TMI Blog2022 (10) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... years given orders which have not been reversed by the Hon ble jurisdictional High Court, hence we are not convinced with the reasoning of ld. DR for the Revenue to depart from the aforesaid order of ITAT in assessee s own case - Since the above order of ITAT is in assessee s own case and we are not convinced with the reasoning of the ld. DR to depart from the same, we follow the order of aforesaid coordinate Bench of the Tribunal and direct accordingly. Interest on loan to AE - TPO adopted PLR + 3% and imputed rate of interest @ 14.88% - HELD THAT:- We find that in assessee s own case, ITAT has upheld the deletion by the ld. CIT (A). ITAT has duly found that the same was in accordance with the Hon ble Delhi High Court decision in the case of CIT vs. Cotton Naturals (I) Pvt. Ltd. [ 2015 (3) TMI 1031 - DELHI HIGH COURT ] ITAT has also referred to other decisions. In this view of the matter, we are not convinced with the reasoning given by the ld. DR for the Revenue to distinguish the ITAT decision in assessee s own case. Accordingly, we uphold the order of ld. CIT (A) on this issue and deletion of the addition. Interest on receivables - TPO held that interest rate of 14.88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the assessee on account of refund of excise duty on capital subsidy and claim of expenses on stock option scheme on the reasoning that the same was not claimed by filing revised return of income - HELD THAT:- We note that ITAT in assessee s own case for AYs 2006-07 [ 2017 (4) TMI 1521 - ITAT DELHI ] AY 2007-08-2008-09 [ 2021 (2) TMI 1250 - ITAT DELHI ] to 2009-10 [ 2022 (1) TMI 1145 - ITAT DELHI ] had admitted the claim and remanded the matter to the file of AO for adjudication. Moreover, in Goetze India Ltd. case [ 2006 (3) TMI 75 - SUPREME COURT ] has expounded that decision in that case would not impinge upon the power of the ITAT in admitting the claims otherwise than by revising the return of income. Since consistently ITAT in assessee s own case had admitted such claims and remanded the file to AO to adjudicate the same as per law, we follow the same and admit these two claims - Accordingly, this issue is remitted to the file of AO to adjudicate as per law. - ITA No.7154/Del./2017 And ITA No.7253/Del./2017 And ITA No.7431 /Del./2017 And ITA No.183/Del./2018 - - - Dated:- 20-9-2022 - Shri Shamim Yahya, Accountant Member And Shri Kul Bharat, Judicial Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) That the TPO and CIT (Appeals) failed to consider the geographical conditions of working of Dabur International Ltd., and Asian Consumer Care Ltd., having no substantial awareness about the Dabur brand in the area and consequently the presumption and assumption about the chargeability of royalty by invoking the provision of Section 92CA of the Act from Dabur International Ltd and Asian Consumer Care Ltd. is arbitrary, unjust and without any basis. 3) That the CIT (Appeals) and TPO have failed to consider that in the absence of any expenditure incurred by the assessee for the establishment of brand in the geographical area of working of Dabur International Ltd and Asian Consumer Care Ltd., no brand royalty can be said to have accrued to the assessee when Dabur International Ltd., and Asian Consumer Care Ltd. have incurred expenses on advertisement and sales promotion in their respective area for promotion of the brand/ different product. 4) That both Ld AO and CIT(Appeals) failed to appreciate through the Transfer Pricing Analysis that incurrence of Advertisement, Marketing and Promotional expenditure by the assessee of its foreign subsidiaries would have been prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hands of assessee by concluding as under :- 6.7 In this case there is all arrangement for using the brand name / trade name Dabur by the associated enterprises, The brand name is owned by the assessee, Agreements were in existence for payment or royalty and the royalty was being paid in accordance with the terms and conditions of these agreements till F.Y. 2004-05 and FY 2005-06, However for reasons best known to the assessee the royalty was not received by the assessee during the current year. The argument of the assessee that it has no right to receive royalty is devoid of any evidence or merits, It is an admitted fact that the brand name is owned by the assessee company and the AEs were using the brand name of the assessee in the year under consideration. Under arm's length situation no independent party shall allow the use of brand name by any third party without any consideration. The benefits of the brand name are derived by the AEs for which the assessee company has not been compensated. 6.8 In view of the above discussion I am of the considered view that the AEs have used the trade name/brand name owned by the assessee without any compensation accordingly the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, ITAT has not properly appreciated the issue and the agreements in this regard. As regards agreement with Dabur International UAE, he submitted that 1% royalty as per the clauses of the agreement has to be upheld by the ITAT. As regards royalty from Asian Consumer Care Ltd., Bangladesh, he submitted that the royalty charged by the TPO should be upheld and without prejudice he submitted that at least 1% should be confirmed. 10. We find that on the same agreement, ITAT in earlier years have given a finding and has directed the rates at which royalty should be charged. Now, ld. DR for the Revenue is finding fault in the aforesaid order and arguing that the same need not to be followed. However, we are of the considered opinion that order of the ITAT in assessee s own case in earlier years need to be followed for the principles of judicial discipline. It is also not the case that Hon ble Delhi High Court has reversed the orders of ITAT. In fact, ld. counsel of the assessee has pointed out that Hon ble jurisdictional High Court has upheld the order of ITAT in ITA No.1142 of 2017 vide order dated 13.12.2017 ((2018) 89 taxmann.com 78 (Delhi)). We may gainfully refer to the order of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty was payable earlier on the sales, therefore, it is unbelievable that the assessee charged the royalty on the purchases made by it from M/s Dabur Nepal Pvt. Ltd. to increase the cost of purchases. Even if it is presumed that the royalty was to be charged by the assessee then same amount was to be added in the purchases thus the impact will be revenue neutral i.e. on the one hand, income will be increased by crediting the royalty and on the other hand, the cost of purchases will be increased by that amount, since the sale was made by M/s Dabur Nepal Pvt. Ltd. to the assessee. In the present case, it is an admitted fact that there was no agreement in existence between the assessee and the AE i.e. M/s Dabur Nepal Pvt. Ltd. and nothing is brought on record to substantiate that the assessee incurred any expenditure which benefited M/s Dabur Nepal Pvt. Ltd. in any manner. Therefore, no royalty was payable to the assessee by M/s Dabur Nepal Pvt. Ltd. By considering the totality of the facts as discussed herein above, we are of the view that the royalty @ 2% directed to be charged by the ld. CIT(A) was not justified, therefore, the addition made on the said basis is deleted. Followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted and comparable independent entities. But in the present case no comparable case has been brought on record by the TPO or the ld. CIT(A) while making adjustment on account of royalty. Moreover, no agreement was inforce to charge royalty from the AEs and that the FMCG products are new to the assessee who is known for its Herbal and Aurvedic products. In the instant case, it is not brought on record that the assessee had incurred any expenses for marketing the products manufactured by M/s Dabur International Ltd. (AE) in UAE and that the assessee either made any efforts or contributed any money for the establishment of its name in geographical area of UAE and the products manufactured by the UAE were not different from the products manufactured in India by the assessee. Moreover, the claim of the assessee that the raw material and medium used in the manufacturing at UAE was totally different from the raw material and medium used in India has not been rebutted. The products manufactured by the assessee were as per the local needs and taste of the public residing in UAE. Furthermore, the ld. CIT(A) himself admitted that M/s Dabur International Ltd., UAE had not manufactured any prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year under consideration also to some extent. It is also noticed that the assessee received the royalty @ 1% in the preceding year. The TPO also while working out the royalty rate for the year under consideration was of the view that the royalty @ 1% was chargeable on the products manufactured without the aid and support of assessee company but marketed by using Dabur name, however, no basis has been given for the same. In our opinion the estimate made by the TPO for the rate of royalty was highly excessive. We therefore, after considering the totality of the facts are of the view that the ld. CIT(A) was not justified in directing the AO to charge the royalty from Dabur International UAE @ 2%. Particularly, when the assessee was not using the technical know- how or R D support from the assessee, in our opinion it will be fair and reasonable 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 bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keting, 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. 12. 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 ITA Nos. 3241, 3114, 6525 6256/Del/2014. The Tribunal held that royally @ 0.75% is to be charged from Asian Consumer Care Pvt. Ltd. The Tribunal held as under: 81.4. So far as Asian Consumer Care Pvt. Ltd. Bangladesh is concerned, it is his submission that the assessee was having 100% ownership in ACCPL, directly indirectly and thus, it could not have received any royalty from itself. The agreement with ACCPL entered on 01.12.2003 which was for a period of two years became defunct in December, 2005 as the same was not renewed thereafter. Therefore, in the absence of any contractual agreement, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the ITAT in assessee s own case, we direct that in case of Dabur Nepal (P) Ltd., royalty is quantified at nil, the case of Dabur International UAE, royalty is quantified at 0.75% of FOB sales and in case of Asian Consumer Care Ltd., Bangladesh, royalty is quantified at 0.75% of FOB sales. 12. Apropos issue of corporate guarantee charges : Grounds No.6 to 8 of assessee s appeal and Ground No.1 of Revenue s appeal. On the issue of corporate guarantee, TPO determined arm s length price of providing corporate guarantee @ 75% of interest saved : (a) Dabut Egypt Ltd., Egypt : - HSBC Bank Egypt SAE, Cairo 0.45% - NSGB Bank, Egypt 0.75% - Royal Bank of Scotland, UAE 0.75% (b) Naturelle LLC, UAE - Royal Bank of Scotland, UAE 0.75% 13. Ld. CIT (A) referring to earlier year s CIT (A) order quantified the amount of adjustment as under :- (a) Dabut Egypt Ltd., Egypt : - HSBC Bank Egypt SAE, Cairo 0.50% - NSGB Bank, Egypt 0.50% - Royal Bank of Scotland, UAE 0.50% (b) Naturelle LLC, UAE - Royal Bank of Scotland, UAE 0.50% 14. Against the above order, the Revenue and assessee are in cross appeals. 15. We have heard both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ld. DR for the Revenue to depart from the aforesaid order of ITAT in assessee s own case. We may gainfully refer to the order of ITAT for AY 2009-10 as under :- 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 corporate guarantee issued on behalf of Dabur Egypt Ltd., Egypt is concerned, we find the assessee had issued corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 by the assessee in the paper book shows that the assessee has saved incremental interest of 1.025% due to guarantee provided by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn the principle that LlBOR should be used in respect of Loans to AE in foreign currency. However, the Hon'ble HC has at Para 42 of the judgement also laid down that 'Inter-company loans would require examination 0/ the loan agreement, comparison of the terms and conditions of loan agreements. the determination of the credit rating of the lender and the borrower identification of the comparable third-party loan agreements and suitable adjustments should be made. In addition to the aforesaid/actors, the comparability analysis should also take into account the business relationship and the functions performed by the subsidiary AE for the parent company. Considering the risk profile of the Assessee and credit rating being a new company, the basis point over LIBOR should be retain d as 500 basis points as arrived at by TPO, in any case, the TPO has followed the judgement of Hon'ble Delhi High Court in Cotton naturals. 24. Per contra, ld. counsel for the assessee submitted that the issue is squarely covered by the ITAT s order for AYs 2007-08 and 2008-09 wherein ITAT has upheld the deletion of the addition. ITAT in ITA nos.3241 6525/Del/2014 ors. in assessee s own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er than the comparable ALP rates. He further noted that the TPO while adopting the rate of 14% has contravened the provisions of Rule 10B(2) which prescribes the factors for comparability of controlled transactions of uncontrolled transactions. 82.15 We do not find any infirmity in the order of the CIT(A) deleting the addition made by the AO/TPO. The provisions of Rule 10B(1)(a) read as under:- 10B . (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction or a specified domestic transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) comparable uncontrolled price method, by which,- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find, the Hon ble Delhi High Court in the case of DCIT vs. Cotton Naturals India (P) Ltd. (supra) while upholding the finding of the Tribunal with respect to appropriate comparable rate of interest on foreign currency denominated loan, has held as under:- 39. The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, in our considered opinion, must be answered by adopting and applying a commonsensical and pragmatic reasoning. H e have no hesitation in holding that the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency o r legal tender of the place or the country of residence of either party. Interest rates applicable, to loans and deposits in the none currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate if the Government and several other pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. Apropos Ground No.4 of Revenue s appeal. On the issue of receivables, TPO held that interest rate of 14.88% would be the arm s length interest for the receivables form the AE. Ld. CIT (A) gave relief to the assessee on a finding that assessee does not charge interest from its unrelated parties also and that the net margin of the assessee in these transactions with AEs is significantly higher. Ld. CIT (A) has held as under:- 16.3 In the case of the Appellant, the international transactions have been benchmarked separately for its two segments namely FMCG and non FMCG which have been accepted by the TPO as follows:- Particulars FMCG Segment Non FMCG Segment International Transaction Sale of finished goods of Rs.12.95 crores; Sale of Raw Materials Rs.12.48 crores; Purchase of raw materials Rs.27.0 crores Purchase of Finished Goods Rs.140.74 crores Net Margin of Dabur Appellant 18.94% 8.38% Net Margin of Comparable 12.48% 3.49% The Appellant has argue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are not in agreement with the submission of ld. DR. It is no doubt that after the amendment, receivables are an international transaction which needs to be benchmarked separately but as rightly pointed out by the ld. CIT (A) above that the margin of the assessee both in FMCG and non-FMCG segment is much higher than the comparables. Hence, since benchmarking under both the segments has been accepted in the transfer pricing, we do not find any infirmity in the order of ld. CIT (A) that there is no reason to separately benchmark receivables. 31. Apropos Ground No.5 of Revenue s appeal. The AO has restricted the deduction u/s 80IB and 80IC by further allocation of Head Office expenses to eligible units and has worked out deduction u/s 80IB and 80IC to Rs.2,27,55,44,004/- as against Rs.2,32,95,64,449/- claimed by the assessee. Ld. CIT (A) granted relief to the assessee by observing as under:- 27.1 The appellant submitted that selling and administrative expenses of Rs.9,10,78,714 consisted of expenses like donation, bad debts, loss on sales of fixed assets written off etc. which were not admissible for deduction under the Act. Such expenses had already been already been added ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings of the decision of the Tribunal for the assessment 2007-08 are reproduced as under: 93. We have considered the rived arguments made by both the sides, perused the orders of the AO and CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee, during the year under consideration, had 18 industrial units undertaking manufacturing of products out of which 10 units were eligible for deduction 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 Rs. 27,209.71 lakh u/s 80IB and 80IC of the Act. According to the AO, the Head Office expenses amounting to Rs.2214.02 lakhs were not allocated to the units. Further, according to the AO, depreciation to the tune of Rs. 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial year under consideration, depreciation amounting to Rs.2,197.81 lakhs was debited to the P L Account. A perusal of the computation of income, copy of which is at page 425 of the patter book Volume II, shows that the assessee has added hack the aforesaid depreciation under Companies Act and claimed depreciation of Rs.2,902.3 lakhs in accordance with the provisions of section 32 of the Act. The depreciation as claimed 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 Rs.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 claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above ground is identical to ground of appeal No.6 in ITA No.3114/Del/2014 filed by the Revenue. We have already decided the issue and the ground raised by the Revenue has been dismissed. Following similar reasoning, this ground filed by the Revenue is dismissed The CIT(A) has given a detailed findings and no distinguishing facts were pointed out by the Ld. DR for the 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. 37. We find that ld. CIT (A) has given a finding that material facts in this case are similar to earlier year. Hence we accept the contention that the issue is covered in favour of the assessee by the decision of ITAT as above. Accordingly, we uphold the order of ld. CIT(A) on this issue. 38. Apropos Ground No.6 of Revenue s appeal. This issue relates to deletion of addition on account of belated payment of employees contribution of ESI under section 36(1)(va) r.w.s. 2(24)(x) of the Act. On this issue, ld. counsel of the assessee submitted that this issue is now covered in favour of the assessee even after the amendment as held by ITAT Delhi Benches. ITAT, De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that in the absence of any exempt income, no disallowance can be made under Section 14A. Thus, the CIT(A) has rightly deleted the addition of Rs.5.22 crore under section 14A of the Act. Ground No.4 of the Revenue's appeal is dismissed. 44. We find that the facts in the present case are also not in dispute that assessee has not earned any exempt income. In this view of the matter, disallowance u/s 14A read with Rule 8D is not permissible as per case law, hence this ground of Revenue s appeal stands dismissed. 45. Apropos Grounds No.11 12 of the assessee s appeal. In this issue, authorities below have not accepted the additional claim of the assessee on account of refund of excise duty on capital subsidy and claim of expenses on stock option scheme on the reasoning that the same was not claimed by filing revised return of income and referring to Hon ble Supreme Court decision in the case of Goetze India Ltd. vs. CIT (2006) 284 ITR 323. 46. We note that ITAT in assessee s own case for AYs 2006-07 to 2009-10 had admitted the claim and remanded the matter to the file of AO for adjudication. Moreover, in Goetze India Ltd. case itself, the Hon ble Apex Court has expou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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