TaxTMI 
TaxTMI 
2019 (3) TMI 626
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.... grievance reads that the CIT(A) has erred in law and as facts in allowing arrears Section 80IB and 80IC deduction claims totaling to Rs. 1,39,48,12,000/- thereby reversing Assessing Officer's action not taking any cognizance thereof solely for the reason that the taxpayer had not submitted its form 10CCB auditor's report in respect of the corresponding revised claim. 2. It emerges at the outset that the CIT(A) order under challenge has merely directed the Assessing Officer to consider the impugned deduction claim in light of his findings on the very issue in preceding assessment year 2005-06. Both the learned representatives are very fair in taking as to this tribunal co-ordinate bench order dated 06.01.2017 upholding identical lower appellate finding in the very issue in Revenue's appeal in I.T.A. No. 33/Kol/2010. Honourable apex court's decision in CIT vs. G. M Knitting Industries Pvt. Ltd. and Another [2015] 125 DTR 38 (SC) has already settled the law that an assessee is entitled for Section 80IB deduction even if it files its form 10CCB audit report not with the return but before completion of assessment. This is not the Revenue's case that the assessee's audit report has e....
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....o furnish the complete details showing the nature and basis of provision made for marketing expenses. In reply, the following submission was made by the assessee in writing:- "During the previous year relevant to the AY 2003-04, RBIL has made a provision of Rs. 199,003,162/- in respect of marketing expenses. The said provision was required to be made by RBIL since it is following the mercantile system of accounting, provisions required to be made in respect of all expenses incurred during the accounting period irrespective at the time payment. Since RBIL is following mercantile system of accounting which is a permissible method of accounting as per section 145 of the Act and the accounts are audited and provision made as per the prescribed accounting policies should not be disallowed unless specifically provided in the provision of the Act. Further, out of the provision of Rs. 199,033,162/-, a substantial amount has been paid subsequently and balance is likely to be paid in due course. Hence, no disallowance is warranted on this account. Without prejudice to the aforesaid submission, please note that in case of write back of the aforesaid provision, if it is found to be in....
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....relevant year on estimated basis and since such provision, if found to be excess, is being offered to tax in the subsequent years at virtually the same rate, the disallowance made in the year under consideration on account of such excess provision is not justified. 15. The ld. D.R., on the other hand, submitted that the provision made by the assessee for marketing expenses on estimated basis is always found to be on the higher side. He submitted that it is not clear as to why there should be difference between provision made and actual amount of expenses incurred. He contended that in the absence of any sound basis given by the assessee for making the estimate, the excess provision is liable to be disallowed as rightly held by the authorities below. 16. We have heard the arguments of both the sides and also perused the relevant material available on record. The question that arises for our consideration in the present context is whether the assessee following mercantile system of accounting is right in recognizing and making the provision for marketing expenses in the facts and circumstances of the case. In this regard, a useful reference may be made to the decisi....
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....eting expenses was rightly recognized and made by the assessee being its liability for the expenses of its business and the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) merely on the basis that such provision is found to be finally excessive is not sustainable. We, accordingly, delete the disallowance made on this issue and allow Ground No. 2 of the assessee's appeal." 5. Learned CIT DR vehemently contends at this stage that the assessee has failed to prove the three basic ingredients of its impugned provisions i.e. an obligation arising as a result of past events, outflow of resources required for the very obligation followed by a reliable estimation; respectively. The assessee inter alia takes us to pages 138 (assessment year wise details of the marketing services from assessment year 2004-05 onwards); page 140 (notes pertaining to its media activity, creation of marketing provision and reversal thereof), page 175 (sample estimation), pages 176 to 204 (TV estimate) and schedule as well as other similar details up to page 235 vis-à-vis its advertisements/marketing expenses for the impugned assessment order amounting to Rs. 156.94 crore....
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....ligible for deduction under Chapter VIA of the Income Tax Act. It also has units (Factories), income from which are not eligible for deduction under chapter VIA of the Income Tax Act. Assessee has used the terminology 'fiscal units' for units (Factories), income from which are eligible for deduction under chapter VIA of the Income Tax Act. It has used the terminology 'non-fiscal units' for units (Factories), income from which are not eligible for deduction under chapter VIA of the Income Tax Act. The profits derived from these fiscal units have to be computed which will be eligible for deduction from the total income of the assessee. The question is how is the profit and gains from these units to be computed. Section 80IB (13) states that the provision of section 80IA(5) and 80IA(7) to 80IA(12) will apply to the eligible business. Section 801C(7) states that the provision of section 80IA(5) and 80IA(7) to 801A(12) will apply to the eligible business. Section 801A(5) states that the profit & gains from these units to be computed as if such eligible business were the only source of income of the assessee. This means that income from these units shall be cre....
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....ales from fiscal and non-fiscal units both. Thus, the same expenses for unit not claiming deduction under chapter VIA is Rs. 105,720,668.50/- - Rs. 60,776,484.70/- which is Rs. 449.11 lacs. It means that the expenses which was apportioned to Head Office of an amount of Rs. 274,212,983.80/- has not been apportioned to neither fiscal units nor non-fiscal units. However, the same has been debited to consolidated profit and loss account of the assessee company. The tax is determined from Profit shown in consolidated P/L a/c less deduction claimed which is profit of fiscal units. It means that any expense which has not been allocated to either fiscal units or non-fiscal units reduces the consolidated P/L profit. It means that in essence this reduces the profit of non-fiscal units. This means that the head office expense are apportioned to non-fiscal units. This is incorrect. The correct apportionment would be to divide the entire expense amongst fiscal and non-fiscal units. The head office does not exist in isolation. The expenses allocated to Head office has to be absorbed by both fiscal units as well as non-fiscal units. Cost Accounting Standard 3 (CAS-3) issued by t....
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....inst the said allocation, your goodself has asked us to show cause as to why the other expenses of Rs. 3,991akhs (approx) should not be allocated among eligible and non-eligible units in connection with the deduction claimed under sections 80IB and 80IC of the Act, in the turnover ratio. In this regard, we submit that the residual costs pertain to those cost which could not be allocated or identified with single function or unit due to the general utility to all the functions and units of the company. The basis of collection of this cost is the number of executive. These costs include the residuary costs of all the support functions which have not been allocated to the Cost of Goods Sold 'COGS'). The residual cost broadly consists of all the support functions like finance/ HR/ IS apart from office administration, legal, internal audit, etc. as follows: Salary & Wages including all benefits to employees Traveling Expenses Training Expenses Legal and Consultancy Security Services Office Electricity and water Rent Printing and Stationery Postage and Courier Telephone and....
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....Any cost allocated to head office has to be again absorbed by the profit centres which are fiscal units and non-fiscal units, when the cost allocated to head office is not absorbed between fiscal units and non-fiscal units it means that the same is considered in non-fiscal unit which is incorrect. Thus the expense of an amount of Rs. 157,639,007.09/- was not absorbed to cost of fiscal unit and thus the profits of these fiscal units were inflated by an amount Rs. 157,639,007.09/-. The deduction thus claimed was excess by an amount of Rs. 157,639,007.09/- which should be taxed." Revenue's vehement contention during the course of hearing is that the CIT(A) had deleted the impugned allocation simply by following his order in assessment year 2005- 06 dated 09.06.2009. Its case is that there is no evidence whatsoever about the assessee's remaining 83 out of 115 employees to have been engaged in trading and other allied business activities. We find no merit in Revenue's instant grievance. There is no dispute even as per assessment order about the assessee having allocated 32 out of its 115 employees / executives to manufacturing segment. The assessee has been running both elig....
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....,26,000/- stands disallowed/added in both the lower proceedings. It pleads double addition of interest income amounting to Rs. 2,37,48,200/- therefore. Learned CIT DR on the other hand vehemently contends that there is no dispute on the non-allowbility of interest income for the purpose of section 80IB/80IC deduction. It then avers that the assessee has raised an additional ground regarding quantification on the impugned disallowance which requires verification of facts. We find force in Revenue's contention therefore and restore the instant additional issue raised at assessee's behest dated 24.06.2018 to the Assessing Officer for necessary factual verification of facts. This additional ground is taken as accepted for statistical purposes. 9. Mr. Khaitan does not press for assessee's next substantive ground challenging section 14A read with Rule 8D disallowance of Rs. 25,500/- keeping in mind smallness of the amount. The same is therefore rejected. 10. The assessee's third substantive ground pleads that the CIT(A) has erred in law as well as on facts in not considering its written submission dated 16.01.2014 seeking to allow expenditure claim to Rs. 1,24,97,943/- disallowed u....
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.... 4574696. .2 20,668.5 5.7 1 5 1,546,813,8 =(1,546,813,876.7/13,836,239,000)X105 =11,818,977. 17755 76.7 ,720,668.5 5 66.5 132309 2.7 8720318. 3 1,836,064,3 36.4 ,720,668.5 o soaps Jammu 461,151,821 .3 powder 20,668.5 Jammu 574,795,609 =(1,836,064,336.4/13,836,239,000)X105 14,029,097. 21075 93.1 =(461,151,821.3/13,836,239,000)X105,7 3,523,593.3 52934 9.9 =(574,795,609.1/13,836,239,000)X105,7 4,391,928.8 69580 157050 1035099 7 7.8 6.8 394453. 2599789. 8 6 491660. 3240467. .1 pests 20,668.5 0.0 9 9 Uttaranc 2,723,861,8 =(2,723,861,869.3/13,836,239,000)X105 =20,812,628. hal 69.3 ,720,668.5 2 31266 83.7 232990 0.0 1535604 4.4 7,954,149,1 60,776,484.7 70.0 Document 2 Sales of the Cost apportioned on turn over ratio (Rs., in lacs) Units units Baddi (Rs.) 811,461,657.2 =(811,461,657.2/13,836,239,000)x274,212,983.83 =16081922.43 Parwanoo liquid 1,546,813,876.7 =(1,546,813,876.7/13,836,239,000)X274,212,983.83 =30655472.82 Parwanoo soaps 1,836,064,336....
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.... consistently." CIT vs. Neo Poly Pack (P) Ltd (2000) 245 ITR 492 (Del) It was held that "It is true that each assessment year being independent of the other, the doctrine of resjudicata does not strictly apply to income-tax proceedings, but where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, for the sake of consistency, the same view should continue to prevail in subsequent years, unless there is some material change in the facts". In the case of the company, please note that the basis of allocation of expenses to fiscal units as filed in the return of income for earlier AYS 2005-06, 2006-07 & 2007-08 were accepted by the Assessing Officer (AO). However, with regard to the basis of allocation of residual costs, the AO in AY 2005- 06 has not accepted the same. But the Commissioner of Income Tax (Appeals) ['CIT (Appeals)'] in AY 2005-06 has examined and accepted the claim made by RBIL under sections 80-IB & 80-IC of the Act and the aforesaid basis adopted by RBIL in respect of allocation of residual expenses to the eligible fiscal units and deleted the disallowance made in t....