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2015 (11) TMI 1737 - AT - Income TaxTPA - addition on account of arm s length price of alleged international transactions resulting from advertisement marketing and sales promotion expenses ( AMP expenses ) - Held that - The present case is that of a manufacturer and this fact was not controverted by the learned D.R. also we find it proper to set aside the matter to the file of the TPO/Assessing Officer to decide the issue of AMP afresh as per law laid down by the Hon ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. (2015 (3) TMI 580 - DELHI HIGH COURT) and also the analysis made by us hereinabove. The assessee should be given a fair and adequate opportunity of being heard. The assessee is free to adduce any evidence in this regard. Allowing deduction towards the closing balance lying in PLA claimed under section 43B of the Act. Disallowing expenditure incurred by the appellant during the relevant previous year on account of royalty holding the same to be capital in nature - claim allowed Disallowance on account of interest expenditure made under Rule 8D - Held that - We direct the Assessing Officer to delete the disallowance on account of interest expenditure made under Rule 8D of the Income Tax and as regards the administration expenses we direct the Assessing Officer to set off the suomotu disallowance made by the assessee on this account. Disallowance claimed in respect of provision towards long-term incentive plan holding the same to be an unascertained liability observing that the liability has not been computed on a scientific basis - Held that - The provision on account of incentive plan made by the assessee during the year is an ascertained liability. Further we see that the Assessing Officer has nowhere objected to the method of quantifying the said provision by the assessee. The ground of appeal raised by the assessee is allowed. Credit of TDS - Held that - Assessing Officer is directed to allow the credit of TDS amounting to 58, 717/- while computing the income tax liability. Not allowing the relief claimed u/s 90 - Held that - It is seen that relief of 2, 69, 492/- claimed under section 90 by the assessee in its return of income was allowed by the Assessing Officer in the draft assessment order passed under section 143(3)/144. However while making the final computation the said relief was not allowed. We hereby direct the Assessing Officer to grant the said relief to the assessee.
Issues Involved:
1. Transfer Pricing Issues related to Advertisement, Marketing, and Sales Promotion (AMP) expenses. 2. Deduction under Section 43B for closing balance in PLA. 3. Disallowance of Market Research Expenses under Section 37(1). 4. Disallowance of Liability for Post-Retirement Medical Benefits. 5. Disallowance of Royalty Expenditure. 6. Disallowance of Interest as Capital Expenditure under Section 36(1)(iii). 7. Disallowance under Section 14A for Expenses Related to Exempt Income. 8. Disallowance of Provision towards Long-Term Incentive Plan. 9. Non-allowance of Credit of TDS. 10. Non-allowance of Relief under Section 90. Issue-wise Detailed Analysis: 1. Transfer Pricing Issues related to AMP expenses: The Assessing Officer made an addition of Rs. 126,87,00,171 on account of the arm's length price of AMP expenses incurred by the assessee. The TPO applied the 'Bright Line Test', comparing AMP expenditure of the assessee with three comparables. The assessee argued that being a full-fledged manufacturer, the AMP expenses were incurred at its own discretion for its own benefit, and thus, no adjustment should be made. The Tribunal agreed with the assessee, referring to the Delhi High Court judgment in Sony Ericsson Mobile Communications India (P.) Ltd., and remanded the matter back to the TPO for fresh consideration. 2. Deduction under Section 43B for closing balance in PLA: The assessee claimed a deduction of Rs. 27,12,737 under Section 43B for the closing balance in PLA. The Assessing Officer and DRP disallowed it, following previous years' stand. The Tribunal, referring to its earlier orders and judgments from higher courts, directed the Assessing Officer to allow the deduction, emphasizing judicial consistency. 3. Disallowance of Market Research Expenses under Section 37(1): The Assessing Officer treated market research expenses of Rs. 10,14,36,000 as capital in nature. The assessee argued that these expenses were wholly and exclusively for its existing business. The Tribunal, following its earlier orders, held that such expenses were revenue in nature and directed the Assessing Officer to allow the deduction. 4. Disallowance of Liability for Post-Retirement Medical Benefits: The assessee claimed Rs. 5.97 crore for post-retirement medical benefits based on actuarial valuation. The Assessing Officer disallowed it, considering it an unascertained liability. The Tribunal, referring to its previous orders and Supreme Court judgments, held that the liability was ascertained and allowable under the mercantile system of accounting. 5. Disallowance of Royalty Expenditure: The Assessing Officer treated royalty payment of Rs. 61,67,79,000 for the use of the 'Horlicks' trademark as capital expenditure. The assessee argued that the royalty was paid annually based on net sales and had always been treated as revenue expenditure. The Tribunal, following its earlier orders, held that the royalty payment was revenue in nature and directed the Assessing Officer to allow the deduction. 6. Disallowance of Interest as Capital Expenditure under Section 36(1)(iii): The Assessing Officer disallowed Rs. 2,03,16,000 as capital expenditure, alleging it was incurred for investment in capital work-in-progress (CWIP). The assessee argued that it had no borrowings and the interest was related to regular business activities. The Tribunal, referring to its earlier orders, held that no disallowance could be made as the assessee had no borrowings and directed the Assessing Officer to allow the deduction. 7. Disallowance under Section 14A for Expenses Related to Exempt Income: The Assessing Officer made an additional disallowance of Rs. 1,62,30,000 under Section 14A, applying Rule 8D. The assessee had already disallowed Rs. 6,38,000 suo motu. The Tribunal, following its earlier orders, directed the Assessing Officer to delete the disallowance on account of interest expenditure and adjust the administration expenses disallowance by the amount already disallowed by the assessee. 8. Disallowance of Provision towards Long-Term Incentive Plan: The Assessing Officer disallowed Rs. 1,58,96,000 for the long-term incentive plan, considering it an unascertained liability. The assessee argued that the provision was based on a standard method and was an ascertained liability. The Tribunal, referring to the Special Bench decision in Biocon Ltd., held that the provision was an ascertained liability and directed the Assessing Officer to allow the deduction. 9. Non-allowance of Credit of TDS: The assessee claimed TDS credit of Rs. 58,817, which was not allowed by the Assessing Officer in the final computation. The Tribunal directed the Assessing Officer to allow the TDS credit. 10. Non-allowance of Relief under Section 90: The assessee claimed relief of Rs. 2,69,492 under Section 90, which was not allowed in the final computation. The Tribunal directed the Assessing Officer to grant the relief. Conclusion: The Tribunal allowed the assessee's appeals partly, directing the Assessing Officer to reconsider certain issues and allow deductions and credits as per the Tribunal's findings and previous judicial precedents.
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