TaxTMI 
TaxTMI 
TaxTMI 
2022 (1) TMI 1145
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....w. 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 Consumer Care Ltd., no royalty can be said to have accrued to the assessee w....
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....uarantee 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) has erred in reducing the addition of Rs. 17.77 crores, made by the TP'O on account of adjustment in the arm 's length price of r....
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....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 incurred by the AE's outside India. Accordingly, no royalty was receivable/ received by the assessee from its associated enterprises during relevant assessment year 2009-10. The Ld. AR submitted ....
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....erein 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 Consumer Care Pvt. Ltd. Bangladesh, the issue is partly covered by the order of the Tribunal in A.Ys. 2007-08 and 2008-09 being ITA Nos. 3241, 3114, 6525 & 6256/Del/2014 order dated 18.02.2021. 9. The Ld. DR relied upon the assessment ord....
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....tention 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 substantiate that the assessee incurred any expenditure which benefited M/s Dabur Nepal Pvt. Ltd. in any manner. Therefore, no royalty was payable to the assessee by M/s Dabur Nepal Pvt. Ltd. By considering the totality of the facts as discussed herein a....
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.... 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 manufactured by the UAE were not different from the products manufactured in India by the assessee. Moreover, the claim of the assessee that the raw material and medium used in the manufacturing at UAE was totally different from the raw material and medium used in India has not been rebu....
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.... 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 International UAE @ 2%. Particularly, when the assessee was not using the technical knowhow or R&D support from the assessee, in our opinion it will be fair and reasonable to charge the royalty @ 0.75% by considering this fact that in the year under consideration the assessee had incur....
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....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 @ 0.75% is to be charged from Asian Consumer Care Pvt. Ltd. The Tribunal held as under: "81.4. So far as Asian Consumer Care Pvt. Ltd. Bangladesh is concerned, it is his submission that the assessee was having 100% ownership in ACCPL, directly indirectly and thus, it could not have received any royalty fro....
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..... 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 Bank of Scotland @ 0.513% is arbitrary, unjust, without any basis and at any rate very excessive. As regards to Ground No. 1 of Revenue's appeal, the Ld. AR submitted that the CIT(A) has reduced the addition of Rs. 2,76,02,250/- on account of corporate guarantee by applying rate of 0.5% as against the rate of 4.71% applied by the TPO. The ....
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.... 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 assessment year to that of the facts of A.Ys. 2006-07, 2007-08 and 2008-09, wherein the Tribunal decided this contesting issue. 16. We have heard both the parties and perused the relevant material available on record. It is pertinent to note that the issue of corporate guarantee issued by the assessee-company to HSBC Bank, Egypt, SAE and NSGB Egypt on behalf of Dabur Egypt Ltd. stands square....
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....nvolved 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 action of the CIT(A) of charging service fee at an ad-hoc rate of 0.50% in case of HSBC Bank, Egypt, SAE and NSGB Bank, Egypt needs to be restricted to 0.30% as per the decision of the Tribunal in A.Ys. 2007-08 and 2008-09 as the facts of the present assessment year 2009-10 is identical and no distinguishing facts were pointed out by the Ld. DR at the time of the hearing. As regards to Naturalle LLC, UAE, t....
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....htly 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) Honitus-Baddi Unit i) Glucose- Baddi Unit The Ld. AR further submitted that during the A.Y. 2009-10, the assessee declared profit and gains from the eligible businesses on the basis of separate books of accounts and claimed deduction aggregating to Rs. 36,368.41 lakhs under Section 80IB and Section 80IC of the Act. The Assessing Officer observed that selling and distribution expenses aggregating to Rs. 1385.99 lakhs and miscellaneous expenditure of Rs. 394.18 lakhs were not a....
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.... 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 the basis of separate books of account and claimed deduction aggregating to Rs. 27,209.71 lakh u/s 80IB and 80IC of the Act. According to the AO, the Head Office expenses amounting to Rs. 2214.02 lakhs were not allocated to the units. Further, according to the AO, depreciation to the tune of Rs. 704.49 lakhs on assets of the Head Office was not allocated to the units. Accordingly, the AO allocated the Head Office expenses and depreciation in the ratio of sales of eligible unit for computing the deduction u/s 8....
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.... 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 difference of depreciation available under the Companies Act and Income-tax Act to the eligible units. 93.3 So far as the Head office expenses are concerned, we find the AO has allocated the head office expenses of Rs. 2.214.0 lakhs. the details of which are as under:- ................................. 93.4 A perusal of page 425 of paper book, Volume-II shows that Miscellaneous expenses written off, donation and provision for bad debts were suo motu disallowed by the assessee in its return of income. Therefore, once the a....
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....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 disallowance of expenses of Rs. 5,22,33,000/- under Section 14A r.w.r. 8D of the Income Tax Rules, 1961, the Ld. DR relied upon the assessment order and submitted that the CIT(A) erred in deleting the addition. 21. The Ld. AR submitted that during the previous year relevant to the assessment year 2009-10, no exempt income was earned by the assessee. The assessee, being an operating company, incurred various expenses in the course of normal business operations and no expenses were incurred in relation to earning of exempt income. Therefore, the assessee d....
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.... 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 14A of the Act. Ground No. 4 of the Revenue's appeal is dismissed. 23. As regards Additional Ground No. 1 filed by the assessee, the Ld. AR submitted that the ESOP expenses of Rs. 6,71,92,747 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'. The Ld. AR submitted that the assessee had floated an ESOP Scheme namely DABUR ESOS, 2000 wherein option had been given to employees to purchase shares of the assessee -company. The said scheme was framed in accordance with the mandatory Security Exchange Board of India ('SEBI') guidelines. Under the Scheme, as part of the employ....
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....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 assessee relating to the ESOP expenses which were debited in the profit and loss account but added back while computing the income allegedly under some misconception of facts and law. The issue raised by the assessee is legal issue." 88. As regard to the admission of the legal ground, the Hon'ble Supreme Court in the case of National Thermal Power Ltd. (supra) held as under: ..... 89. We, therefore, by keeping in view the ratio laid down by the Hon'ble Supreme Court in the aforesaid referred to case admitted the additional ground raised by the assessee. However, it is an admitted fact that this issue has been raised by the assessee first time and the authorities below had no occasion ....
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.... 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 assessee is accordingly allowed for statistical purposes. ITA No. 6525/Del/ 2o14 ( by the Assessee - A. Y. 2008-09) 135. After hearing both the sides, we find identical additional ground was decided by us in the preceding paragraphs while deciding the appeal of the assessee for A.Y. 2007-08. We have already admitted the same and the issue has been restored to the file of the AO with a direction to decide the issue in accordance with the law, after giving due opportunity of being heard to the assessee. Following similar reasonings, the first additional ground raised by the assessee is admitted and restored to the file of the AO to decide the issue as per law after giving due opportunity of being heard to the assessee. The first additional groun....
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....ty 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 was granted to the assessee Under the aforementioned scheme, during the relevant previous year, the assessee received, inter-alia, exemption of excise duty amounting to Rs. 17,13,27,377. However, in the return of income filed by the assessee for the relevant assessment year 2009-10, the aforesaid amount of subsidy, was inadvertently offered to tax as part of taxable income. The assessee, in present appeal, vide letter dated 29.04.2019 has raised an additional ground of appeal before the Tribunal seeking to claim that such subsidy is in the nature of capital receipt, not exigible to tax and therefore, the same may be excluded from the total income of the assessee. The Ld. AR submitted that the similar issue was admitted by the Tribunal in A.Y. 2008-09 in ITA No. 6525/Del/2014 in assessee's own case and ....