CIT v. Hindustan Lever Ltd. - Taxpublishers.in

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The Tax Publishers2012 TaxPub(DT) 1715 (Bom-HC) : (2012) 048 (I) ITCL 0497 : (2012) 343 ITR 0161 : (2012) 249 CTR 0378 : (2012) 206 TAXMAN 0075 : (2012) 070 DTR 0185 INCOME TAX ACT, 1961 --Revision under section 263--Erroneous and prejudicial orderNon-application of mind by AO--The assessee filed a return of income and claimed deduction under sections 80-I, 80-IA and 80-HH. The AO assessed the income under section 143(3) and restricted the deduction claimed under sections 80-I, 80-IA and 80-HH respectively. The CIT issued a notice under section 263 on 21-3-2003 stating that on verification of the records, it was revealed that the certain expenditure, though having a bearing on the profits of the units, had not been considered for allocation. The CIT stated that as this expenditure has a bearing on the profits of the units, it should have been allocated proportionately. An excess allowance, the notice stated, has resulted in an under-assessment. In response to the notice, the assessee submitted a reply on 25-3-2003. The CIT by his order dt. 28-3-2003, came to the conclusion that the research expenditure incurred by the assessee is inextricably linked with the business of the assessee, including business in those products which are manufactured in the units entitled to a deduction under sections 80-I, 80-IA and 80-HH the CIT noted that expenditure, had been allowed in computing the income under the head 'Profits and gains from business or profession' for the whole of the business of the assessee, including of those units which are entitled to the aforesaid deductions. The logical corollary was held to be that in computing the profits derived from an eligible unit for the purpose of the aforesaid deductions, an appropriate part of the expenditure would have to be allocated to the units. Against the decision of the CIT under section 263, the assessee filed an appeal before the Tribunal which was allowed. Held: As AO did not apply his mind to the crucial issue as to whether research expenditure bore a direct nexus with undertaking in respect of which deduction under sections 80-I, 80-IA and 80-HH was sought so as to warrant an allocation of expenditure between units, the exercise of revisional jurisdiction, was therefore, justified. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1715 (Bom-HC) : (2012) 048 (I) ITCL 0497 : (2012) 343 ITR 0161 : (2012) 249 CTR 0378 : (2012) 206 TAXMAN 0075 : (2012) 070 DTR 0185

INCOME TAX ACT, 1961

--Revision under section 263--Erroneous and prejudicial orderNon-application of mind by AO--The assessee filed a return of income and claimed deduction under sections 80-I, 80-IA and 80-HH. The AO assessed the income under section 143(3) and restricted the deduction claimed under sections 80-I, 80-IA and 80-HH respectively. The CIT issued a notice under section 263 on 21-3-2003 stating that on verification of the records, it was revealed that the certain expenditure, though having a bearing on the profits of the units, had not been considered for allocation. The CIT stated that as this expenditure has a bearing on the profits of the units, it should have been allocated proportionately. An excess allowance, the notice stated, has resulted in an under-assessment. In response to the notice, the assessee submitted a reply on 25-3-2003. The CIT by his order dt. 28-3-2003, came to the conclusion that the research expenditure incurred by the assessee is inextricably linked with the business of the assessee, including business in those products which are manufactured in the units entitled to a deduction under sections 80-I, 80-IA and 80-HH the CIT noted that expenditure, had been allowed in computing the income under the head 'Profits and gains from business or profession' for the whole of the business of the assessee, including of those units which are entitled to the aforesaid deductions. The logical corollary was held to be that in computing the profits derived from an eligible unit for the purpose of the aforesaid deductions, an appropriate part of the expenditure would have to be allocated to the units. Against the decision of the CIT under section 263, the assessee filed an appeal before the Tribunal which was allowed. Held: As AO did not apply his mind to the crucial issue as to whether research expenditure bore a direct nexus with undertaking in respect of which deduction under sections 80-I, 80-IA and 80-HH was sought so as to warrant an allocation of expenditure between units, the exercise of revisional jurisdiction, was therefore, justified.