TaxTMI 
TaxTMI 
2016 (5) TMI 1253
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....e ld. Commissioner of Income Tax (Appeals)-XII, Kolkata dated 13.06.2008. 3. The issue raised in Ground No. 1 of this appeal relates to the disallowance of Rs. 1,35,14,449/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 40(a)(i) on account of payment made by the assessee to M/s. Reckitt Benckiser Expatriate Services Limited, UK (in short RBESL-UK) as expatriate fees. 4. The assessee in the present case is a Company, which is engaged in the business of manufacturing and trading of household products. The return of income for the year under consideration was filed by it on 28.11.2003 declaring total income of Rs. 68,78,30,020/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee-company has made a payment of Rs. 1.35 crores to M/s. RBESL-UK towards expatriate fees. The assessee-company was called upon by the Assessing Officer to explain the nature of this payment as well as to furnish the details of tax, if any, deducted at source therefrom. In reply, it was submitted by the assessee that the said payment was made to M/s. RBESL-UK towards reimbursement of salaries paid to Mr. Rojan Bogac and....
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.... all these agreement there is no mention whatsoever of M/s, RBESL U.K. As per the agreement produced in. the course of hearing M's, RBESL is neither a party to these agreements nor in any way connected with these agreements. This clearly shows that there are two limbs of this transaction. The first one is the transaction between the assessee company and RBSEL by which the assessee company was supposed to pay the expatriate fees to these company for the services to be rendered. These services can be rendered either from outside India or through an employee and/or a person deputed in India to carry out the work. In this case the services have been provided by RBESL by deputing two Executives in India for which M/s. RBESL is being paid/remunerated. It is worthwhile to mention here that M/s. RBESL is an Associate Enterprise of the assessee company. Now let us examine whether the payment to be made to RBESL are taxable in India or not as per the Income Tax Act. The tax residence certificate for RBESL clearly establishes that it is tax resident of U.K. The taxability of these payments will be determined as per the provisions of DTAA between India and UK. As per the ....
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....ndia and UK. Since these payments were made to a non-resident, the assessee was required to deduct TDS under section 195 of the Income tax Act. The Hon'ble Supreme Court of India in the case of Transmission Corporation of India -vs.- CIT has clearly stated that assesee is bound to deduct TDS on payment to non-resident as per the provisions of section 195 until and unless they obtain a nil certificate from the department. As the assessee has failed to deduct TDS on this payment. Section 40(a)(i) comes into apply which clearly states that when the assessee has failed to deduct TDS for any sum payable outside India on which the tax has not been deducted, the same is not to be allowed as deduction while computing the income of the assessee". The Assessing Officer thus invoked the provisions of section 40(a)(i) and disallowed the payment of Rs. 1.35 crores made by the assessee to M/s. RBESL-UK towards expatriate fees. 6. The disallowance made by the Assessing Officer under section 40(a)(i) was challenged by the assessee in the appeal filed before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), it was reiterated by the asse....
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....here was no question of making any disallowance under section 40(a)(i) for the alleged failure of the assessee to deduct tax at source. In support of this contention, he relied on the decisions of Mumbai Bench of this Tribunal in the case of ACIT -vs.- Nagase India Pvt. Limited (ITA Nos. 7866 & 8022/Mum./2011 dated 05.03.2014) and in the case of Temasek Holdings Advisers India Pvt. Limited -vs.-DCIT [160 TTJ 556]. 8 The ld. D.R., on the other hand, invited our attention to the employment agreement placed on record by the assessee and pointed out certain anomalies and shortcomings there. According to him, the said agreement was not duly signed by the concerned parties and identity of one person Mr. Frank Ruther is not proved. He submitted that even the TDS certificates filed by the assessee in Form No. 16 do not contain permanent account number. He contended that all these infirmities in the relevant documentary evidence produced by the assessee as well as other infirmities specifically pointed out by the Assessing Officer clearly show that the claim of the assessee of having paid the amount in question as reimbursement to salaries paid to its employees was not genuine and as hel....
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....ion, which is similar to the present case, it was held by the Tribunal that there was no element of income in the payment made by the assessee to Japanese Company so as to warrant disallowance under section 40(a)(i) for the alleged failure of deduction of tax at source. A similar fact situation was involved in the case of Temasec Holdings Advisors India Pvt. Limited (supra), wherein Mumbai Bench of ITAT held that the assessee was not liable to deduct TDS under section 194 on the reimbursement of salary of seconded employees. Keeping in view these decisions of Coordinate Bench of this Tribunal in the case of M/s. Nagase India Pvt. Limited (supra) and Temasek Holdings Advisers India Pvt. Limited (supra) and having regard to all the facts of the case, we are of the view that the assessee was not liable to deduct tax at source from the amount in question paid to M/s. RBESL-UK towards reimbursement of salary paid to expatriate employees and the disallowance made by the Assessing Officer under section 40(a)(i) for the alleged failure of the assessee to deduct tax at source is not sustainable. We accordingly delete the said disallowance and allow Ground No. 1 of the assessee's appeal.....
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....and the balance amount of Rs. 1.69 crores was found to be excess. He held that this excess provision was liable to be disallowed not being pertinent to the year under consideration and accordingly the disallowance of Rs. 1,69,27,615/- was made by him on account of provision for marketing expenses. 13. The disallowance made by the Assessing Officer out of the provision for marketing expenses was disputed by the assessee in the appeal file d before the ld. CIT(Appeals). Besides reiterating the submissions made before the Assessing Officer, it was also brought to the notice of the ld. CIT(Appeals) by the assessee that the excess provision of Rs. 1.69 crores having been offered to tax in the subsequent years under section 41(1) at the same rate, there was no loss to the Revenue. The ld. CIT(Appeals), however, did not find merit in the stand of assessee and rejecting the same, he proceeded to confirm the disallowance made by the Assessing Officer on account of excess provision made for marketing expenses. 14. The ld. counsel for the assessee explained the nature of provision made for marketing expenses and submitted that such provision is required to be made in the relevant year o....
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....nd there was requirement to make provision to settle the same. His only objection is that the provision so made was excess going by the amount actually required by the assessee subsequently to settle the obligation and accordingly a disallowance to the extent of such excess provision amounting to Rs. 1.69 crores was made by him. The Assessing Officer thus finally objected to the quantum of provision made by the assessee for marketing expenses on the ground that the estimate made by the assessee of the amount of obligation is not reliable. 17. At the time of hearing before us, the ld. D.R. has also reiterated this stand by submitting that the provision made by the assesese for marketing expenses is found to be always on the higher side, which clearly shows that the estimate made by the assessee of this liability is not reliable. We find it difficult to accept this stand of the Revenue. It is pertinent to note here that out of the total provision of Rs. 19.90 crores made by the assessee for marketing expenses, a sum of Rs. 18.20 crores was required to settle the obligation and only the balance amount of Rs. 1.69 crores, which is less than 10% of the total provision made by the ass....
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....ne year, the cost incurred on production of such film could be allowed only on pro-rata basis depending on the number of months in which the films had been used in the year under consideration. He accordingly required the assessee to furnish the relevant details of expenditure incurred on production of films during the year under consideration month-wise and on that basis made a disallowance on pro-rata basis at Rs. 1,76,50,483/-. 20. Before the ld. CIT(Appeals), reliance was placed by the assessee on the decision of the Hon'ble Calcutta High Court in the case of CIT -vs.- Berger Paints India Limited reported in 254 ITR 503 to contend that advertisement expenses which are normally to be treated as revenue expenses since the memory of purchasing market is short and the advertisement is needed from year to year. It was also submitted that the life span of regular Ad-films is about a year and since expenses on production of such films are required to be incurred throughout the year, there is no question of any enduring benefit arising from the expenses incurred on production of films. The ld. CIT(Appeals) did not find merit in the submissions of the assessee. According to him, ....
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....uch disallowance on pro-rata basis is worked out by the Assessing Officer on the basis of working given by the assessee himself and the assessee therefore, is not justified to find fault in such disallowance made by the Assessing Officer on pro-rata basis. 23. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the expenditure in question incurred by the assessee on production of Ad-films is revenue in nature and as rightly submitted by the ld. counsel for the assessee, this position has been accepted even by the Assessing Officer as well as by the ld. CIT(Appeals) by not treating the same as capital expenditure. This, however, considered that the benefit of Ad-films was partly available to the assessee even in the immediately succeeding year going by the useful life of the films of one year and accordingly made a disallowance on pro- rata basis and deferred the same to the subsequent year. In this regard, the ld. counsel for the assessee has relied on the decision of Ahmedaba d Special Bench of this Tribunal in the case of Ashima Syntex Limited (supra), wherein the question relating to the treatment to be give....
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....Health Care Limited (supra) and that of the Ahmedabad Special Bench decision of ITAT in the case of Ashima Syntex Limited (supra) thus is squarely applicable in the facts of the present case and respectfully following the same, we delete the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of cost of Ad-films on pro-rata basis. Ground No. 3 of the assessee's appeal is accordingly allowed. 25. The issue raised in Ground No. 4 of the assessee's appeal relates to the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of assessee's claim for deduction under section 80IA to the extent of Rs. 47,34,361/-. 26. In the return of income filed for the year under consideration, the assessee-company had claimed deduction of Rs. 2,08,64,312/- under section 80IA being 30% of the profit of Rs. 6,95,47,705/- of its Insecticides Plant at Hosur in Tamil Nadu. During the course of assessment proceedings, the claim of the assessee for deduction under section 80IA was examined by the Assessing Officer and on such examination, he was of the view that the allocation of indirect expenses made by the assess....
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.... of these international transactions, a reference under section 92CA(1) of the Act was made by the Assessing Officer to the Transfer Pricing Officer (in short 'TPO'). In the Transfer Pricing Study Report filed by the assessee, the ALP in relation to the international transactions involving export of raw materials and finished products was determined by the Assessing Officer by using Transactions Net Margin Method (in short 'TNMM') as the most appropriate method. The Operating Profit to Total Cost (OP/TC) was taken as the Price Level Indicator (in short PLI) and since the OP/TC of these transactions as worked out by the assessee at 7.96% was within the permissible range of deviation of the average OP/TC of five entities selected as comparables, the price charged to its AEs for export of raw materials and finished products was claimed by the assessee to be at Arm's Length. The TNMM adopted by the assessee to bench mark these international transactions was not disputed by the TPO. He, however, noted from the working of OP/TC made by the assessee of all the relevant international transactions that the export made by the assessee to its AEs was comprising of intermed....
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.... regards the international transactions with AEs involving import of Wax, Comparable Uncontrolled Price (in short 'CUP') method was adopted by the assesese as the most appropriate method to Bench mark these transactions. In this regard, the claim of the assessee-company was that since no marking was charged by the Associated Enterprises in these transactions, the price charged was at arm's length. In this regard, it was found by the TPO that the assessee has imported the same product at Rs. 184/- per Kg. from third party on 01.03.2005 as against the price of Rs. 288/- per Kg. charged by its A.E. Although the said transaction dated 01.03.2005 was not in the same year, the same being the solitary CUP available, the TPO adopted it and worked out the ALP of the international transactions of the assessee with its AE for import of Wax at Rs. 1,10,753/- as against the actual price of Rs. 1,73,153/- charged by the AE resulting into T.P. adjustment of Rs. 62,400/-. Accordingly, in the order passed under section 92CA(3) dated 17.03.2006, the total Transfer Pricing Adjustment required to be done in respect of the international transactions of the assessee with its AE was worked ou....
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....vered by the cost audit report with only one export made on 31.03.2003 as pointed out by the TPO. He contended that the relevant figures appearing in the cost audit report and showing loss in case of export of PCMX has not been disputed by the assessee at any stage and the same, therefore, cannot be ignored. He also invited our attention to the relevant portion of the Transfer Pricing Study Report submitted by the assessee to point out that the OP/TC of the five comparables selected by the assessee was worked out by using multiple year data of three years. He also pointed out that the products dealt in by the said entities taken as comparables are not exactly similar or comparables to that of the assessee. He further contended that the export of PCMX constituted nearly 33% of the total export of the assessee-company to its AEs and the fact that the export of PCMX had resulted in loss as shown in the cost audit report is sufficient to show that the segmental financials taken by the assessee to work out the OP/TC of the relevant international transactions with AE are not reliable. 33. We have considered the rival submissions and also perused the relevant material available on reco....
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....level to bench mark the relevant international transactions of the assessee with its associated enterprises by adopting TNMM, no separate bench marking is required to be done in case of the international transactions of the assessee-company with its AE involving import of Wax and the same can be bench marked on the same basis as the other international transactions involving export of intermediates and finished products. Ground No. 5 of the assessee's appeal is accordingly treated as allowed for statistical purposes. 34. As regards the Revenue's appeal for A.Y. 2003-04 being ITA No. 1699/KOL/2008, the ld. counsel for the assessee has pointed out that the tax effect involved therein is less than the revised monetary limit recently fixed by the CBDT vide Circular No. 21/2015 dated 10 t h December, 2015 at Rs. 10,00,000/- for filing the appeal by the Revenue before the Tribunal and this position clearly evident from the grounds raised by the Revenue in this appeal is not disputed even by the ld. D.R. In Circular No. 21/2015 (supra) recently issued by the CBDT, the monetary limit for filing the appeals by the Revenue before the Tribunal has been increased to Rs. 10,00,000/- ....
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....e Assessing officer by invoking the provisions of section 40A(i). On appeal, the ld. CIT(Appeals) confirmed the said disallowance made by the Assessing Officer for the same reasons as given by the Assessing Officer. 39. We have heard the arguments of both the sides and also perused the relevant material available on record. The limited contention raised by the ld. counsel for the assesese is that the tax from the amount in question has been deducted and paid by the assesee in assessment year 2009-10 and the assessee, therefore, is eligible to claim deduction for the same in AY 2009-10. Since the appeal of the assessee for AY 2009-10 is pending before the Tribunal, the assessee is at liberty to raise this issue during the course of hearing of the said appeal seeking suitable direction as the Bench may think fit. With this observation, we uphold the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer on this issue and dismiss Ground No. 2. 40. The issue involved in ground No. 3 relating to the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of excess provision made by the assessee for marke....
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....rmed by the ld. CIT(Appals) by applying Rule 8D. 45. In the year under consideration, the assesese-company had earned interest of Rs. 98,26,464/- on tax-free Bonds and the same was claimed t o be exempt from tax in the return of income filed. The disallowance on account of expenses incurred in relation to the said exempt income, however, was not offered by the assessee as required by the provisions of section 14A. In this regard, the claim of the assesese that no direct expenditure was incurred in relation to the exempt interest income was not found acceptable by the Assessing Officer. He estimated such expenses at 5% of the exempt income and made a disallowance of Rs. 4,91,323/- under section 14A. On appeal, the ld. CIT(Appeals) held that Rule 8D of Income Tax Rules was applicable to the year under consideration with retrospective effect as held by the Hon'ble Mumbai Special Bench of ITAT in the case of Daga Capital Management Pvt. Limited (ITA No. 8057/Mum./2003 dated 20.10.2008). He accordingly directed the Assessing officer to re-compute the disallowance to be made under section 14A by applying Rule 8D. 46. We have heard the arguments of both the sides and also peruse....
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....lready been decided by us in the foregoing portion of this order. Following our conclusion drawn in AY 2003-04, we uphold the impugned order of the ld. CIT(Appeals) on this issue and dismiss ground No. 7. 49. The issue raised in Ground No. 8 relating to the addition of Rs. 2,38,356/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of T.P. adjustment has not been pressed by the ld. counsel for the assessee at the time of hearing before us. The same is accordingly dismissed as not pressed. 50. In the additional ground raised in AY 2004-05, the assessee has raised an issue relating to its alternative claim for deduction on account of cost of advertisement films, if the same is held to be not allowable for AY 2003-04 on the ground that it pertains to AY 2004-05. Since we have allowed the claim of the assessee for deduction on account of entire expenditure incurred on production of Ad-films as made in AY 2003-04, the issue raised in additional ground has become infructuous. The same is accordingly dismissed. 51. As regards the Revenue's appeal for AY 2004-05, it is observed that the issue involved in Ground No. 1 raised therein relating to the....