2018 (6) TMI 1173 - AT - Income Tax

Addition made on account of unaccounted production and sale - Held that - the issue has been decided by the co-ordinate bench of the Tribunal in assessee s own case for AY 2002-03 wherein it has been held that production loss depends on number of factors and in absence of any comparable to show that loss shown by the assessee is excessive and thus the appeal was decided in favor of the assessee - thus we find that no evidence of purchases and sales outside the books of accounts were brought before the authorities below - hence following the earlier order we dismiss the ground raised by the Revenue. Disallowance of credit in respect of retained modvat credit relating to the opening stocks - Held that - following the decision of co-ordinate bench of the Tribunal in case of 2013 (6) TMI 286 - ITAT MUMBAI wherein it is said that provisions of section 145A, has been brought on statute w.e.f. 1st April 1999. Therefore, the same will be applicable in the AY 1999-- 2000 - hence restore this issue back to the file of the AO to decide the same as directed. Disallowance u/s 40A(2)(b) - Held that - for making disallowance u/s 40A(2)(b) AO has to demonstrate the excessive or unreasonable payment in the current year also vis a vis the market rate of such services. The AO has failed to prove that payment is unreasonable and excessive and we, therefore, following the co-ordinate bench of the Tribunal and maintaining the consistency with the earlier year, dismiss the ground raised by the Revenue. Disallowance of depreciation on testing equipment provided to laboratories and hospitals free of charge - Held that - the issue involved is squarely covered in favour of the assessee by the decision of the co-ordinate bench of the Tribunal in 2014 (2) TMI 978 - ITAT MUMBAI for A.Y. 2002-03 wherein it has been held that the assessee is entitled to the depreciation on testing equipments provided to the laboratories and hospitals free of charge - thus decided against the revenue. Technical knowhow royalty payment @ 2%/4% instead of 1% - Held that - the issue is covered in favour of the assessee by the decision of the co-ordinate bench of the Tribunal in 2014 (2) TMI 978 - ITAT MUMBAI for A.Y. 2002-03 - Decided against the revenue.

Issues Involved:

1. Deletion of addition on account of unaccounted production and sale.
2. Grant of credit in respect of retained MODVAT credit relating to opening stock.
3. Deletion of addition under section 40A(2)(b) for payments made to Crawford Bailey & Co.
4. Allowance of depreciation on testing equipment provided to laboratories and hospitals free of charge.
5. Deletion of adjustment on account of tax on brand usage royalty.
6. Deletion of adjustment on account of payment of royalty on traded finished goods.
7. Allowance of technical knowhow royalty payment at 2%/4% instead of 1%.
8. Deletion of addition on account of tax and R&D cess paid on know-how royalty.
9. Remission of sales tax under the package scheme of incentives of Government of Maharashtra.
10. Refund of amount made to NPPA.
11. Brand usage royalty payment without a formal deed.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unaccounted Production and Sale:
The Tribunal noted that the issue was covered in favor of the assessee by the decision of the co-ordinate bench in the assessee's own case for A.Y. 2002-03, which was upheld by the Hon’ble Bombay High Court. The Tribunal found no evidence of purchases and sales outside the books of accounts and dismissed the ground raised by the Revenue.

2. Grant of Credit in Respect of Retained MODVAT Credit Relating to Opening Stock:
The Tribunal restored this issue to the AO to decide afresh in light of the provisions of section 145A and the direction of the Tribunal in ITA No.2680/M/2003, following the decision of the co-ordinate bench and the Hon’ble Bombay High Court.

3. Deletion of Addition Under Section 40A(2)(b) for Payments Made to Crawford Bailey & Co.:
The Tribunal found that the AO had not established the excessiveness of the payment and dismissed the ground raised by the Revenue, following the decision of the co-ordinate bench in the assessee's own case for A.Y. 2002-03.

4. Allowance of Depreciation on Testing Equipment Provided to Laboratories and Hospitals Free of Charge:
The Tribunal upheld the decision of the co-ordinate bench in the assessee's own case for A.Y. 2002-03, allowing depreciation on testing equipment provided free of charge, and dismissed the ground raised by the Revenue.

5. Deletion of Adjustment on Account of Tax on Brand Usage Royalty:
The Tribunal found that the royalty was paid net of taxes as per the agreement and RBI approval, following the decision of the co-ordinate bench in the assessee's own case for A.Y. 2002-03, and dismissed the ground raised by the Revenue.

6. Deletion of Adjustment on Account of Payment of Royalty on Traded Finished Goods:
The Tribunal upheld the decision of the co-ordinate bench in the assessee's own case for A.Y. 2002-03, finding no need for paying royalty for technical/marketing know-how, and dismissed the ground raised by the Revenue.

7. Allowance of Technical Knowhow Royalty Payment at 2%/4% Instead of 1%:
The Tribunal upheld the decision of the co-ordinate bench in the assessee's own case for A.Y. 2002-03, finding that the restriction by the TPO to 1% was without basis, and dismissed the ground raised by the Revenue.

8. Deletion of Addition on Account of Tax and R&D Cess Paid on Know-how Royalty:
The Tribunal upheld the decision of the co-ordinate bench in the assessee's own case for A.Y. 2002-03, finding that the payments were made as per the agreement and RBI approval, and dismissed the ground raised by the Revenue.

9. Remission of Sales Tax Under the Package Scheme of Incentives of Government of Maharashtra:
The Tribunal found that the remission of sales tax liability was not chargeable to tax as business income under section 41(1) of the Act, following the decisions of the Hon’ble Bombay High Court in CIT vs. Sulzer India Ltd. and the Apex Court in CIT vs. Balkrishna Industries Ltd., and dismissed the ground raised by the Revenue.

10. Refund of Amount Made to NPPA:
The Tribunal upheld the decision of the co-ordinate bench in the assessee's own case for A.Y. 1999-2000, finding that the payment was a refund of excess price paid and not a violation of any law, and dismissed the ground raised by the Revenue.

11. Brand Usage Royalty Payment Without a Formal Deed:
The Tribunal found that the payment of brand usage royalty at 1% was not disputed by the TPO and was not subject matter before the CIT(A), rendering the ground raised by the Revenue out of context and infructuous, and dismissed the ground.

Conclusion:
Both appeals of the Revenue were dismissed. The cross objection filed by the assessee was also dismissed as infructuous. The Tribunal's order was pronounced in the open court on 18.06.2018.

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