D.C.I.T Cir - 12,kolkata, Kolkata V. M/s Berger Paints India Ltd, Kolkata

ITA 1105/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4100 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 24-10-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-05-2013
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A; 80IB; 263; 10; 11

Judgement Text

1 | P A G E I T A N O S . 1 1 0 5 , 1 4 0 3 / K O L / 1 3 M / S . B E R G E R P A I N T S ( I ) L T D IN THE INCOME TAX APPELLATE TRIBUNAL,A BENCH KOLKATA BEFORE : SHRI M.BALAGANESH, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A NO. 1105/KOL/2013 A.Y: 2008-09 D.C.I.T., CIR-12, KOLKATA VS. M/S. BERGER PAIN TS INDIA LIMITED PAN: AABCB0976E (APPELLANT) (RESPONDENT) I.T.A NO. 1403/KOL/2013 A.Y: 2008-09 M/S. BERGER PAINTS VS. D.C.I.T., CIR-12, KOLKATA INDIA LIMITED PAN: AABCB0976E (APPELLANT) (RESPONDENT) APPEARANCES BY: SHRI NICHOLAS MURMU, J CIT, DR MS. SUSHMITA BASU, MR.SUBHA SIS DEY, & MR.ABHAY RUIA, ARS DATE OF HEARING : 27-10-2016 DATE OF PRONOUNCEMENT : 14-12-2016 O R D E R SHRI S.S. VISWANETHRA RAVI, JM :- THE ABOVE SAID TWO APPEALS BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER DATE D 05-02- 2013 PASSED BY THE COMMISSIONER OF INCOME TAX(APPEA LS),XII, KOLKATA FOR THE ASSESSMENT YEAR 2008-09. 2 | P A G E I T A N O S . 1 1 0 5 , 1 4 0 3 / K O L / 1 3 M / S . B E R G E R P A I N T S ( I ) L T D ITA NO.1105/KOL/2013 A.Y 2008-09 OF THE REVENUE 2. FIRST WE SHALL TAKE UP THE REVENUES APPEAL IN ITA NO. 1105/KOL/13 FOR THE AY 2008-09 BY THE REVENUE. 3. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING EFFECTIVE GROUNDS:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S. 80IB IN RESPECT OF COMMON EXPENSES OF RS.10,21,06,200/- THOUGH IT WAS NOT CORRECTLY APPORTIONED. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S.80IB IN RESPECT OF INTEREST INCOME OF RS.57,93,000/- ON SALE OF SCRAP. 4. GROUND NO.1 IS RELATING TO DISALLOWANCE OF DEDUCTION U/S. 80IB ON ACCOUNT OF COMMON EXPENSES TO AN EXTENT OF RS.10,21 ,06,200/-. 5. BRIEF FACTS ARE THAT THE ASSESSEE IS A COMPANY A ND ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF PAINTS, EN AMELS AND RESINS. THE ASSESSEE IS HAVING FOUR UNITS I.E FACTORIES LOCATED IN THE STATE OF JAMMU & KASHMIR AS JAMMU (POWDER), JAMMU (WATER), JAMMU (SO LVENT) AND JAMMU (RAJDOOT). IT HAS ALSO FACTORIES LOCATED IN G OA & PONDICHEERY. THE ASSESSEE INITIALLY FILED ITS RETURN DECLARING TOTAL INCOME AT RS.74,72,61,720/- AND CLAIMING RS.2,50,58,494/- AS REFUND. UNDER SCRU TINY, NOTICES U/S. 143(1) AND 143(2) OF THE ACT WERE ISSUED. IN RESPON SE TO WHICH, THE ASSESSEE FILED ITS VARIOUS DETAILS. 6. THEREAFTER, THE ASSESSEE FILED ITS REVISED RETUR N OF INCOME ON 31-03- 11 DECLARING AT RS.74,73,92,690/- AND CLAIMING REFU ND OF RS.25,34,998/-. DURING COURSE OF PROCEEDINGS THE ASSESSEE CLAIMED ITS INCOME ELIGIBLE FOR DEDUCTION UNDER CHAPTER VIA OF THE ACT. ACCORDING T O AO, THE ASSESSEE PREPARED A SEPARATE PROFIT & LOSS ACCOUNT FOR EACH UNIT AND CLAIMED THE PROFITS FROM THE ABOVE UNITS AS ELIGIBLE FOR DEDUCT ION UNDER CHAPTER VI-A. THE ASSESSEE DETERMINED THE PROFIT AND GAINS FROM T HE SAID UNITS CONSIDERING BOTH DIRECT COST AND INDIRECT COST, ACC ORDING TO AO IS PRINCIPALLY CORRECT. THE AO FOUND THAT INDIRECT EXPENSES OF THE SAID FOUR UNITS IS 3 | P A G E I T A N O S . 1 1 0 5 , 1 4 0 3 / K O L / 1 3 M / S . B E R G E R P A I N T S ( I ) L T D ATTRIBUTING ONLY 6.07%, ACCORDING TO HIM IT SHOULD BE APPORTIONED AT 20% OF RS.14,66,47,200/- AS AGAINST THE CLAIM OF ASSESS EE AT RS.4,45,41,000/- AND ACCORDINGLY THE DEDUCTION OF RS.10,21,06,2000/- SHOULD BE WITHDRAWN. IN EXPLANATION, THE SUBMISSIONS OF ASSESSEE BEFORE THE AO THE RELEVANT PORTION IS REPRODUCED HEREIN BELOW:- HEAD OFFICE EXPENSES THE COMPANY HAS APPORTIONED THE INCREMENTAL EXPENDI TURE INCURRED AT THE HEAD OFFICE DURING THE YEAR UNDER CONSIDERATION ON THE BASIS OF THE RA TIO OF TURNOVER OF THE JAMMU (WATER BASED) FACTORY OVER TOTAL TURNOVER OF THE COMPANY. FOR THI S PURPOSE THE EXPENDITURE INCURRED AT THE HEAD OFFICE IN THE FINANCIAL YEAR 2002-03 WAS TAKEN AS THE BASE YEAR, AS THE JAMMU (WATER BASED) FACTORY BECAME OPERATIONAL IN THE FINANCIAL YEAR 2002-03. THE EXPENDITURE INCURRED IN THE FINANCIAL YEAR 2002-03 WOULD AUTOMATICALLY INCR EASE DUE TO THE INFLATION FACTOR. BY APPLYING THE INFLATION FACTOR, THE REAL EXPENDITURE INCURRED IN THE FINANCIAL YEAR 2007-08 ON THE BASE OF 2002-03 WAS ARRIVED AT. THIS EXPENDITURE WOULD NO D OUBT HAVE BEEN INCURRED IN THE FINANCIAL YEAR 2007-08 WHETHER THERE WAS ANY NEW FACTORY OR N OT AND THEREFORE NO PART OF THE SAME CAN BE ALLOCATED TO THE NEW FACTORY. THE BALANCE EXPEND ITURE INCURRED IN THE FINANCIAL YEAR 2007-08 I.E. THE DIFFERENCE BETWEEN THE EXPENDITURE INCURRE D IN THE FINANCIAL YEAR 2007-08 AND THE REAL FIGURE OF THE EXPENDITURE ON THE BASIS OF 2002-03, CAN BE SAID TO HAVE SOME CONNECTION WITH THE NEW FACTORY AT JAMMU THOUGH IN FACT THE JAMMU ( WATER BASED) UNIT BEING A SELF CONTAINED UNIT CAN BE SAID TO HAVE RUN ON ITS OWN. HOWEVER, A CTING ON A CONSERVATIVE BASIS THE COMPANY HAS ALLOCATED THIS ADDITIONAL EXPENDITURE TO JAMMU (WATER BASED) FACTORY IN THE RATIO OF TURNOVER OF THE JAMMU (WATER BASED) FACTORY EVER TO TAL TURNOVER. COMMON SELLING EXPENSES THE COMPANY HAD ALREADY CONSIDERED IN THE PROFIT AN D LOSS ACCOUNT OF THE JAMMU (WATER BASED) UNIT, THE ADVERTISEMENT AND SALES PROMOTION EXPENSES OF GOODS MANUFACTURED AT THE JAMMU (WATER BASED) UNIT. HOWEVER, ACTING ON A CONS ERVATIVE BASIS, THE COMPANY HAD APPORTIONED TO THE JAMMU (WATER BASED) UNIT EXPENSE S INCURRED AT THE SALES OFFICES/DEPOTS THROUGH WHICH THE GOODS MANUFACTURED AT THE JAMMU ( WATER BASED) UNIT WERE SOLD. IN THIS CASE ALSO, THE EXPENDITURE INCURRED IN THE FINANCIA L YEAR 2002-03 WAS TAKEN AS THE BASE FIGURE TO WHICH WAS APPLIED THE INFLATION RATE OF 4.62% TO ARRIVE AT THE REAL EXPENDITURE FOR THE FINANCIAL YEAR 2007-08 ON THE PRECEDING YEAR'S BASI S. (THIS EXPENDITURE WOULD IN ANY CASE HAVE BEEN INCURRED WHETHER OR NOT THERE WAS A NEW UNIT. HENCE THIS EXPENDITURE CANNOT BE SAID TO HAVE ANY CONNECTION WITH THE NEW JAMMU (WATER BASED ) UNIT.) THEREAFTER, THE INCREMENTAL EXPENDITURE WAS DETERMINED BY DEDUCTING THE REAL EX PENDITURE AS ABOVE FROM THE TOTAL EXPENDITURE INCURRED IN THE FINANCIAL YEAR 2007-08. THIS INCREMENTAL EXPENDITURE WAS ALLOCATED TO THE JAMMU (WATER BASED) UNIT BY APPORTIONMENT IN THE RATIO OF BRANCH TURNOVER TO TOTAL TURNOVER.' THE ABOVE BASIS HAS BEEN ADOPTED FOR ARRIVING AT TH E PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING JAMMU (WATER BASED) AND IDENTICAL BASIS FOR ALLOCATION OF COMMON HEAD OFFICE AND SELLING EXPENSE HAS BEEN ADOPTED WITH RESPECT TO TH E JAMMU (SOLVENT BASED) BASED AND JAMMU (RAJDOOT) UNITS OF COMPANY WITH REGARD TO WHI CH DEDUCTION U/S. 80-IB HAS BEEN CLAIMED IN THE RETURN FOR THE YEAR UNDER ASSESSMENT AS ABOV E...... '. ASSESSEE FURTHER SUBMITTED ' ... WHILE ON THE ISSUE WE MAY DRAW ATTENTION OF Y OUR KINDSELF TO SECTION 80-IB OF THE ACT WHICH ENTITLES AN ASSESSEE TO A DEDUCTION OF TH E PROFITS DERIVED FROM AN ELIGIBLE UNDERTAKING SUBJECT TO THE PROVISIONS OF THE SAID S ECTION. YOUR KINDSELF IS AWARE THAT THE WORD 'DERIVED FROM' HAS A MUCH NARROWER MEANING THAN 'ATTRIBUTABLE TO'. THE HON'BLE SUPREME COURT HAS EXPLAINED THE MEANING OF THE WORDS 'DERIVED FROM' IN ITS DECISION IN CIT VS. STERLING FOODS [237 ITR 579 (SC )] AND HAS HELD THAT THE SAID WORDS WOULD REQUIRE THE EXISTENCE OF A DIRECT NEXUS AND A MERE COMMERCIAL CONNECTION WITH A SOURCE DOES NOT AMOUNT TO 'DERIVE FROM'. THEREFORE, IN ORDER TO ARRIVE AT THE PROFITS 'DERIVED FROM' THE INDUSTRIAL UNDERTAKING, IT IS NE CESSARY TO DEDUCT ONLY THOSE EXPENSES WHICH ARE INCURRED DIRECTLY IN THE THREE INDUSTRIAL UNDERTAKINGS AT LOCATED AT JAMMU. 4 | P A G E I T A N O S . 1 1 0 5 , 1 4 0 3 / K O L / 1 3 M / S . B E R G E R P A I N T S ( I ) L T D YOUR KINDSELF WOULD THEREFORE CERTAINLY APPRECIATE THAT IT IS LEGALLY INCORRECT TO ALLOCATE ANY OTHER EXPENSES WHICH DO NOT HAVE ANY NEXUS OR D IRECT CONNECTION TO THE ELIGIBLE UNITS FOR THE PURPOSE OF ARRIVING AT THE PROFITS AN D GAINS DERIVED FROM THE RESPECTIVE UNDERTAKINGS ELIGIBLE FOR DEDUCTION UNDER SECTION 8 0-IB OF THE ACT. HOWEVER, WITHOUT PREJUDICE TO THE POSITION IN LAW IN THIS REGARD, TH E COMPANY HAS ITSELF APPORTIONED COMMON HEAD OFFICE EXPENSES AND SELLING EXPENSES TO ARRIVE AT THE AMOUNT DEDUCTIBLE U/S. 80LB OF THE ACT FOR THE RESPECTIVE UNDERTAKING S AND THAT TOO BY APPLYING A CONSISTENT BASIS OF SUCH APPORTIONMENT. 1. YOUR KINDSELF WILL NOTE THAT THE ABOVE BASIS OF APPORTIONMENT OF COMMON HEAD OFFICE AND SELLING EXPENSES HAS BEEN HELD TO BE SCIENTIFIC AND REASONABLE BY THE HON'BLE ITAT, KOLKATA WHICH IS THE LAST FACT FINDING AUTHOR ITY. THE HON'BLE ITAT OF JURISDICTION, UPHELD THE BASIS OF APPORTIONMENT OF COMMON HEAD OF FICE AND SELLING EXPENSES ADOPTED BY THE COMPANY AFTER MAKING A THREADBARE AN ALYSIS THEREOF COPIES OF THE FOLLOWING ORDERS PASSED BY THE HON'BLE 'TRIBUNAL AR E ALSO ENCLOSED HEREWITH FOR READY REFERENCE - A. AY 00-01 AND 01-02: ITA NOS. 1889(K)/04, 268 (K) /05, CO NOS. 107 & 65 (KOL)/2005 DATED 11H OCTOBER, 2006 : ANNEXURE - I. B. AY 02-03: ITA NOS. 290/KOL/2OO6 & 1166/KOL/2006 DATED 13TH AUGUST, 2007: ANNEXURE - II. 2. YOUR KINDSELF WILL NOTE THAT THE SAME BASIS OF A PPORTIONMENT OF COMMON HEAD OFFICE AND SELLING EXPENSES HAS BEEN FOLLOWED BY THE COMPA NY IN THE YEAR UNDER CONSIDERATION. THE COMPUTATION OF COMMON HEAD OFFIC E AND SELLING EXPENSES BY APPLYING THE SAID BASIS FORMS PART OF FORM NO. 10CC B ALREADY FILED WITH YOUR KINDSELF AND THE SAME FOR BERGER DIVISION IS ALSO ENCLOSED H EREWITH FOR READY REFERENCE IN ANNEXURE III. 3. ON PERUSAL OF THE AFORESAID DOCUMENTS AND SUBMIS SION MADE ABOVE INCLUDING THE DETAILED ORDERS PASSED BY THE HON'BLE TRIBUNAL OF J URISDICTION, IN THE CASE OF THE COMPANY ITSELF, YOUR KINDSELF WILL NO DOUBT APPRECI ATE THAT THE BASIS OF APPORTION OF COMMON HEAD OFFICE AND SELLING EXPENSES ADOPTED CON SISTENTLY BY THE COMPANY IS A SCIENTIFIC AND REASONABLE AND DOES NOT CALL FOR ANY MODIFICATION. IN OTHER WORDS, THE BASIS OF APPORTIONMENT OF COMMON HEAD OFFICE AND SE LLING EXPENSES ADOPTED CONSISTENTLY BY THE COMPANY FOR ARRIVING AT THE AMO UNT DEDUCTABLE UNDER SECTION 80IB OF THE ACT HAS BEEN ACCEPTED BY THE HON'BLE TRIBUNA L OF JURISDICTION WHICH IS THE LAST FACT FINDING AUTHORITY.....' 7. BUT, THE AO DID NOT ACCEPT SUCH SUBMISSIONS OF T HE ASSESSEE. ACCORDING TO HIM, THE INDIRECT EXPENSES APPORTIONED ON THE BASIS OF TURNOVER CLAIMING TO BE ACCEPTED BEING RATIONAL AND SCIENTIFIC BASIS OF ALLOCATION. ACCORDINGLY, TOTAL INDIRECT EXPENSES 20 % OF RS.14,66,47,200/- (- ) RS.445,41,000/- AS APPORTIONED BY THE ASSESSEE, T HE DIFFERENCE OF RS.10,21,06,200/- WAS WITHDRAWN FROM CLAIM OF DEDUC TION U/S.80IB OF THE ACT AND THE SAME WAS NOT ALLOWED BY THE AO. 8. IN FIRST APPEAL, BEFORE THE CIT-A THE ASSESSEE C ONTENDED THAT IN THE EARLIER YEARS, THE ALLOCATION OF COMMON SELLING & H EAD OFFICE EXPENSES AS ADOPTED BY THE ASSESSEE WAS ACCEPTED BY THE HONBLE KOLKATA TRIBUNAL FOR 5 | P A G E I T A N O S . 1 1 0 5 , 1 4 0 3 / K O L / 1 3 M / S . B E R G E R P A I N T S ( I ) L T D THE A.YS. 2001-01, 2001-02 VIDE ORDER DATED 17/20-1 0-2006 IN ASSESSEES OWN CASE. CONSIDERING THE ABOVE SUBMISSIONS AS MADE BY THE ASSESSEE BEFORE THE CIT-A ALLOWED THE GROUND OF APPEAL AND D ELETED THE ADDITION MADE THEREON BY HOLDING AS UNDER:- 4. I HAVE CONSIDERED THE FINDING OF THE AO IN HIS ORDER DT. 22-12-2011 AND THE WRITTEN SUBMISSION FILED BY THE A.R DURING THE APPE LLATE PROCEEDING. APPEAL ON GROUND NO. 1(A) TO 1(J) ARE AGAINST THE ADDITION OF RS.102 106200/- DISALLOWING THE CLAIM U/S. 80IB OF THE I.T ACT, 1961. DURING THE APPELLATE PRO CEEDING THE A.R HAS SUBMITTED THAT THIS ISSUE IS COVERED IN ASSESSEES FAVOUR IN ASSES SEES OWN CASE VIDE ITAT ORDER ITA NO. 1332 & 1333 (KOL)/2003 DT. 20-03-2009 FOR A.Y 2002- 03. I HAVE CONSIDERED THE A.OS FINDING IN THE ASSESSMENT ORDER AND THE A.RS SUBMI SSION FILED. AS THIS ISSUE IS COVERED IN ASSESSEES OWN CASE BY THE ITAT ORDER FOR A.Y 2002- 03, THEREFORE, ASSESSEES APPEAL ON GROUND NO. 1(A) TO 1(J) ARE ALLOWED. 9. BEFORE US THE LD.DR HAS RELIED ON THE ORDER OF T HE AO. ON THE CONTRARY, THE LD.AR SUBMITS THAT THE ISSUE IN HAND IS COVERED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 20-10-06, WHICH IS AVAILABLE AT PAGES 86-95 OF THE ASSESSEES PAPER BO OK AND REFERRED TO PAGE NOS. 92 AND 93 IN SUPPORT OF HIS CONTENTION. 10. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE SUBMITTED BEFORE THE CIT- A THAT THE TRIBUNAL HAS ACCEPTED THE METHOD OF ALLOCATING THE HEAD OFFICE A ND COMMON SELLING EXPENSES. CONSIDERING THE ABOVE, THE CIT-A IN THE P RESENT CASE ALLOWED THE DEDUCTION CLAIMED U/S. 80IB OF THE ACT IN RESPECT O F COMMON EXPENSES. THEREFORE, IT IS ALSO PERTINENT TO REPRODUCE THE RE LEVANT FINDING OF THE ITAT, C BENCH, KOLKATA IN ASSESSEES OWN CASE IN ITA NOS. 1889/KOL/04 & 268/KOL/05 FOR THE AYS 2000-01 AND 2001-02 THE ORDE R DATED 17/20-10- 2006 IS REPRODUCED HEREIN BELOW: 5.5 WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE F ACTS OF THE CASE AND THE POSITION IN LAW. WE HAVE ALSO CONSIDERED THE METHOD/BASIS OF ESTIMAT ION OF COMMON HO & SELLING EXPENSES. WE NOTED THAT THE ASSESSEE HAS FILED AN AUDITED CER TIFICATE WITH THE RETURN TO SUBSTANTIATE ITS CLAIM U/S. 80IB. THE PROFIT & LOSS ACCOUNT OF PONDI CHERRY UNIT HAS BEEN CERTIFIED BY THE AUDITORS TO BE TRUE & FAIR SUBJECT TO THE AFORESAI D NOTE. FROM THE AUDIT REPORT IT IS CLEAR THAT THE AUDITORS ' ARRIVED AT THE PROFIT OF THE PONDICHERRY UNIT AFTER CONSIDERING & APPORTIONING ALL EXPENSES RELAT ED TO THE UNIT EXCEPT FOR COMMON HO & SELLING EXPENSES. THEREFORE THE AUDITORS' CLEARLY S TATED THAT THE PROFIT & LOSS ACCOUNT OF THE PONDICHERRY UNIT GIVES A TRUE & FAIR VIEW AS REGARD INCOME & EXPENDITURES DERIVED BY THE UNIT EXCEPT FOR COMMON HO & SELLING EXPENSES . IT WAS ON LY RELATING TO THE COMMON HO & SELLING EXPENSES THE AUDITORS' GAVE THE SAID NOTE, THE COMP ANY AS A WHOLE HAS AN AUDITED ACCOUNT & FROM THIS AUDITED ACCOUNTS COMMON HO & SELLING EXPE NSES ATTRIBUTABLE TO THE PONDICHERRY UNIT 6 | P A G E I T A N O S . 1 1 0 5 , 1 4 0 3 / K O L / 1 3 M / S . B E R G E R P A I N T S ( I ) L T D HAS NOT BEEN CONSIDERED BY THE AUDITORS. WE AGREE W ITH THE A/R THAT THIS ALLOCATION IS AN ESTIMATION FROM AUDITED FIGURES BASED ON SOME SCIEN TIFIC/REASONABLE METHOD AND NOT AUDIT (AS THE COMPANY HAS AN AUDITED ACCOUNT). THE SAME HAS B EEN COVERED BY WAY OF NOTE. THE ASSESSEE ITSELF HAS ADOPTED A BASIS FOR ALLOCATION OF COMMON HO AND SELLING EXPENSES WHICH MAY BE ATTRIBUTED TO THE OPERATIONS AT THE PONDICHE RRY UNIT AS STATED IN THE FOREGOING PARAGRAPHS. THE ASSESSEE HAS TAKEN ALL RELEVANT COM MON HO & SELLING EXPENSES ATTRIBUTABLE TO PONDICHERRY 'UNIT, APPLIED INFLATION RATE @ 5% F ROM F.Y. 1996-97 (I.E. AY.L997-98) & AFTER ARRIVING AT THE TOTAL COMMON HO & SELLING EXPENSES FOR THE RELEVANT ASSESSMENT YEAR APPLIED THE TURNOVER RATIO (TURNOVER OF PONDICHERRY/ TURNOV ER OF THE COMPANY). FROM THE DETAILED CALCULATIONS OF ALLOCATIONS OF COMMON HEAD OFFICE E XPENSES PLACED AT PAGES 67-68 OF THE PAPER BOOK, WE NOTE THAT ALL THE COMMON EXPENSES (VIZ. MC RE, RENT - OFFICE & RESIDENCE, OFFICE & FLAT UN KEEP, LAW CHARGES. TEA ROOM, MEDICAL, ELECT RICITY, RATES AND TAXES, TTP, BP & BE, PRINTING & STATIONERY, BOO & PERM LEA. TRAVELING, L TA, BANK CHARGES, IN-HOUSE COMPUTER EXPENSES, CASH COMMISSION, REPACKING EXPENSES, HRA, INCENTIVE SALESMAN, OTHER EXPENSES, CANTEEN, STAFF WELFARE, DONATION & SUBSCRIPTION, DI RECTORS FEES, GRATUITY, MACHINE ACCOUNTING. SEC. OFF EXPENSES, INSURANCE, TRAINING & DEVELOPMEN TS, PROFESSIONAL FEES.. BROKERAGE & COMMISSION, IN-HOUSE XEROX, ESI, SHIFTING EXPENSES, ARB, INTERNAL AUDIT EXPENSES' ETC.) INCLUDING EXPENSES ON SALARIES, ADVERTISEMENT AND S ALES PROMOTION ETC. HAVE BEEN DULY CONSIDERED BY THE ASSESSEE FOR ALLOCATION TO THE UN IT ELIGIBLE FOR DEDUCTION U/S. 80ID AND THUS THERE CANNOT BE ANY QUESTION OF INFLATED PROFITS AS RAISED BY THE DEPARTMENT IN GROUND NO. (IV). ON GOING THROUGH THE BASIS OF ALLOCATION OF T HE SAID COMMON HEAD OFFICE AND SE1JING EXPENSES ADOPTED BY THE ASSESSEE CONSISTENTLY FROM THE AY 98-99, WE ARE OF THE CONSIDERED VIEW THAT THE SAID BASIS ADOPTED BY THE ASSESSEE FO R ALLOCATION OF COMMON EXPENSES IS A REASONABLE AND SCIENTIFIC BASIS AND DOES NOT CALL F OR ANY MODIFICATION. THE BASIS ACCEPTED BY THE AO IS ARBITRARY AS HE HAS NOT STATED THE REASON FOR REJECTION OF THE ASSESSEES METHOD, HE HAS NOT STATED HOW HE ARRIVED AT 20% FOR ALLOCATING COMMON HO EXP. WHICH SHOWS HE HAS TAKEN AN ADHOC FIGURE & WE ACCEPT THAT PROFIT RATIO CANNOT BE APPLIED CONSISTENTLY IN ALL YEARS. MOREOVER, IN ADDITION TO THE AUDITED ACCOUNTS OF TH E COMPANY, THE ASSESSEE MAINTAINS SEPARATE ACCOUNTS FOR THE PONDICHERRY UNIT TO ASCER TAIN ITS PROFIT & WHICH AGAIN IS CERTIFIED BY THE AUDITORS. THE SAME SHOULD BE ACCEPTED. WE ARE I N AGREEMENT WITH THE CONTENTION OF THE LD. A/R WHICH IS SUPPORTED BY THE DECISION OF THE H ONBLE SUPREME COURT AS STATED ABOVE THAT ONCE THE DEPARTMENT HAS ACCEPTED A DECISION ON A P ARTICULAR ISSUED BY NOT CHALLENGING THE SAME BEFORE ANY HIGHER FORUM IT IS NOT OPEN FOR IT TO CONTEND IN THE CONTRARY ON THE SME ISSUE IN A LATER YEAR. WE WOULD REITERATE THAT IN THE PR ESENT CASE THE DEPARTMENT HAS ACCEPTED THE BASIS OF ALLOCATION OF COMMON HEAD OFFICE AND SELLI NG EXPENSES IN THE AY 98-99 AND THERE IS NO DISPUTE AS TO THE FACT THAT THE SAME BASIS HAS B EEN ADOPTED BY THE ASSESSEE IN AY 2000-01 WHICH ARE BEFORE US. FOLLOWING THE RATIO LAID DOWN IN THE DECISIONS RENDERED BY THE HONBLE SUPREME COURT, WE UPHOLD THE DECISION OF THE CIT(A) ON THIS ISSUE AND THUS DISMISS GROUND NOS. (III) & (IV) RAISED BY THE DEPARTMENT. 11. ON PERUSAL OF THE ORDERS FOR AY 2000-01 AND 20 01-02 IN ITA NOS. 1889/KOL/2004, 268 /KOL/2005 AND CO NOS. 107 & 65 /KOL)/2005 IN ASSESSEES OWN CASE PLACED AT PAGE NO-86 OF PAPER B OOK SHOWS THE BASIS OF APPORTIONMENT OF HEAD OFFICE AND COMMON SELLING EXPENSES IS BEING FOLLOWED BY THE ASSESSEE CONSISTENTLY. WE FIND THE TRIBUNAL FOUND THE BASIS OF APPORTIONMENT OF COMMON HEAD OFFICE AND CO MMON SELLING EXPENSES ADOPTED CONSISTENTLY BY THE COMPANY IS SCI ENTIFIC AND REASONABLE AND ACCEPTED AND ALLOWED DEDUCTION UNDER SECTION 80IB OF THE ACT. RESPECTFULLY FOLLOWING THE ABOVE, WE UPHOLD TH E IMPUGNED ORDER OF THE CIT-A AND WE HAVE NO HESITATION TO ALLOW THE DE DUCTION AS CLAIMED 7 | P A G E I T A N O S . 1 1 0 5 , 1 4 0 3 / K O L / 1 3 M / S . B E R G E R P A I N T S ( I ) L T D U/S.80IB OF THE ACT AND THEREFORE, GROUND RAISED IN THIS REGARD FAILS AND IT IS DISMISSED. 12. GROUND NO.2 IS RELATING TO DISALLOWANCE OF DEDU CTION U/S. 80IB OF THE ACT IN RESPECT OF INCOME OF RS.57,93,000/- ON ACCOU NT OF SALE OF SCRAP. 13. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE CREDITED AN AMOUNT OF RS.57,93,000 TO ITS P & L ACC OUNT AND CLAIMED THE SAME AS DEDUCTION U/S. 80IB OF THE ACT ON ACCOUNT O F SALE OF SCRAP. ACCORDING TO AO, IT CANNOT BE TREATED AS DERIVED FR OM PROFIT AND GAINS OF INDUSTRIAL UNDERTAKING BEING ELIGIBLE FOR BUSINESS. 14. IN FIRST APPEAL, THE CIT-A ALLOWED THE GROUND O F APPEAL AS RAISED BY THE ASSESSEE BEFORE HIM BY RELYING ON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE SUPRA BY FINDING AS UNDER:- 5. APPEAL ON GROUNDS NO. 2(A), (B) AND ( C) ARE A GAINST THE ADDITION OF RS.57,93,000/- DISALLOWING DEDUCTION U/S. 80IB OF THE I.T ACT, 196 1. THE AO IN HIS ASSESSMENT ORDER HAS MENTIONED THAT THE OTHER INCOME OF RS.11586000/- I S FROM SALE OF SCRAP. IT IS CLEAR THAT DEDUCTION U/S. 80IB/80IC IS NOT ALLOWABLE ON INTERE ST INCOME AND SALE OF SCRAP BECAUSE THIS RECEIPTS CANNOT BE TREATED AS PROFIT AND GAINS DERI VED FROM BUSINESS REFERRED TO IN SUB-SEC. 1 OF SEC. 80IB/80IC.THE A.R IN HIS WRITTEN SUBMISSION F ILED DURING THE APPELLATE PROCEEDING HAS BROUGHT ON RECORD THAT THIS ISSUE WAS COVERED IN OR DER PASSED U/S. 263 OF THE I.T ACT, 1961 BY THE LD. CIT-IV, KOLKATA IN THE CASE OF ASSESSMENT Y EAR 2000-01. BUT THE ORDER PASSED U/S. 263 WAS QUASHED BY THE HONBLE ITAT VIDE ITS ORDER IN I TA NO.922(KOL)/2005 FOR A.Y 2000-01. I HAVE CONSIDERED THE FINDING OF THE A.O AND THE WRIT TEN SUBMISSION FILED BY THE A.R. I FIND THAT THIS ISSUE WAS THERE IN THE ORDER PASSED U/S. 263 B Y THE LD. CIT-IV, KOLKATA FOR A.Y 2000-01 BUT HIS ORDER WAS LATER ON QUASHED BY THE HONBLE ITAT, KOLKATA. ACCORDINGLY, ASSESSEES APPEAL ON GROUND 2(A), (B) AND ( C) ARE ALLOWED. 15. BEFORE US THE LD.DR RELIED ON THE ORDER OF THE AO. ON THE CONTRARY, THE LD.AR SUBMITS THE ISSUE IN HAND IS COVERED BY T HE ORDERS OF VARIOUS HONBLE HIGH COURTS AND REFERRED TO PAGE NOS.175 A ND 176 OF THE PAPER BOOK. 16. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. WE FIND THAT THE ISSUE IN HAND IS COVERED B Y VARIOUS HONBLE HIGH COURTS IN THE CASES OF DCLT VS HARJIVANDAS JUTHABHA I ZAVERI REPORTED IN 2581TR 785 (GUJ), CLT VS SUNDARAM CLAYTON LTD REPOR TED IN 1331TR 34 (MAD), CIT VS WHEELS INDIA LTD REPORTED IN 141 ITR 745 (MED) AND ARATI 8 | P A G E I T A N O S . 1 1 0 5 , 1 4 0 3 / K O L / 1 3 M / S . B E R G E R P A I N T S ( I ) L T D INDUSTRIES LTD VS DCIT REPORTED IN 95 TTJ 14 (AHM) AS RIGHTLY POINTED OUT BY THE LD.AR OF THE ASSESSEE BEFORE US. WE FIND THA T THE AO FOLLOWING THE SAME ALLOWED THE DEDUCTION AND RELEVANT FINDING OF WHICH IS REPRODUCED HEREIN BELOW: WITH RESPECT TO THE SECOND ISSUE THE ASSESSEE SUB MITTED THAT '.....OTHER INCOME' OF RS.15,86,OOOI- AS APPEARIN G IN THE PROFIT & LOSS A/C OF THE UNIT AT PONDICHERRY COMPRISES OF INCOME ARISING ON ACCOUNT OF SALE OF SCRAP GENERATED IN THE MANUFACTURING PROCESS EMPLOYED AT SAID UNIT. THE SA ID FACT WOULD BE APPARENT FROM THE COMPLETE SET OF INVOICES REUSED BY THE UNIT IN THIS REGARD. SINCE SUCH GENERAL OF SCRAP IS DIRECTLY CONN ECTED W:TH THE PRODUCTION PROCESS EMPLOYED BY THE COMPANY AT ITS UNIT AT PONDICHERRY THE PROFIT D ERIVED FROM WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECT/ON 80-IB OF THE ACT. THE GENERATION OF S CRAP HAS THEREFORE A DIRECT NEXUS WITH THE GOODS PRODUCED BY THE COMPANY AT THE SAID ELIGIBLE UNIT AND THE PROFIT DERIVED THEREFROM IS INCIDENTAL TO THE ACTIVITY OF THE INDUSTRIAL UNDERT AKING. THE PROVISION OF SECTION 80-IB UNDER WHICH THE IMP UGNED DEDUCTION HAS BEEN ALLOWED BY THE ASSESSING OFFICER IS IN PARI MATERIAL TO SECTION 80 -I AND 80IA. IT IS SUBMITTED THAT IN THE UNDER NOTED DECISIONS WHICH HAVE BEEN RENDERED IN THE CON TEXT OF SECTION 80-I OF THE ACT BY VARIOUS HIGH COURTS, IT HAS BEEN INTER ALIA HELD THAT SCRA P GENERATED IN THE MANUFACTURING ACTIVITY CARRIED ON BY THE ASSESSEE IS ELIGIBLE FOR DEDUCTIO N UNDER THE PROVISIONS OF THE SAID SECTION- DCLT VS HARJIVANDAS JUTHABHAI ZAVERI [2581TR 785 (GUJ) CIT VS SUNDARAM CIAYTON LTD [1331TR 34 (MAD)] CIT VS WHEELS INDIA LTD [141 ITR 745 (MED)] ARATI INDUSTRIES LTD VS DCIT [95 TTJ 14 AHM) THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN EXAMINED AND THE COPIES OF THE INVOICES SUBMITTED HAVE BEEN CAREFULLY CHECKED. IT IS SEEN THAT THE INVOICES HAVE BEEN RAISED BY TH E PONDICHERRY UNIT (WHICH QUALIFIES FOR DEDUCTION U/S 80IB) AND THAT THESE RELATE TO SA LE OF SCRAP. SINCE THE ISSUE OF INCLUSION OF INCOME FROM SALE OF SCRAP FOR CALCULATING THE ALLOW ABLE DEDUCTION U/S 801B HAS ALREADY BEEN DECIDED BY VARIOUS COURTS, NO ADDITION IN THIS MATT ER IS CALLED FOR. 17. WE FIND THAT THE VARIOUS HONBLE HIGH COURTS HE LD THAT SCRAP GENERATED IN THE MANUFACTURING ACTIVITY IS ELIGIBLE FOR DEDUC TION AND R ESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAI M DEDUCTION UNDER THE PROVISIONS OF THE SECTION 80IB OF THE ACT AND THE I MPUGNED ORDER OF THE CIT-A ON THIS ISSUE IS JUSTIFIED AND DELETE THE ADD ITION OF RS.57,93,000/- AS MADE BY THE AO, ACCORDINGLY, GROUND NO-2 OF REVENUE S APPEAL IS DISMISSED. 9 | P A G E I T A N O S . 1 1 0 5 , 1 4 0 3 / K O L / 1 3 M / S . B E R G E R P A I N T S ( I ) L T D 18. NOW, WE SHALL TAKE UP THE ASSESSEES APPEAL IN ITA NO. 1403/KOL/13 FOR THE AY 2008-09. ITA NO. 1403/KOL/13 AY 2008-09 OF ASSESSEE 19. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.20,53,923 /- AND OFFERED RS.21,921/- AS EXPENDITURE INCURRED TOWARDS EARNING SUCH EXEMPT INCOME. ACCORDING TO AO, THE ASSESSEE I NVESTED RS.29.52 CRORES AGAINST TOTAL LOAN FUND OF RS.78.05 CRORES AND OBSERVED THAT INVESTMENT IS MADE ONLY 37.82%. THE A O NOT SATISFIED WITH THE CORRECTNESS OF CLAIM OF ASSESSEE IN RESPECT OF DETERMINED EXPENDITURE AS INCURRED IN RELATION TO E XEMPT INCOME AND APPLYING RULE 8D DISALLOWED RS.38,07,778/- FOR THE PURPOSE OF COMPUTATION OF EXPENDITURE U/S. 14A OF THE ACT. 20. BEFORE THE CIT-A THE ASSESSEE CONTENDED THAT AL L THE DETAILS RELATING TO SAID EXPENDITURE WERE FILED BEFORE THE AO AND WITHOUT SATISFYING THE PRECONDITION AS REQUIRED TO BE FOLLO WED BEFORE APPLICATION OF RULE 8D, DISALLOWED THE IMPUGNED ADD ITION ARBITRARILY. THE CIT-A OBSERVED THAT THE AO RIGHTLY APPLIED THE RULE 8D AS HE WAS NOT SATISFIED WITH THE EXPENDITUR E AS OFFERED BY THE ASSESSEE ON ITS OWN AND CONFIRMED THE IMPUGN ED ADDITION MADE BY THE AO . 21. BEFORE US THE LD.AR SUBMITS THAT THE ASSESSEE O N ITS OWN DISALLOWED TO AN EXTENT OF RS.21,921/- WHICH INVOLV ES ELECTRICITY, CORPORATION TAX AND TELEPHONE CHARGES. THE AO DID NOT EXAMINE THE WORKINGS OF ASSESSEE AS OFFERED BY THE ASSESSEE BEFORE HIM IN THE ASSESSMENT PROCEEDINGS. HE DID NO T MAKE ANY REFERENCE TO SUCH WORKINGS IN HIS ORDER AND WITHOUT PROVING THE 10 | P A G E I T A N O S . 1 1 0 5 , 1 4 0 3 / K O L / 1 3 M / S . B E R G E R P A I N T S ( I ) L T D NEXUS BETWEEN THE BORROWED FUNDS AND INVESTMENTS MA DE APPLIED RULE 8D. THE LD.AR REFERRED TO PAGE NO- 192 OF THE PAPER BOOK TO SHOW THE DETAILS OF EXPENDITURE AS MA DE BY THE ASSESSEE. THE LD.AR ALSO REFERRED TO PAGE NO-8 OF T HE PAPER BOOK TO SHOW THAT THE ASSESSEE HAS RESERVE OF RS.20 0 CRORES OF COMMON FUND AND REFERRED TO PAGE NO-9 OF THE PAPER BOOK TO SUBSTANTIATE ITS CLAIM. THE LD.AR OF THE ASSESSEE A LSO DREW OUR ATTENTION TO PAGE NO-10 OF THE PAPER BOOK TO SHOW T HE PROFIT ON SALE OF INVESTMENTS AND DIVIDEND INCOME EARNED FROM INVESTMENTS AND FURTHER REFERRED TO PAGE NO-12 TO S HOW INTEREST EXPENDITURE. IN SUPPORT OF ASSESSEES CONTENTION TH E AR RELIED ON THE ORDER OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. ASHISH JHUNJHUNWALA IN GA 2190/2013 IN ITAT 157 /2013. 22. ON THE CONTRARY, THE LD.DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 23. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L EVIDENCE AVAILABLE IN THE PAPER BOOK AS FILED BY THE ASSESSE E BEFORE US. IT WAS SUBMITTED THAT RESERVE AND SURPLUS FUNDS AS AVA ILABLE IN COMMON POOL WAS MORE THAN THE INVESTMENTS. IT IS SE EN FROM THE PAGE NO-8 AT PARA-8 IT WAS STATED THAT AS ON 11-04- 07 THE OPENING SURPLUS WAS 212 CRORES AND AS ON THE SAME T HE SHARE CAPITAL WAS AT 63.77 CRORES. THEREFORE IT AMPLY PRO VES THAT THE ASSESSEE HAS MADE INVESTMENTS FROM ITS OWN FUNDS AN D AS RIGHTLY POINTED BY THE LD.AR THAT THE AO DID NOT EX AMINE THE NEXUS BETWEEN THE INVESTMENTS IF ANY MADE FROM BORR OWED FUNDS, WITHOUT THE SAME APPLICATION OF RULE 8D TO C OMPUTE THE EXPENDITURE FOR THE PURPOSE OF DISALLOWANCE U/SECTI ON 14A OF THE ACT IS BAD. WE FIND THAT THE ISSUE IN HAND IS COVER ED BY THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF SUPRA 11 | P A G E I T A N O S . 1 1 0 5 , 1 4 0 3 / K O L / 1 3 M / S . B E R G E R P A I N T S ( I ) L T D WHICH HELD THAT WHILE REJECTING THE CLAIM OF THE AS SESSEE WITH REGARD TO EXPENDITURE OR NO EXPENDITURE, AS THE CAS E MAY BE, IN RELATION TO EXEMPTED INCOME, THE AO HAS TO INDICATE COGENT REASONS. WE FIND THE AO WITHOUT ASSIGNING ANY REASO NS TO THE CLAIM OF THE ASSESSEE APPLIED RULE 8D, THEREFORE, T HE DISALLOWANCE AS MADE TO AN EXTENT OF 38,07,778/- IS NOT MAINTAINABLE. RESPECTFULLY FOLLOWING THE DECISION SUPRA , WE HAVE NO HESITATION TO DELETE THE IMPUGNED ADDITION AS MA DE BY THE AO AND CONFIRMED BY THE CIT-A AND SOLE GROUND OF AS RA ISED IN THIS APPEAL IS ALLOWED. 24. IN THE RESULT, THE APPEAL OF REVENUE IN ITA NO .1105/KOL/2013 FOR A.Y 2008-09 IS DISMISSED AND THE APPEAL OF ASSESSEE IN ITA NO. 1403/KOL/2013 FOR THE A.Y 2008-09 IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 14-12- 2016 SD/- SD/- M.BALAGANESH S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 14 /12/2016 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT/ DEPARTMENT: THE DCIT, CIR - 12, KOLKATA P-7 CHOWRINGHEE SQUARE, AAYKAR BHAWAN, 7 TH FLOOR, KOL-69. 2 THE RESPONDENT/ ASSESSEE: M/S. BERGER PAINTS (I) LTD, BERGER HOUSE, 129 PARK ST, KOL-17. 3 / THE CIT(A) 4.THE CIT 12 | P A G E I T A N O S . 1 1 0 5 , 1 4 0 3 / K O L / 1 3 M / S . B E R G E R P A I N T S ( I ) L T D 5 . DR, KOLKATA BENCH 6 . GUARD FILE . **PP/SPS TRUE COPY, BY ORDER, ASSTT REGISTRA R