AI Drafter 
TaxTMI 
TaxTMI 
2022 (1) TMI 1145
X X X X Extracts X X X X
X X X X Extracts X X X X
....as alleged by TPO, is arbitrary, unjust and bad in law. 2. That in the absence of any contract as existing during the year between the assessee and three 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. 3. That the TPO and CIT (Appeals) failed to consider the geographical conditions of working of Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd., 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 92CA of the Act from Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd. is arbitrary, unjust and without any basis. 4. That the CIT (Appeals) and TPO have failed to consider that in the absence of any expenditure incurred by the assessee for the establishment of brand in the geographical area of working of Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... That the CIT (Appeals) has erred in sustaining the alleged service fee on account of the corporate guarantee in the case Dabur Egypt Ltd on the loans availed from HSBC and NSGB bank @ 0.50% is arbitrary, unjust, without any basis and at any rate very excessive. 9. That the CIT (Appeals) has erred in sustaining the alleged service fee on account of the corporate guarantee in the case of Naturelle LLC on the loans availed from Royal Bank of Scotland @0.513 % is arbitrary, unjust, without any basis and at any rate very excessive. 10 That without prejudice to grounds no 8 & 9 above the assessee submit that CIT(A) and AO erred in holding corporate guarantee as International Transaction. 11. That the above grounds of appeal are independent and without prejudice to one another. I.T.A. No. 3790/DEL/2015 (A.Y 2009-10) 1."Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) has erred in reducing, the addition of Rs. 2,76,02,250/- on account of corporate guarantee by applying rate or 0.5% as against the rate of 4.71% applied by the JPO. 2. Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e AEs. Neither any royally accrued during the year nor can it be presumed to be receivable I and consequently the order of the TPO and sustained by the CIT(A) are without any basis/material and Assessment Year based on surmises and conjectures not permissible under the law. The CIT(A) erred in reducing the addition of Rs. 17.77 cores made by the TPO on account of adjustment in the arm's length price of royalty. The Ld. AR submitted that the assessee in the past assessment years, entered into agreements with the following three associated enterprises: (a) Dabur Nepal Ltd. Nepal; (b) Dabur International Ltd.. UAE; and (c) Asian Consumer Care Pvt. Ltd. Bangladesh. In terms of the agreement entered into with the aforesaid entities, the assessee allowed its associated enterprises to provide assistance in recruitment and imparting technical know-how, etc. and permitted use of its trademark 'Dabur' for sale of products. The aforesaid agreements were, however, subsequently rescinded since the assessee did not provide any marketing support nor imparted any technical knowhow and further considering that substantial advertisement and marketing expenditures were i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Dabur Nepal Pvt. Ltd. and Dabur International Ltd, UAE and restricted the arm's length pi Asian Consumer Care Pvt. Ltd. at Rs. 30.97 lakhs. The Ld. AR submitted that against the order of the CIT(A), cross appeals have been filed wherein the case of the Department is that the CIT(A) has erred in reducing the addition of Rs. 17.77 crores made by the TPO by adopting a lower rate of royalty @ 2% and the case of the assessee is that the action of CIT(A) in restricting the royalty charged at the rate of 2% in respect of all associated enterprises is bad in law and the entire addition was ought to be deleted. The Ld. AR submitted that the issue relating to agreement with Dabur Nepal Pvt. Ltd., Nepal is squarely covered by the decision of the Tribunal in assessee's own case for A.Ys. 2006-07, 2007-08 and 2008-09 being ITA No. 3257/Del/2013, ITA Nos. 3241, 3114, 6525 & 6256/Del/2014 order dated 18.02.2021. As regards to agreement with Dabur International Ltd., UAE operations, the issue is partly covered by the order of the Tribunal in A.Ys. 2006-07, 2007-08 and 2008-09 being ITA No. 3257/Del/2013, ITA Nos. 3241, 3114, 6525 & 6256/Del/2014 order dated 18.02.2021. As regards to Asian ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g and with prior approval of HMG Nepal. In the present case, it is not brought on record that the original agreement dated 05.11.1992 valid for 10 years, was renewed for further period and approval of HMG Nepal was taken. In the present case, the contention of the assessee that 80% products manufactured by M/s Dabur Nepal Pvt. Ltd. were purchased by the assessee has not been rebutted. It is also not in dispute that the royalty was payable earlier on the sales, therefore, it is unbelievable that the assessee charged the royalty on the purchases made by it from M/s Dabur Nepal Pvt. Ltd. to increase the cost of purchases. Even if it is presumed that the royalty was to be charged by the assessee then same amount was to be added in the purchases thus the impact will be revenue neutral i.e. on the one hand, income will be increased by crediting the royalty and on the other hand, the cost of purchases will be increased by that amount, since the sale was made by M/s Dabur Nepal Pvt. Ltd. to the assessee. In the present case, it is an admitted fact that there was no agreement in existence between the assessee and the AE i.e. M/s Dabur Nepal Pvt. Ltd. and nothing is brought on record to subs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in ITA No. 3257/Del/2013 for A.Y. 2006-07, wherein the Tribunal, on similar fact held that royalty @ 0.75% is to be charged from Dabur International Ltd. The Tribunal held as under:- "35 From the co-joint reading as contemplated u/s 92C of the Act read with Rules 10B and 10C of the Income Tax Rules, 1962, it would be clear that for the purpose of making transfer pricing adjustments, the arm's length price has to be determined on finding out similar type of payments received by similarly situated and comparable independent entities. But in the present case no comparable case has been brought on record by the TPO or the ld. CIT(A) while making adjustment on account of royalty. Moreover, no agreement was inforce to charge royalty from the AEs and that the FMCG products are new to the assessee who is known for its Herbal and Aurvedic products. In the instant case, it is not brought on record that the assessee had incurred any expenses for marketing the products manufactured by M/s Dabur International Ltd. (AE) in UAE and that the assessee either made any efforts or contributed any money for the establishment of its name in geographical area of UAE and the products manufacture....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s paid to the assessee for the reason that Ayurvedic products were made with the technical know-how and R&D support of the assessee. However for the year under consideration, the FMCG products were manufactured which were different from the Indian products having different raw material and medium used in the manufacture. At the same time, the brand name of the assessee was used by the AE and in the earlier years the assessee provided the R&D support, know-how technologies etc. which helped the AE for the year under consideration also to some extent. It is also noticed that the assessee received the royalty @ 1% in the preceding year. The TPO also while working out the royalty rate for the year under consideration was of the view that the royalty @ 1% was chargeable on the products manufactured without the aid and support of assessee company but marketed by using "Dabur" name, however, no basis has been given for the same. In our opinion the estimate made by the TPO for the rate of royalty was highly excessive. We therefore, after considering the totality of the facts are of the view that the ld. CIT(A) was not justified in directing the AO to charge the royalty from Dabur Internati....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the present assessment is also similar and no distinguishing facts were pointed out by the Ld. DR or the Ld. AR, therefore, the finding of the CIT(A) that royalty @ 2% is to be charged from Dabur International Ltd., appears to be not correct. It is pertinent to note that in this year also the AE was not using the technical know-how or R&D support from the assessee, therefore it will be appropriate to charge the royalty @ 0.75% by considering this fact that in the year under consideration the assessee had incurred huge expenses on marketing, advertisement & brand building etc. and that in the preceding year the royalty was although charged @ 1% on the products manufactured without R&D support and technical know-how from the assessee but the aforesaid expenses were comparability less. Thus, royalty to be charged at 0.75% in respect of agreement with Dabur International UAE. 12. As regards to Asian Consumer Cure Pvt. Ltd. Bangladesh, again it is to be noted that the issue is covered partly in favour of the assessee by the order of the Tribunal in assessee's own case for A.Ys. 2007-08 and 2008-09 in ITA Nos. 3241, 3114, 6525 & 6256/Del/2014. The Tribunal held that royally @ 0.7....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the issue of Royalty by the Revenue are dismissed and it raised by the assessee are partly allowed. " The facts in the present assessment is also similar and no distinguishing facts were pointed out by the Ld. DR or the Ld. AR, therefore, the finding of the CIT(A) that royalty @ 2% is to be charged from Asian Consumer Care Pvt. Ltd., appears to be not correct. Therefore, following the earlier years order by the Tribunal, we are restricting the said royalty to 0.75% in case of Asian Consumer Care Pvt. Ltd., Bangladesh. 13. Thus, Ground Nos. 1 to 7 of the Assessee's appeal are partly allowed and Ground No. 2 of the Revenue's appeal is dismissed. 14. As regards Ground No. 8 to 10 of assessee's appeal, the Ld. AR submitted that the CIT(A) erred in sustaining the alleged service fee on account of the corporate guarantee in the case of Dabur Egypt Ltd. on the loans availed from HSBC and NSGB Bank @ 0.50% and the same is arbitrary, unjust, without any basis and at any rate very excessive. The Ld. AR further submitted that the CIT(A) erred in sustaining the alleged service fee on account of the corporate guarantee in the case of Naturelle LLC on the loans availed from Royal Ban....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of corporate guarantee at 0.513% as against 4.71% adopted by the TPO and deleted the balance addition made by the Assessing Officer/ TPO. Against the aforesaid order of the CIT(A) cross appeals have been filed wherein the case of the Department is that the CIT(A) has erred in reducing the addition of Rs. 2.76 crores made by the TPO on account of corporate guarantee by determining the service fee on account of corporate guarantee at lower rate of 0.50%/0.513% and in case of the assessee, the assessee is submitting that the action of CIT(A) in confirming the addition of service fee on account of corporate guarantee @ 0.50%/0.513% is bad in law and the entire addition was ought to be deleted. The Ld. AR submitted that the issue is covered in favour of the assessee in assessee's own case in A.Ys. 2007-08 and 2008-09 vide order dated 18.02.2021 in ITA Nos. 3241, 3114, 6525 & 6256/Del/2014, therefore these grounds of the assessee be allowed and Revenue's ground be dismissed. 15. The Ld. DR relied upon the assessment order and further submitted that the CIT(A) was not correct in reducing the addition made by the TPO. But the Ld. DR could not distinguish the facts of the present asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing of service fee at an adhoc rate of 0.5% should be reversed and may be restricted to 0.30% in respect of corporate guarantee issued to Dabur Egypt Ltd. as against 0.5% held by the CIT(A). Thus, the ground raised by the Revenue on this issue is dismissed and the ground raised by the assessee is partly allowed." Subsequently, while adjudicating the appeals for the assessment year 2008-09 which involved the issue of corporate guarantee by the assessee-company to both HSBC Bank, Egypt, SAE and NSGB Bank, Egypt (same as in the assessment year 2009-10 on behalf of Dabur Egypt Ltd, the Tribunal restricted the rate of service fee @ 0.30%. The Tribunal held as under: "126. We have heard the rival arguments and perused the record. So far as the guarantee issued on behalf of Dabur Egypt Ltd., Egypt is concerned, we have already dealt with this issue while deciding ground of appeal No. 2 and 3 for A.Y. 2007-08 and the same has been determined at 0.30%. Following similar reasonings, we modify the order of the CIT(A) and directed the AO to adopt the service fee on account of corporate guarantee at 0.30% in respect of an grantee issued on behalf of Dabur Egypt Ltd., Egypt. " The....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee's appeal are partly allowed and Ground No. 1 of Revenue's appeal is dismissed. 17. As regards Ground No. 3 of Revenue's appeal relating to the direction of the CIT(A) that the Assessing Officer to re-compute the deduction u/s 80IB and 80IC without further allocation of the Head Office expenses to various units, the Ld. DR relied upon the Assessment order and submitted that the Assessing Officer has rightly held that the selling and distribution expenses aggregating to Rs. 1385.99 lakhs and miscellaneous expenditure of Rs. 394.18 lakhs are not allocated to the units as well as the depreciation aggregating to Rs. 5.66 crores on the assets of the Head Officer which was not allocated to the units. 18. The Ld. AR submitted that during the year under consideration, the assessee had 24 industrial units undertaking manufacturing of products, out which 9 units were eligible for deduction under Section 80IB/ 80IC of the Act which are as follows: a) Rudrapur b) Oral care- Baddi Unit c) Jammu Unit-1 d) Jammu Unit-2 e) Toothpaste- Baddi Unit f) Shampoo- Baddi Unit g) Honey/Amla Extract- Baddi Unit h) Hon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or A.Ys. 2007-08 and 2008-09 in ITA Nos.3241, 3114, 65 6256/Del/2014. 19. We have heard both the parties and perused all the relevant material available on record. The identical issue of the allocation of head office depreciation, selling & distribution expenses and miscellaneous expenditure resulting in reduction of claim of deduction under section 80IB and 80IC of the Act has been decided by the Tribunal in the assessee's own case for the A.Ys. 2007-08 and 2008-09 in ITA Nos. 3241, 3114, 6525, 6256/Del/2014. The relevant findings of the decision of the Tribunal for the assessment 2007-08 are reproduced as under: "93. We have considered the rived arguments made by both the sides, perused the orders of the AO and CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee, during the year under consideration, had 18 industrial units undertaking manufacturing of products out of which 10 units were eligible for deduction u/s 80IB/80IC of the Act, the details of which were given at para 83 of this order. During the year, the assessee declared profit and gains from eligible business on t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....verted by the Id. DR. Similarly, the Ld. DR also could not controvert the factual finding given by the CIT(A) that expenses aggregating to Rs. 1,563.02 lakhs being head office expenses were suo moto disallowed by the assessee and added hack in the computation of income and once these expenses were claimed by the assessee the same cannot be allocated to the eligible units for computation of deduction u/s 80IB/80IC and. therefore, cannot be allocated to the eligible units. 93.2 A perusal of page 67 of the paper book Volume-I shows that during the financial year under consideration, depreciation amounting to Rs. 2,197.81 lakhs was debited to the P&L Account. A perusal of the computation of income, copy of which is at page 425 of the patter book Volume II, shows that the assessee has added hack the aforesaid depreciation under Companies Act and claimed depreciation of Rs. 2,902.3 lakhs in accordance with the provisions of section 32 of the Act. The depreciation as claimed in the return of income was duly allocated among all the units including the eligible units. We, therefore, find no infirmity in the order of the CIT(A) in reversing the action of the AO in allocating the dif....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "131. After hearing both the sides, we find the assessee in the instant case has already disallowed depreciation under Companies Act and has claimed depreciation under Income-tax Act and has duly allocated to various units. Similarly, selling and distribution expenses of Rs. 789.37 lakhs was suo moto disallowed in the computation of income, the sales tax expenses of Rs. 135.78 lakhs which does not have any impact on profit cannot be allocated to the eligible units. The miscellaneous expenses of Rs. 566.79 lakhs was suo motu disallowed in the computation of income. We find, the above ground is identical to ground of appeal No.6 in ITA No.3114/Del/2014 filed by the Revenue. We have already decided the issue and the ground raised by the Revenue has been dismissed. Following similar reasoning, this ground filed by the Revenue is dismissed" The CIT(A) has given a detailed findings and no distinguishing facts were pointed out by the Ld. DR for the present assessment year. Hence, there is no need to interfere with the findings of the CIT(A). Ground No. 3 of the Revenue's appeal is dismissed. 20. As regards Ground No. 4 of Revenue's appeal relating to addition on account of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r A.Ys. 2008- 09. 22. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the identical issue of disallowance under Section 14A of the Act in absence of any exempt income has been decided by the Tribunal in the assessee's own case for the A.Y. 2008- 09 in ITA No. 6256/Del/2014. The Tribunal held as under: "133. After hearing both the sides, we find, the assessee has not received any exempt income during the impugned assessment year and, therefore, following the decisions of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT reported in 272 CTR 232, no disallowance u/s 14A can be made. Therefore, in absence of any exempt income earned by the assessee for the impugned assessment year no disallowance u/s I4A could have been made. The ground raised by the Revenue is, therefore the dismissed." This issue is also covered in favour of the assessee by various decisions of the Hon'ble Delhi High Court wherein it is held that in the absence of any exempt income, no disallowance can be made under Section 14A. Thus, the CIT(A) has rightly deleted the addition of Rs. 5.22 crore under section 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dditional ground but could not distinguish the facts of the present case to that of earlier assessment years. 25. We have heard both the parties and perused all the relevant material available on record. Since the additional ground is a legal ground by following the decision of the Hon'ble Apex Court in case of NTPC, we are admitting this ground. It is pertinent to note that the aforesaid issue has been dealt by the Tribunal in assessee's own case for A.Y. 2006-07 wherein the identical additional ground was raised before the Tribunal to allow the decision of ESOP expense under Section 37 of the Act in view of the decision of Madras High Court in the case of PVP Venture (supra) and the Special Bench in the case of Biocon (supra). The Tribunal, while adjudicating the issue, admitted the additional ground raised by the assessee and remanded the issue to the file of the Assessing Officer to decide in accordance with law. The relevant extract of the order are re-produced as under:- "87. We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that the additional ground has been raised have the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting the income under some misconception of facts and law. However, the issue in our opinion is legal in nature. We find, identical issue had come up before the Tribunal in ITA No.3257/Del/20l 3 (by the assessee and ITA No.3492/Del/2013 (by the Revenue) and the Tribunal vide order dated 12.04.2017 for A.Y. 2006-07 has admitted the additional ground and has restored the issue to the file of the AO for deciding the issue in accordance with law, after giving due opportunity of being heard to the assessee. The relevant observations of the Tribunal read as under: .............. ITA No. 3241/Del/2014 (by the Assessee) A.Y. 2007-08 115.5 Since the facts of the impugned assessment year are identical to the facts of the case decided by the Tribunal in assessee's own case in the immediately preceding assessment year, therefore, respectfully following the decision of the Tribunal in assessee's own case we admit the additional around and restore the issue to the file of the A.O with a direction to adjudicate the issue in accordance with the law, after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The additional around raised by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....facture and sale of Shampoo The Ld. AR further submitted that the assessee is claiming deduction under Sections 80IC of the Act in respect of aforesaid units since assessment years 2003-04, 2004-05, which were the initial assessment years. The Ld. AR submitted that, vide various notifications issued by Central Government, the assessee has been granted exemption from payment of excise duty in respect of goods manufacture and cleared from the aforesaid units located at Baddi and Jammu for a period of 10 years, beginning from the date of commencement of commercial production in the said units, the details of which are as under; (a) Glucose Unit and Shampoo Unit at Baddi- Vide Central Excise notification No. 49/2003 read with Excise Notification No. 50 of 2003 dated 07.01.2003, excise duty exemption was granted to the assessee: (b) Jammu Unit-1 at Jammu- Vide Central Capital Investment Subsidy Scheme, 2002 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industries vide Notification dated 22.10.2002 read with Notification 1(13)/2000-NER dated 14.06.2002 and Central Excise Notification No. 56/2002 and 57/2002, excise duty exemption w....