2013 (8) TMI 1092 - AT - Income Tax

Summary

Issues Involved:

1. Transfer Pricing Issues
2. Corporate Tax Issues
3. Disallowance under section 43B
4. Disallowance of Post Retirement Medical Benefits
5. Disallowance of Royalty Expenditure
6. Disallowance of Interest u/s 36(1)(iii)
7. Disallowance under section 14A
8. Levy of Interest under sections 234B and 234C

Summary:

1. Transfer Pricing Issues:

The assessee challenged the addition of Rs. 106,44,25,680 on account of the alleged difference in the arm's length price of international transactions related to advertisement, marketing, and sales promotion expenses (AMP expenses). The ITAT upheld the findings of the Special Bench in M/s L.G. Electronics India P. Ltd. Vs. ACIT, determining that the AMP expenses incurred by the assessee constituted an international transaction u/s 92B. The issue was remanded to the Transfer Pricing Officer (TPO) to re-evaluate the comparables and compute the transfer pricing adjustment afresh.

2. Corporate Tax Issues:

The assessee contested several disallowances, including consumer market research expenses of Rs. 9,69,15,622/- u/s 37(1), which the ITAT directed to be allowed as they were considered sales promotion expenses. The ITAT also addressed the disallowance of royalty expenditure, directing the AO to allow the claim of Rs. 55,56,64,000/- as revenue expenditure, rejecting the AO's view that it was capital in nature.

3. Disallowance under section 43B:

The ITAT allowed the assessee's claim of Rs. 32,62,786/- on account of the closing balance lying in the PLA account, following the precedent set in the assessee's own case and other judicial pronouncements. The AO was directed to verify and allow the claim.

4. Disallowance of Post Retirement Medical Benefits:

The ITAT allowed the assessee's claim of Rs. 1.72 crores for post-retirement medical benefits based on actuarial valuation, following the revised Accounting Standard-15 and the precedent set in the assessee's own case.

5. Disallowance of Royalty Expenditure:

The ITAT directed the AO to allow the royalty expenditure of Rs. 55,56,64,000/- paid to GSKAP, considering it as revenue expenditure. The ITAT rejected the AO's view that the expenditure was capital in nature and noted that the expenditure had been allowed in earlier years.

6. Disallowance of Interest u/s 36(1)(iii):

The ITAT deleted the disallowance of Rs. 1,54,76,000/- made by the AO under the proviso to section 36(1)(iii), holding that the interest expenditure was not related to any borrowed funds used for capital work-in-progress (CWIP).

7. Disallowance under section 14A:

The ITAT upheld the disallowance under Rule 8D(iii) for administrative expenses but directed the AO to delete the disallowance under Rule 8D(ii) for interest expenditure, as the assessee had no borrowed funds. The ITAT allowed the assessee to set off the amount of Rs. 6,06,977/- already disallowed by the assessee.

8. Levy of Interest under sections 234B and 234C:

The ITAT noted that the levy of interest under sections 234B and 234C is consequential and dismissed the ground raised by the assessee.