TaxTMI 
TaxTMI 
2023 (10) TMI 82
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....tion 1. Sales promotion expenses paid to United East Bengal Football Team Private Limited ("UEBFT") 9,25,00,000 Total 38,09,61,026 The TPO accordingly made TP adjustment of Rs. 38,09,61,026/- in the order passed under section 92CA of the Act. 2.1 The learned Assessing Officer ("AO") passed the draft assessment order on 17.12.2018 and proposed the following disallowances / additions to the returned income of the assessee: Particulars Amount in Rs. TP adjustment as per section 92CA and protective addition of the same amount under section 37 of the Act 38,09,61,026 Additional depreciation on pellets and cartons 49,25,796 Commission paid to Mr Vijay Mallya 2,04,44,000 Foreign remittance for labels 41,34,952 Foreign remittance for business promotion 5,15,843 Reimbursement of expat salary 43,52,220 Disallowance under section 14A of the Act 59,87,469 Disallowance of digital media expenses 10,12,47,072 Disallowance of TV advertisement expenses 26,16,12,490 Depreciation on goodwill 1,57,73,310 2.2 The AO accordingly proposed to assess the income of the assessee at Rs. 429,75,39,850/....
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.... 13 The learned AO/TPO erred in law and on facts in making the TP adjustment on account of Management Service Fee by disregarding the agreement between AE and the Appellant on the basis of wrong understanding of certain clauses in the agreement 14 The learned AO/TPO erred in law and on facts in making the IP adjustment on account of Management Service Fee ignoring the fact that the services rendered by the AE to the Appellant resulted in various tangible benefits and further erred in ignoring the submissions and evidence placed by the Appellant before learned TPO. 15 The learned AO/TPO erred in law and on facts in making the TP adjustment on account of Management Service Fee ignoring the judicial precedents prevailing on the matter and relied upon by the Appellant before the learned TPO 16 The learned AO/TPO erred in law and on facts in making the TP adjustment on account of Management Service Fee adjustment inasmuch as the learned TPO has not undertaken any independent analysis to determine the ALP and thus arbitrarily concluded that the ALP is NIL; 17 The learned AO/TPO erred in law and on facts in making the above adjustment ignoring the fac....
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....s and technical know-how to the Assessee since 01.09.2009. ii. The agreement is for a fixed amount for various services rendered by HIBV to the Assessee. iii. The Assessee submitted that it had submitted before the TPO the details of the areas of business operations in which the services were rendered and the benefits that have accrued to the Assessee. iv. Copious details / evidences were furnished to the TPO which have been totally disregarded. v. The TPO merely says that no evidences were furnished or the evidences are not adequate, without specifying what details were required by him. vi. The TPO accepted the intra-group service payments as being at ALP in the earlier years and no TP adjustment was made in the earlier years. vii. The TPO in the subsequent years i.e. AY 2017-18 and 2018-19 has specifically mentioned that the rendition of service is proved and the payment made is at ALP, on the same set of facts and same agreement. viii. The ld. A.R. submitted that it is settled principle upheld in several decisions of the Tribunal that the TPO cannot hold the ALP as 'Nil' and that the TPO is required to do a benchmark....
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....to external firm. Similarly, the Transfer Pricing Officer was of the view that the assessee had management experts on its rolls, and, therefore, global business oversight services were not needed. It is difficult to understand, much less approve, this line of reasoning. It is only elementary that how an assessee conducts his business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an assessee and what is not. An assessee may have any number of qualified accountants and management experts on his rolls, and yet he may decide to engage services of outside experts for auditing and management consultancy; it is not for the revenue officers to question assessee's wisdom in doing so. The Transfer Pricing Officer was not only going much beyond his powers in questioning commercial wisdom of assessee's decision to take benefit of expertise of Dresser and US, but also beyond the powers of the Assessing Officer. We do not approve this approach of the revenue authorities. We have further noticed that the Transfer Pricing Officer has made several observations to the effect that, as evident from the analysis of financial performance, the asses....
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....the costs incurred, the activities for which they were incurred, and the benefit accruing to the Taxpayer from those activities must all be proved to determine first, whether, and how much, of such expenditure was for the purpose of benefit of the Taxpayer, and secondly, whether that amount meets ALP criterion. In the present case however, the arrangement between the AE and the Assessee is not a cost sharing arrangement but a payment for specific services rendered. To this extent the above observations of the Hon'ble High Court may not be relevant to the present case. 17. The following aspects would require consideration in order to identify intra group services requiring arm's length remuneration:- * Whether services were received from related party. * Nature of services including quantum of services received by the related party. * Services were provided in order to meet specific need of recipient of the services. * The economic and commercial benefits derived by the recipient of intra group services. * In comparable circumstances an independent enterprise would be willing to pay the price for such services? * An inde....
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.... the Tribunal. 8. Ground Nos.19 to 27 of the assessee's appeal reads as under: "II. Grounds relating to payment of Brand Promotion Fee: 19 The learned AO/TPO erred in law and on facts in determining the ALP at NIL in respect of the payment made towards Brand Promotion expenses amounting to INR 22,84,61,026 to Force India Formula One Team Limited; 20 The learned AO/TPO erred in law and on facts in treating payment towards Brand Promotion expenses to Force India Formula One Team Limited as international transaction under the provisions of the Act without appreciating the fact that Force India Formula One Team Limited is not an Associated Enterprise under section 92A of the Act and therefore TP provisions are not applicable to the alleged transaction; 21 The learned AO/TPO has failed to appreciate that in order to invoke the provisions of section 92C the transaction should not only be an international transaction but also has to be with an Associated Enterprise and thus erred in invoking the provisions of section 92C of the Act in respect of Brand Promotion expenses paid to Force India Formula One Team Limited; 22 The learned AO/TPO has ....
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....al services; • All image rights of identified Race and Test drivers like TV rights, etc. • Two personal appearances of such drivers anywhere in the world; and • One day attendance of such driver for advertisement and communication purposes. 8.2 Force India was not an AE as per section 92A of the Act however, the Assessee as a matter of precaution included the transaction with Force India as an international transaction in the Form 3CEB. Since the benefits accruing to the Assessee was more than the price paid for the service, the international was held to be at arm's length adopting 'Other method' as MAM. 8.3 The TPO observed that the Assessee had associated with lesser known brand than itself i.e., Force India and no third parties will associate their brands with lesser known brands, no benefit accrued to the Assessee. The TPO relied on its order for earlier AY and treated the ALP of the brand promotion expenses as 'Nil' adopting CUP as the MAM. The TPO made downward adjustment of Rs. 22,84,61,026/- towards brand promotion expenses. 8.4 The DRP relied on its order passed in Assessee's case for AY 2013-14 and 2014-15, and upheld the or....
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....rprises qualifies as associated enterprises within the meaning of section 92A of the Income Tax Act. The relationship between United Breweries Limited (UBL) and Force India is not one of those relationships mentioned in 5.92A (2) of the Act. There is no dispute that neither United Breweries Ltd. nor Force India Formula One Team Ltd hold directly or indirectly 26% of the shares having the voting powers in the other entity. Shareholding details of UBL and Force India are appended in Annexure1. It is clear from Annexure-1 details furnished along with this note, that, none of the common directors of UBL and Force India hold more than 26% shares in UBL. So the relationship mentioned in S.92A(2)(b) where the same person or enterprise holds directly or indirectly, shares carrying not less than 26% of the voting power in each of such enterprise, is also not present. Further, it is necessary to appreciate the scheme of section 92A. A plain reading of this statutory provision makes the legal position quite clear. The, basic rule for treating the enterprises as an associated enterprises is set out in section 92A(1). The illustrations in which basic rule finds applic....
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....1 In view of the above order of the Tribunal, we remit this issue to the file of AO/TPO to examine this issue as laid down by the Tribunal in the judgement cited (supra). 11. Next ground Nos.28 to 36 of the assessee's appeal reads as under: "III. Grounds relating to Sales Promotion Expenses: "28 The learned AO/TPO erred in law and on facts in determining the ALP at NIL in respect of the payment made towards Sales Promotion expenses amounting to INR 9,25,00,000 to United East Bengal Football Pvt Ltd; 29 The learned AO/TPO erred in law and on facts in making transfer pricing adjustment in respect of the payment made to United East Bengal Football Pvt Ltd without a specific reference made by the Learned A.0 to the learned TPO in respect of Specified Domestic Transaction and therefore the adjustment made lacks jurisdiction 30 The learned AO/TPO erred in law and on facts in making the TP adjustment in respect of payment towards Sales Promotion expenses ignoring the commercial and economic rationale of the business of the Appellant; 31 The learned TPO has erred in disregarding the commercial contractual agreement between the parties without....
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....nd along with other team members, football clinics, coaching camps, exhibition matches, etc for a minimum number of 20 days in a contract year excluding days of travel as and when desired by the Assessee or the marketing agency; v. Grant to the Assessee facilities for all ground signage on grounds owned / leased by the AE; vi. Endorsement by Player(s) of sponsors / co-sponsor brands as per FIFA rules and regulations; vii. Merchandizing opportunities, all digital rights for the AE, Intra club promotional football tournaments and Exhibition matches in India and abroad will be facilitated by the AE; viii. The Assessee will have the exclusive digital rights for the AE's website address / content generated will be owned by the Assessee. The Assessee will have all IPR related to web including and not limited to such content / application developed; ix. Branding or players gears (jerseys, shorts, etc) as required by the Assessee or its marketing agency. All such branding including but not limited to design, logo positions, etc will be mutually agreed; x. Such other advertisement and marketing opportunities that may arise in such sponso....
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....val submissions and perused the materials available on record. We are of the opinion that similar issue came for consideration before this Tribunal in assessment year 2013-14 in IT(TP)A No.2569/Bang/2017 vide order dated 1.6.2022 wherein held as under: "31. We have carefully considered the rival submissions. The issue with regard to whether the transaction of payment of sale promotion expenses to UBEF can be said to be an SDT, we find that the decision of the ITAT in the case of Textport Overseas Pvt.Ltd. (supra) has been confirmed by the Hon'ble Karnataka High Court in the very same case of Texport Overseas Pvt. Ltd. in ITA No.392/2018 order dated 12.12.2019, with the following observations:- "5. Having heard learned Advocates appearing for parties and on perusal of records in general and order passed by tribunal in particular it is clearly noticeable that Clause (i) of Section 92BA of the Act came to be omitted w.e.f. 01.04,2019 by Finance Act, 2014. As to whether omission would save the acts is an issue which is no more res-integra in the light of authoritative pronouncement of Hon'ble Apex Court in the matter of KOBLAPUR CANESUGAR WORKS LTD. v. UNION OF IN....
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....fect of Section 92BA and reference made to the order of Transfer Pricing Officer-TOP under Section 92CA could be invalid and bad in law. 7. It is for this precise reason, Tribunal has rightly held that order passed by the TPO and. DRP is unsustainable in the eyes of law. The said finding is based on the authoritative principles enunciated by the Hon'ble Supreme Court in Kolhapur Canesugar Works Ltd referred to herein supra which has been followed by Co-ordinate Bench of this Court in the matter of M/s.GE Thermometrias India Private Ltd., stated supra. As such we are of the considered view that first substantial question of law raised in the appeal by the revenue in respective appeal memorandum could not ITA No.2936/Bang/20180 M/s. Sobha City, Bangalore arise for consideration particularly when the said issue being no more res Integra." 32. Since the decision rendered by the Hon'ble High Court of Karnataka is binding on this bench of Tribunal sitting in Bengaluru, we follow the same. Accordingly, we hold that the reference to the TPO in respect of specified domestic transactions mentioned in clause (i) of Sec. 92BA is not valid, as the said provision has be....
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....nciple that once a transaction has been referred to the TPO the AO does not have jurisdiction over the transaction 40. While making the so called "Protective addition", the learned AO has erred in holding that these expenses were towards promotion of a generic brand which does not belong to any specific company, which is contrary to the facts 41. Having held thus the expenses are towards the generic brand, the learned AO erred in holding that such an expenditure is a capital expenditure not attributable to the assessee's sales. 42. The learned AO erred in holding that only those expenses which are relatable to sales can be treated as revenue expenses and has erred in surmising that these expenses are not allowable u/s 37." 15.1 Facts of the case are that the AO disallowed the expenses under section 37 of the Act, by holding that the expenses are for promotion of Brand and the brand promotion expenses are Capital expenditure. Further, the AO also opined that the expenses cannot be directly attributable to the Assessee's sales and hence it is to be disallowed. 15.2 The DRP confirmed the protective addition made by the AO. 16. The ld. A.R. submi....
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....tal expenditure 48. The learned AO has erred in applying the decision in the case of GMR Projects (P) Ltd, in making the addition without appreciating that the facts of that case and the principles involved therein are totally different from that of the appellant." 19. Facts of the case are that the AO has disallowed the expenses under section 37 of the Act by holding that the expenses are for promotion of Brand and the brand promotion expenses are Capital expenditure. Further, the AO has also opined that the decision rendered by the Tribunal in the case of GMR Projects is squarely applicable to the facts of the Assessee's case. 19.1 The ld. DRP confirmed the protective addition made by the AO. 20. The ld. A.R. for the assessee submitted as follows: i) As regards the disallowance of Brand Promotion expenses made to Force India Formula One Team, under section 37 of the Act, the Hon'ble Tribunal in the case of United Spirits Limited [IT(TP)A No. 2701/B/2017, AY 2013-14] has allowed similar payments made to Force India Formula One, as allowable expenses. ii) The Assessee submitted that similar issue had come up before this Tribunal in Assessee's cas....
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....sallowed the balance claim of depreciation. ii) The AO has also stated that he had sent a team of his officials to inspect the premises to make an "usage test" of the items. The AO has also mentioned (erroneously) that the Appellant has itself categorized the pellets as "Furniture & Fixtures" in the earlier years. 22.3 The DRP confirmed the disallowance made by the AO. 24. The Assessee submitted that the decision of the AO is wrong, on facts, principles and procedure. i) The AO is wrong in stating that the crates are used only to store empty bottles. As can be seen from the picture reproduced in the DAO, the crates and wooden pellets are used for the storage of finished goods and movement of goods within the production area. These are not mere storage devices but are essential for stacking empty bottles and finished goods in proper manner to avoid breakages. Accordingly, it is integral to the production process and hence, it should be considered as plant. ii) The AO is wrong in stating that these pellets and crates were classified by the Assessee under "Furniture & Fixtures" in the earlier years, which is contrary to facts. iii) The AO has ....
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....ttles cannot be granted additional depreciation. 26. We have heard the rival submissions and perused the materials available on record. The ld. A.R. relied on the judgement of Hon'ble Bombay High Court in the case of Parle Bisleri Pvt. Ltd. in ITA No.252 of 2002 dated 15.6.2022, wherein they considered the issue relating to whether bottles and crates could be treated as "plant" within the meaning of section 32(1)(i) of the Act. While answering this question they have observed as under: "7. We have heard Mr. Jeet Kamdar, the learned Counsel for the Appellant and Mr. Arvind Pinto, learned Counsel for the Respondent. 8. Section 43(3) of the Act as it stood at the relevant time, i.e., assessment year 1989- 90 reads thus: "43(3) "plant" includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession." 9. Mr.Kamdar, the learned Counsel for the Appellant submitted that the Tribunal had not followed the decisions of the Andhra Pradesh High Court and Rajasthan High Court, which are directly on the point as to the definition of "Plant" in Section 43(3) of the Act and has erroneously relied....
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....ision was rightly followed by the Tribunal. 11. The definition of "Plant", reproduced above, shows that it is an inclusive definition. The Division Bench of Rajasthan High Court in the case of Jai Drinks (P.) Ltd. followed the decision of the Supreme Court in the case of Taj Mahal Hotel, where the Supreme Court, after considering the term "Plant" under the provisions of the Act, observed that the same has to be construed in a wide manner. In Taj Mahal Hotel, the Supreme Court construed the definition of "Plant" as occurring in Section 10(5) of the Indian Income-tax Act, 1922 ("the 1922 Act"), which corresponded to Section 43(3) of the 1961 Act. It was held that had the definition of "Plant" was an inclusive definition, and the intention of the Legislature was to give it a wide meaning which is evident from the fact that articles like books and surgical instruments were expressly included in the definition of "Plant". The Rajasthan High Court also followed the decision of the Supreme Court in Scientific Engineering House (P.) Ltd., wherein while construing the definition of "Plant" in Section 43(3), the question of whether drawings, designs, charts, plans, etc., were within....
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....dering whether a structure is plant or premises, one must look at the finished product and not at the bits and pieces as they arrive from the factory. The fact that a building or part of a building holds the plant in position does not, convert the building into the plant. A piecemeal approach is not permissible, and the entire matter must be considered as a single unit unless, of course, the component parts can be treated as separate units having different purposes. (8) The functional test is a decisive test. Bearing these principles in mind, we shall approach the facts of the present case. The bottles containing the soft drink cannot be stock-in-trade inasmuch as the bottle by itself is not the subject of sale. The customer or the retailer returns back the bottle to the assessee after the soft drink is consumed. Likewise, the shells which are sent to the customer or dealer also come back with the empty bottles, and they cannot also be stock-in-trade. What is the function these bottles and shells perform in the assessee's trade? Are they essentially tools in the assessee's business? In our opinion, yes. The bottles are essential tools of the trade for it is through....
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....e, what we have to consider is whether under the 'Deferment Rules' , "plant" would include bottles and crates employed by an industrial unit manufacturing soft- drinks and beverages for carrying on its business. The word plant has a very wide meaning and a variety of articles, objects or things have been held to be plant. Dictionaries have defined plant as land, building, fixtures, machinery, implements and tools, and apparatus used in carrying on a mechanical operation or an industrial process. This Court in C.I.T. v. Taj Mahal Hotel [1971] 82 ITR 44 and Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86 referred to with approval the observations of Lindley LJ In Yarmouth v. France [1887] 19 QBD 647 that in its ordinary sense plant includes whatever apparatus is used by a businessman for carrying on his business - not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business. In that case, this Court further held that the test to decide whether a particular thing is plant would be: "Does the article fulfil the function of a plant in the assessee....
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.... and the Andhra Pradesh High Court in the case of Sri Krishna Bottlers Pvt. Ltd. that bottles and crates would fall within the definition of "Plant". These are of Commissioner of Income Tax vs. Saurashtra Bottling Pvt. Ltd.7, Commissioner of Income Tax vs. Aqueous Victuals P. Ltd.8 and Joint Commissioner of Income - Tax vs. Anatronics General Co. (P.) Ltd. 9. The argument of the learned Counsel for the Respondent that bottles and crates could not be included in the definition of the "Plant" because they have no reference to the categories mentioned therein; therefore, cannot be accepted. 17. As regards the contention of the learned Counsel for the 7 (1998) 232 ITR 270 (Guj) 8 (2004) 266 ITR 573(All) 9 (2001) 113 Taxman 511 Respondent based on the Income Tax Rules and Depreciation Table is concerned, the Table is only states that certain categories, which are Machinery and Plants, will have particular rate and rest which fall under the Machinery and Plant will have different rate. Therefore, merely because the bottles and crates do not fall under the categories listed in Item 2 of the Schedule, it cannot be said that they need to be excluded from the definition of ....
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....pting that the payments made to other directors are legal. 60. The learned AO erred in linking these commission payments to certain payments made towards guarantee commission on certain guarantees given by Dr Mallya, without appreciating that there is absolutely no connection whatever between these two payments; 61. The learned AO erred in working out the market value of the contribution of the chairman of the company without any basis 62. The learned AO erred in making the addition without granting an opportunity to the assessee on the issue;" 27.1 The facts of the issue are that during the year, the Assessee passed a Special Resolution in the AGM authorizing payment of Commission to its Directors, up to One percent of the net profits of the Company. Out of this, it was resolved that 60% will be paid to the Non-executive Chairman, Mr Vijay Mallya and the balance 40% will be paid to the other Directors, who are Independent Directors. 27.2 The AO invoked the provisions of Section 40A(2) and restricted the commission payable to Mr Mallya to the extent paid to independent directors and disallowed the balance amount of Rs. 2,04,44,000/- out of Rs. 2,29,....
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...., ITA Nos. 61 & 406/PUN/2015 (Pune ITAT) • The Bombay Samachar Pvt. Ltd., ITA no. 7171/Mum./2010 and others (Bombay ITAT) 28.1 The ld. D.R. submitted that there was no evidence to show that the Executive Chairman Mr. Vijay Mallya rendered any services to the assessee so as to give commission to the said person. 29. We have heard the rival submissions and perused the materials available on record. There was no evidence brought on record by the assessee with regard to rendering of any services by Mr. Vijay Mallya to assessee company. In such circumstances, it is not possible to allow any commission payment in the hands of assessee as a business expenditure. Accordingly, addition made by lower authorities on this count is sustained and these grounds of appeal of the assessee are dismissed. 30. Ground Nos. 63 to 65 of the assessee's appeal are reproduced as under: VIII. Grounds relating to default u/s 40(a)(i) and or u/s 37 on foreign remittances towards designing of labels: 63. The learned AO erred in disallowing the expenditure under 40(a)(i) for non-deduction of TDS by holding it as Payments towards Royalty. 64. The learned AO erred i....
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....should have been deducted. As no TDS has been deducted, the expense is disallowed u/s 40(a)(i) of the Act. 33. We have heard the rival submissions and perused the materials available on record. The assessee has made payment to M/s. Claessens International Ltd. to design its labels. The AO has observed that the labels designed by the foreign party is intangible property of that party and the assessee has been given the right to use the design and this payment is to be considered as royalty and the assessee has not deducted TDS u/s 40(a)(i) of the Act. In our opinion, payment towards getting designing the labels of the assessee is just business expenses and there was no make available to the assessee and the recipient have no permanent establishment in India or any business connection in India, hence, in our opinion, foreign entity is not liable for taxation in India. Being so, the question of deduction of TDS u/s 40(a)(i) of the Act is not applicable. Accordingly, we direct the AO to delete this addition. 34. Ground Nos.66 to 67 of the assessee's appeal are reproduced as under: IX. Grounds relating to default u/s 40(a)(i) and or u/s 37 on foreign remittances towards b....
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.... benefit and hence capital in nature. The DRP confirmed the action of the AO. 12.6.1 Similar issue has been considered by the Tribunal in assessee's own case for the AY 2012-13 in IT(TP)A No. 489/B/2017 order dated 29.5.2020 wherein it was held as under:- "45. We have heard Ld D.R on this issue and perused the record. We notice the issue relating to allowability of expenditure incurred on sponsorship of sports event was considered by the Mumbai bench of ITAT in the case of Samudra Developers Pvt Ltd (ITA 5974/Mum/2013 dated 2604-2017) and it was held that the same is allowable as revenue expenditure. For the sake of convenience, we extract below the operative portion of the order passed by Mumbai bench of Tribunal on an identical issue:- "3. Second ground of appeal pertains to deleting the disallowance on account of sponsorship fees and management fees. In the earlier part of our order, we have mentioned the facts about the various disallowances made by the AO including the capitalisation of sponsorship. Treating it as an intangible asset, he allowed depreciation on it @25%. 3.1. The FAA after considering the elaborate submissions of the assessee....
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.... expenditure, it had to be allowed as revenue expenditure. We find that in the case of Delhi Cloth and General Mills Co. Ltd.(supra) the Hon'ble Court had held that expenditure incurred for organizing sports events are allowable items of revenue expenditure as such events publicise the names of the sponsor. The AO was not justified in capitalising the expenses. The entire expenditure was rightly allowed by the FAA as revenue expenditure. After going through the details of expenditure incurred by assessee under the head managerial expenses, we are of the opinion that it had not got any enduring benefit from the expenditure incurred nor did the expenditure create any capital asset. Therefore, we do not want to interfere with the order of the FAA. Considering the above, we decide second ground of appeal against the AO." 46. The Delhi bench of Tribunal has also examined an identical claim in the case of M/s Pepsico India Holdings Pvt Ltd (supra) and the same was allowed as revenue expenditure with the following observations:- "Re: Disallowance of INR 3,85,15,497/- being sponsorship fees paid to ICC 87. In Grounds No. 7 to 7.3 in I.T.A. No. 1044/DEL/2014 f....
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.... been enclosed at pages 247 to 249 and 224 of the paper-book respectively. He further submitted that the expenditure was wholly and exclusively for the business of the assessee company and had not been disputed by the revenue. Any incidental benefit that may arise to any other person or entity cannot be a bar for allowance of expenditure under section 37 of the Act, as per the settled position of law. Reference in this regard was made to the decisions of the Hon'ble Supreme Court of India in CIT vs. Chandulal Keshavlal & Co. [1960] 38 ITR 601 (SC), Sasson J. David and Co. P. Ltd vs. CIT 118 ITR 261(SC) and SA Builders Ltd. vs. CIT 288 ITR 1(SC). He further submitted that the Revenue cannot step into the shoes of an assessee to determine the commercial expediency of an expenditure incurred by it. 90. On the other hand, the learned DR relied upon the order of the AO and the DRP in support of his contentions. 91. After considering the rival submissions and on perusal of the impugned orders, we find that, here the disallowance of Rs. 3,85,15,497/- has been made on account of sponsorship fee by the assessee to the ICC on the ground that similar expenditure was disa....
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....n the case of Modi Revelon P Ltd (supra) and the relevant discussions made by the High Court are extracted below:- "22. As far as the second aspect, i.e. expenditure for promotion of the brand is concerned, there is no doubt that the dealer's functions extend to advertising the products of the assessee, manufactured by the sister concern. On this aspect, Section 37 of the Income-tax Act would be relevant. The said provision reads as follows: "SECTION 37 GENERAL: (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation : For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respe....
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....ere to be borne by the sister concern dealer, and that the proportion was in respect of its territory, was not upheld. This Court does not see any fallacy in the Tribunal's approach or reasoning, on this aspect. One is not unmindful of the concerns of a business which engages in sale of consumer items, and faces continuous competition. Brand promotion enhances the visibility of given products or services, and are often perceived as conferring a competitive advantage on those who adopt those strategies or schemes. Expenditure towards that end is based on pure commercial expediency, which the revenue in this case, ought to have recognised, and allowed. The revenue's arguments on this point too are insubstantial." 48. The observations made by the Hon'ble jurisdictional Karnataka High Court in the case of CIT vs. ITC Hotels (2014)(47 taxmann.com 215) on the concept of "enduring benefit" is relevant here and the same is extracted below:- "6. The first substantial question of law relates to a sum of Rs.10 lakhs, which were paid by the assessee as a license fee for the use of central court yard, having marble, (for short "Court Yard") in Lallgarh Palace (for shor....
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....e at a correct decision of the controversy between the parties. 10. One celebrated test is that laid down by Lord Cave L.C. in Atherton Vs. British Insulated & Helsby Cables Ltd. (1925) 10 Tax Cases 155 (HL), where the learned Law Lord stated : 11. "...when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite condition) for treating such an expenditure as properly attributable not to revenue but to capital". 12. This test, as the parenthetical clause shows, must yield where there are special circumstances leading to a contrary conclusion and, as pointed out by Lord Radcliffe in CIT v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 (PC) : TC16R.991, it would be misleading to suppose that in all cases, securing a benefit for the business would be, prima facie, capital expenditure "so long as the benefit is not so transitory as to have no endurance at all. There may be cases where expenditure, even if incurred for obtaining advantage of enduring ....
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....gned sponsorship expenses as revenue expenditure." 12.6.2 Following the above order the ITAT in assessee's own case for assessment year 2012-2013 (supra), we allow deduction of sales promotion and advertisement expenses of Rs. 44,33,55,403. As the entire expenses are allowed as revenue expenditure, the question of depreciation does not arise." 11.6 Following the above order of the Tribunal in the case of United Spirits Limited (supra), we allow deduction in respect of brand promotion expenses. It is ordered accordingly." 36.1 In view of the above order of the Tribunal, we direct the AO to allow the deduction towards business promotion expenses incurred by the assessee. These grounds of assessee are allowed. 37. Ground Nos.68 to 70 of the assessee's appeal are reproduced as under: X. Grounds relating to Expat payment to Heineken Czech Republic: 68. The learned AO erred in dis-allowing the payment made towards re- imbursement of Salary of expatriate experts seconded by the AE by holding it as Fees for Technical services 69. The learned AO erred in relying on the decision in the case of Centrica India Offshore (P.) Ltd V CIT, without ....
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.... Sachs Services Private Limited [IT(IT)A Nos. 362 to 369 & 338 to 345/Bang/2020] and Scania CV AB (ITA No.3432/Bang/2018) 39. The ld. D.R. relied on the orders of the lower authorities. 40. We have heard the rival submissions and perused the materials available on record. We are of the opinion that similar issue came for consideration before Hon'ble Karnataka High Court in the case of M/s. Abbey Business Services India in ITA No.214 of 2014 dated 1.12.2020 wherein held as under: 9. We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of Section 9(i)(vii) and Section 195(1) of the Act, which is reproduced below for the facility of reference: 9(i)(vii) income by way of fees for technical services13 payable by-- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fe....
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....rries on business in other contracting state to a permanent establishment situate therein. Article 13 inter alia provides that provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. 11. Now we may advert to the facts of the case in hand. From perusal of the relevant clauses of the agreement as well as the nature of services provided by the assessee under the agreement, it is evident that the assessee had entered into a secondment agreement for securing services to assist assessee in its business. The expenses incurred by the seconded employees which were reimbursed by the assessee is not liable to deduction to tax ....
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....f passing the orders by lower authorities. 41. Ground Nos. 71 to 79 of the assessee's appeal are reproduced as under: XI. Grounds relating to Disallowance u/s 14A: 71. "The learned AO has erred in law and on facts in disallowing expenses of INR 59,87,469/- in relation to exempt dividend income amounting to INR 9,25,000/-; 72. The learned AO has erred in law and on facts in invoking Rule 8D of Income Tax Rules, 1962 to compute the expenditure in connection with exempt dividend income ignoring the submissions of the Appellant; 73. The learned AO has erred in law and on facts by invoking Rule 8D without appreciating that the Appellant had not incurred any expenditure to earn the exempt dividend income; 74. The learned AO has erred in law and on facts by disallowing the expenses of INR 59,87,469/- as against the exempt dividend income of INR 9,25,000 which is substantially higher than the exempt income ignoring the various judicial precedents relied upon by the Appellant; 75. The learned AO has erred in not appreciating that there is no direct nexus between the interest bearing funds and the investments made from which dividend i....
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...., even after the amendment of Finance Act, 2022. 43. The ld. D.R. relied on the order of the lower authorities. 44. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came in assessee's own case in IT(TP)A No.2569/Bang/2017 dated 1.6.2022 wherein held as under: "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 (supra) has held as under:- "3.4 We have heard rival submissions and perused the material on record. It is settled position of law that disallowance cannot exceed the amount of dividend income earned during the relevant assessment year. In this context, the following judicial pronouncements support the stand of the assessee:- (i) Joint Investments Pvt. Ltd. v. CIT (59 Taxmann.com 295) - it was held that disallowance u/s 14A of the Act is to be restricted to the tax exempt income. (ii) Daga Global Chemicals Pvt. Ltd. v. ACIT [20....
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....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 disallowance of expenditure incurred to earn exempted income cannot exceed exempted income itself and neither the Assessee nor the Revenue are entitled to take a deviated view of the matter. Because as already noted by us, the negative figure of disallowance cannot amount to hypothetical taxable income in the hands of the Assessee. The disallowance of expenditure incurred to earn exempted income has to be a smaller part of such income and should have a reasonable proportion to the exempted income earned by the Assessee in that year, which can be computed as per R....
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....s violation of law and public policy: 80. The learned AO erred in dis-allowing the payments made towards advertisements aggregating to INR. 10,12,47,072 by erroneously holding that these expenses are in violation of law and public policy 81. The learned AO erred in holding that these payments are in violation of the prohibition Act by wrongly surmising that these advertisement expenses solicit the use of intoxicant 82. The learned AO erred in making disallowance on payments made towards advertisement expenses. 83. The Learned AO has erred in making the addition merely on the surmise that these expenses are in violation of the Prohibition Act, without showing as to how these payments are in violation of the Income Tax Act XIII. Grounds relating to Expenses incurred on TV advertisements allegedly held as violation of law and public policy: 84. The learned AO erred in dis-allowing the payments made towards advertisements aggregating to INR 26,1.6,12,490 by erroneously holding that these expenses are in violation of law and public policy 85. The learned AO erred in holding that these payments are in violation of law and pub....
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.... 13. Sample invoices, agreements and supporting documents in relation to TV Airing 166-424 14. Ledger-TV-Production 425 48.1 The assessee further submitted as follows: i) The expenditure involved are legitimate business expenditure and validly claimed as revenue expenditure. The Assessee submitted that the business of manufacture of alcoholic products is not illegal but is well regulated within the legal environment. Further, it is pertinent to note that the Assessee in the TV advertisement and other digital marketing, has not referred to or depicted any alcoholic product for the expenses to be termed as 'illegal'. ii) The expenses incurred through digital media are not in violation of law and public policy as alleged. The Assessee submitted that Digital media is governed by the Central Board of Film Certification ("CBFC") and Advertising Standards Council of India ("ASCI"). iii) In India, the Ministry of Information and Broadcasting ("I&B") through The Cable Television Networks (Regulation) Act, 1995 ("Cable Television Act") and The Cable Television Networks Rules, 1994 ("Cable Television Rules") as well as other policies and guid....
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....duct or service should be registered with an appropriate government authority e.g. Central Value Added Tax (CENVAT)/ Value Added Tax (VAT)/ Food and Drug Administration (FDA)/ Food and Safety Standards Authority of India (FSSAI)/ Trade Marks Registry (TM). b. The availability of the surrogate product in the market must be at least 10% of the leading brand's market share as measured in metro cities where the product is being advertised. c. The sales turnover of the product or service should exceed Rs 5 crore per annum pan-India or Rs 1 crore per annum per state where the distribution has been established. d. A valid certificate must have been obtained from an independent organisation such as AC Nielsen or a category-specific industry association before advertising. iii) This has yet again been notified in a Press Release issued by ASCI on 02.11.2020. The Press Release reiterated that advertisements for brand extensions could not feature anything prohibited by law or that pertained to banned products nor could it refer to or hint at such products. The Press Release was issued to keep a check on advertisements that were being broadcasted during the IPL. F....
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....of the above said Cable Television Networks (Regulation) Act, 1995. Therefore, in the absence of any such proceedings the Income-tax authorities have no jurisdiction to presume that assessee has contravened any provision of the Cable Television Networks (Regulation) Act merely because assessee has several products to market some of them may be prohibited to advertise and others are not. One cannot presume that the assessee is only promoting the products for which advertisements are prohibited as long as the advertisements are allowed to broadcast in the televisions which is approved by the proper authority, the assessee cannot be penalized by invoking the provisions of Cable Television Networks (Regulation) Act, 1995. On a careful consideration of the records, we observe that in the absence of any adverse remark or penalties levied by the broadcasting authorities the Assessing Officer need not go into verification of regular expenditure which assessee was regularly claiming over the years." 49. We have heard the rival submissions and perused the materials available on record. The assessee has filed additional evidence as above. These additional evidences are produced first time ....
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....ted' through a process of demerger and acquisition at cost of Rs.180.52 crores during the AY 2007-08 and the fair market value of the buildings, land and other assets was at Rs.123.77 crores. The scheme of amalgamation was sanctioned by the High Court of Karnataka vide order dated 11.06.2007 with effect from 01.04.2006. The purchase consideration paid by the Assessee exceeding the fair value of tangible assets and other net current assets was treated as 'goodwill'. The Assessee relied on the decision of the Hon'ble Supreme Court in CIT v Smifs Securities Ltd [348 ITR 302 (SC)] 51.1 The AO in the assessment order has held that the Assessee is not eligible to claim depreciation on goodwill. The AO has held that the Assessee's reliance on the decision of the Hon'ble Supreme Court in CIT v Smifs Securities Ltd (supra) 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.1,57,73,310/- claimed by the Assessee on 'goodwill'. 51.2 The ld. DRP followed the decision of this Tribunal in Assessee's cases for AY 2007-08 to 2009-10 vide order ....