2015 (11) TMI 1745 - AT - Income Tax

Disallowance being 10% of expenditure incurred on account of distribution of gift articles - Held that - As decided in assessee s own case Tribunal has restricted the disallowance made by the Assessing Officer to 10% of the total expenses. Respectfully following the decision of Co-ordinate Bench 2011 (10) TMI 629 - ITAT MUMBAI we direct the Assessing Officer to restrict the disallowance to 10% of the total expenses which we find the Assessing Officer has done therefore this ground is decided against the assessee. Addition being 0.5% of value of closing stock of finished goods after reducing the opening stock on account of non-inclusion of damaged stock in valuation of closing stock - Held that - An identical issue was considered by the Tribunal in assessee s own case 2011 (10) TMI 629 - ITAT MUMBAI wherein the Tribunal has followed the finding of the Co-ordinate Bench given in earlier years and concluded by holding that consistent with the above stand we uphold the order of the CIT(A) and dismiss Ground No.3 of the assessee Disallowance u/s 14A r.w. Rule 8D - Held that - Assessing Officer has not recorded any satisfaction nor he has made any observation on the computation of disallowance made by the assessee and the disallowance is confirmed by the CIT(A). We accordingly set aside the finding of the CIT(A) and direct the Assessing Officer to delete the impugned addition. Determination of arm s length price with respect to guarantee commission of 0.20% received by the assessee from its associated enterprise - Held that - As decided in assessee;s own case 2014 (1) TMI 16 - ITAT MUMBAI upheld the deletion of the addition made by the Assessing Officer on account of T.P adjustment made in respect of commission/fees for the guarantee given by the assessee to its associated enterprises. Non-granting of depreciation on addition made on account of advertisement expenses - Held that - As decided in assessee;s own case 2014 (1) TMI 16 - ITAT MUMBAI has followed the findings of the Co-ordinate Bench for assessment year 2006-07 and deleted the disallowance made by the Assessing Officer on account of expenditure incurred on television advertisement. Since the entire expenditure has been allowed as revenue expenditure the claim of depreciation becomes otiose. Income accrued in India - royalty received from overseas subsidiary - Income taxable in India by virtue of Article-13 of India and Egypt treaty - Held that - The factual matrix is very much available during the course of the assessment/appellate proceedings. Only the claim of exemption is made before us. Article-13 to the treaty states that royalty arising in contracting state and paid to resident of the other contracting state shall be taxable only in the first mentioned state. Admitting the additional ground of appeal we restore this issue to the files of the Assessing Officer . The Assessing Officer is directed to decide the issue in the light of the DTAA. The additional ground is treated as allowed for statistical purposes.

Summary

Issues involved:
1. Disallowance of expenditure on distribution of gift articles.
2. Adhoc addition on valuation of closing stock.
3. Disallowance under section 14A r.w. Rule 8D of the Act.
4. Determination of arm's length price for guarantee commission.
5. Non-granting of depreciation on advertisement expenses.
6. Taxability of royalty income from overseas subsidiary.

Issue 1: Disallowance of expenditure on distribution of gift articles:
The Tribunal directed the Assessing Officer to restrict the disallowance to 10% of the total expenses, following a previous decision in the assessee's own case. The ground was decided against the assessee.

Issue 2: Adhoc addition on valuation of closing stock:
The Tribunal dismissed the ground as an identical issue had been considered in the assessee's previous case, following the findings of the Co-ordinate Bench.

Issue 3: Disallowance under section 14A r.w. Rule 8D of the Act:
The Tribunal found that the Assessing Officer had not considered the disallowance made by the assessee and had invoked the provisions of section 14A r.w. Rule 8D without recording satisfaction. The Tribunal set aside the CIT(A)'s finding and directed the Assessing Officer to delete the addition, allowing Ground No.3.

Issue 4: Determination of arm's length price for guarantee commission:
The Tribunal directed the Assessing Officer to delete the addition made on account of guarantee commission, following previous decisions in the assessee's own case.

Issue 5: Non-granting of depreciation on advertisement expenses:
The Tribunal dismissed the ground as the entire expenditure had been allowed as revenue expenditure in a previous assessment year, making the claim for depreciation unnecessary.

Issue 6: Taxability of royalty income from overseas subsidiary:
The Tribunal allowed the additional ground raised by the assessee regarding the taxability of royalty income from an overseas subsidiary. The issue was restored to the Assessing Officer to decide in light of the Double Taxation Avoidance Agreement (DTAA) between India and Egypt.

The judgment involved cross-appeals by the assessee and the Revenue against the same order of the CIT(A) for the assessment year 2008-09. The Tribunal disposed of both appeals together for convenience. The detailed analysis of each issue considered in the judgment reflects the application of legal principles, precedents, and statutory provisions to determine the outcome of the appeals.