TaxTMI 
TaxTMI 
2016 (7) TMI 383
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AY 2007-08 (in ITA No.3216/Ahd/2011). 2.1. The relevant facts as culled out from the materials on record are as under:- 2.2. Assessee is a company stated to be engaged in the business of manufacturing and trading of CPVC, PVC pipes and fittings. Assessee filed its return of income for AY 2007-08 on 25/10/2007 declaring total income of Rs.NIL after claiming deduction u/s.80IC of the I.T.Act, 1961. The case was selected for scrutiny and thereafter assessment was framed u/s.143(3) of the Act and the total income was determined at Rs. 2,27,14,583/-. Aggrieved by the order of the AO, assessee carried the matter before the ld.CIT(A), who vide order dated 03/10/2011 (in appeal No.CIT(A)-VI/DCIT, CIR.1/765/09-10) granted substantial relief to the assessee. Aggrieved by the order of the ld.CIT(A), Revenue is now in appeal before us and has raised following grounds:- The Ld. CIT(A) erred in law and facts in deleting the addition in respect of deduction u/s.80IC of Rs. 4,27,43,358/-. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above, since the assessee has failed to disclo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e purpose of determining the deduction u/s.80IC of the Act. He thereafter relying on the decision in the case of Rolls Royce PLC vs. DDIT (19 SOT 42), concluded that the profits derived from Brand Value to be at 5% and from marketing activities at 35% and therefore concluded that 40% of the profits of the assessee from Baddi Unit to be from Brand Value and marketing activities. He, thereafter, recomputed the profits of Baddi Unit by reducing the profit from brand value and marketing amounting to Rs. 4,04,59,475/- and after further making a disallowance of Rs. 22,83,883/- on account of misallocation of interest, worked out the total deduction u/s.80IC of the Act at Rs. 6,61,02,820/- as against the claim of assessee of Rs. 10,88,46,178/- and thereby denied the claim of deduction to the extent of Rs. 4,27,43,358/-. Aggrieved by the order of the AO, assessee carried the matter before the ld.CIT(A) who after considering the submissions of the assessee, deleted the addition by holding as under:- "3.3 I have considered the facts of the case; assessment order and appellant's submission. Assessing officer restricted the deduction under section 801C on the profit of Baddi unit on the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....manufacturing and marketing activities separately, no disallowance out of deduction claimed by the appellant can be made. Accordingly the disallowance of deduction made by the assessing officer is deleted. Coming to the merit of segregating profits attributable to marketing and brand value, appellant submitted that marketing was not done by any separate division or undertaking. It is done through agents and distributors to whom commission and discounts were given. Marketing is not done by way of separate activity and therefore marketing activity is a cost centre. Marketing costs were allocated to the eligible and not eligible undertaking. Direct costs are debited directly and common expenses are allocated on the basis of turnover. Since marketing was not a separate division, there was no transfer by the eligible undertaking to so-called marketing division. In the absence of any transfer, the provisions of section 80 IA (8) are not applicable. Administration, finance, marketing etc are common activities of both eligible and non-eligible undertakings, the costs attributable to these undertakings were allocated and therefore the question of transfer of goods and services to non-eli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taking of the assessee. Marketing, head office expenses, purchases, accounting etc are carried out from Ahmedabad office and the related costs were debited to the Baddi unit. The profit of eligible unit is worked out as if this was the only undertaking. All costs relating to the eligible undertaking were debited and profits were worked out accordingly. In the working of profit of eligible undertaking, there is no violation of section 80IA (5). The decision of the Supreme Court in the case of liberty India relied upon by the assessing officer is not applicable to the facts of the appellant's case since for working out profit of eligible manufacturing undertaking sales value of the products sold is to be considered. Any other income not relating to sale of manufactured goods will be outside the purview of deduction under section 80IA. The appellant worked out eligible profit by taking sales value of products manufactured. No other income was considered which is not relating to sale of manufactured goods therefore appellant's case is not hit by the decision of apex court. After considering the appellant's submission on all the issues raised by the assessing officer, I a....