2017 (11) TMI 1632 - AT - Income Tax

Allowability or disallowability of deduction of the statutory duties on payment basis under section 43B - Plea of the Revenue that these are continuous issues forming part of the assessment order for AY 2005-06 and 2006-07 also and are at present pending adjudication before Hon ble Delhi High Court is not a ground for us to deviate from the consistent view taken by this Tribunal in assessee s own case for the earlier years. We therefore while respectfully following the view taken for the earlier years set aside the impugned order and direct the A.O. to firstly recast the assessee s profit and loss account on inclusive basis and then make suitable deduction in respect of the amount of unutilized PLA at the end of the current year and also the preceding year. Customs Duty and amount paid on import of components for export purposes for which exports have not and have been made - Held that - The entire amount of excise duty and customs duty paid by the assessee in a particular year are allowable as deduction irrespective of the fact that such duties are included in the value of closing stock. It was further held that provisions of Section 43B while overriding all the other provisions of the Act also override Section 145A and further that provisions of section 145A does not in any manner dilute or nullify the effect of provisions of Section 43B of the Act. Excise duty actually paid on purchased inputs included in RG 23A Part II - Held that - Facts being remained the same we are not left with any clue as to why should we deviate from this consistent view taken for successive years as such we therefore respectfully following the same line of reason we set aside the matter to the file of the Assessing Officer to decide the issue afresh in view of the above decisions in the case of assessee itself in the appeal for the assessment year 2006-07 and 2007-08 after affording opportunity of being heard to the assessee. Customs duty paid under protest - Held that - This aspect of disallowance of claim for deduction under section 43B of the Act for the amount of Customs Duty paid under protest has been one of the subject of matters in assessee s own case for the AY 2006-07 and 2007-08 successively as similar issue supra while dealing with Excise duty paid under protest by holding that first the Profit and loss account be recast as per Inclusive method in terms of section 145A and then some adjustments as stated above be separately made. Such directions are fully applicable pro tanto to the customs duty paid under protest. The AO is directed to follow the same. Not allowing withdrawal of add back u/s 43B - Held that - For the AY 2007-08 though the AO refused to allow the deductions claimed by the assessee under section 43B of the Act by order dated 20-05-2016 the Tribunal considered the case of the assessee and set aside the matter to the file of AO and the relief on this aspect is dependent upon the findings of the AO while implementing the said order as such we deem it just and proper to direct the AO to consider this aspect also in the light of implementing the order of this Tribunal for the AY 2007-08. These grounds are therefore allowed for statistical purpose. Addition in respect of purported alleged excess consumption of raw material and components to be deleted as relying on Commnr. Of Central Excise v. M/s Maruti Suzuki India Ltd 2015 (8) TMI 493 - SUPREME COURT Disallowance under section 14A - Held that - We agree with the submissions made on behalf of the assessee that insofar as the interest expense under Rule 8D(ii) is concerned it has to be determined after examination of the macro fund/ cash flow position during the year and if the assessee had sufficient surplus funds available presumption should be drawn in favour of the assessee that surplus funds have been utilized for making investments and while calculating the disallowance under Rule 8D(iii) has to be calculated in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income after reducing the strategic long-term trade investments. We therefore deem it just and proper to set aside the impugned order on this score and send the matter to the file of AO for making disallowance u/s 14A. Disallowance of deduction under section 35DDA - Held that - this Tribunal directed the Assessing Officer to allow the claimed deduction under sec. 35DDA of the Act at Rs. 23, 91, 54, 586. Since facts are similar in assessee s own case we follow the decisions above and direct the Assessing Officer to allow the deduction under section 35DDA of Rs. 23, 91, 54, 836/- (being 1 /5th of the total expenditure of Rs. 119.58 crores incurred by the appellant company in respect of payment made to its employees under the voluntary retirement scheme during the F.Y. 2003- 04). Disallowance of expenditure incurred on club membership to be allowed Disallowance of expenditure incurred on account of royalty - Held that - The amount of royalty considered by the Assessing Officer as capital expenditure should be allowed as a revenue expenditure and at the same time depreciation allowed by the Assessing Officer on this amount should be taken back Disallowance on account of R&D Cess on Royalty - Held that - Since the related facts of the present assessment year are similar to those in the assessment year 2006- 07 and 2007-08 on an identical issue we while respectfully following the same direct the Assessing Officer to allow the deduction as directed by the ITAT in the appeal for the assessment year 2006-07 and 2007-08 after affording opportunity of being heard to the assessee Sales Tax Subsidy claimed as capital receipt from the total income - Held that - Any subsidy given to the assessee post accomplishment of the project or expansion there without any obligation to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business or to liquidate the cost incurred in creating the capital asset or its expansion is only in the nature of the revenue receipt and is liable to be brought to tax Disallowance on account of Provisional Liability relating to Expenditure on account of FPI-OE Components - Method of accounting - Held that - There is no dispute that the same method of accounting is regularly and consistently followed by the assessee as such rule of consistency is applicable as per which under the similar facts and circumstances department ought to follow same approach on an issue in other assessment years. We therefore respectfully following the reasoning adopted by the coordinate Bench of this Tribinal for the AY 2007-08 set aside the matter to the file of the Assessing Officer with direction to decide the issue afresh after affording opportunity of being heard to the assessee Allow the deduction representing the excise duty paid by the appellant during the relevant previous year Sharing of resources with other Group Companies/ Subsidiary Companies - Held that - There is no material that is brought on record to controvert the plea of the assessee that they have provided the support to the Insurance subsidiaries due to its business exigency rather than supporting the said companies and it is it is in the best interests of MSIL to do so for maximizing their profits as such the related cost is allowable business expenditure for the company. It also further goes undisputed that this being the business expenditure will have to be allowed as deduction under section 37(1) of the Act either in the hands of the appellant company or to the group companies. No addition warranted. Adjustment on account of allegedly excessive AMP expenses - Held that - While respectfully following the decision in in assessee s own case 2015 (12) TMI 634 - DELHI HIGH COURT hold that the AMP expenses incurred by MSIL cannot be treated and categorised as an international transaction under Section 92B of the Act and the question of the TPO making any transfer pricing adjustment in respect of such transaction Chapter X does not arise Adjustment on account of payment of royalty for use of brand name - Held that - While respectfully following the decision of this Tribunal for the AY 2006-07 we order for the deletion of the addition of Rs. 237.24 crore on account of transfer pricing adjustment of royalty for use of licensed trademark. Not allowing credit of TDS certificates claimed through the revised return and during the course of assessment proceedings - Held that - Allow ground for statistical purpose by setting aside the matter to the file of the Assessing Officer to consider the claimed TDS credit on the basis of revised return after affording opportunity of being heard to the assessee. Error in computation of interest u/s 234B - Held that - We set aside the matter to the file of the Assessing Officer to decide the issue afresh in view of the above finding in the case of C.C.Chokshi & Co. (2010 (5) TMI 698 - ITAT MUMBAI) after hearing the assessee

Issues Involved:

1. Disallowance of deduction of statutory duties under section 43B.
2. Disallowance of deduction under section 35DDA.
3. Disallowance of expenditure on club membership.
4. Disallowance of royalty payment to Suzuki Motor Corporation (SMC).
5. Disallowance of R&D Cess on royalty.
6. Disallowance of sales tax subsidy.
7. Disallowance of provisional liability for FPI-OE components.
8. Disallowance of expenditure on excise duty.
9. Disallowance on account of sharing resources with group companies.
10. Adjustment on account of AMP expenses.
11. Adjustment on account of royalty for brand name.
12. Non-allowance of TDS credit.
13. Error in computation of interest under section 234B.
14. Error in computation of interest under section 234D.

Detailed Analysis:

1. Disallowance of Deduction of Statutory Duties under Section 43B:

The assessee claimed deductions for statutory duties paid during the year, which the Assessing Officer (AO) disallowed, arguing that such payments were advances and not actual liabilities. The Tribunal, following precedents, directed the AO to recast the profit and loss account on an inclusive basis and allow the deduction under section 43B for the unutilized PLA balance, customs duty, and excise duty on inputs, provided these amounts were not deducted again in subsequent years.

2. Disallowance of Deduction under Section 35DDA:

The assessee claimed a deduction for payments made under a Voluntary Retirement Scheme (VRS) in earlier years. The AO disallowed this, but the Tribunal, following earlier decisions and the principle that compliance with Rule 2BA is not mandatory for section 35DDA, directed the AO to allow the deduction.

3. Disallowance of Expenditure on Club Membership:

The AO disallowed club membership fees, considering them non-business expenses. The Tribunal, relying on precedents and the Supreme Court’s dismissal of the Revenue’s SLP in a similar case, directed the AO to allow the deduction, recognizing it as a business expenditure.

4. Disallowance of Royalty Payment to SMC:

The AO disallowed part of the royalty payment, treating it as capital expenditure. The Tribunal, following its earlier decisions and the principle that royalty payments for the use of technical know-how are revenue in nature, directed the AO to allow the entire royalty payment as a revenue expenditure.

5. Disallowance of R&D Cess on Royalty:

The AO disallowed the R&D Cess paid on royalty, treating it as capital expenditure. The Tribunal, following its decision on the royalty issue, directed the AO to allow the R&D Cess as a revenue expenditure.

6. Disallowance of Sales Tax Subsidy:

The AO treated the sales tax subsidy as a revenue receipt. The Tribunal, following the jurisdictional High Court’s decision in Johnson Matthey India Pvt. Ltd., held that the subsidy received under the Haryana Industrial Policy was a capital receipt and not liable to tax.

7. Disallowance of Provisional Liability for FPI-OE Components:

The AO disallowed the provision for foreseen price increase (FPI) on the grounds of it being a provisional liability. The Tribunal, following its earlier decision and the principle of consistency, directed the AO to allow the provision as it was a regular practice and not a contingent liability.

8. Disallowance of Expenditure on Excise Duty:

The AO disallowed the excise duty paid, treating it as a contingent liability. The Tribunal, following its earlier decisions, directed the AO to allow the deduction under section 43B for the excise duty paid.

9. Disallowance on Account of Sharing Resources with Group Companies:

The AO made an ad-hoc disallowance for sharing resources with group companies. The Tribunal, recognizing the business exigency and the incidental benefit to group companies, directed the AO to delete the disallowance.

10. Adjustment on Account of AMP Expenses:

The AO made an adjustment for alleged excessive AMP expenses. The Tribunal, following the jurisdictional High Court’s decision in the assessee’s own case, held that AMP expenses incurred by the assessee do not constitute an international transaction under section 92B, and therefore, no transfer pricing adjustment is warranted.

11. Adjustment on Account of Royalty for Brand Name:

The AO made an adjustment for royalty paid for the use of the brand name. The Tribunal, following its earlier decision, held that the payment of royalty is for the use of both licensed information and trademark, and there can be no division of royalty payment. The Tribunal directed the AO to delete the adjustment.

12. Non-Allowance of TDS Credit:

The AO did not allow credit for TDS certificates claimed through the revised return. The Tribunal, following its earlier decision, directed the AO to consider the claimed TDS credit on the basis of the revised return after affording an opportunity of being heard to the assessee.

13. Error in Computation of Interest under Section 234B:

The AO computed interest under section 234B by first adjusting the self-assessment tax against the interest. The Tribunal, following the decision in the assessee’s own case, directed the AO to recompute the interest, adjusting the self-assessment tax against the interest computed with reference to the returned income.

14. Error in Computation of Interest under Section 234D:

The AO computed interest under section 234D incorrectly. The Tribunal directed the AO to re-compute the interest, considering the self-assessment tax paid at the time of filing the revised return.

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