Eligible Industrial Undertakings Carrying Out Manufacturing Activity Is Only Essential Requisite For Claiming Benefit Of Sec 80IC: Delhi High Court

The Delhi High Court dismisses Revenue's appeal against ITAT's order in case of Dabur India Ltd., while reiterating that for purpose of deduction u/s 80IB & 80IC of the Income tax Act, the only essential requisite is that the eligible industrial undertakings should be carrying out manufacture or production of articles or things.

With respect to valuation of shares of Dabur Overseas Ltd, the Division Bench comprising Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav considered ITAT's conclusive findings of fact i.e. that TPO's approach of applying astronomical growth rate of 89% without giving any cogent reason and failure to alter corresponding outgoings/expenses for future years, was unreasonable, particularly when, in subsequent valuation report obtained from an independent valuer, the actual financials which were available during assessment proceedings were adopted.

As per the brief facts of the case, the Revenue Department had challenged the action of the ITAT in holding that no royalty was payable by Dabur Nepal Pvt Ltd to assessee company as against rate of 7.5% on FOB sale value as worked out by AO/TPO. The Department also challenged the action of ITAT in restricting royalty payable by Dabur International Ltd. UAE at a reduced rate of 0.75% on FOB Value as against 4% on FOB sale value as worked out by the AO/TPO. The Department further challenged the action of the ITAT in directing that for valuation of shares of Dabur Overseas Ltd., AO shall be required to adopt the figure of projected growth as taken by assessee i.e. average of growth figure at 19% instead of 25% as previously directed by the CIT(A) & 89% adopted by the AO.

With respect to issues concerning royalty payment, the Bench observed that although assessment on regular basis was proposed on total income of approximately Rs.52 crores, book profits were ultimately worked out u/s 115JB and income subjected to tax was quantified at Rs.211.42 crores.

The Bench reiterated that legal position as enunciated in CIT v. Sadhu Forging Ltd. [2011 SCC OnLine Del 2614], wherein it was observed that “There cannot be any two opinions that manufacturing activity of the type of material being undertaken by the assessee would also generate scrap in the process of manufacturing. The receipts of sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from the industrial undertaking for the purpose of computing deduction under section 80-IB”.

The Bench further reiterated that the activity of forging was “manufacturing” within the ambit of section 80-IB. It was immaterial that the assessee was doing the job of forging also for customers and was charging them on job work basis or on the basis of labour charges.

Therefore, noticing that the CIT(A) had ignored the growth rate based on actual figures for the future years, the High Court found no infirmity in ITAT's order.

Counsel for Assessee: Advocates M. P. Rastogi, Kaushik, Ram Naresh and Ajay Kumar Jain

Counsel for Revenue: Aseem Chawla, Pratishtha Chaudhary, Nivedita and Aditya Gupta.

Case Title: CIT verses Dabur India Ltd

Citation: 2024 LiveLaw (Del) 532

Case Number: ITA 955/2017

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