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TMI Blog2025 (5) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... f convenience. We take ITA No.78/Kol/2018 for the Assessment Year 2013-14 as the lead case and the result of which will apply mutatis mutandis to all the other appeals. 3. Grounds of appeal raised by the assessee in ITA No. 78/Kol/2018 read as under: "1. That, on the facts and in the circumstances of the case, impugned order of assessment under section 143(3) read with section 144C(13) of the Act, is contrary to law laid down by courts, based on extraneous consideration, unsubstantiated presumptions, ignoring to consider all relevant facts and relevant law, bad in law and violative of principles of natural justice. 2. That, on the facts and in the circumstances of the case, the AO erred on facts and in law in computing the total income of the appellant at Rs 2,070,635,140 against the returned total income of Rs. 547,399,361. 3(a). That, on the facts and in the circumstances of the case, Transfer Pricing Officer ('TPO')/DRP/AO erred in relying on extraneous consideration, unsubstantiated presumptions in holding that expenditure towards advertisement, marketing and promotion ('AMP'), unilaterally incurred by the appellant, results in a separate international transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act by not reducing expenses in connection with sales promotion. 3(i) Without prejudice to above grounds of appeal, on the facts and in the circumstances of the case, the AO/ TPO/ DRP have erred in not excluding the reversal of the advertisement expenses credited by the appellant under the head 'Other Income' for A Y 2013-14 in computing the alleged AMP expenditure. 3(j) Without prejudice to above grounds of appeal, on the facts and in the circumstances of the case, the AO/ TPO/ DRP have erred in ignoring reasons furnished by the appellant with respect to selection of appropriate set of comparable companies in light of detailed analysis of comparability factors and matching FAR profile. Further, the DRP has erred in upholding certain comparable companies selected by the TPO for benchmarking the alleged AMP expenditure. 3(k) Without prejudice to above grounds of appeal, on the facts and in the circumstances of the case, the AO/ DRP have erred in upholding the action of the TPO that the assessee has rendered brand promotion services to its AEs and it should charge a mark-up on cost incurred in rendering such services thereby making an adjustment of Rs. 938,214,885 towa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the DRP/ TPO erred in making an adjustment of Rs. 26,851,761 by treating the royalty paid by the assessee with respect to sale of imported goods as NIL. 5(a) That, on the facts and in the circumstances of the case, TPO/ DRP/ AO erred in making an adjustment of Rs. 13,413,665 with respect to Research & Development ('R&D') services. 5(b) That, on the facts and in the circumstances of the case, DRP has erred in stating that TPO has provided reasons in respect of the comparable selected by him. 5(c) Whether on the facts and in the circumstances of the case, TPO/ DRP/ AO erred in not appreciating the specific objections raised by the appellant against the set of comparable companies chosen by the TPO. 5(d) Whether on the facts and in the circumstances of the case, DRP has erred in upholding the order of the TPO in rejecting companies selected by the Assessee for the purpose of benchmarking the transaction of provision of Research & Development services. 5(e) Without prejudice to the grounds mentioned above, the TPO has incorrectly computed the operating margin of certain comparable companies and has erred in not following directions of the DRP in the context of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the products imported by the assessee. 7(f) Whether on the facts and in the circumstances of the case, the DRP/ TPO have erred in rejecting the use of multiple year data for analysis and determining the arm's length margin. 8(a) That, on the facts and in the circumstances of the case, the TPO/ DRP erred in making an adjustment of Rs 9,279,769 on account of chargeback at cost, of expenses incurred by the appellant on behalf of its AEs and treating the same as 'market support services'. 8(b) That, on the facts and in the circumstances of the case, the TPO/ DRP erred in not appreciating that charging of mark-up of 9.23% is not required since the expenses are incurred on behalf of AEs for merely facilitation purpose and the same cannot be treated as rendering of 'market support services'. 8(c) That, on the facts and in the circumstances of the case, without prejudice to other grounds, the TPO/ DRP erred in not appreciating that out of total recovery of Rs. 100,539,206 received from Reckitt Benckiser Corporate Services Ltd, UK ('RBCSL'), only some portion pertains to reimbursement received towards Project Bedrock and Legal expenses of TTK and it al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible undertaking(s) is not eligible for deduction under sections 80-IB and 80- IC of the Act on the ground that the same is not 'derived from' the eligible undertaking(s). 11(b) That, on the facts and in the circumstances of the case, the DRP/ AO erred in not appreciating the fact that scrap generated has direct nexus with the manufacture of the final product in the units and sale of such scrap reduces the cost of production and hence, has direct nexus with the business income of the eligible undertaking(s). 11(c) That on the facts and circumstances of the case, the DRP/ AO erred in not appreciating the fact that the deduction claimed by the Appellant under section 80-IB and 80-IC of the Act are supported by the Auditor's Certificate in Form 10CCB. 11(d) That on the facts and circumstances of the case, the DRP/ AO AO has erred in not appreciating the fact that Learned Commissioner of Income Tax (Appeals) in assessee's own case for A Ys 2008-09 & 2009-10, Hon'ble DRP in assessee's own case for AYs 2010-11, 2011-12 & 2012-13 and the Hon'ble Kolkata Income Tax Appellate Tribunal and Kolkata High Court in assessee's own case for AY 2007 -08 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and are dismissed. 6. Ground no.3(a) to 3(m) are in respect of upward adjustment made for advertisement, marketing and publicity expenses (AMP) of Rs. 98,82,14,885/-. 6.1 At the outset, Ld. Counsel for the assessee submitted that in the assessee's own case for the immediately preceding two years i.e. AY 2010-11 and 2011-12 in ITA Nos. 404/Kol/2015 and 625/Kol/2016 dated 17.06.2020, the Coordinate Bench of ITAT, Kolkata has dealt with this identical issue holding in favour of the assessee that AMP expenses is not an International Transaction. The relevant extract on the finding given by the Coordinate Bench in this respect is reproduced as under: "25.We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld DRP and other materials brought on record. Learned Counsel for the assessee submitted before us that the facts of the case of the Special Bench ruling in LG Electronics (supra) is different from the facts of the present case of the assessee. Assessee Company is engaged in only product promotion and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of/for the benefit of Korean company and had 'no autonomy' in decisions Relating to expenditure incurred on marketing and promotion. In the assessee's case, the assessee company was not under any obligation to incur AMP expenses and also its parent company had no control over such decisions of RBIL. The activities of brand promotion were a global marketing and sales promotion strategy of the parent called "Blue Ocean Strategy", which is not the fact in the case of RBIL. There is no transaction/undertaking/agreement between RBIL and its AE, as different from that which was existed in LG Electronics case(supra). Therefore, assessee company`s case cannot be compared with LG Electronics case (supra). 26. We note that incurrence of the AMP expenses, being a domestic transaction cannot be touted as an instance of profit-sharing exercise. We note that the TPO failed to appreciate that, though a 'transaction' under section 92F(v) includes arrangement or understanding; it per se involves a bilateral arrangement or contract between the parties. A unilateral action by one party in absence of any understanding or contract or binding obligation could not be termed as 'transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , carry out the function of development of markets only when it is adequately remunerated for the same." 67. Reference is made by Mr. Srivastava to some sample agreements between Reebok (UK) and Reebok (South Africa) and IC Issacs & Co and BHPC Marketing to urge that the level of AMP spend is a matter of negotiation between the parties together with the rate of royalty. It is further suggested that it might be necessary to examine whether in other jurisdictions the foreign AE i.e., SMC is engaged in AMP/brand promotion through independent entities or their subsidiaries without any compensation to them either directly or through an adjustment of royalty payments. Absence of a machinery provision 68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild- goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by assigning some price to it and then deducing that since it is not an ALP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment. 71. Since a quantitative adjustment is not permissible for the purposes of a TP adjustment under Chapter X, equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbefore, what the Revenue has sought to do in the present case is to resort to a quantitative adjustment by first determining whether the AMP spend of the Assessee on application of the BLT, is excessive, thereby evidencing the existence of an international transaction involving the AE. The quantitative determination forms the very basis for the entire TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 92B of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 75. As an analogy, and for no other purpose, in the context of a domestic transaction involving two or more related parties, reference may be made to Section 40A(2)(a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO "is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods." In such event, "so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction." The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld DR that assessee is only distributor, is not emanating from the records of the lower authorities. We find that the issue under dispute before us is squarely addressed by this tribunal in assessee's own case for the Asst Year 2011-12 supra wherein it was held :- "43. We have heard the rival submissions and perused the materials available on record. The preliminary issue here arises whether the AMP expenses constitute the international transactions so as to attract the provisions of transfer pricing of the Income Tax Act, 1961. The claim of the Ld. AR is that the AMP transaction does not represent the international transaction between the AE's therefore no question of determining the ALP of AMP transactions. We find force in the argument of the ld. AR in the given facts and circumstances. Therefore, in our considered view the AMP cannot be regarded as international transaction. In holding so we find the support & guidance from the judgment of Hon'ble Delhi High Court in the case of Maruti Suzuki India Limited vs. CIT reported in 381 ITR 117 wherein it was held as under: 51. The result of the above discussion is that in the considered view of the court the Revenue has faile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Transaction and thus, delete the ALP adjustment made in this respect of Rs. 93,82,14,885/-. Accordingly, these grounds taken by the assessee in this respect are allowed. 7. Ground Nos.4(a) to 4(e) are relating to ALP adjustment of Rs. 14,99,95,332/- made on account of payment of royalty. 7.1 At the outset, Ld. Counsel for the assessee submitted that in the assessee's own case for the Assessment Year 2012-13 in ITA No.619/Kol/2017 dated 20.07.2023, the Coordinate Bench of ITAT, Kolkata has dealt with this identical issue holding in favour of the assessee. The relevant extract on the finding given by the Coordinate Bench in this issue is reproduced as under: "9. In respect of grounds 4(a) and 4(b) relating to ALP adjustment of Rs. 2,65,52,926/- made on account of payment of royalty, Ld. AO/TPO observed that many of the brands on which royalty for know-how and brand were paid are very old for which no patent exists. Assessee was show caused as to why not royalty paid for know-how on the brands be considered as junk and only the royalty on brand be allowed on the basis of comparable agreement. Assessee submitted the details of royalty payments. In response to the show cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensors under the licensing agreements. Assessee thus contended that from the import of finished goods, it is able to earn overall gross margin of 17.31% and is thus creating local demands for these products and at the same time is able to earn better margins inspite of paying royalty for the use of its AEs IPRs. 9.3. AO/TPO did not accept the submission of the assessee and took it as Nil by applying Comparable Uncontrolled Price (CUP) method by holding that with the imported goods, the payment of royalty is embedded and thus, an upward adjustment of royalty was made on two components of Rs. 10,65,24,001/- and Rs. 2,65,52,926/-, totalling Rs. 13,30,76,927/-. On the objections raised by the assessee before the Ld. DRP on the above ALP adjustment, it directed to delete the adjustment made of Rs. 10,65,24,001/- against which the Department is not in appeal. Thus, the only issue before us is in respect of royalty payment on imported goods by the assessee from its AEs, amounting to Rs. 2,65,52,926/-. 9.4. Observations of Ld. AO/TPO while making this upward adjustment are noted as under: "With the imported goods the payment of royalty is embedded As per agreement for sales of good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of Products sold leave the premises of the Licensee. 6.2. Net sales shall be in accordance with law for the time being in force in India. Article 7 Payment 7.1. A calculation of the amount of royalties due according to article 6 above shall be made at the end of each calendar half year. The Licensee shall send a complete statement by the 20th of the month following a calendar half year and shall transfer the corresponding amount within the same period. The statement shall set forth the net sales of the products, the amount of any payment due and all other information necessary to show the grounds on which such payment has been computed. 7.2. The Licensor and the Licensee may jointly decide to adjust the royalty at the end of each calendar year in connection with market circumstances which justify an adjustment. 7.3. All amounts due hereunder shall be transferred after deduction of any taxes and cesses including but not limited to Research & Development Cess due and in local currency at a bank account to be notified from time to time by the Licensor. The costs of payment shall be borne by the Licensee." 9.6. On perusal of the said Articles of the licence a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Ld. Counsel reiterated to accept the business model in respect of payment of royalty on the import of finished goods by submitting that as per terms of the license agreement between the assessee and its AE, assessee enjoys the right to manufacture (in own factory) the licensed goods or get the same manufactured from other contractors. Accordingly, the rights granted by the licensor to assessee in respect of all licensed goods are identical. However, in respect of certain goods for which the demand in its licensed territory is not adequate or attained a sizeable scale, assessee chooses to import these goods from other Reckitt Benckiser entities (" AE") and sell in the local market. It may also be noted that for such goods imported from group entities, assessee pays cost plus a fixed mark- up of 5 percent to such group entities for goods manufactured by such entities for the assessee. Accordingly, it may be appreciated that no amount of "Royalty" is embedded in the import price paid by the assessee to its AE. Furthermore, it may also be noted that likewise when an AE sources goods from the assessee for sale in their respective market, assessee is paid on cost plus a fixed mark-up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y paid or payable for the imported goods. Explanation:- Where the royalty, license fee or any other payment for a process, whether patented or otherwise, is includible referred to in clauses (c) and (e), such charges shall be added to the price actually paid or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods. Interpretative Notes- to Rule 10(1)(c) provide that the royalties and license fees referred to in Rule 10(1)(c) may include among other things, payments in respect to patents, trademarks and copyrights. However, the Charges for the right to reproduce the imported goods in the country of importation shall not be added to the price actually paid or payable for the imported goods in determining the customs value. 20.2 From these provisions of the Valuation Rules it is clear that for addition of any amount under Rule 10(1)(c) of the Valuation Rules the following conditions need to be fulfilled:- (i) such amount is not Included in the price actually paid or payable (ii) the amount should be paid as a condition of the sale of the goods being valued and (iii) the amount is actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view taken by his predecessors in previous years. We note that the assessee has been paying royalty to its Associate Enterprises(AEs) for a number of years which has been allowed in the assessment of earlier years. Therefore, the TPO cannot take a contrary view and disturb the settled facts unless there is a change in law or facts. Therefore, the arm's length price adjustment made by TPO is not sustainable in law. 17. We note that TPO has allowed royalty in respect of all except two products viz. Mincream and Robinson Burley, the TPO has held that no benefit was derived by the assessee from its AE. It is not denied that the trade- marks for the two products viz. Mincream and Robinson Burley were registered and the said brands were owned by the AEs. The royalties are paid not only in respect of patent but for a basket of services. It is a common occurrence that a person using a brand name pays certain brand royalty to the owner of brand. It is not the case of the TPO, that the royalty paid in respect of these products was without any use of the said brand names. The assessee has in its TP study included payment of royalty and according to it the royalties are at arm' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) is in respect of upward adjustment of Rs. 1,12,45,571/- for R&D services. In the Transfer pricing assessment, ld. TPO rejected certain comparables selected by the assessee owing to difference in functions, assets, risk (FAR analysis). Assessee raised the objections and submitted that comparables taken by the Ld. TPO are functionally not comparable. Ld. TPO rejected the objections raised by the assessee. Ld. Counsel referred to the comparability analysis made for the comparables selected by the assessee by taking into account the correct functionality of the comparables for which detailed charts are placed on record. By referring to these charts, Ld. Counsel submitted that for making a correct comparability analysis, it is important to capture the correct functionality of the comparables and, therefore, he submitted that the matter can go back to the Ld. TPO to undertake fresh comparability test based on the charts submitted on record. According to him, it is important that proper functional profile including the FAR analysis as well as economic analysis must be undertaken to arrive at the correct bench- marking. 11.1. In this respect, he submitted that assessee provides follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coordinate Bench in this issue is reproduced as under: "12. Ground no. 6(a) to 6(d) is in respect of adjustment made towards IT support services, amounting to Rs. 5,04,00,731/-. This is also the issue similar to the ground raised in 5(a) to 5(c). On this issue, Ld. AO has considered the service as KPO Services which are in fact BPO function. Details of IT support services provided by the assessee to its AEs are as under: * "Application Monitoring to ensure all the applications are running as per expectations and to detect and raise any anomalies in the application performance or usage. * Take pre-emptive action to fix anomalies, if any detected and/or escalates to the respective third party vendor. * Provide data services to load data into applications as per business requirement. These include - periodic updates of an application's database, taking adequate data backups before an application is refreshed/ rebooted etc. * Provide user management services which include invoking and removing the access of users, as is prescribed in the standard operating procedures provided by the Recipient. * Provide incident resolution to resolve any issues users encounter in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: "14. Ground nos. 8(a) to 8(e) are in respect of import purchases of finished goods from the AEs for which an upward adjustment of Rs. 7,99,56,607/- has been made. 14.1. In this respect, assessee has bench- marked the purchase of finished goods imported from AEs amounting to Rs. 40,11,48,074/- by using resale price method. Ld. TPO found functional difference in the comparables and recomputed the gross profit margin of 37.06% to arrive at the ALP of imported goods. In this respect, Ld. DRP had observed that product comparability must be similar, it is not essential to have closer comparability of the products. The broad basket of the products of comparables should be similar to the tested party products. Thus, Ld. TPO was directed to follow this criteria to examine the comparables by verifying their product comparability. In this respect, ld. Counsel for the assessee submitted that no finding has been given by the Ld. TPO on this direction of the Ld. DRP. He further submitted that each comparable considered for the purpose of bench-marking has to be seen on its own set of facts by taking into account the functionality. It was contended that the comparables considered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes supporting invoices explaining the nature of expenses. However, according to the assessee, without appreciating true nature of expenses, ld. TPO had presumed these expenses in the nature of support services "legal service and manpower management" which are eligible for a mark-up. Ld. TPO thus, selected the comparables engaged in marketing support services and applied a mark-up of 18.17% on the recovery expenses amounting to Rs. 16,96,95,346/-. Ld. DRP upheld the action of the Ld. TPO. 15.2. Before us, ld. Counsel for the assessee submitted that there is no adjudication by the Ld. TPO or Ld. DRP as to what services were rendered. According to him, expenses in question were in respect of system upgrade of the assessee for which costs were reimbursed to the assessee by the AEs. It was contended that there were no element of any services that the assessee rendered to the AEs. Ld. Counsel further submitted that there is no adjudication on the evidence which were furnished in the course of assessment before the Ld. TPO and the Ld. DRP so as to establish that these were cost to cost reimbursement. According to him, since there is no income element, there was no question of invoking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has not able to produce any agreement in respect of such allocation of cost. From the details of the charge it is seen some of most of the charges are related to Brand promotion. Those bran promotion are not the identified needs of the assessee as the assessee itself is spending a hefty amount on brand promotion in India. 12.4. thus no third party will pay such amount for such activity which is in the nature of stewardship activity. Hence amount allocated to the assessee by its AE taken as nil under the CUP method." 16.2. In this respect, ld. Counsel referred to the detailed evidence including debit notes, invoices, nature of expenses which were submitted in the course of assessment proceeding as well as before the Ld. DRP which have not been considered. Further, Ld. Counsel submitted that there is no income element in the said transactions which are on cost to cost basis reimbursements. He also contended that Ld. TPO has limited jurisdiction to determine the ALP of an international transaction and questioning the commercial expediency is not in his domain. 16.3. We have considered the submissions made before us and in the interest of justice and fair play, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 20.04.2018. In this order, the Tribunal has inter alia observed as under: "4. As far as Ground No.3 raised by the revenue is concerned, it is seen that the details of the bad debts written off, given at Page No.128 and 129 of the assessee's Paper Book read with Page 145 of the Paper Book. The details of bad debts written off, as given in Page 145 of the P.B is as follows: The deduction claimed by the assessee was in respect of Unit 1, 2, 3 & 4. The Unit 1 commercial operation commenced only on 02.02.2004 which is evidenced by the audit report in Form 10CCB which is placed at Page 90 of the assessee's Paper Book. The Unit No.2 commenced commercial operation only w.e.f. 03.04.2004 which is evidenced by Form No.10CCB, placed at Page 79 of the assessee's Paper Book. The Unit No.3 commenced commercial operation only on 08.12.2004 as it is evidenced by the Form No.10CCB, copy of the Page 101 of the assessee's Paper Book. The Unit No.4 commenced commercial operation w.e.f, 02.02.2005 which is evidence by Form No.10CCB from placed at Paper Book page 68. It can thus perusal of the bad debts written off would show that all the debts pertained to assessment year 2002-03 and ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. (emphasis supplied)". As per Section 80IA(5) r/w Section 80IB(13) and 80IC(7), for the purposes of computing the quantum of allowable deduction u/s 80IB, the profits and gains of the eligible unit of the assessee has to be computed as if such eligible business were the only source of income of the assessee during the year. The above expenses, even though booked centrally in the head office books, have been incurred for all the units of the assessee company. Hence; in order to arrive at the true and correct value of the profits & gains derived from the eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appeal by the assessee, the CIT(A) accepted the basis of apportionment of the residual cost as made by the assessee with the following observations: "7.3.3. With regard to change in the basis of allocation of residual cost by the AO. I find merit in the appellant's argument 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 allocation 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. As per the appellant, at corporate office level there were 101 persons during the FY 2004-05 out of which, persons were working in supply function which is directly linked to factory operation. This worked out to 21.78%. The ratio of sale of fiscal units to overall sales was 26.10%. The effective percentage of residual cost thus worked out to 5.68% (21.78% * 26.10%), which the appellant applied for allocating the residual cost to the eligible units. For allocation expenses, the appellant has taken into consideration number of person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erit in Ground No.2 raised by the revenue and the same is dismissed. In the result, the Ground No.3 raised by the assessee is allowed and the Ground No.2 raised by the revenue is dismissed." 42. As the issue is squarely covered in favour of the assessee by the decision of Co-ordinate Bench in assessee's own case (supra) in I.T.A. No. 2138/Kol/2009 for A.Y 2005-06, and there is no change in facts and law and the Revenue is unable to produce any material to controvert the above said findings of the Co-ordinate Bench(supra). Therefore, respectfully following the decision of Co-ordinate Bench we dismiss the appeals of Revenue for A.Y. 2010-11 and A.Y. 2011-12." 13.2 Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate bench in assessee's own case in ITA No.404/Kol/2015 & ITA No.625/Kol/2016 for the Assessment Years 2010-11 to 2011- 12, wherein, the Tribunal has dismissed these grounds taken by the revenue as extracted above, we therefore allow these grounds of appeal of the assessee. Accordingly, Ground nos.10(a) to 10(c) are allowed. 14. Ground nos.11(a) to 11(d) are relating to disallowance of scrap sale u/s 80IB and 80IC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances of the case. For the sake of emphasis, we may say that the scrap materials come within the manufacturing process of the industrial undertaking in the manufacture- of certain products such as V-Belts, oil seals, 0-Rings: and certain rubber moulded products- etc. In this view of the matter, we are of the view that profits and gains from the sale of scrap materials is eligible to deduction in an amount equal to twenty per cent under section 80IC, inasmuch as such gains or profits' are derived from the industrial undertaking and includible in, the gross total income of the assessee and the question relatable to the profit on the sale of scrap is thus answered in favour of the assessee" We are persuaded by the reasoning of the said Court and answer the question accordingly. The question in the revenue's appeal is answered in the negative, in favour, of the assesses and against the revenue. Accordingly, both the applications being GA No.1420 of 2014 and GA No.1735 of 2014 are disposed of and the appeals being ITAT No.,41 of 2014 and ITAT No, 59 of 2014 are dismissed." 47. As the issue is squarely covered in favour of the assessee by the decision of Hon'ble C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rib.) a Special Bench was constituted. The Hon'ble Special Bench so constituted in the case of DCIT Vs. Total Oil India Pvt. Ltd. (supra) has decided the issue against the assessee vide its order reported in [ 2023] 149 taxmann. Com 332 (Mum. Trib.)(SB). In this respect, ld counsel submitted that assessee is not a party to the decision of Hon'ble Special Bench and there are certain distinguishing factors in the case of the assessee which have not been considered in the decision of the Hon'ble Special bench and, therefore, prayed that this matter may be set aside to the file of ld. AO for fresh consideration and assessee be given an opportunity to distinguish the law laid down by the Hon'ble Special Bench. He submitted that this will enable the assessee to bring on record all factual and legal submission in support of its claim. 18.1. We have gone through the submissions made by the Ld. Counsel in this respect and find it appropriate to remit the matter back to the file of Ld. AO for fresh consideration by giving the assessee an opportunity to make its submission on the factual and legal aspect in support of the claim made before us. Accordingly, this additional ground is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 115JB however being deeming provision, the clauses contained therein has to be strictly construed. Accordingly, it is only the provisions of section 14A(1) that can be imported into clause (f) of section 115JB of the Act. The scope of clause (f) cannot be enlarged in order to bring within its ambit the provisions of sub-section (2) & (3) of section 14A of the Act and therefore the disallowance made by applying rule 8D cannot also be imported. The special Bench of this Tribunal in the case of Asstt. CIT v. Vireet Investment (P.) Ltd. [2017] 82 taxmann.com415/165 ITD 27 (Delhi - Trib.) has held that the computation mechanism provided under rule 8D of the Rules cannot be applied for computing addition in terms of clause (f) of Explanation 1,for arriving at the book profit/s 115JB of the Act. Identical view has also been expressed by the coordinate Benches of this Tribunal in the following cases: - Britannia Industries Ltd. v. Dy. CIT [2019] 107 taxmann.com 138 (Kol. - Trib.) - Bata India Ltd. v. Dy. CIT [2019] 111 taxmann.com 453/180 ITD 464 (Kal. - Trib.) 9. Respectfully following the same, we are of the view that the ld. CIT(A) has rightly deleted the addition of Rs. 34 ..... 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