2023 (10) TMI 82 - ITAT BANGALORE

TP Adjustment - TP adjustment as per section 92CA and protective addition of the same amount under section 37 - Arm's Length Price (ALP) of Management Fee paid by the Appellant to its AE as NIL - Since the benefits accrued by the Assessee was more than the price paid for the services, the international transaction of management fee / service fee was treated to be at arm’s length - HELD THAT:- We are of the opinion that similar issue came for consideration before this Tribunal in assessee’s case for assessment year 2013-14 [2022 (6) TMI 1433 - ITAT BANGALORE] it is only on such analysis being provided by the assessee, can the TPO proceed to examine the rendering of services as well as benefit that the assessee might derive. In the matter of coming to the conclusion on the benefit that the assessee received, clear evidence cannot be insisted upon and the overall business scenario and type of services rendered have to be looked into.

We also notice that similar payment made to the very same AE for similar services under the very same agreement, has been accepted to be at Arm’s Length in AY 2017-18 & 2018-19. We are, therefore, of the view that it would be just and appropriate to set aside the issue with regard to determination of ALP to the AO/TPO for fresh consideration in the light of law as explained above and the other observations in this order. The AO/TPO will afford opportunity of being heard to the assessee in the set aside proceedings, before deciding the issue

Additional depreciation on pellets - AO disallowing the claim of additional depreciation made on Pellets by categorizing these assets as Furniture & Fixtures - whether the Plastic crates and Wooden pellets used as storage devices are to be classified as “Plant & Machinery” or as “Furniture & Fixtures” for the purpose of claiming depreciation? - HELD THAT:- As decided in the case of Parle Bisleri Pvt. Ltd. [2022 (7) TMI 289 - BOMBAY HIGH COURT] wherein they considered the issue relating to whether bottles and crates could be treated as “plant” within the meaning of section 32(1)(i)

Thus in the interest of justice, we remit the issue in dispute to the file of AO/TPO for fresh consideration. If the assets involved before us are similar to the one considered by the Hon’ble Bombay High Court, then the additional depreciation on this is to be allowed. These grounds of assessee’s appeal are partly allowed for statistical purposes.

Commision paid to Executive Chairman - Disallowance of expenditure u/s 40(a)(i) for non-deduction of TDS by holding it as Payments towards Royalty - HELD THAT:- Assessee has made payment to M/s. Claessens International Ltd. to design its labels. AO has observed that the labels designed by the foreign party is intangible property of that party and the assessee has been given the right to use the design and this payment is to be considered as royalty and the assessee has not deducted TDS u/s 40(a)(i) - In our opinion, payment towards getting designing the labels of the assessee is just business expenses and there was no make available to the assessee and the recipient have no permanent establishment in India or any business connection in India, hence, in our opinion, foreign entity is not liable for taxation in India. Being so, the question of deduction of TDS u/s 40(a)(i) of the Act is not applicable

Disallowance of business promotion expenses - HELD THAT:- Similar issue came for consideration before this Tribunal in assessee’s own case in [2022 (11) TMI 1402 - ITAT BANGALORE] we direct the AO to allow the deduction towards business promotion expenses incurred by the assessee. These grounds of assessee are allowed.

TDS u/s 195 - Assessee reimbursed an amount to its AE towards reimbursement of part of the salary costs of a seconded employee - AO has treated these payments as “Fees for Technical Services (FTS)” liable for TDS and since TDS has not been done, the AO has disallowed these payments, by invoking the provisions of section 40(a)(i) - HELD THAT:- We are of the opinion that similar issue came for consideration in the case of M/s. Abbey Business Services India [2020 (12) TMI 570 - KARNATAKA HIGH COURT] seconded employees have to work at such place as the assessee may instruct and the employees have to function under the control, direction and supervision of the assessee and in accordance with the policies, rules and guidelines applicable to the employees of the assessee. The employees in their capacity as employees of the assessee had to control and supervise the activities of Msource India Pvt. Ltd. Therefore, the assessee for all practical purposes has to be treated as employer of the seconded employees. There is no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a non resident enterprise and therefore, the amount paid by the assessee was not to suffer tax deducted at source under Section 195

Disallowance u/s 14A in relation to exempt dividend income - HELD THAT:- As we direct the AO/TPO to restrict the disallowance to the extent of exempted income earned by the assessee in this assessment year under consideration.

Disallowance of product promotion expenses and Brand promotion expenses - AO surmised that the Digital media expenses incurred are in violation of Excise laws - HELD THAT:- The assessee has filed additional evidence as above. These additional evidences are produced first time before us and explained that assessee has been prevented by sufficient cause in not filing these additional evidences before the lower authorities. In our opinion, these additional evidences are very important to adjudicate this issue in dispute. Accordingly, we admit these additional evidences for adjudication after admitting for adjudication. In our opinion, it is appropriate to remit the issue in dispute to the file of AO and AO has to see whether assessee has made any direct advertisement with regard to sale and marketing of liquor or assessee made any surrogate advertisement in this respect. If the assessee has made any surrogated advertisement or indirect advertisement not mentioning anything relating to the liquor, the claim of assessee is to be allowed. With these observations, we remit the issue in dispute to the file of AO for fresh consideration.

Depreciation of Goodwill - Goodwill arising on acquisition of Karnataka Breweries and Distilleries Limited and other subsidiaries - HELD THAT:- As decided in assessee own case [2016 (9) TMI 1527 - ITAT BANGALORE] depreciation on goodwill is not allowable based on the facts of the case of assessee. Respectfully following that decision, we hold that depreciation on goodwill is not allowable.