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TMI Blog2019 (3) TMI 626X X X X Extracts X X X X X X X X Extracts X X X X ..... essee’s own case [2018 (4) TMI 1129 - ITAT KOLKATA] has already upheld Revenue’s very stand. We confirm the impugned Section 80IB/80IC deduction disallowance on this court alone. Disallowing provision of marketing services - whether it is in the nature of a contingent liability only than an ascertained one? - DR vehemently contends that the assessee has failed to prove the three basic ingredients of its impugned provisions i.e. an obligation arising as a result of past events, outflow of resources required for the very obligation followed by a reliable estimation; respectively - HELD THAT:- The assessee inter alia takes us to assessment year wise details of the marketing services from assessment year 2004-05 onwards, notes pertaining to its media activity, creation of marketing provision and reversal thereof, sample estimation, TV estimate and schedule as well as other similar details for its advertisements/marketing expenses for the impugned assessment order amounting to ₹ 156.94 crores. Both the lower authorities have been very fair in not pinpointing any distinction on facts and law in the instant case in all these assessment years. We adopt the above extracted reasoni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder in the lower appellate proceedings. We do not see any valid reason in assessee’s instant third and last substantive ground, on this ground alone. - I.T.A No. 2113/Kol/2013, I.T.A No. 2150/Kol/2013, I.T.A No. 2114/Kol/2013, I.T.A No. 2151/Kol/2013, I.T.A No. 760/Kol/2014, I.T.A No. 762/Kol/2014 - - - Dated:- 14-9-2018 - Shri S.S. Godara, JM Shri M.Balaganesh, AM For the Appellant : Shri J.P. Khaitan, Sr. Advocate For the Respondent : Shri Md. Usman, CIT DR ORDER Per S.S. Godara, JM 1.The Revenue and assessee filed their instant three cross appeals each for assessment years 2006-07, 2008-09 and 2009-10 against the CIT(A)-XII, Kolkata, separate orders dated 11.03.2013, 14.03.2013, 16.01.2014 in case nos. 924/XII/12/09-10, 390/XII/12/11-12, 38/XII/Cir-12/13-14, (assessment year wise); respectively involving proceedings u/s 143(3) of the Income Tax Act, 1961 (in short the Act). We proceed assessment year wise for the sake of convenience and brevity. Assessment year 2006-07 Revenue s appeal I.T.A. No. 2113/Kol/2013 and assessee s cross appeal I.T.A. No. 2150/Kol/2013 We come to Revenue s appeal. Its sole grievance reads that the CIT(A) has erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce is that the learned CIT(A) has erred in law and on facts in affirming the Assessing Officer action disallowing provision of marketing services amounting ₹ 10,52,08,968/-. Both parties are unanimous during the course of hearing that the Assessing Officer as well as the CIT(A) have gone by their respective findings in the immediate preceding/subsequent assessment years while making the impugned disallowance. For the reason that it is in the nature of a contingent liability only than an ascertained one, we notice that the taxpayer s corresponding substantive ground already stands accepting in assessment years 2003-04 to 2004-05 in I.T.A. Nos. 1671/Kol/2008 and 1024/Kol/20109 decided on 25.05.2016 with the following detailed discussion: 10. The issue raised in Ground No. 2 relates to the disallowance of ₹ 1,69,27,615/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of provision made for marketing expenses. 11. As noticed by the Assessing Officer during the course of assessment proceedings, the assessee had made a provision of ₹ 19.90 crores for marketing expenses. He, therefore, required the assessee to furnish the complete d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT(Appeals). Besides reiterating the submissions made before the Assessing Officer, it was also brought to the notice of the ld. CIT(Appeals) by the assessee that the excess provision of ₹ 1.69 crores having been offered to tax in the subsequent years under section 41(1) at the same rate, there was no loss to the Revenue. The ld. CIT(Appeals), however, did not find merit in the stand of assessee and rejecting the same, he proceeded to confirm the disallowance made by the Assessing Officer on account of excess provision made for marketing expenses. 14. The ld. counsel for the assessee explained the nature of provision made for marketing expenses and submitted that such provision is required to be made in the relevant year on estimated basis. He submitted that due to the changes that take place, the actual expenditure finally incurred on marketing gets changed and depending on the quantum of expenditure actually incurred, the excess provision is written back in the subsequent years and offered to tax. He contended that since the assessee is following mercantile system of accounting, the provision for marketing expenses is required to be made for the relevant year on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the ground that the estimate made by the assessee of the amount of obligation is not reliable. 17. At the time of hearing before us, the ld. D.R. has also reiterated this stand by submitting that the provision made by the assesese for marketing expenses is found to be always on the higher side, which clearly shows that the estimate made by the assessee of this liability is not reliable. We find it difficult to accept this stand of the Revenue. It is pertinent to note here that out of the total provision of ₹ 19.90 crores made by the assessee for marketing expenses, a sum of ₹ 18.20 crores was required to settle the obligation and only the balance amount of ₹ 1.69 crores, which is less than 10% of the total provision made by the assessee remained excess. Moreover, such excess provision was subsequently reversed by the assessee and offered to tax as the same rate as submitted by the ld. counsel for the assessee resulting into no loss with the Revenue. Having regard to all these facts of the case, it cannot be said that the estimate made by the assessee of the provisions for marketing expenses was not reliable. In our opinion, the provision for marketing expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax payer two folded grievance in its cross appeal no. 2151/Kol/2013 is that the CIT(A) has erred in law and on facts in disallowing interest income of ₹ 23,46,61,000/- in computing section 80IB/80IC deduction as well as in invoking section 14A read with Rule 8D disallowance of ₹ 50,000/- pertaining to its exempt income. Learned Senior Counsel is very fair in pointing out that our discussion on the twin identical issues in assessment year 2006-07 have already upheld the CIT(A) findings in preceding years. We thus reject this tax payer s appeal I.T.A. No. 2151/Kol/2013 . 7. Coming to Revenue s appeal, we find that its former substantive ground challenges the CIT(A) s order reversing Assessing Officer action allocating residual cost between eligible and non-eligible elements in ratio of sales to the tune of ₹ 14,64,64,507/- u/s 80IB/80IC as well as in treating scrap sales of ₹ 1,11,74,500/- to be eligible for the said deduction relief, respectively. Learned CIT DR takes us to assessment order dated 28.12.2011 as the former issue allocation of residual cost containing the following detailed discussion: 2.1. The assessee is having units (Factories), inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Other costs As per accounts (Rs.) Finance 57,077,480.4 HR 42,532,226.9 Others 280,323,945.0 Total 379,933,652.3 The assessee has apportioned a part of these cost to eligible fiscal units. The methodology of assessee is as below: The assessee has apportioned the cost of ₹ 379,933,652.3/- in three heads. One is Fiscal units, other is non-fiscal units and the third is Head office. It considered the employee directly involved in management of fiscal and non fiscal units which are posted in head office. These are 32 in number. Then it considered the total number of employees posted in head office. These are 115 in number. Thus it apportioned the expense of ₹ 379,933,652.30/- to head office as below: [(115-32)/115]x379,933,652.30/- which is ₹ 274,212,983.80/- Further it apportioned to the expense to fiscal and non-fiscal units as below: [(32/115]x379,933,652.30/- which is ₹ 105,720,668.50/- It then divided the amount of ₹ 105,720,668.50/- amongst th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed was excess by an amount ₹ 157,639,007.09/- which should be taxed. 2.2 Assessee was asked as to why the said income be not considered as ineligible for deduction u/s 801B/801C vide order sheet noting dated 31-10-2011.Assessee submitted a reply on 14-11-2011 stating that: In this regard, we submit that the company has claimed deduction of ₹ 25,461.88 lacs under sections 80-IB and 80IC of the Act in respect of Parwanoo {Soap}, Parwanoo {Liquid}, Jammu {Powder}, Jammu {Pest}, Baddi and Uttaranchal units respectively. In this regard, further to our earlier submission dated 02 September 2011 and 20 September 2011, we submit that all the costs have been properly and prudently allocated to the units eligible for fiscal incentive. Further, it was submitted and explained to your goodself that RBIL has allocated the other expenses of ₹ 3,7991akhs {approx} incurred on account of {i} HR-Residual cost {ii} Financial Residual cost and {iii} Residual cost centre - Office/ Legal/ IA among the eligible and non-eligible fiscal units in the ratio of the number of executive at the corporate office who are directly involved in the management of the factory operations like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is found that the method of allocation followed is erroneous. (ii) The findings of AO in A.Y. 2005-06 is different from the finding in the current assessment year hence the order of CIT(A) is not applicable as the facts are different. (iii) It is not disputed that the allocation may be done on basis of number of employees. The total indirect cost in question has been allocated by the assessee into three cost centres. They are fiscal units, non-fiscal units and head office. The cost allocated to fiscal units are absorbed by the fiscal unit and the profit loss computed of the fiscal unit considers the cost allocated to the fiscal unit. The cost allocated to non-fiscal units are absorbed by the non-fiscal unit and the profit loss computed of the non-fiscal unit consider the cost allocated to the non-fiscal unit. However the cost allocated to head office is not absorbed by the fiscal units. It is absorbed by the non-fiscal unit. Thus, the expense allocated to head office is considered in the profit and loss computed of the non-fiscal unit. There are two profit centre. One is fiscal units and the other is nonfiscal units. The head office is not an independent profit cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 fail accordingly. Assessment year 2009-10 assessee s and Revenue s cross appeals in I.T.A. No 760 762/Kol/2014 The assessee s first substantive ground seeks to reverse both the lower authorities action disallowing its section 80IB/80IC deduction claim to the tune of ₹ 16,02,07,000/- pertaining to interest income. Mr. Khaitan concedes very fairly that the assessee s very claim has already been declined by hon ble jurisdictional high court (supra). We uphold the impugned disallowance of interest income for the purpose of allowbility of section 80IB/80IC deduction. It transpires from the case file that the assessee has also raised an additional ground at this stage regarding quantification of the impugned disallowance. It is pleaded that the above interest income of ₹ 1,60,27,000/- is inclusive of ₹ 3,39,26,000/- relating to its parwanu unit in respect of which it had claimed section 80IC deduction. It is clarified that the said deduction was allowable to the extent of 30% only being 6th year of claim. It thus submits that only 33% of ₹ 3,39,26,000/- i.e. ₹ 1,01,77,800/- formed part of Section 80IC deduction in respect of Parwanu un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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