TaxTMI 
TaxTMI 
TaxTMI 
2017 (4) TMI 1521
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....) as contemplated u/s 92A of the Act and consequently the order of the CIT (Appeals) upholding the chargeability of royalty from two AEs, as alleged by TPO, is arbitrary, unjust and bad in law. 2) That the CIT (Appeals) has erred on facts and under the law in upholding the jurisdiction of the TPO to determine "arms length price" in respect of alleged royalty transaction with Dabur International Ltd. and Dabur Nepal Pvt. Ltd. not referred u/s 92CA of the Act. 3) That in the absence of any contract as existing during the year between the assessee and two AEs, neither any royalty accrued during the year nor can it be presumed to be receivable and consequently the order of the TPO and sustained by the CIT (Appeals) are without any basis/material and are based on surmises and conjectures not permissible under the law. 4) That the TPO and CIT (Appeals) failed to consider the geographical conditions of working of Dabur International UAE and Dabur Nepal, having no substantial awareness about the Dabur brand in the area and consequently the presumption and assumption about the chargeability of royalty by invoking the provision of Section 92 of the Act from Dabur I....
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.... upward adjustment ought to have been sustained by CIT (Appeals) and consequently an upward adjustment by adopting 25% projected growth rate instead of 19% growth rate as adopted by the assessee in respect of Dabur Egypt is arbitrary, unjust and at any rate very excessive. 10) That the above grounds of appeal are independent and without prejudice to one another. Your appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing." 4. In the departmental appeal grounds raised are as under: "1. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in reducing the royalty from Dabur Nepal (P) Ltd chargeable @ 2% of FOB sale value as against the royalty chargeable @ 7.5% as worked out by the TPO/AO? 2. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in reducing the royalty from Dabur International Ltd chargeable @ 2% of FOB sale value as against the royalty chargeable @ 4% as worked out by the TPO/AO? 3. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the upward adju....
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....g year, the assessee apart from the above two concerns received royalty from Dabur International UAE. He asked the assessee to furnish the reasons for receipt of low/no royalty from the AEs. It was explained by the assessee that the royalty had been accounted for on the basis of agreements in force. The TPO referred to the agreements with Dabur International Ltd. in para 7.3 of the order passed u/s 92CA(3) of the Act dated 26.10.2009, for the cost of repetition, the same is not reproduced herein. On the basis of the said agreement, the TPO noted the following important facts: "(a) The assessee has provided technical and R&D support, know-how, information operational improvement and skills in the areas of the cost management, manufacturing, production procurement, sale, marketing and distribution of products in the Territory to M/s Dabur International Ltd. and has charged licence fees @ 3% of FOB sale (net of taxes and sales return). (b) the assessee has allowed use of its trade mark/trade name "Dabur" to the M/s Dabur International Ltd. in lieu of royalty payment of 1% of the FOB sale (net of taxes and sale return). (c) the royalty agreement is effective ....
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.... agreement of the termination of above royalty agreement as stipulated in clause 5(a) of the royalty agreement. No other corroborative evidence like nonuse of "Dabur" trade mark or non use of technical know-how by the AE was filed during the course of proceeding before me. In absence of any credible evidence, the self serving claim of the assessee of absence of right to receive royalty from AE to justify non charging of royalty cannot be accepted. (b) Another claim of the assessee that AE had incurred huge expenditure on development of brand of the assessee in overseas market is not supported by any credible evidence like quantum of expenditure and the evidence that the expenditure was actually incurred by the AE for brand development. (c) It is a matter of record as mentioned in above paragraph 7.1 of this order that the assessee has charged royalty of Rs. 164.41 Lakh from the AE in immediately preceding A.Y. 2005-06. However, the assessee has failed to explain any credible reason or evidence of changed circumstances under which the assessee has not charged royalty from the AE in this year. In view of the above finding that self serving claim of the asse....
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....ter of May, 2005 alledgly issued by the AE. In the letter the AE has claimed that due to increase in expenditure no royalty is payable to the assessee. It is pertinent to mention here that above extracted terms and conditions of the agreement between AE and the assessee do not stipulate nonpayment of the royalty on the ground of increase in operating cost. In fact as per terms and condition of the agreement the assessee had borne the marketing cost of the AE. Since, the one sided communication by the AE is in contravention to the terms and condition of a legally enforcement agreement, it is held that the assessee has right to charge the royalty from the AE. (b) Without prejudice to above finding I have examined the claim of the AE of increase in operating cost in this year in the above referred to letter, A careful scrutiny of annual audited accounts of the AE (which were filed vide letter dated 07.09.2009) has revealed that ratio of total operating expenditure to total income of the AE was 94.20% in immediately preceding A.Y. 2005-06 as compared to 94.08% in the year under consideration i.e., there was marginal fall in operating cost of the assessee in the year under considerati....
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....ny liability to pay by them nor any right to receive by the assessee is applicable." 15. The TPO did not accept the claim of the assessee that there was no liability to pay royalty by the AE or right to receive royalty by the assessee for the following reasons: "(a) it is not a claim of the assessee that right of both the AEs to use intangibles of the assessee has been withdrawn in the year under consideration by the agreement or otherwise. (b) It is a matter of record that both the AEs have used intangibles of the assessee in the year under consideration both in manufacturing and using the trademark of the assessee for the sale. These facts clearly prove that both the AEs have enjoyed the benefit of the intangibles to generate income in the year under consideration. (c) from the arm's length prospective no comparables independent enterprise would be willing to transfer a right in its intangible property to a third party for the use without any adequate compensation particularly in the circumstances when the benefit from the use of the intangibles is proved beyond doubts. (d) In this case, under the identical facts and circumstances b....
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....which stipulates for payment of the royalty @ 4% of net FOB sales." 17. The TPO computed the arm's length price of the royalty in the year under consideration as under: Company FOB Sales Rs. In Lakhs Royalty Rs. In Lakhs Royalty shown in the books of accounts Difference Rs. In Lakhs Dabur Nepal (P) Ltd., 3319.5 248.96 5.34 243.62 Nepal Dabur International UAE 7526.84 301.07 - 301.07 550.03 5.34 544.69 Accordingly, an adjustment of Rs. 544.69 lakhs was proposed by the TPO on account of arm's length price of royalty. 18. Thereafter, the AO asked the assessee to produce the books of accounts and to furnish the various details, the same were filed by the assessee. The AO observed that the assessee was engaged in the business of manufacturing & trading of herbal products of health care, personal care, cosmetics & veterinary products, FMCG products at sites and that the assessee had also earned income from capital gains, dividend, house property & other sources. The AO pointed out that the assessee was having following undertaking in the year under consideration: * Hajmola Unit, Baddi * Pudin Hara Unit, Baddi * S....
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....ame is highly arbitraries and opposed to the facts under consideration The detailed submissions made before the transfer price officer and the valuation report submitted on projection basis and subsequently on the basis of actual basis clearly establishes without any doubt that the transaction at which Dabur Nepal shares and Dabur overseas shares transferred by the assessee company clearly satisfies the ALM principle and no additions is warranted at all. The Transfer price officer erred in assuming the role of valuation officer without making any reference to an independent valuer. It is submitted after accepting the entire methodology adopted by the valuation report as submitted by the assessee the TPO ignored the projection as well as the actual results and the valuation pertaining thereto. Assuming, while denying, assuming a different view is possible, as held by Supreme Court of India in Vegetable Product's Case the transfer price officer erred in not adopting a view which is favorable to the assessee company. The valuation and the addition on account of royalty by TPO, who is not competent authority to do the valuation which never accrue....
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.... earlier years by the appellant as the basis for computing the arm's price. The appellant in its submission before AO/TPO did bring out the facts for not charging the royalty from its overseas AEs. The reasons were that Dabur India did not have any significant sales outside India and mainly its customers were Indian Diaspora. With a vision to explore overseas market, Dabur India had acquired a business in UAE in Sept. 2004 with Redrock Ltd. Thereafter, the business model of overseas AEs was to produce locally and sell locally under the Dabur brand. A significant aspect of this new model was that Redrock Ltd, (latter renamed as Dabur International Ltd) would be incurring all costs relating to marketing and sales (AMP) by itself. As against this new model, both Dabur India and Dabur UAE and Dabur Nepal cancelled their royalty agreement. This fact was brought to the notice of AO/TPO who did take into account this emerging and new fact before concluding the royalty addition. Jurisdiction of TPO 8.2 During the FY 2005-06, the Ld. TPO has made transfer pricing adjustments on account of nonreceipt of royalty from Dabur Nepal Pvt Ltd and Dabur International Ltd of R....
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....ble to be quashed. 8.5 Instruction No. 3 of 2003 issued by the Central Board of Direct Taxes on 20.05.2003 on the Role of TPO states that: (ii) Role of Transfer Pricing Officer: The role of the TPO begins after a reference is received from the Assessing Officer, In terms of section 92CA this role is limited to the determination of arm's length price in relation to the international transaction(s) referred to him by the Assessing Officer. If during the course of proceedings before him it is found that there are certain other transactions which have not been referred to him by the Assessing Officer, he will have to take up the matter with the Assessing Officer so that afresh reference is received with regard to such transactions. It may be noted that the reference to the TPO is transaction and enterprise specific. Recent Ruling of Hon'ble Delhi High Court in case of CIT v Amadeus India (P) Ltd 246 CTR 338 in case of jurisdiction of TPO u/s 92CA concurs that: 24. we do not agree with the submission made by the learned counsel for the revenue that when a reference is made by an Assessing Officer to the Transfer Pricing Officer, the reference ....
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....No. 3 of 2003, dated 20-5-2003 issued by the CBDT regarding computation of income from international transaction having regard to arm's length price, is very clear. In the said instructions, the CBDT explaining the role of TPO has instructed that in terms of section 92CA of the Act, the TPO's role is limited to the determination of arm's length price in relation to the international transactions referred to him by the Assessing Officer and if during the course of proceedings before him it is found that there are certain other transactions which have not been referred to him by the Assessing Officer, he will have to take up the matter with the Assessing Officer so that afresh reference is received with regard to such transaction. The Board has further opined that reference to the TPO is transaction and not enterprise specific. In the present case, the determination of ALP in respect of the transaction by which the assessee deputed three of its employees to IC1CI Infotech, USA, by the TPO is, therefore, non est to that extent and cannot form the basis for making an addition to the total income. The Assessing Officer, therefore, could not have made the impugned ad....
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....pective effect from 01.06.2011 and would have no application to the present appeal which is in respect of the assessment year 2006-07. 8.8 With respect to point of jurisdiction u/s 92CA(1) and enlarged scope under sub-section (2A), the appellant submitted as follows: - Royalty Transaction with Dabur International Ltd, UAE was never referred by the AO to the TPO, and hence the TPO while computing the arm's length of this transaction clearly exceeded jurisdiction and that recourse to sub-section (2A) cannot be also availed as Sub-section (2A) can be applied only retrospectively from 01.06.2011. As a result of this, the ALP of Rs. 301.07 lakhs with respect to royalty transaction with Dabur International Ltd, UAE should be deleted. - Royalty Transaction with Dabur "Nepal P Ltd, Nepal, the appellant had inadvertently reported a transaction of Rs. 5.43 lakhs which was never a transaction and hence, adjudication of ALP by the TPO also clearly violated the provisions of section 92CA and that recourse to sub-section (2A) cannot be also availed as Sub-section (2A) can be applied only retrospectively from 01.06.2011. As a result of this, the ALP of Rs. 248.96 la....
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....ection 92A of the Act, uses a foreign trademark and/or logo on its products or on containers, packaging, etc, manufactured and/or sold in India, no payment to the foreign entity on account of such user, is necessary, in case the use of the foreign trademark and/or logo is discretionary for the domestic entity. However, the income arising from such international transactions needs to be determined at arm's length price, in terms of section 92C of the Act" "If the domestic entity which is an Associated Enterprise of the foreign entity within the meaning of Section 92A of the Income Tax Act, is mandatorily required to use the foreign trademark and/or logo on its products and/or their containers, packaging, etc, appropriate payment in this regard should be made by the foreign entity to the domestic entity, on account of the benefit it derives in the form of marketing intangibles, obtained by it from such mandatory use of its trademarks" 8.15 The aforesaid guidelines on royalty payment of Delhi High Court are directly connected with the appellant's case too. In case of appellant, the AEs are not mandatorily required to use the Trademarks, logo etc on products, as such....
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....cates that the AEs are committing massive investment in brand building exercise for the appellant. The amount spent on AD, Publicity, Marketing consistently over the years indicates that brand is relatively unknown in the foreign jurisdiction and in order to increase awareness about its products the AEs are required to spent huge sum on advertisement and publicity. By virtue of spending massive sum in foreign territory the AEs are directly and indirectly promoting the brand 'Dabur' in its own jurisdiction, thereby doing honorary/ chargeable service to the appellant. In view of Delhi High Court ruling, the foreign AEs can charge a service fee (assuming the principle of Transfer Pricing holds well) from the appellant for promoting and building its brand. Foreign AEs is not directly benefited by usage of Dabur Brand 8.18 The foreign AEs are required to create awareness about its products with local customers on its own and the parent Company has no role or insignificant role towards the same. Given that, as such there is no distinct advantage on using the 'Dabur' Brand in the foreign jurisdiction, because the usage of Brand as such would mean - ....
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....e arm's length price in relation to any international transaction has to be judged from the FAR contribution by each member to the transaction. Therefore, in relation to royalty before coming to a conclusion that royalty payment accrues to Dabur India, it needs to be ascertained what are factors which entitle Dabur India right to royalty and factors which points out why no royalty is chargeable. The table below analyses the FAR analysis in relation to royalty: S. NO. FAR Points Dabur India Overseas AEs 1. Who is the legal owner of brand Yes No 2. Who incurs the cost of registration and renewal cost Yes No 3. Who decides what products to be launched in overseas market No Yes 4. Who forms marketing strategy for brand promotion in overseas market No Yes 5. Who decides on sales strategy No Yes From the above table it can be inferred that Dabur India has no role in brand building of its products and the task of brand building is completely the decision of the overseas AEs. Given this fact, there is an irrefutable fact that the overseas AEs are performing a crucial function of building Dabur India's products/ brand in a relati....
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.... reported very nominal amount of royalty received. Comparative figures of the royalty received by the appellant from AE's during FY 2004-05 and 2005-06 are as under: Name of AE Royalty received in FY 2004-05 (Rs. In Lakhs) Royalty received in FY 2005-06 (Rs. In Lakhs) Dabur Nepal (P) Ltd., Nepal 43.34 5.34 Dabur International Ltd., UAE 164.41 NIL Asian Consumer Care P. Ltd., Bangladesh 46.87 21.02 The case of the appellant is that the agreements under which royalty was received in earlier period were no longer in existence. Moreover, the overseas AE's are incurring substantial expenses for brand promotion in their respective territories and therefore there is no payment of royalty. In order u/s 92CA(3), the TPO computed arm's length price of royalty as under: Name of AE FOB sales Rate of royalty Royalty Royalty shown in books Difference Dabur Nepal (P) Ltd., Nepal 3319.50 7.5% 248.96 5.34 243.62 Dabur International Ltd., UAE 7526.84 4.0% 301.07 - 301.07 Adjustment 544.69 Value of royalty received from Asian Consumer Care P. Ltd., Bangladesh was not changed by the TPO. T....
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....-section is reproduced as here-under:- Where in respect of an international transaction, the assessee has not furnished the report u/s 92 E and such transaction comes to notice of the TPO during course of proceeding before him, the provisions of this chapter shall apply as if such transaction is an international transaction referred to him under subsection (I). In view of specific provisions of 92CA(2B) which are operative w.e.f. 01.06.2002, the contention of the appellant cannot be accepted. Therefore, this argument of the appellant fails. 9.4 Another argument of the appellant is that there are no operative contractual agreements with Dabur Nepal and Dabur UAE which can be enforced to get royalty payment from overseas AE's. TPO has worked out arm's length price of the royalty by resorting to old agreements which had expired during period under consideration. According to appellant, it is settled law that notional income cannot be brought to tax. This contention of the appellant has been duly considered. The simple fact is that the appellant has allowed its AE in Nepal and UAE to use its brand name but no royalty has been charged from them. This cannot be ....
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....;Dabur' is Nil as no royalty has been accounted for by the appellant. There must be some value of the brand for which royalty income has to be determined having regards to arm's length price. Secondly, the appellant has not established that AE in Nepal and UAE are incurring abnormal AMP expenses which exceed 'Bright Line Test'. Rather perusal of chart of AMP expense on AEs as reproduced in para 8.16 supra shows that %age of such expense to sales shows decreasing trend over subsequent years and in no way such expense can be labeled as abnormally high. The appellant has not established its view by giving figures of AMP in case of comparables operating in respective geographical locations. The appellant has not established that tax authorities of Nepal and UAE have held such AMP expenses as exceeding bright line. Upto AY 2005-06, the appellant has been receiving royalty income from its AEs. The appellant could not establish that after AY 2005-06, its AMP expenses have decreased and AMP expenses of its AEs have increased substantially which may point towards appellant's case that its AEs are doing brand building efforts and hence providing service to it. Therefore, ....
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....Based on this, the TPO has computed royalty chargeable from Dabur International Ltd. @ 4% of sales while the appellant has not declared any royalty income. The appellant has contended that w.e.f. 01.04.2005, this agreement has been terminated and has furnished letters dated 07.04.2005 and 01.02.2013. The appellant has further contended that Dabur International was not sourcing any technical know-how from Dabur India for its products manufactured in UAE and has furnished letters dated 18.07.2011 and 20.07.2011 which state that products manufactured by Dabur International Ltd. in UAE are different from those manufactured in India and no technical support from Dabur India is being taken for the purpose. 9.8 The AO was required to submit remand report u/r 46A as these new evidences were not produced during assessment stage. The remand report has been received from the AO vide letter dated 04.02.2013. The appellant has also filed its rejoinder vide letter dated 04.03.2013. In its remand report, the AO has stated that despite adequate opportunities made available to the appellant, these documents were not furnished at assessment stage. On merits, the AO has said that Dabur Inter....
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....net of taxes and sales return) of Redrock of Dabur branded products which are developed by Redrock from any other party without any technical and R&D support from Dabur." The appellant has argued that since Dabur International had not sourced any technical support from Dabur India, clause (a) above shall not apply. This contention of the appellant cannot be brushed aside completely in view of letters furnished by the appellant mentioned supra. Even, this was also the stand of the appellant before TPO when appellant furnished working of royalty at Rs. 75.27 lakhs on FOB sales of Rs. 7526.84 lakhs ie. @ 1%. This fact has been mentioned in para 7.9 and 7.16 of TPO's order. Rejecting this computation of the appellant, TPO has worked out royalty @ 4% of FOB sales. This approach of TPO is faulty because even if it is assumed that Dabur International has manufactured all its products by using technical know-how of Dabur India, royalty shall be payable @ 3% as per clause 4(a) above and in that case, sub-clause(b) shall not come into operation. However, considering the material furnished by the appellant, it is seen that products manufactured by Dabur International in UAE are d....
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....'s length price, existence of agreement or otherwise is not relevant. Therefore, argument of the appellant that agreement was not in operation during period under consideration is not relevant as price of international transaction is to be determined by TP regulations. The undisputed fact is that Dabur Nepal has been permitted to use Dabur brand name and the appellant had been receiving royalty income for the same upto preceding AY. The TPO has treated said agreement dated 05.11.1992 as basis for arm's length price in the absence of any comparable provided by the appellant. Now the issue is whether TPO is correct in adopting 7.5% rate of royalty chargeable from Dabur Nepal. The approach of TPO in relying upon agreement dated 05.11.1992 and not considering amended agreement dated 01.04.2004 is fallacious as contemporaneous material/document should have been considered instead of document which is remote in time. Accordingly, TPO is not correct in applying rate of 7.5% and ignoring rate of 3% as mentioned in amended agreement. When specifically asked by TPO, the appellant has given working of royalty @ 3% on total FOB sales as mentioned in para 7.9 and 7.16 of TPO's order....
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....n and manufacture of FMCG products and later on, the name of the company also changed to Dabur International Ltd. who after acquisition, became 100% subsidiary of the assessee. It was submitted that as far as M/s Dabur Nepal Pvt. Ltd. was concerned, the assessee for the purpose of manufacturing of the products had entered into an agreement on 5th November 1992 for providing the technical know-how, marketing, financial and managerial support for the manufacture of hair oil, Lal Dant Manjan, Dant Mukta, tooth power/tooth paste and herbal candies etc. A reference was made to page no. 111 of the assessee's paper book. It was further submitted that as per the said agreement M/s Dabur Nepal Pvt. Ltd. was entitled to use trademark of Dabur for the sale of its products and in turn the assessee was entitled for royalty @ 7.5% of net sales. It was agreed that the entire marketing expenses including salaries and allowances of sale personnel would be borne by Dabur Nepal Pvt. Ltd. and that the agreement shall become effective only after the approval by the Government of Nepal and this agreement shall remain valid for a period of 10 years from that date unless renewed by mutual consent in writi....
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....f. 1st April, 2005 onwards and the assessee agreed for the same, a reference was made to page no. 122 of the assessee's paper book. It was stated that the AO for the purpose of determination of arm's length price of royalty chargeable from Dabur International Ltd., UAE and Dabur Nepal Pvt. Ltd., referred the matter to the TPO before whom the assessee contended that in the absence of any contractual agreement between the assessee and the respective AEs, the assessee was not eligible to receive any royalty from Dabur International Ltd. as well as Dabur Nepal Pvt. Ltd. but the TPO was of the view that as per transfer pricing provisions contained in Section 92C of the Act, it was necessary that there should be an agreement between the parties in writing but it may be an oral understanding also. The ld. Counsel for the assessee pointed out that the assessee in respect of Dabur International Ltd., submitted before the TPO as under: "(i) The assessee is mainly in the business of Ayurvedic medicines and herbal products, and in FMCG business it is a new entrant. (ii) In UAE, FMCG markets are controlled by the big multi-international companies of US and European countries. ....
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....use no product has been manufactured by Rodrock with the help and support of assessee in accordance with terms and conditions of agreement. However, the TPO, after taking into account the royalty agreement as entered by the assessee-company with Rodrock in earlier years, computed the royalty chargeable from Dabur International @ 4%. While working out such royalty rates, the TPO had clubbed the rates of royalty 3% being the royalty payable on the items manufactured with the support of assessee-company while using the technical know-how provided by the assessee and 1% on the products manufactured without the aid and support of assessee-company but marketed by using "Dabur" name." The ld. Counsel for the assessee, in respect of M/s Dabur Nepal Ltd., submitted as under: "(a) During the year under consideration, in absence of any written contract, no royalty is chargeable. (b) In spite of the agreement, as existed in earlier years, the assessee-company had to bear the cost of marketing expenses, but the assessee failed to contribute anything. (c) All the efforts including risk and cost for the establishment of the brand have been made by Dabur Nepal and for t....
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....nd level of competition and whether the markets are wholesale or retail." 27. It was submitted that as per the provisions contained in Section 92C of the Act read with Rules 10B and 10C of the IT Rules, 1962, it is clear that under the Transfer Pricing regulation for the purpose of making adjournment, the ALP has to be determined by finding out the receipt of royalty payment received by similarly situated and comparable independent entities, but in the absence of any comparable, no upward addition can be made. The reliance was placed on the following case laws: CIT Vs Patni Computer Systems Ltd. in (2013) 33 Taxmann.com 3 (Bom) Sony Ericsson Vs CIT 374 ITR 118 (Del) It was further submitted that as per paragraph 6.38 of OECD Transfer Pricing Guidelines, if the AE has undertaken all the market development activities and incurred extraordinary marketing expenditure, the AE is required to be adequately compensated either by lower purchase price or reduction in royalty rate as the case may be. 28. It was contended that there was no agreement in force to charge royalty and in FMCG, Dabur India was basically a new entrant in UAE and for the ....
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.... the assessee but also to enhance the value of "Dabur" mark. 29. It was emphasized that the ld. CIT(A) admitted that M/s Dabur International Ltd., UAE had not manufactured any product with the technical know-how and R&D support of the assessee but has manufactured on its own, in accordance with the requirement and local taste of the local public and had verified that in earlier years, the said Dabur International Ltd. had paid the royalty @ 1% only. Therefore, the action of the ld. CIT(A) in directing the AO to calculate the royalty @ 2% instead of 4% levied by TPO was without any basis and reasons and at any rate was very excessive because the ld. CIT(A) had neither given the benefit of geographical area, where Dabur was very little known nor any FAR analysis had been done which was a condition precedent for working out arm's length price. 30. It was further stated that in the case of M/s Dabur Nepal Pvt. Ltd., once the ld. CIT(A) accepted that as per the agreement, the assessee was under obligation to bear the marketing costs which included the advertisement and remuneration to sales personnel and that the assessee has not borne such expenditure, then directing to....
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....ure as well as the quality. It was further stated that the assessee neither had made any efforts in establishing the trade name nor had made any contribution whatsoever, therefore, keeping into consideration the said factors, M/s Dabur International Ltd. had not renewed the royalty agreement because the assessee was not willing to undertake any risk/obligation/responsibility. However, neither the AO/TPO nor ld. CIT(A) had made any adjustment based on FAR analysis as contemplated under Rule 10C of the Income Tax Rules, 1962 nor had given any benefit of geographical condition and size of the market as well as the risk assumed by M/s Dabur International Ltd. 31. As regards to the case of M/s Dabur Nepal Pvt. Ltd., the ld. Counsel for the assessee submitted that the Revenue department had not brought on record any comparable case and the additions had been made by the AO/TPO based on the earlier agreements which had already expired. It was further submitted that the AO/TPO as well as the ld. CIT(A) failed to consider the contractual obligation on the part of the assessee for bearing the marketing cost and had not given any adjustment on the basis of FAR analysis. It was contend....
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....impugned order passed by the ld. CIT(A). 33. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assessee had not shown any receipt on account of royalty from M/s Dabur International Ltd., UAE and had shown royalty of Rs. 5.34 lacs from M/s Dabur Nepal Pvt. Ltd. on the FOB sales of Rs. 7526.84 lacs and Rs. 3319.50 lacs respectively. The TPO worked out the royalty @ 4% of the sales in the case of Dabur International Ltd. and @ 7.5% of the sale in the case of Dabur Nepal Pvt. Ltd. The ld. CIT(A) reduced the royalty @ 2% of FOB sales. In the instant case, it is noticed that the assessee earlier entered into an agreement with M/s Redrock Ltd. who was registered in the Channel Island, U.K with its principal office at 54-58, Althol Street, Doughlas, Isle of Man, U.K. and had been manufacturing and producing various products for sale after utilizing technical information provided to it by the assessee in terms of agreements executed from time to time and lastly on 2nd day of April 2001 which had expired on 31st day of March 2003. Thereafter, another agreement wa....
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....e, nothing is brought on record to substantiate that the products manufactured in UAE were with the help of technical know-how and R&D support of the assessee. On perusal of the provisions contained in Section 92 of the Act it would be clear that the income arising from an international transaction shall be computed having regard to the arm's length price which shall be determined by any of the 5 methods prescribed in Sub-Section (1) of Section 92 of the Act which are following: "(a) Comparable and controlled price method; (b) Resale price method; (c) Cost plus method; (d) Profit split method; (e) Transactional net margin method; or such other method as may be prescribed by the Board." 34. It is also not in dispute that for determination of the arm's length price, the provisions contained in Sub-Section (2) of Section 92C of the Act shall be applied. The various methods has been prescribed under Rule 10B of the Income Tax Rules, 1962 to determine the arm's length price u/s 92C of the Act and Rule 10C of Income Tax Rules, 1962 further states that in selecting the most appropriate method, following factors shall be taken into consideration: "(a) The specific chara....
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....d on its own, in accordance with the requirement and local taste of the local public, however, he directed the AO to calculate the royalty @ 2% but without any basis. In the present case, it is an admitted fact that the TPO/AO had not applied any transfer pricing method as prescribed under the Act and simply made the adjustment in respect of royalty based on the earlier agreements which had already expired and there was no new agreement between the assessee and its AEs. The earlier agreement was entered by M/s Redrock Ltd. on 1st April 2003, at that point of time, the said company was manufacturing the products with the technical know-how and R&D support of the assessee in respect of Aurvedic/Herbal products. But later on, when the said company found that the Aurvedic products were not acceptable in UAE as in the said country Unani system of medicines was acceptable as per the local trend and custom. The said AE in UAE had abandoned the manufacturing of the Ayurvedic/herbal products and then entered into the business of FMCG products which were earlier manufactured by the Redrock Ltd. with its own technology as per the requirement and taste of a local public of UAE by keeping into ....
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....alty charged from M/s Dabur Nepal Ltd. is concerned, it is not in dispute that earlier the royalty received was @ 7.5% as the assessee was bearing the cost of marketing expenses but later on M/s Dabur Nepal Pvt. Ltd. incurred lot of expenditure in order to penetrate the market and the agreement was amended w.e.f. 1st April, 2004 vide which the royalty had been reduced from 7.5% to 3% (copy of the same is placed at page no. 113 of the assessee's paper book). In the preceding year, on the basis of the said amended agreement, the royalty was charged @ 3%. Therefore, the TPO was not justified in working out the royalty @ 7.5% as provided in the original agreement dated 05.11.1992 (copy of which is placed at page nos. 111 & 112 of the assessee's paper book). For the year under consideration, M/s Dabur Nepal Pvt. Ltd. has not paid any royalty to the assessee for the reasons that it had to incur the expenses to penetrate the market. In this regard, vide letter written in May 2005, it was informed to the assessee that no royalty will be payable from Financial Year 2005-06. It was also claimed that as per the Clause 7 of the original agreement dated 05.11.1992, the agreement shall become ef....
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....ransactions at arm's length price by stating as under: "Further, as regards the intra-group transaction of sale of investments, during the current financial year, the shares held by DIL in DNPL and in Dabur Overseas Ltd., were sold to Dabur International Ltd., UAE. For this purpose, a share valuation exercise was undertaken by an independent third party valuer, for both the sale transactions. The price arrived at in each case, by the independent third party valuer represents a comparable uncontrolled price for the price at which DIL sold the shares in DNPL and in Dabur Overseas Ltd., respectively, to Dabur International Ltd., UAE, and both of these were the same, i.e., DIL's sale price was as per the valuation report of the independent third party valuer in both cases." 39. The TPO pointed out that the assessee was holding 79.96% of the shares of M/s Dabur Nepal Pvt. Ltd. which were sold to M/s Dabur International Ltd. for an amount of Rs. 17.16 crores and as a consequence to these transactions, the assessee ceased to be the holding company and M/s Dabur International Ltd. became 97.46% owner of M/s Dabur Nepal Ltd. He also observed that the assessee was holding 100% shar....
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.... 12 12 12 Revenues (Please enter value) 28152.69 26745.06 25407.80 24137.41 22930.54 22930.54 YOY growth -5% -5% -5% -5% -5% 0% Operating profit margin 10% 10% 10% 10% 10% 10% EBIT 1864.61 1792.05 1718.55 1644.68 1570.92 1570.92 add Depredation 1054.82 981.41 916.24 858.37 806.98 806.98 less Capex 450 400 400 400 400 400 less Incremental working capital 0 0 0 0 0 0 less Tax on EBIT 400.76 385.07 368.94 353.46 337.55 337.55 Free cash flow 2469.43 2373.46 1865.85 1749.59 1640.35 1640.35 Discount rate 18.10% 18.10% 18.10% 1.8.10% 18.10% 18% Discount factor 0.82 0.67 0.54 0.44 0.36 9076.95 Present value of free cash flows 2015.86 1581.65 1015.01 776.95 594.64 3351.89 Total Net Present Value 5984.11 Present value of perpetuity 3351.89 Total Business Value 9336.00 Less Debt 5843.00 V Shareholder value 3493.00 Da....
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....e furnished a note of valuation and assumption which read as under: "NOTE ON VALUATION AND ASSUMPTIONS: 1. The assessee company has during the year disposed of its holding in Dabur Overseas Ltd. and Dabur Nepal Pvt. Ltd. 2. Dabur Overseas Ltd. - Dabur Overseas Ltd. is an investment company. - It has no sales. - It is continuing incurring loss. - It hold 76% of investment in Dabur Egypt Ltd. - Dabur Overseas shares were valued at Net Assets Value Method. - The Valuation report -was obtained from Aggarwal & Ahluwalia, Chartered Accounts after considering the following recognized method of valuation: * Market Price method * Discounted Cash Flow Value method * Net Assets value method. - Market value method cannot be adopted since; Dabur Overseas Ltd.'s shares are unquoted shares. - Discounted value method-was adopted since there is no net cash outflow. - However, the value of its Dabur Overseas Holding in Dabur Egypt was valued at discounted value method after considering various methods of valuation namely; i) Market Price Method ii) Net Assets Value method iii) Discounted cash flaw method - Discounted cash ....
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....low of Dabur Nepal Pvt. Ltd operations. - Valuation report was obtained and duly submitted to RBI under FEMA regulations. - The valuations report obtained from Aggarwal & Ahluwalia, Chartered Accountants after considering the following recognized method of valuation, i) market Price method ii) Net Assets Value Method iii) Discounted cash Flow method - Market value method cannot be adopted since Dabur Nepal Pvt. Ltd.'s shares are unquoted shares. - Discounted cash flow value method was adopted since the assessee company reduced dependence on its Nepal subsidiary and having alternate facilities available in Siliguri, W.B. and Newai at Rajasthan. - Thus according to the estimate, the sales value were estimated to come down in view of alternative supply available to assessee company. - The valuation report obtained after duly considering various factors as per accepted methods of valuation by Aggrawal & Ahluwalia, Chartered Accountants. Dabur Nepal Pvt. Ltd sales had been projected keeping in view less dependence in future years by the assessee company. Growth in sales for F.Y. 2005-06." 42. The TPO after consid....
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....ee company with Dabur International Limited, It is seen from the details furnished in Form 3CEB and Transfer Pricing Study Report that the transaction has been benchmarked using CUP. The details of transaction as furnished during the course of proceedings have been examined. It is seen that in order to furnish the CUP data, valuation reports prepared by Agarwal and Ahluwalia Chartered Accountants have been filed. During the course of proceedings Mr. Sanjay Agarwal, CA also appeared and attained the method of valuation. A detailed note was also filed in this respect by the AR on 07.10.2009. (ii) On the basis of various information filed, it is seen that the valuation report of Dabur Overseas Limited, Dabur Egypt Limited and Dabur Nepal Limited has been prepared using following methods: 1. Dabur Overseas Limited Net Asset Value Method 2. Dabur Egypt Limited Discounted Cash Flow Method 3. Dabur Nepal Limited Discounted Cash Flow Method (iii) The valuation reports have used the actual data for financial years 2002-03, 2003-04 and 2004-05 and have used the projected financials for the financial years 2005-06 to 2009-10. As mentioned in Para 2 of the repo....
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....ctions to the proposed changed in the valuation as under: "a. In case of Dabur Egypt Limited the year on year growth of 89% is highly exorbitant as against the growth of 19% considered for the valuation of shares. b. In the proposed valuation, increased cost on account of interest paid, capex expenditure, incremental cost of working and increased tax outflow has been ignored. c. The valuation has been duly accepted by the Exchange Control Authority on the basis of valuation report of Agarwal and Ahluwalia Chartered Accountants. d. Fresh Valuation reports were submitted by the assessee prepared by Agarwal and Ahluwalia Chartered Accountants using the figures of actual audited figures for the period from 2006 to 2009. e. It has been pointed out by the AR for the assessee that Dabur International Limited has purchased the shares of Dabur Nepal Limited from unrelated parties viz. Lunar Trading Company and Bibhuti Pvt. Ltd. and the cost of acquisition is comparable with the cost at which the shares have been sold by Dabur India Limited." 46. The TPO with regard to M/s Dabur Egypt Ltd., did not find merit in the objection of the assessee by o....
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.... length price of the transaction. As regards to the submissions of the assessee that that shares of M/s Dabur Nepal Ltd. had been transacted between M/s Dabur Nepal Ltd. and the unrelated parties at almost the same rate. The TPO observed that only certificate had been filed by the assessee which was issued by M/s Dabur International Ltd. and that buying a small stake in any company and buying the whole company through managing stakes were two different issues which would carry two different prices i.e. purchase price of quoted shares for the purpose of having controlling right in a company would be different from purchase prices of small investment and there was difference in strategic investment and routine investment. Thereafter, the assessee furnished fresh valuation reports of the shares by substituting the figures of projected sale with the actual sale achieved during the period 2006-09 as under: Dabur Egypt Limited 2002-03 2003-04 2004-05 Income statement 2005-06 2006-07 2007-08 2008-09 2009-10 12 months 12 months 12 months In USD 12 months 12 months 12 months 12 months 12 months 3 1st ....
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....-07 2007-08 200849 2009-10 12 months 12 months 12 months Nrs In Lakhs 12 months 12 months 12 months 12 months 12 months 31st March 31st March 31st March 31st March 3 1st March 3 1st March 3 1st March 31st March Actual Actual Actual Actual Actual Actual Actual Forecast 27961.79 28347.35 29634.41 Sales 31040.46 35181.33 39159.92 43519.23 22930.54 10% 1% 4310.15 3864.07 3074.02 EBIDTA 2790.96 3028.50 2995.23 2232.29 2376.98 15% 14% 10% EBIDTA/Sales 9% 9% 8% 5% I0% 3210.80 2781.70 2044.61 EBIT 1593.26 1695.81 1632.78 674.62 1570.00 1976.44 1841.53 1381.21 PBT 944.38 1086.24 906.78 28.03 1570.00 1521.86 1445.60 1116.68 PAT 775.50 852.70 705.30 23.65 1232.45 Shareholder valuation of DNPL based OB Discounted Cash Flow Model In Nrs lakhs Period ending March 31 2006 2007 2008 2009 2010 Perpetuity Number of Months 12 12 12 12 12 Basis Actual Actual Actual Actual Forecast Forecast Revenues 31040.46 35181.33 39159.92 43519.23 22930.54 22939.54 YOY growth ....
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....tioned that the provisions of Section 92(1) of the Act provides that any income arising from an international transaction shall be computed having regard to the arm's length price. 50. According to the TPO, the assessee was required to ensure its international transactions with the AEs were at prices which were comparable to an existing price that had either been applied or was proposed to be applied between persons in uncontrolled conditions and it could not be contended that the Rules required to take into account data which was not available at the point of determination of arm's length price because such an interpretation would make it impossible to comply with the transfer pricing regulations. The TPO was of the view that the assessee needs to determine the arm's length price on the basis of data of relevant assessment year and not on the basis of data of subsequent year as provided by the Indian Transfer Pricing Legislation but in this case the assessee valued the important shares of M/s Dabur Overseas Ltd. and M/s Dabur Nepal Ltd. in the beginning of the financial year 2005-06 and at that time data could have been used for projection and determining the share price a....
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.....54% respectively. The share holding pattern of Dabur Nepal Pvt. Ltd. is provided below. FY 2005-06 FY 2004-05 FY 2003-04 Share Holding in % 1. Dabur India Ltd., India 0 79.96% 79.96% 2. Dabur International Ltd, IOM 97.50% 17.53% 0.00% 3. SS Rana, Nepal 2.50% 2.50% 2.50% 4. Bibuti Pvt Ltd, Nepal 0.00% 0.00% 7.51% 5. Lunar Trading Company, Nepal 0.00% 0.00% 10.02% Date of Sale of Shares 15-06-2005 (Dabur India) 28-03-2005 (Bibuti & Lunar) Share Holding in No of Shares Dabur India Ltd., India 6,38,520 6,38,520 Bibuti Pvt. Ltd., Nepal - 60,000 Lunar Trading Company, Nepal - 80,000 SS Rana 20,000 20,000 20,000 Dabur International 7,78,520 1,40,000 - Total 7,98,420 7,98,520 7,98,520 Initially, two shareholders namely, Bibuti Pvt Ltd, Nepal and Lunar Trading Co, Nepal sold their equity stakes of 7.51 % and 10.02% respectively to Dabur International Ltd, IOM on 28 March 2005. Then, after about 3 months, Dabur India Ltd divested its complete holding of 79.96% in Dabur Nepal to Dabur International Ltd. Dabur Nepal is primarily int....
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.... that: - The basis of valuation of shares was done per the prevailing market conditions and projected financial of Dabur Nepal; - The appellant arrived the value of sale consideration by appointing an independent valuer/ expert and whose report was considered for the purpose of final sale price. - Two more shareholders i.e. Bibhuti P Ltd and Lunar Trading Company also disposed their stake at similar values as adopted by the appellant giving a strong evidence of justified sale consideration. - Dabur Nepal had no intangibles and hence the return on investment would have been only nominal. A growth factor of +5% as taken by TPO against negative outlook and growth of Nepal given political stability was totally unjustified. - As per the valuer's report, the valuation was done on the discounted cash flow method (DCF) and this method is recognized by RBI as well for the purpose of unlisted equity share valuation. - The appellant had paid capital gains tax on the capital gains made by Dabur India. In light of the above, the appellant submits that the valuation arrived by the TPO by altering the projected sales figure at +5%....
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....and hence the return on investment would have been only nominal. A growth factor of +89% on YOY as taken by TPO was totally unjustified and the TPO has not demonstrated how an entity in FMCG sector grow every year by 89%. The high handed action of TPO is totally unwarranted and needs to be quashed. A growth factor of +19% on YOY basis is very reasonable and achievable and accordingly the valuer had factored the growth at 19%. - As per the valuer's report, the valuation was done on the discounted cash flow method (DCF) and this method is recognized by RBI as well for the purpose of unlisted equity share valuation. In light of the above, the appellant submits that the valuation arrived by the TPO by altering the projected sales figure at +89% and keeping other items of expense constant is contrary to the facts and prevailing market conditions and is notional and adhoc and thus should be rejected. Thus, the addition on account of Dabur Overseas/ Dabur Egypt of Rs. 8.01 crores should be deleted." 53. The assessee further submitted that the valuation arrived at by the valuer was almost sacrosanct and could not have been substituted with any other amount for....
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.... while increasing the sales % by 5% and 89% for Nepal and Egypt did not correspondingly increase the operating expenses of the those companies. As the TPO has not increased the operating expenses, the growth factor of 5% and 89% becomes unrealistic and untenable and requires to be quashed down. Perpetuity Valuation The appellant had determined the perpetuity valuation of present values of free cash flow of Dabur Nepal at NRs. 3351 Lakhs and USD 12.91 lakhs for Dabur Egypt. The TPO has accepted this method of valuation of the appellant The Ld TPO has accepted the perpetuity valuation but disturbed the sale factor for period 2006-2010 implying that his idea was just to make some additions without any basis Dabur Nepal's Valuation, wrongly done by TPO 1) The appellant has determined the free cash flow after reducing tax on EBIT 2) Secondly the Discount factor to determine PV of cash flows has been arrived by a formula 1) TPO did not deduct tax on EBIT to arrive at free cash flow. 2) The Discount factor has been wrongly used by the TPO The arithmetical error by not reducing tax and wrong application of discount factor has inflated the valuation of Dabur Nepal Valuation base....
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....ndependent valuer's report for the purpose of ascertaining arm's length value of the shares and has paid capital gains taxes accordingly. The TPO has accepted the report of independent valuer in principle but adopted higher projected growth rates than that adopted by independent valuer, and has worked out arm's length price on higher side & thereby has proposed upward, adjustment Position in respect of two companies whose shares have been sold is being discussed in subsequent paragraphs. 12.2 Dabur Nepal Pvt. Ltd.: It is seen that the appellant has sold 6,38,520 shares of Dabur Nepal to Dabur International (AE) on 15.06.2005. Since the shares were unquoted, the appellant obtained a report dated 07.06.2005 from independent valuer, wherein value of shares has been determined at Rs. (Nepalese) 3433.59 lacs (INR 17.16 crows) as on 31.05.2005 by following discounted cash flow (DCF) method. This value has been adopted by the appellant as ALP. At the time of sales, actual figures of financials of Dabur Nepal were available upto FY 2004-05 and for subsequent years, projected sales growth of (-)5% was taken in the said valuation report on the basis that there i....
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....sition and has relied upon discounted cash flow method as used by independent valuer. The position being so, now question arises what should be correct projected growth rate. The independent valuer has used -5% whereas TPO has used +5%. From financials of Dabur Nepal, it is clear that actual growth rate in FY 2002-03, 2003-04 and 2004-05 is 10%, 1% and 5% respectively. This indicates wide variation in growth rate which is result of unstable political atmosphere in Nepal state. Therefore, TPO's approach of using +5% projected growth for future years does not seem to be rational. TPO's approach is faulty on other accounts also when he has taken figures of profit by adopting +5% projected growth whereas he has not enhanced outgoings/expenses correspondingly. Further, subsequent independent valuer report which is based on actual financial figures clearly supports the valuation done with -5% projected growth in original report of independent valuer. 12.4 Moreover, it is seen that two independent parties have also sold shares of Dabur Nepal to Dabur International about three month before the sale of shares by the appellant. The sale price in case of sale transaction by t....
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....rs, projected sales growth of 19% was taken in the said valuation report. The TPO has not accepted projected sales growth of 19% for FY 2005-06 onwards and has taken 89% figure of projected growth based on actual figure of FY 2004-05. By taking 89% projected growth rate, TPO has worked out valuation of shares sold at Rs. 12.71 crores, thereby proposing upward adjustment of Rs. 8.01 crores. 12.7 The appellant has vehemently argued that since the shares of Dabur Nepal were unquoted, report of independent valuer was obtained to determine the value of shares at time of sale. Independent valuer worked out the value of shares by following discounted cash flow method which is an accepted norm in this regard. The TPO also followed the report of independent valuer except that TPO adopted 89% projected growth whereas independent valuer adopted 19% projected growth. Further, valuation study is based on projected figures when actual figures were not available. During assessment stage, appellant furnished fresh valuation report from same independent valuer in which actual figures were used and this report shows, valuation of shares at a tower figure than that in earlier report The ques....
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....s namely, M/s Lunar Trading Co. and M/s Bibuti Pvt. Ltd. had also sold the shares of M/s Dabur International Ltd. on 28.03.2005 i.e. about three months before the assessee's transaction almost on the same price and this constitutes CUP. It was pointed out that at the time of scrutiny assessment, the actual data of the subsequent years were available and the valuers prepared another valuation report on the basis of actual data available for the period 2005-06 to 2008-09 (copy of which have been reproduced by the TPO at page no. 7 of his order). It was also pointed out that on the basis of actual data available for the subsequent years, the shares value was worked out in a figure of (-) Rs. 2601 lakhs against the earlier projected shareholders value at Rs. 3493 lakhs. Therefore, no upward adjustment was called for. It was further submitted that no comparable had been brought on record by the TPO and as per the provisions contained in Rule 10D of the Income Tax Rules, 1962, the information for document has to be maintained up to the date upto which the information or document has to be maintained by the assessee but the Rule 10D does not provide the cutoff date upto which the TPO can ....
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....ure years which has been reproduced by the TPO on page no. 16 of his order. It was stated that from the said report prepared on the basis of actual data, it was very much clear that growth rate in the subsequent year was not constant and it fluctuated, so much so even the operating profit margin had also fluctuated. It was pointed out that on the basis of actual data, the shareholder's value was worked out at Rs. 6.91 crores against the original value worked out at 12.91 crores. In other words, the shareholder's value had been worked out less than the transacted value, on the basis of actual data. It was stated that the ld. CIT(A) held that the growth rate of 89% as adopted by the TPO for the purpose of valuation of shares of M/s Dabur Egypt was an astronomical figure, not based on any reason and it was highly improbable in the commercial world and that the assessee also could not explain why the figure of 19% had been choosen as projected growth and then thereafter the ld. CIT(A) held that it would be more realistic to adopt figure of projected growth by taking average of growth figure available for three preceding years which came to 25%. It was stated that the department had not....
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....reason to discard the sale transaction by third parties as CUP (comparable uncontrolled price), particularly when the sale transaction by those independent parties and that of the assessee were broadly comparable, the only difference was in the quantity of the shares sold which was lesser in the case of two independent parties. Therefore, those parties were in a better position to have a better bargain than the assessee. We, therefore, considering the totality of the facts are of the confirmed view that the ld. CIT(A) was fully justified in holding that arm's length value of shares as determined by the independent valuer in the case of M/s Dabur Nepal Pvt. Ltd. need not be disturbed. We do not see any valid ground to interfere with the findings given by the ld. CIT(A). 63. As regards to the valuation of the shares of M/s Dabur Overseas Ltd., It is noticed that the assessee had 100% stake in M/s Dabur Overseas Ltd., an investment company which in turn had 76% stake in M/s Dabur Egypt Ltd. The remaining 24% of stake in M/s Dabur Egypt Ltd. was held by M/s Dabur International Ltd. The assessee sold its 100% stake i.e. 50,000 shares in M/s Dabur Overseas Ltd. to M/s Dabur Inter....
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....tment relates to the deletion of addition of Rs. 2,10,674/- made by the AO u/s 43B r.w.s 36(1)(va) of the Act. 65. The facts related to this issue in brief are that the AO disallowed a sum of Rs. 2,10,764/- u/s 43B of the Act out of the staff welfare expenses by observing that deposits to the statutory fund was beyond the due date as per the explanation given below, the Section 36(1)(va) of the Act. 66. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that an amendment was introduced by Finance Act 2003 whereby 2nd proviso to Section 43B was omitted and no disallowance could have been made in respect of any sum payable by the employer by way of contribution to PF or another fund for the welfare of employees if the sums are actually paid before the due date of filing the return u/s 139(1) of the Act. The reliance was placed on the following case laws: Allied Motors Vs CIT (2002) TIOL 558 (SC) CIT Vs Alom Extrusions Ltd. (2009) TIOL 125 (SC) 67. The ld. CIT(A) after considering the submissions of the assessee deleted the addition by observing in para 15 of the impugned order as under: "I have carefully considere....
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....d not preferred any appeal against the said order. Therefore, the disallowance made by the AO may be deleted. 71. The ld. CIT(A) after considering the submissions of the assessee observed that nature of expenses disallowed represented entrance fee and subscription for various club which had been obtained by the assessee and that the similar expenses were allowed by the then ld. CIT(A) for the assessment year 2005-06, by following the earlier appellate order for the assessment year 1995-96 which was not challenged by the department in further appeal. 72. Now the department is in appeal. 73. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is noticed that the similar disallowance were made in the preceding year wherein the ld. CIT(A) allowed the claim of the assessee by following the earlier order of the then ld. CIT(A) for the assessment year 1995-96 which was not challenged by the department. Therefore, on the principle of consistency also the ld. CIT(A) was justified in deleting the impugned amount, particularly when nothing was brought on record to substantiate that the persona....
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....ximity with the running of the undertaking and that the assessee had received a token sum which at best can be termed as recovery of maintenance cost of premises or upwell of the property which goes to reduce the maintenance cost of the property. It was also stated that such a recovery was not a rental income of the assessee but was in the nature of reducing its maintenance cost of the factory premises. Therefore, it was eligible for deduction for computation u/s 80IB/80IC of the Act. 79. The ld. CIT(A) after considering the submissions of the assessee directed the AO to allow the claim for deduction u/s 80IB/80IC of the Act by observing in paras 21.1 and 21.2 of the impugned order which read as under: "21.1 I have carefully gone through various contentions of the appellant. 1 have seen that similar issues were there for AY 2005-06, wherein the then CIT(A) has adjudicated them as under: "6.1 The issue to be decided in above grounds of appeal is whether disallowances u/s 40(a)(ia) and 43B as well as income from sale of scrap and rental income (which is as a result of recovery of maintenance cost from factory workers who are allowed to stay in factory compoun....
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....he ld. CIT(A) allowed the claim of the assessee by following the reasoning given by his predecessor for the assessment year 2005-06. It is not brought on record that the said reasoning given by the ld. CIT(A) for the preceding assessment year had been reversed by the higher firm. We, therefore, by keeping in view the principal of consistency, do not see any merit in this appeal of the department on this issue, particularly when the facts for the year under consideration and preceding year are identical. 83. In the present case, the assessee also raised an additional ground which read as under: "That the ESOP expenses of Rs. 6,85,99,352/- debited in the Profit & Loss Account ought to have been allowed as deduction in computing the income under the head 'Profit and Gains of Business'." 84. It was stated that this ground is purely a legal ground based on the following decisions: Biocon Ltd. Vs DCIT reported at 155 TTJ 649 (Bang. SB) Lemon Tree Hotels Ltd. Vs Addl. CIT in ITA No. 4588/Del/2013 order dated 23.06.2014 (Del. ITAT) CIT Vs Lemon Tree Hotels Ltd. in ITA No. 107/2015 order dated 18.08.2015 (Del. H.C.) CIT Vs PVP Ventures....