TaxTMI 
TaxTMI 
2022 (10) TMI 219
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....iven to the associated enterprises. 2. Ld Commissioner of Income-tax (Appeals) erred in law on the facts of the case in deleting the addition of Rs.6,63,80,000/- made by the AO on account of royalty not accrued or due from its associated enterprises. 3. Ld Commissioner of Income-tax (Appeals) erred in law on the facts of the case in deleting the addition of Rs. 3,70,730/- made by the AO on account of interest on loan advanced. 4. Ld Commissioner of Income-tax (Appeals) erred in law on the facts of the case in deleting the addition of Rs.7,36,494/- made by the AO on account of interest on bills receivable." 5. Ld Commissioner of Income-tax (Appeals) erred in law on the facts of the case in deleting the addition of Rs.11,57,03,3531- made by the AO on account of deduction u/s 801B and 80IC under the head profit and gains. 6. Ld Commissioner of Income-tax (Appeals) erred in law on the facts of the case in deleting the addition of Rs.2,18,081/- made by the AO on account of PF, ESI & EPS contribution after the due date. 7. Ld Commissioner of Income-tax (Appeals) erred in law on the facts of the case in deleting the addition of Rs.3,29,87,000/- made by the AO on account of not....
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....excessive. 9) That without prejudice to grounds no 6 & 7 above the assessee submit that CIT(A) and AO erred in holding corporate guarantee as "International Transaction". 11) That CIT (Appeals) failed to admit the additional grounds of appeal despite remand report from the assessing officer on claim of deduction of Rs 95,22,33,881 as capital subsidy on statutory exemption from payment of excise duties. 12) That CIT (Appeals) failed to admit the additional grounds of appeal despite remand report from the assessing officer on claim of deduction of Rs 9,19,47,491 as expenditure incurred on Employee Stock Option Scheme. 13) That the and CIT (Appeals) failed to appreciate that Judgement of Supreme Court in case of Goetze India Ltd vs CIT is not binding to the first Appellate Authority to consider the deduction claimed in additional grounds. 14) That the above grounds of appeal are independent and without prejudice to one another." 4. Apropos the issue of royalty : Grounds No.1 to 5 of assessee's appeal and Ground No.2 of Revenue's appeal. Assessee in this case is a flagship company of Dabur Group. It is primarily engaged in manufacturing operations, product development and ma....
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....by the assessee to its AEs. Following ITAT's order, he directed the AO/TPO to delete the transfer pricing adjustment made by the TPO in respect of royalty to assessee by Dabur Nepal (P) Ltd.. As regards royalty to assessee's AE, Dabur International UAE, following the said ITAT order, ld. CIT (A) directed that AO/TPO should charge royalty @ 0.75%. As regards royalty payment to the assessee by Asian Consumer Care Ltd., ld. CIT (A) noted that for AYs 2007-08 to 2009-10, ITAT have directed that 2% royalty should have been charged. He directed accordingly. 6. Against the above order, Revenue and assessee are in cross appeals. 7. We have heard both the parties and perused the record. 8. Ld. counsel of the assessee submitted that the issue is squarely covered by the orders of ITAT in assessee's own case for AYs 2006-07 to 2009-10. Referring to the earlier orders of ITAT for the AY 2009-10, he submitted that the Tribunal quantified the royalty adjustment to Dabur Nepal (P) Ltd. at nil, Dabur International UAE @ 0.75% of FOB sales and Asian Consumer Care Ltd., Bangladesh @ 0.75% of FOB sales. 9. Ld. DR for the Revenue on the other hand submitted that in earlier years, ITAT has not prope....
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....justified in working royalty @ 7.5% as provided in the original agreement dated 05.11.1992 (copy of which is placed at page nos. 111& 112 assessee's paper book). For the year under consideration, M/s Dabur Nepal Pvt. Ltd has not paid any royalty to the asses 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 royally will be payable from Financial Year 2005-06. It was also claimed that as per the Clause of the original agreement dated 05.11.1992, the agreement shall become effective only after the approval by HMG Nepal and shall remain valid for a period of 10 years from the said date, unless renewed by mutual consent in writing 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....
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.... from Dabur Nepal (P) Ltd., at 2% is directed to be deleted. So far as royalty receivable from Dabur International, UAE is concerned, the same is directed to be restricted to 0.75% as held by the Tribunal. The facts in the present assessment is also similar and no distinguishing facts were pointed out by the Ld. DR, therefore, the finding of the CIT(A) that royalty @ 2% is to be charged from Dabur Nepal Pvt. Ltd. is not correct and has to be deleted. 11. As related to agreement with Dabur International Ltd., UAE operations, it is pertinent to note that the said issue is covered partly in favour of the assessee by the order of the Tribunal in assessee's own case 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 inde....
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....quirement and taste of a local public of UAE by keeping into consideration the geographical and market situation. The said company was acquired by the assessee and now for the manufacturing of its products, the assessee did not provide any market strategies, nothing is brought on record that the assessee had borne the expenses, provided the funds or compensated for market failure and the quality etc. It, therefore, appears that the assessee had not made any effort for establishing the trade name nor had made any other contribution. Therefore, the assessee did not receive any royalty for the year under consideration and in the preceding year, the royalty @ 1% was 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 considerat....
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....ceivable from Dabur Nepal (P) Ltd. at 2% is directed to be deleted. So far receivable front Dabur International, UAE is concerned, the same is directed to be restricted to 0.75% as held by the Tribunal. 81.8. So far as the argument of the ld. Counsel that the order of the Tribunal cannot be accepted because the same is not based on correct appreciation of facts is concerned, we do not find any merit in the argument of the ld. Counsel since as fairly conceded by the ld. Counsel at the time of hearing before us, the Hon'ble High Court has already dismissed the appeal filed by the assessee on this very issue." 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 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 & bra....
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....he facts and salient features of the agreement are identical to that of the facts and agreement with Dabur International Ltd.. UAE. Since the Tribunal already restricted such royalty to 0.75% in case of Dabur International Ltd., UAE, therefore, respectfully following the ratio of the decision of the Tribunal in assessee's own case for the immediately preceding assessment year while restricting such royalty to 0.75% in case of Dabur International Ltd., UAE, we restrict the royalty from Asian Consumer Care Pvt. Ltd., Bangladesh to 0.75%. 81.10 In view of the above discussions, the grounds relating 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." 11. Following the aforesaid decision of the ITAT in assessee's ow....
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....he assessee has saved incremental interest of 1.025% due to guarantee provided by the assessee which was only with effect from September, 2007. Therefore, we find merit in the argument of the Ld. Counsel that the proportionate interest saved by the Naturalle, LLC was only for a period of 7 months and accordingly. interest saving on only 0.60% was made by Naturalle LLC We have held in the preceding years that interest benefit be split between the guarantor and borrower on 50:50 basis. " (Emphasis Supplied) It is prayed that the rate charged by the TPO for A.Y. 2010-11 and should be upheld as the TPO has applied the rates on the scientific basis. Without prejudice to the above argument, even if the Hon'ble coordinate bench order is to be followed, the rate has to be calculated for 12 months, which would be 0.513% instead of 0.3% which has been confirmed by the Hon'ble tribunal." 18. Upon careful consideration, we find that in assessee's own case, ITAT has for three successive years given orders which have not been reversed by the Hon'ble jurisdictional High Court, hence we are not convinced with the reasoning of ld. DR for the Revenue to depart from the aforesaid order of ITAT....
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....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 action of the CIT(A) of charging service fee ....
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....No. 1 of Revenue's appeal is dismissed." 19. Since the above order of ITAT is in assessee's own case and we are not convinced with the reasoning of the ld. DR to depart from the same, we follow the order of aforesaid coordinate Bench of the Tribunal and direct accordingly. 20. Apropos Ground No.3 of Revenue's appeal. On loan to AE, Dermoviva Skin Essentials, USA, the TPO adopted PLR + 3% and imputed rate of interest @ 14.88%. Ld. CIT (A) referred to Hon'ble jurisdictional High Court decision in the case of CIT vs. Cotton Naturals (I) Pvt. Ltd. (ITA 233/2014) wherein it was held that loans in foreign currency extended to AEs should be benchmarked using LIBOR, hence he directed that the addition made by the TPO be deleted. 21. Against the above order, the Revenue is in appeal before us. 22. We have heard both the parties and perused the record. 23. Ld. DR for the Revenue referred to the decision of Hon'ble jurisdictional High Court in the case of CIT vs. Cotton Naturals (I) Pvt. Ltd. and submitted as under :- "In the judgement of Cotton Naturals, the Hon 'ble Delhi High Court has laid down the principle that LlBOR should be used in respect of Loans to AE in foreign currenc....
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....sregarded the benchmark analysis undertaken by the assessee for determining the ALP of interest on loan applying internal CUP method. According to him, for loans given the rate charged by Indian banks on foreign currency loans is to be taken as benchmark. Applying the rate of interest of 14% on the basis of data collected from CRISIL where rate of interest for BBB Bonds for F.Y. 2006-07 was 15.13%, the TPO proposed an addition of Rs.96,67,520 which was added by the AO to the total income of the assessee on account of interest charged on loan from AEs. We find, the ld.CIT(A) deleted the addition made by the AO/TPO on the ground that interest rate to be applied in case of international loan given in international currency (USD) should be LIBOR + margin. He noted that in the instant case, the average LIBOR rate for A.Y. 2006-07 was 5.20% whereas the assessee has charged interest @ 6.75/7% which is much higher than the comparable ALP rates. He further noted that the TPO while adopting the rate of 14% has contravened the provisions of Rule 10B(2) which prescribes the factors for comparability of controlled transactions of uncontrolled transactions. 82.15 We do not find any infirmity i....
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....CICI bank was not used for the purposes of remittance to subsidiaries as interest free loans has no bearing for the purposes of computing ALP of interest free loan. The financial position and credit rating of the subsidiaries will be broadly the same as the holding company, and, therefore, the precise rate at which the ICICI Bank has advanced the foreign currency loans to the appellant company can be adopted at arm 's length price of interest free loans advanced by the appellant company to its foreign subsidiaries." 82.17 Since the assessee in the instant case has charged interest on loan @ 6.75%/7% from Dabur International, UAE, which is higher than the internal CUP wherein interest rate charged by Bank of Baroda for Commercial Papers was 5.675%, therefore, the international transaction of interest received, in our opinion, is considered to be at arm's length applying the CUP method. 82.18 We find, the Hon'ble Delhi High Court in the case of DCIT vs. Cotton Naturals India (P) Ltd. (supra) while upholding the finding of the Tribunal with respect to appropriate comparable rate of interest on foreign currency denominated loan, has held as under:- "39. The question whether the i....
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.... is to be uniformly applied in all cases. 82.21 In view of the above discussion and in view of the detailed reasoning given by the CIT(A) while deleting the addition, we do not find any infirmity in his order. Accordingly, the order of the CIT(A) deleting the addition of Rs.96,67,520/- is upheld and the ground raised by the Revenue on this issue is dismissed." 25. We find that in assessee's own case, ITAT has upheld the deletion by the ld. CIT (A). ITAT has duly found that the same was in accordance with the Hon'ble Delhi High Court decision in the case of CIT vs. Cotton Naturals (I) Pvt. Ltd.. ITAT has also referred to other decisions. In this view of the matter, we are not convinced with the reasoning given by the ld. DR for the Revenue to distinguish the ITAT decision in assessee's own case. Accordingly, we uphold the order of ld. CIT (A) on this issue and deletion of the addition. 26. Apropos Ground No.4 of Revenue's appeal. On the issue of receivables, TPO held that interest rate of 14.88% would be the arm's length interest for the receivables form the AE. Ld. CIT (A) gave relief to the assessee on a finding that assessee does not charge interest from its unrelated parties....
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....f the comparable. The benchmarking of both these segments has been accepted by the TPO. In view of the same there is no reason to separately benchmark receivables. The AO /TPO is directed to delete the transfer pricing adjustment made on account of receipt of receivables. The ground of appeal is allowed." 27. Against the above order, the Revenue is in appeal. 28. We have heard both the parties and perused the record. 29. Ld. DR for the Revenue relied upon the order of TPO. 30. Per contra, ld. counsel of the assessee supported the order of ld. CIT (A) and submitted that assessee's net margin is considerably higher than the comparables. Upon careful consideration, we are not in agreement with the submission of ld. DR. It is no doubt that after the amendment, receivables are an international transaction which needs to be benchmarked separately but as rightly pointed out by the ld. CIT (A) above that the margin of the assessee both in FMCG and non-FMCG segment is much higher than the comparables. Hence, since benchmarking under both the segments has been accepted in the transfer pricing, we do not find any infirmity in the order of ld. CIT (A) that there is no reason to separately ....
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....n assessee's own case for AYs 2007-08 to 2009-10 has deleted the addition. 36. Upon careful consideration, we note that ITAT in the order of AY 2009-10 has adjudicated the issue as under :- "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 or 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 gi....
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....n available under the Companies Act and the Income-tax Act to the eligible units could not he controverted 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 in....
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.... also deleted by the Tribunal. The extracts are reproduced as under: "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." 37. We find that ld. CIT....
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....er 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 14A 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." 44. We find that the facts in the present case are also not in dispute that assessee has not earned any exempt income. In this view of the matter, disallowance u/s 14A read with Rule 8D is not permissible as per case law, hence this ground of Revenue's appeal stands dismissed. 45. Apropos Grounds No.11 & 12 of the asses....