D.C.I.T CIR - 12,KOLKATA, KOLKATA vs. M/S BERGER PAINTS INDIA LTD, KOLKATA

The captioned appeal filed by the Revenue pertaining to A.Y.2006-07, is directed against the order passed by the Commissioner of Income Tax –(Appeals) – XII, Kolkata, in Appeal No.919/XII/12/09-10, dated 12.03.2013, which in turn arises out of an order passed by the Ld. Assessing Officer u/s 143(3) of Income Tax Act, 1961 (in short, the ‘Act’), dated 30.12.2009.

M/s. Berger Paints India Ltd. A..Y.2006-07 operational during different periods. In the computation of profits derived from respective units the assessee had reduced common selling and administrative overheads and common administrative expenses for arriving at the profits and gains derived from the respective units which are eligible for deduction u/s 80-IB of the Act. The assessee reduced selling and administrative expenses and common administrative expenses from the profit derived from the respective units as explained above. During the assessment proceedings the assessee furnished a note on the basis of apportionment of the common expenses. The assessee claimed deduction u/s 80-IB of the Act at Rs.33,81,19, 725/- whereas the AO computed the deduction u/s 80-IB of the Act at Rs.30,21,88,063/-. There is a difference between the amount claimed by the assessee u/s 80-IB of the Act and the deduction allowed by the AO. The reason of the said difference is the different method of apportionment of expenditure followed by the Assessing Officer. That is, the method adopted by the Assessing Officer for apportionment of selling & administrative and common administrative expenditure was different. The Assessing Officer, admittedly, did not dispute the eligibility of the assessee to claim deduction U/s 80-IB. The addition made by the Assessing Officer was on account of method for apportionment of expenditure for all the eligible units. The Assessing Officer held in his assessment order in respect of method to be followed for apportionment of expenditure for all eligible units: “………Thus the correct proportion will be the one which bears the same proportion as the turnover of the 80-IB unit bears to the increase in the total turnover of the assessee-company. So, the correct formula for calculating “Head office expenses” in respect to Pondicherry unit should be as under:- Turnover of Pondicherry unit Difference in Total Turnover in F.Y.2005-06 & F. Y. 1996-97 In other words, instead of taking “Total turnover in denominator, “Difference of total turnover in F.Y. 2005-06 and F.Y.1996-97” should be taken. Moreover, the total turnover of F.Y.1996-97 should be brought to the level of F.Y. 2005-06 by applying inflation factor since the assessee is applying the inflation factor to the “Head office expenses:incurred in Financial Year 1996-97, in order to bring it to the level of Financial Year 2005-06. (a) The above mentioned method applies for expenditure under the head “common selling expenses” too and also for all the units for which deduction u/s 80-IB of the Act has been claimed by the assessee.”

This way, the Assessing Officer made the addition of Rs.3,59,31,662/- on account of method for apportionment of expenditure for all the eligible units.

M/s. Berger Paints India Ltd. A..Y.2006-07 3. Aggrieved from the order of the ld. Assessing Officer, the assessee filed appeal before CIT(A), who has deleted the addition made by the Assessing Officer. The assessee, before the ld CIT(A), apart from the documents and explanations submitted before the Assessing Officer, submitted the judgments of the Hon`ble ITAT Kolkata and reasons for allocation of common expenses. The submission made by the assessee before the ld.CIT(A) are given below: “It is submitted that in the earlier years, the basis for allocation of common selling & head office expenses adopted by the appellant has been accepted by the Hon’ble Kolkata Tribunal (A.Ys.2000-01, A.Ys.2001-02 and A.Ys.2002-03). The Hon’ble Kolkata Tribunal in its consolidated order dated 17th October, 2006 passed for the A.Ys.2000-01 and 2001-02 has held the following : " ... On going through the basis of allocation of the said common head office and selling expenses adopted by the assessee for allocation of common expenses is a reasonable and scientific basis and does not call for any modification ... " [Reference is drawn to Annexure - VIII, Page - 127 to 136 of the Paper Book, relevant page - 133, para - 5.5]. Further, the Hon'ble Kolkata Tribunal in A.Y 2002-03 has held the following- "Respectfully following the decision of the ITAT dated 17th October, 2006 (supra) in the case of the assessee, we are of considered opinion that the Department should have accepted the allocation made by the assessee .... ". [Reference is drawn to Annexure - IV, Page - 1 00 to 117 of the Paper Book, relevant page - 114, para - 9.2]. Thus, this ground of the appellant is squarely covered by the aforesaid orders of the Hon'ble Kolkata Tribunal.

4. The appellant, against the said order under section 143(3) for the Assessment Year 2002- 03 filed an appeal before the then Ld. CIT(A) who by his order dated 28th February, 2006 (enclosed herewith in Annexure - III, Page - 94 to 99 of the Paper Book) expressed his inability to adjudicate on the issue of deduction claimed by the assessee under section 80lB of the Act since the then Ld. CIT, Kolkata-IV, vide his order dated 4th January, 2006 passed under section 263 of the Act held the assessment order for the said year as erroneous and prejudicial to the interest of the revenue and directed the then Assessing Officer to further decrease the deduction claimed by the assessee under section 80IB of the Act, against which the appellant was in appeal before the Hon'ble Tribunal. However, the appellant filed an appeal before the Hon'ble Tribunal against the order passed by the Ld. CIT (A).

M/s. Berger Paints India Ltd. A..Y.2006-07 5. The Hon' ble Tribunal passed a consolidated order dated 13th August, 2007 (enclosed herewith in Annexure - IV, Page – 100 to 117 of the Paper Book) against both the aforesaid orders (order arising out of section 263 & CIT(A)'s order). In the said order, after examining the issue at length, it was held by the Hon 'ble Bench that- "Respectfully following the decision of the ITAT dated 17th October, 2006 (supra) in the case of the assessee, we are of considered opinion that the Department should have accepted the allocation made by the assessee .... ". [Reference is drawn to Annexure - IV, Page - 100 to 117, relevant page - 114 of the Paper Book, para - 9.2].

Further the Hon'ble Tribunal directed the then Ld. CIT(A) to decide the issue in favour of the appellant following the decision of the Hon'ble ITAT in appellant's own case for the Assessment Years 2000-01 and 2001-02 as per its order dated 17th October, 2006. [Reference is drawn to Annexure - IV, Page - 100 to 117, relevant page - 114 of the Paper Book, para - 12].

M/s. Berger Paints India Ltd. A..Y.2006-07 Based on the above cited submissions of the assessee and merits of the case, the ld CIT(A) allowed the appeal of the assessee stating that issue of allocation of expenditure is covered in assessee`s favour in assessee`s own case in ITA order No. 290/Kol/2006 and 1166/Kol/2006 for A.Y. 2002-03 dated 13.08.2007, which is placed at page No.100 of the Paper Book.

1. Whether on the facts and in the circumstqances of the case, Ld. CIT(A) erred in allowing relief of Rs.,30,21,88,063/- u/s 80IB.”

4.1. The ld. Departmental Representative (DR) for the revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para, and is not being repeated for the sake of brevity. 4.2. On the other hand, the ld. Authorized Representative (AR) for the assessee has vehemently stated that the allocation of common selling and administrative expenses adopted by the appellant has been accepted by the Hon’ble Kolkata Tribunal for A.Y.2000-01, 2001-02 and A.Y.2002-03. The Hon’ble Kolkata Tribunal in its consolidated order dated 17.05.2006 passed for A.Ys.2000-01 and 2001-02 has held the following: “On going through the basis of allocation of the said common head office and selling expenses adopted by the assessee for allocation of common expenses is a reasonable and scientific basis and does not call for any modification…” The deduction claimed by the assessee was computed with reference to the profits of the undertaking as certified by the auditors of the assessee which was further reduced by the amounts of common selling and head office expenses arrived at by the assessee by following a consistent basis adopted by it since the previous year relevant to A.Y.1998-99 during which the undertaking located at Pondicherry became operational and deduction u/s 80IA was claimed with respect to the profits derived from for the first time. The assessee has been following the consistent basis for allocation of common selling and head office expenses which were accepted by the ld. CIT(A). The ld. AR for the assessee has also pointed out that the Hon’ble Tribunal passed a consolidated order dated 13.08.2007 against the orders (order arising out of section M/s. Berger Paints India Ltd. A..Y.2006-07 263 and CIT(A)’s order). In the said order after examining the issue at length, it was held by the Hon’ble Bench that “Respectfully following the decision of the ITAT dated 17th October, 2006 (supra) in the case of the assessee, we are of considered opinion that the Department should have accepted the allocation made by the assessee…”. The ld. AR for the assesse has relied on the following judgments ( assessee`s own case) of the Hon’ble ITAT Kolkata Bench, which are before us and placed on record at pages 100 & 123 of Paper Book, respectively : i) and 1166/Kol/2006 dated 13.08.2007 “9. We have carefully considered the issue. It is seen that the Ld. CIT has rejected the certificate given by the auditor on the basis of the statement of Shri Prabal Kumar Sarkar recorded u/s 131(1) of the IT Act. He is, however, himself not certain whether the amount to be apportioned should be taken as Rs.60 crores or Rs.156 crores. The expenditure on various items discussed by him was Rs. 60 crores. Later on he has taken the amount of Rs.156 crores on the basis of the entire expenses, booked at head office. He has also observed that it was not possible to correctly apportion the expenditure without resorting to the audit u/s 142 (2A) of the IT Act. He has however, not given the reason why he could not set aside the issue and restore it to the AO for considering the action u/s 142(2A) of the IT Act. On the other hand, the Id. Counsel has pointed out, among other things, that the issue has been duly considered by the ITAT in the case of the assessee for assessment years 2000-01 AND 2001-02 AS PER ORDER DATED 17th October, 2006 (supra), The issue involved was the deduction u/s 80-IB in respect of' Pondicherry unit which started production during the period relevant to A.Yr 1998-99 . The ITAT as per order dated 17th October, 2006 held that the adhoc profit ratio, could not apply consistently in all the years for allocation of expenditure of head office to the eligible unit. It was also held that in addition to the audited accounts of the assessee company, it was maintaining separate accounts for the Pondicherry unit to ascertain its profit which was again certified by the auditors and the same should have been accepted. It was also observed that once the department had accepted the decision on a particular issue by not challenging the same in the earlier years, it was not open to the department to contest the same in the later years and since the department in this case had accepted the basis of allocation of common .head office and selling expenses in the A.Yr. 1998-99 and there was no dispute as to the effect that the same basis was adopted in the assessment for the A.yr. 2000-01 and the department should have accepted the allocation made by the assessee on the basis of the audited accounts and certificate of the auditors. 9.1. The relevant portion of the order of dated 17th October, 2006 (supra) of the ITAT is reproduced below : "We have given a careful consideration to the facts of the case the position in law. We have also considered the method/basis of estimation of common HO and selling expenses. We note that the assessee has filed an audited certificate with the return to substantiate its claim u/s 80-IB, The profit and loss account of M/s. Berger Paints India Ltd. A..Y.2006-07 Pondicherry unit has been certified by the auditors to be true and fair subject to the aforesaid note. From the audit report it is clear that the auditors' arrived at the profit of the Pondicherry unit after considering and apportioning all expenses related to the unit except for common HO and selling expenses. Therefore the auditors clearly stated that the profit and loss account of the Pondicherry unit gives a true & fair view as regard income and expenditures derived by the unit except for common HO & selling expenses. It was only relating to the common HO and selling expenses the Auditors gave the said note. The company as a whole has an audited account & from this audited accounts common HO and selling expenses attributable to the Pondicherry unit has not been considered by the auditors. We agree with the A/R that this allocation is an estimation from audited figures based on some scientific/reasonable method and not audit (as the company has an audited account), the same has been covered by way of note. The assessee itself has adopted a basis for allocation of common HO and selling expenses which may be attributed to the operations at the Pondicherry unit as stated in the foregoing paragraphs. The assessee has taken all relevant common HO & selling expenses attributable to Pondicherry unit, applied inflation rate @ 5% from F. Y. 1996-97 (i.e. A. Y.1997-98) & after arriving at the total common HO & selling expenses for the relevant assessment year applied the turnover ratio (turnover of Pondicherry/turnover of the company). From the detailed calculations of allocations of common head office expenses placed at pages 67-68 of the paper book, we note that all the common expenses (viz. MCRE rent - office & residence, Office and flat upkeep, law charges, tea room, medical, electricity, rates and taxes, TTP, BP & BE, printing and stationery, books and periodical, traveling, LTA, bank charges, in-house computer expenses, cash commission, repacking expenses, HRA, incentive salesman, other expenses, canteen, staff welfare, donation and subscription, directors fees, gratuity, machine accounting, sec. Off expenses, insurance , training & development, professional fees, brokerage & commission, in-house .Xerox, ESI, shifting expenses, ARB internal. audit expenses etc.) including expenses on salaries, advertisement and sales promotion etc have been duly considered by the assessee for allocation to the unit eligible for deduction u/s 80-IB and thus there cannot be any question of inflated profits as raised by the Department in Ground No. (iv) On going through the basis of allocation of the said common head office and selling expenses adopted by the assessee consistently from the A. Y. 1998-99, we are of the considered view that the said basis adopted by the assessee for allocation of common expenses is a reasonable and scientific basis and does not call for any modification. The basis accepted by the AO is arbitrary as he has not stated the reason for rejection of the assessee's method, he has not stated how he arrived at 20% for allocating common HO expenditure which shows he has taken an adhoc figure and we accept that profit ratio cannot be applied consistently in all years. Moreover, in addition to the audited accounts of the company, the assessee maintains separate accounts for the Pondicherry unit to ascertain its profit and which again is certified by the auditors. The same should be accepted. We are in agreement with the contention of the Id. AR which is supported by the decisions of the Hon’ble Supreme Court as stated above that once the Department has accepted a decision on a particular issue by not challenging the same before any higher forum it is not open for it to contend in the contrary on the same issue in a later year. We would reiterate that in the present case the department has accepted the basis of allocation of common head office and selling expenses In the AY 98-99 and there

M/s. Berger Paints India Ltd. A..Y.2006-07 is no dispute as to the fact that the same basis has been adopted by the assessee in AY 2000-01 which are before us. Following the ratio laid down in the decisions rendered by the Hon 'ble Supreme Court, we uphold the decision of the CIT(A) on this issue and thus dismiss Ground Nos. (iii) and (iv) raised by the department ...” 9.2. In our considered opinion the claim u/s 80-IB for Pondicherry unit has already been considered and the facts of the claim of deduction u/s 80-IB for Goa unit are also similar to that of Pondicherry unit. Respectfully following the decision of the ITAT dated 17th October, 2006 (supra) in the case of the assessee, we arc of the considered opinion that the department should have accepted the allocation made by the assessee and the order of the AO, in any case, could not be considered erroneous in so far as it was prejudicial to the interest of the revenue. The order u/s 263 cannot, therefore, be sustained. The appeal of the assessee is, therefore, allowed. ii) order dated 20.03.2009. “5. After hearing the rival submissions and on careful perusal of the materials available on record, we are unable to accept the contention of the Ld. DR, keeping in view of the fact that if any grievance is caused to the Revenue against the orders of the ITAT, the same can be questioned at the higher forums and as long as the ITAT orders are not reversed by the higher authorities, judicial proprietary requires that the Coordinate Bench of the Tribunal should follow the orders of the another Bench. Since the Ld. CIT(A) has simply followed the orders of the ITAT in assessee’s own case for the earlier two years and the Ld. DR could not bring any materials contrary to the findings of the Ld. CIT(A), we find no infirmity in the orders of the Ld. CIT(A) to be interfered with. Accordingly, we confirm the order of the Ld. CIT(A) and dismiss the appeal of the Revenue.”

4.3. Having heard the rival submissions, perused the material available on record, we are of the view that there is merit in the submissions of the assessee, as the proposition canvassed by the ld. AR for the assessee are supported by Judgments cited above and the facts narrated by him above. The ld., AR has pointed out that since the issue is squarely covered in favour of the assessee by the orders passed by the Kolkata Bench of the Tribunal as cited above. The ld. AR has also pointed out that the assessee has been following the method for allocation of common selling and office expenses since long. Therefore the assessee under consideration has been following consistent basis for allocation of common selling expenses and head office expenses. The method adopted by the assessee has been confirmed by the ld. CIT(A) and also confirmed by the Jurisdictional ITAT Kolkata (supra). The AO while making the assessment did not accept the basis for allocation of common selling and head office expenses adopted consistently by the assessee and he has not accepted the orders of M/s. Berger Paints India Ltd. A..Y.2006-07 the Kolkata Bench of Tribunal. Since the issue is squarely covered in favour of the assessee by the orders passed by the Kolkata Bench of the Tribunal in the preceding previous years, therefore we do not hesitate to confirm the order passed by the ld. CIT(A).

4.4. In the result, the appeal of the revenue is dismissed.

Order pronounced in the court on 23/11/2016