2017 (10) TMI 1005 - HC - Income Tax

Deduction u/s. 80IC for Baddi Units - profits derived from manufacturing activities and marketing activities bifurcation - Held that - As in assessee s own case 2017 (10) TMI 939 - GUJARAT HIGH COURT Appellate Tribunal was right in law and on facts in allowing the deduction u/s. 80IC of the Act for Baddi Unit as held in the earlier assessment year that there was no separate marketing division and therefore there was no transfer of goods from eligible to non-eligible undertaking. Thus in absence of any separate marketing division there could not be separation of profit and expenditure. It was also found that the brand was owned by the foreign collaboration and there cannot be any profit attributable to such brand. More importantly the Tribunal noted that in the preceding assessment year 2007-08 the assessee had set up such a claim. The Assessing Officer had framed scrutiny assessment during which no disallowance was made. No attempt was made on part of the Revenue either to take such order in revision nor process of reopening of exemption was resorted to. - Decided against revenue

Summary

Issues:
1. Interpretation of Section 80IC of the Income Tax Act regarding deduction eligibility for Baddi Units based on profits derived from manufacturing vs. marketing activities.

Analysis:
The High Court of Gujarat heard an appeal by the Revenue challenging the Income Tax Appellate Tribunal's decision allowing a deduction of ?6,94,58,479 under Section 80IC of the Income Tax Act for Baddi Units. The main question was whether the Tribunal was correct in allowing the deduction without considering the Assessing Officer's decision to only allow the claim for profits derived from manufacturing activities and disallow profits from marketing activities as per Section 80IC. The Court noted that a similar issue had arisen in a previous assessment year, where the claim was allowed as there was no separate marketing division and no transfer of goods from eligible to non-eligible undertaking. It was also found that the brand was owned by a foreign collaboration, and no profit could be attributed to such brand. The Court observed that in the absence of any revision or reopening of the exemption process by the Revenue in the preceding assessment year, there was no reason to interfere. Consequently, the Court dismissed the appeal without recording separate reasons.

In conclusion, the judgment revolves around the interpretation of Section 80IC of the Income Tax Act concerning the eligibility of deductions for Baddi Units based on profits derived from manufacturing and marketing activities. The Court upheld the Tribunal's decision, emphasizing the absence of a separate marketing division and the ownership of the brand by a foreign collaboration as key factors in allowing the deduction. The Court also highlighted the Revenue's failure to challenge the previous assessment year's decision through revision or reopening of the exemption process, leading to the dismissal of the appeal without detailed reasons.