TMI Blog2021 (2) TMI 1250X X X X Extracts X X X X X X X X Extracts X X X X ..... o corporate guarantee issued by the assessee on behalf of Dabur Nepal Pvt. Ltd. Corporate guarantee issued on behalf of Dabur Egypt Ltd. - We find merit in the argument of the ld. Counsel for the assessee that the benefit of an explicit guarantee accrue to both the guarantor and the borrower, therefore, the interest benefit should be split between the parties to the transaction, i.e., the borrower and the guarantor and as per rule of thumb such benefit should be in 50:50 basis. Although the ld.CIT(A) has attributed 50% of such savings as the service fee on account of guarantee, however, he had taken the savings on interest due to such guarantee provided by the assessee at 1%. Under these circumstances, we find merit in the argument of the ld. Counsel that charging of service fee at an ad hoc rate of 0.5% should be reversed and may be restricted to 0.30% in respect of corporate guarantee issued to Dabur Egypt Ltd., as against 0.5% held by the CIT(A). Thus, the ground raised by the Revenue on this issue is dismissed and the ground raised by the assessee is partly allowed. Royalty adjustment - HELD THAT:- Since the facts of the present appeal are identical to the facts decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion - HELD THAT:- We do not find any infirmity in the order of the CIT(A) reversing the action of the AO in allocating the head office expenses and depreciation to various eligible units for the purpose of recomputing the deducting u/s 80IB/80IC. The factual finding of the ld.CIT(A) that the assessee has added back the depreciation as per Companies Act, 1956 and claimed depreciation as per the Income-tax and, therefore, the AO was wrong in allocating the difference of depreciation available under the Companies Act and the Income-tax Act to the eligible units could not be controverted by the ld. DR. Similarly, the ld. DR also could not controvert the factual finding given by the CIT(A) that expenses aggregating to ₹ 1,563.02 lakhs being head office expenses were suo motu disallowed by the assessee and added back in the computation of income and once these expenses were claimed by the assessee, the same cannot be allocated to the eligible units for computation of deduction u/s 80IB/80IC and, therefore, cannot be allocated to the eligible units. As during the financial year under consideration, depreciation was debited to the P L Account. A perusal of the computation of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed Disallowance u/s 14A r.w. Rule 8D - HELD THAT:- Since the assessment year involved in the impugned appeal is 2007-08, therefore, provisions of Rule 8D cannot be applied for the impugned assessment year as held in various decisions. Further, it has been held in various decisions that provisions of section 14A are applicable only if the assessing officer at the first place finds that the assessee has actually incurred expenses which have proximate nexus with earning of dividend income and not otherwise. However, in the instant case, there is no such recording of satisfaction, therefore, we find some force in the argument of the ld. Counsel that in absence of recording of any satisfaction, provisions of section 14A cannot be applied mechanically. Further, the interest expenditure, if any, relatable to dividend yielding investment has to be considered as held in various decisions. It is also held in various decisions that only investments yielding dividend income has to be considered for the purpose of making disallowance u/s 14A. Under these circumstances, we are of the considered opinion that the AO was not justified in applying the provisions of section 14A r.w. Rule 8D and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds raised by the assessee have been partly allowed and the grounds of the Revenue have been dismissed. Following similar reasonings, the grounds raised by the Revenue are dismissed and the grounds raised by the assessee are partly allowed. Addition to the extent of 0.05% as service fee for the corporate guarantee to Dabur Energy and addition to the extent of 0.513% as service fee for the corporate guarantee to Naturelle LLC, UAE - HELD THAT:- So far as the guarantee issued on behalf of Dabur Egypt Ltd., Egypt is concerned, we have already dealt with this issue while deciding ground of appeal No. 2and 3 for A.Y. 2007-08 and the same has been determined at 0.30%. Following similar reasonings, we modify the order of the CIT(A) and direct the AO to adopt the service fee on account of corporate guarantee at 0.30% in respect of guarantee issued on behalf of Dabur Egypt Ltd., Egypt. Corporate guarantee issued on behalf of Naturalle LLC, UAE - We have held in the preceding years that interest benefit be split between the guarantor and borrower on 50:50 basis. Therefore, applying the said rule, the benefit can be attributed to the service fee on account of guarantee at 0.30% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loss Account, Balance Sheet and its annexures filed along with Audit Report during the course of assessment proceedings. As per revised Computation of Taxable Income filed during the course of assessment proceedings, after adjusting the brought forward loss and unabsorbed depreciation of ₹ 24,29,02,607/- in respect of the Assessment Year 2006-07 out of the total Income ₹ 288,01,87,309/-, the assessee computed the total income at ₹ 263,72,84,702/- and the assessee company declared Nil income after claiming total deduction of ₹ 263,72,84,702/- u/s 80IB 80IC including the deduction of ₹ 2,05,67,500/- u/s 80G. Total deduction of ₹ 272,09,75,417/- has been worked out u/s 80IB 801C as per Audit Reports in Form No. 10CCB filed along with the details of profit and loss accounts in respect of units eligible for deductions u/s 80IB and 80IC of the I.T. Act, 1961. The adjusted book profit of ₹ 280 57,67,940/- and tax payable thereon ₹ 31,48,07,162/- has been computed u/s 115JB as per Annexure A to Report u/s 115JB of the I.T. Act, 1961 for computing the book profits of the company in Form No. 29B and computation of taxable income. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the order of the TPO and sustained by the CIT (Appeals) are without any basis/material and are based on surmises and conjectures not permissible under the law. 5) That the TPO and CIT (Appeals) failed to consider the geographical conditions of working of Dabur International UAE, Dabur Nepal and Asian Consumer Care Ltd., Bangladesh having no substantial awareness about the Dabur brand in the area and consequently the presumption and assumption about the chargeability of royalty by invoking the provision of Section 92 of the Act from Dabur International UAE, Dabur Nepal and Asian Consumer Care Ltd., Bangladesh is arbitrary, unjust and without any basis. 6) That the CIT (Appeals) and TPO have failed to consider that in the absence of any expenditure incurred by the assessee for the establishment of brand in the geographical area of working of Dabur International UAE, Dabur Nepal and Asian Consumer Care Ltd., Bangladesh, no royalty can be said to have accrued to the assessee when Dabur International UAE, Dabur Nepal and Asian Consumer Care Ltd., Bangladesh have incurred expenses on advertisement and sales promotion in their respective area for promotion of the brand which amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of royalty @ 7.5% of FOB sales as determined by the TPO. 6. On the fact and in the circumstances of the case the CIT (A) has erred in deleting the addition of ₹ 70,49,000/- and directing the AO to re-compute the deduction u/s 801B and 80IC of the Act without further allocation of the head office other expenses to various units eligible for such deduction. 7. On the fact and .in the circumstances of the ease the C1T (A) has erred in the addition of ₹ 4,09,871/- in respect of belated payment of employees contribution to ESI which was treated as income u/s 36(l)(va) of the Act read with section 2(24)(x) of the Act. 8. On the fact and in the circumstances of the case the CIT (A) has erred in deleting the disallowance of ₹ 1,57,45,700/- made u/s 14A of the Act read with rule 8D of the Rules. 9. On the fact and in the circumstances of the case the CIT (A) has erred in directing the AO to allow depreciation @ 25% of the goodwill which was not shown by the assessee as its assets. 10. The appellant craves leave, to add. alter or amend any ground of appeal raised above at the time of the hearing. 7. The grounds of appeal No.1 and 8 by the assessee bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determine the arm s length price of providing the services by the assessee in the shape of bank guarantee to AE at ₹ 3,209,600/-. An upward adjustment of ₹ 3,209,600/- is made on this account. Since the assessee has not charged any amount on account of providing the guarantee, the amount of ₹ 3,209,600/- is more than 5% of the value of international transaction. 11. The AO accordingly made the addition of ₹ 32,09,600/-. 12. In appeal, the ld.CIT(A) directed the AO to adopt 0.5% as service fee for corporate guarantee given by the assessee to Dabur Egypt. He, however, held that no service fee towards corporate guarantee can be charged for the corporate guarantee in case of Dabur Nepal. The finding of the CIT(A) on this issue from paras 6.1 to 6.5 are as under:- 6.0 Finding: 6.1 I have carefully considered the submissions made by the appellant The Ld. AO has observed that the Appellant has failed to charge service fees for the corporate guarantee given to bank for availing loan facility by its AEs namely Dabur Nepal and Dabur Egypt. The ALP for service fee for providing corporate guarantee has been computed at 4.00% by the Ld. AO/TPO against NIL r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1). The Appellant had charged NIL rate for providing the corporate guarantee and in its TP study report, has justified arm s length compliance by following TNMM. The appellant has taken a position that provision of corporate guarantee is integral part of sale transactions and hence it need not be separately benchmarked However, the appellant has not explained how this transaction of providing corporate guarantee is part and parcel of sales transactions, I therefore, do not agree with such approach of the appellant because provision of corporate guarantee is not at all linked with sales transactions and it being an independent transaction, can not be clubbed with sale transactions and need to be benchmarked separately. The TPO has rejected approach of the appellant and has applied CUP as most appropriate method. The TPO has gathered information from bank (SBI) regarding bank guarantee commission charged by the bank. The TPO has taken mean of rate of bank guarantee charged by SBI (2.75%) as per information obtained u/s 133(6) and rate of bank guarantee actually charged by HSBC (1.25%) from the appellant. To the average rate of 2%, TPO further added 200 basis points to account for ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comprised in FY under consideration. Hence, with respect to Dabur Nepal, I hold that no service fees towards corporate guarantee can be charged. Hence, I direct the AO to delete the additions made on account of corporate guarantee in case of Dabur Nepal. 6.5 In case of Dabur Egypt, the letter from HSBC Bank states the loan facility was available to Dabur Egypt at a rate of 11.90% for Egyptian loan with corporate guarantee versus 12.50% without corporate guarantee. However, it is noted that rates as mentioned by the bank pertain to the period of December 2011 when Dabur Egypt requested for release of corporate guarantee The bank has itself mentioned that rates have undergone change several times during the prevalent period. This means that differential of 0.6% interest rate cannot be as such applied to, the period under consideration. In the absence of exact information for the relevant period, it would be reasonable to consider differential of 1.0% which could be attributed to provision of corporate guarantee by the appellant Further, as contended by the Appellant, the difference of 1.0% cannot be solely attributed as service fee due to Appellant. This is because some degree of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. Counsel for the assessee submitted that in case of corporate guarantee due to lack of external comparable transactions, one has to deploy a method to determine the economic benefit arising from the financial guarantee. There is guidance provided by foreign revenue authorities which have held that the yield or the interest saved could be an appropriate method to quantify the economic benefit arising from the financial guarantee. He submitted that the yield approach involves estimating the rate at which the borrower would obtain funds on a stand-alone basis on a given date and compare this interest rate with the interest rate at which it would obtain funds on the same date and on same/similar terms, but with a parental credit guarantee. The difference between these two interest rates represents savings arising out of the guarantee arrangement which represents a quantification of both the benefit that the guaranteed entity receives from the guarantee and the incremental risk that the guarantor incurs in providing the guarantee. However, the entire savings may not be passed on to the guarantor since, the borrower in such a case will not have any incentive to ask for a guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an explicit guarantee accrued to both the guarantor and the borrower, the interest benefit should ideally be split between the parties to the transaction i.e., the borrower and the guarantor. He submitted that usually as a rule of thumb the interest benefit is split between the guarantor and the borrower on 50:50 basis which is considered to be the most equitable share of benefits. Applying the aforesaid rule, the ld. Counsel for the assessee submitted that the benefit that can be attributed to the service fee on account of corporate guarantee could at the most be 0.30%. He accordingly submitted that the action of the CIT(A) in charging service fee at an ad hoc rate of 0.5% should be reversed and may be restricted to 0.30%. 18. The ld. DR, on the other hand, heavily relied on the order of the AO. He submitted that the AO has correctly computed the adjustment on account of guarantee fee at ₹ 32,09,600/- and the ld.CIT(A), without any valid reasons, has held that no service fee towards corporate guarantee could be charged in the case of Dabur Nepal Pvt. Ltd. and he has erroneously and under misconception has reduced such corporate guarantee issued on behalf of Dabur Egypt, E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarantee in favour of its AEs. It is also his submission that the loans obtained for the foreign AEs of the assessee were secured loans having a charge against the assets of the AEs and other collaterals offered by AEs. The assessee had given corporate guarantee on behalf of AEs only to provide an additional cover against the loans obtained and, therefore, no addition is called for. 22. We find some force in the above arguments advanced by the ld. Counsel. So far as the corporate guarantee to NABIL Bank,, Nepal against the loan of Nepalese ₹ 6 crores obtained for Dabur Nepal Pvt. Ltd., Nepal for which the assessee had issued a corporate guarantee is concerned, we find, such guarantee was for a short duration of four months which was thereafter released on 27th July, 2006, a fact not disputed by the Revenue. The submission of the ld. Counsel for the assessee that there was no interest savings on account of corporate guarantee issued by the assessee also remains uncontroverted since the letter filed by the assessee dated 31.10.2013 from NABIL Bank, Nepal, copy of which is placed at page 346 of the paper book clearly shows that the corporate guarantee provided by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200607, the assessee had received royalty from Dabur Nepal (P) Ltd., Dabur International, UAE and Asian Consumer Care P. Ltd., Bangladesh, the details of which are as under:- Company Royalty received in AY 2005-06 Rs. in Lakhs Royalty received in AY 2006-07 Rs. in Lakhs Royalty received in AY 2007-08 Rs. in Lakhs Dabur Nepal (P) Ltd Nepal 43.34 5.34 -- Asian Consumer Care P. Ltd Bangladesh 46.87 21.02 -- Dabur International UAE 164.41 -- -- 25.1. The TPO referred to the agreement entered into by the assessee with its AEs for receipt of royalty. On being confronted by the AO regarding non-charging of any royalty from its AEs, the assessee submitted its objections which the TPO has summarized and which are as under:- The assessee does not have any contractual obligation to receive the royalty. The agreement with Dabur Nepal has been terminated in May, 2005 and hence Dabur Nepal is unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.67 27. The AO accordingly made addition of the same to the total income of the assessee. 28. Before the CIT(A), it was submitted that the assessee had taken the value of royalty as NIL following its consistent position post FY 2004-05. It was submitted that after 31st March 2005, the assessee had stopped charging royalty from Dabur Nepal and Dabur International owing to change in the business arrangement w.e.f. 01-04-2005. However, the AO, following its earlier order for AY 2006-07, proposed to charge royalty at the old and controlled rates. In doing so, the AO violated the basic principle of transfer pricing i.e., comparison of controlled transaction with the uncontrolled transaction. It was argued that even if the AO had to apply the royalty rates, such rate arrived at should have been uncontrolled for the purposes of transfer pricing. It was argued that the AO/TPO, without going into the merits of this year s case, proceeded to make adjustment on the basis of previous year. It was brought to the notice of the ld. CIT(A) that his predecessor has decided the issue partly in favour of the assessee and allowed relief the details of which are as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as provided to Asian Consumer Care Pvt. Ltd.; and (b) the associated enterprise has continued to use the brand name of Dabur. He accordingly applied the same rate of royalty of 2% as applied in case of Dabur Nepal Pvt. Ltd. and Dabur International Ltd, UAE and restricted the arm s length price from Asian Consumer Care Pvt. Ltd. at ₹ 23.90 lakhs. 31. The relevant observations of the ld.CIT(A) from para 12 to 12.9.5 of his order read as under:- 12.0 FINDING: 12.1 I have carefully gone through various contentions raised by the appellant and other material placed on record. The relevant facts are that the appellant (Dabur India) is legal owner of brand Dabur and other sub-category brands like 'Vatika , Hajmola etc. Overseas AE s of the appellant had been using Dabur India s trademarks and trade names. Upto FY 2004-05, the appellant was getting royalty payments from its AE s, whereas during FY 2006-07, appellant did not receive any royalty. 12.2 The case of the appellant is that the agreements under which royalty was received in earlier period were no longer in existence. Moreover, the overseas AE s are incurring substantial expenses for brand promotion in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it does not depend upon existence or otherwise of agreement to get royalty income. Hence contention of the appellant that in absence of an operative agreement for getting royalty income, a notional royalty cannot be assessed under TP regulations is not legally tenable. 12.5 Undisputedly, Dabur India is legal owner of brand name Dabur and other sub-brands and Dabur Nepal, Dabur UAE and Dabur Bangladesh which are AEs of Dabur India have been permitted by Dabur India to use its brand names. The appellant has contended that Dabur Nepal, Dabur UAE and Dabur Bangladesh have spent significant AMP expenses (advertisement, marketing and promotional expenses) and therefore Dabur brand is being built up in foreign territories by the efforts of AEs of the appellant and hence in fact AEs are providing service to the appellant for which AEs need to be remunerated. However, no remuneration for such services is being given to AEs and accordingly no royalty is being charged from them because if such remuneration is taken into account, it will exceed the royalty chargeable and hence income of the appellant shall further go down. The appellant has further argued that even otherwise, the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents are not operative during period under consideration, royalty chargeable as per these agreements represents arm s length price as per TP regulations. In view of various contentions of the appellant and reasoning given-by TPO, royalty issue in respect of both AEs involved is being discussed in following paragraphs. 12.7 Dabur International Ltd., UAE The appellant has entered into an agreement dated 01.04.2003 with Redrock Ltd (presently Dabur International Ltd.) which inter-alia provided for technical and R D support, know-how, information, operational improvements and skills in area of cost management, manufacturing, production procurement, sale marketing and distribution of products. It also permitted Redrock to use Dabur logo on both products manufactured by using Dabur s technology and know-how and also products manufactured by its without Dabur s know-how. As per clause 4 of the agreement, Dabur India Ltd. is entitled to royalty of 3% of FOB sales of Redrock of Dabur branded products which are manufactured using Dabur s know how and 1% of FOB sales of Dabur branded products manufactured without using technical and R D support from Dabur. Based on this, the TPO has com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .7.2 The appellant has argued that since Dabur International Ltd. had not sourced any technical support from Dabur India, clause (a) above shall not apply. This contention of the appellant can not be brushed aside completely in view of letters furnished by the appellant mentioned supra. The Ld TPO has also mentioned this fact in para 15.7 and 15.8 of TPO s order. However, the Ld TPO worked out the royalty @ 3% of FOB sales assuming that technology was also provided. However, considering the evidence furnished by the appellant, it is seen that products manufactured by Dabur International in UAE are different from those manufactured in India and in case of same name of products, it has been shown that oil base (raw material) is different from those products manufactured in India. Therefore, it can be safely inferred that most of the products if not all, manufactured in UAE are being manufacture without technical support from Dabur India. In view of this, there shall be a portion of FOB sale on which royalty become payable @3 % and another substantial portion of FOB sales on which royalty' shall become payable @ 1%. In view of these facts, it shall be more realistic and reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed instead of document which is remote in time. Accordingly, TPO is not correct in applying rate of 7.5% and ignoring rate of 3% as mentioned in amended agreement. 12.8.3 Further, appellant has argued that as per clause 3 of the agreement, Dabur India was under obligation to bear entire marketing expenses including salaries and allowances of sales personnel. However, Dabur India could not meet with its obligations and hence Dabur Nepal did not pay any royalty. This contention of the appellant carries some weight as rate of royalty might have been fixed after considering reimbursement of marketing expenses by Dabur India. The TPO has not established that this contention of the appellant is factually incorrect 12.8.4 Considering the contentions of the appellant that it had not met with obligations cast upon it under clause 3 of the agreement, it would not prudent to apply rate of 3% as mentioned in amended agreement to work out royalty chargeable. It is also seen that international transaction of allowing use of trade name/trade mark to its AEs by the appellant is the same with respect to Dabur International and Dabur Nepal. Therefore, there is no reason to assign higher price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned having regards to arm s length price, existence of agreement or otherwise is not relevant. Therefore, argument of the appellant that agreement was not in operation during period under consideration is not relevant as price of international transaction is to be determined by TP regulations. The undisputed fact is that Dabur Bangladesh has been permitted to use Dabur brand name and the appellant had been receiving royalty income for the same upto AY 2006-07. The TPO has treated said agreement dated December 2003 as basis for arm s length price in the absence of any comparable provided by the appellant Now the issue is whether TPO is correct in adopting 6% rate of royalty chargeable from Dabur Bangladesh. The approach of TPO in relying upon agreement dated December 2003 and not considering amended agreement dated 01.04.2005 is fallacious as contemporaneous material/document should have been considered instead of document which is remote in time. Accordingly, TPO is not correct in applying rate of 6% and ignoring rate of 2% as mentioned in amended agreement. 12.9.4 Further, appellant has argued that as per amended agreement, there should not be any charge of trademark royalty as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there has to be, first, income embedded in the international transaction. Accordingly, where an international transaction is entered without consideration, section 92 of the Act, not being in the nature of charging provision, cannot be applied to impute notional income. He submitted that transfer pricing provisions cannot compel an assessee to mandatorily and necessarily charge consideration for an international transaction with another associated enterprise. He accordingly submitted that the entire adjustment of ₹ 2.67 crores made by the TPO ought to be directed to be deleted. 35. So far as agreement with Dabur Nepal Pvt. Ltd., Nepal, is concerned, he submitted that the associated enterprises, viz, Dabur Nepal Pvt. Ltd., Nepal was incorporated in the year 1992 wherein 97.5% of shareholding was held by the assessee directly/indirectly. During the year 1992, the assessee, for the purpose of manufacturing consumer products, entered into a marketing agreement dated 05.11.1992 with Dabur Nepal Pvt. Ltd under the apprehension of expected technical, marketing, financial and managerial support for the manufacture of hair oil, Lal Dant Manjan, Dant Mukta, tooth power/tooth paste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no royalty was chargeable from Dabur Nepal for the following reasons: a) The assessee was having 97.5% ownership in Dabur Nepal Pvt. Ltd., directly/indirectly and thus, it could not have received any royalty from itself. b) The agreement dated 05.11.1992 had expired and the Nepal Government had not renewed the said agreement later on. Thus, in the absence of any legally enforceable agreement, no royalty was payable by M/s Dabur Nepal Pvt. Ltd to the assessee; c) Even otherwise, since, the assessee had failed to discharge its obligation to bear the marketing costs which included the advertisement and remuneration to sales personnel, the assessee does not have any right to charge any royalty from Dabur Nepal Pvt. Ltd. d) On application of FAR analysis and considering substantial marketing expenses incurred by Dabur Nepal, there was no ground for recovery of royalty. e) The assessee along with Dabur Foods Ltd, India was purchasing 72% of the products manufactured by M/s Dabur Nepal Pvt. Ltd., the details of which are tabulated as under: Particulars Amount in Nepal Rs. Lakhs) Sales to Dabur I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any became 100% subsidiary of the assessee. Later on, the name of Redrock Ltd was changed to Dabur International Ltd. As per this agreement, the parties agreed to the following with respect to UAE operations:- a) That the assessee will provide technical and R D support, know-how, operational improvements, etc., in the areas of cost management, manufacturing, production, procurement, sale, marketing and distribution, etc. b) Dabur International will be entitled to use the trade mark of Dabur in relation to products which are manufactured through technical and R D support from the assessee. c) In consideration, the assessee would be entitled to royalty as follows: a. 3% of FOB Sales of Dabur branded products which are developed and marketed by Dabur International through technical and R D support from the assessee and which are manufactured in accordance with technical specifications detailed by the assessee; b. 1% of FOB Sales of Dabur branded products which are developed by Dabur International from any other party without any technical and R D support from the assessee. 43. Referring to clause 5 of the agreement, he submitted that the aforesaid agreement was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tle known in that geographical area and incurred lot of expenses on advertisement and market establishment and had borne all the risks of market, manufacture and finance which is evident from letters dated 18.07.2011 and 20.07.2011 issued by Dabur International. e) The assessee had neither made any efforts in establishing the trade name in UAE nor had made any contribution to Dabur International. Thus, Dabur International had not renewed the royalty agreement because the assessee was not willing to undertake any risk/obligation/responsibility. f) On application of FAR analysis and considering substantial marketing expenses incurred by Dabur International, there was no ground for recovery of royalty which has been appreciated by the ld. CIT(A) at page 33 and 33 of his order. 46. He submitted that at the time of entering into the agreement, Dabur International was considering to manufacture products with the technical and R D support of the assessee in respect of the Ayurvedic/herbal products. However, subsequently, it realized that the ayurvedic products were not acceptable in UAE because there were no Ayurvedic doctors available and only the Unani system of medicines was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as built in UAE. He submitted that the assessee was not required to contribute any amount towards such brand building exercise in UAE. At the cost of this arrangement, the assessee agreed to forego its royalty right for usage of Dabur brand by Dabur International. The functionality/ activity of AMP spend by Dabur Dubai is nothing but performance of AMP/ Marketing service at the cost of royalty waiver. He submitted that the aforesaid arrangement is in accordance with the TP provisions and regulations. 51. The ld. Counsel for the assessee referred to provisions of Rule 10B (2)(b) which states that the functions performed, taking into account assets employed or to be employed and the risks assumed by the parties to the transaction will form a vital basis for judging the arm's length price. Sub clause (c) states that the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transaction. 52. He submitted that if the assessee was to charge for trade mark royalty from Dabur International, then, the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of royalty based on the earlier agreement which had already expired. He submitted that no notional royalty ought to be imputed in the income of the assessee merely on the basis of the defunct royalty agreement dated 01.04.2003 and in the absence of any evidence of provision of any services technical or otherwise, by the assessee to its associated enterprise. He accordingly submitted that addition on account royalty sustained by CIT(A) is liable to be deleted in toto. 55. Referring to the decision of the Tribunal in assessee s own case for A.Y. 2006-07, he submitted that the Tribunal, under identical circumstances, has held that rate of 0.75% is to be adopted to compute the amount of royalty from Dabur Dubai. In arriving at the said conclusion, the Tribunal has appreciated the following facts/ findings: a) During the year under consideration, there was no agreement to make any payment of royalty between the assessee and Dabur Dubai; b) The product manufactured by Dabur Dubai were totally different from the products manufactured in India and even the raw material used in those products manufactured in UAE was different from the raw material used in India; c) The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act along with Rules 10B and 10C which prescribe the methods to determine the arm s length price based on similar type of payments received by similarly situated and comparable independent entities. Further, the Tribunal also gave a finding that the lower authorities have failed to apply any transfer pricing method as prescribed under the Act. However, while concluding, the Tribunal still proceeded to impute an ad-hoc rate of 0.75%, without definitively pointing out prescribed transfer pricing method used to compute such arm s length price. 58. Referring to provisions of section 92C of the Act and CBDT Instruction No.3 of 2003 dated 20.05.2003, the ld. Counsel for the assessee submitted that the scheme of transfer pricing regulation provides for benchmarking of an international transaction by applying one of the prescribed methods and on the basis of Rules provided for each of the methods. 59. Referring to the following decisions, he submitted that in A.Y. 2006-07 or 2007-08, the prescribed method to calculate the ALP of the Royalty has not been applied:- (i) Sony Ericsson Mobile Communications India Pvt. Ltd. vs. CIT: 374 ITR 118 (Del). (ii) CIT vs. EKL Appliances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of adjudicating whether or not the assessee s appeal give rise to any substantial question of law or not, in order the High Court to assume jurisdiction to entertain the appeal or not. 64. Referring to the decision of the Hon ble Supreme Court in the case of Santosh Hazari v. Purushottam Tiwari: [2001] 251 ITR 84 (SC), the ld. Counsel for the assessee drew the attention of the Bench to the following observations:- The High Court cannot proceed to hear a second appeal without formulating the substantial question of law involved in the appeal and if it does so it acts illegally and in abnegation or abdication of the duty cast on Court. The existence of substantial question of law is the sine qua non for the exercise of the jurisdiction under the amended Section 100 of the Code. [See Kshitish Chandra Purkait Vs. Santosh Kumar Purkait Ors., (1997) 5 SCC 438, Panchugopal Barua Vs. Umesh Chandra Goswami, (1997) 4 SCC 713 and Kondila Dagadu Kadam Vs. Savitribai Sopan Gujar Ors., (1999) 3 SCC 722]. 65. He submitted that the Hon ble Supreme Court, thus, categorically held that existence of substantial question of law is the sine qua non for the exercise of the jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It has been held in the above decision that if the Indian entity is the economic owner of the brand and is incurring AMP expenses for the purpose of promotion of such brand, benefit is only received by the Indian entity. Applying the same rationale to the facts of the present case, Dabur International, UAE is the economic owner of the brand in UAE and has incurred significant AMP expenses for the purpose of promotion of such brand. He submitted that the economic ownership of the brand rests with the Dabur International and accordingly, it cannot be expected to make any payment to the assessee towards royalty as the asset is economically owned by it. He accordingly submitted that the addition made on account of royalty from Dabur International should be directed to be deleted in toto. 69. So far as royalty from Asian Consumer Care Pvt. Ltd., Bangladesh is concerned, the ld. Counsel submitted that the assessee entered into an agreement dated 01.12.2003 with Asian Consumer Care Pvt. Ltd., Bangladesh (ACCPL), which was engaged in the business of manufacturing and packaging of consumer and healthcare products in Bangladesh. The salient features of the agreement are as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known in that geographical area and incurred lot of expenses on advertisement, market establishment and had borne all the risks of market, manufacture and finance. f) The assessee had neither made any efforts in establishing the trade name in Bangladesh nor had made any contribution towards the same to ACCPL. 70. He further submitted that brand value in a particular area does not depend upon ownership but it depends upon various factors like quality and acceptable products in local public and in the present case, ACCPL by incurring expenditure and making efforts had become the economic owner of the mark in commercial sense for that area. Further, the TPO/AO had not applied any Transfer Pricing method as prescribed under the Act, but simply made the adjustment in respect of royalty based on the earlier agreement which had already expired. He accordingly submitted that no notional royalty ought to be imputed in the income of the assessee merely on the basis of the defunct royalty agreement dated 01.12.2003 and in the absence of any evidence of provision of any services technical or otherwise, by the assessee to its associated enterprise. 71. He submitted that it is the settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had borne all the risks of market, manufacture and finance, therefore, it is in a way entitled to the economic benefits related to the brand Dabur in Bangladesh. He drew the attention of the Bench to the analysis of Royalty which is as under:- S.No. FAR Points Dabur India Dabur Dubai 1. Who is the legal owner of brand Yes No 2. Who incurs the cost of registration and renewal cost Yes No 3. Who decides what products to be launched in overseas market No Yes 4. Who forms marketing strategy for brand promotion in overseas market No Yes 5. Who decides on sales strategy No Yes 75. Referring to the above, he submitted that though the legal ownership of the Dabur brand vests with the assessee-company, but by incurring significant AMP expenses and building the bra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 129 3% 33.87 Asian Consumer Care Ltd. 1,195 6% 71.70 Total 266.67 79. We find, in appeal, the ld. CIT(A) held that use of brand name by associated enterprises is an international transaction, and, therefore, the arm s length price has to be assessed under section 92 of the Act. However, the CIT(A) reduced such calculation of royalty. 80. So far as royalty from Dabur international Ltd., UAE is concerned, the ld. CIT(A) observed that the products manufactured by Dabur International Ltd, UAE are different from those manufactured in India and in some cases, even the raw material is different. He held that most of the products manufactured in UAE are manufactured without technical support from India. He accordingly, reduced the rate of royalty to 2% as against 3% charged by the TPO and accordingly restricted the arm s length price at ₹ 22.58 lakhs. 81. So far as Dabur Nepal Pvt. Ltd., Nepal is concerned, the CIT(A) observed that Rate of 3% is mentioned in the amended agreement and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national Ltd., UAE during the year, since the assessee is having 100% ownership in Dabur International, directly/indirectly and thus, it could not have received any royalty from itself. It is the submission of the ld. Counsel that the agreement which was entered into by the assessee with M/s Redrock Ltd., Isle of Man, UK on 01.04.2003 for a period of two years had expired on 31.03.2005. The assessee in the year 2003 itself had acquired M/s Redrock Ltd. and the said company became 100% subsidiary of the assessee and name was changed to Dabur International Ltd. and the agreement was not renewed by Dabur International in the year 2005 and the same was defunct in the financial year 2006-07 and, therefore, in the absence of any contractual agreement, the assessee was not eligible to receive any royalty from Dabur Dubai. Further, the products manufactured by Dabur Dubai were totally different from the products manufactured in India by the assessee. In order to penetrate UAE market, Dabur International had made all the efforts for the establishment of Dabur name in the UAE which was very little known in that geographical area and it has incurred lot of expenses on advertisement, marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, Bangladesh can be made. 81.6. We find identical issue had come up before the Tribunal in assessee s own case in the immediately preceding assessment year, i.e., 2006-07. We find, the Tribunal vide ITA No.3257/Del/2003 and ITA No.3492/Del/2013, order dated 12.04.2017 has thoroughly discussed the issue and has deleted the royalty receivable by the assessee from Dabur Nepal and had restricted the Royalty receivable from Dabur International Ltd., UAE at 0.75% by observing as under:- 33. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assessee had not shown any receipt on account of royalty from M/s Dabur International Ltd., UAE and had shown royalty of ₹ 5.34 lacs from M/s Dabur Nepal Pvt. Ltd. on the FOB sales of ₹ 7526.84 lacs and ₹ 3319.50 lacs respectively. The TPO worked out the royalty @ 4% of the sales in the case of Dabur International Ltd. and @ 7.5% of the sale in the case of Dabur Nepal Pvt. Ltd. The ld. CIT(A) reduced the royalty @ 2% of FOB sales. In the instant case, it is noticed that the assessee earlier entered into an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment of royalty was paid in accordance with the agreement which was in existence with the said preceding year. However, for the year under consideration, there was no such agreement and the product manufactured by M/s Dabur International Ltd., UAE were totally different from the products manufactured in India and even the raw material used in those products manufactured in UAE was different from the raw material used in India. In the present case, nothing is brought on record to substantiate that the products manufactured in UAE were with the help of technical know-how and R D support of the assessee. On perusal of the provisions contained in Section 92 of the Act it would be clear that the income arising from an international transaction shall be computed having regard to the arm s length price which shall be determined by any of the 5 methods prescribed in Sub-Section (1) of Section 92 of the Act which are following: (a) Comparable and controlled price method; (b) Resale price method; (c) Cost plus method; (d) Profit split method; (e) Transactional net margin method; or such other method as may be prescribed by the Board. 34. It is also not in dispute t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m used in the manufacturing at UAE was totally different from the raw material and medium used in India has not been rebutted. The products manufactured by the assessee were as per the local needs and taste of the public residing in UAE. Furthermore, the ld. CIT(A) himself admitted that M/s Dabur International Ltd., UAE had not manufactured any products with the technical know-how and R D support of the assessee but had manufactured on its own, in accordance with the requirement and local taste of the local public, however, he directed the AO to calculate the royalty @ 2% but without any basis. In the present case, it is an admitted fact that the TPO/AO had not applied any transfer pricing method as prescribed under the Act and simply made the adjustment in respect of royalty based on the earlier agreements which had already expired and there was no new agreement between the assessee and its AEs. The earlier agreement was entered by M/s Redrock Ltd. on 1st April 2003, at that point of time, the said company was manufacturing the products with the technical know-how and R D support of the assessee in respect of Aurvedic/Herbal products. But later on, when the said company found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonable to charge the royalty @ 0.75% by considering this fact that in the year under consideration the assessee had incurred huge expenses on marketing, advertisement brand building etc. and that in the preceding year the royalty was although charged @ 1% on the products manufactured without R D support and technical know-how from the assessee but the aforesaid expenses were comparability less. 36. As regards to the royalty charged from M/s Dabur Nepal Ltd. is concerned, it is not in dispute that earlier the royalty received was @ 7.5% as the assessee was bearing the cost of marketing expenses but later on M/s Dabur Nepal Pvt. Ltd. incurred lot of expenditure in order to penetrate the market and the agreement was amended w.e.f. 1st April, 2004 vide which the royalty had been reduced from 7.5% to 3% (copy of the same is placed at page no. 113 of the assessee s paper book). In the preceding year, on the basis of the said amended agreement, the royalty was charged @ 3%. Therefore, the TPO was not justified in working out the royalty @ 7.5% as provided in the original agreement dated 05.11.1992 (copy of which is placed at page nos. 111 112 of the assessee s paper book). For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinguishable features brought before us by either side, we, respectfully following the same, hold that no royalty is receivable by the assessee from Dabur Nepal and, therefore, the order of the CIT(A) sustaining the addition on account of Royalty receivable from Dabur Nepal (P) Ltd., at 2% is directed to be deleted. So far as royalty receivable from Dabur International, UAE is concerned, the same is directed to be restricted to 0.75% as held by the Tribunal. 81.8. So far as the argument of the ld. Counsel that the order of the Tribunal cannot be accepted because the same is not based on correct appreciation of facts is concerned, we do not find any merit in the argument of the ld. Counsel since as fairly conceded by the ld. Counsel at the time of hearing before us, the Hon ble High Court has already dismissed the appeal filed by the assessee on this very issue. 81.9 So far as the royalty from Asian Consumer Care Pvt. Ltd., Bandladesh is concerned, we find, the facts and salient features of the agreement are identical to that of the facts and agreement with Dabur International Ltd., UAE. Since the Tribunal has already restricted such royalty to 0.75% in case of Dabur Internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is higher than prevailing bank rate. 82.3 However, the TPO was not satisfied with the arguments advanced by the assessee and made upward adjustment of ₹ 96,67,520/- by adopting the rate of 14% to be reasonable for benchmarking the arm s length rate. 82.4 In appeal, the ld.CIT(A), relying on various decisions, deleted the addition made by the AO/TPO by observing as under:- 9.0 Findings 9.1 I have carefully considered the submissions of the Appellant. The facts are that Appellant has given loan to Dabur International Ltd, UAE and charged an interest rate of 7% and 6.75%. The loan/interest transaction was benchmarked by the Appellant in the TP Study of AY 2007-08 by application of internal GUP where rate charged by Bank of Baroda for Commercial Papers was 5.675%. However, the Ld TPO did not agree with the approach of the Appellant and applied the rate of 14%. As per the TPO, the benchmarking done the by Appellant is faulty as the Appellant himself taken its as tested party in the TP Report. Once the Appellant becomes the tested party, then it becomes imperative to see what the tested party would have earned in the similar situation i.e. in the Indian Market. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ength price by taking into account prices at which similar transactions have been entered into by the assessee with unrelated parties (Internal CUP) or at which other unrelated parties have entered into similar transactions inter se (External CUP). None of these inputs have anything to do with the costs: they only refer to prevailing prices in similar unrelated transactions instead of adopting the prices at which the transactions have been actually entered in such cases, the hypothetical arms length prices, at which these associated enterprises, but for their relationship, would have entered into the same transaction, are taken into account. Whether the funds are advanced out of interest bearing funds or out of funds on 14% interest is being paid, or whether such interest free advances are commercially expedient for the assessee or not, is wholly irrelevant in this context. The transaction in the present case is of lending money, in foreign currencies, to its foreign subsidiaries. The comparable transaction therefore is of foreign currency lending by unrelated parties. 9.3 Now, what is required to be seen is whether the controlled transaction can be compared with uncontrolled o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermined at 5.20%. The appellant had charged 7% and 6.75% for the two loans given to Dabur International Ltd UAE, which seems to be compliant with the requirement for comparability of ALP rates for interest. Thus, I hold that, interest rate of 14% charged by the Ld. TPO is in contravention of the Rule 10B(2) and that interest charged by the Appellant at 7% and 6.75% satisfies arm s length principle. Accordingly, this ground is allowed in favour of the Appellant. 82.5 Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal. 82.6 The ld. DR heavily relied on the orders of the AO/TPO. 82.7 The ld. Counsel for the assessee, on the other hand, submitted that in the TP document, the transaction of loan advanced to the AE is benchmarked by applying CUP method wherein the interest charged by the Bank of Baroda for commercial papers @ 5.675% has been treated as appropriate internal uncontrolled transaction. The ld. Counsel drew the attention of the Bench to clause (a) of Rule 10B(1) of the IT Rules, 1962 and submitted that the said provision provides for application of CUP method. He submitted that there are two types of comparable uncontrolled trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% and, thus, such transaction of interest received has to be considered as being at arm s length. He submitted that in the present case, transaction of lending loan to the AE is in foreign currencies given to foreign AEs. Accordingly, the comparable transaction for the purpose of applying of CUP should be considered to be foreign currency lending by unrelated parties with the LIBOR. Referring to the decision of the Hon ble Delhi High Court in the case of DCIT vs. Cotton Naturals (I) Pvt. Ltd., 276 CTR 445, he submitted that the Hon ble High Court, while upholding the order of the Tribunal has held that the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Referring to the decision of the Delhi Bench of the Tribunal in the case of Bharti Airtel Limited vs. ACIT, 161 TTJ 428, he submitted that in this case also the Tribunal has held that in a case where loans are advanced in foreign currency, the interest rate on foreign currency loans being qualitatively different and accordingly, even if one has to see the interest that the assessee would have earned, one has to see the interest that the assessee wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res 82.14 During the impugned assessment year, the assessee has earned interest of ₹ 1,05,27,000/- on the aforesaid loans. In the TP study report the assessee applied internal CUP method where the interest rate charged by the Bank of Baroda for Commercial Papers was 5.675%. Considering that the international transaction of receipt of interest from Dabur International ltd., Dubai at 6.75%/7% was higher than the bank s rate of interest, the international transaction of interest received was considered to be at arm s length applying the CUP method. We find, the TPO disregarded the benchmark analysis undertaken by the assessee for determining the ALP of interest on loan applying internal CUP method. According to him, for loans given the rate charged by Indian banks on foreign currency loans is to be taken as benchmark. Applying the rate of interest of 14% on the basis of data collected from CRISIL where rate of interest for BBB Bonds for F.Y. 2006-07 was 15.13%, the TPO proposed an addition of ₹ 96,67,520 which was added by the AO to the total income of the assessee on account of interest charged on loan from AEs. We find, the ld.CIT(A) deleted the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02, we have been charging spreads of 150 bps to 300 bps over LIBOR in respect of foreign currency loans based on financial position and credit rating of the borrower . As for the LIBOR rate, as per the information provided by appellant, it ranged from 1.85000 (2 weeks) to 3.00250 (I year). On the given facts, in our considered view, it would be appropriate to accept internal CUP, i.e. the rate at which the appellant has resorted to foreign exchange borrowings from the ICICI, as arms length price under CUP method. The fact, as painstaking brought on record by the authorities below that this loan from ICICI bank was not used for the purposes of remittance to subsidiaries as interest free loans has no bearing for the purposes of computing ALP of interest free loan. The financial position and credit rating of the subsidiaries will be broadly the same as the holding company, and, therefore, the precise rate at which the ICICI Bank has advanced the foreign currency loans to the appellant company can be adopted at arm s length price of interest free loans advanced by the appellant company to its foreign subsidiaries. 82.17 Since the assessee in the instant case has charged interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (2010-TIOL51- ITAT-Del.) and in the case of DDIT vs. Development Bank of Singapore: 144 ITD 265 (Mum), has applied LIBOR rate for benchmarking of international transaction of loans undertaken with the AE. It is the settled law that the Revenue has to be consistent in its approach and it is not open to the Revenue to take an inconsistent stand in the case of different assessee. [Ref. Kaumudini Narayan Dalai: 249 ITR 219 (SC) and Berger Paints India Ltd. vs. CIT: 266 ITR 99 (SC)]. Therefore, consistent with the stand taken by the Revenue in the case of different assesses, the said filter, in our opinion, is to be uniformly applied in all cases. 82.21 In view of the above discussion and in view of the detailed reasoning given by the CIT(A) while deleting the addition, we do not find any infirmity in his order. Accordingly, the order of the CIT(A) deleting the addition of ₹ 96,67,520/- is upheld and the ground raised by the Revenue on this issue is dismissed. 83. In ground of appeal No.6, the Revenue has challenged the order of the CIT(A) in deleting the addition of ₹ 70,49,000/- and directing the AO to recompute the deduction u/s 80IB and 80IC of the Act without f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee and allocated certain cost on account of depreciation and other expenses to the non-taxable zones and accordingly reduced the claim of deduction u/s 80IB/80IC. As per the details below, the AO allocated these costs to section 80IB/80IC units:- S. No Nature of Expenditure Amount 1. Depreciation ₹ 704.49 lakhs 2. Other HO expenses ₹ 2214.02 lakhs 86. With the above allocations of expenses to section 80IB/80IC units, the claim of tax holiday was reduced by the AO from ₹ 27207.71lakhs to ₹ 25403.88 lakhs thereby making an addition of ₹ 1803.83 lakhs. 87. Before the CIT(A), it was submitted that the depreciation arrived at by the AO is totally faulty. The AO has taken the difference between depreciation available under the Income-tax Act and Companies Act and has allocated the same to tax holiday units. It was submitted that the assessee has also added ₹ 2197.81 lakhs in the computation of income as depreciation under the Companies Act and, similarly, it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... association for scientific research. The payment is voluntary in nature and is not for any specific purpose. Further, these expenditure cannot be allocated to tax holiday units as it is not connected with such units. Relying on various decisions and the word used in section 80IC derived from and not attributable to it was argued that R D expenses cannot be allocated to units claiming deduction unless it has a nexus. 89. Based on the arguments advanced by the assessee, the ld.CIT(A) directed the AO to recompute the deduction available u/s 80IB/80IC without further allocation of head office expenses to various units by observing as under:- 15.0 Finding: 15.1 I have carefully gone through submissions of the appellant and other material placed on record. The Appellant has contended that additions made on account of HO allocations were already considered at the time of computation of income. It has been seen that the appellant itself has added back depreciation as Companies Act and has claimed depreciation as per IT Act while computing deduction available u/s 80EB/IC. Therefore, the AO has wrongly allocated ₹ 704.50 lacs to various units which difference of depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. Therefore, when the assessee has already disallowed the depreciation under Companies Act and has only claimed depreciation as available under the I.T. Act which was allocated to various units, therefore, there was no reason on the part of the AO to allocate the difference between the depreciation charged in the P L Account and depreciation claimed in the return of income. 91.1 So far as the allocation of head office expenses is concerned, the ld. Counsel drew the attention of the Bench to the following table:- S. No. Particulars Amount (in Rs. lakhs) 1. Miscellaneous expenses written off 1054.12 (a) ESOP expenses 1035.37 (b) Technical know-how 18.75 2. Donation 414.05 3. Provision for Bad Debts 94.85 4. Scientific research 651.00 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd claimed depreciation as per the Act and, therefore, the AO was wrong in allocating difference of depreciation available under the Companies Act and the Income-tax Act to the eligible units. So far as the head office expenses aggregating to ₹ 2,214.02 lakhs is concerned, he noted that expenses aggregating to ₹ 1,563.02 lakhs were suo motu disallowed by the assessee and added back in the computation of income. Therefore, once these expenses were not claimed by the assessee, the same cannot be allocated to the eligible units for computation of deduction u/s 80IB/80IC of the Act. The ld.CIT(A) also further noted that scientific research expenses of ₹ 651 lakhs, which was included in the head office expenses allocated by the AO are not connected with the units eligible for deduction u/s 80IB/80IC of the Act and, therefore, cannot be allocated to the eligible units. 93.1 We do not find any infirmity in the order of the CIT(A) reversing the action of the AO in allocating the head office expenses and depreciation to various eligible units for the purpose of recomputing the deducting u/s 80IB/80IC. The factual finding of the ld.CIT(A) that the assessee has added back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 651.00 Total 2214.02 93.4 A perusal of page 425 of paper book, Volume-II shows that Miscellaneous expenses written off, donation and provision for bad debts were suo motu disallowed by the assessee in its return of income. Therefore, once the aforesaid expenses were not claimed as a deduction by the assessee, the same, in our opinion, cannot be allocated to the eligible units and be considered for computing the deduction u/s 80IB/80IC of the Act. 93.5 So far as scientific research expenses of ₹ 651 lakhs is concerned, the finding of the ld. CIT(A) that such expenses have no nexus with the units eligible for deduction has not been controverted by the Revenue. We find, the Hon ble Bombay High Court in the case of Zandu Pharmaceuticals Works Ltd. vs. CIT, 350 ITR 366 (Bom) has held that once the expenses have no nexus with the units eligible for deduction, such expenses cannot be allocated to units for the purpose of computing deduction u/s 80IB/80IC of the Act. Since the scientific research expenses of ₹ 651 lakhs which were included in the head office expenses allocated by the AO are not connected with the un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., reported in 250 Taxman 32, he submitted that when PF and ESI was paid before the due date of filing of returns, the same could not be disallowed under section 43B or under section 36(1)(va). He submitted that the SLP filed by the Revenue has been dismissed by the Hon ble Supreme Court reported in 84 taxmann.com 285. Referring to copy of letter dated 10.09.2018 addressed by Pr. Director of Income-tax (Legal and Research), New Delhi regarding filing of appeal in cases involving issue of allowability of deduction of employees contribution to PF and ESIC copy of which is placed at page 442 and 443 of the paper book, he submitted that the Department should not have filed appeal on this issue. 99. We have considered the rival arguments made by both the sides, perused the orders of the AO/CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, made addition of ₹ 4,09,871/- u/s 36(1)(va) r.w.s. 2(24)(x) of the Act on the ground that the employees contribution to ESIC were deposited much after the specified dates mentioned in the said Act. We find, the ld.CIT(A) deleted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve gone through the submissions of the Appellant The facts are that the Appellant had not disallowed any expenditure u/s 14A on its own. The Appellant had contended that apart from investment in equity shares of Dabur Pharma Ltd., none of its investments could have earned tax free returns u/s 10 of the Act so as to disallow the expenditure u/s 14 A. Only dividend income of ₹ 30,000 which is exempt has been earned during the period under consideration and no expenses have been incurred to earn this income. 24.2 Following is the investment schedule of the Appellant has on 31 March 2006/07: Description FY 2006-07 FY 2005-06 Remark Mutual Fund 7,962 6,266 These MFs represent Short term Mutual funds and are fully taxable u/s 45. Dabur International Limited, UAE 4,466 2287.5 This is investment in foreign subsidiary and foreign dividends are taxable Commerce Centre Cooperative Housing Society Limited 0.02 0.02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TOTAL 157.457 24.4 I have considered the submissions of the Appellant and the computation of disallowance u/s 14A done by the AO. It is quite apparent that AO has not gone into specifics of each investment before invoking section 14A. From above chart, it is seen that most of the investments could not have yielded any income which is tax exempt 24.5 It is pertinent to mention that the appellant has not disallowed any sum u/s 14A on its own. The AO is empowered under subsection 2 of section 14A to compute such disallowance as per prescribed method (Rule 8D) but only after recording his satisfaction that the claim of the appellant is not correct. In present case, the AO has not stated any reason for not agreeing with . claim of the appellant and thus requisite satisfaction on part of the AO is not discernible from the assessment order. Resorting to provisions of sub-section 2 of section 14A by the AO is subject to pre-condition of his satisfaction about incorrectness of claim of the appellant and therefore without satisfying this pre-condition, the AO can not compute disallowance as per section 14A(2). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition the reasons for which have already been reproduced in the preceding paragraphs. It is the submission of the ld. Counsel that the assessee had received dividend income of ₹ 30,000/- only from shares held in Dabur Pharma Ltd. which was claimed as exempt u/s 10(34) of the Act. Further, Rule 8D could not have been applied mechanically, more so, when the said Rule is not applicable to the year under consideration. It is also his submission that only investment yielding dividend income has to be considered for the purpose of making disallowance u/s 14A and interest expenditure, if any, eligible relatable to dividend yielding investment has to be considered. The alternate argument of the ld. Counsel for the assessee is that disallowance, if any, cannot exceed the exempt income as held by various decisions. 106. Since the assessment year involved in the impugned appeal is 2007-08, therefore, provisions of Rule 8D cannot be applied for the impugned assessment year as held in various decisions. Further, it has been held in various decisions that provisions of section 14A are applicable only if the assessing officer at the first place finds that the assessee has actually i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the AO held that the same is not allowable. He further noted that the assessee has not claimed the same in the return of income. The AO, therefore, rejected the claim of depreciation on goodwill. 109. In appeal, the ld.CIT(A) allowed the claim of the assessee by observing as under:- 27. Finding: 27.1 I have gone through various submissions of the appellant and the facts of the case. Pursuant to the Delhi and Mumbai High Court s order, Balsara Group of companies (Balsara Hygiene Products Ltd, Besta Cosmetics Ltd and Balsara Horae Products Ltd) merged with appellant company w.e.f. 01-042006. The Appellant contends that it has paid an excess of ₹ 158.75 crores over the net assets as cost of merger. According to the appellant, this excess amount was paid towards goodwill of amalgamating companies and it is subject to depreciation u/s 32. As the per the AO, the claim of depreciation on this excess paid over net assets is not maintainable as the assessee had not claimed the depreciation in the return of income and also has not shown this amount as intangible assets in the accounts and the same was adjusted with general reserve and share premium a/c. 27.2 The Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , sales and profit could have accrued to the Appellant from the very beginning. Now to acquire a running business with an established turnover and brand, there had to be some premium paid over the net assets. The Appellant contended that the premium paid is nothing but goodwill within the meaning of explanation 3(b) of section 32(1). 27.5 In my view, there is a force in the arguments of the Appellant. The excess amount paid over net assets of ₹ 158.75 crores is in nature of goodwill as the same was paid to acquire complete business of Balsara including marketing intangible, brands, human resources, supply chain network, customers, vendors etc. Goodwill here is in fact, sum total of all commercial and business rights of Balsara group which the appellant acquired after merger with Balsara group companies. I have carefully gone through scheme of amalgamation / merger as approved by Bombay / Delhi High Court As per this scheme, assets and liabilities of amalgamating companies were to be carried / recorded in books of the appellant company at book value and cost of merger was to be set off against general reserve and share premium accounts of the appellant company. Therefore, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as sanctioned by the High Court of Delhi on 12.09.2006 with effect from April 1, 2006, being the appointed date of the merger; (ii) All the assets and liabilities of Balsara companies shall stand transferred to the assessee at their respective book value as appearing in the books of the transferee companies [Clause 6.1(c)]; (iii) The difference between the value of shares issued by the assessee and book value of net assets taken over shall be debited to Share Premium Account, Capital Redemption Account and General Reserve Account and the balance if any shall be adjusted against accumulated credit balance in the profit loss account [Clause 6.1(e)]; 113. He submitted that in accordance with the scheme of amalgamation, the assessee recorded the assets and liabilities of the amalgamating companies at their respective book value. The difference between the consideration of ₹ 168.47 crores paid by the assessee to acquire BHPL, Balsara Home Products Limited and BCL and net worth of ₹ 9.72 crores, being ₹ 158.75 crores represented intangibles and other factors in the form of goodwill, which was, in accordance with the scheme of amalgamation, adjusted by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . g) Balsara Group produces branded products of world-class standard as well as Private Label products and markets them in both the Indian and international markets at relatively competitive rates. The Balsara group is also engaged in manufacturing herbal extracts and complexes under some leading worldwide brands of natural cosmetics namely The Body Shop etc. The Balsara Group has manufactured Private Label products for some large-scale companies such as Colgate Palmolive, Beecham Group, Henkel Cosmetics and Reckitt Coleman. h) Balsara has a wide national sales and distribution system that makes products available in 700,000 retail outlets. The system is supported by a distribution network of 4 Zonal Offices, 10 Branches, 23 Regional Warehouses, and 1700 Distributors in 1500 towns. 114.1 The ld. Counsel for the assessee submitted that brand is a special intangible that in many businesses it is the most important asset. This is because of the economic impact that brands have. They influence the choices of customers, employees, investors and the government authorities. In a world of abundant choices, such influence is crucial for the commercial success and creation of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. 114.4 He drew the attention of the Bench to provisions of Section 32 of the Act which deals with depreciation allowance on tangible and intangible assets used for the purposes of business. He submitted that clause (ii) of the aforesaid section provides for depreciation on intangible assets acquired on or after 1.4.1998. The aforesaid clause provides for depreciation on intangible assets in the nature of, inter alia, know-how , patent , copy rights , trade mark , license and franchise . The aforesaid category of intangible asset is succeeded by the residual category, viz., intangible assets being business or commercial rights of similar nature . He submitted that the amount representing the excess of consideration paid over the fair value net assets of Transferor Company(ies), recognised as goodwill, fall within the ambit of the expression business or commercial rights of similar nature , so as to qualify for depreciation under section 32 of the Act. Referring to the following decisions, he submitted that depreciation is allowable on goodwill:- 1) CIT vs. Smifs Securities Ltd.: (2012) 348 ITR 302 (SC); 2) Areva T and D India Ltd. v. DCIT: 345 ITR 421 (Del); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Ribbon Mfg. Co. (P) Ltd. vs. CIT, 239 ITR 505 (SC); iv) CIT vs. UP Electronics Corporation Ltd., 282 ITR 470 (All) 114.6 We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, disallowed the claim of depreciation on goodwill on the ground that the assessee has not shown the payment of goodwill in its intangible assets and has adjusted it against the reserves and share premium and the assessee has also not claimed depreciation on goodwill in the return of income and, therefore, the same is not allowable. We find, the ld.CIT(A) allowed the claim of depreciation on goodwill as claimed by the assessee the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the ld. DR that when the assessee has not claimed such depreciation in the return of income and has not shown the payment of goodwill in its intangible assets and has adjusted it against the reserves and share premiums, therefore, the ld.CIT(A) is not justified in allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to and vest in the company. In the process goodwill has arisen in the books of the company. 2. It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. 3. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 [`Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: Explanation 3.-- For the purposes of this sub-section, the expressions `assets' and `block of assets' shall mean-- [a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. 4. Explanation 3 states that the expression `asset' shall mean an intangible asset, being know-how, patents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale agreement are in nature of business or commercial rights of similar nature specified in section 32(1(ii) and are accordingly eligible for depreciation under that section. The various other decisions relied on by the ld. Counsel for the assessee also supports his case that depreciation is allowable on goodwill. 114.9 So far as the case of the Revenue that goodwill was not shown by the assessee as its assets is concerned, it is the settled proposition of law that the entries made in the books of account are not determinative of the ambit of taxation. If an item of income/expenditure is taxable/deductible, the same has to be taken into account as per the provisions of the Act and not as per the book entries. We also find merit in the argument of the ld. Counsel for the assessee that in terms of Explanation 5 to section 32 of the Act, it is now mandatory to claim/allow depreciation, whether or not the assessee has claimed the same. Therefore, we are of the considered opinion that the AO should not have refused to consider the claim of depreciation despite the fact that the assessee raised such claim vide its letter dated 13.12.2010 addressed to the AO. In this view of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. 115.3 The Id. DR, on the other hand, strongly objected to the admission of the additional ground. 115.4 We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee in the instant case, has raised the additional ground before the Tribunal relating to the ESOP expenses which were debited in the Profit Loss Account, but, added back while computing the income under some misconception of facts and law. However, the issue, in our opinion, is legal in nature. We find, identical issue had come up before the Tribunal in ITA No.3257/Del/2013 (by the Assessee) and ITA No.3492/Del/2013 (by the Revenue) and the Tribunal vide order dated 12.04.2017 for A.Y. 2006-07 has admitted the additional ground and has restored the issue to the file of the AO for deciding the issue in accordance with law, after giving due opportunity of being heard to the assessee. The relevant observations of the Tribunal read as under:- 87. We have considered the submissions of both the parties and carefully gone through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an admitted fact that this issue has been raised by the assessee first time and the authorities below had no occasion to deal with this issue. We, therefore, deem it appropriate to remand this issue to the file of the AO/TPO to be decided in accordance with law after providing due and reasonable opportunity of being heard to the assessee. 115.5 Since the facts of the impugned assessment year are identical to the facts of the case decided by the Tribunal in assessee s own case in the immediately preceding assessment year, therefore, respectfully following the decision of the Tribunal in assessee s own case we admit the additional ground and restore the issue to the file of the AO with a direction to adjudicate the issue in accordance with the law, after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The additional ground raised by the assessee is accordingly allowed for statistical purposes. ITA No.6256/Del/2014 (By the Revenue - A.Y. 2008-09) 116. The grounds raised by the Revenue are as under:- On the facts in the circumstances of the case the Ld. CIT(A) has erred in allowing appeal of the assessee and directing to deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd., having no substantial awareness about the Dabur brand in the area and consequently the presumption and assumption about the chargeability of royalty by invoking the provision of Section 92CA of the Act from Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd. is arbitrary, unjust and without any basis. 4. That the CIT (Appeals) and TPO have failed to consider that in the absence of any expenditure incurred by the assessee for the establishment of brand in the geographical area of working of Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd., no royalty can be said to have accrued to the assessee when Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd. have incurred expenses on advertisement and sale promotion in their respective area for promotion of the brand which amounts to the services provided by the AEs to the asses see for completing the brand and consequently the addition as made by the TPO and sustained by the CIT (Appeals) in respect of the alleged royalty chargeable from Dabur International Ltd., Dabur Nepal Pvt. Ltd. and A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e grounds raised by the Revenue are dismissed and the grounds raised by the assessee are partly allowed. 120. Grounds of appeal No.7 and 8 of the appeal filed by the assessee relate to the order of the CIT(A) in sustaining addition to the extent of 0.05% as service fee for the corporate guarantee to Dabur Energy and addition to the extent of 0.513% as service fee for the corporate guarantee to Naturelle LLC, UAE. 121. After hearing both the sides, we find the assessee during the impugned assessment year had issued the following corporate guarantees on behalf of its associated enterprises: In favour of Finance facility obtained Amount of Guarantee provided (in crores) Name of the Bank Interest rate for availing loan Dabur Egypt Ltd, Egypt USD 450,000 ₹ 15.46 crores HSBC Bank, Egypt, SAE USD 3months LIBOR + 2.90% p.a. USD 2,750,000 NSGB Bank, Egypt 6 months LIBOR + 1.35% p.a Naturalle LLC, UAE USD 0.60 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he guarantee issued on behalf of Dabur Egypt Ltd., Egypt is concerned, we have already dealt with this issue while deciding ground of appeal No. 2and 3 for A.Y. 2007-08 and the same has been determined at 0.30%. Following similar reasonings, we modify the order of the CIT(A) and direct the AO to adopt the service fee on account of corporate guarantee at 0.30% in respect of guarantee issued on behalf of Dabur Egypt Ltd., Egypt. 127. So far as the corporate guarantee issued on behalf of Naturalle LLC, UAE is concerned, a perusal of the details furnished by the assessee in the paper book shows that the assessee has saved incremental interest of 1.025% due to guarantee provided by the assessee which was only with effect from September, 2007. Therefore, we find merit in the argument of the ld. Counsel that the proportionate interest saved by the Naturalle, LLC was only for a period of 7 months and accordingly, interest saving on only 0.60% was made by Naturalle, LLC. We have held in the preceding years that interest benefit be split between the guarantor and borrower on 50:50 basis. Therefore, applying the said rule, the benefit can be attributed to the service fee on account of guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, in absence of any exempt income earned by the assessee for the impugned assessment year no disallowance u/s 14A could have been made. The ground raised by the Revenue is, therefore, dismissed. 134. The first additional ground raised by the assessee reads as under:- That the ESOP expenses of ₹ 8,45,34,851/- (Rupees eight crore forty five lakhs thirty four thousand eight hundred fifty one only) debited in the Profit Loss Account ought to have been allowed as deduction in computing the income under the head Profit and Gains of Business. 135. After hearing both the sides, we find identical additional ground was decided by us in the preceding paragraphs while deciding the appeal of the assessee for A.Y. 2007-08. We have already admitted the same and the issue has been restored to the file of the AO with a direction to decide the issue in accordance with the law, after giving due opportunity of being heard to the assessee. Following similar reasonings, the first additional ground raised by the assessee is admitted and restored to the file of the AO to decide the issue as per law after giving due opportunity of being heard to the assessee. The first additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including Uttranchal. The industries eligible for such incentives will be environment friendly with potential for local employment generation and use of local resources. 2. In pursuance of the above announcement, discussion on Strategy and Action Plan for Development of Industries and generation of employment in the states of Uttranchal and Himachal Pradesh were held with the various related Ministries/agencies on the issue, inter-alia, infrastructure, development, financial concessions and to provide easy market access. The new initiatives would provide the required incentives as well as an enabling environment for industrial development, improve availability of capital and increase market access to provide a fillip to the private investment in the state. 3. Accordingly, it has been decided to provide the following package of incentives for the states of Uttranchal and Himachal Pradesh. 3.1 Fiscal Incentives to new Industrial Units and to existing units on their substantial expansion: (I). New industrial units and existing industrial units on their substantial expansion as defined, set up in Growth Centres, Industrial Infrastructure Development Centres (IIDCs), Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 7th day of January, 2003; (b) industrial units existing before the 7th day of January, 2003, but which have undertaken substantial expansion by way of increase in installed capacity by not less than twenty five per cent, on or after the 7th day of January, 2003. 3. The exemption contained in this notification shall apply to any of the said units for a period not exceeding ten years from the date of publication of this notification in the Official Gazette or from the date of commencement of commercial production, whichever is later. (emphasis supplied) 139. Further, Notification No. 50/2003, dated 10th June 2003, was passed by the Central Excise Authorities, which reads as under: Notification No. 50/2003 - Central Excise G.S.R (E) .- In exercise of the powers conferred by sub-section (I) of section 5A of the Central Excise Act, 1944 (1 of 1944) read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of1978), the Central Government, being satisfied that it is necessary in the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pradesh which was a backward industrial state. He submitted that the taxability of incentive provided to boost industrialization in various states by the Central Government/State Government is no more res integra and the courts are consistently holding that such fiscal incentive/subsidy are basically capital in nature not liable to tax. He submitted that in order to work out the nature of fiscal incentive it has been held by various courts that it has to be determined with reference to the purpose for which such incentive has been provided. If the incentive has been provided to assist the operation of business, then, it is revenue, but, if the benefits have been provided for industrialization and setting up of new industry, then, it is capital in nature. In other words, the character of fiscal incentive subsidy has to be determined having regard to the purpose for which subsidy was given. For the above proposition, the ld. Counsel relied on the decisions of the Hon ble Supreme Court in the case of CIT vs. Ponni Sugar and Chemicals Limited: 306 ITR 392, Sahney Steel and Press Works vs. CIT: 228 ITR 253; and V.S.S.V. Meenakshi Achi: 60 ITR 253 and various other decisions. 142. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words. in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further appeal preferred by the Revenue, the Hon ble High Court held that exemption from payment of entertainment tax to a multiplex under the UP Scheme was held to be a capital receipt. He drew the attention of the Bench to the following observations of the Hon ble Court:- 34. Seen in the above light, we are of the considered view that it was unreasonable on the part of the Assessing Officer to decline the claim of the assessee about the subsidy being capital receipt. Such a subsidy by its very nature, was bound to come in the hands of the assessee after the cinema hall had become functional and definitely not before the commencement of production. Since the purpose was to offset the expenditure incurred in setting up of the project, such receipt (subject, of course, to the cap of amount and period under the scheme) could not have been treated as assistance for the purposes of trade. 35. The facts that the subsidy granted through deemed deposit of entertainment tax collected does not require it to be linked to any particular fixed asset or that is accorded year after year do not make any difference. The scheme makes it clear that the grant would stand exhausted the momen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m)/349 ITR 336: vi) CIT v Arvind Mills LTD: ITA No. 1407 of 2011 (Guj); vii) CIT v. Aspentech India Pvt. Ltd.: ITA No. 1233/ 2011 (Del. HC); viii) JCIT v. Hero Honda Finlease Ltd.: I 15 TTJ 752 (Del ITAT) (TM); ix) Aishwarya Rai v. DCIT: ITA No. 1159/Mum/04: (Mum ITAT); x) Idea Cellular Ltd. v. ACIT: 65 SOT 15 (Mum.); xi) Advik Hi tech (P.) Ltd v. AC1T: 67 SOT 158 (Pune). 147. Referring to the following decisions, the ld. Counsel for the assessee submitted that where income is wrongly offered by an assessee or on previously asserted legal stand, it would not operate as estoppel against the assessee to revise such stand and make a legitimate claim otherwise entitled in law (No estoppel in law):- i) CIT v. Shelly Products: 261 ITR 367 (SC); ii) CIT v. Bharat General Re-Insurance Co. Ltd.: 81 ITR 303 (Del.); iii) HCL Technologies vs ACIT : 377 ITR 483 (Del); iv) CTI vs C. Parakh Co (India) Ltd: 29 ITR 661 (SC); v) CIT vs VMRP Firm: 56 ITR 67 (SC); vi) Pullangode Rubber Produce Co. Ltd. v. State of Kerala: 91, ITR 18 (SC); vii) Pt. Sheo Nath Prasad Sharma v. CIT : 66 ITR 647 (All.); viii) Abdul Qayume vs CIT: I 84 ITR 404 (All); ix) Nir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the additional ground in respect of ESOP was raised by the assessee before the Tribunal for the first time and the Tribunal after considering the arguments made by both the sides, has admitted the said additional ground and restored the issue to the file of the AO/TPO to decide the issue in accordance with the law, after providing due opportunity of being heard to the assessee. 151.1 The ld. DR, on the other hand, strongly objected to the admission of the additional ground. He submitted that this ground should not be admitted at all as it is for the first time the assessee has come up before the Tribunal with a new plea. 152. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee in the instant case, has raised the second additional ground before the Tribunal relating to treatment of ₹ 5,85,61,165/- being the exempted excise duty to be excluded from the income assessed on the ground that same being a capital is not liable to tax and be excluded from the income assessed. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find, the Hon ble Bombay High Court in the case of CIT vs. Pruthvi Brokers Shareholders (P) Ltd. (supra), while adjudicating the powers of appellate authorities to consider a claim not made in the return has held as under:- 29. It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal under section 254. 30. A Division Bench of the Delhi High Court dealt with a similar submission in Commissioner of Income‐tax v. Jai Parabolic Springs Limited, (2008) 306 ITR 42. The Division Bench, in paragraph 17 of the judgment held that the Supreme Court dismissed the appeal making it clear that the decision was limited to the power of the assessing authority to entertain a claim for ded ..... 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