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2023 (7) TMI 1140 - AT - Income TaxTP Adjustment - Downward adjustment towards purchase of raw-materials from its AE - HELD THAT:- We find that an identical issue has been considered by the Tribunal in assessee’s own case for A.Y 2009-10 [2017 (3) TMI 1178 - ITAT CHENNAI], where the Tribunal after considering relevant facts has set aside the issue to the file of the A.O for reconsideration and give proper adjustment on account of raw-material cost of Lubrizol and mineral oil and also regarding tolling fee for zinc. Thus we remit the issue of downward adjustment towards purchase of raw-materials to the file of the TPO/A.O to give suitable adjustment in respect raw-material cost of Lubrizol and mineral oil and also tolling fee for zinc. Disallowance of TDS on running royalty u/s. 40(a)(ii) - income tax paid on royalty payment made to AE - HELD THAT:- As per clause (4)(i)(c) of agreement between assessee and its AE dated 31.03.2009, the royalty payment to AE is net of applicable Indian income tax (which shall be borne by Indian Additives Ltd.). From the above, it is very clear that the assessee needs to make payment of royalty, net applicable taxes and thereby liability towards TDS is borne by the assessee. Since, the royalty expenditure is considered as revenue in nature, consequent TDS on said royalty is also revenue in nature which needs to be allowed as deduction. Therefore, we are of the considered opinion that the A.O is erred in disallowing TDS on royalty u/s. 40(a)(ii) of the Act because, it is neither a tax nor duty levied on profits of the assessee, but it is an expenditure incurred by the assessee for payment of royalty to its AE. Therefore, we direct the A.O to delete the additions made towards disallowance of royalty u/s. 40(a)(ii). Disallowance on R&D cess paid to RBI - assessee has paid 5% cess on total royalty paid to its AE and remitted the same to RB - A.O made addition on the ground that royalty expenditure is capital in nature and not revenue and consequently cess paid on said royalty expenditure and remitted to RBI cannot be allowed as a deduction - HELD THAT:- We find that the Tribunal in assessee’s own case for earlier years, held that royalty payment made to its AE M/s. Chevron Oronite Company LLC, USA is revenue in nature which is allowable as expenditure. Since, royalty expenditure is considered to be revenue in nature, cess paid on royalty expenditure and remitted to RBI is also revenue in nature, which needs to be allowed as expenditure. Therefore, we direct the A.O to delete disallowance of R&D cess. Disallowance of depreciation for non submission of supporting documents - HELD THAT:- The assessee neither furnished necessary bills and invoices in respect of additions to fixed assets nor justified the rate of additional depreciation. Even before us, the assessee could not file any details, including bills and invoices for addition to fixed assets. In the absence of necessary bills and invoices, the claim of additional deprecation cannot be allowed. Therefore, we are inclined to uphold the findings of A.O and Ld. CIT(A) and reject the claim of the assessee. Addition of interest on unsecured loan - HELD THAT:- We find that the assessee has claimed interest paid on unsecured loan borrowed from HDFC Bank, but could not file any necessary evidences including relevant bank statements and loan sanctioned letter to prove interest on unsecured loan debited into the profit and loss account. Therefor no error in the reasons given by the Ld. CIT(A) to sustain additions made towards disallowance of interest on unsecured loan and thus, we are inclined to uphold the findings of Ld. CIT(A) and reject the ground taken by the assessee. Disallowance of royalty payment - nature of expenditure - HELD THAT:- As royalty payment by the assessee to its AE has no nexus or direct connection with the manufacture of the product and thus in this circumstances, it should only be a revenue expenditure paid for the use of the license, trade mark and technical information for a particular period and accordingly, allowable as a revenue expenditure.
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