.79 CR., INCLUDES INTEREST ON PCD OF RS. 3,34 CR,, OUT OF WHICH RS. 73.67 LACS HAS BEEN ALLOCATED TO UNIT II AND RS. 1.05 CR TO UNIT NO. III. FURTHER CLAIM O F THE ASSESSEE IS THAT THAT THE BALANCE OF INTEREST ON PCD HAD BEEN ALLOCATED TO OTHER UNITS OF THE ASSESSEE. THE ASSESSEE ADMITTED THAT BALANCE OF RS. 3.31 CR. AFTER EXCLUDING INTEREST ON PCD IS TO BE A LLOCATED TO VARIOUS UNITS AS AGAINST THE DIRECTION OF LD. CIT(A) FOR AL LOCATION OF RS. 4.87 CR (I.E. RS. 6.65 CR. RS. 1.78 CR.) WE FIND MERI T IN THE PLEA OF THE ASSESSEE. IN THE INTEREST OF JUSTICE WE DEEM IT FIT THAT THE MATTER BE RESTORED TO THE AO TO DETERMINE THE ALLOCATION OF N ET LOSS OF THE HEAD OFFICE IN THE SAME PROPORTION OF THEIR SALES T O TOTAL SALES AMONGST THE UNITS CLAIMING EXEMPTION U/S 80IA AND 8 0I I.E. IN THE SAME PROPORTION AS MADE OUT BY THE AO IN THE ASSESS MENT ORDER. HOWEVER THE SAID ALLOCATION WOULD BE MADE AFTER VER IFICATION OF THE CLAIM OF THE ASSESSEE THAT PCD INTEREST OF RS. 3.34 . CR. HAS BEEN ALLOCATED TO THE EXEMPT UNITS AND OTHER UNITS, AS D ETAILS IN RESPECT OF ALLOCATION OF PCD INTEREST OF RS. 3.34 CR. TO TH E EXEMPT UNITS AND OTHER UNITS IS NOT AVAILABLE ON RECORD. IN CASE THE CLAIM OF THE ASSESSEE IS FOUND TO BE CORRECT, ONLY THE BALANCE O F RS. 3.31 CR. ITA NO. 786/CHANDI/2008 VARDHMAN HOLDINGS LTD. V. ACIT 5 SHALL BE APPORTIONED, OTHERWISE THE AO SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW. REASONABLE OPPORTUNITY OF HEA RING SHALL BE GIVEN TO THE ASSESSEE. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS T REATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 30 .8.2011 SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNANT MEMBER CHANDIGARH, THE 30.8.2011 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE CIT(A) / THE DR