2024 (3) TMI 943 - AT - Income Tax

TP Adjustment - assessee has issued the corporate guarantee on behalf of AE s - TPO has applied the interest saved approach i.e. interest saved by the AE s on account of corporate guarantee given by the assessee and based on this approach the TPO has computed the guarantee fees in the hands of the assessee @ 75% of interest saved - HELD THAT - After giving a thoughtful consideration to the orders of the coordinate Bench for earlier AYs we are of the considered view that the basis of interest split benefit between guarantor and borrower is 50 50 basis, therefore, we direct the AO to restrict the addition by splitting the interest benefit for the year under consideration on 50 50 basis. In our considered view whatever mistake which has happened inadvertently in earlier years cannot be allowed to perpetuate indefinitely. Considering the fact that the coordinate Bench has principally decided the split on 50 50 basis. Ground 1-5 allowed. TP adjustment on account of royalty - TPO/ CIT(A) held charge of brand royalty of 0.75% in the case of Dabur International Limited and 2% composite royalty in case of Asian Consumer Care Ltd. - HELD THAT - Following the aforesaid decision of the ITAT in assessee's own case 2022 (10) TMI 219 - ITAT DELHI A.Y. 2010-11 we direct that in case of Dabur Nepal (P) Ltd., royalty is quantified at nil, the case of Dabur International UAE, royalty is quantified at 0.75% of FOB sales. Disallowance on account of delay in deposit of ESI / EPF - HELD THAT - This issue is now squarely covered in favour of the revenue and against the assessee by the decision of Check Mate Services Private Limited 2022 (10) TMI 617 - SUPREME COURT Addition u/s. 43B based on audit report - HELD THAT - As seen from the chart the liability as on the first day of the previous year was Rs. 227754220/- out of which Rs. 160073926/- were paid during the year and Rs. 67156645/- was not paid during the year which means that this amount was never charged to the P L account, therefore, there is no question of any disallowance. We have verified from the computation of income and we are of the considered view that there is no need of addition which we direct the AO to delete. Addition for change of accounting policy - HELD THAT - In the computation of income the assessee has made addition on account of instrumeny hedging adverse currency fluctuation against of balance sheet exposer in FG Rs. 52,93,552/- which means the assessee has already added the loss and that there was no need of any further addition by the AO. We accordingly direct the AO to delete the addition. Deduction as capital subsidy on statutory exemption from payment of excise duty - HELD THAT - Respectfully following the decision of the Coordinate Bench in 2021 (2) TMI 1250 - ITAT DELHI for A.Y. 2008- 09 we hold accordingly and direct the AO to decide the issue fresh after affording a reasonable and adequate opportunity of being heard to the assessee. Notional interest imputed on trade receivables - assessee interalia raised invoices on account of sales made to its associates enterprises - TPO recharacterized the delay in receipt of receivables as deemed unsecured loans advanced to the AE and sought to impute notional interest on the delay in receipt of receivables @ 12.65% and made addition - CIT(A) accepted it to be an international transaction but since no interest was charged on receivables due from unrelated parties, the CIT(A) deleted the addition - HELD THAT - We find that an identical quarrel was considered by this Tribunal in assessee s own case 2022 (10) TMI 219 - ITAT DELHI in A.Y. 2010-11 and 2011-12 wherein held as not in agreement with the submission of Ld. DR. It is no doubt that after the amendment, receivables are an international transaction which needs to be benchmarked separately but as rightly pointed out by the ld. CIT(A) above that margin of the assessee both in FMCG and non-FMCG segment is much higher than the comparables. Hence, since benchmarking under both the segments has been accepted in the transfer pricing, we do not find any infirmity in the order of ld. CIT(A) that there is no reason to separately benchmark receivables. Direction to re-compute the deduction 80IB and 80IC of the Act without further allocation of the head office expenses - HELD THAT - CIT(A) following the principal of consistency followed the order of his predecessor for the assessment year 2007-08 2008-09 2021 (2) TMI 1250 - ITAT DELHI 2009-10 2017 (12) TMI 934 - DELHI HIGH COURT .wherein as find no infirmity in the order of the CIT(A) reversing the action of the AO in allocating the head office expenses and depreciation to various eligible units for the purpose of recomputing the deducting u/s 80IB/80IC. The factual finding of the ld.CIT(A) that the assessee has added back the depreciation as per Companies Act, 1956 and claimed depreciation as per the Income-tax and, therefore, the AO was wrong in allocating the difference of depreciation available under the Companies Act and the Income-tax Act to the eligible units could not be controverted by the ld. DR. Similarly, the ld. DR also could not controverted the factual finding given by the CIT(A) that expenses aggregating to Rs. 1,563.02 lakhs being head office expenses were suo motu disallowed by the assessee and added back in the computation of income and once these expenses were claimed by the assessee the same cannot be allocated to the eligible units for computation of deduction u/s 80IB/80IC and, therefore, cannot be allocated to the eligible units. Addition made u/s. 14A r.w.r. 8D - Exempt income earned or not? - HELD THAT - The facts on record show that the assessee has not earned any exempt income during the year under consideration, therefore, the ratio laid-down by the Hon ble High Court of Delhi in the case of Cheminvest 2015 (9) TMI 238 - DELHI HIGH COURT and Cortech Energy Limited. 2014 (3) TMI 856 - GUJARAT HIGH COURT squarely apply and respectfully following the same no interference is called for ground No.7 is also dismissed. TDS u/s 194H - Addition u/s. 40(a)(ia) - assessee has incurred an expenditure on account of bank guarantee commission/ fee for alleged failuer to deduct tax at source - HELD THAT - We find that the issue is squarely covered by the decision of Hon ble Jurisdictional High Court of Delhi in the case of JDS Apparels 2014 (11) TMI 732 - DELHI HIGH COURT wherein the Hon ble Court has held that amount charged by bank as a fee for rendering banking services to its client could not be treated as commission or brokerage u/s. 194H of the Act. Deduction u/s. 80G - assessee has claimed deduction being 50% paid as donation to various trust/ organizations - AO denied the claim of exemption holding that the organizations did not have valid 80G certificates - When the certificates were produced before the CIT(A) he refused to admit the same as they were not produced before the AO - HELD THAT - We are of the considered view that the CIT(A) ought to have admitted the evidences. In the interest of justice and fair play we restore this issue to the files of the AO. The assessee is directed to furnish the certificates of eligibility and the AO is directed to consider the same and decide the issue as per the provisions of the law.

Summary

Issues Involved:
1. Corporate Guarantee Fee
2. Transfer Pricing Adjustment on Account of Royalty
3. Disallowance on Account of Delay in Deposit of ESI/EPF
4. Addition u/s. 43B Based on Audit Report
5. Addition for Change of Accounting Policy
6. Claim of Deduction as Capital Subsidy on Statutory Exemption from Payment of Excise Duty
7. Notional Interest Imputed on Trade Receivables
8. Re-computation of Deduction u/s. 80IB and 80IC
9. Addition u/s. 14A r.w.r. 8D
10. Addition u/s. 40(a)(ia) for Bank Guarantee Commission/Fee
11. Claim of Deduction u/s. 80G

Summary:

1. Corporate Guarantee Fee:
The Tribunal addressed the issue of corporate guarantee fees for Dabur Egypt Ltd., Dabur International Ltd., UAE, Dermoviva Essentials Inc., USA, and Dabur Sri Lanka Pvt. Ltd. The TPO's interest saved approach was modified to a 50:50 split of interest savings between the assessee and the AEs, reducing the service fee to 0.30% for Dabur Egypt Ltd. and similar adjustments for other entities. The Tribunal upheld this 50:50 split for the years under consideration.

2. Transfer Pricing Adjustment on Account of Royalty:
The Tribunal examined the TPO/CIT(A)'s imposition of brand royalty charges of 0.75% for Dabur International Ltd. and 2% for Asian Consumer Care Ltd. It was held that the royalty should be charged at 0.75% for both entities, following the Tribunal's earlier decisions and the principle of judicial discipline.

3. Disallowance on Account of Delay in Deposit of ESI/EPF:
The Tribunal upheld the disallowance based on the Supreme Court's decision in Check Mate Services Private Limited, which ruled against the assessee on this issue.

4. Addition u/s. 43B Based on Audit Report:
The Tribunal found that the amount of Rs. 67156645/- was not charged to the P&L account and directed the AO to delete this addition, as it was not warranted.

5. Addition for Change of Accounting Policy:
The Tribunal directed the AO to delete the addition of Rs. 63 lacs, as the assessee had already accounted for the loss due to adverse currency fluctuation in its computation of income.

6. Claim of Deduction as Capital Subsidy on Statutory Exemption from Payment of Excise Duty:
The Tribunal remanded the issue back to the AO for fresh consideration, following the principles set in earlier years.

7. Notional Interest Imputed on Trade Receivables:
The Tribunal upheld the CIT(A)'s deletion of the notional interest imputed on trade receivables, as the assessee's net margin was higher than comparables, and there was no need for separate benchmarking of receivables.

8. Re-computation of Deduction u/s. 80IB and 80IC:
The Tribunal upheld the CIT(A)'s decision to not allocate head office expenses and depreciation to eligible units for computing deductions under sections 80IB and 80IC, following the principle of consistency and earlier Tribunal decisions.

9. Addition u/s. 14A r.w.r. 8D:
The Tribunal upheld the deletion of the addition made by the AO under section 14A, as there was no exempt income during the year under consideration.

10. Addition u/s. 40(a)(ia) for Bank Guarantee Commission/Fee:
The Tribunal upheld the CIT(A)'s deletion of the addition, following the Delhi High Court's decision in JDS Apparels, which ruled that bank guarantee fees are not subject to TDS under section 194H.

11. Claim of Deduction u/s. 80G:
The Tribunal remanded the issue back to the AO to verify the 80G certificates and decide the claim of deduction accordingly.

Conclusion:
The appeals were allowed in part for statistical purposes, with several issues remanded back to the AO for fresh consideration based on the principles established in earlier years and judicial discipline. The Tribunal's decisions were consistent with the earlier rulings and upheld the CIT(A)'s findings on most issues.