2023 (8) TMI 1179 - AT - Income Tax

Appeal partly allowed on Transfer Pricing Adjustments. Corporate Tax Grounds issues decided in favor. Disallowances remitted for verification.

The appeal was partly allowed for statistical purposes. The Transfer Pricing Adjustments related to Export Commission and Model Fee were decided in favor ... TP adjustment related to export commission - HELD THAT:- We find that this issue is squarely covered in favour of the assessee by the decisions of ITAT in its own case for AYs. 2015-16 [2021 (5) TMI 949 - ITAT DELHI] & 2016-17 [2021 (11) TMI 570 - ITAT DELHI] assessee has successfully demonstrated not only the benefits but has also shown that the profitability is higher (as per the charts exhibited elsewhere). Considering all no hesitation in directing the AO/TPO to delete the impugned addition on account of export commission. TP adjustment relating to model fee paid for strips and color change - TPO/DRP have made disallowance by holding that model fee paid by the assessee to its AE is nothing but in the nature of royalty which is already paid separately to the AE - HELD THAT:- Upon careful consideration, we find that the payment is according to an agreement. The disallowance has been made by the TPO not on the basis of any method prescribed under the rules or benchmarking the transactions. The Revenue authorities cannot sit into the shoes of businessman to decide which agreement should be made or which should not be. Hence, in effect, authorities below have opined that payment has no commercial expediency. This, in our considered opinion, is not as per the provisions of the Act. Hence, we accept the submissions of assessee and direct that the expenditure should be duly allowed. Disallowance of signage expenses as capital in nature - nature of expenses - HELD THAT:- As decided in assessee own case 2016-17 [2021 (11) TMI 570 - ITAT DELHI] signage expenditure is revenue in nature. Disallowance of sales tools expenses - These sales tools/fixtures are placed at dealer's outlets and are manufactured by third party in accordance with the specifications provided by the assessee - HELD THAT:- As In assessee’s own case for assessment year 2015 – 16 [2021 (5) TMI 949 - ITAT DELHI] we hold that sales tool expenditure are revenue expenditure in nature and therefore the disallowance made AO is directed to be deleted. Capitalization of royalty expenses paid to HMJ - HELD THAT:- As decided in assessee’s own case for AY 2016-17 [2021 (11) TMI 570 - ITAT DELHI] assessee was already engaged in the manufacturing of motorcycle and Scooter and payment of royalty expenses was not with respect to setting up of manufacturing facility. Therefore appeal of the assessee allowed and direct the learned AO to delete the addition on account of capitalisation of royalty expenses holding it to be revenue in nature. Disallowance u/s 80G - assessee made certain donation to approved institutions or funds and claimed 50% of the total donation made as deduction u/s 80G - This amount also formed part of the CSR initiative of the assessee company - AO has disallowed the claim on the ground that anything donation over and above the CSR u/s 80G will be only allowed as the CSR expense is not an allowable expense u/s 37 - HELD THAT:- We find that in the case of Goldman Sachs Services (P.) Ltd. [2020 (11) TMI 464 - ITAT BANGALORE] has held that the other contributions made under section 135 (5) of the Companies Act are also eligible for deduction/s 80G of the Act subject to satisfying the requisite conditions prescribed for deduction u/s 80G - issue is remanded to the file of AO to examine the same whether the payments satisfy the claim of donation u/s 80G of the Act. We find that the case law is fully applicable to the facts of the case. There is no restriction in the Act that expenditure when disallowed for CSR cannot be considered u/s 80G of the Act. Hence, we remit the issue to the file of AO to verify whether these payments were qualified as donations u/s 80G of the Act or not, if they qualify as donation u/s 80G of the Act then the requisite amount deserves to be allowed. Disallowance u/s 80JJAA - employees/ workmen employed by the assessee during the year - HELD THAT:- As we agree that AO has erred in applying amended provisions of section 80JJAA of the Act. Hence, we remit the issue to the file of AO to examine the factual aspects in terms of the unamended provisions of section 80JJAA. The issue of liberal interpretation raised by the ld. Counsel for the assessee is not tenable. The AO will act as per the sanguine provisions of the Act. Additional claim of deduction of expenses - Deduction of expenses in respect of technical know-how - Assessee contented that in light of Circular No. 14(XL- 35) dated 11.04.1955, it has been made clarified by the CBDT that the officers of the Department shall genuinely provide reliefs/remedies available to assessee in cases wherein the assessee has missed to claim any relief available to during the assessment and therefore the claim of deduction shall be allowed by the AO - HELD THAT:- As decided in own case 2016-17 [2021 (11) TMI 570 - ITAT DELHI] stand of the Revenue that where the assessee itself had not claimed as deductible in its hands, then the same cannot be allowed by the additional ground of appeal is not acceptable as there is no estoppel in law; especially where the issue has been decided by the Jurisdictional High Court on similar facts - we direct the Assessing Officer to allow assessee’s claim of deduction in respect of technical know-how payment. Payment of gratuity - assessee submitted that the said disallowance is made without providing any opportunity to assessee and the draft assessment order passed by the NFAC is non- speaking on this ground - HELD THAT:- We find that the issue should be remitted to the AO in the interest of justice. AO shall factually verify the averments of the assessee and decide as per law, by giving the assessee proper opportunity of being heard. Levy of education cess - HELD THAT:- We find that the issue is squarely covered by the decision of Chambal Fertilizers & Chemicals Ltd. [2022 (12) TMI 1098 - SC ORDER] expounded that term ‘tax’ under section 40a(ii) of the Income Tax Act should include cess. Ld. Counsel of the assessee in his elaborate submission tried to distinguish this case law. But we are not convinced. Hence, we decide this issue in favour of Revenue. Issues Involved:1. Transfer Pricing Adjustments2. Corporate Tax Grounds3. Disallowance u/s 80G4. Disallowance u/s 80JJAA5. Claim of Deduction of Expenses in respect of Technical Know-how6. Payment of Gratuity7. Education CessSummary:1. Transfer Pricing Adjustments:Export Commission: The assessee, a subsidiary of Honda Motor Co. Ltd. Japan, paid an export commission under an Export Agreement. The TPO/DRP determined the arm's length price at NIL, arguing no service was provided by the AE and the assessee was a contract manufacturer. The ITAT found this issue covered in favor of the assessee by previous decisions, directing the TPO/AO to delete the adjustment.Model Fee: The TPO/DRP disallowed the model fee paid by the assessee for strips and color change, treating it as a duplicate of royalty payment. The ITAT held that the payment was according to an agreement and not based on any prescribed method, thus directing the expenditure to be allowed.2. Corporate Tax Grounds:Signage Expenses: The AO/DRP treated the expenditure on signage as capital in nature. The ITAT, following previous decisions, held it as revenue expenditure and deleted the disallowance.Sales Tools Expenses: The AO/DRP disallowed sales tools expenses as capital in nature. The ITAT found it to be a contractual obligation and revenue expenditure, directing the disallowance to be deleted.Capitalization of Royalty Expenses: The AO/DRP treated 25% of running royalty as capital in nature. The ITAT, following previous decisions, held the royalty expenses as revenue in nature and deleted the addition.3. Disallowance u/s 80G:The AO/DRP disallowed deduction claimed u/s 80G for CSR-related donations. The ITAT remitted the issue to the AO to verify if the payments qualify as donations u/s 80G, allowing the requisite amount if they do.4. Disallowance u/s 80JJAA:The AO applied amended provisions of section 80JJAA, disallowing claims for employees without PF numbers and those earning above Rs. 25,000. The ITAT remitted the issue to the AO to apply the unamended provisions and decide accordingly.5. Claim of Deduction of Expenses in respect of Technical Know-how:The AO/DRP rejected the additional claim of deduction for technical know-how expenses, as it was not claimed in the return of income. The ITAT, following previous decisions, allowed the claim based on CBDT Circular No. 14(XL-35).6. Payment of Gratuity:The AO made a disallowance based on an intimation issued under section 143(1). The ITAT remitted the issue to the AO for factual verification and decision as per law, ensuring proper opportunity for the assessee to be heard.7. Education Cess:The ITAT upheld the levy of education cess, following the Supreme Court decision in JCIT vs. Chambal Fertilizers & Chemicals Ltd., which held that 'tax' under section 40a(ii) includes cess.Conclusion:The appeal was partly allowed for statistical purposes, with several issues remanded for further verification and others decided in favor of the assessee based on previous judicial precedents.