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2021 (9) TMI 1070 - AT - Income TaxTP adjustment made towards brand development services - brand fees receivable from its AEs towards enhancement of brand value of assessee parent company - HELD THAT - An identical issue has been considered by Tribunal in assessee s own case for the assessment year 2013-14 2021 (9) TMI 1013 - ITAT CHENNAI wherein the Tribunal held that learned TPO as well as learned DRP were erred in making transfer pricing adjustments towards brand services by adopting Spearman s Rank Correlation method and concluded that there is positive accretion between brand value and market capitalization of HMC Korea and hence, directed the AO/TPO to delete transfer pricing adjustment made towards brand development services - Thus we direct the AO/TPO to delete transfer pricing adjustment made towards brand development charges. Disallowances u/s.14A r.w.r 8D - exempt income earned - HELD THAT - An identical issue has been considered by Tribunal in assessee s own case for the assessment year 2013-14 2021 (9) TMI 1013 - ITAT CHENNAI wherein the Tribunal by following the decisions of Pr.CIT vs. State Bank of Patiala, 2018 (11) TMI 1565 - SC ORDER And Marg Ltd., 2020 (10) TMI 102 - MADRAS HIGH COURT directed the AO to restrict disallowances u/s.14A of the Act, to the extent of exempt income earned for the impugned assessment year - Thus we direct the AO to restrict disallowance u/s.14A to the extent of exempt income earned for the impugned assessment year. Disallowance of depreciation on capital subsidy - assessee has treated subsidy received from SIPCOT as capital receipt and did not reduce the same from cost of assets, as it was not directly or indirectly used to purchase any asset - As per AO subsidy was directly or indirectly used to purchase of asset and as per explanation (10) to section 43 the same needs to be deducted from cost of assets and consequently, reworked depreciation by reducing amount of subsidiary and disallowed a sum - HELD THAT - As decided in own case 2021 (9) TMI 1013 - ITAT CHENNAI considering nature of subsidy has allowed claim of the assessee by observing that for earlier years, the CIT(A) has allowed claim of the assessee and the AO has accepted decision of the CIT(A) and deleted additions, while passing order giving effect to the order of the CIT(A). Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete addition made towards disallowance of depreciation on capital subsidy received from SIPCOT. Disallowance u/s.43B(c) in respect of performance incentive paid to employees - As argued said payment is neither bonus nor commission and thus, same cannot be brought within the ambit of provisions of section 36(1)(ii) r.w.s.43B(c) - HELD THAT - As decided in own case 2021 (9) TMI 1013 - ITAT CHENNAI tribunal has held that payment made to an employee which is in the nature of bonus or commission for services rendered is covered u/s. 36(1)(ii) of the Act, and thus, if such payment is not made on or before due date of filing of return of income u/s.139(1) of the Act, then same cannot be allowed as deduction, as per section 43B(c). Addition towards VAT incentive received from Government of Tamil Nadu - assessee has treated above incentive as revenue receipt both for its books of account and its tax returns - during the course of assessment proceedings, the assessee has raised a fresh claim to treat incentive as capital receipts not chargeable to tax AND AO has not adjudicated fresh claim made by the assessee - HELD THAT - We find that the Tribunal had considered an identical issue for assessment years 2011-12 2013-14 2017 (4) TMI 1193 - ITAT CHENNAI , where the issue has been remanded back to the file of AO to consider the issue denovo on merits in accordance with law. Facts being identical for the year under consideration, by following the decision of Tribunal in assessee s own case for assessment years 2011-12 2013-14, we set aside the issue to file of the AO and direct him to reconsider the issue in accordance with law. Deduction towards education and secondary education cess u/s.37(1) - HELD THAT - As in assessee s own case for assessment year 2013-14 in 2021 (9) TMI 1013 - ITAT CHENNAI wherein the Tribunal held that there is merit in the additional ground filed by the assessee requesting deduction for education cess secondary and higher education cess as business expenditure deductible u/s.37(1) of the Act and had set-aside the issue to the file of the Assessing Officer - issue emanates from additional grounds of appeals filed by the assessee, we set-aside the issue to file of the AO to re-examine the issue as per the directions given by the Tribunal for the assessment year 2013-14 and also direct him to follow the ratio laid down in the case of CIT vs. Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT . Characterization of Income - revenue or capital reciept - amount received from Focus Market Scheme to be treated as capital in nature and exclude from total income - HELD THAT - Tribunal in assessee s own case for assessment year 2013-14 2021 (9) TMI 1013 - ITAT CHENNAI wherein the Tribunal held that duty credit scrips received from Govt. of India under Focus Market Scheme is revenue in nature - we are of the considered view that subsidy received from Govt. of India under Focus Market scheme cannot be considered as capital in nature and hence, we reject ground taken by the assessee.
Issues Involved:
1. Transfer pricing adjustment for brand development services. 2. Disallowance under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules. 3. Disallowance of depreciation on capital subsidy. 4. Disallowance of performance reward under section 43B of the Income Tax Act. 5. Treatment of VAT incentive as capital receipt. 6. Deduction of education cess and secondary & higher education cess under section 37(1) of the Income Tax Act. 7. Treatment of export incentives under the Focus Market Scheme as capital receipt. Detailed Analysis: 1. Transfer Pricing Adjustment for Brand Development Services: The Tribunal considered the issue of transfer pricing adjustment made towards brand development services. The TPO had made an upward adjustment of ?212,26,60,000/- attributing notional income towards deemed brand development. The Tribunal noted that this issue was covered in favor of the assessee by its own decisions for previous assessment years (2009-10 to 2013-14). The Tribunal reiterated that in the absence of a mutual agreement or arrangement between the assessee and its AEs, there could be no international transaction for brand development. The Tribunal directed the AO/TPO to delete the transfer pricing adjustment made towards brand development services. 2. Disallowance under Section 14A read with Rule 8D: The Tribunal addressed the disallowance of ?86,57,636/- under section 14A read with Rule 8D, which pertained to expenses related to exempt income. The Tribunal referred to its previous decision for the assessment year 2013-14, where it was held that disallowance under section 14A should be restricted to the extent of exempt income earned. The Tribunal directed the AO to restrict the disallowance to the extent of exempt income earned for the impugned assessment year. 3. Disallowance of Depreciation on Capital Subsidy: The Tribunal examined the disallowance of depreciation on capital subsidy received from SIPCOT. The AO had reduced the subsidy from the cost of fixed assets, leading to a disallowance of ?1,46,570/-. The Tribunal referred to its previous decisions for assessment years 2006-07 and 2013-14, where it was held that the subsidy received from SIPCOT was a capital receipt not liable for tax. The Tribunal directed the AO to delete the disallowance of depreciation on capital subsidy. 4. Disallowance of Performance Reward under Section 43B: The Tribunal considered the disallowance of performance reward amounting to ?13,63,08,261/- under section 43B. The AO had disallowed the performance reward on the grounds that it was not paid before the due date of filing the return of income. The Tribunal referred to its previous decision for the assessment year 2013-14, where it was held that performance incentive paid to employees is covered under section 36(1)(ii) and section 43B(c). The Tribunal upheld the disallowance made by the AO. 5. Treatment of VAT Incentive as Capital Receipt: The Tribunal examined the issue of VAT incentive received from the Government of Tamil Nadu, amounting to ?58,40,12,807/-. The assessee had treated the incentive as revenue receipt but later claimed it as a capital receipt not chargeable to tax. The Tribunal referred to its previous decisions for assessment years 2011-12 and 2013-14, where the issue was remanded back to the AO for reconsideration. The Tribunal set aside the issue to the AO for reconsideration in accordance with the law. 6. Deduction of Education Cess and Secondary & Higher Education Cess under Section 37(1): The Tribunal addressed the issue of deduction of education cess and secondary & higher education cess under section 37(1). The Tribunal referred to the decision of the Hon'ble Bombay High Court in the case of Sesa Goa Ltd., where it was held that education cess is an allowable expenditure. The Tribunal set aside the issue to the AO for re-examination in light of the decision of the Hon'ble Bombay High Court. 7. Treatment of Export Incentives under the Focus Market Scheme as Capital Receipt: The Tribunal considered the issue of export incentives received under the Focus Market Scheme, amounting to ?177,83,10,104/-. The assessee claimed the incentive as a capital receipt not chargeable to tax. The Tribunal referred to its previous decision for the assessment year 2013-14, where it was held that the duty credit scrips received under the Focus Market Scheme are revenue in nature. The Tribunal upheld the treatment of the export incentives as revenue receipts and rejected the assessee's claim. Conclusion: The Tribunal provided a detailed analysis of each issue raised in the appeal. It upheld the assessee's claims on transfer pricing adjustment, disallowance under section 14A, and depreciation on capital subsidy. However, it upheld the AO's disallowance of performance reward under section 43B and the treatment of export incentives as revenue receipts. The Tribunal remanded the issues of VAT incentive and education cess back to the AO for reconsideration.
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