TaxTMI 
TaxTMI 
2022 (7) TMI 1508
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....in confirming an ad hoc addition of Rs.69.40 lacs (net) on account of non-inclusion of damaged stock in valuation of closing stock. 3. The learned Commissioner of Income Tax (Appeals)-55, Mumbai erred in applying Rule 8D & confirming the disallowance to the tune of Rs. 45.12 lacs u/s. 14A of the Income Tax act, 1961." 4. Ld. Counsel for the assessee, vide letter dated 05.02.2021 raised additional grounds of appeal which are reproduced below: - "Ground No 4: Refund for excess Dividend Distribution Tax ("DDT") Paid On the facts and in the circumstances of the case and in law, the appellant submits that the excess DDT paid by the Appellant u/s 115O of the Income-tax Act, 1961 having regards to the beneficial rate as per the applicable Double Taxation Avoidance Agreement (DTAA) for dividends paid to non-resident shareholders, should be directed to be refund to the Appellant." Ground No 5: Deduction in respect of education cess On the facts and in the circumstances of the case, the Education Cess on Income-tax paid by the Appellant for the captioned year is an allowed expenditure and the Assessing officer be directed to allow the same whil....
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....e Bench held as under: - "021. We find that identical issue arose in case of the assessee for assessment year 2009 - 10 wherein the coordinate bench on identical facts and circumstances in ITA number 2754/M/2014 and ITA number 4203/M/2014 has decided this issue as Under:- "7. We have considered rival submissions in light of the decisions relied upon and perused materials on record. After going through sample copy of letter of comfort/support given to the bank towards loan availed by the AE, we have noticed that there is no liability or responsibility fastened with the assessee for making good the liability of the AE in case of any default. There is nothing on record to suggest that in case of any default by the AE, the outstanding loan will be recovered from the assessee. Pertinently, while sustaining a part of the adjustment made by the TPO, learned Commissioner (Appeals) has equated the letter of comfort/support to corporate guarantee. In our view, on perusal of the letter of comfort/support, it cannot be construed to be in the nature of any sort of guarantee in respect of the loan liability of the AE. The only promise made by the assessee is, it will not make a....
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.... in favour of the assessee for the earlier years, however, he supported the orders of the Assessing Officer. 15. Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee's own case for the A.Y.2010-11 and decided the issues in favour of the assessee. While holding so the Coordinate Bench held as under: - "031. Ground number 5 is with respect to the disallowance u/s 14 A restricted by the learned CIT - A to Rs. 5,823,458/-. The fact shows that assessee has earned a dividend of Rs. 224,021,852, which is exempt u/s 10 of The Income Tax Act. The learned AO invoked the provisions of rule 8D and computed the disallowance of Rs 1,00, 26,816/-. The assessee preferred an appeal before the learned CIT - A and submitted that it has computed the disallowance to the extent of Rs. 1,650,877 being the expenditure relating to the salary of certain employees. The learned CIT - A granted relief to the assessee with respect to the proportionate interest amount computed on interest incurred for normal running of the business and restricted the disallowance only to Rs. 5,823,458/-. The re....
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....judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of section 14A (2) and (3) read with rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable." Thus, Rule 8D of the Rules cannot be invoked where the suo moto disallowance made by the respondent assessee is not found to be satisfactory by the Assessing Officer having regard to the accounts of the assessee. In the absence of recording the aforesaid fact of non-satisfaction in terms of Section 14A(2) of the Act, invocation of Rule 8D is not permissible. (e) Therefore, in view of the above decision of the Apex Court, this question also does not give rise to any substantial question of law. Thus, not entertained." 034. In view of above facts, as no proper satisfaction has been recorded by the learned assessing officer in terms of the provisions of Section 14 A (2) ....
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....t. 23. Having considered rival submissions, we restore the issue to the Assessing Officer for examining assessee's claim of applicability of beneficial rate of tax as per the applicable DTAA to the DDT paid under section 115-O of the Act. This ground is allowed for statistical purposes. 077. Before us, there is no information about the country of residence of those shareholders, whether those shareholders have Tax Residency certificate of that country, there is no submission whether the dividend income is income of shareholders and about how the assessee will claim refund of the taxes , if same is income of the shareholders. Further the host of issues with respect to applicable of DTAA as stated in grounds of appeal by assessee are required o be addressed. Therefore, respectfully following the decision of the coordinate bench in case of assessee itself for assessment year 2009 - 10 we also set-aside this issue back to the file of the learned assessing officer with direction to the assessee to submit its claim with all necessary supporting evidences and certificates and then ld.AO to decide in accordance with the law. Accordingly, this additional ground of appe....
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....incurred on Trip Scheme without appreciating the fact that the trip expenditure was not expended wholly and exclusively for the purpose of the business 7. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 2,22,13,413/-being waiver of royalty for two subsidiaries in Bangladesh and Sri Lanka, without appreciating the facts of the case." 23. With regard to Ground No. 1 and 4 which are in respect of Adjustment of account of letter of support and disallowance u/s. 8D (Section 14A) (net) respectively, these grounds are similar to Ground Nos. 1 and 3 raised by the assessee in ITA.No. 655/Mum/2017, therefore, the decision rendered therein shall apply mutatis mutandis, accordingly, these grounds are dismissed. 24. With regard to Ground No. 2, which is in respect of Reduction in claim made u/s. 35(2AB) for certain R&D expenditure, Ld. Counsel for the assessee submitted that the issue in appeal has been considered by the Coordinate Bench in assessee's own case in ITA.No.4675/Mum/2015 dated 23.02.2022 and the Coordinate Bench adjudicated the issue in favour of the assessee. Copy of the order is placed on record. ....
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....Rs.27.17 lakhs made by the AO and confirmed by the ld. CIT(A) on account of weighted deduction claimed by the assessee u/s 35(2AB) on account of research and development expenditure. 11. Now we shall take up the appeal of the assessee which involves a solitary issue relating to the addition of Rs.27.17 lakhs made by the AO and confirmed by the ld. CIT(A) on account of weighted deduction claimed by the assessee u/s 35(2AB) on account of research and development expenditure. 12. In its return of income for year under consideration, the assessee company had claimed weighted deduction u/s 35(2AB) of the Act on account of expenditure incurred by it on scientific research and development during the course assessment proceedings it was noticed by the AO that although the approval of Department of Industrial and Scientific Research and Development (DSIR) was received by the assessee for its R & D activity, expenditure claimed to be incurred at Rs.13,56,47,149/- on R & D was reduced to Rs.13,02,11,457/- by the said authority in the certificate issued. Relying on the said certificate, claim of the assessee for the deduction u/s 35(2AB) was reduced by the AO by Rs.27,18,846/....
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....relevant provisions of the Act did not contain any specific condition that the deduction u/s 35(2AB) and accordingly the claim of the assessee for deduction u/s 35(2AB) will be restricted to the amount of R & D expenditure as contained in the certificate. The Tribunal found on verification of the relevant details that even the expenditure is not included in the said certificate was eligible for deduction u/s 35(2AB) in respect of the said expenditure was allowed by the Tribunal. In our opinion, the issue involved in the case of Torrent Pharmaceuticals ltd. thus is similar to the one involved in the present case and this position is not disputed even by the ld. DR at the time of the hearing before us. He, however, has contended that the claim of the assessee of having incurred the expenditure in question on R & D which is eligible u/s 35(2AB) has not been examined either by the AO or by the ld. CIT(A). He has urged that the matter may therefore be restored to the file of AO for giving him an opportunity to verify the same. We find merit in this contention of the ld. DR and since the ld. Counsel for the assessee has also not raised any objection in this regard we restore this issue t....
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....m the facts of the assessee's case in as much as the entire expenditure incurred by the assessee in that case on R & D was duly certified by the prescribed authority whereas in the case of the assessee, the same is not certified to be eligible R & D expenditure to the extent of Rs.54.34 lakhs. 14. The ld. Counsel for the assessee has also relied on the decision of the Ahmedabad bench of ITAT in the case of ACIT vs Torrent Pharmaceuticals Ltd. in ITA No.3569/Ahd/2004 dated 13.11.2009 in support of the assessee's case on the issue under consideration. In the said case, weighted deduction claimed by the assessee u/s 35(2AB) on account of R & D expenditure was partly disallowed by the AO relying on the figure contained in the certificate issued by DSIR and the same was held to be unsustainable by the Tribunal holding that There was no justification in harping upon the figure contained in the certificate issued by DSIR as was done by the Assessing Officer. It was held by the Tribunal that the relevant provisions of the Act did not contain any specific condition that the deduction u/s 35(2AB) and accordingly the claim of the assessee for deduction u/s 35(2AB) will be res....
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....dings was asked to produce valuation of such stock and show cause as to why the same should not be added back to the total income of the assessee. (ii). The assessee made its submissions to the Assessing Officer which has been produced in the Assessing Officer's order. (iii). The Assessing Officer observed that in its submission, the assessee itself had admitted that damaged stock was not entirely in non-saleable condition; that damaged stock was also sold and same was recorded whenever such sale took place. However, the assessee failed to produce realizable value of such stock. Accordingly, assessee's contention of damaged stock being valued at Nil was not accepted by the Assessing Officer. Reliance was also placed on the decision of JCIT v. ITC, ITAT Kolkata Special Bench (2008) 112 ITD 57 and the relevant portion of the decision was also extracted in the Assessing Officer's order. (iv). Further in the past assessment years, the value of damaged stock was considered at 0.5% of the closing stock for finished goods, post giving consequential effect in the opening stock (for additions made in the preceding years). However, in this year, the Ass....
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....that the method adopted by the assessee may be allowed and he relied on the orders passed by Ld.CIT(A). 32. Considered the rival submissions and material placed on record, we observe that assessee is valuing closing stock for damaged stock taking the value at NIL and however, Assessing Officer makes disallowance to the extent of 0.5% of the value of closing stock and the same was confirmed by the Coordinate Bench in the earlier years from A.Y. 2003-04 to 2006-07 and A.Y. 2008-09. We further observed that following the decision of the ITAT, the Ld.CIT(A) in A.Y: 2009-10 and A.Y. 2010-11 had followed the same. Respectfully following the earlier decision of the ITAT, Ld.CIT(A) in the present appeal also allowed the same. Considering the fact on record and also this method is consistently followed by the assessee over the years there is no loss to the revenue. Accordingly, we do not find any reason to interfere with the findings of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed. 33. With regard to Ground No. 4 which is in respect of Balance 10% additional depreciation on addition made in earlier year, Ld. AR submitted that this issue is squarely covered in ....
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....ngs, the Assessing Officer noticed that the assessee has claimed carried over amount of additional depreciation relating to the immediately preceding assessment year. Therefore, he called upon the assessee to justify the claim. However, the assessee furnished a detailed submission stating that the balance portion of additional depreciation, which could not be claimed in the preceding assessment year, has to be allowed in the impugned assessment year; however, the Assessing Officer was not convinced. Accordingly, he disallowed the additional depreciation claimed of Rs. 1,72,86,752/-. Assessee contested the disallowance before learned Commissioner (Appeals). Taking note of the decision cited by the assessee including the decision of the Tribunal in assessee's own case for Assessment Year 2008 09, learned Commissioner (Appeals) deleted the disallowance made by the Assessing Officer. 40. The learned Departmental Representative supporting the decision of the Assessing Officer submitted, additional depreciation is a onetime allowance granted to the assessee for installing new plant and machinery. Any unclaimed amount cannot be set off in the subsequent assessment year. ....
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....ssue is squarely covered in assessee's own case relating to A.Y. 2010-12. Coordinate Bench considered the issue and adjudicated in favour of the assessee. Ld. Counsel for the assessee prayed that the same may be adopted for the year under consideration. 38. Ld.DR relied on the orders of the Assessing Officer. 39. Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee's own case for the A.Y. 2010-11 and decided the issue in favour of the assessee. While holding so the Coordinate Bench held as under:- "039. Ground number 7 of the appeal is against the decision of the learned CIT - A in allowing deduction of Rs. 252,660,686/- on account of expenditure incurred on trip scheme. The learned assessing officer noted that on examination of the details of advertisement and promotion expenses that assessee has incurred Rs. 41.97 crores on gift - Target based. He further found that assessee has incurred an expenditure of Rs. 252,660,686 under the trip scheme. The learned assessing officer further found that the above amount was paid to SOTC and the Thomas Cook India Ltd for ....
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....nditure incurred on account of trip scheme. Noticing this, he called upon the assessee to justify the claim. After verifying the details furnished by the assessee, the Assessing Officer observed that the amount was paid to SOTC for foreign trip of its dealers. Being of the view that the expenditure incurred was not for the purpose of assessee's business, he held the same as not allowable. Further, he held that since the assessee has not deducted tax at source on the expenditure incurred, which is nothing but in the nature of commission paid to dealers and distributors, the same has to be disallowed under section 40(a)(ia) of the Act. Accordingly, he disallowed the deduction claimed by the assessee. Assessee contested the disallowance before the first appellate authority. After considering the submissions of the assessee in the context of facts and materials on record, learned Commissioner (Appeals) deleted the disallowance made by the Assessing Officer. 45. Strongly relying upon the observations of the Assessing Officer, the learned Departmental Representative submitted, the expenditure incurred by the assessee for trip scheme is nothing but commission paid to dealers ....
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.... much clear that the entire trip scheme is for the purpose of expanding assessee's business by encouraging the dealers and distributors to achieve a specific target of purchase. Thus, the scheme is closely linked to assessee's business activity. It is also a fact that the assessee has not paid any amount to the dealers and distributors, but amount spent has been paid to SOTC for organizing the trip. It is also a fact on record that the amounts paid to SOTC has been subjected to TDS as per the relevant provision. Therefore, the allegation of the Assessing Officer that the amount has not been subjected to deduction of tax is without any basis. As regards the applicability of section 194H of the Act, by no means, the Assessing Officer has established on record that dealers/distributors are agents of the assessee. Further, as we find, the trip scheme has been introduced by the assessee from past 20 years and the deduction claimed by the assessee on account of such trip scheme has never been disallowed by the Assessing Officer except for the impugned assessment year. Therefore, even applying the rule of consistency, the expenditure claimed by the assessee has to be allowed. Acco....
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....ax Act, which reads as under: 5 (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which a) is received or is deemed to be received in India in such year by or on behalf of such person; or b) accrues or arise or is deemed to accrue or arise to him in India during such year; or c) accrues or arise to him outside India during such year" The basic principle of accrual of income is that the assessee must have acquired a right to receive the same; there must be a debt owed by somebody to him. In this context, we would like to rely upon the Apex Court decision in the case of E.D. Sasson V. CIT (26 ITR 27). The relevant extracts of the decision are re-produced as under: "If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be debt owed to him by somebody. Unless and until there is created in favour of the assessee a debt due by some....
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.... accounting followed by the assessee that has to be taken into account, but what should be considered is whether the income has really materialized or resulted to the assessee. The question whether real income has materialzed to the assessee has to be considered with reference to commercial and business realities of the situation in which the assessee has been placed and not with reference to his system of accounting. We are entitled to receive royalty from our overseas subsidiaries @ 3% on net sales price of product sold by our overseas subsidiaries. The nets sales price of the products sold can be ascertained only at the end of the financial year, However, even before the end of the financial year, on representation made by our overseas Units, we have decided to waive the royally. Since the decision to waive the royalty is taken before the closure of the financial year before the amount of net sales price is ascertained, no income can be considered to have accrued or arisen. Further, there is no right to receive the said royalty. In view of the foregoing, we submit that we submit that, no income can be said to have accrued to us under Section 5 (1) of the Income Tax Act ....
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.... Act and DTAA and accordingly the same is not chargeable to tax. We would like to submit that a similar full/part waiver was given to our overseas subsidiary in AY 2008-09, 2009-10 & 2010-11 & same had been accepted by the assessing officer in those respective years 42. After considering the submissions of the assessee, Assessing Officer rejected the same and made the addition relating to royalty income receivable to the extent of Rs..2,22,13,413/- with the following observations: - (i). "The assessee company is a public limited company being listed on BSE and NSE, where in the general public has put in their money as investments. It is unlike a private limited company wherein arbitrary decisions by management can be affordably taken and executed. In a public limited listed company, having huge invested money of general public, the decisions are required to be supported by due rationalism and logical satisfactions, in the interest of company and general public at large (ii). The reasons stated by the assessee for reaching the satisfaction and taking the decision to waive off part receivable royalty are not supported by any logic or calculation. The mer....
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....particularly till such time as the original written and duly signed agreement is in place. The arbitrary decision cannot override the specific provisions of the duly signed agreement of the assessee company with these two AEP's conferring the rights to receive the royalty income. The working of royalty accounted & waived by the company is given below: Name of the Unit Total Royalty Receivable Accounted as Income Waiver Rate of Royalty 3% 1% 2% Asian Paints (Lanka) Ltd. 5,460,015 1,820,005 3,640,010 Asian Paints (Bangladesh) Ltd 27,860,104 9,286,701 18,573,403 Total 33,320,119 11,106,706 22,213,413 43. Aggrieved assessee, preferred an appeal before the Ld.CIT(A) and before Ld.CIT(A) assessee submitted as under: - (i). The appellant has submitted that based on the Form 3CEB filed by them, the AO has made reference to the TPO. The fact of waiver of royalty for two subsidiaries was disclosed in the TP Study report ....
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....ed to the TPO. Post considering the submissions, the TPO has not made additions with respect to the royalty waiver. It appears that similar wavers allowed by the assessee to its AEs in earlier years were not adjusted by the AO/ TPO. Even otherwise, once the TPO has not made any revision to the arm's length price, it would not be open to the AO to make any adjustment in the arm's length price accepted by the TPO. This position has been accepted by the Delhi ITAT in the case of Copal Research India Pvt. Ltd. vs. Income Tax Officer [ITA No. 1713/Del/2014] as well as Mumbai ITAT in case of ACIT 2(1) vs. American Express Services India Ltd. [ITA No. 40016/Mum/2007]. Accordingly, the ground of appeal is allowed." 45. At the time of hearing, Ld. DR vehemently argued and supported the findings of the Assessing Officer. 46. On the other hand, Ld. AR submitted before us three propositions in this regard, which are reproduced below: - "Proposition 1: Assessing Officer cannot make adjustments with respect to international transactions for which reference was made to the TPO based on section 92CA(4) of the Act. For the above proposition Ld. Counsel for the assess....
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....he purpose of business. While doing so, the AO noted that earlier this royalty was not paid as the AE has waived off the same because of economic condition of the assessee. But as the sales started improving it had started paying the royalty to the AE we.f. A.Y.2009-10 onwards. That w.e.f. 1st July 2008, royalty percentage was increased from 1% to 5%. Further, the AO had noted that assessee had stated that royalty was paid to Associated Enterprises the benchmarking of payment of royalty transaction has been submitted to the TPO. The TPO after referring to the submission has made no disallowance in respect of benchmarking adopted by the assessee. It was further claimed that royalty is bonafide expenditure which is incurred for using Smirnoff brand i.e. wholly and exclusively for business purpose of the assessee. While considering the objection of the assessee in this regard, the DRP noted that the assessee has not produced royalty agreement. It observed that this issue was also considered in the DRP order for A.Y.2009-10. Referring to the above, the DRP held that the same has to be disallowed u/s.37(1) of the Act. While giving effect to the above DRP direction, as regards the disall....