M/s. S.C. Johnson Products Pvt. Ltd. vs ACIT, Circle-7(1), New Delhi

1.

That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the adhoc disallowance of Rs. 2,95,81,016/- made by the Ld. AO in respect of the secondary schemes stockist expenses.

1.1

That the Ld. CIT(A) failed to appreciate that similar disallowance made in other years in appellant's own case was deleted by the appellate authorities and the revenue had not preferred an appeal against such deletion before the Hon'ble ITAT in those years.

1.2

That the Ld. CIT(A) has confirmed the adhoc disallowance on mere surmises, conjectures and irrelevant consideration that the appellant could not justify whether the transaction is principal to principal basis or not.

2.

That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the addition of Rs. 56,93,783/- made by Ld. AO on account of reimbursement of expenses to SCJ US on a cost to cost basis by holding that the remittances made by the Appellant is "fee for technical services" covered under section 9(1)(vii) of the Act.

2.1

That the Ld. CIT(A)/AO failed to appreciate that the amount so reimbursed were on cost to cost basis which neither constitute an income chargeable to tax in India nor the same could be held "fee for technical services" under section 9(1)(vii) of the Act.

2.2

Without prejudice to above, the Ld. CIT(A)/AO failed to appreciate that the sum could not be held chargeable to tax in India and no disallowance is warranted under section 40(a)(i) of the Act in view of the provisions of relevant Double Taxation Avoidance Agreements on account of narrower definition of 'Fee for Included Services'.

3.

That on the facts and circumstances of the case & in law, Ld. CIT(A) erred in upholding the adjustment done by the Ld. AO for a sum of Rs. 1,02,42,70,644/- in the book profits of the company for the purpose of computation of income under section 115JB of the Act.

3.1

That the Ld. CIT(A) erred in confirming action of the Ld. AO of adjustment of amortisation of goodwill of Rs. 1,02,42,70,644/- under section 115JB of the Act without appreciating that such an adjustment does not fall under explanation 1 to section 115JB of the Act.

3.2

That Ld. CIT(A) erred in confirming the findings of the Ld. AO that the Scheme of Amalgamation is in the nature of "Pooling of Interest" method as against the appellant's claim of "Purchase" method which was approved by the auditors of the company and was also in accordance with the scheme of amalgamation as approved by the Hon'ble High Court.

3.3

That on the facts and circumstances of the case and in law, Id. CIT(A) erred in concluding that the Ld. AO is empowered to tinker with the Scheme of Amalgamation approved by the Hon'ble High Court.

3.4

That the Ld. CIT(A) has erred in disregarding the fact that "Purchase method" is a permissible method of accounting in cases of merger of wholly owned subsidiary under Accounting Standard 14 ("AS") and the goodwill so computed in accordance has to amortize as disclosed in Scheme of Amalgamation read with AS-14.

3.5

That the Ld. CIT(A) erred in upholding the alternative addition made by the Ld. AO in relation to amortisation of goodwill of Rs. 1,02,42,70,644/- as amount set aside as provision for diminution in the value of any assets under clause (i) of explanation 1 to section 115JB of the Act.

4.

That the on the facts and circumstances of the case & in law, Ld. CIT(A) erred in directing the Ld. AO to re-compute disallowance of deduction under section 80IB of the Act with respect to the eligible unit on goods transferred from other non-eligible unit without appreciating that the goods transferred from non-eligible unit are separate marketable goods.

5.

That the Ld. AO/CIT(A) has erred on facts and in law in charging interest under section 234B and 234D of the Act.

The grounds of appeal raised by the Appellant herein are without prejudice to each other.

The Appellant reserves its right to add, alter, amend or withdraw any of the grounds of appeal or produce further documents either before or at the time of hearing of this Appeal.

“10.

The Grounds no. 05 to 5.2 pertain to the addition on account of payments made to non-resident amounting to Rs. 56,93,783/- u/s 40(a)(i) of the Act, due to non-deduction of tax and its consequential deduction u/s 80IB/IC of the Act. During the assessment proceedings, it was observed by AO that the assessee has made payments towards reimbursement to SC Johnson and Sons Inc (SC) US) towards Global Salary Surveys conducted by Mercer Singapore (Pte) Ltd, for the project Global Project Spice undertaken by Deloitte Consulting LLP and other expenses towards travels, transportation, etc. As per assessee, the aforesaid surveys and projects were under taken by aforesaid entities on the instruction of SCJ US and it has made total payments and since it pertained to Indian territory also, reimbursement was made by appellant against the expenses incurred on its behalf. As per assessee, since the payments were made on account of reimbursement, it was not liable for TDS and therefore, beyond the purview of section 195 and 40(a)(i) of the Act. However, the AO did not accept the contention of appellant. He analysed the nature of services rendered by the aforesaid entities and treated it as fees for technical services covered by Explanation-2 of section 9 (vii)(b) of IT Act as managerial, technical or consultancy services. After relying on the decision of AAR In different cases, AO concluded that the remittances made by assessee on account of professional fee and testing charges are covered under the expression fee for technical services and therefore liable for withholding tax. Consequently, he disallowed the said expenses u/s 40(a)(i) of IT Act as no TDS made by assessee.

10.1

During the appellate proceedings, appellant objected to the disallowance made by AO and after explaining the nature of services provided by the entities Mercer Singapore (Pte) Ltd and Deloitte Consulting LLP to SCJ US and relying on the several decisions of different Courts, submitted as under:-

4.13

An analysis of the provisions of section 195 and section 40(a)(i) reflects that disallowance u/s 4o(a)(i) is to be made of the sum chargeable to tax in India under the Act on which lax was deductible but not deducted or after deduction not deposited within the stipulated time. It is respectfully once again submitted before your goods elf that in the present case the amount reimbursed to SC. T US is not in the nature of income in the hands of SCJ US and hence the same is not taxable in India under the provisions of the Act. Since, provisions of Section 195 were not attracted in the present case as the sum paid by the Appellant to SCJ US is not chargeable to tax in India, there was no requirement of withholding tax under the provisions of the Act.

FEE FOR TECHNICAL SERVICES

Further, the Appellant highlights the services provided by Mercer Singapore Pte and Deloitte Consulting (US) is not in the nature of Fee for technical services due to beneficial provisions as per relevant Articles of the India Singapore Double taxation avoidance agreement (DTAA) and India US DTAA. The definition of technical services provided under both the treaties is restricted to the "make available" of the services as below:

"make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design."

4.12

The meaning of 'make available' has boon discussed and explained by Tribunal in case of Raymond Ltd. v. Dy. CIT [2003] 80 TTJ (Mum.) 120. In this case the Tribunal held that:

"We hold that the word "which" occurring in the article after the word "services" and before the words "make available not only describes or defines more clearly the antecedent noun ("services") but also gives additional information about the same in the sense that it requires that M/s 5.C. Johnson Products Pvt. Ltd, the services should result in making available to the user technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services is not roped in unless the person utilising the services is able to make use of the technical knowledge, etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill, etc. must remain with the person utilising the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skills, etc. from the person rendering the services to the person utilising the same is contemplated by the article. Some sort of durability or permanency of the result of the "rendering of services" is envisaged which will remain at the disposal of the person utilising the services. The fruits of the services should remain available to the person utilising the services in some concrete shape such as technical knowledge, experience, skills, etc."

4.13

Similar view has been upheld in AAR Ruling in Endemol India (P.) Ltd., In re 120 1:1 1 40 taxmann.com 345 which held that the interpretation of the clause 'make available' in the tax treaty is met if the technology, knowledge or expertise can be applied independently by the person who obtained the services.

4.14

With respect to the disallowance for legal and professional expenses, reliance can be placed to Mumbai ITAT in KPMG vs. JCIT [2013] 33 taxmann.com 23 wherein the appellant paid professional fees and reimbursed of expenses like travel, hotel and conveyance to various persons in the U.S.A., UK and Malaysia in respect of training and professional services without deduction of tax. The appellant claimed that the professionals did not have any fixed base or permanent establishment in India and had stayed in India for less than 90 days. Also, the remittances could not be treated as royalty or fees for included/professional services as there was make-available of Technical knowledge, experience, skill, know-how or process. Therefore, in view of Article 15 of Indo-USA DTAA and Article 7 of Indo-UK, Treaty, the services were not taxable in India. ITAT held as follows:

"Looking to the nature of services rendered by all the persons, it is seen that, firstly, none of these services fall in the nature of make-available of any technical knowledge, experience, skill, know-how or process. The provisions of Indo-U.S. and U.K. treaties are absolutely clear that in case offeesfor technical services, it is essential that technical knowledge, skill, know-how should be made available to the appellant and the appellant should be at Liberty to use them in its own right. If the service does not result in making available of any such thing, then the same would not (all within the ambit of fees for technical service. These payments also cannot be taxed under Article? as none of them were having any P.E or fixed base in India and the duration of their visit in India was also for a very less period. Therefore, such a payment does not attract the provisions of TDS under section 195. Provisions of section 195(1) uses the expression "chargeable under the provisions of the Act. The payer is bound to deduct tax at source only if the sum paid is assessable to tax in India".

4.15

In view of above, the Appellant submits that in the present case the legal and professional services are not in the nature of 'fees for Included services' as it does not make available any technical knowledge, experience, etc. Hence, tax at source was not required to be deducted on such payments.

4.16

With regard to the transportation, courier and other charges reimbursed to the group companies, as mentioned in earlier part of the reply, the same have been made on a cost to cost basis and by no stretch of imagination the same could be considered as a fee for technical service.

4.17

In support of the aforesaid stand, reliance is place on the Delhi ITAT judgment in ITO vs. Dr. Willmar Schwabe India (P) Ltd (2005) 95 TTJ 53 wherein one of the issues before the Honourable Bench of the Tribunal was 'IDS in respect of reimbursement of conveyance expenses. As per agreement between the Appellant and Indochem Techno Consultants Ltd, a vehicle was to be provided by the Appellant to the said consultant for attending to its work and thus, the Appellant was to bear the vehicle expenses actually incurred by the said party. Bills for such expenses incurred by the said consultant were separately raised by him on the Appellant, in addition to bilis for fees payable on account of technical services. It was held that since the amount of bills so raised was towards the actual expenses incurred by the consultant, there was no element of any profit or income involved in the said bills. It was, thus, a clear case of reimbursement of actual expenses incurred by the consultant and the same, therefore, was not of the nature of payment covered under section 194.J, requiring the Appellant to deduct tax at source therefrom.

4.18

In view of the above, the appellant respectfully submits that the above ground of appeal be accepted as the Ld. AO has erred in disallowing the reimbursement of expenses in the hands of the appellant."

10.2

I have considered the facts of the issue, basis of disallowance made by AO and submissions of the appellant. As can be seen from the submissions of the appellant, the following services were provided by Deloitte Consulting LLP and Mercer Singapore PT Ltd to SCJ US:-

"Global Salary Surveys report:

A contract was entered by SCJ US with Mercer Singapore (Pte.) Limited ("Mercer"), a Singapore entity wherein a global salary survey was conducted by Mercer and the details of employees of SC Johnson group were shared. SC India also shared data base of employees salary position wise. Mercer used the data for doing coding of the same. Similarly, data from other FMCG companies in India was also collected and compiled. Thereafter, a detailed report was provided by Mercer wherein analysis/comparison of salary is done as per positions.

It is worthwhile to note that for the above mentioned services, Mercer raised the invoice on SC us id. The Indian portion mentioned in the invoice was cross charged by SCI US to SC) India on cost to cost basis.

Global Project Spice:

A contract was entered by SC) US with Deloitte Consulting LLP (a us entity) wherein Deloitte Consulting LLP ("Deloitte") examines the current supply chain efficiency of SCJ group in various countries and layout a long term strategic plan for the supply chain for coming years. It involved details network study, study of logistics, current supply chain constraints and improving overall distribution network.

For the above-mentioned services, Deloitte Consulting LLP raised the invoice on SCJ US. The Indian portion mentioned in the invoiced was cross charged by SCJ US to SCJ India on cost to cost basis.

The fact that the invoices were charged on cost to cost basis has been acknowledged by the Ld. AO in his assessment order also and the same has not been disputed.

Travel:

It include pure reimbursement on cost to cost basis for SCJ employee related travelling expenses incurred by SCJ US on the behalf of employees in US for business purposes.

Courier:

It includes the reimbursement of courier charges and other such charges Incurred by SC) US on behalf of the appellant.

Others:

It includes testing charges reimbursed to SCJ US in respect of industrial hygiene carried out by Galson Laboratories based on samples provided to it by the Appellant and the report of the testing of samples was submitted."

10.3

It can be seen from the aforesaid services, as discussed by AO, require the technical knowledge, experience skill, etc., and also does not meet the make available criteria as claimed by appellant. The services rendered by aforesaid entities to SCJ US are basically managerial services/technical services and consultancy, etc. Since these services are in the nature of fee for technical services received from resident payer, income would be deemed to accrue or arise in India. As per the Explanation to section 9(1), as mentioned above, the AO has discussed in detail, defining the nature of services and legal provisions in this regard and held that since these services are in the nature of fee for technical services, liable for deduction of tax at source. In absence of justifiable explanation on the part of appellant, the conclusion drawn by AO was valid in view of the relevant provisions of Act. I, therefore, confirm the disallowance made by him and dismiss the ground taken by appellant.”

“32.

Ground of appeal Nos. 2 to 2.5 raised by the assessee are in relation to the addition of INR 1,03,26,96,924/- in the book profit of the assessee. As these grounds are inter-related and inter-linked therefore, the same are taken together for consideration.

33.

Brief facts of the case are that the assessee company had one owned fully and subsidiary company in the name of KAPL who had one subsidiary in the name of Roshni Appliances Pvt. Ltd. (“RAPL”) and both these companies, KAPL & RAPL were amalgamated with the assessee company in terms of scheme of amalgamation approved by Hon’ble Delhi High Court on 09.10.2006 with the appointed dated on 01.06.2005. As a result of this amalgamation, total investment by the assessee of INR 7,46,71,55,000/- as against net assessed value of INR 235 crores of these two companies were taken. The assessee companies has followed the purchase method for accounting such transactions and accordingly, the differential amount i.e. amount of investment in the subsidiary companies and the gross value of assets taken over as a result of amalgamation of the subsidiary companies is treated as “goodwill” in the books of accounts of the assessee which though eligible for deduction in the very first year as diminution in the value of investment in the year when the companies are amalgamated however, the management decided to amortize the same in five years in equal installments and accordingly, 1/5 of the same stood amortized in the books of accounts as depreciation. AO observed that treatment by the assessee of following “purchase method” is not correct and by applying “Pulling method of accounting” as prescribed in AS-14, he disallowed the amount of depreciation claimed in the P&L Account and added back the same to the book profits. It is relevant to state here that no such expenditure was claimed by the assessee in the computation of income under normal provision of the Act and only in book profits, same was claimed as expenditure.

34.

Against this, the appeal was filed before Ld.CIT(A) who dismissed the appeal of the assessee.

35.

Thus, aggrieved by the order of Ld.CIT(A), the assessee preferred appeal before the Tribunal.

36.

Before us, Ld.AR submits that the scheme of merger was duly approved by the Hon’ble High Court which is placed at pages 39 to 94 of the Paper Book volume 2 filed by the assessee. Ld.AR submits that the assessee had accounted for the goodwill in the books of accounts by following the “purchase method” and a detailed note in this regard was given in the Balance Sheet in Note No.4 wherein working of the goodwill at INR 5,11,28,82,000/- is given. Ld.AR further drew our attention to Item No.4(f) of the notes wherein the Auditor of the company clearly observed that as per Accounting Standard-14, accounting of this transaction could have been made as per pooling of interest method. However, since it had revenue neutral exercise in substance and would have no impact on the Profit & Loss Account, therefore, the accounting treatment was done by assessee following the purchase method which is also prescribed in AS-14 and thus the same deserves to be accepted. He further submits that the Hon’ble High Court in the scheme of amalgamation has approved the purchase method and quantification of the amounts were also stated. It is further submitted that if this adjustment is made in the book profit, the assessee is entitled to the MAT credit in the future years. According to Ld.AR, AO has failed to point out any defect and merely applied other method. Ld.AR placed reliance on the judgement of Co-ordinate Bench of Mumbai Tribunal in the case of Toyo Engineering India Ltd. in ITA No.3279/Mum/2008 wherein in similar type of claim of depreciation on Goodwill as the goodwill was recognized by using the purchase method. He also drew our attention to the common facts of the case of Toyo Engineering India Ltd. (supra) and of the assessee as tabulated in para 7.2.5 of the written submissions. He thus, submits that the adjustment made in the book profit declared by the assessee deserves to be deleted. The assessee also filed a detailed written submission in this regard containing various arguments which were made oral before us. The submissions so made by Ld.AR of the assessee is reproduced hereunder below for sake of convenience:

"Accounting Standard 14: Accounting for Amalgamations" issued by the Institute of Chartered Accountants of India.

10A.5 The difference arising on account of the difference between the cost of investment in the books of Transferee Company and the amount by which assets of the Transferor Companies exceed the liabilities of the Transferor Companies shall be reflected by the Transferee Company as Goodwill for all intents and purposes."

(Emphasis supplied)

(refer page no 82 of PB 2)

7.1.6

In a recent decision, the Hon'ble Apex Court in the case of Dalmia Power Ltd vs ACIT: [2020] 420 ITR 339 (SC) (refer para 4.6 at page 259 of Case Law Paper Book 2 filed for AY 2009-10, 2010-11 & 2011-12 (hereinafter referred to as Case Law PB 2)), reiterated the dictum of law laid down in an earlier decision reported as J.K. (Bom) (P) Ltd vs. New Kaiser-I-Hind Spg. & Wvg. Co Ltd: [1970] 40 Comp. Cas. 689 (refer page 279 of Case Law PB 2) to the following effect:

"4.6

Pursuant thereto, the Schemes were sanctioned by the NCLT, Chennai vide Orders 16.10.2017, 20.10.2017, 26.10.2017, 28.12.2017, 10.01.2018, 20.04.2018 and 01.05.2018; and, vide Orders dated 18.05.2017 and 30.08.2017 by the NCLT, Guwahati. Accordingly, the Schemes attained statutory force J.K. (Bom.) (P.) Ltd. v. New Kaiser-I-Hind Spg. & Wvg. Co. Ltd. [1970] 40 Comp. Cas. 689 not only inter se the Transferor and Transferee Companies, but also in rem, since there was no objection raised either by the statutory authorities, the Department, or other regulators or authorities, likely to be affected by the Schemes"

7.1.7

The Assessee further places reliance on the decision Hon'ble Bombay High Court in the case of Sadanand S. Varde v State of Maharashtra (247 ITR 609) (refer para 95 at page 308 of Case Law PB 2), wherein it was held that once the scheme is approved by the Court, it ceases to be a contract and it has the force of the statute.

7.1.8

Further, the Hon'ble Bombay High Court, in the case of AVM Capital Services Pvt. Ltd. [TS-512-HC-2012 (Bom)] (refer para 11, 18 and 23 at page 325, 330, 334 and 335 of Case Law PB 2) while approving a scheme of amalgamation held that the implementation of a transaction under one of the alternative options available, which does not lead to any tax outflow, is not illegal or unlawful. The High Court further held that such a transaction is permissible, provided it is within the framework of the law. It is therefore submitted that once the scheme has been approved by the Hon'ble High Court, the tax department has no locus standi to question the scheme itself and allege that the method of accounting followed to account for the scheme is wrong.

7.1.9

Further reliance is paced on Purbanchal Power Co. Ltd. - Tribunal - Kolkata - 17th July 2014, wherein a similar issue was the matter of consideration before the Hon'ble Tribunal. While adjudicating, the Tribunal discussed that the Court will sanction a scheme only where all the concerned stake holders have been heard and it is open to the revenue i.e. the Income tax department, as one of the class of creditors, to put forward any objection it may have against the amalgamation at the time the scheme of amalgamation is proposed before the court. The Tribunal thus held that:

"Whenever such objections have been raised, these have been considered on merits by the concerned High Court and also incorporated the condition for safeguarding the interest of revenue in the very scheme. As a matter of public policy, once a scheme of amalgamation is approved by Hon'ble High Court no authority should be allowed to tinker with the scheme."

(refer para 11 at page 358 of Case Law PB 2)

7.1.10

Reliance is also placed on Electrocast Sales India Ltd. vs. DCIT [2018] 92 taxmann.com 85 (Kolkata - Trib.) (refer para 4.5 to 4.5.2 at page 371 to 372 of Case Law PB 2) & DCIT, Circle-11(1), Kolkata vs JCT Limited, ITA No. 2389/Kol/2018 vide order dated July 8, 2020 (refer para 11, 12 and 13 at page 384 and 386 respectively of Case Law PB 2) wherein the Hon'ble Tribunal expressed the similar view in respect of the binding nature of Scheme on Revenue Authority.

39.

Heard the contentions of both the parties and perused the material available on record. In the instant case, two companies namely, RAPL and KAPL were amalgamated with the assessee company with terms of the scheme of amalgamation approved by Hon’ble Delhi High Court. The assessee in its financial statement in Note No.4 titled as “amalgamation” has made a detailed note on the scheme and its accounting treatment given in the books of amounts which reads as under:-

40.

It is further seen that the assessee has recognized the goodwill in the books of accounts in compliance to the Accounting Standard-14 wherein the assessee has followed purchase method as detailed in AS-14. It is further seen that Note No.4F above, the Auditor has specifically mentioned the reason as to why the purchase method is preferred over the pulling of interest method.

41.

The scheme of amalgamation was approved by Hon’ble Delhi High Court wherein Hon’ble High Court has considered all the aspects as detailed in the scheme by the assessee. Therefore, we do not find any error in the treatment given by the assessee in the books of accounts which is based on the scheme approved by the Hon’ble High Court.

42.

It is further seen in the case if pulling of interest method as prescribed in Accounting Standard-14 is followed, the necessary entry to the effect of loss on such amalgamation i.e. negative earnings is to be disclosed in the financial statement on the assets side of the Balance Sheet which has to be amortized in the books of account either in one go or as decided in five years. In such circumstances, there would be no change in the financial results of the assessee as under the payment method, the assessee has claimed depreciation on goodwill whereas under pulling of interest method, losses would be claimed in the Profit & Loss Account. Thus, in our considered opinion, as has been observed by the Statutory Auditors also, the accounting treatment either by purchase method or pulling of interest method would make no difference on the financial statements of the assessee company and therefore, when there is material difference if the assessee has preferred purchase method over the pulling of interest method.

43.

In view of the above facts and by following judgment of Co-ordinate Bench of Bombay Tribunal in Toyo Engineering India Ltd. (supra), wherein under common and identical facts, the Co-ordinate Bench of Tribunal has held that the assessee is eligible for depreciation on goodwill therefore, we direct the AO to delete the adjustments made in the book profits of the assessee company. Ground of appeal Nos. 2 to 2.5 raised by the assessee are accordingly, allowed.”

“11.

The Grounds No. 06 to 6.3 relate to the disallowance of deduction u/s 801B amounting to Rs. 14,99,146/-. assessment proceedings, it was observed by AO that the assessee is During the running three units at Buddy, Himachal Pradesh wherein the first unit procures sub-components required for making heaters from job work, vendors and indulges in assembly of such components into a heater or battery, then transfers these heaters to unit 11 (non-tax holiday unit) and unit-III (Tax holiday unit) for preparation of a combi-pack and thereafter sells this combi-pack as a finished good by the brand name 'Allout'. As per AO, this end product namely 'Allout', which is mosquito repellant is basically an assembly of two major components; the battery part being manufactured in Unit I and the chemical bottle part being manufactured by Unit-II & III. In view of this fact, the AO derived that each unit, be it I, II or III independently manufactures the article or a component, Therefore, the deduction u/s 80IB is allowable proportionately and Unit-III is entitled for 30% deduction of total amount claimed by appellant. Consequently, he restricted the deduction to 30% and disallowed the balance deduction of Rs. 14,99,146/- and added back to the income of the assessee.

11.1

During the appellate proceedings, appellant reiterated its submissions given during assessment proceedings as well as earlier years wherein the disallowance of deduction u/s 80IB was made on identical facts. By making submissions, it has been claimed by appellant that 'Allout' is altogether a different new product manufactured by Unit-III and is regarded a new string or article having an identity of its own and independent market as compare to the raw material used and therefore, there is no doubt about the eligibility of deduction u/s 80IB of the Act. I have considered the facts of the issue, basis of disallowance made by AO and submissions of the appellant. As can be seen from the facts that this issue is continuing from A.Y. 2007-08 and matter reached upto the ITAT and Hon'ble ITAT vide their order dated 10.10.2018 have already taken a view on the issue, as under:-

"12.

Having heard both the sides and perused the relevant material on record, it is found as an admitted position that Unit-1 of the assessee is not eligible for deduction u/s 8018 in which manufacturing of heaters is done. The eligible units are 2 and 3 which use the output of Unit-1 as their input. No billing is done separately by Unit-1 and its output is transferred to Unit nos. 2 and 3 at exciseable value. It is only Unit Nos. 2 and 3, which make the sale of the combined product including the heaters supplied by Unit-1 And raise Invoices accordingly. In this view of the matter, it becomes explicity clear that the income relatable to the goods manufactured in Unit-1 cannot be allowed deduction u/s 801B, even though the ultimate sale is made by Unit Nos. 2 and 3 using, inter alia, the output of Unit-1 as their respective input. The contention of the assessee for allowing deduction on the total income from Unit Nos. 2 and 3, thus, cannot be accepted.

13.

Next comes the question of determination of the amount of income not eligible for deduction u/s 801B. Admittedly, Unit No. 1 has not raised any invoices. Further, out attention has not ben drawn towards any material showing segregation of income pertaining to Unit no. 1 from the total income of Unit Nos. 2 and 3, which are making sales and raising composite invoices. It is found that Unit No. 1 is sending its output to Unit No. 2 and 3 at a particular excisable value. Similarly, Unit Nos. 2 and 3 also determine the excisable value of their output. In the absence of any other rational basis for allocating income to the Unit 1 from the combined income of Units nos. 2 and 3, we are satisfied that the ratio of the excisable value of the output of Unit 1 vis-à-vis that of Unit 2 an 3 will constitute a good basis for bifurcation of income. We hold accordingly and direct the AO to first find out the amount of profit form sales made by Unit No. 2. Then, find out separate excisable value of goods transferred from Unit No. 1 to the Unit No. 2. The total profit of Unit 2 should be apportioned to Unit no. 1 in the ratio of excisable value of goods in Unit 1 as total of excisable value of Units 1 and 2. Similar exercise should be done for determining the share of income of Unit 1 in the income of Unit no. 3 separately.

11.1.1

Since the Hon'ble ITAT has taken a view on the issue in A.Υ. 2007-08 & 2008-09 on identical facts and directed the AO to find out the amount of profit from sales made by Unit-III and separate exciseable value of goods transferred from Unit-I to Unit-III and accordingly allow the deduction u/ 80IB. Respectfully following the decisions of the Hon'ble ITAT, AO is directed to do the similar exercise for the year under consideration also and compute the eligible deduction u/s 80IB, accordingly.

11.2

Similar disallowances have been made by AO in A.Y. 2010-11 wherein disallowance of Rs. 8,71,349/- has been made u/s 801B of the Act. In view of above discussion on identical facts, the AO is directed to do the similar exercise for this year also and compute the eligible deduction u/s 80IB of the Act.

ITA No.1854/Del/2019 (Assessee’s appeal)

Assessment Year: 2014-15

ITA No.1123/Del/2020 ( Assessee’s appeal)

Assessment Year: 2015-16

ITA Nos.1970 & 1971/Del/2019 and 1209/Del/2021

(Revenue’s appeal)

“12.

The Grounds No. 7 & 7.1 pertain to the disallowance of claim on shortage and damages amounting to Rs. 2,51,68,084/-. During the assessment proceeding, AO observed that the assessee has debited expenditure on shortages and damages to the tune of Rs. 2,51,68,084/- separately whereas manufacturing expenses have already been claimed in P & L account. In his view, the assessee has claimed double deduction under this head and therefore, not an allowable expenditure. During the appellate proceedings, appellant argued that expenses claimed under the head of shortage and damages are separate and independent. It was further submitted that, on identical facts, the Ld. CIT(A) and Hon'ble ITAT have already decided the issue in its favour for the year A.Y. 2007-08 and 2008-09.

12.1

I have considered the facts of the issue, basis of disallowance made by AO and submissions of the appellant. I have gone through the orders of Hon'ble ITAT also. After considering the facts of the case on the issue, Hon'ble ITAT vide their order dated 10.10.2018 has observed as under:-

"17.

Having heard both the sides and perused the relevant material on record, it is seen that at the assessee made a turnover of more than Rs. 300 crore and the damages are only Rs. 1.32 crore. There is no double deduction as made out by the AO Such deduction of Rs. 1.32 crore is towards abnormal loss. Considering the entirety of facts and circumstances of the instant case, we are satisfied that the Ld. CIT(A) was justified in deleting this addition. We, ergo, countenance the view taken by the Ld. CIT(A) on this issue."

12.1.1

Since the Hon'ble ITAT has already taken a view on the issue in Α.Υ. 2007-08 & 2008-09 on identical facts and deleted the additions made by AO under the aforesaid head, respectfully following the same, AO is directed to delete the additions made by him in this year also. The grounds taken by appellant are allowed.

12.2

Similar additions have been made by AO in A.Y. 2010-11 & 2011-12 wherein disallowances of Rs. 1,73,25,271/- & Rs. 1,86,98,827/- have been made by AO considering it double deduction. In view of above discussion on identical facts, the aforesaid additions made by AO are deleted and grounds taken by appellant are allowed.

13.

The Ground No. 8 taken by appellant pertains to deduction of rate of depreciation on mould and dies from 30% to 15% which amounted to Rs. 61,69,850/-. During the assessment proceedings, AO rejected the claim of the appellant for depreciation @ 30% on moulds. used in rubber and plastic goods in factory. As per him, the assessee failed to furnish any factory licence in support of its claim for depreciation 30% showing it to be a rubber and plastic factory. He, therefore, rejected the claim of the assessee and allowed the depreciation @15% on moulds and dies. During the appellate proceedings, it was submitted by appellant that it is engaged in the business of manufacturing like insects, mats, cleaners and air care products and these products involve manufacturing of various plastic items and mould and dies are used for plastic production where plastic is moulded by injection moulding process. As per it, the plastic moulds and dies are used for manufacturing plastic goods in exactly the same manner as manufacturing is carried by any other plastic factory. It has been further submitted that on identical facts, Id. CIT(A) has decided the issue for A.Y. 2012-13 & 2013-14 In its favour.

13.1

I have considered the facts of the issue and submissions of the appellant and decision of Ld. CIT(A) on the aforesaid issue. The Ld. CIT(A), after discussing the facts of the issue and decision of Hon'ble Bangalore ITAT in this regard, has observed as under:-

"7.2

At the outset, the facts of the case are that the appellant has claimed higher rate of depreciation on moulds & dies used by the appellant in manufacturing plastic made goods @ 30% based on Income Tax Rules, 1962. The appellant highlighted that it is engaged in the business of manufacture of home care products like repellants for insect which involves manufacturing of various plastic items like "pluggy top", Pluggy Bottom", Terminated Plug", "Bottle", "Liquied Mosquito Destroyer (LMD) Cap" LMD Bottom etc.

7.3

The appellant operates in manufacturing of insecticide/ mosquito repellent industry and not in a plastic industry. However, as per the appellant the plastic industry. However, as per the appellant, the plastic moulds and dies are used for manufacturing plastic goods mentioned above in exactly the same manner as manufacturing is carried by any other plastic factory. The appellant pointed out that out of several production lines, one production line is exclusively devoted for plastic goods.

7.4

The Ld. AO observed that the appellant has not been able to furnish any factory license showing it to be a rubber and plastic goods factory and hence not entitled for higher rate of depreciation.

7.5

I find that the license of manufacturing plastic goods is to demonstrate that the company is in manufacturing of plastic goods. However, there is no dispute regarding the fact of manufacturing of various plastic items like "pluggy Top",

"Pluggy Bottom", "Terminated Plug", "Bottle", "Liquid Mosquito Destroyer (LMD) Cap" LMD Bottom etc. Therefore, the feature of plastic good cannot be ignored merely because the final product is in the category of insecticide/mosquito repellent. Since in this case, moulds and dies were used for manufacturing of plastic goods, therefore, I do not find any reason to deny the claim of higher depreciation in this case.

7.6

In this regard, reliance can be placed on Hon'ble Bangalore Tribunal in BPL Refregeration Ltd vs. ACIT, (91 ITD 203) (Bangalore ITAT) held as under:-

"similar issue arose before us in one of the group concern related to appellant in ITA Nos, 88 and 89/Bang/1998 in BPL Sanyo Utilities and Appliances Ltd vs ACIT wherein it was held as under:-

"we have carefully considered the relevant facts and arguments advanced. Much reliance was placed on the decision of Hon'ble Karnataka High Court in AMCO Barreries case. In the said case, Hon'ble High Court has held that the dies and moulds used in the manufacture of plastic covers for batteries are entitled to higher depreciation though the appellant has not been selling the covers as such to anybody. In the present case also though some parts are used in manufacture of washing machine, vaccum cleaners, etc. yet these parts are manufactured by appellant itself. These parts are admittedly rubber and plastic goods. Thus, the moulds used in manufacture of such rubber and plastic goods are to be held as used in rubber and plastic goods factories. There need not be a separate and distinguishable factory for production of such items and the moulds need not be used in such separate factory. Once the moulds are used for manufacture of rubber and plastic goods parts though in a composite factory manufacturing washing machine, vacuum cleaners, etc., the appellant is eligible for deduction at higher rate of depreciation, i.e. 40 per cent as per appen. I to the IT Rules. We are, therefore, in agreement with the submission of learned counsel for appellant. In view of our discussion above, we reverse the finding of Ld. CIT(A) and allow the claim of appellant.

7.7

In view of the above discussion, the AO is directed to allow higher depreciation on moulds and dies used for manufacturing of plastic goods in this case. Hence, the ground of appeal is allowed."

13.1.1

Since the Ld. CIT(A) has already taken a view on the issue on identical facts, respectfully following the same, I also allow the depreciation @ 30% on moulds and dies and delete the addition of Rs. 61,69,850/- made by AO. The ground taken by appellant is allowed.

13.2

Similar additions have been made by AO in A.Y. 2010-11 & 2011-12 & 2014-15 wherein disallowances of Rs. 53,03,903/-, Rs. 53,26,087/- & Rs. 97,19,231/- have been made by AO restricting the depreciation @ 15% in place of 30% claimed by appellant on moulds. and dies. In view of above discussion on identical facts, the aforesaid additions made by AO are deleted and grounds taken by appellant are allowed.”