TaxTMI 
TaxTMI 
2025 (12) TMI 1175
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....n made by the AO on after-market (trading) expenses should be allocated on the basis of total sales as against after-market (trading) sales basis adopted by the assessee and thereby making an addition of Rs. 9,66,690/- and deleting the balance disallowance of Rs. 3,74,32,865/- u/s. 80IC of the Act. For this, Revenue has raised following ground nos. 1 to 3 :- "1. Whether on the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Rs. 3,74,32,865/- u/s. 80IC ignoring the fact that the transaction was sham in nature and the purpose of following the circuitous route of first merging M/s Mahle Filter Systems (India) Ltd. With M/s Purolator India Ltd. And then changing the name of the company to M/s Mahle Filter Systems Ltd. was to get the benefit of deduction u/s. 80IC of the Act. 2. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) is justified in allowing deduction u/s. 80IC of the Act to the assessee ignoring a fact that use of substantial asset and manpower of amalgamating undertaking (Poona Unit) by the amalgamated (Parwanoo Unit) constituted reconstruction of the business u/s. 80IC(4) of t....
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....sferred to and vested in the assessee; iv. Once the scheme of amalgamation becomes effective, erstwhile Mahle shall stand dissolved. v. Upon the amalgamation scheme becoming effective, name of the transferee company shall be substituted with the name of the transferor company. The scheme of amalgamation was approved without any modifications by the High Court vide order dated 27.05.2008. 4. After the amalgamation, the assessee in accordance with terms of the amalgamation agreement, filed an application before the Registrar of Companies (ROC) requesting it to change assessee's name from Purolator India Limited to Mahle Filter Systems (India) Limited (by which it is presently known.) Pursuant to the aforesaid application, ROC, issued a certificate dated 4.9.2008, approving the change of name of the assessee. For the assessment year 2010-11, the assessee filed return of income on 30.09.2010, declaring income amounting to Rs. 203,124,692/- after claiming a deduction of Rs. 37,432,865/- under Chapter VI-A of the Act. 5. Subsequently, the Assessing Officer issued notice dated 27.08.2011 under section 143(2) of the Act and a questionnaire thereon under section 1....
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....It was contended that the assessee follows consistent method of allocating the cost between the Head Office and manufacturing units in the ratio of after-market trading sales which has been accepted by the Revenue in previous years. Ld. Counsel for the assessee relied upon the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT 193 ITR 321 and stated that CIT(A) should not have gone into beyond the scope of powers of CIT(A) and no enhancement in the absence of show cause notice is required. 9. We have heard the rival contentions and gone through the facts and circumstances of the case, we noted that from the detailed chart filed in Assessee's submissions wherein, complete details of HO Trading, Sales of Khandsa, Parwanoo Unit and Pune are depicted and even the details of expenses and summary allocation, which is as under:- Particulars HO Khandsa Parwanoo (80 IC Units) Pune Total Aftermarket trading sales 513,714,086 55,027.529 27,80,63,847 55,060,659 11,55,83,035 Aftermarket trading sales ratio 56.96% 6.1% 31.1% 6.11% Aftermarket trading expenses allocated in aftermarket trading sales rat....
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....ompany in a scheme of amalgamation or demerger, whereas the facts of the case in hand show that the manufacturing unit at Parwanoo, HP continued to belong to the assessee and it is only M/s Mahle Filter systems [India] Ltd which amalgamated with the assessee M/s Purolator India Ltd and only the name has been changed to M/s Mahle Filter systems [India] Ltd. Accordingly, even consequent to the amalgamation, the unit at Parwanoo was still owned and managed by the assessee in the same manner as it was managed prior to amalgamation. Considering the correct facts in true perspective, we do not find any error or infirmity in the findings of the CIT(A). Ground Nos. 1 and 4 raised by the revenue stand dismissed." 12.1 As the aforesaid proposition was not controverted by the CIT(DR), we dismiss this issue raised by the Revenue and confirmed the order of the Ld. CIT(A). 13. The next issue raised in this Revenue's appeal is as regards to order of the CIT(A) disallowing the payments made to M/s Mahle Filter Systems Gmbh, Germany amounting to Rs. 82,50,719/- by invoking the provisions of section 40(a)(i) of the Act. For this, revenue has raised the ground no. 5 which reads as under:- ....
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....le to tax in India. In other words, where a person responsible for deduction is fairly certain that the payment is not chargeable to tax in India, he can make his own determination..." 14.2 It is noted that since the payments on account of reimbursement of expenses made to M/s Mahle Filter systems GmbH and Mahle International GmbH is not in the nature of income, therefore, no taxes is required to be withheld under section 195 of the Act and therefore, the disallowance u/s. 40(a)(i) of the Act has rightly been deleted by the Ld. CIT(A) and hence, we affirmed the same and accordingly, this ground raised by the Revenue stand dismissed. 15. The next issue in this appeal of the Revenue is as regards to the order of the CIT(A) deleting the addition of Rs. 15,94,004/- on account of capitalization of royalty payments. For this, Revenue has raised the following Ground No. 6: "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 15,94,004/- on account of capitalization of royalty payments, ignoring the fact that the expenses incurred by the assessee are for enduring benefit and therefore, capital in nature.?" ....
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....e, respectfully following the above decisions of Hon'ble Jurisdictional High Court, hold that the annual payment of royalty was a revenue expenditure. Accordingly, ground No.6 of the assessee's appeal is allowed." 46. This decision of the co-ordinate bench has been upheld by the Hon'ble High Court of Delhi in 372 ITR 481 wherein the Hon'ble High Court has, in detail, considered the decision given in the case of J.K. Synthetics [supra]. Considering the facts of the case in totality, we do not find any reason to interfere with the findings of the CIT(A). However, depreciation allowed by the Assessing Officer has to be withdrawn since the impugned payment is being allowed as revenue expenditure. Ground No. 5 of the revenue stands dismissed." 15.2 In view of above factual matrix, we do not find any reason to deviate from the aforesaid finding, hence, respectfully following the precedent as aforesaid, we affirm the action of the Ld. CIT(A) in deleting the addition in dispute. Accordingly, this ground raised by the Revenue is dismissed. 16. In the result, the Revenue's appeal is dismissed in above terms. 17. As regards remaining issue in Assessee's appea....
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....sessee, instead of estimation done by the AO @10%. We noted that the Tribunal has considered this issue vide para nos. 22 to 25 wherein, the Tribunal affirmed the contention taken by the assessee that no estimation can be made on adhoc basis. The relevant para nos. 23 to 25 are reproduced as under:- "23. We are of the considered opinion that the Assessing Officer has not appreciated the underlying facts in issue in true perspective. Correct facts are that the manufacturing unit at Parwanoo, Himachal Pradesh was eligible for deduction u/s 80IC of the Act. The said undertaking belongs to M/s Purolotor India Ltd. The Assessing Officer proceeded by wrong assumption of facts that M/s Purolator India Ltd got amalgamated with M/s Mahle Filter Systems [India] Ltd whereas the fact of the matter is that Mahle Filter systems [India] Ltd was the transferor company and amalgamated with M/s Purolator India Ltd which was the transferee company by order of the Hon'ble High Court of Delhi in the matter of Scheme of Amalgamation of Company Petition No. 53/2008 connected with Company Application No. 172/2007. Subsequently, the name of M/s Purolator India Ltd was changed to M/s Mahle Filt....