TMI Blog2022 (1) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 [ 2021 (9) TMI 1070 - ITAT CHENNAI ] wherein the Tribunal following the earlier decision in assessee s own case for assessment year 2013-14 [ 2021 (9) TMI 1013 - ITAT CHENNAI] directed the AO to restrict disallowances u/s.14A of the Act, to the extent of exempt income earned for the impugned assessment year. Disallowance of depreciation on capital subsidy - HELD THAT:- An identical issue has been considered by Tribunal in assessee s own case for the assessment year 2015-16 [ 2021 (9) TMI 1070 - ITAT CHENNAI ] wherein the Tribunal following the earlier decision in assessee s own case for assessment year 2013-14 [ 2021 (9) TMI 1013 - ITAT CHENNAI] has allowed claim of the assessee and the AO has accepted decision of the CIT(A) and deleted additions, while passing order giving effect to the order of the CIT(A). Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete addition made towards disallowance of depreciation on capital subsidy received from SIPCOT. Disallowance u/s.43B(c) in respect of performance incentive paid to employees - HELD THAT:- An identical issue has been considered by Tribunal in assessee s own case for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ).A.No.39/CHNY/2021 - - - Dated:- 22-12-2021 - Shri Mahavir Singh, Vice President And Shri G. Manjunatha, Accountant Member For the Appellant : Shri S.P. Chidambaram, Advocate For the Respondent : Shri Durgesh Sumrott, CIT ORDER PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against final assessment order passed by the Assessing Officer u/s.143(3) r.w.s 144C(13) r.w.s.144B of the Income Tax Act, 1961 (hereinafter the Act ) dated 30.04.2021, in pursuant to the directions of the learned DRP-2, Bengaluru dated 23.03.2021 u/s.144C(5) of the Act for the assessment year 2016-17. 2. The assessee has raised following grounds of appeal:- 1. The Appellant objects to the order dated 30 April 2021 issued under Section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 ( Act ) by the National e-Assessment Center ( NeAC) for the aforesaid assessment year on the following grounds: TRANSFER PRICING GROUNDS The directions of the Dispute Resolution Panel (DRP), the Transfer Pricing Order and the Final Assessment order are erroneous in so far as the following issue/adjustment: 2. Transfer Pricing Order is barred by limitatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the Transfer Pricing Orders passed under section 92CA are barred by limitation. Without prejudice to the above legal ground on limitation, the Appellant raises the following grounds in respect of TP adjustment: 3. Attribution of notional income towards deemed brand development 3.1 The NeAC/ DRP erred in facts and circumstances of the case and in law in confirming the action of the TPO in attributing notional income of ₹ 237,51,90,000/- on the premise that the Appellant has undertaken brand promotion/building activity for its AE i.e., Hyundai Motor Corporation, Korea. TPO exceeded jurisdiction 3.2 The NeAC/DRP failed to appreciate the fact that the TPO exceeded his jurisdiction by analysing brand building as a separate international transaction though the NeAC has not referred the same for determination of ALP as per Section 92CA of the Income Tax Act, 1961 ( the Act ). 3.3 The NeAC/DRP ought to have held that the order of the TPO is vitiated inasmuch since it is based on a show cause notice that is void ab initio, as it has not established a prima facie case of brand promotion activity undertaken by the Appellant. 3.4 The NeA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciate that the excess margin earned by the Appellant over that of comparable companies indicates that it is the Appellant who has benefited mom the use of the brand name and has offered more income for tax in India. 3.13 The NeAC/TPO failed to appreciate that as per the principles laid down in Chapter VII of the OECD TP Guidelines, 2017, the incidental/ancillary benefits, if any, arising out of the AMP expenses incurred by the Appellant does not require any separate compensation as it is not in the nature of active service to AE. NeAC/TPO failed to appreciate the business prerogative of the Appellant 3.14 The NeAC/TPO failed to appreciate that in view of the rights granted in the agreement between the Appellant and the AE, the former gets the right to use the Brand 3.15 The NeAC/TPO has failed to appreciate that the Appellant is not restricted from creating its own brand through the agreement and it is the prudent business decision of the Appellant to use the Brand name of the AE so as to increase its sales in India. 3.16 The NeAC/TPO failed to appreciate that the AMP expenses incurred by the Appellant is purely to promote the sales of the cars manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the business of advertisement and media whereas the Appellant is engaged in manufacturing of passenger cars and not brand promotion. 3.25 Without prejudice to our above grounds, NeAC/DRP ought to have appreciated that even if brand promotion is considered as International Transaction, the TPO ought to have compared the AMP to sales ratio of the Appellant with that of the comparable compar.ies to determine the ALP of the transaction. 3.26 Without prejudice to our above grounds, the NeAC/DRP ought to have appreciated that the TPO hams reckoned incorrect quantum of advertisement expenses (i.e. expenses not in the nature of Advertisement). CORPORATE TAX GROUNDS 4. Disallowance of expenditure under section 14A of the Act r.w.r 8D of the Rules 4.1 The NeAC / DRP erred in disallowing a sum of ₹ 70,07,153 under section 14A of the Act by applying the provisions of Rule 8D of the Rules. 4.2 The NeAC / DRP ought not to have made disallowance under section 14A of the Act when the Appellant has not claimed any exempt income being dividend income amounting to ₹ 1,11,645, during the year. 4.3 The NeAC / DRP ought to have appreciated that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appreciated that the provisions of section 14A of the Act r.w.r. 8D of the Rules is not applicable while determining book profits under section 115JB of the Act. 5. Disallowance of depreciation to the extent of subsidy 5.1 The NeAC / DRP erred in disallowing depreciation amounting to ₹ 1,24,585 in the subject AY by considering the cash subsidy granted by SIPCOT in the AY 2003-04 as capital income to be adjusted against cost of assets. 5.2 The NeAC / DRP ought to have appreciated that SIPCOT had given the subsidy for setting up the mega project and not for the purpose of meeting any liability towards acquisition of assets and as such the subsidy is a capital receipt, which cannot be adjusted against the cost of the asset. 5.3 The AO / DRP failed to appreciate that in the year of receipt of subsidy, i.e. AY 2003-04 the AO has verified the claim and deleted the disallowance on depreciation by passing the order giving effect to the CIT(A) order and therefore the question of disallowance of depreciation on subsidy in subsequent AY s does not arise. 6 Disallowance of performance reward under section 43B of the Act 6.1 The NeAC / DRP erred in disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since it is levied for the specific purpose of providing universa1ized quality basic / secondary and higher education whereas tax is towards the general collection of the Union of India. 8. Subsidy received from Govt. of Tamil Nadu in the form of refund of output/input X AT is a capital receipt not chargeable to tax. 8.1 The NeAC/DRP ought not to have rejected the Appellant s claim in limine to treat output / input VAT subsidy as a capital receipt not chargeable to tax. 8.2 The NEAC/DRP ought to have appreciated that the subsidy (refund of VAT) was granted for the purpose of setting up of Phase II manufacturing facility and as such the said subsidy should be treated as a capital receipt not chargeable to tax. 8.2 The NEAC/DRP ought to have appreciated that the object of the subsidy (refund of VAT) was for the purpose of setting up the plant and not to enhance the profitability of the Appellant or to fund the cost of fixed assets and as such the said subsidy should be treated as a capital receipt not chargeable to tax. 8.4 Without prejudice to the above, the Hon b1e Tribunal should consider and allow the claim of the Appellant in light of the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.1 The NeAC erred in granting lower TDS credit amounting to ₹ 20,87,82,316 as against ₹ 20,93,08,739 claimed for the subject A Y. 11.2 The NeAC erred in levying excessive interest amounting to ₹ 86,37,309 under section 234B of the Act. 12. The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra as also all consequential relief thereto. 13. The Appellant craves to add, alter, amend, substitute, rescind, modify and / or withdraw in any manner whatsoever all or any of the foregoing grounds at or before the hearing of appeal. 4. Brief facts of the case are that the assessee M/s. Hyundai Motor India Ltd., is wholly owned subsidiary of M/s. Hyundai Motor Company Ltd., South Korea. The assessee is engaged in the business of manufacturing and selling passenger cars in domestic and export market. The assessee company has filed its return of income for assessment year 2016-17 on 29.11.2016 admitting total income of ₹ 1865,03,71,585/- under normal provisions of the Act and book profit u/s.115JB of the Act at ₹ 1918,63,89,313/-. The assessee had entered into various international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation between the brand value of Hyundai Motor India Limited and market capitalization of Hyundai market Corporation, South Korea. Therefore, by applying Spearman s Rank Correlation method, the ld. TPO has computed incremental brand value and attributed a portion of the same to the assessee in proportionate to its sales. 7.1 The ld.AR for the assessee, at the time of hearing submitted that this issue is covered in favour of the assessee by the decision of ITAT., Chennai in assessee s own case for the assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment year 2013-14 in ITA No. 3192/Chny/2017, held that the issue is identical to earlier years and accordingly deleted the brand fee adjustment. 7.2 The ld. DR on the other hand, fairly agreed that this issue is covered in favour of the assessee. But strongly supported ld. TPO/DRP order. 7.3 We have heard both the parties, perused material available on record and gone through orders of the authorities below. An identical issue has been considered by Tribunal in assessee s own case for the assessment year 2015-16 in IT(TP) No.10/CHNY/2020, dated 17.09.2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he extent of exempt income earned for the impugned assessment year. The relevant findings of the Tribunal in ITA No.3192/Chny/2017 are as under:- 10. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. It is well settled principles of law that disallowances u/s.14A cannot exceed amount of exempt income. The Hon ble Supreme Court in the case of Pr.CIT Vs State Bank of Patiala (supra), while dismissing SLP filed by the Revenue against order of the Hon ble Punjab Haryana High Court in the case of Pr.CIT Vs State Bank of Patiala, held that disallowance u/s.14A could be restricted to amount of exempt income only. The Hon ble Jurisdictional High Court of Madras in the case of Marg Ltd Vs.CIT (2020) 120 Taxmann.com 84, has taken a similar view and held that disallowances under Rule 8D r.w.s 14A can never exceed exempt income earned by the assessee during particular assessment year. In this case, admittedly, exempt income for impugned assessment year was ₹ 57,826/-, whereas the Assessing Officer has determined disallowance u/s.14A at ₹ 86,54,491/- contrary to settled principle of law. Therefore, consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the decision of the Tribunal in assessee s own case for assessment year 2013-14 in ITA No.3192/Chny/2017, dated 01.09.2021 2006-07 in IT(TP)A No.14/Chny/2018 and after considering nature of subsidy has allowed claim of the assessee by observing that for earlier years, the CIT(A) has allowed claim of the assessee and the AO has accepted decision of the CIT(A) and deleted additions, while passing order giving effect to the order of the CIT(A). Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete addition made towards disallowance of depreciation on capital subsidy received from SIPCOT. 10. The next issue that came up for consideration from ground No.6 of assessee appeal is disallowance u/s.43B(c) of the Act, in respect of performance incentive paid to employees. Facts with regard to impugned dispute are that for the financial year relevant to the assessment year 2016-17, the assessee has paid performance reward to employees in the cadre of executives and senior executives. The assessee has provided for expenses for the year ended March, 2016. However, payment was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment year 2013-14 in ITA No. 3192/Chny/2017, where under identical circumstances, the Tribunal has held that payment made to an employee which is in the nature of bonus or commission for services rendered is covered u/s. 36(1)(ii) of the Act, and thus, if such payment is not made on or before due date of filing of return of income u/s.139(1) of the Act, then same cannot be allowed as deduction, as per section 43B(c) of the Act. The relevant findings of the Tribunal are as under:- 23. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, none of the employees of the assessee are covered under payment of Bonus Act, because all employees salary is above threshold limit fixed under payment of Bonus Act. It is also an admitted fact that the assessee is paying performance incentive/reward to employees regularly and such incentive has been paid for services rendered by the employees. Therefore, it is necessary to examine performance incentive paid to employees in light of provisions of section 36(1)(ii) read with se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has no application to case of the assessee. Therefore, we are of the considered view that there is no error in the reasons given by the Assessing Officer as well as learned DRP to disallow performance reward u/s.43B(c) of the Act. Hence, we are inclined to uphold the order of Assessing Officer as well as directions of learned DRP and reject ground taken by the assessee. In this view of matter and consistent with view taken by the Co-ordinate Bench, we are inclined to uphold the order of the AO as well as the directions of ld.DRP and reject ground taken by the assessee. 11. The next issue that came up for our consideration from additional ground no.7 of the assessee appeal is deduction towards education and secondary education cess u/s.37(1) of the Act. 11.1 The ld.AR for the assessee submitted that this issue is covered in favor of the assessee by the decision of ITAT., Chennai in assessee s own case for 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal order for assessment year 2013-14 in ITA No. 3192/Chny/2017, where under identical circumstances, the Tribunal has remanded the matter to the file of the AO to consider the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en set aside to the file of AO for earlier years and hence, this year also the issue may be remanded back to the file of Assessing Officer. 12.3 Having heard both the parties and considered material on record, we find that the Tribunal had considered an identical issue for assessment year 2015-16 in IT(TP)A No.10/Chny/2020, wherein the Tribunal by following the earlier Tribunal orders 2011-12 2013-14 in ITA Nos.853/Chny/2014 3192/Chny/2017, where the issue has been remanded back to the file of AO to consider the issue denovo on merits in accordance with law, has set aside issue to the file of Assessing Officer. Facts being identical for the year under consideration, by following the decision of Tribunal in assessee s own case for assessment year 2015-16, we set aside the issue to file of the AO and direct him to reconsider the issue in accordance with law. 13. The next issue that came up for our consideration from ground no.9 of assessee appeal is amount received from Focus Market Scheme to be treated as capital in nature and exclude from total income. Facts with regard to impugned dispute are that Government of India with an intention to promote exports to certain region ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal by following the earlier Tribunal orders 2007-08 2013-14 in ITA Nos.2157/Chny/2007 3192/Chny/2017 held that duty credit scrips received from Govt. of India under Focus Market Scheme is revenue in nature. The relevant findings of the Tribunal are as under:- 32. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The Government of India, Ministry of Commerce and Industry has come out with Foreign Trade Policy for the period 1st September, 2004 to 31.03.2009 and as per the said policy, it has announced a scheme for exporters of certain goods to certain regions called Focus Market Scheme . As per said scheme, export of products to those countries which are covered under list of countries in Schedule 37C would be entitled for duty credit scrip equivalent to 2.5% of FOB value of exports. The assessee being eligible exporter had received licenses/duty credit scrip/ market linked focus scrips amounting to ₹ 150.57 crores for the year under consideration. The assessee has considered amount received under focus market scheme as revenue receipt and offered to tax. However, based on some subsequent deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bilities to select international markets, with a view to enhance our export competitiveness to these countries. We further, are of the opinion that this subsidy was given by way of assistance in carrying on of trade or business and to meet recurring expenses, but it was not for acquiring any capital asset. It was not to meet part of the cost to manufacturing activity. It was not granted for production or bringing into existence any new asset. The subsidy was given year after year only after setting up of industry and only after commencement of production and therefore, such subsidy could only be treated as assistance given for the purpose of carrying on business of the assessee. It is well settled principles of law that any subsidy given for the purpose of offsetting part of cost of setting up of new industry, as per industrial policy of various State Governments or Govt. of India is considered as part of capital contribution and capital in nature, whereas subsidy given after commencement of production of products and further for enhancing profitability of the assessee is certainly in the nature of assistance given for running of business of the assessee more profitable and hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, Chennai Bench in above case has not apprised facts in right perspective of law and hence, the judgment of Chennai Bench is not considered. As regards decision of Hon ble Rajasthan High Court in the case of Pr.CIT Vs. Nitin Spinners Ltd. in Income Tax Appeal No.31 of 2019, we find that facts of case before Hon ble High Court and facts of present case are different and hence, same is not considered. 35. In this view of the matter, and considering facts and circumstances of the case, we are of the considered view that duty credit scrips received from Govt. of India under Focus Market scheme is revenue in nature and further, same was given to offset higher cost of freight and other disabilities of exporters to be more competitive in exports to certain regions. Thus, the same cannot at any stretch of imagination be considered as capital in nature. Hence, we reject the ground taken by the assessee. In this view of matter and consistent with view taken by the Co-ordinate Bench, we are of the considered view that subsidy received from Govt. of India under Focus Market scheme cannot be considered as capital in nature and hence, we reject ground taken by the assessee. 14. The ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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