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ASHOK LEYLAND LIMITED,CHENNAI vs DCIT NON CORP CIRCLE 8(1) LTU - II, CHENNAI | BharatTax

ASHOK LEYLAND LIMITED,CHENNAI vs. DCIT NON CORP CIRCLE 8(1) LTU - II, CHENNAI

ITA 1402/CHNY/2024Status: DisposedITAT Chennai07 July 2025AY 2019-20Bench: SHRI ABY T. VARKEY (Judicial Member), SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER\nआयकर अपील सं./ITA No.1402/Chny/2024\nनिर्धारण वर्ष/Assessment Year: 2019-20\nM/s. Ashok Leyland Ltd.,\nNo.1, Sardar Patel Road,\nGuindy, Chennai-600 032.\n[PAN: AAAСА 4651 L]\n(अपीलार्थी/Appellant)\nv.\nThe DCIT,\nNCC-8(1),\nLTU-II,\nChennai.\n(प्रत्यर्थी/Respondent)\nआयकर अपील सं./ITA No.1663/Chny/2024\nनिर्धारण वर्ष/Assessment Year: 2019-20\nThe DCIT,\nNCC-8,\nChennai.\n(अपीलार्थी/Appellant)\nv.\nM/s. Ashok Leyl57 pages

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Income Tax Appellate Tribunal, D BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA

Hearing: 04.06.2025Pronounced: 07.07.2025

आदेश / O R D E R PER ABY T. VARKEY, JM: These are cross-appeals preferred by the assessee as well as the Revenue against the order of the Learned Commissioner of Income Tax & 1663/Chny/2024 (AY 2019-20) M/s. Ashok Leyland Ltd. :: 2 ::

(Appeals)/NFAC, (hereinafter referred to as ‘Ld.CIT(A)‘), Delhi, dated 16.03.2024 for the Assessment Year (hereinafter referred to as ‘AY‘)

2019-20.

2. At the outset, it is noted that the Revenue’s appeal is delayed by ‘16’ days, for which, the Ld. DR explained the reason for delay, and, the Ld. Counsel of the assessee has not raised any serious objection.

Consequently, the delay of ‘16’ days in filing of the appeal stands condoned and the appeal filed by the Revenue as well as that of assessee-company are taken up for hearing on merits. Since the issues involved in these cross appeals were inter related, both these appeals were heard together and are accordingly being disposed off by this common order.

We first take up the assessee's appeal in ITA No.554/Chny/2023.

The grounds urged by the assessee are as follows:-

“1. The order of the Commissioner of Income-tax (Appeals) ('CIT(A)- NFAC') is contrary to law, facts and circumstances of the case.

2. Additions @ 1% u/s 92CA(3) towards notional Corporate Guarantee fees - Rs. 1,22,93,500: 2.1. The CIT(A)-NFAC is not justified in upholding the additions towards corporate guarantee fee @ 1% as proposed by the TPO. 2.2. The CIT(A)-NFAC ought to have appreciated that issuing of guarantees does not fall under the ambit of transfer pricing, since it does not have any bearing on profits, income, losses or assets of the assessee; 2.3. The CIT(A)-NFAC ought to have appreciated that, the corporate guarantees have been provided by the appellant as a stewardship /shareholder activity and not a business transaction that needs to be & 1663/Chny/2024 (AY 2019-20) M/s. Ashok Leyland Ltd. :: 3 ::

“27. A plain reading of Section 35(2AB) would clearly indicate that where a company is engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) or in-house research and development facility as approved by the prescribed authority, then, they shall be allowed a deduction of a sum equal to one and a half times of the expenditure so incurred. The word used 'shall' in the above said provision would ordinarily mean that it should be understood in the context in which it is used and there cannot be departure in this regard. The said provision would also indicate that such expenditure as approved by the prescribed authority would be entitled for being allowed as a weighted deduction. There being no dispute to the fact that DSIR being the prescribed authority in the instant case, had issued the report in Form No. 3CL - Annexure - M certifying the total R&D expenditure (excluding land and buildings) as prescribed under Section 35(2AB) for a sum of Rs. 4,601.9 lakhs as against the claim of Rs. 5,957 lakhs made by the assessee in the return of income and as such, neither the second respondent nor first respondent could have sat in judgment over the said certificate issued by the prescribed authority. In other words, when the prescribed authority had certified the extent of expenditure which would be allowable, the assessing officer could not have sat in appeal over such certification made by the prescribed authority. The allowability or otherwise of such expenditure cannot be the subject matter of scrutiny by the assessing officer. It would also be required to be noticed that the assessing officer would be out of bounds to examine as to whether such expenditure as certified by the prescribed authority can be allowed or disallowed under Section 35 of the Act. In other words, the assessing officer is precluded from examining the correctness or otherwise of the certificate issued by the prescribed authority on the ground that it is either being contrary to facts or contrary to the express provisions of the Act. It would not be out of context to state that when assessee files the report issued by the prescribed authority, as indicated under Section 35(2AB), before the jurisdictional assessing officer and seeks for allowability of such expenditure, the Assessing Officer would be exceeding in his jurisdiction, if he were to undertake the exercise of examining as to whether the certificate issued by the prescribed authority is within the parameters of statutory provisions of the Act or otherwise. Keeping in mind that such contingency may arise, Parliament has incorporated sub-section (3) to Section 35 of the Act which would be & 1663/Chny/2024 (AY 2019-20) M/s. Ashok Leyland Ltd. a complete answer to such situations. Thus, if any question arises as to what extent, any activity constitutes or constituted or an asset is or was being used for scientific research, then the Assessing Officer would be required to refer such question to the Board for being referred to the prescribed authority. The decision of the prescribed authority in this regard would be final, inasmuch as, the certification of such expenditure is being examined by an expert body and undisputedly, such exercise has been outsourced by the Revenue under the Act itself, since the prescribed authority being possessed of requisite expertise, it would be in a better position to certify as to whether such expenditure claimed by the assessee under Section 35(2AB) would fall within the said provision or outside. This exercise of examining the correctness of the Certificate issued by the prescribed authority is not available to the Assessing Officer as could be seen from scheme of Section 35 of the Act.”

5.10 On a perusal of the facts placed before us, it is noted that, the assessee had set-up a commercial vehicle manufacturing facility in the year 2009 with an aggregate capex of Rs.2250 crores at Pantnagar, Uttarakhand. The assessee had placed on record the relevant Notification No. 177/2004 dated 28.06.2004 issued by the CBDT notifying the said location as a designated area eligible for deduction u/s 80-IC of the Act. The assessee is noted to be involved in manufacture of Commercial heavy vehicles, inter alia, chassis/products and integrated facility for assembling Axle, Gear-box, vehicle, cab-welding etc. Upon completion of manufacture, the assessee transfers these completed chassis/products from sales-yard to their nodal point located at warehouses termed as regional sales office ('RSO')/Warehouse; and therefrom, the heavy-vehicles/goods/products are sold and sent to the ultimate consumers. It was brought to our notice that, the sales-yard is generally within the same premises as that of the manufacturing units to accommodate storage of the manufactured chassis etc, as they cannot be kept inside the plant for operational efficiency reasons and thereafter transferred to RSO/warehouse, from where the goods are sent to the ultimate customers. However, according to AO, there was no linkage between the goods sold from the RSO with the goods manufactured by the eligible unit and therefore he alleged that, the revenues credited in the stand-alone financials were shown to be higher, to shift profits. In this regard, we find that the Ld. CIT(A) had rightly taken note of the assessee's explanation that, the products manufactured by the eligible unit was identifiable from the chassis/product number which inter 11th alphabet alia included a unique from which the place of manufacture i.e. Pantnagar Unit was identifiable. The assessee had placed before us sample invoices to show that, they contained the chassis numbers from which the place of manufacture i.e. Pantnagar, & 1663/Chny/2024 (AY 2019-20) M/s. Ashok Leyland Ltd. was discernible from the eleventh character in chassis 'P' which indicated the Pantnagar unit. We thus find ourselves in agreement with the assessee that, the sales out of the products manufactured at the eligible unit were clearly identifiable and hence the revenues booked in the stand-alone financials of the eligible unit indeed had clear linkage with the production. According to us therefore, the presumptuous inference drawn by the AO that the revenues credited in the stand-alone accounts had no linkage with production at the eligible unit is factually erroneous.

5.14 Apart from the above, the Ld. AR additionally brought to our notice that, this manner of revenue recognition has been consistently followed by the assessee in all the earlier years and that this AY 2018-19 was their 9th year of claim. He showed us that, there were substantial inter- unit transfers in the preceding AY 2017-18 and that, the revenues therefrom were benchmarked to the prices at which same products were sold in market to the customers. These transactions being in the nature of specified domestic transactions u/s 92BA of the Act were referred for transfer pricing scrutiny and the TPO in the order passed u/s 92CA(3) of the Act had found these specified domestic transactions to be at arm's length and no adverse inference was drawn u/s 80-IA(8) of the Act. Having regard to these contemporaneous facts, we find merit in the plea of the Ld. AR of the assessee that, when the manner of revenue recognition for recording inter-unit transfers i.e., market value at which goods were sold to ultimate customers, has been accepted to be sound & reasonable basis by the TPO in the earlier AY 2017-18, then applying the principle of consistency, and in absence of change of any facts and in position of law in the relevant AY 2018-19, the basis of recognizing revenues in the relevant year could not have been disputed by the AO. 5.15 It is further noted that, much ado has been made by the lower authorities that, a manufacturing unit is a cost center and therefore have no role in profit generation. We find this observation to lack any cogent logic. The Ld. AR has rightly pointed out that, the benefit of deduction u/s 80-IC of the Act is available only to such a unit which is engaged in manufacture of any article or thing and therefore the logic propounded by the lower authorities that, a manufacturing unit is a cost center having no/limited role in profit generation is contrary to the intention of the Legislature and the very purpose of bringing in this profit-linked deduction i.e. Section 80-IC of the Act. Also, in our considered view, normally a profit center is that segment of the business organization which has a profit base or is responsible for generating company's profits. Without a doubt, a manufacturing plant is both a source of revenues & profits and is in fact the main engine of the business function and, hence a profit center. It is noted that, Human resources department, R&D center, administration office etc. are regarded as cost centers and they are not a source of any revenue or profits. Accordingly, this particular observation made by the lower authorities ascribing manufacturing unit to be a cost center to limit the profit attributable to the eligible unit, is found to be erroneous and unjustified.

5.19 We further note that, the case of the lower authorities is also that, the profits derived by the assessee from the eligible business are more than the ordinary profits of other business and therefore he estimated at what could be a reasonable profit from such eligible business and such profit be taken as reasonably deemed to have been derived from the eligible business for the purposes of computing the deduction u/s 80-IC of the Act. We find that both the AO and the Ld. CIT(A) did not bring on record any material or evidence on the basis of which they could say that the accounts of the business of the eligible unit have been so arranged that it has produced to the assessee more than the ordinary profits. Instead, both the lower authorities are noted to have proceeded only on surmises and conjectures. On the other hand, the assessee has placed before us the unit-wise profitability of the eligible unit as well as the non-eligible units. Having perused the same, we find that functionally, asset-wise and risk-wise, the eligible unit at Pantnagar is comparable with the non-eligible unit at Ennore and we also note that the profitability of both these units are also comparable. Moreover, in our considered opinion, when the assessee has placed the audited standalone accounts of the eligible unit at Pantnagar and still if the AO was of the view that the profits of the unit set up in backward area should be lower than other units, then the onus lay on the AO to establish the same with cogent material and corroborative evidence or at least, find specific fault or infirmity in the books produced by the assessee. We however note that the AO clearly failed to do so. Nothing tangible was brought on record to support such allegation or reasoning. As noted above, both the revenues recognized in the stand-alone accounts as well as the costs debited in the stand-alone accounts were based on fair & reasonable parameters and sound accounting principles. The AO has not pointed out any specific defect in the manner of & 1663/Chny/2024 (AY 2019-20) M/s. Ashok Leyland Ltd. preparation of the stand-alone accounts, with corroborative evidence. Instead, the disallowance is noted to have made on mere suspicion and unfounded, baseless observations, as already discussed above.

5.20 According to us, the fact that high profits were earned by the eligible unit in comparison to other units by itself cannot lead to conclusion that the deduction claimed u/s 80-IC was excessive. It is well known that higher or lower profit of a business in comparison to other units can be as a result of the cumulative effect of several factors. For instance, from the facts of the present case, it is noted that unlike the other non-eligible units, the eligible unit at Pantnagar had received grant of Rs.207.16 crores by way of incentive/subsidy from the government.We further note that the product profile manufactured by the eligible unit was also different. It was brought to our notice that, the eligible unit manufactured higher tonnage vehicles which had a better margin, whereas other units manufactured the lower tonnage vehicles which had comparatively lower margins. Due to difference in nature of products manufactured, the margins varied. It was also brought to our notice that, the employee costs at the Pantnagar Unit was comparatively lower to other eligible units due to the high level automation at this new plant whereas other plants were still labor-intensive. Having regard to these factors, we thus note that the assessee had also substantiated on facts that the eligible unit enjoyed benefit of subsidies, better margins and savings in costs in comparison to other units, which contributed to its higher profitability. The aforesaid facts lend credence to our view that the mere higher profit earned by eligible unit cannot be the reason to conclude that the assessee transacted in such an 'arranged' manner so as to produce more profits to it. In this regard, we find merit in the Ld. AR's reliance on the judgment of the Hon'ble Bombay High Court in CIT v. Schmetz India (P.) Ltd [2012] 26 taxmann.com 336/211 Taxman 59 (Bom) (Mag.) in which it has been held that merely because an assessee makes extraordinary profit, it would not lead to the conclusion that the same was organized/arranged for the purpose of claiming higher deduction u/s 10A of the Act. The case of the assessee is further supported by the decisions of the coordinate Benches of this Tribunal in A.T. Kearney India (P.) Ltd v. Addl. CIT [2014] 50 taxmann.com 26/153 ITD 693/66 SOT 140 (Delhi - Trib.) (URO) and Zavata India (P.) Ltd. v. ITO [2013] 31 taxmann.com 147/141 ITD 456 (Hyd -Trib.)

5.21 Coming to the argument of the Ld. CIT, DR that, the AO was legally empowered to estimate the profits, we find the same to be fundamentally flawed. The Ld. AR brought to our attention that, the AO could have legally interfered with the stand-alone profits of the eligible unit only if he could first point out, (a) as to whether he was of the view that the transactions conducted by the eligible unit were not at fair market value in terms of section 80-IA(8) of the Act, or that (b) there was any arrangement with AEs in terms of Section 80-IA(10) of the Act which led to higher profits. As already noted by us above, the revenues recognized in the stand-alone accounts was in accordance with Section 80-IA(8) of the Act and therefore the first option (a) was not applicable in the present case. Further, it is not the AO's case that there was any such arrangement as set out in Section 80-IA(10), basis which it could & 1663/Chny/2024 (AY 2019-20) M/s. Ashok Leyland Ltd. be alleged that the profits had been shifted out of non-eligible unit to the eligible unit. According to us, the AO has failed to show that there existed any arrangement between the assessee and its connected persons or other ineligible units, by which the transactions were so arranged as to produce more than the ordinary profits in the hands of the assessee. Since the AO was also unable to show that there was any 'arrangement' in terms of Section 80-IA(10) of the Act, in our view, the AO could not have invoked the deeming provision and then estimated and scaled down the profits of the eligible unit of the assessee. Thus, according to us, even legally, the AO had erred in estimating the profit of the eligible unit without satisfying the condition precedent as prescribed in section 80-IA(6) read with section 80I-A(8) & (10) of the Act. In this regard, we find that, the reliance placed by the Ld. AR on the decision of the Hon'ble Delhi High Court in the case of Pr. CIT v. Harpreet Kaur [2017] 88 taxmann.com 641/397 ITR 125 (Delhi) against which the SLP preferred by the Revenue has been dismissed by the Hon'ble Apex Court, to be relevant. In the decided case, the AO observed that the profit of the eligible unit of the Assessee located at Baddi was abnormally high when compared to the profits of other units located in Delhi, although the business in these units was the same and all other variables in the business of cosmetics was also similar. The AO accordingly rejected the stand-alone accounts reporting profit of 38.05% and instead adopted 23% for working out the amount eligible for deduction u/s 80-IC of the Act. On appeal, the Hon'ble Delhi High Court held that, without pointing out the specific error in the accounts or disturbing the figures of sales or purchases in terms of Section 80-IA(8) / (10) of the Act, the AO could not have estimated lower profits by comparing the results with other units. The relevant findings taken note of by us, is as under:-

"Firstly, the term "Profit" implies a comparison between the stage of a business at two specific dates separated by an interval of a year. Thus fundamentally the meaning is that the amount of gain made by the business during the year. This can be ascertained by a comparison of the assets of the business at the two dates. To determine the "profit" of a manufacturing Unit the accounting & 1663/Chny/2024 (AY 2019-20) M/s. Ashok Leyland Ltd. standard has given certain guidelines, enumerated in short. In the accounting the "profit" is the difference between the purchase price and the cost of bringing the product to market. A "gross profit" is equal to sales revenue minus cost of goods sold or the expenses that can be traced directly to the production of the goods. Rather, the "operating profit" is also defined as equal to sales revenue minus cost of goods plus all expenses, except interest and taxes. Most of the manufacturing companies have 'Total Cost' based pricing method. Total Cost has, broadly speaking, two components; i.e. raw-material plus value addition (it includes all overheads). Therefore, profit margin is price minus total cost. In manufacturing Unit, thus cost of conversion is production overheads, such as, direct labour cost and inextricably linked expenditure of production. In general, every manufacturing concern has fixed manufacturing capacity. So the objective of such concern ought to be to maximize the profit. Now the problem, as posed, is that let us assume that the said manufacturing unit is producing two products; viz. "A" & "B". For production of "A" product, let us say, there is less working hours, but fetching more value for less money. However, in the production of product "B" due to complex process of manufacturing it requires more working hours. For pricing product "B" the situation is that more money expenditure and may fetch less value. Therefore, in the processing department it is not possible to segregate the two components to determine the segregated margins. Keeping this accounting principle in mind, we revert back to the language of section 80-IC which says that a deduction is permissible of such profits of a specified Undertaking engaged in manufacturing of certain article or thing. The business of the said enterprise/concern should be manufacturing of article or thing and the profit therefrom is eligible for deduction u/s.80-IC if that profit is part and parcel of the gross total income. As noted hereinabove, profit is the difference between the purchase price and the cost of production along with the cost of bringing the product to market. This basic principle of accountancy, as appeared, have been adopted by Baddi Unit because as per Profit & Loss account, cost of material, personal cost and general expenses, corporate expenses were reduced from the sale price to arrive at the "profit before tax" i.e. Rs. 116,82,91,400/-."

10.4 The AO has also concluded that only the incremental profit, representing the difference between the profits earned earlier when the products were procured on P2P basis and the profits earned by the Baddi Unit, should be treated as a manufacturing profit. The AO has then said that earlier the assessee was procuring the products on P2P basis and showing the average profit at 80%, however, on the basis of average selling rate of the produces manufactured by Baddi Unit the average profit was gone up to 86%. The AO has therefore restricted the deduction only at 6%. He has placed reliance on Rolls Royce Plc (supra). In that case, the assessee was a UK based company carrying on marketing and sales activities in India through a subsidiary. The subsidiary was also rendering support services to the assessee, a UK based company. The assessee was carrying out manufacturing operations. It was held that 35% of its profits could be attributed to the marketing activities carried out in India and, therefore, chargeable to tax in India. The facts of that case were altogether different and there was a finding that undisputedly there was a PE in India and as per Indo-UK DTAA the income has to be taxed in India. An another fact was that there was no separate account of the assessee's India operation and the AO had found that on the basis of global accounts the profits were determined on sales. In that case, marketing was said to be the primary activity for earning profit. The profit was directly due to operation in India. In that context the word "attributable" was considered and then it was held that such part of the income as it was reasonably attributable to the operations carried out in India is taxable. The expression "business connection" was also considered and then it was found that it will include a person acting on behalf of a non- resident and carried on certain activities is having business & 1663/Chny/2024 (AY 2019-20) M/s. Ashok Leyland Ltd. connection. A business connection has to be real and intimate and through which income must accrue or arise whether directly or indirectly to the non-resident. On those facts, since it was found that R&D activities were carried out by the assessee, therefore, 15% of the profit was allocated to the R&D activities and balance of the profit was attributable to the marketing activities in India. The said decision was entirely based upon the connectivity of the marketing operations with the profits. The CBDT Circular No.23 of 1969 dated 23/07/1969 was also taken into account wherein it was opined that where a non-resident's sales to Indian customers are secured through the services of an agent in India then that profit is attributable to the agent's services. Meaning thereby because of the close connection of the agent's marketing activity the proportionate profit was attributed to the said activity. Contrary to this, there was no finding that upto the extent of 80%, the profit was attributed to the assessee-company. The segregation between 80% and 6% was not on account of any evidence through which it could independently be established that the major portion of the profit could be attributed to the assessee- company and rest of the profit could only be attributed to the Baddi Unit."

10.8 An interesting argument was raised by ld. Special Counsel that the provisions of section 80-IA(8) prescribes the segregation of profit in case of transfer of goods from one Unit to another Unit. But section 80-IA(8) reads as follows:— ............ Where any goods held for the purpose of the eligible business are transferred to any other business carried on by the assessee, then if the consideration for such transfer as recorded in the accounts of the eligible business do not correspond to the market value of such goods, then for the purposes of the deduction the profits and gains of such eligible business shall be computed as if the transfer has been made at the market value of such goods as on that date. Though the section has its own importance but the area under which this section operates is that where one eligible business is transferred to any other business. We again want to emphasis that the word used in this section is "business" and not the word "profit". We can hence draw an inference by describing these two words and thus have precisely noted that 'eligible business' has a different connotation which is not at par or identical with the "eligible profit". The matter we are dealing is not the case where business as a whole is transferred. This is a case where manufacturing products were sold through C&F in the market. Even this is not the case that first sales were made by the Baddi Unit in favour of the head office or the marketing unit and thereupon the sales were executed by the head office to the open market. Once it was not so, then the fixation of market value of such good is out of the ambits of this section. If there is no intercorporate transfer, then the AO has no right to determine the fair market value of such goods or to compute the arm's length price of such goods. The AO has suggested two things; first that there must be inter-corporate transfer, and second that the transfer should be as per the market price determined by the AO. Both these suggestions are not practicable. If these two suggestions are to be implemented, then a Pandora box shall be opened in respect of the determination of arm's length price vis-a- vis a fair market and then to arrive at reasonable profit. Rather a very complex situation shall emerge. Specially when the Statute do not subscribe such deemed inter-corporate transfer but subscribe actual earning of profit, then the impugned suggestion of the AO do not have legal sanctity in the eyes of law.

10.10 The segment reporting of profit is although in practice but the purpose of such reporting is altogether different. Such segment information is particularly useful for financial analysis, so that the management may keep a close watch on the performance of the diversified business lines. The areas of demarcation are business segment, geographical segment, etc. But as far as the Revenue of an enterprise is concerned while segmentation is required, then Revenue from sales to external customers are reported in the segmented statement of profit and loss. In an accounting system, an intra-company sale between divisions or units is not regarded as Revenue for the purpose of such financial reporting. As per the Accounting Standards an Enterprise Revenue ignores in house-sales that represent Revenue to one segment and Expense to another. In this connection, the AO has discussed the Hon'ble Supreme Court decision pronounced in the case of Liberty India (supra). The AO wanted to justify his attempt of segmentation on the basis of the theory that only the profits derived due to manufacturing activity can be said to be derived from eligible undertaking. It was contested by AR before us that the "segment reporting" is about the segregation of business and not about the segregation of any specific activity. In the case of Liberty India (supra) it was observed that the IT Act broadly provides two types of tax incentives, namely, investment linked incentives and profit linked incentives. The Court was discussing Chapter VIA which provides incentive in the form of tax deductions to the category of "profit linked incentives". The incentive is linked with generation of 'operational profit'. Therefore, the respected Parliament has confined the grant of deductions only derived from eligible business. Each eligible business constitutes a stand alone item in the matter of computation of profit. The Court has said that because of this reason the concept of "segment reporting" was introduced in Indian Accounting Standards. Ld. Counsel Mr. Srivastava has argued that the deduction u/s.80-IC is a profit linked incentive. Only the Operational Profit has to be claimed for u/s. 80-IC deduction. According to him, each of the eligible business constitutes a stand alone item in the matter of computation of profit. For the computation of profit of an eligible & 1663/Chny/2024 (AY 2019-20) M/s. Ashok Leyland Ltd. business the word used is "derived" in section 80-IC which is a narrower connotation, as compared to the word "attributable". In other words, by using the expression "profits derived by an undertaking", Parliament intended to cover such sources not beyond the first degree, i.e. the first degree of manufacturing activity. The law pronounced by the Hon'ble Supreme Court is final and should not be disputed. However, a judgment is to be correctly interpreted.

5.29 In view of the above, we therefore hold that the action of the lower authorities in assuming that the profits of the eligible unit was artificially higher because the other units or company as a whole had a lower profitability without any relevant evidence or material, was baseless and unjustified. We also disapprove their observations for segregating and estimating profits of the eligible unit on pure hypothesis, for the reasons discussed above. Before parting on this issue, it is noted that, the AO has used the expression 'tax evasion' and adoption of 'colorable device' by the assessee in several places in the assessment order, for making the impugned disallowance. We find such usage to be uncalled for as the allegations of 'tax evasion' is a very serious allegation and therefore, the AO should have desisted from using such expression when he never made out such a case in the impugned order. We note that, such allegation, for the reasons discussed above, were unfounded and that the decisions relied upon by the AO for stating so, was completely distinguishable having no relevance in the factum of & 1663/Chny/2024 (AY 2019-20) M/s. Ashok Leyland Ltd. the present case. It is not in dispute that the assessee had indeed invested and set-up a manufacturing facility in industrially designated backward area in Pantnagar, Uttarakhand, in which it has investment more than Rs.2250 crores. The said unit has been in operation for more than nine years and in none of the prior years the authorities are noted to have doubted its existence. It is also not the Revenue's case that the assessee has not fulfilled the conditions precedent in Section 80-IC to avail deduction in respect of profits derived by this eligible unit. We are in agreement with the Ld. AR of the assessee that the assessee is free and entitled to arrange its affairs within the four corners of law to avail tax benefits, which the law permits it to claim. According to us therefore, the AO grossly erred in alleging tax evasion in the present case.

services by companies having net worth/turnover/profit above a threshold and that if such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure. However, it is pertinent to note that in para 13.3 above, it has been mentioned that though, the expenditure incurred towards CSRs is not an expenditure incurred for the purpose of business, if the spend is of the nature described in section 30 to section 36 of the Act deduction shall be allowed under those sections subject to fulfilment of conditions, specified therein. For example if the contribution is made to a scientific research association, or to a university or to a college or other institution to be used for scientific research etc., which are approved under section 35 of the Act as part of CSR spending then deduction can be allowed subject to the fulfilment of conditions prescribed under section 35 of the Act. This explanatory note though self- contradictory i.e. denying deduction under section 37 but allowing the assessee to claim deduction under section 30 to 36, also makes it clear that there is no bar regarding the admissibility of CSR expenditure under any other provision of the Act, except under section 37(1) of the Act. In other words, the intention of the legislature is not to restrict the right of the assessee to claim deduction towards the CSR spend if the payment is otherwise allowable under a specific provision of the Act. Further wherever the intention is to restrict the claim of deduction under any other provisions of the Act the same is explicitly provided for to that effect by the legislature. This view is supported by the Explanatory Memorandum Finance Bill 2015 which brought in the specific restriction for claiming deduction under section 80G of the Act towards the CSR spend towards donation to Swachh Bharat Kosh and Clean Ganga Fund. Therefore we are unable to appreciate the contention that the CSR spend being claimed as a deduction under section 80G of the Act is against the intention of the legislature which restricts the same to be claimed as a deduction under section 37 of the Act.

10. On merits also, we find that view of ld. AO is correct in law. Claiming a deduction from computation of business income as provided from sections 28 to 44DB is different from claiming a deduction under chapter VIA of the Act which is allowed from Total Income. As per Explanation 2 to Section 37, CSR expenditure is not allowable as deduction while computing the business income under the provision of Section 28-44DB, whereas deduction u/s.80G is allowed while computing the total income under Chapter VIA. There is no precondition that claim for deduction u/s.80G on a donation should be voluntary. It is independent of computation of business income as it is allowed from Gross Total Income. The assessee had disallowed the CSR expenses while computing business income. Further, there is no dispute that the assessee has filed complete details of donation and also filed the certificate u/s.80G which was enclosed before the AO. Section 80G (1) of the Act provides that in computing total income of the assessee, they shall be deducted in accordance with the provision of Section, such sum paid by the assessee in the previous year as a donation. Deduction under Chapter VIA provides deduction from the gross total income which is computed after making necessary allowances / disallowances in accordance with Section 28-44BB of the Act including Explanation to Section 37(1). Thus, Section 37(1) and Section 80G of the Act are independent and the principles governing what is not allowable u/s. 37(1) have been provided in the section itself. Even in section 80G also, what is not allowable has also been provided under the Act. For instance, Section 80G specifically mentions two clauses, viz., section 800(2)(a)(iihk) and (iiihl), i.e., contributions towards 'Swacha Bharat Kosh' and 'Clean Ganga Fund', where donation in the nature of CSR Expenditure is not allowable as deduction under section 80G of the Act. Therefore, the disallowances for deduction under section 80G vis-a-vis CSR can be restricted to contributions made to these Funds mentioned in Section 800(2)(a)(iiihk) and (iiihl) only. It is an undisputed fact that the assessee has not claimed any deduction against the aforesaid clauses of 80G (2)(a) of the Act and as such entire donation claimed by the assessee is allowable u/s 80G. The Ministry of Corporate Affairs ("MCA") has issued "FAQs" through General circular no. 01/2016 dated January 12, 2016 (FAQ No. 6) and has clarified on the issue as follows: "Question No. 6: What tax benefits can be availed under CSR? Answer: No specific tax exemptions have been extended to CSR expenditure per se. The Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. While no specific tax exemptions have been & 1663/Chny/2024 (AY 2019-20) M/s. Ashok Leyland Ltd. :: 56 ::