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2022 (7) TMI 1508 - AT - Income TaxTP adjustments - non-recovery of charges for providing letter of support/comfort - HELD THAT - Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee s own case for the A.Y. 2010-11 2022 (2) TMI 1428 - ITAT MUMBAI and also following the principle of Rule of consistency , we allow the ground raised by the assessee. Addition u/s 14A r.w.r 8D - HELD THAT - Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee s own case for the A.Y. 2010-11 and also following the principle of Rule of consistency as held as no proper satisfaction has been recorded by the learned assessing officer in terms of the provisions of Section 14 A (2) having regard to the accounts of the assessee about the correctness of the claim of the assessee in respect of expenditure in relation to income which does not form part of the total income Under the act. In view of this ground of the appeal of the learned assessing officer is dismissed. Excess DDT paid by the assessee u/s 115O - beneficial rate as per the applicable Double Taxation Avoidance Agreement (DTAA) for dividends paid to non-resident shareholders - HELD THAT - We observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee s own case for the A.Y.2010-11 2022 (2) TMI 1428 - ITAT MUMBAI wherein held there is no information about the country of residence of those shareholders, whether those shareholders have Tax Residency certificate of that country, there is no submission whether the dividend income is income of shareholders and about how the assessee will claim refund of the taxes , if same is income of the shareholders. Further the host of issues with respect to applicable of DTAA as stated in grounds of appeal by assessee are required o be addressed. Therefore, in case of assessee itself for assessment year 2009 10 we also set-aside this issue back to the file of the learned assessing officer with direction to the assessee to submit its claim with all necessary supporting evidences and certificates and then ld.AO to decide in accordance with the law. Reduction in claim made u/s. 35(2AB) for certain R D expenditure - HELD THAT - Respectfully following the above said decision of the Tribunal in assessee s own case for A.Y. 2010-11, we are inclined to set-aside the issue to the file of the Assessing Officer for verification as per the directions of the earlier Tribunal orders verifying whether the expenditure in question has been incurred by the assessee on research and development which is eligible for deduction u/s 35(2AB). The appeal of the assessee is accordingly treated as allowed for statistical purpose. Non-Inclusion of Damaged Stock in valuation of closing stock - HELD THAT - We observe that assessee is valuing closing stock for damaged stock taking the value at NIL and however, Assessing Officer makes disallowance to the extent of 0.5% of the value of closing stock and the same was confirmed by the Coordinate Bench in the earlier years from A.Y. 2003-04 to 2006-07 and A.Y. 2008-09. We further observed that following the decision of the ITAT, CIT(A) in A.Y 2009-10 and A.Y. 2010-11 had followed the same. Respectfully following the earlier decision of the ITAT, CIT(A) in the present appeal also allowed the same. Considering the fact on record and also this method is consistently followed by the assessee over the years there is no loss to the revenue. Accordingly, we do not find any reason to interfere with the findings of the CIT(A). Balance 10% additional depreciation on addition made in earlier year - assessee has put to use it for less than 180 days - HELD THAT - Similar issue was considered and adjudicated by the Coordinate Bench in assessee s own case for the A.Y. 2010-11 2022 (2) TMI 1428 - ITAT MUMBAI and decided the issue in favour of the assessee. Waiver of royalty income received from Bangladesh and Srilanka - royalty is computed @3% of the of the net sales by majority of Associated Enterprise - HELD THAT - We observe from the record that the assessee has granted waiver of royalty to its two subsidiaries i.e. Bangladesh and Srilanka on account of commercial and business considerations. We observe that assessee has granted similar waiver in the past to the above said subsidiaries from A.Y.2008-09 to A.Y. 2010-11 and the assessee has disclosed the above said information in its T.P. Study Report. When the matter was referred to TPO, TPO has considered this information and do not propose any addition relating to these additions. It is fact on record that assessee has waived Royalty income to Bangladesh and Srilanka Subsidiaries for business consideration. It is also fact on record that the TPO has not proposed any addition u/s. 92CA of the Act and further, we observe that as per the provision of DTAA, the Royalty income cannot be recognized as revenue until such royalty are paid. In the given case the assessee has never received any Royalty from these Associated Enterprises. In the similar situation the Coordinate Bench in the case of Diageo India Pvt Ltd 2019 (12) TMI 1615 - ITAT MUMBAI held as upon hearing both the Counsel and perusing the records, we find that it is the claim of the assessee that payment of royalty is an international transaction and assessee has submitted the benchmarking report and the Transfer Pricing Officer has not made any adjustment. In this view of the matter, the Transfer Pricing officer has not made any adjustment. Hence, it was not open to the AO to apply the benefit test and make the disallowance u/s.37(1) of the Act, without proper examination of all aspects of the claim. Decided against revenue.
Issues Involved:
1. Disallowance on account of Transfer Pricing adjustments for non-recovery of charges for providing letter of support/comfort. 2. Non-inclusion of damaged stock in the valuation of closing stock. 3. Disallowance under Section 14A of the Income Tax Act, 1961. 4. Refund for excess Dividend Distribution Tax (DDT) paid. 5. Deduction in respect of education cess. 6. Verification of allowability of expenditure incurred under Section 35(2AB) for R&D purposes. 7. Allowance of additional depreciation on additions made in the previous year. 8. Expenditure incurred on trip scheme. 9. Deletion of addition on account of waiver of royalty for subsidiaries in Bangladesh and Sri Lanka. Issue-wise Detailed Analysis: 1. Disallowance on account of Transfer Pricing adjustments for non-recovery of charges for providing letter of support/comfort: The assessee challenged the disallowance of ?0.33 lakhs made by the CIT(A) on account of Transfer Pricing adjustments. The Tribunal observed that the issue was already decided in favor of the assessee in the preceding assessment years (2009-10 and 2010-11) by the Coordinate Bench. The Bench concluded that the provision of a letter of comfort/support cannot be termed as an international transaction within the meaning of Section 92B of the Income Tax Act, 1961. Hence, the ground raised by the assessee was allowed. 2. Non-inclusion of damaged stock in the valuation of closing stock: The assessee contested the ad hoc addition of ?69.40 lakhs for non-inclusion of damaged stock in closing stock valuation. The Tribunal noted that the assessee had consistently followed the method of valuing damaged stock at NIL, and this method had been accepted in earlier years by the ITAT and CIT(A). The Tribunal upheld the CIT(A)'s decision to disallow 0.5% of the value of the closing stock for damaged stock, following the principle of consistency. 3. Disallowance under Section 14A of the Income Tax Act, 1961: The assessee disputed the disallowance of ?45.12 lakhs under Section 14A. The Tribunal referred to its earlier decision in the assessee's own case for the preceding years, where it was held that the Assessing Officer (AO) had not recorded proper satisfaction as required under Section 14A(2) before applying Rule 8D. The Tribunal upheld the CIT(A)'s decision to restrict the disallowance, following the principle of consistency. 4. Refund for excess Dividend Distribution Tax (DDT) paid: The assessee raised an additional ground for refund of excess DDT paid under Section 115O, considering the beneficial rate as per the applicable DTAA. The Tribunal admitted the ground and remitted the issue back to the AO for fresh adjudication, following the Tribunal's earlier order in the assessee's own case. 5. Deduction in respect of education cess: The assessee did not press this ground, and it was dismissed accordingly. 6. Verification of allowability of expenditure incurred under Section 35(2AB) for R&D purposes: The Revenue challenged the CIT(A)'s direction to verify the allowability of R&D expenditure disallowed by DSIR. The Tribunal referred to its earlier decision in the assessee's own case, where it was held that the AO should verify the nature of the expenditure. The Tribunal upheld the CIT(A)'s direction for verification. 7. Allowance of additional depreciation on additions made in the previous year: The Revenue disputed the allowance of additional depreciation of ?2,67,89,907/-. The Tribunal noted that the issue was already decided in favor of the assessee in the preceding year, where it was held that the balance 10% of additional depreciation could be claimed in the subsequent year if the asset was put to use for less than 180 days in the previous year. The Tribunal upheld the CIT(A)'s decision. 8. Expenditure incurred on trip scheme: The Revenue contested the allowance of ?58,73,97,000/- on account of trip scheme expenditure. The Tribunal observed that the issue was already decided in favor of the assessee in the preceding year, where it was held that the expenditure was for business purposes and not subject to TDS under Section 194H. The Tribunal upheld the CIT(A)'s decision. 9. Deletion of addition on account of waiver of royalty for subsidiaries in Bangladesh and Sri Lanka: The Revenue challenged the deletion of ?2,22,13,413/- on account of waiver of royalty. The Tribunal noted that the TPO had not made any adjustments regarding the waiver of royalty in the TP study report, and similar waivers were accepted in earlier years. The Tribunal upheld the CIT(A)'s decision, stating that the royalty income could not be recognized as revenue until it was received, as per the DTAA provisions. Conclusion: The Tribunal allowed the appeal filed by the assessee on various grounds, following the principle of consistency and earlier decisions in the assessee's own case. The appeal filed by the Revenue was dismissed.
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