Appeal details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 17198 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
07-03-2025
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Assessment Year
2002-2003
Judgement Text
" IN THE INCOME TAX APPELLATE TRIBUNAL \nMUMBAI BENCH “B”, MUMBAI \n \nBEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER AND \nSHRI ANIKESH BANERJEE, JUDICIAL MEMBER \n \nITA No.7124/Mum/2004 \n- \nA.Y. 2000-01 \nITA No.2564/Mum/2005 \n- \nA.Y. 2001-02 \nITA No.4823/Mum/2006 \n- \nA.Y. 2002-03 \n \nM/s Marico Industries Ltd \nRang Sharda, K.C. Marg, \nBandra (W), Mumbai-400 050 \nPAN: AAACM7493G \nvs \nDeputy Commissioner of Income-\ntax, \nCentral \nCircle-35,Mumbai \nAayakar \nBhavan, \nM.K. \nRoad, \nChurchgate, Mumbai-400 020 \nAPPELLANT \n \nRESPONDENT \n \nI.T.A No.7397/Mum/2004 \n- \nA.Y. 2000-01 \nI.T.A No.1678/Mum/2005 \n- \nA.Y. 2001-02 \nI.T.A No.4680/Mum/2006 \n- \nA.Y. 2002-03 \n \nDeputy \nCommissioner \nof \nIncome-tax, Central Circle-35, \nMumbai Aayakar Bhavan, M.K. \nRoad, Churchgate, Mumbai-\n400 020 \nvs \nM/s Marico Industries Ltd \nRang Sharda, K.C. Marg, \nBandra (W), Mumbai-400 050 \nPAN: AAACM7493G \nAPPELLANT \n \nRESPONDENT \n \nAssessee by \n \n: \nShri Nitesh Joshi & Shri Milin \nBakhaiRespondent by \n: \nMs. Monica H Pande,SR AR \n \n \n \nDate of hearing \n \n: \n17/02/2025 \n \nDate of pronouncement : \n 07/03/2025 \n \n \n \n\n2 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \n \nO R D E R \n \nPerBench: \n \nInstant appeals by the assessee and the cross appeals by the revenue were \nfiled against the order of the Learned Commissioner of Income-tax (Appeals), \nCentral-VI, Mumbai, order passed under section 250 of the Income-tax Act, 1961 \n(in short, ‘the Act’), date of order 29-07-2004 for A.Y. 2000-01; date of order 16-\n12-2004 for A.Y. 2001-02; and date of order 01-05-2006 for A.Y. 2002-03. The \nimpugned orders are emanated from the order of the Learned Deputy \nCommissioner of Income-tax, Central Circle-35, Mumbai order passed under \nsection 143(3), date of order 31/03/2003 for AY.2000-01 /Ld. Assistant \nCommissioner of Income-tax, Central Circle 35, Mumbai, order passed under \nsection 143(3), date of order 25/03/2004 for AY 2001-02 & date of order \n11/03/2005 for AY 2002-03. \n2. \nAt the outset, all the appeals havesame nature of facts and have common \nissue, so ITA No.7124/Mum/2004 for A.Y. 2000-01 (Assessee’s appeal) and ITA \nNo.7397/Mum/2004 (Revenue’s appeal) are taken as lead case. \n2.1 \nThe following are the grounds raised by the assessee and the revenue: - \nITA No.7124/Mum/2004 (Assessee’s Appeal) \n“1. Learned Commissioner of Income Tax (Appeals) has erred in confirming the \naction of the Assessing Officer that while working out the profits of the Goa and \nKanjikode undertaking for claiming a deduction u/s 801B corporate office \nexpenses and depreciation on assets installed at corporate office ought to be \nallocated. \n\n3 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \n \nWithout prejudice to the above, Learned Commissioner of Income Tax (Appeals) \nhas erred in not accepting the alternative contention of the Appellant that the \ncorporate office expenses and depreciation on assets installed at the corporate \noffice, if allocable, ought to be allocated on an incremental basis. The learned \nCommissioner of Income Tax (Appeals) ought to have allocated the corporate \noffice expenses and depreciation on assets installed at the corporate office on the \nbasis of the ratio laid down by the Income tax Appellate Tribunal in the case of \nFood Specialties Ltd (54 ITD 352). \n \n2. Learned Commissioner of Income Tax (Appeals) has erred in confirming the \naction of the Assessing Officer in: \n \na. allocating finance cost to Goa unit at Rs.18,16,455 and Kanjikode unit at \nRs.13,41,059 inspite of the fact that no borrowed funds utilised in these units as \nthey were admittedly cash surplus. \n \nb. further allocating Miscellaneous expenses of Rs.95,17,404 to the Goa \nundertaking and Rs.67,51,405 to Kanjikode undertaking in addition to \nRs.1,43,29,847/- and Rs.1,08,54,635/- allocated by the assessee. \n \nc. allocating research and development expenses to Goa unit at Rs. 89,34,626 \nand to Kanjikode unit at Rs. 65,66,803. \n \nThe learned Commissioner of Income-tax (Appeals) ought to have held that if at \nall any part of these expenses have to be allocated, it could not exceed. \n \nNature of \nexpenses \nAllocation \nto \nGoa Unit (Rs.) \nAllocation \ntoKanjikode \nunit(Rs.) \nFinance Cost \n15,94,645 \n12,82,909 \nMiscellaneous \nexpenses \n1,43,29,847 \n1,08,54,635 \nResearch \n78,43,600 \n63,10,264 \n\n4 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \n&Development \nexpenses \n \n3. The Learned Commissioner of Income Tax (Appeals) has erred in holding that \n90% of gross interest received of Rs.2,25,19,000/- be reduced while working out \n\"Profits of the Business\" for the purpose of granting deduction u/s 80HHC and in \ndoing so erred in holding that the appellant had failed to prove the nexus \nbetween the interest expenditure incurred and the interest income earned. \n \n4. The Learned Commissioner of Income-tax (Appeals) has erred in confirming the \naddition of Rs.3,73,03,344/-, being provision for Advertisement and Sales \npromotion expenses while computing book profit u/s 115JA of the Income-tax Act \nby holding that the appellant had failed to prove the existence of any liability. \nProvision for Advertisement and Sales promotion expenses not being an \nunascertained liability as per clause (c) to the Explanation to section 115JA(2), the \nsame ought not to be added while computing book profit u/s 115JA of the Act. \n \n5. The appellant craves leave to add, alter, amend and / or rescind any grounds of \nappeal during the course of the hearing.” \n \nAdditional ground vide letter dated 01/05/2024 \n“The appellant is desirous of taking the following grounds of appeal of as \nadditional ground of appeal: \n \n1. The Learned AO erred in reducing Rs. 77,63,717 while computing section 80HHC of the \nIncome Tax Act, 1961 (“the Act”)in view of the provisions of 80IA(9) of the Act.On the \nfacts and circumstances of the case and in les, the said reduction, not being in \naccordance with the provisions of section 80IA(9), should not be made while computing \ndeduction under section 801 HC of the Act. \n \n2. \"Leaned AO has erred in not allowing deduction of Advertisement & Sales Promotion \nexpenses of Rs. 3,73,03,344/-considering it mere provision. \n \n\n5 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nOn the facts and circumstances of the case and in law, the deduction of said \nexpenses ought to have been allowed while computing the total income.\" \n \nAdditional ground vide letter dated 25/05/2007 \n\"Without prejudice to the contention of the appellant that the assessee is entitled \nto the depreciation in AY 1995-96 and AY 1996-97 on the shunt capacitor (the \nequipment) leased to RSEB, in the event it has held that the assessee is not \nentitled to depreciation on the equipment by reason of it being held that it is not \nthe owner of the property or otherwise, then it ought to be held that the part of \nthe lease rent of Rs. 64,46,400/- received during the year which represents \nrecovery of the capital sum expended by the appellant ought not to be taxed. \" \n \nITA No. 7397/Mum/2004 (Revenue’s Appeal;) \n \n1. \"Whether on the facts and in the circumstances of the case and in law, the \nCIT(A) erred in deleting the addition of Rs.5,85,298/ being 10% of expenses for \nrecreation, picnic, sports and other misc, expenses, inspite of the fact as stated in \nthe assessment order that the assessee has not furnished any evidence for its \nclaim\". \n \n2. \"Whether on the facts and in the circumstances of the case and in law, the \nCIT(A) erred in deleting the addition of Rs.5,92,578/- being 1/5th of misc \nexpenses in spite of the fact as stated in the assessment order that the assessee \nhas not furnished any evidence for its claim\". \n \n3. \"Whether in the facts and in the circumstances of the case and law, the CIT(A) \nerred in deleting the addition of Rs.72,07,913/- out of shortage and leakage \nexpenses inspite of the fact as stated in the assessment order by the A.O. as well \nas in the appellate order passed by the CIT(A) that no supporting material has \nbeen produced before them in respect of its claim. \n \n4. \"Whether on the facts and in the circumstances of the case and in law, the \nCIT(A) erred in allowing the allocations made by the assessee on the basis of the \n\n6 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \npacking material actually used and expenses actually incurred thereon though, as \nclearly stated in the assessment order, the quantity manufactured in both the \nunits are somewhat same but the difference in expenses claimed for packing \nmaterial used in both the units are huge; the assessee has not furnished quantity \nwise details of packing done and that the transfer of packing material from one \nundertaking to another proves, beyond doubt, that the packing materials used in \nboth the units are same disqualifying the arguments of the assessee that \ndifferent materials are used\". \n \n5. \"Whether on the facts and in the circumstances of the case and in law, the \nCIT(A) erred in holding that the sales tax, general sales tax and marketing Cess \ndoes not constitute part of the total turnover inspite of the fact that the rejection \nof the SLP of the Department against the Bombay High Court's decision was not \non merit and that the issue did not really receive the consideration of the \nSupreme Court\". \n \n6. \"The appellant craves leave to add, to amend and/or to alter any of the \ngrounds of appeal, if need be.” \n \n3. \nThe brief facts of the case are that the assessee is a manufacturer and \ndistributor of various consumer products being sold in market in the brand name \nof Parachute,Revive, Marco’s Hair & Care, Saffola, Sweekar and Sil and having its \nmanufacturing units at Kanjikode and Goa. The head office and corporate office \nof the company is at Rang Sharda, KC Marg, Bandra Reclamation, Bandra (W), \nMumbai-400 051. The manufacturing unit of Kanjikode was set up in 1983, which \nis eligible for deduction under section 80IB @30% and Goa unit was set up in \n1997-98 which is eligible for deduction under section 80IB @100% of its profit. \nDuring the impugned assessment year, the assessment was completed with \nadditions under the different heads, and which is adjusted with the profit in \n\n7 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nrespect of Goa and Kanjikode under section 80IB and 80HHC of the Act for the \npurpose of computation of income under section 115JA of the Act. The aggrieved \nassessee filed an appeal before the Ld. CIT(A). The Ld.CIT(A) partly allowed the \nappeal of the assessee. Being aggrieved on the appeal order, both the assessee \nand revenue filed appeal before us. \nITA No.7124/Mum/2004 \n4. \nGround No.1: Allocation of Corporate overheads and headoffice \ndepreciation to Goa and Kanjikode. \n4.1 \nThe corporate expenses and depreciation relating to the assets installed at \nthe corporate office was not directly related to the operations of eligible units. As \nper provisions of section 80IA, the income has to be derived from eligible unit, \nwhich means that the income has to be derived from eligible unit and expenses \nincurred by specified eligible units and no other outside cost has to be included \nunless there is a direct nexus. The issue is squarely covered by the order of the \nco-ordinate bench of ITAT, Mumbai Bench in ITA No.2800/Mum/2003 in assese’s \nown case, date of pronouncement 03/04/2024. The relevant paragraph 27 is \nreproduced as below:- \n“27. With regard to corporate expenses and depreciation relating to the assets \ninstalled at the corporate office, as discussed earlier these costs are not directly \nrelating to the operation of eligible units. As per the provisions of section 80IA, \nincome has to be derived from the eligible unit, that means the income has to be \ndetermined on the basis of revenue generated by the eligible unit and expenses \nincurred in the specific eligible unit and no other outside cost to be included \nunless there is direct nexus to it. In the given case, the assessee has already \nsubmitted stand alone revised profit and loss account to demonstrate that the \n\n8 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \neligible unit has already absorbed all the relevant expenses like manufacturing, \nmarketing and relevant finance cost. The AO tries to allocate the general \ncorporate expenses which has no direct nexus to the operation of the eligible \nunits. Therefore, we direct the Assessing Officer delete the allocation of corporate \noffice expenses and depreciation. Accordingly, the ground raised by the assessee \nis allowed.” \n \n4.2 \nThe Ld.AR submitted that the impugned issue was also re-affirmed by the \norder in assessee’s own case in ITA No.1621/Mum/2004 A.Y. 1999-2000, date of \npronouncement 05/09/2024 by the co-ordinate bench of ITAT, Mumbai Bench- \n“B”. \n4.3 \nThe Ld.DR filed written submission and argued. The relevant paragraph of \nthe written submission is as below: - \n “Revenue's Submission: The Revenue emphasizes that the corporate office \nprovides critical support, supervision, and management services to all \nmanufacturing units. The allocation of Rs. 15,94,645 to Goa and Rs. 12,82,909 to \nKanjikode as corporate office expenses, along with proportionate depreciation on \ncorporate assets, was based on the turnover ratio of each unit. The Revenue \nargues that the corporate office handles key functions such as financial \nmanagement, HR, procurement, and overall strategic planning, without which \nthese units cannot function independently. Ignoring these expenses would inflate \nthe profits of these units, leading to excessive deductions under section 80IB. The \nCIT(A) upheld the allocation as essential for fair profit computation, and the \nRevenue submits that this approach is consistent with established accounting \nstandards and judicial precedents.” \n \n5. \nWe heard the rival submission and considered the documents available in \nthe record and we find that in allocation, the depreciation and the corporate \noffice expenses to Goa and Kanjikode units was unjustified as these units are \n\n9 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \noperated independently. We find that the Act very specifically states that there \nshould be a nexus in between the expenses and the operations. We respectfully \nfollow the order of the co-ordinate bench of ITAT, Mumbai Bench. \nAccordingly, ground no.1 of the assessee’s appeal is allowed. \nGround 2(a): Allocation of Finance cost in Goa- Rs.18,16,455/-and KanjikodeUnit \n– Rs.13,41,059/- \n6. \nThe Ld.AR stated that there are no borrowed funds utilized in these units as \nthey are admittedly cash surplus units. It is submitted that the network of the \ndealer existed even before the setting up of Goa and Kanjikode units and \naccordingly, interest paid on deposits received from them cannot be held to be \ndirectly related to these units. In regard to commission on bank guarantee, it is \nsubmitted that bank guarantee was towards statutory dues and accordingly it had \nno direct nexus with these units. Related to bill discounting, it is opened to meet \nthe working capital requirement which funds have been utilized by other \nundertaking as Goa and Kanjikode units were cash surplus. The Goa and Kanjikode \nunits were having sufficient cash surplus which can take care of their working \ncapital requirements. Hence, it cannot be held that the above sources of financing \nwere utilised by these units. \n7. \nThe Ld.DR argued that the finance cost amounting to Rs.18,16,455/- for \nGoa and Rs.13,41,059/- for Kanjikode was correctly allocated. The highlights with \nthe company’s financial activities including dealer deposit bank guarantee and bill \ndiscounting charges benefits all units equally. So, both the units, despite being \n\n10 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \ncash surplus benefited from company’s overall structure. The Ld. DR ensures that \nthese costs are equitably distributed preventing in undue advantage to specific \nunits. The Ld.CIT(A) supported the same view. So, the same financial cost is \ntaken as an collective burden that all units must share. \n8. \nWe heard the rival submissions and considered the documents available in \nthe record. We find that the issue was duly considered by the co-ordinate bench \nof ITAT, Mumbai in assessee’s own case in ITA No.2800/Mum/2003 and the \nrelevant para 32 is reproduced as below: - \n \n“32. Considered the rival submissions and material placed on record, we observe \nthat, Assessing Officer observed that assessee has shortage of working capital in \nthe month of October, November and December and charged interest @18% to \nallocate the finance cost towards the working capital requirement of the Goa unit \nand to that extent he made adjustment while giving deduction under section 80IA \nof the Act. After careful consideration, we observe that the Goa unit has shown \nworking capital deficit in the above said months. However, Assessing Officer has \nnot discussed the working surplus declared by the Goa unit between January \n1998 to March 1998. The Assessing Officer cannot cherry pick the working capital \nrequirements only to working capital deficit overlooking the surplus. In our \nconsidered view the method adopted by the Assessing Officer is not proper. He \nhas to see the overall working capital requirement for the period and in case at \nthe end of the period if there is any deficit in working capital requirement, he may \nproceed to disallow the same. He has to analyze the whole period under \nconsideration. In the given case it is not so. He has only focused on deficit of \nworking capital overlooking the surplus of working capital during the subsequent \nperiod. Therefore, we do not see any reason to follow the method adopted by the \nAssessing Officer. Accordingly, in our considered view the assessee also \ndemonstrated that it has sufficient non-interest borrowing funds at its own \ndisposal. Therefore, there is no necessity for the Assessing Officer to allocate \n\n11 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nworking capital finance cost to the Goa unit. Accordingly, Ground No. 3 raised by \nthe assessee is allowed.” \n \nAccordingly, we find that there is a surplus of working capital which was duly \nadmitted by the revenue. We find that the method adopted by the Ld.AO is \nunjustified by ignoring the correct fact. The allocation was made by the Ld. AO on \nproportionate turnover. We respectfully follow the order of the co-ordinate \nbench of ITAT, Mumbai which was also duly affirmed by the co-ordinate bench of \nITAT, Mumbai Bench “B” in ITA No.1521/Mum/2024 for A.Y. 1999-2000. \nAccordingly, ground no. 2(a) of the assessee’s appeal is allowed. \nGround \n2(b): \nAllocation \nof \nMiscellaneous \nexpenses \nof \nGoa \nand \nKanjikodeundertaking. \n \n9. \nThe assessee allocated the expenses on directly identifiable basis and in \ncase of common expenses allocation was made on suitable ratio. The allocation \nof expenses is duly submitted in APB page 135. The relevant chart is reproduced \nbelow:- \n“(Amount in Rs.lacs) \nParticulars \nCost Centers \nCorporat\ne \nSales \nParachut\ne \n \nCommon \nNaturecar\ne \nCommon \nKanjikode \nGoa \nCopr\na \nBuyin\ng \nExport \nDivisio\nn \nHealthcar\ne \nDivision \nOther \nProduct\ns \nTotal \nLabour \nCharges \n- \n9.19 \n0.54 \n0.05 \n1.32 \n10.32 \n- \n2.51 \n23.91 \n17.37 \n65.22 \nHire Charges \n- \n0.09 \n- \n0.36 \n0.02 \n- \n- \n0.06 \n0.67 \n1.52 \n2.72 \nTraining \n& \nSeminar \nExpenses \n59.94 \n57.77 \n0.73 \n10.41 \n3.66 \n1.88 \n0.20 \n0.36 \n12.66 \n1.42 \n149.04 \nOutside \nServices \n44.33 \n5.64 \n0.02 \n0.07 \n8.25 \n6.07 \n0.04 \n0.16 \n12.42 \n9.21 \n86.21 \nProduct \nDevelopment \nExpenses \n- \n- \n- \n11.58 \n- \n0.06 \n- \n0.19 \n4.69 \n0.06 \n16.58 \nAgri. \nDevelopment \n- \n- \n0.11 \n- \n0.83 \n- \n- \n- \n4.15 \n0.00 \n5.09 \n\n12 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nExpenses \nOther Selling \nExpenses \n- \n- \n50.05 \n- \n- \n- \n- \n- \n- \n7.33 \n57.37 \nLegal \n& \nProfessional \nCharges \n136.63 \n5.75 \n4.54 \n10.69 \n8.22 \n4.79 \n0.82 \n9.95 \n6.58 \n7.13 \n195.11 \nPayment \nto \nAuditors \n9.43 \n0.47 \n- \n0.06 \n0.10 \n0.07 \n- \n- \n- \n- \n10.13 \nOther \nMisc.Expense\ns \n94.20 \n41.29 \n43.44 \n5.88 \n1.48 \n2.16 \n0.36 \n2.89 \n222.32 \n130.10 \n544.12 \nTotal \n344.55 \n120.21 \n99.43 \n39.10 \n23.88 \n25.36 \n1.42 \n16.11 \n287.41 \n174.14 \n1,131.59 \n \nPrincipal of allocation of Expenses: \n(a) Expenses pertaining to sales is allocated toGoa and Knjikode in the ratio of domestic \nPCNO sales of undertaking to PCNO domestic sales. \n(b) Expenses pertaining to parachute common is allocated to Goa and Kanjikode in the ratio \nof domestic PCNO sales of undertaking to PCNO domestic sales. \n(c) Expenses pertaining to Nature Care common is allocated to Goa and Kanjikode in the \nratio of domestic PCNO sales of undertaking to total Nature Care Sales. \n(d) Expenses pertaining to Calicut is allocated to Goa and Kanjikode in the ratio of copra \npurchased by each undertaking to the total copra purchases.” \n \n10. \nOn similar basis, the allocation was upheld by CIT(A) in A.Y. 1999-2000 and \nthe department has not contested the matter before the Tribunal, though they \nhave filed appeal on other issues. The assessee filed a breakup before he Ld.AO, \nwhich is enclosed in APB-I, pages 15-17. \n11. \nThe Ld. DR has relied on the order of the Ld.AO and the relevant paragraph \nof the assessment order, para 6.5 on page 9, is reproduced as below: - \n \n \n“6.5. \nMiscellaneous Expense \nAssessee has claimed miscellaneous expenses amounting to Rs. \n11,31,59,003/-during this year. This was allocated by the assessee towards \ncorporate office expense at Rs.3,44,55,204/-, Goa undertaking Rs. 1,43,29,847/- \nand Kanjikode undertaking Rs. 1,08,54,635/-. The assessee claims that the \n\n13 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nmiscellaneous expenses related to Goa and Kanjikode are separately recorded \nand are allocated to them. However, no supporting details are filed as to how the \nmiscellaneous expense related to other units is higher than that of Goa and \nKanjikode Undertakings. Hence, the miscellaneous expenses are allocated in \nproportion to the turnover of these two undertakings as under. \n \nTotal Miscellaneous Expenses \n \n11,31,59,003 \nLess: Allocated to Corporate Office \n \n 3,44,55,204 \n \nBalance \n \n \n \n \n7,87,03,799 \nAllocation in proportion to the turnover \nGoa Unit @30.30% \n \n \n \n2,38,47,251/- \nKanjikode Unit @22.37% \n \n \n1,76,06,040/- \nThe difference of Rs. 95,17,404/- (23847251-14329847) in respect of Goa Undertaking \nand Rs. 67,51,405/- (17606040-10854635) in respect of Kanjikode undertaking are \nfurther added to the expenses of the undertakings. “ \nThe Ld.DR submitted a written submission dated 07/02/2025 and mentioned that \nthe allocation of miscellaneous expenses that Ld.AO already allocated \nRs.95,17,404/- for Goa and Rs.67,51,405/- for Kanjikode was justified due to lack \nof details break down provided by the assessee. The miscellaneous expenses \nhave a wide range of operational cost including administrative overheads and \nemployee welfare and maintenance expenses, all of which benefits each unit. But \nwithout proper documentation, the assessee’s allocation is duly rejected. \n12. \nWe heard the rival submission and considered the documents available in \nrecord. The matter was addressed by the Ld. CIT(A) for the Assessment Year 1999-\n2000 in favour of the assessee, and no challenge was raised by the revenue in this \nground. Furthermore, the assessee’s allocation was not rejected by the Ld. AO \n\n14 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nduring the assessment proceedings, and consequently, the Ld. AO cannot, \nsuomotu, take cognizance of the said calculation. \nIn view of the foregoing, the issue is hereby remitted to the file of the Ld. AO for \nfresh determination. The matter is restored to the file of the Ld. AO, with \ndirections that the assessee shall be afforded a reasonable opportunity of being \nheard and permitted to submit any documents deemed necessary by the Ld. AO \nin the set-aside proceedings. The assessee is further directed to cooperate fully \nwith the set-aside assessment proceedings. \nAccordingly, ground no. 2(b) of assessee’s appeal is allowed for statistical \npurpose. \nGround no. 2(c): Allocation of R&D cost to Goa & Kanjikode units \n13. \nThe Ld.AR in argument placed that the assessee is carrying on business of \nfast-moving consumer goods (FMCG). The assessee manufacturers and markets \nproducts of various brand names like, Saffola,Sweekar, Marico’s Hair & Care, \nRevive, etc. Only two unitsi.e. Goa and Kanjikode manufactured Parachute \ncoconut oil. The R&D projected is related to this FMCG goods for innovating and \nnew product managed. But the company was incorporated in 1989 and turnover \nconsumer product business division of Bombay Oil Industries which was carrying \non the business since 1949 with brands, Parachute and Saffola. So, for both these \nundertakings, no such R&D was paid. We respectfully relied on the decision of \nITAT, Mumbai Bench in assessee’s own case in ITA No.1621/Mum/2004, date of \n\n15 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \npronouncement 05/09/2024. The relevant paragraph 5.4 is duly reproduced as \nbelow: - \n“5.4) After hearing both sides, it was decided to follow decision of Hon'ble ITAT in \nappellant’s own case for A.Y. 1995-96 in principle, but the Ld. AO is directed to \nsee whether in these two units, only parachute oil is manufactured and if the R&D \nexpenditure claimed by the appellant does not relate to Parachute oil \nmanufacturing then appellant would succeed in his argument. After verifying the \nfactual position, Ld. AO is directed to take decision accordingly.” \n \n14. \nThe Ld.DR vehemently argued and submitted the written submission dated \n17/02/2025. The relevant paragraph is reproduced as under: - \n“1.2.4 Ground 4: Allocation of Research and Development Expenses \nAssessee's Claim: The assessee argued that R&D expenses pertained to new products, not the \nexisting products of the Goa and Kanjikode units. \nRevenue's Submission: The Revenue asserts that R&D activities enhance the company's overall \nproduct portfolio, including products manufactured at Goa and Kanjikode. The allocation of Rs. \n89,34,626 to Goa and Rs. 65,66,803 to Kanjikode ensures that all units contribute to innovation \ncosts. The AO's allocation method, based on turnover, aligns with sound accounting principles \nand ensures that no unit benefits disproportionately from the company's R&D efforts. The CIT(A) \nrightly confirmed this allocation, recognizing the interdependence of R&D and manufacturing \noperations.” \n \n15. \nWe find that the issue is squarely covered by the decision of the co-\nordinate bench of ITAT in assessee’s own case in ITA No.1621/Mum/2004, date \nof pronouncement 05/09/2024. We follow the said precedence. \n\n16 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nAccordingly ground no. 2(c) of theassessee’s appeal is allowed. \nGround no. 3: Reduction of 90% interest while computing 80HHC. \n16. \nA computation is annexed in Form 10CCAC showing computation of \ndeduction under section 80HHC of the Act and assessee submitted the said \ncalculation of finance charges as annexed in Schedule P in PB page 179. The \nschedule is reproduced as below:- \n“SCHEDULE ‘P’ \nFINANCE CHARGES \n \n \n \n \n \n \n \nYear ended \n \n \nYear ended \n \n \n \n \n \n \n \nMarch 31, \n \n \nMarch 31, \n \n \n \n \n \n \n \n2000 \n \n \n1999 \n \n \n \n \n \n \n \nRs.million \n \n \nRs.million \nInterest on fixed loans \n \n \n \n \n1.050 \n \n \n7.407 \nOther interest \n \n \n \n25.180 \n \n 19.984 \nBank charges and others \n \n \n28.535 \n \n 31.292 \n \n \n \n \n \n \n ______ \n _________ \n \n \n \n \n \n \n 54.765 \n \n 58.593 \nLess: Interest earned \n \n 22.519 \n \n21.525 \n(Tax deducted at source Rs.4.643 million (Rs.4.815 million) _____________________ \n \n \n \n \n \n \n 32.246 37.068 \n \n \n \n \n \n \n ======= \n =========” \n17. \nThe assessee paid the interest or Rs.54.76 million whereas the interest \nearned is Rs.22.51 million and the said amount of Rs.22.519 million is also \ncovered under Explanation (baa) of section 80HHC (4) of the Act. The Ld. AO \nnoted that the assesseehas reduced 90% of lease income, export incentive and \nagency commission. But the assessee has not reduced 90% of IT interest and 90% \nof other interest receipts of Rs. 2,25,19,000/- which also comes under Explanation \n\n17 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \n(baa) to Section 80HHC(4) of the Act. So, 90% of interest received are also \nconsidered for arriving at business profit for the purpose of deduction under \nsection 80HHC. Accordingly, the recalculation was made by reducing the \ninterestearned amount to Rs.2,02,67,100/-. \nThe Ld. AR invited our attention in “Schedule-P”, as stated above and the total \ninterest is netting off after adjusting interest paid & received. So, the 90% \nreduction is not applicable for calculation of 80HHC. He stated that the issue is \nsquarely covered by the order of Hon’ble Supreme Court in ACG Associated \nCapsules (P.) Ltd. v. CIT, Central-IV, Mumbai (2012) 343 ITR 89 (SC), held as \nfollows: \n“8. Before we deal with the contentions of learned counsel for the parties, we may extract \nExplanation (baa) to Section 80HHC of the Act. \n\"Explanation:- For the purposes of this section,- \n(baa) \"profits of the business\" means the profits of the business as computed under the head \n\"Profits and gains of business or profession\" as reduced by- \n(1) \n \nninety per cent of any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) \nof Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any \nother receipt of a similar nature included in such profits; and \n(2) \n \nthe profits of any branch, office, warehouse or any other establishment of the \nassessee situate outside India\". \n9. Explanation (baa) extracted above states that \"profits of the business\" means the profits of \nthe business as computed under the head \"Profits and Gains of Business or Profession\" as \nreduced by the receipts of the nature mentioned in clauses (1) and (2) of the Explanation (baa). \nThus, profits of the business of an assessee will have to be first computed under the head \n\"Profits and Gains of Business or Profession\" in accordance with provisions of Section 28 to 44D \nof the Act. In the computation of such profits of business, all receipts of income which are \nchargeable as profits and gains of business under Section 28 of the Act will have to be included. \nSimilarly, in computation of such profits of business, different expenses which are allowable \nunder Sections 30 to 44D have to be allowed as expenses. After including such receipts of \n\n18 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nincome and after deducting such expenses, the total of the net receipts are profits of the \nbusiness of the assessee computed under the head \"Profits and Gains of Business or Profession\" \nfrom which deductions are to made under clauses (1) and (2) of Explanation (baa). \n10. Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, \ncommission, interest, rent, charges or any other receipt of a similar nature included in any such \nprofits are to be deducted from the profits of the business as computed under the head \"Profits \nand Gains of Business or Profession\". The expression \"included any such profits\" in clause (1) of \nthe Explanation (baa) would mean only such receipts by way of brokerage, commission, interest, \nrent, charges or any other receipt which are included in the profits of the business as computed \nunder the head \"Profits and Gains of Business or Profession\". Therefore, if any quantum of the \nreceipts by way of brokerage, commission, interest, rent, charges or any other receipt of a \nsimilar nature is allowed as expenses under Sections 30 to 44D of the Act and is not included in \nthe profits of business as computed under the head \"Profits and Gains of Business or \nProfession\", ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of \nExplanation (baa) from the profits of the business. In other words, only ninety per cent of the net \namount of any receipt of the nature mentioned in clause (1) which is actually included in the \nprofits of the assessee is to be deducted from the profits of the assessee for determining \"profits \nof the business\" of the assessee under Explanation (baa) to Section 80HHC.” \n \n18. We heard the rival submissions and considered the documents available in the \nrecord. The Ld.AR agitated the issued related to reduction of 90% interest while \ncomputing deduction under section 80HHC by the Ld.AO during the assessment \nproceedings. The assessee paid interest of 54.765 million whereas the assessee \nreceived interest from Income-tax amounting to Rs.4.463 million and the rest is \nother than income-tax interest. So the total interest earned is Rs.22.519 million. \nRelated to the said interest, the assessee took the plea that the interest was \nadjusted with the interest paid, so interest credited and debited are duly adjusted \nand finally, the amount comes to Rs.32.346 million. In any case, the interest \nearned is not the part of receipt as provided in clauses (i) & (ii) of Explanation \n\n19 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \n(baa) to section 80HHC(4) and respectfully relied on the judgement of the Hon’ble \nSupreme Court in the case of ACG Associate Capsules (P) Ltd (supra). The \nHon’ble Apex Court observed that considering the income on the part of the \ninterest, if any, quantum of receipt by way brokerage, commission, interest, rate, \ncharges of any other receipts of a similar nature is allowed as expenses under \nsection 30 to 44D of the Act, is not included in the Profits of business as computed \nunder the head “Profit and gains of business or profession”, 90% of such quantum \nof receipts cannot be reduced as per clause (i) of Explanation (baa) of section \n80HHC of the Act, from profits of the business. So we find that the said amount is \nadjusted with the interest debited by the assessee. So, it is not a part of the \nincome at all. We follow the order of the Hon’ble Apex Court and so deduction of \n90% of interest of Rs.22.519 million which works out to Rs.2,02,67,100/- is \nadjusted arbitrarily and is unjustified. So, the ground of the assessee is allowed. \nAccordingly, ground no-3 of the assessee’s appeal is allowed. \n19.Additional Ground-1, filed on dated 01/05/2024- regarding reduction from \nexport profits eligible for deduction U/s 80HHC, in view of the provisions of Sec \n80IA(9). \nAssessee claims deduction for profits of Goa unit, which is engaged in domestic as \nwell as export sales. It is also eligible for deduction U/s 80HHC of the Act. It is also, \neligible for deduction U/s 80HHC. It is submitted that while computing deduction \nU/s 80HHC, no reduction for profits of Goa unit ought to made U/s 80IA(9) of the \nAct. The assessee filed the additional ground before the bench. The issue covered \n\n20 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nby assessee’s own case for AY 1999-2000 in ITA No. 1521/Mum/2004date of \npronouncement 05/09/2024. We remand the matter to the file of the Ld. AO and \ndirected to verify the fact & figure in light of the order of coordinate bench ITAT-\nMumbai in ITA No. 1521/Mum/2024. \nAccordingly, the Additional ground no-1 is allowed for statistical purpose. \n20. Additional ground-2 filed on dated 01/05/2024 is not pressed. So, it stands as \nwithdrawn. \nAccordingly, the Additional ground-2 is dismissed as withdrawn. \nGround 4 : Addition for provision of Advertisement and Sales promotion while \ncomputing book profit under section 115JA of the Act. \n \n21. \nThe Ld.AR stated that as is aware, the company is engaged in the business \nof Fast-Moving Consumer Goods. The key characteristic of this industry is that \nAdvertisement and Sales Promotion expenses are integral part of its business and \ncompulsory for its survival. FMCG companies are incurring expenses on \nAdvertisement and Sales Promotion expenses (ASP) on various advertisements \nand sales promotions schemes through advertisement agencies.As per common \nbusiness practices of advertising industry, detailed television estimate with \nschedules is prepared for the period of three months. These estimates include \ndetails of various channels, programmes, etc. Subsequently after the telecast, the \nmedia agencies are submitting advertisement bill to the Company for various \nspots aired. All the spots which are provided in the original estimate may not be \naired on account ofnon-availability of time slot on a particular program. Hence \n\n21 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nthere is always bound to be an inherent difference between the media estimates \nand invoices.Since there is time gap between the approval of the media estimates \nand final advertisement invoices, the assesseewas making provision at the year-\nendon the basis of media / advertisement estimates available with it as approved \nby the concerned brand / marketing manager. The media estimates for the month \nof February and March are received & approved by the assessee in last week of \nJanuary whereas the final advertisement invoices/bills are received by the \nassessee in the month of May only. The assessee's distribution system comprises \n28 depots and 4 regional offices catering to around 12,000 distributors all over \nIndia. As submitted earlier each geographical segment is different from others in \nterms of its consumer behavior. The assessee has to resort to different sales \npromotion scheme for different market segments. \n22. \nThe Ld.AR further submitted that considering the above market dynamics, \nthe concerned sales / marketing managers are issuing various sales promotion \nschemes to different sales territories for the development of market shares as \nwell as sales promotion. These sanction letters are sent to the Territory Sales \nExecutives (TSE) or Territory Sales In-charge (TSI), who are operating this scheme \nin the different segment of the Market. The status reports on the actual utilisation \nof each of the sanction letter is prepared by each TSE or TSI based on claims \nreceived from the distributors or retailers. The retailers or distributors claims are \nbased on the actual amount spent by them on running a particular scheme to the \nend consumers. This process of receipt of claims from distributors and retailers \n\n22 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \ntake time period of 75 to 90 days. Actual utilisation report for the sanction letter \nissued in the month of February & March is received only in the month of May. \n23. \nFurther the Ld.AR submitted, as a measure of good corporate governance, \nthe assessee is finalizing the annual accounts by mid of April and audited accounts \nare being approved in the meeting of Board of Directors of the company in the \nthird week of April. The audited annual accounts of the company for the year \nended 31 March 2000 were approved at the meeting of Board of Directors of the \ncompany, on 26th April 2000. The Ld.AR also submitted that there is a difference \nbetween accounting estimates and contingent liabilities (i.e. unascertained \nliabilities). The contingent liability does not create any obligation to any amount \nwhereas the accounting estimates presuppose that liability is certain but the \nquantum will vary. The word liability has bigger meaning as compared to \naccounting estimates. All the accounting estimates put together make the \nliability. \n24. \nIt was also submitted that the company has provided for advertisement \nand sales promotion expenses on the principle of accounting estimates based on \nobligation. Since there is time gap between the approval of the media estimates \nand final advertisement invoices, the assessee-company is making provision at \nthe year-endon the basis of media / advertisement estimates available with it as \napproved by the concerned brand / marketing manager. The media estimates for \nthe month of February and March are received & approved by the assessee-\ncompany in last week of January whereas the final advertisement invoices/bills \n\n23 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nare received by the Company in the month of May only.The Company's \ndistribution system comprises 28 Depots and 4 regional offices catering to around \n12,000 distributors all over India. As submitted earlier each geographical segment \nis different from others in terms of its consumer behavior. The Companyhas to \nresort to different sales promotion scheme for different market segments. \n25. \nIt was therefore, submitted that considering the above market dynamics, \nthe concerned sales / marketing managers are issuing various sales promotion \nschemes to different sales territories for the development of market shares as \nwell as sales promotion. These sanctions letter is sent to the Territory Sales \nExecutives (TSE) or Territory Sales In-charge (TSI), who are operating this scheme \nin the different segment of the Market. The status reports on the actual utilisation \nof each of the sanction letter is prepared by each TSE or TSI based on claims \nreceived from the distributors or retailers. The retailers or distributors claims are \nbased on the actual amount spent by them on running a particular scheme to the \nend consumers. This process of receipt of claims from distributors and retailers \nalso take time period of 75 to 90 days. Actual utilisation report for the sanction \nletter issued in the month of February & March is received only in the month of \nMay. \n26. \nThe Ld.AR also submitted that as a measure of good corporate governance, \nthe Company is finalizing the annual accounts by mid of April and audited \naccounts are being approved in the meeting of Board of Directors of the Company \nin the third week of April. The audited annual accounts of the Company for the \n\n24 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nyear ended 31 March 2000 were approved at the meeting of Board of Directors of \nthe Company on 26th April 2000. \n27. \nThe Ld.AR continued, the company has provided for advertisement and \nsales promotion expenses on the principle of accounting estimates based on \nobligationtaken by the company. The company has undertaken an obligation from \nadvertising agencies by approving the estimates. Once the estimates are \napproved, the company is legally bound to pay the amount in receipts of the \ninvoices. The liability of the company is ascertained, and it cannot be said to be \ncontingent since the obligation is already undertaken. \n28. \nThe scenario of contingent liability will arise only where the advertising \nagent incurs the expenses without any prior approval of the company. In that \ncase, company is not legally bound to pay any amount to such agencies. The \nprovisions for ASP expenses are made in the books of accounts based on the \ncompanies’ obligations and the amounts are estimated based on best of \ninformation available at the time of closure of financial statements. Since the \namounts of ascertained liabilities are estimated based on information available at \nthe time of preparation of final accounts, the variation between the actual \namount and estimate cannot make the liability as unascertained.Hence, the \nabove provisions for ASP expenses in the financial accounts are for the \nascertained liability for which the company has taken the obligation by approving \nthe estimates received from advertising agencies and promotion schemes \nsanction to the sales field mangers. Hence, the amount is unutilized provisions as \n\n25 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \non 31stMarch 2000 cannot by any stretch of imagination considered as \nunascertained liability. \n29. \nThe Ld.AR thus concluded that it will be appreciated that provision of \nSection 115JA start with a non obstante clause and provides that book profit is to \nbe worked out as per the provisions of part II & III of Schedule Sixth to the \nCompanies Act, 1956. This section derives interfaces on various provisions of \nCompaniesAct, the determination of a particular liability, whether the same is a \nascertained liability or a contingent is to be determined based on Information \navailable as on date on which financial statements are prepared under the \nprovision of Companies Act 1956. In the case of assessee, the financial statements \nare prepared as on 31 March 2000, hence the date of determination of particular \nliability being ascertained liability or not will be only on 31 March 2000 and not on \nany other date.The company has offered the unutilized amount of accounting \nestimates for ASP out of abundant caution considering the provisions of the \nIncome Tax Act, 1961. The Companies offer of said amount for taxation in \ncomputation of total income does not have bearing on working of book profit \nunder the provision of section 115JA since this section has an non obstante clause \nand the liabilities for which amounts are provided are ascertained. \n30. \nThe Ld.AR submitted that based on above, it will be appreciated that the \namount of Rs. 3,73,03,344 being unutilized amount for ASP expenses as of \n31stMarch 2000 are not an unascertained liability. The liability for ASP was \nascertained liability and the amount varies based on actual claims received. \n\n26 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nConsidering the above, no adjustment is required to be made in book profit as \nworked out by the Company under section 115JA of the Act.” \n31. \nThe Ld.DRargued, submitted a written submission and relevant part is \nreproduced as below:- as below:- \n“4.1.3 Ground 3: Reallocation of Advertisement and Sales Promotion Expenses \nAssessee's Claim: The assessee opposed the AO's reallocation of Rs. 15,78,620/-towards \nadvertisement and sales promotion expenses. \nRevenue's Submission: The Revenue submits that advertisement expenses benefit all \nmanufacturing units equally. The AO's reallocation based on turnover ensures each unit bears \nits fair share, preventing artificially inflated profits for tax-exempt units. The Revenue argues \nthat the CIT(A)'s rejection overlooks the AO's fair approach, which is consistent with past \nassessments and judicial principles.” \n32. \nWe considered the submission of both the parties and perused the \ndocuments available in record. In light of the above submissions, it is evident that \nthe provision made by the assessee for Advertisement and Sales Promotion (ASP) \nexpenses is based on accounting estimates, which are necessary due to the \ninherent time gap between the approval of media estimates and the receipt of \nfinal invoices. The liability incurred is an ascertained liability and not contingent in \nnature, as it arises from legally binding obligations undertaken by the company \nthrough approval of estimates and sanctioning of sales promotion schemes. \nFurthermore, the computation of book profits under Section 115JA of the Act \nmust align with the provisions of the Companies Act, 1956, which governs the \ndetermination of liabilities based on the financial position as on 31st March 2000. \n\n27 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nThe offer of unutilized ASP provisions for taxation was made out of abundant \ncaution and does not affect the ascertained nature of the liability. Therefore, no \nadjustment is warranted to the book profit computation under Section 115JA, and \nthe assessee's claim regarding the non-contingent nature of ASP expenses \nremains justified. \nAccordingly, appeal of the assessee ground no-4 is allowed. \n33. \nAdditional ground dated 25/05/2007- related non-taxability of lease \nrental on purchase and lease back of shunt capacitor. \nThis issue is duly dealt with by the order of the ITAT, Mumbai Bench in assessee’s \nown case in ITA 1251/Mum/2003, date of order 30/08.2007 where in the Tribunal \nfor adjudicating that assessment year 1995-96 has taken the lease transaction as \nfinance lease and once it is accepted and the assessee had challenged this issue \nbefore the jurisdictional High Court. The assessee has taken an alternative \nground and relied on the order of the Tribunal in assessee’s own case in ITA \nNo.1251/Mum/2003 where this lease rent is taken as finance lease, so the \nprincipal amount should be deducted from this lease rent. The assessee received \nthe lease rent amount of Rs.68,62,308/-. The relevant para No.16 of the order of \nthe Tribunal in ITA No.1251/Mum/2003 is reproduced below:- \n“Learned DR of the revenue has raised an objection that this alternative claim of the assessee \ncannot be considered by the Tribunal and reliance was placed by him on the Judgement of \nHon'ble Delhi High Court rendered in the case of CIT Vs. La Medica (supra). Learned Counsel of \nthe assessce has relied upon the Judgement of Hon'ble Jurisdictional High Court rendered in the \ncase of Ciba of India Ltd. (supra). He has also distinguished the facts in the present case with the \n\n28 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nfacts in the case of La Modica (supra). We find that in the case of La Medica (supra), the issue \ninvolved was regarding chain that the purchase were made from Kalpana Enterprises, to whom \npayments were allegedly have boon made and it was accepted by the Tribunal that supplies \nwere not made by Kalpana Enterprises. After accepting this, the Tribunal proceeded to decide as \nto whether purchases were made from some other sources. In that case, the issue was \nregarding the claim of the assesseefor purchase which wasfound bogus. In the present case, the \ntransaction is not found bogus, but it is held by the Tribunal in A.Y. 1995-96 that lease \ntransaction isa finance lease.Once, it is accepted that it is a finance lease, consequently, \ndirectionshas to be given by the Tribunal as per the Judgement of Hon’ble High Court rendered \nin the case of Ciba of India Ltd.(supra). In the case of Ciba of India Ltd. (supra), it was held by \nHon'ble Jurisdictional High Court that it is the duty of the Tribunal even without an alternative \nsubmission, to pass necessary consequential orders suo moto to give such further direction in \nthe matter as the situation may warrant. In the present case, we have held that this lease \ntransaction is a finance lease transaction; and hence the assessee is not entitled to depreciation. \nAs a consequences of the same, it has to be held that the lease rental receipt by the assessee \nhas to be bifurcated into interest component and principal component. We, therefore, direct the \nAssessing Officer that while disallowing the claim of the assessee regarding depreciation; he \nshould also examine and bifurcate the lease rental receipt of the assessee from this party into \ninterest component and principal component and only interest component should be added to \nthe income of the assessee instead of entire lease rental receipt. The Assessing Officer should \npass necessary order as per law after providing adequate opportunity of being heard to the \nassessee.” \n \n34. \nAccordingly, the issue is sent back to the file of the Ld.AO. the Assessing \nOfficer is directed to pass the order in the light of the order of the ITAT, Mumbai \n\n29 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nBench. In the result, this additional ground is accepted and allowed for statistical \npurpose. \nITA No.7397/Mum/2004 (Revenue’s Appeal) \n35. \nIn this appeal, the revenue has taken the following grounds:- \n1. \"Whether on the facts and in the circumstances of the case and in law, the \nCIT(A) erred in deleting the addition of Rs.5,85,298/- being 10% of expenses for \nrecreation, picnic, sports and other misc. expenses, inspite of the fact as stated in \nthe assessment order that the assessee has not furnished any evidence for its \nclaim\". \n \n2. \"Whether on the facts and in the circumstances of the case and in law, the \nCIT(A) erred in deleting the addition of Rs.5,92,578/-being 1/5th of misc. \nexpenses in spite of the fact as stated in the assessment order that the assessee \nhas not furnished any evidence for its claim\". \n \n3. \"Whether in the facts and in the circumstances of the case and law, the CIT(A) \nerred in deleting the addition of Rs.72,07,913/- out of shortage and leakage \nexpenses inspite of the fact as stated in the assessment order by the A.O. as well \nas in the appellate order passed by the CIT(A) that no supporting material has \nbeen produced before them in respect of its claim\". \n \n4. \"Whether on the facts and in the circumstances of the case and in law, the \nCIT(A) erred in allowing the allocations made by the assessee on the basis of the \npacking material actually used and expenses actually incurred thereon though, as \nclearly stated in the assessment order, the quantity manufactured in both the \nunits are somewhat same but the difference in expenses claimed for packing \nmaterial used in both the units are huge; the assessee has not furnished quantity \nwise details of packing done and that the transfer of packing material from one \nundertaking to another proves, beyond doubt, that the packing materials used in \nboth the units are same disqualifying the arguments of the assessee that \ndifferent materials are used\". \n \n\n30 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \n5. \"Whether on the facts and in the circumstances of the case and in law, the \nCIT(A) erred in holding that the sales tax, general sales tax and marketing Cess \ndoes not constitute part of the total turnover inspite of the fact that the rejection \nof the SLP of the Department against the Bombay High Court's decision was not \non merit and that the issue did not really receive the consideration of the \nSupreme Court\". \n \n6. \"The appellant craves leave to add, to amend and/or to alter any of the \ngrounds of appeal, if need be\". \n \n \n \n \n \n \nGround no 1: \n36. \nThe disallowance of recreational expenses by the Ld.AO is related to non \nproduction of evidence and alleged that the assessee was unable to co-relate the \nexpenses with the business activities. The Ld.DR argued and submitted the \nwritten submission vide paragraph No.1.1.1 has taken same view as the Ld.AO \nhad taken note in the impugned assessment order. The observation of the \nLd.CIT(A) is as under: - \n“6. \nIn ground of appeal No.3, the appellant states that the assessing officer \nerred in disallowing a sum of Rs. 5.05:29 being 1/10 of expenses of Rs. \n58.32.982/Incurred on recreation, picnic, sports and other miscellaneous \nexpenses included in staff welfare expenses. The assessing officer has discussed \nthis sue in para 9.1 of the assessment order. The disallowance is made on the \nground that the absence of detach of these expenses it cannot be said that the \nexpenses e incurred wholly and exclusively for the purpose of business Counsel of \nthe appellant submits that necessary details were furnished before the assessing \nofficer, that in the earlier year's disallowance made on similar grounds was \ndeleted by the CIT(A.) \n \n6.1 I have carefully considered the facts of the case and submission trade by the \ncounsel of the appellant. It is seen that the details were furnished by the \n\n31 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nappellant vide letter dated 6.1.2003 and also vide submissions dated 28.1.2003 in \nmy considered opinion, in view of the facts and the circumstances of the case, \nthere is no justification on the part of the assessing officer to make an estimated \ndisallowance a 10% and that too stating that the details of these expenses were \nnot submitted before him. Letters dated 6/1/2003 and dated 28/1/2003 of the \nappellant addressed to the assessing officer make it clear that necessary details \nwere furnished. Accounts of the appellant company are audited. The assessing \nofficer has not found any defect in the accounts maintained. He has not pointed \nout any single item of expenditure which is not covered by section 37(1) of the \nAct. It appears that the above disallowance has been made by the assessing \nofficer on ad-hoc basis and, therefore, he resorted to an estimate. The assessing \nofficer has not brought on record any material in support of the above stated \ndisallowance. The addition of Rs.5,85,295, therefore, cannot be sustained and the \nsame is deleted. Ground of appeal No. 3 is allowed.” \n \n37. \nWe find that the issue was squarely covered by the order of the Tribunal in \nassessee’s own case for AY 1998-99 in ITA No.2800/MUM/2003, dated of \npronouncement 03/04/2024 wherein the Bench has stated that the said \nexpenditure is incurred wholly for the purpose of business and the Ld. AO cannot \nresort to disallow certain expenditure on adhoc basis. In the impugned appeal \norder, the Ld.CIT(A) has specifically mentioned that the assessee’s letters dated \n06/01/2003 and 28/01/2003 addressed to the Assessing Officer made it clear that \nnecessary details were furnished. No specific finding was recorded in the \nassessment order. Accordingly, we uphold the view taken by the Ld.CIT(A). \nGround no. 1 of the revenue is dismissed. \nGround 2: Addition of miscellaneous expenses \n\n32 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \n38. \nThis disallowance of Rs.5,92,578/- being 1/5th of 29,62,893/- claimed as \n‘other miscellaneous expenses.’ On appeal, the Ld.CIT(A) considered that the \nobservation made by the Ld.AO i.e. 1/5th of expenses are disallowed treating the \nsame as not wholly and exclusively incurred for the purpose of business, is a \ngeneral observation. The Ld.DR submitted a written submission and vide para \n1.1.2 submits that this is not at all related to business expenditure. But the issue \nis squarely covered by the order of the ITAT, Mumbai Bench in assessee’s own \ncase bearing ITA No.1521/Mum/2004& 8713/Mum/2011 for A.Y. 2007-08 and \naccordingly, the additions were deleted by the ITAT. We respectfully follow the \norder of the co-ordinate bench of ITAT, Mumbai Bench. \nAccordingly, the ground no.2taken by the revenue is dismissed. \nGround no. 3: \n39. \nIn ground no. 3, the revenue challenges the deletion of addition of \nRs.72,07,913/- out of shortage and leakage expenses. The Ld.AO alleged that \nthere is increase of 0.16% in the shortage and leakage compared to earlier years. \nThere is no documentary evidence filed for the abnormal increase under this head \nand accordingly, the addition of Rs.72,07,913/- is made by the Ld.AO. On appeal, \nthe Ld.CIT(A) deleted the same with the following observations: - \n“8.2 I have carefully considered the order of assessment, and submission of the \ncounsel. In my considered opinion, there is no justification to make the \ndisallowance merely on the ground that there was increase in the value of \nshortages and leakages. Disallowance made is in the nature of an ad-hoc \naddition without there being any supporting material to suggest that increase in \n\n33 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nshortage or leakages was for the reasons which are not commercial reasons. The \nassessing officer has also ignored the other relevant details basic to the issue \nsuch as increase in the turnover and increase in profits. Considering all these \nfacts, the addition of Rs. 72,07,913/- is deleted.” \n40. \nIn the argument, the Ld. AR for the assessee submitted that the justification \nof such expenses was submitted before the Ld.AO that there was no evidence for \nshortage or leakage and therefore, was for non commercial purpose and there is \nan increase of turnover from 551 crores to 648 crores and there is increase of \nprofit from 50.09 crores to Rs.60.7 crores. So, accordingly, the expenses for \nshortage and leakages increased. \n41. \nThe Ld.DR submitted a written submission and vide paragraph 1.1.3 stated \nthat the said shortage and leakage has no financial value, but there is no such \ncomparative turnover was discussed, as submitted by the assessee. The Ld.CIT(A) \nhas taken his view in favour of the assessee. The same issue was agitated before \nthe Tribunal for A.Y. 1999-2000 and the co-ordinate bench of ITAT, Mumbai \nBench in ITA No.1621/Mum/2004 has taken the view in favour of the assessee. \nWe respectfully follow the order of the co-ordinate bench and there is \njustification in increase of the turnover of the assessee which is fully related for \nbusiness purpose. \nSo accordingly, the ground no. 3 of the revenue is dismissed. \n \nGround 4 :Allocation of packing material cost to Goa and Kanjikode \n \n\n34 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \n42. \nThe addition was confirmed related to allocation of packing material \nexpenses. It is contended that the Ld. AO erred in allocating such expenses of \npacking of coconut oil manufacturing units at Goa and Kanjikode in the ratio of \nproduction of Parachute oil at the respective units, instead of packing material \nexpenses allocated on the basis of actual consumption of packing material \ndetermined by the assessee. The Ld.AO had accepted the allocation of packing \nmaterial as done by the assessee. But it is seen that in the dispute for A.Y. 1999-\n2000, the grievance of the Ld.AO is that the assessee in this year has apportioned \nin proportion to coconut oil manufactured by these two units and the difference \nof Rs.1,94,32,857/- is added to the packing material expenses at Goa unit and the \nsame expense is reduced from Kanjikode unit for the purpose of working out \nprofit from the unit for the purpose of deduction under section 80IB. The \nassessee submitted that different methods of stock keeping are used in Goa and \nKanjikode units. The Kanjikode unit stores oils, majority of which are in tins \nwhereas the Goa unit stores oil, majority of which are in round bottles and some \nportion in tins. Accordingly, packing material costs did not correspond to the \nsame quantity effected by both the units. The Ld.AO, however, allocated these \nexpenses in the ratio of turnover. The details of submission wereplaced and unit-\nwise packing material consumed in APB pages 118-119. The issue was also placed \nbefore the ITAT, Mumbai Bench and in assessee’s own case bearing ITA \nNo.1621/Mum/2004, the co-ordinate bench has settled this issue in favour of the \nassessee. \n\n35 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \nThe Ld.DR argued and submitted the details in paragraph 1.1.4 of written \nsubmission but was unable to bring on record any new material in support of the \ncontention of the revenue. \nAccordingly, we uphold the order of the Ld.CIT(A) and ground no. 4 taken by the \nrevenue is dismissed. \nGround no. 5: Inclusion of Sales Tax, General Sales Tax and Marketing Cess in \nTotal Turnover for the purpose of computation of deduction under section \n80HHC \n \n43. \nThe assessee has excluded various indirect taxes from turnover. In form \n10CCAC containing computation of deduction under section 80HHC which is \nenclosed in APB pages 32 to 37. However, the Ld.AO has included the same as \npart of the turnover while computing the deduction under section 80HHC of the \nAct. The Ld.CIT(A) has taken a view in favour of the assessee and Ld.CIT(A) has \ndirected the Assessing Officer not to treat the above stated sales-tax, Central \nSales-tax and marketing cess amount to Rs.33,13,50,679 as part of total turnover. \nThe issue is duly covered by the order of the Hon’ble Jurisdictional High Court in \nthe case of Sudarshan Chemicals Ltd 245 ITR 761 (Bom), where the Hon’ble \nSupreme Court has not accepted the SLP filed by the department. The issue is \nfurther decided by the co-ordinate bench of ITAT, Mumbai Bench in assessee’s \nown case for A.Y. 1999-2000 bearing ITA No.1621/Mum/2004, wherein it has \nbeen held as under: - \n\n36 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \n“7.2) \nAfter perusing the material on record, the Bench decides that this issue \nstands concluded by the decision of Hon’ble Supreme Court in the case of CIT vs \nLaxmi Machine Works 290 ITR 667 and hence the order of the Ld.CIT(A) is upheld. \nAccordingly, the addition made by the Ld.AO in this regard is deleted. The \nRevenue’s appeal is dismissed on this issue.” \n \n44. \nThe Ld.DR argued and submitted written submission vide para 1.1.5, the \nissue is explained. But was unable to bring on record any contrary judgement \nagainst the submission of the assessee. Accordingly, we follow the order of the \nHon’ble jurisdictional High Court and the order of the co-ordinate bench of the \nTribunal. Accordingly, the addition deleted by the Ld.CIT(A) in this regard is \nupheld. \nThe ground no 4 taken by the revenue is dismissed. \n \n45. \nIn the result, the Revenue’s appeal bearing ITA No.7397/Mum/2004 is \ndismissed. \nITA No.2564/Mum/2005 (AY2001-02 Assessee’s Appeal); \nITA No.4823/Mum/2005 (A.Y. 2002-03 Assessee’s Appeal); \n46. \nThe facts and circumstances in the above appeals as also grounds raised, \nare identical to ITA No.7124/Mum/2004 (A.Y. 2000-01); therefore, the decisions \narrived at therein shall apply mutatis mutandis to these appeals also. \n \nITA No.1678/Mum/2005 (AY 2001-02 Revenue’s Appeal); and \nITA No.4680/Mum/2006 (AY 2002-03 Revenue’s Appeal) \n\n37 \nITA No.7124 /Mum/2004 \nITA No.7397/Mum/2004 \nITA No2564/Mum/2005 \nITA No.1678/Mum/2005 \nITA No.4823/Mum/2006 \nITA No.4680/Mum/2006 \nMarico Industries Ltd \n \n \n47. \nThe facts and circumstances in the above appeals as also grounds raised, \nare identical to ITA No.7397/Mum/2004(A.Y. 2000-01); therefore, the decisions \narrived at therein shall apply mutatis mutandis to these appeals also. \n48. \nIn \nthe \nresult, \nassessee’s \nappeals \nin \nITA \nNo.7124/Mum/2004; \n2564/Mum/2005; & 4823/Mum/2006 are allowed;additional ground no-1 dated \n01/05/2024& 25/05/2007 are allowed for statistical purpose, additional ground-2 \ndated 01/05/2024 is dismissed; revenue’s appeals in ITA Nos.7397/Mum/2004; \n1678/Mum/2005; & 4680/Mum/2006 are dismissed. \nOrder pronounced in the open court on 07th day of March 2025. \n \nSd/- \n \n \n \n \n \n \n \n \nsd/- \n (AMARJIT SINGH) \n (ANIKESH BANERJEE) \nACCOUNTANT MEMBER \n JUDICIAL MEMBER \nMumbai,दिन ांक/Dated: 07/03/2025 \nPavanan \n \nCopy of the Order forwarded to: \n \n1. \nअपील र्थी/The Appellant , \n2. \nप्रदिव िी/ The Respondent. \n3. \nआयकरआयुक्त CIT \n4. \nदवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, \nMumbai \n5. \nग र्डफ इल/Guard file. \n \n \n \n BY ORDER, \n //True Copy// \n \n \n \n(Asstt. Registrar), ITAT, Mumbai \n \n"
Mehul