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2016 (7) TMI 383 - ITAT AHMEDABAD

2016 (7) TMI 383 - ITAT AHMEDABAD - TMI - Deduction u/s.80IC - profit attributable to marketing division and brand value to be disallowed or not - Held that:- CIT(A) while deciding the issue in favour of assessee has given a finding that there was no marketing division and, therefore, there was no transfer of goods from eligible to non-eligible undertaking and in the absence of marketing division being a separate undertaking, no profit could be attributed to the marketing activity. - With r .....

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nses debited to the Profit & Loss Account are more than gross profit computed by the AO, that there cannot be any disallowance of deduction u/s.80IC of the Act. Before us, Revenue has not placed any material to controvert the findings of ld.CIT(A). We further find that the assessee had claimed deduction u/s.80IC in AY 2006-07 also and the claim has been allowed in the assessment framed u/s.143(3) of the Act, and that no reopening of assessment u/s.147/148 or u/s.263 has been initiated for withdr .....

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cted against the separate orders of the Commissioner of Income Tax(Appeals)-6, Ahmedabad dated 03/10/2011 & 20/12/2011 for the assessment years 2007-08 & 2008-09 respectively. 2. Before us, at the outset, both the parties submitted that though the appeals of Revenue pertain to different assessment years, but the issue involved in both the years are identical except for the assessment years and amounts involved and, therefore, they have common submissions to make. In view of the aforesaid .....

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ng 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 ₹ 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 fo .....

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alter any ground or add a new ground which may be necessary. 3. During the course of assessment proceedings and on perusing the computation of income filed by the assessee, AO noticed that the assessee has claimed deduction of ₹ 10,88,46,178/- u/s.80IC of the I.T.Act, 1961, being the profits of Baddi Unit. AO also noticed that the assessee also had a Ahmedabad Unit. On comparison of the profits of Ahmedabad and Baddi Unit, he noticed that the assessee had shown abnormal high profit of 22.7 .....

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well-established market for its goods, its products fetch good price in the market and had incurred expenditure to establish the Brand Value. He further noted that the brands of the assessee were well-established even before the Unit at Baddi commenced its production. He was of the view that on account of brand and marketing network, the assessee was generating profits and the profits accrued to the assessee even prior to set up of Baddi Unit. He, therefore, concluded that the ultimate sale pric .....

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or the marketing network that was owned by the assessee. AO was therefore of the view that the assessee should have taken the cost and reasonable amount of profit as the basis for determining the sale price of product from Baddi Unit for the 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 the .....

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/- and thereby denied the claim of deduction to the extent of ₹ 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 ground that profit claimed as deduction als .....

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y manufacturing and was using existing marketing set up and brand of the appellant company, only profits derived from manufacturing in the Baddi unit is eligible for deduction and profits relating to marketing activities and brand are not eligible for deduction under section 80 1C. Assessing officer quantified the gross profit derived from Brand and marketing at ₹ 40459475 on page 23 of the assessment order. It is not in dispute that what is quantified by the assessing officer for disallow .....

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ross profit of marketing and brand activity attributed by the assessing officer. As per the details given, the marketing expenses debited in the profit and loss account of Baddi unit are ₹ 45732681. If marketing expenses debited in the P&L account of eligible unit is reduced from the gross profit from marketing and brand activity of ₹ 40459475, then there can be no disallowance out of deduction claimed by the appellant. I agree with the appellant's logic that the marketing ex .....

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ccordingly 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 no .....

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ed and therefore the question of transfer of goods and services to non-eligible undertaking does not arise. As regards profits derived from brand value, appellant submitted that most of the products were sold in the brand name of its foreign collaborator and therefore any profit attributable to appellant's own brand will not be there. As per agreement with the foreign collaborator, appellant is required to import raw material from it and sale its finished products in the brand name of foreig .....

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scrutinizing the proposals and orders and actively involved in negotiating, concluding or fulfilling the contracts. Since Indian PE, which was the marketing division, was carrying out presale, sale and post sale activities, a definite profit was attributable to this undertaking. It cannot be said that Indian PE was not carrying out profitable activity. The issue involved was of transfer pricing in which the profits of Indian PE was to be worked out. The facts of the appellant's case are alto .....

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in the marketing, no profit can be attributed to the marketing activity which is only supporting activity for the manufacturing divisions. Like head office expenses, marketing expenses were also allocated to the eligible undertaking and therefore presuming any profit in marketing activity is not required. Assessing officer also referred provisions of section 80IA (5) as per which the profit of the undertaking has to be considered as if it was the only undertaking of the assessee. Marketing, hea .....

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g 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 appella .....

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collaborator and there can't be any profit attributable to brand. The disallowance of deduction made by the assessing officer is therefore without any basis and the same cannot be sustained on merit also. The addition made by the assessing officer is accordingly deleted. 4. Aggrieved by the order of the ld.CIT(A), Revenue is now in appeal before us. 5. Before us, ld.Sr.DR supported the order of the AO. On the other hand, ld.AR(s) reiterated the submissions made before the AO and ld.CIT(A). .....

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e also placed on record the copy of the said order. He further submitted that the claim of deduction in AY 2006-07 has not been disturbed by Revenue either by reopening the assessment u/s.147/148 of the Act or by invoking revisionary powers u/s. 263 of the Act, meaning thereby that claim of the deduction u/s.80IC of the Act as made by the assessee has been found to be in order. He further submitted that since there are no change in the facts of the case between AY 2006- 07 and the year under con .....

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no transfer of goods from eligible to non-eligible undertaking and in the absence of marketing division being a separate undertaking, no profit could be attributed to the marketing activity. With respect to brand value, the ld.CIT(A) has given finding that the same is owned by the foreign collaborator and there cannot be any profit attributable to brand. He has further given a finding that AO had quantified the gross profit attributable to marketing and brand value and disallowance and that sinc .....

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