TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 940
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....2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Marketing Support Expenses at Rs. 4,38,72,325/- without appreciating the facts that there is no business expediency of huge expenses incurred on account of marketing support expenses to its foreign entity. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the Disallowance of remuneration to directors at Rs. 4,69,84,889/- without appreciating the facts that the turnover of the business is shrinking year by year on the other had the remuneration paid to the directors is increasing substantially year to year and the assessee failed to justify and explain such inconsistency in payment of director's remuneration. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the Disallowance of R & D Expenses at Rs. 78,73,302/- without appreciating the facts that the expenditure incurred on in house research activities before 29.06.2015 as the certificate u/s 35(2AB) of the Act had been issued by the Ministry of Service & Technology, govt. of India w.e.f. 29.06.2015 5. The appellant ....
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....curred to make itself a global player though enhancing technical strength & marketing support through marketing support office of Anand NVH Inc. in North America. Further, the appellant has submitted that the such program has definite life cycle of 5-7 years. In the instant case, it can be seen that said expenses has given positive results in subsequent years as turnover and profit has increase substantially. The appellant has also filed copy of agreement between the appellant company and its subsidiary, TDS details, Audited B/S of Anand NVH Products INC, necessary explanation regarding nature of expenses and its allowability, relevant case laws, etc. Sec. 37 is residuary Section deals with allowability of business expenses and the same is given below- ........ ....... As per the above, conditions for allowance u/s 37 are as under: - 1. Such expenditure should not be covered under specific Section i.e Section 30 to 36. 2. Expenses should not be capital in nature. 3. The expense should be incurred during the Financial Year. 4. The expense should not be of personal nature 5. The expense....
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....nds of appeal is allowed accordingly. 4.4 Ground No.4 - disallowed Director's remuneration - The AO has disallowed director's remuneration of Rs. 4,69,84,884/- by treating the same as excessive and unreasonable. While finalizing the assessment, the A.O. has observed that total turnover of the business & total profit before remuneration was decreasing by year to year but on the other hand salary paid to its directors has increased substantially. The A.O has also relied on the decision of ITAT Pune in the case of Shri Laxmi Marketing Pvt. Ltd vs. ACIT, Pune (2009) 119 ITD 390 Pune & DCIT vs. M/s. Liberty Phosphate Ltd., ITA No.2997/Ahd./2009 wherein it was held that excessive and unreasonable remuneration paid to the directors without maintaining consistency is not allowed. On the other hand, the appellant submitted that the remuneration paid to the directors is as per its Board resolution which was submitted before the AO at the time of assessment proceedings. The appellant also submitted the copy of ITRs of the directors alongwith financial information of last five years which clearly indicates that the directors are assessed at maximum rate of tax. It wa....
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....he certificate u/s 35(2AB) of the Act had been issued by the Ministry of Service & Technology, Govt. of India w.e.f. 29/06/2015. On the other hand, the appellant submitted that while finalizing the assessment, the AO has ignored the decision of jurisdiction High Court in the case of Maruti Udyog Ltd., (2017) 397 ITR 728 (Delhi) and decision of Hon'ble Gujarat High Court in the case of CIT Vs. Claris Lifesciences Ltd., (2010) 326 ITR 251 without assigning any reason despite of the fact that on identical issue the Hon'ble Courts have decided the issue in favour of assessee by saying that if the approval is granted by DSIR during the previous year relevant to the assessment year in question, the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred u/s 35(2AB) of the Act. I have gone through the facts of the case and case laws cited by the appellant. On perusal of the decision of Hon'ble Delhi High Court in the case of Maruti Udyog Ltd., wherein decision of Hon'ble Gujarat High court in the case of CIT vs Claris Lifesciences Ltd., has also been referred, it is noticed that the said decisions are squarely covered in present cas....
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....s and profit. He submitted that 'marketing support expenditure' were incurred by the assessee to emerge as global player by enhancing technical strength & marketing support through marketing support office of Anand NVH Inc. in North America. He contended that the impact of 'marketing support expenditure' was visible in subsequent years as it had life cycle of 5-7 years. In the support of this proposition, he drew our attention to page 37 to 48 of the Ld. CIT(A), which reads as under: "To understand this issue, the assessee wishes to place on record following facts and assertions: The Appellant is an Original Equipment Manufacturer (OEM) supplier to Ford General Motors, Volkswagen, Maruti, etc and is not in after sales market, sales are based on vehicle programme / project of different OEMs. Initially company was manufacturing parts which were bid by Tier[1]1 multinational players like ZF, Contitech, Magna etc with OEM, due to their technical & marketing strength. Business were procured by those big players and orders were issued by them for supplies. To make the appellant a global player the appellant had to enhance its technical strength & marketing supp....
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.... Sheet Asstt. Year 2014-15 (Rs.) in crore Asstt year 2015- 16 (Rs.) in crore Asstt Year 2016- 17 (Rs.) in crore Sales- Export 149.12 123.08 69.39 Sales-Domestic 41.91 49.39 51.18 Total Turnover as per audited P & L A/c 191.03 172.47 120.57 The appellant had been facing lot of complaints from its Buyers in United States (USA) with regard to quality of the products, which resulted in starting loosing the confidence of Buyers. To get rid of the quality issues, the appellant was required to place its own technical team in USA so that the complaints of the Buyers could be addressed personally by the Appellant, which also would boost the confidence of the Buyers in general. Moreover, the USA is very big market and Hub of Auto manufacturers, and by having an office in USA, the Appellant expected huge business prospects in US market. Therefore, the appellant, in order to have presence in the US market, incorporated a company in US under the name & style of M/s Anand NVH Inc. as subsidiary of the assessee. The main object of the said new entity is obviously, to represent the assessee company before the prospective Buyers for new business....
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.... which is evident from the fact that the various new projects got from customers were added with the hard work and efforts made by M/s Anand NVH USA." 7. The Ld. Counsel further submitted that the Ld. AO had referred the 'marketing support expenditure' paid to the assessee's foreign AE for benchmarking to the Ld. Transfer Pricing Officer ('TPO'), who found it at Arm's length and did not propose any adjustment in this regard. 8. The Ld. Counsel contended that the disallowance of 'marketing support expenditure' had been done by questioning the business expediency and validity of agreement though the Ld. AO had not brought any material on the record to establish that the conditions of allowability of expenditure under section 37 of the Income Tax Act, 1961 ('Act') were not met and agreement had to be always on the letter head/stamp paper (reference was invited to various judicial pronouncements including the decision of the Tribunal in the case of Indus Mobile Distribution (P) Ltd. 109 taxmann.com 404). He submitted that the Sales-Export of the company had gradually increased over the years, from Rs. 69.39 crores to Rs. 141.17 crores within a span of four years, i.e. from AY 201....
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.... the case of Shri Laxmi Marketing Pvt. Ltd vs. ACIT, Pune (2009) 119 ITD 390 Pune & DCIT vs. M/s. Liberty Phosphate Ltd., ITA No.2997/Ahd./009, disallowed it as there was no justification in increase in Directors' remuneration when the sales were declining. On the other hand, the Ld. Counsel submitted that the Directors' remuneration was paid as per its Board resolution. Further, he contended that the tax was paid on the remuneration by directors at maximum marginal rate and there was no tax evasion. ITRs of Directors of five years were placed on the record. Further, it was contended that remuneration paid to directors had never been disallowed in preceding and subsequent years. Hence, the same could not be disallowed during the year on the reasoning of unreasonableness and excessiveness as directors' remuneration has no direct nexus with the turnover of the company, contended the Ld. Counsel. He argued the case on principle of consistency also. The Ld. Counsel placed reliance on following decisions: i. Radhasoami satsang 193 ITR 321 (SC) ii. MLS CBRE [2020] 116 taxmann.com 133 (DHC) iii. Future First Info Services (P) Ltd. [2022] 145 taxmann.com 35 (DHC)....