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2015 (9) TMI 20 - ITAT DELHI

2015 (9) TMI 20 - ITAT DELHI - TMI - Disallowance made u/s 43B - certain items of excise duty - amount deposited by the assessee in PLA - Held that:- Under the 'Inclusive method', the figures of purchase, sale and inventories are required to be taken with the element of tax or duty etc. Since the amount of unutilized balance of excise duty under PLA does not form part of purchase, this amount will be eligible for separate deduction u/s 43B. At the same time, the last year's unutilized PLA gettin .....

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hase value of raw materials can be treated as allowed by way of debit to the Profit and loss account only when it also gets exhausted. If, even after a debit to the Profit and loss account, the amount appears in balance sheet, in one form or the other, the deduction cannot be said to have been actually allowed on payment, till it is exhausted and gets removed from the balance sheet also. In such circumstances, the amount of unexhausted (not necessarily only unutilized) Modvat credit i.e. which .....

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The AO should also make sure that the equivalent of ₹ 3 allowed as deduction on payment basis u/s 43B in this year should not get deducted in the next year and further, the corresponding amount of deduction allowed u/s 43B in the preceding year, should also be separately added to the income of the current year.

Disallowance u/s 43B in dispute is the amount of excise duty paid under protest to the tune of ₹ 45 lac - Held that:- Issuance of notice of demand by the competent .....

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me amount cannot be allowed to get deducted once again on the finalization of the dispute with the Excise department on its transfer to Excise duty account. Simultaneously, the amount of excise duty paid under protest in earlier years getting deduction u/s 43B calls for inclusion in the total income of the current year on the removal of the amount from Excise duty paid under protest account. We have noticed above that section 145A is applicable to the year under consideration and accordingly, in .....

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applicability of section 145A to the year in question, there can be no escape from valuation of purchase, sale and inventories under the inclusive method. We, therefore, direct the AO to recast Profit and loss account under 'Inclusive method' as per the mandate of section 145A, thereby, inter alia, increasing the purchase value with the above customs duty. Then the AO will allow separate deduction for the above referred sums to the extent not getting eventually deducted separately by way of incr .....

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lding that first the Profit and loss account be recast as per 'Inclusive method' in terms of section 145A and then some adjustments as stated above be separately made. Such directions are fully applicable pro tanto to the customs duty paid under protest. The AO is directed to follow the same.

Disallowance u/s 43B is customs duty included in closing stock - Held that:- As elaborately discussed this aspect supra in the context of excise duty included in the value of closing stock. In pr .....

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t year with the current year's amount getting separate deduction.

Adjustments on account of last year's disallowances u/s 43B - Held that:- We agree with the argument that since the amount of unutilized Modvat credit stood disallowed in the preceding year by the tribunal on the premise that the same before its set off cannot be treated as tax paid, then the same should be excluded from the total income of the current year, if voluntarily offered by the assessee for taxation. The AO is .....

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.63 crore in the preceding year, there is no other disallowance u/s 43B which has been upheld by the Tribunal. It is overt that all other disallowances made by the AO u/s 43B have been deleted by the tribunal. The ld. AR could not furnish any detail of the remaining amount of ₹ 69.96 crore (Rs.141.59 crore minus ₹ 71.63 crore), allegedly finally disallowed u/s 43B of the Act by the tribunal in the preceding year. It is simple and plain that if the tribunal has allowed deduction for t .....

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account of transfer pricing adjustment can be made by making a comparison between the transacted value of an international transaction and its ALP. Thus it is clear that the availability of the transacted value of an international transaction is sine qua non. If such transacted value is either not separately available or cannot be precisely determined from a combined value of a number of international transactions, then the entire exercise of determining ALP fails. Instantly, we are confronted w .....

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adjustment of royalty for use of licensed trademark.

Royalty for Licensed information whether capital expenditure? - Held that:- Our finding decides the nature of royalty payment for use of licensed information as revenue expenditure and not its quantum part. We have noticed above that the tribunal in its order for the immediately preceding year has also given some observations, which prima facie indicate that the entire amount of royalty is for the use of licensed information. Since .....

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sum of ₹ 9.68 crore after proportionately allowing deduction to the extent of depreciation allowed by him on royalty. There is no dispute on the nature of cess, which is on royalty and has been treated both by the assessee as well as the AO as part and parcel of royalty and accordingly claimed/disallowed in line with the treatment of royalty. Since we have allowed deduction for the entire amount of royalty paid by the assessee during the year by deleting the TP adjustment and also overtur .....

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earlier paras we have deleted entire royalty addition made by the AO, comprising of transfer pricing adjustment on account of international transaction of payment for use of 'Licensed trademark'; and payment for use of 'Licensed information' treated by him as capital expenditure. The net effect of this deletion is that even if the amount under consideration is paid to AE, still it is deductible. Be that as it may, we find that this ground is otherwise also not sustainable. The reason being that .....

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providing that: 'incentive would be given only in respect of vehicles rolled out of production capacity of 70000 vehicles added as a result of first expansion and not to the production augmented by capacity addition of 30000 vehicles as a result of second expansion.' When we consider section 25A along with Rule 28C of Haryana General Sales-tax Act/Rules, it becomes evident that the object of subsidy is in line with the Industrial Policy of Haryana Government, being 'attracting new investments a .....

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dealt with the treatment to be given in the context of a manufacturer.No reasons, except the pendency of the matter in the Hon'ble High Court in assessee's own case, have been given by the ld. AR to claim departure from the view taken by the tribunal in earlier cases. We, therefore, turn down the request of the ld. AR in this regard. With these observations, we send the matter back to the file of TPO/AO for a fresh determination of the ALP of the AMP expenses in accordance with our above observa .....

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et difference of ₹ 1.62 crore is nothing, but, excess consumption over the standard consumption. Such shortage of ₹ 1.62 crore is only 0.018% of total consumption of material debited to the Profit & Loss Account. In view of the fact that this amount has actually been consumed in the manufacturing of goods, it cannot call for any disallowance. There may be production efficiencies or inefficiencies leading to under or over consumption of inputs vis-a-vis standard consumption. Such unde .....

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be countenanced. It is noted that similar disallowance was made for the immediately preceding year. When the matter came up for consideration before the tribunal, the Bench held that the disallowance u/s 14A cannot be made as per Rule 8D and the question of computation of disallowance u/s 14A has been remitted to the AO for doing it afresh as per law. Respectfully following the precedent, we also set aside the impugned order on this score and send the matter to the file of AO for making disallow .....

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DA of the Act. Resultantly, the disallowance made by the AO came to be knocked down by the tribunal. In the absence of any distinguishing factor having been pointed out by the ld. DR, respectfully following the precedent, we direct to allow deduction u/s 35DDA

Disallowance of club membership fee - Held that:- In our considered opinion, this issue is no more res integra in view of the judgment of the Hon'ble Supreme Court in CIT vs. United Glass Manufacturing Company Ltd. [2012 (9) TMI .....

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has refused to grant deduction of software expenses claimed by the assessee and capitalized the same by treating it as capital asset, then depreciation on the written down value of such software expenses is required to be granted as per law. Since no such detail is available about the written down value of software expenses capitalized in earlier years, we set aside the impugned order and remit the matter to the file of AO for allowing deduction in respect of the written down value of the softwa .....

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of advance tax is required to be made on the basis of 'tax due on the returned income' as has been enshrined in the provision itself. We, therefore, direct the AO to verify this aspect of the matter and compute interest u/s 234C as per law. - ITA No. 5120/Del/2010, ITA No.2441/Del/2012 - Dated:- 24-8-2015 - R. S. Syal, AM And A. T. Varkey, JM,JJ. For the Petitioner : Shri Ajay Vohra, Sr. Adv., Shri Neeraj Jain & Shri Rohit Jain, Advs; and Ms Tejasvi Jain, Shri Ramit Katyal, Shri Puneet Chug .....

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the Act on 12.4.2012, pursuant to the suo motu rectification proceedings taken up by the Transfer Pricing Officer (TPO). 2. Ground nos. 1 and 2 are general, which do not require any specific adjudication. A. DISALLOWANCES U/S 43B 3. Ground no. 3 deals with disallowances made u/s 43B in respect of certain items of excise duty and customs duty. I. Excise duty 4.1. Firstly, we shall deal with all the items of excise duty disallowances. The first amount of disallowance of excise duty is ₹ 30, .....

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ehicles and ₹ 21,14,113/- towards excise duty on spare parts. The assessee claimed deduction for these amounts u/s 43B on the ground that these stood paid before the close of the financial year relevant to the assessment year under consideration. The AO, following his view taken in earlier years, refused to allow this deduction. The assessee is aggrieved against such disallowance. It has been admitted on behalf of the Revenue that similar issue has been decided by the tribunal in earlier y .....

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excisable goods. The amount in dispute is Modvat credit unutilized at the end of the year. The assessee treated it as payment of tax and claimed deduction u/s 43B of the Act. The AO refused to allow this deduction. It has been admitted by both the sides that the tribunal in earlier years, following the dictum of Special bench in Glaxo Smithkline Consumer Healthcare Ltd., (2007) 107 ITD 343 (SB) (Chd.), has decided this issue in favour of the Revenue. The assessee is aggrieved against the additio .....

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g, Trading, Profit and loss account (hereinafter called 'Profit and loss account' for convenience). The assessee is aggrieved against such disallowance. It has been admitted by the Revenue that similar issue has been decided by the tribunal in earlier years in favour of the assessee. 4.4. We have heard the rival submissions and perused the relevant material on record qua the above items of disallowances of excise duty. The assessee claimed deduction for these sums u/s 43B, which the AO r .....

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f the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him : …...'. 4.5. A perusal of the relevant parts of the above provision transpires that it has the following essential elements in so far as the deduction on account of excise duty is concerned : - i. Deduction is permis .....

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able 'only' once and that too in the year of payment. It cannot be allowed twice, that is, firstly in the year of incurring liability as per the method of accounting followed and if the date of payment is different from the year of incurring liability, then again in the year of payment. The use of the words 'irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him' before .....

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by the assessee, would require reversal. v. Deduction of tax or duty etc. in the year of payment is permissible only if the same is otherwise allowable under the Act. In other words, if deduction for tax or duty etc. is otherwise not permissible, then section 43B cannot intervene to allow deduction at the time of payment of such otherwise non-deductible amount. vi. Section 43B contains a non-obstante provision qua any other provision of the Act. It means it has an overriding effect over all othe .....

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ble and its charging at the time of sale, is liable to tax. Without interference of section 43B of the Act, an assessee following mercantile system of accounting could claim deduction for excise duty etc. at the time of incurring of its liability, even without making actual payment. Now with the insertion of section 43B, an assessee can get deduction of excise duty only in the year of payment and not with the mere incurring of liability without payment. Thus, it is clear that if excise duty is p .....

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nd instance, part of the amount not allowed in the first year becomes eligible for deduction in the second year at the time of payment. There can be a converse situation as well in which excise duty is paid in advance, though a specific liability is incurred later. A manufacturer is sometimes obliged to deposit excise duty in advance without availing its actual utilization. In such circumstances, the obligation to pay such amount under the respective excise rules will bring the case within the o .....

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nting the grant of deduction once again at the time of removal of goods in the subsequent year on incurring of specific liability. In such a situation, there arises a need to accordingly increase the income of the subsequent year with the amount of deduction allowed in the preceding year, which once again gets claimed as deduction on the event of incurring the specific liability. 4.7. The ld. AR candidly admitted that the assessee has followed 'Inclusive method' of accounting for goods s .....

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on as per the 'Exclusive method'. Under this method, the amount of tax or duty etc. paid does not does not get included in the figures of purchase, sale and inventories, as these are recorded without considering their effect. We have noticed above that section 43B mandates that deduction of tax or duty etc. is to be allowed in the year of payment. 4.8. We espouse the first item, being the amount deposited by the assessee in PLA. This is the amount paid in-account by the assessee in PLA w .....

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cise duty. This can be understood with the help of an illustration. Suppose an assessee pays a sum of ₹ 10/- in PLA out of which a sum of ₹ 9/- is adjusted during the year against the excise duty payable on the removal of goods from bonded warehouse. Further suppose that goods corresponding to the excise duty of ₹ 7 are sold during the year and goods corresponding to the excise duty of ₹ 2 are still in stock. In such a situation, when the assessee originally pays ₹ .....

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excise duty of ₹ 7, out of total utilized to the tune of ₹ 9, will show income of ₹ 7 as part of sales. In this way, the assessee gets deduction for ₹ 9 and shows income of ₹ 7 towards excise duty. Thus it is seen that out of total ₹ 10 paid by the assessee in PLA, he has claimed deduction of ₹ 9. The controversy before us is w.r.t. to the unutilized amount in PLA at the end of the year, being equivalent of Re.1/- in our example, which was actually paid .....

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een paid during the year in question. In our considered opinion, there can be no hindrance in allowing deduction of Re.1 as per the mandate of section 43B. Concurrently, it is significant to note that this unutilized amount of Re.1 appearing in balance sheet at the end of the year would be actually utilized in the next year on the removal of goods from the bonded warehouse. At that time, the assessee will debit Excise duty and credit PLA account with Re.1. Such debit of Re.1 in the excise duty a .....

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ed as deduction u/s 43B, but adjusted against the goods manufactured in the current year. Such amount of deduction allowed u/s 43B in the preceding year on account of unutilized PAL at the end of the year, requires to be separately offered for taxation in the current year. When this legal consequence of allowing deduction u/s 43B at the time of payment was confronted to the ld. AR, he stated that the assessee has voluntarily added back the suitable amounts in the computation of income of the cur .....

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and, hence, allowable as deduction u/s 43B of the Act in the year of payment. The Special bench further clarified that the allowing of deduction on payment basis should not result in double deduction under any circumstance. The tribunal in assessee's own case has also allowed deduction in the earlier years on account of unutilized PLA at the end of the year. In view of the above discussion, while we hold that the above referred sum of unutilized amount in PLA at the end of the year u/s 43B .....

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9;Exclusive method' is in accordance with law? In this regard, it is noticed that the legislature inserted section 145A by the Finance (No.2) Act, 1998 w.e.f. 1.4.199, the relevant part of which reads as under : - "145A. Notwithstanding anything to the contrary contained in section 145, the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be- (a) in acc .....

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any right arising as a consequence to such payment;" 4.11. The above provision provides that notwithstanding anything to the contrary contained in section 145, valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be in accordance with the method of accounting regularly employed by the assessee and further adjusted to include the amount of any tax or duty etc. a .....

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s earning business income are required to follow only the 'Inclusive method' and under this method, purchase, sale of goods and inventories (both opening and closing) are required to be adjusted to include the amount of tax or duty etc. As the assessment year under consideration is governed by section 145A, the assessee was under statutory obligation to cast its Profit and loss account on 'Inclusive method', which it has not done. Under such circumstances, we cannot approve the & .....

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n-obstante clause qua 'any other provision of this Act'. The effect of the non-obstante clause in section 145A is that even if the exclusive method of valuing purchase, sale, opening and closing stocks may be generally available, but the assessee will have to compute its 'Business income' by casting its Profit and loss account as per the 'inclusive method', meaning thereby, that the value of purchase, sale and inventories must be accounted in the annual accounts as inclus .....

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ories and thereafter, if some part of tax or duty is unpaid, that should be added back in the computation of income. If in a converse situation, some amount of tax or duty is paid as advance in current account, which has not been included in the amount of purchase etc. and is lying unadjusted in the balance sheet, then the same should be separately deducted in terms of section 43B. However, having allowed deduction on payment basis as per section 43B, the computation of income of the succeeding .....

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ot form part of purchase, this amount will be eligible for separate deduction u/s 43B. At the same time, the last year's unutilized PLA getting deduction in that year due to the application of section 43B, would be required to be added back to the income of the current year as determined above. We, therefore, set aside the impugned order and direct the AO to firstly recast the assessee's Profit and loss account on inclusive basis and then make suitable deduction in respect of the amount .....

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f excisable goods. The amount of duty paid to the supplier of raw material is considered as the amount of central excise duty actually paid by the assessee. Thus, a manufacturer of final product under Modvat/Cenvat Scheme is allowed to get adjustment of excise duty paid by him on any inputs received in the factory to be used in the manufacture of final product. In the year under consideration, the assessee purchased excise duty paid raw material and other inputs and as per the excise rules becam .....

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vat credit. When goods using the excise duty paid raw material are manufactured, the manufacturer becomes entitled to use Modvat credit against his liability of excise duty on finished products. This utilized part of the Modvat credit goes to the Excise duty account in the same manner as utilized PLA discussed above. Suppose, an assessee has Modvat credit of ₹ 10 and has utilized duty paid raw material in its production during the year for corresponding sum of ₹ 9, out of which finis .....

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t the outset, we want to mention that the Special Bench of the Tribunal in Glaxo Smithkline Consumer Healthcare (supra) has held that unexpired Modvat credit before it is set off, cannot be treated as tax paid. Accordingly the Special Bench held that the Modvat credit available to the assessee as on the last date of the previous year does not amount to payment of excise duty and is, hence, not allowable u/s 43B. In earlier years, the Tribunal has followed the dictum of this Special Bench verdict .....

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a) has held that : 'The Authorities below are right in coming to the conclusion that MODVAT Credit is excise duty paid'. The Hon'ble jurisdictional High Court in the assessee's own case in CIT vs. Maruti Suzuki India Ltd. (2013) 255 CTR 140 (Del), after taking note of the judgment of the Hon'ble Supreme Court in the case of Shri Ram Honda Power Equipment Corporation (supra) has held that : 'This court also notices that the Supreme Court has upheld the view which allows as .....

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the 'Exclusive method', which is unutilized Modvat credit in the balance sheet at the end of the year, needs to be treated at 'excise duty paid'. Since this amount is considered as excise duty paid, the same has to be allowed as deduction during the year of payment as per section 43B. Caveat remains that deduction for a sum of Re.1 in the current year, being the Modvat credit unutilized at the end of the year under the exclusive method, also requires enhancement of income of the .....

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also requires add back in the computation of income of the immediately next year and also the corresponding amount of unutilized Modvat credit of the preceding year, if allowed as deduction in such earlier year, requires a separate addition to the income of the current year. It is the treatment of Modvat credit under the 'Exclusive method'. 4.18. We have noticed supra that the use of 'Exclusive method' is no more permissible in the year under consideration. As such, there is a ne .....

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credit, the Hon'ble Summit Court followed the judgment of the Hon'ble Bombay High Court in CIT vs. Indo Nippon Chemical Co. Ltd., (2000) 245 ITR 384 (Bom), as affirmed by the Hon'ble Apex Court in (2003) 261 ITR 275, in holding that the same was squarely applicable and hence the amount was deductible. The assessment year involved in the case of Indo Nippon (supra) was 1989-90, which is again before the insertion of section 145A. It is interesting to note that during the course of arg .....

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on, it becomes imperative to give effect to the provisions of section 145A of the Act, which are applicable to the year under consideration and are binding without any exception. 4.20. Now we come to giving effect to sections 145A and 43B under the 'Inclusive method'. In line with our discussion made above while dealing with PLA component of excise duty, we direct the AO to first recast Profit and loss account of the assessee by taking the figures of purchase, sale and opening and closin .....

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while discussing it under the exclusive method, viz., ₹ 7 which is utilized Modvat and finished goods sold; ₹ 2 which is utilized Modvat but finished goods in stock at the end of the year; and Re.1 which is unutilized Modvat at the end of the year. Now under the 'Inclusive method', the price of duty paid input/raw material will be taken at full price inclusive of ₹ 10. In that view of the matter, the assessee can be said to have initially claimed deduction for ₹ 1 .....

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f raw material, but the reality is different. When the figures of closing stock of finished goods and raw material also include ₹ 3, then in fact, there is no deduction of ₹ 3, because debit to the Profit and loss account through increased purchase value gets neutralized with the credit to the Profit and loss account with increased value of closing stock. This enhanced value of closing stock inclusive of ₹ 3 will become opening stock of the succeeding year, thereby obliterating .....

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145A with the amount of Modvat credit, now there is a separate requirement of giving effect to the mandate of section 43B, which requires the granting of deduction of ₹ 10 in the year of payment. A sum of ₹ 7 included in purchase value as a part of ₹ 10, gets eventual deduction because it is exhausted as the same is not taken as an asset to the balance sheet, either directly as Unutilized Modvat, or indirectly as part of closing stock. But in so far as the amount of ₹ 3 .....

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is exhausted and gets removed from the balance sheet also. In such circumstances, the amount of unexhausted (not necessarily only unutilized) Modvat credit - i.e. which appears in balance sheet either in the form of increased value of closing stock (Rs.2 in our example) and increased value of raw material representing unutilized Modvat credit (Re.1 in our example) - calls for separate deduction in terms of section 43B. We, therefore, set aside the impugned order and direct the AO to first recast .....

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next item of disallowance u/s 43B in dispute is the amount of excise duty paid under protest to the tune of ₹ 45 lac. The facts apropos this issue are that certain demand was created against the assessee by the Excise Department. The assessee paid the same albeit under protest by challenging the levy of demand. Deduction claimed for such demand under exclusive method was disallowed by the AO on the ground that the assessee was contesting this liability and there was no finality regarding .....

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accrues on issuance of demand notice. It has further been held that raising of further dispute by the assessee is not relevant. In view of this judgment, it becomes clear that the issuance of notice of demand by the competent Excise authority makes the amount otherwise deductible by means of incurring the liability. This satisfies the condition of section 43B which provides for deduction on actual payment in respect of an otherwise deductible amount. Since the amount in question has been paid du .....

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lusion in the total income of the current year on the removal of the amount from Excise duty paid under protest account. 4.24. We have noticed above that section 145A is applicable to the year under consideration and accordingly, income is required to be determined by switching over to the 'Inclusive method' and then allowing deduction u/s 43B on payment basis. We, therefore, set aside the impugned order and direct the AO to first recast the assessee's Profit and loss account on incl .....

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e and finished goods or raw materials, as the case may be, the assessee will be entitled to separate deduction of this amount u/s 43B. This will be done again with the same rider that in the year of settlement of dispute, this amount of separate deduction allowed in the current year, should be separately offered for taxation and further the corresponding amount of duty paid under protest in earlier years should be separately offered for taxation in the computation of income for the current year, .....

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t the tribunal has allowed deduction in respect of these amounts in the preceding years. 5.2. Here again it is noticed that the assessee has also followed 'Exclusive method'. In such circumstances, this method needs to be substituted with 'Inclusive method' as mandatorily required u/s 145A. We, therefore, direct the AO to recast Profit and loss account as per 'Inclusive method' as discussed above and then allow deduction in respect of the customs duty paid in accordance w .....

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As regards the other amount of customs duty for which exports had not been made by the year end would represent the amount though debited to the Profit and loss account by means of increased input cost but not getting exhausted as the same also appearing in the balance sheet through the enhanced value of closing stock. Separate deduction is required to this extent u/s 43B of the Act. At the same time, we also direct the AO to make sure that such amount separately getting deducted in this year do .....

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imed deduction for the above amounts u/s 43B of the Act, which the AO denied. 5.4. We have heard the rival submissions and perused the relevant material on record. The ld. AR contended that this issue has been decided in earlier years in the assessee's favour by the Tribunal. He further referred to the judgment of the Hon'ble Delhi High Court in CIT vs. Samtel Colour Ltd. (2009) 184 Taxman 120 (Del) in which it has been held that advance customs duty paid in the year in question is an ad .....

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e year in question, there can be no escape from valuation of purchase, sale and inventories under the inclusive method. We, therefore, direct the AO to recast Profit and loss account under 'Inclusive method' as per the mandate of section 145A, thereby, inter alia, increasing the purchase value with the above customs duty. Then the AO will allow separate deduction for the above referred sums to the extent not getting eventually deducted separately by way of increased purchase price, as ha .....

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rotest' by holding that first the Profit and loss account be recast as per 'Inclusive method' in terms of section 145A and then some adjustments as stated above be separately made. Such directions are fully applicable pro tanto to the customs duty paid under protest. The AO is directed to follow the same. 5.6. The last aspect of disallowance u/s 43B is customs duty included in closing stock amounting to ₹ 22,52,46,693/-. The assessee claimed deduction for this sum, which was de .....

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le in terms of section 43B of the Act. He also submitted that this issue is settled in the assessee's favour in earlier years. 5.7. We have elaborately discussed this aspect supra in the context of excise duty included in the value of closing stock. In principle, we hold that the amount of customs duty of ₹ 22.52 crore is allowable in the year in question, but, the AO is directed to first verify the argument of following the 'Inclusive method' and then allow deduction u/s 43B i .....

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as per ground no. 3.5 is ₹ 71,63,89,449 representing the amount of last year's unutilized Modvat credit which was claimed by the assessee as deductible u/s 43B, but disallowed by the AO and such disallowance came to be affirmed by the tribunal. While allowing deduction for the current year's unutilized Modvat credit at the end of the year amounting to ₹ 48,53,55,419, we have noticed that the position of law has undergone change and now this amount is deductible for the year .....

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nt of unutilized Modvat credit stood disallowed in the preceding year by the tribunal on the premise that the same before its set off cannot be treated as tax paid, then the same should be excluded from the total income of the current year, if voluntarily offered by the assessee for taxation. The AO is directed to verify this aspect and allow deduction for this sum, if the same was eventually disallowed in the preceding year and the assessee once again offered it for taxation in the computation .....

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gree with the ld. AR that one amount cannot be taxed twice. It is but natural that if an amount claimed as deduction by the assessee in the earlier year has not been allowed, then on the assessee's suo motu offering of it as an item of income for the current year on the strength of deduction claimed in the earlier year, which finally stands denied, should not be charged to tax. On being called upon to furnish the detail of such amount, it was stated that it, inter alia, includes a sum of  .....

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#8377; 71.63 crore), allegedly finally disallowed u/s 43B of the Act by the tribunal in the preceding year. It is simple and plain that if the tribunal has allowed deduction for the amounts disallowed by the AO in the preceding year, then the same are rightly chargeable to tax in the current year. This ground is, therefore, dismissed, subject to our decision on ground no. 3.5 in granting deduction of ₹ 71,63,89,449, representing last year's unutilized Modvat credit which was claimed by .....

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). In 1992, SMC increased its share to 50%. SMC held 54.2% in the company in the previous year relevant to the assessment year under consideration. The assessee, MUL, is engaged in manufacturing of passenger cars primarily for sale in Indian market. It also exports vehicles to other countries. The assessee reported certain international transactions which have been enumerated on page 18 of the order of the Transfer Pricing Officer (TPO). The assessee selected the Transactional Net Margin Method .....

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ssee also paid ₹ 20.00 crore to its AE towards Technical/other services. The assessee treated running royalty as revenue expenditure in its return of income. Lumpsum royalty was initially treated as capital expenditure, but during the course of assessment proceedings, the same was also claimed as revenue expenditure. On a reference made by the AO for determination of the arm's length price (ALP) of the international transactions, the TPO observed that the assessee had undertaken tremen .....

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the assessee carried out huge R&D for development of its products in India and during the year in question alone, a sum of ₹ 67.10 crore was spent on it. Since the assessee is only a licensed manufacturer, the TPO observed that R&D activity should have been carried out by the licensor and not the assessee-licensee. On being called upon to explain as to why the royalty expenses be not disallowed for the reasons given in his order for the AY 2005-06, the assessee submitted that the .....

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that clauses 3.02 and 3.03 of the Agreement stipulate that improvement and modification of the Products and Parts by the assessee shall be treated as licensed information whose legal ownership will get transferred to the SMC and the assessee will be compensated for such improvements and modifications. He noticed that no such compensation was given despite the assessee incurring huge R&D expenses. The TPO came to hold that 'Suzuki' trademark of the AE was piggybacked on 'Maruti .....

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9;Licensed information' and ₹ 127.195 crore towards sale and after sale service licence, that is for use of 'Licensed trademark'. This 50:50 segregation was done on the ground that both manufacturing and sale functions were equally important for running a business. He took up the determination of the ALP of the royalty paid for use of 'Licensed trademark'. It was noticed that the assessee used co-branded trade mark i.e., 'Maruti Suzuki.' Considering the fact tha .....

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. That is how, the TPO proposed transfer pricing adjustment of ₹ 127.195 crore on account of royalty payment for use of 'Licensed trademark'. The Dispute Resolution Panel (DRP) affirmed the view taken by the AO in the draft order on this issue, which was based on the order of the TPO. This led to the addition of ₹ 127.195 crore, which has been assailed before us. At this stage, it is relevant to mention that the TPO did not dispute the ALP of royalty paid for 'Licensed In .....

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arts, namely, lumpsum royalty and running royalty. Taking us through the Agreement between the assessee and SMC dated 9.1.2001 (a copy of which has been placed on page No.1301 onwards of paper book no. 4), it was pointed out that royalty is a one merged payment for use of the licensed information and licensed trademarks and the TPO was not right in artificially splitting the same into two parts. Relying on the order dated 2.8.2013 passed by the Tribunal in the assessee's own case for the AY .....

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alty payment was for use of licensed information and the remaining 50% for use of licensed trademark. He also took us through the same Agreement dated 9.1.2001 and submitted that clause 1.06 provides that the 'Licensed Trademark' shall mean the trademarks owned by Suzuki listed in Exhibit-B and other Indian trademarks which Suzuki may, hereafter, obtain relating to the Products and Parts. It was contended that clause 2.03 of the Agreement provides for use of 'Licensed Trademarks' .....

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argued that it could not be said that there was no separate consideration for use of licensed trademark embedded in total royalty payment. It was stated that if some part of royalty is relatable to the use of licensed trademark, then that cannot be lost sight of. He insisted that the Agreement impliedly provides for separate royalty for use of the licensed trademark. This was corroborated by stating that the Agreement itself divides payment of royalty as per Article 6 into two parts, the first .....

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ng to such model of products, whichever is later; and the remaining part of 7 crore yen to be paid not later than 18 months after the effective date or 'the date of start of production of such model of products by Maruti, whichever is later.' In the light of this clause, which is uniform in all other Agreements entered into between the assessee and SMC, the ld. DR contended that the 'Lumpsum royalty' is exclusively towards the use of licensed information, which is payable only on .....

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ion of the licensed information whose intellectual property rights also vests with SMC. He summed up his position by stating that the three sums, namely, lumpsum royalty, R&D expenses incurred by the assessee and the payment of ₹ 20.00 crore towards 'technical/other services' pertain exclusively to the use of 'Licensed information' and Running royalty exclusively pertains to the use of 'Licensed trademark'. He thus argued that the TPO was more than reasonable in .....

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much higher brand value than the trade mark 'Suzuki' of SMC, which is relatively weak in India, the entire amount of royalty paid by the assessee to its AE towards the use of 'licensed trade marks' was rightly disallowed by the AO as having Nil ALP. 7.5. We have considered the rival submissions and perused the relevant material on record. It can be observed that the TPO has attributed a sum of ₹ 127.195 crore towards royalty for use of licensed trademarks, whose ALP has be .....

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s, namely, Lumpsum royalty and Running royalty. The bifurcation between lumpsum and running royalty is not based on use of licensed information and licensed trademark. It is a quid pro quo for use of both in a cumulative manner. The finding of the tribunal in para 11 of its order for the immediately preceding year is : 'that royalty thus paid by the assessee to SMC constitute a single/inseverable/indivisible contract/package which provided the assessee the exclusive right and licence to manu .....

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, namely, licensed information and licensed trademarks, which is incapable of bifurcation. At the same time, it is also equally true that some observations in the tribunal order give impression that the Bench attributed the entire royalty payment to the use of 'Licensed information'. Given the face off between such observations, we are more inclined to go with the finding about the royalty attributable to the use of both the licensed information and the licensed trademarks. It is so for .....

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ra 17, the Tribunal deleted the disallowance made by the AO on the basis of the TPO's conclusion that the payment of royalty towards use of licensed trademark was not warranted. 7.6. Thus it is manifest that the tribunal in the immediately preceding year has held two things. First that the payment of royalty under the Agreement is both for the use of licensed information and licensed trademark and there can be no division of royalty payment; and second that brand Suzuki is valuable and not w .....

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finding given for the AY 2005-06 in arriving at the decision taken against the assessee in the extant year. As regards the second aspect, the ld. DR has not brought on record any further material to demolish the finding given by the tribunal in the earlier year about the brand 'Suzuki' having substantial value and the royalty payment at ALP. 7.7. Addition on account of transfer pricing adjustment can be made by making a comparison between the transacted value of an international transact .....

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and the tribunal has held in the earlier year that it is a payment of inseparable royalty for use of both the licensed information and the licensed trademarks. In such circumstances and respectfully following the order of the tribunal for the immediately preceding year, we order for the deletion of the addition of ₹ 127.195 crore on account of transfer pricing adjustment of royalty for use of licensed trademark. II. Royalty for Licensed information whether capital expenditure? 8.1. The ne .....

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which was accepted at ALP. However, the AO treated this amount as an expenditure of capital nature. After allowing suitable depreciation, the AO made disallowance of ₹ 95.98 crore. The assessee is aggrieved against this addition. 8.2. We have heard the rival submissions and perused the relevant material on record. It is noticed that in all the earlier years before assessment year 2005-06, the AO has consistently considered running royalty as deductible in full and capitalized the lumpsum .....

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al expenditure. Now, the question before us is whether the amount of royalty on licensed information, consisting of running and lumpsum royalty, is revenue or capital expenditure? 8.3. Before reaching any conclusion in this regard, it is paramount to note the relevant clauses of the Agreement entered into by the assessee, under which payment of royalty for licensed information has been made during the year in question. Since all these Agreements are, mutatis mutandis, identically worded, we take .....

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n this Agreement.' This indicates that the Agreement is for grant of licence and not for outright sale. Clause 1.04 defines 'Licensed Information' to : 'mean any and all technical information, whether patented or not, including know how, trade secrets and other data (including all drawings, prints, machines and material specifications, engineering data and other information, knowledge and advice) which Suzuki now has..... relating to the engineering, design and development, manuf .....

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It is further relevant to note that the use of the Licensed Information to the assessee is a 'non-exclusive right.' This Article further provides that Maruti shall have the right to sub-license the rights granted as per this Agreement to other entities, who will manufacture parts for supplying them only to Maruti for the manufacture of Products of Maruti, and, that too, with the prior written consent of Suzuki. This Article, therefore, makes it clear that the licence given by Suzuki for .....

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o Maruti such licensed information which is to be utilized for manufacture of products. Clause 3.02 of the Agreement deals with 'Improvements by Maruti'. It states that if at any time during the term of this Agreement, Maruti discovers or acquires any improvement with respect to Products or Parts, it shall give to Suzuki full information, instructions, knowhow and assign ownership of the same to Suzuki and the same shall be considered as 'Licensed Information'. This clause of the .....

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rticle 3.10 of the Agreement is a Confidentiality clause which provides that all licensed information supplied to and acquired by Maruti under this Agreement shall be kept by Maruti in confidence and shall not disclose the same to any other party at any time during the life of this Agreement. Clause 5.04 provides that Maruti is not authorized to use nor shall Maruti use the word 'Suzuki' or any word similar thereto except as specifically authorized under this agreement. Article 7 contain .....

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on is for manufacture of Products and Parts and not for setting up of the assessee's factory. The use of Licensed information has been allowed by Suzuki, which is nonexclusive to the assessee and, further, the assessee cannot sublicence the same to a third party except for getting parts manufactured to be used by it in manufacture of the Products. The assessee has been simply given a licence to use the Licensed Information for a period of ten years and the assessee recognizes Suzuki's ow .....

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ssee has acquired under this Agreement is a right to use the 'Licensed Information'. There is no outright purchase by the assessee of the 'Licensed Information'. In fact, such licensed information is required to be returned to Suzuki upon termination of the Agreement. The 'right to use' the licensed information, has certain restrictions put on by Suzuki, which the assessee cannot violate. The assessee is under obligation to maintain confidentiality of the Licensed Informa .....

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relied on certain decision which mark such payment as a revenue expense. In all these decisions, the dividing line is whether the consideration is for purchase of technical information, know-how information, designs and drawings, etc., or for its use. If it is for use alone, then it is revenue and vice versa. Recently, the Hon'ble jurisdictional High Court in CIT vs. Hero Honda Motors Ltd. (2015) 372 ITR 481 (Del), on consideration of the relevant clauses of the agreement before it, which c .....

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igh Court in an earlier judgment in Shriram Refrigeration Industries Ltd. vs. CIT (1981) 127 ITR 746 (Del), has held that the lumpsum royalty is a revenue expenditure. After going through the relevant clauses of the Agreement, we have noted that royalty paid by the assessee is for use of licensed information and no part of the same is towards its acquisition as an owner. In the light of the above discussion, it is absolutely clear that the view canvassed by the AO in treating this amount as capi .....

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ication aspect becomes irrelevant. It is so because the TPO has held royalty for use of licensed information at ALP. We, therefore, hold that the amount of royalty considered by the AO as capital expenditure should be allowed as a revenue expenditure. At the same time, depreciation allowed by the AO on this amount should be taken back. III. R&D cess on royalty paid 9. The next ground is disallowance of R&D cess paid amounting to ₹ 9,68,47,294/-. Relevant discussion has been made by .....

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ce we have allowed deduction for the entire amount of royalty paid by the assessee during the year by deleting the TP adjustment and also overturning the action of the AO in treating the remaining half part as capital expenditure, the consequential amount of cess on royalty payment automatically becomes deductible. We, therefore, direct to allow deduction of ₹ 9.68 crore. IV. Royalty paid to non-AE 10.1. The next issue raised through Ground No.18.14 is against the transfer pricing adjustme .....

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ial on record, we agree in principle that the ALP u/s 92 can be determined only of international transactions, which form the basis for making addition towards transfer pricing adjustment. Ordinarily, an international transaction is a transaction between two or more AEs. If there is a transaction with non-AE that automatically goes out of reckoning for the purposes of processing it u/s 92 of the Act. Further, we do not consider it necessary to consider this issue on merits because in earlier par .....

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that the TPO made transfer pricing adjustment in respect of royalty paid for use of licensed trademark. On the contrary, this amount paid to M/s Auto Chassis International is admittedly for use of know-how and not their trademark. V. Error of the AO in computing disallowable amount of royalty 11. Ground no. 10.5 of the assessee's appeal is against the computation error made by the AO in determining the amount of disallowance at ₹ 95.98 crore towards royalty paid for the use of licensed .....

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n the return of income, but the assessee claimed it as capital receipt during the course of assessment proceedings. The assessee submitted that it was a capital subsidy allowed by the Haryana Government for helping it in expansion of industry. In support of its claim of such subsidy as capital receipt, the assessee relied on the judgment of the Hon'ble Supreme Court in CIT vs. Ponni Sugars & Chemicals Ltd. & Ors. (2008) 306 ITR 392 (SC). The AO treated this amount as revenue in natur .....

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xpand industry, it assumes the character of a capital receipt. Such subsidy may be given in any form, may be by financing investment in capital asset or giving the amount in cash or by means of a waiver of sales-tax, etc. for a particular period. But, when the object is not to encourage industrialisation but to facilitate the carrying on an existing business more efficiently post its set-up, then it becomes a revenue receipt, irrespective of the form of disbursement. The Hon'ble Supreme Cour .....

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idy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43;' 12.4. A reading of the above provision makes it explicit .....

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ation of actual cost of asset in terms of Explanation 10 to section 43(1). As this amendment is prospective, it cannot take effect retrospectively to include the assessment year under consideration. 12.5. Adverting to the facts of the instant case, we find that the assessee was allowed subsidy under Industrial Policy 1999 of the Government of Haryana, a copy of which is available at page 777 of the paper book. The objective of the Industrial Policy has been set out at page 779 which talks of inc .....

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s added as a result of first expansion and not to the production augmented by capacity addition of 30000 vehicles as a result of second expansion.' When we consider section 25A along with Rule 28C of Haryana General Sales-tax Act/Rules, it becomes evident that the object of subsidy is in line with the Industrial Policy of Haryana Government, being 'attracting new investments and growth of existing industry.' In our considered opinion, such subsidy cannot be characterized as anything .....

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utine advertisement expenses and nonroutine advertisement expenses. Applying the bright line test, the TPO considered three comparables, namely, Hindustan Motors Ltd. (Nil AMP expenses), Mahindra and Mahindra (Rs.54.86 crore advertisement expenses) and Tata Motors Ltd. (Rs.187.25 crore advertisement expenses). He calculated percentage of AMP expenses to gross sales of Hindustan Motors at '0', of Mahindra and Mahindra at 0.61%, and of Tata Motors Ltd. at 0.77%. Average of the percentage o .....

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d, recommending the TP adjustment of ₹ 158.64 crore. The AO, giving effect to the TPO's order and after going through the directions of the DRP, finally made the said addition. The assessee is aggrieved against the addition so made by the AO, which also covers the sole issue in the appeal filed against the order passed u/s 154 due to enhanced TP adjustment of AMP expenses. 13.3. We have heard the rival submissions and perused the relevant material on record. At the very outset, it was .....

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ricing adjustment on account of AMP expenses to be done in conformity with the Special Bench decision in LG Electronics India Pvt. Ltd. (supra). The ld. AR submitted that the said decision of the Tribunal for the immediately preceding assessment year has been challenged by the assessee before the Hon'ble High Court and the hearing is under way. It was, therefore, prayed that the matter of the TP adjustment of AMP expenses for the instant year be sent back to the TPO/AO for deciding it in con .....

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ications Ltd., in which there is discussion about the TP adjustment to be made in the case of manufacturers. He further relied on the order passed by the Tribunal in the case of Perfetti Van Melle India Pvt. Ltd. vs. DCIT (ITA No.407/Del/2015) in which the Bench has discussed about the TP adjustment of AMP expenses in the case of a manufacturer, as is the case under consideration. 13.4. We have heard the rival submissions and perused the relevant material on record. It is an admitted position th .....

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despite the same not having been specifically referred to by the AO. On the question of determination of the ALP of this international transaction, the Special bench approved the application of bright line test for working out the amount of non-routine AMP expenses and held that the ALP of AMP expenses should be determined on Cost plus method by treating AMP transaction as a separate and distinct from other international transactions. It further held that the selling expenses directly incurred .....

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expenses, restoring the matter to the file of AO/TPO for deciding this issue in conformity with the directions given by the Special Bench in LG Electronics (supra). Several assessees as well as the Revenue preferred their respective appeals before the Hon'ble High Courts against the tribunal orders following the Special bench order. A batch of appeals in relation to 'Distributors' (not Manufacturers) led by Sony Ericson Mobile Communications India Pvt. Ltd. Vs. CIT has been disposed .....

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enses should be bundled/aggregated with other international transaction carried out by the assessee as a distributor, who either simply acts an agent of manufacturer or purchases goods from the manufacturer for resale at his own account. The Hon'ble High Court held that where the TNMM has been applied as the most appropriate method by a Distributor, which method has not been disturbed by the TPO, then, the international transaction of AMP and distribution activities should be clubbed. It fur .....

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r functions as done by the assessee and no adjustment is possible for bringing the international transactions of the assessee in an aggregate manner at par with those undertaken by the comparables, then, segregation should be done and the international transaction of AMP spend should be separately processed under the transfer pricing provisions for the purposes of determining its ALP separately. In such a determination of ALP of AMP expenses in a segregated manner, proper set off on account of e .....

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from the judgment of the Hon'ble High Court, as under : - AMP expense is an international transaction [Paras 52 & 53 of the judgment]; - The TPO has jurisdiction to determine the ALP of the international transaction of AMP expenses [Para 50 of the judgment]; - Inter-connected international transactions can be aggregated and section 92(3) does not prohibit the set-off [Paras 80 & 81]; - AMP is a separate function. An external comparable should perform similar AMP functions. [Paras 16 .....

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others]; - The choice of comparables cannot be restricted only to domestic companies using any foreign brand [Para 120]; - If no comparables having performed both the functions in a similar manner are available, then, suitable adjustment should be made to bring international transactions and comparable transactions at par [Para 194 (iii)]; - If adjustment is not possible or comparable is not available, then, the TNMM on entity level should not be applied [Paras 100, 121, 194(iii) & (vi)]; - .....

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nnot be considered as part of AMP expenses [Paras 175 & 176 of the judgment]. 13.7. The bright line test, disapproved by the Hon'ble High Court, primarily concentrates on the quantitative aspects of the AMP expenses alone. It overlooks the examination of the AMP functions carried out by the assessee on one hand and the comparables on the other. The Hon'ble High Court in Sony Ericson Mobile (supra), has held that AMP expense is a separate international transaction and also bright line .....

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egated manner. As such, it becomes immensely important to separately examine the Distribution activity and AMP functions undertaken by the assessee as well as probable comparables. It is vital to highlight the difference between the AMP expenses and AMP functions. Whereas the AMP functions are the means by which the AMP activity is performed, the AMP expenses are the amount spent on the performance of such means (functions). To put it simply, an examination of AMP functions carried out by the as .....

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TNMM and since the profit margin declared by the assessee from its international transactions favourably compares with the average margin of the comparables, which fact has not been disputed by the TPO, then no adjustment should be made on account of AMP expenses because such expenses stand subsumed in the overall operating profit. The argument of the ld. AR, if taken to a logical conclusion, will make the AMP spend a non-international transaction, which, in our considered opinion, is contrary t .....

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ctions performed by the assessee as well as the comparable, at the same pedestal. If we concur with the contention of the ld. AR that the addition on account transfer pricing adjustment of AMP expenses be deleted without any examination of the AMP functions carried out by the assessee as well as comparables, this will amount to snatching away the tag of international transaction from AMP expenses, which has been assigned by the Hon'ble High Court. What Their Lordships have held in the judgme .....

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unctions performed by some probable comparables. If the distribution and AMP functions performed by an assessee turn out to be different from those performed by probable comparables, then, a suitable adjustment should be made to the profits of the comparable so as to counterbalance the effect of such differences. If however differences exist in such functions, but no adjustment can be made, then, such probable comparable should be dropped from the list of comparables. If, in doing this exercise, .....

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ut to be similar, then the matter ends and a comparable is found and one can go ahead with determining the ALP of such a transaction. If the AMP functions performed by the two entities are found to be different, then adjustment is required to be made in the case of a probable comparable, so as to make it uniform with the assessee. A particular assessee may have possibly done, say, four different AMP functions as against the probable comparable having done, say, only three. In such a scenario, ag .....

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lable from the distribution function, should be allowed. The essence of the judgment in the case of Sony Ericson Mobile (supra) is that the two international transactions of Distribution and AMP should be examined on the touchstone of transfer pricing provisions, but on an aggregate basis. Determining the ALP of two transactions in an aggregate manner postulates making a comparison of both the functions of distribution and AMP carried out by the assessee with the comparables, so that surplus fro .....

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ed that the TPO cannot account for or treat AMP as a function. This argument on behalf of the assessee is flawed and fallacious for several reasons. There are inherent flaws in the said argument'. It held vide para 165 of the judgment that : 'An external comparable should perform similar AMP functions.' Thus it is manifest that comparison of AMP functions is vital which cannot be dispensed with. Let us we go a step further with the alternative prescription of the judgment that if ALP .....

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transaction, which is patently incapable of acceptance. The fact remains that as per the verdict of the Hon'ble High Court, the AMP spend is an international transaction, which is required to be processed under Chapter X of the Act by taking into account the AMP functions performed by an assessee and then comparing such functions with those performed by comparable entities. This can be done only by mandatorily making a comparison of the AMP functions performed by the assessee and comparables .....

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ected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international .....

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the international transaction.' 13.9. A perusal of the sub-clause (iii) of this Rule divulges that net profit margin under a comparable uncontrolled transaction as determined under sub-clause (ii) should be: "adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions." It is only such adjusted net profit margin in sub-clause (iii) of Rule 10B(1)(e) which is compared with the net profit margin realized b .....

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isks assumed, by the respective parties to the transactions; (c) 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 transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Governmen .....

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the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 13.11. A comparative study of sub-rules (1), (2) and (3) of Rule 10B makes it palpable that the international transaction and the uncontrolled transaction with which comparison is sought to be made for determining the ALP, in the first instance, must have overall similar characteristics. It is vivid that if the goods/services ar .....

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ring the international transaction and the comparable uncontrolled transaction on the same podium. If due to one reason or the other, no reasonable accurate adjustment can be made due to such differences, then, such uncontrolled transaction should not be considered as a comparable transaction. 13.12. It is discernible that the prescription of Rule 10B is in complete harmony with the ratio of the judgment in the case of Sony Ericson Mobile (supra), to the effect that the AMP functions carried out .....

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in the case of Sony Ericson Mobile (supra) primarily deals with a case of Distributor, though the initial discussion about the character of AMP spend as an international transaction and the jurisdiction of the TPO etc. are common to a distributor and also a manufacturer. Similarly there are some other observations in this judgment, which are common to both. Though this judgment lays down at length some broader principles for the determination of ALP of AMP expenses in the case of a 'Distribu .....

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ng expenses to the tune of ₹ 20/- for the foreign AE, whereas the net profit on sales declared by comparable uncontrolled transactions was ₹ 100/- only. Thus, it was observed that the costs including AMP expenses are independent of cost of imported raw material/finished products having some correlation with overall profit. The example highlights the weakness of the TNM Method. The reasoning would be equally valid, where no AMP or ‗brand building' expenses are incurred. (See .....

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h 22.9, the majority decision has observed that all costs including the AMP expenses are independent of cost of material. This indicates that the observations have been made with reference to manufacturing activities. It would not be appropriate and proper to apply the TNM Method in case the Indian assessed is engaged in manufacturing activities and distribution and marketing of imported and manufactured products, as interconnected transactions. Import of raw material for manufacture would possi .....

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e is engaged in manufacturing activities. In such circumstances, the import of raw material for manufacture would be an independent international transaction viz. marketing and distribution activities or functions. The core of the above para is that in the case of a 'Manufacturer', the international transactions concerned with the manufacturing activity cannot be aggregated with the AMP activities as both are separate and distinct. Once both are held to be separate and TNMM is not to be .....

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the assessee or comparables. Now since the Special bench order has been partly modified by the Hon'ble Delhi High Court, including the nonapplicability of the bright line test, and no material has been placed on record by the ld. AR to, firstly, demonstrate the AMP functions carried out by the assessee and then, to compare such functions with those done by comparables, this issue cannot be decided at our end. Under such circumstances, we set aside the impugned order and remit the matter to t .....

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pouse the contention of the ld. AR to send the matter back to the TPO/AO for deciding this issue in conformity with the decision yet to be rendered by the Hon'ble High Court in its own case, for which hearing is still going on. This contention, in our considered opinion, is devoid of any merit. It is axiomatic that there can be no direction to follow a forthcoming judgment which is not in existence at the time of giving direction. A direction can be given by a higher authority to the lower a .....

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including Perfetti Van Melle India (supra) has dealt with the manner of computation of the ALP of the AMP expenses incurred by manufacturers in the light of the judgment in the case of Sony Ericsson (supra). No reasons, except the pendency of the matter in the Hon'ble High Court in assessee's own case, have been given by the ld. AR to claim departure from the view taken by the tribunal in earlier cases. We, therefore, turn down the request of the ld. AR in this regard. With these observ .....

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be at liberty to lead any fresh evidence in support of its case. E. MISCELLANEOUS GROUNDS I. Excess consumption of raw materials 14.1. Ground nos. 7 to 7.4 are against the addition of ₹ 4.48 crore made by the AO on account of excess consumption of raw material and components. The facts apropos these grounds are that the assessee is following 'Just-in-time' system for management and reorder of inventory, in which inventories are ordered just in time when their requirement arises. Th .....

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ard quantity of material required for manufacture of vehicles, sometimes there arises difference between the physical inventory taken and the inventory as per books of account at the end of the year. Some items of stock may be eventually under-consumed while others over-consumed. The net effect of under/over consumption is nothing, but, the deviation from the standard consumption. During the year in question, the variation between physical stock and stock register was ₹ 4.48 crore negative .....

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d consumption. Such shortage of ₹ 1.62 crore is only 0.018% of total consumption of material debited to the Profit & Loss Account. In view of the fact that this amount has actually been consumed in the manufacturing of goods, it cannot call for any disallowance. There may be production efficiencies or inefficiencies leading to under or over consumption of inputs vis-a-vis standard consumption. Such under or over consumption becomes a part of the cost of production. In our considered op .....

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s 10(34) and 10(35) of the Act. The AO invoked the provisions of section 14A. Applying the mandate of Rule 8D, he worked out the amount disallowable at ₹ 10,44,83,860/. This disallowance consists of three amounts. First is ₹ 1.3 crore towards interest. Second is ₹ 4.6 crore, being ½% of the average value of investments towards administrative expenses. By mistake, once again, the AO included a sum of ₹ 4.6 crore towards ½% of administrative expenses, thereby .....

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rther held by Their Lordships that for earlier years, the disallowance should be made as per 'reasonable and acceptable method of apportionment.' In view of the above discussion, it becomes clear that the AO's decision in applying Rule 8D for making disallowance u/s 14A of the Act, cannot be countenanced. It is noted that similar disallowance was made for the immediately preceding year. When the matter came up for consideration before the tribunal, the Bench held that the disallowanc .....

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38,63,64,348/- made u/s 35DDA of the Act. 16.2. Succinctly, the facts of this ground are that the assessee claimed deduction for a sum of ₹ 38.63 crore u/s 35DDA being the aggregate of 1/5th of payments made to its employees under VR Scheme during the previous year relevant to the assessment year 2002-03 and 1/5th of the payments made to employees under VR Scheme during the period relevant to the assessment year 2004-05. The AO made disallowance on the ground that the VR Scheme was not in .....

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ose of allowing deduction to the employer u/s 35DDA of the Act. Resultantly, the disallowance made by the AO came to be knocked down by the tribunal. In the absence of any distinguishing factor having been pointed out by the ld. DR, respectfully following the precedent, we direct to allow deduction u/s 35DDA for a sum of ₹ 38.63 crore. IV. Disallowance of club membership fee 17.1. The next ground is against the disallowance of ₹ 1,79,509/- on account of expenditure incurred on club m .....

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the company. Similar view has been taken by the Tribunal in the assessee's own case for the earlier assessment years including the immediately preceding year. Respectfully, following the above precedents, we order for the deletion of this addition. V. Depreciation on software expenses capitalized in earlier years 18.1. Ground no. 14 is against not allowing depreciation amounting to ₹ 9,26,418/- on written down value of software expenses capitalized by the AO in preceding years. The fac .....

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