TaxTMI 
TaxTMI 
2022 (11) TMI 1402
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....he assessee had declared book profit as declared in the original return). The assessment was selected for scrutiny and notice u/s 143(2) of the I.T. Act was issued on 16.08.2013. The assessment was completed u/s 143(3) r.w.s. 92CA of the I.T. Act vide order dated 31.03.2016. The Assessing Officer made following disallowances / additions to the returned income of the assessee:- Particulars Amount in Rs. Depreciation on goodwill 3, 73, 88, 587 Disallowance under section 14A 1, 31, 50, 663 Disallowance under section 40(a)(ia) 8, 24, 77, 951 Disallowance under section 43B 49, 27, 979 Foreign royalty 16, 56, 488 Brand promotion expense 13, 76, 00, 000 3. The A.O. also made an addition of Rs.140.49 crore and treated the amount transferred UBL Trust to the assessee as "long term capital gain" and assessed the same to tax. The A.O. accordingly assessed the income of the assessee at Rs.377, 15, 30, 101 under the normal provisions of the I.T. Act against the income of Rs.132, 92, 94, 900 declared by the assessee in the revised return of income. Accordingly, the A.O. raised demand of Rs.80, 38, 85, 646 (including interest) in the said assessment or....
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.... that the investment was made out of interest free funds, when the details were neither asked for nor an opportunity granted for making submissions in this regard 2.5 The learned CIT(A) has erred in confirming the action of the AO in disallowing expenses relatable to the earlier year investment of INR 2541 lakhs without appreciating that it represented strategic investments made for business 2.6 The learned CIT(A) has erred in confirming the action of the AO in disallowing expenses relatable to the earlier year investment of INR 2541 lakhs by erroneously stating that the investment is for earning income, merely on the basis of surmises and conjectures. 2.7 The learned CIT(A) has erred in confirming the action of the AO in concluding that the disallowance made u/s 14A should be added back to the book profits for the purpose of 115JB of the Act. 3. Grounds relating to Disallowance under section 40(a)(ia): 3.1 The learned CIT(A) has erred in confirming the action of the AO in making disallowance under section 40(a)(ia) amounting to INR 7, 34, 77, 951 by observing that TDS was not made on the year end provisions; 3.2 The learned CIT....
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....ng tax 5.1 The learned CIT{A) has erred in confirming the action of the AO in making addition of the withholding taxes deducted by foreign enterprises, disregarding the fact that neither TDS certificates nor actual consideration were received 5.2 The learned CIT{A) has erred in confirming the action of the AO in making addition of the withholding taxes deducted by foreign enterprises, disregarding the submission that even if income has to be recognized on gross amount basis, the amounts deducted are to be allowed as deduction u/s 37(1) or under 36(i) or 36{i)(vii) as these are not received at all. 6. Grounds related to addition on account of Brand Promotion Expenses: 6.1 The learned CIT{A) has erred in confirming the action of the AO in making addition of Rs 13, 76, 00, 000 in respect of the payment made towards Brand Promotion expenses to Force India Formula One Team Limited, by holding the payment to be capital in nature 6.2 The learned CIT{A) has erred in confirming the action of the AO in making addition in respect of payment towards Brand Promotion expenses, ignoring the commercial and economic rationale of the business of ....
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....ed its return of income showing the capital gain from the sale of shares and further erred in not adjudicating on this crucial issue by holding that this is academic in nature 7.5 The learned CIT(A) has erred in confirming the action of the AO in making the addition, by making a frivolous observation that there is nothing on record to show that the copy of the amalgamation scheme filed was the exact copy of the scheme approved by the Hon'ble High court 7.6 The learned CIT{A) has erred in confirming the action of the AO in making the addition to the Book profit by treating it as income u/s 115JB of the Act, by erroneously relying on a decision which was on remission of bank loan and distinguishable on facts 7.7 The learned CIT(A) has erred in confirming the action of the, AO in making the addition to the Book profit by treating it as income u/s 115JB of the Act, by erroneously relying on a decision which was on profit on sale of shares and distinguishable on facts, whereas there was no income element in the transaction of the assessee 8. Ground related to short credit of taxes 8.1 The learned CIT(A) has erred in not adjudicating on th....
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.... in 348 ITR 302 (SC) is not correct and relied on the detailed analysis / reasoning provided in the assessment for AY 2007-08 wherein the claim of the assessee was rejected. The AO accordingly disallowed depreciation of Rs.3, 73, 88, 587 claimed by the assessee on 'goodwill'. 6.2 Aggrieved by the order of the A.O., the assessee raised this issue before the first appellate authority. The CIT(A) followed the order of this Tribunal in assessee's own cases for AY 2007-08 to 2009-10 vide order dated 30.09.2016 in ITA No.722, 801 and 1065/Bang/2014, and dismissed the grounds of appeal of the assessee. The CIT(A) upheld the disallowance made by the AO. 6.3 Aggrieved by the order of the CIT(A), the assessee has raised the issue before the Tribunal. The learned AR fairly submitted that the Tribunal has decided the issue against the assessee in the cases for AY 2007-08 to 2009-10 (supra) and the decision will apply to the present AY also. The learned AR submits that the assessee has preferred appeal on the allowability of claim of depreciation before the Hon'ble High Court of Karnataka in ITA No.61/2017 and the same is pending adjudication. The learned DR was duly heard. 6.4 In view....
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....l in assessee's own case for AY 2013-14 wherein, the disallowance has been restricted to the exempt income. Accordingly it is prayed that the disallowance under section 14A of the I.T. Act be restricted to the exempt income after giving effect to the relief of Rs.6, 00, 000 provided by the CIT(A). 7.3 The learned DR supported the orders of the Income Tax Authorities. 7.4 We have heard rival submissions and perused the material on record. We find on identical facts and circumstances the co-ordinate Bench of the Tribunal in assessee's own case for assessment year 2013-2014 in IT(TP)A No.2569/Bang/2017 (order dated 01.06.2022), had held that the disallowance should be restricted to the amount of exempt income earned by the assessee. The relevant finding of the Tribunal for A.Y. 2013-2014 (which had in turn followed the order of the Tribunal in the case of GMR Enterprises in ITA No.2310/Bang/2019), reads as follows:- "42. We have heard the rival submissions and perused the material on record. It is settled law that disallowance u/s. 14A cannot exceed the amount of exempt income earned by the assessee. The co-ordinate Bench of this Tribunal in the case of GMR Enterprises ....
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.... follow:- "20. Before parting, we may also note with reference to the Table of disallowance voluntarily made by the Assessee, which is part of the Paper Book before us for the four assessment years in question. In the Table quoted in the beginning of the order, shows that the Assessee himself computed and offered the disallowance beyondthe exempted income in the particular year, namely AY 2009-10, as against the dividend income of Rs.41, 042/-and the Assessee himself computed disallowance under Rule 8D of the Rules to the extent of Rs.2, 38, 575/-, which was increased to Rs.98, 16, 104/- by the Assessing Authority. Similarly, for AY 2012-13, against Nil dividend income, the Assessee himself computed disallowance at Rs.8, 50, 000/-, which was increased to Rs.2, 61, 96, 790/-. 21. We cannot approve even the larger disallowance proposed by the Assessee himself in the computation of disallowance under Rule 8D made by him. These facts are akin to the case of Pragati Krishna Gramin Bank(2018) 95 Taxman.com 41 (Kar.) decided by Karnataka High Court. The legal position, as interpreted above by various judgments and again reiterated by us in this judgment, remains that the....
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.... (supra), we hold that the disallowance should be restricted to the amount of exempt income earned by the assessee. We direct accordingly." 7.5 In view of the above order of the Tribunal in assessee's own case for assessment year 2013-2014, we hold that the disallowance should be restricted to the amount of exempt income earned by the assessee. The amendment to section 14A of the I.T. Act, which states that disallowance u/s 14A of the I.T. Act is to be resorted, whether the assessee earns exempt income or not is only prospective and does apply to the relevant assessment year. In this context, we rely on the order of the ITAT in the case of ACIT v. Bajaj Capital Ventures (P) Ltd. (2022)196 ITD 4 (ITAT Mumbai). It is ordered accordingly. Disallowance u/s 40(a)(ia) of the I.T. Act Year-end provision (Ground 3) (3.1 to 3.6) 8. The brief facts of this issue are as follows: The Auditor of the assessee had commented against clause 27(b)(i) that the assessee had not deducted tax at source in respect of provisions created for expenses for the month of March and outstanding as on 31.03.2012. The total expenses quantified by the Auditor was Rs.36, 14, 498. Out of the year-end prov....
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....account before the due date of filing the return of income. However, the learned AR fairly submitted that this issue may be remitted to the A.O. for verification of the facts with similar directions as held by the Tribunal in assessment year 2013-2014 (supra). 8.3 The learned DR supported the orders of the A.O. and the CIT(A). 8.4 We have heard rival submissions and perused the material on record. We find on identical facts and circumstances, the co-ordinate Bench of the Tribunal in assessee's own case for assessment years 2013-2014 in IT(TP)A No.2569/Bang/2017 (order dated 01.06.2022) has restored the issue to the A.O. with specific directions. The relevant finding of the Tribunal for assessment year 2013- 2014 (supra), reads as follows:- "50. In the present case, we notice that the assessee has furnished the details of subsequent deduction of tax from the year end provisions and the details of payment made before the due date for filing the return of income at pages 528 to 537 of the assessee's PB. In view of the above discussion and respectfully following the decision of the coordinate Bench of this Tribunal supra, we remand this issue back to the AO to verify the....
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....e CIT(A) therefore upheld the addition made by the AO. 9.3 Aggrieved by the order of the first appellate authority, the assessee raised this issue before the Tribunal. The learned AR submitted that the amount of CST and excise duty were never claimed by the assessee in its return of income as they were never debited to the P&L account. The learned AR further submitted that the amounts of CST and excise duty are not tax collected and retained by the assessee but liability accrued as per the provisions of the respective statute. The learned AR placed reliance on the judgment of the Hon'ble Delhi High Court decision in CIT v Noble and Hewitt India (P) Ltd reported in 305 ITR 324. The learned AR further submitted that on similar set of facts for AY 2010-11, the AO after verifying that the amounts of CST and excise duty were not debited to P&L account, deleted the addition vide order dated 16.07.2013 passed u/s 154 of the I.T. Act. The learned AR further stated that the Tribunal in its recent decision for AY 2011-12 passed in ITA No.126/Bang/ 2020 (order dated 20.11.2022) has remanded the matter to the AO to verify and allow the claim of the assessee after taking into consideration t....
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....l basis and not the amount net of tax. Accordingly, amount of Rs.16, 56, 488 has been added to the returned income of the assessee. 10.1 Aggrieved by the order of the A.O., the assessee has raised this issue before the first appellate authority. The CIT(A) rejected the contentions of the assessee and upheld the addition made by the AO in the assessment order. The CIT(A) however directed the AO to consider the claim of the assessee for foreign tax credit in accordance with the relevant provisions of the Act. 10.2 Aggrieved by the order of the CIT(A), the assessee has raised this issue before the Tribunal. The learned AR submitted that the issue was examined by this Tribunal in assessee's own case for AY 2010-11 and 2011-12 (supra). The learned AR therefore prayed that a similar direction may be taken for the year under consideration as well. 10.3 The learned DR supported the orders of the A.O. and the CIT(A). 10.4 We have heard rival submissions and perused the material on record. We find on similar circumstances, the Tribunal in assessee's own case for assessment year 2010- 2011 (supra) remitted the matter to the files of the A.O. with a direction to allow credit for th....
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....ny expense incurred towards development of brand or brand promotion leads to an enduring benefit and should be capitalized. The AO therefore disallowed an amount of Rs.13, 76, 00, 000 and added the same to the returned income of the assessee. 11.2 Aggrieved by the order of the A.O., the assessee has raised this issue before the first appellate authority. The CIT(A) rejected the contentions of the assessee and upheld the addition made by the AO in the assessment order treating the brand promotion expense as capital in nature. The CIT(A) accordingly dismissed the grounds of appeal of the assessee. 11.3 Aggrieved by the order of the CIT(A), the assessee has raised this issue before the Tribunal. The learned AR submitted that the issue is covered by the decision of this Tribunal in the case of United Spirits Ltd in IT(TP)A No.2701/Bang/2017 (order dated 05.04.2022) wherein the very issue of payment of advertisement expenses to Force India has been discussed and the Tribunal has held that such brand promotion expenditure is revenue in nature and allowable as expenditure The learned AR therefore prayed that the payment of Rs.13, 76, 00, 000 paid to Force India is revenue expenditur....
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....rores was paid towards sponsorship fees during the year under consideration, that the sponsorship fees for different years had been apportioned and allocated to 3 entities of the assessee group which were using the brand logo in the ratio of their respective turnovers during the year, that out of the expenditure of Rs. 2.50 crores and amount of Rs. 21.61 lakhs was allocated to the assessee, that the expenditure incurred on IPL sponsorship did not provide it any benefit of enduring nature, that the expenditure had been incurred year after year by the assessee group with a view to get visibility, that it was in nature of some kind of advertisement expenditure, that same should be allowed as revenue expenditure. Referring to the case of Delhi Cloth and General Mills Co.Ltd.(115 ITR 659) of the honorable Delhi High Court, the FAA allowed the appeal filed by the assessee. 3.1.a. With regard to management fee, the FAA observed that there was no doubt about the genuineness of expenditure, that the expenditure was incurred for availing infrastructure facilities administrative support, like manpower recruitment, HR services, uses of computer, telephone, photo copiers, infrastructur....
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....or obtaining sponsorship rights in respect of various ICC cricketing events around the world. The assessee paid an amount of Rs. 3, 85, 15, 497/- for sponsoring cricketing events held during 2008 to ICC. The said amount was proposed to be disallowed by the AO in the Draft Assessment Order, for the following reasons: - (i) Similar expense has been disallowed in the earlier years as part of the Transfer Pricing Adjustment on account of AMP expenses. (ii) Assessee has been bearing substantial portion of the fees paid to ICC for acquiring sponsorship rights even though benefit of the same is derived by the other entities of the world. 88. Aggrieved by the addition proposed by the AO, the assessee had filed objections before the DRP. The DRP vide directions dated 20.12.2013 upheld the action of the AO, on the ground, that the expenditure was benefitting all the entities across the globe and hence, it could not be said to have been incurred wholly and exclusively for the business of the assessee. 89. The learned counsel for the assessee submitted that the said disallowance was unwarranted since the said expense was incurred in view of the fact that maj....
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....ity in India, the assessee company has been consistently promoting its range of products using cricket as an advertisement platform. The said payment has been made after obtaining the approval of Ministry of Health Affairs and Sports and after deducting TDS u/s.195. Once the expenditure has been incurred wholly and exclusively for the purpose of business which fact has not been disputed by the Department, then even if some incidental benefit which may arise to any other entity cannot be a bar for allowance of expenditure u/s. 37. Under the principle of commercial expediency such an expenditure has to be seen from the angle, whether the decision taken by the assessee for paying sponsorship fees was for the purpose of business or not. Here in this case, the commercial expediency has not been doubted but rather it has been held by the AO that in all the years transfer pricing adjustments has been made on this score and benefit is arising to the other AEs also. What is relevant for an expense to be allowable as revenue expense is that, whether it has been incurred during the course of business and is for the purpose of business. Benefit factor to other related parties is relevant under....
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.... in Gordon Woodroffe Leather Manufacturing Co. v. CIT [1962] Supp. (2) SCR 211. The correct approach, said the Court, which has to be taken in all such cases is to see whether: "was the sum of money expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business" Again, in Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261/ 1 Taxman 485 (SC) the Supreme Court outlined the correct test of commercial expediency as the guiding principle to decide whether the expenditure was to facilitate profits, as follows: (iii) that the sum of money was expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business of the assessee" In Smith Kline & French (India) Ltd. v. CIT [1992] 193 ITR 582/[1991] 59 Taxman 357 (Kar.), it was held that in normal commercial sense and in common parlance sales promotion and publicity are activities aimed at gaining goodwill in the market. They need not be confined to media propaganda but can involve indirect approaches. The judgment of a Division Bench of this Court in CIT v. Adidas India Marketing (P.) Ltd. [2010] 195 Taxm....
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....ed capital of the assessee. According to the Revenue, the assessee had acquired right to use the court yard apart from the palace, and thus, had acquired an advantage of enduring benefit of a trade. In other words, the expenditure incurred by the assessee for the use of court yard is in the capital field and it cannot be said to have been incurred to facilitate trading operation of the assessee. 7. Learned Counsel appearing for both the sides placed reliance upon the judgment of the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69, in support of their contentions. Mr. Aravind, learned counsel for the Revenue tried to distinguish the ratio laid down by the Supreme Court in this case on the basis of factual matrix involved therein. As against this, learned counsel appearing for the respondent/assessee placed reliance upon the principle laid down by the Supreme Court in the said judgment. 8. We have perused the judgment. We find ourselves in agreement with the learned counsel appearing for the respondent/assessee. It would be relevant to reproduce the relevant observation made by the Supreme Court, in the said judgment, which, in ....
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....ge consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case'. 9. It is clear that if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. In the present case, except the right to use the court yard, no other rights were created in favour of assessee. In other words, the amount paid to the Trust was for the use of the court yard under the MOU for an indefinite future, and therefore, it would b....
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....nce Assessee held only 50% of equity shares of MAPL, Assessee had only 50% beneficial ownership in EBL The effect of the amalgamation is provided in the table below: Transferor Effect of amalgamation ABDL 10,000 equity shares of Rs.100/- each fully paid up held by the Assessee were cancelled MAPL Out of 1,53,50,000 equity shares of Rs.10/- each fully paid up, 76,75,000 equity shares held by the Assessee and ABDL were cancelled EBL Out of 58,25,370 equity shares of Rs.10/- each fully paid up, 29,12,685 equity shares (50%) held by MAPL were vested with the Trustees of UBL Benefit Trust ("Trust") to be settled by the Assessee. The share exchange ratio as provided in para 11.3 of the Scheme was 33 equity shares of Re.1 each of the Assessee for every 16 shares of Rs.10/- each held in EBL. Accordingly, 60,07,413 shares of the Assessee were vested with the Trust 12.1 The Trust was to hold the shares of the assessee in trust together with all additions or accretions for the benefit of the Assessee subject to powers, discretions, rights and agreements contained in the Trust Deed (also clause 11.1 of the Scheme). The Trustees could sell, transfer or dispose o....
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.... The CIT(A) also rejected the argument of the assessee that the Trust had shown capital gains in its return of income and the same has been accepted by the Department, by stating the same to be academic in nature. 12.4 Aggrieved by the order of the first appellate authority, the assessee has raised this issue before the Tribunal. The learned AR submitted that the AO and CIT(A) have failed to appreciate the background of the transaction. It was stated that pursuant to the amalgamation of EBL, it was eligible for allotment of shares of the resultant company (i.e., the Assessee) to the share holder of EBL i.e., MAPL, (Assessee owned 50% of MAPL and hence had 50% ownership right in EBL at the time of approval of the Scheme). By this, the 50% shares of EBL were cancelled and Assessee had to allot the balance 50% shares of its company to itself having acquired MAPL. It was stated that as per the Companies Act, 1956, a company could not hold its own shares and it either has to cancel such share after allotment, in which case, its capital base gets eroded, or, the shares are parcelled out to any other entity (in the present case, the Trust) so that the value of the shares of the resulta....
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....out any substantiation. The transfer of shares did not involve any tax liability and hence the question of "colorable device" to avoid/ evade tax does not arise at all. ii) The transfer of the shares to the Trust, without cancelling the same was only to protect the capital base of the company. It does not involve any tax avoidance/ evasion. iii) The Trust has shown the "Capital Gains" arising out of the sale of the shares in its Return of Income, which has been accepted by the department. Merely because the Trust was eligible for exemption of the same u/s 10(38) of the Act and claimed the same as exempt, does not make the income taxable in the hands of the assessee. iv) Having accepted the income as "Capital Gains" in the hands of the Trust, the Revenue could not have added the same as income, in the hands of the assessee, leading to double addition. v) The CIT(A) has refused to accept the approval of the Scheme granted by the Hon'ble High Court on the specious statement that there was nothing on record to show that the copy of the Scheme was the same as was filed with the High Court, without raising the issue during the appeal proceedings and wi....
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....s as well as under MAT leading to double taxation which is not permissible. The trust being a separate Assessee under the provisions of the act and considering that the above arrangement has been made pursuant to the scheme granted by Hon'ble High Court, we do not find any infirmity in the arrangement which makes it a colorable device. The Assessee has also submitted that the purpose of the restructuring was to protect the capital base which consolidated pursuant to the above amalgamations. 'The Ld.AR for the Assessee has rightly pointed out that if the shares were cancelled in the first instance, instead of creating the Trust to hold the same, the same would not have resulted in capital gains. Since under both the arrangements, i.e., cancellation of its beneficial holding or under the Trust, there is no resultant capital gains that will be liable to tax, there is no question of painting the arrangement as colourable device. When the subject income has already been offered to tax by the Trust whereby exemptions have been claimed, the lower authorities have failed to establish the reason why the very same income has to be once again considered in the hands of a different ass....
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.... A.O. is directed to verify and grant TDS and TCS credit as per law. It is ordered accordingly. Demand on dividend distribution tax (Ground No.9) (9.1) 14. The AO has made addition of Rs.4, 39, 19, 686 without assigning any reasons or discussion. While there is absolutely no discussion on this issue, in the body of the assessment order, this amount has been added in the computation. The CIT(A) has dismissed the ground without giving any reasons by simply stating that the assessee did not adduce any arguments. 14.1 Aggrieved by the order of the first appellate authority, the assessee has raised this issue before the Tribunal. The learned AR submitted that the addition is adhoc in as much as there is no reasoning given by the AO. The order passed by the AO dated 30.11.2016 under section 154 of the Act has not included the addition (page 404 of paper book). The assessee however out of abundant caution prays that the AO may be directed to delete the addition as the same does not relate to the facts of the issues related to the order u/s 143(3) passed for AY 2012-13. 14.2 We have heard rival submissions and perused the material on record. The A.O. is directed to examine the ....