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2024 (3) TMI 658 - ITAT MUMBAIDisallowance u/s 14A - mandation of recording any satisfaction regarding the claim of the assessee in respect of expenditure incurred in relation to exempt income proceeded to compute the disallowance - AO without recording any satisfaction regarding the claim of the assessee in respect of expenditure incurred in relation to exempt income proceeded to compute the disallowance under section 14A read with Rule 8D of the Rules. Therefore, respectfully following the decision rendered in assessee’s own case [2024 (3) TMI 484 - ITAT MUMBAI] we do not find any reason for upholding the disallowance made by the AO under section 14A read with Rule 8D of the Rules. Accordingly, the same is directed to be deleted. As a result, ground no.1 raised in assessee’s appeal is allowed. Disallowance of expenditure incurred for the evaluation of various business opportunities – HELD THAT:- In the year under consideration, the assessee has filed the 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 the income. Since the issue pertains to the reconciliation of expenses vis-à-vis the year of crystallisation, therefore in the interest of justice we deem it appropriate to restore this issue to the file of the AO for de novo adjudication. The assessee is directed to furnish all the details in support of its claim that the expenses claimed as prior period expenses were crystallised during the year under consideration. Disallowance of provision for doubtful debts – HELD THAT:- In the present case, admittedly deduction has been claimed by the assessee in respect of provision for doubtful debts, without any write-off of irrecoverable debt. Since the claim of the assessee is contrary to the provisions of section 36(1)(vii) of the Act, for this short reason, we find no merits in the submissions of the assessee. Further, we agree with the findings of the lower authorities that the decision of Vijaya Bank [2010 (4) TMI 46 - SUPREME COURT] 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. Nature of expenses - disallowance of expenditure incurred by the assessee on “Colour Idea Stores” by treating the same as capital expenditure – HELD THAT:- The assessee is in the business of manufacturing paints and enamels and therefore in order to promote its brands and products, through a network of retail outlets, wherein the customers can have a complete experience of assessee’s products, apart from having the literature and pamphlets pertaining to its various types of products which include wall finishes for interior and exterior use, enamels, wood finishes and ancillary products such as primers, putties, etc., the assessee set up “Colour Idea Stores” at the shops of its dealers. It is pertinent to note that for any customer, who wishes to buy the assessee’s products, touch, texture, and appearance either on the wall (exterior or interior), wood, etc. are material for making the decision, as these aspects of assessee’s products cannot be better appreciated from the brochures and pamphlets available at the retail store. Considering the expenditure incurred by the assessee on “Colour Idea 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 a result, ground raised in assessee’s appeal is allowed. Allowability of expenditure u/s 35(2AB) – denial of weighted under section 35(2AB) of the Act on the basis of the certificate issued by the DSIR in Form No.3CL - HELD THAT:- We find that while deciding a similar issue the coordinate bench of the Tribunal in assessee’s own case in Asian Paints Ltd v/s Addl. CIT, [2014 (1) TMI 16 - ITAT MUMBAI for the assessment year 2007-08, restored the issue to the file of the AO with a direction to decide the same afresh after verifying whether the expenditure in question has been incurred by the assessee on research and development, which is eligible for deduction under section 35(2AB) of the Act. Allowance of balance additional depreciation – Asset put to use less than 180 days - HELD THAT:- We find that the coordinate bench of the Tribunal in assessee’s own case in Addl. CIT v/s Asian Paints Ltd [2022 (7) TMI 1508 - ITAT MUMBAI] decided the similar issue in favour of the assesse consedering decision in assessee's own case for the A.Y. 2010-11 and also following the principle of "Rule of consistency" dismiss the ground raised by the revenue holding that Ld.CIT(A) is correct in allowing the additional depreciation at the rate of 10% for asset purchased in the earlier year. TDS under section 194H - expenses disallowance under section 40(a)(ia) - Allowance of expenditure incurred on the Trip Scheme – HELD THAT:- As in assessee’s own case in ACIT v/s Asian Paints Ltd [2022 (2) TMI 1428 - ITAT MUMBAI] held that scheme is closely linked to assessee's business activity. It is also a fact that the assessee has not paid any amount to the dealers and distributors, but amount spent has been paid to SOTC for organizing the trip. It is also a fact on record that the amounts paid to SOTC has been subjected to TDS as per the relevant provision. Therefore, the allegation of the Assessing Officer that the amount has not been subjected to deduction of tax is without any basis. As regards the applicability of section 194H of the Act, by no means, the Assessing Officer has established on record that dealers/distributors are agents of the assessee. Further, as we find, the trip scheme has been introduced by the assessee from past 20 years and the deduction claimed by the assessee on account of such trip scheme has never been disallowed by the Assessing Officer except for the impugned 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 addition of the balance 2% Royalty waived by the parties, which is nothing but a notional income considered taxable by the AO in assessee’s hands. Before concluding, it is pertinent to note that in the assessment year 2011-12, the coordinate bench of the Tribunal decided a similar issue in favour of the assessee. Sundry balances written off –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 - HELD THAT:- As in assesse own case [2024 (3) TMI 484 - ITAT MUMBAI] 2012-13, assessee submitted that the expenditure is normal business expenditure and allowable as deductible expenditure. However, from the perusal of the record, we find that neither there is an examination of the aforesaid claim of the assessee nor any details were furnished. Accordingly, we deem it appropriate to restore this issue to the file of the AO for de novo adjudication. The assessee is directed to file necessary details/documents in support of its claim of deduction of sundry balances written off. Nature of receipt - Addition of subsidy received from the Government of Maharashtra under Package Scheme of Incentives, 2007 – HELD THAT:- 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 [2024 (3) TMI 485 - ITAT MUMBAI] for the assessment year 2013-14 held that the subsidy received by the assessee is capital in nature as the incentives/subsidy granted was only to encourage the setting up of industries in the less developed areas of the State and the same was not for the purpose of running the business more profitably. Addition of the electricity grant received from the Government of Haryana – HELD THAT:- We find that while deciding a similar in assessee’s own case in ACIT v/s Asian Paints Ltd [2024 (3) TMI 542 - ITAT MUMBAI] for the assessment year 2014-15 held that the incentives/subsidy received by the assessee is capital in nature as the same has been received under the Industrial Policy, 2005 of the Government of Haryana for setting up a project at Industrial Model Township, Rohtak for the manufacturing of paints 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.
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