2015 (10) TMI 2486 - HC - Income Tax

Deduction under Section 80-IC - Held that - For the preceding AY 2008-09 also the reduction attributable to the brand had been restricted to 10% by the AO and had been deleted by the ITAT. In the absence of any distinguishing feature having been brought out by the Revenue the ITAT held that no deduction could be made from the eligible profits on account of the brand . Whether the income generating activity was only at the works units at Haridwar and not at the head office or branch offices? - Held that - Learned counsel for the Assessee placed before the Court the profit and loss account for the Assessee as a whole for the years ending 31st March 2008 and 31st March 2009. He has also placed the details of the schedule of fixed assets of the head office and the works at Haridwar as well as statement of expenses and salaries and wages statement of the branches. As far as the head office is concerned the net block as on 31st March 2008 was Rs. 13, 22, 101.14 whereas the net block for the works at Haridwar was Rs. 1, 26, 80, 393.35. The corresponding figures for the year ending 31s March 2009 were Rs. 43, 62, 243.40 and Rs. 1, 20, 87, 372.35. As regards the branch offices at Bangalore Mumbai and Kolkatta the total expenditure figures for the year ending 31st March 2009 were Rs. 2, 86, 690; Rs. 5, 98, 981 and Rs. 5, 12, 949 respectively which even in the aggregate was insignificant in comparison with the expenses of the entire company which was Rs. 9, 08, 34, 838.18 for the same period. Likewise the expenses towards salaries and wages of the branches constitutes a small percentage of the total expenditure of the Assessee on that head. These figures bear out the contention of the Assessee that the income generating activity was only at the works units at Haridwar and not at the head office or branch offices. Therefore on facts the Court is unable to find any perversity vitiating the impugned order of the ITAT.

Summary

Issues:
1. Interpretation of Section 80-IC of the Income Tax Act, 1961 for deduction eligibility.
2. Allocation of profit between eligible and non-eligible units.
3. Inclusion of branch offices and head office for deduction under Section 80-IC.

Issue 1: Interpretation of Section 80-IC for deduction eligibility
The case involved the interpretation of Section 80-IC of the Income Tax Act, 1961 regarding the eligibility of a manufacturer of auto parts and accessories for deduction from its income. The Assessing Officer (AO) computed the deduction at a lower amount than claimed by the Assessee under Section 80-IC. The Commissioner of Income Tax (Appeals) restricted the reduction of deduction and set aside certain aspects of the AO's order. The ITAT, in the impugned order, held that no deduction could be made from the eligible profits on account of the 'brand' as done in the previous assessment year. The court upheld the ITAT's decision, emphasizing that no distinguishing feature was brought out by the Revenue to justify the deduction.

Issue 2: Allocation of profit between eligible and non-eligible units
The AO attributed a portion of the sale value of products to the 'brand' and past experience, expertise, and knowledge of related persons, reducing the eligible profit for deduction under Section 80-IC. The CIT (A) and ITAT disagreed with the AO's attribution, leading to a dispute on the allocation of profit. The ITAT negated the Revenue's contention that income from branch offices and the head office affected the eligibility for deduction under Section 80-IC. It held that income-producing activity solely stemmed from the unit in Haridwar, rejecting the Revenue's argument based on lack of evidence of income generation from other places.

Issue 3: Inclusion of branch offices and head office for deduction under Section 80-IC
The court examined whether the Assessee could include the names of branch offices and the head office, other than the Haridwar unit, for the purpose of deduction under Section 80-IC. The Assessee presented financial statements and expenditure details to demonstrate that income-generating activities were only conducted at the Haridwar unit, not at the head office or branch offices. The court found no perversity in the ITAT's order based on the presented facts and dismissed the appeals, stating that no substantial question of law arose for determination.