DCIT, NEW DELHI vs. M/S MAHLE FILTER SYSTEMS (INDIA) PVT. LTD.,, NEW DELHI
Income Tax Appellate Tribunal, DELHI BENCH ‘E’ NEW DELHI
Before: SHRI MAHAVIR SINGH
PER MAHAVIR SINGH, VP:
These are cross appeals filed by the Revenue as well as Assessee are arising out of order of Ld. Commissioner of Income Tax (A)-(IX), New Delhi in Appeal No. 186/15-16 dated 02.05.2016. Assessment was framed by the 2
DCIT, Circle-6(1), New Delhi for the assessment year 2010-11 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) vide order dated
02.05.2016. Since these cross appeals are inter-connected, hence, the same were heard together and disposed of by this common order for the sake of convenience.
2. The first common issue raised in both the cross Appeals filed by the Revenue as well as Assessee is as regards to order of the CIT(A) restricting the addition made by the AO on after-market (trading) expenses should be allocated on the basis of total sales as against after-market (trading) sales basis adopted by the assessee and thereby making an addition of Rs. 9,66,690/- and deleting the balance disallowance of Rs. 3,74,32,865/- u/s. 80IC of the Act. For this, Revenue has raised following ground nos. 1 to 3 :-
“1. Whether on the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Rs. 3,74,32,865/- u/s. 80IC ignoring the fact that the transaction was sham in nature and the purpose of following the circuitous route of first merging M/s Mahle Filter
Systems (India) Ltd. With M/s Purolator India Ltd. And then changing the name of the company to M/s Mahle Filter Systems Ltd. was to get the benefit of deduction u/s. 80IC of the Act.
Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) is justified in allowing deduction u/s. 80IC of the Act to the assessee ignoring a fact that use of substantial asset and manpower of amalgamating undertaking (Poona Unit) by the amalgamated (Parwanoo Unit) constituted reconstruction of the business u/s. 80IC(4) of the Act?
Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in allowing deduction u/s. 80IC of the Act to the assessee ignoring ratio decidendi of Apex court in case of M/s Textile was held that transfer and use of substantial assets and manpower will amount to reconstruction of the business?”
1. Also for this, assessee has raised following ground nos. 1, 1.1 and 1.2 :- “1. That the CIT(A) erred on facts and in law in holding that the after- market (trading) expenses should be allocated on the basis of total sales as against after-market (trading) sales basis adopted by the appellant and thereby making an addition of Rs. 9,66,690/-.
1 That the CIT(A) erred on facts and in law in holding that the marketing expenses incurred by the head office of the appellant promoted the sales of the appellant company in general and not just in respect of the trading sales.
2 That the CIT(A) erred on facts and in law in not appreciating that the appellant was selling directly to Original Equipment Manufacturers (OEMs) from the Parwanoo unit and only selling to the retail customers through the head office of the appellant.”
Brief facts of the case are that the assessee is a company registered under the Companies Act, 1956 is inter alia engaged in the business of manufacturing and trading of Automotive and industrial filters. 50% share in the assessee is held by Mahle Filter Systems GMBH and 46% stake is held by Asia Investments Pvt. Ltd. Mahle Filter Systems Private Limited was a company incorporated under the Companies Act, 1956 and was engaged in the business of manufacture and trading of automotive and industrial filters at Pune. Erstwhile Mahle was a wholly owned subsidiary of Mahle Filter Systems GMBH. In order to expand its business operations and to synergize its business operations, the assessee entered into a scheme of arrangement for amalgamation of erstwhile Mahle into the assessment under section 391 and 394 of the Companies Act, 1956. The salient features of the arrangement are as under:- i. Erstwhile Mahle is the transferor company; ii. The assessee is the transferee company; iii. All property, rights, interest, liabilities, duties and power of the erstwhile Mahle were to be transferred to and vested in the assessee; iv. Once the scheme of amalgamation becomes effective, erstwhile Mahle shall stand dissolved. v. Upon the amalgamation scheme becoming effective, name of the transferee company shall be substituted with the name of the transferor company.
The scheme of amalgamation was approved without any modifications by the High Court vide order dated 27.05.2008. 4. After the amalgamation, the assessee in accordance with terms of the amalgamation agreement, filed an application before the