2020 (6) TMI 42 - AT - Income Tax

Setting off of unabsorbed depreciation against Business Income and Income from Other Sources for the current year before setting off of brought forward business losses of previous year - HELD THAT - A bare perusal of sub-section (2) of section 72 would show that before giving effect to the provisions of section 32(2) dealing with carry forward of unabsorbed depreciation, precedence is given to set off of brought forward business losses against income under the head Profits and Gains from Business or Profession. Thus, we find merit in the contentions of the assessee. AO is directed to first set off brought forward business losses of previous years before set off of unabsorbed depreciation of the earlier year. TP adjustment - Addition on account of advertising, marketing and sales promotion expenditure - HELD THAT - As decided in own case 2019 (8) TMI 698 - ITAT MUMBAI wherein the entire adjustment has been deleted on the ground that there is no agreement or arrangement for incurring AMP expenditure. The ld.Authorized Representative for the assessee asserted that the facts in the assessment year under appeal are identical. Disallowance of royalty expenditure - HELD THAT - As assessee fulfilled all the prescribed conditions, he is entitled for the benefit of the same and hence, we are inclined to delete the impugned additions and allow the appeal of the assessee. See assessee's own case 2019 (8) TMI 698 - ITAT MUMBAI Brought forward unabsorbed depreciation - AO disallowed unabsorbed depreciation on the ground that assessee could carry forward unabsorbed depreciation upto a maximum period of eight years - HELD THAT - The authorities below have erred in not considering the judgment of Hon'ble Bombay High Court in the case of CIT vs. Hindustan Unilever Ltd. 2016 (7) TMI 1245 - BOMBAY HIGH COURT wherein it has been held that the assessee can set off brought forward unabsorbed deprecation without any cap of years. Computation of interest u/s 234B of the Act without considering set off of credit of MAT Tax paid - HELD THAT - Contention of the assessee is that interest under section 234B has been computed without set off of credit of MAT tax paid for assessment year 2009-10, 2010-11 and 2011-12. It is no more res-integra that interest under section 234B is to be charged after MAT credit available under section 115JAA is set off against tax payable on total income CIT vs. Sage Metals Ltd.. 2012 (10) TMI 802 - SC ORDER . The ground No.5 of the appeal is allowed, accordingly. Interest under section 234C on returned income - contention of the assessee is that the Assessing Officer has erred in charging interest under section 234C on assessed income - HELD THAT - A bare perusal of the provisions of section 234C would make it clear that the interest under section 234C is to be charged on returned income and not assessed income. The Assessing Officer is directed to recompute interest under section 234C of the Act in the aforesaid manner.

Issues Involved:
1. Reclassification of Interest Income
2. Set-off of Brought Forward Business Losses and Unabsorbed Depreciation
3. Transfer Pricing Adjustment on Advertising, Marketing, and Sales Promotion (AMP) Expenditure
4. Disallowance of Royalty Expenditure
5. Computation of Interest under Section 234B and 234C
6. Initiation of Penalty Proceedings under Section 271(1)(c)

Issue-wise Detailed Analysis:

1. Reclassification of Interest Income:
The assessee contested the reclassification of interest income of ?74,61,945 from 'Business Income' to 'Income from Other Sources.' The Tribunal noted that this issue had been addressed in previous years, where it was remanded for re-examination of the nature of fixed deposit receipts. Following precedent, the Tribunal restored the issue to the Assessing Officer for a fresh examination, aligning with the decisions in ITA No.431/Mum/2010 and ITA No.2866/Mum/2014.

2. Set-off of Brought Forward Business Losses and Unabsorbed Depreciation:
The assessee challenged the order of the Assessing Officer, who set off unabsorbed depreciation against the current year's 'Business Income' and 'Income from Other Sources' before setting off brought forward business losses. The Tribunal highlighted Section 72(2) of the Act, which mandates that brought forward business losses should be set off first. The Tribunal directed the Assessing Officer to comply with this provision, thus allowing the assessee's appeal on this ground.

3. Transfer Pricing Adjustment on Advertising, Marketing, and Sales Promotion (AMP) Expenditure:
The Revenue appealed against the deletion of TP adjustment on AMP expenditure of ?17,68,29,302. The Tribunal noted that in previous years, it was established that there was no agreement or arrangement for incurring AMP expenses between the assessee and its Associated Enterprises (AE). The Tribunal upheld the deletion of the adjustment, emphasizing that the Transfer Pricing Officer (TPO) failed to demonstrate any such arrangement. The Tribunal reiterated that AMP expenditure incurred by the assessee for its own products does not constitute an international transaction.

4. Disallowance of Royalty Expenditure:
The Revenue's appeal also included the deletion of disallowance of royalty expenditure amounting to ?2,63,71,271. The Tribunal referred to its previous decisions, where it was established that if the conditions under Section 10(6A) of the Act are satisfied, royalty payments are exempt from tax. The Tribunal found that the Assessing Officer had verified the compliance of these conditions and upheld the deletion of the disallowance.

5. Computation of Interest under Section 234B and 234C:
The assessee raised issues regarding the computation of interest under Sections 234B and 234C. The Tribunal acknowledged that interest under Section 234B should be computed after considering the set-off of MAT credit for previous years, as established in CIT vs. Sage Metals Ltd. Furthermore, the Tribunal directed that interest under Section 234C should be computed based on the returned income, not the assessed income.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee's challenge to the initiation of penalty proceedings under Section 271(1)(c) was deemed premature by the Tribunal and was dismissed.

Conclusion:
The appeals of the assessee for assessment years 2011-12 and 2012-13 were partly allowed, while the appeal of the Revenue for assessment year 2011-12 was dismissed. The Tribunal provided specific directions for re-examination and compliance with statutory provisions, ensuring a fair and thorough adjudication of the issues involved.

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