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2022 (1) TMI 1145 - AT - Income TaxChargeability of Royalty from AEs - International transaction as contemplated u/s 92B - Whether there is no international transaction as contemplated u/s 92CA in respect of the alleged royalty chargeable from three Associated Enterprises (AEs) and consequently the order of the CIT (A) upholding the changeability of royalty from three AEs, as alleged by TPO is arbitrary, unjust and bad in law - assessee allowed its associated enterprises to provide assistance in recruitment and imparting technical know-how, etc. and permitted use of its trademark Dabur for sale of products? - HELD THAT - As regards to agreement with Dabur Nepal Pvt. Ltd. Nepal, it is pertinent to note that the issue stands covered in favour of the assessee by the order of the Tribunal in the asssessee s own case in 2017 (4) TMI 1521 - ITAT DELHI for the A.Y. 2006-07, wherein the Tribunal held that no royalty was payable assessee by M/s Dabur Nepal Pvt. Ltd and deleted the addition made by TPO/CIT(A). The facts in the present assessment is also similar and no distinguishing facts were pointed out by the Ld. DR, therefore, the finding of the CIT(A) that royalty @ 2% is to be charged from Dabur Nepal Pvt. Ltd. is not correct and has to be deleted. It is pertinent to note that in this year also the AE was not using the technical know-how or R D support from the assessee, therefore it will be appropriate to charge the royalty @ 0.75% by considering this fact that in the year under consideration the assessee had incurred huge expenses on marketing, advertisement brand building etc. and that in the preceding year the royalty was although charged @ 1% on the products manufactured without R D support and technical know-how from the assessee but the aforesaid expenses were comparability less. Thus, royalty to be charged at 0.75% in respect of agreement with Dabur International UAE. As regards to Asian Consumer Cure Pvt. Ltd. Bangladesh, again it is to be noted that the issue is covered partly in favour of the assessee by the order of the Tribunal in assessee's own case for A.Ys. 2007-08 and 2008-09 in 2021 (2) TMI 1250 - ITAT DELHI Tribunal held that royally @ 0.75% is to be charged from Asian Consumer Care Pvt. Ltd. The facts in the present assessment is also similar and no distinguishing facts were pointed out by the Ld. DR or the Ld. AR, therefore, the finding of the CIT(A) that royalty @ 2% is to be charged from Asian Consumer Care Pvt. Ltd., appears to be not correct. Therefore, following the earlier years order by the Tribunal, we are restricting the said royalty to 0.75% in case of Asian Consumer Care Pvt. Ltd., Bangladesh. CIT(A) sustaining the alleged service fee on account of the corporate guarantee in the case of Dabur Egypt Ltd. on the loans availed from HSBC and NSGB Bank @ 0.50% - The action of the CIT(A) of charging service fee at an ad-hoc rate of 0.513% was not correct and the same has to be restricted to 0.30% as the facts are identical to that of A.Y. 2008-09 and no distinguishing facts were pointed out by the Ld. DR at the time of the hearing. Thus, we direct the Assessing Officer to restrict the service fee @ 0.30%. Deduction u/s 80IB and 80IC without further allocation of the Head Office expenses to various units - In the present assessment year i.e. 2009-10, the assessee had 9 industrial units undertaking manufacturing of products and all these units are eligible for deduction u/s 80IB/80IC, the details are reproduced in page 12 of the assessment order itself. During the year also the assessee claimed the deduction u/s 80IB/80IC as per the details given. These units are eligible for the deduction u/s 80IB/80IC which is identical to that of earlier years i.e. 2007-08 and 2009-10. Hence, the CIT(A) has rightly allowed this deduction. It is pertinent to note that similar allocation of expenses and depreciation made by the Assessing Officer in A.Y. 2008-09 was also deleted by the Tribunal. Disallowance of expenses u/s 14A r.w.r. 8D - HELD THAT - It is pertinent to note that the identical issue of disallowance under Section 14A of the Act in absence of any exempt income has been decided by the Tribunal in the assessee's own case for the A.Y. 2008- 09 2021 (2) TMI 1250 - ITAT DELHI - This issue is also covered in favour of the assessee by various decisions of the Hon ble Delhi High Court wherein it is held that in the absence of any exempt income, no disallowance can be made under Section 14A. Thus, the CIT(A) has rightly deleted the addition of ₹ 5.22 crore under section 14A of the Act. Ground No. 4 of the Revenue s appeal is dismissed. Allowability of ESOP expense under Section 37 and Exemption of excise duty embedded in sales of Glucose Unit, Baddi (HP) - HELD THAT - As in assessee's own case 2021 (2) TMI 1250 - ITAT DELHI again admitted said additional ground and restored the issue to the file of the Assessing Officer with a direction to adjudicate the issue in accordance with the law.
Issues Involved:
1. International Transaction and Royalty Charges 2. Corporate Guarantee Service Fee 3. Deduction under Section 80IB and 80IC 4. Disallowance under Section 14A 5. ESOP Expenses 6. Exempted Excise Duty as Capital Receipt Issue-wise Detailed Analysis: 1. International Transaction and Royalty Charges: The primary contention was whether there was an international transaction under Section 92CA of the Income Tax Act, 1961 concerning the alleged royalty chargeable from three Associated Enterprises (AEs). The assessee argued that no royalty accrued during the year due to the absence of any contract, and the substantial advertisement and marketing expenditures were incurred by the AEs outside India. The Tribunal noted that similar issues in previous years had been resolved in the assessee's favor, where it was held that no royalty was payable by Dabur Nepal Pvt. Ltd. and that the royalty rate for Dabur International Ltd. and Asian Consumer Care Pvt. Ltd. should be restricted to 0.75%. Consequently, the Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal regarding the royalty charges. 2. Corporate Guarantee Service Fee: The issue involved the notional service fee on account of corporate guarantees provided by the assessee to Dabur Egypt Ltd. and Naturalle LLC. The Tribunal observed that in previous years, it had restricted the service fee to 0.30% instead of the higher rates applied by the TPO and CIT(A). The Tribunal followed its earlier decisions and directed the Assessing Officer to restrict the service fee to 0.30% for the relevant assessment year, thereby partly allowing the assessee's appeal and dismissing the Revenue's appeal on this issue. 3. Deduction under Section 80IB and 80IC: The dispute was regarding the allocation of head office expenses and depreciation to various units for computing deductions under Sections 80IB and 80IC. The Tribunal upheld the CIT(A)'s decision, which followed its orders from previous years, stating that the expenses and depreciation should not be allocated to the eligible units as they were either added back by the assessee or not related to the eligible units. The Tribunal dismissed the Revenue's appeal on this issue. 4. Disallowance under Section 14A: The assessee contended that no exempt income was earned during the relevant year, and hence, no disallowance under Section 14A should be made. The Tribunal noted that similar issues in previous years had been resolved in favor of the assessee, where it was held that in the absence of exempt income, no disallowance under Section 14A could be made. The Tribunal upheld the CIT(A)'s decision to delete the disallowance and dismissed the Revenue's appeal on this issue. 5. ESOP Expenses: The assessee raised an additional ground seeking the deduction of ESOP expenses under Section 37, which was initially added back in the computation of income. The Tribunal admitted the additional ground, following its earlier decisions, and remanded the issue to the Assessing Officer to decide in accordance with the law after providing an opportunity of being heard to the assessee. 6. Exempted Excise Duty as Capital Receipt: The assessee raised an additional ground claiming that the exempted excise duty should be treated as a capital receipt not liable to tax. The Tribunal admitted the additional ground, noting that similar issues had been remanded in previous years, and directed the Assessing Officer to adjudicate the issue in accordance with the law after providing an opportunity of being heard to the assessee. Conclusion: The Tribunal partly allowed the appeal of the assessee for statistical purposes and dismissed the appeal of the Revenue. The Tribunal's decisions were largely based on precedents set in previous years for similar issues, ensuring consistency in the application of the law.
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