Income Tax Appellate Tribunal - Delhi
Dcit, Cirlce- 11(1), New Delhi vs Henkel Anand India Pvt. Ltd., New Delhi on 11 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'C ' NEW DLEHI
BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
AND
SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER
I.T.A. No.1742/Del/2014
Assessment Year: 2009-10
M/s Henkel Terosom India Ltd. vs Commissioner of Income-tax
1, Sri Aurobindo Marg, New Delhi. Delhi-IV, New Delhi.
(PAN:AAACH5216Q)
I.T.A. Nos.681 & 5198/Del/2017
I.T.A. Nos.2496 & 1952/Del/2016
Assessment Years: 2009-10 to 2012-13
Commissioner of Income-tax, vs M/s Henkel Terosom India Ltd.
Delhi-IV, New Delhi. 1,Sri Aurobindo Marg, New Delhi.
Cross Objection No.209/Del of 2017
(In I.T.A. No.5198/Del/2017)
Assessment Year: 2009-10
M/s Henkel Terosom India Ltd. vs Commissioner of Income-tax
1, Sri Aurobindo Marg, New Delhi. Delhi-IV, New Delhi.
(PAN:AAACH5216Q)
(Appellant) (Respondent)
2
Assessee by: Shri Ajay Vohra, Sr. Advocate
Shri Gaurav Jain & Ms Manisha Sharma
Respondent by: Shri Sanjit Singh, CIT- DR
Date of hearing: 27.03.2018
Date of Pronouncement: 11.04.2018
ORDER
PER K. NARASIMHA CHARY, JM
I.T.A No.1742/Del/2014 is filed by the assessee challenging the order dated 10.2.2013 passed by the learned Commissioner of Income-tax, Delhi (for short "ld.CIT) u/s 263 of the Income-tax Act, 1961 (for short "the Act") where under the learned CIT directed the learned AO to withdraw the deduction u/s 80C of the Act for the reason that the learned AO failed to verify whether Form No.10CCB was available with him at the time of scrutiny and also the learned AO failed to verify whether those are covered in the negative list as specified in Schedule XII of the Act. ITA Nos.681/Del/2017, 2496/Del/2016, 1952/Del/2016 and 5198/Del/2016 are the appeals preferred by the revenue challenging the orders of the learned CIT(A)-XVI, New Delhi (for short "CIT(A)") deleting the additions made by the learned AO in respect of the Asstt. Years 2009-10 to 2012-13, Cross Objection No.209/Del/2017 is preferred by the assessee challenging the observations of the learned CIT(A) in respect of Asstt. Year 2012-13 for the deduction claimed by the assessee u/s 80IC of the Act to be re-worked out as profit of the eligible unit at Parwanoo.
2. Brief facts of the case are that the assessee is a company engaged in the business of manufacture of all kinds of adhesive and Pillar Filler. They are 3 manufacturing DGX and Piller filler at the business of the undertaking at Parwanoo in respect of which they are claiming deduction u/s 80IC of the Act. According to the assessee, they started manufacturing all these items from the Financial Year 2004-05 i.e. Assessment Year 2005-06 onwards and the audit of the excise officials confirms that the DGX adhesive is covered under 35069999 and Piller filler is covered under 87089900. Till the Asstt. Year 2009-10, exemption has been claimed by the assessee and was granted too. However, during the Asst. Year 2009-10, learned CIT on examination of record observed that Form 10CCB was not found with the AO at the time of scrutiny and the AO failed to examine whether the product manufactured by the assessee was covered in the negative list as specified in Schedule XIII of the Act, as such, the assessment order is erroneous in so far as it was pre judicial to the interest of the revenue. On that score, in exercise of powers under section 263 of the Act, learned CIT set aside the Asstt. Order and directed the learned AO to withdraw the deduction u/s 80IC of the Act as Form No.10CCB is not filed by the assessee. It was further observed by the learned CIT if the said form is filed in the set aside proceedings then the AO should examine the exact nature of the item manufactured by the assessee so as to ascertain as to whether the same was covered in the negative list as specified in Schedule XIII of the Act. Subsequently, the learned AO started examining the products manufactured by the assessee with reference to the negative list specified in Schedule XIII and made addition disallowing exemption under section 80IC and royalty.
3. Assessee filed ITA no 1742/Del/2014 challenging the order under section 263 of the Act in respect of AY 2009-10. Revenue preferred ITA No 681/Del/2017 challenging the deletion of disallowance under section 80 IC in respect of 4 assessment year 2009-10, ITA numbers 2496 and 1952/Del/2016 and ITA No. 5198/Del/2017 challenging the disallowance under section 80 IC and royalty in respect of assessment years 2010-11 to 2012-13; whereas assessee preferred CO No. 209/Del/2017 aggrieved by not expunging the observations of assessing officer by the learned CIT(A) in respect of the deduction of Rs. 2,36,61,436/- claimed by the assessee under section 80 IC to rework the profits of eligible unit at Parwanoo as excessive.
4. Now coming to the question of the legality of the proceedings under section 263 challenged in ITA no 1742/Del/2014, it is found from the record that subsequent to the assessment u/s 143(3) of the Act completed by order dated 5.2.2011, learned CIT scrutinized the assessment records and found that the report of audit in Form No.10CCB containing the particulars specified under Rule 18BBB and duly signed and verified by the accountant as defined in Explanation below sub section 2 of Section 288 certifying that the deduction has been correctly claimed, was not found in the record. He further observed that AO also did not call for any such certificate. Learned CIT further recorded that he found the learned AO not making any requisite enquiry regarding the allowability of deduction and the assessee company also failed to fulfill all the conditions as stipulated u/s 80IC of the Act. According the learned CIT(A), these two conditions made the assessment order erroneous in so far as it is pre judicial to the interest of revenue.
5. It is submitted by the learned AR that form No.10CCB was submitted during the assessment proceedings but, however, it was filed at least before the learned CIT as could be found from the record. It is argued by the learned AR that in the absence of any specific finding by the Commissioner as to how the order is 5 erroneous as well as pre judicial to the interest of revenue, no revision u/s 263 of the Act is permissible. He further argued that allowability of deduction has to be tested in the first year of the claim and there cannot be any revision u/s 263 of the Act where the claim has been consistently accepted in earlier years. Further, when the view taken by the learned AO is also a plausible view, there cannot be any revision u/s 263 of the Act. Basing on a decision of the Mumbai Bench of the Tribunal in the case of Kewal Krishan Clothing P. Ltd. vs CIT vs. CIT, ITA 2173/Mum/2009 he submitted that for non availability of Form 10CCB, no order u/s 263 could be passed.
6. Learned DR submitted that in this matter it is not the non filing of the form 10 CCB that alone prompted the Ld. CIT to direct the assessing officer to withdraw the exemption under section 80 IC but it was also found that the ld. Assessing Officer did not make any attempt to verify the eligibility of the product to claim the deduction under section 80 IC of the Act. He submits that the facts of Kewal Kiran Clothing P. Ltd. (supra) are not applicable to the facts of this case.
7. We have gone through the impugned order. Learned CIT recorded that the assessee did not file certain documents along with the letter dated 7.2.2011 and the said letter reveals that the assessee filed only copy of computation of income, balance sheet, profit and loss account, tax audit report u/s 44AB in form 3CA with annexure in form No.3CD, report in form No.29B with annexure, acknowledgement of income-tax return but no form No.10CCB was filed along with such letter nor any such form was found in the record.
8. Learned CIT(A) further recorded that simply because the assessee's claim was allowed in the initial years i.e. in Asstt. Year 2005-06, it does not preclude the 6 department from examining the same in the subsequent years and though the assessee has nomenclature the items manufactured by it as "DGX Adhesive and Pillar Filler", its exact nature was never ascertained. According to the learned CIT(A), as seen from the 13th Schedule of the Act, fillers and other mastics and also the plastics and articles thereof are appearing in the list of articles which are not eligible u/s 80IC of the Act. As the items manufactured by the assessee being the filler, the AO should have examined its composition and also as to whether it was covered by the negative list of schedule 13 so as to know whether it is really eligible u/s 80IC of the Act. Inasmuch as the learned AO did not call for Form No.10CCB and not verified the eligibility of the products manufactured by the assessee u/s 80IC of the Act, learned CIT found the order to be erroneous in so far it is pre judicial to the interest of revenue.
9. On a reading of the decision in Kewal Kishan Clothing P. Ltd. (supra) we find that the facts are almost identical. In that case also form 10 CCB was not filed and the Assessing Officer allowed the claim made by the assessee for earlier nine years. While placing reliance on the decision of Hon'ble Gujarat High Court in Zenith Processing Mills (219 ITR 721), the Mumbai tribunal held that the Audit Report in prescribed form no.10CCB could be filed even if revision jurisdiction is exercised by the CIT u/s 263 of the Act. Relevant portion of the decision of in Kewal Kishan Clothing (supra) is as follows:-
Facts of the case were that while framing the assessment for the AY.1976-77 of the assessee- firm, the AO allowed the claim for deduction u/s. 80J of the Act, in respect of profit and loss arising from its newly established undertaking. With effect from 01.04.1976, sub-section (6A) was inserted in section 80J, vide the Finance Act, 1975, which required the assessee to file audited report of an accountant, as defined by the explanation below sub section 2 of the section 288 of the Act, along with the return of income. The CIT, exercising his powers 7 u/s.263,considered the allowance of deduction under section 80J, inter alia, along with the allowance of initial depreciation in so far as it is against the interests of the Revenue and issued notice to the assessee. While the assessee did not contest the notice under section 263 with respect to initial depreciation the assessee contested the withdrawal of relief under section 80J. According to the CIT, sub- section (6A) of section 80J laid down the mandatory requirement that before a claim under section 80J was admissible for any assessment year, the assessee must have his accounts of the relevant previous year audited by an accountant and it must furnish along with his return of income the report of such audit in the prescribed form duly signed and verified by such accountant. According to the CIT, the assessee had not furnished the report of such audit in the prescribed form duly signed and verified by the accountant, the assessee was not entitled to relief under section 80J(emphasis supplied).The assessee claimed that furnishing the report of such audit in the prescribed form which is Form No. 10D under the rules read with rule 18C, was not mandatory but a directory provision and, therefore, when the question of disallowance on that ground is considered, the assessee could be permitted to furnish them. This contention did not find favour with the CIT and he directed that the AO should make the necessary amendment in the assessment order for the year 1976-77.When the matter travelled to the Hon'ble Court, it held as under:
"From a perusal of sub-section (6A), it is apparent that compliance with two things is necessary . The first requirement is that the statement of accounts for the previous year relevant to the assessment year for which deduction is claimed must have been audited by an accountant and the second part is that the assessee must furnish along with his return of income the report of such audit in the prescribed form duly signed and verified by such accountant. It can be stated without fear of contradiction that the former is the requirement which furnishes substantial foundation for claiming allowance and the latter is the requirement of furnishing proof that foundation for claiming such deduction has been laid. In our opinion, while compliance with the former before the deduction is claimed is mandatory and so far as manner of submitting proof of such compliance of filing along with the return is concerned, is directory because such requirement falls in the realm of procedure for furnishing evidence in support of the claim and which can be furnished at the time while allowance or disallowance under section 80J is being considered by the concerned authority.
XXXXXXX In view of the aforesaid discussion, question No. 2 referred to above is to be answered in the negative by holding that the provision of section 80J(6A) to the extent it requires furnishing of the auditor's report in the prescribed form along with the return is directory in nature and not mandatory.8
Coming to the first question, we are of the opinion that as the provision of furnishing of the report in the prescribed form is held to be directory, the assessee can be permitted to produce such report at a later stage when the question for disallowance arises during the course of the proceedings in a given case, it will depend upon the facts and circumstances of each case and, therefore, the assessee may be permitted to produce such report, if it has not been produced earlier(emphasis supplied).The learned advocate for the Revenue vehemently contended on the basis of the observations made in Gujarat Oil and Allied Industries' case [1993] 201 ITR 325 (Guj) that the requirement of furnishing of auditors' report in the prescribed form has to be complied with before the assessment is completed and the assessee cannot claim deduction under section 80J by producing the report later on(emphasis supplied).We are unable to sustain his contention. In Gujarat Oil and Allied Industries' case [1993] 201 ITR 325 (Guj), the "proof of the accounts being audited" was not furnished along with the return in support of the claim. However, during the course of the proceedings when the Income tax Officer was considering the claim, he disallowed the assessee's request for furnishing the auditors' report in the prescribed form at that stage and the claim was disallowed. It was in these circumstances, the claim for disallowance was being considered by the Income tax Officer. The Income tax Officer had made it known, that he is not to allow deduction under section 80J unless a certificate is accompanied with the form and the assessee having known for no reasons for the said disallowance has promptly submitted report which was not submitted earlier. It is in these circumstances, that observations were made that a report should be made available to the Income tax Officer. We may notice that it has been held by this court with which we agree that the requirement of furnishing the auditors' report is in the realm of furnishing proof about the fact that accounts have been audited and substantial compliance with this provision has been held to be sufficient compliance. During the course of assessment, the assessee has furnished accounts stamped with the auditor's seal as noticed above which were treated by the assessee as well as the Assessing Officer to be sufficient compliance of giving proof of the fact that accounts have in fact been audited and on that basis the assessment was framed. It was only during the course of proceedings before the Commissioner of Income-tax under section 263 that the question was considered whether the document furnished by the assessee amounted to sufficient compliance of furnishing such proof or not and that having been negatived the occasion arose to furnish the proof which according to the Commissioner of Income-tax was wanting in declaration that the accounts have been duly audited which is required by sub-section (6A) of section 80J and if the assessee requires production of evidence before the allowance made by the Income tax Officer under section 80J was withdrawn. In our opinion, that would have been sufficient compliance with the requirement and the assessee ought not to have been visited with the disallowance or withdrawal of the allowance already made without affording opportunity to do so. It may be noted that in a given case, the assessee's return having a claim of 9 deduction under section 80J may be accepted by the Income tax Officer without holding an inquiry, though it may not have been accompanied with proof of accounts being audited in the manner prescribed. The question of furnishing proof of such audited accounts in the prescribed form at a later stage arises only when the matter is being actively considered for disallowance by the concerned authority. If the assessee does not offer to furnish proof even at the stage when it is pointed out to him that requirements of law are not fulfilled to sustain the claim made by him and he fails to fulfil the requirements of law at that stage, it can be said that the assessee had failed to rectify the defect at the earliest opportunity offered to him.
It is an inherent part of section 143(3) that where the Assessing Officer is not inclined to accept the return submitted by the assessee and if he wants to modify the assessment from the return a show-cause notice is required to be given to the assessee. Giving of this opportunity will include opportunity to erase procedural defect, if any, which is directory in nature. If we examine the matter from that point of view we are satisfied that in the present case, the claim made by the assessee though not admissible for want of the auditor's report on record, yet the same was allowed under a mistake by the Assessing Officer leaving no opportunity to the assessee to complete the requirements. The condition of non- fulfilment of the requirement under sub- section(6A)was made known to the assessee during the proceedings under section 263 although the assessee asked for an opportunity to produce the auditor's report to fulfil the requirements under section 80J(6A), the Commissioner of Income-tax ought to have afforded an opportunity to the assessee to furnish that proof and then examined the admissibility of the claim in the light of the proof furnished."(emphasis supplied). We also find that the basic issue as to how the order of the AO was erroneous and prejudicial to revenue has not been discussed by the CIT. It is also a fact, as stated earlier, that the issue of 80IB deduction was agitated by the assessee before the CIT .In these circumstances the CIT should not have issued notice 263 of the Act. Secondly, the CIT had totally ignored the fact that the AO had in earlier nine years allowed the claim made by the assessee. It is true that the rule of res judicata is not applicable to the income tax proceedings. But, the rule of consistency demands that without bringing distinguishing fact of the year under appeal with the facts of earlier years an opposite stand to the stand of earlier years should not be taken. The only difference noted is that in the year under appeal the assessee had not filed Audit Report before the AO. But, the report was made available to the CIT and for disallowing the claim allowed in the earlier years he should have pin pointed the reasons for refusing it as to how same was different from the reports of earlier years. We have perused the cases relied upon by the DR. We find that those cases lay down certain principles about revisionary proceedings. But, those principles are not applicable to the facts of the case under consideration. Here, the basic issue is validity of 263 proceeding. An issue deliberated upon by 10 the CIT partially or fully, is out of preview of proceedings to be initiated u/s.263 of the Act. In our opinion, the order of the CIT fails on touchstone of the merger doctrine and therefore is not valid. We hold that the assessees are required to file audit reports, but filing it before the CIT would not disentitle it from claiming the deduction. The purpose behind filing the report is that no fictitious claim is made and the activities of the assessees are certified by a professional. Deductions, including 80IB of the Act are considered to be benevolent provisions. It is a fact that no fault has been pointed out by the CIT about correctness of the report, while passing the revisionary order. His whole emphasis is on not filing it before the AO. Considering the purpose behind the legislation the Hon'ble Courts have held that if the report is submitted at the time of active consideration of the claim it has to be taken as sufficient compliance of the provisions of the Act. Respectfully following the judgments of Zenith Processing Mills(supra),we decide the effective ground of appeal in favour of the assessee.
10. Since the facts of these two cases are similar, while respectfully following the decision of the Mumbai tribunal in Kewal Kishan Clothing (supra) we hold that non-submission of the form 10 CCB or the non-verification of the eligibility of the product to claim deduction under section 80 IC of the Act, in view of the fact that such a deduction was allowed for 5 years earlier, do not constitute valid grounds to exercise jurisdiction under section 263 of the Act. We therefore find it difficult to sustain the order dated 10/02/2013 passed under section 263 of the Act by the Commissioner of income tax, Delhi. We therefore allow the grounds of appeal in ITA No. 1742/del/2014.
11. Insofar as the deletion of disallowance of claim of the assessee under section 80 IC challenged by the Revenue in ITA No 681/Del/2017 and ITA numbers 2496 and 1952/Del/2016 and ITA No. 5198/Del/2017 in respect of AY 2009-10 to 2012-13 is concerned, assessee's case is that the Pillar filler is in an irregular shape, specific to the requirement of the motor vehicle manufactured has assumed the character of an automobile component and it cannot be used for any other purpose. It has to be placed at a specific location in the motor vehicle 11 wherein it is welded. Piller filler is, therefore, essentially an auto component and more appropriately classifiable as part of the motor vehicle and, therefore, classifiable under the head "87.08" of the Central Excise Act, 1956. According to the assessee, the DGX adhesive is also classifiable under the head 'Prepared glues and other prepared adhesive' under Chapter 35.
12. However, learned AO referred the matter to the Central Institute of Plastic Engineering and Technology (for short "CIPET") with reference to the samples of pillar filler and DGX and basing on the report of the CIEPT concluded that visual appearance of the DGX is thixotopic and the polyurethen is not available as thixotropic and is available in liquid. Polyurethen needs an UV resistance to meet DGX adhesive requirement. Application of DGX need very high level of thixotropic properties so that it can be pumped and applied as stable bead and, therefore, the assessee company is manufacturing item which is included in the negative list of Schedule XIII which disentitle the assessee to claim deduction u/s 80IC of the Act.
13. Learned AO also did not allow the deduction of royalty paid by the assessee to Henkel KGaA, Germany stating that such an expenditure is towards the acquisition of assets by way of intangible assets of the nature provided u/s 32(1)(ii) of the Act and accordingly allowed depreciation @ 25% and made addition on that account.
14. Learned CIT(A), in turn, held that the assessee is entitled to the deduction u/s 80IC of the Act and also that the payment of royalty is revenue in nature. On that premise, learned CIT(A) deleted both the additions. Hence, challenging the deletion of these additions made by the learned AO on account of disallowance of 12 deduction u/s 80IC and also on account of royalty, Revenue preferred the appeals whereas challenging the order u/s 263 in respect of Asstt. Year 2009-10 and the observations of the AO that deduction claimed by the assessee u/s 80C in respect of Assessment Year 2012-13 ought to be re-worked as profits of the eligible unit, assessee preferred Cross Objection No.209 of 2017.
15. Now coming to the disallowance of the claim of the assessee u/s 80IC is concerned, learned AO observed that in the unit at Parwanoo, the assessee has been manufacturing DGX and Pillar filler and according to the learned AO, these two items are there in Schedule XIII excluded for the claim of deduction. Learned AO obtained the report of CIPET and concluded that the plastic item included in Chapter 39 in Central Excise classification would also cover the final products of the assessee company. On that premise, he denied the deduction u/s 80IC of the Act.
16. It is the submission on behalf of the assessee that assessee is engaged in manufacturing of DGX and pillar filler in its Parwanoo unit from the Financial Year 2004-05 onwards and all through the years upto the financial year 2008-09, deduction u/s 80IC was allowed. It is further submitted that the excise classification of DGX adhesive is 35069999 whereas the pillar filler is 87089900 and it is evidenced by the audit done by the excise authorities for the period between October 2011 and December 2012 confirming that the DGX adhesive is covered in 87089900. Assessee's contention is that they are not at all plastic or the articles thereof falling under the excise classification of 39.09 to 29.13 as per Schedule XIII to the Act, so also Chapter No.32 of the excise classification speaks only about the painter's filling, which is not the product classified as pillar filler by the assessee. It is submitted that pillar filler is an irregular shape, specific to the 13 requirement of the motor vehicle manufacturer and assumes the character of automobile component which cannot be used for any purpose, as such, in view it has necessarily to be placed at specific location in the motor vehicle wherein it would be welded, it is essentially an automobile component and appropriately classified as the part of motor vehicle falling in the classification under the head "87.08" of the Central Excise Act.
17. Our attention was further drawn to note 2 of Chapter 39 of Central Excise Tariff Act,1985 wherein it is stated that the chapter does not cover the part of aircraft or vehicles u/s XVII which makes it clear that any part of vehicle covered in Section 17 cannot be covered under Chapter 39 of the Central Tariff Act, 1985 to which Chapter 87 only applies.
18. On this aspect, we have gone through the record including the impugned order passed by the learned CIT(A). At page No.100 and 101, there is audit report of the Central Excise wherein in unequivocal term it is stated that at the unit at Parwanoo, the assessee has been manufacturing prepared glue and other adhesives, parts and accessories of motor vehicles parts, Anti freezing preparations and Deicing fluid falling under Chapter 35069999, 87089900, 38200000 of the 1st schedule to the Central Excise Tariff Act, 1985. Nowhere this report reads that the assessee has been manufacturing any product falling within the excise classification of 39.09 to 39.15 as per Schedule XIII to the Act nor any product of Excise Classification 32 was found to have been manufactured there. We have gone through the entries in the Chapter 35 and 87 and found that entry relating to Series 3506 deal with prepared glues and other prepared adhesive etc. whereas Series 8708 dealt with the parts and accessories of motor vehicles.
1419. Learned CIT(A) after having exhaustively dealt with technical details covered by the learned AO in the light of the submissions made on behalf of the assessee coupled with CIPET report opined that inasmuch as CIPET is a highly technical organizations and its findings can never be disputed but the matter does not end there. He submitted that the CIPET dealt with only the chemical composition of the DGX or pillar filler but they could not and rightly did not enter into the aspect of the commercial nature of the products or its name with which it is known in the markets. Learned CIT(A) noticed that the manufacturing at the Parwanoo unit has been subjected to excise and audit of accounts wherein products manufactured were found to be falling under the excise classification of 87.08 and 35.06 respectively.
20. Learned CIT(A) followed the decision of the Hon'ble Apex Court in Aspinwall and Co. Ltd. vs CIT, 251 ITR 323 (SC) wherein the Hon'ble Supreme Court observed that the assessee after plucking or receiving the raw coffee berries makes it undergo nine processes to give it the shape of coffee beans. The net product is absolutely different and separate from the input and the change made in the article results in a new and different article which is recognized in the trade as a new and distinct commodity. The Hon'ble Apex court made the difference between the coffee beans and raw material from which it is manufactured on the basis of the processes the raw material has undergone and the usage of the final product.
21. In so far as this distinction is concerned, the report of CIPET does not throw any light. Learned AO made the report of CIPET the sole basis for his conclusion that the assessee has been manufacturing plastic and plastic product and failed to notice the elaborate process which the raw materials have undergone to become 15 the finished product which have only one usage i.e. in automobile industry and none else. It is not brought to our notice that these two products either pillar filler or the DGX are generic in their use as plastic or they could be put to use everywhere the plastic could be. The sole and single purpose of the finished goods in the automobile industry sets the raw material of plastic apart from the finished goods which are known as automobile parts in the commercial world. We do not find any perversity either in the approach or in the conclusions reached by the learned CIT(A) after appreciating the same material which the learned AO made basis for his conclusion. Learned AO stopped at the chemical composition whereas learned CIT(A) took it a little further to its logical conclusion by identifying the products with their usage and their nomenclature in the world where they are made use of. The reasoning given by the learned CIT(A) is impeccable and we find ourselves in agreement with the same. Such findings of learned CIT(A) do not warrant any interference. We uphold the findings of learned CIT(A) and dismiss the ground of appeal relating to this aspect in ITA No 681/Del/2017 and ITA numbers 2496 and 1952/Del/2016 and ITA No. 5198/Del/2017.
22. Now coming to the next aspect of royalty, the deletion of which is challenged by the Revenue in ITA numbers 2496 and 1952/Del/2016 and ITA No. 5198/Del/2017 in respect of AY 2010-11 to 2012-13 learned CIT(A) in his order observed that in assessee's own case for Asstt. Year 2004-05 and 2008-09, a coordinate bench of this Tribunal allowed the royalty fee paid to the Henkel KGaA u/s 37(1) of the Act as revenue expenditure on the ground that such payment was only for right to use the technical knowhow and no benefit of enduring nature accrued to the assessee. Learned CIT(A) further recorded that in respect of Asstt.
16Year 2006-07 to 2008-09, such a finding was returned by the first appellate authority only. As rightly observed by the learned CIT(A), the AO has not brought on record any change in the facts and circumstances that took place from the earlier years. In the absence of any compelling reasons pleaded by the revenue before us, we do not find any reason to take a different view from the one taken for the earlier years by the authorities below as well as by the coordinate benches of this Tribunal. With this view of the matter, we do not propose to disturb this settled position and on that premise dismiss the grounds relevant to this aspect in ITA numbers 2496 and 1952/Del/2016 and ITA No. 5198/Del/2017.
23. Turning to the Cross Objection in respect of Asstt. Year 2012-13 is concerned, learned AO recorded that the assessee had disclosed sales of Rs.25,39,99,078/- in Parwanoo unit and gross profit thereon at Rs.11,24,36,580/- giving a profit rate of 36% as against sales of overall business at Rs.162,95,42,828/- and the gross profit thereon at Rs.41,87,11,458/- giving the gross profit rate of 26%. Thus, there is a difference of 10% gross profit rate. Learned AO further recorded that want of record prevented him from verifying the rates charged by the assessee company from sister concern are paid by the assessee company to sister concern to know whether the transfer of stocks from Parwanoo unit to other units and from other units to the Parwanoo unit is corresponding to the market value of such goods as on the date of transfer as provided u/s 80IA(8) and same is also applicable for the provisions of Section 80IC. Basing on the comparative gross profit, learned AO opined that the assessee had disclosed more profit in 80IC unit than the other unit by 10% just to claim enhanced deduction u/s 80IC and the profit of the eligible unit need to be calculated and resultant disallowance on account of claim of deduction u/s 80IC 17 need to be calculated. All this was done by the learned AO because the assessee company was not found to be eligible for claim of deduction u/s 80IC in respect of the Parwanoo unit. Learned CIT(A) did not reverse this finding of learned AO but learned CIT(A) found that since the full details and figures were not available to examine the price at which the inputs are obtained or the output is transferred to the warehouse so to draw an appropriate conclusion, the AO may make further enquiry to arrive at a suitable conclusion.
24. It is submitted on behalf of the assessee that the assessee purchased raw material from Henkel KGaA at market price and the same was subjected to the international transaction and TP rules, which was accepted by the revenue. As regards the finished products made at Parwanoo unit for the convenience of supply to the customers, who placed orders for material in a one or two days requirement, to ensure timely delivery as per requirement, the finished goods are first transferred to warehouse of Gurgaon, Pune and Chennai units with warehouse facility. This provides proximity to the location of the customer for immediate transfer as per their requirement. It is submitted that as per the Excise laws, the transfer of finished goods from the manufacturing plant to the warehouse is to be made at the final sale price to customers i.e. market price itself and therefore, question of adjustment u/s 80IA(8) does not arise.
25. As a matter of fact, learned CIT(A) observed that basically if in market condition the goods could have been sold at the same prices at which these are transferred by the non-eligible unit to the eligible unit or vice versa, then there is no case of any addition under section 80 IA(8) following the arm's-length principle. He considered the submissions advanced on behalf of the assessee that only to ensure timely delivery as per the requirement, the finished goods are first 18 transferred to the warehouse of Gurgaon, Pune and Chennai units with warehouse facility only in order to provide proximity to the location of the customer to ensure immediate transfer as per requirement.
26. Ld. CIT(A) further considered the submission on behalf of the assessee that as per Excise, the transfer is to be made to the warehouse at the final sale price to the customers that is market price and therefore question of adjustment under section 80 IA (8) does not arise. Lastly he recorded that he broadly agreed with the rationale of this argument. However, inasmuch as the facts and figures were not available to the full extent, he allowed the AO to make further enquiry in this regard. Having observed so, learned CIT(A) found that to draw an appropriate conclusion, the full details and figures are necessary to examine the price at which the inputs are obtained are the output is transferred to the warehouse and for such purpose learned CIT(A) permitted the AO to make further enquiry in this regard and reach a suitable conclusion.
27. In the circumstances we do not find any necessity to interfere with this observation of the Ld. CIT(A) and suffice it to say that the Ld. AO may base the conclusion on the facts and figures obtained during the enquiry but not on any surmises and conjectures or extraneous inferences. We therefore approve the observations of the learned CIT(A) to the Ld. AO to cause enquiry after obtaining the full details and figures to examine the price at which the inputs are obtained or the output is transferred to the warehouse and reach a factual conclusion firmly based on the facts and figures. Cross objection filed by the assessee are allowed accordingly in part.
1928. In the result, ITA No. 1742/Del/14 is allowed, ITA No 681/Del/2017 and ITA numbers 2496 and 1952/Del/2016 and ITA No. 5198/Del/2017 are dismissed and the cross objection is allowed in part.
Order pronounced in the Open Court on 11th April, 2018.
Sd/- Sd/-
(PRASHANT MAHARISHI) (K. NARASIMHA CHARY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 11th April, 2018
'VJ'
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A) By order
5. DR, ITAT
Asstt. Registrar, ITAT