2019 (4) TMI 566 - AT - Income Tax

Deduction u/s 80IC - higher rate of profit declared by the assessee-company in its Dehradun Unit - THAT - The reasons for the higher profit margin earned by the Dehradun Unit were also explained by the assessee by showing as to how the cost of production of the same Unit was lower due to various incentives and the availability of raw material at cheaper rates in the local market. Keeping in view all these relevant aspects highlighted for the assessee as well as the other reasons given by the CIT(Appeals) in his impugned order, we are of the view that there was no justifiable reasons for the Assessing Officer to doubt or dispute the higher rate of profit declared by the assessee-company in its Dehradun Unit and to estimate the same at a lower rate thereby restricting the claim of the assessee for deduction under section 80IC. In that view of the matter, we uphold the impugned order of the CIT(Appeals) deleting the disallowance made by the AO on account of assessee s claim for deduction under section 80IC. Addition u/s 80IA(8) - sale price charged by the assessee to the other group concern was alleged by the Assessing Officer as understated by the assessee on the basis of M.R.P. of the relevant products - understatement of sales price by the assessee on the basis of MRP of the relevant products - HELD THAT - It is difficult to comprehend as to how the sale price could be lower when profitability shown by the assessee was higher. Moreover, the sale price charged by the assessee to its associate concern M/s. Shree Baidyanath Ayurved Bhawan Pvt. Limited was the subject matter of Transfer Pricing Exercise in A.Y. 2013-14 and as already noted by us, the same was accepted by the Transfer Pricing Officer as at Arm s Length after carrying out the Transfer Pricing Analysis based on comparable cases. It was also pertinent to note here that the sale price charged by the assessee to M/s. Shree Baidyanath Ayurved Bhawan Pvt. Limited on the same basis was accepted by the Assessing Officer in the assessments for all the earlier years and there was no cogent material brought on record by the Assessing Officer to dispute the price mechanism adopted by the assessee in the year under consideration. Having regard to all these facts and circumstances of the case, we are of the view that the addition made by the Assessing Officer by alleging the understatement of sales price by the assessee on the basis of MRP of the relevant products was not sustainable and the CIT(Appeals) was fully justified in deleting the same. Disallowance of advertisement expenditure - entire advertisement expenses incurred during the year under consideration were claimed by the assessee in Kolkata Unit - HELD THAT - Entire advertisement expenses were incurred by the assessee in respect of its own products, which were manufactured in Kolkata Unit whereas no advertisement expenses were required to be incurred in respect of Dehradun Unit where the entire sales was made to the sister concern M/s. Shree Baidyanath Ayurved Bhawan Pvt. Limited of their own products. It clearly shows that the entire expenditure incurred by the assessee on advertisement was related to marketing of its own products sold under its own brand and since such products were manufactured solely in Kolkata Unit, we find ourselves in agreement with the ld. CIT(Appeals) that the disallowance made by the Assessing Officer out of advertisement expenses was not justified especially when the genuineness of the said expenses was never doubted or disputed by the Assessing Officer. We, therefore, uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance - Revenue appeal dismissed.

Summary

Issues Involved:
1. Disallowance of claim for deduction under section 80IC.
2. Addition made under section 80IA(8) related to alleged undervaluation of sales.
3. Disallowance of advertisement expenditure.

Detailed Analysis:

1. Disallowance of Claim for Deduction under Section 80IC:
The Revenue challenged the deletion of the disallowance of ?1,04,78,226/- claimed under section 80IC. The Assessing Officer (AO) had restricted the deduction, alleging that the profit declared by the Dehradun Unit was higher than reasonable. The assessee explained that the higher profitability was due to lower production costs in Dehradun and various local incentives. The CIT(A) found that the AO had not provided evidence to contradict the assessee's explanation and noted that the deduction under section 80IC had been allowed in previous years under similar circumstances. The Tribunal upheld the CIT(A)'s decision, emphasizing the consistency in the assessee's profit margins and the lack of contrary evidence from the AO.

2. Addition Made Under Section 80IA(8) Related to Alleged Undervaluation of Sales:
The AO added ?7,16,01,719/- to the assessee's income, alleging that the sales to M/s. Shree Baidyanath Ayurved Bhawan Pvt. Limited were undervalued. The assessee argued that the MRP included the profit and marketing expenses of the buyer, making it inappropriate to compare it with the sale price. The CIT(A) agreed, noting that the AO had accepted similar pricing in previous years and that the Transfer Pricing Officer had found the prices to be at arm's length in subsequent years. The Tribunal upheld the CIT(A)'s decision, stating that there was no evidence to support the AO's claim of undervaluation.

3. Disallowance of Advertisement Expenditure:
The AO disallowed ?53,26,288/- out of the total advertisement expenditure, arguing that since 90% of the sales were to the group company, only 10% of the expenses should be allowed. The assessee explained that the advertisement expenses were for products manufactured and sold under its own brand from the Kolkata Unit. The CIT(A) found that the AO did not dispute the genuineness of the expenses and that the entire expenditure was related to the Kolkata Unit's products. The Tribunal upheld the CIT(A)'s decision, concluding that the disallowance was not justified.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years, upholding the CIT(A)'s decisions on all issues. The Tribunal emphasized the importance of consistency and the lack of evidence from the AO to support the disallowances and additions made.