Reckitt Benckiser Healthcare India Limited, Ahmedabad V. The Addl.CIT, Range-5, Ahmedabad

ITA 3098/AHD/2013

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2578 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 03-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 26-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Fair market value
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER RECKITT BENCKISER HEALTHCARE INDIA LTD. (FORMERLY KNOWN AS PARAS PHARMACEUTICALS LTD.) C/O, S R B C & ASSOCIATES LLP, 2 ND FLOOR, SHIVALIK ISHAN, NEAR CN VIDHALYA, AHMEDABAD - 380015 PAN:A AACP9268J (APPELLANT) VS ADDL. CIT, RANGE - 5, AHMEDABAD (RESPONDENT) ADDL. CIT, RANGE - 5, AHMEDABAD (APPELLANT) VS RECKITT BENCKISER HEALTHCARE INDIA LTD. (FORMERLY KNOWN AS PARAS PHARMACEUTICALS LTD.) C/O, S R B C & ASSOCIATES LLP, 2 ND FLOOR, SHIVALIK ISHAN, NEAR CN VIDHALYA, AHMEDABAD - 380015 PAN:AAACP9268J (RESPONDENT) REVENUE BY : S H RI M.S.A. KHAN, CIT - D . R. ASSESSEE B Y: S H RI DHINAL SHAH & SHRI MALAY KALVADIA , A.R. DATE OF HEARING : 03 - 07 - 2 018 DATE OF PRONOUNCEMENT : 27 - 08 - 2 018 I T A NO S . 3098 /AHD/2013 , 1272 & 1547 / A HD/20 15 A SSESSMENT YEAR S 200 8 - 09 TO 2010 - 11 ITA NOS. 126/AHD/2014, 1366 & 1780/AHD/2015 ASSESSMENT YEARS 2008 - 09 TO 2010 - 11 I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 2 / ORDER P ER : AMARJIT SINGH, A CCOUNTANT MEMBER : - THESE SIX APPEALS, THREE BY ASSESSEE AND THREE BY REVENUE FOR A.Y. 2008 - 09 TO 2010 - 11 , AR ISE FROM ORDER OF THE CIT(A) , AHM EDABAD , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE H AS RAISED FOLLOWING GROUNDS OF APPEAL: - ITA NO. 3098/AHD/2013 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN DISALLOWING EXPENSES AMOUNTING TO RS 43,43,558 (NET OF RS 8,34,503 DISALLOWED BY THE APPELLANT) APP LYING PROVISIONS OF RULE 8D OF THE INCOME - TAX RULES, 1962 ('RULES') SINCE THE AP PELLANT HAS ALREADY IDENTIFIED AND DISALLOWED EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT ON OBJECTIVE BASIS. 1.1 ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN STATING THAT NO SEPARATE BOOKS OF ACCOUNTS IN RESPECT OF TREASURY UNIT HAS BEEN MAINTAINED AND NO TRANSPARENT METHOD OF ALLOCATION OF INDIRECT EXPENSES HAS BEEN FOLLOWED BY T HE APPELLANT AND THEREBY INVOKING PROVISIONS OF RULE 8D OF THE RULES. 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN STATING THAT THE APPELLANT FAILED TO COGENT EVIDENCE TO PROVE THAT INVESTMENTS WERE MADE OU T OF NON - INTEREST BEARING FUNDS AND UPHOLDING REASONS RECORDED BY THE LEARNED ASSESSING OFFICER THAT INVESTMENT WERE MADE FROM INTEREST BEARING FUNDS AND THEREBY INVOKING PROVISIONS OF RULE 8D OF THE RULES. 1.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED UPHOLDING DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF , THE RULES MERELY ON THE BASIS OF ASSUMPTIONS T HAT INVESTMENT WOULD HAVE BEEN MADE USING INTEREST BEARING FUNDS. 2. WITHOUT PREJUDICE TO AB OVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN STATING THAT THE APPELLANT HAS NOT CHALLENGED THE WORKING OF DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. 2.1 WITHOUT PREJUDICE T O ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN NOT EXCLUDING INTEREST PAID F OR TERM LOANS TAKEN FOR BADDI UN IT AMOUNTING TO RS 66,47,293 WHILE COMPUTING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8 D OF THE RULES SINCE INTEREST EXPENDITURE INCURRED DIRECTLY IN RELATION TO TAXABLE INCOME SHOULD NOT BE PART OF COMPUTATION OF DISALLOWANCE UNDER RULE 8D OF THE RULES. 2.2 WITHOUT PREJUDICE TO ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN NOT EXCLUDING INVESTMENTS MADE IN SUBSIDIARY COMPANIES IN PAST YEARS FOR WHICH THE APPELLANT HAS NOT INCURRED ANY EXPENDITURE DURING THE ASSESSMENT YEAR. 2.3 WITHOUT PREJUDICE TO ABOVE, ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN DISALLOWING ADDITIONAL ADMINISTRATIVE EXPENSES AT THE RATE OF 0.5% OF THE AVERAGE INVESTMENTS THOUGH THE APPELLANT HAS ALREADY, SUO MOTO, DISALLOWED ADMINISTRATIVE EXPENSES OF RS 8,34,503 IN ITS R ETURN OF INCOME. 3 WITHOUT PREJUDICE TO ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN NOT CONSIDERING THE COMPUTATIONAL ERROR MADE BY THE LEARNED AO WHEREBY THE AMOUNT DISALLOWED UNDER SECTION 14A OF THE ACT IS ERRONEOUSLY I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 3 STATED AT RS 43,43,558 INSTEAD OF THE CORRECT AMOUNT OF DISALLOWANCE OF RS 43,13,558 (I.E. RS 51,48,061 - RS 8,34,503). 3. AS THE FACTS IN THESE SIX APPEALS FILED THREE BY ASSESSEE AND THREE BY REVENUE ARE COMMON, SO, WE TAKE ITA NO. 3098/AHD/2013 & 126/AHD/2014 AS LEAD CASES AND ITS FINDINGS WILL BE APPLICABLE FOR THE REMAINING FOUR APPEALS FOR THE SAKE OF CONVENIENCE. ALSO, A LL THE GROUNDS OF APPEAL ITA 3098/AHD/2013 OF THE ASSESSEE ARE INTERCONNECTED THEREFORE FOR THE SAKE OF CONVENIENCE THEY ARE ADJUDICATED TOGETHER BY THIS COMMON ORDER. 4. THE BRIEF FACT OF THE CASE IS THAT RETURN OF INCOME DECLARING INCOME OF RS. 30,90,05,537/ - AND B OOK PROFIT U/S. 115JB OF THE ACT OF RS. 62,78,68,759/ WAS FILED ON 39.09.2008 - . SUBSEQUEN TLY, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) OF THE ACT ON 15 SEP, 2011. THE FACTS PERTAINING TO THE ISSUE IN THE GROUND S OF APPEAL OF THE ASSESSEE ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT IN THE COMPUTATION OF INCOME THE ASSESSEE HAS CLAIMED DIVIDEND INCOME OF RS.89,27.021 AS EXEMPT INCOME AND THE ASSESSEE ITSELF HAS DISALLOWED AN AMOUNT OF RS. 8 , 34 , 503/ - U/S. 14A OF THE A CT. THE ASSESSEE WAS ASKED TO FURNISH THE BASIS OF WORKIN G OUT THE AMOUNT DISALLOWABLE U/S 14A OF THE ACT. ON PERUSAL OF THE DETAILS FILED THE ASSESSING OFFICER OBSERVED THAT ASSESSEE COMPANY HAS DISALLOWED ONLY ADMINISTRATIVE EXPENDITURE IN RESPECT OF TREASURY DIVISION . T HEREFORE, HE ASKED THE ASSESSEE WHY NO T COMMON MANAGEMENT EXPENSES HAVE NOT BEEN ALLOCA TE D TOWARDS EARNING EXEMPT INCOME KEEPING IN VIEW THE PROVISION OF RULE 8D OF THE IT RULE. THE ASSESSE EXPLAINED THAT IT HAS MADE INVESTMENT IN THE MUTUAL FUNDS FROM ITS OWN FUNDS AND COST OF TREASURY DI VISION AND ALL OTHER APPLICABLE EXPENSES HAVE BEEN CONSIDERED FOR DISALLOW ANCE U/S. 14A OF THE ACT. THE ASSESSEE HAS ALSO EXPLAINED THAT ON LY THOSE EXPENSES WHICH HAS AN PROXIMATE NEXUS WITH THE EXEMPT INCOME CAN BE DISALLOWED U/S. 14A OF THE ACT . IT IS FURTHER EXPLAINED THAT ALL THE EXPENSES WHETHER DIRECT OR INDIRECT HAVE BEEN CONSIDERED WHILE COMPUTING THE DISALLOWANCE U/S. 14A OF THE ACT AND HENCE PROVISION OF RULE I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 4 8D OF THE IT R ULE IS NOT APPLICABLE. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE . HE OBSERVED THAT ASSESSEE HAS NOT FURNISHED ANY SEPARATE ACCOUNT O F TREASURY DIVISION AND NO REASONS HAVE BEEN FURNISHED FOR NON ALLOCATION OF COMMON MANAGEMENT EXPENSES . THE ASSESSING OFFICER OBSERVED THAT IT IS NOT JUST IFIED THAT DECISION REGARDING INVESTMENT OF RS. 73.76 CRORES OUT OF ITS TOTAL ASSETS OF RS. 154.70 CRORES ON WHICH D IVIDEND OF RS. 89 . 27 LAKH EARNED WAS ONLY TAKEN BY THE TREASURY DIVISION COSTING A YEARLY SALARY OF RS. 6.72 ONLY . THE ASSESSING OFFICE R HAS STATED THAT THAT CHEQUES FOR INVESTMENT HAVE BEEN ISSUED BY TAKING FURTHER LOAN IN THE CC ACCOUNT ON WHICH INTEREST WAS CLEARLY PAYABLE AND INTEREST BEARING FUNDS WERE USED FOR MAKING INVESTMENT . CONSEQUENTLY, THE ASSESSING OFFICER HAS APPLIED PROVISION OF SECTION 14A(2) R.W. RULE 8D OF THE IT RULE AND WORKED OUT AN AMOUNT OF RS. 51,48,061 AS DISALLOW ABLE UNDER THE AFORESAID PROVISION OF THE ACT AND THE INCOME TAX RULE. A FTER REDUCING A SUM OF RS. 8,34,503 ALREADY DISALLOWED BY THE ASSESSEE THE ASSESSI NG OFFICER HAS DISALLOWED A FURTHER SUM OF RS.42,43,558/ AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5 . AGGRIEVE D ASSESSEE FILED APPEAL BEFORE T H E LD. CIT(A). THE LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER STATING THAT ASE SSEE HAS FAILED TO FILE COGENT EVIDENCE TO PROVE THAT THE INVESTMENT S WERE MADE OUT OF NON - INTEREST BEARING FUND AND FURTHER STAT ED THAT HE IS OF THE VIEW THAT T H E ASSESSING OFFICER HA S RIGHTLY INVOKED THE PROVISION OF SECTION 14A R.W . RULE 8D OF THE IT R ULE. 6 . DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, LD. COUNSEL HAS FILED PAPER BOOK CONTAINING VARIOUS SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND LD. CIT (A) DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS . HE HA S FURTHER CONTENDED THAT ASSESSING OFFICER IS NOT CORRECT IN MAKING DISALLOWANCE U/S. 14A AS ASSESSEE HAS CORRECTLY DISALLOWED AN AMOUNT OF RS. 8 , 34 , 503/ - AS ADMINISTRATIVE EXPENDITURE PERTAINING TO EXEMPT INCOME I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 5 EARNED BY THE ASSESSEE DURING THE YEAR UNDE R CONSIDERATION. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF LD. CIT(A) ON THIS ISSUE. 7 . WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD C AREFULLY ON THIS ISSUE. WE NOTICED THAT DURING THE YEAR U NDER CONSIDERATION ASSESSEE COMPANY HAD EARNED DIVIDEND INCOME OF RS. 89 , 27 , 0 2 1/ - WHICH WAS CLAIMED AS EXEMPT U/S. 10(34) OF THE ACT. IN THE COMPUTATION OF INCOME, THE ASSESSEE HAD DISALLOWED AN AMOUNT OF RS. 8 , 34 , 503/ - U/S. 14A OF THE ACT AS EXPENSES INC URRED TOWARDS EARNING TAX FREE INCOME. WE HAVE GONE THROUGH THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FILED AND NOTICED THAT ASSESSEE HAS SHARE CAPITAL AND RESERVES FUNDS TOTALING OF RS. 146 , 71 , 08 , 964/ - AS ON 31 ST MARCH, 2008. AS PER BALANCE SHEET AS ON 31 ST MARCH, 2008, THE ASSESSEE HAS SECURED LOAN AMOUNT WAS RS. 5 , 54 , 55 , 955/ - WHICH WAS RS. 3 , 73 , 068 , 602/ - AS ON 31 ST MARCH, 2007. WE HAVE NOTICED THAT THERE IS NO UNSECURED LOAN APPEARING IN THE BALANCE SHEET OF THE ASSESSEE AS ON 31 ST MARCH, 200 8 . IT HAS TOTAL INVESTMENT IN MUTUAL FUND TO THE AMOUNT OF RS. 20 , 22 , 72 , 726/ - AS PER SCHEDULE 6 OF INVESTMENT S TO THE BALANCE SHEET AS ON 31 ST MARCH, 2008. THESE FACTS DEMONSTRATE THAT ASSESSEE WAS HAVING ENOUGH INTEREST FREE OWN FUND AND THERE WAS NO U NSECURED LOAN REFLECTED IN THE BALANCE SHEET OF THE COMPANY. THEREFORE , WE ARE NOT INCLINED WITH THE DECISION OF THE LD. CIT(A) TO MAKE DISALLOWANCE IN RESPECT OF INTEREST EXPENSES TO THE AMOUNT OF RS. 23,28,570/ - U/S. 14A OF THE ACT. HOWEVER IN RESPECT OF ADMINISTRATIVE EXPENSES WE FIND MERIT IN THE FINDING OF THE ASSESSING OFFICER THAT ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNTS FOR T HE TREASURY DIVISION AND IT HAS ALSO FAILED TO FURNISH THE RELEVANT BASIS FOR ALLOCATION O F THIS EXPENSES AND ALSO FAILED TO SUBST A NTIAT E WITH RELEVANT MATERIAL FOR NOT ALLOCATING THE COMMON MANAGEMENT EXPENSES TOWARDS ADMINISTRATIVE EXPENSES . IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES WE JUSTIFY THE DECISION OF THE LD.CIT(A) FOR THE DISALLOWANCE U/S 14A R. W. RULE 8D TO THE EXTENT OF RS. 28 , 19 , 491/ - AS COMPUTED BY THE ASSESSING OFFICER IN PARA 8.11 OF THE ASSESSMENT I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 6 AND WE DELETE THE OTHER PART OF EXPENSES IN THE CATEGORY OF INTEREST DISALLOWANCE TO THE AMOUNT OF RS. 23 , 28 , 570/ - FOR THE REASON SUPRA IN THIS ORDER. ACCORDINGLY , THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8 . THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - ITA NO. 126/AHD/2014 I) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.66,26,795/ - MADE ON ACCOUNT OF PRODUCT REGISTRATION EXPENSE. II) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.6,18,79,485/ - MADE ON ACCOUNT OF THE DIFFERENCE BETWEEN VALUE OF STOCK AS ON 31.03.2008 SHOWN BEFORE THE BANK AND THE VALUE OF S TOCK AS ON 31.03.2008 ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. III) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.26,95,73,302/ - MADE ON ACCOUNT OF REDUCTION OF THE CLAIM US.80ICOFTHE ACT. IV) ON THE FACTS AND CIRCUMS TANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. V) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) MAY BE SET - ASIDE ARID THAT OF THE ASSESSING OFFICER BE RESTORED. 9 . THE BRIEF FACT OF THE APPEAL OF THE REVENUE A RE DIS CUSSED UNDER DIFFERENT GROUNDS OF APPEAL AS UNDER: - DISALLOWANCE OF RS. 66 , 26 , 795/ - ON ACCOUNT OF PRODUCT REGISTRATION EXPENSES 10 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSE SSING OFFICER NOT ICED THAT ASSESSEE HAS INCURRED AN AMOUNT OF RS. 66,26,795/ - FOR REGISTERING PPL PRODUCTS IN FOREIGN COUNTRIES . THE ASSESSEE COM P ANY E XPLAINED THAT THESE EXPENSES HAVE BEEN INCURRED T O ENABLE ASSESSEE TO REGISTER AND SELL ITS PRODUCTS IN SPECIFIED TERRITORIES. THE ASSESSING OFFICER OBSERVED THAT THE PROCESS OF GETTING THE PRODUCT REGISTERED IS A LONG DRAWN PROCESS WHEREIN THE GOODS HAVE TO PASS THROUGH SERIES OF TESTS AND STUDIES ON BIO - EQUIVALENCE AND CLINICAL RESEARCH TO THE SATISFACTI ON OF THE AUTHORITY OF THOSE COUNTRIES. ONCE , THE PROD U CT I S REGISTERED AND APPROVAL IS GR A N T ED BY T H E PARTICULAR COUNTRY , THE ASSESSEE CAN CONTINUE TO EXPORT ITS GOODS OVER A LONG PERIOD OF TIME. THEREFORE, THE ASSESSING I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 7 OFFICER WAS OF THE VIEW THAT REG ISTRATION OF THE PRODUCT CLEARLY ENTITLED THE ASSESSEE TO A BENEFIT OF ENDURING NATURE IN THE FORM OF MARKETING RIGHT (INTANGIBLE ASSETS) TO THAT COUNTRY. THEREFORE , THE ASSESSING OFFICER HAS TREATED THESE EXPENSES AS CAPITAL IN NATURE AND ADDED TO THE TO TAL INCOME OF THE ASSESSEE. 11 . AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWE D T HE APPEAL OF THE ASSESSEE STATING THAT PRODUCT REGISTRATION EXPENSES ARE NOTHING BUT THE REGISTRATION EXPENSES INCURRED TO GET PHARMACEU TICAL PRODUCT REGISTERED WITH LOCAL HEALTH AUTHORITIES , ASSOCIATION AND THEIR COUNTERPARTS AT THE FOREIGN DESTINATIONS . 12 . DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE AND PERUSED THE MATERIAL ON RECOR D. IT IS NOTICED THAT ASSESSEE HAS INCURRED THESE EXPENSES FOR REGISTERING ITS PRODUCT IN VARIOUS COUNTRIE S TO ENABLE THE ASSESEE TO SELL THE PRODUCT IN SUCH COUNTIES. WE OBSERVED THAT IN ABSENCE OF REGISTRATION, THE ASSESSEE WOULD NOT BE ABLE TO SELL THE PRODUCT IN THE FOREIGN COUNTRIES AS PER THE REGULATORY REQUIREMENT OF DIFFERENT COUNTRIES , IT IS MANDATORY TO GET THE PRODUCT OF THE ASSESSEE REGISTERED IN RESPECT OF COUNTIES FOR THE PURPOSE OF SELLING IN THE OVERSEAS MARKETS. THEREFORE, THE FINDING OF THE ASSESSING OFFICER THAT ASSE SSEE IS GETTING BENEFIT OF ENDURING NATURE OF REGISTRATION OF PRODUCT HAS NO MERIT. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES WE OBSERVED THAT LD. CIT (A) HAS CORRECTLY DELETED THE IMPUGNED ADDITION , T HEREFORE, TH E APPEAL OF THE REVENUE IS DISMISSED ON THIS ISSUE. ADDI TI ON OF RS . 6 , 18 , 79 , 485/ - ON ACCOUNT OF DIFFERENCE IN VALUE OF STOCK SHOWN BEFORE THE BANK. 13 . ON SCRUTINY THE ASSESSING OFFICER HAS FOUND DISCREPANCIES IN THE VALUE OF STOCK AS PER BANK AND VALUE AS PER BOOKS. THE ASSESSING OFFICER NOTICED TOTAL VALUE OF STOCK AS PER BAN K WAS TO THE A MO UNT OF RS.36,45,13,165 AS AGAINST VALUE AS PER BOOKS OF THE ASSESSEE TO THE AMOUNT OF RS.30,26,33,680. THE I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 8 ASSESSEE EXPLAINED THAT CLOSING STOCK GIVEN TO THE BANK WAS VALUED ON ESTIMATED BASIS AND ON FINALIZATION OF THE AUDIT THE CLOSING STOCK HA D BEEN VALUED AT COST OR MARKET PRICE WHICHEVER WAS LOWER.. THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE AND MADE AN ADDITION OF RS. 6 , 18 , 79 , 45 5/ - OF DIFFERENCE IN VALUE OF STOCK SHOWN TO THE BANK AND IN THE BOOKS OF ACCOUNTS OF AS SESSEE . THE LD. CIT(A) HAS DELETED THE ADDITION STATING THAT THE ASSESSING OFFICER HA S NOT POINTED OUT QUANTITATIVE DIFFERENCE IN THE STOCK AS PER BOOKS OF ACCOUNT AND THE STOCK AS PER THE BANK RECORD AS THE DIFFERENCE IS ONLY ON ACCOUNT OF DIFFERENCE VALUATION RATES . THE LD. CIT(A) HAS ALSO PLACED RELIANCE ON THE DECISION OF JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. VEERDIP ROLLERS PVT. LTD. 323 ITR 341 (GUJ) AND ARROW EXIM PVT. LTD. 35 DTR 280 (GUJ). 14 . WE HAVE HEARD THE RIVAL CONTENTION ON THIS ISSUE AND PERUSED THE MATERIAL ON RECORD. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HA D SUBMITTED COST STATEMENT OF THE CLOSING ST OCK AS ON 31 ST MARCH, 2008 WITH IDBI BANK ON 15 TH APRIL, 2008 SHOWING CLOSING STOCK OF RS . 36 , 45 , 13 , 1 65/ - WHEREAS THE VALUE OF INVENTORY SHOWN IN THE AUDITED BOOKS OF ACCOUNT OF T HE ASSESSEE WAS AT RS. 30 , 26 , 33 , 680/ - . T HE ASSESSEE HAS ALSO EXPLAINED THA T DETAILS OF CLOSING STOCK USED T O BE FURNISHED TO THE BANK ON THE BASIS OF ESTIMAT ED FAIR MARKET VALUE WHEREAS INVENTORY SHOWN UNDER BOOKS OF ACCOUNT WAS VALUED ON COST OR MARKET RATE WHICHEVER WA S LOWER ON THE BASIS OF ACCOUNTING STANDARD - 2. IT IS ALS O NOTICED THAT LOAN OBTAINED FROM THE BANK DURING THE YEAR WAS REDUCE D TO RS. 5.54 CRORES AS ON 31 ST MARCH, 2008 AS AGAINST RS. 12.5 CRORES AS ON 3 1ST MARCH, 2007 WHICH DEMONSTRATE THAT T HERE IS NO QUESTION OF INFLATING THE VALUE OF STOCK BECAUSE OF REDUC TION IN THE AMOUNT OF LOAN OBTAINED FROM THE B ANK. THE ASSESSING OFFICER HAS NOT DISPROVED THE ABOVE FACTS CONTENDED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM THAT DIFFERENCE IS ONLY ON ACCOUNT OF DIFFERENCE IN VALUATION RATES . AFTER CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES AND THE FINDINGS OF THE JURISDICTIONAL HIGH COURT IN T H E TWO DECISIONS AS CITED ABOVE WE JUSTIFY THE I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 9 DECISION OF LD.CIT(A) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. ACCORDINGLY THE APPEAL OF THE REVENUE IS DISMISS ED. DELETING THE ADDITION OF RS. 26 , 95 , 73 , 302/ - ON ACCOUNT OF REDUCTION OF THE CLAIM U/S. 80IC OF THE ACT. 15 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS T HE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 80IC OF THE ACT IN RESPECT OF PROFIT OF ITS UNIT AT BADDI, HIMACHAL PRADESH. T HE ASSESSING OFFICER WAS OF THE VIEW THAT PROFIT WAS COMPRISED OF THREE PARTS I.E. MANUFACTURING OF PRODUCT, MARKETING OF PRODUCT AND ON ACCOUNT OF BRAND SALES. HE WAS OF THE VIEW THAT THE BADDI UNIT C OMPRISED OF ONLY MANUFACTURING ACTIVITY THEREFORE, T H E PROFIT IN RESPECT OF BADDI UNIT SHOULD BE RESTRICTED TO PROFIT ATTRIBUTABLE TOWARDS MANUFACTURING ACTIVITIES ONLY. HE HAS STATED THAT PROFIT EARNED ON EXPLOITATION OF THE BRAND AND MARKETING NETWORK S HOULD NOT BE INCLUDED IN THE PROFIT ELIGIBLE FOR TAX HOLIDAY AS THE SAME DOES NOT AMOUNT TO PROFIT EARNED B Y B ADDI UNIT. HE OBSERVED THAT ASSESSEE ALREADY HAD AN EXISTING MARKETING NETWORK AND EARLIER THE PRODUCTS W ERE ALSO MANUFACTURED AND SOLD UNDER T HE SAME BRAND THEREFORE A SSESSEE SHOULD BE ENTITLED TO DEDUCTION U/S. 80IC OF THE ACT ONLY TO THE EXTENT OF MANUFACTURING PROFIT. IN THE LIGHT OF THE ABOVE OBSERVATION T HE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED A SUM OF RS. 29.52 CRORES AS DE DUCTION U/S. 80IC OF THE ACT FOR ITS UNIT AT BADDI, HIMACHAL PRADESH WHICH BECAME OPERATIONAL ON 2 ND APRIL, 2006. THIS UNIT IS ELIGIBLE FOR DEDUCTION AS PER THE PROVISION OF SECTION 80IC FOR ASSESSMENT YEAR 2008 - 09. THIS IS THE SECOND YEAR OF OPERATION O F THIS UNIT. THE ASSESSEE HAS EXPLAINED THAT THE BADDI UNIT DERIVED PROFIT @ 16.43% WHEREAS THE KALOL UNIT DERIVED PROFIT @ 19.79%. THE ASSESSING OFFICER ANALYZED THE MANUFACTURING ITEM IN HIMACHAL PRADESH UNIT AND PUT THEM IN THE FOLLOWING THREE CATEGOR IES. (I) ITEMS WHICH ARE EARLIER BEING PRODUCED THROUGH THIRD PARTY MANUFACTURER ON PRINCIPLE TO PRINCIPLE BASIS I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 10 (II) ITEMS WHICH WERE EARLIER BEING MANUFACTURED AT KALOL BUT THE PRODUCTION OF WHICH HAS SHIFTED TO BADDI. (III) NEW ITEMS WHICH WERE NOT BEING MANUFACTURE D EARLIER. THEREAFTER, THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO FURNISH THE COST OF VARIOUS ITEMS IN THE CATEGORIES AS SPECIFIED ABOVE. THEREAFTER, THE ASSESSING OFFICER HAS DISCUSSED THE DECISION OF HON BLE SUPREME COURT IN LIBERTY INDIA LTD. 307 ITR 218 AND HE HAS MENTIONED FIVE IMPORTANT ISSUES LAID DOWN BY THE HON BLE SUPREME COURT AS UNDER: - I) IT IS NOT THE OWNERSHIP OF THE UNDERTAKING WHICH ATTRACTS THE INCENTIVES. II) WHAT ATTRACTS THE INCENTIVES IS THE GENERATION OF PROFITS (OPERATIONAL PROFITS). III) EACH OF THE ELIGIBLE BUSINESSES CONSTITUTES A STAND - ALONE ITEM IN THE MATTER OF COMPUTATION OF PROFITS. THAT IS THE REASON WHY THE CONCEPT OF 'SEGMENT REPORTING' STANDS INTRODUCED IN THE INDIAN ACCOUNTING STANDARDS (IAS) BY THE ICAI. (IV) THE WORDS 'DERIVED FROM' ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORDS 'ATTRIBUTABLE TO'. IN OTHER WORDS, BY USING THE EXPRESSION 'DERIVED FROM', PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. (V) THE UNIT WOULD B E ENTITLED TO DEDUCTION ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH UNDERTAKING. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE UNIT AT BADDI HAS ONLY MANUFACTURING ASSETS AND CARRIED OUT ONLY MANUFACTURING ONLY. HE HAS ALSO REFERRED TO THE DECISI ON OF HON BLE MUMBAI HIGH COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS AND HON BLE DELHI HIGH COURT IN THE CASE OF ROLLS - ROYCE PLC. THEREAFTER, THE ASSESSING OFFICER HAS NARRATED THE FACT OF THE CASE AT HAND AND THE ISSUE INVOLVED AS UNDER: - A) AT THE BADDI UNIT, THE ASSESSEE ONLY HAS MANUFACTURING FACILITIES. B) THE GOODS AFTER BEING MANUFACTURED AT BADDI, ARE SENT ON 'STOCK TRANSFER' FROM BADDI TO THE VARIOUS CFAS THROUGHOUT THE COUNTRY. THIS CFA /MARKETING NETWORK WAS ALREADY EXISTING PRIOR TO SETTING UP OF THE BADDI UNIT AND IS OWNED BY THE PARENT COMPANY. THESE CFAS ARE NOT APPOINTED BY THE BADDI UNIT BUT HAVE BEEN APPOINTED BY THE PARENT COMPANY AND FORMS A PART OF MARKETING NETWORK OF THE PARENT COMPANY WHICH WAS ESTABLISHED PRIOR TO SETTIN G UP OF THE BADDI UNIT BY INCURRING HEAVY SELLING AND DISTRIBUTION EXPENSES IN THE EARLIER YEARS. C) THE CFAS RAISE THE FINAL SALE BILLS ON THE DISTRIBUTORS/CUSTOMERS, WHICH IS ACCOUNTED FOR AS SALES IN THE BOOKS OF THE BADDI UNIT. THESE C&F AGENTS SELL GO ODS MANUFACTURED BY BOTH UNITS OF THE ASSESSEE COMPANY. D) THE SALE CONSIDERATION IS DIRECTLY RECEIVED IN THE BANK ACCOUNTS OF THE HEAD OFFICE. ACCORDINGLY, IN THE BOOKS OF BADDI UNIT, THE HEAD OFFICE ACCOUNT IS DEBITED BY THE AMOUNT OF MONTHLY SALES. THE HEAD OFFICE TRANSFERS THE FUNDS TO THE BADDI UNIT AS PER REQUIREMENTS OF THE UNIT. I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 11 E) THE FINAL SALE PRICE BILLED BY THE CFAS INCLUDE THE COST OF ALL FUNCTIONS I.E. MANUFACTURING, EXPLOITATION OF BRAND OWNED BY THE PARENT COMPANY AND EXPLOITATION OF THE MA RKETING NETWORK OWNED BY THE PARENT COMPANY. AFTER ANALYSIS OF THE DATA, THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO EXPLAINED WHY THE DEDUCTION U/S. 80IC CLAIMED FOR THE BADDI UNIT SHOULD NOT RESTRICTED ONLY TO MANUFACTURING PROFIT. HE HAS ALSO COM PARED FUNCTIONING OF THE UNIT OF THE ASSESSEE WITH PARAS OVERSEAS HOLDING LTD. TO WHOM 5% OF THE INVOICES VALUE WAS BEING CHARGED AS ROYALTY. THE ASSESSEE HAS EXPLAINED VIDE LETTER DATED 22 ND DECEMBER, 2009 IN DETAIL AS REPRODUCED BY THE ASSESSING OFFICER AT PAGE NO. 28 TO 33 OF THE ASSESSMENT ORDER. THE ASSESSEE HAS CONTENDED THAT ALL THE ACTIVITIES FROM BEGINNING TO END OF THE PROCESS TOGETHER CONSTITUTE THE BUSINESS OF BADDI UNIT AND PROFIT DERIVED FROM THE ENTIRE PROCESS IS ELIGIBLE FOR THE TAX HOLIDA Y AND NOT FROM SEPARATE ACTIVITIES OF THE UNIT. FURTHER PROVISIONS OF SECTION 80IC DO NOT REQUIRE ASSESSEE TO SPLIT THE ACTIVITIES AND CONTRIBUTE THE PROFIT ATTRIBUTABLE TO SEPARATE ACTIVITIES WHICH CONSTITUTE ONE BUSINESS. ON THE CONTRARY, PROVISIONS SP ECIFICALLY MANDATE TO CONTRIBUTE THE PROFIT FROM THE BUSINESS CARRIED OUT ON ALL THE UNDERTAKINGS. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND STATED THAT ONLY MANUFACTURING ACTIVITY IS BEING CARRIED OUT BY TH E BADDI UNIT. HE HAS FURTHER STATED THAT A FTER MANUFACTURING OF GOODS, THEY ARE TRANSFERRED TO THE CFA FOR SALE WHO RAISE THE FINALLY SALE BILL ON THE DISTRIBUTORS/CUSTOMERS. THESE CFAS ARE PART OF THE MANUFACTURING NETWORK OF THE PPL LEGAL ENTITY. ALL SUB - FUNCTION S OF MARKETING, BRANDING, PRICE OF THE PRODUCT ETC. ARE SPECIFICALLY CARRIED OUT BY THE LEGAL ENTITY. THUS FOR ALL THE PURPOSES, THE BADDI UNIT FUNCTIONS ONLY AS A TARGET MANUFACTURER AS A LEGAL ENTITY. HOWEVER, FOR ACCOUNTING PURPOSE FINAL SALE PRICE IS DEBITED TO THE HEAD OFFICE ACCOUNT IN THE BOOKS OF THE BADDI UNIT. PPL LEGAL ENTITY FUNCTIONS AND CONTROLS THE MARKETING NETWORK THROUGH WHOM GOODS ARE MARKETED. HE WAS OF THE VIEW THAT ON TRANSFER OF GOODS BEING MANUFACTURED AT THE BADDI UNIT TO THE CFA , THE ASSESSEE SHOULD HAVE PASSED ENTRIES IN ITS BOOKS OF ACCOUNTS FOR INTERNAL TRANSFER FROM BADDI UNIT TO THE PPL A LEGAL ENTITY AT ARM S LENGTH PRICE . I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 12 ACCORDINGLY, THE ASSESS ING OFFICER HAS COMPUTED THE PROFIT FROM THE BADDI UNIT AS UNDER: - 10.37 AS D ISCUSSED ABOVE, CONSIDERING THE PROVISIONS OF SECTION 80 - IC(1) R.W SUBSECTION (7) THEREOF R.W. SECTION 80 - IA (5) R.W. 80 - IA(8), THE PROFITS DERIVED FROM THE BADDI UNIT ARE MANUFACTURING PROFITS ONLY. FROM THE DATA AS AVAILABLE FOR VARIOUS PRODUCTS AS EXPLA INED IN THE CHART AT PARA 10.3 ABOVE, IT MAY BE SEEN THAT IN THE EARLIER YEARS, FOR THE PRODUCTS WHICH WERE EARLIER BEING MANUFACTURED THROUGH THIRD PARTY, THE TOTAL COST FOR 13 PRODUCTS WAS RS.455.28, WHICH GOT REDUCED TO RS. 348.14, WHEN THE MANUFACTURIN G BASE OF THESE PRODUCTS SHIFTED TO BADDI. THUS, BY SHIFTING THE MANUFACTURING FACILITY, THE ASSESSEE HAS GAINED RS.107.14 (455.28 - 348.14), OR IN OTHER WORDS THERE IS SAVINGS OF 30.77% ON THE MANUFACTURING COST. SIMILARLY FOR THE PRODUCTS WHICH WERE EARLIE R BEING MANUFACTURED AT KALOL, THE TOTAL COST FOR 6 PRODUCTS WAS RS.32.03. WHICH INCREASED TO RS. 43.84, WHEN THE MANUFACTURING BASE OF THESE PRODUCTS SHIFTED TO BADDI. THUS, BY SHIFTING THE MANUFACTURING FACILITY OF THESE PRODUCTS, THE ASSESSEE HAS INCURR ED LOSS OF RS.LI.8I (32.03 - 43.84), OR IN OTHER WORDS THERE IS LOSS OF 26.93% ON THE MANUFACTURING COST. THIS LOSS HAS OCCURRED PRIMARILY DUE TO THE INCREASED DEPRECIATION COST (THIS BEING THE SECOND YEAR OF THE UNIT) AND INCREASED COST OF INTEREST ON TERM LOAN TAKEN FOR THE BADDI UNIT. THUS, ON OVER ALL AVERAGE BASIS, THERE IS PROFIT OF ONLY 3.84% (30.77 - 26.93). ACCORDINGLY, THE QUANTUM OF PROFITS ELIGIBLE FOR DEDUCTION U/S 80IC BEING THE MANUFACTURING PROFITS IS WORKED OUT AS UNDER - MANUFACTURING COST (BAD DI) AMOUNT COST OF MATERIAL CONSUMED MANUFACTURING EXPENSES EMPLOYEES COST 471197122 58350073 59357333 TOTAL MANUFACTURING COST 588904528 PROFITS @ 3.84% 22613934 10.38 IN THE ALTERNATE, AS DISCUSSED IN PARA 10.22 AND PARA 10.24 ABOVE, THE ASSE SSEE HAS CHARGED ROYALTY OF 5% FOR USAGE OF ITS BRANDS FOR SALE OF ITS PRODUCTS IN TERRITORY OTHER THAN INDIA & NEPAL. AS MAY BE SEEN, THIS ROYALTY IS TOWARDS USAGE OF THE BRAND OF PRODUCTS. HOWEVER, THE BADDI UNIT USES NOT ONLY THE BRAND OF THE PRODUCTS B UT ALSO THE CORPORATE BRAND PPL. SIMILARLY, THE BADDI UNIT ALSO USES THE STRONG MARKETING NETWORK OWNED BY PPL THE LEGAL ENTITY, WITHOUT PAYMENT OF ANY COST. HENCE, IF 15% OF THE TURNOVER IS TAKEN AS ROYALTY TOWARDS EXPLOITATION OF THE PRODUCT/CORPORATE BR AND AND FREE USAGE OF THE ESTABLISHED MARKETING NETWORK, THE AMOUNT OF ROYALTY PAYABLE WOULD WORK OUT TO RS.26,95,73,302/ - (15% OF 179.71 CRORE). ACCORDINGLY, THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IC WOULD STAND REDUCED TO RS. 2,56,98,001/ - TO RS. 29,52, 71,303 - RS.26,95 , 73,302). 16. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. IN THE APPEAL, THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSSEE BY STATING THAT THE PROVISION OF SECTION 80I C DOES NOT SUGGEST ANY SEGREGATION IN RESPECT OF ELIGIBLE PROFIT WITH REGARD TO DIFFERENT ELEMENT OF OPERATION. HE HAS FURTHER STATED THAT THE TERM ELIGIBLE BUSINESS U/S. 80IA (5) MEANS OVERALL BUSINESS I.E. MANUFACTURING ALONG WITH MARKETING. HE HAS I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 13 AL SO PLACED RELIANCE ON THE DECISION OF ITA IN THE CASE OF CADILA HEALTHCARE PVT. LTD. 3140/AHD/2000 AND NITCO VS. DCIT 30 SOT 74 THE RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER: - 7.8 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS . I PROCEED TO DISCUSS ISSUES ALONG WITH MY COMMENTS AS UNDER: 7.8.1 THE ASSESSING OFFICER HAS EMPHASISED THAT THE APPELLANT HAS BENEFITED MARGINALLY IN TERMS OF PROFIT MAKING BY SHIFTING HIS OPERATIONS AND PROCUREMENT FROM OUTSOURCED VENDORS TO ITS OWN MA NUFACTURING FACILITY AT BADDI IN HIMACHAL PRADESH. THE MAIN CRUX OF THE REASONING GIVEN BY THE ASSESSING OFFICER IS THAT THE UNIT AT HIMACHAL PRADESH IS FACILITATING ONLY THE MANUFACTURING ACTIVITY AND THEREFORE ITS PROFITS SHOULD BE RESTRICTED TO THE VAL UE ADDITION ON ACCOUNT OF MANUFACTURING. IT IS SEEN THAT THE ASSESSING OFFICER HAS CONSIDERED THE ACTIVITY OF MANUFACTURING IN A VERY NARROW SENSE AND HAS DECIDED AS IF THE CORE PROFITS ARE DERIVED FROM THE INTELLECTUAL PROPERTY AND THE BRAND VALUE. 7.8.2 THE REASONING GIVEN BY THE ASSESSING OFFICER WHILE WORKING OUT THE BENEFIT HI TERMS OF SHIFTING FROM THIRD - PARTY VENDORS TO ITS OWN MANUFACTURING APPEARS TO BE FLAWED. THE ASSESSING OFFICER HAS WORKED OUT THE COST OF THE PRODUCT WHICH WERE EARLIER PROCURE D FROM THE THIRD - PARTY VENDOR AND THE COST OF MANUFACTURING AT THE NEW UNIT AT BADDI FOR EVERY PRODUCT AND HAS MERELY TOTALLED THE NET SAVINGS ON ACCOUNT OF MANUFACTURING. ON THE BASIS OF THESE SAVINGS, THE ASSESSING OFFICER HAS ATTRIBUTED PROFITS TO THE M ANUFACTURING ACTIVITY. THE ASSESSING OFFICER HAS NOT CONSIDERED THE FIGURES OF PRODUCTION IN TERMS OF QUANTITY TO ARRIVE AT THE BENEFITS ON ACCOUNT OF THE MANUFACTURING. ALTHOUGH I DO NOT AGREE WITH THE CONTENTIONS RAISED BY THE ASSESSING OFFICER OF CONSID ERING SEGMENTAL PROFITS FOR GRANTING DEDUCTIONS, BUT IT IS IMPORTANT TO HIGHLIGHT THAT THE WORKING MADE BY THE ASSESSING OFFICER IS INCORRECT AS IT DOES NOT TAKE INTO ACCOUNT THE VOLUME OF PRODUCTION OF INDIVIDUAL ITEMS. 7.8.3 WITH REGARD TO THE APPROACH OF ASSESSING OFFICER TO CONSIDER ROYALTY PAYMENTS ON NOTIONAL BASIS TO THE HEAD OFFICE FOR BRANDING AND MARKETING EFFORTS, THERE IS NO PROVISION UNDER THE INCOME TAX ACT TO MARKUP THE PROFITS OF THE HEAD OFFICE AS A SEPARATE PROFIT - MAKING ENTITY. PROVISION S OF SECTION 80 - IC THE ACT DO NOT SUGGEST ANY SEGREGATION IN RESPECT OF ELIGIBLE PROFIT WITH REGARD TO DIFFERENT ELEMENTS OF OPERATIONS, SUCH AS, MANUFACTURING OPERATION AT ONE HAND AND THE MARKETING OR BRAND PROFIT ON ANOTHER HAND. THE TERM 'ELIGIBLE BUSI NESS' MENTIONED IN SECTION 80 - 1 A(5) OF THE ACT MEANS THE OVERALL ACTIVITY, I.E. MANUFACTURING OF A PRODUCT ALONG WITH THE MARKETING ACTIVITY. 7.8.4 FROM THE PROVISIONS OF SECTION 80IA (8) OF THE ACT IT IS APPARENT THAT THE SAME ARE APPLICABLE ONLY WHERE THE GOODS OR SERVICES ARE TRANSFERRED FROM THE ELIGIBLE BUSINESS TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE OR VICE VERSA. IN THE FACTS OF THE PRESENT CASE, ADMITTEDLY THERE IS NO SUCH TRANSFER OF GOODS OR SERVICE BETWEEN DIFFERENT UNITS RUN BY THE A SSESSEE. THE SUPPORT PROVIDED BY THE HEAD OFFICE HAS BEEN DULY ACCOUNTED FOR BY WAY OF DEDUCTION OF EXPENSES ON PRO - RATA BASIS OF THE TURNOVER. THIS IS A CASE WHERE MANUFACTURING PRODUCTS WERE SOLD THROUGH C&F IN THE MARKET. IF THERE IS NO INTER - CORPORATE TRANSFER, THEN THE AO HAS NO RIGHT TO DETERMINE THE FAIR MARKET VALUE OF SUCH GOODS OR TO COMPUTE THE ARM'S LENGTH PRICE OF SUCH GOODS. 7.8.5 FOR COMPUTING THE INCOME FROM ELIGIBLE PROFITS OF THE UNDERTAKING, THE EXPENDITURE RELATABLE TO SUCH UNITS AND AL SO EXPENDITURE INCURRED AT HEAD OFFICE, WHICH HAD NO SEPARATE SOURCE OF INCOME, ARE TO BE APPORTIONED TO THE RESPECTIVE UNITS. HEAD OFFICE IS NOT A SEPARATE INCOME GENERATING APPARATUS. THE EXPENSES INCURRED BY IT HAVE TO BE ALLOCATED AMONGST THE DIFFERENT UNDERTAKINGS, IRRESPECTIVE OF THE FACT WHETHER THEY ARE TAXABLE OR NOT. IF THE AO'S REASONING THAT THE PROFIT HAS TO BE ATTRIBUTED TO THE FUNCTIONS I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 14 CARRIED OUT BY THE HEAD OFFICE, THEN THE SAME WILL HAVE TO BE DONE ON A NOTIONAL BASIS. THERE IS NO PROVISI ON IN THE STATUTE TO CARRY OUT SUCH AN ALLOCATION FOR DOMESTIC TRANSACTIONS. THE HYPOTHESIS OF THE AO WOULD BE LEGALLY TENABLE ONLY IF THERE WAS ANY SUCH PRO VISION IN THE STATUTE TO ALLOCATE PROFIT ON THE BASIS OF F.A.R. ANALYSIS (FUNCTIONS, ASSETS AND RIS KS) OF VARIOUS UNITS OF THE BUSINESS. THE CONTENTION OF TH E AO REGARDING WORKING OF PROFITS OF BADDI UNIT ONLY TO THE EXTENT OF MANUFACTURING PROFITS WOULD ALSO MEAN THAT THE EXPENDITURE ON ADVERTISEMENT AND MARKETING WOULD HAVE TO BE DEBITED TO THE HEAD O FFICE. THIS WOULD GIVE RISE TO IRRATIONAL RESULTS AS PER THE SUBMISSIONS OF THE APPELLANT. IT IS NOT IN DISPUTE THAT FOR BADDI UNIT THE ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS AND THEREFORE DRAWN A SEPARATE PROFIT AND LOSS ACCOUNT. THE AO HAS NO T PINPOINTED ANY DEFECT IN THE WORKING OF THE 'PROFIT' OF THE BADDI UNIT. 7.8.6 THE AO HAS ALSO CONCLUDED THAT ONLY THE INCREMENTAL PROFIT, REPRESENTING THE DIFFERENCE BETWEEN THE PROFITS EARNED EARLIER WHEN THE PRODUCTS WERE PROCURED ON P2P BASIS AND THE PROFITS EARNED BY THE BADDI UNIT, SHOULD BE TREATED AS A MANUFACTURING PROFIT. THE AO HAS WORKED OUT THE SAVINGS AT 3.84% AND ATTRIBUTED IT TO BADDI UNIT. HE HAS PLACED RELIANCE ON ROLLS ROYCE PICV. DDJT19 SOT 42. AS ALREADY DISCUSSED, IN ABSENCE OF ANY P ROFIT GENERATING APPARATUS, ATTRIBUTING NOTIONAL PROFITS TO THE ACTIVITIES OF HEAD OFFICE IS NOT PROVIDED UNDER DOMESTIC LAW., HENCE IN THE CASE OF APPELLANT SUCH AN ALLOCATION IS NOT CALLED FOR. 7.8.7 THE PROFIT MARGINS SHOWN BY THE APPELLANT FOR ELIGIBL E UNIT AT BADDI IS LOWER THAN THE PROFIT MARGIN OF TAXABLE UNIT AT KALOL. AS PER COMPUTATION OF INCOME, THE PROFIT MARGIN FOR THE BADDI UNIT IS 16.43% WHEREAS THE MARGINS OF THE TAXABLE UNIT AT KALOL ARE 19.79%. HENCE IT IS NOT THE CASE OF THE AO THAT THE APPELLANT HAS TRIED TO DIVERT PROFITS OF TAXABLE UNIT TO EXEMPT UNIT. 7.8.8 IN THE CASE OF KHINVASARA INVEST (P) LTD. VS JCIT REPORTED IN 110 ITD 198, THE HON'BLE ITAT PUNE BENCH HAS HELD THAT WHERE THE ASSESSEE IS RUNNING MORE THAN ONE UNIT, EXPENSES PRO PERLY RELATABLE TO ONE OR OTHER UNIT SHOULD BE TO THAT UNIT ONLY BUT THE HEAD OFFICE EXPENSES AND DIRECTORS REMUNERATION HAVE TO BE ALLOCATED ON TURNOVER BASIS FOR PURPOSES OF COMPUTING DEDUCTION UNDER S. 80IA. 7.8.9 THE HON'BLE ITAT, AHMEDABAD BENCH IN THE CASE OF CADILA HEALTHCARE LTD IN ITA NO. 3140/AHD/2010 FOR AY 2006 - 07 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE FACTS OF THE CASE WERE SIMILAR TO THE CASE OF THE APPELLANT. THE AO HI THAT CASE ALSO HAD RESTRICTED THE PROFITS TO ONLY MANUFACT URING ACTIVITY AND HAD WORKED OUT THE CONTRIBUTION OF THE HEAD OFFICE IN IDENTICAL MANNER AS THAT IN THE CASE OF THE APPELLANT. THE HON'BLE IT AT, AHMEDABAD BENCH HAS HELD THAT AO CANNOT INVOKE SEC. 80IC(7) R/W SEC.80IA(8) WHEN MANUFACTURED PRODUCTS WERE S OLD BY THE UNIT THROUGH C&F IN THE MARKET AND WHEN SALE WAS NOT ROUTED THROUGH THE HO. IT WAS HELD THAT IN THE INSTANT CASE, IT WAS NOT THE SITUATION THAT FIRST SALES WERE MADE BY THE BADDI UNIT (WHICH CLAIMED SEC.SOIC DEDUCTION) IN FAVOUR OF THE HEAD OF FICE OR THE MARKETING UNIT AND THEREUPON THE SALES WERE EXECUTED BY THE HEAD OFFICE TO THE OPEN MARKET. ONCE IT WAS NOT SO, THEN THE FIXATION OF MARKET VALUE OF SUCH GOOD IS OUT OF THE AMBIT OF SECTION 80IC(7) READ WITH SECTION 80IA(8). IF THERE IS NO INFR A - CORPORATE TRANSFER THEN THE AO HAS NO RIGHT TO DETERMINE THE FAIR MARKET VALUE OF SUCH GOODS OR TO COMPUTE THE ARM'S LENGTH PRICE OF SUCH GOODS. SEC.80IC(7) R/W SEC.80IA(8) DOES NOT REQUIRE THAT ELIGIBLE PROFIT SHOULD BE COMPUTED FIRST BY TRANSFERRING THE PRODUCT AT AN IMAGINARY SALE PRICE TO THE HO AND THEN THE HO SHOULD SALE THE PRODUCT IN THE OPEN MARKET. THE STATUTE DOES NOT SUBSCRIBE TO SUCH DEEMED INTRA - CORPORATE TRANSFER BUT SUBSCRIBE ACTUAL EARNING OF PROFIT. I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 15 WHEN THE METHOD OF ACCOUNTING AS A PPLICABLE UNDER THE STATUTE DO NOT REQUIRE SEGREGATION OR BIFURCATION OF PROFIT OF A UNIT INTO MANUFACTURING PROFIT AND TRADING/MARKETING PROFIT, IT IS NO CORRECT ON THE PART OF AO TO RESORT TO SUCH SEGREGATION OR BIFURCATION. THERE IS NO SUCH CONCEPT OF SEGREGATION OF PROFIT. RATHER, THE PROFIT OF AN UNDERTAKING FOR SECTION 80IA DEDUCTION PURPOSES SHOULD BE COMPUTED AS A WHOLE BY TAKING INTO ACCOUNT THE SALE PRICE OF THE PRODUCT IN THE MARKET. IF THE STATUTE WANTED TO DRAW SUCH LINE OF SEGREGATION BETWE EN THE MANUFACTURING ACTIVITY AND THE SALE ACTIVITY, THEN THE STATUTE SHOULD HAVE MADE A SPECIFIC PROVISION OF SUCH DEMARCATION. BUT AT PRESENT THE LEGAL STATUS IS THAT THE STATUTE DOES NOT DO SO. THE BENCH FURTHER OBSERVED - 'AFTER THE DETAILED DISCUSSION , BEFORE WE CLOSE THE CONTROVERSY WE WOULD LIKE TO EXPRESS THAT THE AO'S PROPOSITION OF SEGMENTATION OF ELIGIBLE PROFIT OF THE MANUFACTURING UNIT WAS NOT ALTOGETHER MEANINGLESS. THIS APPROACH OF THE AO CANNOT BE BRUSHED ASIDE ON THE FACT OF IT. BUT AT PRES ENT, WHEN THE METHOD OF ACCOUNTING AS APPLICABLE UNDER THE STATUTE, DO NOT SUGGEST SUCH SEGREGATION OR BIFURCATION, THEN IT IS NOT FAIR TO DRAW AN IMAGINARY LINE TO COMPUTE A SEPARATE PROFIT OF THE BADDI UNIT. THE BADDI UNIT HAS IN FACT COMPUTED ITS PROFIT AS PER A SEPARATELY MAINTAINED BOOKS OF ACCOUNT OF THE ELIGIBLE MANUFACTURING ACTIVITY. TO IMPLEMENT THE METHOD OF THE COMPUTATION AT STAND ALONE BASIS, AS CONVEYED BY THE AO, THE MANUFACTURING UNIT HAS PREPARED A PROFIT & LOSS ACCOUNT OF ITS MANUFACTURIN G - CUM - SALE BUSINESS ACTIVITY. IF THE STATUTE WANTED TO DRAW SUCH LINE OF SEGREGATION BETWEEN THE MANUFACTURING ACTIVITY AND THE SALE ACTIVITY, THEN THE STATUTE SHOULD HAVE MADE A SPECIFIC PROVISION OF SUCH DEMARCATION. BUT AT PRESENT THE LEGAL STATUS IS TH AT THE STATUTE HAS ONLY CHOSEN TO GIVE THE BENEFIT TO 'ANY BUSINESS OF DRUG MANUFACTURING ACTIVITY' WHICH IS INCURRING EXPENDITURE ON RESEARCH ACTIVITY IS ELIGIBLE FOR THIS PRESCRIBED WEIGHTED DEDUCTION. THE SEGREGATION AS SUGGESTED BY THE AO HAS FIRST TO BE BROUGHT INTO THE STATUTE AND THEN TO BE IMPLEMENTED. WITHOUT SUCH LAW, IN OUR CONSIDERED OPINION, IT - WAS NOT FAIR AS ALSO NOT JUSTIFIABLE ON THE PART OF THE AO TO DISTURB THE METHOD OF ACCOUNTING OF THE ASSESSEE REGULARLY FOLLOWED IN THE NORMAL COURSE OF BUSINESS. IT IS TRUE THAT OTHERWISE NO FALLACY OR MISTAKE WAS DETECTED IN THE BOOKS OF ACCOUNTS OF BADDI UNIT PREPARED ON STAND ALONE BASIS THROUGH WHICH THE ONLY SOURCE OF INCOME/PROFIT WAS THE MANUFACTURING OF THE SPECIFIED PRODUCTS. WE THEREFORE HOLD THAT THE AO'S ACTION OF SEGREGATION WAS MERELY BASED UPON A HYPOTHESIS, HENCE HEREBY REJECTED. 7.8.10 SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE IT AT IN THE CASE OF CADILA HEALTHCARE LTD FOR AY 2007 - 08 REPORTED IN 56 SOT 089. THE BENCH HAS EXAMINED THE I SSUE AFRESH AND HAS HELD THAT 'IN THE PRESENT CASE, THERE WAS NO TRANSFER OF GOODS BY THE BADDI UNIT TO ANY OTHER UNIT OF THE ASSESSEE COMPANY AND HENCE, THE PROVISIONS OF SECTION 80 - 1 A(8) WERE NOT APPLICABLE. IT WAS HELD SO BECATTSE IF BADDI UNIT WAS MAN UFACTURING THE GOODS AND IT WAS SOLD BY THE COMPANY, IT COULD NOT BE SAID THAT THE GOODS WERE TRANSFERRED BY BADDI UNIT TO SOME OTHER UNIT. THE ASSESSEE AS A WHOLE COULD NOT BE EQUATED WITH ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE. THE CONDITIONS OF S ECTION 80 - IA(8) WOULD BE FULFILLED IF GOODS OR SERVICES WERE TRANSFERRED FROM ONE UNIT TO OTHER UNIT OF THE SAME ASSESSEE. SECONDLY, THIS WAS NO FINDING OF THE A.O. THAT ANY TRANSFER ENTRY HAD BEEN MADE AT BADDI UNIT AT SOME PRICE AND SUCH PRICE ADOPTED B Y THE ASSESSEE WAS NOT MARKET VALUE OF THE GOODS TRANSFERRED FROM THE BADDI UNIT. THIRDLY, IT WAS NOT ESTABLISHED BY THE A.O. THAT EVEN IF IT AMOUNTS TO TRANSFER OF GOODS BY BADDI UNIT TO SOME OTHER UNIT OF THE ASSESSEE COMPANY THEN THERE WAS EXCEPTIONAL D IFFICULTY IN COMPUTING THE PROFITS AS PER THE PROVISIONS SECTION 80IA(8) BY ADOPTING FAIR MARKET VALUE OF THE GOODS I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 16 SO TRANSFERRED AND THEREFORE, THE A.O. HAD TO ADOPT COMPUTATION OF SUCH PROFIT AND GAINS OF BADDI UNIT ON REASONABLE BASIS. LASTLY, THE BASI S ADOPTED BY THE A.O. HAD TO BE REASONABLE BASIS AND IN THE FACTS OF THE PRESENT CASE, IT - WAS NOT SO.' 7.8.11 THE EXPENSES INCURRED BY THE HEAD OFFICE HAVE BEEN DULY APPROPRIATED BETWEEN KALOL UNIT AND BADDI UNIT. THE APPROACH OF THE APPELLANT IN APPROPRI ATING THE EXPENSES INCURRED BY THE HEAD OFFICE IN PRO - RATA BASIS IN PROPORTION OF THE SALES UNDERTAKEN BY DIFFERENT UNITS IS JUSTIFIABLE AND HAS BEEN UPHELD BY A LARGE NUMBER OF JUDICIAL AUTHORITIES, IN THE CASE OF NITCO TILES LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX ITAT, MUMBAI 'B - L' BENCH (2009) 30 SOT 474 (MUMBAI) HAS HELD WHILE DECIDING THE ISSUE OF ALLOCATION OF EXPENSES BETWEEN ELIGIBLE AND NON - ELIGIBLE UNITS IN RESPECT OF 80 - IB DEDUCTION: - 'SEC. 80 - IB PROVIDES FOR THE ALLOWING DEDUCTION IN RESPECT OF THE PRO/ITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS. SUB - S. (13) OF S. 80 - IB PROVIDES FOR THE APPLICABILITY OF THE PROVISIONS OF SUB - S. (5) AND SUB - SS. (7) TO (12) OFSS. 80 - IA, SO FAR AS MAY BE, APPLICABLE TO THE ELIGIBLE BUSINESS UNDER S. 80 - IB. ON PERUSAL OF THE PROVISIONS OF THE SAID SUB - S. (5), IT IS NOTICED THAT IT PROVIDES FOR MANNER OF COMPUTATION OF THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS. ACCORDINGLY, SUCH PROFITS AND GAINS ARE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOUR CE OF INCOME OF THE ASSESSEE. THE ASSESSEE IS UNDER LEGAL OBLIGATION BY VIRTUE OF S. 80 - IB(1) TO COMPUTE THE 'PROFITS AND GAINS OF THE ELIGIBLE BUSINESS' SEPARATELY AND THAT OF THE OTHERS SEPARATELY. PROVISIONS OF S. 80 - IA(5) ARE DISTINCT, DEEMED AND OVERR IDING PROVISIONS AND THEY, IN THE COMBINATION OF S. 80 - IB(1), ADVOCATE FOR SPECIAL COMPUTATION OF 'PRO/ITS AND GAINS OF THE ELIGIBLE BUSINESS' IN GENERAL AND FOR CONSIDERING ALL THE EXPENSES, BOTH DIRECT AND INDIRECT, AMONG ALL THE ONGOING PROJECTS, IF NOT EXCLUSIVELY AGAINST THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS, THE ONLY SOURCE OF INCOME OF THE ASSESSEE. FURTHER, THE PROVISIONS OF S. 80 - IA/80 - IB DO NOT ENCOURAGE THE DISCLOSURE OF THE PROFITS OF THE ELIGIBLE BUSINESS MORE THAN THE ORDINARY PROFITS . THE PROVISIONS OF S. 80 - IB(1) READ WITH THE DEEMED PROVISIONS OF SUB - S. (5) (ERSTWHILE SUB - S. (7) OF S. 80 - IA WITH ITS OVERRIDING APPLICATION, PRESCRIBE FOR THE SPECIAL MODE/MANNER OF COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS, WHICH M UST BE COMPUTED AS IF IT THE ONLY SOURCE OF INCOME. WHEN SUCH COMPUTATION IS UNDERTAKEN AS PER THE SAME, ALL THE EXPENSES OF THE BUSINESS INCLUDING THE INDIRECT OR COMMON OR HEAD OFFICE EXPENSES HAVE TO BE BOOKED TO ALL THE ONGOING PROJECTS, IF NOT TO THE S. 80 - IB PROJECTS EXCLUSIVELY.' SECTION 80 1C (7) PROVIDES FOR APPLICATION OF SUBSECTION 5 AND SUBSECTION 7 TO 12 OF SECTION 80 IA OF INCOME TAX ACT HENCE THE ABOVE DECISION IS EQUALLY APPLICABLE TO THE FACTS OF THE CASE. 7.8.12 IN THE CASE OF KEWAL KAIRAN CLOTHING LTD , MUMBAI THE HON'BLE ITAT, MUMBAI BENCH IN ITA NO.44/MUM/2009 HAVE UPHELD THE PRINCIPLE OF APPROPRIATION OF EXPENSES BETWEEN THE ELIGIBLE AND NON - ELIGIBLE UNIT IN THE PROPORTION OF TURNOVER. IT WAS HELD THAT IN THE CASE BEFORE US, THERE IS N O DISPUTE TO THE FACT THAT THE TOTAL TURNOVER OF THE ELIGIBLE UNIT I.E. DAMAN UNIT IS 73.43%. CONSIDERING THE DECISION OF COORDINATE BENCH OF LTAT IN THE CASE OF NITCO TILES LTD (SUPRA), - WE ARE OF THE CONSIDERED VIEW THAT IT IS FAIR AND REASONABLE TO ALLO CATE THE EXPENSES BETWEEN THE UNITS ON THE BASIS OF TURNOVER IN THE ABSENCE OF ANY CONTRARY FACTS BROUGHT ON RECORD BEFORE US. HENCE, WE HOLD THAT AO HAS RIGHTLY ALLOCATED THE EXPENSES BETWEEN THE UNITS ON THE BASIS OF TURNOVER. ' 7.8.13 IN THE CASE OF VAR DHMAN HOLDINGS LTD., THE ASSESSING OFFICER WHILE COMPUTING THE INCOME UNIT - WISE HAD APPLIED THE RATIO OF THE TURNOVER ON EACH UNIT TO THE TOTAL TURNOVER AND THE SAID PERCENTAGE WAS APPLIED TO WORK OUT THE UNIT - WISE ALLOCATION OF HEAD OFFICE EXPENSES. THE H ON'BLE ITAT CHANDIGARH BENCH IN ITA NO.249/CHD/2008 APPROVED THE ACTION OF THE AO. I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 17 7.9 IN VIEW OF THE ABOVE DISCUSSION AND DECISION OF HON'BLE ITAT, AHMEDABAD BENCH IN THE CASE OF CADILA HEALTHCARE LTD (SUPRA) ON SIMILAR FACTS, I AM OF THE OPINION THAT TH E ACTION OF THE ASSESSING OFFICER IN REDUCING THE DEDUCTION UNDER SEC. 80 - IC FOR THE BADDI UNIT FROM RS. 29,52,71,303/ - TO RS.2,56,98,001/ - IS UNWARRANTED AND THE CLAIM OF DEDUCTION BY THE APPELLANT DESERVES TO BE ALLOWED. THE 6 TH GROUND OF APPEAL COMPRISI NG OF SUB GROUNDS 6.1 TO 6.14, RAISED BY THE APPELLANT ACCORDINGLY STANDS ALLOWED AND APPELLANT GETS A RELIEF OF RS. 26,95,73,302/ - . 17 . WE HAVE HEARD THE RI VAL CONTENTIONS AND P E R US E D THE MATERIAL ON RECORD ON TH I S ISSUE. THE BADDI UNIT HAS DERIVED PROF IT FROM THE SELLING OF THE PRODUCT MANUFACTURED BY IT . THE PROFIT CANNOT BE DERIVED OF ONLY MANUFACTURING ACTIVITIES UNLESS THE MANUFACTURED GOODS ARE SOLD. IT IS REQUIRED TO COMPLETE THE WHOLE CYCLE CONSISTING OF DIFFERENT COMPONENTS I.E. PRODUCTION, MARK ETING AND SELLING OF PRODUCT ETC. IT IS UNDISPUTED FACTS THAT IN MOST OF THE CASES THE MANUFACTURING UNIT AND ITS SALE AND MARKETING UNITS ARE SITUATED AT DIFFERENT PLACES IN ORDER TO CAPTURE THE MARKET OF THE PRODUCT ON DIFFERENT GEOGRAPHICAL LOCATIONS. W E OBSERVE THAT ASSESSEE HAS CARRIED ALL ITS BUSINESS ACTIVITIES AS A WHOLE BUSINESS AND THE SAME CANNOT BE SEGREGATED FROM EACH OTHER. AFTER PERUSAL OF MATERIAL ON RECORD WE OBSERVE IN THE CASE OF THE ASSESSEE T HE SALE AND MARKET DIVISION ARE THE INTEGRA L PART OF THE MANUFACTURING UNIT WHICH CANNOT BE SEPARATED ON ARTIFICIAL BASIS. IN THE CASE OF THE ASSESSEE THERE ARE ONLY TWO UNITS LOCATED AT KALOL AND BADDI AND WHILE CLAIMING TAX BENEFITS INCOMES AND EXPENSES INCURRED FOR KALOL UNITS HAS BEEN REDUCED FROM THE TOTAL PROFITS AND DEDUCTION HAS BEEN CLAIMED ON THE BASIS OF PROFIT ATTRIBUTABLE TO BADDI UNIT. THE MARKETING AND DISTRIBUTION COSTS ARE GENERALLY ALLOCATED ON THE BASIS OF TURNOVER ON SCIENTIFIC BASIS THEREFORE WE DO NOT JUSTIFY THE ACTION OF THE ASSESSING OFFICER OF SEGREGATION OF PROFIT TO BADDI UNIT ON ASSUMPTION BASIS . IN THE GIVEN FACTS IN THE CASE OF THE ASSESSEE ALL THE ACTIVITIES FROM BEGINNING TO END OF THE PROCESS TOGETHER CONSTITUTE THE BUSINESS OF BADDI UNIT AND PROFIT DERIVED FROM TH E ENTIRE PROCESS IS ELIGIBLE FOR THE TAX HOLIDAY AND NOT FROM SEPARATE ACTIVITIES OF THE UNIT. IN SUCH CIRCUMSTANCES , PROVISIONS OF SECTION 80IC DO NOT REQUIRE ASSESSEE TO SPLIT THE ACTIVITIES AND CONTRIBUTE THE PROFIT ATTRIBUTABLE TO SEPARATE ACTIVITIES WHICH CONSTITUTE ONE BUSINESS. WE HAVE ALSO CONSIDERED TH E DECISION OF THE COORDINATE BENCH IN THE CASE OF CADILA I.T.A NOS. 3098/AHD/2013,126/AHD/2014,1272,1547 ,1366 & 1780/AHD/2015 PAGE NO RECKITT BENCKISER HEALTHCARE INDIA PVT. LTD. VS. ADDL. CIT/ACIT 18 HEALTHCARE LT D . VIDE ITA NO.3140/AHD/2010 WHEREIN ON IDENTICAL FACTS ON CLAIM OF DEDUCTION FROM ELIGIBLE PROFITS DERIVED BY A B ADDI UNIT OF A PHARMAC E UTI CAL COMPANY IT IS HELD THAT THAT ELIGIBLE PROFITS SHOULD NOT BE ARTIFICIA L LY SEGREGATED IN TO MANUFACTU RING, MARKETING AND BRAND PROFITS. 18. AFTER CONSIDERING THE ABOVE FACTS, LEGAL FINDINGS AND DETAILED FINDINGS OF LD. CIT(A) , WE DO NOT FIN D ANY MERIT IN THE APPEAL OF THE REVENUE. T HEREFORE, T H IS GROUND OF APPEAL OF REVENUE IS ALSO DISMISSED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. 20. IN THE COMBINED RESULT, THE APPEAL ITAS 3098/AHD/2013, 1272, 1547/AHD/2015 FILED BY ASSESSEE ARE PARTLY ALLOWED AND APPEAL ITAS 126/AHD/2014, 1366, 1780/AHD/2015 FILED BY REVENUE ARE DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 27 - 08 - 201 8 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 27 /08 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,