TMI Blog2021 (4) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... who actually stood gained and therefore, cost of the twin heads of royalty as well as technical services deserve to be taken as NIL only - whether such a 'benefit test' could be validly invoked in Section 92CA reference or not? - HELD THAT:- Case law CIT Vs. Cushman and Wakefield (India) Pvt. Ltd., [ 2014 (5) TMI 897 - DELHI HIGH COURT] and CIT Vs. EKL Appliances Ltd., [ 2012 (4) TMI 346 - DELHI HIGH COURT] hold that the TPO's jurisdiction is to analyse the assessee's international transactions viz-a-viz ALP thereof in the statutory reference made by the Assessing Officer than to ascertain or apply the actual 'benefit stand' on the gains derived there from. Their lordships are of the opinion that in both these contexts that the so called 'benefit test' needs to be satisfied from the view point of the assessee and common business prudence rather than the TPO questioning the taxpayer's wisdom. TPO had adopted two comparables i.e., M/s. Bajoria Foods Pvt. Ltd., and McCain Foods India Pvt. Ltd., which nowhere indicate the fact that the assessment year(s) therein involved first year of introduction of the corresponding products in India. The TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther words. The impugned disallowance is directed to be deleted. Disallowance of Section 234A impugned interest - HELD THAT:- We notice that the assessee had filed its return of income on 08-10-2010 in view of the CBDT's press release dt. 28-09-2010 extending time limit u/s. 139(1) of the Act followed by the taxpayer's regular return upto 15-10-2010. This clinching fact has gone un-rebutted from the departmental side. We direct the Assessing Officer to delete the impugned interest amount. Section 234B interest is treated as consequential in nature. Education cess disallowance/addition - Revenue vehemently contended that such a claim is not allowable being a 'tax' u/s. 40(a)(ii) - HELD THAT:- Hon'ble Bombay High Court's recent decision in Sesa Goa Ltd., Vs. JCIT [ 2020 (3) TMI 347 - BOMBAY HIGH COURT] and Chambal Fertilisers Chemicals Ltd., [ 2018 (10) TMI 589 - RAJASTHAN HIGH COURT] rely on the CBDT circular dt. 18-05-1967 to hold that the expression 'tax' in the above statutory provision does not include a 'cess'. We thus accept the assessee's instant 10th substantive ground in A.Y. 2010-11. Short credit of TDS deducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SAHU , ACCOUNTANT MEMBER For the Appellant : Danesh Bafna , AR For the Respondents : Y. V. S. T. Sai , CIT-DR ORDER Per S. S. Godara , JM These five assessee's appeals for A.Ys. 2010-11 to 2014-15 arise against the DCIT-I, Hyderabad's order(s) dated 31-12-2014, 08-01-2016, 12-01-2017, 25-10-2017 and 04-05-2018 involving proceedings u/s. 143(3) r.w.s. 144(C)(5) in former appeals and u/s. 143(3) r.w.s. 144(C)(13) of the Income Tax Act, 1961 [in short, 'the Act'] in latter three cases; respectively. 2. Heard both the parties through Shri Danesh Bafna and Shri Sai, learned authorised representative and learned CIT-DR; respectively. Case files and records stand perused. 3. It transpires during the course of hearing that the assessee's instant batch of five cases raise many of the identical substantive grounds. These appeals are taken up together therefore for the sake of convenience and brevity. We treat A.Y. 2010-11 involving ITA No. 140/Hyd/2015 as the lead assessment year containing the following substantive grounds: 1. On the facts and in the circumstances of the case and in law, the Assessment Order ('Order') passed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4C(5) of the Act. 7. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in allowing 1/5th of advertisement and sales promotion expenses of ₹ 8,66,71,253 under section 35D of the Act, instead of allowing entire expenditure under section 37(1) of the Act, claimed by the appellant in the return of income. 8. On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest under section 234A of the Act. 9. On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B of the Act . 4. Coupled with this, the assessee has also moved its petition dt. 25-09-2020 seeking to raise additional 10 substantive ground that the learned lower authorities ought to have allowed education cess amount of ₹ 32,49,207/- as a deduction u/s. 37(1) of the Act. 5. The Revenue, on the other hand, has vehemently opposed the assessee's petition moved at this belated stage and that too, without explaining its act and conduct in not having agitated the very issue before the lower authorities. 6. We have given our thoughtful consideration to the foregoing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in its Section 92CA(3) dt. 28-08-2013 applies 'benefit test' as under: 8.3 Intangible transactions: During the year, the taxpayer has made payment on account of royalty and professional services. Both are intangible transactions and being separate class of transactions needs to be analysed separately. The Hon'ble ITAT, Mumbai, in UCB India Pvt. Ltd. (317 ITR 292 (AT) Mumbai), and many other held that each class of transaction has to be analyzed separately. 8.3.1 Payment of royalty: During the year a sum of ₹ 95,37,451/- has been paid as royalty. In this regard, the taxpayer in its TP document stated that it pays royalty for license to use the ACT II' trademark for sale of popcorn in the Indian market. This transaction was combined with purchase of raw materials, since the royalty payment pertains to license to sell popcorn. Other than this no further information or justification was provided. Therefore the taxpayer was requested to provide and satisfy the benefit test vide this office letter dated 08-07-2013. In its reply filed on 19-08-2013, he taxpayer stated that the company is in the business of edible oils and foods. In order to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar circumstances, would be prepared to pay for it. d. The licensor is a minority shareholder indirectly holding 48.11% shares, whereas your company is a relatively old company already owing substantial brand by the name Sundrop and Rath. Therefore, the licensor has in a way has utilized your presence in the market to promote its own brand. In response to the above show cause notice, the taxpayer filed a detailed reply on 19-08-2013. It is merely stated that by paying royalty the sales have increased to about 60 crores. This is not borne out of the facts. The taxpayer was incorporated in 1986 as ITC Agro tech. It was later taken over by CAG Tech (Mauritius) Limited in the year 1997. Agro Tech Foods Ltd., (ATFL) is segmented under the following categories: Branded Oils and Foods - led by the flagship brand, Sundrop, ATFL has expanded its brand portfolio through acquisition of the Rath vanaspati brand from SIEL Ltd. It also sells unrefined mustard oil under the Sudham brand. Health World Dried Green Peas brings to the consumer healthy, fresh green peas. Snack Pack is the only shelf stable pudding in the country; Swiss Miss is the only Hot Cocoa Mix available to I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ather, it paying the royalty. Further, as per the published annual report, the taxpayer is carrying out substantial R D to increase the penetration of popcorn. The relevant extract of the annual report is as under: Agro Tech Foods Limited FORM B Research and Development (R D) 1.Specific areas in which R D carried out by the company -Development of scientific bends in the Oils category -Development of Tomato Chil Flavor for instant popcorn or local Manufacture of Sweet n salt popcorn (kettle corn) for microwave popcorn. -Development of low cash ring SKLs for instant popcorn 2.Benefits derived as a result of the above R C - -Acquisition of new consumers for Sundrop with the launch of Sundrop Gelcille Freshite in the oils category. -Increase penetration of popcorn 3.Future plan of action -New flavors for instant. Microwave popcorn vending corn. -Local production/packaging of currently imported food items. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of ₹ 95,37,451/- is treated as adjustment u/s. 92CA of I.T. Act and the total income of the taxpayer will be enhanced accordingly u/s. 92CA(3) of the I.T. Act. 8.3.2 Professional charges paid: During the year a sum of ₹ 2,13,94,873/- has been paid as fees for technical services. In the TP document it is stated that consultancy services fees has been paid to ConAgra Foods Inc., for sharing the IP regarding the production of Peanut Butter Products, Granuala Bars, Snack Bar Products and Hot Coca Products. The taxpayer has also taken assistance in developing implementation plans of manufacturing the above products as also has accessed the development laboratories of ConAgra Foods Inc. The taxpayer also paid the AE for conducting the food safety GAP assessment and audit of the prospective Peanut Butter Copacker. In this regard, the taxpayer was show caused to satisfy the following conditions alongwith supporting documents- a. The benefits derived from the receipt of services. b. Whether the payment made is commensurate with the benefits received. c. Whether as a result of such payment, the recipient of the services, the taxpayer, resulte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development laboratories to make minor changes in the products to suit tastes of target customers and/or to meet the regulatory requirements of the country of sale and/or suitable changes in packaging. The agreement is to expire on 31.03.2010 and the fee to be paid is USD 2 lacs. On going through the report submitted by the AE it is seen that the report pertains to the feasibility of the taxpayer being associated with Ruperel Manufacturing Plant at Mahuva. However as per the SOW contained the agreement, the payment is to be made towards sharing of IP or the actual production/development of the product and not towards any feasibility report. Further the sales of the granular peanut butter etc., during the year was ₹ 4,88,00,270 (I.Y. 3,86,63,197) and the fee paid is ₹ 2,13,94,873 which is about 43% of the sales which is not commensurate with the benefits reaped. Thus the taxpayer fails the benefit test which it was show caused to establish. In a nut shell the conditions as per the SOW were not fulfilled, but still the payment was made; there are no benefits which have been derived; payment is not established to be commensurate with the benefit received; there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajoria Foods Pvt. Ltd., and McCain Foods India Pvt. Ltd., which nowhere indicate the fact that the assessment year(s) therein involved first year of introduction of the corresponding products in India. The TPO therefore also appears to have not given any due consideration to the clinching facts in the assessee's arm's length determination in these facts and circumstances. 11. The factual position is no different qua the latter aspect of assessee's payment of technical services of ₹ 2,13,94,873/- as well. The assessee's agreement to this effect (paper book pg. 629 to 642 in A.Y. 2010-11) suggests that it had agreed to pay for the impugned charges in lies of consultancy services involving all quality control access to overseas facilities regarding peanut butter products, granola bars, snack Bar and other products. 12. Mr. Sai further failed to dispute that the Assessing Officer has nowhere applied even a single comparable in his discussion so as to come to in the impugned NIL cost of the assessee's professional/technical services availed. We thus accept the assessee's third and fourth substantive grounds in this lead A.Y. 2010-11 to delete the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013-14 2014-15. 14. The assessee's 8th substantive ground in A.Y. 2010-11 seeks to delete Section 234A impugned interest of ₹ 3,76,852/-. Suffice to say, we notice that the assessee had filed its return of income on 08-10-2010 in view of the CBDT's press release dt. 28-09-2010 extending time limit u/s. 139(1) of the Act followed by the taxpayer's regular return upto 15-10-2010. This clinching fact has gone un-rebutted from the departmental side. We direct the Assessing Officer to delete the impugned interest amount. Next issue of Section 234B interest of ₹ 1,96,18,732/- raised in assessee's 9th substantive ground is treated as consequential in nature. Same order to follow in assessee's 11th substantive ground raising Section 234B interest in A.Y. 2011-12, 10th substantive ground in A.Y. 2013-14 qua section 234A interest of ₹ 6,428/-; respectively. 15. Lastly comes education cess disallowance/addition of ₹ 32,49,207/-. The Revenue vehemently contended that such a claim is not allowable being a 'tax' u/s. 40(a)(ii) of the Act. Hon'ble Bombay High Court's recent decision in Sesa Goa Ltd., Vs. JCIT [ 423 ITR 426] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's 9th ground challenges correctness of both the lower authorities' action denying Section 32(1) depreciation on the capital expenditure incurred for the purpose of scientific research involving a sum of ₹ 40,23,714/-. It transpires during the course of hearing that the DRP's order in pg. 8 para 2.52 in A.Y. 2013-14 has already accepted an identical claim of depreciation of capital expenditure incurred for the purpose of scientific research. Learned panel herein has disallowed the assessee's Section 37 claim by treating the same as an instance of capital expenditure. All these clinching facts have gone un-rebutted from the Revenue's side. we thus hold that once learned lower authorities have themselves treated the assessee's claim under capital head, it is very much entitled to be considered for the impugned depreciation as per law. The same is therefore accepted for statistical purposes. The Assessing Officer shall decide the corresponding block of assets viz-a-viz assessee's capital expenditure as per law. 20. We are now left with the assessee's 11th substantive ground qua addition of the alleged refund issue u/s. 143(1) of the Act along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and machinery. We find no merit in the instant stand since all these assets form very much part of the assessee's food products manufacturing, processing and packing business. Take for instance the curtains which have been put up between vacant places so as to maintain maximum hygiene. Case law CIT Vs. K.K. Enterprises [51 taxmann.com 190] and CIT Vs. Parry Engineering and Electrical Pvt. Ltd. [49 taxmann.com 252] (GJ) hold that such assets form part and parcel of assessee's plant and machinery only. We thus accept the assessee's impugned depreciation claim of ₹ 26,78,046/-. This 7th substantive ground succeeds. 24. The assessee's 8th substantive ground seeks direction to the Assessing Officer to consider its returned income going by the revised than the original return's figures. It prima-facie appears that the assessee had filed its revised return on 14-03-2016 which has not been taken note of in the lower authorities' respective orders. We thus accept the assessee's instant substantive ground for statistical purposes and direct the Assessing Officer to consider the revised computation/return as per law. The assessee's 11th substantive gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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