AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (7) TMI 1782
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....hree years are as under :- 2700/Mum/ 2023 2697/Mum/ 2023 2696/Mum/ 2023 Sr. No. Assessee Grounds of appeal AY 2016-1 7 AY 2017-1 8 AY 2018-19 1 Violation of Judicial Discipline Ground. I Ground No. II Ground No. II 2 Order passed merely on conjecture and surmises Ground No. II Ground No. III Ground No. III 3 Breach of principles of natural justice - Ground No. I Ground No. I 4 Enhancement made by CIT (A) is bad in law Ground No. XIII Ground No. XVI Ground No. XIII 5 Reduction of claim made u/s. 35(2AB) of the Act Ground No. Ill Ground No. IV Ground No. IV 6 Disallowance being 25% of exp on distribution of gift articles Ground No. IV Ground No. V Ground No. V 7 Disallowance u/s 14A r.w.r 8D of the Act & also under book profits Ground No. V & VI Ground No. VI & VII Ground No. VI & VII 8 Disallowance of exp related to evaluation of business opportunities Ground No. VII Ground No. IX 9 Disallowance of Prior Period Exp Ground No. VIII Ground No. X 10 Disallowance of provision for doubtfu....
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....ts related to home decor bath fittings and providing of related services. For the A.Y. 2016-17, assessee has filed its return of income on 26/11/2016 declaring total income of Rs. 2130,56,12,790/- under the normal provisions and book profit of Rs. 2381,62,17,214/- u/s.115JB. Later on, the case was selected for scrutiny and finally, the assessee has been completed for income of Rs. 2312,15,42,600/- under the normal provisions of the Act and Rs. 2387,63,25,151/- u/s.115JB. 5. The ground Nos. I & II have not been pressed. Therefore, the same are dismissed as infructous. 6. In ground No.III, assessee has raised the issue of deduction claim made u/s. 35 (2AB) of the Act. The assessee company has claimed weighted deduction u/s. 35(2AB) showing that it has incurred expenditure of scientific research and development to the tune of Rs. 75.16 crores. Out of which, the assessee had claimed Rs. 129.94 crores as 200% weighted deduction. Before the ld. AO assessee produced certificate issued by DSIR in Form 3CL and reconciliation of the same. The ld. AO asked the assessee as to why like in the earlier years similar addition should not be made in this year. The assessee submitted that it ha....
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....) 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 Id. 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 Id. 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 Id. DR and since the Id. Counsel for the assessee has also not raised any objection in this regard we restore this issue to the file of the AO with a direction to decide the same afresh after verifying whether the expendi....
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....t is to be stated that in this case the AO has not made any reference to section 35(3) because he has accepted the quantum of expenditure incurred on scientific research approved by the DSIR, in the assessment order. In such a situation, no question arose for the AO to refer the question to the prescribed authority as he has allowed the quantum of expenditure approved by DSIR, in Form No. 3CL. It is to be further highlighted that the assessee has not made any application to DSIR either directly or through the AO submitting its objection to the quantum of scientific expenditure approved by DSIR in Form 3CL. Therefore, no question arose within the meaning of sec. 35(3)(b) before the AO. In this context, the following extract from the judgment of the Karnataka High Court in the above Writ Petition corroborates the stand taken by the Revenue. "27 .In other words, the assessing officer is precluded from examining the correctness or otherwise of the certificate issued by the prescribed authority on the ground that it is either being contrary to facts or contrary to the express provisions of the Act. It would not be out of context to state that when assessee files the re....
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....ed by the judgment of the High Court of Gujarat in Mastek Ltd.'s case (supra). "(Emphasis supplied) ii. Biological E Ltd. Vs. DCIT -ITA No. 1590/Hyd/2018 dated 22.7.2022 passed by ITAT, Hyderabad Bench 'B'. With respect to this judgment of ITAT Hyderabad, the assessee has submitted that the Tribunal has misinterpreted Rule 6(7A) as it existed prior to 1.7.2016. In this context it is to be stated that the Hon'ble Tribunal has harmoniously read and interpreted provisions of section 35(2AB) read with Rule 6, more particularly Rule 6(5A) and Rule 6(7A) as under: '16. Further the approval of the in-house R&D facility ends with issuance of Form 3CM under sub Rule 5A of Rule 6. If really the intention of the legislature, even prior to 01/07/2016, was to confine to the requirement of approval of the in-house facility, then there is no further need to refer to the approval of expenditure incurred on in-house R&D facility under section 35(2AB) of the Act by way of Rule 6 (7A) of the Rules. By virtue of Rule 6(7A) of the Rules the prescribed authority is put under an obligation to verify whether certain conditions are satisfied before approving t....
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....SIR comes to an end, does not come out of the provisions. At the cost of repetition, we would like to emphasis that the technical competency about the need to incur the expenditure or the corresponding benefit derivable by the company rested with the prescribed authority only, and that the reason why Rule 6 and more particularly sub Rule 7A thereof prescribes the authority for approval of expenditure incurred on the in house R&D facility and keeps the prescribed authority under an obligation to verify certain factors like the activities of the in- house R&D facility, maintenance of separate accounts, the approval of the expenditure that is eligible for weighted deduction under section 35(2AB) of the Act and to make it apart from the expenditure that is allowable under other provisions of the Act, it is necessary that such an expenditure must be incurred on scientific research on in- house R&D facility by the company engaged in the business of biotechnology, and the authority to determine such expenditure is provided by Rule 6(7A) of the Rules. 19. Even in respect of Form 3CL, even prior to the amendment thereof by the IT (10th amendment) Rules, 2016 w.e.f 0110712016, vide ....
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...., where the other provisions of the Act are applicable, the learned Assessing Officer's discretion steps in. 21. At this juncture, we deem it just and necessary to refer to the observations of the Co-ordinate Bench of this Tribunal in Electronics Corpn. of India (supra), which clinches the issue in our opinion. "17 .. As per the provisions of sec 35(2AB) of Act as applicable to the relevant Assessment year, the expenditure incurred by the assessee in any approved in-house research facility, to the extent of approved by the prescribed authority, is entitled to weighted deduction of 150% of such approved expenditure. Therefore, the expenditure as approved by the DSIR in the certificate given by them in Form 3CL alone is to be granted weighted deduction. The DSIR in their certificate has certified expenditure eligible for weighted deduction as Rs. 3,126.02 lakhs. Therefore, it is not for either the assessing authority or the appellate authority to decide on the expenditure which will be entitled to weighted deduction u/s.35('2AB). In fact, U/s. 35(2AB)(3) if any question arises u/s.35 as to whether and if so, what extent any activities constitutes or constitu....
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....re on scientific research on in-house R & D facility be approved by the prescribed authority both before and after the amendment to the Income Tax Rules. This will be evident from the three case laws, listed in Para 2 of this submission. 5. In view of the above discussion, Ld. DR prayed that ground No.3 of the assessee's appeal may be dismissed. 11. We have heard both the parties, perused the relevant provisions of the Act and the Rules and also the relevant finding given in the impugned orders. From the arguments made by both the parties, the main issue which has been raised is, whether the quantification of expenditure by the prescribed authority, DSIR alone should be allowed for deduction and if something has been disallowed or has not been qualified, then, can ld. AO have the power to tinker with such quantification? And vice versa, if DSIR has allowed such an expenditure ld. AO cannot examine the same and whatever has been quantified by the DSIR, that becomes final. 11.1 In order to appreciate the understanding of the said section 35(2AB) r.w.r. 6 as it stood in the relevant assessment year under consideration i.e. A.Y. 2016-17 reads as under :- Sec....
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...." "(5A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in sub-section (2AB) of section 35 of the Act are fulfilled, pass an order in writing in Form No. 3CM: Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application." "(7A) Approval of expenditure incurred on in-house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to the following conditions, namely :- (a) The facility should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature; (b) The prescribed, authority shall submit its report in relation to the approval of in-house Research and Development facility in Form No. 3CL to the Director General (Income Tax Exemptions) within sixty days of its granting approval; (c) The company shall maintain a separate account for each approved facility; which shall be audited annually and a copy thereof shall be furnished to the Secretary, Department of Scientific ....
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....ct and said facility was duly approved by DSIR in Form 3CL. Assessee has also complied with the requirement under the Act and applicable Rule like maintenance of separate accounts for its R & D unit and getting the same audited. The assessee's contention has been that all the expenditure incurred at its R & D unit pertains to scientific research and no expenditure has been incurred for the company or any diversion of expenditure to the corporate office or for the other company activities. This has been certified and substantiated in the audited financial statements of the assessee. 14. Form 3CL is a report which the DSIR requires to submit to the Income Tax authorities as mentioned in the Act within 60 days wherein assessee has no receipt to play in the same. The unamended Form 3CL does not require the DSIR to quantify scientific expenditure eligible for deduction u/s. 35(2AB). However, w.e.f. 01/07/2016, i.e., from A.Y. 2017-18, now rule provide that the prescribed authority shall furnish electronically its report quantifying the expenditure incurred and in-house research and development which is eligible for weighted deduction. The case of the ld. Counsel before us is that....
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....tled for deduction if it enters into agreement with the prescribed authority for co-operation and R & D facility and furnishes the report to the prescribed authority. This condition has been satisfied by the assessee in the present case. Rule 6 r.w. sub-Rule 7A which was applicable prior to 01/07/2016 the condition for approval of expenditure incurred on in-house R & D facility by a company was not there. There were twin conditions for approval of expenditure; one was that, prescribed authority shall submit its report in relation to the approval of the in- house research and development facility in Form No. 3CL to the Director General (Income Tax Exemption) within sixty days of granting approval. The second condition was that the facility should not be related to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature. Thus, any condition relating to such activity shall not be allowed. The other condition which has been prescribed for allowability that the company shall maintain a separate account for each of the facility which shall be added annually in copy thereof shall be furnished ....
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....t was being used for scientific research or not shall refer the question to the Central Government or to the prescribed authority, that is, question which can be referred is whether any activity other than activity relates to any activity of scientific research and development or not. It does not mention that if there is a dispute with regard to nature of expenditure, same shall also be referred under sub-section 3. Thus, Section 35(2AB) r.w.s.35(3) does not provide any mechanism or quantifying the expenditure of an approved unit and emphasis has been on the nature of activity whether it is related to scientific research and development or not. As noted above, the relevant Rule 6 (7A) prior to 01/06/2016, there was no such rule for quantifying the expenditure. However, now the rules provide that quantification of expenditure incurred on in-house R & D facility is to be done by the prescribed authority. This interalia means that even if assessee has booked certain revenue expenditure which is directly related to scientific research and development which has not been quantified and allowed by the DSIR, ld. AO does not have the power to examine the nature of such expenditure. In vice ....
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....nt or not or whether any details are called for from assessee company. There has to be some basis or procedure how certain expenditure are qualified for approval and what are the nature of expenses which do not fall in such category beyond what has been provided in Rule 6(7A)(a) of the Income Tax Rules. We understand that any such expenditure relating to activity provided in Sub-clause (a) of the Rule 6(7A) then such expenditure cannot be allowed. But if there are expenditure which does not fall in this category i.e., does not fall in Sub-clause (a), then what are the other parameters for which expenditure is qualified. Accordingly, we are of the opinion that even for A.Y. 2017-18 and 2018-19, this matter should be restored back to the file of the ld. AO and ld. AO may call for report from the DSIR and DSIR should given opportunity to the assessee to substantiate before it whether such an expenditure relates to scientific research and development or not? Otherwise it would be gross violation of natural justice where the quantifying of expenditure is opaque and there is no reasoning given as to why the expenditure other than which are excluded under the Rules are to be allowed or di....
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....nt between the facility and the prescribed authority. It was also held that once such an agreement has been executed, under which recognition has been given to the facility, then thereafter the role of the Assessing Officer is to look into and allow the expenditure incurred on in-house R&D facility as weighted deduction under section 35(2AB) of the Act. As noted above, in the present case, the prescribed authority has already passed an order granting the approval in Form No. 3CM. We find that in various other decisions relied upon by the learned AR, the coordinate benches of the Tribunal rendered similar findings that prior to the aforesaid amendment from 01/07/2016 once the facility is approved by DSIR, the assessee is entitled to weighted deduction under section 35(2AB) of the Act and there is no requirement that expenses also need to be approved by the DSIR in Form No. 3CL. Therefore, since the aforesaid amendment is not applicable to the assessment year under consideration, we are of the view that the AO erred in restricting the weighted deduction under section 35(2AB) of the Act to the expenditure mentioned in Form No. 3CL. 11. Further, as regards the decision of the ....
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....t. The Revenue restricting the assessee's claim to the extent approved by the prescribed authority in Form No. 3CL, while the assessee claiming weighted deduction on the entire amount of research and development expenditure debited to its P&L account 8. We have gone through the relevant provision of law and the relevant Rules & forms prescribed thereto for executing the provision of law in this regard, and we agree with the Ld. Counsel for the assessee that for the impugned years before us, Le A.Y. 14-15 & 15-16, the prescribed authority, DSIR,- was not required to certify in Form 3CL, the quantum of expenditure incurred by assesses on inhouse research and development eligible for weighted deduction/s35(2AB) of the Act. That therefore the certification by the DSIR of the quantum of expenditure on inhouse research and development in the present case in Form 3CL would not impinge on assesses claim of expenditure incurred as per Profit and Loss account. The detailed reasons are set out below. .................. 13. A conjoint reading of all the above reveals that as per the applicable provisions of law there was no requirement for the prescribed authorit....
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.... to claim weighted deduction on all expenditure incurred by it, on in-house research & development facility. Therefore, we agree with the contentions of the Id. counsel for the assessee, before us that in the impugned year involved before us, the Revenue has erred in restricting the claim of weighted deduction under section 35(2AB) of the Act to the extent approved by the prescribed authority ie. DSIR. 21. The aforesaid decision of the Tribunal is in line with our view taken above, however, we have remanded this matter back to the ld. AO with our observation. Now in so far as decision relied upon by the ld. DR also, it might be slightly distinguishable on facts, but the ratio and principle are same that once the DSIR has quantified the expenditure, the ld. AO cannot disallow such expenditure. In short, analyses of these judgments are as under :- DCIT v. Mastek Ltd [2013] 263 CTR 671 (Guj) - In this case the question for consideration was whether the activities carried out by the assessee constituted research activity in terms of section 43(4) of the Act and for permitting deduction u/s 35 The Hon'ble High Court referred to relevant sections and in light of section 3....
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....this issue back to the ld. AO after independently analyzing the provisions and the Rules and therefore, referring and relying upon these judgments are purely academic. 23. In ground No. IV relates to disallowance of 25% of expenditure incurred on account of distribution of gift articles. 24. The brief facts are that during the year under consideration, the assessee had incurred expenses of Rs 0.33 crore on account of gifts given to business associates on various occasions like Diwali, New Year, etc (Vendor wise break up given at page No. 428 of PB). The said expenditure was disallowed by the ld.AO on the ground that the assessee has not furnished name and address of the persons to whom such gifts have been distributed. The ld. CIT(A) upheld the disallowance by the ld.AO, however, he restricted disallowance to 25%. 24.1 Before us ld. Counsel submitted that this issue stands covered by the decision of the Tribunal in all the earlier years from A.Y. 2003-04, wherein this disallowance has been restricted to 10% by the Tribunal and the same has been followed consistently by the Tribunal as well as by the ld. CIT(A) and in A.Y. 2009-10 to 2015-16. Even ld. CIT(A) has restricted ....
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....e being made by the assessee. In fact, a perusal of impugned assessment order clearly reveals that though a detailed submission was filed by the assessee justifying the suo motu disallowance, however, the Assessing Officer without recording a proper satisfaction to the effect that the computation made by the assessee is incorrect having regard to the books of account maintained, has proceeded to compute the disallowance simply on the reasoning that disallowance under section 14A of the Act has to be made by applying the methodology of Rule 8D. In our view, the aforesaid reasoning of the Assessing Officer is contrary to the mandate of section 14A(2) of the Act, therefore. unsustainable. Further, while deciding similar disallowance made by the Assessing Officer without recording proper satisfaction, the Tribunal, in assessee's own case (supra) has deleted the disallowance. The aforesaid decision of the Tribunal was also upheld by the Hon'ble jurisdictional High Court (supra). In view of the above, we find no reason to uphold the disallowance made. Hence, we delete the same. This ground is allowed. " (Emphasis Supplied) 28. Similarly, for AYs 2010-11 to AY 2015-16,....
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....r 2014-15, the assessee has not furnished the copy of engagement letters/scope of work in respect of the exploration of various business opportunities by the consultants. However, since in the preceding year, the coordinate bench has examined each business evaluation separately, which appears to have also been undertaken during the year under consideration, we deem it appropriate to restore this issue to the file of the AO for de novo adjudication in light of the decision of the coordinate bench of the Tribunal in assessee's own case in the assessment year 2014-15 cited supra. The AO is directed to decide on the allowability of each expenditure after duly examining the engagement letter with the consultants and the scope of work, in light of the aforesaid decision of the coordinate bench cited supra. Before concluding, from the perusal of the aforesaid summary of expenditure, we note that the assessee has reversed the provision made in the preceding year Since in the preceding year: the other expenditure, which is in relation to the expenditures found to be capital in nature, has been directed to be disallowed, therefore we direct the AO that the provision disallowed in the pre....
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.... the Hon'ble Bombay High Court in the case of CIT vs. Nagri Mills Co. Ltd. reported in (1957) 33 ITR 681 and judgment of Hon'ble Supreme Court in the case of CIT vs. Excel Industries Ltd. reported in (2013) 358 ITR 295. Further, this issue has been restored back by the Tribunal in A.Y.2015-16 after observing as under :- "19. Undisputedly, the assessee is following the mercantile system of accounting. and therefore only such expenses which are crystallized during the year can be allowed as a deduction while computing the income. Since the issue pertains to the reconciliation of expenses vis-à-vis the year of crystallization, therefore in the interest of justice we deem it appropriate to restore this issue to the file of the AO for de novo adjudication. The assessee is directed to furnish all the details in support of its claim that the expenses claimed as prior period expenses were crystallized during the year under consideration. With the above directions, the impugned order on this issue is set aside and ground no.3 raised in assessee's appeal is allowed for statistical purposes." 37. Thus, consistent with the view of the earlier years, this issue is....
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....sdictional High Court in the case of CIT v. Tainwala Chemicals & Plastics India Ltd. [2013] 215 Taxman 153 wherein assessee-company made provision for doubtful debt given to its group concern and had debited same to profit and loss account and correspondingly reduced assets by reducing amount of unsecured loans, doubtful debt qualified for deduction under section 36(1)(vii) following Vijaya Bank (supra). This judgment was not considered in the earlier AY 2015-16 ITAT order. 41. Further, the Hon'ble Supreme Court in Vijaya Bank (supra) itself observed at Pg. 383 and Para 8 of LPB that 'it is not in dispute that section 36(1)(vii) of the Act applies both to the Banking and Non- Banking business'. Accordingly, it appears that the Tribunal in earlier year in assessee's own case inadvertently did not consider this observation. Further, decision of Tainwala (supra) rendered by Jurisdictional High Court was not cited and therefore not considered. 42. Further, decision of Vijaya Bank (supra) is in the context of section 11 5JB qua provision for doubtful debts also followed by Karnataka High Court in CIT v. Kirloskar Systems Ltd 220 Taxman I and Hon'ble Gujarat Hig....
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....High Courts have allowed the provision for doubtful debts while computing the book profit u/s. 115JB. Apart from that in sister concern, this Tribunal has decided this issue in favour of the assessee. 46. The ld. AO has added provision for doubtful debts to the book profit u/s. 115JB. However, under earlier provisions of u/s. 115JB any amount set aside for meeting liabilities, other than ascertained liabilities were to be added back. The Department used to add back provision of doubtful debt in said category. However, the Supreme Court in CIT v. HCL Comnet Systems & Services [2008] 174 Taxman 118 decided matter in favour of Assessee. Thereafter, the Act was amended and a provision for diminution in the value of the asset was categorically inserted vide Finance Act 2009 (i.e. under clause (i) However, even after such amendment, Jurisdictional HC in Tainwala Chemicals above observed that - 8. "Whether, on the facts and circumstances of the case, the Tribunal was justified in upholding the decision of the CIT (A), in deleting the addition on account of provision for doubtful debts to the book profit under Section I15JB of the Act without appreciating that the disallowance / additio....
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....ssee and its Dealers is Principal to Principal and not Principal to Agent, accordingly, section 194H of the Act does not apply and consequently no disallowance u/s. section 40(a)(ia) of the Act be made. This has been consistently followed by Tribunal in AY 201011 to AY 2015-16. 50. Before us, ld. Counsel submitted that this principle should be followed for deciding the ground No. XIV as the ld. CIT(A) has disallowed certain discounts / incentives paid to dealers only on the ground that in relation to the assessee and dealers is that of principal to agent which is contrary to the Tribunal. During the course of hearing we had asked ld. Counsel to explain the business model, the same has been submitted which is summarized in the following manner :- a. The Appellant is a listed company engaged in the business of manufacturing and sale of paints. b. As a business chain, it has various dealers (dealers 1 7iskl7x .. more than 50000) spread across the country. These dealers are normal hardware stores dealing in many other products other than paints. The Appellant sells its paints to various dealers, who in turn further sells to painters/ end customers; c. Ther....
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....types of various paints, markets and various types of products. Dealers also share their success stories. Dealers gets opportunity to interact t with top management and able to give the feedback which helps the company. Expense incurred for organising the trips have been claimed as revenue expenditure by the Appellant. There is no dispute that where Assessee is paying to the travel or tour operator, appropriate TDS has been deducted. Discounts: Trade discount & Cash discounts - In order to promote the sales, the Appellant provide discounts to dealers. Majority of the discounts are given in the bill itself either as trade discounts or as per the general trade practice as cash discounts for immediate payment of sale invoice. It needs to be noted that these trade discounts and cash discounts are given as reduction in purchase price in the invoice and GST as applicable, is levied on the net price. These are not commission. Target Incentives - The Appellant is operating several other schemes wherein various types of discounts/incentives which are given by way of credit notes since invoices are already issued earlier. 51. Before us ld. Counsel drew our attention to the following pr....
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.... the same and would be dealing with them in his own right as a principal and not as an agent of the Dairy ... The concessionaire purchases the milk from the Dairy. The Dairy raises a bill on the concessionaire and the amount is paid. That question must be decided, on the basis of the fact as to when and at what point of time the property in the goods passed to the concessionaire. In the instant cases, the concessionaire became the owner of the milk and the products on taking delivery of the same from the Dairy. He, thus, purchased the milk and the products from the Dairy and sold them at the MRP .... The Dairy may have fixed the MRP and the price at which they sell the products to the concessionaire but the products are sold and ownership vests and is transferred to the concessionaires. This by itself does not show and establish principal and agent relationship." 54. Similar view has been taken in the decision of CIT v. Jai Drinks [2011] 336 ITR 383 (Del.) wherein it was held that "From the agreement, it was evident that the distributor was to purchase products at pre-determined price from the assessee for selling the same within specified area .... That being the arrangement be....
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....designated shop area constructed, designed and decorated in accordance with and in the manner suggested by Asian Paints and its consultants / contractors ... The dealer shall use the decor elements as per the training manual provided to the dealer by Asian Paints .. .... The dealer shall provide an unrestricted and unlimited excess to any of the Asian Paints employees, agents and representatives and the records thereto to all reasonable times .. .... The dealer shall not charge excess of the MRP declared by Asian paints upon its products for the facilities provided to the customers in the Designated Shop area. The dealer shall make known the products and services of Asian paints in every way reasonable practicable to the general public ....... The dealer shall all the times maintain appropriate quantity of stocks of the Asian paints products in such quantities as may be advised by Asian Paints from time to time to ensure the availability of the products ..... The dealer shall defend, indemnity and hold Asian Paints harmless from and against any and all loss, claims, demands, suits, proceedings, damages, costs, expenses, liabilities (incl....
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....o strict Principal to Principal relationship, rather its Principal to Agent. ii. There is no basic difference between the dealers and the dealers with colour idea stores and that the terms and conditions were the same for both of them when it came to offering them discounts, incentives etc; iii. As per the colour idea agreement - The dealers are required to construct, design and decorate the shop as suggested by the Appellant, maintenance of stock levels, keep designated shop area and it cannot be used for any other purpose, business promotions, unlimited/unrestricted access for assessee company's employees at dealer's premises, dictating price and cannot charge over particular price, dealers to corporate in getting its records and accounts inspected; iv. The Appellant has control or is dictating various terms of business to their dealers like MRP of the products, MRP in case dealer is doing additional activities like in tinted shades, undertaking to compensate for any adverse changes in any taxation, custom duty or any other cost even after sale of goods along with other conditions of agreement; v. The Appellant provides dealers with Dealer Price List and asks ....
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....ns package commodity rules [erstwhile Legal Metrology (packaged commodities) rules], wherein we are required to state that the MRP mentioned of the base paint is only of base material. The final MRP of the tinted shade shall be post inclusion of colourant cost and in no point, dealers shall charge price higher than the MRP of the respective tinted shade. Therefore, the dealer can charge the cost of colorant over and above the MRP of the base paint and they are at the liberty to fix the price of the final colour shade subject to the Tinted Shades MRP list separately provided to the dealers i.e. the same cannot exceed the MRP fixed for that particular c. Change in price - the Appellant, being the manufacturer of the product, has complete right over the pricing of the product and thus is well within its rights to change the product price in line with the current market and other factors. Further, a seller is not under any obligation to give prior intimation to its buyers with respect to change in the product's price. d. Compensate leakage/ breakage that occur in transit - As per the terms and conditions mentioned in the DPL, the price at which dealers are supplie....
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....9;s goods as well any other products of other company. Apart from that dealers do not have any right to create obligations or incur any liability on behalf of the assessee and none of the goods of the dealer are binding on the assessee company. The dealers carry all the business risk (viz., Inventory risk, risk of non- recoverability of monies from its debtors and other risks). Thus, there is no principal to agent relationship between assessee and dealer. This fact has also been approved by the Tribunal in assessee's own case for A.Y. 2009-10. When the Tribunal held that the relationship between assessee and its dealer is principal to principal and not principal to agent. 60. In so far as other schemes, assessee company to promote the sales, it launches various schemes wherein it sponsors various trips to dealers in India and abroad and on achieving of certain targets give discounts in the form of credit notes, gifts etc., In so far as trip scheme is concerned, the eligibility is decided on the basis of achievement of targets for purchase of goods from the Company for a given scheme launched by the Company. These schemes are circulated in advance to the dealers and once deal....
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....overed by the decision of the Hon'ble Delhi High Court in the case of CIT vs. Mother Diary India Ltd [2013] 358 lTR218 as noted above. 62. Further the Tribunal in assessee's own case right from A.Y.2009-10 to 2015-16 have categorically been holding that relationship between the assessee and the dealers are principal to principal and all the three expenditures namely trip expenses, colour idea store expenses and post invoice incentives / discounts cannot be treated as in the nature of commission allowable for deduction of TDS u/s. 194H. Before us, ld. Counsel had already given detailed write-up on the dealer price list. And has also given a detailed write up as to how the entire transaction including the terms and conditions and the other factors lead to inference that there was no such kind of agency relationship between the assessee and the dealers albeit, it was principal to principal transaction, which we fully agree. 63. In so far as the issue relating to colour idea store expenditure and the agreement between the assessee company and the dealers wherein dealers have to carve out a designated Shop Area and further maintain minimum stock levels. As stated and broug....
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....ook to their stores so as to drive the retailing concept. It also helps in increasing customer footfall and walk in thereby ultimately generating business for both the assessee as well as the dealers. Under the agreement, both the assessee and the dealer agree to share costs incurred for setting up of the designated area. The cost incurred broadly comprises of civil work, furniture and fittings, electrical fittings, signboards, designs, creative works, advertisement materials. etc. Further even though the assessee incurs expenditure on setting up of the stores, the stores always belong to the dealers. On termination of the agreement, the dealer is not under an obligation to return to the assessee any part of the erection/assembled items, furniture, fittings, etc except books, brochures, literatures and other intellectual property which contains business and product information of the assessee. This arrangement is joint sales promotion activity by the assessee and the dealer, wherein both the parties could benefit from the brand promotion and resultant increase in sale of goods. In fact, generally, the paints are at a dealer which also keeps other hardware stores and ultimate custom....
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....f security deposit, double payment to supplier, small outstanding balance from customers, rounding of difference etc are allowable expenditure. 67. Here it is a case of writing certain old and sundry balances lying in the books of accounts and debited to the profit and loss account which had incurred during the course of normal business expenses like CENVAT on transit, security deposits, old balances/open advances in vendor account and Service Tax paid on traded goods etc., which are otherwise allowable expenditure. Once the nature of expenses and transactions has not been doubted, then it cannot be disallowed and these advances written off cannot be treated at par with bad debts. Accordingly, the order of the ld. CIT(A) is confirmed. 68. Now, the appeal for 2017-18. 69. Ground No.IV relates to disallowance of claim made u/s.35(2AB) of the Act. This issue we have already discussed in detail while dealing with the appeal for the A.Y. 2016-17 and also the amendment brought in Rules w.e.f. A.Y.2017-18. Since we have set aside this issue to the file of the ld. AO with certain directions, accordingly, this ground is treated as allowed for statistical purposes. 70. Ground No.....
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....reated as short term capital gain. The provision to Section 70 makes exactly clear for deeming fiction restricted only to the mode of computation of capital gains contained u/s.48 and 49 of the Act and cannot be extended beyond that. Further, as per section 74(1)(b) any loss related to long term capital asset, it shall be setoff against income under the head of 'Capital Gains' assessable for that assessment year in respect of any other capital asset not being short term capital asset (i.e. long term capital asset), accordingly, the assessee has set-off capital gain from long term capital asset (i.e. Flat) against brought forward long term capital loss. 75. It is as settled position in law that deeming fiction needs to be strictly constructed and cannot be extended to any other provision of law. Section 50 does not change the character of capital gain from being long term capital gain to short term capital gain for the purpose other than section 50 of the Act. 76. This issue is now covered by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Manali Investment (2013) 219 Taxman 113 and the Hon'ble High Court observed as under :- "2. T....
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....n'ble Jurisdictional High Court in the case of Commissioner of Income-tax v. Parrys (Eastern) (P.) Ltd [2016] 384 ITR 264 held as under :- "6. We find that the issue stands concluded by the decision of this Court in ACE Builders (P) Ltd. 's case (supra) in favour of the Respondent-Assessee. Moreover, the impugned order relies upon the order of the Tribunal in Komac Investments & Finance (P) Ltd. 's case (supra) to dismiss the Revenue's appeal before it. The deeming fiction under Section 50 is restricted only to the mode of computation of capital gains contained in Sections 48 and 49 of the Act. It does not change the character of the capital gain from that of being a long term capital gain into a short term capital gain for purpose other than Section 50 of the Act. Thus, the respondent assessee was entitled to claim set off as the amount of Rs. 7.12 Crores arising out of sale of depreciable assets which are admittedly on sale of assets held for a period to which long term capital gain apply. Thus for purposes of Section 74 of the Act, the deemed short term capital gain continues to be long term capital gain. Moreover, it appears that the Revenue has accepte....
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....h foreign income and grant FTC as per section 90/91 of the Act. 85. The ld. AO disallowed the entire FTC claim by observing that the assessee did not provide any detail of expense in relation such foreign income, no separate books are maintained to such expense and there is no proper computation of FTC. Ld. CIT (A) restricted the FTC claim to 50%. 86. Thus, the contention of the assessee is that entire FTC claim by the assessee is to be allowed. Further, assessee submitted that certain incomes which are already considered for tax for A.Y.2018-19, however, tax was deducted by foreign tax credit. Subsequently, on making actual payment, accordingly, the assessee receives FTC certificates post filing of ROI, or post the due date of Revised ROl etc. Therefore, the assessee's only recourse is to file an additional claim for FTC before the AO. The assessee has also submitted the break-up of additional FTC claim at page 505 of PB. In 2017-18 ld. CIT(A) has allowed the claim in A.Y.2018-19 and upheld the action of the ld. AO that any additional claims of deduction which are neither claim in the original return of income nor by way of revised return cannot be granted by the AO. As ....
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....scounts is target based for increase of sales given to the dealers. This issue is decided in favour of the assessee as we have held that these are purely business expenditure and allowable u/s. 37(1). 96. In so far as issue relating to Non-Acceptance of additional claim of applicability of beneficial rate as per DTAA to the DOT, in all the years this ground has not been pressed, therefore, same is dismissed as not pressed. 97. In so far as issue relating to disallowance of Colour Idea Stores expenses, since this is an alternative ground and ld. AO allowed it as revenue expenditure, this issue is infructous. 98. In so far as issue of Non-Acceptance of additional claim of Foreign Tax Credit (FTC) and disallowance of foreign tax credit, we have already set aside this issue to the file of the ld.AO. 99. Lastly, coming to the issue of disallowance of deduction u/s. 80G which has been raised by Ground No.4 of the Revenue. 100. The brief facts are that during the year under consideration, the assessee incurred a CSR expenditure of Rs. 46,51 crores and the same has been offered to tax as per section 37 of the Act. Out of which Rs.9.44 crores are eligible (i.e. 50% of amount)....
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....nvoking the benefit under Chapter VIA by claiming deduction of the sums under section 806 of the Act. According to the revenue, when once such sum went to satisfy the requirement of section 135 of the Companies Act, the benefit gets exhausted and such an amount is no more available for the purpose of claiming deduction under section 80G of the Act. There is no express provision to support the contention of Revenue. On the other hand, section 80G (2) (iiihk) and (iiihl) of the Act expressly provide that such sums donated for Swatch Bharath Kosh and Clean Ganga Fund shall be the amounts other than the sums spent by the assessee in pursuance of CSR, .. .... Out of so many entries under section 80G(2) of the Act, only donations in respect of two entries are restricted if such payments were towards the discharge of the CSR. The Legislature could have put a similar embargo in respect of the other entries also, but such a restriction is conspicuously absent for other entries. The irresistible conclusion that would flow from it is that it is not the legislative intention to bar the payments covered by section 80(5(2) of the Act which were made pursuant to the CSR, and other than covered by....