Maintenance of separate books of account for STP units is not a prerequisite to avail deduction under section 10A

IBM India P. Ltd. v. DCIT (ITAT Bangalore)- Considering the second objection of the AO, namely, that separate books of account have not been maintained for the STP Units, his observation was that the objection of the AO arose on the premise that part of the expenditure which could be related to the exempted income which is not allowable to the assessee by virtue of the provisions contained in section 14A of the Act which could be disguised and allowed to be set off against taxable income and, thus, the assessee would be benefited by paying reduced tax which could have been avoided.

On this issue, the objection of the AO as is seen from the remand report and as noted by the CIT (A) was with regard to allocation of the overhead expenses in the ratio of turnover. The reason given by the learned CIT (A) for not accepting the reasoning of the AO was as the assessee has three units at different place, the only plausible manner available for allocation of expenditure is in the ratio of turnover which is possibly the only indicator available and is a reasonable method of arriving at the expenses.

Further, we venture to quote the ruling of the Hon’ble Supreme Court in the case of Smt. Tarulata Shyam and others v. CIT reported in 108 ITR 345 (SC) wherein it has been made implicitly clear that –