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TMI Blog2019 (4) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the year under consideration was originally filed by the assessee on 13.09.2012 declaring total income of ₹ 1,33,52,899/-. Subsequently a revised return was filed by the assessee on 07.10.2013 declaring total income of ₹ 1,32,36,575/-. In the assessment originally completed under section 143(3) vide an order dated 22.09.2014, the total income of the assessee was determined by the Assessing Officer at ₹ 2,40,51,000/- after making addition, inter alia, on account of disallowance of assessee s claim for deduction under section 80IC to the extent of ₹ 1,04,78,226/-. The said assessment was subsequently set aside by the concerned ld. Principal CIT vide an order dated 02.02.2016 passed under section 263 with a direction to the Assessing Officer to make the assessment afresh on certain issues specifically raised by him. 3. One of the issues raised by the ld. Principal CIT in the order under section 263 was relating to the sales of ₹ 7,16,01,719/- made by the assessee to its group concern M/s. Shree Baidyanath Ayurved Bhawan Pvt. Limited at the rate ranging between 45 to 50% of the M.R.P. Since the said sales to the extent of ₹ 4.89 crores were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts which were manufactured in Kolkata Unit for enhancing the sales of the assessee-company through its own dealers. The Assessing Officer did not find merit in these submissions made on behalf of the assessee-Company. According to him, there was a deviation from the matching principle in respect of Unit to Unit for setting off advertisement expenditure. He held that the assesee-company by not claiming any advertisement expenditure in Dehradun Unit had inflated its profit for claiming higher deduction under section 80IC. He also noted that the profit booked by the assessee-company in Dehradun Unit at 45.18% was not in conformity with the net profit derived by other manufacturing units of the assessee-company at Kolkata and Gurgaon, which were not eligible for deduction under section 80IC. Since the sales of the said Units was only 10% of the total sales, the Assessing Officer restricted the deduction claimed by the assessee on account of total advertisement expenditure of ₹ 59,18,098/- to 10% and disallowed the balance expenditure of ₹ 53,26,288/-. In the assessment completed under section 143(3)/263 of the Act vide an order dated 17.12.2016, two additions of ₹ 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement expenses incurred by the assessee at Joka Unit were for its own branded goods which were sold to outside parties. The details of such sales were filed. The AO vide his notice dated 18.8.2014 again asked for the explanation of the assessee with regard to the application of section 80I(10) and 80IC(7) and also proposed to disallow 90% of the advertisement expenses. The assessee by his letter dated 28.08.2014 explained that the advertisement expenses at Joka Unit was only for creating market for its own branded products. As regards the higher profit at Dehradun Unit the assessee filed its explanation on 4.8.2014 wherein it was stated that there were several factors because of which the profit at Dehradun Unit was higher. The assessee submitted that in Joka Unit, the selling and distribution expense were claimed because there was sales to outsiders whereas no such expenses were required in Dehradun Unit since the sale during this year was made Jo Sree Baidyanath Ayurved Bhawan P Ltd., only. It also explained that labour cost was higher at 8.57% in Calcutta being metropolitan city as against 4.52% in Dehradun. It was also explained vide letter dated 4.8.2014 that the assessee cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing rates, comparative rate of raw materials and packing materials of Kolkata Unit and Dehradun Unit, details of sales of similar products by other Ayurvedic medicine manufacturers to justify the rate of sales to Sree Baidyanath Ayurved Bhawan P Ltd., I also find that the assessee duly explained that Sree Baidyanath Ayurved Bhawan P Ltd., is not a related party within the meaning of section 80I(10) or 80IC(7). As against the explanation' and overwhelming evidences filed by the assessee, the AO has not brought on record any evidence to show that raw material cost or the labour cost of both the units was same and the explanation of the assessee was not acceptable. The AO has also not brought on record any evidence to suggest that the price charged from Sree Baidyanath Ayurved Bhawan P Ltd., was higher or lower than the market price of such goods even after the explanation and evidences filed by the assessee. The AO has also not distinguished the facts of the case as were prevailing in the earlier years to suggest that the principles of consistency are not applicable. The deduction is being allowed from the initial year itself. Considering the facts and circumstances of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les price at the said unit which as per the AO was excessive. The AO restricted the profit @ 23.78% and accordingly disallowed ₹ 1,04,78,226/ - u/ s. 80IC which was claimed at ₹ 2,21,18,372/-. The AO in the reassessment took opposite view and considered that the sales price should have been taken at MRP and accordingly further added ₹ 7,16,01,719/- as profit including ₹ 4,89,49,308/- at Dehradoon Unit. I find that the AO in the assessment for all earlier years have accepted the determination of the price mechanism in respect of sales to Sree Baidyanath Ayurved Bhawan Pvt. Ltd., Not only that the provisions of section 92BA (Domestic Transfer Pricing) came into force from assessment year 2013-14, and in that year the assessee obtained report of the auditor as required u/s. 92E in form no 3CEB and submitted the same before the AO. The AO also raised various queries in respect of the DTA in the said year. The entire mechanism of price fixation which was prevalent from earlier years was explained. Similar billing price at which manufactured products were sold to Shri Baidyanath Ayurved Bhawan P. Ltd., was accepted by the AO in that year after examination. In fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. Hence the addition made by the AO Taking MRP as sales price is deleted. In third ground, the assessee has disputed the disallowance of ₹ 53,26,288/- out of advertisement expenses. The AO was of the view that 90% of the sales was to Sree Baidyanath Ayurved Bhawan P Ltd., and on the basis of matching principles 90% of the expense related to the sales of Sri Baidyanath Ayurved Bhawan P Ltd, The AO also found that the advertisement expenses were paid through group company. The AO therefore disallowed 90% of advertisement expenses. I find that the assessee has explained that the advertisement expense were incurred solely for marketing its own brand and evidences of the same was filed in the course of assessment proceedings along with the advertised matters. The AO has not controverted the said evidences and explanation. In so far as the expenses as such are concerned, the same is not disputed. Therefore it hardly matters whether the payment is directly made or made through group company. The genuinity of the expenses incurred is not disputed. In view of the above the disallowance made in not maintainable. The same is deleted . 7. Aggrieved by the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as declared by the assessee was allegedly higher. In this regard, he has invited our attention to the relevant details furnished at page no. 561 of the paper book to point out that the profitability of Dehradun Unit was always higher and it was accepted by the Assessing Officer in the earlier years. He also submitted that the entire sales of Dehradun Unit was made by the assessee-company to its associate concern M/s. Shree Baidyanath Ayurved Bhawan Pvt. Limited and the transactions involving the said sales were the subject matter of Transfer Pricing exercise for A.Y. 2013-14. He has pointed out that the Transfer Pricing Officer after making the Transfer Pricing analysis based on comparable cases found the sale price charged by the assessee to M/s. Shree Baidyanath Ayurved Bhawan Pvt. Limited as at Arm s Length. As further pointed out by the ld. Counsel for the assesese, 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 aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, was inflated by the assessee for claiming higher deduction under section 80IC. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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