TaxTMI 
TaxTMI 
2024 (3) TMI 943
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....ppeals) has erred in sustaining the alleged service fee on account of the corporate guarantee in the case of Dabur International ltd, UAE on the loans availed from Credit Agricole Corporate Singapore, ANZ Bank Singapore, Citi Bank Bahamas and Standard Chartered Bank @0.25%, 0.68%, 0.28% and 0.28% respectively is arbitrary, unjust, without any basis and at any rate very excessive. 3. That the CIT (Appeals) has erred in sustaining the alleged service fee on account of the corporate guarantee in the case of Dermoviva Essentials Inc, USA on the loans availed from Bank of America and ANZ Bank Singapore @0.38% and 0.68% respectively is arbitrary, unjust, without any basis and at any rate very excessive. 4. That the CIT(Appeals) has erred in sustaining the alleged service fee on account of the corporate guarantee in the case of Dabur Sri Lanka Pvt. Ltd., Sri Lanka on the loans availed from Citi Bank Sri Lanka @0.38% is arbitrary, unjust without any basis and at any rate very excessive. 5. That without prejudice to grounds no. 1 to 4 above the assessee submit that CIT(A) and TPO erred in holding corporate guarantee as "International Transactions". Since the trans....
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..... Under these circumstances, we find merit in the argument of the Id. Counsel that charging of service fee at an ad hoc rate of 0.5% should be reversed and may be restricted to 0.30% in respect of corporate guarantee issued to Dabur Egypt Ltd., as against 0.5% held by the CIT(A). Thus, the ground raised by the Revenue on this issue is dismissed and the ground raised by the assessee is partly allowed." 7. It can be seen that the coordinate Bench has approved the savings of interest benefit between the assessee and the AE in the ratio 50:50. We find that during the year the CIT(A) has wrongly taken the interest saving @ 1% corporate to 0.3% because the total interest saved was 0.6%. 8. Similar view was taken in A.Y. 2008-09 and in A.Y. 2009-10 the Tribunal followed its earlier orders given in A.Y. 2007-08 and 2008-09. 9. Similar is with the CG issued in the other case natural LLC UA/Dabur International Limited UAE wherein again interest benefit was split between the guarantor and borrower on 50: 50 basis. The relevant findings read as under ;- "127. So far as the corporate guarantee issued on behalf of Naturalle LLC, UAE is concerned, a perusal of the details furnis....
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....s. 8) That the Ld CIT (Appeals) and Ld, TPO have failed to consider that in the absence of any expenditure incurred by the assessee for the establishment of brand in the geographical area of working of Dabur International Ltd and Asian Consumer Care Ltd, no brand royalty can be said to have accrued to the assessee when Dabur International Ltd and Asian Consumer Care Ltd, have incurred heavy expenses on advertisement, marketing and sales promotion in their respective area for promotion of the brand/ different product. 9) That both Ld. CIT(Appeals) and Ld TPO failed to appreciate through the Transfer Pricing Analysis that incurrence of Advertisement, Marketing and Promotional expenditure by the assessee of its foreign subsidiaries would have been prejudicial to the interests of revenue and waiver of brand of royalty by the assessee is ultimately not harmful practice from the angle of Transfer Pricing provisions u/s. 92 (1) and 92 (3) of the I. T. Act. 10) That the Ld. CIT(Appeals) and Ld. TPO failed to consider that the manufactured products by Asian Consumer Care ltd. are with its own technical know-how and R & D and consequently, there cannot be any charg....
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....ssee has furnished the value of sales made to the AEs. Keeping in view above finding I have computed the arm's length price of the royalty in the year under consideration as under in following table: Company FOB sales Rs. In Lakhs Royalty Rs. In Lakhs Royalty Difference Rs. In lakhs Dabur Nepal (P) Ltd. 10061.1 301.83 -- 301.83 Dabur International UAE @ 3% 10815.31 324.46 -- 324.46 Asian Consumer Care Ltd. @ 2% 1875.53 365.11 -- 375.11 Total 1001.40 5. Upon assessee's appeal, Ld. CIT(A) observed that ITAT, Delhi in assessee's own case for AY 2006-07 has dealt with the issue regarding payment of royalty by the assessee to its AEs. Following ITAT's order, he directed the AO/ TPO to delete the transfer pricing adjustment made by the TPO in respect of royalty to assessee by Dabur Nepal (P) Ltd. As regards royalty to assessee's AE, Dabur International UAE, following the said IEAT order, M. CIF (A) directed that AOFTPO should charge royalty 0.759. As regards royalty payment to the assessee by Asian Consumer Care End, he CIT (A) noted that for AYX 2007-08 to 2009-10 ITAT have directed that 2% royalty should hav....
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....d that no royalty was payable assessee by M/s Dabur Nepal Pvt. Ltd and deleted the addition made by TPO/CIT(A). The relevant findings of the Tribunal is as under: "36. As regards to the royalty charged from M/s Dabur Nepal Ltd. is concerned, it is not in dispute that earlier the royalty, was @ 7.5% as the assessee was bearing the cost of marketing expenses inter to penetrate the market and the agreement was amended w.e.f. 1st April, 2004 vide which the royalty ht reduced from 7.5% 3% (copy of the same is placed at page no. 113 of the assessee s paper book), In the preceding year, basis of the said amended agreement, the royalty was charged (a), 3%. Therefore, the TPO was not justified by alborking royalty @ 7.5% as provided in the original agreement dated 05.11.1992 (copy of which is placed at page nos. 111&112 assessee's paper book), For the year under consideration, M/s Dabur Nepal Pvt. Ltd has not paid any royalty to the asses the reasons that it had to incur the expenses to penetrate the market. In this regard, vide letter written in May 2005, it was informed to the assessee that no royally will be payable from Financial Year 2005- 06. It was also claimed that as p....
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....Del/2013, order dated 12.04.2017 has thoroughly discussed the issue and has deleted the royalty receivable by the assessee front Dabur Nepal and had restricted the Royalty receivable from Dabur International Ltd., UAE at 0.75% by observing as under:- 81.7 Since the facts of the present appeal are identical to the facts decided by the Tribunal in assessee's own case in the preceding assessment year, therefore, in absence of any distinguishable features brought before its by either side, we, respectfully following the same, hold that no royalty is receivable by the assessee from Dabur Nepal and, therefore, the order of the CIT(A) sustaining the addition on account of Royalty receivable from Dabur Nepal (P) Ltd., at 2% is directed to be deleted. So far as royalty receivable from Dabur International, UAE is concerned, the same is directed to be restricted to 0.75% as held by the Tribunal. The facts in the present assessment is also similar and no distinguishing facts were pointed out by the Ld. DR, therefore, the finding of the CIT(A) that royalty @ 2% is to be charged from Dabur Nepal Pvt. Ltd. is not correct and has to be deleted. 11. As related to agre....
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.... the royalty was although charged @ 1% on the products manufactured without R&D support and technical know-how from the assessee but the aforesaid expenses were comparability less." Following the said order passed for A.Y. 2006-07, the Tribunal, vide order dated 18.02.2021 in assessee's own case for A.Ys. 2007-08 and 2008-09 restricted the adjustment of royalty @ 0.75% of FOB sales in respect of Dabur International Ltd. The Tribunal held as under: "81.6 We find identical issue had come up before the Tribunal in assessee's own case in the immediately preceding year, i.e. 2006- 07. We find, the Tribunal vide ITA No.3257/Del/2003 and ITA No. 3- 192 Del 2013, order dated 12.04.2017 has thoroughly discussed the issue and has deleted the royalty receivable by the assessee from Dabur Nepal and had restricted the Royalty receivable from Dabur International Ltd.. UAE at 0.75% by observing as under:- 81.7 Since the facts of the present appeal are identical to the facts decided by the Tribunal in assessee's own case in the preceding assessment year, therefore, in absence of any distinguishable features brought before us by either side, we, respectfully follo....
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.... years became defunct in December, 2005 as the same was not renewed thereafter. Therefore, in the absence of any contractual agreement, the assessee was not eligible to receive any royalty from ACCPL. It is his submission that products manufactured by ACCPL using technical knowhow of the assessee did not meet the requirements of customers in Bangladesh. Accordingly, after 2006, ACCPL entered into an agreement with Dabur Dubai to provide technical know. It is also his submission that merely on the basis of trade name of Dabur the products manufactured by ACCPL were not accepted in Bangladesh and that it had to manufacture the products as per the local needs and taste of the public residing in the public area. It is also his submission that in order to penetrate the Bangladesh market, ACCPL adopted its own market strategy and had made alt the efforts for the establishment of 'Dabur name in the Bangladesh which was very little known in that geographical area and incurred lot of expenses on advertisement, market establishment and had borne all the risks of market, manufacture and finance. Accordingly the assessee had neither made any efforts in establishing the trade name in Bangla....
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.... It can be seen from the above chart the liability as on the first day of the previous year was Rs. 227754220/- out of which Rs. 160073926/- were paid during the year and Rs. 67156645/- was not paid during the year which means that this amount was never charged to the P & L account, therefore, there is no question of any disallowance. We have verified from the computation of income and we are of the considered view that there is no need of addition of Rs. 67156645/- which we direct the AO to delete. 23. Ground No. 12 is allowed. 24. Ground No.13 relates to the addition of Rs. 63 lacs for change of accounting policy. This addition has also been made on wrong appreciation of facts the same can be understood from the following chart :- 25. It can be seen from the above chart that Rs. 10 lacs is a positive figure and Rs. 63 lacs is a negative figure which means it is a loss. 26. In the computation of income the assessee has made addition on account of instrumeny hedging adverse currency fluctuation against of balance sheet exposer in FG Rs. 52,93,552/- which means the assessee has already added the loss and that there was no need of any further addition by the AO. We accord....
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....ed for statistical purposes." Similarly, the Tribunal, vide its subsequent order dated 24.11.2021, passed in the assessee's own case for the assessment years 2009. 10 in ITA Nos, 3423 & 3790/Del/2015 again admitted the additional ground raised by the assessee on the issue of exclusion of the amount of excise duty subsidy received in respect of Glucose Unit, laddi from the assessed income and remanded the issue to the file of the assessing officer to decide in accordance with law. (refer pages 284 to 320 of the CLPB page 315) It is imperative to note here that in the set aside proceedings for the assessment year 2008-09, the assessing officer, on examination of records, was pleased to allow the claim of the assessee and the amount of excise duty subsidy received int was excluded from the assessed income respect of Glucose Unit, Baddi of the assessee. The relevant observations of the assessing officer in this regard is re-produced as under: "(...........................In view of the above facts, the documents submitted by the assessee have been examined thoroughly vis-à-vis purpose test as elaborated by Hon'ble Supreme Court in its various j....
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....s have been bench marked separately for its two segments namely FMCG and non-FMCG which have been accepted by the TPO there is no reason to separately bench mark receivables. 38. We find that an identical quarrel was considered by this Tribunal in assessee's own case in A.Y. 2010-11 and 2011-12 in ITA Nos. 7154, 7431/Del/2017,7253/Del/2017 and 183/Del/2018 respectively. The relevant findings read as under :- "30. Per contra, ld. Counsel for the assessee supported the order of the Ld. CIT(A) and submitted that assessee's net margin is considerably higher than the comparables. Upon careful consideration, we are not in agreement with the submission of Ld. DR. It is no doubt that after the amendment, receivables are an international transaction which needs to be benchmarked separately but as rightly pointed out by the ld. CIT(A) above that margin of the assessee both in FMCG and non-FMCG segment is much higher than the comparables. Hence, since benchmarking under both the segments has been accepted in the transfer pricing, we do not find any infirmity in the order of ld. CIT(A) that there is no reason to separately benchmark receivables". 39. The following chart also sho....
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....ed to the units. Accordingly, the AO allocated the Head Office expenses and depreciation in the ratio of sales of eligible units for computing the deduction u/s 80IB/80IC and restricted such deduction to Rs. 25,404.88 lakhs as against Rs. 27,207.71 lakhs claimed by the assessee. We find, the ld. CIT(A) reversed the action of the AO and directed him to recompute the deduction u/s 80IB/80IC of the Act without further allocation of head office expenses and depreciation to various units by observing that the assessee has itself added back the depreciation as per Companies Act, 1956 and claimed depreciation as per the Act and, therefore, the AO was wrong in allocating difference of depreciation available under the Companies Act and the Income-tax Act to the eligible units. So far as the head office expenses aggregating to Rs. 2,214.02 lakhs is concerned, he noted that expenses aggregating to Rs. 1,563.02 lakhs were suo motu disallowed by the assessee and added back in the computation of income. Therefore, once these expenses were not claimed by the assessee, the same cannot be allocated to the eligible units for computation of deduction u/s 80IB/80IC of the Act. The Id.CIT(A) also furth....
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.... that Miscellaneous expenses written off, donation and provision for bad debts were suo motu disallowed by the assessee in its return of income. Therefore, once the aforesaid expenses were not claimed as a deduction by the assessee, the same, in our opinion, cannot be allocated to the eligible units and be considered for computing the deduction u/s 80IB/80IC of the Act. So far as scientific research expenses of Rs. 651 lakhs is concerned, the finding of the Id. CIT(A) that such expenses have no nexus with the units eligible for deduction has not been controverted by the Revenue. We find, the Hon'ble Bombay High Court in the case of Zandu Pharmaceuticals Works Ltd. vs. CIT, 350 ITR 366 (Bom) has held that once the expenses have no nexus with the units eligible for deduction, such expenses cannot be allocated to units for the purpose of computing deduction w/s 80IB/801C of the Act. Since the scientific research expenses of Rs. 651 lakhs which were included in the head office expenses allocated by the AO are not connected with the units eligible for deduction u/s 80IB/80IC, the same, in our opinion, cannot be allocated to the eligible units. In this view of the matter, th....
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....t aside to the files of the AO as per directions. ITA No.5272/Del/2019 ( A.Y. 2013-14) (Revenue's appeal) 50. Ground No.1 relates to the corporate guarantee which is similar to the grievance of the assessee considered in ITA No.4126/Del/2019 wherein we have followed the decision given by us in A.Y. 2012-13 in ITA No. 3791/Del/2019 (supra) for similar reasons this ground is dismissed. 51. Ground No. 2 relates to the TP adjustment on account of royalty. Similar grievance has been considered by us in assessee's appeal vide ground No.8 to 12 wherein we have followed our decision given in A.Y. 2012-13 in ITA No.3791/Del/2019 (supra). For a detailed discussion therein these ground is dismissed. 52. Ground No.5 relates to the deletion of the notional interest imputed on trade receivables. On identical issues were consider by us in A.Y. 2012-13 (supra) vide ground No.5 in ITA No.3791/Del/2019 (supra) wherein we have followed the earlier decisions of coordinate Benches. For a detailed discussion therein this ground is dismissed. 53. Ground No.6 relates to the claim of deduction u/s. 80IB and 80IC. 54. A similar claim was considered by us in revenue's appeal for A.Y. 2012-1....
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....1 and 12 relates to the claim of deduction u/s. 80G of the Act. 68. During the year under consideration the assessee has claimed deduction u/s. 80G of the Act amounting to Rs. 51771655/- being 50% of Rs. 103543310/- paid as donation to various trust/ organizations. 69. The AO denied the claim of exemption to the extent of Rs. 89.25 lacs holding that the organizations did not have valid 80G certificates. 70. When the certificates were produced before the CIT(A) he refused to admit the same as they were not produced before the AO. 71. We are of the considered view that the CIT(A) ought to have admitted the evidences. In the interest of justice and fair play we restore this issue to the files of the AO. The assessee is directed to furnish the certificates of eligibility and the AO is directed to consider the same and decide the issue as per the provisions of the law. 72. Ground No.11 and 12 are allowed for statistical purpose. 73. In the result, the appeal of the assessee is allowed in part for statistical purpose. ITA No.8273/Del/2019 (A.Y. 2014-15) (Revenue's appeal) 74. The first ground No.1 relate to the corporate guarantee fee. This issue has been consider....