TMI Blog2022 (1) TMI 1145X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment is also similar and no distinguishing facts were pointed out by the Ld. DR, therefore, the finding of the CIT(A) that royalty @ 2% is to be charged from Dabur Nepal Pvt. Ltd. is not correct and has to be deleted. It is pertinent to note that in this year also the AE was not using the technical know-how or R D support from the assessee, therefore it will be appropriate to charge the royalty @ 0.75% by considering this fact that in the year under consideration the assessee had incurred huge expenses on marketing, advertisement brand building etc. and that in the preceding year the royalty was although charged @ 1% on the products manufactured without R D support and technical know-how from the assessee but the aforesaid expenses were comparability less. Thus, royalty to be charged at 0.75% in respect of agreement with Dabur International UAE. As regards to Asian Consumer Cure Pvt. Ltd. Bangladesh, again it is to be noted that the issue is covered partly in favour of the assessee by the order of the Tribunal in assessee's own case for A.Ys. 2007-08 and 2008-09 in [ 2021 (2) TMI 1250 - ITAT DELHI] Tribunal held that royally @ 0.75% is to be charged from Asian C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue s appeal is dismissed. Allowability of ESOP expense under Section 37 and Exemption of excise duty embedded in sales of Glucose Unit, Baddi (HP) - HELD THAT:- As in assessee's own case [ 2021 (2) TMI 1250 - ITAT DELHI] again admitted said additional ground and restored the issue to the file of the Assessing Officer with a direction to adjudicate the issue in accordance with the law. - I.T.A. No. 3423/DEL/2015 And I.T.A. No. 3790/DEL/2015 - - - Dated:- 24-11-2021 - Shri N. K. Billaiya, Accountant Member And Ms Suchitra Kamble, Judicial Member For the Appellant : Sh. M.P. Rastogi, Adv, Sh. Rohit Jain, Adv Ms. Deepa Shree Rao, Adv For the Respondent : Sh. Ajit Kumar Singh, CIT DR ORDER PER SUCHITRA KAMBLE, JM These two appeals are filed by the assessee and the Revenue against the order 26/03/2013 order passed by 144C(1)(3) read with Section 143 (3) of the Income Tax Act, 1961 for Assessment Year 2009-10. 2. The grounds of appeal are as under:- I.T.A. No. 3423/DEL/2015 (A.Y 2009-10) 1. That there is no international transaction as contemplated u/s 92CA of the Income-tax Act, 1961 (the Act) in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd. have incurred expenses on advertisement and sales promotion in their respective area for promotion of the brand and became the economic owner of the brand. Consequently the addition as made by the TPO and sustained by the CIT (Appeals) in respect of the alleged royalty chargeable from Dabur International Ltd., Dabur Nepal Pvt. Ltd. and Asian Consumer Care Ltd. is arbitrary, unjust , not based on FAR involved and at any rate very excessive. 6. That the TPO and CIT (Appeals) failed to appreciate the relevant clause of the agreement as existed in earlier years wherein as per the agreement, Dabur India Ltd. failed to incur the expenses for the promotion of the brand and marketing expenses in Dabur Nepal Pvt. Ltd., which ultimately and actually were incurred by Dabur Nepal Pvt. Ltd., which resulted into termination of the royalty chargeable under the then contract and consequently the CIT (Appeals) has erred on facts and under the law in upholding the chargeability of the royalty from Dabur Nepal Pvt. Ltd. 7. That the TPO and CIT (Appeals) failed to consider that most of the manufactured products by Dabur Nepal Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions u/s 115JB of the Income Tax Act, 1961. The Transfer Pricing Officer made adjustment of ₹ 20,53,69,250/- (adjustment on account of Guarantee ₹ 2,76,02,250/- and adjustment on account of Royalty ₹ 17,77,67,000). The Assessing Officer passed the Assessment Order dated 26.03.2013 determining the total income at ₹ 1,07,61,15,860/- as against the total income of ₹ 70,30,55,310. The MAT adjustment was reduced by ₹ 12,68,03,280/- thereby making following additions: a) TP adjustment ₹ 20,53,69,250/- b) Addition u/s 2(24)(x) r.w.s. 36(1)(va) ₹ 2,82,337/- c) Disallowance of expenses u/s 14A ₹ 5,22,33,000/- 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT (A) partly allowed the appeal of the assessee. 5. As regards, Ground No. 1 to 7 of assessee s appeal and regarding to Ground No. 2 of the Revenue s appeal, the Ld. AR submitted that there is no international transaction as contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 Asian Consumer care Ltd. 1548.18 6% 92.89 Total 1777.67 Accordingly, an addition of ₹ 17.78 crores was made by the Assessing Officer /TPO to the income of the assessee on account of royalty. On appeal, the CIT(A) held that use of brand name by associated enterprises is an international transaction, the arm's length which is assessed under Section 92 of the Act. Further the CIT(A) quantified the amount of royalty adjustment as under: (a) Dabur International Ltd. UAE The CIT(A) observed that the products manufactured by Dabur International Ltd. UAE are different from those man in India. Accordingly, the CIT(A), following the order for assessment year 2007-08 and 2008-09, reduced the rate royalty (i.e. 3.5%) charged by the TPO to 2% and restricted the arm's length price adjustment at ₹ 434.56 lakhs. (b) Dabur Nepal Pvt. Ltd. Nepal The CIT(A) observed that (a) Rate of 3% is mentioned in the amended agreement: and (b) the assessee could not obligation to bear enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2006-07, 2007-08 and 2008-09 wherein the Tribunal has decided these contesting facts. 10. We have heard both the parties and perused the relevant material available on record. As regards to agreement with Dabur Nepal Pvt. Ltd. Nepal, it is pertinent to note that the issue stands covered in favour of the assessee by the order of the Tribunal in the asssessee s own case in ITA No. 3257/Del/2013 for the A.Y. 2006-07, wherein the Tribunal held that no royalty was payable assessee by M/s Dabur Nepal Pvt. Ltd and deleted the addition made by TPO/CIT(A). The relevant findings of the Tribunal is as under: 36. As regards to the royalty charged from M/s Dabur Nepal Ltd. is concerned, it is not in dispute that earlier the royalty, was @ 7.5% as the assessee was bearing the cost of marketing expenses but later on Ms Dabur Nepal Pvt. Ltd. incurred expenditure in order to penetrate the market and the agreement was amended w.e.f. 1st April, 2004 vide which the royalty ht reduced from 7.5% to 3% (copy of the same is placed at page no. 113 of the assessee s paper book). In the preceding year, basis of the said amended agreement, the royalty was charged (a), 3%. Therefore, the TPO was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed for A.Y. 2006-07, the Tribunal, vide order dated 18.02.2021 passed in assessee's own case for the AYs 2007-08 and 2008-09 in ITA Nos. 3241, 3114, 6525 6256/Del/2014 deleted similar addition of royalty in respect of Dabur Nepal Pvt. Ltd. The order of the Tribunal is as under:- 81.6 We find identical issue had come up before the Tribunal in assessee s own case in the immediately preceding assessment year, i.e. 2006-07. We find, the Tribunal vide ITA No.3257 Del 2003 and ITA No.3492/Del/20I3, order dated 12.04.2017 has thoroughly discussed the issue and has deleted the royalty receivable by the assessee front Dabur Nepal and had restricted the Royalty receivable from Dabur International Ltd., UAE at 0.75% by observing as under:- .................................................................. 81.7 Since the facts of the present appeal are identical to the facts decided by the Tribunal in assessee's own case in the preceding assessment year, therefore, in absence of any distinguishable features brought before its by either side, we, respectfully following the same, hold that no royalty is receivable by the assessee from Dabur Nepal and, therefore, the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dabur International Ltd., UAE had not manufactured any products with the technical know-how and R D support of the assessee but had manufactured on its own, in accordance with the requirement and local taste of the local public, however, he directed the AO to calculate the royalty @ 2% but without any basis. In the present case, it is an admitted fad that the TPO/AO had not applied any transfer pricing method as prescribed under the Act and simply made the adjustment in respect of royalty based on the earlier agreements which had already expired and there was no new agreement between the assessee and its AEs. The earlier agreement was entered by M/s Redrock Ltd. on 1st April 2003, at that point of time, the said company was manufacturing the products with the technical know-how and R -D support of the assessee in respect of Aurvedic Herbal products. But later on, when the said company found that the Aurvedic products were not acceptable in UAE as in the said country Unani system of medicines was acceptable as per the local trend and custom. The said AE in UAE had abandoned the manufacturing of the .Ayurvedic herbal products and then entered into the business of FMCG products which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out R D support and technical know-how from the assessee but the aforesaid expenses were comparability less. Following the said order passed for A.Y. 2006-07, the Tribunal, vide order dated 18.02.2021 in assessee's own case for A.Ys. 2007-08 and 2008-09 restricted the adjustment of royalty @ 0.75% of FOB sales in respect of Dabur International Ltd. The Tribunal held as under: 81.6 We find identical issue had come up before the Tribunal in assessee's own case in the immediately preceding year, i.e. 2006-07. We find, the Tribunal vide ITA No.3257/Del/2003 and ITA No. 3-192 Del 2013, order dated 12.04.2017 has thoroughly discussed the issue and has deleted the royalty receivable by the assessee from Dabur Nepal and had restricted the Royalty receivable from Dabur International Ltd.. UAE at 0.75% by observing as under:- . 81.7 Since the facts of the present appeal are identical to the facts decided by the Tribunal in assessee s own case in the preceding assessment year, therefore, in absence of any distinguishable features brought before us by either side, we, respectfully following the same, hold that no royalty is receivable by the assessee from Dab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... newed thereafter. Therefore, in the absence of any contractual agreement, the assessee was not eligible to receive any royalty from ACCPL. It is his submission that products manufactured by ACCPL using technical knowhow of the assessee did not meet the requirements of customers in Bangladesh. Accordingly, after 2006, ACCPL entered into an agreement with Dabur Dubai to provide technical know. It is also his submission that merely on the basis of trade name of Dabur , the products manufactured by ACCPL were not accepted in Bangladesh and that it had to manufacture the products as per the local needs and taste of the public residing in the public area. It is also his submission that in order to penetrate the Bangladesh market, ACCPL adopted its own market strategy and had made alt the efforts for the establishment of 'Dabur' name in the Bangladesh which was very little known in that geographical area and incurred lot of expenses on advertisement, market establishment and had borne all the risks of market, manufacture and finance. Accordingly the assessee had neither made any efforts in establishing the trade name in Bangladesh nor had made any contribution towards the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its associated enterprises. In favour of Finance facility obtained Amount of Guarantee provided (in crores) Name of the Bank Interest rate for availing loan Dabur Egypt Ltd. Egypt USD 4.73K and EGP 3.55 Million ₹ 19.55 crores HSBC Bank, Egypt, SAE USD 3 months LIBOR + 2.90% p.a. USD 27.50 Million NSGB Bank, Egypt 6 months LIBOR + 1.35% p.a. Naturalle LLC, UAE USD 6 Million ₹ 30.43 crores The Royal Bank of Scotland, UAE 3mnths LIBOR + 0.475%/0.875% for USD 28 lakhs and 32 lakhs resp. (24.03.2008 to 31.03.2008) USD 17 Million ₹ 8.62 crores 3 mnths LIBOR + 3% Total ₹ 58.60 crores The Ld. AR submitted that the TPO vide order dated 29/01/2013, imput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the CIT(A) was not correct in reducing the addition made by the TPO. But the Ld. DR could not distinguish the facts of the present assessment year to that of the facts of A.Ys. 2006-07, 2007-08 and 2008-09, wherein the Tribunal decided this contesting issue. 16. We have heard both the parties and perused the relevant material available on record. It is pertinent to note that the issue of corporate guarantee issued by the assessee-company to HSBC Bank, Egypt, SAE and NSGB Egypt on behalf of Dabur Egypt Ltd. stands squarely covered by the order dated 18.02.2021 passed by the Tribunal in assessee s own case for A.Ys. 2007-08 and 2008-09 in ITA Nos. 3241, 3114, 6525 6256/Del/2014. In the consolidated order, the Tribunal, while adjudicating the appeals for the A.Y. 2007-08, observed that the incremental interest saved due to guarantee provided by the assessee to HSBC Bank, Egypt, SAE on behalf of Dabur Egypt Ltd was only 0.60% as against 1% considered by the CIT(A). Accordingly, the Tribunal restricted the rate of service fee @ 0.30% as against 0.50% as held by the CIT(A). The relevant extracts of the decision of the Tribunal are as under: 23. So far as corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO to adopt the service fee on account of corporate guarantee at 0.30% in respect of an grantee issued on behalf of Dabur Egypt Ltd., Egypt. The action of the CIT(A) of charging service fee at an ad-hoc rate of 0.50% in case of HSBC Bank, Egypt, SAE and NSGB Bank, Egypt needs to be restricted to 0.30% as per the decision of the Tribunal in A.Ys. 2007-08 and 2008-09 as the facts of the present assessment year 2009-10 is identical and no distinguishing facts were pointed out by the Ld. DR at the time of the hearing. As regards to Naturalle LLC, UAE, the corporate guarantee issued by the assessee-company to Royal Bank of Scotland, UAE on behalf of Naturalle LLC, UAE stand squarely covered by the order dated 18.02.2021 passed by the Tribunal assessee s own case for A.Y. 2008-09 in ITA Nos. 6525 6256/Del/2014 wherein the Tribunal restricted the service fee @ 0.30% as against 0.513% as held by the CIT(A). Thus, we direct the Assessing Officer to restrict the service fee @ 0.30% in respect of Dabur Egypt Ltd., Egypt. The Tribunal held as under: 127. So far as the corporate guarantee issued on behalf of Naturalle LLC. UAE is concerned, a perusal of the details further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jammu Unit-1 d) Jammu Unit-2 e) Toothpaste- Baddi Unit f) Shampoo- Baddi Unit g) Honey/Amla Extract- Baddi Unit h) Honitus-Baddi Unit i) Glucose- Baddi Unit The Ld. AR further submitted that during the A.Y. 2009-10, the assessee declared profit and gains from the eligible businesses on the basis of separate books of accounts and claimed deduction aggregating to ₹ 36,368.41 lakhs under Section 80IB and Section 80IC of the Act. The Assessing Officer observed that selling and distribution expenses aggregating to ₹ 1385.99 lakhs and miscellaneous expenditure of ₹ 394.18 lakhs were not allocated to the units. Further, the Assessing Officer also observed that depreciation aggregating to ₹ 5.66 crores on the assets of Head Office was not allocated to the units. Accordingly, the Assessing Officer allocated the aforesaid expenses and depreciation in the ratio of sales of eligible units for computing deduction under Section 80IB and 80IC of the Act and restricted deduction under the said sections at ₹ 35,216 lakhs as against deduction of ₹ 36,368.41 lakhs claimed by the assessee. On appeal, the CIT(A), following its orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion u/s 80IB/80IC of the Act, the details of which were given at para 83 of this order. During the year, the assessee declared profit and gains from eligible business on the basis of separate books of account and claimed deduction aggregating to ₹ 27,209.71 lakh u/s 80IB and 80IC of the Act. According to the AO, the Head Office expenses amounting to ₹ 2214.02 lakhs were not allocated to the units. Further, according to the AO, depreciation to the tune of ₹ 704.49 lakhs on assets of the Head Office was not allocated to the units. Accordingly, the AO allocated the Head Office expenses and depreciation in the ratio of sales of eligible unit for computing the deduction u/s 80IB /80IC and restricted such deduction to ₹ 25,404.88 lakhs as against ₹ 27,207.71 lakhs claimed by the assessee. We find, the Ld. CIT(A) reversed the action of the AO and directed him to recompute the deduction u/s 80IB/80IC of the Act without further allocation of head office expenses and depreciation to various units by observing that the assessee has itself added back the depreciation as per Companies Act, 1956 and claimed depreciation as per the Act and, therefore, the AO was wron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the return of income was duly allocated among all the units including the eligible units. We, therefore, find no infirmity in the order of the CIT(A) in reversing the action of the AO in allocating the difference of depreciation available under the Companies Act and Income-tax Act to the eligible units. 93.3 So far as the Head office expenses are concerned, we find the AO has allocated the head office expenses of ₹ 2.214.0 lakhs. the details of which are as under:- ................................. 93.4 A perusal of page 425 of paper book, Volume-II shows that Miscellaneous expenses written off, donation and provision for bad debts were suo motu disallowed by the assessee in its return of income. Therefore, once the aforesaid expenses were not claimed as a deduction by the assessee, the same, in our opinion, cannot be allocated to the eligible units and be considered for computing the deduction u/s 80 IB/80IC of the Act. 93.5 So far as scientific research expenses of ₹ 651 lakhs is concerned, the finding of the id. CIT(A) that such expenses have no nexus with the units eligible for deduction has not been controverted by the Revenue. We find, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present assessment year. Hence, there is no need to interfere with the findings of the CIT(A). Ground No. 3 of the Revenue s appeal is dismissed. 20. As regards Ground No. 4 of Revenue s appeal relating to addition on account of disallowance of expenses of ₹ 5,22,33,000/- under Section 14A r.w.r. 8D of the Income Tax Rules, 1961, the Ld. DR relied upon the assessment order and submitted that the CIT(A) erred in deleting the addition. 21. The Ld. AR submitted that during the previous year relevant to the assessment year 2009-10, no exempt income was earned by the assessee. The assessee, being an operating company, incurred various expenses in the course of normal business operations and no expenses were incurred in relation to earning of exempt income. Therefore, the assessee did not disallow any expenditure under Section 14A of the Act. The Ld. AR further submitted that in the assessment order, the Assessing Officer, without judiciously appreciating the facts of the case, disallowed an amount of ₹ 5,22,33,000 under Section 14A of the Act by holding the same to be expenditure incurred for earning exempt income. On appeal, the CIT(A) following its order for ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any exempt income, no disallowance can be made under Section 14A. Thus, the CIT(A) has rightly deleted the addition of ₹ 5.22 crore under section 14A of the Act. Ground No. 4 of the Revenue s appeal is dismissed. 23. As regards Additional Ground No. 1 filed by the assessee, the Ld. AR submitted that the ESOP expenses of ₹ 6,71,92,747 debited in the Profit Loss Account ought to have been allowed as deduction in computing the income under the head 'Profit and Gains of Business'. The Ld. AR submitted that the assessee had floated an ESOP Scheme namely DABUR ESOS, 2000 wherein option had been given to employees to purchase shares of the assessee -company. The said scheme was framed in accordance with the mandatory Security Exchange Board of India ('SEBI') guidelines. Under the Scheme, as part of the employee compensation measure, an option to purchase the shares of the assessee-company after the completion of the vesting period was granted to the employees of the company at a price determined by the Compensation committee. The Ld. AR further submitted that the assessee company used intrinsic value method of accounting ESOP expenses as prescribed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions of both the parties and carefully gone through the material available on the record. It is noticed that the additional ground has been raised have the assessee relating to the ESOP expenses which were debited in the profit and loss account but added back while computing the income allegedly under some misconception of facts and law. The issue raised by the assessee is legal issue. 88. As regard to the admission of the legal ground, the Hon'ble Supreme Court in the case of National Thermal Power Ltd. (supra) held as under: .. 89. We, therefore, by keeping in view the ratio laid down by the Hon'ble Supreme Court in the aforesaid referred to case admitted the additional ground raised by the assessee. However, it is an admitted fact that this issue has been raised by the assessee first time and the authorities below had no occasion to deal with this issue. He, therefore, deem it appropriate to remand this issue to the file of the AO/TPO to be decided in accordance with law after providing due and reasonable opportunity of being heard to the assessee. 14. We have also noted that it is an undisputed position, as evident from the computations rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with the law, after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The additional around raised by the assessee is accordingly allowed for statistical purposes. ITA No. 6525/Del/ 2o14 ( by the Assessee - A. Y. 2008-09) 135. After hearing both the sides, we find identical additional ground was decided by us in the preceding paragraphs while deciding the appeal of the assessee for A.Y. 2007-08. We have already admitted the same and the issue has been restored to the file of the AO with a direction to decide the issue in accordance with the law, after giving due opportunity of being heard to the assessee. Following similar reasonings, the first additional ground raised by the assessee is admitted and restored to the file of the AO to decide the issue as per law after giving due opportunity of being heard to the assessee. The first additional ground raise assessee is accordingly allowed for statistical purposes. Thus, in the present assessment year also we are remanding back this issue to the file of the Assessing Officer and direct the Assessing Officer to adjudicate this issue as per the law. Needless to say, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 002 read with Notification 1(13)/2000-NER dated 14.06.2002 and Central Excise Notification No. 56/2002 and 57/2002, excise duty exemption was granted to the assessee Under the aforementioned scheme, during the relevant previous year, the assessee received, inter-alia, exemption of excise duty amounting to ₹ 17,13,27,377. However, in the return of income filed by the assessee for the relevant assessment year 2009-10, the aforesaid amount of subsidy, was inadvertently offered to tax as part of taxable income. The assessee, in present appeal, vide letter dated 29.04.2019 has raised an additional ground of appeal before the Tribunal seeking to claim that such subsidy is in the nature of capital receipt, not exigible to tax and therefore, the same may be excluded from the total income of the assessee. The Ld. AR submitted that the similar issue was admitted by the Tribunal in A.Y. 2008-09 in ITA No. 6525/Del/2014 in assessee s own case and remanded back the issue to the file of the Assessing Officer for proper adjudication. 27. The Ld. DR opposed the admission of the additional ground but could not distinguish the facts of the present case to that of earlier assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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