TaxTMI 
TaxTMI 
2026 (7) TMI 1479
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....ax Circle 6(3)(2), Mumbai date of order 21.12.2016. 2. All the appeals pertain to the same assessee and have the common issues. For convenience all the appeals are taken together and disposed of by a consolidated order. ITA No. 4053 and 4054/Mum/2025 is related to assessee's appeal and ITA No.4322 and 4323/Mum/2025 are related to appeal filed by the revenue. ITA No.4053 and ITA No.4322/Mum/2025 for AY 2012-13 are taken as lead case and the decision rendered therein shall be applicable to other appeals mutatis mutandis. ITA No. 4053/Mum/2025; A.Y. 2012-13 (Assessee's Appeal) 3. The brief facts of the case are that the assessee company is engaged in business of manufacturing of paints and varnishes. As per the Tax Audit Report, there has been no change in the business of company during the year. The assessee filed the return by declaring total income of Rs. 2,63,71,76,820/-. The return was possessed u/s. 143(1). The return was selected under CASS scrutiny. The Ld. AO had preferred the case to TPO u/s. 92CA(1) to determine the Arms Length Price ( in short 'ALP'). The Ld. TPO passed the order u/s. 92CA(3) of the Act and confirmed the addition under different heads. Finally, th....
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....e average contribution margin earned by the assessee on domestic sales made to non-associated enterprises represents a reliable Profit Level Indicator (PLI) for benchmarking the export of the same products to its AE. It was argued that the assessee had correctly determined the ALP by comparing the contribution margin earned from sales to non-AEs with that earned from exports to the AE. The Ld. AR further contended that an identical issue had been considered by the Coordinate Bench of the ITAT, Mumbai in the assessee's own case in ITA No. 3384/Mum/2014 and connected matters, vide order dated 04.12.2023. The relevant observations of the Coordinate Bench are reproduced below: "63. We heard the parties and perused the material on record. The assessee has exported the water based paints to its AE in Philippines and benchmarked the same by applying TNMM method. Average contribution margin is used as the PLI. The TPO rejected the bench marking and applied CUP to make an additional TP adjustment. The TPO has used the same comparables used by the assessee and compared the average rate per unit of domestic sales with the rate per unit charged to AE and accordingly arrived the additi....
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....oduct in a non-AE transaction. Applying the ratio laid down by the coordinate in the above decision in our considered view the TPO is not correct in applying CUP which requires strict comparability and given that the geographical location would have an impact on the pricing the bench marking done by the TPO is not tenable. Accordingly we see no infirmity in the decision of CIT(A) and uphold the decision of the CIT(A). This ground of the revenue is dismissed." 7. The Ld. DR relied upon and supported the orders of the revenue authorities. However, he was unable to rebut the submissions advanced on behalf of the assessee or bring on record any distinguishing facts or contrary material warranting a different view. 8. We heard the rival submissions and perused the material available on record. The assessee exported water-based paints to its AE in the Philippines and benchmarked the international transaction by adopting the Transactional Net Margin Method (TNMM) as the MAM, using contribution margin as the PLI. The Ld. TPO, however, rejected the methodology adopted by the assessee and applied the CUP Method by comparing the average domestic sale price of similar products sold to no....
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.... directed to be deleted. Accordingly, Ground Nos. 1(a) and 1(b) raised by the assessee are allowed. Ground 1 (c) and (d): 9. The Ld. AR contended that the assessee had made exports of three consignments of goods totaling of Rs. 1,02,54,000/- to AE Philippines. There has been a delay of 11, 19, 21 and 22 days in receiving the export proceeds from AE. The Ld. TPO calculated notional interest Rs. 56,377/- on account of said delay. The Ld. TPO has applied the CUP Method and proceeded to determine ALP by bench marking on basis of Prime Lending Rate or Base Rate declared by SBI on 30th of June. Accordingly, the interest on delay in receipt of export proceeds which has lead to disallowance Rs. 56,377/-. The Ld. AR contended that the identical issue was duly considered by The Coordinate Bench of ITAT, Mumbai in assessee's own case ITA No. 3384/Mum/2014 and connected matters, date of pronouncement 04.12.2023. The relevant observations of the bench are reproduced as below: "26. The Id AR submitted that the assessee does not have any borrowings and that no interest on delayed payments is charged for the non-AE transactions. Given this it was submitted that there should not b....
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....s points after granting the appropriate credit period in accordance with the directions of the Coordinate Bench. Accordingly, Ground Nos. 1(c) and 1(d) raised by the assessee are partly allowed. Ground 2: Disallowance of commission of Rs. 12,63,000/- considering Section 40(a)(ia) of the Act. 12. The Ld. AR contended that during the impugned assessment year, the assessee had made a provision of Rs. 183.60 lakh and Rs. 47.73 lakh towards commission payable to the Managing Director (MD) and Whole-Time Director (WTD), respectively, both of whom were employees of the assessee-company. The said commission was actually paid in April 2012 after deducting tax at source under Section 192 of the Act, and the corresponding TDS was deposited into the Government treasury on 07.05.2012. The Ld. AR submitted that the Ld. AO disallowed the entire provision of Rs. 231.33 lakh (Rs.183.60 lakh + Rs. 47.73 lakh) under Section 40(a)(ia) of the Act on the ground that tax had neither been deducted nor deposited during the relevant financial year. However, the Ld. AO simultaneously allowed a deduction of Rs. 218.70 lakh representing a similar disallowance made in the immediately preceding assessme....
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....1.4.1 are reproduced as below: "11.4 Decision: I have considered the fact of the case and the observations of the AO. It is important to analyze the stands of the AO vis a vis submissions of the appellant and the same is discussed herein below: The question involved here is paid to the directors will be considered under the ambit of Section 40. Upon plain reading of the provisions of section 40 it can be noted that the section already covers the aspect of commission or brokerage. 11.4.1 This clears the position that, any payment in the nature of commission or brokerage is covered under the provisions of the section. Further, on perusal of the provisions of section 40(a)(ia) read with Explanation to section 194H, the position is clear that the section 40(a)(ia) applies to the commission paid to a person who is acting on behalf of others. Any amount payable by the way of commission or brokerage to any director is over and above the remuneration paid by the company. Such payments are made in order to compensate the director with the services rendered by them. Thus, the position is clear that the payments are made to the director for the additional services p....
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....ination in matter of allowing additional depreciation on plant and machinery used for less than 180 days and used for 180 days or more, it is proposed to provide that the balance 50% of additional depreciation on new plant and machinery acquired the use for less than 180 days which has not been allowed in year of acquisition and installing to such plant and machinery shall be allowed in immediate succeeding previous year. So, the Ld. AR like to pray that the plant and machinery put to use for less than 180 days in A.Y. 2011-12 the balance deduction of additional depreciation at the rate of 10% shall be allowed in A.Y. 2012-13. 16. On strengthening her argument, the Ld. AR respectfully relied on the order of Hon'ble High Court of Karnataka in case of CIT Vs. Rittal India Pvt. Ltd. reported at (2016) 66 taxmann.com 4 (Kar) held that if plant and machinery eligible for additional depreciation u/s. 32(1)(iia) is put to use for less than 180 days in said financial year and, therefore, only 50% of additional deprivation can be claimed in that year, balance 50% be availed in subsequent years. 17. The Ld. DR argued and stands in favour of the orders of the revenue authorities. The Ld....
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....f Article 10 of the double taxation avoidance agreement (DTAA) between India and Japan. in case of dividend paid to Kansai Paint Co. Ltd, Japan and the DTAAs with the respective countries in case of other non-resident shareholders instead of 16.225% charged in terms of section 115-0 of the Act. 2. Treaty rate to be applied for dividend distributed instead of rate prescribed in sec. 115-0. 3. The ground raises a purely legal issue and deserves to be admitted in the light of the Apex Court judgment in the case of NTPC 229 ITR 383. 4. On merits, the issue has been concluded against the appellant by the Special Bench decision in the case of Total Oil (P) Ltd., 104 ITR (T) 1. 5. During the previous year relevant to the assessment year, the company declared and paid dividend to its shareholders; which includes Kansai Paint Co. Ltd, Japan and other the non-resident shareholders. The company has filed its return of income showing payment of dividend distribution tax at the rate of 16.225% on dividend declared and paid during the previous year. However, Article 10 of the double taxation avoidance agreement (DTAA) between India and Japan states that tax on....
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....l available on record. The controversy before us relates to whether the rate of Dividend Distribution Tax is required to be restricted to the rate prescribed under the applicable DTAA or whether the provisions of section 115-O of the Act would exclusively govern the levy. We note that the Special Bench of the ITAT, Mumbai in the case of Total Oil India Pvt. Ltd. (supra) decided the issue against the assessee. However, the Hon'ble Bombay High Court in Colorcon Asia Pvt. Ltd. (supra) took a contrary view and held that the assessee is entitled to the benefit of the rate prescribed under the DTAA. Subsequently, another Coordinate Bench of the Hon'ble Bombay High Court in Foseco India Ltd. Company (supra) expressed a divergent view and referred the issue for consideration by a Larger Bench. It is an admitted position that both the competing views are presently under consideration before the Hon'ble Supreme Court. In view of the pendency of the matter before the Hon'ble Apex Court and in the interest of justice, we deem it appropriate to restore this issue to the file of the Ld. AO with a direction to decide the same afresh in accordance with the final outcome of the proceedings before t....
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...., cess, or fee paid or incurred to be included in the valuation of goods and inventory. 3. Judgments Erroneously Relied Upon by the CIT(A): The CIT(A) deleted the additions by placing sole reliance on the Bombay High Court decision in Diamond Dye Chem Ltd., which in turn was anchored entirely upon the Supreme Court's ruling in Indo Nippon Chemicals Co. Ltd. The Revenue submits that these rulings are inapplicable to the present Assessment Years: CIT v. Indo Nippon Chemicals Co. Ltd. 261 ITR 275 (SC)/130 Taxman 179 (SC) Relevant Paragraphs: In Paragraph 4 (Page 179 of Taxman), the Supreme Court held: "We are unable to accept the view of the Assessing Officer that merely because Modvat credit is an irreversible credit available to the manufacturers upon purchase of duty-paid raw material, it would amount to income which is liable to be taxed under the Act. in Paragraph 5. the Court ruled that applying a 'gross method' at purchase and a 'net method' at valuation was wholly erroneous'. Revenue's Submission: As explicitly noted in the Revenue's grounds of appeal, the Indo Nippon judgment pertained strictly to AY 1989-90. Because it w....
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....cape tax entirely, artificially suppressing business profits, rendering the orders bad-in-law. If the Hon'ble Tribunal observes that an adjustment to closing stock requires an equitable cascading entry, the Revenue prays that the matter should not be deleted in toto. Instead, relying on the mechanism validated in Mahalaxmi Glass Works, the matter should be remanded to the Assessing Officer to ensure a synchronised, comprehensive Section 145A adjustment across all inventory parameters (opening stock, purchases, sales, and closing stock)." 24. The Ld. AR contended that the identical issue was duly considered by The Coordinate Bench of ITAT, Mumbai in assessee's own case. ITA No. 3384/Mum/2014 and others, date of pronouncement 04.12.2023. The relevant observations of the bench in paragraph nos. 18 and 19 are reproduced as below: "18. We heard the parties and perused the material on record. We notice that the coordinate while considering the similar issue for AY 2007-08, discussed the amended provisions of section 145A (which is relevant for the year under consideration) and held that - It is to be noted that Section 145A of the 1961 Act was inserted by Finance....
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....itigating the hardship, it is proposed to amend section 145A to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it is received irrespective of the method of accounting followed by the assessee. Further, it is proposed to insert clause (viii) in sub-section (2) of section 36 to provide that income by way of interest received on compensation or on enhanced compensation referred to in sub-section (2) of section 145A shall be assessed as "income from other sources" in the year in which it is received. This amendment will take effect from 1st April, 2010 and shall accordingly apply in relation to assessment year 1998-99 and subsequent assessment years." Thus, the amendment to Section 145A of the 1961 Act by Finance Act, 2009 w.e.f. 01.04.2010 so far as valuation of inventories was similarly worded as the provision existed vide Finance Act, 1998 wef 01.04.1999. The assessee has heavily relied upon the decision of Hon'ble Bombay High Court in the case of CIT v. Diamond Dye Chem Limited (supra), wherein Hon'ble Bombay High Court held that the tax impact will be n....
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....r, the learned counsel for the department has brought to our attention section 1454 of the Act. He has also invited our attention to the Subsequent Guidance Note issued by the Institute of Chartered Accountants of India on Tax Audit under section 44AB of the Act. It was contended that even the ICAI has subsequently declared that the net/exclusive method adopted by various assessees should be applied with adjustments on account of any tax, duty, cess or fee actually paid or incurred on inputs which should be added to the cost of the inputs if not so added in the books of account. He contended that in the Subsequent Guidance Note, the ICAI once again discussed the above two methods and, in the circumstances, it was urged that the net method followed by the assessee was wrong because the assessee has followed the net method without making any adjustments as required under section 145A. In this connection, we may point of that section 145A was introduced by the Finance (No. 2) Bill 1998. Originally, the Bill contemplated the proposed amendment to apply from 1-4-1986 in relation to the assessment year 1986-87 and subsequent years. However, later on, when the said Bill was enacted into l....
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....le of paints in India and operates in both the decorative and industrial paint segments. It was contended that while the decorative paint market in India is predominantly controlled by Asian Paints Ltd., which commands nearly 60% of the organized market, KNPL enjoys a dominant position in the industrial coatings segment and is the market leader in automotive coatings with approximately 56% market share. The Ld. AR further submitted that Kansai Paint Nepal Pvt. Ltd. ("KPN"), a company incorporated in Nepal, is engaged in the manufacture and sale of decorative paints in Nepal and that KNPL holds 68% of the paid-up equity share capital of KPN. The Ld. AR explained that the industrial coatings business is highly technology-driven and service-intensive in nature. In order to compete effectively in such a specialized segment, manufacturers are generally required to enter into technical collaborations or joint venture arrangements with globally recognized paint technology providers. In this regard, KNPL has entered into a Technical License Agreement with Kansai Paint Co. Ltd., Japan ("KPJ"), under which KNPL is granted the right to manufacture cationic electro-deposition coatings and syst....
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....l transaction has been undertaken on an arm's length basis and does not warrant any transfer pricing adjustment. 27. The Ld. AR respectfully relied on the order of The Coordinate Bench of ITAT, Mumbai in case of Unilever India Exports Ltd. Vs. ACIT reported in (2025) 174 taxmann.com 934, (Mumbai-Trib). The relevant paragraph no. 7 is reproduced as below: "7. We have heard the rival submissions and perused the material available on record. The grievance of the assessee pertains to the action of the Transfer Pricing Officer (TPO) in proposing an ad-hoc transfer pricing adjustment of Rs. 6,97,76,862/- on account of royalty payments for central services. The assessee has appropriately benchmarked the intra-group service payments by adopting the CUP method, which is one of the prescribed methodologies under the Income-tax Rules, and has furnished documentation substantiating the rendition of services for both assessment years under consideration. The TPO, although claiming to have applied the "Other Method," has not brought on record any comparable transaction to substantiate the determination of the arm's length price. Instead, the TPO has resorted to an ad-hoc benchmar....
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.... pay royalty @ 1% on net selling price of licensed products sold by KPN in Nepal. The Appellant did not benchmark this transaction and did not submit any contemporaneous documentation as required by Section 92D of the Act read with Rule 100 of the Rules. Therefore, the TPO had benchmarked the same applying the CUP method. Further, during the course of appellate proceedings the Appellant submitted the report for royalty benchmarking and concluded that royalty rate is between 1% 2.5%. The report was conducted in the Year 2017 and it is in relation the paints/decorative paints/industrial manufacture and sale of industrial chemicals/coatings and other such similar products within the territory of Sri Lanka as against royalty charged is for Decorative licensed products and from Nepal. As the benchmarking study submitted by the appellant is not contemporaneous in nature and for difference product and region the same has been rejected. This ground of appeal is disallowed." 29. We heard the rival submissions and perused the material available on record. The dispute relates to the transfer pricing adjustment of Rs. 11,22,762/- in respect of royalty received by the asses....
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....'s length royalty rate. Merely rejecting the assessee's benchmarking study does not empower the TPO to substitute the arm's length price on an ad hoc basis. In our considered view, the transfer pricing adjustment made by the TPO and sustained by the Ld. CIT(A) is not supported by any legally sustainable benchmarking exercise. Accordingly, respectfully following the ratio laid down by the Coordinate Bench in the case of Unilever India Exports Ltd. (supra), we hold that the transfer pricing adjustment of Rs. 11,22,762/- on account of royalty received from the AE is unsustainable. The same is directed to be deleted. Accordingly, the Ground No. 1 (c) and (d) of the assessee's appeal stands allowed. Ground No. 3: Disallowance u/s. 14A amount to Rs. 37,18,703/-. 30. The Ld. AR contended that the assessee to avoid dispute and penalty calculated disallowance u/s. 14A Rule 8D amount to Rs. 37,18,703/- in return of income. However, the assessee's claim made during the assessment process for calculation of disallowance based on method approved by the Coordinate Bench of ITAT, Mumbai in assessee's own case for A.Y. 1999-2000 and not considered by the Ld. AO. Further relation to calcul....
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.... the dividend. So, we restore the ground to the file of the Ld. AO to compute the expenses related to earning exempted income u/s. 14A r.w.r 8D(2)(ii) & (iii). The Ld. AO must consider the judicial rulings i.e. in the case of South Indian Bank Ltd. vs CIT (438 ITR 1, SC), the Hon'able Supreme Court held that if an assessee can demonstrate that investments yielding exempt income were made out of their own funds and not from borrowed funds, no disallowance under Section 14A of the Act is warranted. Further, in the case of Punjab National Bank (449 ITR 468, Del), the Hon'ble Delhi High Court ruled that Section 14A cannot be invoked in the absence of exempt income earned during the relevant financial year. No disallowance can be made merely because investments capable of generating exempt income exist. Section 14A of the Act, read with Rule 8D of the Rules, is applicable where the assessee is unable to determine or allocate the correct expenses incurred to earn exempt income. As per the ratio laid down by above cited case laws, the disallowance u/s. 14A is required to be made, when the assessee has earned any exempt income. In the instant case, it is submitted that the interest f....