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2014 (4) TMI 618 - AT - Income TaxClaim 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:- The assesses books have been accepted, brand is owned by it which is integral part of the assets of the eligible unit - The sales have not been disturbed, profits of the eligible unit have gone up to 33% from preceding year’s 29% due to its product superiority - The basis given by authorities below for reduction of claim is vague and factually incorrect based on an assumption that brand does not belong to the assessee - Without any material or basis, it is assumed that it may belong to some other concern connected to its directors - The fact of the matter is that the brand is owned by assessee and the products manufactured at Haridwar unit are the only products - There exists no other entity which is identified as owner of the brand by AO thus the allegation is factually incorrect - the provision of sec 80IC have been introduced by legislature to promote the industrial activity and their profitability - Merely because the industrial undertaking earned higher profits does not call for an inference that claim of deduction is to be will be nil on presumptions – there was no justification in CIT(A)s order retaining the reduction of 10% from the deduction thus, is set aside – Decided against Revenue. Disallowance @ 5% of turnover – Value of the director’s experience and knowledge – Held that:- The AO was of the view that 5% of the turnover of the company is attributable to the experience and specialized knowledge of the director and not to the eligible unit - As per the P&L a/c for the period ending 31-03-2006, the director’s remuneration was Rs. 60,000/- Over a period of two years it has been increased to Rs. 23,00,000 - This shows that adequate compensation is being provided to the director for his services, knowledge, contract and skills - As the company have adequately compensated the director for using their experience and specialized knowledge, therefore, the benefit accruing to the company belongs to it and would form part of its eligible profit - Benefit accruing a company as a result of experience or knowledge of its employees (Directors) cannot be used to bifurcate the eligible profit derived by the industrial undertaking u/s 80IC – thus, the order of the CIT(A) upheld – Decided against Revenue. The assessee filed a consolidated financial statement in which the expenses incurred by all the units and the head office have been reduced before arriving at the total eligible profit for claiming deduction u/s 80IC – revenue has not controverted the statement in any manner - All sales, purchases and manufacturing activities are carried out by the Haridwar Unit - The other branches are providing sales promotion and after sales service - The income earning activities thus cannot be held to the carried out from places other than the eligible unit besides in consolidated financial statement the income of these branches has already been reduced – Decided against Assessee. Liability to pay MAT u/s 115JB of the Act – Held that:- CIT(A) was of the view that the exemption is available to SEZ only and that too when the assessee is a developer - Ongoing through the above sub-section (6) it is clear that the exemption is available “from any business carried on in a unit” - The assessee has carried on the business in its unit at Haridwar and hence it is eligible for deduction under Section 115JB of the Act – thus, there is no reason to interfere in the order of the CIT(A) – Decided against Assessee.
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