TMI Blog2021 (2) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment made by the TPO, learned Commissioner (Appeals) has equated the letter of comfort/support to corporate guarantee - on perusal of the letter of comfort/support, it cannot be construed to be in the nature of any sort of guarantee in respect of the loan liability of the AE. The only promise made by the assessee is, it will not make any divestment of the shares during the currency of the loan. In our view, in no way it makes the letter of comfort/support a guarantee of any kind as there is no financial implication on the assessee - Reading of section 92B Explanation 1(c), we are of the considered opinion that provision of letter of comfort/support cannot be termed as an international transaction within the meaning of the aforesaid provision. Our aforesaid view is well supported by the decisions cited by the learned Counsel for the assessee. Accordingly, we delete the addition. Disallowance u/s. 14A of the Act r.w.r. 8D - Mandation of recording proper satisfaction by AO before making addition - HELD THAT:- Without recording a proper satisfaction to the effect that the computation made by the assessee is incorrect having regard to the books of account maintained, has proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of tax as per the applicable DTAA to the DDT paid under section 115-O. Adjustment of corporate guarantee to 0.2% p.a - HELD THAT:- In assessee's own case Tribunal in separate orders has accepted commission on corporate guarantee provided to AEs charged at 0.20% to be at arm's length. The aforesaid decisions of the Tribunal have been upheld by the jurisdictional High Court while dismissing the appeals of the revenue. The latest order passed by the Hon'ble High Court in this regard is for the assessment year 2008-09 [ 2019 (2) TMI 819 - BOMBAY HIGH COURT ], in Income Tax Appeal No. 1564 of 2016 order dated 06-02-2019. Therefore, following the consistent view of the co-ordinate benches and the Hon'ble jurisdictional High Court, we uphold the decision of learned Commissioner (Appeals) on this issue. Ground of the revenue is dismissed. Deduction under section 35(2AB) - HELD THAT:- As decided in own case [ 2014 (1) TMI 16 - ITAT MUMBAI] as directed the Assessing Officer to allow assessee's claim of deduction, if, on verification it is found that the expenditure claimed was actually incurred on research and development activity irrespective of the fact whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax - HELD THAT:- As the entire trip scheme is for the purpose of expanding assessee's business by encouraging the dealers and distributors to achieve a specific target of purchase. Thus, the scheme is closely linked to assessee'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 allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority. After considering the submissions of the assessee in the context of facts and material on record, the learned Commissioner (Appeals) held that provision of letter of comfort to the AE is an international transaction. However, he did not agree with the decision of the TPO in applying the arm's length fee of 1.4% on the loan taken. Equating the letter of comfort/support to corporate guarantee, learned Commissioner (Appeals) determined the arm's length price of provision of letter of comfort/support at 20% of 0.20% which is the arm's length price determined for provision of corporate guarantee. Thus, he sustained addition to the extent of ₹ 3,28,280. 5. Drawing our attention to the letter of comfort/support, a sample copy of which is at page 123 of the paper book, the learned Counsel of the assessee submitted, the assessee has not undertaken any liability while providing such letter of comfort/support towards the loan availed by the AE. He submitted, as per the terms of the letter of comfort/support, assessee cannot be called upon to make good the loan amount in case of default by the AE. The only promise the assessee had made is to intimate the bank in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort cannot be termed as an international transaction within the meaning of the aforesaid provision. Our aforesaid view is well supported by the decisions cited by the learned Counsel for the assessee. Accordingly, we delete the addition of ₹ 3,28,280/-. This ground is allowed. 8. In ground No. 2 assessee has challenged disallowance of ₹ 102.26 lakhs u/s. 14A of the Act r.w.r. 8D. 9. Briefly the facts are, in course of assessment proceedings, the Assessing Officer noticed that during the year under consideration, the assessee had earned exempt income by way of dividend amounting to ₹ 16,08,58,175/-. Whereas, the assessee on its own has disallowed an amount of ₹ 23,98,769/- towards expenditure attributable to earning of exempt income. Being of the view that the disallowance computed by the assessee is not in accordance with Rule 8D and relying upon the decision of ITAT, Mumbai Special Bench in case of M/s. Daga Capital Management Ltd. (ITA No. 8057/Mum/2003), the Assessing Officer disallowed an amount of ₹ 1,26,25,090/-. Assessee contested the above disallowance before the first appellate authority. After considering the submissions of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal, in assessee's own case (supra) has deleted the disallowance. The aforesaid decision of the Tribunal was also upheld by the Hon'ble jurisdictional High Court (supra). In view of the above, we find no reason to uphold the disallowance made. Hence, we delete the same. This ground is allowed. 13. Having decided the main grounds, now we will deal with additional grounds. After considering the rival submissions, we are of the view that the issues raised in the additional grounds do not require fresh investigation into facts and can be decided on the basis of material available on record. Therefore, we admit them. 14. In first additional ground numbered as ground 3 is on the issue of taxability of royalty income received from a subsidiary in Egypt. Briefly the facts are, during the year under consideration, the assessee had received royalty income of ₹ 5.46 crores from one of its subsidiaries, in Egypt, viz. M/s. SCIB Chemical - SAE. 15. Before us, the learned Counsel for the assessee submitted that as per Article 13 of India-Egypt Double Taxation Avoidance Agreement (DTAA), the royalty income is not taxable in India. He submitted, while deciding identical issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as ground No. 4, the assessee has claimed deduction of education cess paid on income-tax as allowable expenditure. 19. The learned Counsel for the assessee submitted, education cess paid on the tax computed is an allowable deduction. In this context, he relied upon the following decisions:- (1) Sesa Goa Ltd. vs. JCIT (2020) 107 CCH 376 (Bom) (2) Chambal Fertilizers Chemicals Ltd. vs. PCIT - Income Tax Appeal No. 52 of 2018 dt. 31-07-2018 (Rajasthan High Court) (3) Atlas Cocoa (India) Ltd. vs. ACIT - ITA No. 1470/PUNE/2010 dt. 21-10-2019 (4) Reckitt Benckiser (I) P. Ltd. vs. DCIT (2020) 117 taxmann.com 519 (Kol) 20. The learned Departmental Representative has filed a written submission, which reads as under:- I. Education Cess-allowability as expense-Additional Ground of the assessee 1. The Issue pertains to allowability of education cess as deduction. This is entirely unrelated to any of the issues which were subject matter of assessment or appeal. The recourse that should be available are as provided in statute which would be as available where the returned income is treated as the base. This was not raised before the assessing officer in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not an allowable expenditure, no expenditure in relation to the tax can be allowed as held in Mannalal Ratanlal v. CIT (1965) 58 ITR 84 (Cal). Thus even interest on tax has been held not allowable though the term interest is not used in the section. 6. It is humbly submitted that the SC ruling in the case of Smith Kline French [India] Ltd. 1996] 85 Taxman 683 (SC) in the context of disallowance of surtax under section 40(a)(ii) of the Act has not been appreciated by the Hon'ble Rajasthan HC. In this judgment, it was held by the SC that surtax was not allowable under section 40(a)(ii) of the Act since the same was in principle computed on business profits, going by the contextual meaning of provisions rather than literal reading of the same. 7. This SC judgment has also affirmed the Jurisdictional Hon'ble Bombay HC judgment in the case of Lubrizol India Ltd. [1991] 54 Taxman 363 (Bombay) where the broad and wide scope of the word 'tax' used in section 40(a)(ii) of the Act has been explained in detail. The Hon'ble Jurisdictional Bombay HC has held that: - The word 'tax' is used in conjunction with the words 'any rate or tax'. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n mentioned in section 40(a)(ia) in the case of Smith Kline and French (India) Ltd. (219 ITR 581) which was not considered by the Hon'ble Bombay High Court in the case of Sesa Goa Ltd. and to that extent the decision is per incuriam . 12. In this regard it is to submit that Finance Act of the relevant financial year in chapter II mentions of surcharge as part of income tax as contained in section 2 thereof. This chapter is titled as rates of income tax and section 2 is under the broad subtopic income-tax . It is noteworthy to mention that sub-section 11 of the section 2 mentions of the educational cess being an additional surcharge and therefore, it is natural that it is part of income tax being only a surcharge. 13. It is also relevant to mention that section 40(a)(ii) mentions of 'any rate or tax levied as not an allowable expense. The above referred chapter II speaks of the same rates and income tax'. The decision of Rajasthan High Court, as referred above, it is humbly and respectfully submitted, has not considered this aspect. The said judgment relied primarily on a CBDT circular with respect to cess whose issuance date is far antedated to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 972) held - held - headnote- Section 2 of the Finance Act, 1964 - Income-tax and Super-tax Assessment year 1964-65 - Whether term 'income-tax' as employed in section 2 includes surcharge and additional surcharge whenever provided Held, yes. Holds that- The meaning of surcharge is to charge in addition or to subject to an additional or extra charge. If that meaning is applied to section 2 of the Finance Act, 1963, it would lead to the result that income-tax and super-tax were to be charged in. four different way or at. four different rates which may be described as (i) the basic charge or rate (In Part I of the First Schedule); (ii) surcharge: (iii) special surcharge; and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way, the additional charges form a part of the income-tax and super-tax. According to the revenue, the word 'surcharge' has been used in Article 271 for the purpose of separating it from the basic charge of a tax or duty of the purposes of distributing the proceeds of the same between the Union and the States. The proceeds of the surcharge are exclusively assigned to the Union. Even in the finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the assessee on he-round that there has been no material change in the provisions of section 10(4) of the 1922 Act and section 40(a)(ii) of the 1961 Act. 2. The view of the Income-tax Officer is not correct. Clause 40(a)(ii) of the Income-tax Bill. 1.961, as introduced in the Parliament, stood as under: (ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. When the matter came up before the Select Committee, it was derided to omit the word cess from the clause. The effect of the omission of the word cess is that only taxes paid are to be disallowed in the assessments for the years 1962-63 onwards. 3. The Board desire that the changed position may please be brought 10 one nonce of all the Income-tax Officers so that further litigation on this account may be avoided. 19. A careful reading of the circular suggests that taxes paid are to be disallowed. It nowhere mentions that cess of every type has to be allowed. It obviously reserves the space under the nomenclature of cess wherein if still it r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owable; - the Finance Act states that 'education cess' is in the nature of an additional surcharge, 'surcharge' on income-tax should be disallowed under section 40(a)(ii) of the Act. It is humbly, prayed that the fresh claim of ..the assessee vide this additional ground may not be acceded to. 21. Having considered rival submissions in the light of decisions relied upon, we find that the issue is squarely covered by the decision of the Hon'ble jurisdictional High Court in case of Sesa Goa Ltd. vs. JCIT (supra), wherein, it is held that education cess not being in the nature of rate or tax will not be covered u/s. 40(a)(ii). The Hon'ble Rajasthan High Court has also expressed similar view in the decisions cited above. Even, different benches of the Tribunal have expressed identical view. In view of the above, we are unable to accept the submissions of learned Departmental Representative. Respectfully following the decision of the Hon'ble jurisdictional High Court (supra) and other decisions cited before us by the learned Counsel for the assessee, we hold that the assessee is eligible to claim deduction of education cess. This ground is allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the determination of ALP at 7.07% is proper. 27. The learned Counsel for the assessee submitted that this issue is squarely covered by the decisions of the Tribunal in the preceding assessment years. 28. We have considered rival submissions and perused materials available on record. We find, this is a recurring dispute between the assessee and the revenue from earlier assessment years. While deciding assessee's appeals for the assessment years 2006-07, 2007-08 and 2008-09, the Tribunal in separate orders has accepted commission on corporate guarantee provided to AEs charged at 0.20% to be at arm's length. The aforesaid decisions of the Tribunal have been upheld by the jurisdictional High Court while dismissing the appeals of the revenue. The latest order passed by the Hon'ble High Court in this regard is for the assessment year 2008-09 in Income Tax Appeal No. 1564 of 2016 order dated 06-02-2019. Therefore, following the consistent view of the co-ordinate benches and the Hon'ble jurisdictional High Court, we uphold the decision of learned Commissioner (Appeals) on this issue. Ground of the revenue is dismissed. 29. In ground No. 2, the revenue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer to allow assessee's claim of deduction, if, on verification it is found that the expenditure claimed was actually incurred on research and development activity irrespective of the fact whether the entire amount was approved by DSIR or not. Since, learned Commissioner (Appeals) has decided the issue keeping in view the aforesaid direction of the Tribunal, in our view, there is no infirmity in such decision. Accordingly, ground raised is dismissed. 35. In ground No. 4, the revenue has challenged deletion of disallowance made on account of expenditure incurred on television advertisement in relation to corporate advertisement. 36. Briefly the facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee had claimed deduction of ₹ 37,31,78,551/- towards expenditure incurred for TV advertisement. After verifying the details furnished by the assessee, he noticed that a part of the expenditure incurred by the assessee is of enduring nature; hence has to be treated as capital expenditure. Further, he noticed, similar expenditure incurred in Assessment Years 2006-07 to 2008-09 was treated as capital expenditure by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional depreciation is a onetime allowance granted to the assessee for installing new plant and machinery. Any unclaimed amount cannot be set off in the subsequent assessment year. 41. The learned Counsel for the assessee strongly relying upon the decision of the first appellate authority submitted, the issue is now squarely covered by a number of judicial precedents including the decision of the Tribunal in assessee's own case. 42. We have considered rival submissions and perused materials on record. The facts on record clearly reveal that assessee had purchased and installed new plant and machinery in the preceding assessment year which is eligible for additional depreciation @20%. However, since the new assets were put to use for less than 180 days in the preceding assessment year, the claim of additional depreciation allowable at 20% was restricted to half of it, i.e. 50%. Thus, in effect, the assessee was allowed additional depreciation of 10%. Now, it is well settled by a number of judicial precedents that if for use of new plant and machinery for a period of less than 180 days the entire amount of additional depreciation cannot be claimed in the subject assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut purely on principal to principal basis. Therefore, there is no liability to deduct tax under section 194H of the Act. In support, the learned Counsel relied upon the following decisions:- 1. CIT, Pune vs. Intervet India Pvt. Ltd. (ITA 1616/2011-Bombay High Court 2. Pr. GT vs. Reliance Communication Infrastructure Ltd. (ITA No. 702 of 12017-Bombay High Court 3. DOT vs. BCH Electric Ltd. (ITA 1336/Kol/2012) 4. ACIT vs. Raymond Ltd. ITA 5889/M/10 5. CIT vs. Piramal Healthcare Ltd. 230 Taxman 505 (Bom) 6. CIT vs. Qatar Airways 332 ITR 253 (Bom) 7. Radhasaomi Satsang vs. CIT (193 ITR 321 (SC) 47. Without prejudice, the learned Counsel submitted, since no amount has been paid or credited to the distributors, question of deduction of tax at source does not arise. Further, he submitted, whatever amount the assessee has paid to SOTC has been subjected to TDS provisions. Therefore, there cannot be any further disallowance under section 40(a)(ia) of the Act. Further, he submitted, the expenditure incurred is purely for the purpose of business as it is in the nature of an incentive linked to quantum of purchases made by the dealer. Finally, he submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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