TMI Blog2022 (7) TMI 1508X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the total income Under the act. In view of this ground of the appeal of the learned assessing officer is dismissed. Excess DDT paid by the assessee u/s 115O - beneficial rate as per the applicable Double Taxation Avoidance Agreement (DTAA) for dividends paid to non-resident shareholders - HELD THAT:- We observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee s own case for the A.Y.2010-11 [ 2022 (2) TMI 1428 - ITAT MUMBAI] wherein held there is no information about the country of residence of those shareholders, whether those shareholders have Tax Residency certificate of that country, there is no submission whether the dividend income is income of shareholders and about how the assessee will claim refund of the taxes , if same is income of the shareholders. Further the host of issues with respect to applicable of DTAA as stated in grounds of appeal by assessee are required o be addressed. Therefore, in case of assessee itself for assessment year 2009 10 we also set-aside this issue back to the file of the learned assessing officer with direction to the assessee to submit its claim with all necessary supporting evidences and certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has considered this information and do not propose any addition relating to these additions. It is fact on record that assessee has waived Royalty income to Bangladesh and Srilanka Subsidiaries for business consideration. It is also fact on record that the TPO has not proposed any addition u/s. 92CA of the Act and further, we observe that as per the provision of DTAA, the Royalty income cannot be recognized as revenue until such royalty are paid. In the given case the assessee has never received any Royalty from these Associated Enterprises. In the similar situation the Coordinate Bench in the case of Diageo India Pvt Ltd [ 2019 (12) TMI 1615 - ITAT MUMBAI] held as upon hearing both the Counsel and perusing the records, we find that it is the claim of the assessee that payment of royalty is an international transaction and assessee has submitted the benchmarking report and the Transfer Pricing Officer has not made any adjustment. In this view of the matter, the Transfer Pricing officer has not made any adjustment. Hence, it was not open to the AO to apply the benefit test and make the disallowance u/s.37(1) of the Act, without proper examination of all aspects of the claim. Decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and do not require any fresh examination of facts. Therefore, Ld. Counsel for the assessee prayed it may be admitted. 6. Ld. DR objected for admission of the additional grounds as they were never raised before lower authorities and therefore cannot be admitted. 7. Considered the rival submissions and material placed on record, we observe that as the said additional grounds are legal grounds, wherein, the facts are on record and facts do not require fresh investigation, following the decision of Hon ble Supreme Court in the case of National Thermal Power Co., Limited v. CIT 229 ITR 383 (SC), we admit the said additional grounds of appeal. 8. At the time of hearing, Ld. Counsel for the assessee submitted that Ground No. 2 and 5 of grounds of appeal are not pressed, accordingly, the same stand dismissed. 9. Coming to Ground No. 1 which is in respect of disallowing ₹.0.33 lakhs on account of Transfer Pricing adjustments for non-recovery of charges for providing letter of support/comfort, Ld. Counsel for the assessee submitted that this issue is squarely covered by the decision of the Coordinate Bench in the preceding assessment years in assessee s own case in ITA.No. 2754/Mum/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of ₹3,28,280/-. This ground is allowed . 022. We do not find any difference in the facts and circumstances of the case except to the extent of amount of letter of comfort issued by the assessee. The learned CIT A has also followed the decision rendered by the learned CIT A for assessment year 2009 10 which has been confirmed by the coordinate bench per its order dated 3 February 2021. Therefore, respectfully following the decision of the coordinate bench, we also hold that there cannot be any addition in the hands of assessee on account of comfort letter issued. Accordingly, ground number 2 of the appeal of the learned assessing officer is dismissed. 12. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee s own case for the A.Y. 2010-11 and also following the principle of Rule of consistency , we allow the ground raised by the assessee. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in absence of any satisfaction recorded by ld AO, disallowance was deleted. 033. We find that honourable High Court in INCOME TAX APPEAL NO. 1564 OF 2016 in case of assessee has considered this issue and has upheld the order of the coordinate bench for the reason that there is no satisfaction recorded by the learned assessing officer before applying provisions of rule 8D for making disallowance u/s 14 A of the act. The honourable High Court held as Under: (a) In its return of income, the respondent made a suo-moto disallowance of Rs.15.21 lakhs being the expenditure incurred to earn exempt income under Section 14A of the Act. The Assessing Officer disregarded the same and proceeded to disallow an amount of Rs.1.10 crores under Section 14A of the Act read with Rule 8D of the Rules as expenditure incurred to earn exempt income. Thus, adding Rs.1.10 crores to the income of the respondent. (b) Being aggrieved, the respondent filed an appeal to the CIT(A) but without success. (c) On further appeal, the impugned order of the Tribunal while allowing the appeal held that before invoking the provisions of Rule 8D of the Income Tax Rules, the Assessing Officer has to record his non- satisfac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule of consistency , we allow the ground raised by the assessee. 17. Coming to Ground No. 4 which is in respect of excess DDT paid by the assessee u/s 115O of the Act, having regard to the beneficial rate as per the applicable Double Taxation Avoidance Agreement (DTAA) for dividends paid to non-resident shareholders, Ld. Counsel for the assessee submitted that this issue is squarely covered by the decision of the Coordinate Bench in the preceding assessment years in assessee s own case in ITA.No. 2754/Mum/2014 dated 03.02.2021 and ITA.No.3290/Mum/2015 dated 23.02.2022 for the A.Y. 2009-10 and 2010-11 respectively and the Coordinate Bench has adjudicated the issue in favour of the assessee and against the Revenue. Ld. Counsel for the assessee prayed that the same decisions may be adopted for the assessment year under consideration. Copy of the recent order for A.Y.2010-11 is placed on record. 18. Ld. DR agreed that the issues are already decided in favour of the assessee for the earlier years, however, he supported the orders of the Assessing Officer. 19. Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal filed by the assessee is allowed as indicated above. 22. Coming to the appeal of the Revenue in ITA.No. 749/Mum/2017 (A.Y. 2011-12), being aggrieved with the order of the Ld.CIT(A), revenue has raised following grounds of appeal in its appeal: - 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance on account of Letter of Comfort to 0.04% as against 0.50%, without appreciating the facts of the case. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A. O to verify the allowability of expenditure incurred us 35(2AB) without appreciating the fact that the expenditure was disallowed by DSIR (as per Certificate in Form No. 3CL) as the same was not incurred for R D purpose. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting addition of Rs. 7,42,79,174/-, being damaged stock, in the closing stock of the assessee without appreciating the facts of the case. He further erred in directing to reduce the consequential amount of Rs. 204.08 lacs instead of Rs.66.03 lacs being correct difference of closing stock 4. On the facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd development unit situated at Bhandup in Mumbai. Assessee also built its own new research and development facility, which was also approved. The assessee has incurred both revenue and capital expenditure on in-house research and development facilities during the year and therefore assessee claimed that he it is entitled to weighted deduction u/s 35 (2AB) of the income tax act. The assessee incurred an expenditure of ₹ 22.97 crores; however, as per the certificate issued the eligible expenditure was reduced from ₹ 22.97 crores 222.19 crores. Based on the certificate the learned assessing officer allowed the claim to the extent of ₹ 22.19 crores and thus the claim of the assessee was reduced by ₹ 38.76 lakhs being 50% of the differential research and development expenditure of ₹ 77.42 lakhs incurred by the assessee. 024. The learned CIT A, on appeal, followed the decision of his predecessor for assessment year 2009 10 and directed the learned assessing officer to verify the nature of expenditure which has been disallowed by the authority and if on verification the learned assessing officer finds that the such expenditure was incurred for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per it's certificate in two parts, one incurred inhouse and the other incurred outsider. Relying on the said certificate, the Revenue disallowed the expenditure incurred by the assessee outside its in-house facilities while the Tribunal allowed the same. The Hon'ble Gujarat High Court upheld the decision of the Tribunal holding that merely because the prescribed authority segregated expenditure into two parts by itself could not be sufficient to deny the benefit to the assessee u/s 35(2AB). The issue involved the in the case of Cadila Health Care ltd.(supra) thus was entirely different and even the facts involved in the said case were different from the facts of the assessee's case in as much as the entire expenditure incurred by the assessee in that case on R D was duly certified by the prescribed authority whereas in the case of the assessee, the same is not certified to be eligible R D expenditure to the extent of Rs.54.34 lakhs . 14. The ld. Counsel for the assessee has also relied on the decision of the Ahmedabad bench of ITAT in the case of ACIT vs Torrent Pharmaceuticals Ltd. in ITA No.3569/Ahd/2004 dated 13.11.2009 in support of the assessee's case on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity, expenditure claimed to be incurred at Rs.13,56,47,149/- on R D was reduced to Rs.13,02,11,457/- by the said authority in the certificate issued. Relying on the said certificate, claim of the assessee for the deduction u/s 35(2AB) was reduced by the AO by Rs.27,18,846/-being 50% of the R D expenditure treated to be not eligible by DSIR in its certificate. On appeal, the ld. CIT(A) confirmed the disallowance made by the AO on this issue relying again on the certificate issued by DSIR 13. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. In support of the assessee's case, the ld. Counsel for the assessee has relied on the decision of the Hon'ble Gujarat High Court in the case of CIT vs Cadila Health Care ltd. 87 DTR 56. A perusal of the judgment passed by the Hon'ble Gujarat High Court in this case, however, shows that the expenditure on R D was bifurcated by the prescribed authority as per it's certificate in two parts, one incurred inhouse and the other incurred outsider. Relying on the said certificate, the Revenue disallowed the expenditure incurred by the assessee outside its in-house facilitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re be restored to the file of AO for giving him an opportunity to verify the same. We find merit in this contention of the ld. DR and since the ld. Counsel for the assessee has also not raised any objection in this regard we restore this issue to the file of the AO with a direction to decide the same afresh after verifying whether the expenditure in question has been incurred by the assessee on research and development which is eligible for deduction u/s 35(2AB). The appeal of the assessee is accordingly treated as allowed for statistical purpose. 026. Therefore, respectfully following the decision of the coordinate bench in assessee s own case for assessment year 2007 08 the issue has been set-aside to the file of the learned assessing officer for verification, we also confirmed the order of the learned CIT A ground number 3 of the appeal of the AO. 27. Respectfully following the above said decision of the Tribunal in assessee s own case for A.Y. 2010-11, we are inclined to set-aside the issue to the file of the Assessing Officer for verification as per the directions of the earlier Tribunal orders. We order accordingly. 28. With regard to Ground No. 3 which is in respect of Non-I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of-the appellant as against the observation/findings of the AO in the order. This issue is recurring issue in the case of the appellant. Disallowance to the tune of 0.5% of the value of closing stock for damaged stock was done in the past by the AO has been confirmed by the Hon'ble ITAT in the earlier years from AY 2003-04 to AY 2006-07 and AY 2008-09. Further following such precedents similar disallowance was confirmed by my predecessor in A.Y. 2009-10 and AY 2010-11. Accordingly in the facts of the case and keeping in mind principles of judicial discipline and consistency, I am not inclined to change the method of valuation of closing stock as proposed by AO. I disallow an amount equal to @ 0.5% of the value of the closing stock for the purpose of valuation of damaged stock. Further the AO has inadvertently reduced an amount of Rs. 66.03 lacs in the computation of disallowance instead of Rs. 204.08 lacs and accordingly relief to the extent of Rs. 204.08 lacs with respect to the opening stock is granted. Accordingly this ground of appeal is partly allowed . 30. Aggrieved revenue is in appeal before us, Ld.DR vehemently argued and supported the findings of the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has put to use it for less than 1 80 days in a previous year, the deduction in respect of depreciation shall be restricted to 50%. The assessee has already claimed 10% of the additional depreciation in financial year 2008- 2009 (assessment year 2009 10) and therefore it claimed that balance 10% of the depreciation should be allowed to the assessee in financial year 2010 11. 036. The learned assessing officer rejected the claim of the assessee holding that there is no such provision to claim balance 10% additional depreciation in subsequent years for addition made in earlier year. In past year learned CIT A who allowed the claim of the assessee following the decision of coordinate bench in Cosmo films Ltd 24 taxmann 189 and SIL Ltd 26 taxmann 78, The learned assessing officer did not followed order of the learned CIT A in earlier year also and made disallowance of Rs 1,51,65,251/ . 037. On appeal before the learned CIT A, he allowed the claim of the assessee based on his own decision for assessment year 2008- 2009 in case of the assessee. We find that the identical issue has been decided in favour of the assessee in the assessee s own case for assessment year 2009 10 in ITA nu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire amount of additional depreciation cannot be claimed in the subject assessment year, the balance unclaimed amount can be claimed in the subsequent assessment year. It is also a fact on record, against similar claim allowed by learned Commissioner (Appeals) in assessee's own case in Assessment Year 2008-09, the revenue has not preferred any appeal before the Tribunal. In view of the above, we uphold the decision of learned Commissioner (Appeals) on the issue. Ground raised is dismissed. 038. Therefore, respectfully following the decision of the coordinate bench in assessee s own case for assessment year 2009 10, ground number 6 of the appeal is dismissed holding that the learned CIT appeal is correct in allowing additional depreciation at the rate of 10% for asset purchased in the earlier year amounting to ₹.151,65,251/ 36. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee s own case for the A.Y. 2010-11 and also following the principle of Rule of consistency we dismiss the ground raised by the revenue holding that Ld.CIT(A) is correct in allowing the additional depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the above amount was paid to SOTC and the Thomas Cook India Ltd for foreign trip of its dealers. He therefore held that these expenditures are not expended wholly and exclusively for the purposes of its business. The learned AO further noted that the expenses incurred by the assessee have obviously not been credited in the books of the correct dealers; however, most of the persons who undertook the travel at the cost of the company were partners and directors of those firms. He further held that it is actually a commission paid by the assessee company to its dealers and was liable to deduction of tax at source u/s 194H of the act and hence disallowable u/s 40 (a) (ia) of the act. Accordingly, he disallowed the above sum. Hence, ld AO misconceived the provisions of Section 194H by making the disallowance. He also followed his own decision for assessment year 2009 10. 041. It is also stated before us that the issue squarely covered in favour of the assessee for assessment year 2009 10 in ITA number 2754/M/2014 and ITA number 4203/M/2014 wherein the coordinate bench held as Under:- 43. In ground 6, the revenue has challenged deletion of disallowance of ₹ 1,610.45 lakhs on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 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 inked to quantum of purchases made by the dealer. Finally, he submitted, the assessee is claiming such deduction for past 20 years. Except the impugned assessment year, the expenditure has never been disallowed. Therefore, there is no reason to deviate in the impugned assessment year. 48. We have considered rival submissions and perused materials on record. As could be seen from the facts on record, to expand its business the assessee has devised a trip scheme wherein it organized foreign trips to its dealers and distributors based on achieving a specific target assigned by the assessee. On achieving such target, the dealer/distributor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. This royalty is computed @3% of the of the net sales by majority of Associated Enterprises. During the year under consideration Assessing Officer opined that assessee have partly waived royalty receivable from its two subsidiary companies situated in Srilanka and Bangladesh. Further, he observed that similar waiver was granted to these subsidiaries in A.Y. 2008-09 to A.Y. 2010-11. When the assessee was asked to substantiate the same assessee has submitted as under: - In the above context, please refer our submission vide our submission dated 16.09.14 and also our submission dated 12.01.15 where we had submitted copy of royalty agreement copy of boar resolution for waiver of royalty. In the above context, we would like to reiterate that we have an agreement interralia with its indirect subsidiaries at Bangladesh Srilanka according to which the company has to receive royalty of 3% of net sales of both the Units. However, considering the financial position of the subsidiaries, the company had agreed to waive part of the royalty. Hence, during the year we have credited 1% of royalty amount to our profit and loss account instead of 3% as per the agreement. In the above context, we w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Naidu And Another V. CIT (35 ITR 33) held that income may accrue to an assesse without actual receipt, if the assessee a right to receive the income it can be said to have accrued to him, though it may be received later, on its being ascertained. Reliance is also placed on the decision of the Hon'ble High Court in the case of CIT, Tamilnadu Vs Motor Credit Co Pvt Ltd (127 ITR 572). In this judgment, the Hon'ble High Court has held, inter alia, the following The regular mode of accounting determines only the mode of computing the taxable income and the point of time at which the tax liability is attracted. It cannot determine or affect the range of taxable income or the ambit of taxation. Where no income has resulted it cannot be said that income has accrued merely on the ground that the assessee had been following the mercantile system of accounting. Even if the assessee makes a debit entry to that effect, still no income can be said to have accrued to the assessee. If no income has materialized, there can be no liability to tax on a hypothetical income. It is not the hypothetical accrual of income based on the mercantile system of accounting followed by the assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of any kind received as a consideration for the use of or the right to use, any copyright or literary, artistic or scientific work, including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial commercial or scientific experience but does not include any payment in respect of the operation of mineral deposits, sources and other natural resources. Thus, from a plain reading of the above -quoted definition it is clear that royalty is defined to mean payments received as a consideration for the use of . However, in the present case, since we have foregone or waived our rights to receive royalty, the question of it being received does not arise and accordingly, even under Article 12 of the DTAA, no royalty accrues to us. Thus, bases on facts, judicial pronouncements and, royalty does not accrued or arise to us under the Income Tax Act and DTAA and accordingly the same is not chargeable to tax. We would like to submit that a similar full/part waiver was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign countries. (iv). Here an element of tax evasion on the part of Assessee Company is apparently visible, in the sense that all the expenses incurred on Brand Building and technical support(s) given to these subsidiaries (at Bangladesh Srilanka) are duly booked and claimed by the assessee company in lieu of which the company has acquired rights (through written and signed agreement) to receive the Royalty income as legitimate profits / incomes due to it Since it is in lieu of use of their Brand Name and technical services provided by them, that the assessee company acquires the right to receive royalty, and it is a matter of record that assessee company is incurring huge cost by way of advertisements etc on making and establishing its Brand Value besides expenses on providing technical support to AEP's, hence I am of the considered view that the legitimate right to receive corresponding income (royalty) cannot be waived off through an arbitrary decision, particularly till such time as the original written and duly signed agreement is in place. The arbitrary decision cannot override the specific provisions of the duly signed agreement of the assessee company with these two AEP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case and submissions of the appellant. The contentions raised by the appellant as against their grounds of appeal are being discussed and decided as under: 14.5 Appellant has granted waiver of royalty to its two subsidiaries viz. Bangladesh and Srilanka on account of commercial and business related considerations. Similar waiver was granted to the subsidiaries from AY 2008 09 to AY 2010-11 and the AO/TPO has not made any additions with respect to the same. The AO had made reference to the TPO. The fact of waiver of royalty for two subsidiaries was disclosed in the TP Study report and was provided to the TPO. Post considering the submissions, the TPO has not made additions with respect to the royalty waiver. It appears that similar wavers allowed by the assessee to its AEs in earlier years were not adjusted by the AO/ TPO. Even otherwise, once the TPO has not made any revision to the arm's length price, it would not be open to the AO to make any adjustment in the arm's length price accepted by the TPO. This position has been accepted by the Delhi ITAT in the case of Copal Research India Pvt. Ltd. vs. Income Tax Officer [ITA No. 1713/Del/2014] as well as Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as revenue until such royalty are paid. In the given case the assessee has never received any Royalty from these Associated Enterprises. 48. In the similar situation the Coordinate Bench in the case of Diageo India Pvt Ltd v. ACIT (supra) held as under: - 43. On this issue, the assessee has claimed deduction of Rs.6.28 Crores paid as royalty to Diageo North America and service tax thereof Rs.65.05 lakhs. The AO disallowed the same by holding that expenditure was not wholly and exclusively for the purpose of business. While doing so, the AO noted that earlier this royalty was not paid as the AE has waived off the same because of economic condition of the assessee. But as the sales started improving it had started paying the royalty to the AE we.f. A.Y.2009-10 onwards. That w.e.f. 1st July 2008, royalty percentage was increased from 1% to 5%. Further, the AO had noted that assessee had stated that royalty was paid to Associated Enterprises the benchmarking of payment of royalty transaction has been submitted to the TPO. The TPO after referring to the submission has made no disallowance in respect of benchmarking adopted by the assessee. It was further claimed that royalty is bonaf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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