TMI Blog2024 (3) TMI 943X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. TP adjustment on account of royalty - TPO/ CIT(A) held charge of brand royalty of 0.75% in the case of Dabur International Limited and 2% composite royalty in case of Asian Consumer Care Ltd. - HELD THAT:- Following the aforesaid decision of the ITAT in assessee's own case 2022 (10) TMI 219 - ITAT DELHI ] A.Y. 2010-11 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. Disallowance on account of delay in deposit of ESI / EPF - HELD THAT:- This issue is now squarely covered in favour of the revenue and against the assessee by the decision of Check Mate Services Private Limited [ 2022 (10) TMI 617 - SUPREME COURT ] Addition u/s. 43B based on audit report - HELD THAT:- As seen from the chart the liability as on the first day of the previous year was Rs. 227754220/- out of which Rs. 160073926/- were paid during the year and Rs. 67156645/- was not paid during the year which means that this amount was never charged to the P L account, therefore, there is no question of any disallowance. We have verified from the computation of income and we are of the considered view that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find no infirmity in the order of the CIT(A) reversing the action of the AO in allocating the head office expenses and depreciation to various eligible units for the purpose of recomputing the deducting u/s 80IB/80IC. The factual finding of the ld.CIT(A) that the assessee has added back the depreciation as per Companies Act, 1956 and claimed depreciation as per the Income-tax and, therefore, the AO was wrong in allocating the difference of depreciation available under the Companies Act and the Income-tax Act to the eligible units could not be controverted by the ld. DR. Similarly, the ld. DR also could not controverted the factual finding given by the CIT(A) that expenses aggregating to Rs. 1,563.02 lakhs being head office expenses were suo motu disallowed by the assessee and added back in the computation of income and once these expenses were claimed by the assessee the same cannot be allocated to the eligible units for computation of deduction u/s 80IB/80IC and, therefore, cannot be allocated to the eligible units. Addition made u/s. 14A r.w.r. 8D - Exempt income earned or not? - HELD THAT:- The facts on record show that the assessee has not earned any exempt income during the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very excessive. 2. That the CIT (Appeals) has erred in sustaining the alleged service fee on account of the corporate guarantee in the case of Dabur International ltd, UAE on the loans availed from Credit Agricole Corporate Singapore, ANZ Bank Singapore, Citi Bank Bahamas and Standard Chartered Bank @0.25%, 0.68%, 0.28% and 0.28% respectively is arbitrary, unjust, without any basis and at any rate very excessive. 3. That the CIT (Appeals) has erred in sustaining the alleged service fee on account of the corporate guarantee in the case of Dermoviva Essentials Inc, USA on the loans availed from Bank of America and ANZ Bank Singapore @0.38% and 0.68% respectively is arbitrary, unjust, without any basis and at any rate very excessive. 4. That the CIT(Appeals) has erred in sustaining the alleged service fee on account of the corporate guarantee in the case of Dabur Sri Lanka Pvt. Ltd., Sri Lanka on the loans availed from Citi Bank Sri Lanka @0.38% is arbitrary, unjust without any basis and at any rate very excessive. 5. That without prejudice to grounds no. 1 to 4 above the assessee submit that CIT(A) and TPO erred in holding corporate guarantee as International Transactions . Since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, we find merit in the argument of the Id. Counsel that charging of service fee at an ad hoc rate of 0.5% should be reversed and may be restricted to 0.30% in respect of corporate guarantee issued to Dabur Egypt Ltd., as against 0.5% held by the CIT(A). Thus, the ground raised by the Revenue on this issue is dismissed and the ground raised by the assessee is partly allowed. 7. It can be seen that the coordinate Bench has approved the savings of interest benefit between the assessee and the AE in the ratio 50:50. We find that during the year the CIT(A) has wrongly taken the interest saving @ 1% corporate to 0.3% because the total interest saved was 0.6%. 8. Similar view was taken in A.Y. 2008-09 and in A.Y. 2009-10 the Tribunal followed its earlier orders given in A.Y. 2007-08 and 2008-09. 9. Similar is with the CG issued in the other case natural LLC UA/Dabur International Limited UAE wherein again interest benefit was split between the guarantor and borrower on 50: 50 basis. The relevant findings read as under ;- 127. So far as the corporate guarantee issued on behalf of Naturalle LLC, UAE is concerned, a perusal of the details furnished by the assessee in the paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider 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 heavy expenses on advertisement, marketing and sales promotion in their respective area for promotion of the brand/ different product. 9) That both Ld. CIT(Appeals) and Ld TPO 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 to the interests of revenue and waiver of brand of royalty by the assessee is ultimately not harmful practice from the angle of Transfer Pricing provisions u/s. 92 (1) and 92 (3) of the I. T. Act. 10) That the Ld. CIT(Appeals) and Ld. TPO failed to consider that the manufactured products by Asian Consumer Care ltd. are with its own technical know-how and R D and consequently, there cannot be any charge of royalty from the assessee. 14. The quarrel relates to the transfer pricing adjustment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the royalty in the year under consideration as under in following table: Company FOB sales Rs. In Lakhs Royalty Rs. In Lakhs Royalty Difference Rs. In lakhs Dabur Nepal (P) Ltd. 10061.1 301.83 -- 301.83 Dabur International UAE @ 3% 10815.31 324.46 -- 324.46 Asian Consumer Care Ltd. @ 2% 1875.53 365.11 -- 375.11 Total 1001.40 5. Upon assessee s appeal, Ld. CIT(A) observed that ITAT, Delhi in assessee s own case for AY 2006-07 has dealt with the issue regarding payment of royalty by the assessee to its AEs. Following ITAT s order, he directed the AO/ TPO to delete the transfer pricing adjustment made by the TPO in respect of royalty to assessee by Dabur Nepal (P) Ltd. As regards royalty to assessee s AE, Dabur International UAE, following the said IEAT order, M. CIF (A) directed that AOFTPO should charge royalty 0.759. As regards royalty payment to the assessee by Asian Consumer Care End, he CIT (A) noted that for AYX 2007-08 to 2009-10 ITAT have directed that 2% royalty should have been charged. He directed accordingly. 6. Against the above order, Revenue and assessee are in cross appeals 7. We have heard both the parties and perused the record. 8. Ld. counsel of the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute that earlier the royalty, was @ 7.5% as the assessee was bearing the cost of marketing expenses inter to penetrate the market and the agreement was amended w.e.f. 1st April, 2004 vide which the royalty ht reduced from 7.5% 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 not justified by alborking royalty @ 7.5% as provided in the original agreement dated 05.11.1992 (copy of which is placed at page nos. 111 112 assessee's paper book), For the year under consideration, M/s Dabur Nepal Pvt. Ltd has not paid any royalty to the asses the reasons that it had to incur the expenses to penetrate the market. In this regard, vide letter written in May 2005, it was informed to the assessee that no royally will be payable from Financial Year 2005- 06. It was also claimed that as per the Clause of the original agreement dated 05.11.1992, the agreement shall become effective only after the approval by HMG Nepal and shall remain valid for a period of 10 years from the said date, unless renewed by mutual consent in writing and with prior approva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal 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 order of the CIT(A) sustaining the addition on account of Royalty receivable from Dabur Nepal (P) Ltd., at 2% is directed to be deleted. So far as royalty receivable from Dabur International, UAE is concerned, the same is directed to be restricted to 0.75% as held by the Tribunal. The facts in the present 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. 11. As related to agreement with Dabur International Ltd., UAE operations, it is pertinent to note that the said issue is covered partly in favour of the assessee by the order of the Tribunal in assessee's own case in ITA No. 3257/Del/2013 for A.Y. 2006-07, wherein the Tribunal, on similar fact held that royalty @ 0.75% is to be ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Dabur Nepal and, therefore, the order of the CIT(A) sustaining the addition on account of Royalty receivable from Dabur Nepal (P) Ltd. at 2% is directed to be deleted. So far receivable front Dabur International, UAE is concerned, the same is directed to be restricted to 0.75% as held b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 81.9 So far us the royalty from Asian Consumer Cure Pvt. Ltd., Bangladesh is concerned, we find, the facts and salient features of the agreement are identical to that of the facts and agreement with Dabur International Ltd.. UAE. Since the Tribunal already restricted such royalty to 0.75% in case of Dabur International Ltd., UAE, therefore, resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 645/- which we direct the AO to delete. 23. Ground No. 12 is allowed. 24. Ground No.13 relates to the addition of Rs. 63 lacs for change of accounting policy. This addition has also been made on wrong appreciation of facts the same can be understood from the following chart :- 25. It can be seen from the above chart that Rs. 10 lacs is a positive figure and Rs. 63 lacs is a negative figure which means it is a loss. 26. In the computation of income the assessee has made addition on account of instrumeny hedging adverse currency fluctuation against of balance sheet exposer in FG Rs. 52,93,552/- which means the assessee has already added the loss and that there was no need of any further addition by the AO. We accordingly direct the AO to delete the addition of Rs. 63 lacs. 27. Ground No.13 is allowed. 28. Ground No.14 and 15 are additional ground raised before the CIT(A) in respect of claim of deduction of Rs. 86.62 lacs as capital subsidy on statutory exemption from payment of excise dutiy. 29. Perusal of our record show that identical additional ground was raised in A.Y. 2007-08 and 2008-09 wherein it was admitted and the matter was remanded back. In ITA No.6525/Del/2014 for A.Y. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is imperative to note here that in the set aside proceedings for the assessment year 2008-09, the assessing officer, on examination of records, was pleased to allow the claim of the assessee and the amount of excise duty subsidy received int was excluded from the assessed income respect of Glucose Unit, Baddi of the assessee. The relevant observations of the assessing officer in this regard is re-produced as under: ( In view of the above facts, the documents submitted by the assessee have been examined thoroughly vis- -vis purpose test as elaborated by Hon'ble Supreme Court in its various judgments, the claim of the assessee of Rs. 5,85,61,165/- on account being the exempted excise duty embedded in sules of Glucose Unit, Baddi(UP), be excluded from the income assessed is allowed. Further assessee have to reduce its assets value as per Explanation 10 of the section 43 of the Income Tax Act, 1961, If applicable. Similarly, the Tribunal, vide its order dated 20.09.2022 passed in the assessee's own case for the years 2010-11 and 2011-12 in Nos. 7154 7431/Del/2017 and 7253/Del/2017 183/Det/2018 respectively, again admitted the additional ground raised b assessee on the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 . 39. The following chart also shows that the margin of the assessee both in the FMCG and non- FMCG segment is much higher than the comparables as demonstrated here under :- 40. Considering the facts of the case in totality we do not find any reason to interfere with the findings of the CIT(A) this ground is dismissed. 41. Ground No.6 relates to the direction to re-compute the deduction 80IB and 80IC of the Act without further allocation of the head office expenses. The under lying facts under consideration are that assessee had 28 industrial unit under taking manufacturing of products out of which 15 units were eligible for deduction 80IB and 80IC of the Act. The assessee has mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fference of depreciation available under the Companies Act and the Income-tax Act to the eligible units. So far as the head office expenses aggregating to Rs. 2,214.02 lakhs is concerned, he noted that expenses aggregating to Rs. 1,563.02 lakhs were suo motu disallowed by the assessee and added back in the computation of income. Therefore, once these expenses were not claimed by the assessee, the same cannot be allocated to the eligible units for computation of deduction u/s 80IB/80IC of the Act. The Id.CIT(A) also further noted that scientific research expenses of Rs. 651 lakhs, which was included in the head office expenses allocated by the AO are not connected with the units eligible for deduction u/s 80IB/80IC of the Act and, therefore, cannot be allocated to the eligible units. 93.1 We do not find any infirmity in the order of the CIT(A) reversing the action of the AO in allocating the head office expenses and depreciation to various eligible units for the purpose of recomputing the deducting u/s 80IB/80IC. The factual finding of the ld.CIT(A) that the assessee has added back the depreciation as per Companies Act, 1956 and claimed depreciation as per the Income-tax and, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that once the expenses have no nexus with the units eligible for deduction, such expenses cannot be allocated to units for the purpose of computing deduction w/s 80IB/801C of the Act. Since the scientific research expenses of Rs. 651 lakhs which were included in the head office expenses allocated by the AO are not connected with the units eligible for deduction u/s 80IB/80IC, the same, in our opinion, cannot be allocated to the eligible units. In this view of the matter, the order of the CIT(A) is upheld and the ground raised by the Revenue on this issue is dismissed 131. After hearing both the sides, we find the assessee in the instant case has already disallowed depreciation under Companies Act and has claimed depreciation under Income-tax Act and has duly allocated to various units. Similarly, selling and distribution expenses of Rs. 789.37 lakhs was suo moto disallowed in the computation of income, the sales tax expenses of Rs. 135.78 lakhs which does not have any impact on profit cannot be allocated to the eligible units. The miscellaneous expenses of Rs. 566.79 lakhs was suo motu disallowed in the computation of income. We find, the above ground is identical to ground of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest imputed on trade receivables. On identical issues were consider by us in A.Y. 2012-13 (supra) vide ground No.5 in ITA No.3791/Del/2019 (supra) wherein we have followed the earlier decisions of coordinate Benches. For a detailed discussion therein this ground is dismissed. 53. Ground No.6 relates to the claim of deduction u/s. 80IB and 80IC. 54. A similar claim was considered by us in revenue s appeal for A.Y. 2012-13 vide ground No.6 of its appeal in ITA No.4073/Del/2019 wherein we have followed the orders of the coordinate Benches for earlier years. For a detailed discussion therein ground No.6 is dismissed. 55. Ground No.7 relates to the deletion of the addition of Rs. 2696112 u/s. 40(a)(ia) of the Act. 56. The facts on record show that the assessee has incurred an expenditure of Rs. 2696112/- on account of bank guarantee commission/ fee the AO disallowed the claim u/s.40(a)(ia)for alleged failuer to deduct tax at source. 57. The addition was challenged before the CIT(A) on account of ground that the principal-agent relationship does not exist and the bank guarantee commission is not in the nature of commission so as to attract provision of section 194H of the Act the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same and decide the issue as per the provisions of the law. 72. Ground No.11 and 12 are allowed for statistical purpose. 73. In the result, the appeal of the assessee is allowed in part for statistical purpose. ITA No.8273/Del/2019 (A.Y. 2014-15) (Revenue s appeal) 74. The first ground No.1 relate to the corporate guarantee fee. This issue has been considered by us in A.Y. 2012-13 in ITA No.3791/Del/202019 and 4073/Del/2019 vide ground No.1 to 5 of the appeal. For a detailed discussion therein ground No.1 is dismissed ground No.2 relates to the TP adjustment on account of royalty. 75. Similar issue is considered by us in A.Y. 2012-13 in ITA No.3791/Del/2019 and 4073/Del/2019. For a detailed discussion therein this ground is dismissed. 76. Ground No.3 relates to the notional interest imputed on trade receivables. This issue has been consider by us in A.Y. 2012-13 in ITA No.3791/Del/2019 and 4073/Del/2019. For a detailed discussion therein this ground is also dismissed. 77. In the result, the appeal of the revenue is dismissed. 78. Before parting, the assessee in all its appeal (supra) has claimed the subsidy as capital receipt. Following the principles of judicial discipline we h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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