TMI Blog2024 (3) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... summary of expenditure incurred on exploring various business opportunities. From the perusal of the aforesaid summary, we find that the entire expenditure was incurred on home improvement projects, furniture and furnishings business, bathroom space business, modular kitchen, market research in Saudi Arabia project, etc. Unlike the assessment year 2014-15, the assessee has not furnished the copy of engagement letters/scope of work in respect of the exploration of various business opportunities by the consultants. However, since in the preceding year, the coordinate bench has examined each business evaluation separately, which appears to have also been undertaken during the year under consideration, we deem it appropriate to restore this issue to the file of the AO for de novo adjudication - AO is directed to decide on the allowability of each expenditure after duly examining the engagement letter with the consultants and the scope of work. Disallowance of prior period expenditure HELD THAT:- Undisputedly, the assessee is following the mercantile system of accounting, and therefore only such expenses which are crystallised during theyear can be allowed as a deduction while computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Stores , having the above aspect in perspective, we are of the considered view that the same was only for the purpose of having a better reach to its customers so as to increase the sales of its products and therefore, the expenditure is nothing but a brand promotion expenditure. Colour Idea Stores can be at any shop of the dealer so long as the dealer is representative of the assessee and is in the business of sale and distribution of assessee s products. Thus, once the agreement between the dealer and the assessee concludes, even the dealer cannot use the Colour Idea Stores for products of any other company. Therefore, the entire exercise is a joint sales promotion activity by the assessee and the dealer, wherein both parties would benefit from the brand promotion and resultant increase in the sale of the products. Accordingly, we are of the considered view that the expenditure incurred by the assessee on Colour Idea Stores is in the nature of revenue expenditure and the AO is directed to allow the same. Since the AO has granted the depreciation to the assessee by treating the expenditure as capital in nature, the same may be reversed in view of the aforementioned findings. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment year. Therefore, even applying the rule of consistency, the expenditure claimed by the assessee has to be allowed. Addition on account of waiver of Royalty received from two subsidiaries income accrued in India or not? - assessee has various associated enterprises all over the globe situated in various countries from which income in the form of Royalty is received for providing them with Brand Name along with other technical support - Royalty is calculated @3% of associated enterprises sales as per the agreement duly signed and executed - HELD THAT:- As decided in [ 2024 (3) TMI 484 - ITAT MUMBAI] for the assessment year 2012-13 prior to the end of the financial year, no amount accrues or arises to the assessee outside India. In the present case, prior to the determination of the net sale price of the products sold, the assessee had decided to waive Royalty by 2%. No material has been brought on record to show that there is no understanding between the assessee and its overseas subsidiaries to waive the Royalty. Such being the facts, we are of the considered view when only 1% Royalty is payable by the overseas subsidiaries, therefore the AO has no authority to make an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ints and the same was not to enable the assessee to run its business more profitably. Since in the year under consideration, the assessee received the electricity grant under the Industrial Policy, 2005 of the Government of Haryana, therefore, respectfully following the decision rendered in assessee s own case cited supra, we find no infirmity in the impugned order on this issue in treating the electricity grant as capital in nature. - Shri Prashant Maharishi, Accountant Member And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri Fenil Bhatt a/w Shri Harshad Panchal For the Revenue : Shri Vachashpati Tripathi ORDER PER SANDEEP SINGH KARHAIL, J.M. The present cross-appeal has been filed challenging the impugned order dated 19/02/2019, passed under section 250 of the Income Tax Act, 1961 ( the Act ) by the learned Commissioner of Income Tax (Appeals) 1, Mumbai, [ learned CIT(A) ], for the assessment year 2015 16. 2. The brief facts of the case are that the assessee is a company and is engaged in the business of manufacturing paints and enamels. For the year under consideration, the assessee filed its return of income on 27/11/2015 declaring a total income of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of Rs. 23,96,476 as an expense incurred for earning the aforesaid exempt income. The AO vide order passed under section 143(3) of the Act by applying the provisions of Rule 8D of the Income Tax Rules, 1962 ( the Rules ) computed the disallowance of Rs. 2,97,28,588 under section 14A of the Act after considering the suo-moto disallowance of Rs. 23,96,476 made by the assessee. The learned CIT(A), vide impugned order, restricted the disallowance made under section 14A read with Rule 8D to Rs. 167.23 lakh after granting relief to the assessee with respect to the proportionate interest amount computed on interest incurred for the normal running of the business, following the approach adopted by its predecessor in earlier years in assessee s own case. Being aggrieved, both the assessee as well as the Revenue are in appeal before us. 6. During the hearing, the learned Authorised Representative ( learned AR ) submitted that recording of satisfaction is a prerequisite for invoking the provisions of section 14A of the Act. However, in the present case, the AO did not record any satisfaction regarding the rejection of assessee s plea. The learned AR further submitted that in preceding y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an expenditure incurred for earning the aforesaid exempt income. As per the assessee, the aforesaid suo-moto disallowance is the salary cost in respect of the time spent by its employees on carrying out the investment-related activity, which has been computed as under: Disallowance u/s 14A of Income Tax Act (Estimated allocable expenses) Employee Designation Chief Financial Officer Senior Manager-Finance Finance Executive Total Proportionate salary Proportionate Interest amount Percentage 5% 25% 50% Cost to Company 1,62,88,500 30,28,400 10,30,600 Value of disallowance 8,14,425 7,57,100 5,15,300 20,86,825 3,58,715 Total Section 14A disallowance 24,45,540 9. It is the plea of the assessee that it has not engaged any specific staff for investment activity and the same is being carried out by the existing staff. Further, no incremental expenditure has been incurred on staff and other administrative activities for earning the exempt income. It is evident from the record that the AO disagreed with the correctness of the claim of expenditure made by the assessee and held that adequate interest and administrative expenses have not been disallowed for earning the exempt income. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble Supreme Court in Godrej Boyce Manufacturing Company Ltd. Vs DCIT: [2017] 394 ITR 449 (SC), observed as under: 37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. (emphasis supplied) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order of the Tribunal while allowing the appeal held that before invoking the provisions of Rule 8D of the Income Tax Rules, the Assessing Officer has to record his non satisfaction with the suo moto disallowance of expenditure made towards earning exempt income by the respondent. This exercise not having been carried out by the Assessing Officer before applying Rule 8D of the Income Tax Ru'es, the disallowance of expenditure to earn exempt income cannot be sustained. (d) This issue is no longer res integra as the Apex Court in Gorej Boyce Mfg. Co. Ltd. Vs. Dy. CIT, 394 ITR 449 decided the issue in favour of the respondent. In the above case, the Supreme Court has while considering the issue of disallowing of expenditure incurred to earn exempt income observed as under :- Whether such determination is to be made on application of the formula prescribed under rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lting firms to carry out due diligence/market survey, legal fees for drafting agreements and scheme valuation of target company and also consultancy service for business opportunities in the area of home decor/improvements and overseas acquisition, etc. During the assessment proceedings, the assessee was asked to show cause why the claim of the aforesaid expenditure should not be disallowed. In response thereto, the assessee submitted that the aforesaid expenditure is in the nature of revenue expenditure and allowable under section 37(1) of the Act. 13. The AO vide assessment order did not agree with the submissions of the assessee and held that the assessee has been in the field of paints business for more than 50 years and is entering into a completely new line of business, i.e. home decor/home improvement and acquisition of overseas company. Accordingly, the AO held that such an expenditure is liable to be treated as capital expenditure and disallowed the amount of Rs. 54.06 lakh paid by the assessee to various professionals and consultants for the evaluation of various business opportunities. 14. The learned CIT(A), vide impugned order, dismissed the ground raised by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial available on record. From the perusal of the proposal submitted by Avalon Consulting, forming part of the supplementary factual paper book, it is evident that since the assessee was keen to explore various diversification opportunities in India and wanted to undertake a quick market opportunity assessment exercise in certain specific sectors in order to prioritise opportunities, it invited Avalon Consulting to submit a proposal on quick assessment of opportunities. As part of the aforesaid study, Avalon Consulting, inter-alia, submitted its report regarding the home improvement market (including home decor) in India to the assessee. The consideration of Rs. 1,74,40,000 paid by the assessee to Avalon Consulting was partly towards the feasibility report for entry into the home improvement segment. As per the assessee, the expenses on exploratory exercise are incurred out of commercial expediency in as much as they are incurred to expand the existing business by exploring new markets, products, etc. 19. In order to determine whether the home improvement and decor segment is a new line of business or an extension of the existing business conducted by the assessee, it is pertinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... home improvement and decor business. As a result, ground no.2 raised in assessee s appeal is partly allowed. 16. Therefore, in view of the aforesaid findings of the coordinate bench of the Tribunal, we find no merits in the submission of the assessee in respect of expenditure incurred for obtaining a feasibility report in respect of home improvement/decor and kitchen space business and accordingly, the aforesaid expenditure is held to be capital in nature. 17. As regards the expenditure incurred by the assessee on exploring business opportunities in furniture and furnishings, from the perusal of the engagement letter entered into between the assessee and its consultants, forming part of the supplementary factual paper book from pages 2-30, we find that the consultant agreed to assist the assessee in developing a deep understanding of the furniture and furnishings category and develop the business strategy for roll-out. Further, the consultant agreed to assist the assessee in understanding how the capability platform proposed to be developed as part of this exercise can be leveraged for building the overall home improvement business. From the description of the furniture and furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorative paints market in Turkey and Indonesia is for the extension of the existing line of business of the assessee and thus is in the nature of revenue expenditure. Accordingly, the AO is directed to delete the addition in respect of this expenditure. 20. Further from the summary of expenditure incurred by the assessee, we find that the assessee incurred expenditure on pre-acquisition due diligence of the paint manufacturing company in Ethiopia. It is pertinent to note that the expenditure was not incurred on exploring the decorative paints market in Ethiopia but the same was in relation to pre-acquisition due diligence of a company, i.e. Kadisco Chemical Industry PLC., Ethiopia, which is manufacturing and selling paints, other coatings and adhesives in Ethiopia. From the perusal of the annual report of the assessee, we find that in April 2014, the assessee s wholly owned subsidiary in Mauritius, Asian Paints (International) Ltd., signed an agreement with shareholders of Kadisco Chemical Industry PLC., Ethiopia to acquire, either directly or through its subsidiaries, 51% of its share capital. Therefore, from the documents available on record, it is evident that the impugned expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of expenditure, we note that the assessee has reversed the provision made in the preceding year. Since in the preceding year, the other expenditure, which is in relation to the expenditures found to be capital in nature, has been directed to be disallowed, therefore we direct the AO that the provision disallowed in the previous year be not again disallowed in the year under consideration as it would result in taxing the same amount twice. With the above directions, the impugned order on this issue is set aside and ground no.2 raised in assessee s appeal is allowed for statistical purposes. 17. The issue arising in ground no.3, raised in assessee s appeal, pertains to the disallowance of prior period expenditure. 18. We have considered the submissions of both sides and perused the material available on record. During the year under consideration, the assessee debited prior period expenses of Rs. 72,69,693 in the Profit and Loss account. Accordingly, during the assessment proceedings, the assessee was asked to justify the allowability of aforesaid prior period expenses. The AO did not agree with the submissions of the assessee and after perusing the breakup of prior period expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance sheet. The assessee further submitted that until the assessment year 2009-10, the assessee was not claiming deduction in respect of provision for doubtful debts debited to the Profit and Loss account and only subsequent to the decision of the Hon ble Supreme Court in Vijaya Bank v/s CIT, (2010) 323 ITR 166 (SC), the assessee started claiming deduction in respect of provision for doubtful debts and similarly any reversal is also offered for taxation. The AO, vide assessment order, did not agree with the submissions of the assessee and held that the reliance placed by the assessee on the decision of the Hon ble Supreme Court in Vijaya Bank (supra) is misplaced as the provision for bad and doubtful debts is allowed only to the banking companies in compliance of section 36(1)(vii) and section 36(1)(viia) of the Act, in light of the guidelines of the Reserve Bank of India. However, in the present case, the provision is created on an estimated basis considering the percentage of the total value of receivables and moreover, the individual debtors' accounts have also not adjusted with the provision amount. The AO further held that as per section 36(1)(vii) of the Act, the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rits in the submissions of the assessee. Further, we agree with the findings of the lower authorities that the decision of the Hon ble Supreme Court in Vijaya Bank (supra) is not applicable in the case of the assessee, as the aforesaid decision was rendered in the case of a banking company after considering the guidelines issued by the Reserve Bank of India. Accordingly, we are of the considered view that the provision for doubtful debts, as claimed by the assessee, has rightly been disallowed by the lower authorities. During the hearing, the learned AR, on a without prejudice basis, submitted that if the assessee s claim is not acceptable then a direction may be issued for the bad debts to be allowed in the year in which it has been actually written off. We are of the considered view that the assessee s claim for allowance of bad debts written off can be considered in the appropriate year if the same is found to be in accordance with the law and thus no specific direction in this regard is required. Accordingly, ground no.4 raised in assessee s appeal is dismissed. 24. The issue arising in ground no.5, raised in assessee s appeal, pertains to the disallowance of expenditure incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 32,44,46,533 was disallowed and depreciation of Rs. 3,24,44,653 was allowed to the assessee. 27. The learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue and held that when a company spends money on a concept store that provides a long-lasting impression on the customers, in particular, and the public in general the same has to be seen from the perspective of benefit/mileage drawn by the company from such expenses/investment. The learned CIT(A) further held that such an innovative marketing idea when put in place, gives rise to a specific kind of marketing intangibles, the benefit of which is reaped by the company that owns such marketing intangibles. The learned CIT(A) further held that Colour Idea Stores is a different marketing intangible, which is a brand and concept that remains with the assessee, for lasting benefit to it. Accordingly, the CIT(A) came to the conclusion that the concept of Colour Idea Stores is to be treated as a marketing intangible, and expenses incurred for creating such intangible has to be treated as capital in nature. Being aggrieved, the assessee is in appeal before us. 28. We have considered the submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the dealer has approached the assessee and agreed to stock, promote, and sell the products of the assessee from the Designated Shop Area, by installing assessee s paint decor, design, creatives, and concepts. As per the agreement, the parties agreed that the said arrangement under the agreement is for the brand promotion activity of the assessee, through which the dealer shall also benefit by way of consumer mileage. Under the agreement, the parties agreed to share the cost incurred for setting up the Designated Shop Area. As per the agreement, the dealer shall get his shop premises and the Designated Shop Area constructed, designed, and decorated in accordance with and in the manner suggested by the assessee and its consultants/contractors, for which peaceful and vacant possession shall be also be handed over by the dealer. The dealer further agreed that it must neither use the Designated Shop Area in any other manner than as specified by the assessee nor any other products or display material shall be kept out at the Designated Shop Area unless specified by the assessee. Further, it was agreed that the dealer shall not be entitled to any special privileges, prerogatives, bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in the business of sale and distribution of assessee s products. Thus, once the agreement between the dealer and the assessee concludes, even the dealer cannot use the Colour Idea Stores for products of any other company. Therefore, the entire exercise is a joint sales promotion activity by the assessee and the dealer, wherein both parties would benefit from the brand promotion and resultant increase in the sale of the products. Accordingly, we are of the considered view that the expenditure incurred by the assessee on Colour Idea Stores is in the nature of revenue expenditure and the AO is directed to allow the same. Since the AO has granted the depreciation to the assessee by treating the expenditure as capital in nature, the same may be reversed in view of the aforementioned findings. As a result, ground no.5 raised in assessee s appeal is allowed. 31. During the hearing, the applications dated 16/03/2021 seeking admission of additional grounds of appeal were not pressed by the assessee. Accordingly, these applications are dismissed as not pressed. 32. In the result, the appeal by the assessee is partly allowed for statistical purposes. ITA No.2959/Mum./2019 Revenue s Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in Revenue s appeal, pertains to allowability of expenditure under section 35(2AB) of the Act. 35. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, it was observed that the assessee has claimed weighted deduction under section 35(2AB) of the Act. Accordingly, the assessee was asked to furnish the certificate issued by the Department of Science and Industrial Research ( DSIR ) in Form No.3CL and reconciliation of the expenditure allowed by the DSIR with the deduction claimed in the computation of income. In response thereto, the assessee submitted that it has recognised R D Unit at Turbhe (Navi Mumbai) and during the year claimed weighted deduction under section 35(2AB) of the Act with respect to expenditures incurred for R D activities. The assessee furnished the copy of approval received from DSIR obtained in Form No.3CM during the assessment proceedings. The assessee also furnished a copy of the certificate of expenditure in Form No.3CL received from the DSIR. The assessee also provided a copy of the reconciliation between the amounts claimed in the return of income vis-a-vis the claim allowed by the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Gujarat High Court in the case of CIT vs Cadila Health Care Itd. 87 DTR 56. A perusal of the judgment passed by the Hon'ble Gujarat High Court in this case, however, shows that the expenditure on R D was bifurcated by the prescribed authority as per it's certificate in two parts, one incurred in-house and the other incurred outsider. Relying on the said certificate, the Revenue disallowed the expenditure incurred by the assessee outside its in-house facilities while the Tribunal allowed the same. The Hon'ble Gujarat High Court upheld the decision of the Tribunal holding that merely because the prescribed authority segregated expenditure into two parts by itself could not be sufficient to deny the benefit to the assessee u/s 35(2AB). The issue involved the in the case of Cadila Health Care ltd. (supra) thus was entirely different and even the facts involved in the said case were different from the facts of the assessee's case in as much as the entire expenditure incurred by the assessee in that case on R D was duly certified by the prescribed authority whereas in the case of the assessee, the same is not certified to be eligible R D expenditure to the ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014-15. The learned DR could not show us any reason to deviate from the aforesaid decision and no change in facts and law was alleged in the relevant assessment year. Since the learned CIT(A) has decided the issue keeping in view the aforesaid directions of the Tribunal, therefore we find no infirmity in the findings of the learned CIT(A) on this issue. Accordingly, ground no.1 raised in Revenue s appeal is dismissed. 40. The issue arising in ground no.2, raised in Revenue s appeal, pertains to disallowance under section 14A of the Act. In view of our findings rendered in assessee s appeal on a similar issue, ground no.2 raised in Revenue s appeal is dismissed. 41. The issue arising in ground no.3, raised in Revenue s appeal, pertains to the allowance of balance additional depreciation. 42. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, it was observed that the assessee has claimed additional depreciation @10% on the fixed assets acquired during the financial year 2013-14 amounting to Rs. 2,86,47,976 under section 32(1)(iia) of the Act. Accordingly, the assessee was asked to explain the allowability of add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use it for less than 1 80 days in a previous year, the deduction in respect of depreciation shall be restricted to 50%. The assessee has already claimed 10% of the additional depreciation in financial year 2008-2009 (assessment year 2009-10) and therefore it claimed that balance 10% of the depreciation should be allowed to the assessee in financial year 2010-11. 036. The learned assessing officer rejected the claim of the assessee holding that there is no such provision to claim balance 10% additional depreciation in subsequent years for addition made in earlier year. In past year learned CIT -A who allowed the claim of the assessee following the decision of coordinate bench in Cosmo films Ltd 24 taxmann 189 and SIL Ltd 26 taxmann 78, The learned assessing officer did not followed order of the learned CIT - A in earlier year also and made disallowance of Rs 1,51,65,251/-. 037. On appeal before the learned CIT -A, he allowed the claim of the assessee based on his own decision for assessment year 2008- 2009 in case of the assessee. We find that the identical issue has been decided in favour of the assessee in the assessee's own case for assessment year 2009-10 in ITA number 2754/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re amount of additional depreciation cannot be claimed in the subject assessment year, the balance unclaimed amount can be claimed in the subsequent assessment year. It is also a fact on record, against similar claim allowed by learned Commissioner Appeals) in assessee's own case in Assessment Year 2008- 29, the revenue has not preferred any appeal before the bunal. In view of the above, we uphold the decision of Jeaned Commissioner (Appeals) on the issue. Ground raised is dismissed. 038. Therefore, respectfully following the decision of the coordinate bench in assessee's own case for assessment year 2009- 10, ground number 6 of the appeal is dismissed holding that the learned CIT appeal is correct in allowing additional depreciation at the rate of 10% for asset purchased in the earlier year amounting to Rs. 151,65,251/- 36. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee's own case for the A.Y. 2010-11 and also following the principle of Rule of consistency we dismiss the ground raised by the revenue holding that Ld.CIT(A) is correct in allowing the additional depreciation at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned order, allowed the ground raised by the assessee on this issue by following the decision of its predecessor in assessee s own case. Being aggrieved, the Revenue is in appeal before us. 49. We have considered the submissions of both sides and perused the material available on record. We find that while deciding a similar issue in favour of the assessee the coordinate bench of the Tribunal in assessee s own case in ACIT v/s Asian Paints Ltd., in ITA No. 4675/Mum/2015, for the assessment year 2010-11, vide order dated 23/02/2022, observed as under:- 041. It is also stated before us that the issue squarely covered in favour of the assessee for assessment year 2009 10 in ITA number 2754/M/2014 and ITA number 4203/M/2014 wherein the coordinate bench held as Under: - 43. In ground 6, the revenue has challenged deletion of disallowance of 1,610.45 lakhs on account of expenditure incurred on trip scheme. 44. Briefly the facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee had debited an of amount 16,10,45,094/- towards expenditure incurred on account of trip scheme. Noticing this, he called upon the assessee to justify the claim. After verify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, there cannot be any further disallowance under section 40(a)(ia) of the Act. Further, he submitted, the expenditure incurred is purely for the purpose of business as it is in the nature of an incentive linked to quantum of purchases made by the dealer. Finally, he submitted, the assessee is claiming such deduction for past 20 years. Except the impugned assessment year, the expenditure has never been disallowed. Therefore, there is no reason to deviate in the impugned assessment year. 48. We have considered rival submissions and perused materials on record. As could be seen from the facts on record, to expand its business the assessee has devised a trip scheme wherein it organized foreign trips to its dealers and distributors based on achieving a specific target assigned by the assessee. On achieving such target, the dealer/distributor is entitled to undertake the trip organized by the assessee through SOTC. Thus, from the aforesaid facts it is very much clear that the entire trip scheme is for the purpose of expanding assessee's business by encouraging the dealers and distributors to achieve a specific target of purchase. Thus, the scheme is closely linked to assessee&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them with Brand Name along with other technical support. The Royalty is calculated @3% of associated enterprises sales as per the agreement duly signed and executed. However, for the year under consideration, the assessee partly waived the Royalty income receivable from two of its subsidiary companies situated in Bangladesh and Sri Lanka. During the assessment proceedings, the assessee submitted that it had an agreement with its indirect overseas subsidiaries in Bangladesh and Sri Lanka, according to which the assessee has to receive a Royalty of 3% of net sales of other units. However considering the financial position of the subsidiaries, the assessee agreed to waive part of the Royalty and therefore during the year has credited 1% of the Royalty amount to the Profit and Loss account instead of 3% as per the agreement. The assessee further submitted that under the Act as well as the Double Taxation Avoidance Agreement ( DTAA ) entered with the aforesaid countries, the assessee is liable to pay tax only on the amount of Royalty received by it. The AO vide assessment order did not agree with the submissions of the assessee and by following the approach adopted in the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of Royalty charged to overseas subsidiaries. Undisputedly, the TPO vide order passed under section 92CA(3) of the Act did not make any transfer pricing adjustment on account of the aforesaid international transaction. However, the AO, by placing reliance upon the findings of its predecessor in assessee s own case for the assessment year 2011-12, held that the legitimate right to receive corresponding income (Royalty) cannot be waived off through an arbitrary decision, particularly till such time as the original written and duly signed agreement is in place. Accordingly, the AO made the addition of the balance of 2% royalty waived off by the assessee as the income receivable in the hands of the assessee. Even though no adjustment was made by the TPO on account of the transaction of receipt of Royalty from the subsidiary companies in Bangladesh and Sri Lanka. 65. Before proceeding further, it is pertinent to note that as per section 5(1) of the Act in the case of a resident, the total income, inter-alia, includes all income from whatever sources derived which accrues or arises to him outside India during the year. As per the assessee, it is entitled to receive the Royalty from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e itself is disallowing the sundry balances written off in its books of accounts. However, from the assessment year 2012-13, the assessee has changed its practice and started claiming the same as allowable expenditure. It was further held that the assessee could not prove that the alleged advances were made in the ordinary course of the business and such advances written off cannot be treated at par with the bad debts written off. 58. The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee on this issue by following the approach adopted in the assessment years 2012-13 and 2014-15. Being aggrieved, the Revenue is in appeal before us. 59. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal in assessee s own case cited supra, for the assessment year 2012-13, restored this issue to the file of the AO by observing as under:- 71. We have considered the submissions of both sides and perused the material available on record. As per the assessee, it has changed its practice from the assessment year 2012-13, where sundry balances written off is claimed as deduction, and sundr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nced production that various incentives were given for the limited period of five years. The AO also held that in this case subsidy granted is for running the business more efficiently and profitably. Accordingly, the AO made the addition of the subsidy of Rs. 108.93 crore received by the assessee. 63. The learned CIT(A), vide impugned order, by following the decision of the Hon ble Supreme Court in CIT v/s Ponni Sugars and Chemicals Ltd., [2008] 306 ITR 392 (SC) allowed the ground raised by the assessee on this issue and held that the subsidy received by the assessee is capital in nature. Being aggrieved, the Revenue is in appeal before us. 64. Having considered the submissions of both sides and perused the material available on record, we find that while deciding a similar issue pertaining to the taxability of subsidy received by the assessee under Package Scheme of Incentives, 2007 of the Government of Maharashtra, the coordinate bench of the Tribunal vide order dated 05/03/2024 passed in assessee s own case in ACIT v/s Asian Paints Ltd., in ITA No.841/Mum./2018, for the assessment year 2013-14 held that the subsidy received by the assessee is capital in nature as the incentives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering the decision of the Hon ble Supreme Court in Ponni Sugars and Chemicals Ltd. (supra) and Sahney Steel Press Works Ltd. v. CIT [1997] 228 ITR 253 (SC), observed as under:- 6. ..We are unable to accept this stand. In the case of in Sahney Steel Press Works Ltd. v. CIT [1997] 228 ITR 253/94 Taxman 368 (SC) and in Ponni Sugars Chemical Ltd.'s. case (supra), the honourable Supreme Court has emphasized that the character of receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. The purpose test has to be applied. The point of time at which the subsidy is given is not relevant. The source is immaterial. The form of subsidy is immaterial. The main condition and with which the court should be concerned is that the incentive must be utilized by the assessee to set up a new unit or for substantial expansion of the existing unit. If the object of the subsidy scheme is to enable the assessee to run the business more profitably then the receipt is on the revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit then the receipt of subsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said decisions, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue in treating the subsidies as capital in nature. As a result, ground no.10, raised in Revenue s appeal is dismissed. 65. Since in the year under consideration, the assessee received the impugned subsidy under under Package Scheme of Incentives, 2007 of the Government of Maharashtra, therefore, respectfully following the decision rendered in assessee s own case cited supra, we find no infirmity in the impugned order on this issue in treating the subsidies as capital in nature. As a result, ground no.7 raised in Revenue s appeal is dismissed. 66. The issue arising in ground no.8, raised in Revenue s appeal, pertains to the deletion of the addition of the electricity grant received from the Government of Haryana. 67. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, the assessee credited a sum of Rs. 13 lakh in its Profit and Loss account as electricity grants receivable from the Government of Haryana but the same was not considered as taxable. During the assessment proceedings, the assessee was asked the reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more profitably. The relevant findings of the coordinate bench, in the aforesaid decision, are as under:- 61. We have considered the submissions of both sides and perused the material available on record. From the perusal of the Industrial Policy, 2005 of the Government of Haryana, forming part of the paper book from pages 224256, we find that the key objective of the Industrial Policy was, inter-alia, to reestablish the industry as a key driver of economic growth and to facilitate spatial dispersal of economic activities particularly in economically and socially backward regions of the State. Under the aforesaid Industrial Policy, incentives and privileges were provided by way of exemption from electricity duty, preferential allotment of land for the IT industry, continuous-uninterrupted power supply for the IT industry, relaxation in floor area regulation, rebate on registration and transfer of property charges, etc. We find that vide letter dated 20/07/2007, forming part of the paper book on page 257, the assessee was granted the following special package of incentives/concessions for setting up a project at Industrial Model Township, Rohtak for the manufacturing of paints:- i) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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