TaxTMI 
TaxTMI 
2017 (11) TMI 1632
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....ocess of establishing itself in the international markets of South & Central America, Africa, Asia, etc. They have various models currently plying on the Indian roads which shall include Maruti 800, Omni, Esteem, Alto, Gypsy, Zen, Verna, Wagon-R, Vitara and Swift etc. For the AY 2008-09 they have filed their return of income on 29.09.2008 declaring a total income of Rs. 20,92,03,70,320/- and also disclosing long term capital loss of Rs. 15,39,21,183/-. Revised return was filed on 27.03.2010 at an income of Rs. 20,96,66,30,740/-and in that revised return assessee claimed credit of additional TDS of Rs. 25,66,500/- excluding income from the sales tax subsidy being capital receipt and expenditure/loss on Mark-to-market of derivative contracts and including expenditure on lumpsum royalty paid during the year. 2.1 In respect of royalty for use of brand name and AMP services, reference was made to the Transfer Pricing Officer u/s 92CA(1) of the Act and the TPO made the adjustment on account of royalty for use of brand name to a tune of Rs. 2,37,24,42,202/- and in respect of AMP service to a tune of Rs. 1,95,16,00,000/-, thus, totaling to Rs. 4,32,40,42,202/-. Draft assessment order u/....
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....n payment basis under section 43B of the Income-tax Act, 1961('the Act'). According to the Assessment order, the following are such statutory duties claimed by the assessee for deduction, but disallowed by the Assessing Officer: Item No. Item Particulars Amount (Rs.) 1(a) PLA Balance of Excise Duty on Vehicles 28,21,616 1(b) PLA Balance R&D Cess on Vehicles 23,02,815 1(c) PLA Balance Excise Duty on Spare parts 90,04,752 2 Customs Duty paid on import of components for Exports for purposes for which export had not been made by year end 42,961 3 Customs Duty paid on import of components for Exports purposes for which export had been made by year end 12,64,98,615 4 Excise duty on Inputs balance in RG 23A Part-II 18,47,40,688 5a CVD (Modvat) paid on goods in transit to be adjusted against excise duty payable on finished products components 10,73,21,757 5b CVD (Modvat) paid on goods in transit to be adjusted against excise duty payable on finished products Steel Coils 2,78,71,332 6 Customs Duty on Goods in Transit/under inspection 1,93,27,627 7 Customs Duty on Inventory in Closing Stoc....
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....d), CIT v. C.L. Gupta: 259 ITR513 (All.), CIT v. Raj and Sans Deep Ltd: 293 ITR 12 (P&H), Indian Communication Network 206 ITR 96 (ITAT - SB), DCIT v. Glaxo SmithKline Consumer Healthcare Ltd: 107 ITD 343 (SB) (Chd.), Hind Lamps Ltd. DCIT: ITA No. 283/D/92 (Agra), Euro RSCG Advertising (P) Ltd v. ACIT : 154 TTJ 389 (Mum), he submitted that the aggregate amount of Rs. 66,23,77,487 was allowable as deduction to the assessee under section 43B of the Act. Ld. AR further submitted that this issue is, in principle, also covered by the order of the Delhi High Court in assessee's own case for the assessment years 1994-95, 1995-96 and 1996-97, reported in 255 CTR 140. 3.4 In the light of these submissions and detailed explanation offered by both the parties now we shall proceed to deal with the item wise submissions under Ground No.3. 3.5 Adverting to Grounds No 3.1 and 3.1.1, we find in the return of income, the assessee claimed deduction of duty paid amounting to Rs. 1,41,29,183 being closing balance in the PLA, under section 43B of the Act, as under: Item No. Item Particulars Amount (Rs.) 1(a) PLA Balance of Excise Duty on Vehicles 28,21,616 1(b) PLA Bal....
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....lf, but one of the primary conditions for the operation of section 43B is that the liability to pay tax or duty must necessarily have been incurred. He submitted that this has also been observed by the Hon'ble Supreme Court in Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC), which is reproduced below: "As is evident from the Budget Speech of the Finance Minister for the year 1983-84 and the Memorandum explaining the provisions in the Finance Bill, 1983 that section 43B was clearly aimed at curbing the activities of those taxpayers, who did not discharge their statutory liability of payment of excise duty, employer's contribution to Provident Fund, etc. for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant Previous Year. It was to stop this mischief that section 43B was inserted..." 3.5.3 According to him, vide para 4.1 on page 3 of its order for A.Y. 2006-07, the coordinate Bench of this Tribunal has, itself agreed that the amounts paid under PLA are nothing but excise duty paid as advance inasmuch as in Indian Molasses Co. (P.) Ltd. 3....
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.... Glaxo Smith Klin Consumer Health Care Ltd. (supra) holding that the excess amount of excise duty reflected in the account-current is nothing but actual payment of excise duty even though mentioned as advance payment and hence allowable as deduction under sec. 43B of the Act in the year of payment. The special bench has further clarified that the allowing of deduction on payment basis could not result in double deduction under any circumstance. We thus respectfully following the above decision set aside the matter to the file of the Assessing Officer to decide the issue afresh after affording opportunity of being heard to the assessee as per the decision cited above in the case of assessee itself for the assessment year 2006-07 (supra). Ground Nos. 3, 3.0.1 to 3.1.1 are accordingly allowed for statistical purposes." 3.5.6 There is no change in the circumstances that are discussed in para No 8.5 of the above order so as to enable us to take any contra view. Plea of the Revenue that these are continuous issues forming part of the assessment order for AY 2005-06 and 2006-07 also, and are at present pending adjudication before Hon'ble Delhi High Court is not a ground for us to d....
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....n 145A does not in any way affect the claims of the assessee under Section 43B as there is no conflict between the provisions of Section 145A and Section 43B of the Act. Though the provisions of Section 145A mandate the assessee to include the value of tax, duty, cess or fee in the value of its closing stock, nowhere it requires the assessee to go a step further and curtail the operation of Section 43B by not claiming the deduction of such duties, etc. in the year of payment but in the year in which such stocks are consumed by the assessee. He submits that even if the said amount has to be added to purchases and closing stock by virtue of Section 145A, thereby being income neutral in so far as the P&L Account is concerned, the said amount will be separately deductible while computing the taxable income u/s 43B of the Act. 3.5.8 He placed reliance on the decision of the Hon'ble Supreme Court, in the case of Berger Paints ltd. v. CIT: 266 ITR 99(SC) in support of his contention that customs and excise duties are allowable in the year of payment u/s 43B, and even if such duties are included in the value of closing stock, they would be separately allowable. He submitted that in ....
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....inciples whenever the raw material purchased is shown in the closing stock and carried forward to the next year in the form of opening stock, it cannot be said that the cost of purchase has been allowed. For the similar reason the custom duty paid by the assessee has been added to the cost of raw material and the same has been shown in the closing stock and carried forward to the next year in the form of opening stock. Therefore it cannot be said that the expenditure on account of customs duty stands allowed to the assessee in the year under consideration....Therefore following the decision of the Special Bench, the assessee is entitled to deduction of the aforesaid amount u/s 43B in the year under consideration." 3.7. He brought to our notice that a coordinate Bench of Delhi Tribunal in the case of Purolator India Ltd. v. DCIT: ITA No. 1441/Del/2003 decided similar issue in favour of assessee by accepting the valuation of closing stock on net of MODVAT basis by following the decision of the Supreme Court in the case of CIT v. Indo Nippon Chemicals Ltd.: 261 ITR 275 (SC) wherein the non inclusive method of accounting for MODVAT followed by the assessee was approved by the Apex C....
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....h, no deduction is allowable to the assessee in respect of the same. According to the assessee, The assessing officer failed to appreciate that the Duty drawback does not accrue automatically on export of goods since the exporter is required to fulfill various addition/requirements in order to claim the same, but it accrues only when the claim of the exporter-assessee is sanctioned by the custom authorities and also that Duty drawback receivable is separately chargeable to tax as income of the assessee under section 28 of the Act. He explained that the receipt of duty drawback is altogether different from allowability of deduction in respect of which duty paid by the assessee on payment basis under section 43B of the Act. Without prejudice to this contention, he argued that in case the assessing officer's contention were to be accepted, then duty drawback income amounting to Rs. 12,12,31,609/-declared by the assessee for the year under consideration should be directed to be excluded. 3.9 He submitted that apart from a coordinate Bench of this Tribunal deciding the aforesaid issue in favour of assessee in the assessment years 1999-00, 2000-01, 2001-02, 2002-03, 2004-05, 2005-....
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....e year end. These amounts claimed by the assessee as allowable u/s 43B of the Act, were disallowed by the AO. It is common submission that the tribunal has allowed deduction in respect of these amounts in the preceding years. 5.2. Here again it is noticed that the assessee has also followed 'Exclusive method'. In such circumstances, this method needs to be substituted with 'Inclusive method' as mandatorily required u/s 145A. We, therefore, direct the AO to recast Profit and loss account as per 'Inclusive method' as discussed above and then allow deduction in respect of the customs duty paid in accordance with section 43B, if not getting deducted in such recast. Customs duty paid on import of components for which exports had/had not been made by the year end under the inclusive method would now stand included in the value of imports and accordingly get deducted. Customs duty of Rs. 8,65,07,635/- paid on import of components for which exports had been made by the year end would not require any separate deduction as the same will be debited to the Profit and loss account and also get exhausted. As regards the other amount of customs duty for which expo....
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.... been claimed as deduction under section 43B of the Act. The assessing officer, however, disallowed the aforesaid amount following the assessment order for the assessment year 2005-06. 3.14 It is the submission of the Ld. AR that the Special Bench of the Tribunal in the case of DCIT v Glaxo SmithKline Consumer Healthcare Ltd: 107 ITD 343/ 299 ITR (AT) 1 (Chd.) (SB), has held that, unutilized MODAT credit is not an allowable deduction, since such credit does not amount to payment of duty, and following this order of the Special Bench, the ITAT in assessee's own case had decided the issue against the assessee till AY 2005-06. However, Supreme Court has allowed the deduction u/s 43B for the amount lying credited in the Modvat account at the end of the accounting year thereby dismissing the SLP (No. 23461/2012) filed by the department against the order of HC in the case of Shri Ram Honda Power Equipment Ltd. : 352 ITR 481 (SC) and while following the this judgment in Shri Ram Honda Power Equipment case, the ITAT in AY 2006-07 and AY 2007-08 decided the aforesaid issue in favour of assessee. 3.15 Per contra, Ld. DR submitted that the coordinate Bench of this Tribunal, vide par....
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....under s. 43B..." 3.16 He further submitted that in Shri Ram Honda Power Equipment Ltd.(supra), the Hon'ble Apex Court has merely relied on the judgement of Hon'ble Bombay Court in CIT v. Indo Nippon Chemical Co. Ltd.(2000) 245 ITR 384 (Bom.), which was subsequently upheld by it. However, the facts of the matter in Indo Nippon (supra) are distinguishable inasmuch as the issue therein dealt with the method of valuation of stock of inputs, work in progress and finished goods with respect to the inclusion of Modvat credit, the Hon'ble Bombay High Court as well as the Hon'ble Supreme Court made no comments as to the nature allowability of unutilised Modvat credit in Indo Nippon (supra), as such, in view of this situation, unutilised Modvat credit does not amount to actual payment of central excise duty and therefore, cannot attract the provisions of Section 43B. Lastly he submitted that these are continuous issues forming part of the assessment order for AY 2005-06, 2006-07 and 2007-08 also, and are at present pending adjudication before Hon'ble Delhi High Court. 3.17 In the order for the AY 2006-07, this issue was considered and was set aside to the file of th....
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....sessee will offer income of Rs. 7 embedded in the sale price. It is the remaining amount of Re.1 which is unutilized Modvat credit appearing as an asset in the balance sheet at the end of the year, for which the assesse is now seeking deduction. 4.16. At the outset, we want to mention that the Special Bench of the Tribunal in Glaxo Smithkline Consumer Healthcare (supra) has held that unexpired Modvat credit before it is set off, cannot be treated as tax paid. Accordingly the Special Bench held that the Modvat credit available to the assessee as on the last date of the previous year does not amount to payment of excise duty and is, hence, not allowable u/s 43B. In earlier years, the Tribunal has followed the dictum of this Special Bench verdict and upheld the disallowance. The ld. AR submitted that there has been further articulation of law on this point. Referring to the judgment of the Hon'ble Supreme Court in the case of CIT v. Shri Ram Honda Power Equipment Ltd. [2013] 352 ITR 481 (SC), the ld. AR submitted that the amount lying credited in the Modvat account at the end of the accounting year has now become deductible u/s 43B as per its ratio. We find that the Hon&#....
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....usive method'. 4.18 We have noticed supra that the use of 'Exclusive method' is no more permissible in the year under consideration. As such, there is a need to give effect to section 145A read with section 43B under the 'Inclusive method'. 4.19 Before taking up this aspect, we would like to deal with the judgment of the Hon'ble Supreme Court in Shri Ram Honda (supra), relied by the ld. AR for supporting the claim of per se deduction without any further adjustments as per section 145A. It is relevant to note that the Hon'ble Supreme Court in Shri Ram Honda (supra) was dealing with A.Y. 1995-96. While granting deduction for Modvat credit, the Hon'ble Summit Court followed the judgment of the Hon'ble Bombay High Court in CIT v. Indo Nippon Chemical Co. Ltd., [2000] 245 ITR 384 (Bom), as affirmed by the Hon'ble Apex Court in (2003) 261 ITR 275, in holding that the same was squarely applicable and hence the amount was deductible. The assessment year involved in the case of Indo Nippon (supra) was 1989-90, which is again before the insertion of section 145A. It is interesting to note that during the course of arguments before the....
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....e gets deduction of Rs. 3 also by way of higher value of purchase of raw material, but the reality is different. When the figures of closing stock of finished goods and raw material also include Rs. 3, then in fact, there is no deduction of Rs. 3, because debit to the Profit and loss account through increased purchase value gets neutralized with the credit to the Profit and loss account with increased value of closing stock. This enhanced value of closing stock inclusive of Rs. 3 will become opening stock of the succeeding year, thereby obliterating the effect of deduction of Rs. 3. When such goods are sold or utilized and sold in the next year, the sale price will be realized which will be inclusive of Rs. 3 excise duty component also. So in fact, there is no actual deduction of Rs. 3 during the year under consideration because of the increased purchase price getting counterbalanced with the equal amount of loading in the value of closing stock. After having increased the value of purchase and closing stock in terms of section 145A with the amount of Modvat credit, now there is a separate requirement of giving effect to the mandate of section 43B, which requires the granting of de....
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....uty included in closing inventory 3.19 In respect of disallowance of custom duty paid on import of raw material/inputs, challenged under Ground No 3.5, case of the assessee is that they have followed inclusive method of accounting, and accordingly, the amount of custom duty paid on imported inputs/ raw material is included in the purchase price, which is debited to the Profit & Loss Account. According to them, the said duty is also included and considered as part of the value of closing stock, which is shown in the credit side of the Profit & Loss Account. Assessee submits that the Custom duty of Rs. 18,23,52,893/- represents custom duty on import of raw material/inputs, which is included in the value of closing stock as per the aforesaid inclusive method of accounting followed by the assessee and such a method is in line with the provisions of section 145A of the Act. Inclusion of custom duty, both in the value of purchase as well as in the value of closing stock, is tax neutral inasmuch as the very same amount is both debited and credited to the Profit & Loss Account, but as per the mandate under section 43B of the Act, the custom duty so actually paid by the assessee is separ....
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....see, as such, no independent deduction can be allowable to the assessee under this head. On this premise, he submits that the decision of ITAT was not acceptable for AY 2006- 07 and 2007-08 on this issue. However, these are continuous issues forming part of the assessment order for AY 2005-06, 2006-07 and 2007-08 also, and are at present pending adjudication before Hon'ble Delhi High Court. 3.23 Vide para 5.6 and 5.7 of the order dated 24.8.2015 for A.Y. 2006-07 in assessees own case, a coordinate Bench of this Tribunal dealt with this aspect in the following manner:- "5.6. The last aspect of disallowance u/s 43B is customs duty included in closing stock amounting to Rs. 22,52,46,693/-. The assessee claimed deduction for this sum, which was denied by the AO. The ld. AR stated that the assessee followed 'Inclusive method' of accounting on this issue. The claim of the assessee is that the amount of Rs. 22.52 crore, being the amount of customs duty paid on the import of raw material/inputs, was included in the cost of material and also as a part of closing stock, thereby levelling both the debit and the credit sides of the Profit & Loss Account. The ld. AR cont....
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....decided in favour of assessee by the Supreme Court in Civil Appeal No. 6449/2012 wherein the SLP filed by the department against the order of the Delhi High Court in the case of CIT v. Samtel Color Ltd : 184 Taxman 120 was dismissed holding that Custom duty paid is allowable deduction u/s 43B of the Act. He further submits that apart from this, the issue stands covered in favour of the assessee by the order of a coordinate Bench of this Tribunal for the assessment years 1999-00, 2000-01, AY 2002-03, AY 2005-06, AY 2006-07 and 2007-08 wherein it was held that since the duty is paid, deduction claimed u/s 43B of the Act has to be allowed. 3.26 Per Contra, on these Grounds 3.6 and 3.7, Ld DR submitted that in respect of the amount of Rs. 13,51,93,089/- being customs duty (CVD) paid to be adjusted against excise duty payable on finished products, a coordinate Bench of this Tribunal has also accepted that under the 'Inclusive method' it will be included in purchases, sales, and opening and closing stock of inventories, as a result of which the ultimate impact is revenue neutral and no deduction will be allowable to the assessee under this head. As regards the amount of Rs. 1,....
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.... provisions of section 145A were not applicable as the assessment year under consideration was 1995-96. In view of the detailed discussion supra with reference to the applicability of section 145A to the year in question, there can be no escape from valuation of purchase, sale and inventories under the inclusive method. We, therefore, direct the AO to recast Profit and loss account under 'Inclusive method' as per the mandate of section 145A, thereby, inter alia, increasing the purchase value with the above customs duty. Then the AO will allow separate deduction for the above referred sums to the extent not getting eventually deducted separately by way of increased purchase price, as has been discussed above. At the same time, we also direct the AO to make sure that such amount separately getting deducted in this year does not get deduction once again in the next year. In the like manner, the last year's similar deduction separately allowed should be taxed in the computation of income of the current year." and by following the same for AY 2007-08, vide para 14.1 the matter was set aside to the file of the Assessing Officer to decide the issue afresh as per the above d....
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....sessee's own case for A.Y's 1999-00, 2000-01, 2001-02, 2002-03, 2005-06, 2006-07 and 2007-08, coordinate Benches of this Tribunal have held that, since the duty is paid, deduction claimed u/s 43B of the Act has to be allowed. 3.29 This aspect of disallowance of claim for deduction under section 43B of the Act for the amount of Customs Duty paid under protest has been one of the subject of matters in assessee's own case for the AY 2006-07 and 2007-08 successively, and for the AY 2006-07 vide para 5.5 of the order dated 24.8.2015, the following finding was returned by the Tribunal, "5.5. Next item is Customs duty paid under protest amounting to Rs. 1,34,25,787. We have discussed similar issue supra while dealing with 'Excise duty paid under protest' by holding that first the Profit and loss account be recast as per 'Inclusive method' in terms of section 145A and then some adjustments as stated above be separately made. Such directions are fully applicable pro tanto to the customs duty paid under protest. The AO is directed to follow the same." 3.30 While following the same for AY 2007-08, Tribunal set aside the matter to the file of the Asse....
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....with a sum of Rs. 1,41,59,08,897, which has been stated to be a total of certain amounts claimed by the assessee as deductible in the preceding year u/s 43B as excise duty and customs duty and voluntarily offered for taxation in the current year's income. The ld. AR contended that since such deductions have been denied by the AO, the corresponding offering of the same to tax in the current year, be eliminated. 6.4. We agree with the ld. AR that one amount cannot be taxed twice. It is but natural that if an amount claimed as deduction by the assessee in the earlier year has not been allowed, then on the assessee's suo motu offering of it as an item of income for the current year on the strength of deduction claimed in the earlier year, which finally stands denied, should not be charged to tax. On being called upon to furnish the detail of such amount, it was stated that it, inter alia, includes a sum of Rs. 71,63,89,449, which is subject matter of ground no. 3.5, that we have discussed immediately hereinbefore. We note that apart from the sustenance of disallowance of Rs. 71.63 crore in the preceding year, there is no other disallowance u/s 43B which has been upheld....
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....ect of production shops, in that process the material so required is delivered straight to the shop floor in the relevant department and at a time there remain only a few hour inventories except for certain items, and on daily basis, a consolidated entry is passed for consumption of various materials on the basis of Bill of Material ('BOM'), which basically contains the standard quantity of material required for manufacture of a vehicle on the basis of the number of vehicles manufactured. However, in case of certain material, such as paint, consumption is recorded on actual basis as against consumption of other material being recorded on the basis of standard bills of material and at the year end, actual physical verification of the inventories is carried out by the assessee followed by preparation of stock reconciliation in respect of variation between physical stock and the stock as per computerized books of account. He submitted that for the purposes of financial accounting, the assessee debits to the profit and loss account figure of consumption at the year end, which is derived on the basis of Opening stock (as per physical inventory) enhanced by purchases and reduced ....
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....ason why revenue authorities should continue with the error and allow the assessee excess consumption. Further according to him even if the amount of variation is insignificant and arises out of a systematic problem, there is no reason for the same to be accepted, once it is noticed. He urges that one needs to understand the reasoning behind the disallowance made in the assessment. According to him, since the coordinate Bench of this Tribunal has not controverted the stand taken by the AO, it was an error to direct the AO to allow the excess consumption on the ground of its being insignificant. He further submitted that the decision of the ITAT for the immediately preceding AY is at present pending adjudication before the Hon'ble High Court. 5.2 There is no denial of the fact that the issue is squarely covered in favour of assessee by ITAT orders for assessment years 1999-2000 to 2002-03, AY 2005-06, 2006-07 and 2007-08. This issue was covered by Grounds Nos. 7 to 7.4 of the assessee's appeal for the AY 2006-07 and vide para 14.1 and 14.2 of its order a coordinate Bench of this Tribunal has held as under: "14.1. Ground nos. 7 to 7.4 are against the addition of R....
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....ilar view has been taken by the Tribunal in the assessee 's own case for earlier assessment years including the immediately preceding assessment year. This ground is allowed". 5.3 Following the above decision, this Tribunal for AY 2007-08, directed the Assessing Officer to delete the disallowance. Further the Ld. AR brought to our notice, a decision of the Hon'ble Apex Court in Commnr. Of Central Excise v. M/s Maruti Suzuki India Ltd in Civil Appeal No 7829/2004 decided on 3.4.2015 wherein the Hon'ble Apex Court held that when the shortage of in-putes as corrected is only 0.24%, that would be immaterial and correction of the total input is in use. It is, therefore, clear that for the successive AYs 2006-07 and 2007-08, the Assessing Officer was directed to delete the disallowance in respect of the excess consumption by a coordinate Bench of this Tribunal while placing reliance on two factors, namely, that the net difference of stock is negligible in tune with the observations of the Hon'ble Apex Court (supra), and that the Tribunal has taken similar view in the assessee's own case in the earlier assessment years including the immediately preceding year. We, t....
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....ing dividend but for furthering the operations/ business of the company; and investments not resulting in any exempt income during the year under consideration; 6.2 On the first aspect, basing on the provisions of section 14A it is contended that even for assessment years 2008-09 and onwards, disallowance under section 14A, as per provisions of Rule 8D of the Rules can be made only if the assessing officer, having regard to the accounts of the assessee, reaches a finding that assessee has incurred actual expenses, which have proximate nexus with earning of exempt income. Ld. AR submitted that the onus is on the assessing officer to find proximate nexus of expenses with earning of exempt income, before rejecting the claim of assessee and computing disallowance under section 14A of the Act, and the provisions of sub-section (2) and (3) to section 14A, which empowers the assessing officer to compute disallowance as per provisions of Rule 8D of the Rules, w.e.f. assessment year 2008-09, also provides that disallowance as per provisions of Rule 8D can be computed, only if the assessing officer, having regard to the accounts of assessee is not satisfied with the claim of assessee that....
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....ulse (India) Pvt. Ltd.: [2008] 22 SOT 368 (Del.) , D.J. Mehta v. ITO: 290 ITR 238 (Mum.)(AT), Jindal Photo Ltd v. DCIT: ITA No. 814 (Del) 2011, Dishman Pharmaceuticals & Chemicals Ltd. v. Dy. CIT: 45 SOT 37 (Ahd.), Minda Investments Ltd. v. Dy. CIT: 138 TTJ 240 (Del), Bunge Agribusiness (India) (P.) Ltd. v. Dy. CIT: 132 ITD 549 (Mum.) also. 6.4 In the present case of the assessee, the assessing officer has simply applied the procedure prescribed in Rule 8D of the Rules to compute the amount disallowable under section 14A of the Act without appreciating that in the present case, no part of interest and/or administrative expenditure was incurred in relation to exempt income. 6.5 Further the assessing officer, in the assessment order, has not pointed out even a single expenditure being incurred by the appellant during the year, having relation/ proximate nexus with exempt dividend income earned during the year. The assessing officer, it is submitted, invoked the provisions of section 14A read with Rule 8D of the Rules in a mechanical manner, which, it is respectfully submitted is beyond jurisdiction. 6.6 For the principle that disallowance under section 14A of the Act cannot ....
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....maceutical Works Ltd. v. CIT: 224 ITR 627, Alkali & Chemical Corp. of India v. CIT: (1986) 161 ITR 820 (Cal.), CIT v. Reliance Utilities and Power Ltd.: 313 ITR 340 (Bom.), CIT v. M/s. Ashok Commercial Enterprises: ITA No. No.2985 of 2009 (Bom), Gujarat State Fertilizers and Chemicals Ltd : 358 ITR 323 (Guj), Hero Honda Finlease Ltd vs. ACIT: ITA No. 3726 & 6102/Del/2012 (Del) he submitted that if the assessee had sufficient surplus funds available, presumption should be drawn in favour of the assessee that surplus funds have been utilized for making investments. He submitted that the Gujarat High Court in the case of CIT v. UTI Bank Ltd: 215 Taxman 8 (Mag.) held that where there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A of the Act, and the Hon'ble Apex Court has dismissed the revenue's SLP in Civil Appeal No. 468/2014 against the aforesaid decision. 6.10 He contended that in the case of mixed funds, the option is with the assessee to appropriate fund and expenditure in a manner most favorable to the assessee, and by placing ....
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....ACIT v. M/s Spray Engineering Devices Ltd: ITA No. 646/Chd/2009 (Chd.), J.M. Financial Ltd. v. ACIT: ITA No. 4521/ Mum/2012 (Mum. Trib.), Piem Hotels Limited v. DCIT: I.T.A No. 240/Mum/2012 (Mum Trib.), DCIT v. Morgan Stanley India Securities Pvt. Ltd: ITA No.114/Mum/2013 (Mum.Trib.), in support of the contention that while computing average investments, strategic long-term business investments not for earning dividend but for promoting manufacturing operations ought to have been excluded. In view of the above, without prejudice to their contention that no disallowance is warranted under section 14A of the Act, Ld. AR prayed that, the assessing officer may be directed to re-compute disallowance under that section after reducing the strategic long-term trade investments. 6.13 For the principle that disallowance under section 14A of the Act is only to be made only if there is exempt income and not otherwise, support is derived from the decisions in ACB India Ltd. v. ACIT: 374 6.13. ITR 108 (Del.), Cheminvest Ltd. v. CIT : 379 ITR 33 (Del.), CIT v. Holcim India (P) Ltd.: 272 CTR 282 (Del.), ACIT v. Vireet Investments (P.) Ltd: 165 ITD 27 (Del SB), CIT v. Corrtech Energy Pvt. Ltd.: ....
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....said that no expenditure at all incurred to earn Rs. 166,83,50,967/-, when huge amounts to a tune of Rs. 8,415 crores was available with the assessee. By looking into these factors, Ld. AO proceeded to hold that Rule 14A is applicable. In these circumstances, we are of the considered opinion that the AO is justified in taking the view that the plea of the assessee that no expenditure was incurred for earning the exempt income cannot be accepted, and to proceed with the application of the formula prescribed under Rule 8D of the Rules, which is in force from the AY 2008-09. 6.16 Adverting to the arguments of the Ld. AR on the aspects of interest expenses relevant under Rule 8(ii) of the Rules and the reckoning of the investment amount relevant for 8D(iii), on a consideration of the same in the light of the principles of law laid down by the Court, as stated supra, we agree with the submissions made on behalf of the assessee that insofar as the interest expense under Rule 8D(ii) is concerned, it has to be determined after examination of the macro fund/ cash flow position during the year and if the assessee had sufficient surplus funds available, presumption should be drawn in favou....
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....irement scheme/schemes, such scheme/schemes must comply with the guidelines prescribed in this regard i.e. guidelines prescribed under Rule 2BA. In other words, the employee is entitled to exemption u/s. 10(10C) of the Act only if the voluntary retirement scheme fully complies with the conditions as prescribed in Rule 2BA. There are no such provisions in s. 35DDA of the Act similar to proviso to s. 10(10C), so as to include the conditionalities of Rule 2BA into s. 35DDA of the Act. A plain reading of provisions of s. 35DDA of the Act, it is clear that compliance with the conditions of Rule 2BA is mandatory only to avail exemption u/s. 10(10C) of the Act by the employees and thus the said rule is not relevant to deduction u/s. 35DDA of the Act. In the Finance Bill, 2001, the deduction u/s. 35DDA was linked to the provisions of Rule 2BA. In other words compliance with Rule 2BA would be mandatory in order to avail deduction u/s. 35DDA. However, when the bill was finally enacted, the link between s. 35DDA and Rule 2BA was deleted. Accordingly, the deletion of conditionalities originally incorporated in the Bill shows that legislative intendment was not to incorporate all the conditions....
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....to the employee or director and the Tax Auditors have amply clarified this position vide clause 17(b) of the Tax Audit Report. Basing on the decision of the Supreme Court in the case of Samtel Color Ltd (Civil appeal No 6449/2012) by way of which the Hon'ble Apex Court dismissed the SLP filed by Revenue against the order of Delhi High Court in CIT v. Samtel Color Ltd.: 326 ITR 425 (Del.) allowing the claim for deduction representing expenditure incurred on club membership, he argued that this expenditure is allowable as deduction. He submitted that besides being covered by the decisions in Nestle India Limited:296 ITR 682 (Del.), CIT v. Samtel Color Ltd.: 326 ITR 425 (Del.), Otis Elevators Co. (India) Ltd v. CIT 195 ITR 682 (Bom);, American Express International Banking Corporation v CIT 258 ITR 601 (Bom);, CIT v. Citibank N.A.: 264 ITR 18 (Bom), CIT v. Force Motors Ltd.: ITA No. 5296 of 2010 (Bom), CIT v. Sundharam Industries Ltd 240 ITR 335 (Mad);, Gujarat State Export Corporation Ltd. v. CIT: 209 ITR 649 (Guj.), CIT v. Infosys Technologies Ltd.: 205 Taxman 59 (Kar), Assam Brook Ltd. v CIT: 267 ITR 121 (Cal), DCIT v. Max India Ltd [2007] 112 TTJ (Asr.) 726, this issue is also....
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....cified as 10 years and vide clause 7.04 of the agreement it was subject to termination at earlier date for breach. He submitted that as evidenced by clause 2.02 of the agreement SMC does not transfer to MSIL any specific patents or copyrights or other secret or protected information or knowhow so as to make MSIL a proprietor of the same or so as to enable MSIL to exercise proprietary rights such as unrestricted rights of transfer to third party, either by way or assignment or license. 9.2 According to him in order to determine the nature of the royalty payment, whether capital or revenue, what is material is the underlying purpose for which payment is made and not the tenure or its extendibility or the life cycle of the product that is manufactured with the help of the technology that is accessed from SMC. If the payment is for use of technical knowhow, simplicitor, then the payment has to be regarded as revenue, irrespective of the tenure for which permission is granted for such use. Since in the present case, under the License Agreement, the assessee was merely granted permission to access the technical knowhow for the limited purpose of using the technology relating to the ne....
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....hd. Trib.), the issue of allowability of royalty payments as revenue expenditure is covered in favour of the assessee company. 9.5 He further relied upon the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. J.K Synthetics: 309 ITR 371@ pg 391, wherein while culling out legal principles based on various decisions it was held that the fact that assessee could use the technical knowledge obtained during the tenure of the License for the purposes of its business after the agreement has expired, and in that sense, resulting in an enduring advantage, has been categorically rejected by the Courts, and that this, by itself, cannot be decisive because knowledge by itself may last for a long period even though due to rapid change of technology and huge strides made in the field of science, the knowledge may with passage of time become obsolete. Ld. AR disputed the factual correctness of the observation of the assessing officer that the license Agreement led to the assessee setting up a new factory based on new technology, and submitted that no new plant/ factory was setup by the assessee on the basis of the agreement entered into for use of technical knowledge/ ....
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....e other Products. This is again an enduring benefit. Referring to the cases cited by the Ld. AR, it is the argument of the Ld. DR that in all the cases where the Courts have held that the Royalty payment is Revenue and not capital are the ones where the License Agreement was only to approach or access the technology without imparting any trade secrets and above all the time period was much short, say 5 years or less coupled with the fact that , the product was different and the right given was not exclusive. He submitted that the Tribunal's order in assessee's own case for AY 2007-08 cannot be relied upon because on this aspect the Tribunal was swayed by the assessee contention that TPO has disallowed the royalty, but as a matter of fact, TPO had determined the value of the ALP of the co-branding done by Suzuki. The value of the same is determined by equating the trade mark royalty Maruti was paying to Suzuki for its brand. The logic is simple if Maruti was paying licensed trade name royalty to Suzuki then Suzuki should also be paying back the trade name royalty to Maruti. Whereas it is a fact that royalty being paid is a composite royalty including the usage of Trademark a....
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....t, which considerably match with the Agreement under consideration, has held that the payments made for Model fee (which is equivalent of Lumpsum royalty in our case) and Running royalty are revenue expenses. In this judgment, the Hon'ble jurisdictional High Court has considered several judgments of the Hon'ble Supreme Court and Hon'ble High Courts and on consideration of their cumulative effect, it has come to the conclusion that both the amounts are revenue in nature. The Hon'ble Delhi High Court in an earlier judgment in Shriram Refrigeration Industries Ltd. v. CIT [1981] 127 ITR 746 (Del), has held that the lumpsum royalty is a revenue expenditure. After going through the relevant clauses of the Agreement, we have noted that royalty paid by the assessee is for use of licensed information and no part of the same is towards its acquisition as an owner. In the light of the above discussion, it is absolutely clear that the view canvassed by the AO in treating this amount as capital expenditure, is not sustainable. 8.6. Our above finding decides the nature of royalty payment for use of licensed information as revenue expenditure and not its quantum part. We ....
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....to pay R&D cess on the payment of royalty. R&D cess, being a statutory payment, is governed by section 43B, which is a separate code in itself and overrides the other provisions of the Act. Further according to the assessee, this issue is dependent and interlinked to the issue of royalty expenditure, and if it is held that royalty payments by assessee are revenue expenditure, then the R&D cess should also be considered as a revenue expenditure. Ld. DR submitted that the issue of R&D Cess paid by the assessee is decided in favour of the assessee by the Delhi Bench of the Tribunal in assessee's own case for the AY 2006-07 and AY 2007-08. 10.1 This issue is based on Ground No. 9 above, i.e. capitalisation of Royalty expenditure. The ITAT has also decided this issue in favour of the assessee on the basis of its decision on Ground No. 9. Since the decision of the ITAT in Ground No. 9 is not acceptable, therefore, its decision on this issue is also not acceptable. It is further averred that these are continuous issues forming part of the assessment order for AY 2006-07 and 2007-08 also, and are at present pending adjudication before Hon'ble Delhi High Court. 10.2 In the Ord....
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.... liable for tax. However, AO denied the same and brought it to tax by treating the same as revenue receipt. 11.1 It is submitted on behalf of the assessee that the incentive/ subsidy was granted to the assessee for undertaking substantial expansion of existing industryin line with the larger public objective of the Policy to promote industrialization and employment generation and not to supplement trading receipts, which is, it is respectfully submitted, clearly in the nature of a capital receipt, not liable to tax. Ld. AR submits that the issue regarding taxability of sales tax incentive is squarely covered in favour of the assessee by the decisions reported in CIT v. Ponni Sugars and Chemicals Ltd: 306 ITR 392 (SC), Sahney Steel and Press Works Ltd. v. CIT: 228 ITR 253 (SC), V.S. S.V. Meenakshi Achi: 60 ITR 253 (SC), CIT v. Johnson Matthey India Pvt. Ltd. : ITA No. 193/2015 (Del.), Bougainvillea Multiplex Entertainment Centre (P.) Ltd.: 373 ITR 14 (Del), CIT v. National Co-operative Consumer Federation Ltd.: 254 ITR 599 (Del), Shree Balaji Alloys v. CIT: 198 Taxman 122 (J&K) - Revenue's appeal dismissed by the Supreme Court in Civil Appeal No. 10061 of 2011 [287 CTR 459 (S....
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.... and Ponni Sugars and Chemicals Ltd. of Hon'ble Supreme Court, it was concluded by the Hon'ble Delhi High Court that the Sales Tax subsidy received by the assessee as revenue receipt. The Industrial Policy and Sales Tax subsidy policy have discussed in detail for consideration of such receipts in the hands of the assessee "whereas the State Government is of the opinion that for promoting of certain industries and expansion of diversification or modernization existing units (Page No. 15 of the above said order of the Hon'b!e Delhi High Court). Page No. 23 of the above said order also mentions that "the object of providing subsidy by way of permission to not deposit amounts collected (as sales tax liability) -which meant that the customer or servicer user concerned had to pay sales tax, but at the same time, the collector (i.e the assessee) could retain the amount so collected, undoubtedly was to achieve the larger goal of industrialization. This has been the basis of sales tax subsidy received during the year. In principle there has not been any difference in Haryana sales tax subsidy policy and UP sales tax policy. The Ltd. AR of the assessee has been gas lighting the i....
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....el (supra) is confined to the peculiar facts of the Uttar Pradesh Industrial Policy, 1990, as would be evident from the following observations: "25............Paras 6 (A) and 6(B) of that scheme specifically provided for capital subsidy to set up prestige units; the amounts indicated (Rupees fifteen lakhs) were to be towards capital expenditure. Now, if that was the scheme under which the assessees set-up their units, undoubtedly it contained specific provisions that enabled capital subsidies. Whether the assessees were entitled to it, or not, is not relevant. The assessees are now concerned with the sales tax amounts they were permitted to retain, under the amended scheme (dated 27.07.1991) which allowed the facility of such retention, after the unit (established and which could possibly claim benefit under the first scheme) was already set up. This subsidy scheme had no strings attached. It merely stated that the collection could be retained to the extent of 100% of capital expenditure. Whilst it might be tempting to read the linkage with capital expenditure as not only applying to the limit, but also implying an underlying intention that the capital expenditure would th....
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.... - affirmed by SC in 287 CTR 459, CIT v. Chaphalkar Brothers: 351 ITR 309 (Bom) , CIT v. Rasoi Limited : 335 ITR 438 (Cal) , CIT v. Birla VXL Ltd: 215 Taxman 117 (Guj) , DCIT v Inox Leisure Ltd. : 351 ITR 314 (Guj) , CIT v. Samta Chavigarh: 268 CTR 199 (Raj.). 11.11 Ld. AR emphatically submitted that the issue of taxability of sales tax subsidy pursuant to the Haryana Government's Scheme is squarely covered in favour of the assessee by the binding decision of the jurisdictional Delhi High Court in the case of Johnson Matthey (supra), whereas the decision in the case of Bhushan Steel (supra) rendered in the context of an altogether different industrial policy of the Government of UP, as such, it is not applicable to the facts of the present case. 11.12. According to the Ld. AR there is no conflict between the Judgements of the Hon'ble Jurisdictional High Court in the cases of Johnson Matthey (supra) and Bougainvillea Multiplex Entertainment Centre (P) Limited: 373 ITR 14 on one hand and Bhushan Steel (supra) on the other, inasmuch they dealt with two different industrial policies surrounded by different facts and circumstances. However, according to him, even if it is ....
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....refully gone through the rival contentions in the light of the decisions of the Hon'ble jurisdictional High Court in CIT v. Bougainvillea Multiplex Entertainment Centre (P.) Ltd.: 373 ITR 14 and CIT v Bhushan Steel and Stripes Ltd., and the decision of the Delhi Bench of the Tribunal in the case of Johnson Matthey India (P) Ltd.v. Addl. CIT in ITA No.952/Del/2011, and upheld by the Hon'ble Delhi High Court in the case titled as CIT v. Johnson Matthey India Pvt. Ltd. in ITA No. 193/2015. In all these cases the guidance is taken and strength is derived from the decisions of the Hon'ble Apex Court in Sahney Steel and Press Works Ltd. v. CIT: 228 ITR 253 (SC), and CIT vs Ponni Sugars and Chemicals Ltd: 306 ITR 392 (SC). Purposive test is the key principle that is applied for determination of the nature of the subsidy. Though it is an undisputed fact that a coordinate Bench of this Tribunal considered all relevant facts and decided the issue in favour of the assessee in assessee's own cases in ITA No.1927/Del/2010 (AY 2005-06), ITA No.5120/Del/2010 (AY 2006-07), ITA No.5720/Del/2011 (AY 2007-08), submission of the DR that the law is kept on evolving by the Hon'ble ju....
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....s or expand his existing business. However, Hon'ble Apex Court on examination of the decisions in the case of Seaham Harbour Dock Co. v. Crook 16 Tax Cases 333 (HL), Lincolnshire Sugar Co. Ltd. vs. Smart 20 Tax Cases 643 and a Canadian case St. John Dry Dock & Ship Building Co. Ltd. v. Minister of National Revenue 4 DLR 1, and while affirming the principle laid down in Ostime vs. Pontypridd & Rhondda Joint Water Board 28 Tax Cases 262, held that the contention that the subsidies were of capital nature and were given for the purpose of stimulating setting up and expansion of industries in the State cannot be upheld because of the subsidy scheme itself. Hon'ble Court observed that no financial assistance was granted to the assessee for setting up of the industry, and it was only when the assessee had set up its industry and commenced production, various incentives were given for the limited period of five years. The Hon'ble Court further observed that that the endeavour of the State was to provide the newly set up industries a helping hand for 5 years to enable them to be viable and competitive, sales-tax refund and the relief on account of water rate, land revenue as wel....
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....the trade. In Sahney's case, subsidies have not been granted for production of or bringing into existence any new asset, but were granted year after year only after setting up of the new industry and commencement of production and such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. These subsidies are of revenue character and will have to be taxed accordingly. Hon'ble Apex Court also noted many decisions of Indian Courts on this aspect, viz., V.S.S.V. Meenakshi Achi & Anr. v. CIT [1966] 60 ITR 253 (SC), CIT v. Ruby Rubber Works Ltd. [1989] 78 CTR (Ker) 75, Sadichha Chitra v. CIT [1990] 90 CTR (Bom) 135, Kesoram Industries & Cotton Mills Ltd. v. CIT [1991] 191 ITR 518 (Cal), CIT v. Dusad Industries [1986] 51 CTR (MP) 217 etc. 11.18 In this context, it is pertinent to note that the Madhya Pradesh High Court in the case of CIT v. Dusad Industries [1986] 51 CTR (MP) 217 : (1986) 162 ITR 784 (MP) : TC 13R.622, dealt with a case where Government had framed a scheme for granting sales-tax subsidies to industries set up in backward areas took the view that the object of the scheme was not to supplement the prof....
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....overnment, no subsidy was given until the time production was actually commenced. 11.20 In Ponni Sugars case (supra), four factors exist in the Incentive Schemes, were, (i) benefit of the incentive subsidy was available only to new units and to substantially expanded units, not to supplement the trade receipts; (ii) the minimum investment specified was Rs. 4 crores for new units and Rs. 2 crores for expansion units; (iii) increase in the free sale sugar quota depended upon increase in the production capacity. In other words, the extent of the increase of free sale sugar quota depended upon the increase in the production capacity; (iv) the benefit of the Scheme had to be utilized only for repayment of term loans. The important point noted by the Hon'ble Apex Court in this case is that Government of India, financial institutions as well as the sugar industries are parties to the Scheme in the sense that but for the Scheme the financial institutions would not have given term loans to set up new units/expansion of the existing units. Keeping in mind the object behind the payment of the incentive subsidy such payment received by the assessee under the Scheme was not in the course....
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....llections from the public at large) and the form (deemed deposit) are irrelevant considerations. 11.22 In CIT v. Johnson Matthey India Pvt. Ltd., while referring to the decisions in Sahney (supra), Ponni Sugars (supra) and Bougainvillea Multiplex Entertainment Centre (supra), Hon'ble jurisdictional High Court observed as under: "This Court has considered the submissions and is of the opinion that the ITAT's impugned order has noted the relevant law. Crucially, Ponni Sugars (supra) is a later decision of the Supreme Court which had gone to deal with various authorities, including Sahney (supra). The Supreme Court has emphasized in each case the purpose for which subsidy or assistance is given by the State government or a public agency. If that is to promote an industry, especially with special interest of development of capital infrastructure, the amounts received are to be treated as capital and not revenue. This Court too had the occasion to deal with the issues in CIT v. Bougainvillea Multiplex Entertainment Centre Pvt. Ltd. (ITA 586/2013, decided on 30.01.2015) where the decision in Ponni Sugars (supra) and previous authorities were discussed and applied in g....
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....determining the actual cost of the asset, is deemed to be income. It was submitted that this amendment clarifies the intent of Parliament which is that the assistance received otherwise than towards capital augmentation or creation is deemed to be income. This amendment is prospective which means that the law is to be interpreted in the light of the judgments applicable, notably Ponni Sugars (supra) in the present case. 11.25 After considering the entire case law on this aspect, vide paragraph No 26, the Hon'ble court held,- 26. How a state frames its policy to achieve its objectives and attain larger developmental goals depends upon the experience, vision and genius of its representatives. Therefore, to say that the indication of the limit of subsidy as the capital expended, means that it replenished the capital expenditure and therefore, the subsidy is capital, would not be justified. The specific provision for capital subsidy in the main scheme and the lack of such a subsidy in the supplementary scheme (of 1991) meant that the recipient, i.e. the assessee had the flexibility of using it for any purpose. Unlike in Ponni Sugars (supra), the absence of any condition....
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....n of the capital cost, as could be gather from the decisions of Sahney steels and Ponni Sugars cases, no inference is permissible to be drawn that the subsidy results in capital receipt in the hands of the recipient. Developmental objectives of the subsidy policy document, ipso facto, do not determine the nature of subsidy. Purpose as could be culled out from the framework of the policy document is the sole determinative factor. Having noted the context of relevancy or otherwise of the source, form and time of subsidy in determining its nature, now we shall proceed to examine the nature of receipt in the hands of the assessee in this matter. 11.27 Main objectives of the Haryana Industrial Policy are to increase the share of industry in the Net/Gross State Domestic Product by attracting new investments and growth of existing industry; to increase the employment in Industrial and Allied sector by 20% in the next five years; to attain sustainable economic development through catalysis of investments in all sectors of the economy; to achieve larger value addition within the State thereby contributing to a higher quality of life etc. According to the assessee, a perusal of the afores....
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....ional fixed capital investment in plant and machinery made during the operating period in one go, not exceeding the period of one year, exceeds 25% of the fixed capital investment (gross block) of the unit before expansion at the same or new location." (emphasis supplied) (d) Eligibility of prestigious units defined in clause (m) as unit having fixed capital investment exceeding Rs. 30 crores, shall be determined by the High Powered Committee; (e) Clause 5(b), provides that decision to grant tax concession to prestigious unit shall be taken by the High Powered Committee on the basis of factors like employment generation, likely revenue, growth of ancillaries, impact on overall industrial growth, etc. [Also refer clause 6(e)].; (f) Clause 8(a) provides for issuance of the entitlement certificate in form ST-72B. 11.30 In terms of sub-rule (5)(b) of Rule 28C, it is provided that the decision to grant tax concession to a prestigious unit is given on the basis of factors like employment generation, impact on overall industrial growth, etc. According to the Ld. AR assessee in this case falls in the category of 'prestigious unit'. He emphasized that t....
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....ttar Pradesh To promote industrial growth in the context of overall economic development of the State by creating an investor friendly enabling environment that facilitates the industry to move strongly to the front ranks of global competition. Eligibility criteria for a prestigious unit "STATE CAPITAL SUBSIDY SCHEME .......... "6 (A) :Special capital subsidy for the prestige units:- Any district, where any industry of fixed capital investment of 25 crore is not already established, the first industrial unit to be established from the capital investment of Rs. 25 crore or more, within the period of 1.4.90 to 31.3.95, shall be treated as "Prestige" Unit and the special state capital subsidy worth Rs. 15 lakh shall be granted to this unit. If prestige unit incentive to the ancillary units for the supply of requirement of more than 30% of its own purchased parts and components, then the further additional special capital subsidy of Rs. 15 lakh shall be available to it. This scheme shall be applied with effect from 1.4.90 and the facility of subsidy shall not be admissible in the district under the scheme, where any unit of the capital investment of Rs. 25 crore has already be....
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....39;s case are similar in both the schemes. In the case on hand the fact remains that the concession is granted only in respect of vehicles rolled out of production capacity of 70,000 vehicles added as a result of first expansion. Except making some specific provision for capital subsidy in the main scheme and the lack of such a subsidy in the supplementary scheme (of 1991) in respect of the UP Scheme, under both the schemes there is no difference. Under both the schemes no strings attached in respect of the utilization of funds and the assessees have the flexibility of using it for any purpose. There is no stipulation as to how the subsidy money has to be utilized which means that the assessee had the flexibility of using it for any purpose. Specific provision for capital subsidy in the main scheme and the lack of such a subsidy in the supplementary scheme (of 1991) in respect of the UP Scheme only corroborated the conclusion that the recipient of the subsidy, i.e. the assessee had the flexibility of using it for any purpose. Per se, the existence or otherwise of provisions for capital subsidy does make any difference in the nature of subsidy funds in the hands of the assessee inso....
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....rinciple applied or laid down, but what we understand is that the change in result is occasioned by the variance of facts. 11.36 For the reasons stated in the preceding paragraphs, we are of the considered opinion that any subsidy given to the assessee post accomplishment of the project or expansion there, without any obligation to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business, or to liquidate the cost incurred in creating the capital asset or its expansion, is only in the nature of the revenue receipt and is liable to be brought to tax. We, therefore, uphold the addition on this count and accordingly dismiss the grounds 11 to 11.5. Ground No 12 to 12.5 Disallowance on account of Provisional Liability relating to Expenditure on account of FPI-OE Components 12. On the aspect of Disallowance of Rs. 32,11,63,153 on account of Provisional Liability relating to Expenditure on account of FPI-OE Components, case of the assessee is that the assessee had accounted for liability on account foreseen price increase (FPI) on an estimate basis, this FPI of Rs. 32,11,63,153 was debited to consumptio....
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....e assessee on account of the liability that was determined and computed with a substantial degree of accuracy on account of materials already supplied by suppliers, at the time of determining and booking the amount as per information available till date of finalization of accounts and such a liability was required to be booked as per accrual system of accounting as the goods were already received. According to the Ld. AR this practice of provision for FPI is in accordance with practice prevalent in motor vehicles industry. Reference in this regard is invited to a notification dated 28.7.2003 issued by the Excise Authorities on the subject of charging of interest under section 11AB wherein the excise authorities recognized prevailing commercial practice of supplementary invoices being made in addition to the original invoices. 12.1 Placing reliance on the decision in assessee's own case decided in favour by CIT (A) for AY 2003-04 and by ITAT for AY 2007-08, and also the decisions reported in Calcutta Discount Co. Ltd.: 37 ITR 1 (SC), Metal Box India (P) Limited (1969): 73 ITR 53 (SC) , United Commercial Bank v. CIT 240 ITR 355 (SC), Bharat Earth Movers: 245 ITR 428 (SC) , CIT....
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....losses and gains is as per nationally accepted accounting standards; (vi) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation." 12.3 Further reliance is also placed on the judgment of the apex Court in the case of Rotork Controls India (P) Ltd. v. CIT: 314 ITR 62 wherein it has been held that:- "17. At this stage, we once again reiterate that a liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate is possible of the amount of obligation." 12.4 Ld. AR submitted that this practice is in consonance with the provisions of the Companies Act and generally accepted accounting principles and practices of Institute of Chartered Accountants of India and has been regularly followed by assessee and claims were accordingly made which has been duly accepted by Revenue in all the preceding years except in assessment year AY 2003-04 and AY 2007-08. There has been no change in method of accounting or estimation. It is submitted that this method of accounting regularly and consisten....
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.... the same time not acknowledging the quantified liability to the creditors and not leaving any note in the audit report. He placed reliance on the decisions reported in ITO v. EMCO Transformers Ltd. (ITAT, Bom) 32 1TD 260, Srinivasa Computers Ltd. v. ACIT (ITAT, Chennai) 107 1TD 357, and CIT v. Rotork Controls India Ltd. (Mad) 293 ITR 311. According to him, later on the Hon'ble Supreme Court has laid down General Principle on this issue, wherein it was stated that the value of contingent liability, like warranty expense, if properly ascertained and discounted on accrual basis can be an item of deduction under section 37, the principle of estimation is not the normal rule it would depend on the nature of business, nature of sale, nature of product and scientific method of accounting adopted by the assessee, and it would also depend upon the historical trend and number of articles produced. 12.6 On a perusal of the order of the Tribunal for the AY 2007-08 on this issue, we find that this issue covered by the ground Nos. 13 to 13.5 and by noticing that similar disallowance was deleted by the first appellate authority and revenue did not prefer any appeal thereon, and the Tribun....
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....e assessee as per the first appellate order on the issue in the assessment year 2003-04, as followed by this Tribunal for the AY 2007-08 also. Grounds 12 to 12.5 are disposed of accordingly. Ground Nos 13 to 13.3 disallowance Rs. 58,61,136/- on account of Expenditure on Excise duty: 13. In respect of disallowance Rs. 58,61,136/- on account of Expenditure on Excise duty, case of the assessee is that during the relevant assessment year, the assessee paid excise duty of Rs. 58,61,136/-, being provision for MODVAT on quantity difference on inputs disallowed in earlier years now claimed on payment basis u/s 43B of the Act, but the assessing officer disallowed the aforesaid claim on the ground that assessee would not have been liable to make the aforesaid payments of Rs. 58,61,136/- to the Excise Department if it had been able to establish that all consumptions claimed by it were for the purposes of manufacturing. Assessee submits that the payment made by them is clearly in the nature of excise duty, which is admissible as deduction on payment basis under section 43B of the Act. 13.1 Ld. AR submits that the issue is also covered in favour of the assessee by the orders of the Tri....
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....r 2000-01, the findings of the CIT(A) on this issue stands confirmed. 23. It is also noticed that this Excise Duty is paid against the order of the Settlement Commission and is in the nature of reversal of MODVAT availed on the inputs and not in the nature of penalty or fines. In the circumstances, the ground of appeal as raised by the Revenue on this issue stands dismissed." 27.4 In view of the above finding of the ITAT on the issue and of the Excise Tribunal in the assessment year 2000-01 that shortage of stock of raw-material and the minor discrepancy was the result of accounting error due to use of large quantity of inputs procured from several hundred suppliers, we hold that the assessee was justified in claiming Rs. 77 lacs on account of expenditure on excise duty on payment basis under sec. 43B of the Act. The Assessing Officer is accordingly directed to allow the claim. Ground Nos. 14 to 14.3 are thus allowed." 13.4 When the facts are similar and a particular view is taken by a coordinate Bench of this Tribunal for the earlier years, it is not desirable to deviate from the same in a subsequent year in the absence of any change of circumstances, as such ....
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....hat the simplistic business structure of the Insurance Company required negligible administrative and manpower support for its functioning, which has been provided by the existing set-up of MSIL. Since the assessee provided the support to the Insurance subsidiaries due to its business exigency the related cost is allowable business expenditure for the company, in view of the fact that the expression "for the purpose of business" as used in section 37(1) of the Act is much wider than "for the purpose of earning income". 14.2 He relied on the decisions of the Supreme Court in the case of CIT v. Malayalam Plantations Ltd.:53 ITR 140, wherein it was held, that " the expression " for the purpose of the business " is wider in scope than the expression " for the purpose of earning profits ". Its range is wide : it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title ; it may also comprehend payment of statutory ....
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....n the hands of the appellant company or to the group companies, in that sense the entire exercise of seeking to tax the normal business expenditure is, in any case, revenue neutral as such in view of the decisions in CIT v. Excel Industries Ltd and Mafatlal Industries (P) Ltd.: 358 ITR 295 (SC), CIT v. Bilahari Investment P. Ltd.: 299 ITR 1 (SC), CIT v. Shri Ram Pistons & Rings Ltd.: 220 CTR 404 (Del.), CIT v. Triveni Engg. & Industries Ltd.: 336 ITR 374 (Del.), CIT v. Nagri Mills Co. Ltd.: 33 ITR 681 (Bom.), and CIT v. M/s Vishnu Industrial Gases: ITA No. 229/1988 (Del.) Revenue should not agitate issues or make adjustment on issues which are revenue neutral and do not affect overall taxes likely to be collected by the Government. Ld. DR vehemently relied upon the orders of the authorities below. 14.7 On a careful reading of the record in the light of the above arguments of the Ld. Counsel, we find that there is no material that is brought on record to controvert the plea of the assessee that they have provided the support to the Insurance subsidiaries due to its business exigency rather than supporting the said companies and it is it is in the best interests of MSIL to do so f....
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.... incurred wholly and exclusively for business of the appellant, and that the benefit to AE are only incidental, and lastly that the amp expenditure closely linked with the business of manufacture and sale of motor cars. We shall proceed to deal with these aspects in the light of the submissions made before us. 15.1 Coming to the first contention of the assessee that there is no international transaction, as could be seen from the record, the TPO held that since the appellant had incurred expenditure on advertisement, marketing and promotion ("AMP") expenses in "excess" of the "bright line", the excess would be treated as independent international transaction of rendering service of brand building by the appellant to Suzuki Motor Corporation, Japan ('Suzuki or the associated enterprise) for which the appellant needed to be compensated at arms' length. Ld. AR submitted that in the case of the appellant, the TPO has inferred the existence of an international transaction on the basis of Bright Line Test without placing on record any evidence or material to substantiate the existence of such a transaction, as such, the benchmarking analysis undertaken by the TPO without first....
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....nses and such transaction cannot be inferred merely on the basis of Bright Line Test. 15.3 Now turning the other ground of challenge stating that Bright Line Test is not the prescribed method, Ld. AR submits that the TPO, in fact has founded the entire case on the Bright Line Test of alleged excessive AMP expenditure incurred by the appellant vis-à-vis comparables, to assume, infer or imply existence of an international transaction, and such application of BLT has no statutory mandate and has been rejected by the Hon'ble Delhi Court in the case of Sony Ericsson (supra). 15.4 Adverting to the contention that the assessee is the Economic Owner of the trademark 'Maruti Suzuki', Ld. AR submitted that the Hon'ble High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd (supra) has further held that no transfer pricing adjustment in respect of AMP expense can be made where the assessee (Indian entity) has economic ownership of the brand/logo/trademark in question, in the case of long term right of use of the same, and this principle also squarely covers the present case. He further stated that the appellant has a long term agreement for the....
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....MP expenditure incurred by the appellant is closely linked with the business of manufacture and sale of models of motor cars undertaken by the appellant, and that the AMP expenditure relates to the entire turnover/production of the appellant and constitutes an essential part of the cost of sales. According to him, without these expenses, the appellant would not be able to compete effectively, as such the AMP expenses being closely linked with 'the business of manufacture and sale of models of motors cars, the same has to be benchmarked on aggregate basis by applying entity level TNMM. 15.7 In this regard, reliance is placed on behalf of the assessee on the decision of the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications (supra) wherein the Hon'ble Court held that Clubbing of closely linked including continuous transactions is permissible in appropriate cases. The Hon'ble Court further held that once the Revenue accepts the TNMM as the most appropriate method, then it would be inappropriate for the Revenue to treat a particular expenditure as a separate international transaction. Such an exercise, the Hon'ble Court held, would lead to un....
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....c. The assessee has incurred huge expenditure on advertisement for domestic sales and exports made. Therefore, assessee cannot take claim that the use of (S) trade mark had helped in export of goods. The assessee was getting the benefit of the global brand of AE. It was carefully perused by the TPO by the claim of assessee and have noted that assessee had exported goods as a full risk bearing entity. It had used distributors appointed by AE and had also incurred overseas advertisement expenses. The bottom-line that all the goods exported were under the brand name of "SUZUKI'' of the AE and "Maruti" brand was not used. Therefore, on the basis of economic analysis of export transactions, it is evident that assessee was made to behave as a contract manufacturer or a license manufacturer depending upon the need of the associated enterprise. If the brand of the AE was to be used, then the risk was to be allocated accordingly between the AE and the assessee. 4.2.3 The TPO examined that M/s Suzuki Motor Corporation, Japan, the AE of the assessee which is engaged in manufacturing and sale of Motor vehicles and Motor vehicles parts had granted license to manufacture Motor c....
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....ning para 6.36 and para 6.37 of the ' Marketing Activities ' section of the OECD guidelines "D. Marketing activities undertaken by enterprises not owning trademarks or trade names: 6.36 Difficult transfer pricing problems can arise when marketing activities are undertaken by enterprises that do not own the trademarks or trade names that they are promoting (such as a distributor of branded goods). In such a case, it is necessary to determine how the marketer should be compensated for those activities. The issue is whether the marketer should be compensated as a service provider, i.e. for providing promotional services, or whether there are any cases in which the marketer should share in any additional return attributable to the marketing intangibles. A related question is how the return attributable to the marketing intangibles can be identified. 6.37 As regards the first issue - whether the marketer is entitled to a return on the marketing intangibles above a normal return on marketing activities - the analysis requires an assessment of the obligations and rights implied by the agreement between the parties. It will often be the case that the return on ....
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....nd the AMP expenses debited to Profit & Loss account was considered for the purpose of calculating the excessive AMP expenditure over the bright line limit. 4.2.9 As noted by the TPO, the assessee had started shifting its registered trademark and logo "M'' from front side of the various car models manufactured by it with trade mark "S" of the AE as early as in the year 1993. In the early stage the assessee had piggybacked its logo only in one car model i.e., Zen. Later on after the AE had acquired controlling rights in the assessee company in financial year 2003-04 and the process of piggybacking of the assessee brand "M" by trade mark "S" was hastened w.effinancial year 2003-04 and many more car models were selected for shifting of "M" logo from front side with "S" logo. 4.2.10 The AE has also started process of co-branding of both the trades marks i.e., "Suzuki" and "Maruti" by signing a license agreement with the assessee as early as 1992-93. However, in initial period use of cobranded logo was very rare. The process of putting cobranded logo on the back side of various car models had speeded up only after the AE had acquired controlling rights in the a....
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....had incurred advertisement expenses, marketing and distribution expenses for promotion of "SUZUKI" trade mark of the AE in India and abroad. The distribution and the marketing expenditure were also incurred for development of marketing intangible. The advertisement expenses incurred for advertisement on the print and electronic media has resulted in global promotion through satellite television broadcasting. The assessee had advertised "SUZUKI" brand owned by the associated enterprise. The advertisement carried out by the assessee on print and electronic media had contributed to brand building of the AE. Therefore, the advertisement expenses incurred by the assessee would be compared with the advertisement expenses of the comparables selected by the assessee in the transfer pricing report. The contention of the assessee that the cost benefit analysis should be based on the analysis of independent comparables is accepted. The arm's length expenditure would be based on the advertisement expenditure incurred by the independent comparables companies identified by the assessee in the transfer pricing report. 4.2.15 The OECD has recognized that 'brand' is an intangib....
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....intangible by the assessee for its AE, for which the former needs to be commensurately compensated with a mark-up. BEPS has recognised that the legal owner of intangibles must compensate the group entities for the functions performed by them, assets utilised and risks assumed which have contributed to the value of intangibles by observing as under: 6.32 In transfer pricing cases involving intangibles, the determination of the entity or entities within an MNE group which are ultimately entitled to share in the returns derived by the group from exploiting intangibles is crucial.15 A related issue is which entity or entities within the group should ultimately bear the costs, investments and other burdens associated with the development, enhancement, maintenance, protection and exploitation of intangibles. Although the legal owner of an intangible may receive the proceeds from exploitation of the intangible, other members of the legal owner's MNE group may har e performed functions, used assets.16 or assumed risks that are expected to contribute to the value of the intangible. Members of the MNE group performing such functions, using such assets, and assuming such....
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....that there was no possible benefit to 'Suzuki' on account of the compulsory use of the joint trademark 'Mamti Suzuki' on all the parts and products manufactured and sold by Maruti in India. Since the TPO may not be able to devise an objective and fair method to assess the monetary value of the benefit obtained by Suzuki m the form of marketing intangibles including the benefit on account of compulsory use of the jomt trademark Maruti Suzuki', the TPO would have to determine the ALP by finding out "what payment, if any, a comparable independent domestic entity would have made in respect of an agreement of this nature. 6. While giving the above direction, the Division Bench summarized its conclusions which included the following:- (a) The onus was on MSEL to satisfy die TPO/AO that die AMP computed by it was consistent with Section 92 of the Act. If the TPO AO proposed to make adjustment by revising the AMP, notices would have to be given to MSIL. followed by their reply and producing evidence. (b) The AMP expenditure incurred by the domestic entity using the trademark of the foreign name does not normally require payment or compensation....
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....ternational transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price. ** ** ** 34. The TP adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceed to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE. 35. It is for the above reason that the BLT has been rejected as a valid method for either determining the existence of international transaction or for the determination of ALP of such transaction. Although, under Section 92B read with Sectio....
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.... first step, the question of determining the ALP of such a transaction does not arise. In any event, in the absence of a machinery provision it would be hazardous for any TPO to proceed to determine the ALP of such a transaction since BLT has been negatived by this Court as a valid method of determining the existence of an international transaction and thereafter its ALP" 15.12 Under a similar set of facts as are involved in this matter, in the assessee's own case for assessment year 2005-06 & 2006-07 in the decision reported in 381 ITR 117, the Hon'ble Court while holding that AMP expenses incurred by the assessee do not constitute an international transaction held as under: 44. However, in the present appeals, the very existence of an international transaction is in issue. The specific case of MSIL is that the Revenue has failed to show the existence of any agreement, understanding or arrangement between MSIL and SMC regarding the AMP spend of MSIL. It is pointed out that the BLT has been applied to the AMP spend by MSIL to (a) deduce the existence of an international transaction involving SMC and (b) to make a quantitative 'adjustment' to the ALP to t....
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....'transaction' there has to be two parties. Therefore for the purposes of the 'means' part of clause (b) and the 'includes' part of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or 'understanding' between MSIL and SMC whereby MSIL is obliged to spend excessively on AMP in order to promote the brand of SMC. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are described as 'international transaction'. This might be only an illustrative list, but significantly it does not list AMP spending as one such transaction. ... ... ... 68....................In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly in light of the fact that the BLT....
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.... comparable companies, no further separate adjustment for AMP expenditure was warranted. This is also in consonance with Rule 10B which mandates only arriving at the net profit by comparing the profit and loss account of the tested party with the comparable. As far as MSIL is concerned, its operating profit margin is 11.19% which is higher than that of the comparable companies whose profit margin is 4.04%. Therefore, applying the TNMM method it must be stated that there is no question of TP adjustment on account of AMP expenditure." ... ... ... and a coordinate Bench of the Tribunal, in the appellant's own case for assessment year 2007-08, followed the above decision of the Hon'ble High Court for AY 2005-06 & 2006-07 to direct the TPO to delete the adjustment on account of AMP expenses. 15.13 These findings of the Hon'ble High Court have been followed in the cases of Honda Siel Power Products Ltd v. DCIT (ITA No 346/2015) & Bausch and Lomb Eyecare India Pvt Ltd v. Addl CIT 385 ITR 227 and by coordinate Benc....
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....ng FAR analysis or adopting an appropriate method is the second stage of transfer pricing adjustments. The first thing is to find out whether the disputed transaction in is international transaction or not. Without crossing the first threshold second cannot be approached. In the case under consideration, we are of the opinion that AMP expenditure is not an international transaction and therefore we are not inclined to restore back the issue to the file of the AO." 15.15 Similar view was taken in Essilor India Pvt Ltd v. DCIT (ITA No 29/Bang/2014), Heinz India Pvt. Ltd. v. ACIT (ITA No. 7732/Mum/2010), Honda Siel Power Products Ltd. v. DCIT (ITA No. 551/Del/2014), and Mondelez India Foods Pvt Ltd vs Addl CIT (ITA No 5470/Mum/2012). 15.16 We, therefore, while respectfully following the decision in 381 ITR 117 in assessee's own case hold that the AMP expenses incurred by MSIL cannot be treated and categorised as an international transaction under Section 92B of the Act, and the question of the TPO making any transfer pricing adjustment in respect of such transaction Chapter X does not arise. Grounds No 15.1 to 15.1.37 are allowed accordingly. Ground No. 15.2-15.2.14 Adjus....
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....nue of the taxpayer and the payment of royalty and the Revenue cannot challenge or dispute the benefit derived by the taxpayer from payment of such royalty. The Tribunal while deleting the adjustment made by the TPO held as under: "12. Another contention of the TPO that the Goodyear Brand was weak and therefore does not require payment of royalty, is not brought out from the records. The AR of the assessee has made elaborate submission and placed evidence on record to show that 'Goodyear' brand is considered to be one of the top most acclaimed brand across the globe. Therefore, there is no merit in the allegation of the TPO that Goodyear brand has no worth and therefore, the payment made by the assessee for use of Goodyear brand is unwarranted ... ... ... 16. In light of the above, we conclude that there exists a direct nexus between the revenue earned by the assessee and the payment of royalty made to the associated enterprise for using brand name, and therefore, it would be incorrect t....
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.... "Suzuki " trade mark only for export of Suzuki branded motor vehicles (as stipulated in Exhibit B and clause 5.05 of the agreement). 4.1.5 Under license agreement dated 3rd June 1992 between the assessee and the AE, SMC for YE-2 model, the assessee was required to use Suzuki logo on front side of the car. The agreement stipulates for use of trade mark " Maruti-Suzuki "for domestic sales. 4.1.6 Clause 3.02 and 3.03 stipulates that improvement and modification of product, and part by the assessee shall be treated as licensed information i.e., legal ownership of technology intangible will get transferred to the AE, SMC and the assessee shall be compensated for such improvement and modification. It is a matter of record that the assessee had made localization, improvement; modification and up gradation of technology provided by the AE by incurring huge expenditure on Research and Development activities. However, in reality the AE has never compensated the assessee for such improvement and modification. Contrary to this, it has charged royalty on continuous basis from assessee even on modified and upgraded technology. This view is fortified by the fact that the AE has....
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....e mark, risk of not selling competitive products, risk of technical manpower were assumed by the assessee i.e., all the critical risk of technology implementation, manufacturing, sale and after sale service were assumed by the assessee whereas AE had hardly assumed any risk. 4.1.13 Lump sum and running royalty payment to SUZUKI is protected from foreign exchange fluctuation and also from taxes and disputes. Over the years MARUTI became a Super Brand in India. The name Maruti was made synonymous with family car over a period of more than two decades of sustained campaigning in India. 4.1.14 Suzuki after getting controlling stake in the company replaced the winged M maruti Logo with "S " logo of Suzuki and rearranged and repositioned arrangement of the brand names, symbols and logo on the vehicle. This was an infringement on the trademarks and trade name of Maruti. Since Maruti India had build up the brand with monetary and intellectual inputs over the years, it has the right to be suitably compensated for the same. But the use of "S" logo and other repositioning of the trade names and logo had been done without any compensation to Maruti Udyog limited. 4 1....
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....capital and affairs of the company. The brief history of the increase of share capital of SMC in Maruti and its percentage is given in a tabular format below (from the year 1982 onwards) S.No. Financial Year No. of share in the company Value of the shares Premium paid for acquisition of shares if any Percentage of share holding Name of the company (the year when it changed from MUL to MSIL) 1 1982-83 173,000 17,300,000 26.01% 2 1983-84 392,000 39,200,000 19.94% 3 1984-85 320,870 32,087,000 28.09% 4 1985-86 554,987 55,498,700 25.40% 5 1986-87 533,000 53,300,000 26.65% 6 1987-88 244,000 24,400,000 25.11% 7 1988-89 2,191,864 219,186,400 40% 8 1992-93 2,204,860 220,486,000 269 50% 9 2002-03 1,216,341 121,634,100 3,180 54.21% 4.1.20 No independent party would have allowed the replacement of its own logo or trademark especially in a segment that it dominates and ....
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....I with a logo "S". That's the reason it now intends to propagate its name. Thus it has larger interests and futuristic motives to gel itself with a household brand like Maruti. It can foresee India as a giant market with increasing disposable income and thereby increase in demand. It is foreseeing a greater role for itself and its product by associating with the local name Maruti and thereby making itself visible and known. Thereafter it can by itself launch its products solely in the name of Suzuki thereby relieving it off its dependence on Maruti Suzuki. Thus there are benefits from the association, there is a creation of intangible and there are anticipated gains from the association. 4.1.25 The Hon 'ble ITAT is swayed by the assessee contention that TPO has disallowed the royalty. In fact what the TPO has actually done is that it has determined the value of the ALP of the CO branding done by Suzuki . The value of the same is determined by equating the trade mark royalty Maruti was paying to Suzuki for its brand. The logic is simple if Maruti was paying licensed trade name royalty to Suzuki then Suzuki should also be paying back the trade name royalty to Maruti.....
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....second aspect, the ld. DR has not brought on record any further material to demolish the finding given by the tribunal in the earlier year about the brand 'Suzuki' having substantial value and the royalty payment at ALP. 7.7. Addition on account of transfer pricing adjustment can be made by making a comparison between the transacted value of an international transaction and its ALP. Thus it is clear that the availability of the transacted value of an international transaction is sine qua non. If such transacted value is either not separately available or cannot be precisely determined from a combined value of a number of international transactions, then the entire exercise of determining ALP fails. Instantly, we are confronted with such a peculiar situation. There is no separate value of the international transaction of royalty for use of licensed trademark and the tribunal has held in the earlier year that it is a payment of inseparable royalty for use of both the licensed information and the licensed trademarks. In such circumstances and respectfully following the order of the tribunal for the immediately preceding year, we order for the deletion of the addi....
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.... of the Act is firstly computed on the assessed income upto the date of payment of first self assessment tax prior to filing the original return, and thereafter self assessment tax paid by the appellant is first adjusted against the interest calculated as aforesaid. However, the Assessing Officer first adjusted the self assessment tax against the interest leviable under section 234B of the Act calculated on the basis of assessed income, and such adjustment, under section 140A of the Act is permissible only with reference to interest computed with reference to the returned income and not with reference to the assessed income. Ld. AR argued that the method of computation used by the Assessing Officer is contrary to the method prescribed in CBDT Circular No.549 dated 31.10.1989: 182 ITR (St.) 40, which is binding on the Income Tax Department. In this respect he placed reliance on the decision of the Ahmedabad Bench of the Tribunal in the case of Patson Transformers Ltd. v. DCIT: 103 TTJ 735 wherein the Tribunal was considering the similar issue regarding the calculation of interest under section 234B in the light of the Explanation to section 140A of the Act and decided the issue in f....
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.... definition of assessed tax given in section 234B. The assessee has also followed the same procedure with which we agree. The order of CIT(A) confirming the method followed by the AO is therefore set aside and the claim of the assessee is allowed." 18.1 Lastly he brought it to our notice that this issue is now covered in favour of the assessee in appellant's own case for AY 2007-08. Ld. AR, therefore, prayed to direct the Assessing Officer to recompute interest under section 234B of the Act, as aforesaid. Stating it to be a consequential ground, Ld. DR submitted that the decision of ITAT was acceptable on this issue for AY 2007-08 and no further appeal was recommended. 18.2 We have gone through the observations of the Tribunal on this aspect for the AY 2007-08 and vide paragraph No. 34.1, it was observed that,- "......following the decision of Mumbai Bench of the ITAT in the case of ACIT v. C.C. Chokshi & Co. (supra) on the issue, we hold that the interest payable under sec. 234B for the purpose of adjustment against the tax paid under sec. 140A of the Act has to be computed with respect to assess tax determined on the basis of total income declared in the return....