2019 (9) TMI 1065 - AT - Income Tax

Tribunal ruling: TP adjustments deleted, provisions allowed, disallowances upheld.

Deputy Commissioner of Income Tax, Cirle-10 (1), Kolkata Versus M/s. Akzo Nobel India Ltd. And Vice Versa

Deputy Commissioner of Income Tax, Cirle-10 (1), Kolkata Versus M/s. Akzo Nobel India Ltd. And Vice Versa - TMI Issues Involved:1. Transfer Pricing (TP) adjustments regarding Advertising, Marketing, and Promotion (AMP) expenses.2. TP adjustment concerning Research and Training (R&T) expenditure.3. TP adjustment related to Intra Group Services.4. Provision for meeting liabilities as an ascertained liability.5. Depreciation on Colour Soluble Machines.6. Disallowance under Section 14A read with Rule 8D.7. Adjustment of disallowance under Section 14A while computing book profits under Section 115JB.8. Initiation of penalty proceedings under Section 271(1)(c).9. Levy of interest under Sections 234A, 234B, 234C, and 234D.Detailed Analysis:1. Transfer Pricing (TP) Adjustments Regarding AMP Expenses:The primary issue was whether AMP expenses constitute international transactions. The Tribunal referred to the ITAT Kolkata Bench decision in the case of DCIT vs. M/s Philips India Ltd., which held that AMP expenses do not represent international transactions. The Tribunal also cited the Hon'ble Delhi High Court's judgment in Maruti Suzuki India Limited vs. CIT, concluding that AMP expenses cannot be regarded as international transactions under Section 92B of the Act. Consequently, the TP adjustment related to AMP expenses was deleted.2. TP Adjustment Concerning Research and Training (R&T) Expenditure:The jurisdictional issue was whether R&T expenses could be considered international transactions. The expenses related to service fees paid to ICT India Research & Technology Centre (ICT), a not-for-profit entity providing technical support and training. The Tribunal found that the expenses were for local manufacturing operations and environmental compliance, not for research and development activities. Thus, the R&T expenses were not deemed international transactions under Section 92B, leading to the deletion of the TP adjustment.3. TP Adjustment Related to Intra Group Services:The Tribunal referred to its earlier decision in the assessee’s own case, where it was held that the TPO had not carried out the necessary exercise to compute the arm's length price due to the alleged non-submission of an agreement. The matter was remanded back to the TPO for fresh consideration and a speaking order after providing an opportunity to the assessee.4. Provision for Meeting Liabilities as an Ascertained Liability:The issue was whether provisions made for meeting liabilities were ascertained liabilities. The DRP directed the Assessing Officer to allow the provision based on past activities and systematic estimation, following the Supreme Court's decision in Rotork Controls India (P.) Ltd. v. CIT. The Tribunal found no reason to disagree with the DRP's directions and dismissed the revenue's grounds.5. Depreciation on Colour Soluble Machines:The dispute was whether Colour Soluble Machines should be classified as 'plant and machinery' or 'furniture and fixtures.' The DRP classified them as 'plant and machinery,' considering them operational tools owned and used by the assessee for business purposes. The Tribunal upheld this classification and dismissed the revenue's grounds.6. Disallowance Under Section 14A Read with Rule 8D:The assessee had earned exempt income and made a suo moto disallowance under Section 14A. The Assessing Officer enhanced this disallowance, but the DRP directed the Assessing Officer to follow the Delhi High Court's judgment in Cheminvest Ltd. vs. CIT and recompute the disallowance. The Tribunal found no infirmity in the DRP's direction and dismissed the revenue's grounds.7. Adjustment of Disallowance Under Section 14A While Computing Book Profits Under Section 115JB:The DRP directed the Assessing Officer not to make a similar disallowance under Section 115JB. The Tribunal referred to the Special Bench decision in ACIT vs. Vireet Investment (P.) Ltd., which aligned with the DRP's direction. The Tribunal upheld the DRP's order and dismissed the revenue's grounds.8. Initiation of Penalty Proceedings Under Section 271(1)(c):The Tribunal dismissed this ground as premature.9. Levy of Interest Under Sections 234A, 234B, 234C, and 234D:The Tribunal dismissed this ground as consequential in nature.Conclusion:The appeal of the assessee was allowed in part, and the appeal of the revenue was dismissed.