AI Drafter 
TaxTMI 
TaxTMI 
2022 (10) TMI 219
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....ade by the AO on account of interest on corporate guarantee given 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....
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....te guarantee in the case of Naturelle LLC on the loans availed from Royal Bank of Scotland @O.50% is arbitrary, unjust, without any basis and at any rate very 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 o....
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....24.46 Asian Consumer Care Ltd. @ 2% 1875.53 375.11 -- 375.11 Total 1001.40 5. Upon assessee's appeal, ld. CIT (A) observed that ITAT, Delhi in assessee's own case for AY 2006-07 has dealt with the issue regarding payment of royalty 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 quantifi....
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....was amended w.e.f. 1st April, 2004 vide which the royalty ht 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, basis of the said amended agreement, the royalty was charged (a), 3%. Therefore, the TPO was not 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 fur....
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....ment year, therefore, in absence of any distinguishable features brought before its by either side, we, respectfully following the same, hold that no royalty is receivable by the assessee from Dabur Nepal and, therefore, the order of the CIT(A) sustaining the addition on account of Royalty receivable 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....
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.... 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 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 manufacture....
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....unal in assessee's own case in the preceding assessment year, therefore, in absence of any distinguishable features brought before us by either side, we, respectfully following the same, hold that no royalty is receivable by the assessee from Dabur Nepal and, therefore, the order of the CIT(A) sustaining the addition on account of Royalty receivable 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., ....
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.... advertisement, market establishment and had borne all the risks of market, manufacture and finance. Accordingly the assessee had neither made any efforts in establishing the trade name in Bangladesh nor had made any contribution towards the same. ............. 81.9 So far us the royalty from Asian Consumer Cure Pvt. Ltd., Bangladesh is concerned, we find, the 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 ....
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....nterest saved by the assessee was only for a period of 7 months instead of 12 months due to guarantee provided by the assessee which was only with effect from September, 2007 and accordingly, incremental interest savings of 0.60% was made by the assessee instead of 1.025%. The relevant extract of the decision of the Tribunal is being reproduced as under: - "127. So far as the corporate guarantee issued on behalf of Naturalle LLC. VA E is concerned, a perusal of the details furnished by assessee in the paper book shows that the 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.....
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....ee accrue to both the guarantor and the borrower, therefore, the interest benefit should be split between the parties to the transaction, i.e. the borrower and the guarantor and as per rule of thumb such benefit should be in 50:50 basis. Although the Ld.CIT(A) has attributed 50% of such savings as the service fee on account of guarantee, however, he had taken the savings on interest due to such guarantee provided by the assessee at 1%. Under these circumstances, we find merit in the argument of the ld. Counsel that charging 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 un....
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....ount of Rs. 13.06 crores provided to Naturalle LLC, UAE. The grounds of appeal Nos. 7 and 8 filed by the assessee are accordingly partly allowed." Thus, the action of the CIT(A) of charging service fee at an ad-hoc rate of 0.513% was not correct and the same has to be restricted to 0.30% as the facts are identical to that of A.Y. 2008-09 and no distinguishing facts were pointed out by the Ld. DR at the time of the hearing. Thus, we direct the Assessing Officer to restrict the service fee @ 0.30%. Therefore, Ground Nos. 8 to 10 of the assessee's appeal are partly allowed and Ground 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 i....
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....ng the year (Rs.17 crores) Loan outstanding as on 31.03.2007 10 crores 82.14 During the impugned assessment year, the assessee has earned interest of Rs.1,05,27,000/- on the aforesaid loans. In the TP study report the assessee applied internal CUP method where the interest rate charged by the Bank of Baroda for Commercial Papers was 5.675%. Considering that the international transaction of receipt of interest from Dabur International ltd., Dubai at 6.75%/7% was higher than the bank's rate of interest, the international transaction of interest received was considered to be at arm's length applying the CUP method. We find, the TPO disregarded 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 ....
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....rate of LIBOR + 3% The appellant has also filed a letter from Bank of India stating that "during March 2002, we have been charging spreads of 150 bps to 300 bps over LIBOR in respect of foreign currency loans based on financial position and credit rating of the borrower". As for the LIBOR rate, as per the information provided by appellant, it ranged from 1.85000 (2 weeks) to 3.00250 (I year). On the given facts, in our considered view, it would be appropriate to accept internal CUP, i.e. the rate at which the appellant has resorted to foreign exchange borrowings from the ICICI, as arms length price under CUP method. The fact, as painstaking brought on record by the authorities below that this loan from ICICI 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 com....
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....further find merit in the argument of the ld. Counsel that the Revenue /TPO himself in the case of Perot Systems TSI (India) Ltd. Vs. DCIT (2010-TIOL-51-ITAT-Del.) and in the case of DDIT vs. Development Bank of Singapore: 144 ITD 265 (Mum), has applied LIBOR rate for benchmarking of international transaction of loans undertaken with the AE. It is the settled law that the Revenue has to be consistent in its approach and it is not open to the Revenue to take an inconsistent stand in the case of different assessee. [Ref. Kaumudini Narayan Dalai: 249 ITR 219 (SC) and Berger Paints India Ltd. vs. CIT: 266 ITR 99 (SC)]. Therefore, consistent with the stand taken by the Revenue in the case of different assesses, the said filter, in our opinion, 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 ....
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....the Hon'ble High Court of Delhi in it's order in ITA No 765/2016 dated 25.04.2017. 16.4 Perusal of the records and orders of my predecessors shows that this is the first year that the TPO has made an addition on account of outstanding receivables. 16.5 I have perused the transfer pricing order of the TPO, written submission and oral arguments of the appellant. I agree with the TPO that receipt of receivables is an international transactions in view of the amendment to explanation (i)(c) of section 92B by the Finance Act, 2012. The appellant has argued that it does not charge interest on net receivables from its unrelated parties. However, it is also noted that in both the FMCG an non FMCG segments, the net margin of the appellant is significantly higher than the net margin of 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 bot....
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....e No.7 of the submission dated 14.09.2017); Schedule IB of the Balance Sheet and the extracts of the Annual Report submitted along with letter dated 14.09.2007. 27.5 The additions made by the AOs on the same issue have consistently been deleted in AYs 2007-08 to 2009-10 by the CsIT(A). The material facts of the case are the same in the instant year also. In accordance with the principle of consistency and respectfully following the order of the CsIT(A) in AYs 2007-08 to 2009-10, the disallowance of Rs.11,57,03,353 made by the AO is deleted. The ground of appeal is decided in favour of the appellant." 32. Against the above order, the Revenue is in appeal. 33. We have heard both the parties and perused the record. 34. Ld. DR for the Revenue relied upon the order of AO. 35. Per contra, ld. counsel of the assessee submitted that ITAT in 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 o....
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....e assessee, the same cannot be allocated to the eligible units for computation of deduction u/s 80IB/80IC of the Act. The ld.CIT(A) also further noted that scientific research expenses of Rs.651 lakhs, which was included in the head office expenses allocated by the AO are not connected with the units eligible for deduction u/s 80IB/80IC of the Act and, therefore, cannot be, allocated to the eligible units. 93.1 We do not find any infirmity in the order of the CIT(A) reversing the action of the AO in allocating the head office expenses and depreciation to various eligible units for the purpose of recomputing the deducting u/s 80IB/80IC. The factual finding of the ld. CIT(A) that the assessee has added back the depreciation as per Companies Act. 1956 and claimed depreciation as per Income-tax and, therefore, the AO was wrong in allocating the difference of depreciation 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 t....
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....e not connected with the units eligible for deduction u/s 80IB/80IC, the same, in our opinion, cannot be allocated to the eligible units. In this view of the matter, the order of the CIT(A) is upheld and the ground raised by the Revenue on this issue is dismissed." In the present assessment year i.e. 2009-10, the assessee had 9 industrial units undertaking manufacturing of products and all these units are eligible for deduction u/s 80IB/80IC, the details are reproduced in page 12 of the assessment order itself. During the year also the assessee claimed the deduction u/s 80IB/80IC as per the details given. These units are eligible for the deduction u/s 80IB/80IC which is identical to that of earlier years i.e. 2007-08 and 2009-10. Hence, the CIT(A) has rightly allowed this deduction. It is pertinent to note that similar allocation of expenses and depreciation made by the Assessing Officer in A.Y. 2008-09 was 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 du....
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....ame, ld. CIT (A) directed the AO to delete the addition. 40. Against the above order, Revenue is in appeal before us. We have heard both the parties and perused the record. 41. Ld. counsel of the assessee submitted that ITAT has also decided this issue in favour of the assessee in its order for AYs 2007-08 to 2009- 10. 42. Ld. DR for the Revenue on the other hand relied upon the order of the AO. 43. We note that ITAT in assessee's own case has upheld the deletion of addition in ITA No.3423/Del/2015 & anr. for AY 2009-10 order dated 24.11.2021 by holding as under :- "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....