2013 (9) TMI 598 - AT - Income Tax

Selling and distribution expenses - Disallowance in regard to partner s remuneration AO disallowed the expenses as higher in comparison with another company SPIL - Held that - the total percentage of expenses during the impugned year is higher than expenses of SPIL inspite of the fact that there is difference between nature of business carried on by the assessee and that of SPIL as pointed out by the ld. counsel for the assessee.. Selling and distribution expense has to be considered while taking both the components i.e. expenses directly incurred and remuneration paid to working partner (SPIL) for using inter-alia marketing and distribution set up - Book results are duly audited has neither been rejected nor any deficiency was found by the lower authorities. It was also argued there cannot be any assessment of expenses on notional or assumption basis - Disallowance on selling and distribution expenses made by the AO is not justified Decided in favor of Assessee.

Issues Involved:
1. Deduction u/s 80-IB
2. Invoking provisions of S.80IB(13) r.w.s.80IA(10)
3. Disallowance of deduction u/s 80IB due to purchase of materials and selling/distribution expenses
4. Initiation of penalty proceedings u/s 271(1)(c)
5. Disallowance of deduction u/s 80IB on account of Central Excise Duty Refund
6. Disallowance of deduction u/s 80IB in respect of interest income
7. Disallowance of deduction u/s 80IB in respect of delayed payments from M/s. Aditya Medisales Ltd.
8. Disallowance of remuneration u/s 40(b)
9. Higher deduction u/s 80IB on account of disallowance u/s 43B
10. Disallowance of deduction u/s 10B on account of exchange rate fluctuation
11. Interest u/s 234C

Detailed Analysis:

1. Deduction u/s 80-IB:
- The primary issue was whether the industrial undertaking at Dadra qualified for deduction u/s 80-IB. The Tribunal followed the previous decision in the assessee's own case, allowing the deduction for the assessment year 2004-05 as the 3rd year of operation. Similar decisions were followed for subsequent years, considering the respective years of operation.

2. Invoking provisions of S.80IB(13) r.w.s.80IA(10):
- The AO invoked these provisions to disallow deductions based on non-charging of royalty, management fees, and selling/distribution expenses. The Tribunal found no close connection or arrangement to produce more than ordinary profits and directed deletion of disallowance for royalty and management fees, while confirming the disallowance related to purchase of raw materials based on the final outcome in SPIL's case.

3. Disallowance of deduction u/s 80IB due to purchase of materials and selling/distribution expenses:
- The Tribunal upheld the disallowance for purchase of raw materials from SPIL, pending the final outcome in SPIL's case. For selling and distribution expenses, the Tribunal found the AO's notional assessment incorrect and deleted the disallowance.

4. Initiation of penalty proceedings u/s 271(1)(c):
- The Tribunal dismissed the assessee's ground regarding initiation of penalty proceedings, stating it did not arise from the CIT(A)'s order.

5. Disallowance of deduction u/s 80IB on account of Central Excise Duty Refund:
- The Tribunal allowed the deduction, following previous decisions where it was considered derived from the business of the industrial undertaking.

6. Disallowance of deduction u/s 80IB in respect of interest income:
- The Tribunal dismissed the assessee's claim for interest on statutory deposits, banks, and loans to employees, following its own previous decisions.

7. Disallowance of deduction u/s 80IB in respect of delayed payments from M/s. Aditya Medisales Ltd.:
- The Tribunal dismissed the Revenue's ground, allowing the deduction for interest on delayed payments, consistent with earlier decisions.

8. Disallowance of remuneration u/s 40(b):
- The Tribunal dismissed the Revenue's ground, allowing higher deduction u/s 80IB on account of disallowance of remuneration u/s 40(b), following its previous decisions.

9. Higher deduction u/s 80IB on account of disallowance u/s 43B:
- The Tribunal dismissed the Revenue's ground, allowing higher deduction u/s 80IB on account of disallowance u/s 43B, consistent with earlier decisions.

10. Disallowance of deduction u/s 10B on account of exchange rate fluctuation:
- The Tribunal dismissed the assessee's ground, upholding the disallowance based on the CIT(A)'s reliance on relevant case law.

11. Interest u/s 234C:
- The Tribunal directed the AO to charge interest on the returned income in accordance with law, allowing the assessee's ground for statistical purposes.

Conclusion:
The Tribunal upheld the CIT(A)'s orders with minor modifications, consistently applying principles from prior decisions in the assessee's own cases. The appeals were partly allowed for the assessee and dismissed for the Revenue, except one appeal which was partly allowed for statistical purposes.

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