2015 (7) TMI 436 - AT - Income Tax

Tribunal ruling: No deduction for 'brand' value, related expenses limit, Section 115JB applicability upheld.

Rajatdeep Overseas Pvt. Ltd. Versus ITO Ward 15 (2) New Delhi.

The Tribunal allowed the assessee's appeal regarding the deduction under section 80IC, holding that no deduction could be made from eligible profits due ... Claim of deduction u/s 80IC of the Act - Applicability of section 115JB of the Act – Partial disallowance of 10% of turnover as profit on account of the market value of the brand – Held that:- In so far as the question of reduction of the eligible profits on account of ‘brand’ value is concerned, it is noticed that the AO attributed 20% of profits to the ‘brand’, which the ld. CIT(A) restricted to 10%. The Tribunal, on similar facts and circumstances, has held that there can be no question of restricting the amount of eligible profit on account of ‘brand.’ In the absence of any distinguishing feature having been brought to our notice in the facts for the instant year, vis-à-vis the preceding year, respectfully following the precedent [2014 (4) TMI 618 - ITAT DELHI], we direct that no deduction can be made from the eligible profits on account of ‘Brand.’ AO held that profits to the extent of 5% of the turnover of the company were attributed to the past experience, expertise and knowledge, etc., of related and connected persons and not to the eligible unit. That is how, he allowed deduction for a sum of ₹ 32.40 lac on account of salary paid to directors and, apart from that, he also allowed a further deduction of ₹ 23,27,164/-, being the amount in excess of salary paid to directors up to 5% of total turnover. This resulted into reduction in the amount of eligible profit to the extent of ₹ 23.27 lac. The Tribunal, for the immediately preceding assessment year, has approved the view taken by the ld. CIT(A) in not increasing the deduction for expenses up to 5% of the sale value. It can be seen from the assessment order that the assessee categorically stated before the AO that all the sales were made from manufacturing unit at Haridwar and the branch offices etc. were only engaged in sale promotion and rendering after-sales services for the warranty provided on the products. Even copy of VAT return in support of the claim that all the sales were made from Haridwar, was also placed before him. This fact is brone out from page 5 of the assessment order. Similar contention was made before the ld. CIT(A) as well to the effect that the entire sales were made from Haridwar unit and no income producing activity was carried out from any place other than the eligible unit. - In the absence of any material to controvert the above submissions, respectfully following the precedent, we uphold the impugned order in not limiting the amount of eligible deduction to 12% of the total profits. - However, appeal regarding applicability of Section 115JB is dismissed - Decided partly in favour of assessee. Issues involved:Cross appeals regarding deduction u/s 80IC of the Income-tax Act, 1961 for the assessment year 2009-10; Reduction of eligible profits due to 'brand' value; Allocation of profits to related persons affecting deduction; Restriction of deduction to income from eligible unit only; Applicability of section 115JB to the assessee company.Analysis:1. Deduction u/s 80IC:The AO reduced the deduction claimed by the assessee under section 80IC, attributing 20% of profits to the 'brand' value. The CIT(A) approved the reduction but limited it to 10%. However, the Tribunal held that no deduction can be made from eligible profits due to 'brand' value based on precedent from the preceding year. The appeal by the assessee on this issue was allowed, and the Revenue's appeal was dismissed.2. Allocation of Profits to Related Persons:The AO attributed profits to related persons, reducing the eligible profit amount. The Tribunal upheld the CIT(A)'s decision not to increase the deduction for expenses related to related persons, following the precedent from the previous assessment year.3. Restriction of Deduction to Eligible Unit Income:The issue of restricting the deduction to income from the eligible unit only was raised. The DR argued that income from other branches and the Head office should not be eligible for deduction u/s 80IC. However, the Tribunal found that all sales were made from the Haridwar unit, and no income-producing activity occurred elsewhere. The deduction was not limited to 12% of total profits, as all income-producing activities were from the eligible unit.4. Applicability of Section 115JB:The applicability of Section 115JB to the assessee company was contested. The Tribunal upheld the decision from the previous year, dismissing the appeal on this ground.In conclusion, the appeal of the assessee was partly allowed, and that of the Revenue was dismissed, based on the detailed analysis and application of relevant legal provisions and precedents.