DCIT Vs Mahle Filters Systems (India) Ltd (ITAT Delhi)
80IC Deduction Protected: ITAT Delhi Rejects “Sham Amalgamation” Theory, Allows Expense Allocation on After-Market Sales Basis
Delhi ITAT disposed of cross-appeals arising from a large Section 80IC deduction dispute post-amalgamation.
The Tribunal upheld the CIT(A)’s order granting substantial relief to the assessee and dismissed the Revenue’s appeal in entirety, while partly allowing the assessee’s appeal.
On the core issue, the ITAT held that after-market (trading) expenses were correctly allocable on the basis of after-market trading sales, and not on total sales, as consistently followed by the assessee and accepted in earlier years. The Tribunal applied the principle of consistency and relied on its own decision in the assessee’s case for AY 2009-10, rejecting the Revenue’s allegation that the amalgamation was a sham device to claim 80IC deduction.
The ITAT further held that:
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Amalgamation approved by the High Court cannot be treated as colourable or reconstruction of business u/s 80IC(4).
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Section 80IA(12) was wrongly invoked, as the eligible Parwanoo unit always belonged to the assessee and continued unchanged post-amalgamation.
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Reimbursement of expenses to foreign group entities was not taxable in India; hence no TDS u/s 195 and no disallowance u/s 40(a)(i) was warranted.
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Royalty payments were held to be revenue expenditure, following settled jurisprudence including earlier years of the assessee.
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Adhoc mark-up of 10% on inter-unit transfers was unsustainable; profits cannot be re-estimated without rejecting books.
Accordingly, the Revenue’s appeal was dismissed, and the assessee’s appeal was partly allowed, reaffirming strong judicial protection to 80IC claims backed by genuine operations and consistency.
FULL TEXT OF THE ORDER OF ITAT DELHI
