Rajat Deep Overseas (P) Ltd, New Delhi vs Department Of Income Tax

ITA No.883/Del/2013 Assessment Year : 2009-10 ITO, Vs. Rajatdeep Overseas Pvt. Ltd., Ward 15(2), 179-A, LIG Flats, New Delhi. Rajouri Garden, New Delhi. PAN: AABCR4099N (Appellant) (Respondent) Assessee By : Shri Ved Jain, CA Department By : Shri Vikram Sahay, Sr. DR

ORDER PER R.S. SYAL, AM:

These two cross appeals - one by the assessee and the other by the

Revenue - arise out of the order passed by the CIT(A) on 09.11.2012 in

relation to the assessment year 2009-10.

ITA No.236/Del/2013 ITA No.883/Del/2013

2. Ground nos. 2-4 of the assessee's appeal and all the grounds of the

Revenue's appeal are against the computation of deduction u/s 80IC of

the Income-tax Act, 1961 (hereinafter called 'the Act').

3. Briefly stated, the facts of the case are that the assessee is a

manufacturer of auto parts and accessories having eligible unit in

Haridwar for the purposes of section 80-IC of the Act. Return of income

was filed with gross total income at Rs.2,69,85,125/- on total turnover of

Rs.11.13 crore. An income of Rs.2,69,25,260/- was claimed as

deductible u/s 80IC of the Act, leaving only a sum of Rs.59,864/- as

taxable income. During the course of assessment proceedings, the AO

observed that the position about deduction u/s 80IC and the other

relevant facts on this issue were similar to those for the earlier year. He

even reproduced the assessee's submissions rendered in proceedings for

the earlier year in the extant assessment order. After considering the

assessee's submissions, the AO held that: (i) 20% of the sale value of the

products was attributable to the 'brand' and, hence, was not eligible for

2 ITA No.236/Del/2013 ITA No.883/Del/2013

deduction; (ii) profit to the extent of 5% of total turnover of the company

was attributed to the past experience, expertise and knowledge, etc., of

the related and connected persons and not to the eligible unit; and (iii)

only 12% of the remaining income, after making adjustments as per (i)

and (ii) above, was to be considered as eligible for deduction u/s 80IC.

That is how the amount of deduction under this section was computed

by the AO at Rs.4,06,637/- as against the assessee's claim of deduction

for a sum of Rs.269.25 lac. The ld. CIT(A) approved the assessment

order on (i) above, namely, reduction of deduction due to the market

value of the brand, but restricted it to 10% instead of 20%. On the (ii)

issue, the stand of the AO that 5% of the sale value did not form part of

the eligible profit was overturned and the (iii), namely, restricting the

amount of deduction to 12% of the remaining profit was also not

approved. That is how cross appeals have been filed on these issues.

4. We have heard the rival submissions and perused the relevant

material on record. It is observed that the AO has referred to the

proceedings for the preceding year in the assessment order. Both the

3 ITA No.236/Del/2013 ITA No.883/Del/2013

assessee as well as the Revenue preferred respective appeals against the

order of CIT(A) for the AY 2008-09. A copy of the Tribunal order

dated 10.01.2014 for the immediately preceding assessment year is

available on record.

5. 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, we direct that no

deduction can be made from the eligible profits on account of 'Brand.'

The ground taken by the assessee on this score is allowed and that by the

Revenue is dismissed.

6. The second issue is about the value of products not eligible unit to

the tune of Rs.23,27,164/-. It can be seen that the AO held that profits to

4 ITA No.236/Del/2013 ITA No.883/Del/2013

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 Rs.32.40 lac on account of salary paid to directors and,

apart from that, he also allowed a further deduction of Rs.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 Rs.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.

Respectfully following the precedent, we approve the view taken by the

ld. CIT(A) on this issue.

7. As regards restricting the amount of deduction to 12% of the

remaining profits, the ld. DR vehemently argued that the assessee also

earned income from its branches and Head office, which was not eligible

for any deduction u/s 80IC. The sum and substance of his contention,

and rightly so, was that deduction can be allowed only in respect of

5 ITA No.236/Del/2013 ITA No.883/Del/2013

income from the manufacturing activities carried out at Haridwar unit.

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.

These submissions have not been controverted by the ld. DR with any

clinching evidence except for making a general statement about the

other branches also contributing to the total income earned by the

assessee. It can be seen from the Tribunal order for the preceding year

that a categorical finding has been recorded to the effect that the entire

income producing activity stemmed only from the Haridwar unit and no

6 ITA No.236/Del/2013 ITA No.883/Del/2013

other place. 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. These grounds are accordingly disposed of.

8. The only issue which survives in the assessee's appeal is against

the applicability of the provisions of section 115JB to the assessee

company. Here again, we find that similar issue was raised in the

assessee's appeal for the AY 2008-09 and the Tribunal was pleased to

uphold the impugned order on this score, thereby rejecting the similar

ground taken by the assessee. Respectfully following the precedent, we

dismiss this ground of appeal.

9. In the result, the appeal of the assessee is partly allowed and that of

the Revenue is dismissed.

The order pronounced in the open court on 12.02.2015.

Sd/- Sd/-

[C.M. GARG] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated, 12th February, 2015. 7 ITA No.236/Del/2013 ITA No.883/Del/2013

dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT

AR, ITAT, NEW DELHI.

8