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2021 (4) TMI 202 - AT - Income TaxTP Adjustment - adjustment in respect of Advertising, Marketing and Promotion (AMP) expenditure - HELD THAT - As decided in own case 2018 (11) TMI 1106 - ITAT MUMBAI AMP expenditure incurred by the assessee not being an international transaction as defined under section 92B of the Act, no transfer pricing adjustment could have been made by the Transfer Pricing Officer. More so, when the method adopted by the Transfer Pricing Officer for making such adjustment is not provided under the statute. Before parting, we must observe that all other international transactions entered into between the assessee and its AE were found to be at arm s length. It is also not disputed, if the international transactions are considered as a whole, the margin shown by the assessee is more than the margin shown by the comparables selected by the Transfer Pricing Officer. Assessee Grounds raised are allowed. Adjustment in respect of technical support services, other support services and pass through cost - HELD THAT - We notice from the records that TPO Ld. DRP has not examined the voluminous data submitted by assessee. Ld. DRP merely observed that the clinical trials are not conducted on its own, the assessee neither has personnel nor infrastructure to conduct such trials, therefore, it cannot be termed as technical service. Hence, he rejected the submissions of the assessee without actually verifying the data before them. Therefore, it is fit case for restoring the matter to the AO/TPO for fresh adjudication of the matter on merits. Accordingly, these grounds raised by the assessee are allowed for statistical purposes. Disallowance u/s. 36(1)(iii) - sufficiency of own funds - HELD THAT - Since, assessee has sufficient funds and by following the above decision, no disallowance of interest u/s. 36(1)(iii) of the Act is warranted. Accordingly these grounds raised by the assessee are allowed. Education Cess allowability - Addition u/s 40(a)(ii) - d eductible expenses u/s. 37 - whether the expression any rate or tax levied as it appears in Section 40(a)(ii) includes cess ? - HELD THAT - As decided in SESA GOA LIMITED 2020 (3) TMI 347 - BOMBAY HIGH COURT The CBDT Circular, is binding upon the authorities under the IT Act like Assessing Officer and the Appellate Authority. The CBDT Circular is quite consistent with the principles of interpretation of taxing statute. This, according to us, is an additional reason as to why the expression cess ought not to be read or included in the expression any rate or tax levied as appearing in Section 40(a)(ii) of the IT Act. In the Income Tax Act, 1922, Section 10(4) had banned allowance of any sum paid on account of 'any cess, rate or tax levied on the profits or gains of any business or profession'. In the corresponding Section 40(a)(ii) of the IT Act, 1961 the expression cess is quite conspicuous by its absence. In fact, legislative history bears out that this expression was in fact to be found in the Income Tax Bill, 1961 which was introduced in the Parliament. However, the Select Committee recommended the omission of expression cess and consequently, this expression finds no place in the final text of the provision in Section 40(a)(ii) of the IT Act, 1961. The effect of such omission is that the provision in Section 40(a)(ii) does not include, cess and consequently, cess whenever paid in relation to business, is allowable as deductable expenditure. Disallowance of tax deduction on brand usage royalty - HELD THAT - As relying on own case 2019 (1) TMI 1870 - ITAT MUMBAI the application made by the assessee to RBI for brand usage agreement specifically mentions that the royalty to be remitted is net of taxes. Further, the approval was received from the RBI to remit the royalty on brand usage by the assessee @ 1 % net of taxes. Considering the brand usage agreement vis- -vis. the approval granted by RBI, it can be safely inferred that taxes were liability of J J India under the terms of agreement. The assessee has entered into a commercial arrangement with J J US and it has been so arranged that the payment of taxes have to be borne by the assessee being a commercial arrangement, the same should not be questioned while calculating arms length price. AO is directed to delete the addition Service Tax paid on brand usage royalty paid and on know how royalty paid - HELD THAT - In assessee's own case for the assessment year 2002-03 2014 (2) TMI 978 - ITAT MUMBAI and the Tribunal has held after considering the agreements entered into between the assessee and J J US and also the decision in the case of Dresser Rand India P. Ltd. 2012 (10) TMI 127 - ITAT MUMBAI that the taxes were liability of the assessee company under the terms of agreements and accordingly disallowance made by AO were deleted. Further, we also observe that liability of payment of service tax is of recipient of services and since assessee is the receiver of services, it is the liability of the assessee company to bear service tax. Hence we hold that TPO was not justified to state that liability of bearing service tax was of assessee-company. In view of above, we hold that disallowances made by TPO on account of taxes, services tax is not justified and we direct to delete the same. Disallowance of entire technical know how royalty payment on traded goods - HELD THAT - As decided in own case. 2019 (1) TMI 1870 - ITAT MUMBAI as already held that the agreements between J J India and J J USA for payment of royalty has to be considered in the light of the approval of the RBI. We do not find any substance in the findings of the TPO that there is no need for paying royalty for technical/marketing know-how. We also do not find any force in the findings of the TPO that this royalty is deemed to be included in Brand royalty. The Ld. CTT(A) has rightly considered the relevant clauses of the agreement between J J India and J J USA. We, therefore, do not find any reason to interfere with the findings of the Ld. CIT(A). Disallowance of Tax and R D Cess paid on technical know-how royalty - HELD THAT - As already held elsewhere that royalty payments has been approved by RBI and therefore deserves to be allowed. Accordingly as the payments have been made in the light of the agreement with J J US and as per the approval/guidelines of the RBI, we do not find any reason to disallow the tax and R D Cess paid on technical royalty. We accordingly direct the AO to delete the addition made on this account. Depreciation on testing equipments - HELD THAT - As relying on own case 2014 (3) TMI 254 - ITAT MUMBAI we direct the AO to allow the claim of depreciation on testing equipments
Issues Involved:
1. Adjustment to the total income 2. Adjustment in respect of Advertising, Marketing, and Promotion (AMP) expenditure 3. Adjustment in respect of technical support services, other support services, and pass-through cost 4. Adjustment u/s. 145A of the Act 5. Disallowance u/s. 36(1)(iii) of the Act 6. Short grant of credit of TDS 7. Levy of interest u/s. 234B and 234D 8. Initiating penalty u/s. 274 r.w.s. 271(1) of the Act 9. Levy of interest u/s. 234B and 234D (additional ground) 10. Disallowance of tax deduction on brand usage royalty 11. Service Tax paid on brand usage royalty and know-how royalty 12. Disallowance of entire technical know-how royalty payment on traded goods 13. Restricting technical know-how royalty to 1% in respect of manufactured goods 14. Disallowance of Tax and R & D Cess paid on technical know-how royalty 15. Depreciation on testing equipment Detailed Analysis: 1. Adjustment to the total income: The ground raised by the assessee is general in nature and requires no specific adjudication. 2. Adjustment in respect of Advertising, Marketing, and Promotion (AMP) expenditure: The assessee's grounds 2, 3, and 5 were considered effective, while the remaining grounds were deemed alternative pleas. The Tribunal referenced the decision of the Hon'ble Delhi High Court in Maruti Suzuki India Ltd., which clarified that without an arrangement between the assessee and the AE for incurring AMP expenditure, it cannot be considered an international transaction under section 92B of the Act. The Tribunal ruled in favor of the assessee, allowing grounds 2, 3, and 5. 3. Adjustment in respect of technical support services, other support services, and pass-through cost: The Tribunal noted that the TPO and DRP had not examined the voluminous data submitted by the assessee. Consequently, the matter was restored to the AO/TPO for fresh adjudication on merits, allowing these grounds for statistical purposes. 4. Adjustment u/s. 145A of the Act: This ground was not pressed by the assessee and thus became infructuous. 5. Disallowance u/s. 36(1)(iii) of the Act: The Tribunal followed the decision of the Jurisdictional Bombay High Court in Reliance Utilities, which observed that the assessee had interest-free funds, thus no disallowance u/s. 36(1)(iii) was warranted. The grounds raised by the assessee were allowed. 6. Short grant of credit of TDS: The Tribunal directed the AO to consider the submissions of the assessee and allow the TDS credit after verification as per law, allowing this ground for statistical purposes. 7. Levy of interest u/s. 234B and 234D: These grounds were consequential in nature and thus dismissed as infructuous. 8. Initiating penalty u/s. 274 r.w.s. 271(1) of the Act: This ground was deemed premature and dismissed as infructuous. 9. Levy of interest u/s. 234B and 234D (additional ground): The Tribunal referenced the Hon'ble Bombay High Court's decision in Sesa Goa Ltd., which clarified that education cess is not included in the expression "any rate or tax levied" as per Section 40(a)(ii) of the IT Act. Therefore, the ground raised by the assessee was allowed. 10. Disallowance of tax deduction on brand usage royalty: The Tribunal followed the decision of the Coordinate Bench in the assessee's own case for previous assessment years, rejecting the revenue's contention and dismissing this ground. 11. Service Tax paid on brand usage royalty and know-how royalty: The Tribunal followed the decision in the assessee's own case for previous assessment years, rejecting the revenue's contention and dismissing these grounds. 12. Disallowance of entire technical know-how royalty payment on traded goods: The Tribunal followed the decision in the assessee's own case for previous assessment years, rejecting the revenue's contention and dismissing this ground. 13. Restricting technical know-how royalty to 1% in respect of manufactured goods: The Tribunal followed the decision in the assessee's own case for previous assessment years, rejecting the revenue's contention and dismissing this ground. 14. Disallowance of Tax and R & D Cess paid on technical know-how royalty: The Tribunal followed the decision in the assessee's own case for previous assessment years, rejecting the revenue's contention and dismissing this ground. 15. Depreciation on testing equipment: The Tribunal followed the decision in the assessee's own case for previous assessment years, rejecting the revenue's contention and dismissing this ground. In conclusion, the appeal filed by the assessee was partly allowed, and the appeal filed by the revenue was dismissed.
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