TaxTMI 
TaxTMI 
TaxTMI 
2025 (2) TMI 1317
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....ng order and the Final Assessment order are erroneous in so far as the following issues/adjustments: 2. Attribution of notional income towards deemed brand promotion/development 2.1. The NaFAC/DRP erred in facts and circumstances of the case and in law in confirming the action of the TPO in attributing notional income of Rs.3,81,01,00,000, on the premise that the Appellant has undertaken brand promotion/building activity for its AE i.e., Hyundai Motor Company, South Korea. TPO exceeded jurisdiction 2.2. The NaFAC/DRP failed to appreciate the fact that the TPO exceeded his jurisdiction by analysing brand promotion/building as a separate international transaction though the NaFAC has not referred the same for determination of ALP as per Section 92CA of the Act. 2.3. The NaFAC/DRP ought to have held that the order of the TPO is vitiated since it is based on a show cause notice that is void ab initio, as it has not established a prima facie case of brand promotion activity undertaken by the Appellant. 2.4. The NaFAC/DRP ought to have held that the TPO has acted in excess of jurisdiction by suo-motu considering the incurrence of adve....
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....rand building service only if the brand building activity has been actually agreed to undertaken as the primary activity and not where the promotion of brand name is ancillary to the core business activity of manufacture and sale of vehicles. Separate benchmarking is void 2.14. The NaFAC/DRP failed to appreciate the fact that the TPO having accepted the Royalty transaction which is inclusive of right to use "Brand" is at arm's length, is precluded from once again independently benchmarking the brand usage as separate international transaction. 2.15. The NaFAC/DRP failed to recognize that the TPO having accepted that the overall net margin of the Appellant under TNMM method to be at arm's length as per Section 92C(2) of the Act read with Rule 10B of the Income tax Rules, erred in independently benchmarking brand usage as a separate international transaction. 2.16. Without prejudice to the above, the NaFAC/DRP failed to appreciate that the excess margin earned by the Appellant over that of comparable companies indicates that it is the Appellant who has benefited from the use of the brand name and has offered more income for tax in India. ....
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....lly dissimilar as they are engaged in the business of advertisement and media whereas the Appellant is engaged only in the manufacture and sale of passenger cars and not brand promotion. 2.26. Without prejudice to the above, the NaFAC/DRP ought to have appreciated that the Appellant is not into core promotional/advertising activity and as such, if at all any adjustment is made for brand building activity, the same should be done after granting appropriate economic adjustments. 2.27. Without prejudice to the above, the NaFAC/DRP failed to appreciate that the TPO ought to have restricted the adjustment to 50% of the AMP expenses incurred by the Appellant without adding any mark-up. 2.28. The NaFAC/DRP erred in confirming the action of the TPO in conducting a fresh search for identifying the comparable companies for the limited purpose of quantifying the mark-up to be added to the 50% of AMP expenses (which was incorrectly considered to be incurred by the Appellant for the benefit of its AE). 2.29. Without prejudice to the above ground, the NaFAC/DRP ought to have appreciated that the TPO's action of allocating a mark-up of 10.04% on 50% of the ....
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....le to tax. 3.4 The DRP/NaFAC ought to have appreciated that the "purpose" for which an incentive is granted as per the Industrial Policy and the Govt. order issued by the Government of Tamil Nadu should be considered to determine the nature of IPS as revenue/ capital. 3.5 The DRP/NaFAC ought to have appreciated that factors like contribution to GDP of the State, enhancement of brand value of the city/state in which the investment is made, enhancement in employment potential etc. are key factors in determination of IPS as capital receipt since the IPS is provided not for running the business more profitably but in view of the benefits accruing to the State in the form of contribution to the overall development of the State. 3.6 The DRP/NaFAC ought to have appreciated that the amendment to the definition of income by way of insertion of clause (xviii) to section 2(24) of the Act does not apply to non-taxable capital subsidies as it was introduced only to align with the provisions of Income Computation and Disclosure Standards (ICDS). 3.7 The DRP/NaFAC ought to have appreciated that the amendment to the definition of income by way of insertion of cl....
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....final assessment order dated 23rd July 2024, by brushing aside the additional evidence filed by the Appellant before the DRP. 4.3 The DRP/NaFAC ought to have appreciated that the CEV subsidy was granted by the Government of Tamil Nadu for the purpose of expansion of manufacturing facility for production of clean energy vehicles. 4.4 The DRP/NaFAC ought to have appreciated that the "purpose" for which an incentive is granted as per the Industrial Policy and the Govt. order issued by the Government of Tamil Nadu should be considered to determine the nature of subsidy as revenue capital. 4.5 The DRP/NaFAC failed to appreciate that the CEV subsidy is not provided for running the business more profitably but for promoting the manufacture of clean energy vehicles and making Tamil Nadu a global leader in clean energy vehicle production. 4.6 The DRP/NaFAC ought to have appreciated that the amendment to the definition of income by way of insertion of clause (xviii) to section 2(24) of the Act does not apply to non-taxable capital subsidies as it was introduced only to align with the provisions of Income Computation and Disclosure Standards (ICDS). ....
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....that the capital subsidy was a capital receipt. 6. Disallowance of expenditure under section 14A of the Act r.w.r 8D of the Rules 6.1 The NaFAC/DRP erred in disallowing a sum of Rs. 1,38,08,125 under section 14A of the Act by applying the provisions of Rule 8D of the Rules. 6.2 The NaFAC/DRP ought not to have made disallowance under section 14A of the Act when the Appellant has not earned dividend / any other exempt income during the year. 6.3 The NaFAC/DRP ought to have appreciated that in the absence of any exempt income earned during the year, no expenditure can be attributed towards earning such notional income so alleged to have accrued. 6.4 The NaFAC, having acknowledged the fact that the Appellant had sufficient surplus funds in earlier AY's to make the investments, ought not to have resorted to making adhoc disallowance under section 14A r.w.r 8D of the Rules. 6.5 The NaFAC erred in law in stating that disallowance under section 14A of the Act r.w.r. 8D of the Rules is mandatory without appreciating the fact that the application of Rule 8D is not mandatory/automatic. 6.6 The NaFAC/DRP ought to have appreciat....
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....end, substitute, rescind, modify and / or withdraw in any manner whatsoever all or any of the foregoing grounds at or before the hearing of appeal. 3. Before us, the Ld. AR placed on record, issue-wise chart and submitted that substantial issues have already been adjudicated by the Tribunal in their own case in IT(TP) No. 53/Chny/2022 for AY 2018-19. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. 4. Ground No. 2 relates to the action of the lower authorities confirming the transfer pricing adjustment of deemed Brand Development expenditure. From the facts placed on record, it is noted that, the assessee aggregated all major international transactions and benchmarked the same using entity level Transactional Net Margin Method (TNMM). The same was accepted by Ld. TPO. However, the TPO proposed adjustment on account of expenses incurred by the assessee for brand building allegedly incurred for the benefit of its AE and that this transaction was not reported by the assessee in Form 3CEB. The Ld. TPO is noted to have observed that, the assessee was manufacturing car under license from Hyundai Korea who was the owner of brand /....
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....one through orders of the authorities below. An identical issue has been considered by Tribunal in assessee's own case for assessment in the year 2015-16 IT(TP) No. 10/CHNY/2020, dated 17.09.2021, wherein the Tribunal following the earlier decision in assessee's own case for assessment year 2013-14 in ITA No. 3192/Chny/2017, dated 01.09.2021, held that learned TPO as well as learned DRP were erred in making transfer pricing adjustments towards brand services by adopting Spearman's Rank Correlation method and concluded that there is positive accretion between brand value and market capitalization of HMC Korea and hence, directed the AO/TPO to delete transfer pricing adjustment made towards brand development services. Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete addition made towards brand fee adjustment. Similar view has been taken in latest decision in IT(TP)A No. 51/Chny/2021 dated 27.09.2023 for AY 2012-13. Taking consistent view in the matter, we direct Ld. AO to delete impugned TP adjustment. The corresponding grounds raised by the assessee stand allowed." 4.2 In absence of change in any facts or position ....
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....er: - "assistance in the form of subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than subsidy or grant or reimbursement which is taken into account for determination of actual cost of the asset in accordance with the provision of Explanation 10 to clause (1) of section 43." 5.3 It is noted that, under the above provision, subsidies, grants, cash incentives, duty drawback, waivers, concessions or reimbursements provided by the Central or State Governments either in cash or kind, will be included within the meaning of term "income" and consequently, will be taxable under the Act. The genesis of above amendment can be traced back to judicial precedents in which capital subsidy (the benefit of subsidy being capital in nature) was held to be non-taxable. Through above- mentioned amendment, all types of subsidy, assistance, incentive received from the Government, irrespective capital or revenue in nature, has now become taxable. Prior to the above amendment, it is observed that, the Hon&....
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....domain and form policies to address the same including to create a new liability, exempt an existing liability, create a deduction or subject an existing deduction to new regulatory measures. In the very nature of taxing statutes, legislature holds the power to frame laws to plug in specific leakages. The mere fact that the institution of tax by virtue of the impugned sub clause falls more heavily on petitioner cannot result in its invalidity. 43. In light of the above, in our view, the amendment to section2(24) by the insertion of sub-cause (xviii) of the Finance Act, 2015, is a perfect example of a legislative endeavour to align the definition of "income" with the evolving economic landscapes and judicial precedent of it being an inclusive and elastic term. The submissions of petitioner though appear to be of fiscal concern were, in our view, more an argument of diminished profits and a narrow interpretation of income which the Apex Court has time and again expanded. The submissions of petitioner fall short of appreciating the overarching legislative intent to foster a comprehensive and equitable taxation regime. The amendment to Section2(24) by insertion of the....
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....It provides that subject to the provisions of this Act, total income of a person who is resident would include all income from whatever sources derived which is received or deemed to be received in India or income which accrue or arise or deemed to accrue or arise in India. The heads of income has been carved out in Section 14 of the Act. The provisions of Sec.14 provide for heads of income under which such income would be assessable. These provisions provide that save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified in five distinct heads of income i.e., Salaries, Income from House Property, Profits and Gains of business or profession, capital gains or income from other sources. In other words, once an item has been found to be covered within the meaning of 'income', the same shall have necessarily to be classified in distinct heads of income and computations of tax would be made accordingly. Since the definition of income is an inclusive one, it is not necessary as well as not practical that each item of income is clearly and distinctly spelt out in charging provisions of distinct ....
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....f bringing corresponding amendment to Sec.28 since clause (i) was wide enough or in fact, was already governing the treatment of such subsidies. Therefore, the argument of Ld. AR that there should be corresponding amendment in the charging provisions before an item could be brought to tax is not acceptable. These arguments stand rejected. 14. Upon perusal of amendment, we find that the effect of amendment made in Sec.2(24) by Finance Act 2015 w.e.f. 01.04.2016 by way of insertion of Clause (xviii) would be that income would include any assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43. The effect of the amendment, in our considered opinion, was that various concessions etc. provided by specified authorities either in cash or in kind by whatever name called will ....
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....ng the year and therefore could not be brought to tax in this year, but in subsequent year i.e. year of receipt. Upon enquiry, the Ld. AR for the assessee was unable to confirm as to whether the impugned sum of Rs. 25 crores, going by their own stand, had been offered to tax in the year of receipt of not. We also note that this particular argument was also raised before this Tribunal in their own case in IT(TP)A No. 53/Chny/2022 (supra), and has been rejected. 5.7 Considering the above, amendment to section 2(24) of the Act and decision of this Tribunal (supra), we are of the view that both the IPS and CEV subsidies have been rightly brought to tax by the AO. Overall, therefore, Ground Nos. 3 & 4 of the appeal stands dismissed. 6. Ground No. 5 relates to disallowance of depreciation to the extent of Rs. 65,034/- in relation to the cash subsidy. The facts as noted are that, the assessee had received in FY 2002-03 of Rs. 1,00,00,000/- which was claimed to be capital receipt. The AO had held the same to be adjustable against the cost of assets in terms of Explanation (10) to Section 43(1) of the Act and consequently disallowed depreciation thereon. Consequentially, the depreciat....